Undertaking - BMR Advisors

Ruling of the Mumbai Tribunal on meaning of the term“Undertaking” for the purpose of claiming tax holidayunder section 80IAThe Mumbai Income tax Appellate Tribunal (Tribunal) has recently passed aruling in the case of an Indian company (taxpayer) engaged in the business ofproviding international telecommunication services in India under a licensegranted by the Department of Telecommunication. Under the license, thetaxpayer commissioned two telecommunication earth stations and treated themas new undertakings and claimed tax holiday. The tax holiday was disallowedholding the earth stations to be part of the chain, involved in transmission of callsand therefore, not an independent undertaking eligible for tax holiday.The Tribunal observed that the concept of “undertaking” for tax holiday purposesis required to be interpreted as an independent unit engaged in a distinguishablecommercial activity which is capable of surviving independent of the existingbusiness. An “undertaking” may have its own physical identity by having separateassets like land, building, plant and machinery etc and have its own separatetechnology; but still may form part of the existing unit. In the present case, theearth station was not a functionally independent unit and could not commerciallyfunction without utilizing other systems involved in providing telecommunicationservices and therefore, was ineligible for tax holiday.This ruling assumes importance since the meaning of independence of anundertaking for claiming tax holiday has never been articulated before by anyjudicial authority.Pre-loaded operating systems form an integral part oflaptopsFeedbackContentsDIRECT TAX. . . . . . . . . . . . . . . .Case Laws. . . . . . . . . . . . . . . . . .Notifications & Circulars. . . . . . .INDIRECT TAX. . . . . . . . . . . . . .Case Laws. . . . . . . . . . . . . . . . .Notifications & Circulars. . . . . . .OTHER ALLIED LAWS. . . . . . . .For more information on this topic, contact:Bobby Parikh, MumbaiPhone: +91 22 3021 7010Email ID:bobby.parikh@bmradvisors.comMukesh Butani, New DelhiPhone: +91 11 3081 5010Email ID:mukesh.butani@bmradvisors.comAbhishek Goenka, BangalorePhone: +91 80 4032 0100Email ID:abhishek.goenka@bmradvisors.comThe issue before the Supreme Court was to determine assessable value oflaptops with hard disk drives loaded with operating software. Software importedas such was classifiable under tariff heading 85.24 and attracted nil rate of importduty. Laptops were classifiable under tariff heading 84.71 and attracted importduty at specified rate.The Supreme Court held that pre-loaded operating software in a laptop, if notimported separately, would not be classified under tariff heading 85.24. Preloadedoperating software in laptop forms an integral part of the laptop as alaptop cannot work without its operating software. Such pre-loaded operatingsoftware would thus get classified as a laptop under tariff heading 84.71 and theassessable value of laptop would include value of software.Contributors to this edition:Direct taxPrerna MehndirattaG. Chandra ShekharIndirect taxMalini MallikarjunKaustav SenSumeet Kaur

DIRECT TAXCase LawsSupreme Court DecisionsAn expenditure will constitute current repairs if it is incurred to ‘preserve andmaintain’ an already existing asset and not to bring a new asset into existence orto obtain a new advantageThe taxpayer, engaged in the manufacture of yarn, installed 3 ring frames in itstextile mill and claimed the expenditure as Revenue expenditure under section31(i) of the Income tax Act, 1961(Act). The taxpayer contended that the entiretextile mill was a plant and ring frames were one of the 25 machines, whichconstituted a single plant. Hence, replacement of frames should be treated asreplacement of a portion of the plant and not replacement of the entiremachine. The Assessing Officer (AO) held that the frame replaced was anindependent machine and each such frame was capable of performing anindependent and specific function. Accordingly, replacement of machineryresulted in an enduring benefit and the corresponding expenditure was of capitalnature. On appeal, the order of the AO was reversed.Finally, the Supreme Court observed that an expenditure would qualify as“current repairs” if it is incurred to ‘preserve and maintain’ an already existingasset. Such expenditure should not bring into existence any new asset or anadvantage of an enduring nature. The Supreme Court agreed with theobservation of the AO that each ring frame was a separate machine capable ofperforming independent functions. The Court held that in the present case theexpenditure was incurred to purchase a new machine and not to replace part ofan existing machine. Accordingly, such expenditure will not qualify as currentrepairs under section 31(i) of the Act.CIT vs Saravana Spinning Mills Private Limited (163 Taxman 201) (SC)SnippetThe employee stock option plan (ESOP)valuation norms for listed companies arelikely to be based on the opening and closingprice of the scrip on the day ESOP vests withthe employee. If the stock has not witnessedany trading that day, the last traded pricescould be used as the fair market value(FMV). The fringe benefit tax (FBT) would belevied on the difference between the price atwhich the employee gets the option and FMV.The date of vesting of ESOP will be the pointof valuation and its exercise date will be thepoint of taxability.In case of unlisted companies, the income taxdepartment is considering a formula, whichwill consider the book value of the companyas the base, and then use a multiplier. Toarrive at FMV, the book value would beincreased by a multiplier, benchmarked to theaverage earnings per share and share priceof listed entities in that industry. The FMV,arrived at for computing the value of fringebenefits, will also be used for computingcapital gain arising from transfer of specifiedsecurity or sweat equity shares.Source: Economic Times, September 10,2007Recovery of shortfall in tax deduction cannot be made once tax has been paid bythe payeeThe taxpayer paid certain sum to a vendor after deduction of taxes. The AO uponassessment determined a shortfall in tax deduction. The AO raised a demand onthe taxpayer for deposit of the shortfall along with applicable interest undersection 201(1A) of the Act. The taxpayer contested the demand, inter-alia, on theground that since the vendor had included the corresponding income in his taxreturn and has paid applicable taxes thereon into the Government treasury, taxon such income should not again be recovered from the taxpayer.On appeal, the Supreme Court held that in view of Circular No. 275 datedJanuary 29, 1997, demand for recovery of shortfall in tax deduction cannot bemade once tax has been paid by the deductee/payee. However, the taxpayershall be required to pay interest under section 201(1A) for the period till the dateof payment of taxes by the payee.Hindustan Coca Cola Beverage (P) Limited vs CIT (2007 163 Taxman 355)(SC)High Court DecisionsAmount paid for advice sought to be allowed as a deduction, even where such

advice is verbal and not in writingThe taxpayer had entered into an agreement for seeking advice and guidance inrelation to marketing of products. The agreement was for tenure of two years andthe taxpayer was required to pay the annual fee in advance for the servicesproposed to be rendered. The taxpayer claimed deduction for such payment asbusiness expenditure. The Tribunal disallowed the expenditure holding that theadvice rendered to the taxpayer was not in writing and thus, there was noevidence supporting performance of the agreement.On a reference application before the High Court, it was observed that there wasa long-standing relationship between the taxpayer and service provider onaccount of which verbal advice could not be totally disregarded. It was also heldthat the liability to incur expenditure has to be viewed from a businessperspective and has to be respected by the Revenue authorities even if it mayappear that the expenditure incurred was unnecessary orunavoidable. Accordingly, it was held that the disallowance of the expenditure onthe ground of lack of supportings cannot be upheld.CIT vs Mico Ltd (2007 163 Taxman 510) (Karnataka HC)Where the employer fails to deposit taxes withheld from the income of theemployee, Revenue is barred to recover the same from the employeeThe taxpayer was the managing director in a company which had deducted taxesat source from his salary. The company, however, failed to deposit the tax sowithheld to the credit of the Central Government and therefore, did not issue thecertificate of tax withholding. The taxpayer claimed credit of taxes withheld in hisreturn of income. The AO denied credit of taxes deducted since the certificate fortax deduction was not produced by the taxpayer. The AO also raised a demandfor unpaid taxes including interest on the taxpayer and initiated penaltyproceedings. The CIT(A) and the Tribunal accepted the contention of the AO.On appeal before the High Court, it was observed that the monthly pay slips andbank statements furnished by the taxpayer substantiated the deduction of taxfrom the income of the taxpayer. Section 205 of the Act provides that in casetaxes have been withheld at source by the employer but not deposited into theGovernment treasury, the employee cannot be made liable to pay the requisitetaxes. Accordingly, the Court held that taxes withheld at source but not depositedwould not be recoverable from the taxpayer.Yashpal Sahni vs Rekha Hajarnavis, ACIT and Others (2007 293 ITR 539)(Bombay HC)Tribunal DecisionsConsideration paid to a non-resident, for supply of drawings and designs outsideIndia, would not qualify as fee for technical services but as sale of goods and ifsuch supply is undertaken outside India, it would not be taxable in IndiaSnippetThe Government has declared that it will notaccept tax deduction at source (TDS) returnsfor the quarter ending September 30 andthereafter, if companies fail to providepermanent account number (PAN) details of amajority of their employees. The TDS returnsfor salary payments are required to have thedetails of at least 90 percent of theemployees, while in case of TDS returns forpayments, other than salaries, and TCS(tax collected at source) returns, PAN details,in relation to at least 70 per cent of the staffmust be submitted by all companies.If the companies fail to provide PAN details,they will face penal proceedings under theAct.Source: Economic Times, September 25,2007The taxpayer, engaged in the business of real estate development, entered intoan agreement with a Singapore company (Sing Co) for development of asite. The scope of work under the agreement inter alia included supply ofdrawings and designs to the taxpayer. The designs and drawings as per theagreement were to be transferred in Singapore. The entire work was carried outin Singapore and no part of the work was carried out in India. The taxpayer madethe payment to Sing Co, without deducting taxes at source, on the ground thatthe transaction involved supply of goods and services. The AO held that theagreement involved performance of a service and not supply of goods.Accordingly, payments received by Sing Co from the taxpayer were consideredas fee for technical services chargeable to tax under section 9(1)(vii) of the

NotificationsCorrect allowance of depreciation and brought-forward lossesThe Central Board of Direct Taxes (CBDT), in order to avoid substantial loss tothe Revenue has notified that AOs should carry out necessary verifications at thetime of undertaking scrutiny assessments with reference to physical(assessment) records. Claim for losses including unabsorbed depreciation shouldbe linked with such records so as to ensure correctness of the allowance ofclaims of brought-forward losses and depreciation.Direct Tax Instruction No 9 dated September 11, 2007BackINDIRECT TAXCase LawsExcise and CustomsSupreme Court DecisionsExcise Valuation – Depot price not relevant when ex-factory price availableThe taxpayer, as a manufacturer, sold a large portion of goods to wholeseller atthe factory gate and small portion through its depot. The Revenue valued thegoods sold from the depot, and considered the depot price as base.The Supreme Court, while relying on its judgment in Indian Oxygen Limited, heldthat where the ex-factory price was ascertainable, the assessable value shouldbe based on the wholesale price at the factory gate and not the depot.Elgi Equipments Limited vs CCE (2007 215 ELT 348) (SC)Stock transfer to be treated as sale for payment of excise duty under Rule 6 ofCER (Rule 57CC of erstwhile CER)The taxpayer was engaged in the manufacture of paper for which it alsomanufactured pulp that attracted a ‘nil’ rate of duty. The taxpayer also suppliedpulp to a sister concern and paid duty at the rate of 8 percent (under Rule 57CCof erstwhile Central Excise Rules, 1994) on the cost price, contending that it isnot a sale, whereas the Revenue contended that the duty should be paid on thesale price at which it was sold to the sister concern.SnippetThe Government is likely to ease winding-upnorms for companies in order to attractforeign investment in the manufacturingsector. It plans to adopt international bestpractices to facilitate winding up of a businessventure within a month, in place of the currentprocess which takes years, or even decades,of litigation.Investors, who find entry to the countryrelatively easier after the economicliberalization, complain against stringentnorms for closing of business. To addresssuch concerns of foreign investors and attractmore Foreign Direct Investment (FDI), theGovernment has set up a committee headedby the secretary in the corporate affairsministry. Other members of the committeeare secretaries of banking, Department ofIndustrial Policy and Promotion (DIPP) andlegal affairs.Source: Economic Times, September 3, 2007The Supreme Court held that Rule 57CC would be applicable on stock transferas well and duty should be paid on the price charged at the time of sale, since theentire relevant Rule is based on the “deemed price” and “recovery of presumptiveamount of duty”.CCE vs Ballarpur Industries Limited (2007 215 ELT 489) (SC)Tribunal Decisions

Education cess is applicable where excise duty is collectedThe taxpayer was availing the benefit of an excise exemption, which wasimplemented through a refund mechanism. The issue was whether the educationcess levied and deposited on the excise duty should also be refunded along withthe excise duty paid.The Tribunal referred to a clarification issued by the Ministry of Finance on thisissue, which stated that where goods are fully exempt from excise duty, there isno collection of duty, and therefore, no education cess should be leviable.Therefore, the Tribunal held that when the (exempted) amount of duty is refundedto operationalize an exemption, a (dependent) levy like education cess shouldalso be refundable as it was not leviable at all.Cyrus Surfactants Private Limited vs CCE (2007 215 ELT 55) (DelhiTribunal)Cenvat credit on inputs exclusively used to manufacture exempt goods allowedwhere duty is paid under Rule 6The taxpayer claimed credit on all inputs received and utilized in the manufactureof finished goods including the inputs exclusively used in the manufacture ofexempt goods and paid duty at 8 percent on the turnover of the exemptedgoods. The Revenue denied credit on inputs exclusively used to manufactureexempted goods.The Tribunal followed the ratio of the judgement in case of Hetero Labs Limitedvs CCE, where it was held that payment of duty at the rate of 8 percent on theentire turnover enables the manufacturer to take credit on all inputs beingexclusive inputs as well as common inputs; given this, it was ruled that thetaxpayer would be eligible to claim credit of inputs, exclusively used tomanufacture exempted goods.Aurbindo Pharma Limited vs CCE (2007 215 ELT 81) (Bangalore Tribunal)Credit allowed on inputs used to manufacture exempt capital goods that are usedto manufacture a dutiable final productThe issue, here, pertained to the availability of credit on raw material used tomanufacture exempt capital goods, which were used to manufacture a dutiablefinal product. The Revenue contended that the raw material was used in thefabrication of non-excisable machinery because it constituted immovableproperty.SnippetThe Government has directed the CentralBoard of Excise and Customs (CBEC) andthe CBDT to jointly track cases of transferpricing.Both departments have found that manycompanies engaged in exports and importshave cited different data to customs andincome tax. While the cost of goods isundervalued for the purpose of payingcustoms duty, the same cost is increasedsubstantially to reduce the taxable profit.To this effect, data on related partytransactions will be shared by both thedepartments followed by bi-monthlymeetings. Further, CBEC, in order to simplifythe procedure for audit of imports, hasrecommended a system of periodic audit ofimports to do away with the practice ofdebiting bonds or Revenue deposit for bills ofentry, which will substantially cut down thepaper work.Source: Business Standard, September 10,2007The Tribunal held that if the capital goods are used in the factory of production,credit of duty on inputs used to manufacture capital goods (which could beexempt from whole of the duty or chargeable to ‘nil’ rate of duty) cannot bedenied.Jubilant Organosys Limited vs CCE (2007 215 ELT 92) (Delhi Tribunal)Supply of goods without subsequent manufacture does not amount to captiveconsumptionThe taxpayer-company was formed after the corporatization of theDepartment of Telecommunication (which was exempt from excise duty);however, no exemption was available to the taxpayer as a corporate entity. TheRevenue valued the closing goods (telephone instruments) transferred to thetaxpayer at the time of corporatization after adding 15 percent to the cost of thegoods under Rule 8 of the Central Excise (Valuation) Rules, 2000.

The taxpayer contended that the goods were not consumed in the manufactureor production of any other item (in its hands) but were merely supplied for use assuch without any further manufacturing process being involved. Therefore, thegoods need to be valued without any additions.The Tribunal following the judgement in case of PCC Poles factory vs Collector ofCentral Excise (2003 158 ELT 429) (SC) held that, since the goods were notcaptively consumed for further manufacture/ production, the goods should bevalued without the addition of 15 percent to the cost of goods.Bharat Sanchar Nigam Limited vs CCE (2007 215 ELT 127) (KolkataTribunal)Interest on warehoused goodsThe issue in dispute was the applicability and period of interest on the dutypayable on warehoused goods that remained uncleared beyond the normalperiod and the extension that was allowed by the authorities. The Revenue raiseda dispute on the ground that the value of warehoused goods should be revisedon their clearance for home consumption under an ex-bond Bill of Entry.The Tribunal held that:• The classification and valuation of warehoused goods on assessment ofthe into-bond bill of entry could not be altered at the time of theirex-bond clearance; and• If there is any change in tariff or rate of duty, it calls for there-assessment of the goods.On the levy of interest, it was held that the non-removal of warehoused goods, atthe expiration of the warehousing period, is dealt with as if the goods areremoved improperly; hence, such goods would be assessed to duty as if theywere cleared on the date following the expiration of warehousingperiod. Accordingly, interest is payable on the duty payable at the time ofclearance of warehoused goods, for the delay in payment of the duty.Southern Iron & Steel Company vs CCE (2007 215 ELT 236) (ChennaiTribunal)Service TaxSupreme Court DecisionsConstitutional validity of service tax on professionsThe taxpayer challenged the right of Parliament to levy service tax on theprofessions of chartered accountants, cost accountants and architects in the lightof levy of profession tax imposed by the respective state legislations on theabove professions.SnippetA committee of central and state officials isexpected to submit its report on the roadmapfor implementing the proposed goods andservice tax (GST) by the end of October thisyear. The Union Government proposes toimplement GST in the country from April 1,2010. The working group has been asked tostudy various models of GST across theglobe. After the roadmap is submitted, theempowered committee of state financeministers will hold consultations with thecentral Government to finalize the model mostappropriate to India. It would also identify thecentral and state taxes which could besubsumed in GST. While suggesting a modelfor the tax base and rate structure, the panelwould have to ensure that there is no adverseimpact on central and state revenues.However, being a federal country in whichstates and the centre share taxation powers,it is unlikely that India will have a unified GST,and therefore, a two-tier model with a centralGST and a state GST, has been suggested.The GST rate might be around 20 percentinitially, which would be brought downdepending on the experience.Source: Business Standard, September 27,2007The Supreme Court upheld the constitutional validity of levy of service tax onsuch services and stated that service tax and profession tax are levied underdifferent entries of the Constitution. Service tax is levied on the services provided,under a contract, by a professional; however, profession tax was a tax on thestatus of such professional. Profession tax was to be paid by a professional, evenif no services were rendered all through the year, whereas, service tax is payableonly when a professional received any consideration for the provision of hisservices.All India Federation of Tax Practitioners and Others vs Union of India (2007

10 STJ 201) (SC)Tribunal DecisionsBusiness auxiliary serviceThe taxpayer, a general sales agent of a Malaysian airline, earned overridingcommission in Indian currency (from July 2003 to November 2004) andcontended that its services qualify as export. The taxpayer also contended thatthe payments thus received should be deemed to have been received inconvertible foreign exchange. The Tribunal held that provision of services toMalaysian airlines in India will not qualify as ‘export of services’ as theconsideration was clearly in Indian currency given that the provision of anexemption notification should be construed strictly.ETA Travel Agency Private Limited vs CCE (2007 10 STJ 163) (ChennaiCESTAT)Works contract on running and managing a power plantThe taxpayer entered into a contract to run and manage a power plant andprovide electricity to the owner. The Revenue vivisected the contract andcontended that each service provided under the contract was exigible to servicetax under different service categories.The Tribunal rejected the Revenue’s contention and held that the servicestaxable under management consultancy, consulting engineer, C & F agent,business auxiliary service and repair and maintenance service were not theservices provided by the taxpayer, who is engaged in performing a workscontract. As such, the Tribunal held that the contract was that of a works contract,where the main object was generation and supply of power and the otherfunctions were incidental to this primary object and could not be separately taxedunder service tax under any of the aforementioned categories.CMS (India) Operations and Maintenance Company Private Limited vs CCE(2007 10 STJ 176) (Chennai CESTAT)Goods transport serviceThe taxpayer manufactured cotton yarn and availed credit of input tax paid oninputs and input services. The credit availed was utilized for payment of servicetax as recipient of goods transport agency (GTA) services for the period betweenJuly to September 2005, which was disallowed by the Revenue. The Tribunalheld that GTA services, on which service tax is payable by the taxpayer, will bedeemed to be an output service and credit availed may be utilized for payment ofsuch service tax.R R D Tex Private Limited vs CCE (2007 10 STJ 151) (Chennai CESTAT)Board of Cricket Control of India as an advertising agencyBoard of Cricket Control of India (BCCI) received payments for sponsorship,television rights and utilization of space available for display of logo. Theauthorities contended that such payments received by BCCI were for renderingadvertising services. The Tribunal held that BCCI was not a commercial body, asrequired under the definition of advertising agency’s services, and therefore,could not be subjected to service tax.BCCI vs CST, Mumbai (2007] 9 STT 399) (Mumbai CESTAT)SnippetThe Commerce & Industry Ministry will comeup with guidelines to help state governmentsimplement a single-window clearance systemfor Special Economic Zone (SEZ) units anddevelopers. A mechanism for exempting unitsand developers from payment of value addedtax (VAT) and stamp duty in the processingarea will also form part of the guidelines.While the SEZ Act and rules have laid downthat the development commissioner of aparticular area is the empowered authority forall approvals, state governments have not yetassigned the necessary powers to thedevelopment commissioner’s office.There will be different set of mechanisms forestablishing single-window clearance for unitsand developers. In the case of units, a smallgroup, headed by the developmentcommissioner of the zone and includingrepresentatives from the state governmentand the centre, would be empowered to giveall necessary clearances and exemptions. ForSEZ developers, a committee including thechief secretary and all officials from variousdepartments, which need to be consulted forapproving building plan, would be the likelyapproval providers.Source: Economic Times, September 11,2007

VATWorks contract on bus body buildingThe petitioner built bus bodies on chassis (supplied by customers) andtransferred them back to the customer. The issue was whether the transactioncould be classified as a ‘works contract’ (and labour charges excluded from theturnover).The High Court, relying on the Supreme Court’s decision inT V Sundram Iyengar & Sons vs State of Madras, held that the bus bodyassembled by the petitioner could be described as ‘goods’ and were coveredunder a distinct entry in the schedule to the Kerala General Sales Tax Act,1963. Further, ownership of the bus body did not get transferred to the customeruntil the final delivery of the product. Therefore, the transaction could not beclassified as a works contract but was a pure sale.C C Sebastian vs State of Kerala (2007 8 VST 798) (Kerala HC)Works contract on construction activityThe taxpayer purchased land and developed it for sale to interestedpersons/ allottees. The issue was whether tax was leviable on the transaction, onthe basis that construction of residential complexes on behalf of prospectivebuyers qualified as works contract as per the Supreme Court’s decision in theRaheja judgment.The High Court held that the construction could not be termed as works contract,as the allottees did not get any right in the apartment until a sale deed wasexecuted, and the taxpayer continued to remain the owner of the apartment tillsuch execution. Thus, the construction could not be said to have beenundertaken on behalf of prospective buyers and hence, could not be treated asworks contract.Assotech Realty Private Limited vs State of Uttar Pradesh (2007 8 VST 738)(Allahabad HC)Agent as a dealerThe taxpayer was a commission agent for importing coal from small scale coalbased industries. Further, the taxpayer was authorized to arrange for movementand loading of coal, collecting payment from buyers and making payments tocollieries. The issue was whether the taxpayer was a ‘dealer’ under the UP TradeTax Act, 1948 (Act), liable to pay tax on the estimated turnover of coal.The High Court held that, in case of a sale transaction, tax is levied on goodssupplied. In the present case, the taxpayer was only an agent who undertookhandling, loading and distribution of goods. The title of the goods was neverpassed on to the taxpayer since the invoice raised by the seller was in thebuyer’s name. Accordingly, the taxpayer did not qualify as a ‘dealer’ under theAct.CTT vs Coal & Supplies Corporation (2007 8 VST 669) (Allahabad HC)Tribunal DecisionsCharitable hospital as a dealerSnippetThe Finance Ministry, in its endeavor torestrict investments by foreign institutionalinvestors (FIIs) from ‘weakly regulated taxhavens’, has asked the Reserve Bank of India(RBI) and the Securities and Exchange Boardof India (SEBI) to prepare a list of suchcountries, where entities are registeredwithout enough due diligence.The regulators are expected to draw uponOrganization for Economic Cooperation andDevelopment’s (OECD) frequently revised listof tax havens that are not committed toimproving transparency in tax matters, whichidentifies these countries based on the levelof transparency, willingness to shareinformation and safeguards against moneylaundering. Earlier, the list had countries likeMauritius, Cayman Islands and Bermuda,which were later dropped after they madecommitments to reform.However, the Government is understood tobe of the view that the recent volatility in thestock market does not strengthen the case fortightening FII inflows.Source: Economic Times, September 6, 2007The taxpayer was a charitable hospital, which also operated a medicine and a gift

shop attached to it. The issue was whether the activities of running the gift andthe medicine shops could be termed as ‘business’, for levying sales tax.The Tribunal held that as far as running the medicine shop was concerned, suchan activity was incidental to running the hospital, which was charitable innature. Also, profits from the medicine shop were used for carrying on activities ofthe charitable trust; therefore, the activity could not be considered as a‘business’.However, for the gift shop, although income earned was used for running thecharitable trust, the purpose of running such a shop was not related to activity ofrunning the hospital. Therefore, this activity would qualify as a ‘business’ liable totax.Bhakti Vedant Hospital vs State of Maharashtra (2007 36 MTJ 230)(Maharashtra Tribunal)Technical know-howThe taxpayer carried out testing and analysis of boilers and identified actions tobe taken for smooth, safe and economic operation of such equipment. Theauthorities sought to tax receipts from such activity as a sale of ‘technical knowhow’at the rate of 4 percent.The Tribunal held that the taxpayer rendered pure technical services and therewas no transfer of property involved in the above transaction to be liable as saleof ‘technical know-how’.State of Maharashtra vs Thermax Babcock & Wilcox Limited MTJ (2007 36MTJ 214) (Maharashtra Tribunal)Sale of businessThe taxpayer sold its ongoing business, including plant and machinery and allother movable and immovable assets, for an agreed consideration. Theauthorities contended that movable assets were goods, liable to tax.The Tribunal held that that the transaction resulted in sale of movable assetsupon closure of business and as per the definition of a ‘dealer’, sale or purchaseshould take place during the course of business. Therefore, this sale of movableassets did not attract tax.CCT vs STI India Limited (2007 36 MTJ 268) (Maharashtra Tribunal)Manufacture and sale on the basis of specificationsThe dispute in this case was whether the manufacture and supply of woodenpatterns as per drawings and specifications of the customers was a ‘sale’ underthe Bombay Sales Tax Act. The Tribunal held that although supply of goods wasbased on clients’ specifications, it was not a works contract, but a transaction ofpure sale.State of Maharashtra vs Modern Pattern Works (2007 36 MTJ 197)(Maharashtra Tribunal)SnippetThe Government is considering raising thecap on ECBs for rupee expenditure in thecase of infrastructure companies from USD20 million to USD 50 million. The Governmentmay also agree to keep funds raised throughexchangeable bonds out of ECB limit.The RBI is still reluctant to ease restrictionssince it feels that there is ample liquidity in thedomestic markets. But the infrastructuresector argues that the estimatedUSD 300-400 billion investment needed overthe next five years cannot be met throughdomestic borrowings. While the RBI has sofar resisted requests to ease off ECBrestrictions even for infrastructure companies,the RBI and the Government are expected toreview the situation.Source: NDTV Profit, September 11, 2007Sale in the course of exportThe taxpayer was selling helium gas to Oil and Natural Gas Corporation (ONGC)at Bombay High. The issue that arose was whether such a sale was undertaken

in the course of export. The Tribunal held that the sale was not in the course ofexport since exports are generally made to a foreign country. Nevertheless, itwas an inter-state sale and hence, taxable under the Central Sales Tax Act,1956.Industrial Oxygen Company Limited vs State of Maharashtra (2007 36 MTJ165) (Maharashtra Tribunal)Sale from a warehouseThe issue before the Tribunal was whether purchase of goods lying in awarehouse, before the payment of requisite customs duty qualified as a high seasale. The Tribunal held that when a transaction takes place while goods are lyingin a warehouse (before payment of customs duty), it would qualify as a high seasale, not liable to sales tax.Adani Exports Limited vs State of Maharashtra (2007 36 MTJ 255)(Maharashtra Tribunal)Notifications and circularsNew Export and Import Valuation Rules notifiedVide Notification numbers 94 and 95; dated September 13, 2007, new Import andExport Valuation Rules were introduced. The said Rules would be effective fromOctober 10, 2007.Notification No 94/ 2007 and Notification No 95/ 2007 dated September 13,2007SEZ – Retrospective exemption from Special CVD for DTA clearanceA retrospective exemption from special countervailing duty (CVD) imposed undersection 3(5) of the Customs Tariff Act on microprocessors for computers, floppydisc drives, CD-ROM drives, DVD drives, USB flash memory, combo drives,cellular phones and radio trunking terminals manufactured in SEZ and cleared indomestic tariff area (DTA) during February 21, 2007 to February 26, 2007 wasintroduced.Notification No 92/ 2007 Cus (NT) dated September 11, 2007E-payment of excise duty – Due date 6th of following monthSnippetIndia is likely to open up its USD 330 billionretail market to foreign investors afterconvincing the store owners that their jobs arenot at threat from big players.Besides the political opposition to allowingFDI, there has been a growing oppositionfrom tens of thousands of small retailers (whoemploy millions of people) to the entry ofdomestic corporates into the sector.Source: Business Standard, September 28,2007Central Government, in case of e-payment of excise duty through internetbanking, extended the due date of payment of excise duty to 6th of the month.Notification No 34/ 2007 CE (NT) dated September 11, 2007BackOTHER ALLIED LAWSFEMAGuidelines for Overseas Direct Investment liberalized

The Reserve Bank of India (RBI) has raised the limit for investment in overseasjoint ventures and/or wholly owned subsidiaries by an Indian company from300 percent to 400 percent of its net worth. Further, in order to provide greateropportunities to listed Indian companies for portfolio investment abroad, theexisting limit of 35 percent of the net worth for portfolio investments by listedcompanies is being increased to 50 percent of the net worth. Also, therequirement of 10 percent reciprocal share holding in the listed Indian companiesby overseas companies for the purpose of portfolio investment outside India byIndian listed companies has been dispensed with.RBI A P (DIR Series) Circular No 11 dated September 26, 2007Other ResourcesIndustry Groups:http://www.bmrtax.com/industry_groups.htmlCompetencies:http://www.bmrtax.com/competencies.htmlPublications:http://www.bmrtax.com/publications.htmlKey Personnel:http://www.bmrtax.com/key_personals.htmlOverseas investment by mutual funds liberalizedThe aggregate ceiling for overseas investment by mutual funds, registered withSecurities and Exchange Board of India (SEBI) has been increased fromUSD 4 billion to USD 5 billion. Further, in order to tap a larger investible stockoverseas, mutual funds have been allowed to invest in certain additionalinstruments. Such instruments include Government securities where thecountries are rated not below the investment grade, derivatives traded on arecognized stock exchange overseas for hedging and portfolio balancing etc.RBI A P (DIR Series) Circular No 12 dated September 26, 2007Remittance scheme for individuals liberalizedThe remittance limit in respect of resident individuals has been enhanced toUSD 200,000 from USD 100,000 per financial year, for any permitted current orcapital account transactions or a combination of both. Further, banks have beenadvised not to extend any credit facilities to resident individuals to facilitateremittances under the scheme.RBI A P (DIR Series) Circular No 9 dated September 26, 2007Prepayment limit for External Commercial Borrowings raisedIn order to provide greater flexibility to corporates in managing their liquidity andinterest costs, RBI has enhanced the limit for prepayment of external commercialborrowings (ECB) to USD 500 million from USD 400 million. Accordingly, banksdealing in foreign exchange are advised to allow prepayment of ECB up to USD500 million, without prior approval of RBI subject to compliance with the minimumaverage maturity period as applicable to the borrowings.The amended ECB policy would come into force with immediate effect.RBI A P (DIR Series) Circular No 10 dated September 26, 2007Back

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