KSCAA September 10 Newsletter

KSCAA News Bulletin - SEPTEMBER 2010123456712345671234567

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KSCAA welcomes articles &views from members for

publication in thenews bulletin / website.

email: [email protected]: www.kscaa.com

CONTENTS

KSCAANews Bulletin

September 2010September 2010September 2010September 2010September 2010 VVVVVol 48 Pol 48 Pol 48 Pol 48 Pol 48 Pararararart 2t 2t 2t 2t 2No. of Pages : 28

DisclaimerThe Karnataka State Chartered AccountantsAssocation does not accept anyresponsibility for the opinions, views,statements, results published in this NewsBulletin. The opinions, views, statements,results are those of the authors/contributors and do not necessarily reflectthe views of the Assocation.

KSCAA CONFERENCE AT HUBLIOrganised by

Karnataka State Chartered Accountants AssociationJointly with

Hubli Branch of SIRC of ICAIDate: Saturday, 30th October 2010

Venue : Deshpande Foundation Auditorium, BVB College campus, Vidyanagar, HUBLI

Programme08.30 AM Registration09.15 AM Inaugural session

WELCOME ADDRESS- (Invocation, Introduction, Welcome speech)

KEY NOTE ADDRESS- by Shri. Jagadish Shettar

Hon’ble Minister of Panchyat- Raj and Rural Development

First Technical Session10.15 AM Issues in Taxation of Cooperative Societies

- by CA. Umesh Bolmal, FCA, Belgaum

11.00 AM Coffee BreakSecond Technical Session

11.15 PM Conflicts in Accounting & Revenue Recognition- by CA. K.Gururaja Acharya

Third Technical Session12.45 PM Reforms in Govt. Accounting & emerging opportunities for CA’s

- by CA. Tara Bevinje, FCA, Bangalore

01.30 PM LUNCH BREAKFourth Technical Session

02.20 PM Service Tax - Recent Judgements & Legislative Amendments- by CA. K.S.Ravi Shankar, FCA, Bangalore

03.50 PM Coffee BreakFifth Technical Session

4.05 PM Audit Provisions relating to Sahakari Souharda Cooperative Audit- by CA. Ravindranath, FCA, Sagar

Sixth Technical Session4.45 PM KVAT Audit - Precautions, Documentation, Issues

- by CA. S.Venkataramani, FCA, Bangalore

DELEGATE FEES : Rs.250/-,: Rs.100/- for Students

Cheques/DD’s in favour of KSCAA, Payable at Bangaloreor in favour of Hubli Branch of SIRC of ICAI, Payable at Hubli

CA. Allama Prabhu M.S. CA.Maddana Swamy CA. C.R.DhavalagiPresident - KSCAA Secretary-KSCAA Conference ChairmanCell: 98801 24567 Cell: 93412 14962 Cell: 94481 11377e-mail: president e-mail: madanswamy e-mail: cr_dhavalagi

@kscaa.com @gmail.com @rediffmail.com

Conference Co-ordinators :CA. Ravindra S Kore CA. Panduranga Shimpi CA. Kiran Kumar

Bangalore Belgaum DavangereCell: 99020 46884 Cell: 94481 42674 Cell: 98440 62597

REGISTRATION CUT OFF @ 200 Delegates REGISTER IN ADVANCE (First come, First Serve basis)

Karnataka State Chartered Accountants Association 7/8, 2nd Floor, Shoukath Building, SJP Road, Bangalore 560 002

080-22222155 , Telefax : 080-22274679, e-mail: [email protected]

PROGRAMMES & ANNOUNCEMENTS

Programmes & Announcements 5

Bahumukha Parinati 7CA - The MultifacetedProfessional Accountant in BusinessCA. Ramachandran Mahadevan

SAMVARDHANA 9

Option Contracts 11- Capital Market

CA. S. Krishnaswamy

Indirect Taxes Update 13– August 2010 CA. V. Raghuraman CA. C.R. Raghavendra

Levy of Service Tax 17– Issues

CA Madhukar N HiregangeCA Srikantha Rao

Recent Decisions of the 20Supreme Court and HighCourts on Income Tax

CA. K.S. Satish

Judicial Pronouncement by 22Honorable High Court underKarnataka Sales Tax law CA. Srikanth Acharaya and CA. Annapurna Kabra

ªÀÄAPÀÄwªÀÄä£À PÀUÀÎ 24

Cover Page : Remembering thefamous illustrious son of India, thegreat visionary, Bharata RatnaSir M. Visvesvaraya on hisbirthday on 15th of September.


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Programme

Two Day National Tax Conference at BangaloreOrganised by

Karnataka State Chartered Accountants AssociationJointly with

All India Federation of Tax Practitioners (Southern Zone)Date: Saturday,13th & Sunday,14th of November 2010

Venue : Auditorium-2, Nimhans Convention Centre,Bangalore

DAY 2 14.11.2010, Sunday

First Technical Session

09.45 AM Direct Tax Code ( R)- a Panel discussion

Moderator : CA. Padamchand Khincha

11.15 AM Coffee Break

Second Technical Session

11.30 AM Issues & recent judgements in TDS

12.45 PM Sponsorers Programme

01.15 PM LUNCH BREAK

Third Technical Session

02.30 PM K-VAT Audit- by CA.S.Venkataramani

03.45 PM Coffee Break

Fourth Session

04.00 PM Brains Trust- Sri. P.C.Joshi- CA. Madhukar Hiregange- CA. K.Gururaja Acharya

Moderator : CA.S.Krishna Swamy

05.45 PM Valedictory Session

DELEGATE FEES : Rs. 2250/-, Cheques/DD’s in favour of KSCAA, Payable at BangaloreThe Fee covers Background Materials, Lunch & Coffee/Tea and Breakfast on Day 2

CA. Allama Prabhu M.S. CA. Maddana SwamyPresident - KSCAA Secretary-KSCAACell: 9880124567 Cell: 93412 14962

e-mail : [email protected] e-mail: [email protected]

Conference Co-ordinators :

CA. Sanjay Dhariwal CA. Anant MutalikVice Chairman-AIFTP(Kar) Vice President, KSCAA

Cell: 99720 70601 Cell : 94487 01370e-mail :[email protected] e-mail : [email protected]

DAY 1 13.11.2010, Saturday08.45 AM Registration

09.15 AM Inaugural session

WELCOME ADDRESS- (Invocation, Introduction, Welcome speech)

KEY NOTE ADDRESS

First Technical Session

10.45 AM Wealth Management - Tips & Techniquesby Sri. Amit Rati, Mumbai*

11.45 AM Coffee Break

Second Technical Session

12.00 PM Recent issues and judgements on Works Contract- a Panel discussion

- by Sri.P.C.JoshiSri. Patodi M.L.Moderator : CA. Sanjay Dhariwal

01.30 PM LUNCH BREAK

Third Technical Session

02.30 PM Software Sector and Customs, Excise & Service Tax- by CA. K.S.Ravi Shankar

04.00 PM Coffee Break

Fourth Technical Session

4.15 PM Tax & Accounting conflicts &Transitional issues under IFRS

Karnataka State Chartered Accountants Association7/8, 2nd Floor, Shoukath Building, SJP Road, Bangalore 560 002

080-22222155, Telefax : 080-22274679, e-mail: [email protected]

REGISTRATION CUT OFF :

210 DelegatesREGISTER IN ADVANCE

(First come, First Serve basis)


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BAHUMUKHA PARINATICA - The Multifaceted Professional Accountant in Business

CA. Ramachandran Mahadevan, FCA

A Consultation Paper published by International Federationof Accountants (IFAC) in September 2010 echoes the

Bahumkha Parinati –CA-The Multifaceted Professional Themeof the year of KSCAA and has been aptly titled “Competentand Versatile” as professional accountants in business(PAIB)drive Sustainable organizational success.

Consultation Paper

It examines the expectations placed on professionalaccountants in business (sometimes known as managementaccountants or finance professionals). They create, enable,preserve, and report sustainable value for their employingorganizations in a rapidly changing economic and competitiveenvironment.

Worldwide, more than one million professional accountantswork to support organizations in commerce, industry, financialservices, the public sector, education, and the not-for-profit sectorin making them more successful and sustainable. They are avery diverse constituency, and can be found working asemployees, consultants, and self-employed owner-managers oradvisers in commerce, industry, financial services, the publicsector, education, and the not-for-profit sector.

Within organizations, many professional accountants arebusiness leaders in a position of strategic or functionalleadership, or are otherwise well placed to partner withcolleagues in other disciplines to create long-term sustainablevalue for their organizations. Business leaders typicallyperform in director and management roles, while strategicbusiness partners support and participate in decision makingand direction at various levels of the organization.

Professional accountant roles

They have been broadly categorized as creators,enablers, preservers, and reporters of sustainable value fortheir organizations in two key dimensions:

A Performance Dimension

As creators of value in organizations, by (a) takingleadership roles in governance, strategy, and performancemanagement, and (b) overseeing the allocation of resources toensure long-term sustainable value creation. Examples of jobroles within which value creation is a key activity include chiefexecutive officer (CEO), chief financial officer (CFO)/financialdirector (FD), treasurer, or other executive director role.

As enablers of value in organizations, by influencing andsupporting those who make decisions, and challengingassumptions and conventional thinking. Examples of job roleswithin which enabling value creation by others is a key activity

include business unit controller; business, financial, orperformance analyst; management accountant; and costaccountant. In other words, these are professionalaccountants who will typically assist and guide managerialand operational decision making and implementation of strategyas business partners.

A Conformance Dimension

As preservers of value in organizations, by identifying,prioritizing, managing, and controlling strategic and operationalopportunities and risks. Examples of job roles primarilydedicated to the preservation of value include director ofgovernance or operations, risk, and business assurancemanager, financial risk manager, compliance manager, andinternal auditor.

As reporters of value in organizations, by (a) measuringperformance, capturing financial transactions and non-financial measures of performance, and (b) preparing high-quality business and financial reporting to stakeholders,including investors, customers, employees, regulators, andsuppliers. Examples of job roles within which reporting onvalue is a key activity include group controller, head ofreporting, investor relations manager, and financial ormanagement accountant.

Balancing Conformance and PerformanceResponsibilities

Conformance responsibilities include providingassurances to senior management and boards as to whether:

Strategic, operational, and financial risks are effectivelyidentified, prioritized, managed and controlled, mitigated, andreported

The organization is working effectively and efficientlyin achieving its strategic and operational goals and objectives

The systems generating financial and non-financialinformation are working within prescribed standards ofaccuracy and reliability, and such information reflects the truesustainable performance of the organization

Management’s fiduciary responsibilities, such as externalfinancial reporting, fraud risk management, and adherence togovernance codes are being carried out

Performance responsibilities focus on strategy, valuecreation, and sustainable resource utilization, and include:

Helping organizations make sustainable strategicdecisions, implementing appropriate strategies, and evaluatingtheir ongoing relevance and success


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Understanding the organization’s appetite for risk and itskey drivers of sustainable performance

Identifying critical points at which the organization needsto make decisions, and supporting these with relevant insightand analysis

Allocating resources efficiently and effectively to achievestrategic goals and objectives

Drivers of Sustainable OrganizationsClarifying and promoting the roles, activities, and

professional skills of professional accountants in businessneeds to be done (a) within the wider context of understandingthe attributes of high-performing sustainable organizations,and (b) with an appreciation of the emerging trends anddevelopments in the business environment.

The eight drivers of sustainable organizations providethe framework for understanding how the global accountancyprofession needs to support the development of professionalaccountants in business so that they can help organizationsachieve sustainable value creation.

The drivers are:

Customer and Stakeholder Focus

Effective Leadership and Strategy

Integrated Governance, Risk and Control

Innovation and Adaptability

Financial Management

People and Talent Management

Strategy Execution

Effective and Transparent Communication.

These drivers represent what organizations need to doto achieve and sustain high performance and success. Theyare core elements of every organization striving to be trulysustainable over the long term. The drivers were defined inlight of an analysis of three megatrends: globalization,complexity, and technology.

The multiple face of a professional accountants inbusiness are the 4Vs-

Value Creators,Value Enablers,Value Preserversand ValueReporters.

A competency framework has been structured using theeight drivers of sustainable organizations, andthe CAprofessional accountant in business is shown as multifacetedlike a diamond.

(Full consultation paper-37 pages can be downloaded from -ifac.org—

http://www.ifac.org/Guidance/EXD-Outstanding.php

KARNATAKA STATECHARTERED ACCOUNTANTS ASSOCIATION

V I S I O N

KSCAA shall be the trusted and value based knowledge organisation providing leadership and timely influence tosupport the functional breadth and technical depth of every member of CA profession;

KSCAA shall be the nucleus of activity, amity and unity among members aimed at enhancing the CA profession’ssocial relevance, attractiveness and pre-eminence;

KSCAA shall in the public interest, be a proactive catalyst, offering a reliable and respected source of publicstatement and comments to induce effective laws and good governance;

KSCAA shall be the source of empowerment for leadership and excellence; disseminating knowledge to members,public and students; building a framework for new opportunities and partnerships that enhance life in the communityand beyond; encouraging highest ethical standards and professional integrity, in realization of India global leadershipvision.

M I S S I O N

The KSCAA serves the interests of the members of CA profession by providing new generation skills, amity, unity,networking and leadership to strengthen the professional capabilities, integrity, objectivity, social relevance, standardsand pre-eminence of India’s Chartered Accountants nationally and internationally through; becoming gateway ofknowledge for Chartered Accountants, students and public; helping members add value to their customers/employersby enhancing their professional excellence and services; offering a reliable and respected source of public policyadvice and comments to bring about more effective laws and policies and transparent administration and governance.

MOTTO: KNOWLEDGE IS STRENGTH

Author can be reached one-mail: [email protected]


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Adv

t.

Category : Central Excise QUERY No. 29

If the value of clearances from the factory exceedsRs.1.50 crores, then the unit has to start paying CentralExcise Duty. If the value of clearances in the previousyear is less than Rs.4.00 crores then can the unit enjoythe threshold exemption the next year also and startpaying central excise duty only when the totalclearances exceed Rs.1.50 crores? Can this be donefor any number of years as long as the total value ofclearances does not exceed Rs.4.00 crores per annum?I request you to please explain the correct position asregards to the threshold limit.

VIEWS OFCA. K.S. RAVISHANKAR &CA. N. ANAND

The Query relates to entitlement toexemption from payment of duty on the

TERMS AND CONDITIONS FOR ASKING QUESTIONS:1. The Queriests should furnish their complete address, contact

numbers and e-mail ID. The queries may also be sent bypost to the KSCAA. The Queriest should necessarily be amember of KSCAA and should specify his/her KSCAAMembership number.

2. The Queries stated should be complete, self contained,concise and unambiguous. It should relate only to thequestion of law and interpretation, procedures andpractices.

3. If specifically requested, the Identity of the Queriest shallnot be disclosed and shall be kept completely confidential.

4. Hypothetical questions shall not be considered.5. KSCAA does not guarantee that all the Queries shall be

answered. The KSCAA reserves its right to declinepublishing the answers to any of the Queries withoutassigning any reason or justification.

[email protected] and [email protected](please send the questions to both the mail IDs)

We call upon all the Members to send their Queries to the following e-mail ids:

6. As only two questions on each topic/segment/subject areintended for publishing, the KSCAA do not undertake topublish the same within any specific predetermined time.Answers/Replies shall not be sent to the Queriest.

7. The KSCAA shall make the entire attempt to publish thesame at the earliest possible time. The KSCAA does notaccept any responsibility for the opinions, views andstatements etc., published therein. The opinions, views,statements etc., are those of the contributors and do notnecessarily reflect the views of the Association.

8. The KSCAA also intends to publish an annual compilationof all the queries and answers.

9. The KSCAA reserves its rights to bring in any new term orcondition or to modify the existing terms or conditionwithout any prior notice or intimation.

CA. Allama Prabhu, President

SAMVARDHANA ©*hÍ*¾*vð*- enriching your understanding

basis of value of clearance under notification no.8/03-CE dated1.3.03 by a manufacturer (SSI exemption). Under the abovenotification, if the aggregate value of clearances of “allexcisable goods” for home consumption by a manufacturerfrom one or more factories or from a factory by one or moremanufacturers does not exceed Rs.400 lakhs in the precedingfinancial year, then for the current financial year themanufacturer of ‘specified goods’ is entitled to exemptionfrom payment of duty for value of clearances upto Rs.150lakhs. Once the value of clearances of ‘specified goods’crosses Rs.150 lakhs, then the manufacturer is required topay central excise duty at the applicable tariff rate. The aboveexemption can be claimed by an eligible manufacturer anynumber of years as long as he is entitled to the same i.e. theaggregate value of clearance of all excisable goods in thepreceding financial year does not exceed Rs.400 lakhs to bereckoned as per the notification.

Mindroot Business SolutionsExpertise in IT, ITES & Non-IT Recruitments

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Contact: +91-80-42123414 / 15; www.mindroot.in , [email protected]


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SAMVARDHANA - enriching your understanding

©*hÍ*¾*vð*

Category : FEMA QUERY No. 30

A NRI who is the president of a Charitable Trusthas given interest free loan to the Trust. Is this allowed?If not, what has to be done now? Kindly explain?

VIEWS OFCA. S. PARTHASARATHY

1. This query is examined with respectto the provisions of the Foreign ExchangeManagement Act, 1999, (FEMA) alone.

2. It is presumed that:

• The Charitable Trust is a body incorporated in India,and hence a person resident in India.

• It is in order to appoint a person resident outside India,as the President of the Trust (especially under ForeignContribution Regulation Act, 1976)

• NRI is resident outside India, as per the provisions ofFEMA.

• The Trust Deed provides for such a borrowing.

3. Relevant provisions of FEMA

Section 2 (e) : “capital account transaction” means atransaction which alters the assets or liabilities includingcontingent liabilities, outside India of persons residentin India or assets or liabilities in India of personsresident outside India and includes transactions referredto in sub section (3) of section 6.

Section 6 (3) (d): any borrowing or lending in foreignexchange in whatever form or by whatever namecalled.

Section 6 (3) (e): any borrowing or lending in rupeesin whatever form or by whatever name called betweena person resident in India and a person resident outsideIndia.

Considering the foregoing provisions of FEMA, thetransaction in question is a capital account transactionunder FEMA and is regulated by:

a. In case the borrowing is in rupees – by the ForeignExchange Management (Borrowing and Lending inRupees) Regulations, 2000.

b. In case the borrowing is in foreign exchange – by the

Foreign Exchange Management (Borrowing andLending in Foreign Exchange) Regulations, 2000.

4. Scenario a. – Borrowing in Rupees

Regulation 4 of Foreign Exchange Management(Borrowing and Lending in Rupees) Regulations, 2000,which deals with borrowing in rupees by personsother than companies in India permits such aborrowing provided that it is :

• From a non resident Indian; or

• a person of Indian origin resident outside India; and

• on a non-repatriation basis

subject to the following conditions:

(i). The amount of loan is received by way of inwardremittance from outside India or out of Non- residentExternal (NRE)/ Non-resident Ordinary(NRO)/Foreign Currency Non–resident (FCNR)/Non-residentNon-repatriable (NRNR)/ Non-resident Special(NRSR) account of the President maintained with anauthorised dealer or an authorised bank in India;

(ii). the period of loan does not exceed 3 years;

(iii). Where the loan is made out of funds held in NRSRaccount of the President, payment of interest andrepayment of loan shall be made by credit to thataccount; and in other cases, payment of interest andrepayment of loan shall be made by credit to thePresident’s NRO or NRSR account as desired by thePresident; and

(iv). the amount borrowed shall not be allowed to berepatriated outside India.

5. Scenario b. – Borrowing in foreign exchange

In terms of Regulation 6 (5) of Foreign ExchangeManagement (Borrowing and Lending in ForeignExchange) Regulations, 2000, approval of the ReserveBank of India would be required, as it falls outside thescope of Schedule I, II or III of the said Regulation.

However, if the Trust is engaged in micro-financeactivities, it may borrow in foreign exchange, undersuch terms and conditions as the RBI may specifyfrom time to time.

Adv

t.

Corporate Consultants (Comprehensive Solution on Corporate Law)Expertise in MCA E-Filing, Scanning, Uploading, Incorporations, Digital Signatures

(Both for Income Tax and MCA)Address: #2, 2nd Floor, 1st Stage, 5th Phase, Opp to Varior Bakery, Rajajinagar, West of Chord Road, Bangalore-44.

Contact: Prasanna S Rao, Mob: 9886994309, E-Mail:[email protected]


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OPTION CONTRACTS - CAPITAL MARKET

CA. S. Krishnaswamy. FCA

Option Terminology

Index options: These options have the index as theunderlying. Some options are European while others areAmerican. Like index futures contracts, index optionscontracts are also cash settled.

Stock Options: Stock options are options on individual stocks.Options currently trade on over 500 stocks in the UnitedStates. A Contract gives the holder the right to buy or sellshares at the specified price.

Buyer of an option: The buyer of an option is the one whoby paying the option premium buys the right but not theobligation to exercise his option on the seller/ writer.

Writer of an option: The writer of a call / put option is theone who receives the option premium and is thereby obligedto sell / buy the asset if the buyer exercises on him.

There are two basic types of options, call options and putoptions.

Call option: A call option gives the holder the right but notthe obligation to buy an asset by a certain date for a certainprice.

Put option: A put option gives the holder the right but not theobligation to sell an asset by a certain date for a certain price.

Option price/ premium: Option price is the price whichthe option buyer pays to the option seller. It is also referred toas the option premium.

Expiration date: The price specified in the options contractis known as the expiration date, the exercise date, the strikesate or the maturity.

Strike price: The price specified in the options contract isknown as the strike price or the exercise price.

American options: American options are options that canbe exercised at any time upto the expiration date. Mostexchange- traded options are American.

OptionsThe capital market continues to develop new products tomeet investors’ needs. Regulators ensure that these new

products land on a level playing field with timely disseminationof information and price transparency. Always the investorshould be aware of the risks that the products bring in

In recent times the Indian capital market, in line withglobal market developments, has introduced trading inderivative products by expanding the definition of Security.One important derivative is “Options Contracts”. The‘futuresand options’ segment of the market accounts for 50% of thedaily turnover of over 1 lakh crores. Hence its importance.While it offers immense possibilities to seek returns it hasalso a downside. One can with some knowledge play themarket – tolerable risk taking. Derivative contracts haveseveral variants one of the most common of such variants is‘Options’ Options are of two types.

Business growth of options market (turnover Rs.Crore)

Month Index options Stock options

June 07 92503 21928

June 08 308709 24130

What is an option contract?

Options Contract is a type of Derivatives Contract whichgives the buyer /holder of the contract the right (but not theobligation) to buy / sell the underlying asset at a predeterminedprice within or at end of a specified period. The buyer / holderof the option purchase the right from the seller /writer for aconsideration which is called the premium. The seller/ writerof an option is obligated to settle the option as per the termsof the contract when the buyer/ holder exercises his right.The underlying asset could include securities, an index ofprices of securities etc.

Under Securities Contracts (Regulations) Act, 1956options on securities has been defined “option in securities”meaning a contract for the purchase or sale of a right to buyor sell, or a right to buy and sell, securities in future, andincludes a teji, a mandi, a teji mandi, a galli, a put, a call or aput and call in securities.

The ICAI Guidance Note on Accounting for Equity Indexand Equity Stock Futures and Options describes options asunder: “An Option is a type of derivative instrument wherebya person gets the right to buy or sell at an agreed amount anunderlying asset on or before the specified future date. He isnot under any obligation to do so.


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European options: European options are options that can beexercised only on the expiration date itself. European optionsare easier to analyze than American options, and propertiesof an American option are frequently deduced from those ofits European counterpart.

In- the- money option: An in- the- money (ITM) option isan option that would lead to a positive cash flow to the holderif it were exercised immediately. A call option on the index issaid to be in- the –money when the current index stands at alevel higher than the strike price (i.e. spot price > strike price).If the index is much higher than the strike price, the call issaid to be deep ITM. In the case of a put, the put is ITM ifthe index is below the strike price.

At- the- money option: An at- the- money (ATM) option isan option is an option that would lead to zero cash flow if itwere exercised immediately. An option on the index is at –the- money when the current index equals the strike price(i.e. spot price > strike price).

Out- of – the money Option: An out-of –the- money (OTM)option is an option that would lead to a negative cash flow ifit were exercised immediately. A call option on the index isout- of – money when the current index stands at a levelwhich is less than the strike price (i.e. spot price < strikeprice). If the index is much lower than the strike price, thecall is said to be deep OTM. In the case of a put, the put isOTM if the index is above the strike price.

Intrinsic value of an option: The option premium can bebroken down into two components – intrinsic value and timevalue. The intrinsic value of a call is the amount the option isITM, if it is ITM. If the call is OTM, its intrinsic value iszero.

Time value of an option: The time value of an option is thedifference between its premium and its intrinsic value. Bothcalls and puts have time value. An option that is OTM or ATMhas only time value. Usually, the maximum time value existswhen the option is ATM. The longer the time to expiration,the greater is an option’s time value, all else equal. Atexpiration, an option should have no time value.

Table 5.5: Option prices: some illustrative values

Option strike price

1400 1450 1500 1550 1600

Call

1month 117 79 48 27 13

3month 154 119 90 67 48

Puts

1month 8 19 38 66 102

3month 25 39 59 84 114

Assumptions: Nifty spot is 1500, Nifty volatility is 25%annualized, interest rate is 10%, Nifty dividend yield is 1.5 %.

The risk of an option buyer is limited to the premium hepays. The profit can be limitless. Whereas the seller of anoption is in an opposite position – the risk is unlimited.

Table 5.8 gives the contract specifications for stockoptions.

Table 5.8 contract specification : Stock options

Underlying Individual securities available

For trading in cash market

Exchange o trading National Stock Exchange of India

Security descriptor NOPTSTK

Style of option American

Strike Price interval As specified by the exchange

Contract size As specified by the exchange(minimum value of Rs.2 Lakh)

Price steps Re.0.05

Price bands Not applicable

Trading cycle The options contracts will have amaximum of three month tradingcycle the near month (one), the nextmonth (two) and the far month(three). New contract will beintroduced on the next trading dayfollowing the expiry of near monthcontract.

Expiry day The last Thursday of the expirymonth or the previous trading day ifthe last Thursday is a trading holiday.

Settlement basis T+1 Basis

Daily settlement Closing price of underlying on theday of exercise.

Final settlement Price Closing price of underlying on thelast trading day of the optionscontract.

Settlement day Last trading day.

Conclusion

“Safety, liquidity, and transparency should carry far moreweight than the possibility of high yields or excess returns.Simplicity should be valued over complexity. “Plain vanilla”investments and approaches will generally prove better betsthan those that are too difficult to execute or explain in morethan one sentence. Understand an investment instrumentbefore you invest”.



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INDIRECT TAXES UPDATE – AUGUST 2010By CA V. Raghuraman, B.Com, FCA, ACS, LLB, Grad.CWA, Advocate

CA C.R. Raghavendra, B.Com, FCA, LLB, Advocate

FOR THE MONTH OF AUG 2010:A. CUSTOMS:Notification:Amendment to Courier Imports and Exports (Clearance)Regulations, 1998:Under Courier Import and Export (Clearance) Regulations1988 following amendments are made:1. Earlier only authorized courier was allowed to clear

the import or export of goods through courier. Withthis amendment, even an agent of authorized courierwho has passed CHA examination conducted underregulation 8 or regulation 19 of the Customs HouseAgents Licensing Regulations, 2004.

2. Further, in case of goods imported through courierhaving value more than Rupees one lakh the entry shallbe made in the form prescribed in the Bill of Entry(Forms) Regulations, 1976.

3. Earlier authorised courier has to show evidence ofprocession of assets worth value not less than 5 Lakhsto obtain the authorized courier licensing. Such assetvalue limit has been increased from 5 lakhs to 25 Lakhs.

4. The Applicant for clearance of goods shall executebond of security of Rs. 10 Lakhs in case of airportsof major international airports of Mumbai, Delhi,Calcutta and Chennai and Five lakh rupees in case ofother airports and Land Customs Stations.[Source: Notification No. 75 / 2010 – Customs (N.T.)dated 12.08.2010]

B. CENTRAL EXCISE:Circular:a) Administrative Control over Export Oriented

Units by the Central Excise formations:It has been decided by the Board vide letter dated18.05.2010 in the meeting held on 16.4.10 that thejurisdiction over the EOU/EHTP/STP even in the portcities should be with the Central Excise formations inview of effective implementation of Automation ofCentral Excise and Service Tax (ACES). This willfacilitate uniform and better administration/control ofsuch EOUs, and, also facilitate the shift to GSTregime in future. It has been decided that the shift inthe process of administration, including handing overof all the records etc. of EOUs from Customsformations to the respective Central Excise formationscan be effected latest by 31st July 2010.[Source: Circular No. 923/13/2010-CX dated19.05.2010]

b) Valuation of Goods cleared in DTA by EOU’sWith regard to the valuation of goods cleared from anEOU for sale in DTA, when actual sale transactiondoes not take place at the time of clearance but on

a subsequent date through depot or throughconsignment agents, CBEC has earlier issued CircularNo 268/85-CX.8 dated 29. 09.1994, clarifying thatvaluation of goods in such situations will have to bedone in accordance with the Rule 8 of the CustomsValuation Rule (Determination of Price of ImportedGoods), 1988 as it existed then.In view of the position prevailing under CustomsValuation (Determination of Value of Imported Goods)Rules, 2007, as well as various Tribunal decisions onthe subject, it is clarified that the earlier Board CircularNo 268/85- CX.8 dated 29.09.1994 on the subject iswithdrawn. The field formations may follow theprovisions of Customs Valuation (Determination ofValue of Imported Goods) Rules, 2007 in suchsituations.[Source: Circular No. 933 /23 /2010-CX dated16.8.2010]

C. SERVICE TAX:Circulara) Service tax on commission received by Primary

Dealers dealing in Government Securities:CBEC clarified that underwriting commission orunderwriting fees received by primary dealers dealingwith Government securities does not come under thepurview of Service tax.It is clarified that Government securities are sovereignsecurities having zero default risk. Reserve Bank ofIndia only manages the issue and also auction ofGovernment Securities on behalf of the Governmentof India. In effect, Primary Dealers registered withthe RBI (as opposed to registration with the SecuritiesExchange Board of India) deal in GovernmentSecurities, issued by the RBI on behalf of theGovernment of India, as a part of the centralGovernment’s market borrowing program. The generalpractice is that the RBI invites bids from the PrimaryDealers, who in their bids indicate the amount to beunderwritten and the underwriting fee expected bythem. RBI examines these bids and decides theamount to be underwritten and underwriting fee to bepaid to a Primary Dealer. Underwriting Fee is alsoknown as Underwriting Commission in commonparlance. Thus the conclusion drawn is thatgovernment securities are not securities of a bodycorporate.[Source: circular No. 126/2010 dated 10.08.2010]

b) Service tax on commercial training and coaching –clarification as to whether ‘donation’ is ‘consideration’:On the question whether donation received could betermed as consideration towards services provided, the


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Board has clarified that the important point here isregarding the presence or absence of a link between‘consideration’ and taxable service. It is clarified thatit is a settled legal position that unless the link or nexusbetween the amount and the taxable activity can beestablished, the amount cannot be subjected to servicetax. If Donation or grant-in-aid is not specifically meantfor a person receiving such training or to the specificactivity, but is in general meant for the charitable causechampioned by the registered Foundation, there will beno service tax. Further in case between the providerof donation/grant and the trainee, as there is norelationship other than universal humanitarian interest,service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.[Source: circular No. 127/2010 dated 16.08.2010]

c) Clarification regarding service tax on on-goingworks contracts entered into prior to 01.06.2007under Works contract Services:Based on the decision of the High Court of AndhraPradesh in the matter of M/s. Nagarjuna ConstructionCompany Limited vs. Government of India (2010TIOL 403 HC AP ST) in connection with workscontract services following clarifications were issuedby the Board:Clarification:While prior to the said date services like Construction;Erection, commissioning or installation; Repairservices were classifiable under respective taxableservices even if they were in the nature of workscontract, whether the classification of these activitieswould undergo a change?As regards the classification, it is clarified that w.e.f01.06.2007 when the new service ‘Works Contract’service was made effective, classification of aforesaidservices would undergo a change in case of long termcontracts even though part of the service wasclassified under the respective taxable service prior to01.06.2007. This is because ‘works contract’describes the nature of the activity more specificallyand, therefore, as per the provisions of section 65Aof the Finance Act, 1994,Whether in such cases of continuing contracts, theWorks Contract (Composition Scheme for payment ofService Tax) Rules, 2007 under Notification No. 32/2007-ST dated 22/05/2007 would be applicable?Regarding applicability of composition scheme, it isclarified that the material fact would be whether sucha contract satisfies rule 3 (3) of the Works Contract(Composition Scheme for payment of Service Tax)Rules, 2007. This provision casts an obligation forexercising an option to choose the scheme prior topayment of service tax in respect of a particular workscontract. Once such an option is made, it is applicablefor the entire contract and cannot be altered.Therefore, in case a contract where the provision ofservice commenced prior to 01.06.2007 and any

payment of service tax was made under the respectivetaxable service before 01.06.2007, the said conditionunder rule 3(3) was not satisfied and thus no portionof that contract would be eligible for compositionscheme. On the other hand, even if the provisionof service commenced before 01.06.2007 but nopayment of service tax was made till the taxpayeropted for the composition scheme after its cominginto effect from 01.06.2007, such contracts would beeligible for opting of the composition scheme[Source: circular No. 128/2010 dated 24.08.2010]Draft Point of Taxation (for Services Provided orReceived in India) RulesGovernment of India has proposed to issue Point ofTaxation (for Services Provided or Received in India)Rules, 2010. The draft point of taxation Rules arepublished in the website: www.cbec.gov.in for thepurpose of comments from public.As clarified by the Government, the intention behindissue of these rules is to introduce clarity and certaintyin the matter of levy and collection of Service Taxparticularly in situations of change of rate of servicetax or imposition of service tax on new services.Further, it is clarified that there is lack of clarify onthe issue of date of applicability on new services andthe change in the rate of tax and also on the frontsof levy of tax on continuous supply of services.Although some of the issues are clarified throughcirculars, a need has been felt to put the regulatoryframe work on a transparent, clear and durable basisand hence these rules are framed.

CASE LAWS:Customs and Central Excise:1. M/s Madras Cements Ltd Vs CCE, Chennai, 2010-

TIOL-59-SC-CXWith regard to Modvat credit on on inputs viz.,explosives, lubricating oils etc., the issue is squarelycovered by the decision of this Court in the case ofVikram Cement Vs. CCE (2006-TIOL-04-SC-CX-LB)and therefore, the appeals, where credit on inputs isconcerned, are allowed.Regarding eligibility of CENVAT credit on capitalgoods used in mines the Apex Court held that, if themines are captive mines so that they constitute oneintegrated unit together with the concerned cementfactory, CENVAT credit on capital goods will beavailable to the assessee. If the mines are not captivemines but they supply to various other cementcompanies of different assessees, and it is found thatthe said goods were being used in the lime stone minesoutside the factory of the assessee, CENVAT crediton capital goods used in such mines will not beavailable to the concerned assessee under theappropriate CENVAT Credit Rules.In order to get a clear finding on the issue, all thematters are remanded to the respective originalauthorities for decision only on the above issue.


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2. CCE, Chennai Vs Tarpaulin International 2010-TIOL-58-SC-CXIn connection with the issue whether process ofconverting ‘Tarpaulin Fabrics’ into ‘Tarpaulin made-ups’ would amount to manufacture or not, the ApexCourt observed that the original material used i.e., thetarpaulin, is still called tarpaulin made-ups even afterundergoing the said process. Hence, it cannot be saidthat the process is a manufacturing process.Therefore, there can be no levy of Central Excise dutyon the tarpaulin made-ups. The process of stitchingand fixing eyelets would not amount to manufacturingprocess, since tarpaulin after stitching and eyeletingcontinues to be only cotton fabrics. The purpose offixing eyelets is not to change the fabrics. Therefore,even if there is value addition the same is only to aminimum extent. To attract duty there should be amanufacture to result in different goods and the goodssought to be subject to duty should be known in themarket as such.

3. National Leather Cloth Manufacturing Co.Ltd. v.Union Of India 2010 (256) E.L.T. 321 (S.C.)Issue: Matter regarding inclusion of cost ofSecondary/additional packing, in the valuation offabrics.Facts: Bundles of fabrics are packed in polythenebags for sale at factory gate and such bundles arefurther bundled in hessian cloth, for upcountrycustomers, to protect from damage duringtransportation. Department took a stance that hessiancloth packing is standard packing for fabric for salein wholesale market, hence cost thereof includible inthe value for determination of duty.Decision: Relying on the decision of the SupremeCourt in the case of Bombay Tyre International Ltd.[1983 (14) E.L.T. 1896 (S.C.)] the Apex Court heldthat only polythene bags are required for ordinarypacking to give delivery at factory gate and furtherpacking is not in course of normal delivery tocustomers. Therefore value of such additional packingis not required to make product marketable as theadditional packing in nature of secondary packingdone for convenience of upcountry customers whichis not includible in the valuation.

4. CCE, Bangalore Vs M/s ETA Technology Pvt Ltd,2010-TIOL-569-HC-KAR-CX.Regarding the issue whether reversal of Cenvat creditrelating to exempted goods would suffice therequirement of Rule 6 of Cenvat Credit Rules, 2002or the manufacturer has to pay 8% of the value ofexempted goods, the High Court observed that onceCredit is reversed, it is deemed that Credit is not takenand hence there is no requirement for payment of 8%of the value of exempted goods.High Court further observed that, another reason theappeal filed by Revenue is liable to be dismissed is that,

the amendment vide Finance Act, 2010 allows theassessee to reverse the credit with interest.

5. CCE v. Gujarat Ambuja Cement Ltd. 2010 (256)E.L.T. 356 (H.P.)Regarding the eligibility to avail credit on Componentsof Diesel Generating Power Plant (DGPP) installed ina factory, the High Court held that duty paid on DGPPinstalled in a factory is eligible for Modvat credit evenwhen DGPP’s are exempted from payment of duty.DGPP is capital goods and if duty is paid on thecomponents used in its manufacture which in turn isused in manufacture of dutiable goods, Modvat creditfor such duty cannot be denied.

6. Grasim Industries Ltd. v. Union of India 2010(256) E.L.T. 553 (Del.)Regarding claim of rebate on duty paid on both Inputsand final products, simultaneous, the High Court heldthat rebate on both inputs and final products cannotbe allowed simultaneously. Relying on the decision ofthe Bombay High Court in Indorama Textiles case[2006] (200) E.L.T.3 (Bom.) the High Court observedthat word “or” appearing in Rule 18 of Central ExciseRules, 2002 should not to be read as “and”. Intentionof legislature is not to grant rebate of duty paid onexported goods as well as inputs simultaneously.

7. M/s Maruti Suzuki India Ltd Vs CCE, Delhi, 2010-TIOL-1127-CESTAT-DEL-LB:In connection with the issue whether pre-deliveryinspection charges and after-sale-service chargescollected by dealers from buyers of the car are to beincluded in the assessable value, the Larger Bench ofthe Tribunal held that these charges are includable asmanufacturing of a product and the marketabilitythereof are inbuilt elements of the scheme of assessablevalue under Section 4.The Larger Bench further observed that the expression‘transaction value’ is the guiding principle in theprocess of ascertaining the assessable value of aproduct. The sale price, being paid or payable as thesole consideration, forms the base for the transactionvalue. Depending upon the fact situation relating to allthe factors mentioned in said section 4 of the CentralExcise Act, including the agreement and thearrangement arrived at between the manufacturer andthe dealer or the agent in respect of sale of the productto the buyers, and the terms and the conditionsthereof, the transaction value arrived at would lead tothe quantification of the assessable value of theproduct, which in turn will determine the duty liabilityof the manufacturer. In the scheme of the said Act,therefore, the concept of transaction value relates tothe manufacturing cost inclusive of any other amountreceived or receivable directly or indirectly to makethe product marketable. The manufacturing of aproduct and the marketability thereof are inbuiltelements of the scheme of assessable value underSection 4 of the said Act.


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Note: If this be the case, what happens to service taxliability on after sales services undertaken? It israther incongruous that a tax on manufacture can beextended to such an extent as to include realizationon service elements.

Service tax1. M/s Spandrel Vs CCE, Hyderabad, 2010-TIOL-

1113-CESTAT-BANGFacts: Issue involved in the above appeal is whetheractivities like execution of false ceiling, flooring,modular systems, painting, carpeting, electricalconnections, wall paneling, interior furnishing,partitioning of offices and supply & fixing of variousfurniture would be covered under the heading ‘InteriorDecorators Services’ or under ‘Commercial orIndustrial Construction service’.Decision: It was observed by the Tribunal that nofinding is being recorded by lower authority thatassessees were engaged in advise, consultancy andtechnical assistance or planning work and designingof interiors etc. therefore the activities undertaken byassessee are not covered under the heading ‘interiordecorators services’. These services were broughtinto definition of Commercial or IndustrialConstruction service w.e.f. 16.06.2005. The Tribunalfurther observed that once a new entry is introducedwith effect from a specific date without disturbingalready existing entries, the new entry cannot beregarded as covered by the existing/previous entry.

2. CST, Bangalore Vs M/s Toyoda Iron Works CoLtd., 2010-TIOL-584-HC-KAR-STRegarding liability to pay service tax on servicesreceived from abroad, the High Court observed thatConsulting Engineer Service provided by ForeignService provider is not taxable prior to 18.4.2006. Inview of the admitted facts that the respondent hereinis a foreign company who is a service provider andonly from the 18.4.2006 the aforesaid amendmentswere undertaken to make the service receiver liableto pay the service tax.

3. M/s Cochin International Airport Ltd Vs CST,Cochin, 2010-TIOL-1043-CESTAT-BANGIn connection with taxability of royalty charges forspace, advertising, garbage disposal, income fromentry charges, collected by the Cochin InternationalAirport, the tribunal held that these charges are notliable to service tax and observed as below on eachof the charges:Royalty Charges from Air India for groundhandling: Air India has been given exclusive contractto perform ground handling services includingpassengers handling, ramp handling and cargo flighthandling including loading of cargo etc. Air India haspaid service tax- royalty charges collected byappellants from M/s Air India can be construed as anamount for lease or rental charges for functioning inthe appellant’s area.

Licence fee charged by the appellant on advertising,cargo agency, car parking, space, shops, restaurant/snack bar, telephone operator, vending machines, cateringservices facilitation counter cannot be considered as thecharges which have been collected by the appellant fromother service providers for services rendered definitelywith the airport services. The entire tenor of theagreements entered by the appellant with the other partiesclearly speak of letting out/leasing out the space in theCochin International Air Port for a specified term,renewable or being leased out to any other bidder.Therefore these cannot be taxed under airport servicesGarbage disposal: The said garbage disposal iscollection of garbage like waste material, discardeditems scrap from the Air Port premises. Though thereis no agreement provided for this, the explanationgiven by the appellant in the grounds of appeal indicatethat these are nothing but sale of garbage from theAir Port premises. Even this activity would not beliable to service tax.Income from entry ticket charges and incomefrom issue of commercial passes; Tthese chargesare charged by the appellant for restricting the entryto public in to the Air Port. The said income is notin respect of any services rendered by the appellantas an Air Port Authority. This amount collected andshown as income could not be construed as servicesrendered and liable to service tax.

4. M/s Hindustan Coca Cola Beverages Pvt Ltd VsCCE, Hyderabad 2010-TIOL-1029-CESTAT-BANGRegarding eligibility of Cenvat credit on certain inputservices, the tribunal observed that service tax paidon vehicles maintenance, transportation, installationand maintenance of coolers, marketing and publicityservices etc are available as CENVAT Credit. However,Services availed with regard to ‘shifting of householdof employees’ is not an input service, and thereforecredit is not available.

5. CCE, Rajkot v. Shelpan Exports 2010 (19) S.T.R.337 (Tri.-Ahmd.)Facts: The respondent is engaged in export of variousgoods on commission basis which falls under theheading business auxiliary services. The respondentsstated that the services rendered were exports andhence they were not liable to pay service tax. However,they have received the commission in Indian currencyand hence the department contended that they hadfailed to meet the requirements of the Export ofServices Rules, 2005.Decision: The Tribunal observed that the impugnedorder noted the following aspects:

→ There were arrangements between the buyer andseller of goods to pay commission in Indian Rupeesdirectly to the respondent;

→ The amount received related to export of goods andreceipts were made in INR to make it commerciallyviable; Contd. on page 24


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LEVY OF SERVICE TAX – ISSUES

By CA Madhukar N Hiregange FCA., DISA., & CA Srikantha Rao T B.Com., ACA

In this article we shall look at some of the issues in service tax pertaining to levy of tax on services. The article aims atdiscussing issues across the most common categories of taxable services faced by the authors on the basis of theirexperience as well as issues in general.

Service Tax was introduced in the country only in thenineties as compared to some of the other laws which

have been in existence for more than 50 years now. Even thoughit has been more than 15 years since its introduction, the subjectas to levy of service tax has seen considerable litigation in thelast couple of years. This has been due to a combination offactors. While one significant reason has been the growth of theservice sector in the country and its contribution to the GDPwhich led to widening the tax base, the other has been the mannerin which the tax itself has been levied. One of the issues facingthe tax payers here has been the fact that the term “service”itself has not been defined though the legislature has made anattempt to define the term “taxable service” in order to spell outwhat is sought to be taxed. But the lack of a clear cut definitionof “service” has clearly led to differing perceptions as to whatexactly a “service” constitutes and what it excludes. This hasled to serious issues in taxation of services. We look at the variousissues.

It would be pertinent for us to note that service tax is atax on services and not on profession. This distinction isimportant as tax on profession is levied by the states whereastax on services is levied and collected by the CentralGovernment. This distinction as well as the constitutionalright of the Government to levy service tax has now beenaccepted after the levy of service tax had been challenged inquite a few cases before the Supreme Court only for theverdict to be against assesses. The notable verdict here isthat in All India Federation of Tax Practitioners Vs UOI (2007(07) STR 625 (SC)) where levy of service tax on charteredaccountants, cost accountant and architects’ services wasupheld. Service was distinguished from profession.

The Supreme Court here also proceeded to regardservice tax as a value added tax and to be levied on commercialactivities. Such tax was specifically clarified to be not on thebusiness but on the consumer. This view of the court wouldbe relevant for our discussion here and the recentdevelopments in service tax seem to indicate a dilution of thisview.What do we mean by “service”?

It is interesting to note that the term “service” has notbeen defined under service tax. Consequently where a termis not defined under a statute, one would have to look at themeaning that is generally associated with it. This can be seenby using the common parlance test as well as the meaninggiven by a Standard English Dictionary if one were to go bythe views of the Supreme Court. In Star Paper Mills Ltd VsCollector of Central Excise (1989 (43) ELT 178 (SC))dictionary meaning was held to be referable where words

and expressions had not been defined in statute. In AssociatedCement Companies Ltd Vs State of MP (2004 (168) ELT 151(SC)), popular or commercial meaning given by those dealingwith them was held to be referable. It is interesting to notethat the Supreme Court in All India Federation of TaxPractitioners case had divided services into two categoriesand these were property based and performance based. Buthaving said this, “service” itself had not been defined.

If we were to go through Random House Webster’sDictionary, the term “service” could have more than oneconnotation depending on the context in which it is used. Butgenerally, it would mean performance of any duties or workfor another. It can also be seen to mean employment in anyduties or work for a person, organisation, government etc. Ifone were to refer Black’s Law Dictionary, the term couldmean an act of doing something useful for a person or acompany for a fee. More specifically, it can be used to meanan intangible commodity in the form of human effort such aslabour, skill or advice. This meaning would have to be notedbecause if one is to collect service tax, then there has to be aservice in the first instance meaning an arrangement wherebyone performs duties or work for another.

We are inclined to follow this view as it would makelogical sense. Even if we were to look at the segregationmade by the Supreme Court in All India Federation of TaxPractitioners case between performance based and propertybased services, each one of the services whether it is propertybased in the nature of interior decorator or architect orconstruction services or performance based like touroperators, security agencies etc., involve performance ofcertain tasks or duties for another.

Having said this and considering the view that servicetax is not on the business but on the consumer and is a valueadded tax, a question now arises and that is whether one canlevy service tax in a scenario where there is no work or dutyperformed or in a scenario where the consumer uses theservices for his personal use i.e. other than for business orcommerce with a profit making motive. Logically speaking,service tax should not be levied where either no work or dutyfor another is involved or where the consumer happens to beusing the services for his personal use. But in recent years,this view seems to have been ignored by the law makers inan attempt to increase revenue through service tax collections.A classic example of this is the issue surrounding renting ofimmovable property.Whether allowing another to use facilities andinfrastructure in itself can be construed as a service?

The answer to this question would depend on whether


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or not one would regard allowing another to use a premise aswork done for the other. While one view could be to regardthe activity of allowing another to use one’s premises as aservice, the other view could be to distinguish this activityfrom the traditional meaning of the term. The former viewhas already been taken in the past by the Supreme Court inTamil Nadu Kalyana Mandapam Association Vs UOI (2006(03) STR 260 (SC)) although the decision was in context ofservice tax levy on mandap keepers. Here, even letting out ofpremises for official, social or business functions had beenheld to amount to service. It was immaterial whether or notthere were other associated services being provided. Howeverwhether this rationale can be extended to other services issomething to be seen as for instance the role of a mandapkeeper cannot be equated with that of a landlord letting outhis premises to a tenant though there can be certain otherservices being provided at times.

The latter view of not regarding mere letting out as aservice seems to have found favour with the High Courtswhere the view has been that renting in itself cannot be aservice. The Delhi High Court in Home Solution retail IndiaLtd Vs UOI (2009 (14) STR 433 (Del)) had held that rentingof immovable property in itself is not a taxable service. Thiswas on the grounds that the definition of taxable service underrenting of immovable property service talked about servicesin relation to renting being taxable rather than renting itself.This led to an amendment in the definition of taxable servicein Finance Act 2010 before which though, the departmentfiled an appeal before the Supreme Court. This matter wouldnow have to be decided by the Supreme Court.

Readers may note that finding a solution to this questionis not easy as the term “service” can have a very wideconnotation. Moreover, the Supreme Court in Tamil NaduKalyana Mandapam case already has taken a stance in thepast that levy of service tax on a particular kind of servicecould not be struck down on the ground that it did not confirmto a common understanding of word “service” so long as itdid not transgress any specific restriction contained in theConstitution. Whether this view would prevail consideringthe verdict in All India Federation of Tax Practitioners case issomething which would have to be seen.

We are inclined to take the view that an agreement forprovision of service between two or more contracting partieswould have to involve one party performing certain tasksand duties for or on behalf of the other, and involve a legalobligation for performing such tasks and duties. There shouldbe a right of enforcement of such obligation before a courtof law granted to a service recipient and unless this exists,service cannot be said to have been performed and servicetax cannot be levied. The service would involve the serviceprovider putting in effort or undertaking some exertion whetherphysical or mental which may be absent in case of renting orallowing another to use one’s infrastructure. This is somethingwhich requires judicial scrutiny. This leads us to the nextquestion and that is whether services provided to ultimateconsumers who receive such services for their personal useare to be taxed at all.

Whether service tax to be levied on non commercialactivities

The Supreme Court in All India Federation of TaxPractitioners case had held the view that service tax is a destinationbased consumption tax levied on value addition through provisionof services. The levy is to be on commercial activities. If thisview is to prevail, service tax should not be levied on servicesprovided without expectation as to commercial gains. This wouldthen lead us to the issue as to what is regarded as commercialand non commercial which would have to be determined on thebasis of facts of each case. In service tax we are presentlyseeing this issue when the question is of taxing coaching andtraining services provided by certain organisations which areregarded as not for profit organisations. An example could betraining imparted to the poor and needy to enable them to seekemployment where the service provider gets funding in the formof donations and grants. This issue now seems to have beentaken care of by Circular 127/9/2010 ST dated 16.08.2010 whichexempts such donations and grants given to the service providerin general from levy of service tax.

The service provider in order to avail the benefit ofexclusion might have to stress upon the nature of activityinvolved and the non commercial nature of the same to securethe benefit of exclusion. Here, a critical aspect could be thenon expectancy of any financial rewards or margins or profitsfrom rendering the concerned service/activity.Where the service is for use by government agencies orfor personal use of the consumer

At times one could face issues regarding levy of servicetax on services that are provided to either government agenciesfor providing infrastructure to the general public or to individualsfor their personal use. The view of the department and thelegislature regarding taxing of such services could be differentin each case. Generally, services in relation to works contractsin respect of roads, airports, railways, transport terminals,bridges, tunnels and dams are exempted from service tax levy.However there may some more projects which may not bespecifically covered by this list. In such a scenario, whetherservices in relation to such projects are to be taxed?

A classic example could be that of laying pipe lines forwater supply. While logically this should have been exemptedunder service tax, there is no specific mention about the samenot being liable. Consequently, one might have to see theintended end use of the same and whether or not the same canbe said to be for use in commerce or industry. This was whatthe Tribunal had held in Indian Hume Pipe Co. Ltd Vs CCETrichy (2008 (12) STR 363 (Tri-Chennai)) which was alsofollowed in Nagarjuna Construction Co. Ltd Vs CCE Hyderabad(2010 (19) STR 259 (Tri-Bang)) where the Tribunal held thatsupply of drinking water to local bodies at subsidised rateswould not amount to industry and consequently the service ofthe appellant to GWSSB was held not to be liable to servicetax. Readers may note that the ultimate decision as to taxabilityor non taxability would have to be taken depending on thefacts and circumstances of each case.

Another issue in service tax is where services are providedto ultimate consumers who receive it for their personal use.


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This has arisen as the service tax net has been widened over theyears to cover services provided to almost any person movingacross from the initial concept of client or customer. This hasled to a scenario where in certain sectors; the cost of service tothe ultimate consumer has gone up by 10-15%. A classic exampleof this is construction services in relation to residentialcomplexes. Despite there being a clarification on the concept ofpersonal use and services in relation to construction of residentialcomplex meant for personal use of the ultimate owner beingexempted from service tax levy, there is an issue regarding theapplicability of the concept of “personal use” to construction ofindividual units for individual buyers. This is because thedepartment seems to doubt the circular though extending thebenefit to the owner getting the entire complex constructed by abuilder for his own use including letting out the same on rentals.

In our view, the benefit of the view on “personal use”holding it as something which extends even to individualbuyers of residential apartments should be available as theintention of the legislature seems to be to tax construction ofresidential complexes in totality rather than individual unitsconstructed separately for each buyer/customer. If thisinterpretation were to prevail, construction of individual unitsfor individual buyers/owners would not suffer service tax.

One more aspect is that the cost of basic accommodationcould go up substantially for the ultimate owner if the exclusionbenefit were to be denied while working to the benefit of anowner who gets the entire complex constructed for himselfand lets it out on rentals. This may not be what the legislatureintended as it would also be against the principles of socialjustice going by Articles 38 and 39 in the Constitution ofIndia as per which State shall strive to avoid inequalities inincome. If inequality is to be avoided, the taxation policyshould complement such initiative.Concept of transfer of right to use

An issue in service tax which seems to be surfacing oflate is the taxation of transactions which involve transfer ofright to use goods. While there are provisions to allowdeduction for value of goods and materials sold duringprovision of service, from the gross amount charged for theservice, transfer of right to use goods poses a problem becauseof the complexities involved.

Readers may note that transfer of right to use goods istaxed by the state governments as a deemed sale relying uponthe contents of Article 366(29A) of the Constitution of India.The extent to which the states can tax depends on whetheror not a particular transaction involves “goods” and transferof right to use the same to the beneficiary without transferringfull rights and rewards associated with ownership of the saidgoods to him. There are certain sectors where elements of atransaction would border on the concept of “goods”.Examples could be that of a SIM card given to mobile phonesubscribers or even transfer of license to use software.

The taxability could be different in these two cases if thedecisions given by the courts are any indication. In case ofSIM cards, the Supreme Court in Bharat Sanchar Nigam LtdVs UOI (2006 (2) STR 161 (SC)) had held the issue of taxabilityto be decided on the basis of facts of the case and held the

same as not being assessable to sales tax if the card’s sale wasincidental to service being performed. This view was followedin Idea Mobile Communication Ltd Vs CCE Cochin (2010 (19)STR 18 (Ker)) where SIM card was held to be incidental to aservice as its purpose was to enable the identification of thecustomer to give him a mobile connection from the tower.

In our view, the issue has not been resolved finally as inthe latter case, the sales tax authorities had not pursued thematter as to taxing of SIM cards which was also one of thecontributing factors for the resulting decision. In our view,SIM card could be construed as goods as disputing the factthat the same does not constitute tangible material could bedifficult and the view that the same has no value where itsuse is incidental to a service may not be tenable. Valuing thesame though could be another issue altogether.

The other issue regarding transfer of right to use softwarefor instance would have to be seen in the light of the mode oftransfer of software. Issues could arise where there is transferof right to use software that is provided/downloadedelectronically. The question to be answered here is whethersoftware sent so can be regarded as goods at all. While theSupreme Court in BSNL’s case had stressed on the aspectsas to utility, capability of being and sold, capability of beingtransmitted, delivered, stored and possessed for holding thesubject matter as goods, the Madras High Court in InfosysTechnologies Ltd Vs CCT Chennai (2009 (233) ELT 56(Mad)) held that even unbranded or customised softwarecould be goods relying on the concluding comments in anearlier case i.e. Tata Consultancy Services Vs State of AndhraPradesh (2004 (178) ELT 22 (SC)) where Indian law washeld not to distinguish between tangible property and intangibleproperty when it came to the concept of “goods”.

It is interesting to note that in Infotech Software DealersAssociation Vs UOI before the High Court of Madras, a writpetition was filed seeking to regard software as goods andtransfer of right to use software as subject to sales tax. Levyof service tax on transfer of right to use software underInformation Technology Software Service was challenged.This writ petition was however dismissed by the Court holdingthat such view would be premature and that whether asoftware was goods and whether the arrangement wouldinvolve service tax levy would have to be determined on thebasis of facts of each case. This decision is yet to be reported.

We are inclined to rely on the decision in BSNL andInfosys Technologies Ltd’s case and regard transfer of rightto use software as amounting to deemed sale under Article366(29A) of the Constitution of India. The vendors couldhowever invite risk of levy of service tax where thearrangement or contract involves subsequent customisationor upgrades being given.

In this article we have tried to address some of the majorconcerns in levying service tax going by the recent trends inthe subject and also considering the shortage of time andspace. In case readers have any specific queries,

Authors can be reached one-mail: [email protected]

or [email protected]


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RECENT DECISIONS OF THE SUPREME COURT

AND HIGH COURTS ON INCOME TAX

Compilation by CA. K.S. Satish, Chartered Accountant, Mysore

PRINCIPLE OF MUTUALITY

Transfer fees received upon sale of flats from the outgoingand incoming members by the assessee, a co-operative

housing society, as per its bye-laws which was utilised forthe repairs of the property and common benefits to itsmembers, had no element of trading and commerciality andwas not liable to tax on the principle of mutuality held theBombay High Court in Sind Co-operative Housing Society v.ITO (2009) 317 ITR 47 (Bom).

EDUCATIONAL INSTITUTION

In Ewing Christian College Society v. CCIT (2009) 318ITR 160 (All) where the facts were that the assessee-societyran educational institutions not for the purposes of profit,one of its objects was to serve the church and the nation andthe Chief Commissioner rejected the application for approvalunder section 10(23)(vi) on the ground that the assessee wasestablished for religious purposes, the Allahabad High Courtruled that merely because the object of the assessee-societywas also to serve the church and the nation, it would notmean that the educational institution was not existing solelyfor educational purposes and set aside the order of the ChiefCommissioner with a direction to pass a fresh order.

CHARITABLE TRUST

The Punjab & Haryana High Court has in CIT v.Sarvhitkari Education Society (2009) 318 ITR 93 (P & H)held that the assessee cannot be denied exemption undersection 11 on the ground that it was a society and not a trustsince section 11(1)(a) speaks of income derived fromproperty held under trust irrespective of whether the incomewas derived by a trust or any other institution.

ACCRUAL

In CIT v. P & C Constructions (P) Ltd. (2009) 318 ITR113 (Mad) where, as per the contract entered into by theassessee-contractor and contractee, the assessee was entitledto receive the retention money from the contractee only aftersuccessful completion of the work, the Madras High Courttook the view that retention money retained by the contracteedid not accrue to the assessee and was not taxable during therelevant assessment year since the assessee had no rights toreceive the same by virtue of the contract and enforcepayment thereof.

CAPITAL RECEIPT

Incentive received by the assessee-company, engagedin the business of manufacture and sale of sugar, by way ofadditional quota for free sale of sugar and realisation of

differential excise duty under the scheme formulated by theCentral Government for recoupment of capital employed andrepayment of loans borrowed from the financial institutionfor setting up a new sugar factory constituted capital receiptopined the Allahabad High Court in CIT & Anr. v. Kisan SahkariChini Mills Ltd. (2009) 317 ITR 322 (All).

DEPRECIATION

In CIT v. Kotak Mahindra Finance Ltd. (2009) 317 ITR236 (Bom) where the assessee, a company engaged in thebusiness of leasing, leased out machinery to another companyduring the previous year relevant to the assessment year 1990-91 and received lease rent for the same but the leassee-companyinstalled the machinery during the previous year relevant to theassessment year 1991-92, the Bombay High Court expressedthe view that the assessee was entitled to depreciation on themachinery for the assessment year 1990-91.

BUSINESS EXPENDITURE

The Madras High Court in CIT v. Velumanickam Lodge(2009) 317 ITR 338 (Mad) where the facts were that theassessee, a civil contractor, offered to construct a hockeystadium in the complex of the Collectorate and thereafter, theCollector awarded the DRDA contract of the value of Rs.1,36,20,660 to the assessee, held that the sum of Rs. 24,00,000spent by the assessee on construction of the hockey stadiumwas allowable as a business expenditure since the constructionwas in the regular course of business of the assessee, it wasmade on the land belonging to the District Collectorate, meantsolely for the use of general public and it was done forgenerating goodwill and promoting business activities.

VALUATION OF STOCKS

In V.K.J. Builders & Contractors P. Ltd. v. CIT (2009)318 ITR 204 (SC) where the Assessing Officer made anaddition of Rs. 9,77,529 to the value of closing stock onaccount of suppression of work-in-progress while completingthe assessment of the assessee-company for the assessmentyear 1995-96 which became final and the assessee filed anapplication under section 154 for rectification of theassessment order for the assessment year 1996-97 claimingthat consequential effect should be given to the value ofopening stock, the Supreme Court observed that it is afundamental principle of accountancy that the figure of theclosing stock of the earlier year has to form the opening stockof the next accounting year and ruled that the AssessingOfficer should not have rejected the application of the assesseeunder section 154.


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DEEMED DIVIDENDThe word ‘advance’ appearing along with the word ‘loan’

in section 2(22)(e) means such advance which is repayableand, therefore, trade advances which are in the nature ofmoney transacted to give effect to a commercial transactionwill not constitute deemed dividend within the meaning ofsection 2(22)(e) opined the Delhi High Court in CIT v.Raj Kumar (2009) 318 ITR 462 (Del).CHAPTER VI-A

The Supreme Court has in Liberty India v. CIT (2009)317 ITR 218 (SC) ruled that receipts of duty drawback andbenefits under Duty Entitlement Passbook Scheme cannot becredited against the cost of manufacture of goods and do notform part of the net profits of eligible industrial undertakingsfor the purposes of sections 80-I, 80-IA & 80-IB.REVISED RETURN

Where the assessee-company filed its return of incomeoriginally on 1.11.2004 signed by the company secretary andon the Assessing Officer pointing out during the course ofassessment proceedings that the return was not signed inaccordance with section 140, filed a revised return on5.10.2005 signed by the managing director, the irregularity inthe original return was curable and since the defect was curedlater by filing a revised return, the doctrine of relation backwould apply and, therefore, the revised return relates back tothe date of filing of the original return of income held theDelhi High Court in CIT v. Haryana Sheet Glass Ltd. (2009)318 ITR 173 (Del).RETENTION OF BOOKS

The Karnataka High Court has in Subha & Prabha

Builders P. Ltd. v. ITO & Anr. (2009) 318 ITR 29 (Kar)held that extension of the period for retention of books anddocuments under section 131(3) by the Chief Commissionercan only be a one-time exercise and that the period of extensionshould be counted only in days and not in months or years asthe outer limit of fifteen days is indicated in days.INTEREST ON INTEREST

In Motor & General Finance Ltd. v. CIT (2010) 320ITR 88 (Del), the Delhi High Court has taken the view that itis only when the interest under section 244A is not refundedalong with excess tax that the withholding of the interestbecomes unjustified and it becomes an amount due to theassessee on which the assessee can claim further interest.PENALTY

The Delhi High Court in Ms. Madhushree Gupta v. UOI& Anr. (2009) 317 ITR 107 (Del) has ruled that section271(1B) inserted by the Finance Act, 2008 with retrospectiveeffect from 1.4.1989 deeming a direction in the assessmentorder for initiation of penalty proceedings to constitutesatisfaction of the Assessing Officer therefor was not violativeof article 14 of the Constitution.TRIBUNAL

In Gilbs Computer Ltd. v. ITAT & Ors. (2009) 317 ITR159 (Bom) where the assessee, a company, which wasassessed to a loss of Rs. 9,00,97,980 filed an appeal againstthe order of the Commissioner (Appeals) to the Tribunal, theBombay High Court held that it was obliged to pay fees ofRs. 500 only under section 253(6).

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VIVEKA SANCHINTANA

EEEEEaaaaach man wch man wch man wch man wch man who tho tho tho tho thinks ahehinks ahehinks ahehinks ahehinks aheaaaaad od od od od of his time is sf his time is sf his time is sf his time is sf his time is sururururure to be me to be me to be me to be me to be misisisisisundeundeundeundeundersrsrsrsrstood.tood.tood.tood.tood.

SSSSSo opo opo opo opo oppppppooooosisisisisition and petion and petion and petion and petion and persrsrsrsrseeeeecucucucucution artion artion artion artion are welcome, onle welcome, onle welcome, onle welcome, onle welcome, only yy yy yy yy you havou havou havou havou have to be se to be se to be se to be se to be sttttteeeeeaaaaadddddy andy andy andy andy and

pppppururururure and me and me and me and me and mususususust havt havt havt havt have immense immense immense immense immense fe fe fe fe faiaiaiaiaittttth in God….h in God….h in God….h in God….h in God….

EEEEEaaaaach wch wch wch wch wooooorrrrrk has to pk has to pk has to pk has to pk has to pasasasasass ts ts ts ts through through through through through thesheshesheshese se se se se stttttages-rages-rages-rages-rages-ridicule, opidicule, opidicule, opidicule, opidicule, oppppppooooosisisisisition, and ttion, and ttion, and ttion, and ttion, and then ahen ahen ahen ahen acccccccccceeeeeppppptttttanananananccccce.e.e.e.e.

KSCAA welcomes Life Membersadmitted during September 2010

1. Naveen Kumar P Bangalore

2. Manjunath A Bangalore

3. Khalid Khan A Bangalore

4. Patil Subhas Rudragowda Dharwad

5. Pise Madhusudan Dattatreya Dharwad

6. Ganesh Sankararaman Bangalore

7. Umesha Shetty K. Bangalore

8. Yathish V.A. Mysore

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ADVERTISEMENT TARIFF- News Bulletin

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JUDICIAL PRONOUNCEMENT BY

HONORABLE HIGH COURT UNDER

KARNATAKA SALES TAX LAW

By CA Srikanth Acharaya and CA Annapurna Kabra

I) LARSEN & TOUBRO (L&T) LIMITED V. STATE OFKARNATAKA S.T.R.P.NO.8 OF 2006 DATED 2ND DAY OFSEPTEMBER 2009 (HC)

Facts of the case:

L&T is a construction company engaged in the businessof execution of works contract. Being a registered dealer

under the KST law was assessed to tax in terms of section 5-B of KST Act. The Revisional Authority has disallowed thededuction as labour and like charges for the following expenseslike:• Sales tax and customs duty paid• Bank charges• Depreciation on plant and Machinery• Interest charged by the clients• Postage and telephone and telex• Vehicle tax

The dealer appeared before the tribunal for claiming theabove expenses as labour and like charges. The AppellateAuthority passed the order stating that out of the above expenses,the sales tax and customs duty paid on Machinery and Bankcharges will be allowed as labour and like charges. Further tothe above the dealer preferred an appeal to the High Court.

The dealer contended that the above expenses areallowable as labour and like charges in terms Rule 6 (4)(n)(iv)(explanation I) as follows:

The value of depreciation on plant & machinery utilizedfor the purpose of execution of works contract is a part ofexpenditure which otherwise would have hired such machineryfrom outside the source and for which necessarily would havepaid hire charges, very much within the meaning of theexplanation I relatable to charge on obtaining on hire or otherwisemachinery and dealers machinery used on works contract. Inother words the depreciation amount is on par with this hirecharges expressly permitted in terms of explanation I andthough is not necessarily an item. In support of this dealerrelied on the Hon’ble Apex Court judgment in the case of GannonDunkerely & Co and others Vs State of Rajasthan and othersreported in 88 STC 204, where the court has expressly saidthat, (d) charges for obtaining on hire or otherwise machineryand tools used for the execution of the works contract.

With respect to other deduction which was disallowedby the tribunal, the dealer submitted that, all expenses clearlyforming part of the cost of establishment “…………………….the cost of establishment to the extent relatable to supply of

labour and services and other similar expenses relatable tosupply of labour and services”.

Ruling

The value of depreciation fall under the expression“charges for obtaining on hire or otherwise machinery andtools used for the execution of the works contract” , eligiblefor deduction to the extent they have been exclusively usedfor the execution of the works contract and owned by thedealer. With respect to other deductions like postage, telephoneand telex expenses incurred by the dealer, vehicle tax said tohave been paid in respect of vehicles exclusively used in theexecution of works contract, such charges would fall withinthe scope of the cost of establishment to the extent it is relatableto supply of labour and services. Therefore the depreciationon plant and Machinery will be allowed like hire charges andPostage and telephone and telex and Vehicle tax will be allowedas expenses relatable to supply of labour and services.

Our Analysis

The Explanation to Rule pertaining to actual labour andlike charges include, charges for obtaining on hire or otherwisemachinery and tools used for execution of Works Contract,charges for planning, designing and architects’ fees, cost ofconsumables used in the execution of the Works Contract,cost of establishment to the extent relatable to supply of labourand services and other similar expenses relatable to supply oflabour and services.”

Therefore the value of depreciation on Machinery andtools is allowed as deduction to the extent it is used in theexecution of works contract. Therefore the above judgmentis applicable even under Karnataka Value Added tax law forclaiming the labour and like charges. The following are theissues which emerge as follows:

Whether the above judgment should be applicableretrospectively or prospectively?

Whether input tax credit can be claimed on such machineryor tools fully or proportionately?

Whether depreciation on equipments or vehicle can be claimedwhich are used in execution of works contract?

As per Authors view the above judgment should beapplicable retrospectively, and also the input tax credit cannotbe claimed to the extent of depreciation claimed by the dealer.The depreciation on equipments or vehicles can be claimedconsidering as similar expenses relatable to supply of labour


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and services which are used in the execution of workscontract.

II) MFAR CONSTRUCTION LIMITED VS THECOMMISSIONER OF COMMERCIAL TAXES(KARNATAKA) S.T.A.NO.35 OF 2010 DATED 23RD DAYOF JULY 2010(HC)

Facts of the case:

The appellant is a private limited company engaged inthe business of civil construction and is a registered dealerunder the provisions of the KST Act 1957. The Appellant isliable to tax under section 5-B of the KST Act 1957 of theAct. The appellate has filed the appeal to the High Courtchallenging the order passed by Commissioner of commercialtaxes holding that the appellant is liable to tax under section6-B of the KST Act in addition to tax payable under section5-B of the KST Act. The Appellant has been purchasing goodsfalling under Schedule II, Schedule IV and Schedule V of theAct from registered as well as unregistered dealers. Usingthe materials so bought, the Appellant constructs buildings,apartments, and bridges etc. as per the agreements with itscustomers. The Resale tax (Section 6-B) was effective witheffect from 01.04.2002 which is leviable at 1.5% on suchportion of turnover which is not liable to tax under section 5,5-A, 5-B, 5-C or 6. Proviso (i) to (xi) of the said provisionexempted certain parts of such turnover from levy. A workscontract being liable to tax under Section 5-B of the Act, theAppellant has been paying tax under Section 5-B after claiming

allowable deductions and not paying tax under section 6-B ofthe KST Act 1957.

Appellate contentions:

The appellate contend that, section 6-B of the Act seeksto levy tax on such portion of the total turnover which is notliable to tax under Section 5, 5-A, 5-B, 5-C or 6. The appellantentire turnover being liable to tax under Section 5-B, thelevy of tax under Section 6-B on any portion of the appellanttotal turnover would be unlawful. Resale means second sale.This presupposes that there should be sale earlier to the saidpoint of time…. The use of goods in the execution of theworks contract cannot be treated as second sale at all thenhow come resale tax can be levied. After amendment to section6-B, the appellant approached to Authority for clarificationand Advance Ruling Authority. The Authority passed an orderclarifying that tax under section 6-B was payable on theturnovers relating to tax suffered on goods purchased fromlocal registered dealers and which are used in the executionof works contract.

Ruling

The High Court set aside the above order and held thatthe appellant being liable to tax under section 5-B was notliable to resale tax under section 6-B of the KST Act


I take this opportunity to thank CA. Madhukar Hiregangeand CA. Sudhir V S for providing us with the book.

Thanxs

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I am overwheled by the magnanimity of ShriMadhukar.N.Hiregange who has donated the treasure ofknowledge to our profession in general and to KSCAA inparticular. I am proud to call myself a CharteredAccountant and also a member of the KSCAA.

CA Sunil Reddy BezawadaBangalore

Please pass on my regards to Mr. CA. MadhukarHiregange who has done a fabulous job of preparing thisguide for the benefit of members at large (also credits toMr. CA Sudhir V.S).

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CA. Madhukar Hiregange’s generosity commended by one and all

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It was held that the relevant condition was fulfilled inthe present case and the benefit of export of servicewas afforded to the respondent.

6. Kerala Minerals and Metals Ltd. vs. CCEThiruvananthapuram 2010 (19) STR 505 (Tri –Bang)Facts: The appellant had availed cenvat credit ofservice tax paid on GTA on transporting emptycylinders from their premises for procuring liquidchlorine which was an important input for them.Department contended that credit was not eligible.Decision: It was held that the manufacturing processof the appellant could not be completed withoutprocuring the liquid chlorine in special cylinders andsince the definition of input service includes theservices used to procure inputs directly or indirectly,the transport of empty cylinders was necessary and


hence related to the manufacture of the final product.So saying, the credit was allowed.

7. Harshita Handling v. CCE., Bhopal 2010 (19)S.T.R. 596 (Tri.-Del.)Facts: The activity of periodically testing the cylindersunder the Gas Cylinder Rules, 2004, framed under theIndian Explosive Act, 1884 engaged in by theappellants was construed as being taxable underManagement Maintenance or Repair service by theRevenue.Decision: It was held that the testing of cylinders wasa statutory activity and the records did not indicatethat the repair and maintenance of cylinders wasundertaken commercially, and indicated that theperiodical test and upkeep of cylinders was madeunder the Indian Explosive Act, 1884. The demandwas hence, set aside.

INDIRECT TAXES UPDATE – AUGUST 2010Contd. from page 16


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KSCAA September 10 Newsletter

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