The Hindu Business Line : `Floor or ground' includes floor of the car or vehicle

MATADOR Foam was not too happy that the Central Excise officials were dragging the company all the way to the apex court to unseat a favourable decision of the tribunal on car seats. Matador manufactured "goods made out of vulcanised rubber, other than hardened rubber," and these are "cut to the shape of seats of motor vehicles or two wheelers".

The company classified these under Tariff Heading 40.08, that is, "plates, blocks, sheets, strikes, rods and profile shapes of vulcanised rubber other than hardened rubber of cellular rubber." But the Department wanted the same to be put under 94.01, which read, "Seats (other than those of heading No.40.01), whether or not convertible into beds, and parts thereof."

Notes in Chapter 94 specify that "Pneumatic or water mattresses, pillows or cushions, of Chapter 39, 40 or 63," are not covered, and also that articles (other than parts) referred to in heading Nos. 94.01 to 94.03 are to be classified in those headings "only if they are designed for placing on the floor or ground." Moreover, the following are, however, to be classified in the above-mentioned headings even if they are designed to be hung, to be fixed to the wall or to stand one on the other: a) cupboards, bookcases, other shelved furniture and unit furniture; b) seats and beds.

At the Supreme Court, Mr A. K. Jain, arguing for Matador, said that the goods are cushions, which won't come under 94. But Mr R. Venkataramani, speaking for the Department, submitted that Matador's goods are cut to the shape of seats and are "only used in seats of buses, motor vehicles and/or two wheelers". The court noticed that the goods in question are "cut in the shape of seats and are used only in seats", and so they should fall under 94.01, not 40.08.

Yet, Mr Jain persisted. He said 94.01 would only cover seats "designed for placing on the floor or on the ground or which could be hung or fixed on the wall or designed to stand one on the other". According to Mr Jain, Matador's car seats "are not designed to be placed on the floor or ground and, therefore, they would not be covered under Tariff Heading 94.01".

But Justices S. N. Variava, A. R. Lakshmanan and S. H. Kapadia didn't find Mr Jain's reasoning unacceptable. "The term `floor or ground' would also include floor of the car or vehicle." Seats made for vehicles are placed on the floor of the car or vehicle, said the court. While the verdict should have made the taxman happy, I apprehend if lexicographers are feverishly debating whether to update their definitions of `floor' and `ground'.

Almost skinned for service!

TEAM UPD Ltd had leased out its site at Trisoolam, Chennai, to Pepsico for display of its ads, collecting Rs 8.4 lakh as rental. When the Excise Department demanded Team to pay service tax, the company said it was not an `advertising agency'. In due course, the matter reached the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai. Mr P. G. Chacko, Judicial Member of the Tribunal, perused the agreement between Pepsico and Team and found that the payment was $40,000 per annum. Team was to "print the skin for both the sides of the billboard, as per design sent by Pepsi," and the cost of the skins was included in the price.

CESTAT reasoned that the ads on the billboard installed and maintained by Team "were designed by Pepsico." Mr Chacko took notice of a Trade Notice relied upon by Team. It was issued in 1999 by the Calcutta Commissionerate and it discussed the question whether "persons engaged in the activity of compilation, printing, and publishing of telephone directories, yellow pages and business directories are covered under the definition of `advertising agency'."

The Notice answered that the work was "essentially of printing ready-made advertisements from the advertisers and publishing the same in the directory," and so the activities were "similar to those carried out by newspaper or periodicals." Therefore, there was no service tax, clarified the Notice, but hastened to add that the tax would be attracted if these persons "also undertake any activity relating to making or preparation of an advertisement, such as designing, visualising, conceptualising and so on."

In Team's case, Pepsico had designed the ads; and the Tribunal observed that designing succeeds the other two activities, viz. conceptualisation and visualisation, which are "preparatory to the physical activity of designing." To assist a favourable ruling for Team, there was an earlier Delhi decision in Azad Publications that display of ad on site for rental charges did not attract service tax.

A pursuit, shall we say, that ended with the realisation that tax was only skin deep?

Pillows pilloried

MATTRESSES and pillows landed up at the New Delhi CESTAT along with J. J. Foams and the Ghaziabad Commissioner of Central Excise. Tribunal Member Mr C. N. B. Nair heard what the pillow-fight was about. JJ said it was selling mattress and pillows as one set, but the Department said that the company was gifting away pillows and so valuation was to be revised for tax purpose. JJ showed evidence to the Tribunal in the form of declaration that stated "PU Foam mattress with pillow for all regions except Southern region," and also price list where the entry read as, "per set + Excise Duty and other taxes as applicable." The company, therefore, argued that the pillow price was included in that of the set.

But the Department drew the attention of the Tribunal to the fact that when JJ sold the two items separately, it was giving a discount of 5 per cent on the mattress; and that "even when the 5 per cent is added to the revised price, the price of the set would not include the price of the pillows." So, there was reason to hold that the pillow was being gifted, contended the Department.

Mr Nair found that JJ was clearly selling the things as `set' and that the selling price was for the set. "In such a situation, there is no warrant in holding either item to be a gift," he ruled. On the Revenue's logic based on "the earlier pattern of sale and prices," Mr Nair had this to say: "Assessee is at liberty to change pattern of sale and revise prices." If the ruling made the taxman sleepless, I'd suggest the use of a few snug pillows as remedy.

Tailpiece

"I sent a Budget suggestion to the FM, and it reads, `Smile please.'"

"If he leaves just wincing, you should be thankful."

Detaxification@TheHindu.co.in

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