Jurisprudentiol – Monday's cases

By Vijay Kumar

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

Merely because before sale of goods electrical conductivity could be injected into imported material, it will not make the goods ATF on date of import: HC

A vessel berthed at New Mangalore Port on 02.09.2003 for discharge of SKO (Superior Kerosene Oil) at Mangalore and Cochin. Based on intelligence, DRI drew samples from all the tanks of the vessel and sent the same for tests to Mangalore Refinery and Petrochemicals Ltd (‘MRPL'). A certificate of origin issued by M/s Oman Refinery Company indicated the cargo as SKO. The test results from M/s MRPL revealed that the sample meets the requirement of ATF, except for electrical conductivity. As ATF can be imported only through IOC as per EXIM policy, proceedings were initiated against the assessee. The assessee contended that the cargo imported was SKO and not ATF.

Income Tax

Whether expenses incurred on account of application software is revenue in nature - Yes, rules Delhi HC

THE assessee was in the business of manufacturing of automobile safety glass; the assessee had embarked upon a major computerization programme in the area of financial accounting, purchases, inventory, production, planning and control. In the AY 1997-98, the assessee had amortized an expenditure amounting to Rs 1,36,77,664/- towards software and professional expenses under the head “deferred revenue expenditure.” The issue before the Bench is - Whether expenses incurred on account of application software is revenue in nature. And the verdict goes in favour of the assessee.

Works Contract Tax

When copyright of software developed under a contract for development of software vests with the customer from day one, such contract does not fall within mischief of ‘works contract' - Not covered under concept of deemed sale: HC

THE appellant, a registered dealer under the Karnataka Value Added Tax Act, 2003 (‘KVAT Act') and Central Sales Tax Act, 1956 was engaged in the business of software development and providing software services. The appellant was also registered under section 69 of the Finance Act, 1994 for the purpose of payment of service tax and has been paying service tax. The appellant's books were audited by the CTO and it was observed that the appellant had executed works contracts. A notice was issued for re-assessment and the assessing authority after hearing the contentions of the appellant concluded that the activity of software development attracted ‘works contract tax' (WCT) in terms of section 4(1)(C) of KVAT Act at 4%.

See our columns Monday for the judgements