Draft Circular 15

PWC may go Arthur Anderson way in India after Satyam's investors all set to sue PWC-employees of PWC float their CVs AED or SAED levied on motor spirit and high speed diesel under the respective sections of the Finance Acts and NCCD on goods leviable to it, are not required to be paid for goods exported under bond from a manufacturing unit located in a Special Economic Zone. Similarly, a manufacturer located in a SEZ would be entitled to avail of the facility of export under claim for rebate in terms of rule 18 of the Central Excise Rules in respect of these duties-Central Excise Circular No.881 Under the various incentive schemes under Foreign Trade Policy, the computation of entitlement is to be done on the FOB value of exports inclusive of commissions and discounts, if any-DGFT Policy Circular No.51 Requirement of NOC before clearance of Ozone Depleting Substance (ODS) against Advance Authorizations-DGFT Policy Circular No.52 Bad News for PWC which audited Satyam Computers-Raju admits accounting fraud in company-Raju says it was like riding a tiger not knowing how to get off without being eaten Raju may be arrested and prosecuted Anti-dumping duty imposed on imports of Float Glass of thickness 2 mm to 12 mm (both inclusive) of clear as well as tinted variety (other than green glass) but not including processed glass meant for decorative, industrial or automotive purposes , originating in, or exported from, the Peoples' Republic of China and Indonesia-Customs Tariff Notification No.4 Anti-dumping duty imposed on import of Mulberry raw silk (not thrown), 2A grade and below, originating in, or exported from China-Customs Tariff Notification No.5 Full Bench of HC Ruling-High Court is empowered to condone the delay in filing the Appeals under Section 35G of the Central Excise Act, 1944 which are filed beyond the prescribed period of 180 days-Section 5 of Limitation Act will be applicable to Appeals filed under Section 35G of the Central Excise Act, 1944-AIT-2009-05-HC Co-relation of inputs with the export product under DFIA Scheme-DGFT Policy Circular No.50 Export of Stone Aggregate and River Sand to Maldives for the year 2009-2010-DGFT Notification No.75 Income-tax (First Amendment) Rules, 2009-Rule 40E- Prescribed conditions for the purposes of sub-clause (iii) of clause (B) of sub-section (2) of section 115WB-Income Tax Notification No.1 Income-tax (2nd Amendment) Rules, 2009 –Rule 5D & 5E amended-Income Tax Notification No.2 Government specifies the National Housing Bank (Tax Saving) Term Deposit Scheme, 2008 for the purposes of clause clause (xv) of sub-section (2) of section 80C of the Income-tax Act, 1961-Income Tax Notification No.3 Truckers demand duty free import of radial tyres and lowering of service tax As per provision of Section 47(iv) of Income Tax Act whether the transfer of capital asset by a company to its wholly subsidiary company could be regarded as transfer and therefore capital gains tax could be levied on such transfer-AIT-2008-04-HC Government grants full service tax exemption on taxable services provided to a Goods Transport Agency by their sub-contractors-Service Tax Notification No.1 DEPB Notification No.89/2005-Customs amended to provide benefits on clearances to SEZ- Customs Tariff Notification No. 3 Amendments made in DEPB Rates vide Public Notice No. 102 dated 05.11.2008 in respect of products where DEPB rates were reduced, stand withdrawn w.e.f. 5.11.2008 itself, thereby restoring the DEPB Rates notified prior to 5.11.2008, for the said items-DGFT PN 124 Government releases Rs. 600 crore to regional authorities of DGFT for payment of pending claims of Terminal Excise Duty and Duty Drawback under deemed export scheme-Government also releases Rs. 200 crore to the Development Commissioners of SEZs for payment towards pending claims of CST in respect of supplies made to 100% EOUs Anti-dumping duty on import of acrylonitrile butadiene rubber (NBR) originating in, or exported from, Korea RP -Customs Tariff Notification No.1 Changes in Customs duty on specified goods-Customs Tariff Notification No.2 New Drawback Rates for Boots/half boots/shoes/sandals of leather-cum synthetic/textile materials-Customs Non-Tariff Notification No.1 Drawback Rates on several products hiked-Customs Non-Tariff Notification No.2 Government announces Second Economic Stimulus Package to boost recession hit Sectors-Exemptions from CVD on TMT bars and structurals, and from CVD and Special CVD on cement, withdrawn-Full exemption from basic customs duty on zinc and ferro alloys, withdrawn-Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn enhanced retrospectively from 1st September 2008-Accelerated depreciation of 50% provided for commercial vehicles to be purchased on or after 1.1.2009 upto 31.03.09-Click on the link below for details CENVAT Credit of service tax paid on all input services up to the Port allowed to Exporters-Click on the link below for details As demanded by AIT; FinMin finally amends CENVAT Credit Rules to allow benefit of non-reversal of Credit on clearances to SEZ Developers-Central Excise Non-Tariff Notification No.50-Click on the lik below for details Anti-dumping duty on import of Flexible Slabstock Polyol, originating in, or exported from, the People's Republic of China, Republic of Korea, Chinese Taipei and Brazil continued till 23rd July, 2009-Customs Tariff Notification No.138 Tariff Value for import of Brass Scrap is 3252 and for Poppy Seeds 4238-Customs Non-Tariff Notification No. 141 Import of new vehicles having an FOB value of US $ 40,000 or more and engine capacity of more than 3000cc for petrol run vehicle and more than 2500cc for diesel run vehicles exempted from policy provision of Import Licensing Note No. 2-DGFT Notification No.74 CBEC clarifies the classification of 'Combined refrigerator freezer with separate external doors' would be under sub- heading 8418 10 and not under 8418 21-Customs Circular No.23 Procedure relating to sanction and pre-audit of refund claims-Customs Circular No.22 Anti-dumping duty imposed on imports of Sodium Hydroxide(Caustic Soda)originating in, or exported from, Korea ROK and the People's Republic of China-Customs Tariff Notification No.137 Abatement from MRP for payment of excise duty lowered by 3 per cent on most of the products-Abatement on Auto Parts lowered to 30 per cent-Central Excise Non-Tariff Notification No. 49 excise duty of 300 PMT notified on cement clinkers-Central Excise Tariff Notification No.64 10% ethanol blended petrol exempted from excise duty Duty free import of capital goods and spare parts under EPCG-Customs Tariff Notification No.136 Anti-dumping duty on import of phenol-Customs Tariff Notification No.135 Authority for Advance Ruling rules looking at the nature of activities carried on or to be carried on by the liaison office of Ikea Trading (Hong Kong) Ltd. in India, no income would accrue or arise or deemed to accrue or arise in India in terms of section 5(2)(b) of Income Tax Act, 1961-AIT-2008-482-AAR Authority for Advance Ruling rules the swapping premium is profit derived from the business of providing long-term finance (computed under the head 'Profits & Gains of Business or Profession' before making any deduction under this clause) in terms of section 36(1)(viii) of the Income Tax Act, 1961-specified percentage thereof is eligible for deduction u/s 36(1)(viii) of the Income Tax Act in view of the fulfillment of condition for carrying this sum to the special reserve-AIT-2008-483-AAR Definition of 'Charitable purpose' under section 2(15) of the Income-tax Act-Income Tax Circular No.11 Import of Trucks/Tippers/Dumpers and spares thereof, under EPCG Scheme by any other sector except for the mining sector is not permitted-DGFT Circular No. 48 transitional arrangements in respect of items whose import has been restricted, shall continue-DGFT Circular No.49 SION norms for export of Shea Stearine notified-DGFT PN 118 The appellant an international firm of solicitors resident in UK, has no office or fixed base in India-the income of the assessee is charged on hourly basis in India and utilised in India shall only be chargeable to Income-Tax Act as disclosed in the return of Income-AIT-2008-480-HC CBDT clarifies that any return of income for the assessment year 2008-09 filed electronically on 30th September 2008, in respect of which the electronic acknowledgement bears the date stamp of 1st October 2008, shall be treated as having been filed within the due date, i.e. 30th September 2008 Export of cement freely allowed from all Ports-DGFT Notification No. 73 Bombay HC rules it is only after enactment of Section 66-A w.e.f. 18.4.2006 that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents- In such cases, the Indian recipient of the taxable services is deemed to be a service provider-Before enactment of Section 66-A, there was no such provision in the Act and therefore, Union of India had no authority to levy service tax-Click on the link below for details Import of all pre-packaged commodities subjected to compliance of all the provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977-Customs Circular No.21 Larger Bench of CESTAT rules in the case of provisional assessment under the Central Excise Rules, 2002 interest is required to be paid from the first day of the month succeeding the month for which such amount is determined-Interest is required to be paid even if the differential amount is paid before the order, under the Rule 7(3) of the said Rules, is issued finalizing the assessment-AIT-2008-473-CESTAT

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DRAFT CIRCULAR (To elicit response/Comments only)

F.No. 249/1/2006-CX.4
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise and Customs)

Subject : Levy of service tax on distillers under “Business Auxiliary Service” for manufacture of Indian Made Foreign Liquor on job work basis – reg.

A number of distillers are engaged in manufacture of Indian Made Foreign Liquor of various brands, on job work basis, on behalf of the brand owners. The activity involves blending, manufacturing, bottling, labelling, etc. These job workers do not have any proprietary rights over the goods produced. They are paid job charges by the brand owners who have the proprietary rights over the goods and who market and sell the IMFL produced by job workers. A doubt has arisen as to whether this activity of job worker falls under the category of taxable service, namely, ‘Business Auxiliary Services’ for the purposes of charging service tax under the Finance Act, 1994.

2. The business auxiliary service, inter alia, covers “production or processing” of goods on behalf of clients provided such activity of production or processing does not amount to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

3. The manufacture of alcoholic beverages falls outside the ‘Union List’ of the Seventh Schedule to the Constitution of India, by virtue of Entry 51 (a) of List II of the Seventh Schedule. Therefore, the Central Excise Act cannot and does not apply to manufacture of alcoholic beverages. Accordingly, IMFL being potable alcoholic beverage is outside the scope of the Central Excise Law and the activity of making/ bottling/packing /labelling of potable alcoholic beverage, does not amount to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944. Accordingly, by virtue of definition and scope of “business auxiliary service”, such activity of blending, manufacture, bottling or labelling, etc on job work basis by a distiller, in respect of Indian Made Foreign Liquor on behalf of brand owner, would be covered under the category of business auxiliary service.

4. Another doubt that arises is as to whether service tax can be charged on production of alcoholic beverages, which fall within the competence of State Legislature by virtue of the aforesaid Entry in the state list.

4.1. This matter was referred to the Law Ministry for their opinion. Law Ministry has opined that as the IMFL is not the subject matter of Union Excise, section 2(f) does not apply to it and that the definition of section 2 (f) can be restored for the purposes of Service Tax (it is a borrowing Act). As regards the legislative competence of Parliament to impose service tax levy, Entry 51 of List II provides for duties of excise, interalia, on alcoholic liquors for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates on alcoholic liquor for human consumption manufactured or produced elsewhere in the country. Service tax not being countervailing duty, the question would arise only when it can be said that it is excise duty. However, service tax is distinct from excise duty. It has accordingly been opined that service tax on the service as defined in the Finance Act, 1994, is not constitutionally ultra vires as impinging on the legislative competence of the State Legislature as to excise duties. In coming to this conclusion, the Law Ministry has placed reliance on the judgments of the Hon’ble Supreme Court, in the matter of Gujarat Ambuja Cements Ltd Vs UOI (2005)4 SCC 214, and T N Kalayana Mandapam Association Vs UOI (2204) 5SCC 632, wherein service tax levy has been upheld on the service tax aspects of activities which are otherwise subject matter of State List.

5. In view of above, Board is of the view that the activity of blending, manufacture, bottling or labelling, etc on job work basis by a distiller, in respect of Indian Made Foreign Liquor on behalf of brand owner, would be covered under the category of business auxiliary service.

6. Trade and field formations may be advised accordingly.

Responses to the draft circular may please be sent to geebeetru@rediffmail.com or cx4cbec@yahoo.co.in or faxed at 011-23092275 by 20.10.2006.

[This Draft Circular has been put up only to elicit public response. No final decision has been taken by Government/ Board. Government/ Board will proceed further in the matter only after due examination of the responses received]