Brief case: Northeastern states to refund education cess

A weekly selection of key court orders

The Supreme Court (SC) has asked the central excise department to refund the education cess and higher education cess which were paid by industries in the northeastern states, along with excise duty. Once the excise duty itself was exempted from levy, the cess should not be collected, the court stated while allowing the appeals of scores of firms which set up industrial units attracted by the incentives offered by the government. In order to encourage the business community to set up manufacturing units in industrially backward states such as Jammu & Kashmir, Assam, Meghalaya, Tripura, Mizoram, Manipur, Nagaland and Arunachal Pradesh, as well as Sikkim, notifications were issued by the central government exempting specified goods from payment of excise duty in respect of the goods manufactured and cleared from units located in those states. The methodology adopted was that the manufacturer was initially supposed to pay the excise duty leviable on such goods at the time of clearance according to the tariff Act and thereafter claim refund. The Finance Act 2004 introduced education cess, which was a surcharge on the excise duty. It was collected from the manufacturers along with the excise duty. But, while refunding the excise duty paid by these manufacturers, the cess was not refunded, leading to the dispute. The excise appellate tribunal dismissed the petitions of the industries, led by SRD Nutrients Ltd. The Supreme Court allowed their appeals.

Relief for non-profit association 

The Delhi High Court last week upheld the view of the Income Tax Appellate Tribunal that mere charging of fees from members or non-members of a non-profit association for rendering services such as training and conducting seminars would not make it ineligible for income-tax exemption. In this case, Commissioner of Income Tax (Exemption) vs Fertiliser Association of India, the dominant object of the association was charitable and other activities were only incidental to the main activities which benefitted the public at large. The association is registered under the Companies Act and is a non-profit and non-trading company representing the interests of fertiliser manufacturers, distributors, importers, equipment manufacturers, research institutes and suppliers of inputs.  The revenue authorities, after scrutiny, was of the opinion that the exemption under Section 2(15) of the Income Tax Act after the amendment of 2009 was not available to the association as it was engaged in the advancement of general public utility. One of the main grounds which influenced the assessing officer was the sums of money received by it on account of registration charges, etc., for seminars/workshops held to inform its members. The high court dismissed the arguments and ruled that the tribunal’s view was correct.

Compensation without job contract  

There is no need to always bring evidence of a written contract to establish the relationship between an employer and his employee in a claim under the Employee’s Compensation Act, the Delhi High Court stated while dismissing the appeal of National Insurance Company. A driver died in an accident and his widow Om Devi claimed compensation. The commissioner under the Act granted her Rs 6.26 lakh. The insurance company challenged the award arguing that the driver was not employed by the owner of the vehicle and there was no proof of their relationship to claim the compensation. The employer, however, asserted that the deceased was his employee. The high court therefore upheld the commissioner’s award stating that “in private contracts between an owner of a private vehicle and a driver we cannot expect in this country to have written contracts of employment. Depending on case to case courts do arrive at existence of relationship of employer and employee and ordinarily the Employee's Compensation Commissioner is entitled to take view of existence of relationship of employer and employee once the deceased is found to be driving the vehicle and it was not stolen.”

Tax lessons from the Mahabharata 

The Karnataka High Court last week cited the Mahabharata which stated that in Ramarajya, "the state tax be such which should not prove to be a burden on the subject; the king should behave like those bees which collect honey without causing harm to the tree". The chief minister quoted this in his Budget speech while floating a new scheme to benefit traders in the state. According to the Karasamadhana Scheme, anticipating the rolling out of the GST, the government proposed to waive 90 per cent of penalty and interest on payment of full tax and remaining 10 per cent of penalty and interest by May 31, 2017. This was meant to enable trade and industry “to clear their pending tax liabilities and start with a clean slate in GST". But the scheme ran into trouble as the computing of liabilities went awry. Hundreds of businesses moved the high court, the leading case being Retail Services Ltd vs State Of Karnataka. Last week, the high court ruled in favour of the businesses and quashed the orders against them. The cases were remanded to the concerned authorities for re-computing the arrears of tax, interest and penalty, in the manner indicated by the judgment.

SCI tender for ONGC held arbitrary

The Bombay High Court last week quashed the selection of a geotechnical support firm for a vessel of Oil & Natural Gas Commission, calling the tender process arbitrary and against the tender conditions. The Shipping Corporation of India floated the tender and Fugro Survey (India) Ltd was selected. Another contender, Coastal Marine Construction Engineering Ltd, moved the high court alleging that the winning company was not eligible because it did not have the prescribed experience “independently”.  Fugro contended that it was a group company of a West Asian firm. However, the high court found that there was no evidence of the Indian firm having experience on its own which was a condition in the tender. The judgment emphasised that normally courts do not enter into commercial disputes, but when there is arbitrariness, it was bound to interfere. 

Reopening of assessment quashed 

The Delhi High Court last week quashed four reassessment notices issued to S C Johnson Products, calling it a “fishing expedition”. The revenue authorities claimed that the firm had claimed certain deductions which were not allowable. It argued that the assessing officer had power to reopen the assessment if some crucial particulars came to light in subsequent years. The high court rejected the argument. It said that there was absolutely no tangible material which compelled reassessment after several years. Nothing new had emerged after the original assessment which was of significance and there was no allegation of concealment.