Fwd: {jalgaoncas} Sales Commission - Eligibility Under CE/ST

---------- Forwarded message ----------
From: Madhukar Hiregange <mhiregange@gmail.com>
Date: Tue, Jan 7, 2014 at 12:16 PM
Subject: {jalgaoncas} Sales Commission - Eligibility Under CE/ST

Eligibility of input service credit – Sales Commission

The cenvat credit scheme is a beneficent legislation and allows for credits used for manufacture or service. Sales commission is paid for the following reasons: market creation/development, advertisement, sales promotion activities, identifying potential customers, negotiating with them, sourcing / funneling of orders, increasing sales etc.

Cenvat Credit Rules prior to 1.4.11 specifically allowed for marketing and sale promotion as eligible. In addition the activities relating to business was also allowed. Post April 2011 the activities relating to business was dropped however the specific activity of sales promotion was continued to be included in the definition. Several decisions including Ambika Overseas [ 2012(25) STR 348 (P&H) affirmed this position. Further the CBEC Circular 943/4/2011 dt 29.4.11 issued in Sl.No 5 clarifies that inspite of the "activities relating to business" being omitted as far as dutiable goods are concerned as the same is specifically set out and provisions to be read harmoniously, the eligibility remains clear. Notification 18/09 of 7.7.09 followed by Not. 42/12 of 29.6.12 allow commission upto 10% of FOB value of exports to be paid and not subjected to service tax under reverse charge and the balance eligible for refund.

 The dispute got some support in the decision of Cadilla health Care [ 2013(30)STR 3 (Guj) wherein this position was questioned. It unsettled to some extent the settled position of law that the sales commission was clearly eligible as an activity preceding sales. However now a days at times the audit officers seek to deny the same alleging that it is a post removal expense relying on this judgment. However it is important to note that in this decision no evidence was led that any sales promotion activity was involved.  It appears now that the commission on selling goods is in a slightly better position than that for services as far as eligibility is concerned.

Therefore to avoid disputes in this regard the scope of the activities for which sales commission is paid is to be made clear in the agreements focusing on the fact that many activities are for long term – advertisement, road shows, business exhibitions, sponsorships … as well as shorter term measures of identifying customers, negotiating with them, increasing sales by collecting orders etc. The nexus and pre removal activities now require to be explicit instead of implicit to avoid demands in this regard. Feedback welcome madhukar@hiregange.com

For doubts host on pdicai.org

Warm Regards
Madhukar N Hiregange
Partner

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CBEC's Construction Services Circular Causes Confusion - Sivakumar S - 3S Solutions

---------- Forwarded message ----------
From: Rebecca Andrews <rebecca.andrews88@yahoo.in>
Date: Fri, Feb 17, 2012 at 1:57 PM
Subject: Message from EGroup of SolapurCAs CBEC's Construction Services Circular Causes Confusion - Sivakumar S - 3S Solutions
To:

 

CBEC Circular on Construction Services – Yet another googly on bouncy track?   THE Board has come out, yet again, with a highly controversial Circular 151/2/2012-ST dated February 10, 2012, 'clarifying' certain issues related to the levy of service tax on construction services, to the field force. That it should take about seven years for the Board to express its view on the levy of service tax on joint development agreements speaks volumes about the absolute lack of clarity on the subject matter. I've tried to discuss the two most important issues dealt with in this Circular, in this piece. I've used the term 'pure Developer' from the factual point that, such Developer does not carry out the actual construction activity, which is actually carried out by the contractor/(s).At the very outset….. this circular has been issued to clarify issues related to two services, viz. Commercial or Industrial Construction services and Construction of complex services. Quite obviously, this circular does not clarify anything on issues related to the levy of service tax under 'Works Contract' services. This is rather surprising given the fact that, with the introduction of service tax on works contracts with effect from June 1, 2007, most of the players operating in the construction industry have shifted to classifying their services under 'works contract' services, given the fact that, 'works contract' services is a specific head as contrasted to 'Construction of complex' services or 'Commercial or Industrial construction' services. Moreover, as per Section 65A, works contract services being a specific head, service providers are duty bound to classify their services under this head in preference to the other two services. In my view, with the introduction of service tax on works contracts, nine out of ten cases in the construction sector would fall under this service. One does not then understand the practical utility of continuing to issue clarifications on construction services, given the legal position that, these clarifications will not be applicable to works contract services. Service tax on pure Developers/Builders Be that as it may …. let's try to analyse certain important 'clarifications' that the Board has issued. Firstly, the circular makes a statement that, pure Developers/Builders who have completely sourced out the construction activity to contractors are liable to pay service tax with effect from July 1, 2010, in terms of the Explanations added by the Finance Act, 2010 bring into effect, the concept of 'deemed services' under the construction services. It seems that this Circular is making a clear distinction between Developers/Builders who carry out the construction activity and Developers/Builders who have fully outsourced/contracted out the construction activity. In the Board's view, while the former is taxable for the period prior to July 1, 2010 (and obviously from June 16, 2005), in the case of the latter, the Developers/Builders who do not undertake the construction will come into the service tax net with effect from July 1, 2010 under the 'deemed services' concept. I have no issues with this view, by the way, in so far as the taxability of Developers/Builders who undertake construction activity is concerned, for the period prior to July 1, 2010. However, the Board's view that, pure Developers/Builders who do not undertake the construction activity are also liable from July 1, 2010 might be unsustainable. In terms of the decision of the Apex Court in State of Andhra Pradesh v. L & T Ltd (2008) 17 VST 001(SC)which has been relied upon by several High Courts including the Karnataka High Court in theSkyline Constructions case (2001) 37 VST 290, a pure Developer who does not undertake the construction activity is not a works contractor within the meaning of the VAT law. It is the contractor who is treated as the works contractor, liable for payment of tax under the VAT law. Viewed in this context, a pure Developer/Buyer, referred to in the Board Circular in the tripartite agreements model, is not a works contractor under most State VAT Laws. In terms of the definition contained in the Finance Act, 1994, for a person to be treated as a 'works contractor' under the service tax law, it is a pre-requisite that, he should be a works contractor under the VAT law. If this view is accepted, a pure Developer who does not undertake the construction activity cannot be treated as a 'works contractor' under the service tax law. Can the pure Developer/Builder who is not a works contractor under the service tax and is consequently not liable to service tax under 'Works Contract' services which is a specific head (even by the Board's own admission vide Circular No. 128/10/2010 dated August 24, 2010), can still be covered under Construction services, which is generic head, by virtue of this Circular? I highly doubt the legal sustainability of the Board view in the light of the well-established judicial principle that once a service is exempted under a specific category, it cannot be brought under a generic head. Be that as it may, vis-à-vis pure Developers/Builders…. this Circular would seem to have given a quite burial to the famous Circular No. 108/2/2009 dated January 29, 2010, in as much as, by clarifying that even pure Developers/Builders would be taxable from 1-7-2010 despite not undertaking construction work, the Board is seen to be reiterating the view that, so long the construction activity is undertaken by the Developer/Builder, even party, service tax is leviable for the period prior to 1-7-2010, even if the Developer/Builder enters into an agreement of sale of the flat as an immovable property, as contrasted to entering into two Agreements, viz. one agreement for the sale of the undivided portion of the land and the other, for the construction of the flat. In terms of the current law on levy of VAT/sales tax on sale agreements, in the light of the binding effect of the decision of the Supreme Court in the K Raheja case, even sale agreements which are also referred to as 'single agreements' are liable to the levy of VAT in many States including Karnataka. If a transaction is treated as a works contract within the meaning of the VAT law, it would be very difficult to take the view that, such an agreement is not a works contract for service tax purposes. Hence, it would no longer be wise to go by the view that sale agreements cannot be subjected to service tax. This has been my strong view, even before the issuance of this Circular. Service tax on joint development agreements Secondly and more importantly, the Circular makes a highly controversial statement that, Developers and Builders are liable to service tax even in respect of the flats/apartments constructed and exchanged with the Land Owners, under what are typically referred to Joint Development Agreements. In my strong opinion, this view is legally unsustainable and reflects a complete lack of understanding on the Board's part. Let's first discuss what a joint venture is. A joint venture is an association of two or more persons to carry out a single business enterprise for profit [Words and Phrases, permanent edition, Vol. 23, p.117] {Cited in (1997) 89 Com Cases 849, pp.867-868}. In terms of Black's Dictionary 9th Edition, 2009 (page 915), "Joint Venture" is a business undertaking by two or more persons engaged in a single defined project. The necessary elements are: (1) an express or implied agreement ; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member's equal voice in controlling the project The Accounting Standard No. 27 issued by the Institute of Chartered Accountants defines Joint Venture as a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control.In terms of the Apex Court's decision in New Horizons Ltd v. Union of India (1997) 89 Com Cases 849, p.867 (SC), the expression "Joint Venture" connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It is clear that the joint development agreements entered into between Land Owners and Developers / Builders assume the character of a joint venture, in as much as, the Land Owner brings in the land and the Developer brings in his expertise to build and market the property, for sharing of profits and losses. In most cases, the joint development agreement provides for the exchange of a certain portion of the total built up area by the Developer, in exchange for the portion of the land, in what is essentially a transaction involving a barter.Service tax gets attracted only when there are two parties, viz. the service provider and the service receiver. In a joint venture, the concept of mutuality prevails in as much as, there are no parties involved. Some of the cases in which the CESTAT has taken the view that joint ventures are not covered under service tax are Initiating Explosives Systems v. CCE, Kolkata-V, Sunshield Chemicals Ltd v. CCE, Raigad, CCE, Chennai v. Sundaram Finance Ltd and Glaxo Smithkline Pharmaceuticals Ltd. v. CCE, Mumbai. More importantly, in CST v. Puravankara Projects Ltd, the Bangalore CESTAT had taken a prima facie view that, in joint development agreements, no service is rendered by the Developer to the Land Owner. Hence, the current judicial view is clearly against joint development agreements being subjected to service tax levy. And, what happens to the 'dominant intention' test enunciated by the Supreme Court in several cases and notably in the BSNL case (2006-TIOL-15-SC-CT-LB). Is not the 'dominant intention' in the case of a joint development agreement, one of partnership and not one of provision of service? How can service tax be then levied, in the absence of a service provider-service receiver relationship? Even the Board has recognized that transactions between two contracting parties, on a principal to principal basis, are not to be treated as 'services' in terms of Circular No. 109/03/2009 covered by F. No. 137/186/2007 - CX. 4 dated 23-02-2009. In this Circular which was issued with regard to the applicability of service tax on screening of films by theatre owners, the Board has clarified that under the particular type of arrangement which typically is undertaken between the theatre owners and the distributors of films, a revenue sharing model operates whereby a fixed and predetermined portion/percentage of revenues earned from the sale of cinema tickets goes to the theatre owners and the residual portion/percentage is paid over to the distributors. The Board had clarified that in such a situation, the two contracting parties act on a principal to principal basis and do not provide any services to each other and consequently no service tax would apply. In this rather benevolent Circular (which may seem so untypical of the Board), a clear has been articulated that, in any revenue sharing arrangement, the contracting parties do not provide services inter se to each other but merely come together to jointly undertake an economic activity and to share the economic gains resulting from such activity and hence, service tax cannot be levied. Though this view has been expressed in the context of the levy of service tax on movie theaters, the concept is nevertheless, applicable to the case of joint development agreements, in my opinion. I fail to understand as to how the exchange of flats by the Developer/Builder for part of the land owned by the Land Owner is any different and how can the Board make a sudden U Turn and now take a view that such agreements are taxable, especially, in the light of the views expressed in Circular No. 109/03/2009. Let's view this issue from another angle. Assuming, for the sake of argument, that the Developer indeed renders taxable service to the land owner, how does one compute the value of such services, considering the fact that the transaction involves non-monetary consideration. As per Rule 3 of the Valuation Rules which have become effective from April 18, 2006, there are two methods that are provided for converting the value of the non-monetary consideration into a monetary value. As per the first method, the 'gross amount charged' by a service provider, for rendering a service in the ordinary course of business, would be the amount charged, assuming that no additional consideration has flown to the service provider. As per the second method, where it is not possible to arrive at the 'gross amount charged', the service provider will have to determine the equivalent money value of such non-monetary consideration, which cannot be less than the cost of provision of the taxable service. Obviously, it is the second method which could get pressed into service, if a view is taken by the Department that the developer renders a taxable service, vis-à-vis the land owner. And, how does one value the services, in a case involving the developer and the land owner, given the stipulation that such value cannot be less than the costs involved? And, how does one go about computing these costs, in the highly complex environment involving real estate transactions? The Board's view that the valuation is to be done in terms of rule 3(a) of Service Tax (Determination of Value) Rules, 2006 by comparing the value of other similar flats, seems highly impracticable and unsustainable. Taking this reasoning forward, what would happen if the joint development agreement talks of a token amount to be paid by the developer to the land owner, in addition to the exchange of the built up area with the portion of the land? In this case, can a view be taken that since the part consideration consists of cash, it is the cash element which will form the 'gross amount charged' for purposes of levy of service tax? Let's look at this from yet another angle. Let's assume that, the Land Owner enters into works contractors with his prospective customers, for selling the flats that he is go get, as part of the joint development. Surely, these would be treated as works contracts, for purposes of levy of service tax, despite that the Land Owner is not engaged in the actual construction activity. In the light of this Circular, the Developer/Builder is treated as the works contractor in respect of the flats to be exchanged with the Land Owner. Now, the question that arises is, this… can the same transaction of construction of flats earmarked for the Land Owner be subjected to the service tax levy twice… once, in the hands of the Developer and again, in the hands of the Land Owner? Not, for sure. And, finally, the transaction between the Developer/Builder and the Land Owner is in the nature of transaction of 'self-service' by the Land Owner. In other words, the Land Owner is employing the Developer/Builder for building flats for the Land Owner himself. The fact that the Land Owner might sell these flats subsequently, would not change the concept of the 'self-service' involved here, in terms of the Board Circular No. 108/2/2009 dated January 19, 2009, referred to in this Circular. Hence, even from this angle, there would be no service tax liability on joint development agreements. I would wonder if the Board has taken this view on joint development agreements, based on the decision of the Hon'ble Supreme Court in the case of Faqir Chand Gulati v.Uppal Agencies Pvt Ltd. In my view, this decision cannot be transported to the service tax law. In this decision, the Apex Court had held that the builder, entering into a joint development agreement with the Land Owner, is to be treated as a service provider, under Section 3 of the Consumer Protection Act, 1986 and the Land Owner is entitled to civil remedies, in the case of default by the Builder. But, we must bear in mind the fact, that the decision of the Apex Court given under the Consumer Protection Act cannot be transported into the service tax law, as the CPA, 1986 does not even define the term 'real estate' and hence, this case cannot be made applicable to the joint development agreements entered into between Land Owners and the Developers and Builders. Before parting … The Board has, yet again, come out with a Circular dealing with very important issues concerning the Realty Sector, in a rather casual manner. Sadly, the Circular makes no attempts in substantiating the Board's view that joint development agreements are taxable. Given the fact that most Realty projects are getting promoted under the joint development mode, this Circular would create a huge problem for the Developers, who would be well advised to challenge this circular in the judicial forums. For Developers and Builders who have classified their services under Works Contracts, the best thing to do would be to simply ignore this Circular. The views expressed by the Board vis-à-vis joint development, in the specific context of construction services, are not applicable to works contract services As aforesaid, with the introduction of service tax on works contracts with effect from June 1, 2007, one does not understand the need to continuously tinker with the existing provisions applicable for construction services. As such, the Realty Developers and Builders have been left to play in an unpredictable and bouncy track consisting of potholes, in the form of totally unclear tax provisions. The Board would now seem to have bowled a googly. In many cases, the Adjudicating Officers have passed orders, treating the 'services' rendered by Developers to Land Owners as 'exempted services' and asking these Developers to pay service tax/reverse proportional cenvat credit, under Rule 6(3). I would wonder as to the fate of these orders in the light of this Circular, most of which are already before the Tribunal. And, for indirect tax professionals (like me), this Circular provides a huge opportunity, as litigation related to the Realty Sector is bound to increase, manifold. FEBRUARY 17, 2012 - Taxindiaonline  By S Sivakumar, CA (The Author is Director, S3 Solutions Pvt Ltd, Bangalore)

__._,_.___

Customs, Excise and Service tax Circulars, Notifications and Instructions.

---------- Forwarded message ----------

From: CA Saiprasad Bagrecha <saiprasadbagrecha@gmail.com>
Date: Thu, Feb 16, 2012 at 9:59 AM
Subject: {jalgaoncas} Customs, Excise and Service tax Circulars, Notifications and Instructions.
To:

Dear All,

 

 

Find enclosed the details of Customs, Excise and Service tax Circulars, Notifications and Instructions.

 

http://www.indiantaxhome.com/2012/02/circular-no03-2012-customs-f-no.html

 

·         Circular No.03 / 2012 – Customs F. No. 524/129/2011-STO (TU)

 

            Subject: Classification of Fused Silica under Customs Tariff Act, 1975 - regarding.

 

 

http://www.indiantaxhome.com/2012/02/time-bound-customs-clearance-of-cargo.html

·         F. No.450/160/2011-Cus.IV

 

Subject: Time bound Customs clearance of Cargo from Ports/Land Customs Stations/Air CargoComplexes, CFSs/ICDs - regarding.

 

 

http://www.indiantaxhome.com/2012/02/notification-no-06-2012-customs.html

·         Notification No. 06 /2012-Customs

           

 

 

http://www.indiantaxhome.com/2012/02/notification-no-122012-customs-add.html

·         Notification No. 12/2012 –Customs (ADD)

 

 

http://www.indiantaxhome.com/2012/02/circular-no-95812012-cx.html

·         Circular No. 958/1/2012-CX 

             Sub:    Revised Treaty of Trade between  India and Nepal.

 

 

http://www.indiantaxhome.com/2012/02/notification-no-042012-central-excise.html

·         Notification No. 04/2012 - Central Excise

 

 

http://www.indiantaxhome.com/2012/02/circular-no-15012012-st.html

·         Circular No. 150/1/2012-ST

 

 

http://www.indiantaxhome.com/2012/02/circular-no-151-2-2012-st.html

 

·         Circular No. 151 /2 /2012-ST

--

=======================================================================================
CA Saiprasad P. Bagrecha 

Mob:- +91- 98235 26824 / + 91-82750 32822

CBEC had extended the date of submission of half yearly return for the period April 2011 to September 2011, from 26th Dec. 2011 to 6th Jan. 2012

---------- Forwarded message ----------
From: CA. Hardik P. Shah <hpshah_1999@yahoo.com>
Date: Fri, Dec 30, 2011 at 11:09 AM
Subject: CBEC had extended the date of submission of half yearly return for the period April 2011 to September 2011, from 26th Dec. 2011 to 6th Jan. 2012

CBEC had extended the date of submission of half yearly return for the period April 2011 to September 2011, from 26th Dec. 2011 to 6th Jan. 2012

https://docs.google.com/open?id=1oQZfLjvzFmoB4aoLCr8MRp0de_q9pYmCPu-Xrl1FqV7FkQoLXC0R530blxiG

Procedure for electronic filing of Central Excise and Service Tax returns and for electronic payment of excise duty and service tax

Procedure for electronic filing of Central Excise and Service Tax returns and for electronic payment of excise duty and service tax

Government of India

Ministry of Finance Department of Revenue

(Central Board of Excise and Customs)

New Delhi

Dated, the 28th September,2011

To
All Chief Commissioners of Customs &Central Excise,
All Chief Commissioners of Central Excise,
All Chief Commissioners of Large Taxpayers Unit.

Sub.: Procedure for electronic filing of Central Excise and Service Tax returns and for electronic payment of excise duty and service tax.

Sir/madam,

1.Attention is invited to Circular No. 919 / 09 / 2010 - CX dated 23rd March 2010 prescribing the procedure for electronic filing of Central Excise and Service Tax returns and payment of Central Excise duty and Service Tax by all the assessees who had paid Central Excise duty and Service Tax of Rs. 10 Lakh or more (including payment by utilisation of Cenvat credit) in the previous financial year. Attention is also invited to Notifications No. 21/2011-Central Excise(NT) & 22/2011-Central Excise (NT) both dated 14.09.2011 and No. 43/2011-ST dated 25.08.2011 prescribing mandatory electronic filing of Central Excise and Service Tax returns.

2. DG (Systems) has prepared comprehensive instructions outlining the procedure for electronic filing of Central Excise duty and Service Tax returns and electronic payment of taxes under ACES. The same is annexed. The said instructions outline the registration process for new assessees, existing assessees, non–assessees and for Large Taxpayers Unit assessees, steps for preparing and filing of return, use of XML Schema for filing dealer's return, procedure for obtaining acknowledgement of e-filed return, procedure for e-payment etc. It is requested to sensitize the concerned officers as well as the trade and industry regarding the said instructions.

3. As a large number of taxpayers would be required to file Central Excise and Service Tax return electronically, it is requested that the trade and industry may be provided all assistance so as to help them in adopting the new procedure.

4. Field formations and trade/industry/service provider may also be informed suitably.

5. Hindi version will follow.

Yours faithfully,

(V.P.Singh)

Under Secretary (C.X.6)

Customs Frustrated - Accused's Morale High : Advocate Can Be Present During Interrogation

---------- Forwarded message ----------
From: Rebecca Andrews rebecca.andrews88@yahoo.in

Recording of Statement under Customs Act - Supreme Court allows presence of Advocate  2010-TIOL-98-SC-CUS IN THE SUPREME COURT OF INDIA Crlmp No.23956/2010 Writ Petition (CRL) No(s).122 of 2010 ANAND PRAKASH CHOUDHARI Vs UNION OF INDIA Altamas Kabir and Cyriac Joseph, JJ. Dated: November 24, 2010 Appellants Rep by: Mr Rupesh Sharma, Adv., Mr Gopal Balwant Sathe, Adv. Respondents Rep by: Mr Naresh kaushik, Adv., Mr B K Prasad, Adv., Mr Prashant Mishra, Adv. Customs – Section 108 – Interrogation to be done in the presence of Advocate who will stay at a visible but beyond hearing distance – It is directed that the interrogation, if any, of the petitioner under Section 108 of the Customs Act, 1962, in connection with file No. DRI/GRU/INV-02/2010-11, be conducted in the presence of his advocate, who would be entitled to stay at a visible but beyond hearing distance, from the place of interrogation. JUDGEMENT This application, Crl.MP No. 23956/10, has been filed on behalf of the writ petitioners, in pending Writ Petition (Crl.) No. 122/10, inter alia, praying for a direction that if the petitioner is to be interrogated under Section 108 of the Customs Act, 1962, such interrogation should be done in the presence of his learned advocate who could be placed at a visible but beyond hearing distance. After considering the submissions made on behalf of the petitioner as well as the Customs Authorities, we are inclined to allow the prayer made on behalf of the petitioner. Accordingly, we allow the application and direct that the interrogation, if any, of the petitioner under Section 108 of the Customs Act, 1962, in connection with file No. DRI/GRU/INV-02/2010-11, be conducted in the presence of his advocate, who would be entitled to stay at a visible but beyond hearing distance, from the place of interrogation. The application is allowed accordingly.   TIOL Reports : IN a landmark order delivered day before yesterday, the Supreme Court has permitted the presence of an advocate during interrogation under Section 108 of the Customs Act. The Supreme Court directed that the interrogation, if any, of the petitioner under Section 108 of the Customs Act, 1962, in connection with file No. DRI/GRU/INV-02/2010-11, be conducted in the presence of his advocate, who would be entitled to stay at a visible but beyond hearing distance, from the place of interrogation.

While making the presentation before the Parliamentary Committee on Finance on behalf of TIOL, I had submitted to the Hon'ble MPs;-

Any gazetted officer of the customs office is empowered to summon people to record their evidence and under the laws of India, a statement given before a customs officer is a valid piece of evidence. It is not like a statement given before a police officer which is not evidence. So, this summons and recording of statement power is very often misused. There are lot of allegations of people being summoned and beaten up and statements obtained. The next day they go and retract the statement. They are again called by summons and beaten up till they do not retract the statement. If they retract the statement after a month or two, the courts and higher appellate authorities take a view that 'you did not retract your statement in time; so it is an after-thought, so the statement stands'. And the statement given before a customs officer is a very valid piece of evidence.

The Hon'ble Chairman of the Standing Committee was surprised and he said,

I did not know about this aspect. I am surprised that a person who is recording the evidence is also, in a way, the prosecutor. In case of Police, they are not allowed to record the evidence because it is not acceptable in a court of law. The Police have to approach the Magistrate to record the evidence. Why is it that there is no third agency involved in this case? You have talked about the disadvantages of the present system. I am quite surprised as a common citizen that the Custom people have been allowed this authority whereas the Police have not been allowed to do so. Both are trying to prosecute the people whom they consider to be guilty. Let me know the background and whether there is any legal solution for this. Apart from prohibiting a Custom officer from recording the evidence, we should say that such and such person should be present at the time of recording the evidence or something like that. I f you have got any suggestion to ensure that this third degree method is not employed of if it is employed, their evidence is not accepted, please submit. You can send this information after due consideration, in writing.

We also added:

The experience has been that people are beaten up and usually police officers are badly accused of and publicised, as using third degree.

This provision has been made in the law assuming that the customs officers do not have lathis; they are not trained to beat people without the press seeing them. So, they get evidence by questioning or by other means. Third degree was believed to be not employable by the customs officers. But the experience is that in every case where the statement has been obtained,as the only evidence, the statement has always been obtained under duress, threat and pure unadulterated third degree. The courts have come to the rescue of some of these people some times. If the summoned person is a smuggler or he is a fraud or he is an evader, he has to be punished. It is okay. But he has to be punished within the law made by the Hon. Parliament of India. If I believe, somebody has evaded tax, I cannot beat him up; I cannot torture him. There are provisions under the law to bring him to punishment. The evidence has to be gathered by documents.

A leading lawyer recently wrote to us,

As a result of grant of evidentiary value for the statement recorded by the Customs and Excise officers, in any investigation, more emphasis is laid on recording statements, rather than collecting more corroborating evidences. This also leads to cases of extraction of statements under duress, though many such instances go un-complained for fear of consequences. Various degrees and methods of duress are often used by the officers to record confessional statements. It is usual for the investigating officers to recover substantial sums even during investigation, that too even when CENVAT credit was available, the assessees would be forced to pay in cash, which by itself would prove the existence of coercion and duress.

It really beats logic as to why any sane person would give a voluntary statement that he has smuggled and evaded.

The Supreme Court order comes in as a whiff of fresh air into the congested corridors of Customs offices. This order may not be universally applicable and maybe meant only for the applicant, but it still opens a new door for the harassed victims of misused power to record statements.

Please see 2010-TIOL-98-SC-CUS
Kind regards,

Rebecca Andrews

Publication of our Article "Happy Intermission in 'SAD' Movie"

Dear Professionals,

We are happy to tell you that our article "Happy Intermission in 'SAD'
Movie" has been published on the leading website on taxation
Taxindiaonline.com. The response of our readers has encouraged us to
prepare this piece on the topic of Refund claim of Special Additional
Duty (4%) granted to the importers under Notification No. 102/2007-
Cus. You all can access the Article on the following link:

http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=11200#


For the convenience of readers of this group, we are enclosing
hereunder our Article:

HAPPY INTERMISSION IN 'SAD' MOVIE

Prepared By: -
CA. Pradeep Jain
CA. Preeti Parihar
Sukhvinder Kaur, LLB(FYIC)
Introduction: -

The importer-dealers are over the moon these days. Their SAD-ness is
going to turn into happiness. Government granted exemption to the
importers from Special Additional Duty which is levied @ 4% under
Section 3(5) of the Customs Tariff Act, 1975 by way of refund. But due
to a no. of procedural formalities and slackness at the departmental
end, 80% of the claims were reviewed as pending at the major custom
houses as on 31.3.2010. This induced the Board to issue a Circular for
fixing a time limit for granting the refund of SAD. This critique is
about the happy intermission of the SAD refund movie.

History behind refund:-

The refund is available to dealers only who pay VAT on his sale.
Actually, this levy was in lieu of sales tax. The local manufacturer
pleaded that they have to pay sales tax on sale to Indian customer but
on import, there is no such tax for importer. As such, it is cheaper
to import. So, the Government introduced this special additional
custom duty. The Cenvat credit of the same was allowed to
manufacturers and it can be adjusted for payment of Excise duty. But
the dealer importers have to bear it and it became part of their cost.
But while trading the goods, they have to pay sales tax again. They
pleaded for the waiver if they are paying sales tax on their sale. The
Government agreed to it and said that they will get exemption by way
of refund. If they have not passed on Cenvat of such duty on his sale
then he can claim refund. As such, this scheme of refund was
formulated.

Utility of such levy:-

Further, in the opinion of the authors of this article, the goods are
normally imported by manufacturers or dealers. A consumer rarely
imports directly. The manufacturer gets the Cenvat credit of such duty
and the dealer either pass on the credit to manufacturers or he gets
this SAD refund. Then what is need of such levy? Everyone who is
paying it, getting the benefit of the same.

Notification granting refund of Special Additional duty: -

Notification No. 102/2007-Cus, dated 14.09.2007 granted the exemption
by way of refund of Special Additional duty (SAD) to the importer/
dealer of imported goods. The importer was to pay the duties at the
time of import of goods and later claim the refund of 4% SAD from the
Department.

The refund was subject to following conditions as prescribed in the
said Notification:-

-       Declaration regarding non-passing of Cenvat of SAD: - The dealer,
while issuing the sale invoice, shall indicate on the invoice that
Cenvat credit in respect of SAD is not admissible.

-       No unjust enrichment: - The importer could not pass on the incidence
of duty to the buyers.

-       Payment of VAT/CST: - The importer was required to pay the
appropriate CST/VAT on the sale of imported goods on which he has paid
SAD.

-       Time Limit for filing refund: - The refund claim is to be filed
within one year from the date on which SAD has been paid by the
importer.

-       Documents required to be filed with the refund claim: - In the
Notification, it was provided that the claimant will have to attach
the following documents: -

•       Document evidencing payment of the said additional duty;
•       Invoices of sale of the imported goods in respect of which refund of
the said additional duty is claimed;
•       Documents evidencing payment of appropriate sales tax or value added
tax, as the case may be, by the importer, on sale of such imported
goods.


Documents to be filed with the Refund: -

The board circular prescribed minimum documents for the refund but the
field formalities are real players and they have asked a number of
documents from the poor dealer. With the refund claim of 4% SAD, the
importer was required to file a lot of documents to satisfy the
Department that they have complied with the conditions prescribed in
the Notifications.

Following documents were being insisted upon by the Department to be
attached by the claimant: -

(i)     Original TR-6 Challan (Triplicate Copy)

(ii)    Duplicate Bill of Entry (Importer's Original Copy).

(iii)   All Original Sales Invoices along with Summary of Sales Invoices
of imported goods of all Bills of Entry sold from various location/
branch of the importer containing Invoices No. & dated and amount of
ST/VAT paid on the imported goods for which Refund is claimed
(Annexure – B)

(iv)    Self Certified Copy of VAT Return

(v)     Self Certified Copy of VAT Challan Paid of the respective month.

(vi)    Sales Tax return and receipt along with 201A form

(vii)   Declaration appointing Chartered Accountant for preparation of
Annual Financial Accounts for Year------

(viii)  Self Declaration regarding not passing the duty incidence of 4%
(SAD) to the buyers of the imported goods (Annexure – C).

(ix)    Self certified copy of Sales Register

(x)     Self certified copy of Purchase and Sales

(xi)    Balance sheet containing details for the particular (SAD)
shipping bills. (Note: the same has to be certified by C.A)

(xii)   Receivable Accounts for SAD (Note: the same has to be certified
by C.A)

(xiii)  Refund Calculation Worksheet with Declaration (Annexure- A)

As such, there is a long list of documents to be annexed with the
refund claim. Department was insisting on furnishing of all these
documents/certificates alongwith the refund claim. This made the
filing of refund claim of SAD a very cumbersome process. Even after
filing of all these documents, the Department was not keenly
sanctioning the refund claim.

Circular No. 6/2008-Cus, dated 28.04.2008: -

The trade and commerce associations represented against the same. The
board has adhere to their demands and issued Circular No. 6/2008-Cus,
dated 28.04.2008 providing the procedure to be adopted by the field
formations to settle expeditiously refund claims of 4% SAD filed by
importers under the Notification No. 102/2007-Cus.  In this circular,
the Board had directed that the field formations will ensure the
disposal of refund claims within a period of 3 months from the date of
receipt.

The bulk of documents to be filed with the refund claim of SAD as
mentioned above were also prescribed to be furnished in this
Circular.

However, even with detailed instructions the refund claims were not
being sanctioned speedily. Another aspect which was helping in the
delay was that no interest was payable in case of delay in sanctioning
of the refund claim. This was also prescribed in the Circular No.
6/2008-Cus.

Issuance of Circular for speedy sanctioning of refund of SAD: -

During the process of review at the major custom offices, it was
noticed that around 80% of the claims were pending with the custom
department. It was also noted that many refunds were being denied on
one pretext or the other by the Department. On one hand they had paid
the SAD at the time of import and had not passed on the incidence of
this duty and on the other hand they had paid the VAT. Due to this,
the delay and the denial of refund claims were causing a great
hardship to the Trade and Industry. This induced the Board to issue a
Circular clarifying certain issues to speed up the process of
disbursing the refund claims. Circular No. 18/2010-Cus, dated 18/2010-
Cus. has been issued for clearance of pending 4% SAD refund claims.

For the Accredited Clients in terms of Circular No.42/2005-Customs
dated 24.11.2005 which were registered with the Customs, it was
provided that refund claim should be sanctioned in full on preliminary
scrutiny of following documents:

(a)     TR-6 Challans (in original) for CVD payment;

(b)     VAT/ST payment Challans (in original);

(c)     summary of sale invoices; and

(d) certificate of statutory Auditor / Chartered Accountant, for
correlating the payment of ST/VAT on the imported goods with the
invoices of sale and also to the effect that the burden of 4% CVD has
not been passed on by the importer to the buyer.

Thus, now only a few documents are required for sanctioning of the
refund claim of SAD.

Another step taken was to do away with the procedure for pre-audit for
ACP clients. And it has also been provided that the detailed scrutiny
should be done only at the post-audit stage.

Further, the Board has provided that the refund claims should be
sanctioned within maximum time period of 30 days.

Another step taken was that the sales invoices were prescribed to be
filed only in electronic form (CD or other media) and submission of
paper documents was done away with.

An option was given to the claimant to accept the payment of refund of
4% SAD through RTGS (Real Time Gross Settlement) or NEFT (National
Electronics Funds Transfer) System. This has been done to enable
timely payment of refund amount. The Board has also prescribed the
form in Annexure-I for necessary authorisation for payment of refund
directly in the Bank Account of the claimant.

Further, it has been provided that for examining the unjust enrichment
aspect, the audited Balance sheet and Profit and Loss Account (PLA)
will not be insisted upon. Thus, the claimant is not required to
submit the said documents. With regard to unjust enrichment aspect,
the certificate from Chartered Accountant for the purpose of
satisfying the condition that the burden of 4% CVD has not been passed
on by the importer to any other person as well as the self-declaration
to the effect that he has not passed on the incidence of 4% CVD to any
other person, have been provided to be sufficient documents.

The Board has also provided that only the following documents will be
required to be filed alongwith the refund claim by the importer: -

1.      Document evidencing payment of the Special Additional Duty (SAD).

2.      Invoices of sale of the imported goods in respect of which refund
of the said SAD is claimed.

3.      Documents evidencing payment of appropriate sales tax or value
added tax, as the case may be, by the importer, on sale of such
imported goods.

4.      Certificate from a statutory auditor / CA who certifies the final
accounts in respect of correlation of VAT payment, payment of 4% SAD
amount and unjust enrichment as prescribed in Board's circular No.
6/2008-Customs dated 28.4.2008 and 16/2008-Customs dated 13.10.2008.

5.      Copy of the Consignment Sale Agreement. (in case of sale through
consignment agents / stockists).

6.      Self-declaration / Affidavit (for e.g. in case of submission of
invoice in soft form in lieu of paper documents, in case of
fulfillment of the doctrine of unjust enrichment to the effect that
the applicant has not passed on the incidence of 4% SAD to any other
person).

7.      Any other document considered necessary in support of the claim.

Not only this, but the Board has also directed that Commissioner of
Customs shall personally monitor all cases of 4% CVD refund claims
pending for more than 30 days so as to ensure that these are disposed
of within the overall time limit of three months.

Before parting: -

The Board Circular No. 18/2010-Cus, is a welcome step. The Board has
taken notice of the difficulties faced by the importers claiming
refund of 4% SAD and have provided for steps that will ensure speedy
disposal of refund claims. Also, Board has prescribed fewer documents
to be filed alongwith the refund claim. This will reduce the burden of
the importer and will help him in filing refund claim with lesser
difficulty.

In the end, it is said that although the Board has issued Circular for
speedy sanctioning of the refund claim but this goal can only be
achieved if the provisions of the Circular are implemented in spirit
by the Departmental officers. But expecting the full implementation of
the Board Circular is wishful thinking as they are not going to do so
and the only sufferer will be the importer. So, we can not say it is
happy ending. Seeing the behavior of field formalities, we can say
that it is intermission only, PICTURE TO ABHI BAKI HAI DOST.

********


Kind Regards,
CA PRADEEP JAIN, ( B.Com Hons.,F. C.A.)
Address:
"Sugyan"
H - 29, Shastri Nagar, Jodhpur (Raj.)
Mobile :  +91-9928111481
Phone No. : 0291-2439496, 2611496, 3258496
Fax No. : 0291-2439496
--------------------------------------------------------------
Branch Office: -
Address:
1008, 10th Floor, Sukh Sagar Complex,
Usmanpura, Ashram Road,
Ahmedabad-380013
Phone No. :  079-32999496, 27560043
Mobile No. : 093777659496, 09377649496

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