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Ice-cream, accountants, cats and dogs
August, 25th 2007

Inviting scoops for the taxman.

What do ice-creams, telephone instruments, KitKat chocolate, electric filament lamp, and bottled mineral water have in common? These were the subject matter of a bunch of 15 appeals that the apex court disposed of a few days ago, when deciding the Jayanti Food Processing case. The appeals were about the interpretation of Sections 4 and 4A of the Central Excise Act (CEA), 1944 and the provisions of the Standards of Weights & Measures (SWM) Act, 1976, as also the Standards of Weights & Measures (Packaged Commodities) Rules, 1977.

For starters, Section 4 of CEA used to be the basis for valuation of excisable goods. It provided the mechanism of determining the valuation of the goods under various circumstances, e.g., in the matter of wholesale trade or in the matter of sales being at the different prices for different places of removal or in case where the assessee sold the goods only to related persons, explains the text of the judgment, dated August 22.

Section 4A, introduced by the Finance Act, 1997, brought in MRP-based excise levy, or valuation of excisable goods with reference to retail sale price, as a move to end the uncertainty caused in determining the value of the goods under Section 4. Way back in the year 1988, the Ministry of Finance circulated a letter F. No. 6/1/88-CX.1 dated January 5, 1988, carrying the caption Central Excise Valuation Shift from wholesale price to retail price as the basis of assessment and there lay the seed of Section 4A. No doubt, the seed germinated only in May 1997, recounts www.taxindiaonline.com .

The Jayanti appeal was about ice cream in 4-litre packs supplied to the catering industry (such as hotels) for selling the same in scoops. The assessee showed the MRP (maximum retail price) on the packs and also the line that the pack was not meant for retail sale, but the Department wanted to treat the sale as retail.

Even if the assessee voluntarily displays on the pack the MRP, that would be of no use if otherwise there is no requirement under the SWM Act and the Rules made thereunder to declare such a price, observed the court.

Another point that came to the rescue of Jayanti was a provision in SWM Rules that exempted package specially packed for the exclusive use of any industry as a raw material or for the purpose of servicing any industry, mine or quarry. However, the Department elaborately argued that ice-cream could not be raw material for any industry, and that the phrase servicing any industry could not cover the present case.

The mineral water case, in the bunch of appeals, was about a manufacturer who sold 12 bottles of 200 ml each in a single package. MRP was declared on the package of 12 bottles, and not on the individual bottles, which instead had this line written on them: (a) not for re-sale; (b) specially packed for Jet Airways

The verdict, running to more than 12,000 words, can offer scores of servings to those who would like to savour the heights of the taxmans imagination.

*********

Aspect theory

Is Parliament competent to levy service tax on practising chartered accountants and architects? This was the question in the All India Federation of Tax Practitioners vs Union of India case, decided by the Supreme Court on August 21 . The basic contention of the appellant was that the State Legislature alone has an absolute jurisdiction and legislative competence to levy service tax. It was submitted that service tax was a tax on profession. It was submitted that service tax fell within the ambit of Entry 60 of List II.

The word profession in Entry 60 List II was synonymous with the word service and, therefore, tax on profession would include tax on service, which tax could be levied only by the State Legislature, argued the Federation. It said that there could not be a profession without service.

We find that Entry 60 of List II mentions taxes on professions, trades, callings and employments. Entry 60 is a taxing entry. It is not a general entry, observed the court. Therefore, Entry 60 which refers to professions cannot be extended to include services. This is what is called Aspect Theory

Good to know that there are theoretical underpinnings of the tax that professionals grudgingly pay.

*********

Discovery of PE

The UOP LLC case that came up before the Income-Tax Appellate Tribunal not long ago is about the discovery of evidence about PE (permanent establishment). The company, incorporated in US, is in the business of supply of engi neering design and process technology to the petroleum refining, petrochemical, gas processing and chemical-related industries. Its customers include Indian Oil, Reliance Petroleum, Nagarjuna Oil, and Tamil Nadu Petro Products.

UOP LLC declared an income of Rs 105 crore, received from Indian customers, as royalty and fees for included services liable to tax at 15 per cent in India as per the Indo-American Tax Treaty on the basis that it was not having any PE in India during the year under consideration.

The company also supplied equipment directly to the Indian customers and the profit arising from such sale, being the commercial/business profit, was claimed to be not taxable in India as per Article 7 of the DTAA (double taxation avoidance agreement) between India and the US.

Well, here comes the twist. During the course of assessment proceedings, it was noticed by the Assessing Officer (AO) that there was another entity of the UOP group operating in India, viz., UOP India Private Ltd which was stated to be principally formed with the object of rendering technical and engineering services to the Indian customers on its own It was further found by the AO that there has been one more entity of the UOP group in India, viz., UOP Asia Limited which was claimed to be operating only as liaison office duly approved by the RBI for the entire UOP group in India.

The nearly 20,000-word ruling is right material for the avid who would like to drill for more insights.

*********

Comma missing

Dogs and cats have reason to be sad, because they lost a case recently. To know more, you need to read the latest issue of Supreme Court Revenue Cases, which has the text of decision in Sree Durga Distributors vs State of Karnataka. The short question before the court in this case was whether dog feed and cat feed sold by the assessee attract nil rate of duty under entry 5 of the Karnataka Value Added Tax Act, 2003.

Entry 5 speaks of animal feed and feed supplements, namely, processed commodity sold as poultry feed, cattle feed, pig feed, fish feed, fish meal, prawn feed, shrimp feed and feed supplements and mineral mixture concentrates, intended for use as feed supplements including de-oiled cake and wheat bran.

The company argued that the and between animal feed and feed supplements meant two categories, and therefore its products, viz. cat and dog feed, came under the first, that is, animal feed. But the court would not accept such a stand. It said that if the Legislature intended animal feed and feed supplements to be different categories, there would have been a comma in between. The court also said that the list following namely was exhaustive.

In that list, the Legislature has not included dog feed/cat feed, therefore, the products of the appellant do not fall under entry 5, said the judges.

That should explain any doleful barks and mews in the neighbourhood.

Tailpiece

Whenever I read that a certain section has to be read with explanation number so-and-so to sub-section such-and-such of another section

You get stumped?

No, I pause to breathe!

D. MURALI

 
 
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