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Solution
PAPER 10

Applied Indirect Taxation

Answer 1.(a) (i) (ii) (iii) (iv) (v) (vi) (vii) Alcoholic Liquor 12 Cognizable Superintendent 30 Tariff item 4%

Answer- 1.(b) (i) False- CENVAT credit is provided only on those materials which are used in final product. Here, Materials used for maintaining factory do not have any relation to production of final products. False- In custom Act, definition of goods does not exclude second hand goods. Therefore second hand goods are chargeable to duty. False- Subsidy given by government is not a part of sale. False-Rule 4(2) of the Service Tax Rules 1994 provides that in such cases, the assessee can obtain centralized registration at his option if(a) he has centralized billing or centralized accounting in respect of such service, and (b) such centralized billing or centralized accounting systems are located in one or more offices or premises. The assessee can register such offices or premises where centralized accounting or centralized billing systems are located. False- There is no compulsory assessment at the end of each year under VAT system. Dealer has to assess VAT liability himself in terms of submission of return upon setting off the tax credit return from etc.

(ii) (iii) (iv)

(v)

Answer- 1.(c) (i) Taxable event is that on happening of which the charge is fixed. It is that event, which on its occurrence creates or attracts the liability to tax. Excise duty is leviable on all excisable goods, which are produced or manufactured in India. Thus, in India manufacturing or production of excisable goods is a taxable event for central Excise. Taxable event happens to be at a particular point of time (production or manufacturing); levy and collection of such tax may be postponed to a later date. Therefore removal from factor is not taxable event. Basic requirement of principal of natural justice are(a) Full information about charges (b) Allowing party to state his defence

(ii)

2 (c) Unbiased authority (d) Order with reason Appropriate state means; (a) In relation to a dealer who has one or more places of business situated in the same state, that state. (b) In relation to a dealer who has places of business situated in different States, every such State with respect to the place or places of business situated within the territory. The Tax Reforms committee under the chairmanship of Late Dr. Raja Chelliah recommended introduction of service tax. Three variant of VAT are (a) Gross product variant (b) Income variant (c) Consumption variant

(iii)

(iv) (v)

Answer 2(a) Subtraction method of VAT- There are two methods of subtraction method Direct Subtraction Method: Deducting aggregate value of purchase exclusive of tax from the aggregate value of sales exclusive of tax. Intermediate Subtraction Method: Deducting tax inclusive value of purchases from the sales and taxing difference between them. It is also a simple method. Under this method, the tax is charged only on the value added at each stage of the sale of goods. Since, the total value of goods sold is not taken into account, the question of grant of claim for set-off or tax credit does not arise. This method is normally applied where the tax is not charged separately. Under this method for imposing tax, 'value added' is simply taken as the difference between sales and purchases. This method is suitable when VAT rate is uniform on all commodities. If vat rates are different on intermediate product and final product, the cascading effect of taxes cannot be eliminated. This method is suitable for gross variant where purchases of capital goods are ignored. Answer 2(b) Provisional Assessment- As per Rule 7 of the Central Excise Rule, 2002 make provisions in respect of provisional assessment. Provisional assessment can be requested by the assessee. Department cannot itself order provisional assessment. An assessee can request for provisional assessment if (a) Assessee is unable to determine the value of excisable goods in terms of section 4 of CEA. (b) Assessee is unable to determine rate of duty applicable. In aforesaid cases, assessee may request Assistance/Deputy Commissioner in writing giving reasons for provisional assessment of duty. After such request, AC/DC may by order allow payment of duty on provisional basis. The AC/Dc shall also specify the rate or value at which the duty will be paid on provisional basis [Rule 7(1)]. Payment of duty on provisional bases will be allowed subject to execution of bond for payment of differential duty [rule 7(2)]. After that AC/DC should pass order for final assessment within 6 months from the date of order of provisional assessment. If differential amount is payable, interest is payable.

3 If excess amount was paid, it is refundable with interest. The refund is subject to provision of unjust enrichment. Answer 2(c) Refund of special CVD paid on goods imported by a traderUnder section 3(5) of Customs tariff Act, a special CVD (SAD) of 4% is imposed on imported goods. This is in lieu of sales tax which is payable by manufacturers in India. A manufacturer using theses goods in this manufacture can avail Cenvat credit of this duty. Thus, manufacture gets credit through central excise route. Traders selling imported goods in India after charging sales tax/vat can claim refund of special CVD from customs department-Notification No. 102/2007. Cus dated 14-9-2007 The trader (dealer) selling such imported goods must mention in his invoice that the buyer will not be able to avail CENVAT credit of such duty. Answer 3(a) Selling price of Goods Assessable value of the goods [Selling price excise duty= 2100- 2100 Basic Excise Duty @16% (a) Education Cess @2% on BED (b) SHEC @1 %( c) Total duty payable (a+b+c)
. .

Rs.2100 ] Rs.1802.89 Rs.288.46 Rs.5.77 Rs.2,88 Rs.297.11

Answer 3(b) C Form- C form is issued by buyer who is registered dealer under CST Act. If buyer issues C form he can purchase goods at concessional rates in inter-state sale. C Form can be issued only by a registered dealer to another registered dealer. F Form- This form is issued for stock transfer and not on sale. As per section 6A (1) of CST Act, submission of F form is mandatory to prove stock transfer. Otherwise, the transaction will be treated as sale for all purposes of CST Act. H Form- This is issued when the buyer buys the goods for export. If buyer issues H form, the selling dealer is not required to charge or pay any CST on the transaction. Answer 3(c) Refer 2005 - Dec [6] (a) Answer 4(a) As per Rule 3 (3) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007. If the value cannot be determined under the provisions of sub-rule (1) and sub-rule (2), the value shall be determined by proceeding sequentially through rules 4 to 6. Determination of export value by comparison(Rule 4) The value of the export goods shall be based on the transaction value of goods of like kind and quality exported at or about the same time to other buyers in the same destination country of importation or in its absence another destination country of importation can be considered-rule 4(1) of Customs Valuation (determination of Value of export Goods) rules, 2007.

4 In determining the value of export goods under sub-rule (1), the proper officer shall make such adjustments as appear to him reasonable, taking into consideration the relevant factors, includingdifference in the dates of exportation, (i) difference in commercial levels and quantity levels, (ii) difference in composition, quality and design between the goods to be assessed and the goods with which they are being compared, (iii) difference in domestic freight and insurance charges depending on the place of exportation etc. rule 4(2) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007. goods of like kind and quality means export goods which are identical or similar in physical characteristics, quality and reputation as the goods being valued, and perform the same functions or are commercially interchangeable with the goods being valued, produced by the same person or a different person- Rule 2(1)(a) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 Computed value method(Rule 5) If the value cannot be determined under rule 4, it shall be based on a computed value, which shall include the following:(a) cost of production, manufacture or processing of export goods; (b) charges, if any, for the design or brand; (c) an amount towards profit. Rule 5 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 Residual method(Rule 6) Subject to the provisions of rule 3, where the value of the export goods cannot be determined under the provisions of rules 4 and 5, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules provided that local market price of the export goods may not be the only basis for determining the value of export goods- Rule 6 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007

Answer 4(b) Basic duty payable Rs.1,00,000 Education Cess payable @ 2% on BED Rs. 2000 SAH Education Cess payable@ 1% on BED Rs. 1000 The Cenvat credit available for June, 2010 is as follows: Particulars Basic duty Service Education SAH education tax Cess Cess Input 25,000 --500 250 Duty on Capital Goods(50% will be eligible this year balance next year) 3,000 --60 30 Input service 5,000 100 50 Total Credit available 28,000 5,000 660 330 Credit of Rs.33,000 (28000+5000) can be utilized for Basic Duty. Credit of education Cess and SAH Education Cess can be utilization only for payment of education Cess and SAH education Cess on final product only. Hence, Duty Payable for June, 2011 is as follows:Basic duty Education Cess SAH education Cess A. Duty Payable 1,00,000 2,000 1,000

5 B. Cenvat Credit 33,000 660 330 Net Duty Payable(A-B) 67,000 1340 670 Net duty payable Rs. 69,010/- assessee will be required to pay by GAR challan for the month of June, 2010. Last Date for payment is 5th July, 2010 Answer 4(c) As per explanation to Sec28E(c), "joint venture in India" means a contractual arrangement whereby two or more persons undertake an economic activity which is subject to joint control and one or more of the participants or partners or equity holders is a non-resident having substantial interest in such arrangement. Answer 4(d) Goods are not Chargeable to CST- Under section 2(g) sale means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration. Transfer of goods from one person to another person without consideration does not amount to sale within the meaning of the definition under section 2(g) of CST Act and therefore CST is not attracted. Answer 5(a) Interpretation of definition given u/s section 3 (b) CST Act, is all subsequent inter-state sales to registered dealers by transfer of documents during movement of goods are exempt from sales tax[E-I, E-II transaction]. In this case, W will receive declaration in C form from X and will issue declaration in E-I form to X. Later, X will issue declaration in E-II form to Y and receive declaration in C form from Y. Finally, Y will issue declaration in E-II form to Z and will receive declaration in C from Z, which will complete the chain (as Z is last customer). If the chain is broken (means if z sells goods to A without issuing of declaration in form E-II CST will be leviable), CST will be payable again. Otherwise, all subsequent sales will be exempt from sales tax. Answer 5(b) Importance of tax invoice- in voice is the essence of vat system on the basis of invoice credit of input can be claimed by dealer. Without tax invoice vat credit of tax paid on inputs is not admissible. Invoice for vat purpose must contain following things1. Invoice on the top of paper 2. Name and address of the selling dealer 3. TIN of selling Dealer 4. Serial number of invoice 5. Date of invoice 6. Name and address of the buying dealer 7. TIN of buying Dealer 8. Full description of the goods 9. Quantity of goods 10. Price of the goods 11. Total value of the goods 12. VAT rate

6 13. 14. 15. 16. Total VAT paid(payable) Declaration as required under State Vat Act Transport detail (if any) Signature of authorized person

Answer 5(c) Refer 2008-Dec [4](a) Answer 6(a) Computation of tax liability of Mr. X (Manufacturer), Mr. B (Distributor), Mr. K (wholesale dealer) and Retailer Mr. X Mr. B Mr. K Retailer Net Sale price (Excluding of VAT) 2,000 2,400 3,000 4,000 Add Vat @ 12.5% 250 300 375 500 Total selling price(Including Vat) 2,250 2,700 3,375 4,500 Vat Credit available Nil 250 300 375 Net Vat Payable 250 50 75 125

Answer 6(b) Short levy may arise out of misclassification, under-valuation or inapplicability of exemption notification. In this case assessee charges the goods at lower rate. Short payment arises out of a short levy or short payment of correct levy. It indicates less payment of excise duty than what actually is due. Answer 6(c) As per section 76(1)(g) of Customs Act 1962,no drawback shall be allowed in respect of any goods, the market price of which is less than the amount of drawback due thereon. Amount of duty drawback = 1000kg. Rs.30 = Rs.30,000 Market price of the goods = Rs. 25,000 In the given case market price is more than the duty drawback. Hence, no duty drawback is allowed. Answer 6(d) As per section 5A(1A) of the Central Excise Act 1944,manufacturer of the goods which are exempt from duty, is bound to avail exemption. Hence if any goods are exempt from excise duty then the manufacturer has to avail it. Answer 6(e) As per section 67 of Customs Act, 1962 with the permission of the proper officer, the warehoused goods can be removed from one warehouse to other warehouse under bond. For this purpose transit bond for concerned Customs Duty together with bank guarantee is required to be submitted. However bank guarantee is not to be submitted by an Export Oriented Unit. Answer 6(f)

7 As per rule 2(k) of CENVAT Credit Rules, 2004 credit of inputs is available only for inputs used in or in relation to manufacture of final or for any other purpose, if the inputs are lost or destroyed in the store room or during transit, credit of duty paid on such inputs will not be available. In the given case 10 kgs of inputs are destroyed in transit i.e. these could not be used in or in relation to production or manufacturing of excisable goods. Hence these inputs do not qualify to be inputs within the meaning of Cenvat credit rules 2004. Therefore, Cenvat Credit admissible for the assessee = 2000 100 = Rs. 1900. Answer 6(g) The given statement is not correct. A Chartered Accountant and a Cost Accountant, both are eligible for special audit under section 14A and 14AA of the Central Excise Act 1944, as per the amendment made by the Finance (No. 2) Act 2009. Answer 7(a) Tribunal has no power no power to review its order- Patel Narshi Thakershoi vs. Pradhyumansinghji Arjunsinghji-AIR 1970 SC 1273=(1971)3 SCC 844. However, tribunal may pass order for rectifying a mistake apparent from the records within six months of passing of order section 35C(2 )of CEA similar section 129B(2) of Custom Act. The section is actually says that Tribunal may rectify the order within 6 month. As per practice, it is considered sufficient if application for rectification is made within 6 months. This is correct as why assessee or department should suffer for no fault of theirs, just because Tribunal did not pass order in time? In Shree Ayyanar Spg & Wvg Mills v. CIT (2008) 229 ELT 164 (SC), it has been held that once Rectification of Mistake application is filed within time, tribunal can rectify the mistake even after that period. Mistakes apparent from records can be rectified- The purpose of ROM is based on the fundamental principal that no party appearing before tribunal, be it an assessee or department, should suffer on account of any mistake committed by the Tribunal. When prejudice results from on order attributable to Tribunals mistake, error or omission, then it is duty of Tribunal to set it right Honda Seil Power Products Ltd. v Cit (2007). Apex Court, in TS Balaram, ITO v Volkart Brothers AIR 1971 SC 2204, it was held that a mistake apparent from the record must be an obvious ant patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. The mistake sought to be rectified must be manifest and self evident. A decision on a debatable point of law is not a mistake apparent from the record. Tribunal cannot review its order in the grab of rectification.

Answer 7(b) Residential Complex- As per Sec. 65(91a) of Finance Act, 1994, Residential Complex means any complex comprising of following(i) a building or buildings, having more than twelve residential units (ii) a common area; and

8 (iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises; and (iv) The layout of such premises is approved by an authority under any law for time being in force. However, it does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for person use as residence by such person. Answer 7(c) As per proviso to section 11B(2): [parallel section 27(2) of Customs Act], bar unjust enrichment does not apply in following casesRebate of excisable goods exported out of India(if he had exported on payment of duty) Rebate of excise on excisable materials used in manufacture of goods exported out of India(if he has not availed Cenvat Credit) Refund of duty paid on input(if payable according to any rule or notification) Export duty Duty drawback

Answer 8(a). Determination of total taxable turnover Rs. 19,38,000 38,000 19,00,000 20,000 18,500 19,38,500 38,770 19,77,270

Total turnover (Including CST) Less- CST [19,38,000 ] Total Turnover excluding CST Add- Packing Charges Add- Marine insurance Taxable turnover Add- CST @2% Total Turnover

Answer 8(b) Computation of value of taxable services of RTC Particulars Total freight received during the year Less- freight charges received for transporting fruits (Exempted services) Rs. 62,500 Rs. 6,75,000

9 Less- Freight collected for transporting small consignment for persons who paid less than Rs. 750 for each consignment (Exempted services) Less- Freight collected for less than Rs. 750 for each consignment Balance freight charges: Less- Unconditional Exemption of 75% Value of taxable services 37,500 75,000 1,75,000 5,00,000 3,75,000 1,25,000

Answer 8(c) Particulars Total maximum retail price of 5000 containers @Rs.200 Less: abatement available @40% Assessable value u/s 3(2) Additional duty of customs@10% Add- Education cess @ 2% Add-Secondary & higher education cess @ 1% Additional Custom Duty payable Rs. 10,00,000 4,00,000 6,00,000 60,000 1,200 600 61,800