Customs - Interest on delayed refund - High Court condemns highhande
BANGALORE : MANY assessees believe that it is not easy to get refund from the department. Here is another classic example to justify that belief.
On 04.06.1998 the respondent-company had imported certain items and cleared the same on payment of customs duty. Later, the respondent realized the mistake of having deposited the customs duty, as the goods which were imported were exempted from customs duty under Notification dated 02.06.1998. Thus, the respondent-company filed an application on 24.12.1998 under Section 27 of the Act for refund of customs duty amounting to Rs.1,06,74,049/ -, which was deposited on 04.06.1998. By order dated 23.10.2001, the Deputy Commissioner, rejected the application for refund of customs duty filed by the respondent-company, stating that the goods imported were not exempted and hence the respondent was not entitled to such refund.
The Commissioner (Appeals) allowed the refund, but on the ground of unjust enrichment, ordered it to be credited to the Consumer Welfare fund. The assessee got favourable order from the CESTAT. The department was unsuccessful before the High Court and Supreme Court. The Supreme Court order is dated 21.02.2011.
Finally, the Assistant Commissioner of Customs, granted refund vide order dated 13.04.2011, but refused to pay interest on the ground that the refund was given within three months from the date of Supreme Court order.
The assessee continued the battle and finally, the Tribunal held that the assessee is entitled to interest from 24.03.1999 to 13.04.2011. Aggrieved by the same, revenue is now before the High Court.
After hearing both sides, the High Court held:
From plain reading of Section 27A, it is clear, that interest would be payable if the amount is not refunded within three months from the date of the application. The rate of interest would vary from 5% to 30% per annum, as may be fixed by the Central Government by Notification from time to time. Explanation immediately after the proviso in the said Section only means that the liability to pay the amount would arise after the order of refund of the amount is finalized, either in appeal or by the Commissioner, Tribunal or the Court, but such liability would be from three months after the date of application. The same cannot be interpreted that the liability to pay interest would be from the date of the order of the Tribunal or the Court, which may be passed in appeal.
While considering a similar case under the Central Excise Act, the Apex Court in Ranbaxy Laboratories Ltd., - 2011-TIOL-105- SC-CX has interpreted under Section 11BB as well as the Explanation of the said Section in the same manner as has been held by the Tribunal. The provisions of Section 11BB of the Central Excise Act, 1944 and Section 27A of the Customs Act are parimateria.
The appellant has been misinterpreting the law, and thereby depriving the respondent from its rightful claim of interest, even after the order for refund of the amount had been made upto the Supreme Court. Not only that, the interest has been denied to the respondent even though the order directing payment of interest was made by the Tribunal on 21.05.2014, which was based on a decision of the Supreme Court.
We are of the opinion that the respondent would be entitled to costs or compensation for the high handedness of the appellant, by initially not refunding the amount for over 12 years, and then refusing to pay the interest even after the order of the Tribunal, and dragging the respondent into litigation up to the High Court, although the matter was fullycovered by the decision of the Apex Court in the case of Ranbaxy Laboratories Ltd.
As such, while holding that no substantial question of law arises in this appeal for determination by this Court, we dismiss this appeal but with the direction that besides the payment of interest from 24.03.1999 (which is three months after the date of application for refund of customs duty filed by the respondent) till the actual date of the payment, which shall be at such rates notified from time to time, the appellant shall further be liable to pay additional interest at the rate of 9% per annum (besides the notified interest) on the amount which is found liable for payment as on 13.04.2011, till its actual payment.
(See 2015-TIOL-1958- HC-KAR-CUS)
Central Excise - Valuation - Cash Discount has to be taken into acco
NEW DELHI : THE question involved in this case is whether the cash discount has to be deducted from the price for arriving at the assessable value.
The Counsel for the appellant has argued that Section 4 of the Central Excise and Salt Act, 1944 as amended in 2000, has made no change in the situation qua cash discount as it obtained under the old Section 4. According to him, what has to be seen in order to arrive at the correct value of excisable goods under Section 4 is such value at the time of removal, and this being so under both the old Section and the new Section, cash discount has to be allowed as has been held in Union of India v. Bombay Tyre International Limited, - 2002-TIOL-33- SC-CX-LB, and Government of India v. Madras Rubber Factory Ltd., - 2002-TIOL-49- SC-CX-LB.
Further, according to the counsel, "transaction value" which was introduced for the first time into the amended Section 4 does not make any change with regard to the fact that such transaction value is only at the time of removal from the factory or depot, being the time of clearance of excisable goods from the factory premises or depot as the case may be. According to him, every agreement of sale entered into by the assessee with its buyers makes it known before the goods are cleared that there is to be a cash discount insofar as the appellant' s goods are concerned. Therefore, this being the case, it is clear that at the time of clearance of the excisable goods from the appellant' s factory, such discounted price alone has to be the value of the goods cleared from the appellant' s factory even under the amended Section 4.
The Additional Solicitor General, has, on the other hand, stated that the introduction of "transaction value" into the amended Section 4 makes a world of difference and that therefore only what is actually paid ultimately is to be looked at for the purpose of valuation of the appellant' s goods. If it is found that what is "actually paid" is not the discounted price, then the transaction value cannot possibly include cash discount. For this purpose, she relied upon the decision in Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. and Ors.,- 2014-TIOL-19- SC-CX.
The Supreme Court studied the Section 4 of the Central Excise Act, as it existed prior to 1973, after 1973 and before 2000 and after 2000 and observed,
It can be seen that the common thread running through Section 4, whether it is prior to 1973, after the amendment in 1973, or after the amendment of 2000, is that excisable goods have to have a determination of "price" only "at the time of removal" . This basic feature of Section 4 has never changed even after two amendments. The "place of removal" has been amended from time to time so that it could be expanded from a factory or any other premises of manufacture or production, to warehouses or depots wherein the excisable goods have been permitted to be deposited either with payment of duty, or from which such excisable goods are to be sold after clearance from a factory. In fact, Section 4(2) pre- 2000 made it clear that where the price of excisable goods for delivery at the place of removal is not known, and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery is to be excluded from such price. This is because the value of excisable goods under the Section is to be determined only at the time and place of removal. Even after the amendment of Section 4 in 2000, the same scheme continues. Only, Section 4(2) is in terms replaced by Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
Has the position changed after 2000? The Supreme Court observed,
It can be seen that Section 4 as amended introduces the concept of "transaction value" so that on each removal of excisable goods, the "transaction value" of such goods becomes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were ordinarily sold in the course of wholesale trade, post amendment each transaction is looked at by itself. However, "transaction value" as defined in sub-clause (3)(d) of Section 4 has to be read along with the expression "for delivery at the time and place of removal" . It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of "transaction value" has only to be at the time of removal, that is, the time of clearance of the goods from the appellant' s factory or depot as the case may be. The expression "actually paid or payable for the goods, when sold" only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of "transaction value" is therefore the agreed contractual price. Further, the expression "when sold" is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale.
Once this becomes clear, what the counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is "known" at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods "at the time of removal ".
Held: it is clear that "cash discount" has to be taken into account in arriving at "price" even under Section 4 as amended in 2000.
(See 2015-TIOL-193- SC-CX)
IT: Where additions made on account of unexplained purchases
[2015] 60 taxmann.com 67 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Commissioner of Income-tax
v.
Arora Alloys Ltd.
CX - Classification - Vaseline Intensive Care Heel Guard is medicame
CX - Classification - Vaseline Intensive Care Heel Guard is medicament: SC
NEW DELHI : THE issue involved in the appeal is as to whether Vaseline Intensive Care Heel Guard (for short, 'VHG' ) is to be treated as merely a skin care preparation or it is a medicament having curing properties. Based on the answer to the question, classification of this product will be determined. If it is only a skin care preparation then VHG is classifiable under Chapter Heading 3304.00 of the First Schedule to the Central Excise Tariff Act, 1985. On the other hand, if it is to be treated as a medicament, VHG would get covered under Chapter Heading 3003.10 of the First Schedule. The rate at which the excise duty is payable depends on the said classification.
Chapter 33 under which the Revenue wants to cover VHG pertains to 'essential oils and resinoids; perfumery, cosmetic or toilet preparations&# 39; and, therefore, 40% duty is paid.
If a particular product is to be covered under this Entry, the basic trait of the said product is that it is beauty or make-up preparations and preparations for the care of the skin. Some products like sunscreen and suntan preparations; manicure or pedicure preparations are specifically included, meaning thereby they are to be treated as beauty or make-up preparations or preparations for care of the skin. At the same time, medicaments are specifically excluded therefrom.
On the other hand, as per the assessee, VHG is a medicament and, therefor, it should be covered by Chapter 30. Chapter 30 deals with 'pharmaceutical products' .
The position which is taken by the assessee is that VHG is patent or proprietary medicament and is, therefore, classifiable under Chapter Heading 3003.10 and only 15% duty is paid.
The Supreme Court observed,
While contrasting the two Entries, namely, Entry 3304.00 on the one hand and 3003.10 on the other, it can be discerned that if it is a product for care of the skin, then it would fall under Chapter Heading 3304.00 but if it is for the cure of skin disease then the product in-question would be medicament; meaning thereby the inquiry has to be whether it is a care product or a product meant for cure.
To put it in a nutshell, if a particular product is substantially for the care of skin and simply because it contains subsidiary pharmaceutical or antiseptic constituents or is having subsidiary curative or prophylactic value, it would not become medicament and would still qualify as the product for the care of the skin. There would be certain products which would be purely for the care of skin and certain other products would be clearly medicament and such cases may not pose any problem. The issue of determination as to whether a particular product falls in Chapter 33 or Chapter 30 would arise in those cases where certain products have the shades or qualities of both, namely, skin care as well as cure of skin diseases. In such cases, the necessary exercise requires to be undertaken. Whenever product has curative or prophylactic value as well, but the Department still wants the said product to be brought under Chapter Heading 3304.00, onus is on the Department to show that it is not medicament. For this, it will have to demonstrate that curative or prophylactic value is only subsidiary in nature or that the product is covered by the description under chapter notes 5, namely, either it is chiropody or barrier cream to give protection against skin irritants. If the Department fails to discharge this onus, the product has to be treated as medicament and would be covered under Chapter 30.
Main feature which needs to be taken note of is that small percentage of the ingredients of pharmaceutical constituents would not be a reason by itself to conclude that pharmaceutical constituents are subsidiary in nature. On the other hand, what is more relevant is the purpose for which the product is used, namely, functional test.
The Supreme Court had earlier laid down the guiding principles which are to be kept in mind while determining the classification.
Firstly, when a product contains pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, the proportion of such ingredients is not invariably decisive. What is of importance is the curative attributes of such ingredients that render the product a medicament and not a cosmetic.
Secondly, though a product is sold without a prescription of a medical practitioner, it does not lead to the immediate conclusion that all products that are sold over/across the counter are cosmetics. There are several products that are sold over the counter and are yet, medicaments.
Thirdly, prior to adjudicating upon whether a product is a medicament or not, the courts have to see what the people who actually use the product understand the product to be. If a product' s primary function is "care" and not "cure" , it is not a medicament. Cosmetic products are used in enhancing or improving a person's appearance or beauty, whereas medicinal products are used to treat or cure some medical condition. A product that is used mainly in curing or treating ailments or diseases and contains curative ingredients even in small quantities, is to be branded as a medicament.
Based on the above guidelines, the Supreme Court observed,
The product in question, Vaseline Intensive Care Heel Guard, is marketed as a solution for cracked heels and it is claimed that this solution is specially developed by the scientists at Vaseline Research. The composition of this product includes salicylic acid I.P. 1.5% w/w. lactic acid 8.0% w/w. Triclosan 0.1% w/w. Cream base - q.s. Salicylic acid is described as keratolytic substance having bacteriostalic and fungicidal properties used in the treatment of fungus infection of the skin. The Tribunal, while deciding that the aforesaid product is a medicament, pointed out that the product was formulated and essentially used for treatment of 'cracked heels', protection from further cracks in the human heels due to extreme climatic conditions and low humidity, constant exposure of feet to water and due to absence of shoe or other protection while walking. It also found that this product was manufactured under a drug licence as drug authorities had treated the same as a medicament. The Tribunal also found that the usage of this product was related to the effect of therapeutic or mitigating substance of prophylactic substances added. Thus, the effect of mitigation of an external condition is primary effect and the effect of smoothing the skin was secondary in nature and, therefore, it was to be treated as a medicament and classified under Chapter 30.
Interestingly, all the aforesaid features of the product are accepted by the Department. However, only on the ground that salicylic acid contained in the product is marginal, the Department took the view that it was a subsidiary substance. Having regard to the exposition of law narrated above, this was clearly an erroneous approach on the part of the Revenue as percentage of the said substance is immaterial to label it as subsidiary.
Another more important factor is that though the burden was on the Department, it did not lead any evidence or produce any material to discharge this onus. It simply went by the pamphlet of the product, that too selectively picking up that portion where the product was described as good for care of the skin as well, ignoring the fact that the same very literature gives more emphasis to the therapeutic value of the product. On the other hand, the assessee had filed various affidavits of the dealers as well as consumers in support of its plea that the product was essentially a medicament, which material was blissfully ignored by the Department.
The Supreme Court concluded that the decision of the Tribunal holding the product in question to be a medicament and, therefore, covered by Chapter Heading 3003.10 is perfectly justified and does not call for any interference.
The civil appeal is, accordingly, dismissed.
NEW DELHI : THE issue involved in the appeal is as to whether Vaseline Intensive Care Heel Guard (for short, 'VHG' ) is to be treated as merely a skin care preparation or it is a medicament having curing properties. Based on the answer to the question, classification of this product will be determined. If it is only a skin care preparation then VHG is classifiable under Chapter Heading 3304.00 of the First Schedule to the Central Excise Tariff Act, 1985. On the other hand, if it is to be treated as a medicament, VHG would get covered under Chapter Heading 3003.10 of the First Schedule. The rate at which the excise duty is payable depends on the said classification.
Chapter 33 under which the Revenue wants to cover VHG pertains to 'essential oils and resinoids; perfumery, cosmetic or toilet preparations&# 39; and, therefore, 40% duty is paid.
If a particular product is to be covered under this Entry, the basic trait of the said product is that it is beauty or make-up preparations and preparations for the care of the skin. Some products like sunscreen and suntan preparations; manicure or pedicure preparations are specifically included, meaning thereby they are to be treated as beauty or make-up preparations or preparations for care of the skin. At the same time, medicaments are specifically excluded therefrom.
On the other hand, as per the assessee, VHG is a medicament and, therefor, it should be covered by Chapter 30. Chapter 30 deals with 'pharmaceutical products' .
The position which is taken by the assessee is that VHG is patent or proprietary medicament and is, therefore, classifiable under Chapter Heading 3003.10 and only 15% duty is paid.
The Supreme Court observed,
While contrasting the two Entries, namely, Entry 3304.00 on the one hand and 3003.10 on the other, it can be discerned that if it is a product for care of the skin, then it would fall under Chapter Heading 3304.00 but if it is for the cure of skin disease then the product in-question would be medicament; meaning thereby the inquiry has to be whether it is a care product or a product meant for cure.
To put it in a nutshell, if a particular product is substantially for the care of skin and simply because it contains subsidiary pharmaceutical or antiseptic constituents or is having subsidiary curative or prophylactic value, it would not become medicament and would still qualify as the product for the care of the skin. There would be certain products which would be purely for the care of skin and certain other products would be clearly medicament and such cases may not pose any problem. The issue of determination as to whether a particular product falls in Chapter 33 or Chapter 30 would arise in those cases where certain products have the shades or qualities of both, namely, skin care as well as cure of skin diseases. In such cases, the necessary exercise requires to be undertaken. Whenever product has curative or prophylactic value as well, but the Department still wants the said product to be brought under Chapter Heading 3304.00, onus is on the Department to show that it is not medicament. For this, it will have to demonstrate that curative or prophylactic value is only subsidiary in nature or that the product is covered by the description under chapter notes 5, namely, either it is chiropody or barrier cream to give protection against skin irritants. If the Department fails to discharge this onus, the product has to be treated as medicament and would be covered under Chapter 30.
Main feature which needs to be taken note of is that small percentage of the ingredients of pharmaceutical constituents would not be a reason by itself to conclude that pharmaceutical constituents are subsidiary in nature. On the other hand, what is more relevant is the purpose for which the product is used, namely, functional test.
The Supreme Court had earlier laid down the guiding principles which are to be kept in mind while determining the classification.
Firstly, when a product contains pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, the proportion of such ingredients is not invariably decisive. What is of importance is the curative attributes of such ingredients that render the product a medicament and not a cosmetic.
Secondly, though a product is sold without a prescription of a medical practitioner, it does not lead to the immediate conclusion that all products that are sold over/across the counter are cosmetics. There are several products that are sold over the counter and are yet, medicaments.
Thirdly, prior to adjudicating upon whether a product is a medicament or not, the courts have to see what the people who actually use the product understand the product to be. If a product' s primary function is "care" and not "cure" , it is not a medicament. Cosmetic products are used in enhancing or improving a person's appearance or beauty, whereas medicinal products are used to treat or cure some medical condition. A product that is used mainly in curing or treating ailments or diseases and contains curative ingredients even in small quantities, is to be branded as a medicament.
Based on the above guidelines, the Supreme Court observed,
The product in question, Vaseline Intensive Care Heel Guard, is marketed as a solution for cracked heels and it is claimed that this solution is specially developed by the scientists at Vaseline Research. The composition of this product includes salicylic acid I.P. 1.5% w/w. lactic acid 8.0% w/w. Triclosan 0.1% w/w. Cream base - q.s. Salicylic acid is described as keratolytic substance having bacteriostalic and fungicidal properties used in the treatment of fungus infection of the skin. The Tribunal, while deciding that the aforesaid product is a medicament, pointed out that the product was formulated and essentially used for treatment of 'cracked heels', protection from further cracks in the human heels due to extreme climatic conditions and low humidity, constant exposure of feet to water and due to absence of shoe or other protection while walking. It also found that this product was manufactured under a drug licence as drug authorities had treated the same as a medicament. The Tribunal also found that the usage of this product was related to the effect of therapeutic or mitigating substance of prophylactic substances added. Thus, the effect of mitigation of an external condition is primary effect and the effect of smoothing the skin was secondary in nature and, therefore, it was to be treated as a medicament and classified under Chapter 30.
Interestingly, all the aforesaid features of the product are accepted by the Department. However, only on the ground that salicylic acid contained in the product is marginal, the Department took the view that it was a subsidiary substance. Having regard to the exposition of law narrated above, this was clearly an erroneous approach on the part of the Revenue as percentage of the said substance is immaterial to label it as subsidiary.
Another more important factor is that though the burden was on the Department, it did not lead any evidence or produce any material to discharge this onus. It simply went by the pamphlet of the product, that too selectively picking up that portion where the product was described as good for care of the skin as well, ignoring the fact that the same very literature gives more emphasis to the therapeutic value of the product. On the other hand, the assessee had filed various affidavits of the dealers as well as consumers in support of its plea that the product was essentially a medicament, which material was blissfully ignored by the Department.
The Supreme Court concluded that the decision of the Tribunal holding the product in question to be a medicament and, therefore, covered by Chapter Heading 3003.10 is perfectly justified and does not call for any interference.
The civil appeal is, accordingly, dismissed.
(See 2015-TIOL-1
Service Tax/Excise/Customs : A direction to recompute tax liability
[2015] 60 taxmann.com 249 (Bombay)
HIGH COURT OF BOMBAY
Commissioner of Service Tax, Mumbai-I
v.
Riya Travels & Tours (India) (P.) Ltd.
SC sets aside Uttaranchal HC ruling, holds income of trust as not taxable in the hands of assessee despite the same having been created for the benefit of assessee's minor children; Erstwhile Sec 64(1)(iii) providing for clubbing of income of a minor child in the hands of his parent not applicable in instant case; Court observes that one of the important terms of the trust deeds was income so earned by the trusts shall not be received by the minor children till they become major & that the same would be spent for their benefit only on attaining the age of majority; Relying on co-ordinate bench ruling in M.R. Doshi and Bombay HC ruling in Yogindraprasad N. Mafatlal, SC holds "... in the first instance it has to be shown that the share of income is at the hands of minor child which requirement is not satisfied in the present case" ; Further clarifies "... Explanation 2A is only to take care of the income even when a trust is created. It does not go further and make any provision to the effect that even when the income earned by the trust cannot be utilised for the benefit of the minor during his minority the Explanation 2A shall be attracted." : SC
SC sets aside HC orders, holds CBDT Instruction No. 3/2011 specifying minimum monetary tax effect of Rs 10 lacs for Revenue appeals before HC as not having retrospective effect; HC had dismissed Revenue's appeals considering the aforesaid CBDT instruction; SC observes that all the appeals in present case were preferred prior to 2011, further observes that the instruction clearly indicates that it shall govern only such cases which are filed after the issuance of the instruction; SC rules that the CBDT instruction does not apply to pending cases i.e cases filed before 2011; Thus, remits matter back to HC for re-adjudicating the appeals on merits : SC
No Service tax can be levied on indivisible Works Contracts prior to
Dear Professional Colleagues,
No Service tax can be levied on indivisible Works Contracts prior to June 1, 2007
We are sharing with you an important judgement of the Hon'ble Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala and Others Vs. Larsen and Toubro Ltd. and Others [2015 (8) TMI 749 - SUPREME COURT] on the following issue:
Issue:
Whether Service tax can be levied on indivisible Works Contracts prior to its introduction on June 1, 2007?
Facts & Background:
In the case of Larsen and Toubro Ltd, Kehems Engg Pvt Ltd Vs. CST, Delhi/ CCE & ST, Indore/ CCE/ Rajkot and CCE & ST, Indore Vs. Kehems Engineering Pvt Ltd. [2015 (3) TMI 748 - CESTAT NEW DELHI (LB)], the Five Member Bench of the Hon'ble CESTAT, Delhi by a majority of 3 to2 held that Service elements in a composite/Indivisib le Works Contract (involving transfer of property in goods and rendition of services), where such services are classifiable under Commercial or Industrial Construction Service ("CICS"), Construction of Complex Service ("COCS"), or Erection, Commissioning or Installation Service ("ECIS"), are subject to levy of Service tax even prior to insertion of taxable service 'Works Contract Service' under Section 65(105) (zzzza) of the Finance Act, 1994 ("the Finance Act") i.e. prior to June 1, 2007.
In the above stated case, the two Hon'ble Judicial Members relying upon decisions in the case of CST Vs. Turbotech Precision Engineering Pvt Ltd.[2010 (4) TMI 344 - KARNATAKA HIGH COURT] and Strategic Engineering Pvt. Ltd. Vs. CCE [2011 (8) TMI 698 - MADRAS HIGH COURT ] held that Works Contract Service was not a taxable service prior to June 1, 2007 as CICS, COCS and ECIS covers only such contracts/ transactions which involves pure rendition of service(s), falling within the ambit of the respective definitions and do not comprehend Works Contract Service within their ambit. It was further held that the decision of the Hon'ble Delhi High Court in case of G.D. Builders and Others Vs. Union of India and Another [2013 (11) TMI 1004 - DELHI HIGH COURT] ("GD Builders Case") that a Works Contract can be vivisected and discernible taxable service elements could be subjected to Service tax prior to June 1, 2007 is erroneous on per incuriam and sub silentio grounds.
However, on the other hand three Hon'ble Technical Members relying upon the decision in GD Builders Case, C.C.E. Vs. B.S.B.K. Pvt. Ltd. [2010 (5) TMI 46 - CESTAT, NEW DELHI - LB] and YFC Projects (P.) Ltd. Vs. Union of India [2014 (1) TMI 1558 - DELHI HIGH COURT] ("YFC Case"), held that in GD Builders Case and YFC Case, the Hon'ble Delhi High Court has considered the very same matter and held that Works Contract can be vivisected and discernible taxable service elements could be subjected to Service tax prior to June 1, 2007. This Tribunal being sub-ordinate to both the Apex Court and the High Court would be bound by the above mentioned decisions. In other words, the ratio decidendi of the GD Builders Case stands uncontroverted as of now and therefore, the same is binding on all sub-ordinate Courts including this Tribunal.
Accordingly, the matter travelled up to the Hon'ble Supreme Court wherein group of appeals were filed both by the Revenue and the Assessees.
Held:
The Hon'ble Apex Court after elaborate discussion of the various provisions and judicial pronouncements held as under:
I). A plain reading of the judgment in the case of Gannon Dunkerley and Company and Others Vs. State of Rajasthan and Others [1992 (11) TMI 254 - SUPREME COURT OF INDIA], clearly and unmistakably holds that unless the splitting of an indivisible Works Contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into portion of such cost, expenses and profit as would be attributable in the Works contract to the transfer of property in goods in such contract;
II).Works Contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such;
III).A close look at the Finance Act would show that the taxable services referred to in the charging Section 65(105) thereof would refer only to service contracts simpliciter and not to composite Works contracts. This is clear from the very language of Section 65(105) of the Finance Act which defines 'taxable service' as "any service provided" ;
IV). Under Section 67 of the Finance Act, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite Works contracts, such as are contained on the facts of the present cases;
V). While introducing the concept of Service tax on indivisible Works Contracts various exclusions are also made such as Works contracts in respect of roads, airports, airways transport, bridges, tunnels, and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If the contention of the Revenue is accepted, each of these excluded Works contracts could be taxed under the sub-heads of Section 65(105) of the Finance Act, which was never the intention of Parliament;
VI). In GD Builders case, it was held that the levy of Service tax in Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh) of the Finance Act is good enough to tax indivisible composite Works contracts, but in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess Service tax on indivisible composite Works contracts, such argument must fail;
VII). The Delhi High Court judgment unfortunately misread the judgment of this Court in the case of Mahim Patram Private Ltd. Vs. Union of India [2007 (2) TMI 73 - SUPREME COURT OF INDIA], to arrive at the conclusion that it was an authority for the proposition that a tax is leviable even if no rules are framed for assessment of such tax, which is wholly incorrect.
Thus, the Hon'ble Apex Court in no ambiguous terms ruled that Works contracts cannot be taxed before June 1, 2007. Accordingly, the appeals filed by the Assessees were allowed and appeals filed by the Revenue were dismissed
Our Comments:
Levy of Service tax on Turnkey Contracts prior to introduction of Works Contract Services under the Finance Act w.e.f. June 1, 2007 has been a long tale of litigation since past years. With this landmark judgment of the Hon'ble Supreme Court, the haze surrounding the issue will now get clear with the Hon'ble Apex Court delivering final verdict by ruling that no Service tax can be levied on Works Contract in prior to June 1, 2007 .
On the principle of prudence, it is astonishing to see this matter travelling till the Hon'ble Supreme Court to decide whether a tax introduced on June 1, 2007 can be made applicable to certain services existing prior to that date. Nonetheless, the Hon'ble Apex Court has re-affirmed what the Hon'ble Justice Shri. Raghuram delivered in the Delhi Tribunal Verdict by stating that "Harvesting revenue, by levy and collection of taxes qua legislation by Parliament must therefore clearly avoid encroachment into the field(s) authorized to States; and vice-versa."
Further, the Hon'ble Justice Raghuram in his speech at FAPCCI, Hyderabad on January 17, 2015 has said that something is pathologically, terminally and seriously wrong with our Departmental adjudication.
Until and unless the Department stops raising such futile issues, there cannot be an end to unproductive litigations in the Country.
Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.
Recent case laws
2015-TIOL-1939- HC-KAR-IT + Story
B M Muniraju Vs CIT
Whether in order to prove that certain land has been used for agricultural purposes in the last two years, an assessee is required to present some accounts with regard to expenditure made by the assessee for sowing the crops and also revenue generated by selling the agricultural produce - YES: HC - Assessee' s appeal dismissed : KARNATAKA HIGH COURT
2015-TIOL-1938- HC-DEL-IT
Mool Chand Khairati Ram Trust Vs DIT
Whether assessee would be entitled to exemption u/s 11 where the assessee' s activities were not in excess of its objects and the trustees have carried out the activities of the trust bonafide and in a manner, which according to them best subserved the charitable objects and the intent of the Settlor - Whether assessee would be entitled to exemption u/s 11 where in the past period, the Assessee has been consistently granted exemption under Section 11 of the Act and also under Section 10(22)/10(22A) or Section 10(23C) of the Act - Whether depreciation on assets used for providing Allopathic systems of medicine would be allowable if the activities of the Assessee are within the scope of its objects. - Assessee's appeal partly allowed : DELHI HIGH COURT
2015-TIOL-1318- ITAT-PANAJI
Ramesh Veerappa Shirol (Huf) Vs ITO
Whether one more opportunity to produce all the evidences and give explanation, be granted to assessee, when it fail to do so earlier because books of accounts and the connected documents are seized by the Revenue - YES: ITAT - Case Remanded : PANAJI ITAT
2015-TIOL-1317- ITAT-DEL
A P Processors Vs ACIT
Whether Books of account can be rejected without assigning specific reasons for the same - NO: ITAT
Whether estimation of receipt can be sustained in the absence of any allegation regarding suppression of receipts or per se error in the profit rate declared by the assessee - NO: ITAT
Whether the order of AO for rejection of assessee' s claim for shrinkage, would amounts to arbitrariness, in the absence of any evidence to the contrary - YES: ITAT
Whether disallowance made without bringing any kind of comparables on record to substantiate the disallowance, is sustainable - NO: ITAT
Whether addition was justified where AO had failed to mention the details of specific payments which in his opinion was hit by the provisions of section 40A(3) - NO: ITAT
Whether in the absence of any proof being adduced or basis to prove that the fire incident was fabricated to claim insurance, mere assumption by revenue that the assessee' s claim was not genuine, is justified - NO: ITAT
Whether disallowance of rent paid for the machineries for the period from April to June 2006 is justified, where liability to deduct TDS on payment of rent on machinery is introduced by the Taxation Law Amendment Act, 2006 w.e.f. 13.7.2006 only and not before that - NO: ITAT
Whether where the processing activity done by assessee was "manufacturing ", then for claiming deduction u/s 32(1)(iia) it was immaterial that the assessee was doing the job of processing for outside customers too - YES: ITAT - Case remanded : DELHI ITAT
2015-TIOL-1315- ITAT-DEL
Smt Ruta S Jindal Vs ACIT
Whether when AO accepts that joint family is living together in the same house, the jewellery found in one room cannot be treated as only belonging to the lady living – Whether when at the time of search no statement was recorded from the assessee and hence there was no occasion for her to state that part of the jewellery belong to her mother in law/ father in law or to specify the items of such jewellery, no adverse inference should be taken on the basis of the same. - Assessee's appeal is allowed : DELHI ITAT
2015-TIOL-1314- ITAT-MAD
ITO Vs Kalanjiam Development Financial Services
Whether when the assessee has raised loans to advance to the customers by paying interest and it is not having own corpus in a formal capital so as to advance the loan, the assessee is providing loans by association with various commercial banks by raising loans from them, such kind of micro finance activity cannot be termed as charitable activity rather than it is a business activity. - Revenue's appeal allowed : CHENNAI ITAT
2015-TIOL-1313- ITAT-MAD
M/s Tril Infopark Ltd Vs ITO
Whether the lease for 99 years is almost like a sale and tax cannot be deducted u/s 194-I - Whether the TDS amount can be recovered from the assessee if the recipient has paid the taxes.
The assessee is a joint venture with the object of development of Special Economic Zone for Information Techonology/ Information Technology Enabled Services. The AO by the impugned order found that the assessee had not deducted tax u/s 194-I on the payment made to TN Industrial Development Corporation Ltd. The AO held the assessee as assessee in default u/s 201(1), and levied penal interest u/s 201(1A). The AO passed the order on 3.10.2013 treating the assessee as assessee in default for the A.Y 2009-10. The CIT(A) affirmed the AO order. - Case remanded : CHENNAI ITAT
2015-TIOL-1312- ITAT-AHM
Shree Yogi Steels Pvt Ltd Vs DCIT
Whether when AO has applied his mind and taken a possible view after going through returns of the assessee for earlier years, CIT is not justified in taking action against the assessment order - Whether the explanation appended to section 251 authorizes the Commissioner, while disposing of an appeal to consider and decide any matter arising out of the proceeding in which order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner by the appellant - Whether when it is assumed that AO has committed an error by not computing the true capital gain with the application under sec. 50(1) then also ultimately no prejudice has been caused to the revenue as the impact is revenue neutral.- Assessee' s appeal allowed : AHMEDABAD ITAT
2015-TIOL-1311- ITAT-HYD
Tetra Soft (India) Pvt Ltd Vs ACIT
Whether where an assessee has not remitted employees contribution to PF within the due date as prescribed u/s 36(1)(va), the said amount can be disallowed if the assessee has remitted the same within the due date of filing of return u/s 139(1) - NO: ITAT
Whether UPS being part and parcel of computer system, the depreciation on the same can be claimed at 60% as prescribed for computers - YES: ITAT - Assessee' s appeals allowed : HYDERABAD ITAT
Indirect Tax Basket
SERVICE TAX SECTION
2015-TIOL-1779- CESTAT-DEL
Patanjali Yogpeeth Trust Vs CCE & ST
ST - In so far as the demand for Rs.4,59,89,553/ - is concerned in view of the doctrine of mutuality between a Club or Association and its members spelt out in several judgments, including Ranchi Club Ltd. 2012-TIOL-1031- HC-JHARKHAND- ST assessee is seen to have made out a strong prima facie case for grant of waiver - Demand of Rs.43,87,283/ - is on consideration received by "Vanprashta Ashram Donations" for providing cottage facilities - Prima facie case made out, in respect of its immunity on this demand - Pre-deposit of Rs.22 lakhs ordered in this regard: CESTAT
Intellectual Property Right service - Since the agreement has covenants, expressing confirment of assessee' s copyright in Audio Visual Content in favour of MCCS and since copyright is an excluded component of IPR service defined in Section 65 (55a) and (55b) read with Section 65(105)(zzze) - Waiver of pre-deposit granted: CESTAT - Stay application disposed of : DELHI CESTAT
2015-TIOL-1778- CESTAT-MUM
M/s Affinity Express India Pvt Ltd Vs CCE
ST - Refund - Rule 5 of CCR, 2004 - Once credit is not objected at availment stage, it is not permissible for Revenue to challenge the same at the stage of processing refund under Rule 5 of CCR, 2004 - In previous o-in-o, Assistant Commissioner has passed favourable orders where refund in respect of export of Embroidery software has been granted without disputing that Input services were used in Embroidery software development - these orders have been accepted by Revenue - appeals allowed with consequential relief: CESTAT [para 7] - Appeals allowed : MUMBAI CESTAT
CENTRAL EXCISE SECTION
2015-TIOL-1948- HC-MAD-CX + Story
M/s Mettur Thermal Power Station Vs CBEC
Central Excise - Demand of duty on Fly Ash and Fly Ash bricks cleared post 01.03.2011 - Petition challenging the Show Cause Notice on various grounds.
Held: Process does not amount to manufacture - To be subjected to levy of excise duty "excisable goods" must be produced or manufactured in India. For being produced and manufactured in India, the raw material should have gone through the process of transformation into a new product by skillful manipulation. Excise duty is an incidence of manufacture and, therefore, it is essential that the product sought to be subjected to excise duty should have gone through the process of manufacture. (Para 9)
The Apex Court Union of India versus Ahmedabad Electricity Company Limited" - 2003-TIOL-17- SC-CX has categorically held the "cinder" which is unburnt part of coal, is not exigible to excise duty since no manufacturing process was involved to produce the same and as such it did not satisfy the test of being manufactured in India as envisaged in the provisions of the Act and that the onus to establish that cinder has gone through the process of manufacture in India was not discharged by the department. -The difference between 'cinder&# 39; and 'fly ash' is that when coal is not burnt fully and leaves pieces behind, is called 'cinder&# 39; whereas, when it is fully burnt and reduced to ash, is called 'fly ash'. Therefore, The ratio decided in the above said decision would squarely apply in the case of 'fly ash' also since the product 'fly ash' also cannot be said to have gone through any manufacturing process. (Para 13)
Notification No 89/95 CE - Waste arising out of exempted goods is exempted under Notification No 89/95 CE - 'Electricity&# 39; has been specified in the First Schedule of the Central Excise Tariff under heading 27160000, but it is not subjected to a duty of excise since under the 'rate column' the duty of excise is indicated as 'nil' . Merely, rate of duty is mentioned 'nil' , it cannot be construed that it is non-excisable good. They were excisable goods. Nil rate of duty is also a rate of duty. Therefore, electricity is excisable good and can be construed as exempted goods - The exemption Notification No.89/95-CE would squarely applicable to the product 'fly ash', which is a waste arise during the course of manufacture of electricity, which is an excisable good chargeable to "nil" rate of duty. (Para 24)
Fly Ash Bricks dutiable - Fly ash does not itself get shaped as bricks unless some manufacturing activity is involved. Since the raw material fly ash undergoes a change since an operation performed on it, resulting into fly ash brick, such operation would certainly amount to processing of the commodity and such commodity is recognized as a new and distinct article, i.e. 'fly ash brick'. Therefore, the good 'fly ash brick', having satisfied the test of being manufactured in India and also marketability, is leviable to excise duty. (Para 26)
Writ Petition partly allowed by setting the demand in respect of Fly Ash. - Petition partly allowed : MADRAS HIGH COURT
2015-TIOL-1946- HC-DEL-CX+ Story
M/s Vishnu & Co Pvt Ltd Vs Superintendent Central Excise
CX - S.9/9AA of CEA, 1944 – Demand of duty set aside by CESTAT - Quashing of FIR sought - since the petitioners have an alternate and efficacious remedy to seek discharge from trial court, High Court not inclined to exercise its inherent jurisdiction under Section 482 of CrPC: HC - Petitions disposed of : DELHI HIGH COURT
2015-TIOL-1945- HC-MAD-CX
M/s Aircel Ltd Vs CCE, C & ST
Central Excise - Pre-deposit - CENVAT Credit of duty paid on Tower parts and Shelters and input services used for erection and installation of towers and shelters - Appeal against the order of Tribunal directing the appellant to pre-deposit Rs 12 crores.
Held: Following the order of the High Court in appellant' s own case, pre-deposit is modified to Rs 10 crores, to be paid in three instalments. - Appeal disposed of : MADRAS HIGH COURT
2015-TIOL-1777- CESTAT-MUM
M/s Castrol India Ltd Vs CCE
CX- CENVAT - Rule 2(l) of CCR, 2004 - Outdoor Catering Service - Eligibility - in view of LB decision in GTC Industries Ltd. - 2008-TIOL-1634- CESTAT-MUM- LB & appellants own case - 2010-TIOL-733- CESTAT-AHM , credit is admissible - however, since appellant have collected 3% of the total catering charges from their employees, CENVAT credit is not permissible on the attributable amount - as copies of input services invoices have been submitted by appellant from time to time along with monthly returns, extended period of limitation is not applicable - demand hit by time bar, demand beyond one year of SCN is dropped - interest payable on the quantified amount - penalty waived: CESTAT [para 5] - Appeal partly allowed : MUMBAI CESTAT
2015-TIOL-1776- CESTAT-MUM
M/s Ismt Ltd Vs CCE
CX - During the course of manufacture of Alloys and Non-alloy cast and rolls, slag arises which is waste material and which is cleared without payment of duty - Revenue demanding amount of 10% of value of slag by invoking rule 6(3)(i) and (ii) of the CCR, 2004. Held: In terms of para 3.7 of Chapter 5 of the CBEC's Excise Manual of Supplementary Instructions, 2005, CENVAT credit is admissible even in respect of input contained in any waste, refuse or by-product, therefore, demand under rule 6(3) is not maintainable - Supreme Court in case of Hindustan Zinc Ltd. - 2014-TIOL-55- SC-CX has held that demand under rule 6(3)(i) is not sustainable in respect of any waste, by product, refuse cleared without payment of duty - in view of settled legal position, Order set aside and appeal allowed: CESTAT [para 5] - Appeal allowed : MUMBAI CESTAT
2015-TIOL-1775- CESTAT-MUM
CCE Vs Ispat Industries Ltd
CX - Valuation - s.4 of CEA, 1944 - Whether cost of transportation from factory to depot will be includible in the value of goods during the period April 2002 to March 2003 - Commissioner (A) allowed appeal keeping in view Tribunal' s order dated 01.12.2003 wherein it was held that respondent is not responsible to pay the cost of transport from the place of removal to the place of delivery i.e. from the factory gate to the depot separately & in terms of Rule 5 of the Valuation Rules, 2000, such a cost of transport which is also separately shown is not includable in the valuation for the purpose of excise duty - Revenue in appeal. Held: Tribunal' s order has been upheld by the Supreme Court vide order dated 25.03.2015 - 2015-TIOL-40- SC-CX - in view of the said decision, Revenue appeal dismissed: CESTAT [para 3] - Appeal dismissed : MUMBAI CESTAT
2015-TIOL-1774- CESTAT-MUM
SEW Infrastructure Ltd Vs CCE & C
CX - Penalty imposed of Rs.2.94 crores on appellant under rule 25 of CER, 2002 - Appellant submits that Tribunal has vide Final order dated 06.03.2014 allowed the appeal of the main noticee against whom a demand of Rs.2.94 crores was made and equal amount of penalty was imposed; that since the demand itself has not been sustained, no penalty can be imposed on co-noticee. Held: Since duty demand on main appellant has been set aside, penalty on the present appellant cannot survive - penalty set aside - appeal as well as stay petition are allowed: CESTAT [para 6] - Appeal allowed : MUMBAI CESTAT
CUSTOMS SECTION
2015-TIOL-1936- HC-P&H-NDPS + Story
Zile Singh Vs State Of Haryana
NDPS -Based on intelligence that appellant Zile Singh was habitual seller ofcharas and was present near the watercourse, a police party apprehended him in the presence of a civil gazette officer and detected 500g of charas in his pocket - the material was seized; sample sent to forensic lab confirmed it to be charas - After completion of required formalities and finding a prima facie case for the offence punishable under Section 20(b) of NDPS Act, the appellant was charge-sheeted; statement under Section 313 CrPC recorded; to which he pleaded not guilty and claimed trial-contentions that (i) the prosecution case suffers from material discrepancies; (ii) SI Ram Chander being complainant, was not entitled to investigate the case;(iii) no independent witness was joined during investigation of the case; and(iv) the provisions of Section 50 NDPS Act were not complied and the offer of search given to the appellant suffered from material discrepancy to the effect that he was not apprised to get himself searched before a Magistrate; discarded by trail Court - appellant convicted for the offence punishable under Section 20(b) of Narcotic Drugs and Psychotropic Substances Act, 1985; sentenced to undergo rigorous imprisonment for five years; pay a fine of `40,000, and in default thereof, to undergo further imprisonment for a period of two years - Trial Court ruling is agitated herein. - Appeal allowed : PUNJAB AND HARYANA HIGH COURT
2015-TIOL-1935- HC-MAD-CUS
Senior Intelligence Officer Vs K P Karunamoorthy
Customs - EPCG Scheme - Export Obligation Discharge Certificates obtained by fraudulent methods - Petition filed by the department against the anticipatory bail granted by the Principal District and Sessions Judge.
Held: The dictum laid down by the Supreme Court would clearly show that once anticipatory bail is granted, the same cannot be cancelled in a mechanical manner. Only if there is any abuse of concession granted to the accused, then only the court can cancel the anticipatory bail. In the instant case, even according to the revenue, it is not the case of the petitioner that the respondent is abusing the concession granted to him. On the other hand, it is the submission is that the reasons assigned by the Court below for granting anticipatory bail to the respondent are factually incorrect. The said submission will not serve as a ground for cancellation of anticipatory bail granted to the respondent - Petitioner has not made out any case to cancel the anticipatory bail. (para 10) - Petition dismissed : MADRAS HIGH COURT
I-T - Whether, to prove point that land was used for agricultural pu
BANGALORE: THE issue before the Bench is - Whether, to prove that certain land has been used for agricultural purposes in the last two years, the assessee is required to present some accounts with regard to expenditure made by the assessee for sowing the crops and also revenue generated by selling the agricultural produce. YES is the answer.
Facts of the case
The assessee is a Class-IV employee in the postal department. He purchased certain land in village Dummannahalli on 27.7.2006. The said land was notified for acquisition under the provisions of Karnataka Industrial Area Development Act, 1966. The final notification was published on 17.05.2007. Thereafter, on the basis of an agreement entered into on 07.10.2008, the assessee was paid a compensation of Rs.1,47,48,750/ - for the compulsory acquisition of his land which he had purchased on 27.07.2006. For the said AY 2009-10, assessee filed his return of income declaring a total income of Rs.5,33,780/ -. In his return, the assessee had disclosed receipt of compensation of Rs.1,47,48,750/ - in pursuance of the agreement dated 07.10.2008 but claimed benefit of Section 10(37), as it was the case of the assessee that said land which was acquired was an agricultural land and no capital gains would be leviable. A sum of Rs.1,47,48,750/ - claiming exemption u/s 10(37) being compensation received on compulsory acquisition of agricultural land was denied by AO on the ground that assessee had not fulfilled the second condition laid down under said provision for availing exemption. Hence, it was held that amount of compensation received by the assessee was taxable as short term capital gains and thereby assessed the total income at Rs.1,35,18,640/ - and imposed tax liability of Rs.59,10,180/ -. On appeal, CIT(A) dismissed the appeal. On further appeal, Tribunal also dismissed the same.
Held that,
++ plantation of Eucalyptus would be plantation of trees which would not be for agricultural purpose as it does not give any agricultural produce. Thus, such contention of counsel for the assessee is not worthy of acceptance. Even otherwise, we notice from the records that subsequently certain certificates came to be issued by the revenue authorities in the year 2012 to indicate that there was agricultural crop of Jowar on the plot in the year 2005-06 as well as 2006-07 and in the year 2007-08. The revenue records produced by the assessee before the authorities also indicated that there was plantation of Eucalyptus saplings. Thus, even on facts, records are inconsistent or contrary to each other that there was plantation of Eucalyptus saplings. What is to be considered is that for being granted benefit u/s 10(37), the land in question should have been put to agricultural use by the assessee for the preceding two years. Even if we accept the contention of the appellant that he was in possession of the land for two years from 27.07.2006 to 07.10.2008, then too, from the records it is not at all clear that for both the years the appellant was carrying out agricultural activity in the land in question;
++ the Tribunal has further examined the issue and held that if at all there was any agricultural activity being carried on by the appellant in the previous two years, some accounts with regard to expenditure made by the appellant for sowing the crops and also revenue generated by selling the agricultural produce would have been submitted by the assessee, which has not been done by him. The same is also a strong ground for not accepting that the appellant was carrying on agricultural activity on the plot in question. Clear findings of fact have been recorded by all the three authorities, which in our view, do not require to be interfered with by this Court in appeal. As such, we are of the view that since the finding of fact has been given by all the authorities that the appellant was not carrying on any agricultural activity in the plot in question in preceding two years prior to 07.10.2008, the appellant would not be entitled to the benefit of Section 10(37). In view of the aforesaid, we are of the view that no substantial question of law arises for determination by this Court. The appeal is accordingly dismissed. No order as to costs. All pending applications stands consigned to file.
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