Test Paper - Applied Indirect Taxation - The Institute of Cost and Works Accountants Of India ICWAI - Group II, Study notes of Business Taxation and Tax Management

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THE INSTITUTE OF

COST AND WORKS ACCOUNTANTS OF INDIA

12, SUDDER STREET, KOLKATA-700 016

DIRECTORATE OF STUDIES

REVISIONARY TEST PAPER

GROUP II

DECEMBER 2010

128 Revisionary Test Paper (Revised Syllabus-2008)

Paper-10 : APPLIED INDIRECT TAXATION

GROUP - II

130 Revisionary Test Paper (Revised Syllabus-2008)

Q.1. (b) State with reasons, whether True or False :

(i) Sales Tax is leviable on sale of stocks, shares and securities traded by a dealer in shares. (ii) A computer manufacturer purchases mouse and sells them to buyers of personal computers along with the computer. The value of the mouse does not form part of assessable value of the computer for excise duty purpose, chargeable to duty @ 10%. (iii) Import report in case of a vehicle is to be submitted prior to the arrival at customs station. (iv) A person who manufactures gold ornaments with the gold supplied by the customer is not a dealer under CST Act. (v) In case of transactions of taxable service with an associate enterprises, service tax is required to be paid not on receipt basis but on receipt or date of credit/ debit entries in the books of account, whichever is earlier. (vi) In exceptional circumstances, goods can be cleared from factory without payment of excise duty and stored in any other premises. (vii) Importers can store imported goods without payment of duty in public warehouse or private warehouse. (viii) Petrol is declared goods under the Central Sales Tax Act, 1956. (ix) Trade discount is permissible as deduction from assessable value for Central Excise, only if it is given before removal from factory. Discount given later is not allowable as deduction. (x) State Government cannot waive condition of submission of C form by issue of a notification.

Answer 1. (b)

(i) False — As per definition of goods under CST, the term does not include stocks, shares and securities. (ii) True — Value of brought pout accessories supplied along with main articles should not be includible, as the supply is in ‘relation to’ sale but not ‘ in accordance’ with sale. One can buy a computer without the mouse. (iii) False — Person-in-charge of vessel, aircraft or vehicle has to submit Import Manifest/Report [also termed as IGM-Import Manifest]. In case of a vessel or aircraft, it is called import manifest, while in case of vehicle, it is called import report. The import manifest in case of vessel or aircraft is required to be submitted prior to arrival of a vessel or aircraft. Import report (in case of vehicle) has to be submitted within 12 hours of arrival at the customs station. (iv) True — Where the assessee is an ornament maker with the gold supplied by the customer, he is not a dealer but only a contractor for work and labour. (v) True — Service tax is required to be paid on transaction with associated enterprises either on receipt of payment or making credit/ debit entries in the books of accounts, whichever is earlier. “Associated enterprises” will have the same meaning as defined under Section 92A of the Income Tax Act, 1961. (vi) True — 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 manufactured, 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. Normally, a bond may be asked to secure the duty liability. (vii) True — Warehouses are of two types : (a) Public warehouses appointed by Asst. Commissioner of Customs under section 57 of Customs Act. (b) Private warehouses licensed by Asst. Commissioner of Customs. As the name suggests, goods can be stored in Public Warehouse by any importer, while goods can be stored in private warehouse only by person who has been licensed.

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(viii) False — Petrol does not find a place in the list of goods specified as declared goods under the CST Act, 1956. (ix) False — Discount can be given at any time. Hence, discount given after removal is also allowable as deduction. (x) True — Such power is available only to Central Government, and not to the State Government.

Cannons of Taxation – Indirect Taxes

Q. 2. Distinguish between Direct Tax and Indirect Tax?

Answer 2.

Taxes can broadly be classified into two categories :

(a) Direct Taxes : Direct Tax means a tax on property in respect of ownership, possession, or enjoyment of property. Direct taxes are those, which the taxpayer pays directly from his income/ wealth etc. (e.g. Income Tax/ Wealth Tax). (b) Indirect Taxes : It is a tax on goods and services, the incidence of which is borne by the consumers who ultimately consume the goods and services. The major source of indirect taxes are excise duty, customs duty, sales tax, service tax, etc.

Difference between Direct Taxes and Indirect Taxes :

No. Direct Taxes Indirect Taxes (i) They are imposed on persons They are imposed on goods and services (ii) Amount of tax is determined directly on the basis The amount of tax is determined indirectly of taxable income/ wealth of assessee (iii) There is no shifting of tax burden. Hence, Tax burden is shifted to the subsequent user they are directly borne by the taxpayer (iv) Tax collection is difficult Tax collection is relatively easier

Central Excise

Q. 3. (a) Explain the concept of taxable event and the significance of date of removal of goods in the context of levy and collection of Central Excise Duty? (b) Explain whether waste and scrap will be liable to duty of excise. (c) What is captive consumption? How are intermediate products liable to excise duty?

Answer 3. (a)

Taxable event : Taxable event is the event the happening of which attracts the liability to pay tax. The taxable event in Central Excise is production or manufacture of excisable goods.

Relevant date for rate of duty and tariff valuation [Rule 4 and 5 of Central Excise Rules, 2002] : Rule 4 states that duty is payable at the time of removal of goods from the factory or warehouse. Rule 5 states that the relevant date for determining the rate of duty and tariff valuation shall be the date of actual removal of goods from the factory or warehouse.

Accordingly, though the taxable event for the purpose of Central Excise is manufacture or production of excisable goods but a person shall be liable to pay excise duty at the rate prevalent at the time of clearance of excisable goods from the factory / warehouse and not at the rate prevalent at the time of manufacture.

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An intermediate product is goods by itself and as per Rule 4 of the Central Excise Rules, 2002, if it is used in the captive consumption for manufacture of other products it becomes chargeable to duty as soon as it is removed from the place of manufacture or production or from the storage or store room where it is kept after coming into existence.

However, all the intermediate products, which are captively consumed, are not dutiable. The captive consumption of only those articles is dutiable which are ‘goods’ and qualify the test of marketability and are excisable commodities. Rule 4 of Central Excise Rules, 2002 is to be reasonably applied and it is not that at every stage of manufacture duty is leviable. Therefore, articles captively consumed can be charged to duty only when they have reached the stage where they can be identified as ‘goods’.

However, currently there are exemption notification in force exempting intermediate products from duty of excise, if the final products are chargeable with duty.

Q. 4. (a) When will the assessable value be the transaction value? (b) What do you understand by Normal Transaction Value? (c) Explain how will the various types of packing charges be dealt with in case of valuation under the Central Excise Act, 1944.

Answer 4. (a)

As per section 4 of the Central Excise Act, 1944 the ad valorem duties are payable on the basis of ‘Transaction Value’ in case all the following conditions are satisfied :

(i) The excisable goods must be sold by the assessee; (ii) The excisable goods must be sold by the assessee for delivery at the time and place of removal; (iii) The assessee and the buyer of the goods must not be related persons; and (iv) The price must be the sole consideration for sale.

The above ingredients are to be satisfied in respect of each removal of excisable goods.

In case any of the above requirements is not satisfied then the value will be determined in accordance with the Central Excise Valuation (Determination of Price of Excisable Goods ) Rules, 2000.

Answer 4. (b)

“Normal Transaction Value” means the transaction value of the goods sold in the greatest aggregate quantity. The term greatest aggreagate quantity has not been defined in the Central Excise Act, 1944 or the Central Excise Rules, 2002 but it has been taken from GATT valuation code, which has been adopted in the Custom Valuation Rules, 1988.

On interpreting Custom Valuation Rules, 1988 we find that the term “unit/ price at which the goods are sold in the greatest aggregate quantity” means the price at which the greatest number or units is sold in sales to persons who are not related to the manufacturer.

Seen in this context, the transaction value of the “greatest aggregate quantity” would refer to the price at which the largest quantity of the identical goods is sold on a particular day, irrespective of the number of buyers at the time. The term is used for valuation in case of depot transfer under Rule 7 and sale to related person under Rule 9 of the Central Excise Valuation Rules, 2000.

The Department has clarified that the time period should be taken as the “whole day” and the transaction value of the “greatest aggregate quantity” would refer to the price at which the largest quantity of identical goods is sold on a particular day, irrespective of the number of buyers.

Answer 4. (c)

The packing charges shall be dealt with as follows :

(i) Primary and Secondary packing : Section 4 of the Central Excise Act, 1944, does not make any specific reference to packing charges. In normal commercial transactions the price of goods charged includes

134 Revisionary Test Paper (Revised Syllabus-2008)

the cost of packing charges. The charges that are recovered on account of packing are obviously the charges in relation to sale of goods under assessment and will form the part of transaction value. Whatever be the nature of packing that is whether the packing is primary or secondary or special, the cost of such packing shall be includible. (ii) Durable and Returnable packing : The durability of packing depends upon repeated use. For example, oxygen cylinders, bottles for aerated water etc. are durable packing materials. When the packing refers to packing being of a durable nature, the durability must be of such a nature that packing is capable of being reused by the manufacturer. As regards the returnable packing, the courts have interpreted this to mean a contractual agreement between seller and buyer for return of packing from buyer of excisable goods to the seller. Normally the cost of reusable containers (glass bottles, crates etc.) is amortised and included in the cost of the product itself. Therefore the question of adding any further amount towards this account does not arise, except where the audit of accounts reveals that the cost of the reusable container has not been amortised and included in the value of the product. In case of rental charges or maintenance of reusable containers, if the amount has been charged in connection with the sale of goods, this amount will be added to the transaction value. However, in Grasim Industries v. CCEs. [2004], the Tribunal has held that packing or rental charges paid by the buyer in respect of durable or returnable packing will not be included in the assessable value as such rental charges are not paid by the buyer by reason of , or in connection with, the sale because sale of goods and sale of durable and returnable packing are separate transactions.

Q. 5. (a) How will the value be determined in case the excisable goods are sold at a place other than the place of removal? (b) Briefly describe whether “Assembly” would tantamount to “Manufacture” under the Central Excise Act, 1944. (c) Explain briefly with reference to the provisions of the Central Excise Act the term “Deemed Manufacture”.

Answer 5. (a)

In case all the requirements of Section 4(1)(a) are satisfied except one, that is, if the excisable goods are sold for delivery at the place other than the place of removal, then the value shall be determined as per Rule 5 of the Central Excise Valuation Rules, 2000. Accordingly, in such circumstances, the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods.

The term, cost of transportation includes :

(i) The actual cost of transportation; and (ii) In case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing.

Thus, exclusion shall be available not only on account of actual cost of transportation but also on average freight or equalised freight from the place of removal to the place of delivery, provided the same is computed as per the principles of costing. Moreover, cost of transportation is excludible from the transaction value irrespective of whether the same is separately shown in the invoice or not.

However, the cost of transportation from the factory to the place of removal, where the factory is not the place of removal, shall not be excluded from the assessable value of goods.

Thus, where the goods are sold from a depot, premises of consignment agent or any other place or premises from where the goods are sold after the clearance from the factory, the cost of transportation form the factory to the point of depot or any other place from where the goods are sold shall be included in the transaction value.

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In Union Carbide India Ltd. v. CCEx. The Tribunal held that the expression ‘in relation to manufacture’ have been used to widen and expand the scope, meaning and content of the expression ‘inputs’ so as to also attract goods which do not enter directly or indirectly into finished product but are used in the activity concerned with, or pertaining, to the manufacture of finished goods. Input need not be physically present in the final products nor should it be completely consumed in order to qualify for the CENVAT credit. The term ‘in relation to’ has a wider connotation and is not restricted to physical presence of input in final product nor it should be confined to usage only in manufacturing process prior to emergence of final product. It includes inputs used posterior to emergence of final product but before marketing at factory gate.

The phrase ‘in or in relation to the manufacture’ not merely includes the processes and inputs essential for or incidental or ancillary to the completion of manufacture (including deemed manufacture), but any item of process, which is essential for making the final product marketable. Therefore, any material or item which was normally so used and was, as a matter of commercial practice provided normally with the final product ready for delivery at the factory gate (and was not an optional accessory) would qualify as an input for the purpose of CENVAT.

Answer 6. (b)

The admissibility or otherwise of Cenvat Credit, in the aforesaid cases, has been discussed below :

(i) Admissible : Rule 3(2) of Cenvat Credit Rules, 2004 states that a manufacturer shall be allowed to avail CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods cease to be exempted goods or any goods become excisable. However, Cenvat credit will not be allowed in similar circumstances in respect of duty paid on Capital Goods lying in stock or used in final products lying in stock, which were exempted but subsequently became excisable. In Surya Roshni Ltd. v. CCEx. It was held that eligibility of capital goods to Cenvat credit should be determined at the time when the goods are received by the manufacturer. Subsequent becoming of goods as dutiable or the manufacturer putting capital goods to other use could not revive the question of admissibility of Cenvat credit. (ii) Admissible : It was held in CCEx v. Hindustan Sanitary Ware that Cenvat credit will be available in respect of duty paid on inputs even if intermediate product is exempt from duty but the final product is dutiable. Moreover, the Department has clarified vide Circular No. 665/56/2002, dated 25.09. that Cenvat credit should not be denied on capital goods used in manufacturing of intermediate goods exempt from payment of duty which are used captively in the manufacture of finished goods chargeable to duty. (iii) Admissible : It was held in Dhar Cement Ltd. v. CCEx that Cenvat credit lawfully earned on a commodity could be utilized even after withdrawal of Cenvat for that particular commodity. It was observed that, in absence of specific provisions for reversal of credit in such a situation, the assessee could not be deprived of benefit of the credit already earned. (iv) Admissible : It was held in MRF Ltd. v. CCEx that any fluctuation or reduction in prices subsequent to clearance of goods on payment of duty, for any reason, has no relevance whatsoever to the liability for payment of Excise duty. Hence, even if supplier gives reduction in price after clearance, the credit of excise duty in respect thereof need not be reversed.

Q. 7. (a) Explain the provisions relating to sale of goods through depot/ godown under Central Excise Act, 1944. (b) What is the procedure required to be followed for availment of CENVAT credit in respect of inputs and capital goods?

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Answer 7. (a)

Section 4(3)(c)(iii) [amended w.e.f. 14-05-2003] provides that in case of sale at depot/ consignment agent, the depot/ place of consignment agent will be the ‘place of removal’. As per section 4(3)(cc), in case of sale from depot/place of consignment agent, ‘time of removal’ shall be deemed to be the time at which the goods are cleared from factory.

In other words, in case of sale from depot/ place of consignment agent, duty will be payable on the price prevailing at the depot as on date of removal from factory. Price at which such goods are subsequently sold from the depot is not relevant for purpose of excise valuation.

As per Explanation 2 to rule 5 of Central Excise Valuation Rules, if factory is not the ‘place of removal’, cost of transportation from factory to place of removal shall not be excluded for purpose of determining value of excisable goods. In other words, cost of transportation and handling from factory upto depot will have to be added for purpose of valuation, as the depot is the ‘place of removal’.

When goods are sold through depot, there is no ‘sale’ at the time of removal from factory. In such cases, price prevailing at depot (but at the time of removal from factory) shall be the basis of Assessable Value. The value should be ‘normal transaction value’ of such goods sold from the depot at the time of removal or at the nearest time of removal from factory.

For example, if an assessee transfers a consignment of paper to his depot from Kolkata to Durgapur on 05.04.2010, and that variety and quality of paper is normally being sold at the Durgapur on 05.04.2010 at transaction value of Rs. 10,000 per tonne to unrelated buyers, where price is the sole consideration for sale, the consignment cleared from the factory at Kolkata on 05.04.2010 shall be assesses to duty on the basis of Rs. 10,000 per tone as the assessable value. If assuming that on 05.04.2010 there were no sale of that variety from Durgapur depot but the sales were effected on 03.04.2010, then the normal transaction value on 03.04.2010 from the Durgapur depot to unrelated buyers, where price is the sole consideration shall be the basis of assessment.

Answer 7. (b)

The following procedure is to be followed for the availment of Cenvat credit in respect of inputs and capital goods : (i) The manufacturer has to get himself registered with the Excise Authorities. (ii) The Cenvat credit in respect of eligible inputs can be taken immediately on receipt of the inputs in the factory of the manufacturer. (iii) The Cenvat credit in respect of capital goods received in a factory at any point of time in a given financial year shall be taken for an amount not exceeding 50% of the duty paid on such capital goods in the same financial year and the balance credit can be taken in any financial year subsequent to the financial year in which the capital goods were received. (iv) Credit can be taken on the basis of valid duty paying documents such as invoice, bill of entry etc. (v) The manufacturer has to maintain a proper Cenvat credit register for the receipt, disposal, consumption and inventory of inputs and capital goods in which the relevant information of the value, the duty paid, the person from whom the inputs or capital goods have been purchased is recorded. (vi) The manufacturer or producer taking Cenvat credit on inputs or capital goods shall take all reasonable steps to ensure that the inputs or capital goods in respect of which he has taken the Cenvat credit are goods on which the appropriate duty of excise, as indicated in the documents accompanying the goods, has been paid. (vii) The manufacturer of the final products shall submit within ten days from the close of each month to the Superintendent of Central Excise, a monthly return in the specified form in respect of such

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Answer 8. (b)

Cenvat credit is available on capital goods used by manufacturer or service provider. The provisions are as follows :

(i) Only capital goods as defined in rule 2(a) of Cenvat Credit Rules are eligible for Cenvat Credit. (ii) Capital goods should be used in the factory of manufacturer or for output service. (iii) Capital goods does not include equipment or appliance used in an office of manufacturer (this restriction does not apply to service provider). (iv) Motor vehicle is capital goods only in respect of specified service providers. (v) Capital goods should be used in factory. They can be sent outside for jobwork but should be brought back within 180 days. (vi) Moulds, dies, jigs and fixtures can be sent outside. (vii) Capital goods used exclusively for manufacture of exempted goods are not eligible for Cenvat credit. (viii) Capital goods obtained on hire purchase/ lease/ loan are eligible. (ix) Duty paying documents eligible are same for Cenvat on inputs. (x) Depreciation under section 32 of Income Tax Act should not be claimed on the excise portion of the Capital Goods. (xi) Cenvat credit on capital goods is required to be availed in more than one year, viz. upto 50% credit can be availed when these are received and balance in any subsequent financial year. The condition for taking balance credit is that the capital goods should be in possession of manufacturer of final products in subsequent years. (xii) If capital goods on which Cenvat was availed removed as scrap, an ‘amount’ equal to duty on scrap value is payable. If capital goods are removed ‘as such’, an ‘amount’ equal to Cenvat credit availed on the capital goods is payable. If capital goods are cleared after use as second hand capital goods, ‘amount’ payable at reduced rate by reducing credit taken @ 2.5% per quarter.

Answer 8. (c)

In following cases, Cenvat credit is not required to be reversed :

(i) No reversal in case of export/ deemed export of final product – Cenvat credit is not required to be reversed, if final product is exported or supplied to UN Agencies, or to EOU/ STP/ EHTP. Supplies to SEZ are ‘exports’. (ii) No reversal if intermediate product supplied and final product exported – If intermediate product is cleared without payment of duty under bond for manufacturer of final product which is to be exported. Cenvat on inputs used in manufacture of intermediate product is not required to be reversed.

Q. 9. (a) Simultaneous availment of Cenvat and SSI exemption permissible when SSI manufacturing with other’s brand name but not in other cases. (b) Write short note on – Refund of Cenvat credit in cash. (c) Briefly explain the procedure of removal of goods at concessional rate of duty for manufacture of excisable goods.

Answer 9. (a)

Para 2(iii) of SSI exemption notification provides that the manufacturer shall not avail Cenvat credit of duty paid on inputs used in manufacture of specified goods cleared for home consumption, till turnover reaches the exemption limit.

As per proviso to para 2(iii), this restriction will not apply to inputs used to specified goods bearing brand name or trade name of another person, which are not eligible for grant of SSI exemption i.e. SSI unit can avail Cenvat Credit in such cases.

140 Revisionary Test Paper (Revised Syllabus-2008)

If an SSI unit is manufacturing branded (with other’s brand) as well as unbranded/ self branded goods, it can avail exemption in respect of unbranded goods. He is required to pay duty on goods bearing brand name of others. So far, the SSI unit was not eligible to avail Cenvat credit even in respect of inputs used in branded goods on which he is liable to pay excise duty. Now, the will be able to do so.

Answer 9. (b)

If the credit of inputs used in exported final products cannot be used for payment of duty on any payment of duty on any other final goods or service tax on other services, manufacturer or service provider can get cash refund of the same, if final products or output services were exported without payment of duty (either under bond or after giving Letter of undertaking). Refund is not admissible if exporter has availed duty drawback or has claimed rebate of duty in respect of such duties or has claimed rebate of service tax under export of service rules. This provision is only for physical exports and not for deemed exports or home clearances.

Application should be submitted in Form ‘A’ to Assistant / Deputy Commissioner. Application can be submitted every quarter. However in following cases, refund can be claimed on monthly basis – i) persons whose average export clearances are more than 50% of total clearances, (b) EOU units.

Refund of input service credit will be restricted to the extent of ratio of export turnover to the total turnover for the given period e.g. if total credit of input services is Rs. 200, total turnover is Rs. 1000 and export turnover is Rs. 500, refund of input service tax credit will be only Rs. 100 (i.e. 50%, since export turnover is 50% of total turnover). This restriction applies only for credit of service tax paid on input services and not in respect of refund of excise duty.

Answer 9. (c)

Rule 3 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 provides that the manufacturer who intends to receive subject goods for specified use at concessional rate of duty has to :

(i) Make an application in quadruplicate to the Asst. Commissioner or Deputy Commissioner of Central Excise. A separate application is to be made in respect of each supplier of goods. (ii) Execute a general bond to cover the duty liability estimated to be involved at a given point of time.

After execution of such bond the Asst/ Deputy Commissioner of Central Excise shall counter sign the copies of application, which shall then be distributed as follows :

• One copy to the Range Superintendent of the manufacturer of subject goods.
• Two copies to the manufacturer receiving subject goods.(Out of these one copy shall be forwarded to the manufacturer of subject goods).
• One copy shall be retained by Asst./ Deputy Commissioner of Central Excise for his own records.

‘Subject Goods’ refers to those excisable goods, which are exempted from payment of duty under a notification issued under section 5A of the Central Excise Act, 1944 provided such goods are used for the purpose specified in that notification.

The manufacturer of subject goods shall on the basis of the copy of the application forwarded to him, avail the benefit of the exemption notification. He shall then remove the goods at concessional rate of duty and shall record on the application the removal details such as number and date of invoice, description, quantity and value of subject goods, amount of duty paid at concessional rate.

The manufacturer receiving subject goods has to give information to the concerned authorities and has to maintain proper records relating to such goods and submit a monthly return to the Asst./ Deputy Commissioner by 10th^ of the following month.

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Date for determination of the rate of duty and tariff valuation :

Types of goods section Relevant date In case of imported goods (other than baggage and goods imported by post) (a) Goods entered for home 15(1)(a) The date of presentation of bill of entry or entry inwards, consumption u/s 46 whichever is later. (b) Goods cleared from a 15(1)(b) The date of presentation of the Ex-bond Bill of Entry for warehouse u/s 68 home consumption under that section. (c) For any other goods 15(1)(c) On the date of payment of duty. In case of export goods (other than baggage and goods exported by post) (a) Goods entered for export 16(1)(a) On the date on which the proper officer makes an order u/s 50 permitting clearance and loading of the goods for exportation under section 51. (b) For any other goods 16(1)(b) On the date of payment of duty.

Q. 11. (a) Explain the provisions of Customs Act, 1963 relating to the determination of duty where imported goods consist of articles liable to different rates of duty. (b) Write a short note on Import and Export through courier. (c) Explain the meaning of baggage, bona fide baggage and unaccompanied baggage. What is the relevant date for determination of rate of duty and tariff valuation in case of a baggage?

Answer 11. (a)

Determination of duty where imported goods consist of articles liable to different rates of duty :

In case the imported goods consist of a set of articles, the calculation of duty shall be in the manner given below :

(i) In case of articles on which duty is leviable with reference to quantity, the duty shall be so charged; (ii) When the set consist of articles which are liable to duty with reference to value, they shall be chargeable to duty as under –

• In case they are liable to duty at the same rate, then the duty shall be charged at that rate.
• If the articles in the set are liable to different rates of duty, they shall be chargeable to duty at the highest of such rates. (iii) Even if some of the articles are not liable to duty, duty shall be charged at the highest of the rates specified in (ii) above.

However, if the importer produces to the satisfaction of the proper officer documents regarding the value of any of the articles liable to different rates of duty, such article shall be chargeable to duty separately at the rate applicable to it.

Also, the Accessories (Condition) Rules, 1963 provides that if the accessories of article and spare parts and maintenance implements for the article are imported along with that article, they shall be charged at the same rate of duty as that article provided the proper officer is satisfied that in the ordinary course of trade such accessories, parts and implements are compulsorily supplied with that article and no separate charge is made for such supply, their price being included in the price of that article.

Answer 11. (b)

Imports and exports can be made through “authorized couriers” as per the Courier Imports and Exports (Clearance) Regulations, 1998. The duty, where leviable, is paid by such courier company on behalf of

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importers/ exporters before taking delivery of the parcels. The weight limit for courier / express material (individual packages) for imports and exports is fixed at 70 kg.

(i) Import through courier : All goods are allowed to be imported through the courier mode except – 1)animals and plants; 2) perishables; 3) publications containing maps depicting incorrect boundaries of India; and 4) precious and semi precious stones, gold or silver in any form. Categories into which the goods imported through courier have been divided : For facilitating customs clearance, the goods imported by courier have been divided into three categories, viz. (1) Documents : Documents include any message, information or data recorded on paper, cards or photographs having no commercial value, and which do not attract any duty or are not subject to any prohibition/ restriction on their import or export. (2) Samples and free gifts : This category covers those goods which are not subject to any prohibition or restriction on their import or export and which do not involve transfer of foreign exchange. Samples mean any bona fide commercial samples and prototypes of goods supplied free of charge, of a value not exceeding Rs. 50,000/- for exports and Rs. 10,000/- for imports. Free gifts means any bonafide gifts of articles for personal use of a value not exceeding Rs. 25,000/- for a consignment in case of exports and Rs. 10,000/- for imports. (3) Dutiable or commercial goods. (ii) Export through courier : All goods are allowed to be exported through courier except – 1) goods which attract any duty on exports, or 2) goods exported under export promotion schemes, such as Drawback, DEPB, DEEC, EPCG etc., or 3) goods where the value of the consignment is above Rs. 25,000/- and a foreign exchange transaction is involved. The limit of Rs. 25,000/- does not apply where the G.R. waiver or specific permission has been obtained from the Reserve Bank of India. There are certain other exception as well.

Answer 11. (c)

Baggage : “Baggage” includes unaccompanied baggage but does not include motor vehicles.

Bona fide baggage : The baggage declaration form issued by the CBEC under section 81 provides that “bona fide baggage” includes wearing apparel, personal and household effects provided that the articles are meant for the personal use of the passenger or for the members of his family travelling with him and that they are not intended for transfer to other persons either by sale or gift.

Jewellery (including articles made wholly or mainly of gold) in reasonable quantity according to the status of the person will also be considered as personal effects. The term ‘personal effects’ includes a list of certain articles like watch, camera, travelling rugs, bedding etc., which are entitled to exemption when imported in specified quantities.

Unaccompanied baggage : Baggage that is not accompanied with the passenger is “Unaccompanied Baggage”. In other words, where the baggage of the passenger is bound to arrive earlier or later than the passenger, it is termed as ‘unaccompanied baggage’.

Relevant date for determination of rate of duty and tariff valuation : The rate of duty and tariff valuation leviable on the baggage shall be the rate of duty and tariff valuation in force on the date on which the owner of the baggage makes a declaration under Section 77 to the proper officer.

Relevant date in case of unaccompanied baggage : Even if an advance information about the later arrival of the unaccompanied baggage has been made at the time of the arrival of the passenger at an earlier date, a declaration for the purpose of Section 77 can be deemed to have been made only when the contents of the unaccompanied baggage arrive. Therefore, the rate of duty as in force on the date of arrival of the unaccompanied baggage would be leviable and not as in force on the date of advance information on the arrival of the passenger.

Group-II : Paper-10 : Applied Indirect Taxation 145

Q. 13. (a) Explain the circumstances where anti-subsidy and anti-dumping duty cannot be levied.

(b) What do you understand by related persons? When shall the transaction value be accepted even if the buyer and seller are related persons?

Answer 13. (a)

Section 9B provides for non-imposition of countervailing duty or antidumping duty in following cases :

(i) Both countervailing duty and antidumping duty shall not be levied together on any article to compensate for the same situation of dumping or export subsidization. (ii) The Central Government shall not levy any countervailing duty or antidumping duty on such or like articles that enjoy exemptions from duties or taxes or refund of such duties or taxes when meant for consumption in the country of origin or exportation. (iii) The Central Government shall not levy any countervailing duty or antidumping duty on article imported from specified countries i.e. the member country of the World Trade Organisation or from a country with whom Government of India has a most favoured nation agreement, unless subsidy or dumping is proved as per the rules framed in that behalf. (iv) The Central Government may not levy any countervailing duty under Section 9, at any time, upon receipt of satisfactory voluntary undertakings from the Government of the exporting country or territory agreeing to eliminate or limit the subsidy or take other measures concerning its effect, or the exporter agreeing to revise the price of the article and the Central Government is satisfied that the injurious effect of the subsidy is eliminated thereby. (v) The Central Government may not levy any anti-dumping duty under section 9A, at any time, upon receipt of satisfactory voluntary undertaking from any exporter to revise its prices or to cease exports to the area in question at dumped price and if the Central Government is satisfied that the injurious effect of dumping is eliminated by such action.

Answer 13. (b)

Related persons : Persons shall be deemed to be ‘related’ only if :

(i) They are officers or directors of one another’s businesses; (ii) They are legally recognized partners in business; (iii) They are employer and employee; (iv) Any person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stock or shares of both of them; (v) One of them directly or indirectly controls the others; (vi) Both of them are directly or indirectly controlled by a third person; (vii) Together they directly or indirectly control a third person; or (viii) They are members of the same family.

Person includes legal persons : The term “person” also includes legal persons.

Sole distributor or sole agent or sole concessionaire : A sole distributor or a sole agent or a sole concessionaire (by whatever name called) shall be deemed to be related only when he or it satisfies any of the above- mentioned criteria.

‘Control’ – Interpretative notes : One person shall be deemed to control another when the former is legally or operationally in a position to exercise restraint or direction over the latter.

Transaction value acceptable even if goods sold to related person : Even if goods are sold to related persons, the value under Rule 3(1) shall be accepted in the following two different cases :

(i) If the examination of circumstances surrounding the sale reflects that relationship did not influence the price; or

146 Revisionary Test Paper (Revised Syllabus-2008)

(ii) Where the importer demonstrates that the declared value of the goods being valued closely approximates to the following values ascertained at or about the same time :

1. Transaction value of the identical or similar goods, in sales to unrelated buyers in India;
2. The deductive value of identical or similar goods; or
3. The computed value of identical or similar goods.

However, in applying values used for comparison, due account shall be taken of the demonstrated difference in commercial levels, quantity levels, adjustments in accordance with Rule 10 and cost incurred by the seller in sales in which he and the buyer are not related.

SERVICE TAX

Q. 14. (a) What do you understand by Advance Ruling under service tax? State briefly the questions on which an “Advance Ruling” can be sought? (b) Explain the provisions relating to exemptions available to small service providers.

Answer 14. (a)

As per section 96A(a), “Advance Ruling” means the determination, by Authority for Advance Rulings (Central Excise, Customs and Service Tax), of a question of law or fact specified in the application, regarding the liability to pay service tax in relation to a service proposed to be provided, by applicant.

Questions on which ‘advance ruling’ can be sought : The questions on which Advance Ruling may be sought shall be in respect of :

(i) Classification of service under Chapter V of Finance Act, 1944; (ii) The valuation of taxable services for charging service tax; (iii) The principles to be adopted for the purposes of determination of value of the taxable service under the provisions of Chapter; (iv) Applicability of notifications issued under Chapter V; (v) Admissibility of credit of service tax; and (vi) Determination of liability to pay service tax on a taxable service under the provisions of Chapter V.

The definition of ‘applicant’ and other procedural provisions relating to advance rulings are similar to those applicable under Central Excise.

Answer 14. (b)

Exemption to small service providers : 100% exemption from service tax has been granted to a provider of taxable service when aggregate value of taxable services rendered by him from one or more premises, does not exceed Rs. 8 lakhs in the preceding financial year. Exemption shall be operative only for ‘aggregate value not exceeding Rs. 8 lakhs’ in any financial year. If the aggregate value in any financial year, for which exemption has been claimed, exceeds Rs. 8 lakhs, then such excess over Rs. 8 lakhs shall be chargeable to service tax.

Exemption not to apply : This exemption shall not apply to :

(i) Taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or (ii) Such value of taxable services in respect of which person liable to pay service tax is specified under section 68(2) (i.e. in cases where the person liable to pay service tax is the person other than the service provider).

Conditions to be fulfilled : This exemption shall apply subject to the following conditions :

(i) The service provider has the option not to avail the exemption and pay service tax on the taxable services provided by him and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year;