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LEGAL UPDATE
Conflicting high court Importer wins 30-year litigation
views resolved A three-decade-old litigation between litigation over this was pending in the
NRC Ltd and the customs authorities Bombay High Court. The issue was
The Supreme Court has resolved con- ended with the Supreme Court
flicting judgments delivered by vari- ruling that the company which whether the company could
ous high courts regarding the tax li- imported caprolactum for invoke the scheme. The high
manufacturing nylon tyre cord court said no. Overruling it,
ability of was eligible for the benefit of the Supreme Court stated
banks while the Karvivadh Samadhan that "in those cases where
dealing with Scheme 1998. The authorities show cause notice has been
bills of ex- had issued show cause notice demand- issued or notice of demand of
change. In 25 ing additional duty. indirect tax has been issued, it is per-
appeals moved by banks and the rev- missible for the firm to claim benefit of
enue authorities, supporting and op- The scheme came into force while the the scheme."
posing the high court verdicts which
went against them, the court Tax relief for garment manufacturers
granted relief to the banks in the
leading judgment, State Bank of The Supreme Court has dismissed the chase'. The question was whether the
Patiala vs CIT. appeal of the commissioner of central processes were after purchase. The
excise and service tax against the or- commissioner maintained that these
The facts in all the cases were simi- der of the appellate tribunal which had firms were not eligible for the exemp-
lar. The bank makes purchases of bills granted duty exemption to textile ar- tion as it was not subsequent to pur-
of exchange from its customers and ticles of three promi-
charges commission for services ren- nent firms: Aditya Birla chase. Materials were
dered by it. The discounted bills so Nuvo Ltd, Levi Strauss given to the job work-
purchased are then presented to the (India) Ltd and Arvind ers and they were re-
parties concerned for realisation. If Clothing Ltd. These turned to the compa-
on presentation the bill is realised companies had as- nies after fabrication.
within time, no charges are levied by signed work to job workers and they
the bank. In case the bills are not supplied the material back to the as- The tribunal rejected
realised in time but the other party sessee companies after completing that contention, against which the rev-
pays the value of the bill beyond the several intermediate processes. enue authorities appealed to the Su-
stipulated time, a certain amount in preme Court. It upheld the tribunal's
the form of interest is charged by According to the 2003 exemption no- view and stated that in these transac-
the bank on a fixed percentage ba- tification, exemption was available to tions, the companies had bought pro-
sis for everyday of default. textile articles to any one or more of cessed fabric from the job workers and
such processes, 'subsequent to pur- therefore there was purchase making
This amount is credited by the bank them eligible for the benefit.
in its interest account. The question
before the court was whether such HDFC to pay for negligence
payment of compensation to banks
is "interest" liable to tax under the The National Consumer Disputes Commission ruled that HDFC Bank was negli-
Interest Tax Act. The judgment gent by not verifying the signatures on applications
stated that "the Interest Act, unlike for net banking and electronic money transfer, lead-
the Income Tax Act, has focused only ing to siphoning of money from the salary account of
on a very narrow taxable event Swapan Kumar. According to his complaint, bank offi-
which does not include within its ken cials conniving with a former security guard of the
interest payable on default in pay- bank, forged his signatures on applications. Ordering
ment of amounts due under a dis-
counted bill of exchange." compensation, the commission observed that "had the concerned bank man-
ager been careful, he would have rejected the applications… The official at least
on noting the difference in signatures was expected to contact the complain-
ant to verify them."
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