Jurisprudentiol - Monday's cases

By Vijay Kumar

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

In the SCN there is not even a single line describing as to what is the actual service rendered by the appellants which is sought to be covered under the Consulting Engineer, which fact itself, is arguably fatal - services rendered of engaging contractors and supervising their work cannot be stretched to come within the scope of the definition of Consulting Engineer: CESTAT

IT is alleged that during the period 2002-2003 to 2005-2006 the appellants had collected supervision charges amounting to Rs.7,79,91,577/- relating to construction of Navodaya Vidyalaya building and that the said amount was liable to service tax under the category of Consulting Engineer Service which the appellants did not pay by indulging in suppression of facts.

Before the CESTAT, the appellant contended that the amount on which service tax has been demanded was received from Navodaya Vidyalaya Samiti for execution of works based on the architectural drawing, specification etc. given by Navodaya Vidyalaya Samiti or their appointed consultants; that this activity does not fall within the scope of Consulting Engineer Service; that during the relevant period, companies were not included in the definition of Consulting Engineer and that there has been no willful mis-statement or suppression of facts on their part as alleged in the SCN.

Income Tax

Whether Sec 80IB benefits are not to be denied merely because ownership of the Undertaking changes from proprietorship to partnership firm - YES: High Court

THE assessee's factory is situated in SIDCO Industrial Estate in Jammu & Kashmir and derives income from manufacture and sale of consumer electronic durable goods. For AY 2005-06, assessee had filed a return showing a loss. The case was taken up for scrutiny and notice u/s 143(2) and 142(1) was issued. During the year, assessee claimed deduction u/s 80-IB amounting to Rs.18,51,055/-. The AO issued a notice u/s 142(1) requiring the assessee to justify his claim of deduction u/s 80-IB. In response to which, assessee had submitted that his factory was situated in Jammu & Kashmir. On going through the claim of the assessee, AO found that the assessee was running business from the same premises as a proprietorship concern and that on 1st April, 2004 a partnership firm was constituted in which two other persons were inducted as partners. According to AO, a new legal entity was formed on 1st April, 2004. The AO accordingly held that the industrial undertaking under proprietorship was converted into a partnership firm on 1st April, 2004 and that the transfer of machinery or plant previously used by the proprietorship concern was being used by the partnership firm and, accordingly, the assessee was not entitled for exemption u/s 80-I. The AO, accordingly, disallowed the deduction claimed by the assessee.

The issues before the Bench are - Whether Sec 80IB benefits are not to be denied merely because the ownership of the Undertaking changes from proprietorship to partnership firm; whether on conversion of a proprietorship firm into a partnership firm, there is any transfer of plant and machinery to the new firm and whether in that case there is only a transfer of industrial undertaking as a whole along with assets and liabilities. And the verdict goes in favour of the assessee.

Central Excise

CENVAT Credit - Dutiable and exempted goods - When credit is not taken on the inputs used in exempted goods, there is no need for separate records - Duty demand on sugar syrup with a shelf life of 24 hours set aside: CESTAT

APPELLANT engaged in manufacturing of dutiable and exempted goods with common input for both kinds of products - Availed Cenvat credit of duty paid on inputs like sugar, various flavors, packing materials, furnace oil etc - Separate records are maintained and CENVAT credit is not availed in respect of inputs used for exempted goods as per Rule 6 of CENVAT Credit Rules 2004 - Benefit of Notification No.67/95 is clearly extendable - No evidence on record to demonstrate that separate records are not maintained or credit availed against exempted goods - Merely that no separate record is maintained with regard to sugar syrup used in the process which presumably has 24 hours of shelf life, without verifying its marketability and saleability, demand of duty held unjustified - Extraction of selective portion of statement convenient to the department in the show-cause notice to initiate proceedings and confirming demand without substantial evidence, deprecated - In view of the fact that the most important part of any investigation i.e. to ascertain facts, apply law to the facts and propose action in accordance with law has not been followed in this case, appeal allowed.

See our Columns on Monday for the judgements.