Disparity in computing compensation

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The discretion of the court to award compensation for loss or injury suffered by a person is guided by some criteria, but often the decision can defy logic. In an order passed by the Supreme Court last month, an agricultural labourer suffered compound fracture of the right leg in a road accident. The motor accident compensation tribunal granted him Rs 10,000. He appealed to the Supreme Court, which felt that the amount "appears to be on the lower side." It raised the compensation to Rs 35,000 maintaining that it was reasonable "looking at the fact that he is an agricultural labourer and he has to use his legs for doing work in the fields." He was not given even the cost of the litigation up to the Supreme Court. This judgment, Kantharaju vs Cholamandalam General Insurance Co, contrasts with another recent decision in S Nihal Ahmed vs Dean, in which candidates for professional colleges who lost one year due to the negligence of the authorities were awarded Rs 3 lakh each. In March this year the court ordered the Maharashtra government to pay candidates in a similar position to pay Rs 20 lakh each. While Kantharaju's pittance will be paid by the insurance company, the student's bonanza will come from taxpayers.

Conflicting high court views resolved

The Supreme Court last week resolved conflicting judgments delivered by various high courts regarding the tax liability of banks while dealing with bills of exchange. In 25 appeals moved by banks and the revenue authorities, supporting and opposing the high court verdicts which went against them, the court granted relief to the banks in the leading judgment, State Bank of Patiala vs CIT. The facts in all the cases were similar. The bank makes purchases of bills of exchange from its customers and charges commission for services rendered by it. The discounted bills so purchased are then presented to the parties concerned for realisation. If on presentation the bill is realised within time, no charges are levied by the bank. In case the bills are not realised in time but the other party pays the value of the bill beyond the stipulated time, a certain amount in the form of interest is charged by the bank on a fixed percentage basis for everyday of default. This amount is credited by the bank in its interest account. The question before the court was whether such payment of compensation to banks is "interest" liable to tax under the Interest Tax Act. The judgment stated that "the Interest Act, unlike the Income Tax Act, has focused only on a very narrow taxable event which does not include within its ken interest payable on default in payment of amounts due under a discounted bill of exchange."

Importer wins 30-year litigation

A three-decade-old litigation between NRC Ltd and the customs authorities ended with the Supreme Court ruling that the company which imported caprolactum for manufacturing nylon tyre cord was eligible for the benefit of the Karvivadh Samadhan Scheme 1998. The authorities had issued show cause notice demanding additional duty. The scheme came into force while the litigation over this was pending in the Bombay High Court. The issue was whether the company could invoke the scheme. The high court said no. Overruling it, the Supreme Court stated that "in those cases where show cause notice has been issued or notice of demand of indirect tax has been issued, it is permissible for the firm to claim benefit of the scheme."

Tax relief for garment manufacturers

The Supreme Court has dismissed the appeal of the commissioner of central excise and service tax against the order of the appellate tribunal which had granted duty exemption to textile articles of three prominent firms: Aditya Birla Nuvo Ltd, Levi Strauss (India) Ltd and Arvind Clothing Ltd. These companies had assigned work to job workers and they supplied the material back to the assessee companies after completing several intermediate processes. According to the 2003 exemption notification, exemption was available to textile articles to any one or more of such processes, 'subsequent to purchase'. The question was whether the processes were after purchase. The commissioner maintained that these firms were not eligible for the exemption as it was not subsequent to purchase. Materials were given to the job workers and they were returned to the companies after fabrication. The tribunal rejected that contention, against which the revenue authorities appealed to the Supreme Court. It upheld the tribunal's view and stated that in these transactions, the companies had bought processed fabric from the job workers and therefore there was purchase making them eligible for the benefit.

SAIL snubbed in arbitration case

The Delhi high court last week dismissed the writ petition of Steel Authority of India in an arbitration case against Great Eastern Shipping Ltd, commenting that the public sector steel major had tried to obstruct arbitration proceedings and its conduct was "less than fair and an abuse of process of this court." According to the charter party agreement between the two, the shipping company was to transport coking coal from Australia to three ports in India. Disputes arose over discharge of cargo at Vizag port. The matter was referred to arbitration in which the award went against the shipping company. It moved the high court that held the tribunal had gone wrong. Thereafter, the shipping company wrote to Indian Council of Arbitration to start the process of arbitration according to its Maritime Arbitration Rules. SAIL delayed replies to the letters seeking arbitration and contended that the disputes have already been decided once by arbitration. The council then constituted an arbitration tribunal on its own. SAIL therefore moved the high court against the council. The court held that under the scheme of the Arbitration and Conciliation Act, it would not interfere in arbitration. The objection should be raised before the tribunal, the judgment said. The court indicted SAIL for trying to "resile from its contractual agreement for resolution of disputes through arbitration."

HDFC to pay for negligence

The National Consumer Disputes Commission last week ruled that HDFC Bank was negligent by not verifying the signatures on applications for net banking and electronic money transfer, leading to siphoning of money from the salary account of one Swapan Kumar. According to his complaint, bank officials conniving with a former security guard of the bank, forged his signatures on applications. Ordering compensation, the commission observed that "had the concerned bank manager been careful, he would have rejected the applications… The official at least on noting the difference in signatures was expected to contact the complainant to verify them."