Matter for circulation-- P&H HC: VAT unconstitutionally paid eligible for refund

The taxability on activation of SIM has been a long disputed issue, which attained finality post verdict of Hon'ble Supreme Court of India in case of BSNL v Union of India, in 2006.

However, the issue arose as to what would be the consequence of the amount paid as VAT prior to the said judgment

Recently, similar issue came up before Hon'ble High Court of Punjab & Haryana in the matter of Idea Cellular Limited v. Union of India

The Petitioner, M/s Idea Cellular Ltd., paid the VAT on the transactions of activation of SIM cards, since earlier in case of State of UP v. Union of India, Supreme Court held the activity of activation of SIM cards as exigible to VAT. However, post verdict in case of BSNL, the same was outside the purview of VAT. Therefore, petitioner demanded the refund of VAT so paid, as the same was outside the authority of law under article 265 of Constitution of India.

The respondent contended that the BSNL judgment is prospective in nature. Moreover, the state is not empowered to grant refund u/s 20 of Haryana VAT Act in such a case. And the direction for refund shall be the case of unjust enrichment, which is prohibited by law.

Hon'ble High Court held that BSNL judgment is applicable since inception & can't be construed as prospective in nature. 

Further, when the tax has been collected in the absence of authority of law, the High Court is empowered to issue writ for directing refund to the petitioners.

Accordingly, the amount of VAT paid shall be transferred to the Service Tax Department of Union.  

Comments:

The said judgment has acted as a breather for the industry and it is expected that other cases on the same ground are disposed of in favor of the assesses, in order to avoid unnecessary hardship. 

The judgement has been enclosed herewith for reference.

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Matter for circulation- Highlights of Foreign Trade Policy 2015-2020

Today, Foreign Trade Policy has been announced by Ministry of Commerce & Industry which shall be effective from 1st apr'15 to 31st mar'20.

The glimpse of the same has been produced herein below:

·         Five different schemes(Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri Infrastructure Incentive Scrip, VKGUY) merged into single unconditional scheme named as Merchandise Export from India Scheme(MEIS);

·         SFIS(Serve from India Scheme) has been replaced by Service Exports from India Scheme(SEIS) so as to allow benefits to all services providers located in India, instead of Indian Service Providers. This amendment has been made to abide by the recent verdict pronounced by Hon’ble Delhi High Court in case of YUM RESTAURANTS(I) Pvt. Ltd. V. UOI & Ors.;

·         Scrips as well as goods under both the aforesaid schemes shall be fully transferable;

·         MEIS benefit shall be computed on basis of FOB value of exports, whereas benefit under SEIS shall be based on Net foreign exchange earned;

·         Rates under SEIS shall be 3% and 5%, depending on nature of industry notified;

·         Import of capital goods under EPCG Authorisation Scheme shall not be eligible for exemption from payment of anti-dumping duty, safeguard duty and transitional product specific safeguard duty;

·         Scrips under both the schemes can be used for the payment of customs duty, excise duty and service act at the time of procurement;

·         Certificates by CA/CS/CWA, etc. shall be allowed to be uploaded electronically(digitally signed);

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DGFT: Mandatory documents for Import/Export

Vide N/N 114, dated 12^th Mar’15, DGFT has prescribed following documents(only three in number) which shall be mandatory for the import/export of goods:

Ø  For export:

o   Bill of Lading/Airway Bill ;

o   Commercial Invoice cum Packing List (Separate Commercial Invoice and Packing List would also be accepted);

o   Shipping Bill/Bill of Export

Ø  For imports:

o   Bill of Lading/Airway Bill

o   Commercial Invoice cum Packing List (Separate Commercial Invoice and Packing List would also be accepted);

o   Bill of Entry

The aforesaid notification shall be applicable w.e.f. 1^st Apr’15 & the same has been enclosed herewith for ease of reference.

It is a welcome move made by the govt. in order to attain the objective of 'ease of business'

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Online IEC mandatory w.e.f. 1st Feb'15

In Nov'14, vide public notice no. 76, DGFT had made e-application for IEC(Import Export Code) mandatory from 1st Jan'15 onwards. 

However, in Jan'15, vide public notice no. 80, the same was kept in abeyance till further notified date. 

Now, vide public notice no. 83, dated 30th Jan'15, it has been notified that the e-application for IEC shall be mandatory from 1st Feb'15.

However, at the same time, DGFT has notified following banks with whom net banking facility needs to be accessed for online application of IEC:

1. HDFC Bank;

2. ICICI Bank; 

3. Bank of India; 

4. State Bank of India; 

5. Central Bank of India; 

6. Punjab National Bank; 

7. IDBI; 

8. Axis Bank; 

9. Union Bank of India; 

10. Oriental Bank of Commerce

The applicants, who don't have the net banking facility with any of the aforesaid banks may continue to apply IEC physically till any further date is notified for such category of applicants.  

The said public notice may be accessed from the link herein below:

http://dgft.gov.in/Exim/2000/PN/PN13/PN-%2083.pdf

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SFIS equally applicable for subsidiaries of foreign companies

Recenty, in case of YUM RESTAURANTS (I) PVT.LTD AND Anr. v. Union of India & Ors, Hon'ble High Court of Delhi has pronounced that there is no provision in the Foreign Trade Policy which debars an Indian subsidiary of a foreign holding company from availing the benefit of Serve From India Scheme(SFIS) .

The Court took the view that the 'Served from India' brand can't be construed to include only brands of Indian Companies, which are recognized as Indian.

Accordingly, it set aside the stand taken by DGFT of disallowing the granting of SFIS to Indian subsidiaries of foreign companies.

Furthermore, the Court also held that though the DGFT is empowered to interpret the foreign trade policy, such powers can be exercised only when the plain language of the policy presents an ambiguity, but it It would not be open for DGFT to introduce new conditions and criteria under the guise of interpreting the policy. 

The said verdict may be accessed from the following link herein below: 

http://lobis.nic.in/dhc/VIB/judgement/27-01-2015/VIB27012015CW16632012.pdf

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Summons not to be issued to top management of companies

On 20-Jan-15, CBEC has issued instructions directing the Central Excise officers to be very cautious before issuing summons under excise & service tax laws.

The Board instructed the Superintendents to obtain prior permission of Assistant Commissioner with reasons for issuance of summons in writing.

Post issuance of summons, a report incorporating the briefing of proceedings in the case file should also be submitted by the person issuing the summons.

Further, it also stated that summons should not be issued to senior mgt. officials such as CEO,CFO,General Manager of a large company or a PSU, unless there is an indicator of their involvement in decision making process which led to loss of revenue.

The instructions can be accessed from the link hereinbelow:

http://www.cbec.gov.in/excise/cx-circulars/cx-ins-15/ins-issue-summons-cxst.htm

This articel has been shared by CA Sumit Grover.

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CBEC dispenses with separate packing list in customs

CA Sumit Grover

In order to simply the customs procedures & overcome the hassles, a welcome move has been made by CBEC.

Vide Circular no. 01/2015 dated 12th Jan'15, it has been clarified by the Board that there shall not be any requirement of separate packing list in case commercial invoice cum packing list contains following details in addition to details in commercial invoice:

1) Description of goods;
2) Marks & Numbers;
3) Quantity;
4) Gross Weight;
5) Net Weight;
6) Number of Packages;
7)Types of Packages (such as pallet, box, crates, drums etc.)

However, said option shall be granted to the importer/exporter.

Henceforth, for customs purposes a commercial invoice cum packing list (with details stated hereinabove) would suffice but if importer/exporter desires to give a separate packing list for some reason, the same would also be accepted, like prevailing procedure.

The said circular may be accessed from the Below link:

Download Link

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Supreme Court made BCCI to pay Service tax for recording IPL Cricket Matches

In August’ 14, Hon’ble CESTAT of Mumbai in case of BCCI v. Comm. of Service tax- Mumbai, held that:

1. The activity of producing audio-visual coverage of ‘Indian Premier League’ cricket matches held in India by non -resident service providers would be liable to tax under ‘programme production services’ and BCCI was liable to pay tax under reverse charge mechanism.
2. The Tribunal also took the view that supply of software programmes for recording also falls under the said taxable service.
3. It further held that BCCI has suppressed material facts from the department and hence, extended period of time has rightly been invoked for confirmation of service tax demand.
4. Aggrieved by the said judgement, BCCI filed appeal before the Apex Court.
5. The Hon’ble Supreme Court dismissed the plea of BCCI and upheld the order of CESTAT, thereby resulting in a big blow for BCCI for service tax amounting over Rs. 18 crores and interest & penalty thereupon.

For the sake of convenience, the said order of Supreme Court has been enclosed herewith.

Download Full Text of SC Order 

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Online IEC applications: Postponement of the date of operationalisation

On 27^th Nov’14, DGFT issued public notice no. 76 for mandatory e-filing of IEC(Import-Export Code) Application. The said public notice was supposed to be made effective from 1^st Jan’15 onwards.

However, on 7^th Jan’15, vide public notice no. 80, the said date has been extended further till the new date is notified.

Till the time new mechanism becomes operational, the application may be filed as per earlier procedure.

The said public notice has been given below for ease of reference. 

To be published in the Gazette of India Extraordinary Part-I, Section (I)

Government of India

Ministry of Commerce & Industry

Department of Commerce

Udyog Bhawan, New Delhi

Public Notice 80 / (RE-2013)/2009-2014

Dated the 06 January, 2015

Subject: Online IEC applications: Postponement of the date of operationalisation of Public Notice No. 76 dated the 27th of November, 2014

In exercise of powers conferred under paragraph 2.4 of the Foreign Trade Policy (2009-2014), the Director General of Foreign Trade hereby postpones the date of operationalisation of the Public Notice No. 76 (RE-2013) /2009-2014 dated 27th of November, 2014 vide which amendments in ANF 2A of Handbook of Procedure Vol. I (Appendices and Aayat Niryat Forms), 2009-2014 were made.

2. Vide the Public Notice No. 76 (RE-2013), IEC applications were mandated to be submitted online with effect from 01.01.2015. However, due to some unforeseen technical problems it has not been possible to operationalise the new online IEC system. Therefore, till such time the new online system is operationalised and made effective, from a new date to be notified subsequently, applicants seeking to obtain IEC may fill the Application Form and submit requisite documents and fees (Rs.250/) to the concerned jurisdictional RAs as per the procedure, as existing prior to 01/01/2015.

3. Effect of this Public Notice: Operationalization of Public Notice No. 76 (RE-2013)/2009-2014 dated the 27th of November, 2014, vide which amendments in ANF 2A of Handbook of Procedure Vol. I (Appendices and Aayat Niryat Forms), 2009-2014 were notified, has been postponed and the new date for the same will be notified at a later date. Till such time the new system is operationalised, applicants seeking IEC may submit their applications in the earlier format as per the earlier procedure (existing prior to 01/01/2015), along with requisite documents and fees to the concerned jurisdictional RA.

(Pravir Kumar)

Director General of Foreign Trade

E.Mail:dgft@nic.in

[F.No.01/93/180/20/AM-13/ PC-2(B)]

This article has been shared by CA Sumit Grover. He can be reached at sumitgrover.ca@gmail.com

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Mandatory pre-deposit before filing an appeal before first/second appellate authority under excise & customs

The mandatory pre-deposit before filing an appeal before first/second appellate authority under excise & customs was applicable w.e.f. 6th Aug'14(i.e. date of enactment of Finance Act(no. 2), 2014). 

The ambiguity arose as to whether the cases involving demand of drawback erroneously granted earlier, would also get covered under the newly inserted provisions or not.  

Trade & industry submitted to CBEC that the drawback is not a duty and hence should not be governed by the provisions of mandatory pre-deposit.  

Setting aside the said representations, it has now been clarified by CBEC, vide Circular no. 993/17/2014-CX dated 5th Jan'15, that the requirement of mandatory pre-deposit(post 6th aug’14) would be applicable even in cases of demand of drawback erroneously granted,rebate & baggage, since drawback is nothing but the refund of duty suffered on export of goods. 

However, in case of revision applications before Joint Secretary u/s 129DD of Customs Act, the requirement of pre-deposit doesn't arise. The aforesaid circular has been enclosed herewith for ease of reference.

Below is the Text of the Circular.

F. No. 390/Budget/1/2012-JC

Government of India

Ministry of Finance

Department of Revenue

(Central Board of Excise & Customs)

Circular No. 993/17/2014-CX

New Delhi, dated the 5th January, 2015

To,

1. All Principal Chief Commissioners, Central Excise & Service Tax/Customs

2. All Chief Commissioners, Central Excise and Service Tax/ Customs.

3. Chief Commissioner (AR), CESTAT, New Delhi.

4. All Principal Commissioners of Central Excise & Service Tax/Customs.

5. All Commissioners of Central Excise, Service Tax and Customs

6. All Commissioners (AR), New Delhi, Mumbai, Chennai, Kolkata, Bangalore & Ahmadabad

7. Webmaster

Sub: Mandatory pre-deposit of duty or penalty for filing appeal– reg.

Attention is invited to Circular No 984/08/2014-CX dated 16th September, 2014 on the captioned subject. While para 6 of this Circular laid down the procedure and manner of refund, para 7.2 clearly directed that the Commissionerates should maintain a database of the record of deposits made so as to facilitate seamless verification of the deposits at the time of processing the refund claims made in case of favourable order from the Appellate Authority.

2. In order to maintain uniformity in the database being maintained, the following columns are suggested to be maintained in a separate register (e-register preferably) in the Review Cell of each Commissionerate. The following columns need to be filled in on receipt of each appeal memo as directed in Para 6.2 of the Circular mentioned above. The data should be maintained separately in respect of appeals before CESTAT and Commissioner (Appeals)-

(i) Sl. No.

(ii) Name of the Appellant/ Party

(iii) Details of duty paying document viz Challan etc

(iv) Amount of pre-deposit paid

(v) Order No and date of the order of Commissioner(A)/Tribunal

3. Rule 17 of the CESTAT (procedure) Rules, 1982 stipulates that a copy of the appeal memo is to be sent to the Departmental Representative as well as to the Executive Commissionerate. This is required to be done by the Tribunal registry where the appeal memo is received. It has been brought to the notice of the Board that appeals filed before the Tribunal on or after 6th August are not being sent to the Commissionerate. Therefore, it is emphasized that Rule 17 ibid has to be followed and the Tribunal Registry must send a copy of the appeal memo to the Commissionerate immediately after receipt. Similarly, a copy of the appeal memorandum filed before the Commissioner (Appeal) must be sent to the Commissionerate concerned by the office of the Commissioner (Appeals). This would help in processing the refund claims quickly.

4. Para 1.2 of the Circular ibid stated that amended provisions would apply to appeals filed after 6th of August, 2014. An Act of Parliament comes in to effect on the date it received the assent of the President of India. Hence, the amended provisions regarding filing of appeal along with stipulated percentage of pre-deposit shall apply to all appeals filed on or after 6th August, 2014. Para 1.2 of the earlier Circular stands suitably modified.

5. Several representations have been received by the Board stating that some Commissioners (Appeals) have been insisting on pre-deposit in cases of demand of erroneous drawback granted. It has been represented that drawback is not a duty and hence the amended provisions would not apply to such cases.

6. The issue has been examined. Drawback, like rebate in Central Excise, is refund of duty suffered on the export goods. Section 129E stipulates that appellant filing appeal before the Commissioner (Appeals) shall pay 7.5% of the duty demanded where duty and penalty are in dispute. Accordingly, it is clarified that mandatory pre-deposit would be payable in cases of demand of drawback as the new section 129E would apply to such cases.

7. The ambit of the Section 129E of the Customs Act, 1962 in the legislation does not extend to appeals under section 129DD before Joint Secretary (Revision Application). Therefore, while mandatory pre-deposit would be required to be paid in cases of drawback, rebate and baggage at the first stage appeal before Commissioner(Appeals), no pre-deposit would be payable in such cases while filing appeal before the JS(RA).

(Archana P Tiwari)

Joint Secretary (Judicial/Review)

This article has been shared by CA Sumit Grover. He can be reached at sumitgrover.ca@gmail.com

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Penalty leviable even if service tax is paid before SCN

Recently, Hon'ble Karnataka High Court in the matter of K. Madhav Kamath Brother & Co. v. Asst. Comm. of Central Excise, pronounced that even if service tax is paid prior to Show Cause Notice, still the penalty shall be leviable u/s 76/78, 77 of Finance Act'94.

Brief facts of the case:

The matter pertains to the period Jan'06 to Oct'06. The department issued SCN for non-filing of return& non-payment of service tax along with the levy of penalty on the same(within the SCN itself) u/s 76/78 & 77 of Finance Act'94

However, the assessee deposited the  service tax liability before issuance of SCN.

The assessee contended that since there wasn't any intention to evade service tax, and non-filing of returns/non-payment of tax was merely bonafide mistake, hence penalty couldn't be levied.

On appeal being filed before CESTAT-Bnglr,the tribunal rejected the plea of assessee and upheld the levy of penalty. Subsequently, appeal was filed before High Court.

The High Court also held that even if service tax is paid prior to issuance of SCN, it doesn't preclude from levy of penalty u/s 76/78 & 77 of ibid.

The aforesaid verdict may be accessed from the following link:

Download the Verdict

Comment :

The aforesaid judicial pronouncement pertains to Jan'06 to Oct'06, however, from 8th May'10, explanation 2 to section 73(3) was inserted to grant relief from penalty, but that too in case both(i.e. service tax as well as interest) were paid before issuance of SCN.

Therefore, it would be interesting to see if department can take advantage of the the said judgement for levying penalty in cases post May'10 wherein service tax was paid before issuance of SCN but interest wasn't deposited?

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Matter for circulation- Sales of car not taxable under DVAT

Recently, Hon'ble Delhi High Court in the matter of Anand Decors & Ors. v. CTT, New Delhi, has pronounced that the cars, even though fall within capital goods, but sale of used cars is not subject to VAT under Delhi VAT Act, by virtue of section 6(3) of ibid.

Brief facts of the case:

The appellants were manufacturing certain commodities & were registered dealers under DVAT Act. They purchased motor vehicles(though non-dealing in the trading of motor vehicles) but didn't avail ITC thereon under DVAT. The revenue authorities considered the subsequent sale of said vehicles(post use thereof) as chargeable to VAT. The Tribunal also upheld the view of department. Thereafter, the appellant moved to High Court. And following observations were made by the Court:

1) Capital goods & capital assets are distinguishable;

2) Motor Vehicles would be a capital good, since the expression used is "directly or indirectly used in manufacturing......" & its purchase thereof would form part of business, but ITC thereon is not available by virtue of section 9(2).

3) Four conditions have be met out for excluding sale of car from the ambit of taxability under DVAT(i.e. exemption u/s 6(3) of ibid):

• There should be a sale of capital goods;
• The said capital goods should have been used by the dealer from the time of purchase till sale;
• The purpose for which the capital goods were used should be for making sale of taxable goods or taxable goods and non-taxable goods. The capital goods should not be exclusively used for making sale of non-taxable goods.
• The dealer should not have taken tax credit in respect of such capital goods under Section 9.

4) In the instant case, all these conditions have been duly fulfilled by the appellant, accordingly, the benefit of exemption from VAT can't be denied.

The said judgement may be accessed from the following link:

Download Judgement

Comments:

This verdict has emerged as a breather to the industry. Undue litigation from departmental side would be halted till the time any overruling verdict by the Apex Court is pronounced.

Such types of litigation prone areas should also be taken up by the Ministry of Finance at the time of framing GST laws.

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SC grants stay on Delhi HC verdict on service tax audits

In August,2014, Hon'ble High Court of Delhi in the matter of UNION OF INDIA & ORS. v. M/S TRAVELITE (INDIA) pronounced that the service tax audits conducted u/r 5A(2) of Service tax rules, 1994 are not valid in law. 

Thereafter, department moved to SC against the impugned judgement. The matter was admitted by the court and on 18th Dec'14, Hon'ble Apex Court has granted a stay on the operation of the judgement made by High Court.

It would be quite interesting to see the fate of service tax audits in the eyes of this case. And it might become a landmark judgement with respect to service tax audits conducted by department since inception. 

The said stay order can be accessed from the following link:

Click Here to Download Full text of the Supreme Court Stay Order

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Supreme Court: Mobile/cell charger is not a part of cell phone

Hon’ble Supreme Court has delivered a landmark verdict in the matter of STATE OF PUNJAB & ORS. v. NOKIA INDIA PVT. LTD. & pronounced that the mobile/cell phone charger is an accessory to cell phone and is not a part of the cell phone.

Brief facts of the case:

The matter pertains to the Punjab VAT Act, 2005 wherein the cellular telephones at allowed to be taxed at a concessional rate. M/s Nokia India Pvt. Ltd. deals in selling of mobile phones and mobile chargers. It paid concessional tax on chargers as well. The Assessing Authority held that the mobile chargers  are the accessories, hence full rate of tax was supposed to be levied thereupon. The matter went to appeal. The Deputy Commissioner(Appeals) as well as Tribunal upheld the stand taken by the assessing authority.

However, the P&H High Court took the contradictory view stating that battery charger is a part of the composite package of cell phone.

Aggrieved by the order of High Court, govt. filed an appeal before the Apex Court.

M/s Nokia contended that charger is an integral part of the cell phone and the cell phone cannot be operated without the charger and when any person comes for cell phone, he purchases the cell phone and then automatically takes away the charger for which no separate money is charged.

Conclusion:

The court held that battery charger cannot be held to be a composite part of the cell phone but is an independent product which can be sold separately, without selling the cell phone.

The said verdict may be accessed from the link hereinbelow:

http://judis.nic.in/supremecourt/imgs1.aspx?filename=42202

Comment:

It will be a setback for the industry(especially operating in Punjab VAT). It would be interesting to note whether the said interpretation shall be referred to the Constitutional Bench at a later stage or not.

This case law has been submitted by CA Sumit Grover. He can be reached at sumitgrover.ca@gmail.com.

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Changes in Negative List & Service Tax Rules wef 01.10.2014

Service tax Notification no. 18/2014-ST & 19/2014- ST dated 25th Aug'14 Effective  date  of amendment-1st Oct'14

SERVICES PROVIDED BY RADIO TAXIS:

• Earlier,radio taxis were excluded from the purview of service tax by virtue of section 66D(o)(vi) of Finance Act,1994;
• However, in the Finance (No.2) Act, 2014, enacted on 6th  August, 2014, the said section was amended & the "radio taxis" got deleted,resulting in levy of service tax thereupon.  However, effective  date  wasn't  notified.    Now, the  same has been notified as 1st October,2014;
• At the same time, abatement of 60% shall be allowed in such cases, as provided in entry  no. 9/9A of  N/N  26/2012-ST, amended by N/N 08/2014-  ST, subject to the condition that no CENVAT is claimed.
• Hence, effective rate of service tax shall be 4.944%.

SERVICES PROVIDED BY RADIO TAXIS:

• As per the erstwhile provisions contained in section 66D(g) of Finance Act,1994, sale of space for advertisement, other than radio & television, used to remain excluded from the levy of service tax.
• In the Finance (no. 2) Act, 2014, all advertisements, other than in print media, were made  subject  to  service tax, though  effective  date  of  applicability  of  amended provisions, was not defined.
• Now,the same has been notified as 1st October, 2014.

DETERMINATION OF RATE OF EXCHANGE: 

• From 28-May-2012, section 67A was inserted to determine the rate of exchange to be opted  for the purpose of determination  of value of the taxable service & such rate  was  construed  to  be  the  rates  notified   by  CBEC  from  time  to  time,  in accordance with section 14 of Customs Act,1962.
• This had  led  to  various  practical  difficulties  in  the  industry,  since they  had  to separately maintain  a track record  as per CBEC rates for the  purpose of valuing import  or export of service, while in financial statements the rates were considered on a different basis(e.g. RBI rates, Bank TT buying/selling rate, etc.)
• Now, w.e.f. 1st October,2014,rule 11 has been inserted in Service Tax Rules,1994 to consider the rate of exchange as per GAAP on the date when Point of taxation arises in terms of the Point of Taxation Rules, 2011
• Post  this amendment, an ambiguity  may arise as to whether  the same rates may also be used for valuing export of services,or department may take the other view?

 t  This Article has been share by CA Sumit Grover. He can be reached at sumitgrover.ca@gmail.com

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