M J Antony: Cement firms' claim rejected

LEGAL DIGEST

The Supreme Court held last week that cement companies could not take benefit under the central value-added tax (Cenvat) credit under Rule 57AB of the Central Excise Rules for explosives used in mining.

The case involved JK Udaipur Udyog Ltd and another cement company. JK Udaipur had used explosives for blasting purposes, a few kilometers away from the cement plant.

The assistant commissioner issued showcause notice saying explosives were not "inputs" in the manufacture of cement and therefore the company could not claim benefit under the rules.

The company appealed to the appellate commissioner who agreed with it. The government appealed to the Customs Excise & Gold (Control) Appellate Tribunal (Cegat), but it was dismissed.

However, the Supreme Court held that Cegat was wrong. Agreeing with the revenue department, the court clarified that in order to claim the benefit, the goods must be used within the factory.

In case of cement companies explosives were used in the mines and not in the factory, though they were interconnected. Therefore, they were not entitled to the Cenvat credit.

Custodian can initiate recovery proceedings

The Supreme Court last week dismissed the appeals of LS Synthetics Ltd and Kachins Fabrics Ltd against the judgment of the special court dealing with the 1992 securities scam and ruled that even loans given by a "notified" party would come within the jurisdiction of the special court.

In these two cases, the companies had taken loans from Fairgrowth Financial Services Ltd, which was later declared a notified party. The custodian appointed under the Special Courts Act called upon the companies to furnish particulars of the loans. They were furnished.

However, they argued that transactions in question did not arise out of transactions in securities. Therefore, the special court had no jurisdiction to deal with them. The special court rejected this contention.

They appealed to the Supreme Court. A three-judge Bench asserted that a notified party had the right to bring to the special court a plea for recovery of loans from a third party. The custodian can then initiate recovery proceeding.

Moreover, it held that all properties belonging to the notified person should be subject to attachment, which could be applied for discharge of liabilities.

SC sets aside order in mutual fund case

In another appeal in the securities scam, involving Andhra Bank, Canara Bank and its financial and mutual fund arms, the Supreme Court set aside the judgment of the special court (Canbank Financial Services Ltd vs the Custodian).

The special court had directed Canfina and others who were in possession of Cancigo units, an open-ended investment scheme of the Canbank Mutual Fund, worth Rs 33 crore to hand them over to Canbank Financial Services Ltd together with any accrued interest.

The Supreme Court reversed it and said Canbank Financial, having paid a consideration of Rs 33 crore in relation to the Cancigo units in question, had a just right to possess them to the exclusion of Hiten Dalal, the stockbroker who bought the units through Andhra Bank and the Andhra Bank Financial Services. The Supreme Court said the special court could not have directed Canbank Financial to hand them over the custodian.

Plea of Eagle Flasks dismissed

The Supreme Court last week dismissed the appeal of Eagle Flask Industries Ltd against the imposition of excise duty of Rs 15 lakh and penalty, which was affirmed by Cegat.

The company had failed to make a declaration under the Central Excise Tariff Act and give an undertaking with regard to the two plants in Talegaon and Chinchwad, Maharashtra.

The Supreme Court said they were not mere formalities, but essential to claim benefits under the government notifications.