dimensions april 2016

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DIMENSIONS - April 2016 13 May 2016

SERVICE TAX Case Laws Space booked on ships by exporter and freight received on principal-to-principal basis not a taxable service The appellant handles the logistics of exporters and for delivery to the consignee and is registered as a ‘multimodal transport operator' with the Director General of Shipping. The appellant entered into a contract with shipping lines through a steamer agent for the carriage of cargo by sea. Ocean freight was paid to the steamer agent acting on behalf of the shipping lines. The appellant collected ocean freight from the exporter. The difference between the two was recorded as “surplus ocean freight” in the books of account. During the audit conducted by the department, the books were scrutinised and the surplus ocean freight was considered to be taxable under the category “Business Auxiliary Services” as “promotion or

marketing of the service of the client”. The appellant contended that the activity conducted was a trading activity i.e. purchase and sale of slots for ocean transport of container to the exporter. These slots were pre-booked by the appellant and were sold to the exporter on demand, for which consideration was received by the appellant. Any un-sold space in the vessel was a cost to the appellant. Further, the appellant took responsibility for the safety of goods and issued a document entitled the ‘multi-modal bill of lading’. The Tribunal held that the service provided by the appellant did not amount to service falling under the category “Business Auxiliary Services” as the activity provided by the appellant was on a principal-to-principal basis and freight charges were the consideration for space procured. Further, the payment of freight to shipping lines and the collection of freight from exporter were two independent transactions, and the notional surplus arose from the activity of the purchase and sale of


space and not from the appellant acting as an agent. Dhruva Comments: This judgement gives relief to the freight carrier, which receives freight on the sale of slots to the exporter in its his own capacity i.e. on a principal-to-principal basis. The freight carrier issues a bill of lading, in its own name, for taking the goods outside India, which makes it clear that there is no intention to market/promote the goods of the exporter or any such related service. To qualify the service as “Business Auxiliary Services”, there should be a tri-partite transaction, whereas in the present case there are two independent transactions involving two parties each. The confusion in the present case arose as the difference between freight collected and freight paid was recorded in the books as “ocean freight surplus”. Had the books of accounts disclosed freight income and freight expenditure separately in the profit and loss account, maybe the issue/confusion would not have arisen in the first place. Greenwich Meridian Logistics (India) Pvt. Ltd. vs Commissioner of Service Tax Mumbai [2016 (4) TMI 547-CESTAT Mumbai] Distribution of credit on pro rata basis not applicable prior to 2012 The respondent operated three units under common management, in Jaipur, Manesar and Niwai, of which Jaipur was their Head Office (‘HO’). They were engaged in the manufacture of ball bearings and axle boxes, falling under Chapters 84 and 86 of the Central Excise Tariff Act, 1985, at all three of their units. The respondent claimed CENVAT credit of Service Tax paid on common input service expenses such as selling commission, royalty, consultancy and professional, banking charges, audit fees, Annual Maintenance charges etc. The invoices of the input services were addressed to their HO and the HO, then distributed the credits to their other units in terms of Rule 7 of CENVAT Credit Rules, 2004 and the recipient units

utilized them to discharge Excise Duty/Service Tax liabilities. The question before the Rajasthan High Court was whether such common credits can be allowed to be distributed to other units without pro rata distribution. The Rajasthan High Court held that the three units of the respondents had been proved to have common management and the department could not prove otherwise. The company, having a common management, was entitled to distribute the credit availed by the HO, in terms of Rule 7 read with Rule 2(m) of the CENVAT Credit Rules, 2004, subject to the conditions laid down in Rule 7. With regard to the pro rata distribution of credit, the High Court held that, as clause (d) of Rule 7, prescribing the pro rata distribution of credit, was inserted much later than the relevant time, such a provision could not be applied retrospectively in the case of the respondents. Dhruva Comments: The Rajasthan High Court in this case concluded that, during the relevant period, the restriction of distributing credit on a pro rata basis did not exist, and therefore credits could be distributed to any unit subject only to the two conditions that existed then, i.e. firstly, the credit distributed should not exceed the amount of Service Tax paid and secondly, credit for Service Tax pertaining to services used exclusively for the manufacture of exempted goods or for the provision of exempted services should not distributed. The taxpayer could distribute the credit to any/all the units in such proportion as they deemed necessary. It was only post-2012, that the methodology for the pro rata distribution of credit was introduced and therefore this could not be applied for credits distributed prior to 2012. Commissioner Central Excise Commissionrate, Jaipur vs National Engineering Industries Ltd. [2016 (5) TMI 12 – RAJASHTHAN HIGH COURT]


VALUE ADDED TAX Case Laws Supplies to DMRCL under works contract qualifies as sale in the course of import and inter-state trade so as to qualify for exemption from Delhi VAT ABB Ltd. (the assessee) had entered into a works contract with Delhi Metro Railway Corporation Ltd. (DMRCL) for supply, installation, testing and commissioning of traction electrification, power supply, power distribution and SCADA system in Delhi. For execution of the said works contract, the assessee made imports as well as inter-state purchases. The assessee claimed exemption under the provisions of Delhi VAT on its deemed sale, treating it as a sale in the course of imports and inter-state trade. The same was, however, disallowed by the assessing authorities as well as the Tribunal by recording a finding that there was no link between DMRCL and the supplier of goods imported by assessee and on account of lack of privity of contract. Aggrieved, the assessee approached the High Court (HC), wherein all the relevant facts, contract terms, conditions and stipulations were analysed in detail. The HC observed that the import of goods by the assessee was strictly as per the requirements and specifications set out by DMRCL in the contract, suppliers were identified by DMRCL, and that DMRCL had the right of testing, inspection and rejection of such goods and concluded that the imports by the assessee were occasioned by contract of the assessee with DMRCL. HC also relied on the Constitution Bench’s decision of Apex Court in the case of K.G. Khosla & Co. vs. Deputy Commissioner of Commercial Taxes, Madras [(1966) 3 SCR 352]. Thus, the exemption of sale in the course of imports was allowed. Similarly, with respect to inter-state sales, HC noted that the contract clearly envisaged inter-state movement of

goods and that DMRCL was fully aware of such movement and held such sales as inter-state sales falling under Section 3(a) of CST Act. Against the HC order, Revenue filed an appeal before the Supreme Court (SC) contesting that the HC’s order is based on erroneous interpretation of the Apex Court decision in the case of K.G. Khosla supra. It further held that the current case is squarely covered by the subsequent Constitution Bench decision of Apex Court in the case of Binani Bros (P) Ltd vs. Union of India & Ors. [1974 1 SCC 459], where the claim of sales in the course of import was disallowed by the court. The SC noted that the facts of the current case were different from the Binani Bros case, as in the instant case there was a right of rejection by DMRCL which was absent in the case of Binani Bros. Further, the SC agreed with the reasonings provided by the HC and held that the decision of K.G. Khosla is squarely applicable to the present case. The SC also concurred with the view of the HC with regard to inter-state sales which was pronounced after considering various SC decisions on the matter. Dhruva Comments: This decision reiterates the principles laid down by the Hon’ble Supreme Court in its various earlier judgements in relation to sale in the course of import and inter-state sales under Section 3(a) of the CST Act. Commissioner, Delhi Value Added Tax vs M/s ABB Ltd. [2016-TIOL-41-SC-VAT]

Assessee claiming input tax credit not obliged to take any responsibility for his seller’s valid registration Maple Exports Pvt Ltd. (assessee), an exporter, had applied for refund of its input tax credit in excess of Rs. 1 crore. The assessee claimed to have made purchases from two registered dealers, viz. Eco Tanners and Leather Enterprises. However, the claim of the assessee was rejected in terms of Section 22(12)(db) of the West Bengal Value Added Tax Act, 2003 on the grounds that dealers from whom


goods were purchased by Eco Tanners were non-existent, while there was no dealer called Leather Enterprises at the address indicated on its tax invoice which was submitted by the assessee. Aggrieved, the assessee filed a writ petition challenging the validity of the impugned section, arguing that it obliges a dealer to do something beyond his control. The HC observed that as on date both the dealers appeared as existing registered dealers on the website of the Directorate of Commercial Taxes under the Department of Finance, Government of West Bengal and that the said dealers had also filed returns up to June 2015. Further, the HC also stated that the impugned section does not cast responsibility on the dealer to check the authenticity of the purchases made by its seller. Accordingly, the writ petition was allowed and the matter was remanded for fresh consideration. As regards the question of constitutional validity of Section 22(12)(db), HC left the issue open for future, stating that the vires of the section are not required to be questioned for the purpose of the present adjudication. Maple Exports Pvt Ltd. vs Additional Commissioner, Sales Taxes Central Refund Unit & Ors [2016-TIOL-538-HC-KOL-VAT] TFT / LCD / LED monitors classifiable as ‘Monitors’ under Entry 41A to Schedule III of Delhi VAT; Default assessment notices issued are invalid when returns filed are complete and correct Samsung India Electronics Pvt Ltd. (Samsung/ Company), engaged in sale of electronic goods, IT products etc., had sold TFT / LCD / LED monitors @ 5% VAT by classifying them in Entry 41A of Schedule III. Audit proceedings of the Company were conducted and thereafter a letter was issued to the Company seeking certain details of sales of TFT / LCD / LED monitors. Subsequently, 12 default assessment notices were issued to Samsung for

recovery of differential tax and interest, by alleging that the said items are covered under residuary entry and not under Schedule III and as such are liable to tax @ 12.5%. The Company filed a writ petition against the impugned notices, wherein the main contentions of the Company were as follows: Default assessment notices (10 out of 12) were

time-barred as the returns filed by Company were originally accepted by the department;

Audit proceedings conducted on the Company did not point out any discrepancies;

The Company is not bound by an order of determination of question sought by another assessee;

No show cause notice was issued to the Company to seek explanation why TFT / LCD / LED monitors should not be taxed @ 12.5%;

In case of multiple classification, interpretation that favours the assessee should be preferred.

Upon considering submissions of both parties, the HC made the following observations: Once a return is filed within the prescribed

date and complies with all requirements, it is deemed to have been assessed by the Commissioner on such date and is treated as a notice of assessment as per Section 31(1);

Since, Samsung had filed all returns in compliance with the provisions, the same would amount to assessment by the Commissioner;

In such case, the time limit of 4 years would apply from the date of filing of returns and not from the end of the financial year. Accordingly, notices for April 2009 – January 2010 were held as time-barred;

Default assessment notices cannot be issued in cases where returns are filed and are compliant in all respects, as already held in the case of H.M. Industries v. Commissioner of Value Added Tax [2014-TIOL-1877-HC-DEL-VAT];


HC reiterated the principle that, if in classification of goods two views are possible, the one favouring the assessee has to be preferred. Since the department is unable to provide any reason for not classifying the impugned items under Entry 41A Sr. no. 3 to Schedule III i.e. as monitors, they cannot be classified under the residual category to attract higher tax rate. The item ‘monitor’ is wide enough to cover all types of monitors unless specifically excluded;

The determination order in the case of other assessees is not binding on the Company. Samsung India Electronics Pvt Ltd vs

Government of NCT of Delhi and Ors. [2016-TIOL-725-HC-DEL-VAT] Notifications & Circulars Maharashtra Introduction of Amnesty scheme Maharashtra Settlement of Arrears in Disputes Act, 2016 has been introduced to unlock the arrears in dispute pending at various appellate forums under the following legislations: Maharashtra Value Added Tax Act, 2002; Central Sales Tax Act, 1956; Maharashtra Tax on Entry of Motor Vehicles

into Local Areas Act, 1987; Maharashtra Tax on the Entry of Goods into

Local Areas Act, 2002; Maharashtra Tax on Luxuries Act, 1987; Maharashtra Purchase Tax on Sugarcane Act,

1962; Maharashtra State Tax on Professions, Trades,

Callings and Employments Act, 1975; Bombay Sales of Motor Spirit Taxation Act,

1958 (since repealed); Bombay Sales Tax Act, 1959 (since repealed); Maharashtra Sales Tax on the Transfer of the

Right to use any Goods for any Purpose Act, 1985 (since repealed);

Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contract (Re-enacted) Act, 1989 (since repealed).

Major highlights of the scheme are as follows: The scheme is applicable in respect of

statutory orders pertaining to the period up to 31 March 2012, where an appeal has been filed and stay has been granted before 30 September 2016;

Application in Form-I under the scheme for settlement of arrears is to be made up to 30 September 2016 and should be accompanied by proof of payment required to be made under the scheme;

The applicant also needs to pay the undisputed amount in respect of the statutory order for which the waiver is sought;

For availing benefit of the scheme, an appeal pending before an Appellate authority, Tribunal or court needs to be withdrawn on or before 30 September 2016;

The Amnesty scheme can be availed even for some issues pending in appeal and not all issues in an appeal;

There will be no refund of any amount in dispute paid prior to the commencement of this Act or paid under this Act;

Relief to be granted under the Amnesty scheme is as below:

Particulars Amount to be paid under the scheme

Waiver granted Tax period prior to 1 April 2005

Entire amount of disputed tax Entire interest and penalty Tax period from 1 April 2005 to 31 March 2012

Entire tax disputed and 25% of disputed interest after reducing part payment made at the time of filing of appeal

Balance interest and entire penalty


An order of rejection of application due to defects is appealable before the Deputy Commissioner / Additional Commissioner within 60 days of receipt of the order;

However, no appeal is allowed against an order of settlement;

Settlement order passed is open for review by the Commissioner within 12 months from the date of the service of order.

Maharashtra Settlement of Arrears in Disputes Act, 2016 (Maharashtra Act No. XVI of 2016) Circular on Maharashtra Settlement of Arrears in Disputes Act, 2016 A detailed circular has also been issued to explain the salient features and procedural aspects of the Maharashtra Settlement of Arrears in Disputes Act, 2016. Trade Circular No. 10T of 2016 dated 3 May 2016 Modification of CST return

Changes have been made in the CST return Form III(E).

Notification no. CST. 1516/CR-45/Taxation-1.- dated 22 April 2016

FAQs on return filing under new automation system

A list of 59 FAQs has been issued by Maharashtra VAT department in relation to filing of returns under the new automation system.

http://mahavat.gov.in/Mahavat/HomeController?value=/MyFold/WHATS%20NEW/whatsnew.html Chhattisgarh

Reduction in the VAT rate to 5% for following products for the period 1 April 2016 to 31 March 2017:

Ceramic and vitrified tile Weighing equipment Machinery and equipment used in the

execution of civil works contracts and road construction, such as: All type of cranes All types of excavators & rock breakers Batching plant (concrete mixture plant) Compressor and driving rig Concrete pumps Road rollers Soil compactors Concrete mixer machines, etc.

Notification F-10-25/2016/CT/V (52) dated 21 April 2016 Exemption from VAT, CST and Entry tax Exemption from whole of VAT, CST and Entry

tax is granted to dealers establishing a unit in the state under the Electronics, IT and ITeS Investment Policy of Chhattisgarh, 2014–19;

Such exemption is granted for a period of 5 years in case of VAT and 10 years in case of CST / Entry tax from the date of commencement of commercial production or up to the date of introduction of GST, whichever is earlier.

Notification nos. F-10-14/2016/CT/V (48), (49) and (50) dated 13 April 2016 Himachal Pradesh Reduction in penalty in following cases: False claim of input tax credit in returns which

a dealer is not entitled to – penalty reduced from twice the amount of input credit to an amount equal to the input credit;


Incorrect claim of input tax credit in returns –penalty reduced from 50% of the amount of input credit to 25% of the amount of input credit.

Himachal Pradesh Value Added Tax (Amendment) Bill, 2016 (Bill No. 7 of 2016) CENTRAL EXCISE Case Laws Installation of new plant and machinery in existing plot of land does not thwart benefit of area-based exemption The applicant was enjoying area-based Central Excise Duty exemption under Notification No. 50/2003 C.E. dated 10 June 2003 (the ‘2003 Notification’). The applicant proposed substantial expansion by installing additional plant and machinery and constructing new building (the ‘proposed unit’/‘proposed expansion’). Further, they would obtain a separate factory license, E.S.I. and P.F. Code and would separate the existing unit from the proposed unit by putting a wall in between the two and maintain a separate series of invoices. However, the excise return and service tax return for the units would be filed in a consolidated manner as the substantial expansion was proposed to take place on the same plot. Advance ruling was sought as to whether the proposed expansion was eligible for area-based exemption under the 2003 Notification. The Revenue averred that the proposed unit would result in an altogether different unit from the existing one and hence could not be termed as an expansion. Further, the proposed unit would come into existence after the sun-set clause and would not be eligible to enjoy the benefit of the exemption. The applicant placed reliance on Circular No. 939/29/2010-CX dated 22 December 2010, which clarifies that the 2003 Notification does not restrict

exemption to an addition/modification in the plant and machinery or to the production of new products by eligible units after the cut-off date and during the exemption period. Further, reliance was placed on the subsequent Circular No. 960/03/2012-CX dated 17 February 2012, which clarifies that a unit enjoying exemption under the 2003 Notification can even expand by acquiring a plot of land adjacent to its existing premises and installing new plant/machinery, and the exemption will be available on such increased production. Accordingly, the applicant averred that where the benefit of the exemption could be extended to an expansion within an adjacent plot of land, then similar expansion within the existing unit ought to be within the purview of the 2003 Notification. The Authority of Advance Ruling (‘AAR’) dispelled the Revenue’s contention and subscribed to the submission of the applicant that the proposed unit fell within the realm of the existing unit on the basis of the clarification contained in Circular No. 960/03/2012-CX dated 17 February 2012. Further, the AAR observed that the production in the existing unit commenced prior to the cut-off date. Hence, in light of the Circular dated 17 February 2012, the applicant was eligible for exemption. The AAR determined that it would be a retrograde step and not in consonance with the Governmental policy not to allow the existing unit to grow in the existing plot of land, by the installation of new plant and machinery. Accordingly, the benefit of the 2003 Notification was held to be available to goods manufactured from the proposed expansion. Dhruva Comments: This ruling provides relief to assessees who seek to extend the benefit of area-based exemption under the 2003 Notification, for the residual period, by expanding production capacities for new products within the existing unit. It is relevant to note that an advance ruling is binding only on the applicant/department in the particular case concerned, but nonetheless has persuasive value


with respect to similar activities carried on by other assessees. M/s LAKHANI FOOTWEAR PVT LTD vs COMMISSIONER OF CUSTOMS (CE&ST) DEHRADUN [2016-TIOL-10-ARA-CX] Supplies to intermediary contractor executing projects funded by International Organization are eligible for Central Excise Duty exemption The assessee was engaged in the business of manufacturing and selling computers. The assessee had cleared personal computers manufactured by it for a project known as the ‘Second Health Systems Development Project’ for implementation by the Government of West Bengal. The assessee had cleared such goods claiming exemption from Central Excise Duty under Notification No. 108/95-CE dated 28 August 1995 (the ‘1995 Notification’). The Revenue authorities objected to the exemption claimed by the assessee and the matter traversed to the Hon’ble Madras High Court. The appeal was admitted by the court on the following substantial questions of law: Whether it is right to grant exemption, when the goods were not supplied either to the project or to the International Organization funding the project but were supplied to the individual contractors who then owned these goods and were not in any way under obligation to the "Project Authority" to use the goods in the execution of the project; When the certificates were produced by the second respondent after clearance of the goods, which is contrary to the conditions of the 1995 Notification, whether the first respondent was correct in holding that the Revenue had no case to argue that the appellants did not fulfill the substantive conditions of the 1995 Notification?

The Hon’ble High Court observed that the exemption under the 1995 Notification was divided into limbs:

a. when the goods are supplied to the United Nations or an International Organization for their official use; or

b. when goods are supplied to projects financed by the United Nations or an International Organization and approved by the Government of India.

The Revenue sought to exclude the assessee from the exemption, by inserting the word ‘directly’ after the word ‘supplied’ in respect of the second limb of the exemption. The Hon’ble High Court averred that it was completely illogical to think, even in respect of the cases covered under the second limb of the exemption, that the supply should have been made ‘directly’. The Hon’ble High Court further stated that no addition or deletion of any expression, either by the Department or by the assessee, was possible when it came to the interpretation of exemption notifications. Accordingly, it was held that the assessee was eligible for the exemption under the 1995 Notification. The second question of law was also answered against the Revenue and in favour of the assessee, on the basis of two lines of reasoning. Firstly, the subject issue had been decided in favour of the assessee by the original adjudicating authority, and this had not been reversed by the subordinate appellate forums. Secondly, the Hon’ble High Court placed reliance on the Supreme Court decision in the case of Commissioner of Customs vs Tullow India Operations Limited [2005 (189) ELT 401 (SC)], in which it was held that even the production of certificates post facto was permissible in law. Dhruva Comments: The decision affirms a settled position in law that words that do not exist within an exemption notification cannot be deemed to be embedded so as to deny the benefit of a notification to an assessee. This decision also affirms the view that the assessee should not be deprived of any benefit that


is otherwise available merely on procedural grounds. Commissioner of Central Excise, Pondicherry Commissionerate vs 1. Customs Excise And Service Tax Appellate Tribunal, Chennai, 2. M/s. IBM India Limited [TS-134-HC-2016(MAD)-EXC] Interest to be levied according to provisions in effect at the time of issuance of show cause notice (‘SCN’) The issue in the given case pertains to Orders in Original (‘O-i-O’) confirming demands for Central Excise Duty with or without demand for interest on such Excise Duty. The O-i-O pertained to SCNs on or prior to 11 May 2011. The assessee had filed appeals against the said orders, which were decided on by the Tribunal by a common order. Thereafter, the Superintendent issued a communication to the assessee demanding interest under Section 11AB of the Central Excise Act, 1944 (‘CEA’). Further, the Superintendent contended that the liability to pay interest was automatic and that even if interest was not demanded in the SCN or O-i-O, it could be demanded at any point of time. It is pertinent to note that Section 11AA of the CEA and Section 11AB of the CEA were amended with effect from 11 May 2001, diluting the erstwhile distinction i.e.: a) cases where there has been no levy or no

payment or short levy or short payment or erroneous refund in the normal course (Section 11AA of the CEA) and

b) cases where there has been no levy or no payment or short levy or short payment or erroneous refund due to fraud, collusion, wilful misstatement or the suppression of facts (Section 11AB of the CEA).

The assessee filed four petitions to the Tribunal against the above contention of the Superintendent, which were rejected, and hence the

questions that arose for consideration before the Madras High Court were: i. Whether the demand for interest made after

the issue of an O-i-O and the confirmation of the same by the appellate authority was in tune with the provisions of Section 11AB of the CEA

ii. Whether the Department was entitled to take advantage of the amendment brought forth to Section 11AB the CEA with effect from 11 May 2001 in relation to SCNs that emanated from before the said date

The Hon’ble High Court conducted a careful analysis of the provisions of Section 11A, Section 11AA and Section 11AB of the CEA as they existed before and after the amendment of 11 May 2001 and observed the clear distinction between the two categories of cases that existed in the provisions prior to the amendment, as elucidated above. The Hon’ble High Court, referring to the erstwhile provisions, observed that if the case fell under the first category where there was no allegation of fraud, collusion, etc., interest became payable only under Section 11AA, and only if no payment was made within three months of the determination under Section 11A(2). Therefore, the statute did not make the liability to pay interest as automatic after a determination under Section 11A(2) of the CEA. It was only in the second category of cases under Section 11A(2) where there was not only a determination of levy, but also a finding of fraud, collusion, etc. that the statute imposed a liability under Section 11AB. This is why the date of commencement of the liability to pay interest was the date of the original liability and not the date of the determination under Section 11AB. The Hon’ble High Court further observed that after the amendment, the liability to pay interest became common for both categories of cases and a distinction was retained only in respect of the minimum ratio of interest and the date of commencement of liability post 11 May 2001.


It was held that in the two cases for which the SCNs were issued prior to 11 May 2001, there was no allegation of fraud, collusion, misrepresentation, etc. and that they were not covered by the amendment. Hence, the questions of law in respect of the appeals arising out of these orders in relation to the interest claim were answered in favour of the assessee. The other two appeals arising out of the O-i-O, which were related to the SCNs exactly dated 11 May 2001, were dismissed. Dhruva Comments: The above ruling provides relief to assessees where the Revenue seeks to levy interest by invoking provisions that came into effect after the issuance of the SCN. M/s Archana Spinners Ltd. vs The Deputy Commissioner of Central Excise and Others [2016 (4) TMI 795 MADRAS HIGH COURT] Notification Revision of formula to compute reversal under clause (i) of Rule 6 (3) of Cenvat Credit Rules, 2004 (‘CCR’); Rule 7B of CCR amended. In the recent Budget, Rule 6(3) of the CCR was amended w.e.f. April 1, 2016 to provide that in a scenario where a manufacturer who manufactures two classes of goods, namely non-exempted goods and exempted goods, or a provider of output services who provides both non-exempted services and exempted services, the manufacturer or service provider has the following options: (i) Pay an amount equal to 6% of value of the

exempted goods and 7% of the value of the exempted services subject to a maximum of the total credit available in the account of the assessee at the end of the period to which the payment relates; or

(ii) Pay an amount as determined under Rule 6(3A).

Vide the subject Notification 23/2016 – CE (N.T.) dated April 1, 2016, reversal/payment as prescribed under clause (i) of Rule 6(3) of the CCR is now restricted to a maximum of the sum total of the opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period. The words "documents specified under rule 9," in Rule 7B(1) of the CCR have been substituted for “invoices, issued in terms of the provisions of the Central Excise Rules, 2002,", thereby removing redundancy. Dhruva Comments: The above substitution in Rule 6(3) of the CCR is in line with the TRU Circular dated 29 February 2016. The maximum limit is so prescribed to ensure that the amount to be paid does not exceed the total credit taken. It is interesting to note that under the current format of E.R-1 there is no bifurcation available in the opening balance of CENVAT credit with regard to input and capital goods. Similarly, under the ST-3 return, there is no division available in the opening balance of CENVAT credit with regard to input goods, input services and capital goods. In other words, the opening balance as portrayed under the ER-1/ST-3 return is a pool of CENVAT credit, from among which it may not be possible to identify the CENVAT credit pertaining to input goods, input services or capital goods. Accordingly, the assessee may be required to manually segregate and quantify the amount of input goods and input services forming part of the opening balance of the CENVAT credit pool. [Notification No. 23/2016-Central Excise (N.T.) dated 1 April 2016]


CUSTOMS Case Laws Provisional release of goods to person other than the owner The issue before the Kerala High Court in the present writ petition was whether the petitioner is entitled to provisional release of goods, pending adjudication, even though he was not the owner of the goods. The High Court had on earlier occasion directed the Customs authorities to provisionally release the goods. Thereafter, based on an investigation the Customs authorities took a stand that the petitioner was not the owner of the goods and therefore, the goods could not be released to him. The Court observed that if in terms of Section 125 goods could be released to a person other than the owner then there should be no impediment in releasing the goods to such a person even under Section 110A. The High Court followed the view of the Apex Court in UOI v/s. Sampat Raj Dugar and Another wherein it was held that when goods are imported at the instance of a licensee he shall be deemed to be the owner of such goods till they are cleared through customs. The Court held that misuse of IEC may be brought to the notice of the DGFT however the same cannot be a reason to withhold release of goods under Section 110A. The Court also rejected the Customs stand that by using the IEC issued by the DGFT, the petitioner is bringing goods of others and the same is not a violation under Customs Act and observed that if stand the Department is accepted, any importer of the goods can escape from the liability by shifting the onus to the owner of the goods. Dhruva Comments: Import transactions where the owner of the goods and importer are two different persons are very common in trade. Practically, the importer is de facto considered as owner till the time the goods are cleared from customs. The High Court’s

judgement puts a rest to any disputes which the Customs authorities may raise to withhold provisional release of goods to the importer on grounds that the importer is not the owner of the goods. R. Mohandas, Proprietor, M/s. Pushpa Telecom v/s. Commissioner of Customs, Customs House, Cochin and Others [W.P. (C) Nos. 24074/2015 and 39096/2015] Non-compliance with mandatory pre-deposit provisions would result in dismissal of appeal In the instant case, the assessee had imported certain equipment’s wherein the software was embedded in the equipment. The assesse deliberately bifurcated the value of the hardware and software in order to evade Customs duty. The CESTAT directed the assesse to deposit certain amount of Customs duty, interest and penalty as pre-deposit. The assessee preferred an appeal against the said order wherein the assessee contested that the CESTAT did not consider the financial hardship faced by the assessee for making the pre-deposit. Further, the assesse also contended that failure to pay the pre-deposit would not result in dismissal of appeal filed before the CESTAT. The High Court (HC) observed that the two expressions used in Section 129E of the Customs Act, 1962 (CA, 1962) are undue hardship to assessee and safeguard the interest of revenue. While considering the application for seeking waiver of pre-deposit these twin requirements should be kept in view. Also, the HC has laid down the following principles that should be borne in mind while considering stay applications: Stay applications should be disposed keeping

in mind the consequences to be faced by the assesse to deposit full or part demand;

Interim orders cannot be issued merely because prima facie case is shown;

The balance of convenience must be clearly in favour of making an interim order;


Twin consideration of undue hardship and safeguarding interest of revenue to be considered;

If full or partial stay is granted conditions be imposed to safeguard the interest of revenue

Further, the HC also observed that although Section 129 of CA, 1962 (prior to amendment made in August 2014) did not specifically provide for rejection of appeal for non- deposit of duty or penalty, yet it is obligatory on the part of the assesse to deposit the duty or penalty failing which the Tribunal has the right to reject the pending appeal. Dhruva Comments: Erstwhile proviso to Section 129 of the CA, 1962 provides that when the pre-deposit of duty or penalty causes undue hardship to the assesse, the appellate authority may dispense with such deposit unconditionally or subject to certain conditions. The HC order lays down certain principles which needs to be followed by the appellate authorities while disposing stay applications. The said principles should be kept in mind by the assessee while praying for waiver / reduction of pre-deposit amount. B. Hima Bindu vs. Commissioner, Customs, CE and Service Tax, Hyderabad II Commissionerate [TS-127-HC-2016(AP)-CUST] FOREIGN TRADE POLICY Case Laws Refund of CST on purchases by an EOU from another EOU be allowed though Appendix 14.I-I only allows for refund on purchases from a DTA unit Appellant, being a 100% Export Oriented Unit (EOU), filed a refund claim of Central Sales Tax (CST) paid on goods procured from other EOUs and units located in the Domestic Tariff Area (DTA). However,

the said refund on goods procured from another EOU was denied on the premise that the Appendix 14.I-I to Foreign Trade Policy (FTP) 2009-14 did not provide for reimbursement of CST paid on goods supplied from one EOU to another EOU. Accordingly, the Appellant filed a writ petition for grant of the said refund on the ground that Para 6.11 of the FTP provides the benefit of reimbursement of CST as long as the goods are manufactured in India and that the Appendix 14.I-I is solely a procedural provision for effectuating rights in the Policy. Madras High Court stated that the Appendix should be meant for reaching the objective and definitely not meant for defeating a person from getting the fruits of the substantive right provided in the FTP. If the procedural norms are in conflict with the FTP, then the FTP will prevail and the procedural norms, to the extent they are in conflict, are liable to be held bad in law. Accordingly, the High Court directed the Development Commissioner to grant the refund to Appellant. M/s Hospira Health Care India Pvt Ltd vs. Development Commissioner, MEPZ Special Economic Zone & HEOUs, DGFT and Others [2016 (4) TMI 185-Madras High Court-Customs] Notifications, Public Notices and Trade Notices Definition of ‘e-commerce’ introduced The definition of ‘e-commerce’ has been introduced vide Para 9.17A in FTP 2015-20, which reads as under: “e-commerce means buying and selling of goods and services, including digital products, conducted over digital and electronic network. For the purposes of Merchandise Exports from India Scheme (MEIS), e-commerce shall mean the export of goods hosted on a website accessible through the internet to a purchaser. While the dispatch of goods shall be made through courier or postal mode, as specified under the MEIS, the payment for


goods purchased on an e-commerce platform shall be done through international credit/debit cards and as per the Reserve Bank of India Circular (RBI/2015-16/185) [A.P. (DIR Series) Circular No.16 dated September 24, 2015] as amended from time to time.” Dhruva Comments: The Notification has been introduced in pursuance of extension of the MEIS benefit to goods exported through e-commerce vide Para 3.05 of the FTP 2015-20. In view of this, the benefit of MEIS would be available only if the payment for goods purchased on an e-commerce platform is done through international credit/debit cards. Notification No.2/2015-16 dated 11 April 2016 A list of services introduced for which payment received in Rupee terms can be counted for export obligation under EPCG A new Appendix 5D has been notified for the list of services, payment for which in Rupee terms can be counted for discharging export obligation (EO) under Export Promotional Capital Goods (EPCG) Scheme. The services provided in respect of ‘vessel related charges’ for coastal and inland vessels and ‘cargo related charges’ in respect of coastal cargo, coastal containers and coastal empty containers would not be counted for discharge of EO under EPCG Scheme. Dhruva Comments: The aforesaid benefit was also available under the erstwhile Policy, however, there was no specification on the list of services which were entitled to the benefit. The aforesaid Notification now specifically restricts the benefit to the specified services. Further, as services towards coastal cargo, coastal containers and coastal empty containers would not amount to exports, the same has been specifically excluded.

Notification No.6/2015-16 dated 3 May 2016 and Public Notice No.4/2015-20 dated 3 May 2016 A list of services under SEIS introduced where payment received in Indian Rupees can be treated as receipt in deemed foreign exchange Appendix 3E has been notified prescribing for a list of services, where payments which have been received in foreign exchange or otherwise received in foreign exchange, but paid in Indian Rupees including through agents in India out of the amount remittable to the overseas principal or out of remittances to be sent by the overseas buyer, for the services rendered in Customs Notified Areas to a foreign liner (or procured by a foreign entity in case of services included in rental of vessels with crew) would be considered as deemed to be received in foreign exchange under Services Exports From India Scheme (SEIS) as per Reserve Bank of India’s (RBI) guidelines. Services provided in respect of ‘vessel related charges for coastal and inland vessels’ and ‘cargo related charges’ in respect of coastal cargo, coastal containers and coastal empty containers are excluded. Dhruva Comments: The aforesaid public notice prescribes for the list of services which would be eligible to SEIS despite the fact that such services do not directly earn foreign exchange. It may be noted that under the erstwhile Policy, DGFT officials have been raising objection on allowing the benefit of SFIS on the basis that there is no specific letter by RBI stating that the amount received for the particular service provided by the applicant should be considered as deemed to be received in foreign exchange. Further, even RBI has been refusing to issue letters providing list of specific services which were to be considered as being received in foreign exchange. The aforesaid public notice has now provided a specific list of such services. Public Notice No.7/2015-2020 dated 4 May 2016


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