Supreme Court holds that bad debts written off are ... - BMR Advisors

Vol. 4 Issue 6 June 2010
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Supreme Court holds that bad debts written off are eligible for
deduction even if the individual debtor accounts are not squared off
The taxpayer, a nationalised bank, had claimed a deduction for bad debts on the
basis of provision made in the books, by way of a debit to the Profit and Loss account
and a reduction to the debtors account in the Balance Sheet. The Revenue
disallowed the claim on the ground that it was a mere provision and not an actual
write-off of the individual debtor accounts concerned and that the deduction can be
availed only when the bad debts are written off in the books of account.
On appeal, the Supreme Court held that a reduction of the Bad Debts Reserve
amount against the ‘Loans and Advances Account’ or ‘Debtors’ Account’ in the
Balance Sheet was sufficient to claim the deduction for bad debts. It held that if the
taxpayer was required to close individual debtor accounts, it could place the taxpayer
at a disadvantage while pursuing recovery suits against the debtors. It further held
that the interest of the Revenue was safeguarded as any subsequent recovery of
amounts written off as bad was chargeable to tax. It ruled that the taxpayer would be
entitled to deduct bad debts written off even if such debts are not written off against
the individual debtor accounts.
Vijaya Bank vs CIT (323 ITR 166)
DIRECT TAX
High Court decisions
For applying the dividend stripping provisions, conditions prescribed in section 94(7)
of the Income-tax Act, 1961 are to be cumulatively satisfied
Contents
DIRECT TAX. . . . . . . . . . . . . . . .
High Court decisions . . . . . . . . . .
Tribunal decisions . . . . . . . . . . . .
Notifications & Circulars . . . . . . . .
INDIRECT TAX . . . . . . . . . . . . . .
Excise . . . . . . . . . . . . . . . . . . . .
Customs . . . . . . . . . . . . . . . . . . .
Service tax . . . . . . . . . . . . . . . . .
VAT/CST. . . . . . . . . . . . . . . . . . .
Notifications & Circulars . . . . . . . .
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Intelligence League Table
The taxpayer purchased certain mutual fund units three months prior to the “record
date”. However, the units were sold after a period of three months from the record
date. The Revenue invoked the provisions dealing with dividend stripping. On
appeal, the taxpayer contended that the provisions related to dividend stripping, as

they stood at the relevant point of time, could be applied to ignore the loss on sale of
the units only on cumulative satisfaction of the conditions prescribed, ie, (a) securities
or units were purchased three months prior to the record date; (b) such securities or
units are sold within three months after the record date; (c) the dividend or income on
such securities or unit received or receivable is exempt. The High Court examined
the memorandum explaining the provisions of the Finance Bills of 2001 and 2004
which used the conjunction ‘and’ between the conditions. Relying on the
memorandum, the High Court held that the conditions in clauses (a), (b) and (c) are
to be cumulatively satisfied to invoke the provisions.
Direct tax
• Sriram Seshadri
• Sivam Subramanian
• Balaji Venkatasubramaniam
Indirect tax
• K Sivarajan
• S Vinodh
In the instant case, since the taxpayer had sold the units after three months from the
record date, it held that the provisions related to dividend stripping were not
applicable.
CIT vs Alka Bhosle (2010 TIOL 409) (Bombay)
Tribunal decisions
Economic or market conditions between two countries need not be similar merely due
to their geographical contiguity
The taxpayer manufactured and sold animal health products to its associated
enterprise (“AE”) in Thailand and unrelated parties in Vietnam. It used the
Transactional net margin method (“TNMM”) to benchmark its transactions with AEs.
The Transfer Pricing Officer (“TPO”) noted that sale price to parties in Vietnam was
higher than the price charged to the AEs in Thailand. The TPO adopted the
comparable uncontrolled price (“CUP”) method and determined the arm’s length price
(“ALP”) to be higher after making adjustments for differences in trade volume, credit
period and credit risk. The taxpayer contended that the transactions were not
comparable as it involved sale in different countries. However, the Commissioner
(Appeals) rejected the argument as both the countries were located in Far East Asia
and were demographically similar. On further appeal to the Tribunal, the taxpayer
contended that the market size of the two countries was not comparable and
provided material to prove that the market price prevalent in Thailand was lower than
the price charged to the AEs. Considering the evidence provided, the Tribunal ruled
that economic or market conditions cannot be concluded to be similar merely on the
basis of geographical contiguity. Accordingly, it remanded the case back to the TPO
to fresh determination of the ALP after carrying out adjustments for all material
differences.
Intervet India Pvt Ltd vs ACIT (2010 TII 12) (Mumbai)
• Bobby Parikh, Mumbai
+91 22 3021 7010
bobby.parikh@bmradvisors.com
• Mukesh Butani, New Delhi
+91 11 3081 5010
mukesh.butani@bmradvisors.com
• Rajeev Dimri, New Delhi
+91 11 3081 5050
rajeev.dimri@bmradvisors.com
• Abhishek Goenka, Bangalore
+91 80 4032 0100
abhishek.goenka@bmradvisors.com
• Sriram Seshadri, Chennai
+91 44 4298 7000
sriram.seshadri@bmradvisors.com
• Gagan Malik, Singapore
+65 6408 8004
gagan.malik@bmradvisors.com
Revenue cannot consider the comparables rejected by the taxpayer if the reasons for
rejection are justified; Comparables cannot be cherry picked for determining the ALP

The taxpayer provided marketing services to its associated enterprise (“AE”) and
established its transactions to be at arm’s length on the basis that its operating profit
margin of 15.97 percent was higher than the arm’s length price (“ALP”) margin
determined under the Transactional net margin method (“TNMM”). The taxpayer had
selected eight companies as comparable companies and the mean operating margin
of these companies was 9.89 percent. However, the Transfer Pricing Officer (“TPO”)
noted that at least three comparables selected by the taxpayer had better results and
the mean operating margin was lower due to some loss making companies included
as comparable companies. The TPO re-determined the ALP to be higher after
selecting four other companies as comparable companies. These four companies
were originally rejected by the taxpayer in its study as sufficient data was not
available in the public domain or the companies were incomparable due to significant
levels of related party transactions or had an exceptional year of operation. On
appeal, the Tribunal held that the TPO cannot summarily reject the reasons provided
by the taxpayer for not selecting the said four companies. The Tribunal further held
that the TPO was cherry picking companies, which was not justified and held that
taxpayer’s transactions were at ALP.
ACIT vs Toshiba India Pvt Ltd (2010 TII 14) (Delhi)
In computing the ALP, interest, dividend etc cannot be treated as operating income; If
any expense is treated as operating expense, reimbursement of such expense
should be treated as operating income
The taxpayer, a research and consulting company, benchmarked its transactions
under Transactional net margin method (“TNMM”) with net profit margin as the profit
level indicator (“PLI”). However, the Transfer Pricing Officer (“TPO”) re-determined
the arm’s length price (“ALP”) adopting operating profit on cost as the PLI. While
determining the ALP, the TPO considered interest, dividend, income from investment
operations, trading in bonds and capital market operations as operating income.
Further, he treated the reimbursement of expenses from the associated enterprise
(“AEs”) as non operating income on the ground that they were received on a fixed fee
basis and were not covered by any agreement. However, the corresponding
expenses were treated as operating in nature. On appeal, the Tribunal held that
incomes such as interest, dividend, income from investment operations, trading in
bonds and capital market operations were to be treated as non-operative income. It
further ruled that when certain expenses are considered as operating expense, any
reimbursements in respect of the same have to be considered as operating revenue.
ACIT vs Chrys Capital Investment Advisors India Pvt Ltd (2010 TIOL 11) (Delhi)
Snippet
The Income-tax Department has
decided to set up help centres
called Aayakar Sewa Kendras at 12
cities, including Kolkata,
Coimbatore and Surat, to address
the problems of tax payers. At
present, help centres exist at three
places in Pune, Chandigarh and
Kochi. The help centres would act
as a ‘one-stop shop’ for taxpayers
to obtain the services of the Income
Tax department, to help redress the
complaints of taxpayers and
prevent similar grievances in the
future.
Source: The Economic Times
June 1, 2010
When ALP margin is higher than taxpayer’s margin, adjustment to transaction price
has to be computed with reference to the AE transactions and not the entire turnover

The taxpayer carried on the business of dealing in jewellery. It had sales to
associated enterprise (“AEs”) and unrelated parties. It benchmarked its sales to AEs
under the Cost Plus Method (“CPM’). The Transfer Pricing Officer (“TPO”) held
Transactional net margin method (“TNMM”) to be the most appropriate method and
determined the net operating margins of the comparables to be higher than what was
earned by the taxpayer. The TPO carried out this adjustment to the total turnover
including the sales to unrelated parties. The taxpayer contended that the adjustment
could be computed only with reference to the sales to AEs, which was rejected by the
Revenue. On appeal, the Tribunal ruled that the adjustment should be worked out
only to the sale to the AE and not on the gross sales.
ACIT vs T Two International Pvt Ltd (2010 TIOL 166) (Mumbai)
TPO cannot make adjustments towards interest not collected on receivables due
from AE without considering the payables due from the taxpayer to the AE
The taxpayer, a Netherlands based Company with a branch in India, was distributing
medical consumables imported from its associated enterprise (“AEs”). During the
Transfer Pricing audit, the Transfer Pricing Officer (“TPO”) observed that the taxpayer
had not charged any interest in respect of receivables due for more than 130 days
from the AEs. The TPO made adjustments to taxpayer’s income towards such
interest. On appeal, the taxpayer contended that the taxpayer also had amounts
payable on account of imports from its AE, which exceeds the amounts due from the
AEs. The Tribunal noted that the agreement between the taxpayer and the AEs did
not provide for interest on the receivables. Accordingly, it held that the adjustments
cannot be made on account of interest due on receivables from the AEs, when the
amount payable was in excess of the receivables.
ADIT vs Boston Scientific International BV (2010 TII 16) (Mumbai)
Price paid for identical products to third party cannot be taken as comparable when
the quality was not yet established in the market
Snippet
The Corporate Affairs Ministry has
decided to keep the mergers and
acquisitions (“M&As”) in the
banking sector out of the
Competition Commission of India's
(“CCI”) ambit in order to allow
enough consolidation to take place
in banking.
Source: Business Line
June 1, 2010
The taxpayer, a manufacturer of agrochemicals, imported a certain chemical from its
associated enterprise (“AE”) which was used in the formulation of products. It used
comparable uncontrolled price (“CUP”) method for benchmarking the international
transactions which was accepted by the Revenue. However, the Revenue noted that
the taxpayer had imported the chemical in the same year from a Chinese supplier at
a price lower than the price paid to AE. It also contended that the purity levels of the
products were the same in both cases and accordingly made adjustments to the price
paid to the AE. On appeal, the Tribunal observed that the taxpayer had purchased
the chemical from the domestic market at a price higher than that paid to AE. It also
noted that Chinese supplier was not established in the market when the taxpayer

sourced the chemical from it. The taxpayer started procuring from the Chinese
supplier in the latter part of the year after receiving proper quality reports on the
Chinese supplies. It also noted that the taxpayer stopped importing from AEs after it
started procuring from the Chinese supplier. Accordingly, it ruled that the lower price
paid to the Chinese supplier when the quality of the supplies was not established in
the market cannot be taken as a comparable and held that the price paid by the
taxpayer to the AEs to be at arms length.
ACIT vs Cheminova India Ltd (2010 TII 19) (Mumbai)
Where the TPO adopts a different method to determine the arm’s length price,
penalty is not leviable
The taxpayer adopted Transactional net margin method (“TNMM”) to benchmark its
transactions with associated enterprises (“AEs”), whereas the Transfer Pricing Officer
(“TPO”) adopted comparable uncontrolled price (“CUP”) method and made
adjustments to the value of the international transactions. The Revenue also levied
penalty under section 271(1)(c) of the Income-tax Act, 1961 (“Act”) for furnishing
inaccurate particulars of income or concealment of income. On appeal, the Tribunal
observed that taxpayer had furnished the basic data based on which the TPO had
adopted the CUP method. It referred to the Supreme Court ruling in Reliance
Petroproducts Pvt Ltd where it was held that penalty cannot be levied merely
because the Revenue rejects the taxpayer’s claim, when there was no allegation of
filing inaccurate or incorrect particulars by the taxpayer. The Tribunal ruled that the
taxpayer cannot be said to have furnished inaccurate particulars merely because
TNMM was not accepted by the Revenue. Accordingly, it held that the levy of penalty
was not justified.
ACIT vs Firmenich Aromatics ( India ) Pvt Ltd (2010 TII 17) (Mumbai)
Snippet
To inhibit companies from claiming
huge tax deductions on interest
payments, the Indian Government
is planning to introduce thin
capitalization rules. The Central
Board of Direct taxes (“CBDT”) has
set up a Committee which is
working on the recommendations in
this regard.
Source: Taxindiainternational
June 2, 2010
Income which is not attributable to operations in India cannot be considered for
determining tax at presumptive rate of 10 percent under section 44BB of the Act
The taxpayer entered into an agreement with an Indian company to carry out
transportation and installation work for oil well platform projects of ONGC Limited.
The taxpayer filed its return of income applying the presumptive rate of income of 10
percent under section 44BB of the Act. The taxpayer claimed that a portion of the
contract was not chargeable to tax in India, as it was performed outside India. The
Revenue rejected this argument holding that section 44BB of the Act does not make
any such distinction. On appeal, the Tribunal held that the receipts cannot be
included for the purpose of section 44BB of the Act. It held that section 44BB of the
Act did not override the charging provisions of the Act. It noted that the receipts
cannot be reasonably attributed to the operations in India and hence did not fall within
the charging provisions of the Act. Accordingly, the Tribunal ruled that the income on

account of work carried on outside India cannot be included in computing the liability
to tax of the taxpayer.
JDIT vs J Ray McDormott Eastern Hemisphere Limited (2010 TII 41) (Mumbai)
Capital gains on sale of Permanent Establishment asset in the course of winding up
is liable to tax
The taxpayer company, a tax resident of Mauritius, chartered its rig to an Indian
company for oil exploration operations. In the earlier years, it had claimed that the rig
constituted its Permanent Establishment (“PE”) and accordingly, it was liable to tax
only on a net basis after deducting depreciation, etc. In the relevant year, the
chartering contract expired and hence, it agreed to sell the rig to a third party. The rig
was delivered to the buyer in the international waters. The Revenue held that the
taxpayer was liable to tax on capital gains arising from the sale of the rig. On appeal,
the taxpayer contended that the sale was not liable to tax as it was executed in
international waters and that the PE had ceased to exist at the time of sale. The
Tribunal held that a PE is to be viewed as a profit centre independent from the nonresident
and held that the profits on sale of PE assets are also to be treated as the
profits of the PE. It held that it was not relevant that the sale was made outside India
as the rig was a PE asset and the sale was in the course of winding up the PE. It
held that the sale has to be treated as income deemed to have accrued or arisen in
India as the rig constituted a property, asset or source of income in India under the
Act. It held that capital gains arising on the sale of assets would be liable to tax even
without a PE in India. It further held that even under Article 13 of the India Mauritius
Tax Treaty, gains from the sale of moveable property forming part of the business
property of a PE in India is liable to tax in India. Accordingly, it held that the taxpayer
was liable to tax in respect of the sale of the PE asset.
Cartier Shipping Co Ltd, Cyprus vs DDIT (2010 TII 65) (Mumbai)
Snippet
The Central Board of Direct Taxes
(“CBDT”) has directed the Incometax
Department to make
arrangements for receiving income
tax returns on July 31, the due date
for filing tax returns by most
taxpayers. The Department has
also been asked to make special
arrangements by setting up
additional counters from July 28-31,
to facilitate taxpayers in filing their
income tax returns.
Source: Business Line
June 3, 2010
PE arises to a non-resident only if there was a right to use the place in India through
which its business is carried on
The taxpayer, a UK based company, entered into an agreement with Jet Airways to
carry out repair of aircraft components outside India and to provide stand-by spares
during the period of repair. The taxpayer maintained a stock of spares with Jet
Airways so that the stand-by spares could be readily used. The Revenue held that
receipts of the taxpayer on account of repair services and hire of stand-by
components were liable to tax in India on the basis that the taxpayer had a
Permanent Establishment (“PE”) in India, as its stocks were held by Jet Airways in
India. On appeal, the Tribunal held that in order to constitute a PE, three basic
criteria have to be satisfied ie, physical criterion (existence of physical location),
subjective criterion (right to use the place) and functionality criterion (carry out

usiness through that place). The Tribunal noted that the storage was under the
control of Jet Airways and the place was not available to the taxpayer for carrying on
its business from that place. It noted that the use of the place should not be confined
merely to performing the work for the owner of the premises, but should amount to
virtual projection of the non-resident enterprise in India. It held that Jet Airways
cannot be treated as a dependent agent of the taxpayer, as it did not hold stocks for
delivery for or on behalf of the taxpayer, but for its own standby use. Accordingly, it
held that the taxpayer did not have a PE in India under the Tax Treaty. Further it held
that even if there was a PE, the consideration relatable to the repairs done outside
India was not liable to tax as it was not attributable to the PE. However, it directed
the Revenue to examine if the consideration for the use of replacement spares would
be liable to tax on gross basis by treating it as Royalty for the use or right to use of
industrial, commercial or scientific equipment as per Article 13 of the Tax Treaty.
Airlines Rotables Limited, UK vs JDIT (2010 TII 52) (Mumbai)
Payment for testing services rendered abroad is liable to tax in India, in light of the
retrospective amendment to section 9 of the Act
The taxpayer, an Indian company, engaged a Chinese company to conduct bauxite
testing in China and provide the results thereof in the form of a report. The taxpayer
approached the Tax Officer under section 195 of the Act to allow payment to the
Chinese company without withholding of taxes. It contended that the payment was in
the nature of business income, which was not liable to tax in the absence of
Permanent Establishment (“PE”) for the non-resident. The Tax Officer held the
payment was liable to tax as `fees for technical services' (“FTS”) under the Act as
well as the India China Tax Treaty. On appeal to the Tribunal, the taxpayer
contended that the payment was not liable to tax as the services were rendered
outside India. However, the Tribunal rejected this argument on the basis of the
retrospective amendment to section 9 of the Act by Finance Act 2010, wherein it was
provided that the rendering of services in India was not required for charging to tax in
India consideration received for Technical Services. The taxpayer also referred to
the India China Tax Treaty, where FTS was defined as payment for the provision of
services of managerial, technical or consultancy nature by a Chinese resident in India
and argued that even as per the Treaty, the services could be charged to tax only if
services are rendered in India. However, the Tribunal negated the contention on the
basis that Article 12(6) of the Tax Treaty deemed that FTS would arise is India when
the payer is an Indian company. It held that if FTS is interpreted to mean only
services rendered in India, it would make the deeming clause as per Article 12(6)
meaningless. It further observed that the definition of FTS is wider in scope as it
provides for ‘provision of services’ instead of ‘rendering of services’. Accordingly, the
Tribunal ruled that the payment to the Chinese company for bauxite testing was liable
to tax in India.
Snippet
The government has set up two
Income Tax Overseas Units
(“ITOUs”) in Indian missions in
Singapore and Mauritius to facilitate
exchange of information and has
plans to constitute more units in
eight other countries, US, UK,
Netherlands, Japan, Cyprus,
Germany, France and UAE. The
ITOUs are set up with a view to
create a database of shell
companies operating out of foreign
jurisdictions which are used by
some Indian companies and corrupt
public servants for the purpose of
tax evasion.
Source: The Economic Times
June 10, 2010

Ashapura Minichem Ltd vs ADIT (2010 TII 51) (Mumbai)
Income from sale of shrink-wrapped software cannot be treated as royalty
The taxpayer, a tax resident of Mauritius, supplied off-the-shelf shrink wrapped
software purchased from manufacturers to customers in India. The Revenue held
that income from supply of software should be treated as royalty, which was
chargeable to tax in India. On appeal before the Tribunal, the taxpayer contended
that revenue was only from sale of copies of copyrighted articles, which cannot be
treated as ‘Royalty’ under the Act. The Revenue also relied upon the recent ruling of
the Karnataka High Court in Samsung Electronics Co Ltd. The Tribunal held that the
ruling of the High Court was confined to deduction of tax under section 195 of the Act
and was not on the issue as to whether the payment was software was royalty under
the Act. It referred to the ruling of the larger bench of Delhi Tribunal in Motorola Inc
and the Supreme Court ruling in Tata Consultancy Services and held that the
revenue from sale of shrink-wrapped software was to be treated as revenue from sale
of copyrighted products or goods, which cannot be considered as royalty under the
Act.
Velankani Mauritius Ltd vs DDIT (2010 TII 64) (Bangalore)
Consideration received for license to use software cannot be treated as royalty
The taxpayer, a tax resident of Israel supplied and licensed its software to an Indian
Company. It claimed its revenues to be in the nature of business profits, which were
not liable to tax in Indian as the taxpayer did not have a Permanent Establishment
(“PE”) in India. The Revenue held that the income received was for ‘use of software’,
which was to be treated as “royalty” under the India Israel Tax Treaty. On appeal, the
Tribunal observed from the relevant agreements that the taxpayer had not transferred
any copyright or any right over the software, but only transferred a right to use the
software. It also referred to the meaning of the term ‘copyright’ under the Copyright
Act, 1957 and held that the right to use the software granted by the taxpayer cannot
be treated as a copyright. It noted that the customers did not gain any right to
duplicate the software; or to issue copies of software in public, or to give the copies in
rent or to even modify the software. The license granted was a perpetual,
irrevocable, non-exclusive, worldwide license. It further noted that it was a settled law
that computer software transmitted on a media was to be treated similar to goods.
Accordingly, the Tribunal ruled that the revenue on the supply and licensing of
software by the taxpayer cannot be treated as royalty, but can only be treated as
business profits, which would not be liable to tax in the absence of PE as per the
relevant Tax Treaty.
DDIT vs TII Team Telecom International Ltd (2010 TII 62) (Mumbai)
Snippet
With the backdrop of the recent
accounting frauds which highlighted
the need for stricter norms, the
Government plans to enact the new
Companies Act this year which
promises more shareholder
democracy and tighter governance
norms for corporates.
Source: The Economic Times
June 9, 2010

A taxpayer can be treated as a representative assessee even if it had deducted tax at
source, but cannot be assessed as an agent if the non-resident is assessed on the
same income
The taxpayer, an Indian company purchased shares of another Indian company from
a Canadian Company. The taxpayer withheld more than 10 percent of the capital
gains, pursuant to an order passed by the Revenue on the basis of an application by
the Canadian Company to determine the rate for withholding taxes. The Canadian
Company filed its return of income, which was subsequently assessed by the
Revenue determining the tax at 20 percent of capital gains. On appeal, the Tribunal
determined the tax to be 10 percent of the capital gains. While the assessment
proceedings were pending against the Canadian Company, the Revenue passed an
order under section 163 of the Act treating the taxpayer as an agent of the Canadian
company and initiated assessment proceedings against it in its capacity as an agent.
On appeal, the Tribunal upheld the order under section 163 of the Act after observing
that the conditions under the section were satisfied and rejected the argument that
the taxpayer could not be treated as an agent as it had withheld the requisite taxes.
It further held that there is no time limit for initiating proceedings under section 163 of
the Act. However, the Tribunal, taking note of its own order in the case of the
Canadian company, ruled that once the income is assessed in the hands of the
Canadian Company, the same cannot be assessed in the hands of the taxpayer
treating it as an agent. It observed that the Revenue had the choice to either assess
the non-resident principal or the representative assessee and once the choice was
made, it cannot pursue with the other assessment. Accordingly, it cancelled the
order of assessment against the taxpayer.
Hindalco Industries Limited vs DCIT (Unreported) (Mumbai)
Tax benefits cannot be denied in a scheme of arrangement if all the conditions of
amalgamation under the Act are fulfilled
The taxpayer an Indian company held 66 percent shares in Lakshmi Auto
Components Ltd (“LAC”). LAC merged into the taxpayer company with effect from
April 2, 2003, with its business (as in existence on that date), including shares held by
it in another company, SAC (which was acquired as a result of an earlier slump sale
made by it to SAC). The shares held by the taxpayer in LAC were cancelled as a
result of the amalgamation. The scheme was sanctioned by the Madras High Court.
Prior to receiving the Court order, but after April 2, 2003, LAC had declared dividend
and paid Dividend Distribution Tax (“DDT”) thereon. The taxpayer claimed that
amalgamation of the remaining business of LAC had to be treated as an
“amalgamation” under the Act. Further, it claimed credit for the DDT proportionate to
the dividend received by it from LAC, as LAC ceased to exist and was only acting for
and on behalf of the taxpayer after April 2, 2003. However, the Revenue held that it
Snippet
The Planning Commission has
started reviewing the Shops and
Establishments Act which regulates
the working hours of employees,
number of days the establishment
should remain closed, weekly off,
how much overtime work
employees are permitted to do, etc.
The Government has sought
comments from industry players for
amending the same. Clauses
dealing with working hours and
days are expected to be amended.
Online registration of shops and
granting online certification are also
proposed in order to avoid
corruption and to expedite the
process of registration of shops and
establishments.
Source: Business Standard
June 22, 2010

was only a scheme of arrangement under sections 391 to 394 of the
Companies Act, 1956, which cannot be treated as an amalgamation for the purpose
of the Income-tax Act as all the assets and liabilities of LAC were not transferred to
the taxpayer. Accordingly, the Revenue taxed the capital reserve arising upon the
amalgamation, denied the taxpayer’s claim for DDT credit and rejected the taxpayer’s
claim for depreciation on the written down value of assets with LAC. On appeal, the
Tribunal noted that the Revenue did not point out any assets or liabilities which were
not taken over by the taxpayer. It noted that all assets and liabilities, which remained
after the slump sale, were transferred by LAC. It further noted that there was no
finding in the assessment order as to the existence of any motive to avoid tax.
Accordingly, it held that the amalgamation of LAC with the taxpayer had to be treated
as an amalgamation for the purposes of the Act as well and that the corresponding
benefits cannot be denied.
ACIT vs TVS Motor Company Ltd (36 DTR 89) (Chennai)
Issue of whether a unit was formed by splitting up or reconstruction can be raised
only in the first year of claiming the deduction
The taxpayer claimed deduction under section 80IA of the Act from the Financial
Year (“FY”) 2003-04 onwards. During the course of audit for the FY 2005-06, the
Revenue held that its internet telephony business was formed by reconstruction or
splitting up of a business already in existence and on that basis denied the claim of
deduction under section 80IA of the Act. On appeal the Tribunal held that restriction
that a unit cannot be formed by splitting up or reconstruction applied only in the first
year of claim at the time of formation of the undertaking. Once the Revenue accepts
an undertaking to be eligible for deduction under section 80IA of the Act in the initial
year, such finding becomes final and held that the deduction cannot be denied for the
subsequent years.
Tata Communications Internet Services Ltd vs ITO (130 TTJ 509) (Delhi)
An entity cannot be a conduit company merely because it is a tax resident of a
country with which India has a favourable tax treaty
The taxpayer, a Netherlands company, is a wholly owned subsidiary of STAR Ltd,
Hong Kong. The taxpayer was granted exclusive rights of sale of advertisement time
in India on the channels of Star TV network. The taxpayer engaged an Indian
company as an agent to procure businesses in India for a commission of 15 percent
of gross receipts. The taxpayer offered its income to tax at 10 percent of the gross
receipts based on Central Board of Direct Taxes (“CBDT”) Circular No 742, which
was then in force. During the course of audit, the Revenue treated the taxpayer as a
conduit company and that the income actually belonged to STAR Ltd, Hong Kong
and determined the tax at 20 percent of gross revenue. The Revenue also denied
Snippet
The Finance Ministry has initiated a
move to revise the tax information
exchange clauses under the
existing Tax Treaties to include
fresh details while sharing bankrelated
information of individuals
and other entities with a view to
curb illegal stashing of money by
individuals and others in foreign
shores. The Government has
approached 65 countries, including
Switzerland and tax haven nations
in this regard.
Source: The Economic Times
June 27, 2010

the benefit of Circular No 742 on the ground that the taxpayer is not a telecasting or
broadcasting company. On appeal before the Tribunal, the Tribunal rejected the
arguments of the Revenue that the taxpayer was a mere conduit established for
availing favourable tax treaty. It observed that STAR group has centralised its
advertisement sales operations on a global basis and that it was not based on Indian
tax considerations. Further, the Tribunal held that since the Indian agent has been
fairly remunerated for its services, there would be no further income liable to tax in
the hands of the taxpayer in India by relying on another Revenue Circular (No 23).
Importantly, the Tribunal also held that the subsequent withdrawal of Circular No 23
was only prospective.
STAR Advertising Sales BV vs ADIT (International Taxation) (2010 TII 58) (Mum)
Notifications and Circulars
Liberalization of time limit for realization and repatriation of export proceeds extended
The Reserve Bank of India (“RBI”) had issued Circular No 70 dated June 30, 2009
increasing the period of realization and repatriation to India of the amount
representing the full export value of goods or software exported from, six months to
twelve months from the date of export. This relaxation has been extended upto
March 31, 2011.
RBI Circular No 57 dated June 29, 2010
Maximum amount of gratuity exemption increased
The CBDT has enhanced the maximum amount of gratuity entitled to exemption
under section 10(10)(iii) of the Act from Three lakh fifty thousand rupees to Ten lakh
rupees.
Notification No 43 dated June 11, 2010
Easy Exit Scheme 2010 for defunct companies introduced
The Ministry of Corporate Affairs (“MCA”) has introduced the Easy Exit Scheme 2010
under section 560 of the Companies Act, 1956. The purpose of this scheme is to
provide an opportunity to the defunct companies for getting their names struck off the
Register of Companies by a simplified procedure. The schemes will be in operation
from 30th May, 2010 to 31st Aug, 2010. The MCA has also outlined the procedures
for applying for easy exit.
MCA Circular No 2 dated May 26, 2010
Snippet
Singapore has sought a more
liberal tax regime from India on the
lines of the one India has with
Mauritius, as the India-Singapore
trade and investment pact comes
up for review.
Source: The Economic Times
June 28, 2010
Threshold limit for public shareholding in listed companies increased

The Government of India has raised the threshold for public shareholding in listed
companies. The Government has notified that the minimum threshold level of public
holding to be 25 percent for all listed companies. In case the public shareholding in a
listed company falls below 25 percent at any time, such company should bring the
public shareholding to 25 percent within 12 months from the date of such fall.
PIB Press Release dated June 4, 2010
INDIRECT TAX
Excise
High Court decision
No liability to pay interest from the date of clearance in respect of duty paid on price
escalation
The Taxpayer cleared goods on payment of duty on the value at the time of
clearance. Subsequently, on account of price escalation, the taxpayer collected and
paid the duty on such escalation. The main issue which arose for consideration was
whether the taxpayer is liable to pay interest from the date of clearance of the goods
in respect of the additional duty paid. Since the taxpayer had paid the duty on the
supplementary invoice, the demand was raised only in relation to interest and penalty
for the delayed payment of duty.
The Court observed that the provisions of Section 11AB of the Central Excise Act,
1944 (“Excise Act”) is not applicable to the facts of the case since there has been no
determination of the duty nor there has been short, payment of duty under Section
11A(2B) of the Excise Act. The Court further observed that the price escalation was
due to the increase in input labour and other costs determined by the All India
Industrial Price Indices and by the Reserve Bank of India, that the taxpayer could not
foresee the escalation and thus the escalation had not taken place as on the date of
initial clearance of the goods. The Court thus held that interest and penalty was not
applicable. The Court also observed that the decision of the Supreme Court in SKF
India Limited is not applicable to the facts of the case.
CCE vs Bharath Heavy Electricals Ltd (2010 TIOL 437) (Karnataka)
Snippet
The State bank of India has set its
base rate at 7.5 percent following
which most of the large public
sector banks have set their base
rates at 8 percent. According to the
Reserve Bank of India directive,
banks have to follow the new base
rate system which replaces the
benchmark prime lending rate from
July 1, 2010.
Source: Business Line
June 30, 2010
Refund of Cenvat Credit eligible on export of exempted goods
The taxpayer was engaged in manufacturing and export of finished leather which was
subject to ‘Nil’ rate of duty. The taxpayer claimed refund of Cenvat Credit on inputs
used for the manufacture of finished leather exported. The Revenue rejected the
claim on the grounds that (i) finished leather was exempted goods and thus no

Cenvat Credit was eligible under Rule 6(1) of the Cenvat Credit Rules and (ii) the
exception provided in Rule 6(6) in respect of excisable goods exported under bond or
letter of undertaking (“LUT”) would not apply since such bond or LUT was not
required for export of exempted goods and (iii) the term “excisable goods” used in
Rule 6(6) of the Cenvat Credit Rules would not include exempted goods.
The Court observed that the term “excisable goods” was wider to include dutiable
goods and exempted goods as held by the Bombay High Court in Repro India Ltd.
The Court considered the exception clause and held that the taxpayer was eligible to
avail Cenvat Credit on inputs used in the manufacture of finished leather exported
and also claim refund.
CCE vs Drish Shoes Ltd (254 ELT 417) (HP)
Tribunal decisions
Clearance by domestic manufacturer to EPCG licence holders not exempt from
excise duty
The taxpayer was engaged in the manufacture of textile machinery. The taxpayer
sold certain parts to EPCG Licence holders without payment of excise duty on
invalidation of EPCG Licence. The Revenue demanded excise duty and imposed
penalty for non payment of excise duty. The taxpayer relied on (i) a Circular issued
by Ministry of Commerce (“Circular”) in the context of 100 percent Export Oriented
Units (“EOUs”) to clear goods against EPCG Licence at concessional rate of duty and
(ii) the provisions of Foreign Trade Policy (“FTP”) treating such clearances as
deemed exports.
The Tribunal observed that (i) the Circulars and clarifications issued in the context of
EOUs cannot be applied to a domestic manufacturer and that (ii) the provisions of
FTP provided for refund of terminal excise duty in such cases and not an exemption.
In the absence of specific provisions or exemption notification under the Central
Excise law for supplies made against invalidation of EPCG Licence, the Tribunal held
that the demand was justified. However, the Tribunal set aside the penalty since the
clearances were made with the knowledge and approval of the department and both
sides interpreted the provisions of law wrongly.
Rimtex Industries vs CCE (254 ELT 116) (Ahmedabad)
Cenvat credit on inputs lying in stock can be denied when taxpayer opts for area
based exemption
Snippet
Prime Minister has ruled out the
imposition of a tax on capital flows,
referred to as Tobin Tax, saying
that portfolio and direct investment
into India were manageable and
that there is no requirement to
impose Tobin Tax.
Source: Business Standard
June 30, 2010
The taxpayer a manufacturer of medicament is located in the State of Himachal
Pradesh. The taxpayer opted for the area based exemption under a notification
issued by Revenue. The issue arose for consideration as to whether the Cenvat

credit availed on the inputs being in stock on the day the taxpayer opts for exemption
from payment of duty is required to be reversed. The taxpayer contended that (i) the
credit was used for payment of duty on final products cleared prior to opting for the
exemption and thus, credit was validly taken and utilised (ii) there was no specific
provision in the law or the exemption notification denying the credit and (iii) even
otherwise, in respect of inputs used in finished goods cleared for export under bond,
credit is eligible. The Tribunal held that credit was not eligible and observed as
follows:
(i) The inputs on which credit is availed must be used in the manufacture of final
dutiable product. Till there is complete utilization of both the input and the
credit, there is no lawful availment and utilization of credit. This is irrespective
of the principle that there is no co-relation between inputs on which credit is
availed and the final product in respect of which credit is used for payment of
duty.
(ii) Even if there is no specific provision for lapsing of credit, credit is not eligible
if inputs are used in manufacture of exempted goods.
(iii) The adjudicating authority shall consider the claim with regard to export of
goods under bond.
The Tribunal significantly observed that the decision of the Supreme Court in the
case of Dai Ichi Karkaria that no one to one correlation between inputs and final
product was required, was rendered in the context of valuation of goods (whether
credit should form part of cost of goods) and has to be applied in that limited context.
Ranbaxy Laboratories Limited vs CCE (253 ELT 578) (Delhi)
Customs
High Court decision
Provisions of law would prevail over Circular
The taxpayer imported second hand machinery from related party and sought for
assessment on the basis of the declared invoice value. The Revenue did not assess
the bills of entry or permit clearance of the goods. The taxpayer filed a writ petition
seeking for clearance of goods by accepting the transaction value. The taxpayer also
challenged Circular No.4/2008-Cus, dated February 12, 2008 laying down guidelines
regarding valuation of second hand machinery in so far as it provided that the
declared value should be rejected if it is lower than the value determined on the basis
of depreciation.
Snippet
Unique Identification Authority of
India (“UIDAI”) has informed the
finance ministry that IT
infrastructure for the Goods and
Services Tax (“GST”) would have to
be rolled out on a priority if the
Government intends to introduce
the proposed indirect tax by April
2011. It added that the Central and
the State Governments could not
work in isolation on IT infrastructure
for GST and there should be a
platform where the States’ IT team
and the Centre’s IT team interact
with each other and meet on a
regular basis to share their views.
The Centre had started to upgrade
the IT infrastructure simultaneously
and uniformly in all the states.
Source: Business Standard
June 1, 2010

The Court observed that it was premature for the court to dwell on the contentions
and directed the proper officer to adjudicate the issue and assess the bills of entry
with immediate effect to enable the taxpayer to clear the goods. The Court, however,
observed that the provisions of the law and the judicial precedents should not be
ignored and directed the proper officer to independently consider the merits of the
case notwithstanding the Circular.
Bosch Limited vs Union of India (253 ELT 730) (Bombay)
Tribunal decision
Refund of export duty does not attract provisions of unjust enrichment
The taxpayer’s claim for refund of excise duty paid on export was allowed on merits
but the amount was directed to be credited to the consumer welfare fund under
section 27(2) of the Customs Act, 1962 (‘Customs Act”) on the ground that the
incidence of duty was passed on to the buyer.
The Tribunal held that refund of export duty is covered under section 26 of the
Customs Act and thus the provisions of unjust enrichment in section 27(2) of the
Customs Act would not apply. The Tribunal observed that the taxpayer was not
required to establish in such cases that he has not passed on the incidence of duty to
any other person. The Tribunal also observed that the Bangalore Tribunal had
overlooked this aspect while holding in the case of Ken Agritech Pvt. Ltd that unjust
enrichment provisions would apply to refund of cess paid on export.
Rajkumar Implex Pvt. LTD vs CC (253 ELT 795)(Chennai)
Service Tax
High Court decisions
Where courier agents paid service tax on the service charges received from
customer, tax cannot be demanded again on the principal
The taxpayer was providing courier service by engaging agents/franchisees
(“agents”) who collected the service charges from the customers along with the
applicable service tax and also remitted the service tax to the Government under the
category “courier service”. The entire service charges collected by the agents were
passed on to the taxpayer who shared an agreed portion of the consideration with the
agents. The Revenue demanded service tax on the net amount retained by the
taxpayer under “franchise service”.
Snippet
The Centre considers on framing
rules that would allow migration of
units from one Special Economic
Zone (“SEZ”) to the other since

The Court observed that the entire service charges recovered from the customers
was subject to service tax in the hands of the agent and the same service charges
cannot be taxed again in the hands of the taxpayer under another head. The Court
further observed that (i) the agents were not doing independent business but were
acting only as agents of the taxpayer (ii) the taxpayer did not render any service to
the agents and (iii) the agents do not make any payment to the tax payer; rather they
get paid for the work done for the taxpayer. The Court thus held that the taxpayer
cannot be assessed under “franchise service”.
Speed & Safe Courier Services (P) Ltd vs CCE (26 STT 139) (Kerala)
Services provided by a company not taxable under “consulting engineer service” prior
to May 1, 2006
The taxpayer, a registered Indian Company, was rendering services like design
development, design review, installation and commissioning, technology transfer for
study and design of oil free compressor systems etc. The Revenue sought to levy
tax on the above activities under “consulting engineer service”. The Tribunal set
aside the levy and held that the contracts entered into by the taxpayer were “works
contracts”.
there is no specific provision for
transfer of a unit from one SEZ to
the other. The Board of Approval is
scheduled to take up the matter in
its next meeting. The Government
last month had relaxed norms
allowing employees of IT units in
SEZs to carry out their duties even
if they were at home or outside
location.
Source: Economic Times
June 1, 2010
On appeal by the Revenue, the Court held that during the period under consideration
(prior to May 1, 2006), services rendered by a company were not included under the
definition of “consulting engineer” and thus the taxpayer was not liable to service tax.
The Court further held that the service provided by the taxpayer was in the nature of
“works contract service” which became taxable only with effect from June 1, 2007and
not earlier.
CST vs Turbotech Precision Engineering Pvt Ltd (18 STR 545) (Karnataka)
Delcredere agent not liable to service tax as a clearing and forwarding agent prior to
June 16, 2005
The taxpayer was acting as a Delcredere agent. The Revenue demanded service tax
on the taxpayer under “Clearing and Forwarding agency service”. The Court
considered the dictionary meaning of “Delcredere agent” and the definition under the
Finance Act, 1994 of “Clearing and Forwarding agent” and “commission agent”
(under business auxiliary service as amended from June 16, 2005) and held that the
services provided by the taxpayer as a delcredere agent was not liable to service tax
prior to June 16, 2005.
CST vs Sreenidhi Polymers Pvt ltd (2010 TIOL 377) (Karnataka)
Tribunal decisions

Construction of pipelines for water supply projects of Government agencies not liable
to service tax under “Commercial or Industrial construction service”
The taxpayer, a construction company, executed contracts for laying of long distance
pipelines for State water supply board (“Board”). The Revenue demanded service
tax on the contracts under “Commercial or industrial construction service”. The
taxpayer contended that the service was not taxable since the Board was not
engaged in trade or commerce for profit and thus the service was not for use in
commerce or industry. The taxpayer also contended that activity was a “Works
Contract” liable to service tax only from June 1, 2007. The Revenue contended that
the Board was in the business of purchase and sale of water and thus not engaged in
social service.
The Tribunal observed that the Board discharges an important duty and responsibility
of the Government to provide drinking water to the people residing in its jurisdiction
and thus the pipelines were not laid to facilitate any commercial or industrial activity.
The Tribunal further observed that the Revenue had accepted that the activity was a
composite contract and thus levy of service tax on works contract during the period in
dispute under “Commercial or Industrial construction service” was contrary to the
ratio of the decision of Tribunal in the case of Diebold Systems (P) Ltd.
Nagarjuna Construction Company vs CCE (2010 TIOL 789) (Bangalore)
Trading is not a service, but Cenvat credit attributable to trading is not allowable
The taxpayer had availed input services which were used both in providing taxable
services and trading activity. The Revenue contended that credit of input services
used for trading activity was not available to the taxpayer and that separate accounts
was required to be maintained under Rule 6(3) of the Cenvat Credit Rules, 2004
(“Cenvat Rules”).
Snippet
The Government may not propose
a new Fourth List in the
Constitution to deal with the muchanticipated
Goods and Services
Tax (GST). The Union law ministry
would either change the existing
Article 246, which empowers the
three lists, or it would introduce a
new article. The Constitution might
have a few sentences empowering
both the Centre and the state to
levy tax on all goods and services,
except a few items which would be
mentioned there. The tax rate,
goods and services which will
attract GST, exempted under GST
will be listed in the GST legislation.
Source: Business Standard
June 7, 2010
The Tribunal held that (i) trading activity is not a service but purchase and sales and
is covered under sales tax law and (ii) separate accounts were not required since the
trading activity was not an exempted service. However, the Tribunal held that
taxpayer is not eligible for credit on input services attributable to trading. Since there
was no provision to cover such situations the Tribunal held that the taxpayer can
deduct the quantum of input service tax credit attributed to trading activities according
to standard accounting principles on a periodic basis and avail the balance. The
Tribunal remanded the case to lower authorities to quantify the ineligible credit.
Orion Appliances Ltd vs CST (2010 TIOL 752) (Ahmedabad)
Remittance of tax by the input service provider is not a condition for service receiver

to claim Cenvat credit
The issue before Tribunal was whether payment of service tax by the input service
provider is a prerequisite for claiming refund in respect of input services used for
providing output services exported.
The Tribunal observed that credit is allowed in respect of input service on or after the
day on which payment for the value of input service and the service tax are made and
the Rules do not contemplate that availment of credit should await actual payment of
service tax on the input services. Since the bonafides of the transaction was not in
question and the taxpayer had paid the value of input service and service tax as
indicated in the invoices, the Tribunal held that the taxpayer was eligible for Cenvat
credit and consequently refund of the accumulated credit.
Lason India Pvt Limited vs CST (18 STR 626) (Chennai)
Catering service is not used in or in relation to manufacture and thus not eligible for
Cenvat credit
The issue before the Tribunal was whether Cenvat credit was eligible on outdoor
catering service. The Tribunal observed that section 37 of the Central Excise Act,
1944 empowers the Government to make rules to provide for credit of duty or service
tax on goods and services “used in or in relation to the manufacture” of excisable
goods and the rules cannot provide to the contrary. The Tribunal further observed
that the decision of the larger bench in GTC industries had been negated by the
decision of the Supreme Court in the case of Maruti Suzuki Limited wherein it was
held that mere inclusion of the value of service in the assessable value of the final
product will not entitle a manufacturer to take credit. The Tribunal held that the tests
laid down by the Supreme Court in the context of inputs ‘used in or in relation to the
manufacture' would apply to input services also and that outdoor catering service did
not meet the tests and cannot be considered as an eligible input service for credit.
Considering the nature of dispute involved, the Tribunal set aside the penalties.
CCE vs Sundaram Brake Linings Ltd (2010 TIOL 863) (Chennai)
Garden maintenance is statutory requirement and eligible for Cenvat Credit
The taxpayer availed Cenvat credit of service tax paid on ‘manpower supply service’
towards canopy, house keeping, sundry and civil maintenance of gardens. The
Revenue denied credit on the ground that service tax paid on the maintenance of
gardens does not come under the purview of input service used in or in relation to
manufacture of final products.
The Tribunal observed that as per the State Government regulations, the taxpayer
Snippet
The Centre and states may settle
for a common threshold of Rs 10
lakh for imposition of the levy. The
Empowered Committee (“EC”) had
called for fixing the threshold for
Central GST at the present level of
Rs 1.5 crore, and to raise it to Rs
10 lakh for state GST. The Centre
had opposed the proposal, stating
that GST would be a combined tax
regime and the thresholds should
be the same for both, States and
the Centre, whereas the EC had
maintained its view that the
threshold for the Centre should be
higher than that for states. It
appears now that the Centre has
told the States that it would like to
keep its threshold at Rs 10 lakh.
The Union finance ministry said
small businesses below Rs 1.5
crore could be compensated by
simplifying and reducing the
paperwork for them, not required to
file returns frequently and simplified

was statutorily bound to maintain the garden within the factory premises and thus the
ratio of the Mumbai High Court in the case of Coca Cola India Limited was
applicable. The Tribunal distinguished the earlier decisions denying the credit on
garden maintenance since in those cases there was no finding on any statutory
requirement of maintaining the garden.
Brakes India Ltd vs CCE (2010 TIOL 817) (Bangalore)
registration process besides
prescribing a minimum audit, based
on risk parameters.
Source: Business Standard
June 21, 2010
Construction of compound wall is eligible for Cenvat credit
The taxpayer availed Cenvat credit of duty paid on input services in respect of
construction of a compound wall of the factory. The Revenue denied the credit on
the ground that the compound wall was not directly or indirectly related to the
manufacturing activity.
The Tribunal allowed the credit since the compound wall was an integral part of the
factory and any goods lying within the compound wall would be considered as lying
within the factory.
CCE vs Raymond Zambaiti Pvt Ltd (18 STR 734) (Mumbai)
Procurement of orders and bill collection is in relation to business and eligible for
Cenvat Credit
The taxpayer had engaged various agencies for procurement of sale orders and
collecting payment from the customers. Based on the invoices from theses service
provider the taxpayer had availed Cenvat credit. Revenue denied the credit on the
grounds that (i) services of collection of payment are not covered under the definition
of input services (ii) bill collection service was not a taxable service during the period.
The Tribunal observed that (i) the contention that the bill collection was not taxable
was not raised in the Show Cause notice or in the adjudication order and thus cannot
be raised before the Tribunal and that (ii) while considering the Cenvat credit on the
basis of invoices issued, the assessment at the end of service provider or input goods
manufacturer cannot be reopened. Relying on the decision of the Larger Bench in
the case of GTC industries Ltd and the decision of the Bombay High court in the case
of Coca Cola India Private Limited, the Tribunal held that the service is in relation to
business and hence covered in the definition of input service.
Nav Bharat Tubes Ltd vs CCE (18 STR 470) (Delhi)
Date of realization affixed in challan issued by bank to be considered for levy of
interest if date of presentation is not available
The taxpayer paid interest on delayed payment of service tax up to the date of
presentation of cheque. The Revenue demanded interest up to the date of
Snippet
Maharashtra Government has
issued a Resolution proposing to
levy entertainment tax on Indian
Premier League (“IPL”) matches.
The Government had proposed 25
percent on matches played within
the municipal corporation limits, 15
percent within municipal council
limits and 10 percent in rural areas.

ealization of the cheque as affixed by the bank on the challan. The Tribunal
considered Rule 6(2A) of Service Tax Rules, 1994 and Circular No.137/167/2006-
CX-4 dated October 3, 2007 and held that the date of presentation of cheque shall be
deemed to be date on which service tax is paid. However, since the taxpayer did not
have any evidence with respect to date of presentation of the cheque, the levy of
interest upto the date of realization (as affixed by bank on the challan) was upheld.
However, the Tribunal set aside the penalty levied under Section 76 of Finance Act,
1994 (“Finance Act”) on the ground of bonafide belief, by invoking section 80 of the
Finance Act.
UB Engineering Ltd vs CCE (2010 TIOL 732) (Ahmedabad)
VAT / CST
The proposed tax would be
imposed during the next season of
the IPL. The state cabinet gave its
consent for the same. The
Government would make a
submission in this regard before the
Bombay High Court which would
restart hearing on a writ petition
filed.
Source: Business Standard
June 22, 2010
High Court decisions
Transfer of goods to agents in other States, which are sold on same day or next day,
are not inter-state sales
The issue which arose for consideration was whether the sale made by the taxpayer
through an agent in Kerala is a consignment sale (stock transfer) or inter-state sale.
The Revenue treated the transaction as an inter-state sale since the goods were sold
in the other State within a day or two, which cannot be effected without there being
any pre existing order for such sale. The Court observed that the taxpayer had
furnished the declaration in Form F and various materials to prove that the
declaration was true. The Court also observed that in the absence of any
incriminating material contrary to the particulars provided by the taxpayer, the
Revenue cannot hold that the declaration in Form F is incorrect.
The Court accepted the view of the Tribunal that the transaction was a consignment
sale (stock transfer) basis the decisions of the High Court in the case of Delhi Iron &
Steel Co Ltd and Jindal Aluminium Ltd, wherein it was held that a mere sale
transaction effected by the agents on the very same day of arrival of the goods from
other State in itself cannot be the sole basis to treat the same as inter-state sale.
Since the Court was considering a writ petition, the Court declined to interfere with
the order of the Tribunal which was based on materials on record.
State of Tamil Nadu vs Coimbatore Pioneer Rolling Mills and Another (30 VST
524) (Madras)
Physical transfer of goods to consignment agents within the State without transfer of
property in goods would not amount to sale
The taxpayer was a registered dealer in Delhi and appointed a consignment agent
Snippet
The Institute of Company
Secretaries of India has entered
into a memorandum of
understanding with the Central
Board of Excise and Customs to
enable company secretaries to set
up Certified Facilitation Centres
(CFCs) under the Automation of
Central Excise and Service Tax
(ACES) project, which would
facilitate e-filing of returns and other
documents by assessees of Central
Excise and Service Tax along with
associated facilitation on payment
of specified fees. CFC would be
operated by a practising company

(“agent”) within Delhi for sale of goods. The agent sold the goods on behalf of the
taxpayer and deposited the tax on their behalf. The taxpayer availed input tax credit
(“ITC”) on goods sold through the agent. The Revenue levied value added tax
(“VAT”) on the value of goods transferred to the agent under the Delhi Value Added
Tax Act, 2004 (“DVAT Act”) and also rejected the claim of ITC. The Revenue relied
on an Advance Ruling issued under the DVAT Act by the Commissioner which stated
that (i) the agent was a dealer under the DVAT Act (ii) VAT should be levied on all
intra state transfer of goods to agent within Delhi on consignment basis and (iii) the
agent is eligible to claim ITC for the taxes paid to the principal. The taxpayer filed a
writ petition against the order of the Tribunal rejecting the taxpayer’s claim.
secretary to whom a certificate is
issued under the ACES project.
Source: Business Line
June 29, 2010
The Court considered the terms of agreement between the taxpayer and the agent
and observed that the title/ownership to the goods remained with the taxpayer and
the agent was carrying out the sale for and on behalf of the taxpayer for commission.
The Court held that mere physical “transfer of goods” to the agents without “transfer
of property” in the goods would not amount to sale under the DVAT Act and
consequently would not be liable to VAT. The Court set aside the Advance Ruling to
this extent and also observed that the Advance Ruling cannot be the basis for levy of
VAT on a transaction which does not constitute a sale.
Havell’s India Ltd vs Commissioner of Value Added tax and Another (31 VST
20) (Delhi)
Notifications and Circulars
Excise
Facility of export under bond not available to exempted goods/goods chargeable to
nil rate of duty
Notification No 42/2001 of June 26, 2001 has been amended to provide that facility of
export of excisable goods under bond will not be available to goods which are
chargeable to nil rate of duty or are wholly exempted from payment of duty since
there is no question of exporting under bond if there is no excise duty. However,
goods cleared by a hundred per cent export-oriented undertaking is not required to
export goods under bond and would not be subjected to this restriction.
Circular No. 928/18/2010 dated June 28, 2010
Customs
Snippet
The Union finance ministry has
agreed to states’ demand that
tobacco be kept within the ambit of
GST but an additional excise duty
will be levied and alcohol,
petroleum, electricity will be outside
it. The States have agreed to keep
purchase tax under GST as the
compensation would be for the
initial 3 to 4 years and would be
mainly required in case of goods,
because most services are below
an annual turnover of Rs 1 crore.
Customs duty exemption for import of goods from Vietnam
Notification 153/2009 of December 31, 2009 provides exemption (partially/ fully) from
Source: Business Standard
June 30, 2010

customs duty when goods are imported into India from specified countries in
accordance with provisions of the Customs Tariff [Determination of Origin of Goods
under the Preferential Trade Agreement between the Governments of Member States
of the Association of Southeast Asian Nations (ASEAN) and the Republic of India]
Rules, 2009. The specified countries are Malaysia, Singapore and Thailand. The
Notification is now amended to include Vietnam in the list of specified countries.
Notification No. 65/2010-Customs dated June 1, 2010
Extension of time limit for claiming drawback of export of goods and re-export of
import of goods on payment of applicable fee
The proviso to Rule 6(1)(a) of Customs, Central Excise Duties and Service Tax
Drawback Rules, 1995 is substituted to provide for extension of the period of claiming
drawback by a period of 3 months by the Assistant Commissioner/Deputy
Commissioner concerned on payment of application fee equivalent to 1 percent of the
Free On Board (”FOB”) value of exports or Rs 1000/- whichever is less. A further
extension by the Commissioner concerned by a period of 6 months is provided on
payment of an application fee of 2 percent of the FOB value or Rs 2000/- whichever
is less. Similar amendment has been made in Re-export of Imported Goods
(Drawback of Customs Duties) Rules, 1995 on payment of prescribed fee.
Notification No. 48/2010-Customs dated June 17, 2010 and Notification No.
49/2010-Customs dated June 17, 2010
Determination of value of warehoused goods for payment of customs duty
The Board Circular has clarified that in case of warehoused goods, the sale value
after warehousing does not affect the valuation of the imported goods. The Board
clarified that sale value after warehousing cannot be considered to be the transaction
value since such sale is not made in the course of international trade.
The Circular also distinguished the transaction from a high seas sale, in which case,
the price paid by the last buyer has to be taken as the transaction value for the
purpose of calculation of duty.
Circular No. 11/2010 dated June 3, 2010
Measures prescribed to reduce fraudulent claim of refund of Special Additional Duty
The Circular has drawn reference to fraudulent claims under Notification No
102/2007-Cus of September 14, 2007 (“Notification”), which provides exemption to
importers by way of refund of 4 percent Special Additional Duty (“SAD”) on goods
imported and subsequently sold ‘as such’ on payment of VAT / CST. The Board has
clarified that if there is distinction in classification of the imported goods and final

products that are sold in the market on which VAT is paid, the benefit of the
notification should not be allowed to the importers. Further, it is clarified that
duplicate invoices substantiated by related transit passes and lorry receipt will not be
considered as valid documents for claiming refund.
Circular No. 15/2010-Customs dated June 29, 2010
Service tax
Levy of service tax on new services and grant of exemptions
The Government of India has notified the effective date of levy of service tax on new
services and modification of the scope of existing services as July 1, 2010. These
insertions and modifications were brought about by Budget 2010. Various other
Notifications granting exemptions/abatement from levy of service tax have been
issued on June 22, 2010.
For details please refer to our Tax Edge Special dated June 24, 2010
Exemption to advance payments received on new services prior to July 1, 2010
Exemption provided to new taxable services specified under Section 76(A) of the
Finance Act, 2010 in respect of advance payment received prior to July 1, 2010 for
services to be provided.
This exemption does not apply to (i) commercial training or coaching services and (ii)
renting of immovable property services since the scope of taxability of these services
has been extended with retrospective effect.
Notification No. 36/2010-Service Tax, dated June 28, 2010
Exemption to Airport services provided in respect of export of goods
Notification No 17/2009-ST of July 7, 2009 provides for exemption to exporters of
goods (by way of refund of service tax paid) on 17 specified services used for export
of goods. The services should be received by the exporter and used for the export of
goods and no Cenvat credit should be taken on these services.
Service provided by airports authority or any other person [under Clause
65(105)(zzm)] in any airport in respect of the export of goods is now added to this list
of exempt services.
Notification No. 37/2010-Service Tax, dated June 28, 2010
Commercial or industrial construction service – Exemption for specific services wholly

provided in port/airport
Exemption provided to commercial or industrial construction service when provided
wholly within the port or other port, for construction, repair, alteration and renovation
of wharves, quays, docks, stages, jetties, piers and railways.
Exemption provided to commercial or industrial construction service when provided
wholly within the airport.
Notification No. 38/2010-Service Tax, dated June 28, 2010 and Notification No.
42/2010-Service Tax, dated June 28, 2010
Air Ticket included in Invoice/bill/challan
Under Rule 4A (1) of Service Tax Rules, 1994, every person providing taxable
service in respect of the service provided or to be provided should issue an invoice,
bill or challan as the case may be should be serially numbered and contain the
prescribed information.
In the case of an aircraft operator providing the service of air transport of passengers,
invoice, bill or challan would include ticket issued in any form by whatever name
called whether or not containing the following particulars:
• registration number of the service provider,
• classification of the service received, and
• address of the service receiver
However, the other prescribed particulars should be specified in the ticket
Notification No. 39/2010-Service Tax, dated June 28, 2010
Abatement for port/other port/airport services
Under Notification No. 1/2006-ST of March 1, 2006, the taxpayer has the option to
pay service tax on the prescribed percentage of the gross amount charged, subject to
conditions.
In respect of the following services, the option is now extended to services provided
in port/other port/airport (which are classifiable under port services/other port
services/ airport services consequent to amendment by the Finance Act, 2010).
Sl No. Description of service Percentage
1 Renting a cab 40

2 Erection, commissioning or installation 33
3 Transport of goods by road in a goods carriage 25
4 Commercial or industrial construction service 33
5 Commercial or industrial construction service (land 25
value included)
6 Construction of residential complex 33
7 Construction of residential complex (land value 25
included)
8 Transport of goods by rail 25
Notification No. 40/2010-Service Tax, dated June 28, 2010
Specific services provided within port/other port/airport exempt
Exemption provided to the following taxable services when provided wholly within the
port/other port/airport:
• cargo handling agency services in relation to, agricultural produce or goods
intended to be stored in a cold storage;
• Service provided by storage or warehouse keeper in relation to (i) storage and
warehousing of agricultural produce or (ii) any service provided for storage of or
any service provided by a cold storage;
• service in relation to transport of export goods in an aircraft by an aircraft
operator;
• Site formation and clearance, excavation and earthmoving and demolition and
such other similar activities.
Notification No. 41/2010-Service Tax, dated June 28, 2010
Disclaimer:
This newsletter has been prepared for clients and Firm personnel only. It provides general information and guidance as on date of preparation and does not express views
or expert opinions of BMR Advisors. The newsletter is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a
result of any material contained in this newsletter will be accepted by BMR Advisors. It is recommended that professional advice be sought based on the specific facts and
circumstances. This newsletter does not substitute the need to refer to the original pronouncements.
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