Newsletter for the month of February 2012

1 February2012

Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

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3 February2012


4February2012

5 February2012


CALENDAR OF EVENTS - February & March 2012Date/Day Topic /Speaker Venue/Time CPE Credit

DISCLAIMER : The Bangalore Branch of ICAI is not in anyway responsible for the result of any action taken on the basisof the advertisement published in the newsletter. The members, however, bear in mind the provision of the code of ethics whileresponding to the advertisements. The views and opinions expressed or implied in the Branch Newsletter are those of the authors

and do not necessarily reflect that of Bangalore Branch of ICAI.

Note : High Tea at 5.30 pm for programmes at 6.00 pm at Branch Premises.

Advertisement Tariff for the Branch NewsletterColour full pageOutside back ` 30,000/-Inside back ` 24,000/-

Advt. material should reach us before 22nd of previous month.

Inside Black & WhiteFull page ` 15,000/-Half page ` 8,000/-Quarter page ` 4,000/-

Editor : CA. Venkatesh Babu T.R.

Sub Editor : CA. Ravindranath S.N.

2 hrs01.02.12 Importance of Financial processes including Branch Premises

Wednesday Chart of Accounts, Pricing the product 06.00pm to 08.00pm

CA. Ketoki Basu

07.02.12 CPE Teleconference on Branch Premises

Tuesday “Point of Taxation – Service Tax” 11.00am to 01.00pm

CA. Ravi Holani, Central Council Member

08.02.12 Proposed Constitutional Amendments, Branch Premises

Wednesday its relevance to GST Enactment 06.00pm to 08.00pm

Dr. B. V. Muralikrishna,

DCCT, Commercial Taxes Department, Govt. of Karnataka

15.02.12 New supervisory frame work for Branch Premises

Wednesday Microfinance Companies (NBFCs), Exception Report, 06.00pm to 08.00pm

Interactive Session with CAs in respect of NBFCs

Mr. M P Vijayakumar, Deputy General Manager and

Mr. M Muralidhara, Assistant Manager Open to General Public

16.02.12 Workshop on Revised Schedule VI under Companies Act Branch Premises

Thursday & & Provisions of Companies Bill on Accounts and Audit 04.00pm to 08.00pm

17.02.12

Friday Delegate Fee: Rs.500/- Refer Page No: 4

22.02.12 Composition Scheme Under VAT Branch Premises

Wednesday CA. Naveen Rajpurohit 06.00pm to 08.00pm

29.02.12 An introduction to FEMA Branch Premises

Wednesday CA. B. D. Chandrashekara 06.00pm to 08.00pm

07.03.12 Usage of MCA’s Statutory Report in XBRL Branch Premises

Wednesday (Format) using Tally. ERP 9 06.00pm to 08.00pm

Mr. Vijaya Sarathy D.

Analysis of Union Budget 2012

Date & Venue will be communicated

2 hrs

2 hrs

2 hrs

2 hrs

2 hrs

2 hrs

8 hrs

6February2012

TAX UPDATES DECEMBER 2011CA. Chythanya K.K., B.com, FCA, LL.B., Advocate

VAT, CST, ENTRY TAX,PROFESSIONAL TAXPARTS DIGESTED:

a) 46 VST – Part 1 to 5b) 7 GSTC – Part 4c) 11 GSTR – Part 7d) 16 KCTJ – Part 9e) 71 KLJ – Part 12

Reference / Description

[2011] 46 VST 24 (Ker. – HC):Alleppey Company Ltd. v. State ofKerala - In the instant case, thepetitioner was engaged in themanufacture and export of coirproducts and had to attach tags andlabels to each and every coir productexported giving product description interms of buyers’ norms. The petitioneroutsourced these tags and labels fromprinting presses, which had sales taxexemption under the notificationissued by the Government. TheAssessing Officer levied purchase taxunder Section 5A of the Kerala GeneralSales Tax Act, 1963, (KGST) holdingthat the tags and labels purchased wereconsumed in the manufacture of coirproducts exported. The Kerala HighCourt observed that the taxableturnover under Section 2(xxv) ofKGST Act excludes export turnoverwhich included deemed exportturnover falling under Section 5(3) ofthe CST Act and though theapplicability of Section 5A of theKGST Act was satisfied inasmuch asgoods purchased were used in themanufacture, which included labellingof the commodity for export, Section5A of the KGST Act was subject toSection 5(3) of the CST Act, thereforeliability had to be considered keepingin view the exemption available to thepurchaser/exporter under Section 5(3)

of the CST Act. In view of the aboveobservation, the Court held the act ofexporter of coir products purchasingtags and labels giving productdescription from URDs and exportingafter attaching tags and labels toproducts, constituted penultimatepurchases of tags and labels for export.It was thus held that the same was notliable to be assessed under Section 5Aof the KGST Act.

[2011] 46 VST 341 (Patna – HC):Pandit Electrical Pvt. Ltd. v. Union ofIndia and others - In the instant casethe petitioner had its registered officeat Mugalasarai in the State of UttarPradesh. It supplied goods to the EastCentral Railway in the State of Bihar.Though it had paid Central Sales Taxat the rate of 4% per annum as requiredand as evidenced by the invoice, theRailways continued to deduct 4% percent of the contract amount asenvisaged by Section 41 of the BiharValue Added Tax Act, 2005. Thepetitioner demanded refund of the sumdeducted by the Railways and arestraint on the Railway from deductingany amount from the amounts payablefor the goods supplied by thepetitioner.The Railways contended thatthe dealer failed to inform the Railwaysof the payment of Central Sales Tax onthe materials in question and that theRailways having deposited the amountdeducted with the treasury of the State,it was the State Government whichshould be directed to refund theamount.In view of the above facts, thePatna High Court directed the Railwaysto refund the amount of tax recoveredby it from the dealer for the supply ofgoods on which the dealer had paidCentral Sales Tax and gave the libertyto Railways to approach the State

authorities for refund of such amountdeposited by it.

2011 (71) Kar. L.J. 846 (Tri.) (DB):Shree Vinayaka Cashew Exports v.State of Karnataka - In the instant case,the Karnataka Appellate Tribunaldealing in respect of input tax creditunder KarVAT Act held that the buyingdealer cannot be prevented from takingcredit of tax paid on his purchase asinput tax credit, if selling dealerdefaults in remitting to State exchequertax collected by him.The Tribunalfurther held that loss of revenue causedby default of one dealer cannot be madegood by mulcting another.

INCOME TAX

PARTS DIGESTED:

a) 339 ITR – Part 2 to 5b) 203 Taxman – Part 1 to 6c) 12 ITR (Trib) – Part 6 to 9d) 133 ITD – Part 6 to 9e) 36 CAPJ – Part 5 & 6f) 43-B BCAJ – Part 3g) 60 TCA – Part 6h) 5 International Taxation – Part 6

Reference / Description

[2011] 339 ITR 210 (Karn – HC): C.Ramaiah Reddy v. ACIT - In theinstant case, the Karnataka High Courtdealing in respect of search and seizurelaid down the following principles:

(a) The Tribunal has got powers tolook into all aspects of searchincluding validity of a search

(b) A valid search is sine qua non forinitiating block assessment.

(c) Each search warrant can cover onlyone place of search

(d) A search warrant is valid only forone visit. Any more visit on thebasis of the very same warrant maybe only for collateral purpose butnot for search and seizure. Anymore visit for search and seizure isrequired to be authorised by a freshsearch warrant.

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(e) Once a search begins upon entry ofsearch party, it continues during thepresence of search party and themoment the search party leaves, thesearch ends.

(f) Materials seized during an invalidsearch cannot be used in blockassessment proceeding but can beused in other assessmentproceedings under the Act.

(g) The power to put prohibitory orderunder section 132(3) is to based onreasons and such reasons for doingso have to be recorded in writingand are justiciable.

(h) The period of limitation starts onthe date on which the last ofauthorization has been executedand not when the authorized officerstates that the search is finallyconcluded. Putting a prohibitoryorder under section 132(2) does notelongate the starting point oflimitation.

[2011] 339 ITR 291 (Bom. – HC): CITv. Morgan Stanley Advantage ServicesP. Ltd. - In the instant case the Assesseesubmitted an application to the ReserveBank of India (RBI) seeking extensionof time for realization of the exportproceeds. The RBI granted its approvalin the context of provisions of ForeignExchange Management Act (FEMA),1999, but did not grant any formalapproval under Section 10A of the ITAct, even though an application hadbeen made by the Assessee in thatbehalf. The Assessing Officer deniedthe exemption under Section 10A of theIT Act on the basis that the approvalwas not granted for the purposes ofSection 10A of the IT Act.The BombayHigh Court observed that RBI neitherdeclined nor rejected the applicationmade by the Assessee seekingextension of time under Section 10Aof the IT Act and also observed thatSection 10A(3) provides that thebenefits under Section 10A(1) would

be available if the export proceeds arerealized within the time prescribed bythe competent authority under theFEMA Act.In view of the aboveobservation, the Court held that theapproval by RBI for extension of timefor realisation of export proceeds underFEMA Act constituted deemedapproval granted by RBI for purposesof Section 10A of the IT Act andtherefore, Assessee was entitled toexemption under Section 10A of the ITAct.

[2011] 339 ITR 296 (Ker. – HC): CITv. Leena Ramachandran - In theinstant case the Assessee claimeddeduction for interest on borrowedcapital under Section 36(1)(iii) on thebasis that the same was utilised for theacquisition of shares in the companyfor the purpose of controlling thecompany. The Assessing Officer heldthat the Assessee made investments byutilising the borrowed funds in theform of acquisition of shares in thecompany and the only benefit theAssessee got was dividend income andhence disallowed the same underSection 14AThe Kerala High Courtheld that the assessee would be entitledto deduction of interest under Section36(1)(iii) on the borrowed fundsutilised for the acquisition of sharesonly if shares were held as stock-in-trade and that would arise only if theAssessee was engaged in trading inshares. Since the acquisition of shareswas in the form of investment and theonly benefit the Assessee derived wasthe dividend income which was notassessable under the Act, the Court heldthat the same has to be disallowedunder Section 14A.[2011] 339 ITR 323 (AP – HC):R.R.M. Educational Society v. ChiefCIT and others - In the instant casethe Andhra Pradesh High Court dealingin respect of condition precedent forexemption under Section 10(23C)(vi)

held that the institutions must existsolely for the purpose of education andif one of the objects of the institutionwas to eradicate unemployment,exemption under Section 10(23C)(vi)does not attract.With due respect, theHon. High Court missed the point thatone of the important effects ofeducation is eradication of theunemployment and therefore sucheradication cannot be understood asan object alien to education.[2011] 339 ITR 484 (Guj – HC): CITv. Shree Mahalaxmi Transport Co. -In the instant case the Gujarat HighCourt dealing in respect of deductionof tax at source held that payment madeto contractors for hiring dumpers is nota rent for machinery or equipment soas to attract Section 194I but waspayment for works contract for shiftingof goods from one place to anotherwhich attracts Section 194C.Thisdecision reiterates what departmentitself had clarified vide circular no.558, dated 28.03.1990.[2011] 339 ITR 498 (Guj – HC):Sayaji Hotels Ltd. v. ITO - In theinstant case the Assessing Officer hadreopened the assessment invokingprovisions of Section 149(1)(b).TheGujarat High Court held that thoughthe assessment is reopened invokingprovisions of Section 149 whichmerely prescribes the maximum timelimit for issuance of notice underSection 148 based upon the amountinvolved, it does not in any manneroverride the proviso to Section 147which lays down that no action shallbe taken under Section 147, after theexpiry of four years from the end ofrelevant assessment year unless therequirements of the proviso, i.e., thatthere should be failure on the part ofthe assessee to disclose fully and trulyall material facts necessary for hisassessment are satisfied.In thiswelcome decision, the Court clarified

8February2012

that the time limit under the proviso tosection 147 is independent of the timelimit under section 149 and bothoperate in two distinct and separatefields.[2011] 339 ITR 610 (P&H – HC): CITv. Jagriti Aggarwal - In the instant casethe Punjab & Haryana High Courtdealing in respect of due date for theutilisation of profit on sale ofresidential property held that profitderived on sale of residential propertycan be utilized for purchase ofresidential property or depositing inspecified account before the due datefor furnishing return of income underSection 139(1) if not can also beutilised before the extended due dateunder Section 139(4).Although it is afavourable decision, it would havebeen appropriate if the decision wasbased on the reasoning that the depositis only a technical requirement and adelay in such deposit should not bevisited with the denial of exemptionwhen the condition of exemption hasbeen substantively complied with.[2011] 339 ITR 615 (P&H – HC): CITv. Haryana State ElectronicsDevelopment Corporation Ltd. - In theinstant case the Punjab & Haryana HighCourt held that manufacturing ofidentity cards is an activity involved inmaking a new final product from datawith which it started, therefore the sameamounts to manufacture or productionof an article or thing being eligible fordeduction under Section 80-IA.[2011] 203 Taxman 81 (Delhi – HC)15taxmann.com 107 (Delhi - HC): CITv. Delhi Public School - In the instantcase the Assessee was providing freeeducational facilities to the wards ofteachers/staff members. The AssessingOfficer, based on his understanding ofRule 3(5), held that the Assessee hadcommitted a default by lowerdeduction of TDS from the total salaryand was liable to be treated in default

under Section 201(1) and was liable forinterest under Section 201(1A).TheDelhi High Court observed that theAssessee had deducted TDS on‘estimated income’ of the employeeand therefore, held that the employerwas not expected to step into the shoesof the Assessing Officer and determinethe actual income.Further the Courtheld that where employer has deductedTDS on estimated income of employeeand such estimate is found to beincorrect, this fact alone would notmake employer an assessee-in-defaultunder Section 201(1) unless aninference can be reasonably raised thatemployer has not acted honestly andfairly.The above decision judiciallyrecognises the statutory positionunder section 192 that the employeris only required to estimate the salaryincome and in any such estimate,differences are bound to exist thanksto different but bonafide perceptions.Any shortfall in such estimate doesnot entail penal consequences.

[2011] 203 Taxman 173 (Karn. –HC)15 taxmann.com 119 (Karn. -HC): CIT v. Black Pearl Hotels (P.)Ltd. - In the instant case the Assesseewas running a hotel, which was closedand employees were retrenched.Thereafter, the assessee utilized hotelpremises for its other business andclaimed deduction paid towards bonus,gratuity, leave salary and compensationunder Sections 25F and 25FFF ofIndustrial Disputes Act to retrenchedemployees under a memorandum ofsettlement reached before LabourCommissioner. Assessing Officerallowed deductions only towardsbonus and gratuity and denieddeductions towards compensationunder Sections 25F and 25FFF. TheKarnataka High Court held that bothold and new business of Assessee hadcommon management, commonorganization and common place of

business. i.e. had unity of control andsince compensation paid under Section25F and 25FFF of Industrial DisputesAct is mandatory in law, deduction wasto be allowed for compensation paidby the Assessee.[2011] 203 Taxman 188 (Del. – HC);15 taxmann.com 76 (Del. - HC): SoodBrij & Associates v. CIT - In the instantcase the Assessee was a partnershipfirm consisting of two partners. In itsreturn of income the Assessee hadclaimed deduction towards salary/remuneration paid to the partners. TheAssessing Officer disallowed the sameon the ground of violation of Section40(b)(v).The Delhi High Court looking into thepartnership deed and supplementarydeed observed that the first sentencein clause 2 states that the two partnerswill be the working partners. Thesecond sentence in clause 2 stipulatesthat the total remuneration payable tothe working partners shall be theamount permissible as remuneration tothe working partners under the IT Act,as applicable from time to time. Thequestion is whether the secondsentence of clause 2 of thesupplementary partnership deed readwith clause 7 of the partnership deed,which states that the profits and losseswill be equally divided and borne bythe partners, satisfies the requirementsof section 40(b)(v). In other words,whether the two clauses read togetherquantify or stipulate the manner ofquantifying the remuneration that ispayable to the partners?The Court observed that Clause 2 ofthe supplementary deed has to be readalong with clause 1 of the same deed.These two clauses have to be readharmoniously and reasonably giveeffect to their true meaning. The secondsentence of clause 2 neither quantifiesnor lays down the manner ofquantifying the total remuneration

9 February2012


payable to the partners. Clause 2stipulates the maximum amount that canbe paid as remuneration to the twopartners but does not quantify theremuneration payable in a particular year.Quantum or the amount of remunerationand the manner of computing is notspecified or stipulated but as noticedunder clause 1 has been left to be decidedby a mutual agreement in future.

In view of the above observations theCourt held that where quantum oramount of remuneration and manner ofcomputing is not specified or stipulatedin partnership deed but was leftundecided, unstipulated and left todiscretion of partners to be decided ata future point in time requirements ofSection 40(b)(v) were not satisfied andtherefore, remuneration paid to the

partners could not be allowed asdeduction under Section 40(b)(v).With due respect, it appears thatoverweightage has been given totechnicalities. The Hon. High Courtchose not to be guided by the spirit ofdecision in the case of M/s Durga DassDevki Nandan Vs ITO, Palampur(Dated: March 11, 2011) 2011-TIOL-168-HC-HP-IT

RANK HOLDERS FOR NOV 2011 EXAMCPT DEC 2011 EXAM

Sl.No Reg.No Roll.No Name Marks Obtained Rank

1 SRO0365888 139691 HARSHITH DABRIWALA 181 8

FINAL NOV 2011 EXAM

1 SRO0221836 107594 PAVAN PAL SHARMA 589 3

2 SRO0224072 106168 SREYAS GOWTHAM.R 532 21

3 SRO0253082 106555 YASHASWINI.M 531 22

4 SRO0235304 107566 PAVITHRA ASHOK 522 29

5 SRO0234320 107609 PRACHI BHANDARI 513 38

FOR INFORMATION OF THE MEMBERSRESTORATION OF MEMBERSHIP & CERTIFICATE OF PRACTICE

The names members who have not paid their Membership fee and/or Certificate of Practice fee for the year 2011-12 on orbefore 30.09.2011 were removed w.e.f. 01.10.2011 in the Register of Members. The notifications in regard to removal ofmembership and cancellation of Certificate of Practice w.e.f. 01.10.2011 are under issue.

Regulations provide for retrospective restoration of Membership and Certificate of Practice provided the application in theprescribed Form 9/101 (available on the website www.icai.org) complete in all respects, together with restoration fees ofRs.1,200/- is received by the Institute on or before 31.03.2012. Members falling within the jurisdiction of Southern Regionshould send their application to The Institute of Chartered Accountants of India, ICAI Bhawan, No.122 M G Road,Nungambakkam, Chennai – 600034.

The Bangalore Branch is empanelling facilitators for the GMCS and IPCC courses at the Bangalore Branch.

Some of the topics are,

• Communication Skills & Process • Inter-personal Skills • Team working and Team-building • Business Presentation

Skills • Negotiation Skills • Goal Setting • Creativity & Neuro Linguistic Programming • Time Management

• Group Discussion Techniques • Meeting Skills • Preparation of CV • Office Etiquette • Stress Management

• Dressing & Grooming • Leadership • And other Soft Skills, People Skills & Management Skills

EMPANELMENT OF FACILITATORS FORThe Course on GMCS (General Management & Communication Skills) &

IPCC (Integrated Professional Competency Course) Orientation Programme

Honorarium as per rules will be paid. If you are interested in handling sessions, please email your details with yourchoice of topics to [email protected] or [email protected] under subject “GMCS & IPCC facilitators”.

10February2012

RECENT JUDICIALPRONOUNCEMENTS ININDIRECT TAXESCA. N.R. Badrinath, Grad C.W.A., F.C.A.CA. Madhur Harlalka, B. Com., F.C.A

SERVICE TAX:1. The issue before the High Court

was the Constitutional validity oflevy of service tax on lottery ticketsunder Explanation to BusinessAuxiliary Services under Section65(19) of the Finance Act, 1994.The constitutional validity waschallenged on the ground that evenafter the introduction of theExplanation, the decision of theSupreme Court in Martin LotteryAgencies squarely applies andlottery tickets being an actionableclaim is excluded from the scopeof “goods” under Section 2(7) ofthe Sale of Goods Act, 1930.Further reliance was placed on thedecision of the Supreme Court inSunrise Associates, wherein it washeld that an actionable claim isexcluded from the definition of“goods” and exemption from salestax is available only because of theexclusion clause contained in thedefinition of “goods” under theSale of Goods Act.However, the High Court held thatthe discount or commissionreceived for marketing the lotterytickets is nothing but considerationfor service rendered to thepromoter or organizer of thelottery. Obviously without suchservices, the lottery tickets wouldnot reach the ultimate customerswho are the participants in thedraw. The whole scheme of thelottery printing and distribution oftickets and the conduct of draw

involve service from variousagencies. The High Court observedthat if argument of the petitionersis accepted then the amendmentintroducing Explanation to Section65(19)(ii) becomes redundant andmeaningless. The very objective ofthe amendment which is to get overthe decision of the Supreme Courtin Martin Lottery Agencies case.The amendment has achieved theobjective of levying tax on servicerendered in relation to lottery.Hence service rendered in relationto lottery could be subject to taxunder the category of BusinessAuxiliary Services. [S SVISHNU&CO., Vs UOI, CentralExcise, Palakkad, State of Keralaand the Director of State Lotteries,Kerala, 2012-TIOL-04-HC-KERALA-ST]

2. The appellant is engaged in thebusiness of supplying man powerand was discharging service tax onthe gross amount received from theprincipal employer excluding EPFand ESI which was paid directlyby the principal employer. Thedepartment citing the Circular No.B1/6/2005-TRU, dated 27-7-2005confirmed demand service tax onEPF and ESI components. Incontention, the appellant stated thatas per Circular F. No. B1/4/06,dated 19-4-2006, all Circularsrelating to valuation issued prior to19-04-2006 stands overruled andthere is no reason to rely on theCircular quoted by the department.

Accordingly, the Tribunal held thedecision in the favor of theappellant. [Young BrothersTransporters V. CCE, Meerut, 2012(25) STR 35 (Tri.–Del.)]

3. Appellant is selling paper andpaper boards manufactured bythem through consignment agents.The freight is not paid by theappellants and the invoices aremarked with “To Pay”, clearlyindicating that the freight is to bepaid by the consignment agents.Service tax department leviedservice tax on ground thatconsignment agents are acting onlyas agents for the appellant’s papermills and therefore the appellantsare liable to pay service tax placingreference on Rule 2(1)(d)(v) of theService Tax Rules, 1994 eventhough the consignment agentshave paid the freight amount. OnAppeal, the Tribunal held that (i)as the consignment agents squarelyfall under the category of personswho are liable to pay service tax(ii) they have paid the freightamount themselves (iii) further thatthe consignment agents arededucting the freight amounts fromthe sale proceeds received from theultimate buyers and (iv) that theconsignment agents are notrecovering the freight amount fromappellant, the appellants are notliable to service tax. [RajalakshmiPaper Mills Private Limited andothers Vs CCE, Madurai 2011-TIOL-1726-CESTAT-MAD]

4. The appellant filed a refund claimfor the technical testing andanalysis services used in export ofgoods by claiming the benefit ofNotification No.41/07-ST, dated 6/10/2007, which was rejected on theground that there should be awritten agreement between theexporter and the buyer requiring

11 February2012


testing and analysis for the saidgoods. On appeal, Tribunal heldthat the appellant have openedletter of credit with the bank on theinstruction of the customer andwhich categorically provides forthe original inspection certificateissued by the AssociatedMerchandise Corporation. Theletter of credit is opened by thebank on the instructions of thecustomers and therefore a liberalview has to be taken for theinterpretation to reduce the cost ofgoods exported. [M/s. TexportIndustries Private Limited Vs.CST, Mumbai-IV, 2012-TIOL-26-CESTAT-MUM]

5. The appellant had sent few samplesabroad through courier on paymentof service tax on courier chargesfor which he claimed rebate forservice tax paid under NotificationNo.41/2007-ST, dated 6/10/2007.The rebate claimed was denied bylower authorities for non–fulfillment of condition of theabove notification. On appeal, theTribunal held that the NotificationNo.41/2007–ST requires therealization of foreign exchange onexport of goods, but in the presentcase there is no evidence ofrealization of foreign exchange andtherefore no export was madeaccording to law of customs.Export means movement of goodsfrom India to abroad to earnforeign exchange and such ameaning is to be construed asrealization of foreign exchange issine-qua-non to get rebate. It washeld that the appellant havingfailed to produce any evidence ofrealization of foreign exchange andmaterial evidence to show that thefree samples are not eligible forrebate of service tax on courierservice. [Raymond Ltd. V.

Commissioner of Central Excise.,Mumbai – III 2011 (24) STR. 698(Tri. - Mumbai)]

6. The appellant is engaged inproviding consultancy to theGovernment bodies and StateIndustrial DevelopmentCorporation, Government ofMadhya Pradesh for theirrespective Municipal & Industrialwater supply projects. The servicesprovided by them were in the formof technical assistance, financialservices, liaison and interactionwith the aforesaid statutory bodiesand services in getting sanctions,clearances and approvals regardingthe project and loan if required,preparation of bid documents,assisting the implementing agencyin deciding the tenders &supervising / monitoring theproject for successful completion.All the assignments were dividedinto various stages for payment offees of the appellant. Also, the jobswere divided in stages, which wereindependent, which means that theappellant’s services can beterminated after the completion ofany stage. The appellant hadbifurcated the aforesaid services invarious stages as consulting andnon-consulting category. Theservice tax was paid only onconsulting categories of serviceswhich were suo motu identified asconsulting services. Other servicesconsidered as non-consultingservices such as service providedfor liaisoning with statutorybodies, services provided forobtaining clearances and approvalsregarding the project and loan, ifrequired were categorized as non-technical services and no servicetax was paid. Revenue leviedservice tax on non-consultingservices and the same was upheld

by the Commissioner (Appeals)and Tribunal.On Appeal, High Court examinedthe agreement entered into by theappellant with the clients andobserved that it was clear that theappellants were providingconsulting engineers services andalso undertaking other jobs likeassistance in obtaining theapprovals from the Government asalso from the financial institutionand statutory clearances etc., whichare not covered by the definitionof ‘Consulting Engineers services’.It was also observed that thecontract reveals that the paymentfor each stage of work is differentand the appellant’s services can beterminated after completion of anystage. Accordingly, it was held thatthe non-technical servicesprovided by the appellants wouldnot be taxable under the categoryof ‘consulting engineer service’. Inthis regard, reliance was placed onthe decision of Hon’ble GujaratHigh Court in the case of CCE&C,Vadodara II Vs. MasconMultiservices & ConsultantsPrivate Limited–(2010 (19) STR484 (Guj.)). [Vashushilpi Projects& Consultants Private LimitedVs CCE, Bhopal, 2012-TIOL-93-CESTAT-DEL]

CENVAT7. In the present case, issue before the

Tribunal was whether CENVATcredit can be claimed on the basisof invoices which contained theaddress of the head office insteadof the factory. Tribunal held thatinvoices in the name of head officeare eligible documents for thepurpose of availing CENVATcredit of service tax paid on inputservices. The said defects areomissions, which are totallycurable defects and are condonable

12February2012

and the appellant cannot be held tomis-declare the information asthere is no column or provision inER-1 return to show as to whetherthe invoices are in the name offactory or in the name of headoffice. Tribunal placed reliance onModern Petrofils Vs. CCE,Vadodara in which it was held thatdenial of credit on the sole groundthat the invoices were in the nameof head office was not justified inas much as the same is a proceduraldefect, which can be cured.[Parekh Plast (India) Private.Limited Vs. CCE, Vapi 2012 (25)STR 46 (Tri.–Ahmd.)]

8. Issue before the Tribunal waswhether in case of removal of usedcapital goods, CENVAT creditshould be reversed in entirety withreference to original value orshould the credit be reversed withreference to depreciated value ofcapital goods. Tribunal held thatexpression “as such” in Rule 3(5)cannot be understood in the sameway as is to be understood inrelation to the use thereof in Rule4(5)(a). It is to be understood withreference to the context in whichit has been used. Accordingly, theTribunal allowed the appeal on thebasis of the decision given in caseof Greenply Industries andCummins India Limited. [NeelMetal Products Limited Vs CCE,Delhi-II, 2012-TIOL-05-CESTAT-DEL]

9. In the present case, issue before theHigh Court was whether theservice tax paid on the services forcelebration of Kannada RajyotsavaDay and inauguration of KengeriPolice Station would be availableas CENVAT credit and whetherTribunal is right in holding that theexpenses incurred for the saidfunction are within the meaning of

the activities of the business. HighCourt held that the expenditureincurred for the celebration ofKarnataka Rajyotsava will fallwithin the definition of activitiesrelating to business as the day iscelebrated in the context as awelfare measure in order to protect& preserve the culture of the State,to maintain industrial peace, tomaintain security of the entireestablishment and safety ofworkmen. In this context thedefinition of the “input services”was analyzed as for Clauses (i) and(ii) where the word ‘means’ is used.Hence, the meaning given to theterm is exhaustive and for theremaining part of the definition,word ‘and includes’ is used whichis extensive and specifies variousactivities, which are not connectedto the manufacturing activities butcan be treated as input services.The expenses incurred forcelebrating Karnataka Rajyotsavacan be said to be incurred to protectand preserve the culture ofkannadigas and to avoid troublewithin and outside the organizationfor security of the establishment,preserving peace in theestablishment and to avoid seriouslaw and order problem and securityconcerns. Therefore it was heldthat such expenses incurredtowards putting up of shamiyana,photography services etc., do fallwithin the activities relating to thebusiness. The real test for claimingas input services shall be to checkthe nexus of the service with themanufacture of the final product aswell as the business of manufactureof final product. Hence the Statefunction arranged once in a year forthe welfare of the employees of theindustry in order to protect andpreserve the culture of the State the

said function cannot be separatedfrom the business of manufactureof final product. As per above, theservice tax paid on such servicecould be availed as CENVATcredit. [Toyota Kirloskar MotorPvt. Ltd V. Commissioner ofCentral Excise, LTU, Bangalore2011 (24) STR. 645 (Kar.)]

10. The appellant is engaged in themanufacture of cigarettes forwhich the main raw-material istobacco. In order to ensure quality,quantity and yield of suitablegrades of tobacco, the appellantsundertake an extensive programmeof tobacco crop development withthe farmers all the way from seedto marketing of the tobacco crop.As a part of this developmentactivity, the appellants supplyseeds to the farmers free of cost andalso provide supervisory andadvisory services for cultivation ofthe crop. In order to provide theseservices the appellants enter intoagreements with the farmers andoffer to purchase the harvestedcrop as per the companyrequirements. In order to renderthese advisory services to thefarmers on a regular and sustainedbasis they had entered into anagreement to provide the necessaryman-power during the tobaccogrowing season to assist them inthis regard. The appellant claimedCENVAT credit of service tax paidon such services. Department hasdenied the service tax on theground that the services had nonexus with the manufacture ofcigarettes and the same relatedonly to tobacco cultivation. Onappeal, Tribunal held that thedefinition under Rule 2(l) of theCCR, 2004, ‘input service’ meansany service used by themanufacturer, whether directly or

13 February2012


indirectly, in or in relation to themanufacture of the final product.The appellant supplied tobaccoseeds to the farmers free of cost andensured that the farmers receivedthe necessary supervisory andadvisory services in relation tocultivation of tobacco, which isvery much essential formanufacture of good qualitycigarettes. Therefore, such servicesshould be held to have been usedby the cigarette manufacturer,directly or indirectly, in relation tothe manufacture of cigarettes.Hence the services will qualify asinput services and tax paid on suchservices is eligible for claimingCENVAT credit. [VST IndustriesLimited Vs CCCE & ST (Appeals-II), Hyderabad 2012-TIOL-67-CESTAT-BANG]

Central Excise:11. The appellant is engaged in the

manufacture of Aluminum Cablesand supply to various powerdistribution companies. Appellantaccepted purchase orders from oneof his customer with a clause forvariation of price. On account ofdownward revision of priceappellant realized lesser exciseduty amount. The appellantsclaimed refund of such differencewhich was allowed by the originaladjudicating authority onverification of the bank statementand correspondence between seller& buyer. Being aggrieved with thisorder, revenue has preferred anappeal. Tribunal held that price wasprovisional and was subject tovariation. On the finalization of theprice it is seen that duty liability islesser than what has been remitted.In case of upward revision of pricethe assessee is responsible to remitthe differential duty. The sametreatment has to be meted out in case

of downward revision of price.Hence it is held that appellant iseligible to claim the refund. [K.J.V.Alloys Conductors PrivateLimited., V. CCE., Hyderabad 2012(275) ELT 90 (Tri.–Bang)]

Value Added Tax12. The Appellant is engaged in

providing infrastructure services inrelation to erection & constructionof cellular towers & sites andleasing out the space on such sitesto various telecom / cellularoperators such as BSNL, Airtel,Vodafone etc. The services areclassified as Business SupportServices and accordingly, remittedservice tax under Section65(105)(zzzq) of Finance Act,1994. However, the commercialtax department has imposed VATon providing of cellular telephonytowers on rent on the ground thatthe transaction falls under thedefinition of “deemed sales” i.e.the right to use towers and site istransferred to various cellularcompanies for cash or deferredpayment. Further, the leaseagreement with various cellularcompanies is for right to use theequipment where the possession &effective control of the equipmentlies with the cellular companies.Therefore, the transaction involvesthe transfer of right to use thegoods as is mentioned underArticle 366(29A)(d) of theconstitution of India.Aggrieved with the order, theappellant contested on the groundthat the cellular tower isimmovable and hence levying thesales tax on the same would oustthe jurisdiction of the State. It wasproviding only infrastructureservices and not the right to use thegoods. Therefore, it is only liableto pay service tax which it was

paying accordingly. High Courtheld that the towers are anequipment in the form of fabricatedsteel structure, shelter, DG Set, AirConditioners, rectifiers, stabilizers,DC Converter, fire extinguisher etc.Towers are fixed on the earth or onthe roof of the building just toenable it to function. Just fixing theequipment on the earth or on theroof of the building doesn’t takeaway the form from the equipment.The tower is not embeddedpermanently and it is a movableproperty which can be shifted at anypoint of time to a new site and ratherland is hired from private parties tomake temporary fixation.Therefore, the transaction fallswithin the Article 366(29A)(d) ofthe Constitution and is liable to VATunder Section 4(1)(b) as thetransaction involves transfer of rightto use goods. [Essar TelecomInfrastructure Private Limited Vs.UOI, 2012 (25) STR 16 (Kar.)]

13. The assessing authority hasdisallowed input tax credit on theground that dealers from whomgoods are purchased, had notdeposited the full tax in the StateTreasury. Aggrieved by this,petitioner approached High Courton the stand that it made bona fidepurchases from the selling dealerswho were duly registered by theAssessing Authority under the Actand irrespective of the fact,whether they paid full tax or not,he should be allowed the necessaryinput Tax Credit. The appellantshave discharged their tax liabilityafter deducting the input tax creditavailable to them. Referring to thedecision of Supreme Court inAssistant Collector of CentralExcise, Bombay and others vs. TheElphinstone Spinning and WeavingMills Co. Ltd (AIR 1971 SC 2039)

14February2012

and decision of Madras High Courtin case of Govindan & Co’s, theHigh Court held that no liabilitycan be fastened on the purchasingregistered dealer on account ofnon-payment of tax by the sellingregistered dealer by the treasuryunless it is fraudulent, or collusionor connivance with the registeredselling dealer or its predecessorswith the purchasing registereddealer is established. It cannot beheld that the provisions of Section8(3) of the Act and the sub-rules(1) and (4) of Rule 20 of the Rulesare ultra-vires. Consequently, thewrit petitions are partly allowedand assessment orders are set asideand cases are remanded to the

assessing authority to pass freshassessment order in accordancewith law. [M/s. Gheru Lal BalChand vs. The State of Haryanaand anothers 2011 NTN (Vol. 47)-245 P&H High Court]

14. Petitioner was engaged inmanufacture and sale of spicedbuttermilk. The manufacturingprocess involved pasteurization,adding plain water and masala.Serial No. 25 of Schedule I of theUttarakhand VAT Act, 2005exempts tax in respect of itemsmentioned therein, namely ‘freshmilk, pasteurized milk, buttermilk,separated milk, curd and Lussi’.The assessing officer held that theproduct Amul Masti Spiced

Buttermilk sold in three differentpackets is not one of the itemsmentioned in serial No. 25 ofSchedule I to the Act. On filing ofthe revision application before theHigh Court it was held that, thereis no dispute that the items ‘buttermilk’ and ‘curd’ have not beenmentioned in any other Schedulesto the said Act entailing a liabilityto pay tax. Therefore, in terms ofthe provisions of the said Act, ifthe product dealt with is eitherbuttermilk or curd, the same isexempted from payment of tax.[Gujarat Co-operative MilkMarketing Federation Limited vs.CCT, Uttarakhand 2011 NTN(47)260 (Utt.)]

IMPORTANT DATES TO REMEMBER DURING THE MONTH OF FEBRUARY 2012

5th February 2012 Payment of Excise Duty for January 2012 by Corporates

Payment of Service Tax for January 2012 by Corporates

6th February 2012 E-Payment of Excise duty for January 2012 by Corporates

E-Payment of Service Tax for January 2012 by Corporates

7th February 2012 Deposit of TDS/TCS Collected during January 2012

STPI Returns for the month of January 2012

10th February 2012 Monthly Returns for Production and Removal of Goods and CENVAT Credit for January 2012

Monthly Return of excisable Goods Manufactured & Receipt of Inputs & Capital Goods by Unitsin EOU,STP,HTP for January 2012

Monthly Returns of Information relating to Principal Inputs for January 2012 by Manufacturer ofSpecified Goods who Paid Duty of Rs.1 Crore or More during Financial Year 2010-11 By PLA/CENVAT/Both

15th February 2012 Payment of EPF Contribution for January 2012

Return of Employees Qualifying to EPF during January 2012

Monthly Return (VAT 120) and Payment of VAT/COT for the month of January 2012

20th February 2012 Monthly Return and Payment of Profession Tax Collected During January 2012

Monthly Return (VAT 100) and Payment of CST and VAT Collected During January 2012

21st February 2012 Deposit of ESI Contributions and Collections for January 2012

25th February 2012 Monthly Returns of Employees Joined & Left the organisation during January 2012 under EPF

Monthly Returns of Employees Joined & Left the organisation during January 2012 under ESI

Consolidated Statements of Dues and Remittances Under EPF and EDLI for the January 2012

15 February2012


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Documents

Newsletter for the month of February 2012