Our hotel is located in Delhi.We wish to import certain printers for use in the hotel. Apart from the basic customs duty on such printers, we are liable to pay additional duty in lieu of excise. Printers have been notified for valuation based on MRP and not on the import value. Please advise on the valuation methodology.

Additional duty of customs (ACD) under the Customs Tariff Act is levied on the basis of valuation prescribed.

The Customs Tariff Act provides the conditions for adopting the MRP as the basis for valuation for levy of ACD. The imported goods should be notified under Section 4A of the Excise Act and further, it should be required under the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011 to declare retail price on the package of such imported goods.

Rule 3(b) of the Legal Metrology (Packaged Commodities) Rules, 2011 exempts ?institutional consumers? such as hotels buying packaged commodities directly from the manufacturer for use.

Accordingly, in the present case, if printers are being imported directly from the manufacturer, for use in the hotel itself, valuation for levy of ACD on such goods is not required to be done on the basis of retail sale price but on the basis of the transaction value of imports.

Tax on EEZ supplies

We understand that there is a recent case which specifies that supplies to oil rigs located in the EEZ do not attract CST. Could you kindly clarify on the same.

You are correct that there are recent decisions by the Gujarat High Court as well as the Bombay High Court regarding applicability of tax on supplies to the Exclusive Economic Zone (EEZ) i.e. region beyond 12 nautical miles from the Indian shoreline.

The Gujarat High Court in the case of Larsen & Toubro (L & T) vs. Union of India held that supply of goods by L&T from Gujarat to ONGC at Bombay High would not qualify as an inter-state sale under the Central Sales Tax Act, 1956 (CST Act). The high court based its decision on the grounds that there is no provision or notification under the CST Act extending its applicability to EEZ. However, the Gujarat High Court did not look into whether such sales would qualify as sale in the course of export or a local sale.

Subsequently, the Bombay High Court in the case of Commissioner of Sales Tax, Mumbai vs. Pure Helium India Private Limited (PHIPL) confirmed the view that sales to EEZ do not entail movement of goods from one state to another and hence, do not qualify as inter-state sales. The Bombay High Court further held that such supplies would not qualify as sale in the course of export on the grounds that export is said to take place only when goods cross the customs frontier of India and EEZ is included in the customs frontiers of India as per the provisions of the Customs Act, 1972. Further, such sales would not qualify as sale in the course of export based on the decision of Supreme Court in the case of Burmah Shell Oil Storage and Distribution Co since the goods do not have any foreign destination where they can be said to be imported.

However, applicability on Value Added Tax on supplies made to EEZ (as local sales) has not been looked into by either court since the issue was not brought up before the courts.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to fesmes@gmail.com

We are a consultancy firm located in Delhi providing services to our clients spread across the globe. We understand that there has been a recent amendment in relation to the ?Served from India? Scheme under the Foreign Trade Policy, 2009-14 for brands created outside India. We would like to understand the extent of applicability of this amendment.

A meeting of the Policy Interpretation Committee of the Directorate General of Foreign Trade was held in December 2011 where the ambit of the Served from India Scheme (?SFIS?) of the Foreign Trade Policy, 2009-14 (?FTP?) has been interpreted. As per the committee, it has been decided that benefits of SFIS are not available to brands created outside India as the objective of FTP is to encourage only Indian Brands and not incentivize any brand created outside India.

Accordingly, based on the above interpretation, brands created outside India would not be eligible for SFIS benefits.

We understand that this interpretation has created confusion in the industry, especially since earlier, entities exporting services vis-?-vis foreign brands were also entitled to the benefits of this scheme.

Further, the FTP itself does not specifically exclude brands created outside India. The primary condition for applicability of SFIS scheme so far is that services should originate in India and should be provided from India.

It needs to be seen whether the aforesaid interpretation would also be applied to SFIS duty scrips which have already been issued, i.e. whether these scrips would be revoked and duty demanded from entities who have already imported goods under the scheme. It is also likely that the matter would be litigated in the Courts by various affected parties.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to fesmes@gmail.com