Jurisprudentiol – Wednesday's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.Central Excise

Bullet proofing activity on vehicles was done by a job worker after clearance of bare vehicle from factory on payment of duty – Cost of bullet proofing cannot be added into assessable value at manufacturer's end – CESTAT

THE issue involved in the appeal is valuation of bullet proof vehicles supplied to Jammu & Kashmir Police by the respondent M/s M&M Ltd . Two purchase orders were placed on the respondent. Two orders were placed on Mahindra Defence Systems , a division of Mahindra & Mahindra Ltd (MML). Base vehicles were cleared from manufacturing unit in Nasik on payment of duty on the basis of value indicated in the purchase order. The bullet proofing was done by a job worker/sub-contractor and thereafter vehicles were supplied to J & K Police. Revenue took a stand that respondent (manufacturing unit in Nasik ) should have discharged duty on the total price of bullet proof vehicles and consequently proceedings were initiated by issuance of two show-cause notices proposing recovery of more than Rs. 1.21 crores. The Assistant Commissioner gleefully confirmed the duty demand with interest and he also imposed penalty of Rs. 10 lakhs. On appeal filed by the respondent the Commissioner(Appeals) set aside the demand.

Income Tax

A firm and its partners are consequently separate entities under Income tax Act - ITAT

THOUGH in general law, a firm and its partners are not distinct, this is subject to statutory exceptions. Under the scheme of assessment of firms applicable from AY. 1993-94 a firm is treated as an independent entity and the expenditure by way of remuneration, interest, commission etc. paid to partners is allowable to it as a deduction subject to ceilings and such interest, salary etc is taxable in the hands of the partners. A firm and its partners are consequently separate entities under the Act; Accordingly, the fact that the profits are charged to tax in the hands of the firm does not mean that the share of such profits is non – exempt in the hands of the partner. The profits being exempt in the hands of the partner, s. 14-A does apply in computing his total income.

Service Tax

Construction of flats and transferring them to land owners who are co-developers in exchange for land received from them cannot be held to be any service – Restriction of utilization of CENVAT Credit to 20% under Rule 6(3)(c) not sustainable – Complete waiver of pre-deposit of service tax and penalty ordered – CESTAT

THE appellants are engaged in construction of residential complexes and are registered with service tax authorities under the taxable service categories of ‘commercial or industrial construction service' and ‘construction of complex service'. They are also registered with VAT authorities and assessed for levy of VAT under the head ‘works contract' for transfer of goods involved in construction of complexes.

Central Excise

Default in Monthly Payment of duty – bar on utilising Cenvat credit – Attachment of goods without notice not correct – Proper course is to issue notice for recovery of wrong credit – High Court

THIS is a case where the respondents alleged that by operation of sub-rule (3A) of Rule 8, which was amended with effect from 01.06.2006, the petitioner was not entitled to avail Cenvat credit during the period of default. Thus, in substance, the dispute relates to the petitioner's eligibility to avail Cenvat credit during the period of default, namely, between 01.06.2006 and 14.06.2006. This dispute is thus clearly comprehended by Rule 14 of the CENVAT Credit Rules, 2004.

See our columns Tomorrow for the judgements