Rs 7.5-cr excise penalty set aside

LEGAL DIGEST

The Supreme Court has set aside the penalty of Rs 7.5 crore imposed by the commissioner of central excise on Siddhartha Tubes Ltd on the company's appeal, but the court rejected its argument that it was not liable to pay duty on galvanised pipes.

The company's stand was that galvanisation did not amount to manufacture and, therefore, no excise duty was payable.

The Supreme Court dismissed this argument, saying that "galvanisation added to the quality. It enriched the value of goods and, therefore, the cost incurred by the company for galvanisation was required to be included in the assessable value".

The court, however, set aside the penalty because it was imposed by the authorities without giving reasons, even at the stage of assessment.

In a separate judgment in a dispute between the two parties, the court held that the cost of sockets and the value of service charges could be included in the assessable value of the pipes.

Errors in filing not to affect exemptions

The Supreme Court has emphasised that erroneous citing of a legal provision will not be a ground to deny a benefit assessees, if they are otherwise entitled to it. In this case, Shree Hari Chemicals Export Ltd versus Union of India, the company used naphthalene to manufacture hydrochloric acid.

The doubt was over the eligibility for certain exemptions under the Central Excise Rules referring to the Modvat credit scheme. Two notifications in 1962 and 1986 dealt with the exemptions for the input, naphthalene. The company cited Rule 57A but the authorities invoked Rule 56A.

The Supreme Court said, "Only because in his books of accounts entries are made for taking of the credit in terms of one provision, the same if ultimately found to be inapplicable and return of credit has taken effect, we are of the opinion that there cannot be any legal bar in claiming the exemption under another rule."

The court then asked the assistant commissioner of excise to reconsider the assessment.

Sec 80HHC of IT Act not valid on losses

The Supreme Court has clarified in its recent judgment in the case, Income Tax Officer versus Induflex Products (P) Ltd, that Section 80HHC of the Income Tax Act was enacted for providing incentives to export houses but the same will not mean that even if the company incurred a loss instead of profit, it will be entitled to the benefit under the section.

The profits derived from the export of goods, which would be the subject matter of exemption, must be the profits out of the business carried on by the assessee.

The expression "profits" used in the provision means positive profit, earned from the business alone. The company in this case incurred loss in the assessment year. The assessing officer granted it benefit under the section, which triggered the litigation.

VRS acceptance can be withdrawn

The Supreme Court has reiterated that an offer by an employee to accept the voluntary retirement scheme (VRS) can be withdrawn before it is accepted by the employer. This is because the scheme is covered by the Contract Act and there should be a valid offer and acceptance.

This principle was laid down in the case, Hindustan Copper Ltd versus Banshi Lal, following a leading case of 2003, involving Bank of India. In the Hindustan Copper case, all units except one was closed down and many workers who did not want to be transferred accepted VRS. Some later withdrew from the scheme.

Though the format of the application contained a clause that once the VRS was accepted, it could not be withdrawn, the Supreme Court stated that the workers could join work despite the clause as the contract had not been concluded.