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					AMENDMENTS & REVISION MATERIAL FOR NOV-10                    CA VISHAL BHATTAD



     AMENDMENTS & REVISION MATERIAL
        FOR NOV-2010 EXAMINATION
                                       INDEX

S.NO. TOPICS                                                              PAGE
                                                                          NO.
           CENTRAL EXCISE ACT.1944
1                                                                                2
           BASIC
2                                                                                13
           CENTRAL EXCISE RULES,2002
3                                                                                32
           SSI
4                                                                                25
           VALUATION
           COMMON TOPICS
5                                                                                44
           CLASSIFICATION OF GOODS
6                                                                                35
           CENVAT CREDIT RULES, 2004
7                                                                                49
           DEMAND
8                                                                                54
           APPEAL, REVIEW & REVISION
9                                                                                56
           SEARCH, SEIZURE & CONSFICATION
10                                                                               57
           ADVANCE RULING
11                                                                               58
           SETTLEMENT COMMISSION
           SERVICE TAX
                                                                                 60


           CUSTOMS ACT,1962
                                                                                 73




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                     CA VISHAL BHATTAD


                                 BASIC CONCEPTS

LATEST AMENDMENTS
F. A. 2009
Deemed Manufacture
Note 6 is being inserted in Chapter 21 of the First Schedule to the Central
Excise Tariff Act.
Process of adding or mixing certain ingredients to betel nut in any form would amount
to manufacture
In respect of „betel nut product known as supari‟, it is prescribed that the process of adding or
mixing certain ingredients to betel nut in any form would be a process amounting to manufacture.



RELEVANT NOTIFICATION

Case study1:     Madhav Bidi Company is engaged in the manufacture of biris,
without the aid of machines, falling under tariff item 2403 10 31 of the Excise
Tariff. It approaches you for advice whether it is required to submit Annual
Installed Capacity Statement in Form ER-7 for the financial year 2010-11. You
are required to advice Madhav Bidi Company regarding the same. (RTP)

Notification No. 26/2009 CE (NT) dated 18.11.2009                                             has
exempted the assessee who manufactures the biris without the aid of machines (falling under tariff
item 2403 10 31) from the submission of Annual Installed Capacity Statement. Therefore, Madhav
Bidi Company is not required to file Annual Installed Capacity Statement for the financial year
2010-11.

Case study 2: Urvashi Tobacco Pvt. Ltd. manufactures chewing tobacco, falling under
tariff item 2403 99 10 of the First Schedule to the Central Excise Tariff Act, 1985,
manufactured with the aid of packing machine and packed in pouches. You are
required to advice the basis for valuation of the said goods.

Notification No. 10/2010 CE (NT) dated 27.02.2010 has notified the
chewing tobacco falling under tariff item 2403 99 10 of the First Schedule to the Central Excise
Tariff Act, 1985 manufactured with the aid of packing machine and packed in pouches for the
purposes of section 3A of the Central Excise Act, 1944. Therefore, the duty on the said products
would be charged on the basis of capacity of production.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD
LATEST CIRCULARS

Circular No. 904/24/2009-CX., dated 28-10-2009
Subject: Clarification    regarding     excisability  of    Bagasse,
Aluminium/Zinc Dross and other such products termed as waste or
residue or refuse arising during the course of manufacture.
       The matter has been examined. Excisability of bagasse and similar waste products arising
during the course of manufacture has been under dispute for a long period of time. There are
number of Tribunal‟s judgments that being waste, these are not excisable p roducts. Departmental
appeal in respect of excisability of bagasse in one such case i.e. Balrampur Chinni Mills Ltd. is
reportedly still pending in the Supreme Court. Generally, the courts have been taking a view that
the waste or refuse or residue arising during the course of manufacture cannot be treated as
excisable goods even if such waste fetches some price in the market. However, all these matters
pertain to the period prior to 2008.

In the budget of 2008, the definition of “excisable goods” in clause (d) of Section 2 of the
Central Excise Act, 1944 was amended by adding an explanation that for the purposes of this
clause, “goods” include any article, material or substance which is capable of being bought and
sold for a consideration and such goods shall be deemed to be marketable.
It is clarified that with this amendment in Section 2(d), the bagasse, aluminium/zinc
dross and other such products termed as waste, residue or refuse which arise during
the course of manufacture and are capable of being sold for consideration would be
excisable goods and chargeable to payment of excise duty.


Circular No. 910/30/2009-CX., dated 16-12-2009
ISSUE: certain dealers are receiving liquid chemicals in bulk in containers and offloading the same
at the dealers‟ premises or godown into drums of 200 ltrs for subsequent marketing of these
materials to customers. Doubts have been raised as to whether such activity would amount to
manufacture in terms of Chapter Note 10 to Chapter 29.

LEGAL PROVISION: In relation to products of 29 Chapter, (Chapter note 10) labelling or relabelling
of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to
render the product marketable to the consumer, shall amount to „manufacture‟

Tribunal has in the case of Ammonia Supply Co. [2001 (131) E.L.T. 626 (T)], held that “As per Note
quoted above, labelling or re-labelling of the container should take place at a time when the goods are
packed from bulk packs to retail packs. The assessee was not getting Ammonia in bulk packs. They
were getting it in tankers. Ammonia gas brought in tankers can never be termed as brought
in bulk packs. So the assessee was not repacking the goods from bulk packs to retail
packs. Accordingly the activity undertaken by the assessee in filling the smaller container
from bulk container namely tankers can never fall within the fiction of manufacture as
envisaged by Note 10 quoted above.”

Therefore the tankers cannot be termed as bulk packs and therefore the activity of transferring the
goods from tankers into smaller drums cannot be said to be covered by the said chapter note 10.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                               CA VISHAL BHATTAD
NEW CASE LAWS
 YEAR 2010

Bata India Limited-2010 (S.C.)
Brief Facts: Assessee is a well known manufacturer of foot
wear. During the process of manufacturing of foot wear
various chemicals / rubbers / solvents etc., are mixed together    Unvulcanised
and a thin layer of such mixed materials is sandwiched. Said       sandwiched            fabric
                                                                   assembly produced in
product is later cut and stitched according to the assessee's
                                                                   the Assessee's factory is
requirements and in-process materials are used as shoe-
                                                                   not    is   commercially
uppers in the foot wear .Such fabrics are also at times sent to
                                                                   distinct or marketable
job workers for stitching purposes only and the fabric
                                                                   product.
sandwiched with the mixed materials are inputs of the
intermediate stage during the course of manufacture of
footwear.
Vulcanisation of the foot wear takes place only after completing the entire process to render it
a finished product as a footwear.
Collector of Central Excise held unvulcanised sandwiched fabric/double textured fabrics are
marketable products fulfilling the requirement of the definition of excisable goods attracting
the levy of central excise duty under the Act

(Vulcanisation =Process of treating rubber or rubberlike materials with sulphur at great heat to improve elasticity
and strength or to harden them)

Issue: Whether unvulcanised sandwiched fabric assembly produced in the Assessee's factory
and captively consumed can be termed as „goods‟ and can be classified as "rubberized cotton
fabrics" falling under sub-heading number 5905.10 of the schedule to the Central Excise Tariff
Act, 1985?
Held :
    product in question is used as an intermediate product, goes to make the component for the
       final product
    Burden to show that the product in question is marketed or capable of being bought or sold
       in the market so as to attract duty is entirely on the Revenue.
    Revenue has not produced any material before the tribunal to show that the product is
       either been marketed or capable of being marketed but expressed its opinion unsuppo rted
       by any relevant materials.
    Mere fact that the product in question was entrusted outside for some job work such as
       stitching is not an indication to show that the product is commercially d istinct or
       marketable product
    Hence, Given product is not excisable




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                        CA VISHAL BHATTAD

Solid & Correct Engg. Works -2010 (S.C.) (IMP)
M/s Solid and Correct Engineering Works,& other three sister
concern are partnership concerns engaged in the manufacture of
parts and components for road and civil construction machinery             Asphalt Drum Mix
and equipments like Asphalt Drum/Hot Mix Plants and                        Plant by using duty
                                                                           paid components is
Asphalt Paver Machine etc.
                                                                           tantamount          to
                                                                           manufacture         of
M/s Solidmec Equipments Ltd. the fifth unit (with which we are             excisable       goods
concerned in the present appeals) is a marketing company                   within the meaning
advertises its (aforesaid sister concerns) product and undertakes          of Section 2(d) of the
contracts for supplying, erection, commissioning which result in           Central Excise Act,
manufacture of Asphalt Drum/Hot Mix Plants at the sites of                 1944?
customer by using components purchased from aforesaid sister
concern.
Solidmec also provides after sale services relating thereto.

Department issued the show cause notice alleged that the process of assembly of the parts and
components at the site provided by the customer was tantamount to manufacture of Asphalt Batch
Mix, Drum Mix/Hot Mix plants as a distinct product with a new name, quality, usage and
character emerged out of the said process. This Asphalt Drum/Hot Mix Plants became exigible to
Central Excise duty.

Assessee Contention: Such plants (Asphalt Drum/Hot Mix) have to be permanently embedded
in earth as it required to be fixed to a foundation that is 1 and ½ ft. deep for the sake of stability of
the plant which causes heavy vibrations while in operation. Thus, the setting up of the plant is
result into immovable property and not subject to excise duty.


Issue: Whether setting up of an Asphalt Drum Mix Plant by using duty paid components is
tantamount to manufacture of excisable goods within the meaning of Section 2(d) of the Central
Excise Act, 1944?

Held: the expression “attached to the earth” has three distinct dimensions, viz. (a) rooted in the
earth as in the case of trees and shrubs (b) imbedded in the earth as in the case of walls or
buildings or (c) attached to what is imbedded for the permanent beneficial enjoyment of that to
which it is attached.
 Attachment of the plant in question with the help of nuts and bolts to a foundation not more than
1½ feet deep intended to provide stability to the working of the plant and prevent
vibration/wobble free operation does not qualify for being described as attached to the earth
under any one of the three clauses extracted above.
An attachment of this kind without the necessary intent of making the same permanent cannot, in
our opinion, constitute permanent fixing, embedding or attachment in the sense that would make
the machine a part and parcel of the earth permanently.

Hence setting up of an Asphalt Drum Mix Plant at customer site by using duty paid components
tantamount to manufacture of movable property and subject Excise duty.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                          CA VISHAL BHATTAD

SONY MUSIC ENTERTAINMENT (I) PVT. LTD.-2010
(H.C.)(VV IMP)
Brief facts: The assessee imported recorded audio and
video discs packed in boxes of 50. After receipt of the material            The activity of packing
in its factory, it packed each individual disc in transparent               imported Compact discs
plastic cases known as jewel boxes, an inlay card containing                in a jewel box along
the details of the content of the compact disc was also placed              with inlay card would
in the jewel box. The whole was then shrink wrapped. The
assessee thereupon sold such packed compact discs in                        not      amount             to
wholesale.                                                                  manufacture

 Department contention                                                       Assesses response
 the processes undertaken by the assessee in regard to the compact           Pack the compact discs
 discs amounted to manufacture as the packed compact discs were              and sell them and such
 not marketable without being packed in the jewel box, & they                packing did not amount to
 would otherwise be subject to damage and that the insertion of              manufacture.
 the inlay card was also essential because without it the customer
 would not be aware of the identity of the compact disc or the
 nature of its contents

  The notice also cited the provisions of Note 6 to Section
 XVI of the tariff that conversion of an unfinished or
 incomplete product into a complete finished product
 amounts to manufacture.


Issue: “Whether the activity of packing imported Compact discs in a jewel box along with inlay
card would amount to manufacture under Section 2(f) of the Central Excise Act, 1944?”

 Held: Assessee received was compact discs containing data reproducible as music or visual
images or both. What it sold was nothing other than such discs, albeit packed in a box and
containing details of the contents of each disc. It is therefore not possible to say that an article that is
new and different from the commodity that the assessee imported has emerged as a result of the
treatment that was imparted to the imported article at the assessee‟s hands. It continued to be a
compact disc.
                                 The fact that the value addition to the compact disc does not result
in the conclusion that there is manufacture.
Note 6 to Section XVI of the tariff provides that in respect of goods covered by that section,
conversion of an article which is incomplete or unfinished but having the essential character of a
finished article into a complete finished article shall amount to manufacture.
It clearly does not apply for given case. Those compact discs were complete and finished. They
could be played by any person in order to listen to the sound and view the images that they
contained. They were imported in finished and complete form. The mere packing of these discs
has no bearing on the fact that they were imported complete and finished.

Thus, the activity of packing imported Compact discs in a jewel box along with inlay card
would not amount to manufacture under Section 2(f) of the Central Excise Act,
1944




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                     CA VISHAL BHATTAD


 YEAR 2009

Jai Bhagwan Oil and Flour Mills -2009 (S.C.)
Issue: whether production of mustard oil and oil
cake      from       mustard       seeds      amounts       to production of
Manufacture ?                                                  mustard oil and oil
                                                               cake from mustard
Held: The Apex Court held that the true test to ascertain      seeds amounts to
whether a process is a manufacturing process producing a new   Manufacture
and distinct article is whether the article produced is regarded in
the trade, by those who deal in it, as a marketable product
distinct in identity from the commodity/raw material involved in the manufacture.
When mustard seeds were subjected to the process of extraction whereby
mustard oil and oil cake were produced, the process involved manufacture of
mustard oil as also the manufacture of oil cake. It was certainly not a mere process of
cleaning, repairing, reconditioning, recycling or assembling. Oil cake was a distinct and different
entity from mustard seeds and it had a separate name, character and use different from mustard
seed. Oil cake was not a waste to be thrown away, but was a valuable product with a distinct
name, character, use and marketability. So, oil cake was a finished product and not a
by-product and the said process amounted to manufacture.



LARSEN & TOUBRO LIMITED-2009 (H.C.)
The Assessee is engaged, amongst others, in the business of
fabrication and erection of structures of various types on
contract basis. Assessee entered into a turnkey contract with       Waste water treatment
“BPCL” for fabrication, assembly and erection of waste water        plant not commercial
treatment plant. The activities involved in the contract were       movable property
procurement, supply, fabrication, transportation of various         came into existence
                                                                    until the assembling
components, making of carbon steel tanks, various platforms,
                                                                    was completed by
walkways and ladders are fabricated at site by process of rolling,
                                                                    embedding different
welding, grinding etc. of duty paid steel plates, flats, angles,    parts in the civil
channels and beams and also civil construction is done.             works.
The plant cannot function as such until it is wholly
built including the civil construction.
 Department issued a notice to the assessee alleging that assessee had fabricated/manufactured
the waste water treatment plant in the premises of BPCL and the waste water treatment plant fell
under Chapter Heading No. 8419.00 on which excise duty was payable. Plant came into existence
in unassembled form as per the drawings and designs approved by the BPCL before the same was
installed and assembled to the ground with civil work. Thus excise duty was payable on the value
of the plant excluding the value of the civil work

It need not be stated that the excise duty is not payable in respect of an immovable property. The
plant when erected by embedding in the civil work becomes an immovable property and would
not therefore attract any excise duty.
                 However, simply collecting together at site the various parts would not amount to
manufacture unless an excisable movable product (say a plant) comes into existence by assembly
of such parts.
                       In the present case, waste water treatment plant does not come into existence
unless all the parts are put together and embedded in the civil work. Waste water treatment plant
does not become a plant until the process which includes the civil work, is completed. In our
view, therefore, no commercial movable property came into existence until the
assembling was completed by embedding different parts in the civil works.



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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                     CA VISHAL BHATTAD
AERO PACK PRODUCTS-2009 S.C.
Assesee used to convert a liquid material so called “Mould
release preparation” from bulk packs to retail packs of 500 ml.
                                                                    Activity of repacking
Revenue issued show cause notice alleging that repacking            from bulk to a form
from bulk packs to retail packs amounts to manufacture as           suitable    to      the
„mode of use‟ has changed and there is „substantial value           consumer undertaken
addition‟.                                                          by the assessee of on
                                                                    “Mould          release
                                                                    preparation” does not
Assessee contends that „packing / repacking‟ or any process in
                                                                    amounts              to
relation to goods amounts to manufacture only in the case of
                                                                    manufacture
deeming provisions of sec. 2(f)(ii) & 2(f)(iii)


Issue: whether the activity of repacking from bulk to a form suitable
to the consumer undertaken by the assessee amounts to manufacture
or not.

Decision:           „substantial value addition‟ in the product is not the criteria to determine the
manufacturability. Also The Deputy Chief Chemist, to whom the product was sent for
examination, has reported after testing the same that, the composition of the mould release
preparation remains the same before and after repacking and no new product comes into
existence, only the „mode of application‟ has been changed. So it cannot be said that the „mode of
use‟ has been changed. Again the said product is not covered in deeming provisions of law
therefore the process carried on by the assessee did not amounts to manufacture.

NOTE: Under the present tariff packing / repacking of “Mould release preparation”
from bulk packs to retail packs amounts to manufacture.



CCEx. v. Karam Chand - 2009 (H.C.)
The assessee was engaged in the manufacture of liquid
mosquitoes‟ destroyer. It used to obtain concentrated
                                                                concentrated alletherin and
alletherin and convert it into diluted alletherin by adding
                                                                convert   it   into  diluted
solvent deodorized kerosene oil, perfume (as a masking
                                                                alletherin by adding solvent
agent) and DHT (as a stablising agent).Department
                                                                deodorized kerosene      oil,
contended that this process amounts to manufacture.
                                                                perfume (as a masking
                                                                agent) and DHT does not
Issue: whether the addition of stabilizing agent,               amount to manufacture.
masking agent etc. amounted to manufacture within the
meaning of section 2(f) of the Central Excise Act, 1944?

Held: In the present case, no new substance was formed and only a diluted form of original
substance was packaged under a different brand name. Alletherin in its concentrated form was an
insecticide. The final product manufactured by the assessee was a diluted form of insecticide-
allethrin which would only kill small insects like mosquitoes. Hence, only the potency of the
insecticide was being reduced. Therefore, it could not be termed as manufacture.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                          CA VISHAL BHATTAD

Delhi v. Blow Plast Ltd. - 2009 (H.C.)
The assessee assembling and installing furniture at
customer‟s premises out of components of Office Furniture
System/Work Stations (OFS/WS) from the various parts of                 assembling and installing
furniture purchased from the supplier (K&C). The assessee               furniture at customer’s
contended that they were only marketing OFS/WS and the                  premises out of
entire system already stood duty paid at the hands of the               components of Office
manufacturer i.e. K&C.                                                  Furniture System/Work
                                                                        Stations (OFS/WS)
                                                                        purchased from the
Issue: whether assembling and installing furniture at
                                                                        supplier (K&C) does not
customer‟s premises out of components of Office Furniture
                                                                        amounted to manufacture
System/Work Stations (OFS/WS) purchased from the supplier
(K&C) amounted to manufacture?

Held: The Tribunal arrived at the conclusion that since K&C had cleared the complete set of
elements required for the work station in a knocked down condition for the purpose of facilitating
transportation, it could not be said that K&C had manufactured the parts and not the complete
system.
The High Court, upholding the Tribunal‟s decision, held that the same product as known to the
trade could not be manufactured twice over.

Consequently, nothing new had come into existence so as to bring the activities of the assessee
within the parameters specified in section 2(f) of the Central Excise Act, 1944.
What the assessee received was complete OFS/WS and what it left on its clients‟ sites was also
complete OFS/WS. Nothing new had come into existence. Hence, no duty was payable by the
assessee.



 YEAR 2008

FEDDERS LLOYD CORPORATION LTD. -2008
(S.C.)
Fedders Lloyd Corporation Ltd., cleared condensing units from
                                                                             Complete unit was
their unit at New Delhi to Mumbai, where the assessee
                                                                             cleared along with
purchased cooling units from local manufacturers fabricated
                                                                             pipe kits, electrical
on order with motors, etc., supplied by the assessee. After
                                                                             cord, remote control,
carrying out certain tests for quality by filling gas, affixing the          etc.,   to   various
brand name “Fedders Lloyd‟.                                                  customers from their
The complete unit was cleared along with pipe kits, electrical               warehouse          at
cord, remote control, etc., to various customers from their                  Mumbai amounts to
warehouse/godown at Mumbai. The invoices were raised by                      manufacture of Split
the assessee‟s Mumbai office for supply of split air-condition.              A.C.
The department contended that the assessee was
manufacturing split air-conditioners.

ISSUE: whether The complete unit was cleared along with pipe kits, electrical cord,
remote control, etc., to various customers from their warehouse at Mumbai amounts
to manufacture of Split A.C.
DECISION: Neither the condensing unit nor the cooling unit by itself is a complete air conditioner.
It is only when these two, i.e. condensing unit and cooling units are put together the complete unit of air
conditioner fit for use came into existence at the workshop. Air conditioner is a commercially new article
than either the condensing unit or the cooling unit.
complete unit was cleared along with pipe kits, electrical cord, remote control, etc., to
various customers from their warehouse at Mumbai amounts to manufacture of Split
A.C.


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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                    CA VISHAL BHATTAD


HINDUSTAN POLES CORPORATION-2007
XYZ Ltd. adopted the process that M.S. Welded Pipes of
three different diameters are purchased from open market            process of welding of M.S.
and cut to required lengths. One end of the higher diameters        Welded Pipes into large
is heated red hot and reduced to shorter diameters by               mother pipes does not
hammering sufficient to make room for insertion of the pipe         amount to manufacture
of the next lower diameters in three parts which are then
allowed to cool down under natural atmosphere whereby
the joints of insertion get solidified resulting in forming a
 strong grip holding the inserted pipe of smaller diameters firmly from dislocation. The joints
are, thereafter, swaged by hammering and the points of reduction are welded .The whole
length of jointed pipes of different diameters is, thereafter, painted and delivered to customers
against Orders placed therefore. Department contention is that by carrying aforesaid process
(broadly called as welding) new product emerge “Steel Tubular Poles” which falling under the
residual entry 73.08.Therefore XYZ Ltd. is liable for payment of duty on “Steel Tubular Poles”
which is manufactured product. Whether the contention of department is tenable in law?

Issue: before consideration Whether process of welding of M.S. Welded
Pipes into large mother pipes amount to manufacture or not?

Held: Mere joining of three pipes, one with other, of different dimensions to obtain a desired
length can by no stretch of imagination be brought within category of manufacture. Process
carried out by assessee do not change basic identity or original character of M.S. welded pipes to
make it a new marketable product leading to manufacture as defined under Section 2(f) of
Central Excise Act, 1944.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                             CA VISHAL BHATTAD

     LET US HAVE A REVIEW
Section /Rule                                          General Contents
Union List Entry Duties of excise on tobacco and other goods manufactured or produced in India
No. 84                except alcoholic liquors for human consumption, opium, narcotics,
                      but including medical and toilet preparations containing alcohol, opium or narcotics.

Section 2A            Duty, Duty of excise, Duties of excise = CENVAT

Section 3             Charging Section- Excisable, Goods, Manufactured or Produced in India

Section 3(l)(a)       BED(CENVAT) - rates specified in First Schedule, on all excisable goods excluding
                      goods produced in SEZ but including goods produced in 100 % EOU
                                         Special provision for goods produced in 100% EOU & sold in DTA
                      ED= Aggregate of all custom duties Valuation as per Customs Act and CTA, 50% duty
                      exempt.
Section 3(l)(b)       Special duty of excise, in addition to the duty of excise on excisable goods specified in
                      the Second Schedule to the Central Excise Tariff Act, 1985

Section 3(1A)         Same provisions applicable for govt. as are for non- govt.

Section 3A         Compounded Levy Scheme based on Annual Production
Section 2(d)       means goods specified in the First Schedule and the Second Schedule to the Central
                   Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt.
Explanation to Sec Deemed Marketability in case of any article, material or substance which is capable of
2(d)               being bought and sold for a consideration.
Section 2(f)       manufacture” includes any process, -
                    (i) incidental or ancillary to the completion of a manufactured product.

                       (ii) which is specified in relation to any goods in the Section or Chapter notes of the
                      First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; or

                      (iii) which, in relation to the goods specified in the Third Schedule,
                             involves packing or repacking of such goods in a unit container or
                             labelling or re-labelling of containers including the declaration or alteration of
                              retail sale price on it or
                             adoption of any other treatment on the goods to render the product
                              marketable to the consumer,

                      and the word “manufacturer” shall be construed accordingly and
                          shall include not only a person who employs hired labour in the production or
                             manufacture of excisable goods,
                          but also any person who engages in their production or manufacture on his
                             own account.



LANDMARK DECISIONS
MARKETABILITY
      Vazir sultan             Words “in such manner as may be prescribed” appearing in section 3(1)
1.    tobacco co. Ltd.         qualify the word “collected” and not the word “levied” .thus levy is created
                               by section 3 itself and “collection” of duty is left to be regulated by the rules.
2.    DCM                      Something which can be brought to the market to be bought and sold i.e.
                               Movable and marketable
3.    DCM                      Actual sale is not necessary
4.    Ambalal sarabhai         Goods in question were having a very short self-life and there was no
                               evidence to prove that such goods were either marketed or were marketable
                               and hence not excisable.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                CA VISHAL BHATTAD
5. Triveni           Fixing of steam turbine in concrete platform, alternator and coupling and
   engineering &     aligning them in a specified manner to form a turbo alternator. The
                     marketability test requires that the goods as such should be in a position to
   indus. Ltd.       be taken to the market and sold and from the above findings it follows that to
                            take it to the market the turbo alternator has to be separated into its
                            components, turbine and the other alternator - but then it would not remain
                            turbo alternator, therefore, the test is incorrectly applied.
EXCISABLE GOODS
6.   Bhor industries        Mere mention in tariff is not enough
7.   Moti laminates         Goods mentioned in tariff dutiable only if marketable also. Intermediate goods
                            not liable to duty if not marketable.
8.   Wallace flour          Even if exempted still excisable. Exempted goods chargeable to duty if before
     mills ltd.             removal exemption is withdrawn
9.   Vazir sultan           Nil rate of duty is also a rate of duty.
     tobacco co. Ltd.

MANUFACTURE
10 DCM                      New and different article emerge having a distinctive name or use & character

11   Empire            Whether the goods is transformed to that degree where it have different
     industries ltd.   commercial commodity
                      Having its distinct character, use and name and
                      Commercially known different as such.
12   Brakes india ltd. If after processing, the product have a use of its own, which it did not bear
                       earlier, it would be manufacture
13   J.G.Glass         Printing on glass bottle does not amount to manufacture
14   Empire            Provisions of deemed manufacture constitutionally valid, may be covered by
     industries        item no.97

15   Kapari             Input and output covered by same tariff entry is immaterial
     international pvt.
16   Ltd.
     Technoweld         If input and output are covered by different headings, it does not amount to
     indus.             manufactures unless a new product emerges.

17   Khandelwal             Waste and scrap can be dutiable if marketable. Covered by word produced
     metal & engg.
     Works

Manufacturer
18  Ujgar prints ltd        Raw material supplier is not manufacturer (if no supervision& control)


19   Cibatul ltd.           Brand owner is not manufacturer




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                             CA VISHAL BHATTAD

                  CENTRAL EXCISE RULES, 2002


LATEST AMENDMENTS-2010
E- PAYMENT
Rule                  Prior to amendment                    Amendment made by Notification                  No.
                                                            04/2010-CE (NT) dated 19.02.2010
Third             An assessee was required to               An assessee shall deposit the excise duty
proviso   to      deposit      the   excise    duty         electronically through internet banking if he
rule 8(1)         electronically through internet           has paid the total duty of   Rs. 10 lakh
                  banking if he had paid the total
                  duty of Rs. 50 lakh or more               or more         (including the amount of duty
                  (including the amount of duty             paid by utilisation of CENVAT credit) in the
                  paid by utilisation of CENVAT             preceding financial year.
                  credit) in the preceding financial
                  year                                      Clarification : Thus limit of 50 lakhs
                                                            reduced to 10 lakh

                                                            Example: Previous year 2009-2010
                                                            Payment through PLA Rs 6 lakh
                                                            Credit utilized     Rs 5 lakh

                                                            Total payment of duty including the
                                                            amount of duty paid by utilisation of
                                                            CENVAT credit is Rs 11 lakh. Hence
                                                            all payment for current Financial 2010-11
                                                            is electronically




E- RETURN
Rule                  Prior to amendment                    Amendment    made    by   Notification          No.
                                                            04/2010-CE (NT) dated 19.02.2010

Third                 The facility of e-filing of returns   Electronic        filing         of         returns
proviso
rule 12(1)
           to         was earlier optional for the
                      assessees.
                                                            mandatory            for the assessee who
                                                            has paid total duty of Rs. 10 lakh or more
                                                            including the amount of duty paid by
                                                            utilization of CENVAT credit in the
                                                            preceding financial year.




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                            CA VISHAL BHATTAD
DUE DATE OF PAYMENT-SSI
Rule                  Prior                        to     Amendment made by the Notification                No.
                                                          5/2010-CE (NT) dated 27.02.2010
                      amendment
Rule 8(1)             Payment of duty in case             Payment of duty in case of SSI
                      of SSI
                                                          Period: Quarterly
                      Period: Monthly

                      Due date of payment
                                                          Due date of payment
                                                          E-payment- 6th of next Month following quarter
                      E-payment- 6th of next Month
                                                          Other-     5th of next Month following quarter
                      Other-     5th of next Month

                      In the case of goods removed        In the case of goods removed during the quarter
                                                          ended in March: by the 31st day of March.
                      during the month of March: by
                      the 31st day of March.
                                                          Comment: Above relaxation is available to a unit
                                                          whose aggregate value of clearances did not
                                                          exceed Rs. 400 lakh in the preceding financial
                                                          yearregardless of whether he
                                                          actually claims it or opts to pay
                                                          duty.
                                                          Further, the said relaxation is available to an
                                                          SST unit for the entire financial year even if it
                                                          crosses the limit of Rs. 400 lakh (aggregate value
                                                          of clearances) in the current financial year.



RETURN –SSI

Rule                  Prior                        to     Amendment made by the Notification                No.
                                                          5/2010-CE (NT) dated 27.02.2010
                      amendment
Rule 12(1)            Return in case of SSI               Return in case of SSI

                      Period: Quarterly                   Period: Quarterly

                      Due date of Return
                                                          Due date of Return
                      within 20 days after the close of   Within 10 days after the close of the
                      the quarter to which the return     quarter to which the return relates.
                      relates

                                                          Comment: Above relaxation is available to a unit
                                                          whose aggregate value of clearances did not
                                                          exceed Rs. 400 lakh in the preceding financial
                                                          yearregardless of whether he
                                                          actually claims it or opts to pay
                                                          duty.
                                                          Further, the said relaxation is available to an
                                                          SST unit for the entire financial year even if it
                                                          crosses the limit of Rs. 400 lakh (aggregate value
                                                          of clearances) in the current financial year.




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD
Pre-authentication of invoices dispensed with
 Rule                  Prior to amendment                                Amendment


 Rule 11(5)        each foil of the invoice had to be    The rule 11(5) has been omitted.
                   pre-authenticated by the assessee-
                   i.e. by owner, working partner,       Therefore, for the purpose of procedural
                   Managing Director or the Company      simplification,     pre-authentication of
                   Secretary or any person duly          invoices is not required now.
                   authorized for this purpose, before
                   being brought to use




LATEST AMENDMENTS-2009

Rule 24A of Central Excise Rules, 2002 – Return of
Records
The books of accounts or other documents, seized by the CEO, which have not been relied on for the
issue of SCN, shall be returned within 30 days of the issue of said SCN or within 30 days from the
date of expiry of the period for issue of said SCN

Provided that the CCE may order for the retention of such books of accounts or documents, for
reasons to be recorded in writing and the CEO shall intimate to the assessee about such retention.



LATEST BOARD CIRCULARS
Circular No. 267/55/2009
ISSUE 1: Whether credit of duty paid on returned final product can be taken on the basis of Self-
invoice issued at the time of initial removal of final product from the factory?

Clarification: yes, taking credit on basis of its own invoice is permissible in terms of Rule 16(1) of
Central Excise Rule, 2002




ISSUE 2: Under Excise duty is payable on goods on monthly basis . In case , where final product is
returned to the factory prior to actual payment of duty on it ( i.e. before expiry of due date 5th/ 6th of
next month), whether credit on such returned goods can still be taken in terms of Rule 16(1) of Central
Excise Rule, 2002

Clarification: yes, Rule 8(2) of Central Excise Rule, 2002 provides that “The duty of excise shall be
deemed to have been paid for the purposes of these rules on the excisable goods removed in the manner
provided under sub-rule (1) and the credit of such duty allowed, as provided by or under any rule.”
Thus duty has to be discharge by 5th / 6th of next month on such returned
Final product,but Under rule 16(1) credit is permissible as inputs




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                                   CA VISHAL BHATTAD
  Let us have review
 Rules Title                      Provisions of Central Excise Rules, 2002

 4       Duty payable on                    Manufacturer or person who store the goods in warehouse shall be liable for payment of duty is
                                             payable at the time of removal from factory or warehouse.
         removal                            But in case of molasses of khandasari sugar, procurer who is using the molasses for manufacture
                                             of final product shall be liable for payment of duty
                                            In exceptional circumstances (non availability of storage place) commissioner may allow the
                                             storage goods at other place without payment of duty.

 5       Date for                           If good cleared from factory- Date of removal from factory
                                            If good cleared from w arehouse- Date of removal from w arehouse.
         determination of duty              If goods capltively consumed- Date when it is put into used fot its intended purpose
         and tariff valuation               In case of molasses of khndsari sugar factory- Date when received in the factory of procurer


 6       Assessment of duty       Describe the procedure for removal of excisable goods on payment of duty under the"Self Removal
                                  Procedure" (May 2002)(Nov. 1999)(Nov 2003)(5 marks)
                                  Ans. Self Removal Procedure
                                  The assessment under Central Excis e is basic ally an invoice based self assessment i.e. an assessee has to
                                  himself assess his duty liability.
                                  The assessee has to submit monthly return in ER-1 along w ith 'self assessment memorandum'
                                  where assessee declares that
                                  (a)     partic ulars in ER-1 return are correctly stated
                                  (b)    value has been determined as per provis ions of Sec 4 or 4A of CEA.
                                  Presently , all goods other than cigarettes are covered under self -removal procedure. So as per above Rule it
                                  can be said that duty is paid by assessee on his own while clearing goods from the factory/warehouse. The
                                  assessee himself has to determine classific ation and valuation of goods & pay duly accordingly. The Excis e
                                  Officer doesn't assess each and every return. More trust is shown on the assessee.

 7       Provisional               Where the assessee is unable to determine the value of excisable goods or determine the rate of duty
                                   applicable thereto,
         assessment                  he m ay request the AC or DC, as the case may be, in writing giving reasons for payment of duty on
                                     provis ional basis and the AC or DC , as the case may be, may order allow ing payment of duty on
                                     provis ional basis at such rate or on such value as may be specif ied by him.
                                     BOND: Assessee has to execute the bond along with surety or security for differential amount.
                                     TIME LIMIT OF FINAL ASSESSMENT- As soon as information receiv ed but nor more than 6 months.
                                     Extension : Commissioner- further 6 months
                                                    Chief Commissioner- For such period as he deemed fit
                                     FINAL ASSESSMENT: If FAD>PAD= differential amount payable w ith interest 13 % p.a. from 1 st of month
                                                                          succeeding month in which final assessment is made.
                                                                If FAD<PAD= refund w ill be granted w ith interest 6% p.a.(subject unjust
                                                                          enrichment)
 8       Manner of payment        Due Dates:
                                  The duty on the goods removed from the factory or the warehouse during a month shall be paid by the 5th
                                  day of the following month:
                                    ASSESSEE                       PERIOD                     OTHER THAN E- PAYMENT E- PAYMENT
                                    OTHER THAN SSI                 MONTHLY                    5th of Next Month               6th of Next Month
                                    SSI                            QUTERLY                    5th of Next Month follow ing    5th of Next Month
                                                                                              quater                          follow ing quater
                                    Duty for the month of march is payable by 31st of march.
                                    Payment through PLA after utilizing Cenvat Credit
                                  Mandatory E-Payment: “Provided also that an assessee, who has paid DUTY (other than the amount of
                                  duty paid by utilization of Cenvat credit) of Rs 50 lacs or more, in current or the preceding financial year, shall
                                  thereafter, deposit the duty electronically through internet banking.”
                                  Consequences for Nonpayment of duty due dates:
                                   1) Interest
                                      If the assessee fails to pay the amount of duty by due date, he shall be liable to pay the outstanding
                                   amount along w ith interest at the rate 13% p.a.(calc ulated on day basis) for the period starting w ith the first
                                   day after due date till the date of actual payment of the outstanding amount.
                                   2) Forfeiture of Monthly Facility and non utilization of Cenvat Credit
                                      If the assessee defaults in payment of duty beyond 30 days from the due date,
                                           the assessee shall, pay excis e duty for each consignment at the time of removal,
                                           without utilizing the CENVAT credit till the date the assessee pays the outstanding amount
                                               including interest thereon; and
                                           in the event of any failure(to pay duty on each consignment), it shall be deemed that such goods
                                               have been cleared w ithout payment of duty and the consequences and penalties as provided in
                                               these rules shall follow .
                                 Note: During the period of restriction, Assessee can avail credit in respect of duty paid on inputs, Capital
                                  goods and Input servic e which can utilized later.
                              
 9       Registration             Registration is factory wise .

                                  PERSON REQUIRE TO TAKE REGISTRATION
                                      Every manufacturer of excis able goods (including Central/State Government undertakings or
                                       undertakings owned or controlled by autonomous corporations) on which excise duty is leviable
                                      Persons who desire to is sue CENVATABLE invoices under the provisions of the CCR-2004.
                                      Persons holding private warehouses.
                                      Persons who obtain excisable goods for availing end-use based exemption notific ation
                                      Exporters manufacturing or processing export goods by using duty paid inputs and intending to claim
                                       rebate of such duty or by using inputs received w ithout payment of duty and exporting the finished
                                       export goods.

                                  PERSON EXEMPTED FROM REGISTRATION
                                      Persons who manufacture the excisable goods, which are chargeable to nil rate of excise duty or are
                                       fully exempt from duty by a notific ation.
                                      Small scale units availing the slab exemption based on value of clearances under a notif ication.
                                      In respect of ready-made garments, the job-worker need not get registered if the principal manufacturer
                                       undertakes to dis charge the duty liability.
                                      Persons manufacturing excis able goods by follow ing the warehousing procedure under the Customs
                                       Act, 1962.
                                      The person who carries on wholesale trade or deals in excisable goods (except first and second stage
                                       dealer, as defined in Cenvat Credit Rules, 2001).
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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                                         CA VISHAL BHATTAD
                                          A Hundred per cent Export Oriented Undertaking or a unit in Free Trade Zone or Special Economic
                                           Zone licensed or appointed, as the case may be, under the provisions of the Customs Act,
                                           1962.BUT100% EOU obtain the registration if procure excisable goods from DTA or remove excisable
                                           goods to DTA.

 10       Daily stock account       Daily Stock Account (May 2006)(Nov. 1997)(4 Marks)
                                     Every assessee shall maintain proper records, on a daily basis , in a legible manner indicating the
                                        particulars regarding description of the goods produced or manufactured, opening balance, quantity
                                        produced or manufactured, inventory of goods, quantity removed, assessable value, the amount of duly
                                        payable and particulars regarding amount of duty actually paid.
                                     The first page and the last page of each such account book shall be duly authenticated by the producer
                                        or the manufacturer or his authorised agent.
                                     All such records shall be preserved for a period of five years immediately after the financial year to
                                        whic h such records pertain.

 11       Goods to be removed       1)     Excisable goods shall be removed from factory or warehouse under the cover of invoice signed by
                                           authorized person and in the case of cigarettes, each such invoice shall also be countersigned by the
          on invoice                       Inspector of Central Excise or the Superintendent of Central Excise before the cigarettes are removed
                                           from the factory.
                                    2)     Content of invoice: Central Excise registration number ,name of the consignee, description of goods,
                                           Classification of goods, time and date of removal, mode of transport and vehic le registration number,
                                           rate of duty, quantity and value of goods and the duty payable thereon, Address of Jurisdictional Central
                                           Excise Division.
                                    3)     Copies of Invoice -The invoice shall be prepared in triplicate in the following manner, namely:-
                                            the original copy being marked as ORIGINAL FOR BUYER.
                                            the duplicate copy being marked as DUPLICATE FOR T RANSPORT ER.
                                            the triplicate copy being marked as TRIPLICATE FOR ASSESSEE.
                                    4)     Only invoice book in use at time unless allow ed by AC/DC
                                    5)     Each foil of the invoice book, before being brought into use authenticated by Authorised person
                                    6)     Invoice shall be serially numbered & to be intimated to supt. Of Central Excise.
 12       Filing of return          Discuss separately

 12CC     Restrictions in case of   Notw ithstanding anything contained in these rules, where the Central Government, having regard to the
                                     extent of evasion of duty,
          evasion                    nature and type of offences or
                                     such other factors as may be relevant,
                                               is of the opinion that in order to prevent evasion of, and default in payment of, excis e duty, it is
                                               necessary in the public interest to provide for certain measures including restrictions on a
                                     manufacturer,
                                     first stage and second stage dealer or
                                     an exporter,
                                               may by a notific ation in the Official Gazette, specif y nature of restrictions including suspension of
                                               registration in case of a dealer, types of facilities to be w ithdrawn and procedure for issue of such
                                               order by an officer authorized by the Board.
 15       Special procedure for           Under compounded levy scheme duty is payable at fixed rate on the basis of the certain factors
                                               that are relevant for the production of goods such as scale of operation, capacity of the machines,
          payment of duty                      size of the machines etc.
          [Compounded levy                Central government had specified the goods through notif ication, upon which duty can be paid on
          Scheme]                              the basis of the Compounded Levy Scheme e.g. Stainless steel pattas/ patties – Rs.30,000 per
                                               cold rolling machine per month/         Aluminium circles –Rs.12,000 per cold rolling machine per
                                               month.
                                          It is an optional scheme
                                    {Thi s levy i s Similar to levy Under Sec 3A}

 16       Credit of duty on                                                    RETURN OF GOODS
                                     Where any goods on which duty had been paid at the time of removal thereof
          goods returned to the          are brought to any factory for being re-made, refined, re-conditioned or for any other reason,
          factory                        the assessee shall state the particulars of such receipt in his records and
                                         shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs
                                             under the CCR- 2004 and utilise this credit according to the said rules.
                                                                            RE-REMOVAL OF GOODS
                                                      If the process to whic h the goods are subjected before being removed



                                             Does not amount to manufacture                                          amount to manufacture


                                             the manufacturer shall pay an amount equal                    manufacturer shall pay duty on goods
                                             to the CENVAT credit taken                                    receiv ed at the rate applicable on the date
                                                                                                           of removal and on the value determined
                                                                                                           under sec 4/4A/3(2)

                                         If there is any diffic ulty in f ollow ing the above provis ions ,the assessee may receiv e the goods for being re-
                                         made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to
                                         such conditions as m ay be specified by the Commissioner.
 16A      Removal of goods for      Any inputs received in a factory may be removed as such or after being partially processed to a job worker
                                    for further processing, testing, repair, re-conditioning or any other purpose subject to the fulfilment of
          job work, etc.            conditions specified in this behalf by the Commissioner of Central Excise having jurisdic tion.

 16B      Special procedure for     The Commissioner of Central Excise may by special order and subject to conditions as may be specif ied by
                                    the Commissioner of Central Excise, permit a manufacturer to remove excisable goods whic h are in the
          removal of semi-          nature of semi-finished goods, for carrying out certain manufacturing processes, to some other premises
          finished goods for        and to bring back such goods to his factory, without payment of duty, or to some other registered premises
          certain purposes          and allow these goods to be removed on payment of duty or without payment of duty for export from such
                                    other regis tered premises.




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                                   CA VISHAL BHATTAD
    16C      Special procedure for    The Commissioner of Central Excise may, by special order and subject to such conditions as may be
                                      specif ied by the Commissioner of Central Excise, permit a manufacturer to remove excisable goods
             removal of excisable     manufactured in his factory for carrying out tests to some other premises and to bring back such goods to his
             goods for carrying out   factory, without payment of duty, or to some other registered premises and allow these goods to be removed
             tests                    on payment of duty, or without payment of duty for export from such other registered premises :
                                      Provided that this rule shall not apply to the goods known as “prototypes” whic h are sent out for trial or
                                      development test.

    17       Removal of goods by      Discuss separately
             100% EOU TO DTA
    18       Rebate of duty           Where any goods are exported, the Central Government may, by notification, grant rebate of
                                           duty paid on such excisable goods or
                                           duty paid on materials used in the manufacture or processing of such goods and
                                           the rebate shall be subject to such conditions or limitations, if any, and fulf illment of such
                                              procedure, as may be specif ied in the notific ation.

                                      Explanation. - “Export” includes goods shipped as provis ion or stores for use on board a ship proceeding to a
                                      foreign port or supplied to a foreign going aircraft.

    19       Export without           (1) Any excisable goods may be exported w ithout payment of duty from a factory of the producer or the
                                      manufacturer or the warehouse or any other premises, as may be approved by the Commissioner.
             payment of duty
                                      (2) Any material may be removed w ithout payment of duty from a factory of the producer or the manufacturer
                                      or the warehouse or any other premises, for use in the manufacture or processing of goods whic h are
                                      exported, as may be approved by the Commissioner.



    21       Remission of duty        Discuss separately

    22       Access to a registered      (1) An offic er empow ered by the Commissioner in this behalf shall have access to any premises
                                             registered under these rules for the purpose of carrying out any scrutiny, verific ation and checks as
             premises                        may be necessary to safeguard the interest of revenue.
                                         (2) Every assessee, and first stage and second stage dealer shall furnis h to the Authorised offic er a list
                                             in duplicate, of -
                                                   (I)   all the records prepared and maintained for accounting of transaction in regard to
                                                         receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs
                                                         and capital goods, as the case may be;
                                                   (II)  all the records prepared and maintained for accounting of transaction in regard to
                                                         payment for input servic es and their receipt or procurement; and
                                                   (III) all the financial records and statements including trial balance or its equiv alent.
                                         (3) Every assessee, and first stage and second stage dealer shall, on demand make available to the
                                             officer empow ered or the audit party deputed by the Commissioner or the Comptroller and Auditor
                                             General of India,
                                                           A) the records maintained or prepared by him.
                                                           B) the cost audit reports, if any, under section 233B of the Companies Act, 1956 and
                                                           C) the Income-tax audit report, if any, under section 44AB of the Income-tax Act,
                                                                 1961
                                             for the scrutiny of the offic er or audit party, as the case may be.

                                      Explanation - For the purposes of this rule, “first stage dealer” and “second stage dealer” shall have the
                                      meanings assigned to them in CENVAT Credit Rules, 2004.

    25       Confiscation and
             penalty

    26       Penalty for certain
             offences                                                      Discuss separately under civil proceeding

    27       General penalty


Rule 21 Remission of duty [NOV-07]
  Where it is shown to the satisfaction of the Commissioner that goods have been
   lost or destroyed by natural causes or by unavoidable accident or
   are claimed by the manufacturer as unfit for consumption or for marketing,
  at any time before removal, he may remit the duty payable on such goods, subject to such conditions as may be imposed by him
  by order in writing:

         Central Excise Officer                              Amount of duty empowered to be remitted
         Commissioner                                        Without limit,but normally any amount exceeding Rs. 500000
         Additional/Joint ommissioner                        Rs. 100000 to Rs. 500000
         Deputy/Assistant Commissioner                       Rs. 10000 to Rs. 100000
         Superintendent                                      Below Rs. 10000
         Inspector                                           none




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                    CA VISHAL BHATTAD

Hindustan Zinc Limited 2009 (H.C.)
Bharat Zinc Ltd. (BZ Ltd.) was engaged in the manufacture of lead and zinc concentrates. At
the time of carrying out the physical stock taking, some difference was found between the
physically verified stock and the stock as per the books. According to BZ Ltd., this difference
was due to de-bagging, shifting of concentrates, seepage of rain water and storage and loading
on trucks. BZ Ltd. applied for the remission of duty under rule 21 of the Central Excise Rules,
2002. Revenue claimed that the shortage could have been avoided or minimized by the
assessee, as they were neither due to natural causes, nor due to unavoidable accident. Thus,
the prayer for remission was declined.
You are required to examine the veracity of the Revenue‟s claim with the help of a decided
case law.                                                                             (R.T.P.)

No, Revenue‟s claim is not valid in law.
The facts of the given case are similar to the case of UOI v. Hindustan Zinc Limited 2009 wherein
the High Court has held that the expressions “natural causes” and “unavoidable accident” are
required to be given, reasonable and liberal meaning.
The Court has observed that if the contention of Revenue is accepted, no loss or destruction
would fall under these two categories as in either case, grounds may be projected, on the anvil of
requirement of appropriate storage, or safety measures, and so on and so forth.
 Even in cases of “unavoidable accident”, it could always be contended that the accident could
have been avoided by taking recourse of one or more measures. Thus, a bit liberal rather more
practical approach is required to be taken in the matter.
The High Court further elaborated that the aspect of satisfaction under rule 21 is essentially a
subjective satisfaction of authority concerned and in the instant case; the Tribunal had
independently recorded its satisfaction about the loss, or destruction having been sustained by
the assessee under the circumstances as covered by rule 21.

Therefore, Remission should be granted by department.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                              CA VISHAL BHATTAD

 Returns under Central Excise Rules,2002 for removal
 of goods.[MAY-00,06]
 Rule          Assessee      Period     Form    Due date         Contents[NOV-04, NOV-05]
                                                   th
 12(1)      Assessee         Monthly    ER-1    10     of the     (A)   Period
                             Return             following         (B)   Assessee's Name
  Rulee                                                           (C)   Registration No.
                                                month
                                                                  (D)   Quantity Manufactured
                                                                  (E)   Quantity Cleared
                                                                  (F)   Duty Payable
                                                                  (G)   Duty paid through Cenvat Credit
                                                                  (H)   Duty paid through PLA
                                                                  (I)   Details of each type of Cenvat Credit availed
                                                                  (J)   Interest paid
                                                                  (K)   Arrears paid
                                                                  (L)   Self Assessment memorandum
 12(1)      SSIs          Quarterly     ER-3    20 th of the Same as above
                          Return                month
 17(3)      100 % EOU for Monthly       ER-2    10 th of
                                                following the Details regarding inputs and capital goods received w ithout payment of
            removals made Return                quarter
                                                following     duty
                                                              • Central Excise Tariff Sub-heading
            in DTA                              month         • Customs Tariff Sub-heading
                                                                 • Quantity Code
                                                                 • Total Quantity
                                                                 • Value of the Goods
                                                                 (Other details as same in ER - 1)
 Returns under Cenvat Credit Rules,2004
 9(2)      All      assessee Monthly    ER-6 10 th   of  the (A) Manufacturer's Name
           (submission     of                following month (B) Registration No.
           information    on                                 (C) Month to which the Return relates
           Principal Inputs)                                 (D) Details of receipt and consumption of principal inputs and
                                                                 finished excisable goods.
                                                             (E) Details of waste and scrap arising during manufacture
                                                             (F) Details of quantity of waste and scrap cleared / destroyed.
 Annual statements
 12(2)  All assessee         Annual      ER-4 30 th              (A)    Assessee's Name
 CER    (who have paid       Financial        November     of    (B)    Registration No.
        Excise duty of       Information      the succeeding     (C)    Value of Inputs
        Rs 1 Crore or        Statement        year               (D)    Details of major Raw material independently accounting
        more)                                                           for 10% or more of total value of raw material.
                                                                 (E)    Details of expenditure under specified Heads
                                                                 (F)    Goods manufactured by assessee through Job Worker
                                                                 (G)    Details of sales of major Finished Goods independently
                                                                        accounting for 10% or more of total Value of Finished
                                                                        Goods
                                                                 (H)    Details of other income
                                                                 (I)    Job work undertaken for others
                                                                 (J)    CENVAT Credit details.
 9A(1)      All assessee     Annual       ER-5 30 April of the   (A) Manufacturer's Name
 CCR        (who have paid   Information       succeeding year   (B) Registration No.
            Excise duty of   on principal                        (C) Description of Principal inputs
            Rs. 1 Crore or   inputs                              (D) Description of Final product in which the principal input is
            more)                                                    used
                                                                 (E) Quantity of principal input required for use in the manufacture
                                                                     of unit quantity of manufacture of Final product.
 Annual installed capacity statement [INSE RTED BY FINANCE ACT 2008]
                                          th
 12 (2A) Every assessee Annual    ER-7 30 April of the declaring the annual production capacity of the factory for the
 CCR        shall submit to Installed          succeeding
                                                                 F/Y to which the statement relates
            the             Capacity           F/Y.
            Superintendent Statement




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                   CA VISHAL BHATTAD

                              SPECIAL PROVISIONS FOR 100 % EOU

SEC 3 OF CEN TRAL EXCISE ACT, 1944 (Proviso)
    Provided that the duties of excise which shall be levied and collected
          on any excisable goods which are produced or manufactured, by a hundred per cent export-oriented
           undertaking and brought to any other place in India,
          shall be an amount equal to the aggregate of the duties of customs which would be leviable under the
           Customs Act, 1962 on like goods produced or manufactured outside India if imported into India.

    Exemption (Inserted by F.A. 2008)
        Goods manufactured or produced by a 100% EOU/STP/EHTP and sold in Domestic Tariff Area
        are exempt from 50% of Basic Custom Duty.

RULE 17 OF CENTRAL EXCISE RULES, 2002
(1) If any goods are removed from 100% EOU to domestic tariff area,
           then such removal shall be made under an invoice by following procedure of rule 11 and
          on payment of appropriate duty before removal of goods by debiting the account current required
           to be maintained for this purpose or by utilizing the CENVAT credit.
          (Inserted by F.A. 2008) on payment of appropriate duty before removal of goods by debiting the
           account current or utilizing the CENVAT credit in the manner specified in Rule 8 .(Monthly facility
           made available to 100% EOU )
(2) RECORD OF AC-1
        The unit shall maintain in proper form [form: AC-1] appropriate account relating to production,
    description of goods, quantity removed, duty paid.

(3) RETURN OF EOU – MONTHLY RETURN
       The unit shall submit a monthly return [form: ER-2] to the SCE, within 10 days of following month.

(4) SCRUTINY OF RETURN OF EOU [INSERTED IN YEAR 2008]
     the proper officer may on the basis of information contained in the return filed by 100% EOU, and after such
     further inquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee
     on the goods removed, in the manner prescribed by the board.
(5) Every assessee shall available to the proper officer all the documents and records for verification as and
     when required by such officer.

RULE 3(7) OF CEN VAT CREDI T RULES, 2004 (IMP)

 INPUTS & CAPITAL GOODS CLEARED BEFORE 7th SEP 2009
 If Inputs capital goods manufactured by 100% EOU, EHTP/S TP and such goods purchased by Manufacturer or OSP for
 manufacturing the goods or for providing Output service then amount of credit available to Manufacturer or OSP is as follows

 Cenvat Credit = Assessable value x { 1 + BCD } X {CV D}
                                           200      100

 INPUTS & CAPITAL GOODS CLEARED ON OR AFTER 7th SEP
 2009 ( Following proviso inserted by N/N 22/2009- dated 7th Sep
 2009)

Provided further that the CENVAT credit in respect of inputs and capital goods cleared on
or after the 7th September, 2009 from an export-oriented undertaking or by a unit in Electronic
Hardware Technology Park or in a Software Technology Park, as the case may be, on which such
undertaking or unit has paid -

(A)     excise duty leviable under section 3 of the Excise Act read with the notification no. 23/2003-
Central Excise, dated 31st March, 2003 and

(B)     the Education Cess leviable under section 91 read with section 93 of the Finance Act, 2004 and
the Secondary and Higher Education Cess leviable under section 136 read with section 138 of the
Finance Act, 2007, on the excise duty referred to in (A),


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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                        CA VISHAL BHATTAD



Shall be aggregate of
(I)    that portion of excise duty referred to in (A), as is equivalent to -

(i)    the additional duty leviable under section 3(1) of the Customs Tariff Act(CVD), which is equal to
       the duty of excise under clause (a) of sub-section (1) of section 3 of the Excise Act.

(ii)   the additional duty leviable section 3(5) of the Customs Tariff Act and

(II)   the Education Cess and the Secondary and Higher Education Cess referred to in (B)”.




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                     CA VISHAL BHATTAD

                                            BOARD CIRCULARS


Write a short note on Boards Powers to issue Instructions to Central Excise Officers. (May 03)
Ans: Section 37B of the Central Excise Act, 1944 empowers the Central Board of Excise and Customs to , issue orders,
    instructions and directions to the Central Excise officers for the purpose of uniformity in classification of the
    goods and such Central Excise officers and all other persons employed in the .execution of the Act, are bound by
    such orders, instructions and directions.
  However, no such orders, instructions and directions can be issued -
      a) to the Central Excise officer so as to make a particular assessment or to dispose of a particular cas e in a particular
         manner; or
      b) so as to interfere with the discretion of Commissioner (Appeals) in his appellate functions.

  Effect, and Binding Nature, of CBEC Circular

  Landmark Judgment in CCEx. v. Ratan Melting and Wire Industries
  [2008] 231 ELT 22 (SC – 5 judges Constitution Bench)
  It was observed that
       circular is binding on CEO but not on the court (Appellate authority). Circular represents merely the government
          understanding of Statutory provisions. It is for The court to. Declare what the particular provisions says.

       Circular taking A stand contrary to decision of SC has no existence in law. Thus in case Stand taken in circular
        is contrary to new taken by SC, then CEO is not bound by circular. In that case, CEO is entitled to File appeal
        taking ground contrary to circular.

       Judgment of courts finding over all authorities & not the circulars.

 ANALYSIS

         Whether Circular Binding on the Assessee ?           NO
         Whether Circular Binding on Appellate tribunal or theNO
         courts ?
         Circular Contrary to provision of the Act            Void ab-initio
         Whether Circular binding on all authorities of       YES
         Revenue?                                              But Stand taken in circular is contrary to new
                                                               taken by SC, then CEO is not bound by circular. In
                                                               that case, CEO is entitled to File appeal taking
                                                               ground contrary to circular.

         Whether Circular Whittle down the scope of an        NO.
         Exemption Notification.                              SANDUR MICRO CIRCUITS LTD.{2008}
                                                              It was held that “ by issuing a circular a new
                                                              condition restricting the scope of the exemption
                                                              notification cannot be imposed. Such circular
                                                              imposing new condition is invalid as it runs
                                                              counter to the exemption notification issued by
                                                              C.G.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                           CA VISHAL BHATTAD

 EXCISE AUDIT


            SEC 14A(VALUATION AUDIT)                                  SEC14AA(CENVAT AUDIT)
                                                        (1) It is Special Audit in relation to Availment
  (1) It is Special Audit in relation to Valuation of Goods
                                                        and utilization of Cenvat credit.
  (2) It is conducted when value of excisable goods has (2) It is conducted when availed or utilize by
  not been correctly declared or determined by manufacturer
  manufacturer.                                         (a) is not within the normal limits having regard
                                                        to the nature of the excisable goods produced or
                                                        manufactured, the type of inputs used and other
                                                        relevant factors, as he may deem appropriate;
                                                        (b) has been availed of or utilised by reason of
                                                        fraud, collusion or any wilful mis-statement or
                                                        suppression of facts,
  (3) Special Audit Under this section ordered by AC or       (3) Special Audit Under this section ordered
  DC                                                          Commissioner of Central Excise.
  (4) Previous approval of the Chief Commissioner of          (4) No such approval is required.
  Central Excise is required.
  (5) The Chartered Accountant/Cost Accountant is             (5) The Chartered Accountant/Cost Accountant is
  nominated by Chief Commissioner of Central Excise.          nominated by Commissioner of Central Excise.

  (6) The Chartered Accountant                                (6) The Chartered Accountant
  /Cost Accountant shall submit the report within             /Cost Accountant shall submit the report within
  maximum period of 180 days.                                 the time as specified by Commissioner of Central
                                                              Excise

LATEST AMENDMENTS
F. A. 2009
     Section 14A and Section 14AA of the Central Excise Act, 1944
        Valuation Audit and Cenvat Credit Audit can now be done by a Chartered Accountant also.




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD

                                 EXCISE VALUATION


LATEST AMENDMENTS
Circular No. 902/22/2009-CX dated 20.10.2009
Assessable value in respect of goods manufactured on job-work basis to be
determined as per rule 10A

Issue: Some manufacturers of Motor Vehicles were getting complete Motor Vehicles manufactured
by sending the Chassis of the Motor Vehicles to independent body builders for building the body as per
the design/specification of the manufacturer.
Following practice was being followed:-
Chassis was transferred to the body builder on payment of appropriate excise duty on stock transfer
basis and was not sold to them. The body builder availed the CENVAT credit of the duty paid on the
chassis and cleared the same on payment of duty to the Depot/Sales Office/Distributor of the Mo tor
Vehicle (MV) manufacturer. The duty was discharged by the body builder on the assessable value
comprising the value of Chassis and the job charges i.e. cost construction method. The
Depot/Sales office of the MV manufacturer sold the vehicles at a highe r price than the price on which
duty had been paid.

Clarification:          It is clarified that:-
1. Wherever goods are manufactured on job work basis, their value would be determined in terms of the
provisions of rule 10A subject to fulfillment of the requirements of the said rule.
2. Rule 10A(ii) stipulates that the assessable value, in the cases where the job -worker transfers the
excisable goods to the Depot/Sale office/Distributor and/or any other sale point of the principal
manufacturer, shall be the transaction value on which goods are sold by the principal manufacturer from
such a place.
3. Accordingly, after the insertion of rule 10A, the practice of discharging the duty on cost construction
method by the body builder is not legally correct.

Circular No. 915/05/2010-CX dated 19.02.2010
Valuation of free samples of the product assessed on the basis of MRP

Circular No. 813/10/2005-CX dated 25.4.2005 clarifies that in the case of free samples, the value should
be determined under rule 4.
The CBEC has now clarified in respect of the free samples of the products covered under MRP based
assessment that the valuation of these samples shall also be done under rule 4 of the valuation rules by
taking into consideration the deemed value under section 4A(1) notwithstanding the non availability of
normal price under section 4(1)(a) of the Act.
Accordingly, the value for excise duty would be determined under section 4A for the similar goods
(subject to adjustment for size, pack etc.).




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD
NEW CASE LAWS
  YEAR 2009
 PEPSICO                   INDIA              HOLDINGS                      (P)           LTD.-
 2009(SC)
 M/s. Pepsico India Holdings Pvt. Ltd. manufacture a syrup which is a mixture of soft drink
 concentrate and sugar. The syrup in question is packed in Bag in Box (BIB) containing 20 litres
 per BIB and is dispensed to consumers after dilution and carbonation by retailers through
 dispensing machines. The assessee sell the syrup to their marketing subsidiary M/s. Pepsi
 Cola India Marketing Company and the marketing subsidiary sells to retailers. Part of the
 syrup produced is also sold ex-factory to two independent distributers M/s. Sheena Agencies,
 Kalyan (West) and Thirst Quenchers Karjat.
 M/s. Pepsi Cola India Marketing Company, the marketing subsidiary used to lease out
 dispensing machines to retailer. The dispensing machine was used for dilution & carbonation
 of the syrup for sale of soft drink to consumers.
  The Central Excise authorities have held that the assessable value should be fixed at the sale
 price of the marketing subsidiary of the manufacturing company, that too without allowing
 the deduction of discounts allowed by the marketing subsidiary to their buyers.
 The second element is that Rs. 30/- per received by the marketing subsidiary from the retailers
 towards rental on the dispensing machines leased out by the subsidiary should also form part
 of the assessable value of the syrup, because dispensing machine is essential for the sale of
 the goods .


 ISSUE:
 1. Whether the deduction of discount given to related person & others is available
 or not?
 2. Whether rental on the dispensing machines leased out by the related person
 is includible?

 DECISION:
 It is well settled that all discounts by whatever name they are called are eligible for deduction
 from the gross price for the purpose of assessment of the goods, provided the discounts are
 known in advance and are not returnable.
  Uniformity is not a criterion at all. In the present case no contention has been raised that these
 discounts were not actually given or that they were returnable. In fact, the discounts were given
 in the invoices at the time of sales themselves. Therefore, the denial of the discounts
 was clearly against settled law.
 Sale of syrup and leasing of dispensing machine are two separate activities. Considerations for
 them are also separate. There is no warrant in law for the inclusion of the consideration for
 different activity in the assessable value of excisable goods, definition of „transaction value‟ in
 the new section notwithstanding. It is clear from a perusal of that definition that what is included
 is any additional amount charged as price, by reason of or in connection with the sale of the
 goods under assessment, and not amounts charged in connection with or by reason of sale of
 other goods or provision of other services.
                        Ownership of the vending machine vested in the marketing company. The
 machine charges were payable to the marketing company and not to the holding company. In
 the circumstances, the said charges were not includable in the assessable value




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                          CA VISHAL BHATTAD
SUPREME PETROCHEM LTD.-2009 (Tri)
Assessee deducted loading and handling expenses from the value
of goods incurred within the factory. As assessee contends that in
accordance with Rule 5 of valuation rules, 2000 cost of                Expenses of loading of
transportation not includible in assessable value. And cost of         excisable goods within
loading of the goods, is incidental to the transportation so cost of   the       factory        for
loading is construed as cost of transportation. Assessee also invited  clearance to a buyer
attention to the terms, “sale” and “purchase”, defined under           are     liable     to     be
Section 2(h) of the Central Excise Act, and submitted that the sale of included        in       the
the goods by the assessee to the buyer was complete with the           assessable value of the
transfer of possession The buyer acquired possession of the goods      goods.
at the loading point within the factory so It was not correct to say
that the goods were sold at the factory gate
Department contends that, loading and handling expenses incurred within the factory are includible in
the value of goods.
Issue: whether the expenses of loading of goods within the factory for
clearance to a buyer are includable in the assessable value of the goods
Decision: “any amount that the buyer is liable to pay to, or on behalf of, the assessee by reason of, or
in connection with, the sale” is an “amount charged by the assessee”. If the outward handling charges
(which include loading charges within the factory) satisfy this parameter, they shall form part of the
assessable value of the goods. Loading expenses incurred within the factory not be treated as cost of
transportation within the meaning of Rule 5, as cost of transportation implies from place of removal to
place of delivery.
So as held by the Hon‟ble Supreme Court the expenses of loading of excisable goods within the factory
for clearance to a buyer are liable to be included in the assessable value of the goods.


ACCURATE METERS LTD. 2009 (SC)
Assessee is engaged in the manufacture of „electric meters‟ and parts
thereof and Its customers are various State Electricity Boards. The
value of the electric meters was to be fixed as at the factory gate.     ‘freight’ and ‘insurance
Freight and the insurance charges, however, as stipulated therein,       charges’ does not
were to be charged on an “average basis” and not on actuals.             constitute the value of the
However, goods were actually delivered to the purchasers at their        goods for the purpose of
premises                                                                 computation of Excise
Department issued show cause notice to the assessee referring Rule       Duty
5 of Valuation Rules, 2000 and asking as to why excise duty not paid
on freight and insurance charges.

Issue: Whether ‘freight’ and ‘insurance charges’ constitute the value of
the goods for the purpose of computation of Excise Duty
Decision: As per sec. 4(1)(b) if any of the conditions of sec 4(1)(a) is not satisfied then only
valuation shall be done in accordance with valuation Rules. i.e. Rule 5 is not applicable if goods
are sold for delivery at factory gate.
In the given case two separate contracts have been entered into by and between the assessee and
State Electricity Boards, one in respect of the supply of the electric meters and another for
transportation and transit insurance thereof and the value of the electric meters was to be fixed as
at the factory gate. Again meters are inspected by Board prior to transportation at factory gate.
Contract of sale is completed at factory gate.
Also under Sales of Goods Act. Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a carrier, for the purpose of
transmission to the buyer, or delivery of the goods to wharfing, is prima facie deemed to be a
delivery of the goods to the buyer.
As all conditions of sec 4(1)(a) are satisfied so Transaction value of Goods is accepted for valuation
and value of insurance & freight charges on “average basis” in accordance with Rule 5 cannot
considered for determining value of Electric meters.

NOTE: This case pertain to facts before march 2003.Earlier(before march 2003) deduction of
cost of transportation was not available on Avg freight basis, but after march 2003, Rule 5
amended & deduction of cost of transportation is available on Avg freight basis.


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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD


GUJARAT GOLDCOIN CERAMICS LTD. 2009
(Tri)
Gujarat Goldcoin Ceramics Ltd. are manufacturer of Ceramic             In case of MRP based
Glazed Tiles, which are assessable to duty on MRP basis u/s 4A         valuation revenue has no
of the Central Excise Act, 1944.on finding ,department comes to        right to investigation the
know the fact that assessee had collected additional amount            amounts collected by the
from their dealers as insurance charges and shown the same as          manufacturers towards the
miscellaneous income.                                                  goods sold by them so it was
Department issued show cause notices in respect of four                held that demanding duty on
                                                                       transit insurance collected
financial years for additional amount collected from the dealers       from the dealers is not in
after allowing the abatement as per the notification u/s 4A.           accordance with law.

Issue: Whether additional insurance charges includible in
MRP value after allowing abatement?

Decision: The       very purpose of introduction of collection of excise duty on the basis of MRP
was to avoid litigation about includibility of various elements of value. The only grounds on
which the duty can be demanded by the Revenue in respect of goods which are chargeable to
excise duty on the basis of MRP is by showing that the goods were not sold at the MRP but sold at
the higher price or MRP has been manipulated etc.
In case of MRP based valuation revenue has no right to investigation the amounts collected by the
manufacturers towards the goods sold by them so it was held that demanding duty on transit
insurance collected from the dealers is not in accordance with law.


SOUTHERN STRUCTURALS LTD-2008
Assessee is engaged in the manufacture of railway wagons and
conveyor systems . Assessee had entered into a contract with the       Inspection charges
Southern Railways for manufacture and supply of wagons . The           paid by manufacturer
cost of each wagon worked out to Rs. 15,29,724/- .The Assessee         to any third party in
paid central excise duty @ 15% ad valorem and cleared 21               addition to normal
wagons to their customer till 16th July 1998. Assessee had also        inspection would be
collected a sum of Rs. 2,400/-per wagon as by way of inspection        includible in assessable
charges. This amount allegedly was not included in the                 value
assessable value.

Decision :Inspection charges paid by manufacturer to any third party in addition to normal inspection
would be includible in assessable value


PRAXAIR INDIA LTD.-2008                                                MTOP Minimum Take or
Assessee is engaged in the manufacture of oxygen and nitrogen    Pay] charges were not
gases. They had entered into an agreement with M/s. KFIL for additional consideration
supply of the said products through pipeline. As per the         for the goods actually sold
agreement, M/s. KFIL were under an obligation to purchase and hence not to be
from the assessee specified minimum quantities of the gases included in the assessable
every month. Even in the event of taking less than the specified value. It is in the nature
                                                                 of liquidated damages
minimum quantity, they were under an obligation to pay to the
assessee for the entire specified minimum quantity, referred to
as „MTOP‟ [Minimum Take or Pay] obligation. the MTOP charges were also included in the
assessable value and accordingly the original authority demanded differential duty of over Rs.
1.00 crore from the assessee.
Decision : MTOP charges paid by the buyer to the assessee on account of the former‟s failure
to take the minimum guaranteed quantity of the excisable goods [Oxygen, Nitrogen etc.] were not
additional consideration for the goods actually sold and hence not to be inclu ded in the assessable
value . Also, it had been held that the compensation paid by the buyer to the assessee at previously
agreed rate on account of the former‟s failure to lift the agreed quantity of excisable goods
[Nitrogen etc.] was in the nature of liquidated damages for breach of contract, not includible in the
assessable value of the goods.
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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                CA VISHAL BHATTAD
LET US HAVE A REVIEW
Section/rule                                               General content
Section 4(1)(a)       Value on each removal = Transaction value subject to following conditions
                           the goods are sold by the assessee,
                           for delivery at the time and place of the removal,
                           the assessee and the buyer of the goods are not related and
                           the price is the sole consideration for the sale,

Section 4(1)(b)       If goods not sold or any other condition of sec.4(1)(a) not satisfied, AV shall be determined
                      as per rules.
Section 2(h)          “sale” and “purchase”, with their grammatical variations and cognate expressions, mean
                      any transfer of the possession of goods by one person to another in the ordinary course of
                      trade or business for cash or deferred payment or other valuable consideration.
Section 4(3) (a)      “assessee” means the person who is liable to pay the duty of excise under this Act and
                      includes his agen
Section 4(3)(b)       persons shall be deemed to be “related” if -
                          (i) they are inter-connected undertakings( as per section 2(g) of MRTP Act, 1969)
                          (ii) they are relatives (as per section 6 of the companies act, 1956)
                          (iii) amongst them the buyer is
                                            i. a relative and a distributor of the assessee, or
                                           ii. a sub-distributor of such distributor; or
                      they are so associated that they have interest, directly or indirectly, in the business of each
                      other.
Section 4(3)(c)       Place of removal- Factory, warehouse or depot
Section 4(3)(cc)      Time of removal- in case of depot, value at the time when cleared from the factory
Section 4(3)(d)        “transaction value”
                      means        the price actually paid or payable for the goods, when sold, and

                      includes     in addition to the amount charged as price,
                                any amount that the buyer is liable to pay to, or on behalf of, the assessee,
                                by reason of, or in connection with the sale,
                                whether payable at the time of the sale or at any other time,
                                including, but not limited to, any amount charged for, or to make provision for,
                                advertising or publicity, marketing and selling organization expenses, storage,
                                 outward handling, servicing, warranty, commission or any other matter.

                      but does not include        the amount of duty of excise, sales tax and other taxes, if any,
                      actually paid or actually payable on such goods.

Explanation       to Total amount recovered from buyer & additional consideration shall be cum duty even if
Sec. 4(1)            excise duty was not charged from buyer

Section 4A                Required under      Value = RSP –Abatement as notified by C.G.
                           SW&MA         to    If more than one RSP on same package = take highest RSP
                           declare RSP on      If different RSP on different package = take individual RSP
                           the package.
                          notified by CG     Offence & punishment
                                              Goods covered under this section removed without declaring the
                                              retail sale price on the packages or where the MRP is tampered,
                                              altered or obliterated after their removal,
                                                   then all such goods will be liable to confiscation &
                                                   retail sale price of such goods shall be ascertained in the
                                                       prescribed manner(as per central excise (determination of
                                                       retail sale price of excisable goods) rules, 2008)
Section 3(2)          Tariff Value- AV fixed by central government , sec. 4 not applicable




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                               CA VISHAL BHATTAD

CHARGES   TO  BE  INCLUDIBLE                                     AND           EXCLUDIBLE                     FROM
TRANSACTION VALUE
Charges                                             Includible or Excludible from T.V.
All optional charges
E.g.
     warranty
     After        sale                             Includible in T.V.
      service
     Pre-inspection
      charges
Packing                 Includible in T.V.

Installation           and Includible in T.V. if resultant property is movable goods.
commissioning

Dharmada charges            Includible in T.V.

Parts and accessories       Includible in T.V. if bought out items is essential.
(bought out items)
Trade Discount              Deductible from T.V. If given before removal of goods



Interest                    Deductible from T.V.

Drawing & designing Includible in T.V.
charges




 Central Excise valuation (Determination of price of
 excisable goods) Rules 2000
        Cases where condition of section 4(1)(a) not         Applicable rule
        satisfied
   1.   When the goods are not sold by the assessee
        e.g. a) Good distributed as free sample
             b) Donation of good as free of cost                    Rule 4
             c) Goods supplied free under warranty
               replacement

             d) Captive consumption                                 Rule 8

             e) Goods are transferred to job work                  Rule 10A




   2.   When delivery is given at a place other than                 Rule 5
        place of removal

   3.   When buyer and seller are related person                      Rule 9 & 10


   4.   When price is not sole consideration for sale                 Rule 6




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                 CA VISHAL BHATTAD


    Central Excise valuation (Determination of price of excisable goods)
    Rules 2008
    Rules                                                    Provisions
    Rule 4       Value = Nearest T.V. +/- adjustment
    Rule 5       Value= T.V. – Cost of transportation from place of removal to place of delivery
    Rule 6       Value= T.V. + Money value of additional consideration flowing directly or indirectly from buyer
                                to seller
                                Explanation:
                                   add apportioned value of assistance by buyer free or at reduced cost
                                   Notional interest added if nexus between low price & advance proved.

    Rule 7       Depot/ branch/Consignment agent transfer (read with section 4(3)(c) & 4(3)(cc)
                 Value=NTV of the Depot/ branch/Consignment agent , at the time of removal from factory.

                 Note:
                 If value not available at depot at the time of removal from factory- take nearest NTV.
    Rule 8       Value= 110% of cost of production (as per CAS-4)
    Rule 9       Applicable to – related person other than ICU
                 Condition – all sales transaction ONLY through related person
                 Valuation as fallows

                 If related person sold to unrelated- Normal transaction value(NTV) at which sold to unrelated

                 If related person consume the goods- value as per rule 8

                 If related person sold to another related person – NTV of such related person to another related
                                                                     person who sales in retail.
    Rule 10      Applicable to – Inter Connected Undertaking (ICU) only
                 Condition – all sales transaction ONLY through ICU

                 ICU- also related under 4(3)(b)(ii)/(iii)/(iv)/H/S- Value as per Rule-9

                 Otherwise- non-related value u/s 4(l)(a) (i.e. Transaction value)

    Rule         Valuation in case of job worker
    10A          If goods are sold for delivery from job worker factory – price charged by Principle manufacturer
                 to its buyer

                  If goods are sold for delivery not from job worker factory but from other places- NTV at which
                 goods are sold from other places at the time of removal from job workers,s factory

    Rule 11      using reasonable means consistent with general provisions of these rules and sec 4(1)



IMPORTANT CASE LAWS (OLD)

   Bombay                  tyres whatever elements which enrich the value of the goods before their marketing
   international ltd.            and which are not included in price actually paid or payable are includible in
                                 the value of goods.
   MRF                           Fluctuations subsequent to removal can have no relevance
   BTI                           To become related person the distributor should also be relative

   Atic Industries               Mutuality of interest, degree of interest irrelevant, interest of financial nature
   Alembic Glass Industries Common directors do not mean that one company has an interest in the
   Ltd.                     business of the other company.
   Kisan Sahkari        Chinni In the absence of a definition of taxes in the CEA, expression "tax" to be given a
   Mills Ltd.                  broad meaning and it would cover any levy.



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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                         CA VISHAL BHATTAD


                                SSI EXEMPTION

LATEST AMENDMENTS-2009
Notification No. 8/2003 – CX, SSI
 Manufacturer shall not avail credit of duty paid on inputs used in the manufacture of the specified goods
   cleared for home consumption upto Rs. 150 lakh.
Provided that credit of inputs used in the manufacture of goods
  bearing the brand name of others shall be allowed.

100% CREDIT ON CAPITAL GOODS IN FIRST FINANCIAL YEAR FOR SSI
Rule                  Prior to amendment                Amendment made by the Notification No.
                                                        6/2010-CE (NT) dated 27.02.2010

Rule 4(2)(a)      CENVAT credit in respect of capital   Third proviso to rule 4(2)(a) has been
                  goods could be taken only for an      inserted which provides as follows:-
                  amount not exceeding 50% of the       An assessee eligible to avail SSI exemption
                  duty paid on such capital goods in    regardless of whether he actually claims it or
                  the year of receipt of such capital   opts to pay duty is allowed to take the
                  goods in the factory (in case of      CENVAT credit in respect of capital goods
                  both SSIs and non-SSIs)               for the   whole amount                  of the duty
                                                        paid on such capital goods in the           same
                                                        financial year.


NEW CASE LAWS
 UNISON ELECTRONICS PVT LTD-2009 (VV IMP)
 Assessee manufacture ice-cream makers cooler and Popcorn
 makers and avail of the benefit of SSI Exemption Notification
 and sell ice cream maker in their own brand name                   United Tele Shopping
 “CREMICA” and sell the same to different customers                 (in short UTS‟) and
 including United Tele Shopping (in short UTS‟) and Tele            Tele Shopping
 Shopping Network (in short „TSN‟) and that in respect of sale      Network (in short
 to UTS & TSN the goods were being examined by the                  „TSN‟) sicker on the
                                                                    package is the brand
 Supervisors of these customers before dispatch from their
                                                                    name of another
 factory and stickers bearing UTS/TSN were being affixed and
                                                                    person which makes
 these sticker bear the words “Checked Sl. No. Do not remove        them ineligible for
 this sticker”.                                                     the SSI exemption
 DEPARTMENT CONTENTION                                              notification.
 The words UTS and TSN as brand name belonging to other and has disallowed the benefit of
 small scale exemption notification. It was submitted that the words UTS and TSN are not brand
 names but are the abbreviations of the name of the marketing companies which does not amount
 to use of the brand name.

 DECISION:
 In fact it is apparent from the sticker that these goods have been specially packed for TSN/UTS.
 The use of words TSN/UTS clearly indicates a connection in the course of trade between the
 goods manufactured by the Assessee and TSN/UTS. Thus the use of these words on the
 packaging of their product clearly falls within the definition of brand name as given in the SSI
 Notification. We are, therefore, of the view that the appellants are using the brand name of another
 person which makes them ineligible for the SSI exemption notification.

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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                           CA VISHAL BHATTAD
SUPERIOR PRODUCTS-2008
M/s. Super Products is a partnership firm. This Partnership firm started producing pet bottles from
1997. M/s. Superior Pet Pvt. Ltd. started production of the same goods from the next year i.e. 1998. Both
the units were being managed by one of the common director. On this background deparment
contended that both the units to be of the same manufacturer & their turnover required to be clubbed for
determining SSI exemption.
 Department contention                         Assesee‟s representation
 clearance of both the units be not clubbed     both the manufacturing units are
 together as both the units had common
 Directors and that one person was looking          separate entities in law as well as in their operation.
 after the affairs of both the units                separate capital, separate accounts, separate
                                                       machinery, separate premises and separate work
 Second unit was created only to get the loan          force.
 and did not have even complete machinery
 in its premises to manufacture the final      There is no financial accommodation between the two,
 product.                                      leave alone flow of funds from one to another and each
                                               unit bears its loss or enjoys its profit.

Decision: capital, premises, machinery and labour. Both are carrying out separate operations. The
commonality of share holders and Partners and a common manager do not destroy the separateness of
the two units. That they are manufacturing the same product or that one unit purchases a material from
the other on commercial terms also do not go against their separate identity as manufacturers‟
consequent denial of exemption to the units is not sustainable.




LANDMARK DECISIONS (OLD)
BHALLA ENTERPRISES          Assessee will be debarred only if it uses on goods in question, the same/similar
                            brand name with intention of indicating a connection with the assessees' goods
                            and such other person or uses the name in such manner that it would indicate
                            such connection. If assessee is able to satisfy the assessing authorities that there
                            was no such intention it would be entitled to benefit of exemption.

ESBI Transmission(Cal)      If -purchased brand name, then the brand name is not of other person




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                     CA VISHAL BHATTAD
LET US HAVE A REVIEW
Also called                It is also called value based exemption or exemption under notification
                           8/2003

Applicability              This exemption notification is applicable to specified eligible goods only
                           (which is specified in the notification). Most of goods manufactured by SSI
                           are specified goods. However, some items are not eligible for e.g. Tobacco
                           products (except unbranded), Tea including tea bags and tea waste,
                           Extract and essence of tea or coffee, Pan Masala and etc.

Relevant factor for SSI    Investment in the business or no. of labours or registration as SSI industry
                           –irrelevant
                           Aggregate value of clearance(AVC) of preceding F.Y. - relevant
Eligibility                Eligibility of SSI exemption- AVC of preceding F.Y. does not exceeds 400
                           lacs

Clubbing                   While determining AVC
                           One Factory, Multiple Manufacturer : Value of Clearances shall be
                           aggregated
                           One Manufacturer, Multiple Factories : Value of Clearances shall be
                           aggregated

Exemption                  Exemption in current F.Y.- AVC upto 150 lakhs(no BED & SED)

If SSI exemption not Assessee have option Not to Avail 8/2003
availed                  Inform to AC/DC
                         pay duty at NRD &
                         Cenvat credit of Inputs & Capital goods
                     He should exercise the option before effecting any clearance but Once
                     exercised cannot Withdrawal during the year not possible

CENVAT CREDIT              Cenvat on INPUTS ( AVC upto 150 lakhs) --- not to be availed
If ssi exemption availed
                           Cenvat on CAPITAL GOODS --- allowed but not to be UTILIZED till AVC
                           exceeds
                           150 lakhs limit
Declaration                When AVC exceed 90 lacs

Registration               Within 30 days When AVC exceed 150 lacs

Due date for payment of Period- Quaterly
duty                    Due date- 5th or 6th of next month
Return                  Period- quaterly
                        Due date- 10th of next month
Clubbing in case of Department Clarification:
common directors or Where there are some common partners/directors in different partnership
partners                firms/corporate bodies, each will be regarded as a separate unit, provided
                        they are managed separately and funded separately.
                        A person who is a director in a company and also having his own sole
                        proprietorship firm clubbing of clearances of the company and firm is not
                        permissible.




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                       CA VISHAL BHATTAD



                          CENVAT CREDIT RULES, 2004

LATEST AMENDMENTS-2010
Rule 3(5) : CAPITAL GOODS REMOVED AFTER USE
Rule                   Prior to amendment                Amendment made by the Notification No.
                                                         6/2010-CE (NT) dated 27.02.2010

Second             If the capital goods, on which the    Second proviso to rule 3(5) has been
proviso   to       CENVAT credit has been taken, are     substituted with the new proviso which
Rule 3(5)          removed after being used, the         provides as follows:-
                   manufacturer/output         service   If the capital goods, on which the CENVAT
                   provider was required to pay an       credit has been taken, are removed after
                   amount equal to CENVAT credit         being    used,   the   manufacturer/output
                   taken on the said capital goods       service provider shall pay an amount equal
                   reduced by 2.5% for each quarter of   to the CENVAT credit taken on the said
                   the year or part thereof from the     capital goods reduced by the percentage
                   date for taking the CENVAT credit.    points calculated by straight line method as
                                                         specified below for each quarter of a year
                   Comment: This proviso was             or part thereof from the date of taking the
                                                         CENVAT credit, namely:-
                   applicable to all Capital Goods
                                                          S.No. Types        of % points calculated
                   including Computers & Computes
                                                                  Capital        by     straight  line
                   peripherals
                                                                  goods          method
                                                          1.      Computers      For each quarter 10%
                                                                  & Computes in 1 year
                                                                                     st

                                                                                 For each quarter 8%
                                                                  peripherals    in 2nd year
                                                                                   For each quarter     5%
                                                                                   in 3rd year
                                                                                   For each quarter     1%
                                                                                   in 4th & 5th year
                                                          2.     Other
                                                                 Capital           2.5%    for          each
                                                                 goods             quarter




Case study:         Solidmec Ltd. purchased 25 computer systems, eligible as capital goods under the
CENVAT Credit Rules, 2004, on 01.07.2008 paying a duty of Rs. 2,600 on each computer system.
However, since these systems became outdated, it sold 20 computer systems out of 25 on 30.06.2010 at a
residual value of Rs. 2,000 each. Determine the amount of CENVAT credit required to be reversed in the
financial year 2010-11.




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD
100% CREDIT ON CAPITAL GOODS IN FIRST FINANCIAL YEAR FOR
SSI
 Rule              Prior to amendment                    Amendment made by the Notification No.
                                                         6/2010-CE (NT) dated 27.02.2010

 Rule 4(2)(a)     CENVAT credit in respect of capital    Third proviso to rule 4(2)(a) has been
                  goods could be taken only for an       inserted which provides as follows:-
                  amount not exceeding 50% of the        An assessee eligible to avail SSI exemption
                  duty paid on such capital goods in     regardless of whether he actually claims it or
                  the year of receipt of such capital    opts to pay duty is allowed to take the
                  goods in the factory (in case of       CENVAT credit in respect of capital goods
                  both SSIs and non-SSIs)                for the   whole amount             of the duty
                                                         paid on such capital goods in the      same
                                                         financial year.

Removal of jigs, moulds, dies, fixtures and dies to another manufacturer
permitted without reversal of CENVAT credit

 Rule              Prior to amendment                    Amendment made by the Notification No.
                                                         6/2010-CE (NT) dated 27.02.2010

 Rule 4(5)(b)     The CENVAT credit, in respect of       Rule 4(5)(b) has been substituted with the
 Removal for      jigs, fixtures, moulds and dies sent   new clause which provides as follows:-
 Job work         by a manufacturer of final products    CENVAT credit is allowed, in respect of
                  to a job worker for the production     jigs, fixtures, moulds and dies sent by
                  of goods on his behalf according to    manufacturer of final products to:-
                  his specifications is allowed.         (a)   another     manufacturer    for  the
                                                         production of goods, or
                  Comment: Payment is not                (b) a job worker for the production of
                  required if such Capital Goods         goods on his behalf
                  not received within 180 days.          according to his specifications

                                                         Comment: Facility of nonpayment of
                                                         amount extended to vendor manufacturer.



RULE 15 Confiscation and penalty. (Inserted in year 2010)
(IMP)
 (1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services,
wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to
confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on
such goods or services, as the case may be, or two thousand rupees, whichever is greater.

(2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been
taken or utilised wrongly by reason of fraud, collusion or any wilful mis -statement or suppression of
facts, or contravention of any of the provisions of the Excise Act, or of the rules made there under with
intent to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the
provisions of section 11AC of the Excise Act.

(3) In a case, where the CENVAT credit in respect of input or capital goods or input services has been
taken or utilised wrongly by reason of fraud, collusion or any wilful mis-statement or suppression of
facts, or contravention of any of the provisions of these rules or of the Finance Act or of the rules made
there under with intent to evade payment of service tax, then, the provider of output service s hall also be
liable to pay penalty in78 of the Finance Act.

(4) Any order under sub-rule (1), sub-rule (2), sub-rule (3), shall be issued by Excise Officer following
the principles of natural justice.”.
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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                           CA VISHAL BHATTAD


AMENDMENTS-2009

1.  Explanation 2 to definition of ‘Inputs” under Rule 2(k) of
Cenvat Credit Rules, 2004
Inputs include goods used in the manufacture of capital goods which are further used in the factory of
the manufacturer but shall not include cement, angles, channels, Centrally twisted
Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items
used for construction of factory shed, building or laying of foundation or making of
structure for support of capital goods.

2.        Rule 3(5B) of Cenvat Credit Rules, 2004
The provisions of reversal of Cenvat credit in a case where inputs or capital goods, before being put to
use, are written off completely now apply mutatis mutandis       to a service provider also.
3.        Rule 6(3) of Cenvat Credit Rules, 2004
the manufacturer of goods or the provider of output service, opting not to maintain separate accounts,
shall follow either of the following options, as applicable to him, namely :-
(i)       the manufacturer of goods shall pay an amount equal to                     5%       of value of the
          exempted goods and
          the provider of output service shall pay an amount equal to                  6% of value of the
          exempted services.


  BOARD CIRCULARS

  Circular No. 907/27/2009-CX dated 07.12.2009
  Issue : treatment of the CENVAT credit taken on the inputs, which have gone into manufacture
  of work in progress (WIP), semi finished goods and finished goods, and have also been written off
  fully in the books of accounts.

  Clarification
  (i) In case, finished goods are written off in the books of accounts:-

  s.no.       Excise duty on the finished goods   Treatment
              under rule 21 of the Central
              Excise Rules, 2002 has
  1.          Not been remitted                   The manufacturer would be liable to pay excise duty. Thus, he
                                                  need not reverse the CENVAT credit taken on inputs.
  2.          been remitted                       the manufacturer would be required to either:-
                                                       reverse the credit on the inputs used,
                                                        or
                                                       pay the excise duty.

  In case, work in progress (WIP) is written off in the books of accounts and:-

  s.no.       Stage of completion of the          Treatment
              WIP goods
  1.          It   can be      considered   as    same treatment as applicable to finished goods in point (i)
              manufactured goods                  mentioned above
  2.          It cannot be considered       as    the said goods should be considered as inputs and the
              manufactured goods                  treatment for reversal of credit applicable to inputs would be
                                                  applicable.
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   AMENDMENTS & REVISION MATERIAL FOR NOV-10                                       CA VISHAL BHATTAD

Circular No. 122/03/2010 – ST dated 30.04.2010 (V. IMP)
Issue1: Whether CENVAT credit of the service tax paid can be claimed under rule 4(7) of
the CENVAT Credit Rules, 2004 when payments are made through debit/credit notes,
debit/credit entries in books of account or by any other mode as mentioned in
Explanation (c) to section 67 of the Finance Act, 1994 for transactions between associate
enterprises?

Clarification:        It is clarified that CENVAT credit is admissible in the said case. Rule 4(7) does not
indicate the form of payment and does not place any restriction on payment through debit in the books
of accounts. If the service charges as well as the service tax have been paid in any prescribed manner
which is entitled to be called „gross amount charged‟, credit will be allowed under said rule.

Issue2 :Whether CENVAT       credit of the service tax paid can be claimed where a service
receiver does notpay the full invoice value and the service tax indicated thereon due to
some reasons?

Clarification:       It is clarified that CENVAT credit of service tax can be availed where a service
receiver does not pay the full invoice value and the service tax indicated thereon due to reasons like
discount, unsatisfactory service etc. provided he has paid the amount of service tax (whether
proportionately reduced or the original amount) to the service provider. The credit taken would be
equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra
payment of service tax, the credit would have to be altered accordingly.



   IMPORTANT CASE LAWS

      YEAR 2010


    BANSAL ALLOYS & METALS LTD.-2010 (Tri)
    Assessee is engaged in the manufacture of Iron and Steel Ingots and availed Cenvat credit of
    service tax on inward transportation of inputs procured. Subsequently, assessee removed the
    inputs as such after reversal of Cenvat credit on input availed by them under Rule 3(5) of
    Cenvat Credit Rules, 2004. Department contended that assessee transportation service is
    related to Input removed as such, hence credit of service tax pertaining such inward
    transportation service required to reversed.



    Held: Rule 3(1) provides that the manufacturer shall be allowed to take credit of the duty
    paid on any input or capital goods and any input service.
    Rule 3(5) of the Rules provides that the manufacturer of final product, or provider of output
    service, as the case may be, at the time of removal of input or capital goods as such from the
    factory, shall pay an amount equal to the credit availed in respect of such input or capital goods.
     From the plain reading of Rule 3(5) it is clear that the manufacturer shall be required to
    pay an amount equal to the credit in respect of such input or capital goods .
     Rule 3(5) does not indicate for payment of equal amount in respect of credit of
    input service.

    So, reversal of Credit on input service in respect of Goods Transportation Agency
    service is not justified.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD


MARUTI SUZUKI LTD. 2009 (SC)
M/s. Maruti Suzuki Ltd. is engaged in the business of
manufacturing motor vehicle. Assessee has installed              Assessee would not be
three turbines in their factory for generation of                entitled to claim CENVAT
electricity. Assessee are using „naphtha‟ as fuel to run the     credit of naphtha used in
turbines and they are availing CENVAT Credit on                  generation      of    electricity
„naphtha‟ used for generation of electricity in turbines,        where it sells outside the
assessee cleared a part of electricity generated in the          factory to the joint ventures,
factory to its joint ventures, vendors etc. they are also the    vendors etc.
manufacturer of final product
Department deny CENVAT credit on the ground that part of the electricity stood cleared
outside the factory to its joint ventures, vendors etc.
Assessee contends that as per Rule 2(k) of Cenvat Credit Rules, “the goods must be used in or
in relation to the manufacture of final product”, and once the fuel stood admittedly used in
the factory for generation of electricity, it came within the definition of the word “input”.
Again Rule 6 was applicable to cases where the final product was either exempted or charged
to „nil‟ rate of duty and since electricity was not excisable commodity the said rule was not
applicable in the case of naphtha used in the generation of electricity or steam and, therefore,
assessee was entitled to avail full credit on naphtha.

Issue: Whether an assessee would be entitled to claim CENVAT credit in
cases where it sells electricity outside the factory to the joint ventures,
vendors etc.

Decision: the CENVAT scheme was not designed to grant windfall benefits by way of credit
to inputs not used ultimately in or in relation to manufacture of the final products but are used
in or in relation to the production of electricity which is not even excisable.
Intention of the Legislature (behind Rule 2(k) - Input) is that inputs falling in
the inclusive part must have nexus with the manufacture of the final product.
The test laid down by judicial authority is whether the „process and the use‟ are integrally
connected. when the electricity generation is a captive arrangement and the requirement is for
carrying out the manufacturing activity, the electricity generation also forms part of the
manufacturing activity and the “input” used in that electricity generation is an “input used in
the manufacture” of final product. However, to the extent the excess electricity is
cleared to the grid for distribution or to the joint ventures, vendors, and that
too for a price (sale) the “process and the use test” fails. In such a case, the
nexus between the process and the use gets disconnected.
Therefore, it was held that, to the extent of the clearance of excess electricity outside the factory
to the joint ventures, vendors, etc. which is cleared for a price, would not be admissible for
CENVAT credit as it would not fall within the definition of “input”




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                    CA VISHAL BHATTAD
COCA COLA INDIA PVT. LTD.- 2009 (H.C.)
Assessee, who are manufacturers of non-alcoholic
beverage-bases (i.e. cold drink‟s concentrate) which are
sold under different brand names and trade marks viz          Wordings used in the definition of
coca cola, thums up etc. Also these B/N & T/M are             Input     service   Rule 2(l)     are
licensed in favour of the Assessee by THE COCA-               “activities relating to business such
COLA COMPANY, USA. Advertisement and sales                    as” has very wider scope. It must
promotion activities including market research are            follow that all and any activity
                                                              relating to business falls within
undertaken by the assessee. Also some advertisements
                                                              the definition .The word „such as,
are restricted only to the brand names and assessee           also        illustrative   and    not
avail CENVAT credit on service tax paid on such               exhaustive. manufacturer can
advertisement.                                                avail of the credit of the services
Credit has been denied by the Department on the               tax paid on advertisement.
ground that the advertisements do not relate to „cold
drink‟s concentrates‟ manufactured by the assessee.
Instead, they are related with brand name and trade
mark of cold drink.

Issue: Whether services of advertising and marketing procured by the
assessee in respect of advertisements are covered by the definition
“input services” as defined in Rule 2(l) of the CENVAT Credit Rules,
2004.

Decision: In accordance with Rule 2(l), Advertisement is covered in inclusive part of
definition. Wordings used in the definition are “activities relating to business such as” has very
wider scope.
 The Rule making authority has not employed any qualifying words before the word „activities‟
like main activities or essential activities etc. Therefore, it must follow that all and any
activity relating to business falls within the definition again the words „relating to
business‟ further widens the scope of the expression activities.
Dictionary meanings of the term „such as‟ is “for example or a kind of ”. The words „such as,
therefore are illustrative and not exhaustive.
Having arrived at the conclusion on the meaning of the expression of input services thus the
manufacturer can avail of the credit of the services tax paid on advertisement.
So the contention of Department is not tenable in law.



Okasa Ltd. 2009 (HC) (IMP)                                          Plastic dropper packed with
Assessee was engaged in the manufacture of a                        the pediatric drops should
pharmaceutical product, viz. Rovamox Pediatric Drops.               be construed to be an input
assessee contended that the plastic droppers supplied along         used in or in relation to the
with the bottle containing the drops were inputs used in or         manufacture of the final
in relation to manufacture of the final product and hence,          product and eligible for
claimed CENVAT credit of the duty paid on the droppers.             credit

However, the Revenue argued that CENVAT credit was not admissible as these droppers were
kept separately in the cartons along with the sealed bottle of the pediatric drops and were
neither used in the manufacture of pediatric drop nor used in relation to its manufacture.
Briefly discuss whether the stand taken by the Department is correct or not with the help of a
decided case law.

Held: In the instant case, the High Court has observed that for the purpose of dispensation or
administration of the drugs in proper quantity as per the medical prescription, dropper has to be
supplied along with the bottle containing the drug. Further, since as per the directions given by
the Controller of Drugs for India, such droppers were mandatory for sale of the drug, they
would be considered as “packing material”.
Therefore, the High Court held that the plastic dropper packed with the pediatric drops should
be construed to be an input used in or in relation to the manufacture of the final product.

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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD

AMBUJA CEMENTS LTD.-2009 (HC)
M/s. Ambuja Cements Ltd. engaged in the business of
manufacturing and selling of cement which is a excisable           Assessee sale were ‘for
commodity. The assessee claimed that when it supplies              destination’     and      was
cement after payment of duty to its customers “FOR                 complete at door steps of
destination” it bears the freight in respect thereof up to the     the customer. Hence he
door steps of the customer that is the destination point. On       eligible for Cenvat credit on
such freight the assessee also bears the service tax.              outward transportation

Assessee after payment of service tax on freight (under reverse charge mechanism) take
Cenvat credit of such service tax (on outward transportation) in accordance with the Cenvat
Credit Rules, 2004.
Department disallowed the credit of service tax availed on outward transportation up to buyer
destination. He contended that only Cenvat credit only upto place of removal is admissible.

Issue: Whether credit of service tax paid on outward transportation
upto buyer destination is available or not?

Held: Board‟s circular which lay down the requirement of fulfilling three conditions for availing
Cenvat credit on outward transportation namely,
 a. the ownership of goods and the property of the goods remained with the seller of the goods
    till the delivery of goods in acceptable condition to the purchaser at his door step;
 b. the seller bore the risk of loss of or damage to the goods during transit to the destination; and
 c. the freight charges were an integral part of the price of goods.
In given case assessee sale were „for destination‟ and was complete at door steps of the customer.
Hence he eligible for Cenvat credit.


ALIDHARA TEXTOOL ENGINEERS PVT. LTD. – 2009
Assessee is a manufacturer of machinery which is
required to be erected, commissioned and installed at           assessee is entitle to availed
buyers premises. Assessee have selected the agency to do        Cenvat credit of service tax
this work. Assessee had availed Cenvat credit of service        paid by them on erection and
tax paid by them on erection and commissioning services         commissioning services which
                                                                received from outside agency.
received by them from outside agency.
Department denied the credit on the ground that manufacture was completed in the premises
of the manufacturer and duty has been discharged at the time of removal of the goods.
Therefore subsequent activities are only posts manufacture and post removal activities

Issue: Whether assessee is entitle to availed Cenvat credit of service tax
paid by them on erection and commissioning services which received
from outside agency.
Decision: Rule 2(l) of Cenvat Credit Rules does not require that service has to be rendered at
the factory of the manufacturer for the purpose of eligibility for service tax credit. It has to be
examined is whether the service provided is „in or in relation to manufacture‟.
Not only Responsibility for erection and commissioning is with the Assessee and the agency
which has done the work has been nominated by them, but also Transaction Value of
Machines includes erection & commissioning charges, i.e. the process in this
case is complete only after the erection and commissioning takes place
 so the process of erection and commissioning at the buyer‟s premises is incidental to the
manufacture of the machine and therefore the erection and commissioning services provided can
be said to be „in relation to the manufacture‟.
Even if we treat erection and commissioning activity as a separate service activity, it can not be
said that outside agency provided service directly to buyer as responsibility for erection and
commissioning is on the Assessee. In such case also assessee is eligible of Cenvat credit.
On the basis of above facts it was held that assessee is eligible for the Cenvat credit.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                          CA VISHAL BHATTAD
REPRO INDIA LTD- 2009 (H.C.)
The Assessee are engaged in the manufacture of Packaged software liable to duty at 8%
stationery books such as letter pads, etc.,liable to duty at 16% and printed books and other
products of printing industry falling under which are chargeable to nil rate of duty. The
printed books are entirely exported by the Assessee.

Assessee have taken Cenvat credit of the duty paid on the inputs used in the manufacture of
aforesaid products namely packaged software, stationery books and printed books. The said
credit is utilized for payment of duty on packaged software and stationery books. Refund in
cash is claimed for credit which cannot be so utilized, to the extent it is attributable to printed
books exported by it.

Department contentions:
The Assistant Commissioner of Central Excise has accepted the Letter of Undertaking
furnished by the petitioners and allowed the petitioners to clear all the dutiable goods
(packaged software) but contended that assessee cannot clear exempted goods or goods
chargeable to nil rate of duty namely printed books under the above bond.

Since Assessee did not maintain separate accounts as envisaged in Rule 6(2).Therefore, for the
exempted goods cleared for export from their factory, the assessee is liable to pay an amount
equal to 10% of the price of such exempted goods .

Decision :
Rule 19 of Central Excise Rules 2002 uses the term „Excisable goods‟. Excisable goods include nil rated
good & exempted goods. Therefore, both dutiable & exempted goods exported under a bond.

Rule 6(6) of the Cenvat Credit Rules, 2004 provides that “The provisions of sub-rules (1), (2), (3) and (4)
of rule 6 shall not be applicable in case the excisable goods removed without payment of duty, which
are cleared for export under a bond under Rule 19 of Central excise Rules. Therefore, in order to widen
and cover both dutiable and exempted goods exported under bond, Rule 6(6) of Cenvat Credit Rules,
2004 uses the expression “excisable goods”. Thus no payment of 10% on the value of exempted is
required under Rule 6(3) of Cenvat Credit Rules 2004.




INDIA CEMENTS LTD – 2009 (Tri)
Assessee is a manufacturer of cement, it uses „Dumpers
and Excavators (Capital Equipments) for mining raw                     ‘Dumpers and Excavators’
material limestone. Mines of the assessee are contiguous               are used precincts to
i.e. adjoining to the factory and included in the approved             factory & are eligible for
ground plan.                                                           Cenvat credit as capital
Department contends that, „Dumpers and Excavators‟                     goods
cannot be considered as capital goods for the purpose of
CENVAT credit


Issue: Whether ‘Dumpers and Excavators’ are eligible for Cenvat credit
as capital goods.

Decision: As per Sec. 2(e)    „Factory‟ includes „precincts thereof‟, and the mines in which the capital
goods were used are integrally connected with the cement factory of the respondents, therefore, the
capital goods should be considered to have been used for Excavation and transportation of limestone
which are processes integrally connected with the manufacture of cement.
So the contention of Department is not tenable in law. And assessee is eligible for the Cenvat credit on
„Dumpers and Excavators‟.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                        CA VISHAL BHATTAD


TATA ADVANCE MATERIALS – 2009 (Tri)
Assessee purchased machinery legally availed the Cenvat credit and further used the same for
payment of duty on the final products. After more or less 5 years a fire accident occurred and the goods
were destroyed. They were cleared as scrap without payment of duty. Insurance was also claimed by
Assessee.
Revenue proceeded against the assessee for the reversal of the Cenvat credit taken on the Capital
Goods. The point made by the Revenue is that the assessee claimed insurance, which included the
Excise Duty on the machinery. By claiming insurance and also availing the Cenvat credit, it was
argued that the appellants were getting double benefit.

Issue: Whether Assessee has to reverse the credit availed?

Decision: As per Rule 3(5)& 3(5A) of Cenvat Credit Rules, CENVAT credit is reversible only when
capital goods is removed as such, or after being put to use or removed as waste or scrap. There is no
legal provision for demanding the Cenvat credit taken on the said goods. The fact that the assessee
claimed insurance, which is inclusive of Excise Duty, is not at all relevant. So the contention of
Department is not tenable in law.



JAYA MILLS LTD. – 2009 (Tri)
Assessee taken depreciation on excise element of capital goods in Income Tax return and also availed
CENVAT credit, subsequently rectified the mistake of claiming depreciation of value of the capital
goods in the relevant income-tax return. As assessee rectified the mistake assessee can be allowed to
take CENVAT credit for duty paid on capital goods




Fibre Foils Ltd. 2009 (Bom.)
The Assessing Officer has imposed penalty of Rs. 1,30,510/- on the              Tribunal is not
assessee under Rule 15(2) of the Cenvat credit Rules 2004. The                  empowered        to
assessee aggrieved preferred an appeal before CESTAT.                           reduce      penalty
The learned CESTAT held that the monetary penalty under Rule                    imposable    under
15(2) equivalent to duty made cannot be upheld since no reasons to              rule 15(2) of the
maintain the same at the level of mandatory 100% have been                      CENVAT       Credit
arrived by the authorities. The learned Tribunal, therefore,                    Rules, 2004
reduced the penalty to Rs. 25,000/-.

Issue: Whether Tribunal is empowered to reduce penalty imposable
under rule 15(2) of the CENVAT Credit Rules, 2004


Held: From the plain or literal reading of the said sub-rule it would be clear
that the language used is “shall”. Under law itself the amount of penalty has to be
equivalent to the amount of duty.
If we construe mandatory language used in sub-rule there is no manner of doubt that there is no
discretion in the authorities in the matter of imposition of penalty. The penalty has to be
equal to the amount of duty which is payable.
 Once that be the case the learned Tribunal misdirected itself in law in reducing the
penalty.




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                         CA VISHAL BHATTAD



                                       CLASSIFICATION

Circular No. 890/10/2009-CX., dated 3-6-2009 (VV
IMP)
The disputes have arisen in respect of coconut oil when it is sold in small
packs say of 50 ml. or 100 ml.
                              CLARIFICATION BY BOARD
Hence, in view of the amendments/insertion of Chapter Note and Section Note, the classification of
coconut oil would depend upon the fact as to how the majority of the customers use the said product.



          If coconut oil is packed in packages               If the same coconut oil is packed in
          which are generally meant for sale in              say 1 liter or 2 liter packages, which
          retail as hair oil, in that case the said          are generally used by consumers for
          product would be classified as                     edible purposes (even though some
                                                             customers may use it as hair oil), it
          hair oil under heading
                                                             would be classified as edible oil
          3305, even though few consumers
          may use it as edible oil.                          under chapter 15


Case study: Dagar Ltd. manufactures coconut oil and sells them in packings of 50
ml or 100 ml. The packing of the oil specifies it to be ‘pure coconut oil’. Majority of the
consumers use the said coconut oil as hair oil. Dagar Ltd. classifies the coconut oil as
‘vegetable oil’ under Chapter 15 of the Central Excise Tariff. However, the Department
contends that coconut oil manufactured by Dagar Ltd. is meant for sale as ‘hair oil’;
therefore, it should be classified as ‘hair oil’ under Chapter 33.
Explain whether the contention of the Department is correct in law? (RTP)

Answer: The Department‟s contention is correct. Circular No. 890/10/2009 CX dated 03.06.2009 has been
issued in respect of classification of coconut oil sold in small packs say of 50 ml or 100 ml. When the
coconut oil is sold in small containers, following indications are found on containers or labels:
A. „hair oil‟
B. „edible oil‟
C. „pure coconut oil‟ or „coconut oil‟
When „hair oil‟ is printed on the container/label, it is classified as „hair oil‟ under chapter 33. Further,
the coconut oil falling under the other two categories („edible oil‟, „pure coconut oil‟ or „coconut oil‟)
should also be classified as „hair oil‟ under Chapter 33 as they are meant for sale as „hair oil‟.
The circular explains, if a particular packing of coconut oil is generally sold in retail as hair oil, in that
case, the said product would be classified under heading 3305 as hair oil.
This Section Note further supports the interpretation that though a product is capable of being classified
under more than one heading, even then because of the nature of its retail packing, which is indicative
of its use as hair oil, the classification under heading 3305 would get priority.
However, if the same coconut oil is packed in say 1 litre or 2 litre packages, which are generally used by
consumers for edible purposes (even though some customers may use it as hair oil), it would be
classified under Chapter 15 as edible oil.
Hence, the classification of coconut oil would depend upon the fact as to how the majority of the
customers use the said product. Therefore, if coconut oil is packed in packages which are generally
meant for sale in retail as hair oil, in that case the said product would be classified as hair oil under
Heading 3305, even though few consumers may use it as edible oil.
Thus, the circular settles that coconut oil packed in containers upto 200 ml may be considered as
generally used as hair oil and shall be classified under Heading 3305.

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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                            CA VISHAL BHATTAD

 NEW CASE LAWS

  YEAR 2009

FRITO LAY INDIA-2009 (S. C.)
Relevant statutory section Notes & Chapter notes for consideration
Chapter note 10 to Chapter 21
Sub-heading Nos. 2108.91 and 2108.99 include sweet meals commonly known as “misthans‟ or
“mithai‟ or by any other name. They also include products commonly known as „namkeens‟
„mixtures‟, „bhujia‟, „chabena‟ or by any other name. Such products remain classified in these sub -
headings irrespective of the nature of their ingredients .


Goods under dispute                    Available                                  conclusion
                                       headings/subheadings
Cheetos Masala Balls‟, „Cheetos        Heading 1904.10                   10%      Product Classi fiable under
Cheese Puff‟ and „Cheetos X & O‟                                                  Tariff Item no. 2109.99
                                       Prepared foods obtained by
                                       the swelling or roasting of
                                       cereals or cereal products (for
                                       example, corn flakes)‟ cereals
                                       [other than maize (corn)],; in
                                       grain form or in the form of
                                       flakes or other worked grains
                                       (except flour and meal),
                                       precooked, or otherwise
                                       prepared, not elsewhere
                                       specified or included

                                       Heading 2108.99                   exempt

                                       Edible preparations, not
                                       elsewhere specified or
                                       included

DECISION:
      We find that the subject products are neither obtained by swelling or roasting of cereals nor are they
       made from cereals in grain form. They are made from cereals in grounded form.
      Hence, the given product will not fall in CSH 1904.
      The statutory illustration is corn flakes. Now in the case of plane corn flakes which is obtained by
       swelling or roasting there is no frying or application of masala or choco, hence it will fall in the f irst
       category(i.e.CSH 1904).
      However, in case of choco corn flakes besides process of swelling or roasting there is an element of
       choco which will bring the product out of that category. So in each case the Department has to examine
       the facts of the case. Similarly an ordinary popcorn as against eclair popcorn would bring out the
       distinction between the foods obtained by swelling or roasting of cereals and food obtained by process
       involving use of other ingredients like eclair.
       For above reasons, the subject product will come in the CHS 2108.99




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                    CA VISHAL BHATTAD
CHAMPDANY INDUSTRIES LTD - 2009
Brief Facts of the case
The Assessee is manufacturers of carpets by interlacing yarns of three different types, namely, jute, cotton and
polypropylene. Carpets which it manufactures jute always predominates by weight over each of the other single
textile material (jute content in those carpets is 51.45%) & it is also examined by Jute Industries Research
Association as well as Department‟s Chemical Examiner.

Assesses contention that Carpets were classifiable as jute carpets & liable to duty under sub heading 5703.20
“Floor covering Jute” at NIL.

 Department contention is that the surface of the carpet being entirely of polypropylene, the same cannot be
classified as jute carpet and on the basis of
     Chapter note 1 to chapter 57
        (“For the purposes of this Chapter, the term „carpets and other textile floor coverings‟ means floor
        coverings in which textile materials serve as the exposed surface of the article when in use and includes
        article having the characteristics of textile floor coverings but intended for use for other purposes.”)

    Common Parlance Test &
     (common parlance test should be applied for classifying the carpets as the carpets to the common man would not
     appear to be jute carpet but polypropylene carpet.)

    Rule 3(b) of Interpretative Rule (Essential Test)
     (exposed surface of the carpet is polypropylene fiber and not jute, these goods cannot be classified as jute carpets as
     polypropylene gives essential character)

    The Carpet were classifiable as „Polypropylene carpets‟ under Residuary heading 5703.20 & liable to duty
@ 25 %

Relevant statutory section Notes & Chapter notes for consideration
Section Note 2(A) read with section note 14A of section XI of Tariff
“Articles classifiable in Chapters 56 to 63 is mixture of two or more textile materials are to be classified as if
consisting wholly of that one textile material which predominates by weight over any oth er single textile
material.”

Chapter note 1 to chapter 57 :
“For the purposes of this Chapter, the term „carpets and other textile floor coverings‟ means floor coverings in
which textile materials serve as the exposed surface of the article when in use and includes article having the
characteristics of textile floor coverings but intended for use for other purposes.”

Goods under dispute                         Available headings/subheadings               conclusion
carpets by interlacing yarns of three       5703.20                                      Product Classi fiable under
different types, namely, jute, cotton        “Floor covering Jute”         NIL           Tariff Item no. 5703.20
and polypropylene
                                            5703.20
                                            “others”                             25%

DECISION:
    Since the goods admittedly fall under Chapter 57 and consist of more than two or more textile materials,
     it has to be classified on the basis of that textile material which predominates by weight over any other
     single textile material. As in the goods in question jute admittedly predominates by weight over each
     other single textile material, the said Carpet could only be classified as jute carpets and nothing else.

    common parlance test can be accepted, if any term or expression is not properly defined in the Act “if
     any term or expression has been defined in the enactment then it must be understood in the sense in
     which it is defined but in the absence of any definition being given in the enactment the meaning of the
     term in common parlance or commercial parlance has to be adopted”.
     Going by the aforesaid principle, we cannot hold that common parlance test has any application here.

    While applying interpretative rules,First of all Rule 3(a) would apply which states that heading
     providing specific description is to be prevail over heading providing general description.Accordingly,
     the classification shall be as „Jute carpet‟ under 5703.20. Rule 3(b) applies only when classification cannot
     be done as per Rule 3(a).Therefore , the cannot be any occasion to apply essential test of Rule 3(b)


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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                CA VISHAL BHATTAD
SHREE BAIDYANATH AYURVED BHAWAN LTD.
Brief fact of case
Assessee is engaged in the activity of manufacturing medicines adopting Indian systems. One of the products
being manufactured by Baidyanath is DML(Dant Manjan Lal). Baidyanath claims that DML is manufactured in
accordance with the formulae given in Ayurved Sar Sangraha (an authoritative text on the Ayurved system of
medicine) by using the ingredients mentioned therein. Ayurved Sar Sangraha is notified under the First Schedule
of the Drugs and Cosmetics Act, 1940 . It is also the case of the Baidyanath that DML is sold in the name which is
specified in Ayurved Sar Sangraha.
While Assessee contends that the product DML is a medicament under Chapter Sub-heading 3003.31 of the
Central Excise Tariff Act, 1985 , But the stand of the Department is that the said product is a cosmetic/toiletry
preparation/tooth powder classifiable under Chapter Heading 33.06.

Goods under dispute           Available headings/subheadings                          conclusion
Dant Manjan Lal(DML)          3003.31                                         Nil     Product Classi fiable under Tari ff
                              Medicament                                              Item no. 3306


                              3306                                            15%
                              Cosmetic /toiletry preparation/tooth
                              powder

Decision:
For product to be classified as Medicament, it must used for medicinal purposes by users & it must have
medicinal content.DML is not used for Medicinal purposes by user even though having medicinal
content.
DML is used routinely hygiene. There is no change in nature, character and uses of DML, it has to be a tooth
powder specifically covered by chapter sub heading 3306 .



PLEASANTIME PRODUCTS- 2009 (IMP)
Brief fact of case
Assessee is a proprietary firm engaged in the business of manufacture and trade of toys, games and puzzles of
various kinds .One of the items manufactured by the assessee is “Scrabble”.
According to the assessee, a “Scrabble” is very similar to a crossword or jigsaw puzzle and, therefore, “Scrabble”
falls under sub-heading 9503.00 which refers to “puzzles of all kinds”.
Department contended that “Scrabble” was a board game classifiable under sub-heading 9504.90 of the CETA
and liable for levy of central excise duty thereunder.


Goods under dispute           Available headings/subheadings                          conclusion
“Scrabble”.                   9503.00 which refers to “puzzles of all         NIL     Scrabble is classifiable under
                              kinds”                                                  9504.90 as board game

                              9504.90 board game                              16 %

Decision:
     The difference between a “game” and a “puzzle” is brought out by three distinct features, viz., outcome,
      clue-chance and skill. In a puzzle outcome is pre-determined and fixed. It is not so in “Scrabble”.
     A person solving a puzzle, unlike games, does not aim at wining by scoring more points but aims at
      arriving at the solution by finding the correct answer or by putting it together properly, and winning or
      losing can only come by way of time taken in solving the puzzle.
     The other important difference is that in a “Scrabble” there are no clues whereas in crossword puzzle, as
      stated above, words are written according to clues.
     One more distinguishing feature to be kept in mind is, in “Scrabble” there is an element of chance and
      skill. The player in “.Scrabble” gets lettered tiles to create words by chance
     In “Scrabble” no clues are given as in the case of crossword or jigsaw puzzles. In “Scrabble”, outcome is
      not fixed or pre-determined as in the case of puzzle.

Conclusion:        Scrabble” will not fall in the category or class mentioned in sub-heading 9503.00, namely, “puzzles of
all kinds”.



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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                      CA VISHAL BHATTAD
Meaning of scrabble
Concise Oxford English Dictionary, Tenth Edition, Revised, “Scrabble” is defined as a board game in which players use
lettered tiles to create words in crossword fashion. These tiles are initially kept in a pouch from which every player picks up
the tiles. This is pure matter of chance. Further, apart from the element of chance there is also an element of skill involved in
“Scrabble”. Each lettered tile has an assigned value and the player has to create words. He tries to create words which
attain maximum value; tries to gain maximum value from the lettered tiles which come by chance to him. This is where skill
comes in. Each player uses his skill to achieve the highest value. In other words, if a player has command over language, he
can coin or create words with highest maximum value. Thus, these two elements of chance and skill are the key elements of a
“Scrabble”.




VIVEK JHANGIANI-2009
Goods under dispute                                                    Available            conclusion
                                                                       headings/subheadings
Scrabble                                                               Games of Chance           xx       Classi fiable as
                                                                                                          Games of chance
“Scrabble” in general consists of a box, board, tiles,
racks, instructional booklet, bag and pad. The booklet
                                                         Puzzle                                  xx
describes it as a “word game” for 2, 3 or 4 players and
consists of forming interlocking words, crossword
fashion on the Scrabble playing board using letter files
with various letter values. Each player competes for
high score by using its letters in combination and
location that takes best advantage of letter values and
premium squares on the board. The objective is to
score as many points as possible and at the end of the
game; the player with the highest score is the winner.

Decision:
     We are however of the view that Scrabble is neither an educational toy nor a puzzle. It is not a
      toy to be played with, but it is a game which is played by one or more individuals.
     Chambers 20th Century Dictionary defines Scrabble as a word-building game. It is meant for
      two or three or four players; there can be one winner and one or more losers , the person who
      gets the highest points will be declared the winner.
     Scrabble is played in clubs, and tournaments are held regularly to award
      championships and prizes.
     On the other hand, a puzzle involves only one individual who solves a puzzle. There is,
      therefore, no question of gain or loss as only one individual is involved. There is only one
      solution to a puzzle while in the case of Scrabble there is no single solution as different words
      can be formed on the Scrabble board depending upon the lettered tiles drawn by each player .
     Hence scrabble is Classifiable as Games of chance




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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                               CA VISHAL BHATTAD



                                        DEMAND & REFUND
LATEST AMENDMENTS – 2009
Circular No. 898/18/2009-CX dated 15-9-2009 ( Most
expected)
Subject:         Benefit of reduced penalty under provisos to Section 11AC - Whether also available at
appeal stage.

Issue: A case has been brought to the notice of the Board wherein a Commissioner (Appeals) had
allowed the benefit of proviso to Section 11AC of the Central Excise Act, 1944 to pay penalty at the
reduced rate of 25% within 30 days of the communication of the Order-in-Appeal. Commissioner
(Appeals) has read Section 11AC and Section 35F together to arrive at the aforesaid decision.
Board View: The matter has been examined. The provisions relating to reduction of penalty to 25% are
contained in proviso (1) to (4) of Section 11AC. In terms of proviso (1) and (2), a penalty imposed under
Section 11AC can be reduced to 25% on fulfillment of following conditions.
(i)      Duty determined under Section 11A(2) and interest payable thereon has been paid within 30
days.
(ii)     The said period of 30 days is calculated from the date of communication of the order passed by a
Central Excise Officer determining the duty.
(iii)    The reduced 25% penalty is also paid within 30 days of the date of communication of the order
passed by the Central Excise Officer.

                         From the above it is clear that in order to avail the benefit of 25% penalty, the
duty, interest and penalty are required to be paid within 30 days of communication of the order passed
by the adjudicating authority. Further, the reading of proviso would also support this interpretation
because the said proviso stipulate that wherever duty amount is increased at any appellate stage, in that
case in order to avail the benefit of 25% penalty, the assessee is required to pay differential amount
within 30 days of the passing of the order by the appellate authority. A combined reading of the entire
proviso would, therefore, make it clear that the benefit of 25% penalty is applicable only when the
assessee has paid duty, interest and the reduced penalty within 30 days of communication of the order
passed by the adjudicating authority. However, if the penalty amount is increased at the appellate stage,
in that case the 25% of differential amount of penalty can be paid within 30 days of communication of
said appellate order. Therefore, the view taken by the Commissioner (Appeals) is not as per the
provision of law.

Conclusion: Therefore, when the assessee does not pay the duty & interest
within 30 days of order of adjudicating order, even if such duty is paid within
30 days of the appellate order upholding the demand, the benefit of reduced
penalty of 25% shall not be available.



Circular No. 889/09/2009 CX dated 21.05.2009
No discretion to reduce the mandatory penalty under section 11AC even though the duty
paid before the issuance of show cause notice

 It is clarified that when the conditions spelled out under section 11AC are fulfilled, there is no discretion to reduce
the mandatory penalty which is equal to duty even though the duty is paid before the issuance of show cause
notice.




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NEW CASE LAWS
International Auto ltd – 2010 (S.C.) (IMP)
Assessee supplied auto parts to their customers manufacturers
of motor vehicles, who determined the prices of auto parts           Interest under section
having regard to the cost of raw material, manufacturing cost,       11AB is leviable on
profit margin, etc. and placed orders with the assessee.             voluntary delayed or
Since price difference arose between the price on the date of        deferred     payment       of
removal and the enhanced price at which the goods stood              duty      for      whatever
ultimately sold. Assessee paid differential duty pertaining to       reasons.
the price rise.
 Department issued a show-cause notice proposing to levy interest on the differential duty, paid
by the assessee, under Section 11AB of the Central Excise Act, 1944.
Assessee contended that in the present case was not a case of short -levy or non-levy of the goods
removed by the assessee calling for recovery under Section 11A of the Act, hence, this was not a
case for charging of interest under Section 11AB of the Act.


Legal provision:

Section 11A(2B) voluntary payment
 Provides that the assessee in default may, before the notice can make payment of the unpaid duty on
the basis of his own ascertainment or as ascertained by a Central Excise Officer and inform the
Central Excise Officer in writing about the payment made by him and in that event he would not be
given the demand notice.
But Explanation to this makes it expressly clear that such payment would not be exempt from
interest chargeable under Section 11AB, that is, for the period from the first date of the month
succeeding the month in which the duty ought to have been paid till the date of payment of the duty.

 Section 11AB that states where any duty of excise has not been levied or paid or has been short
levied or short paid or erroneously refunded, the person who has paid the duty voluntarily under
section 11A(2B) shall, in addition to the duty, be liable to pay interest.

Held:
It is to be noted that the assessee was able to demand from its customers the balance of the higher
prices by virtue of retrospective revision of the prices. It, therefore, follows that at the time of sale the
goods carried a higher value and those were cleared, on short payment of duty. The differential duty
was paid only later when the assessee issued supplementary invoices to its customers demanding the
balance amounts. Seen thus it was clearly a case of short payment of duty though indeed completely
unintended and without any element of deceit etc. The payment of differential duty thus clearly came
under sub-section (2B) of Section 11A and attracted levy of interest under Section 11AB of the Act.

It is thus to be seen interest is leviable on delayed or deferred payment of duty for
whatever reasons.

In this case S.C. upheld decision of SKF INDIA LTD (same decision given below)




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KUSHAL FERTILISERS (P) LTD.-2010 (S.C.)
(IMP)
Assessee is the manufacturer of MS conduit pipes. He has availed exemption on conduit pipes under
exemption notification. He had neither obtained any Central Excise license for manufacture of conduit
pipes nor filed any declaration with the department for granting them exemption from the licensing
provisions.

But, on or about 22nd January, 1991 informed the Section Officer of the Central Excise, that it had been
manufacturing M.S. conduit pipes and its production is exempt from payment of Excise Duty in terms of
Notification No. 202/88. It further observed that officers of the Central Excise Department had
been visiting the assessee‟s factory for inspection of their factory.

During inspection assessee submitted its production and raw material register for
inspection.

Department denied the exemption and issued show cause notice asking the assessee to show cause as to
why penalty shall not be levied contending that the assessee was not entitled for exemption as the gate
passes covering the inputs described the product as „bars‟ and it suppressed the said fact w ith an intention
to evade payment of duty.

Issue: Whether in the facts and circumstances of this case the extended period of limitation was
applicable.

Tribunal observes that in their letter dated 22-1-91 they had requested the department for certificate to
the effect that their product is exempt from the levy of duty. The department had thus acquired
knowledge, on receipt of the said letter, that the assessee are manufacturing tubes and pipes and are
availing the benefit of exemption under Notification No. 202/88.
The department cannot deny the fact that they had come to know about the assessee manufacturing
tubes and pipes and availing benefit of exemption and nothing prevented the department from
conducting investigation or seeking further information from the assessee.

It further observed that officers of the Central Excise Department had been visiting the assessee‟s
factory for inspection of their factory. During inspection assessee submitted its production and raw
material register for inspection.
In view of this we hold that the no suppression of facts and the extended period is not applicable”

Supreme Court observed that “Tribunal had arrived at a finding of fact that there had been no
willful suppression on the part of the assessee” is correct and hence the question of invoking the
extended period of jurisdiction did not arise.




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Hero Cycles Ltd. – 2010 (S.C) (IMP)
The Assessee imported goods and paid customs duties thereon. The goods imported by the
Petitioners are fully exempt from payment of Central Excise duty and consequently no additional
duty of customs under Section 3 of the Customs Tariff Act, 1975 is payable on the goods.
The Assessee however, contended that inadvertently and under a bona fide mistake they did not
claim exemption under the aforesaid notifications in respect of some Bills of entry.
 The Department assessed all the Bills of Entry without extending the benefit of the above
Notifications.
The Assessee cleared the goods imported by them on payment of additional duty under Section 3
of the Customs Tariff Act, 1975.
The Assessee realizing their mistake, that no additional duty is payable on the import of bicycle
parts refund claims before department. The assessee did not take the credit of the said additional
duty of customs paid on the imported goods.
Department rejected the refund claim on the ground that the importer has not challenged the final
assessment order in appeal.
Held: In our opinion It is duty department to assess the goods and impose duty according to law.
The fact that the assessee has paid the duty under mistake of law and or in the instant case by
oversight cannot result in being assessed to duty which was otherwise not payable. In our opinion,
this will be a case of manifest injustice and on the face of it erroneous.
It was not a case of violation of principles of natural justice or fairplay or violation of any fundamental
rights and the mere existence of alternative remedy does not act as bar for Court in exercising
extraordinary jurisdiction which depend on circumstances of the case.
We will have to issue directions to the Department to amend the original order of
assessment. In so far as the claim for refund is concerned, that would only arise
after the order is amended.



  YEAR 2009

SKF INDIA LTD-2009.
Assessee is engaged in the manufacture and sale of ball-bearings and textile machine parts. It sold goods
manufactured by it on certain prices on payment of excise duty leviable on the price on which the goods
were sold. Later on, there was a revision of prices with retrospective effect. Following the revision the
assessee demanded from its customers the balance of the higher prices and issued to them supplementary
invoices. At the same time it also paid the differential duty on the goods sold earlier.
The Department took the view that the assessee was liable to pay interest on differential duty (i.e. from the
date of original clearance of goods to date of actual payment of differential duty) also imposed General
penalty Rs. 5000 for violation of provision of the Act.

Issue:   Whether Interest is payable by an assessee on differential duty arising due to revision of prices
with retrospective effect?

Decision: Section 11A (2B)provides that the assessee in default may, before the notice is served on him,
make payment of the unpaid duty on the basis of his own ascertainment or as ascertained by a Central
Excise Officer and inform the Central Excise Officer in writing about the payment made by him and in that
event he would not be given the demand notice.

But Explanation 2 to the sub-section makes it expressly clear that such payment would not be
exempt from interest chargeable under Section 11AB, that is, for the period from the first date
of the month succeeding the month in which the duty ought to have been paid till the date of
payment, of the duty.
The assessee was able to demand from its customers the balance of the higher prices by virtue of
retrospective revision of the prices. It, therefore, follows that at the time of sale the goods carried a higher
value and those were cleared on short payment of duty. The differential duty was paid only later when the
assessee issued supplementary invoices to its customers demanding the balance amounts. Seen thus it was
clearly a case of short payment of duty though indeed completely unintended and without any element of
deceit etc. The payment of differential duty thus clearly came under section 11(2B) and attracted levy of
interest under Section 11AB of the Act.

However ,Penalty can neither be imposed due to absence of any element of fraud .
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RAJASTHAN SPINNING & WEAVING MILLS-2009
(VV IMP)
Whether Penalty u/s 11AC is imposable even when the assessee has deposited the
balance amount of excise duty shrortly paid even before show cause notice was issued ?

Held: Voluntary payment of duty before issuance of SCN u/s 11A(2B) does not apply to when short
payment of duty is due to fraud, collusion & etc. Therefore , even if duty & interest have been fully
paid by the assessee before issuance of SCN, the DEPT. has right to issue to issue SCN whe n if such
short payment is due to fraud, collusion & etc.
Whenever short levy or short payment or etc because fraud, collusion or etc the penalty u/s 11AC is
automatic.
Thus even if duty is paid before issue of SCN, Penalty under sec 11AC can be imposed in case of
fraud, collusion etc. with an intention to evade payment of duty.


 YEAR 2008

DHARAMENDRA TEXTILE PROCESSORS-2008
Whether penalty u/s is mandatory?

Decision : Since Section 11AC uses the expression „shall be liable to pay, therefore, once it
established that extended period of limitations applicable and conditions set out in Sec 11AC are
fulfilled, the imposition of penalty follows and is mandatory in nature. The quantum of such
penalty is also fixed as being equal to duty. There is no discretion with Central Excise officers not to
impose penalty or to impose lesser penalty than amount equal to duty.


M.M.K. JEWELLERS-2008
M/s. M.M.K. Jewellers is a unit in Santacruz Electronics Export Processing Zone, engaged in the
manufacturing of plain/studded/unstudded gold jewellery for export from directly imported gold.
During stock checking conducted at the premises of the assessee it was found that the assessee had
not maintained proper records for accounting of imported goods and wastage claimed by the
assessee was excessive. A show cause notice was issued after expiry of about 2 years therefrom in
order to recover differential duty.

Decision: Department could not invoke extended period of limitation alleging suppression facts by
the assessee. Therefore, issue of show cause notice after expiry of 2 years was barred by limitation.


LAJYA DYEING & BLEACHING WORKS-2008
The „assessee‟, was a job worker and was engaged in the processing of man made fabrics received
from supplier. Assessee had accepted the declaration filed by the principal manufacturers who was
supplying fabrics to the assessee and discharge all theduty liabilities under the Central Excise Act,
1944.
Benefit of concessional rate of duty is available to a man made fabrics containing polyster below
70%. Assessee filed classification lists on the basis of declaration filed by the principle
manufacturers declaring the man made fabrics containing polyster below 70%.
Samples were collected from the assessee-company and they were got chemically tested which
indicated that they were having polyster above 70% and thus would attract higher rate of duty and
the assessee company had mis-declared the contents of the fabrics at the time of filing the
classification lists with deliberate intention to evade payment of excise duty & hence department
invoked extended period of limitation.

Decision: There being no legal requirement for the Assessee-processors to verify the correctness of
the declaration furnished by the supplier. Further there was no allegation that the assessee was a
party to such mis-declaration by the principal manufacturer. Therefore, extended period of
limitation is not applicable.
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GEO   TECHNOLOGY                                          FOUNDATIONS                                 AND
CONSTRUCTION – 2008
Assessee manufactured PSC girders at site to be used in the construction of railway bridges. The
articles were cleared without payment of central excise duty under the Central Excise Act, 1944. A
SCN was issued invoking normal period of limitation (i.e., 1 year) but drop. Subsequently, second
SCN was issued invoking extended period of limitation (i.e., 5 years). Assessee challenged SCN on
the ground of limitation.

ISSUE: Whether the extended period is available if earlier SCN drop?
DECISION: “When in the first SCN, allegation of suppression had not been made; the same could not have been
made subsequently as the facts alleged to be suppressed by the assessee were known to them. Extended period of
limitation has no application in the instant case.
Conclusion: Extended period is not available



                       APPEAL, REVIEW & RIVISION

LATEST AMENDMENTS-2009
Section 35G of the Central Excise Act, 1944 (v. imp)
Time limit & Fees

 Appeal should be made within 180 days of the date on which he is served with order of tribunal.

 However High Court may admit the appeal and Memorandum of Cross
 Objection after the expiry if there was sufficient cause for not filing the
 same.

NEW CASE LAWS

  YEAR 2009


SUNITADEVI SINGHANIA HOSPITAL TRUST-2009
(Most expected)
Assessee which is a Charitable Tust runs a hospital on no profit basis. It imported certain
equipments invoking exemption from payment of custom duty on some conditions.

 An investigation was carried out in the year 1999 as to whether the assessee had fulfilled all such
conditions or not. The matter went before the Tribunal.

 By reason of a judgment and order dated 19-1-2006, the Tribunal having held that the asessee
having not complied the conditions therewith the redemption fine and penalty imposed upon it by
the Customs Authorities were justified.

An appeal was preferred against the order of the Tribunal before this supreme Court.

Assessee contended before S.C. that Tribunal had not taken into consideration the fact involved in
the matter and had the same been done it could have been established that the assessee had in fact
fulfilled all its obligations in terms of the said Notification.

Supreme Court, if an apparent error has been committed by the Tribunal in not taking into
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consideration the contentions raised before it by the appellants, permitted it to withdraw the
appeal with liberty to file an appropriate application before the Tribunal

Pursuant thereto or in furtherance thereof the assessee filed an application before the Tribunal
purported to be an application for rectification of mistake

The Tribunal by an order dated 12-10-2007 dismissed the said application holding that the same
was barred by limitation on the premise that the Tribunal‟s final order was passed on 19-1-2006
and the application for rectification of mistake should have been filed within six months from the
said date. It was, furthermore, opined that the Tribunal had no power to condone the delay by
reason of the impugned judgment.

DECISION : It is true that the period of limitation specified in terms of Sub-Section (2) of Section
129(B) of the Customs Act is required to be observed but the Tribunal failed to notice that it has
inherent power of recalling its own order if sufficient cause is shown therefore.
The principles of natural justice, which in a case of this nature, in our opinion, envisage that a
mistake committed by the Tribunal in not noticing the facts involved in the appeal which would
attract the ancillary and/or incidental power of the Tribunal necessary to discharge its functions
effectively for the purpose of doing justice between the parties, were required to be complied with.

We, however, do not mean to lay down a law that such an application can be filed at any time. If
such an application is filed within a reasonable time and if the Court or Tribunal finds that the
contention raised before it by the applicant is prima facie correct, in order to do justice, which is
being above law, nothing fetters the judges hands from considering the matter on merit.



  Cisco Systems India Pvt. Limited v. UOI 2009
  (H.C)
  Issue: Can a writ petition be filed against the order of waiver of pre-deposit
  (under first proviso to section 35F of the Central Excise Act, 1944) or refusal
  thereof?

  Legal provision: : First proviso to section 35F of the Central Excise Act, 1944 reads as
  follows:-
  Where in any particular case, the Commissioner (Appeals) or the Appellate
  Tribunal is of opinion that the deposit of duty demanded/penalty levied would
  cause undue hardship to such person, the Commissioner (Appeals) or, as the
  case may be, the Appellate Tribunal, may dispense with such deposit subject to
  such conditions as he or it may deem fit to impose so as to safeguard the
  interests of revenue.

  HELD: The High Court held that power to waive pre-deposit to avoid hardship to party
  against whom demand is raised is discretionary. As long as discretion is not exercised in an
  arbitrary and unusual fashion, a writ court would not interfere with order of waiver of
  predeposit or refusal thereof. Mere fact that issues that arise for consideration of appellate
  authority were arguable is not in itself sufficient for a complete waiver of pre -deposit.
  Writ court would be slow in interfering with discretionary order, especially so where appellant
  has not pleaded any financial hardship as such before appellate authority.

  The Delhi High Court ruled that recovery of taxes cannot be stayed
  under Article 226 of the Constitution except under exceptional
  circumstances




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 CCEx., Chennai v. CEGAT 2009 (H.C.)
 Issue: Whether the Department is not required to state any reason while filing
 an application for condonation of delay in filing the appeal to CESTAT?


 HELD: The Department filed the appeal to the Tribunal 100 days after the expiry of the period
 prescribed for filing an appeal. However, the delay had not been supported by sufficient reasons.
 Learned counsel for the petitioner submitted that in the case of the Department, the Court had
 always been lenient in condoning the delay.
 So, there could not be any exception to the procedure followed by this Court as well as the
 Supreme Court in respect of the fiscal matters.
 The High Court observed that the power to condone the delay in filing the appeal had been
 vested with the Tribunal only on being satisfied with the reasonable cause shown for the delay.
 Since the Department had not substantiated any reason for causing the delay, it could not expect
 the Tribunal to condone the delay in a routine manner. Even before the High Court the petitioner
 had not stated the reason. If minimum pain or effort had been taken by the authorities, some
 reason would have been stated for the delay.
 However, in the absence of any sufficient cause, the Tribunal could not by itself invent reason
 and grant the relief as sought for by the Department



          SEARCH SEIZURE & PROSECUTION

SECTION 9A: CERTAIN OFFENCES TO BE NON-COGNIZABLE
(compounding of offence).(V. imp)

compounding of following offence shall not be allowed
  a) a person who has been allowed to compound once in respect of any of the offences under the
     provisions of section 9.
  b) a person who has been accused of committing an offence under this Act which is also an
     offence under the Narcotic Drugs and Psychotropic Substances Act, 1985.
  c) a person who has been allowed to compound once in respect of any offence under this Chapter
     for goods of value exceeding rupees one crore.
  d) a person who has been convicted by the court under this Act on or after the 30th day of
     December, 2005.


CASE LAWS
 Tata Metaliks Limited v. UOI 2009 (H.C.)
 Issue: Whether Government dues have a priority of claim over the dues of secured creditors?


 The Bombay High Court has reaffirmed that Government dues do not have priority of claim
 over that of secured creditors. However, if the Legislature makes those dues as having priority of
 claims, the State dues will rank higher in priority than dues of a secured creditor




      .




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                                  ADVANCE RULING

SEC 23A DEFINATION
23A (e) “Authority” means the Authority for Advance Rulings(Central Excise, Customs & Service
Tax)

    constituted under Customs Act, 1962 or
    authorised by the Central Government under Customs Act,
     1962 (inserted by F.A.2009)
23A (c) applicant” means -
       (i) (a) a non-resident setting up a joint venture in India in collaboration with a non-resident
                or a resident; or
          (b) a resident setting up a joint venture in India in collaboration with a non-resident; or
          (c) a wholly owned subsidiary Indian company, of which the holding company is a
                foreign company,who or which, as the case may be, proposes to undertake any
                business activity in India;
       (ii) a joint venture in India; or
       (iii) a resident falling within any such class or category of persons, as the Central
             Government may, by notification in the Official Gazette, specify in this behalf,

       (C.G has notified PUBLIC SECTOR COMPANY as eligible person for
       obtaining advance ruling N/N 20/2009)


ZUARI CEMENT LTD.
The assessee, a wholly owned subsidiary company of M/s Cement Francais, France, is registered
under Central Excise Act, 1944 for manufacture of cement in its factory. It proposes to expand its
production capacity by setting up another manufacturing unit within the precincts of the existing
factory. Assessee has sought Advance Ruling regarding to Cenvat credit of certain inputs.
The department opposes the admission of the above application stating that the construction of a
plant does not constitute production or manufacture of goods, which is the proposed activity for
which an advance ruling can be sought.

Held: Advance Ruling is defined in Section 23A(b) of the Central Excise Act, 1944 to mean “the
determination, by the Authority, of a question of law or fact specified in the application regarding the
liability to pay duty in relation to an activity proposed to be undertaken, by the applicant.”
                          “Activity” is defined in of the same section to mean “production or
manufacture of goods”.
Read together, the above provisions imply that in order to be eligible for a ruling,
the activity of production/manufacture of goods for which a ruling is sought, has to
be a “proposed” activity and not an ongoing one.

In the present application, the activity of manufacture of cement in respect of which the question of
law regarding availability of credit of central excise duty on the so called inputs/capital goods has
been sought, appeared to be for an activity which is already being undertaken by the applicant in its
existing factory. In the above situation, creation of additional capacity for manufacture of cement by
expanding the plant cannot be considered to be a “proposed” activity qualifying for pronouncement
of a ruling. Production of the same goods, namely cement, in the expanded plant is only a repetition
or continuation of the past activity.

In view of the above, the application is rejected under Section 23D (2) of the Central Excise Act, 1944.



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UAE Exchange Centre Ltd. v. UOI 2009 (H.C.)
Issue: Can a writ petition be invoked against advance rulings?


The Delhi High Court held that the ruling by Advance Rulings Authority is binding on the
applicant, the transaction on which ruling is sought and the Departmental officers concerned. It
does not exclude the jurisdiction of the Courts either expressly or by implication. T here is no
provision which gives finality to the decision of the Authority.
The Court viewed that the Courts would have jurisdiction to entertain actions
under Article 226 of the Constitution (writ petition) impugning the ruling given
by the Authority i.e. writ jurisdiction is invocable against advance rulings.




                        Settlement Commission

Ashwani Tobacco Co. Pvt. Ltd. v. UOI 2010
(H.C.)
 Issue: Is the Settlement Commission empowered to grant the benefit
 under the proviso to section 11AC(If payment of duty & interest made within
 30 days then penalty reduced to 25%) in cases of settlement?


 HELD: The Court ruled that benefit under the proviso to section 11AC could
 not be granted by the Settlement Commission in the cases of settlement.
 It elucidated that the order of settlement made by the Settlement Commission is distinct from
 the adjudication order made by the Central Excise Officer. The scheme of settlement is contained
 in Chapter-V of the Central Excise Act, 1944 while adjudication undertaken by a Central Excise
 Officer is contained in the other Chapters of the said Act.
 Once the petitioner has adopted the course of settlement, he has to be governed by the
 provisions of Chapter V. Therefore, the benefit under the proviso to section 11AC, which could
 have been availed when the matter of determination of duty was before a Central Excise Officer
 would not be attracted to the cases of a settlement, undertaken under the provisions of Chapter -
 V of the said Act.



Vishwa Traders Pvt. Ltd. v. UOI 2009 (H.C.)
The appellant filed an application with the Settlement Commission under section
32E of the Central Excise Act, 1944. However, as the applicant was not willing to
accept the duty liability settled by the Commission, it sent the case back to the
adjudicating authority in terms of section 32L(1) of the Act. It directed the
adjudicating officer to dispose the case in accordance with the provisions of the Act
as if no application had been made to Settlement Commission.
When case came up before Revenue for adjudication, it decided that since as per
section 32M, any order made by the Settlement Commission was conclusive; the
figure of duty liability fixed by the Settlement Commission had attained finality.
Hence, the petitioner was required to make payment of the said amount along with
penalty and interest.


Issue: In a case where the Settlement Commission has sent the case back to the adjudicating
authority under section 32L(1), can the order of adjudication passed by the Settlement
Commission be considered to be final ?



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HELD: The High Court held that under section 32L(1), once the Settlement Commission forms
an opinion that any person who made an application for settlement under section 32E of the Act
has not cooperated in the proceedings before the Commission, the Settlement Commission may
send the case back to the adjudicating authority to dispose of the case in accordance with
provisions of the Act, as if, no application under section 32E had been made.
If there is no application before Settlement Commission, there can be no
question of any final order of adjudication. Consequently, the order passed by
the Settlement Commission under section 32L(1) cannot be considered to be
the final order of adjudication.
Hence, the High Court pronounced that Revenue shall continue the adjudication proceedings
from the stage at which the proceedings before Settlement Commission commenced




East and West Shipping Agency 2010 (H.C.)
The Custom House Agent License of Barbara Shipping Agency (BSA) was suspended on the
ground that authorised agent of BSA had committed misconduct by taking active part in the
act of smuggling and has thus violated the Custom House Agent Licensing Regulations, 2004.
During pendency of the misconduct proceedings, BSA approached Settlement Commission.
The Settlement Commission after hearing all the parties held that Revenue had failed to
prove that the authorised agent of BSA i.e. Custom House Agent (CHA) had a conscious
knowledge of mis-declaration of goods. Thus, Tribunal decided the case in favour of BSA on
the basis of the order of the Settlement Commission and dropped the misconduct proceedings
against them. Revenue challenged the Tribunal‟s order alleging that the order passed by the
Settlement Commission was ab-initio, null and void being without jurisdiction. Examine,
with the help of a decided case law, whether the order passed by the Settlement Commission
is ab-initio null and void being without jurisdiction?


Held: The order passed by the Settlement Commission is not null and void and is within the
jurisdiction.
The High Court observed that as per section 127M of the Customs Act, 1962, the order passed by
the Settlement Commissioner is in judicial proceedings and it is a judicial order. Further,
Revenue had not challenged the said order. Hence, the order passed by the Settlement
Commissioner could not be brushed aside considering the scheme of Chapter XVIA. It must be
held good in law so long as it is not set aside. Considering the facts and circumstances of the
case, the High Court answered the question of law in affirmative in favour of the assessee and
against Revenue.


    .




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                                SERVICE TAX

LATEST AMENDMENT - 2009
 SCOPE OF INDIA


N/N 1/2002 (Old notification)
In exercise of the powers conferred by section 7(7), of the Territorial Waters, Continental Shelf,
Exclusive Economic Zone and Other Maritime Zones Act, 1976, the Central Government hereby
extends the provisions Chapter V of the Finance Act, 1994 (Service Tax) to the designated areas in
the Continental Shelf and Exclusive Economic Zone of India as declared by the Notifications of
the Government of India in the Ministry of External Affairs.


Notification No. 21/2009-S.T., dated 7-7-2009
                                                        (notification 1/2002 amended)
In exercise of the powers conferred by section 7(7), of the Territorial Waters, Continental Shelf,
Exclusive Economic Zone and Other Maritime Zones Act, 1976, the Central Government hereby
                                          “installations,
extends the provisions Chapter V of the Finance Act, 1994 (Service Tax)
structures and vessels in the continental shelf of India
and the exclusive economic zone of India”

Amendment in Taxation of Services (Provided from outside
India and Received in India) Rules, 2006, (i.e Import of Service Rule)
Rule 2
“India” includes the installations, structures and vessels in the Continental Shelf and Exclusive
Economic Zone of India.



Effect of this new notification
                                                                     Baseline
                                                                                  Land mass of India

                                                           Territorial water
                                                            12 N.M.
                                   Indian Exclusive
                                   Economic Zone
                                   200 N.M.


                                         Installation
                                         Structure
                                         & Vessel

 Any service provided from                                    Any service provided from main land or
 any other country in ECZ                                     from that area itself other country in ECZ
 Shall be treated as Import                                   Shall be liable Service tax & shall not be
 service & liable for payment                                 treated as Export service
 of service tax


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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                                                   CA VISHAL BHATTAD
AMENDMENTS IN TAXABLE SERVICE
BUSINESS AUXILIARY SERVICE                                                       SEC 65(105)(zzb)

    SP                                           Service: in relation to busine ss auxiliary                                               SR
    Any                                          servi ce.                                                                                 Any
    person                                                                                                                                 person

           “BUSINESS AUXILIARY SERVICE” means any service in relation to,
           (i)      or                (ii)                or              (iii) or           (iv)                                    (v)            (vi)
   promotion or        promotion or marketing of                  any customer     procurement of goods                        production or   provision of
   marketing or        service provided by the client             care service     or services, which are                      processing of   service on
   sale of goods                                                  provided on      inputs for the client                       goods for, or   behalf of the
   produced or         Explanation. (F.A.2008)                    behalf of the                                                on behalf of,   client
   provided by or      It   includes     any      service         client.          Explanation.                                the client.
   belonging to the    provided    in      relation    to                               for the purposes of
   client              promotion or marketing of                                        this        sub-clause,                E.g. Job
                         games of chance, organised,                                    “inputs” means all                     work
                         conducted or promoted by the                                   goods or services
                         client, in whatever form or by                                 intended for use by
                         whatever name called, whether                                  the client.
                         or not conducted online,
                         including lottery, lotto, bingo.                               E.g         Buy ing       agent
                                                                                        searching the goods as
                         E.g. Distributor distributing &                                specif ication     giv en    by
                         promoting lottery ticket & charging                            client & f or that he charge
                         commission     to   State   Govt.---                           f ees to client.
                         Commission is taxable




   (vii)    a service incidental or auxiliary to any acti vity specified in sub-clauses (i) to (vi), such as billing, issue or collection or
   recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of
   prospective customer or vendor, public relation services, management or supervision,
                                                                           &
    includes
                                                                                                          but does not include
    servi ces as a commi ssion agent                                                                      any activity that amounts to
    ”commission agent” means any person who acts on behalf of another person and causes                   “manufacture” within the meaning of
    sale or purchase of goods, or provision or receipt of services, for a consideration, and              Sec 2(f) of the Central Excise Act
    includes any person who, while acting on behalf of another person
    (i) deals w ith goods or services or documents of title to such goods or services; or
    (ii) collects payment of sale price of such goods or services; or                                     any activity that amounts
    (iii) guarantees for collection or payment for such goods or services; or
    (iv) undertakes any activities relating to such sale or purchase of such goods or services;           to “manufacture of
                                                                                                          excisable goods”


Impact of amendment: Now only those manufacturer/job worker are excluded from levy of service
tax who are manufacturing excisable goods.
 EXAMPLE-1

 OLD PROVISION                                                               NEW PROVISION
 R.M. Supplier                            Job worker                         R.M. Supplier                                    Job worker

               R.M                    R.M          Alcoholic                               R.M                            R.M         Alcoholic
               .                      .            Liquor                                  .                              .           Liquor

                                                                              Under new provision only the activity amounts to
   Even though alcoholic liquor non excisable                                 manufacture of EXCISABLE GOODS is excluded from
   goods under Central Excise Act (because S.G. have                          levy of service tax. alcoholic liquor non excisable goods under
   power to levy e xcise) but activity amounts to                             Central Excise Act (because S.G. have power to levy e xcise).
   manufacture hence does not fall under levy of                              Hence activity of processing of such goods fall under
   Service Tax                                                                levy of Service Tax
                                                                              Notification No. 39/2009-S.T., dated 23-
                                                                              9-2009
                                                                              The job worker carrying out manufacturing or processing of
                                                                              Alcoholic Beverages shall be allowed to have exemption from
                                                                              Taxable value to the extent o f inputs used for providing the
                                                                              Business Auxiliary Service subject to following Conditions
                                                                                  a) that no Cenvat credit has been taken
                                                                                  b) that there is documentary proof specifically indicating
                                                                                       the value of such inputs

EXAMPLE-2 (IMP)
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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                              CA VISHAL BHATTAD

MANUFACTURER OF PHARMACEUTICAL PRODUCTS ON JOB WORK
BASIS (IMP)

  OLD PROVISION                                          NEW PROVISION
  R.M. Supplier                 Job worker               R.M. Supplier                   Job worker

            R.M           R.M          Pharmaceutical              R.M            R.M          Pharmaceutical
            .             .               products                 .              .               products


   Even though a   Pharmaceutical products non            Under new provision only the activity amounts to
   excisable goods under Central Excise Act (because      manufacture of EXCISABLE GOODS is excluded from
   power to levy e xcise on such product under Medical    levy of service tax. Pharmaceutical products non
   & Toilate preparation (Excise Duties)                  excisable goods under Central Excise Act (because power to
   Act,1955 ) but activity amounts to                     levy excise on such product under Medical & Toilate
   manufacture hence does not fall under levy of          preparation (Excise Duties) Act,). Hence
   Service Tax                                            activity of processing fall under levy of Service Tax

                                                          Notification No. 32/2009-S.T
                                                          BAS provide in relation to Manufacture of
                                                          following goods from whole of the service tax
                                                          leviable thereon under section 66 of the said
                                                          Finance Act
                                                               pharmaceutical produ cts, medicines,
                                                               perfumery, cosmetics or toilet
                                                                 preparations containing alcohol,
                                                          which are charged to excise duty under Medicinal
                                                          and Toilet Preparations (Excise Duties) Act,
                                                          1955.
                                                          (Intention of Govt is only to cover Alcoholic
                                                          Beverages an d not Pharmaceutical products)




Stock- broker/ sub-broker
 Who has made an application or
 is registered under the SEBI Act.
        Service provided to any person in connection with sale/purchase of listed securities.


   Service provided by Sub broker to a stock broker shall be
   exempt. Vide Notification No.33/2009 - ST




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                                  CA VISHAL BHATTAD
Transport of goods by rail
(1)          TRANSPORT OF GOODS IN CONTAINERS BY RAIL SERVICES
             SEC 65(105)(zzp)



      SP                                 SERVICE: in relation to transport of goods                   SR
      Any person                         in containers by rail, in any manner.                        Any
      other                                                                                           person
      Government
      railway
                                                        Deleted by F.A.-2009



                        Deleted by F.A.-2009



Effect of amendment: All Service providers (Whether Public or Private) providing service of
transport of goods in by rail, in any manner fall under purview of taxable service.

But Central Government under notification No. 33/2009 – ST exempted service provided by
Government Railways




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                       CA VISHAL BHATTAD

LATEST IMPORTANT EXEMPTION
1. MANAGEMENT, MAINTENANCE OR REPAIR OF ROADS EXEMPTED
                                                    (V. V. IMP)

Notification No. 24/2009-S.T

Service in relation to   management, maintenance or repair of
roads IS EXEMPTED from the whole of the service tax leviable thereon under section 66 of the
said Finance Act.

2. WORKS CONTRACT IN RESPECT OF CANALS
Notification No. 41/2009-S.T., dated 23-10-2009
Service in relation to execution of a works contract in respect of canals, other than those primarily
used for the purposes of commerce or industry is exempted from the whole of service tax leviable
thereon under section 66 of the said Act.


3. Exemption to the business auxiliary service provided by the sub-broker to
a stockbroker [Notification No. 31/2009 ST dated 01.09.2009]

The business auxiliary service provided by a sub-broker, to a stock-broker in relation to sale or
purchase of securities listed on a registered stock exchange has been exempted from the whole of the
service tax leviable thereon.

Exemption to Central and State Seed Testing Laboratories, and Central and
State Seed Certification Agencies [Notification No. 10/2010 ST dated
27.02.2010]
Exemption from service tax has been granted to any service provided to any person in relation to the
„technical testing and analysis service‟ and „technical inspection and certification service‟ provided by
Central or State Seed Testing Laboratories, and Central or State Seed Certification Agencies notified
under the Seeds Act, 1966.

Exemption to transmission of electricity [Notification No. 11/2010 ST dated
27.02.2010]
Exemption from service tax has been provided to the taxable service provided to any person, by any
other person for transmission of electricity.

Exemption provided to Indian News Agencies subject to specified conditions
[Notification No. 13/2010 ST dated 27.02.2010]
Exemption from service tax has been provided to Indian news agencies under „online information and
database retrieval service‟ and „business auxiliary service‟ only if such news agency:-
(i) is notified as a news agency set up in India solely for collection and distribution of news,
(ii) is specified under section 10(22B) of the Income Tax Act, 1961, and
(iii) applies its income or accumulates it for collection and distribution of news and does not
distribute its income in any manner to its members.




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD

Exemption to right to use the packaged/canned software subject to certain
specified conditions
The taxable service of providing the right to use the packaged/canned software, prepacked in retail
packages intended for single use has been exempted from the service tax under „information
technology software services‟ subject to the following conditions:-
       1. the document providing the right to use such software is packed along with the software.
       2. (a) In case of import: The importer has paid the custom duty on the entire
amount received from the buyer.
(b) In case of domestic production: The manufacturer/duplicator/the person holding the copyright
to software has paid the excise duty on the entire amount received from the buyer.

Exemption on sale or purchase of foreign currency under Notification No
19/2009 ST dated 07.07.2009

Exempts taxable services provided to a Scheduled bank, by any other Scheduled bank, in relation to
interbank transactions of purchase and sale of foreign currency from the whole of the service tax
leviable thereon.


WITHDRAWAL      OF/AMENDMENT                                                                          TO
EXISTING EXEMPTIONS:
Particular           Prior to amendment                Amendment made by the Notification No.
                                                       3/2010-ST dated 27.02.2010

commercial           Under „commercial training        The definition of vocational training
training             and coaching services‟, the       institute has been substituted by the
and                  taxable services provided in      following definition:-
                     relation to commercial training   “Vocational training institute” means an
coaching
                     or     coaching,    by        a   Industrial Training Institute (ITI) /
services                                               Industrial Training Centre (ITC) affiliated
                     vocational      training
                                                       to the National Council for Vocational
                     institute is exempt.              Training, offering courses in designated
                     the    vocational   training
                                                       trades as notified under the Apprentices
                     institute was defined as
                     “vocational         training      Act, 1961.
                     institute”      means      a
                     commercial     training or        Implication of the amendment
                     coaching     centre   which       The exemption from service tax in relation to
                     provides          vocational
                                                       vocational training courses would be available
                     training or coaching that
                     impart skills to enable the       only if the following conditions are satisfied:-
                     trainee to seek employment        • Vocational training institute is an ITI/ITC
                     or       undertake      self-     which is affiliated to the National Council for
                     employment, directly after        Vocational Training.
                     such training or coaching.        • It offers course in any of the designated
                                                       trades as notified.

                                                       Exemption extended to “Modular Employable
                                                       Skill courses” provided by a vocational
                                                       training provider [Notification No. 23/2010-ST
                                                       dated 29.04.2010]
                                                       The above exemption from the service tax has
                                                       been extended to the commercial training or
                                                       coaching centre services provided in relation to
                                                       “Modular Employable Skill courses” provided
                                                       by a vocational training provider registered
                                                       under „Skill Development Initiative Scheme‟
                                                       with the Directorate General of Employment
                                                       and Training, Ministry of Labour and
                                                       Employment.
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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                     CA VISHAL BHATTAD

Food grains and pulses included in the list of items eligible for exemption
when transported by road

Particular           Prior to amendment             Amendment made by the Notification No.
                                                    4/2010-ST dated 27.02.2010

Goods            At present, transport of fruits,   The scope of exemption has been enhanced
transport        vegetable, eggs or milk by road    by including food       grains and
agency           by a goods transport agency is     pulses     in the aforesaid list of exempted
                 exempt from service tax.           goods.



AMENDMENT IN THE SERVICE TAX (DETERMINATION OF
VALUE) RULES, 2006:

Statutory taxes levied by any Government on air passenger to be excluded
from the value of service [Clause (v) inserted after clause (iv) of rule 6(2)]
( Notification No. 15/2010-S.T. dated 27-2-2010]
Rule 6(2) enumerates the exclusions from the value of taxable services. The said Notification provides
that the statutory taxes charged by any Government (including foreign Governments, where a
passenger disembarks) on air passenger would be excluded from taxable value for the purpose of levy
of service tax under the „air passenger transport service‟. Such charges would be eligible for exemption
only if they are shown separately on the ticket/the invoice for such ticket.

IMPORTANT BOARD CIRCULARS
   1. Exclusion of the service charges recovered by the custom house agent to be
   excludedfrom the value of the ‘custom house agent service’[Circular No.
   119/13/2009-S.T. dated 21-12-2009]

Issue
The principal job of a custom house agent (CHA) is to get the import/export consignments cleared
through customs. However, at times they also provide services for packing, unpacking, loading,
unloading, bringing or removing the goods to or from the customs area, vessels or aircrafts for their
customers (i.e. importers or exporters). CHAs initially pay the service charges to these agencies and
later recover these charges from the customer along with their own charges CHAs. Similar
arrangement can occur for payment of statutory levies like custom duties, port charges, cesses etc.
leviable on the said goods.
Whether the charges which are said to be paid by the CHAs and later recovered from the customers
(i.e. reimbursable charges) should be added to the value for charging service tax from CHAs?
Clarification
It is clarified that the aforesaid reimbursable charges would be excluded from the value of taxable
service if all the following conditions are satisfied, -
(a) The activity/service for which a charge is made should be in addition to provision of CHA service.
(b) There should be arrangement between the customer & the CHA which authorizes or allows the
CHA to:-
(i) arrange for such activities/services for the customer; and
(ii) make payments to other service providers on his behalf;
(c) The CHA does not use the activities/services for his own benefit or for the benefit of his other
customers;
(d) The CHA recovers the reimbursements on „actual‟ basis i.e. without any mark-up or margin.
(e) CHA should provide evidence to prove nexus between such other (than CHA) services provided
and the reimbursable amounts. Similar would be the case for statutory levies, charges by carriers and
custodians, insurance agencies and the like.
(f) Each charge for separate activities/services is to be covered either by a separate invoice or by a
separate entry in a common invoice.
Any other miscellaneous/out of pocket expenses charged by the CHA would not be excluded.

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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD
2.Commission/remuneration paid to directors (whole-time or independent)
and Managing Director not liable to service tax [Circular No. 115/09/2009 ST dated
31.07.2009]
Issue -1
Whether service tax is payable on commission paid to Managing Director/Directors
(whole time, or Independent) by the company under business auxiliary service?

Clarification
Some Companies make payments to Managing Director/Directors (Whole-time or Independent),
terming the same as „commissions‟. The said amount paid by a company to their Managing
Director/Directors (Whole-time or Independent) even if termed as commission, is not the
„commission‟ that is within the scope of business auxiliary service and hence service tax would not be
leviable on such amount.

Issue -2
Whether service tax is payable by Independent Directors who are part of the Board of
Directors under management consultant’s service?

Clarification
The Managing Director/Directors (Whole-time or Independent) being part of Board of Directors
perform management function and they do not perform consultancy or advisory function. The
definition of management consultant service makes it clear that what is envisaged from a consultant is
advisory service and not the actual performance of the management function. The payments made by
Companies, to Directors cannot be termed as payments for providing management consultancy
service. Therefore, it is clarified that the amount paid to Directors (Whole-time or Independent) is not
chargeable to service tax under the category „Management Consultancy service‟. However, in case
such directors provide any advice or consultancy to the company, for which they are being
compensated separately, such service would become chargeable to service tax.


3. Canals constructed by Govt. or under Govt. projects not liable to service
tax under commercial or industrial construction service [Circular No.
116/09/2009 ST dated 15.09.2009]

Issue
Whether service tax is leviable on the construction of canals for Government projects?

Clarification
As per section 65 (25b) of the Finance Act, 1994 “commercial or industrial construction service” is
chargeable to service tax if it is used, occupied or engaged either wholly or primarily for the
furtherance of commerce or industry. As the canal system built by the Government or under
Government projects, is not falling under commercial activity, the canal system built by the
Government will not be chargeable to service tax. However, if the canal system is built by private
agencies and is developed as a revenue generating measure, then such construction should be charged
to service tax.
4. Dams, irrigation projects, buildings or infrastructure construction under
turnkey/EPC contract by Government not covered under the works contract
service [Circular No. 116/09/2009 ST dated 15.09.2009]

Issue
Whether service tax is leviable on construction activity of dams, buildings or
infrastructure construction etc. through EPC (Engineering Procurement & Construction)
mode taken up by the Government?

Clarification
The said service is covered under section 65 (105)(zzzza) of Finance Act, 1994. The said section itself
excludes works contract in respect of dams, road, airports, railways, transport terminals, bridges &
tunnels executed through EPC mode. Hence, works contract in respect of above works even if done
through EPC mode are exempt from payment of service tax.
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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                            CA VISHAL BHATTAD
5. Re-insurance commission not liable to service tax [Circular No.
120(a)/2/2010-ST dated 16.04.2010]

Meaning of re-insurance commission

When an insurance company re-insures the insurance business with another insurance
company, it deducts a part of the premium paid to the reinsurance company for
meeting the administrative expenses, i.e. they jointly bear the expenses for running the
insurance/reinsurance business. This shared expense is commonly known as
„commission‟ though strictly it is not in the nature of a commission.

Service tax liability on re-insurance commission

The demand was being raised on this amount deducted alleging it to be the consideration
paid to the insurance companies for promoting the business of re-insurers, thereby
providing them the „business auxiliary service‟. It has been clarified that the arrangement
between the insurance company and the reinsurer is only sharing of expenses. The
insurance company is not promoting the business of re-insurer because the the policy
holder may not even be aware of the operations of the re-insurer. Resultantly, no
service tax liability arises in the given case.

 Container detention charges not liable to service tax
Meaning of container detention charges
Container detention charges are imposed by shipping companies for marine containers kept beyond the
pre-determined period and not returned to the designated location within that period.
Service tax liability on container detention charges
Container detention charges are actually the „penal rent‟ for retaining the containers beyond the pre-
determined period.
The retention of the container beyond the pre-determined period is not a „business auxiliary service‟
because:-
     •     it is not a service provided on behalf of the client
     •     it is not an infrastructural support in the business of either the shipping lines or the customer
Therefore, the amount collected as „detention charges‟ is not chargeable to service tax.




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                             CA VISHAL BHATTAD
AMENDMENT IN SERVICE TAX RULES, 1994
E- PAYMENT
Rule                  Prior to amendment                    Amendment made by Notification                  No.
                                                            04/2010-CE (NT) dated 19.02.2010
proviso   to      An assessee was required to               An assessee shall deposit the service tax
rule 6(2)         deposit      the    service    tax        electronically through internet banking if he
                  electronically through internet           has paid the total duty of   Rs. 10 lakh
                  banking if he had paid the total
                  duty of Rs. 50 lakh or more               or more (including the amount of service
                  (including the amount of duty             tax paid by utilisation of CENVAT credit) in the
                  paid by utilisation of CENVAT             preceding financial year.
                  credit) in the preceding financial
                  year                                      Clarification : Thus limit of 50 lakhs
                                                            reduced to 10 lakh



E- RETURN
Rule                  Prior to amendment                    Amendment    made    by   Notification          No.
                                                            04/2010-CE (NT) dated 19.02.2010

proviso   to          The facility of e-filing of returns   Electronic        filing         of         returns
rule 7(2)             was earlier optional for the
                      assessees.
                                                            mandatory            for the assessee who
                                                            has paid total duty of Rs. 10 lakh or more
                                                            including the amount of service tax paid by
                                                            utilization of CENVAT credit in the
                                                            preceding financial year.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                     CA VISHAL BHATTAD

IMPORTANT CASE LAWS

AMITDEEP MOTORS-2010 (H.C.)
Assessee are authorized dealer of M/s. Maruti Udyog Ltd.
and are registered as Authorized Service Station under
service tax.M/s.Assessee in the case of sale of vehicle to Govt.     Merely arranging the
Agencies received commission from M/s. Maruti Udyog Ltd.             deal between Maruti &
for sourcing/executing sales orders directly through maruti          Govt    agency     and
and also for receiving the vehicles from Maruti and                  earning    commission,
                                                                     does not bring assessee
delivering the same to the Govt. Agencies.
                                                                     under clause “Clearing
Assessee was only involved in arrangement of all
                                                                     and        Forwarding
documentary requirements from the Govt. agency for Maruti,
                                                                     Agent”
liaison with Govt. agency for timely delivery of vehicle and
arranging document for dispatch.

The above service was sought to be taxed by the department under the category of “Clearing
and Forwarding Agent” services
 Held:       The Assessee is engaged in the business of selling cars. The assessee is authorized
 dealers of Maruti Vehicle. The main work of the assessee is to sell the cars and if, in that
 connection the assessee has done something, it cannot be said that the assessee is “Clearing and
 Forwarding Agent” within the aforesaid provisions.

Note : Service may cover in Business Auxiliary Service


COCHIN INTERNATIONAL                                           AIRPORT                     LTD-
2009 (H.C.)
Assessee – airport authority used to collect “user fee” @
Rs 500 for every outgoing international passenger.
Neither domestic passengers             nor international           collection of users fee
passengers reaching the Airport from any foreign                    is not for any specific
destination are liable to pay users fee.                            service rendered by
The Adjudicating Authority held that the amount                     them, but is a flat rate
collected as „Users Fee‟ at the rate of Rs. 500/ - per              of charge to augment
outgoing international passengers would form part of                revenue for the Airport
the assessable value for the purpose of payment of                  to cope up with the
Service Tax on the „Airport Services‟.                              expenditure and debt
                                                                    servicing, Hence no
Assessee contended that this fee is not for any service             service tax is payable for
rendered by the assessee to the passengers. It is only              the users fee collected by
collected from outgoing international passengers on                 the assessee.
decision in Meeting of the Board of Directors of the “to
collect users development fee for enhancing the revenue
of the airport to cope up with the expenditure and debt
servicing”.

Held:       As already noted no users fee is collected from any domestic passenger or any
international passenger landing at the Airport from a foreign destination. The amount charged is
a flat figure of Rs. 500/- from every outgoing international passenger.
However, no users fee is collected from any passenger travelling in the domestic sector.

 Users development fee collected on decision of Board of Directors for enhancing the revenue of
the Airport to cope up with the expenditure and debt servicing. It is clear from the decision
of the Board of Directors of the company that purpose is to augment revenue for
the Airport and is not towards consideration for any service rendered to the
outgoing international passenger.
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Section 67 defining value of taxable services for charging service tax says that the value of service
shall be gross amount charged by the service provider for the service provided to the recipient.
Since collection of users fee is not for any specific service rendered by them, but
is a flat rate of charge to one category of passengers namely, outgoing
international passengers, it cannot be said that the amount so collected is by
way of service charge. We, therefore, hold that no service tax is payable for the users fee
collected by the assessee.




KULCIP MEDICINES (P) LTD-2009 (H.C.)
(Most expected)
The assessee „clearing and forwarding agent‟ into an
agreement with M/s. Cipla for handling and distribution of
their products and were entrusted with the job of receiving,       If,   one     person    has
storing and distributing Cipla products to their authorised        rendered      service    as
stockists and distributing centres. For the service so             ‘forwarding           agent’
rendered, the assessee was entitled for commission based on        without rendering any
agreed percentage of sales. The assessee failed to pay service     service as ‘clearing agent’
tax on commission amount.                                          then he not liable for
Department issued a show cause notice demanding service            payment of service tax
tax on commission & also imposed penalty.                          under clause of clearing &
                                                                   forwarding agent.


Issue:   whether service tax payable on commission received only for
forwarding activity under clearing and forwarding agent?

HELD:       The word „and‟ should be understood in a conjunctive sense. The expression „a
clearing and forwarding agent in relation to clearing and forwarding operations, in any manner‟
contemplates only one person rendering service as „clearing and forwarding agent‟ in relation to
„clearing and forwarding operations‟. To say that if, one person has rendere d service as
„forwarding agent‟ without rendering any service as „clearing agent‟ then he not liable for
payment of service tax under this clause. In order to attract the levy C&F agent carries out both
clearing and forwarding operation.
In the instant case the assessee did not attend to the clearing of medicines; consignment were
cleared from the factory by the manufacturer and delivered to the premises of assessee and
assessee only receiving, storing and distributing Cipla products to their authorised sto ckists and
distributing centres.

As there was no clearing by the assessee therefore that service rendered did not satisfy the
requirement of clearing and forwarding.

Note : Service may cover in Business Auxiliary Service




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                   CA VISHAL BHATTAD
A.P. Federation OF Chit Funds-2009 (H.C.)
Issue: whether the chit fund activity falls within the
expression “cash management” under “banking
and other financial services”?                                      Chit fund activity
                                                                    does     not   fall
                                                                    within         the
Legal provision:         As per Circular No. 96/7/2007-S.T
dated 23-8-2007 chit fund activity falls within the expression
                                                                    expression “cash
“cash management” under “banking and other financial                management”
services”                                                           under     “banking
                                                                    and          other
                                                                    financial
                                                                    services”.

HELD: Considering the definition              of “chit fund” the High Court held that in the
absence of a specific statutory definition of „cash management‟ or even „asset management‟,
the question of its wider interpretation either by seeking to include or exclude any other
transactions or business (chit fund activity in the given case) is not permissible.


 Therefore, it is amply clear that in the absence of any such inclusive definition available in
the statute, it cannot be said that the assessee would fall within the mischief of “banking and
other financial services”.


The entire action of the Department of levying the service tax for the first time by way of a
circular is merely an executive order, which is not permissible under the law.



In the light of the foregoing reasons, High Court set aside the impugned
Circular No. 96/7/2007-S.T dated 23-8-2007.



As a result, the High Court held that the chit fund activity does not fall within
the expression “cash management” under “banking and other financial
services”.




    .




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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                   CA VISHAL BHATTAD


             CUSTOMS ACT, 1962
LATEST AMENDMENTS-2009

Section 26A of Customs Act, 1962 – Refund of duty for defective goods
     (1)   Where on importation of goods,
             any duty has been paid on clearance of such goods for HC;
             such duty shall be refunded to the person by whom it was paid if
              (a) the goods are found to be defective or not in conformity with the
                    specifications agreed upon between the importer and supplier of the goods
                    Provided that the goods have not been worked, repaired or used after
                    importation except where such use was indispensable to discover the defects
                    or non- conformity with specifications.
              (b) the goods are satisfied to the satisfaction of the AC or DC as the goods which
                    were imported.
              (c) the importer does not claim drawback and
              (d) (i) the goods are exported or
                    (ii) importer relinquishes his title to the goods and abandons them to the
                          customs or
                    (iii) such goods are destroyed or rendered commercially valueless in the
                          presence of the proper officer.
             in such manner as may be prescribed, within a period of 30 days from the date on
              which order for HC was made.;

             Provided the above period of 30 days may be extended by Commissioner for a period
             not exceeding 3 months.

             But refund shall not be allowed if any offence has been committed.



     (2)   An application for refund shall be made before the expiry of 6 months from the relevant
           date in such form as may be prescribed.
            (i) If goods are exported out of Date on which proper officer makes an order
                  India                         permitting clearance and loading of goods for
                                                exportation
            (ii) Title to goods is relinquished Date of relinquishment
            (iii) If goods are destroyed or The date of such destruction or rendering of
                  rendered         commercially goods valueless
                  valueless

     (3)   No refund shall be allowed in respect of perishable goods or goods which have exceed
           their shelf life.
     (4)   CBEC may specify any other conditions subject to which refund shall be allowed.


Section 3 of Customs Tariff Act, 1975 – Countervailing Duty
    Provided that
          in case of an article imported into India,
          where CG has fixed a tariff value
          for the like article produced or manufactured in India u/s 3(2) of Central Excise Act,
                      1944
          the value of imported article shall be deemed to be such tariff value.



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 AMENDMENTS & REVISION MATERIAL FOR NOV-10                                       CA VISHAL BHATTAD
Section 9A of Customs Tariff Act, 1975 – Anti-dumping Duty
Basis for Margin of Dumping
  The margin of dumping in relation to an article, exported by an exporter or producer, shall be
  determined on the basis of records concerning normal value and export value maintained and
  informed by the exporter or producer

    The provisions of the Customs Act, 1962 and the rules made thereunder, shall as far as may be, apply
    to duty chargeable under this section, as they apply in relation to duties leviable under that Act.


Section 9, 8B, 8C of Customs Tariff Act, 1975
   The provisions of the Customs Act, 1962 and the rules made thereunder, shall as far as may be,
   apply to duty chargeable under this section, as they apply in relation to duties leviable under
   that Act


LATEST BOARD CIRCULAR
Circular No. 7/2010-Cus., dated 23-3-2010

Subject: Recovery       of drawback amount on the portion of the FOB value of
export not realized by the exporter but compensated by ECGC - Reg.

Clarification: Since the Drawback scheme is governed by the provisions of the Customs Act,
1962 and the Rules made there under which clearly provide that drawback should be recovered if
sale proceeds have not been realized.Hence, Drawback' would not be payable in cases where export
proceeds have not been realised in accordance with the provisions of the Foreign Exchange
Management Act, 1999 even if the claim has been settled by ECGC or realisation waived by RBI.
Action should be taken for recovery of drawback amount in such cases.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD
LATEST CASE LAWS

 Atherton Engineering Co. Pvt. Ltd. - 2010
 (H.C.)
 Assessee imported artemia cyst (brine shrimp eggs). It
 classified it as „prawn feed‟ under the heading 2309 which
                                                                   Artemia     cyst   (brine
 includes products used as animal feed. However, the
                                                                   shrimp eggs) should be
 Department contended that this product was classifiable
                                                                   classified   as   feeding
 under the heading 0511.99 which refers to other products in
                                                                   materials    for  prawns
 the category of non edible animal products. In reply, the         under the heading 2309.
 importer pleaded that these imported cysts contained little       These embryos might not
 organisms/embryos which later became larva that prawns            be proper prawn feed at
 feed on. Therefore, according to them, the nature and             the time of importation
 character of this product was not changed by nurturing or         but could become so,
 incubation. You are required to examine whether the               after incubation.
 contention of the Department is justified in law.

 Held: Court held that it was the use of the product that had to be considered in the instant
 case. If a product undergoes some change after importation till the time it is actually used, it is
 immaterial, provided it remains the same product and it is used for the purpose specified in
 the classification. Therefore, in the instant case, it examined whether the nature and character
 of the product remained the same.
 The Court opined that if the embryo within the egg was incubated in controlled temperature
 and under hydration, a larva was born. This larva did not assume the character of any
 different product. Its nature and characteristics were same as the product or organism which
 was within the egg.
 Hence, the Court held that the said product should be classified as feeding
 materials for prawns under the heading 2309. These embryos might not be
 proper prawn feed at the time of importation but could become so, after
 incubation.
 The contention of the Department is not justified in law.




 ESSAR STEEL LIMITED-2010 (H.C.)
 Issue: Whether Export duty is payable goods which are
 cleared from DTA unit to the SEZ.?                                    Clearance from DTA unit
                                                                       to the SEZ only for
 Held:    There is no provision in the SEZ Act, 2005 for levy of       allowing export befits to
 export duty on supplies made by a DTA unit to the SEZ. In case        seller and for levy of
 good s cleared from DTA (Domestic tariff area) to SEZ, then           export duty under Sec 12
 said goods are deemed to exported under SEZ Act., but such            of customs Act. Hence, no
 deemed export only for allowing export benefit to the seller          Export duty is payable
 and not for levy of export duty under Sec 12 of customs               goods which are cleared
 Act,1962                                                              from DTA unit to the SEZ.

 As per sec 12 of customs Act, 1962 liability of customs duty arises only in case where goods are
 exported from India

 Section 2(18) defines export to mean taking out of India to a place outside India;
 Thus section 12 cannot be applied to goods which are cleared from DTA unit to the SEZ.
 Hence, no Export duty is payable goods which are cleared from DTA unit to the SEZ.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                   CA VISHAL BHATTAD
Shabir Ahmed Abdul Rehman- 2009 (H.C.)
The custom authorities confiscated the gold carried by Rafiq
(assessee) from Muscat. Rafiq informed the custom                   The action of the custom
authorities that he was filing an appeal against the order of       authorities in selling the
confiscation. The custom authorities informed Rafiq that the        gold during the pendency
confiscated goods had been handed over to the warehouse of          of the appeal was not
the Custom House for disposal and consequently, auctioned           justified.
the confiscated goods.
Examine the validity of the action of the customs authorities,
with the help of a decided case law, if any


Held: The High Court, in the instant case, held that handing over the confiscated gold
immediately after serving the order of confiscation itself was improper. In any event, after
receiving letter from the petitioner intimating that he was filing an appeal against the order of
confiscation, the custom authorities ought to have stopped the auction sale of the confiscated
gold. The action of the custom authorities in selling the gold during the pendency of the
appeal was not justified.


Board of Trustees of the Port of Bombay - 2009 (H.C.)
In the instant case, goods were pilfered before
clearance while in possession of the Port Trust as        section 45(1) of the Customs Act,
custodian. The Department raised the demand of            the recovery of duty in respect of
custom duty on the Port Trust because goods were          pilfered goods could only from
pilfered whilst in their custody.                         the approved person and the Port
                                                          Trust is not liable to pay duty on
                                                          goods pilfered while in their
                                                          possession.
Issue:     Is the Port Trust liable to pay duty on
goods pilfered while in their possession?

Held: The High Court viewed that considering the language of section 45(3) of the Customs
Act, the liability to pay duty on pilfered goods is of the person, in whose custody the goods
remain, as an approved person under section 45 of the Customs Act. The person referred to in
section 45 (1) thereof can only be the person approved by the Commissioner of Customs. It
excludes a body of persons, who by virtue of a law for the time being in force,
is entrusted with the custody of goods by incorporation of law under another
enactment,(for example, the Port Trust Act in the given case).
The Court interpreted that the intention of the law might have been to check the pilferage taken
place from a private warehouse or a customs warehouse run by a private party. The negligence
on such private parties should not cause loss to the exchequer.
Thus, the Court held that under section 45(1) of the Customs Act, the recovery
of duty in respect of pilfered goods could only from the approved p erson and
the Port Trust is not liable to pay duty on goods pilfered while in their
possession.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                  CA VISHAL BHATTAD
Vodafone Essar South Ltd. - 2009 (H.C.)
Krishna Telecoms were engaged in the business of providing
telecommunication services
in various States in India. For their business Krishna           The     action     of    the
Telecoms imported Optic Fibre Cables (OFC) and classified Directorate of Revenue
them under Heading 85.44 of the Customs Tariff. However, Intelligence                 (D.R.I.
the Department claimed that the goods should be classified officers) in seizing the
under Heading 90.01. The Commissioner of Customs goods                     and     collecting
(Appeals), when the matter was brought before him, held money from the assessee
that the impugned goods were classifiable under Heading during pendency of case
85.44 of the Customs Tariff. The Department has filed an before CESTAT is wholly
appeal before CESTAT against the said order which has yet unjustified
not been decided.
Meanwhile, the customs authorities (DRI officers) have seized the consignment of OFC
imported and cleared by Krishna Telecom on payment of duty assessed under Heading 85.44
and forced Krishna Telecoms to pay the differential duty between Headings 85.44 and 90.01
by threat and coercion.
Examine the validity of the action of the customs authorities, with the help of a decided case
law.


Answer: The            action of the customs authorities is not valid .
In the instant case, High Court has held that the action of the Directorate of Revenue
Intelligence (D.R.I. officers) in seizing the goods and collecting money from the assessee is
wholly unjustified and uncalled for, because of the following five reasons:-
(i) When the Commissioner of Customs (Appeals) in assessee‟s own case had held that OFC
imported by them were classifiable under Heading 85.44 of the Customs Tariff, the petitioners
were not wrong in classifying the goods imported after the said order under Heading 85.44 .
(ii) Decision of Commissioner (Appeals) was neither stayed by CESTAT nor by any other
competent authority. Hence, mere fact that appeal filed by Revenue against the decision of
Commissioner (Appeals) was pending could not be a ground to hold the assessee guilty of
misclassification of goods.
(iii) D.R.I. officers were bound by the decision given by Commissioner of Customs (Appeals).
(iv) The OFCs were cleared on payment of duty assessed under Heading 85.44.
           Therefore, till the assessment was set aside, the customs authorities could not have
seized the goods assessed and cleared under Heading 85.44, on the ground that the goods were
liable to be assessed under Heading 90.01.
(v) In the absence of any reassessment order passed determining the duty liability, there
would be no question of recovering differential duty.




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AMENDMENTS & REVISION MATERIAL FOR NOV-10                                      CA VISHAL BHATTAD

Tanfac Industries Ltd.- 2009 (S.C.)
The Assessee warehoused the Acid Grade Flourspar falling
in Customs Bonded .Subsequently, the warehoused goods
are being cleared After 90 days on payment of duty by                Goods    cleared    under
utilizing Export incentive (DEPB credit) allowed under               DEPB Scheme cannot be
export incentive scheme.                                             treated as exempted but
The importers were called upon by department to show                 are duty paid goods and
cause why interest shall not be demanded from them, since            hence interest is payable
they had effected clearance beyond the interest free                 on them if the same are
warehousing period of 90 days as per Section 61 of the Act.          cleared from warehouse
The assessee contended that payment by debit in DEPB is
not cash payment but exemption and hence interest is not             beyond the period of 90
payable on non-existing duty.                                        days, as per Section 61 of
                                                                     the Customs Act, 1962


Held: S.C.had held that goods cleared under DEPB Scheme          cannot be treated as exempted
but are duty paid goods and hence interest is payable on them if the same are cleared from
warehouse beyond the period of 90 days, as per Section 61 of the Customs Act, 1962
{DEPB Scheme: It is benefit is given to the exporter on importation of their raw material.Under this
scheme, exporter are issued DEPB scrips which allows them the specific amount to be utilized for
payment of custom s duty on imported raw material required for manufacture of export goods. }


GAWAR CONSTRUCTION LTD.-2009 (H.C.)
The assessee imported the machine without payment of
customs duty as an actual user in view of an exemption         Any confiscation under
allowed on the condition that importer would use for its       Section 111(o) of the
own use for a period of 5 years. The machine was insured       Customs        Act,     1962
by it with ICICI Lombard General Insurance Co. The             without      notice    under
machine met with an accident and assessee reported the         Section 110(2) read with
accident to the insurance company and claimed insurance.       section 124 is invalid
The insurance company settled the claim of assessee on a
total loss basis and paid the settled amount to the assessee
after deducting its scrap/residual value of machine.
 According to Department the machine was allowed to be imported without payment of duty
on condition that the importer would use it for its own use for a period of 5 years. Since the
machine, though met with an accident, was sold within a period of 5 years of the import, the
condition for a duty free import was breached and was liable for confiscation under Section
111(o) of the Customs Act, 1962. The Department accordingly seized the machine from the
premises of the assessee on 14th November, 2008 under a seizure panchanama.
According to the assessee, no notice was issued to it prior to the seizure or even after the
seizure till date and, in any event, the department were required to give notice to the
petitioner under Section 110(2) read with of Section 124 of the Act within 6 months (which
could be extended by a further period of 6 months).
Held: where civil rights of a person are likely to be affected by an administrative or quasi-
judicial order, rules of natural justice require that the person affected be given a reasonable
opportunity of being heard before the order is passed unless the statute under which the order is
passed specifically excludes such opportunity.
Section 110 read with Section 124 of the Act cast an obligation on the customs authorities to issue
a show cause notice within 6 months or extended period of further 6 months to show cause why
the order of confiscation of the goods should not be made.
We are clearly of the view that the person from whose custody the goods have been seized under
Section 110 of the Act is entitled to a notice under Section 124 of the Act and is entitled for a
reasonable opportunity of making a representation and reasonable opportunity of being heard
before an order of confiscation of goods is passed.
In the present case, admittedly no notice under Section 110(2) read with 124 of the Act has been
issued to the assessee within a period of 6 months. In fact the notice has not b een issued till
today. Consequently, the continued detention of the goods seized beyond the statutory period of
6 months under Section 110(1) of the Act is illegal.



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  AMENDMENTS & REVISION MATERIAL FOR NOV-10                                         CA VISHAL BHATTAD

SEC 3(1): ADDITIONAL CUSTOMS DUTY UNDER CUSTOMS TARIFF ACT, 1975
(CVD)

MALWA INDUSTRIES LTD.-2009
Assessee imported certain finishing agent, dye carriers, etc. for use in the manufacture of textile &
textile article.

In excise as per exemption notification under heading 3204 “Finishing agents, dye carriers or etc to
accelerate the dyeing or fixing of dye-stuffs, printing paste, and other products and preparations of
any kind used in the same factory for the manufacture of textiles and textile articles”. is subject to
NIL rate of duty.

Assessee had claimed exemption from CVD on imported finishing agent, dye carriers, etc. for use
in the manufacture of textile & textile article.

Department denied exemption by contending that “imported finishing agent, dye carriers, etc.
were not manufactured by the assessee in its own factory, therefore the condition that the said
goods should be used in the „SAME‟ factory is not satisfied”.

ISSUE: Does the „nil‟ rate of duty, as provided for in the said notification dated 1-3-2006, subject to
the condition that the same are used in the same factory would mean that the goods which were to be
used must be manufactured in the same factory?

DECISION:
      The expression “same factory”, therefore, in our opinion, would mean the factory where
      the goods are actually manufactured. It only means that the imported goods are required
      to be used in the factory belonging to the importer where the manufacturing activity takes
      place.
      There is nothing in Section 3 of the Act and in particular the explanation appended to
      Sub-section (1) thereof mandating actual production or manufacture in the said factory
      itself. The object of levy of the said duty is that an importer should not be placed at some
      more advantageous position vis-a-vis the purchasers/manufacturers of similar goods in
      India.
      Thus,if excise duty is not leviable on manufacture of goods, the question of the importer
      paying any additional duty for import of like goods would not arise.


Accordingly, finishing agent, dye carriers, etc. for use in the manufacture of textile & textile article are
eligible for exemption.




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