CIRCULAR / NOTIFICATIONS |
General Circular No. 65/2011
F. No. 2/11/2011-CL V
Government of India
Ministry of Corporate Affairs
5th Floor, A Wing, Shastri Bhavan,
Dr. R.P. Road, New Delhi,
Dated the 4th Oct, 2011
To
All Regional Director,
All Registrars of Companies.
Subject: Company Law Settlement Scheme, 2011
Sir, In continuation of the Ministry’s General Circulars No. 59/2011 dated 05.08.2011 and No. 60/2011 dated 10.08.2011 on the subject cited above, it is stated that the said scheme has been extended upto 15th December, 2011.
2. All the terms and conditions of the General Circulars No. 59/2011 dated 05.08.2011 and No. 60/2011 dated 10.08.2011 will remain the same.
Yours faithfully,
-Sd/-
(Monika Gupta)
Assistant Director
Copy to:
1. All concerned
2. PS to CAM and PS to MOS
3. PPS to Secretary, Additional Secretary, Joint Secretaries
NOTIFICATION NO. 81/2011 DATED 11-8-2011 S.O. 1860 (E):- In exercise of the powers conferred by sub-section (1) read with clause (b) of the Explanation tosection 35AC of the Income-tax Act, 1961 (43 of 1961), the Central Government, on the recommendations of the National Committee for Promotion of Social and Economic Welfare, hereby notifies the institutions approved by the said National Committee, mentioned in column (2) of the Table below, and approves the eligible projects or schemes specified to be carried on by the said institutions and the estimated cost thereof as mentioned in column (3) of the said Table, and also specifies in the column (4) of the Table the maximum amount of such cost which may be allowed as deduction under the said section 35AC for the period of approval, namely : TABLE
II. This notification shall remain in force for a period of two years in relation to financial years 2011-12 and 2012-13 in respect of project or scheme mentioned at serial No. 7 and for a period of three years in relation to financial years 2011-12, 2012-13 and 2013-14 in respect of projects or schemes mentioned at serial numbers 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of the said table. [F.NO.V.27015/3/2011-SO(NAT.COM) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAUHATI HIGH COURT
M/s Jyothy Laboratories Ltd. Versus STATE OF ASSAM & COMMISSIONER OF TAXES, ASSAM |
Applicability of VAT rate at 13% or 4% - Classification of goods - The petitioner has introduced itself to be a dealer registered under the Act and engaged inter alia in making and selling of "Ujala Supreme" which, according to it, is a brand name for diluted Acid Violate Paste ( for short, also hereafter referred to "AVP") - According to the petitioner, its product "Ujala Supreme" is the diluted form of Acid Violate Paste and is classifiable under HSN Code 3204 12 94 of the Central Excise Tariff Act,1985 ( for short, hereafter referred to as the "Tariff Act") as well as the Customs Tariff Act,1975 - The respondents have maintained that the product marketed by the petitioner is accepted in common parlance as "fabric whitener" distinctly different from Acid Violate Paste which is acknowledged as synthetic organic dye and is used for dyeing fabrics of silk wool at elevated temperature in presence of acid only - On a scrutiny of the test reports produced before it, their Lordships concluded that in Ujala Supreme, Acid Violet was present in less than one percent and that the balance 99 percent was water - There being no estoppel against law, the plea of the respondents against the maintainability of the instant proceeding for want of bonafide of the petitioner does not commend for acceptance The argument on behalf of the respondents that Ujala Supreme even if a dye, being offered for sale in form or packing for retail sale, is covered by heading 3212 is not based on pleadings - As Ujala Supreme is a highly diluted form of AVP in its essential character, on the application of Rule 3(b) it appropriately is entitled to be catalogued in Entry 114 of Schedule II-C of the Act and qualified for HSN 3204 12 94 for determining the rate of taxability - Held that: petitioner’s product "Ujala Supreme" is entitled to be included in Entry 114 of Schedule II-C of the Act with corresponding rate of duty prescribed by HSN Code No. 3204 12 94 - Decided in favor of the assessee |
No. - W P ( C) NO.5428/2010 |
Dated - March 15, 2011 |
HON’BLE MR JUSTICE AMITAVA ROY PETITIONER :Mr M.P.Debnath, Mr B Sharma, Ms J.Huda, Advocates. RESPONDENTS: Mr D.Saikia, Standing counsel, JUDGMENT AND ORDER(CAV) The petitioner by this impeachment not only seeks the annulment of the order dated 11.8.2010 of the Commissioner of Taxes, Assam whereby its product “Ujala Supreme” has been adjudged to be included in Sl No.1 of the Fifth Schedule of the Assam Value Added Tax Act, 2005 ( for short, hereafter referred to as the „Act‟) and taxable @ 13.5%,but also pleads for a direction that the same is leviable @ 4% being classified under Sl No.114 of Pt-C of the Second Schedule of the enactment. 2. I have heard Mr M.P.Deb Nath, learned counsel for the petitioner assisted by Mr Bikash Sharma, Advocate and Mr D.Saikia, learned Standing Counsel, Finance Department. Assam for the respondents. 3. The factual prologue in a sketch can be gleaned from the rival pleadings. The petitioner has introduced itself to be a dealer registered under the Act and engaged inter alia in making and selling of „Ujala Supreme‟ (for convenience, also hereafter referred to as the „product‟ or „Ujala‟) which, according to it, is a brand name for diluted Acid Violate Paste ( for short, also hereafter referred to “AVP‟). It claims to have been filing its returns for the above product in accordance with the Act and the Rules framed thereunder by classifying it under HSN Code 3204 12 94 and paying VAT @ 4% in terms of Pt-B of the Second Schedule of the Act of the legislation and in turn, collecting the said amount from its consumers. 4. On receipt of the audit assessment notice dated 21.5.2007 under Section 36 of the Act asking it to produce documentary evidence in support of the returns filed by it for the period 1-5-05 to 31-3-2006, it submitted the same and also furnished the details as sought for. A show cause notice being No.CTVA-8/2007/2 dated 25.6.07 was issued by the Superintendent of Taxes (Department) alleging that it had short paid the VAT @ 4% instead of 12.5% due for the sale of the product. The petitioner in response to this notice, caused its appearance before the concerned departmental authority and asserted the exigibility of Ujala to VAT @ 4%. Its claim, however, was rejected by the order dated 2.8.07, whereupon it preferred an appeal with the Deputy Commissioner of Taxes (Appeals), Guwahati. By order dated 27.11.2007 the said revenue authority in the appeal interfered with the order of assessment and remitted the matter with a direction to the Assessing Officer to assess the petitioner afresh by determining the tax payable by it for Ujala @ 4%. The revenue filed a revision petition against this order before the Commissioner of Taxes, Assam. The revisional authority by his order dated 27.6.08 sustained the findings of the appellate authority i.e. Deputy Commissioner of Commercial Taxes (Appeals), Guwahati concluding that Ujala occasioned by adding of water with AVP did not amount to manufacture and that the product retained its original characteristics. 5 The Additional Deputy Commissioner of Taxes, Assam subsequent thereto, by his letter dated 26.5.2010 required the petitioner to appear before the Commissioner of Taxes, Assam, for clarification regarding rate of tax on Ujala Supreme. The petitioner arranged for its representation through its authorized representative and furnished all materials relevant to the issue and also reinforced the same with written submission. The impugned order dated 11.8.2010 followed. 6. This order inter alia discloses that the exercise had been undertaken afresh pursuant to a petition structured on the decision rendered on 6.4.2009 by the Kerala High Court in M.P. Agencies vs. State of Kerala, (2010) 28 VST 44 (KER) and filed by the Superintendent of Taxes, Unit-B, Guwahati. 7. While elaborating its challenge on various counts vis a vis this order, the petitioner with reference to the decision in M.P.Agencies (Supra) involving Kerala Value Added Tax Act, 2003 and the Rules framed thereunder has mentioned about significant changes introduced under the Kerala VAT regime with effect from 1`.4.2005 in the matter of classification of goods for the purpose of taxation or exemption, with reference to the code numbers developed by International Customs Organization as Harmonized System of Nomenclature (HSN) and adopted by Customs Tariff Act,1975. It has underlined that unlike the earlier sales tax regime wherein the classification of goods was by and large determined by the commercial parlance/common parlance test, classification under the Kerala Value Added Tax Act,2003 (for short, hereafter referred to as „KVAT Act‟) was with reference to specific Code numbers under HSN to obviate uncertainties and disputes on this count. The petitioner has maintained as well that the adoption of HSN Code was also to guarantee uniform classification of the items transcending various taxing statues, Central or State irrespective of the nature of the duty/levy i.e. Customs Duty, Central Excise Duty or State VAT. Though at the enactment of KVAT Act, no norm for elucidation of the entries in the Schedule with the reference to the HSN Codes did exist, in the face of problems encountered, the Government introduced “Rules of Interpretation” vide Kerela VAT (Amendment) Act,2005 with retrospective effect from 1.4.2005.The preamble of the Rules of Interpretation of Schedules as well as Rule 43 thereof in particular as would occupy the center stage of the competing pleas, apt it would be to extract the same at this stage for ready reference :- “RULES OF INTERPRETATION OF SCHEDULES The commodities in the schedules are allotted with Code Numbers, which are developed by the International Customs Organization as Harmonized System of Nomenclature (HSN) and adopted by the Customs Tariff Act, 1975. However, there are certain entries in the schedules for which HSN Numbers are not given. These commodities which are given with HSN Number should be given the same meaning as given in the Customs Tariff Act, 1975. Those commodities, which are not given with HSN Number, should be interpreted, as the case may be, inn common parlance or commercial parlance. While interpreting a commodity, if any inconsistency is observed between the meaning of a commodity without HSN Number and the meaning of a commodity with HSN Number, the commodity should be interpreted by including it in that entry which is having the HSN Number.” …. …. …. …. .... ….. …. …. 43. The goods given in List A to third Schedule as „Industrial inputs and Packing Materials‟ shall attract the rate of tax applicable to third schedule regardless to the purpose for which such goods have been purchased.” 8. According to the petitioner, its product „Ujala Supreme‟ is the diluted form of Acid Violate Paste and is classifiable under HSN Code 3204 12 94 of the Central Excise Tariff Act,1985 ( for short, hereafter referred to as the „Tariff Act”) as well as the Customs Tariff Act,1975. As the product has no other ingredient, it remains a dye as Acid Violate Paste though in a much diluted form. Referring to various test reports and experiments the petitioner while contending that its product is not a fabric whitener ,has controverted as well, the findings of the Kerala High Court in M.P.Agencies(Supra) on which the impugned order dated 11.8.2010 is founded. 9. The respondents in their affidavit affirmed by the Commissioner of Taxes, Assam, the Respondent No.2, while endorsing the validity of the order impugned, have sought to bring home the contradictory and inconsistent dispositions of the petitioner to repudiate the bonafide as well as the substance of its challenge. The answering respondents have averred that the petitioner though had availed sales tax concession under the Industrial Concession Schemes by contending that it had been manufacturing Ujala by applying raw materials of Acid Violate Paste, HDPE granules Masterbatch colour by mentioning these in its Form to obtain the Certificate of Entitlement, it has turned a volte face to assert that the said product does not involve any manufacturing process and is a yield of dilution of Acid Violate Paste alone. According to the respondents, on the basis of the Entitlement Certificate issued to the petitioner, the Assistant Commissioner of Taxes, Guwahati Unit-B had issued the Certificate of Entitlement on 29.9.2008 granting it the tax exemption to the extent of Rs. 355.49 lakhs for the period 25.12.06 to 24.12.13 in respect of Ujala Supreme, its finished product. The respondents have maintained that the product marketed by the petitioner is accepted in common parlance as „fabric whitener‟ distinctly different from Acid Violate Paste which is acknowledged as synthetic organic dye and is used for dyeing fabrics of silk wool at elevated temperature in presence of acid only. While dismissing the petitioner‟s classification of its product in Entry No.114 of Pt-C of the Second Schedule of the Act as patently erroneous, the respondents endorsed the impugned decision with profuse reference to various observations and findings recorded in the M.P. Agencies (Supra). According to them, Ujala Supreme was a product commercially different from Acid Violate Paste with distinct use and purpose and that its claim to the contrary was clearly untenable. They have insisted that even assuming that Ujala Supreme is diluted Acid Violate Paste, as the product contains 99.02 % of water it is completely transformed in identity, use and marketability compared to the original raw material and thus cease to be a dye and thus the rate of tax applicable on synthetic organic dye used for dyeing fabrics of silk wool was not applicable to it (Ujala). The respondents maintained that the findings of the Kerala High Court in M.P. Agencies (Supra) were of decisive significance and that no different approach in the instant proceeding is warranted. 10. Mr Debnath, in his pursuit to invalidate the impugned order of the revenue authority has emphatically questioned the tenability of the findings recorded in the decision of the Kerala High Court in M.P.Agencies(Supra). According to him, the conclusion that Ujala Supreme was in the nature of laundry whitener and thus was not classifiable under the third Schedule of the Kerala VAT Act against the HSN Code No.3204 12 94 ( i.e. Acid Violate Paste)was contrary to Rule 43 of the Rules of Interpretation and in absence of any stipulation in the said enactment or its Schedule and Rules framed thereunder that the classification of the goods with reference to HSN Code would be available only for the original product, the observation to the contrary made in the judgment was not sustainable. Mr Debnath urged that as the AVP and the Ujala Supreme are products which are clearly classifiable in the third Schedule to the Kerala VAT Act, the latter could not have been brought under the residuary entry. The observation of the Kerala High Court that the findings of the Central Excise Tribunal and the Commissioner of Central Excise that Joyti Laboratories was not involved in any manufacture was not worth considering for the purpose of the classification „Ujala Supreme‟, was clearly in confrontation with the decision of the Apex Court in M/s Reckitt Beneckiser India Ltd. vs. Commissioner of Commercial Taxes, [2008]15 VST 10(SC), he pleaded. Referring to the various test reports and experiments conducted by several agencies to discern the inalienable traits of AVP and Ujala Supreme, the learned counsel insistently maintained that the product was unmistakably classified under HSN Code 3204 12 94 and was thus taxable @ 4%. He assiduously urged that the consistent findings of the tests conducted unambiguously demonstrate that Ujala Supreme is nothing but a diluted form of AVP and does remain a dye and the character and use of both the components remain the same even after dilution. Mr Debnath therefore sought to impress upon this Court that AVP when diluted retains its characteristic and does not undergo a change to be converted to a different manufactured commodity. The learned counsel drew the attention of this court to the preamble of the Rules for Interpretation to sustain this plea. As commercial parlance or common parlance test is relevant vis a vis those commodities which are not referable to HSN Code for their classification as is otherwise irrefutably attested by the Rules of Interpretation, the sale thereof (AVP) with a different commercial name per se would not make any difference and attract a different rate of tax, he insisted. Mr Debnath argued that judged by the consistent experimental analysis ,Ujala Supreme is an alter ego of AVP in a diluted form and thus being distinctly identified by HSN Code No. 3204 12 94 ,the finding to the contrary as recorded in M.P.Agencies (Supra) is untenable and is of no persuasive worth in the instant proceeding. While maintaining that the Kerala High Court had left out of consideration the relevant subsequent reports to the effect that Ujala was possessed of dyeing attributes rendering its findings to the contrary flawed, the learned counsel also dismissed the remonstrance of the respondents based on the petitioner‟s claim for sales tax exemption contending that the notion of “manufacture” under the Assam Industrial Policy, Assam General Sales Tax Act, 1993 and the Act is not identical in all essential constituents to render the challenge herein frivolous. Mr Debnath placed reliance on the following decisions of the Apex Court : 1) (1976) 2 SCC 241, Dunlop India Ltd. vs. Union of India and Others. 2) 1994(72) ELT 669, Jyoti Laboratories Vs. CCE, Cochin. 3) 2002 (142) ELT 18, Collector of Customs, Bomday vs. Business Forces Ltd THR.OL. 4) 2007(78) RLT 276(T), Jyothi Laboratories Ltd. & Nnr. Vs. CCE, Calicut. 5) 2007(82) RLT 927(S.C), CCE, Mumbai vs. Laijee Goodhoo & Co. 6) 2007(210) ELT 171(S.C), Crane Betel Nut Powder Works vs. Commissioner of Customs & Central Excixe, Tirupathi. 7) 2007(217) ELT 161(SC), CCE, Cochin vs. Mannampalakkal Rubber Latex Works. ` 8) [2008 15 VST 10(SC)] Reckitt Benckiser (India) Ltd. vs. Commissioner of Commercial Taxes and Others. 11. The learned Standing Counsel for the Revenue has responded at the out-set by questioning the bonafide of the challenge contending that the petitioners having availed sales tax concession under the Industrial Concession Scheme by representing the product to be one manufactured by applying raw materials of Acid Violate Paste, HDPE Granules etc.,its turn around for securing classification of „Ujala‟ under Tariff Item 3204 of the Central Excise Tariff Act,1985 is visibly contradictory to this orientation and on that count alone, the present assailment ought to be negated. Referring to the application submitted by the petitioner for obtaining the Certificate of Entitlement for exemption of tax for „Ujala‟ showing it to be a commercial product under the Assam Industries (Tax Exemption for Pipe Line Unit) Order, 2005, in particular, the learned Standing Counsel has urged that product has been described there tobe a fabric whitener manufactured from the raw materials namely, Acid Violate Paste, HDPE granules,Masterbatch colours. The petitioner, thus having enjoyed the tax exemption as above, it is estopped from projecting the same product otherwise, he pleaded. The learned Standing Counsel with allusion to the certificates and reports based on empirical findings as contained therein (annexed to the writ petition) has maintained that „Ujala‟s use as a dye or coloring matter having been ruled out thereby, it by no means can be identified in absolute terms with Acid Violate Paste and thus the petitioner‟s claim is misconceived. He has, therefore urged that its endeavour to certify „Ujala‟ under Entry 114 of Schedule II –C of the Act is apparently flawed. Relying heavily on the decision rendered by Kerala High Court in M.P. Agencies (Supra), Mr Saikia has insisted that the petitioner’s product is commercially different from Acid Violate Paste with distinct characteristics and utility and therefore, its plea to the contrary is mis-placed. As admittedly, „Ujala‟ is claimed to be a diluted Acid Violate Paste containing 99.02 percent of water, it is even otherwise a commodity totally transmuted from Acid Violate Paste and having ceased to be a dye, it has been rightly taxed as a residuary item under Fifth Schedule of the Act, he contended. Endorsing the findings recorded in M.P. Agencies (Supra), the learned Standing Counsel argued that the decisive criteria to identify the product for the purpose of classification has been rightly held to be the common parlance and/or a commercial parlance test. In the alternative, he urged that even assuming that „Ujala‟ is being sold as a dye, it being put up in form or packing for retail sale, it is beyond the tariff item 3204 and instead traceable to tariff item 3212 of Chapter 32 of the Tariff Act an thus liable to be taxed @ 13.2 % under Schedule-V of the Act. Ujala being essentially a laundry whitener or a fabric whitener, it is not a classified item under the Tarrif Act with an allotted HSN No. and is thus exigible to tax as a residuary item under Schedule-V of the Act, he insisted. He emphatically rebutted the shortcomings in the determination in M.P.Agencies(Supra) as provided by the petitioner. Mr Saikia, to bolster his contentions placed reliance on the following decisions of the Apex Court- i) (2005) 2 SCC 460; OK Play India Ltd vs. Commissioner of Central Excise Delhi III. ii) (2005) 12 SCC 731; Western India Plywood Ltd vs. Collector of Customs. iii) (2007) 7 SCC 490; Commissioner of Central Excise Mumbai vs. Damnet Chemicals Pvt. Ltd. iv) (2007) 12 SCC 602; Mercantile Company vs. Commissioner of Central Excise, Calcutta. v) (2008) 9 SCC 82 ; Camlin Limited vs. Commissioner of Central Excise, Mumbai. 12. Mr Debnath, in his short reply maintained that in the facts of the case, Item 3212 of Chapter 32 of the Tariff Act had no application and that as the notion of manufacture under the Assam Industrial Policy, 2003 is relevant only in the context of establishment of new and existing units for commercial production, the plea of incompatibility qua the petitioner is misconceived. 13. Due attention has been lent to the competing pleadings and the arguments based thereon. Before embarking upon the contentious issues surfacing there from, appropriate it would be to notice the relevant legal provisions involved.
Notes appearing beneath the entries in Schedule II-C Note 1.Micronutrients and plant growth promoter or regulators are Not covered by the scope of this Part. Note 2. The Rules for the interpretation of the Central Excise Tariff Act,1985, read with the Explanatory Notes as updated from Time to time published by the Customs Co-operation Council, Brussels, shall apply for the interpretation of this Part. Note 3. Where any commodities are described against any heading or, as the case may be, sub-heading, and the aforesaid description is different in any manner than the correspond- ding description in the Central Excise Tariff Act, 1985, then only those commodities described as aforesaid will be covered by the scope of this Part and other commodities, though covered by the corresponding description in the Central Excise Tariff, will not be covered by the scope of this Part. Note 4. Subject to Note 3, for the purpose of any entry contained in this Part, where the description against any heading or, as the case may be, sub-heading, matches fully with the corresponding description in the Central Excise Tariff Act, 1985, then all the commodities covered for the purpose of the tariff under that heading or sub-heading will be Covered by the scope of this Part. Note 5. Where the description against any heading or sub- Heading is shown as ”other” then the interpretation as Provided in Note 2 shall apply.” Central Excise Tariff of India “ Chapter 32 ` Tanning or Dyeing Extracts; tannins and their Derivatives; Dyes, Pigments and other colouring matter; paints and varnishes‟ putty and other mastics; inks .“ “3204” Synthetic organic colouring matter, whether or not chemically defined; preparations as specified in note 3 to this Chapter based on synthetic organic colouring matter; synthetic organic products of a kind used as fluorescent brightening agents or luminophores, whether or not chemically defined.” “3204 12 94 Acid Violates,” 14. 14. A global body/entity nomenclature as World Customs Organization (earlier named Customs Co-operation Council) was established by a Convention signed in Brusseels on 15h December, 1950 delineating its functions amongst others to make recommendations to ensure an uniform interpretation and application of the Conventions concerning the Nomenclature for the Classification of Goods in Customs Tariffs and the Valuation of Goods for Customs Purposes. In order to secure an uniform classification of commodities across the various taxing enactments be it parliamentary or legislative, enjoining prescription and realization of duty/levy, the World/International Customs Organization developed a System of Code numbers for commodities catalogued in the Schedules of such legislations based on Harmonized System of Nomenclature (for short, „HSN‟) since adopted by the Customs Tariff Act, 1975. The Organization also formulated rules for the interpretation of the Harmonized System. The norms for classification of goods in the Nomenclature have also been evolved. Rule 3 thereof relevant for the present purpose is extracted herein below :- WHEN BY APPLICATION OF RULE-2(b) OR FOR ANY OTHER REASON, GOODS ARE, PRIMA FACIE, CLASSIFIABLE UNDER TWO OR MORE HEADINGS,CLASSIFICATION SHALL BE EFFECTED AS FOLLOWS : (a) THE HEADING WHICH PROVIDES THE MOST SPECIFIC DESCRIPTION SHALL BE PREFERRED TO HEADINGS PROVIDING A MORE GENERAL DESCRIPTION. HOWEVER, WHEN TWRO OR MORE HEADNGS EACH REFER TO PART ONLY OF THE MATERIALS OR SUBSTANCES CONTAINED IN MIXED OR COMPOSITE GOODS OR TO PART ONLY OF THE ITEMS IN A SET PUT UP FOR RETAIL SALE, THOSE HEAIDNGS ARE TO BE REGARDED AS EQUALLY SPECIFIC IN RELATION TO THOSE GOODS, EVEN IF ONE OF THEM GIVES A MORE COMPLETE OR PRECISE DESCRIPTION OF THE GOODS. “ (b) MIXTURES, COMPOSITE, GOODS CONSISTING OF MATERIALS OR MADE UP OF DIFFERENT COMPONENTS, AND GOODS PUT UP IN SETS FOR RETAIL SALE, WHICH CANNOT BE CLASSIFIED BY REFERENCE TO 3(a) ,SHALL, BE CLASSIFIED AS IF THEY CONSISTED OF THE MATERIAL OR COMPONENT WHICH GIVES THEM THEIR ESSENTIAL CHARACTER, INSOFAR AS THIS CRITERION IS APPLICABLE. (c) WHEN GOODS CANNOT BE CLASSIFIED BY REFERENCE TO 3(a) OR 3(b), THEY SHALL BE CLASSIFIED UNDER THE HEADING WHICH OCCURS LAST IN NUMERICAL ORDER AMONG THOSE WHICH EQUALLY MERIT CONSIDERATION.” 15. The parties are not in issue that the Tariff Model of the Tariff Act is patterned on the categorization and the rationalized norms of nomenclature labelled as HSN for specifying the rate(s) of duty payable there under. That the underlying purpose of this enterprise is to introduce a rationalized mechanism of cataloguing the various categories of goods exigible to duty thus minimizing the scope of ambivalence or dissonance in the matter of identification and classification for levy and exaction of such impost irrespective of the legislation involved is not in dispute. The relevant entries in the Act and the Tariff Act are also in place. There is no dissensus in the Bar, that the Rules for the Interpretation of Harmonized System as well for the Schedules figuring in the KVAT have a decisive bearing on the course of the present adjudication. The impugned order dated 11.8.2010 of the Commissioner of Taxes; Assam under section 105 of the Act is wholly structured on the determination in M/S M.P. Agencies (Supra) by the Kerala High Court involving the same product. Having regard to the aforesaid conclusive impact of this decision on the impugned order, it would logically be expedient to notice at this stage the findings recorded therein. That the rival contentions are pre-dominantly founded on the conclusions recorded therein also endorse this step. 16. The contextual facts in M/s M.P. Agencies (Supra) reveal that two products of the petitioner herein namely, „Ujala Supreme‟ and „Ujala Stiff and Shine‟ were involved. The factual recitation reveals that Ujala Supreme is produced by the petitioner in bottles describing it to be a fabric whitener. It was identified by the jurisdictional Commissioner of Commercial Taxes as a laundry brightener under Entry 27 of the notification No.S.R.O. No.82/2006 dated 21.1.2006. Contending it tobe classifiable in Entry No.155 (8) (d) of the Third Schedule to the KVAT relatable to “Acid Violates” with HSN Code No. 3204 12 94, the petitioner appealed from this decision of the aforementioned revenue authority. On a perusal of the documents including test report, the decisions of the Central Excise Tribunal etc. the order of the Commissioner was interfered with and the issue was remanded for a fresh consideration whereafter it was clarified that the product was includable in residuary Entry 103 of the above referred notification and was taxable @ 12.5%. The petitioner, thus returned with a fresh appeal, the decision wherein is being referred to. 17. On a scrutiny of the test reports produced before it, their Lordships concluded that in Ujala Supreme, Acid Violet was present in less than one percent and that the balance 99 percent was water. Referring to the report of the Institute of Chemical Technology, Matunga, Mumbai, it was determined that the petitioner‟s product could not be used as a dye or colouring matter in contradistinction to AV 49. It was noticed further that Entry 115 of list A of the Third Schedule to KVAT covered “industrial inputs and packing materials” and thus Acid Violate under Entry 155(8) (d) was an industrial input. Their Lordships accepted the finding of the jurisdictional Commissioner that Ujala Supreme was a finished product as a fabric whitener emerging from the application of the industrial input i.e. Acid Violate Paste. It was held on a perusal of the report of the Institute of Chemical Technology that due to extreme dilution of AVP, it had lost its identity and thus Ujala Supreme could no longer be regarded as Acid Violate Paste from which it had been made. It was thus concluded that the acid based industrial raw material per se could not be used as a laundry whitener and it necessarily was to be subjected to a process of manufacture to be so. Their Lordships thus determined that as the petitioner‟s product could not be interchanged with AVP, the classification of items under KVAT with reference to HSN was of no significance as those were relatable to original items and not to products manufactured therefrom with different use and purpose. The petitioner‟s plea against applicability of common parlance or commercial parlance test thus was rejected. The same reasonings figure in the order impugned herein. 18. Before adverting to the merit of the contentious projections, the respondents‟ cavil on the petitioner‟s bonafide demands attention. The petitioner does not deny to have availed the benefit of tax/ fiscal incentives under the Assam Industrial Policy, 2003 at the relevant point of time. The policy was formulated amongst others to ensure industrial development in the industrially backward regions of the State and to generate more employment opportunities. It offered a package of incentives for promotion and setting up of industrial units and revilalization of sick industrial units and to promote investment in the State. The eligibility criteria for availing the incentives offered thereunder visibly envisaged a date of commencement of commercial production of the unit concerned whether existing or new and a finished product was contemplated to mean and include the item manufactured by the eligible units . Raw materials similarly were envisaged to mean and include all industrial components, intermediate goods, substances, consumable stores including furnace oil and light diesel oil used for captive generating sets required in the process of manufacture and packing materials utilized for packing of finished products by an eligible unit. The applications for grant of Eligibility Certificate and the Certificate of Entitlement with the particulars furnished therein thus have to be judged in these perspectives. The facts pertaining to the commencement of commercial production and the manufacture of finished products were pre-dominantly for the purpose of determining the eligibility of the units engaged therein to avail the benefits under the policy. The focus invariably was not on the actual process of manufacture of the goods. Though the petitioner‟s present plea that Ujala Supreme is intrinsically only a diluted AVP is irreconcilable with the amalgam of the raw materials applied for the manufacture thereof as enumerated in its application for obtaining the aforementioned certificates, in the estimate of this Court this incompatibility ipso facto, does not render the issue raised herein non examinable on the ground of lack of its bonafide. Such a contradiction though may expose the petitioner to steps contemplated in law by the appropriate authorities, the consequence of if being non-suited therefor vis a vis the present challenge does not ensue. If in fact, the product Ujala Supreme is only singularly diluted AVP to its extreme with no other constituent and thus ought to be included in Entry No.114 of the Act to be assigned the corresponding HSN Code No. 3204 12 94, its prospect would stand jeopardized if the aforenoted anomaly simpliciter is awarded a decisive primacy. There being no estoppel against law, the plea of the respondents against the maintainability of the instant proceeding for want of bonafide of the petitioner does not commend for acceptance. 19. In Reckit Benckiser (India) Ltd (Supra), the question that was posed for the scrutiny of the Apex Court was whether mosquito repellants and other items fell under Entry 44(5) of Schedule III to the KVAT. Whereas, the appellant insisted on the aforesaid classification, according to the Revenue, the products were traceable to Entry No.66 which attracted an enhanced rate of duty. Interfering with the decision of the jurisdictional High Court from which the appeal had been preferred to it, the Apex Court underlined that cases where HSN and Code number is indicated against a tariff item mentioned in the Third Schedule of KVAT then, in terms of the Rules of Interpretation one ought to abide by the same as adopted by Customs Tariff Act, 1975 and thus interpret the entries in the said Schedule not only in the light of the entries in the Custom Tariff Act,1975, but also the judgments applicable thereto. Their Lordships observed that KVAT was aligned with the Customs Tariff which, in turn, was in Harmony with HSN and consequently its product in question was required to be viewed in the context of HSN and Code number and the judgmenst based thereon. 20. That Explanatory Notes to the Harmonized System of Nomenclature (HSN) were not only of persuasive value, but having regard to the fact that the structure of the Central Excise Tariff is based thereon were entitled to greater weightage was underlined by the Apex Court in Collector of Customs, Bombay(Supra) in which it quoted with approval its observations in Collector, Central Excise, Shillong vs. Wood Crafts Products Limited [ 1995(77) E.L.T. 23] as follows :- “We are of the view that the Tribunal as well as the High Court fell into the error of overlooking the fact that the structure of the Central Excise Tariff is based on the internationally accepted nomenclature found in the HSN and, therefore, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning of the expression „similar‟ laminated wood‟ in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian Tariff of a different intention.” 21. The Rules of Interpretation of the Schedules as appearing in the KVAT enjoin that commodities allotted HSN Code numbers ought to be extended the same meaning as recorded in the Customs Tariff Act, 1975 and that while interpreting such a commodity if any inconsistency is observed between the meaning of a commodity without HSN Number and the meaning of a commodity with HSN Number, the commodity should be interpreted by including it in that entry which is assigned the HSN Number. This only evidences the elasticity extended to the expanse of the Harmonized System of Nomenclature (HSN) to guarantee to the maximum an uniformity in identification and classification of excisable goods for the levy thereon. Rule 43 of the Rules of Interpretation of Schedules appended to KVAT mandates that the goods catalogued in list A to the Third Schedule “industrial inputs and packing materials” would attract the rate of tax applicable to Third Schedule regardless of the purpose for which such goods have been purchased. This Rule does ordains that the end use of goods would not have any pertinence in adjudging the rate of tax otherwise prescribed therefore. 22. That Ujala Supreme has been determined to be comprised of the following constituents is borne out by the relevant reports referred to in M.P. Agencies(Supra) as well laid before this Court as follows :- AV/49 …….08 % Water …… 99.02% The petitioner‟s product is an extremely diluted form of AVP in the compositional context is also a finding of the Kerala High Court in M/S M.P. Agencies (Supra). 23. The following excerpt of the certificate dated 30.8.2006 of Prof. V.R. Kanetkar, Professor and Head, Dyestuff Technology Department, University of Mumbai, Institute of Chemical Technology (Autonomous) , University of Mumbai deserves to be extracted. “ The acid violate paste (referred as “AVP” hereafter) supplied to us confirms to Acid Violate 49, a synthetic organic classified into acid dye class which is used for the colouration of silk wool at elevated temperatures in the presence of acid. “AVP” is uniform and having standard strength which is formulated and prepared as ready for use. The”AVP” as well as “Ujala” purchased from the market are subjected to instrumental analysis (High Performance Thin Layer Chromatography) that the result are observed as below. 1. The chemical composition of “AVP” and “Ujala” are the same except for the dilution in “Ujala”. 2. It can be observed from the chromatogram that”Ujala” is a heavily diluted form of AVP with water. 3. As such”Ujala” cannot be used as a dye or a colouring matter as it is. 4. From the technical literature it can be understood that diluted acid violate 49 is used in the fabric finishing industries for imparting brightness to while fabrics (The mechanism being the fabric absorbs all the colours in the visible light and transmits the bluish/purplish tint). … …. ….. …. ….. …. ….. As per the technical report and the HPTLC repot, it can be conclusively said that Ujala is nothing but a diluted form of Acid Violet Dye. The observations of the HPTLC analysis are as follows. a. All the components present in diluted sample of AVP are also present in Ujala sample. b. No additional components are present in Ujala Sample. c. The diluted AVP samples and the Ujala sample‟s Spectral scans are super imposable and match exactly, which confirms that Ujala is a diluted form of AVP and chemically they both are identical. From the above analytical and technical data, it can be concluded that ”Ujala” is only a diluted form of Acid Violate 49 with water, which has the inherent characteristics of brightening clothes and does not contain any other additives or optical brightening agents. The brightness of the fabric is increased because at absorbs all the colours in the visible light and transmits the bluish/purplish tint, thus hiding the yellowing of the fabrics.” 24. The above extract recites the following features of the analysis of the product – (1) The chemical compositions of AVP and Ujala are the same. (2) Ujala is heavily diluted form of AVP with water. (3) All the components present in diluted sample of AVP also exist in Ujala. (4) No additional component is present in Ujala. (5) Ujala is a diluted form of AVP and both are chemically identical. (6) Ujala is a diluted form of Acid Violate Paste 49 with water and has the inherent characteristics of brightening clothes. (7) Ujala cannot used as a dye or colouring matter as it is. 25. The petitioner in paragraph D.45 has referred to a report dated 22.10.2007 (stated to be Annexure-13 in the appeal before the High Court) of Prof. V.R.Kanetkar as above providing the following clarification : “4) Para 2, point 3 of the report dated 30th August, 2006 state that as such „Ujala‟ cannot be used as a dye or a colouring matter as it is. Ujala will impart permanent colour(dye) in the presence of acid at elevated temperature.” On a conjoint reading of this clarification (existence and authenticity of the report dated 22.10.07 not having been denied by the respondents), the absence of dyeing efficacy of the petitioner’s product in absolute terms cannot be inferred. Ujala Supreme assuredly thus is a commodity which is AVP being highly diluted with water possessing dyeing quality in the presence of acid at elevated temperature. 26. Axiomatically, therefore, if Ujala is identifiable with AVP though in a diluted form and is not construed to be a commercially different product there from, it is classifiable under Entry 114 of the Act and relatable to HSN Number 3204 12 94 for the purpose of excise duty under the Tariff Act. It, however, it is regarded as a new product independent of its constituent AVP irrespective of its end use , in absence of any other entry available to accommodate it, it is liable to be assessed as a residuary item contemplated under Schedule V of the Act. Admittedly, Ujala Supreme is a mixture or combination of AVP and water. Entry 114 of the Schedule II –C of the Act is assigned inter alia to synthetic organic colouring matter whether or not chemically defined as well as preparation based on synthetic organic colouring matter as specified in Note 3 of Chapter 32 of the First Schedule of the Central Excise Tariff Act, 1985. It is relatable to heading No.3204 in Chapter 32 of the Tariff Act dealing with “Tanning or Dyeing Extracts‟ Tannins and their Derivatives; Dyes, Pigments and other colouring matter; paints and varnishes; putty and other mastics; inks” Note -3 of Chapter 32 as above, extends amongst other the application of heading 3204 to preparations based on colouring matter of a kind used for colouring any material or used as ingredients in the manufacture of colouring preparations. This head Note, however, does not apply to pigments dispersed in non-aqueous media, in liquid or paste form, of a kind used in the manufacture of paints, including enamels or to other preparations of heading 3212 etc. 27. Their Lordships of the Supreme Court in C.C.E.,Mumbai (Supra), held that “compounded asafoetida” made from raw asafoetida through the process involved did not constitute manufacture as no chemical change was brought about thereby. As the essential character of the product remained the same, no process of manufacture was involved. Their Lordships highlighted the twin tests of manufacture and marketability to ascertain whether a commodity was exigible to excise duty or not. 28. In Crane Betel Nut Power Works (Supra), the issue was whether processing of betel-nuts by essential/non essential oils menthol, sweetening agents etc. amounted to manufacture to attract excise duty. Having regard to the nature of the process to which the betel-nuts were subjected to, it was held in the negative as no article different from the raw material was produced. In arriving at this conclusion, their Lordships recalled the view of the Constitution Bench of the Apex Court in Union of India vs. Delhi Cloth and General Mills,(1963) Supp. 1 SCR 586 that „ manufacture‟ signified bringing into existence of a new substance and not merely to effect a change in one. The following extract of the rendering in Anheuser-Busch Brewing Association vs. United States, 52 L.Ed. 336-338 was referred to with approval- “ “Manufacture implies change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinctive name, character or use.” It was held that the process involved in the emergence of sweetened betel-nut pieces did not result in the manufacture of a new product as the end product continued to retain its original character though in a modified form. 29. The assessee in Commissioner of C.Ex. , Cochin (Supra) engaged in the manufacture of Latex (Rubber) based Adhesive with brand names Superset (LC) and Superset (LB), was engaged in a debate with the Revenue regarding classification of its product for determining its excise duty liability. Disapproving the plea of „end user test‟ applied by the Revenue for the purpose of classification, their Lordships held that therefor “composition test” is important and that the end user test would apply only if relevant entry approves the same. 30. Noticeably, the argument on behalf of the respondents that Ujala Supreme even if a dye, being offered for sale in form or packing for retail sale, is covered by heading 3212 is not based on pleadings. Such a plea is instead opposed to the stance of the respondents that the product is shorn of any dyeing attribute. Be that as it may, as the product is a composition of two constituents as demonstrated by its composition, Rule 3(b) of the General Rules for Interpretation of the Harmonized System seems apposite to diagnose with certitude, its classification to ascertain the rate of its exigibility to duty under the Tariff Act. Judged by the percentage of existence of the ingredients of the product, it cannot be gainsaid that the essential characteristics thereof would be decided by Acid Violate Paste (AVP). As it is Rule 3(b) stipulates that classification of mixtures and composite goods consisting of different materials or made up of different components as well as goods put up in sets for retail sale and which cannot be classified by referring to Rule 3(a) shall be classified as if they constitute the material or component which gave them their essential character. As Ujala Supreme is a highly diluted form of AVP in its essential character, on the application of Rule 3(b) it appropriately is entitled to be catalogued in Entry 114 of Schedule II-C of the Act and qualified for HSN 3204 12 94 for determining the rate of taxability. 31. The ultimate conclusion of their Lordships in M/s M.P. Agencies contrary to the above is based on the findings of the report dated 30.8.2006 that Ujala Supreme is in capable of being used as a dye or a colouring matter and it having thus lost that quality due to extreme dilution, can no longer be identified with AVP. The petitioner’s contention against manufacture of the product to yield a commodity novel in kind and distinguishable from AVP was not considered in this premise. On the same reasoning, the benefit of classification based on Harmonized System of Nomenclature was refused to its product. This determination with utmost respect for the aforementioned deductions in the present adjudication cannot be subscribed to. Not only the clarification provided in the report dated 22.10.2007 by Prof. V.R. Karnetker neutralizing the earlier observations in the report dated 30.8.06 that Ujala cannot be used as a dye or a colouring matter, is of definite significance for the ultimate classification of the product, its structural composition as well enjoins its inclusion under Entry 114 of Schedule II-C of the Act earning for it HSN Code Number 3204 12 94 to determine its tax liability. 32. The decision of the Apex Court in Camlin Limited(Supra), that if the entries in the HSN and the Tariff are not aligned, reliance on the former for the purpose of classification of goods is not permissible, does not advance the case of the revenue in the facts of the present case. 33. The decision in O.K. Play(India) Ltd.(Supra), while reiterating that the scheme of the Central Excise Tariff is based on Harmonized System of Nomenclature and the explanatory notes thereto as a safe guard for interpretation of an entry, underlined that functional utility, design, shape and predominant use are equally relevant for determining the classification of an item. This, however, is not in effacement of the enunciation that end use of product is not an absolute index in the matter of classification. 34. Their Lordships of the Apex Court in Western India Plywood Ltd(Supra) reiterated the well settled proposition that resort to residuary tariff entry ought to be made with a good deal of caution and only when no other provision express or implied is available for the goods in question. It was held that in the matter of classification, identification of an entry is the primary step and the description thereof would be relevant for assigning it a particular tariff entry. 35. The decision in Commissioner of Central Excise, Mumbai-IV (Supra) has been introduced by the respondents to brace up its plea that the petitioner’s product cannot be passed on as AVP in view of the negligible percentage of its existence in it. The Apex Court therein was in seisin of a commodity/preparation containing 70% of mineral oil and 20% of petroleum oil. Having regard to the fact that it was blended lubricating oil, it was held that negligible percentage of rust preventive did not make the product a rust preventative one. Having regard to the composition of the petitioner’s product, this exposition is also of no assistance to the respondents. 36. On the other hand, the decision of the Apex Court in Dunlop India Ltd (Supra) and of this Court in CHEM Trade India (P) Limited underlined that lodgment of an item in the residuary category is approvable only if by no conceivable reasoning, it can be brought within the purview of any other tariff item. That the burden to this effect is on the department was also emphasized in unambiguous terms. 37. On a totality of the above considerations, this Court is of the unhesitant view that the petitioner’s product “Ujala Supreme” is entitled to be included in Entry 114 of Schedule II-C of the Act with corresponding rate of duty prescribed by HSN Code No. 3204 12 94. This Court, for the reasons recorded hereinabove, is thus in respectful disagreement with the observations and the conclusions recorded in M/s M.P. Agencies (Supra). The impugned order dated 11.8.2010 when judged by the above touchtone is thus unsustainable in aw and on facts. It is thus, quashed. 38. The petition is allowed. No costs. |
KARNATAKA HIGH COURT |
Commissioner of Income-tax, Bangalore Versus Sri. S. Mohan Kumar (HUF) |
Income from Other sources or House property - whether income from furniture and fixtures and other amenities provided by the owner of the property would constitute income from house property - Held that:- When section 56(2)(iii) makes it explicitly clear that the income from machinery or fixture belonging to the assessee and let out on hire, if it is not chargeable under the heading of 'Profits and gains of business or profession', then it has to be charged to income-tax under the heading 'income from other sources'. - If the aforesaid income is inseparable from letting out the said plant & machinery other than the income of such letting out cannot if it is not chargeable to income-tax under 'profits and gains or profession', is chargeable under the head 'Income from other sources'. Therefore under these circumstances, the income derived from letting out the furniture and fixture is not chargeable under the heading of 'income from house property'. |
No. - IT APPEAL NOS. 320 TO 330 AND 332 OF 2009 |
Dated - February 7, 2011 |
N. KUMAR AND RAVI MALIMATH, JJ. K.V. Arvind and M.V. Seshachala for the Appellant. A. Shankar and M. Lava for the Respondent. JUDGMENT N. Kumar, J. – These 12 appeals are preferred by the assessees against the order passed by the Tribunal holding that the rental received by the assessees from letting out work stations, air conditioners, electrical fittings, fire detectors etc., are to be bifurcated under the heading of 'Income from other sources' and not 'Income from house property.' 2. The substantial question of law that arises for consideration in all these appeals is as under:— "(1) Whether the Tribunal was justified in holding that the rental income received by the assessees from letting out the building together with furniture, fixtures and equipments should be bifurcated under two heads: (a) "income from house property" (b) "income from other sources" Insofar as the income from furniture, fixtures and equipments is concerned not the entire rental income under the heading of 'income from house property' the income is to be assessed as income from house property. 3. The assessees in all these appeals are co-owners of the property situated at 13, 14, 15, & 16 Magrath Road, Bangalore, The said property was given on joint development to M/s. Embassy Classic Private Limited. After the transfer of the portion of the interest in the property in favour of the developer or its nominees in terms of the joint development agreement, the assessees had reported long-term capital gains. The assessees had filed returns under section 143(1) of the Income-tax Act, 1961, (hereinafter referred to as 'the Act' for short). The proceedings under section 132 of the Act was initiated by the Department in the premises of the assessees on 9-4-2005. No income or assets let alone undisclosed or the concealed income was found. After the completion of the search operations notices were issued under sections 153A and 139(1) of the Act for the assessment years 2000-01 to 2005-06 calling upon the assessees to file returns of the income for the said years. The assessees filed their replies on 20-4-2006 and requested the assessing authority to treat the returns of income filed earlier under section 139(1) of the Act, as the returns of the income in response to the notices issued under section 153- A of the Act. The Assessing Officer thereafter proceeded to pass orders on 28-12-2007 for all years from 2000-01 to 2003-04. The Assessing Officer accepted the income reported by the assessee. The Assessing Officer computed the long term capital gains on the joint development at Rs. 53,07,353 as against Rs. 46,35,694 shown by the assessees in the return of the income. The assessing authority brought to tax the furniture, fixtures and equipment and hire charges shown under the heading "other sources" by the assessees under the heading "Income from house property" thereby denying the deduction claimed by the assessees for the interest paid on the monies borrowed from ICICI bank for providing the said amenities and the depreciation allowance on the furniture, fixtures and equipment. Thus aggrieved by the same, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). The appellate authority granted relief to the assessees insofar as computation of long term capital gains is concerned. However, in other aspects the order of the Assessing Officer was confirmed. The assessees preferred an appeal to the Tribunal challenging that portion of the order which did not give them the relief. 4. The Tribunal recorded a finding that both the authorities below misdirected themselves in disallowing the depreciation and interest on the income of hiring charges rendered by the assessees as "income from other sources". Aggrieved by this portion of the order of the Tribunal the revenue has preferred these appeals. 5. The learned counsel appearing for the revenue assailing the impugned order contends that the material on record discloses that the assessees have let out the premises along with furniture and fixtures to the lessees under a common lease deed. Without those furniture and fixtures, the shell portion of the building is of no use to the lessees. Thus the furniture and fittings could not have been let out independently to any other person. Under those circumstances as held by the Calcutta in the case of CIT v. Shambhu Investments (P.) Ltd. [2001] 249 ITR 47/116 Taxman 795 which has been affirmed by the Apex Court that when the main intention is to exploit an immovable property by way of complex commercial activities, the income derived representing the hire charges of furniture and fixtures forms part of the income from house property. Therefore, the Tribunal was not justified in taking a contrary stand. As such they seek for setting aside the said order. 6. The learned counsel appearing for the assessees supported the impugned order contending that there is only one lease deed and a separate rent is specified for the shell, that is the building and for the furniture and fittings which are given on hire to the tenant. In fact a loan was borrowed from ICICI bank for providing these fittings and furniture, according to the specification of the tenant and the said lease is independent of the lease of the building, though in the very same lease deed both are specifically mentioned giving separate schedules. Therefore he submits that by no stretch of imagination the rental income derived from letting out furniture and fixtures would constitute income from house property and the hire charges received in this regard would not constitute income from house property. He also contended that in respect of these appeals, the amount involved does not enable the revenue to prefer an appeal in view of section 268-A of the Act and therefore on that ground alone these appeals are liable to be dismissed. 7. The learned counsel further submitted that in respect of some other co-owners the revenue has accepted their case that the hire charges from furniture and fixtures would constitute income from entire property. Even in respect of some assessees in these appeals for the subsequent years, the revenue has accepted the hire charges for furniture and fixtures as falling under the head "income from other sources" and only in respect of the orders which are the subject matter of these appeals the revenue has taken such a stand which is not permissible in law. 8. In the light of the aforesaid facts and the rival contentions the question that arises for our consideration is whether the income from furniture and fixtures and other amenities provided by the owner of the property would constitute income from house property? 9. Chapter-IV of the Act deals with computation of total income under the heads of income, 'C' deals with income from house property. Section 22 of the Act defines "income from house property" which reads as under:-- "The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall he chargeable under the head "Income from house property," Therefore it is clear that it is the annual value of property consisting of : (a) any buildings or (b) amounts derived thereof (c) of which the assessee is the owner only could be the income chargeable to Income-tax under the heading income from house property. 10. Section 23 of the Act provides for determination of annual value. Section 24 deals with deductions from income from house property. Section 25 deals with amounts not deductible from income from house property. Section 26 deals with property owned by co-owners which provides that: "Where the property consisting of buildings or buildings or lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each person in the income from the house property as computed in accordance with sections 22 to 25, shall he included in his total income" Then section 27 deals vote owner of house property. 11. It is in this background we have to see the statutory provision contained in section 56 which deals with income from other sources. Sub-section (1) of section 56 makes it dear that income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources"; if it is not chargeable to income-tax under any of the heads specified in section 14, Items A to E, sub-section (2) of section 56 specifically states the rate of income-tax which shall be chargeable to income-tax under the head 'income from other sources'. Sub-clause (ii ) provides that "income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to Income-tax under the head 'Profits and gains of business or profession'. Clause (iii) also provides that "where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession." Therefore, the intention of the Legislature is explicit. If the machinery, plant and furniture is not separate from the letting of the said machinery, the income from such machinery, plant along with the income from the building, the income is chargeable to income-tax under the head of 'income from other sources', if it does not fall under "profits and gains of business or profession". Therefore, under no circumstance the income from letting out the furniture and fixture becomes chargeable to income-tax under the head of 'income from house property'. 12. It is in this background we have to see the various Judgments on which reliance is placed. In the case of Shambhu Investment (P.) Ltd. (supra), the assessee was the owner of a building at Raheja Chambers, Mumbai. He had furnished the said premises and let it out to various persons and/or firms and/or organisations with all furniture, fixtures, light, air-conditioners for being used as 'table space'. He also had agreed to provide services like watch and ward staff, electricity, water and other common amenities. The income derived by the assessee from the said office premises was offered for taxation as business income and accordingly he was assessed. The Commissioner of Income-tax held the income derived from the said property was actually rent received from the occupiers end not to be regarded as service charges and maintenance and cannot be termed as business income. The Tribunal set aside the order of the Commissioner and restored the order of the Assessing Officer. In appeal, the High Court after referring to the various judgments held that, merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income. 13. Applying the said law to the facts of the case it was held that, the cost of the property was Rs. 5,42,443. A portion of the said property is used by the assessee himself for his own business purpose. The rest of the said property has been let out to the various occupiers, the assessee had already recovered a sum of Rs. 4,25,000 as and by way of security free advance from three occupants. Hence, the entire cost of the property let out to those occupiers has already been recovered. Therefore it was held, it cannot be said that the assessee is exploiting the property for its commercial business activities and such business activities are prime motive and letting out the property is a secondary one, Applying the test set down in Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 by the Apex Court it was held that, it is composite table space let out to various occupants, the amenities granted to those occupants including the user of the furniture and fixtures are attached to such letting out and by the said agreement, the parties have intended that such letting out would be an inseparable one. The prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. Therefore, it held the said income is to be treated as income from house property. Therefore, the question in the aforesaid case was, whether the income is to be assessed as income from house property or income from business. 14. In the case Sultan Bros. (P.) Ltd. (supra) the Constitution Bench of the Apex Court was dealing with a case where the assessee who constructed a building on Plot No. 7 at Bombay had fitted up with furniture and fixtures for being run as a hotel. The assessee let out the building fully equipped and furnished to one Voyantzis for a term of six years for running a hotel and for certain other ancillary purposes. The lease provided for a monthly rent of Rs. 5,950 for the building and a hire of Rs. 5,000 for the furniture and fixtures. The assessee contended that the entire income should be assessed under section 10 as the income of a business or, in the alternative, the income should be assessed under section 12 as income from a residuary source, i.e., a source not specified in the preceding sections 7 to 11, with the allowances respectively specified in sub-sections (3) and (4) of that section. Therefore, the question which arose for consideration in the said case was, whether the rental income is to be assessed as a business-income or income from other sources. 15. Answering the said question, they held the rent from the building will be computed separately from the income from the furniture and fixtures and in the case of rent from the building the appellant will be entitled to the allowances mentioned in sub-section (4) of section 12 and in the case of income from the furniture and fixtures, to those mentioned in sub-section (3), and that no part of the income can be assessed under section 9 or under section 10. Therefore, in substance it was held the income falls under the heading of income from other sources and not income from business. Therefore, the Supreme Court did not go into the question whether income from the furniture and fixtures would fall under the income from house property at all. As such, the said judgment has no application to the facts of this case. 16. In this case the question for consideration is whether the income from furniture and fixtures is to be put under the head 'income from house property'. As both the leases are contained in very same document the said Judgments are of very little assistance in deciding the case on hand. However, the Madras High Court in the case of Tarapore & Co. v. CIT [2003] 259 ITR 389/[2002] 125 Taxman 446 dealing with an identical issue held as under:— "That the actual rent received by the owner (assessee) would constitute the basis for determining the annual value and it was the value which would have to form the basis for determining the income from house property and for allowing the deduction from income from house property to the extent permitted under the other provisions of the Income-tax Act. In making such computation, there was no provision to add other amounts received by the owner of the building as representing the value of the service charges rendered by him to his tenants as income from house property. Hence, the Tribunal was right in holding that the receipts from service charges were liable to be assessed as income from other sources and not income from house property." 17. Therefore, from the aforesaid statutory provisions it is clear that if the income is to be chargeable under the heading of 'Income from house property' it should be the income which represents the annual value of property consisting of any building or hands appurtenant thereto of which the assessee is the owner and only such income shall be chargeable to Income-tax under the head 'Income from house property'. When section 56(2)(iii) makes it explicitly clear that the income from machinery or fixture belonging to the assessee and let out on hire, if it is not chargeable under the heading of 'Profits and gains of business or profession', then it has to be charged to income-tax under the heading 'income from other sources'. If the aforesaid income is inseparable from letting out the said plant & machinery other than the income of such letting out cannot if it is not chargeable to income-tax under 'profits and gains or profession', is chargeable under the head 'Income from other sources'. Therefore under these circumstances, the income derived from letting out the furniture and fixture is not chargeable under the heading of 'income from house property'. 18. The finding recorded by the Tribunal is in accordance with law and does not suffer from any illegality or infirmity and therefore it does not call for interference. The substantial question of law raised in this appeal is answered in favour of the assessee and against the revenue. 19. Insofar as the contention that these appeals are not maintainable at all as they are hit by section 268A(1) in particular, as on merits itself we have held that the assessees are entitled to the relief and dismissing the appeals upholding the order of the Tribunal, this question need not be gone into in these appeals. Accordingly, we pass the following order. |
SUPREME COURT Judgments at a GLANCE
Case No: I.A. No. 8 of 2011 In Writ Petition (Civil) No. 176 of 2009)
Ram Jethmalani & others Petitioner(s) versus Union of India & others Respondent(s)
Date of Decision (mm/dd/yy): 9/23/2011.Judge(s): Hon'ble Mr. Justice Altamas Kabir and Hon'ble Mr. Justice Surinder Singh Nijjar. Subject Index: Altamas Kabir, J:-
Ram Jethmalani & others Petitioner(s) versus Union of India & others Respondent(s)
Date of Decision (mm/dd/yy): 9/23/2011.Judge(s): Hon'ble Mr. Justice Altamas Kabir and Hon'ble Mr. Justice Surinder Singh Nijjar. Subject Index: Altamas Kabir, J:-
Constitution of India, 1950 — Article 142 — Supreme Court Rules, 1966 — Order 47 Rule 6 — modification application filed under — maintainability of — to consider — writ petition filed against the purported inaction of the Government to arrange for recovery of large sums of money deposited by Indian citizens in foreign banks and, in particular, in Swiss Banks — directions issued — application filed seeking modification of the order and to delete the directions relating to the Special Investigation Team in paragraphs 49 and 50 of the said order — the Supreme Court held that even if the application was to be dismissed as being not maintainable under Article 142 of the Constitution read with Order 47 Rule 6 of the Supreme Court Rules, 1966, it would not preclude the Applicants from filing an application for review under Article 137 of the Constitution, thus, as the very working of the Special Investigation Team appointed under the order of 4th July, 2011, is in question, it is necessary to cut across the technical tapes — the objections regarding the maintainability of Interlocutory Application rejected and the said application is directed to be proceeded for hearing. Surinder Singh Nijjar, J:- Interlocutory application — for modification of order — whether maintainable — held no — the Supreme Court held that the application would not be maintainable as in substance, it is more in the nature of a Memorandum of Appeal — the application seeks to reopen the whole matter on merits which would not be permissible in an application for modification — the present application would be an abuse of the process of the Court as it seeks to camouflage an application for Review as an application for modification — held that review of a judgment is a serious matter and is, therefore, governed by constitutional and statutory provisions — application dismissed. CONCLUSION: The matter placed before Hon'ble the Chief Justice of India, for reference to a third Judge.
2010 (20) S.T.R. 268 (S.C.) |
No. - 471 of 2009 |
Dated - March 16, 2009 |
UMA NATH PANDEY Versus STATE OF U.P. |
Natural Justice - Challenge in this appeal is to the order passed by a learned Single Judge of the Allahabad High Court allowing the Revision Petition filed by respondent no.2. Though various points were urged it is not necessary to go into those in detail as the revision petition was allowed even without issuing notice to the present appellants and to the other parties. Whether principles of natural justice have been violated; and if so, to what extent any prejudice has been caused? Held that – natural justice is essence of fair adjudication and to be ranked as fundamental. Purpose of following principle of natural justice is to prevent miscarriage of justice. Notice and hearing required as per principle of natural justice. Impugned order set aside. Matter remanded. |
Case No:Criminal Appeal No. 339 of 2007 With Criminal Appeal Nos. 340, 345, 346, 358, 362, 388, 390-400of2007)(NEW) Anup Bhushan Vohra------------------------------------------------ Appellant(s) Versus The Registrar General, High Court of Judicatureat Calcutta------------- Respondent(s) Date of Decision (mm/dd/yy):9/16/2011. Name of the Judge: Hon'ble Mr. JusticeP.Sathasivamand Hon'ble Dr.JusticeB.S.Chauhan. Subject Index: Contempt of Courts Act, 1971 — section 19 — appeals under — Satyagrah started in front of the District Court at Jalpaiguri — the then Chief Justice of the High Court, instructed the District Judge through the Registrar General to seek necessary help and protection from the Superintendent of Police, Jalpaiguri to take immediate steps so that the Judicial Officers could enter the Court premises and attend the judicial work but no action was taken — two Suo Moto Rules of Contempt issued — the High Court imposed simple imprisonment for a term of six months with a fine of Rs.2,000/- each against the appellants/contemnors — hence, the appeals — till the agitation was called off, the agitation was entirely peaceful and there was no law and order problem, sufficient police force was stationed and the Members of the Committee and their sympathizers kept requesting the District Judge/Magistrates and the officials and staff with folded hands not to enter the courts in view of their demand for establishment of the High Court Circuit Bench and the District Judge/Judicial Officers and the staff voluntarily returned home and did not ask the police to help them get into the court premises — the materials placed on record showed that the police force was present at the gate of the District Court on all days except Sundays and holidays to supervise law and order situation and to assist the Judges and Judicial Officers, the fact remains that the District Judge and the Judicial Officers never asked for any police help for their entry into the court premises on all days — there was no wrongful restraint on the Judges and Judicial Officers of the District Court as is evident from the GD entries — the conviction and sentence on the appellants set aside and all of them are discharged from the charges levelled against them — appeals allowed. |
(Case No:Civil Appeal Nos. 6889-6891 of 2011 With Civil Appeal No.6892 of 2011 With Civil Appeal No. 6893 of 2011) State of Jharkhand & others etc. Appellant(s) versus M/s. Shivam Coke Industries, Dhanbad,Etc. Respondent (s) Date of Decision (mm/dd/yy):8/10/2011.Name of the Judge:Hon'ble Dr. Justice Mukundakam Sharma and Hon'ble Mr. Justice Anil R.Dave.
Subject Index: Bihar Finance Act, 1981 — section 46(4) — determination of tax on intra-State sales transactions as well as Central Sales Tax on inter-State sales transactions — the Deputy Commissioner of Commercial Taxes, Dhanbad Circle passed the revised assessment orders of the respondent. Thereafter the Deputy Commissioner of the Dhanbad Circle got changed and the new Deputy Commissioner opined that the revised assessment orders do not conform to the appellate direction, thus, issued notice/Memo directing the Respondent to furnish the complete sets of books of account in order to determine the legality and propriety of the said revised assessment orders — writ petition filed for quashing of the notice/Memo issued — allowed — hence, the appeal — whether the suo Moto power of revision under Section 46(4) of the BFT Act, 1981, vested with the Joint Commissioner was legally and properly exercised — yes — whether the action taken by the Department was barred by limitation — no — whether the order passed by the Joint Commissioner setting aside the revised assessment order is proper and could be maintained — the contents of the notice indicate that the aforesaid notice was issued by the Joint Commissioner by exercising his individual suo motu power as provided under Section 46(4), therefore, it was not a revision initiated on the basis of any application filed by an aggrieved party namely the Deputy Commissioner but initiation of a Revisional proceeding by the Joint Commissioner by forming his own opinion and satisfaction to exercise suo Moto power vested under Section 46(4) of the BFT Act on the basis of the materials on record — impugned order of the High Court set aside and matter remitted back to the Joint Commissioner to hear the parties and to pass fresh order in respect of the legality and propriety of the revised assessment order — appeal disposed.
SUPREME COURT OF INDIA Hon'ble Dr. Justice Mukundakam Sharma and Hon'ble Mr. Justice Anil R. Dave
Jaipur Vikas Pradhikaran ………………………………………Appellant
Jaipur Vikas Pradhikaran ………………………………………Appellant
Versus
Sri Ashok Kumar Choudhary & others……………………………. Respondent(s)
Case No: Civil Appeal No. 5099 of 2002 Date of Decision (mm/dd/yy): 9/15/2011 Appearing Advocate(s): For the Appellant : Mukul Kumar, Milind Kumar, D.S. Chauhan, Advocates For the Responodent(s) : B.K. Satija, Subodh K. Pathak, D.K. Sinha, M.L. Lahoty, Paban K. Sharma, Ms. Gargi Bhatta Bharlab, Advocates Our Citation: 2011 SCCL.COM 630 |
Advocates Act, 1961 — section 38 — appeal under — professional misconduct — the appellant filed complaint alleging that respondent No.1 was engaged on retainer basis to defend Jaipur Development Authority, however, the Respondent No.1 intentionally acted against the interest of the appellant in defending the said Reference, thus, acted in violation of the professional ethics and also abused the trust reposed on him — the Bar Council of India dismissed the complaint — hence, the appeal — the facts on record showed that the respondent no. 1 not only appeared for the wife of the respondent no. 3 in the same reference in which he also appeared for the appellant, who were contesting the claims of the claimant including his own sister — the respondent no. 1 had not only not disclosed the conflicting interests that he had in the matter but had gone a step further by betraying the trust reposed on him by the complainant, thus, the conduct of the respondent no.1 in conducting the case clearly proves and establishes his misdemeanor and misconduct — the order of the Disciplinary Committee holding that the respondent no. 2 and 3 not guilty of the charges of misconduct made against them upheld however, directed to suspend the respondent no.1 as an Advocate from practice for a period of six months — appeal disposed. |
THAUGHTS FOR THE MONTH Frog decided to reach top of a tree, All frogs shouted 'it’s impossible', but one frog reaches the top, How? He was deaf, 'Be deaf to negative thoughts'. |
NEWS & VIEWS |
October 12, 2011 |
CBI registers case against excise officer The suspended superintendent of the office of the Director General of Central Excise and Customs (Intelligence), Pune regional unit, Krishna Mahadik is in more trouble. The Central Bureau of Investigation (CBI), Pune unit, has registered a new complaint of disproportionate assets against Mahadik and his son Vinay, for possessing moveable and immovable assets to the tune about Rs. 1 crore. This is the third case registered against Mahadik. The CBI had arrested earlier arrested him for allegedly accepting a bribe of over Rs. 1.09 crore from two Jalna-based industrialists, Surender Pitti of M/s SRJ Pitti Private Ltd and Dinesh Bharuka of M/s Om Sai Ram at Wakdewadi, on January 8. The agency has also filed a chargesheet under the Wild Life Protection Act against Mahadik for possessing a deer skin. The case is pending before the chief judicial magistrate. A search of Mahadikas residence after he was arrested yielded a revolver, Rs. 6.37 lakh, 15 kg of silver articles, 250 gm gold jewellery, US$800 and 80 files containing documents about the purchase of flats. Later Mahadik was let out on bail. Speaking to TOI, Vidya Kulkarni, superintendent of police (SP), CBI anti-corruption bureau on Tuesday said that a complaint of disproportionate assets was registered against the Mahadiks under sections 13 (2), 13 (1) (e) of the Prevention of Corruption Act and 109 of the Indian Penal Code. The Mahadiks have not been arrested. The action against Mahadik was taken after he failed to explain how he had come in possession of disproportionate assets. Mahadik, who hails from Satara, joined service as an inspector at Ratnagiri. He became superintendent of central excise and customs in 1997 and started working in the Pune office in 2006. |
Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 approved. |
Press Information Bureau Government of India Ministry of Finance 13-October-2011 13:46 IST Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 approved The Union Cabinet today approved introduction of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 in the next session of Parliament. The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity. Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information. The suggested amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of the banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets, The Bill seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and Recovery of Debts due to Banks & Financial Institutions (RDBF) Act so as to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions through the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011. Background: The banks and financial institutions (FIs) were facing numerous problems in recovery of defaulted loans on account of delays in disposal of recovery proceedings. The Government, therefore, enacted the RDBF Act in 1993 and SARFAESI Act in 2002 for the purpose of expeditious recovery of non-performing assets (NPAs) of the banks and FIs. Although these two acts have helped in reducing the NPAs, banks have sent certain suggestions for further strengthening of the secured creditor rights. |
GST CMPREHENSIV FEATURE
Raghwendra Kumar Mishra
Advocate
GST comprises of the following elements:
1. It should be a dual levy concurrently by the Centre and States, but independently to promote cooperative federalism.
2. Both the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST) should be levied on a common and identical base.
3. The Centre and the States should adopt a consumption-type GST, that is, there should be no distinction between raw materials and capital goods in allowing input tax credit.
4. The tax base should comprehensively extend over all goods and services up to the final consumer point.
5. There should be no classification between goods and services in law so as to ensure that there is no classification of dispute.
6. The GST should be structured on the destination principle. As a result, the tax base will shift from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved of the burden of goods and service tax by zero rating.
7. The computation of the CGST and SGST liability should be based on the invoice credit method i.e. allow credit for tax paid on all intermediate goods or services on the basis of invoices issued by the supplier. This will facilitate elimination of the cascading effect at various stages of production and distribution.
8. The CGST and SGST should be credited to the accounts of the Centre and the States separately. Since the CGST and SGST are to be treated separately, taxes paid against the CGST should be allowed to be taken as input tax credit (ITC) for the CGST and could be utilized against the payment of CGST. The same principle will be applicable for the SGST. Cross utilization of ITC between the CGST and SGST should not be allowed.
9. Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.
10. The consignment sales and branch transfers across States should be subject to treatment in the same manner as if it was a inter-state transaction in the nature of sale between two independent dealers.
To put straight in a simplified note, before a final product and service in put in place, there are various stages and value addition in the production of the manufactured goods and also need professional service coming within the ambit of service tax. As the tax is on an advelorem basis, the costing of the value addition at each stage has to be derived in a professional and standardized manner based on the technology, size of operation and the price of the basic raw material. This standardized working of the value addition at each stage before it passes on to the next level of value addition in the chain of operations is to be done in a professionalized manner so that consistency and uniformity is maintained. The industry forums like the CII, FICCI and professional bodies like Chartered Accountants, Cost Accountants are gearing up to get the derived advantage of the GST Regime.
The Government would want that there are no revenue leakages in the GST regime. The need is therefore to have the enabling agents who can ensure that all these are done in the correct manner. Here lies the opportunity for the Finance Professionals to rise and be the change Manager.
GST - ROLE AND SCOPE FOR FINANCE / LEGAL PROFESSIONALS
GST implementation will lead to immense scope for FINANCE/ LEGAL PROFESSIONALS who with expert knowledge about manufacturing, costing and pricing can play an important role once GST is implemented. For Industry:
1. With their good knowledge on manufacturing, costing and pricing can educate the suppliers/vendors about GST and ensure input tax credit is availed correctly.
2. Help in arriving at the cost of the product correctly by considering/availing input tax credit as per the provisions of GST.
3. With their expert knowledge on manufacture can ensure tax compliance, monthly returns, e-filing, availing of credit and payment of taxes.
4. Can ensure tax planning and interpretation of the Act correctly and educating the various departments like strategic sourcing, payables, supply chain management, marketing etc.
5. There will be dual structure for GST, there will be levy by the Central Government known as CGST and levy by the State Government known as SGST. CST rate at present is 2% against Form C and CST will be phased out once GST is implemented and there will be another levy on stock transfers and consignment transfers known as IGST. The set-off against these CGST, SGST and IGST will be a complex model which is not clearly spelt out by the Government. Once the same is implemented, Finance professionals with their vast knowledge on Costing, Finance and indirect taxation can ensure proper set-off against these three levies namely CGST, SGST and IGST.
6. CGST will be levied by Central Government and every State will have its own SGST. To understand the complexity of each model of SGST, only Finance Professionals can guide the industry.
7. There are several Central Taxes which are not presently CENVATable viz., additional excise duty, countervailing duty etc and CGST would therefore subsume the following:
a) Central Excise Duty
b) Additional Excise Duty
c) Additional Excise Duty on medicinal and toilet preparations
d) Countervailing duty
e) Additional Duty under Section 3(5) of the Customs Tariff Act
f) Service Tax g) Cesses
h) Surcharges Finance Professionals can ensure set-off for all Central levies as per provisions of GST when implemented.
8. In the present system, Central Excise is levied at the manufacturing level whereas in the GST, tax will be levied on the value addition in the supply chain after the manufacturing level. Finance Professionals with their knowledge of Finance, Costing and SCM will be able to compute the taxes correctly under the GST.
9. In the present VAT system, there is no provision to levy VAT on services. However, GST proposes to levy SGST and CGST on services and Finance Professionals can ensure tax compliance on services both for Central and States.
10. In the present VAT system, even though input tax credit (ITC) is allowed, it does not include other taxes levied by the State Government viz., Luxury tax, Entertainment tax and Entry Tax not in lieu of octroi. Under GST, all these levies would be subsumed in the SGST. Finance Professionals can ensure set-off for all State levies as per provisions of GST when implemented.
11. In the present system, all inter-state transactions are covered by CST Act and administered by the respective State Government. The present rate is 2% CST against Form C or scheduled rate of VAT without Form C. The amount paid as CST is not available for set-off. Under the GST, IGST will be levied on all inter-state transactions like stock transfers and consignment transfers. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST and SGST on his purchases.
The major advantages of IGST Model are:
a) Maintenance of uninterrupted ITC claim on inter-State transactions.
b) No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer
c) No refund claim in exporting State, as ITC is used up while paying the tax
d) Self monitoring model
e) Model can take "Business to Business" as well as "Business to Consumer" transactions into account. The process of paying IGST and claiming set-off can only be done by a Finance professional with his immense knowledge on Finance & Accounting, computer and knowledge of GST.
12. In the present system, no VAT or excise duty is payable on imports. Under GST, SGST and CGST is payable on imports and set-off can be taken. This can be done by Finance Professionals.
13. Under GST, tax exemptions, remissions etc related to industrial incentives should be converted, if at all needed, into cash refund schemes after collection of tax, so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed. In such cases, the Central and State Governments could provide reimbursement after collecting GST.
This scheme of payment of GST and reimbursement from Central or State Governments can be administered by Finance Professionals who are well versed with Finance & Accounting and indirect taxation.
For Government: Finance/ Legal Professionals with their knowledge on Law, Finance & Accounting and indirect taxation can ensure following:
1. Taxpayers under GST need to submit periodical returns, in common format as far as possible, to both the CGST authority and to the concerned State GST authorities. All registered dealers to make the payment by electronically furnishing the return, which would be a combined monthly payment and return form for all intra-state and inter-state transactions.
2. CGST and SGST should be credited to the accounts of the Centre and States separately. Since CGST and SGST are to be treated separately, taxes paid against the CGST should be allowed against the payment of CGST. The same principle will be applicable for the SGST. Cross of utilization of ITC between the CGST and the SGST will not be allowed.
3. Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.
4. Small dealers with annual aggregate turnover of goods and services between Rs. 10 lakh to Rs. 40 lakh may be allowed to opt for a compounded levy of one percent each towards CGST and SGST.
However, no input credit will be allowed against the compounded levy or purchases made from exempt dealers.
For Finance/ Legal Professionals:
1. For practicing Finance/ Legal Professionals there is immense potential in the form of tax compliance, filing of returns, interpretation of law, advising dealers about the correct procedure for availing ITC, annual audit etc.
2. There will be immense opportunities in the industry as they can ensure that all the complexity in GST can be understood and implemented in the industry where they are employed.
3. Under the GST, new sectors are likely to be covered like real estate sector, power sector, transportation by road, rail, air and sea which will have vast scope and opportunities.
The GST will be a word class model which will consist of the following:
1. The base should extend to all goods and service including immovable property
2. There should be a single low rate
3. The tax should be destination based
4. The tax should be designed on invoice-credit method
5. Full and immediate input tax credit in respect of capital goods
6. The GST must replace all transaction based taxes on goods and services and factors of production
7. There should be seamless flow of the tax through all stages of production and distribution so as to stock on "final" consumption
8. The exports should be zero rated and imports should be fully taxes
9. There should be a threshold exemption for small dealers
10. Full computerization of the compliance and administrative system GST will overcome all the present inefficiencies and inadequacies of the indirect taxes.
This will be a win situation for all the stake holders.
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