February 11, 2016
Vol. 12 Issue 2.2
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Indirect Tax
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Excise duty
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Interest on receivables, embedded in the sale price, is liable to be deducted from
the assessable value for the purposes of payment of excise duty
Contents
The taxpayer was engaged in the manufacture of lubricating oils and its allied
Excise duty. . . . . . . . . . . . . . . . . . . .
preparations, which were being sold to customers on cash sales basis, as well as
VAT/ CST/ LBT. . . . . . . . . . . . . . . . .
on credit. The taxpayer offered a cash discount to such buyers that made cash
payment against the delivery of goods. However to customers that purchased
Customs duty . . . . . . . . . . . . . . . . . .
goods on credit, a higher price was charged and the interest element was
Service tax . . . . . . . . . . . . . . . . . . . .
embedded in the price of goods itself. As the interest on receivables from such
Key Notifications and Circulars.. . .
buyers was only known at the end of the year, the taxpayer carried out a provisional
assessment and paid excise duty accordingly. Thereafter at the time of final
assessment, the taxpayer submitted a certificate from a chartered accountant to
prove the computation of interest according to the credit period offered to the
buyers, and claimed the excess excise duty paid earlier.
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The Revenue authorities (“RA”) disallowed the deduction as the same was not
expressly mentioned on the invoice. The RA contended that the price charged on
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the invoice for such credit sales was the normal price, and the price charged for
cash sales was the discounted price. The RA further contended that the taxpayer
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failed to establish that the price charged on credit sale includes the interest
element, as there was no evidence that the interest was recovered separately from
the customers. The Supreme Court (“SC”) observed that the lower price charged
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for cash sales indicated the cash discount offered, as against credit sales. The
same implied that the interest component was embedded in the price charged to
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buyers purchasing goods on credit, which should not form part of the transaction
value. Thus the taxpayer was not required to pay excise duty on the interest
component.
Managing Tax Disputes in India
M/s Castrol India Ltd vs CCE, Chennai (Civil Appeal No 532 of 2008, Civil
Getting the Deal Through – Tax on
Inbound Investment 2015
Appeal No 2463 of 2008) (SC)

Benefit of non-payment of excise duty on goods exported as provided under
Taxand Global Survey 2015
Notification No 44/2001-CE(NT) dated June 26, 2001 would be available in case of
deemed exports as well
The taxpayer was engaged in manufacture of excisable goods and was a holder of
an Advance License for deemed exports under Notification No 108/1995 – CE
dated June 26, 1995. Thus the taxpayer could manufacture and clear goods
without payment of duty to the Assam Integrated Flood and Riverbank Erosion Risk
Management Programme under International Competitive Bidding (ICB), which
qualified as a ‘deemed’ export as per the aforesaid notification. The taxpayer also
procured intermediate goods from an Advance Authorization holder, which were
used as inputs in the manufacture of goods.
The RA claimed that the benefit of exemption of excise duty would not be available
to the taxpayer as the final product manufactured by the taxpayer was not
physically exported out of India, and the opening paragraph of Notification No
2016:
Tier 1 firm in International Tax Review,
World Tax 2016 Guide to World’s
Leading Tax Firms for the ninth
consecutive year
Tier 2 firm in International Tax
Review, World Transfer Pricing 2016
Guide
44/2001 – CE (NT) clearly provided that the exemption was available only in case of
export of goods out of India, excluding Nepal and Bhutan. The RA contended that
2015:
the proviso contained in the said notification could not go beyond the scope of the
opening paragraph of the notification and therefore benefit of excise exemption was
not available under the notification.
Tier 1 firm in International Tax Review,
World Tax 2015 Guide to World’s
Leading Tax Firms for the eighth
consecutive year
The CESTAT observed that the language of the proviso under Notification No
44/2001 – CE (NT) was clear and non-ambiguous, and that the proviso must be
considered in relation to the main matter of the notification. The CESTAT held that
Tier 2 firm in International Tax
Review, World Transfer Pricing 2015
Guide
the proviso contained in the notification was of wide amplitude and therefore, if a
manufacturer holding an Advance Authorization, supplied intermediate goods to
another manufacturer (the taxpayer), who in turn removed the final products under
ICB using such intermediate goods, then such taxpayer would be covered within the
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scope of the notification. Consequently, CESTAT set aside the order of demand of
duty along with interest and penalty and allowed the appeal of taxpayer.
M/s Techfab India Industries Limited vs CCE, Daman (Appeal no
E/11164/2014) (CESTAT, Ahmedabad)
Jayashree Parathasarthy
Anshul Aggarwal
Exemption available in respect of inputs captively consumed in the manufacture of
final product which was specifically exempt from excise duty subject to fulfillment of
conditions
The taxpayer was engaged in manufacture of final product ‘cement’ which was
Tarun Jain
Shreya Tripathi
Sourabh Baser
exempt from the levy of excise duty under exemption Notification No 50/2003 – CE
dated June 06, 2003. The taxpayer also manufactured the intermediate good
‘clinker’ in the same factory where the final product was manufactured, which was
not specifically exempted under Notification no 50/2003. Subsequently, the
taxpayer claimed exemption on manufacture of ‘clinker’ by virtue of exemption
Notification No 67/1995 dated March 16, 1995 which lays down that intermediate
goods used in captive consumption would be exempt from excise duty subject to
Rajeev Dimri, Gurgaon
+91 124 669 5050
[email protected]
certain conditions. The RA contended that the exemption under Notification No
67/1995 was not applicable to the taxpayer as the proviso to the notification states
HimanshuTewari, Mumbai
+91 22 6135 7099
[email protected]
that if the intermediate goods were used in manufacture of final product that were
exempted from excise duty, the intermediate goods would not be eligible for the
benefit of the exemption.
The SC observed that the aforesaid proviso would not be applicable where the
goods are cleared under any of the six circumstances mentioned in the notification,
Malini Mallikarjun, Mumbai
+91 22 6135 7025
[email protected]
Kaustuv Sen, Mumbai
+91 22 6135 7042
[email protected]
which specifically includes a scenario where a manufacturer of dutiable and
exempted final products has discharged the obligation under Rule 6 of the CENVAT
Credit Rules, 2001. As the taxpayer in the present case had followed the
obligations prescribed under Rule 6 provided above, the SC set aside the CESTAT
order and held that exemption on ‘clinker’ would be available to the taxpayer under
Notification No 67/1995.
Mahesh Jaising, Bangalore
+91 40 4032 0140
[email protected]
Amit Jain, Pune
+91 20 668 19010
[email protected]
Ambuja Cement Ltd vs CCE, Chandigarh (Civil Appeal No 2793 of 2006, 2912
of 2006, 10934 of 2014 and 10394 of 2013) (SC)
Pre-delivery inspection charges and after sales service charges are not includible in
assessable value
The question before the SC was whether the pre-delivery inspection charges and
after sales service charges are includible in the assessable value of goods under
section 4 of the Excise Act. The issue was already decided by the larger bench of
CESTAT Delhi in case of Maruti Suzuki India Ltd. [2010 (257) ELT 226 (Tri. LB)]. In
the ruling larger bench overruled the previous order of CESTAT Delhi in the same
case and passed an order in favor of Revenue and held that pre-delivery inspection
charges and after sales service charges are includible in assessable value of
goods.
The SC observed that the where the taxpayer sell the goods to the dealer, the
goods enters into the stream of trade for the first time. The SC also observed that
Snippet
Key Notifications / Circulars
Revision of All Industry Rates (“AIR”)
of Duty Drawback
The Central Government has notified
revised All Industry Rates for Duty
Drawback with effect from November
23, 2015.
Source: Notification No 110/2015 –
Customs (N.T.) dated November 16,
2015
pre-delivery inspection charges and after sales service charges are borne by the
dealer and there is no evidence which prove that these charges are paid by the
Snippet
dealer to the taxpayer. The dealer renders the service of pre-delivery inspection
and after sales service as a routine and legitimate activity under its normal course
of business and as per the terms of dealership agreement entered with the
taxpayer. The SC rejected the contention of RA that service by way of pre-delivery
inspection and after sales service is linked to the warranty given by the taxpayers
for the goods. The SC also observed that expense incurred by the dealer for predelivery inspection and after sales services are not related to the term “servicing”
Procedure for granting provisional
grant of refund to service exporters
for claims filed under Rule 5 of
Credit Rules on or before March 31,
2015
mentioned in the transaction value which form the basis of assessable value for
The Circular has proposed a scheme
computing excise duty. On the basis of above observations, SC overruled the
for expeditious sanction of refund for
larger bench ruling passed in case of Maruti Suzuki India Ltd. and held that pre-
service exporters claiming refund
delivery inspection charges and after sales service charges would not be included
under Rule 5 of Credit Rules. The
in the assessable value under section 4 of the Excise Act for the purpose of paying
scheme shall apply to refund claims
excise duty.
filed on or before March 31, 2015,
whereby provisional refund of eighty
CCE, Mysore vs M/s TVS Motors Company Ltd(Civil Appeal No 5155-5156 of
percent shall be granted within five
2007) (SC)
working days from the submission of
requisite documents.
Interest liability should not arise on differential excise duty payable due to price
escalation agreed post clearance
Source: Circular No 187/6/2015 –
ST dated November 10th, 2015
The taxpayer was engaged in manufacture and trading of iron and steel products,
which were sold at an agreed price to Indian Railways and cleared from the factory
upon payment of excise duty on the invoice value. Subsequently, there was an
Snippet
upward revision in the price of the products, as a result of which the taxpayer
discharged excise duty on the additional sum received as consideration from its
Credit of accumulated Education
customers. The RA alleged that since differential duty paid at the time of price
Cess (EC) and Secondary & Higher
escalation was not paid at the time of removal of goods from the factory, interest
Education Cess (SHEC) not allowed
under section 11AB of Central Excise Act, 1944 (“Excise Act”) was chargeable on
such differential duty amount.
CBEC has issued instructions to the
officers of Central Excise dated
This issue has already decided by the Supreme Court (“SC”) in case of SKF India
December 7, 2015 to follow
Limited [(2009) 13 SCC 461)] and International Auto Limited [(2010) 2 SCC 672],
clarifications as brought out in the
wherein it was held that interest was payable under section 11AB of the Excise Act
minutes of the Tariff Conference held
on differential duty from the date of removal of goods. However in this case, the SC
by the CBEC in October 2015. As per
observed that the liability to pay differential duty only materialized when the parties
the clarification, the credit of
to the transaction agreed for the price escalation. The SC also observed that since
accumulated balances of EC and
the differential duty was payable only at the time of fixation of revised prices, the
SHEC balance shall not be allowed
taxpayer could not have known the amount due for payment of additional duty at
for utilization by the taxpayers. The
the time of removal of goods. Thus the SC held that the taxpayer would not be
instruction states that this was a policy
liable to pay interest under section 11AB of the Excise Act and made an
decision, as the cesses have been
observation that the judgements passed in the case of SKF India Limited and
phased out and no new liability arises
International Auto Limited (supra) require a re-look. The registry was directed to
to pay such cesses.
place this matter before the Hon’ble Chief Justice of India for constituting a larger
bench to examine the issue.
Source: Instructions under File No
96/85/2015 – CX.I dated December
M/s Steel Authority of India Ltd vs CCE, Raipur(Civil Appeal No 2150 of 2012
7, 2015 (relevant para B.21)
with 2562 of 2012, 599 of 2013, 600 of 2013 and 1522-1523 of 2013) (SC)
Maximum Retail Price (“MRP”) based valuation of goods upheld on bulk sales made
Snippet
to institutional buyers
Revised monetary limit for filing
The taxpayer was engaged in the manufacture of footwear under the brand name of
appeals to the CESTAT and High
‘Liberty’, and sold the same to retail buyers as well as to institutional buyers, in bulk,
Court (“HC”) by the RA
on contract price. The taxpayer discharged the excise duty liability at the time of
removal of goods on the MRP, after availing abatement of 40 percent as provided
under section 4A of the Excise Act. The same was done irrespective of the fact that
goods were sold to retail buyers or institutional buyers. As per the RA, in cases
where goods were sold at the contract price, affixation of MRP had no legal
CBEC has issued an instruction
revising the monetary limits for filing
appeals to the CESTAT and HC by
the RA. The revised monetary limit to
significance, and valuation had to be carried out under section 4 of the Excise Act,
file an appeal to the CESTAT is INR
instead of section 4A of the Excise Act. The RA also contended that as per the
10 lakhs and to the HC is INR 15
provisions of Standards of Weights and Measures (Packaged Commodities) Rules,
lakhs. It was further clarified that the
1977 (“SWM Rules”), MRP was required to be declared only in cases where goods
revised monetary limits shall apply to
were intended for retail sale.
pending appeals also.
The SC observed that Rule 34 of the SWM Rules, which exempted application of
Source: Instruction F No
MRP on goods supplied in bulk, was not applicable to the present case and
390_Misc_163_2010 – JC dated
therefore the taxpayer was bound to affix MRP on the goods sold (as per section 4A
December 17, 2015, updated by
of the Excise Act). Relying on the judgement passed in case of Jayanti Food
subsequent instruction bearing
Processing (P) Ltd [2007 (8) SCC 34], the SC dismissed the appeal of the RA.
same number issued on January
There was no finding given by the SC on the sale at contract price adopted by the
01, 2016
taxpayer.
CCE, Panchkula vs M/s Liberty Shoes Ltd.(Civil Appeal No 999-1001 of 2008)
Snippet
(SC)
Rule 52B inserted under
Education cess (“EC”) not payable on paper cess as the same is levied by the
Maharashtra Value Added Tax
Ministry of Industries
Rules, 2005 (“MVAT Rules”)
providing restriction in set-off of
The taxpayer discharged the liability of paper cess on paper and paper boards
VAT credits in specified cases
manufactured by it. The question before the CESTAT was whether EC was
payable on paper cess, which was levied by the Ministry of Industries under the
provisions of Industrial Development and Regulation Act, 1961. The RA contended
that as paper cess was payable on excisable goods, EC would also be payable on
such paper cess applicable on excisable goods. The taxpayer substantiated its
contention that EC was not applicable on paper cess by placing reliance on the
decision given in the case of Andhra Pradesh Paper Mills [2009 (235) ELT 474]
and Circular F No 262/2/2008 – CX.8 dated January 7, 2014.
The Department of Sales Tax,
Maharashtra issued a notification for
inserting rule 52B under the MVAT
Rules providing that if a dealer has
purchased goods in the nature of
aerated and carbonated non-alcoholic
beverage (whether or not containing
sugar or other sweetening matter, or
The CESTAT observed that as per Clause 83 of the Finance (No 2) Bill, 2004,EC
shall be levied on only on such duties which are (a) levied and collected as duties of
excise/ customs, and (b) both levied and collected by the Department of Revenue,
which was also clarified in Circular FNo345/2/2004-TRU (Pt.) dated August 10,
2004. Reference was also made to decision in the case of Andhra Pradesh Paper
Mills, wherein it was held that since paper cess is not levied by the Department of
Revenue and levied by the Department of Industrial Development, Ministry of
flavor or any other additives) or cigar
and cigarettes, as covered under
Schedule D of the MVAT Act, such
dealer shall be entitled to claim set-off
only to the extent of aggregate of:

the taxes paid or payable under
the Central Sales Tax Act, 1956
Commerce and Industry, the second condition does not get satisfied for levy of EC.
on the inter-state resale of the
corresponding goods; and
Relying on the decision passed in case of Andhra Pradesh Paper Mills, the
CESTAT observed that EC cannot be levied on duties collected by Ministry of
Finance, but levied by another Ministry and hence the demand of EC was termed

the taxes paid on the purchases
of said goods, if are resold
locally under the Act
as unsustainable in the instant case.
Prior to this insertion, full credit was
Commissioner, Central Excise & Service Tax, Vapi vs M/s Shah Pulp & Paper
Mills Ltd (Order No A/11580/2015) (CESTAT Ahmedabad)
allowed on aerated and carbonated
non-alcoholic beverages and the
Excise duty not payable on scrap not brought back from the job workers premises
same was not limited vis-à-vis onward
sales.
The taxpayer was engaged in the manufacture of motor vehicles, and was sending
goods to job workers’ premises for manufacture of inputs to be used in manufacture
Source: Notification No VAT 1515 /
of final products. The scrap generated in the course of manufacture of inputs at the
CR – 158 / Taxation – 1 dated
job workers premises was not received back by the taxpayer. However, the
December 30, 2015
taxpayer mistakenly paid the excise duty on the value of scrap generated at the job
workers premises and subsequently claimed refund of such excise duty paid on
scrap. The RA rejected the refund claim on the ground final product also includes
Snippet
scrap and is therefore liable to excise duty. The RA also contended that the refund
claim is hit by doctrine of unjust enrichment because the taxpayer failed to
Revised rates of VAT under Odisha
substantiate that excise duty paid on scrap is not included in assessable value of
Value Added Tax Act, 2004 (Odisha
final products.
VAT Act)
The taxpayer’s key contention was that the CENVAT Credit Rules, 2004 (‘CCR’)
Commercial tax department of Odisha
nowhere provides for reversal of credit and/or paying excise duty on the scrap
generated at job workers premises not brought back by the principal manufacturer.
has increased the residuary rate of
VAT as prescribed under Schedule B
of Odisha VAT Act from 13.5 percent
The CESTAT relying upon the ruling passed by Bombay High Court in case of
Rocket Engineering Corporation Ltd [2006 (76) RLT 8 (Bom)] held that there is no
requirement under Rule 4(5)(a) of the CCR either to receive the scrap generated at
job workers premises or pay excise duty in case the scrap is not received back by
the principal manufacturer. Consequently appeal of the taxpayer was allowed.
M/s Mahindra And Mahindra Ltd. vs CCE, Mumbai - V(Appeal No E/1091/10)
(CESTAT Mumbai)
to 14.5 percent. Also rate of VAT on
foreign liquor has been increased
from 25 percent to 35 percent. The
revised rates shall come into force
from January 1, 2016.
Source: Notification No 80-FINCT1-TAX-0020-2015 dated January
01, 2016
Value Added Tax (VAT)/Central Sales Tax (CST)/ Local Body Tax (LBT)
Development, upgradation and maintenance of pre-existing software would amount
to a works contract, therefore liable to VAT
The taxpayer, registered as a dealer under the West Bengal Value Added Tax Act,
2003 (“WBVAT Act”) was engaged in import and sale of information technology
software and also undertook development, upgradation and maintenance of preexisting software. The taxpayer raised a question for determination of rate of VAT
applicable on an annual maintenance contract (“AMC”) involving development,
upgradation and maintenance of such pre-existing software. The taxpayer
contended that the deemed deduction available under the WBVAT with respect to
various types of works contract, would also cover such AMC’s involving software.
The Commissioner, Sales Tax, observed that software amounted to ‘goods’ as per
the WBVAT Act and was taxable at the VAT rate of 5 percent. With respect to the
question at hand, the Commissioner held that any comprehensive AMC involving
transfer of property in goods would fall under the ambit of works contract, and
therefore any development, upgradation and maintenance of pre-existing software
would also amount to a works contract and would be taxed accordingly.
Accordingly the Commissioner classified the software under “annual maintenance
contract of any equipment including computer, that was liable to a deemed
deduction of 40 percent.
M/s Hewlett-Packard Sales Private Limited vs Directorate of Commercial
Taxes (Case No. 24X/PRO/VAT/15/256) (Directorate of Commercial Tax, West
Bengal)
Input tax credit (“ITC”) on raw materials used in the manufacture of the final
products, which were exempted from VAT, would be available
The taxpayer, a manufacturer, availed ITC on raw materials used in manufacturing
activities. The RA denied the benefit of ITC to the taxpayer on the ground that the
taxpayer did not pay VAT on the sale of manufactured goods, due to an exemption
available under the provisions of Rajasthan Value Added Tax Act. In response, the
taxpayer had contended that it had received VAT exemption as a manufacturer of
goods, under the Rajasthan Sales Tax Act, 1994. The taxpayer also contended
that there was a difference between exempted ‘goods’ and ‘special transactions’ or
‘persons’ that are exempted. In the latter case, the goods themselves remained
taxable though exemption was granted to a particular individual or a specified
transaction. In such cases, all subsequent transactions in those goods, since not
specifically exempt, would be subjected to taxation.
The SC agreed with the contention of the taxpayer. The SC also observed that if
the contention of the RA was to be accepted, the taxpayer though covered by an
exemption notification could be placed at a disadvantageous position. The same
due to the reason that if a subsequent sale would be made by a non-exempted
dealer or if tax stands paid on the non-exempted transfer, goods would suffer tax on
the entire sale consideration. This would place an exempted manufacturer-dealer
at a disadvantageous position and make his products uncompetitive, in spite of the
exemption. Thus the SC held that ITC was correctly availed by the taxpayer and
consequently dismissed the appeal filed by RA.
Commercial Tax Officer vs A Infrastructure Ltd (Civil Appeal No 2806 of 2015)
(SC)
Sodexo Meal vouchers would not qualify as ‘goods’ for the purpose of levy of LBT
The taxpayer was engaged in the business of providing pre-printed meal vouchers
to its customers who were mainly corporate establishments. Such establishments
passed on the meal vouchers to employees, as a part of their salary package and
the employees had the option of redeeming the vouchers against meals or goods at
affiliated restaurants or shops. Such affiliates in-turn provided the meal vouchers to
the taxpayer and collected reimbursement for the face value of such vouchers.
While reimbursing the affiliates, the taxpayer retained a service fee/ charge, as a
fee, since the meal vouchers benefited the business of such affiliates.
The RA contended that as such vouchers were capable of being sold, delivered,
stored and possessed, the same were ‘goods’ and are liable to local body tax
(“LBT”) and Octroi duty under the Maharashtra Municipal Corporation Act. The
taxpayer resisted the same on the ground that it was providing services to
establishments with whom it had entered into contracts, and therefore such
contracts were for services and not for sale of ‘goods’.
The SC observed that the meal vouchers could not be considered as ‘goods’ for the
purpose of levy of LBT on the following grounds:
 The intrinsic and essential character of the entire transaction was to provide
services by the taxpayer, which was achieved through the vouchers. The tax
payer only acted as a facilitator and a medium between the affiliates and the
organizations that issued the meal voucher to its employees
 The said vouchers did not clear the test of “ability of being traded or sold
separately” as they were printed for specific customers and could not be traded
freely
 Meal vouchers were to be treated as expenditure incurred by the organization
issuing the meal voucher and an amenity in the hands of the employee
Sodexo SVC India Private Limited vs State of Maharashtra & Others (Civil
Appeal Nos 4385-4386 of 2015) (SC)
Service tax not includible in taxable turnover for payment of VAT under composition
scheme
The issue involved in the instant case was whether the amount of service tax is
includible in the taxable value of works contract for discharge of tax liability under
composition scheme under the Maharashtra Value Added Tax Act, 2002 (“MVAT
Act”).
The RA contended that as there is no specific exclusion for service tax from the
definition of ‘sale price’ under the MVAT Act, the amount of service tax collected by
the taxpayer shall be included in the assessable value for payment of VAT under
composition scheme. Further, no deduction shall be allowed in case the
composition scheme was opted by the taxpayer and VAT is not paid under normal
provisions of the MVAT Act.
The Maharashtra Sales Tax Tribunal (“MSTT”) referred to Explanation II under
section 2(25) of MVAT Act, which provides that the definition of sales price shall not
include ‘tax’ paid or payable to the seller against such sale. On the basis of the
above explanation, the MSTT observed that the RA cannot interpret the term ‘tax’
as ‘sales tax’ only, and therefore service tax would not be included in the taxable
value under the MVAT Act.
M/s Technocrat Engineers vs The State of Maharashtra(VAT Second Appeal
No 237 of 2014) (MSTT, Mumbai)
Customs duty
Blanket exemption from levy of additional duty (CVD) not available to importers,
when exemption from excise duty is conditional as per the exemption notification
The issue before the HC was whether benefit of an exemption from CVD would be
available, in case similar goods when manufactured were made exempt from excise
duty. The exemption from CVD was provided under Notification no 30/2004-CE
dated July 9, 2004, subject to the condition that no CENVAT Credit ought to have
been availed in respect of duties paid on inputs used in such goods.
The SC had passed two judgements on the same question (Aidek Tourism Services
Private Limited [2015 (3) TMI 690 - Supreme Court] and SRF Limited [2015 (4) TMI
561-Supreme Court]), and held that the aforesaid benefit of exemption from CVD
shall be available to importers of goods, as in any case an importer would not be
able to avail CENVAT Credit, hence the question of fulfilling the condition did not
arise.
Subsequently, this Notification no 30/2004 was amended in 2015 by notifications
issued in July 17, 2015 and July 21, 2015. Under the amended form, the benefit of
exemption under the notification would be available only when specified conditions
would be fulfilled by a manufacturer of goods who pays excise duty/ additional
duties on the inputs used in manufacture of final products and does not avail credit
of the duties so paid. The amended notification specifically excluded ‘buyers’ from
the scope of its benefits.
The said amendment notifications were challenged on the ground that if domestic
goods were exempt from excise duty, then importers cannot be placed at a
disadvantageous position by being made to pay CVD. In this regard, the HC
observed that where exemption notifications prescribed conditions which were
merely procedural in nature and did not involve payment of duty on inputs, the
taxpayer including the importer was provided the benefit of the exemption, on the
premise that importer in any case cannot fulfill the condition. However where the
notification prescribes a conditional exemption, only those taxpayers who fulfill the
condition of exemption would be allowed the benefit of exemption and those who
did not fulfill the conditions would be denied the benefit of exemption, whether
importer or any other domestic taxpayer.
The HC also observed that in such cases, the importers were not placed in
disadvantageous positions than domestic manufacturers, as the said amendments
are made with an intent to separate only those taxpayers who fulfill the conditions,
from others that do not fulfill the condition of the exemption. The notifications also
do not seek to differentiate between the importers and domestic manufacturers, but
actually seek to differentiate between one set of domestic manufacturers (those
who avail credit) from another set of domestic manufacturers (those who do not
avail credit), and therefore was not violative of Article 14 of the Constitution
specifically in reference to the importers. Also the exemption notification was
issued in exercise of the power conferred to the Central Government, as it had the
power to grant an exemption either on an absolute basis or subject to conditions.
Thus it was held that the amendments were not in excess of the delegated powers,
and are not ultra vires to the legislation.
M/s HLG Trading vs Union of India and Others (WP Nos 24507, 26010 and
26011 of 2015, and all connected pending MPs Cont. Petn. No.2069 of 2015
and Sub-A.No.776 of 2015) (HC, Madras)
Components/ parts/ sub-assemblies not to be classified as motor vehicles or
completely knocked down (“CKD”) kit, when critical components/ parts/ subassemblies are to be locally assembled/ manufactured
The applicant, being a wholly owned subsidiary of a foreign car manufacturer, was
engaged in the business of manufacturing and selling of motors cars in India. The
applicant applied to the AAR seeking to obtain a ruling on whether import of
components/ parts/ sub-assemblies would be classified as motor vehicles or CKD
kits, when six essential components/ parts/ sub-assemblies were locally assembled/
manufactured by approved from local third party vendors. The RA alleged that as
the local third party vendors were engaged in the business of only importing and
manufacturing car parts of the applicant, the sourcing of the same by the applicant
was a mere façade.
The AAR observed that CBEC Circular F No 528/128/97-Cus-TRU dated December
5, 1997 clarified that if all components or parts or sub-assemblies are imported,
Rule 2(a) of the general rules of interpretation would be applicable. The AAR
further observed that if a few components or parts or sub-assemblies were not
imported, but manufactured or purchased locally, it would be difficult to take a view
that ‘essential characteristics’ of a motor car has been achieved for invoking Rule
2(a) of the general rules of interpretation. Thus the AAR held that import of
components/ parts/ sub-assemblies by the applicant would not be classifiable as
motor vehicle or as CKD kits when essential components are locally
assembled/manufactured by approved local third party vendors.
M/s BMW India Private Limited (Ruling No AAR/Cus/12/2015) (AAR)
Service tax
Reversal of CENVAT Credit amounts to non-availment of Credit, thus benefit of
abatement claim cannot be denied
The taxpayer was engaged in the provision of tour operator services and availed
the benefit of Notification No 2/2004-ST dated February 5, 2004 and Notification No
01/2006-ST dated March 01, 2006 by paying service tax after availing the benefit of
an abatement at the rate of 60 percent or 90 percent as applicable. While availing
the benefit of said abatement notification, the taxpayer also availed the benefit of
CENVAT Credit, which was reversed subsequently. The RA contended that benefit
of the said abatement notification shall not be available as CENVAT Credit has
been availed by the taxpayer.
The CESTAT, observed that reversal of CENVAT Credit would amount to nonavailment of credit and placed reliance on the decision given in the case of Khyati
Tours & Travels Vs CCE Ahmedabad [2011 (24) STR 456 (Tri-Ahmd)]. On the
basis of the same, the CESTAT held that the benefit of the abatement notification
cannot be denied to the taxpayer.
M/s Windex Tours & Travels vs Commissioner, Central Excise & Service Tax,
Vadodara (Appeal no ST/122/2008) (CESTAT, Ahmedabad)
No time limit prescribed for filing a refund claim of CENVAT Credit under Rule 5 of
CENVAT Credit Rules, 2004
The taxpayer was engaged in export of taxable services under the category of
“business auxiliary services” and “management consultancy service”. The taxpayer
filed a refund claim for the accumulated CENVAT Credit under Rule 5 of CENVAT
Credit Rules, 2004 (“Credit Rules”) read with Notification No 05/2006 – CE (NT)
dated March 14, 2006. The RA rejected the refund claim partially, on grounds
which included delay in filing refund claim within the period of one year from the
date of invoice. The RA in support of such rejection, contended that the refund
notification specifically provides for limitation of ‘one year’ as provided under
Section 11B of the Central Excise Act, 1944 to apply.
The CESTAT held that mere accumulation of CENVAT Credit did not make the
taxpayer entitled to refund under Rule 5 of the Credit Rules, until the taxpayer made
an attempt to utilize the CENVAT Credit for payment of taxes. It was also observed
that only upon satisfaction of the condition that, CENVAT Credit is accumulated and
utilization of that credit is not possible, entitles the taxpayer to claim refund. The
CESTAT placed reliance upon the decisions passed in case of Deepak Spinners
Ltd [2014 (302) ELT 132], Elcomponics Sales Pvt. Ltd [2012(279) ELT
280] and Global Energy Food Industries [2010 (261) ELT 627], and observed that it
would be difficult to arrive at the relevant date to compute the period of limitation
under Section 11B of the Central Excise Act, 1944, in case of refund claim is made
under Rule 5 of the Credit Rules. Thus it was held that the limitation period
prescribed under the Excise Act would not be applicable for refunds filed under
Rule 5 of the Credit Rules.
M/s Affinity Express India Pvt Ltd vs CCE, Pune I (Appeal no ST/216/11)
(CESTAT, Mumbai)
Supervision charges for erection and commissioning of a plant, if incidental to the
supply of plant and machinery, and provided free of cost would not be chargeable to
service tax
The taxpayer was engaged in supply of plant and machinery to customers under an
arrangement, which included supervision of erection and commissioning of the plant
and machinery. The consideration charged by the taxpayer was for the supply of
plant and machinery only, and there was no additional charge for the supervision of
erection and commissioning of plant and machinery. The RA contended that the
arrangement was not merely for supply of plant and machinery and included
provision of service for erection and commissioning of plant and machinery. Thus,
the RA levied service tax on the entire amount agreed to be paid by the customer to
the taxpayer for supply of plant and machinery.
The CESTAT observed that in providing supervision of erection and commissioning
of plant and machinery, the taxpayer had not charged anything from the customer
and the incidental costs related to such supervision activity were borne by the
taxpayer. Referring to the judgement passed by Andhra Pradesh HC in case of CIT
vs Sundwiger EMFG & Co, the CESTAT held that supervision has to be considered
as incidental to the supply of plant and machinery. Additionally, even if it was held
that was a service component in the form of supervision of erection and
commissioning of the plant and machinery, the said service was rendered free of
cost and thus no service tax liability can arise on the same. Thus the service tax
demand was set aside by CESTAT and appeal of the taxpayer was allowed.
Larsen & Toubro Ltd vs CCE, Bhopal (F. Order No. 52531/2015) (CESTAT,
Delhi)
Service tax is not applicable on salary and allowances payable by an Indian
company to employees under a dual employment with the parent company
The applicant, a subsidiary of a US based company (“Parent Company”), employed
a person who was also on the permanent employment roll of the Parent Company.
A tripartite agreement was executed between the applicant, the Parent Company
and the employee, whereby the employee was required to provide services under a
contract of employment with the applicant for a specific time period for which the
salaries and allowances were paid by the applicant to the employee. The Parent
Company was required to bear the social security requirements of the employee.
As per the agreement, the applicant was not required to reimburse any amount to
the Parent Company for meeting social security requirements of the employee.
The Authority for Advance Rulings (“AAR”) observed that the language of the
agreement clearly suggested that the employee was under the employment of the
applicant since he provided services solely to the applicant. The AAR also
observed that under the Negative List regime, a fresh definition of ‘service’ was
provided under Section 65 (44) of the Finance Act, 1994 (as amended, ‘the Act’),
which excluded from its ambit services provided by an employee to the employer in
the course employment. The AAR also held that merely because the social security
amount was paid by the Parent Company, it could not lead to an interpretation that
the arrangement was that of a pure ‘service’ between the applicant and the Parent
Company. Thus the AAR held that there was no liability to pay service tax on the
salary and the allowances by the applicant to the employee.
M/s North American Coal Corporation India Pvt Ltd (Advance Ruling No
AAR/ST/13/2015) (AAR)
Refund of service tax filed by SEZ units would be allowable, even if the input
services carried an unconditional upfront exemption
The taxpayer, an SEZ unit, filed a refund claim of service tax paid on services used
in the authorized operations of the SEZ unit under Notification No 9/2009 dated
March 3, 2009. The Revenue Authorities (“RA”) rejected the refund application on
the ground that the services did not have any nexus with the authorized operations
in SEZ, even though the same were approved by the Approval Committee in the list
of approved services. A portion of the refund claim was also rejected on the ground
that an unconditional exemption was provided to such services, when wholly
consumed within the SEZ under Notification no 15/2009-ST dated May 20, 2009.
Thus as per the RA, the taxpayer instead of claiming refund, should have availed
the unconditional exemption.
It was held that refund claim was allowable on all such services that were included
in the list of approved services, as once the Approval Committee certified that
services received by the taxpayer were in relation to authorized operations, a
contrary decision could not be taken by the RA.
Further the refund claim was held to be allowable even in cases where the service
was wholly consumed within the SEZ. The CESTAT held that the taxpayer is
eligible to claim refund where service tax has been paid on the services, thereby
implying that the upfront exemption is optional.
M/s Dell India Pvt Ltd vs Commissioner of Central Excise, Customs and
Service Tax, Bangalore (ST/696/2012-SM, ST/697/2012-SM, ST/698/2012-SM,
ST/700/2012-SM, ST/701/2012-SM, ST/702/2012-SM, ST/703/2012-SM)
(CESTAT, Bangalore)
Key Notifications / Circulars
Allotment of Accounting codes for Swachh Bharat Cess (“SBC”)
CBEC vide this circular communicated the New minor head “506 – Swachh Bharat
Cess” and the following sub heads for payment of SBC:
Tax
Other
Collection
Receipts
Penalties
Deduct
Refunds
(Interest)
00441493
00441494
00441496
00441495
Source: Circular No 188/7/2015 – ST dated November 16, 2015
Comptroller and Auditor General of India (“CAG”) submits report on levy and
collection of service tax on works contract service
CAG has submitted its report on levy and collection of service tax on works contract
service for the year ended March 31, 2015 for perusal by the Parliament. The
report summarizes results of performance audit on levy and collection of service tax
and also gives recommendations in respect of works contract services. Following
recommendations of the report are important to note:
 Inter departmental co‐ordination should be made obligatory, mainly with
Commercial Tax Departments, for identification of unregistered service providers
and broadening of tax base through the regional economic intelligence
committee meetings. The result of this exercise should be reflected in periodical
reports
 Central Board of Excise &Customs (“CBEC”) may consider designing a tool for
reconciling service tax payments received from the taxpayers with the filed
service tax returns of the taxpayers
 Monitoring mechanism to watch non/late filers to be strengthened
Source: CAG Report on works contract service
Applicability of service tax on job work services received by apparel exporters
The Tax Research Unit (“TRU”) has issued a circular which provides clarification on
the applicability of service tax on job work activities by apparel exporters. The
Circular touches upon aspects which are pertinent for classification of activities
performed by a job worker as ‘manpower supply services’ or ‘process amounting to
manufacture’. As per TRU, essential characteristics for an activity to qualify as
‘manpower supply service’ are as under:

The supplier provides manpower which is at the disposal, and temporarily under
effective control of the service recipient during the period of contract

Service provider’s accountability is only to the extent of quality of manpower

Deployment of manpower normally rests with the service recipient

The value of service has a direct correlation to manpower deployed ie,
manpower deployed multiplied by the rate
Source: Circular No 190/9/2015 – ST dated December 15, 2015
BMR Point of View on Maruti Suzuki case
The Supreme Court has recently constituted a Larger Bench to comprise of
three judges. This bench is scheduled to take up select cases where an
earlier decision of the Supreme Court has been doubted and its
reconsideration is sought. An important IDT issue which figures a part of
these cases relates to interpretation of “inputs” and “input services” under the
CENVAT Credit Rules, 2004 (‘CCR’).
The Supreme Court in 2009 in Maruti Suzuki case had the occasion to
interpret the expression “inputs” under the CCR. During the relevant period
the definition of inputs under CCR was comprised of two parts. The first part
included all goods (other than certain excluded items) which were “used in or
in relation to the manufacture of final products”. The second part specifically
enumerated certain goods such as accessories of manufactured products,
packing material etc. Superimposing the criteria in the first part of the
definition upon the goods enumerated in the second part, the Supreme Court
in Maruti Suzuki held that even the specifically enumerated goods was
required to satisfy the test of being “used in or in relation to manufacture”. In
other words, it was held that even though the law specifically provided for
credit on these goods still credit could be availed only upon satisfaction of the
additional condition of the usage of these goods in the manufacturing
process.
The Supreme Court in 2010 in Ramala Sahkari doubted the correctness of
the view in Maruti Suzuki being of the opinion that the legislative intent was
not to restrict the credit on such basis for specifically enumerated goods. The
Supreme Court further observed that the view in Maruti Suzuki “may fall foul
of the definition” under the CCR. Accordingly the Supreme Court in Ramala
Sahkari referred the decision in Maruti Suzuki for reconsideration, which will
now be taken up by the Larger Bench of the Supreme Court.
In our view the reconsideration of Maruti Suzuki is crucial for various reasons.
Firstly this dispute goes to the core concept of inputs under the CCR and it is
therefore essential to clarify the credit policy. Secondly, even though the
dispute is essentially one relating to ‘inputs’, the definition of ‘input services’
being similar, the outcome of this case is likely to affect the credit availability
on ‘input services’. Thirdly, the requirement in Maruti Suzuki to establish
nexus between the input and output poses significant compliance issues
which has led to a large number of disputes. The outcome of this case is
likely to settle these pending disputes. Fourthly, this case may become
relevant even in the larger context of GST which is expected to witness a
large increase in credit base. A seamless credit-chain across inputs and input
services is crucial for a successful GST.
It will be interesting to note the outcome of the Larger Bench, the hearing for the
same may be scheduled anytime now.
m
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Disclaimer:
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