Paper - 8: Indirect Tax Laws Part - Iii: Questions and Answers Questions

PAPER – 8 : INDIRECT TAX LAWS
PART – III : QUESTIONS AND ANSWERS
QUESTIONS
Note: All questions have to be answered on the basis of position of law as amended by the
Finance Act, 2016 and Notifications/Circulars issued till 31.10.2016. For the sake of brevity,
Swachh Bharat Cess and Krishi Kalyan Cess have been referred to as SBC and KKC
respectively.
Dutiability of waste and scrap
1. Assessee is a manufacturer of cement. During the manufacture of cement, waste and
scrap is generated. Some metal scrap and waste is also generated during repair and
maintenance of one of the worn-out cement manufacturing plants of the assessee.
Briefly examine the applicability of excise duty on the waste and scrap generated in both
the above cases, citing case law(s), if any.
Note: The waste and scrap generated in both the cases are specified in Central Excise
Tariff and are sold to the buyers on a regular basis.
CENVAT credit
2. Prajakta Processors Pvt. Ltd. furnishes following details for the financial year 2015-16:
Particulars (`)
Turnover of dutiable goods 1,20,00,000
Turnover of exempted goods 60,00,000
Turnover of non-excisable goods 20,00,000
Total 2,00,00,000
Details of CENVAT credit for the month of October, 2016 are as under:
Particulars (`)
I. CENVAT credit on inputs and input services 1,00,000
The above CENVAT credit includes:
(i) CENVAT credit on inputs used exclusively for 8,000
manufacture of exempted goods
(ii) CENVAT credit on input services used 8,000
exclusively for manufacture of exempted goods
(iii) CENVAT credit on inputs used exclusively for 2,000
manufacture of non-excisable goods
© The Institute of Chartered Accountants of India

PAPER – 8: INDIRECT TAX LAWS 77
(iv) CENVAT credit on input services used 2,000

exclusively for manufacture of non-excisable
goods
(v) CENVAT credit on inputs used exclusively for 10,000
manufacture of dutiable goods
(vi) CENVAT credit on input services used 10,000
exclusively for manufacture of dutiable goods
II. CENVAT credit on machinery (50% of the credit availed in the 15,000
month). The machinery is used in the manufacture of dutiable
goods, exempted goods and non-excisable goods.
Details of finished products manufactured and cleared in the month of October, 2016 are
as under:
Particulars (`)
Turnover of dutiable goods 12,00,000
Turnover of exempted goods 1,00,000
Turnover of non-excisable goods 50,000
Total 13,50,000
Prajakta Processors Pvt. Ltd. wishes to reverse proportionate CENVAT credit under rule
6(3)(ii) of CENVAT Credit Rules, 2004.
You are required to compute the net duty payable (in cash) by Prajakta Processors Pvt.
Ltd. for the month of October, 2016.
Note: Prajakta Processors Pvt. Ltd. is not entitled for SSI exemption under Notification
No. 8/2003 CE dated 01.03.2003. Rate of excise duty is 12.5%.
Valuation of excisable goods
3. UVW Ltd. manufactures bathing soap which is notified under section 4A of the Central
Excise Act, 1944 with an abatement of 30%. The following information has been
furnished by UVW Ltd. with regard to clearances of packs of soaps:
(i) 60 packs of soaps having retail sale price (RSP) ` 120 each were packed in a
single package for protection and safety during transportation and cleared at
` 5100. 400 of such packages were cleared.
(ii) 2,000 packs having RSP ` 120 per pack were sold in retail packages, but buyer is
charged for 1,800 packs only at ` 100 per pack (200 packs have been given free as
quantity discount).
(iii) 60 packs were given away as free samples, without any RSP on the pack.

78 FINAL EXAMINATION: MAY, 2017
(iv) 500 packs manufactured on job work basis for RST Ltd., another soap
manufacturing company, were cleared after putting RSP of ` 120 each. Each such
pack is sold by RST Ltd. at ` 100 to individual customer. Cost of raw material
supplied by RST Ltd. is ` 30,000, job charges including profit of UVW Ltd. is
` 15,000, transportation charges of raw material to UVW Ltd. and soaps to RST Ltd.
is ` 5,000.
(v) 400 multi-packs were cleared at ` 140 per pack, each containing one 200 gm soap
and one 100 gm small soap free (without any RSP on it). RSP ` 120 printed on 200
gm soap was scored out and an RSP of ` 170 was declared on each multi-pack.
Determine the central excise duty payable, if rate of excise duty is 12.5%.
Note: Turnover of UVW Ltd. in the previous financial year is ` 470 lakh.
Removal of goods at concessional rate of duty
4. With reference to the Central Excise (Removal of Goods at Concessional Rate of Duty for
Manufacture of Excisable and Other Goods) Rules, 2016, answer the following questions:
(i) Is the applicant manufacturer required to file any returns? Briefly explain the
provisions, if any, relating to filing of return by the applicant manufacturer.
(ii) What consequences will follow if the goods received at concessional rate of duty are
not used for intended purpose? Explain briefly.
SSI exemption
5. Aim & Company, a manufacturer of excisable goods (pressure cooker), provides the
following details for the preceding financial year:
Particulars ` (in lakh)
Total value of clearances during preceding financial year (including 950
VAT ` 80 lakhs)
Break-up of the above clearances is as under:
Total exports [including exports to Bhutan (` 250 lakhs) & Nepal (` 100 500
lakhs)]
Clearances of goods without payment of duty to a unit in Electronic 20
Hardware Technology Park
Job work under Notification No. 84/94 CE dated 11.04.1994 100
Job work under Notification No. 83/94 CE dated 11.04.1994 100
Clearances of goods bearing brand name of National Small Industries 150
Corporation
Value of the above clearances does not include VAT

You are required to determine if Aim & Company is eligible for exemption in the current
financial year in terms of Notification No. 8/2003 CE dated 01.03.2003. Make suitable
assumptions and provide brief reasons for your answers where necessary.
Basic concepts of service tax
6. With reference to the amendments made by the Finance Act, 2016 and relevant
notifications, if any, discuss the service tax implications on passengers’ transportation
service, by the following modes of transport:
(i) Stage carriage
(ii) Metered cab
Constitutional validity of imposition of service tax on service of supply of food/any
other article of human consumption/any drink in a restaurant/as outdoor catering
7. Neela Hotels, Delhi, runs a five-star hotel chain operating in Delhi and NCR region. It
contends that section 66E(i) of the Finance Act, 1994 to the extent it seeks to constitute
a service portion in an activity of supply of food or other articles as ‘declared service’ is
Constitutionally invalid. Consequently, rule 2C of the Service Tax (Determination of
Value) Rules, 2006 is also Constitutionally invalid.
You are required to examine the correctness of the claim of the Neela Hotels in view of a
decided case law.
Valuation of taxable services
8. Compute the service tax liability (including cesses) as per rule 2A(i) of the Service Tax
(Determination of Value) Rules, 2006 from the following particulars:
Gross amount (excluding all taxes) charged by the service provider for ` 2,00,000
providing works contract service
Actual value of material transferred in the above works contract (VAT ` 1,60,000
under the relevant State VAT Law has been paid on this value)
Excise duty paid on inputs ` 20,000
Service tax paid on input services ` 2,800
SBC paid on input services ` 100
KKC paid on input services ` 100
Capital goods valuing ` 20,000 (exclusive of excise duty) have been
purchased during the year and used in the provision of works contract
service (rate of excise duty is 12.5%)
Rate of service tax (including SBC & KKC) 15%
Note: The service provider is not eligible for exemption under Notification No. 33/2012 ST
dated 20.06.2012.

Legal services
9. Mr. Ram Krishna Sukhani, an advocate, has rendered the following services in the month
of October, 2016:
(i) Representing Mr. Amit in his divorce case before High Court
(ii) Representing Mr. Aniket, an architect by profession, in relation to his service tax
liability [Turnover of Mr. Aniket in the financial year 2015-16 was ` 15 lakh]
(iii) Legal consultancy given to Bansal Associates, a partnership firm of advocates
[Turnover of services of Bansal Associates in the financial year 2015-16 was ` 28
lakh]
Examine whether service tax is payable on each of the above services assuming Mr.
Ram Krishna Sukhani to be
(i) an advocate other than a senior advocate
(ii) a senior advocate in terms of section 16 of the Advocates Act, 1961?
Exemption to services received by SEZ
10. Kite Ltd., which has a unit each in special economic zone (SEZ) and in domestic tariff
area (DTA), furnishes the following information in respect of the services received by
SEZ unit and DTA unit for the quarter, July to October, 2016.
(i) Service tax (including cesses) paid on services exclusively used for authorized SEZ
operations: ` 15 lakh.
(ii) Service tax (including cesses) paid on services exclusively used for DTA operations:
` 30 lakh .
(iii) Service tax (including cesses) paid on services commonly used for authorised SEZ
operations and DTA operations: ` 45 lakh.
Determine the amount of refund under Notification No. 12/2013 ST dated 01.07.2013
assuming that Kite Ltd. has opted for refund route under the said notification.
Note: The turnovers of SEZ unit and DTA unit during the preceding financial year were
` 800 lakh and ` 1200 lakh respectively.
Service tax procedures
11. With reference to the position of law as existing on 31st October, 2016, discuss the
validity of the following statements:
(i) Revision of returns is possible under service tax law but not under central excise
law.
(ii) While a company has to pay service tax on monthly basis, a One Person Company
can pay service tax on quarterly basis.

Interest on delayed payment of service tax

12. Manohar Housekeeping Ltd. was liable to make e-payment of service tax of ` 5,00,000
for the month of June, 2016. However, it deposited the tax on 06.12.2016.
Compute the amount of interest payable by Manohar Housekeeping Ltd. under section 75
of the Finance Act, 1994. The value of taxable services provided by Manohar
Housekeeping Ltd. during the financial year 2015-16 was ` 58.50 lakh.
What would be the amount of interest payable by Manohar Housekeeping Ltd. if the
value of services provided by it during the financial year 2015-16 was ` 91.90 lakh?
Note: Manohar Housekeeping Ltd. had collected service tax of ` 5,00,000 (mentioned
above) from its customers during the month of June, 2016.
Prosecution under service tax
13. Discuss the prosecution implications under section 89 of the Finance Act, 1994, if any, in
respect of the following cases:
(i) Mr. Aarav Malhotra, a taxable service provider, avails CENVAT credit of ` 40 lakh
without actual receipt of excisable goods. However, he is yet to utilize such
CENVAT credit.
(ii) Mr. Raghav Bisht, a service tax assessee, wilfully evades payment of service tax of
` 14 crore.
(iii) Mr. Dev Khanna, a taxable service provider, collects ` 6 crore as service tax from
its clients in June, 2016, but deposits only ` 1 crore with the Central Government by
February, 2017.
In the above question, what will be the prosecution implications, if Mr. Raghav Bisht and
Mr. Dev Khanna are convicted for subsequent offences?
Demand and recovery provisions
14. ‘Recovery provisions under section 87 of the Finance Act, 1994 can be invoked without
an adjudication proceeding under section 73 of the Finance Act, 1994’.
Examine the validity of the statement.
Appeals under service tax
15. The CESTAT passed an order in case of Mr. Raj Oberoi holding that the activity carried
out by Mr. Raj Oberoi is liable to service tax. Aggrieved by the said order, Mr. Raj Oberoi
wishes to file an appeal before the High Court against the said order of the CESTAT.
Give your comments on whether Mr. Raj Oberoi can do so.

Valuation of imported goods under customs

16. Robust & Co. Ltd. has imported a machine from U.K. From the following particulars
furnished by it, arrive at the assessable value for the purpose of determination of
customs duty:
S. Particulars Amount
No.
(i) Price of the machine 5,000 U.K. Pounds
(ii) Freight (air) 1,000 U.K. Pounds
(iii) Engineering and design charges paid to a firm in U.K. 250 U.K. Pounds
(iv) License fee relating to imported goods payable by 20% of the price of
Robust & Co. Ltd. as a condition of sale machine
(v) Materials and components supplied in UK by Robust &
Co. Ltd. free of cost valued at ` 10,000
(vi) Insurance paid to the insurer in India ` 3,000
(vii) Buying commission paid by Robust & Co. Ltd. to his 50 U.K. Pounds
agent in U.K.
Other particulars:
(i) Inter-bank exchange rate: ` 98 per U.K. Pound.
(ii) Exchange rate notified by CBEC for purpose of section 14 of the Customs Act,
1962: ` 100 per U.K. Pound.
(iii) Robust & Co. Ltd. paid ` 4,200 towards demurrage charges for delay in clearing the
machine from the Airport.
Make suitable assumptions wherever required and show workings with explanations.
Warehousing under customs
17. Skylark Pvt. Ltd., a registered company, has applied for a licence to set up a public
warehouse in a village near a port city. It has submitted the application to the Deputy
Commissioner of Customs. The company has been advised by its consultant that it
cannot do so as the village is not a notified warehousing station.
Is the advice given by the consultant correct? Give your comments with reference to the
amendments made by the Finance Act, 2016 in the warehousing provisions under the
Customs Act, 1962.
Penalty on prohibited goods
18. Mr. A had smuggled gold bars of foreign origin into India. Penalty under section 112(i) of
the Customs Act, 1962 had been imposed for improper importation of such gold bars.
Under the relevant provision, a penalty not exceeding the value of the goods or ` 5,000,

whichever is greater can be levied, for improperly bringing into the country “goods in
respect of which any prohibition is in force under this Act or any other law for the time
being in force”.
Examine the technical veracity of the imposition of the penalty under section 112(i) on
the smuggled goods in the light of the judgment of Calcutta High Court in case of Gopal
Saha v. UOI. Elaborate the primary contentions of the assessee and the Revenue as
also bring out the High Court’s observations, in the said judgment.
Provisional attachment of property under custom laws
19. Mr. X has been issued a show cause notice for non-payment of customs duty for reasons
not involving collusion or any wilful mis-statement or suppression of facts etc. under
section 28(1) of the Customs Act, 1962. During the pendency of adjudication
proceedings, the Proper Officer has provisionally attached the property of Mr. X.
Mr. X claims that the action taken by the Proper Officer is not right as provisional
attachment of property can be resorted to only when the non-payment of duty is on
account of reasons involving collusion or any wilful mis-statement or suppression of facts
etc.
Elucidate the provisions relating to provisional attachment of property under section
28BA of the Customs Act, 1962 and examine the validity of Mr. X’s claim.
Foreign Trade Policy
20. Two exporters namely, Blue Heaven Pvt. Ltd. and Clean Planet Pvt. Ltd. have achieved
the status of Status Holders (One Star Export House) in the financial year 2015-16. Both
the exporters have been regularly exporting goods every year. What would have been
the minimum export performance of the two exporters to achieve such status?
Both the exporters want to establish export warehouses in accordance with the
applicable guidelines. What should be their minimum export turnover to enable them to
establish export warehouses?
SUGGESTED ANSWERS
1. As per section 3 of the Central Excise Act, 1944, excise duty is leviable on excisable
goods produced or manufactured in India. What would constitute goods has been
clarified and explained through various judgments. The principle crystallized out of such
judgements is that to be called as goods, items must be moveable and marketable.
Section 2(d) of the Central Excise Act, 1944 defines excisable goods to mean goods
specified in the Central Excise Tariff as being subject to a duty of excise. It has been
clarified vide an explanation to section 2(d) that goods includes any article, material or
substance which is capable of being bought and sold for a consideration and such goods
shall be deemed to be marketable.

Therefore, if waste and scrap is capable of being bought and sold for a consideration, it
would be marketable and if the same is specified in the Central Excise Tariff, it would be
an excisable goods.
In Markfed Vanaspati v. CCE 2000 (116) ELT 204 Tri-LB, it has been held that only those
goods mentioned in the Schedule (Central Excise Tariff) will be chargeable to excise
duty, which had been manufactured or produced by the person on whom the duty is
proposed to be levied. Therefore, even if a particular good or article finds mention in the
Tariff still it has to satisfy the test of manufacture before it can be subjected to levy of
excise duty. The said decision was later affirmed by the Supreme Court in CCE v.
Markfed Vansapati & Allied Industries 2003 (153) ELT 491 (SC).
The Supreme Court in the case of Khandelwal Metal & Engineering Works v. Union of
India 1985 (20) ELT 222 (SC) has observed that the production of waste and scrap is a
necessary incident of the manufacturing process. It may be true to say that no prudent
businessman will intentionally manufacture waste and scrap. However, it is equally true
to say that waste and scrap are the by-products of the manufacturing process. Sub-
standard goods which are produced during the process of manufacture may have to be
disposed of as rejects or as scrap. However, they are still the products of the
manufacturing process. ‘Intention’ is not the gist of the manufacturing process.
The crux of the foregoing discussion is that excise duty will be leviable on waste and
scrap only if such waste and scrap is an excisable goods and it is manufactured; and that
waste and scrap generated during manufacturing process is considered to be the by
products’ of such manufacturing process.
However, the Supreme Court in the case of Grasim Industries Ltd v. UOI 2011 (273) ELT
10 (SC) has observed that the repair and maintenance of plant has no contribution/effect
on the process of manufacturing of cement (the end product) and therefore, the repairing
activity in any possible manner cannot be called as a part of manufacturing activity in
relation to production of end product. Thus, the metal scrap and waste generated from
repair/ maintenance of plant cannot be said to be a by-product of the final product but the
by-product of repairing process.
Conclusion: In the given case, both types of waste and scrap are goods (as they are
capable of being bought and sold for a consideration) as also are excisable goods (as
they are specified in Central Excise Tariff). However, referring to foregoing discussion,
waste and scrap generated during the manufacture of cement (end product) will only be
liable to excise duty and not the one generated during the repair and maintenance of
cement manufacturing plant as repair and maintenance is not manufacture.
2. Computation of net duty payable (in cash) by Prajakta Processors Pvt. Ltd. for the
month of October, 2016
Particulars (`)
Excise duty @ 12.5% on dutiable goods manufactured 1,50,000

[No duty is payable on exempted and non-excisable goods]

Less: CENVAT credit available for set off [Refer working note below] 71,000
Excise duty payable in cash 79,000
Working Note:
Prajakta Processors Pvt. Ltd. manufactures both dutiable goods and exempted goods in
terms of rule 6(3)(a) of the CENVAT Credit Rules, 2004 [CCR] and pays the
proportionate amount payable under clause (ii) of rule 6(3) of CCR (second option).
Such amount payable by Prajakta Processors Pvt. Ltd. for the month of October, 2016
will be computed in terms of sub-rule (3A) of rule 6 by sequentially following the steps
given below:
(i) First, full CENVAT credit on all inputs and input services will be taken (T).
(ii) From such total CENVAT credit, CENVAT credit attributable to inputs and input
services used exclusively in manufacture of exempted goods (A), and CENVAT
credit attributable to inputs and input services used exclusively in manufacture of
dutiable goods (B), will be reduced.
(iii) The remaining balance will be common CENVAT credit attributable to inputs and
input services used for manufacture of both exempted goods and dutiable goods
(C).
(iv) Out of such common CENVAT credit (C), CENVAT credit on inputs and input
services attributable to manufacture of exempted goods (D) will be in the same
proportion which the turnover of exempted goods of the previous financial year (E)
bears to the total turnover of the previous financial year [(F) viz. exempted goods
plus dutiable goods].
Therefore, (D) = E/F x C. (D) will be ineligible CENVAT credit required to be paid.
(v) Thus, amount required to be paid for the month of October, 2016 = (A) + (D)
Computation of eligible CENVAT credit available for set off
Particulars (`)
I. CENVAT credit on inputs and input services
Total CENVAT credit [(T)] 1,00,000
Less: CENVAT credit on inputs and input services used exclusively for (20,000)
manufacture of exempted goods [including non-excisable goods –
(Note 1)] [(A)]
[` 8,000 + ` 8,000 + ` 2,000 + ` 2,000]
Less: CENVAT credit on inputs and input services used exclusively for (20,000)
manufacture of dutiable goods [(B)]
[` 10,000 + ` 10,000]

Common CENVAT credit [(C)] 60,000

Out of common CENVAT credit, ineligible CENVAT credit attributable 24,000
to inputs and input services used in the manufacture of exempted
goods [(D)]
[(` 80,00,000/ ` 2,00,00,000) x ` 60,000]
CENVAT credit on inputs and input services used exclusively for 20,000
manufacture of exempted goods [(A)]
Total amount payable provisionally [(D) + (A)] 44,000
Eligible CENVAT credit on inputs and input services available for set 56,000
off
(T) – [(D) + (A)]
II. Eligible CENVAT credit on capital goods [Note 2] 15,000
Total eligible CENVAT credit on inputs, input services and capital 71,000
goods
Notes:
(1) For the purpose of rule 6, exempted goods or final products as defined in clauses
(d) and (h) of rule 2 of CCR include non-excisable goods cleared for a consideration
from the factory [Explanation 1 to rule 6(1) of CCR]. Value of such non-excisable
goods for the purposes of this rule, is the invoice value [Explanation 2 to rule 6(1) of
CCR].
(2) Rule 6(3) does not require payment of any amount when a capital goods is used in
manufacture of both exempted goods and dutiable goods. Only when inputs and
inputs services are used in the manufacture of both dutiable and exempted goods,
does the reversal provisions under rule 6(3) get attracted. Thus, entire 50%
CENVAT credit would be available for set off in case of the machinery.
3. Computation of central excise duty payable by UVW Ltd.
Particulars (`) (`)
Retail sale price of 400 packages containing 60 packs
each packed for safety in transportation (60 x ` 120 x 400) 28,80,000
Less: Abatement @ 30% 8,64,000
Assessable value (A) [Note 1] 20,16,000
Retail sale price of 2,000 packs (2,000 × ` 120) 2,40,000
Less: Abatement @ 30% 72,000
Assessable value (B) [Note 2] 1,68,000
Retail sale price of 60 packs given as free samples
(60 × ` 120) 7,200


Assessable value (C) [Note 3] 5,040
Retail sale price of 500 packs manufactured on job work 60,000
basis (500 × ` 120)
Assessable value (D) [Note 4] 42,000
Retail Sale Price of 400 multi-packs (400 × ` 170) [Note 5] 68,000
Assessable value (E) [Note 5] 47,600
Total assessable value (A) + (B) + (C) + (D) +(E) 22,78,640
Excise duty @ 12.5% of ` 22,78,640 2,84,830
Notes:
1. Outer packaging for protection/safety during transportation is not wholesale
package. Such packaging does not require details like name/address, cost, month
year etc. [State of Maharashtra v. Raj Marketing (2011) 272 ELT 8 (SC)].
Therefore, valuation of such package will be done on the basis of section 4A i.e.,
RSP less abatement.
2. Provisions of section 4A of Central Excise Act, 1944 override the provisions of
section 4 of the said Act. Therefore, assessable value will be retail sale price
declared on the package less abatement irrespective of the quantity discounts
offered to the buyer [Indica Laboratories v. CCE (2007) 213 ELT 20 (CESTAT 3
Member Bench)].
3. Free samples of the products covered under MRP based assessment are valued
under rule 4 of the Central Excise Valuation (Determination of Price of Excisable
Goods) Rules, 2000 by taking into consideration the deemed value under section 4A
[Circular No. 915/05/2010 CX dated 19.02.2010].
4. Provisions of section 4A override the provisions of section 4. Therefore, in case of
goods cleared on job-work basis, assessable value will be retail sale price declared
on the package less abatement and not the value as determined under rule 10A of
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000
viz., the price at which the principal manufacturer sells the goods.
5. Retail sale price (RSP) of the multi-pack (` 170) is considered and product supplied
free (small soap) in the multi-pack is not assessed separately. Further, since
scored out RSP cannot be considered as RSP either by seller or by buyer, the same
(` 120) is not taken as the RSP for the purpose of valuation of excisable goods.

6. Since the turnover of UVW Ltd.in the previous financial year is ` 470 lakh, it will not
be entitled for SSI exemption available under Notification No. 8/2003 CE dated
01.03.2003 in the current year.
4. (i) Yes, the applicant manufacturer has to submit a quarterly return in terms of rule 6 of
the Central Excise (Removal of Goods at Concessional Rate of Duty for
Manufacture of Excisable and Other Goods) Rules, 2016.
The applicant manufacturer will have to maintain invoice-wise record of quantity and
value of subject goods received, the quantity of subject goods consumed for the
intended purpose, and the quantity remaining in stock. The quarterly return will be
filed on the basis of such records in prescribed form by 10th day of the month
following each quarter of the financial year.
(ii) If the goods received at concessional rate of duty are not used for intended
purpose, the applicant manufacturer is liable to pay an amount equal to the
concession in duty plus interest. The provisions of section 11A, except the time
limit mentioned in the said section for demanding duty and section 11AA of the
Central Excise Act, 1944 will apply mutatis mutandis, for effecting such recoveries.
Amount payable = Full duty leviable on such goods (excluding any exemption) -
Duty already paid, if any, at the time of removal from the factory of the supplier
manufacturer of the subject goods.
5. Computation of value of clearances during preceding financial year for determining
the eligibility for SSI exemption in the current year
Particulars ` (in lakh)
Total value of clearances during preceding financial year 950
Less: VAT included in above 80
870
Less: Exports excluding exports to Bhutan (` 500 - ` 250) lakh 250
Clearances of goods without payment of duty to a unit in 20
Electronic Hardware Technology Park
Job work under Notification No. 84/94 CE dated 11.04.1994 and
under Notification No. 83/94 CE dated 11.04.1994 i.e., 200
` 100 + ` 100) lakh
Value of eligible clearances during preceding financial year 400
Note: In order to claim the benefit of SSI exemption under Notification No. 8/2003 C.E.
dated 01.03.2003 in a financial year, the total turnover of a unit should not exceed ` 400
lakh in the preceding year.

In terms of Notification No. 8/2003 CE dated 01.03.2003, while computing such value of
clearances during preceding financial year (` 400 lakh)-
(i) export turnover is excluded. However, export to Bhutan cannot be excluded as
these are treated as “clearances for home consumption”. With effect from
01.03.2016, clearances made to Nepal are treated like normal exports and are thus,
not considered for the purpose of computing limit of ` 400 lakh.
(ii) job work under Notification No. 84/94 CE dated 11.04.1994 and Notification No.
83/94 CE dated 11.04.1994 is not taken into consideration.
(iii) clearances of excisable goods without payment of duty to a unit in Electronic
Hardware Technology Park are excluded.
(iv) clearances of excisable goods bearing brand name of National Small Industries
Corporation are included.
Conclusion: Since the value of clearances in the previous financial year does not
exceed ` 400 lakh, Aim & Company is eligible to claim the benefit of Notification No.
8/2003 CE dated 01.03.2003 in the current financial year.
6. (i) Stage carriage: Prior to 01.06.2016, service of transportation of passengers, with
or without accompanied belongings, by a stage carriage [both air conditioned as
well as non-air conditioned] was covered in negative list of services under section
66D(o)(i) of the Finance Act, 1994.
The Finance Act, 2016 had, however, omitted sub-clause (i) of clause (o) of section
66D with effect from 01.06.2016. Therefore, service of transportation of
passengers, with or without accompanied belongings, by a stage carriage have
become taxable with effect from 01.06.2016. However, simultaneously service of
transportation of passengers, with or without accompanied belongings by a non-air
conditioned stage carriage has been exempted by amending Mega Exemption
Notification No. 25/2012 ST dated 20.06.2012. Therefore, in effect, w.e.f.
01.06.2016, service of transportation of passengers by an air-conditioned stage
carriage has been made liable to service tax.
Abatement of 60%, which is available to transportation of passengers by a contract
carriage other than motor cab, has been extended to transportation of passengers
by an air-conditioned stage carriage too with same condition of non-availment of
CENVAT credit on inputs, input services and capital goods used for providing the
taxable service. Further, service tax on transportation of passengers by an air-
conditioned stage carriage is payable by the service provider under forward charge.
(ii) Metered cab: Service of transportation of passengers, with or without accompanied
belongings, by metered cabs are covered in the negative list of services under sub-
clause (vi) of clause (o) of the section 66D of the Finance Act, 1994. Therefore,
service of transportation of passengers, with or without accompanied belongings, by
metered cabs is not leviable to service tax.

7. No, the claim of the Neela Hotels is not valid in law. The Delhi High Court in case of
Federation of Hotel & Restaurants Association of India v. UOI 2016 (44) STR 3 (Del.) has
discussed the Constitutional validity of section 66E(i) of the Finance Act, 1994 to the
extent it seeks to constitute a service portion in an activity of supply of food or other
articles as ‘declared service’ and rule 2C of the Service Tax (Determination of Value)
Rules, 2006.
In this case, appellant contended that after the insertion of article 366(29A), by virtue of
clause (f) of said article, supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human consumption or any drink
(whether or not intoxicating), where such supply or service, is for cash, deferred payment or
other valuable consideration, is taxable under the sales tax law.
Further, the definition of service also specifically excludes such transfer, delivery or supply of
any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the
Constitution. Therefore, levy of service tax on supply of food and drinks is unconstitutional.
Considering the legislative history of Constitution (46th) Amendment Act, 1982 wherein
article 366(29A)(f) was introduced, the Delhi High Court observed that introduction of
said clause (f) was focussed on ensuring that State sales tax was leviable on the portion
of supply of food and drinks even where it was as a part of a composite catering contract.
However, at that stage, focus could not be on levying service tax on any portion of that
composite contract because service tax was inexistent even after two decades of such
amendment. Therefore, it cannot be concluded that at the time of 46th Constitutional
amendment, Parliament had consciously decided that no portion of composite contract of
catering would be amenable to levy of service tax.
Thereafter, the High Court examined the constitutional validity of levy of service tax on
service portion in an activity of supply of food or other articles. Referring to various
judgments and analysing clause (f) of Article 366(29A), it inferred that if some part of the
composite transaction involves the rendering of service, there should be no difficulty in
recognising the power of the Union to bring that portion to tax.
The Delhi High Court noted that in Tamil Nadu Kalyana Mandapam Association v. Union of
India 2006 (3) STR 260 (S.C.), the service component of an outdoor catering contract was
emphasised. With reference to said Supreme Court judgment, the Delhi High Court observed
that:
(i) Although in one of the paras in the Tamil Nadu Kalyana Mandapam Association case,
the Apex Court sought to distinguish the outdoor catering services from restaurant
services thereby pointing out that in outdoor catering there is an element of personalized

service, it in no way suggested that there was no service element involved in the supply
of food and drinks in a restaurant.
(ii) The primary issue decided by the Apex Court was as to whether in the context of Article
366(29A)(f) of the Constitution, the service portion of a composite catering contract can
be made exigible to service tax.
(iii) Supreme Court applied pith and substance doctrine to such situations [restaurant
service and outdoor catering service] and concluded that the manner of service provided
assumes predominance over the providing of food which is a definite indicator of the
supremacy of the service aspect.
(iv) Further, the concept of catering admittedly includes the concept of rendering service.
The fact that tax on the sale of the goods involved in the said service can be levied does
not mean that a service tax cannot be levied on the service aspect of catering. Thus, the
decision highlighted the possibility of splitting up of the composite transaction into the
provision of service element and the supply of food.
(v) Resultantly, Tamil Nadu Kalyana Mandapam Association case fully supported the stand
of the respondents as far as the interpretation of Article 366(29A)(f) of the Constitution is
concerned.
The Parliament has made the legal position explicit by inserting section 66E(i) of the Finance
Act, 1994, alongwith sections 65B(22) and 65B(44) of the Finance Act, 1994. The provisions
read together stipulate that the service portion in an activity wherein goods, being food or any
other article of human consumption or any drink (whether or not intoxicating) is supplied in
any manner as a part of the activity is a 'declared' service.
The legislative carving out of the service portion of the composite contract of supply of food
and drinks has sound constitutional basis. Even if this is viewed as Parliament deploying a
legal fiction, it is legally permissible.
Thus, it is not possible to accept the contention of the petitioners that Parliament lacks the
legislative competence to bring the service component of the composite contract of supply of
food and drinks within the service tax net.
Further, while examining the constitutional validity of rule 2C of the Service Tax
(Determination of Value) Rules, 2006, the High Court noted that this rule enables the
assessing authority to put a definite value to the service portion of the composite contract of
supply of goods and services in a restaurant/outdoor catering.
In the light of the aforementioned discussion, the High Court upheld the constitutional validity
of section 66E(i) of the Finance Act, 1994 read with section 65B(22) and 65B(44) thereof and
rule 2C of the Service Tax (Determination of Value) Rules, 2006.

8. Computation of value of service portion in the execution of works contract

Particulars Amount (`)
Gross amount charged 2,00,000
Less: Actual value of material transferred (Refer note below) 1,60,000
Value of service portion in the execution of works contract 40,000
Note - Since VAT has been paid on the actual value of property in goods transferred in
the execution of the works contract, such value adopted for the purposes of payment of
VAT has been taken as the value of property in goods transferred in the execution of the
said works contract [Clause (c) of Explanation to rule 2A(i) of the Service Tax
(Determination of Value) Rules, 2006].
Computation of service tax liability
Particulars Service SBC @ KKC @
tax @ 0.5% 0.5% (`)
14% (`) (`)
Service tax on ` 40,000 5,600 200 200
Less: CENVAT credit on inputs (Note-1) - - -
CENVAT credit on input services (Note-2) 2,800 - 100
CENVAT credit on capital goods (50%) 1,250 - -
(Note-3)
Service tax liability 1,550 200 100
Total service tax liability including cesses =
` 1,850
Notes:
1. CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said
works contract, is not available [Explanation 2 to rule 2A of the of the Service Tax
(Determination of Value) Rules, 2006].
2. CENVAT credit of SBC paid on input services is not allowed.
3. Upto 50% of the CENVAT credit of the excise duty paid on capital goods used for
the execution of the service portion of the works contract is available in the year of
purchase [Rule 4(2)(a) of CENVAT Credit Rules, 2004]
9. As per Mega Exemption Notification No. 25/2012 ST dated 20.06.2012, services provided
by-
(a) a partnership firm of advocates or an individual as an advocate other than a senior
advocate, by way of legal services to -

(i) an advocate or partnership firm of advocates providing legal services;

(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to ` 10 lakh in the preceding financial
year; or
(b) a senior advocate by way of legal services to -
(i) any person other than a business entity; or
(ii) a business entity with a turnover up to ` 10 lakh in the preceding financial
year.
are exempt from service tax.
Section 65B(17) of the Finance Act, 1994 defines a business entity as any person
ordinarily carrying out any activity relating to industry, commerce or any other business or
profession.
In the background of the above provisions, service tax liability of each of the services
rendered by Ram Krishna Sukhani, are examined hereunder:
S. When Mr. Ram Krishna Sukhani is When Mr. Ram Krishna Sukhani
No. an advocate other than senior is a senior advocate
advocate
(i) Service of representing Mr. Amit in Such service will be exempt even if
his divorce case will be exempt as Mr. the same are rendered by a senior
Amit is not a business entity. advocate.
(ii) Since the turnover of Mr. Aniket, a Such services, when provided by
business entity, is more than ` 10 senior advocate, will also be liable
lakh in the preceding financial year to service tax.
[2015-16], the same will be liable to
service tax.
(iii) Legal consultancy provided by an Such services, when provided by a
advocate to partnership firm of senior advocate, will be liable to
advocates is exempt from service tax. service tax if the turnover of the
partnership firm (business entity) in
the preceding financial year is more
than ` 10 lakh.
Thus, legal consultancy provided by
Mr. Ram Krishna Sukhani to Bansal
Associates, a partnership firm of
advocates, will be liable to service
tax.

10. Computation of refund of service tax (including cesses) available under

Notification No. 12/2013 ST dated 01.07.2013
Particulars Service tax SBC KKC
(` in lakh) (` in lakh) (` in lakh)
Service tax, SBC and KKC paid on 14.00 0.50 0.50
services exclusively used for [(` 15 lakh/ 15) [(` 15 lakh/ [(` 15 lakh/
authorized SEZ operations x 14] 15) x 0.5] 15) x 0.5]
[Note 1]
Refund of service tax, SBC & KKC 14.00 0.50 0.50
paid on services used for
authorized SEZ operations (A)
Refund of service tax paid, SBC & Nil Nil Nil
KKC on services exclusively used
for DTA operations
[Note 2]
Service tax, SBC and KKC paid on 42.00 1.50 1.50
services commonly used for [(` 45 lakh/ 15) [(` 45 lakh/ [(` 45 lakh/
authorized SEZ operations and x 14] 15) x 0.5] 15) x 0.5]
DTA operations
Refund of service tax, SBC & KKC 16.80 0.6 0.6
paid on services commonly used  800   0.5   0.5 
for authorized SEZ operations and 42 × 16.80 × 14  16.80 × 14 
 2,000     
DTA operations (B)
Net refund = (A) + (B) 30.80 1.10 1.10

Total refund = ` 33 lakh
Notes:
As per Notification No. 12/2013 ST dated 01.07.2013:
1. SEZ unit is entitled to refund of the whole amount of service tax including SBC &
KKC paid on the services on which ab-initio exemption is admissible but not claimed
(services received by SEZ and used exclusively for the authorized operations are
entitled for ab initio exemption).
2. Services received by an SEZ unit that are used for the authorized operations are
only entitled to exemption under said notification. Thus, services exclusively used
for DTA operations are not entitled to the said exemption.
3. For services commonly used for authorised SEZ operations and DTA operations,
service tax distributed to SEZ unit in terms of rule 7(d) of CENVAT Credit Rules, 2004 is
entitled for refund. As per rule 7(d), service tax is distributed pro rata on the basis of the

turnover of SEZ unit during the relevant period (in this case, preceding financial year) to
the total turnover of SEZ and DTA units during the said relevant period.
Refund of SBC & KKC is determined by multiplying total service tax distributed to
SEZ unit as above by effective rate of SBC (0.5) and KKC (0.5) respectively and
dividing the product by rate of service tax specified in section 66B of the Finance
Act, 1994 (14).
11. (i) The statement is not valid.
As per sub-rule (1) of rule 7B of the Service Tax Rules, 1994, a half yearly service
tax return (ST-3) can be revised within a period of 90 days from the date of
submission of the return under rule 7. Further, as per sub-rule (2) of rule 7B, an
annual return can also be revised within a period of one month from the date of
submission of the said annual return. Therefore, as far as revision of returns under
service tax is concerned, the given statement is correct.
However, the statement is not correct with regard to revision of central excise
returns. With effect from 17.08.2016, facility of revision of returns has been
extended to central excise returns also. A new sub-rule (8) has been inserted in
rule 12 of the Central Excise Rules, 2002 to provide that a monthly return (ER-1) or
quarterly return (ER-3) filed on/before the respective due date can be revised by the
end of the calendar month in which the original return is filed. Similarly, an annual
return filed on/before the due date can also be revised within a period of 1 month
from the date of submission of the said Annual Return. Furthermore, a new sub-
rule (7) has been inserted in rule 17 to provide that a monthly return (ER-2) filed by
a 100% EOU on/before the due date can also be revised by the end of the calendar
month in which the original return is filed.
In view of the above-mentioned provisions, the statement is not valid as facility of
revision of returns exist under both central excise and service tax laws.
(ii) Prior to 01.04.2016, rule 6(1) of the Service Tax Rules, 1994 required a company
including a One Person Company (OPC) and a Hindu Undivided Family (HUF) to
pay service tax on monthly basis. However, an individual or proprietary firm or
partnership firm could pay service tax on quarterly basis. Therefore, as far as
payment of service tax by companies is concerned, the statement is correct.
However, with effect from 01.04.2016, proviso to rule 6(1) has been amended to lay
down that a one person company whose aggregate value of taxable services
provided from one or more premises is ` 50 lakh or less in the previous financial
year or an HUF can also pay service tax on quarterly basis.
Therefore, the given statement is not absolutely correct inasmuch as every OPC
cannot pay service tax on quarterly basis; only that OPC is eligible for quarterly
payment of service tax whose aggregate value of taxable services provided from
one or more premises is ` 50 lakh or less in the previous financial year.

12.
Due date for payment of service tax for the month of June, 2016 06.07.2016
Date when service tax was actually paid 06.12.2016
Section 75 of Finance Act, 1994 read with Notification No. 13/2016 ST dated 01.03.2016
provides for charging simple interest where any amount has been collected as service
tax but not paid to the credit of the Central Government on or before the date on which
such payment becomes due. The interest is payable @ 24% p.a. for the period by which
such crediting of tax or any part thereof is delayed. However, in all other cases, 15%
simple interest p.a. is payable.
Further, such rate of interest shall be reduced by 3% per annum in case of a service
provider whose turnover does not exceed ` 60 lakh during any of the financial years
covered by the notice or during the last preceding financial year.
Since in the given case, Manohar Housekeeping Services Ltd. has collected service tax
but failed to deposit the same on/before the due date with Central Government and its
turnover was ` 58.50 lakh in the preceding financial year, interest under section 75 will
be payable @ 21% as follows:
Period Delay Interest (`)
07.07.2016 to 5 months ` 5,00,000 × 21% × 5/12
06.12.2016 = 43,750
However, if the value of taxable services provided by Manohar Housekeeping Services
Ltd. in the preceding financial year is ` 91.90 lakh (i.e. more than ` 60 lakh), interest
payable will be computed as follows:
Period Rate of interest Delay Interest (`)
07.07.2016 to 24% 5 months 5,00,000 × 24% × 5/12
06.12.2016 = 50,000
13. (i) As per section 89(1)(b) of Finance Act, 1994, both availment and utilization of credit
of excise duty without actual receipt of excisable goods constitutes an offence for
launching prosecution.
Since in the given case, Mr. Aarav Malhotra has only availed CENVAT credit and
not utilised the same, prosecution provisions will not be applicable to him.
(ii) As per section 89(1)(i) of Finance Act, 1994, whoever wilfully evades payment of
service tax would be punishable with imprisonment for a period of 6 months to 3
years if the amount involved in the offence exceeds ` 2 crore.

Since in the given case, Mr. Raghav Bisht has wilfully evaded payment of service
tax of ` 14 crore, which is more than the prescribed limit (` 2 crore), he will be
liable for imprisonment for a period of 6 months to 3 years.
(iii) As per section 89(1)(ii) of Finance Act, 1994, failure to pay the amount collected as
service tax to the credit of Central Government beyond a period of six months from
the date on which such payment becomes due, constitutes an offence punishable
with imprisonment for a period of 6 months to 7 years, if the amount exceeds ` 2
crore.
In the given case, the amount collected but not paid is ` 5 crore and the same has
not been paid beyond the period of six months. Therefore, Mr. Dev Khanna will be
liable for imprisonment for a period of 6 months to 7 years.
If Mr. Raghav Bisht and Mr. Dev Khanna are convicted for subsequent offences,
then as per section 89(2) of the Finance Act, 1994, Mr. Raghav Bisht would be
liable for imprisonment for a period which may extend to 3 years whereas Mr. Dev
Khanna would be liable for imprisonment for a period which may extend to 7 years.
14. No, the statement is not valid. The issue as to whether recovery provisions under
section 87 of the Finance Act, 1994 can be invoked without an adjudication proceeding
under section 73 of the said Act has been dealt with by the Karnataka High Court in the
case of UOI v. Prashanthi 2016 (43) STR 350 (Kar.).
In the said case, the High Court observed that section 73 of the Finance Act, 1994 is
wide enough to cover recovery of service tax not levied/paid or short-levied/short-paid or
erroneously refunded. Not only that, the language of the section is wide enough to cover all
contingencies which would include a case where the amount of tax is collected, but not paid
with the Government.
Further, section 87 of the Act provides for the recovery of the amount due to the Central
Government. The language is that where the amount payable by the person under the
provisions of this Chapter or the rules made thereunder is not paid.
If both sections are read conjointly, it would mean that the payability of the amount is an
aspect which may be adjudicated under section 73 and thereafter the recovery may be
effected under section 87.
The High Court held that the submission that the power under section 87 is independent and
irrespective of the procedure under section 73, is not viable. The contention that when the
power under section 87 is to be invoked, no procedure under section 73 can be undertaken,
is not acceptable.
Accepting such submissions and contentions would result in a situation that the power under
section 87 be without an adjudication mechanism under section 73, which is neither
conceived by the legislature nor can be the accepted position.

15. No, Mr. Raj Oberoi cannot file an appeal with the High Court on the question of levy
of service tax on the activity carried out by him. Section 83 of the Finance Act, 1994
makes the provisions of section 35G and section 35L of the Central Excise Act, 1944
applicable to service tax.
Section 35G(1) of the Central Excise Act, 1944 provides that an appeal shall lie to the
High Court from every order passed in appeal by the Appellate Tribunal (not being an
order relating, among other things, to the determination of any question having a relation
to the rate of duty of excise or to the value of goods for purposes of assessment), if the
High Court is satisfied that the case involves a substantial question of law.
Section 35L(1) of the Act, inter alia, provides that an appeal shall lie to the Supreme
Court from any order passed by the Appellate Tribunal relating, among other things, to
the determination of any question having a relation to the rate of duty of excise or to the
value of goods for purposes of assessment. Thus, on combined reading of section
35G(1) and section 35L(1), it can be inferred that an appeal against “an order of Tribunal
relating to the determination of any question having a relation to the rate of duty of
excise/service tax or to the value of goods/services for purposes of assessment” shall not
lie to High Court. Appeal against such orders will lie to Supreme Court.
Further, section 35L(2) provides that the ‘determination of any question having a relation
to the rate of service tax’ shall include the determination of taxability for the purpose of
assessment. Thus, in the given case, the appeal lies to the Apex Court under section
35L of the Central Excise Act, 1944, which alone has exclusive jurisdiction to decide the
said question.
Note: Delhi High Court, in case of Commissioner of Service Tax v. Ernst & Young Pvt.
Ltd. 2014 (34) S.T.R. 3 (Del.), had also taken the aforesaid view.
16. Computation of assessable value of machine imported by Robust & Co. Ltd.
Particulars Amount (£)
Price of the machine 5,000
Add: Engineering and design charges paid in UK [Note 1] 250
Licence fee relating to imported goods payable by the buyer as a
condition of sale (20% of price of machine) [Note 1] 1,000
Total 6,250
Amount (`)
Value in Indian currency [£ 6,250 x ` 100] [Note 2] 6,25,000
Add: Materials and components supplied by Robust & Co. Ltd free of 10,000
cost [Note 1]
FOB 6,35,000
Add: Freight [Note 3] 1,00,000

Insurance paid to the insurer in India [Note 1] 3,000

CIF value 7,38,000
Add: Landing charges @ 1% [Note 4] 7,380
Assessable value (rounded off) 7,45,380
Notes:
1. Engineering and design charges paid in UK, licence fee relating to imported goods
payable by the buyer as a condition of sale, materials and components supplied by
the buyer free of cost and actual insurance charges paid are all includible in the
assessable value [Rule 10 of the Customs (Determination of Value of Imported
Goods) Rules, 2007].
2. As per Explanation to section 14(1) of the Customs Act, 1962, assessable value
should be calculated with reference to the rate of exchange notified by the CBEC.
3. If the goods are imported by air, the freight cannot exceed 20% of FOB price
[Second proviso to rule 10(2) of the Customs (Determination of Value of Imported
Goods) Rules, 2007]. Since in this case, the freight paid does not exceed 20% of
FOB, so actual freight paid will be includible in the assessable value.
4. Landing charges @ 1% of the CIF value are includible in the assessable value,
whether actually incurred or not [Clause (ii) of first proviso to rule 10(2) of the
Customs (Determination of Value of Imported Goods) Rules, 2007].
5. Buying commission is not included in the assessable value [Rule 10(1)(a) of the
Customs (Determination of Value of Imported Goods) Rules, 2007].
6. Only ship demurrage charges on chartered vessels are included in the cost of
transport of the imported goods. Thus, demurrage charges for delay in clearing the
machine from the Airport will not be includible in the assessable value [Explanation
to Rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules,
2007].
17. Position prior to 14.05.2016
Section 9 of the Customs Act, 1962 empowered the Board to declare places to be
warehousing stations at which alone public warehouses may be appointed and private
warehouses may be licensed. Thus, prior to 14.05.2016, public or private warehouses
could only be established in a warehousing station as notified by the CBEC. This power
had been delegated to the Principal Chief Commissioners/ Chief Commissioners and in
respect of EOUs to Principal Commissioners/ Commissioners.
Further, section 57 of the Customs Act, 1962 provided that at any warehousing station,
the Assistant/Deputy Commissioner of Customs may appoint public warehouses wherein
dutiable goods may be deposited.

Position from 14.05.2016

With effect from 14.05.2016, section 9 has been omitted by the Finance Act, 2016. This
means that a notification notifying any place such as a village or town as a warehousing
station by the Chief Commissioner/ Commissioner would no longer be required. An
applicant can straight away make an application to the licencing officer seeking a
warehouse to be licensed.
Further, the Finance Act, 2016 has also substituted section 57 to empower Principal
Commissioner/Commissioner in place of Deputy/Assistant Commissioner to issue licence
for a public warehouse. The substituted section 57 provides that the Principal
Commissioner/Commissioner of Customs may, subject to such conditions as may be
prescribed, license a public warehouse wherein dutiable goods may be deposited.
In view of the foregoing discussion, the advice of the consultant is not correct as w.e.f.
14.05.2016, the requirement of setting up a public warehouse at a warehousing station
has been dispensed with. However, Skylark Pvt. Ltd. is not correct in submitting the
application for license to the Deputy Commissioner of Customs as w.e.f. 14.05.2016,
Principal Commissioner/Commissioner has been empowered to issue license for a public
warehouse.
18. No, the penalty imposed on Mr. A for smuggled gold bars, under section 112(i) of
the Customs Act, 1962, is not valid in law. The issue as to whether the expression
‘goods in respect of which any prohibition is in force’ under section 112(i) refers to any
goods which have been smuggled into the country which may otherwise have been
brought into the country by the appropriate channel upon payment of duty due thereon or
goods specifically barred from being brought into the country was decided in case of
Gopal Saha v. UOI 2016 (336) ELT 230 (Cal.).
In this case, the primary contentions of the petitioners, against levy of the penalty under
section 112(i), were:
(i) The penalty under section 112(i) could not be imposed on the gold smuggled by them
as gold was not a prohibited item and its import was not prohibited by virtue of any
notification/order under the Customs Act, 1962/ any other law for the time being in force.
For the purpose of the expression “goods in respect of which any prohibition is in force
under this Act or any other law for the time being in force”, there must be an order of
prohibition under either the Customs Act, 1962 or any other statute. Further, such
prohibition would relate to the nature of the goods prohibited and would not cover the
manner of its import/smuggling into the country.
(ii) A distinction needs to be made between the ‘illegal import’ defined under section 11A(a)
of the Customs Act, 1962 and the definition of ‘prohibited goods’ under section 2(33)
thereof.

(iii) Sections 104 and 135 suggest that prohibited goods referred under the Customs Act,
1962 relates to only those goods which are specifically prohibited from being brought
into the country by the said Act/any other law.
The primary contentions of the Revenue were:
(i) When the import of any goods is permitted by the Customs Act, 1962/any other law in
any particular manner and form, any other mode/method adopted to bring such goods
into the country would tantamount to conduct infringing the prohibition of import of the
goods in accordance with law. Thus, an act of import in contravention of the statutory
process recognised therefor must be regarded as conduct in derogation of the
prohibition imposed by law.
(ii) It referred the judgement of Supreme Court in case of Om Prakash Bhatia v. CCus.
2003 (155) E.L.T. 423 (S.C.). In the said case, the Apex Court, considering the
meaning of the expression ‘contrary to any prohibition imposed by/under this Act/any
other law for the time being in force’ appearing with reference to confiscation of
improperly exported goods and the expression ‘subject to any prohibition under this Act
or any other law’ in the definition of ‘prohibited goods’ in section 2(33) of the Act,
concluded that if the conditions prescribed for import/export of goods were not complied
with, it would be considered to be prohibited goods.
It further referred the judgment of CCus. (Preventive) v. M. Ambalal and Co. 2010
(260) E.L.T. 487 (S.C.) wherein the Apex Court held that smuggled goods could not
be regarded as imported goods.
Considering the contentions of both the parties, the High Court observed that there is a
distinction between section 111 and section 112. The former provides for confiscation of
improperly imported goods and the latter prescribes the penalty for improper importation of
goods.
The judgments relied upon by the Revenue revealed a liberal construction of a provision in
favour of the Revenue to deal with the mischief for which the statute and the provision have
been enacted.
However, such construction may not apply to a penalty because the fundamental rule for
construing a penal provision is otherwise. In other words, it is possible for a provision
providing for confiscation of goods to be liberally interpreted, but when a provision provides
for punishment, it has to be strictly construed.
Thus, while the corresponding provision in section 111 permits the confiscation of the goods
on a broader construction of the relevant expression with reference to the definition of
‘prohibited goods’; the similar provision in section 112 has to be strictly construed and
confined to goods which are expressly prohibited from being imported into the country.
In the light of the aforesaid discussion, the High Court inferred that expression ‘goods in
respect of which any prohibition is in force’ in the context of section 112 implies goods which

are prohibited from being imported and not goods which have been smuggled into the country
in contravention of the procedure established by law for the import thereof.
Consequently, the order imposing penalty on the petitioner was set aside and the matter was
remanded for such limited purpose for the imposition of other permissible penalty.
19. Section 28BA of the Customs Act, 1962 provides that provisional attachment of property
can be resorted to by the Proper Officer during the pendency of the following
proceedings:
(i) Under section 28, in respect of cases not involving suppression, collusion, wilful
misstatement, etc. as well as in cases involving suppression, collusion, wilful
misstatement, etc.
(ii) Under section 28AAA, in relation to fraudulent utilization of duty relatable to
instruments issued under Foreign Trade (Development and Regulation) Act. 1992.
(iii) Under section 28B, in relation to duties collected from buyers but not deposited with
the Central Government.
Such an attachment shall be done only when the Proper Officer is of the opinion that the
attachment is necessary for the purpose of protecting the interests of revenue. However,
a previous approval of the Principal Commissioner/Commissioner of Customs, by order in
writing, is a prerequisite for such provisional attachment.
Such an attachment can be done for a period of 6 months. This period will commence
from the date of the order of the Principal Commissioner/Commissioner of Customs
permitting such provisional attachment.
However, this period may be extended by the Principal Chief Commissioner/Chief
Commissioner of Customs by such further period or periods as he thinks fit. The reasons
for such an extension shall be recorded in writing. It is to be noted that the total period of
extension in any case shall not exceed 2 years.
If an application for settlement of a case under section 127B is made to the Settlement
Commission, the period commencing from the date on which such an application is made
and ending with the date on which an order under section 127C(1) is made shall be
excluded from the extended period mentioned above.
Conclusion: Since as per section 28BA, provisional attachment of the property can be
resorted to during the pendency of the proceeding under section 28, which includes
cases involving non-fraud reasons too, claim of Mr. X is not right.
20. Status Holders are business leaders who have excelled in international trade and have
successfully contributed to country’s foreign trade. All exporters of goods, services and
technology having an import-export code (IEC) number shall be eligible for recognition as
a status holder. Status recognition depends upon export performance.

In order to be categorized as One Star Export House, an exporter needs to achieve the
export performance of 3 million US $ million [FOB/ FOR (as converted)] during current
and previous three financial years. Thus, export performance of Blue Heaven Pvt. Ltd.
and Clean Planet Pvt. Ltd. would have been at least 3 million US $ million [FOB/ FOR (as
converted)] during current and previous three financial years.
Further, Two Star Export Houses and above are permitted to establish export
warehouses. Therefore, Blue Heaven Pvt. Ltd. and Clean Planet Pvt. Ltd. can establish
export warehouses in India only if they achieve the status of Two Star Export House and
above. In order to achieve said status, export performance of the exporters during
current and previous three financial years should be as indicated below:
Export Performance [FOB/FOR (as
Status Category
converted) value in US $ million]
Two Star Export House 25
Three Star Export House 100
Four Star Export House 500
Five Star Export House 2,000

Applicability of Legislative Amendments/Circulars etc.
for May, 2017 – Final Examination
Paper 7 : Direct Tax Laws & Paper 8 : Indirect Tax Laws

Applicability of Finance Act, Assessment Year etc. for May, 2017 Examination
The provisions of direct tax laws and indirect tax laws, as amended by the Finance Act,
2016, including notifications and circulars issued up to 31 st October, 2016, are applicable
for May, 2017 examination. The relevant assessment year for Paper 7: Direct Tax Laws is
A.Y.2017-18.

ANNEXURE

A-46 FINAL EXAMINATION: MAY, 2017
Part I : Statutory Update – Indirect Tax Laws

Significant Notifications and Circulars
Indirect tax laws as amended by the Finance Act, 2016 including significant notifications/circulars
issued up to 31st October, 2016 are applicable for May, 2017 examinations. The November, 2016
reprint of the November, 2015 Edition of the Study Material contains all the relevant amendments
made by the Finance Act, 2015 and significant notifications/circulars issued up to 30.04.2015. The
Supplementary Study Paper, 2016 contains the amendments made by the Finance Act, 2016 and
significant notifications/circulars issued from 01.05.2015 to 30.04.2016. In case of service tax and
CENVAT credit, notifications/circulars issued till 01.06.2016 have been included in the
Supplementary Study Paper, 2016. The remaining notifications/circulars i.e., the ones issued from
02.06.2016 to 31.10.2016 for service tax and CENVAT credit and from 01.05.2016 to 31.10.2016
for others are given below.
The amendments are given chapter-wise to facilitate co-relation with the Study Material. The
chapter reference given in the Statutory Update corresponds to the parallel chapter number of
the Study Material.
SECTION A: CENTRAL EXCISE
For the sake of brevity, Central Excise Rules, 2002 and CENVAT Credit Rules, 2004 have
been referred to as CER and CCR respectively.
CHAPTER 4: CENVAT CREDIT
1. Following amendments have been made in the CCR:

(a) Definition of manufacturer or producer amended [Rule 2(naa)]
The definition of manufacturer or producer under clause (naa) of rule 2 has been
amended vide Notification No. 36/2016 CE (NT) dated 26.07.2016. As per the
amended definition, “manufacturer or producer
(i) in relation to articles of jewellery or parts of articles of jewellery or both, falling
under heading 7113 of the First Schedule to the Excise Tariff Act, includes a
person who is liable to pay duty of excise leviable on such goods under sub-rule
(1) of rule 9 of the Articles of Jewellery (Collection of Duty) Rules, 2016;
(ia) in relation to articles of precious metals falling under heading 7114 of the First
Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of
excise leviable on such goods under sub-rule (1) of rule 12AA of the Central
Excise Rules, 2002;
(ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the
Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on
such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, 2002.”
[Effective from 26.07.2016]

ANNEXURE TO RTP – PAPER 8: INDIRECT TAX LAWS A-47
(b) Jewellery manufacturer with turnover upto ` 15 crore in preceding year

eligible to avail 100% CENVAT credit on capital goods in the year of purchase
[Rule 4(2)(a)]
As per explanation to rule 4(2)(a) read with third proviso to the said rule, an
assesse, whose aggregate value of clearances of all excisable goods for home
consumption in the preceding financial year does not exceed ` 4 crore (computed in
accordance with SSI notification), can take 100% CENVAT credit on capital goods
in the financial year when the same are received by him.
With effect from 01.03.2016, explanation to rule 4(2)(a) had been amended to
provide that a manufacturer of articles of jewellery [excluding silver jewellery, other
than studded with diamonds/ ruby/ emerald/ sapphire] will be allowed to take 100%
CENVAT credit on capital goods in the year of purchase, if his aggregate value of
clearances of all excisable goods for home consumption in the preceding financial
year, did not exceed ` 12 crore [Refer amendment 1(x) at page no 226 in
Chapter 4 : CENVAT Credit of the Supplementary Study Paper – 2016].
However, the eligibility limit for threshold exemption for jewellery manufacturers has
been raised from ` 12 crore to ` 15 crore [Refer amendment no. (1) in
Chapter 13: Exemption Based on Value of Clearances given in this Statutory
Update]. Consequently, with effect from 26.07.2016, the said explanation has been
amended again vide Notification No. 36/2016 CE (NT) dated 26.07.2016 to
provide that a manufacturer of articles of jewellery or parts of articles of jewellery or
both, falling under heading 7113 of the First Schedule of the Central Excise Tariff
Act, will be allowed to take 100% CENVAT credit on capital goods in the year of
purchase, if his aggregate value of clearances of all excisable goods for home
consumption in the preceding financial year, did not exceed ` 15 crore.
(c) Requirement of enclosing photocopies of the railway receipts with STTG for
availing CENVAT credit dispensed with [Rule 9(1)(fa)]
Notification No. 45/2016 CE (NT) dated 20.09.2016 has amended rule 9(1)(fa) to
do away with the requirement of enclosing photocopies of the railway receipts with
Service Tax Certificate for Transportation of Goods by Rail (STTG), as a document
for availing CENVAT credit. As per the amended rule 9(1)(fa), Service Tax
Certificate for Transportation of Goods by Rail issued by the Indian Railways will be
an eligible document for availing CENVAT credit.
Circular 1048/36/2016 CX dated 20.09.2016 prescribes the following procedure for
availing CENVAT credit on goods transportation by rail:
• STTG Certificate (as per prescribed format) will be issued by the railways to
rail customer (consignor/consignee, whosoever makes the payment of service
tax). The certificate will capture various details such as name of customer, no.

of RRs issued, total service tax/cess paid, Service Tax Code, registration no.
details of RRs (as certified by railway authority) issued etc.
• Where service tax is paid by the consignor and he intends to avail the
CENVAT credit, CENVAT credit can be availed by him on the strength of the
STTG certificate issued in his name.
• However, if the service tax is paid by the consignor but CENVAT credit is to be
availed by the consignee as per CCR, the consignor will have to make a
written request to railways for issue of consignee wise STTG certificate. The
consignor will transfer such consignee-wise STTG certificate in original to
consignee concerned. The consignee will avail CENVAT credit on the basis of
such certificate.
(d) Ethanol produced from molasses generated from cane crushed in the sugar
season 2015-16 deleted from the list of excisable goods removed without
payment of duty, which are excluded from the purview of reversal provisions
under rule 6 [Rule 6(6)]
The Central Government had exempted excise duty payable on ethanol produced
from molasses generated from cane crushed in the sugar season 2015-16 i.e. 1st
October, 2015 onwards, for supply to the public sector oil marketing companies,
namely, Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. or Bharat
Petroleum Corporation Ltd., for the purposes of blending with petrol.
Further, such ethanol, removed without payment of duty, had also been excluded
from the purview of reversal provisions under rule 6. For this purpose, Notification
No. 21/2015 CE (NT) dated 07.10.2015 had inserted clause (ix) in sub-rule (6) of
rule 6 to provide that the provisions of sub-rules (1), (2), (3) and (4) of rule 6 would
not apply to ethanol produced from molasses generated from cane crushed in the
sugar season 2015-16 i.e. 1st October, 2015 onwards, for supply to the public
sector oil marketing companies, namely, Indian Oil Corporation Ltd., Hindustan
Petroleum Corporation Ltd. or Bharat Petroleum Corporation Ltd., for the purposes
of blending with petrol. This amendment became effective from 01.10.2015 [Refer
amendment 1(xv) at page no. 251 in Chapter 4: CENVAT Credit of the
Supplementary Study Paper – 2016].
Now since the exemption to ethanol has been withdrawn from 10.08.2016, clause
(ix) of sub-rule (6) of rule 6 has been omitted vide Notification No. 41/2016 CE
(NT) dated 10.08.2016.
2. Clearance of segregated foreign material from honey grade brass scrap before
feeding the same in the furnace cannot be treated as clearance of “inputs as such”
[Rule 3(5)]
Rule 3(5) of CCR lays down that where when inputs or capital goods, on which CENVAT
credit has been taken, are removed as such from the factory, or premises of the provider

of output service, the manufacturer of the final products or provider of output service, as
the case may be, shall pay an amount equal to the credit availed in respect of such
inputs or capital goods.
In case of manufacture of brass products, foreign materials (impurities like iron, steel,
rubber, plastic, dust etc.) are segregated from imported honey grade brass scrap before
feeding brass scrap in the furnace. An issue arose that if the brass manufacturers clear
such segregated foreign material, can it be treated as clearance of “inputs as such” and
accordingly are the manufacturers required to pay an amount equal to the credit availed
in respect of such inputs in terms of rule 3(5) of CCR.
Circular No. 1029/17/2016 CX dated 10.05.2016 has clarified that segregation from
honey grade brass scrap in order to weed out other foreign materials before the process
of melting in the furnace is an essential process relating to manufacture of brass articles.
The foreign materials, emerging during the process of segregation have to be treated as
process waste and cannot be treated like removal of inputs as such. The segregated
foreign material has an altogether different character and use vis-a-vis brass scrap.
Value per unit and classification of the segregated foreign material is also different from
that of imported brass scrap.
Accordingly, clearance of segregated foreign material such as iron, steel, rubber, plastic,
dust etc. from honey grade brass scrap before feeding the same in the furnace cannot be
treated as clearance of “inputs as such” as envisaged under rule 3(5) of CCR. The
segregated foreign material in such situation, as has been explained above, shall be
cleared on payment of central excise duty on transaction value as per its appropriate
classification and rate of duty determined on merits.

CHAPTER-5: GENERAL PROCEDURES UNDER CENTRAL EXCISE
1. Assessee conducting business both as an importer and a first stage dealer

permitted to take one common registration [Rule 9(2) of CER]
A first stage dealer and an importer who issues an invoice on which CENVAT credit can
be taken are required to register under central excise law.
Rule 9(2) of CER empowers the CBEC to notify person or class of persons who may not
require registration subject to such conditions or limitations as may be specified by it.
In pursuance of such powers, CBEC, vide Notification No. 30/2016 CE (NT) dated
28.06.2016, has specified that
(a) a person who is registered as a first stage dealer shall not be required to take
registration as an importer; or
(b) a person who is registered as an importer shall not be required to take registration
as a first stage delaer.
CBEC has issued Circular No. 1032/20/2016 CX dated 28.06.2016 to clarify that an
assessee conducting business both as a first stage dealer and an importer can take
single registration as he is exempted from the requirement of taking a second
registration. However, this facility is optional and any assessee needing separate
registration for his own business purposes, may so register.
Further, such an assessee will also have an option to file a single quarterly return
giving details of transactions as a first stage dealer and an importer, one after the other
in the same table of return.
2. Manufacturers of readymade garments and made up articles of textiles sold under
a brand name with RSP of ` 1000 or more exempt from physical verification of
premises during registration - Notification No. 35/2001 CE (NT) dated 26.06.2001
Notification No. 35/2001 CE (NT) dated 26.06.2001, which lays down the conditions and
procedures for registration, provides that on receipt of an online application for
registration, the authorized officer will verify the premises physically within seven days of
such receipt.
Notification No. 32/2016 CE (NT) dated 11.07.2016 has amended Notification No.
35/2001 CE (NT) dated 26.06.2001 to exempt every manufacturing factory or premises
engaged in the manufacture or production of goods falling under Chapters 61, 62 or 63
(except laminated jute bags falling under headings or tariff item 6305, 63090000 or 6310)
of the First Schedule to the Central Excise Tariff Act, 1985 bearing a brand name or sold
under a brand name and having a retail sale price (RSP) of ` 1,000 and above.
Accordingly, there will be no post registration physical verification of the premises in case
of manufacturers of readymade garments and made up articles of textiles sold under a
brand name with RSP of ` 1000 or more.

Jewellery manufacturers (excluding manufacturer of articles of silver jewellery not

studded with diamond/ ruby/ emerald/ sapphire) are also exempted from post registration
physical verification of the premises [Refer amendment 3(ii) at page no. 261 in
Chapter 5: General Procedures Under Central Excise of the Supplementary Study
Paper-2016].
3. General bond for receiving goods at concessional rate of duty may be executed
with security also [Rule 4(5) of Central Excise (Removal of Goods at Concessional
Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016]
As per rule 4(5) of the Central Excise (Removal of Goods at Concessional Rate of Duty
for Manufacture of Excisable and Other Goods) Rules, 2016, the applicant manufacturer
is required to execute a general bond with surety for receiving excisable goods at
concessional rate of duty.
Notification No. 46/2016 CE(NT) dated 26.09.2016 has added words “or security” after
the word “surety” in sub-rule (5) of rule 4. Therefore, in terms of amended rule 4(5), now
an applicant manufacturer can execute the general bond with surety or security.
4. Digitally signed invoices with manual signatures are valid invoices under central
excise and service tax
Notification No. 18/2015 CE (NT) dated 06.07.2015 was issued to specify conditions,
safeguards and procedures in relation to authentication of invoices by digital signatures.
However, many of the customers of a manufacturer or service provider, who receive
goods and services under cover of an invoice authenticated by a digital signature, do not
have the requisite information technology infrastructure to accept or receive such
invoices electronically. In such situations, they demand manually authenticated invoices
from manufacturers or service providers who otherwise issue digitally signed invoices.
CBEC has clarified vide Circular No. 1038/26/2016 CX dated 19.07.2016 that a
manufacturer or a service provider who opts to issue invoices authenticated by digital
signature may print a copy of such invoice and sign them manually and forward the same
to such customers who are unable to accept or receive the digitally signed invoices.
Such invoices in effect would be authenticated by two signatures, digital signature as well
as manual signature and would be considered to be in conformity with rule 11 of Central
Excise Rules, 2002 or rule 4A, 4B and 4C of the Service Tax Rules, 1994. Such invoices
would also be a valid document to avail CENVAT credit.
5. Amendments relating to excise duty on jewellery
(i) Jewellery manufacturer exempt from submitting factory plan for the purposes
of registration - Notification No. 35/2001 CE (NT) dated 26.06.2001
Notification No. 35/2001 CE (NT) dated 26.06.2001, which lays down the conditions
and procedures for registration, provides that the applicant should tender self-

attested copies of, inter alia, the plan of the factory premises at the time of
verification of the premises.
35/2001 CE (NT) dated 26.06.2001 to exempt a manufacturer/ principal
manufacturer of articles of jewellery or parts of articles of jewellery or both, falling
under Chapter heading 7113 of the First Schedule to the Central Excise Tariff Act,
1985 from submitting the plan of the factory premises.
(ii) Jewellery manufacturer having turnover up to ` 10 crore not required to file
the declaration under Notification No. 36/2001 CE (NT) dated 26.06.2001
Rule 9(2) of the CER empowers the CBEC to notify person or class of persons who
may not require registration subject to conditions or limitations as may be specified
by it. Accordingly, CBEC has issued Notification No. 36/2001 CE (NT) dated
26.06.2001 to exempt certain categories of persons/premises from operation of rule
9 i.e., from obtaining excise registration.
Notification No. 36/2001 CE (NT) dated 26.06.2001 exempts the persons who
manufacture excisable goods which are chargeable to nil rate of duty or remain fully
exempt from the excise duty, from obtaining registration subject to the manufacturer
making a declaration in the prescribed form while claiming exemption. However,
where the exemption on the said goods is granted, based on the value of clearances
made in a financial year (“full exemption limit”), no such declaration shall be filed, if
the aggregate value of the said goods cleared was less than the specified limit
during the preceding financial year. The ‘specified limit’ means full exemption limit
minus ` 60 lakh i.e., ` 90 lakh [` 150 lakh - ` 60 lakh].
36/2001 CE (NT) dated 26.06.2001 to provide that the ‘specified limit’ in respect of
goods falling under heading 7113 of the First Schedule to the Central Excise Tariff
Act, 1985 means full exemption limit i.e., ` 10 crore. Therefore, in effect no
declaration needs to be filed by such jewellery manufacturers.
(iii) Jewellery manufacturer exempted from filing of Annual Return - Notification
No. 17/2006 CE (NT) dated 01.08.2006
Rule 12(2)(a) of CER requires every assessee to submit an Annual Return for the
preceding financial year to which the return relates by 30th day of November of the
succeeding year. The Central Government, however, can notify assessee or class
of assessees who may not be required to submit such an Annual Return.
Accordingly, Notification No. 17/2006 CE (NT) dated 01.08.2006 exempts the
following from filing of Annual Return:

(i) assesses who pay less than ` 100 lakhs as excise duty during the financial
year to which the Annual Return relates;
(ii) Indian Ordnance Factories, Department of Defence Production and Ministry of
Defence.
The said notification has been amended vide Notification No. 39/2016 CE (NT)
dated 26.07.2016 to also exempt manufacturer/ principal manufacturer of articles of
jewellery or parts of articles of jewellery or both, falling under heading 7113 of the
First Schedule to the Central Excise Tariff Act, 1985, from filing of Annual Return.
(iv) Manufacturers of parts of articles of jewellery availing exemption under
Notification No. 12/2012 CE dated 17.03.2012 permitted to file quarterly returns
Assessees availing exemption, inter alia, in respect of goods falling under specified
serial nos. of Notification No. 12/2012 CE dated 17.03.2012 [Sl. No. 67, 128, 199(I)
and 200(I)] are permitted to file a quarterly return within 10 days after the close of
the quarter to which the return relates [Fourth proviso to rule 12(1) of the CER].
Notification No. 35/2016 CE (NT) dated 26.07.2016 has amended the said proviso
so as to also permit an assessee availing exemption in respect of parts of articles of
jewellery [falling under Sl. No. 199(II) of Notification No. 12/2012] to file a quarterly
return.
(v) Applicability of rule 12AA of CER restricted to only articles of precious metals
falling under heading 7114 of the Central Excise Tariff
Hitherto, rule 12AA of the CER prescribed the provisions relating to job work in case
of articles of jewellery or other articles of precious metals. The rule casted the
liability of payment of duty on the principal manufacturer when articles of jewellery
or other articles of precious metals falling under heading 7113 or 7114 as the case
may be of the First Schedule to the Central Excise Tariff Act, 1985 were produced
or manufactured on his behalf by a job worker.
In view of specific provisions being introduced for collection of excise duty on
articles of jewellery or parts of articles of jewellery or both falling under heading
7113 of the Central Excise Tariff Act from 26.07.2016, rule 12AA has been
amended by Notification No. 35/2016 CE (NT) dated 26.07.2016 to restrict its
applicability to only articles of precious metals falling under heading 7114 of the
Tariff. Accordingly, the definition of job worker provided in the Explanation 1 to said
rule has also been amended.
(vi) In view of specific provisions being introduced for collection of excise duty on
articles of jewellery from 26.07.2016, amendment made in explanation 1 to rule 8 of
Central Excise Rules, 2002 vide Notification No. 8/2016 CE (NT) dated 01.03.2016

to provide for quarterly payment of duty for jewellery manufacturers has been
reversed vide Notification No. 35/2016 CE (NT) dated 26.07.2016 [Refer
amendment 1(ii) at page no. 258 in Chapter 5: General Procedures Under Central
Excise of the Supplementary Study Paper – 2016].

CHAPTER 6: EXPORT PROCEDURES
1. Infrastructure cess to be considered as ‘duty’ for the purposes of notifications

issued under rule 18 and rule 19 of the CER
With effect from 01.03.2016, an infrastructure cess is being levied and collected as a
duty of excise on motor vehicles falling under heading 8703. The rate ranges from 1% to
4% depending on specific characteristics of vehicles.
Notification Nos. 19/2004 CE (NT) and 21/2004 CE (NT) both dated 06.09.2004 issued
under rule 18 of the CER provide for the procedure and conditions for grant of rebate of
duty paid on export of excisable goods and rebate of duty paid on excisable goods used
in manufacture of export goods, respectively.
Similarly, Notification Nos. 42/2001 CE (NT) and 43/2001 CE (NT) both dated 26.06.2001
issued under rule 19 of the CER provide for the procedure and conditions for exporting
excisable goods under bond (without payment of duty) and procurement of excisable
goods without payment of duty for use in manufacture of export goods, respectively.
Notification No. 26/2016 CE (NT) dated 05.05.2016 has amended all the above
notifications to the effect that now the term ‘duty’ in all the above notifications would
include infrastructure cess also thereby allowing rebate/non-payment of infrastructure
cess in case of exports.

CHAPTER 8: DEMAND, ADJUDICATION AND OFFENCES
1. Circular No. 967/01/2013 CX dated 01.01.2013 on recovery of confirmed demands of

indirect taxes during the pendency of stay application rescinded
CBEC in an attempt to provide relief to taxpayers from recovery of confirmed demands
during pendency of stay, has rescinded Circular No.967/1/2013 CX dated 01.01.2013
vide Circular No. 1035/23/2016 CX dated 04.07.2016.
The new Circular provides that in cases where stay application is pending before
Commissioner (Appeals)/CESTAT, no recovery shall be made during the pendency of the
stay application for period prior to 06.08.2014 and for period on/after 06.08.2014,
Circular No. 984/08/2014 CX dated 16.09.2014 shall continue to be followed.
Further, in cases where demand is confirmed by CESTAT/High Court, recovery
proceeding may be initiated after a period of 60 days from date of order of CESTAT/High
Court, as the case may be, where no stay has been granted by High Court/Supreme
Court against the order of CESTAT/High Court, respectively.
2. Monetary limits for adjudication of show cause notice under central excise and
service tax revised
Adjudication of confiscation and penalty by the Central Excise Officers is provided in
section 33 of the Central Excise Act, 1944. Central Excise Officers have the power under
section 11A to adjudicate show cause notices demanding duty short paid or not paid and
erroneously refunded. Similar powers exist in service tax under section 73 and section
83A of the Finance Act, 1994.
Circular No. 1049/37/2016 CX dated 29.09.2016 has issued new instructions with
regard to monetary limits for adjudication of show cause notice under central excise and
service tax. It has been directed that henceforth powers of adjudication in both central
excise and service tax shall be exercised, based on the monetary limit of the duty/ tax/
credit involved in a case, as under:-
Sl. Central Excise Officer Monetary limits of duty/ tax/credit
No. demand for central excise and service
tax
1. Superintendent Not exceeding ` 10 lakh
2. Deputy/ Assistant Commissioner Above ` 10 lakh but not exceeding ` 50
lakh
3. Additional/ Joint Commissioner Above ` 50 lakhs but not exceeding ` 2
Crores
4. Commissioner Without limit i.e., cases exceeding ` 2
Crores
However, cases involving taxability, classification, valuation and extended period of
limitation will be kept out of the purview of adjudication by Superintendents. Such cases,

upto ` 10 lakh, will also be adjudicated by the Deputy Commissioner/ Assistant

Commissioner in addition to the cases exceeding ` 10 lakhs but not exceeding ` 50
lakhs.
For special category cases, following monetary limits have been prescribed:
(i) Cases of refund (including rebate) will be adjudicated by the Deputy Commissioner/
Assistant Commissioner without any monetary limit.
(ii) Cases relating to issues as specified in clause (a) [loss of goods in transit or in
processing] and (d) [Utilisation of credit of excise duty under the provisions of the
Act or rules – not made effective as yet] under the first proviso to section 35B(1) of
the Central Excise Act, 1994 will be adjudicated in the following manner:-
SI. Central Excise Officer Monetary limits for central excise
No.
1. Additional/Joint Commissioner Exceeding ` 50 lakh.
2. Deputy/Assistant Commissioner Above ` 10 lakh but not exceeding
` 50 lakh
3. Superintendent Not exceeding ` 10 lakh
(iii) In case different show cause notices have been issued on the same issue
answerable to different adjudicating authorities, show cause notices involving the
same issue shall be adjudicated by the adjudicating authority competent to decide
the case involving the highest amount of duty.

CHAPTER 13: EXEMPTION BASED ON VALUE OF CLEARANCES
1. Threshold exemption (SSI exemption) raised from ` 6 crore to ` 10 crore for

jewellery manufacturers with simultaneous increase in eligibility limit from ` 12
crore to ` 15 crore
With effect from 01.03.2016, SSI exemption for articles of jewellery [excluding silver
jewellery not studded with diamonds/ruby/emerald/sapphire had been fixed at ` 6 crore
in a year with an eligibility limit of ` 12 crore in the preceding year.
The SSI exemption for the month of March, 2016 for jewellery manufacturers was fixed at
` 50 lakh, subject to the condition that value of clearances for home consumption by a
manufacturer from one or more factory/premises of production or manufacture, or from a
factory/premises of production or manufacture by one or more manufacturers during the
financial year 2014-15 should not be more than ` 12 crore.
With effect from 26.07.2016, SSI exemption for articles of jewellery or parts of articles of
jewellery or both [excluding silver jewellery not studded with diamonds/ ruby/ emerald/
sapphire] has been fixed at ` 10 crore in a year with an eligibility limit of ` 15 crore in the
preceding year.
The SSI exemption for the month of March, 2016 for such jewellery manufacturers has
been fixed at ` 85 lakh, subject to the condition that value of clearances for home
consumption by a manufacturer from one or more factory/premises of production or
manufacture, or from a factory/premises of production or manufacture by one or more
manufacturers during the financial year 2014-15 should not be more than ` 15 crore.
Notification No. 8/2003 CE dated 01.03.2003 has been amended vide Notification No.
28/2016 CE dated 26.07.2016 to carry out the above amendment.

SECTION B: SERVICE TAX
CHAPTER 1: BASIC CONCEPTS OF SERVICE TAX
1. Determination of service tax liability in a case involving hiring, leasing or licensing

of goods
In terms of Article 366(29A)(d) of the Constitution of India, transfer of the right to use any
goods for any purpose (whether or not for a specified period) for cash, deferred payment
or other valuable consideration is deemed to be a sale of those goods by the person
making the transfer, delivery or supply and is liable to Sales Tax/ Value Added Tax.
Further, in terms of section 66E(f) of the Finance Act, 1994, transfer of goods by way of
hiring, leasing, licensing or in any such manner without transfer of right to use such
goods is a "declared service" and hence liable to service tax.
CBEC has clarified that to determine the service tax liability in any given case involving
hiring, leasing or licensing of goods, it is essential to determine whether, in terms of the
contract, there is a transfer of the right to use the goods.
For ascertaining whether there is transfer of the right to use the goods, the following
criteria has been laid down by the Supreme Court in the case of Bharat Sanchar Nigam
Limited v Union of India 2006 (2) STR 161 (SC):
(a) There must be goods available for delivery;
(b) There must be a consensus ad idem as to the identity of the goods;
(c) The transferee should have a legal right to use the goods - consequently all legal
consequences of such use, including any permissions or licenses required therefor
should be available to the transferee;
(d) For the period during which the transferee has such legal right, it has to be to the
exclusion to the transferor this is the necessary concomitant of the plain language of
the statute - viz. a "transfer of the right" to use and not merely a licence to use the
goods;
(e) Having transferred the right to use the goods during the period for which it is to be
transferred, the owner cannot again transfer the same right to others.
The Circular further clarified that to determine the service tax liability in each case, the
terms of the contract must be studied carefully vis-a-vis the above criteria laid down by
the Supreme Court.
In other words, no a priori generalisations or assumptions about service tax liability
should be made and the terms of the contract should be examined carefully, against the
backdrop of the criteria laid down by the Supreme Court in the Bharat Sanchar Nigam
Limited case as well as other judicial pronouncements
[Circular No. 198/08/2016 ST dated 17.08.2016]

CHAPTER 2: PLACE OF PROVISION OF SERVICE
1. Determination of service tax on freight forwarders in case of transportation of

goods from India
CBEC vide Circular No. 197/07/2016 ST dated 12.08.2016 has clarified as to what
would be the place of provision of service for the services provided by the freight
forwarders, dealing with the exporter, each (i) in the capacity of the agent of an air
line/carrier/ocean liner and (ii) in the capacity of the principal, who is providing the
service of transportation of goods outside India.
S. Case Place of Provision of service
No.
I. When the freight forwarder acts In such cases, the freight forwarder may
as an agent of an airline /carrier/ be considered to be an intermediary under
ocean liner, the service of rule 2(f) read with rule 9 of Place of
transportation of goods outside Provision of Services Rules, 2012 (PoPS)
India is provided by the airline/ since he is merely facilitating the provision
carrier/ ocean-liner and the of the service of transportation, but not
freight forwarder is merely an providing it on his own account.
agent with no responsibility for
the actual transportation.
He merely charges the rate
prescribed by the airline/ carrier/
ocean liner and cannot vary it
unless authorized by them.
II Freight forwarders may also act In such cases where the freight forwarder
as a principal who is providing is undertaking entire legal responsibility
the service of transportation of for the transportation of the goods and
goods and destination of the undertakes all the attendant risks, he is
goods is outside India. providing the service of transportation of
In such cases, the freight goods, from a place in India to a place
forwarders negotiate the terms of outside India.
freight with the airline/ carrier/ Thus, he is not covered under the
ocean liner as well as the actual category of intermediary as the definition
rate with the exporter. of intermediary excludes a person who
The invoice is raised by the provides a service on his account.
freight forwarder on the exporter. Instead, the place of provision of service
He is bearing all the risks and in terms of rule 10 of PoPS is the
liability for transportation. destination of the goods. Consequently, a
freight forwarder, when acting as a
principal, will not be liable to pay service
tax when the destination of the goods is
from a place in India to a place outside
India.

In terms of rule 10 of the PoPS, the place of provision of the service of transportation of
goods by air/sea, other than by mail or courier, is the destination of the goods. Thus, the
place of provision of the service of transportation of goods by air/sea from a place in
India to a place outside India, will be a place outside the taxable territory and hence will
not be liable to service tax.
However, as per rule 9 of the PoPS, the place of provision of intermediary services is the
location of the service provider. Definition of ‘intermediary’ under rule 2(f) of PoPS, inter
alia, provides that intermediary means one who arranges or facilitates the provision of a
service or a supply of goods between two or more persons, but does not include a
person who provides the main service or supplies the goods on his own account.

CHAPTER 5: EXEMPTIONS AND ABATEMENTS
1. Services provided by a senior advocate to a business entity with a turnover up to

` 10 lakh in the preceding financial year exempted
With effect from 01.04.2016, Notification No. 25/2012 ST dated 20.06.2012 had been
amended to inter alia withdraw the exemptions available in respect of the legal services
provided by a senior advocate to-:
(i) an advocate or partnership firm of advocates providing legal services
(ii) a business entity with a turnover up to ` 10 lakh in the preceding financial year
However, services provided by a “senior advocate by way of legal services to a person
other than a person ordinarily carrying out any activity relating to industry, commerce or
any other business or profession” continued to remain exempted [Refer amendment
I.(B)(i) at page no 320 in Chapter 5: Exemptions and Abatements of the Supplementary
Study Paper-2016].
With effect from 06.06.2016, Notification No. 32/2016 ST dated 06.06.2016 has
amended Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 to exempt
services provided by a senior advocate by way of legal services to a business entity with
a turnover up to ` 10 lakh in the preceding financial year. Further, the exemption
available to services provided by senior advocates to person other than persons
ordinarily carrying out any activity relating to industry, commerce or any other business or
profession has been reworded. As per the reworded exemption, “services provided by a
senior advocate by way of legal services to any person other than a business entity” has
been exempted.
Therefore, with effect from 06.06.2016, the taxability of legal services provided by a
senior advocate and other advocates is explained as under:
Service Senior Other advocates /
Advocate Partnership firm
of advocates
Legal service provided to an advocate or Not exempt Exempt
partnership firm of advocates providing legal
services with turnover exceeding ` 10 lakh in
the preceding financial year
Legal service provided to an advocate or Exempt Exempt
partnership firm of advocates providing legal
services with turnover upto ` 10 lakh in the
preceding financial year
Legal service provided to a business entity Exempt Exempt
with a turnover up to ` 10 lakh in the preceding
financial year

Legal service provided to any person other Exempt Exempt

than a business entity
2. Services billed and provided prior to 01st June, 2016 exempted from Krishi Kalyan
Cess (KKC)
Taxable services, the invoice for which have been issued on or before the 31st May,
2016 have been exempted from the whole of Krishi Kalyan Cess vide Notification No.
35/2016 ST dated 23.06.2016 if the provision of service has been completed on or
before the 31st May, 2016.
3. Services of transportation of goods by a vessel from outside India upto customs
station in India which have been billed prior to 01st June, 2016 exempted from
service tax on fulfilment of specified conditions
Taxable services by way of transportation of goods by a vessel from outside India upto
the customs station in India for which the invoice has been issued on or before
31.05.2016 have been exempted from service tax on fulfilment of the following
conditions:
(i) the import manifest or import report required to be delivered under section 30 of the
Customs Act, 1962 has been delivered on or before 31.05.2016; and
(ii) the service provider or recipient produces customs certified copy of such import
manifest or import report [Notification No. 36/2016 ST dated 23.06.2016].
4. 90% abatement granted to transport of passengers by air embarking from or
terminating in Regional Connectivity Scheme (RCS) Airport for a period of 1 year
Notification No. 38/2016 ST dated 30.08.2016 has amended Notification No. 26/2012
ST dated 20.06.2012 to grant abatement of 90% on service of transport of passengers,
with or without accompanied belongings, by air, embarking from or terminating in a RCS
Airport. The abatement would be available if the CENVAT credit on inputs, capital
goods and input services, used for providing the said taxable service has not been taken
by the service provider under the provisions of the CENVAT Credit Rules, 2004.
Further, the abatement will be valid only for a period of 1 year from the date of
commencement of operations of the RCS Airport as notified by the Ministry of Civil
Aviation.
5. Exemption to services provided by Government/local authority by way of allowing
a business entity to operate as a telecom service provider/ use radio frequency
spectrum during the financial year 2015-16 extended to such services provided any
time prior to 1st April, 2016

With effect from 13.04.2016, services provided by Government or a local authority by

way of allowing a business entity to operate as a telecom service provider or use radio
frequency spectrum during the financial year 2015-16 on payment of licence fee or
spectrum user charges have been exempted from service tax vide Notification No.
25/2012 ST dated 20.06.2012 [Refer amendment I.(A)(xi)(9) at page no 318 in
Chapter 5: Exemptions and Abatements of the Supplementary Study Paper-2016].
Notification No. 39/2016 ST dated 02.09.2016 has amended Notification No. 25/2012
ST dated 20.06.2012 to extend the exemption to such services provided during the
period prior to 1st April, 2016 as against the earlier provision of services provided
during the financial year 2015-16. Therefore, now all such services provided prior to 1st
April, 2016 would stand exempted and not only the ones provided during financial year
2015-16.
6. Exemption to renting of precincts of a religious place meant for general public
restricted only for specified religious places
Earlier, services by a person by way of renting of precincts of a religious place meant for
general public were exempt from service tax vide Mega Exemption Notification No.
25/2012 ST dated 20.06.2012.
Notification No. 40/2016 ST dated 06.09.2016 has amended Mega Exemption
Notification No. 25/2012 ST dated 20.06.2012 to restrict the exemption to renting of
precincts of such religious place meant for general public which is owned or managed by-
• an entity registered as a charitable or religious trust under section 12AA of the
Income-tax Act, 1961, or
• a trust or an institution registered under section 10(23C)(v) of the Income-tax Act,
1961, or
• a body or an authority covered under section 10(23BBA) of the Income-tax Act,
1961.
Further, CBEC vide Circular No. 200/10/2016 ST dated 06.09.2016 has clarified that the
word ‘precincts’ should not be interpreted restrictively. All immovable property of the
religious place located within the outer boundary walls of the complex (of buildings and
facilities) in which the religious place is located will be considered as being located in the
precincts of the religious place.
The immovable property located in the immediate vicinity and surrounding of the religious
place and owned by the religious place or under the same management as the religious
place, may be considered as being located in the precincts of the religious place and
would be eligible for the benefit of exemption under Notification No. 25/2012 ST dated
20.6.2012.

7. One time upfront amount payable on long term leases of industrial plots granted by
State Government Industrial Development Corporations/ Undertakings to industrial
units exempted from service tax
Taxable services provided by State Government Industrial Development Corporations/
Undertakings to industrial units by way of granting long term (30 years, or more) lease of
industrial plots have been exempted from so much of service tax leviable thereon as is
leviable on the one time upfront amount (called as premium, salami, cost, price,
development charges or by any other name) payable for such lease [Notification No.
41/2016 ST dated 22.09.2016]. However, subsequent payments, if any, will not enjoy
such an exemption and will be liable to service tax.
8. No service tax on services by way of advancement of yoga provided by entities
registered under section 12AA of the Income-tax Act, 1961 from 01.07.2012 to
20.10.2015
With effect from 21.10.2015, services relating to advancement of yoga provided by
charitable entities registered under section 12AA of the Income-tax Act, 1961 have been
exempted from service tax vide Notification No. 20/2015 ST dated 21.10.2015 [Refer
amendment I.(A)(viii) at page no 312-313 in Chapter 5: Exemptions and Abatements of
the Supplementary Study Paper-2016].
According to the practice generally prevalent during the period from 01.07.2012 to
20.10.2015 there was non-levy of service tax on such services. Thus, service tax was
not being paid on such services on account of the said practice even though such
services were liable to service tax.
Now the Central Government, in exercise of the power conferred by section 11C of the
Central Excise Act, 1944 read with section 83 of the Finance Act, 1994, has directed that
no service tax will be required to be paid on the services provided by way of
advancement of yoga by entities registered under section 12AA of Income-tax Act, 1961
for the period from 01.07.2012 to 20.10.2015 [Notification No. 42/2016 ST dated
26.09.2016].
9. Service of construction of tube wells for water supply provided to Government is
exempt under service tax
Issue: Whether contractors providing the service of construction of tube wells for the
Government are liable to pay service tax?
Clarification:
Considering Serial Nos. 12(e) and 25(a) of Mega Exemption Notification No. 25/2012 ST
dated 20.6.2012, it follows that among others, exemption is available to the following
services provided to the Government, a local authority or a Governmental authority, by
way of-

(a) construction, erection, commissioning, installation, completion, fitting out, repair,

maintenance, renovation or alteration of pipeline, conduit or plant for (i) water
supply (ii) water treatment, and
(b) water supply
The phrase ‘water supply’ is a general phrase. Principally, it will involve providing users,
access to a source of water. The source may be natural or artificial like tanks, wells, tube
wells etc.
Providing users access to such a source will involve construction of the source (if
artificial) and the transmission of water to the user. It will involve activities like drilling,
laying of pipes, valves, gauges etc., fitting of motors, testing etc., so as to eventually
result in the supply of water.
Similarly, the word ‘plant’ has to be understood and interpreted with reference to the
context. A plant for water supply need not necessarily involve a huge assembly of
machinery and apparatus.
Thus, exemption under Serial Nos. 12(e) and 25(a) of Mega Exemption Notification No.
25/2012 ST dated 20.6.2012 would cover a wide range of activities/services provided to a
government, a local authority or a governmental authority and will include the activity of
construction of tube wells.

CHAPTER 6 : SERVICE TAX PROCEDURES
1. (i) In case of legal services provided by senior advocates, service tax to be paid by
the recipient of service under reverse charge (ii) In case of representational service
provided by senior advocates including cases where the senior advocate is
engaged by another lawyer, service tax to be paid by the litigant
With effect from 01.04.2016, service tax had been made payable under forward charge in
case of legal services provided by senior advocates. For this purpose, necessary
amendments were made in rule 2(1)(d)(i)(D) of Service Tax Rules, 1994.
However, rule 2(1)(d)(i)(D) has now been amended again vide Notification No. 33/2016
ST dated 06.06.2016 to provide, inter alia, that in relation to service provided by an
individual advocate or a firm of advocates by way of legal services other than
representational services by senior advocates to any business entity located in the
taxable territory, the person liable to pay service tax is the recipient of such service.
Further, another item (DD) has been inserted after item (D) in rule 2(1)(d)(i) to provide
that “in relation to service provided or agreed to be provided by a senior advocate by way
of representational services before any court, tribunal or authority, directly or indirectly, to
any business entity located in the taxable territory, including where contract for provision
of such service has been entered through another advocate or a firm of advocates, and
the senior advocate is providing such services, the person liable to pay service tax is the
recipient of such services, which is the business entity who is litigant, applicant, or
petitioner, as the case may be".
To summarise,
(i) where legal services are provided by senior advocates to business entities, service
tax will be payable by the recipient of service.
(ii) where representational services are provided by the senior advocates to any
business entity, service tax will be payable by the recipient of service which is the
business entity who is litigant, applicant, or petitioner.
(iii) where the contract for representational services provided by the senior advocates to
any business entity has been entered through another advocate or a firm of
advocates, service tax will be payable by the recipient of service which is the
business entity who is litigant, applicant, or petitioner.
Further, reverse charge Notification No. 30/2012 ST dated 20.06.2012 has been
amended vide Notification No. 34/2016 ST dated 06.06.2016 to provide that 100% of
such service tax will be payable by the recipient of service i.e., there will be full reverse
charge on services provided by senior advocates. It has been clarified by inserting an
explanation in the notification that the business entity located in the taxable territory who
is litigant, applicant or petitioner, as the case may be, shall be treated as the person who
receives the legal services for the purpose of this notification.

2. Form ST 3 amended to include KKC etc.

Service tax return form ST 3 has been amended vide Notification No. 43/2016 ST dated
28.09.2016 to incorporate columns and entries relating to KKC, disclosure of reversal of
CENVAT credit under rule 6 of CENVAT Credit Rules, 2004 etc.
3. Monetary limits for adjudication of penalty under section 83A of the Finance Act,
1994 revised
Section 83A stipulates that where any person is liable to a penalty, such penalty may be
adjudged by the Central Excise Officer conferred with such power under a notification
issued by CBEC.
Notification No. 44/2016 ST dated 28.09.2016 has revised the monetary limits for
adjudication of penalty under section 83A. Revised limits are as under:
Sr. Central Excise Officer Amount of service tax or CENVAT credit
No. specified in a notice for the purpose of
adjudication under section 83A
(1) Superintendent of Central Up to ` 10,00,000 (excluding the cases
Excise relating to taxability of services or valuation
of services and cases involving extended
period of limitation)
(2) Assistant/Deputy Up to ` 50,00,000 (except cases where
Commissioner of Central Superintendents are empowered to
Excise adjudicate)
(3) Joint Commissioner/ Additional ` 50,00,000 to ` 2,00,00,000
Commissioner of Central
Excise
(4) Additional Commissioner of Without limit
Central Excise

1. Guidelines for arrest in relation to offences punishable under the Finance Act, 1994
and the Central Excise Act, 1944
By virtue of amendments made by the Finance Act 2016 in sections 89, 90 and 91 of the
Finance Act, 1994, with effect from 14.05.2016, the power of arrest in service tax is
available only if a person collects any amount as service tax but fails to pay the amount
so collected to the credit of the Central Government beyond the period of six months
from the date on which such payment becomes due and the amount exceeds ` 2 crore.
Accordingly, CBEC has revised the monetary limits for arrests and prosecution in central
excise to maintain uniformity of practice in central excise and service tax. It has been
specified that henceforth arrest and prosecution of a person in relation to offences
specified under clause (a) to (d) of sub-section (1) of section 9 of the Central Excise Act,
1944 may be considered only in cases where evasion of central excise duty or misuse of
CENVAT credit is equal to or more than ` 2 crore. Circular No. 974/08/2013 CX dated
17.09.2013 and 1009/16/2015 CX dated 23.10.2015 [Refer page no 348-349 in
Chapter 7: Demand, Adjudication and Offences of Supplementary Study Paper - 2016]
stand amended accordingly. Also, Circular No. 1010/17/2015 CX dated 23.10.2015
[Refer page no 349 in Chapter 7: Demand, Adjudication and Offences of Supplementary
Study Paper - 2016] has been rescinded in view of the revision of monetary limits
prescribed by this circular.
It has been reiterated that arrest and prosecution should not be resorted to in cases of
technical nature i.e. where the additional demand of duty/tax is based totally on a
difference of opinion regarding interpretation of law.
CBEC has re-emphasized that power to arrest should be exercised carefully since arrest
impinges on the personal liberty of an individual. The reason to believe that a person
has committed the specified offence which is rendering the person liable for arrest must
be based on credible material which will stand judicial scrutiny. The relevant factors
before deciding to arrest a person must be, apart from fulfillment of the legal
requirements, the need to ensure proper investigation and prevention of the possibility of
tampering with evidence or intimidating or influencing witnesses.

SECTION C: CUSTOMS AND FOREIGN TRADE POLICY
CHAPTER 3: LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY
1. Amendment in the Customs (Import of Goods at Concessional Rate of Duty for

Manufacture of Excisable Goods) Rules, 2016
Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable
Goods) Rules, 2016 have been amended vide Notification No. 100/2016 Cus (NT)
dated 14.07.2016 as under:
(i) Service providers also allowed to import goods at concessional rate of duty
Rule 2 has been amended so as to apply these rules mutatis mutandis to a service
provider also. Further, any reference to the expressions manufacture,
manufacturer, excise duty and factory in these rules shall be construed as service,
service provider, service tax and registered premises respectively of a service
provider referred to in Chapter V of the Finance Act, 1994 and the rules made there
under
(ii) Furnishing of security also permitted
Rule 5, inter alia, requires a manufacturer who intends to avail the benefit of an
exemption notification, to submit a continuity bond with such surety undertaking to
pay the amount equal to the difference between the duty leviable on such inputs but
for the exemption and that already paid, if any, at the time of importation, along with
applicable interest.
Said rule has been amended to allow the manufacturer to either submit a security or
a surety for the amount specified herein.
(iii) Time period for re-export of unutilized or defective imported goods extended
from 3 months to 6 months
Rule 7 allows the manufacturer who has availed the benefit of exemption notification
to re-export the unutilized or defective imported goods, with the permission of the
jurisdictional Deputy/Assistant Commissioner of Central Excise within 3 months
from the date of import, subject to specified conditions.
The said time period allowed for re-export has been extended from 3 months to 6
months.

CHAPTER 7: IMPORTATION, EXPORTATION AND TRANSPORTATION OF GOODS
1. Customs (Provisional Duty Assessment) Regulations, 2011 rescinded

The Finance Act, 2011 had introduced the self-assessment under the customs law.
Resultantly, the circumstances when the provisional assessment could be resorted also
underwent a change and revised Customs (Provisional Duty Assessment) Regulations,
2011 were issued.
When the importer/exporter is unable to make self-assessment, or where proper officer
deems it necessary that goods be subjected to any test, or further enquiry be made either
when importer/exporter had produced the necessary information or when such
information has not been so furnished, provisional assessment may be ordered. Further,
the regulations stipulated that in case of provisional assessment, the importer/exporter is
required to:
1. deposit about 20% of the duty provisionally assessed,
2. execute a bond, and
3. provide surety or security or both, as deemed fit by the Proper Officer.
CBEC reviewed the said regulations and rescinded Customs (Provisional Duty
Assessment) Regulations, 2011 vide Notification No. 113/2016 Cus (NT) dated
22.08.2016 since section 18 itself lays down the procedure to be followed in the case of
provisional assessment.
Further, for the sake of uniformity of practice, transparency and predictability for the
taxpayer, the CBEC has issued following revised and simplified guidelines for provisional
assessment vide Circular No. 38/2016 Cus dated 22.08.2016:
Wherever, duty is to be assessed provisionally, the importer shall:
(a) execute a bond in the prescribed form, for the purposes of undertaking to pay on
demand the deficiency, if any, between the duty as may be finally assessed and the
duty provisionally assessed; and
(b) furnish prescribed amount of security for the payment of the duty deficiency. No
sureties shall be obtained. The security to be obtained shall be in the form of a
bank guarantee or a cash deposit, as convenient to the importer.
Further, the requirement of depositing 20% deposit of the provisional duty has been
dispensed with.

CHAPTER 8: WAREHOUSING
1. CBEC notifies the class of goods to be deposited in the special warehouse

With effect from 14.05.2016, Finance Act, 2016 significantly liberalised the warehousing
provisions. The amendments essentially aim to do away with physical control (under lock
of customs) of warehouses and move to system of record based controls except for a
class of warehouses, which would remain under customs lock. Those warehouses,
which will remain under customs lock, are called Special Warehouses. Section 58A,
containing the provisions relating to Special Warehouses, inter alia, provides that CBEC
may notify the class of goods which shall be deposited in the Special Warehouses.
Consequently, CBEC, vide Notification No. 66/2016 Cus (NT) dated 14.05.2016 has
notified the following class of goods which shall be deposited in a special warehouse:
(i) gold, silver, other precious metals and semi-precious metals and articles thereof;
(ii) goods warehoused for the purpose of:
• supply to DFS (Duty Free Shops) in a customs area;
• supply as stores to vessels/aircrafts under Chapter XI of the Customs Act, 1962;
• supply to foreign privileged persons* in terms of the Foreign Privileged Persons
(Regulation of Customs Privileges) Rules, 1957.
*Privileged person means a person entitled to import/purchase locally from bond goods free of duty for
his personal use/for the use of any member of his family/for official use in his Mission, Consular Post
or Office or in Deputy High Commission/Assistant High Commission.
A Duty-Free Shop (DFS) in the airport need not be licensed as a warehouse
CBEC has clarified that a Duty-Free Shop (DFS) does not meet the ingredients of section
58A. Further, section 64 providing owner’s rights to deal with warehoused goods does
not permit retail sales from a warehouse.
From this, it flows that a DFS located in a customs area should not be treated as a
warehouse. In fact, it is a point of sale for the goods which are to be ex-bonded and
removed from a warehouse for being brought to a DFS in the customs area for sale to
eligible persons, namely, international passengers arriving or departing from India.
DFS operator stores its goods in the warehouse located in the city and /or in and around
the precinct of the airport which acts as a staging area for replenishing stocks in the duty
free shopping area. It is the warehouse of the DFS operator which qualifies as a bonded
warehouse as it is capable of being under the lock of customs.
As per Notification No. 66/2016 Cus (NT) dated 14.05.2016 [as elaborated above], goods
warehoused for the purpose of supply to DFS (Duty Free Shops)/ supply as stores to
vessels/aircrafts/ supply to diplomatic stores have been notified as the class of goods
which can be deposited in a special warehouse. Thus, it is the end use which

determines whether a warehouse is eligible for being licensed under section 58A, and
there are no restrictions on the type of goods that can be stored in such warehouses as
long as they are meant for such notified end use.
[Circular No. 20/2016 Cus dated 20.05.2016]
2. Uniform Licensing Regulations prescribed for Private, Public and Special
Warehouses
The Finance Act, 2016 has done away the concept of declaring warehousing station.
Now, a customs bonded warehouse can be established at any place, if approved by the
licensing officer. The provisions of sections 57 and 58 were amended to provide for
licensing by Principal Commissioner or Commissioner in place of Deputy/Assistant
Commissioner.
The amended sections 57 and 58 as also newly inserted section 58A, inter alia, provide
that licensing of the warehouses shall be subject to such conditions as may be
prescribed. In order to prescribe a uniform process of licensing including the application
format, qualifying conditions, record keeping requirements, license forms etc., CBEC has
issued Public/Private/Special Warehouse Licensing Regulations, 2016 vide Notification
Nos. 70, 71 & 72/2016 Cus (NT) all dated 14.05.2016.
The significant provisions of such warehousing regulations are summarised as under:
A. Application for warehouses:
(a) Applicants to whom license shall be issued: Principal Commissioner/
Commissioner of Customs may grant license to an applicant who is a citizen of
India or entity incorporated/registered in India; submits undertaking to comply
with prescribed terms and conditions and furnishes solvency certificate of ` 2
crore from a Scheduled Bank (unless it is an undertaking of Central or State
Government or Union Territory or major port).
Further, in case of grant of license of a Special Warehouse, applicant can only
apply to store goods notified under section 58A and needs to provide an
undertaking to pay for the services of supervision of the warehouse by
customs officers on recovery of costs.
(b) Cases when license shall not be issued: If an applicant is declared
insolvent or of unsound mind; convicted for an offence under any law;
penalised for an offence under central excise/customs/service tax law; or
where Principal Commissioner/ Commissioner of Customs is satisfied that the
site/building of the proposed warehouse is not suitable for secured storage of
dutiable goods or for general supervision of customs officers, bankruptcy
proceedings or criminal proceedings are pending against the applicant.
B. Conditions to be fulfilled by the applicant: Where, after inspection of the
premises, evaluation of compliance to the aforesaid conditions and conducting other
required enquiries, Principal Commissioner/Commissioner of Customs, is satisfied

that licence may be granted, he shall require the applicant to provide the prescribed
documents and complete the prescribed process and appoint a warehouse keeper.
C. Grant of license: Upon fulfillment of all the aforesaid prescribed conditions and
procedure, Principal Commissioner/Commissioner of Customs, may grant a licence
in respect of the public/private/special warehouse, as the case may be, subject to
such conditions as deemed necessary.
D. Validity, transferability and surrender of license: The license is not transferable
and will be valid till its cancellation/surrender. Further, there shall be no
requirement for renewal of warehousing license on annual basis. Principal
Commissioner/ Commissioner of Customs would cancel the license on the written
request of the licensee provided no dues/proceedings are pending from/against
applicant under the customs law and no goods are deposited or remain deposited,
in the warehouse from the date of request of surrender.
Public Warehouses have been defined in the respective regulations as a site/building
that is licensed as such by the Principal Commissioner/ Commissioner of Customs under
section 57 of the Customs Act, 1962, wherein dutiable goods may be deposited.
Private Warehouse means a site or building that is licensed as such by the Principal
Commissioner/ Commissioner of Customs, as the case may be, under section 58 of the
Customs Act, 1962 wherein dutiable goods imported by or on behalf of the licensee may
be deposited.
Special Warehouse means a site or building that is licensed as such by the Principal
Commissioner/ Commissioner of Customs, as the case may be, under section 58A of the
Customs Act, 1962, wherein dutiable goods may be deposited.
3. New Warehoused Goods (Removal) Regulations, 2016 prescribed
Since Public and Private Warehouses were moved under record based control, erstwhile
section 62 providing that all goods deposited in a warehouse would be subject to control
of the proper officer (customs officer), was omitted. Now, Warehoused Goods (Removal)
Regulations, 1963 have also been superseded and Warehoused Goods (Removal)
Regulations, 2016 have been issued vide Notification 67/2016 Cus (NT) dated
14.05.2016.
Consequently, the system of physical escorting of goods within the same town has been
dispensed with for movement of goods from one warehouse to another. Escorting will
also not be required for movement of goods from a warehouse to a customs station for
export. These movements would be done by affixation of a one-time-lock.
The significant provisions contained in said regulations are discussed as under:
(i) Form for transfer of goods from a warehouse: Where the warehoused goods are
to be removed from one warehouse to another warehouse or from a warehouse to a

customs station for export, the owner is required to make a request in prescribed
Form for transfer of goods.
(ii) Conditions for transport of goods: Where the goods are removed:
• from the customs station of import to a warehouse or
• from one warehouse to another warehouse or
• from the warehouse to a customs station for export
the transport of the goods shall be under one-time lock*, affixed by the proper
officer or licensee or bond officer [an officer of customs in charge of a warehouse],
as the case may be.
However, the Principal Commissioner/Commissioner of Customs may dispense with
the condition of one-time lock and allow transport of the goods without affixing the
one-time-lock, having regard to the nature of goods or manner of transport.
(iii) Acknowledgement of receipt of goods at the destination, to be produced by
the owner of goods: The owner of the goods shall produce to the proper officer at
customs station of import or the bond officer, within 1 month [or extended period
allowed], an acknowledgement issued by the licensee or the bond officer of the
warehouse to which the goods have been removed or the proper officer at the
customs station of export, as the case may be, stating that the goods have arrived
at that place.
In case the owner fails to provide the acknowledgment, he shall pay the full amount
of duty chargeable on account of such goods together with interest, fine and
penalties payable under section 72(1).
* When the goods are removed from the customs station for warehousing, the proper
officer affixes a one-time lock (OTL) on the container or means of transport (closed
trucks). The serial number of OTL alongwith date and time of its affixation needs to be
endorsed upon Bill of Entry for warehousing and transport document. All customs
stations are required to maintain records incorporating the number of the OTL, bill of
entry, truck number, container number (if applicable), date & time of affixing the OTL and
the name, designation & telephone number of the officer affixing the OTL.
A similar procedure has been provided under Warehoused Goods (Removal)
Regulations, 2016 [discussed above] for removal of goods from one warehouse to
another and from a warehouse to customs station for export. However, the Principal
Commissioner of Customs /Commissioner of Customs may permit movement of goods
without affixation of such OTLs, where the nature of goods or their manner of transport
so warrant (e.g. Liquid Bulk Cargo transported through Pipe Lines and Over Dimensional
Cargo).
[Circular 17/2016 Cus. dated 14.05.2016]

4. Warehouse/Special Warehouse (Custody and Handling of Goods) Regulations, 2016

prescribed
In view of the amendment of doing away with the physical control over warehouses,
responsibilities of licensee assume greater significance.
Newly inserted section 73A provides that all warehoused goods will remain in the custody
of the licensee until they are cleared for home consumption/ transferred to another
warehouse/ exported/ removed as otherwise provided under this Act. It further provides
that the responsibilities of the licensee who has custody of the warehoused goods will be
such as may be prescribed.
In pursuance of the same, Warehouse (Custody & Handling of Goods) Regulations, 2016
and Special Warehouse (Custody & Handling of Goods) Regulations, 2016 have been
notified vide Notification No.s 68 & 69/2016 Cus (NT) both dated 14.05.2016; to vest
the licensee with responsibilities including appointment of warehouse keeper, providing
sufficient facilities, equipment and personnel and maintaining & preserving records as
also to prescribe the procedure to be followed by the licensee or bond officer on arrival of
goods in and removal of goods from warehouse. The regulations provide for
computerization of records in respect of warehoused goods. Computerisation of records is
a key component based upon which liberalization in respect of warehousing procedures
has been carried out.
The comparative table depicting the various responsibilities of a licensee of a Warehouse
(Private/Public) and of a licensee of a Special Warehouse is as under:
Particulars Warehouse – Private/Public Special Warehouse
Appointment • A licensee shall appoint a warehouse keeper having experience in
of warehousing operations & customs procedures, for discharge of
warehouse functions on his behalf.
keeper • The warehouse keeper shall obtain digital signature from prescribed
authorities for filing of electronic documents as required under the
Act.
Facilities, A licensee shall provide:
equipment (a) sufficient facilities, equipment and personnel:
and  to ensure controlled access to warehouse and secured storage
personnel of the goods in it and
 for examination of goods by customs officers;
(b) a computerised system for accounting of goods.
Control of • No physical control of • The Bond Officer shall cause the
Bond Officer Bond Officer; only record Special Warehouse to be locked.
based control is there. • Any removal or deposit of goods
• Only in case of removal from/to the warehouse shall only be
of goods for export, in the presence of the Bond Officer.
presence of bond officer
is required.
Receipt of The licensee is vested with • Licensee shall receive/permit

goods into greater responsibilities in unloading of any goods at the

warehouse case of receipt of goods in a warehouse only in the presence of
from private/ public warehouse. the Bond Officer.
customs For details, refer Note 1 • Once bond officer permits deposit of
station of below. goods in warehouse, licensee shall:
import or  record goods received in the
another warehouse and
warehouse  cause an acknowledgement of
receipt of goods to be delivered
to proper officer at customs
station of import/ proper officer
of the warehouse of despatch,
as the case may be.
Transfer of • Licensee shall transfer • Licensee shall transfer warehoused
goods to warehoused goods to goods to another warehouse only
another another warehouse only with the permission of the Bond
warehouse when the owner of the Officer on the form for transfer of
goods produce the form goods.
for transfer of goods • Once bond officer permits removal
bearing the orders of the of goods from warehouse, licensee
bond officer permitting shall, in the presence of Bond
such transfer. Officer,:
• After the goods are  cause the goods to be loaded
removed and loaded on onto the means of transport,
means of transport, and
licensee would:  affix a one-time-lock to the
 affix a one-time-lock means of transport.
to the means of
transport,
 endorse the number
of one-time lock on
prescribed form for
transfer of goods and
on transportation
documents and
 cause one copy of
each of these
documents to be
delivered to bond
officer.
 record the removal of
goods.
Removal of • A licensee will permit • Licensee shall permit goods to be
warehoused goods to be removed for removed for home consumption only
goods for home consumption only in the presence of the Bond Officer.

home when the bond officer • Upon the owner of the warehoused
consumption permits the removal of goods producing an order for
the goods. clearance for home consumption,
• The bond officer shall the licensee shall, in the presence
permit such removal only of the bond officer,:
when owner of goods  deliver the quantity of goods
produces of order for mentioned in the bill of entry for
clearance for home home consumption to the owner
consumption. of the goods,
• The licensee shall deliver  retain a copy of the bill of entry.
the quantity of goods as
mentioned in the bill of
entry for home
consumption to the
owner, retaining a copy of
the bill of entry, and
record the goods
removed.
Removal of • A licensee will permit goods to be removed for export only by an let
warehoused export order.
goods for • Once the Bond Officer permits the removal of goods from
export warehouse, the licensee shall, in the presence of the bond officer,
cause the goods to be loaded onto the means of transport and affix a
one-time-lock to the means of transport.
Records and Licensee is required to maintain updated and accurate specified records
returns and preserve them for 5 years. Further, digital copies of the same also
need to be preserved.
For details, refer Note 2 below.
Penalty In case of contravention of or failure to adhere to, the regulations; the
licensee shall be subject to a penalty in accordance with the provisions of
this Act.
Power to CBEC may exempt a class of goods from any of the provisions of these
exempt regulations considering the nature of the goods & their manner of
transport or storage.
Notes:
1. On receipt of goods from a customs station of import or from another warehouse, a
licensee shall check the one-time lock on the container/means of transport as
affixed by the proper officer at the customs station or licensee of the warehouse of
dispatch.
It will allow unloading only if the lock is found intact and quantity received reconciles
with the bill of entry for warehousing and invoice (in case of receipt from customs
station) and with the form for transfer of goods bearing orders of bond officer (in

case of receipt from another warehouse). Otherwise he should refuse the unloading
and report discrepancy in quantity to bond officer with 24 hours.
Further, he must endorse the bill of entry for warehousing or the form for transfer,
as the case may be, with quantity received. He should acknowledge the receipt of
goods by endorsing transportation document and record the goods received. He
shall cause to be delivered an acknowledgement of receipt of goods to bond officer
and proper officer at customs station of import/ warehouse keeper of the warehouse
of despatch, as the case may be.
2. (A) Maintenance of records: A licensee shall maintain records of receipt,
handling, storing, and removal of any goods into/from the warehouse; each
activity/operation in relation to the warehoused goods; and drawal of samples
from the warehoused goods under the Customs Act or any other law for the
time being in force.
He shall keep copies of the bills of entry, transport documents, Forms for
transfer of goods from a warehouse, shipping bills or bills of export or any
other documents evidencing the receipt/removal of goods into/from the
warehouse and copies of the bonds executed.
(B) Preservation of records: The aforesaid records and accounts are required to
be preserved for a minimum period of 5 years from the date of removal of
goods from the warehouse, and shall be made available at the warehouse at
all times and accessible to the Bond Officer or any other authorised officer for
verification. Further, digital copies of the same also need to be preserved at
any place other than warehouse to prevent loss of records due to natural
calamities, fire, theft, skillful pilferage, or computer malfunction.
(C) Monthly return: A licensee shall file with the Bond Officer a monthly return in
prescribed form, of the receipt, storage, operations and removal of the goods
in the warehouse, within 10 days after the close of the month to which such
return relates. However, such return shall be furnished on/before the 10th day
of the month immediately preceding the month in which the warehousing
period would expire.
5. New format prescribed for warehousing bond
Under the amended provisions of section 59, the amount of warehousing bond to be
submitted by the importer has been enhanced from twice the amount of duty deferred to
thrice the amount of duty deferred. In addition to the bond, importer is also required to
furnish security as may be prescribed.
Sub-section (1) of section 59 requires the importer to furnish a Consignment Bond for
amount thrice the duty assessed on goods imported. However, sub-section (2) of said
section stipulates that the importer may be allowed to furnish a General Bond for such

amount as Assistant/Deputy Commissioner of Customs may permit in respect of the

goods warehoused within a specified period.
The circular provides that the bond will remain valid till the warehoused goods are duly
cleared for home consumption or for export from the warehouse. This bond will also
cover the movement of goods from the customs station of import to the warehouse or
from one warehouse to another as well as for the due accounting of goods while stored in
a warehouse.
In addition to this, new format for the bond has been prescribed.
6. Notification prescribing rate of interest under section 61 rescinded as interest rate
has been linked with rate prescribed under section 47
CBEC has rescinded Notification No. 18/2003 Cus (NT) dated 1.03.2003 prescribing rate
of interest for the purposes of section 61 because with effect from 14.05.2016, the
interest under section 61 would be payable at the rate fixed by the Central Government
under section 47 [Notification 98/2016 Cus (NT) dated 08.07.2016].
7. Requirement of payment of interest prior to allowing extensions of warehousing
period dispensed with
In order to secure revenue and discourage protracted duty deferment arising due to
warehousing, the CBEC has prescribed conditions for furnishing of security by importers
vide Circular No. 21/2016-Cus dated 31.05.2016. The said circular also specifies the
amount (which is a percentage of the sum of duty and interest) of bank guarantee that
would have to be furnished before allowing an extension in warehousing period.
In view of having prescribed the requirement of furnishing a bank guarantee as security,
it has been decided by the CBEC that henceforth there would be no requirement of
payment of interest prior to allowing extensions of warehousing period nor would there be
any need to issue a demand for payment of interest. Interest, if any, shall be paid at the
time of ex-bonding of the goods from the warehouse.
8. Online filing of Ex-bond bill of entry and EDI based monitoring of warehouses at
customs station of import
CBEC has decided that henceforth the ex-bond bills of entry shall be filed electronically
on ICES and the customs station of import shall assess the Bill of Entry for clearance of
the warehoused goods for home consumption. The filing of ex-bond bills of entry on
ICES will provide the benefits of automation to importers availing the warehousing facility
and lend efficiency to the process of clearance of the warehoused goods.
On receipt of copy of the ex-bond bill of entry, jurisdictional bond officer shall verify its
details from ICEGATE to check that the order of clearance for home consumption has
been made by the proper officer. In case of any discrepancy, he shall not permit the

removal of goods from the warehouse and immediately inform his Deputy or Assistant
Commissioner for resolution of the same.
The warehouses where the goods are to be warehoused are under EDI based monitoring
at the customs station of import. Thus, the issue of goods lying in the warehouses
beyond the warehousing period will be addressed as the systems managers at the
customs stations will be able to identify Bills of Entry where the initial period of
warehousing is near expiry for initiating necessary action.
The procedure contained in this circular shall come into effect from 15.06.2016.

CHAPTER 11: DUTY DRAWBACK
1. Clarification on availing rebate of duties paid on inputs /procuring inputs without

payment of duty for use in manufacture or processing of export goods and
admissibility of duty drawback in such cases
Circular No. 1047/35/2016 CX dated 16.09.2016 has clarified that:-
(i) Where in respect of exports, CENVAT credit is not availed on inputs but input stage
rebate on excisable goods except diesel is availed under rule 18 of the Central
Excise Rules, 2002, drawback of customs portion, as per rates and caps specified
in column (6) and (7) [drawback when CENVAT facility has been availed] of the
drawback schedule shall be admissible;
(ii) Where in respect of exports, CENVAT credit is not availed on inputs but the inputs
except diesel, are procured without payment of Central Excise duty under sub-rule
(2) of rule 19 of Central Excise Rules, 2002, drawback of Customs portion, as per
rates and caps specified in column (6) and (7) [drawback when CENVAT facility has
been availed] of the drawback schedule shall be admissible;
(iii) Where in respect of exports, input stage rebate on diesel under rule 18 of Central
Excise Rules, 2002 is availed or diesel is procured without payment of Central
Excise duty under sub-rule (2) of rule 19 of Central Excise Rules, 2002, no
drawback either under column (6) and (7) [drawback when CENVAT facility has
been availed] or column (4) and (5) [drawback when CENVAT facility has not been
availed] of the drawback schedule shall be admissible.

CHAPTER 12: PROVISIONS RELATING TO ILLEGAL IMPORT, ILLEGAL EXPORT,

CONFISCATION, PENALTY & ALLIED PROVISIONS
1. Immediate prosecution in case of gold

Circular No. 27/2015 Cus dated 23.10.2015 contains the guidelines for launching of
prosecution in relation to offences punishable under Customs Act, 1962. It, inter alia,
provided that where the offence relates to certain specified items; prosecution may
preferably be launched immediately after issuance of show cause notice (and not on
completion of adjudication proceedings).
Henceforth, gold has also been included in the list of such specified goods. In other
words, where the offence relates to gold, prosecution may preferably be launched
immediately after issuance of show cause notice.
2. Silver bullion and cigarettes notified under section 123 of the Customs Act, 1962
Section 123 of the Customs Act, 1962 stipulates that where gold, and manufactures
thereof, watches, and any other class of goods notified by the Central Government, are
seized under the Customs Act, 1962 in the reasonable belief that they are smuggled
goods, the burden of proving that they are not smuggled goods shall be on the accused
and not on the Department.
Earlier, a list of items including synthetic yarn and metallised yarn, fabrics made wholly or
mainly of synthetic yarn, electronic calculators, watches, dials and cases for watches,
silver bullions, etc. were notified vide Notification No. 204/84 Cus dated 20.07.1984 for
the said purpose.
Now, Notification 103/2016 Cus (NT) dated 25.07.2016 has rescinded aforesaid
notification and specified only silver bullion and cigarettes for the purpose of said section.

CHAPTER 16: FOREIGN TRADE POLICY
1. Amendments in EOU, EHTP, STP and BTP schemes

Following amendments have been made in EOU, EHTP, STP and BTP schemes vide
FTP Notification No. 23/2015-2020 dated 13.08.2016
(i) Earlier, transfer of manufactured goods from one EOU / EHTP / STP / BTP unit to
another EOU / EHTP / STP / BTP unit was allowed with prior intimation to
concerned Development Commissioners of the transferor and transferee units as
well as concerned Customs authorities, following procedure of in-bond movement of
goods.
Under the amended provisions, transfer of manufactured goods from one EOU /
EHTP / STP / BTP unit to another EOU / EHTP / STP / BTP unit is allowed with prior
intimation to concerned Development Commissioners of the transferor and
transferee units as well as concerned Customs authorities, as per following
procedure for movement of goods:
(a) Any procurement by one unit from another should be supported by a
Procurement Certificate or pre-authenticated procurement certificates, as
applicable;
(b) The supply of the goods from one unit to another shall be based upon the
usual commercial documents, such as, invoice and delivery challan;
(c) Upon receipt of goods, copies of documents shall be provided to the
jurisdictional office of the sending and receiving unit by way of intimation.
(ii) Earlier, when existing EHTP / STP units applied for conversion / merger to EOU unit
and vice-versa, they had to remain in bond and avail exemptions in duties and taxes
as applicable.
Under the amended provisions, EHTP / STP units, who have applied for conversion
/ merger to EOU unit and vice-versa, can avail exemptions in duties and taxes as
applicable without having to remain in bond.

PART II : JUDICIAL UPDATE – INDIRECT TAX LAWS
SIGNIFICANT RECENT LEGAL DECISIONS
“Select Cases in Direct and Indirect Tax Laws – An Essential Reading for the Final Course” is
a compilation of the significant decisions of Supreme Court, High Court and Larger Bench of
Tribunal. September, 2016 edition of the said publication is relevant for May, 2017
examination. Students may note that in addition to the cases reported in the said publication,
following significant recent legal decisions are also relevant for May, 2017 examination:-
SECTION A: CENTRAL EXCISE
CHAPTER 1: BASIC CONCEPTS
1. Will the process of crushing of coal amount to manufacture under the Central Excise
Act, 1944?
Dhunseri Petrochem Ltd 2016 (340) ELT 421 (AAR.)
Facts of the Case: The applicant intends to start a new business whereby it will import coal
from outside India of various sizes, crush the same and thereafter supply it to the customers
as per their demand. In return the applicant is to recover the crushing charges from those
parties who requires the crushed coal.
Question for which advance ruling is sought: In the given case, the advance ruling is
sought for the question as to whether the process of crushing of coal amounted to
manufacture under the Central Excise Act, 1944.
Observations of Authority for Advance Rulings: AAR observed that in the given case,
the applicant would be merely crushing the coal of different sizes. The activity of
crushing the coal would not be covered as a ‘manufacturing activity’ as it is well understood
that even after crushing the coal, the coal does not lose its character nor does it become a
new product.
Authority for Advance Rulings’ Decision: AAR held that neither the coal crushing
activity would amount to ‘manufacturing activity’ nor the crushed coal would be a
manufactured product.

CHAPTER 4: CENVAT CREDIT
1. Can the Department deny the claim for refund of CENVAT credit available under
rule 5 of the CENVAT Credit Rules, 2004 on the ground that the person claiming the
refund is not registered?
Commr. of ST v. Tavant Technologies India Pvt Ltd. 2016 (43) STR 57 (Kar.)
High Court’s Observations: The High Court referred to the decision of mPortal India
Wireless Solutions Pvt. Ltd. v. CST, Bangalore 2012 (27) STR 134 (Kar.) wherein the
Karnataka High Court held that there is no statutory provision under the CENVAT Credit
Rules, 2004 which makes registration mandatory and which stipulates that a person
would not be entitled to the benefit of refund under these rules if it is not registered.
Thus, refund claim cannot be rejected on a basis which does not exist in law.
The High Court observed that in the instant case also, Revenue was not able to show
any provision under rule 5 of the CENVAT Credit Rules, 2004 which provided for
registration with the department as a condition precedent for claiming refund under said
rule.
High Court’s Decision: The High Court upheld the order of the Tribunal that Department
could not deny the claim for refund of CENVAT credit available under rule 5 of the
CENVAT Credit Rules, 2004 on the ground that the person claiming the refund was not
registered.

1. The adjudicating authority has passed an order for refund under section 11B of the
Central Excise Act, 1944 which was alleged as erroneous by the Department. Can
Department recover such refund under section 11A of the Central Excise Act, 1944
without review of the refund order in terms of section 35E of the Act?
Eveready Industries India Ltd. v. CESTAT, Chennai 2016 (337) ELT 189 (Mad.)
Issue under consideration: The question of law in this case was whether the
respondent is right in holding that there can be a demand notice under section 11A of the
Central Excise Act, 1944 by the original authority for alleged erroneous refund (earlier
granted by the same original authority) without reviewing at all the refund order of the
original authority by the superior authority in terms of section 35E of the Act.
High Court’s Observations: The High Court observed that section 11A and section 35E
of the Central Excise Act, 1944 operate in different fields and are invoked for different
purposes.
The High Court elaborated that an application for refund is not to be dealt with merely as
a ministerial act or an administrative act. Sub-section (2) of section 11B mandates that
upon receipt of any application for refund, the Assistant Commissioner or Deputy
Commissioner, if he is satisfied that the duty is refundable, should make an order.
Therefore, it is clear that what is required of an Assistant Commissioner or Deputy
Commissioner under sub-section (2) of section 11B is to adjudicate upon the claim for
refund. The expression ‘Adjudicating Authority’ is also defined in section 2(a) to mean
any authority competent to pass any order or decision under this Act, but does not
include the CBEC, Commissioner of Central Excise (Appeals) or the Appellate Tribunal.
Hence, the power exercised under section 11B is that of an adjudicating authority and the
order passed is certainly one of adjudication.
Once it is seen that an order of adjudication has been validly passed under section 11B
and a refund has also been made, then the next question that would fall for consideration
is as to whether section 11A can be invoked thereafter. Interestingly, the authority, given
under section 11A(1) for recovery of any refund erroneously paid, is upon the Central
Excise Officer. An Assistant Commissioner is also a ‘Central Excise Officer’ in terms of
section 2(b) of the Act.
Therefore, an order of recovery can be passed under section 11A even by an Assistant
Commissioner, as he happens to be a Central Excise Officer in terms of clause (a) in
sub-section (1) of section 11A. In contrast, the processing of an application and the
passing of an order on an application for a refund, can be made either by the Assistant
Commissioner or by the Deputy Commissioner under sub-section (2) of section 11B.
Hypothetically, it would mean that a Deputy Commissioner can pass an order for refund
under section 11B(2) and an Assistant Commissioner can invoke the proceedings for
recovery under section 11A(1).

This would amount to recognizing a power in a subordinate authority to invoke the power
of recovery under section 11A, despite the fact that a refund application has been
adjudicated upon by a superior authority under section 11B.
The High Court pointed out that a limited revisional jurisdiction is conferred upon the
Principal Commissioner and Commissioner of Excise in sub-section (2) of section 35E.
This power is not actually to correct any error directly, on the part of an adjudicating
authority. This power is available only for directing the Competent Authority to take the
matter to the Commissioner (Appeals).
The High Court then referred to the decision in case of Madurai Power Corporation Pvt.
Ltd. v. Dy. Commissioner 2008 (229) ELT 521 (Mad.) wherein after taking note of the
Supreme Court’s decision in Asian Paints (India) Ltd. v. Collector 2002 (142) ELT 522
(SC), the High Court inferred that there is no nexus between section 11A and section
35E. Section 11A does not indicate that the legislature intended to override section 35E.
Both sections have to be read harmoniously. In that case, Annexure-I certificate had
been issued in favour of the petitioners from time-to-time on executing B-8 security bond
and on furnishing a bank guarantee. The High Court held that unless the Annexure-I
certificate is cancelled or rejected by the Competent Authority by following the procedure
under section 35E, it is not permissible for the Department to invoke section 11A of the
Act.
High Court’s Decision: The High Court held that once an application for refund is
allowed under section 11B, the expression ‘erroneous refund’ appearing in sub-section
(1) of section 11A cannot be applied. If an order of refund is passed after adjudication,
the amount refunded will not fall under the category of erroneous refund so as to enable
the order of refund to be revoked under section 11A(1). One authority cannot be allowed
to say in a collateral proceeding that what was done by another authority was an
erroneous thing. Therefore, the High Court answered the question of law in favour of the
appellant/assessee and allowed the appeal.

SECTION B: SERVICE TAX
CHAPTER 2: PLACE OF PROVISION OF SERVICE
1. The applicant proposes to provide payment processing service to a US company

which in turn provides name registration, web hosting, designing and other
services to customers in India. What would be the place of provision of services
provided by applicant and whether such services would qualify as ‘export of
service’?
Universal Services India (P) Ltd., In re 2016 (42) STR 585 (AAR)
Facts of the Case: WWD - a US based company - is engaged in the business of
providing name registration, web hosting, designing and other services to customers
across the world. WWD will provide said services to Indian customers. The customer
will enter into a contract for registration of the domain in its own name directly with WWD
and will pay for such services through the channels as provided by WWD. The
customers can either directly pay WWD in US Dollars using an international credit card or
in Indian rupees using their Indian credit cards.
In order to enable customers to pay for the services, using Indian credit card in Indian
rupees, WWD intends to enter into an agreement with the applicant – an Indian company.
The applicant will provide payment processing facilities in India and will collect money
from the customers of WWD in India. These collections would be remitted without any
mark up to WWD. In consideration for these services, the applicant shall charge a fee
equal to the operating costs incurred by the applicant plus a mark-up of 13% on such
costs and such fee would be received by it from WWD in US Dollars.
The applicant would not provide any services for or on behalf of WWD in India or outside
India. WWD will directly contact and provide services to customers in India.
The applicant submitted that the payment processing service would be the main service of
the applicant where it provides this service on its own account. Further, where it arranges a
third party payment gateway service provider in India to provide payment processing
services; such services of third party payment gateway service provider would form an input
service to the main service provided by the applicant on its own account.
The services provided by applicant to WWD would be on principal to principal basis. The
place of provision of such services would be governed by rule 3 of the Place of Provision of
Service Rules, 2012 (PoPS), in terms of which the place of provision of services proposed to
be provided by the applicant would be the location of the recipient of service. Since the
intended recipient of the service (viz., WWD) is located outside India, the place of provision of
the proposed service would be considered as outside India.
However, Revenue submits that applicant intends to provide services relating to collection of
money from the customers in India on behalf of WWD. Thus, there is involvement of the

applicant with WWD as well as with the customers in India. Therefore, the services so
intended to be provided appear to be covered under “intermediary services”, which fall under
rule 9(c) of PoPS, wherein the provision of service in such cases is location of service
provider, i.e., India.
Questions for which advance ruling is sought:
The questions which arose for consideration before AAR are as follows:
(i) Whether the place of provision of payment processing service proposed to be
provided by the applicant, is outside India in terms of rule 3 of Place of Provision of
Services Rules, 2012?
(ii) Whether services proposed to be provided by applicant would qualify as ‘export of
service’?
Ruling of Authority for Advance Rulings: Considering the facts of the given case, AAR
observed that the applicant’s main service is the payment processing service and applicant is
not at all concerned with the domain name service provided by WWD. Further, applicant
provides payment processing service to WWD on his own account and charges fee for it.
Therefore, it cannot be inferred that the applicant provides payment processing service to
Indian customers, for the service rendered by WWD to them.
Further, the definition of “intermediary” as envisaged under rule 2(f) of PoPS does not include
a person who provides the main service on his own account. In the present case, applicant
provides main service, i.e., “business support services” to WWD on his own account.
Therefore, applicant is not an “intermediary” and thus, the service provided by it is not
intermediary service.
Thus, AAR ruled that the place of provision of payment processing service to be provided by
the applicant, is outside India in terms of rule 3 of PoPS.
Further, while deciding the questions as to whether services provided by applicant qualify as
export of service, AAR observed that:
(i) service provider - applicant, is located in India – the taxable territory and the service
recipient – WWD, is located in non-taxable territory - USA;
(ii) the place of provision of payment processing service to be provided by the applicant, is
outside India in terms of rule 3 of PoPS;
(iii) service to be provided by the applicant, i.e., business support services, is not specified
under section 66D of the Finance Act, 1994, i.e., Negative List of Services;
(iv) applicant would receive payment for said services in convertible foreign exchange and
(v) applicant and WWD are not merely establishments of a distinct person in accordance
with item (b) of Explanation 3 of clause (44) of section 65B of the Finance Act, 1994.

Since all the ingredients enlisted under rule 6A of the Service Tax Rules, 1994 are satisfied,
said service will qualify as export of taxable service.
AAR’s Decision: AAR held that place of provision of service proposed to be provided by
applicant would be location of recipient of service, i.e., location of WWD, i.e. outside
India, in terms of rule 3 of PoPS. Further, since all the conditions enlisted under rule 6A
of the Service Tax Rules, 1994, are satisfied, said service will also qualify as export of
service.

CHAPTER 4: VALUATION OF TAXABLE SERVICE
1. Whether section 66E(i) of the Finance Act, 1994 to the extent it seeks to constitute
the service portion in an activity of supply of food or other articles as 'declared
service' and rule 2C of the Service Tax (Determination of Value) Rules, 2006,
constitutionally valid?
Federation of Hotel & Restaurants Association of India v. UOI 2016 (44) STR 3 (Del.)
Point of Dispute: The petitioner sought a declaration that:
(i) section 66E(i) of the Finance Act, 1994 to the extent it seeks to constitute the
service portion in an activity of supply of food or other articles as 'declared service'
is bad in law, and
(ii) rule 2C of the Service Tax (Determination of Value) Rules, 2006 is invalid.
The appellant contended that after the insertion of article 366(29A), by virtue of clause (f)
of said article, supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human consumption or any drink
(whether or not intoxicating), where such supply or service, is for cash, deferred payment
or other valuable consideration, is taxable under the sales tax law.
Further, the definition of service also specifically excludes such transfer, delivery or
supply of any goods which is deemed to be sale within the meaning of clause (29A) of
article 366 of the Constitution. Therefore, levy of service tax on supply of food and drinks
is unconstitutional.
High Court’s Observation: Considering the legislative history of Constitution (46th)
Amendment Act, 1982 wherein article 366(29A)(f) was introduced, the Delhi High Court
observed that introduction of said clause (f) was focussed on ensuring that State sales
tax was leviable on the portion of supply of food and drinks even where it was as a part
of a composite catering contract.
However, at that stage, focus could not be on levying service tax on any portion of that
composite contract because service tax was not in existence even after two decades of
such amendment. Therefore, it cannot be concluded that at the time of 46 th
Constitutional amendment, Parliament had consciously decided that no portion of
composite contract of catering would be amenable to levy of service tax.
Thereafter, the High Court examined the constitutional validity of levy of service tax on
service portion in an activity of supply of food or other articles. Referring to various
judgments and analysing clause (f) of Article 366(29A), it inferred that if some part of the
composite transaction involves the rendering of service, there should be no difficulty in
recognising the power of the Union to bring that portion to tax.
The Delhi High Court noted that in Tamil Nadu Kalyana Mandapam Association v. Union
of India 2006 (3) STR 260 (S.C.), the service component of an outdoor catering contract

was emphasised. With reference to said Supreme Court judgment, the Delhi High Court
observed that:
(i) Although in one of the paras in the Tamil Nadu Kalyana Mandapam Association
case, the Apex Court sought to distinguish the outdoor catering services from
restaurant services thereby pointing out that in outdoor catering there is an element
of personalized service, it in no way suggested that there was no service element
involved in the supply of food and drinks in a restaurant.
(ii) The primary issue decided by the Apex Court was as to whether in the context of
Article 366(29A)(f) of the Constitution, the service portion of a composite catering
contract can be made exigible to service tax.
(iii) Supreme Court applied pith and substance doctrine to such situations [restaurant
service and outdoor catering service] and concluded that the manner of service
provided assumes predominance over the providing of food which is a definite
indicator of the supremacy of the service aspect.
(iv) Further, the concept of catering admittedly includes the concept of rendering
service. The fact that tax on the sale of the goods involved in the said service can
be levied does not mean that a service tax cannot be levied on the service aspect of
catering. Thus, the decision highlighted the possibility of splitting up of the
composite transaction into the provision of service element and the supply of food.
(v) Resultantly, Tamil Nadu Kalyana Mandapam Association case fully supported the
stand of the respondents as far as the interpretation of Article 366(29A)(f) of the
Constitution is concerned.
The Parliament has made the legal position explicit by inserting section 66E(i) of the
Finance Act, 1994, alongwith sections 65B(22) and 65B(44) of the Finance Act, 1994.
The provisions read together stipulate that the service portion in an activity wherein
goods, being food or any other article of human consumption or any drink (whether or not
intoxicating) is supplied in any manner as a part of the activity is a 'declared' service.
The legislative carving out of the service portion of the composite contract of supply of
food and drinks has sound constitutional basis. Even if this is viewed as Parliament
deploying a legal fiction, it is legally permissible.
Thus, it is not possible to accept the contention of the petitioners that Parliament lacks
the legislative competence to bring the service component of the composite contract of
supply of food and drinks within the service tax net.
Further, while examining the constitutional validity of rule 2C of the Service Tax
(Determination of Value) Rules, 2006, the High Court noted that this rule enables the
assessing authority to put a definite value to the service portion of the composite contract
of supply of goods and services in a restaurant/outdoor catering.

High Court’s Decision: In the light of the aforementioned discussion, the High Court
upheld the constitutional validity of section 66E(i) of the Finance Act, 1994 read with
section 65B(22) and 65B(44) thereof and rule 2C of the Service Tax (Determination of
Value) Rules, 2006.

CHAPTER 5: EXEMPTIONS AND ABATEMENTS
1. Whether levy of service tax on construction of complex services and on

preferential location charges is constitutionally valid?
Suresh Kumar Bansal v. UOI 2016 (43) ST5R 3 (Del.)
Facts of the Case: The petitioners are individuals who had entered into separate
agreements with a builder to buy flats in a multi-storey group housing project being
developed by said builder. The builder charged service tax on construction of complex
services and on preferential location charges, from the petitioners.
However, the petitioners were aggrieved with the levy of service tax on said services and
charges. Their primary contentions were:
(i) Their agreement with the builder was a composite contract for purchase of
immovable property and in the absence of specific provisions for ascertaining the
service component in the said agreement, the levy would be beyond the legislative
competence of the Parliament.
(ii) The entries relating to taxation in List I and List II of the Seventh Schedule to the
Constitution of India were mutually exclusive and the Parliament did not have the
power to levy tax on immovable property; thus, the levy of service tax on
agreements for purchase of flats was beyond the legislative competence of the
Parliament.
(iii) There was no service element in preferential location charges as the same related
only to location of the immovable property.
(iv) For levy of service tax, it is necessary that there should be a service provider and
service recipient. Therefore, only the services rendered after execution of the flat
buyer’s agreement could be subjected to tax as prior to the said date, in absence of
the service recipient, the service in relation to construction of a complex, if any, is
rendered by the builder to itself and cannot be subjected to service tax.
In reply to aforesaid contentions, Revenue submitted that development of a project
results in the substantial value addition on bare land and includes various services such
as consulting services, engineering services, management services, architectural
services, etc. Since the gross charges include value of land and construction material,
only 25% of the Base Selling Price (BSP) charged by a builder from the ultimate
consumer is subjected to levy of service tax. However in case of preferential location
charges, the entire amount charged by a developer is for value addition and, therefore,
the gross amount charged for such services is chargeable to service tax.
Point of Dispute: Whether levy of service tax on construction of complex services and
on preferential location charges is valid?
High Court’s Observation: The High Court observed that the contract between a buyer
and a builder/promoter/developer in development and sale of a complex is a composite

one. The arrangement between the buyer and the developer is not for procurement of
services simplicitor. Instead, an agreement between a flat buyer and a builder/developer
of a complex - who is developing the complex for sale is, essentially, one of purchase
and sale of developed property.
However, by a legislative fiction, such agreements, which have been entered into prior to
completion of the project and/or construction of a unit, are imputed with a character of a
service contract; the works involved in construction of a complex are treated as being
carried by the builder on behalf of the buyer.
However, indisputably the arrangement between the buyer and the builder is a composite
one which involves not only the element of services but also goods and immovable
property.
Thus, while the legislative competence of the Parliament to tax the element of service
involved in said arrangement, cannot be disputed but the levy itself would fail, if it does
not provide for a mechanism to ascertain the value of the services component which is
the subject of the levy.
It is apparent that service tax cannot be levied on the value of undivided share of land
acquired by a buyer of a dwelling unit or on the value of goods which are incorporated in
the project by a developer. Levying a tax on the constituent goods or the land would
clearly intrude into the legislative field reserved for the States under List-II of the Seventh
Schedule to the Constitution of India.
The Court noted that there is no machinery provision for ascertaining the service element
involved in the composite contract. In order to sustain the levy of service tax on services,
it is essential that the machinery provisions provide for a mechanism for ascertaining the
measure of tax, that is, the value of services which are charged to service tax.
For the purposes of ascertaining the value of services, the Central Government has
prescribed Service Tax (Determination of Value) Rules 2006 (hereafter referred to as
‘Valuation Rules’). However, none of the Valuation Rules provides for any machinery for
ascertaining the value of services involved in relation to construction of a complex.
Whilst rule 2A of the Valuation Rules provides for mechanism to ascertain the value of
services in a composite works contract involving services and goods, the said Rule does
not cater to determination of value of services in case of a composite contract which also
involves sale of land. The gross consideration charged by a builder/promoter of a project
from a buyer would not only include an element of goods and services, but also the value
of undivided share of land which would be acquired by the buyer.
In the present case, neither the Act nor the Rules framed therein provide for a machinery
provision for excluding all components other than service components for ascertaining
the measure of service tax. The abatement provided by a notification or a circular cannot
substitute the lack of statutory machinery provisions to ascertain the value of services
involved in a composite contract.

Insofar as the challenge to the levy of service tax on preferential location services is
concerned, the High Court disagreed with the contention that there is no element of
service involved in the preferential location charges levied by a builder. Such charges do
not relate solely to the location of land.
Thus, preferential location charges are charged by the builder based on the preferences
of its customers. They are in one sense a measure of additional value that a customer
derives from acquiring a particular unit. Such charges may be attributable to the
preferences of a customer in relation to the directions in which a flat is constructed; the
floor on which it is located; the views from the unit; accessibility to other facilities provide
in the complex, etc.
Service tax is a tax on value addition and charges for preferential location embody the
value of the satisfaction derived by a customer from certain additional attributes of the
property developed. However, such charges cannot be traced directly to the value of any
goods or value of land because they are as a result of the development of the complex
as a whole and the position of a particular unit in the context of the complex.
High Court’s Decision: In view of the above, the High Court negated the challenge to
levy of service tax on preferential location charges, but held that service tax cannot be
levied on such charges as contracts are composite. Further, it accepted the petitioners’
contention that no service tax under charging section of the Finance Act, 1994 could be
charged in respect of composite contracts for purchase of units in a complex, such as the
ones entered into by the petitioners with the builder.

1. Whether recovery provisions under section 87 of the Finance Act, 1994 can be
invoked without an adjudication proceeding under section 73 of the Act?
UOI v. Prashanthi 2016 (43) STR 350 (Kar.)
High Court’s Observation: The High Court observed that section 73 of the Finance Act,
1994 is wide enough to cover recovery of service tax not levied/paid or short-levied/short-paid
or erroneously refunded. Not only that, the language of the section is wide enough to cover
all contingencies which would include a case where the amount of tax is collected, but not
paid with the Government.
Further, section 87 of the Act provides for the recovery of the amount due to the Central
Government. The language is that where the amount payable by the person under the
provisions of this Chapter or the rules made thereunder is not paid.
If both sections are read conjointly, it would mean that the payability of the amount is an
aspect which may be adjudicated under section 73 and thereafter the recovery may be
effected under section 87.
High Court’s Decision: The High Court held that the submission that the power under
section 87 is independent and irrespective of the procedure under section 73, is not
viable. The contention that when the power under section 87 is to be invoked, no
procedure under section 73 can be undertaken, is not acceptable.
Accepting such submissions and contentions would result in a situation that the power
under section 87 be without an adjudication mechanism under section 73, which is
neither conceived by the legislature nor can be the accepted position.
2. Can the order directing the provisional attachment of property be made without
giving any opportunity of being heard to the assessee?
Kunj Power Projects v. UOI 2016 (41) STR 3 (All.)
Facts of the case: In the given case, a show cause notice under section 73 of the
Finance Act, 1994 was issued to the petitioner. However, before the petitioner could
submit a reply, its bank accounts were ordered to be attached.
Point of dispute: Whether the order directing the attachment of property can be made
without giving any opportunity of being heard to the assesse?
High Court’s observations: The High Court after a detailed analysis of the legal
provisions, observed inter alia that the order directing attachment of the property without
waiting for a reply to the show cause notice, and without giving any opportunity and
without giving any notice, was in gross violation of rule 3 of the Service Tax (Provisional
Attachment of Property) Rules, 2008 read with paragraph 2(iii) of the Circular

103/06/2008 ST dated 01.07.2008 (Instructions regarding provisional attachment of

property under section 73C of Finance Act, 1994).
The High Court further observed that it was mandatory for the authority to issue a notice
giving 15 days time to reply before attaching a property. Since proceedings under
section 73 of the Finance Act, 1994 had been initiated and a show cause notice had
already been issued to the petitioner, action for attachment could only have been initiated
by the Commissioner and should not have been initiated by the Deputy Commissioner.
High Court’s Decision: The High Court held that the respondents need to be careful
while resorting to exercise the powers contemplated under rule 3 of the Service Tax
(Provisional Attachment of Property) Rules, 2008. Such exercise of power has to be
resorted to with utmost circumspection and with maximum care and caution. In the light
of the aforesaid discussion, order for provisional attachment of property was quashed.
Note: CBEC, vide Circular No. 196/06/2016 ST dated 27.07.2016, has taken note of the
aforesaid decision. The Circular further emphasizes that there are adequate safeguards provided
in law on the above issue as also highlighted in instructions provided in Circular No. 103/06/2008
ST dated 01.07.2008 and there should not be any non-compliance of the same.

SECTION C: CUSTOMS
CHAPTER 12: PROVISIONS RELATING TO ILLEGAL IMPORT, ILLEGAL EXPORT,

CONFISCATION, PENALTY & ALLIED PROVISIONS
1. Whether the expression ‘goods in respect of which any prohibition is in force’

refers to smuggled goods or prohibited goods?
Gopal Saha v. UOI 2016 (336) ELT 230 (Cal.)
Facts of the Case: The petitioners had smuggled gold bars of foreign origin, into the
country. These gold bars were seized on the belief that they were illegally imported into
the country and were liable for confiscation under section 111 of the Customs Act, 1962.
Further, penalty under section 112(i) had been imposed for improper importation of such
gold bars.
Under the relevant provision, a penalty not exceeding the value of the goods or ` 5,000,
whichever is greater can be levied, for improperly bringing into the country “goods in
respect of which any prohibition is in force under this Act or any other law for the
time being in force”.
The primary contentions of the petitioners, against levy of the penalty under section
112(i), were:
(i) The penalty under section 112(i) could not be imposed on the gold smuggled by
them as gold was not a prohibited item and its import was not prohibited by virtue of
any notification/order under the Customs Act, 1962/ any other law for the time being
in force.
For the purpose of the expression “goods in respect of which any prohibition is in
force under this Act or any other law for the time being in force”, there must be an
order of prohibition under either the Customs Act, 1962 or any other statute.
Further, such prohibition would relate to the nature of the goods prohibited and
would not cover the manner of its import/smuggling into the country.
(ii) A distinction needs to be made between the ‘illegal import’ defined under section
11A(a) of the Customs Act, 1962 and the definition of ‘prohibited goods’ under
section 2(33) thereof.
(iii) Sections 104 and 135 suggest that prohibited goods referred under the Customs
Act, 1962 relates to only those goods which are specifically prohibited from being
brought into the country by the said Act/any other law.
The primary contentions of the Revenue were:
(i) When the import of any goods is permitted by the Customs Act, 1962/any other law
in any particular manner and form, any other mode/method adopted to bring such
goods into the country would tantamount to conduct infringing the prohibition of
import of the goods in accordance with law. Thus, an act of import in contravention

of the statutory process recognised therefor must be regarded as conduct in

derogation of the prohibition imposed by law.
(ii) It referred the judgement of Supreme Court in case of Om Prakash Bhatia v. CCus.
2003 (155) E.L.T. 423 (S.C.). In the said case, the Apex Court, considering the
meaning of the expression ‘contrary to any prohibition imposed by/under this
Act/any other law for the time being in force’ appearing with reference to
confiscation of improperly exported goods and the expression ‘subject to any
prohibition under this Act or any other law’ in the definition of ‘prohibited goods’ in
section 2(33) of the Act, concluded that if the conditions prescribed for import/export
of goods were not complied with, it would be considered to be prohibited goods.
It further referred the judgment of CCus. (Preventive) v. M. Ambalal and Co. 2010
(260) E.L.T. 487 (S.C.) wherein the Apex Court held that smuggled goods could not
be regarded as imported goods.
Point of Dispute: Whether the expression ‘goods in respect of which any prohibition is in
force’ refers to any goods which have been smuggled into the country which may
otherwise have been brought into the country by the appropriate channel upon payment
of duty due thereon or goods specifically prohibited from being brought into the country?
High Court’s Observations: The High Court observed that there is a distinction between
section 111 and section 112. The former provides for confiscation of improperly imported
goods and the latter prescribes the penalty for improper importation of goods.
The judgments relied upon by the Revenue revealed a liberal construction of a provision
in favour of the Revenue to deal with the mischief for which the statute and the provision
have been enacted.
However, such construction may not apply to a penalty because the fundamental rule for
construing a penal provision is otherwise. In other words, it is possible for a provision
providing for confiscation of goods to be liberally interpreted, but when a provision
provides for punishment, it has to be strictly construed.
Thus, while the corresponding provision in section 111 permits the confiscation of the
goods on a broader construction of the relevant expression with reference to the
definition of ‘prohibited goods’; the similar provision in section 112 has to be strictly
construed and confined to goods which are expressly prohibited from being imported into
the country.
High Court’s Decision: In the light of the aforesaid discussion, the High Court inferred
that expression ‘goods in respect of which any prohibition is in force’ in the context of
section 112 implies goods which are prohibited from being imported and not goods which
have been smuggled into the country in contravention of the procedure established by
law for the import thereof.
Consequently, the order imposing penalty on the petitioner was set aside and the matter
was remanded for such limited purpose for the imposition of other permissible penalty.

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PAPER – 8 : INDIRECT TAX LAWS

PART – III : QUESTIONS AND ANSWERS

© The Institute of Chartered Accountants of India

(iv) CENVAT credit on input services used 2,000

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Interest on delayed payment of service tax

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Valuation of imported goods under customs

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

[No duty is payable on exempted and non-excisable goods]

© The Institute of Chartered Accountants of India

Common CENVAT credit [(C)] 60,000

© The Institute of Chartered Accountants of India

Less: Abatement @ 30% 2,160

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

8. Computation of value of service portion in the execution of works contract

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(i) an advocate or partnership firm of advocates providing legal services;

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10. Computation of refund of service tax (including cesses) available under

Net refund = (A) + (B) 30.80 1.10 1.10

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Insurance paid to the insurer in India [Note 1] 3,000

© The Institute of Chartered Accountants of India

Position from 14.05.2016

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Paper 7 : Direct Tax Laws & Paper 8 : Indirect Tax Laws

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© The Institute of Chartered Accountants of India

Part I : Statutory Update – Indirect Tax Laws

SECTION A: CENTRAL EXCISE

1. Following amendments have been made in the CCR:

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(b) Jewellery manufacturer with turnover upto ` 15 crore in preceding year

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

CHAPTER-5: GENERAL PROCEDURES UNDER CENTRAL EXCISE

1. Assessee conducting business both as an importer and a first stage dealer

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Jewellery manufacturers (excluding manufacturer of articles of silver jewellery not

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