dual gst and legal aspects · 2017-10-17 · chennai - 600 017, india tel.: 044 + 2433 1029 / 4048...

K.VAITHEESWARANADVOCATE & TAX CONSULTANT

Flat No.3, First Floor,

No.9, Thanikachalam Road,

T. Nagar,

Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bangalore – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876

E-mails : [email protected] [email protected]

www.vaithilegal.com

IMPORTANT CASE LAWS OF 2015 INDIRECT TAXES

K.Vaitheeswaran - All Copyrights Reserved

Originally, Notification No.4/1997, C.E. provided for exemption fromexcise duty in respect of certain goods through Serial No.51 and fallingunder Chapter 38 of the Central Excise Tariff Act. The Notificationreferred to

“Concrete mix manufactured at the site of construction for use in construction workat such site.”

In the case of Larsen & Toubro , the Company was constructing its owncement plant at Ananthapur and for the purpose of construction of civilstructure, the concrete mix was prepared at site with the help ofmachinery and captively consumed in the construction of the plant.

The Company claimed the benefit of exemption from excise duty underNotification No.4/1997.


Exemption was denied and ED was imposed on the ground thatthe way L&T produced the concrete mix by using machinery at siteindicates that the product is ready mix concrete and not concretemix.

What distinguishes ready mix concrete (RMC) from concrete mix(CM) is the manner in which it is manufactured, the high degree ofprecision, and the stringent quality control over the mix ofingredients.

The Tribunal observed that the facility put up by L&T involvedvarious machines coupled with sophisticated process which wasindicative of the fact that it was for the manufacture of RMC andthe only reason for manufacture thereof at site was that the largerquantities of RMC which was required by L&T.


The Tribunal held that it is a high degree of precision andstringent quality control observed in the selection andprocessing of ingredients namely aggregates, cement, sand,additives and water which made the product as RMC incontra distinction with CM.

The Supreme Court in the case of Larsen & Toubro Ltd. Vs.CCE vide judgment dated 06.10.2015 has held that(i) It is the process of mixing the concrete that differentiates between

Concrete Mix (CM) and Ready Mix Concrete (RMC).

(ii) RMC and CM are different and the exemption Notification exemptsonly CM.

(iii) It is only the process that would determine whether the producecould be termed as CM or RMC.


(iv) RMC is an expression now well understood in the market and used torefer to a commodity bought and sold with clearly distinguishablefeatures and characteristics as regards the plant and machineryrequired to be set up for its manufacture and the manufacturingprocess involved as well as its own properties and the manner ofdelivery.

(v) The earlier decision of the Supreme Court in the case of SimplexInfrastructures has not discussed whether RMC is different fromCM.

The Supreme Court remanded the matter to the AssessingOfficer to look into the matter afresh keeping theobservations in the judgment.


Currently Sl. No.144 in Notification No.12/2012 provides foran exemption in respect of Chapter 38 being concrete mixmanufactured at the site of construction for use in constructionwork at such site.

The industry has been availing exemption in respect of themix that is manufactured at the site.

The Department is likely to apply the principles laid down bythe Supreme Court in the context of the current notification.

Fresh litigation is likely on the issue. In terms of Notification No.1/2011 as amended, ready mix

concrete falling under Chapter Heading 3824 50 10 attractsexcise duty of 2% without cenvat credit on inputs and inputservices.


Section 4(1)(a) of the Central Excise Act provides for certainconditions to be satisfied for the transaction value to beaccepted and one of the conditions is that goods must be soldfor delivery at the time and place of removal.

Place of removal means A factory or any other place or premises of production or manufacture

of excisable goods;

A warehouse or any other place or premises wherein the excisablegoods have been permitted to be deposited without payment of duty.

A depot, premises of a consignment agent or any other place orpremises from where the excisable goods are to be sold after theirclearance from the factory

From where such goods are removed.


Transportation charges from factory to depot forms part ofvalue since depot is also a place of removal.

Transportation charges from factory to customer locationdoes not form part of value since customer location is not aplace of removal but a place of delivery.


In the case of CCE Vs. Roofit Industries Ltd. (2015) 319 ELT221 the manufacturer was clearing goods from the factoryand the agreement contemplated delivery of the goods atthe place of the buyer.

The terms and conditions indicated that supply wasaccepted only at the place of delivery.

Price of the goods was inclusive of cost of material, exciseduty, loading, transportation, transit risk and unloadingcharges.

Even transit damage and breakage was to the assessee’saccount.


Ownership remained with the assessee till delivery. 100% payment was to be made only after receipt and

verification of material. The Supreme Court on these facts held that sale of goods

did not take place at the factory gate of the assessee butonly at the place of the buyer on delivery. Expensesincurred upto that stage has to be included in value.


In the case of CCE Vs. Ispat Industries Ltd. (2015) 324 ELT 670, transitinsurance policy was in the name of the manufacturer.

The Supreme Court held that in the instant case, the prices were ‘ex-works’ as in the case of Escorts JCB.

Goods were cleared from the factory on payment of sales tax indicatingthat the goods had been sold at the factory gate.

Invoices were prepared only at the factory directly in the name of thecustomer in which the name of the insurance company as well as thenumber of the transit insurance policy was mentioned.

Excise invoice was prepared at the time of the goods leaving the factory.When the goods were handed over to the transporter, the respondenthad no right to the disposal of the goods nor did it reserve such rightsinasmuch as title had already passed to its customer.

On facts, Roofit judgment is wholly distinguishable. Excise duty is notpayable on the freight.


Transfer of title to the goods – Ex-factory Where (i) sale price is inclusive of freight; (ii) sale is FOR; (iii)

transfer of title happens only at the buyer location Wherever excise duty is being paid based on transaction value, the

freight element from the factory to the customer should also beincluded in the value for the purpose of calculation of excise duty.

Where the sale is FOR, then the freight forms part of sale price for thepurpose of CST or VAT as the case may be.

Since freight has been included in the value, for the purpose of exciseduty, the question is whether cenvat credit can be availed on theservice tax paid under GTA on the outward transportation.


In the case of Madras Cements Ltd. Vs. ACCE (TS- 371 – HC– 2015– KAR – EXC), service tax credit on GTA was availed by themanufacturer on outward transport from the place of removal forthe period after 31.03.2008.

The contention of the Company was that sale of cement wascompleted only after delivery was made to the buyer.

Prices have been calculated in the invoice and the terms of theinvoice refer to ‘FOR destination’.

The High Court held that so long as the sale of goods is finalizedat the destination which is the doorstep of the buyer, thechange in the definition of input service from 01.04.2008 wouldnot make any difference. The assessee would be entitled to thebenefit of cenvat credit on outward transportation of goodseven after 01.04.2008.


Transaction Value – Section 14 of the Customs Act. Valuation Rules, 2007 Rule 10 – cost and services Where the cost of transport is not ascertainable such cost

shall be 20% of the FOB. Where the cost of insurance is not ascertainable, 1.125% of

the FOB would be taken as cost of insurance. Loading, unloading and handling charges shall be 1% of FOB

+ freight + insurance. The Rule contemplates mandatory addition of 1% of FOB +

freight + insurance irrespective of whether these charges areincurred or not.


The Supreme Court in the case of Wipro Ltd. Vs. ACC (2015)319 ELT 177 has read down the provision which provided formandatory addition of 1% of FOB value towards cost ofloading / unloading and handling charges.

The Court has held that the said clause can apply only whenthe actual charges are not ascertainable.

The Court held that addition of charges on fictional basis evenwhere the actual cost paid was available was violative ofSection 14 of the Customs Act.

The provision is arbitrary with no nexus and contrary to theobjective of Section 14 and violative of Article 14 of theConstitution of India.


When a Rule or a provision provides for amandatory percentage ignoring the actualcharges or actual quantum available then theRule can be challenged in the light of Wiprojudgment.


The Division Bench of the Sikkim High Court in the case of FutureGaming and Hotel Services Private Limited Vs. Union of India (TS-564-HC-2015) has struck down the Explanation 2 to Section 65B(44)introduced by Finance Act, 2015 in the context of promotion/ marketingof lottery tickets.

The Court has held that the activity carried out by the Petitioners inrelation to promotion of marketing, organising, selling of lottery orfacilitating in organising lottery of any kind in any other manner, wouldclearly not fall within the meaning of ‘service’ as provided under Clause(44) of Section 65B as the two essential elements (a) that the activityshould be carried out by a person for another and (b) that such activityshould be for a consideration, are unmistakably lacking.


The Petitioners in buying and selling the lottery tickets is not rendering service to the State and, therefore, their activity does not fall within the meaning of ‘service’ as provided under Clauses (31A) and (44) of Section 65B and, therefore, outside the purview of Explanation 2 to the said Section.


In Future Gaming Case (2015) and Future Gaming Case (2014) it has beenheld most unequivocally, inter alia, that the activity of the Petitionerscomprising of promotion, organising, reselling or any other mannerassisting in arranging the lottery tickets of a State Lottery does notestablish the relationship of a principal and an agent but that of a buyerand a seller on principal to principal basis there being bulk purchase oflottery tickets by the Petitioners from the State Government on fullpayment on a discounted price as a natural business transaction andother related features and, of there being no privity of contract betweenthe State Government and the Stockists, agents, sellers, etc., under thePetitioners.

In our view, in this case also the very same conclusion would beapplicable as the nature of the relationship between the Petitioners andthe State Government and the Petitioners and the Stockists, agents,resellers, etc., does not appear to have been altered.


The Court also held that since the selling and marketingagents purchase the tickets from the Petitioners/Distributors as goods on payment of price, it cannot beconsidered as a service.


Selling and buying transactions on a principal – principalbasis.

Whether the Explanation introduced to Section 65B(44) toprovide that an unincorporated association or a body ofpersons as the case may be and a member thereof shall betreated as distinct persons can be challenged on similargrounds?


Consulting Engineers – 07.07.1997. Erection, commissioning and installation –

01.07.2003. Technical testing and analysis – 01.07.2003. Commercial construction – 10.09.2004. Construction of residential complex –

16.06.2005. Works contract – 01.06.2007.


The Supreme Court has held that works contract service will not be liableto service tax prior to 01.06.2007 in the absence of charging andmachinery provisions

WCT is a separate species of contract distinct from contracts for servicessimpliciter recognized by the world of commerce and law as such and hasto be taxed separately as such.

The Court held that since works contract includes both goods & serviceelement, there has to be a specific mechanism to identify the serviceelement in the works contract and only that portion of the workscontract could be subject to service tax.

The goods portion is a State subject and can only be subject to VAT andsince there existed no such mechanism to identify the service portion in aworks contract prior to 01.06.2007, there was no question of bringing thesame under service tax net prior to the said period.


The charge to tax under the five heads in Section 65(105)(g),(zzd), (zzh), (zzq), (zzzh) would only be service contractssimpliciter and not composite indivisible works contracts.

Section 67 post amendment by Finance Act, 2006 for the firsttime prescribed value of taxable services in the case ofindivisible works contract.

Rule 2A has followed Gannon Dunkerley in segregating the‘service component’ of works contract from the ‘goodscomponent’.

GD Builders decision disapproved. Delhi High Court has completely misread the Mahim

Patram’s case.


The conclusion of the Delhi High Court to the effect thatservice tax can be levied on the service component of anycontract involving service with sale of goods etc. and thatcomputation of service component is a matter of detail andnot a matter relating to validity is wholly incorrect.

Since levy itself has been found to be non-existent, there isno question of any exemption.


USL was registered under the category ‘cargo handlingservices’ and entered into contracts to provide services inrelation to stevedoring / barging / loading / unloading /transportation of cargo by barges from mother vessels tojetty.

The Department was of the view that the shipping chargesand shipping freight realized by the Appellant wereincludable in the value under Section 67.

The Tribunal held that when goods are being transported bythe barges from another vessel to the jetty, that activity ispart of the import transaction of bringing the goods into Indiafrom a place outside India.


The question of rendering any service in respect of suchgoods by way of cargo handling or otherwise can take placeonly after the customs transaction is completed.

There is no question of levying service tax on thetransportation by barges since the activity is part of theimport transaction leviable to import duty.

This is also evident from Section 14 of the Customs Act andthe Customs Valuation Rules which specifically includesbarge charges and handling charges in the transaction valueof imported goods.

The Civil Appeal filed by the Department against the decisionof the Tribunal has been dismissed by the Supreme Court.


Rule 10 of the Valuation Rules includes freight, insurance andhandling charges in the transaction value for the purpose ofcustoms duty.

Ocean freight billed on the Indian importer by an Indianservice provider after purchasing the freight slot from hisoverseas counterpart who purchases the same from the liner.


Tata Unisys Ltd. entered into an agreement with UnisysCorporation and was granted license to use technicalinformation, know how and system software relating tomanufacture of document processing system.

Know how was defined to mean trade secrets and otherinformation and knowledge which is applicable to thedevelopment, manufacture, assembly, testing, repair andrefurbishment of the products.

TUL was required to pay license fees / royalty to Unisys onsale of products to parties other than Unisys.

Subsequently, TUL was renamed as ‘TIL’ and was mergedwith TCS.


SCN was issued demanding service tax on the royalty paidunder IPR services.

The Tribunal in the case of TCS Vs. CST (2015-TIOL-2370) hasheld that Definition of IPR must be satisfied to term the service is received as

IPR service.

We find no clue at all in the records as to which type of IPR is beingassigned to the technical know how received by the appellant.

It is obvious from the definition of IPR that the right has to be aspecific right under a specific law.

Technical know how received and the royalty payment is no whereestablished to result from the use of any IPR.

IPR should be a right under Indian law and right not covered by Indianlaws would not fall under IPR services.


Section 66E(c) provides for service tax on temporary transferor permitting the use or enjoyment of any intellectual propertyright.

IPR not defined in service tax law post 01.07.2012. CBEC Education Guide provides that IPR has to be understood

to include copyright, patent, trademark, design, any othersimilar right to intangible property.

Section 65B(25) defines ‘goods’ to mean every kind ofmovable property.

Sale of goods as well as transfer of right to use goods isexcluded from the definition of ‘service’.

Whether technical know how can be considered as goods? Associated Cements – Supreme Court


Section 7D of the UP Trade Tax Act, 1948 provides forcomposition of amount at an agreed rate on the turnover ofthe dealer in lieu of the taxes payable by it under the Act.

The proviso provides that when there is any change in the rateof tax on the goods, such increase will proportionately affectthe rate of compounding of tax.


The Supreme Court in the case of State of Uttar Pradesh Vs.Systematic Conscom Ltd. (2014) 75 VST 267 has held that Change in the rate of tax would mean any such change in the already

existing standard or measure of computing the tax payable but notthe introduction of yet another kind of tax for levy and collection.

State Development Tax at the rate of 1% on the taxable turnover is anindependent charge.

State Development Tax has therefore not led to any change in the rateof tax.

There is a difference between the change in the rate of tax andintroduction of altogether a new provision or a new kind of tax forlevy and collection from dealers.


Swach Bharath Cess A new levy under Section 119 of the Finance Act, 2015 Rule 5 of the PoT Rules relevant to tax on new services

cannot be applied. Rule 4 of the PoT Rules relevant to change in effective rate

cannot be applied. Section 67A CCE Vs. Vazir Sultan Tobacco Co. Ltd. (1996) 83 ELT 3 –

Supreme Court.


Pennar Industries was awarded a contract by Rajasthan StateBridge Construction Corporation Ltd. for fixing of works –profile safety barrier at toll plaza.

The Department was of the view that providing and fixingprofile safety steel banker at hazardous locations in NH-8was not related to road.

The question before the Rajasthan High Court was whetherthis contract was execution of works contract relating tobuildings, bridges, dams, roads and canals.


The Court held that Road has not been defined any where but as per the dictionary it is a

track suitable for wheeled traffic.

Merely putting concrete grit, coal tar cannot be said to be a road but inpresent day conditions latest technology and safety measuresinstalled would certainly be part and parcel of roads.

Fixing of safety barriers is certainly relating to part of the road.


Concept of “road”. Entry 13, Notification No.25/2012 provides for an exemption

from service tax in respect of services by way of construction,erection, commissioning, installation, completion, fitting out,repair, maintenance, renovation or alteration of road, bridge,tunnel or terminal for road transportation for use by generalpublic.


The Supreme Court in the case of State of Punjab Vs. NokiaIndia P. Ltd. (2015) 77 VST 427 has held that a mobile phonecharger is an accessory to the cell phone and is not a part of thecell phone.

It is an independent product which can be sold separatelywithout selling the cell phone.

Entry 60(6)(g), Schedule-B, Punjab VAT Act deals with ‘cellphone’ and does not mentioned ‘accessories’.

Cell phone charger has to be charged at 12.5% under the residualentry.

The charger is not an integral part of the mobile phone making itan item of composite goods. Merely making a compositepackage of the cell phone charger will not make it compositegoods.


The Supreme Court in the case of Cochin Port TrustVs. State of Kerala (2015) 80 VST 341 has held thata port trust is a dealer under the KGST Act since thedefinition of ‘dealer’ is wide and specifically includespersons who have effected sale or transfer of goodsirrespective of the sale or transfer being in the courseof business or not.

In the Kerala Act, the necessity of a person carryingon business to be placed under the definition of‘dealer’ is absent.


The Madras High Court in the case of HDFC Bank Ltd. vide itsjudgment dated 12.08.2015 in TC (Revision) Nos.64 to 67 of 2015has held as under:- It is true that in a hypothecation the ownership remains with the person creating

the hypothecation but a bank which advances facilities enters into a hypothecationagreement which has clauses empowering the bank to repossess the vehicle in theevent of default and also to bring the vehicle to sale through public auction or byprivate negotiation without even involving the owner of the vehicle.

The sale by the banks and the financial institutions are in the nature ofcompulsory sales for realization of debts and to say that banks sellhypothecated goods only as agents of the owners may not be true completely.

Explanation III covers even the sale of unclaimed goods. If sale of unclaimed goodscan be included within the purview of Explanation III, the distinction sought to bedrawn between a statutory right of sale and a contractual right of sale, cannotstand.


The decision of the Supreme Court in the case of SaiPublication has not been considered by the Madras HighCourt.

The issue has to whether the bank is in the ‘business’ ofbuying and selling has not been considered.

The fact that the character of the transaction or therelationship has not changed during the stage of lending andat the time of taking action for recovery of the amounts duehas not been examined.

The bank or the financial institution does not own the goodsand the goods are in possession not on account of purchasebut on account of hypothecation and the transaction is notaccounted as purchase in the books.


Sale and purchase are two sides of the same coin. Whenhypothecation by the borrower to the bank does notconstitute a sale, it cannot be considered as a purchase bythe bank.

The Court has not examined the fact that the ownercontinues to exist and it is the owner who is the seller havingthe primary liability to pay tax.

Revenue neutrality.


K.VAITHEESWARANADVOCATE & TAX CONSULTANT

Flat No.3, First Floor,

No.9, Thanikachalam Road,

T. Nagar,

Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bangalore – 560 001, India

Tel : 080 + 2224 4854/ 4112 0804

Mobile: 98400-96876

E-mails : [email protected] [email protected]

www.vaithilegal.com

dual gst and legal aspects · 2017-10-17 · chennai - 600 017, india tel.: 044 + 2433 1029 / 4048...

Documents