Jurisprudentiol – Tuesday's cases

By Vijay Kumar

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

SEZ - Notification for inclusion of additional area in existing SEZ issued after more than one year from the original Notification - Demand of duty on goods cleared from SEZ to additional area before issue of formal Notification to include additional area and confiscation of goods - RIL wins 60 crores case - CESTAT by Majority

IN the absence of any consultation done by the Revenue with the SEZ authorities and no action taken by the SEZ authorities under the SEZ Act 2005 holding that operations undertaken by the appellants were not 'Authorized Operations', no duty and interest on the goods removed from SEZ to permitted storage area or additional area for construction, can be demanded from the appellants under Section 28 &28AB of Customs Act, 1962. Notification No.S.O.873(E), dt.4.6.2007 will relate back to 19.4.2006 when Notification No.S.O.568(E) was issued.

It can be safely concluded that for any removals of the goods from SEZ area to DTA or within SEZ area under intimation/approval of the appropriate authorities, if not properly accounted for or not brought back within the stipulated period, adequate recovery machinery exists under the SEZ Act. 2005 and SEZ Rules 2006 to recover Customs/ Central Excise dues - Accordingly, if approvals have been given by the SEZ authorities, the operations have to be treated as 'Authorized Operations' defined in Section 2(c) of the SEZ Act 2005. Even if some of the removals/operations undertaken by the appellants are not authorized, but done with the approval/under intimation to the SEZ authorities, then also the power to demand/recover duties of Customs/Central Excise from SEZ, is vested with the authorities created under the SEZ Act 2005 and SEZ Rules 2006.

Income Tax

Whether any ad hoc disallowance of payment made u/s 40A(2)(b) to sister concern is warranted merely on basis that it was run by wife of Director of assessee company - NO: HC

THE assessee, a company, was engaged in the business of development of infrastructure facilities mainly relating to water and sewage treatment on turnkey basis. It had filed return of income for AY 2005-06 declaring total income at Rs. NIL. Notice u/s 143(2) and 142(1) were issued. Assessee claimed deduction u/s 40A(2)(b) of Rs. 1.50 crore paid to the persons specified u/s 40A(2)(b) viz M/s. Pollucon Engineers, the proprietor of which was wife of Shri Anand Vashi, Director of the assessee company with respect to supply of labour for operating and maintenance work. By an office letter, assessee was requested to justify the said claim. The assessee had submitted that the business of the proprietor was looked after with the help of Engineers and other employees. It was submitted that the job was awarded to M/s. Pollucon Engineers after inviting offer from other parties. It was further submitted that since the offer of M/s. Pollucon Engineers was found loweset and favourable, the offer was accepted. That AO was not convinced with the explanation given by the assessee and disallowed 10% payment of Rs. 1.50 crores and added to the total income of the assessee by observing that the assessee had failed to produce any supporting evidence against the claim

THE issues before the Bench are - Whether any adhoc disallowance of payment made u/s 40A(2)(b) to a sister concern is warranted merely on the basis that it was run by the wife of the Director of the assessee company and Whether in such a case there would be a presumption of excessive claim. And the verdict goes against the Revenue.

Service Tax

Appellant, an IITian rendered consultancy services in respect of metal development and received professional fees - such service cannot be termed as Market Research Agency Service - order set aside and appeal allowed: CESTAT

A SCN was issued to the appellant demanding Service Tax of Rs.45,000/- on the ground that the appellant is engaged in conducting marketing research in relation to steel products, hence are covered under Market Research Agency service. The appellant had not provided any taxable service in respect of market research agency.

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