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Taxation: Benefits under 2 notifications can’t be claimed simultaneously

SC clears the air by ruling that benefits under two different notifications cannot be claimed simultaneously

By: | Updated: September 22, 2016 6:55 AM
Corporate Tax While dismissing the company’s claim, the SC said: “…the reason is to deny dual benefit and also the notification (1986) computes the benefit on the basis of turnover. Bifurcation and division of turnover would lead to distortion and cause anomalies.”

The Supreme Court in a series of judgments has cleared ambiguities on applicability of various government notifications related to taxation.

In a recent judgment, the apex court rejected a cement company’s claim for dual benefit of partial exemption from the sales tax payable in respect of inter-state sales on the ground that benefits under the two different notifications cannot be claimed simultaneously.

In the case, JK Lakshmi Cement Ltd versus Commercial Tax Officer, the Rajasthan government had issued a May 1986 notification granting partial exemption from central sales tax payable in respect of inter-state sales. While partial exemption was granted at the rate of 50%/75% on the basis of increase in the percentage of the entire inter-state sales and decrease in percentage of stock transfers, the benefit under the notification was not available on levy cement. Later, various notifications, including one in 2000, and circulars were issued in respect of inter-state sales of cement subject to the condition that the dealer making inter-state sales under subsequent notifications shall not be eligible to claim benefit of partial exemption notification.

The issue raised before the courts was whether JK Lakshmi Cement, the manufacturer and seller of Grey Portland Cement, was entitled to dual benefit of partial exemption under the 1986 notification, and also the lower rate of tax at 6% under the 2000 notification.

While dismissing the company’s claim, the SC said: “…the reason is to deny dual benefit and also the notification (1986) computes the benefit on the basis of turnover. Bifurcation and division of turnover would lead to distortion and cause anomalies.”

In another judgement, Colgate Palmolive versus Commissioner of Customs, the SC held that the 2000 notification issued by the government to amend its earlier notification for exemption of special additional duty (SAD) from the basic customs duty can’t be applied retrospectively.

In pursuance to a trade treaty, the Indian government had issued notification in July 1996 to give exemption to specified goods from the customs duty when imported from Nepal. Another notification was issued in March 2000, pursuant to addition of a new provision in the Customs Tariff Act for imposition of SAD.

While the consumer durable company, on demand raised by the department, had paid SAD in respect of the imports made from Nepal under protest, a subsequently notification in September 2000 had resulted in exemption of SAD from the customs duty. Consequently, the assessee sought refund which was rejected by the revenue authorities.

Colgate Palmolive pleaded that the amendment notification which enlarged the scope of exemption from basic customs duty by including SAD, should be applied retrospectively in view of the language employed in the treaty between the two countries. This plea was rejected by the tribunal, observing that the exemption notification could not be considered to be having retrospective effect and any such exemption provision which enlarges the scope of earlier notification cannot be considered to be clarificatory.

The apex court, on appeal, observed that “it is vivid that the protocol to the Treaty of Trade had made a distinction between the “basic customs duty” and “additional customs duty,” but it did not deal with SAD. “The exemption which was granted by the September 2000 notification was, therefore, in the nature of specific and new exemption from payment of special additional duty, which was otherwise payable in view of the introduction of Section 3A to the Tariff Act. It is difficult to appreciate that the exemption granted vide September 2000 notification to SAD was clarificatory or to give effect to the existing protocol. We think so as protocol appended to the Treaty could not have conceived of future levy by way of proposition. In any case, factually it does not. Therefore, the notification of September 2000 conferred a new benefit which was not earlier stipulated or the subject matter of protocol”.

Rejecting cement major ACC Ltd’s plea to treat the sales at the hands of the manufacturer, Cochin Cement Limited (CCL), as First Sale, the Supreme Court has held that ACC being the brand name holder/trademark holder would be treated as the First Sale under the Kerala General Sales Tax Act 1963, thus not entitled to tax exemptions.

ACC had an agreement with CCL for manufacture of cement since 1993. The assessee claimed before the assessing officer (AO) that its case was covered under Section 5(2) of the Act and, therefore, the sale effected by CCL should be treated as the first sale. However, the AO, on the basis of intelligence report and other materials, concluded that CCL had been manufacturing the cement and entire goods manufactured by it were delivered at ACC’s depots for being marketed by the assessee in its brand name. And CCL was not entitled to sell even a single bag of cement in the market. All the sales effected through ACC’s depots were assessed under the Act. The order of assessment also received the stamp of approval by the higher authorities as well as by the Kerala High Court.

Even the top court observed that “what is limpid is that Section 5(2) is an expression of the Legislative intention that the sales at the hands of the brand name holder and trade mark holder would be treated as the first sale. On a perusal of the agreement entered into between the parties, it is not remotely suggestive of the fact that CCL is a brand name holder or trade mark holder.”

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