Ezine Volume I

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EZINE August, September 2010

MVAT Recent Notification

Notification

He Commissioner of Sales Tax has issued Notification under section 8(2)(a) ofProfession Tax Act,1975 dt. 30‐6‐2010 by which the date for payment of professiontax by persons enrolled upto 31‐5‐2010 for the year 2010‐11 is extended from 30‐6‐2010 to 31‐7‐2010.

Circulars

(a) The Commissioner of Sales Tax has issued Circular No.19T of 2010 dt. 23‐6‐2010 by which the information about periodicity of filing of returns for 2010‐11is given.

(b) The Commissioner of Sales Tax has issued Circular No.20T of 2010 dt. 30‐6‐2010 by which the applicability of the Honble Supreme Court judgment in caseof Pee Vee Textiles under BST Act, 1959 is clarified.

Notification

The Government of Maharashtra has issued Notification u/s.42 (3A) of the MVAT

Act dated 9.7.2010. By this notification the composition scheme of 1% applicable to

builders/developers is notified. The scheme is operative from 1.4.2010 subject to

conditions as given in the notification.

Maharashtra Value Added Tax Act,2002

Notifications

a) The Government of Maharashtra has issued Notification under section 41(1)of the MVAT Act,2002 by which




earlier notification dated 5.11.2009 is amended and

sub‐entry (i) is added in entry 2. By this amendment

VAT refund is also made eligible to the British Deputy

High Commissions in Mumbai, subject to certain conditions.b) The Government of Maharashtra has issued Notification dated 28.7.2010

under Rule 45A of MVAT Rules,2005 where by the E‐payment requirementis made applicable to the dealers filing quarterly returns, effective from1.10.2010

Maharashtra Luxury Tax Act,1987

(i) The Government of Maharashtra has issued Notification under section 22(1)of the Luxury Tax Act dated 26.7.2010 where by the entry 12 relating to

“France” is deleted.

Incidence and levy of tax in MVAT Act

1. What is VAT?

MVAT Act, 2002, has been introduced in the state of Maharashtra w.e.f. 01‐04‐2005.

As the name suggests, VAT i.e. Value Added Tax is a tax upon every value addition.Prior to 01‐04‐2005, Maharashtra had first stage single‐point levy system oftaxation implemented through the Bombay Sales Tax Act, 1959. Under that system,only manufacturers and importers were required to pay the tax on the first saletaking place in the state. As against this, VAT system contemplates tax at every stagein the entire chain of transactions relating to the same goods. The concept hasbecome quite familiar with our fellow brothers and need not be explained furtherwith the help of examples etc. Suffice it to say, VAT is leviable on each salehappening in respect of the same goods.

A question frequently is asked whether positive value addition at every stage isnecessarily required under VAT. The scheme of MVAT Act, 2002, does not requiresuch value addition at every stage. Even if the seller sells the goods at cost price,without adding any margin for his expenses or profit etc., VAT is leviable on thatsale. Value addition also does not mean enhancement of the intrinsic value of thegoods. To give an example, ‘A’ purchases motor car and fits accessories therein like




air conditioner, music system etc. In this case, there is positive value addition to theintrinsic value of the goods and VAT is certainly applicable on the sale of such motorcar.

In another case, ‘A’ purchases the said motor car and sells in the same condition

without any refurbishment. In that case too, VAT is payable on the sale of such caralthough there is no value addition made by the seller therein.

Value addition can also be in the nature of expenses incurred on the procurement ofthe goods and marketing thereof without adding anything into the intrinsic value ofthe goods such as selling expenses, advertising expenses, transport etc. Even in suchcases, VAT is applicable on the sale of such goods.

Another frequent query is in respect of the case where goods are sold at a loss. Inthat case too, VAT is applicable on the sale price although offsetting the purchase tax

against such sales tax may result into a refund. There is no express prohibitionunder MVAT Act to claim refund in such cases.

2. Incidence of tax

The charging section is contained in section 4 which reads as under:“Subject to the provisions of this Act and rules, there shall be paid by every dealeror, as the case may be, every person, who is liable to pay tax under this Act, the taxor taxes leviable in accordance with the provisions of this Act and rules.”

Thus, it is clear that every dealer/person who is liable to pay tax is required to paytaxes in accordance with the provisions of the Act and rules. The term ‘person liableto pay tax’ has not been expressly defined under the Act. However, considering theprovisions of section 3, 4, 5 and 6 collectively, one can infer that VAT is payable onlyon the sales of goods where the threshold limit of turnover of sales is crossed by thedealer. It is pertinent to note that there is no provision for purchase tax under MVATAct.

2.1. Dealers Registered under Earlier Laws:

Section 3(1) of the MVAT Act makes it clear that dealers already registered underthe erstwhile BST Act would automatically be treated as registered under MVAT Actw.e.f. 01‐04‐2005. In fact, the registration certificate under BST Act continued till31‐03‐2006 and new TIN certificates were allotted to the dealers w.e.f. 01‐04‐2006.

2.2. Dealers Liable to Pay Tax in the Preceding Year:




There is another category of dealers who may not have been registered under theBST Act prior to 01‐04‐2005 for whatever reason, but their turnover of sales orpurchases have exceeded the threshold limit as prescribed under section 3(4) of theMVAT Act during the immediately preceding year. In other words, the dealer beingan importer, whose turnover of sales or purchases exceeded Rs. 1,00,000/‐ in the

F.Y. 2004‐05 or a dealer other than an importer whose turnover of sales orpurchases exceeded Rs. 5,00,000/‐ in F.Y. 2004‐05 are the dealers liable to pay taxfrom the appointed day i.e. 01‐04‐2005. Such dealers are required to obtainregistration certificate and pay the tax w.e.f. 01‐04‐2005 irrespective of theirturnover in the year 2005‐06.

3. Registration Liability:

Section 3(4) prescribes the limits of turnover of sales for the purpose of attractingregistration liability. It must be borne in mind that it is only the turnover of sales

which has to be computed for this purpose and not the turnover of purchases. Thesaid limits are as under:

Category Of Dealer Limit Of Turnover Of

Sales Other Conditions

Importer Rs. 1,00,000/‐ Value of taxable goods soldor purchased during theyear is not less than Rs.10,000/‐

Others Rs. 5,00,000/‐ Value of taxable goods sold

or purchased during theyear is not less than Rs.10,000/‐

Importer, here, means as defined u/s. 2(13) and is a dealer who brings any goodsinto the state or to whom any goods are dispatched from any place outside the state.Thus, he can be a dealer who receives the goods from other states either by way ofstock transfers or by way of interstate purchases or by importing the goods from aforeign country. The condition of minimum value of imported goods isconspicuously absent in this section as compared to the corresponding section

under the BST Act. Therefore, a dealer who is an importer in the sense describedabove, even for a negligible amount, would be liable for registration if his turnoverof sales exceeds Rs. 1,00,000/‐.

The condition regarding sale or purchase of taxable goods worth Rs. 10,000/‐ alsohas to be complied. If a dealer is wholly dealing in tax‐free goods, then he does notattract the registration liability.




4. Interpretations:

Section 3(5) is in the nature of an explanation since it explains the meaning of theterm ‘turnover of sales’.

4.1. Clause (a) of section 3(5) stipulates that turnover of sales will be considered

whether the goods are taxable or not. It means that, for the purpose of computingthe turnover limit of, say, Rs. 5,00,000/‐, sales of tax‐free goods will also beconsidered.4.2. Clause (b) refers to the computation of turnover of an agent. It explains that thesales made by such agent on his own account as well as on behalf of his principals,whether disclosed or not, will have to be counted. This sub‐section is based upon aprinciple that principal and agents are jointly and severally liable to pay tax underthe Act.4.3. Clause (c) deals with the case of an auctioneer who has been categorically

included in the definition of ‘dealer’ u/s. 2(8). The legislature has taken care to seethat even an auctioneer who organises the auction without taking the possession orcustody of the goods at any point of time, and without having any authority totransfer the title in the goods. This clause is made wider that its counterpart underthe BST Act and has been introduced to overcome the ratio of the judgment in thecase of M/s. Ashwin & Co. (Appeal No. 35 of 1994) decided on 25‐01‐2002.However, it has to be borne in mind that the turnover of sales will be counted in thehands of an auctioneer only when he receives the price of the goods on behalf of hisprincipal. In other words, the turnover of sales will not be accounted in the hands ofan auctioneer when the sale price is directly paid to the principal or his nominee

and the auctioneer merely organises the auction by bringing the seller and buyertogether although, he is treated as a dealer by virtue of his activity.

4.4. Clause (d) deals with an agent of a non‐resident dealer. Such agent has tocompute the sales turnover of his own as well as that effected on behalf of his non‐resident dealer and also the turnover effected by such non‐resident dealer directly.In other words, the sales effected by the non‐resident dealer within the statewithout the help of the agent also need to be counted in the sales turnover for thepurpose of computing the threshold limit of turnover u/s. 3(4).

4.5.

It is provided u/s. 3(6) that various kinds of agents such as factor, broker,commission agent, del‐credere agent or any other mercantile agent or auctioneer oragent of a nonresident dealer are liable to pay tax under the Act whether or not theirprincipal is a dealer and whether or not such principal is liable to pay tax under thisAct and whether or not such principal is disclosed. Thus, to give an example, anagent who effects sales on behalf of the principal who is an individual and not a




dealer, is liable to pay tax under the Act, although such individual may not be adealer under the provisions of the Act.

4.6. An important deviation has been made under the MVAT Act in respect of thedealers who are only liable to pay tax under CST Act and do not attract the

registration liability under MVAT Act. Prior to 20‐06‐2006, subsection (7) of section3 provided for the liability of such person. The registration liability under CST Act isattracted when a dealer makes an interstate sale of whatever amount. There is nominimum threshold turnover limit under CST Act. The provisions under the BST Actmade such dealers liable to pay tax under BST Act although they never exceeded theminimum turnover limit under that Act. However, under the MVAT Act, such dealersare not liable to pay tax unless they cross the minimum turnover limit attractingregistration under the Act. To give an example, a dealer may effect interstate salesworth Rs. 50,000/‐ in a financial year and also local sales worth Rs. 50,000/‐. He isliable under CST Act and has to obtain registration under it. However, he is not liable

under the MVAT Act since the minimum prescribed limit of turnover of Rs.5,00,000/‐ is not attained by him. In such a case, he is not liable to pay tax on hislocal sales by virtue of deletion of this provision w.e.f. 20‐06‐2006.

5. Deduction of the first turnover u/s. 3(2):

The proviso u/s. 3(2) provides that the dealer shall not be liable to pay tax inrespect of such sales as take place during the period commencing on the first day ofApril of the financial year till his turnover of sales does not exceed the relevantlimit applicable to him under subsection (4). The expression ‘does not exceed’

indicates that the dealer is able to claim the exemption till the point, he does notcross the prescribed limit. This can be explained with the help of an example. Adealer has effected sales through 10 invoices and sum total of the first 9 invoices isRs. 4,50,000/‐ and the 10th invoice is worth Rs. 75,000/‐. In this case, he exceedsthe turnover limit of Rs. 5,00,000/‐ through the 10th invoice. However, he will getthe exemption only in respect of the turnover of first 9 invoices. In absence of theexpression ‘does not exceed’ he could have claimed the exemption for all the 10invoices. In an extreme example where the first invoice itself exceeds the thresholdturnover limit, the dealer does not get any exemption at all.

6. Liability

till

the

cancellation

of

registration:

Section 3(3) provides for continuation of liability until the registration certificate isduly cancelled. It means that the registration obtained wrongly will also continue tobe operative until it is duly cancelled. A person cannot have a defence on the groundthat he was not liable to obtain registration by virtue of not being a dealer. Thegrounds for cancellation also need to be checked in this respect in section 16(6)




r/w. Rule 11. The registration certificate can be cancelled on two grounds viz. upontransfer or discontinuance of business and not exceeding the turnover limit duringthe previous year. In the first case, the cancellation is compulsory whereas in thesecond case, it is voluntary. A person who has erroneously obtained the registrationcertificate will have to get it cancelled on the ground that he was not liable to obtain

the registration at all. However, such cancellation will have to be done prospectivelyand he will be held liable to tax in respect of the turnover of sales until the date ofcancellation by virtue of this section 3(3).

7. Business and Dealer:

These two definitions are of utmost importance to decide the incidence of tax. Theyare defined u/s. 2(4) and 2(8) respectively. ‘Business’ id defined in a much broaderway under the MVAT Act as compared to the BST Act. It includes any service as well.However, only such services are covered which are notified by the state government

in an official gazette by virtue of the definition of ‘service’ u/s. 2(27). There is nosuch notification issued so far. An interesting question may arise where a fullyservice oriented organisation which might sell capital assets during the course of itsactivity. Whether such sales will be liable to tax as in the course of business?

The Hon’ble Tribunal has answered this question in the case of M/s. Zenith GlobalPvt. Ltd. (SA No. 1026 to 1029 of 2001 dtd. 31‐01‐2002) where it was held thatpurchases of fixed assets and other purchases while engaged in consultancybusiness are outside the purview of ‘business’ as defined in section 2(5A) of the BSTAct. This case is under BST Act and the wider definition of business under MVAT Act

is not considered here. However, since no services are notified as yet, a fully serviceoriented organization cannot be construed as carrying on business and hence, salesof obsolete / old capital assets cannot be treated as sales liable to tax.

Under the definition of ‘dealer’, certain persons, bodies or entities are treated asdeemed dealers qua their activity of selling any goods such as scrap, unserviceableitems, capital assets, etc. Examples are customs department, central government orstate government departments, local authorities etc. Public charitable trust has alsobeen included under this definition ostensibly to override the effect of the SupremeCourt judgement in the case of Commissioner of Sales Tax vs. Sai Publication Fund

(126 STC 288). In this case, the said trust was selling books and other items tospread the message of Sai Baba to devotees. The activity was not held as businesslooking to the objectives of the trust. By specific inclusion of public charitable trustsin the definition of ‘dealer’, it is now possible to take a view that the sales of anygoods incidental to the charitable objectives of the trust are in the course ofbusiness. It is also worthwhile to refer to the case of Shree Mahila Griha Udyog LijjatPapad (SA No. 1108 of 1995 dtd. 15‐12‐2006). The object of the trust was to raise




the standard of living of women involved in making papad. The sales of papad arejust incidental to the main objective and hence the activity was not construed asbusiness.

Thus, the transactions of sale or purchase of capital assets pertaining to the business

have to be treated as liable to tax and one cannot take a view that they are noteffected in the course of business since the main activity of business relates to someother goods.

A partner of a firm bringing in a capital asset like motor car as his capital cannot betermed as purchase of the firm. Similarly, appropriation of the capital assets to theaccounts of the individual partners at the time of dissolution of the firm also cannotbe construed as sales of such capital assets. Ref. Recent Bombay High Courtjudgment in the case of M/s. Synthetic Suppliers (STA 8 of 2003 in Referenceapplication No. 34 of 1998 decided on 06‐05‐2010).

The definition of ‘business’ specifically excludes the profit motive and any activitywhich or without profit motive can be termed as business provided it has all otheringredients necessary for the same.

8. Voluntary registration:

The MVAT Act provides for voluntary registration upon a deposit of Rs. 25,000/‐adjustable towards tax liability shown in the returns. Such registration is obtainedwithout exceeding the turnover limit. The dealer becomes liable to pay tax from the

date of registration irrespective of his turnover and he is not eligible for the firstturnover exemption u/s. 3(2). Proviso u/s. 16(6) provides that the Commissionermay cancel the registration certificate granted voluntarily in a case where the dealerhas not commenced the business within six months from the date of registration.Therefore, such dealers have to ensure that business is started within a period of sixmonths when voluntary registration is obtained in anticipation.

9. Levy of tax as per schedules:

The VAT is levied on the sales of goods at the rate specified in column (2) of

schedules B, C, D or E. Schedule E is a residuary entry and the goods which are notspecified anywhere in the other schedules are included in this entry and the rate oftax is 12.5%. Schedule A contains all tax free goods. Schedule B contains jewellery,precious/ semiprecious stones liable at 1%. Schedule C comprises of goods liable totax at 5% w.e.f. 01‐05‐2010. Schedule D comprises of motor spirits, petroleumproducts and liquor liable to tax at higher rates. The turnover of sales has to beclassified accordingly and subjected to tax at appropriate rates.




10. Conclusion:

In nutshell, it can be stated that a person effecting sales has to ascertain thatwhether he is doing so in the capacity of a dealer having regard to the frequency,

continuity, regularity, volume etc. of the transactions. Refer Supreme Courtjudgment in the case of State of Gujarat vs. Raipur Manufacturing Co. Ltd. (19 STC 1).Once it is established that he is a dealer carrying on a business having regard to thepeculiar definitions of the terms under the MVAT Act, he has to ascertain the totalturnover of sales so as to determine his registration liability. The incidence of taxwill be on the transactions of sales effected during the course of business by thedealer and not otherwise. The liability of tax has to be discharged taking intoconsideration the rates of tax as per schedules. Although the Act nowhere confers anexpress right to collect the taxes from the buyers, there is no prohibition to recoverthe taxes form the buyers as well. Considering all the provisions of the Act

harmoniously, it can be concluded that the dealer can collect the taxes separatelythrough the invoices only equal to his liability of tax on the said transaction.

Anylysis of Important Case Laws

Inter- state stock transfers – F form – sufficiency of evidence

Interstate movement of goods on account of transaction of sale is taxable under theCentral Sales Tax Act, 1956 (CST Act). Section 3(a) of the CST Act provides that thetransaction of sales which occasions the movement of goods from one state toanother will be considered as interstate sales. Thus, the occasioning of movement asa consequence or on account of transaction of sales from one state to another willdecide the character of the transaction to be a local sale or an inter‐state sale.

Section 6A of the CST Act provides that if the movement of the goods from one stateto another is otherwise than a transaction of sales then it would be exempt from

CST. Of course, the claimant dealer / seller will have to produce declaration in FormF to avail such exemption. This exemption under 6A is normally understood in thetrade as ‘interstate stock transfer / consignment transfer’. Since the claim oftransaction as interstate stock transfer does not attract any CST, the Revenuewithout any exception, of all state and Union Territory have been examining theclaim very thoroughly as to find out as to whether the movement is on account oftransaction of sale or not. Moreover, the transaction is supported by declaration in




form F and that the evidence / burden of proof that the goods are moved outside thestate otherwise on account of ‘sale’ is proved by the dealer claiming suchdeductions. This deduction has been subject to lot of litigation till the Apex Court.

In this note, limited issue in respect of the goods transfer to a branch / agent

situated outside the state and its subsequent sale by the branch / agent in a day ortwo of receipt as also the evidence value of the declaration is discussed.

As narrated above, if the interstate movement of goods is to meet an existing ‘orderfor sale’, one may be in a position to infer that the interstate movement hasoccasioned ‘on account of transaction of sales’ and accordingly such movement ofgoods is taxable under the CST Act and even if the dealer has claimed ‘branch /consignment agent transfer’, form F is produced, still such transactions could beregarded as taxable interstate sales. Recently, the Madras High Court in The state ofTamil Nadu vs. Coimbatore Pioneer Rolling Mills (30:VST:524)(2010) held that just

because the goods received by the branch was sold in a couple of days does notnecessarily prove that the transaction is covered by section 3(a) of the CST Act andis taxable in the state from where the movement occasioned. In the Coimbatore’scase (cited supra) the assessee has proved that the declaration made in Form Funder section 6A is true and in support of its declaration he has also producedvarious materials. The Revenue, has not alleged / proved that the Declaration inForm F is not true, genuine and based upon false representation. The High Courtheld that in the absence of any incriminating material contrary to the particularsprovided by the assessee the assessing officer cannot hold the declaration givenunder form F is not correct.

The court observed

‘The findings to the contrary by the assessing officer must be borne out by recordsand evidence but not on mere speculation and surmises.’

The High Court also relied upon other Madras High Court Decisions in (95:STC:273)& (96:STC:98) to reiterate that the claimant dealer is to prove that the particularsmentioned in Form F are true. The Hon’ble High Court also relied on the decision ofthe Karnataka High court in the case of M/s. Jindal Aluminium Ltd (126:STC:458)

wherein the High Court has held that the mere sale transaction effected by the agenton the very same day of the arrival in its‐self cannot be the sole basis to treat thesame as interstate sale.

A very recent Bombay High Court Decision in the case of M/s Killick Nixon Ltd vs theState of Maharashtra (Sales Tax Reference No.1 of 2003 dt. 6.5.2010) (unquoateddecision) the Bombay High Court was called upon to adjudicate the case where the




assessment under the CST Act was final (no appeal pending) & while passing theorder under the Bombay Sales Tax Act, the appellate authority reopened theproceedings under the CST Act to disallow the claim of stock transfer. The Hon’bleCourt noted the observations of the Supreme Court decision in case of M/s. AshokLeyland Ltd 134:STC:473 (SC) wherein the apex court has held that once the

assessing authority accept form F and has held the transaction as branch transfer, i.efinal and no revision can lie against the same.

Para 61 of the said Supreme Court decision (134: STC: 473) reads as under:

“61. In the case at hand it has to be determined whether the sale in question is aninter‐State one. If through the means of a legal fiction it is determined that this is notan inter‐State sale, then it amounts to a transfer of stock. This finding is made by astatutory authority who has the jurisdiction to do so and there is no provision forappeal. Therefore, the order made by such authority is conclusive in that it cannot

be reopened on the basis that there had been a mere error of judgment. It alsocannot be reopened under another statute, for examples, the Sales Tax Act of theState concerned, when the order had been made under the Central Act. Section 9(2)of the Act is subject to the other provisions of the Act which would include sub‐section (2) of section 6‐A of the Act. "Subject to" is an expression whereby limitationis expressed. The order is conclusive for all purposes. It can only be reopened on asmall set of grounds such as fraud, misrepresentation, collusion, etc.

The Supreme Court also held......

“Discovery of new material although it may fall the ground, by itself may not be aground for reopening the proceedings unless by reason of such discovery it turnsout the jurisdictional error had been committed. “

In view of these observations one may be able to make out the case that theinterstate movement is on account of transaction otherwise than a sale.

ERP Packages:

In a majority of the integrated software system / ERP packages the head office /

controlling office normally monitors the stock position at different locations acrossthe county. The software in such cases, auto generates indent / stock transfer advicebased on the ‘reorder level’ or shortage of stock at a particular location. In such acase, the stock is moved from one location to other location in a different state andon receipt of the goods, the receiving godown may arrange for sale / despatchesthere from. In such cases, many a times it happens that the subsequent sale happensin a couple of days from the date of receipt. To counter the stand of the Revenue that




the interstate movement is ‘sale’ and not a stock transfer, besides the reliance on theCoimbatore’s case, one may argue that the system has auto generated the ‘stocktransfer advise’ to replenish the stock. Moreover, the quantities despatched is of a‘economic size of batch’ which is the standard practise and hence cannot beconstrued as interstate sales.

It is observed that the Revenue based on peculiar facts of each of case, may raise theissue of movement of customised goods, made‐to‐order goods, combination /configuration of different materials etc. However, for standardised goods theobservation of the Supreme Court as also Bombay & other High Courts would surelyhelp to enable to claim under section 6A of the CST Act.

Registration under MVAT Act

WHY TO OBTAIN REGISTRATION CERTIFICATE?

1 ‐ Obtaining of registration certificate is statutory obligation of every dealer, who isliable to pay tax under the Act.2 ‐ It empowers the dealer to collect tax.3 ‐ A registered dealer gets the benefits of set off (input tax credit)4 ‐ Business without registration invites penalty/prosecution.

5 ‐ Nobody would like to buy goods from unregistered dealer.

Who should apply for the registration?

The dealer who attains or crosses prescribed turnover of purchase or sale shouldapply for registration under VAT Act within 30 days from the date on whichturnover crossed the prescribed limit.

Note: Once a dealer exceeds the prescribed turnover and fulfils the conditions asmentioned in table below, then the liability to pay taxes under the Act commences

from the time of transaction by which the turnover exceeds the prescribed limit.

What happens if not applied in time for registration?

When a dealer does not apply within 30/ 60 days from the date of exceeding theprescribed turnover of purchases or sales than certificate of registration will beissued with effect from the date of uploading of the application. Therefore, from the




date of starting of business till the date of uploading of the application, the dealerwill be treated as unregistered.

Provisions of Penalty for un-registered dealers:

If dealer does not apply in time and remains unregistered, it is an offence under theAct.

Benefits of Registration:

i. He can claim set off of tax paid on the purchase if eligible to get any.ii. He can issue various declarations prescribed C.S.T. Acts like Form C etc.iii. Registered dealers are preferred while awarding the government contracts. Theabove mentioned benefits are denied to an unregistered dealer.

Disadvantages of

non

registration:

1 - Unregistered dealer is liable to pay tax on the sales affected by him but hecannot collect tax.2 - He cannot claim any set off or refund of the tax paid by him.3 - Purchases at concessional rate of tax not available to him. He cannot issueforms or declarations like Form C etc.4 - No authenticity in the market as majority of dealers purchases goods fromregistered dealers only.5 - Possibilities of non consideration for awarding the government contract.

6 -

Imposition of penalty and prosecution for remaining unregistered.

REGISTRATION & PROCEDURAL ASPECTS.

TURNOVER LIMITS FOR REGISTRATION SECTION 3(2) & 3(4):

CLASS OF DEALER TURNOVER OF SALES TOEXCEED

Importer – Sale or purchase of taxablegoods should be

Rs.10, 000 or more.

Rs. 1,00,000

Others (including manufacturers andresellers)‐ Sale or purchase of taxablegoods should be Rs.10,000 or more.

Rs. 5,00,000

Section 3(5) - Following items specifically covered for registration

Limits:




a - Turnover of all items, whether taxable or tax free is to be considered.b - To include turnover on own account as well as on accounts of principal, whetherdisclosed or not.c - In case of auctioneer turnover should include turnover of goods, price of which is

received by him.d - In case of agent of non‐resident dealer, sales of such nonresident dealer.

a - Section 3(8) contains provisions to make successor in business liable to tax.b - Change in constitution or change in ownership ‐ Time limit for application is 30days.c - Change in ownership due to death – Time limit is 60 days.d - Section 3(9)‐Dealers under voluntary registration scheme‐ No Basic deduction‐liable from date of registration.

FEES FOR

REGISTRATION:

Under Voluntary Registration Scheme (VRS): Registration fees of Rs. 5,000/‐ isrequired for VAT TIN and Rs. 25 for CST TIN. With effect from 16‐08‐2007, dealerapplying under VRS is also required to deposit Rs. 25,000 as an advance payment oftax [proviso to Section 16(2)]. Such advance payment of tax can be adjusted againsttax liability, interest or penalty for first and second financial year.

New Registration in case of Shifting of Business:

New Registration Certificate was required on shifting of place of business, if place ofbusiness is shifted from one pin code number to other pin code number. However,from 1‐6‐2006 change of place of business does not require new registration. Anapplication on letterhead along with proofs of new address is sufficient. Anapplication is required to be made to the registration branch within the jurisdictionof new place of business. TIN will remain the same. A new proviso has been insertedin Section 16(6) which empowers the department to cancel the registration grantedto a dealer who has opted for voluntary registration, if the department is satisfied,after giving the dealer a reasonable opportunity of being heard, that the person hasnot commenced business within six months from the date of registration.

New Registration-when change of Constitution:

New registration certificate is required if there is a change in constitution ofbusiness, for eg. Change in constitution from partnership to proprietorship orproprietorship to Private Limited Co. etc. Application is to be made within 30 daysfrom the date of change.




Advantages of Central Sales Tax Registration:

A dealer registered under C.S.T Act can purchase goods from outside the state ofMaharashtra at a concessional rate of tax @ 2% against declaration in Form `C'.

Scheme of Voluntary Registration:

Certificate of registration can be obtained without exceeding the turnover limit asper voluntary registration Scheme. However fees of Rs. 5000/‐ and an advancepayment of Rs. 25,000/‐ is payable in such case. Such payment is to be made in byway of handing over the Demand Draft or Pay Order along with chalan in Form 210to the registration officer. Demand draft or pay order is required to be prepared infavour of “Bank of Maharashtra – A/c. MVAT” in case of Mumbai region and “StateBank of India – A/c. MVAT” for other regions.

Important Points to Remember:

i. Any dealer having more than one place of business in different locationswithin the State is required to make a single application in respect of allsuch places.

ii. Whenever dealer adds any other place of business or goes down etc. hehas to inform the registration branch about it within 60 days and get hisregistration certificate amended to that effect. There is no specific form for

making an application for amendment in TIN certificate. An application onletterhead along with the specified proof of addition is sufficient.

iii. When dealer starts dealing in different commodities which are notmentioned in registration certificate, he should inform the registrationbranch about it within 60 days and get his TIN certificate amended to thateffect.

iv. Any dealer opening a new place of business is entitled to get additionalcopy of TIN certificate at no extra cost.

v. Every dealer is required to furnish a declaration stating the name of theperson who shall be deemed to be Manager in relation to the business inthe State of Maharashtra.

WHEN AND WHERE TO APPLY?




On exceeding the limit of the turnover of sales or purchase, a dealer becomes liablefor registration certificate. An application is to be made in Form 101 (Under VATAct) and Form a (Under C.S.T. Act) before registration branch within 30 days ofexceeding the prescribed turnover.

RREQUIREMENTS FOR

VAT

REGISTRATION

1 ‐ Two passport size recent photographs of proprietor/ any one partner ordirector. Such partner/ director or proprietor is required to attend before theregistration officer for photo signature. Proprietor or director can appoint someother person as a power of attorney to attend before the registration officer on hisbehalf.2 ‐ Partnership Deed in case of partnership firm and Memorandum & Articles, incase of company.3 ‐ Rent receipt or electric bill & copy thereof of place of business & consent letter of

the owner if the rent receipt or electricity bill is not in the name of firm, company orproprietor.4 ‐ Rent receipt or electric bill & copy thereof of residence of all partners ordirectors or proprietor and consent letter of the owner, if rent receipt or electricitybill is not in the name of the partner or director or proprietor.5 ‐ Ration cards of all partners/director/proprietor with photocopy of first and lastpages.6 ‐ Books of Account.(Cash book, Ledger, Purchase and Sale Register and purchaseand sales bills), in case of compulsory registration.7 ‐ Statement of purchase and sales with date, Bill No., name and address of parties,

Registration number, name of item and amount. Bifurcation of purchase into tax freepurchase, taxable purchase, tax amount, interstate purchase.8 ‐ Letter of authority duly signed.9 ‐ Rent receipt and consent letter for additional place or go down.10‐ Detail of bank account of firm/company/ proprietary concern.11‐ Profession tax enrolment number of proprietor or all partners or directors andcompany.12‐ Profession tax registration number of firm, company or proprietary concern, ifsalary paid to employees exceed prescribed limit.13‐ Application for cancellation of existing TIN in case of change in constitution or

change in ownership.14‐ Proof of Income tax number of proprietor or firm and all partners or companyand all directors along with the proof.

NOTE: All the above requirements are required in original and photocopies.Photocopies are to be submitted along with an application form. The same are kepton record. Originals are to be shown at the time of hearing.




CHANGE IN BUSINESS (SECTION 18) INFORMATION TO BE FURNISHED

Sec. 16(9) & Sec 18 of the Act requires dealer to furnish information

regarding:

1‐ Sale or disposal of his business or any part thereof or any change in ownershipthereof.2 ‐ Closure of business or opening or closing of any place of business.3 ‐ Change in the nature or name of business.4 ‐ In the case of manufacturer, change in the class of goods sold or bought by him.5 ‐ Entering into partnership or other association.6 ‐ Holding or application for the grant of patent or trade mark in respect of anygoods, method etc. or becomes entitled to use any patent or trade mark.7‐ Opening or closing of bank accounts of business.

Such information is to be furnished to the registration officer within 60 days fromthe date of such change. Likewise in the case of death of a dealer or dissolution orchange in constitution of firm; the legal heir or executor, administrator or thepartner as the case may be shall inform the registration officer if such death,dissolution or change as the case may be.

REGISTRATION CERTIFICATES TO CONTINUE IN CERTAIN CIRCUMSTANCES

Act provides that registration authorization etc. shall continue in the circumstances

mentioned below and fresh registration is not required to be obtained i. e. itprovides for exception for the action of cancellation of registration certificates heldby the dealer in certain circumstances. On receipt of information as provided inSection 18, the registration, authorization etc. shall be amended accordingly. Suchcircumstances are as under:

1 ‐ Change in the name or nature of business;2 ‐ Change in the constitution of firm without dissolution thereof;3 ‐ Change in trustees of any trust or4 ‐ Change in the guardian of any Ward.

5 ‐ Shifting of place of business within the same pin code number.6 ‐ In the case of conversion of Pvt. Ltd. into the public Ltd. Co. Vis‐à‐vis no separateregistration is required as there is no change in constitution of the Company.




GVAT

Residuary statutory forms available upto 31‐07‐2010




Notes :

1 ‐ Statutory forms like ‘C’, ‘F’, etc., for transaction on or after 01‐07‐2008, aresupplied online by Commercial Tax Department Gujarat, if the dealer furnishes

relevant details by E‐Filing with in time fixed for the same.2 ‐ Vide this Public Circular, One more opportunity is given to the dealers, in whosecase, such forms are left to be obtained on earlier occasion.3 ‐ Such dealers will have to make entries for Residuary statutory forms in Templatethrough ‘Add‐on utility’ and contact jurisdictional Joint Commissioner with its softcopy & other relevant details.4 ‐ This benefit is available upto 31/07/2010.

Decision of Hon’ble Gujarat VAT Tribunal under rule‐12(1)

When the CST Act was introduced the 2nd proviso to rule 12(1) and thereafterperiodical amendments were made which are as under:‐ical amendments weremade which are as under:‐

1 ‐ 01‐10‐1958 to 31‐3‐1973 = Provided that the declaration in Form “C” as inforce immediately before the 1st October, 1958 may also be used upto the 30thSeptember, 1959 with suitable modifications.

2 ‐ 01‐04‐1973 to date = Provided that Form‐C in force before commencement ofthe Central Sales Tax (Registration and, Turnover) (Amendment) Rules, 1973may also be used upto 31st December, 1980 with suitable modifications.

3 ‐ 01‐12‐1968 to 31‐3‐1973 = Provided further that no single declaration orcertificate shall cover more than one transaction of sale, except in cases wherethe total amount of sales made in a year, covered by one declaration orcertificate, is equal to or less than Rs. 5,000 or such other amount as theCentral Government may by a general order notify in the Official Gazette.

4 ‐ 01‐04‐1973 to 22‐4‐1973 = Provided further that no single declaration orcertificate shall cover more than one transaction of sale, except in cases where

the total amount of sales made in a Financial Year covered by one declarationor certificate is equal to or less than Rs. 5,000 or such other amount as theCentral Government may, by a general order, notify in the official gazette.

5 ‐ 23‐4‐79 to 31‐3‐84 = Provided further that no single declaration or certificateshall cover more than one transaction of sale except in cases where the totalamount of sales made in a Financial Year covered by one declaration orcertificate is equal to or less than Rs. 10,000 or such other amount as the




Central Government may, by a general order, notify in the official gazette.

6 ‐ 01‐04‐1984 to 15‐10‐1993: Provided further that no single declaration orcertificate shall cover more than one transaction of sale except in cases wherethe total amount of sales made in a Financial Year covered by one declaration

or certificate is equal to or less than Rs. 25,000/‐ or such other amount as theCentral Government may, by a general order, notify in the official gazette.

7 ‐ 16‐10‐1993 to date = Provided further that no single declaration or certificateshall cover more than one transaction of sale except in cases where the totalamount of sales made in a Financial Year covered by one declaration orcertificate is equal to or less than Rupees one lakh or such other amount as theCentral Government may, by a general order, notify in the official gazette.

8 ‐ 07‐08‐98 = Provided further that a single declaration may cover alltransactions of sale which take place in one financial year between the sametwo dealers.

9 ‐ 01‐10‐2005 = Provided further that a single declaration may cover alltransactions of sale, which take place in a quarter of a financial year betweenthe same two dealers.

Now coming to first legal decision of Hon’ble Madras HC in the case of BimetalBearings Ltd. vs. State of Tamil Nadu reported in 90 STC Page 128 wherein the gistof facts and decision is as under:‐

In the assessment for the year 1978‐79, some of the C‐forms filed by the petitionerin support of its claim to be taxed at a concessional rate in respect of interstate

sales covered by those forms were rejected by the assessing authority on theground that more than one transaction exceeding the monetary limit of Rs. 5,000/‐had been clubbed in each C‐form, in contravention of the second proviso to rule12(1) of the Central Sales tax (Registration and Turnover) Rules, 1957. This wasconfirmed by the Tribunal.

Held, allowing the petition, that the ultimate requirement was the actualproduction of the C‐forms as such to establish the genuineness of the transactionand the fact that it satisfied the category of sales entitled to concessional rate oftax, as prescribed in law. The requirement relating to the monetary limit in respectof more than one transaction for an individual C‐form would at the most be a

directory requirement. The defect alleged in the present case was not sofundamental in respect of any essential feature going to the root of the matter s asto affect the very legality and validity of the C‐form. When there was no allegationof absence of particulars, to reject the C‐forms in their entirety and to deprive thepetitioner of the benefit of the concessional rate of tax on the sole ground that theforms comprised more than one transaction in excess of the monetary limit, wouldbe unreasonable.




In the above case the Hon’ble HC has held that, such proviso is directory and notmandatory and therefore more than one transaction in individual C‐form isallowable.

Thereafter, in the State of Gujarat in the case of M/s. Hindustan Ciba Geigy Ltd. vs.

State of Gujarat SA No. 85 & 86 /2001 judgment dtd. 17.02.2002 following theprinciples of Madras HC in the case of Bimetal Bearings Ltd. granted claim in one Cform covering transaction mentioned in proviso to Rule 12(1).

This decision is reported in GSTB‐A Part‐I 2002 published by The Gujarat SalesTax Association, Ahmedabad.

Thereafter, amending the proviso to Rule 12(1) from 01.10.2005 the Hon’bleGujarat VAT Tribunal in the case of Sainest Tubes Pvt. Ltd. vs. State of Gujarat SANO. 431/2001 Judgment dtd. 25.03.10, the order of the Hon’ble Tribunal is asunder :‐

The appeal is allowed. The order of the learned Deputy Joint Commissioner ofCommercial Tax, Division ‐1 dated 08.06.09 as well as the order dated 28.01.09passed by the learned Deputy Commercial Sales Tax Commissioner, Division‐7,Gandhinagar is liable to be quashed and set aside. We hold that Rule 12 of CentralSales Tax (Register & Turnover) Rule 1957 as amended from 01.10.05 whichrequire ‘C‐Form’ to be produced in quarter of financial year as directory. They aremachinery or procedural provision so the same should be liberally construed. Wehold that ‘C‐form’ which covers transactions of more than one quarter asprovisions related to ‘C‐forms’ are directory and not mandatory.

We also direct the appellate authority to provide an opportunity to the appellantto produce “C‐Form’. We also direct the authority that if appellant produce “C‐Form” covering transactions of more than one quarter, the same will beconsidered to be legal and valid and in accordance with law. However, it will beopen to the Sales Tax Authority to scrutinize and verify the ‘C‐Form’ produced bythe assessee and the authority can examine the same as to whether it is legal, validas per provisions of law. On any other ground except which we have stated above.

From the above, all the three decisions (1) of Hon’ble HC and (2) of Hon’bleGujarat Sales/VAT Tribunal where it has been held that, proviso to Rule 12(1) isonly directory and not mandatory and therefore even after amendment in Rule

12(1) w.e.f. 01.10.2005, one C‐form can cover transactions more than one quarterand therefore claim of such single declaration covering transactions more than onequarter between the two dealers are allowable.




Last opportunity for Statutory forms

Vide Public Circular No. GUJKA/VAT/6/2010‐2011/OTW 94/83 Dt.02/06/2010,

last opportunity is given to the dealers to apply to the Commercial Tax Department,by 31st July, 2010, for obtaining residuary statutory forms, if any, viz. 'C', 'F' etc.,from the Department.

ITC reversal @ 2% for Inter-State Sales

Vide Notification No. (GHN‐14) VAT‐2010‐S. 11(6)(2)‐TH dt.29th June, 2010 u/s.11(6) of the GVAT Act, Input Tax Credit (ITC) will have to be reversed w.e.f. 1st July,2010 @ 2% of taxable turnover of purchases within the state, of goods, other thanSchedule‐II (13) goods (bullion etc.), for which tax credit is admissible, if the Goods

are either sold/resold in the course of inter‐state trade and commerce or are usedas input in the manufacture of goods, which are sold in the course of interstate tradeand commerce.

New Pre/ Post Audit Limits : -

The Department has issued new instructions for Pre/ Post Audits of Assessmentsand Appeals under GVAT Act for F.Y.2006‐2007 & onwards, setting forth NewHigher Monetary Limits.

Annual Return

-Time

Limit

-Extension

: -

The time limit for filing annual return for F.Y. 2009‐10 by dealers, not liable forAudit under GVAT, has been extended from 30th June, 2010 to 31st July, 2010, videPublic Circular No. GUJKA/ VAT‐15/ 2010‐11/OTW. 96/ 84 Dt. 13‐07‐2010.

Time limit for Re-payment of Deferment : -

In the Govt. Resolution Dt. 08‐09‐97, giving the option of Deferment of tax, in lieu ofexemption under entry 69 u/s 49(2) of the G.S.T. Act.1969, time limit for repayment

of deferred amount was left to be provided for. Recently vide G.R. No. G.S.T. 1209‐561‐74, it is provided that the amount deferred shall be repaid in six annualinstallments. The first such installment shall be paid within 60 days from the end ofthe financial year in which either the period of the exemption expires or themonetary limit of exemption is over, whichever is earlier.




Incidence of Tax Under Gujarat Value Added Tax Act, 2003

Tax seems to eat the countrymen, but it cannot be gainsaid that it nourishes thecountry.

Anonymous

Payment of tax is a handsome offering to one’s motherland. Anonymous

The Gujarat Value Added Tax Act, 2003 is insinuated in the state of Gujarat, witheffect from 1st April, 2006. Although, enacted in 2003, it required full three years tosee the light of the day.

It is enacted under the authority given to the States, under the Constitution of India,under Entry 54 of the State List, whereby the States are authorized to levy “Taxes onsales or purchase of goods other than newspapers”.

Sales or purchases of goods are those, which take place in Gujarat. Thus, VAT, leviedby Gujarat State, cannot and does not levy tax (i) on an inter‐State sale, or (ii) on aninter‐State consignment, or (iii) on an outside State sale, or (iv) on a sale in thecourse of import or (v) on a sale in the course of export.

The Act does not render every sale or purchase taxable. Its tentacles touch only to

the sales or purchases, as are identified in the Act.

It is the purpose of this treatise to delineate the various facets and circumstanceswhich render a dealer liable to tax.

When Is Someone Liable?

The edifice of every taxing statute is built upon three pillars, namely,1 - Declaration of liability2 - Quantification of liability

3 -

Collection of tax as per quantified liability

It is the avowed purpose of this essay to elaborately and comprehensively explainthe intricacies of the first named pillar of the Gujarat Value Added Tax Act, 2003.

For a proper appraisal of the provision thrusting liability to pay tax on a dealer it isessential to refer to Sec. 3 of the Gujarat Value Added Tax Act, 2003, which declares




incidences of tax, and is the charging section of the Act. The said Section isreproduced below vibration.

Incidence of Tax (Sec. 3)

1 -Subject

of

the

provisions

of

this

Act,

every

dealer,

-

i. whose total turnover during the year immediately preceding theappointed day exceeded rupees five lakhs and whose taxable turnoverexceeded rupees ten thousand in a year (the aforesaid amounts of totalturnover and taxable turnover are hereinafter referred to as “thresholds ofturnover”), or

ii. who was registered under the earlier law or under the Central Sales TaxAct as on the appointed day, or

iii. whose total turnover and taxable turnover in any year first exceed the

thresholds of turnover, oriv. Who is registered or liable to be registered as a dealer under this Act or

under the Central Sales Tax Act at any time after the appointed day shallbe liable to pay tax in accordance with the provisions of this Act.

2 - Notwithstanding anything contained in this section, a casual dealer or anauctioneer shall be liable to be registered if his taxable turnover of sales exceeds tenthousand rupees and he shall be liable to pay tax in accordance with the provisionsof this Act.

3 - The dealer shall be liable to pay tax.

a. in case of clauses (i) and (ii) of sub‐section (1), with effect from the appointedday.b. In case of clause (iii) of sub‐section (1), with immediate effect when his turnovercalculated from the commencement of the year first exceeds the thresholds ofturnover.c. In case of clause (iv) of sub‐section (1), with immediate effect when he becomesso liable or the date of registration under this Act, whichever is earlier.

Provided : That the dealer shall not be liable to pay tax in respect of thresholds of

turnover as takes place during the period prior to the relevant date of effect underthis sub‐section.

4 - Every dealer who has become liable to pay tax under this Act shall continue to beso liable until the expiry to one year during which his total turnover and taxableturnover below the thresholds of turnover.’[xxx]




Provided that any dealer whose liability to pay tax under this Act ceases or his totalturnover and taxable turnover during the year remains below the thresholds ofturnover, may apply for the cancellation of his certificate of registration; and onsuch to pay tax till his certificate of registration is cancelled.

5 -Not

relevant

6 - Not relevant

DEFINITIONS – CONNOTATION OF IMPORTANT TERMS/WORDS IN SEC. 3

A threadbare analysis of the section as quoted above necessitates clear concepts ofsome important words/terms germane to the topic under discussion which aregiven below.

(1) Appointed day:

-“appointed day” means the date on which the remaining

provisions of this Act shall come into force under sub‐section (3) of section 1.

(2) Business: - business includes –

(i) any trade, commerce or manufacture or any adventure or concern in thenature of trade, commerce or manufacture, whether or not such trade,commerce, manufacture, adventure or concern is carried on with a motiveto make profit or gain and whether or not any profit or gain accrues fromsuch trade, commerce, manufacture, adventure or concern; and

(ii) any transaction of buying, selling or supplying plant, machinery, rawmaterials, processing materials, packing materials, empties, consumablestores, waste products or such other goods, or waste or scrap of any ofthem which is ancillary or incidental to or resulting from such trade,commerce, manufacture, adventure or concern.

(3) Goods :- “goods” means all kinds of movable property (other that newspapers,actionable claims, electricity, stocks and shares and securities) and includes livestocks, all materials, articles and commodities and every kind of property (whether

as goods or in some other form) involved in the execution of works contract, allintangible commodities and growing crops, grass, standing timber or thingsattached to or forming part of the land, which are agreed to be severed before salesor under the contract of sale.




Note :- The subject‐matter of the Act is “goods” which includes all kinds of movableproperties, whether tangible or intangible. However, immovables, like land orbuilding or machinery and plant attached to land, do not form part of “goods”.

(4) Dealer :- “dealer” means any person who, for the purpose of or consequential

with or incidental to or in the course of his business buys, sells, manufactures,makes supplies or distributes goods, directly or otherwise, whether for cash ordeferred payment, or for commission, remuneration or otherwise and includes.

Subsequent portion in this definition except the Exceptions is not reproduced here,as it is not apposite for our discussion.

EXCEPTIONS:-

(i) an agriculturist who sells exclusively agriculture produce grown on land

cultivated by him personally;

(ii) an individual who sells exclusively any fish or any sea‐food caught by himpersonally or by any member of his family on account of or on behalf of suchindividual and

(iii) a charitable, religious or educational institution, carrying on the activity ofmanufacturing, buying, selling or supplying goods, in performance of its functions,for achieving its avowed objects, which are not in the nature of business.

Note: -

It is of paramount importance to note, that the activity, by such aninstitution, though in the nature of business, must be for achieving its avowedobjects. Then only the benefit of exception can be availed of.

(5) Person :- “Person” includes an individual, a joint family or Hindu UndividedFamily, a company, a firm, an association of persons or body of individuals, whetherincorporated or not, a society, club or other institution, a local authority, the CentralGovernment or a State Government and every artificial juridical person not fallingwithin any of the preceding description.

(6) Turnover of

Purchases:

-“turnover of purchases” means the aggregate of the

amounts of purchases price paid or payable by a dealer in respect of any purchase ofgoods made by him during a given period after deducting the amount of purchaseprice, if any, refunded to the dealer by the seller in respect of any goods purchasedfrom the seller and returned to him within the prescribed period;




(7) Turnover of Sales: - “turnover of sales” means the aggregate of the amount ofsale price received or receivable by a dealer in respect of any sale of goods madeduring a given period after deducting the amount of sale price, if any, refunded bythe dealer to a purchaser, in respect of any goods purchases and returned by thepurchaser within the prescribed period;

(8) Total Turnover: - “total turnover” means aggregate of the followingtransactions effected by a dealer

(a) turnover of sales pr purchases of goods within the State whether such sales orpurchases of goods are taxable or exempt under this Act;

(b) turnover of sales of goods in the course of inter‐State trade or commerce;

(c) turnover of sales of goods in the course of export of goods out of the territory of

India.

(d) turnover of sales by a dealer on his own account and also on behalf of hisprincipal.

(9) Sale :- “sale” means a sale of goods made within the State for cash or deferredpayment or other valuable consideration [The rest of the definition is not necessaryfor our discussion].

(10) Year: - “year” means financial year

THRESHOLD LIMITS

The thresholds discernible from clause

(i) of sub‐section 3(1) are as follows.

(ii) It will be transparently conspicuous that the total turnover during the yearmust exceed Rs. 5 lakhs.

(iii) It is not enough that the turnover should have merely exceeded Rs. 5lakhs, but that even the taxable turnover should also exceed Rs. 10,000/‐in a year.

Thus, if the turnover may be Rs. 50 lakhs but taxable turnover may be say, Rs.9,000/‐ the dealer is not liable




The turnover of sales as well as purchases, both have to be separately considered. Itmay be that sales may be less than Rs. 5 lacs, but purchases may be more that Rs. 5lacs. In such a case liability is attracted.

Instances Where Liability Does Not Depend Upon THRESHOLDS

(a) Under Sec. 3 :-

Although, the threshold limits are prescribed in Sec. 3 for imputing liability to adealer, there are provisions in the said Sec. 3, itself wherein the liability is thrusteven in absence of any turnover. Such instances are stated below.

(1) Where a dealer who was registered under the earlier Law, namely, Gujarat SalesTax Act, 1969.

(2) Where a dealer is registered under the Central Sales Tax Act, 1956.

(3) Where a dealer is a casual dealer and whose taxable turnover of sales exceedsRs. 10,000/‐. A casual dealer is a person who whether as principal, agent or in anyother capacity, undertakes occasional transaction of a business nature in anyexhibition‐cum‐sale or auction or otherwise in the State, whether for cash, deferredpayment, commission, remuneration or other valuable consideration.

(4) Where the dealer is an auctioneer, and his taxable turnover of sales exceeds Rs.10,000/‐.

(b) Under Other Sections.

(5) When a dealer is voluntarily registered (Sec. 22(4))(see below)

(6) Where the transferee of a business (whether entirely or partly) carries on suchtransferred business [Se. 51(20)].

Voluntarily Inviting of Liability [S. 22]

The Act also envisages the concept of voluntary registration, Consequently, theliability to pay tax emerge right from the day from which the dealer is registered. Inthis case, the liability does not depend upon the crossing of threshold limit.

Continuation of Liability




Once the liability to pay tax has accrued, it continues until the expiry of one yearduring which the total turnover and taxable turnover are below the threshold limit.However, in case such a dealer is registered under the Act, even if his turnover mayfall below, the threshold limits, his liability would continue unabated, until hisregistration certificate is cancelled. Of course, if again his turnover may exceed the

thresholds, in any subsequent year, he would be again liable to pay tax.

SOME PERTINENT LEGAL NICETIES

Every fiscal enactment has in its fold intncacies which endear our wits. Let usnarrate some of them in relation to the incidence of tax.

(a) Look at the definition of “turnover of sales”. For calculating, turnover, the valueof goods sold, but returned within prescribed period should not be included. [Sec.2(33)]

(b) If goods may be supplied and billed, but they are rejected by the intending buyer,on account of they being sub‐standard or not matching with ordered specifications,the value of such “rejections” cannot be included in total turnover.[Metal Alloy Co.(P) v. Commercial Tax Officer Ltd. (39 STC 404)].(CAL)

(c) Receipts for labour charges not involving any supply of material cannot beincluded in total turnover.

(d) Value of sales / purchases effected out of Gujarat are not includible in total

turnover.

(e) Value of transfers to branches/agents outside the State of Gujarat are also notincludible in total turnover.

(f) In case of receipts for works–contracts involving use of materials andlabour/sevices, the amount representing labour charges for execution of the works‐contracts is not includible in total turnover. (Sec. 2(24)).

(g) Needless to say that turnover upto the limit of Rupees 5 lakhs is not liable to tax.

[Sec. 3(3)(c)]

(h) Under Central Sales Tax Act, liability accrues from the very first rupee of sale,but under the Gujarat Value Added Tax Act, 2003, the liability commences only afterthe threshold limits are crossed or from that time as may be prescribed in the Act.[See “Instances, where liability does not depend upon thresholds].




Documents require for registration under the Gujarat VAT Act,2003.

1 ‐ Application to be filed in Form No. 101 along with Form No. 101A, 101B, 10C,101D & 101E.

Notes :

(a) if the dealer has started new business and the turnover exceeds Rs. 5 Lakhsalong with taxable turnover of Rs. 10,000/‐ the application is to be made within 30days from the date of exceeding the turnover.

(b) In case of transfer of business in whole or part the transferee not holding VATregistration number under Gujarat Act has to apply within 30 days from the date oftransfer.

(c) In case any dealer wants to apply for registration whose turnover is below thespecified limit as shown in small (a) such dealer can apply for voluntarilyregistration U/s.22 by depositing a sum of Rs. 25,000/‐ in to Government treasurywhich deposit is adjustable towards future tax liability.

The following details are required to be filled in the application and proof are also

required to be attached along with the application. Please see that all the details inForm No.101 at Serial No. 1 to 16 are fully filled in and various details are attached.Form No.101D requires to be filed separately for all the Partners/ Directors’Managers.

2 ‐ Proof of owner ship of Business place.

a ‐ Sales Deed/Allotment Letter/ Share Certificate given by IndustrialEstate or Non‐Trading Corporation or Builder.

b ‐ Copy of Electricity Bill

c ‐ If the business place is rented:

i. Consent letter from owner of the place.

ii. Xerox Copy of Lease Deed.

iii.Proof of ownership of the land lord of place of business [as perabove (a)]

3 ‐ Bank Account Details (Seal & Signature of Banker, Name & Address of the




Bank, Account Number, Type of Account) ‐ See column – 9 of Form No.

101.

4 ‐ Full address of head office situated outside the State of Gujarat with listof all the branches situated outside the State of Gujarat and within the

State of Gujarat with xerox copies of State VAT registration certificatesand central sales tax registration certificates.

5 ‐ Details of turnover : Tax Free goods or Taxable goods purchasedentirely from a registered dealer worth Rs. 5 lakhs and taxablepurchase or sales worth Rs. 10,000/‐ for compulsory registrationcertificate.

6 ‐ Proof of registration under the Shop Establishment Act/Factory Act as thecase may be. (not applicable to the NLD Dealers)

7 ‐ Proof details to be furnished.

A ‐ In case

of

the

company,

a ‐ Memorandum of association and Articles of association. (True Copy).

b ‐ Resolution passed by the Board of Directors for registration underthe Gujarat Sales Tax Act and for establishing the branch in theState of Gujarat.

c ‐Authority letter given to the authorized person to act on behalf ofcompany.

d ‐Xerox copy of PAN Card of the Company allotted by the Income‐TaxDepartment.

e ‐ PAN Card of Directors.

f ‐ Address Proof of Directors.

g ‐ Notarised photocopy of Passport of Managing Director.

B. In the case of individual applying registration for his Proprietary Concern.

1 ‐ A dealer applying for registration under the Act shall furnish along with theapplication for registration a security in the manner referred to in clauses (ii)

and (iii) of sub‐rule (2), not exceeding rupees fifty thousand :Provided that the amount of the security shall not exceed rupees tenthousand in case the person provides any three of the following documents,namely:‐

a ‐last paid electricity bill in his name or his parent’s name or hisspouse’s name,




b ‐ last paid telephone bill in his name or his parent’s name or hisspouse’s name,

c ‐ the Permanent Account Number (PAN) issued under the IncometaxAct, 1961,

d ‐ any document as proof of ownership of principal place of business inhis name or his parent’s name or his spouse’s name,

e ‐ any document as proof of ownership of residential property or anyimmovable property in his name or parent’s name or his spouse’sname,

f ‐ notarized photocopy of the passport of proprietor or managingpartner or managing director,

g ‐ certificate obtained from a local authority in respect of shop andestablishment, or;

h ‐ registration certificate obtained from Custom and Central ExciseAuthority:

For CST Registration security is to be furnished on the basis of nature ofbusiness and the same is decided at the time of hearing.

8 ‐ Nature of Business with list of goods to be purchased or sold,Description of such goods should be given in detailed , so that infuture the question of unauthorized purchases against C‐declarationmay not come in the way attracting penalty. You have to furnish the abovedetails in following format.

Sr.No.Description of goods for thepurpose of sales and purchases

Schedule Entry and Rate of VATapplicable.

9 ‐ The application for registration shall be accompanied by three copies ofrecent passport size photograph, as follows, duly attested by a VATPractitioner whose name has been registered in the list maintained by theCommissioner or by a Gazetted Officer or an advocate :‐

i. in respect of an individual, the photograph of the proprietor,

ii. in respect of a Hindu Undivided Family, the photograph of thekarta.

iii. in respect of a partnership firm, the photograph of all thepartners.

iv. in respect of private limited company or a limited company,photographs of all members of board of directors.




10‐ Three copies of letter of authority duly sealed and signed (attach herewith)

GOAVAT

Incidence of tax under Goa Value Added Tax Act. 2005

What is an incidence?

The meaning of incidence is something that happens or takes place. In any taxingstatute, the incidence means something or some situation which makes a personliable to pay tax under the said statute. Under Goa Value Added Tax Act 2005,section 3 is a charging section which stipulates the various incidences which make aperson liable to pay tax under the said Act. Similar to Goa VAT Act, there are other

similar taxation statutes like the Goa Tax on Luxuries Act and Goa EntertainmentTax Act which also provide for situations, which create an obligation on the part ofany person to pay tax and also get registered under the said statute to regularlyoperate and perform within the procedure laid down therein. VAT is a tax on sale ofgoods. Under Goa VAT Act 2005, as is mentioned in the forgoing para, section 3provides for incidence of tax. When any statue is enforced or implemented,generally always or at least in most of the cases, it regulates the existing situation inthe field and then provides to cover the future cases. To elaborate the issue oneneeds to appreciate that the business existed before the tax on sale of goods could

be introduced and therefore the first obligation of the law would be to cover the

incidence of tax of such businesses and then provide for the liability and registrationof the new persons coming in or desiring to start new business.

Under Goa VAT Act 2005 the following are the situations which create the incidenceof tax or lets say decides or determines the liability to pay tax:




(i) All the dealers who were liable under the provisions of the previous Act andwhose turnover has exceeded the taxable quantum specified in this law shallcontinue to be liable under this Act.

(iii) Incase of a dealer engaged in trading or manufacturing :

(a) person who is an importer of goods from any place outside the state or amanufacturer shall be liable to pay tax upon his turnover of sales first exceedingRs. 1.00 lac.

(b) person who is a casual trader or a non resident dealer shall be liable to paytax upon his turnover of sales first exceeding Rs. 10000/‐

(c.) Incase of a person doing exclusively local purchase and sales the dealer shallbe liable to pay tax upon his turnover of sale first exceeding Rs. 5.00 lac.

(iv) Where a person makes interstate sale in his business, he accrues liability to paytax under CST Act 1956 which casts an obligation on the said person to call forregistration under the general Sales Tax of law of the State i.e. VAT.

(v) Where a dealer or a person makes any exports out of India or makes a stocktransfer outside the State, it also creates an incidence of tax under the Act andmakes him liable to pay tax and call for registration. The terms like Year, Person,Turnover of sales, Non resident or the Casual trader or a Manufacture are defined inthe Act and therefore such definitions are important factors in deciding the incident

of tax. Any person whether a manufacturer or a trader once becomes liable, shallcontinue to be liable unless the registration is called for cancellation. The person soliable shall apply for registration as dealer and shall hold a valid certificate ofregistration during the continuation of business, until such liability ceases. In caseof other Tax statutes like Luxury Tax, Entry tax, Entertainment tax, Service tax,Central excise duty, the incidence of tax is almost similar but for the monitory limitsof taxable quantum being independent of each other.

Registration

A ‐ Information required to fill Form VAT–IDealer’s Name, local address (of H.O. and branches/ warehouses/ factories), addressin other States with Sales Tax registration no./ TIN, nature of business (trading,




manufacturing, others), four main commodities which the dealer deals in for tradingor as finished goods, details of immovables property in Goa.

B – Details of your Bank Account :i.e. bank name, type of account, account number

C ‐ Copy of Rent agreement for your premises in Goa NOC of premises owner for useof premises without rent.

D ‐ PAN card Xerox of the applicant firm/company

E – Details of Directors / partners / proprietor :Name, father’s name, age, home address and details of other business in which theyare interested (name, address and particulars of such business), PAN card Xerox,form 32 in case of Directors of a Company.

F ‐ Authority letter to the consultant to do the VAT etc. registration.

G ‐ Copy of Partnership Deed/ Memorandum & Articles of Association.

H ‐ Power of Attorney to the Manager (if any).

I ‐ Photos of partners/ In case of a company, at least 2 directors including MD (ifthere is MD)

J ‐ Sign of partners/ 2 directors on the form VAT ‐I.

K ‐ Rs. 2000/‐ Govt. fee for voluntary registration under VAT. [Provisionalregistration u/s 18(3) will be valid till Sales cross Rs. 1 lac]

L ‐ Shareholding pattern of Directors/ partners.

M ‐ Signs of Directors/ partners and also sign of witness (with name & address) onForm ‘A’. Rs.25 court fee stamp on form ‘A’ to be affixed.

N ‐ Name of the Manager of the business.

O ‐ Give the details of the goods or classes of goods which are purchased by thedealer in the course of inter‐state trade for :

a ‐ Resale.b ‐ Use in the manufacture or processing of goods for sale (Fixed assets; Raw




materials / consumables; Repair /maintenance items).c ‐ Use in the packing of goods

CST

Amendments in CST

Finance Act No. 14 of 2010 has made important amendment in Central Sales TaxAct 1956 out of changes made, section 18A will be effective from 01.06.2010 forwhich public notice is issued No. GSR 455(E) dtd. 28.05.2010.134 STC Page 473 (SC), has held that, the transaction in question is not an inter‐state sale, then it amountsto a transfer of stock. This finding is made by the statutory authority who has thejurisdiction to do so and there is no provision for appeals. Therefore the order madeby such authority is conclusive, in that it cannot be reopened on the basis that therehas been a mere error of judgment.

It can only be reopened on a small set of grounds such as fraud, misrepresentation,collusion, etc.

Due to this judgment of Supreme Court in above case, once dealer’s claim of branchtransfer or consignment transfer against form‐F is accepted by the department inassessment, it becomes final order for the department.

To nullify the effect of above decision new sub clause (3) has been added in Section6A which says that, assessing authority has power to reopen, on the ground ofdiscovery of new facts or revision by a higher authority on the ground that thefindings of the assessing authority are contrary to law.

Amendment of Section 6A:-

In the Central Sales Tax Act, 1956 (74 of 1956) (hereinafter referred to as theCentral Sales Tax Act, in section6A,

6a. (1) Where any dealer claim that he is not liable to pay tax under this Act, inrespect of any goods, on the ground that the movement of such goods from one State




to another was occasioned by reason of transfer of such goods by him to any otherplace of his business or to his agent or principal, as the case may be, and not byreason of sale, the burden of proving that the movement of those goods was sooccasioned shall be on that dealer and for this purpose he may furnish to theassessing authority, within the prescribed time or within such further time as that

authority may, for sufficient cause, permit, a declaration, duly filled and signed bythe principal officer of the other place of business, or his agent or principal, as thecase may be, containing the prescribed particulars in the prescribed form obtainedfrom the prescribed authority, along with the evidence of despatch of such goods[and if the dealer fails to furnish such declaration, then, the movement of such goodsshall be deemed for all purposes of this Act to have been occasioned as a result ofsale.]

(2) If the assessing authority is satisfied after making such inquiry as he may deemnecessary that the particulars contained in the declaration furnished by a dealer

under sub section (1) [are true and that no inter‐State sales has been effected, hemay, at the time of, or at any time before, the assessment of the tax payable by thedealer under this Act, make an order to that effect and thereupon the movement ofgoods to which the declaration relates shall, subject to the provision of sub section(3)] be deemed for the purpose of this Act to have been occasioned otherwise thanas a result of sale.

[(3) Nothing contained in subs section (2) shall prelude reassessment by theassessing authority on the ground of discovery of new facts or revision by a higherauthority on the ground that the findings of the assessing authority are contrary to

law, and such reassessment or revision may be done in accordance with theprovisions of general sales tax law of the State]

Appeals to the highest appellate authority of the State.

If in any case, if an order is passed in assessment or reassessment disallowing theclaim of branch transfer or consignment transfer, then as per old provision in VATlaw, appeal was allowed to file before 1st appellate authority namely, DeputyCommercial Tax Commissioner(Appeals) or Joint Commercial Tax Commissioner(Appeals)

To amend the present position, new section 18A has been inserted in Central SalesTax Act and as per the provisions of new section 18A, if an order is passeddisallowing the claim of branch transfer in assessment or reassessment order and ifdealer is not satisfy with the order then, rather filing 1st appeal before DeputyCommercial Tax Commissioner(Appeals), or Joint Commercial Tax




Commissioner(Appeals), he can directly file an appeal before the highest appellateauthority of the State ( In case Gujarat, it is Gujarat VAT Tribunal).

Sub section (2) of Section 18A says that, appeal shall be filed within 60 days fromthe date of receipt of order.

Cases pending before the First Appellate Authority

All cases pending before the 1st Appellate Authority as on 01.06.2010 will betransfer to VAT Tribunal as per provisions of sub section (2) of section 18A.

Tribunal will give an opportunity of hearing to both the parties and will passappropriate order.

Tribunal will decide the case within 6 months from the date of filing of the appeal.

New section 18A is as under:‐

Appeals to highest appellate authority of State Section 18A:

(1) Notwithstanding anything contained in a State Act, any person aggrieved by anorder made by the assessing authority under sub section (2) of section 6A, or anorder made under the provisions of sub section (3) of that section, maynotwithstanding anything contained in a State Act, any person aggrieved by an

order made by the assessing authority under sub section (2) of section 6A, or anorder made under the provisions of sub section (3) of that section, may,notwithstanding anything contained in the general sales tax law of the appropriateState, prefer an appeal to the highest appellate authority of the State against suchorder: Provided that any incidental issued including the rate of tax, computation ofassessable turnover and penalty may be raised in such appeal.

(2) An appeal under sub section (1) shall be filed within sixty days from the date onwhich the order referred to in that sub section is communicated to the aggrievedperson:

Provided that any appeal forwarded by the highest appellate authority of a State tothe first appellate authority under proviso to sub section (2) of section 25 andpending before such authority immediately before the appointed day shall betransferred, on such appointed day, to the higher appellate authority of the Stateand the same shall be treated as an appeal filed under sub section (1) and dealt withaccordingly.




Explanation: For the purposes this sub section “appointed day” means such date asthe Central Government may, by notification in the Official Gazette, appoint.

(3) The highest appellate authority of a State may, after giving both the parties an

opportunity of being heard, pass appropriate order.

(4) The highest appellate authority of the State may, as far as practicable, hear anddecide such appeal within a period of six months from the date of filing of theappeal.

(5) Notwithstanding anything contained in a State Act, the highest appellateauthority of a State may, on the application of the appellant and after consideringrelevant facts, including the deposit of any amount towards local or central sales taxin other States on the same goods, pass an order of stay subject to such terms and

conditions as it thinks fit, and such order may, inter alia, indicate the portion of taxas assessed, to be deposited prior to admission of the appeal.

Explanation: For the purpose of this section and sections 20, 21, 22 and 25, “highestappellate authority of a state”, with its grammatical variations means any authorityor tribunal or court, except the High Court, established or constituted under thegeneral sales tax law of a State, by whatever name called.

Section 18A of the Central Sales Tax Act, 1956 – Appeals to highest appellateauthority of state – Appointed day notified for purposes of section 18A(2)

Notification No. G.S.R. 455(E), dated 28-5-2010

In exercise of the powers conferred by Explanation to sub‐section (2) of Section 18Aof the Central Sales Tax Act, 1956 (74 of 1956), the Central Government herebyappoints the 1st June, 2010 as the appointed day for the purposes of the said sub‐section(2) of Section 18 of the said Act.

SERVICE TAX




Synopsis of Notifications, Circulars & Letters

Central Government vide Notification No.24/2010‐ST dated 22nd June, 2010 hasnotified 1st July,2010 as the day on which the provisions of clauses (A) & (B) ofSection 76 of the Finance Act, 2010 shall come into force. Hence the following newlyintroduced services & existing services whose scope is extended would come intoforce from 1st July, 2010.

EXISTING SERVICES

Name of Service Taxable service defined in Section

Business Auxiliary Services 65(105)(zzb)

Commercial or Industrial Construction 65(105)(zzq)

Construction of Complex 65(105)(zzzh)

Port Service 65(105)(zn)

Other Port Service 65(105)(zzl)

Airport Service 65(105)(zzm)

Commercial Training or CoachingServices

65(105)(zzc)

Sponsorship Services 65(105)(zzzn)

Aircraft Operator’s Services 65(105)(zzzo)

Auctioneer’s Services 65(105)(zzzr)

Renting of Immovable PropertyServices 65(105)(zzzz)

Information Technology SoftwareServices

65(105)(zzzze)

Management of ULIP Services 65(105)(zzzzf)

NEWLY INTRODUCED SERVICES

Promotion, Marketing or OrganizingGame of Chance, including lottery

65(105)(zzzzn)

Health Services 65(105)(zzzzo)Maintenance of Medical Reports ofEmployees

65(105)(zzzzp)

Promotion of Brand of Goods, Services,Events,Business Entity etc.

65(105)(zzzzq)

Permitting commercial use or 65(105)(zzzzr)




exploitation of any event

Services provided by ElectricityExchanges

65(105)(zzzzs)

Copyright Services 65(105)(zzzzt)

Special services provided by Builder orany other person authorized by suchbuilder to prospective buyer

65(105)(zzzzu)

ALL THE FOLLOWING NOTIFICATIONS ARE EFFECTIVE FROM 1ST JULY,2010

Central Government vide Notification No.25/2010‐ST dated 22nd June, 2010 hasexempted the taxable services of “air transport of passengers (Section65(105)(zzzo))” from whole of service tax in respect of:

(i) a person who has arrived at a customs airport from a place outside India and is intransit through India, provided that he does not pass through immigration and doesnot leave customs area and continues his journey to a place outside India; and

(ii) a person employed or engaged by the aircraft operator in any capacity on boardthe aircraft;

Central Government vide Notification No. 26/2010‐ST dated 22nd June, 2010 hasexempted the taxable services of “air transport of passengers (Section65(105)(zzzo))” from so much of service tax as is in excess of :

(a) 10% of the gross value of the ticket or Rs. 100 per journey, whichever is less, forpassengers travelling in any class, within India;

(b) 10% of the gross value of the ticket or Rs.500 per journey, whichever is less, forpassengers embarking in India for an international journey in economy class:

The said exemption is not applicable to cases where the credit of duty paid on inputsused for providing such taxable service has been taken under the provisions of theCENVAT Credit Rules, 2004. The term “economy class” for the purpose of the saidnotification is defined as where there is more than one class of travel, the class

attracting lowest standard fare & where there is only one class of travel, that class.

Central Government vide Notification No. 27/2010‐ST dated 22nd June, 2010 hasexempted the taxable services of “air transport of passengers (Section65(105)(zzzo))” from whole of service tax in respect of passengers embarking on ajourney originating or terminating in an airport located in Arunachal Pradesh,




Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or at Baghdogra(West Bengal).

Central Government vide Notification No. 28/2010‐ST dated 22nd June, 2010 hasexempted the taxable services of “construction of complex (Section 65(105)(zzzh))”

provided to Jawaharlal Nehru National Urban Renewal Mission & Rajiv AwaasYojana from whole of service tax.

Central Government vide Notification No. 29/2010‐ST dated 22nd June, 2010 hasamended Notification No.1/2006‐ST dated 1st March, 2006 whereby abatement of75% is granted from the gross amount in respect of taxable services of “commercialor industrial construction (Section 65(105)(zzq))” & “construction of complex(Section 65(105)(zzzh))” subject to following conditions:

• the taxable services provided are not in the nature of only completion & finishing

services referred to in Section 65(25b)(c) & Section 65(30a)(b).

• the gross amount charged shall include the value of goods and material supplied orprovided or used for providing the taxable service by the service provider.

• cost of land has not been separately recovered from the buyer by builder or hisrepresentative

• the service provider has not taken the benefit of Notification No.12/2003‐ST dated20th June,2003

• the service provider has not availed the credit of excise duty & service tax paid oninputs, capital goods and input services under the CENVAT Credit Rules, 2004.Central Government vide Notification No. 30/2010‐ST dated 22nd June, 2010 hasexempted the taxable services of “sponsorship (Section 65(105)(zzzn))” from wholeof service tax provided for:

(i) tournaments or championships organized by any of the National SportsFederations or Federations affiliated to such National Sports Federations, where theparticipating teams or individuals represent any District, State or Zone;

(ii) tournaments or championships organized by Association of Indian Universities –Inter‐University Sports Board, School Games Federation of India, All India SportsCouncil for the Deaf, Paralympic Committee of India (for the physically challenged),Special Olympics Bharat (for the mentally challenged);




(iii) tournaments or championships organized by the Central Civil Services Culturaland Sports Board;

(iv) tournaments or championships organized as part of National Games, by theIndian Olympic Association;

(v) tournaments or championships organized under Panchayat Yuva Kreeda AurKhel Abhiyaan (PYKKA) Scheme

Central Government vide Notification No.31/2010‐ST dated 22nd June,2010 hasexempted following services from whole of service tax when provided within a portor an airport:

(i) repair of ships or boats or vessels belonging to the Government of India includingNavy or Coast Guard or Customs but does not include Government owned Public

Sector Undertakings;(ii) repair of ships or boats or vessels where such process of repair amounts to“manufacture” and has the meaning assigned to it in clause (f) of Section 2 of theCentral Excise Act, 1944;(iii) supply of water;(iv) supply of electricity;(v) treatment of persons by a dispensary, hospital, nursing home or multi‐specialityclinic (except cosmetic or plastic surgery service);(vi) services provided by a school or centre to provide formal education other thanthose services provided by commercial coaching or training centre;

(vii) services provided by fire service agencies.(viii) pollution control services

Central Government vide Notification No. 33/2010‐ST, Notification No.34/2010‐ST& Notification No. 35/2010‐ST all dated 22nd June, 2010 has deferred the levy ofservice tax on taxable services provided by Government Railways to any person inrelation to transport of goods by rail (Section 65(105)(zzzp)) to 1st January,2011.Central Government vide MF (DR) Order No. 1/2010 dated 22nd June, 2010 hasnotified following persons, besides any Government authority, as “authoritycompetent” for issuing completion certificate as prescribed under the taxable

services of “commercial or industrial construction (Section 65(105)(zzq))” &“construction of complex (Section 65(105)(zzzh))”(I) architect registered with the Council of Architecture constituted under theArchitects Act, 1972; or(ii) chartered engineer registered with the Institution of Engineers (India); or(iii) licensed surveyor of the respective local body of the city or town or village ordevelopment or planning authority;




who is authorised under any law for time being in force to issue completioncertificate.

ALL THE FOLLOWING NOTIFICATIONS ARE EFFECTIVE FROM 22ND JUNE,2010

Central Government vide Notification No. 32/2010‐ST dated 22nd June, 2010 hasexempted the taxable service provided to any person, by a distribution licencee, adistribution franchisee, or any other person by whatever name called, authorized todistribute power under the Electricity Act, 2003, for distribution of electricity, fromwhole of service tax.Central Government vide Notification No. 25/2010‐CE (NT) dated 22nd June, 2010has amended the definition of “capital goods” under Rule 2(a) of the CENVAT CreditRules, 2004 whereby CENVAT credit would be available for excise duty paid ondumpers or tippers falling under Chapter 87 of the first schedule of the CETA, 1985registered in the name of service provider for providing taxable services of 1) site

formation & clearance, excavation & earthmoving & demolition & such other similaractivities (Section 65(105)(zzza)) & 2) mining of mineral, oil or gas (Section65(105)(zzzy)).

Central Government vide Notification No.36/2010‐ST dated 28th June, 2010 hasexempted any consideration received as advance before 1st July,2010 in respect ofnewly introduced taxable services & services whose scope is expanded (other thantaxable services of “commercial training or coaching services (Section65(105)(zzc))” & “renting of immovable property services (Section 65(105)(zzzz))”)from whole of service tax

Central Government vide Notification No.37/2010‐ST dated 28th June, 2010 hasamended Notification No.17/2009‐ST dated 7th July,2009 whereby refund ofservice tax to exporter on specified services is extended to services classified U/s.65(105)(zzm) provided in any airport in respect of export goods.

Central Government vide Notification No.38/2010‐ST dated 28th June, 2010 hasexempted the taxable services of “commercial or industrial construction (Section65(105)(zzq))” provided wholly within the port or other port for construction,repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers &

railways from whole of service tax. This exemption is effective from 1st July,2010.

Central Government vide Notification No.39/2010‐ST dated 28th June, 2010 hasinserted 4th proviso to Rule 4A(1) of the Service Tax Rules, 1994 w.e.f. 1st July,2010whereby in case of taxable service provided by aircraft operator providing service ofair transport of passenger, invoice/bill/challan shall include ticket in any form by




whatever name called and the same need not contain registration no. of serviceprovider, classification of the service received and address of the service receiver.

Central Government vide Notification No.40/2010‐ST dated 28th June, 2010 hasamended Notification No.1/2006‐ST dated 1st March,2006 whereby benefit of

abatement is extended to following services rendered in port (Section 65(105)(zn)),other port (Section 65(105)(zzl)) or airport (Section 65(105)(zzm)). Thisexemption is effective from 1st July,2010.

Sr. No Name of Taxable Service Section % of Tax payable

(i) 65(105) Abatement on %

1) Rent‐a‐Cab Operator (o) 60 40

2)Erection, Commissioning or

Installation (zzd)

67 33

3)Commercial or IndustrialConstruction (zzq)

67 33

4)Commercial or IndustrialConstruction rendered by builderor authorized person (zzq)

75 25

5) Construction of Complex (zzzh) 67 33

6)Construction of Complex by builder

or authorized person (zzzh)

75 25

7) Transport of Goods by Rail (zzzp) 70 30

All the conditions mentioned in Notification No.1/2006‐ST dated 1st March, 2006would apply to above abatements. Central Government vide Notification No.41/2010‐ST dated 28th June, 2010 hasexempted following taxable services provided wholly within the port/otherport/airport from whole of service tax w.e.f 1st July,2010:

i) Cargo handling services in relation to agricultural produce or goods intended to

be stored in a cold storage.ii) Storage & warehousing services in relation to agricultural produce or any serviceprovided by cold storage.iii) Transport of export goods in an aircraftiv) Site formation and clearance, excavation and earthmoving and demolition andsuch other similar activities.




Central Government vide Notification No.42/2010‐ST dated 28th June, 2010 hasexempted the taxable service of “commercial or industrial construction (Section65(105)(zzq))” provided wholly within the airport from whole of service tax w.e.f.1st July,2010.

Central Government vide Notification No.43/2010‐ST dated 30th June, 2010 hasamended Notification No.13/2008‐ST dated 1st March,2008 whereby abatement of75% available to services of “transport of goods by road in a good carriage (Section65(105)(zzp))” is extended to GTA services rendered within port/otherport/airport.

Central Government vide Notification No.44/2010‐ST dated 20th July, 2010 hasamended the Service Tax Return Preparer Scheme, 2009 whereby the agerestriction of 35 years for enrolling to act as an Service Tax Return Preparer is doneaway with.

Central Government vide Notification No.45/2010‐ST dated 20th July, 2010, inexercise of powers conferred by Section 11C of the Central Excise Act, 1944 readwith Section 83 of the Finance Act, 1994, has directed that the service tax payable ontaxable services relating to transmission and distribution of electricity provided upto 26th February, 2010 & service tax payable on taxable services relating todistribution of electricity up to 21st June, 2010 which was not being levied inaccordance with general trade practice is not required to be paid. CentralGovernment vide Circular No.124/6/2010‐TRU dated 29th June,2010 has notifiedaccount codes for newly introduced services.

Sr.

No

Taxable Service Accounting

Code

Tax Other Deduct

Collection Receipts Refunds

1) Service of promoting,marketing or organizing ofgames of chance, includinglottery, Bingo or Lotto[Section 65(105)(zzzzn)]

00440595 00440596 00440597

2) Health service [Section 65

(105) (zzzzo)]

00440598 00440599 00440600

3) Service of maintenance ofmedical records ofemployees of businessentity[Section 65(105)(zzzzp)]

00440601 00440602 00440603




4) Service of promoting abrand of goods, services,events, business entities, etc[Section 65(105)(zzzzq)]

00440604 00440605 00440606

5) Service of permittingcommercial use orexploitationof any event organized by aperson or organization[Section 65 (105) (zzzzr)]

00440607 00440608 00440609

6) Service provided byelectricity exchange[Section 65(105)(zzzzs)]

00440610 00440611 00440612

7) Copyright Services [Section65(105)(zzzzt)]

00440613 00440614 00440615

8) Special service provided bya builder etc, to theprospective buyers [Section65(105)(zzzzu)]

00440616 00440617 00440618

i) The sub‐head “other receipts” is meant for interest, penalty, leviable on delayedpayment of service tax.ii) The sub‐head “deduct refunds” is not to be used by the assessees, as it is meantfor the Revenue/ Commissionerates while allowing refund of taxiii) The accounting codes for Primary Education Cess (00440298) and SecondaryHigher Education Cess (00440426) remain unchanged.

Central Government vide Letter F.No.332/16/2010‐TRU dated 24th May, 2010 hasclarified on the issue related to leviability of service tax on construction ofresidential house by National Building Construction Corporation Ltd. (NBCC) forCentral Government officers. In para 2, it is clarified that the definition of residentialcomplex (Section 65(91a)) does not include a complex which is intended forpersonal use as residence by recipient of service. The term “personal use” is definedto include permitting the use of complex as residence by another person on rent orwithout consideration. In para 3, it is further clarified that the residential complexbuilt by NBCC for personal use of Government of India is not leviable to service tax.




Central Government Vide Circular No.126/8/2010‐ST dated 10th August, 2010 hasclarified that underwriting fees/commission received by Primary Dealers during thecourse of dealing in Government Securities is not liable to service tax sinceGovernment securities are sovereign securities having zero default risk and thesame are not securities issued by a Body Corporate which is prerequisite for

taxability under the category of “underwriting services (Section 65(116) & Section65(117)).

Central Government Vide Circular No.127/9/2010‐ST dated 16th August, 2010 hasclarified that in absence of link between consideration and the taxable service,service tax is not leviable on donations and grants‐in‐aid received by a CharitableFoundation imparting free livelihood training to the poor and marginalized youth,since donation or grant‐in‐aid is not specifically meant for a person receiving suchtraining or to the specific activity, but the same is in general meant for the charitablecause championed by such Foundation. Between the provider of donation/grant and

the trainee, there is no relationship other than universal humanitarian interest.CBEC vide Circular No.128/10/2010‐ST dated 24th August, 2010 has clarified asfollows: W.e.f. 1st June, 2007 when the new service “Works Contract Service” wasmade effective, classification of existing services (i.e. Erection Commissioning orInstallation, Commercial Construction & Construction of Complex) would undergo achange in case of long term contracts even though part of the service was classifiedunder the respective taxable service prior to 1st June,2007. This is because “workscontract” describes the nature of the activity more specifically and, therefore, as perthe provisions of section 65A of the Finance Act, 1994, it would be the appropriateclassification for the part of the service provided after that date. In case a contract

where the provision of service commenced prior to 1st June,2007 and any paymentof service tax was made under the respective taxable service before 1st June,2007,the condition under rule 3(3) of Works Contract (Composite Scheme for Payment ofService Tax) Rules, 2007 was not satisfied and thus no portion of that contractwould be eligible for composition scheme.

On the other hand, even if the provision of service commenced before 1st June,2007but no payment of service tax was made till the taxpayer opted for the compositionscheme after its coming into effect from 1st June,2007, such contracts would beeligible for opting of the composition scheme.

The Board’s previous Circular No. 98/1/2008‐ST dated 4th January,2008 and theratio of judgment of the Hon’ble Andhra Pradesh High Court in the matter of M/s.Nagarjuna Construction Company Limited vs. Government of India (2010 TIOL 403AP HC) are in line with the above interpretation.




Incidence and Levy of Services Tax

1. LAW GOVERNING SERVICE TAX

1.1 There is no separate Act or legislation for service tax. Chapter V of the Finance

Act, 1994 (sections 64 to 96) and Chapter VA of the Finance Act, 1994 (sections 96Ato 96I) both the Chapters together are hereinafter referred to as the “Act”, asamended from time to time, provide for the levy of service tax and constitute the lawgoverning service tax. The Government has also notified the following rules :‐(i) (Composition Scheme for Payment of Service Tax) Rules, 2007 Service Tax Rules,1994(ii) Cenvat Credit Rules, 2004(iii) Service Tax (Advance Ruling) Rules, 2003(iv) Export of Services Rules, 2005(v) Service tax (Registration of Special Category of Persons) Rules, 2005

(vi) Taxation of Services (provided from outside India and received in India) Rules,2006(vii) Service Tax (Determination of Value) Rules, 2006(viii) Works Contract(ix) Service Tax (Publication of Names) Rules, 2008(x) Service Tax Dispute Resolution Scheme, 2008(xi) Service tax Return Preparer Scheme, 2009.

1.2 The Act is administered by the Excise department. The rate of service tax is 12%(w.e.f. 24.2.2009 the effective rate is 10% by virtue of exemption under Notification

No. 8/2009‐ST). Further, the Finance (No.2) Act, 2004 has levied an “education cess”@ 2% on the amount of the service tax w.e.f. 10.9.2004 and Finance Act, 2007 haslevied an additional “secondary and higher education cess” @ 1% on the amount ofservice tax w.e.f 11.5.2007. Thus, presently the effective rate of Service Tax is10.30%.




2. PRELIMINARY LEGAL PROVISIONS

Territorial Jurisdiction – Section 64

2.1 By section 64(1), the Act extends to the whole of India except the state of Jammuand Kashmir, and by section 64(3), the levy applies to “taxable services provided”.

Charge of Service Tax – Section 66

2.2 Section 66 is the charging section of the Act, which provides that there shall belevied a service tax @ 12% [effective rate reduced to 10% by way of notification] ofthe value of taxable services referred to in section 65(105) of the Act. Thus, —(a) the charge is on the services provided;(b) the services provided must be one which is covered in section 65(105) ‐ a list of

which is given in Annexure 1;(c) the rate of tax is 12% [Reduced to 10% by way of notification];(d) the measure of tax is on “value of taxable services provided” which is defined in

section 67.

Three propositions

2.2 Three propositions emanate from the above [s. 64(1), s. 64(3) & s. 66] :(i) There must be a service(ii) The service must be a “taxable service”(iii) The service must be “ provided” [in India ?]

No Service, No Service tax

2.3 It is clear on reading of section 66 which is the charging section that in order to

be liable for service tax there must be a “service”. Service tax is a tax on servicesprovided. If there is no service, there is no tax. [ Addition Advertising vs. UOI (1998)98 ELT 14 (Guj.); CCE vs. Cochin International Airport Authority (2009) 16 STR 401(Ker)]. Thus, the taxable event which gives rise to the charge of service tax is theprovision of “service”.

Taxable event – “services provided or to be provided”

2.4 As explained in para 2.2 the charge is on the value of taxable services. Section65(105) defines “taxable service” as “any service provided or to be provided” to ‘anyperson’, ‘client’, ‘customer’, etc. Thus, the definition of “taxable service” structurally

consists of three components viz., the service provider; the service recipient; thenature of service.

2.5 Further, section 65(105) which defines “taxable services” covers ‐ services“provided”; and (b) services agreed “to be provided” within the ambit of service tax.The intention is to collect tax when advance payments are received for services to




be provided. Thus, service tax would be payable even on advances received. Thus,the taxable events would be two –(a) a service provided; and(b) a service agreed to be provided.“Taxable event” with regard to services “provided” is identified by the time of

provision of the service and with regard to services “to be provided” is identified bytime of payment towards value of service to be provided. This has a significantbearing on the rate of tax.

2.6 Thus where there has been provision of services but no monies towards thevalue of services has been received the rate of tax prevailing at the time of provisionof service would apply. Similarly, in cases where money has been received towardsthe value of service but the services are yet to be provided, the rate of tax prevailingat the time of receipt of payment towards the value of services would apply.

Place of

provision

of

services

Whether the services must be provided “in India”?

2.7 On a reading of section 64(3) and section 66 it is clear that the taxable event isthe ‘provision of service’ . However, unlike other enactments neither section 64 northe charging section viz., section 66 contain an express provision of the place wherethe taxable event i.e. ‘provision of services’ must happen. For example by section 3of the Central Excise Act, 1944 the levy of excise duty falls on “goods manufacturedin India”. Similarly the Income‐tax Act also provides for specific place where theincome must accrue or arise or deemed to accrue or arise or received or deemed to

be received. Section 4 which is the charging section provides that “…………income-tax

…………shall be charged ……….in respect of the total income”. Section 5 dealing withthe scope of total income provides that –(i) the scope of the total income of a resident assessee would be incomes accruing orarising or deemed to accrue or arise in India as well as outside India or received ordeemed to be received in India.(ii) the scope of the total income of a non‐resident assessee would be incomesaccruing or arising or deemed to accrue or arise in India or received or deemed tobe received in India.

2.8 Similarly the United Kingdom VAT Act, 1994 by section 1 provides as follows:“1. Value added tax.- Value added tax shall be charged, ……..‐(a) on supply of goods or services in the United Kingdom …….”Further section 4 reads as follows :“4. Scope of VAT on taxable supplies :(1) VAT shall be charged on any supply of goods or services made in the United

Kingdom, ……”




2.9 In the Indian Service Tax Law the word “in” is out !

2.10 On a conjoint reading of sections 64(1), 64(3) and 66 of the Act one may inferthat it is implicit in the scheme of the Act that the taxable event i.e. ‘provision of

services’ must happen in the taxable territories i.e. “India”.

2.11 This proposition was also substantiated by Circular No. 36/4/2001‐ST dated8.10.2001 which clarified the position as follows :“The expression “India” includes the territorial waters of India. Indian territorialwaters extend up to twelve nautical miles from the Indian land mass. Chapter Vof the Finance Act which governs the levy of Service Tax has not extended to thelevy to designated areas in the Continental Shelf and the Exclusive EconomicZone of India (as has been done in case of Central Excise vide Notification No.166/87‐C.E., dated 11‐6‐87 and in case of Customs by Notification Nos. 11/87‐

Cus., Dated 14‐1‐87 & 64/97‐Cus., dated 1‐12‐97). It

is,

therefore,

clarified

that the services provided beyond the territorial waters of India are not

liable to Service Tax as provisions of Service tax have not been extended to

such areas so far”.Thus the services must be provided “in India”. [Circular also referred in Coen

Company v. CCE (A) (2006) 2 STR 488 (Tri. – Bang.); Foster Wheeler Energy Ltd. vs.

CCE (2007) 7 STR 443 (Tri. ‐ Ahd.) and Indian National Shipowners Association v. UOI

(2009) 13 STR 235 (Bom.)]. This proposition has also been stated by the SupremeCourt in All India Fedn. of Tax Practioners vs. UOI (2007) 7 STR 625 (SC) where inpara 20 the Court observed

“20. On the basis of the above discussion, it is clear that service tax is VAT whichin turn is both a general tax as wall as destination based consumption taxleviable on services provided within the country.”

2.12 W.e.f. 1.3.2002 “India” included designated areas in the Continental Shelf andExclusive Economic Zone of India [notification no. 1/2002 dated 1.3.2002].However, the said Notification No. 1/2002 has now been superseded by NotificationNo. 14/2010 dated 27.2.2010 which has extended the provisions of Chapter V of theFinance Act, 1994 to the following areas purpose wise –

Sr.

No. The areas in the CSI

and EEZ

Purpose

1 Whole of continentalshelf and exclusiveeconomic zone of India[i.e. 200 nautical miles

Any service provided for all activitiespertaining to construction ofinstallations, structures and vessels forthe purposes of prospecting or




from shore] extraction or production of mineral, oiland natural gas and supply thereof.

2 The installations,structures and vesselswithin the continental

shelf and the exclusiveeconomic zone of India,constructed for thepurposes of prospectingor extraction orproduction of mineral, oiland natural gas

Any service provided or to be providedby or to such installations, structuresand vessels and for supply of any goods

connected with the said activity.

2.13 Thus the following services would be covered.(i) Any Services provided within the territorial waters of India i.e. upto 12 nauticalmiles;(ii) As regards services provided between 12 nautical miles and 200 nautical milesonly the above two services would be covered.

Services “provided” in India – what does it mean?

“Provided” – ‘performed’ or ‘supplied’ ?

2.14 The next issue is for a service to be treated as being provided in India‐(i) whether the services must be “performed” in India ? or(ii) whether the services must be “supplied” in India ?If it is interpreted as services “performed” in India the taxable base would be“service provider centric”. If it is interpreted as services “supplied” in India thetaxable base would be “service receiver / customer centric”.

Provided

Performed

Service provider

centric

Supplied

Service receiver

/ customer

centric




The above is relevant since in a typical cross‐border transaction involving import ofservices, say, from USA if the term ‘provided’ is interpreted as ‘performed’ then theservice provider in USA being outside the Indian taxable territories the transaction

would not attract service tax in India. However, if the word ‘provided’ is interpretedto mean ‘supplied’ then the service recipient being in India the transaction wouldattract service tax in India even if the service provider is in USA.

Departmental clarifications – Advancing the concept that ‘provided’ means

‘performed’.

2.15 In this context the following departmental clarifications may be referred. Incase of tour operators the department has clarified vide para 2.6 of M.F.(D.R.) letterF.No. 43/10/97‐TRU dated 22.8.97 as follows ‐“Service tax on services rendered by tour operators is only on services

rendered

in

India

in

respect

of

a

tour

within

Indian

territory.

Services

rendered by tour operators in respect of out -bound tourism; i.e., for tours

abroad, do not attract service tax. In case of a composite tour which

combines tours within India and also outside India, service tax will be

leviable only on services rendered for tours within India provided separate

billing has been done by the tour operator for services provided in respect of

tours within India.”

This advances the concept that the situs of taxation is on services rendered withinthe taxable territories.

2.16 In case of Market research agencies Trade Notice No. 7/98‐Service Tax dated13.10.1998 issued by Commissioner of Central Excise, Mumbai‐1, based on CircularF. No. B 11/3/98‐TRU dated 7‐10‐98, issued by Ministry of Finance Dept. ofRevenue, Tax Research Unit clarifies as follows :“6.3 An issue has been raised whether service tax is payable in respect of servicesrendered to foreign clients in India, and in respect of such services rendered abroad. It is clarified that service tax is payable on all taxable services rendered inIndia whether to an Indian or foreign client. However, services rendered abroadshall not attract service tax levy as service tax extent only to services providedwith in India.”

2.17 Thus, the situs of taxation has been interpreted to mean services rendered inIndia and hence the word “provided” is to be interpreted as “rendered”. The term“render”, according to the Black’s Law Dictionary – 6th Edition means:“To give up; to yield ; to return; to surrender; Also to pay or perform; used as

rents, services and the like.”The term “rendered” also means “perform” (in the present context). Hence it maybeconcluded that it is only services ‘performed’ in India that would attract service tax.




Departmental clarifications – Advancing the concept that ‘provided’ means

‘supplied’.

2.18 Circular No. 56/5/2003 dated 25/04/2003 issued by the Ministry of Finance inthe context of interpretation of export of services [much before the introduction of

Export Rules] has stated as follows:“3. The Board has examined the issue. In this connection I am directed to clarify thatthe Service tax is destination-based consumption tax and it is not applicable onexport of services. Export of services would continue to remain tax‐free even afterwithdrawal of Notification No. 6/99 dated 09/04/1999.”Thus, as per the above Circular, services are deemed to be ‘provided’ where theservices are ‘consumed’. Accordingly the taxable base could be considered ascustomer centric.

Whether services are “provided” in India ? – to decide - “Place of Supply” Rules

required

2.19 On a reading of paras 2.15 to 2.19 it appears that the term service “provided”could be interpreted as “performed” or “supplied”. Considering the diverse nature ofservices the word “provided” could be “performed in India” or “supplied in India”depending on the nature of service. For instance, in case of “cargo handling services”(CHS) or “rent‐a‐cab operator” (RCO) where physical performance of the service is adecisive factor, the term “provided in India” may be interpreted as “performed inIndia”. However, in a service like “management consultancy service” (MCS), which isof an intellectual nature the term “provided in India” may be interpreted as“supplied in India”. Hence, there is a requirement for a “Place of Supply” Rules

providing where the service is considered to be provided depending on the natureof service.




Situs of Taxation

Services “provided” i n I n d i a – what does it mean ?

Provided

SuppliedPerformed

Serviceprovidercentric

Servicereceiver /customercentric

Could be both ? Place of Supply Rules required

S er v i c e p r o v i d e r c e n t r i c or c u s t o m e r c en t r i c ?

CHS, RCO, etc.MCS, etc.

2.20 In the UK VAT Act, 1994 there are “Place of Supply” Rules to determine wherethe services are supplied and accordingly the territorial jurisdiction for taxation. Ifon an application of the said rules, the place of supply is UK then the UK VAT wouldbe attracted.

In India, the place of supply is not specifically embodied in the Act as in the UK.However, rules akin to Place of Supply Rules for specific categories of services havebeen provided for exports and imports known as Export of Services Rules, 2005(“Export Rules”) effective from 15.3.2005 and Taxation of Services (Provided fromOutside India and Received in India) Rules, 2006 (“Import Rules”) effective from19.4.06. Further, section 94 of the Act has also been amended by Finance (No. 2) Act,2009 so as to empower the Central Government to make rules inter alia fordetermination of place of provision of taxable services. The above rules when madewould be a major land mark in the advancement of the service tax law in India.However, it is to be seen how simple it would be to operate.

Import of

Services

&

Export

of

Services

2.21 The Finance Act, 2006 introduced a new section 66A to bring certain cross‐border transactions involving overseas service providers within the ambit of servicetax. In effect it has brought certain services provided by overseas service providerswithin the purview of service tax. In such cases the recipient of the services in Indiawould be liable to register and pay service tax. This is known as the “reverse chargemechanism”. Taking into account international practices the Taxation of Services




(provided from outside India and received in India) Rules, 2006 (“Import Rules”)has been notified w.e.f. 19.4.2006. These Rules inter alia specify when a taxableservice is to be treated as supplied in India and accordingly coming within theIndian service tax net. This is akin to “Place of Supply Rules”.

2.22 The Export Rules set out the criteria to decide when a service is deemed tohave been exported, keeping in view the nature of the different taxable services.

2.23 The above provisions viz. Import of Services and Export of Services would bepresumably dealt in later articles.

3. NATURE OF SERVICE TAX

Service tax is an indirect tax akin to VAT on the supply of services

3.1 The Supreme Court in All India Federation of Tax Practitioners vs. Union of India

(2007) 7 STR 625 (SC) explained the nature of tax as follows:“6. At this stage, we may refer to the concept of Value Added Tax (VAT), which is ageneral tax that applies, in principle, to all commercial activities involvingproduction of goods and provision of services. VAT is a consumption tax as it isborne by the consumer.7. In the light of what is stated above, it is clear that Service Tax is a VAT which inturn is destination based consumption tax in the sense that it is on commercialactivities and is not a charge on the business but on the consumer and it would,logically, be leviable only on services provided within the country. Service tax is avalue added tax.”

Nature of Education Cess and Secondary and Higher Education Cess

3.2 Education cess is levied on taxable services by virtue of section 95(1) of theFinance (No. 2) Act, 2004. Sub‐section (3) of section 95 provides that the provisionsof Chapter V of the Finance Act, 1994 and the rules made thereunder would apply inrelation to Education Cess as they apply to Service Tax. Similarly, Secondary andHigher education cess is levied on taxable services by virtue of section 140(1) of theFinance Act, 2007 and by virtue of sub‐section (3) thereof the provisions of ChapterV of the Finance Act, 1994 and the rules made thereunder would apply in relation toSecondary and Higher Education Cess as they apply to Service Tax.

Selective vs. Comprehensive Coverage

3.3 Depending on the socio‐economic compulsions, each country evolved a taxationsystem on services adopting either a comprehensive approach or a selectiveapproach. All services are taxable under the comprehensive approach unless theyare specifically excluded, whereas under the selective approach only specified




services are taxable, a system which India has adopted. A list of services presentlyliable for service tax is given in Annexure 1.

4. GAMUT AND COVERAGE OF SERVICE TAX LAW

4.1 The law governing service tax may affect a person in the following ways:a. As a service provider : An assessee may be liable for service tax as a provider ofany of the 117 categories of services mentioned hereinafter in Annexure 1 attachedherewith except in exceptional circumstances stated below in para (b).

b. As a service receiver : The following are the cases where the availer of servicesis liable to pay service tax :

(i) Services received from persons based outside India – service receiver to pay

In case of taxable services provided by a person who is based outside India1 and

received by a person based in India2 in accordance with section 66A it is therecipient of the service who is liable for paying service tax.

(ii) Insurance Companies to pay service tax in respect of services provided by

insurance agents

In case of insurance auxiliary services, relating to general insurance and lifeinsurance provided by an insurance agent, service tax shall be paid by the generalinsurance company or the life insurance company carrying on business in Indiawhich has appointed the agent.

(iii)Mutual fund

/

asset

management

companies

to

pay

service

tax

on

mutual

fund distribution services

In cases where the services of distribution of mutual fund are provided by a mutualfund distributor or an agent, the mutual fund or asset management company who isreceiving such service would be liable to register and pay service tax.

(iv) Sponsor of the event to pay service tax in case of sponsorship services.

In case of sponsorship services the recipient of service namely the person whosponsors the event would be liable to pay service tax. The recipient of service isrequired to pay service tax only if he is located in India. Thus in case of foreign

sponsorships; i.e., where the sponsor is located outside India, it would be theprovider of services i.e., the sponsored organisation which would be liable to payservice tax.

1 The service provider has a business establishment or a fixed establishment or usual placeof residence or permanent address in a country outside India.

2 The service recipient has a business establishment or a fixed establishment or usual placeof residence or permanent address in India.




a. As a payer of service - Services provided by a goods transport agency

In the case of services provided by a goods transporting agency, where theConsignor or Consignee of goods is a specified entity viz., a factory, a company, astatutory corporation, a society, a co‐operative society, a dealer of excisable goods, a

body corporate or a partnership firm “the person

liable

to

pay

service

tax ” is the

person who is liable to pay the freight either himself or through his agent for thetransportation of goods.N.B. It is to be noted that where neither the consignor nor the consignee is any of the

specified entities mentioned above it would be the goods transport agency which

would be liable to pay Service Tax in such cases.

Vendor liability : In a business entity many suppliers / vendors charge service tax.The incidence of service tax on these services is passed on to the availer of services.Thus, an availer of services has to be conversant with the service tax provisions due

to two important reasons ‐(i) From an economic standpoint, since he bears the burden of tax, which adds to hiscosts, he must check whether the supplier is legally correct in charging service taxon his services;(ii) From a procedural standpoint, he may be entitled to input tax credit if theavailer is also providing the taxable service.

5. DEFINITIONS – SECTION 65

5.1 This section contains definitions of various important terms used in the Act.

Since India has adopted the selective approach of taxing only specified services it isnecessary to define the various service categories/service providers covered in thetax net. These definitions are contained in section 65 of the Act and form the crux ofthe entire Act. The categories of services to which the Act applies has been definedby the term “taxable service” which is contained in section 65(105) of the Act.

5.2 Section 65(105) defines “taxable service” as “any service provided or to be

provided” to a client, customer, etc. This definition contains various sub‐clauseswhich define “taxable service” in the context of each service. For example, “taxableservice” in the context of ‘general insurance’ is defined as follows:

“(105) taxable service means any service provided or to be provided –(a) to (c) ………………………………(d) to a policy holder or any person, by an insurer including re‐insurer carryingon general insurance business in relation to general insurance business.(e) to (zzzzj) …………………………”




The term “taxable service” is similarly defined in the context of other services suchas stock broker, telecommunication, advertising, etc. and structurally consists ofthree components viz.,(i) the service provider;(ii) the service recipient;

(ii) the nature of service.The service provider is also defined in the case of several services for eg.“advertising agency”, “stock broker”, etc. The nature of service is also defined inmany cases. For example, “banking and financial services”, etc.

5.3 The definitions are “inclusive” and “exhaustive” and the general principlesapplicable to construing such definitions must be applied3. One such helpfulprinciple particularly helpful in the case of service tax is that a phrase defined in astatute must itself be interpreted in a manner appropriate to the phrase defined.This is substantiated by the following judgments.

(i) In Hotel and Catering Industry Training Board v. Automobile Proprietary Limited -

(1968) 3 All. E.R. 399, p. 402E, Lord Denning speaking for the Court of Appealexplained as under:“It is true that “the industry” is defined; but a definition is not to be read inisolation. It must be read in the context of the phrase which is defined, realizingthat the function of a definition is to give precision and certainly to a word orphrase which would otherwise be vague and uncertain ‐ but not to contradict itor supplant it altogether”.

(ii) In I.L.M. Cadija

Umma

and

Another v. Don

Manis

Appu

-AIR 1939 Privy Council

63 (at page 65), the principle was explained as under:“A phrase having been introduced and then defined, the definition prima faciemust entirely determine the application of the phrase; but the definition mustitself be interpreted, in case of doubt, in a sense appropriate to the phrasedefined and to the general purpose of the enactment”.

(iii) In Hariprasad Shivshankar Shukla v. A.D. Divelkar ‐ AIR 1957 SC 121, theSupreme Court held:“It is true that an artificial definition may include a meaning different from or in

excess of the ordinary acceptation of the word which is the subject of definition;but there must then be compelling words to show that such a meaning differentfrom or in excess of the ordinary meaning is intended. Where, within theframework of the ordinary acceptation of the word, every single requirement of

3 G. P. Singh on Principles of Statutory Interpretation; Maxwell on The Interpretation ofStatutes; Craies on Statutes, etc. contain excellent exposition on these principles.




the definition clause is fulfilled, it would be wrong to take the definition asdestroying the essential meaning of the word defined.”To illustrate this point we take the definition of “Business Auxiliary Services”. Theexpression which is defined is “Business auxiliary services”. This entry thereforepresupposes that the services which fall within this category would essentially be

auxiliary to a “business”. Thus, the client must in the first place carry‐on a“business”. This, interpretation would be appropriate to the phrase defined. Thuswhere the client (Government) carried‐on sovereign functions not amounting tobusiness the activity of the assessee who provided services to the Governmentcannot be considered to be business auxiliary services. [CCE vs. Ankit Consultancy Ltd. (2007) 6 STR 101 (Tri‐Del.)]. This principle has also been applied in construingthe meaning of the term “advertising agency” [ Zee Telefilms Ltd. vs. CCE (2006) 4STR 349 (Tri. – Mumbai); See Contra CCE vs. Zodiac Advertisers (2009) 13 STR 593(Ker.)].

5.4 Many of the terms have been assigned the meanings they have in otherenactments. For example, “actuary” as per S. 2(i) of Insurance Act, 1938; “bankingcompany” as per S. 45A(a) of the Reserve Bank of India Act, 1934; “motor cab”,“maxi cab”, “motor car” and “motor vehicle” as per the Motor Vehicles Act, 1988; andso on.

5.5 Words and expressions used but not defined in the Act and defined in theCentral Excise Act, 1944 or the rules made there under shall have applicationmutatis mutandis.

6. GENERAL

EXEMPTIONS

Services provided to UN or International Organization exempt [Not. No.

16/2002-S.T. dated 2.8.2002]

6.1 All taxable services, provided by any person to the UN or InternationalOrganizations are exempt. “International Organization” means an internationalorganization declared by the Central Government in pursuance of Section 3 of theUnited Nations (Privileges and Immunities) Act, 1947, to which the provisions of theSchedule to the said Act apply.

Exemption from Service tax on Services provided to a developer or unit of

Special Economic Zone (SEZ) [9/2009 – S.T., dated 3rd March, 2009]

6.2 W.e.f. 3rd March 2009, the Government of India, Ministry of Finance has issued aNotification No. 9/2009 – S.T., dated 3rd March, 2009 exempting taxable servicesprovided to the developer / unit of SEZ in relation to authorized operations whetheror not the said taxable services are provided inside the SEZ subject to the certain




conditions. The earlier notification No.4/2004 dated 31.03.2004 has beenwithdrawn/ superceded.

Exemption in respect of value of goods and materials from the value of taxable

service [Not. No. 12/2003-S.T. dated 20.6.2003 read with Not. No. 12/2004-S.T.

dated 10.9.2004]

6.3 Value of goods and materials sold by a service provider to the recipient ofservice is exempt from service tax subject to documentary proof specificallyindicating the value of the said goods and materials. This exemption is subject to thefollowing conditions–(i) that no credit of duty paid on such goods / materials is taken; or(ii) where such credit has been taken, an amount equal to the amount of creditavailed is paid before the sale of such goods / materials.

Reserve Bank of India exempt [Notification No. 22/2006 dated 31.5.2006]

6.4 All Taxable Services provided by Reserve Bank of India are exempt. Further, theReserve Bank is also not liable to pay service tax as recipient of the services or as apayer of freight.

Exemption scheme for small service providers – minimum / threshold limit of

Rs. 10 lakhs provided subject to conditions [Not. No.6/2005-S.T. dated

1.3.2005 (as amended)]

6.5 Service Tax Law inspite of being 10 years old did not have a minimum/thresholdlimit. Even if a person renders taxable service for a paltry amount of Rs. 100/‐ hehad to register and pay service tax. The Central Government having appreciated the

requirement of minimum / threshold limit has issued notification No. 6/2005‐S.T.dated 1.3.2005 providing for an exemption scheme for small service providers w.e.f.1.4.2005. Thus, w.e.f. 1.4.2005 aggregate value of all taxable services upto Rs. 4lakhs in a financial year provided from one or more premises shall be exempt fromservice tax subject inter alia to certain conditions. W.e.f 1.4.2007 this limit of Rs. 4lakhs was increased to Rs. 8 lakhs which is further increased to Rs. 10 lakhs w.e.f.1.4.2008. The conditions to be satisfied are as follows:

• Aggregate value of all taxable services rendered by a service provider fromone or more premises, in the preceding financial year does not exceed Rs. 10lakhs.

• The following restrictions on availment of CENVAT credit apply: CENVAT credit on input services and capital goods is not availed; An amount equal to the CENVAT credit taken on inputs lying in stock or in

process on the date on which this exemption is availed would have to be paid; Unutilised balance of CENVAT credit shall lapse on the day the service

provider starts availing the exemption; CENVAT credit shall be availed only on such inputs or input services‐




(a) received on or after the date on which the service provider starts paying servicetax, and(b) used for the provision of taxable services for which service tax is payable;

Calculation of monetary limits

6.6 The provisions regarding monetary limits can be summarized as under:(i) where the previous year’s value of taxable service provided exceeds Rs. 10 lakhs ,service tax would be payable even if the current year’s turnover is less than Rs. 10lakhs.(ii) where the previous year’s turnover is Rs. 10 lakhs or below and the currentyear’s turnover exceeds Rs. 10 lakhs, no service tax is payable upto Rs. 10 lakhs ifthe specified conditions are complied with.Further, the sum total of first consecutive payments ‘received’ during the financialyear towards the taxable services upto Rs. 10 lakhs would be exempt. The paymentsreceived towards wholly exempt services are to be excluded for determining the

amount of Rs. 10 lakhs.

Thus, it appears that, while considering the limit of Rs. 10 Lakhs of the current year,it is the payment ‘received’ for the taxable service that has to be considered but forconsidering the previous year’s limit of Rs. 10 lakhs, it is the value of taxable service‘provided’ that has to be taken.

The above exemption would not be applicable in the following cases:1) where taxable services are provided by a person under a brand name / tradename of another person whether registered or not.

Thus, service provided by a person under his own brand name would not beaffected by this restriction and would be entitled for the exemption.2) Where service tax is payable by a persona) As a receiver of service e.g.

(i) Services provided by Non‐residents / foreign companies who do not have anoffice in India(ii) Services provided by insurance agents(iii) Services provided by a mutual fund distributor(iv)Services provided by a sponsor

b) As a payer of service ‐ for transport servicesThus, the exemption would apply only in cases where service tax is payable as aprovider of service.N. B. The service provider has the option not to avail the exemption and pay service tax

and such option, once exercised in a financial year, shall not be withdrawn during the

remaining part of such financial year.




Services provided to foreign diplomatic mission or consular post in India is

exempt [Notification No. 33/2007-S.T. dated 23.5.2007].

6.7 Taxable services provided by any person for the official use of a foreigndiplomatic mission or consular post in India is exempt from service tax subject tocompliance of certain conditions and procedures.

Services provided to family members of foreign diplomatic agents or career

consular officers is exempt from service tax [Notification No. 34/2007-S.T.

dated 23.5.2007]

6.8 The services provided by any person for the personal use or for the use of familymembers of diplomatic agents or career consular officers posted in foreigndiplomatic mission or consular post in India is exempt from service tax subject tocompliance of certain conditions and procedures.

Annexure 1

List of

services

covered

under

the

service

tax

net.

S. No Nature of Service Effective Date

1. Stock Broking :i. Stock‐brokersii. Sub‐brokers

01.07.9410.09.04

2. General Insurance 01.07.943. Advertising 01.11.964. Courier 01.11.965. Consulting Engineer 07.07.976. Custom House Agent 15.06.97

7. Steamer Agent 15.06.978. Clearing & Forwarding Agent 16.07.979. Manpower Recruitment Agency

Manpower Recruitment or supply Agency

07.07.97 to15.06.0516.06.05 onwards

10. Air Travel Agent 01.07.9711. Mandap Keeper 01.07.9712. Tour Operator 1.09.97 to

17.07.98 & 1.4.00Onwards

13. Rent‐a‐cab scheme operator 16.07.97 to27.02.99 & 1.4.00Onwards

14. Architect 16.10.9815. Interior Decorator 16.10.9816. Management and Business Consultant 16.10.9817. Practising Chartered Accountant 16.10.98





18. Practising Cost Accountant 16.10.9819. Practising Company Secretary 16.10.9820. Real Estate Agent 16.10.9821. Security Agency 16.10.98

22. Credit Rating Agency 16.10.9823. Market Research Agency 16.10.9824. Underwriter 16.10.9825. Scientific and technical consultancy services 16.07.0126. Photography services 16.07.0127. Convention services 16.07.0128. On‐line information and database access or

retrieval services16.07.01

29. Videotape production services 16.07.01

30.

Sound recording services 16.07.0131. Broadcasting services 16.07.0132. Insurance auxiliary services relating to general

insurance16.07.01

33. Banking and Other Financial services providedby:

i. Banking companies, Financial Institutions andNBFCs

i. Other body corporatesi. Non‐corporate commercial concerns

. Any person

. Commercial concerns

16.07.01

16.08.0210.09.04 – 30.4.061.5.06 to 31.05.07

01.06.07

34. Port services (Major Ports) 16.07.0135. Authorised service stations for service and repair

of motor car and 2 wheeled vehicles and lightmotor vehicle.

16.07.01

36. Beauty Parlours 16.08.0237. Cargo Handling services 16.08.02

38.

Cable Services :- Cable operators- Multi‐System operators

16.08.0210.09.04

39. Dry Cleaning services 16.08.0240. Event Management 16.08.0241. Fashion Designers 16.08.0242. Health Club and Fitness Centres 16.08.0243. Life Insurance business (taxable to the extent of





risk cover component). 10.09.0444. Insurance auxiliary service relating to Life

Insurance business16.08.02

45. Rail Travel Agents 16.08.02

46. Storage and Warehousing services 16.08.0247. Business auxiliary service 01.07.0348. Commercial training and coaching 01.07.0349. Commissioning and installation

Erection01.07.0310.09.04

50. Franchise 01.07.0351. Internet café providing internet access 01.07.0352. Maintenance and repair

Management, maintenance and repair

01.07.03 to30.4.06 &1.5.06 onwards

53. Technical testing and analysis 01.07.0354. Technical Inspection and certification 01.07.0355. Forex broker other than corporate brokers 01.07.0356. Port services (Minor ports) 01.07.0357. Airport services 10.09.0458. Transport of goods by air 10.09.0459. Business exhibition services 10.09.0460. Goods transport agency which issues

consignment note01.01.05

61. Construction services

Commercial or Industrial Construction Service

10.09.04 to

15.06.0516.06.05 onwards

62. Intellectual property services 10.09.0463. Opinion poll services 10.09.0464. Outdoor catering 10.09.0465. T.V. or Radio Programme production 10.09.0466. Survey and exploration of mineral 10.09.0467. Pandal or shamiana services 10.09.0468. Travel agents (other than air/rail travel agents) 10.09.0469. Forward contract services 10.09.04

70. Transport of goods (other than water) throughpipeline or other conduit

16.06.05

71. Site formation and clearance, excavation andearth moving and demolition services

16.06.05

72. Dredging services 16.06.0573. Survey and map making services by a person

other than an agency under the control of, or16.06.05





authorized by, the Government74. Cleaning services 16.06.0575. Services of clubs or associations 16.06.0576. Packaging services 16.06.05

77. Mailing list compilation and mailing 16.06.0578. Construction of complex services 16.06.0579. Registrar to an Issue 01.05.0680. Share Transfer Agent 01.05.0681. Automated Teller Machine (ATM) operations,

maintenance or management services01.05.06

82. Recovery services 01.05.0683. Sale of space or time for advertisement 01.05.0684. Sponsorship services 01.05.0685. Transport of passengers by air 01.05.06

86. Transport of goods in containers by rail 01.05.0687. Business support services 01.05.0688. Auctioneers’ service 01.05.0689. Public relation services 01.05.0690. Ship management service 01.05.0691. Internet Telephony service 01.05.06 to

15.5.08Internet Telecommunication service 16.05.08

92. Transport of passengers by cruise ship 01.05.0693. Credit card, debit card, charge card or other

payment card related service

01.05.06

94. Telecommunication services 01.06.0795. Services in relation to Mining 01.06.0796. Renting of Immovable Property for commercial

purposes.01.06.07

97. Service provided in relation to execution of aworks contract

01.06.07

98. Development and supply of content 01.06.0799. Asset management including portfolio

management and all forms of fund management

provided by service providers other than thoseproviding Banking and Other Financial services

01.06.07

100. Design services 01.06.07101. Information Technology Software Service used

for business or commerce16.05.08

102. Management of investment under Unit LinkedInsurance Plan (ULIP) Scheme

16.05.08





103. Services provided by Stock Exchange 16.05.08104. Services provided by Commodity Exchange 16.05.08105. Services provided by Processing & Clearing

House16.05.08

106. Supply of tangible goods for use 16.05.08107. Cosmetic and Plastic Surgery Services 01.09.09108. Services provided in relation to transport of (i)

coastal goods; and (ii) goods through inlandwater including National Waterways

01.09.09

109. Legal Consultancy Services 01.09.09110. Promotion, marketing, organising or assisting in

organising games of chance including lottery,Bingo or Lotto

01.07.10

111. Health services provided by hospitals or nursing

homes for which payments are made byemployers and health insurance companies

01.07.10

112. Maintenance of medical records of businessentity

01.07.10

113. Brand Ambassador Services 01.07.10114. Permitting Commercial use or Exploitation of any

event.01.07.10

115. Services provided by Electricity Exchanges 01.07.10116. Permitting use of copyright in ‐ (a)

cinematographic films and (b) sound recording.01.07.10

117. Special services provided by builder etc. to theprospective buyers in a residential complex suchas providing preferential location or external orinternal development of complexes for extracharges.

01.07.10

Conclusion

The above topic Service tax – Incidence and Levyis a topic which is heavy

for the business it is messyfor the consumers things become priceyfor the government it is juiceybut for the professionals it is diceyand sometimes the experience is spicey !




Consulting Engineer Service

Where the assessee company executed a works contract of design, development,

commissioning etc., of an oil free compressor system for its client during the period1997–2001 it was held that the assessee is not liable under ‘consulting engineeringservices’ –(i) since services rendered by ‘companies’ were not liable prior to 1.5.2006 under

this category;(ii) since the assessee company’s service fall under works contract services which

was brought into the ambit of service tax only w.e.f. 1.6.2007.

[CST vs. Turbotech Precision Engineering Pvt Ltd, (2010) 18 STR.545 (Kar)]

The appellant entered into a contract with IOCL for construction of a storage tankand certain utilities which involved drawing, designing and detailed engineeringetc., and separate prices were demarcated for such activities. The departmentcontended that the activities of drawing, design etc. were liable under the categoryof ‘Consulting engineering services’ since after the 46th amendment to theConstitution a works contract can be vivisected and the service component of itcould be subjected to service tax under the relevant entries. Dismissing thiscontention the Tribunal (Third Member bench) held that –

(i) The ruling in Daelim’s case [(2006) 3 STR 124 (Tri‐Del.)] given by a division

bench of the Tribunal holding that a works contract cannot be vivisected andpart of it be subjected to service tax and consistently followed by co‐ordinateBenches in numerous subsequent cases is still binding on co‐ordinate benches;

(ii) The 46th amendment to the constitution was made with an intent to enable theStates to levy sales tax on the sale component of a works contract. It did not purport to enable the central excise authorities to levy any tax on the servicecomponent of a works contract.

(iii)

Service portion of the works contract is subject to service tax levy only post

1.6.07 and not prior to 1.6.07

[CCE vs Indian Oil Tanking Ltd 2010 (18) STR 577 (Tri‐Mumbai) relyingsubstantially on INSA vs UoI 2009 (14) STR 289 (Bomb.)].

When Article 366(29‐A)(b) to the constitution has made indivisible works contractsdivisible to find out goods component and value thereof, it can be unambiguously be




stated that the remnant part of the contract may be attributable to the scope ofservice tax under the provisions or Finance Act, 1994. Thus, turnkey contracts canbe vivisected and discernible service elements involved therein can be segregatedand classifiable as well as valued for levy service tax under Finance Act, 1994provided such services are taxable services as defined by that Act and depending on

the facts and circumstances of each case, service by way of advice, consultancy ortechnical assistance in the case of turnkey contract shall attract service taxliability. [CCE vs BSBK Pvt. Ltd 2010 (18) STR 555 (Tri‐LB)overruling Daelim’s case 2006 (3) STR 124 (Tri‐Del.)]

Courier Services

The appellant, a courier agency had engaged several agents named as ‘Franchisees’for collection of articles from customers and who collected service chargesalongwith service tax from the customers and paid the tax under the category of‘courier service’ in their own registration. The entire service charges were fully paid

over to the appellant and appellant shared a fixed amount with the ‘franchisees’. Onthese facts, the High Court held that the appellant is not liable to pay any furtherservice tax on the service charges retained after payment to the franchisee underthe category of ‘franchise service’ since –

(i) The service tax on the entire amount of charges received from the customershaving been paid by the franchisees (agents) under ‘courier services’, the netamount cannot again be taxed in the hands of the appellant under ‘Franchiseesservices’ since there is no provision in the Finance act, 1994 to tax the very sameservice charges twice under two heads.

(ii) Notwithstanding the (i) above, the net amount is not liable under the category of‘franchise services’ since –

(a) the franchisee is acting only as an agent of the appellant;(b) apart from appointing the franchisee the appellant is not providing anyservice to them.

(c) the franchisees do not make any payment to the appellant unlike in case offranchise where a franchisor provides a service to the franchisee for a fee paid bythe franchisee. Infact it is franchisee who are paid for work done for the franchisor

(the appellant) i.e. acting as an agent for rendering courier service to the customers.

[Speed and Safe Courier Service v. Commissioner (2010) 18 STR 550 (Ker.)]

Erection, Commissioning or Installation service

Laying the pipes in wall/roofs/floors for crossing of wires, fixing the junction box,MS box, Wooden box, fixing the cable trays would not amount to installation or




commissioning of plant, machinery or equipment and therefore would not be liablefor service tax under ‘Erection, Commissioning or Installation service’ during therelevant point of time. [CCE vs Rajeev Electricals Works 2010 (18) STR 705 (P & H)].

Technical testing and analysis

Clinical testing of drugs is not liable for service tax under the category of “Technicaltesting and analysis” for the period prior to 1.5.2006 since –(ii) the testing is ‘in relation to’ human beings or animals which is specificallyexcluded; and(iii) The Explanation to section 65(106) inserted w.e.f 1.5.2006 which specificallyincluded within the definition of “Technical Testing and Analysis”, clinical testing ofdrugs and formulations but excluded diagnostic testing w.e.f. 1.5.2006 expanded thescope of the definition of Technical Testing and Analysis service and hencecannot considered as clarificatory in nature despite the use of the words “For theremoval of doubts, it is hereby declare that” and accordingly the said Explanation

would not have retrospective effect i.e. prior to 1.5.2006.[B. A. Research India Ltd. vs. CST (2010) 18 STR 604 (Tri. – Ahmd.)]

Valuation

Photography service is a works contract involving both the elements of sale andservice and the value of sale portion cannot be included in the value of service andsubjected to service tax. [CCE vs. Vahoo Colour Lab (2010) 18 STR 548 (P&H.)]

Valuation & abatement

The assessee was engaged in laying of pipelines and registered under ‘Commercial

or Industrial construction services’. The assessee claimed abatement of 67% of the“gross amount charged” under notification 15/2004 dated 10.9.2004 and 1/2006dated 1.3.2006 and paid service tax on the 33% of the “gross amount charged”without including the value of pipes provided by the customer in the ‘gross amountcharged’. The Tribunal held that the value of pipes supplied has to be includedsince–(a) the pipeline is essential component required for providing pipeline services andis to be treated as non‐monetary consideration in terms of Rule 3 of Valuation Rules;(b) The notification defined the term ‘gross amount charged’ to include value ofgoods and materials supplied or provided or used by the provider of the construction

service for providing such service. Since pipes are ‘used’ by the service provider for

laying pipelines, the value of pipes would have to be included in the ‘gross amountcharged’ for the purpose of computing the abatement.[ Jaihind Projects Ltd vs CST 2010 (18) STR 650 (Tri‐Ahmd.)]

Cenvat Credit




Garden maintenance: A garden creates a better atmosphere andenvironment which increases the working efficiency and hence credit ofservice tax paid on garden maintenance is allowable.Plant House Keeping: Plant house keeping services are essential and relatedto manufacturing activity and accordingly the cenvat credit of service tax paid

on house keeping service is admissible.[Balkrishna Industries Ltd vs CCE 2010 (18) STR 600 (Tri‐Mumbai)]

Cenvat credit in respect of Custom House Agent service used for clearance ofimported inputs used in the manufacture of dutiable finished goods isadmissible. [Nelsun Paper Mils Ltd. vs CCE 2010 (18) STR 648 (Tri‐Chennai)]

Penalty u/s 76 & 77 is not attracted for wrong availment of Cenvat credit.Further penalty under rule 15(4) of the credit Rules can be imposed only ifCenvat credit is taken wrongly by reason of fraud, collusion etc., with an

intent to evade payment of service tax. [Sudhakar Polymers

Ltd

vs

CCE

2010

(18) STR 635 (Tri‐Bang.)]

Cenvat credit of service tax paid on input services is not conditional uponactual payment of tax/duty by the supplier and can be taken when theassessee has paid for the value and service tax. [Lason India Pvt. Ltd vs CST

2010 (18) STR 626 ( Tri‐Chennai)].

Where goods are exported on FOB/CIF basis, Cenvat credit of service tax paidon outward transportation from factory to port of shipment is admissible.

[Modern Petrofils

vs

CCE

2010 (18) STR 625 (Tr‐Ahmd.)].

The assessee, a pharmaceutical company, was held eligible to take Cenvatcredit of duty paid on Industrial washing machines used for washing ofemployees’ uniforms since they are ‘capital goods’ being –

(i) goods falling under chapter 84; and(ii) used in the factory of manufacturer to provide clean uniforms to

employees which is a mandatory requirement under the Drugs andCosmetics Act.

[CCE vs Micro Labs Ltd 2010 (18) STR 771 (Tri‐Bang.)]

Input credit of tax paid on ‘construction services’ for construction ofcompound wall around the factory is admissible since on facts the compoundwall is an integral part of the factory. [CCE vs Raymond Zambaiti Pvt Ltd 2010(18) STR 734 (Tri‐Mumbai)].




Business Auxiliary Services

Where the appellant, a CHA, arranged containers for their clients who were

exporters of goods through steamer agents for a brokerage paid by the steameragents, the Tribunal held that the brokerage was not taxable under ‘BusinessAuxiliary Services’ since the assessee’s services were in the nature of ‘secondaryservices’ which ultimately got consumed with the primary services [presumablysteamer agent service] that were exported and by virtue of CBEC Circular No.56/5/2003 dated 25/4/2003 such secondary services are ‘exports’ and not taxable.[Ruth Shipping Agencies Pvt. Ltd. vs.CCE (2010) 19 STR 39 (Tri‐ Che.)]

Cargo Handling services Where the assessees arranged loading and unloading of consignments of fertilizersand charged the clients with a 15% margin compared to the amount paid to thecontractors it was held that the assessees provided cargo handling services to theclient. [Karnataka State Warehousing Corporation Ltd. vs. CCE (2010) 19 STR 32(Tri‐Bang.)]

Clearing and forwarding The activity of cutting of sugarcanes and its loading and transportation upto thesugar factories does not amount to ‘clearing and forwarding agent’ services.[Ajinkyatara Sahakari Krishi Audyogik Otvs Ltd. vs. CCE (2010) 19 STR 285 (Tri‐Mumbai)]

Commercial or industrial construction service Laying of pipelines for Gujarat Water Supply and Sewerage Board (GWSSB) forsupply of drinking water to gram panchayats and nagar panchayats would not beliable under ‘commercial or industrial construction services’ [which includesconstruction of pipeline or conduit] since the pipelines were not laid to facilitate anycommercial or industrial activity of GWSSB. [Nagarjuna Construction Co. Ltd. vs. CCE(2010) 19 STR 259 (Tri‐Bang.) relying on Indian Hume Pipe Co. Ltd. vs. CCE (2008)12 STR 363 (Tri)]

Erection, Commissioning or Installation Laying of pipelines is not covered under the category of “Erection, Commissioningor Installation” service and hence not liable for service tax [A. Sekar v. CCE (2010)19 STR 82 (Tri. – Chennai) relying on Indian Hume Pipe Co.Ltd. v. CCE (2008) 12STR 363 (P&H)]

Practicing Chartered Accountant’s services




Transfer Pricing certification / report under section 92E of the Income‐tax Act, 1961would be considered as ‘auditing’ services and accordingly not entitled forexemption under notification no. 59/98‐ST dated 16.10.98 (whereby all servicesexcept accounting, auditing and certain certification services were exempt).[PriceWaterhouse vs. CST (2010) 19 STR 63 (Tri. – Che.)]

Storage and Warehousing services In this case the High Court held that subsidy received from the Government towardsinterest, storage and insurance for maintenance of a specific quantity of free salesugar for a specified period (buffer stock) under the provisions of SugarDevelopment Fund Act, 1982 is not liable under the ‘storage and warehousekeepingservices’ after making the following observations‐(i) Nobody can provide service to himself – the appellant stored the goods owned byhimself for a specified period and after the expiry of the period he was free to sellthe same;

(ii) Subsidy received was not on account of services rendered to Government but isreceived as compensation on account of loss of interest, cost of insurance etc.incurred on account of maintenance of stock.(iii) Just because the storage period of free sale sugar had to be extended at thebehest of Government of India, neither the sugar mills becomes ‘Storage andWarehouse Keeper’ nor the Government of India become their client in this regard.[CCE vs. Nahar Industrial Enterprises Ltd. (2010) 19 STR 166 (P&H)]

Ø The Karnataka State Warehousing Corporation, whose services are requisitionedby the State Government for storing of essential commodities like fertilizers on

payment of a charge, does not perform a “statutory function”, and is liable forservice tax under storage and warehousing services [Karnataka State WarehousingCorporation Ltd. v. CCE (2010) 19 STR 32 (Tri‐Bang.)]

Tour operator services

Transporting staff of client from work place to their residence and back in a vehiclewould not be liable for service tax under the category of “tour operator services”since the appellant was neither engaged in transporting the staff in ‘tourist vehicle’nor his activity involved planning, scheduling, organizing, arrangement of toursusing his vehicle [Remanan Travels vs. CST (2010) 19 STR 83 (Tri. – Bang.)] .

Import of Services

Consulting engineering services rendered by a ‘foreign company’ to the appellantsduring the period Nov. 98 to December, 2000 is not liable for service tax, since:(i) Consulting engineering services provided by a ‘body corporate’ would be liablefor service tax only w.e.f. 1.5.2006 and not prior to that date;




(ii) in any event no service tax would be payable on services provided from outsideIndia prior to 18.4.2006 since s.66A of the Finance Act, 1994 was introduced only w.e. f. 18.4.06. Accordingly the High Court held that the appellants would not be liableto pay service tax on the services provided by overseas foreign company. [CCE vs.Araco Corporation (2010) 19 STR 169(Kar.) relying on CCE vs. SKF India Ltd. (2010)

18 STR 388 (Kar.)]

Valuation

SIM card is not a ‘goods’ sold to the customer by a mobile service provider but issupplied as part of telecommunication service and it has no intrinsic value otherthan receiving mobile telephone service from the service provider. Consequently,the value of SIM card is includible in the value of taxable service. [CCE vs. IdeaMobile Communications Ltd. (2010) 19 STR 18 (Ker.)]Where the appellant has already paid VAT on the material component of theconstruction contract which as per the state VAT law was deemed as 70% and on

the balance 30% paid service tax, the Tribunal held that the Revenue cannot collectservice tax on the material component since it would violate the principles of fiscalfederalism and mutuality of service tax and sales adopted in the Constitution.[Sobha Developers Ltd. v. CCE & ST (2010) 19 STR 75 (Tri. – Bang.)]

Demand

Where the revenue had raised the demand based on the differences between theamounts shown in ST‐3 return and the balance sheet, bank book & ledger and whereit had failed to consider the explanation for the differences given by the assessee atthe time of investigation the Tribunal held that the demand was not in accordance

with law and hence not sustainable since the entire demand was based onassumptions and presumptions and the department had failed to establish thedemand based on evidence. [CST vs. Purni Ads Pvt. Ltd (2010) 19 STR 242 (Tri‐Ahmd.)]

Limitation

Where the assessees were registered under storage and warehousing services asearly as 8.3.2004 but did not pay service tax, a show cause notice issued on21.3.2006 for demanding service tax for the period 16.8.2002 to 31.3.2005 pursuantto a visit of the departmental officers on 14.2.2005, cannot invoke the longer period

of limitation and the demand beyond the normal period of limitation is notsustainable. [Karnataka State Warehousing Corporation Ltd. vs. CCE (2010) 19 STR32 (Tri‐Bang.)]

Where the department had already issued a show cause notice on 28.3.2003 seekingto tax the assessee under ‘clearing and forwarding services’ for the period 1997‐98to 2000‐01, a second show cause notice dated 9.11.2004 seeking to tax the same




activity under ‘goods transport services’ is barred by limitation since thedepartment was already aware of the facts. [Ajinkyatara Sahakari Krishi AudyogikOtvs Ltd. vs. CCE (2010) 19 STR 285 (Tri‐Mumbai)]

Penalty

Where penalty u/s. 78 was not proposed to be imposed in the show cause notice(the foundation stone of the case) the revenue cannot impose the same byexercising the revisionary jurisdiction. Further, where the adjudicating authorityimposed a penalty of only Rs. 100/‐ u/s. 76, the High Court held that theCommissioner in exercise of his revisionary jurisdiction cannot increase the penaltyto Rs. 1.5 lakhs since the assessee being a Government Undertaking there was nointention of evasion of tax and the assessee had also explained the reason of non‐payment and had immediately deposited the tax on being pointed out. [CCE vs.Punjab Small Industries & Export Corpn. Ltd. (2010) 19 STR 16 (P&H)]

In the present case the appellant has deposited the service tax on the service ofrenting of immovable property provided by him belatedly. The adjudicatingauthority imposed penalty u/s 76. The Tribunal held that the penalty u/s. 76 is notimposable since the appellant was under a bona fide belief for not depositing theservice tax in time and there was no allegation that the tax was collected fromservice receivers but not paid. [Taradevi Bafna vs. CCE (2010) 19 STr 73 (Tri. –Mum)]Where the assessee had paid service tax and interest before the issuance of ShowCause Notice, the Tribunal held that in view of the CBEC Circular No.137/167/2009‐CX.4 dated 3.10.07 no show cause notice was required to be issued.

Accordingly no penalties were imposable.[Nischint Engineering Consultants Pvt.Ltd. vs. CCE (2010) 19 STR 276 (Tri‐Ahmd.)]

Refund

The place of removal in case where the goods are exported on FOB basis would bethe port and accordingly, credit of service tax paid on CHA services in respect ofexcisable goods at the port area i.e. place of removal would be admissible andaccordingly refund of service tax paid on CHA service which is used as input forexport of final product would be allowed. [Leela Scottish Lace Pvt. Ltd.. vs. CCE.(2010) 19 STR 69 (Tri. – Bang.)]

Where the assessee paid service tax on auctioneer services, under the category ofbusiness auxiliary services even before the introduction of service tax onauctioneeer’s services w.e.f. 1.5.2006 the Tribunal allowed the refund claim for theamount of service tax paid by it under the category of business auxiliary servicesholding –(i) Auctioneer services are liable only w.e.f. 1.5.2006 and not prior to that date andhence the assessee was eligible for refund of such tax;




(ii) Section 11B of the Central Excise Act, 1944 would not apply to such cases, andaccordingly the limitation bar of 1 year would not be applicable.(iii) The assessee had not collected the service tax from its clients evidenced by theBalance Sheet (amount disclosed as ‘receivables’) and Chartered Accountant’sCertificate. Hence the bar of unjust enrichment would also not be applicable.

[CCE vs. Shankar Ramachandra Auctioneers (2010) 19 STR 222 (Tri – Mumbai)]

Where the appellant paid Rs. 37,960/‐ as service tax during 2006–07 but claimedrefund of such tax on 21.1.2008 on the ground that the total value of taxableservices for the year 2006 – 07 was below the exemption limit [Rs. 4 lakhs], theTribunal held that the refund was not permissible since the exemption has to beclaimed in advance and once claimed cannot be withdrawn for a financial year. [L.G.Marwadi vs. CCE (2010) 19 STR 279 (Tri‐Mumbai)] Appeals – Letter fromCommissioner appealable?Pursuant to a clarification sought by the respondent‐assessee the Addl. CCE vide

letter dated 23.12.2004 clarified that service tax was not payable on internationaldoor‐to‐door courier service but the Commissioner vide letter dated 9‐1‐2006stated that the clarification of the Addl. CCE was not in accordance with a BoardCircular and directed the payment of service tax. On appeal, the CESTAT held thatthe Commissioner’s letter dated 9.1.2006 was an order but was bad in law since itdid not give an opportunity to the assessee of being heard / showing cause eitherunder section 73 or section 84. The High Court affirmed the order of the CESTAT.Chief Commissioner, LTU,Bangalore vs.TNT India Pvt. Ltd 2010 (19) STR 5 (Kar)]

Recovery of amounts

The department has no authority to use coercive measures to collect any amount oftax in advance at the time of raid. It can legitimately do so only at the time ofrecovery proceedings when tax liability has been ascertained by following theprocedure of issue of show cause notice and not before that. Thus where the asseseehad to make a compulsory payment towards tax in advance at the time of raid and inabsence of any show cause notice issued by the department, the Hon’ble High Courtheld that the department had no right to do so and accordingly ordered the amountto be refunded.[Naresh Kumar & Co. vs. UOI (2010) 19 STR 161 (Cal.)]Where the department had issued notice to ONGC u/s. 87(b)(i) of the Finance Act,1994, for recovery of service tax on services provided by certain manpower supply

agencies to ONGC without passing assessment orders crystallising the service taxliability of the manpower supplying agencies the High Court held that, only after anassessment order has been passed and the assessees have defaulted in payment ofassessed tax, the department has powers to issue notice to ONGC u/s. 87 and notbefore that.[O.N.G.C. Ltd. vs. DyCCCEST (2010) 19 STR 164 (A.P.)]

CENVAT credit




CENVAT credit of service tax paid on construction of staff quarters is allowed on theground that staff quarters are premises of the bank and input services includeservices used in the premises of output service provider [The Lakshmi Vilas BankLtd. vs. CCE (2010) 19 STR 40 (Tri.‐Che)]

CENVAT credit of service tax paid on repair / maintenance, insurance, surveys,technical inspection certification services and manpower recruitment services allrelating to vessels, viz., tugs and barges which were used for the purpose oftransporting raw materials and final products from / to ships anchored at seato/from the appellant’s factory was disallowed by the Tribunal on the ground thatnone of the above mentioned services would be considered as input services sincethe quintessential requirements of “input service” laid down in the main part of thedefinition have not been established by the appellant i.e. a nexus between theservices in question and manufacture / clearance of excisable goods by theappellant.[Vikram Ispat vs. CCE (2010) 19 STR 52 (Tri. – Mumbai)]

Rent‐a‐cab, air travel and servicing of motor vehicle services were considered asactivities relating to business and CENVAT credit of service tax paid on thoseservices were allowed [Dr. Reddy’s Lab. Ltd. vs. CCE (2010) 19 STR 71 (Tri. – Bang.)]

(i) CHA Service : The load port would be the “place of removal” and accordingly,credit of service tax paid on CHA services availed for facilitating clearance of goodsfrom the place of removal (i.e. load port) would be admissible as activity relating tobusiness.

(ii) Dry Cleaning Services : Wearing of clean uniforms/clothing is mandatory underDrugs and Cosmetics Act for personnel engaged in the manufacturing ofmedicaments or drugs. Hence, said services are relating to business and CENVATcredit of tax paid on same is allowed.

(iii) Telephone Service : Telephone is used by the appellant for the day to daybusiness operation and hence CENVAT credit of service tax paid on the same isallowed.[CCE vs. Fourrts (I) Laboratories Pvt. Ltd. (2010) 19 STR 86 (Tri. – Che.)]

CENVAT credit of service tax paid on mediclaim policy, Security services, vehicleinsurance, Car rentals, Pest control activities are allowed on the ground that the saidservices are all related to the business activity of the appellant. [Hindustan CocaCola Beverages P. Ltd. vs. CCE (2010) 19 STR 93 (Tri. – Bang.)]




Cenvat credit of service tax paid on outdoor catering services availed by the variousassessee – manufacturers for providing canteen facilities to their employees wouldnot be admissible for the following reasons:

(i) credit of duty / tax in respect of inputs or input services is permitted only when

the same is used “in, or in relation to manufacture of excisable goods”.

(ii) Cenvat credit would not be available merely on the basis that the value of input /input services is included in the value of finished excisable goods;

(iii) Use of the input service must be integrally connected with the manufacture ofthe final product. The input service must have nexus with the process ofmanufacture. It has to be necessarily established that the input service is used in orin relation to the manufacture of the final product. One of the relevant test todetermine the availability of credit would be – “can the final product emerge

without the use of the input service in question?” Since Outdoor Catering is notintegrally connected with the manufacture of final product it is not an “inputservice”. [CCE vs. Sundaram Brake Linings (2010) 19 STR 172 (Tri‐Chennai),departing from CCE v. GTC Industries Ltd. (2008) 12 STR 468 (Tri‐LB) in view of theSupreme Court decision in Maruti Suzuki Ltd. vs. CCE (2009) 240 ELT 641 (SC)]

Credit of service tax paid on garden maintenance being an activity relating tobusiness is admissible. [Rane TRW Steering Systems Pvt. Ltd. vs. CCE (2010) 19 STR251 (Tri‐Chennai) relying on Millipore India Ltd. vs. CCE (2009) 13 STR 616 (Tri)]

Credit of service tax paid on inspection charges for constructing staff quartersadmissible.Credit of service tax paid on Mobile Phones admissible.[Port Officer, Gujarat Maritime Board vs. CCE (2010) 19 STR 282 (Tri‐Ahmd.)

CENVAT Credit cannot be denied by questioning the assessment of service providersince it is beyond the jurisdiction of the authorities in‐charge of the servicerecipient. [Hindustan Coca Cola Beverages Pvt. Ltd. vs. CCE (2010) 19 STR 280 (Tri‐Del.)] Where the assessee provided taxable services as well as was engaged intrading activity, and availed CENVAT Credit on input services used for taxable

services as well as trading activity, the Tribunal held that –

(i) Trading activity is nothing but purchase and sales and cannot be called a serviceand therefore it cannot be considered as exempted service.(ii) Rules 6(2) and 6(3) of the CENVAT Credit Rules, 2004 only deal with a situationwhere service provider is providing taxable and exempted ‘services’. Since tradingactivity is not an exempted service rule 6 cannot be applied to such a situation.




(iii) The only obvious solution which would be legally correct appears to be toensure that once in quarter or once in six months, the quantum of input service taxcredit attributed to trading activity according to standard accounting principles isdeducted and the balance only availed for the purpose of payment of service tax ofoutput service. This proposition is not against the law in view of the fact that there

are several decisions of various High Courts and also of the Tribunal wherein a viewhas been taken that subsequent reversal of credit amounts to non‐availment ofcredit.[Orion Appliances Ltd. vs. CST (2010) 19 STR 205 (Tri‐Ahmd.)]

Airport Service Admission ticket fee collected by the airport authorities from passengers enteringthe airport is liable for service tax under the category of airport services. If the rightto collect the said fee has been licenced by the airport authority to any person then

the said person would be liable to pay service tax under this category. [CCE vs. P. C.Paulose (2010) 19 STR 487 (Ker.)]N.B. : The Kerala High Court in CCE v.Cochin International Airport Ltd. (2009) 16STR 401(Ker.) had held that user fee collected from outgoing internationalpassengers was not for a service and hence not taxable. The present decisionappears to be contrary to the CIAL case.

Business Auxiliary Services

In this case the Tribunal relying on Board Circular No. 249/1/2006 – CX dated27.10.2008 held that the activity of manufacturing alcohol based perfumes and

pharmaceutical products though not liable for Central excise duty amounts to‘manufacture’ as defined under s. 2(f) of the Central Excise Act, 1944, andaccordingly would not be liable for service tax under the category of ‘businessauxiliary services’. [Rubicon Formulations Pvt. Ltd vs. CST (2010) 19 STR 515 (Tri‐Mumbai)]N.B : The above case is prior to the amendment in the definition of BusinessAuxiliary services from 7.7.09.

Erection, Commissioning or installation service

Where the appellant was engaged in fabrication of structures at the customer’s site

the Tribunal held that this service was not covered under erection, commissioningand installation services in view of the following:

(i) After surveying all Board Circulars Tribunal held:(a) Structures were not intended to be covered under Plant, Machinery orEquipments.




(b) Erection refers to civil work for installation / commissioning of a plant &machinery.(c) Erection, commissioning or installation of structures whether fabricated or notwas not covered by the definition of Erection, Commissioning or Installation serviceprior to 1‐5‐2006.

The activity undertaken by the appellant is fabrication of structures and this was notcovered under erection of Plant, Machinery, or Equipments as no civil work wasundertaken by the appellant. Accordingly, the process of pre‐fabrication ofstructures was not covered under the “Erection, Commissioning & InstallationService” prior to 1‐5‐2006.

(ii) The activity undertaken by the appellant is covered under Section 2(f) of CentralExcise Act as manufacturing activity. Hence the appellants are not liable to pay theservice tax on the activities undertaken by them.

[Neo Structo Construction Ltd. vs. CCE & C (2010) 19 STR 361 (Tri. – Ahmd)]

Management Maintenance or Repair services

Where the appellants were engaged in erection and commissioning of pre‐fabricated structures at site and also did maintenance and repair work undervarious work orders at pre‐determined prices, the Tribunal held on facts, that thereis no finding/evidence/ observation flowing from the agreement that both partiesintended repair / maintenance is a separate part and has to be treated as such. Thus,in the absence of any maintenance & repair contract, the demand based on rate orvalue contract work is not sustainable prior to 16.6.05. [Neo Structo Construction

Ltd. vs. CCE & C (2010) 19 STR 361 (Tri. – Ahmd)]

Manpower Recruitment or Supply Agency service

Where the entire tenor of the contract was for execution of a lumpsum work ofloading, unloading, bagging, stacking, de‐stacking etc. with the customers theTribunal held that the activity would not fall under the category of ManpowerSupply Agency services. [Divya Enterprises vs. CCE (2010) 19 STR 370 (Tri. – Bang.)and S. S. Associates vs. CCE (2010) 19 STR 438 (Tri. – Bang.)]

Inter-Unit Services Not Taxable

Where the one unit of corporate entity providing the services to other unit of thesame corporate entity the Tribunal held that the different units of a corporate entitywill not make them separate legal entities for the purpose of leviability of service taxand when one renders service to one self service tax is not leviable. [ChemplastSanmar Ltd. vs. CCE (2010) 19 STR 424 (Tri. – Che.)]

Valuation




In respect of goods transport agency services, the liability to pay service tax is fixedon the payer of freight and hence the abatement of 75% in terms of Notification No.32/2004 dated 3.12.2004 would be available to such payer of freight. [AndhraPradesh Paper Mills Ltd. vs. CCE (2010) 19 STR 557 (Tri‐Bang.)]

Limitation

Where the appellants, challenged the constitutional validity of levy of service tax ontour operators, was upheld by the High Court vide order dated 30.4.01, tax on touroperators became payable 1.4.2000. However , the appellants paid tax only from1.5.01. On the facts the Tribunal held that a show cause notice issue to the appellantin the year 2005 seeking to levy service tax for the period 1.4.2000 – 30.4.01 isbarred by limitation. The extended period of limitation cannot be invoked since thefacts were already known to the department. [Travel Aid vs. CST (2010) 19 STR 570(Tri‐Chennai)].

The appellant, a hotel, was registered for service tax under the category of ‘MandapKeeper’ services and filed its returns regularly from 1997‐2007 but had stoppedpaying service tax under mandap keeper services from 2002 claiming exemptionunder notification no. 12/2001 dated 20.12.2001. The department issued a SCNdated 30.1.2007 seeking to reclassify the services under ‘Convention Services’ todeny the exemption for the period 1.2.2002 – 13.7.2004. The Tribunal held that theextended period of limitation cannot be invoked on the ground of suppression offacts since the assessee was regularly filing its returns and the department couldhave asked for further details as they were aware of the appellant’s activities. [CCEvs. Casino Hotel (2010) 19 STR 425 (Tri. – Bang.)].

Penalty

Penalties u/s. 76 & 78 cannot be imposed simultaneously for the same default viz,default inpayment of service tax.[CCE vs. City Motors (2010) 19 STR 486 (P& H)].Once the provisions of Section 76 stand invoked against the assessee, the penaltieshave to be imposed in terms of the said section and cannot be lowered taking aid ofSection 80. Section 80 only empowers the adjudicating authority to set aside thepenalties in toto and not lower them. [CCE vs. Bajrangbali Coke Indus. Pvt. Ltd.(2010) 19 STR 567 (Tri‐Ahmd.)]

Where the Commissioner had enhanced the penalty by way of a revisonary orderpassed u/s. 84 during the pendency of appeal before the Commissioner (Appeals)the Tribunal held that the revisionary order u/s. 84 was not sustainable. [K.T.V. OilMills vs. CCE (2010) 19 STR 587 (Tri‐Chennai)]

Where the appellant has voluntarily paid service tax alongwith interest suo motubefore the issue of show cause notice no penalty u/s. 76 is imposable. [Varsana Ispat




Ltd. vs. CCE (2010) 19 STR 359 (Tri. – Ahmd); Geotechnical Engg. ResearchLaboratory vs. CST (2010) 19 STR 407 (Tri‐ Ahd)]

Cenvat Credit

Cenvat credit of service tax paid by the assessee on goods transport agency services

availed by them for transportation of empty cylinders from its factory premises tothe supplier for procuring liquid chlorine, which was an essential input used inmanufacture of its final product is admissible being ‘service used for procurement ofinputs’ [Kerala Minerals and Metals Ltd. vs. CCE (2010) 19 STR 505 (Tri‐Bang.)].

Where the appellant has centralised registration (centralized billing/ centralizedaccounting system) credit cannot be denied even if invoices of input services areissued in the name and address of its branches especially when the appellant hasbeen discharging the entire service tax liability from its registered premises and hasalso made the payment from its registered premises for the value of input services

received by its branch offices. [Manipal Advertising Services Pvt. Ltd. vs. CCE (2010)19 STR 506 (Tri‐Bang.)]

Cenvat credit of service tax paid on manpower recruitment services used formaintenance of garden within the factory premises using treated industrial anddomestic sewage water, was held to be admissible where it was a statutoryrequirement under the consent given by the Karnataka State Pollution ControlBoard (KSPCB).[Brakes India Ltd. vs. CCE (2010) 19 STR 524 (Tri‐Bang.)]

Where the goods are sold on F.O.R. basis the Tribunal held that credit is admissible

on outward transportation upto the buyers’ premises based on CBEC Circular dated23.08.2007 and Ambuja Cements Ltd. v .UoI (2009) 14 STR 3 (P & H). The Tribunalmade the following significant observations ‐

(i) Since a value added tax operates by taxing input goods and services and outputgoods and services with provisions for credit of tax paid on input goods and serviceswhich can be utilized for payment of tax on output goods services, the presentsystem of levy of central excise duty on manufactured goods and levy of service taxon certain services with facility of credit being available of the central excise dutypaid on inputs capital goods and of service tax paid on input services, which can be

utilized towards payment of central excise duty on finished goods or for payment ofservice tax on output service, has the character of a value added tax. Since basicprinciple of a value added tax is that while subjecting a finished product to tax,credit of tax paid on all input goods, capital goods and input service is allowed whichcan be utilized towards payment of tax on the finished product, a corollary to thisprinciple would be that in an indirect tax of the nature of value added tax, when a




finished product is taxed, credit of duty paid on all input goods, capital goods andinput services has to be allowed.

(ii) When the assessable value of the goods under Section 4 of the Excise Act is notconfined to the manufacturing cost and manufacturing profit but includes all the

components like marketing and selling organization expenses, advertisementexpenses, after sales service, storages upto time of removal etc. which havecontributed to the value of the goods and in case of FOR destination sales at thecustomer’s premises, all expenses including transport expenses upto the customer’spremises are includible in the assessable value for charging duty, the input dutycredit cannot be confined only to the services used in the completion ofmanufacturing process. Therefore, while interpreting the scope of “input services”as defined in Rule 2(l) of Cenvat Credit Rules, 2004, clause (xvia) and (xviaa) ofsubsection (2) of Section 37 of the Excise Act should not be looked at in isolationand it is the entire Central Excise Act containing the scheme of levy and collection of

central excise duty which has to be taken into account. In view of the above, there isno conflict between the provisions of Rule 2(l) of the Cenvat CreditRules, 2004 and clause (xvia) and (xviaa) of Section 37(2) of the Excise Act.

(iii) Credit cannot be denied just because the duty on the goods has been paid on theassessable value determined under Section 4A of the Central Excise Act i.e on thevalue determined with reference to declared MRP minus abatment instead oftransaction value under section 4 of Central Excise Act.

(iv) The appellant’s sales are on FOR destination basis and the three conditions in

this regard mentioned in the Board’s Circular dated 23‐8‐07 are satisfied, that is,ownership and property in the goods remains with the appellant till delivery of thegoods in acceptable condition to the customers at their door steps, the appellantbear the risk of loss or damage to goods during transit upto the destination andfreight charges are integral part of the price of the goods. [L.G. Electronics (India)Pvt. Ltd. vs. CCE (2010) 19 STR 340 (Tri. – Del.). See also Automobile Corporation ofGoa Ltd. vs. CCE (2010) 19 STR 518 (Tri‐Mumbai)]

Cenvat credit on (i) Vehicle maintenance; (ii) Transportation, installation andmaintenance of coolers; (iii) Marketing and publicity services and (iv) Calibration

services and Systems maintenance services are allowed on ground that these are‘activities relating to the business’ of the appellant. [Hindustan Coca Cola BeveragesP. Ltd. vs. CCE & ST (2010) 19 STR 356 (Tri. – Bang.)]

Cenvat Credit of tax paid on ‘shifting of household goods of employees’ is notallowed since it not in any way connected with the appellant’s business activity.




[Hindustan Coca Cola Beverages P. Ltd. vs. CCE & ST (2010) 19 STR 356 (Tri. –Bang.)].

(i) Marine inland transit insurance : Cenvat credit of service tax paid on insurance ofcaptive power plant during its transportation was allowed on the ground that since

the ‘input service’ definition specifically covers ‘inward transportation of input andcapital goods’, it also covers insurance during such transportation.

(ii) Insurance for money in transit : Cenvat credit of service tax paid on insurance ofmoney in transit is allowed being ‘activity relating to the business’.

(iii) Follow‐up services : Cenvat credit of service tax paid under business auxiliaryservices on follow‐up services for installation of captive power plant is allowedbeing ‘services in relation to setting up or modernization of factory’ which arespecifically covered in the input service definition.

(iv) Residential and Guest House Telephones : Cenvat Credit on telephone servicesin respect of telephone installed at General Manager’s residence and Guest houseare not allowed in absence of evidence that these services are in relation tomanufacturing business.

(v) Accident Insurance of personnel: Cenvat credit of service tax paid on accident‐insurance on personnel working in the appellant’s factory is allowed being activityrelating to the business even if they relate to workers supplied by the contractorssince as per the provisions of the Facties Act, the appellant asa principal employer

has a vicarious liability for any compensation in the case of injury etc. to evencontract workers. [Monnet Ispat & Energy Ltd. vs. CCE (2010) 19 STR 417 (Tri. –Del.)]

Where the assessee removed inputs ‘as such’ the Tribunal held that while theassessee on such removal is required to reverse the Cenvat Credit of ‘excise duty’availed in respect of such inputs, under rule 3(5), the cenvat credit of ‘service tax’ onGTA services availed for inward transportation of such inputs need not be reversed[A.R. Casting (P) Ltd v. CCE 2010(19) S.T.R. 384 (Tri‐Del)]

The assessee manufactured & sold ‘rebar coils’ from their factory and from itsBranch Sales Offices (BSOs) and paid excise duty on such sales. It had appointed C&Fagents to receive, stock & sell the products at its BSOs. On specific requests from itscustomers, in a few cases, the C&F agents did cutting, bending & straighteningbefore selling the goods and charged the assessee certain processing charges. Theassessee took credit of the tax paid on such charges. The department denied thecredit contending that the process of cutting, bending etc. does not amount to




manufacture and hence the service is not ‘used in relation to manufacture’. TheTribunal dismissed the contention and held that cenvat credit is allowable since thesaid service is an ‘activity relating to business’ of the assessee which is anindependent limb available to the assessee to claim credit. [Rashtriya Ispat NigamLtd v. CCE [2010 (19) S.T.R. 389 (Tri – Bang) relying on Coca Cola India Pvt. Ltd. V.

CCE (2009) 15 STR 657 (Bom.)].

Cenvat credit of service tax paid on overseas commission agent’s services is allowedon the ground that service of the commission agent is in relation to the businessactivity of the appellant. [CCE vs. Nilkamal Crates & Bins (2010) 19 STR 431 (Tri. –Ahmd)].

Works contract services – Composition scheme

Where the appellant had an on‐going works contract as on 1.6.07 (the date on whichservice tax on “works contract services” were introduced) but had paid service tax

on payments received prior to 1.6.07 inter alia under the category of “constructionservices” the High Court held that the assessee would not be entitled to avail thebenefits of the Composition Scheme [payment of 4% on the gross contract value]since the election to opt for the composition scheme is to be made before service taxis paid in respect of the works contract. [Nagarjuna Construction Company Ltd. vs.Government of India (2010) 19 STR 321 (AP)]

EXCISE DUTY

Critical analysis of the changes or amendments in the recentpast

NOTIFICATIONS

Tariff

Exemption from Basic Excise Duty to ballistic grade aramid yarn and ballistic gradearamid fabric [Notification No. 27/2010‐C.E. dated 4th June, 2010]




Conditional exemption is granted from whole if basic excise duty on manufacturingballistic grade aramid yarn and ballistic grade aramid fabric meant for manufactureof bullet proof jackets for supply to the armed forces of the Union or the Policeforces of the States or Union territories. Notification no. 64/95 – C. E. dated 16thMarch, 1995, has been amended accordingly.

Exemption from Education Cess and Secondary Higher Education Cess to Coal andrelated products: [Notification No. 28/2010 and 29/2010‐C.E. dated 22nd June,2010]

Exemption is granted from Education Cess and Secondary Higher Education Cess tothe following goods specified in Tenth Schedule of Finance Act, 2010 w.e.f. 22ndJune 2010:

Sr.No. Goods Chapter Heading

1 Coal; briquettes, ovoids and similar solid fuelsmanufactured from coal

2701

2 Lignite, whether or not agglomerated,excluding jet2702

3 Peat (including peat litter), whether or notagglomerated

2703

Non-tariff

Export of excisable goods by an undertaking other than a 100% EOU [NotificationNo. 24/2010 – C. E. (N. T.) dated 26th May, 2010]

Notification No. 42/2001 – C. E. (N. T.) dated 26th June, 2001 notifies conditions andprocedures for export of excisable goods without payment of duty under Rule 19(3)of Central Excise Rules, 2002. Now, the said notification has been amended and itdoes not apply to export of excisable goods, chargeable to nil rate of duty or whollyexempted from payment of duty, other than goods cleared by a 100% EOU.

Dumpers or tippers, registered in the name of service provider in relation to sitepreparation and clearance and mining of mineral, oil or gas, to be treated as capitalgoods [Notification no. 25/2010 – C. E. (N. T.) dated 22nd June, 2010]

Definition of Capital Goods under Rule 2 (a) of CENVAT Credit Rules, 2004 isamended to include dumpers or tippers falling under Chapter 87 of First Schedule toCentral Excise Tariff Act, 1985, registered in the name of service provider in relationto site preparation and clearance and mining of mineral, oil or gas.




Clean Energy Cess to be payable in cash only: The Clean Energy Cess payable introduced by Finance Act, 2010 shall be payable incash only as the CENVAT Credit Rules, 2004 have been amended to prohibitutilization of CENVAT Credit to pay Clean Energy Cess. [Notification no. 26/2010 –

C. E. (N. T.) dated 29th June, 2010]

CIRCULARS: Procedure for e‐filing of Central Excise Returns [(Circular no. 201/20/2009 – CX 6dated 28th May, 2010]The following persons are required to file following central excise returns andstatements electronically and all the instructions contained in Circular no.919/09/2010 – CX dated 23rd March, 2010 shall apply to those e‐filings:

Person Return or Statement Relevant Rule

Manufacturer who haspaid Central Excise Dutyof Rs. 10 Lakhs or more(including utilization ofCENVAT Credit) inprevious CENVATfinancial year

Annual Financial InformationStatement – ER – 4

Proviso to Rule 12(2)(a)of Central Excise Rules,2002

Annual Declaration relating toprincipal

Second proviso to Rule 9A(1) of

inputs – ER – 5 MonthlyReturn of information relatingto principalinputs – ER – 6

Credit Rules, 2004Proviso to Rule 9A (3) ofCENVAT Credit Rules,2004

EOU manufacturer whohas paid Central ExciseDuty of Rs. 10 Lakhs ormore (includingutilization of CENVATCredit) in previousfinancial year

ER – 2 Rule 17 (3) of CentralExcise Rules, 2002

Registered Dealer,irrespective of amount of

CENVAT Credit taken orpassed onin a year

Quarterly Returns Proviso to Rule 9 (8) ofCENVAT Credit Rules,

2004

Process of pickling and oiling does not amount to manufacture [Circular No. 927/17/2010- CX dated 24th June, 2010]




The process of pickling and oiling is nothing but chemical cleaning of metals. As perASM Metal Reference Book, Pickling means removing surface oxides from metals bychemical or electro chemical reaction. Thus process of pickling and oiling in additionto process of de‐coiling, cutting and slitting does amount to manufacture as it doesnot result in emergence of a new product. The same view has been upheld in some

of earlier decisions of Tribunal.

NOTIFICATIONS

Tariff

Levy of Clean Energy Cess: Clean Energy Cess @ Rs. 50 per tonne has been introduced on raw coal, raw ligniteand raw peat with effect from 1st July, 2010. All other goods mentioned hereunder,specified in the tenth schedule of Finance Act, 2010, on which Clean Energy Cess ispaid at the stage of raw coal, raw lignite and raw peat from which the said goods are

produced, are exempted from Clean Energy Cess:

Sr.No. Goods Chapter Heading

1 Coal; briquettes, ovoids and similar solid fuelsmanufactured from coal

2701

2 Lignite, whether or not agglomerated,excludingjet

2702

3 Peat (including peat litter), whether or notagglomerated

2703

Sections 5A, 6, 9, 9A, 9AA, 9C, 9D, 9E, 11, 11A, 11AA, 11AB, 11AC, 11B, 11BB, 11C,11D, 11DD, 11DDA, 12A, 12B, 12C and 12D of Central Excise Act, 1944 and ChaptersIII, VI, VIA and VIB are made applicable to Clean Energy Cess.Procedural aspects such as registration, levy, assessment, manner of payment etc. inrespect of Clean Energy Cess has been introduced under Clean Energy Cess Rules,2010 applicable with effect from 1st July, 2010. Clean Energy Cess has been fullyexempted on coal produced in the State of Meghalaya(Notification no. 01/2010, 02/2010, 03/2010, 04/2010, 05/2010, 06/2010 ‐C.E.C.dated 22nd June, 2010)

Non-tariff

Amendment in CENVAT Credit Rules, 2004: Rule 6 (6) has been amended and sub clause (iva) “supplied for the use of foreigndiplomatic missions or consular missions or career consular offices or diplomaticagents in terms of the provisions of notification No. 6/2006‐ Central Excise datedthe 1st March, 2006, number G.S.R.96(E), dated the 1st March, 2006” has been




introduced. Therefore, now the suppliers making supplies to diplomatic missionsare not required to reverse proportionate CENVAT Credit relating to exemptedgoods. (Notification no. 27/2010 – C. E. (N. T.) dated 1st July, 2010)

CIRCULARS:

Amendment to

Notification

No.

42/2001

CE

(NT):

The board examined that the exporters of exempted goods or goods chargeable toNIL rate of duty were exporting goods under bond by following procedure describedin Notification No. 42/2001 CE (NT) dated 26th June, 2001 and then were claimingrefund of CENVAT Credit under Rule 5 of CENVAT Credit Rules, 2004. Board hasclarified that such exporters should claim refund of input tax through NotificationNo. 21/2004 CE (NT) dated 6th September, 2004 where detailed procedure hasbeen described with regard to such refund claims. Therefore, Notification No.42/2001 CE (NT) has been amended vide Notification No. 24/2010 CE (NT).Accordingly, the goods which are exempted or chargeable to NIL rate of duty except

goods exported by a 100% EOU are disallowed to be exported under NotificationNo. 42/2001 CE (NT).(Circular no. 928/18/2010 – CX 6 dated 28th June, 2010)

Classification of Polyester Staple Fibre

Board has clarified that “polyester staple fibre” manufactured out of PET scrap andwaste bottles are classifiable under Chapter heading 55032000 and not underChapter 39 as articles of plastic. It was observed that the process of manufacture isnot determinative of the classification of the manufactured product rather thenature of end product and market understanding of said end product is

determinative of classification of manufactured product. “polyester staple fibre” areused as textile articles and therefore, should be classifiable under Section XI.(Circular No. 929/19/2010‐ CX dated 29th June, 2010)

Tolerance of breakage of bottles due to handing during storage and clearance

The manufacturers of bottled beverages were claiming duty exemption in respect ofbreakage of PET bottles upto 0.5% vide Board’s instruction letter no. ID/3/70‐CX8as amended vide letter F. No. 261/ID/1/75‐CX8 dated 17/09/1975. In certainjudicial pronouncements, such benefit was allowed since the said instruction wasnot being rescinded after introduction of MODVAT/CENVAT scheme.

Therefore, board has clarified that if the final product is broken/destroyed thenremission can be claimed and if input is written off by assessee as destroyed, thesame is required to be dealt with as per the provisions of Rule 3 (5B) of CENVATCredit Rules, 2004. The judicial pronouncements have not considered the provisionsof MODVAT/CENVAT laws and therefore are per incuriam.(Circular No. 930/20/2010‐ CX dated 9th July, 2010)




Classification of Tea fortified with Vitamins

The issue before board was whether tea fortified with vitamins is classifiable underchapter heading 210120 as preparation of tea or preparation with the basis of tea.The board examined the samples of the product and commercial understanding ofthe product. No section/chapter notes exclude tea fortified with vitamins from the

purview of Chapter 21. Therefore, board has clarified that tea fortified with vitaminsis classifiable under Chapter 21.(Circular No. 931/21/2010‐ CX dated 15th July, 2010)

Levy of Clean Energy Cess

Clean Energy Cess has been introduced on coal, lignite and peat with effect from 1stJuly, 2010. Following are the eminent procedural aspects:

i) Tenth schedule to Finance Act, 2010 prescribed Rs. 100 per tonne rate of dutywhich is reduced to Rs. 50 per tonne vide Notification No. 3/2010‐CEC dated 22nd

June, 2010.

ii) Clean Energy Cess is levied on imported coal including washed coal by virtue ofSection 3(1) of Customs Tariff Act.

iii) Cess has been fully exempted on coal produced in the State of Meghalaya videNotification No. 5/2010‐CEC dated 22nd June, 2010.

iv) Clean Energy Cess has to be paid on gross quantity of removal by 5th or 6th (incase of epayment) of the month following the next month to which removals relate.

Example: the payment for removals during the month of July, 2010 should be paidby 5th/6th September, 2010. However, on imports the Cess should be payable witheffect from 1st July, 2010.

v) Education Cess and Higher Education Cess has been exempted on such productsvide Notification No. 28/2010‐CE and 29/2010‐CE dated 22nd June, 2010.

vi) Certain provisions of Central Excise Act, 1944 for collection and administrationof Cess has been borrowed vide Notification No. 02/2010‐CEC dated 22nd June,2010.

vii) Clean Energy Cess Rules, 2010 has been introduced for procedural aspects suchas registration, levy, payments, returns, penalty etc. vide Notification No. 06/2010‐CEC dated 22nd June, 2010.(F. No. 354/72/2010‐ TRU dated 24th June, 2010)

NOTIFICATIONS




Tariff:

Amendment to Notification No. 64/95 CE dated 16th March, 1995: An exemptionhas been provided to goods supplied for defense and other specified purposes videNotification No. 64/95 CE dated 16th March, 1995. The said notification has been

amended in respect of fuel falling under chapter heading 2710 and now theexemption is extended to “any public sector oil company” in stead of only “Indian OilCorporation Limited”.(Notification no. 30/2010‐CE dated 22nd July, 2010)

Amendment to conditions relating to goods supplied to mega power projects: Goodssupplied to mega power projects, subject to certain conditions, are exempted frombasic excise duty and additional duty of excise, vide Notification No. 6/2006 CEdated 1st March, 2006. The conditions for such exemption are amended to providethat now an officer not below the rank of Chief engineer in the Central Electricity

Authority (earlier Joint Secretary – Ministry of Power) may issue certificate withregard to requirement of goods for setting up of mega power project, indicating thequantity, description and specification thereof. Further, the undertaking for usage ofgoods for such mega power project, which was previously asked from themanufacturer, has to be now issued by Chief Executive Officer of the project.(Notification no. 31/2010‐CE dated 28th July, 2010)

CIRCULARS

Administrative Control over EOUs in port cities: The administrative control overEOUs in port cities was with concerned Commissioner of Customs. However, at all

other places across India the EOUs were controlled by Jurisdictional Commissionerof Central Excise except Bangalore Customs. Therefore, now with introduction ofACES (Automation of Central Excise and Service Tax) and to facilitate shift to GST inshort time, the board has decided to hand over the administrative control of EOUs toCentral Excise formations in case of port cities latest by 31st July, 2010(Circular no. 932/22/2010 – CX dated 4th August, 2010)

Valuation of goods cleared in DTA by EOUs: Board has clarified that in case whenactual sale transaction takes place from depot, the EOUs, clearing goods to suchdepots, need to value the goods in terms of Section 14 of the Customs Act, 1962 read

with Customs Valuation Rules (Determination of Price of Imported Goods), 2007 asfollowed by CESTAT in various judgments like Endress Hauser Flowtec (I) Pvt. Ltd.(2009 (237) ELT 598), Morarjee Brembana Ltd. (2003 (154) ELT 500) andUniworth Textile Ltd. (2009 (244) ELT 401).(Circular No. 933/23/2010‐ CX dated 16th August, 2010)




activity and energy should be spent on them and these should be subject to someprocesses in order that these may be brought to the state in which they mightbecome fit for consumption”.

b) Producing and manufacturing are synonymous – It has been judicially held that to

manufacture is to produce something new out of the existing materials.“Manufacture” and the adjective “manufacturing” are synonymous and inter –changeable with “produce” and “producing”. To produce is to make or manufacture,to bring into being or form manufacture or produce thus implies change in the senseof transformation into new and different article having a distinct name, characterand use – [Chirukandan v. SCE 15 ELT 7, 11, 12 (Ker.); See also Pulpally Devaswamv. State of Kerala 1977 Ker. LT 549.]

c) CIT v. N.C. Budharaja & Co. 204 ITR 412 (SC) ‐ In the said case the Supreme Courtobserved that: the word ‘production’ has a wider connotation than the word

‘manufacture’. While every ‘manufacture’ can be characterized as ‘production, every‘production’ need not amount to ‘manufacture.’ The Supreme Court also observedthat:

d) Manufacture Production – The concept of manufacture under Central Excise is ofvery wide connotation. The concept of “production” could be wider in connotationas compared to “manufacture” in the sense that it could cover within its ambitexcisable goods which are produced (e.g. Coal, Ores etc.) rather than manufacturedin the strict sense by using raw material etc. Credit is allowable not only to amanufacturer of final products, but also to a producer of such goods. While the word

‘manufacture’ has been given an inclusive definition in Section 2(f) of CEA the word‘produce’ has not been given a specific definition. However, under Section of CEAexcise duty is to be levied and collected on all excisable goods which are producedor manufactured in India.

ManufactureSection 2(f) of the CEA defines “manufacture” as follows:“manufacture” includes any process,

(i) incidental or ancillary to the completion of a manufactured product; and

(ii) which is specified in relation to any goods in the Section or Chapter notes of theFirst Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting tomanufacture; or Thus the statutory definition would indicate that “manufacture”under Central Excise has to be construed through a 3TIER Process:

>>“General Concept” of manufacture>>“Deemed Concept” of manufacture




>>“MRP Concept” of manufacture

a) Manufacture – General Concept The General Concept of Manufacture has been asubject‐matter of discussion in a number of cases by the Supreme Court in thecontext of Central Excise as well as Sales Tax. Some of the leading case laws on the

subject which have laid down principles as to what constitutes “manufacture” aregiven below for reference:>> UOI vs. Delhi Cloth and General Mills Co. Ltd. 1 ELT J 199 (SC)>> South Bihar Sugar Mills Ltd. vs. UOI 2 ELT J 336 (SC)>> Empire Industries Ltd. vs. UOI 20 ELT 179 (SC)>> Chowgule & Co. Pvt. Ltd. vs. UOI 47 STC 124 (SC)>> Dy. Commercial Sales Tax Officer vs. Pio Food Packers 6 ELT 343 (SC)>> Sterling Foods vs. State of Karnataka 26 ELT 3 (SC)>> Dy. CST vs. Shiphy International 34 ELT 416 (SC)>> Rajasthan State Chemicals Works vs. CCE 55 ELT 444 (SC)>> Siddeshwari Cotton Mills P. Ltd. vs. UOI 39 ELT 498 (SC)>> Mafatlal Fine Spg. & Mfg. Co. Ltd. vs. CCE 40 ELT 218 (SC)>> Moti Laminates Pvt. Ltd vs. CCE 76 ELT 241 (SC)>> UOI vs. Delhi Cloth & General Mills Co. Ltd. 92 ELT 315 (SC)

The important principles relating to manufacture as laid down in the variousSupreme Court cases as well as other judicial cases is summarized below, in order toascertain as to whether any activity / or any activity relating thereto constitutes“Manufacture” or not:

i) Process would imply – to subject to some special process or treatment, to subject(especially raw material) to a process of manufacture development or preparationfor the market, etc., to convert into marketable form.

ii) Wherever a commodity undergoes a change as a result of some operationperformed on it or in regard to it, such operation would amount to processing of thecommodity. The nature and extent of the change is not material.

iii) The nature and extent of processing may vary from case to case.

iv) The test is whether in the eyes of those dealing in the commodity or incommercial parlance, the processed commodity is regarded as distinct in char

v) alter identity from the original commodity.

vi) There may be several stages of processing, a different kind of processing at eachstage. With each process suffered, the original commodity experiences a change.




vii) Process of manufacture or in relation to manufacture implies not only theproduction but the various stages through which the raw materials is subjected tochange by different operations.

viii) It is only when the change or series of changes take the commodity to the pointwhere commercially it can no longer be regarded as the original commodity, butinstead is recognised as a new and distinctive article, that a manufacture can be saidto take place.

ix) The word ‘manufacture’ used as a verb is generally understood to mean asbringing into existence a new substance and does not mean merely to produce somechange in substance, however, minor in consequence the change may be.

x) The word ‘manufacture’ implies a change but every change in the raw material

was not manufacture, and yet every change in an article is the result of treatment,labour and manipulation. But something more is necessary and there must betransformation; a new and all different article must emerge, having a distinctivename, character, or use.

xi) It is not necessary that the should absolutely make out a new thing until it is thetransformation of a matter into something else and that something else is a questionof degree whether that something else is a different commercial commodity havingdistinct character, use and name and is commercially known as such.

xii) If the goods to which some labour is applied remain essentially the samecommercial article, it cannot be said that the final product is the result ofmanufacture.

xiii) It is the cumulative effect of the various processes to which the raw material issubjected to, manufactured product emerges. Therefore, each step towards suchproduction would be a process in relation to the manufacture. Where any particularprocess is so integrally connected with the ultimate production of goods that but forthat process, manufacture or processing of goods would be impossible orcommercially in expedient, that process is one in relation to the manufacture.

xiv) The characteristics of the new product must be distinct from the raw materialfrom which it has been made. xv) It is necessary to find out whether these are goods,that is to say, articles as known in the market as separate distinct identifiablecommodities and whether the tariff duty levied would be as specified in theschedule.




xvi) If no lasting change is brought about, it may not constitute manufacture.

xvii) The duty of excise being on production or manufacture which means bringingout a new commodity it is implicit that such goods must be useable, movable,saleable and marketable.

b) Deemed Concept of Manufacture In addition to the General Concept ofManufacture there is a deeming fiction under Section 2(b) of CEA, which providesthat if an activity, in relation to specified Chapter headings/Chapter of CETA, isspecified in the relevant Chapter Notes / Section Notes of CETA, then such activitywould amount to manufacture and would attract levy of excise duty. To illustrate:An activity of repacking from a bulk pack to smaller pack would usually not amountto manufacture under the general concept. However if such an activity is specifiedunder a Chapter Note in relation to specified Chapter / Chapter headings of CETAthen such activity would be deemed to be manufacture and attract levy of Central

excise duty, irrespective of the principles relating to manufacture.

c) MRP Concept of Manufacture In regard to (about 98 products specified in ThirdSchedule to CETA) which are under MRP based levy, the concept of manufacture,has been extended to cover activities of packing, repacking, labelling etc.

Excisable Goods According to Section 2(d) of CEA :

“Excisable goods” means goods specified in the Schedule to the Central Excise Tariff

Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt.Central excise law does not define goods. However, meaning of “goods” has beenconsidered by the Supreme Court from time to time. Accordingly:

>> An article can be called ‘goods’ if it is known to the market as such and canordinarily come to the market for being bought and sold.>> Actual sale of the article is not important but it must be capable of being boughtand sold.>> The term ‘goods’ cannot include immovable property. Moveable property underthe General Clauses Act means:

“property of every description except immovable property.”

In the context of Plant & Machinery installed at site, whether the same constitutesgoods or not so as to attract excise duty, has been a subject of extensive judicial




considerations. In this regard, relevant extracts from CBEC Order No. 58/1/2002 –CX dt. 15.1.02, are reproduced hereafter for reference

Plant & Machinery assembled at site – CBEC clarifications

Para 3

A number of Apex Court judgments have been delivered on this issue in the recentpast. Some of the important ones are mentioned below :

(i) Quality Steel Tubes Pvt. Ltd. v. CCE (1995) 75 ELT 17 (SC)

(ii) Mittal Engineering Works Pvt. Ltd. v CCE, Meerut (1996) 88 ELT 622 (SC)

(iii) Sirpur Paper Mills Limited v CCE, Hyderabad (1998) 97 ELT 3 (SC)

(iv) Silica Metallurgical Ltd. v. CCE, Cochin (1999) 106 ELT 439 (Tribunal)[Confirmed by the Supreme Court vide order dt. 22.2.99 [1999 (108) ELT A 58(SC)]

(v) Duncan Industries Ltd v. CCE, Mumbai (2000) 88 ECR 19 (SC)

(vi) Triveni Engineering & Industries Ltd. v. CCE, Mumbai (2000) 120 ELT 273 (SC)

(vii) CCE, Jaipur v. Man Structural Ltd. v. CCE (2001) 130 ELT 401 (SC)]

Para 4

The plethora of such judgments appear to hae created some confusion with theassessing officers. The matter has been examined by the Board in consultation withthe Solicitor General of India and the matter is clarified as under : ‐

(i) For goods manufactured at site to be dutiable they should have a new identity,character and use, distinct from the inputs / components that have gone into itsproduction. Further, such resultant goods should be specified in the Central ExciseTariff as excisable goods besides being marketable i.e. they can be taken to the

market and sold (even if they are not actually sold). The goods should not beimmovable.

(ii) Where processing of inputs results in a new product with a distinct commercialname, identity and use (prior to such product being assimilated in a structure whichwould render them as a part of immovable property), excise duty would be




chargeable on such goods immediately upon their change of identity and prior totheir assimilation in the structure or other immovable property.

(iii) Where change of identity takes place in the course of construction or erection ofa structure which is an immovable property, then there would be no manufacture of

“goods” involved and no levy of excise duty.

(iv) Integrated plants / machines, as a whole, may or may not be ‘goods’. Forexample, plants for transportation of material (such as handling plants) are actuallya system or a net – work of machines. The system comes into being upon assemblyof its component. In such a situation there is no manufacture of “goods” as it is onlya case of assembly of manufactured goods into a system. This cannot be comparedto a fabrication where a group of machines themselves may be combined toconstitute a new machine which has its own identity / marketability and is dutiable(e.g. a paper making machine assembled at site and fixed to the earth only for the

purpose fo ensuring vibration free movement)

(v) If items assembled or erected at site and attached by foundation to earth cannotbe dismantled without substantial damage to its components and thus cannot bereassembled, then the items would not be considered as moveable and will,therefore, not be excisable goods.

(vi) If any goods installed at site (example paper making machine) are capable ofbeing sold or shifted as such after removal from the base and without dismantlinginto its components / parts, the goods would be considered to be moveable and thus

excisable. The mere fact that the goods, though being capable of being sold orshifted without dismantling, are actually dismantled into their components / partsfor ease of transportation etc, they will not cease to be dutiable merely because theyare transported in dismantled condition. Rule 2(a) of Rules for the Interpretation ofCentral Excise Tariff will be attracted as the guiding factor is capability of beingmarketed in the original from and not whether it is actually dismantled or not, intoits components. Each case will therefore have to be decided keeping in view thefacts and circumstances, particularly whether it is practically possible (consideringthe size and nature of the goods, the existence of appropriate transport by air,water, land for such size, capability of goods tomove on self propulsion – ships etc.)

to remove and sell the goods as they are, without dismantling into theircomponents. If the goods are incapable of being sold, shifted and marketed withoutfirst being dismantled into component parts, the goods would be considered asimmovable and therefore not excisable to duty.

(vii) When the final product is considered as immovable and hence not excisablegoods, the same product in CKD or unassembled form will also not be dutiable as a



The tribunal has held that pipes used in the existing treatment plant or expansionup to the storage facilities and fThe tribunal has held that pipes used in the existingtreatment plant or expansion up to the storage facilities and from its source for thedelivery of water to WTP is eligible for exemption under notification No. 6/2002‐C.E. The tribunal has held that the appellant produced requisite certificates by the

District Collector wherein the plant is located which is the only condition prescribedto avail benefit of notification. Further the CBEC clarification vide letter F. No.354/34/2008‐TRU dated 14‐3‐2008 that exemption under notification applied topiped supplied for replacement of worn out/ damaged pipes had retrospectiveeffect and supported the appellant.

B. Section 51 of the SEZ Act, 2005 overriding effects:‐ Goods to be treated as re‐export on removal to SEZ from DTA –

B.J. Services Co. Middle East Ltd. V/s Commissioner of Customs, Mumbai 2010 (253)

E.L.T. 335 (Tri. – Mumbai)

The appellant imported Oil Well equipments and claimed the benefit of notificationno. 21/2002, Sr. No. 217. The goods were old and used equipments and import wasallowed in terms of para 2.21 of the EXIM policy 2002‐2007 subject to the conditionthat the goods shall be exported. The appellant sold the goods to SEZ,Vishakapattam. The main question to be dealt was that whether sale to the SEZ is tobe considered as export to fulfill the condition of export under para 2.21 of the EXIMpolicy 2002‐2007.

The tribunal has held that in view of the section 51 of the SEZ Act, 2005 wherein it isprovided that the provision of the SEZ Act would have overriding effectnotwithstanding anything inconsistent contained in any other Act and in view of thedefinition of import under SEZ Act, which provides that receipt of any goods to SEZfrom DTA would amount to export from DTA, by the said export their obligation hasbeen prima facie fulfilled.

Ezine Volume I

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Transcript of Ezine Volume I