Queries on taxation and service tax liabilities, addressed by Amit Bhagat & Jayanta Kalita of Ernst & Young

Our company had imported capital goods for use in our factory. Due to some defects the goods were sent back for repair and reconditioning work. Our consultants have informed us that as we have been provided repair and maintenance services from outside India, we would be required to pay service tax under ?reverse charge? on receipt of such services. Is that correct?

Under the current service tax regime, tax is levied on all services except the services that have been specified in the ?negative list?, ‘when provided in the taxable territory’.

In the instant case, repair and reconditioning services do not fall under the negative list and neither have been exempted from the service tax levy. So, such repair services should attract service tax if the same are provided in taxable territory (i.e. in India but excluding J&K).

Rules have been framed to ascertain whether services have been provided in taxable territory or not. In cases where the goods have to be made physically available to the service provider, the ‘place of provision’ of such services shall be the location where the services are performed.

In your case, as the goods were sent and repaired outside India, the repair services would be deemed to have been provided outside the taxable territory, and hence, no service tax is payable.

Excise duty on goods sold loose

We manufacture biscuits and confectioneries. We qualify as a small scale industry under Central Excise legislation. The biscuits are sold under the brand name of another entity in plastic pouches from our retail outlet. The biscuits are also sold loosely at our retail counter. We are paying excise duty on the sale of biscuits in plastic pouches under the brand name. However, we were under the impression that no excise duty was to be paid on biscuits sold loosely as they are unbranded and hence SSI exemption would be applicable. During an excise audit, the excise officer informed us that we would be liable to pay duty on the manufacture of biscuits sold loose. Is the contention of the officer correct?

Small scale industries are given exemption from payment of excise duty based on the value of clearances under Notification 8/ 2003-CE, dated 9 March 2003. SSI units whose aggregate value of clearances for home consumption are up to R 1.5 crore in the current financial year are exempt from payment of excise duty.

However, such exemption is not available to manufacturers who sell branded goods and where the manufactured goods are affixed with a brand name or trade name.

In the present case you manufacture and sell both branded and non-branded biscuits. It needs to be analysed whether biscuits sold loosely would qualify as branded goods or not, and whether SSI exemption would be available to the same.

‘Brand name’ or ‘trade name’ has been defined to include:

?Brand name or trade name, whether registered or not, that is to say a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person?

In this regard, the Supreme Court in a similar case has held that the test of whether the good is branded or unbranded, must not be the physical presence of the brand name on the good. In certain cases where affixation may be impossible, it is possible for specified goods to continue being branded so as long the environment conveys that it is branded.

Hence, it can be held that merely because there is no brand name on the goods sold loose it would not make the goods unbranded. Hence, SSI exemption may not be available on such goods and excise duty may be payable..

The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies. Readersmay mail their queries to sme@expressindia.com