Changes in MRP on imported goods

Here are some queries on taxation and service tax liabilities, addressed by Ernst & Young. Readers may mail their queries to fesmes@gmail.com

We are a service firm registered under service tax. We had wrongly availed of Cenvat credit on certain input services. But, such Cenvat credit has not been utilised by us. The service tax authorities are now demanding interest on wrong availment of Cenvat credit. How is interest required to be computed in this case?

Please advice.

As per the Cenvat Credit Rules, 2004, cenvat credit incorrectly taken or utilised would be recovered along with interest. There have been various judicial pronouncements in the past which upheld that incorrect availment of cenvat credit (without utilisation) would not attract interest since there is no revenue loss to the department. However, the Supreme Court, in the case of Ind-Swift Laboratories Limited, has held that interest is applicable on both incorrect utilisation and availment of cenvat credit.

Pursuant to the decision of the Supreme Court, the CBEC has issued a circular that interest has to be computed on incorrect availment of cenvat credit even though such cenvat credit has not been subsequently utilised for payment of tax/duty. Given the above Supreme Court decision, it appears that interest would be applicable in case of incorrect availment of cenvat credit. Interest has to be computed at 13% p.a. up to March 31, 2011 and 18% p.a. thereon.

Our company is engaged in the import and sale of goods. The imported goods are required to carry MRP and other details on the attached label. Due to constant fluctuations in the demand of the product, we desire to change the price of the products. Is relabeling (change in MRP) of such products allowed? Kindly clarify.

The relevant legislation dealing with labeling of products and requirements for declaring MRP is the Legal Metrology Act, 2009 (?LMA?) and the Rules made thereunder. Typically, the LMA (and the Rules made thereunder) do not allow relabeling of products for subsequent change in MRP. However, relabeling for reduction in MRP is permitted.

It is important to note that LMA specifies the manner of such change in MRP. For such reduction in MRP, the label/sticker of new MRP shall not be placed over the previous label and no part of the previous label (except MRP) shall be crossed-out or erased.

Based on the above, only reduction of the MRP is permitted under the LMA. Further, in case of reduction of the MRP of the imported goods, the provisions prescribed in the LMA would need to be followed.

Further, under the excise legislation, relabeling or alteration of the MRP on specified goods qualifies as manufacture and accordingly, excise duty would be payable on such activity.

Therefore, you would need to ascertain whether the reduction of MRP on your goods would be subject to excise duty. In such a case, you would need to undertake the compliances prescribed under the excise regulations also.

We are a call centre providing services to various companies and are also registered under service tax. We provide catering and pick-up and drop facilities to our employees. With the change in the credit provisions, can we avail of cenvat credit of such input services received before 1 April 2011? Further, what are the provisions for availment of credit in case such services are received after April 1, 2011?

The amendments in the definition of ?input service? in the Cenvat Credit Rules have restricted the availment of cenvat credit against output services. As per the new definition of input services, certain specific input services and services that are used for the personal use or benefit of the employees have been excluded.

Catering services have been excluded from the definition of ?input services? where such services are used primarily for the personal use or consumption of employees. The issue is whether catering in the office is for the personal consumption of the employee. It could be argued that the catering services are required for increasing the efficiency of the employees, therefore, the same is indirectly connected to the provision of the output service. However, such a view would be highly litigative especially, since it would be very difficult to establish a nexus between the catering facility and the output services rendered by you. Further, it would also be very difficult to establish that the catering is not for the consumption of the employee given that the facility is directly availed of by the employee.

As regards the cab services, these services have also been specifically excluded from the definition of ?input service?. Therefore, you would not be able to avail of cenvat credit of the cab services for pick-up and drop of employees.

As regards the aforesaid services received prior to 1 April 2011, it has been clarified by the CBEC that cenvat credit on services will be available if the provision of such services had been completed before 1 April 2011. Accordingly, if you can establish that these services have been rendered by your service provider prior to 1 April 2011, you can avail of cenvat credit on such services.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies