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DIMENSIONS - November 2016

14 December 2016

SERVICE TAX

Case Laws

Activity undertaken in agricultural land does not

amount to agricultural activity

The assessee is a registered company engaged in the

business of construction and implementation of

various projects including the widening and

carpeting of roads etc. The assessee received a work

order from M/s Sahara India Commercial

Corporation Ltd. (SICCL) for the levelling of soil

including the filling of gorges and the removal of

shrubs, grass and rubbish etc. for a total of 24 acres

of agricultural land which was bought for the

development of residential and other buildings,

colonies and a township by SICCL. The assessee

issued an invoice for the work executed and no

service tax was paid by the assessee, and the same

was not disclosed in the ST-3 returns. The assessee

claimed that the activity was in relation to

agricultural land and thus excluded from the

definition 65(97a) and further claimed exemption

under notification no. 17/2005 - Service Tax (with no

details as how this was applicable). The

Commissioner, Central Excise, passed order

confirming the demand along with interest and a

penalty. The assessee preferred an appeal before the

Tribunal, which was rejected.

The High Court framed the following questions:

a) whether the Tribunal is right in holding the

assessee guilty of suppression and extending the

period of limitation;

b) whether the Tribunal is right in holding that the

activity as ‘agricultural land levelling’ covered

under sub-clause (zzza) of clause (105), read with

clause (97a) of Section 65 of the Finance Act,

1994.

The High Court held that from the definition of ‘Site

formation and clearance, excavation and

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earthmoving and demolition’, it is clear that the

activity of site formation, clearance, excavation, and

earthmoving and other such activity is taxable,

whereas work relating to agriculture, irrigation,

watershed development and drilling, digging,

repairing, renovating or restoring of water sources or

water bodies has been excluded from tax. Therefore,

the work of levelling of soil including the filling of

gorges, and the removal of shrubs, grass and rubbish

etc. for the purpose of the development of a

township for SICCL does not amount to agricultural

activity merely because the activity is conducted in

agricultural land. As the assessee did not disclose the

work in the ST-3 return, the same would amount to

suppression of fact. Hence, the case was decided

against the assessee.

Dhruva Comments:

To be eligible for exclusion under “in relation to

agriculture ---“, the land use is critical, it should be

used for agriculture. The benefit of exclusion would

not be available simply because the land is a piece of

agricultural land.

NKG Infrastructure Ltd vs. Commissioner of

Customs, Central Excise and Service Tax [2016-

TIOL-2718-HC-ALL-ST]

Distribution of credit by an Input Service

Distributor (ISD) to a Job Worker is not an

eligible credit prior to 01 April 2016

The assessee is engaged in the manufacture of

‘PARLE’ brand sugar boiled confectionery and were

clearing their entire production to M/s Parle

Products Private Ltd (PPPL). The entire raw material

and inputs were supplied by PPPL. The assessee

claimed CENVAT credit based on the invoice raised

by PPPL for supplying the raw material, also on the

ISD invoice, distributing the credit under Rule 7 of

CENVAT Credit Rules, 2004 (CCR). The credit taken

on the ISD invoice was questioned in the show cause

notice. The assessee contended that they are

working under the Notification No. 36/2001-CE (NT)

dated 26 January 2001, therefore the assessee would

be treated as a manufacturing unit of PPPL for

Central Excise purposes. Also, from the substituted

Rule 7 of CCR on 01 April 2016, it is clear that the

intent of the legislature is to amend the rule and to

give effect to such changes retrospectively. The

adjudicating authority and the first appellate

authority rejected the contention and confirmed the

demand. The Tribunal held that the assessee cannot

be treated as a manufacturer in view of the settled

position law in the case of Sunbell Alloys Com of

India Ltd, Machsons Pvt Ltd. [2014 (34) STR 597

(Tri. – Mumbai)]. However, a consequential relief was

given to the assessee in view of the fact that the

revenue had failed to establish that the assessee

intended to wilfully suppress the facts with an intent

to evade payment of duty.

Dhruva Comments:

The Tribunal on deciding the case had relied upon

the case of the Tribunal judgement in the case of M/s

Sunbell Alloys Co Of India Ltd & Machsons Pvt Ltd.

However, an appeal against the judgment has been

admitted in the Bombay High Court and has not

been decided. However, the issue is settled in favour

of the assessee from 01 April 2016 consequent to the

amendment to CCR.

Ruby Confectionery Pvt Ltd vs. Commissioner of

Customs, Central Excise and Service Tax,

Hyderabad-IV [2016-TIOL-2871-CESTAT-HYD]

Limitation shall be computed from the last day of

a quarter in which FIRCs are received, for the

purposes of filing a claim for refund of CENVAT

Credit under Notification 27/2012-CE (NT) dated

18 June 2012

Through two claims filed, the assessee had sought

for refund of unutilized CENVAT credit in terms of

Notification 27/2012 – CE (NT) dated 18 June 2012,

read with Rule 5 of CCR. The adjudicating authority

partially allowed and partially rejected the refund.

The invoices on which refund was being sought were

addressed to a premise which was not included in

the registration certificate of the assessee, and also


the claims were filed beyond the prescribed period

of one year from the date of issue of FIRC. The

assessee filed an appeal before the first appellate

authority, which set aside the grounds of rejection

taken by the adjudicating authority and held that the

entire claim was eligible for refund. It is against this

order passed by the first appellate authority that the

Revenue appealed before the Tribunal.

The Tribunal observed that, under the Notification,

an assessee can file a claim for refund once in every

quarter and that the limitation period becomes

operative from the date of issue of FIRC. The

Tribunal, with a reading of the two, was of the view

that it is implied that the limitation period would

begin from the last date of the quarter in which FIRC

was received and accordingly held that the entire

claim was filed within the prescribed time limit. With

respect to the invoices addressed to an unregistered

address, the Tribunal was of the view that

registration was not a mandatory prerequisite to

obtain credit and accordingly held that credits

availed on the strength of such invoices should be

eligible for refund.

Dhruva Comments:

In terms of this decision, the limitation period for

computing the time limit for filing a claim for refund

of unutilized CENVAT Credit in terms of Notification

27/2012 – CE(NT), dated 18 June 2012, read with Rule

5 of CENVAT Credit Rules, 2004, would begin from

the last day of a given quarter during which the

money was received, and for which the claim for

refund is to be filed.

Commissioner of Central Excise – I, Pune vs. SG

Analytics Pvt. Ltd. [TS-486-CESTAT-2016-ST]

Trading was an “exempt service” even prior to 01

April 2011

The assessee was engaged in the business of

manufacture of pharmaceutical goods. The assessee

would either manufacture the goods in its own

capacity or would procure the goods from third-

party manufacturers. For this purpose, the assessee

was registered with the Large Taxpayers Unit and

was also registered as an ISD. In its capacity as an

ISD, the assessee distributed the credits availed by it

in its head office during the periods 2008-09, 2009-

10 and 2010-11 (the relevant period), pertaining to

the common input services which were used for

dutiable goods manufactured by itself and for goods

manufactured through third-party manufacturers.

These were then availed by the respective factories

of the assessee to which the credit was distributed.

The revenue issued notices to all the factories of the

assessee demanding the reversal of such credit, as

originally availed by the assessee on the goods

manufactured through the third-party

manufacturers. The revenue imposed a penalty on

the ground that such credit pertains to goods

manufactured through the third-party

manufacturers and procured by the assessee, an

activity which is merely trading and is neither

manufacturing nor a service activity.

The assessee contended that the credits pertained to

a period when the definition of ‘exempted service’

did not include ‘trading’ and it was only with effect

from 01 April 2011, that trading became an

exempted service pursuant to the amendment to the

definition of ‘exempted service’. The assessee also

contended that the mechanism to proportionately

reverse CENVAT credit attributable to the trading

activity was also introduced with effect from 01 April

2011 consequent to the amendment of the definition

of ‘exempted service’ and therefore during the

relevant period there was no mechanism to reverse

credit attributable to reversal of credits. The

Commissioner (Appeals) disallowed the credit,

holding that trading was an exempt service even

before 01 April 2011.

The revenue contended that the credits pertaining to

input services used for trading activity were not

admissible in the first place for the same to be

distributed as the activity of trading was neither a

manufacturing activity not an output service prior to

01 April 2011.


The Tribunal held that an activity of purchase and

sale of manufactured goods is pure trading of goods

and therefore, the said the activity cannot be

construed as a service, and since, the activity of

trading is not a service, the same cannot be termed

as exempted service as well. The Tribunal also held

that the amendment to the definition of ‘exempted

service’, which was with effect from 01 April 2011,

wherein the activity of trading was included in the

said definition, has prospective effect only. However,

by placing reliance on various judgments the

Tribunal held that trading was not a service even

before 01 April 2011 and accordingly did not find any

infirmity in the order of Commissioner (Appeals)

which held that the credit of common input services

cannot be availed as trading was an exempt service

even before 01 April 2011.

Dhruva Comments:

With the regard to this subject matter, there have

been judgments in conflict with this decision. The

explanation inserted to the definition of ‘exempted

service’ through which the activity of trading was

termed as an exempted service has been given

prospective effect by the Tribunal. However, the

explanation reads: ‘For the removal of doubts, it is

hereby clarified that "exempted services" includes

“trading’’, which implies that the same could also be

given retrospective effect. Therefore, with respect to

the applicability of the amended rule which defines

‘exempted service’, it is uncertain as to whether it

would have retrospective or prospective effect.

M/s Micro Labs Ltd vs. Commissioner, LTU

Bangalore [2016 (11) TMI 1106 CESTAT

BANGALORE]

Notifications and Circulars

Telecommunication service shall not include

online information and database access or

retrieval

The definition of ‘telecommunication service’ under

rule 2(q) of Place of Provision of Service Rules, 2012,

has been amended to exclude the service provided

in terms of online information and database access

or retrieval.

Notification No. 51/2016-Service Tax dated 30

November 2016

VALUE ADDED TAX

Case Laws

Freight charges are to be included in the turnover

when the ownership remains with the dealer till

the place of delivery

Pohari Saran Mishra, the assessee, had supplied

stone ballast. In addition to the price, there was a

separate charge for freight for transporting the

goods to the railway siding. As per the terms of the

contract:

The goods were to be supplied to the railway

siding and the ownership and responsibility

remained with the assessee during transit.

The measurement of the stone ballast was to be

carried out at the railway siding.

The goods were to be removed by the supplier

within sixty days of deposit if they were found not

to be of the prescribed quality.

The Explanation-II of the definition of ‘turnover’, u/s

2(i) of the U.P. Trade Tax 1948, states that when the

cost of freight or delivery is charged separately then

it is not to be included in the turnover. Accordingly,

the assessee did not include it in the turnover as the

freight charges were shown separately on the

invoice. The department disputed this and the

Tribunal held in favour of the department.

Thereafter, the assessee filed an application before

the High Court of Allahabad.


The High Court observed the following:

The Supreme Court in the case of India Meters

Ltd. vs. State of Tamil Nadu [(2010) 9 SCC 423-

SC] held that if the dealer is required to deliver

the goods at a place as per the terms of the

contract then the freight charges would have to

be included in the assessable value even if the

freight charges are shown separately on the

invoice.

The words “when such cost or amount is

separately charged” in the definition of ‘turnover’

is to be restricted only to those transactions

where the obligation to transport the goods is

not an essential facet of the sale.

Thus, the terms of the contract and the intention

of the parties is to be seen to determine the

inclusion of the charges incurred by the dealer at

the time of or before the delivery thereof. The

inclusion of freight in the turnover would depend

upon the essential attributes and obligations of

the bargain and the expenses which the seller is

liable to incur to achieve and complete the

transfer of property in goods.

Accordingly, the High Court upheld the inclusion of

freight charges in the turnover on the basis that the

freight charges were incurred in respect of the goods

for completion of the sale. The freight charges

incurred were not a special condition imposed by the

buyer and thus, even if the freight charges were

shown separately on the invoice, the same were

includible in the ambit of ‘turnover’.

Dhruva Comments:

The above decision, though delivered under the U.P.

Trade Tax 1948, equally applies to the present CST/

State VAT Acts which also contain a similar exclusion

clause. The decision is in line with the previous

judgements of the Supreme Court/ High Courts

where it has been held that the levy of VAT/CST on

the freight charges incurred upto the place of

delivery will have to be included in the assessable

value.

Pohari Saran Mishra vs. Commissioner,

Commercial Tax U.P. Lucknow [2016-TIOL-2791-

HC-ALL-CT]

Concessional rate of tax is to be allowed based on

‘Duplicate C Form’

Standard Machinery Sales Company (the assessee)

had availed the benefit of concessional rate of tax,

u/s 8(1) of the CST Act, based on the C Form, issued

u/s 8(4) of the CST Act. The department rejected it

on the ground that the assessee had not submitted

the ‘Original C Form’. The assessee contended that

the Original forms were given to the department but

the same were lost by the department. The

department did not take into consideration the

‘Duplicate C Form’ submitted by the assessee at the

time of assessment.

The High Court observed:

There are three portions of the ‘C Form’ i.e.

Original, Duplicate and counterfoil. The

counterfoil is retained by the buyer. The Original

and Duplicate is sent to the seller which is to be

submitted to the assessing officer of the seller.

Even if the Original is lost then the claim can very

well be verified from the Duplicate part of the C

Form.

In the case of Manganese Ore (India) Ltd. vs.

The Commissioner of Sales Tax [(1991) 83 STC

116], the Madhya Pradesh High Court held that

the benefit of concessional rate of tax should be

allowed on the basis of the Duplicate C Form.

Accordingly, the matter was remitted back to the

assessing officer to determine the benefit available

based on the Duplicate C Form.


Dhruva Comments:

In this decision, reliance has been placed only upon

the case of Manganese Ore (supra) which was held

incorrect by the Kerala High Court in the case of

Malabar Cashewnuts & Allied Products [2006 (8) TMI

555] on the basis of the reading of legal provisions

relating to the C Form. Further, there have been

various judicial precedents relying on the Supreme

Court judgement in the case of India Agencies [2004-

TIOL-106-SC-CT-LB] where it has been held that if

there are specific provisions in the State CST Rules to

produce the Original C Forms and if this is not done

then the benefit of concessional rate of tax would not

be allowed, unless the procedure laid down in Rule

12(3) of the Central Sales Tax (Registration and

Turnover) Rules, 1957 has been followed for

obtaining the Duplicate C Form from the purchasing

dealer. Thus, one needs to refer to the specific State

CST Rules with respect to the submission of the

declaration and the eligibility of the concessional

rate of tax.

Standard Machinery Sales Company vs. Assistant

Commissioner (CT) Chennai [2016-TIOL-2850-

HC-MAD-CT]

Situs of sale in the case of intangibles when the

mode of communication of the acceptance is not

known, is the place where the acceptance of the

contract is communicated to the offeror

Domino’s Pizza Overseas Franchising B.V.,

Netherlands (the assessee) entered into a license

agreement dated 17.04.2007 with Domino’s IP

Holder LLC, USA (“IP Holder”), obtaining the right to

grant franchise for ‘Domino’s Pizza Stores’ outside

USA. Subsequently, M/s Jubilant Foodworks Ltd.,

Noida (JFL) (erstwhile name Domino’s Pizza India

Ltd.) requested the assessee to grant sub-franchise

of Domino’s Pizza Stores in India, Nepal, Bangladesh

and Sri Lanka. An agreement dated 23.09.2009 /

01.10.2009 / 02.10.2009 was executed between JFL

and the assessee for the same.

JFL was paying a consideration of 3% of total sales

made, as royalty to the assessee, and was also paying

service tax under the reverse charge mechanism

under ‘Franchise service’ category. The department

observed that the royalty paid is taxable under the

U.P. VAT Act, 2008 (Act) and accordingly, passed the

assessment order. The assessee filed a writ petition

before the High Court on the ground that the

agreement between the assessee and JFL had been

executed outside India and so the department has

no jurisdiction to levy tax on a transaction executed

outside India and the franchise agreement is not

chargeable to VAT as it is a service and service tax is

being paid on the same.

The High Court stated that the right to use goods

constitute a brand name “Domino’s Pizza” without

any discussion on it. Further, the subsequent

question to be answered was: what is the place

where the right to use the goods is exercised in terms

of the definition of place of business as defined u/s

2(x)(iv) of the Act, for which it observed as follows:

The offer was made by JFL at Noida on

23.09.2009, accepted by the assessee on

01.10.2009, and was communicated to JFL at

Noida. The place of signature is not mentioned in

the agreement.

As per section 4 of the Indian Contract Act, 1872

(Contract Act), communication of an acceptance,

is completed as against the proposer when it is

accepted and put in the course of transmission to

the proposer and as for the proposer when it

comes to the knowledge of the proposer. The

said section deals with the communication of a

proposal’s acceptance and revocation and not

with the place where the contract takes place.

Reference was made to various judgements to

determine when the communication of

acceptance is completed in the case of

communication by post, telex or email.

In the current case, there was no mention of how

and in what manner the communication of


acceptance was made. Accordingly, the

acceptance is completed only when it is

communicated to the offeror, which will be the

place from where the offer was made, i.e. Noida.

Thus, the High Court dismissed the writ petition,

holding that the transaction was executed in Noida

and was within the jurisdiction of the department to

levy VAT.

Dhruva Comments:

The issue of the taxability of intangibles has been a

subject matter of dispute in the recent past. The

Supreme court in the case of 20th Century Finance

Corp. Ltd observed that the situs of sale in the case

of transfer of right to use the goods would be the

place where the contract is executed. In the absence

of the contract stipulating the place of execution, the

present judgment goes a step further to determine

the same in terms of the Indian Contract Act.

Further, there have been recent rulings pronounced

by High Court/Tribunal which have applied different

yardsticks to determine the situs of sale in case of

intangibles. We hope that such issues should be put

to rest with the introduction of GST.

M/s. Dominos Pizza Overseas Franchising B.V. vs.

State of U.P. and Others [TS-484-HC-2016(ALL)-

VAT]

Notifications & Circulars

Maharashtra

Extension of due dates for filing of returns

The government vide circular no. 22T of 2016, dated

30 August 2016, had prescribed the due dates for the

monthly/quarterly returns for the period April 2016

to September 2016. The due date was further

extended to 15 November 2016 vide circular no. 34T

of 2016, dated 02 November 2016.

Further, the government has now again revised the

due dates for the monthly/quarterly returns for the

period April 2016 to October 2016 due to the

technical difficulties being faced by the dealers. The

revised dates are as follows:

Return Period Start Date Last date for

uploading

Apr 16 - Oct 16

(Monthly return)

- 30/11/2016

Apr 16 - Jun 16

(Quarterly return)

26/11/2016 10/12/2016

Jul 16 - Sep 16

(Quarterly return)

02/01/2017 21/01/2017

Further, the dealers who have already filed their

returns after the due dates mentioned in the

previous circular 34T of 2016 may revise such returns

for the recovery of late fees by way of carry forward

the excess amount to the next return period as an

excess credit.

The waiver of late fees and the facility of late

uploading of returns will not be available for the

monthly returns for the period November 2016 to

March 2017 and quarterly returns for the period

October 2016 to March 2017. The returns for the said

period must be filed on or before 21st day of the

month subsequent to the return period.

Trade Circular No. 36T of 2016 dated 21

November 2016

Computerized Desk Audit (CDA) for 2013-14

The department has generated the CDA reports for

2013-14 based on the electronic data pertaining to

e-Returns, audit reports in form e-704 and annexures

thereof uploaded by all the dealers, which can be

accessed through the website www.mahavat.gov.in.

This report is prepared based on certain parameters.

The detailed procedure for complying with the CDA

has been explained in the circular.

Trade Circular No. 37T of 2016 dated 25

November 2016


Maharashtra Settlement of Arrears in Disputes

Rules, 2016

The government vide ordinance no. XXVII of 2016

dated 15 November 2016 had extended the time

limit for settlement of arrears in dispute from 15

November 2016 to 30 November 2016.

The department has now notified the said rules

whereby fifty percent of the amount payable under

the Maharashtra Settlement of Arrears in Disputes

Act, 2016, shall be paid by 30 November 2016 and

the balance on or before 31 December 2016.

The benefits under this rule will not be available if the

application is not made in Form 1 and the appeal

pending before the appellate authority or Tribunal or

the Court is not withdrawn before 30 November

2016.

Notification No. SAD 1516/CR 155/Taxation-1.-

dated 19 November 2016

Gujarat

Non-entitlement of ITC on Natural Gas

The government has notified that the whole of the

input tax credit on natural gas will not be eligible

when it is sold/resold in the course of inter-State

trade and commerce or consigned or dispatched for

branch transfer or to an agent outside the state.

Notification No. (GHN-70). VAT-2016-S-

11(6)(7)-TH dated 28 November 2016

Extension of due date for return filing

The due date of filing the monthly/quarterly return

for the period ending 30 September 2016 was 14

November 2016. However, due to Diwali vacation in

the last week of October, demonetisation and the

GST migration drive, the department has extended

the due date to 14 December 2016

Circular GUJKA/VAT-15/16-17/JA.188/163 dated

21 November 2016

Central Excise

Case Law

Exemption from education cess (‘EC’) and

secondary and higher education cess (‘SHEC’) on

clean energy cess cannot be extended to excise

duty imposed on coal

The assessee is engaged in mining and the sale of

coal. Clean energy cess (‘CEC’) was first levied, as a

duty of excise, under section 83 of Finance Act 2010

on goods specified in the Tenth Schedule to Finance

Act 2010, in which coal is one of the specified goods.

Section 83(7) of Finance Act 2010 stated that the

Central Government may, through a notification,

declare that certain provisions of Central Excise Act,

1944 (‘Excise Act’) would be applicable on CEC.

Furthermore, the Tenth Schedule specifically

mentioned that "chapter", "heading", "sub heading",

and "tariff item" and Rules for interpretation of the

First Schedule of the Central Excise Tariff Act 1985

(‘CETA’), shall apply to the interpretation of the Tenth

Schedule of Finance Act 2010.

The assessee had obtained registration under the

Clean Energy Cess Rules 2010 effective from 01 July

2010 and discharged CEC on the removal of coal

from their mine.

The Central Government issued Notification No.

28/2010-CE and Notification No. 29/2010-CE both

dated 22 June 2010 granting exemption from the

payment of EC and SHEC, respectively, to goods

specified in Tenth Schedule of Finance Act 2010.

A nil rate of excise duty was imposed on coal up to

February 2011 in the First Schedule to the CETA. With

effect from 01 March 2011, Finance Act 2011

introduced excise duty on coal. The assessee duly

discharged applicable excise duty on coal. However,

EC and SHEC was not paid by the assessee under the

impression that the same is exempted vide

Notification No. 28/2010-CE and 29/2010-CE.


The issue that came up before the Hon’ble CESTAT

was, whether exemption from EC and SHEC (granted

under Notification No. 28/2010-CE and 29/2010-CE,

respectively) is applicable only with regard to CEC

levied on coal or whether the said exemption is also

applicable with regard to excise duty levied on coal.

The Hon’ble CESTAT made the following

observation:

Section 83 of Finance Act 2010 and the related

Tenth Schedule thereof have merely incorporated

specific and limited provisions of Excise Act and

CETA for the sake of convenience, in order to

avoid verbatim reproduction of the provisions of

the Excise Act and CETA into Finance Act 2010.

The Hon’ble CESTAT focused on the doctrines of

‘legislation by reference’ and ‘legislation by

incorporation’ and discussed the following

principles:

As per ‘legislation by reference’, the amended

laws of the former Act would normally

become applicable to the later Act;

As per ‘legislation by incorporation’, the

provisions of an Act are specifically referred to

and incorporated in the later statute. Such

incorporated provisions alone are applicable

and the amending provisions of the former

Act would not become part of the later Act.

Based on the analysis of the above doctrines, the

CESTAT opined that the relevant portions of

section 83 of Finance Act 2010 and related Tenth

Schedule are merely ‘legislation by

incorporation’. Therefore, the exemption of EC

and SHEC granted to goods specified in Tenth

schedule of Finance Act 2010 cannot be extended

to goods specified in the First Schedule of CETA.

Section 83(5) of Finance Act 2010 clearly

stipulates that CEC shall be due in addition to any

cess or duty leviable on the goods specified in the

Tenth Schedule or under any other law in force,

which shows that CEC is only one of the duties of

excise leviable on coal, limited to the said Tenth

Schedule. Hence, an exemption from EC and

SHEC on CEC does not mean exemption from EC

and SHEC on excise duty.

The CESTAT noted that excise duty on coal was

introduced in 2011, whereas the exemption

notifications were issued in 2010. Therefore, it

would be incorrect to suggest that a notification

issued in 2010 intended to grant exemption not

only in respect of the prevailing duty, but also in

respect of all future duties which may be levied

from time to time.

The CESTAT further noted that Notifications

14/2015-CE and 15/2015-CE, both dated 1 March

2015 were issued to exempt all excisable goods

from EC and SHEC. However, a separate

Notification No. 17/2015-CE dated 1 March 2015,

was issued rescinding exemption notifications

28/2010-CE and 29/2010-CE. The very fact that

the Government found it necessary to issue a

separate Notification No. 17/2015-CE to rescind

former Notification No. 28/2010-CE and

29/2010-CE suggests that the exemption from EC

and SHEC was initially available only to CEC.

Consequentially, EC and SHEC was very much

imposable on excise duty until the issue of

exemption Notification No. 14/2015-CE and

15/2015-CE dated 1 March 2015.

The CESTAT also relied on CBEC circular

354/42/2014-TRU dated 22 September 2015

wherein it was clarified that exemption from EC

and SHEC under Notifications No. 28/2010-CE

and 29/2010-CE, is applicable only in respect of

CEC leviable on coal under the Tenth Schedule to

Finance Act 2010. Accordingly, EC and SHEC shall

be leviable on excise duty on coal.

In view of the above observations, the CESTAT held

that the exemption from EC and SHEC under

Notification No. 28/2010-CE and 29/2010-CE is

applicable only with respect to CEC under Finance

Act 2010. The said exemption is not applicable with

respect to excise duty levied on coal.


Dhruva Comments:

In the past, there have been several disputes on

extending an exemption available on excise duty to

a cess which has been levied ‘as a duty of excise’.

There have been several decisions and circulars

adopting different points of view. The present

judgment may pave the way for a fresh round of

litigation in central excise whereby, in addition to the

above existing litigation, the assessee may challenge

the legislative intent of mentioning the Excise

Act/CETA at the time of introduction of a cess and

consequently extending an exemption on cess which

is levied ‘as duty of excise’, to excise duty. Perhaps a

specific mention of extending the existing

exemptions available to excise to the new cess,

would help address this dispute and provide

certainty.

M/s Singareni Collieries Company Ltd vs. CCE,

Hyderabad [2016-TIOL-2858-CESTAT-HYD]

Circulars

Combined Annual Return for the FY 2015-16 is

not required to be filed

The Union Budget 2016-17 introduced a new

requirement of filing an ‘Annual Return’ by

manufacturers and service providers. This return was

required to be filed by November 30 of the

succeeding year. However, the form and the manner

were to be prescribed by CBEC.

In view of the impending implementation of Goods

and Service Tax (‘GST’), CBEC has issued a circular

wherein it has been clarified that the Annual Return

for FY 2015-16 shall not be required to be filed by

the assessee.

Circular No. 1050/38/2016-CX dated 08

November 2016

CUSTOMS

Case Laws

Filing of Bill of Entry before issuance of a show

cause notice is not a mandatory pre-requisite for

filing an application before the Settlement

Commission

In the given case, the petitioner had imported goods

such as air fresheners, perfumes, etc. in India in four

containers. Prior to the clearance of the goods, it was

discovered that certain extra items were imported,

which were not declared in the documents

submitted by the petitioner. The goods were seized

and an examination of the goods was initiated by the

Customs authorities. The petitioner was prevented

from filing a bill of entry for the clearance of the said

goods, save for one container. Pursuant to the above

examination, a show cause notice (‘SCN’) proposing

to confiscate the goods and imposing penalty was

issued to the petitioner. The bills of entry with

respect to the balance goods was filed by the

petitioner after the issuance of the SCN.

With the intent to settle the matter, the petitioner

filed an application before the Settlement

Commission (‘Commission’). The Commission took

note of reports of the investigating agency and

observed that the petitioner had filed the bill of entry

after issuance of the SCN and hence had failed to

satisfy the condition prescribed under Section

127B(1)(a) of the Customs Act, which stipulated that

a bill of entry should have been filed and that the

SCN should have been issued in relation to such bill

of entry.

The petitioner filed a writ petition before the High

Court challenging the impugned order of the

Commission on the following grounds:

There is no condition under Section 127B of the

Customs Act for filing a bill of entry before

issuance of SCN;

The petitioner was prevented from filing the bill

of entry for the clearance of the goods by the

Customs authorities, despite repeated attempts;


The impugned order is against the principle of

natural justice, as the Commission for arriving at

the conclusion against the petitioner, relied upon

certain reports of the investigating agency which

were never furnished to the petitioner.

The High Court concurred with the arguments of the

petitioner and held as under:

Section 127B(1) of the Customs Act does not

prescribe the condition that the bill of entry has

to be filed before issuance of an SCN;

Even otherwise, the impugned order is liable to

be set aside on grounds of breach of natural

justice, as the Commission relied upon certain

reports which were never supplied to the

petitioner.

Dhruva Comments:

The ruling has given a very wide import to the

conditions prescribed under Section 127B(1) of the

Customs Act and has also taken into consideration

the circumstances which prevented the importer

from filing the bill of entry prior to issuance of the

SCN. The principle followed by the Bombay High

Court is in line with the Delhi High Court ruling in

Commissioner of Customs vs. Ashok Kumar Jain

[2013 (292) E.L.T. 32 (Del.)], wherein it was held that

provisions that confer jurisdiction on Settlement

Commission cannot be construed narrowly. If

parliamentary intention is to exclude adjudication by

Customs Authorities in respect of certain claims,

from the purview of Commission’s jurisdiction, such

intention would have been more clearly manifested

like in case of smuggled goods [third proviso of

Section 127B(i)].

M/s Auto Creators vs. Union of India and Others

[2016-TIOL-2839-HC-MUM-CUS]

Levy of penalty and confiscation fine under the

Customs Act for improper removal of goods from

an SEZ

Mr. Abhishek Pareek attempted to remove pieces of

diamond studded gold jewellery from Special

Economic Zone (‘SEZ’), SEEPZ, on a sale invoice issued

by a unit located in the Domestic Tariff Area (‘DTA

unit’). The Customs Department confiscated these

goods under Section 111(j) and 111(o) of the Customs

Act alleging that:

the said goods were without valid documents;

the said goods were being smuggled into DTA on

a sale invoice, which was issued by a group

company of the SEZ in DTA.

Accordingly, the Department sought to impose a

penalty under section 112(a) of Customs Act on the

appellant and the persons involved in the removal of

the said goods.

The Mumbai CESTAT, while deciding in favour of the

appellant, made the following observations:

No overlapping jurisdiction: Certain situations do

allow two statutory authorities to exercise

concurrent jurisdiction without being mutually

exclusive. SEZ law is not only comprehensive and

self-contained but also accorded an overriding

status. Thus, the appellants cannot be subject to

two jurisdictions and the jurisdiction of one of the

authorities should prevail over the other.

Enabling provisions absent in SEZ Law: Though

Section 53(2) of the SEZ Act, 2005 grants an SEZ

a deeming status to be outside Customs territory

of India, it does not confer jurisdiction upon the

Customs officers to regulate/monitor the

activities of the SEZ. The SEZ Law defines

‘specified officer’ accorded with such powers. All

the officers appointed for implementation of the

SEZ Act function under the Development

Commissioner. Thus, the Customs authority is not

empowered to initiate proceedings under the SEZ

Law.

SEZ within the Indian territory: Penalty under

Section 111 and 112 under Customs Act can only

be levied in case of imports. Definition of import

under Customs Act is restricted to mean bringing

into India from a place outside India.

Notwithstanding the deeming status, SEZ are very

much within the Indian territory.


Adequate safeguards provided under SEZ Law:

The activities of SEZ units are subject to annual

performance review by Approval Committee. It

would be impossible for the units to remove

goods without detection. Shortage/failure to

account for such goods is subject to recovery of

duty and other penal actions under SEZ Law.

Thus, there are adequate safeguards in SEZ Law

without the need to indulge in misadventure

under Customs Act, that does not extend to SEZs.

Accordingly, the CESTAT held that the proceedings

against the appellants are without jurisdiction and

hence, the confiscation and penalties are liable to be

set aside.

Dhruva Comments:

Interestingly, in contradiction to the above decision,

in another recent Mumbai CESTAT decision [i.e.,

Maharashtra Enterprises vs. CC 2016-TIOL-3027-

CESTAT-Mum], it was held that the provisions of

confiscation and penalty under Customs Act would

get attracted on the improper removal of goods

from SEZ to DTA, without even discussing the

applicability of the said provision to goods removed

from the SEZ.

However, one may also note that the Gujarat High

Court [Adani Power Limited vs. Union of India 2015

(330) ELT 883 (Guj.)], in a similar case, held that

removal of goods from SEZ to DTA/non-processing

area would not amount to ‘import’ under Customs

Act. As the said High Court decision has been

recently maintained by the Supreme Court [Union of

India v. Adani Power Limited - 2016 (331) E.L.T. A129

(S.C.)], the aforesaid issue seems to be settled in

principle and accordingly the decision of the

Mumbai CESTAT in Maharashtra Enterprises would

be held to be per incuriam.

M/s Charisma Jewellery Pvt Ltd., Sheelu Mathai

vs. Commissioner of Customs, Airport, Mumbai

[(2016 (8) TMI 178), CESTAT Mumbai]

Notifications, Circulars and Public Notices

Introduction of Deferred Payment of Import Duty

Rules, 2016

Pursuant to Finance Minister’s Budget 2016 speech,

the Deferred Payment of Import Duty Rules, 2016

(‘the said Rules’) have been introduced with effect

from 16 November 2016. The said rules prescribe for

the machinery provisions for an eligible importer to

make deferred payments of the import duty within

the periodical due dates, as under:

Period when Bill of

Entry Returned

Due date of payment

1st to 15th day of any

month

17th day of that

Month

16th to last day of any

month other than

March

2nd day of the

following month

16th to 29th day of

March

31st March

30th to 31st day of

March

2nd April

An eligible importer who fails to pay duty by the due

date more than once in a period of three consecutive

months shall not be permitted to make deferred

payment.

Notification No. 134/2016-Cus (NT) dated 02

November 2016

List of eligible importers entitled to avail benefit

of the Deferred Payment of Import Duty Rules,

2016, notified

The Central Government has notified ’Importers

certified under Authorized Economic Operator

programme as AEO (Tier-Two) and AEO (Tier-Three)’

as the class of importers eligible to make deferred

payment of import duty under the said Rules. For this

purpose, AEO would mean Authorised Economic

Operator certified by the Directorate General of

Performance Management under the CBEC.

Notification No.135/2016-Cus (NT) dated 02

November 2016

Publication of Daily List of Imports & Export

Rules, 2004 rescinded


The Central Government has rescinded Notification

No.128/2004-Cus (NT) dated 19 November 2004.

Henceforth, the Commissioner of Customs would

not be publishing a daily list of goods imported into

or exported from a port functioning on EDI system.

Notification No. 140/2016-Cus (NT) dated 25

November 2016

Procedure to avail benefits of Authorised

Economic Operator Programme

Procedure has been prescribed for availing the

benefits of the Authorised Economic Operator

(‘AEO’) programme by eligible importers. The

procedure in brief is as follows:

Obtain ICEGATE login;

Nominate a nodal person, responsible for

authenticating all the customs related

transactions on behalf of the AEO;

Intimation to AEO Programme Manager with a

copy to the Principal Commissioner/

Commissioner of Customs to be considered as

intimation of intention to avail the said benefit;

Indicate the intention of availing benefits by

using flag "D" in the Payment Method column of

Bill of Entry. Nodal person would be able to

authenticate the Bills of Entry at one, basis One

Time Password and only thereafter, customs

clearances would be provided for such

consignments.

Circular No. 52/2016-Cus dated 15 November

2016

Pre-shipment inspection certificate required for

clearance of shredded metallic scrap

It has been clarified that the Circular no.48/2016-Cus

dated 26 October 2016 which prescribed the

guidelines for clearance of un-shredded compressed

/loose metallic scrap has inadvertently mentioned

that the import of shredded metallic scrap shall

continue to be cleared ‘without any pre-shipment

certificate’.

Hence, in view of the Para 2.54(b) of the HBP (2015-

20), import of shredded metallic scrap shall continue

to be cleared upon furnishing of pre-shipment

inspection certificate and the aforesaid circular

stands modified accordingly.


2016

Rationalisation of revised simplified procedure

for fixation of brand rates

To further rationalise the revised simplified

procedure for fixation of brand rates, CBEC has

decided to remove the requirement of submitting

original duty paying documents for eliminating

delays and has provided that:

The working sheet, submitted by applicant shall

bear –

- A declaration signed by applicant regarding

the correctness of the details submitted;

- A certificate from an independent Cost/

Chartered Accountant, verifying the

correctness of details of the working sheet.

file self-attested copies of the duty paid

documents (like bills of entry, invoice etc.)

With respect to existing applications, the applicants

may choose to continue with the extant procedures

or follow the revised procedure.


2016

Reduction/elimination of printouts for customs

clearances

To promote ease of doing business by reducing use

of paper, CBEC has decided to do away with print

outs of the following documents:

GAR7 forms/TR-6 Challans, as 95% of the

assessees through e-Payment mechanism;

Transhipment Permit Copy, as the said copy is

electronically sent to the carrier, transporter,


custodian, ICES system. However, where ICD/CFSs

and the gateway port are not interconnected,

manual copy would be required;

Shipping Bill (Exchange Control copy and Export

Promotion copy);

Bill of Entry (Exchange Control Copy), as IDPMS

has been operationalised from 10 October 2016

that ensures system integration of data.

Although CBEC has decided to do away with the

routine printing of the above documents, printouts

could be required on demand in some cases.


2016

Abolition of Mate receipt for containerised cargo

CBEC has decided that the customs houses should

no more insist for issuance of Mate’s receipt in the

case of containerised cargo, as it has no purpose

since the advent of automation of customs

procedure and message exchange system. However,

in respect of non-containerised export cargo like

bulk cargo etc., the practice of issuing Mate’s receipt

would continue.


2016


Key Contacts

Dinesh Kanabar, CEO

[email protected]

Ritesh Kanodia, Partner

[email protected]

Niraj Bagri, Partner

[email protected]

Srinath S, Associate Partner

[email protected]

Our offices

Mumbai

1101 & 1102, One Indiabulls Centre,

Tower 2B, 841, Senapati Bapat Marg,

Elphinstone Road (West),

Mumbai 400 013

Tel: +91-22-6108 1000

Fax:+91-22-6108 1001

Bengaluru

Prestige Terraces,

5/1, Union Street,

Infantry Road,

Bangalore 560001

Tel: +91-80-4660 2500

Fax: +91-80-4660 2501

Ahmedabad

B3/3rd Floor, Safal Profitaire,

Prahladnagar, Corporate Road,

Opp. Auda Garden,

Ahmedabad 380 015

Tel: +91-79-6134 3434

Fax: +91-79-6134 3477

Delhi

1st Floor, Tower 4B,

DLF Corporate Park,

M G Road, Gurgaon, Haryana

Tel: + 91-124 6687000

Fax: + 91-124 6687001

Singapore

One Raffles Place, #41-01

Singapore 048616

Tel: +65 6812 1600

About Dhruva Advisors LLP

Dhruva Advisors offers a wide range of services in the tax

and regulatory space to clients in India and around the

world.

We are a cohesive team of tax professionals who are

focused on providing our clients with high quality tax and

related services. With strong research and technical skills

coupled with extensive experience, we provide well-

thought out and strategic solutions to complex problems.

Our professionals have advised on some of the largest

transactions in the world and have handled several of the

largest tax controversies in India. Our professionals also

have a strong track record of designing and implementing

pioneering solutions in several areas of domestic and

international tax.

Dhruva has been recognised as a tier 1 firm in the

International Tax Review, World Tax Guide 2017,

among the world’s leading tax firms.

Dhruva has been recognised as a tier 2 firm in the

International Tax Review, World Transfer Pricing 2016,

among the world’s leading transfer pricing firms.

Dhruva has been awarded Best Newcomer of the Year

2016 - ASIA by the International Tax Review.

This information contained herein is in summary form and is therefore intended for general guidance only. This publication is not intended to

address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional

advice after a thorough examination of the particular situation. This publication is not a substitute for detailed research and opinion. Before

acting on any matters contained herein, reference should be made to subject matter experts and professional judgment needs to be exercised.

Dhruva Advisors LLP cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any

material in this publication.

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