TMI Tax Updates - e-Newsletter
January 24, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax

News

1. Press Note- Media On Undue Profit Accruing To Fertilizer Companies Under The Nutrient Based Subsidy (NBS) Policy Due To Fixation Of Higher MRP By The Fertilizer Companies.

2. ITAT's note on department's General Grievances in the matter of representation and adjudication of cases fixed before each bench of ITAT Delhi

3. Parliamentary Consultative Committee on Railways Meets Railway Minister for Balanced Development of Railway Related Facilities in the Country

Circulars / Instructions / Orders

FEMA

1. 79 - dated 22-1-2013

Exchange Earner's Foreign Currency (EEFC) Account, Diamond Dollar Account (DDA) & Resident Foreign Currency (RFC) Domestic Account

Highlights / Catch Notes

Income Tax

• Interest on Foreign Currency Convertible Bonds not subject to TDS u/s 196C & 115AC of Income Tax Act.

  Case-Laws - AT : Interest payable on FCCBs - Liability to TDS u/s 196C r.w.s. 115AC - the money borrowed was utilized for the oversees business - cannot be said to have accrued or arisen in India - No TDS liability - AT
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• Court Upholds Tax Reopening Notice if Even One Valid Ground Exists, Supporting Tax Authority's Jurisdiction.

  Case-Laws - HC : Reopening of assessment - even a single ground on the basis of which the assessment is sought to be reopened is valid and within jurisdiction, the notice for reopening of the assessment would have to be upheld. - HC
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• Court Rules Scrutiny Assessment Invalid Due to Lack of Section 143(2) Notice; Procedural Error Cited.

  Case-Laws - HC : No notice u/s 143(2) issued before completing the scrutiny assessment - assessment under Section 144 without notice u/s 144(1) - the absence of the statutory notices canvassed by the petitioner is clearly erroneous - against assessee. - HC
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• Data Entry Recognized as Computer Software Service, Eligible for Section 80HHE Deduction, Confirms High Court Decision.

  Case-Laws - HC : Claim of deduction u/s 80HHE - job of data entry has been notified as being computer software service. Therefore, the assessee is entitled to the benefit of Section 80HHE. - HC
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• Unabsorbed depreciation from 1997-98 to 2001-02 cannot be set off now under Income Tax Act Section 32(2).

  Case-Laws - AT : Setting off of depreciation u/s 32(2) - unabsorbed depreciation for the block of Assessment year 1997-98 to 2001-02 which could not have been set off earlier, cannot be allowed to be set off now. - AT
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• Section 271(1)(c) Penalty Not Applicable for Legal Claims Under Income Tax Act Provisions.

  Case-Laws - AT : Penalty u/s 271(1)(c) - Making a legal claim under the provisions of IT Act is different from not offering income without any valid/ bona fide reason. - No penalty - AT
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• Income from services rendered in India for up to 183 days not taxable in India, taxed in Denmark per treaty.

  Case-Laws - HC : Service rendered in India - “salaries” - for a period not exceeding 183 days - taxability in India - remunerations in view of the treaty, taxable at Denmark and not in India - HC
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• Tax Authorities Delete Penalties After Accepting Equipment Hire Charges as Reimbursements, Not Subject to TDS Deduction.

  Case-Laws - AT : Non deduction of TDS on equipment hire charges paid to the doctors - bonafide belief as in the nature of reimbursement of expenses - interest and penalty deleted - AT
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Service Tax

• Service tax applies to airport housing rentals from June 1, 2007; disputes resolved via arbitration.

  Case-Laws - HC : Service tax on the rental/license fee - space rented/licensed in the airport premises for housing of - Service tax is payable for the period from 1st June, 2007 onwards, the inter se dispute shall be resolved by arbitration. - HC
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• Government Excludes Road Construction from Service Tax, Raising Questions on Business Auxiliary Service Tax Consistency.

  Case-Laws - AT : Construction of highways - the intention of the Government is to keep out road construction activity from the purview of service tax. - If that be so, how can service tax be levied on the very same activity under Business Auxiliary Service? - AT
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• Appellate Authority Highlights Need for Clear Nexus Between Input and Output Services for Cenvat Credit Refund on Exports.

  Case-Laws - AT : Refund of Cenvat Credit - Export - Nexus between input and output service - appellate authority appears to have proceeded on the premise that the Board's Circular is the panacea for everything - AT
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• Court Rules CENVAT Credit Properly Utilized; Appeal Allowed on Service Use in Output Service Context.

  Case-Laws - AT : CENVAT credit - what is required to be seen is whether the services have been used directly or indirectly in relation to the output service. Under these circumstances, CENVAT credit has been used correctly and appeal has to be allowed. - AT
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Central Excise

• High Court rules no penalty u/r 25 for party storing and selling "Ratna" zarda by Prabhat Zarda Factory.

  Case-Laws - HC : Penalty under Rule 25 - other person's liability - storing and selling zarda of a brand name “Ratna” manufactured by Prabhat Zarda Factory who alleged to have clandestinely cleared the said quantities Zarda - No penalty - HC
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• Goods to SEZ Developers Without Duty Are Not "Exempted" u/r 2(d) of Cenvat Credit Rules 2004.

  Case-Laws - AT : Goods supplied to SEZ - Whether goods supplies to SEZ Developers without payment of duty are to be treated as “exempted goods” under Rule 2(d) of the CCR, 2004 - Held No - AT
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• Franchise Fees for Services Not Considered Additional Sale Consideration, Rules Court in Appellant's Case.

  Case-Laws - AT : When the amounts, in question, being received by the appellant from the franchisees are for certain services being rendered by the appellant to the franchisees, it cannot be said that the same are additional consideration for sale. - AT
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Case Laws:

• Income Tax

• 2013 (1) TMI 518
  Interest payable on FCCBs - Liability to TDS u/s 196C r.w.s. 115AC - applicability of sections 5(2) and 9(1)(v) - whether interest income is accruing or arising to the non-resident investors in India? - Held that:- As per the provision of Section 5(2) in the case of non-resident, scope of total income includes all income from whatever source which are received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise to such non-resident in India and the provisions of Section 9(1)(v) are regarding the conditions under which income can be deemed to accrue or arise in India in respect of interest payable by a person who is resident in India as per clause (b) of Section 9(1)(v). Hence, there is no contradiction in the provisions of these two sections and there is no overriding effect of anyone provisions over the other provisions. Hence, for the purpose of examining as to whether any income is deemed to accrue or arise in India or not, the applicability of the provisions of Section 9(1)(v)(b) is to be examined and for the purpose of examining the scope of total income of a non-resident, applicability of the provisions of Section 5(2) which includes income received in India, income deemed to be received in India, income accruing or arising in India and incomes deemed to accrue or arise in India. Hence, it is seen that for the purpose of holding that any income is taxable in the hands of non-resident, it has to be shown that either any income is received by him in India or such income is deemed to be received in India or any income is accruing or arising to him in India or any income is deemed to accrue or arise in India. As in the present case it does not come out from the finding of the A.O. as to on what basis, it is stated by him that the income has accrued or arisen in India. It cannot be said that interest income has accrued or arisen in India in all cases where the payer is an Indian resident because if that be so, then the provisions of clause (b) of Section 9(1)(v) becomes redundant. The only basis adopted by the A.O. for holding that the interest income has accrued or arisen in India is this that the payer is an Indian company and he has totally ignored this aspect of the matter as to where the money lending transaction has taken place. This is admitted factual position that money lending transaction has taken place outside India and hence, it cannot be said that the interest has accrued or arisen in India as per this judgment of Hon'ble Madras High Court in C.G. Krishnaswami Naidu v. CIT [1965 (9) TMI 38 - MADRAS HIGH COURT]. The case of the assessee is falling under clause-b of Section 9(1)(v) because in the present case, the money borrowed was utilized for the oversees business of the assessee company and the assessee has not deducted tax in respect of that portion of interest payment which is relating to borrowing for investment outside India and hence, as per this clause also, no income can be said to have deemed to accrue or arisen in India in the hands of non-resident investors and therefore no TDS is deductible - no hesitation in holding that interest payment by the assessee to non-resident investors cannot be said to have accrued or arisen in India and it also cannot be said that this interest income can be deemed to have accrued or arisen in India. Therefore, no TDS is to be deducted by the assessee from this payment in question - in favour of the assessee

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• 2013 (1) TMI 517
  Reopening of assessment - non offering to tax an unapportioned claim recovery representing the amount received from foreign countries - whether there is reason to believe on the part of the AO that income had escaped assessment? - Held that:- All that is relevant at this stage is whether there is reason to believe on the part of the Assessing Officer that income had escaped assessment which is affirmative. It would not be appropriate for this Court to preempt an enquiry whatsoever by the AO, once a tangible basis has been disclosed for reopening the assessment Similarly, in respect of the revision of pay scales, the AO has sought to reopen the assessment on the ground that the liability had not crystallized before the balance-sheet date. Here again, it is apparent that there has been no application of mind to the relevant facts by the Assessing Officer during the course of the assessment proceedings. As regards the first ground, on the basis of which the assessment is sought to be reopened, it has been sought to be urged that under Section 44 read with Rule 5(a), it would not be open to the Assessing Officer to make an income addition. Moreover, it has been urged that in the past, the same practice had been accepted by the Revenue. These are matters which on merits will be considered by the Assessing Officer and it would be inappropriate for this Court to express any opinion on the merits of issue. Moreover, once the Court has come to the conclusion that even a single ground on the basis of which the assessment is sought to be reopened is valid and within jurisdiction, the notice for reopening of the assessment would have to be upheld. Consequently,though submissions have been urged on the merits of each of the grounds, keeping all rights and contentions of the parties open to be urged before the AO, once the assessment is reopened in exercise of the power conferred by Section 147. The AO has acted within jurisdiction in reopening the assessment - no case for interference under Article 226 of the Constitution is made out - against assessee.

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• 2013 (1) TMI 516
  Powers of Tribunal - seeking extension of stay beyond 365 days - Held that:- As decided in CIT vs Ronuk Industries Ltd (2010 (11) TMI 461 - BOMBAY HIGH COURT) that the Tribunal has power to extend the period of stay beyond 365 dyas u/s.254(2A), third proviso, even if the delay in disposing off the appeal is not attributable to the assessee, there may be several other reasons for not disposing of the appeal by the ITAT. As the appellant paid 90% outstanding demand in A.Y. 08-09. Keeping in view of the legal position on this issue, stay the demand period of 180 days or till disposal of the appeal, subject to conditions that the appellant shall pay 90% demand for A.Y. 09-10, similar to A.Y. 08- 09 by 31.01.2013 & If the Hon’ble Supreme Court decides the case within stay period, the appellant should make a petition accordingly to start early hearing - Stay Applications of the assessee stand allowed in the terms indicated above.

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• 2013 (1) TMI 515
  No notice u/s 143(2) issued before completing the scrutiny assessment - assessment under Section 144 without notice u/s 144(1) - Held that:- The petitioner is not entitled to succeed as so far as the absence of notices u/s 143(2) and the proviso to Section 144(1) which is canvassed before this Court are concerned, a reading of Ext.P12 order passed by the Revisional Authority shows that such a contention was never urged by the petitioner before the revisional authority. Similarly the inapplicability of Section 144 for want of the circumstances specified in Section 144(1) (a) to (c) which is also canvassed before this Court is also not seen urged before the revisional authority. Therefore, these contentions are urged before this Court for the first time. A contention which was not urged before the statutory authorities and which the authority had no occasion to deal with, cannot be allowed to be raised for the first time before this Court. Therefore, not inclined to take cognizance of these arguments raised by the petitioner and invalidate the impugned proceedings. Moreover, it is also seen that by Ext.P4 notice, the petitioner was informed that there are certain points to be clarified in connection with the returns filed by them. Accordingly, they were required to attend the office of the AO with documents, accounts and other evidence to support the return filed. This notice is a notice under Section 143(2). In so far as the proviso to Section is concerned, Ext.P7 notice shows that the petitioner was informed that the assessment is posted for hearing to 11/2/97. Therefore, Ext.P4 is a notice under Section 143(2) and Ext.P7 is a notice under the proviso to Section 144(1). Therefore, the absence of the statutory notices canvassed by the learned counsel for the petitioner is clearly erroneous - against assessee.

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• 2013 (1) TMI 514
  Recovery proceedings - Agricultural Income Tax Act 1950 - tax payable for the assessment year 1988- 1989 - Held that:- Agricultural income against the transferor was first assessable during 1988- 1989. The amended assessment order which led to the Revenue Recovery proceedings in question, was passed only on 06.09.1997. This, admittedly, is beyond the five year period specified in Section 35(2), thus Revenue Recovery proceedings initiated against the petitioner by Exts.P3 and P4, is clearly untenable and need to be quashed.

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• 2013 (1) TMI 513
  Maintainability of the revision application - application to condone delay of 2 years, 10 months and 8 days - Held that:- As per Section 264(4)Clause(c) where an order has been made the subject of an appeal, the Commissioner shall not revise the order. In the light of binding precedent of case of Mela Ram And Sons Versus CIT, Punjab [1956 (2) TMI 5 - SUPREME COURT] there is no escape from the conclusion that the order dated 28.03.2007 i.e. dismissing application for condonation of delay of 2 years, 10 months and 8 days is an order in the appeal filed by the petitioner. Thus once, it is so held as a necessary consequence, it must be hold that the petitioner has not waived his appellate right, to maintain an application for revision under Section 264. If that be so, the finding of the revisional authority that in view of Section 264(4), the revision filed by the petitioner was not maintainable, has to be upheld - writ petition fails.

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• 2013 (1) TMI 512
  Claim of deduction u/s 80HHE - assessee had exported customized electronic data - Held that:- CIT(A) as well as the Tribunal has concurrently come to a finding of fact that the respondent assessee is engaged in customizing the data collected by it from various sources to meet specific requirement by its client. Both the authorities under the Act have on a finding of fact negatived the contention of the revenue that the work carried out by the respondent assessee was that of a news agency. Therefore, the activity carried out by the assessee was of transmitting customized electronic data to its client is factually so found by two authorities under the Act. This finding of fact arrived at by the authorities under the Act is not perverse and nor arbitrary so far as deduction under Section 80HHE for data entry is concerned, the same is covered by CBDT notification dated 26.09.2000 wherein the job of data entry has been notified as being computer software service. Therefore, the assessee is entitled to the benefit of Section 80HHE. Also the orders of the Tribunal for the earlier AY i.e. 1999-2000, 2000-2001, 2001-2002 and the subsequent year 2004-2005 have already been dismissed by this court for non-removal of office objections and the department has taken no further action to have the dismissed appeal restored. Therefore the revenue seem to have accepted the orders of the Tribunal for the earlier and also for subsequent Assessment years - in favour of assessee.

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• 2013 (1) TMI 511
  Daily allowance paid to the employees - whether would partake the character of hotel expenses for the purpose of disallowance under Section 37(3- A) to (3D)? - treatment of "daily allowances" as falling in the same category as "payments to hotels" - Held that:- Considering Sub Rule (2) of Rule 6 D of the Income Tax Rules, 1962 dealing with expenditure incurred by an assessee in connection with traveling by an employee or any other person within India clearly treats "hotel expenses" and "allowances paid to the employees" similarly and does not treat them distinctly. Therefore, the contention of the assessee that daily allowances paid to the employees under section 37(3A) to (3D) should be treated separately as distinct from payments to hotels, cannot be accepted. Therefore, the Tribunal was correct in treating the daily allowance paid to employees of the assessee as having the same character as hotel expenses for the purpose of disallowance under section 37(3A) to (3D) - against assessee.

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• 2013 (1) TMI 510
  Survey u/s 133A - unaccounted income - whether the surrender income of Rs. 70.00 lakhs should be treated as business income so as to set off brought forward losses u/s 70 of the Act as well as the depreciation u/s 32(2) - Held that:- Once the item of receipt is held to be falling under a particular head then the same cannot be charged alternatively under another head particularly under the head "income from other sources". This observation cannot lead to the conclusion if income does not belong to a particular head same cannot be charged at all. See Kim Pharma (P.) Ltd. (2013 (1) TMI 495 - PUNJAB AND HARYANA HIGH COURT) wherein clearly held that surrendered income can be taxed as deemed income without setting off of the losses u/s 70 & 71. Thus hold that surrendered income has to be assessed separately as deemed income - against assessee. Setting off of depreciation u/s 32(2) - Held that:- The provision for carry forward and set-off of unabsorbed depreciation for any number of years against income under any head, was further diluted by way of clause (iii)(b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period of not more than eight assessment years succeeding the assessment year in which the allowance was first computed - Thus it is clear that unabsorbed depreciation for the block of Assessment year 1997-98 to 2001-02 which could not have been set off earlier, cannot be allowed to be set off now. Therefore, set aside the order of the CIT(A) and remit the matter back to the file of AO with a direction to only allow set off of unabsorbed depreciation which is outside the block of Assessment year 1997-98 to 2001-02 - See CIT, Kanpur Versus Mother India Refrigeration Industries Private Limited [1985 (8) TMI 2 - SUPREME COURT] - partly in favour of assessee.

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• 2013 (1) TMI 509
  Penalty u/s 271(1)(c) - Tax deducted in Korea by S.K. Telecom - Indian branch received an amount as income from M/s S.K. Telecom, Korea - Assessee is a corporate entity registered and controlled in India from Head Office in Tokyo, Japan - Held that:- There is no bonafide reason for excluding the above amount from the computation of income by assessee as on facts there is no dispute that the amount of Rs. 2,43,56,074 was receivable from M/s SK Telecom, Korea in respect of the loan granted by the Bank to DSS Mobile Communication Ltd in India. Assessee has in fact accounted for the total interest as income in the P/L A/c. The issue is with reference to the tax deducted by M/s SK Telecom, Korea as per the law of Korea to an extent of Rs. 59,85,368. It is to be kept in mind that assessee is not a resident in India. Assessee a resident of Japan has a Permanent Establishment (PE) in India and its taxation is governed by Indo Japan DTAA. Therefore, the decision given by the jurisdictional High Court in Madhavrao J. Scindia [1999 (2) TMI 25 - BOMBAY HIGH COURT] in the case of resident Indian do not support assessee's contention that the tax deducted in Korea by SK Telecom cannot be subject to tax in India. As seen from the computation statement, assessee has not even claimed the tax credit for the amount deducted in Korea as the same has to be given credit in the hands of the principal company in Japan. Therefore, as far as accrual of the income of assessee is concerned, the entire amount of Rs. 2,43,56,074 has accrued to the principal company through its branch in India which was the taxable entity by virtue of PE in India. There is no claim for credit of the tax paid in Korea. As assessee has accounted for the entire income in the books of account as accrued. No explanation was given why the amount was not included when assessee was claiming credit of tax so deducted while filing the return of income. Even though assessee has left a note that so much of the amount being the tax deducted in Korea does not accrue to its in India, the same cannot be accepted as assessee accounted entire amount as income in its books of account prepared for the purpose of being assessed in India having its PE. Since the amount excluded is not an expenditure claim but only a tax paid on behalf of the principal company in Korea ,as far as provisions of DTAA is concerned r.w. provisions of the Indian Income Tax Act governing the accrual of income, entire amount of Rs. 2,43,56,074 is taxable in the hands of assessee in India. Therefore, since this claim is not bona fide, nor there is any justification for excluding the same, not persuaded by the contention of assessee's that the principles laid down by the Hon'ble Supreme Court in the case of Reliance Petro Products (P.) Ltd. (2010 (3) TMI 80 - SUPREME COURT) will apply to assessee's case. Making a legal claim under the provisions of IT Act is different from not offering income without any valid/ bona fide reason. In view of this, since the exclusion of the amount is not bona fide and there is no justification for excluding the amount, penalty under section 271(1)(c) is warranted on the facts of the case - against assessee.

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• 2013 (1) TMI 508
  Service rendered in India - “salaries” - taxability in India - Respondent/assessee is a non-resident company engaged in certain businesses in India who inturn employed 13 people each one of them was a Danish national - Held that:- Tribunal noticed the treaties on DTAA between Denmark and India which specifically provided that the remuneration derived by a resident of either of those two countries in respect of an employment exercised in the other country shall be taxable only in the country, to which he belongs, if he is present in the other country for a period or periods not exceeding in the aggregate 183 days in the fiscal year of the other country and the remuneration is paid by or on behalf of an employer, who is not a resident of the other country and the remuneration is not borne by a permanent establishment or a fixed base, which the employer has in the other country. Therefore, by reason of the said treaty it was accepted that such income while shall not be deemed to have arisen in India, the same will also not be construed as payable in India as the fact remains that the Tribunal found as a fact that each of those 13 Danish nationals were remunerated in respect of employment in India for a period not exceeding 183 days in the concerned fiscal year and that the remuneration was paid by or on behalf of an employer, who is not a resident of the country and, in any event, the remuneration was not borne by a permanent establishment or a fixed base, which the employer has in India. Tribunal, accordingly, held that those remunerations are, therefore, in view of the said treaty, taxable at Denmark and not in India - in favour of Respondent/assessee.

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• 2013 (1) TMI 507
  Non deduction of TDS on equipment hire charges paid to the doctors - levy of interest under section 201(1A) - penalty u/s 271C - Held that:- Not in dispute that before the A.O. it was submitted that the assessee was under the bonafide belief that in respect of equipment hire charges paid to doctors, the assessee was not liable to deduct TDS as the payment to doctors was in the nature of reimbursement of expenses. In the absence of any contrary material placed on record by the Revenue to show that the bonafide belief shown by the assessee is found to be false or untrue and keeping in view that the reimbursement of charges paid by the assessee do not have any element of income, respectfully following the decisions of All India J.D. Educational Society [2010 (11) TMI 668 - DELHI HIGH COURT], Eli Lilly & Company (India) Pvt. Ltd. [2009 (3) TMI 33 - SUPREME COURT] & Hindustan Steel Ltd. vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] hold that there was a reasonable cause that the assessee was under the bonafide belief that he is not liable to deduct tax at source - uphold the order passed by the CIT(A) in deleting the penalty - in favour of assessee.

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• Customs

• 2013 (1) TMI 506
  Confiscation u/s 111(d) – Penalty u/s 112 – Appellant import a motor car manufactured in USA – Invoiced by a dealer in Dubai – Shipped from Thailand - Contravention of Import policy – Vehicle should have been imported from the country of manufacture - This condition not complied with – Held that:- We are not in agreement with the contention that proving the path of the goods imported is sufficient to meet the condition that the goods should have been imported from the country of manufacture. The Import Policy is formulated having regard to various trade considerations of the country and international obligations. It is not for Tribunal to look into the merits and demerits of the import policy because the Tribunal does not have before it all the facts and constraints that result in a policy. We are also not able to agree with the contention that since the policy has been amended in December 2008, the amended position should be applicable for imports made in 2007. This argument if accepted will also lead to considerable difficulties to the Government in the matter of implementation of import policies from time to time which changes depending on various factors. Conditions not complied are - Homologation certificate - Type Approval certificate/Certificate of Conformity of Production (COP) – Held that:- There is some merit in the argument of the AR that there was one way of complying with the policy by not importing the car of USA make at all. Following the decision in case J. S. GUJRAL and ANR (2008 (10) TMI 27 - DELHI HIGH COURT) to be a case of maxim lex non cogit ad impossibilia which means that the law cannot ask a person to do the impossible. There is no reason to confiscate the car on this ground. There is no malafide established on the part of all the three appellants. The issue involved is bonafide issue of interpretation of legal provisions and the appellants could be under a bonafide belief that as the cars are being imported from the country of manufacture, there would be no violation of provisions of the policy. As such, that imposition of penalties upon the importers are neither warranted nor justified. The same are accordingly set aside. In view of the foregoing, impugned orders are set aside and appeals are allowed. Difference in opinion Whether confiscation of the vehicles is required to be upheld with an option to the appellant to redeem the same on the payment of redemption fine of Rs.2 lakhs in each case as held by Member (Technical) or the confiscation is to be set aside in Toto as held by Member (Judicial) Whether confiscation of the vehicles is required to be upheld with an option to the appellant to redeem the same on the payment of redemption fine of Rs.2 lakhs in each case as held by Member (Technical) or the confiscation is to be set aside in Toto as held by Member (Judicial)

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• Corporate Laws

• 2013 (1) TMI 504
  Illegal, wrongful and fraud Joint Bid Agreement (JBA), the Counter Guarantee, and its invocation by the respondent no.1 - Held that:- A perusal of the clauses of the guarantee would show that the Counter Guarantee is an unconditional irrevocable guarantee and contains equivocal promise to pay a sum of Rs.17.42 crores without any demur or protest. It is in these circumstances of the case that the finding recorded by the single Judge is just and proper and sustainable in law since Counter Guarantee is unconditional and irrevocable, as set out that it is clear that Defendant No.2 initially furnished a Bid Bond of Rs. 67 crores through the Standard Chartered Bank to Defendant No.4 on behalf of the Consortium which included the Plaintiff’s contribution. Since the Plaintiff was required to make its contribution to the extent of 26 per cent of the said Bid Bond i.e. to the extent of 17.42 crores and since the Defendant No.1 counter indemnified the said Bid Bond of Rs. 67 crores, the Plaintiff furnished a Counter Guarantee dated 13th October 2010 issued by Defendant No.3 in favour of Defendant No.1 for a sum of Rs. 17.42 crores. The terms of the Counter Guarantee make it clear that the Counter Guarantee is for issue of Bid Bond of Rs. 67 crores by PSA on behalf of the Consortium. The payment under the Counter Guarantee is described as the payment obligation of the Plaintiff to the beneficiary pursuant to the Bid Bond. The payment under the Counter Guarantee is without demur, reservation, recourse, contest or protest. The only condition for such payment is that the demand or the payment must be supported by the documents listed in Clause 4 and must be in accordance with Clauses 5 and 6. Admittedly the demand complies with this requirement. Upon such demand being made, the Defendant No.3 Bank, within 3 days upon receipt of a written request from Defendant No.1, is bound to pay an amount upto Rs. 17.42 crores as payment obligation to Defendant No.1 pursuant to the Bid Bond, without any demur, reservation, recourse, contest or protest, without notice or reference to the Plaintiff, irrespective of whether the Defendant No.1’s demand is disputed or not by the Plaintiff or any other person. Mr. Khambata counsel for the respondent nos.1 & 2 is therefore correct in his submission that the expression “payment obligation” is merely descriptive of what the Counter Guarantee has been furnished for, and it cannot be contended that the same is a conditional guarantee. He is further correct in his contention that once the Bid Bond for a sum of Rs.67 crores is encashed, Defendant No. 1 is entitled to be reimbursed to the extent of Rs. 17.42 crores, which is the Plaintiff’s share of the amount covered by the Bid Bond and which has been encashed by Defendant No.4. Thus the contention canvassed by the learned counsel for the appellant that the respondent no.1 would be entitled to make a claim under the Counter Guarantee only if it establishes that the loss caused under the indemnity is attributable to the action/inaction of the appellant is difficult to agree, in the facts and circumstances of the present case as already observed hereinabove, the Counter Guarantee is unconditional irrevocable guarantee, its legal complexion does not change merely because it is given in the context of an obligation to indemnify - no case is made out for showing indulgence in the present appeal which suffers from lack of merits.

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• Service Tax

• 2013 (1) TMI 523
  Service tax on the rental/license fee - Payable to Airports Authority of India (AAI) for space rented/licensed in the airport premises for housing of the duty free shop - Circular No. 80/10/2004-S.T., dated 17-9-2004 – Held that:- On the basis of the said circular had held that in so far as letting out of the part of Airport services is concerned, no service tax is payable as per the said circular and accordingly the demand for service tax was quashed till the period prior to 1st June, 2007 Period after 1st June, 2007 is concerned - The stand of the AAI also was that no service tax was payable - AAI had demanded service tax from the petitioners therein merely because the Service Tax Authorities had demanded the same from AAI – Held that:- Service tax is payable for the period from 1st June, 2007 onwards, the inter se dispute shall be resolved by arbitration.

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• 2013 (1) TMI 522
  Service tax on Business Auxiliary Service - assessee is engaged in construction of highways - SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement - Held that:- As per Board Circular no. 152/3/2012-ST dated 22/02/2012 an agreement between the State authority and the concessionaire for construction of roads, the contractor is authorised to collect the toll charges from the users of the roads for the services rendered and the entire activity is done on Build-Own/Operate-Transfer basis, there is no service tax liability. Construction of roads has been specifically excluded from the scope of service tax levy both under "Commercial and Industrial Construction Service" and "Works Contract Service". Further repair and maintenance of roads have also been exempted from service tax retrospectively in this year's budget. Thus the intention of the Government is to keep out road construction activity from the purview of service tax. If that be so, how can service tax be levied on the very same activity under Business Auxiliary Service? - in favour of assessee.

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• 2013 (1) TMI 521
  Refund claim u/r 5 of CCR 2004 r.w. Notification No. 5/06 CE(NT) dated 14/3/2006 - unutilized CENVAT credit taken on nine input services claimed to have been used for export of output services - rejection of refund claim recording a finding against nexus between the output services and the input services & in view of Circular No. 120/1/2010 dated 19/1/2010 issued by the Board - period in question April to June 2008 - Held that:- On the question whether a nexus was established by the party between maintenance or repair service (output service exported) and input services, the impugned order has offered no clear and intelligible finding, apart from an observation to the effect that the input services would qualify for availment of credit as per Board's Circular , this part of the appellate Commissioner's order cannot be sustained inasmuch as it is not a speaking order on the issue - the refund ordered by the Commissioner (Appeals) to the extent of the amount of unutilized CENVAT credit on input services claimed to have been used for export of consulting engineer's service requires to be set aside and it is ordered accordingly. The impugned order was passed on 8/3/2010 when the Board's Circular was in force. This circular was not available to the original authority and hence that authority did not have occasion to follow the Board s guidelines. In the fitness of things, that authority should reexamine the question whether the refund claimant has been able to establish a nexus between consulting engineer s service (exported) and each of the input services. Needless to say that, in this regard, the Board s guidelines shall be followed. Period July to September 2008 - Held that:- It is incumbent on the authority to meticulously consider the party's declaration and decide whether the facts declared by them are correct and whether these facts would go to establish a nexus between the output service and each of the input services which the appellate Commissioner has not done here. Mere observation to the effect that the findings of the original authority relating to input services for output services are not convincing is itself unconvincing. The impugned order does not disclose proper application of mind to the nexus issue. The appellate authority appears to have proceeded on the premise that the Board's Circular is the panacea for everything - set aside the aforesaid findings of the Commissioner (Appeals) & remand it to the original authority (which did not have occasion to consider the Board's circular) to reexamine the nexus issue.

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• 2013 (1) TMI 520
  Goods Transport Agency services - interest and penalties levied on non discharging of service tax liability - Held that:- On perusal of the letter dated 16.01.2012, written by the Range Superintendent Gandhidham-II to the Dy. Commissioner, Service Tax Division, Rajkot, it is find, the said letter indicates that the claim made by the appellant was verified by the Superintendent along with returns and details and it indicates that service tax liability has been discharged by the appellant. Thus this letter and the details submitted by the appellant regarding discharge of service tax liability needs to be considered and appreciated in its correct perspective by the adjudicating authority - remand the matter back to the adjudicating authority to reconsider the issue afresh.

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• 2013 (1) TMI 519
  Wrongly availed CENVAT credit - Maintenance or repair services - Erection, commissioning and installation service - Rule 2 (C) of CCR 2002 - Rule 4(1) of CCR 2002 - Credit availed for input services of travel agent, custom house agent, tour operation, telephone, insurance, courier, testing services - Revenue argued that Services, for which service tax credit availed and utilised, have not been utilised in relation to rendering the output services Held that:- The services are mainly in relation to water treatment plants manufactured by them. Custom house agent service was obtained in relation to importation of components/equipments for manufacture of water treatment plants. Since the appellants are engaged in manufacture of water treatment plants and installation, erection thereof, the service obtained in relation to parts and equipments can be said to be in relation to output service also. After all without importing parts and equipments neither manufacture nor erection or installation would be possible. Similarly in telephone service and surface area, sample testing area services, advertisement charges also can be definitely considered as utilised in relation to providing the output service The words used are "in relation to rendering of output service". Therefore what is required to be seen is whether the services have been used directly or indirectly in relation to the output service. Under these circumstances, CENVAT credit has been used correctly and appeal has to be allowed. In favour of assessee

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• Central Excise

• 2013 (1) TMI 525
  Cenvat Credit - the waste bagasse emerged - Applicability of Rule 6 for production of exempted and non-dutiable goods - held that:- In the instant case 'sugar' is the final product and molasses is an intermediary product or by-product, therefore, for applicability of Rule 6, the manufacture of dutiable goods and manufacture of exempted goods are conditions precedent. Since waste is never manufactured and it only emerges in the process of manufacture of final product, Rule is not applicable to bagasse which is admittedly a waste, which emerges from the crushing of sugarcane for the manufacture of final product, namely, sugar. The Apex Court while dismissing the Civil Appeal preferred by the department in the case of CCE v. Shakumbhari Sugar & Allied Industries Ltd. [2005 (8) TMI 615 - SUPREME COURT OF INDIA], uphold the findings recorded by the Tribunal in the case of Shakumbhari Sugar & Allied Industries Ltd., (supra) whereby it has been held that the 'Bagasse' obtained during the course of manufacture of sugar out of sugarcane may find an entry in Schedule to the Central Excise Tariff, but it does not become a final product merely on such entry. As some of the petitioners deposited the entire duty and interest under protest, it should be returned to them, within a maximum period of four weeks, from the date of presentation of a certified copy of this order. - Decided in favor of assessee.

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• 2013 (1) TMI 505
  Waiver of Pre deposit – Intent to evade payment of duty - Wrongly CENVAT credit of CVD - Import one machine, ‘Product Screen Separator Drive’ from their group company - Declare the value of the machine as Rs. 13,93,827/- Chartered Engineer ascertained the assessable value as Rs. 49,02,861/- The same was also admitted by the importer - Penalty u/s 112(a) of the Customs Act, 1962 - Importer admitted the duty liability, approached the Settlement Commission for getting immunity from penalties - Settlement Commission gave immunity from the penalties - Importer firm was taken over from the applicants, therefore, the applicants took the CENVAT credit of CVD paid by the importer Whether the CVD was paid on detection by the Customs, therefore, applicants are not entitled to take CENVAT credit of CVD paid by the importer as per Rule 9(1)(b) of the CENVAT Credit Rules, 2004 Held that:- The Penalty u/s 114A of the Customs Act, 1962 is leviable for demand of additional amount of duty on account of fraud, collusion, willful mis-statement, suppression of facts and nonpayment of duty with an intent to evade payment of duty and on that amount credit is not available as per Rule 9(1)(2) of the CENVAT Credit Rules, 2004. In this case, no additional amount of duty has also been confirmed against the applicants, therefore, prima facie, the applicants are entitled to take CENVAT credit. Therefore, they have made out a case of 100% waiver of pre-deposit

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• 2013 (1) TMI 503
  CENVAT credit on Outdoor Catering Service - denial as these were not input services defined under Section 2(l) of the CCR 2004 - Held that:- As decided in CCE, MUMBAI-V Versus GTC INDUSTRIES LTD.[2008 (9) TMI 56 - CESTAT MUMBAI] upheld by in the case of Commissioner vs. Ultratech Cement Ltd. [2010 (10) TMI 13 - BOMBAY HIGH COURT] that nexus between outdoor catering service and the manufacturing activity of the assessee is found as the cost of subsidised food supplied by them to workers in the factory canteen by the use of outdoor catering service was included in the cost of production of excisable goods in the factory. Also that it was mandatory for a factory having more than 250 workers to provide canteen facility within the factory premises under Section 46 of the Factories Act, 1948 as decided in Stanzen Toyotetsu India (P.) Ltd. case [2011 (4) TMI 201 - KARNATAKA HIGH COURT]. In the instant case, admittedly, the appellant did not have any statutory obligation to provide canteen service during the period of dispute inasmuch as they employed less than 250 workers during that period. Had the appellant employed more than 250 workers in their factory during the said period, they would have contended to that effect in their reply to the show-cause notice. Therefore, the submission of consultant that the number of workers was not mentioned in the show-cause notice and, hence, the status of input service cannot be denied to outdoor catering service on the basis of the number of workers cannot be accepted - the impugned order denying CENVAT credit to the assessee on outdoor catering service cannot be interfered with - against assessee. CENVAT credit on guest house maintenance service - Held that:- The claim of the appellant that guest house was used for accommodating business guests and conducting business meetings is an ipse dixit with no evidentiary support. Some positive evidence is required to substantiate the appellant's claim that their guest house was used for conducting business meetings and accommodating business guests. Therefore, the activity of repairing/maintaining the guest house cannot be held to have any nexus with the manufacturing activity of the assessee. See HINDUSTAN ZINC LTD. Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II (2011 (3) TMI 498 - CESTAT, NEW DELHI) - against assessee.

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• 2013 (1) TMI 502
  Penalty under Rule 25 - storing and selling zarda of a brand name “Ratna” manufactured by Prabhat Zarda Factory who alleged to have clandestinely cleared the said quantities Zarda - Held that:- Rule 25 does not apply to the respondents as it was not the case of the prosecution that the respondents were producers, manufacturers, registered persons of a warehouse or registered dealers. The respondents are neither producers nor manufacturers of the said Prabhat Zarda nor are they the registered persons of a warehouse in which the said zarda had been stored. The respondents are also not the registered dealers. That being the case, no penalty can be imposed on the said respondents. Rule 25(1)(c) would be applicable - Held that:-Do not agree with this contention because sub-clause (c) would apply only in respect of the four categories of persons mentioned in the earlier part of Rule 25(1) of the said Rules. That is clearly not the case - in favour of assessee.

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• 2013 (1) TMI 501
  Non sitting of the Tribunal - Stay Application not heard - Held that:- As it is now brought to the attention of this court that two members have been appointed to the Customs, Excise and Service Tax Appellate, and they are hearing the appeals as well as the applications filed for waiver of pre-deposit or stay, as the case may be. In view of the above stated position, the Customs, Excise and Service Tax Appellate Tribunal the third respondent herein, is requested to dispose of the waiver/stay applications filed by the petitioner as early as possible, preferably, on or before 1.2.2013 & directed not to take coercive steps till the waiver/stay applications of the petitioner are disposed of by the Tribunal.

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• 2013 (1) TMI 500
  Goods supplied to SEZ - Whether goods supplies to SEZ Developers without payment of duty are to be treated as “exempted goods” under Rule 2(d) of the CCR, 2004 - Whether supplies to SEZ, the provision of sub-rule (2) and (3) of Rule 6 would be applicable - – Held that:- The overriding provisions of 51 of SEZ Act, supplies to SEZ as well as to SEZ Developers by a DTA unit would have been treated on exports for the purpose of CCR, 2004. Since the supplies to SEZ Developers are export, the same cannot be treated as “exempted goods” and hence the Provisions of sub-rule (1), (2) & (3) of the Rule 6 of the CCR, 2004 would not be applicable. In favour of assessee

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• 2013 (1) TMI 499
  SSI Exemption – Aggregate value of clearances - Assessee manufacture unprocessed cotton corduroy cloth - Under sub-heading 5801.21 of the Central Excise Tariff – Two units both manufacturing the goods specified in SSI exemption Notification No. 8/2000-C.E., are owned by same person - Respondent unit was availing of SSI exemption No. 8/2000-C.E. during 2000-2001, the other unit M/s. H.B. Exports during the same financial year 2000-2001 was paying normal duty and availing Cenvat credit – Penalty under Rule 173Q When same manufacturer owns more than one factory whether each unit would be individually be eligible for exemptions as specified in the Notification No. 8/2000-C.E. or the exemption specified in the Notification No. 8/2000-C.E. would be available only on the aggregate value of clearances of all the units owned by the same manufacturer Held that:- When a manufacturer has more than one unit manufacturing the goods specified under Notification No. 8/2000-C.E., the clearances eligible for nil duty which are the first clearances upto Rs. 50,00,000/- from 1st April in the financial year would be the aggregate value of the clearances from all the units and not the first clearances in a financial year upto Rs. 50,00,000/- in each unit and similarly the concessional rate of 5% adv. prescribed for the next clearances of value of Rs. 50,00,000/- would be for the aggregate value of the clearances of all the units and not each units separately Therefore, impugned order is not correct and same is liable to be set aside. In favour of revenue

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• 2013 (1) TMI 498
  Penalty u/s 11AC - Non-payment of duty on the price escalation amount received - Supplied sleepers to railways against contract with price escalation clause - The price differential on account of price escalation from back date was received by the appellant in the year 1999 - Neither the duty was paid by the appellant nor the receipt of price differential was intimated to revenue Held that:- No, The duty on the price escalation amount become payable only in 1999 when the price escalation amount was received and which was not paid by the appellant at that time. From these facts assessee has suppressed the relevant facts from the departments and, hence, the penal provisions of Section 11AC would be attracted. As decided in case of Rajasthan Spinning & Weaving Mills (2009 (5) TMI 15 - SUPREME COURT OF INDIA) the same would be equal to the quantum of the duty demand confirmed, as there is no discretion either for the Adjudicating Authority or for the Appellate Authority to impose the lower penalty u/s 11AC. In favour of revenue

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• 2013 (1) TMI 497
  Rejection of transaction value - Additional consideration for sale - Whether one time technical assistance fee and a monthly fixed % on gross sales as fee, received from franchisees amount to additional consideration of sale Held that:- No, one-time technical assistance received by the appellant from franchisee is for certain services being provided to the franchisees. Similarly, the monthly charges @ 8.5% of the gross sales excluding sales tax is for a bunch of other services rendered by the appellants and also right to use the technical know-how and brand name of the appellant. Appellant even since the business franchise service became taxable is also paying the service tax on the amount @ 8.5% of the gross sale being collected by them from the franchisees. When the amounts, in question, being received by the appellant from the franchisees are for certain services being rendered by the appellant to the franchisees, it cannot be said that the same are additional consideration for sale. Appeal decides in favour of assessee

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• CST, VAT & Sales Tax

• 2013 (1) TMI 524
  Non production of books of accounts before the assessing authority within specified time - KGST Act - application for enlargement of time rejected - Held that:- Since the AO has not passed any consequential orders none will be prejudiced if the petitioner is allowed to produce the books of accounts before the 1st respondent even at this belated stage. Therefore direct to petitioner to produce the books of accounts as directed in Ext.P3 order of the Tribunal on or before 31/1/2013. If books of accounts are produced as above, the assessing officer will pass orders as directed by the Tribunal. It is directed that, in the event the petitioner fails to produce the books of accounts as above, it will be open to the 1st respondent to pass consequential orders.

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