TIOL-DDT 2349 · the untouched capture
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<p align="justify"><font size="2"><strong><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif"><s><strong><font size="2"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=20079"><img src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2014_1.jpg" alt="DDT in Limca Book of Records - Third Time in a row" width="250" height="123" hspace="5" border="0" align="right"></a></font></strong></font></strong></font></strong></font></strong></font></strong></s>TIOL-DDT 2349 </font><font size="3" face="Verdana, Arial, Helvetica, sans-serif"></font><font face="Verdana, Arial, Helvetica, sans-serif"><br>
</font></strong><font face="Verdana, Arial, Helvetica, sans-serif"><strong>08.05.2014 </strong><br>
<strong>Thursday</strong></font></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Over-ruling of earlier judgements - Does it have retrospective effect? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHAT</strong> happens when a judgement of a three-member bench of the Supreme Court is overruled by a bench of five judges? Does the new judgement get retrospective effect? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After all the five judge bench is only clarifying the law and so perhaps has the effect from the beginning of law itself, but if I have been following the law as laid down by three hon'ble judges of the highest court in the country, can I be stuck with a liability because after ten years a larger bench of five judges feel that the three judges did not interpret the law correctly? </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>Kone Elevators </em> - little inclined - towards Revenue? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>YESTERDAY</strong> we reported a landmark judgement of a five judge bench of the Supreme Court in <a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTM0OTk=" target="_blank"><strong><font size="1">2014-TIOL-57-SC-CT-CB </font></strong></a></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When you get a lift for your apartment, are you buying a product called a lift or are you buying the services of getting a lift installed in your premises?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Are you liable to pay </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.
Excise Duty </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. VAT </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.
Service Tax </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.
Works Contract Tax </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.
One or more of the above.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>State of AP v Kone Elevators </em> - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-30-SC-CT-LB.htm"><strong><font size="1">2005-TIOL-30-SC-CT-LB </font></strong></a> - a three member bench of the Supreme Court observed that <em>contractual obligation of the assessee was only to supply and install the lift, while the customer's obligation was to undertake the work connected in keeping the site ready for installation as per the drawings.In view of the contractual obligations of the customer and the fact that the assessee undertook exclusive installation of the lifts manufactured and brought to the site in knocked-down state to be assembled by the assessee, it is clear that the transaction in question was a contract of 'sale' and not a 'works-contract'</em>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was also held that the <em>major component of the end product is the material consumed in producing the lift to be delivered and the skill and labour employed for converting the main components into the end-product was only incidentally used and, therefore, the delivery of the end-product by the assessee to the customer constituted a 'sale' and not a 'works-contract' </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This judgement was delivered on 17.02.2005.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In February 2008, another three judge Bench of the Supreme Court felt that the above decision needed consideration by a larger bench and so it came to be referred to a larger bench of five judges.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This larger bench delivered its marathon landmark judgement on 6th May, which we carried yesterday.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Here also there was a dissent: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Four judges subscribed to a majority judgement running into 66 paragraphs and about 16,000 words, while another judge gave a dissenting judgement running into 140 paras and 30,000 words.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What is the effect of all these wise words? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Majority of four judges held that <em>"the dominant nature test" or "overwhelming component test" or "the degree of labour and service test" are really not applicable.If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract </em>.The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc.are the components of the lift which are eventually installed at the site for the lift to operate in the building.In constitutional terms, it is transfer either in goods or some other form.In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was concluded that the decision rendered in <em>Kone Elevators </em>by the three-judge bench does not correctly lay down the law and it is, accordingly, overruled.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However in an elaborate dissent, one judge held, that the manufacture, supply and installation of LIFTS/ELEVATORS comes under the definition of 'Sale' and not 'Works Contract' and the decision in <em>Kone Elevators </em>by the three bench judge has been correctly decided.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So here is the simple arithmetic.In <em>Kone Elevators-1</em>, three judges held that the contract was a sale contract and not works contract.Now, in <em>Kone Elevators-2 </em>, four judges held that it was a works contract while one judge held that it was a Sales contract.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now out of eight judges four hold it as works contract and four as sales contract. Isn't this equally balanced? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What then is the law? As of now it is going go be a works contract - and maybe for a long time to come! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It must be noted that this case was all about VAT - what about Central Excise/Service Tax? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTM0OTk=" target="_blank">2014-TIOL-57-SC-CT-CB </a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>Kone Elevators </em> in Central Excise/Service Tax </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC</strong> in a Section 37B order No.58/1/2002-CX, dated 15-1-2002, had clarified: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>Lifts and escalators.</strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) Though lifts and escalators are specifically mentioned in sub heading 8428.10, those which are installed in buildings and permanently fitted into the civil structure, cannot be considered to be excisable goods.Such lifts and escalators have also been held to be non-excisable by the Govt.of India in the case of <em>Otis Elevators India Co. Ltd. reported in 1981 (8) E.L.T.720 (GOI)</em>.Further, this aspect was also a subject matter of C&AG's Audit Para No.7.1(b)/98-99 [DAP No.186] which has since been settled by the C&AG accepting the Board's view that such lifts and escalators are not excisable goods.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) There may, however, be instances of fabrication of complete lifts and escalators which are movable in nature as a whole and can be temporarily installed at construction sites or exhibitions for carrying men or material.Such cases alone would be liable to duty under sub-heading 8428.10 of the Central Excise Tariff.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Has the above order become irrelevant after the 2005 three judge bench order of the Supreme Court? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is it covered under Service Tax? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will this assume a new position in view of the latest judgement of the Supreme Court? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Perhaps the latest position would be that the activity would be liable to Service Tax and the value of the goods supplied can be deducted.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Transfers - IRS Officer represents to Election Commission </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> 1990 batch IRS officer,Metta Rama Raohas requested the Election Commission of India to <em>direct the FM to not to issue any orders while the election processes are still on and our officers are on election duty </em>.He represented to the Commission that the <em>IRS Association requested the FM to desist from general transfers among other things that many officers are deputed on election duty. Still it seems that the orders are under preparation </em>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rama Rao is the President of IRS (C&CE) Association, but he has given this representation in his personal capacity.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though the FM wanted the transfer list on his table yesterday, it is understood that both the Boards failed to deliver. Today is the revised Dead Line - a line beyond which you are dead.It is really hard to work with a Finance Minister who you know is surely on his way out - you can't obey him; you can't disobey him. May be they have to live with the FM for another fifteen days.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/excuse_me_please.jpg" alt="Legal Corner Icon" width="564" height="477" hspace="5" border="0" align="center"></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> - Friday's cases</font></strong></font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></font>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CX - Refund - Tribunal has observed that petitioners are allowed interest at rate prescribed under law after three months from date of filing of refund application - as interest @ 12% has been provided by Supreme Court, there is no reason that petitioner may not get interest @ 12% - No direction in regard is necessary to be issued: HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>the matter of claim for payment of interest @12%, the High Court observed - </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"7.So far as rate of interest @ 12% is concerned, the Tribunal, in its order dated 5.7.2004, has observed that the petitioners are allowed interest at the rate prescribed under the law after three months from the date of filing of the refund application.The interest @ 12% has been provided by Hon'ble Supreme Court, there is no reason that the petitioner may not get interest @ 12%.No direction in regard is necessary to be issued."</em></font></p>
</blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">VAT </font></strong></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>VAT - Fiscal incentives by Gujarat government in form of loan to Tata Motors Limited at 0.1% simple interest per annum - such amount is not refund of tax - similar incentives are found in other states too - policy decision is not against public interest - no merit in PIL: HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TATA</strong> Motors had bought land in Singur in Hoogly district, West Bengal to produce its low-cost car, purportedly the One lakh rupee Nano.But the project actually never took off due to protest from farmers who claimed that they had been underpaid or forced from their land.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Exasperated by the mounting resistance, Tata pulled out of West Bengal.No sooner had this exit been announced, it is said that Narendra Modi, the Gujarat Chief Minister sent a SMS to Ratan Tata, Company's President and which read “Welcome to Gujarat”.Within a few days, the Gujarat government transferred land to the company and thus the Sanand Nano story was born.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In his interview to a leading news channel a few days back, the BJP's Prime Ministerial candidate, Shri Narendra Modi in reply to the issue of toffee model raised by the Congress said, - </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Only a week ago, the Gujarat High Court gave a 100 per cent judgment on the Tata Nano car project, in favour of the government policy.But it was not news for you. Nobody reported it.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We will report it tomorrow.</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Whether if assessee fails to ensure presence of its vendors during assessment proceedings, it warrants rejection of books of accounts - NO: Delhi HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is engaged in designing, manufacturing, marketing and trading telecommunication equipments, public address system and flood matters.The assessee declared an income of Rs.1,08,85,191/-; it was initially processed under Section 143(1) of the Act. During the year under consideration, a search operation was conducted by the Central Excise Department in the manufacturing unit of the assessee.It was alleged that the assessee had claimed CENVAT credit for inputs, and that it was using bogus purchases bills from non-existent parties.The Central Excise Department identified 19 such fictitious vendors.On the strength of these allegations, the Income Tax Department also took up the assessee's case for scrutiny and issued notice under Section 133(6) of the Act to 16 parties.The AO finally rejected the books of accounts and determined the net profit at 10% to the total sale of business at Rs.16,40,91,000/- in addition to other income declaration by the assessee. A further addition was made to the tune of Rs.18,34,490/- under Section 40(a) (ia) of the Act for non-deduction of tax at source.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issues before the Bench are - Whether if the assessee fails to ensure the presence of its vendors during the assessment proceedings, it warrants rejection of books of accounts and Whether assessee's books can be rejected merely on the basis of the suspicion that the vendors withdrew cash which may have found its way back to the assessee.And the verdict goes against the Revenue.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Payment of bills made at discounted value by appellant to service provider - No evidence has been brought on record by Revenue to indicate that reduced service tax has been paid - credit of full tax shown on duty paying document is admissible - Appeal allowed: CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue involved in these proceedings is that appellant has taken CENVAT credit of the Service Tax paid by the service provider but Revenue has taken the objection that payment of such bills was made at discounted value.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Against the order of the Commissioner(A), the appellant is before the CESTAT.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is submitted that Service Tax has not been paid to the service provider proportionate to the reduced bill amount and, therefore, the appellant is entitled to avail entire service tax paid on the invoices as admissible CENVAT credit. Reliance is also placed on the CBEC Circular No.877/15/2008-CX dated 17.11.2008 and Circular No.122/3/2010-ST dated 30.4.2011.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our Columns Tomorrow for the judgements </strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p>
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