Jurisprudentiol - Wednesday's cases

By Vijay Kumar

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

Appellant, 100% EOU procuring duty free imported/indigenous goods for use in manufacture - finished goods/raw materials destroyed in fire - One of conditions of licence and warehousing bond executed by appellant is that appellant shall insure goods at least for value equal to Customs duty - By failing to do so, clear breach of sections 58 & 65 of Customs Act, 1962 - demand upheld: CESTAT

THE appellant is a 100% EoU manufacturing bulk drugs and pharmaceutical products. In a fire accident, the raw materials procured by the appellant, both imported as well as domestic, as well as finished products manufactured by using duty-free raw materials were damaged by fire.

As per the insurance survey report, the VALUE of the finished goods destroyed in the fire on 17/10/2002 was Rs.1.52 Crores and the value of raw materials both imported and indigenous, destroyed in the fire was Rs.69 lakhs. Duty on the raw materials contained in the finished goods amounted to Rs.73.46 lakhs and the duty involved in the raw materials which were damaged amounted to Rs.39.48 lakhs.

Income Tax

Whether if closing stock value is enhanced by Revenue, it would concomittantly increase profit from business - NO: ITAT

THE assessments were completed in the hands of the assessee u/s. 143(3) r.w.s. 153C. The assessee had declared income from STCG arising from purchase and sale of immovable properties and the same was accepted by the AO without making any discussion about it. The CIT noticed that the assessee had undertaken many transactions of purchase and sale of immovable properties and accordingly, he took the view that the assessee was carrying on business in immovable properties. The CIT concluded that the income of the assessee has not been assessed fully and correctly which was erroneous and prejudicial to the interests of revenue. The CIT set aside the assessment orders with the direction to the AO to treat the transactions in real estate as a business venture carried on by the assessee.

The issues before the Bench are - Whether if the closing stock value is enhanced by the Revenue, it would concomittantly increase the profit from business and Whether any prejudice is caused to the Revenue if the gains from sale of immovable properties is treated as STCG rather than business income. And the verdict goes in favour of the assessee.

Service Tax

Consulting Engineer - as assessee was company registered under Companies Act, 1956, they were outside purview of definition of ‘Consulting Engineer' during period 2001-03 as ‘body corporate' was brought within ambit of definition only w.e.f. 01.05.2006 - no ST payable - Revenue appeal dismissed: CESTAT

THIS is a Revenue appeal.

A SCN was issued demanding Service Tax of Rs.17,85,768/- alleging that the assessee had provided ‘Consulting Engineer' service during the period 2001-03.

In response, the assessee inter alia submitted -

+ Rs.1,40,26,960/- is the consideration received for having provided the activity of soil testing, survey work, drilling survey to the National Highways Authority of India and this consideration falls outside the ambit of "consulting engineer" service.

+ Amount of Rs.90,03,799/- received by way of reimbursement of expenses for providing the "consulting engineer" service are liable to be excluded i.e. an amount of Rs.90,03,799/-.

+ Service tax liability, if any, is remittable by the principal consultants, namely Louis Berger Inc. and Scott Wilson Kirkpatrick India Pvt. Ltd.

+ Since the assessee was a company registered under the Companies Act, 1956, it was outside the ambit of the definition of "consulting engineer" which includes only a "consulting engineering" firm; that only with effect from 1.5.2006 Section 65(31) was amended to bring within the ambit of the definition "any body corporate".

The Joint Commissioner was in no mood to listen to all this and so he confirmed the demand with penalties et al.

See our Columns Tomorrow for the judgements