Jurisprudentiol – Wednesday's cases

By Vijay Kumar

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

CENVAT Credit on inputs contained in scrap generated during manufacture of exempted goods – Assessee is entitled to credit: HC

IN view of the fact that the waste and scrap is final product and exciseable item, taking into consideration the scheme of CENVAT Credit, it is but obvious that the appellant is entitled to claim CENVAT Credit on the inputs of plastic granules proportionate to the waste and scrap. The Tribunal lost the sight of this aspect of the matter. It is held that the appellant was entitled for CENVAT Credit under Rule 57AA of the Central Excise Rules on proportionate plastic granules which generated the scrap in the manufacturing process of intravenous fluids.

Income Tax

Whether when assessee receives arrears of his professional fees after getting elevated as HC Judge, such receipt cannot be taxed for lack of legislative provision - YES: ITAT

THE assessee is a lawyer by profession, before his elevation as a Judge of the Delhi High Court. During the year under consideration, he derived income from salary, profession and income from other sources, maintaining his books of account on cash basis. He claimed an amount of Rs 67,10,362/- representing receipt of arrears of his professional fees for professional services rendered in earlier years before his elevation as Judge of the High Court, as exempt from tax. The AO was of the view that by claiming the exemption, the assessee had neither offered the amount of Rs 67,10,362/- for taxation in the year in which the professional activity was carried out by him, nor in the year of receipt, nor in any other year, and so, allowing the claim of exemption would result in the receipt never being taxed.

The tribunal held, "due to the absence of any legislative provision these receipts cannot be treated as business income falling under the head "Profits and Gains of Business, Profession or Vocation” carried on by the assessee during the relevant year. They cannot be included in the total income of the assessee, even though the amount was received by the assessee before the discontinuance of his profession due to his elevation as High Court Judge.”

Service Tax

Taking of credit and its utilization is a substantive right of taxpayer under value added taxation scheme - therefore, in the absence of clear legal prohibition, this right cannot be denied - Prima facie case in favour - Stay granted: CESTAT

VIDE Finance Act, 2007, the scope of telephone service was expanded and the services of any description by means of telecommunication provided to any person was made exigible to service tax. Prior to 01/06/2007 the appellant was rendering services to other telecommunication operators which were commonly known as "Inter Connectivity usage service" for which they were receiving consideration. However, since the other telephone operators were not the subscribers of the appellant, there was no service tax liability. As per CENVAT Credit Rules as they stood at the relevant time, under Rule 6(3)(c), in a situation where the output service provider rendered taxable as well as exempted service and did not maintain separate account of the input services utilised, there was a restriction on availment of CENVAT Credit to the extent of 20% of the amount of service tax payable on taxable output service. Therefore, the appellant was not able to utilize 80% of the input service tax credit prior to 01/06/2007. Consequently, there was accumulation of CENVAT Credit in the books of accounts.

There was, however, no provision in the CENVAT Credit Rules, for lapse of accumulated credit. On 01/06/2007, when the scope of telecommunication service was extended to cover inter-connectivity usage services provided to other telephone operators, the appellant utilised the accumulated credit towards the discharge of service tax liability.

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