Jurisprudentiol - Thursday's cases

By Vijay Kumar

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

Stock Broker service - Delayed Payment Charges recovered from clients are not includable in Taxable value - CESTAT

THE appellant is engaged in stock broker service. They are making payments towards stock exchanges, on behalf of their clients in advance, irrespective of the receipt of transacted amount. In cases, their clients made any delay in making payments to the appellants, they collected ‘Delayed Payment Charges' (DPC) from their clients, which is being done by making debit entries in the ledger maintained by the appellants. It is the case of the department that these charges are includable in the taxable value in terms of Section 67 of the Finance Act, 1994 as the said charges are part and parcel of the services and hence liable to service tax. On the other hand, it is the contention of the appellants that such DPC is not in lieu of stock broking service but is a penal recovery for late payment of the dues by the clients.

Income Tax

Whether provisions of Sec 40A(9) would hit on mere making of provision for retirement benefits to employees - NO: Madras HC

THE assessee-company entered into an arrangement with the employees that on completion of every year, the service of each employee would be provided with service weightage, which would get accumulated during period of service and the same could be withdrawn by the employees at the time of retirement or termination of service. As per the Scheme, the service weightage was payable in respect of each year of service, based on actuarial valuation on the services of the employee. According to the assessee, such valuation on actual basis was a scientific method of determination of its liability at the end of each year. In view of this actuarial valuation and scientific determination of the liability, the assessee viewed that making provision in the accounts could not be considered to be a contingent liability and hence, entitled to deduction. Thus, assessee-company claimed deduction on provision made by way of retirement benefit based on service weightage of the employee. The Assessing Officer viewed that the service weightage was neither a gratuity nor a payment to any welfare fund. Being just a provision, the same could not be allowed.

The issues before the Bench are - Whether where a provision was made that to pay the service weightage to the employees on the eve of their retirement even if there was no sum credited to an individual account, the contribution could be termed as contribution to a fund or a trust; Whether where a mere provision for retirement benefit was made in the accounts and there being no fund, the assessee's case would be hit by Section 40A(9) of the Income Tax Act and Whether where a provision was made in the books of account for retirement benefit based on the service weightage, and the scheme was not a recognised one, the claim would be hit by Section 40A(7)(a) of the Income Tax Act. And the verdict goes in favour of the assessee.

Central Excise

Refund of unutilized CENVAT credit - Tribunal not granting interest on ground that credit lying in account was not duty used by department - while dealing with interest on refund in Section 11BB of CEA, 1944 no distinction has been made between such credit and any other duty referred to in first proviso to 11B(2) - matter remanded: HC

THE appellant was entitled to CENVAT credit but the department prevented them from utilizing the same. It appears that this was because of certain notifications issued by the Government.

Ultimately, it was decided that those notifications do not stand in the way of utilizing these credits. By the time the same was decided, the goods manufactured and sold by the appellant became exempted from the levy of excise duty. Accordingly, question of adjusting such CENVAT credit with the excise duty payable by the appellant did not arise.

Appellant, therefore, approached the Department for refund of the amount of credit lying in their account but the adjudicating authority denied the claim. However, the Commissioner(A) passed an order in favour of the appellant and they finally got the refund. The department also agreed to pay the interest initially but later they backtracked.

When the matter reached the Tribunal, the CESTAT felt that it was not a refund of the duty as such, as the credit lying in the accounts of the appellant was not the duty used by the Department and, as such, no interest is payable thereon.

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