No need to pay customs duty on goods damaged in a warehouse

Written by Kamal Aggarwal | Payal Tuli | Updated: Jun 27 2009, 01:34am hrs
We are a firm engaged in the import and sale of childrens apparel. We had recently received a shipment for which we did not obtain customs clearance for home consumption, but instead kept the goods in a bonded warehouse for two months. We approached the authorities for getting the goods cleared last week. At the time of examination, we noticed that almost half the goods had been destroyed by rats and were in an irreparable condition. Are we still liable to pay customs duty in respect of the entire lot (including the damaged goods) or is there any recourse available

Under Section 22 of the Customs Act, where it is shown to the concerned officer that any warehoused goods have been damaged or have deteriorated at any time before clearance for home consumption, duty may not be payable. However, it has to be proved that such damage was accidental and not due to a deliberate act or negligence on part of the importer. In your case, since the goods have been damaged by rats, it can be adequately demonstrated that there has been no default on your part. Accordingly, you may approach the customs authorities who will then determine value of the remaining goods in marketable condition, and levy duty accordingly.

We are a SSI unit engaged in the manufacture of toothbrushes. Our goods are covered under the maximum retail price (MRP)-based assessment under excise laws. Due to an inadvertent error, the MRP was not printed on the cartons in which the goods were packed, and were cleared as such. We have not paid excise duty on these sales as of now. Let us know the MRP on which we are required to pay duty.

The Central Excise (Determination of Retail Sale Price) Rules 2008 prescribe the method of valuation of goods chargeable to excise duty on MRP-basis under various situations. As per these rules, when goods are sold without declaration of MRP, then duty would be payable taking the highest-declared MRP on identical goods sold either one month before or after such sales. In case identical goods have not been sold in this period, the MRP would be determined by the department through market inquiries.

We had recently engaged a law firm for advice on how to structure the labour dispute resolution mechanism within our organisation. We have received the invoice from them in which they have charged service tax on the gross fee payable, under the category of Management Consultancy Services. We are aware that currently there is no service tax leviable on services provided by lawyers. Please advice.

The levy of service tax is dependent on the nature and description of services provided, and in most cases the qualifications or background of the service provider is irrelevant for this decision. The service tax laws do not provide any exemption in case such services are provided by lawyers or a law firm. In your case, as the services provided by the law firm are in the nature of consultancy, hence they are liable for service tax. However, litigation and representation services provided by lawyers are still beyond the purview of service tax. Accordingly, the litmus test for deciding whether tax is chargeable depends on whether the service is taxable, and not whether tax has been levied on categories of service providers.

We manufacture plastic parts for automobiles, which are chargeable to excise duty. Recently, our suppliers vehicle carrying raw materials met with an accident en route to our manufacturing unit, and the entire consignment was destroyed. We had already paid for the goods, including the applicable excise duty. Also, under the terms of our contract, the supplier is not required to refund or adjust the payment made on account of the destroyed goods. Can we still avail cenvat credit in respect of such goods, since we have already paid the applicable excise duty

Under the Cenvat Credit Rules, credit of excise duty paid on inputs can be availed if such inputs are used directly or indirectly in the manufacturing process. Further, credit can be availed as soon as the goods are received in the factory. As is evident, none of the above conditions have been fulfilled in case of the destroyed goods. In view of the above, such goods will not qualify as inputs for cenvat credit purposes, even though duty has been paid on the same. Accordingly, you are not entitled to claim cenvat credit of the duty paid on goods not received in the factory or used in the manufacturing process.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice. Neither E&Y nor FE are liable for any action taken on the basis of these replies