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When taxman was unclear about nuclear power
October, 06th 2007

Rightly cautious.

When the air was thick with nuke talk, Dr Manmohan Singh had to assuage the fears of the anxious by saying, I can assure you we are a responsible nuclear power. What may not be equally reassuring is the frightening fact that taxmen are getting into nuclear stuff, as came to light in Nuclear Power Corporation of India Ltd vs Commissioner of Customs, a case before the Mumbai Tribunal.

At the core of the dispute were DG (diesel generator) sets imported by the Corporation. Customs officials denied the benefit of exemption for the sets, saying that these were not integral and functional part of the atomic power plant. These were not eligible for nil rate of duty, they said, but liable to be assessed as goods required for captive power plant of 5 MW or more, as power generated by DG sets was for captive use in the atomic power project.

At the Tribunal, the Corporations counsel had to explain how the emergency electric power supply system is needed for ensuring the availability of power supplies to equipment and systems that are essential to: (a) shutdown the reactor; (b) maintain the reactor in safe shutdown state; (c) containment isolation; (d) reactor core cooling; and (e) prevent significant release of radioactive material to the environment.

He submitted that certain portion of nuclear power plant cannot be shutdown even for a second as it might result in release of radioactive material to the environment, and that DG sets were essential for the initial setting of plant without which project will not be allowed to be operational.

Countering these arguments, the Departments representative said that just because the appellants want to be extra-cautious and provide for safety, it does not mean that the captive power plant was a part of the project even though it may be statutory requirement for setting up of a plant. He cited earlier decisions in a few fertiliser company cases to support his contention.

Thankfully, the Tribunal held that, in a matter like setting up of nuclear power plant where uninterrupted power supply is to be ensured so as to prevent any release of radioactive material to the environment, captive power plant is a part of project.

Imagine how dangerous things can be if overzealous tax officials were to prove themselves to be irresponsible, unclear powers!

* * *

Imported vs local goods

Do imported goods, once they have been cleared after paying Customs duty, lose their character as foreign goods for the purpose of levy of sales tax under the provisions of the TNGST (Tamil Nadu General Sales Tax Act)?

Is a levy of 20 per cent sales tax on imported goods, as against the levy of 12 per cent sales tax for the goods manufactured in India, discriminatory in the context of Articles 301 to 304 of the Constitution?

Whether by virtue of the General Agreement on Tariffs and Trade (GATT), the State would be competent to bring the goods imported and levy higher rates of sales tax and, in such circumstances, whether such enactment would require the assent of the President under Article 304(b) of the Constitution of India?

These were the questions before the Madras High Court in a bunch of petitions when deciding the Sony India Ltd case. The company, a fully-owned subsidiary of Sony Corporation of Japan, imports and sells LCD projectors, handy cameras, projection televisions, some models of car stereos and high-end audio systems. It imports the above goods at New Delhi and Mumbai and the imported goods are packed in accordance with the Weights and Measures Rules affixing MRP stickers, etc., and are despatched to a network of branch offices/warehouses located in various parts of India.

Other petitions on similar lines included: Nokia India Private Ltd, Chennai, engaged in the business of importing and selling handsets of cellular phones from abroad at New Delhi; Trans Car India Private Ltd, Chennai, authorised dealers for sale of Mercedes Benz cars; MPL Cars Ltd, authorised dealers of Ford, which obtained Ford Mondeo cars manufactured in Belgium; Mahaveer Mirror Industries, Chennai, importing goods such as medium density fibreboard and selling them in the local market; and Theni Glass House, importing and reselling all kinds of glasses and plywood.

The court, finding no merit in the challenge to the TNGST Act, said, the writ petitions fail and they are dismissed.

* * *

Missing glass shells

In 2002, Rita Enterprises imported 20,000 pieces of glass shell with fluorescent powder welding and 20,000 pieces of PCB plus cap plus base with wires from China. The consignment, with an assessable value of about Rs 1 lakh, and Customs duty of about Rs 65,000, was warehoused.

The Department refused to give clearance, saying that the glass shells may be CFL (compact fluorescent lamp), liable for anti-dumping duty. Accordingly, the Deputy Commissioner of Customs sent the samples to SQTC Directorate, New Delhi, seeking their opinion to see whether the materials can be considered CFL.

As there was no reply, a reminder was sent to the SQTC Directorate. Meanwhile, samples were also sent to the Central Electrical Testing Laboratory, Kakkalur, and the Electronics Regional Test Laboratory, New Delhi. Opinion was not given for more than a year and, therefore, the writ petitioner requested the Department to permit clearance of goods, which was negatived by stating that the investigation is not over.

When in June 2003, the petitioners agent Freight Master visited the godown of the Warehousing Corporation to inspect the goods, he came to know that the goods were not available; the goods had been sold in auction

An interesting case that came up before the Madras High Court not long ago.

* * *

Rupee ruling

Double benefit or additional relief is not a taboo under the law, observed the Authority for Advance Rulings when discussing Timken Frances application on October 1. From the mere fact that the protection from rupee value fluctuation in terms of foreign currency is made available to the non-residents, it does not follow that the non-residents should not get the benefit of reduced rate of tax which the residents are getting, reads a snatch of the text on .

The Authority was explaining the rationale of the provisions relating to mode of computation of capital gains, as in Section 48 of the Income-Tax Act. Non-resident Indians who invest in shares and debentures by utilising foreign currency are adversely affected when they sell such shares or debentures purchased by them by reason of fall in the value of the Indian rupee vis--vis the foreign currency, it said.

Therefore, Section 48 was amended in order to compensate the non-resident Indian investors for the lower earning in foreign currency on account of the decline of rupee value.

Of relevance in the current currency situation.


If only the salaried could enter into a tax-sharing deal with the Department

So that we pay during the first half of the year, and they

Booth building

Are free standing pre-fabricated re-locatable public telephone booths buildings?

This question arose when the Bangalore Tribunal had to decide the Controls and Schematics Ltd case. Telephone booth by no stretch of imagination could be called a building, the Excise Commissioner had said. Building should mean a substantial structure such as a house, shop, etc. A telephone booth is a structure that can be placed anywhere, including a building, and is a small enclosure enabling the user to make a call in private. Building is a term applied to places where people dwell, such as houses, shops and offices, he explained.

The impugned goods are structures wherein people can only make a call and cannot be said as a place where people dwell. The question, assembling the structure at the site and dissembling it before dispatch from the factory, is not of great consequence here as the goods are made up of bars, rods, angles, shapes, sections, sheets, plates, etc., by riveting bolting, etc

The booth was in plain sight, though, as a specific entry, the Tribunal had to point out.

* * *

Take diversion

Honda Siel Cars India Ltd of Gautam Budh Nagar district, Uttar Pradesh, recently approached the Delhi Tribunal saying that the Commissioner of Income Tax (Appeals) had erred by enhancing the assessed income of the appellant: he had ruled that the payment made on account of lump-sum fee and royalty was neither revenue expenditure (as claimed by the appellant), nor capital expenditure (as treated by the assessing officer).

The CIT (A) held that the impugned expenditure was indeed diversion of income to the holding company. The action of the CIT (A) has resulted in enhancement of income.


* * *

Sahara debit

Two questions were before the Lucknow ITAT (Income-Tax Appellate Tribunal) in the Subrata Roy Sahara case: One, Whether, the loan of Rs 1,88,96,202 advanced by registered firm Sahara India to the assessee can be treated as a loan advanced by the company, SISICOL (Sahara India Savings & Investment Corpn Ltd) to the assessee on the basis that the same had its roots in a debit balance of Rs 26,24,12,222 in the name of firm, Sahara India, in the books of SISICOL which was acting as conduit for the same?

And two, If the answer is in the affirmative, whether in view of the blending of credit balances aggregating to Rs 60,61,54,638 could it be inferred that no part of the loan of Rs 1,88,96,202 to the assessee could have come from the credit balance of Rs 26,24,12,222 in the name of the company, SISICOL, or would it be inferred that 44 per cent of the loan would have come from the above credit balances on proportionate basis?

The case has a chequered history as in the questions under focus, the words debited were wrongly written and ten years have been wasted in correcting that insignificant error, fretted the ITAT.


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