A

TAX Update

Newsletter on Indirect Taxes

01st December, 2015

Issue 7

GST

Central Excise

Service Tax

Customs

Foreign Trade

TAX Update Issue 7, 01st December, 2015

Dear Readers,
Greetings from Team SRD Legal.
GST is in the air. Last week Finance Minister
said that the government is ready with the
draft of laws and also with the computer

In this issue

network.

The

fate

of

the

Constitution

Amendment Bill now seems to hinge around

New Drawback Rates, and amendment to

procedure for fixation of brand rate
GST Three demands of Congress
Valuation Premature payment of
deferred Sales Tax at NPV no additional
consideration
Compounded Levy rules for interest &
penalty are ultra vires
Abuse of process of court Department
files FIR in Police Station for non
payment of Service Tax
Cenvat Credit Event management is an
input service for Advertisement Agency
Service Tax is not payable on Conducting
Agreement if the profit/ loss belongs to
the conductor.
Joint Venture does not tantamount to
Franchisee Service
Customs - Assessee entitled to file appeal
against order for provisional release of
goods.
SEZ When there is no duty on import of
goods, duty cannot be levied by a
Customs Notification on supply of goods
from SEZ into DTA

three demands of the Congress Party.

We are including a short news item on the
logic of the three demands.

Kindly

mail

your

suggestions

to

mail@srdlegal.in to make this newsletter more

relevant and useful.
Raymond George
Advocate
01st December, 2015

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TAX Update Issue 7, 01st December, 2015

Amendments & Circulars

Revised
All
Industry
Drawback Rates Announced:

Duty

things, the procedure for fixation of

brand rate has been modified.

Government has revised All Industry

Rates (AIR) of Duty Drawback with
effect from 23.11.2015.Rates prescribed
under notification 110/2015-Cus, dated
16/11/2015 may be referred henceforth.

Ref: CBEC Circular No. 29/2015-Cus,

and Notification
No.
109/2015

Cus(N.T.), bothdated 16/11/2015

Please also refer to circular no. 29/2015Cus

Fixation of Brand Rates of Duty
Drawback Procedure modified:
Government has amended the Customs,
Central Excise and Service Tax
Drawback Rules, 1995. Among other

Export Sealing of Bulk Cargo

Board prescribes a cumbersome
procedure for seeking exemption
from sealing department allowed
51 days to process the application
and grant permission.
Instead of resolving the problem, the
board has complicated it. It was

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TAX Update Issue 7, 01st December, 2015

represented to the Board that bulk cargo
for
e.g.
coal,
iron-ore,
alumina
Concentrate, heavy machinery etc. are
difficult to seal in packages or container.
In response, the Board amended the
notification 42/2001-CE (NT). Now one
has to seek waiver of sealing from the
Principal Chief Commissioner or Chief
Commissioner of Central Excise in a four
step procedure:
i.

Make application to CC/ Principal

CC, (with copy to AC/ DC) giving
details of bulk cargo to be exported
with
proper
justification
regarding difficulties faced in
sealing of the cargo.
ii. AC/ DC will forward the application
to
Commissioner/
Principal
Commissioner within 15 days with
his
comments
with
due
verification as needed.
iii. Commissioner/
Principal
Commissioner to CC/ Principal with
his recommendation within three
weeks.
iv. CC/ Principal CC shall grant or
reject the request for waiver of
sealing of bulk cargo in next
fifteen days
Thus, if everything goes right, the
exporter can expect a permission for
waiver of sealing, within 51 days of the
application. So much speed in the 21st
Century!! We thought export was a
national priority.
Ref: Notification 23/2015-CE (NT), dated
30/10/2015; and Circular 1011/18/2015CX., dated 30/10/2015

GST Three
Congress Party

demands

of

the

Now, there are three issues that are

holding passage of the constitutional
amendment bill. These are:
Firstly, that the provision empowing
State
Governments
to
levy
1%
Additional Tax should be removed. This
is logical. If compensating state
governments is the only goal, then the
bill already provides for compensation by
Centre to States for five years. In fact,
this 1% tax would add to compliance
cost, it would create hurdle in free
movement of the goods and would take
away the basic charm of GST.
Secondly, Congress has demanded an
independent
Dispute
Settlement
Authority. Under the scheme of the
present Bill the GST Council is to give
various recommendations. However, if
any dispute arises regarding noncompliance of the recommendation,
resulting into loss of revenue, the
dispute is also to be resolved by the same
council. This appears unfair. No one
should be appointed a judge of his own
action or recommendation.
Thirdly, Congress wants a cap on rate
of GST as 18%. Having a low rate would
be wish of everyone. But incorporating a
cap in the constitution itself does not
appear to be feasible. The 18% rate
cannot be logical for all goods. Moreover,
the rate cannot always remain static.
There would arise need to change it from
time to time. If would become impossible
and very slow process, if a change in rate
requires Constitutional amendment.

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TAX Update Issue 7, 01st December, 2015

Case Laws
Central Excise
C. Excise Valuation Sales Tax
deferred under incentive scheme
Premature payment of Sales Tax at
NPV Difference between deferred
sales tax and NPV is not includible
in the assessable value
C. Excise duty is not payable on the
amount of Sales Tax/ VAT actually paid/
payable in the transaction. In other
words, for the purpose of calculation of
Transaction Value the amount of sales
tax is deducted.

The
Government of
Maharashtra
announced a sales tax incentive scheme
known as Package Scheme of Incentives
1993. Under the scheme the assessees
were entitled to charge and collect sales
tax at the time of sale and were required
to pay the same to the Sales Tax
Authorities after a specified period of
time (say from 11th to 15th year) in
installments. The assessee availed the
scheme. They did not include the sales
tax amount in the assessable value for
paying C. Excise duty.

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TAX Update Issue 7, 01st December, 2015

Later, the Government of Maharashtra
granted an option to prematurely pay
the tax. The amount of tax to be paid
pre-maturely was equal to the Net
Present Value (NPV) of the deferred tax
calculated as per a prescribed formula.
On making payment of NPV, the
deferred tax was deemed to have been
paid. The amount of NPV was lesser that
the originally deferred amount of sales
tax.

any difference. Further, the actual

amount paid is equal to NPV
(which is less than originally
payable), cannot make the amount
actually payable at the time and
place
of
removal
different,
particularly when under Sales
Tax Law such a payment is
considered as deemed payment of
the sales tax payable. Quantum of
sales tax payable does not change
in the above scheme of prepayment.
d. There can be a view that since the
retention period is very long say
10 to 15 years and the value of the
money changes with time. It will
be appropriate to consider net
present value of the sales tax
payable after say 10 to 15 years
and consider that as the sales tax
payable at the time of clearance.
However,
this
is
not
the
understanding of the Central
Board of Excise and Customs.
Moreover, no rules or any
notification has been provided for
computing a net present value or
how to enforce such a scheme for
purpose of excise duty.

The department was of the view that the

assessees are eligible only to deduct the
NPV amount from the selling price and
thus the difference between the deferred
sale tax payable and NPV paid would
form part of the assessable value.
Demands were raised and confirmed by
the department.
The Honble Tribunal did not agree
with the department and observed
that
a. The Board has consistently held a
view that under the deferment
scheme of sales tax, the sales tax
is payable though after a long
period of time and since the sales
tax is payable, the same will stand
excluded from the normal value or
the transaction value.
b. Although by paying tax after such
a long duration, the assessee gets
financially benefited, the board
has been of the view that interest
earned cannot be added to the
assessable value.
c. The fact that the said amount has
been paid after the clearances of
the goods and before the deferred
date of payment, will not make

CCE, Raigad vs. Uttam Galva Steels

Ltd. & Others 2015 TIOL 2242
CESTAT - MUM

C. Excise - Compounded Levy

Interest & Penalty not leviable
Rules providing for interest and
penalty are arbitrary, excessive and
ultra vires of the Section 3A:

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TAX Update Issue 7, 01st December, 2015

Normally, C. Exicse duty is levied in
terms of Section 3 of the Act at rates
specified in the tariff and in accordance
with the scheme contained in the act and
the rules. A separate scheme of
compounded levy was provided by
Section 3A of the C. Excise Act, 1944 in
respect of certain goods (Ingots & Billets,
Hot Rolled Products, Textile Fabrics).
Under the scheme, the duty was payable
based on Annual Production Capacity.
Although, the Section 3A did not provide
for recovery of any interest of penalty,
the rules framed by the government
contained such provisions. In the event
of delay in payment of duty, these rules
required payment of interest at various
rates, as well as penalty equal to the
duty. The amount of penalty was not
dependent upon the extent of delay.
Thus, if duty of Rs. One Crore had been
delayed by even a single day, the amount
of penalty imposable was Rs. One Crore.
Same would be the position if the delay
was of 100 days.

a penalty not exceeding Rs.5,000/- alone

can be levied.
Hon'ble Supreme Court held that these
provisions are violative of Article 14
(right to equality), 19(1)(g) (as being an
unreasonable restriction on the right to
carry on trade or business) and are ultra
vires the Central Excise Act (which did
not provide for such penalty).
Shri Bhagwati Steel Rolling Mills vs.
CCE [2015 TIOL -283 SC CX]

Hon'ble Supreme Court has held that

since Section 3A which provides for a
separate scheme for availing facilities
under a compound levy scheme does not
itself provide for the levying of interest,
Rules 96 ZO, 96 ZP and 96 ZQ cannot do
so. The court agreed with the judgment
of Gujarat High Court reported in
Krishna Processors v. Union of India,
2012 (280) ELT 186 (Guj.) which found
these provisions to be arbitrary and
excessive. Hon'ble court further observed
that under Section 37(3), the statute
itself provides in all cases where no
other penalty is provided by the Act that

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TAX Update Issue 7, 01st December, 2015

SERVICE TAX
Abuse of process of Court FIR in
Police Station for non-payment of
Service Tax
Section 406 of the Indian Penal Code
says
Whoever commits criminal breach
of trust shall be punished with
imprisonment of either description
for a term which may extend to
three years, or with fine, or with
both.
It was alleged that the assessee had
failed to pay service tax of Rs. 1,05,705/-.
The department registered an FIR at
Police Station under above section 406 of
IPC. The assessee paid the tax and
approached High Court for quashing the
FIR.

Hon'ble High Court quashed the FIR

holding that the Finance Act of 1994
dealing with Service Tax was a special
and complete Code in itself,wherein even
the procedure for penalty has been
provided. Therefore, registration of the
FIR was nothing but abuse of process of
Court.
Ajay Kumar Sandhu Vs State of
Haryana 2015 TIOL 2564 P&H
ST

Cenvat Credit Assessee used Event

Management Service for providing
Advertisement Service Credit
available
In general, an activity is considered
input service only if it is used to provide
the output service (although the
definition includes and excludes certain

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TAX Update Issue 7, 01st December, 2015

specific services/activities). A service
provider is required to be registered for
his output service and not for the input
service.
The appellant in the present case, is an
Advertising Agency. It obtained services
of event management concerns. The
event management concerns conduct
event likes shows, exhibitions etc. for
displaying, exhibiting various consumer
goods. The venue, stage, space for
display and exhibition isarranged by
these event management concerns. The
appellant
obtains
spaces
for
advertisement
in
such
shows,
exhibition's etc by availing the service of
event management concerns.
Department sought to deny credit of the
service tax paid on event management
service on the ground that it is not
related to their output service; that
event management services are not
essential for earning commission from
print media; that the assessee is not
registered under the category event
management
The Hon'ble Tribunal found that the
advertising activity of the appellant is
not confined to print media alone. The
appellant as an advertising agency
procure spaces fit for advertisement
through
the
event
management
concerns. The service of advertising
agency includes exhibition, display etc.
Hon'ble Tribunal also held that, the
denial of credit on the ground that they
are not registered for event management
services is not tenable.

Shakun Advertising Agency Pvt. Ltd. vs.

CCE & ST, Jaipur I [2015 TIOL
2515 CESTAT DEL]

Service Tax Business Support

Service Conducting agreement
When the assessee is responsible for
its profit & loss and is paying a fixed
sum to the owner of the factory &
infrastructure, it cannot be said
that the assessee is providing any
service to the factory owner.
M/s. Kolhapur Sugar Mills Ltd. (KSM)
have a factory for manufacture of liquor.
M/s. Karan Agencies (KA) entered into a
contract with them for manufacturing
and sale of liquor in the name of M/s.
KSM in the said factory of KSM. The
plant and machinery is owned by M/s.
KSM, who allowed KA to use the entire
infrastructure for a consideration of
Rs.30 lacs per annum.
The twist in the tale was that KA did not
conduct business in its own name, but in
the name of KSM.
The sales and
recovery of the sale proceeds were made
in the name of M/s. KSM. The books of
account were maintained in the name of
M/s. KSM and sale proceeds were also
credited to the account of M/s. KSM. At
the end of each financial year, after
settlement of accounts, the balance in
Profit and Loss Account was paid by M/s.
KSM to the Respondent after retaining
an amount of Rs.30 lacs being the
consideration agreed against use of
infrastructure. This amount is termed as
"conducting charges" in the books of
account. KSM is paying service tax on

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TAX Update Issue 7, 01st December, 2015

this amount under
Franchisee Service.

the

category

Thus, effectively, KSM received Rs. 30

lakh per year and the remaining profit
went to KA. The department wanted to
levy tax on this profit, alleging that KA
provided Business Support Service to
KSM.
Tribunal had decided the matter in
favour of the assessee holding that there
is no evidence on record to show that
they had received any amount from KSM
for providing any service.

were run by APMSS. A logo AMT was

used on the buses. The Municipal
Corporation received a royalty.
The department held that the Municipal
Corporation
provided
Franchisee
Service to APMSS and they were
required to pay Service Tax on the
royalty received.
On going through the terms of the
contract, the Hon'ble Tribunal held:
We find that it clear reflects to a
joint venture to run buses in the
city. Even the logo is to be decided
by both parties. There is no
relationship of franchisor and
franchisee. We did not find any
representational right having been
granted by appellant to APMSS to
provide any service identified with
the franchisor.

Hence the department was before High

Court which agreed with the Tribunals
finding and observed that:
The Assessee is therefore
responsible for any profits
being generated or losses
sustained. The nature of the
transaction therefore would
not fall within the meaning
of support services for
business or commerce.

CCE, Aurangabad vs. M/S Aurangabad

Municipal Corporation [2015-TIOL2514-CESTAT-MUM]

CCE & ST, Kolhapur vs. Karan Agencies

2015-TIOL- 2693-HC-MUM-ST

Service Tax Royalty for Use of

Logo Joint Venture does not
tantamount to providing franchisee
service
The Aurangabad Municipal Corporation
entered into an agreement of joint
venture with M/s Akola Pravasi &
Malvahatuk
Sahakari
Sanstha
Maryadit, Aurangabad (APMSS) to run
buses in Aurangabad city. The buses

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TAX Update Issue 7, 01st December, 2015

CUSTOMS
Customs - Provisional Release
Appeal lies before Tribunal Department is incorrect in asserting
that Tribunal has no power to deal
with appeal against order of
Commissioner:

these goods pending adjudication. It

reads as under:
Section
10A: Provisional
release of goods, documents
and things seized pending
adjudication - Any goods,
documents or things seized
under Section 110, may,
pending the order of the
adjudicating
authority,
be
released to the owner on
taking a bond from him in the
proper form with such security
and
conditions
as
the
adjudicating authority may
require.

Certain violations under Customs Law

lead to confiscation of goods. When the
Customs Officers book a case, they
initially seize the goods. Later, through
adjudication proceedings it is decided
whether the goods are to be confiscated
or not. The adjudication and appeal
proceeding may take several years. What
happens to the goods meanwhile?
There is a provision (Section 110A)
which allows for provisional release of

What happens if the authority demands

an unreasonably high amount of security

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TAX Update Issue 7, 01st December, 2015

or imposes very unreasonable conditions
for provisional release? Can the assessee
file appeal before Tribunal? The
department was of the view that the
order
under
Section
110A
was
administrative or interim in nature and
no appeal can be filed against the same.
When this question came up before the
Tribunal, there emerged disagreement
between two benches. Therefore, a five
member bench was constituted. All the
five members unanimously held that the
order is not administrative or interim in
nature and an appeal lies before this
Tribunal against an order passed by
Commissioner of Customs under Section
110A of the Customs Act, 1962 for
provisional release of the goods.

M/s Gaurav Pharma Ltd v/s. CCE &

ST, Rohtak, Delhi [2015-TIOL-2541CESTAT-DEL-LB]

Supply of goods from SEZ into DTA

Duty is imposed under SEZ as
equal to Customs Duty When no
customs duty is payable on goods
imported into India, no duty would
be payable on similar goods
transferred from SEZ to DTA
Electrical Energy is goods classified
under Tariff Item 2716 0000 and is
subject to Customs Duty on import.
Customs Duty is levied vide section 12 of
the Customs Act, 1962 on goods
imported into India and section 25

empowers the Central Government to

grant exemption from the duty levied
under section 12 by issuing notification.
Customs Act does not impose any duty
on the goods removed from an SEZ into
DTA (because it is not import of goods
into India). But Section 30 of SEZ Act,
2005 requires payment of customs duties
on such supplies. Thus, although
removals from SEZ into DTA is not
import, the treatment to such supplies
is given as if it were an import and
Customs Duty is accordingly levied.
The C. Government issued a notification
(25/2010-Cus) wholly exempting import
of electrical energy. However, the
notification contained a proviso to the
effect that it wont apply to electrical
energy removed from SEZ into DTA or
into non-processing zone of the SEZ,
thus creating a disparity between actual
import and supply from SEZ. The
Customs notification amounted to levy of
customs duty on electricity supplied
from SEZ into DTA. In fact, the
government also made a retrospective
amendment to notification 21/2002-Cus
levying this duty w.e.f. 26/06/2009.
The assessee M/s. Adani Power Ltd.
approached Hon'ble High Court of
Gujarat challenging the notification. In a
detailed order, the High Court quashed
the proviso to the said notification
holding it ultra vires Article 14 (right to
equality) and 265 (no tax without
authority of law) of the Constitution. The
said judgment was published at [2015TIOL-2673-HC-AHM-CUS].

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TAX Update Issue 7, 01st December, 2015

Hon'ble High Court held that levy of
duty on the goods transferred from SEZ
to DTA is not under Customs Act. A
notification issued under Customs Act
can exempt only the duties that are
levied under Customs Act. The duty on
DTA supplies from SEZ has been
imposed under Sec 30 of SEZ Act and
that duty is equal to the Customs duty
on import of such goods. When no
customs duty is payable on Electrical
energy imported into India, no duty
would be payable on similar goods
transferred from SEZ to DTA in view of
Section 30 read with Section 51 of the
SEZ Act. Duty on SEZ supplies cannot
be levied vide a Customs notification.

Now, the departments Special Leave

Petition has been dismissed by the
Supreme Court by order dated 20th
November, 2015.
Union of India vs. Adani Power Ltd.
[2015-TIOL-281-SC-CUS-LB]

Hon'ble High court also noted that the

duty levied vide the notification creates
a disparity between Mega Power
Projects situated in DTA and those
situated in SEZ. While both are
exempted from payment of duty on
Capital Goods and both are required to
pay duty on raw materials, in case of
SEZ supplies, the duty on electricity
supplied would become an extra burden.
High Court also held that a tax cannot
be levied with retrospective effect.
Hon'ble Court held any amendment
which seeks to levy tax or custom duty
for the first time can only be prospective
as it amounts to substantive law. Such
law cannot be retrospective.
Accordingly, the proviso to notification
25/2010-Cus as well as the retrospective
amendment to notification 21/2002-Cus
was quashed.

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TAX Update Issue 7, 01st December, 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- 9004825702/ 8767661950
Fax : +91-22-25 6565 49
e-mail: mail@srdlegal.in

Team SRD Legal

Mr. Sanjay Dwivedi, Advocate
Mr. ManojKasale, Advocate
Mr. Raymond George, Advocate
Mrs. Savita Dwivedi, Advocate

9320456555
96190 29095
98204 80597
9987370673

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
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14 SRD Legal, Advocates & Consultants