TIOL-DDT 908 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 908 </font><br> 15.07.2008 <br> Tuesday</strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Pan Masala under Compounded Levy – AP High Court issues notice </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A writ petition had been filed in the AP High Court “to issue a writ in the nature of a writ of mandamus or any other appropriate writ, direction or order declaring Sec. 3A of the Central Excise Act, 1944 and the consequential Notification No. 29/2008 -Central Excise (NT),-Central Excise, all dated 1.7.2008 of the Government of India, Ministry of Finance, Department of Revenue, as illegal, and void” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pending the outcome of the writ petition, a Miscellaneous Petition had been filed, “ to suspend the operation of Sec.3A of the Central Excise Act, 1944, and the Consequential Notification No.29 /2008-Central Excise (NT), No.30 /2008 -Central Excise (NT) and Notification No.42 /2008-Central Excise all dated 1.7.2008 of the Government of India ,. Ministry of Finance Department of Revenue.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court on Friday, issued notice to the respondent Revenue Department to show cause as to why the application should not be complied with. </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Security for External Commercial Borrowings - Liberalisation </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As a measure of rationalisation of the existing procedures, RBI has decided to allow AD Category - I banks to convey no objection under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Before according no objection under FEMA, 1999, AD Category - I banks should ensure and satisfy themselves that (i) the underlying ECB is strictly in compliance with the extant ECB guidelines, (ii) there exists a security clause in the Loan Agreement requiring the borrower to create charge on immovable assets / financial securities / furnish corporate or personal guarantee, (iii) the loan agreement has been signed by both the lender and the borrower, and (iv) the borrower has obtained Loan Registration Number (LRN ) from the Reserve Bank.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Creation of Charge on Immovable Assets </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The no objection for creation of charge on immovable assets may be conveyed under FEMA, 1999 either in favour of the lender or the security trustee, subject to the following conditions: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) No objection shall be granted only to a resident ECB borrower. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) The period of such charge on immovable assets has to be co-terminus with the maturity of the underlying ECB . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Such no objection should not be construed as a permission to acquire immovable asset (property) in India , by the overseas lender / security trustee. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) In the event of enforcement / invocation of the charge, the immovable asset (property) will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB . </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Creation of Charge over Financial Securities </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">AD Category I banks may convey their 'no objection' under FEMA, 1999 to the resident ECB borrower for pledge of shares of the borrowing company held by promoters as well as in domestic associate companies of the borrower to secure the ECB subject to the following conditions : </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) The period of such pledge shall be co-terminus with the maturity of the underlying ECB . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) In case of invocation of pledge, transfer shall be in accordance with the extant FDI policy. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) A certificate from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-use/s. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Issue of Corporate or Personal Guarantee </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The no objection to the resident ECB borrower for issue of corporate or personal guarantee under FEMA, 1999 may be conveyed after obtaining - </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company or in individual capacity. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Specific requests from individuals to issue personal guarantee indicating details of the ECB . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Ensuring that the period of such corporate or personal guarantee is co-terminus with the maturity of the underlying ECB . </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=280&filename=notification/rbi/2008/rbi08cir001.htm" target="_blank">RBI Circular NO 01/ 2008- RBI , Dated : July 11, 2008 </a></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax Revenue up by 33% in two months </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The first two months of the new fiscal saw a 33.6% growth in Service Tax Revenue, which has almost reached the 10,000 Crore mark, while the Revenue from Customs and Excise is up by 11.5% for the first quarter at 54,341 Crores. </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>We have enough staff to process Income Tax Returns - CBDT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One reason why many tax payers do not declare their correct income is their firm belief that the Income Tax Department does not have enough staff to scrutinise their returns. Recently some newspapers have reported that the Income Tax Department is facing an acute shortage of officers and so processing of returns and issue of refund are going to be delayed. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBDT clarifies that these rumours are not correct. Over 7000 new posts have been sanctioned and the recruitment process will be completed by 2010. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is a very important factor to be noticed, about which the CBEC Chairman had also touched upon in our Vizag seminar. It takes four years to fill up the posts – the new ones, but what about promotions within the Department? It is nearly two years since there was a promotion to the cadre of Group A in CBEC. And it's more than a year in CBDT. Additional Commissioners in both the Boards are waiting eagerly for more than a year to become Commissioners. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What promotions? Even by July, they have not finalised the annual transfers! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBDT press release says, “ Tremendous growth in direct tax collections in the last four years is testimony to improved tax administration and tax compliance levels in the country.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Are the taxes collected “because of” or “in spite of” our tax officers? </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Jurispruden<font color="#FF6633" size="5"> tiol</font></strong></font><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> – Tomorrow's cases</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></font><font color="#663399">General</font> </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Adjudication without hearing - exercise of jurisdiction in a wrongful manner cannot result in a nullity - it is an illegality, capable of being cured in a duly constituted legal proceedings: Supreme Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non est and void ab initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect cannot be cured even by consent of the parties. However, exercise of jurisdiction in a wrongful manner cannot result in a nullity - it is an illegality, capable of being cured in a duly constituted legal proceedings. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Proceedings for assessment under a fiscal statute are not in the nature of judicial proceedings,</font> </strong> like proceedings in a suit inasmuch as the assessing officer does not adjudicate on a lis between an assessee and the State and, therefore, the law on the issue laid down under the civil law may not stricto sensu apply to assessment proceedings. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>General </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Order without reason - Failure to give reasons amounts to denial of justice – matter remanded: Supreme Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MANY Adjudication Authorities feel that they are slightly higher than the Supreme Court and are often too lazy to write speaking orders. The Supreme Court was not amused. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Why a ‘speaking order'? </strong></font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The giving of reasons is one of the fundamentals of good administration. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Failure to give reasons amounts to denial of justice. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Reasons are live links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Another rationale is that the affected party can know why the decision has gone against him. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. One of the salutary requirements of natural justice is spelling out reasons for the order made; in other words, a speaking-out. The "inscrutable face of the sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance. </font></p> </blockquote> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessee - 100% subsidiary of UK-based Co - Conversion charges paid for acquiring goodwill of popular brand from another subsidiary of same parent Co - Such a payment not mandated by agreement was for actually hiring production facilities - to be treated as capital expenditure: ITAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE dispute is: revenue vs capital expenditure and revenue receipt vs capital receipt. The three players involved in the case are the UK-based parent company and two of its Indian subsidiaries in the healthcare sector. An easy guess, indeed! The parent is M/s Glaxo Smith Kline Plc. And the two subsidiaries are Glaxo Smith Kline Consumers Healthcare Limited and M/s Smith Kline Beecham Asia Ltd. And the entire taxing battle revolves around the fact involving the disallowance of Rs 4.5 Cr payment made for obtaining the right to manufacture and sell of brand name 'ENO' which is a popular antidote for acidity. Although the final verdict has gone against the assessee but let's go through the rigmarole of facts to understand the ratio of this decision. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements </strong></font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day. </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p> </body> </html>