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Dippak

CS/ CWA Latest examination questions:


[June/ Dec 2010- Inter / Final] -- Hint Answer

Excise
Under section 37B of the Central Excise Act, 1944 and section 151A of the Customs Act, 1962, the Central Board of Excise and
Customs (CBE&C) issues various orders, instructions and directions to its officers from time to time. What is their binding effect
? Are they binding on all departmental authorities including quasi judicial authorities like Commissioner (Appeals) ? Are there
any restrictions on such powers ? Can they have retrospective effect? - (5)

- Sec 37-B: CBEC can issue circular for ensuing uniformity [Same is Sec 151-A of Customs Act]
- Binding Nature: Binding on Dept Not binding on assesse and appellate authorities
- These are binding on all departmental authorities but on none of appellate authority
- Restriction on power:
- Circular cannot be assesse-specific
- Circular shall not interfere with powers/discretion of CCE(Appeals)
- Applicability:
- Circular beneficial to assesse : operative retrospectively
- Circular prejudicial to assesse: operative prospectively

Examine briefly, whether the process of commercial duplication by which a blank CD is transformed into software loaded
marketable CD constitutes manufacturing or processing of goods ? Support your answer with recent judicial pronouncement. (5)

- Process of duplication of blank cd into software CD amounts to manufacture [Use Test getting fulfilled – SONY INDIA LTD – SC-2010] – refer
Study Material

Bharat Export Corporation gets its product manufactured on job work basis from Softex Ltd., an independent processor. The
details of the transactions are as follows :
Particulars Amount
(Rs.)
Cost of materials sent to job worker for processing 25,000
Processor’s charges (including Rs. 7,000 as processing charges and Rs. 5,000 as its profit) 12,000
Transport charges for receiving goods at the premises of the processor 1,000
After processing, the goods are sold by Bharat Export Corporation at Rs. 58,000 from the premises of Softex Ltd. Determine the
assessable value of the goods under section 4 of the Central Excise Act, 1994

- AV as per Rule 10-A(i) [Goods are not covered by Sec 3(2) or 4-A – Hence valuation u/s 4(1) – 4(1)(a) read with Rule 10-A of CEVR, 2000]
- 10-A(i) [goods sold by principal manufacturer to unrelated person for delivery at job-worker’s premise and price is sole consideration]
- AV= TV of goods = Rs 58,000 [presuming given price is exclusive of duties and taxes]

VSK Motors manufactures Light Motor Vehicles (LMV). The practice followed is that the chassis of the LCV is sent to Nathan
Ltd. for building the body as per design and specifications furnished. The LCV chassis is not sold but is transferred after payment
of excise duty on stock transfer basis. Nathan Ltd. avails CENVAT credit on the excise duty on chassis; after completing the body
building, Nathan Ltd. discharges the duty on the ASSESSABLE VALUE comprising the value of chassis and the job charges. After
receipt of the body-built LMV from Nathan Ltd. VSK Motors sells the same at a higher price.
You are required to examine whether the practice followed is correct.

- Nathan Ltd is manufacturing LMV on job-work basis and hence, it shall discharge his duty liability by computing AV as per Rule 10-A of CEVR,
2000.
- In terms of that rule, AV shall be the ultimate sale price at which LMV (completed) are sold by the VSK Motors (principal manufacturer)
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[Concept of ‘NTV’ shall be applied at the time of clearance of goods from factory of Nathan Ltd]
- Thus, practice which is being followed at present is incorrect

Who is liable to pay Excise Duty in case goods are produced or manufactured on Job Work?

- The job-worker being the real manufacturer is liable to pay ED [UJJAGAR PRINTS-1988-SC]
- HOWEVER, if to job-worker benefit of E/N 214/86 is made avaialbe by the principal manufacturer, then principal manufacturer shall be liable to
pay ED.

Name two situations where excise duty liability is not of the actual manufacturer but of the person who has supplied the raw
material to the manufacturer. (2 marks)

- 2 SITUATIONS:
- JOB-WORKER when he is operating under E/n 214/86
- MOLASSES produced in Khandsari Sugar Factory [Rule 4(2) of CER, 2002 --- procurer using them in manufacture of other commodities is liable
for payment of ED] --- its very similar to concept of “reverse charge’ under ST

Can the valuation of goods manufactured and cleared as free samples be done in the basis of MRP for excise purpose?

- Goods whose valuation falls u/s 4-A [Abated MRP based system], shall be valued on same basis even they are distributed as free samples.
- Though valuation in that situation will be done under Rule 4 of CEVR, 2000, but still AV shall be taken as ‘Abated MRP value’.
[CADILA LABORATORIES- TRIBUNAL & CBEC CIRCULAR]

LMN Aluminum Ltd. is engaged in manufacture of aluminium sheets and allied products. The assessee noticed some difference at
the time of physical verification of stock, as compared to book records, due to several reasons like rain seepage, weighment
differences, accounting method employed, etc. The assessee applied under Rule 21 of the Central Excise Rules, 2002, seeking
remission of duty. This claim is resisted by the Department on the ground that the reasons for the differences were neither due to
natural causes, nor due to unavoidable accident. The assessee’s request was hence turned down, though there was clear evidence
to the effect that the assessee has suffered loss of stock.
Is the action of the Department justified? Advise the assessee

- Action of Dept – unjustified [Remission claim shall be entertained]


- Very recently, it has been held the expression ‘unavoidable accident” has to considered and interpretated in a pragmatic (practical manner) and
not mechanically. [refer study material for details]

Who are the persons not eligible for compounding of offence as per the provisions of the Central Excise Act, 1944?

- Sec 9-A Compounding shall not be allowed in following cases:


(1) If it has already been availed once – i.r.o. offences mentioned in point (1) to (6)
(2) If it has been availed once i.r.o. goods of Value > 1 Crore – i.r.o. offences mentioned in point (7)
(3) If the person has been convicted (imprisoned) by Court (on/after 30 Dec, 2005)
th

(4) If the offence is also an offence under NDPS Act, 1985

Pawan, a manufacturer, purchased certain inputs from his supplier Binod. The assessable value was Rs. 2,00,000 and the central
excise duty was calculated at Rs. 32,960. Thus, the total purchase invoice was for Rs. 2,32,960. However, pawan settled the total
invoice by paying Rs. 2,08,000 only to Binod in full settlement How much CENVAT credit can be availed by Pawan?

Credit admissible to Pawan will remain intact, i.e., Rs 32,960 (as initially taken by him on receipt of inputs in his factory] (presuming that the
reduction has been done only in respect of price element of input and not in respect of duty element)
However, if supplier gives reduction in excise duty element also alongwith reduction in price element, then pawan shall be required to reverse
related credit.

M/s. P Ltd. used to label its products with a foreign brand and claimed exemption under a notification. The classification list was
approved by the department after carrying out verifications and all returns were regularly filed. The invoice containing
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description of goods were also regularly approved by the department. The department denied the benefit of exemption to the
assessee for previous period of five years, by invoking extended period of limitation under section 11A on the ground that it failed
to declare the particulars regarding affixing of labels. Is the department justified? Discuss.

- [Basically, assesse was claiming SSI exemption even in respect of clearances which were bearing brand name of another’s person – legally, he was not
entitled to exemption. Thus, this is clear cut case of non-levy and non-payment of duty. But since he has declared everything and has not suppressed
anything, charge of suppression of facts cannot be invoked against the assesse and SCN alleging that shall be invalid. Thus, demand alleging suppression is
not sustainable.

Is it correct to say that mandatory levy of penalty under section 11 AC of the Central Excise Act, 1944 is not applicable to every
case of non-payment or short payment of duty?

n the given statement is correct.


n Sec 11-AC penalty is levaiable only in cases of fraud etc.

SR TAX
Service tax is generally payable by the service provider, but there are certain situations in which service receiver is liable to pay
service tax.” Explain.

- Concept of ‘Reverse Charge’ – Sec 68(2) read with Rule 2(1)(d) of STR, 1994

M/s. Link Ltd. a service provider engaged in providing ADVERTISING AGENCY SERVICES deposited Rs. 2 lakhs as service tax
for the month of April, 2009 on 5th May, 2009 with a designated bank by cheque. The cheque was cleared on 10th May, 2009. The
department alleging that the service tax for the month of April, 2009 has not been deposited in due date for which interest @ 13%
p.a. would be levied.
(i) Is the action of the department right on levy of interest? Give reasons in support of your answer.
(ii) Will the situation be different if the cheque deposited could not be realized due to insufficient funds. (2+1=3 marks)

- Case (i): Dept not justified as Deposit of Cheque by due date = Payment by due date (when cheque is realized) [Rule 6 of STR, 1994]
- Case (ii): Dept is justified as cheque is not realized at all

Calculate the net service tax payable under the provision of the rule 2A of the Service Tax (Determination of value) Rules 2006
relating to determination of value of services in the EXECUTION OF A WORKS CONTRACT from the following particulars:
(i) Gross amount for the works contract (excluding VAT) Rs. 1,00,000.
(ii) Value of goods and materials sold in the execution of works contract Rs. 70,000. (iii) CENVAT credit on (ii) above Rs. 1,000.
(iv) Service tax paid on input services Rs. 1,000.
(v) CENVAT credit on capital goods issued for” works contract Rs. 1,000.
(vi) Service tax rate for the relevant Assessment year is 10.30%.
Make suitable assumptions and provide explanations where required.

Gross ST liability
TV (as per rule 2-A = GAC – Value of Material) 30,000
ST@10.30% 3,090

Less Cenvat Credit


Input – not admissible
CG (50%) + IS (100%) (1,500)

Service tax on GTA will have to be paid by cash/cheque/e-payment only, and not though Cenvat Credit. Comment.

ST liability in case of GTA: 2 Situations:


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(i) When either “consignee” or “consignee” falls under specified category and hence, concept of “reverse
charge” becoming applicable:
-- ST shall be payable in cash only [as CCR, 2004 permits utilization of credit only for payment of ST liability on output service and
not on input service under ‘reverse charge’- Rule 3(4) of CCR, 2004]
(ii) When either “consignee” or “consignee” falls under specified category and hence, concept of “reverse
charge” becoming applicable:
-- ST shall be payable in cash only [as GTA being a service provider is not entitled to take any credit at all – refer definition of
“output service” – rule 2 of CCR, 2004]

VAT
How would you take input tax credit when goods purchased are transferred by the dealer to his branch in any other State ?

n DEALER shall book credit initially


n Later on, at time of stock-transfer, he shall reverse 2% of purchase price and shall be entitled to retain balance credit
n This will make his credit position at par with the situation when goods are sold in course of inter-state trade

A dealer purchased 22,000 kgs. of inputs on which VAT paid @ 4% was Rs. 8,000. He manufactured 20,000 kgs. of finished
product from the inputs 2,000 kgs. was the process loss. The final product was sold at uniform price of Rs. 10 per kg. as follows:
n Good sold within State 8,000 kgs.
n Finished product sold in inter-state sale against ‘C Form 5,000 kgs.
n Goods sent on stock Transfer to consignment agents outside the State 4,000 kgs.
n Goods sold to Government departments outside the state 3,000 kgs.
n There was no opening or closing stock of inputs, WIP or finished products.
n The state VAT rate on the finished product of dealer is 12.5%.
Calculate liability of VAT and CST. Find VAT credit available to dealer and tax required to be paid in cash.

STATEMENT SHOWING COMPUTATION OF VAT LIABILITY FOR JAN, 2010


Particulars Amount
A) Total of OUTPUT TAX during the tax period 14,750
1) Taxable Sales- VAT liability (8,000kg * 10 * 12.5%) 10,000
2) Exempt Sales Nil
3) Non-taxed Sales
a. Inter-State Sales (CST liability) –
-- Against Form-C (5,000 *10 *2% (concessional rate) 1,000
-- Without Form-C (3,000 *10 *12.5% (Local VAT rate) 3,750

b. Export Sales (zero-rated sales) Nil


B) INPUT TAX CREDIT (ITC) during the tax period 7,200
ITC on inputs (22,000 units –full credit) 8,000
Less: Reversal in respect of stock-tfd (800)
ITC related to stock-tfd
[8,000 (total credit) * 4,000 (stock-tfd)/ 20,000 (total output)] 1,600
Less: 50% of credit
[VAT rate being 4%, credit of 2% to be reversed (so a % it comes to 50%]

D) Net Tax Liability (payable by Challan) 7,550


v VAT Liability [10,000 – 7,200] = 2,800
v CST liability [4,750 – Nil] = 4,750
Working notes:
è ITC is admissible even in respect of process losses.

What is Acquisition FRAUD in VAT? (2 Marks)

In ACQUISITION FRAUD, the dealer registers under VAT, charges the VAT on his sale, but disappears without sending any return or paying the
VAT due.
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It started to escalate in the UK around 1998. The fraud involves obtaining VAT registration for the purpose of purchasing goods from a VAT-
free source elsewhere in the EU, selling the goods at a VAT-inclusive purchase price, and going missing without paying the VAT. This is
commonly known as acquisition fraud, and often involves items with rapid turnovers that are moved in high volumes, such as soft drinks and
confectionery

Customs
A manufacturing company has imported certain second-hand machinery for its use and declared its value on the basis of the
‘transaction value’. Can the declared value be rejected by the authorities and, if so, when and how ?

- Normally, TV shall be accepted as AV [Rule 3 of IVR, 2007]


- However, PO can reject TV in following 2 situations:
(1) when he has reason to doubt truthness and accuracy of declared value and importer fails to remove his doubt [Rule 12]
(2) when the valuation conditions as mentioned in Rule 3(2) are not fulfilled

Arpit Alloys Ltd. imported a consignment of metal bars during July, 2008 by sea, weighing 5,300 tons from U.K. A bill of entry
for home consumption was filed and an order for clearance was passed by the Assistant Commissioner. The company paid the
applicable duty. Thereafter, delivery was taken and on examination by the company’s representatives; it was found that only
5,000 tons of metal bars were available at the dock though duty was paid for the entire lot of 5,300 tons. Since there was no short
landing of the cargo, the short delivery of 300 tons was also supported by the weightment certificate issued to the company by the
port trust authorities. The company made a representation to the customs department for appropriate relief under the Customs
Act, 1962. Examine.

- Sec 23- Arpit alloys ltd shall submit claim for remission of duty as goods have been lost after unloading but before clearance for home
consumption
- After getting remission order, it shall apply for refund of duty

What are the conditions for claiming refund ot import duty under the newly inserted section 26A of the Customs Act, 1962?

- please refer DBK Chapter [Annexure in end]


-
CIF value of imported goods is Rs. 10,00,000. Basic CustomsDuty payable is 10%. If the goods were produced in India, Excise
Duty payable would have been 8%. Education cess is 2% and Special Education Cess is 1%. Spl. CVD is payable at appropriate
rates.
Find the Customs duty payable. What are the duty refunds/benefits available if the importer is (a) manufacturer (b) Service
provider (c) Trader?

- refunds / benefits
- (a) Manufacturer: Credit of of CVD and Special CVD for utilization against ED payment of FP [Rule 3(1) of CCR, 2004]
- (b) Service provider: Credit of CVD for utilization against ST payment on output service [Rule 3(1) of CCR, 2004]
- (c) Trader: Refund of Special CVD after sale of imported goods in India and payment of VAT thereon [E/N 102/2007]

Mr. Ram, the assessee, has purchased goods from Mr. Rahim, on HIGH SEA SALES BASIS. Mr. Rahim has imported the same
from Mr. Rahim has charged the assessee for 11,000 USD. Thi assessee contends that while arriving at the assessable value for
customs, the price charged by the foreign supplier to Mr. Rahim should be taken as the basis. Is the same correct?

- Not correct
- Price of High Sea buyer (i.e., Mr Ram) – Rs 11,000 shall be taken as AV [SC decision & CBEC Circular]

What is the “taxable event” in the case of export of goods under customs law? Is export duty payable in case of applicable goods
where ship travels 40 nautical miles from Indian port and the title passes to the buyer, but the ship returns to India because of
engine trouble? What is the relevant date for export duty? (4 marks)

- Taxable event : Crossing EEZ (entering into High Seas) --- as at present, India extents upto EEZ
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- Ship not crossing EEZ (i.e., 200 NM) – Export not complete – Export duty not leviable
- Relevant Date – Sec 16- date on which LEO is issued

Discuss the includibility or otherwise to the assessable value under the Customs Act, 1962 of the following payments made by an
importer to the overseas supplier of a second hand Plant in India:
(i) Dismantling charges for removing the second hand Plant at the suplier’s place and shipping to the Indian importer.
(ii) Fees for supervision of erection and commissioning of plant in India. For this purpose the Foreign Supplier deputed their
technicians in India. (2x2 = 4 marks)

- Dismantling Charges – Includible [pre-importation charges – Rule 10(1)(e) of IVR, 2007]

- Supervision and commissioning charges – Not Includible [post-importation charges – Interpretative Notes to Rule 10(1)(e) of IVR, 2007]

An Importer imported a novel and new article. He was unable to classify his goods under any of the tariff heading or sub- heading
and none matched with the goods under import. Even rules 1 to 3 of classification Rules could not find solution. Hence, no
customs duty is payable on such product. Comment. (2 marks)

- Rule 4 of GIR shall be applicable


- It shall be classifiable under the same heading under which similar article is classifiable – and that duty shall be charged

No anti-dumping duty is payable by EOUs under the Customs Act, 1962, even where the goods imported are used for
manufacture of goods sold in India,

- ADD is chargeable if goods are used in manufacture of goods which are sold into India. [Sec 9-A]
- Initial clearance is given without charging any ADD, but if goods found to be so used then ADD shall become recoverable

Mr. Nirvan Ltd. has imported 10,000 units of materials through Kolkata Port. The ship arrived on 15 January, 2009. After
completion of customs formalities, goods were cleared for home consumption. It is found that:
(i) 500 units are pilfered when they are in custody of port authorities;
(ii) 200 units are found deteriorated in such a condition that the goods are abandoned and rights relinquished. Explain with
provisions, how the above attract customs duty. (4 marks)

- 500 units pilfered – ID not payable by importer [Sec 13] -- instead PO shall recover ID from custodian – Sec 45(3)
- 200 units – title relinquished—Importer not liable to any duty thereon [Sec 23(2)]

Durga Steel Industries imported certain goods and kept them in warehouse. However, the goods were not removed from the
warehouse at the expiration of the statutory time period during which such goods were permitted under section 61 to remain in a
warehouse.
Durga Steel Industries sought to relinquish the title to such goods under the proviso to section 68 of the Customs Act, 1962.
However, the Department contended that since the goods were deemed to be improperly removed from the warehouse
(considering the over stay of such goods in the warehouse) under section 72( 1 )(b), the case would not fall under section 68 and
thus proviso to section 68 could not be invoked. It was submitted that before invoking the proviso to section 68, the conditions of
section 68 must be fulfilled which was not done in the instant case. The Department further contended that the relinquishment is
subject to discretion of proper officer and that the same cannot be done where the importer has the ability to pay the impugned
duty.
Durga Steels contends that this relinquishment absolves the importer from total liability.
Examine the correctness of the rival contentions. (6 marks)

- Department is right – title cannot be relinquished once the permitted warehousing period is over
- Goods not removed within permitted warehousing period are deemed to be removed from warehouse after expiration of warehousing period
[SBEC SUGAR LTD- 2011-SC] – that being so, relinquishment of title is not admissible thereafter
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Mr. Bhar imported goods on .. 14.1.2010


Bill of entry presented on .. 15.1.2010
Assessable value (in Euro) .. 50,000
Goods were removed to warehouse.
Order permitting the deposit of goods in bonded warehouse issued on .. 19.1.2010
Mr. Bhar neither obtained permission of time for the warehousing period, nor cleared the goods within the permitted
warehousing period of 18.4.2010. Only after a notice was issued under section 72 demanding duty and other charges, Mr. Bhar
removed the goods from the warehouse, on 15th May, 2010.
Assuming that no additional duty or SAD is payable, on the basis of following information, compute the amount of duty payable
by Mr. Bhar while removing the goods:

15.1.2010 18.4.2010 15.5.2010


Rate of exchange (1 Euro = ) 65 66 67
Basic customs duty 12% 15% 18%
(5 marks)

Question is based on case-study SBEC SUGAR LTD-2011-SC


Solution:
Applicable Duty rate – as prevailing on 19 April, 2010 –i.e., 15% [as prevailing on day next to expiry of wareshousing period] -- SBEC SUGRAR
th

LTD- 2011-SC
Applicable Ex-rate --- as prevailing on the date of presentation of B/E for warehousing (15 Jan, 2010) – Sec 14 --- i.e., 1 euro = Rs 65
th

ID liability
BCD = 32,50,000 [50,000 Euro * 65] * 15% = 4,87,500
CVD = [32,50,000 + 4,87,500] * 10.30% = 3,84,963
EC = [4,87,500 + 3,84,963] *2% = 17,449
EC = [4,87,500 + 3,84,963] *1% = 8,725
Spl CVD = Nil (as stated in question)