Rule 8(3A) of CER, 2002 fades into oblivion
04.12.2014
Thursday
YESTERDAY we reported the Gujarat High Court decision in Indsur Global Ltd. 2014-TIOL-2115-HC-AHM-CX holding that the portion “without utilizing the CENVAT credit” of sub-rule (3A) of rule 8 of the Central Excise Rules, 2002, [as it existed prior to its substitution from 11.07.2014] shall be rendered invalid.
The reasoning given by the High Court is as culled below - :
+ It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints such as, slowing down of business, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise further funds for payment of duty in addition to the duty which he has already paid.
+ If such facility is withdrawn his ability to continue the business under such adverse financial climate would further diminish. This would be a cyclical vicious pattern where in every month he would fall behind by the due date unable to raise cash flow for payment of duty for the clearance which he desires to make and is therefore further saddled with the burden of paying such duty in cash without availing CENVAT credit.
+ This rule thus imposes a wholly unreasonable restriction which is not commensurate with the wrong sought to be remedied. This extreme hardship is not the only element of unreasonableness of this provision. It essentially prevents an assessee from availing CENVAT credit of the duty already paid and thereby suspends, if not withdraw, his right to take credit of the duty already paid to the Government.
+ CENVAT credit is available to a manufacturer upon purchase of inputs which are duty paid. It is the duty element which the assessee has already suffered which is credited to his CENVAT credit account available to him for adjustment for payment of excise duty liability upon clearance of the finished product.
+ By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extent it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing CENVAT credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties.
+ Insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit, which is nothing but the duty on various inputs already paid by him, would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable.
Incidentally, the CESTAT in the cases of Meenakshi Associates [para 15 and 16 in 2012-TIOL-587-CESTAT], Baba Viswakarma Engg Co [para 11, 12 and 13 in - 2011-TIOL-2010-CESTAT-DEL] and Bactolac Formulations [para 5 of 2012-TIOL-970-CESTAT-BANG] had allowed CENVAT credit to be used even during the period of default thus putting to naught the restriction sought to be imposed by rule 8(3A) of CER, 2002.
Nonetheless, the erstwhile sub-rule (3A) to rule 8 would be remembered (next only to rule 6 of CCR, 2004) for its ability to generate a mountain of litigation during its lifetime and one would have wished for such a decision to have come earlier.
Exemption under Section 5A of the Central Excise Act, 1944 to SEZs - Omission to omit reference to SEZ in Sec 5A is legislative oversight - High Court.
INITIALLY, duty leviable on goods cleared from SEZs into DTA was excise duty as per the proviso to Section 3 of the Central Excise Act, 1944. The quantum of duty is the aggregate duties of Customs leviable on like goods imported. But with a separate SEZ Act coming into effect, all this has changed and the reference to SEZ from levy of excise duty under Section 3 of the Central Excise Act was omitted. But they continued the reference to SEZs in Section 5A of the Central Excise Act. A SEZ unit claimed exemption from CVD in respect of goods cleared in DTA, based on a Central Excise exemption notification, but the Specified officer denied it as SEZs are excluded from Section 5A. The High Court held the omission to omit reference to SEZ in Sec 5A is only a legislative oversight and quashed the order.
Please see Breaking News
Not making mandatory deposit u/s 129E of Customs Act, 1962 – appeal dismissed
VIDE an Order-in-Original no. dated 07/05/2014 passed by the Commissioner of Customs (Export), Nhava Sheva, a penalty of Rs.1.17 crore was imposed on the appellant. Against this order, the appellant filed an appeal before the CESTAT on 11/09/2014.
It seems that no deposit, as mandated by the substituted section 129E of the Customs Act, 1962, was made by the appellant in the matter of penalty imposed.
So, when the appeal came up for hearing recently, the Division Bench observed and held - As per the provisions of Section 129E of the Customs Act, as amended by the Finance Act, 2014, the appellant is required to make a pre-deposit of 10% of penalty imposed while filing the appeal. The appellant has not made such a pre-deposit. Therefore, the appeal is dismissed as non-maintainable for non-compliance with the provisions of Section 129E of the Customs Act, 1962.
Should it be 7.5%?
See 2014-TIOL-2442-CESTAT-MUM
We are becoming more transparent – Modi effect?
YESTERDAY'S DDT on a pessimistic note mentioned - many are waiting with bated breath to know whether the country has slipped a few notches below its present 94th rank (with a paltry score of 36 out of 100) in the global clean ranking.
Thankfully, we were wrong in our assessment.
In fact, India improves its rating on global corruption index. This year, it ranks 85th among 175 countries as against 94th last year, according to graft watchdog Transparency International India (TII). Sri Lanka joins us at this ranking.
Denmark was happy that it retained its position as the least corrupt country in 2014 with a score of 92.
North Korea and Somalia are the most corrupt. They shared the last place, scoring just 8.
As for our neighbours - Pakistan and Nepal were at 126th position. Bangladesh was 145th and Bhutan 30th in the ranking. Interestingly, in spite of a lot many corrupt men & women being sent to the gallows, China moved to 100th place, down from 80th last year.
IRS Officers Resign
IN a written reply in the Lok Sabha yesterday, the Minister of State for Personnel, Public Grievances & Pensions, Dr. Jitendra Singh informed that 15 IRS officers resigned from service during the last three years on personal grounds and none of them have taken up jobs in private sector; the number of officers tendering resignation is within the normal limit.
In terms of Rule 26 of All India Services (Death Cum Retirement Benefits) Rules, 1958, for officers who retire from service, prior permission of Government is required if they wish to accept post retirement commercial employment before the expiry of one year from the date of their retirement.
Perhaps these officers might have waited for the cooling period to get over and then taken up commercial employment or ventured on their own as Advocates or Tax Consultants or may have been appointed as Counsels for the Revenue.
Some wanted to serve the people, so founded political parties, others joined political parties and now have become Hon'ble Members of the Parliament or Hon'ble Members of Legislative Assemblies.
For more see DDT 2353, DDT 2355, DDT 2479 & also DDT 534.
Remittance of Assets - Submission of Auditor's certificate
IN terms of Foreign Exchange Management (Remittance of Assets) Regulations, 2000, Authorised Dealer Category-I (AD Category-I) banks were required to submit certificates in the formats prescribed by Central Board of Direct Taxes, Ministry of Finance, Government of India specified in their Circular No.10/2002 dated October 9, 2002.
CBDT vide its notification dated September 2, 2013 has revised the instructions regarding furnishing of tax declarations and submission of Form 15CA and 15 CB.
Accordingly, Reserve Bank has amended the Principal Regulations through the Foreign Exchange Management (Remittance of Assets) (Amendment) Regulations, 2014 with respect to submitting certificates on tax payments.
Authorised Dealer banks are required to refer to the instructions contained in A.P (DIR Series) Circular No. 151 dated June 30, 2014 and the conditions stipulated therein are to be complied with while making remittances.
Circular 43/RBI, Dated: December 2, 2014
Jurisprudentiol-Friday's cases
Central Excise
Application for waiver of pre-deposit filed on 06.08.2014 – in view of substituted provisions of s.35F of CEA, 1944 as enacted by Finance Act, 2014 requiring mandatory deposit of duty/penalty, and the applicant having paid 7.5% of duty confirmed, Stay application is dismissed as infructuous – CESTAT.
CONSIDERING the fact that the Finance Act, 2014 has been introduced on 06.08.2014 and stay application is not required to be filed by the applicant, as they are required to make a mandatory pre-deposit of duty/penalty. In these circumstances, the application for waiver of pre-deposit of impugned demands has become infructuous. Accordingly, same is dismissed as infructuous.
Income Tax
Whether amount paid to the RBI/IDBI under the Industrial Development Bank of India Bill Rediscounting Scheme can be excluded from the discounting amount earned by the assessee bank on such bills from its borrowers - Whether there is a direct nexus/correlation with the payment made to the RBI/IDBI and what was received from the borrower - Whether amount paid to RBI/IDBI under the rediscounting scheme can be considered as a part of the chargeable interest under Section 2(7) of the Interest Act
THE assessee bank is a subsidiary of the State Bank of India and is in the banking industry for the last several years and is involved in the activity of advancing money and receiving money from various persons. The assessee discounted various bills of its constituents (borrowers) and the discount earned on such bills was credited to discount account. The contention of the bank was that some of these bills were passed on to the RBI/IDBI for re-discounting and on such passing of the bills, the bank had to pay discount to the RBI/IDBI thus the discount earned by the bank would be the discount minus re-discount charges paid to RBI/IDBI and thus amount paid was allowable as a deduction out of the total amount earned and only net was to be considered as chargeable under the Interest Tax Act.
Service Tax
Rejection of VCES declaration on the ground that the issue was detected from audit of third party unit conducted before cutoff date – As on the date when the application was filed by the petitioner, there was no audit as against the petitioner unit– Rejection order set aside - High court
IN this case, the assessee filed VCES declaration after receiving an intimation dated 07.03.2013 from the Range Superintendent about their liability. The declaration was rejected on the ground that the issue was detected in audit of another assessee (third party) which was initiated much before the cutoff date, i.e., 01.03.2013 and Show Cause Notice was issued to the assessee on 31.07.2013, based on the audit report and hence they are not eligible for VCES. The assessee filed an appeal with the Commissioner (Appeals), but the same was dismissed as not maintainable.
See our Columns Friday for the judgements
Until Friday with more DDT
Have a nice day.
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