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 KSCAA PROGRAMMES & ANNOUNCEMENTS
News Bulletin KSCAA CONFERENCE AT HUBLI
September 2010 Vol 48 PPar
ar
artt 2
No. of Pages : 28 Organised by
Karnataka State Chartered Accountants Association
CONTENTS Jointly with
Programmes & Announcements 5 Hubli Branch of SIRC of ICAI
Date: Saturday, 30th October 2010
Bahumukha Parinati 7
Venue : Deshpande Foundation Auditorium, BVB College campus, Vidyanagar, HUBLI
CA - The Multifaceted
Professional Accountant in Business Programme
CA. Ramachandran Mahadevan 08.30 AM Registration
09.15 AM Inaugural session
SAMVARDHANA 9 WELCOME ADDRESS
- (Invocation, Introduction, Welcome speech)
Option Contracts 11
- Capital Market KEY NOTE ADDRESS
- by Shri. Jagadish Shettar
CA. S. Krishnaswamy
Hon’ble Minister of Panchyat- Raj and Rural Development
Indirect Taxes Update 13 First Technical Session
– August 2010 10.15 AM Issues in Taxation of Cooperative Societies
CA. V. Raghuraman - by CA. Umesh Bolmal, FCA, Belgaum
CA. C.R. Raghavendra 11.00 AM Coffee Break
Second Technical Session
Levy of Service Tax 17
11.15 PM Conflicts in Accounting & Revenue Recognition
– Issues - by CA. K.Gururaja Acharya
CA Madhukar N Hiregange
Third Technical Session
CA Srikantha Rao 12.45 PM Reforms in Govt. Accounting & emerging opportunities for CA’s
Recent Decisions of the 20 - by CA. Tara Bevinje, FCA, Bangalore
Supreme Court and High 01.30 PM LUNCH BREAK
Courts on Income Tax Fourth Technical Session
CA. K.S. Satish 02.20 PM Service Tax - Recent Judgements & Legislative Amendments
- by CA. K.S.Ravi Shankar, FCA, Bangalore
Judicial Pronouncement by 22 03.50 PM Coffee Break
Honorable High Court under Fifth Technical Session
Karnataka Sales Tax law 4.05 PM Audit Provisions relating to Sahakari Souharda Cooperative Audit
CA. Srikanth Acharaya and - by CA. Ravindranath, FCA, Sagar
CA. Annapurna Kabra Sixth Technical Session
ªÀÄAPÀÄwªÀÄä£À PÀUÎÀ 24 4.45 PM KVAT Audit - Precautions, Documentation, Issues
- by CA. S.Venkataramani, FCA, Bangalore
Cover Page : Remembering the
DELEGATE FEES : Rs.250/-,
famous illustrious son of India, the
: Rs.100/- for Students
great visionary, Bharata Ratna Cheques/DD’s in favour of KSCAA, Payable at Bangalore
Sir M. Visvesvaraya on his or in favour of Hubli Branch of SIRC of ICAI, Payable at Hubli
birthday on 15th of September.
CA. Allama Prabhu M.S. CA.Maddana Swamy CA. C.R.Dhavalagi
Disclaimer President - KSCAA Secretary-KSCAA Conference Chairman
The Karnataka State Chartered Accountants Cell: 98801 24567 Cell: 93412 14962 Cell: 94481 11377
Assocation does not accept any e-mail: president e-mail: madanswamy e-mail: cr_dhavalagi
responsibility for the opinions, views, @kscaa.com @gmail.com @rediffmail.com
statements, results published in this News Conference Co-ordinators :
Bulletin. The opinions, views, statements, CA. Ravindra S Kore CA. Panduranga Shimpi CA. Kiran Kumar
results are those of the authors/ Bangalore Belgaum Davangere
contributors and do not necessarily reflect Cell: 99020 46884 Cell: 94481 42674 Cell: 98440 62597
the views of the Assocation.

KSCAA welcomes articles & REGISTRATION CUT OFF @ 200 Delegates

views from members for REGISTER IN ADVANCE (First come, First Serve basis)
publication in the
news bulletin / website. Karnataka State Chartered Accountants Association
email: info@kscaa.com 7/8, 2nd Floor, Shoukath Building, SJP Road, Bangalore 560 002
Website: www.kscaa.com 080-22222155 , Telefax : 080-22274679, e-mail: info@KSCAA.COM
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KSCAA News Bulletin - SEPTEMBER 2010 1234567 5
 Two Day National Tax Conference at Bangalore
Organised by
Karnataka State Chartered Accountants Association
Jointly with
All India Federation of Tax Practitioners (Southern Zone)
Date: Saturday,13th & Sunday,14th of November 2010
Venue : Auditorium-2, Nimhans Convention Centre,Bangalore

Programme

DAY 1 13.11.2010, Saturday DAY 2 14.11.2010, Sunday

08.45 AM Registration First Technical Session
09.15 AM Inaugural session
09.45 AM Direct Tax Code ( R)
WELCOME ADDRESS - a Panel discussion
- (Invocation, Introduction, Welcome speech) Moderator : CA. Padamchand Khincha
KEY NOTE ADDRESS
11.15 AM Coffee Break
First Technical Session
Second Technical Session
10.45 AM Wealth Management - Tips & Techniques
by Sri. Amit Rati, Mumbai* 11.30 AM Issues & recent judgements in TDS
11.45 AM Coffee Break 12.45 PM Sponsorers Programme
Second Technical Session
01.15 PM LUNCH BREAK
12.00 PM Recent issues and judgements on Works Contract
- a Panel discussion Third Technical Session
- by Sri.P.C.Joshi 02.30 PM K-VAT Audit
Sri. Patodi M.L. - by CA.S.Venkataramani
Moderator : CA. Sanjay Dhariwal
03.45 PM Coffee Break
01.30 PM LUNCH BREAK
Third Technical Session Fourth Session
02.30 PM Software Sector and Customs, Excise & Service Tax 04.00 PM Brains Trust
- by CA. K.S.Ravi Shankar - Sri. P.C.Joshi
04.00 PM Coffee Break - CA. Madhukar Hiregange
- CA. K.Gururaja Acharya
Fourth Technical Session
Moderator : CA.S.Krishna Swamy
4.15 PM Tax & Accounting conflicts &
Transitional issues under IFRS 05.45 PM Valedictory Session

DELEGATE FEES : Rs. 2250/-, Cheques/DD’s in favour of KSCAA, Payable at Bangalore

The Fee covers Background Materials, Lunch & Coffee/Tea and Breakfast on Day 2
CA. Allama Prabhu M.S. CA. Maddana Swamy
President - KSCAA Secretary-KSCAA
Cell: 9880124567 Cell: 93412 14962
e-mail : president@kscaa.com e-mail: madanswamy@gmail.com
Conference Co-ordinators :
CA. Sanjay Dhariwal CA. Anant Mutalik
Vice Chairman-AIFTP(Kar) Vice President, KSCAA
Cell: 99720 70601 Cell : 94487 01370
e-mail :sanjay@dnsconsulting.net e-mail : caanantmutalik@yahoo.co.in

REGISTRATION CUT OFF :

Karnataka State Chartered Accountants Association
7/8, 2nd Floor, Shoukath Building, SJP Road, Bangalore 560 002
210 Delegates
080-22222155, Telefax : 080-22274679, e-mail: info@KSCAA.COM REGISTER IN ADVANCE
(First come, First Serve basis)

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6 1234567 KSCAA News Bulletin - SEPTEMBER 2010
 BAHUMUKHA PARINATI
CA - The Multifaceted Professional Accountant in Business
CA. Ramachandran Mahadevan, FCA
A Consultation Paper published by International Federation
of Accountants (IFAC) in September 2010 echoes the
Bahumkha Parinati –CA-The Multifaceted Professional Theme
of the year of KSCAA and has been aptly titled “Competent
and Versatile” as professional accountants in business(PAIB)
drive Sustainable organizational success.
Consultation Paper
It examines the expectations placed on professional
accountants in business (sometimes known as management
accountants or finance professionals). They create, enable,
preserve, and report sustainable value for their employing
organizations in a rapidly changing economic and competitive
environment.
Worldwide, more than one million professional accountants
work to support organizations in commerce, industry, financial
services, the public sector, education, and the not-for-profit sector
in making them more successful and sustainable. They are a
very diverse constituency, and can be found working as
employees, consultants, and self-employed owner-managers or
advisers in commerce, industry, financial services, the public
sector, education, and the not-for-profit sector.
Within organizations, many professional accountants are
business leaders in a position of strategic or functional
leadership, or are otherwise well placed to partner with
colleagues in other disciplines to create long-term sustainable
value for their organizations. Business leaders typically
perform in director and management roles, while strategic
business partners support and participate in decision making
and direction at various levels of the organization.
Professional accountant roles
They have been broadly categorized as creators,
enablers, preservers, and reporters of sustainable value for
their organizations in two key dimensions:
A Performance Dimension
As creators of value in organizations, by (a) taking
leadership roles in governance, strategy, and performance
management, and (b) overseeing the allocation of resources to
ensure long-term sustainable value creation. Examples of job
roles within which value creation is a key activity include chief
executive officer (CEO), chief financial officer (CFO)/financial
director (FD), treasurer, or other executive director role.
As enablers of value in organizations, by influencing and
supporting those who make decisions, and challenging
assumptions and conventional thinking. Examples of job roles
within which enabling value creation by others is a key activity
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KSCAA News Bulletin - SEPTEMBER 2010 1234567
include business unit controller; business, financial, or
performance analyst; management accountant; and cost
accountant. In other words, these are professional
accountants who will typically assist and guide managerial
and operational decision making and implementation of strategy
as business partners.
A Conformance Dimension
As preservers of value in organizations, by identifying,
prioritizing, managing, and controlling strategic and operational
opportunities and risks. Examples of job roles primarily
dedicated to the preservation of value include director of
governance or operations, risk, and business assurance
manager, financial risk manager, compliance manager, and
internal auditor.
As reporters of value in organizations, by (a) measuring
performance, capturing financial transactions and non-
financial measures of performance, and (b) preparing high-
quality business and financial reporting to stakeholders,
including investors, customers, employees, regulators, and
suppliers. Examples of job roles within which reporting on
value is a key activity include group controller, head of
reporting, investor relations manager, and financial or
management accountant.
Balancing Conformance and Performance
Responsibilities
Conformance responsibilities include providing
assurances to senior management and boards as to whether:
Strategic, operational, and financial risks are effectively
identified, prioritized, managed and controlled, mitigated, and
reported
The organization is working effectively and efficiently
in achieving its strategic and operational goals and objectives
The systems generating financial and non-financial
information are working within prescribed standards of
accuracy and reliability, and such information reflects the true
sustainable performance of the organization
Management’s fiduciary responsibilities, such as external
financial reporting, fraud risk management, and adherence to
governance codes are being carried out
Performance responsibilities focus on strategy, value
creation, and sustainable resource utilization, and include:
Helping organizations make sustainable strategic
decisions, implementing appropriate strategies, and evaluating
their ongoing relevance and success
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 Understanding the organization’s appetite for risk and its
key drivers of sustainable performance
Identifying critical points at which the organization needs
to make decisions, and supporting these with relevant insight
and analysis
Allocating resources efficiently and effectively to achieve
strategic goals and objectives
Drivers of Sustainable Organizations
Clarifying and promoting the roles, activities, and
professional skills of professional accountants in business
needs to be done (a) within the wider context of understanding
the attributes of high-performing sustainable organizations,
and (b) with an appreciation of the emerging trends and
developments in the business environment.
The eight drivers of sustainable organizations provide
the framework for understanding how the global accountancy
profession needs to support the development of professional
accountants in business so that they can help organizations
achieve sustainable value creation.
The drivers are:
Customer and Stakeholder Focus
Effective Leadership and Strategy
Integrated Governance, Risk and Control
Innovation and Adaptability
Financial Management
People and Talent Management
Strategy Execution
Effective and Transparent Communication.
These drivers represent what organizations need to do
to achieve and sustain high performance and success. They
are core elements of every organization striving to be truly
sustainable over the long term. The drivers were defined in
light of an analysis of three megatrends: globalization,
complexity, and technology.
The multiple face of a professional accountants in
business are the 4Vs-
Value Creators,Value Enablers,Value Preserversand Value
Reporters.
A competency framework has been structured using the
eight drivers of sustainable organizations, andthe CA
professional accountant in business is shown as multifaceted
like a diamond.
(Full consultation paper-37 pages can be downloaded from -
ifac.org—
http://www.ifac.org/Guidance/EXD-Outstanding.php
Author can be reached on
e-mail: ramachandran.mahadevan@gmail.com

KARNATAKA STATE
CHARTERED ACCOUNTANTS ASSOCIATION
VISION
 KSCAA shall be the trusted and value based knowledge organisation providing leadership and timely influence to
support the functional breadth and technical depth of every member of CA profession;
 KSCAA shall be the nucleus of activity, amity and unity among members aimed at enhancing the CA profession’s
social relevance, attractiveness and pre-eminence;
 KSCAA shall in the public interest, be a proactive catalyst, offering a reliable and respected source of public
statement and comments to induce effective laws and good governance;
 KSCAA shall be the source of empowerment for leadership and excellence; disseminating knowledge to members,
public and students; building a framework for new opportunities and partnerships that enhance life in the community
and beyond; encouraging highest ethical standards and professional integrity, in realization of India global leadership
vision.
MISSION
 The KSCAA serves the interests of the members of CA profession by providing new generation skills, amity, unity,
networking and leadership to strengthen the professional capabilities, integrity, objectivity, social relevance, standards
and pre-eminence of India’s Chartered Accountants nationally and internationally through; becoming gateway of
knowledge for Chartered Accountants, students and public; helping members add value to their customers/employers
by enhancing their professional excellence and services; offering a reliable and respected source of public policy
advice and comments to bring about more effective laws and policies and transparent administration and governance.
MOTTO: KNOWLEDGE IS STRENGTH
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8 1234567 KSCAA News Bulletin - SEPTEMBER 2010
SAMVARDHANA
- enriching your understanding
TERMS AND CONDITIONS FOR ASKING QUESTIONS:
1. The Queriests should furnish their complete address, contact
numbers and e-mail ID. The queries may also be sent by
post to the KSCAA. The Queriest should necessarily be a
member of KSCAA and should specify his/her KSCAA
Membership number.
2. The Queries stated should be complete, self contained,
concise and unambiguous. It should relate only to the
question of law and interpretation, procedures and
practices.
3. If specifically requested, the Identity of the Queriest shall
not be disclosed and shall be kept completely confidential.
4. Hypothetical questions shall not be considered.
5. KSCAA does not guarantee that all the Queries shall be
answered. The KSCAA reserves its right to decline
publishing the answers to any of the Queries without
assigning any reason or justification.
©*hÍ*¾v
* ð*
6. As only two questions on each topic/segment/subject are
intended for publishing, the KSCAA do not undertake to
publish the same within any specific predetermined time.
Answers/Replies shall not be sent to the Queriest.
7. The KSCAA shall make the entire attempt to publish the
same at the earliest possible time. The KSCAA does not
accept any responsibility for the opinions, views and
statements etc., published therein. The opinions, views,
statements etc., are those of the contributors and do not
necessarily reflect the views of the Association.
8. The KSCAA also intends to publish an annual compilation
of all the queries and answers.
9. The KSCAA reserves its rights to bring in any new term or
condition or to modify the existing terms or condition
without any prior notice or intimation.
CA. Allama Prabhu, President

We call upon all the Members to send their Queries to the following e-mail ids:
queries@kscaa.com and queries.kscaa@gmail.com
(please send the questions to both the mail IDs)

Category : Central Excise QUERY No. 29

If the value of clearances from the factory exceeds
Rs.1.50 crores, then the unit has to start paying Central
Excise Duty. If the value of clearances in the previous
year is less than Rs.4.00 crores then can the unit enjoy
the threshold exemption the next year also and start
paying central excise duty only when the total
clearances exceed Rs.1.50 crores? Can this be done
for any number of years as long as the total value of
clearances does not exceed Rs.4.00 crores per annum?
I request you to please explain the correct position as
regards to the threshold limit.
VIEWS OF
CA. K.S. RAVISHANKAR &
CA. N. ANAND
The Query relates to entitlement to
exemption from payment of duty on the
basis of value of clearance under notification no.8/03-CE dated
1.3.03 by a manufacturer (SSI exemption). Under the above
notification, if the aggregate value of clearances of “all
excisable goods” for home consumption by a manufacturer
from one or more factories or from a factory by one or more
manufacturers does not exceed Rs.400 lakhs in the preceding
financial year, then for the current financial year the
manufacturer of ‘specified goods’ is entitled to exemption
from payment of duty for value of clearances upto Rs.150
lakhs. Once the value of clearances of ‘specified goods’
crosses Rs.150 lakhs, then the manufacturer is required to
pay central excise duty at the applicable tariff rate. The above
exemption can be claimed by an eligible manufacturer any
number of years as long as he is entitled to the same i.e. the
aggregate value of clearance of all excisable goods in the
preceding financial year does not exceed Rs.400 lakhs to be
reckoned as per the notification.

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KSCAA News Bulletin - SEPTEMBER 2010 1234567 9
SAMVARDHANA
- enriching your understanding
Category : FEMA
A NRI who is the president of a Charitable Trust
has given interest free loan to the Trust. Is this allowed?
If not, what has to be done now? Kindly explain?
VIEWS OF
CA. S. PARTHASARATHY
1. This query is examined with respect
to the provisions of the Foreign Exchange
Management Act, 1999, (FEMA) alone.
2. It is presumed that:
• The Charitable Trust is a body incorporated in India,
and hence a person resident in India.
• It is in order to appoint a person resident outside India,
as the President of the Trust (especially under Foreign
Contribution Regulation Act, 1976)
• NRI is resident outside India, as per the provisions of
FEMA.
• The Trust Deed provides for such a borrowing.
3. Relevant provisions of FEMA
Section 2 (e) : “capital account transaction” means a
transaction which alters the assets or liabilities including
contingent liabilities, outside India of persons resident
in India or assets or liabilities in India of persons
resident outside India and includes transactions referred
to in sub section (3) of section 6.
Section 6 (3) (d): any borrowing or lending in foreign
exchange in whatever form or by whatever name
called.
Section 6 (3) (e): any borrowing or lending in rupees
in whatever form or by whatever name called between
a person resident in India and a person resident outside
India.
Considering the foregoing provisions of FEMA, the
transaction in question is a capital account transaction
under FEMA and is regulated by:
a. In case the borrowing is in rupees – by the Foreign
Exchange Management (Borrowing and Lending in
Rupees) Regulations, 2000.
b. In case the borrowing is in foreign exchange – by the
Corporate Consultants (Comprehensive Solution on Corporate Law)
Expertise in MCA E-Filing, Scanning, Uploading, Incorporations, Digital Signatures
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Contact: Prasanna S Rao, Mob: 9886994309, E-Mail:cs.prasannarao@gmail.com
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©*hÍ*¾v
* ð*
QUERY No. 30
Foreign Exchange Management (Borrowing and
Lending in Foreign Exchange) Regulations, 2000.
4. Scenario a. – Borrowing in Rupees
Regulation 4 of Foreign Exchange Management
(Borrowing and Lending in Rupees) Regulations, 2000,
which deals with borrowing in rupees by persons
other than companies in India permits such a
borrowing provided that it is :
• From a non resident Indian; or
• a person of Indian origin resident outside India; and
• on a non-repatriation basis
subject to the following conditions:
(i). The amount of loan is received by way of inward
remittance from outside India or out of Non- resident
External (NRE)/ Non-resident Ordinary(NRO)/
Foreign Currency Non–resident (FCNR)/Non-resident
Non-repatriable (NRNR)/ Non-resident Special
(NRSR) account of the President maintained with an
authorised dealer or an authorised bank in India;
(ii). the period of loan does not exceed 3 years;
(iii). Where the loan is made out of funds held in NRSR
account of the President, payment of interest and
repayment of loan shall be made by credit to that
account; and in other cases, payment of interest and
repayment of loan shall be made by credit to the
President’s NRO or NRSR account as desired by the
President; and
(iv). the amount borrowed shall not be allowed to be
repatriated outside India.
5. Scenario b. – Borrowing in foreign exchange
In terms of Regulation 6 (5) of Foreign Exchange
Management (Borrowing and Lending in Foreign
Exchange) Regulations, 2000, approval of the Reserve
Bank of India would be required, as it falls outside the
scope of Schedule I, II or III of the said Regulation.
However, if the Trust is engaged in micro-finance
activities, it may borrow in foreign exchange, under
such terms and conditions as the RBI may specify
from time to time.
Advt.
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 OPTION CONTRACTS - CAPITAL MARKET
CA. S. Krishnaswamy. FCA
T he capital market continues to develop new products to
meet investors’ needs. Regulators ensure that these new
products land on a level playing field with timely dissemination
of information and price transparency. Always the investor
should be aware of the risks that the products bring in
In recent times the Indian capital market, in line with
global market developments, has introduced trading in
derivative products by expanding the definition of Security.
One important derivative is “Options Contracts”. The‘futures
and options’ segment of the market accounts for 50% of the
daily turnover of over 1 lakh crores. Hence its importance.
While it offers immense possibilities to seek returns it has
also a downside. One can with some knowledge play the
market – tolerable risk taking. Derivative contracts have
several variants one of the most common of such variants is
‘Options’ Options are of two types.
Business growth of options market (turnover Rs.Crore)
Month Index options Stock options
June 07 92503 21928
June 08 308709 24130
What is an option contract?
Options Contract is a type of Derivatives Contract which
gives the buyer /holder of the contract the right (but not the
obligation) to buy / sell the underlying asset at a predetermined
price within or at end of a specified period. The buyer / holder
of the option purchase the right from the seller /writer for a
consideration which is called the premium. The seller/ writer
of an option is obligated to settle the option as per the terms
of the contract when the buyer/ holder exercises his right.
The underlying asset could include securities, an index of
prices of securities etc.
Under Securities Contracts (Regulations) Act, 1956
options on securities has been defined “option in securities”
meaning a contract for the purchase or sale of a right to buy
or sell, or a right to buy and sell, securities in future, and
includes a teji, a mandi, a teji mandi, a galli, a put, a call or a
put and call in securities.
The ICAI Guidance Note on Accounting for Equity Index
and Equity Stock Futures and Options describes options as
under: “An Option is a type of derivative instrument whereby
a person gets the right to buy or sell at an agreed amount an
underlying asset on or before the specified future date. He is
not under any obligation to do so.
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KSCAA News Bulletin - SEPTEMBER 2010 1234567
Options
Option Terminology
Index options: These options have the index as the
underlying. Some options are European while others are
American. Like index futures contracts, index options
contracts are also cash settled.
Stock Options: Stock options are options on individual stocks.
Options currently trade on over 500 stocks in the United
States. A Contract gives the holder the right to buy or sell
shares at the specified price.
Buyer of an option: The buyer of an option is the one who
by paying the option premium buys the right but not the
obligation to exercise his option on the seller/ writer.
Writer of an option: The writer of a call / put option is the
one who receives the option premium and is thereby obliged
to sell / buy the asset if the buyer exercises on him.
There are two basic types of options, call options and put
options.
Call option: A call option gives the holder the right but not
the obligation to buy an asset by a certain date for a certain
price.
Put option: A put option gives the holder the right but not the
obligation to sell an asset by a certain date for a certain price.
Option price/ premium: Option price is the price which
the option buyer pays to the option seller. It is also referred to
as the option premium.
Expiration date: The price specified in the options contract
is known as the expiration date, the exercise date, the strike
sate or the maturity.
Strike price: The price specified in the options contract is
known as the strike price or the exercise price.
American options: American options are options that can
be exercised at any time upto the expiration date. Most
exchange- traded options are American.
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European options: European options are options that can be The risk of an option buyer is limited to the premium he
exercised only on the expiration date itself. European options pays. The profit can be limitless. Whereas the seller of an
are easier to analyze than American options, and properties option is in an opposite position – the risk is unlimited.
of an American option are frequently deduced from those of
Table 5.8 gives the contract specifications for stock
its European counterpart.
options.
In- the- money option: An in- the- money (ITM) option is
an option that would lead to a positive cash flow to the holder Table 5.8 contract specification : Stock options
if it were exercised immediately. A call option on the index is Underlying Individual securities available
said to be in- the –money when the current index stands at a
level higher than the strike price (i.e. spot price > strike price). For trading in cash market
If the index is much higher than the strike price, the call is Exchange o trading National Stock Exchange of India
said to be deep ITM. In the case of a put, the put is ITM if
Security descriptor NOPTSTK
the index is below the strike price.
At- the- money option: An at- the- money (ATM) option is Style of option American
an option is an option that would lead to zero cash flow if it Strike Price interval As specified by the exchange
were exercised immediately. An option on the index is at –
the- money when the current index equals the strike price Contract size As specified by the exchange
(i.e. spot price > strike price). (minimum value of Rs.2 Lakh)
Out- of – the money Option: An out-of –the- money (OTM) Price steps Re.0.05
option is an option that would lead to a negative cash flow if Price bands Not applicable
it were exercised immediately. A call option on the index is
out- of – money when the current index stands at a level Trading cycle The options contracts will have a
which is less than the strike price (i.e. spot price < strike maximum of three month trading
price). If the index is much lower than the strike price, the cycle the near month (one), the next
call is said to be deep OTM. In the case of a put, the put is month (two) and the far month
OTM if the index is above the strike price. (three). New contract will be
introduced on the next trading day
Intrinsic value of an option: The option premium can be
following the expiry of near month
broken down into two components – intrinsic value and time
contract.
value. The intrinsic value of a call is the amount the option is
ITM, if it is ITM. If the call is OTM, its intrinsic value is Expiry day The last Thursday of the expiry
zero. month or the previous trading day if
Time value of an option: The time value of an option is the the last Thursday is a trading holiday.
difference between its premium and its intrinsic value. Both Settlement basis T+1 Basis
calls and puts have time value. An option that is OTM or ATM
Daily settlement Closing price of underlying on the
has only time value. Usually, the maximum time value exists
day of exercise.
when the option is ATM. The longer the time to expiration,
the greater is an option’s time value, all else equal. At Final settlement Price Closing price of underlying on the
expiration, an option should have no time value. last trading day of the options
contract.
Table 5.5: Option prices: some illustrative values
Settlement day Last trading day.
Option strike price
1400 1450 1500 1550 1600 Conclusion
Call “Safety, liquidity, and transparency should carry far more
1month 117 79 48 27 13 weight than the possibility of high yields or excess returns.
Simplicity should be valued over complexity. “Plain vanilla”
3month 154 119 90 67 48
investments and approaches will generally prove better bets
Puts than those that are too difficult to execute or explain in more
1month 8 19 38 66 102 than one sentence. Understand an investment instrument
before you invest”.
3month 25 39 59 84 114
Assumptions: Nifty spot is 1500, Nifty volatility is 25% Author can be reached on
annualized, interest rate is 10%, Nifty dividend yield is 1.5 %. e-mail: skcoca2000@yahoo.com
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12 1234567 KSCAA News Bulletin - SEPTEMBER 2010
 INDIRECT TAXES UPDATE – AUGUST 2010
By CA V. Raghuraman, B.Com, FCA, ACS, LLB, Grad.CWA, Advocate
CA C.R. Raghavendra, B.Com, FCA, LLB, Advocate
FOR THE MONTH OF AUG 2010:
A. CUSTOMS:
Notification:
Amendment to Courier Imports and Exports (Clearance)
Regulations, 1998:
Under Courier Import and Export (Clearance) Regulations
1988 following amendments are made:
1. Earlier only authorized courier was allowed to clear
the import or export of goods through courier. With
this amendment, even an agent of authorized courier
who has passed CHA examination conducted under
regulation 8 or regulation 19 of the Customs House
Agents Licensing Regulations, 2004.
2. Further, in case of goods imported through courier
having value more than Rupees one lakh the entry shall
be made in the form prescribed in the Bill of Entry
(Forms) Regulations, 1976.
3. Earlier authorised courier has to show evidence of
procession of assets worth value not less than 5 Lakhs
to obtain the authorized courier licensing. Such asset
value limit has been increased from 5 lakhs to 25 Lakhs.
4. The Applicant for clearance of goods shall execute
bond of security of Rs. 10 Lakhs in case of airports
of major international airports of Mumbai, Delhi,
Calcutta and Chennai and Five lakh rupees in case of
other airports and Land Customs Stations.
[Source: Notification No. 75 / 2010 – Customs (N.T.)
dated 12.08.2010]
B. CENTRAL EXCISE:
Circular:
a) Administrative Control over Export Oriented
Units by the Central Excise formations:
It has been decided by the Board vide letter dated
18.05.2010 in the meeting held on 16.4.10 that the
jurisdiction over the EOU/EHTP/STP even in the port
cities should be with the Central Excise formations in
view of effective implementation of Automation of
Central Excise and Service Tax (ACES). This will
facilitate uniform and better administration/control of
such EOUs, and, also facilitate the shift to GST
regime in future. It has been decided that the shift in
the process of administration, including handing over
of all the records etc. of EOUs from Customs
formations to the respective Central Excise formations
can be effected latest by 31st July 2010.
[Source: Circular No. 923/13/2010-CX dated
19.05.2010]
b) Valuation of Goods cleared in DTA by EOU’s
With regard to the valuation of goods cleared from an
EOU for sale in DTA, when actual sale transaction
does not take place at the time of clearance but on
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a subsequent date through depot or through
consignment agents, CBEC has earlier issued Circular
No 268/85-CX.8 dated 29. 09.1994, clarifying that
valuation of goods in such situations will have to be
done in accordance with the Rule 8 of the Customs
Valuation Rule (Determination of Price of Imported
Goods), 1988 as it existed then.
In view of the position prevailing under Customs
Valuation (Determination of Value of Imported Goods)
Rules, 2007, as well as various Tribunal decisions on
the subject, it is clarified that the earlier Board Circular
No 268/85- CX.8 dated 29.09.1994 on the subject is
withdrawn. The field formations may follow the
provisions of Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007 in such
situations.
[Source: Circular No. 933 /23 /2010-CX dated
16.8.2010]
C. SERVICE TAX:
Circular
a) Service tax on commission received by Primary
Dealers dealing in Government Securities:
CBEC clarified that underwriting commission or
underwriting fees received by primary dealers dealing
with Government securities does not come under the
purview of Service tax.
It is clarified that Government securities are sovereign
securities having zero default risk. Reserve Bank of
India only manages the issue and also auction of
Government Securities on behalf of the Government
of India. In effect, Primary Dealers registered with
the RBI (as opposed to registration with the Securities
Exchange Board of India) deal in Government
Securities, issued by the RBI on behalf of the
Government of India, as a part of the central
Government’s market borrowing program. The general
practice is that the RBI invites bids from the Primary
Dealers, who in their bids indicate the amount to be
underwritten and the underwriting fee expected by
them. RBI examines these bids and decides the
amount to be underwritten and underwriting fee to be
paid to a Primary Dealer. Underwriting Fee is also
known as Underwriting Commission in common
parlance. Thus the conclusion drawn is that
government securities are not securities of a body
corporate.
[Source: circular No. 126/2010 dated 10.08.2010]
b) Service tax on commercial training and coaching –
clarification as to whether ‘donation’ is ‘consideration’:
On the question whether donation received could be
termed as consideration towards services provided, the
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 Board has clarified that the important point here is
regarding the presence or absence of a link between
‘consideration’ and taxable service. It is clarified that
it is a settled legal position that unless the link or nexus
between the amount and the taxable activity can be
established, the amount cannot be subjected to service
tax. If Donation or grant-in-aid is not specifically meant
for a person receiving such training or to the specific
activity, but is in general meant for the charitable cause
championed by the registered Foundation, there will be
no service tax. Further in case between the provider
of donation/grant and the trainee, as there is no
relationship other than universal humanitarian interest,
service tax is not leviable, since the donation or grant-
in-aid is not linked to specific trainee or training.
[Source: circular No. 127/2010 dated 16.08.2010]
c) Clarification regarding service tax on on-going
works contracts entered into prior to 01.06.2007
under Works contract Services:
Based on the decision of the High Court of Andhra
Pradesh in the matter of M/s. Nagarjuna Construction
Company Limited vs. Government of India (2010
TIOL 403 HC AP ST) in connection with works
contract services following clarifications were issued
by the Board:
Clarification:
While prior to the said date services like Construction;
Erection, commissioning or installation; Repair
services were classifiable under respective taxable
services even if they were in the nature of works
contract, whether the classification of these activities
would undergo a change?
As regards the classification, it is clarified that w.e.f
01.06.2007 when the new service ‘Works Contract’
service was made effective, classification of aforesaid
services would undergo a change in case of long term
contracts even though part of the service was
classified under the respective taxable service prior to
01.06.2007. This is because ‘works contract’
describes the nature of the activity more specifically
and, therefore, as per the provisions of section 65A
of the Finance Act, 1994,
Whether in such cases of continuing contracts, the
Works Contract (Composition Scheme for payment of
Service Tax) Rules, 2007 under Notification No. 32/
2007-ST dated 22/05/2007 would be applicable?
Regarding applicability of composition scheme, it is
clarified that the material fact would be whether such
a contract satisfies rule 3 (3) of the Works Contract
(Composition Scheme for payment of Service Tax)
Rules, 2007. This provision casts an obligation for
exercising an option to choose the scheme prior to
payment of service tax in respect of a particular works
contract. Once such an option is made, it is applicable
for the entire contract and cannot be altered.
Therefore, in case a contract where the provision of
service commenced prior to 01.06.2007 and any
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payment of service tax was made under the respective
taxable service before 01.06.2007, the said condition
under rule 3(3) was not satisfied and thus no portion
of that contract would be eligible for composition
scheme. On the other hand, even if the provision
of service commenced before 01.06.2007 but no
payment of service tax was made till the taxpayer
opted for the composition scheme after its coming
into effect from 01.06.2007, such contracts would be
eligible for opting of the composition scheme
[Source: circular No. 128/2010 dated 24.08.2010]
Draft Point of Taxation (for Services Provided or
Received in India) Rules
Government of India has proposed to issue Point of
Taxation (for Services Provided or Received in India)
Rules, 2010. The draft point of taxation Rules are
published in the website: www.cbec.gov.in for the
purpose of comments from public.
As clarified by the Government, the intention behind
issue of these rules is to introduce clarity and certainty
in the matter of levy and collection of Service Tax
particularly in situations of change of rate of service
tax or imposition of service tax on new services.
Further, it is clarified that there is lack of clarify on
the issue of date of applicability on new services and
the change in the rate of tax and also on the fronts
of levy of tax on continuous supply of services.
Although some of the issues are clarified through
circulars, a need has been felt to put the regulatory
frame work on a transparent, clear and durable basis
and hence these rules are framed.
CASE LAWS:
Customs and Central Excise:
1. M/s Madras Cements Ltd Vs CCE, Chennai, 2010-
TIOL-59-SC-CX
With regard to Modvat credit on on inputs viz.,
explosives, lubricating oils etc., the issue is squarely
covered by the decision of this Court in the case of
Vikram Cement Vs. CCE (2006-TIOL-04-SC-CX-LB)
and therefore, the appeals, where credit on inputs is
concerned, are allowed.
Regarding eligibility of CENVAT credit on capital
goods used in mines the Apex Court held that, if the
mines are captive mines so that they constitute one
integrated unit together with the concerned cement
factory, CENVAT credit on capital goods will be
available to the assessee. If the mines are not captive
mines but they supply to various other cement
companies of different assessees, and it is found that
the said goods were being used in the lime stone mines
outside the factory of the assessee, CENVAT credit
on capital goods used in such mines will not be
available to the concerned assessee under the
appropriate CENVAT Credit Rules.
In order to get a clear finding on the issue, all the
matters are remanded to the respective original
authorities for decision only on the above issue.
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2. CCE, Chennai Vs Tarpaulin International 2010-
TIOL-58-SC-CX
In connection with the issue whether process of
converting ‘Tarpaulin Fabrics’ into ‘Tarpaulin made-
ups’ would amount to manufacture or not, the Apex
Court observed that the original material used i.e., the
tarpaulin, is still called tarpaulin made-ups even after
undergoing the said process. Hence, it cannot be said
that the process is a manufacturing process.
Therefore, there can be no levy of Central Excise duty
on the tarpaulin made-ups. The process of stitching
and fixing eyelets would not amount to manufacturing
process, since tarpaulin after stitching and eyeleting
continues to be only cotton fabrics. The purpose of
fixing eyelets is not to change the fabrics. Therefore,
even if there is value addition the same is only to a
minimum extent. To attract duty there should be a
manufacture to result in different goods and the goods
sought to be subject to duty should be known in the
market as such.
3. National Leather Cloth Manufacturing Co.Ltd. v.
Union Of India 2010 (256) E.L.T. 321 (S.C.)
Issue: Matter regarding inclusion of cost of
Secondary/additional packing, in the valuation of
fabrics.
Facts: Bundles of fabrics are packed in polythene
bags for sale at factory gate and such bundles are
further bundled in hessian cloth, for upcountry
customers, to protect from damage during
transportation. Department took a stance that hessian
cloth packing is standard packing for fabric for sale
in wholesale market, hence cost thereof includible in
the value for determination of duty.
Decision: Relying on the decision of the Supreme
Court in the case of Bombay Tyre International Ltd.
[1983 (14) E.L.T. 1896 (S.C.)] the Apex Court held
that only polythene bags are required for ordinary
packing to give delivery at factory gate and further
packing is not in course of normal delivery to
customers. Therefore value of such additional packing
is not required to make product marketable as the
additional packing in nature of secondary packing
done for convenience of upcountry customers which
is not includible in the valuation.
4. CCE, Bangalore Vs M/s ETA Technology Pvt Ltd,
2010-TIOL-569-HC-KAR-CX.
Regarding the issue whether reversal of Cenvat credit
relating to exempted goods would suffice the
requirement of Rule 6 of Cenvat Credit Rules, 2002
or the manufacturer has to pay 8% of the value of
exempted goods, the High Court observed that once
Credit is reversed, it is deemed that Credit is not taken
and hence there is no requirement for payment of 8%
of the value of exempted goods.
High Court further observed that, another reason the
appeal filed by Revenue is liable to be dismissed is that,
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the amendment vide Finance Act, 2010 allows the
assessee to reverse the credit with interest.
5. CCE v. Gujarat Ambuja Cement Ltd. 2010 (256)
E.L.T. 356 (H.P.)
Regarding the eligibility to avail credit on Components
of Diesel Generating Power Plant (DGPP) installed in
a factory, the High Court held that duty paid on DGPP
installed in a factory is eligible for Modvat credit even
when DGPP’s are exempted from payment of duty.
DGPP is capital goods and if duty is paid on the
components used in its manufacture which in turn is
used in manufacture of dutiable goods, Modvat credit
for such duty cannot be denied.
6. Grasim Industries Ltd. v. Union of India 2010
(256) E.L.T. 553 (Del.)
Regarding claim of rebate on duty paid on both Inputs
and final products, simultaneous, the High Court held
that rebate on both inputs and final products cannot
be allowed simultaneously. Relying on the decision of
the Bombay High Court in Indorama Textiles case
[2006] (200) E.L.T.3 (Bom.) the High Court observed
that word “or” appearing in Rule 18 of Central Excise
Rules, 2002 should not to be read as “and”. Intention
of legislature is not to grant rebate of duty paid on
exported goods as well as inputs simultaneously.
7. M/s Maruti Suzuki India Ltd Vs CCE, Delhi, 2010-
TIOL-1127-CESTAT-DEL-LB:
In connection with the issue whether pre-delivery
inspection charges and after-sale-service charges
collected by dealers from buyers of the car are to be
included in the assessable value, the Larger Bench of
the Tribunal held that these charges are includable as
manufacturing of a product and the marketability
thereof are inbuilt elements of the scheme of assessable
value under Section 4.
The Larger Bench further observed that the expression
‘transaction value’ is the guiding principle in the
process of ascertaining the assessable value of a
product. The sale price, being paid or payable as the
sole consideration, forms the base for the transaction
value. Depending upon the fact situation relating to all
the factors mentioned in said section 4 of the Central
Excise Act, including the agreement and the
arrangement arrived at between the manufacturer and
the dealer or the agent in respect of sale of the product
to the buyers, and the terms and the conditions
thereof, the transaction value arrived at would lead to
the quantification of the assessable value of the
product, which in turn will determine the duty liability
of the manufacturer. In the scheme of the said Act,
therefore, the concept of transaction value relates to
the manufacturing cost inclusive of any other amount
received or receivable directly or indirectly to make
the product marketable. The manufacturing of a
product and the marketability thereof are inbuilt
elements of the scheme of assessable value under
Section 4 of the said Act.
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 Note: If this be the case, what happens to service tax
liability on after sales services undertaken? It is
rather incongruous that a tax on manufacture can be
extended to such an extent as to include realization
on service elements.
Service tax
1. M/s Spandrel Vs CCE, Hyderabad, 2010-TIOL-
1113-CESTAT-BANG
Facts: Issue involved in the above appeal is whether
activities like execution of false ceiling, flooring,
modular systems, painting, carpeting, electrical
connections, wall paneling, interior furnishing,
partitioning of offices and supply & fixing of various
furniture would be covered under the heading ‘Interior
Decorators Services’ or under ‘Commercial or
Industrial Construction service’.
Decision: It was observed by the Tribunal that no
finding is being recorded by lower authority that
assessees were engaged in advise, consultancy and
technical assistance or planning work and designing
of interiors etc. therefore the activities undertaken by
assessee are not covered under the heading ‘interior
decorators services’. These services were brought
into definition of Commercial or Industrial
Construction service w.e.f. 16.06.2005. The Tribunal
further observed that once a new entry is introduced
with effect from a specific date without disturbing
already existing entries, the new entry cannot be
regarded as covered by the existing/previous entry.
2. CST, Bangalore Vs M/s Toyoda Iron Works Co
Ltd., 2010-TIOL-584-HC-KAR-ST
Regarding liability to pay service tax on services
received from abroad, the High Court observed that
Consulting Engineer Service provided by Foreign
Service provider is not taxable prior to 18.4.2006. In
view of the admitted facts that the respondent herein
is a foreign company who is a service provider and
only from the 18.4.2006 the aforesaid amendments
were undertaken to make the service receiver liable
to pay the service tax.
3. M/s Cochin International Airport Ltd Vs CST,
Cochin, 2010-TIOL-1043-CESTAT-BANG
In connection with taxability of royalty charges for
space, advertising, garbage disposal, income from
entry charges, collected by the Cochin International
Airport, the tribunal held that these charges are not
liable to service tax and observed as below on each
of the charges:
Royalty Charges from Air India for ground
handling: Air India has been given exclusive contract
to perform ground handling services including
passengers handling, ramp handling and cargo flight
handling including loading of cargo etc. Air India has
paid service tax- royalty charges collected by
appellants from M/s Air India can be construed as an
amount for lease or rental charges for functioning in
the appellant’s area.
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Licence fee charged by the appellant on advertising,
cargo agency, car parking, space, shops, restaurant/
snack bar, telephone operator, vending machines, catering
services facilitation counter cannot be considered as the
charges which have been collected by the appellant from
other service providers for services rendered definitely
with the airport services. The entire tenor of the
agreements entered by the appellant with the other parties
clearly speak of letting out/leasing out the space in the
Cochin International Air Port for a specified term,
renewable or being leased out to any other bidder.
Therefore these cannot be taxed under airport services
Garbage disposal: The said garbage disposal is
collection of garbage like waste material, discarded
items scrap from the Air Port premises. Though there
is no agreement provided for this, the explanation
given by the appellant in the grounds of appeal indicate
that these are nothing but sale of garbage from the
Air Port premises. Even this activity would not be
liable to service tax.
Income from entry ticket charges and income
from issue of commercial passes; Tthese charges
are charged by the appellant for restricting the entry
to public in to the Air Port. The said income is not
in respect of any services rendered by the appellant
as an Air Port Authority. This amount collected and
shown as income could not be construed as services
rendered and liable to service tax.
4. M/s Hindustan Coca Cola Beverages Pvt Ltd Vs
CCE, Hyderabad 2010-TIOL-1029-CESTAT-BANG
Regarding eligibility of Cenvat credit on certain input
services, the tribunal observed that service tax paid
on vehicles maintenance, transportation, installation
and maintenance of coolers, marketing and publicity
services etc are available as CENVAT Credit. However,
Services availed with regard to ‘shifting of household
of employees’ is not an input service, and therefore
credit is not available.
5. CCE, Rajkot v. Shelpan Exports 2010 (19) S.T.R.
337 (Tri.-Ahmd.)
Facts: The respondent is engaged in export of various
goods on commission basis which falls under the
heading business auxiliary services. The respondents
stated that the services rendered were exports and
hence they were not liable to pay service tax. However,
they have received the commission in Indian currency
and hence the department contended that they had
failed to meet the requirements of the Export of
Services Rules, 2005.
Decision: The Tribunal observed that the impugned
order noted the following aspects:
→ There were arrangements between the buyer and
seller of goods to pay commission in Indian Rupees
directly to the respondent;
→ The amount received related to export of goods and
receipts were made in INR to make it commercially
viable;
Contd. on page 24
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 LEVY OF SERVICE TAX – ISSUES
By CA Madhukar N Hiregange FCA., DISA., & CA Srikantha Rao T B.Com., ACA
In this article we shall look at some of the issues in service tax pertaining to levy of tax on services. The article aims at
discussing issues across the most common categories of taxable services faced by the authors on the basis of their
experience as well as issues in general.
S ervice Tax was introduced in the country only in the
nineties as compared to some of the other laws which
have been in existence for more than 50 years now. Even though
it has been more than 15 years since its introduction, the subject
as to levy of service tax has seen considerable litigation in the
last couple of years. This has been due to a combination of
factors. While one significant reason has been the growth of the
service sector in the country and its contribution to the GDP
which led to widening the tax base, the other has been the manner
in which the tax itself has been levied. One of the issues facing
the tax payers here has been the fact that the term “service”
itself has not been defined though the legislature has made an
attempt to define the term “taxable service” in order to spell out
what is sought to be taxed. But the lack of a clear cut definition
of “service” has clearly led to differing perceptions as to what
exactly a “service” constitutes and what it excludes. This has
led to serious issues in taxation of services. We look at the various
issues.
It would be pertinent for us to note that service tax is a
tax on services and not on profession. This distinction is
important as tax on profession is levied by the states whereas
tax on services is levied and collected by the Central
Government. This distinction as well as the constitutional
right of the Government to levy service tax has now been
accepted after the levy of service tax had been challenged in
quite a few cases before the Supreme Court only for the
verdict to be against assesses. The notable verdict here is
that in All India Federation of Tax Practitioners Vs UOI (2007
(07) STR 625 (SC)) where levy of service tax on chartered
accountants, cost accountant and architects’ services was
upheld. Service was distinguished from profession.
The Supreme Court here also proceeded to regard
service tax as a value added tax and to be levied on commercial
activities. Such tax was specifically clarified to be not on the
business but on the consumer. This view of the court would
be relevant for our discussion here and the recent
developments in service tax seem to indicate a dilution of this
view.
What do we mean by “service”?
It is interesting to note that the term “service” has not
been defined under service tax. Consequently where a term
is not defined under a statute, one would have to look at the
meaning that is generally associated with it. This can be seen
by using the common parlance test as well as the meaning
given by a Standard English Dictionary if one were to go by
the views of the Supreme Court. In Star Paper Mills Ltd Vs
Collector of Central Excise (1989 (43) ELT 178 (SC))
dictionary meaning was held to be referable where words
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and expressions had not been defined in statute. In Associated
Cement Companies Ltd Vs State of MP (2004 (168) ELT 151
(SC)), popular or commercial meaning given by those dealing
with them was held to be referable. It is interesting to note
that the Supreme Court in All India Federation of Tax
Practitioners case had divided services into two categories
and these were property based and performance based. But
having said this, “service” itself had not been defined.
If we were to go through Random House Webster’s
Dictionary, the term “service” could have more than one
connotation depending on the context in which it is used. But
generally, it would mean performance of any duties or work
for another. It can also be seen to mean employment in any
duties or work for a person, organisation, government etc. If
one were to refer Black’s Law Dictionary, the term could
mean an act of doing something useful for a person or a
company for a fee. More specifically, it can be used to mean
an intangible commodity in the form of human effort such as
labour, skill or advice. This meaning would have to be noted
because if one is to collect service tax, then there has to be a
service in the first instance meaning an arrangement whereby
one performs duties or work for another.
We are inclined to follow this view as it would make
logical sense. Even if we were to look at the segregation
made by the Supreme Court in All India Federation of Tax
Practitioners case between performance based and property
based services, each one of the services whether it is property
based in the nature of interior decorator or architect or
construction services or performance based like tour
operators, security agencies etc., involve performance of
certain tasks or duties for another.
Having said this and considering the view that service
tax is not on the business but on the consumer and is a value
added tax, a question now arises and that is whether one can
levy service tax in a scenario where there is no work or duty
performed or in a scenario where the consumer uses the
services for his personal use i.e. other than for business or
commerce with a profit making motive. Logically speaking,
service tax should not be levied where either no work or duty
for another is involved or where the consumer happens to be
using the services for his personal use. But in recent years,
this view seems to have been ignored by the law makers in
an attempt to increase revenue through service tax collections.
A classic example of this is the issue surrounding renting of
immovable property.
Whether allowing another to use facilities and
infrastructure in itself can be construed as a service?
The answer to this question would depend on whether
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or not one would regard allowing another to use a premise as
work done for the other. While one view could be to regard
the activity of allowing another to use one’s premises as a
service, the other view could be to distinguish this activity
from the traditional meaning of the term. The former view
has already been taken in the past by the Supreme Court in
Tamil Nadu Kalyana Mandapam Association Vs UOI (2006
(03) STR 260 (SC)) although the decision was in context of
service tax levy on mandap keepers. Here, even letting out of
premises for official, social or business functions had been
held to amount to service. It was immaterial whether or not
there were other associated services being provided. However
whether this rationale can be extended to other services is
something to be seen as for instance the role of a mandap
keeper cannot be equated with that of a landlord letting out
his premises to a tenant though there can be certain other
services being provided at times.
The latter view of not regarding mere letting out as a
service seems to have found favour with the High Courts
where the view has been that renting in itself cannot be a
service. The Delhi High Court in Home Solution retail India
Ltd Vs UOI (2009 (14) STR 433 (Del)) had held that renting
of immovable property in itself is not a taxable service. This
was on the grounds that the definition of taxable service under
renting of immovable property service talked about services
in relation to renting being taxable rather than renting itself.
This led to an amendment in the definition of taxable service
in Finance Act 2010 before which though, the department
filed an appeal before the Supreme Court. This matter would
now have to be decided by the Supreme Court.
Readers may note that finding a solution to this question
is not easy as the term “service” can have a very wide
connotation. Moreover, the Supreme Court in Tamil Nadu
Kalyana Mandapam case already has taken a stance in the
past that levy of service tax on a particular kind of service
could not be struck down on the ground that it did not confirm
to a common understanding of word “service” so long as it
did not transgress any specific restriction contained in the
Constitution. Whether this view would prevail considering
the verdict in All India Federation of Tax Practitioners case is
something which would have to be seen.
We are inclined to take the view that an agreement for
provision of service between two or more contracting parties
would have to involve one party performing certain tasks
and duties for or on behalf of the other, and involve a legal
obligation for performing such tasks and duties. There should
be a right of enforcement of such obligation before a court
of law granted to a service recipient and unless this exists,
service cannot be said to have been performed and service
tax cannot be levied. The service would involve the service
provider putting in effort or undertaking some exertion whether
physical or mental which may be absent in case of renting or
allowing another to use one’s infrastructure. This is something
which requires judicial scrutiny. This leads us to the next
question and that is whether services provided to ultimate
consumers who receive such services for their personal use
are to be taxed at all.
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Whether service tax to be levied on non commercial
activities
The Supreme Court in All India Federation of Tax
Practitioners case had held the view that service tax is a destination
based consumption tax levied on value addition through provision
of services. The levy is to be on commercial activities. If this
view is to prevail, service tax should not be levied on services
provided without expectation as to commercial gains. This would
then lead us to the issue as to what is regarded as commercial
and non commercial which would have to be determined on the
basis of facts of each case. In service tax we are presently
seeing this issue when the question is of taxing coaching and
training services provided by certain organisations which are
regarded as not for profit organisations. An example could be
training imparted to the poor and needy to enable them to seek
employment where the service provider gets funding in the form
of donations and grants. This issue now seems to have been
taken care of by Circular 127/9/2010 ST dated 16.08.2010 which
exempts such donations and grants given to the service provider
in general from levy of service tax.
The service provider in order to avail the benefit of
exclusion might have to stress upon the nature of activity
involved and the non commercial nature of the same to secure
the benefit of exclusion. Here, a critical aspect could be the
non expectancy of any financial rewards or margins or profits
from rendering the concerned service/activity.
Where the service is for use by government agencies or
for personal use of the consumer
At times one could face issues regarding levy of service
tax on services that are provided to either government agencies
for providing infrastructure to the general public or to individuals
for their personal use. The view of the department and the
legislature regarding taxing of such services could be different
in each case. Generally, services in relation to works contracts
in respect of roads, airports, railways, transport terminals,
bridges, tunnels and dams are exempted from service tax levy.
However there may some more projects which may not be
specifically covered by this list. In such a scenario, whether
services in relation to such projects are to be taxed?
A classic example could be that of laying pipe lines for
water supply. While logically this should have been exempted
under service tax, there is no specific mention about the same
not being liable. Consequently, one might have to see the
intended end use of the same and whether or not the same can
be said to be for use in commerce or industry. This was what
the Tribunal had held in Indian Hume Pipe Co. Ltd Vs CCE
Trichy (2008 (12) STR 363 (Tri-Chennai)) which was also
followed in Nagarjuna Construction Co. Ltd Vs CCE Hyderabad
(2010 (19) STR 259 (Tri-Bang)) where the Tribunal held that
supply of drinking water to local bodies at subsidised rates
would not amount to industry and consequently the service of
the appellant to GWSSB was held not to be liable to service
tax. Readers may note that the ultimate decision as to taxability
or non taxability would have to be taken depending on the
facts and circumstances of each case.
Another issue in service tax is where services are provided
to ultimate consumers who receive it for their personal use.
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This has arisen as the service tax net has been widened over the
years to cover services provided to almost any person moving
across from the initial concept of client or customer. This has
led to a scenario where in certain sectors; the cost of service to
the ultimate consumer has gone up by 10-15%. A classic example
of this is construction services in relation to residential
complexes. Despite there being a clarification on the concept of
personal use and services in relation to construction of residential
complex meant for personal use of the ultimate owner being
exempted from service tax levy, there is an issue regarding the
applicability of the concept of “personal use” to construction of
individual units for individual buyers. This is because the
department seems to doubt the circular though extending the
benefit to the owner getting the entire complex constructed by a
builder for his own use including letting out the same on rentals.
In our view, the benefit of the view on “personal use”
holding it as something which extends even to individual
buyers of residential apartments should be available as the
intention of the legislature seems to be to tax construction of
residential complexes in totality rather than individual units
constructed separately for each buyer/customer. If this
interpretation were to prevail, construction of individual units
for individual buyers/owners would not suffer service tax.
One more aspect is that the cost of basic accommodation
could go up substantially for the ultimate owner if the exclusion
benefit were to be denied while working to the benefit of an
owner who gets the entire complex constructed for himself
and lets it out on rentals. This may not be what the legislature
intended as it would also be against the principles of social
justice going by Articles 38 and 39 in the Constitution of
India as per which State shall strive to avoid inequalities in
income. If inequality is to be avoided, the taxation policy
should complement such initiative.
Concept of transfer of right to use
An issue in service tax which seems to be surfacing of
late is the taxation of transactions which involve transfer of
right to use goods. While there are provisions to allow
deduction for value of goods and materials sold during
provision of service, from the gross amount charged for the
service, transfer of right to use goods poses a problem because
of the complexities involved.
Readers may note that transfer of right to use goods is
taxed by the state governments as a deemed sale relying upon
the contents of Article 366(29A) of the Constitution of India.
The extent to which the states can tax depends on whether
or not a particular transaction involves “goods” and transfer
of right to use the same to the beneficiary without transferring
full rights and rewards associated with ownership of the said
goods to him. There are certain sectors where elements of a
transaction would border on the concept of “goods”.
Examples could be that of a SIM card given to mobile phone
subscribers or even transfer of license to use software.
The taxability could be different in these two cases if the
decisions given by the courts are any indication. In case of
SIM cards, the Supreme Court in Bharat Sanchar Nigam Ltd
Vs UOI (2006 (2) STR 161 (SC)) had held the issue of taxability
to be decided on the basis of facts of the case and held the
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KSCAA News Bulletin - SEPTEMBER 2010 1234567
same as not being assessable to sales tax if the card’s sale was
incidental to service being performed. This view was followed
in Idea Mobile Communication Ltd Vs CCE Cochin (2010 (19)
STR 18 (Ker)) where SIM card was held to be incidental to a
service as its purpose was to enable the identification of the
customer to give him a mobile connection from the tower.
In our view, the issue has not been resolved finally as in
the latter case, the sales tax authorities had not pursued the
matter as to taxing of SIM cards which was also one of the
contributing factors for the resulting decision. In our view,
SIM card could be construed as goods as disputing the fact
that the same does not constitute tangible material could be
difficult and the view that the same has no value where its
use is incidental to a service may not be tenable. Valuing the
same though could be another issue altogether.
The other issue regarding transfer of right to use software
for instance would have to be seen in the light of the mode of
transfer of software. Issues could arise where there is transfer
of right to use software that is provided/downloaded
electronically. The question to be answered here is whether
software sent so can be regarded as goods at all. While the
Supreme Court in BSNL’s case had stressed on the aspects
as to utility, capability of being and sold, capability of being
transmitted, delivered, stored and possessed for holding the
subject matter as goods, the Madras High Court in Infosys
Technologies Ltd Vs CCT Chennai (2009 (233) ELT 56
(Mad)) held that even unbranded or customised software
could be goods relying on the concluding comments in an
earlier case i.e. Tata Consultancy Services Vs State of Andhra
Pradesh (2004 (178) ELT 22 (SC)) where Indian law was
held not to distinguish between tangible property and intangible
property when it came to the concept of “goods”.
It is interesting to note that in Infotech Software Dealers
Association Vs UOI before the High Court of Madras, a writ
petition was filed seeking to regard software as goods and
transfer of right to use software as subject to sales tax. Levy
of service tax on transfer of right to use software under
Information Technology Software Service was challenged.
This writ petition was however dismissed by the Court holding
that such view would be premature and that whether a
software was goods and whether the arrangement would
involve service tax levy would have to be determined on the
basis of facts of each case. This decision is yet to be reported.
We are inclined to rely on the decision in BSNL and
Infosys Technologies Ltd’s case and regard transfer of right
to use software as amounting to deemed sale under Article
366(29A) of the Constitution of India. The vendors could
however invite risk of levy of service tax where the
arrangement or contract involves subsequent customisation
or upgrades being given.
In this article we have tried to address some of the major
concerns in levying service tax going by the recent trends in
the subject and also considering the shortage of time and
space. In case readers have any specific queries,
Authors can be reached on
e-mail: mhiregange@hotmail.com
or srikantharaot@hotmail.com
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 RECENT DECISIONS OF THE SUPREME COURT
AND HIGH COURTS ON INCOME TAX
Compilation by CA. K.S. Satish, Chartered Accountant, Mysore
PRINCIPLE OF MUTUALITY
T ransfer fees received upon sale of flats from the outgoing
and incoming members by the assessee, a co-operative
housing society, as per its bye-laws which was utilised for
the repairs of the property and common benefits to its
members, had no element of trading and commerciality and
was not liable to tax on the principle of mutuality held the
Bombay High Court in Sind Co-operative Housing Society v.
ITO (2009) 317 ITR 47 (Bom).
EDUCATIONAL INSTITUTION
In Ewing Christian College Society v. CCIT (2009) 318
ITR 160 (All) where the facts were that the assessee-society
ran educational institutions not for the purposes of profit,
one of its objects was to serve the church and the nation and
the Chief Commissioner rejected the application for approval
under section 10(23)(vi) on the ground that the assessee was
established for religious purposes, the Allahabad High Court
ruled that merely because the object of the assessee-society
was also to serve the church and the nation, it would not
mean that the educational institution was not existing solely
for educational purposes and set aside the order of the Chief
Commissioner with a direction to pass a fresh order.
CHARITABLE TRUST
The Punjab & Haryana High Court has in CIT v.
Sarvhitkari Education Society (2009) 318 ITR 93 (P & H)
held that the assessee cannot be denied exemption under
section 11 on the ground that it was a society and not a trust
since section 11(1)(a) speaks of income derived from
property held under trust irrespective of whether the income
was derived by a trust or any other institution.
ACCRUAL
In CIT v. P & C Constructions (P) Ltd. (2009) 318 ITR
113 (Mad) where, as per the contract entered into by the
assessee-contractor and contractee, the assessee was entitled
to receive the retention money from the contractee only after
successful completion of the work, the Madras High Court
took the view that retention money retained by the contractee
did not accrue to the assessee and was not taxable during the
relevant assessment year since the assessee had no rights to
receive the same by virtue of the contract and enforce
payment thereof.
CAPITAL RECEIPT
Incentive received by the assessee-company, engaged
in the business of manufacture and sale of sugar, by way of
additional quota for free sale of sugar and realisation of
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20
differential excise duty under the scheme formulated by the
Central Government for recoupment of capital employed and
repayment of loans borrowed from the financial institution
for setting up a new sugar factory constituted capital receipt
opined the Allahabad High Court in CIT & Anr. v. Kisan Sahkari
Chini Mills Ltd. (2009) 317 ITR 322 (All).
DEPRECIATION
In CIT v. Kotak Mahindra Finance Ltd. (2009) 317 ITR
236 (Bom) where the assessee, a company engaged in the
business of leasing, leased out machinery to another company
during the previous year relevant to the assessment year 1990-
91 and received lease rent for the same but the leassee-company
installed the machinery during the previous year relevant to the
assessment year 1991-92, the Bombay High Court expressed
the view that the assessee was entitled to depreciation on the
machinery for the assessment year 1990-91.
BUSINESS EXPENDITURE
The Madras High Court in CIT v. Velumanickam Lodge
(2009) 317 ITR 338 (Mad) where the facts were that the
assessee, a civil contractor, offered to construct a hockey
stadium in the complex of the Collectorate and thereafter, the
Collector awarded the DRDA contract of the value of Rs.
1,36,20,660 to the assessee, held that the sum of Rs. 24,00,000
spent by the assessee on construction of the hockey stadium
was allowable as a business expenditure since the construction
was in the regular course of business of the assessee, it was
made on the land belonging to the District Collectorate, meant
solely for the use of general public and it was done for
generating goodwill and promoting business activities.
VALUATION OF STOCKS
In V.K.J. Builders & Contractors P. Ltd. v. CIT (2009)
318 ITR 204 (SC) where the Assessing Officer made an
addition of Rs. 9,77,529 to the value of closing stock on
account of suppression of work-in-progress while completing
the assessment of the assessee-company for the assessment
year 1995-96 which became final and the assessee filed an
application under section 154 for rectification of the
assessment order for the assessment year 1996-97 claiming
that consequential effect should be given to the value of
opening stock, the Supreme Court observed that it is a
fundamental principle of accountancy that the figure of the
closing stock of the earlier year has to form the opening stock
of the next accounting year and ruled that the Assessing
Officer should not have rejected the application of the assessee
under section 154.
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DEEMED DIVIDEND Builders P. Ltd. v. ITO & Anr. (2009) 318 ITR 29 (Kar)
The word ‘advance’ appearing along with the word ‘loan’ held that extension of the period for retention of books and
in section 2(22)(e) means such advance which is repayable documents under section 131(3) by the Chief Commissioner
and, therefore, trade advances which are in the nature of can only be a one-time exercise and that the period of extension
money transacted to give effect to a commercial transaction should be counted only in days and not in months or years as
will not constitute deemed dividend within the meaning of the outer limit of fifteen days is indicated in days.
section 2(22)(e) opined the Delhi High Court in CIT v. INTEREST ON INTEREST
Raj Kumar (2009) 318 ITR 462 (Del). In Motor & General Finance Ltd. v. CIT (2010) 320
CHAPTER VI-A ITR 88 (Del), the Delhi High Court has taken the view that it
The Supreme Court has in Liberty India v. CIT (2009) is only when the interest under section 244A is not refunded
317 ITR 218 (SC) ruled that receipts of duty drawback and along with excess tax that the withholding of the interest
benefits under Duty Entitlement Passbook Scheme cannot be becomes unjustified and it becomes an amount due to the
credited against the cost of manufacture of goods and do not assessee on which the assessee can claim further interest.
form part of the net profits of eligible industrial undertakings PENALTY
for the purposes of sections 80-I, 80-IA & 80-IB. The Delhi High Court in Ms. Madhushree Gupta v. UOI
REVISED RETURN & Anr. (2009) 317 ITR 107 (Del) has ruled that section
Where the assessee-company filed its return of income 271(1B) inserted by the Finance Act, 2008 with retrospective
originally on 1.11.2004 signed by the company secretary and effect from 1.4.1989 deeming a direction in the assessment
on the Assessing Officer pointing out during the course of order for initiation of penalty proceedings to constitute
assessment proceedings that the return was not signed in satisfaction of the Assessing Officer therefor was not violative
accordance with section 140, filed a revised return on of article 14 of the Constitution.
5.10.2005 signed by the managing director, the irregularity in TRIBUNAL
the original return was curable and since the defect was cured In Gilbs Computer Ltd. v. ITAT & Ors. (2009) 317 ITR
later by filing a revised return, the doctrine of relation back 159 (Bom) where the assessee, a company, which was
would apply and, therefore, the revised return relates back to assessed to a loss of Rs. 9,00,97,980 filed an appeal against
the date of filing of the original return of income held the the order of the Commissioner (Appeals) to the Tribunal, the
Delhi High Court in CIT v. Haryana Sheet Glass Ltd. (2009) Bombay High Court held that it was obliged to pay fees of
318 ITR 173 (Del). Rs. 500 only under section 253(6).
RETENTION OF BOOKS Author can be reached on
The Karnataka High Court has in Subha & Prabha e-mail: kss55@yahoo.co.in
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123
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KSCAA News Bulletin - SEPTEMBER 2010 1234567 21
 JUDICIAL PRONOUNCEMENT BY
HONORABLE HIGH COURT UNDER
KARNATAKA SALES TAX LAW
By CA Srikanth Acharaya and CA Annapurna Kabra
I) LARSEN & TOUBRO (L&T) LIMITED V. STATE OF
KARNATAKA S.T.R.P.NO.8 OF 2006 DATED 2ND DAY OF
SEPTEMBER 2009 (HC)
Facts of the case:
L &T is a construction company engaged in the business
of execution of works contract. Being a registered dealer
under the KST law was assessed to tax in terms of section 5-
B of KST Act. The Revisional Authority has disallowed the
deduction as labour and like charges for the following expenses
like:
• Sales tax and customs duty paid
• Bank charges
• Depreciation on plant and Machinery
• Interest charged by the clients
• Postage and telephone and telex
• Vehicle tax
The dealer appeared before the tribunal for claiming the
above expenses as labour and like charges. The Appellate
Authority passed the order stating that out of the above expenses,
the sales tax and customs duty paid on Machinery and Bank
charges will be allowed as labour and like charges. Further to
the above the dealer preferred an appeal to the High Court.
The dealer contended that the above expenses are
allowable as labour and like charges in terms Rule 6 (4)(n)(iv)(
explanation I) as follows:
The value of depreciation on plant & machinery utilized
for the purpose of execution of works contract is a part of
expenditure which otherwise would have hired such machinery
from outside the source and for which necessarily would have
paid hire charges, very much within the meaning of the
explanation I relatable to charge on obtaining on hire or otherwise
machinery and dealers machinery used on works contract. In
other words the depreciation amount is on par with this hire
charges expressly permitted in terms of explanation I and
though is not necessarily an item. In support of this dealer
relied on the Hon’ble Apex Court judgment in the case of Gannon
Dunkerely & Co and others Vs State of Rajasthan and others
reported in 88 STC 204, where the court has expressly said
that, (d) charges for obtaining on hire or otherwise machinery
and tools used for the execution of the works contract.
With respect to other deduction which was disallowed
by the tribunal, the dealer submitted that, all expenses clearly
forming part of the cost of establishment “…………………….
123
the cost of establishment to the extent relatable to supply of
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22
labour and services and other similar expenses relatable to
supply of labour and services”.
Ruling
The value of depreciation fall under the expression
“charges for obtaining on hire or otherwise machinery and
tools used for the execution of the works contract” , eligible
for deduction to the extent they have been exclusively used
for the execution of the works contract and owned by the
dealer. With respect to other deductions like postage, telephone
and telex expenses incurred by the dealer, vehicle tax said to
have been paid in respect of vehicles exclusively used in the
execution of works contract, such charges would fall within
the scope of the cost of establishment to the extent it is relatable
to supply of labour and services. Therefore the depreciation
on plant and Machinery will be allowed like hire charges and
Postage and telephone and telex and Vehicle tax will be allowed
as expenses relatable to supply of labour and services.
Our Analysis
The Explanation to Rule pertaining to actual labour and
like charges include, charges for obtaining on hire or otherwise
machinery and tools used for execution of Works Contract,
charges for planning, designing and architects’ fees, cost of
consumables used in the execution of the Works Contract,
cost of establishment to the extent relatable to supply of labour
and services and other similar expenses relatable to supply of
labour and services.”
Therefore the value of depreciation on Machinery and
tools is allowed as deduction to the extent it is used in the
execution of works contract. Therefore the above judgment
is applicable even under Karnataka Value Added tax law for
claiming the labour and like charges. The following are the
issues which emerge as follows:
Whether the above judgment should be applicable
retrospectively or prospectively?
Whether input tax credit can be claimed on such machinery
or tools fully or proportionately?
Whether depreciation on equipments or vehicle can be claimed
which are used in execution of works contract?
As per Authors view the above judgment should be
applicable retrospectively, and also the input tax credit cannot
be claimed to the extent of depreciation claimed by the dealer.
The depreciation on equipments or vehicles can be claimed
considering as similar expenses relatable to supply of labour
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and services which are used in the execution of works
contract.
II) MFAR CONSTRUCTION LIMITED VS THE
COMMISSIONER OF COMMERCIAL TAXES
(KARNATAKA) S.T.A.NO.35 OF 2010 DATED 23RD DAY
OF JULY 2010(HC)
Facts of the case:
The appellant is a private limited company engaged in
the business of civil construction and is a registered dealer
under the provisions of the KST Act 1957. The Appellant is
liable to tax under section 5-B of the KST Act 1957 of the
Act. The appellate has filed the appeal to the High Court
challenging the order passed by Commissioner of commercial
taxes holding that the appellant is liable to tax under section
6-B of the KST Act in addition to tax payable under section
5-B of the KST Act. The Appellant has been purchasing goods
falling under Schedule II, Schedule IV and Schedule V of the
Act from registered as well as unregistered dealers. Using
the materials so bought, the Appellant constructs buildings,
apartments, and bridges etc. as per the agreements with its
customers. The Resale tax (Section 6-B) was effective with
effect from 01.04.2002 which is leviable at 1.5% on such
portion of turnover which is not liable to tax under section 5,
5-A, 5-B, 5-C or 6. Proviso (i) to (xi) of the said provision
exempted certain parts of such turnover from levy. A works
contract being liable to tax under Section 5-B of the Act, the
Appellant has been paying tax under Section 5-B after claiming
CA. Madhukar Hiregange’s generosity commended by one and all
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I am overwheled by the magnanimity of Shri
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Madhukar.N.Hiregange who has donated the treasure of
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knowledge to our profession in general and to KSCAA in
12345678901234567890123456789012123456789012345678901234567890121234567890123
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particular. I am proud to call myself a Chartered
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Accountant and also a member of the KSCAA.
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CA Sunil Reddy Bezawada
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Bangalore
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KSCAA News Bulletin - SEPTEMBER 2010 1234567
allowable deductions and not paying tax under section 6-B of
the KST Act 1957.
Appellate contentions:
The appellate contend that, section 6-B of the Act seeks
to levy tax on such portion of the total turnover which is not
liable to tax under Section 5, 5-A, 5-B, 5-C or 6. The appellant
entire turnover being liable to tax under Section 5-B, the
levy of tax under Section 6-B on any portion of the appellant
total turnover would be unlawful. Resale means second sale.
This presupposes that there should be sale earlier to the said
point of time…. The use of goods in the execution of the
works contract cannot be treated as second sale at all then
how come resale tax can be levied. After amendment to section
6-B, the appellant approached to Authority for clarification
and Advance Ruling Authority. The Authority passed an order
clarifying that tax under section 6-B was payable on the
turnovers relating to tax suffered on goods purchased from
local registered dealers and which are used in the execution
of works contract.
Ruling
The High Court set aside the above order and held that
the appellant being liable to tax under section 5-B was not
liable to resale tax under section 6-B of the KST Act
Authors can be reached on
e-mail: query@dnsconsulting.net
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I take this opportunity to thank CA. Madhukar Hiregange
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and CA. Sudhir V S for providing us with the book.
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Thanxs
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CA. Vinay Kumar H
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Bangalore
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Please pass on my regards to Mr. CA. Madhukar
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Hiregange who has done a fabulous job of preparing this
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guide for the benefit of members at large (also credits to
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Mr. CA Sudhir V.S).
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CA Balakrishnan Natarajan
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Bangalore
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Get a free soft copy of the wonderful book
UNDERSTANDING SERVICE TAX
CONCEPTS absolutely free - by
just mailing your request to :
“kscaa.events@gmail.com”
123
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23
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INDIRECT TAXES UPDATE – AUGUST 2010 hence related to the manufacture of the final product.
Contd. from page 16 So saying, the credit was allowed.
7. Harshita Handling v. CCE., Bhopal 2010 (19)
It was held that the relevant condition was fulfilled in
S.T.R. 596 (Tri.-Del.)
the present case and the benefit of export of service
Facts: The activity of periodically testing the cylinders
was afforded to the respondent.
under the Gas Cylinder Rules, 2004, framed under the
6. Kerala Minerals and Metals Ltd. vs. CCE
Indian Explosive Act, 1884 engaged in by the
Thiruvananthapuram 2010 (19) STR 505 (Tri –
appellants was construed as being taxable under
Bang)
Management Maintenance or Repair service by the
Facts: The appellant had availed cenvat credit of
Revenue.
service tax paid on GTA on transporting empty
Decision: It was held that the testing of cylinders was
cylinders from their premises for procuring liquid
a statutory activity and the records did not indicate
chlorine which was an important input for them.
that the repair and maintenance of cylinders was
Department contended that credit was not eligible.
undertaken commercially, and indicated that the
Decision: It was held that the manufacturing process
periodical test and upkeep of cylinders was made
of the appellant could not be completed without
under the Indian Explosive Act, 1884. The demand
procuring the liquid chlorine in special cylinders and
was hence, set aside.
since the definition of input service includes the
services used to procure inputs directly or indirectly, Authors can be reached on
e-mail: vraghuraman@vsnl.com
123 the transport of empty cylinders was necessary and
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