A

TAX Update
Newsletter on Indirect Taxes

September, 2015
Issue 2

GST

Central Excise

Service Tax

Customs

Foreign Trade

TAX Update Issue 2, Sept 2015

Dear Readers,

Greetings from Team SRD Legal.

It is heartening to note that the first issue of

TAX Update has been widely appreciated by

In this issue

the readers. We have also received several

suggestions.We

GST An introduction

Cenvat Credit when DTA unit coverts

are

thankful

for

your

overwhelming response and valuable feedback.

into EOU

Valuation supply against invalidated

Advance Licence

Cenvat Credit when capital goods are

The Central Government has not introduced

any significant amendments/changes in the

neither owned nor taken on lease

Manufacture sterilisation of syringes &

needles and packing

has used this opportunity to write an article on

Service Tax when service is rendered

free

last fortnight. Our colleague Raymond George

Refund unjust enrichment when total

Goods & Services Tax (GST) providing an

overview of the basic concept/ salient feature of

receipt is computed as cum-tax

Customs Valuation when goods are short

the proposed scheme.

received in India

Customs Valuation CVD on Retail Sale

Price

Kindly

mail

your

SFIS Only Indian brands are eligible

mail@srdlegal.in to make this newsletter more

relevant and useful.

Photographs in this issue have been

contributed by Bhavya Sharma from

Manoj Kasale

Budapest, Hungary.

Advocate
16th September, 2015

2 SRD Legal, Advocates & Consultants

suggestions

to

TAX Update Issue 2, Sept 2015

GST: An Introduction
By Raymond George, Advocate
GST is an idea whose time has come.
Though it seems difficult for the
Government to introduce it from 1st
April, 2016, yet, it is evident that in
coming days the efforts would be
intensified and the law would see light of
the day.
The multiplicity of taxes and multiplicity
of tax authorities is a nightmare for the
industry. The illusive line of distinction
between goods and service has led to
several litigations and has done
considerable damage to industry. In
certain sectors there remains a perpetual

dilemma as to whether to pay VAT

Service Tax or both. GST promises
merge several taxes into one and
reduce complexities of procedures
documentation. This promise makes
the most eagerly awaited tax reform.

or
to
to
&
it

GST would be a single tax replacing

several Central and State taxes. The
broad idea is to levy a single tax at all
stages
of
supply
right
from
manufacturer/ service provider to the
retailers, allowing a continuous chain of
credit at each stage. Three main taxes to
be merged into GST are C. Excise,

3 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

Service Tax and VAT. From the
consumer point of view, it will reduce the
overall tax burden on the goods, which is
currently estimated to 25 to 30%. GST
would be useful to the assessees as it
would make the Indian products
competitive
in
domestic
and
international market. Being a single tax,
the assessees would be free from taking
multiple registrations, filing of multiple
returns etc. It will also reduce the
number of documents, records and
procedures. Comparative simplicity of
procedure is likely to reduce litigations.
It will also increase the pace of business.
It is estimated that GST will result into
1.5% to 2% growth in GDP.

[B] Taxes presently levied by State

Government

Taxes to be merged into GST1: About

17 taxes presently levied by the Central
and the State Governments are proposed
to be subsumed into GST. These are as
under:

Proposed Model of GST

[A] Taxes presently levied by Central

Government
(i)
(ii)

Central Excise duty

Duties of Excise (Medicinal and
Toilet Preparations)
(iii) Additional Duties of Excise
(Goods of Special Importance)
(iv) Additional Duties of Excise
(Textiles and Textile Products)
(v)
Additional Duties of Customs
(commonly known as CVD)
(vi) Special Additional Duty of
Customs (SAD)
(vii) Service Tax
(viii) Cesses and surcharges insofar
as far as they relate to supply of
goods or services

(i)
(ii)
(iii)
(iv)
(v)
(vi)

State VAT
Central Sales Tax
Purchase Tax
Luxury Tax
Entry Tax (All forms)
Entertainment Tax (not levied
by the local bodies)
(vii) Taxes on advertisements
(viii) Taxes on lotteries, betting and
gambling
(ix) State cesses and surcharges
insofar as far as they relate to
supply of goods or services.

1. In case of transactions within a state,

the GST would be split into following
two
- Central GST (CGST)
- State GST (SGST)
Both the above taxes would be levied
on a single base. Thus, the invoice
would look like:
Value: Rs. 1000/CGST: Rs. 10/- (assuming rate as 10%)
SGST: Rs. 10/- (assuming rate as 10%)
Please note that both the taxes are
calculated on the same value of Rs.
1000/-.
2. In case of interstate transactions the
GST would be called Integrated GST
(IGST) and the rate would be a
combined rate of CGST & SGST. The
invoice would look like:

GST Concepts & Status issued by CBEC

4 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

Value: Rs. 1000/IGST: Rs. 200/Thus, the rate of GST would remain
constant irrespective of whether the
transaction is intrastate or interstate.
3. IGST would also apply on imports
from outside India. This will replace
CVD (presently equal to C. Excise
Duty) and the Special Additional Duty
(presently @4%).
4. Rate of GST is yet to be decided.
Finance Minister has indicated that
the rate would be within 20% (total of
CGST & SGST).

8. A threshold turnover would be fixed,

below which GST will not apply.
Presently it is being debated whether
the limit should be Rs. 10 lakh or 25
lakh. Persons having turnover below
this limit wont have to charge/pay
GST.
Distortions:
From the current debate it also appears
that the ultimate model will have some
distortions. For instance:
a. The rates for goods and service are
being kept different. This will take
away one of the major reliefs
expected from GST. It means that
the dispute as to whether the
transaction is of goods or of service
will continue.
b. The government is contemplating
levy of 1% Tax on interstate
transactions without allowing
credit to the receiver.
c. State Governments are being
given power to vary the rate of
CGST. This will lead to different
rates of GST in different states.
d. GST wont apply to petroleum
products. Thus the chain of credit
would break leading to increase in
cost.
e. Credit of GST on real estate may
not be available.

5. A notable feature of GST is merger of

the taxable events.
Tax
C. Excise
Service Tax
VAT/ CST
GST

Taxable Event
Manufacture
Provision of service
Sale of goods
Supply of Goods
Services

or

This will eliminate the disputes as to

whether the process amounts to
manufacture or not; whether the
transaction is of goods or service etc.
6. GST would be levied at all levels i.e.
on manufacturers, wholesale dealers,
retailers etc.
7. Input Tax Credits would be available
at all levels.
Credit of
CGST
SGST
IGST

Can be utilized to pay

CGST, and then IGST
SGST, and then IGST
IGST, then CGST, and
then SGST

We shall provide you further information

in due course. We also propose to conduct
lecture sessions with a view to create our
preparedness for the new taxation
regime. I welcome your views on
mail@srdlegal.in.

5 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

News
Constitution of New Regional Bench of CESTAT at Allahabad
[Notification No.01/2015 dated 14.08.15 by CESTAT, New Delhi]
A new Regional Bench of CESTAT has been constituted at Allahabad (Uttar Pradesh).
This bench will hear all appeals arising from territories within the State of Uttar
Pradesh. It has already started receiving new appeals w.e.f. 01/09/2015. Also all pending
appeals would also be transferred from Delhi to Allahabad Bench.

One of our clients sought clarification as to whether the Allahabad will hear only C.
Excise cases. It is clarified that the bench would cases relating to C. Excise as well as to
the Service Tax and Customs Law.

Case Laws
Honble Tribunal decided the matter
against the department holding that:
a. There is no bar for transfer of
credit available in the books of
accounts on the date of conversion
of a unit in DTA into 100% EOU
under Rule 10 of the Cenvat
Credit Rules, 2004.
b. The Board Circular no. 77/99-Cus
quoted does not elaborate under
what provision the unutilised
credit will stand lapsed. In any
case, the said circular was issued
when Rule 100H under old
Central Excise Act, 1944 (sic)
were existing and at that point of
time 100% EOU were outside the
scheme of modvat/Cenvat Credit,
which is not so after the CENVAT
Credit Rules, 2004 have come into
existence.

Central Excise
Cenvat Credit does not lapse when a
DTA unit is converted into EOU:
A DTA unit converted itself into EOU
with effect from 04/07/2007. On that
date the DTA unit had a Cenvat Credit
balance of Rs. 1.21 Crores. Relying on
Circular no. 77/99-Cus, the department
contended that the said credit would
lapse when the unit converted itself into
EOU. Relying on an earlier decision, the

Privi Organics Ltd. v. CCE, Raigad

2015-TIOL-1859-CESTAT-MUM

6 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

Valuation - Deemed Export benefits
are additional consideration:
This judgment dated 21/08/2015 of
Hon'ble Supreme Court is notable by all
who are obtaining deemed export
benefits.
The holder of the advance licence is
entitled to import raw material duty free
for manufacture of finished goods.
However, the licence holder has an
option to procure the goods indigenously.
To procure the goods locally, the license
holder gets the licence invalidated for
import. Upon such invalidation, the
indigenous supplier becomes entitled to
obtain advance intermediate licence/
duty drawback.
In the instant case, the assessee offered
a lower price to the buyers who agreed to
surrender the licence. The Honble Apex
Court held that
a. The
benefit
derived
from
surrendering of advance license is
an additional consideration and
hence would become part of the
assessable value.; and
b. The additional consideration
flows indirectly from the buyer.
CCE, Nagpur vs. Indorama Synthetics
(I) Ltd. Judgment dated 21/08/2015 in
Civil Appeal No. 1834 of 2006.

Credit on Capital Goods Credit

available even if the Capital Goods
is not owned
The manufacturer was manufacturing
plastic goods by using injection moulding
machines. The moulds were supplied by
the original equipment manufacturer.
The department objected to the credits
on the ground that the assessee was
neither owner of the capital goods, nor
had it obtained it on lease or hire
purchase agreement.
Hon'ble Bombay High Court held that
there is no requirement under the rules
that the capital goods shall either be
owned by the assessee or those shall be
acquired
by finance from financing
agency.
CCE,
Raigad
vs.
Modernova
Plastyles Pvt. Ltd. Judgment dated
21/02/2015 in C. Excise Appeal no. 27 of
2004.

Manufacture disposable syringes Mere sterilization and packing of

syringes & needles does not amount
to manufacture:
This judgment is of great help to
understand as to what amounts to
manufacture and what does not.
The appellants purchased syringes and
needles in bulk from the open market.
They would then sterilize the syringes
and the needles and put one syringe and
one needle in an unassembled form in a
printed plastic pouch. The plastic
pouches so packed were sold under a
brand name.

7 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

i.

The
department
claimed
that
sterilization brings about a change in the
character of the final product, which now
becomes
disposable
syringes
and
needles. Therefore, a new commodity
having a different character has come
into existence. Thus, it was claimed that
the process amounts to manufacture and
duty is payable.
Reversing decision of the Tribunal,
Hon'ble Supreme Court held that the
activity
does
not
amount
to
manufacture. It observed that:

ii.

a. There is distinction between

manufacture and marketability.
iii.
b. Manufacture takes place on the
application of one or more
processes. Each process may lead
to a change in the goods, but every
change does not amount to
manufacture. There must be
something more - there must be a
transformation
by
which
something new and different
comes into being, that is, there
must now emerge an article which
has a distinctive name, character
or use.

Cutting of jumbo rolls of

tissue paper into various
shapes and sizes so that
they could be used as table
napkins, facial tissues and
toilet rolls, does not amount
to manufacture as the
character and the end use
of the tissue paper in the
jumbo roll and the tissue
paper in the table napkin,
facial tissue and toilet roll
remains the same.
Removal of impurities from
transformer oil so as to
make it usable again, is not
manufacture.
Putting different articles of
feeding bottles (viz. bottles,
feeder nipples, bottle lids
and plastic parts) together
in a combined pack after
sterilisation and selling it
under a name, does not
amount to manufacture as
the process does not bring
into existence any new
product.

d. The essential character remains

the same.

e.
c. There is no transformation of one
product into another. When a
finished
product
cannot
conveniently be used in the form
in which it happens to be, and it is
required to be changed into
various shapes and sizes so that it
can conveniently be used, no
transformation takes place if the
character and the end use of the
first product continue to be the
same. The Hon'ble court noted
certain judgments as illustrations:
8 SRD Legal, Advocates & Consultants

The process would not amount to

manufacture merely because the
unsterilized syringe and needle is
of no commercial use without
sterilization. There has first to be
a transformation in the original
article
which
transformation
brings about a distinctive or
different use in the article. Then
only the test of commercial use
would apply.

TAX Update Issue 2, Sept 2015

Summarizing various case laws, the
Hon'ble Court said that these fall into
four neat categories and held that the
processes in the first three categories do
not amount to manufacture:
(1) Where the goods remain
exactly the same even after a
particular process.
(2) Where the goods
essentially the same

remain

(3) Where
the
goods
are
transformed into something
different and/or new, but the
said goods are not marketable.
(4) Where
the
goods
are
transformed into goods which
are different and/or new after
a particular process, such
goods being marketable as
such. It is in this category that
manufacture of goods can be
said to take place.
Servo-Med Ind. Pvt. Ltd. vs. CCE,
Mumbai - 2015 (319) ELT 0578 (S.C.)

9 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

SERVICE TAX
Service tax not payable when the
service is rendered free of cost.
Appellants received purchase order for
Rs. 670 lakh for supply of stone crushing
plant and to provide supervision of its
erection and commissioning. As per the
purchase order, the appellant was
required to provide the said supervision
free of cost.
The department demanded Service Tax
on the erection and commissioning
service.
The Honble Tribunal on the perusal of
the purchase order observed that

Essentially the purchase order

was for supply of stone crushing
plant.
(Implying
that
such
supervision
of
erection
and
commissioning has to be treated
as part of sale); and

Even if it is held that there was a

service component in the form of
supervision
of
erection
and
commissioning
of
the
plant
supplied, the said service was
manifestly rendered free of cost
and thus no service tax liability
can arise

Larsen & Toubro Ltd. vs. CCE, Bhopal

2015-TIOL-1847-CESTAT-DEL.

10 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

Refund Unjust Enrichment

Hazard of computing tax

This judgment needs to be noted by all

who agree to pay Service Tax or C.
Excise duty under pressure from officers
even when they hold a bona fide view
that tax/ duty is not payable. Please see
how the appellant lost the refund.

been billed by the appellant to their

customers and paid by their customers
includes service tax liability and the
same has to be held as being passed on to
the customers.
Hardesh Ores Pvt. Ltd. vs. CCE [2015TIOL-1872-MUM]

The appellant was of the view that it was

not required to pay service tax. It did not
charge the tax to its clients. However,
under pressure from the department it
paid tax of Rs. 4.20 Crores and later
claimed refund.
Authorities agree that tax was not
payable. Yet, the refund has been denied
even by the Tribunal. Reason unjust
enrichment. It is a principle that one
cannot obtain refund of tax from
government if he has recovered the
amount from another person.
Though the appellant had not charged
service tax to its customer and had
asserted from the very beginning that
tax was not payable, yet the Tribunal
has held that he has recovered the tax
from his client. This conclusion has been
drawn because while paying the tax
(under pressure from the department),
the appellant computed the tax in such a
manner that the amount received from
its customers as cum-tax i.e. he adopted
the formula:
Amount recovered from customers =
Value of service + Service Tax.
Because of this, the Tribunal has
concluded that the amount which has

11 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

CUSTOMS
Valuation - Duty is payable on the
quantity received in India and not
on quantity exported from another
country.
The Honble Supreme Court in this
recent judgment has held that duty is
payable on the quantity received in India
and not on quantity exported from
another country.
The Honble Apex
Court held that if the goods are pilfered
after they are unloaded or lost or
destroyed at any time before clearance
for home consumption or deposit in to a
warehouse, the imported is not liable to
pay duty leviable on such goods. The act
of importation is complete only when an
order
for
clearance
for
home
consumption or an order permitting
deposit of goods in a warehouse is made.
The court has further observed that
under Section 23(2), an importer can
relinquish his title to the goods. He may
abandon the goods even after they are
physically landed in any port before any
order is passed.
The court further
observed that under Section 47 of the
Customs Act, 1962, the importer has to
pay customs duty on the goods that are
entered for home consumption. Hence,
the quantity of goods imported will be
the quantity of goods at the time they
are entered for home consumption.
Mangalore Refinery and Petrochemicals
Ltd. v. CC - 2015-TIOL-199-SC-CUS

Valuation CVD is not payable on

MRP basis when the goods are not
intended for retail sale.
CVD on imported goods is equal to the C.
Excise duty payable on like article if
manufactured in India. Where the C.
Excise duty is payable on Retail Sale
Price (RSP) basis, the CVD is also
payable on RSP basis.
The issue relates to import of Set Top
Boxes (STB) which are installed at the
customers premises free of cost. The
department asserted that valuation of
the STBs should be done on MRP basis
for the reasons that:
a. The amount of consideration
charged from the customers at the
time of the installation of the STB
at customers' premises is partly
on account of sale of the STBs.
b. The
appellant
satisfy
the
condition
of
Notification
RE/44/2000 (issued by DGFT) in
relation
to
pre-packaged
commodities.
c. The goods are also notified under
Notification
No.
49/2008-CE
issued under Section 4A of the C.
Excise Act, 1994.
Hon'ble Tribunal held that two
conditions have to be met for CVD to be
levied on the basis of RSP, namely:

12 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

(1) Under Legal Metrology Act it
should be required to declare on
the package the retail sale price
(RSP);
(2) The imported goods must be
specified in the notification
issued under Section 4A(1) of the
Central Excise Act, 1944.
In the present case only the second
condition is satisfied [as the goods are
specified in the notification 49/2008-CE
(NT)]. However, the first condition is not
satisfied because:
a. There is no transfer of property or
hire-purchase system involved nor
there is a system of payment by
instalments. Hence there is no
sale.
b. The definition of sale given in CST
Act cannot be relied upon because
the CVD is to be levied as per
Legal Metrology Act.
c. Section3 of the Legal Metrology
Act clearly provides that in case of
inconsistency with the provisions
of any other Act, the provisions of
the Legal Metrology Act, will
prevail.
d. VAT authorities of Maharashtra
and Bihar have held that the
supply of STBs does not constitute
sale.
e. Retail package is a package
intended for retail sale.
f. Revenue has adduced no evidence
whatsoever to show that the cost
of STBs is being passed on as
service charges.

Served From India Scheme (SFIS)

Honble Bombay High Court has held
that only Indian Brands are eligible for
the benefit of the SFIS. The High Court
while deferring with the Honble Delhi
High Courts order in Yum Restaurant
case upheld the order passed by
Secretary, Ministry of Commerce &
Industry, Government of India holding
that Non-Indian Brands are not
entitled to Duty Credit Scrip under the
Served From India Scheme as they are
not promoting Indian Brands.
(2015-TIOL-2090-HC-MUM-EXIM)

Bharati Telemedia Ltd. vs. CCE 2015TIOL-1863-CESTAT-MUM

13 SRD Legal, Advocates & Consultants

TAX Update Issue 2, Sept 2015

About SRD LEGAL:
SRD LEGAL was established in 2007 by Sanjay Dwivedi, Advocate and has grown
into a team headed by four Advocates. The firm handles litigations on C. Excise,
Service Tax & Customs matters up to High Court. It also renders legal advisory
services.

Contact:
512, Business Park, Citi of Joy,
J. S. D. Road, Mulund (West),
Mumbai - 400 080.

Tel. : +91-22-25 6565 47/ 48

+91- 90048 25702/ 87676 61950
Fax : +91-22-25 6565 49
e-mail: mail@srdlegal.in

Team SRD Legal

Mr. Sanjay Dwivedi, Advocate
Mr. Manoj Kasale, Advocate
Mr. Raymond George, Advocate
Mrs. Savita Dwivedi, Advocate

93204 56555
96190 29095
98204 80597
99873 70673

For private circulation only.

SRD Legal

Disclaimer
The information contained in this publication is intended for informational purposes
only and does not constitute legal opinion or advice. The views & information
contained herein are of general nature and are not intended to address the
circumstances of any particular person or entity. The contents are not comprehensive
or sufficient for taking decisions. Please do not act on the information/ views
provided in this newsletter without obtaining professional advice after a thorough
examination of the facts and circumstances of a particular situation. There can be no
assurance that the judicial/quasi judicial authorities may not take a position
contrary to the views mentioned herein. Although we endeavour to provide accurate
and timely information, there is no assurance or guarantee in this regard.
SRD LEGAL neither accepts nor assumes any responsibility or liability arising from
any decision or action taken or to be taken or refrained to be taken, by anyone on the
basis of this publication.

14 SRD Legal, Advocates & Consultants