JANUARY 01, 2015

By S Jaikumar, Advocate, Swamy Associates

AS every year pales into the annals of history, it shall always leave its footprints, on all fours of life, and tax laws are no exception. Some of them would fade into oblivion by the waves of time, some would stay ahead of the sands of time. Here is a rosary of the pearls of wisdom delivered in 2014, which had, has and shall have a lasting impression.

1.  INCEN "TV":

The question before the Supreme Court was whether the Sales Tax collected and retained by the manufacturer under an incentive scheme should be added to the assessable value (AV) for payment of Central Excise (CE) duty or not?

In a very reasoned judgement in the case of CCE, JAIPUR-II vs M /s SUPER SYNOTEX (INDIA) LTD & ORS - 2014-TIOL-19-SC-CX, the Apex Court has held that, prior to 1.7.2000, when the assessable value under Section 4 of the Central Excise Act, 1944 (CEA) was the "normal price" and under which the term "value" as per Section 4(4)(d)(ii) did not include the sales tax paid or payable, such retention of sales tax collected and retained as an incentive given by the State Government need not be included in the AV for payment of CE duty. Further, the Apex Court had also held that, after 1.7.2000, wherein, the concept of "Transaction Value" (TV) had been introduced in the statute, any such retention would get included to the TV for payment of CE duty. While holding so, it also held that the exclusion from TV under Section 4(3)(d)of CEA is available only for the taxes which are "actually paid", under new Section 4(3)(d) of CEA.

Later in another judgement, the Supreme Court in the case of CCE, DELHI-III vs M/S MARUTI SUZUKI INDIA LTD - 2014-TIOL-74-SC-CX, while asserting the above ratio also held that the exclusion would be available for the taxes "actually paid" or "actually payable" citing the Board's Circular dated 30.6.2000.

2. MOST WAN "TED":

This is a classic instance where the Policy Relaxation Committee (PRC) had become Policy Restriction Committee! In this case, the petitioner had made supplies to EOUs on payment of CE duty and had claimed refund of the Terminal Excise Duty (TED) under para 8.2(b) of the Foreign Trade Policy (FTP). As per the said para, supplies made to EOUs are treated as "deemed exports" and the benefits for such deemed exports would include interalia refund of TED. But the authorities proceeded to hold that the petitioner was disentitled to the benefit of refund in view of the clarification given by the Policy Interpretation Committee (PIC) to the effect that "Refund of CENVAT credit provisions are available under Excise Rules and CENVAT rules which should be availed of rather than claiming refund". The above clarification of PIC prevailed upon the PRC and thus became a PRIC!!!

By a detailed judgement the High Court of Delhi in the case of KANDOI METAL POWDERS MFG CO PVT LTD Vs UOI & Ors - 2014-TIOL-230-HC-DEL-EXIM quashed and granted relief to the petitioners by holding that they are entitled for the refund of TED. Similar ratio was held by the High Court of Madras in the case of and M/s RAJA CROWNS AND CANS PVT LTD Vs UNION OF INDIA   & Ors - 2014-TIOL-2323-HC-MAD-CX.

3. P "AND" "OR" A BOX CLOSED:

After the pronouncement of the judgement in the case of   UOI vs Ind-Swift Laboratories Limited - 2011-TIOL-21-SC-CX, the entire nation went haywire. Tons and tons of show cause notices were issued demanding interest and proposing penalty on the Cenvat credit wrongly taken though not utilised but was just kept in the books. Petrified by this jarring proposition, for once, the department reacted positively and amended the Rule 14 of Cenvat Credit Rules, 2004 (CCR) in 2011, by replacing the controversial "OR" by a sensible "AND" between the words "taken" and "utilised".

In a very compassionate and a logical judgement, the High Court of Madras in the case of CCE, MADURAI vs M/s STRATEGIC ENGINEERING (P) LTD - 2014-TIOL-466-HC-MAD-CX had put an end to this controversy by holding that even prior to the amendment, mere taking of Cenvat credit without utilisation would not compel the assessee to pay any interest as well as penalty. While holding so, the High Court had referred to the judgement of the High Court of Karnataka in the case of  CCE & ST BANGALORE vs BILL FORGE PRIVATE LIMITED - 2011-TIOL-799-HC-KAR-CX and also to the subsequent amendment to Rule 14 of CCR.

4. BAR & RESTAURANT:

While holding the levy of service tax on the advocates fees, the High Court of Bombay in the case of P C JOSHI Vs UOI & Ors - 2014-TIOL-2279-HC-MUM-ST was at its critical best. Pained by the falling standards of the legal education and profession, it went on to observe that the profession is NOBLE but the professional is not necessarily so. Apart from the merits, I feel these concerns of the Lordships from the Temple of Justice is a must read for all the law students and practioners.

While the BAR bore the brunt, on the other hand, the RESTAURANTS tasted the toast.

Firstly the High Court of Mumbai in the case of INDIAN HOTELS AND RESTAURANT ASSOCIATION & ANR vs UOI & ORS - 2014-TIOL-498-HC-MUM-ST upheld the Constitutional validity of the levy of service tax on Restaurants overruling the Single Judge's judgement of the Kerala High Court in the case of KERALA CLASSIFIED HOTELS AND RESORTS ASSOCIATION vs UOI - 2013-TIOL-533-HC-Kerala-ST.

Subsequently, the High Court of Kerala in the case of UOI vs KERALA BAR HOTELS ASSOCIATION & ORS - 2014-TIOL-1913-HC-KERALA-ST struck down the levy of service tax on the restaurants distinguishing the decision of the Mumbai High Court supra, holding that the supply of food and beverages in a restaurant is a deemed sale of goods as contemplated under Article 366(29A)(e) of the Constitution and even the service part involved in the supply of food and other articles of human consumption, is deemed as a sale to enable the States to impose tax on the same and it is not open to the Union to characterise the same transaction as a service for imposition and levy of service tax.

5. SUO MOTU:

After the Larger Bench (LB) decision in the case of BDH Industries Limited vs CCE (Appeals), Mumbai -I - 2008-TIOL-1211-CESTAT-MUM-LB, taking re-credit on one's own motion (suo motu) had been in a seriouscommotion.The LB in the BDH case supra, had held that there is no provision under the CEA and the Rules allowing suo motu taking of credit of refund without sanction by the proper officer and until the department is satisfied that the incidence of duty has not been passed on. From that day, life had been made very miserable, as the Revenue had started denying any and all types of re-credits, be it an accounting error or an arithmetical error, citing BDH supra.

In a major reprieve, the High Court of Madras in the case of ICMC Corporation Ltd vs CESTAT - 2014-TIOL-121-HC-MAD-CX had allowed the suo motu re-credit of the Cenvat credit reversed by the appellant by holding that it was only an account entry reversal and factually there is no outflow of funds from the assessee to result in filing application under Section11B of the CEA claiming refund of duty. After 5 years of eclipse, there is sunshine.

6. STAY PUT:

To me, the most tinkered provision in CEA had been the EXTENSION of STAY by CESTAT. The amount of time, money and energy spent, nay wasted, on this futile provision is worth a million whiplashes to the brain behind this worthless provision.

Actually the year didn't start well for the appellants seeking the extension of stay. In M/s SALASAR STEEL & POWER LTD vs CC, RAIPUR - 2014-TIOL-1217-CESTAT-DEL, it was held that no extension of stay could be granted by CESTAT in the light of the provisions of Section 35C (2A) of CEA, even if the cause of the delay is not attributable to the appellants. This created a major hue & cry across the nation and the matter was referred to Larger Bench. In the meanwhile, as usual, the High Court came to the rescue and in the case of COMMISSIONER vs SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA - 2014-TIOL-1102-HC-AHM-CX, the High Court of Gujarat held that the CESTAT can extend the stay beyond 365 days and thus averted a mass litigation, which was on cards. Subsequently, the Larger Bench of CESTAT in the case of M/s HALDIRAM INDIA PVT LTD & ORS vs CCE - 2014-TIOL-1965-CESTAT-DEL-LB also held so, based on the above High Court judgement cited supra.

In a very interesting development, the Ahmedabad Bench of CESTAT in the case of M/s VENKETESHWARA FILAMENTS PVT LTD vs CCE & ST, VAPI - 2014-2388-CESTAT-AHM had held that any stay order passed by the CESTAT, if it is in force beyond 07.08.2014 (the date when the 1 st, 2 nd & 3 rd provisos to Section 35C (2A) of CEA were omitted), such stay order would continue till the disposal of appeals and there is no need for filing any further applications for extension of stay, which is a peach of a decision. The above ratio has been followed by the Bangalore Bench in the case of M/s ASIA PACIFIC COMMODITIES LTD & ORS vs CC - 2014-TIOL-2628-CESTAT-BANG.

7. NAY ST ON NEST:

Much water has flown under the taxability of residential complex service. In a very significant decision, the Bangalore Bench of CESTAT in one of the path-breaking decisions in the case of JOSH P JOHN & ORS vs CST, BANGALORE - 2014-TIOL-1753-CESTAT-BANG, held prior to 01.07.2010, there is no service tax payable on the construction services provided by the builder/developer to the individuals, who had purchased flats/residential units in a residential complex. Backed by a sound reasoning, the definition prior to 01.07.2010 and the introduction of explanation in clause (zzzh) of the Finance Act, 1994, had been handsomely interpreted thus giving the much-sought relief to the individuals.

8. SWEET 16:

To the department, the good word is "Demand" and the bad word is "Refund". Often the refund claims are seen with a prejudicial microscope and stalled with the most trivial objections possible. In a novel and noble initiative, the Bangalore bench of CESTAT has passed an interim order, on various common / legal issues on the refund of Cenvat Credit under Rule 5 of CCR vide its order M/s APOTEX RESEARCH PVT LTD & ORS vs CC, BANGALORE - 2014-TIOL-1836-CESTAT-BANG, wherein it had addressed 16 vital issues. To me, these are nothing but 16 Commandments.

9. THE ASHES AND PHOENIX:

The issue relating to the classification of imported coal as Bituminous Coal or Steam Coal is the recent block buster in the indirect tax litigation, both in terms of notices as well as the amount involved. In a very detailed decision in the case of M/s COASTAL ENERGY PVT LTD & ORS vs CCE, CUS & ST, GUNTUR - 2014-TIOL-1157-CESTAT-BANG, the Bangalore Bench of CESTAT had upheld the classification in favour of the revenue.

Subsequently, the Chennai bench of CESTAT in the case of M/s TANGEDCO & ORS vs CC, TUTICORIN - 2014-TIOL-2503-CESTAT-MAD, had questioned the ratio of the Coastal case supra, against the decision in the case of TNPL vs CC, TUTICORIN - 2009-TIOL-1851-CESTAT-MAD and had referred the matter to the Larger Bench to enunciate the correct position of law, thus giving a reprieve.

10. ONE MAN ARMY:

In the most audacious yet reasonable decision, in the case of CCE vs M/s AKRUTI PROJECTS - 2014-TIOL-1925-CESTAT-MUM, a Single Member Bench of CESTAT, Mumbai, had held that the services provided by a sub - contractor is not liable to service tax, when the main contractor pays service tax. While holding so, the Learned Single Member, rightly aided by the ratio of the landmark decision of the Supreme Court in the case of STATE OF AP vs LARSEN & TOUBRO LTD - 2008-TIOL-158-SC-VAT had overturned the opinion of the Third Member in the case of SUNIL HI-TECH ENGINEERS LTD vs CCE, NAGPUR - 2014-TIOL-541-CESTAT-MUM as PER INCURIAM.

11. SMALL AND BEAUTIFUL:

Admissibility of Cenvat Credit on GTA services had been the most debated issue under the Central Excise. Vide para 8.1.c of the Master Circular No. 97/8/2007 dated 23.08.2007, the Board had clarified that Cenvat Credit of the service tax paid on Outward Transport of Goods would be admissible upto the place of removal and not beyond that. In para 8.2 of the said Circular, the phrase "Place of Removal" has been explained, wherein three conditions were set out, under which the Cenvat Credit would be admissible, of which, the seller shall borne the risk of loss or damage to the goods during transit, is one. Keeping in line with its usual tradition, the Board had taken a complete U-turn and issued a recent Circular No. 988/12/2014-CX dated 20.10.2014, wherein it had departed from the earlier Circular by stating that the payment of transport, inclusion of transport charges in value, payment of insurance, who bears the risk are not the relevant considerations to ascertain the "place of removal".

Not influenced by these contradicting clarifications, but towing logical reasoning backed with sound fundamental principles of the Cenvat Credit Scheme, the Cenvat credit of input services under GTA was allowed in the case of CCE, RAIPUR vs SURYA WIRES PVT LTD - 2014-TIOL-2566-CESTAT-DEL.

12. THE BEST JUDGEMENT:

In one of the landmark decisions on tax laws, the Constitutional Bench of the Supreme Court in the case of M/s KONE ELEVATOR INDIA PVT LTD vs STATE OF TAMIL NADU & ORS - 2014-TIOL-57-SC-CT-CB, had decided a very crucial and a complicated issue as to whether the manufacture, erection, installation and commissioning of lift at the customer's premises would constitute a sale or a works contract. While holding that the above activity would constitute "Works Contract" and not a "Sale", the Apex Court had chronicled the entire legislative history of the taxability of works contract, the 46th amendment to Article 366 (29A) of the Constitution as well as the landmark decisions rendered in the past. While allowing the appeal by a majority view, the Apex Court had delivered path breaking ratio on the legal fiction of deemed sale, the application of Article 366 (29A) to divisible contracts and the inapplicability of the dominant nature test / overwhelming component test / the degree of labour and service test on composite contracts under Clause (29A) (b) of Article 366 of the Constitution.

OMG, this is not just a judgement but a GOSPEL!