I-T - In absence of evidence that commission was earned only in Gangtok, Sikkim resident companies cannot claim that they are liable to pay tax under Sikkim Manual, 1948 and not under Income Tax Act, 1961: SC

I-T - 'Fails to deduct' occurring u/s 271C(1)(a) would not include payer who caused delay in remittance of TDS deducted by him: SC

I-T - Receipts from DEPB and duty drawback schemes are not eligible for deduction u/s 80-IB: SC

COFEPOSA - In cases of preventive detention, every procedural irregularity must be accrued in favour of the detenue: SC

ST - Import of 'Engineering Design & Drawings' - CESTAT view that same activity cannot be taxed as 'goods' and 'services' is absolutely erroneous: SC

KVAT - Mosquito Mats, Coils and Vaporizers, Mortein Insect Killers, Harpic, Lizol are not classifiable as 'insecticides', taxed @12.5%; Dettol is a medicament taxed @4%: SC

2023-TIOL-34-SC-VAT

Reckitt Benckiser India Ltd Vs CCT

VAT - Classification - Issue pertains to the classification of the appellant's products namely (i) Mosquito Mats, Coils and Vaporizers; and (ii) Mortein Insect Killers; (iii) Harpic Toilet Cleaner and Lizol Floor Cleaners; and (iv) Dettol Antiseptic Liquid for the purposes of Kerala VAT Act, 2003 (KVAT Act) - It was the case on behalf of the appellant that the products at (i) to (iii) were classifiable under Entry No. 44(5) of the III Schedule to the Kerala VAT Act as being 'pesticides, insecticides' corresponding to HSN Code 3808 and, therefore, subject to VAT at the rate of 4% - With respect to the product at (iv) hereinabove, it was the case on behalf of the appellant that 'Dettol Antiseptic Liquid' is correctly classifiable under Entry 36(8) (h) (vi) being medicaments corresponding to HSN Code 3004.90 of the III Schedule, and thus also subject to tax at the rate of 4% - Commissioner of Commercial Taxes, rejected the contention of the appellant holding that the products (i) Mortein Mosquito Coil, Mat and Liquid Vaporizer is classifiable under Entry 66 of Notification SRO 82/06 dated 21.01.2006 issued under Section 6(1)(d) of the Kerala VAT Act which covers "Mosquito Repellants, electric or electronic mosquito repellants, gadgets and insect repellants, devices and parts and accessories thereof” corresponding to HSN Code 8516 79 20; (ii) Mortein Insect Killer is subject to tax at the rate of 12.5% under the residuary entry i.e. under SL No.103 of the Notification SRO 82/06 on the ground that they are not specifically classifiable under the Second and the Third Schedule; (iii) Harpic Toilet Cleaner and Lizol Floor Cleaner are classifiable under SI No. 27(4) of the said Notification SRO 82/06; and (iv) Dettol Antiseptic Liquid is classifiable under Entry 103 of the said Notification SRO 82/06 i.e. residual entry on the ground that the said product is not in the nature of a medicine having therapeutic or prophylactic properties, but is used only for cleaning purposes - High Court by the impugned judgment and order has dismissed the said appeal confirming the order passed by the Commissioner of Commercial Taxes, therefore, the present appeal.

Held:

+ While considering a particular entry, the principles of classification which are fundamental to any matter relating to classification under the taxing statute are: (a) plain meaning to be given to the taxing provision; (b) burden to prove classification in a particular entry is always on the Revenue; (c) any ambiguity has to be resolved in favour of the assessee and in case of a reasonable doubt, the construction most beneficial to the assesseemust be adopted; (d) specific entry would override a residuary entry; and (e) resort to residuary entry is to be taken as a last measure, only when, by liberal construction, the specific entry cannot cover the goods in question. [para 9.8]

+ Under the KVAT Act there is a specific Entry viz. Mosquito repellant, so far as the product electric or electronic mosquito repellents, gadgets and insect repellents, devices and parts and accessories thereof are concerned and, therefore, the said specific entry [66 of notification SRO 82/06] shall be applicable and, in any case, the same cannot be said to be insecticides. Therefore, Mosquito Mats, Coils and Vaporizers and Mortein Insect Killers products shall not be classifiable under Entry 44(5) as insecticides. [para 9.1]

+ Harpic and Lizol are essentially used as stain removers and deodorants. Merely because they kill germs as well, the same cannot be said to be insecticides classifiable under Entry 44(5). What is required to be considered is the dominant use and which is cleaning and removal of stains of floor and the toilet. Entry 27(4) being a specific entry, the same shall be applicable and the aforesaid two products namely Harpic and Lizol shall not be classifiable under general Entry 44(5) and in any case the same cannot be classifiable under Entry 44(5) as insecticides. They are classifiable under Entry 27(4) of SRO 82/2006 chargeable to tax @12.5%. [para 9.4]

+ Considering the dominant use of Dettol and the active ingredients of Dettol and that the Dettol is used as an antiseptic and is used in hospitals for surgical use, medical use and midwifery due to therapeutic & prophylactic properties, the same would fall under Entry 36(8)(h)(vi) as claimed by the appellant and would not fall under the residuary entry as claimed by the Revenue. Therefore, the same can be said to an item of medicament to be treated as drug and medicine. Here also, the dominant use is a relevant consideration. [para 9.6, 9.10] Conclusion: The impugned judgment and order passed by the High Court insofar as the products Mosquito Mats, Coils and Vaporizers and Mortein Insect Killers; Harpic Toilet Cleaner and Lizol Floor Cleaners is hereby confirmed. So far as the impugned judgment and order passed by the High Court with respect to Dettol Antiseptic Liquid is concerned, the impugned judgment and order passed by the High Court is set aside and it is held that the product Dettol would fall under Entry 36(8) (h)(vi) of Schedule III of the KVAT Act and shall be liable to be taxed at 4%: Supreme Court [para 10]

- Appeal partly allowed: SUPREME COURT OF INDIA

2023-TIOL-36-SC-COFEPOSA

Pramod Singla Vs UoI

COFEPOSA - Smuggling of gold through Air Cargo by concealing gold in transformers of electroplating/re-working machines etc. - Appeal is against the impugned judgment of Delhi High Court - 2022-TIOL-1396-HC-DEL-COFEPOSA whereby the appellant's plea to quash the detention order against him on ground of delay in considering his representation was denied.

Held:

+ Preventive detention laws in India are a colonial legacy, and have a great potential to be abused and misused. Laws that have the ability to confer arbitrary powers to the state, must in all circumstances, be very critically examined, and must be used only in the rarest of rare cases. In cases of preventive detention, where the detenue is held in arrest not for a crime he has committed, but for a potential crime he may commit, the Courts must always give every benefit of doubt in favour of the detenue, and even the slightest of errors in procedural compliances must result in favour of the detenue. [para 21]

+ The Pankaj Kumar Case (Supra) judgment was passed in the context of the Preventive Detention Act, 1960, and the Abdullah Kunhi Case (Supra) was passed in the context of the COFEPOSA Act. [para 31]

+ Under Section 3 of the Preventive Detention Act, the specially empowered officer, within 12 days of the detention, has to seek for an approval from the Government for continued detention, and only if the Government approves the same can the detention be continued. This process of seeking an approval from the Government is essentially a transfer of power from the empowered officer to the Government, making the Government the detaining authority after the initial lapse of 12 days. In the COFEPOSA Act, however, no such approval is required from the Government, and hence the detaining authority and the Government remain to be two separate bodies independent of each other. [para 32]

+ We find that there exists no friction between the Pankaj Kumar Judgment (1969) 3 SCC 400) and the Abdullah Kunhi Judgement (1991) 1 SCC 476 ) , since the Pankaj Kumar Judgement, while mandating the central Government to not wait for the decision of the Advisory Board, only does so because the central Government is the detaining officer in the Preventive Detention Act. [para 33]

+ Since these two judgments exist symbiotically and apply to two separate authorities within the COFEPOSA Act, there exists no friction between the judgments, and hence there is no necessity for this point of law to be referred to a Larger Bench since the same is already settled. [para 34]

+ The mandate to wait for the decision of the Advisory Board, as per the Pankaj Kumar Judgment(Supra) ,would apply to the central Government, however, the detaining authority, being independent of the Government, can pass its decision without the decision of the Advisory Board. [para 35]

+ It can be seen that both, the detaining authority, and the Government, have worked precisely within the procedure established by law, and hence the impugned detention order is not liable to be struck down on this ground. [para 38]

+ It has been brought to our notice that a co-detenue, one Mr. Neeraj Varshney has already been granted relief, and his detention order has been quashed by the High Court on grounds of illegible Chinese documents supplied to him as his grounds for detention. It is important to note that the circumstances of the appellant herein, as far as the present detention is concerned, is identical to the case of the co-detenue who's detention order was quashed. [para 41]

+ In cases of preventive detention, every procedural irregularity, keeping in mind the principles of Article 21 and Article 22(5) of the Constitution of India, must be accrued in favour of the detenue. [para 42]

+ Principle of parity is squarely applicable in this case, since another co-detenue with identical circumstances, has already been granted the relief of quashing the detention order against him. [para 43]

+ Courts, in circumstances of preventive detention, are conferred with the duty that has been given the utmost importance by the Constitution, which is the protection of individual and civil liberties. This act of protecting civil liberties, is not just the saving of rights of individuals in person and the society at large, but is also an act of preserving our Constitutional ethos, which is a product of a series of struggles against the arbitrary power of the British state. [para 44]

Conclusion: While the appellant has already been released on grounds of expiry of the detention period, for the sake of clarity on the point of law, Bench holds that the impugned detention order is liable to be set aside, and the present appeal is accordingly allowed.

- Appeal allowed: SUPREME COURT OF INDIA

2023-TIOL-35-SC-ST

CC, CE & ST Vs Suzlon Energy Ltd

ST - Technical know-how/engineering designs and drawingswas imported against Bills of entry - Revenue sought to bring such imports within the framework of ‘design service' and confirmed service tax demand -CESTAT observed that the engineering designs and drawings had been included as part shipment in accordance with contract for wind turbine generators (WTG); thatthe bills of entry have been filed by the appellant is also a matter of record; Taxation of goods and that of services are mutually and explicitly conceived levies; that the same activity cannot be taxed twice as goods and as services - Accordingly, impugned orders were set aside and appeals were allowed - Revenue is in appeal before Supreme Court.

Held:

+ The issue to be decided in the present appeals is “whether activity of import of “Engineering Design & Drawings” from the sister companies by the notice during the period under dispute i.e., June, 2007 to September, 2010 is classifiable under taxable category “design services” under section 65(35b) read with Section 65(105) (zzzzd) of the Finance Act, 1994. [para 5]

+ Definition of “design services” is a wide and conclusive one, specifically excluding only fashion design and interior designing, which were already taxable under separate taxable category. [para 5.1]

+ It is required to be noted that the said designs were to be exclusively used by the respondent in the territory of India and it was a tailormade design. The respondent engaged the sister concern M/s SEG for the activity of “Engineering Design & Drawings” used in manufacturing of WTG, that was reduced as blue print on paper and delivered to the respondent on the same medium. Such “designs” were subjected to service tax even as per the clarification by the Board dated 18.03.2011 on the issue of applicability of indirect taxes on packaged software. Therefore, as such, the respondent was liable to pay service tax on the “design services” received from abroad under reverse charge. It was also found that M/s SEG was a related unit, i.e., subsidiary of the assessee and the amount received for service by M/s SEG from the assessee-respondent for the said “Engineering design & drawings” services, therefore, was liable to service tax under reverse charge in terms of the concept of ‘associated enterprise'. [para 7]

+ Despite the above, M/s SEG raised the invoice/bill on the assessee treating it as ‘paper'. However, the said bill of entry was presented treating the same as ‘paper' for which the duty payable was ‘Nil'. Therefore, neither any custom duty was paid due to exemption from payment of duty treating it as ‘paper' nor the service tax was paid. CESTAT has held that the respondent is not liable to pay the service tax under “design services” under the Finance Act, 1994 mainly on the ground that the custom authority considered the same as ‘goods' and, therefore, the same activity cannot be taxed as ‘goods' and ‘services'. The aforesaid view is absolutely erroneous. [para 8]

+ Merely because “Engineering Design & Drawings” prepared and supplied by sister company were shown as ‘goods' under the Customs Act and in the bill of entry, by that itself cannot be a ground to take such services out of the definition of “design services” under the Finance Act, 1994. [para 8]

+ Issue is squarely covered by the decision of this Court in the case of BSNL ( 2006-TIOL-15-SC-ST-LB ) against the assessee and in favour of the revenue. Therefore, the view taken by the CESTAT that the same activity cannot be taxed as goods and services is absolutely erroneous. However, at the same time, as other grounds raised before the CESTAT, namely, “whether the services (if any) rendered by a foreign entity will or will not fall within the purview of “design services” and invocation of extended period of limitation have not been considered by the CESTAT. The matter is, therefore, remitted to the CESTAT to consider the aforesaid two grounds and none other.[para 9, 10]

+ Insofar as the issue of levy of service tax on the “Engineering Design & Drawings” is concerned, the same is decided in favour of the revenue and against the assessee: Supreme Court[para 10]

- Appeals disposed of: SUPREME COURT OF INDIA