Indirect Tax Laws & Allied Acts

Indirect Taxes and Allied Laws
Certificate Course on Indirect Taxes
Institute of Chartered Accountant of India
February 11, 2012
Speaker:
CA Gaurav Gupta
FCA, LLB, DISA
Partner
M. Mohan Gupta & Co.

Introduction
O Indirect Tax is levied on goods or services rather than on persons or
organizations. Some of the prominent indirect taxes in India are Excise
Duty, Customs Duty, Service Tax, Securities Transaction Tax etc.
O Though each of these acts are governed by their respective statutes, yet,
there are a number of allied laws which also effect the functioning of these
statutes.
O The allied statutes are numerous, yet there are some prominent ones
which needs introduction and understanding.
Certificate Course on Indirect Taxes M. Mohan Gupta & Co. 2

Allied Laws
O The Special Economic Zones Act, 2005;
O Provisional Collection of Taxes Act 1931;
O Factories Act 1948;
O Companies Act 1956;
O General Clauses Act 1897;
O Limitation Act 1963;
O Information Technology Act, 2000
O Indian Evidence Act 1872;
O Sale of Goods Act 1930;
O Indian Penal Code;
O Legal Metrology Act 2009
We shall now discuss the aforementioned acts in the following slides.

The Special Economic Zones
Act, 2005
O The SEZ Act 2005 and the rules of the SEZ Act came into force from February
10, 2006.
O With an intention to give boost to economic growth, the government has
enacted the special economic zone (SEZ) Act, 2005, whereby various fiscal
incentives have been introduced for entrepreneurs and developers.
O Rule 3 of the said Act states that any person may make a proposal to the
concerned State Government for the purpose of setting up the Special
Economic Zone.

O Considering the need to enhance foreign investment and promote exports
from the country, the Government of India has introduced following types of
special incentives to SEZ units:
O Company’s Act
O Enhanced limit of 2.4 crores p.a. allowed for managerial
remuneration.
O Agreement to opening of Regional office of ROC in SEZ.
O Exemption from requirement of domicile in India for 12 months prior
to appointment as Director
O Customs and Excise
O SEZ Units are free to import from the domestic sources without
paying any duty for implementation of their project in the zone
O Sales to DTA by SEZ units regarded as import and is subject to normal
import duties
O SEZ Units free from the periodic examination by Customs of export
and import cargo.
Act, 2005

O Service tax applicability
O Taxable services received by SEZ units (including unit under
construction) and SEZ developers for consumption within SEZ are
exempt from service tax vide notification No 40/2012 ST dated 20th
June, 2012
O Exemption by way of refund of service tax paid on the specified services
received by a unit located in a SEZ or the developer of SEZ.
O When the specified received services are wholly consumed within SEZ,
the person liable to pay service tax has the option of not paying the
service tax ab initio.
O In other cases, refund shall be calculated as follows:
Refund Amount = (Export turnover of goods X Service tax paid on
+ services of SEZ Unit) services other than
wholly consumed
Total turnover for the period
O Claim for refund shall be filed in Form A-2.
Act, 2005

Provisional Collection of Taxes
Act, 1931
O Section 3 of the said act authorizes the Central Government to either
impose or increase the duty structure with immediate effect provided the
same is in public interest.
O The provision shall be in force immediately on the expiry of the day on
which the bill containing it is introduced.
O Where a provision which has come into operation in an amended form
before the expiry of 75th after the day on which the bill containing it was
introduced, refunds is required to be made of all duties collected.
O The refund under sec 5 shall not exceed the difference between the rate of
such duty proposed and the rate of such duty in force when the bill was
introduced. It is pertinent to take note of following cases:
o Shifting of goods from one tariff item to another is not covered by Section 5.
Exemption notificaiton are not within its purview. – Pieco Electronics & Electricals
Ltd v CCE, Pune [1996 (87) ELT 577(SC)]

Factories Act, 1948
O Central legislation meant to provide protection to the workers
O Extends to the whole of India
O Applicable to the premises, which comes under the definition “Factory”
O Factories: Premises where manufacturing process takes place and employs:
o 10 and more workers – With Power
o 20 and more workers – without power
O Manufacturing process: It means any process for:
o Making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing or otherwise treating or adapting any article
or substance with a view to its use, sale, transport, delivery or disposal
o Pumping oil, water, sewage or any other substance
o Generating, transforming or transmitting power
o Composing types for printing, printing by letter press, lithography, photogravure
or other similar process of book binding or
o Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or
vessels
o Preserving or storing any article in cold storage

Factories Act, 1948
O Power: It means electrical energy or any other form of energy which is
mechanically transmitted and is not generated by human or animal agency.
O Occupier And Manager are the responsible persons for implementation of
the provisions envisaged in the Act.
O Occupier means the person who has got the ultimate control over the
affairs of the factory.
o Proprietorship : Proprietor
o Partnership : One of the partner
o Company : One of the director
o State or Central Government owned: Person so nominated by the respective
government.
O Manager means a person responsible to the occupier for the working of the
factory. He has to be nominated by the occupier.

Factories Act, 1948
Focus Area of the Act:
O Occupiers responsibility
O Health and Safety of workers
O Worker Welfare
O Working hours and Leave provisions for adult workers
O Special provisions for women and child labour
O Special provisions for Dangerous / Hazardous operations
O Worker participation
O Rights and obligations of workers
O Maintenance of Records and Registers
We shall now see the relevance of Factories Act vis-à-vis indirect tax laws

Factories Act, 1948
O Compliance and records maintained under Factories Act can help an
assessee to substantiate his position for the purpose of indirect taxes as
well.
O Concepts like production capacity, commencement of production etc are
relevant for Indirect taxes especially in case of availment of exemption
before a certain date.
Certain relevant case laws:
O Registration under Factories Act, 1948 has nothing to do with assessee’s
claim for exemption under Central Excise Act, 1944 - South Eastern
Coalfields Ltd. v Commissioner, Cus. & C. Ex. [2006 (200) E.L.T. 357 (S.C.)]
O Definition of ‘manufacturing process’ in Factories Act cannot be applied for
the purpose of Central Excise Act, 1944, when specific definition available
in the Central Excise Act, 1944 - Qazi Noorul H.H.H. Petrol pump v Dy.
Director, E.S.I. Corporation [2009 (240) E.L.T. 481 (S.C.)]

Companies Act, 1956
O An Act to consolidate and amend the law relating to companies and certain
allied associations.
O Relevant provisions of all Indirect Taxes apply to a company in the same
manner as to other persons. However, certain specific provisions apply to a
Company which can be understood from the decided cases.
O Can Company be prosecuted?
Company, though it is not a natural person but ‘legal’ or ‘juristic’ person, and
thus, cannot be ordered to suffer imprisonment, however, other consequences
would ensue, e.g. payment of fine etc. In other words, it was held that
‘Corporate criminal liability’ is not unknown to law. - Madhumilan Syntex Ltd. v
Union of India 2007 (210) E.L.T. 484 (S.C.)
O Recovery of government dues
Recovery of taxes, liability of which had arisen within twelve months, from a
Company in liquidation, shall have priority over other dues. Ref : Section
530(1) (a) - Rajratha Naranbhai Mills [1991 (52) E.L.T. 335 (S.C.)]

Companies Act, 1956
O Amalgamation - implications
For all purposes of indirect taxes including clubbing of clearances in case of an
Amalgamation, shall be effective from the date of amalgamation whereon the
Transferee takes over of all assets and liabilities. - Kwality Zipper Ltd. v
Commissioner of Central Excise, Kanpur [2002 (145) E.L.T. 296 (Tri. - Del.)]
O Relevance of Financial Statements of a Company
Demand on the basis of balance sheet and profit and loss account prepared
and adopted by a Company has been upheld by Hon’ble Tribunal. Appellant’s
plea that mention of fabrication of plant and machinery was made in the
balance sheet to present a rosy picture of the company to the share holders or
the equipment did not reach the finished stage is not acceptable - Usha
Rectifier Corpn. (I) LTD. V CCE, New Delhi [2001 (130) E.L.T. 485 (Tri. - Del.)].

General Clauses Act, 1897
O The purpose of the General Clauses Act is to place in one single statute
different provisions as regards interpretations of words and legal principles
which would otherwise have to be specified separately in many different
acts and regulations.
O Section 3 : Provides for definitions of words which are applicable in all
Central Acts and Regulations, unless there is anything repugnant in the
subject or context. Some of important definitions include:
o Affidavit
o Document
o Financial year
o Government / Central Government / State Government
o immovable property
o Imprisonment
o Month
o movable property
o Person
o Section
o year

O Effective example of the application of General Clause Act:
The definition of the term “Person” since has not been defined in Finance
Act, 1994 can be borrowed from General Clause Act
O Section 5 : Where any Central Act is not expressed to come into operation
on particular day, then it shall come into operation on the day on which it
receives the assent. Unless the contrary is expressed, a central act or
regulation shall be construed as coming into operation immediately on the
expiration of the day preceding its commencement.

O Section 6: Where any of the provision enacted after the commencement of
this act is cancelled, then unless a different intention appears, the repeal
shall not –
o Revive anything not in force or existing at the time at which the repeal takes
effect
o Affect the previous operation of any enactment so repealed or anything duly
done or suffered thereunder
o Affect any right, privilege, obligation or liability acquired, accrued or incurred
under any enactment so repealed or
o Affect any penalty, forfeiture or punishment incurred in respect of any offence
committed against any enactment so repealed or
o Affect any investigation, legal proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty, forfeiture or punishment.

Some important Cases on Section 6:
O Limitation being matter of procedure, law at time of filing appeal is
applicable - Thirumalai Chemicals Ltd. v Union of India 2011 (268) E.L.T. 296
(S.C.)
O Section 6 of General Clauses Act applies only in respect of a Central Act or
Regulation and not to repeal of a Rule - Kolhapur Canesugar Works Ltd. v
Union of India 2000 (119) E.L.T. 257 (S.C.)

O Section 10: Computation of time: When the court or office is closed on a
certain day or is the last day of the prescribed period, then the proceedings
shall be considered as done or taken in due time if it is done or taken on
the next day afterwards on which the court or office is open. This provision
is applicable provided the act or proceeding is not covered under the Indian
Limitation Act.
O Construction:
o Section 13: Words importing the masculine gender shall be taken to include
females, and words in the singular shall include the plural, and vice versa.
o Section 20: Where any notification, order, scheme, rule, form or bye-law is
issued, then the expression used in the notification, order, scheme, rule, form or
bye-law should be construed to have the respective meanings as in the act or
regulation conferring the power.

O Section 26: Provision as to offences -
Where an act or omission constitutes an offence under two or more
enactments, then the offender shall be liable to be prosecuted and punished
under either of enactments, but shall not be liable to be punished twice for the
same offence
O Section 27: Meaning of service by post -
The service shall be deemed to be effected by properly addressing pre-paying
and posting by registered post, and unless the contrary is proved, to have been
effected at the time at which the letter would be delivered in the ordinary
course of post.

Limitation Act, 1963
O Limitation is required for good of masses and is required from the
perspective of both, the assessor and the assessed. - Equity aids the vigilant
and not the indolent.
O Subject to provisions of sections 4 to 24 of the Limitation Act, every suit
instituted, appeal preferred and application made after the ‘prescribed
period’ shall be dismissed, although limitation has not been set up as a
defence.
O ‘Period of limitation’ means the period of limitation prescribed for any suit,
appeal or application by the schedule to the Act and ‘prescribed period’
means the period of limitation computed as per provisions of the Act.
O Where the prescribed period for any suit, appeal or application expires on a
day when the court in closed (including for part of a day), then the same
may be preferred on the day when court re-opens.

O Time periods / events to be excluded for the computation of Period of limitation:
o Period when a person is disabled (as he was minor or insane)
o First day or day of judgment
o Time for getting copy of judgment or decree or order or award (against which
appeal or application has to be filed
o Time spent (by mistake or misunderstanding) in proceeding bona fide in the
Court without jurisdiction
o Period of stay or injunction
O Fraud nullifies everything : Period of limitation starts only after fraud or mistake
is discovered by affected party. limitation starts from the date of knowledge of
mistake of law [Vidarbha Veneer Industries Ltd. v. UOI - 1992 (58) ELT 435 (Bom
HC)]
O Period of limitation restarts from the date of acknowledgment of any right or
liability obtained from the party against whom such property, right or liability is
claimed

O Limitation is a question of law and can be raised at any stage i.e. even at the
time of appeal.
O Law of Limitation is applicable only to courts and not to tribunals, unless
empowered by the statute - Om Prakash v Ashwini Kumar [2010 (258)
E.L.T. 5 (S.C.)], Nityanand M Joshi v. LIC [AIR 1970 SC 209], Sakura v. Tanaji
[AIR 1985 SC 1279], Birla Cement Works v. G M Western Railway [(1995) 2
JT 59 (SC)].
O Section 5: concept of 'condonation of delay' and 'sufficient cause”
o The words ‘sufficient cause’ in Section 5 of Limitation Act should receive a liberal
construction so as to advance substantial justice, when the delay is not on
account of any dilatory tactics, want of bona fides, deliberate inaction or
negligence on the part of the appellant. - Perumon Bhagvathy Devaswom v.
Bhargavi Amma [(2008) 8 SCC 321]

o However, in absence of no satisfactory or reasonable explanation rendered for
condonation of delay, condonation should not be granted - Collector of Central
Excise, Madras v. A.MD. Bilal & Co., 1999 [(108) ELT 331 (SC)], Balwant singh v
Jagjit Singh 2010 (262) E.L.T. 50 (S.C.)
O Important to note that in case of CCE v Hongo India [2009 (236) E.L.T. 417
(S.C.)], the Apex Court held that the time limit prescribed in Section 35H of
Central Excise Act, 1944 absolute and not extendable by court under
Section 5 of Limitation Act, 1963

Information Technology Act,
2000
O Use of computers to create, transmit and store information is becoming an
indispensible part of today’s business.
O Legal provisions in most of the statutes in India require paper records and
signature of the relevant person.
O However, to overcome the hurdle of paper documentation and to match
the fast pace of technology, the IT Act had been enacted.
O The purpose of Act is
o to provide legal recognition for transactions carried out by means of electronic
data interchange
o to facilitate electronic filing of documents with the Government agencies

2000
O The Act does not apply to
o a negotiable instrument except cheque
o a power-of-attorney
o a trust deed
o a will
o any contract for the sale or conveyance of immovable property
o any such class of documents or transactions as may be notified by the Central
Government
O The Act provides (relevant provisions):
o Legal recognition to Electronic Transaction / Record
o Legal recognition of digital signatures
o Various types of computer crimes defined and stringent penalties provided under
the Act
o Electronic Governance

2000
O Unless there is a specific provision in a law to provide information in paper
form, information provided in electronic form shall suffice the requirement
O However, Section 8 further prescribes that no department or ministry can
be compelled to accept application, return or any communication in
electronic form

Indian Evidence Act, 1872
O The object of every judicial investigation is the enforcement of a right or
liability that depends on certain facts. The law of evidence can be called the
system of rules whereby the questions of fact in a particular case can be
ascertained.
O Evidence: it means and includes
o All statements which the court permits or requires to be made before it by
witnesses, in relation to matters of fact under inquiry. Such statements are called
oral evidence
o All documents including electronic records produced for the inspection of the
court. Such statements are called documentary evidence
O Types of Evidence : Direct, Circumstantial, Hearsay, Documentary, Oral,
Scientific, Real, Digital

Provisions relating to Admissions
O Sec 17 of the act defines the term admission as any statement, which can
either oral, documentary or recorded in electronic media.
O Further sec 18 provides that the statements made by a party to the
proceeding or by an agent of such party are also considered as admissions
provided the court regards them authorized (expressly or impliedly).
O Confession made by the person in the custody of police officer would be
relevant only when they are made in the presence of a magistrate.
O Section 34 provides that the entries in the books of account including those
maintained in electronic form are relevant. But these statements shall not
alone be sufficient evidence to charge any person with liability.
O In terms of sec 65B, any information contained in an electronic record
which is printed on paper, stored, recorded or copied in optical or magnetic
media produced by a computer shall be deemed to be also a document

O Opinion of third party: The court under sec 45 would consider the views of
the expert when the court is expected to form an opinion upon a point on
foreign law or of science or art or as to identity of handwriting. Further
facts not otherwise relevant would be relevant if they support or are
inconsistent with the opinion of experts, when such opinions are relevant.
O Admissibility of document or contents thereof may not necessarily lead to
any inference unless contents thereof have some probative value – H.
Siddiqui v A. Ramalingam [2011 (268) ELT 436 (SC)]

Sale of Goods Act, 1930
O This law is enacted to define and amend the law relating to sale of goods.
O In terms of sec 4, a contract of sale of goods is a contract whereby the
seller transfers or agrees to transfer the property in goods to the buyer for
a price. There must be a contract between one person to another and the
contract may either be absolute or conditional.
O When property is transferred from seller to buyer at the time of formation
of contract, an absolute sale occurs.
O When property in the goods is to be transferred at some future date and
not at the time of contract, the contract of sale is termed as an agreement
to sell.

O Goods
o Only "goods" attract Customs or Excise or Sales tax depending on the nature of
event ie. 'Imports' or 'Exports', 'Manufacture', 'Sale' etc.
o According to Sale of Goods Act, Sec. 2(7) -
"Goods" means every kind of moveable property other than actionable claims & money;
and includes stocks & shares, growing crops, grass & things attached to or forming part
of the land which are agreed to be severed before sale or under the contract of Sale.
o It may be noticed that while 'currency and negotiable instruments' are 'goods' for
Customs duty purposes, they are not goods for the purposes of Excise levy or
Sales tax.
O Reliance on Sale of goods Act has been made by indirect tax statutes to
understand when is a sale transaction effected, what all shall be included in
the Sale price, warranties and conditions of sale, place of delivery etc.

O Some relevant Case laws:
o Increase in price because of increase in duty to be borne by purchaser when such
enhancement is made prior to date of delivery of goods – Ravinder Raj v
Competent Motors [2011 (266) ELT 157 (SC)]
o The fact that Sales tax, Local and Central has been paid at the factory gate and
crucial documents of transport, showing the buyers as consignee which in terms
of Section 39 of Sale of Goods Act, 1930 would be sufficient to construe sale on
delivery to the buyer, on handing over the goods on the transport vehicle. -
Welspun Gujarat Stahl Rohren Ltd v CCE [2006 (194) E.L.T. 430 (Tri. - Mumbai)]
o Identification of goods by buyer’s representative would construe possession –
Commissioner v Ravi Cables [2003 (152) ELT A266 (SC)]

Indian Penal Code
O The provisions of this act are applicable to the whole of India except the
state of Jammu & Kashmir.
O Every person shall be liable punishment under this Code and not otherwise
for every act of omission contrary to the provisions thereof, of which, he
shall be guilty within India.
O Relevant provisions of IPC:
o Sec 175 provides for a simple imprisonment for a term which may extend upto
one month or with fine which may extend upto INR 500 when any person
intentionally fails to produce or deliver any document to the public servant which
he is legally bound to.
o Sec 177 provides for simple imprisonment of around six months and/ or with a
fine of INR 1000 when any person furnishes false or incorrect information.
o Sec 178 provides for simple imprisonment of around six months and/or with a
fine of INR 1000 when any person refuses to answer any question demanded by
the public servant.

Indian Penal Code
o Sec 186 provides for simple imprisonment of around three months and/or with a
fine of INR 500 when any person voluntarily obstructs any public servant in
discharge of his public functions.
o Sec 193 provides for an imprisonment extendable upto seven years with a fine
when any person intentionally provides false evidence at any stage of judicial
proceeding or fabricates evidence for the purpose of being used in proceedings.
o Sec 204 provides for a imprisonment which may extend upto two years and/or
fine when any person secrets or destroys any document or electronic record
which he may lawfully be compelled to produce as evidence in a court of justice
or in any proceedings.
o Sec 228 provides for a imprisonment extendable upto six months and/or fine
extendable upto INR 1000 when any person intentionally insults or causes any
interruption to any public servant when such public servant is sitting in any stage
of a judicial proceedings.

Legal Metrology Act, 2009
O This legislation was introduced to establish and enforce standards of
weights and measures, regulation of trade and commerce in weights,
measures and other goods which are sold or distributed by weight,
measure or number.
O In terms of sec 4, every unit of weight or measure shall be in accordance
with the metric system based on the international system of units.
O Under sec 10, any transaction, dealing or contract in respect of any goods,
class of goods or undertakings shall be made by such weight, measure or
number.

Legal Metrology Act, 2009
O No person in relation to any goods or service –
o Quote or make announcement of, whether by word of mouth or otherwise any
price or charge or
o Issue or exhibit any price list, invoice, cash memo or other document or
o Prepare or publish any advertisement, poster or other document or
o Indicate the net quantity of pre-packaged commodity or
o Express in relation to any transaction or protection, any quantity or dimension,
Otherwise than in accordance with the standard unit of weight, measure or
numeration. The said provisions are not applicable for goods or things meant for
export.
O Provisions of declarations on pre-packaged commodities are contained in
new Act also. Hence, the provisions of MRP valuation for excise purposes
will continue under new Act also.

Disclaimer
This presentation has been prepared for internal use of ICAI and its members. The contents of this document are
solely for informational purpose. It does not constitute professional advice or a formal recommendation. The
presentation is made with utmost professional caution but in no manner guarantees the content for use by any
person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the
matter given. The presentation is meant for general guidance and no responsibility for loss arising to any person
acting or refraining from acting as a result of any material contained in this presentation will be accepted by us.
Professional advice recommended to be sought before any action or refrainment.
CA Gaurav Gupta
Partner
M.Mohan Gupta & Co.
507 B, D-Mall, Netaji Subhash Palace, Delhi - 110034
+91 11 32962487
+91 11 2735 2487
+91 98110 13940
mmohanguptaco@gmail.com
Thank you

Indirect Tax Laws & Allied Acts

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