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Huge win for Revenue - Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods: CESTAT LB


IT was a battery of top lawyers of the country pitted against the solitary JCDR and the David has won hands down against all the Goliaths. The Larger Bench of the Tribunal headed by the President emphatically ruled in favour of Revenue that: Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules.

The Explanation 2 to Rule 2(k) of the CENVAT Credit Rules. 2004 was amended by Notification No. 16/2009-CE(NT) dated 7.7.2009 and after the amendment it reads as under:-

Explanation 2:- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacture but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated Bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods

The Larger Bench of the Tribunal held that the clarificatory amendment made to Explanation 2 to Rule 2(k) in 2009 is applicable retrospectively.

In TIOL-DDT 1133 16.06.2009 we noted,

If CBEC and the officers in its field formations understand the concept that CENVAT Credit is allowed to avoid the cascading effect of taxation, such issues would never be discussed. What is wrong in allowing credit on the structures? Why can't the Board be a little benevolent and think of ways to help the assessees who work hard so that our bureaucrats can be paid a decent salary?

The Hon'ble Tribunal cannot be faulted for interpreting the law as it stands in the statute, but should the government be so petty about allowing a little credit?

Certainly this is not the end of the story – the matter will be taken up before higher forums and if the government is determined to stand on its egoistical view, there will be a retrospective amendment in future!

We bring you this landmark order of the Larger Bench of CESTAT delivered just five days ago – yet another first from TIOL.

See Breaking News

CBEC circular on input service credit - retention money – tax and credit – who is right?

IN yesterday's DDT, we covered the CBEC Circular No 122 Dt 30.4.2010, clarifying the eligibility of CENVAT Credit in cases where the bill amount is reduced by the service receiver for any reason. The relevant para is reproduced again:

(b) In cases where the receiver of service reduces the amount mentioned in the invoice/bill/ challan and makes discounted payment, then it should be taken as final payment towards the provision of service. The mere fact that finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider. The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax.

There is an interesting ancillary to the above situation where the payment is not made full against the invoice. In many contracts, certain percentage of the bill is withheld as retention money which will be released only at the end of the contract. Let us say,

++ A service provider billed an assessee Rs 1,00,000/- plus Rs 10,000/- totalling Rs 1,10,000/-

++ The assessee withheld Rs 5,000/- as retention charges and paid Rs 1,05,000 /- to the client. The assessee takes full credit of Service tax of Rs 10,000/- saying that this Rs 10,000/- service tax was included in the payment of Rs 1 ,05,000 /- made to the client.

++ Department treats the retention money of Rs 5,000/- as cum-tax and disallows the credit of service tax “contained in this Rs 5,000/-” on the ground that the service provider might have paid service tax only by treating the amount of Rs 1,05,000/- as cum-tax as he is not required to pay the service tax until the retention amount is received.

Who is right? Assessee or the Dept? Will the Board clarify?

DRI alleges huge evasion by HP – but can they publish names?

ONE National Daily reported that DRI Additional Director General R Venkataraman told them that Hewlett Packard India Sales Pvt Ltd ( HPISPL ) had undervalued imported products and spares like computers, laptops, notebooks , desktops, spares etc. supplied by its overseas HP entities. He is reported to have said, This evasion pertains to the past five years as under law, we can take cognisance of evasion up to five years only;

The report said that Mr Venkataraman said, HPISPL did not make proper and full disclosure about pricing mechanism of imported products to customs. There is a standard rate for computers in the country and HPISPL used to get a discount ranging between 44% and 83% from other HP offices. While some part of this discount was being transferred to their sub-dealers here to compete, the rest was retained by HPISPL itself. During these transactions, it would raise two invoices - one for customers and the other for its office.

TIOL has a copy of the Show Cause Notice which runs into 72 pages and the Statement of Facts to the Show Cause Notice which run into 140 pages. We were not sure whether we should do a story on this as the Show Cause Notice is only an allegation. But the story is out – from the ADG and in today's transfer order, the ADG is transferred out of DRI !

But the moot point is, can the Department publish the names of alleged offenders?

Maybe they are not aware of the CUSTOMS (PUBLICATION OF NAMES) RULES, 1975, under which only these names can be published:

(a) persons who have been convicted by a court for contravention of any of the provisions of the Act or the rules made thereunder ;

(b) persons who have been adjudged by a proper officer to have contravened any of the provisions of the Act, or the rules made thereunder .

No names can be published just after issuing a Show Cause Notice. DRI should know this!

Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 - Notified

THE Government has notified the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010.

These regulations shall apply for assessment and clearance of imported or export goods, carried by an Authorised Courier by air, on behalf of a consignee or consignor at such Customs airports and in such form and to such extent, as the Board may, by notification, declare for the purposes of these regulations in this behalf.

An Authorised Courier, who contravenes any of the provisions of these regulations or abets such contravention or who fails to comply with any provision of these regulations with which it was his obligation to comply, shall be liable to a penalty which may extend to fifty thousand rupees.

NOTIFICATION No. 36/2010 - Customs ( N.T. ) Dated 5th May, 2010

Employees of IT/ ITES units of SEZ allowed to work from Home subject to conditions

REPRESENTATIONS were received by the Commerce Ministry from various stake holders  seeking clarifications as to whether employees of units in IT SEZs can work on need base basis from their homes or from a place outside the SEZs .

In this regard, keeping in view the requirements of this sector, as an exception it is clarified that only employees temporarily de-capacitated and employees travelling may be permitted to work from home or from a place outside the SEZ subject to the following conditions:

a) the person should be an employee of the SEZ unit

b) the person will carry out the work related to a project of the SEZ unit

c) the resultant exports must take place only from the premises of the unit in the SEZ

SEZ Instruction No. 55, Dated: May 5, 2010

Release of Foreign Exchange for Visits Abroad – Clarification regarding Currency Component

IN terms of A.P. (DIR Series) Circular No. 19 dated October 30, 2000 and A.P. (DIR Series) Circular No.11 [A.P. (F.L. Series) Circular No.1] dated November 13, 2001 Authorised Dealers and Full Fledged Money Changers are permitted to sell foreign exchange in the form of foreign currency notes and coins, up to USD 2,000 or its equivalent , to the travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States.

The existing limits have been reviewed and it has been decided to increase this ceiling, with immediate effect to USD 3,000 (US Dollar Three thousand only) to the travellers proceeding to these countries, without the prior permission from the Reserve Bank.

A.P. (DIR Series), A.P. (FL Series) Circular No. 7, CIRCULAR NO. 50/ RBI ., Dated: May 4, 2010

Jurisprudentiol – Friday's cases

LegalCentral Excise

Gold plating of imitation jewellery does not constitute an exigible process of manufacture – ROM application to correct word 'appellant' by 'respondent' allowed: CESTAT

M/s Midas Techniques Pvt. Ltd. is doing the job work of gold plating on imitation jewellery supplied by the manufacturers of jewellery. Revenue took a view that this activity is manufacture u/s 2(f) of the Central Excise Act, 1944 and chargeable to Central Excise duty. Fortunately for the company the Appellate authority agreed with their contention that jewellery remains jewellery and no new product comes into existence by the process of gold plating which is for ornamentation of jewellery.

Deeply aggrieved, Revenue took the matter to the CESTAT and argued vociferously under the mistaken impression that they were the legendary King Midas and everything that they touched would turn to gold!

Income Tax

TDS - Does rejection of application u/s 197 amount to an 'Order' maintainable u/s 264? - YES, rejection does not lie in absolute discretion of AO - reasons must be indicated: Bombay HC

THE issue before the High Court is that whether rejection of an application u/s 197 for lower TDS rate or no TDS certificate amounts to an 'order'. Whether such an 'order' as per Sec 264 is maintainable. And the answer to the first question is that the rejection of an application u/s 197 does amount to an 'Order' u/s 264, and the same is maintainable for revisionary proceedings.

Service Tax

Respondent providing 'Auctioneering Service' but made to register by Revenue under 'BAS' and pay Service Tax during F.Y 2004-2006 – Auctioneering service notified only w.e.f 01.05.2006 – it cannot be treated as part of any pre-existing service – since amount collected without authority of law and there being no unjust enrichment refund claim allowed: CESTAT

THE respondent has filed the refund claim for the amount, which they paid the Service Tax to the department, but they have not received the same from their clients. Moreover, this fact has been corroborated by their balance sheet showing that the amount is receivable from the Central Excise and Chartered Accountant has also given a certificate to that effect. In this situation, the respondent has qualified the bar of unjust enrichment and the same is not applicable in this case.

See our columns Tomorrow for the judgements

Until tomorrow with more DDT

Have a nice day.

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