Indirect Tax- News Letter

Issue No.3/2014
Dear Readers,
We are pleased to issue our Third Edition of
Indirect Tax- E-news letter for 2014 with updates
on the various limbs of indirect taxation laws in
India.
Tax laws are getting reformed on a continuous
basis. Reforms happens by way of enactments,
amendments brought in the existing provisions and
also by issuance of Notifications and Trade
Circulars . Hence, every individual religiously has to
keep up braced on such changes for better
understanding of tax position and tax compliances.
Through rigorous efforts to make our Indirect TaxNews Letter more lucid and attractive to readers
the process is a continuous one and we do hope
you will find this edition informative and useful
too.
Best regards,
Group Indirect Tax Team

Editorial
About GST
Service Tax / Excise Notification / Important
Changes
Important Judicial Pronouncements on Excise &
Service Tax Laws
CST/ VAT/Entry Tax Notification / Important
Changes
Important Judicial Pronouncements under VAT/
CST Laws
Topic of the Month : Basic conditions for Levy
of Excise Duty.

Editorial India needs simple and compliance friendly indirect tax regime
Dear Readers,

legislations and hence increase in litigation .

The indirect tax law has been in vogue since independence

but has matured substantially in the last ten years. It is time
that it keeps pace with the developments in other countries
and also with the growth of the Indian Economy. Perhaps it
will take few more years before we can dream of an indirect
tax utopia where tax administration and tax payers work
seamlessly to create a harmonious environment and where
indirect tax is collected across jurisdictions under one efficient tax regime.

The policy makers of India have, in the past few years, looked at the dream
of creating a common Goods and Service tax which will satisfy most of the
problems listed above. However, the dream remains a dream as political
considerations influence economic stands taken by various stakeholders.

Worldwide the VAT regimes have moved from a reactive to

proactive approach, where the taxpayer is valued as a person
collecting tax on behalf of the government and paying to the
exchequer. In such an approach, the tax administration is
friendly and does not seek to initiate litigation for each dispute. The tax payer has an option to explain his business processes and understand the implication
India is standing on the threshold of an opportunity to
streamline its indirect tax regime in the country. The framework of indirect taxes is presently, complex, not only for the
trade but also for the government. Today, multiple taxes
govern the indirect tax framework. At times, a simple transaction attracts two or even more different taxes resulting in
higher tax burden and leakages.
Multiple indirect taxes have the adverse consequence of
higher indirect tax burden, amplified compliance requirements, higher degree of monitoring of operations by authorities through frequent audits conducted under each of the

Proposal to introduce GST as a substitute to central and state levies is a key

initiative towards making indirect tax regime simpler. The proposed dual
GST model (CGST, SGST and IGST for interstate supplies) would not be
free from inefficiencies and administrative roadblocks on account of multiple compliance levels, exclusion of key products etc.
In this regard a unified GST would further simplify the statutory compliance requirements i.e. single registration, consolidated returns etc. A unified GST will have a single GST which would be jointly implemented by
states and center. One possibility could be that while the chain of supply of
goods may be administered by states, the center may administer the service sector for collecting GST. There can be other possible options but the
basic principle should remain that each unit should be administered by either state or center but not both.
Moreover, the vision should be towards having a user friendly compliance
mechanism supported by efficient online tools through which periodic compliance should be done by the trade. The compliance should be 100% online, minimizing interface between tax departments and tax payers in relation to day to day routine matters
Regards
Group Indirect Tax Team

About GSTWhy GST is an

important indirect tax reform plan What is GST?

Goods and services tax is Indias most ambitious indirect tax

reform plan, which aims to stitch together a common market
by dismantling fiscal barriers between states. It is a single
national uniform tax levied across India on all goods and services. move towards smooth transition to GST.
Why is it required?

an election year.
Why is it taking so long to roll out GST?
In addition to the passage of the Bill, it is also imperative to have a robust coun-

try-wide IT network and infrastructure to make the implementation seamless.

The IT network work is still in progress. The most important issue on which consensus eludes states and the Centre is regarding the states. GST faces political
hurdles as it could rob state governments of discretionary fiscal power. States
also fear that they will suffer heavy revenue losses.

The indirect tax system is currently mired in multi-layered

taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi,
central sales tax (CST) and value-added tax (VAT), among
others. In GST, all these will be subsumed under a single regime

Why do states believe that they will suffer revenue losses?

How will the system work?

If there is a loss in revenue, how will states be compensated?

Discussions are on to work out an independent mechanism to compensate
states.

GST, if adopted, can dramatically alter tax administration.

Then, the Centre and states will tax goods and services in
identical rates. For instance, if 20% is the agreed rate on a
certain good, the Centre and states will collect 10% each on
the good. The proceeds would be shared on the basis of the
devolution formula recommended by the Finance Commission.
When will it be implemented?
It can be rolled out only when Parliament passes the Consti-

tution Amendment Bill, which has been pending in Parliament since March 2011. That requires votes of at least twothirds of the members in its favour. In addition, at least half
of the state Assemblies will have to pass the Bill. Parliaments Standing Committee on Finance has not yet submitted its report on the Bill. It is unlikely that it will be passed in

There are certain state specific issues. For example, Maharashtra, earns
more than 13,000 crore annually from octroi. Gujarat, on the other hand,
earns about 5,000 crore from the CST. Agrarian states such as Punjab and
Haryana earn more than 2,000 crore from purchase tax. Each of these
states fear that they will lose these revenues once these levies get subsumed under GST.

How has the Centre compensated the states so far?

The government has brought down the level of CST over the last few years
from 4% to 2% as a precursor to rolling out GST. The committee of state
finance ministers had made claim of 19,000 crore.
The centre had disbursed 6,000 crore two years back and another 9,000 crore
has been provided for in this years budget. This budget is for 2010-11, but the
states have been claiming compensation for 2011-12, 2012-13, and now 201314. These are issues that remain unresolved till date

Excise / Service Tax

Notification / Clarifications - Important Changes.

Notification No. 12/2014 - Cenntral Excise Tax dated 03-03-2014.

Background
Rule 5B of the Cenvat Credit Rules, 2004 (introduced with effect from 1 July 2012) provides for refund of Cenvat credit to service providers who are
providing services covered under the reverse charge mechanism, subject to conditions/procedures as may be prescribed.
The Central Government vide Notification No. 12/2014-Central Excise (N.T.), dated 3 March 2014 (the Notification) has now prescribed the procedure to be followed for claiming refund of unutilized Cenvat credit taken on input and input services. Salient features of the notification are as follows:

Coverage
Following services are covered under the Notification:
Renting of a motor vehicle designed to carry passengers, to any person who is not engaged in a similar business, where service tax is payable on

the total value of service (i.e. non abated value);

Supply of manpower for any purpose;
Security services; and
service portion in the execution of a works contract.

Other aspects

The unutilized Cenvat credit shall be calculated by proportioning the total Cenvat credit taken on inputs and input services in the ratio of turnover of services on which Service tax is payable under partial reverse charge mechanism with the total turnover of goods and services;
The amount of refund shall be limited to the amount of Service tax required to be paid by the Service receiver on such services;
The refund claim shall be filed after filing of Service tax return for the period for which refund is claimed;
The refund claim shall be filed in a prescribed format, within one year from the due date of filing of Service tax return for the half year, in which
the Cenvat credit is taken;
the last date of filing refund claim for the period July 2012 to September 2012 has been notified as 30 June 2014. The amount claimed as refund
shall be debited by the claimant from his Cenvat credit account at the time of making the claim.
Impact on Srei & Its Group Companies : This notification should ease the cash flow issues that have arisen out of accumulated Cenvat Credit and will be beneficial to the Infrastructure sectors .

Important Judicial Pronouncements on Excise & Service Tax Laws at the CESTAT / various other High
Courts and Supreme Court.
Service Tax Decisions : Mumbai CESTAT

Service Tax Decisions : Delhi CESTAT

Reimbursement of salary for engaging the staff of the assessee

will constitute consideration for supply of manpower service.
The assessee had leased out plant and machinery to Bajaj Organic
Ltd (under an agreement) and there was also an understanding between them for engaging the staff of assessee in the factory run by
Bajaj, for which the assessee received the consideration. The salary
for the staff was reimbursed by Bajaj on a monthly basis and the
staff was working under the administrative guidelines of Bajaj. The
question before the Tribunal was whether this activity constitutes
supply of manpower liable to service tax. Held, that the activity
comes within the purview of supply of manpower and the assessee
will be liable to discharge service tax on the consideration received.
The contention of the assessee was that they have not received any
consideration for the activity, since only 75 % of the salary was reimbursed by Bajaj, was rejected by Tribunal. The Tribunal also distinguished the decision of Arvind Mills Ltd. , Paramount Communication and Volkwagon on the basis of the facts , as the subject matter
in these cases was the deputation of staff in group companies.
Hence, it was held that the ratio in these decisions could not be applied in the present case. [

The assessee was engaged in the provision of services to its client for
packing, labelling, loading and unloading of finished goods in the factory
premises of its client. The revenue contended that the activity will
amount to Cargo Handling Service and hence subject to Service Tax.
The assessee contended that loading and unloading of the final product
can take place only after the completion of the principal activity of packing and labelling. Held, that packing and labeling was the primary activity and movement of the packed goods was the primary and the movement of the goods was the secondary activity Since the activity of packing and labelling amounts to manufacture according to Central Excise
Tariff Act, 1985 ancillary activity of loading and unloading will not be
considered as a Cargo handling service.

Sanjivani Sahakari Sakhar Karkhana Ltd. Vs Commissioner of Central Excise & Customs, Aurangabad]
Impact on Srei & its Group Companies : The
salary reimbursed during deputation by one company to another is Taxable under Supply of Manpower.

[Subhash Khandelwal Construction (P) Ltd.Vs. Commissioner of Central

Excise , Jaipur 2014 (I) TMI 1197 CESTAT, New Delhi]
Impact on Srei & its Group Companies : This is a good case of
dual levy of taxes applicable on a single transaction. The dominant intention of the transaction involved packing and labeling
and is a subject to payment of excise duty. Hence, applicability of
service tax was not relevant in the instant case.

Important Judicial Pronouncements on Excise & Service Tax Laws at the CESTAT / various other High
Courts and Supreme Court.
Excise Duty Decisions : CESTAT, Delhi

the parameter of any other treatment to render the product marketable to the consumer and accordingly will not amount to
The activity of mere putting warranty stickers and pasting chassis num- manufacture. Since the goods are already packed and bearing MRP
ber will not amount to manufacture under certain circumstances.
stickers at the stage of import itself and marketable before affixing
of warranty seal and chassis number, it cannot be imputed that
In the instant In case, the taxpayer had imported DVD/VCD Players and manufacture has taken place, and accordingly Excise duty is not
Multiplayers which are covered under the Third Schedule of the Central payable on such activities.
Excise Tariff. Accordingly, with respect to these goods any process which
involves packing or repacking in a unit container or labeling or re-labeling
of containers including the declaration or alteration of retail sale price on it
Impact on Srei & its Group Companies : The activity
or adoption of any other treatment on the goods to render the product
involving affixing warranty seal and chassis number ,
marketable to the consumer, amounts to manufacture.
design does not constitute any other treatment ,
hence does not amounts to manufacture. Hence, ExThe original packing of the products, as imported, contained the markings
cise is not payable on such activities.
such as name of the commodity, net quantity, month of import, MRP,
name of the company marketing the goods in India, as required under the
Foreign Trade Policy and the Standards of Weights and Measures Act,
1972. However, after imports, certain process like opening of each package, checking the condition of the product, pasting stickers indicating running chassis number with logo, ensuring the quality of the product by undertaking required tests like soaking test, pasting holographic warranty
stickers and repacking of such products, were being undertaken by the
taxpayer.
The Central Excise authorities demanded excise duty on the ground that
the above activities undertaken by the tax payer amounts to manufacture
as these products are covered under the Third Schedule of the Central Excise Tariff. In this background, the CESTAT held that mere affixing the
sticker of warranty seal and chassis number, design is not covered within

CST /VAT / Entry Tax

Notification - Important Changes
Delhi
-NOTIFICATION No.F.7(400)/Policy/2014/1387-1398 Dated 28th
March, 2014
Delhi Notification notify the banks as Appropriate Government
Treasury for collection of tax . for collection of tax, interest, penalty
or any other amount due under the Act or Central Sales Tax Act,
1956 from the dealers registered or liable to be registered under the
Act, casual traders and contractees (TAN holders):
West Bengal
Addendum to Trade Circular No. 14/2013 dtd.05.12.2013 Dated:
26th March, 2014
Trade Circular No.14/2013 dtd. 05.12.2013 was issued laying down
the procedure on how a dealer, registered under the WBVAT Act,
2003 and the CST Act, 1956 having jurisdiction of Corporate Division,
would file electronically his petition of appeal or revision or review.
As a part of ongoing computerization process in phases, electronic
filing of appeal/ revision/ review petition was put in place and in the
first phase the system was made available to the dealers of Corporate Division only.Since its introduction in December, 2013, dealers
of Corporate Division are availing it smoothly. It is now decided that
it should be extended to Circles. Hence in the second phase this electronic filing system is extended to the dealers registered under the
WBVAT Act, 2003 and the CST Act, 1956 within the administrative
jurisdiction of Kolkata (South) Circle and the dealers will follow the
same procedure as laid down in Trade Circular No. 14/2013 dtd.
05.12.2013. This will come into force with immediate effect.

Tamil Nadu
Notification No. G.O.Ms No. 30 Dated 25th March 2014
Every registered dealer liable to pay tax under the Act, whose taxable
turnover in the preceding year exceeds two crores of rupees, shall pay
the tax only by means of electronic payment through the website of the
Commercial Taxes Department. The amendments hereby made shall
come into force on the 1st April, 2014.
Maharastra
Trade Circular No. 9 T of 2014 Dated 25th March, 2014
Maharashtra Circular for Submission of Annexures with/as a part of returns for the periods starting from 1st April 2014 and onwards
In order to ensure speedy cross verification of ITC claims and faster
processing of refunds it is-decided to obtain annexures of dealer-wise
sales and purchases from each dealer before filing of returns as per the
due periodicity of its return filing.
Description of the annexures :A. Annexure J 1:- in this annexure the dealer will be required to fill in the
dealer-wise information of the sales. .
B. Annexure J 2:- In this annxure the dealer will be required to fill in the
dealer-wise information of purchases.

Impact on Srei & Its Group Companies : Being procedural matters in terms of Tax compliances this is surely going to benefit
the assesses which are present in the states referred above.

Important Judicial Pronouncements under VAT/CST Laws at High Courts and Supreme Court
High Court : Madras
[Transfer of business as a whole will be eligible to sales tax
exemption and assignment of separate values to assets in
the agreement will not go against the intention of the parties
to sell the entire unit.]
The assessee entered a business transfer agreement (BTA), for
the sale and transfer of two of it business units, as a going concern for a consideration which also included a non-compete fee,
The assessee claimed that the consideration for the sale of its
units should be excluded from the sales turnover under the provisions of Tamil Nadu General Sales Tax Act. However, the
revenue rejected the exemption claimed by the assessee on the
ground that separate values were given to movable and immovable assets in the BTA. Held, that the BTA contemplated transfer of the business as a whole in respect of two units. Hence,
when there is a transfer of business as whole, it will be eligible
for exemption from sales tax.
[Eicher Motors Ltd vs State of Tamil Nadu 2013 VIL 111 MAD]

Impact on Srei & its Group Companies : A slump sale

transaction is eligible for exemption under sales tax,
whenever business is getting transferred as a whole.

High Court : Rajasthan

Exchange of old TV sets for new will fall within the definition
of Sale/Purchase
The assessee had sold television sets to its customers in exchange of old ones under a scheme and charged the customer
differential amount to its customers. The revenue contended

the assessee had not paid purchase tax on the amount received by way
of credit notes and raised a demand for the payment of purchase tax on
the same. The assessee contended that the transaction was neither a
Sale nor a purchase and did not come within the definition of sale as given in the Rajasthan Sales Tax Act. The issue before the court was
whether the transaction amounted to sale and purchase under the provision of the Rajasthan Sales Tax Act , 1994. Held , that there was a sale
of television sets by the assessee to its customers as even an exchange
or barter will fall will fall within the definition of sale/ purchase under the
act and hence, the assessee will be liable to pay tax under the
Act. [Bhatia Agency Vs Commercial Tax Officer, 2014-VIL-23-RAJ]
Impact on Srei & its Group Companies : Under Rajasthan
Value Added Tax Act, the definition of Sale and Purchase
have the same footing for the purposes of incidence of
tax.
High Court : Karnataka
Subsequent agreement for deploying additional equipment and manpower cannot be treated as independent contract and is liable to tax
In the instant case, the issue involved was whether the additional compensation received by the taxpayer for the purpose of deploying additional equipment and manpoweris also a part of consideration towards
execution of works contracts and leviable to tax.The taxpayer had entered into an agreement for execution of design, fabrication, supply and
erection of radial crest gates,stop log gates and gantry crane for the
spillway of a Dam. Subsequently, a separate agreement was entered
into for completion of the erection process of spillway crest gates within six months. Therefore, additional compensation was paid in order to
deploy additional equipments and manpower. The taxpayer had opted

Important Judicial Pronouncements under VAT/CST Laws at High Courts and Supreme Court
for composition scheme and accordingly paid tax at 4 per
cent on the additional compensation received. During the assessment, the taxpayer claimed that the additional compensation received was not a part of the consideration relating to
the works contract and hence was not liable to tax. The claim
of the taxpayer was accepted by the assessing authority. However, the revisional authority rejected the assessment order
and ordered that the additional consideration also pertains to
works contract and should be taxable. On appeal, the Tribunal
set aside the revision order and held that if there is any payment exclusively for obtaining on hire machinery and tools,
such payment could not be regarded as payments for execution of works contracts involving transfer of property in goods.
Aggrieved by the order of the Tribunal, the Revenue filed petition before the Karnataka High Court.
Allowing the petition, it was held that the second contract
could not be treated as an independent contract. It was a part
and parcel of the first contract. Though in the original consideration agreed upon, the parties had not thought of taking
assistance of these cranes; however, since the project was to
be completed within six months, they had to take the assistance of these cranes for which hire charges were to be paid.
Therefore, the total consideration paid for execution of the
work i.e. consideration paid under both the contracts was held
as taxable. It was also, held that once the taxpayer had opted
for the composition scheme, the tax was payable by him on
the total turnover which included consideration under both
the agreements
State of Karnataka v. Precision Technofab & Engineering Pvt. Ltd. [2013] 66
VST 499 (Karn)

Impact on Srei & its Group Companies : Once a dealer as

opted for a composition scheme under Works Contract
(under Value Added Tax ) in a given financial year any additional consideration in relation to such works will also be liable to tax under the same scheme irrespective of the fact
that that the transaction does not amount to sale.

Topic of the Month

BASIC CONDITIONS FOR LEVY OF EXCISE DUTY

manufactured' or 'produced').

It is commonly known that levy of excise duty arises on manufacture and the
duty is collected on removal of goods from the factory. However, all manufacturing process does not attract levy of excise duty unless some basic conditions are met. An item will be subject to excise duty if the following four
basic conditions are met i.e.,

Goods must be Marketable - The item must be such that it is

capable of being bought or sold. This is the test of
Marketability. The goods must be known in the market. Unless
this test of marketability is satisfied, duty cannot be levied, as
these will not be goods. This view, first held by 5-member constitution bench of Supreme Court in UOI v. Delhi Cloth, has
been consistently followed by Supreme Court in subsequent
cases and by all High Courts. It was held that to become goods
an article must be something, which can ordinarily come to
market to be bought and sold.

1. The item is a goods under central excise.

2. The goods must be excisable i.e. it should be covered by Central Excise
Tariff.

4. Such manufacture or production must be in India.

Actual sale is not necessary - Actual sale is not necessary in

determining excisability of a product as long as goods are saleable or marketable .

Unless all of these conditions are satisfied, Central Excise Duty cannot be
levied. Thus, it is very important to understand / interpret each of the conditions in detail to appreciate the implications, which are discussed below in
brief:

Duty leviable on captive consumption - Since excise is a duty

on manufacture, duty is leviable even if goods are consumed
within the factory and not sold. However, the goods must be
marketable in the condition in which they are manufactured and
further consumed within the factory.

3. The goods must be manufactured and

What is Goods under Central Excise?

The word "goods" has not been defined under the Central Excise Act. However, case law on this is well developed and as per judicial interpretation, the
word "goods", for purpose of levy of Excise duty, must satisfy two requirements i.e. (a) they must be movable and (b) they must be marketable.
Goods must be movable - They must be movable. Thus, immovable property or property attached to earth is not goods and hence duty cannot be
levied on it. It was observed that the word manufacture or production are
associated with movables. (E.g., a dam or 'road' is constructed - not

Even one purchaser enough - The fact that goods are not in
fact marketed is of no relevance. Even if goods are available
from only one source or from a specified market, it makes no
difference so long as they are available for purchasers. Marketability does not depend upon the number of purchasers or to territorial limits of the country.
Marketability to be decided on the basis of the state in which it
is produced - The commodity which is sought to be made liable
to excise duty must be a commodity that is marketable as it is,

Topic of the Month-continued ..

Waste and Scrap are goods - In Khandelwal Metal and Eng. Works
v. UOI Apex Court held that scrap would be liable to duty, if it is
known in commercial parlance by that name and has an established
market. Thus, waste/scrap can be excisable goods if they are known
in commercial parlance and are marketable. Further, the waste and
scrap will not be excisable goods unless they are specified in CETA
(Central Excise Tariff Act). Thus, waste or scrap will be goods and
hence taxable only if specifically mentioned in CETA (Tariff). In view
of this, CETA covers almost all items of waste and scrap. E.g. Waste
Alloy Steel, Waste Copper, Ferrous Waste, Waste glass, HDPE Waste,
Waste plastics etc. If a particular waste/scrap is not mentioned in CETA, it may be goods but not excisable goods

DISCLAIMER: The objective of this News letter is only to provide updation & knowledge sharing on Indirect Tax issues with our associates,
views expressed in the News Letter should not be construed as legal / professional opinion in any manner. We have made all efforts to avoid
errors or omissions in this News Letter and In case of any doubt, the above persons may be contacted. The Indirect Tax News Letter is the
property of SREI. No part of the newsletter may be reproduced in any manner whatsoever.