Power consumption

LEGAL DIGEST

The Supreme Court last week observed that if the electricity consumed by a manufacturing unit was going up and the production was shown to be going down, the tax authorities have reason to suspect the figures and reject the claim regarding production.

The court dismissed the appeal of Melton India, which produces metallised plastic films in Uttar Pradesh. The state authorities rejected the company's books of account and enhanced the turnover. The company challenged this assessment of the state commissioner of trade tax in the tribunal and the Allahabad High Court.

In both places, it lost. Upholding the high court view, the Supreme Court said that "excessive power consumption, prima facie, establishes the assessee's intention to suppress the production and turnover." Moreover, the company failed to produce the employment records to indicate the trend in production. The records of the raw materials used were also not verified.

Fertiliser subsidy

The Supreme Court last week dismissed an appeal of Udaipur Phosphates Fertilisers Ltd against a Delhi High Court judgment which had denied subsidy for single super phosphate manufactured by it.

The difference between the retention price and the selling price, as fixed by the central government was calculated and paid to manufacturers as subsidy. The department of industrial development, at one stage, announced that the capacity indicated in the industrial licence could be reconsidered with reference to the highest production achieved during the past five years plus one-third of it with certain conditions.

Later, re-endorsement of higher capacity was also provided. The company's complained that the government retrospectively re-endorsed the capacity and reduced the price payable to it with retrospective effect. This denied the company from taking advantage of the re-endorsed capacity. The court rejected this, observing that once the re-endorsement took place on the basis of actual manufacture, the fixed cost was bound to be revised and the subsidy was bound to be reduced.

Power tax

The Supreme Court has issued notices to the Kerala government and the Tamil Nadu Electricity Board (TNEB) on a petition challenging a tax imposed by the power utility on non-domestic consumers and a levy on consumption or sale of electricity.

The notices were issued by a Bench comprising Justice SB Sinha and Justice Markandey Katju, which was hearing a batch of petitions filed by Kerala-based textile and steel industry units, challenging the validity of two amendments to the Tamil Nadu Electricity (Taxation on Consumption) Act, 1962.

Through the amendments, the board imposed a 4 per cent additional tax on non-domestic consumers, besides a levy on consumption or sale of power. Though the petitioners had moved the Madras High Court, contending that the additional levy was nothing but double taxation, the court had upheld the amendments.

Hence, the petitioners moved the apex court stating that the provisions for the levy of additional tax, quantified as a percentage of the price of energy consumed, lacked legislative competence and should be struck down as it was ambiguous.

According to them, the government had in 1979 fixed the rate by merging the erstwhile tax and there was no separate tax on electricity consumption since then.

Diesel as input

The Supreme Court has held that goods used indirectly in the manufacture of finished products will be considered as raw material and can get sales tax concession given on direct inputs. The ruling came while deciding whether diesel used for generating electricity in the manufacture of a final product can be considered as raw material for availing tax benefits.

"Diesel is being used for running a generator set for the production of the ultimate product, which is also required for the purpose of manufacturing the end product. Diesel can only be termed as raw material and not otherwise," the court said.

Share registry's appeal

The Supreme Court has dismissed an appeal by Intime Spectrum Share Registry Ltd, share registrars dealing in a number of IPOs, challenging an Alipore court's order restraining it from executing any contract signed after August 18, 2006.

While rejecting the appeal, the court directed the Alipore trial court to decide the matter early. The trial court had last month issued the order on a plea by another registrar, MCS Ltd, alleging that Intime did not comply with a business transfer pact signed on August 18, 2006. MCS had last year approached Intime for transfer of its Registrar to Issue and Share Transfer Agent (RTA) business against consideration to be received in the form of shares. The two registrars later entered into a pact.

Intime and MCS are among the top registrars handling applications filed by investors at the time of an IPO and do all the work from accepting applications to allotting shares. The subordinate court had restrained Intime from acting in any contract for the business of registrar to an issue and share transfer agent which it entered into after August 18, 2006.

Many companies such as Cairn India and Aditya Birla Nuvo had to change their registrars after the Alipore court ruling. Intime had also approached the Calcutta High Court challenging the ex-parte injunction granted by the Alipore court on the ground that MCS Ltd was trying to enforce a right which lapsed prior to the filing of the suit and the order.

However, the high court had refused to interfere with the ex-parte injunction order and dismissed its appeal. Intime had argued that the restraint order had paralysed its business and its reputation had suffered.