Directors of companies and partners of firms have been fastened with stricter onus by the Supreme Court in cheque bouncing cases. It ruled last week that notice of dishonour of cheques to the company is sufficient, and there is no need to serve separate notices on the directors. The directors are supposed to know about the dishonour when the company gets the notice. There is sufficient time, nearly 75 days, to find which directors are responsible for the fault and therefore, there is no need to prolong the process by serving notices on each director or partner. The Supreme Court overruled the Bombay High Court which had maintained that separate notices were essential. Allowing the appeal case, Kirshna Texport & Capital Markets Ltd vs Ila Agrawal, the court asked the high court to reconsider its view regarding the trial of two directors. Analysing Sections 138 and 141 of the Negotiable Instruments Act, the court said: "There is nothing in Section 138 which may even remotely suggest issuance of notice to anyone other than the drawer (the company)… Section 141 again does not lay down any requirement that the directors must individually be issued separate notices. The persons running the affairs must naturally be aware of the notice issued to such company. It is precisely for this reason that no notice is additionally contemplated to be given to such directors."
Sterilisation does not attract excise
Does sterilisation of syringes and needles bring about new products attracting excise duty? The Supreme Court answered No last week in the case, Servo-Med Industries Ltd vs CCE. The company bought these products in bulk from the open market and then sterilised them and packed them in plastic pouches. The pouches, with brand name Behring, were sold to Hoechst Marion Roussel Ltd. The excise department demanded duty calling them new products after sterilisation. The firm denied that the process brought about a new product, the duty on which had already been paid once. However, the excise appellate tribunal held that "an article with distinct brand name and separate end use/quality has emerged by the activity undertaken." The firm appealed to the Supreme Court against this ruling. Allowing the appeal, the court stated that "the added process of sterilisation does not mean that such articles are not complete articles in themselves or that the process of sterilisation produces a transformation in the original articles leading to new articles known to the market as such.A surgical equipment such as a knife continues to be a surgical knife even after sterilisation.If the department were right, every time such instruments are sterilised, the same surgical instrument is brought forth again and again by way of manufacture and excisable duty is chargeable on the same. This would lead to an absurd result and fly in the face of common sense."
Limited powers of electricity commission
The Supreme Court has ruled that the Karnataka State Electricity Regulatory Commission has no power to modify the tariff for concluded power purchase agreements (PPAs). In this appeal, Bangalore Electricity Supply Co Ltd vs Konark Power Projects, the former entered into a PPA with the Karnataka Power Transmission Corporation for supply of power. Later, it entered into a supply agreement with Konark with a higher rate. While this was pending, Konark filed an application before the regulatory commission pointing out the rise in cost of raw materials and the need to revise the PPA to a higher rate for power generation. The commission claimed it had the power to grant the request. The tribunal also stated so, because power generators should not suffer unnecessarily. The tribunal asked supplier to go before the commission and convince it the need for revision in tariff. Therefore, it appealed to the Supreme Court. In its judgment, the court stated that both the commission and the tribunal were wrong regarding the power of the commission. Whatever terms agreed to must continue to remain in force without alteration for at least ten years. The court also ruled that the state commission had no power under the Karnataka Electricity Regulatory Commission (Power Procurement) Regulations to vary the tariff agreed between the parties under the approved PPA.
Liaison firm free from service tax
The Supreme Court last week set aside the decision of the excise appellate tribunal and ruled that mere procuring or booking orders by intermediary firms for the principal on payment of commission basis would not amount to providing services as "clearing and forwarding agent", and therefore no service tax could be demanded from them. In this case, Coal Handlers Ltd vs Commissioner of Central Excise, the issue was whether such services provided under contract would label them as clearing & forwarding agents and thus make them liable to pay service tax. The private firm was providing certain services as agent to the then state companies, Gujarat Ambuja Cements Ltd and Ambuja Cements Eastern Ltd. The court found that the contract was merely for procuring or booking orders from coal companies for the principal Ambuja companies on payment of commission and that would not amount to providing services as "clearing and forwarding agent". The primary job of Coal Handlers is supervising and liaisoning with the coal company as well the railways to see that the material required by Ambuja companies is loaded as per the schedule. Therefore, they are not liable to pay service tax.
LCDs not to pay Customs duty
The Supreme Court last week set aside the ruling of the Customs appellate tribunal and stated that the LCDs imported by M/s Secure Meters Ltd from Hong Kong was not liable to pay Customs duty as demanded by the revenue authorities. Since these LCD devices are used for electronic supply meters, the revenue authorities took the view that it would fall in a category which attracted duty. Analysing the provisions, the court ruled that the goods were free from basic Customs duty.
