TMI Tax Updates - e-Newsletter
January 16, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

Articles

1. CASE OF RAUNAQ EDUCATION FOUNDATION-AN UNNECESSARY CASE OF PATENTLY WRONG LITIGATION BY REVENUE.

   By: DEVKUMAR KOTHARI

News

1. Annual Report of TRAI for the Year 2011-12

2. Smt. Gursharan Kaur, to Inaugurate Exhibition on “Textiles From Rajasthan & Gujarat” At Cottage Central Cottage Industries Corporation of India Celebrates Handloom Month

3. Aucton Sale of Govt. Stock

Notifications

Companies Law

1. ORDER FILE NO. 10/36/2001-CLB, - dated 21-12-2012 - Co. Law

Amendment of order FILE NO. 10/36/2001-CLB], DATED 7-12-2012

Law of Competition

2. S.O. 93(E). - dated 8-1-2013 - Competition Law

EXEMPTED FROM THE APPLICATION OF THE PROVISIONS OF SECTIONS 5 AND 6 OF THE COMPETITION ACT, 2002, IN PUBLIC INTEREST FOR A PERIOD OF FIVE YEARS FROM THE DATE

VAT - Delhi

3. F. 5(54)/Policy-II/VAT/ 2010/1106-1118 - dated 9-1-2013 - DVAT

Amendment in Sixth Schedule relating to the List of International Organisation which can claim refund w.e.f 01.01.2013 - (68A) Republic of Niger, New Delhi has also been inserted in respect of official purchases of its diplomats subject to Minimum Invoice value eligible for refund shall be Rs.5000/

4. F. 5(54)/Policy-II/VAT/ 2010/1093-1105 - dated 9-1-2013 - DVAT

Amendment in Sixth Schedule relating to the List of International Organisation which can claim refund w.e.f 01.01.2013 - Republic of South Sudan, New Delhi has also been inserted in respect of official purchases and for personal purchases of its diplomats subject to Minimum Invoice value Rs. 5000/-

Circulars / Instructions / Orders

FEMA

1. 75 - dated 15-1-2013

Exim Bank's Line of Credit of USD 37.90 million to the Government of the Kingdom of Swaziland

Customs

2. 04/2013 - dated 15-1-2013

Disposal of firearms imported as baggage under transfer of residence – reg.

Highlights / Catch Notes

Income Tax

• High Court Invalidates Search Warrant: Pre-conditions for Prohibitory Orders u/s 132(3) of Income Tax Act Not Met.

  Case-Laws - HC : Search u/s 132 - prohibitory orders passed u/s 132(3) - Since pre-conditions had not been satisfied, the warrant of authorisation would have to be quashed - HC
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• High Court Rules on Late Submission of Form-10 in Tax Assessments; No Reopening Allowed Under Current Tax Act Provisions.

  Case-Laws - HC : Accumulation of income - Form-10 had not been furnished along with the return but was filed during the course of the assessment - Act did not contemplate such re-opening of the assessment - HC
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• High Court Validates Notice u/s 148 for Alleged Fund Siphoning Due to Incomplete Disclosure by Assessee.

  Case-Laws - HC : Reopening of assessment - siphoning of funds - assessee was under a duty to disclose these particulars fully and truly at the time of the original assessment - Notice u/s 148 is valid - HC
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• Taxpayers Can Maintain Separate Investment and Trading Portfolios Affecting Capital Gain or Business Income Classification.

  Case-Laws - HC : Capital gain or business income - it is possible for a tax payer to have two portfolios i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock in trade which are to be treated as trading assets. - HC
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• High Court Rules Intermediary Not Liable for TDS Deduction on Lorry Booking Income u/s 194C.

  Case-Laws - HC : Non deduction of TDS - Lorry Booking Income - contract was actually between the exporter and the airline and the assessee was only an intermediary and, therefore, it was not the ‘person responsible’ for TDS u/s 194C - HC
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Customs

• Coking Coal Customs Duty Exemption Upheld Despite New Technology Use in Coke Production Process.

  Case-Laws - AT : Custom duty on coking coal – adoption of a new technology enabling use of coal, which could be converted into coke in admixture with other coal, without conversion of such coal into coke cannot be a reason to deny the exemption - AT
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• Imported Goods Value Rejected Due to Extra Consideration; Unrelated Buyers' Higher Prices Used as Evidence in Related Party Cases.

  Case-Laws - AT : Rejecting of Transaction value of imported goods – the best evidence is flowback of extra consideration. Since the parties are related parties such evidence may not easily be available. But in such cases evidence of imports at higher prices by unrelated buyers will be good evidence. - AT
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Service Tax

• Company Avoids Penalty for Using CENVAT Credit on GTA Services; Section 80 Waiver Applied Successfully.

  Case-Laws - AT : Utilizing CENVAT Credit in discharging service tax liability of GTA service (outward freight) - imposition of penalty under Section 76 - penalty waived u/s 80 - AT
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• Court Rules Pre-July 16, 2007 Tax Demands on Consulting Engineering Services Unsustainable; Clarifies Service Tax Applicability.

  Case-Laws - HC : Consulting Engineering Services v/s Scientific and Technical Consultancy Service - Scientific or Technical Consultancy was brought under Service Tax net with effect from 16.7.2001 - Demand before 16-7-2007 under the category CES is not sustainable. -HC
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Central Excise

• Cenvat Credit Denied for SBPS/Solvent 1425 Due to Exclusion from 'Input' Definition in Central Excise Regulations.

  Case-Laws - AT : Cenvat Credit denied - Special Boiling Point Spirits (SBPS)/Solvent 1425 - What is excluded form the definition of ‘input’ is “Motor Spirits commonly known as petrol” not all the motor spirits - AT
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• High Court Clarifies Rule 2(l) of CENVAT Credit Rules, 2004: Which Services Qualify for Input Service Credit?

  Case-Laws - HC : Eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004 - scope of rule 2(l) with regard to various input services explained - HC
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• Penalty for Late Duty Payment Under Compounded Levy Scheme Declared Ultra Vires, No Longer Enforceable.

  Case-Laws - AT : Compounded Levy Scheme - penalty - rule providing for penalty equal to the monthly duty liability for delay in discharge of monthly duty liability by due date has been held to be ultra vires - AT
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Case Laws:

• Income Tax

• 2013 (1) TMI 318
  Search u/s 132 - prohibitory orders passed u/s 132(3) with respect to three bank lockers of the petitioner - direction from income tax department to release the papers / documents seized from the residence of the petitioner - whether there was any reason to suspect to enter and search the residence of the petitioner? - Held that:- The information must not be in the nature of some surmise or conjecture, but it must have some tangible backing. Until and unless information is of this quality, it would be difficult to formulate a belief because the belief itself is not just an ipse dixit, but is based on reason and that is why the expression used is “reason to believe” and not simply ‘believes”. As decided in H. L. Sibal Versus CIT, Punjab And Others [1975 (7) TMI 67 - PUNJAB AND HARYANA HIGH COURT] the word "information" has been defined in the Shorter Oxford Dictionary as "that of which one is apprised or told". The word "reason" has been defined as "a statement of fact employed as an argument to justify or condemn some act". On the other hand, the word "conclusion" is defined as "a judgment arrived at by reasoning, an inference, deduction, etc.”. In the present case, it is found that the so-called information is undisclosed and what exactly that information was, is also not known. At one place in the affidavit of Deputy Director of Income-tax, it has been mentioned that he got information that there was a “likelihood” of the documents belonging to the DS Group being found at the residence of the petitioner. That by itself would amount only to a surmise and conjecture and not to solid information and since the search on the premises of the petitioner was founded on this so-called information, the search would have to be held to be arbitrary. Also when the search was conducted on 21.01.2011, no documents belonging to the DS Group were, in fact, found at the premises of the petitioner - warrant of authorization u/s 132(1) had been issued in the name of the petitioner and, therefore, the information and the reason to believe were to be formed in connection with the petitioner and not the DS Group. None of the clauses (a), (b) or (c) mentioned in Section 132(1) stood satisfied in the present case and, therefore, the warrant of authorization was without any authority of law as had the warrant of authorization been issued in the name of the DS Group and in the course of the searches conducted by the authorized officer, the premises of the petitioner had also been searched, then the position might have been different. But, in the present case, that is not what has happened as the warrant of authorization was in the name of the petitioner and, therefore, it was absolutely necessary that the pre-conditions set out in Section 132(1) ought to have been fulfilled. Since those pre-conditions had not been satisfied, the warrant of authorisation would have to be quashed - search conducted on 21.01.2011 at the premises of the petitioner would be illegal therefore prohibitory orders would also be liable to be quashed - jewellery / other articles / documents are to be unconditionally released to the petitioner - writ petition allowed.

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• 2013 (1) TMI 317
  Assessment of trust - exemption u/s 11 - Claim for accumulation of income rejected - Form-10 had not been furnished along with the return but was filed during the course of the assessment proceedings - whether Form-10 could be furnished for the purposes of Section 11 of the said Act during the re-assessment proceedings? - Held that:- As decided in CIT Vs. Nagpur Hotel Owners Association [2000 (12) TMI 99 - SUPREME COURT] it was necessary that the assessing authority must have the information under Form-10 at the time he completes the assessment and in its absence it is not possible for the assessing authority to give benefit of such exclusion. Furthermore, once the assessment is so completed it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Thus without the particulars of this income as given in Form-10, the assessing authority cannot entertain the claim of the assessee under section 11 and therefore, compliance with the requirement of the Act will have to be at any time before the assessment proceedings are completed. Any claim for giving the benefit of section 11 on the basis of information supplied subsequent to the completion of assessment would mean that the assessment order will have to be reopened. The Supreme Court noticed that the Act did not contemplate such re-opening of the assessment. The revenue relied on this portion of the finding of the Supreme Court to contend that during re-assessment proceedings, the said Form-10 could not be furnished by an assessee.However, the fact has to be kept in mind that while reopening of an assessment cannot be asked for by the assessee on the ground that he had not furnished the Form-10 during the original assessment proceedings, this does not mean that when the revenue re-opens the assessment by invoking Section 147 the assessee would be remediless and would be barred from furnishing Form-10 during those assessment proceedings - question answered in favour of the assessee in appeal No.s 524/2012, 525/2012 and 526/2012. With regard to the ITA No.523/2012 because the Form-10 was filed only before the Tribunal, the question has to be decided against the assessee and in favour of the revenue.

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• 2013 (1) TMI 316
  Reopening of assessment - more than Rs.100 crores of rupees has been siphoned by Maharaja Prithvi Raj the belief entertained by the assessing officer on the basis of the complaint which has been filed with some responsibility by one of the directors of the petitioner, cannot be said to be a mere pretence nor can the belief be said to be divorced from the material. Thus uphold the notice issued under Section 148.

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• 2013 (1) TMI 315
  Short Term capital gain and long term capital gain treated as business income - ITAT confirmed the CIT(A')s order in deleting the addition - assessee is engaged in sale and purchase of shares and maintains two separate portfolios - Held that:- CIT(A) relying upon CBDT circular No.4/2007 dated 15.06.2007 & CIT Vs. Associated Industrial Development Co. [1971 (9) TMI 3 - SUPREME COURT]& CIT Vs. H.Holck Larsen [1986 (5) TMI 30 - SUPREME COURT] stated that it is possible for a tax payer to have two portfolios i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock in trade which are to be treated as trading assets. It is not the case that the assessee started these activities in the year under consideration. The practice is supported by earlier years also which is not disputed. The department has earlier accepted the assessee's practice and treatment under heads of capital gains and business. Assessee's separate activities in share are further supported and endorsed by the fact that separate de mat accounts, bank accounts are being maintained and separate trading account and investment accounts are maintained in the books. Under these circumstances it confirms that the assessee was dealing in different activities of trading and investment - no interference with the decision of the Tribunal is called for - no substantial question of law arises.

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• 2013 (1) TMI 314
  Non deduction of TDS - Lorry Booking Income - Addition invoking Section 40(a)(ia) - ITAT deleted the addition - Held that:- The assessee collects freight charges from the clients who intended to transport their goods through separate transporters. The entire amount collected from the clients is paid to the transporters after deducting commission from the said amount. Relying on case of CIT v. Cargo Linkers [2008 (3) TMI 619 - DELHI HIGH COURT] the assessee was not the ‘person responsible’ for making payment in terms of Section 194C. The contract was actually between the exporter and the airline and the assessee was only an intermediary and, therefore, it was not the ‘person responsible’ for deduction of tax at source in terms of Section 194C - in favour of assessee.

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• 2013 (1) TMI 313
  Profit on sale of shares - capital gain v/s income from business - assessee is a share broker and main business of the assessee was purchase and sale of the shares - Held that:- CIT (Appeals)-I Kanpur held that the assessee was maintaining separate accounts of portfolio of trading and investments and separate bank accounts for them. The books of the account of the assessee has been accepted by the AO as this issue was also involved in the AY 2004-05 and 2005-06 and have been decided in favour of the assessee by CIT (A) as well as by ITAT and there was no reason for the AO in not accepting the previous orders. On these findings AO directed to treat the amount as long term capital gain and short term capital gain as shown by the assessee in his return. Revenue filed appeal against ITAT orders which has been dismissed on 02.01.2013 for the AY 2004-05 and in the matter of the Assessment Year 2005-06, the Revenue filed Income Tax Appeal No. 201 of 2010 which has been dismissed on 14.12.2012.

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• 2013 (1) TMI 312
  Waiver of interest levied u/s 220 (2) - application rejected - Held that:- levy of interest under Section 220 (2) is for delay in payment of tax for the periods subsequent to completion of assessment. One of the contention raised by the assessee that non-payment was due to circumstances beyond his control is that the assessment was necessitated on account of addition of taxable income of the firm of which he is a partner. This reason may justify delay in filing the returns but not delay in the payment of tax for the post assessment period. If that be so, the second requirement of Section 220 (2A) of existence of circumstances beyond the control of the assessee is also established. Waiver of interest levied u/s 234A and 234B - allowed when conditions specified in the notification F.No. 400/29/2002-IT (B) dated 26th of June 2006 are satisfied - Held that:- None of the conditions specified in notification are applicable and in spite of it, the order shows 1/3rd of the interest has been waived up to the assessment year 1992-93 the petitioner cannot seek waiver of interest levied under Section 234 A and Section 234 B.

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• 2013 (1) TMI 311
  Reopening of assessment - excessive allowance on account of depreciation - reduction of WDV of the Block of assets and consequent disallowance of depreciation claim - Held that:- The assessee acquired plant & machinery for its Hoskote plant in April, 1996 making no payments for the purchase ultimately the CEL, UK, one of the group company made payments of the machinery to the suppliers. The assessee recognized this liability for payment for purchase of machinery as payable to CEL, UK. Later on, CEL, UK was taken over by Akzo International BV who waived repayment of monies due on purchase of machinery. As in April, 1996 when the machinery was purchased, the actual cost was recorded in the books of account including the monies payable to the supplier of machineries. Even today the Assessee has not made any adjustment in its books of accounts recognizing the write of amounts. The benefit as a result of waiver of the loan was shown in the books of accounts of the Assessee in the balance sheet as a capital receipt not chargeable to tax, claim been accepted by the Revenue. The assessee has claimed depreciation of those machineries from the A.Y. 1997-98. This fact came to the knowledge of the AO in the course of assessment proceedings for the AY 2004-05 & action was initiated u/s. 148 to reduce the WDV of the relevant block of assets and withdraw the depreciation already granted to the assessee in the past. Such action was initiated only from A.Y. 2001-02 to 2006-07. Prior to the introduction of new concept of block of assets with effect from 01.04.1988, depreciation used to be claimed separately on each asset. The Legislature found that this was a cumbersome procedure leading to various difficulties. The rationale and purpose for which the concept of block asset was introduced, as reflected in the CBDT's Circular dated 23.09.1988 is that once the various assets are clubbed together and become 'block asset' within the meaning of s. 2(11), it becomes one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on meeting the requirement of depreciation being allowable at the same rate. Individual assets lose their identity and become an inseparable part of block asset in so far as calculation of depreciation is concerned. The merger of various assets into the block asset can be altered only when the eventuality contained in clause (c) of s. 43(6) takes place, viz., when a particular asset is sold, discarded or destroyed in the previous year (other than the previous year in which first brought in use). It is thus clear that the only way by which the written down value on which depreciation is to be allowed as per the provisions of Sec.32(1) (ii) can be altered is as per the situation referred to in Sec.43(6)(c)(i) A and B. Neither was there purchase of the relevant assets during the previous year nor was there sale, discarding or demolishing or destruction of those assets during the previous year. Thus the recourse by the revenue to those provisions on the facts and circumstances of the present case cannot be sustained. Provisions of section 43(6)(b) were not applicable to the present case but are section 43(6)(c). As decided in Tata Iron & Steel Co. Ltd. (1997 (12) TMI 5 - SUPREME COURT) that repayment of loan borrowed by an assessee for the purpose of acquiring asset has no relevance to the cost of assets on which depreciation has to be allowed. Similar view was also expressed in the case of Cochin Co. (P.) Ltd.'s case (1989 (10) TMI 20 - KERALA HIGH COURT) that WDV as at the beginning of the preceding year as well as the depreciation actually allowed in that year have reached finality and cannot be changed in the assessment year under appeal. They could have been changed only if the assessment of that or earlier years could be re-opened. Such an action was barred by limitation.Further, as per section 43(6)(c)(ii) & (i), the only adjustments permitted in the WDV of the block with reference to the year in which depreciation is to be allowed are addition actual cost of asset acquired during the year and reduction of monies receivable on sale, discarding, demolition or destruction of the assets and its scrap value. Thus the disallowance of depreciation cannot be sustained. The CIT(A) ought to have deleted the disallowance of depreciation in full. Validity of initiation of reassessment proceedings - That there were no assessments u/s. 143(3) and only an intimation had been issued. In the circumstances CIT(Appeals) was right in coming to the conclusion that the reopening of assessment u/s. 148 was valid. AO's action of setting off the unabsorbed depreciation against the total income without giving effect to the brought forward business loss reported in the return of income of earlier years - Held that:- CIT(A) has directed the AO to verify the records and allow the claim of the assessee directing to carry forward business loss should be first set off and thereafter the unabsorbed depreciation has to be set off. Section 72 gives priority in the matter of setting off of carry forward business loss and depreciation, and it lays down that carry forward business loss has to be set off against business income for that assessment year. Section 32(2) provides for set off of unabsorbed depreciation. Those provisions are subject to provisions of section 72(2) which provides that set off has to be first given for carry forward business loss. It is thus clear that the claim of the assessee that priority of set off should be brought forward business loss and thereafter unabsorbed depreciation is found to be correct. The AO is accordingly directed to verify and give effect, keeping in mind the observations referred to above.

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• 2013 (1) TMI 310
  Transfer pricing adjustment - assessee is in the business of broking and trading in shares as a corporate member of BSE and NSE - the AE, M/s ABN Amro Asia (Mauritius) Ltd. was charged brokerage at a much lower rate of .24% than the average rate of .40% charged from all the other FIIs - CUP v/s TNMM method - Held that:- As regards the method to be adopted for comparability analysis, agreeing with the contention of the DR that CUP is the most appropriate method in the facts and circumstances of the case including especially the fact that internal CUPs are available for the comparability analysis. Therefore, find no infirmity in the action of the AO/TPO in adopting CUP method for comparability analysis instead of TNMM applied by the assessee. Weighted average arithmetic mean of brokerage rate of 10FIIs v/s simple average arithmetic mean of such rates taken by the TPO - Held that:- The first proviso to section 92C speaks about taking arithmetic mean of more than one ALPs determined by the most appropriate method. There is, however, nothing to suggest that volume of the relevant transactions also has to be taken into consideration for the purpose of computing such arithmetic mean. Therefore, it will be difficult to accept the stand of the assessee that weighted average arithmetic mean should be taken and not the simple average arithmetic mean. Thus CIT(A) has rightly rejected the stand of the assessee on this issue holding that there is no provision in the statute which allows taking weighted average arithmetic mean for determination of arm's length price. Adjustments claimed for marketing function, research functions and for differences in volumes - Held that:- As rightly contended by the assessee comparable uncontrolled price is required to be adjusted as per Rule 10B(1)(a)(ii) to account for difference, if any, between the international transaction and the comparable uncontrolled transaction which could materially affect the price in the open market. However, as contended by the DR, a case has to be made by the assessee for allowing such adjustment duly supported by relevant facts and figures as well as documentary evidence. He has contended that such details and documents, however, need to be verified by the AO/TPO and if the matter is sent back to the AO or the TPO for such verification, he has no objection. Since the assessee has also agreed with this proposition, this issue is to be restored back to the file of the AO with a direction to consider the claim of the assessee for adjustment. Disallowance for write off of irrecoverable loan - Held that:- There was nothing brought on record by the assessee to show any efforts made to recover the loan from the concerned employee or from the security, which was taken while giving the said loan - as the assessee has agreed that the amount in question cannot be allowed as bad debts as the condition stipulated in section 36(1)(vii) read with section 37(2) is not satisfied - nothing has been brought on record by the assessee to show that the loss as a result of the loan given to the employee becoming irrecoverable was actually incurred in the year under consideration and this being so, the amount in question cannot be allowed even as business loss in the year under consideration. Charging of interest u/s 234D - Held that:- Explanation 2 to section 234D inserted by the Finance Act, 2012 with retrospective effect from 01-06-2003 whereby it is clarified that the provisions of section 234D shall also apply to an assessment year commencing before the first day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. Since the said Explanation is clearly applicable in the case of the assessee, we uphold the levy of interest u/s 234D. Addition of Rs.5,88,62,098/- by way of TP adjustment - Held that:- Following the decision rendered in assessment year 2003-04 and the issue relating to TP adjustment of this year 2005-06 is also to be restyored to the file of the AO with a direction to consider the claim of the assessee for adjustment for marketing function, research function and differences in volumes on merit afresh after verifying the details and documentary evidence to be furnished by the assessee. Disallowance u/s 14A R.W.R. 8D - Held that:- As decided in Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] Rule 8D is applicable prospectively from assessment year 2008-09 and for the years prior to 2008-09, the disallowance u/s 14A is required to be made on some reasonable basis. Therefore, restore this issue to the file of the AO with a direction to recompute the disallowance to be made u/s 14A on some reasonable basis & also to consider the stand of the assessee that no expenditure was actually incurred for the purpose of making investment in shares so as to warrant any disallowance u/s14A.

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• Customs

• 2013 (1) TMI 309
  Rejecting of Transaction value of imported goods – Under Rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - Provisional assessment – Related party - Rule 5 of Customs (Valuation) Rules, 1988 – Price of identical goods imported by unrelated buyers in India - Assessee engaged in assembly/manufacture of electric motors, A.C or D.C., single phase or multi-phase -Importing Completely Built Units (CBUs) from parent company - Section 28 of the Customs Act - Held that:- No material has been brought on record to show that the price declared is not the real transaction value. For loading of the value declared for charging customs duty, the best evidence that Revenue can produce is flowback of extra consideration. Since the parties are related parties such evidence may not easily be available. But in such cases evidence of imports at higher prices by unrelated buyers will be good evidence. Since the appellants have produced evidence, vide letter dated 18-5-2010, to show that presently the prices are not influenced by the relationship and Revenue has not rebutted this contention with any evidence, we set aside the impugned order and direct that the assessments of goods imported by the appellant be assessed at prices declared by them with effect from 31-1-2010 with consequential benefits if any. This order shall act as a bar on ordering provisional assessment of future imports at higher prices based - In favour of assessee

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• 2013 (1) TMI 308
  Stay Petition - Smuggling - Confiscation - Illegal export of currency - Held that:- It is a case where Shri Ibrahim was using specially made suitcases for concealing currency for the purpose of illegal export. Initially statements of three appellants indicate that they have done this type of operations on more than one occasion. Shri Ibrahim has stated that he has made a profit of Rs. 2,00,000/- on each occasion. The claim that the currency was received through legal channel for business purposes is not convincing. If that be so, the money could have been returned legally. Prima facie, all the three are involved in the attempted smuggling. Hence deposit certain sum and balance waive.

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• 2013 (1) TMI 301
  Custom duty on coking coal – Assessee imported coal and filed two Bills of Entries namely 05/2010 dated 13-1-2010 declaring the goods as “Jelinbah Semi Coking Coal” and 20/2010 dated 15-7-2010 and declared the goods as “Jelinbah PCI Coal’ - Claimed exemption from customs duty under Notification No. 21/2002-Cus., dated 1-3-2002 – Serial.No.68 - “coking coal” was fully exempted from customs duty - Customs department restored provisional assessment with view that the goods imported were not coking coal Held that:- The description that the supplier adopts for his goods in contract by itself cannot be conclusive in deciding applicability of a customs exemption especially when the scope of the description of the goods used in Customs Notification in India is not clear and gives room for an argument that the goods fits into the description. In the absence of a clear definition, we should go by natural meaning. The explanations in the notification prior to the period of import and later to the period of import provide certain technical characteristics and do not provide for monitoring that coal is to be used actually for conversion into coke before using it in metal extraction. During the period of import there was no explanation at all. We feel that adoption of a new technology enabling use of coal, which could be converted into coke in admixture with other coal, without conversion of such coal into coke cannot be a reason to deny the exemption The Chemical Examiner does not state the criteria based on which he opined that the goods were not “coking coal”. In the absence of such details the Chemical Examiner’s report is only an opinion and not a report of chemical analysis. An opinion formed by chemical examiner has very limited value because such opinion is formed without hearing the party. In favour of assessee

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• Corporate Laws

• 2013 (1) TMI 307
  Directions for the purpose of holding and conducting such General Meeting of the shareholders - petitioners are 75% shareholders of the issued, subscribed and paid-up share capital of the company - in EOGM held on 3rd November, 2006 resolutions passed for removal of some directors - petition against order stating that the power to order the convening of AGM of the company is vested with the CIS under section 186 of the Companies Act, 1956 - Held that:- The power to order for convening of meeting lies with the Company law Board under section 186 of the Companies Act, 1956.If for any reason it is Impracticable to call, hold and conduct meeting of a company, the power is vested with the Company law Board to pass order to call, hold and conduct the meeting of the company in such manner as the Bench thinks fit. The Company Law Board has been further empowered to give such ancillary or consequential directions as the Bench thinks expedient including directions modifying or supplementing in relation to the calling, holding and conducing of the meeting, the operation of the provisions of this Act and of the company's articles - Thus when convening of extraordinary general meeting in terms of provisions of section 169 fails or meeting does not take place for any reasons and/or it is not practicable, only then provisions of section 186 can be invoked. Where convening of the extraordinary General Meeting in terms of the provisions of section 169 fails or the meeting does not take place for any reasons and/or it is not practicable, only then the provisions of section 186 comes into play, and can be invoked. The petitioner was required to make compliance of section 169 by undertaking the entire exercise afresh before filing the instant petition. It seems that the petitioner is relying upon the earlier compliance made in the year 2006, when the dispute arose. Such compliance cannot be said valid as the outcome of the same are already under challenge, in the civil suits pending before High Court. Therefore, the respondents has rightly argued that the petition is bad for non-compliance of section 169 - petition is liable to be dismissed.

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• Service Tax

• 2013 (1) TMI 323
  Utilizing CENVAT Credit in discharging service tax liability of GTA service (outward freight) - imposition of penalty under Section 76 - Held that:- It is not in dispute that utilization of CENVAT Credit on the GTA service (inward freight) was available to an assessee, till 18.04.2006 in discharging service tax on GTA service (outward freight) & under a bona fide mistake and belief, they had continued to utilize the CENVAT Credit availed on the amount of the service tax paid on the GTA service (inward freight), while discharging the liability as consignor for the GTA service (outward freight). The availment of the CENVAT Credit and its utilization were duly reflected in their ST-3 returns filed with the Department periodically As decided in CCE & C, Daman vs. PSL Corrosion Control Services Ltd [2010 (3) TMI 784 - GUJARAT HIGH COURT] & CST, Bangalore vs. Motor World [2012 (6) TMI 69 - KARNATAKA HIGH COURT] Section 80 stipulates that no penalty shall be imposable on an assessee under Sections 76, 77 or 78 ibid if the assessee proves that there was reasonable cause for the said failure. The Appellants have submitted that the lapse occurred due to their presumption that the adjustments of output service tax against input service tax is allowable, which has not been otherwise communicated to them by the Department. Hence, this is an appropriate case to invoke the provisions of Section 80 - in favour of assessee.

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• 2013 (1) TMI 322
  Consulting Engineering Services v/s Scientific and Technical Consultancy Service - assessee contested that services shown as research projects did not fall under the above category prior to 16.7.2001 and for the period prior to 16.7.2001 the "scientific and technical consultancy services" i.e research projects are not liable to levy of Service tax - Held that:- Admittedly, levy of Service Tax on "Consulting Engineering Services" was introduced with effect from 7.7.1997 by notification No.23/97 dated 2.7.1997 under the Finance Act, 1994 through the Finance Act, 1997. It is also not disputed that " Scientific or Technical Consultancy " was brought under Service Tax net with effect from 16.7.2001 only. The assessee was not only providing "Consulting Engineering Services" but also "Scientific or Technical Consultancy" i.e. Scientific Research. The activities of "Scientific Research" and "Consulting Engineering Services" are different. The assessee in their letter dated 25.9.2002 had given a calculation indicating that only Rs. 15,58,750/- is payable towards service tax liability on "Consulting Engineering Services" (other than for research) for the period 1997-98 to 2001-02. They had included service tax liability on "Scientific and Technical Consultancy Services" i.e. research also for the period subsequent to 16.7.2001. They have also paid the said amount by TR-6 challans dated 21.1.2002 and 3.6.2002 as noted in para 7 of the order of the Commissioner of Central Excise and Customs (Appeals). Thus the Commissioner of Central Excise and Customs (Appeals), rightly allowed the appeal of assessee and rightly confirmed by Tribunal as the nature of activities undertaken by the respondent was not challenged before it - no substantial question of law arising in this appeal,l hence dismissed.

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• 2013 (1) TMI 321
  Goods Transport Agency Services (GTA) - demand & penalty confirmed - Held that:- As amount of service tax involved in this case is only Rs.4503/- which had already been paid by the appellants even though the same were discharged earlier by the respective transporter and bills to them also mentioned in their reply to the show-cause notice. As it is not in dispute that the appellant had discharged the same along with interest on being pointed by the Department and filed necessary ST 3 Returns after taking registration there is no material produced by the Revenue in support of imposition of penalty under Section 78 - this is a fit case for invoking Section 80 - in favour of assessee.

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• 2013 (1) TMI 320
  Appeal not filed within the period of limitation - appeal submitted to the office of the Commissioner of Service Tax instead of Commissioner of Service Tax (Appeals) - Held that:- Appellant had filed the appeal and submitted the same in the office of Commissioner of Service Tax, Ahmedabad at 5th Floor while the office of the Commissioner of Service Tax (Appeals) is situated at 7th floor in the same building, Central Excise Bhawan. The appellant had, in fact served a copy of such an appeal to the office of the Assistant/Deputy Commissioner, Service Tax and there is a signature of the person receiving such an appeal. Thus such a small procedural infraction should not come in the way of substantive rights of the appellant for considering the appeal on merits. FAA has erred in not considering the appeal on merits but deciding the same on technicalities, thus set-aside the impugned order and hold that appellant had in fact filed the appeal on 13.02.2008, which is within the period of limitation, may be before the wrong forum - restore the stay petition and appeal in the files of Commissioner of Service Tax (Appeal) to its original number with directions to consider the same on merits.

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• Central Excise

• 2013 (1) TMI 324
  Cenvat Credit denied - Special Boiling Point Spirits (SBPS)/Solvent 1425 used by appellant as raw material for manufacture of rubber solution, which is used in retreading of tyres - Held that:- Legislature itself makes distinction between SBPS and “Motor Spirit commonly known as petrol” and hence, the SPBS cannot be equated with “Motor Spirit commonly known as petrol”. Moreover, from heading 271011 for “Light Petroleum oils and preparation” it is seen that there are several varieties of motor spirits covered under different sub-headings - Special Boiling Point Spirits of different boiling point range are covered under SH 2710 1111, 2710 1112 and 2710 1113, while other motor spirits are covered under SH 2710 1119 and “petrol” is classifiable under SH 2710 1119. What is excluded form the definition of ‘input’ is “Motor Spirits commonly known as petrol” not all the motor spirits - decided in favour of the appellant in the case of CCE v. Tuftween Petrochemicals (2005 (2) TMI 296 - CESTAT, NEW DELHI) and since it has not been stayed or set aside by any higher appellate authority, in terms of the Apex Court’s judgment in case of Union of India v. Kamlakshi Finance Corporation Ltd. reported in (1991 (9) TMI 72 - SUPREME COURT OF INDIA) the same is binding on the adjudicating authority - Cenvat credit not to be denied.

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• 2013 (1) TMI 306
  NDPS Act - Whether the empowered officer acting under Section 50 of the Narcotic Drugs and Psychotropic Substances Act, 1985 'NDPS Act’ is legally obliged to apprise the accused of his right to be searched before a Gazetted Officer or a Magistrate? - Held that:- Statement of PW1, the officer who had conducted the search on the person of the appellant, would clearly indicate that he had only informed the accused that he could be searched before any Magistrate or a Gazetted Officer if he so wished. The fact that the accused person has a right under Section 50 of the NDPS Act to be searched before a Gazetted Officer or a Magistrate was not made known to him. There is an obligation on the part of the empowered officer to inform the accused or the suspect of the existence of such a right to be searched before a Gazetted Officer or a Magistrate, if so required by him. Only if the suspect does not choose to exercise the right in spite of apprising him of his right, the empowered officer could conduct the search on the body of the person. In this connection, also examining the general maxim “ignorantia juris non excusat” and whether in such a situation the accused could take a defence that he was unaware of the procedure laid down in Section 50 of the NDPS Act. Ignorance does not normally afford any defence under the criminal law, since a person is presumed to know the law. Thus noticing this fact legislature in its wisdom imposed an obligation on the authorized officer acting under Section 50 of the NDPS Act to inform the suspect of his right under Section 50 to be searched in the presence of a Gazetted Officer or a Magistrate warranting strict compliance of that procedure - non-compliance of this mandatory procedure has vitiated the entire proceedings initiated against the accused/appellant - Special Court as well as the High Court has committed an error in not properly appreciating the scope of Section 50 of the NDPS Act. The appeal is, therefore, allowed & conviction and sentence imposed by the Sessions Court and affirmed by the High Court are set aside & accused-appellant, who is in jail, to be released forthwith.

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• 2013 (1) TMI 305
  Short Payment of Duty - clearance of excisable goods veneer - amounts in excess of invoice values realized either through cash or through D.Ds., which was in- turn utilized for unaccounted expenditure - the appellants in order to camouflage the excess amounts received through D.Ds. indulged in the fictitious sale of non-excisable goods like sawn timber door/window frames, trading - demand of sum of Rs.21,48,55,018/- besides a penalty u/s 11-AC along with interest u/s 11 AB - appellants approached the Settlement Commission - whether the adjudication order passed by the Commissioner of Central Excise, Visakhapatnam which was passed after filing of an application before the Settlement Commission under Section 32E and was declared as "Non Est" by the Settlement Commission is valid in law ? - Held that:- In view of the language of clause (7) of Section 32F the Settlement Commission was entitled to pass final orders not only in relation to matters covered by the application for settlement but also any other matter relating to the "case" not covered by the application, but referred to in the report of the Commissioner of Central Excise and Commissioner (Investigation) under sub section (1) or sub section (6). The matter relating to the lack of jurisdiction of the Settlement Commission was specifically raised by the Commissioner of Central Excise in his report dated 13-09-2004 submitted to the Settlement Commission under clause (1) of Section 32F and the said issue has been decided by the Settlement Commission in its order of admission dated 31-05- 2005. Therefore its finding that the order of the Commissioner of Central Excise dated 30-07-2004 is non est in law is a finding given by it in exercise of jurisdiction conferred on it under Section 32F (7). Therefore, it cannot be said that the said finding given by the Settlement Commission is without jurisdiction. Therefore the said order of the Settlement Commission cannot be denuded of its efficacy by any collateral attack or in incidental proceedings. As this portion of the order of the Settlement Commission dated 31-05-2005 was admittedly not challenged by the Revenue in W.P. of 2005 or in S.L.P. of 2006, the Revenue is barred by the principle of constructive resjudicata from reagitating the said finding of the Settlement Commission before the Tribunal collaterally. The Tribunal therefore is bound to proceed on the footing that the order dated 30-07-2004 of the Commissioner is non est in law and therefore it ought to have held in the impugned orders that the Revenue could not have challenged the order dated 30-07-2004 of the Commissioner in the appeals before it. It should have therefore rejected the said appeals filed by the Revenue as not maintainable. As the Settlement Commission in its final order dated 17-01-2007 had rejected application for settlement and remitted the case back to the adjudicating authority for adjudication of the matter in terms of the show cause notice dated 01-11-2003, the said authority should consider the matter afresh uninfluenced by the order in original No.14/2004 dated 30-07-2004 of the Commissioner of Central Excise, the order dated 17-01-2007 of the Settlement Commission or the impugned orders dated 06-09-2007 of the CESTAT. Therefore the appeals are allowed and the impugned orders of the CESTAT are set aside.

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• 2013 (1) TMI 304
  Eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004 - Technical Testing and Analysis - Held that:- As decided in ITC Ltd. v. Collector of Central Excise, Patna [2002 (12) TMI 85 - SUPREME COURT OF INDIA] definition of manufacture under section 2(f) very clearly includes process which is incidental or ancillary to the completion of the manufactured product. Manufacture of cigarette is completed when the same emerges in the form of sticks of cigarettes which are sent to the laboratory for quality control test. Therefore, the sticks of cigarettes which are removed for the purpose of test in the quality control laboratory within the factory premises of the appellant Company are liable to excise duty. The assessee in our case is engaged in the manufacture of medicaments & by their very nature, the drugs manufactured prior to final production thereof are required to be subjected to technical testing and analysis before entering into commercial production being sent for testing and analysis purpose. Under these circumstances, the services availed in respect of technical testing and analysis services are directly related to the manufacture of the final product . Undisputedly, when the goods are removed for testing and analysis, excise duty has been paid thereon, the respondents cannot be heard to contend that CENVAT credit is not admissible on the service tax paid in respect of such service - the assessee was entitled to avail of CENVAT credit in relation to service tax paid in relation to technical testing and analysis services availed by it - in favour of assessee. CENVAT credit on commission paid to the foreign agents - according to the assessee the services of a commission agent would fall within the ambit of sales promotion as envisaged in clause (i) of section 65(19) of the Finance Act, 1994 - Held that:- The words "activities relating to business" are followed by the words "such as". Therefore, the words "such as" must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P. (1993 (10) TMI 85 - SUPREME COURT) it is held that the words "such as" indicate that what are mentioned thereafter are only illustrative and not exhaustive. For an activity related to the business, it has to be an activity which is analogous to the activities mentioned after the words "such as". What follows the words "such as" is "accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security". In the opinion of this court, none of the illustrative activities, viz., "accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security" is in any manner similar to the services rendered by commission agents nor are the same in any manner related to such services. Under the circumstances, though the business activities mentioned in the definition are not exhaustive, the service rendered by the commission agents not being analogous to the activities mentioned in the definition, would not fall within the ambit of the expression "activities relating to business". Consequently, CENVAT credit would not be admissible - against assessee. Courier service - Held that:- Examining the facts of the present case in the light Commissioner of Central Excise & Customs v. Parth Poly Wooven Pvt. Ltd. [2011 (4) TMI 975 - GUJARAT HIGH COURT] the period is from 01.02.2007 to 30.09.2007, that is before the definition of the term ‘input service' came to be amended with effect from 1.4.2008 and instead of the words ‘clearance of final products from the place of removal' the words "clearance of final products upto the place of removal came to be substituted. Under the circumstances, this case would be squarely covered by the above decision and the courier services availed by the assessee whereby the courier collects the parcel from the factory gate for further transportation would fall within the ambit of the term ‘input service' as defined under rule 2(l) of the Rules - in favour of the assessee. Clearing and Forwarding services - Held that:- The clearing and forwarding agent is an agent of the principal. The goods stored by him after clearance from the factory would therefore, be stored on behalf of the principal, and as such the place where such goods are stored by the C & F agent would fall within the purview of sub-clause (iii) of clause (c) of section 4(3) and as such would be the place of removal. Viewed from that light the services rendered by the C & F agent of clearing the goods from the factory premises, storing the same and delivering the same to the customer would fall within the ambit of rule 2(l) of the Rules as it stood prior to its amendment with effect from 1.4.2008, namely clearance of final products from the place of removal. However, this court is not in agreement with the view adopted by the Tribunal that such services would amount to sales promotion and is, therefore, an input service. For the reasons stated while discussing the issue as regards service commission paid to foreign agent, the services rendered by the C & F agents cannot be said to be in the nature of sales promotion. This issue stands answered in favour of the assessee. Miscellaneous Services - Repair and Maintenance of copier machine, air conditioner, water cooler, Management Consultancy, Interior Decorator, Commercial or Industrial Construction Service - Held that:- The inclusive part of the definition of ‘input service' specifically includes services used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, activities relating to business, such as accounting, computer networking etc. Thus, the services rendered by interior decorator, commercial and industrial construction services would squarely fall within the inclusive definition of ‘input service'. Such services would, therefore, fall within the ambit of ‘input service' as defined under rule 2(l) of the Rules - As regards services availed by the assessee towards repair and maintenance of copier machine, air conditioner, water cooler, etc. it cannot be gainsaid that such equipment are necessary for factory buildings as well as for activities relating to business and are, therefore, integrally connected with the business of the assessee. Under the circumstances, no infirmity can be found in the view taken by the Tribunal that such services are eligible services for the purpose of taking CENVAT credit on the service tax paid thereon. Technical Inspection and Certification - Held that:- These services have been availed of by the assessee in respect of inspection and checking of instruments which are used for the purpose of measuring size i.e. gauges and vernier calipers, measuring weight, scales, and measuring temperature, temperature indicators, and thermo hygrometers for measuring humidity and temperature, etc. which are all in the nature of precision instruments which measure various factors with precision, thus the service of technical inspection and certification agencies availed by the assessee would clearly fall within the ambit of input service. The contention that such certification has no nexus with the manufacture of final product is evidently fallacious as it would not be permissible for the assessee to use the necessary instruments without certification. Another aspect of the matter is that services rendered by a technical inspection and certification agency fall under sub-clause (zzi) of clause (105) of section 65 of the Finance Act which is one of the clauses specified under sub-rule (5) of rule 6 of the Rules - in favour of the assessee

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• 2013 (1) TMI 303
  Compounded Levy Scheme of Rules 96ZQ - Duty liability based on their annual production capacity - Appellant are independent processors of man-made fabrics – Duty determined the production capacity length of galleries – Short payment of duty - There was delay of 15 days, 11 days and 9 days in discharge of monthly duty liability by due date for the months April, 1999, May, 1999 and June, 1999 - Rule 96ZQ(5)(ii) provided for imposition of penalty for failure to discharge duty liability by due date Held that:- As decided in case of BANSAL ALLOYS some penalty commensurate with gravity of the contravention can be imposed by the adjudicating authority. Penalty on the appellant is reduced to Rs. 5 lakhs. Partly allowed in favour of assessee

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• 2013 (1) TMI 302
  Whether assessee are liable to pay duty on samples which were used in-house for testing - Held that:- Following the decision in case of RPG Life Sciences Ltd (2010 (12) TMI 52 - BOMBAY HIGH COURT) that on control samples for testing, which were not cleared from the factory no duty is payable. Therefore, samples retained by the appellants for in-house testing, they are not liable to pay duty. In favour of assessee

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• Indian Laws

• 2013 (1) TMI 319
  RTI Act - information supplied by respondent Bank was misleading and wrong - Held that:- The proceedings under the RTI Act do not entail detailed adjudication of the said aspects. The dispute relating to dismissal of the appellant No.2 from the employment of the respondent Bank is admittedly pending consideration before the appropriate fora. The purport of the RTI Act is to enable the appellants to effectively pursue the said dispute. The question, as to what inference if any is to be drawn from the response of the PIO of the respondent Bank to the RTI application of the appellants, is to be drawn in the said proceedings and as aforesaid the proceedings under the RTI Act cannot be converted into proceedings for adjudication of disputes as to the correctness of the information furnished. Moreover, there is a categorical finding of the CIC, of the appellants misusing the RTI Act, as is also evident from the plethora of RTI applications filed by the appellants. Thus factual findings of the CIC that information in possession of the respondent Bank had already been provided and no opinion as sought in the application could be provided, which was not interfered by the Single Judge need not be interfere by us - appeal dismissed.

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