SC explains 'related' companies in taxation

If two companies have to be declared 'related persons' for excise purposes, there should be mutuality of interest in the business of each other. If there is only 'one-way traffic', the two companies are not related. The revenue authorities must prove mutuality of interest or "two-way traffic", Supreme Court stated while dismissing the appeal of the commissioner of central excise against the order of the appellate tribunal in a case involving Goodyear South Asia Tyres Ltd. The company in this case was a joint venture of RPG SATL and Goodyear. It manufactured and supplied tyres exclusively to Ceat and Goodyear sold in their brand names. Goodyear and RPG Ceat had 50:50 shares in the assessee company. The excise authorities issued demand notice to the company on the basis of related persons under section 4 of the Excise Act. The company contended that its sale of tyres to the two companies was on principal to principal basis and at arm's length. The commissioner rejected the plea but the tribunal accepted it. On appeal, Supreme Court upheld the tribunal's view The assessee company had no interest in the business of the other two. "The fact that the two buyers had given Rs 85.66 crore interest-free loan to the assessee company by itself may not be a reason to hold them as related persons in the absence of any mutuality of interest existing between them," the judgment said.

Foreign airlines win TDS case
The Supreme Court last week resolved conflicting views of the Delhi High Court and the Madras High Court on the rate of TDS deducted from payments made by foreign airlines to the Airports Authority of India while using facilities in domestic airports. The Delhi High Court had held in the case of Japan Airlines that the rate is 20 per cent interpreting section 194-I of the Income Tax Act. This was in accordance with the argument of the revenue authorities. However, the airline's appeal was allowed by the apex court stating that the rate was two per cent, applying section 194-C. The Madras High Court had ruledin the case of Singapore Airlines that the rate was two per cent. The tax authorities had appealed against it. Their contention was that the airline used the land the moment the wheels touched down and then used parking space. Supreme Court dismissed their appeal, upholding the view of Madras High Court. When the airlines pay charges for landing, lighting, passenger services, they are not paying for "use of land" as argued by the authorities calling this view "naïve and simplistic." The substance of the charges must be considered. Supreme Court said: "When the matter is looked intokeeping in view the full picture in mind, it becomesvery clear that the charges are not for use of land per se and,therefore, it cannot be treated as rent."

Debt tribunal can condone delay

The debt recovery appellate tribunal under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has the power to condone delay in filing petitions, the Supreme Court ruled last week in the judgment, Baleshwar Dayal vs Bank of India. The debt recovery law provided for 45 days as limitation, while SARFAESI provided for only 30 days. But the laws are complementary and the debt recovery mechanism is part of the SARFAES scheme, the judgment said. The contrary view held by the Madhya Pradesh High Court was incorrect and that court was directed to reconsider its judgment. Several other appeals involving the same question were also remanded to respective courts and tribunals for reconsideration.

Dismissal too harsh for slapping colleague
After 25 years of litigation, the Supreme Court ordered Telco to pay its former employee, Talukdar Singh, Rs 5 lakh as retrenchment compensation. He was dismissed for slapping his colleague at work in 1990 when he was 59 years old. The labour court found him guilty but held that dismissal was "shockingly disproportionate" to the charge. It, however, awarded him Rs 6,049 as compensation. Singh moved the Bombay High Court which enhanced the amount to Rs 1 lakh. He again appealed to the Supreme Court, which raised the compensation to Rs 5 lakh.

Curtains fall on 45-year row over gunny bags

The Supreme Court last week drew the curtains over an excise dispute started in 1970 which trundled its way up via various authorities and appellate tribunals. Ultimately, Tata Chemicals lost the appeal and was asked to pay excise duty on gunny bags in which it sold soda ash. The company has been arguing that there was an arrangement for the return of durable packing, namely gunny bags, for reuse as packing material for selling the soda ash in bulk.
The tribunal had ruled that the claim put forth by Tata Chemicals that the value of gunny bags used for packing soda ash manufactured by them should be excluded in finding out the assessable value wasunacceptable. Supreme Court dismissed the appeal, observing that the law has been clear in this matter through a long series of judgments. The packing material must be both durable and returnable. Since the buyers paid for the packing, the seller could not claim it back, the court said.

Discrimination against ship-breaker flayed
The government has wide discretion in the matter of granting, curtailing, withholding, modifying or repealing exemptions granted in earlier notifications. It is not bound to grant exemption to anyone it so desires. But if there is discrimination and arbitrariness, the court can exercise its power of judicial review, the Supreme Court has stated in the judgment, Union of India vs M/s N S Rathnam.

This firm bought a ship for breaking it after paying customs duty at the rate of Rs 365 per ton. It did so following a 1987 notification which exempted it from excise duty if the customs duty was paid. But there was another notification of the same date which stated that only those who paid Rs 1,400 per ton would be eligible for the benefit. The revenue authorities denied the benefit to the ship-breaker. It challenged the notifications in the Madras High Court. It found that the demand of the authorities were illegal.

The government appealed to the Supreme Court. It dismissed the appeal, stating that the notifications gave a choice to the ship-breaker to pay according to either method. Merely because the assessee opted for a cheaper method, it should not be discriminated against. Though Parliament has extremely wide discretion to classify items for tax purposes, it should refrain from "clear and hostile discrimination" as in this case, the court ruled.