Refund: Interest is payable if refund paid after 3 months of claim: Bombay High Court One would think that the law was clear on the issue of the date from which interest is calculated on delayed refunds, but the department took the issue to the high court. The law [Section 11BB of the Central Excise Act 1944, which also applies to service tax refunds, and Section 27A of the Customs Act 1962] provides that if a refund is paid later than three months from the date of application, interest is payable from the date immediately after the expiry of the said three months till the date on which payment is actually made. The date for computing the interest is thus the date immediately after expiry of three months from the date of application for refund. The department, however, took the view that three months are to be counted, not from the date of application, but from the date of the order for refund. This was negatived by Bombay High Court in WP 9100 of 2011 in the case of Union of India v Jindal Drugs (decided on 30 Jan 2012), reported as 2012-TIOL-109-HC-MUM. The court observed that it is a settled position in law that the liability of Revenue to pay interest commences from the expiry of three months from the date of receipt of application for refund and not on the expiry of the said period from the date on which an order for refund is made. The High Court followed the earlier order of the Supreme Court on the point, which had been reported as Ranbaxy Laboratories Limited v Union of India, 2011 (273) ELT 3 (SC).

1. UDYOG TAX NEWS FLASH
17th FEBRUARY 2012
Service tax on construction: clarification issued
The CBEC has issued circular no. 151/2/2012-ST dated 10 February 2012 on the applicability of service tax to
various models of transaction in construction services. Notably, the circular clarifies that if a building was not
constructed for commercial or industrial purpose but later its use is changed, no service tax is attracted
(paragraph 2.4). The circular also deals with the issues of joint development, re-development, build-operate-
transfer models, tripartite agreements, and investment in construction projects. On this last issue of
investment, the circular holds that if a person has invested in a construction project with the option of taking
a flat, the investment is to be treated as advance paid for construction service and is taxable. If the person
exercises his option of exit without taking a flat, and the amount including service tax is returned to him, the
builder may take credit of the service tax paid. The circular can be seen at http://www.servicetax.gov.in/st-
circulars-home.htm.
Refund: Interest is payable if refund paid after 3 months of claim: Bombay High Court
One would think that the law was clear on the issue of the date from which interest is calculated on delayed
refunds, but the department took the issue to the high court. The law [Section 11BB of the Central Excise Act
1944, which also applies to service tax refunds, and Section 27A of the Customs Act 1962] provides that if a
refund is paid later than three months from the date of application, interest is payable from the date
immediately after the expiry of the said three months till the date on which payment is actually made. The
date for computing the interest is thus the date immediately after expiry of three months from the date of
application for refund. The department, however, took the view that three months are to be counted, not
from the date of application, but from the date of the order for refund. This was negatived by Bombay High
Court in WP 9100 of 2011 in the case of Union of India v Jindal Drugs (decided on 30 Jan 2012), reported as
2012-TIOL-109-HC-MUM. The court observed that it is a settled position in law that the liability of Revenue
to pay interest commences from the expiry of three months from the date of receipt of application for
refund and not on the expiry of the said period from the date on which an order for refund is made. The
Udyog Software (India) Ltd (www.udyogsoftware.com)
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation. Page 1

2. High Court followed the earlier order of the Supreme Court on the point, which had been reported as
Ranbaxy Laboratories Limited v Union of India, 2011 (273) ELT 3 (SC).
Service tax: classification, taxability: case of tour operator service vs air travel service
Tour operator service was brought under service tax from 10.9.2004. Air travel service was made taxable
from 1.7.2010. An airline company offered packages that included air fare, accommodaton and sight-seeing,
and the department demanded service tax for the period from September 2004 onwards as tour operator. In
the Tribunal, the airline argued that revenue was not permitted to tax something in an indirect manner
when it was not otherwise taxable. Arguments were also offered regarding the composite nature of the
contract. At the pre-deposit stage the Tribunal has stayed the demand, observing that there is something
incongruous in demanding full service tax on air fare at a time when it was not taxable, particularly as even
when air fare became taxable, the rate of tax was much lower. This will be an interesting case to follow, as it
raises fundamental issues regarding taxability and classification of services. The stay order ST/800/2011
dated 29.11.2022 is reported as National Aviation Company of India v CCE, 2012-TIOL-188-CESTAT-DEL.
CBEC clarifies how to calculate export duty on iron ore
Noting that there are divergent practices in calculating export duty on iron ore, the CBEC has relied upon an
old Supreme Court order [Union of India v Gangadhar Narsingdas Aggarwal, 1997 (89) ELT 19 (SC)] to
instruct its field formations that the export duty is payable
on the Fe content of the ore. This is to be calculated by
deducting the weight of all impurities, including moisture,
from gross weight as taken in Wet Metric Tonnes. The
circular 4/2012-Cus dated 17 February 2012 can be seen at
http://cbec.gov.in/customs/cs-circulars/cs-circ12/circ04-
2012-cs.htm.
Export obligation period for silk extended
The time given for completing export obligation under the
advance authorisation and DFIA schemes has been extended
from 6 months to 9 months for ‘silk, all kinds’, by DGFT
Public Notice 96(RE-2010)2009-2014 dated 7.2.2012. The
countdown begins from the date of clearance of each import
consignment from customs. See the circular at
http://www.ieport.com/2011-2012/public_notices/pn-
96.htm.
Delay in clearing goods: Board takes a serious view (if it has
to pay demurrage)
The CBEC has issued instructions regarding time taken
for customs clearance. Expressing concern that earlier
instructions regarding time-bound clearance of cargo
from ports, land customs stations and air cargo
complexes are not being complied with by field
Udyog Software (India) Ltd (www.udyogsoftware.com)
Phone: 022-67993535, Email: sales@udyogsoftware.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation. Page 2

3. formations, and a high court ordered the department to bear the cost of demurrage in a particular
case, the CBEC has urged special care to avoid such a situation. It has warned that accountability
will be fixed on the the erring officer if consignments are detained without valid reason causing
demurrages: http://cbec.gov.in/customs/cs-instructions/cs-instructions-12/cs-ins-timebd-
clearance.htm
Tariff values for brass scrap and poppy seeds
New tariff values have been notified for brass scrap (USD 4176 per MT) and poppy seeds (USD 2439
per MT). See notification 11/2012-Cus(NT) dated 15 Feb 2012 at http://cbec.gov.in/customs/cs-
act/notifications/notfns-2012/cs-nt2012/csnt11-2012.htm.
Clarifications on applicability of area-based exemptions in excise
The CBEC has issued circular 960/03/2012-CX dated 17 February 2012 to clarify doubts raised by its
field formations on applicability of the area-based excise exemptions in specified situations. The
exemptions, under central excise tariff notifications 49 and 50 of 2003, exempt specfied goods
manufactured in the states of Uttar Pradesh and Himachal Pradesh subject to certain conditions.
The clarificatory circular can be seen at http://cbec.gov.in/excise/cx-circulars/cx-circ12/960-
2012cx.htm.
India disputes safeguard duty by Turkey on cotton yarn
Turkey has re- imposed safeguard duty on import of cotton yarn (other than sewing thread). This is
a measure that affects Indian manufacturers. To protect its commercial interests, India has
activated the dispute settlement mechanism of the World Trade Organisation (WTO) against this
measure, asking for consultations with Turkey on the issue. Consultations are the first formal step
in the dispute settlement mechanism of the WTO.
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Update Written
By Radha Arun,
Consultant To
Udyog Software ( India) Ltd
Udyog Software (India) Ltd (www.udyogsoftware.com)
Phone: 022-67993535, Email: sales@udyogsoftware.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation. Page 3