TIOL-DDT 2273
16.01.2014
Thursday

VALUATION of goods sold at a price below the cost of production -

The Issue :The Supreme Court has in a recent decision in the case of CCE, Mumbai vs. Fiat India (P) Ltd. 2012-TIOL-58-SC-CX held that where products are sold at considerable losses for an unduly long period of time for the purpose of market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty. Pursuant to this decision field authorities are asking assessees to furnish cost data of various products for past years.

Decision : The modality of implementation of the decision of the Hon'ble Supreme Court is under consideration of a committee of Chief Commissioners. The Circular in this regard will be issued by 15/01/2014.

And the Board has kept its date with destiny. They issued that Circular yesterday.

The Fiat decision was unexpected manna accidentally falling from heaven (read Supreme Court) into the revenue lap.For more background on this issue, please see DDT 1931 -30.08.2012.

The Circular explains the Supreme Court decision and what the Board makes of it.

The first clarification pertains to "Transaction Value below manufacturing cost and profit."

And the Board says - Therefore, mere sale of goods below the manufacturing cost and profit cannot be taken as the sole basis for rejecting the transaction value.

The second clarification deals with "Verification of payment of duty" -

The Board has the following answer -

++ The second issue is regarding the procedure to be adopted by the field officers to identify cases where the ratio of the judgment would apply. It may be noted that, under the self-assessment procedure, there is a legal obligation on the assessee to correctly assess and pay the duty in terms of the Central Excise Act, 1944 read with the Valuation Rules, 2000. Verification of this aspect may be conducted by the Central Excise officer during the audit of units. Aspects such as the percentage of loss at which sale has taken place, the period for which such loss making price has prevailed, reasons for sale at such loss making price, whether such sales are contrary to the standard and accepted business practices, and whether such sale is leading to erosion of capital of the company, may be looked into. In addition, due care may be taken at the level of the Commissioner to see whether the case at hand is similar to the facts and circumstances of the FIAT case. [If due care has to be taken at the level of the Commissioner, why is this not advised in the first place rather than asking the field officer to first raise objections, and then ask the Audit officers to conduct verification. And by making a mention of self-assessment, is the Board making a ground for invocation of the extended period?]

++ Calculations of manufacturing cost may be carried out using CAS-4 standards. Information submitted by the manufacturer, duly certified by a Chartered or Cost Accountant should normally be accepted. Only where a decision to investigate a case has been taken at the level of the Commissioner and it is considered necessary in the interest of investigation, steps such as ordering Cost Audit of the Unit or summoning of the Costing data should be undertaken. [The CAS-4 is to be certified by a Cost Accountant -now will the Board accept certification from a Chartered Accountant?]

The third and the trickiest issue is the period of application of this judgement, whether it can be applied for the period prior to 29.08.2012 by invoking the extended period of limitation.

The Board clarifies -

++ Under the provisions of valuation law, in a case where price is not the sole consideration for the sale, money value of any additional consideration flowing directly or indirectly from the buyer to the assessee is added to the transaction value in terms of rule 6 of the Central Excise Valuation Rules, 2000. However, in the FIAT judgment, sale of cars at an abnormally lower price to penetrate the market has been considered by the Hon'ble Supreme Court as constituting extra-commercial consideration, even when there was no additional consideration of money value flowing directly or indirectly from the buyer to the seller. For the period prior to the date of the judgment, in cases where a show cause notice has been issued on the grounds of the FIAT judgment alone, there may not be a case for invoking the extended period of limitation. In such cases, only the normal period of limitation will apply.

One thing is clear and that is that the Board subscribes to the view that inspite of the absence of any additional consideration, the sale at an abnormally lower price is to be considered as constituting extra-commercial consideration.

++ For the period after the date of the judgment, i.e from 29-8-2012 onwards, if there is a sale in the circumstances similar to the case of M/s FIAT and yet transaction value of goods is declared as the correct assessable value, then such declaration would amount to wilfulmis-statement of the assessable value.

Supreme Court has categorically said that in the case of FIAT the cars were sold at an abnormally low price to penetrate the market.

And the Board feels that from 28.09.2012, every manufacturer is expected to follow the diktat laid down by the Supreme Court and if anyone fails to do so, it will be treated as wilful mis-statement. This is unfair because the Board itself took almost seventeen months to come out with this Circular. Does the Board wish to convey that the Circular operates retrospectively!

Of course it has to be admitted that the Board was in a difficult situation and it is not easy to give any clarification on such tricky issues - the best way would have been to amend the Law with retrospective effect to undo the Supreme Court decision. To grant any relief to the assessee within the framework of law and the Supreme Court judgement is a real tightrope walk.

It is difficult to understand whether the Board Circular is beneficial or harmful. Now every assessee selling at a loss should “satisfy” the auditor that his case is different from FIAT. Further, limitation has to be examined on case-to-case basis.

Had the Board not issued this circular, the damage would have been only to a limited extent. Now we will see a number of disputes on this issue, as the officers will start applying FIAT case to every loss-making unit.
One thing is certain - the FIAT decision is going to make many assessees fall FLAT.

The fault is neither with the Law nor the Board nor the Supreme Court - it is with Fiat - in spite of being the sixth largest car manufacturer in the world, they failed in everything they did in India - including defence of their case in the Supreme Court.

CBEC Circular No. 979/03/2014-CX, Dated: January 15, 2014

FTP - Type Approval Certificate issuing agencies under Policy Condition number 7 and 9 of Chapter 87 of ITC(HS) 2012

THE Type Approval Certificates may be accepted from countries as enlisted at Annexure-A, which are Contracting Parties to the 1958 Agreement, formally titled "Agreement concerning the adoption of uniform technical prescriptions for wheeled vehicles, equipment and parts which can be fitted and/or be used on wheeled vehicles and the conditions for reciprocal recognition of approvals granted on the basis of these prescriptions".

The list of International accredited agencies for issuance of Type Approval Certificate/ COP as notified by United Nations Economic and Social Council dated 15th February, 2013 is at Annexure - I (page 318-365) of the document which can be accessed at: http://www.unece.org.fileadmin/DAM/trans/main/wp29/wp29regs/updates/ECE-TRANS-WP.29-343-Rev.21.pdf

DGFT Policy Circular No. 12 (RE-2013)/2009-2014, Dated: January 15, 2014

Establishment of Liaison Office/Branch Office/ Project Office in India by Foreign Entities- General Permission - RBI Clarification

AS per Regulation 4 of Notification No.FEMA.22/2000-RB dated May 3, 2000 , viz., Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, as amended from time to time, in terms of which, no entity or person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China shall establish in India, a branch office or a liaison office or a project office or any other place of business by whatever name called, without the prior permission of the Reserve Bank.

RBI has clarified that the provisions of Regulation 4 of Notification No. FEMA 22/2000-RB dated 3rd May 2000, along with their specified conditions apply for entities from Hong Kong and Macau also.

Accordingly, applications from entities registered in / resident of Hong Kong and Macau, for establishment of Liaison/ Branch/ Project Offices or any other place of business by whatever name called shall require prior approval from Reserve Bank of India.

A P (DIR Series) CIRCULAR No. 93/RBI., Dated: January 15, 2014

Tariff Value of Gold & Silver increased

THE Government has increased the Tariff value of Gold from 392 USD to 407 USD per 10 gms and that of Silver from 638 to 663 USD per kilogram with effect from 15.01.2014. So, we will have more seizures of Gold and Silver in the days to come.

The Tariff Value of Brass scrap has been increased whereas that of Oils has been reduced. There is no change in the tariff value of Poppy Seeds and Areca nuts.

Incidentally, against the stagnant values of Poppy Seeds and Areca Nuts what is missing is the oft-misplaced comment 'No change'. It is good that the Board has done away with that. In fact , DDT 2242 had suggested this.

The Tariff values as on 31.12.2013 and with effect from 15 .01.2014 are as under:

Table 1

Table 2

Table 3

Notification No. 2/2014-Cus (NT), Dated: January 15, 2014

Election Commission of India collaborates with NACEN

THE Election Commission of India (ECI) has put in place a robust election expenditure monitoring mechanism, which have yielded positive results. For effective expenditure monitoring the agencies concerned have to play a proactive role in helping fine-tune the existing expenditure monitoring mechanism in the forthcoming Lok Sabha elections.

To understand the domain expertise of each agency along with its organizational concerns and limitations, the India International Institute of Democracy and Election Management (IIIDEM) of ECI in collaboration with the Multi-Disciplinary School of Economic intelligence (MDSEI) of NACEN under the Central Board of Excise and Customs, is organizing a workshop on "Election Expenditure Monitoring: Challenges in Intelligence Gathering and Sharing" today (16 January 2014). The workshop is to be inaugurated by the Chief Election Commissioner and sessions will be chaired by the Election Commissioners. The Secretary (Finance) will deliver the Valedictory address.

The Morning session will have a brief introduction on the 'objective of the workshop' by, DG, NACEN followed by speeches from the Chief Election Commissioner VS Sampat and the other two Election Commissioners. They have lined up an array of speakers who are all the top bureaucrats of the country to enlighten on various issues like:

Are they not discussing 'Bitcoins'?

WILL Bitcoins have any effect on the elections? This seems to have escaped the attention of the Election Commission of India as of now. Perhaps it is not relevant. But what are Bitcoins?

See our CobWeb today.

Jurisprudentiol -Friday's cases

Customs

CHA licence suspended on basis of CBI inquiry that appellant was bribing Customs officials and getting favourable orders in matter of release of consignments - as departmental officers have been issued charge sheets, Commissioner of Customs (General) to complete inquiry proceedings under CHALR within one month: CESTAT

THE CHA licence was suspended on the basis of the inquiry initiated by CBI with regard to the allegation of bribing of certain officials of the Customs & Excise by the appellant CHA. Now, the appellant is before the CESTAT with an appeal and a miscellaneous application on the ground that after suspension of their licence there has been no progress with regard to the inquiry required to be conducted under CHALR.

It is also submitted that the CBI has closed the case and withdrawn the investigation and in these circumstances the suspension is no longer valid and should be set aside. The Revenue representative submitted that subsequent to the CBI inquiry, investigation against the departmental officers has been completed and charge sheets have been issued recently and the proceedings under Regulation 20 of CHALR would be initiated against the Customs broker also.

Income Tax

Whether when assessee engaged in real estate business lets out part of property to beat slowdown in business and to reduce interest on borrowed funds, such rental income takes the colour of business receipt - YES: High Court

THE assessee is an Individual. During AY 1983-84, it had constructed a Commercial Complex known as "Nirman Sahu Business Complex" Sitapur Road, Lucknow where the shops on the ground floor and a few residential flats were constructed at the first floor. All the units including the shop and flats were put on sale as and when there was a demand for the same. A few units were not sold out due to steep decline in market demand. However, some units were kept as Stock-in-Trade being business assets. As a prudent businessmen, a few units were let out for short period. The assessee had received the rent and the rental income was shown by the assessee under the head "Income from House Property". However, during the AY under consideration, assessee had claimed the rental income under the head of the "Income from the business". The claim was disallowed by the lower authorities including the Tribunal.

THE issue before the Bench is - Whether when the assessee engaged in the real estate business lets out part of property to beat the lull in business and to reduce interest on borrowed funds, such rental income takes the colour of business receipt. And the verdict favours the assessee.

Central Excise

Shoes received in loose form in jute bags from karigaars are put in plastic bags bearing brand name and then packed in cardboard boxes wherein details such as brand name, MRP, size of shoes, colour of shoes, etc. are affixed - Activity amounts to manufacture and appellant is liable to pay excise duty - Orders upheld and Appeals dismissed: CESTAT

THE appellants received footwear from karigaars in loose form in jute bags, plastic bags, basket, etc. Thereafter, they affixed a sticker showing information as Item No., brand name 'REGAL' and the MRP. A pair of footwear is put in plastic bags having 'REGAL' monogram and 'REGAL' brand name printed on it. Thereafter, the shoes are packed in cardboard boxes having 'REGAL' brand name printed on it and on the card board boxes also stickers are affixed which indicate item No., colour, bar code, size and MRP. The appellants also claimed that they were receiving footwear from karigaars in finished form in boxes bearing MRP. In such cases, only the size of footwear is either embossed or a sticker is affixed on the bottom sole of the footwear. After receiving the footwear, they put a sticker showing item No., date of packing and MRP on the bottom side of the sole and on the front side of the sole, they put a sticker with the brand name REGAL. Thereafter, they repack the pair of footwear in the same cardboard boxes received from the karigaars.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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