Thursday, July 31, 2008
CA FINAL EXAM QUESTION
| ACCOUNTS OF COMPANY X Ltd has a subsidiary company called Y Ltd. The financial year of the holding company is 31st March,whereas that of the subsidiary company ends on 30th June every year.The management of the holding company decides that the financial year of the subsidiary company for the year 1.07.2000 to 30.06.2001 should be extended upto 31.03.2002,so that the financial years of th holding and subsidiary companies end on 31st March every year.Advise the management about the steps to be taken under the Companies Act to achieve the purpose.(CA FINAL MAY 2001,NOV 2003,NOV 2005) Solution: Applicable section- Mention Section 212 of Companies Act Section213-Explain the power of Central Govt to extend the financial Year Explain the procedure for seeking extension |
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Wednesday, July 30, 2008
warren buffet-Golden Rules
CONITNUED FROM YESTARDAY......
BASIC IDEAS
The basic ideas of investing are to look at stocks as businesses,
use market f luctuations to your advantage, and seek a margin
of safety. That’s what Ben Graham taught us. A hundred years
from now they will still be the cornerstones of investing.4
WARREN BUFFETT, 1994
GRAHAM’S APPROACHES
Graham’s approaches—buying a stock for less than twothirds
of net asset value and buying stocks with low P/E multiples—had
a common characteristic. The stocks that Graham selected based on
The basic ideas of investing are to look at stocks as businesses,
use market f luctuations to your advantage, and seek a margin
of safety. That’s what Ben Graham taught us. A hundred years
from now they will still be the cornerstones of investing.4
WARREN BUFFETT, 1994
PEOPLE COULD MAKE SUPERIOR PROFITS
Fisher came to believe that people could make superior profits by
(1) investing in companies with above-average potential and
(2) aligning themselves with the most capable management. these methods were deeply out of favor with the market.
GROWTH
companies with above-average potential have ability to grow
sales over the years at rates greater than the industry average. That
growth, in turn, usually was a combination of two factors: a significant
commitment to research and development, and an effective sales organization.
CONSISTENT PROFITS
“All the sales growth in the world won’t produce the right type of investment vehicle if, over the years, profits do not grow correspondingly,” .Accordingly,
Fisher examined a company’s profit margins, its dedication to maintaining
and improving those margins and, finally, its cost analysis and
accounting controls.”
TO BE CONTINUED TOMORROW.......
“ENJOY TODAY ,WAIT FOR BEAUTIFUL TOMORROW ”
what are weakness and strength you find while reading this article/section ?
please give your comment below (in comment label) as how can this article/section be improved further ? it will GIVE THE OPPORTUNITY TO MEMBERS OF “ jab we met CA “ BLOG TO IMPROVE THEMSELVES. WAITING FOR YOUR REPLY....
SATBIR SINGH
PRESIDENT
JAB WE MET CA
REDEFINING PROFESSIONALISM......
“LEADERS ARE READERS, READERS ARE THE LEADERS”
CA FINAL EXAM QUESTION
BY MANIT KAUR (40TH RANK,MAY2008)
CO-ORDINATOR
STUDENT HELP DESK
MEMBER JAB WE MET CA
SUBJECT :CORPORATE LAWS AND SECRETARIAL PRACTICE
CHAPTER- DIRECTOR
MR X was appointed as managing director for life by the articles of association of a private company
Incorportated on 1st june 1970. The articles also empowered ‘X’ to appoint a successor.
‘X’ appointed ,by will, ‘G’ to succeed him after his death. Can ‘G’ succeed ‘X’ as managing director after the death of ‘X’.? CA (FINAL),NOV 1995
1) Mention Problem :-Can ‘G’ succeed ‘X’ after the death of ‘x’ ?
2) Mention Applicable Section: 312 of Companies Act 1956
3) Mention Case Law and Decision :-Oriental Metal Precessing Pvt Ltd. V B.K. Thakoor
4) Give Analysis : difference between Assignment V/S Appointment
5) Give Conclusion:- There is appointment not assignment. Therefore the appointment of ‘G’ is valid and it does not amount to an assignment of office by ‘X’.
CA INTER PASS-CONGRATULATION!!!
(CA INTER PASS OUT)
JAB WE MET CA TEAM EXTEND BEST WISHES TO CA INTER PASS OUT.
" LET US DREAM BIG ,AND MORE IMPORTANTLY ,DREAM DIFFERENT. REMEMBER THAT DREAMS ARE LIKE STARS, YOU MAY NEVER TOUCH THEM BUT IF YOU FOLLOW THEM THEY WILL LEAD YOU TO YOUR DESTINY. YOU CAN NEVER CROSS THE OCEAN UNLESS YOU HAVE THE COURAGE TO LOSE SIGHT OF THE SHORE ."
CA VED JAIN
NEW DELHI,JUNE 25,2008
ANURAG SHARMA (CA INTER PASS, CONGRATULATION !!! )MEMBER JAB WE MET CA
AJAY KUMAR ANURAG SHARMA (CA INTER PASS, CONGRATULATION !!! )MEMBER JAB WE MET CA
IF ANY OTHER PERSON HAS ASLO PASSED CA INTER PLEASE MAIL ME YOUR PASSPORT SIZE PHOTO AND YOUR NAME,IF YOU HAVE SECURED RANKS,OR PASSES ONE OF THE GROUP EVEN THEN,MAIL ME at casatbirgill@gmail.com
SATBIR
PRESIDENT
JAB WE MET CA
REDEFINING PROFESSIONALISM........
INCOME TAX-IMPORTANT CASES
IMPORTANT INCOME TAX CASES VIVEK SAWHNEY,VICE PRESIDENT
JAB WE MET CA
Employer-employee relationship:
The nature and extent of control which is the basis requisite to establish employer- employee relationship would vary from business to business. The test which is uniformly applied in order to determine the relationship is the existence of a "right to control" in respect of the manner in which the work is to be done. (Dharangadhra Commercial Works v State of Saurashtra 1957 SCR 152)
House Rent Allowance(S.10(13A):
When commission is paid to a person based upon fixed percentage of turnover achieved by the employee it would amount to "Salary" for the purpose of Rule 2 (h) of part A of IV Schedule(Gestetner Duplicators vCIT 117 ITR 1 (SC)).
Deduction under S.80G:
By the very nature of calculation required to be made u/s 80G(4) it is necessary that all deduction under chapter VIA be first ascertained and deducted before granting deduction u/s 80G (Scindia Steam Navigation Co v CIT (1994) 75 Taxman 495(Bom))
Revised return
A belated return filed u/s 139(4) can not be revised u/s 139(5). ( Kumar J.C. Sinha v CIT (1996) 86 Taxman 122(SC)).
Return showing income below taxable limit: Is a valid return. (CIT v Ranchhoddas Karosands(1959(361ITR 869 (SC)).
Perquisite (S17):
One can not be said to allow a perquisite to an employee if the employee has no vested right to the same. (CIT v L.W. Russel(1964) 531 ITR 91 (SC)).
Reimbursement of expenses incurred by the employee has been intended to be roped in the definition of " Salary" by bringing it as part of " Profit in lieu of salary." (I.E . I Ltd. v CIT (!993) 204 ITR 386(Cal)
IMPORTANT SERVICE TAX CASES
SOURABH SONI
SECRETARY
JAB WE MET CA
Service Tax - 2008 - - HIGH COURT OF GAUHATI -
Applicability of Service Tax on the business of development and sale of immovable properties, i.e., real estates - whether the appellant has been working, as a "service provider", for those persons with whom the petitioner-company enters into agreements and constructs flats for the purpose of sale to those with whom such agreements are entered into - HC held that department is binding by the circular issued by board. HC further held that, the activity in question is not subject to service tax.
Service Tax - 2008 - - HIGH COURT OF ANDHRA PRADESH
Applicability of Service tax on Works Contract - Appellant sought to declare the circular no. 98/1/2008 St dated 4-1-2008 ultra virus the Finance Act, 1994. In the circular it is said that contracts executed prior to 1.6.2006 shall be taxable under the old respective categories. Appellant wants to pay tax on the works contract under the new provision 65(105)(zzzza) - HC has granted interim relief to the petitioner to pay service tax under new category subject to further orders.
Service Tax - 2008 - CESTAT, Delhi
Applicability of Service Tax on services provided by private companies relating to generation, supply, distribution etc. on behalf of state power board (state governments, i.e. Madhya Pradesh Electricity Board) to the consumers - Demand was raised to the tune of Rs. 67,28,53,038/-. CESTAT has found that prima fascia the service is taxable under the category of "Business Support Service" and ordered to deposit Rs. 5 crore and stay granted for the balance demand from pre-deposit
Self Credit Scheme under Excise
Self Credit Scheme under Excise
(BY MOHAN,EDITOR,JAB WE MET CA)
Self Credit Scheme is one of the privilege given to an establishment in the state of Jammu and Kashmir by giving benefits of Central Excise
Original notification 57/2002…….. Exempts the goods specified in the schedule cleared from a unit located in the state of Jammu & Kashmir, from so much of amount of excise livable thereon under excise act as equivalent to amount of duty paid by the manufacturer of goods other than the amount of duty paid by utilization of CENVAT credit under CER 2002.
The point to be noted here is its only the amount of Excise which is exempted , the Assesee is required to pay the amount of CESS out of PLA, in other words we can say it can not be used for the payment of CESS.
Manufacturer has two Options
Either take refund of Duty paid on Cash or Take Credit of That Amount
Eg…..
Excise Payable on Output Rs100
Less:-
CENVAT Availed Rs 40
Excise Paid In Cash Rs 60
Now either he can take refund of this amount or…….
Next Month Excise Payable RS 200
Less;-
CENVAT Availed Rs 80
Less:-Self Credit Rs 60
(the amount paid in cash of last Month)
Payment to be made in Cash RS 60
Next Month Self Credit Available Will be 120 (I.e 60+60) as the amount paid as self credit will also be treated as paid in cash.
Now……… Notification 57/2002 is amended by Notification 22/2008
The amount of Self Credit taken is reduced by inserting following words
Credit Available……………….is of … Duty payable on VALUE ADDITION undertaken in the manufacture of the said goods by said unit
Duty Payable on Value Addition
Total Duty Payable (Gross) * %age specified in notification
Credit Available is of Duty Payable on Value Addition
Or
Amount paid in Cash
Which ever is less
Article by:-
Mohan Chand
OFFICE BEARERS OF JWM CA
Tuesday, July 29, 2008
Warren Buffet -Golden Tips
CONITNUED FROM YESTARDAY......
TWO QUALITIES OF INVESTMENT
1) some degree of safety of principal
2) and a satisfactory rate of return INCLUDING price appreciation
BUY CERTANTIES
“Buffett’s preference to “buy certainties at a discount.”
“Certainties” are defined by the predictability of a company’s
economics. The more predicable a company’s economics, the more certainty
we might have about its valuation”
INVESTMENT V/S SPECULATION
“An investment operation is one which, upon thorough
analysis, promises safety of principal and a satisfactory return. Operations
not meeting these requirements are speculative.
IDENTIFY MARGIN OF SAFETY
“Margin of Safety exists when securities are selling—for
whatever reason—at less than their real value”. If, for example, an analyst reviewed the operating history of a company and discovered that, on average, for the past five years the company was able to earn annually five times its fixed charges, then that
company’s bonds possessed a margin of safety. If the spread between the price of a stock and the intrinsic value of a company was large enough, the margin-of-safety
concept could be used to select stocks. Definition of intrinsic value is “that value which is determined by the facts.” These facts included a company’s assets, its earnings and dividends, and any future definite prospects.
MOST IMPORTANT FACTOR
“Single most important factor in determining a company’s value was its future earnings power, a calculation that is bound to be imprecise. Simply stated, a company’s intrinsic value could be found by estimating the earnings of the company and multiplying
the earnings by an appropriate capitalization factor. The company’s stability of earnings, assets, dividend policy, and financial health influenced this capitalization factor, or multiplier.Intrinsic value is distinct from the market’s quotation price. Originally, intrinsic
value was thought to be the same as a company’s book value, or the sum
of its real assets minus obligations. It is not essential to determine a company’s exact intrinsic value; instead, investors should accept an approximate measure or range of value. Even an approximate value, compared against the selling price, would be sufficient to gauge margin of safety.”
TWO RULES OF INVESTMENT,
“ Two rules of investing, said by Graham are
1) The first rule is don’t lose.
2) The second rule is don’t forget rule number one.
This “don’t lose” philosophy steered Graham toward two approaches for selecting common stocks that, when applied, adhered to the margin of safety. The first approach
was buying a company for less than two-thirds of its net asset value, and the second was focusing on stocks with low price-to-earnings (P/E) ratios.”
TO BE CONTINUED TOMORROW.......
“ENJOY TODAY ,WAIT FOR BEAUTIFUL TOMORROW ”
what are weakness and strength you find while reading this article/section ?
please give your comment below (in comment label) as how can this article/section be improved further ? it will GIVE THE OPPORTUNITY TO MEMBERS OF “ jab we met CA “ BLOG TO IMPROVE THEMSELVES. WAITING FOR YOUR REPLY....
SATBIR SINGH
PRESIDENT
JAB WE MET CA
REDEFINING PROFESSIONALISM......
“LEADERS ARE READERS, READERS ARE THE LEADERS”
DIRECTOR
SUBJECT :CORPORATE LAWS AND SECRETARIAL PRACTICE
CHAPTER- DIRECTOR
Mr Stubborn is a director of M/S Doubtful Industries Ltd. He along with other two directors has been running the company for past twenty years without declaring any dividends or giving any benefits to the shareholders. Frustrated by this, some shareholders are desirous of giving notice to pass a resolution with the support of other shareholders for his removal as a director in the annual general meeting of the company to be held in the month of December of 2001.State the procedure to be followed for the removal of Mr. Stubborn as a director and the right of stubborn to defend his position . CA (FINAL) NOV 2001
ANSWER : APPLICABLE SECTION :-284 of companies act 1956
Steps involved to solve the above question :-
Mention the procedure/steps for removal of director in sequence e.g
Mention case law to support your answer
Explain the exceptions
Give conclusions
Tips on writing a good CV
What is a CV?
Your CV is your marketing brochure through which the prospective employer decides whether he wants to see you for an interview or not.
What is the purpose of a CV?
The purpose of your CV is to fetch you an interview call.
HOW to write a good CV?
Include the relevant information. Your CV may require a little bit of modification according to the type of opening you are applying for. You may need to expose different facets of your personality and work experience for different openings.
Prioritize the information
A recruiter is not interested in knowing your father's name on opening up your CV. He would rather prefer to know about your educational background, if you are a fresher and your work experience, if you an experienced job seeker. Prioritize the information in the CV to maintain the attention of the recruiter.
Emphasize at right place
Learn to emphasize at right place in the CV. If you think, any of your particular achievements gives you a cutting edge over other job seekers for a particular opening, emphasize on it. For e.g. if you are a fresher and you have been a topper of your college or university, it is worth mentioning and emphasizing in the CV. Similarly, if you are an experienced worker and your particular achievement has been acknowledged by your employer, which you think can add more value to your CV while applying for a particular position, emphasize on it.
Use more impactful words
Use words which demostrate your control over things. For e.g. managed, achieved, counselled.
Use figures
Use some figures to show the extent of your activities and their impact. For e.g. Planned raw material requirements for 10 manufacturing units of the company, across 5 states.
Don't be verbose
Try to keep your CV precise and to the point. Don't fill it up with extra words. You might land up losing the recruiters attention.
Don't dump the information
A neat CV attracts the recruiter more than the one which has information dumped on it. Provide all the relevant information but in a neat and attractive manner.
Check for spellings and grammar
Try to keep your CV free of any spelling mistakes and bad grammar. They put the recruiter off.
Key areas of a good CV
While writing a CV you must first think, what is it that you want to communicate to the recruiter through your CV. Now, write your CV keeping your objective in mind. Following are the key areas which if well written catch the immediate attention of the employer.
Executive/Career summary
A well written, short and simple executive summary at the beginning of your CV will catch the immediate attention of the recruiter. Keep it short and to the point while trying to focus on your key strengths and achievements, relevant to the position.
Work experience/ Educational background
If you have a work experience, mention it after the executive summary in a chronologically descending manner with the job profile. If you are a fresher educational back ground should find this place in your CV. Mentioning acievements rather than responsibilities is more impactful.
Mention about your achievements
Mentioning achievements out of work also plays an important role. For e.g. Elected college vice president during graduation. This demostrates your leadership quality.
Avoid using "I"," my" in your CV
The recruiter knows well that you are talking about yourself in your CV. Avoid the use of words like I , my in your CV. It makes you look egomaniac.
Pay Carbon Tax
Polluting power cos may pay carbon tax
29 Jul, 2008, 0205 hrs IST,Subhash Narayan, ET Bureau
NEW DELHI: The energy coordination committee headed by Prime Minister Manmohan Singh has suggested imposition of a carbon tax on polluting power stations. The proposal would club India with a select group of countries that tax carbon emissions directly and boost the renewable energy initiative. The initiative could turn Indian power stations more efficient and less polluting; it could push up power tariffs. “A proposal to levy carbon tax on polluting power stations is on the table. The move would also enable the country to begin work on containing pollution at an early stage itself. While we are sitting on huge carbon credits now, it is feared that rising pollution could change the situation soon. The new tax would provide more funds for renewable energy initiative whose share in total power mix is dismal at present,” an official source told ET . However, implementation of the proposal would depend on how fast the country progresses in having benchmarks for efficiency that would be important for levying a carbon tax. It is also felt that the carbon tax should not be additional burden on utilities. The ECC has also suggested that carbon tax should not be a standalone initiative and there was also a need for introducing a system of emission trading in order to avoid problems in the country’s negotiating position on climate change. Most countries in the European Union have a system of penalising polluting industries, forcing them to buy carbon credits from efficient industries. India proposes to add 78,577 mw of additional power generation capacity during the 11th Plan. Around 70% of this capacity would come from the thermal sector. The gross installed capacity of grid interactive renewable power in the country is estimated at 11,273 mw, 8% of the total installed generation capacity in the country.
WHAT IS SERVICE ?
Service tax has been levied on services i.e., taxable services as per section 65(105) of the Finance Act, 1994 but the term 'service' has not been defined in Act/Rules or by way of any explanation. What constitutes taxable service is very often a subject matter of dispute. Its literal meaning is an act of helpful activity, rendering of assistance or help. Service is a transformation of the user or user's goods, as a result of the voluntary intervention by the producer of services. It is generally an intangible commodity in the forms of external efforts and excludes sale of goods or property or commodities. It pre-supposes existence of a service provider. For service tax purposes, if there is no taxable service, there is no tax.
What is Service ?
Service has been defined differently under various laws and dictionaries. Under Income Tax Act, 1961, service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.
Service means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking financing, insurance, chit fund, real estate, transport, processing, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the conveying of news or other information but does not include the rendering of any service free of charge or under a contract of personal service.
Explanation.— For the removal of doubts, it is hereby declared that any dealings in real estate shall be included and shall be deemed always to have been included within the definition of 'service'. [Monopolies and Restrictive Trade Practices Act].
Service means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking, financing, insurance transport processing, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service. [Consumer Protection Act, 1986].
Service means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service fee of charge or under a contract of personal service. [Foreign Exchange Management Act, 1999].
Service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising. [Trademarks Act, 1999 and Competition Act, 2002].
Service means something provided, usually for a fee, that may not be classed as manufacturing or production in any form (such as legal advice, brokerage, agency services and financial advice). [International Accounting; Business; Insurance].
Thus, literally, service can be said to have the following salient features—
— Act of helpful activity
— Act of doing something useful
— Rendering of assistance/help
— Anything which does not involve supply or transfer of goods is service
— Transformation of user/user goods as a result of voluntary intervention of service provider
— Intangible commodity in form of human effort
— Excludes sale of goods/commodities/property
— Existence of service provider
However, following judgements may create controversy between sale of goods and services -
• Sale of sim card and activation of mobile service is a taxable service [Escotel Mobile Communications Ltd. v. Union of India 2005 -TMI - 185 - HIGH COURT OF KERALA]
• Sale of sim cards by a company engaged in providing cellular telephone services to its subscribers fall within the taxable services [Aircell Digilink India Ltd. v. CCE Jaipur 2005 -TMI - 161 - CESTAT, NEW DELHI; Bharti Cellular Ltd. v. CCE Delhi 2005 -TMI - 197 - CESTAT (NEW DELHI)]
• Provision of telephone connection constitutes a sale, as it involves the transfer of right to use goods attracting sales tax, notwithstanding the fact that service is subject to service tax. [State of Uttar Pradesh & Others v. Union of India & Others 2005 -TMI - 143 - SUPREME COURT]
• Transfer of intellectual property, say software, though a medium which is bought and sold as goods (like in case of floppies, discs, CD Rom, punch cards, magnetic tape etc.) would constitute sale purchase of goods and not that of IPR. In one of the cases of sales tax in Tata Consultancy Services v. State of Andhra Pradesh (2008 -TMI - 4143 - Supreme Court) , Supreme Court has held that software may be intellectual property but as the property contained in a medium is bought and sold, it is an article of value and as such, software can be described as goods subject to sales tax.
Supreme Court observed in TCS case (supra) to distinguish between goods and services as under—
"The music is produced by the artistry of musicians and in it is not a good, but when transferred to a laser-readable disc, it becomes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a good, but when transcribed as a book, it becomes a good".
What constitute 'goods' and is sold by the service provider can not be subjected to service tax which is also evidenced by Notification No. 12/2003-ST dated 20.6.2003 whereby cost of goods or material sold by the service provider to the receiver of services during the course of provision of taxable services is exempt from levy of service tax. Certain abatements also justify this logic.
Anything which is not a good will be called a service. To be a service, some action or rendition of service on the part of service provider is also necessary.
In Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes (2008 -TMI - 2576 - Supreme Court of India), it has been held that payment of service tax and VAT are mutually exclusive. In a composite contracts, both sales and service component can be present.
About the Author: -
Dr. Sanjiv Agarwal
Article Section
List article
TAX ON SERVICES BUT WHAT IS SERVICE ?
Service tax has been levied on services i.e., taxable services as per section 65(105) of the Finance Act, 1994 but the term 'service' has not been defined in Act/Rules or by way of any explanation. What constitutes taxable service is very often a subject matter of dispute. Its literal meaning is an act of helpful activity, rendering of assistance or help. Service is a transformation of the user or user's goods, as a result of the voluntary intervention by the producer of services. It is generally an intangible commodity in the forms of external efforts and excludes sale of goods or property or commodities. It pre-supposes existence of a service provider. For service tax purposes, if there is no taxable service, there is no tax.
What is Service
Service has been defined differently under various laws and dictionaries. Under Income Tax Act, 1961, service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.
Service means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking financing, insurance, chit fund, real estate, transport, processing, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the conveying of news or other information but does not include the rendering of any service free of charge or under a contract of personal service.
Explanation.— For the removal of doubts, it is hereby declared that any dealings in real estate shall be included and shall be deemed always to have been included within the definition of 'service'. [Monopolies and Restrictive Trade Practices Act].
Service means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking, financing, insurance transport processing, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service. [Consumer Protection Act, 1986].
Service means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service fee of charge or under a contract of personal service. [Foreign Exchange Management Act, 1999].
Service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising. [Trademarks Act, 1999 and Competition Act, 2002].
Service means something provided, usually for a fee, that may not be classed as manufacturing or production in any form (such as legal advice, brokerage, agency services and financial advice). [International Accounting; Business; Insurance].
Thus, literally, service can be said to have the following salient features—
— Act of helpful activity
— Act of doing something useful
— Rendering of assistance/help
— Anything which does not involve supply or transfer of goods is service
— Transformation of user/user goods as a result of voluntary intervention of service provider
— Intangible commodity in form of human effort
— Excludes sale of goods/commodities/property
— Existence of service provider
However, following judgements may create controversy between sale of goods and services -
• Sale of sim card and activation of mobile service is a taxable service [Escotel Mobile Communications Ltd. v. Union of India 2005 -TMI - 185 - HIGH COURT OF KERALA]
• Sale of sim cards by a company engaged in providing cellular telephone services to its subscribers fall within the taxable services [Aircell Digilink India Ltd. v. CCE Jaipur 2005 -TMI - 161 - CESTAT, NEW DELHI; Bharti Cellular Ltd. v. CCE Delhi 2005 -TMI - 197 - CESTAT (NEW DELHI)]
• Provision of telephone connection constitutes a sale, as it involves the transfer of right to use goods attracting sales tax, notwithstanding the fact that service is subject to service tax. [State of Uttar Pradesh & Others v. Union of India & Others 2005 -TMI - 143 - SUPREME COURT]
• Transfer of intellectual property, say software, though a medium which is bought and sold as goods (like in case of floppies, discs, CD Rom, punch cards, magnetic tape etc.) would constitute sale purchase of goods and not that of IPR. In one of the cases of sales tax in Tata Consultancy Services v. State of Andhra Pradesh (2008 -TMI - 4143 - Supreme Court) , Supreme Court has held that software may be intellectual property but as the property contained in a medium is bought and sold, it is an article of value and as such, software can be described as goods subject to sales tax.
Supreme Court observed in TCS case (supra) to distinguish between goods and services as under—
"The music is produced by the artistry of musicians and in it is not a good, but when transferred to a laser-readable disc, it becomes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a good, but when transcribed as a book, it becomes a good".
What constitute 'goods' and is sold by the service provider can not be subjected to service tax which is also evidenced by Notification No. 12/2003-ST dated 20.6.2003 whereby cost of goods or material sold by the service provider to the receiver of services during the course of provision of taxable services is exempt from levy of service tax. Certain abatements also justify this logic.
Anything which is not a good will be called a service. To be a service, some action or rendition of service on the part of service provider is also necessary.
In Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes (2008 -TMI - 2576 - Supreme Court of India), it has been held that payment of service tax and VAT are mutually exclusive. In a composite contracts, both sales and service component can be present.
About the Author: -
Dr. Sanjiv Agarwal
asandco@gmail.com
FCA, FCS, ACIS(UK)
Monday, July 28, 2008
Wants Professional Bio-Data/CV ?
Warren Buffet 's Golden Rule of Invetment
CONITNUED FROM YESTARDAY......
Right Decision at the right time:-
“Buffett’s reputation grew, more people asked him to manage
their money. For the partnership, Buffett bought controlling interests
in several public and private companies, and in 1962 he began buying
shares in an ailing textile company called Berkshire Hathaway.
Tainted by a scandal involving one of its clients, American Express
saw its shares drop from $65 to $35 almost overnight. Buffett had
learned Ben Graham’s lesson well: When stocks of a strong company are
selling below their intrinsic value, act decisively. Buffett made the bold
decision to put 40 percent of the partnership’s total assets, $13 million,
into American Express stock. Over the next two years, the shares tripled
in price, and the partners netted a cool $20 million in profit.”
Embraces the simple and avoids the complications:-.
Warren Buffett is not easy to describe. Physically, he is unremarkable,
with looks often described as grandfatherly. Intellectually, he is considered
a genius; yet his down-to-earth relationship with people is
truly uncomplicated. He is simple, straightforward, forthright, and
honest. He displays an engaging combination of sophisticated dry wit
and cornball humor.
Avoid Risk of Being Wrong
“No matter how careful you are, the one risk no investor can ever
eliminate is the risk of being wrong. Only by insisting on what
Graham called the “margin of safety”—never overpaying, no matter
how exciting an investment seems to be—can you minimize
your odds of error.”
Develop Discipline And Courage
“how your investments behave is much less important than how
you behave.The secret to your financial success is inside yourself. If you
become a critical thinker who takes no stock market “fact” on faith,
and you invest with patient confidence, you can take steady
advantage of even the worst bear markets. By developing your
discipline and courage, you can refuse to let other people’s mood
swings govern your financial destiny.”
Learn From Past
“Those who do not remember the past are condemned to repeat it.”
TO BE CONTINUED TOMORROW.......
“ENJOY TODAY ,WAIT FOR BEAUTIFUL TOMORROW ”
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PRESIDENT
JAB WE MET CA
REDEFINING PROFESSIONALISM......
“LEADERS ARE READERS, READERS ARE THE LEADERS”
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Initial Offering: SEBI roots
Initial Offering: SEBI roots for investors' rights
27 Jul, 2008, 0715 hrs IST, ET Bureau
MUMBAI: Capital markets regulator, Securities and Exchange Board of India (SEBI), is all set to kick off a pilot project by August 2008, which will enable retail investors, investing in an initial public offering, to pay money for buying shares only to the extent of shares allotted to them. This is a major departure from the current practice of retail investors paying upfront the full amount for the shares they have bid for, while large institutional investors need to put up only 10% of the money. The system in vogue now is seen as discriminating against retail investors and the regulator’s move is aimed at ensuring parity between retail and institutional investors. SEBI’S move implies that a retail investor can participate in a public or rights issue, without the application money actually leaving his bank account, thus eliminating the refund process. The bank will mark a lien on the customer’s account to ensure that the requisite sum is locked in until the allotment process is finalised. The money will be transferred to the company only when the actual allotment takes place. In case the allotment does not take place, the money gets automatically unlocked and is at the investor’s disposal.
In May this year, the SEBI board had approved the concept of providing an alternative mode of payment in issues whereby the application money remains in the investors’ account till finalisation of basis of allotment in the issue. The payment system, called Application Supported by Blocked Amount (ASBA), will require retail investors bidding at a cut-off price, to apply through self-certified syndicate banks (SCSBs) in which they have accounts. ASBA will require SCSBs to accept applications from investors, block the required funds for the bid payment and then upload the details in the electronic bidding system. Once the basis of allotment is finalised, the SCSB will release the required amount and release the unblocked amount. If there is no adequate balance for blocking the amount in the IPO applicant’s account, the application will be rejected. “This is only an alternative mode of payment and the present system will continue to exist,” said Prithvi Haldea, chairman, Prime Database MD. In other words, the ASBA process is an additional mode of making payment in primary issues, by retail individual investors who have bid at cut-off with single option.
CBDT relaxes scrutiny norms
CBDT relaxes norms for scrutiny of company tax returns
New Delhi, July 27: In what could be a major relief to the corporate sector, the revenue department has decided not to scrutinise the tax returns of over 1000 top companies, provided no major disputes are pending against them they had been complying with laws. "The annual returns of tax complying companies would be not be scrutinised this year. The decision has been taken by the Central Board of Direct Taxes (CBDT) to encourage better tax compliance among the corporate," a senior finance ministry official said. Last year, the CBDT took a decision to scrutinise tax returns of about 200 'A' group companies listed on the Bombay Stock Exchange BSE, 500 National Stock Exchange companies and all non-banking finance companies. The tax returns of all the banks and public sector units were also checked by the income tax officials. The decision to relax scrutiny norms follows Finance Minister P Chidambaram's announcement after the annual meeting of Chief Commissioners of Income Tax Department that government would ensure that tax complying taxpayers are not harassed by the Income Tax Department. Under the scrutiny, the assessing official would issue notices to the taxpayer within a year of filing the return and probe any tax evasion by verifying claims about tax exemptions, amount in bank accounts, cash reserves, details of loans, gifts and credit cards. If the department has not raised tax demand of Rs 10 lakh or more in addition to deposited tax and if the department has not won any tax suit against the firm, the officials would not open returns for scrutiny. However, the department may consider to open the tax returns of companies, if they infused fresh capital of Rs 50 lakh or more during last fiscal or filed for tax exemptions for the first time under any scheme. According to the income tax department, in 2007-08 the scrutiny of about 3.2 lakh tax returns, including about 51,000 filed by the corporate, resulted in additional tax demand of Rs 73,200 crore, out of which Rs 28,700 crore has already been realised. However, considering the improvement in tax compliance and electronic filing and payment of returns by the corporate, the department has relaxed norms of scrutiny, the Finance Ministry official add
zee news
July 29, 2008
Sunday, July 27, 2008
GOLDEN RULES OF INVESTMENT
CONITNUED FROM YESTARDAY......
Greatest lesson to be learnt from Warren Buffet:-
The greatest lesson you can glean from Warren Buffett?
To learn from him without desiring to be like him.
It is important to use these articles to learn, but don’t use these articles to
be like Warren Buffett. You can’t be Warren Buffett and, if you try, you
will suffer. Use these articles to understand Buffett’s ideas and then take
those ideas and integrate them into your own approach to investing.
It is only from your own ideas that you create greatness.
The insights in this these articles are only useful when you ingest them into your own persona rather than trying to twist your persona to fit the insights.
The Warren Buffett Way describes what is, at its core, a simple approach.
There are no computer programs to learn, no two-inch-thick Investment manuals to decipher. Whether you are financially able to purchase 10 percent of a company or merely a hundred shares, this book can help you achieve profitable investment returns.
If you’re a young reader, the greatest investment lesson is to
find who you really are. If you’re an old reader, the greatest lesson is
that you really are much younger than you think you are and you
should act that way—a rare gift. Were that not possible, then Mr. Buffett
wouldn’t still be ably evolving at what for most people is postretirement
age. Think of Warren Buffett as a teacher, not a role model,
and think of these articles as the single best explanation of his teachings,
well stated and easily learned. You can learn an enormous amount from
these articles and that can be the foundation for developing your own successful
investment philosophy.
GOAL OF INVESTOR
“Your goal as an investor should be simply to purchase, at a rational
price, a part interest in an easily understood business whose earnings are
virtually certain to be materially higher, five, ten, and twenty years from
now. Over time, you will find only a few companies that meet those
standards—so when you see one that qualifies, you should buy a meaningful
amount of stock.”
Be small man with a big mind
Mr. Buffett evolved as investor without compromising any of his core principles.
Every decade, Mr. Buffett has done things no one would have predicted
from reading about his past, and done them well. Within professional investing,
most people learn in craft-like form some particular style of investing
and then never change. They buy low P/E stocks or leading tech
names or whatever. They build that craft and then never change, or
change only marginally. In contrast, Warren Buffett consistently took
new approaches, decade-after-decade—so that it was impossible to predict
what he might do next.
TO BE CONTINUED TOMORROW.......
“ENJOY TODAY ,WAIT FOR BEAUTIFUL TOMORROW ”
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PRESIDENT
JAB WE MET CA
REDEFINING PROFESSIONALISM......
“LEADERS ARE READERS, READERS ARE THE LEADERS”
CA STUDENT HELP DESK
No service- no service tax
Charges in lieu of interest should also not be taxed.
Banking and financial services:
The bank levy several type of charges to customers when there is in fact any service is not rendered. Such charges are in fact in nature of damages or penalty for customers failure in performing his duties fully or partly. For example charges may be levied for:
Minimum commitment charges for not utilizing borrowing facilities charges.
Cheque returning charges.
Delayed payment-- this is in nature of interest so it will be exempt as per valuation Rules.
Loan prepayment charges- this is not for any service rendered by the money lender, rather it is in nature of damages.
Balance transfer charges:
In relation to credit cards most of card issuers provide facility of balance transfer(BT) and levies some charges (1.5 -2.5%) for 90 days. No interest is charged for this period. The fact is that a money is lent as a loan named BT facility. Instead of charging interest, the bank charges BT processing charges, this is nothing but interest. Therefore, such charges should not be burdened with service tax. This is also clear when we consider other schemes of BT in which card issuer/ bank charge interest fro the period of using of BT, and any processing charges are not charged or nominal charges are levied. Therefore suppose in case of a BT of Rs.50000/- if 2% BT processing fees that is Rs.1000 is charged, it is wrong to say that BT processing charges is not interest. Because under other scheme the card issuer/ bank may not charge BT processing fees but interest for a minimum period or for actual period as per terms and conditions.
Therefore, when a charge is levied, which is in lieu of interest, service tax should not be levied.
Loan processing charges- this is levied as a percentage of loan. Therefore, charges can be considered as service charge to some extent and the rest can be considered as a part of interest on loan. For example suppose a loan of Rs.ten lakh is processed and a processing charges of say minimum or 1% of loan amount that is Rs.Ten thousand are collected. In another loan of Rs. One crore processing charges are levied @ 0.50% amounting to Rs.50,000. In this case it cannot be said that the entire amount is for services in relation to processing of loan document. Charges for such services can be say Rs.10,000/- as minimum and Rs.5000 for extra efforts. Thus charges for service is Rs.15,000 and balance Rs. 35000 is in fact not for any service but it is a collection because the bank is in a position to collect extra sum and it can be considered as a part of miscellaneous charges in nature of interest.
Pre payment charges TRU directs to charge service tax:
There is no service rendered by bank when a borrower prepay loan. Therefore pre-closure charges received by the banks / financial institution on pre-payment/ for closure of loan should not be taxable. Prepayment charges are in fact in nature of damages for the loss of interest suffered by the money lender for the period of early payment. However, as discussed later on, TRU says otherwise in its circular of 11.06.08.
Service tax is a tax on value of service:
It is needless to mention that service tax is leviable only when a person renders a service and other person receive service. Thus rendering and receiving of service for a consideration is a precondition for levy of service tax. Besides this precondition, other conditions relating to nature of service, service receiver and service provider, relationship between two parties and nature of consideration are also important. All conditions laid down in relevant provisions must be satisfied to make a service charge taxable. As per the Finance Act 1994 vide section 65 (105) taxable services are defined as follows;
"taxable service" means any 1[service provided or to be provided], -
Xxxx
Thus, the precondition for levy of service tax is that there must be a service provide or to be provided by one person to another person.
Pre closure charges of loan are not for any service:
While granting a loan the bank lent money and in consideration of use of money charge interest. Thus, the function is of a money lender and reward is in nature of interest. In fact 'interest' cannot be called a consideration for service or service charge or fees. It is not necessary to go into this controversy because as per present Rules interest on loan is excluded from taxable service.
In case of a pre-closure of a loan, the borrower payback loan before its scheduled re-payment dates. To keep a check on pre-closures of loan banks charge certain percentage (present range is 3-6%) of principal amount which is repaid earlier than schedules repayment date, as pre-payment charge. For example, suppose a loan of Rs. ten lakh was granted for a period of five years. The borrowers have repaid EMI's for 30 month and now want to prepay entire amount which would otherwise be repayable in 30 months in 30 EMI. Suppose, the principal portion outstanding after payment of 30 EMI's is Rs.640000/-.
If the borrower prepay this amount, the bank will loose further interest earnings. Again it may take some time to redeploy Rs.6,40,000/- in fresh loan. If rate of interest has fallen, then the bank will be able to redeploy this money at lower rate. Suppose bank can charges prepayment charge @ 3% that is Rs.19200/-. However, the borrower insists to reduce it and bank agrees to Rs.15,000/-. This sum of Rs.15,000/- is nothing but a charge in nature of interest for the non-utilization of credit facility granted by way of loan, it is also in nature of damages for early termination of contract for loan by the borrower. Thus it is clear that the banks do not render any service when a borrower prepay loan.
Reasons for pre-payment:
Generally pre-payments takes place when:
a. market rate of interest falls.
b. The borrower receives extra fund inflow and he is unable to earn interest or other return or reward on surplus money which are better than the interest payable on loan.
Consequences of pre-payment of loan:
The money lender find that a profitable loan deployed has been repaid causing shrinkage in loan portfolio. The money lender may not be able to utilize fund flown by prepayment, immediately, by granting fresh loan and therefore, for some time the funds may remain idle. The new loan to be granted may be at lower rate of interest, if there is fall in interest rates. Funds may remain idle for some time or may earn lower returns by way of temporary investments in commercial paper, inter bank loan or by way of keeping funds with RBI or in government securities etc.
Therefore, on a prepayment the money lender- bank suffers loss due to idleness of funds or lower earnings for some time.
In pre-payment by borrower there is no service by money lender:
When a borrower prepays a loan, the banker or moneylender does not render any service to the borrower. The borrower approaches the banker and offer to prepay the loan, the banker charges prepayment charges as per agreement or as per negotiation, and receives prepayment of loan. Therefore, there is no service rendered by banker/ money lender. When a charge is not for a service, the charge cannot be subject to service tax.
Pre-payment charge is in nature of damages or compensation:
As discussed earlier, prepayment charges is in nature of damages or compensation for loss or likely loss which the bank or money lender may suffer. This is on account of loss of interest which the bank or money lender may suffer during intervening period of repayment and redeployment of funds. Therefore, prepayment charges is in nature of damages and not a charge for service. In any case as prepayment charge is in nature of damages for loss of interest on loan, it will assume character of interest on loan as it is for nonavailment of loan for the full period of loan and is for early termination of contract of loan by the borrower.
View taken in Circular:
Department has issued show cause notices and demanded tax therefore Banks and financial institutions are facing uncertainty on issue about Service Tax on pre-payment charges collected on pre-payment of loans from borrowers. Though matters are pending before adjudicating authorities and appellate authorities. The departmental circular has been issued as clarification holding the view that such charges received by the banks / financial institutions can not be treated as interest on loan and therefore, liable to service tax. The circular dated 11.06.08 vide file no. F No 345/6/2008-TRU issued by Tax Research unit reads as follows ( high lights provided):
Subject: Service Tax on pre-closure under banking and other financial Services - regarding Commissioner (Service Tax), Chennai has brought to the notice of the Board that divergent practices are being followed in respect of levy of service tax on services provided by banks and other financial institutions on the amount collected as pre-closure / fore-closure charges in relation to lending.
2. Services provided by a banking company or a financial institution or any other body corporate or any commercial concern in relation to banking or other financial services is leviable to service tax under Section 65(105)(zm) of Finance Act, 1994. 'Banking and other financial services' defined under Section 65(12) include lending. Any amount collected by the service provider on account of lending is either interest or service charges. Pre-closure / fore-closure charges are not charges collected for delayed payment. These charges not being 'interest' are to be appropriately treated as consideration for the services provided and accordingly leviable to service tax under Section 65(105)(zm).
3. Field formation may be advised to take appropriate action. This is issued with the approval of Member (Budget).
Unmesh Wagh, Under Secretary (TRU)
Analysis:
It appears that the view taken is that if there is any charge levied by bank etc. in respect of loan or credit facility, it is charge for a service which is taxable unless it is interest on loan. This appears from the highlighted sentences in the circular given above.
Whether the charge is for any service or not has not been considered, rather merely because there is a levy of a charge, a service has been presumed in Circular of TRU. Merely because a service provider has levied a charge, it cannot be said that it is for a taxable service rendered.
In case of prepayment of loan, the service provider (money lender) does not render any service.
The view taken by revenue is therefore not at all in accordance with the concept of levy of tax on value of a service rendered as envisaged in the charging and other provisions.
Secondly the purpose of prepayment charge has not been considered. As discussed earlier, prepayment charge is nothing but a damage or compensation for earlier than scheduled repayment time. For the period subsequent to the prepayment date the borrower would have paid interest, if prepayment was not made. Again new borrower, to whom funds may be lent, will start payment of interest after some time, and therefore prepayment charge is nothing but a compensation of loss of interest caused due to early repayment of loan.
As discussed earlier, large scale prepayments take place only when interest rates have fallen. In case of firming up of rate of interest, pre-payment are rare. Therefore, in case of prepayment, there is generally also loss of interest to the money lender due to lower rates of interest at which he can deploy funds.
In view of these commercial aspects and business realities it can be said that clause for prepayment charge is inserted in agreements due to contingencies of borrower returning money before scheduled repayment, fall in rate of interest and period required for redeployment of funds etc. Therefore, pre-payment charges is nothing but in nature of damages for loss of interest, and therefore it is not in nature of charges for any service.
In any case prepayment charges is in nature of charge for underutilization of loan and therefore it will partake character of interest on loan, and therefore it is not to be included in the taxable value of service as per relevant Rule which reads as follows:
Definition of interest: There appears no definition of 'loan' and 'interest' in the law relating to service tax. We find meaning or definition of 'interest' in the income-tax Act, 1961 in section 2 (28A) which reads as follows:
Definitions.
2. In this Act, unless the context otherwise requires,—
[ (28A) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;]
As per section 2 of the Interest Act the meaning is as follows:
(7) "interest" means interest on loans and advances made in India and includes—
(a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and
(b) discount on promissory notes and bills of exchange drawn or made in India, but does not include—
(i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);
(ii) discount on treasury bills;]
Some relevant definitions from Britannica ready referencer:
Loan:
1 a : money lent at interest b : something lent usu. for the borrower's temporary use 2 a : the grant of temporary use
hire purchase: purchase on the installment plan.
Interest
a charge for borrowed money generally a percentage of the amount borrowed
b : the profit in goods or money that is made on invested capital
c:an excess above what is due or expected
Analysis:
On perusal of the above definitions we find that 'interest', has been defined in a wider manner and it specifically includes items like any charge for relevant obligation, charge for unutilized facility, commitment charge on unutilized portion of any credit etc. The prepayment charge, as discussed is nothing but a charge for non-utilization of loan facility for entire period or entire amount. Pre-payment charge is also levied as a percentage of principal outstanding, which is prepaid. Therefore, such charges are in nature of 'interest' as defined in the two fiscal enactments, as well as general meaning in dictionaries.
Service Tax (Determination of Value) Rules, 2006
We also find that as per Rule 6 of the above Rules the interest on any loan is to be excluded from the value of taxable service. The relevant portion of the Rule is reproduced below:
6. Cases in which the commission, costs, etc., will be included or excluded.- (1) Subject to the provisions of section 67, the value of the taxable services shall include‚-
XXXXXXX - there is no specific clause to include prepayment charges.
(2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include-
XXXXX
(iv) interest on loans."
*****
In these rules there is no definition of interest, therefore we have to adopt a wider meaning to include any payment in nature of and in lieu of interest also.
Keeping in view the above discussion it appears that the circular issued is not correct for the following reasons:
(a) prepayment charges is not for any service rendered,
(b) prepayment charge is nothing but damages for early termination of contract by the borrower and
(c) in any case the prepayment charges are also 'interest' or in nature of interest and in any case they partake character of interest receivable from borrowers.
Therefore, the circular appears to be incorrect.
About the Author: -
Uma Kothari
Applicability of Service Tax
Applicability of Service Tax on photography Service - Whether cost of goods / material used is deductible from the value.?
There is very long history to determine the real nature of photography service. Photography service is neither sale nor works contract as held by the honorable Supreme Court in its earlier judgments.
Now, the issues are arising in Service Tax and different Courts / Tribunal has taken different stands in different situations.
A brief reference of these cases with departmental clarifications is as follows:
Clarification / Letter No. F.No.B.11/1/2001-TRU, Dated 9th July, 2001
In this letter, department clarified that,
The value of taxable service is the gross amount charged from the customer for the service rendered. However, the cost of unexposed photography films sold to the customer is excluded. The service provider claiming benefit of the cost of film should be advised to show them clearly on the invoices along with description and particulars of the film. Otherwise, the claim will not be considered as admissible. No other cost (such as photographic paper, chemicals, etc.) is excluded from the taxable value.
Decision of Apex Court in the matter of C K Jidhees versus Union of India reported in 2006 Supreme Court
In this case, Apex Court held that cost of material used in providing photograph service is not deductible.
Clarification / Letter M.F. (D.R.) Letter F. No. 233/2/2003-CX. 4, dated 3-3 -2006
On the issue of deduction of cost of goods / material from the value of photography service in view of notification no. 12/2003, board clarified that,
The matter has been examined by the Board. The intention of the Notification No. 12/2003-S.T., dated 20-6-2003 is to provide exemption only to the value of goods and material sold subject to documentary evidence of such sale being available. Therefore, in case, the goods are consumed during the provision of service and are not available for sale, the provision of the said notification would not be applicable. Therefore, in supercession of clarification to contrary, it is clarified that goods consumed during the provision of service, that are not available for sale, by the service provider would not be entitled to benefit under Notification No. 12/2003-S.T., dated 20-6-2003.
Tribunal decision dated 6-6-2006 in the matter of LAXMI COLOR (P) LTD. versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II reported in 2006 CESTAT, NEW DELHI
CESTAT held that there is no element of sale of goods in photography service. In this case, CESTAT has following the judgment of Apex Court in the matter of C. K. Jedees (Supra)
Tribunal decision dated 30-10-2006 in the matter of SHILPA COLOR LAB Versus COMMISSIONER OF C. EX., CALICUT reported in 2007 CESTAT,BANGALORE
In this case, CESTAT overruled the circular dated 3-3-2006 (supra) and judgment of Apex Court in the matter of C. K. Jedees (Supra). But, it has followed the judgment of Larger Bench of honorable Supreme Court in the matter of Bharat Sanchar Nigam Ltd. and Anr. v. UOI & Others - reported in 2006 . Accordingly, tribunal has allowed the deduction of value of goods / material used for providing photography service.
While delivering the judgment, CESTAT discussed and relied upon certain other decisions of honorable Supreme Court.
Tribunal decision dated 17-9-2007 in the matter of COMMISSIONER OF C. EX., MYSORE Versus EXPRESS COLOR LAB. Reported in 2008 CESTAT, BANGALORE
In this case, CESTAT followed the decision of Shilpa Color Lab (Supra) and allowed the deduction of value of goods / material sold while providing the photograph services.
High Court of Rajasthan delivered its order dated 20-7-2007 in the matter of WESTERN RAJASTHAN COLOUR LAB ASSOCIATION Versus UNION OF INDIA reported in 2008 HIGH COURT RAJASTHAN
In this matter, honorable HC followed the decision of honorable Supreme Court in the matter of C. K. Jedees (Supra) and denied the deduction of value of goods / material from the gross value.
Tribunal decision dated 28-11-2008 in the matter of JYOTI ART STUDIO Versus COMMISSIONER OF CENTRAL EXCISE, HYDERABAD reported in 2008 CESTAT, BANGALORE
In this matter, CESTAT allowed the deduction of value of goods / material from the gross value.
Moreover, CESTAT held that, deduction is available even if the details of inputs used need not be mentioned in the invoices/bills issued by them, as there is no specific clause in the Notification no. 12/2003.
Tribunal decision dated 13-8-2007 in the matter of SHRI ROOPCHHAYA COLOUR STUDIO Versus COMMR. OF C. EX., HYDERABAD reported in 2008
In this decision also, tribunal has allowed the deduction of value of goods / material from the gross value.
Section 268A must be omitted
Section 268A must be omitted otherwise the revenue will have restricted rights of appeal in some circumstances
Departmenal appeals a review in view of recent judgment dated 21.07.08
Recent judgment:
Recently in the context of provisions of the Income Tax Act, 1961 also the Supreme court (larger Bench of three judges on a reference) has in case of C.K. Gangadharan & Anr. Versus CIT Cochin held that an appeal can be filed in another year or in another case, even though revenue did not challenge judgment on similar issue at an earlier instance, if there was just cause for not filing an appeal.The para 13 of the judgment reads as follows:
13. In answering the reference, we hold that merely because in some cases the revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts.
Thus the court has laid down three circumstances namely:
When there is just cause for filing appeal,
When it is in public interest to do so.
When a pronouncement from higher court is desirable when divergent views are taken by Tribunals or High Courts.
In which an appeal before further higher forum can be filed on an issue which was decided against the revenue in any earlier order/ judgment and it was not challenged.
The Supreme Court has also not doubted the law laid down in earlier judgments in which it was held that when the revenue has accepted judgment in another case, on the same issue revenue cannot be permitted to agitate the issue as the precedence has attained finality.
The order of reference as appears in the preamble of the judgment of the larger bench reads as follows:
"xxx xxx xxx In view of the aforesaid position, we are of the opinion that matter requires consideration by a larger Bench to the extent whether revenue can be precluded from defending itself by relying upon the contrary decision. We make it clear that we are not doubting the correctness of the view taken by this Court in the cases of Union of India v. Kaumudini Narayan Dalal (2001)10 SCC 231, CIT v. Narendra Doshi (2004) 2 SCC 801 and CIT v. Shivsagar Estate (2004) 9 SCC 420 to the effect that if the revenue has not challenged the correctness of the law laid down by the High Court and accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assesses, without just cause. Registry is directed to place the papers before the Hon'ble Chief Justice of India for appropriate orders."
Thus it is seen that in earlier judgments as above referred by the Supreme Court as well as in the case of Berger Paints, the supreme Court always used the expression "without just cause". Therefore, non filing of an appeal for some just cause, will not prevent the revenue or the assessee to file appeal on similar issue in another year or in another case.
Supreme Court considered some of earlier judgments on similar issues, important excerpts with high lights are given below::
The case of Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. (2006 (3) SCC 1), in which it was noted as follows:
that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any
principle of resjudicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate bench which,failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a bench of superior strength or in some cases to a bench of superior jurisdiction.
A decision can be set aside in the same lis on a prayer for review or an application for recall or Under Article 32 in the peculiar circumstances mentioned in Hurra v. Hurra (2002 (4) SCC 388). As we have said overruling of a decision takes place in a subsequent lis where the precedential value of the decision is called in question. No one can dispute that in our judicial system it is open to a Court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in State of U.P. v. Union of India (2003 (3) SCC 239) related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a Larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by the State of U.P. are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the State of U.P. is therefore rejected."
5. In State of Maharashtra v. Digambar (1995 (4) SCC 683), the position was highlighted by this Court as follows:
" the contention of the appellants could not be rejected. Non-filing of an appeal, in any event, would not be a ground for refusing to consider a matter on its own merits. (See State of Maharashtra v. Digambar 1995 (4) SCC 683).
In State of Bihar and Ors. v. Ramdeo Yadav and Ors. (1996 (3) SCC 493) wherein this Court noticed Debdas Kumar (supra) holding:
In the similar circumstances, this Court in State of Maharashtra v. Digambar, (1995) 4 SCC 633) and in State of West Bengal v. Debdas Kumar,(1991) Suppl. SCC 138), had held that though an appeal was not filed against an earlier order, when public interest is involved in interpretation of law, the Court is entitled to go into the question."
In Chief Secretary to Government of Andhra Pradesh and Anr. v. V.J. Cornelius and Ors. (1981 (2) SCC 347) it was observed that equity is not relevant factor for the purpose of interpretation. It will be relevant to note that in Karam Chari v. Union of India and Ors. (2000 (243) ITR 143) and Union of India v. Kaumudini Narayan Dalal and Anr. (2001 (249) ITR), this Court observed that without a just cause revenue cannot file the appeal in one case while deciding not to file appeal in another case. This position was also noted in Commissioner of Income Tax v. Shivsagar Estate (2004 (9) SCC 420).
The order of reference would go to show that same was necessary because of certain observations in Berger Paints India Ltd. V. Commissioner of Income Tax, Caluctta (2004) 2 SCC 42). The decision in Union of India and Ors. v. Kaumudini Narayan Dalal and Anr. (2001 (10) SCC 231) was explained in Himalatha Gargya v. Commissioner of Income Tax, A.P. and Anr. (2003 (9) SCC 510) at para 14. It has been stated in the said case that the fact that different High Courts have taken different views and some of the
High Courts are in favour of the revenue constituted "just cause" for the revenue to prefer an appeal. This Court took the view that having not assailed the correctness of the order in one case, it would normally not be permissible to do so in another case on the logic that the revenue cannot pick and choose. There is also another aspect which is the certainty in law.
In answering the reference, we hold that merely because in some cases the revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or
for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts.
Is section 268A exhaustive:
It can be said that section 268A is exhaustive and it provides scope for filing appeal in another case or another year only when in earlier matter, which attained finality, the revenue did not file appeal due to lower revenue impact.
This is because a view can be taken that only in the circumstances stated in S. 268A, the revenue can prefer an appeal on similar matter and in no other circumstances. Therefore, in view of S.268A, the revenue may have restricted freedom to file appeal in such circumstances. In absence of S. 268A the freedom could be more extensive. Therefore, it seems that in a case where revenue has not preferred an appeal, though the amount of revenue involved was higher, then on similar issue revenue will not be entitled to prefer appeal in another case or another year on the grounds of just cause, or public interest or to seek final determination of law.
In view of discussion in earlier article and also the latest views expressed by the Supreme Court, the author again re-iterate that it was not necessary to insert new section 268A in the I.T.Act. By insertion of S. 268A, it appears that the freedom of the revenue to file an appeal on similar matter which has attained finality may be restricted. Therefore, S.268A must be omitted.
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DEV KUMAR KOTHARI