Jurisprudentiol - Thursday's cases

By Vijay Kumar

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

Once CESTAT had held demand to be time barred, entering into merits of case and passing an order would amount to an illegality: HC

AGAINST the CESTAT order, both, the appellant and the Revenue have filed appeals before the Allahabad High Court.

The Tribunal held that the extended period of limitation of five years could not have been invoked by the Revenue u/s 73 of the FA, 1994 on the ground that there was no suppression of facts by the assessee. Having held that the demand beyond a period of one year was time barred, the Tribunal entered into the merits of the appeal filed by the assessee and came to the conclusion that since storage of goods in the cold storage was an essential part of the clearing and forwarding operations of the assessee, cold storage charges are required to be added in the taxable value of services rendered.

So, as mentioned, Revenue is against the portion of the order holding the demand time barred and the appellant assessee contends that once the Tribunal had held that the demand was barred by time, there was no occasion for the Tribunal to enter into the merits and, hence, that part of the reasoning of the Tribunal which deals with the merits of the dispute would have to be set aside.

Income Tax

Whether when land is taken on lease for longer period against lumpsum payment and transfer is in perpetuity, such expenditure can still be construed as revenue in nature - NO: HC

THE assessee is engaged in the manufacture of Automotive Ancillary Products. They took land on lease from MIDC and paid a sum of Rs.20,00,000/-, pursuant to the agreement. The assessee claimed the sum as payment of rental in lumpsum and therefore, it was treated as revenue expenditure. The AO rejected the stand holding that the amount paid by the assessee was for the purpose of acquiring the land for a period of 80 years, which rendered enduring advantages to the assessee. The AO also took note of the fact that the assessee had paid further amount of Rs.5.04 lakhs towards the enhancement cost to the land. Therefore, the AO found the expenditure to be of a capital expenditure.

The CIT(A) confirmed the view taken by the AO that the transfer in favour of the assessee was in effect a transfer in perpetuity and therefore, the expenditure incurred, was a capital expenditure. The Tribunal held that to decide whether the expenditure was capital or revenue, one had to look at the expenditure from a commercial point of view and the fact that the payment made in lump sum for the entire duration of the lease did not alter the character of revenue expenditure and allowed the Assessee's appeal.

The issue before the Bench is - Whether when a land is taken on lease for longer period against lumpsum payment and the transfer is in perpetuity, such expenditure can still be construed as revenue in nature. And the verdict goes against the assessee.

Central Excise

Activity of de-coiling sheets, cutting to length, shearing and other activity like de-greasing, cleaning, etc. and clearing same on payment of duty by utilizing CENVAT credit - Revenue alleging that activity does not amount to manufacture and hence credit availed should be reversed - Once duty on final products has been accepted by department, CENVAT credit availed need not be reversed -Appeals allowed: CESTAT

THE appellant is a registered manufacturer of colour coated steel coils and sheets and aluminium colour coated coils and sheets. Some of the inputs used by the appellant are GP coils, Galvanised coils, CR/HR coils, aluminium coils, paint and other pre-treatment chemicals.

During the month of March 2010 there was shortage of iron and steel rolled products and there was an upswing in the prices of MS flat rolled products in sheet form. Accordingly, since the appellant had available stock of MS/GP in coil form, they decided to liquidate/reduce the stock. They converted the said MS/GP coils into cut to size sheets as per customers' specifications by subjecting the same to degreasing, cleaning, de-coiling and cutting to sheet as per size. This job was done by using the existing line of production for the third line meant for cut to length and the fourth line for slitting within the factory premises. The appellant cleared such cut to size sheets on payment of excise duty. Such activity was also done during the month of October 2010 and January 2011.

The CCE, Raigad was more than pleased to confirm the demands and impose equivalent penalties etc.

See our Columns Tomorrow for the judgements