Case BriefsTribunals/Commissions/Regulatory Bodies

Authority for Advance Rulings (GST), Uttarakhand: Vipin Chandra and Amit Gupta (Members), addressed an application stating the following question:

“Whether “Business Transfer Agreement” as a going concern on slump sale basis is exempted from the levy of GST?”

The present application was filed by Innovative Textiles Limited under sub-section (1) of Section 97 of the CGST/SGST Act, 2017 and the rules made thereunder in respect of the question stated above.

While deciding the stated question of “Whether “Business Transfer Agreement” as a going concern on slump sale basis is exempted from the levy of GST in terms of serial No. 2 of the Notification No. 12/2017-Central Tax (rate) dated 28-06-2017”, the relevant portion of the notification was reproduced and on perusal of the same it was observed that,

“services by way of transfer of a going concern, as a whole or an independent part thereof is to be treated as supply of service and covered under Chapter 99 of the Service Code (Tariff) and is exempted from GST.”

The members of the tribunal observed that, a transfer of a business as a going concern is the sale of a business including assets. In terms of financial transaction, ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation.

Further, they added that, internationally accepted guidelines are also applicable in the present cases which are issued by His Majesty’s Revenue & Customs to treat the transfer of a business as a going concern. The guidelines are as under:

  1. The assets must be sold as a part of a ‘business’ as a ‘going concern’.
  2. The purchaser intends to use the assets to carry on the same kind of business as the seller.
  3. Where only part of a business is sold, it must be capable of separate operation.
  4. There must not be a series of immediately consecutive transfers.

Therefore, in view of the above, applicant intends to sale the ongoing Sitarganj business along with all the assets and liabilities and stated that it is live/ operating and purchaser has purchased the business to carry on the same kind of business and applicant has supplied services by way of transfer as a going concern, the same is exempted from levy of GST. [Innovative Textiles Ltd., In re, Ruling No. 20/2018-19, Order dated 26-03-2019]

Case BriefsHigh Courts

Rajasthan High Court: The Bench of Goverdhan Bardhar and Mohammad Rafiq, JJ. disposed of a petition filed by the petitioner challenging the order of termination of his services with the direction to the petitioner to submit a representation to the Principal Secretary, Department of Personnel for giving exemption to the petitioner on the condition of proving his proficiency in computer work on the ground that a similar exemption was accorded to one of his colleagues.

The petitioner had challenged the validity of Rule 9 of the Rajasthan Compassionate Appointment of Dependants of Deceased Government Servant Rules, 1996 which required those appointed on compassionate ground to pass a typing test. The counsel for the petitioner, Mr Om Prakash Sheoran, submitted that ever since the petitioner was appointed on the post, the typewriters had become obsolete and he had been continuously working on computer and acquired proficiency in the computer work. Thus insistence of the respondents to qualify the typing test was wholly unjustified. Further, it was submitted that the respondents had accorded different treatment to another employee. Act of the respondents were discriminatory being violative of Articles 14 and 16 of the Constitution of India.

The Court without going into the argument as to validity of Rule 6 and 9 of the Rules of 1996, considered that the petitioner had rendered services of more than 8 years and on the argument of discrimination on the basis of exemption accorded to another employee, directed the petitioner to submit a representation to the Principal Secretary for according similar exemption to the petitioner on the condition of proving his proficiency in computer work. If eventually, the respondents were persuaded to accord exemption after considering his proficiency in computer work, the petitioner would be entitled to notional benefits and not actual benefits for the intervening period. [Manoj Kumar Sharma v. State of Rajasthan, 2019 SCC OnLine Raj 270, Order dated 27-02-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India: The Board comprising G. Mahalingam as Whole Time Member, allowed a consortium of port trusts exemption from making a public announcement of open offer for acquiring shares of a mini-ratna public sector undertaking (PSU), opining that the takeover would cause no change in ultimate control of the said PSU.

Cabinet Committee on Economic Affairs gave in-principle approval for strategic disinvestment of shares held by President of India in Dredging Corporation of India Limited (‘Target Company’) – a Mini-Ratna PSU – by four acquirers being – Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust, and Deendayal Port Trust (‘Acquirers’). The Acquirers collectively filed an application seeking exemption from applicability of Regulations 3 and 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which mandates public announcement of open offer for acquiring shares.

Acquirers submitted that they are port trusts constituted by the Government of India (‘GOI’) under Major Port Trusts Act, 1963 (‘MPT Act’) as autonomous entities to administer and manage major ports. Disinvestment of 73.47 per cent of shares of Target Company in their favour would give them direct control of the Target Company, but its ultimate supervisory control would rest with the GOI (since the Acquirers are under direct control of GOI in accordance with MPT Act).

It was submitted that Regulation 10(1)(a)(iii) of Takeover Regulations exempts inter-se transfer of shares amongst certain qualifying persons being a company subject to control over such qualifying persons being exclusively held by the same persons. Though Regulation 10(1)(a)(iii) may not strictly apply for the proposed acquisition, the same shall apply in spirit since GOI will continue to have ultimate supervisory control over the Target Company post proposed acquisition.

The Board opined that proposed acquisition would not be covered under automatic exemption available under Regulation 10(1)(a)(iii) of the Takeover Regulations since it would change the nature of control exercised by GOI over Target Company from direct to indirect control. However, there would be no change in control of Target Company, from a takeover perspective, since GOI shall continue to exercise supervisory control over Target Company through the Acquirers. In view thereof, exemption sought in the application was granted.

[Dredging Corporation of India Ltd. v. Visakhapatnam Port Trust, 2019 SCC OnLine SEBI 23, Order dated 28-02-2019]

Legislation UpdatesNotifications

Ministry of Finance has enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.  Shri Santosh Kumar Gangwar, Minister of State for Labour and Employment has expressed hope that this would benefit those employees of PSUs and other employees not covered by Payment of Gratuity Act, 1972 and has thanked the Finance Minister for enhancing the exemption limit.

The ceiling of Gratuity amount under the Payment of Gratuity Act, 1972 has been raised from time to time keeping in view over-all economic condition and employers capacity to pay and the salaries of the employees, which have been increased in private sector and in PSUs.  The latest such enhancement of ceiling of gratuity was made vide Government of India Notification dated 29-03-2018 under which the gratuity amount ceiling has been increased from Rs 10 lakhs to 20 lakhs w.e.f. 29-03-2018.

Ministry of Labour & Employment

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal, Allahabad (CESTAT): This appeal was filed before Archana Wadhwa, J. and Anil G. Shakkarwar, Member against the impugned order passed by the Commissioner.

Appellant was engaged in manufacturing and export of footwear and its parts falling under Chapter 64 of the Schedule to the Central Excise Tariff Act, 1985. For the purpose of exports and its procurement appellant had established four fully owned subsidiaries in foreign countries. These subsidiaries were working as overseas commission agents and were procuring export orders for the appellant. Inasmuch as the appellant is availing the said commission agent services from the companies located outside India, they were liable to pay Service Tax in respect of the commission paid to them, on reverse charge basis, in terms of Clause (iv) of Rule 2(1)(d) of Service Tax Rules, 1994. But such services come under exceptions. Such exemption should not be available on the export of the goods if the export is made by an Indian partner in a company with equity participation in an overseas joint venture or wholly owned subsidiary. The Commissioner concluded that appellants were not entitled to avail the benefit of the said Notification inasmuch as they have paid commission on export of goods procured through the wholly-owned subsidiaries.

Tribunal was of the view that the plain and simple meaning of the exception was that the exports were required to be made by an Indian partner to a company with equity participation in an overseas joint venture. It was admitted that the appellant had not exported the goods to its own wholly owned subsidiaries or overseas joint ventures. Tribunal thus favoured the appellant’s contention that the demand was barred by limitation. Therefore, the impugned order was set aside. [Super House Ltd. v. CCE, 2019 SCC OnLine CESTAT 6, Order dated 18-02-2019]

Case BriefsHigh Courts

Orissa High Court: A Bench comprising of Dr A.K. Rath, J. clarified the point on exemption of paying court fees in respect of a woman through the present order.

The plaintiff-opposite party 1 had instituted the suit for declaration of title, partition and permanent injunction. Value of the suit was at Rs 1, 11, 84,300 on which ad valorem court fees is of Rs 3, 61,931 payable. It has been contended that the plaintiff being a woman will be exempted from the payment of court fees.

Further, it has been stated that the plaintiff in the present case was a citizen of USA due to which she was not liable to be exempted from payment of court fees. Trial Court had rejected the said submissions which lead to the instant petition.

The Bench stated that in accordance to the SRO No. 575 of 1994 issued by the Government of Orissa under Section 35 of the Court Fees Act, 1987, categories of persons are exempted from payment of court fees, which clearly states that women are exempted from the payment of court fees. The Court also stated that the notification sweeps the woman of any status or nationality.

Therefore, in view of the notification stated above, plaintiff being a woman is exempted from the payment of court fees and the impugned order does not suffer from any illegality or infirmity warranting the interference of the Court under Article 227 of Constitution of India. [Sanjay Kumar Das v. Munmum Patnaik, 2018 SCC OnLine Ori 445, decided on 21-12-2018]

 

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal (CESTAT): A Division bench comprising of C.L. Mahar (Technical) and Ajay Sharma (Judicial), Members. upheld the order of Excise Commissioner directing reversal of Cenvat credit against a manufacturer for non-compliance of Cenvat Credit Rules.

The instant appeal arises against an order of the Excise Commissioner directing reversal of Cenvat credit availed by the appellant. Appellant is the manufacturer and supplier of leaf springs falling under Chapter 73 of Schedule I to the Central Excise Tariff Act, 1985. During 2014, it got an order from the Government of India’s Defence Vehicles Factory and as an established practice, availed Cenvat credit on inputs, input services and capital goods as per Cenvat Credit Rules, 2004 as per which it should have reversed Cenvat credit at the rate of 6% of the value of exempted goods. However, no separate accounts of Cenvat credit availed on exempted and dutiable goods had been maintained by the appellant. Accordingly, show cause notices the demanding reversal of Cenvat credit was issued to the appellant, which was adjudicated by the Commissioner.

The Tribunal noted that Rule 6 of the Cenvat Credit Rules clearly stipulates that if any input, input services or capital goods are used in manufacture of goods which are exempted from payment of central excise duty, then the manufacturer is legally required to reverse back the 6% of the value of clearances from the accumulated Cenvat credit. The manufacturer can also maintain a separate account of inputs and the credits thereon for both dutiable as well as exempted goods, and in that case, the requirement of 6% of the value of clearances is needed not to be followed.

In view of the above and decision rendered in NCS Distilleries/Estates Pvt. Ltd. v. CCE, Visakhapatnam; 2006 SCC OnLine CESTAT 644, the Tribunal held that since the appellant had not maintained separate account of Cenvat credit availed on exempted as well as dutiable final products, hence, it was liable to reverse the Cenvat credit. [Jamna Auto Industries Limited v. CCE & ST, Ujjain,2018 SCC OnLine CESTAT 863, decided on 12-11-2018]

 

 

 

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): G. Mahalingam, whole time Member, in this order granted exemption from application of Section 3(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

An application was filed under Section 11(1) and Section 11(2)(h) of the SEBI Act read with Regulation 11(5) of the SAST Regulations, 2011 seeking exemption from application of Section 3(2) of the SAST Act on acquiring of shares and voting rights in the target company. The matter before the Board was that the promoters were willing to transfer by way of gift all the equity shares of the Target Company to the acquirer trusts. The transferor submitted the grounds on which they seek an exemption. Major grounds being the objective with which the transfer is proposed that is seamless intergenerational transfer of the trust fund in view of the fact that the beneficiaries are family members being non-commercial transaction. The other ground being that the ownership or control of the target company had not been affected. Also, pre and post-acquisition shareholding of promoter group would remain same. The acquirer/transferee confirmed that they have adhered to the Guidelines outlined in the Schedule to the SEBI Circular. Board noted all the grounds and ordered that the Target Company shall continue to be in compliance with the minimum public shareholding requirements under the Securities Contracts Regulation Rules, 1957 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Board was of the view that the exemption prayed by the applicants should be granted with certain conditions which the transferor and transferee needs to fulfill. Therefore, exemption from application of Section 3(2) was granted. [Proposed Acquisition of Shares and Voting Rights in Target Company FDC Ltd., In re,2018 SCC OnLine SEBI 156, order dated 21-08-2018]

Case BriefsHigh Courts

Himachal Pradesh High Court: A Single Judge Bench comprising of Vivek Singh Thakur, J., decided a revision petition wherein the order of conviction passed against the petitioner by the trial court was reversed.

The petitioner was convicted and sentenced under in a criminal case arising under Section 138 of Negotiable Instruments Act. The petitioner, in the instant petition, submitted that he has entered into a compromise with the respondent and the matter has been amicably settled between the parties. Hence, he prayed for the quashing of the said order of conviction and sentence and also for compounding of the said offence.

The High Court perused the evidence available on record to satisfy itself that the matter was in fact amicably settled between the parties by entering into a compromise. Thus, the High Court was of the view that the order of conviction and sentence under Section 138 passed against the petitioner need to be quashed. Also, on further request of the petitioner, he was partly exempted from paying the compounding fee in consideration of the fact that the petitioner was a poor person, he was in jail, and he had no resources available to pay the required 15% of the suit amount. Hence, the petition was allowed. [Keshav Ram v. Padam Singh Thakur, 2018 SCC OnLine HP 150, dated 20.2.2018]

Case BriefsSupreme Court

Supreme Court: Refusing to interfere with the decision of the Gujarat High Court directing Essar Steel India Ltd. (ESL) to pay electricity duty amounting to Rs. 562 Crores together with interest totaling Rs. 1038.27 Crores to the State of Gujarat, the bench of Dr. A.K. Sikri and Ashok Bhushan, JJ said that the statutory conditions for grant of exemption as contained in Section 3(2)(vii)(a) of the Bombay Electricity Duty Act, 1958 can neither be tinkered with nor diluted.

ESL holds 42% shares in Essar Power Ltd. (EPL) which is a duly incorporated company under the provisions of Companies Act, 1956, which is a generating company selling/supplying electrical energy. The Court noticed that both ESL and EPL are distinct separate legal entities and merely because ESL might have 42% shares holding in EPL, it cannot be said that ESL is generating electricity jointly with EPL and EPL is generating electricity jointly with ESL for use of electricity by ESL.

It was further stated that even assuming ESL and EPL are jointly generating the energy for the use of   industrial   undertaking   which   are   jointly generating the energy, the Gujarat Electricity Board to whom 300 MW has been allocated cannot be held to be   industrial   undertaking   which   is   jointly generating the energy with appellant. The Statutory scheme   for   grant   of   exemption   has   to   be   strictly construed.   EPL   is   not   jointly generating energy with Gujarat Electricity Board and it is selling the energy to the extent of 300 MW to Gujarat   Electricity   Board.   Hence, the   conditions   of   the statutory provisions of Section 3(2)(vii)(a) of the Act are not fulfilled. [Essar Steel India Ltd. v. State of Gujarat, 2017 SCC OnLine SC 522, decided on 02.05.2017]

Case BriefsHigh Courts

Delhi High Court: A Division Bench was seized of the question whether an undertaking which was being revived by BIFR could be granted a tax exemption from capital gains. The facts in issue were a textile machinery manufacturer became sick in 2001 and the BIFR charted out a rehabilitation scheme with a twin direction to the Income Tax Directorate (a) to consider the petitioners company’s request for exemption from payment of capital gains on the sale of assets and (b) to carry forward the losses incurred up to the year 2013 as against 2009. The Income Tax Directorate denied the benefit of exemption from capital gains based on certain figures projecting profit by the company in future years. The matter was remanded back by the High Court due to the fact that the income tax department should have passed a judgment keeping in mind the actual figures of profit of the undertaking rather than future projections. The matter was decided against the undertaking again upon reconsideration. The petitioner preferred a writ petition against the order of the Income Tax Directorate and challenged it on the ground of non-consideration of the sick health of the undertaking.

The broad contentions raised by the petitioners were –

(A) The Income tax directorate should have considered the fact that only because the assets exceeded the liabilities (net-worth was in profit) did not discount that the undertaking still had to make up the losses it had incurred.

(B) The BIFR scheme also envisioned the denial of capital gains exemption would make the undertaking sick again because the capital gains liability was a sum of Rs 331 Lakhs.

(C) The capital gains arose after selling land only for discharging the liabilities of other companies

(D) Section 32 of the Sick Industrial Companies Act 1985, stated that any direction issued by the authority would have an overriding effect over any provision or law barring a few exemptions. Therefore, BIFR’s rehabilitation scheme (which recommended exemption of tax on capital gains) should be seriously considered.

The Income Tax Directorate defended the order by contending –

(A) The undertaking of the petitioner was in profits not only in future projections but also in current actual figures – the undertaking had revived after the rehabilitation scheme in the year 2011 itself. (i.e. undertaking’s assets exceeded its liabilities)

(B) The department ought not to be forced to grant an exemption on payment for the fault of the petitioners

(C) The possibility of losses occurring after paying the tax on capital gains was a usual risk in business and could never be averted

The High Court partly allowed the writ petition by issuing a direction that since the petitioner’s liability had not been crystallized yet, no interest on capital gains tax shall be liable for the duration the matter remained pending in court. However, the Court held that the no exemption from payment of tax on capital gains would not be illegal because the possibility of losses arising in future is a normal course of any functioning business enterprise. [Laxmi Automatic Loom Works v. Deputy Commissioner of Income Tax, 2016 SCC OnLine Del 6207, decided on 5.12.2016]

Case BriefsSupreme Court

Supreme Court: Deciding the question as to whether a former ‘ruler’ is entitled to get full benefit of the exemption granted to him under Section 10 (19A) of the Income Tax Act 1961 from payment of income-tax or it is confined only to that portion of palace which is in his actual occupation as residence and the rest which is in occupation of the tenant would be subjected to payment of tax, the Court held that the Legislature did not intend to tax portion of the “palace” by splitting it in parts. Even if the Ruler had let out the portion of his residential palace, yet he would continue to enjoy the exemption in respect of entire palace because it is not possible to split the exemption in two parts, i.e., the one in his occupation and the other in possession of the tenant.

Interpreting the related provisions, the Court said that in Section 10(19A) of the I.T. Act, the Legislature has used the expression “palace” for considering the grant of exemption to the Ruler whereas on the same subject, the Legislature has used different expression namely “any one building” in Section 5 (iii) of the Wealth Tax Act. No reliance could be placed on Section 5(iii) of the Wealth Tax Act while construing Section 10(19A) for the reason that the language employed in Section 5(iii) is not identical with the language of Section 10(19A) of the I.T. Act. If the Legislature intended to split the Palace in part(s), alike houses for taxing the subject, it would have said so by employing appropriate language in Section 10(19A) of the I.T. Act. Also, Section 23(2) and (3), uses the expression “house or part of a house”. Such expression does not find place in Section 10(19A) of the I.T. Act. Likewise, there is no such expression in Section 23, specifically dealing with the cases relating to “palace”.

In the present case which related to the ‘Umed Bhawan Palace’ used by the ‘ruler’ as his official residence and some part of which had been requisitioned to the Defence Ministry, the bench of Ranjan Gogoi and Abhay Manoher Sapre, JJ further said that if two Statutes dealing with the same subject use different language then it is not permissible to apply the language of one Statute to other while interpreting such Statutes. Similarly, once the assessee is able to fulfill the conditions specified in section for claiming exemption under the Act then provisions dealing with grant of exemption should be construed liberally because the exemptions are for the benefit of the assessee. [Maharao Bhim Singh of Kota v. Commissioner of Income Tax, 2016 SCC OnLine SC 1428, decided on 05.12.2016]

Case BriefsSupreme CourtTaxation

Supreme Court: Deciding on the issue that whether the State Government may deny the tax exemption which was promised earlier, the bench comprising of Dr. A.K Sikri and R. F. Nariman, JJ., was of the view that the non-exercise of the power to give exemption in certain taxes is in itself an arbitrary act. The Court also, while considering the principle of promissory estoppel, observed that promissory estoppel can be the basis of an independent cause of action in which detriment does not need to be proved and it is enough that a party has acted upon the representation made.

A Government Order dated 11.07.1986 was issued by the State of Kerala, stating that tourism be declared “industry” and exemption from Building Tax levied by the Revenue Department was one of the concessions granted. The power to make exemption was granted by adding Section 3A to the Kerala Buildings Act, 1975, however the same was omitted in 1993.  In the present case, the appellants relying on a government order, constructed a hotel building in the year 1991 while reasonably assuming the rightful entitled tax exemption and the government had the statutory power to grant exemption from building tax. A discretionary power was to be exercised on facts under Section 3A of the Kerala Buildings Tax Act, 1975 as the said provision was in force at that time. The non issuance of such of a notification was an arbitrary act of government which must be remedied by applying the doctrine of promissory estoppel. The Court further held that no valid public interest exist which justifies the government’s resilience from its promise. The appellants are therefore entitled to exemption till the date of existence of such exemption provision in the statute and not thereafter. (Manuelsons Hotel v. State of Kerala, 2016 SCC OnLine SC 487, decided on 11.05.2016).

Supreme Court

Supreme Court: In the instant case a dispute pertaining to assessment of Long Term Capital Gain under Section 54 of the Income Tax Act, 1961(IT Act) arose when the appellants were not accorded the benefit under the provision dealing with Long Term Capital Gain owing to the reason  that the appellants had transferred the original asset i.e. the residential house on 24.09.2004 whereas the appellants had purchased another residential house on 30.04.2003 i.e. more than one year prior to the purchase of the new asset and therefore, the appellants were made liable to pay income tax on the capital gain.

Ashok Mahajan, the counsel for the appellants contended that the authorities ought to have considered the date on which the agreement to sell had been effected by the appellants for transfer of the property in question as the date of transfer of the original asset, the counsel also contended that in Section 2(47) of IT Act “transfer” has been given an inclusive definition. Anil Katiyar, the respondent counsel however refuted the contentions of the opposite party.

 Perusing the arguments from both the sides and looking at the definition of “transfer” in Section 2(47) of IT Act, the Court observed that the legislative intent has been that if a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under Section 54 of IT Act the taxpayer should not be burdened with tax on the Long Term Capital Gain and thereby exempted from paying income tax on the Long Term Capital Gain. Referring to its previous decision in Oxford University Press v. Commissioner of Income Tax, (2001) 3 SCC 359, the Court observed that a purposive interpretation and harmonious construction of the provisions concerning tax exemption should be given which sub-serve the object and purpose and the legislative intent. Therefore according purposive interpretation to “transfer” in Section 2(47) of the IT Act and on the basis of the facts, the appellants were granted exemption from tax on the Long Term Capital Gain.Sanjeev Lal v. CIT, Civil Appeal Nos.5899-5900 of 2014, decided on 01.07.2014

 To read the full judgment, refer to SCCOnLine