Taxation: Penalty for short payment of duty waived in clean cases

March 13, 2015 12:05 AM

Queries on tax issues, addressed by Sarika Goel and Neha Kishore of EY

We are a private limited company engaged in the import of ACs.We have received a show cause notice (SCN) in January from the Customs department alleging short payment of duty and imposition of penalties. We do not wish to litigate the matter. We learnt that in the recent Budget, it has been announced that pending SCNs may be settled by the importer after paying only the duty demanded in the SCN. Please confirm this.

Vide the Finance Bill, 2015 placed before Parliament on 28 February 2015, the government has proposed to amend Section 28 of the Customs Act, 1962 (Act) to provide that in cases which do not involve fraud or collusion or willful misrepresentation or suppression of any of the provisions of the Act, no penalty shall be payable if the amount of duty along with interest is paid maximum within 30 days from the receipt of the SCN. Further, in cases which involve fraud/ collusion, etc. penalty would be reduced to 15% where the duty and interest are paid within 30 days of getting the notice. These changes would be applicable from the date of enactment of the Finance Bill.

The above benefit of no/ reduced penalty has also been extended to existing SCNs where the final order has not been passed and duty, interest along with applicable penalty, if any, is paid within 30 days from the date of enactment of  Finance Bill.

Therefore, since the company does not want to litigate the matter, it can avail of the benefit of no/ reduced penalty, as the case may be.
Credit can be taken on goods sent directly to job worker

Our company is engaged in the manufacturing and trading of  electronic goods. Instead of manufacturing these goods, we engage a job worker; excise duty on such manufacturing activity is discharged by us. In accordance with the rules relating to Cenvat credit, we first bring the raw material into our premises and then send the same to the job worker. We understand some changes have been made in the applicable rules, and accordingly, we would be allowed to take credit even if we do not receive the raw material in our premises before sending them to the job worker. Could you please clarify?

The Finance Bill, 2015 has made various amendments to the Central Excise Rules, 2002 (Excise Rules) as well as to the Cenvat Credit Rules 2004 (Credit rules).

* As per an amendment to Rule 11 of the Excise Rules, where goods are directly sent to any person on the direction of a registered dealer, such person can take Cenvat credit on the basis of the registered dealer’s invoice, if the invoice contains the name of the dealer as the buyer and such person as the consignee.

Hence, the requirement of first receiving the goods in the factory, and then sending the same to the job worker, has been done away with. As per the amended Rule, Cenvat credit would be available even when the goods are delivered directly to the job workers’ premises, if the vendor’s invoice mentions the name of the principal manufacturer as the buyer and the job worker as the consignee.

* An amendment has also been made in the Credit Rules to allow Cenvat credit of goods received in the premises of the job worker where the goods are sent directly to the job worker’s premises on the direction of the manufacturer.
Hence, if the company instructs the supplier of the raw material to deliver the goods directly to the job worker, Cenvat credit would be available. These changes are applicable with effect from 1 March 2015.

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