<b>Brief case:</b> Service tax not to cover materials

A weekly selection of key court orders

In service and maintenance contracts, cost of parts and materials used are excluded for evaluating service tax, the Supreme Court has held in a batch of appeals from different states referring to companies retreading tyres. It reversed the finding of the excise appellate tribunal that it is the entire of the gross value of the service rendered that is liable to service tax. The tribunal had maintained that there is no sale or deemed sale of the parts or other materials used in the execution of the contract of repairs and maintenance. The court stated that several government notifications like those in 2003 and 2004 have made it clear that goods and materials sold by the service provider to the recipient of service are exempted. The only condition is that there should be documentary proof specifically indicating the value of the goods and materials, the court stated in its judgment in the leading case, Safety Retreading Co vs Commissioner of Central Excise. An assessee is liable to pay tax only on the service component, the judgment emphasised.

NHAI appeal against award dismissed

The Delhi high court last week dismissed an appeal of National Highways Authority of India challenging the award of a three-member arbitral tribunal directing it to pay Rs 70 crore to its contractor, Hindustan Construction Co. The dispute was over building a four-lane road at Paradip Port in Odisha. The project was delayed and the contractor was given extensions several times. After completing the work, disputes arose over the additional cost incurred by the contractor and the tribunal was appointed. When its award went in favour of the contractor, NHAI challenged it in the high court. The high court stated that the award had discussed the issues in detail and reached a reasonable conclusion and there was no ground to interfere with the award.

Sandals or chappals? Ask ladies

The Delhi high court last week settled a long-standing dispute over whether a certain consignment for export was ladies’ leather sandals or chappals, a question that originated in 2003. A Chennai-based unit filed a shipping bill in which it declared the goods as ladies sandals to claim drawback  in  customs duty. At the instance of the Special Investigation Bureau of the Customs in New Delhi, the goods were classified as chappals, not sandals as declared. To clarify and ensure proper description of the goods, the exporter forwarded samples to the Council of Leather Exports, New Delhi. It opined that it was sandals without back strap. But the authorities consulted the Footwear Design and Development Institute which ruled that they were chappals. Therefore the authorities denied the benefit and imposed penalty on the exporter. Its appeals were rejected. So it moved the high court, relying on the council’s opinion while the authorities argued that since there was no back strap they were chappals. The high court stated in its judgment in Wishall International vs Union of India that the authorities “acted upon prejudice and a preconceived notion that ladies sandals cannot be without a back strap.” When there is difference of opinion among experts, the test is how the product is known in the market. The court wondered whether there were any women among the experts, “the ultimate consumers”.

Trade mark dispute is for civil court

Criminal law should not be used to harass a rival business house in a trade mark case, the Gujarat high court stated in its judgment, Jyvantbhai vs State. The dispute was over the trade marks ‘Badshah’ and ‘Shenshah’, both dealing in spices. Both of them had registered their trade marks. But the Badshah owner repeatedly complained to the police that the rival was using its similar-sounding name with deceptive artistic works to attract customers, causing losses. The Shenshah owner moved the high court to quash the complaint. The court did so observing that “this dispute is essentially of a civil nature and instead of taking a civil action, since criminal machinery is put to motion in such a light manner, the same reflects an intent of the complainant to abuse the process of law; such an attempt is not possible to be encouraged.” 

New questions on cheque bouncing

The Allahabad high court last week referred to a larger bench a question arising from bounced cheques, as there was difference of opinion among various high courts. If a person is acquitted by a magistrate, may the payee who is aggrieved appeal to the sessions judge, or to the high court? In this case, Anil Kumar vs State of UP, the acquittal was challenged before the sessions court. It ruled that it had no jurisdiction and the appeal would lie to the high court. So, the payee appealed to the high court, arguing the sessions judge’s view was wrong. The single judge bench found the law was not clear on this point arising in the Negotiable Instruments Act vis-a-vis the Criminal Procedure Code. So, the issue was referred to a larger bench. 

Insurer to pay for surveyor’s delay

The National Consumer Commission has ruled that if the surveyor of an insurance company did not file his report within the prescribed time of six months, the insurer shall pay interest on the payment to the insured. According to the Insurance Regulatory and Development Regulations, the surveyor is required to submit his report within 30 days of his appointment, unless in special circumstances he obtains an extension for the submission of his report. However, in no case he is entitled to take more than six months from the date of his appointment. In case of delay in payment, the insurer is liable to pay interest at a rate which is two per cent above the bank rate. In this case, Magappie International Ltd vs Oriental Insurance Co, the land and factory were insured for Rs 26 crore. There was a fire and the insurer appointed a surveyor. His report came nearly a year later. The company demanded interest. The commission granted the request as both the surveyor and the insurer did not follow the time line set by the regulations. The judgment said: “There is no reason why an insured should suffer on account of delay on the part of the surveyor in submitting his report considering the fact that the surveyor is appointed by the insurer without consulting the insured and in any case, it is for the insurer to impress upon the surveyor to submit his report within the time limit prescribed.”