Somesh Arora: Tax-stressed: Talk it over

Query: The Area wise exemptions to specified areas of H.P., Uttarakhand etc. are expiring as on 31-03-2010, we have already started our commercial production under Notfn.50/2003-C.E. dated 10.06.2003 in the year 2009, are we allowed to increase our installed capacity after 31.03.2010 and will Department have any objections to it?

Reply:  In Exemption Notification No. 50/2003-CE dated 10.06.2003 read with Section 5A of the Central Excise Act, 1944, under which you are operating after having started commercial production in 2009, there is no concept of installed capacity for units which are newly set up under Clause 2(a).  Only condition is that they should have commenced commercial production after 07.01.2003 but before 31.03.2010.  As such you appear to be entitled to do all such acts, as are normally done in course of business (including changing machines during next ten year).  Installed capacity consideration arises only in respect of units, which were in existence prior to 07.01.2003 and falling under Clause 2(b) of the aforesaid Notification. 

Therefore it appears that in Clause 2(a) units, the consideration of installed capacity is not relevant and will have no relevance even after 31.03.2010 going by the language of Notification as it stands today.  This is without prejudice to the language in future, as the Central Government has the power to introduce any explanation with retrospective effect under Section 5A of the Act. 


Query: We have received demands relating to our supplies to S.E.Z units and developers for paying Export Duty on iron and steel for the time when such duty was in force? We are of the view and have stated to custom authorities that such supplies are not exports and should not be taxed as these continue to be dispatched with in territory of India?

Reply: The issue has been decided by the H`ble Gujrat High Court in the matter of M/s Essar Steels Ltd. versus Union of India reported in 2010(249) E.L.T. 3 (Guj) in which case the views expressed by you were duly endorsed, but it appears that Revenue Department may exercise its option to agitate before the apex court. Therefore, nothing stops it from continuing to issue SCN and raise demands in other jurisdictions and placing such demands in call book cases. However, any coercive action by the Department pursuant to such demands will not be proper.

Query: We had made certain imports under EPCG scheme under Notification No. 160/92-Cus, dated 20/04/1992, however despite the concerned Notification not having any provision for interest, the DGFT authorities are continuing to demand and insist on payment of interest on duty to customs department?

Reply: The H`ble Tribunal has held in 2008 (231) E.L.T. 524 (Tri. - Chennai) FAL INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, CHENNAI  and various other cases that interest cannot be demanded under Customs Act, 1962 or in Notification No. 160/92-Cus, for breach of condition attached to notification.  However, the DGFT authorities normally demand such interest on the basis of Letter of Undertaking (LUT) executed with them at the time of imports. Such LUT is in the nature of an agreement between prospective importer and DGFT authorities and normally stipulates payment of interest in case of default. Therefore, the civil liability to pay interest cannot be denied even though it may be disputed that it is not statutory and therefore is governed by general law of limitation and should be demanded with in three years of breach of agreement.

Query: What are the implications of recent amendment in the budget relating to copyright in the Service –Tax? Are the producers of the movies owning copyrights liable to pay tax?

Reply: The amendment will cover most of the copyrights except of the literary variety pertaining to print media and dramatic and musical performances etc. It shall cover sale of Music rights to music companies, exploitation of commercial nature of Cinema films by producers or copyright owners, sale of TV serials or even sale of telecast rights pertaining to cricket or other sports events for consideration. Even the sale of news feeds to other channels when commercially exploited shall be covered. There is likelihood of coverage of all those websites who charge the visitors for their contents pertaining to above copyrights (though the collection of tax from foreign websites may be an issue and therefore may require exemption in case of internet users).

            (The views expressed do not constitute a legal authority)