1. Whether disallowance of set-off u/r 41F on the ground that the manufactured goods were given by way of bonus during the assessment period is legal ?

Held : No.

The appellant is a manufacturer of drugs and medicines. His claim of set-off u/r 41F of Rs. 27,198/- was disallowed for the reason that he has given free goods and shown them as bonus in the sale bills. The appellant submitted that the cost of bonus supply was pursuant to a pre-announced scheme to be given only to those who will lift a certain minimum quantity during the relevant period. The sale price have to be determined accordingly on the basis of total quantity supplied including the quantity supplied by way of bonus for minimum purchases. Therefore the appellant was entitled for set-off u/r 41F even on supplies of such goods described as ‘bonus’ goods.

The Revenue argued that the appellant has not granted bonus in each and every bill and for each and every product sold by him. It was also tried to point out that while comparing sale bills in which bonus was granted and in which no bonus was granted, the same sale price was charged. It was further submitted that pricing policy did not make any special provision in any kind of bonus to be given to 5 MLTT vials. Therefore, the free supply could not be considered as a sale for quantifying the set-off.

The Tribunal observed that the appellant has made a general offer in the beginning of the year vide circular dated 12-4-1996 as regards the trade discounts. This offer was bonus offer and will be on minimum purchase. Therefore, the Tribunal set aside the order of disallowance of set-off u/r 41F on account of ‘bonus’.

(M/s Serum Institute of India Ltd., S. A. No. 1640 of 2004 decided on 10-2-2006. The judgment was delivered by Mr. G. D. Parekh, President, First Bench. Mr. P. V. Surte, Advocate appeared for the appellant)

1. Whether amount of subsidy received from the Government of India form part of the ‘Sale price’ of sale of fertilizers?

Held : No.

2. Whether Purchase tax levied u/s 14 on purchase of cement on Form 15 and used in construction of tank be upheld?

Held : No.

The appellant is a manufacturer of ‘Anhydrous Liquid Ammonia’. In the course of assessment proceeding the assessing authority noticed the appellant had received certain amount by way of subsidy from the Government of India in respect of local sales as well as inter-State sales. The assessing authority held that the subsidy received by the appellant from the Government would be a part and parcel of the sale price of ‘Anhydrous Liquid Ammonia’ sold by the appellant.

In the First Appeal, the appellate authority confirmed the order of the assessing authority on the grounds that he had referred to the two sale invoices and had interpreted that there was a tripartite agreement when the appellant sold Ammonia to M/s Rashtriya Chemical Fertilizers Ltd. and M/s Zuari Agro Chemicals Ltd. He also remarked that the purchaser was well aware of the price of ammonia fixed by the Government and the subsidy thereon received by the appellant. Secondly, Government first fixed the selling price and part of the selling price was received from the buyer and part was received by way of subsidy from the Government.

The appellant contended that the appellate authority has failed to appreciate the concept of subsidy. There was no tripartite agreement at all when sale was effected. The appellant has entered into agreement with M/s Rashtriya Chemical Fertilizers Ltd. and M/s Zuari Agro Chemicals Ltd. The agreement shows the price at which the material was to be supplied. The buyer has nothing to do with the subsidy amount. Nor the buyer was going to reimburse the appellant, in the event the subsidy amount was not paid by Government. The buyer may know that the appellant may receive some amount from the Government. But the knowledge could not convert the amount received into sale price. There has to be some contractual obligation in that respect on the buyer. The appellant relied on the judgment in the case of M/s Neyvell Lignite Corporation Ltd. 124 STC 586 (SC).

The revenue supported the order of the appellate authority by relying upon the decision of the Supreme Court in the case of M/s E.I.D. Parry (I) Ltd. 117 STC 457.

The Tribunal considered both the judgments and observed that the facts of the present case is quite identical with M/s Neyveli Lignite Corporation Ltd. Therefore the Tribunal held that subsidy received from the Government will not form part and parcel of sale price.

As regards the purchase tax u/s 14 levied on the alleged contravention of purchases of cement on Form 15 being used in the foundation work of the machinery installed, the Tribunal deleted the purchase tax u/s 14 following the judgment in the case of Ballarpur Industries Ltd., S. A. No. 919 of 1994 decided on 7-8-1999.

(M/s Deepak Fertilizers and Petrochemicals Corporation Ltd., S. A. Nos. 694, 695 and 1024 of 2000 decided on 10-2-2006. The judgment was delivered by Mr. G. D. Parekh, President, First Bench. Mr. A. B. Ghanekar, S. T. P. appeared for the appellant)

1. Whether custom duty paid by the appellant can be held to be part of the import purchase price for the purpose of Rule 41D?

Held : No.

2. On what basis set-off u/r 41E to be reduced in case of steel scrap generated during the manufacturing ?

Held: On the basis of proportionate purchase price

The period involved in the present appeal is 1997-98. During the period, the appellant has imported raw materials and paid import duty on the same. The lower authority while considering import for working retention of set-off u/r 41D added custom duty paid by the appellant to arrive at the purchase price of import.

The appellant contended that the definition of the term ‘purchase price’ couldn’t be applied here as the context requires otherwise. He also relied on the judgment in the case of M/s Indian Newspaper Society 93 STC 95 (SC).

The Tribunal observed that the term ‘purchase’ for the purpose of BST Act is the purchase made within the state. The situs of inter-State purchase and imports is not in the State and therefore such purchases are not the ‘purchase’ as defined under the BST Act. Therefore, the Explanation I to the section 2(22), on which the department has placed reliance, has no application so far as the purchases covered by section 75. Thus, it held that custom duty paid by the appellant cannot be held to be part of the import purchase price for the purpose of Rule 41D.

The next point was regarding grant of set-off u/r 41E in the context of the generation of steel scrap. The appellant is a manufacturer of motor vehicles and parts thereof. The main raw material required is iron and steel covered by B-6. In the process of manufacture of motor vehicles and parts thereof, some steel scrap is generated and the same is sold by the appellant, on which tax @ 4% is paid being covered by B-6.

In the assessment, the assessing authority has granted proportionate set-off on the basis of sale prices of the manufactured goods. The appellant prayed for set-off on the basis of the purchase prices of the iron and steel used by him in the manufacture.

The Tribunal upheld the appellant’s contention and observed that if the weight of the steel scrap generated and sold is available then the purchase prices of the iron and steel used in the manufacture are ascertainable and therefore the proportionate set-off can be given on the basis of such purchase prices. The Tribunal followed the decision in the case of M/s Krupp Industries Ltd., S.A. Nos. 1548 to 1550 of 2003 decided on 9-9-2005.

(M/s Bajaj Tempo Ltd., S. A. No. 2203 of 2003 decided on 10-2-2006. The judgment was delivered by Shri G. G. Kochrekar, Member, First Bench. Mr. N. S. Shah, Advocate appeared for the appellant)

1. Whether assessment of tax can be enhanced with the help of section 55(7) when appeal is only against interest and penalty?

Held : No.

2. Whether, on the facts, interest u/s 36(3)(b) can be remitted on the basis of out of pocket theory ?

Held : Yes.

The appellant was assessed for the period 2000-01 by the A. C. (Appeals) Jalna. The assessment resulted into net refund of Rs. 1,44,452/-. The assessing authority levied interest u/s 36(3)(b) of Rs. 1,44,554/- and penalty u/s 36(2)(C) Explanation II of Rs. 500/-.

The First Appeal was filed on ground of remission of interest and penalty. During the course of hearing the first appellate authority issued notice u/s 55(7) proposing to disallow excess resales granted on Soya Bean Refined Oil. After hearing the appellant, the appellate authority passed the order disallowing the resale. Further, interest u/s 36(3)(b) was retained at Rs. 1,30,721/- as against Rs. 1,44,554/- charged in assessment order.

In the present appeal, the appellant disputed the action of the first appellate authority u/s 55(7) and also prayed for further remission of interest u/s 36(3)(b) on the basis of ‘out of pocket theory’ and penalty u/s 36(2)(C) Explanation II.

The appellant submitted that the appellate authority erred in enhancing tax when the appeal was only against levy of interest and penalty. He also prayed for remission of interest on the ground the amount of refund was lying with the Government for 23 months and if the interest on the same
is calculated it works out to Rs. 1,23,036/-.

After perusal of the judgments relied upon by both the parties, the Tribunal held that as the appellant has preferred the First Appeal only on the ground related to interest and penalty u/s 55(7)(b), merely because order was composite order of tax and penalty, the appellate authority cannot exercise the power u/s 55(7)(a). Therefore, the Tribunal set aside the order in relation to invoking of power u/s 55(7)(a).

As regards remission of interest u/s 36(3)(b) on basis of out of pocket theory, the Tribunal remitted interest by Rs. 12,242/- calculated on the basis of after reducing the period of 18 months from the 23 months for which refund was lying with Government at the rate of 2% on net refund; i.e., Rs.122417/-.

(M/s S.S.D. Agro Industries Pvt. Ltd., S.A.No. 1616 of 2004 decided on 18-2-2006. The judgment was delivered by Mr. R. B. Ahuja, Member, First Bench at Aurangabad Camp. Mr. T. N. Gandhi, S.T.P. appeared for the appellant)

5. Whether, on the facts, reassessment order u/s 35(1)(b) was time barred?

Held : Yes.

This was an appeal against reassessment order confirmed by the A. C. (Appeal).

The appellant was assessed u/s 33(3) by the S.T.O. after verification of books of account on 11-11-1998. Subsequently on 1-7-2002 the S.T.O. issued a notice in Form 28 for reassessment u/s 35 on the ground that set-off u/r 42H has been wrongly allowed at Rs. 267527/- as entire adhesive paper has gone into manufacture of labels which were taxable @ 13% and which were taxed @ 8%. So he alleged that turnover has escaped assessment.

The appellant objected to reassessment on merits as well as on the ground of limitation. The appellant submitted that reference to Schedule N of the Balance Sheet was wholly incorrect for determination of taxable sale for framing a reassessment. It was further submitted that notice was issued after more than six years in the 7th year. In the present case, period 5 years applied, as there was no concealment or wrong furnishing of return was alleged.

The Tribunal perused the Gist of the order and observed that the entire turnover was before the assessing officer but there has been short levy of tax by 5%. The Tribunal further observed that the appellant has disclosed the full turnover but the lower authorities have wrongly subjected the said turnover by short levy of 5%. Therefore, the Tribunal held that they were of the view that there was no concealment by the appellant to apply section 35(1)(b). Thus the reassessment orders was time barred and therefore, set aside the order.

(M/s R.K. Paper Industries P. Ltd., S.A. No. 7 of 2006 decided on 24-2-2006. The judgment was delivered by Mr. R.B. Ahuja, Member, First Bench. Mr. P.V. Surte, Advocate appeared for the appellant)