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    Consrtuction Services To GovernmentalAuthority-Patna High Court Widens The Scope Of Exemption

    Certain infrastructural construction services provided by any person to Government, local authority and Governmental authorities are being exempted from service tax under entry 12 of Notification 25/2012-ST dated 20.06.2012. The said entry is reproduced as under;

     

    “12. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

     

    • a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

     

    • a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

     

    • a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

     

    • canal, dam or other irrigation works;

     

    • pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

     

    • a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act”

     

    (Note: With effect from 01.04.2015, the entries (a), (c), (f) are omitted and by entry 12A exemption is restored with respect to these entries but only for contracts entered into prior to 01.04.2015)

     

    The exemption under the above reproduced entry is applicable if the services are provided to Government or Local authority or Governmental authority. The term ‘Governmental authority’ for the purpose of this exemption is given under clause (s) of Part II (Definitions) of the Notification 25/2012-ST dated 20.06.2012. The same is reproduced as under;

     

    “Governmental authority" means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution

     

    In view of the above reproduced definition, the following conditions are required to be cumulatively satisfied in order to consider a particular authority as “governmental authority"—

     

     

     

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    ØItshallbe a board, or an authority or any other body established by Government Øwith90% or more participation by way of equity or control by Government and Øsetupby an Act of the Parliament or a State Legislature

    Øtocarryout any function entrusted to a municipality under article 243W of the Constitution.

     

    Thus the above definition of ‘Governmental authority’ has restricted scope and does not include various bodies/authorities like government companies, boards, authorities that are established and owned by Government by means of a gazette notifications and are not separately setup by an Act of Parliament and State Legislature.

     

    In view of this legal anomaly, the definition has been amended by Notification 2/2014-ST dated 30.01.2014 with a view to include within its ambit, the entities which are established by Government but are not necessarily setup by an Act of Parliament or State legislature. The amended definition is reproduced as under;

     

    "governmental authority" means an authority or a board or any other body;

     

    • set up by an Act of Parliament or a State Legislature; or (ii) established by Government,

     

    with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution;

     

    In the recent Finance Budget, 2016, it is proposed vide clause 156 to introduce a new section 101 in Finance Act, 1994 to refund service tax if any paid based on the previous restrictive definition of ‘Governmental authority’ for the canal or irrigation works undertaken prior to 30.01.2014; The TRU Circular F.No.334/8/2016-TRU dated 29/02/2016, which was issued to clarify the proposed budget changes, has made the following observation;

     

    “K. Service Tax exemption to canal, dam or other irrigation works with retrospective effect:

     

    1. Definition of Governmental authority was amended with effect from 30.01.2014 so as to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature. However, services provided prior to 30.01.2014 to such bodies remained taxable.The benefit of exemption is proposed to be extended to the said services provided during the period from the 1st July, 2012 to 29.01.2014.”

     

    Thus the scope and intent of the above amendment in the definition of ‘Governmental authority’ is with a view to allow exemption benefit to those entities established by Government but not so by way of an Act of Parliament or State legislature.

     

    Recently, the Patna High Court in the case of ShapoorjiPaloonji and Company Limited vs. CCE, 2016-TIOL-556-HC-Patna-ST had the occasion to interpret the scope and ambit of the above amended definition of ‘Governmental authority’.The facts of this case are that the petitioner company was appointed by IIT,

     

     

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    Construction services to Governmental Authority

     

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    Patna to construct their academic building. It was undisputed that IIT, Patna was setup by an Act of Parliament i.e. Indian Institute of Technologies Act, 1961. The petitioner company had initially collected service tax and paid. However, C&AG after conduct of their audit pointed that the petitioner company need not pay service tax for construction undertaken to the IIT. The petitioner applied for refund and the same was rejected.

     

    The petitioner claimed refund on the interpretation that in order to come within the ambit of ‘Governmental authority’, it is sufficient that the same is set up by an Act of Parliament or State Legislature. The condition as to 90% or more participation by way of equity or control and to carry out any function entrusted to a municipality under 243W of the Constitution are not applicable for those entities that are set up by an Act of Parliament or State Legislature. The said conditions are applicable only for the second clause of the definition i.e. authority or body established by Central Government.

     

    The Patna High Court heard the parties and came to the conclusion that no service tax is required to be paid by the petitioner for the reason that IIT falls within the ambit of ‘Governmental authority’. The relevant para is reproduced as under;

     

    “The Governmental authority as defined in the notification dated 30th January, 2014, means an authority or board or any other body set up by an Act of Parliament or State Legislature. The provisions contained in sub-clause(i) and sub-clause(ii) of clause 2(s) are independent dis-conjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution” is related to sub-clause (ii) of clause 2(s) alone. The clause (i) is followed by “;” and the word “or”. Therefore each of the sub-clauses is independent provision.” (para 11)

     

    In view of the above observation of Patna High Court, Governmental authority would include any authority or body set up by an act of Parliament or State Legislature. It also includes any authority or body established by Government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution.

     

    Based on the interpretation of Patna High Court, any authority or body established under an act of Parliament or State legislature would come within the ambit of ‘Governmental authority’. This would be so even if Government is not holding 90% or more equity or controlling interest and such institutions are not entrusted with functions covered under Article 243W.These include institutions like LIC, IRDA, SEBI, ICAI etc. Thus any construction services of the nature specified under entry 12 to these entities would be entitled to exemption;

     

    Before parting, as discussed above, by taking into cognizance the reasons/purpose behind the amendment to the definition of ‘Governmental authority’ coupled with clarification given by TRU on the scope of the amendment, the Revenue is not open to such wide interpretation of the term ‘Governmental authority’ as upheld by Patna High Court. Nevertheless the view of Patna High Court has opened the Pandora’s Box with respect to service tax applicability on the infrastructural construction works undertaken.

    This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    Assessment On Deceased Assessee

    “Only two things are certain in life: Death and taxes- Benjamin Franklin".

     

    We all agree with the above quote. Death will certainly put end to so many issues but not tax issues! In this article, we shall understand the assessment proceedings pertaining to a deceased assessee with the help of judgment of Honourable High Court in the case of CIT vs. M Hemanathan.

     

    The background of the caseis that the Department even though they had notice of death of the assessee, proceeded to initiate revision proceedings against the deceased assessee.

     

    The issue before the Honourable High Court of Madras is whether the proceedings initiated against the deceased assessee are valid when the legal heir has participated in the proceedings?

     

    Facts of the case:

     

    Assessee filed the return of income and the return was processed under Section 143(1) of the Act. Later the assessee case was selected for scrutiny and notice under Section 143(2) issued. A refund order was passed after taking into account the information submitted by the assessee.

     

    After two years of passing assessment order, the CIT issued a notice under Section 263. The show cause notice was addressed to the assessee. Three months before the issue of show cause notice the assessee has passed away.

     

    The show cause notice returned with the endorsement "assessee deceased". This fact was informed by the ITO to the Commissioner. Thereafter department served the same show cause notice to the son of the deceased assessee through messenger. Son participated in the proceedings through authorised representative.

     

    Pursuant to show cause notice the case was remitted back to the assessing officer for passing a fresh order. The assessing officer passed an order raising the demand for payment of tax.

     

    Son (legal heir) preferred an appeal against the order passed under Section 263 to the Tribunal. The appeal is allowed by the Tribunal holding that the order U/S 263 against a deceased person is null. Department has filed an appeal against the order of the Tribunal before Honourable High Court.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    Department Contention:

     

    • The Tribunal was wrong in setting aside the order under Section 263 as null as it was passed against a deceased person as the legal heir participated in proceedings;

     

    • Though the notice was issued on the deceased person it was served on the legal heir and legal heir participated in the proceedings. Therefore, the provisions of section 292BB will apply;

     

    • As per the provisions of section 159(2) legal representative will deemed to be an assessee.

     

    High Court Verdict:-

     

    • Any proceedings initiated against the deceased person is a nullity. Law permits the proceedings to continue after the death of the assessee provided they initiated when he was alive and not otherwise.

     

    • The purpose of issue of notice is to make the person aware of the nature of the proceedings. Once the nature of proceedings is made known and understood by the assessee, he should not be allowed to take advantage of certain procedural defects. The provisions of section 292BB cannot be invoked where the very initiation of proceedings is against deceased person.

     

    • Provisions of section 159(1) would apply to a case where a liability has already crystallized. In this case the very initiation of proceedings was done after the death of the assessee. Despite the known fact that the assessee had passed away the department chose to pursue very same notice and hence department can't take the advantage of Section 159(2)(b).

     

    • As the notice issued against deceased person the provisions of section 159(3) are not applicable.

     

    • The very initiation of the proceedings against the deceased person and the continuation of the same despite having noticed the factum of death of the assessee, cannot be approved.

     

    Remarks:

     

    As the notice was issued in the name of the deceased assessee the proceedings are null. There is distinction between a case where proceedings are initiated against person, who is alive, but continued after his death and a case where proceedings are initiated against a deceased person himself. Former case is valid as per the Act while later is null.

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    Draft Foreign Tax Credit (FTC) Rules

    Background:

    With globalization, International Trade is growing at a rapid pace. There are several aspects which the parties to a transaction consider while transacting international trade. One of them being Income tax. Clarity with regard to the Income tax exposure in the Resident Country and the other Country is of paramount importance to the parties to survive and be competitive in today’s world. Countries of the world fully acknowledge the above fact and have therefore devised ways to ensure clarity with regard to taxing rights over a particular transaction. However, in certain circumstances it may be the case that the tax is levied twice on a particular stream of income which gives rise to “Double Taxation”. 

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    What is Fund?

     

    A fund is a pooled investments collected from the group of investors which can be incorporated as a business entity by way of Trust, Company, Limited Liability Partnership, Partnership, Body Corporate and the entity is governed by the Manager.

     

    These funds are regulated by SEBI under Securities Exchange Board of India (Alternative Investment Funds) Regulations 2012.

     

    What is Alternate Investment Funds?

     

    As per Section 2(1)(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012

     

    ?Alternative Investment Funds is defined any fund incorporated in India as LLP, Company, Body Corporate, Partnership, Trust by pooling the investments from India or Foreign and invest the funds as defined in accordance with the Investment policy.

     

    ?ButInvestment made not in accordance with the provisions Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

     

    Types of Funds

     

    ?OpenEnded – It is a type of fund where investors can redeem their investments at any point of time i.e. before the closing of the fund also.

     

    ?ClosedEnded – It is a type of fund where investors can redeem their investments only at the time of closing of the fund.

     

    Categories of AIF

     

    • Category I: Category I of AIF, shall invest the funds in start-up/ early stage ventures/ SMEs/ Social Ventures/ Infrastructure or other sectors or areas which the government or regulators would consider socially and economically desirable.
    • Category II: Category II of AIF, which does not fall underCategory I and III and which does not undertake leverage or borrowing other than to meet day-today operational requirements and as permitted in these regulations.

     

    • Category III: Category III of AIF, which employs complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.

     

     

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    Eligibility Criteria

     

    ?Thereare different types of eligibility criteria for an LLP, Company, Body Corporate & Trust. ?Themanager is required to have interest in the fund of not less than 2.5% of the fund corpus or Rs.5

    Crore whichever is lower for Category I & II.

    ?Foracategory III fund, the manager must have interest of 5% of the fund corpus or Rs.10 Crores whichever is lower.

     

    ?Declarethe tenure of the funds, investor, objective & style of investment strategy in the registration process for proper decision making to the investors.

     

    ?Thefund shall inform to SEBI whether the investors have other funds registered with SEBI.

     

    Registration of AIF:

     

    ?Fromthe commencement of the regulations, no entity or person shall act as an AIF unless he has obtained a certificate of registration from the Board (SEBI).

    ?Thefunds registered as Venture Capital Fund under SEBI (Venture Capital Fund) Regulations, 1996 shall continue to be regulated by the said regulations till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of these regulations.

     

    ?Anyentity referred in sub-regulation (1) who fails to make an application for grant of certificate within the period specified therein shall cease to carry on activity as on AIF.

     

    • AIF shall seek registration on one the following category:Category I, Category II, Category III
    • An application for grant of certificate shall be made for any of the categories as specified in sub-regulation (4) in Form A as specified in the First Schedule to these regulations and shall be accompanied by a non-refundable application fee as specified in Part A of the Second Schedule to these regulations to be paid in the manner specified in Part B thereof.

     

    • The Board shall take into account requirements as specified in these regulations for the purpose of considering grant of registration.

     

    • Without prejudice to the powers of the Board to take any action under the Act or regulations made there under, the certificate of registration shall be valid till the AIF is wound up.

     

    • The Board may, in the interest of the investors, issue directions with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as an Alternative Investment Fund.

     

    • The Board may, in order to protect the interests of investors, appoint any person to take charge of records, documents, securities and for this purpose, also determine the terms and conditions of such an appointment.

     

    There are 209 Alternative Investment Funds registered under SEBI as on 31st March, 2016. Some of them are as follows:

     

     

     

     

     

     

     

     

     

     

     

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    Alternate Investment Funds (AIF)

     

     

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    S.No.

    Name of the Alternative Investment Fund

    Category

     

     

     

     

     

    1

    UtthishtaYekkum Fund

    Category – I (Venture Capital Fund)

     

     

     

     

     

    2

    Indiaquotient Investment Trust

    Category – I (Venture Capital Fund)

     

     

     

     

     

    3

    Sarbe partners Trust

    Category – II

     

     

     

     

     

    4

    Real Estate Opportunities Trust

    Category – II

     

     

     

     

     

    5

    Forefront Alternative Investment Trust

    Category – III

     

     

     

     

     

    6

    DICCI Trust

    Category – I (SME Capital Fund)

     

     

     

     

     

    7

    IIFL Opportunities Fund

    Category – III

     

     

     

     

     

    8

    Incube Connect Fund

    Category – I (Social Venture Fund)

     

     

     

     

     

    9

    L&T Infrastructure Fund

    Category – I (Infrastructure Fund)

     

     

     

     

     

    10

    Ankur Capital Fund

    Category – I (Angel Fund)

     

     

     

     

     

     

    Below is the link for the list of Alternative Investment Funds:

     

    http://www.sebi.gov.in/cms/sebi_data/attachdocs/1461124238814.pdf

     

    Investment Conditions

     

    The following are the investment conditions for all categories of AIF:

     

    • AIF can invest in the securities of the companies incorporated outside India subject to the conditions and guidelines as may be stipulated by RBI from time to time.

     

    • Category I & Category II of AIF shall invest not more than 25% of the corpus in one Investee Company.
    • Category III shall invest not more than 10% of the corpus in one investee company.
    • Co-Investment in an investee company by a manager or sponsor shall not be in terms more favourable as than issued by any other AIF.
    • AIF shall not invest in its associates except with the approval of 75% of the investors by value of their investment in AIF.
    • Un-Invested funds may be invested in mutual funds, bank deposits and other liquid assets of high quality such as Treasury Bills, CBLOs (Collateralized and Lending Obligation), Commercial Papers, Certificate of Deposit, etc. till the deployment of the funds of AIF.
    • AIF may act as a Nominated Investor under clause (b) of sub-regulation (1) of regulation 106N of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
    • Notwithstanding the above conditions the board may specify some additional conditions for specific category of AIF under sub-regulation (1) under this regulation.

     

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    Alternate Investment Funds (AIF)

     

     

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    Investment Conditions for each Category:

     

     

     

     

     

    Category of Fund

     

    Investment Conditions

     

     

     

     

    Category I

    1.  Shall invest in investee companies/ venture capital/ special purpose

     

     

     

    vehicle/ LLP/ partnerships or in units of other AIF as specified in the

     

     

     

    regulation.

     

     

    2.

    May invest in units of Category I of AIF of sub – category but cannot invest in

     

     

     

    the units of Fund of Funds.

     

     

    3.

    Shall not borrow funds directly or indirectly or engage in any leverage

     

     

     

    except meeting temporary funding requirement by satisfying the following

     

     

     

    all conditions: Not more than 30 days, Not more than 4 occasions in a Year,

     

     

     

    Not more than 10% corpus.

     

     

    4.

    In addition, AIF Regulations may also prescribe a set of investment

     

     

     

    conditions in respect of each sub-category under Category I AIFs.

     

     

     

     

    Category II

    1.  Shall invest primarily in unlisted investee co. or in units of other AIFs as

     

     

     

    specified in the Placement Memorandum.

     

     

    2.

    May invest in the units of Category I & Category II but cannot invest in the

     

     

     

    units of Fund of Funds.

     

     

    3.

    May engage in the hedging subject to the guidelines as prescribed by SEBI.

     

     

    4.

    Shall not borrow funds directly or indirectly or engage in any leverage

     

     

     

    except meeting temporary funding requirement by satisfying the following

     

     

     

    all conditions: Not more than 30 days, Not more than 4 occasions in a Year,

     

     

     

    Not more than 10% corpus

     

     

     

     

    Category III

    1.  May invest in securities of listed or unlisted investee companies or

     

     

     

    derivatives or complex or structured products.

     

     

    2.

    May invest in the units of Category I or II but they should invest solely in such

     

     

     

    units and shall not invest in units of other fund of funds.

     

     

    3.

    May engage in leverage and borrow subject to consent from the investors in

     

     

     

    the fund and subject to a maximum limit, as may be specified by the Board.

     

     

    4.

    shall be regulated through issuance of directions regarding areas such as

     

     

     

    operational standards, conduct of business rules, prudential requirements,

     

     

     

    restrictions on redemption and conflict of interest as may be specified by

     

     

     

    the Board.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    Alternate Investment Funds (AIF)

     

     

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    Investment Conditions for all categories:

     

    1. AIF can invest in the securities of the companies incorporated outside India subject to the conditions and guidelines as may be stipulated by RBI from time to time.
    2. Category I & Category II of AIF shall invest not more than 25% of the corpus in one investee company.

     

    1. Category III shall invest not more than 10% of the corpus in one investee company.
    2. Co-Investment in an investee company by a manager or sponsor shall not be on terms more favorable than those offered to other AIF.

     

    1. AIF shall not invest in its associates except with the approval of 75% of the investors by value of their investment in AIF.

     

    1. Un-Invested funds may be invested in mutual funds, bank deposits and other liquid assets of high quality such as Treasury Bills, CBLOs(Collateralized and Lending Obligation), Commercial Papers, Certificate of Deposit, etc. till the deployment of the funds of AIF.

     

    1. AIF may act as a Nominated Investor under clause (b) of sub-regulation (1) of regulation 106N of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

     

    1. Notwithstanding the above conditions the board may specify some additional conditions for specific category of AIF under sub-regulation (1) under this regulation.

     

    Placement Memorandum

     

    A memorandum containing the details of the private placement which may be necessary for the investor for the informed decision making on whether to invest in AIF with the board and shall be filed with the board within 30 days prior to launch of scheme with the fees as may be prescribed in the second schedule. Payment of fees shall not require for the first launch of scheme.

     

    Below is the link for the SEBI (AIF) Regulations, 2012

     

    http://www.sebi.gov.in/cms/sebi_data/attachdocs/1337601524196.pdf

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    Introduction:

     

    With the decision of Government to charge excise duty on jewellery, now consumers have to pay more in purchasing these items. On the other side, huge protests are undertaken by the Jewellers on the premise that the smooth flow of their business would be disturbed by Central Excise department officials’ frequent visits and roving enquiries. Let us analyse the impact ofexcise duty and the consequential compliance requirements

     

    Meaning and scope of “Articles of jewellery”:

     

    As per the meaning given under Central Excise Tariff Act, 1985, the articles of jewellery means the following;

     

    1. Any small object of personal adornments.

     

    Examples: rings, bracelets, necklaces, brooches, ear-rings, watch-chains, fobs, pendants, tie-pins, cuff-links, dress-studs, religious or other medals and insignia.

     

    1. Articles of personal use of a kind normally carried in the pocket, in the handbag or on the person. Examples: cigar or cigarette cases, snuff boxes, cachou or pill boxes, powder boxes, chain purses or prayer beads

     

    1. These articles may be combined or set (that is with natural or cultured pearls, precious or semi-precious stones).

     

    1. However, these articles do not cover articles in which precious metal is present as minor constituents, for example, monograms, ferrules

     

    Excise duty is applicable on articles of jewellery which is covered under tariff item 7113 of Central Excise Tariff Act,1985. Levy is applicable on articles of gold, platinum whether or not studded with diamonds and other precious metal stones. Silvery jewellery studded with diamonds and other precious stones are also covered within the ambit of the levy. However plain silver jewellery which arenot studded with diamonds or any other precious stones are exempt from excise duty. Thus excise duty is applicable on all types of jewellery except plain silver jewellery i.e. not studded with diamonds or any other precious stones.

     

    Salient features of the levy:

     

    Excise duty is on the act of manufacture of excisable goods. The duty is payable by manufacturer at the rate specified on the value of these goods. Though duty is applicable on manufacture of excisable goods, the same shall be payable at the time of removal of the goods from factory.

     

    In case of jewellery sector, any person who manufacturers jewellery on his own would be considered as manufacturer and accordingly liable to pay excise duty. Sometimes, the retailer may get their jewellery manufactured through artisans/gold smiths by supplying them the raw gold. This is called manufacture on job work basis.

     

     

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    Central Excise Rules, 2002 contains a specific rule relating to Jewellery sector i.e. Rule 12AA. In terms of this rule, in case where the jewellery is manufactured on job work basis, the principal manufacturer (retailer) shall be responsible to obtain registration under central excise, maintain accounts, pay excise duty and comply with other requirements of the Central Excise law. The job workers, who are mostly unorganised and in large scaleare completely relieved from all types of compliance under central excise;

     

    The duty levy is made effective from 01.03.2016 onwards where excise duty is payable on manufacture of jewellery by opting for any one of the following options;

     

    ØPayduty@ 1% of the value without availing CENVAT credit on inputs and capital goods or ØPayduty@12.5% of the value by availing CENVAT credit on inputs and capital goods

     

    The CENVAT credit of service tax paid on input services can be claimed under both the options;

     

    Small Scale Industry Exemption:

     

    Small scale manufactures are entitled to claim relief from excise duty, provided their turnovers are within the specified limit. The criteria laid down for jewellery manufacturers are as follows;

     

    1. In previous Financial year,the aggregate value of clearance of jewellery (excluding plain silver jewellery) for home consumptiondoes not exceed 12 crores, and;
    2. In current financial year, exemption is given for first clearance of articles of jewellery for home consumptionup to a value of Rs. 6 crores.

     

    The exemption is also subject to certain other conditions viz. no Cenvat credit shall be availed on inputs and a certificate from a Chartered Accountant certifying the turnover shall be obtained. This is an optional exemption. A manufacturer may choose to pay excise duty on all clearances by availing CENVAT credit.

     

    Valuation:

     

    The excise duty can be paid at 1% or 12.5% at the option of manufacturer. The duty is payable at the time of removal of such goods from the workshop. So, the value shall be determined at the time of clearing goods from workshop in accordance with the provisions of Central Excise Act, 1944. The method of valuation would depend upon the nature of removal of jewellery from workshop.

     

    Jewellery directly sent from workshop to Customer’s location: In certain cases the jewellery may be manufactured upon customer’s order. In such cases, the transaction value i.e. the price at which such goods are sold to the said customer shall be considered as the value of excisable goods.

     

    Showroom and workshop are at the same location: Certain jewellers may operate their business by having showroom and workshop at the same location. In such cases, the removal of jewellery from the manufacturer’s location (factory or workshop) is said to have taken place only when the jewellery is removed from showroom upon sale to customers. In these circumstances, the transaction value can be considered as value of jewellery and accordingly excise duty is required to be paid.

     

     

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    Jewellery manufactured at workshop is removed to showroom for sale: Whenever excisable goods are removed from workshop (factory) to a showroom (depot), the value of any excisable goods removed from workshop (factory) shall be based on ‘Normal Transaction Value’ of such goods as prevailing at a showroom (depot).

     

    Normal transaction value is price at which greatest quantity of similar goods are sold at the depot/showroom at the time nearest to the time of removal of excisable goods from Factory. Let us understand this concept with a practical example.

     

    Example: On 10th March 2016, five gold chains of a particular design are removed from workshop to showroom. On 9th March, 2016, the said gold chains are sold to three customers in the following manner.

     

    Customer

    Quantity

    Price per gold chain (Rs.)

     

     

     

     

    A

    1

    50,000

     

     

     

     

     

    B

    2

    47,000

    (Total 94,000)

     

     

     

     

    C

    3

    45,000

    (Total 1,35,000)

     

     

     

     

     

    On 12th of April 2016, all the five gold chains are sold to customers at a price of Rs. 52,000 each.

     

    As discussed above, ‘Normal Transaction Value’ is the price at which greatest quantity is sold at the showroom at the time when goods are removed from workshop. In the above example, gold chains are removed from workshop on 10th March 2016. At the time nearest to this point i.e. 9th March, 2016, gold chains of that particular design are sold to three customers. The highest quantity sold is three in case of customer ‘C’. The price at which those chains are sold to customer ‘C’ is the ‘Normal Transaction Value’ i.e. Rs 45,000 per chain.

     

    As five chains are removed from workshop to Showroom, the value of these goods shall be valued at Rs 2,25,000 (45,000*5). Excise duty payable is to be calculated at 1% or 12.5% of this value. As stated in the above example, on 15th April, 2016 these gold chains are sold to customers at a higher price of Rs. 52,000 each. This action will not increase the amount of excise duty payable on those gold chains.

     

    On the other hand, it has been stated by CBEC vide Circular No. 1021/9/2016-CX dated 21.03.2016 that Principal Manufacturer can value the excisable goods on the basis of first sale invoice value. Under the existing Central Excise Law, there is no concept of valuing excisable goods on the basis of First sale invoice. Also, there is no explanation given as to what is first sale invoice value, whether it is the price adopted for first invoice raised during a day or otherwise. What would be the position if there is no such sale happening at the showroom on the day the Jewellery is removed from workshop?

     

    In the humble opinion of paper writer, Circular of CBEC can only clarify the legal position existing and it cannot lay down a law on its own in contrary to the existing law laid down by Parliament/Central Government. In view of this reason, the legality of the said circular is questionable.

     

    Jewellery manufactured by job worker and sent to retailer: As discussed above, in terms of Rule 12AA of Central Excise Rules, 2002, the retailer (principle manufacturer) is the person responsible to pay excise

     

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    duty with respect to jewellery manufactured by job worker. In view of this rule, the goods can be brought to the showroom of the retailer from job worker’s workshop without paying any excise duty. Excise duty is required to be paid on these goods at the time of removal from showroom. Accordingly, transaction value shall be considered as value of the jewellery.

     

    Registration:

     

    Manufacturers of jewellery having the requirement to pay excise duty are required to get themselves registered with Central Excise department. The registration shall be taken online in Form-A1 in the ACES website www.aces.gov.in under Central excise. Normally, a manufacturer is required to obtain registration for each of his manufacturing units separately. The jewellery manufacturer has given the benefit of obtaining registration for a single premise though manufacturing is undertaken at multiple locations. This is called centralised registration. This benefit is available only upon maintaining records relating to all the other units at the place for which centralised registration is sought for.

     

    Invoice System:

     

    Excisable goods should be cleared from factory only under the cover of an invoice signed by owner of the factory or authorised signatory. This should be issued in triplicate. Original copy is for Customer/Consignee, duplicate copy shall be issued to the transporter or anyone who is moving the jewellery from workshop to any other intended location and triplicate will be retained by manufacture for records.The standard invoice should include the following details;

     

    • Excise Registration number

     

    • Name and address of the consignee

     

    • Description and classification of goods (7113)

     

    • Quantity and value of goods, rate and amount of excise duty

     

    • Time and date of removal from workshop or job-workers place.

     

    • Mode of transport including vehicle No.

     

    Record Maintenance:

     

    Normally, a manufacturer of excisable goods has to maintain the following minimum records for the purpose of Central excise;

     

    ?DailyStock Account (for brevity, DSA) – Rule 12 of the Central Excise Rule,2002 directs manufacturer to maintain the DSA where the manufacturer should keep the record of description/particulars of goods manufactured, opening and closing balance, quantity removed, assessable value, duty charged on that value and amount of duty actually paid etc.Hence, DSA keeps the records of stock (finished and work-in-progress) on daily basis.

    ?RawMaterial Input Register – This is a register required to be maintained at the workshop for all excisable goods purchased and used in manufacture of finished goods. It records the type of raw materials used for making of jewellery, opening and closing balance, inputs purchased, inputs used, the amount of duty paid on the same etc.

     

    ?CENVATCredit Register –This register is required to be maintained in order to claim CENVAT Credit of inputs, capital goods and input services. This record is required to be maintained separately unit wise and goods wise. This register records the duty/tax paid on inputs, capital goods and input services for

     

     

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    making of both exempted (plain silver jewellery) and taxable goods (silver studded with gems/diamonds etc.). It also indicates the balance of credit availed, utilised and the liability of output tax etc.

     

    ?JobWork Register: This a register which keeps records of the kind of goods manufactured on job-work basis, inputs sent to job-workers, credit availed, jewellery manufactured at job-worker’s premise, goods cleared directly to customer’s place etc.

     

    However, if the jewellery manufacturer is maintaining records under VAT and/or Bureau of Indian Standards or any other private records giving details about the daily usage of stocks, raw materials, job work and the CENVAT credit balance is sufficient under Central Excise.

     

    Payments:

     

    Rule 8 of Central Excise Rules,2002 requires the manufacturer to make payment of excise duty by 6th of the month following the month in which clearances are made irrespective of whether the actual duty being collected from the buyer or not.

     

    However, manufacturer whose turnover in the previous financial year is less than 12 crores, shall be entitled to make payment by 6th of the month following the quarter in which clearances are made. For the month of March/ quarter ending March, the payment has to be made by 31st March.

     

    Returns:

     

    The manufacturers of jewellery are obligated to file periodical returns by 10th of the following month in the applicable forms as discussed hereunder

     

    ØFormER-8– This is applicable to manufacturers who have chosen the option of paying excise duty

     

    • 1% without credit has to file returns in Form ER-8 monthly, by 10th of the immediately following month.

     

    ØFormER-1 – This is applicable to a manufacturer paying excise duty on monthly basis at 12.5% by availing CENVAT credit on inputs. Such manufacturers are required to file their monthly return in Form ER-1 by 10th of the immediately following month.

     

    ØFormER-3 – This is applicable to manufacturers who are entitled to claim SSI concessions and accordingly making quarterly payments. It is not required to avail the SSI concessions. They are given the facility of filing returns once in every quarter in Form ER-3 by 10th of the immediately following quarter.

     

    Conclusion:

     

    Before parting, jewellery sector is one of its kind sector involving huge number of retailers, job workers operating in an unorganised way. Considering this, a high level committee has been constituted to make suitable recommendations for implementation of excise levy on this sector. Report of the committee is awaited. However, this initiative has not relieved the jewellers from paying excise duty during the interim period. Further, the committee has invited recommendations/suggestions from trade. Thus a small effort has been made to disseminate the various aspects of excise levy and compliance requirements on jewellery sector.

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