Jurispruden tiol – Tomorrow's casesLegal Corner Icon — the image was hosted by the publisher and was not captured.
Service Tax
Food for thought – Service Tax paid by Outdoor Caterers for running Canteen Services in a factory is an Input Service for availing Credit: Tribunal
WE are hungry. Just three months back, we reported the Tribunal decision in the case of Bajaj Electricals [], where the Single Member Bench observed that prima facie there was no case for a complete waiver of the cenvat credit demand of Rs.33,956/- availed on Service Tax paid by Outdoor Caterers on Canteen services provided in the company & accordingly the appellant was ordered to make a pre-deposit of Rs.15,000/-.
After that decision was passed, in another case of Manikgarh Cement [], the question before the Bench was whether the Service tax paid on Repairs & Maintenance of civil construction viz. residential colony for factory employees was available as cenvat credit. The Tribunal while allowing the appeal in that case held that such services were relatable to business & hence the credit was admissible.
Now, the said matter of M/s Bajaj Electricals came up before the Tribunal (SMB) for a final hearing along with similar appeals of two more assessees & the results are dramatic – yes, dramatic!
Central Excise
Revenue tries to pump up another Application on “usage of power” but without any success before the Tribunal
TWO years ago, the Union Budget had some powerless news for Turpentine manufacturers – they were left without their favourite notification granting full exemption when no “power was used in the manufacturing operations”. [See our story - The end of the road to 'powerless' manufacture: Rosin, Turpentine, to name a few, now dutiable.]
The Tribunal in that famous case booked by DGCEI held that - Use of power for drawing water into overhead tank not amounts to use of power in or in relation to manufacture. This conclusion emanated from a very old TRU clarification M.F. (D.R) Letter no. B-36/11/77-TRU, dated 10/16.01.1978 & the settled law that Board Circulars are binding on the department.
Upset that they had lost a “powerful” case, the Revenue had filed a ROM application & while rejecting the same, the lively Member(T) writing for the Bench had a few caustic words for the department. He said –
“This ROM application can be dismissed at the threshold on the solitary ground that it seeks to reargue the case by bringing in material which was not before the Tribunal when the appeal was decided after hearing both sides. The Revenue is well advised to follow the simple maxim that none is permitted to reargue the case. That we have agreed to deal with this application should not be treated as a licence to file applications seeking revision of the Tribunal’s decisions. For one thing the Tribunal, or for that matter, any quasi-judicial authority has no power to review its own order and for another there are other avenues for the aggrieved parties to seek relief by filing appeals.”
Incidentally, the Supreme Court decision in Rajasthan Chemical Works [] was also distinguished by observing thus –
“… that case deals with the use of power while handling the raw material prior to the commencement of process of production. It is nobody’s case in the present application that the water that is pumped to the overhead tank is a raw material used in the manufacture of rosin. The ratio of the decision of the Hon’ble Supreme Court does not apply to the facts of this case. It is not possible to apply the said ratio by ignoring the facts of this case.”
Needless to mention, Revenue took its case to the Supreme Court & fortunately after condoning the delay the appeal was admitted.
Income Tax
Land purchase - Interest paid on delayed payment - Since sale proceeds of scraps arising out of demolition of buildings on land treated as business income, interest payment, a contractual obligation, also to be treated as revenue expenditure : Supreme Court
THE battle between the revenue expenditure and the capital expenditure for treatment within the provisions of the Income Tax Act is as old as the Hundred-Years-War between the English and the French. And how a small piece of fact can alter the character of the expenditure can be seen from the latest case decided by the Apex Court.
Brief facts of the case :
The assessee is a transport company. It entered into an agreement with M/s. Peirce Leslie (India) Ltd. on 27.9.1983 for purchase of an extent of 466 cents of land with buildings thereon at Calicut. It was agreed that the sale deed will either be got executed in favour of the assessee or its nominees. As per agreement, if the purchase price was not paid within the specified time, assessee was liable to pay interest at the rate of 18% per annum. The buildings standing on the lands were demolished and the scrap materials were sold for Rs.5,88,001/-. This income was treated as business income. Under the agreement, the assessee had to pay an interest of Rs 4 lacs for the delayed payment of purchase consideration. The assessee claimed this amount as a revenue expenditure.
The AO disallowed the claim of the assessee on the ground that the payment of interest on the purchase of the property would be in the nature of a capital expenditure and not as revenue expenditure. This order of assessing authority was confirmed by the Commissioner of Income Tax(Appeals). It was held that the intention of the assessee was to enter into an adventure in the nature of trade and ultimately the assessee had retained only 65.57 cents of land with it and the remaining land was purchased by the sister concerns of the assessee in small pieces. It was held that since the assessee was only an intermediary for the other sister concerns, the part of interest referable to the lands sold to the sister concerns could not be allowed as revenue expenditure. Thus, Commissioner of Income Tax gave part relief and allowed the interest referable to 65.57 cents of land retained by the assessee. Assessee, being aggrieved, filed an appeal before the Income Tax Appellate Tribunal. The Tribunal accepted the appeal, set aside the order passed by the CIT(Appeals).
Until tomorrow with more DDT
Have a nice time.
Mail your comments to vijaywrite@taxindiaonline.com