SC rules against ONGC in arbitration row
Upholding an arbitration award, the Supreme Court has asked ONGC to pay 129.6 million yen to Japanese firm Sumitomo Heavy Industries towards income tax liability. The apex court, while setting aside the Bombay High Court order, upheld the arbitration award of 1994 that directed the state-run firm to reimburse the tax liability with 4.5% interest to Sumitomo. The Japanese firm had bagged 108 billion yen-contract from ONGC in 1982 for installation and commissioning of a well-cum-production platform deck and connected systems on a turnkey basis at the latter?s Bombay High offshore site to extract oil. Subsequently, the Japanese firm issued a sub-contract to McDermott International (MII) in December 1983.
At the time of the award, such transactions were exempted from income tax, as the fiscal limit of the then tax laws was applicable only to an extent of 12 nautical miles in India?s territorial waters. However, the finance ministry extended the limit of income tax to all continental shelves with effect from April 1, 1983, and made it mandatory on ONGC to deduct tax at source. These changes took place after the bid?s closing date, i.e., after October 11, 1982. Following the amendment, the department issued a notice for levy of Rs 1.8 crore tax from MII between 1983 and 1984. While the sub-contractor paid the tax, it claimed the same from Sumitomo, which, in turn, sought reimbursement from ONGC. After the PSU refused to pay, the dispute was referred to the arbitral tribunal, which ruled in favour of the non-resident firm. The Sumitomo stand before the apex court was that the tax liability of MII arose out of change of law after the bid?s closing date and ONGC was liable to compensate it for reimbursement made to MII, thus affecting its economic condition. While additional solicitor general Vivek Tankha said that ONGC was liable to bear all Indian taxes levied or imposed on the Japanese firm under the contract but was not obliged to make any payment in any other related obligations.
Secondary packing won?t attract excise duty: SC
The Supreme Court has held that secondary packing would not attract excise duty. While ruling partly in favour of National Leather Cloth Manufacturing (NLCM), the apex court said: ?We are of the opinion that the fabric manufactured by the assessee was sold? to the wholesalers at the factory gate only in polythene bags, the further packing of three rolls in hessian cloth was not in the course of normal delivery to the customers in the wholesale trade at the factory gate and was, therefore, not required to make the product marketable.? The judgement held that the additional packing in the nature of a secondary packing was done for the purpose of convenience of the up-country customers in the transportation of the coated fabric and the cost of secondary packing in hessian cloth cannot be included in the value of the goods in terms of Section 4(4)(d)(i) of the Central Excise Act 1944 for the purpose of assessment of excise duty. The department in April 1984 rejected NLCM?s claim for excluding the cost of polythene bags and hessian cloth while computing the value of the fabric for assessment purposes.
NLCM then moved the Bombay High Court, which rejected its plea in July 2002. Stating that the department failed to appreciate the distinction between the primary and the secondary packing, counsel Jay Savla, appearing for NLCM, submitted that the cost of secondary packing should be excluded from the assessable value. Senior counsel RP Bhat, on behalf of the Revenue, argued that packing of coated fabrics in polythene bags and then in hessian cloth was in the normal course of trade and there was no reason to exclude its cost from the fabric?s value.
SC refuses to question govt on land acquisition
Refusing to question the need of state governments to acquire land for public purposes, the Supreme Court has said that ?in respect of ?need? and ?necessity?, it is for the government and their authorities to take a decision considering various aspects. If such a decision is taken based on materials, it is not for the court to doubt their claim?. It has upheld the Gujarat High Court?s judgement that gave nod to the state government to acquire 848.66 sq m of a plot in a residential area of Surat to establish a school. The HC?s ruling was challenged by several washermen who used the plot for their livelihood.
The decision assumes importance as the SC is set to hear together at least six cases, including acquisition of 25,000 acres of land by the Haryana government in favour of the Mukesh Ambani-owned RIL in the NCR. The outcome of the hearing could set a precedent for SEZ projects, irrespective of which way the court?s decision goes. Senior counsel Ranjit Kumar, appearing for landowners, argued that schools could not be established in residential areas by changing the land use and by violating provisions of the Land Acquisition Act 1894. State counsel Hemantika Wahi contended the landowners failed to participate in the process of filing objections against the acquisition, which was done after complying with statutory notices and other requirements.