TIOL-DDT 1273 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="justify"><font size="3"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 1273 </font></strong><font face="Verdana, Arial, Helvetica, sans-serif"><strong></strong></font></font><font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"><strong><br> 07.01.2010 <br> Thursday </strong></font></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>C&F Agent – Clearing Agent – Commission Agent – Confusion Agent? Back to Square One with Karnataka High Court's latest judgement</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IS </strong>a person acting as a consignment agent on Commission basis covered under the taxable service of C&F Agent? If you think the issue is no more <em>res integra </em> as they say, you are mistaken. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>MAHAVIR GENERICS Vs CCE, BANGALORE </em><strong> - <font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2004/2004-TIOL-344-CESTAT-DEL.htm" target="_blank"><em>2004-TIOL-344-CESTAT- DEL</em></a></font> </strong>the CESTAT Bench headed by the President Justice Usha (who wrote the order for the Bench) held <em>- appellant was not acting as a clearing and forwarding agent. Unless its service can be treated as one to a client by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner, the service cannot be taxed even if the consignment agent is brought under the definition of clearing and forwarding agent. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was approved by the Punjab & Haryana High Court which noted that the <em>Mahavir </em> case has attained finality as the Revenue has not appealed against the order. But this was factually not correct – the <em>Mahavir </em> case was appealed against and pending in the Karnataka High Court while the Counsel appearing in the High Court was not aware of this fact. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Karnataka High Court recently disposed of this appeal and a copy of the order was available only yesterday and we bring you the judgement today. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A brief History: </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. <strong>Prabhat Zarda </strong> - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2002/2002-TIOL-232-CESTAT-KOL.htm" target="_blank"><font size="1"><em>2002-TIOL-232-CESTAT-KOL</em></font></a> </strong> - <strong>Dated 19-2-2002. </strong>The Tribunal held that <em>procuring orders and passing them on to the principal for execution in lieu of commission is within scope of services of the agent even if goods are not directly dealt by them. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <strong>LARSEN & TOUBRO LTD. LB - <em><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2006/2006-TIOL-814-CESTAT-DEL-LB.htm" target="_blank">2006-TIOL-814-CESTAT-DEL-LB</a></font></em> dated June 22, 2006. </strong>The Larger Bench of the Tribunal overruled the above Prabhat Zarda case and held, “ <em>Clearing and forwarding activities do not flow directly or indirectly from mere procurement of orders - Activity of procuring orders treated separately by Parliament under Business Auxiliary Service and independent of clearing and forwarding operations - Decision in Prabhat Zarda case overruled </em>.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <strong>UNITED PLASTOMERS - <em><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2008/2008-TIOL-262-HC-P-H-ST.htm" target="_blank">2008-TIOL-262-HC-P&H-ST</a></font></em> - Date of decision: 20.06.2005; </strong>The Punjab and Haryana High Court upheld the above LB decision and observed, <strong>“ </strong>We have also been informed by Sh. Sanjiv Kaushik, Advocate counsel for the appellant that in view of Board's clarification and the various judicial pronouncements, the order of Larger Bench of the Tribunal Delhi in the case of <em>Larsen & Toubro Ltd </em> has been accepted by the revenue”. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. <strong>MEDPRO PHARMA PVT. LTD LB </strong> - <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2006/2006-TIOL-848-CESTAT-DEL-LB.htm" target="_blank"><font size="1">2006-TIOL-848-CESTAT-DEL-LB</font></a> </strong></em> - <em>- <strong>Date of decision: June 23, 2006: </strong></em>This was more of a musical decision than a tax decision as the Hon'ble Member who wrote the decision was a music commentator and he observed, “Isolated activity of freight forwarding is also covered under ‘C & F Operations' and is taxable - Freight forwarders known as clearing agent, shipping agent, etc. - C & F Operations cannot be dissected into ‘clearing' and ‘forwarding' - Both fall under common category and any service provided in that category will attract service tax - Question answered in favour of Revenue - Sections 65(23) [now Section 65(25)] and 65(105)(j) of Finance Act, 1994. <em><font color="#FF6633">The whole “operations” involved in “C&F Operations” now remind us of an <strong>orchestra, performing a western classical symphony </strong>. It reminds us of a connoisseur's experience of harmony in western classical music. While listening to Mahler's 9th Symphony, one does not listen to an individual violin or a trumpet, but the harmony emanating from many different seemingly unrelated instruments. In the same way, a C&F Agent's functions consisting of seemingly unrelated tasks are well orchestrated. This view of ours is strengthened by various references including the Report of the United Nations Economic Commission for Africa referred to by us in the preceding paragraphs all revealing in no uncertain terms that the freight forwarders are known variously as clearing agent, shipping forwarding agent etc. We are, therefore, of the view that even if one segment of activities is not demonstrated to be performed, it cannot be held that the appellants were not engaged in taxable service. Due to their orchestrated nature of work, such isolated activity can also be covered under “C&F Operations”. Merely, because the bassoon was not played in one of the movements of a symphony, it does not cease to be otherwise a part of the orchestra. While forming this view, we have certainly not overlooked the fact that while music can be sometimes taxing, a tax can never be musical! </font></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. <strong>KULCIP MEDICINES (P) LTD. </strong> - <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2009/2009-TIOL-202-HC-P-H-ST.htm" target="_blank"><font size="1">2009-TIOL-202-HC-P&H-ST</font></a> </strong></em> – <strong>Dated : February 24, 2009 </strong>over ruled the above decision as the High Court was not able to understand any orchestra in the activities of a C&F Agent! The High Court observed, “Moreover we are not able to persuade ourselves to accept the view taken by the Larger Bench of the Tribunal in the case of <em>Medpro Pharma Pvt. Ltd </em> which has been fascinated by musical notes of symphony”. In this case the view taken by the Tribunal in <em>Mahavir </em>case has been approved. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Anti Climax: </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the above cases have been referred and relied upon in several cases and we had two judgements of course of the same High Court against the Revenue. During all this time not many knew that the matter was still pending in the Karnataka High Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And the Karnataka High Court in its recent judgement has almost upheld the orchestra and music in the <em>MEDPRO PHARMA </em>case. The High Court observed, “ <em>In certain circumstances there may be a situation where only commission agency work is carried out and in a situation as is existing in the present case the assessee may also indulge or carry on with not only with the work of commission agent but also with the clearing and forwarding as a Consignment Agent and thus both these activities might overlap and on account of such overlap it cannot be said that the assessee would fall only under the category of commission agent and claim to distance himself from coming within the ambit and purview of clearing and forwarding agent. </em>” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what happens? We have an order from P&H High Court approving the decision of the CESTAT in the <em>Mahavir </em> case and we have an order from the Karnataka High Court setting aside the <em>Mahavir </em> decision. So <em>Mahavir </em> decision does not exist, but then what happens to the P&H High Court decision? Does it become <em>per incuriam </em>? Or is it applicable in Punjab and Haryana and <em>Mahavir </em> decision of Karnataka High Court applicable in Karnataka? And for the rest of the country, Commissioners and tribunals are free to choose any decision? Strange are the ways of litigation! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you this landmark decision of the Karnataka High Court today, yet another first from TIOL. – Please see <strong>Breaking News</strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Taxes – There should be a Central Court </strong></font></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CENTRAL</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Excise, Customs, Service Tax, Income Tax – all these central taxes are highly litigation prone and we have two reasonably efficient Tribunals- CESTAT and ITAT, but the next stage of litigation takes a strange path. The Tribunal's decisions are appealable to the jurisdictional High Courts and when different High Courts pronounce different verdicts, there are strange problems. A manufacturer may have two units under the jurisdiction of two High Courts and if the two Courts have given two different judgements on the same issue, the same manufacturer may have to follow two different orders for his two units. This is illogical and unwarranted. The Tribunals have Larger Benches whose decisions should be made applicable all over India, but a High Court can strike down even the decision of a Larger Bench. It is also possible that one High Court may uphold the Larger Bench decision while another High Court may set aside the same decision. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The National Tax Tribunal would have been perhaps the best answer, but it is in such a cold storage that everybody has just forgotten about it! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To cut down on litigation and uncertainty, we should make the Larger Bench equal to the High Court and the appeal against the LB/SB decision should lie to the Supreme Court only. If necessary it can be made mandatory that the Larger Bench should be presided by a sitting or retired Chief Justice of a High Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Have mercy on the poor assessee who has to go through the Assessing Officer, Commissioner (Appeals), Tribunal, Larger Bench of the Tribunal, High Courts and then Supreme Court – and if by chance, he wins, he may have to face a retrospective amendment! Should Justice delivery system be so tortuous? </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Case Status Information System – CBEC should do something </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>the <em>Mahavir </em> case, referred to above, the P&H High Court was told that the government has accepted the judgement of the Tribunal as there was no appeal filed, while the fact was that the appeal was pending in the Karnataka High Court. It was not the mistake of the Counsel, for he has no means to know whether an appeal had been filed or not – such information is not easily shared. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under our strange laws, to file an appeal in the Tribunal against an order passed by a Commissioner or Commissioner (Appeals), you need the approval of a committee of two Commissioners or two Chief Commissioners. But to file an appeal in the High Court against an order passed by two or three Members of the Tribunal (who are all higher than your Chief Commissioners), you don't need anybody's approval. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Commissioner can file an appeal in the High Court against the decision of the Larger Bench of the Tribunal headed by a former Chief Justice of a High Court, while he cannot take that decision against an order passed by his less exalted colleague the Commissioner (Appeals). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">How will a Commissioner in Haryana know whether a Commissioner in Salem has filed an appeal in some High Court? Every day we get at least three calls from harried departmental officers wanting to know the latest status on some Tribunal, High Court or even Supreme Court decision. Just yesterday we had a call from an officer wanting to know whether the Government has accepted the Supreme Court decision is dismissing the appeal in the <em>Indian Shipowners </em> case. He told me, “since you are not sure, I will issue a demand from 1.1.2005!” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC should maintain a database for every decision of the Tribunal and High Court – whether the decision has been accepted by the Hon'ble Commissioner or whether appeal has been filed. The Board should maintain this data for Supreme Court also – whether any review petition has been filed. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the Board cannot do this job, <strong>TIOL </strong> is ready to undertake this job free of charge for CBEC – let all Commissioners inform us the status of the decisions and we will carry them in our site and update the data frequently so that the present status of any case is available for everybody. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Consistency and discipline are of far greater importance than the winning or losing of court proceedings – Supreme Court in <em>Paper Products </em> -<em><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-84-SC-CX.htm" target="_blank"> <strong>2002-TIOL-84-SC-CX </strong></a></font></em></font></p> <p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBI - registered 1118 cases, disposed of 1127 cases- conviction rate of 64.74% </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In 2009 CBI registered 1118 cases, disposed of 1127 cases from investigation and concluded the trial of 763 cases with conviction rate of 64.74%. There are 9586 cases pending trial. The Central Govt has approved setting up of 71 CBI Courts in addition to the existing 46 CBI Courts. It is expected to bring about expeditious disposal of under trial cases once these courts are functional. </font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Friday's cases</font></strong></font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"><font color="#663399">Central Excise </font></strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Benefit of concessional rate of duty provided to consignments of petroleum products cleared from specified refineries under Notification 29/2002-CE as amended - Benefit not to be denied if goods are received under bond in one or more warehouses from the specified refineries for clearance to ultimate customers – CESTAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE appellants, M/s Indian Oil Corporation Ltd., Visakhapatnam Terminal, were saddled with a duty demand amounting to Rs. 6.73 crores for clearing light diesel oil availing the benefit of concessional rate of duty in terms of <em>Notification No. 29/2002-CE dated 13.05.2002 </em> as amended. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The allegation against the appellant was that the petroleum products were not received in the Visakhapatnam terminal directly from a specified refinery under bond. Instead, the goods were initially transferred from the specified refineries to Siliguri Terminal under bond and from there to Budge Budge Terminal before receiving them under bond at the Visakhapatnam Terminal for clearances to their customers. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Transfer of case from one AO to another – both the Commissioners should agree, assessee must be given reasonable opportunity and valid reasons for transfer must be stated in the order – High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though 10 reasons have been stated in the order for transfer, none of them justify the transfer as per the criteria laid down by the various High Courts. Therefore, it has made clear from the various judgments, there must be a specific finding that there are interlacing and interconnection of funds and in the absence of such prima facie finding, the transfer cannot be justified.” </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CENVAT Credit – BAS (Export Commission) – there seems to be a nexus between clearance of the finished goods and payment of export commission - <em>prima facie </em>satisfies definition of input service – CESTAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Bench after considering the submissions observed that the claims of the appellant were vague in respect of some of the ‘alleged input services'. In respect of Export Commission, the CESTAT observed that <em>there seemed to be a nexus between clearance of the finished goods and payment of export commission and hence <strong>prima facie </strong>it satisfied the definition of ‘input service' under rule 2(l). </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Appellant is the owner/exporter of the goods imported into India by <em>M/s Hindustan Unilever Ltd </em>– they are the only ‘aggrieved person' and have a legal right to challenge the O-in-O before the Commissioner(Appeals) – CESTAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>M/s Hindustan Unilever Ltd </em>. imported a consignment of cosmetics from the appellant <em>Schwan Stabilo Cosmetics GMBH & Co. KG, Germany. </em>Two items in the bill of entry namely (Eye-colour Quick Silver and Baked Bronze) were found contaminated with bacteria and fungus on testing by the Assistant Drugs Controller. Accordingly, since the said goods failed to comply with the requirement of Drugs and Cosmetics Rules, 1945, they were held liable to confiscation. A redemption fine of Rs.2 lakhs was imposed with a penalty of Rs.50,000/- on the importer. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more DDT </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p> </body> </html>