India: Tax Update – Vol.5, Issue 1, May 2015

Last Updated: 24 September 2015
Article by HSA Advocates


The Lok Sabha, on 6th May, 2015 passed the Constitution (122nd Amendment) Bill, 2014 on Goods and Services Tax ('GST') with 2/3rd majority. The GST Constitutional Amendment Bill paves the way for a pan-India Tax regime and a unified market across the country, ending multiplicity of Central and State Taxes.

Now, after being passed in Lok sabha, the GST Constitutional Amendment Bill requires to be passed with 2/3rd majority in the Rajya Sabha as well followed by its ratification by at least 50% of the States before it becomes law of the land.


Notifications & Circulars

Rule 3 of the Cenvat Credit Rules, 2002 have been amended to provide that –

  • Education Cess and Secondary Higher Education Cess paid on inputs, input services or capital goods which are received in the factory after 1st March, 2015 can be utilized towards the payment of Excise duty
  • The Balance fifty of the Education cess and Secondary and Higher Education Cess paid on capital goods received in the factory in FY 2014-15 can be utilized for payment of Excise duty.

Notification No. 12/2015- C.E. (N.T.), dated 30th April, 2015

CBEC has clarified that rebate under rule 18 of the Central Excise Rules, 2002 is also admissible for supply of goods made from DTA to SEZ.

Circular no. 1001/8/2015-CX, dated 28th April, 2015

Case laws

Services received in the factory to comply with a statutory requirement would be eligible for input credit.

The Taxpayer was denied credit of the tax paid on input services like gardening and house-keeping services received in the factory of the Taxpayer. The Tribunal held that the Taxpayer was required to maintain green cover, to use the effluent treated water and keep the factory premises clean as per the Pollution Control License Order dated 20.12.2004 and Schedule-M of the Drug Control Act, the credit of such services will be available.

M/s Caress Beauty Care Products Pvt Ltd vs. CCE; 2015-TIOL-597-CESTAT-MAD

Credit of inputs and capital goods is available to the job worker, where goods cleared without payment of duty to principal.

The job worker was denied credit on the capital goods/inputs used in the manufacture of goods which are cleared without payment of duty to the principal manufacturer. The HC held that the job worker is entitled to the credit. The HC upheld the finding off the Tribunal that the goods cleared by a job worker to a principal manufacturer do not constitute exempted goods.

Commissioner of Central Excise vs. CESTAT; 2015-TIOL-813-HC-MAD-CX

Merely because a product is sold in the market does not make it marketable.

The department demanded duty on the clearance of "Waste Weak HCL Acid" generated during the manufacture of Ethylene Dichloride and Vinyl Chloride Monomer. The Tribunal held that Waste Weak HCL acid is merely a waste arising out of the manufacturing process and the product is not marketable. The mere fact that a product is sold in the market does not make the product marketable and hence excisable following SC decision in Collector of Central Excise, Patna vs. Tata Iron & Steel Co. Ltd.; 2004-TIOL-25-SC-CX

M/s Chemplast Sanmar Ltd vs. CCE; 2015-TIOL-588-CESTAT-MAD

Job worker, and not the supplier of raw materials, the manufacturer

The Taxpayer was getting medicaments manufactured through a job worker. The issue was as to whether the job worker or the Taxpayer was the manufacturer for the purpose of payment of excise duty. The SC held that the job worker is the manufacturer. The mere fact that the raw material is being supplied by the Taxpayer and that the Taxpayer was conducting quality checks on the medicaments manufactured by the job worker is not sufficient to hold that the Taxpayer is a manufacturer. Further, the value for the purpose of levy of duty would be the aggregate of cost of raw material, labour charges and profit of the job workers

Commissioner of Central Excise, Goa vs. M/s Cosme Farma Laboratories Ltd; 2015-TIOL-55-SC-CX

Credit available on inputs used in the construction of storage facility in the factory.

Credit availed on the inputs viz. Cement, steel used for the construction of "Silos" to be used for the storage of cement and various other raw material was denied. The Tribunal relying on the decision of Hon'ble Karnataka HC in the case of CCE Bangalore II V. SLR Steels Ltd.; 2011-TIOL-892-HC-KAR-CX held that the credit of duty paid on steel and cement which were used in the construction of storage tanks can be availed.

Dalmia Cements (Bharat) Ltd Vs CCE; 2015-TIOL-587-CESTAT-MAD

Limitation under Section 11B will not apply to rebate claims.

The dispute was regarding the applicability of limitation prescribed under Section 11B of the CEA to the rebate claims filed under Rule 18 of the CER. The HC held that the rebate of excise duty in respect of exported is governed by Rule 18 of the CER read with Notification No.19/2004-CE(N.T.) dated 6th September, 2004, which does not prescribe any period of limitation. Hence, the limitation prescribed under Section 11B of the CEA would not be applicable for rebate. Further, the expression "relevant date" defined under Section 11B does not apply to rebate claims. Hence, the limitation of one year prescribed under Section 11B of the CEA would not apply to rebate under Rule 18 of CER.

The Deputy Commissioner of Central Excise vs. Dorcas Market Makers Pvt Ltd; 2015-TIOL-820-HC-MAD-CX

Valuation of goods cleared by job worker not governed by Rule 8 of the Valuation Rules

The job worker after manufacture delivers the goods to the principal. The principal further uses the goods to manufacture excisable final products which is cleared on payment of excise duty. The department was of the view that Excise duty should be paid as per Rule 8 of the Valuation Rules. The Supreme Court held that the valuation for the goods manufactured by a job worker and supplied to the principal would not be as per Rule 8 i.e. at 110% of the cost of production. For the applicability of Rule 8, two requirements are to be fulfilled: a) the final products are not sold by the manufacturer; and b) the final products are captively consumed by the manufacturer or on his behalf in the production or manufacture of other articles. In the present case, the goods manufactured by job worker is not being captively consumed by the job worker hence Rule 8 would not be applicable.

Commissioner of Central Excise, Pune Vs M/s Mahindra Ugine Steel Co Ltd; 2015-TIOL-53-SC-CX

Singnages manufactured, dismantled and transported to site erection attract excise duty

The Department demanded excise duty on the "signages" which were erected by the Taxpayer at the petrol stations. The HC held that the Signages are fully manufactured at the factory of the Taxpayer and thereafter dismantled for convenience for transportation and is erected at the petrol stations. The signages are movable and are installed by fixing it on a concrete foundation, which can be detached and shifted to another location without damaging them. Hence, the taxpayer is liable to pay excise duty on the signages.

M/s Virgo Industries (Engineers) Pvt Ltd Vs Commissioner of Central Excise; 2015-TIOL-850-HC-MAD-CX

Unjust enrichment would apply on the refund of duty paid on 'capital goods' used captively

Refund of duty paid on 'capital goods' used captively was denied on the ground of unjust enrichment. The Supreme Court held that the Capital goods used for manufacture of a final product would constitute a fixed cost of production and accordingly, the duty paid thereon would form a component in the costing of the final products, which would be ultimately recovered from the buyer of such products. Thus, the doctrine of unjust enrichment would apply.

Commissioner of Central Excise vs. Grasim Industries; 2015-TIOL-64-SC-CX


Case laws

Exemption on services provided by cord blood banks shall be effective only from February 2014

The Taxpayer claimed benefit of Notification No. 25/202-ST (at Sr. No. 2A), which provides for exemption to services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation. The said entry was inserted with effect from February 17, 2014 vide Notification No. 4/2014 – ST.

The issue before the High Court was whether the exemption would apply retrospectively.

The High Court held that the exemption is substantive in nature and hence would not have a retrospective effect. Accordingly, exemption would be effective only from the date of amendment i.e. February 17, 2014.

M/s Life Cell International (P) Limited vs. Union of India; 2015-TIOL-844-HC-MAD-ST

Benefit of abatement not to be denied if cenvat credit on inputs and capital goods is reversed

Taxpayer was providing services in relation to commercial and industrial construction services. Taxpayer was availing the benefit of abatement in respect of inputs and capital goods for the purpose of valuation. The Taxpayer was also availing cenvat credit in respect of the said inputs and capital goods, however, subsequently, the Taxpayer was reversing the credit availed. The Department imposed a penalty for violating the provision of the abatement notification.

The Tribunal, relying on the ratio in Chandrapur Magnet Private Limited v. CCE held that since the credit availed in respect of inputs and capital goods were subsequently reversed, which amounts to no credit being taken. Accordingly, the demand of service tax along with penalty was set aside, however, interest from the date of availment of credit till the date of reversal of Cenvat credit was confirmed.

Leotronics Scales Pvt. Ltd vs. Commissioner of Central Excise, Chandigarh; 2015-TIOL-642-CESTAT-DEL

Service tax is not payable on recovering charges for infrastructure facilities provided for 'clearing and forwarding services'

The Taxpayer is a subsidiary of a cement company and provides 'clearing and forwarding services' to the holding company Additionally, specialized equipment are being made available by the Taxpayer to the holding company for unloading cement brought in on account of the client into silos.

The Tribunal held that recovering charges for providing and maintaining infrastructure facility does not amount to providing 'clearing and forwarding services', since the Taxpayer was not engaged in providing any service to entitle them to receive facility charges other than merely making available the specified facilities or equipment to the holding company.

Commissioner of Service Tax, Mumbai vs. Bulk Cement Limited; 2015-TIOL-675-CESTAT-MUM

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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