Moisturex cream meant for curing skin is medicament; Supreme Court lays down principles to identity medicament products

COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV V. CIENS LABORATORIES (2013) (Supreme Court)

'Moisturex' cream having medicinal ingredients and meant for curing of skin ailments/diseases is a medicament (duty @15%) and not cosmetic (duty @70%)

Facts:

The assessee was engaged in manufacture of product 'Moisturex', which it sought to classify as 'medicament', liable to duty at 15% under Heading 30.03. However, the Department classified product as cosmetics liable to duty @ 70% under Tariff Heading 33.04.

The Supreme Court held in favour of assessee as under:

• For deciding whether a product is 'medicament' following principles are relevant:
• Presence of pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, is relevant and proportion of such ingredients is not decisive; 
• Even if a product is sold without a prescription of a medical practitioner or over/across counter, it may be 'medicament';
• People who actually use such products must understand it to be 'medicament'; 
• Its primary function has to be "cure" and not "care", i.e., it must be used mainly in curing or treating ailments or diseases.

• Accordingly, 'Moisturex' cream having medicinal ingredients, though in small quantities, is not primarily intended for protection of skin but for curing of skin ailments/diseases, is a medicament (duty @15% : Tariff Heading 30.03) and not cosmetic (duty @70% : Tariff Heading 33.04).

Madras High Court accepts a novel sale and lease back transaction; allows lessor to claim depreciation on let out asset

FIRST LEASING CO. OF INDIA LTD. V. ACIT (2013) (Madras)

Where there was a tacit agreement in form of offer and acceptance for sale of assets and existence of such assets could not be doubted, said sale and its lease back could not be rejected for purpose of allowing depreciation

Facts:

• The assessee, a leasing company, entered into a sale and leaseback (SLB) agreement in respect of certain assets with Tamil Nadu Electricity Board (Electricity Board); 
• It purchased certain assets from Electricity Board and leased them back to Board. The Assessing Officer, however, disallowed depreciation on such assets to assessee treating those SLB transactions as loan transactions; 
• On appeal, the CIT (A) allowed the depreciation on such assets. Further, the Tribunal held that it was purely a finance transaction and, therefore, no depreciation could be allowed. Aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

• Merely because terms of SLB agreement provided for deduction of lease installments from current consumption charges by way of priority, same could not be form basis to hold that transaction was not a SLB but a mere loan transaction; 
• The provision for repayment of the lease amount by way of installments from the current consumption charges was one mode of repayment in order to ensure that there was no default in paying the installments. There was no flaw in such a provision made in the agreement for repayment; 
• Merely because the assets were all eligible for 100 per cent depreciation, it could not be held that the entire transaction would become doubtful. So long as the sale-cum-lease back agreement was real as between the parties and the transaction was carried out in accordance with law, in the absence of any flaw in the said agreement, one could not doubt the whole transaction; 
• The fact that sale was accepted as between assessee and Electricity Board and after settlement of lease amount, assessee would continue to retain its ownership in no uncertain terms stipulated in agreement, and when such a transaction was not against law, there was no reason to doubt such transaction; 
• As far as the conduct of the parties was concerned, there were no clandestine dealings involved. Every correspondence between the parties was disclosed and placed before the Assessing Officer. Therefore, depreciation claimed by assessee was to be allowed.

An association of regional stock exchanges sets up to ensure secured trading and safety of funds gets trust registration

INTER-CONNECTED STOCK EXCHANGE INVESTORS PROTECTION FUND (ISE IPF) V. DIRECTOR OF INCOME-TAX (EXEMPTION) (2013) (Mumbai - Trib.)

Where main object of assessee-trust was to protect investors by way of creating a fund, which was a public charitable fund set up to advance an object of general public utility, assessee became entitled to get registration under section 12AA

Facts:

• The assessee-trust was formed by coming together of 23 regional Stock Exchanges of India to provide a common platform for trading in shares and securities;
• Its main object was to protect investors by way of creating a fund, which could provide compensation to them in case of loss on account of default by any member of a participating recognized Stock Exchange;
• The assessee made an application under section 12A for grant of registration which was rejected by competent authority. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object leads to the benefit of the whole mankind or all persons in a particular Country or even State;
• It would be sufficient if the intention is to benefit a section of the community, sufficiently defined and identifiable by some common quality of a public or impersonal nature;
• What is to be seen is the intention to benefit a section of the public as distinguished from a specified individual or group;
• Once it was decided that the assessee’s principal object was the advancement of an object of any general public utility, it would not be material if the income by way of contributions from the member stock exchanges was otherwise exempt under section 10(23EA) or not;
• Thus, the fund created by assessee was a public charitable fund having been set up to advance an object of general public utility, assessee was entitled to get registration.

Sum paid by one advertising agency to another akin to payment to a sub-contractor; section 194C attracted

AAKASH TAH V. ACIT (2013) (Chandigarh - Trib.)

Payment made by one advertising agency to other advertising agency for getting work done would be subjected to TDS under section 194C

Facts:

• The assessee, engaged in business of advertising services, had shown purchase from other advertising agency, namely, RAS without deduction of any tax at source;
• On query raised, the assessee contended that RAS was not advertising agency but media buying agency and as per Circular No. 715, dated 8-8-1995, print or electronic purchase was exempt from TDS;
• The Assessing Officer observed that the assessee was liable to deduct tax under section 194C(2). On further appeal, the CIT (A) dismissed assessee’s appeal. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

• The section 194C(2) clearly shows that provisions of tax deduction are applicable on the work of advertisement because the same is included under expression 'work' in the Explanation (3) which defines 'work';
• Further, the provisions make it clear that whenever a person being main contractor gets some work done from the sub-contractor, even then the provisions of tax deduction would be applicable;
• Circular No. 715, dated 8-8-1995 clearly provides that the provisions of TDS would apply when a client makes payment to an advertisement agency. Admittedly, RAS was not part of media and, in fact, RAS had booked advertisements further with other media group. So, it was a case of one advertising agency getting work done from the other advertising agency, i.e., a sub-contractor;
• It is possible that when an advertisement is booked, some part of the work is done by one agency and some part is done by another agency. In the absence of any evidence to show that RAS had not provided any services, the only conclusion possible was that such agency had provided some services. Therefore, the provisions of section 194C(2) were clearly applicable.

Assessing Officer can issue section 133 notice to financial institutions seeking information of depositors on deposit above Rs. 1 lakh

Kathiroor Service Cooperative Bank Ltd. v. Commissioner of Income-tax (CIB) (2013) (Supreme Court)

Assessing Officer can issue ‘general’ notice under section 133(6) to Financial Institutions to furnish information regarding account holder with cash transactions or deposits of more than Rs. 1,00,000

The Supreme Court held as under:

• Powers under section 133(6) are in the nature of survey and a general enquiry to identify persons who are likely to have taxable income and whether they are in compliance with the provisions of the Act;
• It would not fall under the restricted domains of being ‘area specific’ or ‘case specific’;
• Section 133(6) does not refer to any enquiry about any particular person or assessee, but pertains to information in relation to ‘such points or matters’ which the assessing authority issuing notices requires;
• This clearly illustrates that the information of general nature can be called for. Seeking names and addresses of depositors who hold deposits above a particular sum is certainly permissible.

Product Life Cycle

Product life cycle refers to the market response to a new product over a period of time. It is based upon the biological life cycle and shows the different stages through which a product goes from development to decline. In order to achieve the desired level of profits, the introduction of the new product at a proper time is crucial.

Stages of Product Life Cycle


Product life cycle comprises four stages:

1. Introduction stage 
2. Growth stage
3. Maturity stage 
4. Decline stage

Introduction Stage
The product has just been launched in the market; sales will be low until consumers become aware about the product and its features.  Here, the company’s core focus will be on establishing a market and arising demand for the product.  At this level the total initial cost incurred by the company will be high as substantial research and development costs have been incurred in getting the product to this stage, also marketing costs may be high in order to test the market, undergo launch promotions and set up distribution channels. Therefore, it is highly unlikely that the company will make profits at this stage.

The marketing strategy that can be used at this stage will be:

• Price skimming may be used if the product is a new invention and has no competitors
• Competitive pricing: Companies base their prices according to competitors? prices.  may be used if it already has lot of competitors. 
• Low pricing may be used if the aim is to penetrate and gain the market share. 
• At this promotion is done with intention to build brand awareness. Therefore, samples/trials are to be provided which would be helpful in attracting early and potential customers. Promotional programs are more essential at this stage.
  

Growth Stage

This stage is characterised by rapid growth in sales, profits and competition also begin to increase. The product becomes well recognised at this stage and some of the buyers repeat their purchase patterns. Here, the company seeks to build brand preference and increase its market share.

The marketing strategy that can be used at this stage will be:

• Prices are maintained or increased as company gets high demand at low competition
• Prices may be reduced if faced by stiff competition
• Distribution channels to be enhanced due to increase in demand
• Persuasive advertising may be used
• Quality is maintained and additional features or services are added
• Distribution channels to be enhanced due to increase in demand

Maturity Stage

At this stage, the sales keeping growing but at a declining trend. Brand awareness is high and also competition is fierce. Increased competition results in decrease in market share and decrease in prices. The primary objective at this stage is to defend the market share and maxmise profits.

The marketing strategy that can be used at this stage will be:

• Additional features to be introduced to differentiate between competitors product
• Promotional pricing can be used as an option
• Incentives to be offered to consumers
• Repetitive advertising is done to remind the consumers
• Prices can be reduced in order to retain consumers

Decline Stage

As the markets saturate, the sales will decline. Sales might also decline to change in consumer preferences and obsolete technology. Overall profitability also falls.

The marketing strategy that can be used at this stage will be:

• Maintain the product, add additional features and find alternative use of the product
• Reduce cost by transferring production to cheaper markets and reducing advertising cost
• Discontinue product and liquidate all inventory
• Sell the product to a competitor