Jurisprudentiol - Friday's cases

By Vijay Kumar

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

Refund - Unjust enrichment - Whether amount in dispute charged as expenditure in Profit and Loss account constitutes cost of manufacture absorbed by sale value and refund is hit by unjust enrichment - Matter referred to Third Member: CESTAT

MEMBER (T): No presumption can be made that the amount had been recovered from the customers as increased cost and hence increased price. The burden would be on the Department to prove that this amount had been recovered from the buyers as increased price.

Member (J): Once there is no disclosure of recovery from the Department in the asset side of the Balance Sheet, definitely the amount in question was adjusted in the cost of manufacture through profit and loss account as excise duty as has been done by appellant in this case and admitted by it as well as absorbed by sale value. Thus the amount sought to be refunded by appellant was already recovered by him through sale. Therefore, it has no locus standi to seek refund from Revenue to be unjustly enriched at the cost of Revenue. The amount in dispute having been a constituent of the cost of manufacture, it cannot be said that such cost was not absorbed by sale price.

And the matter goes to Third Member

Income Tax

Whether when assessee writes off security deposits paid against leased premises as ordinary business loss it can be construed as revenue expenditure - YES: ITAT

THE assessee is a company engaged in the export and local trading of various handloom products including readymade garments. The AO disallowed a claim of write off of debit balance for an amount of Rs.22,10,200/- being advance rent and security deposit.The amount of Rs.21,10,400/- consisting of Rs.7,36,800 as advance rent of 3 months and a Rs.14,73,600/- as security deposit was paid by the appellant in pursuance to the lease agreement entered by the appellant with lessor for premises in Ghaziabad for 9 year at rental charges of Rs.2,45,600 p.m. On account of certain unavoidable circumstances, the agreement was not finalized and concluded. No refund whatsoever was given by the lessor to the appellant in spite of various remaindered and demand. Since the amount could not be recovered, it was written off in the books of accounts and claimed the same as allowable revenue expenditure. The AO allowed deduction in respect of only Rs.736800/- in respect of loss of advance rent but similar claim in respect of security deposit was rejected.

The issue before the Bench is - Whether when assessee writes off security deposits paid against leased premises as ordinary business loss it can be construed as revenue expenditure. And the verdict goes in favour of the assessee.

Service Tax

ST - No person could reasonably harbour any manner of doubt that when legislation is under challenge, challenged legislation is in eclipse to be upheld: CESTAT

THE learned counsel for the appellant strenuously contends that since provisions of Section 66A were in challenge before various Courts, the appellant assessee was under a bonafide impression that compliance with the said provisions is not mandatory. This contention is stated to be rejected. It is axiomatic. Legislation is operative proprio vigore on its enactment and effectuation. The operation of legislation is not contingent upon affirmation by the judicial branch, even where a challenge to its constitutionality is presented before the Courts. No person therefore, could reasonably harbour any manner of doubt that when legislation is under challenge, the challenged legislation is in eclipse to be upheld.

See our Columns Friday for the judgements