Legal Round-up

Compiled by: Mr. Omkar N G, Ms. Pracheta and Ms. Kasturi

INCOME TAX
 Interest free loan

The Hon`ble Court has held that it had come on the records that due to bad financial position no
interest has been charged in order to safe guard the principal and assessee acted as a prudent
person. Therefore no notional interest, on interest free loan for business purpose, will includible in
the income of assessee
C.I.T. Vs. Govind Agencies P. Ltd. 16/08/2007 [2007] 295 ITR 290 (All)

 DTAA between India and Botswana effective from 01.04.2009:

Central Government in exercise of the powers conferred by section 90 of the Income-tax Act, 1961,
directs that all the provisions of the Agreement between the Government of the Republic of India
and the Government of the Republic of Botswana for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income signed in India on the 8th day of
December, 2006, shall be given effect to in the Union of India with effect from the 1st day of April,
2009.
CBDT Notification No : 70/2008 Dated: 18.06.2008

 Whether the rental income from the hire of the building taxable as "income from other
sources" or "income from house property" or "income from business":

In the instant case, the assessee trust took a lease of the property at a monthly lease rent,
completed the construction work of the building and rented out the whole premises to Posts and
Telephones Department. It was held that the income is liable to be taxed as "income from other
sources" and not as "income from house property" or "income from business" because the assessee
trust at no point of time indulged in any systematic activity so as to treat the assessee as having
indulged in business or a venture in the nature of business.
Harikrishna Family Trust Vs. Commissioner of Income Tax
 Penalty for Concealment:
Sec 271 (1)(c) of the Income Tax Act 1961 - AY 1984-85 and AY 1985-86. During the search under
s.137, certain incriminating documents were found indicating business outside the books of account.
The revised return filed after the search was not a voluntary return. The penalty for concealment
was leviable even if the income in the revised return was accepted.
CIT vs Mahabit Prasad Bajaj

CENVAT
 Notification on refunds

Refunds at the prescribed percentages of total duty paid on the specified products will be available
only if specified inputs are used in the manufacture of such products. In all other cases, refunds
would be admissible at the residual percentage of 36%. - the fixation of special rate of refund can
be requested only in a situation where the actual value addition is at 115% or higher of the
percentage specified in the notification.
Notification No. 32/2008 to 38/2008 dated 10/6/2008

Dutiability

 Transfer of intermediate product is not enough to establish marketability

The Supreme Court has held that in the absence of any evidence on record, the mere fact that an
intermediate product has been transferred from one unit to another unit of the same company, for
use in a manufacturing process therein, is not enough to establish the marketability of the product.

Cipla Ltd. Vs CCE (2008 (225) ELT 403)

 Process of converting copper rods in to wire – Manufacture?

The Tribunal has held that the mere process of conversion of copper rods into wires does not
amount to manufacture under excise law.

Shilpa Copper Wire Industries Vs CCE (2008 (86) RLT 677)

Valuation

 Expenses of after sales service is not additional consideration

The Tribunal has held that reimbursements of expenses to dealers by a manufacturer, for providing
free after-sales services to customers, do not constitute additional consideration at all and cannot
be added to the declared value of goods.
Yamaha Motors India Pvt. Ltd. Vs CCE (2008 TIOL 837)

 Special discount for sales – Not a admissible deduction

The Tribunal has held that the special discount extended to a particular customer with a condition
that he would promote the sale and marketing of the products is not an admissible deduction from
the value of goods.
CCE Vs Rishab Instruments Pvt. Ltd. (2008 (226) ELT 230)

CENVAT Credit

 Credit on capital goods not put to use for whole life

The Tribunal has held that CENVAT credit on capital goods is not deniable merely for the reason that
such goods had not been used in the manufacture process for their entire life span and have been
discarded earlier.
Spack Automotives Ltd. Vs CCE (2008 (226) ELT 149)

 Claims of unutilized CENVAT Credit

The Tribunal has held that the refund claims of unutilized CENVAT credits in relation to inputs used
in export goods cannot be rejected merely for the reason that the manufacturer had an option to
utilize such credits for payment of duty on the export products and claim rebate under the relevant
provisions.
Chandra Cotton Fabrics Vs CCE (2008 (86) RLT 563)

 Modvat Credit on failure to maintain RG-23A:

Modvat credit was granted to the assessee even though it failed to maintain the RG-23A register
because the private records maintained by it clearly established its entitlement to the credit.
Modvat credit could not be denied merely because the assessee had failed to maintain the RG-23A
register.
CCE vs Johnson and Johnson Ltd.

Service Tax
 Abatement for services of chit funds
The Central Government has granted abatement to the extent of 30% in case of services in relation
to chit funds, covered under banking and other financial services.
Notification No27/2008-ST dated 27/5/2008

 Supply of goods carriage to a GTA – No ST

The Central Government has granted exemption to the activity of supply of a goods carriage without
transferring its possession and effective control to a GTA service provider, from service tax under
the category of supply of tangible goods for use service.
Notification No 29/2008-ST dated 26/6/2008

 Construction of flat for sale – No ST

The Gauhati High Court has held that the activity of construction of flats by a builder for their
subsequent sale is not chargeable to service tax under construction of complex services. It was
further held that any advance received from prospective buyers before or during construction is
against consideration for the sale of flats and not towards any service.
Magus Construction Pvt Ltd Vs Union of India [2008-TIOL-321-HCGUW- ST]

 Sales tax or Service Tax

The Tribunal has held that the dealer’s margin representing the cost of providing free after sales
services to the customers is not chargeable to service tax where sales tax has been paid by the
dealer on the sale value of cars, including this margin
ASL Motors Pvt Ltd Vs CCE [2008 (13) STJ 244]

 Loading & unloading is not a separate service

The Tribunal has held that the activity of loading, which is incidental to the transportation of
limestone, would be covered under transportation services and the loading activity cannot be taxed
separately under cargo handling services.
CCE Vs Giriraj Brothers [2008 (10) STR 549]

Sales Tax
 No exemption from purchase tax

The Supreme Court has held that incentive granted to units, by way of exemption from taxes to
goods manufactured and sold by such units, do not extend to exemption from purchase taxes and
procurement of inputs, unless expressly so extended.

Malnad Areca Processing & Marketing Ltd. Vs. Dy. Commissioner of Commercial Taxes [(2008) 31
PHT 461]

Customs
 Classification

The Supreme Court has held that an entry in the Customs Tariff is required to be given its ordinary
meaning and goods clearly falling under a specific heading cannot be classified elsewhere,
particularly in a residuary heading.
Deepak Agro Solution Ltd. Vs. CC (2008 (154) ECR 117)

 Server is to be classified as under the head of computer

The Tribunal has held that a server is a computer used interactively with other computers and would
hence be classified as a computer under CustomsTariff Heading (CTH) 8471 and not as networking
equipment under CTH 8517.
CC Vs. Dell India Pvt. Ltd. (2008 (226) ELT 367)

Valuation

 Enhancement of TV

The Tribunal has held that the enhancement of Transaction Value (TV) with regard to one import
consignment is not applicable to other imports, especially where such imports are made from
different suppliers. Further, the Tribunal has held that the TV cannot be rejected for reasons other
than those laid down under the proviso to Rule 4(2) of the erstwhile Customs Valuation Rules, 1988
(CVR).
Micro Village Communications Pvt. Limited Vs. CC (2008 (225) ELT 505)

 Variaion in offer price – not a ground for rejecting declared value of TV

The Tribunal has that the declared TV cannot be rejected if there is no evidence to disprove the
validity of the supplier’s invoices. It has also held that variations in the supplier’s offer prices
cannot be a ground to reject the contracted prices based on which the invoices were issued.
Big Apple Manufacturing Vs. CC (2008 (226) ELT 270)

 Buying commission is not part of TV

The Tribunal has held that Rule 9 of the erstwhile CVR excludes buying commissions from the TV of
the imported goods and, accordingly, payments made towards these do not form part of the TV.
Anand Textiles Vs. CC (2008 (86) RLT 387)

 Know-how fee should form part of TV

The Tribunal has held that technical know-how fees paid to a foreign supplier of equipment is
includible in the transaction value of the said equipment. On facts, the Tribunal found that the fees
were unrelated to the manufacture of the end product. Finally, the Tribunal has held that the
provision of such know-how could also be implied as a condition of sale of the equipment even if the
agreement were not to expressly set it out in that manner.
CC Vs. Mahendra Suitings Ltd. (2008 (86) RLT 620)

Others

 Exemption notification shall be interpreted broadly

The Supreme Court has held that an exemption notification should be interpreted in a broad manner
so as to further the objectives sought to be achieved through the grant of the exemption.
CC Vs. Reliance Petroleum Ltd. (2008 (86) RLT 505)

 Excess duty paid by clerical error – No need for appeal

The Tribunal has held that where excess duty has been paid as a result of a clerical error, the non
filing of an appeal against the assessment order will not come in the way of the refund claim.
CC Vs. Hero Honda Motors Ltd. (2008 (86) RLT 755)

FTP

 DGFT Circular
The Central Government has issued a notification stating that vehicles imported as tourist vehicles
under the Export Promotion Capital Goods (EPCG) Scheme are required to be registered as such at
the time of their import and an endorsement to this effect is to be made by the customs authorities
in the Bills of Entry.
DGFT Policy Circular No 7(RE-2008)/2004-09 dated 07/05/2008

 Reexport of goods and duty adjustment

The Supreme Court has held that where imported goods are found to be defective and are
reexported, the importer is entitled to either a refund of duty, if paid in cash, or an adjustment of
duty, if paid by way of debit in the Duty Entitlement Passbook (DEPB) Scheme, either by way of
reversal of the debit entry or by issuance of a fresh DEPB
Rochiram and Sons Vs. Union of India (2008 (226) ELT 20)

 Computation of duty & depreciation

The Tribunal has held that for computation of duties on capital equipment, depreciation is to be
allowed on such equipment even in cases of partial fulfillment of export obligation by a unit under
the 100% Export Oriented Undertaking (100% EOU) Scheme.
CC Vs. Maharashtra Hybrid Seeds Company Limited (2008-TIOL-916-CESTAT-BANG)

 License for import of servers

The Tribunal has held that servers are different from personal computers and laptops and the
licensing requirements for import of second hand personal computers and laptops are not applicable
to imports of second hand servers.
CC Vs. Microsoft Corporation India Pvt. Ltd. (2008 (86) RLT 525)

 Benefit of Project Import Scheme for spares imported for initial setup

The Tribunal has held that import of spares under the Project Import Scheme, for maintenance of
machinery imported at the time of initial setup, is entitled to the benefits of the Scheme where
such spares are imported prior the completion of the project and the value of the spares is within
10% of the value of the project.
Kerala State Electricity Board Vs. CC (2008 (86) RLT 527

INTELLECTUAL PROPERTY RIGHT

 Copyright Infringement:

Use of words 'Habitat Centre' in combination - Plaintiff in the present matter sought injunction
against the Defendant on the ground that the combination of words 'Habitat Centre' is the property
of the Plaintiff and the use of such combination by the Defendant amounts to violation of Plaintiff's
rights - Whether use of combination 'Habitat Centre' can be construed as exclusive property of any
person singly or jointly

'Habitat Centre' cannot be claimed as the exclusive property. Neither 'Habitat' nor 'Centre' can be
allowed to become property of any person singly or jointly. The 'Habitat Centre', 'Cultural Centre',
'Health Centre', 'Shopping Centre', 'Activity Centre' are names which are in public domain and can be
used by any person. In the instant case the Plaintiff does not have a prima facie case for injunction
to stop Defendant from using 'Indirapuram Habitat Centre' as its name and hence not entitled for
interim injunction.
India Habitat Centre through its Director Vs. Ms. Sunita Aeren and Ors.

 Whether suit under Section 134 of the Trade Marks Act, 1999 could be filed in any court
inferior to the Court of District Judge:
Suit under Section 134 of the Trade Marks Act, 1999 can only be filed before the District Judge and
not before any Court inferior to that of District Judge.

Section 9 of the Code of Civil Procedure also states that the Court shall have jurisdiction to try all
suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly
barred. Section 15 of the Code says that every suit shall be instituted in the Court of the lowest
grade competent to try it. The provision of Section 15 are subject to the provision of Section 9
C.P.C. and where there is a specific provision for institution of a suit in the particular Court except
that nominated in the Act, shall have jurisdiction to try the suit.

Sanjai Kumar alias Mallu Vs. Manoj Kumar Sahu and Ors.

Miscellneous

Company Law

Cases at a glance:

 Where auction of property of company in liquidation permitted subject to confirmation of

court, Recovery Officer of Tribunal not authorised to confirm sale : M.V. Janardhan Reddy v.
Vijaya Bank, (SC)

 Fraudulent trading in capital market : Minors shown as contributories cannot be penalised ;

Authorities entitled to proceed against offenders : Ritesh Agarwal v. Securities and Exchange
Board of India, (SC)

 Complaint under s. 138, accusing officers responsible for company's affairs : Prosecution cannot
be quashed before commencement of trial : Paresh P. Rajda v. State of Maharashtra, (SC)

 Companies incorporated in India : Not a case of international commercial arbitration : Whether

control over companies exercised from outside India not relevant : Supreme Court has no
jurisdiction to nominate arbitrator : TDM Infrastructure P. Ltd. v. UE Development India P. Ltd.,
(SC)

 Transmission and continuation of business by same entity under same name : Fresh registration
to be obtained to operate in stock exchange : Nikhil Kanchanlal Vakharia v. Securities and
Exchange Board of India, (SC)

 Director's resignation before presentation of dishonoured cheque : Payee impleading director as

accused in complaint, malafide : DCM Financial Services Ltd. v. J. N. Sareen, SC.

 Central Government's objection to scheme of arrangement on ground of avoidance of capital

gains, consideration and terms of licence overruled as consideration per se could not invalidate
scheme ; avoidance of tax liability attracts provisions of Income-tax Act : SREI Infrastructure
Finance Ltd., In re (Cal. H.C.)

 MCA – Updates:

MCA circular no. 13 of 2007 dated 27-9-2007, permitting ROC to register charge related documents
filed up to 300 days from the date of event, without CLB approval, will stand withdrawn effective
from 6th July 2008.

General Circular No: 1 /2008 dated 01.07.2008

News of Use
 July 31st Last date for filing of return by Individuals/HUF/Firms

Last date for filing of return by Individuals/HUF/Firms not covered under 44AB is 31 st July.
Return can be filed through e-filing. For more details & uploading, please visit…
https://incometaxindiaefiling.gov.in/portal/index.jsp

 SEBI clears Exchange Traded Currency Futures

The SEBI Board decided on the introduction of Exchange Traded Currency Futures Market.

A SEBI release said the Board took note of the report of the RBI-SEBI Standing Technical
Committee on Exchange Traded Currency Futures.

The Board approved the amendments to regulation 32 of the SEBI (Depositories and Participants)
Regulations, 1996, for doing away with the requirement of the depositories to ensure payments
before effecting the transfer, in the demat system.
Business Line, dt June 20, 2008

 SEBI move on debt investment limits

SEBI has asked some of the FIIs, who have not utilised their allocated investment limits in debt
instruments (Government securities and corporate debts), to use it within 15 days. The regulator
said that if the respective investment limit is not utilised within the given timeframe, the allocation
of such investment opportunities would be withdrawn and allocated to the other registered overseas
institutional investors, who are on the waitlist. There are 10 FIIs on the waitlist seeking to invest in
the G-Sec and two in the corporate debt instruments.
Business Line, dt June 20, 2008

 Will Clause 49 come up with Compliance Audit under Competition Act:

Competition Commission has asked market regulator SEBI to amend regulations relating to corporate
governance to make compliance auditing mandatory for listed companies. CCI has written to SEBI in
this regard, Commission Director General Mr. Amitabh Kumar told reporters here, the ambit of the
Clause 49 of the listing agreement, which deals with corporate governance and disclosure norms,
could be expanded to include an audit report on the status of compliance with the Competition Act,
he added. Inclusion of compliance audit, he added, would help in ensuring safety of shareholders
wealth. All companies, said CCI acting chairman Vinod Dhall, should have formal compliance
programme to ensure that they do not violate the provisions of the Competition Act.

The Press Trust of India – 23.06.2008

 Allocation of Debt Investment Limits by the Indian Government:

The Government of India has while reviewing External Commercial Borrowing policy, increased the
cumulative debt investment limits from US $3.2 billion to US $5 billion and US $1.5 billion to US $3
billion for FII investments in Government Securities and Corporate Debt. Allocation of the enhanced
limits has been done on a 'first come first served' basis subject to a ceiling of US $200 million per
registered entity. Allotted entities are require to utilize allocated limits within 15 days, otherwise
the same will be withdrawn and allotted to the entities in the waitlist.

Press Release No. PR No. 127/2008 Dated: 20.06.2008

 Regulations for Issue and Listing Of Debt Securities By SEBI:
SEBI has notified Regulations for Issue and Listing of Debt Securities to provide for simplified
regulatory framework for issuance and listing of non-convertible debt securities (excluding bonds
issued by Governments) issued by any company, public sector undertaking or statutory corporations.
It will not apply to issue and listing of, securitized debt instruments and security receipts for which
separate regulatory regime is in place. In case of public issues, while the disclosures specified under
Schedule II of the Companies Act, 1956 shall be made, the Regulations require additional disclosures
about the issuer and the instrument such as nature of instruments, rating rationale, face value,
issue size, etc. Regulations prescribe certifications to be filed by merchant bankers with regard to
due diligence, adequate disclosures, and credit rating while doing away with requirement of filing
of draft offer documents with SEBI. The Regulations enables electronic disclosures and made
requirements for advertisements more simplified. Further, by these Regulations while listing of
securities issued to the public is mandatory, the issuers may also list their debt securities issued on
private placement basis subject to compliance of simplified regulatory requirements as provided in
the Regulations.

Press Release No: PR No: 123/2008 Dated: 19.06.2008

 Time limit for FIIs to utilise the allocated limits in debt instruments:

SEBI has asked some of the FIIs, who have not utilised their allocated investment limits in debt
instruments (Government securities and corporate debts), to use it within 15 days. The regulator
said that if the respective investment limit is not utilised within the given timeframe, the allocation
of such investment opportunities would be withdrawn and allocated to the other registered overseas
institutional investors, who are on the waitlist. There are 10 FIIs on the waitlist seeking to invest in
the G-Sec and two in the corporate debt instruments.
Business Line, dated June 20, 2008

SERVICE TAX:

 Service of supply of Goods carriage – Exempted:

Central Government hereby exempts the taxable service of supply of a goods carriage, without
transfer of right of possession and effective control of such goods carriage provided by any person
to a goods transport agency for the use of said goods transport agency to provide any service to a
customer in relation to transport of goods by road in the said goods carriage from the whole of the
service tax leviable under section 66 of the Finance Act, 1994.

Service Tax Notification No : 29/2008-ST Dated : 26.06.2008

DGFT:

 FOB value of export:

The Director General of Foreign Trade makes amendments in the Hand Book of Procedures, Vol. I as
per which the FOB value of export for the purpose of Value Addition shall be arrived at after
excluding the Agency Commission, if any. This provision shall be applicable for authorizations issued
on or after 1.4.2008.

DGFT PUBLIC NOTICE NO. 43/2008, DT. 04/07/2008

 Sub-Contracting:
The Para 6.21.5 of the Hand Book Procedures (Vol. I) dealing with sub-contracting of production
process abroad stands amended as below.
“In case of sub-contracting of production process abroad, goods may be exported from sub-
contractor premises subject to conditions that at the time of clearance of goods, the
EOU/EHTP/BTP/STP shall declare (i) the transaction value of the finished goods to be cleared from
the sub-contractor’s premises abroad; (ii) job work charges to be paid to the sub-contractor abroad;
and (iii) value of intermediate goods, supported with documents like (a) sale price contract/or
invoice for the finished goods, (b) job work contract and (c) the basis of arriving at the value of
intermediate goods. The EOU/EHTP/BTP/STP shall also ensure full repatriation of foreign exchange
declared as the transaction value of the finished goods cleared from the sub-contractor’s premises
abroad.”

DGFT Public Notice No. 40/2008, DT. 04/07/2008

RBI:

 Overseas Direct Investment by Registered Trust / Society:

With a view to further liberalising the policy on overseas investments, it has been decided, in
consultation with the Government of India, to allow Registered Trusts and Societies engaged in
manufacturing / educational sector to make investment in the same sector(s) in a Joint Venture or
Wholly Owned Subsidiary outside India, with the prior approval of the Reserve Bank. Trusts /
Societies satisfying the eligibility criteria as prescribed in the Annex, may submit the application/s
in Form ODI-Part I, through their AD Category - I bank/s.

Eligible Trusts & Societies:

• The Trust should be registered under the Indian Trust Act, 1882 and the Society under Societies
Registration Act, 1860.
• The Trust deed / the Memorandum of Association and rules and regulations of the Society permit
the proposed investment overseas.
• The proposed investment should be approved by the trustees / governing body of the Society.
• The Authorised Dealer bank is satisfied that the Trust / Society is KYC (Know Your Customer)
compliant and is engaged in a bonafide activity.
• The Trust / Society has been in existence at least for a period of three years.

RBI CIR. NO. 53/2007-08-RB, DT. 27/06/2008

OTHERS UPDATES AT A GLANCE:

1. Guidelines for import of Rough Marble Blocks/ Slabs for the year 2008-09 - DGFT Policy Circular
No : 12(RE-2008)/2004-2009 Dated : 27.06.2008

2. The Central Government notified a list of institutions that had been approved by the National
Committee for Promotion of Social and Economic Welfare, the approved projects / schemes
specified to be carried out by these institutions, the estimated cost of the projects / schemes
and the maximum amount of cost to be allowed as deduction under s.35AC of the Income Tax
Act 1961 - Direct Tax (NC) Notification No. 27 dated 17 June 2008

3. The CBDT discussed and notified steps to be taken to clear the backlog of processing of returns
of A.Y. 2007-08. The CBDT had also decided to launch a time bound TDS drive to make those
deductors who had not filed their TDS returns for A.Y. 2006-07 do so - Direct Tax Instruction
No. 6 dated 18 June 2008

4. For exports made w.e.f 1.4.2008, the flakes of Potatoes shall be entitled for an additional duty
credit scrip of 2.5%, over and above the normal VKGUY entitlement - DGFT PUBLIC NOTICE NO.
41/2008, DT. 04/07/2008
5. The Glass Bottles (Non-Yellowish Pink Coloured) are now added in schedule of DEPB rates with
immediate effect – DGFT PUBLIC NOTICE NO. 38/2008, DT. 02/07/2008

6. The Central Government hereby makes the Pan Masala Packing Machines (Capacity
Determination and Collection of Duty) Rules, 2008 which shall come into force on the
01.07.2008 – Central Excise NTF. NO. 30/2008-CE(N.T.), DT. 01/07/2008

7. For the members of ICSI - The last date for payment of Annual Membership fee, Annual
Certificate of Practice fee and Licentiate fee for the year 2008-2009 has been extended upto
31st August, 2008