Jurisprudentiol - Wednesday's cases

By Vijay Kumar

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

Fraudulent drawback claimed by exporter - Overvaluation has been done by exporter and appellant-bank has no role to play in such overvaluation - No doubt there has been some negligence on part of HDFC Bank in not properly verifying export documents but omissions do not fall within scope of Section 113(i) and consequently no penalty is imposable on appellant-bank under Section 114 - CESTAT

A case of overvaluation of readymade garments and fraudulent availment of drawback on such garments alleged to have been exported to Russia was investigated by the DRI.

The allegation against the appellant HDFC Bank Ltd. is that they, as bankers were supposed to be custodian of money on behalf of persons banking with them and they were expected to scrutinize the documents submitted by the exporter minutely and systematically. In the present case, the exporter, filed documents with the Bank showing different dates of shipment for the same voyage and the same vessel and Port of discharge and place of delivery were shown as Moscow and Russia respectively and these declarations were accepted and based on the claim of the exporter, the documents were processed and money credited to their accounts. Consequently, the appellant bank failed to protect government money amounting to Rs.3,02,09,760/- inasmuch as they did not properly scrutinize the documents presented to them for availment of remittance from RBI under Rupee-Rouble Trade and they also failed to notice that the exporter had no letter of credit in their favour on the date of export which was a condition for export to Russia under the Rupee-Rouble Trade Agreement.

Income Tax

Whether in case total amount of hire that hirer pays to assessee company exceeds price at which vehicle was purchased from dealer, excess can be termed as interest - YES: HC

THE assessee company is engaged in the business of "financing and leasing." On hire purchase transaction the assessee charged "finance charges" as well as interest on repayment of principal amount, which was shown in the balance sheet as capital receipt. During assessment, AO held that finance charges received by the assessee were nothing but interest charges on the money financed to the hirer and, therefore, it was chargeable interest as defined under Section 2 (5) read with Section 2(7) and consequently the charging provision of Section 4 got attracted. The AO held the assessee to be a finance company. On appeal, CIT(A) upheld the AO's assessment order. On further appeal, Tribunal set aside the order of the authorities below and observed that the transactions involved were in the nature of contract of hire purchase having an element of bailment as well as that of sale. Therefore, the hire purchase transactions in the present case cannot be considered as transactions of money lending or advancing of loans.

THE issues before the Bench are - Whether in case the total amount of hire that hirer pays to assessee exceeds the price at which the vehicle was purchased from the dealer, excess can be termed as interest, Whether in case promissory note is executed by the hirer in favour of assessee for total hire payable for the motor vehicle as collateral security and the assessee company is given right to negotiate the said Demand Promissory Note in favour of their bankers or any other party for valuable consideration and also sue upon the same, the said assessee is a financing concern and Whether in case notice issued u/s 10 is invalid, it would render the entire assessment proceeding invalid. And the verdict favours the Revenue.

Central Excise

Raw materials procured under exemption notification 1/95-CE diverted to DTA - documents prepared by appellants were found to be fake and ultimately in year 2006 evidence collected was put to proprietors and they admitted the clandestine clearance of goods without payment of duty - appellants not disputing demand on merits - demands not time barred as they have been issued within five years from the date of knowledge - Appeals dismissed: CESTAT

THE appellants are 100% EOU and are engaged in the manufacture of polyester twisted yarn and polyester woven fabrics. The appellants were working under Notification 1/95-CE dated 1.4.1995 and procuring the raw materials without payment of duty on the condition that the same will be used in the manufacture of goods exported.

During investigation, it was found that the appellants had procured raw material without payment of duty and cleared the same to DTA without payment of duty. As the appellants had not complied with the conditions of the Notification under which the appellants were procuring the raw material without payment of duty, the demands were made and confirmed by the adjudicating authority, along with interest and penalties.

Before the CESTAT, the only submission is that the demands are hit by limitation; that as per the terms of the B-17 bond, the demands are to be made as per the provisions of Section 11A of the CEA, 1944 and since the SCNs were issued after five years from the period in dispute they are time barred.

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