Most of the States of the country have framed law with a view to levy tax on the entry of the goods into a local area of the State for consumption, use and sell therein. It is pertinent to mention that Clause (3) of Article 246 of Constitution confers power to make laws for such State or any part thereof with respect to any of the matter enumerated in List II of the Seventh Schedule of the Constitution of India. The power of the State Legislature in enacting the Entry Tax Act has to be traced to Entry 52 enumerated in List II of the Seventh Schedule of the Constitution of India. However, recently such laws have been amended to provide for that entry tax shall also be leviable on the entry of goods imported into a local area from any place outside the local area including a place outside the country. The issue that arises is as to whether the State Legislature is competent to enact a law levying entry tax on the entry of goods imported in the local area of the State from outside the country.

The Constitution of India is unique in the sense that it contains an exhaustive enumeration and division of the legislative powers of taxation between the Centre and the States. A scrutiny of Lists I and II of the VIIth Schedule to the Constitution of India would show that there is no overlapping anywhere in the taxing power and the Constitution gives independent source of powers to the Union and the States. Under the three lists of the VIIth Schedule to the Constitution, a taxation entry in a legislative list may be in respect to an object or an event or may be with respect to both. Article 246 makes it clear that the exclusive powers conferred on the Parliament or State to legislate on a particular matter includes the power to legislate with respect to that matter. Hence, where the entry describes an object of tax, all taxable events pertaining to the object are within that field of legislation unless the event is specifically provided for elsewhere under a different legislative head. The logical corollary of holding that taxes are imposed only on taxable event is that even when an entry speaks of a levy of tax on goods, it does not include the right to impose taxes on taxable event which have been separately provided for in other taxation entries.

The tax in respect of goods has sometimes been referred to as a tax on an aspect of goods, and sometimes a taxable event. But there can be no overlapping in the field of taxation and if such a tax is specifically provided for in a legislative entry, the same effectively narrows the field of taxation available under other related entries. The State therefore cannot, under the guise of levying tax under any of the entries of the State List, impinge on the exclusive power of the Union under any of the entries of the Union List. The State, therefore, while exercising the power under Entry 52 of the State List i.e. while levying tax on the entry of the goods into a local area for consumption, sale or use therein, cannot levy tax on the fields covered by the Union List or cannot impinge the exclusive power of the Union to levy tax or duties under the Union List. Therefore, the State while levying tax under Entry 52 of List II cannot entrench upon the power of the Union to levy tax or duties on certain transactions and/or events which fall within the exclusive domain of the Union by virtue of the specific entry in List I of the VIIth Schedule to the Constitution of India.

Articles 245 and 246 distribute legislative powers between Parliament and the State Legislature as per the three lists set forth in the VIIth Schedule to the Constitution of India. Entry 41 deals with trade and commerce with foreign countries, import and export across customs frontiers, definition of customs frontiers. Entry 83 deals with duties of custom including export duties. Thus, Union is empowered to make any law with regard to trade and commerce with foreign countries as well as the levy of the duties of custom. The duty of customs is leviable on the import of the goods into India. All levy connected or related to the import of the goods is within the exclusive domain of the Union.

The object of insertion of Entries 41 and 83 in the Union List is to place the import as well as the foreign trade beyond the taxing powers of the State. It is Parliament alone which can make laws with respect to foreign trade. If the import or export transactions are to be subjected to any duties or taxation, it is only the Union which can impose such a tax. A transaction which amounts to import of goods into the territory of India cannot be converted into entry of goods into a local area so as to empower the State to levy entry tax on such import from outside the country. If such an interpretation is given to Entry 52 of List II of the VIIth Schedule to the Constitution of India, the very purpose of Entries 41 and 83 of the List I of the Constitution of India shall become otiose.

When a field of taxation is specifically covered under the Union List, the same must be deemed to be excluded from the State List and the State shall have no power to levy tax on the subjects which falls within the purview of any of the entry of List I. When goods are imported from abroad, the transaction is a single transaction commencing with agreement of sale with overseas suppliers and terminating when the act of importation is for use in the local area of the State. It is the entry into a local area for use or consumption that gives rise to a levy. Entry 52 of the State List does not contemplate levy of entry tax on goods imported from outside the country inasmuch as the same would amount to levy of tax on import of goods into the country which is a subject matter covered by Entry 83 of List I of VIIth Schedule to the Constitution of India.

Further Article 286 of the Constitution of India also puts restrictions upon the imposition of tax on the sale or purchase of goods where such sale and purchase
inter alia takes place in course of import into the territory of India or export of the goods outside the territory of India. The object and purpose of putting such restriction on the power of the State to impose tax in course of import into the territory of India or export of the goods outside the territory of India is in conformity with entry 41 of List I of Seventh Schedule of Constitution of India by which trade and commerce with foreign country in the course of import and export of goods has been kept within the exclusive domain of the Union. The intention of framers of the Constitution, while distributing the legislative powers between State and Union, was to keep import into the territory of India or export of the goods outside the territory of India to be solely within the domain of Union. Levy of any tax or duty on the import into the territory of India or export of the goods outside the territory of India is solely within the domain of Union. In case, the State is permitted to levy entry tax on import into the territory of India under the guise of Entry 52 of list II of Seventh Schedule of Constitution of India, the same would amount to levy of tax on import of goods into the territory of India which will go against the spirit and intent of the Constitutional provisions to keep the foreign trade outside the purview of the State and would also amount to entrenching upon the power specifically reserved for the Union.

The revised rate of 14% is applicable from 1-6-2015 instead of 12.36% hereto. In accordance with S.67A, rate of service tax is applicable on the value of taxable service, as may be in force at the time when such service is provided or agreed to be provided. Once the service or any portion thereof (under Continuous Supply of Service) is completed upto the appointed day i.e. 31-5-2015, the old rate would apply. However, as per R.4 of Point of Taxation Rules, 2011 (POTR), old rate of 12.36% shall apply in case the activity is carried on up to 31st May 2015 and either a bill is issued or payment received prior to that date. Thus, the POTR exceeds the provisions of the Act which may not be correct as the rules are sub-servant to the provisions of the Act. It may however be noted that taking this position may invite litigation.

The following is the chart depicting how the service tax rates would apply:


Sl. No.

Description of taxable service

Abatement /Compo- sition

Conditions for availment of abatement

Rate from 1-6-2015 onwards

Reverse charge

% of ST payable by provider

% of ST payable by receiver
1. Service of Goods Transport Agency in relation to transportation of goods
70% Non availability of CENVAT on

• Inputs ;
• Capital Goods

Input services

4.20% NIL 100%
2. Transportation of goods by rail 70% Non availability of Cenvat on:

• Inputs ;
• Capital Goods


• Input services***
4.20% 100% NIL
3. Transport of passengers with or without accompanied belongings by rail 70% Non availability of Cenvat on:
• Inputs ;
• Capital Goods


• Input services
• There may be dual tax on transportation of passengers by rail as credit of input service in relation to transport of passengers will not be allowed.
4.20% 100% NIL
4 Transport of passengers by air with or without accompanied belongings in-

(i) Economy class


(ii) Other than economy class
60%
40%
Non availability of Cenvat on:

• Inputs ;
• Capital Goods

5.60%
8.40%
100%
100%
NIL
NIL
5. Transport of goods in a vessel 70% Non availability of Cenvat on:

• Inputs ;
• Capital Goods
• Input services

Note: In nut shell all transportation of goods and passengers by way of road and rail is now subject to tax on 30% instead of different values with the condition of non availability of Cenvat credit on input, capital goods and input services used for providing the output services.

4.20% 100% NIL
6. Chit Fund Nil The services of foreman of chit fund is specifically brought into tax net.
14% 100% NIL
7. Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the Competent authority:

a) For residential unit satisfying both the following conditions namely;

i) The carpet area of the unit is less than 2000 sq. ft and

ii) The amount charged for the unit is less than Rs. 1 Crore

75% Non availability of Cenvat on:
• Inputs
3.50% 100% NIL
b) For other than the (a) above

70%

4.20%

100%

NIL

8. Works Contract Service
A. Original works
60% Non availability of Cenvat on:

• Inputs

8.652%
 
5.60% 50%(if service provider is Indi-vidual, HUF Proprie-tary or Partner-ship, AOP located in TT & receiver is a business entity – body corporate 50%
B. In case of works contract, not covered under sub-clause (A), including works contract entered into for,

(i) Maintenance or repair or reconditioning or restoration or servicing of any goods; or


(ii) Maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property.
30% 9.8%
9. Renting of motor cab –
a) Abated value.
60% Please see note 1 below:
5.60% NIL
(if service provider is Individual, HUF Proprietary or Partnership, AOP located in TT & receiver is a business entity – body corporate
100%
b) Non Abated value 14% 50%
(if service provider is Individual, HUF Proprietary or Partnership, AOP located in TT & receiver is a business entity – body corporate
50%
10. Transport of passengers, with or without accompanied belongings, by —

(a) a contract carriage other than motorcab.
(b) a radio taxi.]

Non availability of Cenvat on:

• Inputs


• Input service

Capital goods
5.60% NIL(if service provider is Individual , HUF Proprietary or Partnership, AOP located in TT & receiver is a business entity – body corporate 100%
11. Restaurant Service:
Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at an air conditioned or centrally heated restaurant
60% Non availability of Cenvat on:

• Inputs


• Input service

Capital goods
5.60% 100% NIL
12. Catering Service:
Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of such outdoor catering.
40% Non availability of Cenvat on:
• Inputs
8.40% 100% NIL
13. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. 40% Non availability of Cenvat on:

• Inputs
8.40% 100% NIL
14. Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention centre, club, pandal, shamiana or any other place, specially arranged for organising a function) together with renting of such premises. 30% Non availability of Cenvat on:

• Inputs


• Capital goods
9.80% 100% NIL
15. Service of insurance agent {Rule 2(d)(i)} Non availability of Cenvat on:
Inputs
14% NIL 100%
16. Services of recovery agent
14% NIL (if service provider is recovery agent
100% (if service receiver is banking company
17. Sponsorship services
14% NIL 100% (If body corporate or partnership firm located in taxable territory
18. Services of arbitral tribunal
14% NIL 100% (If receiver is business entity)
19. Legal service of advocate or advocate firms
14% NIL 100% ( if business entity having turnover exceeding Rs.10L pa, located in taxable territory
20. Services of director to company or body corporate (the word body corporate are added w.e.f. 11-7-2014) 14% NIL 100% (if receiver is company or body corporate)
21. Supply of manpower for any purpose or security service
14% NIL (if service provider is Individual, HUF Proprietary or Partnership, AOP located in taxable territory) 100%( if business entity registered as body corporate located in the taxable territory) w.e.f 01.04.2015 100% ST is payable by the receiver
22. Services received from non-taxable territory (import of service) 14% NIL (SP located in Non taxable territory)
100% (SR located in taxable territory)
23. Services by a tour operator in relation to –
(i) a package tour
75% Non availability of Cenvat on:
• Inputs
• Capital goods
3.5% 100% NIL
(ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour 90% 1.236% 1.4% 100% NIL
(iii) any services other than specified at (i) and (ii) above. 60% 4.944% 5.60% 100% NIL
24. Services in relation to financial leasing including hire purchase 90% Non availability of Cenvat on:
• Inputs
• Capital goods
1.4% 100% NIL
25. Booking of air tickets by air travel agent
Domestic booking – 0.7% Inter-national bookings – 1.4%
100% NIL
26. Life insurance service
First year – 3.5% Subse-quent year – 1.75% 100% NIL
27. Money changing service

(i) Gross amt of currency exchanged for an amt up to Rs. 100000/-
0.14% or Minimum Rs. 35/- 100% NIL
(ii) Gross amt of currency exchanged for an amt of rupees exceeding Rs. 100000/- and up to Rs. 10,00,000/- Rs. 140/- and 0.07% 100% NIL
(iii) Gross amt of currency exchanged for an amt of rupees exceeding Rs. 10,00,000/- Rs. 770 and 0.014% or maximum of Rs. 7,000/- 100% NIL
28. Mutual fund agent or distributor 14% NIL 100%
29. Selling or marketing agent of lottery tickets 14% NIL 100%
30. Service providers providing services under the brand name of aggregator 14% NIL 100%
31. All services except those mentioned above. 14% 100% NIL

*** There may be dual tax on transportation of goods by rail as credit of input service in relation to transport of goods by rail, road or air will not be allowed.

Note 1: In relation to renting of motor cab on abated value the cenvat credit will be allowed on the following conditions:

(i) CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004;

(ii) CENVAT credit on input service of renting of motorcab has been taken under the provisions of the CENVAT Credit Rules, 2004, in the following manner :

(a) Full CENVAT credit of such input service received from a person who is paying service tax on forty per cent of the value; or

(b) Up to forty per cent CENVAT credit of such input service received from a person who is paying service tax on full value;

(iii) CENVAT credit on input services other than those specified in (ii) above, has not been taken under the provisions of the CENVAT Credit Rules, 2004.]

J. D. Nankani
National President

1. Central Notification under the Cst Act, 1956

Govt. of India, Ministry of Finance, Dept. of Revenue, State Tax Division vide ‘Office Memorandum’ bearing F. No. 29012 / 14 / 2014-SO (ST-II) dt. “Nil” taking cognizance of the Allahabad HC judgment dt. 19-12-2014 in Writ Tax No. 478 of 2014 in the case of M/s. Sandeep Bulk Carrier v. State of U.P. and 3 Ors. clarified that with a view to check the arbitrary use of power by the officials of the ST Dept. under the provisions of the CST Act, 1956 as directed by the Allahabad HC would not be fruitful at this stage. The memorandum further says that as per provisions in Section 9(2) of the CST Act, 1956, the power to administer the CST Act, 1956 to regulate inter-State trade and commerce vests with the States. Hence, State Govts. can issue necessary instructions / guidelines to check arbitrary use of power by its officials in case of inter-State trade and commerce. Along with this official memorandum, a copy of the judgment and order of the Allahabad HC as referred to above was forwarded to all the States / UTs for necessary action to comply with the direction thereon in their respective States / UTs under intimation to the Union Govt. (Source: 2015-16(20) KCTJ at Page 51-52).

The judgment of the Allahabad
HC in M/s Sandip Bulk Carriers v. State of U.P. and 3 Ors. has been reported in 2015-16 (20) KCTJ at P No. 29 to 50.

2. Exemptions/Concessions

Entry tax on coal/gypsum and bauxite (raw material for cement) reduced to 1% for the period 1-5-1997 to 30-9-1997 by NTF No. 49 dt. 4-5-1999. Subsequently, by Notification No. 63 dt. 5-7-1999 and Explanation inserted to Notification No. 49 to the effect that the tax shall not be refunded if the dealer had already paid the tax at higher rate. In the circumstances, the appellant-assessee challenged the said Explanation as discriminatory and violative of Article 14 of the Constitution. The HC dismissed the petition of the assessee. Hence, the appeal was filed to the Supreme Court.

2. The SC held that the Explanation inserted by NTF dt. 5-7-1999 resulted in discrimination towards those who had paid the tax at a higher rate, like the appellants, as compared to the persons who were defaulters and have now been allowed to pay tax and 1% for the relevant period. The consequence was that it carved out two categories of taxpayers who are made to pay the tax at different rates, even though they were identically situated. As such, there was no basis for creating these two passes and there was no rationale behind it which would have any connection with the objective sought to be achieved.

3. The Apex Court, with reference to Special Courts Bill, 1978, undertook a survey of plethora of decisions of its own touching upon the ‘Equality’ doctrine enshrined in Article 14 of the Constitution and culled out certain principles. Following was the emphatic message given by the Court:

“(4)….. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same.”

4. On the application of the aforesaid principles as incorporated in various judgments of this Court to the facts of the present case, the irresistible conclusion is that the explanation so attached to the Notification was highly discriminatory in nature. Accordingly, the appeal was allowed.

Vikram Cement and Anr. v. State of M.P. and Ors. (2015) 26 STJ 629 (SC)

3. Interpretation of Entries

As per Notification dt. 18-10-1993 issued u/s. 55-A of Gujarat Sales Tax Act, 1969, the rate of composition in case of works contract installation of air-conditioners and A.C. Coolers was 15%, while in case of fabrication and installation of plant and machinery, the composition rate was 5%. Therefore, the question arose whether the works contract for fabrication and installation of water chilling plant as per specifications of the customers can be treated as a contract for installation of air conditioners and A.C. Coolers or it was covered in the entry for fabrication and installation of plant and machinery. Applying various principles of interpretation of statutes, the SC held that the contract for Fabrication and installation of water chilling plant as per specifications of the customers first involved fabrication of water chilling plant and then its installation. Thus, it was quite different from a contract for mere installation of air conditioners and A.C. Coolers. It was therefore liable for composition at 5% applicable to fabrication and installation of plant and machinery and not 15% applicable to installation of air conditioners and A.C. Coolers.

2. In the matter of classification of goods to determine the liability of tax and rate of tax applicable, the burden of proof was on the taxing authority to demonstrate that a particular class of goods or item in question was taxable in the manner claimed by them, and mere assertion in that regard was of no avail, as has been enunciated by the SC in Garware Nylon Ltd. (1996) 10 SCC 413 and relied upon with approval in HPL Chemicals Ltd. (2006) 5 SCC 208. Accordingly, the appeal was allowed.

Voltas Ltd. v. State of Gujarat (2015) 26 STJ 637 (SC)

4. Works Contract

The P&H HC in its judgment dt. 22-4-2015 in the case of CHD Developers Ltd., Karnal v. State of Haryana and Ors., taking into consideration the Apex Court judgment in the case of
Larsen & Toubro Ltd. v. State of Karnataka (2013) 46 PHT 269 (SC), ruled on the following points:

(i) VAT held was leviable on transfer of property in goods involved in execution of works contract and not on works contract itself.

(ii) Developers and builders were held as contractors. Developers and builders whether were works contractors and the agreement between the developer / builder/promoter and the prospective purchaser for whom flat was constructed and thereafter it was sold with some portion of land, authorises the State to impose VAT thereon.

(iii) Works contract – Value of land in works contract – Not part of sale price – Value of land, on which developers construct building, flats for prospective purchaser whether includable in sale price – held in the affirmative.

(iv) Tax on the sale or purchase of goods – Meaning and scope : ‘Tax on the sale or purchase of goods’ in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The tax leviable by virtue of sub-clause (b) of clause (29-A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under Entry 54 of the State list is made subject to under the Constitution.

(v) Works contract: Builder / Developer / Contractor / Promoter – When are liable to pay VAT – The value addition made to the goods transferred after the agreement is entered into with the flat purchase can only be made chargeable to tax by the State Govt. No tax can be charged from the Builder / Developer / Contractor / Promoter in respect of the value of goods incorporated in the works contract after the agreement with the purchaser on which the sub-contractor has already paid the tax.

(vi) Works contract – Building contract – Levy of tax on goods deemed to have been sold in execution of a works contract – Essential conditions to be fulfilled for sustaining levy of tax on the goods deemed to have been sold of a works contract are – (a) there must be a works contract, (b) goods must be involved in the execution of a works contract, and (c) the property in those goods must be transferred to a third party either as goods or in some other form. These conditions are fulfilled in a building contract or any contract to do construction.

(vii) Statutory provisions – Interpretation of – Rule of reading down statutory provisions to mean that a statutory provision is generally read down so as to save the provision from being pronounced to be unconstitutional or ultra vires. The rule of reading down is to construe a provision harmoniously and to straighten crudities or ironing out creases to make a statute workable.

(viii) Writ petitions were held to be maintainable, in the facts and circumstances of the cases and individual issues regarding non-taxability of their transactions on merits, it shall be open for them to raise all these issues before the Assessing Authority / Revisional Authority in accordance with law. It shall also be open to the petitioners to agitate their grievance regarding refund of stamp-duty, if any, before the appropriate authority as per law.

CHD Developers Ltd., Karnal v. State of Haryana & Others (2015) 51 PHT 1 (P&H)

D. H. Joshi
Advocate

IDF-NBFCs shall invest only in PPP and post commercial operations date (COD) infrastructure projects which have completed at least one year of satisfactory commercial operation and are a party to a Tripartite Agreement with the Concessionaire and the Project Authority for ensuring a compulsory buyout with termination payment and has been allowed to undertake investments in non-PPP projects and PPP projects without a Project Authority, in sectors where there is no Project Authority, provided these are post COD infrastructure projects which have completed at least one year of satisfactory commercial operation.

Further for computing capital adequacy, covering PPP and post COD projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent and also the same is extended to all NBFCs i.e. all assets, including bonds and loans, covering PPP and post COD infrastructure projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent.

The individual projects can take a maximum exposure up to 50 per cent of its total capital funds and for additional exposure up to 10 per cent could be taken at the discretion of the Board of the IDF-NBFC. RBI may grant additional 15 per cent (over 60 per cent) exposure if the financial position of the IDF-NBFC is satisfactory.

Circular No. RBI/2014-15/600 DNBR (PD) CC.No.035/03.10.001/2014-15 dated May 14, 2015

Foreign Exchange Management (Permissible Capital Account Transactions) (Third Amendment) Regulations, 2015 dated May 26 2015 [Section 6 (2) & Section 47(2) of the Foreign Exchange Management Act, 1999]

A resident individual may, draw from an authorised person foreign exchange not exceeding USD 250,000 per financial year

If the drawal of foreign exchange by a resident individual for any capital account transaction specified in Schedule I exceeds USD 250,000 per financial year, the Reserve Bank from time to time as the case may be, the limit specified in the regulations relevant to the transaction shall apply with respect to such drawal.

The foreign exchange of USD 250,000, drawn not be remitted directly or indirectly to countries notified as non-co-operative countries and territories by Financial Action Task Force (FATF).

Notification No. FEMA. 341/2015-RB

Liberalised Remittance Scheme (LRS) for resident individuals- increase in the limit from USD 125,000 to USD 250,000 and rationalisation of current account transactions. [RBI/2014-15/620 A.P. (DIR Series) Circular No. 106 dtd. June 1, 2015]

AD banks allow remittances by a resident individual up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 250,000 for the financial year.

The permissible capital account transactions by an individual under LRS are:

i) Opening of foreign currency account abroad with a bank;

ii) Purchase of property abroad;

iii) Making investments abroad;

iv) Setting up wholly owned subsidiaries and Joint Ventures abroad;

v) Extending loans including loans in Indian Rupees to non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

Further for emigration, [expenses in connection with medical treatment abroad and studies abroad individuals may avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS. Gift in Indian Rupees by resident individuals to NRI relatives as defined in the Companies Act, 2013 shall also be subsumed under the LRS limit.

The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc.

Also the scheme has prescribe the remittance procedure that need to be complied by the remitter, authorised person and authorised dealers.

[Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1992 (42 of 1999)]

Remittance facilities for persons other than individuals [RBI/2014-15/620 A.P. (DIR Series) Circular No. 106 dtd. June 1, 2015]

The persons other than individuals can make remittances for

i. Donations for educational institutions;

ii. Commissions to agents abroad for sale of residential flats/commercial plots in India;

iii. Remittances for consultancy services and

iv. Remittances for reimbursement of pre-incorporation expenses within the limit and conditions laid down

[Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1992 (42 of 1999)]

Strategic Debt Restructuring Scheme (SDR) RBI/2014-15/627 DBR.BP.BC.No.101/21.04.132 /2014-15 dtd. 8-6-2015

As per circular DBOD.BP.BC.No.97/21.04.132 /2013-14 dated February 26, 2014 which states that the general principle of restructuring should be that the shareholders bear the first loss rather than the debt holders. With this principle in view and also to ensure that the promoters, JLF/Corporate Debt Restructuring Cell (CDR) may consider the following options when a loan is restructured:

• Possibility of transferring equity of the company by promoters to the lenders to compensate for their sacrifices;

• Promoters infusing more equity into their companies;

• Transfer of the promoters’ holdings to a security trustee or an escrow arrangement till turnaround of company. This will enable a change in management control, should lenders favour it.

Also restructuring of accounts, borrower companies are not able to come out of stress due to operational/managerial inefficiencies despite substantial sacrifices made by the lending banks change of ownership will be a preferred option.

Further to ensure promoters in reviving stressed accounts and provide banks with enhanced capabilities to initiate change of ownership in accounts which fail to achieve the projected viability milestones, banks may undertake a ‘Strategic Debt Restructuring (SDR)’ by converting loan dues to equity shares after complying with the conditions.

The conversion of debt into equity under SDR, banks may also convert their debt into equity at the time of restructuring of credit facilities

Acquisition of shares due to such conversion will be exempted from regulatory ceilings/restrictions on Capital Market Exposures, investment in Para-Banking activities and intra-group exposure.

Equity shares acquired and held by banks under the scheme shall be exempt from the requirement of periodic mark-to-market (stipulated vide Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks) for the 18 month period indicated at para 3(xi).

Conversion of debt into equity in an enterprise by a bank may result in the bank holding more than 20% of voting power, which will normally result in an investor-associate relationship under applicable accounting standards. However, as the lender acquires such voting power in the borrower entity in satisfaction of its advances under the SDR, and the rights exercised by the lenders are more protective in nature and not participative, such investment may not be treated as investment in associate in terms.

Sujeet Karkala
Advocate

SET OFF

Query 1

1. One of my client’s is holding Entitlement Certificate and carries on activities of manufacture of cottonseed oil, cottonseed oil cake and gad from out of sarki (cottonseed).

2. Cotton seed i.e. raw material is taxable, while oil and gad are taxable and cottonseed oil cake is tax free;

3. In the circumstances, as to whether my client is entitled to full set-off or will be entitled to set off only on raw material i.e. sarki (cotton-seed) proportionally used in the manufacture of cotton-seed and gad.

Kindly enlighten me in view of latest decision of M. P. High Court in the case of Ruchi Soya vs. State of M. P. and Others (2014) 70 VST 40 (MP) in which their Lordship of M. P. High Court have held that entire set-off is allowable on raw material in the circumstances of the case. In the said case, decision of Supreme Court has been also referred on identical issue and it had been held that the assessee is entitled to full set-off.

The photocopy of judgment is submitted herewith for ready reference.

In the circumstances, I may kindly be enlightened as to whether my client will be entitled to full set-off or proportionally to the extent of manufacture of cotton seed oil and gad.

Kindly enlighten me along with case law, circular, notification and provisions of law and particularly in view of the provision contained in Sec. 55(f), 57(2), Sec. 88, Rules 79, 80, 81(2)(f)(g), Rule 81(3), Rule 91 and other relevant section and rule.

My client is a small manufacturer and holds Entitlement Certificate under 1993 scheme.

Reply

As per Rule 53(2)(a) if there is manufacture of tax free goods then set-off reduction is applicable. In the present case oil and gad are taxable commodities. The oil cake i.e. sarki pend will be tax free item and therefore, set-off reduction might have been attracted. However, by Explanation – in Rule 53(2)(a) sarki pend is not to be considered as tax free item i.e. it is treated as taxable item. Therefore, there will not by any reduction in the present case and full set-off will be eligible.

‘F’ Form

Query 2

There are several Ltd. companies having registered office at Mumbai and having VAT and CST TIN numbers and filing NIL returns because they do not have any sale or purchase in the State of Maharashtra.

These companies are having manufacturing units at Himachal Pradesh and Uttarakhand and all the sales are effected from that end, because they have excise and VAT benefits in those States.

On purchase side they have large quantity of imports of raw materials which are imported at Mumbai port. The orders are placed to foreign exporters in the name of factories, bills of lading are also shown the address of the factory – the goods are cleared by clearing agents on behalf of factories the dispatches from Mumbai to factories are also by, clearing agents as consignor and factories as consignee. Custom duty is also paid directly by clearing agents in their name on behalf of the factories.

The only work done by Mumbai office is to finance the clearing agents and keep an account of total payments and even the payment to foreign parties is made through L/C etc. by the Mumbai office.

Now some intelligent people in the department feels that these are imports by Mumbai office and transfer to factories in other States and mischief of Section 6A of the CST Act 1956 is attracted and they want ‘F’ Form.

If we follow their advice then we have to show imports in Mumbai return and show these transfers as Branch transfers and obtain monthly ‘F’ Form from the factories and similar returns are to be filed in other states.

At present factories, we are showing direct imports.

Now query is –

1. Whether this objection of the department at Mumbai is correct and the dealer at Mumbai should start filing return accordingly.

2. Any case law.

3. In case we do not adopt the system of ‘F’ Form collection, then what is risk factor?

4. Generally.

Reply

Section 6A of the CST Act contemplates to obtain ‘F’ Forms from the transferee. The said section reads as under;

“S. 6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale.-

(1) Where any dealer claims that the he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of dispatch of such goods and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale. …”

Thus, the ‘F’ Form requirement can arise, where there is transfer of goods from one branch to another branch or from principal to agent etc.

On the given facts, it appears that the goods are meant for outside places and the whole import documents are accordingly in the name of branch. It appears that the imported goods are unloaded at Mumbai port for onward journey as there is no direct port facility for given outside places. The goods are also directly moving from port to factory. Under above circumstances, the import material is reaching to the factory place in other State and it is import by factory. It cannot be said that there is transfer by Maharashtra branch to other branch. Therefore, requirement of Section 6A cannot apply. However, after clearing goods are stored by the branch in Maharashtra and then dispatched as per convenience then probably requirement for ‘F’ Form will arise but not otherwise.

C. B. Thakar
Advocate

INCOME TAX ACT

Query No. 1 [S. 2(47) & S. 54 / S. 54F]

In case of redevelopment of property the consideration takes in the form of corpus, which is a real cash inflow and fair market value of the property to be developed, which is a deemed consideration for the purpose of exchange. Thus, there is exchange of property. Now, the question is in which year capital gain arises and when can exemption be claimed either under Section 54 or under section 54F?

Answer

In case of development of property the capital gain arises as per terms of the agreement. Generally, the agreement provides that the developer has right to enter and construct on the land of owner and owner parts with land only on receipt of certain portion of building to be constructed. Till then possession of land is not parted with. In such case, the amount received is to be treated as advance. Section 2(47) defines ‘transfer’ in relation to a capital asset, which includes an “exchange”. The Transfer of Property Act, 1882 provides that when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, such transaction is called an “exchange”. The transaction of an exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another.
[CIT v. Rasiklal Maneklal 177 ITR 198 (SC)]. So, the capital gain arises at the time of exchange of property on the basis of fair value of the properties. At that time the person can claim an exemption under Section 54 / Section 54F of the Act, on complying the conditions mentioned in the section.

In case of redevelopment, similar principle would apply, subject to terms and agreement with the developer.

Query No. 2 (Cost for Indexation)

A person acquired inherited property before Independence. Thereafter, he had obtained, the court order for legal heirship in the Financial Year 1991/92, At that time stamp duty was paid amounting to Rs. 1,98,840/-. Can it be considered as cost for indexation?

Answer

Section 49(1) provides that where the capital asset acquired by an assessee by way of inheritance, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. In this case, the property was acquired by inheritance before Independence. It seems because of some dispute the assessee obtained the Court order for legal heirship in the Financial Year 1991/92. Therefore, this cannot be considered as cost of acquisition and no indexation is available on that value. However, as per section 55(2)(b) the fair value of the property as on April 01,1981 can be taken for indexation.

COMPANIES ACT

Query No. 3 (Depreciation)

As per Schedule II of the Companies Act, 2013 the useful life of Plant and Machinery and in generation of power is 40 years, but as per the company, useful life is much less. What the company should do?

Answer:

Note no. 3(i) of Part ‘A’ of Schedule II of the Act, provides as under:

“The useful life of an asset shall not be longer than the useful life specified in Part ‘C’ and the residual value of an asset shall not be more than five per cent of the original cost of the asset.

Provided that where a company uses a useful life or residual value of the asset which is different from the above limits, justification for the difference shall be disclosed in its financial statement”.

Thus, the querist should obtain technical evaluation report for claiming higher depreciation i.e. claiming useful life less than Schedule II of the Act.

Query No. 4 (Corporate Social Responsibility)

Whether it is necessary to provide (Corporate Social Responsibility) CSR expenses in the books of account on accrual basis, considering AS–29 “Provisions, Contingent Liabilities and Contingent Assets”?

Answer

Section 128 of the Companies Act, 2013 mandates every company to maintain its books of account on accrual basis. As per AS-1 “Disclosure of Accounting Policies” in accrual basis cost and revenue are accrued that is recognised as they are incurred or earned and recorded in the financial statements of the periods to which they relate:

As per AS-29, a provision is a liability which can be measured only by using a substantial degree of estimation.

Further, it states that a provision should be recognised when:

a) An enterprise has a present obligation as a result of a past event;

b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

c) A reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision shall be recognised.

Now considering the provisions of the Companies Act, 2013 the Institute of Chartered Accountants of India has issued Guidance note on for Expenditure on Corporate Social Responsibility Activities (CSR) on May 15, 2015 which reads as under:

6. Section 135(5) of the Companies Act, 2013, requires that the Board of every eligible company, “shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy”. A proviso to this Section states that “if the company fails to spend such amount, the Board shall, in its report … specify the reasons for not spending the amount”.

7. Further, Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, prescribes that the Board Report of a company under these Rules shall include an annual report on CSR, containing particulars specified in the Annexure to the said Rules, which provide a format in this regard.

8. The above provisions of the Act clearly lay down that the expenditure on CSR activities is to be disclosed only in the Board’s Report in accordance with the Rules made thereunder. In view of this, no provision for the amount which is not spent, i.e., any shortfall in the amount that was expected to be spent as per the provisions of the Act on CSR activities and the amount actually spent at the end of a reporting period, may be made in the financial statements. The proviso to Section 135(5) of the Act, makes it clear that if the specified amount is not spent by the company during the year, the Directors’ Report should disclose the reasons for not spending the amount. However, if a company has already undertaken certain CSR activity for which a liability has been incurred by entering into a contractual obligation, then in accordance with the generally accepted principles of accounting, a provision for the amount representing the extent to which the CSR activity was completed during the year, needs to be recognised in the financial statements.

9. Where a company spends more than that required under law, a question arises as to whether the excess amount ‘spent’ can be carried forward to be adjusted against amounts to be spent on CSR activities in future period. Since ‘2% of average net profits of immediately preceding three years’ is the minimum amount which is required to be spent under Section 135(5) of the Act, the excess amount cannot be carried forward for set off against the CSR expenditure required to be spent in future.

Other consideration in Recognition and Measurement

10. A company may decide to undertake its CSR activities approved by the CSR Committee with a view to discharge its CSR obligation as arising under Section 135 of the Act in the following three ways:

(a) Making a contribution to the funds as specified in Schedule VII to the Act; or

(b) Through a registered trust or a registered society or a company established under Section 8 of the Act (or Section 25 of the Companies Act, 1956) by the company, either singly or along with its holding or subsidiary or associate company or along with any other company or holding or subsidiary or associate company of such other company, or otherwise; or

(c) In any other way in accordance with the Companies (Corporate Social Responsibility Policy) Rules, 2014, e.g. on its own.

11. In case a contribution is made to a fund specified in Schedule VII to the Act, the same would be treated as an expense for the year and charged to the statement of profit and loss. In case the amount is spent in the manner as specified in paragraph 10(b) above the same will also be treated as expense for the year by charging off to the statement of profit and loss. The accounting for expenditure incurred by the company otherwise e.g. on its own would be accounted for in accordance with the principles of accounting as explained hereinafter.

CSR activities carried out by the company covered under paragraph 10(c)

12. In cases, where an expenditure of revenue nature is incurred on any of the activities mentioned in Schedule VII to the Act by the company on its own, the same should be charged as an expense to the statement of profit and loss. In case the expenditure incurred by the company is of such nature which may give rise to an ‘asset’, a question may arise as to whether such an ‘asset’ should be recognised by the company in its balance sheet. In this context, it would be relevant to note the definition of the term ‘asset’ as per the Framework for Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India. As per the Framework, an ‘asset’ is a “resource controlled by an enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise”. Hence, in cases where the control of the ‘asset’ is transferred by the company, e.g., a school building is transferred to a Gram Panchayat for running and maintaining the school, it should not be recognised as ‘asset’ in its books and such expenditure would need to be charged to the statement of profit and loss as and when incurred. In other cases, where the company retains the control of the ‘asset’ then it would need to be examined whether any future economic benefits accrue to the company. Invariably future economic benefits from a ‘CSR asset’ would not flow to the company as any surplus from CSR cannot be included by the company in business profits in view of Rule 6(2) of the Companies (Corporate Social Responsibility Policy) Rules, 2014.

13. In some cases, a company may supply goods manufactured by it or render services as CSR activities. In such cases, the expenditure incurred should be recognized when the control on the goods manufactured by it is transferred or the allowable services are rendered by the employees. The goods manufactured by the company should be valued in accordance with the principles prescribed in Accounting Standard (AS) 2, Valuation of Inventories. The services rendered should be measured at cost. Indirect taxes (like excise duty, service tax, VAT or other applicable taxes) on the goods and services so contributed will also form part of the CSR expenditure.

14. Where a company receives a grant from others for carrying out CSR activities, the CSR expenditure should be measured net of the grant”

Note: Please send your queries relating to Direct, Indirect & International taxation, Accounting & Auditing Standards and Company Law, FEMA etc. to AIFTP, having interest to the Members.

CA. H.N. Motiwalla

A. Section 6A of Central Sales Tax Act, 1956 – Stock / Branch Transfer

I. Preamble

The amendment to several Sections of the Central Sales Tax Act, 1956 (in short ‘CST Act’) through The Finance Act, 2002 has caused a lot of uncertainty, confusion and definitely large-scale litigations. The changes reflected in The Finance Act 2002 and their consequential amendment to the CST Act has far reaching business implications on certain specified nature of transactions. In fact, the settled position of Central Sales Tax Laws on such transactions has invited a thorough re-look and has lead to litigations. In this paper we have attempted to bring out the issues relating to the mandatory requirement of Form F in respect of stock transfers effected under the CST Act.

II. Objects of Section 6A of the CST Act, 1956

1. The presumptions in law have a very vital role and the legislature has the power vested in it to presume certain things under certain circumstances. In this backdrop Section 6-A of the CST Act is in exercise of such power by the Parliament of India. The said Section 6A was inserted in the CST Act by CST (Amendment Act) 1972 with the following objects:

a. “Central Sales tax is not leviable in respect of transactions of transfer of goods from a head office (or a principal) to branch (or an agent) or vice-versa as these transactions do not amount to sales. This aids evasion, in that the dealers try to reflect even genuine sales to third parties as transactions of this nature.
Accordingly it is proposed to provide that the burden of proving that the transfer of goods in such cases is “otherwise than by way of sale” shall lie on the dealer who claims exemption from tax on the ground that there was in fact no sale.”

b. The situation stands since altered by the Finance Act 2002, which inserted the words “and if the
dealer fails to furnish such declarations, then the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale.”

2. It has resulted in a controversy that the relevant declaration in Form F (in short ‘Form F’) has now become mandatory and the transaction of stock transfer or consignment sale duly supported by the evidence of transportation and other documents will now be taxable as sales if Form F is not furnished.

3. Section 6A of the CST Act provides that where the dealer claims that he is not liable to pay tax in respect of the goods sent as aforesaid to another State i.e., to his own place of business or to his agent or to his principal, on the ground that the movement of goods was not by reason of sale, then the burden of proving that the movement of goods was so occasioned, is on the dealer. It may be noted that this Section applies only in those cases where the movement of good is to the place of business of the dealer in another State or to his agent or principal in another State.

4. The Section has no applicability where the goods are sent to another State for purposes other than those enumerated in Section 6A of the CST Act, 1956 (say for instance an inter-State sale). However, its amendment in 2002 will apply, only when the goods are sent by a dealer to another State to the dealer’s own place ofbusiness or to his agent or where the dealer is an agent to the place of his principal.

III. Legislative enactment

Section 6A was inserted by Central Sales Tax (Amendment) Act, 1972 (61 of 1972), with effect from 1st April, 1973. Section 6A of the CST Act stood amended with effect from 11.05.2002 and the relevant part of the amended Section reads thus:

“And if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of the Act to have been occasioned as a result of sale”.

The Finance Act, 2002 (20 of 2002) dated 11.05.2002 sought to amend Section 6A so as to make it compulsory, the furnishing of Form F together with the evidence by the dealer and authorizing levy of tax in cases where the dealer fails to furnish Form F. Thus by virtue of the amendment, the production of Form F and proof of movement of goods by dispatching branch to its assessing authority has been made mandatory.

IV. Effective date of the amendment

There was some confusion and guesses with regard to the effective date from which the amendment came into force. There were a few experts who opined that it will be effective from 01.04.2002 when the Financial Year commences, some others said it is 11.05.2002 when the President gave his assent and still others who opined that it was 13.05.2002 when the amendments were officially published in the Gazette of India as Act no. 20 of 2002. However, the Finance Act, 2002 does not specify the effective date or date of enforcement.

In this scenario, we are inclined to fall back on Section 5 of The General Clauses Act which reads “where any Central Act is not expressed to come into operation on a particular day, then it shall come into operation on the date on which it receives the assent of the President”. Thus, by relying on The General Clauses Act, we are of the view that the correct date on which the amendment takes effect would be 11.05.2002.

V. Stock Transfer

Section 6A of the CST Act relating to movement of goods otherwise than by way of sale (viz., Stock transfers / Consignment sales), had been amended to make the furnishing of declaration in From-F together with an evidence of dispatch of such goods mandatory. In the event such evidence together with declaration in Form-F is not furnished, the transaction will be treated as a sale in the course of inter-State trade or commerce and subjected to tax accordingly.

Thus, it will now be imperative for dealers to produce proof such as, LRs, RRs, Courier receipts, Airway bills etc., along with Form F to claim such transactions as exempt from payment of tax.
It must be borne in mind that in respect of transfers effected from branch to head office / head office to branches / branches to other branches / consignment agents etc., the transit documents assume significance. That is the relevant column in the transit document such as LR / RR / Courier receipts / Airway bills etc., the consignor / consignee columns must be correctly and properly filled in with addresses of the branches / head office / agents etc. In case such particulars are incorrectly filled in by the transporter there is every possibility of the assessing authority rejecting such evidence and fastening the burden of tax on the dispatching dealer.

It would also be advisable for the receiving branch / head office / agent to maintain the relevant records and documents relating to movement of goods such as
LR / RR / Courier receipts / Airway bills etc., together with stock transfer memos and clearly indicate such particulars in the Form F to be furnished to the dispatch entity. Such receiving branch / head office / agent are also required to maintain such other records viz., stock registers, transport register, sales / purchase registers, general ledger / cash or bank book etc.

VI. Burden of Proof

From the language employed in Section 6A of the CST Act it is clear that the provisions are merely procedural. It has shifted the burden of proof on the dealer in case of transfer of goods claimed otherwise than by way of sale – Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer.

For this purpose he may furnish to the assessing authority, a declaration in form F along with the evidence of dispatch of such goods. However, the latter part of the Section mandates the requirement of Form F / evidence of movement of goods. Up to 10.05.2002 furnishing of Form F is not mandatory and alternative evidence can be furnished to the satisfaction of the assessing authority.

Attention is invited to the mode / method of filling in the prescribed Form F. The following particulars are to be correctly and completely filled in:

1. Name and address of the
transferor and his RC no.

2. Description, quantity and value of goods (market value or prevailing market price);

3. Stock transfer memo no. / date etc.,

4. Transporter details (if space is insufficient copies of such document can be attached)

5. Date of taking delivery by the transferee

6. Signature and designation of the
transferee.

VII. Prescription of Form “F”

a. In terms of sub-Rule 5 of Rule 12 of the CST (R&T) Rules, 1957, the declaration with respect to branch transfer shall be in Form ‘F’. A single Form ‘F’ could be used that may cover transfer of goods, by a dealer, to any other place of his business or to his agent or principal, as the case may be, effected during a period of one calendar month.

b. If the space provided in the Form ‘F’ is not sufficient for making entries, the dealer may provide an annexure in this regard and the authorised signatory should duly sign such annexure.

c. Form F shall be obtained by the transferee in the State in which the goods covered by such Form are delivered.

d. In terms of sub-Rule (7) of Rule 12 of the CST (R&T) Rules, 1957, the declarations in Form F should be filed within 3 months from the end of the month to which it relates. If the prescribed authority is satisfied that the person concerned was prevented by sufficient cause from furnishing such declaration within the aforesaid time, that authority may allow such declaration to be furnished within such further time as that authority may permit.

VIII. Non furnishing of Form F – whether transaction can be subjected to tax

In the event of non-furnishing of Form F together with the evidence of movement of goods the assessing authority is at liberty to treat such movement as an inter-State sale under Section 3(a) of the CST Act and subject such transactions to tax in terms of Section 8 of the CST Act at full rate of tax. Whether such a levy is possible and to what extent the amendments are proper is a question that remains to be answered. To the best of my knowledge, as on date, there are no precedents on this issue. In order to subject such stock transfers to the levy of tax let us examine the possibilities in various scenarios.

Scenario 1 – In light of the relevant definitions

a. In order to constitute a “Sale” in terms of Section 4 “The Sale of Goods Act” all the following conditions should be cumulatively present:

• A bargain or agreement of sale;

• The payment or promise of payment of price in cash;

• The delivery of goods, and

• The transfer of property (title) from the seller to the buyer

PS: The Indian Contract Act comprising Sections 76 to 123 was repealed by the Sale of Goods Act, 1930.

The amended definition of sale in terms of Section 2(g) of the CST Act, does not take within its sweep and ambit, or provide for a scenario to treat such transactions (where Form F is not furnished) as a sale.

In the background of the definition of the word “sale” under the Sales of Goods Act and the CST Act:

• Whether one can sell goods to himself or whether there can be a deemed transfer of property from one branch to another? [In our opinion – NO]

• Whether branches / units / divisions have independent existence apart from the Company itself? [In our opinion – NO]

PS: It would be of interest to note that Section 2(h) and 2(j) of the Karnataka Profession tax Act / AP Profession Tax Act carries an explanation to the definition of the word “Person” which reads “every branch of a firm, company, corporation or other corporate body, society, club or association shall be deemed to be a person.

By inserting the above explanation the AP and Karnataka States sought to levy profession tax on branches separately. This matter was carried before the High Court. The Honourable AP High Court in the case of
Karnataka Bank Limited v. State of AP (125 STC 48) held that “Although the State Legislature is not competent to impose profession tax at a rate more than Rs. 2,500 per person per annum by virtue of the ceiling contained in article 276(2) of the Constitution, the Legislature is competent to enact a fiction in the definition of “person” that every branch of a firm, company, corporation or other corporate body, any society, club or association shall be deemed to be a person. The effect of the Explanation to the definition of the term “person” in Section 2(j) of the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987, as well as Explanation I of the First Schedule to the Act as amended by Act 29 of 1996 is not to tax a person at a rate higher than Rs. 2,500 per year, but to treat even a branch of a firm, company, corporation or other corporate body, any society, club or association, as a separate person and a separate “assessee” within the meaning of Section 2(b) of the Act. This the Legislature was competent to do. Therefore, the Explanation to the definition of the term “person” in Section 2(j) of the Act as well as Explanation I of the First Schedule to the Act as amended by Act 29 of 1996 are valid and are not violative of article 276(2) of the Constitution.

[Similar amendments are not forthcoming in any of the definition clauses of the CST Act.]

• Whether the ingredients constituting a sale under the provisions of Section 4 of the Sale of Goods Act are cumulatively fulfilled? [In our opinion – NO]

Scenario 2 –Formulation of the principles of inter-State sale in accordance with Section 3 of the CST Act

A sale or purchase of goods is deemed to take place in the course of inter-State trade or commerce, inter-alia, if the sale or purchase:

• occasions the movement of goods from one State to another; or

• is effected by a transfer of documents of titles to the goods during their movement from one State to another.

It may be noted that the words “sale occasions movement” means goods moved by reason of sale. A sale can occasion the movement of goods only when the terms of sale provide that the goods would be moved i.e., when the contract of sale so provides. The principles relating to inter-State transactions were enunciated by the Supreme Court in
Oil India v. Supt. of Taxes-35 STC 445, TISCO v. S.R.Sarkar-11 STC 655, Amritsagar Mills v. CST – 17 STC 405, etc., From a study of these cases the following points emerge:

• The inter-State movement must be as a result of a covenant, express or implied in the contract of sale or in an incident of the contract;

• It is not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself;

• It would be enough if the movement was in pursuance of and incidental to the contract of sale;

• Passing of property is not relevant. The locale of the goods within the State at the time of sale or later at the time of appropriation is to be regarded;

• Where the transaction is inside that State and yet be causing the goods to move, it would be inter-State sale.

Movement of goods pursuant to stock transfers do not fall within the scope and ambit of any of the above principles formulated by the Apex Court and do not satisfy the conditions stipulated in Section 3 of the CST Act. [Thus even on this count, in our opinion stock transfers cannot be treated as sales and subjected to tax on account of non filing of Form F].

Scenario 3 – Legislative Enactment

The Parliament is empowered to levy tax under CST Act, vide Article 246 of the Constitution of India under the following entries listed in the Seventh Schedule of the Union List:

• Entry 92A relating to taxes on sale or purchase of goods (other than newspaper) where such sale or purchase takes place in the course of inter-State trade or commerce.

• Entry 92B relating to taxes on the Consignment of goods, where such consignment takes place in the course of inter-State trade or commerce.

Article 269(3) of the Indian Constitution provides for formulation of principles for levy of tax on sale or purchase of goods (other than newspaper) or for consignment of goods, in the course of inter-State trade or commerce, to be levied and collected by the Government of India, but assigned to the States in which the tax is leviable. Chapter II of the CST Act, as on date has not formulated any principle to levy tax on such transactions not covered by the declaration in Form F. As such, subjecting stock transfers not covered by Form F will be ultra vires Article 269 of the Constitution of India.
[Thus, in our opinion stock transfers cannot be treated as sales and subjected to tax on account of non filing of Form F].

Scenario 4 – Pre v. Post amendment

Up to 10.05.2002 furnishing of Form-F was not mandatory, and the dealer was permitted to discharge the burden of proof of such movement by any other alternative evidence convincing the Assessing Authority. This was on the premise that, what is taxable is a “sale” and not mere movement and further sub Section (1) to Section 6A uses the word “may” and not “shall”. Section 6A of the CST Act merely prescribes a mode of proof and its effect is that if a dispatching dealer can produce a “Form F” in terms of the Section read with Rule 12 of the CST (R & T) Rules, the assessing authority shall not insist on production of any other evidence. Thus, a dealer was left with the option of proving it by any other method if he so desires that the movement was occasioned as a result of transfer of goods to branch or agent. The facts cited in the above paras have been upheld in the following cases:

• CST v. Agra Food products Pvt Ltd., (67 STC 266)

• State of Orissa v. Orissa Small Industries Corporation (67 STC 262)

• Sree Hanuman Rice Mill v. State of Orissa (70 STC 316)

• State of Orissa v. RamnarayanSitaram (68 STC 153)

• VijayaMohini Mills v. State of Kerala (75 STC 63)

In the case of SheoSankar Trading Co v. State of Orissa (50 STC 389)(Orissa), it was held that “the assessee was entitled to prove that the goods had so moved on the basis of his books of account without production of the declaration form”. However, in the post amendment scenario the Section mandates the requirement of Form F / evidence of movement of goods. Upto 10.05.2002 furnishing of Form F is not mandatory and alternative evidence can be furnished to the satisfaction of the assessing authority.

The amendment effective 11.05.2002 reads “……..and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale”. How far such deeming intendment stands the test of law before Tribunals and Courts is anybody’s guess. In my view reference to “all purposes of this Act” would include central sales tax also. Without prejudice to this fact, and in spite of the amendment, in my view, the dealer will be entitled to claim exemption if he is able to establish with evidences that such movement was not as a result of sale. This is because:

Section 6A provides only a Rule of evidence and such Rule of evidence cannot override the statutory provision of the levy of tax. The Honourable Supreme Court in the case of Bimal Chanda Banerjee v. State of Madhya Pradesh (81 ITR 105) observed:

“that the basis of statutory power conferred by the statute (which includes Constitutional law) cannot be transgressed by the rule making authority. A rule making authority has no plenary power and has to act within the power granted to it”.

It appears that these observations of the Apex Court run counter to the provisions of Section 6A of the CST Act. Further the word “may” still continues to exist in Section 6A of the CST Act, which implies that even post amendment it is possible to interpret that the dealer will be permitted to choose to discharge the burden of movement not on account of sale by alternative methods. It may be noted that stock transfers and movement of goods not on account of sale cannot be subjected to tax till the provisions of consignment tax specified in sub-clause (h) in clause (1) of Article 269 of the Constitution are implemented and the Parliament formulates the principles for determining when such transactions take place in the course of inter-State trade or commerce as provided in Article 269(3) of the Constitution.

Scenario 5 – Unregistered dealers – compliance of statutory evidence of Form F

The main Rule 12(6) of the CST (R&T) Rules, 1957 talks of Form C and Form F which shall be those obtained by the purchasing dealer in which the goods are delivered. Attention is invited to the Explanation to sub-Rule 6 of Rule 12 to the CST (R&T) Rules 1957 wherein the said Explanation speaks of Form C which can be issued by a dealer in the State in which he is registered, if for any reason, he is not able to issue Form C in the State where the goods are delivered. It may be noted that the Explanation is silent about Form F.

It therefore necessarily implies that Form F can be obtained even by un-registered dealers in the State (where there is no compulsion to register), in which the goods are delivered. If this is not the meaning, then the question that arises is whether the fundamental right of an unregistered dealer to carry on business will be affected since he is not compulsorily required to register.

We are given to understand that Surat in Gujarat does not require a dealer in Textiles to get compulsorily registered under the local or CST Act. What happens when say – A textile dealer in Hyderabad dispatches goods to his branch office in Surat, Gujarat. Is the Surat dealer required to issue Form F to the consignor in Hyderabad under the amended provisions? If yes, how does he obtain the prescribed Form F from the prescribed officer in Surat, Gujarat since he is neither registered nor he is required to mandatorily register?

Scenario 6 – Issue of Form F in case of goods not listed in RC

Any registered dealer under the local and CST Act are bound to include the goods to be imported from other States or sale / export to other States or out of Country. One school of thought is such inclusion for the purpose of purchase would ipso facto apply to stock transfers under Section 6A of the CST Act. Therefore, there is no necessity to specifically include goods that are stock transferred and Form F is free from such restriction / prohibition. Since there is no such restriction a dealer say – in coffee may well issue Form F in respect of Tea received by way of stock transfers although Tea has not been listed in the certificate of registration in Form B. The other school of thought is that non-inclusion of goods in the certificate of registration would necessarily contemplate penal consequences under Section 10(a) of the CST Act.

Scenario 7 – Issue of Form C in case of a branch unable to issue Form F

It appears that certain dealers who do not declare stock transfer amounts in their returns are unable to obtain Form F from their assessing authorities. The question is whether such dealers can issue Form C from Delhi to the consignor branches to reduce the incidence of the levy of tax?

On a combined reading of Section 8(1), 8(3) & 8(4) of the CST Act, the question of issue of Form C for stock transfers does not arise since there is no sale involved in respect of inter-branch movement of goods. In the event of issue of Form C, consequential penalties under Section 10 / 10A of the CST Act automatically flow.

IX. Stock transfer treated as inter-State sale

1. If the movement of goods to branch is occasioned on account of sale, the movement to branch will be treated as inter-State sale. The following case laws throws light on the said type of transaction

a. Electric Construction and Equipment Co. Ltd.77 STC 424 (P&H) – The Honourable Punjab and Haryana High Court held the following

‘When the movement of goods from one State to another is an incident of the contract of sale, it is a sale in the course of inter-State trade falling under section 3(a) of the Central Sales Tax Act, 1956 and it does not matter in which State the property in the goods passes. The decisive circumstance is whether the sale is one which occasions the movement of goods from one State to another.

The applicant-dealer manufactured electrical equipments including transformers at its factory at Sonepat in the State of Haryana. Its head office was at Delhi and it had branch offices at Rajpura in Punjab and other places. The Punjab State Electricity Board placed two purchase orders. After manufacture of the transformers at Sonepat, these were despatched to the branch office at Rajpura to be made ready for delivery by filling with oil and fixing of copper thimbles, arcing horns, silicagel breathers and name-plates. The dealers claimed exemption from payment of Central sales tax on the transformers supplied to its Rajpura branch on the ground that they were branch transfers. The claim was rejected and Central sales tax was levied. This was confirmed by the first and second appellate authorities.’

b. Hyderabad Engineering Industries 39 VST 257 (SC)
– The Honourable Supreme Court held the following

‘When the sale or agreement for sale causes or has the effect of occasioning the movement of goods from one State to another, irrespective of whether the movement of goods is provided for in the contract of sale or not, or when the order is placed with any branch office or the head office, which resulted in the movement of goods, irrespective of whether the property in the goods passed in one State or the other, if the effect of such sale is to have the movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility to tax under section 3(a) of the Central Sales Tax Act, 1956, on the turnover of such transaction. It is only when the turnover relates to sale or purchase of goods during the course of inter-State trade or commerce that it would be taxable under the Central Act.

The assessee claimed exemption in respect of turnover of stocks transferred to depot outside the State. Under an agreement, Usha International Ltd., had agreed to purchase the products and sell them as an independent principal. The assessee had its godown in every State including Delhi. Pursuant to sales agreement, Usha International Ltd. placed monthly indents on the assessee with instructions to dispatch the goods of given size and quantity to the named destination, and the assessee dispatched the goods to its godowns to the given destination and sent goods dispatch intimation directly to the concerned Usha International Ltd. divisional office at the destination, furnishing size and quantity dispatched with lorry receipt number and name of the transport company:

Held, that it did not matter how much goods were delivered to the branch office which just acted as a conduit pipe before goods ultimately reached the purchaser’s hands. All that mattered was that the movement of the goods was in pursuance of the contract of sale or as a necessary incident to the sale itself. The movement of goods from the assessee’s factory to its various godowns situated in different parts of the country was pursuant to “sales agreement” coupled with “forecasts” which were nothing but “indents” or firm orders. Therefore, the transaction between the assessee and its branch offices was a clear case of inter-State sales and not branch transfers.

The inter-State movement must be the result of a sale or an incident of the contract: it is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself: it would be enough if the movement was in pursuance of and incidental to the contract of sale.’

2. If goods are dispatched and delivered directly to buyers outside State without unloading at seller’s depot will be treated as inter-State sale. The Honourable Madhya Pradesh High Court in the case of Sanghi Beverages Private Limited 106 STC 358 held the following

‘When the movement of goods from one State to another is an incident of the contract of sale then it is a sale in the course of inter-State trade falling under section 3(a) of the Central Sales Tax Act, 1956. It does not matter in which State the property in the goods passes. What is in fact decisive is whether the sale is one which occasions the movement of goods from one State to another. The inter-State movement must be the result of a covenant, express or implied in the contract of sale or an incident of the contract. It is not at all necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement.

Held accordingly, that where goods were directly despatched to buyers in other States and were not unloaded at the seller’s depot but delivered to the buyers, the transactions constituted inter-State sales.’

X. Levy of CST – Job Work related issues

1. It is clear from the wording of Section 6A of the CST Act, 1956 cited supra that it applies only in the following circumstances:

(a) when the goods are sent inter-State to one’s principal place of business in other State or to one’s agent or one’s principal; and

(b) the inter-State movement of goods from one State to the other is otherwise than as sale.

2. It is made clear that both the above conditions should be cumulatively satisfied before the provisions of Section 6A of the CST Act stand attracted. The Honourable Allahabad High Court in Ambica Steels Ltd. 12 VST 216 (ALL HC DB)] has held that “Form F is required to be issued even if goods are sent outside the State for job work or repairs on returnable basis. The facts and judgement in brief are as follows:

M/s Ambica Steels Limited filed writ petitions challenging the circular dated November 28, 2005 issued by the Commissioner of Trade Tax, U.P. mentioning that under Section 6A of the CST Act, 1956 Form F is required to be filed in respect of all transfer of goods which are otherwise than by way of sale including goods sent or received for jobwork & returned of it. Unfortunately the petition filed by the M/S Ambica Steel Ltd was dismissed and U.P. High Court while dismissing the petition held that;

Section 6 of the Central Sales Tax Act, 1956 is the charging Section creating liability to tax on inter-State sales and by reason of Section 6A(2) a legal fiction has been created for the purpose of the Act that transaction has occasioned otherwise than as a result of sale. Section 6A puts the burden of proof on the person claiming transfer of goods otherwise than by way of sale and not liable to tax under the Central Act. The burden would be on dealer to show that movement of the goods had been occasioned not by reason of any transaction involving any sale of goods but by reason of transfer of such goods to any other place of business or to the agent or principal, as the case may be, for which the dealer is required to furnish prescribed declaration form. If the dealer fails to furnish such declaration, by reason of legal fiction, such movement of goods would be deemed for all purposes of the Act to have been occasioned as a result of sale. The submission that the transactions, where the goods are sent for job work or received for doing job work, do not amount to sale would depend upon the contract entered into between the parties and would be the subject-matter of examination by the assessing authority. Even otherwise, under Section 2(g)(ii) of the Central Act, transfer of goods used in execution of works contract is treated to be a sale.
If the petitioner claims that it is not liable to tax on transfer of goods from U. P. to a place outside State then it would have to discharge the burden placed upon it under Section 6A by filing declaration in form F. It would be immaterial whether the person to whom the goods are sent for or received after job work is a bailee. The requirement to file declaration in form F is applicable in cases of even goods sent for job work and returned thereof.

Being aggrieved by the above decision Ambica Steels Ltd filed a Civil Appeal before the Hon’ble Supreme Court which held that – Since the assessee has requested time for filing of declaration in Form F, the issue raised could not be decided on merits. However the decision of Allahabad High Court stands and by virtue of the said High Court decision, filing of Form F is mandatory unless the issue is decided otherwise by Allahabad High Court or Apex Court.Hence declaration in Form F has become mandatory.

3. In such a case it will be practically impossible for the job worker or the person doing the repair work to get the relevant Form F from the sales tax department as he is not registered with the sales tax department. This will badly effect inter-State movement of goods, which will be violative of Article 301 as well as of freedom of trade guaranteed under Article 19(1)(g) of the Constitution of India. In my considered view, this interpretation of Section 6A by Allahabad High Court in the above case needs reconsideration as it involves a lot of practical difficulties. In any case where two interpretations are possible, the one which does not violate the provisions of Constitutional mandate should be followed.

4. In case goods are sent inter-State for job work or for repair outside the State then the movement of goods takes place otherwise than as sales. A pure job work or repair work does not come under the ambit of tax as there is no transfer of property in goods and therefore, the job worker he will not be required to get registered under CST Act or concerned State VAT Act.
However, the relationship between the job worker and the owner of the goods is not of Principal-Agent but that of Principal to Principal. In this context the question of Form F may not arise at all. However, the decision of the Allahabad High Court cited supra, comes in the way. It is for this reason that we stated earlier that the issues need re-consideration.

5. However, in the case of
A.C.P.L.Jewels Private Limited 39 VST 44, the Honourable Allahabad High Court held the following after considering the judgement of the Honourable Supreme Court in the case of Ambica Steels Limited discussed supra –

‘We have taken into account the submissions, the judgment of the Supreme Court dated March 31, 2009, arising out of the judgment of the Division Bench of this court in Ambica Steels [2008] 12 VST 216 as well as the circular letter issued by the Commissioner, Trade Tax Departmentdated June 26, 2009, and consequently without going into the merits of the challenge to the vires of section 6A of the Act or other submissions, we dispose of all the writ petitions with the following directions:

  1. In all the cases, in which transactions of job-work and goods returned are involved, the assessment orders only to the extent that the tax was imposed on such transactions for want of form F of the Central sales tax are set aside. The petitioners will appear and submit before the assessing authority a certified copy of this judgment in six weeks to complete the assessment proceedings with regard to such transactions only, on its own merits, after examining the transactions between the parties, and keeping in mind that the assessee is not in a position to obtain form F for no fault of his; and

  2. In the cases where the assessee has been subjected to reassessment proceedings in which the transactions of job-work and goods-returned are involved, the reassessment orders only to the extent that the tax was imposed on such transaction/s for want of form F of the Central sales taxare set aside. The assessee will appear before the reassessing authority and submit a certified copy of this judgment in six weeks, to complete the reassessment proceedings in respect of such transactions only, on its own merits after examining the transactions between the parties, keeping in mind the findings recorded earlier on such transactions, and also that the assessee is not in a position to obtain form F, for no fault of his.’

6. Following the decision of A.C.P.L.Jewels Private Limited 39 VST 44, the Honourable Allahabad High Court in the case of
Noida Offset Printers Association & Others 2013 (12) TMI 502 held the following

‘It is always open to the petitioners to satisfy the assessing authority by any cogent evidence other than the certificate of the assessing officer of the place where the business place of the principal is situate or Form-F of the Central Sales Tax Act that the goods imported in the State of U.P. were brought in only for job work and that the finished goods were returned to the principals outside the State of U.P.

We need not adjudicate the issue all over again as the issue has already been decided by this Court. It will be open to the petitioners to satisfy the assessing authority, if the assessments are pending in reassessments proceedings, or before the appellate authority that the petitioners had only carried out the job work on the imported goods and returned goods imported in the State, to its principals outside the State.

With these observations the application is disposed of.’

XI. Prosecution for giving false declaration in Form – F

If any person furnishes a false declaration in Form – F, then in terms of Section 10(a) of the CST Act such person shall be punishable with simple imprisonment which may extend to six months, or with fine, or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues.

B. Export Sales – Section 5(3) of CST Act, 1956 – Penultimate sale exemption in relation to export

1. The following 3 conditions to be fulfilled for claim of exemption under Section 5(3) of the CST Act, 1956

• The transaction of such last sale or purchase takes place after the agreement or pursuant to the order received by the exporter from his foreign buyer;

• The last purchase is of goods, which are exported. The section refers to “those goods”;

• The transaction of such last sale or purchase was entered into for the purpose of complying with the agreement or order received by the exporter from his foreign buyer.

If the three conditions are satisfied the transactions fall under section 5(3) of the CST Act, and such preceding sale is entitled to exemption under that section. The main controversy in this section is in relation to the words “those goods”. An inextricable link is required between sale of goods to the buyer and its actual export by the buyer. The following cases laws will help in understanding the meaning of the word ‘those goods’.

a. Sterling Foods (63 STC 239)(SC) – When raw Shrimps, Prawns and Lobsters are subjected to the process of cutting, peeling, freezing etc.. They do not cease to be Shrimps, Prawns and Lobsters. Both are commercially the same commodities.

b. Ram Bahadur P Ltd. (80 STC 199)(Madras) –
Expression “those goods” in Section 5(3) of the CST Act, does not mean “such goods”. It is sufficient if identity of goods is not lost. Coffee beans purchased by a registered Coffee Exporter from Coffee Board pursuant to order for export of Coffee powder roasting and grinding of beans before export does not result in the emergence of a new commodity. Exemption available under CST Act, Section 5.

c. Lakshmi Rice Mills (87 STC 31)(P & H) – Purchase of Paddy and export after producing rice – paddy and rice are different marketable commodities. Purchase tax on Paddy is not exempt.

d. Same goods purchased should be exported though they need not be in same form

Kalaish Nath 8 STC 358 (SC) – Assessee purchased cotton cloth and it was exported after dyeing and printing. It was held that the cloth exported remains the same cloth which was purchased despite the change in colour of cloth by printing and processing.

Azad Coach Builders 36 VST 1 – Exporter (manufacturer of bus chassis) sent chassis to dealer for supply of bus bodies. The body was fitted on chassis and then whole bus was exported. Held that if there is an inextricable connection between sale of goods to the buyer and its actual export by the buyer, it will be ‘sale in the course of export’. In such case, the ‘same goods’ theory has no application.

2. The exemption under Section 5(3) is available to the penultimate seller only if the dealer furnishes a certificate in Form H issued by the exporter. Whether furnishing of certificate in Form H is sufficient compliance is discussed below:

a. Rule 12(10)(a) of CST Rules, 1957 prior to 14.07.2005 – The Rule prior to 14.07.2005 read as under –

“a dealer may, in support of his claim that he is not liable to pay tax under this Act in respect of any sale of goods on the ground that the sale of such goods is a sale in the course of export out of the territory of India within the meaning of sub-Section (3) of Section 5, furnish to the prescribed authority a certificate in Form H duly filled and signed by the exporter
along with the evidence of export of such goods.”

Therefore, in terms of the above Rule upto 14.07.2005 along with certificate in Form-H, evidence of export of goods needs to be provided. The Honourable Karnataka High Court in the case of
A.R.Associates 122 STC 134 held the following

‘The appellants claimed exemption in respect of a consignment of coffee beans supplied to R by producing the requisite form H and the bills of lading to prove that the goods were exported. This was disallowed by the assessing authority by an order dated April 17, 1996 on the ground that the assessee-appellant had failed to establish the factum of export within the framework of the requirement of section 5(3) of the Central Sales Tax Act, 1956 read with rule 12(10)(a) of the Central Sales Tax (Registration and Turnover) Rules, 1957. Theappellants thereafter preferred an appeal which was allowed by the appellate authority by the order dated August 23, 1996. The revisional authority thereafter issued notice to the appellants indicating its intention to review the order in question. The appellants did not appear before the revisional authority and by an order dated May 15, 1997 the revisional authority set aside the appellate order dated August 23, 1996. In appeal assailing correctness of the order:

Held, dismissing the appeal, that from a reading of the requirement of section 5(3) of the Central Sales Tax Act read with rule 12(10)(a) of the Central Sales Tax (Registration and Turnover) Rules, 1957 it is clear that it is insufficient for the assessee to merely produce the form ‘H’ and the bill of lading because the most important evidence that is required to be produced as per the requirements of law is the export agreement. The purpose behind the insistance of this provision is in order to ensure that there was not only in existence a valid agreement for export and an order but also to be able to identify the particular export goods and to establish a link or nexus between those goods and the export agreement. Non-fulfilment of those requirements will be fatal to the case of the appellant. There is no ground for interference with the revisional order.’

b. Rule 12(10)(a) of CST Rules, 1957 effective 14.07.2005 – The Rule effective 14.07.2005 read as under-

“the declaration referred to in sub Section (4) of Section 5 shall be in Form H and shall be furnished to the prescribed authority upto the time of assessment by the first assessing authority”.

On a plain reading of the amended position, it becomes clear that the requirement of filing evidence of export of goods is not mandatory on and from 14.07.2005. Whereas filing of the declaration in Form H is mandatory. The Honourable Madras High Court in the case of V. Win Garments 42 VST 330 held the following-

‘ The petitioner-dealer, a manufacturer of hosiery goods, sought exemption on the basis of form H, for the transaction effected outside India. The dealer also produced documents such as bills of lading to prove the transactions but did not produce the copy of the agreement entered into by the dealer with the foreign buyers. The assessing authority denied the claim of the dealer. On a writ petition:

Held, allowing the petition, that what is required on the part of the dealer is to prove the factum of the transaction and once he is able to do so with sufficient and satisfactory documents, the value thereof is exempt from tax liability and no rule says it is mandatory to produce the agreement with the foreign buyers. That being so, the failure on the part of the assessing authority to consider the documents already produced by the dealer and to pass appropriate orders in the light thereof amounted to non-application of mind. The order passed by the Additional Deputy Commercial Tax Officer was to be set aside and the matter remanded with a direction to decide the matter afresh in the light of form H and other documents available on record and fresh documents if any produced by the dealer.’

The Circular No. KSA. CR. 198/11-12 dated 16.12.2011 issued by the Office of Commissioner of Commercial Taxes states that, subsequent to amendment of Rule 12(10)(a) of CST (R&T) Rules from 14.07.2005, it is not required to produce proof of exports and the decision of Honorable High Court of Karnataka in the case of A. R. Associates Vs. Commissioner of Commercial Taxes is not applicable as it relates to the law prevailed to the period prior to the amendment. The said Circular is reproduced below:

“With reference to the above, it is informed that CST (R&T) Rules 12(10))a) which existed prior to 13-07-2005 has been amended from 14-07-2005 by substituting a different provision which does not require production of evidence of exports. The decision of the Hon’ble High Court relied upon in case of A.R. Associates Vs. Commissioner of Commercial Taxes (2001) No. 122 STC 134 (Kar) relates to the earlier rule which existed upto 14-7-2005. Hence this decision is not applicable to Rule substituted with effect from 14-07-2005.Hence, you are here by instructed to take action in terms of the amended provision of Rule 12(10)(a) of CST (R&T) Rules.”

C. Conclusion

The information contained in this write up are the views of the paper writer and is not intended to address the facts and circumstances of any particular individual or entity. There can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

Every effort has been made to avoid errors or omissions in this write-up. In-spite of this, errors may have crept in. Any mistake, error or discrepancy noted may be brought to the notice of the paper writers.

[Source: Article published in Souvenir of National Tax Conference held at Darjeeling on 18th and 19th April, 2015.]

S. Venkataramani & Siddeshwar Yelamali

1. Supreme Court: Saves Trees

The Supreme Court has stopped printing out additional hard copies of judgments since February 1, 2015 to circulate internally and elsewhere as well as doing away with paper cause lists. Normally 80 copies of all judgments have been made automatically for the records of the editorial branch of the Court, which have now reduced to less than 20.

Judges and others have now been downloading copies of judgments from the Supreme Court’s website, rather than request hardcopies for “contingent/miscellaneous requirements”, as per the relevant notice. Infact, all cause lists have now been getting disseminated by e-mail instead of paper from February 1, 2015 . It is relevant to point out here that Supreme Court will be saving more than Rs. 5 crores in a financial year by not printing cause lists.

Suggestion: As most of the members of AIFTP are not getting “AIFTP New letters” and/or AIFTP Journals on regular basis, Hon’ble Members of Executive Council of AIFTP, may like to get motivation from the Supreme Court decision, by sending AIFTP News Letters and/or AIFTP Journals to the Members on their emails instead of sending printed copy, of the same and/or in addition, just to save trees and unproductive cost on AIFTP.

2. National Tribunal Act, 2005 (NTT)

NTT was challenged, it being the ultimate encroachment on exclusive domain of superior Courts of Record in India. In alternative, various provisions of NTT were also challenged being unconstitutional. Transfer Case (C) No. 150 of 2006 Madras Bar Association v. Union of India & Ors. and other petitions have been decided by the Supreme Court by holding that entire NTT enactment as unconstitutional.
The conclusions of the judgment dated 25-9-2014 are reproduced below:-

“(i) The Parliament has the power to enact legislation, and to vest adjudicatory functions, earlier vested in the High Court, with an alternative Court/Tribunal. Exercise of such power by the Parliament would not per se violate the “basic structure” of the Constitution.

(ii) Recognised Constitutional conventions pertaining to the Westminster model, do not debar the legislating authority from enacting legislation to vest adjudicatory functions, earlier vested in a superior Court, with an alternative Court/Tribunal. Exercise of such power by the Parliament would per se not violate any Constitutional convention.

(iii) The “basic structure” of the Constitution will stand violated, if while enacting legislation pertaining to transfer of judicial power, Parliament does not ensure, that the newly created Court/Tribunal, conforms with the salient characteristics and standards, of the Court sought to be substituted.

(iv) Constitutional conventions, pertaining to constitutions styled on the Westminster model, will also stand breached, if while enacting legislation, pertaining to transfer of judicial power, conventions and salient characteristics of the Court sought to be replaced, are not incorporated in the Court/Tribunal sought to be created.

(v) The prayer made in Writ Petition (C) No.621 of 2007 is declined. Company Secretaries are held ineligible, for representing a party to an appeal before the NTI.

(vi) Examined on the touchstone of conclusions (iii) and (iv) above, Sections 5, 6, 7, 8 and 13 of the NTI Act (to the extent indicated hereinabove), are held to be unconstitutional. Since the aforesaid provisions, constitute the edifice of the NTI Act, and without these provisions the remaining provisions are rendered ineffective and inconsequential, the entire enactment is declared unconstitutional.” (Source 2014(11) Scale 166).

3. Foreign Lawyers in India

Should foreign lawyers be allowed to come toIndia for short visits to advise clients or participate in international arbitration proceedings? The Central Government, which is yet to clarify its position on this matter, may have to decide where it stands with the Supreme Court to hear an appeal against the
Madras High Court ruling that allowed foreign lawyers to work in India for limited durations.

The Union Government had been asked for its view but let it to the Bar Council of India (BCI), the top regulatory body for the country’s lawyers, to take a call on the issue.

The Madras High Court had in its February, 2012 ruling stated that
there was no bar of foreign law firms or lawyers visiting India for short periods and giving legal advice to clients. The High Court had also exempted BPOs from the preview of BCI Rules as the Advocates Act, which only allow Indian citizens with domestic law degrees to enroll as lawyers.

BCI is vehemently opposed to the entry of foreign lawyers and law firms in any form unless it is of a reciprocal basis. It has appealed against the High Court decision, which also allows foreign firms to carry out backend pre-litigation work such as researching and drafting. BCI is also opposed to BPOs and LPOs, as these cause revenue losses to the exchequer, according to it. It has urged the Court to direct the Tamil Nadu Government to ban foreign legal firms from undertaking any litigation, non-litigation or commercial work in India.

Opposing this view are law firms from the UK, US, Canada, Australia, Singapore along with some multinational BPOs. The Union Government has been seeking to make India more attractive destination as it is keen on drumming up overseas investment as part of efforts to revive the economy and put it back on a high growth path.

Overseas legal firms opposed to the BCI appeal have suggested that putting a stop to foreign lawyers may not help in this regard. “This issue also would affect a growing Indian economy if FDI is restricted for lack of confidence from corporate and multinationals trying to invest here”, they said in a submission.

They also said that there is no bar, on foreign lawyers flying in and out on advising clients of non-Indian law or even international commercial arbitration, pointing out that the country would lose out as an arbitration venue in the event of any such prohibition. Acting on the BCI’s pleas, the Supreme Court had in a July 4, 2014 interim order asked the
Reserve Bank of India not to allow any foreign law firm to open liaison offices in India. No work, litigious or non-litigious, could be carried out by foreign law firms unless it was in conformity with the BCI Rules and the Advocates Act, it said.

The case has been pending since then for a final hearing. At least six foreign law firms – Clifford Chance, Linklaters, Ashurst, Bird & Bird and Eversheds and Clyde and Co. have formally opposed the appeal in written submissions filed through their respective advocates.

They have urged the Supreme Court to dismiss the BCI appeal on the ground that they do not have offices in the country and do not give any evidence of domestic law to clients in India. They have also argued that
neither the Advocates Act 1961, nor the Bar Council Rules, governs the practice of foreign law.
They have also said that there is no statutory prohibition barring the foreign lawyers from appearing in international commercial arbitration proceedings conducted in India. They have said that lawyers/partners of their firms enter the country to handhold clients and to advise them only on non-Indian law in their transactions in view of the globalisation economy and not to appear before any local Court or Tribunal.

4. Coimbatore Lawyers barred from practice

The statutory Bar Council took an unprecedented step of placing five practising advocates under suspension for professional misconduct. The five lawyers, two of them women, were restrained from practising in Courts, Tribunals and any such forums inIndia, either in their names or in any assumed name, for a period of three years under Section 6(l)(d) of the Advocates Act, 1961 or until the disposal of the disciplinary proceedings initiated by the Bar Council of Tamil Nadu and Puducherry. They have been charged with conducting fake Courts in the name of ‘arbitral tribunal’ in Coimbatore, and passing orders.

In its order last month, the disciplinary committee of the Bar Council told the five advocates – P. R. Shanmugam, K. Rajaram, V. Jayalakshmi, R. D. Vijay Anand and N. Kausalya Devi – that being members of the legal profession, they had indulged in illegal activities in a calculated manner for financial gain. They have overstepped their limits knowingly, and committed. serious misconduct and earned a bad reputation to the advocates’ community among the public, the Council said.

The Bar Council of Tamil Nadu and Puducherry had received a complaint from the Coimbatore Bar Association seeking necessary action against fake arbitrators who conducted fake Courts and passed awards. The ‘arbitral tribunals’ were functioning without any sanction or permission or recognition from the High Court or the Supreme Court or by any other competent authority, it said. Following the complaint, the Council had taken note of the issue, and issued prohibitory orders against the five advocates, restraining them from practising before any legal forum.

When they were called upon to offer explanation, Shanmugam had sent a reply saying he had intimated registrars of the Supreme Court and the Madras High Court about the Tribunal. They did not object to the functioning of the Tribunal, he said, adding that he was a member of the Indian Council of Arbitration and International Centre for Alternative Dispute Resolution (ICADR).

Advocate Rajaram appeared before the committee and explained that he had done everything lawfully in the matter of passing awards. Jayalakshmi told the committee that she was appointed by the All India and Overseas Arbitration Committee, functioning at KRS Building at Saibaba Colonv in Coimbatore, and that she was paid Rs. 750 to Rs. 1,500 as remuneration to conduct the ‘arbitration proceedings’. Vijaya Anand clarified that he did not pass any illegal arbitration award and requested the committee to discharge him from the proceedings. Kausalya Devi had argued before the committee that the signature found in the awards passed was not hers, and added that someone had misused her signature and name.

Coimbatore Bar Association President P. Nandakumar and Secretary M. Loganathan, who appeared before the council, were cross-examined by counsel of the five advocates. A disciplinary committee of the Bar council, comprising its Chairman K. Ranganthan and members K. Rajarajan and M. Ram Prabakar, found all the five lawyers guilty of misconduct, and ordered their immediate suspension from the Bar for a period of three years from December 3, 2014. (Source: Times of India)

5. Kolkata International Arbitration Centre (KIAC)

The Government of West Bengal will soon set up a fast-track arbitration centre in Kolkata to facilitate speedy settlement of commercial disputes. The proposal comes on the back of the Centre’s decision to introduce an ordinance that seeks to settle commercial disputes through arbitration for their speedy resolution.

Debashis Sen, Principal Secretary of the State Government’s Urban Development Department, said to the media persons that commercial disputes in India took years to get resolved – a factor that prevented domestic and foreign investors to make fresh investments.

“We are shortly coming up with the Kolkata International Arbitration Centre (KIAC), where the arbitration officer would solve all disputes brought to his notice within nine months… this will speed up the industrial investment in Bengal,” as told by Sen.

“We have decided to set up an international arbitration centre at Rajarhat. The objective is to offer infrastructure where the arbitrator can hold Tribunals and consult legal assistance so that the disputes can be settled within nine months,” Sen added.,

Sen said the State is suffering from lack of foreign investments primarily because grievances are not being addressed within a given timeline.

“Efforts were made to speed up the redressal process but no time frame was there previously. In practice, the disputes dragged on for years. Last month, the Central Government introduced an ordinance whereby the arbitrator would have to decide the case within nine months,” he said. Sen said the State Government has set up a consulting committee to expedite the process for the construction of KIAC.

“Tomorrow (Sunday) a team from Bengal is going to Delhi to discuss about KIAC with the Centre,” he said.

The Centre, proposed to be set up in Rajarhat will have all modern facilities including separate air-conditioned rooms for consulting and arbitration. (Source: Business Standard)

6. Commercial Courts – A step in the right direction

Amid complaints of delays and pendency of 16,884 commercial cases in five High Courts –Delhi, Mumbai, Calcutta, Madras and Himachal Pradesh, settling such “High-Value” disputes may become easier and cheaper if Government accepts a draft Law Commission Bill to set up commercial Courts in the country.

The institution of such Courts has been seen stepping stone to reforming the civil justice system in India and will also accelerate economic growth, increase foreign investment and make India an attractive place to do business. Even the Government plans to amend the Arbitration & Conciliation Act, 1996 to make it mandatory for an arbitrator presiding over commercial dispute to settle case within nine months.

The Law Commission under the Chairmanship of former Justice Mr. A.P. Saha in its draft “Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill 2015” to the Law Ministry has suggested special commercial Courts for the speedy disposal of “high-value commercial suits”, “streamlined procedure” to be adopted for the conduct of cases in the Commercial Division and in the Commercial Court by bringing in “substantial” changes in the Code of Civil Procedure, 1908 (CPC) to improve the efficiency and reduce delays.

In fact, the recommendations of Law Commission to set up commercial courts as a step in the right direction, one that will not only curtail the overstretched litigation but also propel foreign investments. I feel the exercise will be fulite if such Courts are not manned by experts who are equipped to handle commercial and related matters. Commercial disputes fall under a distinct and separate category and require different mindset, expertise and commercial principles. A robust dispute resolution mechanism is a must for the all-round development of an economy.

The Government should follow the parameters laid down by the Supreme Court in the
National Tax Tribunal case for appointment of members to the specialised Tribunals/Commercial Courts and rather avoid obliging bureaucrats with post/retirement jobs. The said senior lawyer also says “The Government should bring in for a fixed tenure young minds who are not only familiar with latest business developments but are also well conversant with business laws. To attract them, the best brains should be given good emoluments in order to keep them motivated”. Unless and until the experts or specialists selected for members of the Tribunal are properly trained and sensitised to commercial principles, the whole purpose will lose its relevance.

Thus, to ensure effective alternate system, these commercial Courts should be manned by commercial experts who can demonstrate clarity of knowledge and understand all commercial issues besides efficiency in disposal of matters, otherwise delays only act as a disincentive to foreign investors.

A commercial dispute is being defined in the draft legislation in the Law Commission’s Report, which includes disputes arising from agreements ranging from those of shareholders, franchising, joint venture agreements, subscription and investment agreements in the service industry to technology, intellectual property and insurance. The definition also clarifies that disputes of such agreements with the Central and State Governments and bodies performing public functions would still constitute a commercial dispute. (Source: The Financial Express).

7. India: Role in International Arbitration

Judicial proceedings need to be streamlined to reduce the backlog in Indian Courts, says President of International Court of Justice Peter Tomka. He feels India also has an important role to play in international arbitration arena by co-operating closely with the Netherlands based Permanent Court of Arbitration.

The top jurist said that judicial proceedings in India need to be streamlined to reduce the backlog as this not only takes a toll on individuals but also on the system.

“Judicial proceedings (in India) need to be streamlined. Measures should be taken to enhance the efficiency of judicial system but these measures depend on national particularities,” Tomka told on the sidelines of an event here.

He was asked about the ways to reduce the huge pendency of cases here. “India certainly can play more active role in the field of International arbitration and one of the ways to improve the standing is to co-operate closely with the Permanent Court of Arbitration in Hague which has agreement and co-operation with several countries,” he said.

According to him, by working and co-operating closely with the Permanent Court of Arbitration at Hague, which has agreement with several countries, “India can improve its standing worldwide”.

Tomka, who was among the seven Arbitrators in the Indus Waters Kishenganga arbitration case between India and Pakistan in 2013, and a member of the Permanent Court of Arbitration since 1994, said all recent steps taken here and aimed at accelerating the arbitration proceedings and managing the process need to be welcomed.

“Certainly arbitration is being perceived and conceived as an efficient way of settling the disputes provided the parties are agreed to arbitration and all steps which aim at accelerating the arbitration proceedings and managing the process needs to be welcomed,” he said.

He was responding to the recent amendments brought in by the Indian Government in Arbitration and Conciliation Act with one making it mandatory for a judge presiding over commercial disputes to settle cases within nine months and the other putting a cap on arbitrator’s fee.

Lauding India’s role in strengthening the international institutions including the ICJ, Tomka said that it was among the first few Asian countries which has been recognising its jurisdiction since its inception.

“India has been recognising its jurisdiction for almost 70 years and has been party in several cases in the past. ICJ has benefited a lot from the presence of distinguished Indian international law lawyers and judges. “Since its inception in 1945, we have four Indian Judges and ICJ has benefited a lot from their judicial philosophies and knowledge of International law. But the fact which is to be commended the most is India has been among the few Asian countries which are subject to the jurisdiction of the ICJ through a declaration,” he said.

8. International Arbitration for infra development disputes

The Government plans to allow resolution of disputes in infrastructure development through arbitration in neutral place like Singapore, London and Malaysia, a step aimed at increasing the confidence of foreign investors in putting money in a sector that is key to economic growth but is struggling due to funds shortage.

The Government will insert a clause allowing arbitration in a neutral city while signing public private partnerships (PPP) and other infrastructure contracts, people with knowledge of the matter said. India is likely to invite investments over the next two to three years in projects in power, coal roads and transport and water supply. All the new PPP contracts are set to have the arbitration clause. Singapore is already a favourite place for Indian companies to arbitrate disputes.

India needs hundreds of billion dollars to fix its creaky infrastructure such as highways, ports, power plants and shortage facilities, as well as build new ones. According to experts, inadequate infrastructure is shaving off as much as two percentage points from the country’s gross domestic product.

While the Government is trying to channel more funds to the sector, investors have become extremely cautious because of past experience. Since 2006, around 50% of the total inbound private-equity investment has been to the infrastructure sector, including in roads, power and real estate.

These project and businesses have seen undue delays because of slow Government approvals; changing and ambiguous policies and problems over land acquisition. Currently, to resolve disputes over PPP projects, the Government appoints one of its own employees who isn’t connected to the disputes as an arbitrator. This mechanism isn’t effective, say legal experts.

“In the infrastructure sector, there have been lot of problems in the past and investors are steering away due to this. The step to include arbitration clause as a neutral country like Singapore or London would give confidence to investor, “Said Yogen Vaidya, partner, fraud investigation and dispute services, at Ernst & Young. According to Vaidya, the arbitration clause at a neutral territory has already become a norm in private contracts in the country.In PPP also it could result in better dispute resolution, he added.

Meanwhile, some State-run firms have also stated including clause for international arbitration in ‘their new agreements, say industry trackers. Companies like Oil & Natural Gas Corp. and Gammon India have arbitration clause and the venue as Singapore, said Ameet Mehta, managing partner of Solids Lex, a Mumbai-based law firm. “A lot of the island nation’s laws are established on the basis of the Indian Penal Code and they are culturally compatible of neutral,” said Mehta.

Industry experts say most private companies and their foreign investors are flocking to Singapore when they need to resolve disputes. As much as a quarter of the arbitration cases filed in Singapore involve at least one Indian party, they say.
(Source: The Economic Times)

9. Supreme Court: Oil Ministry and RIL on ONGC

The Supreme Court sought response from the Oil Ministry, Reliance Industries and BG on a plea by ONGC over reimbursement of royalties and taxes in the Panna, Mukta and Tapti (PMT) gas fields, jointly operated by the three firms.

The Supreme Court in May last year while allowing a plea by RIL and its partner BG Exploration and Production had held that only British Courts had the jurisdiction over the ongoing arbitration between the companies and the Oil Ministry over the farmer’s demand for reimbursement of royalties and taxes paid by them for the PMT gas fields.

Besides, the Supreme Court ruled that any final arbitral award can be challenged only in the British Courts, but substantive Indian arbitration laws will have to be applied by the foreign Courts.

Seeking clarification of the Supreme Court’s judgment with regard to change of juridical seat of the arbitration, ONGC said the Supreme Court had allowed the RIL’s plea-
“on the erroneous basis that there had been an amendment to the Production Sharing Contracts. (PSCs) entered into between the parties, and that the juridical seat was shifted to London by consent of the parties.”

“This is factually incorrect, the correct facts are that the venue was shifted to Paris with the consent of all parties, for which the PSCs were amended. That there has been no further amendment to the PSC shifting the venue back from Paris to London, as has been erroneously recorded in the said judgment,” the application stated. According to ONGC, it had not consented to the juridical seat of the arbitration being at London. “In fact, London could not have been the venue, let alone, juridical seat of the arbitration, as B. G. Exploration and Production India Ltd is controlled by British Gas which is based in England.”

Seeking impleadment in the appeal, ONGC further submitted that its 40% participating interest in the PSC would be seriously prejudiced if the jurisdiction of the Indian Courts are ousted to test the validity of the award passed by the arbitration Tribunal. Supreme Court by conferring jurisdiction on the English Courts, has ousted the jurisdiction of the Indian Courts to entertain any applications that may be available as per the governing law of the contract.

The ONGC said that its rights were “vitally and crucially affected by the May 28, 2014 judgment which has far reaching implications for enforcement purposes particularly as London is not a neutral venue as one of the three parties is based in London”. It has been submitted in the application that the English Courts would exercise jurisdiction over the current dispute by applying English law for deciding challenge to the arbitral award under this arbitration.

HIGH COURT OF DELHI

10. Customs – Section 112 of the Customs Act, 1962 (Penalty – Imposition – Abatement of Smuggling – Cross – examination)

Issue: Quantum of Smuggling of silk as declared weight varied drastically in several past consignments, liability assessed based on average weight metre ratio, along with baggage weight on basis of vehicle capacity.

Held: There was application of mind to available material – figures worked out were acceptable as accused were not able to show any intrinsic inaccuracy – Issue concerned past clearances for which no other documents were available, it was reasonable/acceptable methodology, results whereof were not far from truth, though they cannot be absolutely exact – Section 112 of Customs Act, 1962.

Issue: Abatement of Smuggling
– Main person not caught and there was no corroboration by him – Non-official abettors were absent- However, connecting materials and interconnection between those involved in smuggling and impugned persons, brought out in adjudication proceedings through statements under Section 108 of Customs Act, 1962 and corroborated by call detail records

Held: Absence of goods or fact that in earlier instances they were cleared without dispute, or even after payment of differential duty, could not detract from finding of abetment/culpability of those who played key roles in fulfilment of such conspiracies- It was case of unavailability. Payment of differential duties on particulars dates and record of entry of those involved in smuggling racket, corroborated and established the allegations – Section 112.

Issue: Notices on main culprits/Foreign Nationals
– Notices served personally on main culprits/foreign national, but they were issued and published in a known manner.­

Impugned accused were issued notice and there was clear evidence of their culpability.

Held: Customs Authorities were entitled to proceed, impose penalties and make adverse orders against impugned accused – Section 112 of Customs Act, 1962.

Issue: Cross-examination – Denial of opportunity of witnesses whose depositions were relied on – However, accused were implicated not on basis of evidence of those witnesses only, but also other materials which explained chain of circumstances to prove allegations against them, and for which they did not have any reasonable explanation – Also, accused had not sought cross-examination for over five years, though they were aware that statements were to be used during proceedings that had been put to them in SCNs.

Held: Accused were not prejudiced by denial of cross-examination and principles of natural justice were not violated. Law did not insist on impossible threshold of proof to establish allegations in Customs proceedings. If on probabilities statutory authorities can establish evasion, legal standards were adequately met with.
[Source: 2015(319)E.L.T. 450(Del.)]

[Source: Article published in Souvenir of National Tax Conference held at Darjeeling on 18th and 19th April, 2015.]

Rahul Kaushik
Advocate

The Lok Sabha on Thursday the 7th May, 2015 passed the Juvenile Justice (Care and Protection of Children) Act, 2014 which will allow children in the 16-18 age group to be tried as adults if they commit heinous crimes. The bill will now be debated in Rajya Sabha, where the Government despite lacking a majority in that House, will be hoping it is passed.

The amendments were prepared in the backdrop of public outcry over the Delhi gangrape case of 2012 in which a juvenile accused received a lighter punishment because of his age. However, the amendments have not taken care of the well -trained adolescent Juvenile Terrorists (between the age group of 14-18 years) who can create havoc by killing many innocent people and can get away by lighter punishment because of his age. The members of Parliament should seriously note that the well-trained terrorists Ajmal Kasab who recently in the year 2008, created havoc at Mumbai, by killing many innocent people/police officers, had also taken a plea that he is a juvenile. Therefore, the members of Rajya Sabha/Parliament should insist on amendment in the JJ Act that there should be a provision of ‘death sentence’ for adolescent juvenile terrorist/s between the age group of 14-18 years.

The Juvenile Justice (Care and Protection of Children) Bill/Act, 2014, mooted by the Ministry of Women and Child Development (WCD) headed by Maneka Gandhi, had been in the works for more than six months. One of the significant amendments/changes is that a minor above 16 years of age could be treated as an adult by a court if he or she has committed a heinous crime like rape, dacoity, murder or acid attack and the decision will be taken by the Juvenile Justice Board. As per Section 2(33) of the said Bill/Act “heinous offences” includes the offences for which the minimum punishment under the Indian Penal Code or any other law for the time being in force is imprisonment for seven years or more.

The amendments/changes were introduced following public uproar after the Nirbhaya Gangrape in December, 2012. Subsequently, there have been a series of cases including the Shakti Mills rape case in Mumbai where juveniles were involved and got away with a maximum of three years in reformatory home.

Women and Child Development ministry officials have cited National Crime Record Bureau (NCRB) data that indicates that the number of children apprehended for heinous crimes, especially in the age group of 16-18 years, had gone up significantly in recent time. As per the report of 2013 the total juvenile in conflict with law apprehended under the Indian Penal Code (IPC), 66.3% were in the 16-18 age group.

The amendments/changes also include provision for the introduction of foster homes and simplifying the adoption process that were accepted by the Parliamentary Panel.

Recently, the Supreme Court on Monday, the 6th April, 2015 said the time had come to think of an “effective law to deal with the situation arising from the increasing involvement of juveniles in heinous offences”. The Courts concern was expressed in a case where a boy, aged 17 years and 8 months, who was part of mob that attacked a gathering and killed nine people, was seeking to take advantage of friendly trial and lenient punishment prescribed under the Juvenile Justice (Care and Protection of Children) Act, 2000. Those under 18 are termed juvenile under laws.

Attorney General Mukul Rohatgi had said in an earlier hearing “the Centre understand the nation’s concern and is engaging the attention of the competent authority.” Rohatgi and Additional Solicitor General Tushar Mehta had further said “This involvement of juveniles under the present Act is increasing and has become a matter of grave concern.”

The Bench said, “we are inclined to think that the concern expressed by the Attorney General is absolutely correct and we are of the convinced opinion that he will put it across to competent authorities so that care is taken to the extent that the nature of the offence has some nexus with the age in question, for the cry of the collected (sic) is to live in a peaceful society that respects life, dignity and others’ liberty.” Though the Bench left it to the trial court to determine the correct age of the accused and whether he was a juvenile at the time of the crime, it said, “The issue that emerges is whether in such a situation (where the accused was part of an illegal congregation that killed nine people) can it be conceived by any stretch of imagination that the petitioner was not aware of the consequences? Or, for that matter, was it a crime committed, if proven, with a mind that was not mature enough?” The Bench requested the Attorney General to bring it to the notice of the concerned authorities so that relevant provisions under the Act can be relooked, rescrutinised and revisited, at least in respect of offences which are heinous in nature. The Bench sough answer from the Centre by the first week of May, 2015.

Mounting pressure on the Centre to take a relook at the law providing mild punishment to juveniles even when they are involved in heinous offences, Supreme Court on the 6th April, 2015 requested Parliament to “rethink” differentiating juveniles involved in innocuous crimes from those having a hand in serious offences. As the Centre shared the Supreme Court’s concern, a Bench of Justices Dipak Misra and Prafulla Chandra Pant said, “it is apt to note that there can be a situation where commission of an offence may be totally innocuous or emerging from a circumstances where a young boy is not aware of the consequences, but in cases of rape, dacoity, murder, which are heinous crimes, it is extremely difficult to conceive that the juvenile was not aware of the consequences. It’s time to think of an effective law to deal with the situation.”

In view of the above, the Legal Committee of All India Business Council of 609-B Niranjan, 99 Marine Drive, Mumbai – 400 002, have made following submissions/suggestions in the matter for kind consideration by the CJ of Supreme Court of India as well as the Central Government, Parliament and the competent authority and all others concerned.

IT APPEARS THAT NO ONE HAS CONSIDERED ABOUT THE HAVOC WHICH CAN BE CREATED BY WELL TRAINED ADOLESCENT JUVENILES IN THE AGE GROUP OF 14-18 YEARS

1. In recent past, out of the eleven well- trained terrorists who co-ordinated the attack on Hotel Oberoi, Taj and other places in Mumbai on 26-11-2008, only one terrorist, Ajmal Kasab, was caught alive. The said Ajmal Kasab was jailed and a long legal battle commenced. The Learned Counsel for Ajmal Kasab had taken the plea that Kasab is under 18 years of age and that, therefore, the provisions of the Juvenile Justice (Care and Protection of Children) Act, 2000, (hereinafter referred to as the “said Act”) are applicable and that the trial cannot be proceeded further in the regular Court. However, after making relevant medical test/s, the Court rejected the said plea and continued the trial. Finally, after about 4 years, the said Kasab was hanged on 21-11-2012.

2. If the said Kasab was found to be under 18 years of age, the Juvenile Court could not have done much in the matter in spite of the heinous crimes committed by him. From the above experience, it is submitted that the concerned ministers of the Central Government, leaders of various political parties, Senior Advocates of Supreme Court etc., should have taken immediate steps to get the necessary amendment made in the definition of a child, to save such a situation and for that, if need be, the same should have been amended by declaring ordinance to that effect. It is further submitted that, the Chief Justice of SC can also suo motu take up this issue with the centre, to safeguard the security of our nation as a whole. However, no serious attention is focused on adolescent juvenile terrorists and no suitable amendment is made in the definition of a child under the Act till date.

3. Time and again, India has been receiving threats from various terrorist organisations and India also receives secret information about the probable targets of such terrorists who can create havoc in different parts of our country. It may be seriously noted that adolescent juvenile terrorists in the age group of 14-18 years can attack different parts of our country simultaneously. After creating havoc by killing many innocent people with the help of modern weapons and by bombing important projects, if such terrorists surrender before the police and each of them show his/her age proof of being under 18 years (now 16 years), then what? The Police will be bound to send all of them to an ‘Observation Home’ established under the Act of 2014. Further, the names and photographs of such terrorists/offenders cannot be disclosed and/or published in media like newspapers, T.V., etc., as the same is prohibited under the Act. In such a special situation, the Government will be helpless to take any action against such juvenile terrorists.

4. In view of the above, it is high time to make suitable changes in the definition of a “child” given u/s. 2 (12) of the Act, which is reproduced below:

“Child” means a person who has not completed eighteen years of age.

We submit that the following words should be added in the above definition of a child with immediate effect and if need be, by special ordinance of the Central Government:

“And, in the case of a person who is alleged to have or committed a heinous crime/s like murder or rape or any act/s of terrorism has not completed fourteenth year of age.”

5. Under the provisions of the Act, even if an adolescent juvenile in the age group of 14-18 years commits a heinous crime like murder, rape, etc., he almost goes unpunished, by virtue of the provisions of the Act. Practically it amounts to giving an open licenc e to a juvenile to murder, rape and/or to take revenge on persons, who do not act as per his desire, by breaking limbs of such persons, pouring acid on face, etc., without fear of any severe punishment in law. A trained adolescent juvenile of the age group of 14-18 years is also capable of creating havoc by hijacking our country’s important and confidential military data from our computers and can also commit such other various cyber crimes including other crimes like disturbing our electric and water supply to ruin our country in all respects. Can such a person be called a child? Do we need to take care and give protection to such children under the provisions of the Act? Certainly not. We seriously suggest that there should be a provision under the present Act of 2014, that, an adolescent juvenile terrorist, of the age group of 14-18 years, can be awarded life imprisonment or death sentence by the Court, like in case of other adult criminals.

6. Dictionary meaning of a child is a newly born boy or girl upto the age puberty which means when the boy or girl becomes capable of sexual reproduction after the age of 14 years and they have also become adolescent, capable of becoming well-trained terrorists.

7. As reported in the Times of India, Mumbai, of 9th September, 2013, according to the National Crimes Record Bureau, juvenile crimes in the city have increased by 34% in the year 2014 as compared to the year 2011. The Bureau has further reported that most juvenile delinquents were in the 16-18 age groups. Further, the statistics reported by the bureau appear only to be the tip of an iceberg, for the simple reason that all the crimes that may have been committed by children of the age group of 14-18 years do not come to light for several reasons viz;

  1. In most of the cases, where heinous acts are involved, no names and/or photographs of such persons are published as per the provisions of the Act.

  2. In case of rape, the parents of such victims are mostly reluctant to make police complaint in order to save the victim/s from further harassment and to avoid complications at the time of marriage proposals.

  3. The family members of the victim/s are always under a threat that unless they withdraw their complaint from the police department, some other family member/s may become victim/s of such other juveniles between the age of fourteen to eighteen years, who have no fear of being severely punished under the provisions of the said Act.

  4. Further, rival parties in business, politics, etc., square-up their account in many cases by misusing the provisions of the Act, without going to any Court of law. In any case, the percentage of crime rate cannot be the base for justification of heinous crimes being committed by adolescent juveniles under the age group of 14 to 18 years, for the reasons stated in detail hereinabove.

8. In fact, to be in tune with the provisions of the Constitution and the various Declarations and Conventions adopted by the world community represented by the United Nations, we are not seeking to lower the age of juveniles from 18 to 14 years but by amending the definition of a child as suggested above, we are seeking to close the doors for making heinous crimes and also to close the doors for the army of terrorists between age group of 14 to18 years who can attack and create disturbances in different parts of our country without fear of severe punishment under the Act. Many sovereign countries have made suitable changes in the juvenile law as per their requirements and have not blindly adopted the similar provisions as adopted by other countries for example, in the case of United States of America, although the traditional age of majority is 18 years, nearly all States permit persons less than 18 years to be tried as adults if they commit serious/heinous crimes (rape, robbery, murder etc.). Recently, during the visit to other countries our Hon’ble PM Shri Narendra Modiji has said that, all countries should have one voice to fight against terrorism and for that we suggest that other countries should also follow and make provisions in their respective juvenile laws similar to as suggested by us herein.

9. In our humble opinion, under the provisions of the present Juvenile Justice Act, the citizens are deprived of their fundamental right of protection of life and personal liberty and this violates Articles 14 and 21 of the Constitution of India. Therefore, the necessary amendments as suggested above be included and/or be made in the above referred Juvenile Justice (Care and Protection of a Children) Bill/Act, 2014 in order to provide national security against probable attacks by adolescent juveniles under the age group of 14-18 years.

10. In the meantime, we suggest that the Central Government should issue ordinance, as may be required in law, to give immediate effect to our above suggestions in the present Juvenile Justice Act, 2000 and/or 2014. In fact, the previous Government should have implemented our above suggestions much earlier in the year 2009 when the terrorist Ajmal Kasab had taken the plea that he was juvenile under the age of 18 years and he should be sent to Observation Home. The delay being caused in the matter gives benefit to Juveniles under the age of 18 years though they may have committed heinous crimes and/or acted as a terrorist and for which the Supreme Court wants law to get tough on juveniles in heinous crimes.

S. P. Jain & V. R. Ghelani

Ladies and gentlemen participating in the Conference, members of print and electronic media covering the proceedings of the Federation must recognise the essentiality of the inherent need for revenue for all countries either developed, under developed or a developing country in the vvorld, as without revenue, the whole functioning of the sovereign State comes to a brutal standstill. You are all well aware that a major chunk of revenue either for the Centre or the State as the case may be, is always generated through levy and collection of taxes of both direct and indirect taxation from the public. No doubt, as I am given to understand from the quotations of great reputed philosophers, financial wizards and, economic experts in the globe that
taxes are compulsory exaction of social fees by public authority under a public law for the survival and progress of a civilized society. To a tax payer for payment of the taxes due to the State in administration of a taxation law, the State may not be rendering any services. I am also given to understand that obligation to pay taxes does not rest upon any contract, express or implied or on. the consent or volition of a taxpayer, for, a tax is not a debt in the ordinary sense of the word.

Jurisprudence is the science of law and now, the term properly employed in the technical sense was also employed in various other senses respectively suggested by etymology, by historical accident or by the pursuit of euphony.

Jurisprudentia “like juris scient in” originally denoted merely such a knowledge of the laws of his country as well as possessed by a practising lawyer at Rome. Friends, jurisprudence of various types such as analytical jurisprudence, competitive jurisprudence, ethical jurisprudence, fiscal jurisprudence, general jurisprudence, international jurisprudence, service jurisprudence, criminal jurisprudence and finally taxation jurisprudence. The province of jurisprudence is therefore to determine what is meant by law “ius” what are its sources and species and what are the objects which it serves. Now as I perceive today’s tax conference intended to deal with selected topics of general importance of both under direct and indirect taxation comes within the domain of taxation jurisprudence. In the concept of a tax, a wide range of economic criteria is required to collate. That means a detailed economic survey and investigations project formulation of the policy of a tax and its effectuation through legislature, measures is a recognised phenomena. In the modern pluralist intensive welfare State, a taxing law is not merely a measure for raising funds to meet the expenses of the Government but it has a fiscal machine, a pious vision and is a tool of economic regulation. The direct taxation simplicitor takes in its fold, the income tax law, the basic tenet of which is to levy tax on the personal income of an assessee and the expression assessee need not necessarily denote, or connote a restricted meaning confined to a citizen of the country and indisputably its arms are so lengthy to reach a business house being a branch of multinational organisations situated outside the country. In juxta position, the indirect tax law inter alia does provide for levy of tax on production, sale of goods or the latest being on provision of services and thus it is beyond cavil that the accepted tenet of indirect taxation is a destination based one or in other words a consumption based one. In other words the levy of indirect tax percolates from top to bottom.

Let me also deal with a fine aspect as to what would be the changes coupled with sequences ahead in taxation jurisprudence in the presence of the much more talked global economy. In other words economy at international level is sought to be globalised with liberalised or elasticised approach for the whole world or globe is transformed into a single or singular village.
It is believed that such a globalized economy would give ample but enormous as also expanded scope without heaps and bounds for the growth of trade, commerce, industry as also heritage, culture, human relations, scientific developments and provision of services in all respect including medical sciences and finally global economy would open gates for global representations by the qualified tax professionals by whatever name as the case may be. The visible result and reality is that several multinational companies have already opened their branches in our country vice versa giving scope for healthy competition and stabilisation in the prices as well as assured or ensured availability of the commodities and services throughout all places in all the countries over the globe.

Friends, you must by this time are well aware of the ideas and ideologies of our Government in this regard and during the visits to other countries, our populous Government headed by our beloved and respectful Prime Minister has been emphasising with appeasing appeal to the foreign entrepreneurs to explore the possibilities of setting up many more industries and trade houses in our country which would ultimately strengthen the economic sources of the country, resulting in improvised employment potentiality, revenue collection and export of trade etc., and ultimately would give a kind of fillip to our country to be placed at the zenith of global economy. Simultaneously Indian entrepreneurs are also utilising the benefit and advantage of global economy to set up many more industries and trade houses in many more developing and under developing countries where there is a lot of scope for growth.

Friends even in the arena of tax laws, the legal dead wood as announced by our Government is a year ago removed and cleared as various acts which have become obsolete commenced for being are being repealed, abolished or removed so as to dispel the confounded confusion prevailing everywhere. Even in the fields concerning the dignity majesty and global reputation of Indian judiciary, the required and much awaited reforms have been ushered in only to see that the independence of the judiciary is always preserved and kept in high esteem with better available outputs.

Friends, I have consumed a lot of your precious time in my address. Since, it is a conference of national importance being organised for two days touching upon both direct and indirect tax laws giving scope for much more effective and efficacious deliberations in various technical sessions. I thought of sharing whatever little knowledge I do have with you all. It is also on the basis of the laudable objects and the activities being undertaken by the Federation for achieving the excellence in legal education enabling all the concerned to update and enrich their knowledge, professional ethics, I am sure that the administration is also benefited and as such the Federation for its great services honestly and respectfully deserves a kind of special identity and recognition in the society as also with the Government and whatever is required in that direction would be looked into for a positive outcome. I heartily congratulate the Federation and its partners in this effort for the excellent work being done for the benefit of one and all.

| JAI HIND |

[Source: Speech delivered at Inaugural Session of Two Day National Tax Conference held on 13th and 14th June, 2015 at Bengaluru.]

Hon’ble Shri D. V. Sadananda Gowda
Hon’ble Minister for Law & Justice, Govt. of India