October 2016 Newsletter

FOREIGN TRADE POLICY

CIRCULAR
F.No.605/71/2015-DBK
dated 14th Oct 2016
Rationalization of procedure in handling EO
under EPCG Authorisations
i) The Customs authorities are directed not to replicate verification of EO when it is already done by RA’s except in random 5% cases.

ii) In case of endorsement of shipping bill or BoE or in case of non-EDI Shipping bills it is mandatory to check the genuineness. The correctness of installation certificates is restricted to 5% of random cases.

CASES
Denial of Depreciation on
De-bonding
L&T Infocity Ltd. Vs TheCommr C&C.E

2016 (10) TMI 74

Issue:

Whether department can deny depreciation on Capital goods used for export of software to STPI Unit on de-bonding because Notification of the Customs does not provide for specific provision.

Decision:

It was held that just because a notification is bereft of provision on depreciation it cannot deny depreciation on capital goods wherein board circular provides for methods and rate for calculation of depreciation.

Deemed export benefit for
supply of electricity from DTA to EOU
Hindustan Zinc Ltd Vs UoIThe Board of Approval DGFT JDGFT Noida SEZ

2016 (10) TMI 819

Issue:

Whether deemed export benefit to EOU can be denied for electricity because it is not “Consumable” within the meaning of para 9.51 of FTP

Decision:

It was held that electricity being a good and used substantially in the manufacturing of Zinc though not necessarily forming part of end-product. Hence electricity is within the meaning of “Consumable” and is entitled for deemed export benefits.

SERVICE TAX

CASES
Refund of CENVAT Credit Commr of ST Vs SCIOinspire Consulting Services (India) Pvt Ltd

2016 (10) TMI 63

Issue:

Whether Refund can be denied on renting of immovable property due to non-registration of the premises.

Decision:

Refund cannot be denied on input service of renting of immovable property because of non-registration of premises. Registration is not a mandatory condition to avail refund of CENVAT Credit.

Service Tax on SEZ Commr. Vs L&T Ltd

2016 (10) TMI 134

Issue:

Whether Services provided by SEZ Unit to its Own DTAUnit is taxable under ST on account of raising of invoices for Convenience.

Decision:

Referring Sec.65(105) of F.A 1994 it was held thatthe prime condition for taxing a service is when such service is provided fora value. Here no charge was levied on services by SEZ to DTA when invoicesare raised for convenience.

Service tax on tie-up
agreement
Jagjit Industries Ltd. Vs CCE

2016 (10) TMI 309

Issue:

Whether Service tax is payable on manufacturing/tie-up based agreement byconsidering it as an agreement for payment of royalty.

Decision:

It was held that on examining the agreement it was found that there is material difference between tie-up based agreement and royalty agreement. Hence not liable for payment of service tax.

Refund underrule 5 CCE Vs Convergys IndiaServices Pvt. Ltd

2016 (10) TMI 485

Issue:

WhetherRefund under Rule 5 of CCR 2004 can be denied for input services such asmandap keeper event management interior decorator etc.

Decision:

Itwas held that the correct course of action is to decide the eligibility ofinput services for credit and thereafter correctness of refund proceeding interms of Rule 5. Hence refund for various input services is eligible.

CENTRAL EXCISE

CASES
Denial of CENVAT Credit CCE. Vs Energetic LightingIndia P. Ltd

2016 (10) TMI 184

Issue:

Whether Rent ISO Service Software Service, Advertising Service, Consultancy Service, Courier, Housekeeping Service, Catering and Security qualify as ‘Input Service’ as per Rule 2(l) of CCR2004.

Decision:

The decision was relied onCCE Nagpur Versus Ultratech Cement Ltd.whereit was held that any services availed by the manufacturer ofexcisable goodsis entitled for cenvat credit. The services availed by the respondent areinthe course of their business of manufacturing. Therefore CENVAT creditcannot be denied.

Nature of activity CCE & ST vs M/sMahalaxmiVidhut Udyog

2016 (10) TMI 28

Issue:

Whetherthe nature of activity like cutting bending punching and making holesamounts to manufacture?

Decision:

On reliance being placed onCircular No.811/08/2005-CX dated 02.03.2005 it is settled that activity of theappellants like cutting bending punching and making holes etc. on boughtout Iron & Steel articles i.e. M. S. Angles/ Channels etc. cannot betreated as manufacturing especially when there is no evidence on record tosuggest that these activities had resulted in new article and no excise dutyis leviable.

CENVAT Credit eligibility Triveni Glass Ltd. Vs CCE

2016 (10) TMI 68

Issue:

WhetherCENVAT credit is available on installed capital good which has not commencedproduction?

Decision:

It was held that in the factories where production was already takingplace Modvat Credit under Rule 57Q of Central Excise Rules 1944 as clarifiedby said C.B.E.C. circular dated 02-12-1996 was admissible if the capitalgoods were received in the factory before 01-01-1996 even if they are notinstalled/used for manufacture.

Determination of Assessable
value
Phils EngineeringCorporation Vs CCE

2016 (10) TMI 227

Issue:

Whether an amount for erection and commission charged over and abovethe sale price shown in central excise invoice is includable in theassessable value?

Decision:

It was found that the apex court in the case of CCE vs. Official Liquidator forBrimcoPlastic Machinery P. Ltd. has held the same wherein it has beenlaid down that installation erection and commissioning of goods at buyer’spremises cannot be included in the assessable value as having been incurredpost clearance of the goods and they are not related to the sale of goods butfor independent and distinct identified activity.

CENVAT
Credit eligibility
Hinduja Foundries Ltd. VsCCE

2016 (10) TMI 232

Issue:

Eligibilityto take CENVAT credit on the following:1)Courier Service2)Noise MonitoringService3)O&M for RO Plant4)AMC Service for PestControl Equipment

Decision:

1) Courier Service – It is quite possible as to the use of those services for manufacturingand commercial activity of the appellant. Therefore CENVAT credit claimed inrespect of service tax paid thereon are allowed.

2) Noise Monitoring service – the said service is a pollution controlrequirement to run the factory and is essential for the manufacturingactivity hence credit eligible.

3) O&M of RO plant – Manufacturing activity also requires purifiedwater without which the quality of production cannot be maintained. Hence thecredit is eligible on the said service.

4) AMC service for pest control equipment – This is indispensable in themanufacturing process as it is vital to keep the machines and themanufactured products without the risk of damage. Hence the said service is eligiblefor credit.

Eligibility of Credit on
Service Tax paid by Job worker
Adi Artech Transducers Pvt.Ltd. Vs Commissioner of C. Ex & S. Tax

2016 (10) TMI 272

Issue:

Whether a manufacturer can avail the credit for the service tax paid by the job worker when such job worker is exempted from payment of service tax under Notification No.8/2005-ST dated 01.03.2005?

Decision:

In the case of CCE & Customs vs Laxmi Metal Pressing Works (P.) Ltd. it was held that that a notification issued under S.93 would exempt a provider of taxable service from payment of Service tax leviable under S.66. Where such exemption is available it can be said that ST is not payable. But that would not detract from the settled legal position that Cenvat credit of Service tax paid by the service provider is available to the service recipient under Rule 3.

CUSTOMS

NOTIFICATIONS
Notification No. 58/2016-Customs Exemption to specified goods imported for
display or exhibition fair demonstration etc.
This Notification omits a category called “Events” mentioned under Schedule III and included the contents of the same under Schedule II.After the amendment of the principle Notification if the importer did not satisfy the conditions specified and export the goods on time the Federation is no more exclusively liable to pay the customs duties but both the federation and the importer are jointly and severally liable to pay the customs duties.
CASES
Power of the Adjudicating
Authority regarding Penalty.
Commissioner of Central Excise& Customs Vs Orkay Industries Ltd.

2016 (10) TMI 109

Issue:

The Adjudicating Authority had reduced the penalty from the amountequal to the duty to 50 Lakhs.

Decision:

Considering the ruling laid down by the Supreme Court in UOI Vs.Dharmendra Textile Processors 2008 (23) ELT 3 (SC) the Tribunal was of the view thatthe adjudicating authority had no power to reduce the penalty from the amountequal to the duty to 50 lakhs.

Competent “customs officer” Diamond Mink Blankets Ltd. Vs. Commissioner of Customs (Exports)

2016 (10) TMI 141

Issue:

Who is the competent “customs officer” before whom refund application should be filed when Notification No. 102/2007-Cus. dated 14.9.2007 does not specify the designation of such Customs officer?

Decision:

It was noted that there is no definition of the word “Customs officer”. Since the revenue did not designate the Assistant Commissioner of Customs Refunds to be the “customs officer” as is used in Notification cited above and in absence of the definition of jurisdictional customs officer and section 27 having used the term “Assistant Commissioner /Deputy Commissioner of Customs” the AC was asked to entertain the refund application and dispose of the same within a month of
receipt of this order.

Interpretation of Exemption
Notification.
CC (Air Cargo Exports) New Delhi V. PCI Ltd.

2016 (10) TMI 154

Issue:

When the conditions stipulated in the Exemption Notification No 157/90-Cus dated 28/03/1990 were not met can the importer take the plea that non-fulfilment is not attributable to any fault on the part of the importer?

Decision:

In the instant case the goods imported were neither exported within the normal period of six months nor within the extended period allowed by the competent authority thereby not fulfilling the condition. In this context since the law is well settled that an exemption notification was to be interpreted in line with the words employed by it and not on any other basis; and that a person who claims exemption or
concession must establish clearly that he is covered by the provisions contained therein the Tribunal disapproved the exemption of the importer.

Enhancement of Value Sedna Impex India Pvt. Ltd. Garg Impex V. CC

2016 (10) TMI 517

Issue:

Whether the enhancement of the value done by the authorities because of the DRI alert is justified?

Decision:

The Tribunal found that the value of the imported goods has been enhanced on the following grounds:

(a) based on DRI alert and

(b) based on assessed bill of entry of similar goods.It also observed that for adopting the provision of Customs Valuation Rule the transaction value is required to be rejected as incorrect value. There being no evidence to show that the importer has paid over and above than the transaction value to the seller of the goods there is virtually no reasons to reject the transaction value. It is also a settled law that DRI Alerts cannot be adopted as a reason for enhancing the value.” Hence it was held that the value of the imported goods cannot be enhanced on the basis of DRI alert or on the basis of assessed bill of entry in question.

Jurisdiction of Commissioner
(Appeals)
Dy. Commissioner of Customs (Preventive) Vs Knowledge Infrastructure Systems Pvt Ltd.

2016 (10) TMI 722

Issue:

Whether the remand order passed by Commissioner (Appeals) is within his jurisdiction considering Sec 128 A(3) of Customs Act 1962 wherein the commissioner (Appeals) has limited power only to confirm modify and annual the Order-in-Original?

Decision:

In the present case the Commissioner (Appeals) directed the Original Adjudicating authority to verify the documents thus not finally deciding but remitting it to the original authority. The Tribunal held that since in the Original order the refund was sanctioned and was credited to the Consumer Welfare fund and the issue before the Commissioner(Appeals) was to decide the aspect of unjust enrichment she has no power to remand the matter but to refer the documents submitted and decide the case.

Waiver of Pre-Deposit AsrMultimetals Pvt Ltd Gokul Refoils& Solvent Ltd Aci Industrial Organic Pvt Ltd V. Commissioner of Customs Commr of Central Excise Customs and Service Tax (Appeals)

2016 (10) TMI 946

Issue:

Whether the appellant is required to deposit entire 10% amount in addition to deposit made earlier or only 2.5% after adjusting 7.5%  deposited before filling an appeal before Commissioner (Appeals) ?

Decision:

On plain reading of Sec 129E and Sec 35F of the Customs Act1962/ Central Excise Act1944 respectively the Tribunal found that the wordings employed there in is as clear as daylight. 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 Sec129A/35B of Customs Act/Central Excise Act unless deposits 10% of the duty/penalty or duty and penalty as the case may be the appeal shall not be entertained.

TNVAT

CASES
Sales tax exemption Dugar Tea Industries Pvt. Ltd Vs State of Assam & Others

2016 (10) TMI 258

Issue:

Whether tea is entitled for exemption under Sales Tax.

Decision:

The Supreme Court reiterated that business of blending and packing tea is not a manufacturing activity. Tea is not to be included in “raw material” and therefore no exemption could have been claimed in respect of tea as a raw material for purchase as well as sale of tea.

Scope of taxable turnover S.V. Sivalinga Nadar & Sons Rep by Partner S.V.S. Velkumar Vs CTO Villupuram District

2016 (10) TMI 660

Issue:

Whether the market fee or cess paid to the market committee form part of the taxable turnover or made liable to tax.

Decision:

The Madras HC held that the market committee acts as a facilitator for which a fee is collected- fee/cess paid to the market committee cannot form part of the taxable turnover nor made liable to tax.

Reversal of ITC Renga Engineering Works [India] Pvt Ltd. Vs Assistant Commissioner [CT]

2016 (10) TMI 748

Issue:

Whether ITC availed by purchasing dealer is reversible on account of furnishing incorrect particulars by the Selling Dealer.

Decision:

The Madras HC held that merely because the Selling Dealer had filed incorrect particulars it will not be a reason to reverse the ITC availed by the Purchasing Dealer. The liability of not collecting tax should be fastened on the Selling Dealer and not on the Purchasing Dealer.

Sri Kamatchi Gas Service Kancheepuram Vs Assistant Commissioner (CT)

2016 (10) TMI 782

Issue:

Whether non-furnishing of information pertaining to change in constitution of the firm can be the reason for reversal of ITC credit.

Decision:

The Madras HC held that the mistake of not intimating the Department regarding the change of constitution of the firm can be treated only as an irregularity and not an illegality.Rule 5(3) of the Tamil Nadu Value Added Tax Rules 2007states that whenever there is a change in constitution of the business of the Dealer the said Dealer within 30 days from the date of change of the constitution shall furnish details of the change to the Registering Authority and the Registering Authority on satisfying itself shall amend the certificate of registration accordingly. The rule does not contemplate the consequences for non-furnishing of  information pertaining to change in constitution. Therefore the failure to furnish details of the change in the constitution for a brief period can at best be treated as an irregularity and cannot be termed as illegality. Hence it cannot solely be the reason for the reversal of ITC and invalidating the entire transactions in that brief period.

TRANSFER PRICING

CASES
Penalty Clestra Life Sciences P. Ltd. (Formerly Brahma Drugs P. Ltd.) Vs ITO

2016 (10) TMI 848 I

Issue:

Penalty u/s 271(1)(c) for price charged by the assessee in international transactions are not in accordance with Section 92C.

Decision:

Explanation 7 to section 271(1)(c) is attracted as there was concealment of income and it further provides that the penalty thereunder is to be levied unless the assessee proves to the satisfaction of the authorities below that the price charged in such transactions was computed in the manner prescribed in good faith and with due diligence.We concur with the finding rendered by the learned CIT(A) in the impugned order that the price charged by the assessee in international transactions referred to in this order have not been computed in accordance ith the provisions contained in section 92C of the Act nor in the manner provided thereunder or in good faith and with due diligence.Thus, we uphold the levy of penalty under section 271(1)(c) of the Act by the learned CIT(A).

Interest Aban Offshore Ltd. Vs The DCIT

2016 (10)  TMI 807

Issue:

Allowability of the interest on borrowed funds when assessee borrowed the fund from the bank and lent it to its sister concern which is a wholly owned subsidiary.

Decision:

The borrowed amount in question was not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern and later converted into share capital.What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. If the money was borrowed for purchase of shares of subsidiary company for acquiring controlling interest and acquisition of such controlling interest was of the business of the assessee and it resulted in promoting the business of the assessee as well as helpful to the assessee for having management control over said such subsidiary company then the interest expenditure should be allowed u/s.36(1)(iii) of the Act.

Everest Kanto Cylinder Versus DCIT

2016 (10) TMI 412

Issue:

The addition of interest charged to AEas a result of loan transactions to AE.

Decision:

We hold that the arm’s length rate in respect of loan provided to the AE should be LIBOR + 2%. Accordingly the AO is directed to recompute the arm’s length rate in respect of the loan transaction to each AE of the assessee by clubbing all the loan transactions of each AE and then compare the interest charged by the assessee with ALP at LIBOR +2%. It appears that the transactions of loan to its AE at China the said transaction is at ALP as they have charged the interest at 7% therefore only w.r.t the transaction of loan to AE at Dubai are required to be recomputed for the purpose of TP adjustment.

Corporate Guarantee The DCIT The ACIT Vs Megasoft Ltd.

2016 (10) TMI 535 ITAT CHENNAI

Issue:

Transfer pricing adjustment on corporate guarantee 

Decision:

Corporate guarantee given by the assessee does not have bearing on profits income or assets of the assessee. Therefore there is no arm’s length price adjustment.