Tenders or public auction best way to sell state properties

The Supreme Court (SC) has declared “inviting tenders from the public or holding public auction is the best way for disposal of properties belonging to the state.” In this case, Kerala Finance Corp vs Vincent Paul, the borrower failed to repay the loan and the state finance corporation tried to dispose of the mortgaged property. But the process was entangled in civil suits. The SC ssaid the corporation has not framed rules or guidelines for sale of properties owned by them. Therefore the court itself framed rules to be followed by the corporation till it formed its own guidelines.

Withdrawn tax exemption cannot be reclaimed
An industry which has been granted tax exemption to set up unit in a backward region cannot claim the benefit even after it was withdrawn by the state, the SC stated in the case, State of Haryana vs Mahabir Vegetable Oils Ltd. In this case, the firm set up a solvent extraction plant and enjoyed the sales tax benefit till 1996. That year, the firm was put in the negative list as it was found to be a polluting industry. The benefit was withdrawn since then. This was challenged by the firm in the Punjab and Haryana high court. It allowed its petition and ruled that once the firm invested funds on the promise of tax benefit, the government could not withdraw the exemption mid-way. Reversing this view, the SC emphasised that there was no vested interest in the firm to get the benefit for all times. The government can change the rules in public interest. In this case, the decision to put the firm in the negative list was on account of the unit’s polluting nature, the SC said, allowing the appeal of the state government.

Capital or revenue receipt
Payment under an agreement not to compete (negative covenant agreement) is a capital receipt and not a revenue receipt, the SC stated last week in its judgment, Guffic Chem Ltd vs CIT, Belgaum. It set aside the judgement of Karnataka high court which was contrary to this view, and approved that of the Delhi high court in a similar case. In this case, under the negative covenant the pharma firm received Rs 50 lakh as ‘non-competition fee’ from Ranbaxy. The agreement was to transfer its trademarks to Ranbaxy and it shall not trade in certain medicines against the interest of Ranbaxy. The I-T authorities classified it as capital receipt. The tribunal approved of it. However, the high court set it aside. Clarifying the position, the SC said, receipt of compensation for loss of agency is different from receipt of compensation attributable to negative or restrictive covenant. The first one is revenue receipt whereas the second one is capital receipt.

SC upholds department’s definition of masala
When two or more spices are mixed and sold as masala, it would attract higher sales tax rate, the SC stated last week in the judgement, Commercial Tax Officer vs Jalan Enterprises. It set aside the ruling to the contrary made by the Rajasthan high court. The packed condiment manufacturers argued that its items, like Jaljira, are only ‘appetiser’ and not Masala and hence liable to 10 per cent rate only. The assessing officers countered, the products were spices and hence liable to pay at the rate of 16 per cent. The high court rejected the department’s view. But the SC upheld the department’s stand.

DGFT’s power upheld
The Bombay HC last week quashed the decision of the Customs, Excise, Service Tax Appellate Tribunal which held the Director General of Foreign Trade (DGFT), the licensing authority under the Foreign Trade (Development & Regulation) Act, did not have the powers to amend licences with retrospective effect. The CESTAT ruling was challenged by Bhilwara Spinners Ltd, manufacturers of yarn, which were granted ‘export promotion capital goods’ licence to import capital goods. The terms had to be changed due to market circumstances.