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INTERMEDIATE EXAMINATION (Old Syllabus) Indirect Taxation December – 2003 Suggested Answers Q 1. (a) Define ‘Factory’ under Central Excise Act, 1944. (b) Define ‘wholesale dealer’ under Central Excise Act, 1944. (c) Discuss the ‘powers of officers of Customs’ under the provisions of Customs Act, 1962. (d) Are the goods imported or belonging to Government dutiable under Customs Law? Explain. (e) Define ‘Place of Business’ under CST Act, 1956 [4 x 5 = 20 marks] Answer 1(a) - Section 2(e) of Central Excise Act states that ‘factory’ means any premises, including the precincts thereof, wherein or in any part of which, excisable goods other than salt are manufactured; or wherein or in any part of which any manufacturing process connected with production of these goods is being carried on or is ordinarily carried on. Thus, whole premises will be ‘factory’ if in any of its part, excisable goods are manufactured or manufacturing process connected with production is carried out. The word ‘ordinarily’ imply that if some manufacture is carried out in emergency at a place, it will not be ‘factory’. Factory need not be registered under Factories Act or any other Act. Thus, even if manufacturing is carried out in a house, it will be treated as ‘factory’. Answer 1(b) – As per section 2(k) of Central Excise Act, ‘wholesale dealer’ means a person who buys or sells excisable goods wholesale foe the purpose of trade or manufacture, and includes a broker or commission agent who, in addition to making contracts for the sale or purchase of excisable goods for others, stocks such goods belonging to others as an agent for the purpose of sale. This definition was important under old section 4 of Central Excise Act, but not under new section 4. Answer 1(c) – Customs officers have been given following powers to enable them to discharge their duties – (a) Power of inspection of premises where specified goods are kept [section 106A] (b) Power to stop and inspect conveyance [section 106] (c) Powers of search of persons [section 100] (d) Search of premises [section 105] (e) Power to X-ray bodies [section 103] (f) Powers of seizure of goods [section 110] (g) Power to call for and examine documents [section 107] (h) Power to summons person for enquiry [section 108] (i) Power to arrest [section 104]. Officers of rank of Assistant Commissioner and above have powers of adjudication and imposition of penalties. In addition, the customs officers have been given powers of enforcement of some provisions of Foreign Exchange Management Act [FEMA]. Answer 1(d) – Section 12(2) of Customs Act makes it clear that customs duty is payable by Government also. Thus, there is no general exemption to goods imported by Government. However, various exemption notifications have been issued and Imports by Indian Navy, specific equipment required by Police, Ministry of Defence, Coastal Guard etc. are fully exempt from customs duty. However, if there is no such exemption notification, duty will be payable even if goods are imported by Central/State Government. Answer 1(e) - Section 2(dd) of CST Act defines that ‘Place of Business’ includes (i) Place of business of agent where dealer carries on business through an agent (ii) Warehouse, godown or other place where a dealer stores his goods (iii) place where a dealer keeps his books of account. This is an ‘inclusive definition’ i.e. other places of business e.g. where dealer has a shop or factory is obviously covered. A dealer can have more than one ‘places of business’ within one State or even within one City. If a dealer has more that one place of business in one State, he has to make a single application in respect of all the places. One of the places should be specified as 'principal place of business'. This place should be same as declared by him under general tax law of the State. If a dealer has ‘places of business’ in different States, he will have to register in each such State. Q 2. (a) When does the Central Government have powers to grant exemption from duty under Central Excise Act, 1944. (b) Explain the relevance of statement under certain circumstances as described in section 9D of Central Excise Act, 1944. (c) Is there any provisions to collect interest on amount collected in excess of duty and deposited with the Government? Explain the relevant provisions. (d) State the penal provisions for delayed payment of duty under Central Excise Rules [4 x 4 = 16 marks] Answer 2 (a) Section 5A(1) of Central Excise Act authorises Central Government to exempt the excisable goods, (a) generally (b) either absolutely or subject to such conditions (to be fulfilled before or after removal), (c) from whole or any part of excise duty leviable. Such exemption should be in public interest and it should be by way of a notification published in Official Gazette. Government has issued various exemption notifications e.g. exemption to goods manufactured by SSI. Answer 2 (b) Statement made and signed before any Central Excise Officer of gazetted rank is allowed as evidence in the prosecution as follows : (a) in case of a person who is dead or if he cannot be found or whose presence cannot be obtained without undue delay or expenses, the statement will be allowed as evidence (b) In case of person who is present before the Court and is examined as witness, Court may admit the statement if it is of the opinion that the statement should be admitted in the interest of justice. Thus, discretion is given to Court in case of statements made before Excise Officer, only if such person is examined as witness. The provisions apply to adjudication and appeal proceedings also. [section 9D of Central Excise Act]. Thus, statement made before Central Excise Officer is relevant. However, the statement is acceptable as evidence only if it is found to be true and voluntary. Answer 2 (c) – Section 11D(1) of Central Excise Act provides that every person, who is liable to pay duty under Central Excise Act and Rules and has collected from buyer any amount in excess of the duty assessed or determined and paid on any excisable goods under CE Act or rules, representing as duty of excise; must pay the amount immediately to the credit of Central Government. Thus, a person, who charges an amount in the invoice representing as excise duty, must deposit the same with Central Government. This is to ensure that manufacturer does not collect excess amount from buyer in the name of excise duty or trader does not collect some amount in nature of Excise duty. If excess amount becomes payable u/s 11D, interest will also be payable from the first day of succeeding month in which the amount should have been paid. If such amount is reduced in appeal, interest will be payable on the reduced amount. If the amount payable is increased in appeal, the interest will be payable on such higher amount [section 11DD of Central Excise Act]. - - The interest rate is 15%, as per Notification No. 68/2003-CE(NT) dated 12-9-2003. Answer 2 (d) - Rule 8(3) of CE Rules provides that if duty is not paid fully on due date, assessee is liable to pay the outstanding amount along with interest on unpaid amount is payable @ 2% per month on outstanding amount, or Rs 1,000 per day, whichever is higher, till payment of duty. The total interest shall not exceed the duty payable. If part of duty is paid, the provision of interest will apply to that part of duty which is not paid. The words used are ‘Assessee is liable to pay interest’ and not ‘Assessee shall pay interest’. The interpretation of words ‘liable to pay’ is in dispute. These words are also used in some sections in respect of penalty and Tribunal’s interpretation is that in such cases, some penalty should be levied but the total amount is not mandatory. Same principle should apply here also, as interest @ 2% is penal in nature. At least interest of Rs 1,000 per day is certainly penal in nature in case of small industries whose duty liability will be much less or in cases where most of the duty has been paid and some small amount remains unpaid. Normally, interest is a percentage of amount due. An amount payable at a flat rate irrespective of outstanding amount can hardly be termed as ‘interest’. Q 3. (a) Under what conditions ‘Cenvat’ credit is available if the credit is deniable on Technical grounds? (b) How a manufacturer or buyer of inputs can satisfy himself about the payment of duty by the input supplier/manufacturer to avail Cenvat credit? (c) When is the notional interest on Advance includible in the value u/s 4 of Central Excise Act, 1944? (d) Mention those elements of cost that shall not form part of the assessable value of captively consumed gods under Rule 8 of Central Excise Valuation Rules, 2000 [4 x 4 = 16 marks] Answer 3(a) - Cenvat credit is available on basis of proof of duty paying document like Invoice or Bill of Entry. Some times, there are some minor defects in the duty paying document, which are technical in nature. However, fact of duty payment is not in doubt. In such case, Cenvat credit cannot be denied on account of minor i.e. defects in duty paying document. As per rule 7(1A) of Cenvat Credit Rules, minor defects in duty paying documents can be condoned by Assistant / Deputy Commissioner. Cenvat credit cannot be denied as long as the document contains essential aspects of duty payment i.e. payment of duty, description of goods, assessable value, name and address of the factory or warehouse. If Jurisdictional Assistant / Deputy Commissioner is satisfied that duty on inputs has been paid and such inputs have been actually used or are to be used in the manufacture of final products, he shall record reasons for not denying the credit in such cases. Answer 3(b) - Rule 7(2) of Cenvat Credit Rules provides that the manufacturer availing Cenvat credit should take all reasonable steps to ensure that the inputs or capital goods in respect of which he has taken Cenvat credit are goods on which appropriate duty has been paid. Explanation to rule 7(2) states that a manufacturer or producer taking Cenvat credit shall be deemed to have taken reasonable steps if he satisfies himself about identity and address of manufacturer or supplier who issued the Invoice or other document either (a) from his personal knowledge or (b) On the strength of a certificate given by a person with whose handwriting or signature is familiar or (c) On the strength of Certificate of Range Superintendent within whose jurisdiction the manufacturer or supplier is situated. If identity of manufacturer or supplier is satisfied on the strength of a certificate, such certificate shall be retained by manufacturer for production to central excise officer on demand. Obviously, buyer can take only those steps which are in his power. He has no powers of excise officer, police officer or a CBI officer. Thus, he cannot be expected to verify records of supplier to check whether in fact the supplier has paid duty on goods supplied by him. He cannot verify whether the supplier is in fact, registered with excise. He has to rely on statements made by supplier and documents supplied by him. The only 'reasonable steps' he can take is to ensure that supply is from known source, the supplier seems to be trustworthy, inputs are in fact received and documents prima facie appear to be genuine. Making payment by cheque to seller will prove his bona fide. Answer 3(c) - The manufacturer may often ask for advance/deposit from buyers. The purpose may be to ensure security of payment from buyers and/or to get working capital. If the advance obtained is without interest or with lower quantum of interest, there will be benefit to the buyer by way of reduction in his cost. If there is evidence that selling price has been lowered due to receipt of advance / deposit, then price is not the 'sole consideration of sale', as required u/s 4(1)(a). In such case, notional interest on advance should be includible. Explanation 2 to rule 6 of Valuation Rules provides that notional interest on advances is includible in assessable value only if there is evidence with Central Excise Officer that such advance has influenced the fixation of prices by way of charging lower price or by offering a special discount to the buyer who has made the advance deposit. Thus, when the price is same to all buyers whether they have paid advance to seller, notional interest is not includible in assessable value. As per Illustration 2 to Explanation 2, even in cases where there is only one buyer from whom advance has been obtained and comparable price to other buyer is not available, notional interest is includible only if there is evidence with Central Excise Officer that such advance has resulted in lowering the prices. Answer 3(d) – Valuation for Central Excise purposes is required to be done on basis of Cost of Production plus 10%. The cost of production should be calculated as per CAS-4 issued by ICWAI. As per this standard, following shall not form part of ‘Cost of Production’ – (a) Selling and distribution expenses (b) Interest and financial charges (c) Administrative overheads which are not related to factory and (d) Abnormal and non-recurring costs. Costing will be done on ‘normal production’ basis. Q 4. Write short notes on any four of the following under Customs Act, 1962: (a) ‘Electronic Declaration’ of Bill of Entry; (b) Advance Ruling; (c) Anti Dumping Duty; (d) Export Houses and criteria for their recognition; (e) Self assessment scheme for importers and exporters including claim; (f) Re-importation of goods produced or manufactured in India – section 20 of Customs Act, 1962. [4 x 4 = 16 marks] Answer 4(a) - Customs work at some ports has been computerized. In that case, the Bill of Entry has to be filed electronically, i.e. through Customs EDI system through computerization of work. Procedure for the same has been prescribed vide Bill of Entry (Electronic Declaration) Regulations, 1995. Where EDI system is implemented, formal submission of Bill of Entry is not required, as it is generated in computer system. Importer should submit declaration in electronic format to ‘Service Centre’. A signed paper copy of declaration for non-repudiability should be submitted. Bill of Entry number is generated by system which is endorsed on printed check list. Original documents are to be submitted only at the stage of examination. In case of Bill of Entry on computers, duplicate copy of Bill of Entry is acceptable as duty paying document for availing Cenvat credit. Answer 4(b) - A businessman would like to be clear in his mind about various aspects of his venture and risks involved, before he starts a new business or adventure. He would like to get clear verdict about his doubts in respect of taxation matters, before he decides to venture in the new business. Otherwise, he may be exposed to certain unexpected risks which may have serious adverse consequences and his business may even fail. Hence, provisions of advance ruling have been made in sections 28E to 28L of Customs Act. ‘Advance Ruling’ means determination of a question of law or fact specified in the application submitted by applicant regarding the liability to pay duty in relation to activity (of manufacture / production / import / export) proposed to be undertaken by the applicant. Advance ruling brings certainty in determining duty liability and it helps in avoiding long drawn and expensive litigation at a later date. The Authority for Advance Ruling will give a decision on question raised before it. Such ruling will be binding on the applicant and the department. Procedural aspects have been made in Central Excise (Advance Rulings) Rules, 2002 and Customs (Advance Rulings) Rules, 2002. Presently, scope of advance ruling is very limited, i.e. only in respect of joint ventures where a non-resident is involved or in case of wholly owned subsidiary of foreign company. Answer 4(c) – Often, large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called ‘dumping'. In order to avoid such dumping and protect domestic industry, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty upto margin of dumping on such articles, if the goods are being sold at less than its normal value. Levy of such anti-dumping duty is permissible as per WTO agreement. Anti dumping action can be taken only when there is an Indian industry producing 'like articles'. ‘Margin of dumping' means the difference between normal value and export price (i.e. the price at which these goods are exported). [section 9A(1)(a)]. ‘Normal Value' means comparable price in ordinary course in trade, for consumption in the exporting country or territory. If such price is not available or not comparable, comparable representative price of like article exported from exporting country or territory to appropriate third country can be considered. [section 9A(1)(c)]. 'Export Price' means the price at which goods are exported. If the export price is unreliable due to association or compensatory arrangement between exporter and importer or a third party, export price can be constructed (revised) on the basis of price at which the imported articles are first sold to independent buyer or according to rules made for determining margin of dumping. [section 9A(1)(b)]. Provisional anti-dumping duty can be levied, pending determination of anti dumping duty under the rules. China, Taiwan etc are mainly involved in dumping. Answer 4(d) - Merchant Exporters, Manufacturer Exporters, Service Providers, EOU, units in SEZ/AEZ/ EHTP/STP are eligible for recognition as a ‘Status Holder’. The applicant is required to achieve prescribed average export performance. The required average FOB/FOR export value during the preceding three licensing years in rupees is as follows - * Export House - Rs 15 crores * Trading House - Rs 100 crores * Star Trading House - Rs 500 crores * Super Star Trading House - Rs 2,000 Crores. SSI units, handicraft units, exporters to countries in Latin America and CIS/sub Saharan Africa and units having ISO 9000 series status, shall be entitled for ‘export house’ status on achieving average FOB/FOR value of Rs 5 crores during preceding three financial years. The same threshold limit is applicable to the service providers and agri exporters. The status holders are eligible for following special facilities – (a) Procedural simplifications (b) Letter of Undertaking instead of bank guarantee (c) Relaxations in FEMA provisions (d) Priority finance (d) Duty Free Entitlement (DFCEC) . Answer 4(e) – A ‘self assessment scheme’ for importers and exporters has been introduced in some ports. It is called ‘Accelerated Clearance of Imports and Exports Scheme’. As per the scheme, importer will himself determine classification of goods including claim for exemption benefits. Computer System will calculate the duty based on his declaration. Physical inspection of imported goods will be done by risk-assessment and management techniques on a computer based system and not on the orders of customs examining staff. Audit of import documents will not be by existing system of concurrent audit but will be done by post-clearance audit, as prevalent in developed countries. The scheme is announced through administrative instructions, without making any change in statutory provisions. Hence, the scheme is not same as ‘self removal’ under Central Excise. Presently, the scheme is introduced on trial basis at Air Customs, Sahar (Mumbai), ICD, New Delhi and Chennai Sea Customs. The scheme has been extended to Air Cargo Complex, Bangalore, vide MF(DR) circular No. 109/2003-Cus dated 19-12-2003. In case of imports, the scheme will be open to all status holders under EXIM policy, Central and State Government PSUs and other importers who have been importing for at least two years and have filed at least 25 Bills of Entry in preceding year. In case of exports, the scheme will be open to all status holders under EXIM policy, EOU/STP/EHTP units whose goods have been sealed in presence of customs/excise officers, Central and State Government PSUs, manufacturer-exporters who have been exporting for at least two years and have filed at least 25 Shipping Bills in preceding year and bulk exporters. Certain sensitive items have been excluded from the provisions. Importer/exporter intending to avail this facility has to make application to Commissioner. Answer 4(f) If Goods manufactured or produced in India, which are exported from India, are re-imported; restrictions and conditions as applicable to other imported goods are applicable to re-imported goods also [section 20 (1)]. Thus, normal customs duty will be payable on re-import of goods. However, re-imports are entitled for following concessions - (a) If the same goods which were exported are re-imported within three years by same person, customs duty is payable which is equal to duty drawback claimed plus central excise duty (which was exempted when the goods were initially exported). However, this concession is not applicable to goods which were exported by EOU or FTZ units. – Notification No. 94/96-Cus dated 16.12.1996. - - Basic principle is that export incentives obtained at the time of export will be recovered. (b) No customs duty is payable if goods are re-imported for repairs, reconditioning, reprocessing, dyeing, refining or similar process. Such re-import should be within three years from export. Whole goods or only some of its parts (i.e. only defective parts) can be re-imported. The goods must be re-exported within 6 months after carrying out the repairs. Same goods which are imported must be re-exported. Necessary bond has to be executed - Notification No. 158/95-Cus dated 14.11.95 and CBE&C circular No. 127/95-Cus dated 14-12-1995. (c) If private / personal property which was imported earlier was re-exported for alteration, renovation, repair free of charge etc. in can be re-imported without payment of customs duty. – Notification No. 174/96-Cus. Q 5. Attempt any eight of the following by filling the blanks/choosing appropriate word/stating the statement as True or False etc. as the case may be : (a) Customs Act, 1962 consolidates ____________, _______ and provisions of Air Customs Acts. (b) In second appraisement system the assessment is done on the basis of _______ and goods are ______ later. (c) Identical goods means that goods should be _____ in all respects, should be produced in the same ______ and should be ____ by same _________. (d) Rate of duty applicable in the following cases shall be the rate on the date; (i) for home consumption when ________ is presented. (ii) for warehouse goods when goods are _______ from warehouse. (iii) for baggage when ________ is made. (iv) for postal import when the authorities present the _________. (e) The maximum period for warehousing (i) capital goods for 100% EOU is _____ years. (ii) for other goods is ________ years. The period may be extended by _______. (f) Drawback Rules, 1995 are made under section _________ of Customs Act, 1962 and section _____of Central Excise Act, 1944. (g) Penalty for short levy etc. of duty by collusion or willful misstatement is equal to ____ and ______. However, if paid within 30 days it will be ____ per cent of the amount. (h) Interest on delayed payment of refund is ______% of amount. (9, 10,15) (i) Offences under Customs Act are non-cognizable. Customs officer himself may grant bail. True or False. [2 x 8 = 16 marks] Answer 5 – (a) Customs Act, 1962 consolidates Sea Customs Act, Land Customs Act and provisions of Air Customs Acts. (b) In second appraisement system the assessment is done on the basis of documents and goods are examined later. (c) Identical goods means that goods should be same in all respects, should be produced in the same country and should be produced by same manufacturer. (d) Rate of duty applicable in the following cases shall be the rate on the date; (i) for home consumption when Bill of Entry is presented. (ii) for warehouse goods when goods are removed from warehouse. (iii) for baggage when baggage declaration is made. (iv) for postal import when the authorities present the list. (e) The maximum period for warehousing (i) capital goods for 100% EOU is five years. (ii) for other goods is three years. The period may be extended by Commissioner of Customs. (f) Drawback Rules, 1995 are made under section 75 of Customs Act, 1962 and section 37of Central Excise Act, 1944. (g) Penalty for short levy etc. of duty by collusion or willful misstatement is equal to duty and interest. However, if paid within 30 days it will be 25% per cent of the amount. (h) Interest on delayed payment of refund is 9%. (9, 10,15) [Note that it has been further reduced to 6% w.e.f. 12-9-2003] (i) Offences under Customs Act are non-cognizable. Customs officer himself may grant bail. True or False - True. [He can release accused on bond, but bail can be granted only by Magistrate] Q 6. (a) A has imported from U.S.A. by Air under-mentioned goods at Mumbai: Tariff Heading - 85-01, (1) Description - Micro motors – Value in FOB – US $ 10,000 (2) Soldering irons and guns - Value in FOB – $ 5000 - - Other relevant data are : Air freight $ 400, Insurance actual $ 200, Local agent’s commission Rs. 5,000, Rate of exchange 1$ = Rs. 50, Customs duty – 25% Ad-valorem, CVD – 16% Ad-valorem, SAD – 4% Ad-valorem. Effective Rate of duty on soldering irons and guns through a customs notification is 20%. Compute assessable value of each item and relative total customs duty and aggregate customs duty payable [8 marks] Q 6 (b) (i) What is ‘Brand Rate”? (ii) An exporter has exported under-mentioned goods under draw-back claim:
Note : 1: On examination it is found that brass content in brass artware is 80%. 2: Artware has copper content of weight 950 kg. Compute the amount of drawback admissible taking into account the above facts. [2+6 = 8 marks] Answer 6 (a) -
Answer 6(b)(i) – Exporter are entitled to get duty drawback which is equal to excise and customs duty paid on inputs. The drawback is paid on basis of All Industry Rates fixed for various product groups. It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for special type of products. In such cases, brand rate is fixed under rule 6. The manufacturer has to submit application with all details to Commissioner, Central Excise. Such application must be made within 60 days of export. Even in case of products where All Industry rate is fixed, a particular manufacturer may find that the actual duty paid on inputs is higher than All Industry Rate fixed for his product. In such case, he can apply under rule 7 of Drawback Rules for fixation of Special Brand Rate, within 30 days from export. The conditions of eligibility are (a) the all Industry rate fixed should be less than 80% of the duties paid by him (b) rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500 (c) export value is not less than the value of imported material used in them - i.e. there should not be ‘negative value addition’. Answer 6(b)(ii)
Q 7. Write short notes under the provisions of Central Excise Law regarding: (a) Procedures for end-use exemption (b) Removal of goods from FTZ, EOU and SEZ to DTA (c) Return of duty paid goods for repairs and other purposes (d) Storage of non-duty paid goods outside the factory [4 x 4 = 16 marks] Answer 7(a) - Some users of excisable goods can obtain goods at nil or lower rate of duty, subject to certain conditions. In other words, the exemption is based on end use. If the buyer is entitled to obtain excisable goods at nil or concessional rate of duty, he is required to follow prescribed procedure. The provisions are contained in Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. The procedure is followed when duty exemption/concession is available on the basis of end use, i.e. exemption/concession is available only if goods are utilised for intended purpose. The buyer of goods intending to avail the benefit of exemption notification issued u/s 5A shall apply to Assistant / Deputy Commissioner in quadruplicate in prescribed form. A bond in prescribed form should be executed with surety or security. Bond amount will be prescribed by Assistant / Deputy Commissioner, considering duty liability estimated to be involved at any given time. The AC / DC will countersign the application submitted, certifying that necessary bond has been executed. Copy of this application duly signed by AC/DC will be sent to supplier-manufacturer. The supplier can clear goods on receipt of the certificate duly countersigned by AC / DC. The removal details will be recorded on the application by the supplier-manufacturer. Goods obtained by the manufacture at concessional rate of duty should be properly accounted for and should be used only for the purpose for which they are brought. Simple account indicating quantity and value of subject goods, quantity consumed for intended purpose and quantity remaining in stock shall be maintained invoice wise. A monthly return in prescribed form should be submitted by 10th of following month. Answer 7(b) – SEZ and EOU units should normally export all their products. However, part of their production can be cleared in DTA i.e. Domestic tariff Area. In case of SEZ units, they have to pay excise duty which is equal to customs duty on like products. In other words, supply from SEZ to DTA is treated as export by SEZ and import by DTA unit. In case of EOU, part of goods can be supplied at concessional rate of duty which is lower than normal customs duty payable. The goods are required to be cleared under invoice after paying duty in PLA. The manufacturer has to submit monthly return to department in form ER-2. Answer 7(c) – It is often necessary to bring the duty paid final products for various purposes like refining, repairs, re-making, reconditioning, testing etc. Rule 16 of Central Excise Rules make provisions in this regard. If the duty paid goods are brought for being re-made, refined, re-conditioned or for any other reason, assessee should take Cenvat credit of duty paid as if such goods are received as inputs under Cenvat Credit Rules. At the time of clearance, duty should be paid under Invoice as follows - (a) If the process carried out on the goods brought amounts to manufacture, assessee should pay duty at the rate applicable on date of removal. Value shall be determined under section 3(2), 4 or 4A as applicable. (b) If the process does not amount to manufacture, an ‘amount’ equal to Cenvat credit taken at the time of receipt of final product is payable. The buyer can avail Cenvat credit of this ‘amount’. [rule 16(2)]. - - The Cenvat credit available with assessee can be utilised for payment of ‘duty’ payable under rule 16(1) or ‘amount’ payable under rule 16(2). After repairs, reconditioning etc., goods can be sent to any one. There is no requirement that goods must be sent only to the person from whom these were received. The goods brought must themselves be reprocessed and then sent. If the goods brought are scrapped and fresh goods are sent, it is new manufacture. Fresh duty is payable and Cenvat credit of goods returned cannot be availed. If some components are used in processing where process does not amount to ‘manufacture’ duty will be payable on such components. If there is any difficulty in following the procedure, permission has to be obtained from Commissioner for bringing the goods for repairs, reconditioning etc. Answer 7(d) - Normally, goods can be cleared from factory only after payment of duty or to another warehouse without payment of duty (in cases where warehousing is permitted). However, in exceptional cases having regard to nature of goods and shortage of storage premises of the manufacturer where goods are made, Commissioner can permit storage of goods in any other premises outside the factory without payment of duty. Commissioner can specify conditions while giving such permission. [Rule 4(4) of CE Rules]. Normally, a bond may be asked to secure the duty liability. Q 8. (a) What is document of Title of goods under CST Act, 1956? (b) Mention the names of certain goods declared to be of special importance in inter-state trade or commerce for the purposes of CST Act, 1956. (c) When is indemnity granted under CST Act, 1956 to the officers of the Government? (d) Give a few illustrations of Consignment transactions, which are not considered as sale under the CST Act, 1956 [4 x 4 = 16 marks] Answer 8(a) - When the goods are handed over to the carrier, he hands over a receipt to the seller. The seller sends the receipt to buyer. The buyer gets delivery of goods on submission of the receipt to the carrier at other end. The receipt of carrier is ‘document of title of goods’. The words ‘document of title’ is defined under section 2(4) of Sale of Goods Act. Such document is usually called (a) Lorry Receipt - LR in case of transport by Road (b) Railway Receipt - RR - in case of transport by rail (c) Bill of Lading - BL - in case of transport by sea (d) Air Way Bill - AWB - in case of transport by air. It is called ‘document of title’ as one who submits the same is entitled to get delivery of goods, if document is in his name or endorsed in his name. Answer 8(b) - Section 14 gives list of ‘goods of special importance’ called ‘declared goods’. State Government cannot levy sales tax more than 4% on such declared goods. Important among them are : (a) Cereals i.e. paddy, rice, wheat, bajra, jowar, barley etc. (b) Coal and coke in all forms excluding charcoal (c) Cotton in un-manufactured form but not cotton waste (d) Cotton fabrics, cotton yarn (e) Crude oil (f) Hides and skins (g) Iron and Steel i.e. pig iron, sponge iron, iron scrap, steel ingots, billets, steel bars, steel structurals, sheets, plates, discs, rings, tool steel, tubes, tin plates, steel wheels, wire rods; defectives of above etc. (h) Jute (i) Oil-seeds i.e. groundnut, til, cotton seed, linseed, castor, coconut, sunflower, mahua, kokum, sal etc. (j) Pulses i.e. gram, tur, moong, masur, urad etc. (k) Man-made fabrics - fabrics of man-made filament yarn i.e. artificial textile materials, polyester filament yarn, staple fibres, polyester staple fibre, tyre cord fabric, impregnated textile fabrics etc. (l) Sugar and Khandsari Sugar (m) Un-manufactured tobacco, cigars, cigarettes, biris, chewing tobacco, snuff etc. (n) Woven fabrics of wool Answer 8(c) - Government officers executing CST Act are protected. A suit, prosecution or legal proceeding does not lie against them for anything done in good faith under CST Act or rules under CST Act. [section 12]. The immunity is only when action is done ‘in good faith’. In any case, prosecution cannot be launched against Government officer without sanction from the Government. Answer 8(d) – Following consignment transactions are not ‘sale’ under CST Act. In such case, there is no sales tax liability, but form F will have to be submitted to prove that transaction is not a ‘sale’ – (a) Transfer of goods from Head Office or Factory to Branch or Depot situated in another State for sale (b) Transfer from one branch/factory to another branch/factory in different State for sale or manufacture (c) Transfer of goods fro repairs from one State to another (d) Dispatching imported goods from one State to another. Suggested Answers Q 1 (a) Mention the types of duties that could be imposed on excisable goods under Central Excise Tariff Act, 1944 and other allied Acts and on what value such duties are imposed if the rate is ad valorem rate of duty. (b) Define ‘inter connected undertakings’ as required under Section 4 of Central Excise Act, 1944. (c) Why Special Additional duty of Customs is levied? On what value is the said duty computed? Is there any exemption available from the said levy? (d) Under which provision of Customs Act, 1962, Customs Duty is levied? Explain the relevant provisions. (e) Define ‘Sale price’ under CST Act, 1956. [ 4 x 5 = 20 marks] Answer 1 (a) The following types of duties can be imposed on excisable goods under CETA and their allied acts :- (i) Basic Excise Duty (also termed as Central Value Added Tax) at rates specified in Schedule I of CETA (ii) SED (Special Excise Duty) at rates specified in Schedule II of CETA (iii) AED(T &T) - Additional Excise Duty (Textile and Textile Articles) (iv) AED(GSI) - Additional Duties of Excise (Goods of Special Importance) (v) NCCD – National Calamity Contingent Duty – under Finance Act (vi) Additional duty on Mineral Products. - - If duty is levied on ad valorem basis, it is payable on the basis of ‘transaction value’ as per section 4 of Central Excise Act, except that AED(T&T) is payable on basis of excise duty payable on the final product under central Excise Act. Answer 1 (b) ‘Inter connected undertaking’ has the same meaning as defined under MRTP Act. Section 2(g) of MRTP Act gives definition of interconnected undertaking. It is possible to have inter-connection between two Companies, two firms, a Company and a firm, a Company and a trust, etc. The definition, therefore, states that if any of the following connection exists, the two undertakings would be deemed to be interconnected undertaking. (1) If one owns or controls another. (2) If both are owned by partnership firms, there is one or more common partners. (3) If both are owned by companies and : (a) if one company manages another or (b) if one company is subsidiary of another, or (c) If both body corporates are under the same management, or (d) if one body corporate controls another in any other manner (4) If one is owned by company and another is owned by a partnership firm, if partners of the firm hold, directly or indirectly, more than 50% share in the company, or otherwise directly or indirectly have control over the company. (5) If one is owned by a firm in which companies are partners and if another is owned by a company and if such companies are under same management. (6) If the undertakings are owned by the same person or by the same group. (7) If one is connected with other directly or indirectly through other interconnected undertaking e.g. if A is interconnected with B and B is interconnected with C and C is interconnected with D, then A will be deemed to be interconnected with C and D. Just 25% common control is sufficient to call two units ‘inter connected undertakings’. The definition is relevant for purpose of valuation under central Excise. Answer 1(c) Special Additional Duty (SAD) @ 4% is levied in order to provide a level playing field to indigenous goods which have to bear the Sales Tax, Local tax and other charges. SAD is computed on assessable value plus basic duty of customs plus additional duty of customs leviable u/s 3 of Customs Tariff Act (CVD). Following are exempt from SAD – (i) Goods imported under export promotion schemes like DEEC with Actual User Condition, DEPB and EPCG etc. (ii) Goods which are wholly exempt from basic customs duty and CVD i.e. Nil duty goods (iii) Baggage (iv) Gold and Silver imported under special schemes (v) Other specified goods. Answer 1(d) Customs duty is levied under section 12 of Customs Act, 1975 on goods imported into or exported from India. It is levied at such rates as may be specified under Customs Tariff Act, 1975 or any other laws for the time being in force. These provisions shall apply in respect of all goods belonging to Government as they apply in respect of goods not belonging to Government. Answer 1(e) As per section 2(h) of Central Sales Tax Act, ‘Sale Price’ means the amount payable to a dealer as consideration for the sale of any goods less any sum allowed as Cash Discount, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time or before the delivery therof, other than the cost of freight or delivery or cost of installation in cases where such cost is separately charged. Q 2 (a) Specify the exempted goods that require reversal of credit under Rule 6 of Cenvat Credit Rules. (b) How does a manufacturer availing Cenvat satisfy himself that duty was paid on such goods by the supplier of the Inputs/Capital goods? (c) State the powers of Central Excise Officers to grant ‘Remission’ of duty. (d) What is the penal provision when any person acquires or possesses or sells or keeps or purchases or transports or removes or deals with goods liable for confiscation under Central Excise Rules, 2002? [ 4 x 4 = 16 marks] Answer 2. (a) As per rule 6, if assessee manufactures both exempt as well as dutiable goods, he has to pay 8% ‘amount’ on price of exempted goods, if he uses common inputs. However, in following cases, the assessee only has to reverse the Cenvat credit availed on inputs used in exempted final products, instead of paying 8% ‘amount’ - (i) Ethyl Alcohol falling under chapter heading : 22.04 (ii) LSHS (Low Sulphur Heavy Stock) falling under chapter 27 (iii) Naptha falling under chapter 27 used in the manufacture of fertilizer (iv) Tyres and Tubes of ADV and Headcarts under chapter 40 (v) News print in Rolls or Sheets falling under chapter heading 48.01 (vi) Textile Articles falling under chapter 50 to 63. Answer 2(b) Rule 13(1) of Cenvat Credit Rules provides penalty if a person avails credit of duty on inputs without taking ‘reasonable steps’ to ensure that appropriate duty has been paid on the inputs as indicated in Invoice or other document. Explanation to rule 7(2) states that a manufacturer or producer taking Cenvat credit shall be deemed to have taken reasonable steps if he satisfies himself about identity and address of manufacturer or supplier who issued the Invoice or other document either (a) from his personal knowledge or (b) On the strength of a certificate given by a person with whose handwriting or signature is familiar or (c) On the strength of Certificate of Range Superintendent within whose jurisdiction the manufacturer or supplier is situated. If identity of manufacturer or supplier is satisfied on the strength of a certificate, such certificate shall be retained by manufacturer for production to central excise officer on demand. Answer 2(c) Remission’ means waiver or cancellation of excise duty legally payable. Section 5 of CEA provides that Central Government can provide for remission of duty of excise payable on excisable goods, which due to any natural cause, are found to be deficient in quantity, by making rules in that behalf. If the quantum of remission is less than Rs 1,000, remission can be given by Superintendent. If duty involved is between Rs 1,000 and Rs 2,500, remission can be given by Assistant / Deputy Commissioner. Remission upto Rs 5,000 can be given by Joint / Additional Commissioner. If duty involved exceeds Rs 5,000, remission can be given only by Commissioner. [However, if duty exceed Rs 5 lakhs, report should be submitted to Board]. Answer 2(d) Under Rule 26 of Central Excise Rules, 2002 any person who acquires possession of, or in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or Rs. 10,000/- whichever is greater. Q 3 (a) What are penal provisions in the case of vexatious search and seizure by Central Excise Officers? (b) Explain the circumstances when an Advance Ruling will be void under Central Excise Act, 1944 (c) State the circumstances under which an application will not be entertained by the Settlement Commission under the provisions of the Central Excise Act, 1944? (d) Describe the provisions relating to offences by Companies under Section 9AA of Central Excise Act, 1944 [4 x 4 = 16 marks] Answer 3 (a) Under section 22 of Central Excise Act, any Central Excise officer exercising power who – (i) without reasonable ground of suspicion searches or causes to be searched any house, boat or place (ii) unnecessarily detains, searches or arrests any person (iii) Unnecessarily seizes any movable property (iv) commits injury to any person without reason, shall be punishable with fine which may extent to Rs. 2000/-. Any person will fully and maliciously giving false information and so causing an arrest or search shall be punishable with a fine which may extend to Rs. 2,000/- or imprisonment which may extend to 2 years or both. Answer 3(b) As per section 23F(1) of Central Excise Act, where an advance ruling pronounced by the authority has been obtained by the applicant by fraud or misrepresentation of facts, the authority can declare the ruling to be void ab initio. Thereupon, all the provisions of the Act shall apply to the applicant as if such ruling had never been made. Answer 3 (c) As per section 32E of Central Excise Act, an application for settlement is not entertained by the settlement commission under Central Excise Act, 1944 in the following circumstances :- (i) the applicant has not filed a return (ii) a show cause notice is not issued (iii) the additional amount of duty accepted by the applicant does not exceed Rs. 2 lakhs. (iv) An application/case is pending with the Tribunal or Court. (v) Where any excisable goods or books of accounts/documents are seized and 180 days have not expired. (vi) Application pertains to classification or valuation of excisable goods. Answer 3(d) Section 9AA provides punishment in case of offences by companies. As per section 9AA(1), Where an offence has been committed by a Company, every person who at the time the offence was committed was in charge of and was responsible to the Company for conduct of the business, shall be deemed to be guilty of the offence and shall be proceeded against and punished accordingly. However, nothing shall render a person liable to any punishment, if he proves that the offence was committed without his knowledge or he had exercised all due diligence to prevent the offence. As per section 9AA(2), where an offence has been committed by a Company and it proved that it was committed with consent or connivance of or neglect of any Director or Manager or Secretary or other officer of the Company, he shall be deemed to be guilty and punishable. Difference between provisions of section 9AA(1) and 9AA(2) is that in former case, the person in charge is deemed to be guilty and burden of proof is on him to prove that he had no knowledge; while in later case, burden of proof is on prosecution to prove that offence was committed with knowledge or connivance of the director, manager, secretary or other officer. Q 4 Write short notes on any four of the following: (a) Customs Documents (b) Notice of Short Export (c) Status Certification for Export Houses under Exim Policy 2002-07 – Handbook of Procedure (d) Test Report by Customs Chief Chemist (e) Detention Certificate (f) Import of Commercial Samples [4 x 4 = 16 marks]. Answer 4. (a) As per Levy of Fees (Customs Documents) Regulations, 1970; fee of Rs 10 Rs is payable for obtaining permission to amend a customs document. Fee of Rs 50 is payable to obtain certified copy of ‘customs document’. As per the regulations, ‘customs document’ means document used in compliance with provisions of Customs Act and includes a bill of entry, shipping bill, bill of export, import manifest, import report, export manifest, export report, bill of transshipment, baggage declaration, show-cause notice and any order passed under Customs Act. Answer 4(b) 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 4 (c) Status Certification for Export Houses under Export-Import Policy; 2002-07 – ‘Status Holder’ means ‘trading house’, ‘export house’, ‘star trading house’ etc. recognised under EXIM policy. Such status holders are given certain benefits and procedural relaxations. The status is given on the basis of their export performance of preceding three years. Hand Book of Procedure Export-Import Policy 2002-07 requires certification in respect of export achievement of exporter so that the ‘status certificate’ is granted to the exporter. Certificate by PCA/PCWA /PCS is given on verification of exports made during three preceding years. He also has to certify that 95% or more of export proceeds have been realized. Similar certificate is given for service products. The certificate enables to claim status as Export Houses which entitle several benefits besides Annual Advance Licences. Answer 4(d) Section 144 of Customs Act authorises Customs Officer to take samples of any goods on the entry or clearance of any goods or at any time while such goods are being passed through the customs area. The samples can be taken for testing or for ascertaining the value of goods. Samples should be taken in presence of the owner of goods. After testing or ascertaining the value, samples can be returned to owner. The sample is sent to Central Revenue Laboratory Delhi or Customs Revenue Laboratories at various ports. Report of Chief Chemist/Chemical Examiner of laboratory is obtained. The report can be used for classification/valuation of goods. Answer 4(e) Detention Certificate :- Some times, goods are detained at port for customs purposes as clearance cannot be given as some details required for classification or valuation are not available. This entails demurrage on goods lying in docks. In such case, Detention Certificate is issued by Customs Authorities to Port Trust Authority to grant relief in demurrage incurred on goods. Department of Customs issues in such cases detention certificate to Port Authorities stating the goods involved, time taken (period) and recommends to give relief in demurrage. The Port Trust Authorities may consider relief. However, Port Trust Authorities are not bound to grant such relief in demurrage charges. If the case is decided in favour of the party on adjudication, the party is put to inconvenience and avoidable financial loss due to demurrage. It has been held that if detention of goods was not justified, demurrage charges should be paid by customs department and not by importer. Answer 4(f) Import of Commercial Samples: Commercial Samples are given for advertisement/ to solicit business. These are distributed free. Samples may be imported by any means i.e. courier, by air or by sea. No duty is charged on genuine commercial samples upto Rs. 10,000/-. In addition, commercial samples brought as personal baggage are exempt under customs Notification No. 154/94-Cus dated 13.7.1994, subject to following conditions - (a) Imported goods should be imported as personal baggage by bona fide commercial travellers or businessmen or imported by post or air. (b) The importer declares that the samples are brought for showing to exporters or for securing or executing an export order (b) The importer should produce his Import Export Code Number at the time of importation (c) The goods should be marked as samples (d) Upto fifteen units and upto value of Rs. 60,000 are permitted within a period of 12 months. (e) Importer should give undertaking to pay duty on samples if the declaration is found to be false. Q 5 Answer the following under Customs Act, 1975 by filling in the blanks/choosing the appropriate word/stating whether statement is true or false: (a) Baggage includes ----- but does not include -------- as per section ------ of Customs Act, 1975 (b) There are four forms of shipping Bills (i) Green colour stands for -----. (ii) Yellow colour stands for ----. (iii) White colour stands for ------. (iv) Pink colour stands for ----. (c) An authorised representative may be ----- (any one/none) of the following : Employee, Custom House Agent, Advocate, Qualified professional such as Chartered Accountant, Company Secretary, Cost Accountant etc. (d) Refund claim should normally be filed within ------ months. It can be filed within one year by ---- and also by an individual for ----- use. (e) Time limit to file appeal to Commissioner (Appeals) is ----- days. He ------ (can/cannot) remand cases. (f) There is no time limit for launching ------ for ------ offences. (g) Penalty for improper import/export is equal to an amount not exceeding Rs. ----- or ----- times the value of goods, whichever is higher. (h) In case of post parcel, label/declaration is deemed “Bill of Entry”. State whether True or False. [2 x 8 = 16 marks] Answer 5(a) Baggage includes unaccompanied baggage but does not include motor vehicles as per section 2(3) of Customs Act, 1975. Answer 5(b) Three are four forms of shipping bills. (i) Green colour stands for export under claim for duty Drawback (ii) Yellow colour stands for export of dutiable exports (iii) White colour stands for export of duty Free goods. (iv) Pink colour stands for Ex-bond clearance of duty free goods [(v) Blue colour stands for export under DEPB scheme]. Answer 5(c) An authorised representative may be anyone of the following: Employee CHA Advocate qualified professional such C.A, C.S., Cost Accountant. etc. Answer 5(d) Refund claim should normally be filed within 6 months. It can be filed within one year by Government and also by an individual for personal use. [This applies to customs refund claims] Answer 5(e) Time limit to file appeal to Commissioner (Appeals) is 60 days. He cannot remand cases. Answer 5(f) There is no time limit for launching prosecution for Economic offences. Answer 5(g) Penalty for improper import/export is equal to an amount not exceeding Rs. 5000/- or one times the value of goods whichever is higher. [section 112 and 114 of Customs Act]. Answer 5(h) In case of post parcel, label/declaration is deemed ‘Bill of Entry’. - True. Q 6 (a) Zing Yong of China
exports Lithium Cell to India, the FOB price of which is one Dollar for 30
cells; however the details of Fright & Insurance were not made available.
Investigation reveals that the goods are imported into India at an increased
quantity. Similar cells are manufactured in India, the cost of sales per cell
of which indicates the following break-up: Answer 6(a) The price of imported cells is FOB one dollar for 30 cells, i.e. Rs 50 for 30 cells, as 1 $ = Rs 50. Since CIF price is not available, it is necessary to calculate CIF price. As per valuation rules, if freight and insurance charges are not available, freight may be taken @ 20% of FOB and insurance @ 1.125% of FOB. Hence, freight will be Rs 10 and insurance will be Rs 0.56. Thus, CIF price is Rs 60.56. Add landing charges @ 1% of CIF i.e. 0.61. Hence, Assessable Value is Rs 61.17 for 30 cells. Assuming basic customs duty of 25%, CVD of 16% and SAD of 4%, total duty payable is 50.8% of Assessable Value. Thus, duty will be Rs 31.07. Hence, landed cost of 30 cells is Rs 92.24 (61.17 value plus Rs 31.07 as duty). Hence, landed cost is Rs 3.07 per cell. In case of Indian manufacturer, his total cost is as follows – Prime Cost – Rs 2.50 (Direct Material + Direct Labour + Direct Expenses) Cost of Production – Rs 3.50 (Prime Cost + Indirect Material + Indirect Labour + Indirect Expenses). Cost of Sales – Rs 4.50 (Cost of production + Administration Overheads + Selling and Distribution Overheads). Selling price – Rs 5.00 (Cost of Sales plus profit). Thus, landed cost of imported article is Rs 3.07 while selling price of Indian manufacturer is Rs 5.00 per cell. Hence, there is a case for imposition of Product Specific Safeguard Duty on imports from Chine u/s 8C of Customs Tariff Act. Maximum safeguard duty that can be imposed is Rs 1.93 per cell. Answer 6(b) FOB price is 10,000.00 Swiss Francs. Since air freight is more than 20% of FOB, freight is required to be limited to 20% of FOB i.e. 2.000 SF (Swiss Francs). Since insurance data is not available, insurance cost is to be taken @ 1.125% on FOB, i.e. 112.50 SF. Hence, CIF value is 12,112.50 SF (FOB 10,000 + Freight 2,000 + Insurance 112.50 SF). Add landing charges of 1% of CIF i.e. 121.13. Hence, ‘Assessable Value’ or ‘Customs Value’ is 12,233.63 SF i.e. Rs 4,15,943.25, rounded to Rs 4,15,943. The duty calculations are as follows –
Hence, total duty payable is Rs 13,72,075 (Basic – Rs 1,24,783 + NCCD – Rs 4,159 + CVD Rs 1,74,363 + AED(GSI) – Rs 10,00,000 + SAD Rs 68,770) Notes – (1) Basic Excise Duty (Cenvat) is 16% and Special Excise Duty (SED) is 16%. Hence, CVD, which is equal to excise duty will be 32%. (2) As per section 3A(5) of Customs Tariff Act, SAD is not payable if an article is liable to AED(GSI). However, since the question specifies SAD @ 4%, it has been calculated. If SAD is payable, it will be calculated on Assessable Value plus Basic Customs Duty plus NCCD plus CVD plus AED(GSI). Q 7 (a) X Ltd. is engaged
in the manufacture of ‘paracetamol’ tablets that has an MRP of Rs. 9 per strip.
The Company cleared 1,00,000 tablets and distributed as physician’s samples.
The goods are not covered by MRP, but the MRP includes 16% Excise Duty and 4%
CST. If the cost of production of the tablet is 40 paise per tablet, determine
the total duty payable. (b) From the following data, determine the CENVAT
allowable if the goods are produced or manufactured in a FTZ or by a 100% EOU
and used in any other place in India. Answer 7. (a) If the product is not covered under MRP provisions, valuation provisions u/s 4A do not apply. In that case, valuation is required to be done as per Central Excise Valuation Rules. As per the CBEC’s circular, any physicians samples or other samples distributed free of cost are to be valued under Rule 11 read with Rule 8 of Central Excise Valuation Rules, 2000. As per rule 8, such samples are to be valued at 115% of cost of production or manufacture. Since cost of production is 40 Ps, Assessable Value will be 46 Ps. Hence, duty payable @ 16% will be 7 paise per tablet (6.9 paise rounded to 7 paise). Answer 7 (b) As per Rule 3 of CENVAT Credit Rules, 2002 the following formula is to be used if a unit in DTA purchases goods from EOU - 50% of Assessable value x{[1+BCD/100] X CVD/100} Hence, Cenvat Available per unit is as follows – Cenvat = 0.50 x 770 x {[1 + 30/100] x 16/100} = 385{1.30 x .16} = 385 x 0.208 = Rs 80.08 per unit Hence, Cenvat allowable on 77,.770 units = 77,770 x 80.08 = Rs. 62,27,821.60 Answer 7(c) The default period is 2 months and 5 days. It is for 64 days (26 days of March, 30 days of April and 10 days of May 2003). The interest payable is 2% for every month or Rs 1,000 per day, whichever is more, subject to maximum of duty payable. ( A) - Interest @ 2% per month on Rs 60,000 will be Rs 1,200. Since default is for 2 months and 5 days, i.e. 2.161 months [2+5/31], interest will be Rs 2,593.20. (B) Minimum interest @ Rs. 1000 per day of default will be Rs. 64,000. Greater of (A) & (B) = Rs. 64,000 However this is subject to maximum of duty which is Rs. 60,000/- Hence interest payable will be Rs. 60,000/-. Answer 7(d) As per rule 4(4) of Central Excise Rules , 2002, Commissioner of Central Excise may, in exceptional circumstances, having regard to the nature of the goods and shortage of storage space at the premises of the manufacturer where the goods are made, permit a manufacturer to store his goods in any other place outside such premises without payment of duty subject to such conditions as he may specify. Normally, a bond will have to be executed for this purpose. Q 8 (a) What is the liability of a “Company in Liquidation” under Section 17 of CST Act, 1956? (b) Describe the provisions relating to rounding off of tax under Section 9B of CST Act, 1956? (c) State the transactions that are not taxable under CST Act, 1956. (d) Define the meaning of ‘Occasions such export/import sales’ under CST Act, 1956. [4 x 4 = 16 marks] Answer 8. (a) Liability of Company in liquidation – As per section 17(1), if a liquidator or receiver is appointed for a Company, he should inform sales tax authorities within 30 days of the appointment. Sales tax authority will inform him within three months the amount of tax due from company which is in liquidation. Liquidator cannot sell assets of company before setting aside amount of dues as informed by sales tax authorities – unless such transfer or sale is by order of Court. If liquidator fails to give notice to sales tax authorities or fails to keep aside dues payable to Sales Tax authorities, he will be personally liable. In Imperial Chit Funds (P) Ltd. v. ITO – (1996) 85 Taxman 513 (SC). = (1996)86 Comp Cas 555 (SC) = AIR 1996 SC 1887, it has been held that the sales tax officer will be treated as secured creditor and amount set aside by official liquidator under section 17 of CST Act falls outside area of winding up proceedings. The STO is entitled to payment of tax demanded otherwise than as provided under Companies Act. There is similar provision under section 178 of Income Tax Act. If both ITO and STO send similar orders to official liquidator, the priority will be on the basis of the date of receipt of the orders by official liquidator. Answer 8 (b) Under section 9B of Central Sales Tax Act, the amount of tax, Interest, Penalty, fine or any sum payable and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest rupee and for this purpose, where such amount contains a part of a rupee consisting of paise, then if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise, it shall be ignored. However, the said provision is not applicable to a dealer while collecting any amount of tax in the case of inter state sale of any goods. In other words, he should collect tax in the invoice without rounding up. However, while paying sales tax to Government on monthly/quarterly basis, the amount should be rounded to nearest rupee. Answer 8 (c) Following transactions are not taxable under CST Act - (i) Subsequent Sales by transfer of documents – CST Act envisages a single point levy at the first point of sale. Subsequent sales during movement of goods are exempt to avoid multi-point levy of tax. (ii) Exemption if local sale is generally exempt – CST is leviable even if sale of goods inside a State is exempt from sales tax in that State [Section 6(1A)]. However, under section 8(2A), if sale inside State is generally exempt from local sales tax or is generally taxable at rate less than 4%, then CST payable will be Nil or actual tax payable on Intra-State sale as the case may be. Thus, section 6(1A) has application only when local sale is not generally exempt. (iii) Exemption by notification – State Government can grant exemption under section 8(5) in respect of inter-State sales effected from the State. Such notification should be in (A) public interest and (B) by way of notification in Official Gazatte (C) exemption may be subject to condition. (D) The exemption may be (a) to any dealer for goods or classes of goods or (b) in respect of all sales of classes of goods by any class of dealers (E). The exemption may be total or partial. (iv) Sale during Import/Export – These are exempt from tax. (v) Sale to unit in SEZ (Special Economic Zone). Answer 8(d) ‘Occasions’ means ‘to cause’ or ‘to be the immediate cause of’. As per the Supreme Courts judgements ‘occasions import/export sales’ must comprise of three elements – (i) there shall be a common intention of both buyer and seller to export/ import. (ii) there shall be an obligation to export/import. (iii) there shall be an actual export/import. To occasion export, there must exist such a bond between the contracts of sale and the |