LEGAL ROUNDUP…

Part of ICSI Mysore Chapter Newsletter October 2006

CENTRAL EXCISE

No rigors of adjudication procedure if…

The Board clarifies in respect of the amended Section 11A of the Central Excise Act, 1944 that
if the duty demanded is paid in full or in part, along with interest and 25% of the duty amount
as penalty within 30 days of the receipts of the show cause notice, such
cases would be dispensed with the rigors of adjudication procedure. This scheme is optional
and not compulsory. In case of part payment, the remaining amount will be subject to regular
proceedings as per the law.

Two new sections viz., Section 11DDA and Section 37E have been incorporated in the Central
Excise Act, 1944. The Board will clarify on this in due course.

CBE & C. Circular No. 831/8/2006-CX Dated 26-7-2006

Exemption from Annual Financial Information Statement

The following class of assessees is exempt from submitting Annual Financial Information
Statement.
(i) assessee who paid duty of excise less than one hundred lakh rupees from account current
during the financial year to which Annual Financial Information Statement relates;
ii) Indian Ordnance Factories, Department of Defence Production, Ministry of Defence.

Notification No.17/2006-C.E. (N.T.), dated 1.8.2006

Exemption to power driven pumps

An amendment to Notification No.8/2003-C.E. - The SSI exemption to power driven pumps

primarily designed for handling water, has now been extended from 10.8.2006 till the 31st day
of December, 2006.

Notification No.39/2006-C.E., dated 10.8.2006

Case Laws at glance………….

• Universal Cables Ltd. Vs CCE, Bhopal 2006 (200) E.L.T. 73 (Tri.-Del) – CENVAT reversal
not required when remission of duty is allowed on final product.

• Tata Tea Ltd. Vs CCE, Cochin 2006 (200) E.L.T. 81 (Tri.-Bang) – Refund of accumulated
CENVAT credit admissible to E.O.U.

• Canon India Pvt Ltd Vs Commissioner of Customs, Mumbai 2006 (200) E.L.T. 83 (Tri.-
Del.) – Refund as a consequence to correction of clerical error admissible without filing
claim.
• Technosales Corporation vs Commissioner of Customs, Bangalore - 2006 (200) E.L.T. 296
(Tri.- Bang.) – Filing of refund claim in itself a challenge to assessment order.
 • K. Raheja Development Corporation Vs State of Karnataka 2006 (3) S.T.R. 337 (S.C.) –
Construction of complex liable to turnover tax under Sales Tax Act.

• CCE, Mumbai – IV Vs CKP Mandal 2006 (3) S.T.R. 449 (Tri. – Mumbai) – Catering and
decoration taxable under Mandap Keeper Service.

• In Re : Jason James Clemens 2006 (3) S.T.R. 452 (A.A.R.) – Advance Rulings not
applicable to CBEC Circulars.

• Eurafrica S.A. Vs CCE, Indore – 2006 (3) S.T.R. 544 (Tri. – Del.) – Recruitment not
covered under Consulting Engineer or Management Consultant Service.

• Amrit Paper Vs CCE, Ludhiana - 2006 (200) E.L.T. 365 (S.C.) – Notifications not to
override rules

CENVAT
Valuation

Selling and distribution expenses not to be included in cost of production

The Tribunal has held that selling and distribution expenses are not includible in the cost of
production of goods used captively in another unit of the same company.

Incowax Pvt. Ltd. Vs. CCE (2006 (76) RLT 70)

Charges recovered from buyers not to be included in value

The Tribunal has held that the charges recovered from buyers for erection and commissioning
at site are not includible in the value of manufactured goods under the Valuation Rules.

Aluplex India Pvt. Ltd. Vs. CCE (2006 (136) ECR 665)

Cash refund of CENVAT

The Tribunal has held that an assessee who has surrendered his excise registration certificate is
entitled to a cash refund of the CENVAT credit lying in the books as on the date of surrender.

CCE Vs. Nag Polypouches (P) Ltd (2006 (201) ELT 136) and CCE Vs. Deepti Chemicals (P) Ltd (2006
(201) ELT 423)

Credit on capital goods

The Tribunal has held that credit on capital goods is not deniable where the manufacturer has
foregone the benefit of depreciation claimed on such goods, by filing revised income tax
returns.

Anand Pipe Industries Vs. CCE (2006 (137) ECR 78)

Scrap at job workers premises

The Tribunal has held that the principal manufacturer is not liable to pay duty on scrap
generated at the job workers premises.

CCE Vs. Rocket Engineering Corporation Ltd. (2006 (76) RLT 8),
Karnataka Value Added Tax Act

Proceedings of the Authority for Clarification and Advance Rulings under Section 60 of
the Karnataka Value Added Tax Act, 2003.

The authority for advance ruling clarifying the doubt which arose in the above case held that,
the software is intellectual property like a book or CD. Software licence provides the customers
the right to use software. Everyone who uses the software is supplied to the customer in any
media with the licence to use the same. It is actually sale of software with licence to use it.
This software licence is covered under the Central Excise Tariff, heading 4907.0030, under
heading documents of title conveying the right to use information technology software. This
item is also not included in the list of IT products. Therefore, the same is exigible to tax at
12.5%.

Order No. AR. CLR. CR. 239/05-06, dated 30.09.2005

INCOME TAX

Contribution to PF before due date for filing return

In the above case, the Honourable Gauhati High Court by dismissing the appeal filed by the
Department held that, the contribution made to provident fund etc, after the close of
accounting period but before due date for filing return will amount to deduction under Section
36(1)(va) and 43B(b). The Honourable High Court also relied on the decisions given in the cases
of CIT vs. Assam Tribune (202) 253 ITR 93 CIT vs. Bharat Bamboo and Timber Suppliers (1996)
219

Commissioner of Income-Tax vs. George Williamson (Assam) Ltd. (Gauhati.- HC)

BANK TERM DEPOSIT SCHEME, 2006

In exercise of the powers conferred by clause (xxi) of sub-section (2) of section 80C of the
Income-tax Act, 1961 (43 of 1961), the Central Government has notified the Bank Term Deposit
Scheme of 2006.

NOTIFICATION NO. 203/2006, DATED 28-7-2006

Whether loan or advance……….

While deciding the below case, the Honourable Madras High Court held that, deposit and
withdrawal of money from current account by the director of a company could not be
considered as a loan or advance within the meaning of Section 269SS.

Commissioner of Income Tax vs. Idhayam Publications Ltd. (HC- Mad.)

Increased profit due to closing stock…………

In the above case, the Honourable Tribunal held that, the claim of the assessee for deduction
under Section 80HHC on the enhanced profit due to the addition made on account of the
closing stock should not be disallowed even though relevant goods in respect of which addition
was made was not exported during the relevant year but was lying as closing stock. The reason
behind this was the fact that, as a result of addition made on account of closing stock, the net
profit eligible for deduction under Section 80HHC had increased to the extent of the said
addition.

Kuldeep Bishnoi vs. Assistant Commissioner of Income Tax, Circle 20(1) (ITAT-Delhi)
Purchase of property on installment basis:

In the above case, the Honourable High Court held that, allotment of property to an assessee
on installment basis did give rise to relationship of borrower and lender between assessee and
Estate Officer. Therefore, interest paid by assessee on installments constituted interest on
borrowed capital deductible from income from house property under Section 24 (1) (vi).

Commissioner of Income Tax vs. Master Sukhwant Singh (Punj. & Har.-HC)

Transfer from one department to another department

Employee, on his own volition, requests for transfer from one department to another
department-Seniority computed from date of joining that department-Employee not entitled to
get benefit of past service.

Surendra Singh Gaur Appellant v/s State of M.P. and others Respondents ( 22-9-2006 )

Deduction uder section 80HHC

In the above case, the Honourable Tribunal held that, the claim of the assessee for deduction
under Section 80HHC on the enhanced profit due to the addition made on account of the
closing stock should not be disallowed even though relevant goods in respect of which addition
was made was not exported during the relevant year but was lying as closing stock. The reason
behind this was the fact that, as a result of addition made on account of closing stock, the net
profit eligible for deduction under Section 80HHC had increased to the extent of the said
addition.

Kuldeep Bishnoi vs. Assistant Commissioner of Income Tax, Circle 20(1) (ITAT-Delhi)

Liability to pay tax in case of Lease

The Honourable Supreme Court in the above case held that, the absolute responsibility for
payment of taxes and other charges in respect of the property taken on a financial lease lies
with the lessee only and he should not recover the same from the lessor. Practically borrower
becomes the owner of the property inasmuch as it is the borrower who chooses the property to
be purchased, takes delivery, enjoys the use and occupation of the property, bears the wear
and tear, maintains and operates the machinery or equipment, undertakes indemnity and
agrees to bear the risk of loss or damage if any, gets the property insured, hence in all respect
he will be liable to pay all the above expenses and he cannot recover the same from the lessor.
The period of lease extends over and covers the entire life of the property for which it may
remain useful divided entire into one term or divided into two terms with clause for renewal,
in either of the case the lease is non-cancelable.The above decision will have impact on the
claim of depreciation in case of financial lease in as much as the lessee may now claim the
benefit of depreciation.

Asea Brown Boveri Ltd. vs. Industrial Finance Corporation of India (SC)

Whether Interest on installment is a borrowed capital?

In the above case, the Honourable High Court held that, allotment of property to an assessee
on installment basis did give rise to relationship of borrower and lender between assessee and
Estate Officer. Therefore, interest paid by assessee on installments constituted interest on
borrowed capital deductible from income from house property under Section 24 (1) (vi).

155TAXMAN 153 Commissioner of Income Tax vs. Master Sukhwant Singh (Punj. & Har.-HC)

Expense incurred for issueing gearing-up funds

In the above case the Honourable Tribunal while deciding the question, whether expenditure
incurred for issue of share capital for gearing up funds for working capital would be considered
as revenue expenditure, held that, the decision of the Honourable Supreme Court in the case
of Brooke Bond (India) Ltd. should be applied only after examining the object of the capital
enhancement, the said decision could not be applied as in the above case enhancement of
capital was made for gearing up of funds for working capital.

101 ITD 209 Lakshmi Auto Components Ltd. vs. Deputy Commissioner of Income-Tax, Special Range-
X. (ITAT- Chennai)

Gift by employer

The Honourable Tribunal in the above case held that, merely because the gift was from
employer it could not be said that the same was in lieu of or in addition to salary or wages
under Section 17(1)(iv), as the said gifts were made out of natural love and affection no
evidence on record showed that it had connection with the employment, in view of this the
addition made in respect of gifted amount in the hands of the assessee was deleted.

103 TTJ 54 Mrs. Meena Rajagopal vs. Assistant Commissioner of Income Tax (ITAT-Mumbai)

Issuing of Form 16A TDS Certificates

In the above case the Honourable Tribunal deciding the question, whether Form 16A TDS
Certificates should be issued even if such tax has not been remitted held that, Certificate in
Form 16A has to be issued as per Section 203 r/w Rule 31, even though tax was not deposited.
Assessee could not take shelter stating that he could not issue TDS Certificate as he had not
filed necessary particulars and TDS amount was not deposited till date. Principle of double
jeopardy was not applicable for penalties leviable under the IT Act. In this regard penalty
under Section 272A(2)(g) was leviable.

103 TTJ 270 Income Tax Officer vs. Labh Construction & Industries Ltd. (ITAT – Ahmedabad)

Service Tax
Notifications/Circulars/ Trade Notices

The Central Government has inserted a proviso in Rule 6 (2) of the Service Tax Rules, 1994, to
require the mandatory e-payment of service taxes with effect from 1st October, 2006, for those
assessees who have paid service taxes of Rs. 50 lakhs or more in the preceding financial year or
have already paid service taxes of Rs. 50 lakhs in the current financial year.
(Notification No. 27/2006-STdated 21/9/06)

Case Laws

Service tax by foreign service provider

The High Court, has held that where a service recipient provides office facilities, office support
staff and various other facilities to a foreign service provider, the foreign service provider
would not be considered to be having an office in India and the liability to pay service tax
would therefore be on the service recipient.

CCE Vs. Kerala State Electricity Board (2006 (3) STR 625)

No service tax where sales tax is levied

The Tribunal has held that service tax could not be levied on the activity of sale of goods on
which sales tax has already been levied. The Tribunal has emphasized the principle of mutual
exclusivity, as enumerated by the Supreme Court in the BSNL case.

Idea Mobile Communications Ltd. Vs. CCE (2006 (6) STJ 209)
Customs
Notifications/Circulars

The Central Government has recently clarified that the value of imported materials supplied
free of cost by the foreign buyer should be added to the free on board (FOB) value of exports
for the purposes of calculation of value addition while determining the brand rate of duty
drawback.
(Circular No. 25/2006 dt. 19.09.06)

The Central Government has notified a zero rate of basic customs duty for all goods identified
under the Early Harvest Scheme of the Indo-Thai Free Trade Agreement w.e.f. 01.09.2006.

(Notification No. 86/2006 dt. 30.08.06)

Delayed production of essential certificate

The Supreme Court, in, has held that in a situation of provisional assessments, the delayed
production of an essentiality certificate cannot be a reason for denying the importer the
benefit of the exemption notification.

ONGC Ltd. Vs. CC (2006 (201) ELT 321)

Foreign Trade Policy (FTP)
Notifications/Policy Circulars

The Directorate General of Foreign Trade has amended the Foreign Trade Policy to include
supplies from 100% EOUs/ units in STPs/EHTPs/BTPs to the Domestic Tariff Area (DTA), against
foreign exchange remittances received from overseas, in the Net Foreign Exchange earnings
computation of these units.
(Notification 31(RE-2006)/2004-2009 dt.8.9.06)
DEPB if debited excess

The Tribunal has held that excess duty debited through a DEPB scrip is refundable by way of
credit in the scrip itself and not in cash.

Milton Laminates Ltd. Vs. CC (2006 (76) RLT 52),

Antidumping Duty
Notifications

Antidumping duty has been imposed on the following products:

Nylon Filament Yarn originating in or exported from People's Republic of China, Chinese Taipei,
Malaysia, Indonesia, Thailand and People's Republic of Korea.

Notification No. 85/2006 dt. 29.8.06)

Cellophane Transparent Film of all grades and specifications originating in or exported from the
Peoples Republic of China.
(Notification No. 94/2006 dt. 7.9.06)

FEMA updates
Purchase of immovable property by non-residents or persons of Indian origin

Clarification on mode of payment for purchase of immovable property in India by Non-Resident

Indians and Persons of Indian Origin The payment for acquisition of any immovable property
acquired by NRIs and other Persons of Indian origin, can be made only out of (i) funds received
in India through normal banking channels by way of inward remittance from any place outside
India or; (ii) funds held in any non-resident account maintained in accordance with provisions
of the Foreign Exchange Management Act, 1999 and the regulations made by Reserve Bank of
India from time to time. Now it is clarified that such payments cannot be made either by
traveller’s cheque ro by foreign currency notes or by other mode other than those specified
above.

A.P. (DIR SERIES) CIRCULAR No. 5 Dated 16.08.2006

Overseas Investment by Mutual funds

By way of a circular dated July 26, 2006, RBI has liberalised overseas investments by mutual
funds registered with the Securities and Exchange Board of India (‘SEBI’).The aggregate ceiling
for overseas investment by mutual funds, registered with SEBI, has been increased from US$1
billion to US$2 billion. RBI has also decided to permit a limited number of qualified Indian
mutual funds to invest cumulatively up to US$1 billion in overseas exchange traded funds as
may be permitted by SEBI. Further, the earlier requirement of 10% reciprocal shareholding in
listed Indian companies by such overseas companies in which mutual funds are allowed to
invest has been dispensed with.

Company law
Transfer of shares of Private Company which is subsidiary of Public company

The Company Law Board (‘CLB’) rejected the argument that the shares of a private company
which is a subsidiary of a public company in terms of Section 3(1)(iv)(c) of the Companies Act,
would be freely transferable in terms of Section 111A of the Companies Act. The CLB held that
the basic characteristics of a private company in terms of Section 3(1)(iii) of the Companies Act
do not get alteredmerely because it is a subsidiary of a public company in view of the deeming
fiction created by Section 3(1)(iv)(c) of the Companies Act.One of the basic characteristics of a
private company in terms of Section 3(1)(iii) of the Companies Act is a restriction on
transferability of its shares and the same would apply even if a private company is a subsidiary
of a public company.

Hillcrest Realty Sdn.Bhd. v. Hotel Queen Road Pvt. Ltd

Compliance requirements after allotment of the Director Identification Number

1. The director, to whom a Director Identification Number (DIN) is allotted, is required to

inform the companies, on which one is a Director, about the DIN allotted to him/ her in Form
DIN-2 within a period of one month of allotment of the DIN.

2. The companies, thereafter, are required to inform the DINs of the Directors on their Boards
to the RoC in Form DIN-3 within a period of seven days after receipt of information to this
effect from the Directors. This information is to be sent by the companies to the RoCs on-line
in a paperless mode.

3. Any change in the personal particulars of a Director, including his address, after he has
submitted the information initially in Form DIN-1. The required changes are to be intimated to
the Government of India [Regional Director (Northern Region) at Noida] in Form DIN-4 in anual
mode as in the case of Form DIN-1.

Miscellaneous

Negligence of workmen and dismissal

Respondent-workman was working as a driver for appellant Corporation. While on duty, the bus
driven by the respondent met with an accident while trying to takeover another bus, causing
injuries to several passengers and death of 4 passengers. The respondent-driver was dismissed
from service after a domestic enquiry was conducted into the matter by the appellant
Corporation. A dispute against the said order of dismissal was raised by the respondent-driver
under Section 10(4A) of the Industrial Disputes Act, 1947 before the labour court. The labour
court set aside the order of dismissal and directed the respondent-driver to be reinstated back
into services, on the ground that there was no evidence to show that the respondent-driver had
not taken reasonable care in the process of driving. The said Award by the labour court was
challenged by the appellant Corporation in a writ petition before the Single Judge of the High
Court, who held that in absence of any evidence before the labour court, reinstatement was
rightly awarded by the labour court and directed reinstatement of respondent-driver back into
services of appellant Corporation. Aggrieved by the same, a writ appeal was preferred by the
appellant Corporation before the Division Bench of the High Court. The Division Bench of the
High Court dismissed the writ appeal and held that in the absence of evidence, the doctrine of
res ipsa loquitur, which created a presumption that the respondent was negligent and is
resorted to when the cause of the accident is primarily within the knowledge of the
respondent, is not applicable to the present case. Hence, the present appeal. Held, labour
court failed to apply correct standard of proof in relation to domestic enquiry, which is
"preponderance of probability" and thus a case for judicial review was maintainable. Matter is
remitted back to labour court. Appeal is allowed

The Managing Director, Northeast K.R.T.C. Vs. Devidas Manikrao Sadananda

Extent of Insurance coverage

The appellant-firm, dealing in textile goods, has its showroom in Coimbatore. It was expressly
covered by an insurance policy with the respondent No. 1 insurance company, for damages that
might be caused due to riots, strike, malicious and terrorist attacks on all the stock in trade of
textile items and garments. Consequent to a series of bomb blasts, which rocked the city of
Coimbatore, the appellant's showroom was looted and set on fire. Thereafter, the appellant
firm filed a complaint with the police and lodged a claim for compensation to the tune of Rs
2.20 crore with the respondent-insurance company. The respondent insurance company
appointed surveyors to estimate the loss caused to the appellant firm and submit a report. It
also appointed investigators to enquire into the claim that the owners of the appellant-firm
themselves looted some of the goods of the showroom during riots. The investigators, in the
absence of substantial evidence, were unable to prove the above claim. The surveyors
submitted a report working out the estimated loss to be around Rs 1 crore, excluding stocks in
the two levels of the basement of the showroom. The appellant-firm then filed a claim petition
before the National Consumer Disputes Redressal Commission. The appellants reiterated that
the entire stock in the showroom, including the stock in the two levels of the basement was
looted during the riots. As against the above, the insurance company's stance was that that
soon after the mob set fire to the showroom on the ground floor, the police and fire fighting
personnel arrived at the scene and in their presence no more looting could have taken place
and so stock in the two levels of the basement of showroom was not looted and therefore
excluded to calculate damages. The Commission dismissed the complaint filed by the
appellant-firm holding that there was remote possibility of the riotous mob having entered the
1st and 2nd levels of basement as the only point of entry from the elevated ground floor was
blocked by fire, heat and smoke and particularly in the absence of any lights in the basement
area. Hence, present appeal filed under Section 23 of the Consumer Protection Act, 1986
challenging the decision of the Commission. Held, insurance company, despite report of
investigator, failed to establish that claim of appellants was not justified and was not covered
by policy of insurance. Appeal is allowed.

Shobika Attire Vs. New India Assurance Co. Ltd. and Anr

RBI Guideline on Internet banking

RBI has, by way of a circular dated August 22, 2006, amended the guidelines on internet
banking to permit banks to offer internet based foreign exchange services, for permitted
underlying transactions, in addition to the local currency products already allowed to be
offered on internet based platforms. Such offering of foreign exchange services must be
subject to the following terms and conditions:
i. banks will remain responsible for secrecy, confidentiality and integrity of data;
ii. the data relating to Indian operations will be kept segregated;
iii. the data will be made available to RBI for inspection / audit as and when called for;
iv. the services offered through internet, for banks’ customers on an internet based plat-
8 Letters Patent Appeal No. 814 of 2006 decided on June 17, 2006