|
INTERMEDIATE EXAMINATION (Old Syllabus) INDIRECT TAXATION - December 2002 Suggested Answers Q.1 (a) What is the relevant date for determination of rate of duty and tariff value under Central Excise Rules, 2001? (b) (i) A big ship carrying merchandize and stores enters the territorial waters of India but it cannot enter the port. In order to unload the merchandize lighter ships are employed. Stores are consumed on board the ship as well as by the small ships. Examine whether such consumption of stores attracts customs duty, quote relevant section and case law, if any. (ii) Stores are supplied to the above ships. Will such supplies be treated as exports and be entitled to drawback? (c) Describe the constitutional provisions under which Central Excise duty is imposed. (d) An officer of the Customs has reason to believe that a person has secreted gold/diamonds or documents about his person liable to confiscation. He wants to search him. The person requests the officer to take him to a Gazetted Officer or Magistrate. Should his request be acceded to? What precautions should be taken in such a search? (e) Describe constitutional provisions that restrict imposition of tax on sale of or purchase of goods. [ 4 x 5 = 20 marks] Answer 1.(a) As per rule 5(1), for all excisable Goods other than khandsari molasses, the relevant date for determination of rate of duty or tariff value is the date of removal of goods from a factory or warehouse. In case of Khandsari molasses, relevant date is the date of receipt of goods into the factory of the procurer (buyer). [This is because duty on khandsari molasses is payable by procurer]. In case of goods falling under 61 and 62 (i.e. ready made garments), manufactured or produced or job work, the relevant date is the date of removal of such goods from the registered premises of raw material supplier. [as the raw material supplier is liable to pay duty]. Answer 1 (b) (i) ‘Stores’ means goods for use in a vessel and includes diesel and spare parts and other articles and equipment. Bringing of ‘stores’ is treated as import. However, there is special provision for stores under Section 87. Imported stores consumed on board an ocean going vessel are exempt from import duty under Section 87. Since the ship is ocean going, stores consumed on board will not attract customs duty. Regarding the smaller ships which are employed to unload the cargo from the mother ship, there are termed as ‘transhippers’. There are also treated as ocean going vessels, as decided in UOI v. V M Salgaoncar AIR 1998 SC 1367 = 99 ELT 3 (SC). Hence, Stores consumed by small vessels would also be exempt from customs duty. Answer 1 (b) (ii) Stores supplied to will be treated as export as per section 89 of Customs Act and hence will be eligible for duty drawback Answer 1 (c) Article 286 of the Constitution provides that no tax shall be levied or collected except by authority of law. Article 246(1) of Constitution of India states that Parliament has exclusive powers to make laws with respect to any of matters enumerated in List I in the Seventh Schedule to Constitution. (Called ‘Union List’). As per Article 246(3), State Government has exclusive powers to make laws for State with respect to any matter enumerated in List II of Seventh Schedule to Constitution. Seventh schedule to Constitution (referred to in Article 246) indicates bifurcation of powers to make laws, between Union Government and State Governments. Parliament has exclusive powers to make laws in respect of matters given in list I of the Seventh Schedule of the Constitution (called ‘Union List’’). Entry 84 of List I is as follows – ‘Duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, narcotic drugs, but including medicinal and toilet preparations containing alcoholic liquor, opium or narcotics’. This is the constitutional base for imposing central excise duty. Answer 1 (d) The relevant section are 100,101 and 102 of Customs Act. Section 100 empowers Customs Officer to search a person if he has reason to believe that smuggled goods or document are secreted in his person. Section 102(2) of Customs Act lays down that the person being searched can request that the search should be carried out before a gazetted officer or magistrate. If such request is made, the person should be taken to the nearest Gazatted officer of Customs or a Magistrate. The Gazetted officer or Magistrate will decide whether the search should be done or to discharge the person. If search to be conducted, two persons should be brought as witnesses. The search is conducted before the ‘panchas’ and the seized articles are listed and signed. Female should be searched by a female only. Answer 1 (e) Article 286(1) of the Constitution provides that no law of a State shall impose a tax on the sale or purchase of goods where such sale or purchase takes place (i) inside the State or (ii) in the course of import or export of goods. Entry 92A of List I (Union List) reads, ‘Taxes on the Sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of Interstate trade or commerce’. Entry 54 of State List (List II) reads, ‘Tax on sale or purchase of goods other than newspapers except tax on interstate sale or purchase’. Thus, inter state sale can be taxed only by Union Government while sale within the State can be taxed only by State Government. Article 366(29A) gives inclusive definition of ‘tax on the sale or purchase of goods’. It states that it includes a tax on hire purchase, leasing, sale of foods articles or drinks by way of or as part of service, transfer of property in goods involved in works contract etc. Q 2. (a) H Ltd. purchased a Boring-Drilling machine at a cum-duty price of Rs. 32,14,476. The Excise duty rate charged on the said machine was @ 16%. The machine was purchased on 01.04.2000 and disposed of on 30.09.2002 for a price of Rs. 12 lakhs. The company was claiming depreciation @ 25% following Straight Line Method. Using the said information, answer the following questions: (i) What is the Excise duty paid on the machine? (ii) What is the Cenvat credit allowable under Cenvat Rules? (iii) What is the amount of Cenvat credit reversible or duty payable at the time of clearance of the said machinery? (b) Explain the provisions relating to confiscation and penalty under Rule 25 of Central Excise Rules. (c) Explain the penal provisions relating to vexatious search, seizures, etc. by Central Excise Officers. [8+4+4 = 16 marks] Answer 2. (a) Cum-duty price Rs. 32,14,476 Hence, Basic Price i.e. Assessable value = 32,14,476 * 100/116 = Rs. 27,71,100 Excise duty paid = Rs. 4,43,376, i.e. 16% of Rs 27,71,1000. As per Cenvat Rules, 50% Cenvat credit can be availed in current financial year and balance 50% of Cenvat is allowable only in following financial year, if the capital Goods are in possession and use. Since the Capital goods were in use for six months in the year 2001-02, Cenvat of balance 50% is allowable. Cenvat allowable in the year 2000-01 Rs. 2,21,688 and Cenvat allowable in the year 2001-02 Rs. 2,21,688. As per Cenvat Credit Rules (as applicable upto 28-2-2003), an ‘amount’ equal to duty payable at the rate and value as applicable on the date of removal is payable. Hence, ‘amount’ payable at the time of disposal on 30-9-2002 is Rs. 12,00,000 * 16/100 i.e. Rs. 1,92,000/-. [Note that w.e.f. 1-3-2003, the Cenvat Credit Rules have been amended, and an ‘amount’ equal to Cenvat credit availed on goods is payable. Hence, in this case, an amount of Rs 4,43,376 would have been payable, if clearance was after 1-3-2003]. Answer 2(b) Under rule 25(1) of Central Excise Rules, following are offences : * Removing excisable goods in contravention of Excise Rules or notifications issued under the rules * Not accounting for excisable goods manufactured, produced or stored * Engaging in manufacture, production or storage of excisable goods without applying for registration certificate u/s 6 of CE Act * Contravening any provision of Central Excise Rules or notifications issued under these rules with intent to evade payment of duty. Rule 25 applies to any producer, manufacturer, registered person of a warehouse or a registered dealers. Penalty for violations prescribed in rule 25 is (a) confiscation of contravening goods (b) penalty upto duty payable on such contravening goods or Rs. 10,000 whichever is higher. Answer 2(c) - Section 22 of CEA provides that in case of vexatious search and seizure, the officer is punishable upto Rs. 2,000/-. Vexatious search means (a) searching without any reasonable ground (b) unnecessarily detaining, searching or arresting a person (c) unnecessarily seizing any movable property (d) committing injury to a person without reason. Any person giving false information causing such search or arrest is also punishable with fine upto Rs. 2,000 and imprisonment upto two years or both. Q 3. Distinguish between the following under Central Excise Law: (a) ‘Transfer of Cenvat credit’ and ‘Transitional provisions of Cenvat credit’. (b) ‘Exempted goods’ and ‘Nil rate goods’ (c) ‘Assessment of return’ and ‘Scrutiny of return’ (d) ‘Memorandum of appeal’ and ‘Memorandum of cross objections’. [4 x 4 = 16 marks] Answer 3 (a) ‘Transfer of Cenvat Credit’ is covered by Rule 8 of Cenvat Credit Rules (ii) It deals with transfer of credit in the event of shifting of a factory to another site or transfer of factory in sale/merger/amalgamation/lease. On the other hand, transitional Provisions of Cenvat Credit are covered by Rule 9 of Cenvat Credit Rules. These deal with payment of an amount equal to Cenvat credit on inputs lying in stock when an SSI assessee switches over from payment of duty to exemption scheme at the end of financial year. Answer 3(b) Exempted goods are those goods that are exempted from payment of duty by way of exemption notification issued under Sec 5A of Central Excise Act read with Central Excise Tariff Act. The “Nil” rate goods are those goods on which no excise duty is payable, as under the relevant Central Excise Tariff heading or subheading, the duty payable is ‘Nil’. In other words, ‘’Nil’ rate duty means the Central Excise Tariff itself indicates ‘Nil’ rate, while in case of ‘exempted goods’, the tariff indicates a rate of duty, but the duty is exempt by issue of an exemption notification. Exemption may granted on condition or without conditions. ‘Nil’ rate as indicated in Tariff may also be with some condition of use etc., if the Tariff itself specifies such a condition. Answer 3(c) Assessment means determining the tax liability. Thus, assessment involves verification of correctness of classification, value, rate of duty, eligibility of exemption notification benefits, amount of duty, etc. and then determine the duty payable. In Central Excise, ‘self assessment’ procedure is adopted, i.e. assessee himself decides the duty payable and pays the same. - - ‘Scrutiny’ means close examination or examination of details. The departmental officers will scrutinize the return. They will check the returns and figures etc. for discrepancy if any. They may carry out surprise checks, apart from critical audit of private and statutory records of assessees by spot visit. However, the officers will not ‘assess’ the duty i.e. they will not determine duty payable on the basis of return submitted by assessee. Assessment order is not issued. However, if the officers are of opinion that there is short payment, show cause notice cum demand can be issued. Answer 3 (d) A memorandum of appeal is relevant where an appeal is preferred before CEGAT. It shall be in prescribed form and it has to set forth concisely under district heads, the grounds of appeal which are to be consecutively numbered. - - A memorandum of cross objection is a statement filed by the respondent on receipt of copy of a notice from the Commissioner (Appeals) or Tribunal, in respect of an appeal filed by the other party. There are two parties to an appeal - one the assessee and other the excise department. If one party files an appeal, another will get notice of such appeal with a copy of appeal. The other party (assessee or department as the case may be) can file cross-objections. Provision of such cross objection has been made u/s 35B(4) of CEA and section 129A(4) of Customs Act. The ‘cross objection’ is in nature of ‘cross appeal’. In an order appealed against, some points may be decided against appellant and some against respondent. However, assume that finally, decision was in favour of respondent. In such case, he may not normally file appeal even if some points were decided against him, as final decision was in his favour. Now, if appellant files appeal in respect of points decided against him, respondent can file cross-objections in respect of points which were decided against him, which is in nature of cross appeal. This can be done even if respondent himself has filed a separate appeal and also in cases where he had not filed appeal. - - Thus, ‘cross objection’ is not a reply to the points raised by opposite party, but appeal against points which were decided against the respondent. Q 4. Write brief notes on any four of the following under Customs Act, 1962: (a) First appraisement (b) Procedure for filing appeal to Commissioner (Appeals) (c) Import under Duty Exemption Pass Book 1997-2002 (d) Legal position of instructions in manuals/trade circulars/public notices (e) Retrospective effect of rule/regulation notification even amended/repealed or superseded. [4 x 4 = 16 marks] Answer 4(a) There are two systems of assessment. Section 17(2) of Customs Act provides for assessment after examination of goods and section 17(4) provides for assessment on basis of documents, followed by inspection and testing of goods. “First appraisement system” or 'first check procedure' is followed if the appraiser is not able to make assessment on the basis of documents submitted and deems that inspection is necessary. Goods are examined first and then these are assessed. This method is followed only if assessment is not possible on basis of documents. In “Second Appraisement System” or 'second check procedure', which is normally followed, assessment is done on basis of documents and then goods are examined. Section 17(4) of Customs Act specifically provides that if initially assessment is done on basis of documents, re-assessment can be done after examination or testing of goods or otherwise, if it is found subsequent to examination or testing or otherwise, that any statement made on Bill of Entry or any information supplied is not true in respect of matter relevant to assessment of duty. First appraisement is generally carried out in following cases - * If complete documents are not submitted * Goods are to be tested for correct classification * Goods are re-imported * Goods are damaged or deteriorated and abatement is claimed * Goods are abandoned and remission of duty is applied for * When goods are provisionally assessed * When importer himself requests for examination of goods before payment of duty. Answer 4(b) Any person aggrieved by an order of an officer lower than the Commissioner, may appeal within 60 days from the date of communication of order to Commissioner (Appeals). The Commissioner (Appeals) can extend the time for filing appeal by 30 days, if proper cause is shown. Appeal should be in prescribed form No. EA-1 in duplicate and should be accompanied by a certified copy of the decision or order against which appeal is filed. The form requires to give name and address of appellant, details of order appealed against, description of goods, whether duty or penalty is deposited, whether appellant wants to be heard in person and relief claimed. Appeal should also state statement of facts and grounds of appeal. It should be properly verified. Required non-judicial stamps should be affixed to the appeal. Answer 4 (c) Duty Entitlement Pass Book (DEPB) is one of the export promotion scheme. The scheme is similar to Cenvat credit scheme. The exporter gets credit when he exports the goods. The credit is on basis of rates prescribed. This credit can be utilised for payment of customs duty on imported goods. The objective of the scheme is to neutralise incidence of customs duty on the import content of export product. The neutralisation shall be provided by way of grant of duty credit against the export product. Under this scheme, exporters will be granted duty credit on the basis of notified entitlement rates. The entitlement rates will be notified by Director General of Foreign Trade (DGFT). The entitlement rates will be a % of FOB. The entitlement rate will be fixed on basis of input output norms. Value addition achieved in export product will also be taken into account. DEPB is valid for 12 months for import of raw materials, intermediates, components, parts, packaging material etc. DEPB can be transferred only after realisation of export proceeds. Answer 4(d) Legal position of instructions given by department in its manuals, trade circulars or public notices have no statutory force. The departmental circulars are not binding on assessee or quasi-judicial authorities. However, department itself, which has issued the circular, cannot take a stand contrary to the circular. Department can withdraw or amend the circular, but with prospective effect The view is confirmed in Commissioner of Sales Tax v. Indra Industries 2000(6) SCALE 392 (SC 3 member bench)]. Answer 4(e) Section 38A of Central Excise Act provides that even if any rule, regulation, notification or order made under the Central Excise Act and Rules is amended, repealed, superseded or rescinded, it shall not (a) Revive anything not in force (b) Affect previous operation of any rule, order or notification amended (c) Affect rights, privilege, obligation acquired, accrued or incurred under such rule / notification / order / regulation. In short, even if any rule, notification, regulation or order is amended or rescinded; rights acquired and liabilities incurred during the period when the rule /notification / regulation / order was in force, will continue. Thus, a demand can be raised for the period when rule was in force, even after such rule / notification is rescinded. Q 5. Answer any four of the following under Customs Act, 1962 - (a) IEC code (b) Classification of an article which is incomplete or unfinished but has the essential characteristics of the complete/finished article (c) Nominated agencies (d) Negative List of Imports (e) Custom House Agent. [4 x 4 = 16 marks] Answer 5. (a) Every importer and exporter must obtain a ‘Importer Exporter Code Number’ (IEC) from DGFT (Director General of Foreign Trade) or officer authorised by him, by applying in prescribed form (section 7 of FTDR Act). The Code number can be cancelled by DGFT if (a) the person has contravened provisions of Customs Act, Excise Act, FERA, FTDR or any other economic offence under any other law as may be specified by Central Government (b) Person is engaged in export or import in a manner gravely prejudicial to trade relations with other country or injurious to interests of other exporters/importers or has brought to the credit of goods of India. Application for IEC number has to be made to DGFT in prescribed form with fees of Rs. 1,000. Certificate from bankers that the company is maintaining current account should be attached. Date since which account is maintained should also be stated in the certificate. Two copies of photographs of applicant duly certified by banker should be attached. A number allotted to a company is valid for all its offices, branches and units. DGFT has decided to use PAN number issued by Income Tax authorities for control purposes. Central Government and its agencies, State Governments and persons importing or exporting goods for personal use and not for trade or manufacture or agriculture are exempt from this provision and do not have to obtain IEC Code number. Answer 5 (b) As per Rule 2(a) of Central Excise Tariff Act (CETA), any reference to complete goods also includes incomplete or un-finished goods, if such incomplete or un-finished goods have the essential characteristic of finished goods. Some illustrations in HSN Explanatory notes are - * a machine or apparatus normally incorporating an electric motor is classified in the same heading even if presented without motor. * Passenger coach not fitted with seats will still be a passenger coach * Motor vehicle not yet fitted with wheels, battery or tyres * Bicycles without saddles and tyres * Photographic camera without an optical element * Electric supply meter without its totaling device. Answer 5 (c) Nominated Agencies means Metals and Minerals Trading Corporation (MMTC), Handicraft and Handloom Export Corporation, the State Trading Corporation (STC), Projects and Equipment of India Ltd., and any other agency authorised by Reserve Bank of India. The significance is that these nominated agencies can import silver, gold and platinum without payment of customs duty, for supply to units in Special Economic Zone. [SEZ], as per notification No. 137/2000-Cus. Answer 5(d) Exports and imports are free unless regulated or restricted. The Govt. regulates the import and export of goods through Negative List of Imports and Exports. Negative list of Imports consists of goods which are either prohibited or restricted for export or import. These are very few items in this list These items may be imported against licence or as per Public Notice issued in this behalf. Any item not mentioned in Negative List can be imported freely under Open General License. [OGL]. In some cases, the item can be imported only through canalizing agencies. Answer 5(e) An importer or exporter can himself transact business of imports and exports. However, generally, it is not possible for an individual to complete customs formalities and obtain clearance from ports. Hence, appointment of Customs House Agent (CHA) is necessary. An importer can appoint or change CHA to help him in import/exports. In order to ensure that only authorised persons are permitted to work as CHA, section 146 provide for licence to persons to carry on business as an agent relating to import or export of goods or entry/departure of conveyance. CHA can do the business of clearance of goods or behalf of importer/exporter, CHA is required to abide by the rules and regulations. CHA is required to pass examination regarding Customs Act and procedures. Q 6. (a) ‘A’ imports by air from USA a Gear cutting machine complete with accessories and spares. Its HS classification is 84.6140 and Value US $ f.o.b. 20,000. Other relevant date/information: (1) At the request of importer, US $ 1,000 have been incurred for improving the design, etc. of machine, but is not reflected in the invoice, but will be paid by the party. (2) Freight - US $ 6,000. (3) Goods are insured but premium is not shown/available in invoice. (4) Commission to be paid to local agent in India Rs. 4,500. (5) Freight and insurance from airport to factory is Rs. 4,500. (6) Exchange rate is US $ 1 = Rs. 45. (7) Duties of Customs : Basic – 25% CVD – 16% SAD – 4%. - - Compute (i) Assessable value (ii) Customs duty. Q 6 (b) ‘A’ has exported under-mentioned goods under drawback claim –
Answer 6(a) (i) Computation of Assessable Value FOB On examination it is found that brass content in brass jewellery is 50% of weight and in plastic bangles the plastic content is 50% but the total weight comes to 190 kgs only. - -Compute drawback on each item and total drawback. [10+6 = 16 marks] Answer 6(a) (i) Computation of Assessable Value
Duty payable will be as follows – (ii) Gear cutting machine Complete with accessories and spares Basic Customs Duty @ 25% 2,87,755.25 Calculation of Additional Duty - Additional duty (CVD) is payable on AV + Basic Customs Duty. Thus, CVD @ 16% is payable of Rs 14,38,776.25 (11,51,021 + 2,87,755.25). Hence, CVD payable is 2,30,204.20 Calculation of Special Additional Duty (SAD) - Special Additional Duty @ 4% is payable on AV + Basic + CVD. Thus, SAD payable is Rs 66,759.22 i.e. 4% of Rs 16,68,980.50 [11,51,021+ 2,87,755.25+2,30,204.20] Total duty payable is Rs 5,84,718.65, comprising of Basic 2,87,755.25 + additional i.e. CVD 2,30,204.20 + Special Additional Duty 66,759.20. Answer 6(b)
Q 7 (a) State whether the following elements are to be included or not as part of the ‘Transaction value’ under section 4 of the Central Excise Act, 1944. (i) Erection and commissioning charges (ii) System software etched in the computer system (iii) Cylinder holding charges (iv) After-sales warranty charges - - (b) X Ltd. manufactures three health drinks viz. Slim, Trim, Prim. Slim was sold only to Y Ltd., a subsidiary company of X Ltd. Trim was sold to Z Ltd., where the Managing Director of X Ltd. is a Manager. Prim is sold to P Ltd. who are sole distributor of X Ltd., and was coming under the same management of X Ltd. Determine the assessable value/transaction value of the three products in the hands of X Ltd. on the basis of the following information :
(c) Define ‘Transaction value’ under section 4 of the Central Excise Act, 1944. [8+5+3 = 16 marks] Answer 7(a) (i) Any payment made by buyer to assessee is includible in assessable value only if it is in ‘connection’ with sales. In case of erection and commissioning charges for erecting machinery at site, these are incurred after goods are removed from the factory. These may be in ‘relation’ to sales but are not in ‘connection’ with sales as there is no ‘cause and effect’ relationship between the two. Hence these are not includable in assessable value. This is also confirmed vide CBE&C circular No. 643/34/2002-CX dated 1-7-2002 (ii) A computer manufacturer loads bought out computer software on computer while selling. Thus, the system software is loaded on computer while computer is cleared from the factory. Computer software as such is exempt from duty. Department had earlier clarified that value of computer software etched or loaded on computer will be includible. However, if computer software is supplied separately on floppy disc or tapes, its value will not be includible. [However, as per CBE&C circular dated 28-2-2003, value of computer software will not be includible in assessable value of computer]. (iii) In case of durable and returnable containers, the container is returnable after the gas or other material inside is used. Often, manufacturing companies take some deposit and charge some rent for the container. These are ‘cylinder holding charges’. CBE&C, vide its circular No. 643/34/2002-CX dated 1-7-2002, has clarified that rental charges or cost of maintenance of reusable metal containers like cylinders etc. are to be included in assessable value. This view is correct, as such rental charges and the sale of gas are so intrinsically connected that there can be no sale without such charges. (iv) Compulsory after sales warranty charges are includible as the sale of goods and such charges are inseparable. However, optional service charges are not includable as there is no connection between the sale of goods and the optional service charges. Answer 7(b) As per Central Excise Valuation Rules, if goods are sold exclusively through a ‘related person’, the price at which goods are sold to unrelated person by the related person will be the transaction value for purposes of Central Excise. Product ‘Slim’ was sold exclusively to ‘Y’ who is a subsidiary, which is ‘relation person’ as per section 4(3)(b) of Central Excise Act. Hence, transaction value will be Rs 120, i.e. price at which Y sales to ultimate consumer. Product ‘Trim’ is sold to ‘Z’ where MD of the manufacturer is Manager. Hence, they are ‘inter connected undertakings’. However, as per Rule 10 of Valuation Rules, inter connected undertakings are considered as ‘related person’ only if there is ‘holding subsidiary’ relationship. Since there is no such relationship, transaction value will be Rs 50 only, i.e. price at which X sales to Z. Product ‘Prim’ was sold to P. Since X and P are under same management, they are ‘inter connected undertakings’. However, as per Rule 10 of Valuation Rules, inter connected undertakings are considered as ‘related person’ only if there is ‘holding subsidiary’ relationship. Since there is no such relationship, transaction value will be Rs 20 only, i.e. price at which X sales to P. Answer 7(c) Section 4(3)(d) defines ‘transaction value’ as 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 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. Q 8. (a) Distinguish between ‘concessions’ and ‘exemptions’ under CST Act, 1956. (b) State ‘omissions’ and ‘commissions’ that attract penal provisions under CST Act, 1956. (c) Are the following ‘Sale’ under section 2(g) of CST Act, 1956? (i) Sale of illegal goods. (ii) Gifts given by a company to their shareholders. (iii) Credit sale. (iv) Leasing of Fixed Assets (v) Works contract (vi) Development of Computer Software to the requirement of clients (vii) Xerox copying for customers (viii) Job work [4+4+8 = 16 marks]. Answer 8 (a) ‘Concessions’ enable a ‘Dealer’ to purchase or sale goods at reduced rate of tax or allows to defer the tax payment. For example, under CST Act ‘C’ form gives concession to a Registered dealer to purchase or sell goods at concessional rate of tax of 4% or less. Similarly ‘F’ form permits a Registered Dealer to stock transfer the goods from one State to another without payment of sales tax. These are ‘concessions’. ‘Exemptions’ permit a dealer to sell or purchase goods without tax liability or exempts the goods from tax payment partially of fully. Such ‘exemptions’ are given by issue of a exemption notification. Answer 8(b) The following acts of ‘omissions’ (failing to do a certain thing required by law) and ‘commissions’ (acting in contravention of tax law) attract penal provisions under section 10 of the CST Act –
Punishment upto 6 months can be imposed for the offenses. Answer 8 (c) (i) Illegal goods – It is Sale (ii) Gifts – It is not a sale as there is no ‘consideration (iii) Credit sale is also a Sale (iv) Leasing of ‘goods’ is taxable under CST Act. Since fixed assets are not ‘goods’, its lease will not be a ‘sale’ under CST Act (v) CST Act as amended in May 2002 includes sale on transfer of property in goods involved in works contract. It is a sale (vi) Development of computer software is work of skill and labour. Supply of material (i.e. floppy on which the programme is loaded) is only incidental to the contract. It is not a sale (vii) Xerox copying is not a sale, as the object of the payment of the price is to get the document duplicated, not to receive the paper. (viii) Job work is not ‘sale’ as there is no transfer of property. Q.1 (a) Who is exempted from registration under Rule 9 of Central Excise Rules, 2001? (b) Distinguish between ‘reference application’ and ‘revision application’ under Central Excise Law. (c) Explain the provisions relating to short-shipment/shut out notice under the Customs Act and Rules. (d) Under Section 28A of the Customs Act, 1962, the Central Government has power not to recover Duties levied or short levied. – Discuss. (e) List the restrictions and conditions in regard to tax on sale or purchase of declared goods within a State under Section 15 of CST Act, 1956. [4 x 5 = 20 marks] Answer 1(a) - Following are exempt from registration under Central Excise - (i) Persons who manufacture Excisable goods which are chargeable to ‘nil’ rate. (ii) SSI units availing exemption based on value of clearance. (iii) Persons manufacturing Excisable goods under Customs Warehousing Procedures (iv) Person who carries on wholesale trade or deals in excisable goods who does not issue Cenvatable Invoice. (v) A 100% EOU or a unit in FTZ or SEZ. (vi) In respect of ready made garments, the job worker need not get registered if the principal discharges duty. Answer 1(b) - In most of cases, appeal against order of Commissioner or Commissioner (Appeals) lies with CEGAT. However, in few cases, revision application has to be made. A revision Application is covered under Sec. 35EE of Central Excise Act. It is made to Government of India, Dept. of Revenue. The application is made against order of Commissioner (Appeals) or Commissioner. Revision application can be made where the matter relates to loss of goods occurring in transit from factory to warehouse or to another factory, rebate on goods exported out of India or goods exported without payment of duty. In case of customs, revision application is made if the matter relates to baggage, Drawback or goods short landed. - - On the other hand, reference Application is covered under section 35H of Central Excise Act. The reference application is made to High Court against order of CEGAT. Reference application can be made only where a question of law is involved, as facts found by Tribunal are final. Reference application can be made on all issues arising out of order of Tribunal, except where the issue is other than rate of duty and valuation is involved. Answer 1(c) – As per Notice of Short Export Rules, 1963, if any good mentioned in a shipping bill or bill of export and cleared for exportation are not exported, the exporter shall, within 7 days from the date of departure of the conveyance by which such goods were intended to be exported, furnish the particulars to the Customs Authorities. This notice is known as short-shipment/shut out Notice. Any exporter who fails to comply with the provisions of the rule shall be liable to a penalty not exceeding Rs. 100. Answer 1(d) – Some times, both department and assessees interpret a provision in a particular way and pay duty accordingly. However, the mutually understood interpretation may change due to events like Supreme Court Judgment or re-thinking of department. In such cases, demand for past period will cast a very heavy burden on importers. Hence, as per section 28A, if the Central Government is satisfied that a practice generally prevalent regarding levy of duty or non-levy on any goods imported or exported, and that that such goods are actually liable (a) to duty, in cases where according to the said practice the duty was not or is not being levied; or (b) to a higher amount of duty than what was levied according to the said practice; then the Central Government may, by notification, direct that the whole of the duty liable/payable on such goods shall not be required to be paid. If a person has paid the duty, the same is refundable u/sec 27 of Customs Act, 1962. Answer 1(e) – Goods specified in section 15 of CST Act are termed as ‘declared goods’. There are following restrictions - (i) The local sales tax payable in respect of any sale or purchase of such goods inside the state under that law shall not exceed 4% of the price. (ii) Where a local sales tax is levied under that law in respect of the sale or purchase inside the state or of any declared goods, and such goods are sold in the course of inter-state trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter state trade. (iii) Where a local tax is levied in respect of any sale or purchase of any paddy inside the state the tax leviable on the rice procured out of the paddy shall be reduced by the amount of tax levied on such paddy. (iv) Each of the pulses referred in Sec 14, whether whole or separated and whether with or without husk, shall be treated as a single commodity for levy of local sales tax, i.e. if local sales tax is paid on raw pulses, no further tax is payable after it is processed. (v) If paddy is purchased and rice produced from such paddy is exported, it will be treated as ‘same goods’ for export purposes. Hence, paddy can be procured for export without payment of tax on purchases. Q.2 (a) Is transfer of Cenvat Credit admissible on account of change of ownership? Explain the relevant provisions under Central Excise Law. - - (b) Fill in the blanks: i) Cenvat credit is available on ____ .( additional customs duty/special additional duty) ii) When excise duty paid goods are returned to a factory, _____ . (Cenvat is allowed/ Cenvat is not allowed) iii) Cenvat credit can be taken on the basis of ____. (Bill of Entry/bill of Lading) iv) Transitional provisions are covered by ______. (Rule 9/Rule 8) of Cenvat Credit Rules, 2002. v) Any wrong availment of Cenvat credit may attract a penalty equivalent to the duty or Rs._____. (10,000/100,000) vi) Under Cenvat Credit Rules, 2001, capital goods includes _____.(water tank/storage tank) - - - (c) Prepare a Cenvat account in the books of A Ltd., and determine the balance as on 30-09-2002 from the following data: -
Answer 2.(a) - Under Rule 8 of the Cenvat Credit Rules, it has been provided that the manufactures shall be allowed to transfer Cenvat credit lying unutilised in his account to such transferred, sold, merged, leased or amalgamated factory on account of shifting his factory to another site or factory or due to change in ownership with specific transfer of liabilities of such factory. This is being allowed only if stock of inputs as such or in process or capital goods is also transferred to new site and the same is duly accounted for to the satisfaction of the Commissioner. Application for permission for transfer of credit should be made to commissioner of Central Excise. Answer (b) - (i) Additional Customs duty. (ii) Cenvat is allowed. (iii) Bill of Entry. (iv) Rule 9 (v) Rs. 10,000. (vi) Storage tank. Answer 2(c) - CENVAT Credit Receivable A/c in the Books of A Ltd., as on 30.09.2002
Notes: (i) Since capital goods (lathe) was received only on 05.12.02, the credit is permissible only on 05.12.02 and not before that date. (ii) When 50% of inputs are received on 01.10.02 (sent on job work), the credit is allowable for 50% only on 01.10.02. (iii) Where goods are exempted, an ‘amount’ is payable @ 8% on sale price less taxes. (iv) For wrong amount of credit, rectification entry is passed. (v) The ‘amount’ paid on 30.9.02 is reversal of Cenvat credit. It is not ‘excise duty’. Hence, a separate account ‘Reversal of Cenvat Account’ or “Payment of ‘Amount’ under Central Excise Rules” may be opened. At the year end, the balance may be transferred to expenses account. Strictly legally, it is not ‘excise duty’ paid. Q.3 (a) Z Ltd. is a small-scale industrial unit manufacturing a product X. The Annual report for the year 2000-01 of the unit shows a gross sale turnover of Rs. 1,91,40,000. The product attracted an excise duty rate of 16% as BED and Sales Tax 10%. Determine the duty liability under Notification Nos. 8/2001 and 9/2001 meant for SSI units. (b) B Ltd. manufactures two products namely, Eye Ointment and Skin Ointment. Skin Ointment is a specified product u/sec. 4A of Central Excise Act, 1944. The sales prices of both the products are at Rs. 43/unit and Rs. 33/unit respectively. The sales price of both products included 16% excise duty as BED and 8% excise duty as SED. It also includes CST of 4%. Additional information is as follows -
Deduction permissible u/sec
4A: 40%. (c)
Explain the term “Process ‘Amounting to’ Manufacture”. i.e.
deemed manufacture. Answer 3(a) – A) Duty payable under notification No. 9/2001-CE (Now 9/2002-CE) - Under excise notification No. 9/2001-CE, an SSI unit is required to pay 60% of normal duty (i.e. 9.6% duty) on first Rs 100 lakhs and 16% on the balance. The assessee can avail Cenvat credit on all the inputs. Since the example gives gross sale turnover, it is first necessary to find net sales turnover. In respect of first net turnover of Rs 100 lakhs (Rs 1,00,00,000), excise duty will be Rs 9,60,000. Sales tax @ 10% is payable on net turnover plus excise duty i.e. on Rs 1,09,60,000. Hence, sales tax @ 10% is 10,96,000. Thus, gross sale turnover in respect of first net turnover of 100 lakhs (where duty is paid at concessional rate) is Rs 1,20,56,000. Therefore, balance gross sale turnover is Rs 70,84,000 [Rs 1,91,400,00 – 1,20,56,000]. This includes excise duty at 16% and sales tax @ 10%. Sales tax is payable on cum duty price. If Net turnover for excise purposes is ‘Z’, the gross sale turnover will be as follows :
|
