Post Qualification Course in International Trade Laws

1
Post Qualification Course in International
Trade Laws WTO

• Economic Offences Central Excise Law

2
Tax Price for Civilized Society

• Tax is the price which we pay for a civilized
  society
• - Justice Holmes
• US Supreme Court

3
Direct Indirect Taxes

• Tax Collection
• (2004 05)
• Union Excise Duty - Rs.1,04,1999 crore
• Customs Duty Rs. 54,250 crore
• Income Tax Corporate Tax Rs.1,39,365 crore

4
Offences Causes

• Central Excise Duty is an indirect tax
• Result - Entrusted to Subordinate Management

5
Offences Causes II

• Indirect taxes are regressive
• Are they?
• CE Duty is a kind of expenditure tax

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Offences Causes III

• High tax rates induce temptation to evade
• To sell cheap break barriers
• (Anti dumping duty example)
• To enjoy unjust enrichment.

7
Minimal Control Necessary

• But economic progress calls for industrial
  development
• Industrial development requires liberalised
  environment

8
Liberalization CE Law Procedure

• 1968 Introduction of SRP
• 1986 Modvat ( 2000 cenvat)
• 1992 One time registration
• 1994 Modvat on capital goods
• Invoice by Dealers

9
Liberalization CE Law Procedure

• 1996 Mandatory penalty for evasion
• 1999 Rationalisation of tax rates
• 2000 Abolition of Statutory records
• Reliance on private records

10
Liberalization CE Law Procedure

• 2001 New Central Excise Rates
• 2004 Integration of Cenvat credit of CE duty
  ST

11
Liberalization CE Law Procedure

• 10 September 2004
• Cenvat Credit Rules 2004
• Compounding of offences.
• Duty liability from successor in business
• Maximum 3 adjournments
• Increase in fee for appeals

12
Liberalization CE Law Procedure

• Audit under section 14 A 14AA
• Excise Audit 2000

13
Excise Audit 2000

• Selective audit unit frequency based on risk
  assessment
• Audit preceded by Desk Review
• Specific audit duration
• Duty gt 5 crore - 7 days
• Duty 1 5 crore 5 days
• Duty 0.5 1 crore 4 days
• Duty 0.1 0.5 crore 3 days
• Duty lt 0.1 crore 2 days

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Why CAs Should Study Economic Offences

• Certification role
• Tax Auditor role
• Advisory role

15
Certification Role Examples

• Inventory
• GSM case
• Excess stock - not clandestine removal
• Credit records
• Disclosures
• Suits involving audit certificates
• Call as witness

16
Tax Auditor Role

• Waste and scrap is practically treated as final
  product for excise purpose
• There are about 85 entries of waste in CETA
• Waste scrap - importance

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Case Study on Waste Scrap

• Activated clay is used for refining bleaching
  edible oil. The spent earth is subsequently
  sold. It is specified in the tariff. Offence
  case was made for failure to pay daily.
• Discuss.

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Waste Scrap

• Mention in CETA
• Marketable commodity (spent nickel)
• There should be manufacture
• Ancillary process is not manufacture (Cinder)

19
Offences vs. Activism

• Thorough knowledge essential to guard against
  overzealousness

20
Offences vs. Technology

• Computer assembly is not manufacture
• Triveni Engineering Marketability test goods
  as such
• No duty on immovable property
• No duty in case of dismantling
• Removal without dismantling attracts duty
• Turnkey project not dutiable but components, if
  marketable.

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Offences vs Technology

• Computer assembly is manufacture
• Information supplied by e-mail
• Software is goods for ST Octroi but is
  software manufactured?
• Recording of cassette is manufacture
• Receiving cassette and recording music as per
  choice is service activity
• Packing of CD, pan masala etc.

22
Important Concepts

• Manufacturer
• Job Worker
• Hired Labourer
• Master-Servant relationship
• Owner of Raw material
• Brand name owner
• Manufacturer should not be dummy

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Basic Procedures

• Registration vs. exemption (gt 40 / 100 lakh)
• Daily stock register (R 10) for goods
  manufactured, cleared in stock.
• Form not prescribed
• Nil entry- when entry QC packing
• Clearance under invoice duly authenticated
• Triplicate / Additional copy proforma invoice

24
Basic procedure

• Monthly return in ER 1
• Quarterly return by SSI in ER3
• Monthly return by EOU in ER2
• ER4 by assessee paying duty gt 1 crore

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Basic procedure

• W.e.f. 25.11.2004 information about principal
  input in ER5 by 30th April
• First return by 31st December, 2004
• Changes within 15 days in ER5
• Only for specific tariff heading and by
  assessees paying duty gt 1 crore
• Monthly return of receipt and consumption of
  principle input in ER6

26
Basic procedure

• Submission of list of records maintained for
  purchase, receipt, sale or delivery of goods
  including inputs and capital goods
• Changes in boundary, management etc. to be
  intimated in EA 1.

27
Cenvat Offences

• If cenvat wrongly taken or availed, interest is
  payable. (R 14) (S 11 A B)
• Interest for wrong utilization - appears valid
• Interest for wrong availment debatable
• Taking attempting to commit offence
• Utilising committing offence

28
Cenvat Offences

• Penalty for taking wrongly cenvat credit (R 15)
• Not ensuring inputs suffered duty
• Contravention to Cenvat Credit Rules
• Penalty confiscation on goods monetary
  penalty (limited to duty or Rs.10,000/- whichever
  is high.

29
Cenvat Offences

• Penalty in case of fraud, etc. (S 11/ R 15)
• Mandatory penalty equal to duty
• 25 reduction in penalty for prompt payment
• For service tax mandatory minimum penalty
  duty maximum is twice duty.

30
Offences SSI Units

• Common office, common partners
• No financial flow back
• No common funding
• One unit belongs to FIL another DIL both under
  SIL no common funding or financial flow back
• One unit belongs to husband another to wife
  both managed by husband under POA
• Other facts of case to be seen

31
Payment under protest

• Refund possible when payment under PLA
• Refund not possible when payment through cenvat
  credit
• No provision for cash refund of cenvat credit
  except for exports and other cases of
  departmental lapses.

32
SCN Time Limit

• SCN for normal cases - one year
• SCN for fraud five years
• Time limit valid even when there is interim stay
• SCN needed even if party admitted liability
• Mere letter is not SCN
• Mere endorsement is not SCN
• No SCN - No Penalty

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Suppression, Misstatement or Fraud

• Conscious withholding not mere in action
• No suppression, if no disclosure requirement
• When facts disclosed, fraud cannot be alleged.
• No suppression, if department knows the facts.

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Important Factors

• Demand on fuel consumption basis is arbitrary.
• Demand without reckoning wastage is unsustainable
  .
• Raw material shortage is inadequate for
  clandestine removal.
• False statement to bank etc. cannot prove
  suppression of production.
• Demand on private slips basis without
  corroborative evidence not valid