Brief case: Works contract may be split to impose tax

A weekly selection of key court orders

A works contract is divisible and state governments can levy sales tax on the goods going into the civil work. The contract can be divided into two parts, one for sale of goods and the other for supply of labour and services, and they can be dealt with separately, the Supreme Court (SC) held last week in the appeal case, Indian Hume Pipe vs State of Rajasthan. In this case, the company undertook extensive civil work at dams and canals, mainly to lay pipelines. It used its own material for the purpose. When it sought an exemption for the goods used in the works, the commercial tax authorities rejected it, leading to petitions in the Rajasthan High Court. The petition was rejected, leading to the appeal. The company argued it was a single composite works contract and the goods used couldn’t be separated from the civil work. The apex court rejected the appeal. The government contended the contract was  divisible; the work of supply of pipes and the works for contract of civil work were two different contracts in which the first part was concerned with the sale of pipes on which tax had been imposed. The SC accepted the view and dismissed the appeal.

Cheque complaint must name company 
 

In a cheque-bounce case, the Supreme Court (SC) ruled last week that every person signing a cheque on behalf of a company on whose account a cheque is drawn does not become the drawer of the cheque. Such a signatory is only a person duly authorised to sign the cheque on behalf of the company/drawer of the cheque. The SC stated so while setting aside the judgment of the Madras High Court in the appeal case, Harihara Krishnan vs J Thomas. The complaint was filed against a director of a company without the company being made a party. The complaint could not stand without the company being made an accused. The company was impleaded after 1,211 days, much after the limitation period. The high court had condoned the delay because the criminal complaint against the director was already filed under the Negotiable Instruments Act (NIA) within time. The SC clarified that the principles of the Criminal Procedure Code (CrPC) could not be applied in a case under NIA. A case under the code requires investigation by the police and a charge sheet. The NIA has a summary procedure. The accused person should be named. “The offence under Section 138 of NIA is person-specific. Therefore, Parliament declared that the provisions dealing with taking cognizance contained in the CrPC should give way to the procedure prescribed by the Act,” the judgment said.

New umpire for old arbitration 
 

The Supreme Court (SC) has appointed its retired justice, Aftab Alam, as a new umpire to decide a two-decade-old dispute between Hyundai Corporation and Oil and Natural Gas Corporation (ONGC) over tax liability because the old umpire decided an issue which was not before him. Hyundai was successful in a tender for two platform facilities for offshore oil exploration. The corporation sub-contracted part of the work to McDermott International Inc, Panama. Later, the government issued a notification extending an income tax Act provision to the continental shelf and exclusive economic zone with retrospective effect. Then a dispute arose as to whether ONGC was liable to reimburse Hyundai for tax payments made to the sub-contractor. The two arbitrators differed on the liability in 1999, leading to the appointment of an umpire. He decided an issue in 2002 which was not referred to him. Setting aside his decision, the SC appointed the new umpire who would decide the correct issues within three months, and there shall be no further appeals to the high court as the case is quite old. 

Alstom consortium wins case
 

The Delhi High Court last week directed the Dedicated Freight Corridor Corp of India (DFCCI), a public sector undertaking, to consider the bid offered by a consortium led by Alstom Transport India Ltd for two railway projects. Its bid was rejected at the prequalification stage as the DFCCI felt it had no technical experience. The consortium argued that cumulatively, the consortium had adequate experience as required in the tender conditions. Though the consortium had undergone some changes, the constituents had sufficient experience in the project, it was argued. The DCCI contended the unit of the consortium which claimed to have the technical capability had no construction experience. The high court ruled that “the experience of one of the members of a joint venture can be associated to the consortium” and in that regard the consortium did qualify for bidding. If the fund of experience of the employees was transferred to another firm in the same consortium, it should not be rejected on a narrow construction of the bid document, the judgment said. 

Strict rule for drug trademarks
 

In the field of medicine, trademark violations should be strictly dealt with because it affects the life of patients who are likely to be easily confused by similarity of names. Non-medicinal products will cause only economic loss while confusion over names of medicinal products may lead to disastrous consequences, the Delhi High Court stated last week in the judgment, Wockhardt Ltd vs Zenith Remedies Ltd. Wockhardt had alleged it had a trademark in the medicine Spasmo-Proxyvon but Zenith had copied the name and packaging design for its product Spasmo-Don. The high court barred Zenith from selling its medicine with the infringing trademark. The high court quoted the Supreme Court in the Cadila Healthcare judgment, which emphasised that “noting the frailty of human nature and the pressures placed by society on doctors, there should be as many clear indicators as possible to distinguish two medicinal products from each other. Many patients may be elderly, infirm or illiterate and not in a position to check the medicine handed over to them.”

IOC pump allotment quashed
 

The Bombay High Court last week quashed the selection of petrol pumps by Indian Oil Corporation along part of the Kolhapur-Ratnagiri Road, and directed it to start a fresh process, cancelling the list of winners. One of the failed contenders for the retail outlets raised issues relating to the method of allotment of marks, dimension of the plots, grant of marks in favour of persons selected and violation of essential conditions of the brochure. The high court accepted the allegations in its judgment in the case, Atul Patil vs Indian Oil Corporation, and set aside the selection list.