December 2016 Newsletter

FOREIGN TRADE POLICY
CASES
Installation of Capital Goods under EPCG Scheme

Beetal Teletech Limited V. CC, New Delhi – 2016 (12) TMI 633

Issue:

In this case, the petitioner holds the letter from DGFT for EO fulfilment. The Revenue denies the benefit under Notification no.110/95 contending that the goods exported are not manufactured in a factory where capital goods imported under EPCG is installed.

Decision:

It was held that when the licensing authority DGFT certifies that EO has been fulfilled, the Revenue cannot deny the benefit unless it is clarified by the competent authority that goods exported from other factory is not to be taken into account for EO fulfilment.

CIRCULAR
Public Notice No. 48/2015-2020
Procedure to claim Duty Rewards under FTP 2009-14 where LEO is prior to 31.03.2015
In cases where Let Export Order (LEO) date is prior to 31.03.2015 and the Date of Export is after 01.04.2015, the LEO date will be treated as date of export and shall be incentivised under chapter 3 of FTP 2009-2014.
 
Applications are to be filed with RA and no late fee is applicable till 31st March 2017.
SERVICE TAX
CASES
Order of Settlement commission Fitness One Group India Ltd Vs. Customs, Central Excise and Service Tax Settlement Commission, Chennai – 2016 (12) TMI 167

Issue:

Whether the correctness of the order of settlement commission can be challenged partly which is not in favour of the petitioner.

Decision:

It was held that, the petitioner cannot contest a part of the order which is not in his favour. The petitioner had sufficient opportunity to present his case. Unless non-application of mind, violation of principle of natural justice is established, correctness of the order of settlement commission cannot be challenged.

Condonation of Delay G. Masilamani Vs. CESTAT, Chennai and The Commr of ST, Service Tax Commissionerate, Chennai – 2016 (12) TMI 486

Issue:

Whether declining the condonation of delay by tribunal on the ground that hardship would be caused is justified.

Decision:

The fundamental principles for condonation of delay are:

  • i) If the cause of justice is likely to be suffered to the petitioner;
  • ii) If condonation is likely to affect the right of the opposite party or cause undue or irreversible hardship. In this case, there is no unsurmountable hardship is caused to opposite party i.e, Govt of India, since they had adequate measures for effecting recovery of arrears. Hence, rejection of condonation of delay by tribunal is not justified.
Export of Service Cherry Hill Interiors Ltd. Vs. C.S.T. Delhi, 2016 (12) TMI 1133

Issue:

Whether Business Auxiliary Services provided to foreign principle for which commission is received in foreign currency convertible in India is export of services.

Decision:

It was held that as marketing operation is provided to foreign recipient it is to be considered as Export of Service. Hence, the procurement of orders on behalf of the foreign principle is not taxable.

Brand promotion as Business Auxiliary Service Datamini Technologies (India) Ltd., Zenith Computers Ltd. Vs. CCE – 2016 (12) TMI 1535

Issue:

Whether Brand Promotion or marketing of logo or brand is a Business Auxiliary Service.

Decision:

It was held that the activity only incentivizes the appellant to procure more products and to enhance the sales of the computers. There is no client – provider relationship which would preclude the taxability. Hence, the activity of Brand Promotion or marketing is not a business auxiliary service.

CENTRAL EXCISE
CASES
Re-credit of amount deposited as pre-deposit Dabur India Ltd. Vs. CCE – 2016 (12) TMI 1177

Issue:

Whether the appellant can take credit in his books i.e. CENVAT Register, which was earlier debited by way of pre-deposit during the pendency of appeal?

Decision:

No procedure has been prescribed for taking re-credit of amounts deposited for pre-deposit, pending the final decision in appeal. According, taking credit on being successful in the appeal under intimation to the Revenue, no fraud, misfeasance, or suppression of facts can be alleged on the appellant. Appeal allowed.

Reversing CENVAT credit on transfer of used products to sister concern CCE Vs. Aradhana Soft Drinks Company – 2016 (12) TMI 205

Issue:

The empty glass bottles and crates used for marketing soft drinks were removed to the sister concern for marketing products such as aerated water and beverages syrup etc., without reversing CENVAT credit. The Department initiated proceedings to reverse an amount equal to the credit taken.

Decision:

No new bottles/plastic crates were removed to its sister concern, as such Rule 3(5) will not be applicable to this situation. Even if bottles or crates are capable for repeated use, the same cannot be considered as capital goods, since the definition does not cover packing material within its purview for consideration as capital goods. Hence the appeal filed by the Revenue was dismissed.

Scope of Input Service Sterling Generators Pvt. Ltd. Vs. CCE, Customs and Service Tax – 2016 (12) TMI 529

Issue:

Whether the input services viz. security service, general insurance service, consultancy engineering services received at EOU unit, having no nexus with manufacturing activity is eligible to fall under the scope of input service?

Decision:

The law mandates that the manufacturer who wants to avail the benefit of this service tax if he has more than one unit he should also get registered himself as a service provider and then, he would be able to collect all the input service tax paid in all its units and accumulate them at its head office and distribute the said credit to its various units. Merely because the input service tax is paid at a particular unit and the benefit is sought to be availed at another unit, the same is not prohibited under law. Appeal allowed.

Charges includible in the assessable value Autopack Machines Pvt. Ltd. Vs. CCE – 2016 (12) TMI 653

Issue:

Whether ‘erection, installation and commissioning’ charges are includible in the assessable value of industrial packing machines manufactured and cleared on payment of duty in ‘completely knocked down’ condition to the site of the buyer?

Decision:

It was held that such charges being paid on account of services offered after the manufacture and clearance of the product is not liable to be included in the assessable value. Goods cleared at the factory gate, assessable value will not include payment made for any activities thereafter. Appeal allowed.

Valuation of products on free distribution under Sales Promotion Scheme CCE Vs. Electrolux Kelvinator Ltd. – 2016 (12) TMI 1124

Issue:

Refrigerators sold to Soft Drink manufacturer in bulk whether liable to be valued under Section 4 or Section 4A of the Central Excise Act, 1944?

Decision:

It was held that the sale of goods to the buyer who used the goods not for retail sale but for free distribution under Sales Promotion Scheme, the value of the goods shall be governed under Section 4 and not Section 4A of the Central Excise Act.

CENVAT credit on Sales Promotion Expenses CCE & ST Vs. Dwarikesh Sugar Industries Ltd. – 2016 (12) TMI 915

Issue:

Whether the respondent is entitled to CENVAT credit on Sales Promotion expenses incurred?

Decision:

It is evident that there can be no removal of the final products unless the assessee has sales orders in their hands. Thus, the sales commission/sales promotion expenses incurred by the appellant is expenditure or input service incurred or received prior to the removal of their final product. Accordingly, the said expenditure is allowable as an input service and credit can be taken on the same.

CUSTOMS
CIRCULARS
Circular NO 58/2016 Roll out of Express Cargo Clearance System (ECCS) at Courier Terminal, Sahar, Mumbai Express Cargo Clearance System (ECCS) is introduced at Courier Terminal, CSI Airport, Mumbai w.e.f. 5th December, 2016 to carry out automated assessment and clearance under the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010.
EICI shall provide the software application for Automation, as per the requirements projected by Directorate General of Systems, for Customs clearance process of Express Cargo at the Courier Terminal, CSI Airport, Mumbai on a turn-key basis, including all hardware, network security, Data Centre Service, operations and maintenance including helpdesk, etc. as may be required for the smooth functioning of this system.
Public Notice No. 181/2016 
Extension of Mandatory filing of Advance Filing of Bill of Entry to LCL cargo
Reason for Extension:
It was analysed that the delay on the part of the importers in filing the Bills of Entry is one of the major factors in overall delay in clearances of the imported consignments.
To fasten the clearances, to reduce dwell time of cargo and as a step towards ‘Ease of Doing Business’, advance/prior filing of Bills of Entry in the ICES system for LCL cargo is made mandatory with effect from 01.01.2017.
Penalty may be imposed on Shipping Line for negligence/errors and such penalty will be recovered from Shipping Line only either before or after clearances of the goods. Importers would not be subjected to penalty for error in IGM and consignment will not be withheld for want of payment of penalty amount, if any.
CASES
Demand of Rubber cess CC Vs Malhotra Rubber Ltd – 2016 (12) TMI 515

Issue:

When rubber is imported under Advance Authorisation scheme, does the liability to pay rubber cess arise?

Decision:

Rubber cess is levied only on the natural rubber and not on the imported rubber. Following the Apex court’s decision in a plethora of cases, that any levy on imported natural rubber could only be made by the competent authority under the Rubber Act, 1947, the Tribunal held that demand on imported rubber under Section 3 of the Customs Tariff Act was illegal.

Refund of SAD Lava International Ltd. Vs UOI – 2016 (12) TMI 522

Issue:

Whether the refund of SAD be rejected on the grounds of cenvat credit availment condition irrespective of the fact that importer could not claim cenvat credit?

Decision:

The court relied on the observations of the Micromax Informatics Ltd. vs. UOI and observed that the petitioner could not claim CENVAT credit as it was an importer and nevertheless claimed the difference between the excess duty paid and additional customs duty under Notification No. 12/2012-CE. Also placing reliance on the law decide by the SC in the case of SRF Ltd., M/s ITC Ltd v. CC, where it was held when the credit under the CENVAT Rules is not admissible to the appellant, question of fulfilling the aforesaid condition does not arise, the Court directed to process the refund application and pass appropriate orders.

Sri Sai Graphics V. CCE – 2016 (12) TMI 640

Issue:

Whether rejection of refund of SAD on the ground of non-compliance with condition in para 2 (b) of Notification No. 102/2007-Customs dated 14.09.2007 is justified when the appellant is trader and not manufacturer to pass on credit?

Decision:

The condition to be satisfied was that, the applicant has to obtain endorsement on the invoices that ‘no credit of the additional duty of customs levied u/s 5(3) of the Customs Tariff Act, 1975 shall be admissible’. Relying on the Larger Bench decision in the case of Chowgule and Company Private Ltd., the Tribunal held that the condition is not mandatory for compliance to the manufacturer and allowed the application of the appellant for refund of SAD.

CC Vs M.S. Metals – 2016 (12) TMI 967

Issue:

For SAD, the adjudication authority interpreted that para 2(vii) of CBEC Circular No.16/2008-Cus dated 13.10.2008, CA certificate should be provided from the regular CA of the claimant. Whether this interpretation ignoring the new CA of the claimant is correct?

Decision:

The Tribunal on dismissing the appeal of the revenue for the erroneous interpretation observed that the relevant para of CBEC Circular dated 13.10.2008, does not use the words regular Chartered Accountant, but only clarifies that certificate given by any other independent Chartered Accountant would not be acceptable for the purpose of 4% SAD refunds.
In the instant case, the earlier CA of the firm was traveling frequently abroad. Due to his non-availability for a long time, the respondent accordingly appointed a new CA, who becomes their regular CA. The court held that this cannot be considered as a onetime independent Chartered Accountant giving a certificate.

Pre-Deposit- Interpretation of law Jindal Arya Impex P Ltd Vs CESTAT – 2016 (12) TMI 569

Issue:

Whether pre-deposit under clause (i) of Sec.129E, which was paid at the time of filing Appeal before the first Appellate Authority can be adjusted against the amount of deposit required to be made under clause(iii) while filing the Appeal before CESTAT?

Decision:

The Tribunal placed reliance on the case Greatship (India) Pvt. Ltd. Vs. CST, and observed that The Court interpreting the statute should not proceed to add the words which are not found in the statute. Moreover, in clause (iii) it is unambiguously prescribed that any person aggrieved by a decision or order referred to Clause (b) of sub- Section (1) of Sec 129E of Customs Act, unless deposits 10% of the duty/penalty or duty and penalty, as the case may be, the appeal shall not be entertained. Thereby, the appeal was not entertained in the instant case.

Delayed Refund of SAD- Interest Pankaj Steel Corporation Vs CC – 2016 (12) TMI 1208

Issue:

Whether the appellant is entitled for interest on delayed sanction of refund of SAD under N/N.
102/07-Cus dated 14/9/2007?

Decision:

The Tribunal relied on the observations made by the Madras High Court in the case of Ksj Metal Impex (P) Ltd and reiterated that Section 27A unambiguously states that where there is a delay in making the refund, interest would be payable on the amount of refund, in the manner stipulated under Section 27A of the Act.
A collective reading of Section 3(8) of the CTA and Sections 27 and 27A of the Act leads to the conclusion that the provisions in the Act concerning refunds and interest on delayed refunds, would equally apply to refund of SAD leviable under Section 3 of the CTA.
Also, it upheld the view that Circular No.6/2008 to the extent that it seeks to deny a successful applicant for refund of SAD, in terms of Notification No. 102/2007, interest on such refund in terms of Section 27A of the Act, is inconsistent with and ultra vires Section 27A of the Act.

TNVAT
CASES
Violation of Principle of Natural Justice Vesta Builders and Promoters Vs. AC(CT) – 2016 (12) TMI 259

Issue:

Whether orders passed due to delay in submissions of reply due to the terms of the endorsements made in the “Letter Book Delivery” constitutes violation of Principle of Natural Justice.

Decision:

The Madras HC held that such impugned order is in violation of principles of natural justice and held to be illegal. Further, the court has repeatedly pointed out the need to dispense with the procedure of giving acknowledgement in ‘Letter Delivery Book’ and should head towards proper electronically generated acknowledgement.

Opportunity of personal hearing Bee Gee Forge Vs AC(CT) – 2016 (12) TMI 632

Issue:

Whether the revenue’s action of not giving an opportunity of personal hearing on the assumption that the petitioner does not have documents to substantiate the transaction alleged is violative of Principle of Natural Justice.

Decision:

The Madras HC held that such act is violative of natural justice and orders which are subsequently passed are subject to remand for fresh consideration.

Reversal of ITC Sri Ranganatha Valves (P) Ltd. Vs Assistant Commissioner (CT) (FAC) – 2016 (12) TMI 757

Issue:

Whether the AO has the right to call upon the assessee to reverse the refund of ITC claimed on certain circumstances.

Decision:

The court has reiterated that the liberty is granted to the AO to issue appropriate show cause notices to the assessee clearly setting out under what circumstances they propose to revise or call upon the assessee to reverse refund sanctioned and after inviting objections proceed in accordance with law.

TRANSFER PRICING
CASES
Most Appropriate Method (MAM) Lee Harris Pomeroy Architects PC Kolkata Vs DCIT – 2016 (12) TMI 942

Issue:

Whether the Comparable Uncontrolled Price (CUP) method is the most appropriate method as compared to Transactional Net Margin Method (TNMM)?

Decision:

The assessee bears lesser business risk than independent comparable enterprises due to the nature of its revenue model. The project receipts are from KMRCL which is a Government body and hence the margins earned by the assessee is bound to be comparatively lower to reflect the lower level of business risk involved. Moreover, the comparables selected for the analysis also include companies that performs additional functions while being engaged in providing comparable services. Further the risk profiles of independent companies differ from that of assessee. The impact of these functional and risk differences definitely require to be factored while determining the ALP.
Hence, we deem it fit and appropriate to set aside this issue to the file of the Learned TPO / AO with a direction to adopt CUP method as the MAM for determination of ALP for international transactions.

Deemed Associated Enterprise Orchid Pharma Vs DCIT – 2016 (12) TMI 236

Issue:

The AO erred in confirming that the Distribution Partners (DPs) are deemed AEs u/s 92A(2)(i) of ITA, 1961.

Decision:

The assessee’s exports through the distribution part constituted less than 5% of its entire exports, and less than 6% of its entire sales, Northstar is certainly not in a position to exercise any dominant influence, over the assessee. The assessee’s decision to accept the terms set out by Northstar, even if that be so, may be justified on account of commercial expediencies or warranted by business exigencies or may simply be compulsion of this somewhat unique and complex business model, but it cannot, by any stretch of logic, be on account of dominant influence of Northstar as a customer. It may even be a sound business strategy to accept a rather passive, in day to day decision making under this business model, but cannot be on account of dominant influence that Northstar exercises on buying of products from the assessee. The influence of Northstar, given the scale of business through Norrthstar as a distribution part, is too modest to make it a dominant influence in the nature of control. In this view of the matter, as also bearing in mind the earlier discussions on the issue, the assessee and Northstar can not be treated as ‘associated enterprises’ under section 92 A. We uphold the plea of the assessee.
Once the assessee and Northstar are held to be independent enterprise, outside the scope of Section 92A, the very basis of ALP adjustments ceases to hold good in law. The impugned ALP adjustment of 2,51,91,556 must stand deleted for this short reason alone – Decided in favour of assessee.

Adjustment Value Momentum Software Services P Ltd Vs DCIT – 2016 (12) TMI 405

Issue:

ALP adjustment – Amount received from its AE towards the reimbursement of the expenditure.

Decision:

The tribunal found that the reimbursement of the expenditure by the AE to the assessee is also on international transaction. The TPO u/s 92CA of the Act, has not made any ALP adjustment to the reimbursement of expenditure which only shows that the genuineness of the transaction has been accepted. When there is no impact on the profit of the assessee by the said transaction, we agree with the contention of the assessee that it does not have any impact on the computation of income of the assessee.

Honda Motorcycle and Scooters India Pvt. Ltd. Vs ACIT – 2016 (12) TMI 1414

Issue:

Whether net profit margin of the comparable company is required to be adjusted to bring the international transaction by the assessee company and that of the comparable company at the same pedestal.

Decision:

Tribunal, after rightly observing that the adjustments in the net operating profit margin on account of any strike etc. was to be made in the profit margin of the comparable company, erred in rejecting the case of the assessee on the ground that the assessee had failed to bring on record any material to show that the profit of the comparable companies had been hit by a strike. The profit margin of the comparable company was required to be adjusted after taking into account a strike like situation as had taken place in the assessee company.
This question is also be considered and decided by the TPO on making appropriate adjustments in the profit margin of the comparable company after taking into account a strike like situation in the comparable company as had taken place in the assessee Company.