The Hindu Business Line : One cool judgment is worth a thousand hasty counsels

SUMMER'S scorching, so we switch on the air-conditioners to shed the heat. But when ITI Ltd flicked the `Modvat credit' switch for the ACs it used in the manufacture of `army transportable satellite terminals', there was only heat that came out, because the taxman didn't agree that they were `inputs' for the army's special vehicles. Eventually, the case ended up in the Bangalore tribunal.

The equipment vehicle is described in the order as carrying "sensitive radar system comprising 19 parts, antenna mount and hub along with DG set", and made for use "in high altitudes during warfare." ITI said that the electronic equipment in the vehicle generated heat that exceeded 55 degrees Celsius, and that it was necessary to maintain the temperature at 30 degrees, using AC.

"The AC may not be involved in the actual function of the final product but if the AC is not there, burn out of the whole equipment is a certainty which will render the whole thing inoperable. If the final product ceases to exist due to burn out, there is no need to manufacture the same in the first place," explained the company. "ACs fitted to the entire system becomes part and parcel of the entire equipment," reasoned ITI.

The excise officials argued, "ACs are used for `air' and not directly for the goods manufactured." Therefore, ACs perform an independent function that has no relevance to the `transportable satellite communication equipment', said the Department.

The company cited many case laws to prove its points. For instance, in the Hindustan Motors case, AC system component units were held as input and not accessory in relation to manufacture of an AC car; in the Telco case, credit was given for music systems fitted in luxury cars `for the comfort of occupant passengers'; in Jay Engineering Works, nameplate affixed to fan was held to be input; and in Jeevan Diesels, the tribunal had held that control panel and circuit breakers fitted to DG sets were essential for the functioning of the final product.

In the final analysis, the tribunal was of the view that the Excise Commissioner had totally misapplied the citations and `also not considered the technical aspect of the matter'. The text of the tribunal's order notes that the contract entered into by ITI with the President of India explains how the AC is an important part in the functioning of the entire system. Referring to the precedents where a similar benefit had been given when ACs were fitted in luxury cars, the tribunal said that benefit couldn't be denied to ITI.

Perhaps, AC thermostats in the tax office need to be set to a lower temperature, to ensure cooler thinking. An appropriate thought from Woodrow Wilson is: "One cool judgment is worth a thousand hasty counsels. The thing to do is to supply light and not heat."

Travel back in time

DENYING credit that the company had claimed, a fat demand for excise duty was raised on Bhoruka Textiles Ltd, and the same was confirmed in 1999. The Department said that the company had not indicated the actual stock lying on the factory floor in each department, but Bhoruka claimed that in November 1993 its stock of goods got burnt/damaged, and proceeded to submit the required details. The Commissioner (Appeals) rejected the company's assertion saying that the info has come forth "after more than 5 ½ years" and that it was not possible "either to go into the veracity of the claim made or give any decision on the position of the stock lying in the factory."

At the tribunal, an interesting development took place. Bhoruka's counsel drew attention to the chartered accountant's certificate about the stock position, after the Department had picked holes in the records for processes, and stock statement, and also said that the veracity of the bank statement produced by Bhoruka was doubtful because it was "neither authenticated nor signed by anybody".

Then came a bombshell from the taxman: "The CA's certificate that claimed to have verified the copy of the stock position as on March 25, 1994, and submitted to the Bank of Mysore, is dated November 25, 2002." To the Department, the certificate had all the trappings of fabrication because "on November 25, 2002, one cannot verify stock of March 25, 2994." What did the Tribunal say about the CA's certificate? That the veracity is not established.

There could be a clamour among the CA's professional brethren that their credentials can't be questioned. Who knows, they may even produce a snatch such as the following, from The Time Machine by H.G. Wells:

"`You mean to say that that machine has travelled into the future?' said Filby. `Into the future or the past— I don't, for certain, know which.' After an interval the Psychologist had an inspiration. `It must have gone into the past if it has gone anywhere,' he said... `Upon that machine,' said the Time Traveller, holding the lamp aloft, `I intend to explore time. Is that plain? I was never more serious in my life.'"

Tailpiece

"When I gave him the letter and the envelope, do you know which one he took?"

"The envelope, I'm sure!"

"No, my briefcase!"

Detaxification@TheHindu.co.in

D. Murali

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