From our Legal Corner –Today's case

By Vijay Kumar

Today, we bring you an interesting Supreme Court order.

DEPB has an intrinsic value that makes it a market commodity. Therefore, it qualifies as `goods' unlike lottery ticket; DEPB can be compared to a lottery ticket that has won a prize – Supreme Court

Imagine a situation where prize winning lottery tickets are freely available for sale. (As a matter of fact, clandestine sale of the prize winning lottery ticket for conversion of black money into white is not completely unknown!). In buying the prize winning lottery ticket the purchaser would pay the consideration for the value that the piece of paper has acquired and in that situation we fail to see how that ticket can be described as anything else but `goods'.

If any more analogies are to be given one might compare DEPB with prepaid meal tickets or prepaid petrol coupons or accumulated flying miles. A meal ticket, a petrol coupon or flying miles credit has its own intrinsic value. If permitted free transferability those would soon become market commodities and would be sold and bought for their value as `goods'.

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Income Tax

Payments made for grading diamonds - DTAA with Singapore - HC rules mere certification of grades does not amount to imparting of experience or commercial knowhow to clients in India - Not a royalty under Article 12 - directs Revenue to issue certificate u/s 197

ROYALTY is a hot issue for the Income Tax Department. But terming a consideration paid for a particular type of technical certification under DTAA is indeed a highly tricky issue. In fact it would not be wrong to say that it is so finely delineated that the Revenue often confuses a payment as royalty. And this is what happened even in the latest case where a customer pays to a non-resident entity for quality certification. Based on its experience and technical knowledge its gemolists simply certify the grading of a piece of diamond or a gem and charge for the same. The Revenue confused the same as imparting of experience and commercial knowledge to the Customer and insisted on tax deduction at source on payments made under DTAA with Singapore . But the Bombay High Court has held that by issuing a grading certificate, the non-resident entity does not impart its experience to the client or transfer any right to use for its commercial and scientific knowledge in gemology . What the client receives is a mere certificate of grading and the non-resident entity simply makes use of its technical knowhow and experience. Thus, considering the definition of royalty under Article 12 of DTAA with Singapore , there is no rendering of any technical service and such payments cannot be bracketed as royalty consideration. And the tax authorities were directed to issue certificate u/s 197.

Customs

Classification of Brimstone 90 - Larger Bench cannot decide on an entirely new issue - Supreme Court

WHETHER Brimstone 90 which contains about 90% of Sulphur and 10% of Bentonite by way of inert filler would come within the classification under Heading 25.03 of the Customs Tariff and the Central Excise Tariff or Heading 38.08 is the question involved in this appeal.

Central Excise

Central Excise valuation - before adding value of the drawings, it has to be established that consideration had a nexus with negotiated price of assessable goods under clearance: Supreme Court

Before adding the value of the drawings etc, it has to be established that the consideration had a nexus with the negotiated price of the assessable goods under clearance, The order passed by the Commissioner does not indicate that no machines were subsequently manufactured by the respondent after using drawings, designs, jigs, fixtures, tooling etc. supplied by the ITC. Therefore, loading of the entire amount of Rs. 43 lakhs without such a finding and recovery of duty thereon was not permissible at all. The order of the Commissioner does not indicate adequate reasons to invoke proviso to Section 11A ( 1).

See our columns Tomorrow for the judgements