Jurisprudentiol – Wednesday's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.Service Tax

CENVAT Credit taken wrongly but not utilized in its entirety – Interest payable only in respect of the portion of credit wrongly utilized – CESTAT

THE facts are that the respondent is a registered manufacturer of excisable goods and is also providing Management Consultant Service and IPR Services for which also they are registered.

Incidentally, what happened is that the assessee took Cenvat Credit of the Service Tax paid by them on the aforesaid services. This amount is Rs.12,36,670/- for the period October 2004 to September 2005

When this irregularity was detected by the Departmental officers in November 2005, they reversed the entire amount.

However, by that time, out of total credit of Rs.12,36,670/- they had utilized credit of Rs.91,000/- and the remaining credit was lying unutilized along with other credit.

Income Tax

Assessee is exporter - pays discounting charges to non-resident on bill of exchange - Revenue treats same as interest u/s 2(28A) - Discount is not in nature of interest - moreover, non-resident has no PE in India - not liable to TDS - Sec 40(a)(i) cannot be invoked: ITAT

ARE discount charges paid on discounting of bill of exchange by an exporter to a non-resident interest payments? If yes, is TDS deductible on such payments under Sec 195? In an interesting case where the Revenue has held that the sum paid to the Singapore-based non-resident is in the nature of interest under section 2(28A) of the Act. And since the assessee fails to deduct tax at source u/s 195, the sum is disallowable u/s 40(a)(i). However, the Tribunal has held that the discounting charges are not in the nature of interest paid by the assessee. Rather after deducting discount the assessee receives net amount of the bill of exchange accepted by the purchaser. Since the non-resident has no permanent establishment in India in terms of Article 5 of the India-Singapore DTAA, its income is not liable to tax in respect of such discount earned by it and hence the assessee is not under obligation to deduct tax at source under section 195 of the Act. Accordingly, the same amount cannot be disallowed by invoking section 40(a)(i) of the Act.

Customs

Import of watch straps made of ostrich, calf and alligator leather. The Mississippian species of crocodile does not exist in India. Same is the position in regard to Ostrich. Since these species do not exist in India, there is no question of their protection in this country – Import is free – High Court

If it was the intention of the respondent to evade customs duty, the respondent would not have even placed an order for that item. The respondent's bona fide conduct in this regard is evident from the correspondence exchanged between the respondent and the foreign exporter. The respondent vide fax dated 18.4.2003 requested the foreign exporter to inform the status of Delivery Note No. 5375747 dated 28.11.2002 and Delivery Note No. 5192159 dated 31.7.2002.

See our columns Tomorrow for the judgements