The Supreme Court (SC) ruled last week that a guarantor outside an arbitration agreement cannot be made a party to the arbitration proceedings. It reversed the judgment of the Delhi high court which had asked the guarantor to comply with the award of the arbitrator. In this case, S N Prasad vs Monnet Finance Ltd, Prasad, who was then a director, stood as guarantor for the managing director of the borrower company and later resigned. Disputes arose between the lender and borrower companies. It was referred to an arbitrator under the Arbitration and Conciliation Act. The arbitrator made Prasad a party in the proceedings, against his protest. He challenged the award as far as it affected him. The high court rejected his petition and told him to pay the awarded amount to the lender. The SC allowed his appeal, stating he was not a party to the agreement and, therefore, there could be no arbitration in regard to the claim against him. The court, however, added though the arbitration award could not deal with his guarantee, the lender could enforce it by other legal remedies.
Appeal against excise tribunal’s ruling dismissed
The SC dismissed the appeal of Indian Oil Corporation against the ruling of the excise tribunal which denied duty concession to its product, superior kerosene. The PSU claimed concessional duty for the kerosene which was used for industrial purposes. The authorities rejected the claim made under certain notifications. According to them, the concession was available only if the smoke point was 18mm or more, and is ordinarily used as illuminant in oil burning lamps. The two conditions were to benefit poor who use kerosene for illumination and other domestic purposes. It was given through the PDS. In this case, the government company cleared kerosene to industrial consumers.
Firm saved from paying duty
The SC has dismissed the appeal of the Commissioner of Central Excise against Shital International and held that the firm was not bound to pay duty on 'unprocessed knitted fabric' as the process it used did not involve manufacture of a new product. The company is engaged in the manufacture of knitted pile fabrics as well as knitted hosiery fabrics of man-made fibres. In this case, the court stated that the process did not have the effect of changing the 'grey fabric' into another commodity or bring about a permanent or lasting change in the fabric so as to create a new product.
Tribunal told to review price of ship
The SC has stated that when the value of the goods imported under a memorandum of agreement between the importer and the foreign company is reduced later by another agreement between the two parties, the genuineness of the reduction should be examined by the customs tribunal. The actual amount of payment cannot be ignored, but the price variation should be examined by the authorities and the tribunal, the court said while remitting the case, Chaudhury Ship Breakers vs Commissioner of Customs, to the tribunal for a fresh examination. In this case, the original memorandum stated one price for the ship, but after certain wastage was found by the surveyor at Alang Anchorage, the price was reduced by an addendum. The customs authorities recognised the original price, not the latter one. The importer wanted the actual price paid to be computed for the duty.
Levy of service tax on financial leasing services upheld
The SC last week dismissed a batch of petitions moved by associations of leasing and financial companies and upheld the levy of service tax on financial leasing services, including the leasing or hire-purchase of equipment. The associations had challenged the validity of amendments to the Finance Act, 1994, which provided for the levy of service tax on leasing and hire purchase transactions.
Dismissing all of them, the court said: “We hold that the service tax imposed by Section 66 of the Finance Act, 1994, on the value of taxable services... (provided as) financial leasing services, including equipment leasing and hire-purchase, is within the legislative competence of the Parliament under Entry 97, List I of the Seventh Schedule of the Constitution.”
The financial companies had contended that their transactions should be deemed sales and while the state legislature has the power to levy sales tax, the central government cannot impose service tax.