SC decides determinant for excise duty exemption

Manufacturers of shampoo, hair dye, lip smoothers and such other products sold in pouches get excise exemption if the weight of each pouch is less than 10 gm, though the whole carton containing the pouches may weigh more, according to the Supreme Court.

In its judgment, Commissioner of Central Excise vs Kraftech Products Inc, a number of cosmetic firms had challenged the demand of duty and imposition of penalty on them for not paying the levy fully, claiming exemption under Rule 34 of the Standards of Weights & Measures (Packaged Commodities) Rules.

The Excise Appellate Tribunals in Mumbai and Delhi had accepted the contention of the manufacturers. The Commissioner appealed arguing that the exemption was not available where several units are packaged together.

Dismissing the appeals, the Supreme Court said: “When a lip smoother or a shampoo is packed in a carton keeping in view the quantity contained therein, the same cannot be said to be for retail sale. No person would ordinarily purchase for one’s own use 72 lip smoothers or 500 pieces of shampoo. Thus, it is not a case where the goods are being sold in multi-piece package. Each sachet must be sold as a unit.”

CIT appeal dismissed

The Supreme Court has dismissed the appeal of the Commissioner of Income Tax against the judgment of the Madras High Court in the case of chit fund companies (Commissioner vs Bilahari Investment Ltd).

The companies were following the ‘completed contract method’ of accounting and the authorities had so far accepted this method. But now, they have turned around and insisted that they should have adopted the ‘percentage of completion method’ of accounting.

Rejecting this argument, the Supreme Court said: “Every assessee is entitled to arrange its affairs and follow the method of accounting which the department had earlier accepted. It is only in those cases where the department records a finding that the method adopted by the assessee results in distortion of profits that the department can insist on substitution of the existing method.”

This was not the case here, and the change would be revenue neutral even if the new method is adopted.

Goa Carbon Ltd case dismissed

The Supreme Court has dismissed the appeal of Goa Carbon Ltd against the ruling of the Allahabad High Court which had upheld the imposition of the Uttar Pradesh trade tax on it.

The firm is engaged in leasing and finance. It supplied plants and machinery to Kesar Enterprises in Baheri, UP. The UP revenue authorities imposed tax on the lease rent received by the Goa firm. Its petition challenging the action was dismissed by the high court and the Supreme Court.

Justice Agrawal appointed arbitrator

The Supreme Court last week appointed retired chief justice of the Orissa High Court, Justice H L Agrawal, as the sole arbitrator in the dispute between Shristi Infrastructure Development Corporation Ltd and the Malaysian firm, Sunway Construction SDN BHD.

The foreign company is building a four-lane road in Uttar Pradesh as part of the East West Corridor project. Sunway terminated the contract with the Indian partner and encashed the bank guarantee, leading to litigation in the Calcutta and Delhi High Courts. Ultimately both parties have agreed to arbitration. However, the Supreme Court did not grant any interim relief in view of the urgency of the project.

SC: Earned leave cash is not ‘basic wage’

The Supreme Court has held that the amount received by encashing the earned leave is not a part of the “basic wage” under Section 2(b) of the Employees’ Provident Fund & Miscellaneous Provisions Act requiring pro rata employer’s contribution. There were some differences in the views of various high courts on this point.

Therefore, the Supreme Court settled the issue in Manipal Academy vs Provident Fund Commissioner. The Supreme Court explained that the term ‘basic wage’ included all emolument which are earned by an employee while on duty or on leave or on holidays with wages. It can only mean weekly holidays, national holidays and festival holidays.

In many cases the employees do not take leave and encash it at the time of retirement, or the same is encashed after his death which can be said to be uncertainties and contingencies.

Though provisions have been made for the employer for such contingencies, unless the contingency of encashing the leave is there, the question of actual payment to the workman does not take place. Therefore the term ‘basic wages’ was never intended to include amounts received for leave encashment.
BS Reporter / New Delhi March 24, 2008
LEGAL DIGEST, BUSINESS STANDARD