Udyog Tax News Flash

November 2013

Customs: CBEC clarifies on exemption from SAD on parts, accessories of mobile phone handsets
Parts, components and accessories for the manufacture of mobile handsets were exempted from special additional duty of customs (SAD) up to 31 March 2013 under serial number 5 of notification 21/2012-Customs read with serial number 431 of notification 12/2012-Customs. The exemption under serial no. 431 carried an actual user condition, under which the importer was required to follow the procedure prescribed under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. After the exemption under serial number 5 of notification 21/2012-Customs expired on 31 March, importers reportedly continued to avail exemption from CVD, under serial number 1 of the same notification, which exempts all goods that are exempt from the whole of customs duty and CVD that may be leviable on them. The CBEC has clarified that this is acceptable: the exemption for customs duty and CVD is a conditional one subject to observance of the procedure under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996; upon compliance of this condition, the exemption will be available for SAD as well. The CBEC circular number 43/2013-Customs dated 8 November 2013 to this effect can be perused at http://www.cbec.gov.in/customs/cs-circulars/cs-circ13/circ43-2013-cs.htm

Customs: Exchange Rates notified

The CBEC has notified exchange values for specified currencies under notification 109/2013-Customs (NT) dated 7 November 2013. Now the pound sterling converts to INR 101.80 for imports and to INR 99.55 for exports; and the US dollar converts to INR 63.10 and INR 62.10 for imports and exports respectively. The notification 109/2013-Customs (NT) dated 7 November 2013 can be seen at http://www.cbec.gov.in/customs/cs-act/notifications/notfns-2013/csnt2013/csnt109-2013.htm

Customs: Additional non-specified use does not vitiate exemption if specified conditions satisfied
A tug was imported under exemption for use in petroleum operations and was actually put to such use. The certificate required from the specified authority under conditions of the exemption was obtained and produced. However, in addition to the required use, the tug was also diverted for a short period for use in salvage operations. On this ground the department denied the exemption and demanded import duty on the vessel. In appeal, the CESTAT found that the importer had complied with the conditions of the exemption, and that there was therefore no ground to deny the exemption. The CESTAT set aside the demand of over Rs 5 crores. This final order of the CESTAT Mumbai no. A 1918-1919/13/CSTB/C-1 in appeal number C/85071 and C/85022 of BG Exploration & Production (I) Limited is discussed in http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail. php3&newsid=18985

Central Excise: Cenvat credit allowed on mandatory equipment that produced exempted item
Under Rule 6(4) of the Cenvat Credit Rules 2004, credit is not allowed to be taken of excise duty paid on capital goods that are exclusively used for the manufacture of exempted products. In this context the CESTAT had occasion to examine a case in which Indian Oil Corporation had installed a sulphur recovery plant in their refinery. Sulphur is an exempted product. The background was that the pollution control authorities directed IOC to manufacture low sulphur diesel, which is less polluting, and directed IOC to install a sulphur recovery unit in its refinery for this purpose. To make low sulphur diesel, HSD (high speed diesel) is processed in a diesel hydrogen desulphurization unit, and this yields desulphurised HSD as well as a poisonous and foul smelling hydrogen sulphide gas, which cannot be discharged untreated. This gas is further processed in the sulphur recovery unit, to remove the sulphur from it. Thus the physical product of the unit is sulphur, which happens to be an exempted product. On this ground the department moved to recover over Rs 6 crores of Cenvat credit taken on the plant. However the CESTAT set aside the demand observing that the item has to be treated as capital goods used in the manufacture of marketable HSD meeting the ISI specifications and which is a dutiable final product. The CESTAT further observed that , When the purpose of the Pollution Control Board and Environment Ministry is defeated, the order of adjudication should not sustain. There is nothing material found to hold that the sulphur recovery plant is not integrally connected plant with the

DHDS plant. A report on this final order number 57304 of 2013 of the Delhi bench of CESTAT in appeal number E/3615/2005 can be perused at http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail. php3&newsid=19001

Service tax: Volkswagen global employees case

Volkswagen, Germany, identifies and makes available qualified personnel to Volkswagen India from its group companies elsewhere, as per requirement. These persons are referred to in the group as global employees, and are deputed in this manner because of their expertise. Once deployed in India, they are the employees of the Indian company, which has the right to terminate their employment. Part of the salary of these persons is paid in Germany, through the German company. On account of this financial transaction, service tax was demanded on the amount as manpower supply service allegedly received in India. However the CESTAT held that the method of disbursement of salary could not determine the nature of the transaction. There was an employer-employee relationship between the Indian company and the global employees who came to work for the Indian company. It was not a case of supply of manpower by the German company. A report on this final order number A/2006-2008/13/CSTB/C-I dated 30 September 2013 of CESTAT Mumbai bench in appeal number ST/277/11 and ST/496 & 862/12 filed by Volkswagen India Limited can be perused at http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail. php3&newsid=18972

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Updated and written by Radha Arun [radha.arjuni@gmail.com], Consultant to Udyog Software (India) Ltd.
Udyog Software (India) Ltd www.udyogsoftware.com Phone: 022-67993535 Email: ca-service@udyogsoftware.com | sales@udyogsoftware.com
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