Declaration of MRP is needed only on retail packages

Written by Vivek Sharma | Vivek Sharma | Updated: May 1 2010, 04:33am hrs
We are a garment manufacturer, clearing apparel on a wholesale basis in loose packets. Are we required to provide the MRP on the packaging and also pay excise duty on 60% of the MRP as our local excise authorities have contended

In terms notification no 20/2001, a specific tariff value has been fixed in respect of apparel cleared in retail packages on which RSP is declared or required to be declared. In this regard, the Package Commodities Rules, 1977 (PC Rules) framed under the Standards of Weights & Measures Act, 1976 (SWMA) prescribes the declaration required to be made on packaged commodities. The PC Rules provides that MRP shall be required to be declared only on the goods intended for retail sale in pre-packaged condition. In other words, the requirement of declaring MRP is only present on garments cleared in retail packages. In your case, we understand that garments are not being cleared in retail packages but rather in bulk. Accordingly, since no RSP is required to be printed on the bulk packages in terms of SWMA, the above notification would not be applicable in the instant case.

Our view above is also supported in terms of a clarification issued by the CBEC vide Circular dated 19 August 2003.

We are importing patented technology to manufacture and instal solar-powered panels. We ourselves instal the panels in clients premises. We are exempt from excise duty. However, we pay service tax on the installation charges. Can we take Cenvat credit of the service tax paid under the reverse charge mechanism for import of technology, and to what extent

Since you are importing patented technology, you are liable to pay service tax under the reverse charge mechanism under the taxable service category of Intellectual Property Service (IPS). Further, we understand that the technology would be used for manufacture of exempted goods and also for providing taxable services.

A manufacturer/service provider who is both manufacturing exempted goods and providing taxable services is not allowed to avail whole of the Cenvat credit on input services. Such a manufacturer or service provider would be required to either maintain separate accounts, or proportionately reverse credit attributable to manufacture of exempt goods, or pay 5% of the value of the exempt goods at the time of their clearance.

However, the above is not applicable in case of certain specified input services, in respect of which full Cenvat credit would be available as long as the input service is not used exclusively for manufacturing exempt goods or providing exempt service. Fortunately, in your case, IPS is one such input service, and consequently, since you are partly using the IPS service to provide taxable output service, you should be allowed to avail whole credit of the Service tax paid on import of technology.

We manufacture heavy machinery. Due to the nature of our operations, we face a lot of corrosion in the factory as a result of which we have to constantly paint the factory premises to ensure proper maintenance. We would like to know whether we will be eligible to claim credit of paints used, considering that the credit on inputs used in civil construction is not allowed

Recently, with effect from July 7, 2009, Explanation 2 to the definition of inputs under the Cenvat Credit Rules, 2004, was amended to exclude cement, angles, channels and other such items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods from the definition of input.

The above Explanation is only a proviso relating to availability of Cenvat credit on materials used to manufacture capital goods. In the instant case, paint is not used for civil work or for manufacture of capital goods, but rather for maintenance. Further, in respect of paints, the definition of inputs is very wide and includes paints used in relation to manufacture of final products or for any other purpose. The judiciary has interpreted this wide definition to hold that paints for repair and maintenance of machinery and even structures like factory floors and ceilings etc, would fall within the definition of inputs of the Cenvat Credit Rules. Given the above, in your situation, you should be allowed to avail Cenvat credit of the paints used for maintenance of the factory.

We are a builder of commercial/ industrial properties. Recently, there has been a proposal to levy service tax on the entire pre-construction consideration. Will service tax be leviable on the entire consideration

The relevant taxable service category for construction activity could be commercial or industrial construction service, construction of complex service.

Currently, an abatement of 67% is allowed on gross amount charged by the service provider. We believe that the same should continue even post coming into force of the proposed amendment. Also, while there is no formal clarification issued by the authorities, we have been informed informally that the Department is considering granting a deduction of the value of land which is also transferred.

However, in absence of a formal clarification, it is not possible to comment upon the above conclusively.

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