Jurisprudentiol-Friday's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.Central Excise

What is meaning of "his factory"? One or more factories?

MEANING of the expression ‘his factory': Under the Central Excise Taxation, duty of Central Excise is levied on the 'act of manufacture' as defined in Section 2(f) of the Central Excise Act 1944 and the person who carries out the 'act of manufacture' is the manufacturer. A 'manufacturer' who is liable to pay duty becomes an 'assessee' by virtue of Rule-2(c) and has to take out a Registration as per the provision s of Rule 9 of the Central Excise Rules 2002. From the above basic elements of Central Excise law a manufacturer is the person who carries out the act of manufacture.

In the present proceedings the 'act of manufacture' is being undertaken by the appellants' factory to whom demand show cause notices are issued and each factory will make the person carrying out the activity of manufacture as the 'manufacturer'. There is nothing in the definition of Section-2(f) to indicate that a legal entity only has to be considered as a 'manufacturer'. Rather each 'assessee' has to be treated as a manufacturer and not the entire group of companies as claimed by the Revenue.

Income Tax

Whether brokerage can be paid to Directors of assessee-company in case of sale of its property and same is deductible as transfer expenses from capital gains arising out of such transfer - NO: ITAT

DURING assessment proceedings the AO noticed that assessee has sold a property on which capital gain was determined. However, it was noticed that Assessee Company has paid huge amount to the Directors on such sales, which were claimed as transfer expenses. The AO observed that director of the company cannot be acting as property brokers because they being directors and owners of the company and, therefore, payment of commission were not justified. Thus, he disallowed the payment of commission of Rs. 48 lakhs.

On appeal, it was mainly submitted that for selling property, commission / brokerage is required to be paid. Since the property dealers could not arrange for the sale of said property for a long time, therefore, Board of Directors of the company withdrew the offer from the property dealers and entrusted the job of finding of customers to the Directors. The Directors successfully found a customer and were able to get much better price because of this fact the company decided to award the Directors. In other words, directors were paid for their services.

THE issue before the Bench is - Whether brokerage can be paid to Directors of the assessee-company in case of sale of its property and the same is deductible as transfer expenses from the capital gains arising out of such transfer. NO is the verdict.

Customs

Burning loss will not fall under clause (b) of Section 65(2) of the Customs Act, 1962 - Burning loss does not exist physically, therefore, it is neither capable of being cleared from the warehouse nor actually cleared - duty demands set aside: CESTAT

ON careful reading of Section 65(2)(b) of Customs Act, 1962, it applies only to such waste and scrap which resulted from manufacturing operations and are cleared from the warehouse for home consumption. In the present case the burning loss does not exist physically, therefore it is neither capable of being cleared from the warehouse nor factually cleared from the warehouse. Therefore, the burning loss occurred in the manufacturing process is nothing but the consumption in the manufacture, though physically not available, hence, the same does not get cleared from the warehouse. With this fact, the burning loss will not fall under the clause (b) of Section 65(2). Accordingly, no duty can be charged on non-existent quantity of burning loss.

See our Columns Tomorrow for the judgements