Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
January 7, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Treatment of amount incurred on credit investigation – Verification of information and data provided by prospective customers – held as revenue in nature - HC
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Assessee was liable to pay interest u/s 234B and 234C of the Act in respect of tax determined on the basis of Section 115JA - HC
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Compensation received form P&G for sterilization of the assets – once the appellant has the advantage of receiving a sum towards installation of machinery alone, the same deserves to be deducted from the WDV, to the extent it has been added to the value of block assets - HC
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MAT - Preparation of P&L Account in violation of AS or not for determination of book profits u/s 115JA(6) - adjustment towards waiver of interest as part of acceptance of OTS - No adjustment is possible on this account - HC
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Assessee has got decree of a foreign court in his favour, and therefore, there being a possibility of realizing the amount in near future, the Tribunal was justified in holding that business loss suffered by the appellant in China is not allowable in the year under consideration - HC
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Reliability of Audit Report - It appears that in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals - AT
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Transactions in derivatives on recognized stock exchange not as deemed speculative - the transaction carried in future and options (derivatives) are outside the purview of “speculation loss” - AT
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Before making reference to the DVO for estimating the cost of investment in the construction of property, the books of account maintained by the assessee in this regard has to be rejected.
Customs
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Duty of customs cannot be levied on software which is exempt from duty merely on the ground that the value of the software is not separately available or separately indicated in the invoice. - AT
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Classification of goods - ink cartridges, ribbon cartridges and software are separately classified under headings 8473 and 8524 of CTH. - AT
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Imposition of penalty on CHA - When the Department itself, only on the basis of the chemical analysis, was able to ascertain that the goods attempted to be exported was not common salt, how can a CHA be expected to know of the exact nature of the product at sight - no penalty - HC
Service Tax
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Refund claim - export of performance based service - Scientific Testing and Consulting Services - assessee appears to be eligible for refund - matter remanded back - AT
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In-roaming services - All the circles belong to the same company and therefore when one circle provides in-roaming service to another circle, there is no service element involved - AT
VAT
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Denial of input tax credit on the ground that registration certificate of the supplier has been cancelled ab initio - there was no actual physical movement of the goods and therefore, the sale transaction is/are not genuine and it was only billing activities to defraud the government - credit was rightly denied - HC
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Levy of VAT / CST - payment with respect to the goods sold is received in the State of Gujarat; that the appellant itself is not registered dealer in the State of Maharashtra and therefore, could not have even sold the goods in the State of Maharashtra - taxable state is Gujarat - HC
Case Laws:
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Income Tax
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2015 (1) TMI 234
Difference in cost of construction - Whether the Tribunal was right in deleting the addition made on account of difference in the cost of construction as disclosed by the respondent as against valued by the DVO – Held that:- Following the decision in Commissioner of Income Tax-II Versus Vijaykumar D. Gupta [2014 (4) TMI 860 - GUJARAT HIGH COURT] - the AO could not have made reference to the DVO without reference to the books of accounts and such reliance on the DVO's books of accounts was not justified - there was no material, what to say an incriminating material, in the possession of the Revenue Department - while making the reference to the Valuation Officer, the AO has not recorded any defect in the books of account nor has he rejected the same - except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the AO has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building and that the books of account do not reflect the correct cost of construction – thus, the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition u/s 69 - Decided against revenue.
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2015 (1) TMI 203
Supreme Court admitted the appeal of the revenue which was decided by Gujarat HC in favour of assessee regarding the non-furnishing of Form 15J with respect to the TDS to be deducted on payment made to transporters.
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2015 (1) TMI 202
Treatment of amount incurred on credit investigation – Verification of information and data provided by prospective customers – Amount to be treated as Capital or revenue expenses - Held that:- CIT(A) and the Tribunal rightly treated the expenditure as revenue in nature - the main business of the assessee was receiving applications from prospective clients for issue of credit cards, consequent verification and issuance of credit cards - Information and details furnished by the prospective clients had to be verified, details checked and creditworthiness ascertained - Credit card business involved risks as the person to whom credit card was issued was entitled to make purchases and subsequently make payment - the exercise to verify and check the truthfulness and correctness of the details/data and creditworthiness was a part and parcel of the day to day conduct of business - The expenditure, in fact, was similar to and like other revenue expenditure incurred in the normal course of business - the exercise had to be taken periodically and routinely as and when new applications were received from the prospective customer - It was an ongoing, continuous and perpetual exercise, directly connected with the line of business. The expenditure incurred to carry out verification was a part of the running cost incurred to earn profit - The business of the assessee was not to create and sell the database or provide the said information to third parties for consideration - It was not an expenditure incurred to create an asset or an asset of enduring nature - the principal and main object of the assessee was to appraise and ascertain financial position and creditworthiness of the person, so as to issue a credit card and earn money - no credit card would have been issued, due to a negative report - These were direct business expenses, revenue in nature - No one would issue a credit card or enter into a transaction on the basis of database and credit valuation 6 or 8 months old without ascertaining the true and correct position at the relevant time. Disallowance of 75% of expenses incurred on scanning or capturing the applications data into electronic form – Held that:- Criteria/test of once for all/lump-sum payment and periodical payments may not and in several cases would not be the true and correct test to determine, revenue or capital nature of an expense - The aim and object of the expenditure would be decisive - expenditure for running of business or working with a view to produce profits, would be revenue expenditure, whereas expenditure to acquire or bring into existence as asset or advantage of enduring benefit, would be of capital nature – relying upon CIT versus J.K. Synthetics Ltd [2008 (12) TMI 21 - DELHI HIGH COURT] - Application capture and data entry facilitated and helped the assessee to conduct their day to day business operations - Profiles of applicants and their creditworthiness had to be assessed and evaluated on specific parameters - To make the process of evaluation faster, accurate and more systematic, the information/details were scanned or captured/converted into e-format - E-formated data processing ensured objectivity and fairness - This reduced possibility of errors and of issuance of credit cards to “undeserving candidates” – the order of the Tribunal is upheld. Expenses on brand creation and advertisement expenditure – Held that:- Advertisement expenditures in the present day context should normally be treated as revenue expenditure, unless there are special circumstances and reasons to hold that the expenditure was capital in nature - the advertisements do not have a lasting and long term effect and the memory of the customers or targeted audience is short lived - The advertisements fade away and do not have an enduring impact - If there is a lack of advertisement by one, the vacuum and space is taken over by others with benefit and advantage to the detriment of the first – relying upon Reference can be made to CIT vs. Salora International Ltd. [2008 (8) TMI 138 - DELHI HIGH COURT]. Addition made by CIT(A) – Notice for enhancement issued – Held that:- The Tribunal rightly deleted the addition made by the CIT(A) - there is no provision in the Act which postulates or refers to deferred revenue expenditure - deferred revenue expenditure is, therefore, not as such recognised in the Act - Accounting principles or standards have to be applied and adopted and they must disclose fair and true financial position and the income, but they cannot be contrary to the provisions or the mandate of the Act - The Act would then override the accountancy principles - There are several provisions in the Act like Section 43B which provide for different treatment than required under the provisions of the Companies Act or the accounting principles or standards – the right to claim deferred revenue expenditure is given to the assessee and not to the revenue - the expenditure as per the CIT(A) should be partly spread over two years, instead of the year in which it was incurred - the expenditure was revenue in nature - It had accrued and was paid - Nothing and no acts had to be performed and undertaken in future - It is not shown how and why, if the expenditure was allowed in the current year, it would not reflect true and correct financial position or income of the assessee in the current assessment year – the order of the Tribunal is upheld – Decided against revenue.
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2015 (1) TMI 201
Validity of restoration of penalty made by Tribunal – Availability of benefit of Explanation 5 - Whether the Tribunal was right in restoring the penalty imposed u/s 271(1)(c) holding that benefit under explanation 5 to Section 271(1)(c) of the Act would be available only for period where due date for filing the return u/s 139(1) of the Act had not expired – Held that:- In Commissioner of Income-Tax Versus SDV. Chandru [2003 (12) TMI 40 - MADRAS High Court] it has been held that in a case where the asseessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and, in the statement given u/x 132(4) the assessee admitted the receipt of undisclosed income for those years and also specified the manner in which such income had been derived and thereafter pays the tax on that undisclosed income with interest, then such undisclosed income would get immunised from the levy of penalty. Also in Commissioner Income Tax, Bilaspur CG. Versus Shri Abdul Rashid [2013 (5) TMI 328 - CHATTISGARH HIGH COURT] it has been held that in order to get the benefit of immunity under clause(2) of explanation5 to Section 271(1)(c) of the Income Tax Act, it is not necessary to file the return before the due date provided that the assessee had made a statement, during the search and explained the manner in which the surrendered amount was derived, and paid tax as well as interest on the surrendered amount - the view taken by the Tribunal is erroneous - the assessees had satisfied all the conditions which are required for claiming immunity from payment of penalty u/s 271(1) - the provision does not specify any time limit during which the aforesaid amount i.e. the amount of penalty with interest has to be paid - when the assessees have paid the entire amount with interest, the AO ought to have granted them immunity available u/s 271(1)(c) – Relying upon Assistant Commissioner of Income Tax, Udaipur Versus M/s. Gebilal Kanhaialal HUF, Through Karta, Udaipur [2012 (9) TMI 297 - SUPREME COURT] - the penalty u/s 271(1)(c) cannot be levied on the income shown in the return filed under Section 153A – the order of the Tribunal is set aside - Decided in favour of assessee.
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2015 (1) TMI 200
Levy of interest u/s 234B and 234C – Computation of income u/s 115JA – Held that:- Relying upon the decision in Joint Commissioner of Income Tax V. Rolta India Ltd. [2011 (1) TMI 5 - SUPREME COURT OF INDIA] in Commissioner of Income Tax - III Versus The Riddhi Siddhi Gluco Boils Limited [2014 (4) TMI 558 - GUJARAT HIGH COURT] it has been held that it is clear from reading Sections 115JA and 115JB that the question whether a company which is liable to pay tax under either provision does not assume importance because specific provision(s) is made in the section saying that all other provisions of the Act shall apply to the MAT Company (Section 115JA(4) and Section 115JB(5)) - Similarly, amendments have been made in the relevant Finance Acts providing for payment of advance tax under Sections 115JA and 115JB - so far as interest leviable u/s 234B is concerned, the section is clear that it applies to all companies - the prerequisite condition for applicability of Section 234B is that assessee is liable to pay tax u/s 208 and the expression “assessed tax” is defined to mean the tax on the total income determined u/s 143(1) or u/s 143(3) as reduced by the amount of tax deducted or collected at source - there is no exclusion of Section 115J/115JA in the levy of interest u/s 234B - the expression “assessed tax” is defined to mean the tax assessed on regular assessment which means the tax determined on the application of Section 115J/115JA in the regular assessment - the assessee was liable to pay interest u/s 234B and 234C of the Act in respect of tax determined on the basis of Section 115JA – Decided in favour of revenue.
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2015 (1) TMI 199
Compensation received form P&G for sterilization of the assets – Revenue receipt or capital receipt - Termination of contract between assessee and P&G – Held that:- The distinction between the capital receipt on the one hand, and the revenue receipt on the other hand, is not that easy to maintain - obviously because, the implication of the classification of the amounts received by the assessee into either of the categories would entail in serious consequences, acute attention is paid both by the assessee and the AO higher the amount and greater the compensation – in Commissioner Of Income-Tax Versus Barium Chemicals Limited [1987 (2) TMI 18 - ANDHRA PRADESH High Court] it has been held that in order to decide whether or not a payment is a revenue receipt, its true nature and substance must be looked into – assessee has been manufacturing the product as and when orders are placed in ordinary course of business - The one, as regards which the payment was made, is not as a contract or order of that nature - M/s. P&G wanted the appellant to produce a product as regards which it i.e., appellant does not have the arrangement or machinery - an equipment with altogether different specifications was to be acquired only, to meet the needs of M/s. P&G. Barring that, there was no other necessity for the appellant to install that machinery - Obviously for that reason, the agency agreed to provide funds for installation - the machinery was installed and hardly before the test run was completed, M/s. P&G resiled from the contract. The new machinery installed by the appellant was exclusively for the purpose of manufacturing a specialized product and the contract in that behalf was terminated even before the production has commenced - the amount received by the appellant from M/s. P&G being ₹ 87,33,056/- certainly deserves to be treated as capital receipt - the amount cannot be kept outside the purview of the taxation - The machinery installed for manufacturing the new product has already become part of assets - the written down value of the assets has been fixed - once the appellant has the advantage of receiving a sum towards installation of machinery alone, the same deserves to be deducted from the WDV, to the extent it has been added to the value of block assets - It would have its own impact upon the amount of depreciation to be allowed on the block assets – Decided partly in favour of assessee.
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2015 (1) TMI 198
Preparation of P&L Account in violation of AS or not for determination of book profits u/s 115JA(6) - Benefit of waiver of interest as part of acceptance of OTS proposal by the financial institutions accrues to the assessee on acceptance and not on mere initiation or not - Waived interest of ₹ 5.37 Crores to the profit and loss accounts maintained under the Companies Act connected in the context of Section 115JA - Held that:- The Tribunal has undertaken fairly extensive discussion - one of the views expressed by it was that though Section 154 empowers an AO to rectify the orders of assessment, it cannot be exercised in such a way that one facet of it can be selectively lifted and in the name of rectification, the mater be left at that - It cannot be keenly said that the filing of return is a comprehensive exercise and that in turn is proceeded by a fairly extensive accounting process - an assessee bestows its attention in respect of each and every amount and once a comprehensive return is filed, taking away of one facet would have its own cascading effect, on others - it may disturb the entire edifies of accountancy and may prove to be disastrous for an assessee - whenever the power u/s 154 is exercised, it should be done in such a way that no violence is done to the order of assessment passed in respect of different years. The Companies Act provides a detailed mechanism of verification of accounts and there are also statutory auditors under that Act scrutinise them - nobody pointed out any defect in the exercise undertaken by the respondent – in Apollo Tyres Ltd. Versus Commissioner of Income Tax [2002 (5) TMI 5 - SUPREME Court], the Supreme Court explained the power of the Assessing Authority under the I.T. Act vis-a-vis the accounts maintained under the Companies Act, in the context of Section 115J – it has been held that while computing the income u/s 115J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act - the AO thereafter has the limited power of making increases and reductions as provided for in the Explanation to the section – the AO does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J – thus, the Tribunal rightly held that the accounts referable to Section 115J of the I.T. Act must be taken on their face value and once it becomes clear that the income of an assessee determined is less than 30% of the book profits reflected in the books of account maintained under the Companies Act, the tax leviable would be only 30% - Decided against revenue.
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2015 (1) TMI 197
Levy of surcharge on undisclosed income assessed as block assessment – Whether the Tribunal is justified in deleting levy of surcharge at the rate of 10% on undisclosed income for the block period 1990-91 to 1999-2000 in light of the provisions contained in Part I of the First Schedule to the Finance Act, 2000 - Held that:- Following the decision in Commissioner of Income Tax (Central) -I, New Delhi Versus Vatika Township Private Limited [2014 (9) TMI 576 - SUPREME COURT] wherein it has been held that the surcharge on the income tax was introduced for the first time by the Finance Act, 1995, in Section 2 (3) - However, initially, this surcharge was levied only on the income of companies i.e. corporate entities incorporated under the Indian Companies Act by specified surcharge at the rate of 15% in the Finance Act, 1996, which was reduced to 7.50% in the Finance Act, 1997 - in the next two Finance Acts i.e. 1998 and 1999, there was no surcharge levied even in the cases of companies - However, by Finance Act, 2000, surcharge at a flat rate of 10% came to be levied in respect of individuals, HUF, BOI, AOP as well as co-operative societies, partnership firms, local authorities and also the companies - in subsequent years, the rates at which the surcharge is levied on the entities are of varying nature. Where a benefit is conferred by a legislation, the rule against a retrospective construction is different - If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect – thus, the Tribunal was justified in deleting the surcharge levied by the AO - the Tribunal rightly followed the decision in CIT Versus OHM DEVELOPERS [2005 (6) TMI 542 - GUJARAT HIGH COURT] and came to the conclusion that for the block period under consideration there was no proviso to section 113 of the Act – Decided against revenue.
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2015 (1) TMI 196
Determination of taxable year – Taxable in year under consideration or in subsequent years - Income from Advance License Benefit Receivable, income from Pass Book scheme – Held that:- Following the decision in Commissioner of Income Tax Versus M/s Excel Industries Ltd. and Mafatlal Industries P. Ltd. [2013 (10) TMI 324 - SUPREME COURT] wherein, it is held that income from sale of Advance License Benefits is taxable only in the year in which actual sale took place – Decided in favour of assessee. Premium paid for the leasehold land – Revenue expenses or not – Held that:- Following the decision in [2015 (1) TMI 194 - GUJARAT HIGH COURT] wherein the decision in Deputy Commissioner of Income-tax v. Sun Pharmaceuticals Ind. Ltd., [2009 (3) TMI 587 - Gujarat High Court] - wherein it has been held that merely because the deed was registered, the transaction would not assume a different character - the lease rent was very nominal and by obtaining the land on lease, the capital structure of the assessee did not undergo any change - the assessee only acquired a facility to carry on business profitably by paying nominal lease rent and that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure – Decided in favour of assessee. Allowability of business loss suffered in China – Held that:- Since, it is an admitted position that the assessee has got decree of a foreign court in his favour, and therefore, there being a possibility of realizing the amount in near future, the Tribunal was justified in holding that business loss suffered by the appellant in China is not allowable in the year under consideration – Decided against assessee. Eligibility for deduction u/s 80I and 80IA - Income from Advance License Benefit Receivable, Pass Book Benefit Receivable and profit on sale of import license is not derived from industrial undertaking – Held that:- Following the decision in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] wherein it has been held that DEPB / Duty drawback are incentives which flow from the schemes framed by the Central Government or from Section 75 of the Customs Act, 1962 - Incentive profits are not profits derived from eligible business u/s 80I-B - they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB / Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profits derived from industrial undertaking" under section 80-IB" – Decided against assessee. Calculation of deduction u/s 80HHC - Set off of expenditure against income – Held that:- Following the decision in [2015 (1) TMI 194 - GUJARAT HIGH COURT] wherein the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income tax, [2012 (2) TMI 101 - SUPREME COURT OF INDIA] followed and it has been held that for the purpose of Section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit but, the sale value less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee – Decided in favour of assessee. Allowability of deduction u/s 80M – Deduction of management expenses from gross dividend received – Expenses incurred by assessee or not – Held that:- Unless there is a finding that the assessee has actually incurred expenditure to earn dividend income, the Revenue has no basis to reduce the amount of dividend, which would qualify for deduction u/s 80M - when no expenditure are shown to have been incurred by the assessee for earning gross dividend income, deduction u/s 80M of the Act cannot be curtailed to reduce the amount qualifying for claim of deduction u/s 80M of the Act by assuming the amount of expenditure, which is assumed to have incurred by the assessee – Decided in favour of assessee.
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2015 (1) TMI 195
Interpretation of section 69C - Whether the Tribunal is right in interpreting Section 69C and cognate provisions for upholding the addition towards cost of construction on the basis of report of the DVO - Held that:- Following the decision in COMMISSIONER OF INCOME TAX, RAJKOTI Versus KAMDAR AND ASSOCIATES [2015 (1) TMI 234 - GUJARAT HIGH COURT] wherein the decision in Commissioner of Income Tax-II Versus Vijaykumar D. Gupta [2014 (4) TMI 860 - GUJARAT HIGH COURT] followed and held that the AO could not have made reference to the DVO without reference to the books of accounts and such reliance on the DVO's books of accounts was not justified - there was no material, what to say an incriminating material, in the possession of the Revenue Department - while making the reference to the Valuation Officer, the AO has not recorded any defect in the books of account nor has he rejected the same - except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the AO has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building and that the books of account do not reflect the correct cost of construction – thus, the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition u/s 69 - Decided in favour of assessee.
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2015 (1) TMI 194
Determination of taxable year – Taxable in year under consideration or in subsequent years - Income from Advance License Benefit Receivable, income from Pass Book scheme – Held that:- Following the decision in Commissioner of Income Tax Versus M/s Excel Industries Ltd. and Mafatlal Industries P. Ltd. [2013 (10) TMI 324 - SUPREME COURT] wherein, it is held that income from sale of Advance License Benefits is taxable only in the year in which actual sale took place – Decided in favour of assessee. Premium paid for the leasehold land – Revenue expenses or not – Held that:- Following the decision in Deputy Commissioner of Income-tax v. Sun Pharmaceuticals Ind. Ltd., [2009 (3) TMI 587 - Gujarat High Court] wherein it has been held that merely because the deed was registered, the transaction would not assume a different character - the lease rent was very nominal and by obtaining the land on lease, the capital structure of the assessee did not undergo any change - the assessee only acquired a facility to carry on business profitably by paying nominal lease rent and that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure – Decided in favour of assessee. Allowability of deduction u/s 80M – Deduction of management expenses from gross dividend received – Expenses incurred by assessee or not – Held that:- However, the assessee has not shown any management expenditure or office expenditure, which was necessary for earning dividend – in CIT v. United General Trust Ltd. [1993 (2) TMI 96 - SUPREME Court] it has been held that relief u/s 80M must be allowed on net dividend after deducting proportionate management expenditure – Decided in favour of assessee. Calculation of deduction u/s 80HHC - Set off of expenditure against income – Held that:- Following the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income tax, [2012 (2) TMI 101 - SUPREME COURT OF INDIA] wherein it has been held that for the purpose of Section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit but, the sale value less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee – Decided in favour of assessee. Levy of interest u/s 234B remit back by the Tribunal – Held that:- The Tribunal relied upon CIT v. Ranchi Club Ltd. [2000 (8) TMI 79 - SUPREME Court] wherein, it was held that in the absence of any specific mention by the assessing authority in the assessment order in respect of charging interest u/s.234A and 234B, no interest could be recovered merely by way of demand notice - however, subsequently, by Finance Act, 2001, Sections 140A and 234A/B were amended retrospectively with effect from 01.04.1989 - the Tribunal remitted the matter to the AO for fresh decision - the view taken by the Tribunal is just and appropriate considering the amendment of Section 234A/B – Decided in favour of assessee.
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2015 (1) TMI 193
Transfer pricing adjustment – Correctness of ALP adjustment – Method of determination of ALP - Whether Cost Plus Method (CPM), with entrepreneurship profits derived from manufacturing and selling its products in India as the benchmark, would indeed be most appropriate method of determining the arm’s length price (ALP) of contract manufacturing of its same products for its associated enterprises abroad – Held that:- The two situations, i.e. sale simplictor of a FMCG product for an overseas AE without any costs being incurred on the marketing and sales promotion amongst the end users, and sale of a FMCG product to a domestic independent enterprises with full responsibilities for marketing and sales promotion amongst the end users, are not ‘comparable transactions’ in the sense that profitability in the latter cannot be a proper benchmark for profitability in the former - however, the comparability analysis has been confined to the first segment itself, i.e. characteristic of the property transferred - the product comparability is an important factor but it’s certainly not the sole or decisive factor - the assessee was producing the same products for its AEs as it was producing for independent enterprises but that was all so far as similarities were concerned - The FAR profile was not the same, the contract terms were not the same, the economic circumstances were not the same and the business strategies were not the same - necessary precondition for application of CPM, i.e. finding normal mark up of profit in comparable uncontrolled transactions, could not have been fulfilled - when uncontrolled transactions were not comparable, the normal mark up on profit on such transactions could not have been relevant either. The authorities below were not justified in holding that the cost plus method was the most appropriate method on the facts of this case - one of the necessary ingredient for application of CPM, i.e. normal mark up of profit in the comparable uncontrolled transactions- whether internal or external, was not available as no comparable uncontrolled transactions were brought on record by the authorities below - What was brought on record as an internal comparable uncontrolled transaction, i.e. manufacturing for the domestic independent enterprises, was uncomparable as the FAR profile was significantly different - there is no reason to disturb the TNMM method adopted by the assessee. Thus, on the facts of the case, the ALP of international transactions with the AEs is to be determined on the basis of TNMM and the ALP adjustments on the basis of CPM is to be vacated – the matter is required to be examined afresh by the TPO and the assessee will be at liberty to justify the ALP determination under the TNMM on such basis as he may deem appropriate and to make all such submissions and to furnish all such evidences in support of thereof, as he may deem fit and proper, and that the TPO will be required to deal with such contentions, submissions and evidences, by way of a speaking order, in accordance with the law and after giving a fair and reasonable opportunity of hearing to the assessee – thus, the matter is remitted back to the TPO for fresh examination – Decided in favour of assessee. Treatment of expenses on research and development – Capital in nature or not – Held that:- It is pointed out that the tax implication of the issue is less than permissible threshold limit in two of the AYs but then as the issue is repetitive in nature, it is covered by the exemption clause in the CBDT instructions in this regard - CIT(A) was rightly of the view that these expenses were incurred on “laboratory testing of the products” and were thus routine revenue expenses in nature - “incurring of these expenses has not resulted in creation of any intangible capital asset” – thus, the order of the CIT(A) is upheld – Decided against revenue. Reliability of Audit Report - Held that:- It is somewhat fashionable to criticize the revenue authorities for their lack of objectivity or even inefficiency but what in the world can justify such a pathetic level of professional work relied upon by even the large corporate entities. If the tax judicial system is clogged by frivolous litigation today and if the tax finality still takes decades to reach, these saviours of taxpayers are as much to be blamed for this situation as anybody else. No purpose can be served in reporting by a chartered accountant when such reports do not even point out glaring infirmities in taxpayer’s approach vis -ŕ-vis the transfer regulation, in a comparison of budgeted profits margin with actual profit margins realized by the comparables which is stated to be ascertainment of ALP on the basis of the TNMM. It appears that in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals so as they stay within the confines of permissible professional conduct and are yet able to sidestep the inconvenient realities.
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2015 (1) TMI 192
Disallowance made u/s. 14A – Held that:- Following the decision in Catholic Syrian Bank Ltd. Versus Additional Commissioner of Income-tax [2013 (4) TMI 140 - Kerala High Court] - Section 14A of the Income Tax Act, 1961, was inserted by the Finance Act, 2001, with retrospective effect from April 1, 1962 - The object of section 14A is to ensure that so much of the expenditure incurred for earning income that does not constitute total income of the assessee, should not be allowed - By virtue of the subsequent legislation, now there is a precise formula for working out the disallowance to be made u/s 14A even if assessees do not have separate accounts showing the expenditure incurred on investments made for earning tax-free income - By subsequent amendment through sub-section (2) and by prescribing rule 8D therein specific guidelines are prescribed for disallowance in cases where separate accounts are not available on the expenditure incurred for earning tax free income. These are only clarificatory provisions and the main clause of section 14A applied for all periods after its introduction in the statute which authorizes the officer to make disallowance of the expenditure incurred for earning tax free income, irrespective of whether the assessee maintained separate accounts or not - the assessee-banks did not have separate accounts for the expenditure incurred towards interest paid on funds borrowed such as deposits utilized for investment in securities, bonds and shares which yielded tax free income - In the absence of separate accounts for investments which earned tax free income, the AO worked out a formula which was the average cost of deposit in the year under consideration and applying it he made proportionate disallowance of interest attributable to the funds invested to earn tax- free income - The disallowance on estimated basis had to be done as above until rule 8D was framed and thereafter it was for the AO to make disallowance by following sub-section (2) of section 14A and rule 8D of the Rules – Decided against assessee. Treatment of surplus realized on sale of pledged jewellery as income of the assessee – Held that:- Following the decision in Catholic Syrian Bank Ltd. Versus Additional Commissioner of Income-tax [2013 (4) TMI 140 - Kerala High Court] - amounts are kept in suspense account for several years and even the borrowers whose gold are sold, are not traceable – there was justification for the assessee to retain the amount perpetually in suspense account and to claim exemption - there is no claimant traceable for repayment of the amount and the assessee has not made any effort to trace the customer for repayment of the amount – Decided against assessee. Excess cash found by the assessee as income of the assessee – Held that:- Following the decision in Catholic Syrian Bank Ltd. Versus Additional Commissioner of Income-tax [2013 (4) TMI 140 - Kerala High Court] - when there was no possibility of any one claiming any amount against the surplus in the suspense account maintained by the assessee the as could not treat it as a liability or a provision for liability - the payment would be allowable as a deduction in the year in which the claim was made - the excess found during the previous year need not be treated as income and could be treated as surplus in the suspense account for three years to meet a liability in the event of any claim being made - The amount did not represent liability and was wrongly shown by the assessee as liability – Decided against assessee.
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2015 (1) TMI 191
Validity of exercise of power u/s 263 - Allowability of depreciation on two dredgers - Held that:- AO while completing the assessment has not at all applied his mind to this issue and has not made any enquiry - claim of depreciation on the very same dredgers in AY 2009-10 could not have been allowed - AO while framing assessment for the AY has not at all examined this issue and without applying his mind to the facts and materials on record has allowed assessee's claim of depreciation even on these two dredgers - even assessee also admits this fact in the application filed u/s 154 of the Act - assessment order passed is certainly not only erroneous but also prejudicial to the interests of revenue - CIT's power u/s 263 cannot be curtailed due to application filed u/s 154 of the Act as the proceedings are different - CIT was justified in revising the assessment order u/s 263 of the Act so far as the issue of allowability of depreciation claimed on the two dredgers is concerned. Applicability of provisions of section 40(a)(ia) on equipment contractual charges – Held that:- ITO(TDS) while examining assessee's compliance to TDS provisions issued show cause notice on 16/03/2011, specifically seeking assessee's reply on compliance to TDS provisions on payment of equipment contractual charges of ₹ 5506.46 lakhs - when AO has made enquiry in respect of compliance to TDS provisions on payment of equipment contractual charges and after considering facts and evidences brought on record has completed the assessment, the assessment order cannot be considered to be erroneous and prejudicial to the interests of revenue for non consideration of applicability of section 40(a)(ia) - as AO has considered the issue of TDS on equipment contractual charges and since the order passed u/s 201 & 201(1A) also reveals that assessee has complied to TDS provisions, direction of CIT in respect of applicability of section 40(a)(ia), is not correct and the assessment order on this issue cannot be considered to be erroneous and prejudicial to the interests of revenue - the validity of the order passed u/s 263 is upheld and the AO is directed to only examine the issue of allowability of depreciation on the two dredgers – Decided partly in favour of assessee.
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2015 (1) TMI 190
Rejection of claim of deduction u/s 24(1) - Leasing of immovable properties business activity or not – Held that:- The assessee is owner of the commercial premises i.e. DLF Square and Nestle House let out throughout the year, the assessee has always treated and shown this property as a fixed capital asset and not stock-in-trade units balance sheet, accepted by the department since inception; the tenants are deducting tax at source at the rate as specified in section 194-I of the Act and there is no change in facts and circumstances of the case as in the earlier years too the income from letting out has been returned and assessed under the head “income from house property” – identical issue has been decided in Asstt. Commissioner of Income Tax Versus M/s Atria Partners, DLF Centre [2014 (3) TMI 500 - ITAT DELHI] - there is no infirmity in the First Appellate Order accepting the claimed income as income from the house property and the claimed deduction u/s 24(1) of the Act – Decided against revenue. Loss incurred on future and option – Losses speculative in nature or not u/s 43(5)(d) – Held that:- In CIT Versus Nasa Finelease P. Ltd. [2013 (9) TMI 733 - DELHI HIGH COURT] it has been rightly held that the transactions in derivatives on recognized stock exchange not as deemed speculative - the transaction carried in future and options (derivatives) are outside the purview of “speculation loss” in terms of amendment made by the Finance Act, 2005 with effect from 1.4.2006 by inserting Clause (d) to the proviso to subsection (5) of Section 43 of the Act defining the meaning of “Speculation Transaction” - the dealing in derivatives was a regular business and it is not that the assessee has been incurring losses always, as in the immediately succeeding AY 2009-10, the assessee has earned a profit on trading in future and options (derivatives) - Decided against revenue. Claim of expenses u/s 57(iii) – Expenses made wholly & exclusively for the purpose of earning such income or not – Held that:- CIT(A) was rightly of the view that the assessee has not been able to justify the claim of the entire expenses - considering the nature of expenditure being office maintenance, salary paid, conveyance, legal and professional expenses found it unjustifiable to assume that no expenses whatsoever has been incurred for earning an income of over ₹ 80,00,000/- from other sources – thus, the order of the CIT(A) is upheld – Decided against revenue.
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2015 (1) TMI 189
Validity of reopening of assessment – Notice issued u/s 148 and reference made to DVO for making addition - Held that:- The AO has received certain information with regard to the unexplained investment in the property by the assessee during the course of assessment proceedings in the case of Shri. Khem Chand Agarwal, Rakabganj, Lucknow and on the basis of such information, the AO has formed a belief that unexplained investment in the property was made by the assessee and later on constructed flats which were sold and no income was offered thereon. On the basis of this information, the AO has formed a belief that income chargeable to tax has escaped assessment and issued notice u/s 148 of the Act – there was no illegality in the formation of belief and issuance of notice u/s 148 of the Act - There is nothing borne out from the order sheet recorded by the AO with regard to the filing of return in response to notice u/s 148 of the Act - The notice u/s 148 of the Act was issued only on 18.1.2005 and immediately thereafter on 2.2.2005 notice u/s 143(2) of the Act was issued fixing the hearing on 11.2.2005. When the AO has issued notice u/s 143(2) of the Act fixing the hearing on 11.2.2005, he should have waited for the reply of the assessee in response to that notice - Instead of waiting for the reply, the AO was in a hurry to make reference to the DVO on 9.2.2005 – the action of AO cannot be accepted - in Sargam Cinema vs. CIT [2009 (10) TMI 569 - Supreme Court of India] it has been held that before making reference to the DVO for estimating the cost of investment in the construction of property, the books of account maintained by the assessee in this regard has to be rejected – thus, the reference made by the AO to the DVO is illegal, invalid and cannot be relied on for estimating the cost of construction in the property - The AO has blindly followed the DVO’s report of which reference is invalid and made addition u/s 69C of the Act cannot be sustained – Decided in favour of assessee.
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Customs
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2015 (1) TMI 210
Classification of goods - Whether ink cartridges and ribbon cartridges and printer software are classifiable under single heading 8471.60 as a printer or separately classifiable under 8473.3050 and 8524.99 - Held that:- Commissioner (Appeals) in her impugned order held that ink cartridges and ribbon cartridges are classifiable under CTH 8473.3050 against which the Revenue preferred the appeal. Whereas, the appellant preferred the appeal against the impugned order clubbing the value of software with the printer. On perusal of the said Bill of Entry and the invoice No. 080404-7 dated 08.04.2004, we find that the goods are described as 1) Stylus, C43SX (inter) Inkjet printer 2) software, 3) Ink cartridges and 1) LQ-2090 Impact printer 2) software and 3) Ribbon cartridges with separate unit price for each item. There is no dispute on the fact that ink cartridges, ribbon cartridges and software are separately classified under headings 8473 and 8524 of CTH. - duty of customs cannot be levied on software which is exempt from duty merely on the ground that the value of the software is not separately available or separately indicated in the invoice. Impugned goods are described separately with separate unit price for software and ink cartridges and filed Bill of Entry accordingly. By respectfully following the above decision, we hold that the printer software imported by the appellants are rightly classifiable under CTH 8524 and not under 8471.60. We also hold that in the impugned order the ink cartridges and ribbon cartridges are rightly classified under CTH 8473.3050 and allowed the exemption benefit - Decided in favour of assesse.
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2015 (1) TMI 209
Imposition of penalty - Whether the Tribunal's decision was justified in setting aside the penalty imposed on the first respondent by the adjudicating authority under Section 114 (iii) of Customs Act, 1962, without considering the adverse observations made in the Order in Original dated 30.03.2006 on the CHA be correct in law, when the High Court of Delhi in the case of M/s.Satish Gupta Vs Union of India reported in [2007 (1) TMI 29 - HIGH COURT ,DELHI] has justified the imposition of penalty on the CHA and held that the CHA is duty bound to exercise due diligence to ascertain the correct of information given by clients would be sustainable in law for imposing penalty on CHA - Held that:- Even at the very outset, it is evident from the order of the Tribunal that the goods were examined by the Customs Department in its laboratory, and analysis revealed that the goods were common salt instead of Organic Dye Intermediate G-Salt, as declared. Such being the case, this Court is baffled to note how penalty can be levied on the CHA. When the Department itself, only on the basis of the chemical analysis, was able to ascertain that the goods attempted to be exported was not common salt, how can a CHA be expected to know of the exact nature of the product at sight. In the above stated scenario, this Court has no hesitation to hold that the Commissioner (Appeals) and the Tribunal's reasoning for setting aside the penalty imposed on the CHA is fully justified. - Further, the case of Satish Gupta (2007 (1) TMI 29 - HIGH COURT ,DELHI) relied on by the learned counsel for the appellant, does not apply to the facts of the present case. That is a case in which there is a clear finding that the CHA had knowledge and was aware of the nature of goods. In the present case, we find that the CHA does not bear knowledge about the nature of goods and there is no material to infer so. - Decided against Revenue.
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2015 (1) TMI 208
Classification of coal - Classification as ‘bituminous coal’ classifiable under CTH 2701 12 00 or as ‘stem coal’ falling under the category of ‘other coal’ (CTH 2701 19 20) - benefit of Sl. No.123 of Notification No.12/2012 Customs - Held that:- The expression ‘steam coal’ has not been defined in Notification No.12/2012 Customs. Hence, understanding in trade parlance should be followed and the benefit of exemption should be extended. - According to technical literature, ARB samples include total moisture (TM). An important preliminary process to prepare the ARB sample of coal for the actual analysis is the removal of surplus moisture from it. It has been specified that sample weighed for analysis shall be air-dried. (Reference: Methods of Analysis of Coal in India by C. Forrester). Since all the analytical determinations are made on air dried samples. For this all the coal as received at the laboratory is calculated from the analysis of the air dried coal. (Reference: Bulletin 638: Methods of analysing and testing coal Bureau of Mines, US department of the Interior). According to James C Speight (Handbook of Coal Analysis), the final report of the analysis should always contain the results on a basis of air-dried coal (i.e. coal in its most stable condition and in which it was analyzed), but for the purposes of classification or comparison, it is often necessary to convert to another basis, such as dry coal, dry, ash free coal, or as-received coal. Whether the calculation of calorific value on air dried basis as done by the department is correct or not - Held that:- Inherent moisture (bed moisture, equilibrium moisture, capacity moisture) is assumed to be the water held within the pore system and capillaries of coal and is not to be identified with residual moisture. Surface moisture (free moisture) is, as the term implies, water held on the surface of the coal. Total moisture is the moisture determined as the loss in weight in an air atmosphere under rigidly controlled conditions of temperature, time, and airflow (ASTM D-3302) and is the sum of inherent moisture and free moisture and is also the sum of the air-dry loss and residual moisture. Air-dry loss moisture is the loss in weight resulting from the partial drying of coal, and. residual moisture is that remaining in the sample after determining the air-dry loss moisture . As-received moisture also is equal to the total moisture, or is the sum of the inherent and free moisture present in the coal at the time of the analysis. Decomposition moisture is produced from the thermal decomposition of organic constituents of coal. Water of hydration of mineral matter is the water that is incorporated into the crystal lattices of the clay and inorganic minerals in coal. No evidence by way of illustration or example was produced before us to show that the formula used by the Revenue for arriving at GCV on a moist mineral free basis is wrong. We have already seen that the submissions as regards the method of calculation are also incorrect and reliance on ASTM D388 is also not correct since it is mainly used for classification and ranking of coal and D388 itself provided that various parameters have to be determined according to the tests and sampling prescribed for the purpose and wherever calculations have to be made, formulae are provided in D 388.. It is the use of one of these formulae that has been done by the Revenue. There is no basis for the submission that the steam coal imported by the appellant ought to have been tested ARB. In most of the cases load port reports have been relied upon and in this case also it is not the submission of the appellants that load port reports submitted by them are wrong. In any case, the appellants cannot disown the load port report on the basis of which even the value of the imported consignment gets determined. After all, the duty element is much less than the value that an importer pays for the goods. That being the position, load port report which is acceptable to both the parties for the purpose of determination of the value and for the purpose of identification of the goods cannot be said to be ignored for the purpose of assessment. In the present case, the load port certificates submitted by the appellants have been accepted and even where tests have been conducted there are no disputes about the results of the test. Therefore we do not find anything wrong. Wherever the goods are of Indonesian origin, duty exemption in terms of Notification No.46/2011-Cus. would be available and may be extended - In the order passed in the case of Coastal Energy Private Ltd. & others (supra), the penalty was set aside and we had indicated to the learned counsel that the order portion relating to confiscation of the goods and imposition of penalty would not be sustained. In spite of this observation, this submission has been made and the learned counsel also had the advantage of the order in the case of Coastal Energy Pvt. Ltd. (supra) and our observation that we will be following that order. Notification No.12/2012-CE (Sl.No.67) extends the benefit of 1% concessional excise duty subject to the condition of not taking credit of inputs and appellants are eligible for this benefit Eligibility of the appellant for the benefit of exemption in the case of imports from Indonesia. If they were to show at least some evidences to substantiate their claim or at least if they were to make an assertion that they have fulfilled all the conditions and they have a certificate with them which is in the format and which fulfills the requirements of statute, we could have and should have considered the eligibility for exemption in respect of imports from Indonesia while determining the amount of pre-deposit. Even then, just because the appellants have stated that their imports from Indonesia are eligible for the benefit of exemption, since we are considering the stay application and not passing a final order, we consider that appellants should not be required to deposit more than the amount liable to be paid by them in respect of imports from Indonesia applying the exemption available for imports from Indonesia with applicable interest. We keep in mind the fact that the coal is used for power generation and is not a consumer durable. We direct the appellants to deposit the entire amount of differential duty payable as worked out in respect of their imports from South Africa and countries other than Indonesia and in respect of imports from Indonesia, the appellants should deposit the entire amount of duty payable as per the rate applicable for imports from Indonesia subject to the condition that the appellants produce the relevant documents to the original adjudicating authority who get the same verified and prima facie if the documents are in accordance with the requirements of statute, the deposit that will be made as per the rates applicable for imports from Indonesia would be sufficient. If there is a dispute on this issue, the same would be taken up at the time of considering the compliance report. We clarify that interest is also required to be deposited - Decided against assesse.
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2015 (1) TMI 207
Confiscation of goods - Imposition of penalty - Misdeclaration of goods - Held that:- In this case import took place at Chennai port and the customs authorities at Chennai had cleared the goods holding that the description of the goods has not been misdeclared. Therefore in the light of the decision in Costa Foods v. CC - [1988 (7) TMI 296 - CEGAT, NEW DELHI], which has been upheld by the Supreme Court in Ram Narain Bishwanath - [1996 (12) TMI 76 - SUPREME COURT OF INDIA]. The proceedings in Mumbai Custom House is not sustainable as same is beyond jurisdiction. Further, I find that the show cause notice has been issued by invoking the extended period of limitation without alleging fraud, collusion, misstatement, suppression of fact or contravention of provisions of Act/Rules with an intent to evade duty, hence the show cause notice is barred by limitation. In these circumstances, impugned proceedings were not warranted against the appellants. Accordingly, impugned order imposing penalty qua appellants is set aside - Decided in favour of assessee.
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2015 (1) TMI 206
Concessional rate of duty under Notification No. 12/2012-C.E. - debit of the duty against an SFIS scrip - payment of interest in cash - Held that:- It can be seen from the above that there is no express prohibition under Section 149 for amendment of Bill of Entry after the goods have been cleared. What the section provides is that if such an amendment is to be carried out, it has to be based on documentary evidence which was an existence at the time the goods were cleared. It is nobody’s case in the present matter that SFIS was not in existence or the description of the goods and the tariff heading and their eligibility for exemption was not in existence at the time of clearance. The Commissioner (Appeals)’ observation does not contain which element was not in existence at the time of request for amendment. Under these circumstances, I do not find any merit in the impugned order. Moreover, I also find that in respect of the same importer, the Commissioner (Appeals) in his order No. 46/2012, dated 15-3-2012 had allowed such amendment under similar circumstances. Under these circumstances, the impugned order is set aside and the authorities are directed to allow debit of SFIS scrip for the demand and accept the interest that may be payable by the importer. - Decided in favour of assessee.
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2015 (1) TMI 205
Denial of conversion of shipping bills filed for obligation under the EPCG scheme to DEPB scheme - Held that:- As there was no declaration of PMV by the assessee therefore, conversion was not allowed. But in the case of Diamond Engineering (Chennai) Pvt. Ltd. (2013 (3) TMI 46 - CESTAT CHENNAI) this Tribunal has examined the decision of Actavis Pharma Manufacturing Pvt. Ltd. (2012 (12) TMI 152 - CESTAT, CHENNAI) relied upon by the learned AR and considered the fact of the case are not similar as in that case shipping bills were filed for the conversion of the shipping bills from Advance Licence Scheme to DEPB Scheme. In this case the facts are of similar to the facts of Diamond Engineering (Chennai) Pvt. Ltd. As the assessee sought conversion from DEEC scheme to DEPB scheme and examination level in both the situation are similar. Therefore, on the basis of the document produced at the time of export the adjudicating authority should have allowed the conversion. As those documents have not been examined by the adjudicating authority therefore, the matter needs examination at the end of the adjudicating authority to verify the fact that for conversion from EPCG scheme to DEPB scheme the export documents are sufficient to grant conversion or not. The adjudicating authority is directed to act accordingly and pass an appropriate order in accordance with law. - Matter remanded back - Decided in favour of assessee.
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Corporate Laws
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2015 (1) TMI 204
Maintainability of the writ-petition under Article 226 of the Constitution of India – Held that:- Locus standi of the petitioners is a sine qua non or condition precedent for the exercise of power or jurisdiction by the Court, inasmuch as, the legal capacity of a party to any litigation, where any private or any public action in relation to a remedy sought has to be decided before granting a relief, the issue as to locus standi touches the jurisdiction of the Court - the right that can be enforced under Article 226 of the Constitution of India ordinarily shall be personal or individual right of the petitioner himself – relying upon Ghulam Qadir v. Special Tribunal [2001 (10) TMI 1105 - SUPREME COURT] - the petitioners who are the Trading Members holding 49% of shares in the company are apprehending that in view of the circular and the regulations their right to trade in securities as enshrined under Article 19(1)(g) of the Constitution of India will get infringed as it is not possible to fulfill the conditions imposed by the SEBI, although in public interest - although a person may not claim a fundamental right to carry on trade in securities at a particular Stock Exchange only, yet the petitioners as the Trading Members, if prohibited in any manner or are unable to trade on account of the restrictions imposed, it would not prevent them from challenging the constitutionality of the circular or the regulations itself on the ground that it offends against the fundamental right guaranteed under Article 19(1) (g) of the Constitution of India by showing that the restrictions goes in excess of the object or because the activities which are not pernicious are included within the sweep of the statute or because the procedure laid down in the statute is unreasonable or unjust or arbitrary – thus, the preliminary objection raised by the respondents is rejected. Validity of notice issued by the VSEL - Legality and validity of the circulars dated 30th May 2012 and 13th December 2012 and the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporations) Regulations, 2012, issued by the Securities Exchange Board of India (for short, 'SEBI') - Whether the circulars, regulations and notice are ultra vires the Constitution of India and are contrary to the provisions of the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 1956 – Held that:- U/s 11 of the SEBI Act, the SEBI has to protect the interest of the investors in securities and to regulate the securities market by such measures as it thinks fit and such measures may be for any or all of the matters provided in subsection (2) of Section 11, and in due discharge of its duties cast upon the SEBI as part of its statutory function, it has been invested with the powers to issue directions under Section 11B - The SEBI is invested with the statutory powers to regulate the securities market with the object of ensuring investors' protection, orderly and healthy growth of securities market so as to make the SEBI's control over the capital market to be effective and meaningful - The SEBI has to regulate speculative market, and in case of speculative market, varied situations may arise and looking into the exigencies and requirements, it has been entrusted with the duties and functions to take such measures as it thinks fit - Section 11B of the SEBI Act is an enabling provision enacted to empower the SEBI Board to regulate securities market in order to protect the interest of the investors - Such an enabling provision must be so construed as to subserve the purpose for which it has been enacted - The SEBI is charged with the duty to protect the public and the integrity of the capital market, and as a regulator, it has powers to issue the circular impugned in this petition in public interest including the regulations, and the interference at the end of the court in such type of matters should be minimal unless it is established that the same is in gross violation of any of the provisions of law or the Constitution of India - the SEBI considered various reports of the experts on the issue and the impugned circular and the regulations are based on the findings recorded in the report of the experts. Legality and validity of the impugned circular – Held that:- In the circular issued by the SEBI, it has been stated that the same has been issued in exercise of powers conferred under Sections 11(1) and 11(2)(j) of the SEBI Act, 1992 read with Section 5 of the SCRA Act, 1956, to protect the interests of investors in securities and to promote the development of and to regulate the securities market - Thus, the circular has been issued with a particular object and in exercise of the statutory power conferred on the SEBI as a statutory authority - whether a circular issued by a statutory authority would be binding or not, or whether the same has a statutory force or not, would depend upon the nature of the statute - For the said purpose, the intention of the Legislature must be considered - the issue as regards the statutory force of a circular has been considered in BOI. Finance Ltd. Versus Custodian [1997 (3) TMI 457 - SUPREME COURT OF INDIA] - a circular issued by the RBI which stated that the banks were advised to follow the Guidelines given thereunder, the word 'advised' cannot be read in isolation and the said document was meant to be binding on the banking companies – thus, the circular dated 30th May 2012 passed by the SEBI in exercise of its powers under Sections 11(1) and 11(2)(j) of the SEBI Act, 1992 read with Section 5 of the SCRA Act, 1956, which is the subject matter of challenge in this petition, could be termed as a statutory circular having a force of law and binding to all the Stock Exchanges in the country. Legality and validity of the regulations – Held that:- Petitioner contended that after the approval of the Scheme under Section 4(B)(2) of the SCRA Act, 1956, the SEBI could not have imposed any new condition in the form of a circular, directing that if the Stock Exchange is not able to achieve the prescribed turnover of ₹ 1000 crore on continuous basis or does not apply for voluntary surrender of recognition and exit before the expiry of two years from the date of the circular, it shall proceed with compulsory derecognition and exit of such Stock Exchanges in terms of the conditions as may be specified by the SEBI - the schemes approved by the SEBI under Section 4(B) of the SCRA Act, 1956, do not restrain or denude the SEBI of the power to regulate the Stock Exchanges through other measures including by way of subordinate legislation or issuance of regulatory direction - the interpretation put forward on behalf of the petitioners would defeat the purpose of regulatory powers conferred on the SEBI by the SCRA and the SEBI Act - it is an on-going process - The proviso under sub-section (1) of Section 4B of the SCRA Act provides that exchanges, which were already corporatised and demutualised, do not have to submit a scheme for approval by the SEBI - while granting sanction under Section 4(B)(6) and 4(B)(7), it is specifically provided that sanction is conditional reserving right to amend, alter or modifying the Scheme is in the public interest and in furtherance of the objects of the Corporatisation and Demutualisation of the Stock Exchanges. Therefore, in view of clause (8) of the order, the SEBI is competent to impose further condition as regards voting rights of the Trading Members and deny voting rights to the Trading Members and deny right to vote for electing Shareholders' Director - therefore, there is ample power under the Act to make regulation - The Vadodara Stock Exchange is granted renewal every year, and while granting renewal, it is competent for the SEBI to provide further condition from time to time under Section 4 of the SCR Act read with rule 6 of 1957 Rules, and while seeking recognition, the Stock Exchange is required to give an undertaking to comply with other conditions and terms as may be imposed - the SECC Regulations as well as the impugned Exit Circular dated 30th May 2012 were issued by the SEBI after due consultation with all the stakeholders including the recognized Stock Exchanges although there is no such statutory mandate for the SEBI to make such consultations before framing the regulations or issuing the circulars. Justification and the rationale in imposing the condition of turnover of ₹ 1000 crore in the circular – Held that:- There is no prohibition in the circular which prevents the petitioners from carrying on trade and earn livelihood as traders or brokers - it is very difficult to accept the submissions of the petitioners that they have a fundamental right under Article 19(1)(g) of the Constitution of India to trade at a particular Stock Exchange only and that is the Vadodara Stock Exchange - it is not for this Court to comment on the economic policy of the SEBI. There should be judicial restraint in fiscal and economic regulatory measures - The State should not be hampered by the Court in such measures unless they are clearly illegal or unconstitutional - all administrative decisions in the economic and social spheres are essentially ad hoc and experimental - Since economic matters are extremely complicated, this inevitably entails special treatment for distinct social phenomena. The State must therefore be left with wide latitude in devising ways and means of imposing fiscal or regulatory measures, and the Court should not, unless compelled by the statute or by the Constitution, encroach into this field. It cannot be said that with such derecognition the fundamental right of the petitioners to trade in shares at the VSEL would get infringed under Article 19(1)(g) of the Constitution of India - The fundamental rights guaranteed under Article 19 of the Constitution of India are not absolute but the same are subject to reasonable restrictions to be imposed against the enjoyment of such rights - Such reasonable restrictions seek to strike a balance between the freedom guaranteed by any of the clauses under Article 19(1) and the social control permitted by the clauses (2) to (6) under Article 19 of the Constitution of India - in determining the infringement of the right guaranteed under Article 19(1) of the Constitution of India, the nature of right alleged to have been infringed, the underlying purpose of the restriction imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, enter into judicial verdict - Therefore, although a citizen has a fundamental right to carry on a trade or business, yet he has no fundamental right to insist upon the State that he will carry on trade or business only at the Vadodara Stock Exchange. The words 'not exceeding' means that it confers upon the SEBI the discretion to determine the number of stock brokers on the Governing Board - the denial of right to be on the Board of Management and/or denial of right to vote for Shareholders' Director is because with the experience gained it has been found by the SEBI that there is total conflict of interest if the Trading Members are on the Board of Directors - the Trading Members were influencing the decision making process - The importance of the net worth has been explained in the Bimal Jalan Report - even as a shareholder, the petitioners' other rights are protected - The petitioners have a right to attend the General Meeting, Special Meeting, and by majority, can participate in the decision making policy at the General Board. The Directors are not within the control of the SEBI, as is alleged - The Public Interest Directors are independent Directors and it is erroneous to suggest that only the Trading Members can alone provide for greater turnover and/or net worth – thus, the petitioners are not entitled to any of the reliefs as prayed for in the petition – Decided against petitioner.
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Service Tax
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2015 (1) TMI 232
Penalty u/s 76 - Invocation of Section 80 - tax paid during investigation proceedings but before issuance of SCN - Travel agent service - Held that:- A careful perusal of the order of the Tribunal would reveal that 'Reasonable cause' as provided under Section 80 of the Act has been recorded by the Tribunal stating that the respondent assessee had fallen into financial crisis on account of the criminal breach of trust committed by their sub-agent and criminal proceedings were initiated against such persons and the same are pending. In addition to the above, the Tribunal also came to hold that it is a case of payment of duty voluntarily at the time of investigation even prior to issuance of show cause notice. Therefore, the Tribunal went on to invoke the provisions of Section 80 of the Act on the ground of reasonable cause. - On a careful consideration of the documents as submitted by parties and also on a careful perusal of the reasoning of the Tribunal, this Court finds that the reasoning of the Tribunal is based on parameters of Section 80 of the Act and, therefore, this Court finds no necessity to interdict the decision of the Tribunal granting relief to the petitioner under Section 76 of the Act by invoking the provisions of Section 80 of the Act - Decided against Revenue.
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2015 (1) TMI 231
Erection and commissioning service or works contract service - agreements entered into with the foreign suppliers for equipment includes service portion also and therefore the contract has to be treated as one of a contract entered into between the parties for execution of works contract for the appellants - Held that:- It is quite clear that the submissions made that the entire value has been declared in the Bill of Entry has not been clearly made with the supporting evidences/documents before the learned Commissioner and this has resulted in a wrong conclusion. Moreover the agreements also in our opinion are required to be gone into in greater detail than what has been done. From the contract it becomes quite clear that the equipment suppliers did not undertake or were required to take erection, commissioning and installation of the equipments supplied by them. Prima facie from the Contract it appears that the erection, commissioning and installation work is not to be undertaken by the foreign suppliers. The very fact that appellants have made 90% of the payment due to the foreign suppliers would also support the case of the appellant that there is no component of erection, commissioning or installation service in the payment since the erection, commissioning and installation has not at all started leave alone getting completed. If erection, commissioning or installation service was part of the supply contract, the amount attributable to such service need not have been paid by the appellant. - Matter remanded back - Decided in favour of assesse.
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2015 (1) TMI 230
Condonation of delay - Inordinate delay of 505 days in filing appeal - Held that:- Assistant General Manager at the Head office of the petitioner in Cochin forwarded the order and thereafter did not bother as to what happened to it. In the matter involving more than ₹ 90 lakhs especially in view of the submission of the learned CA that appellant had been making only losses, it is surprising that AGM did not find time even to check with the Head Quarters what happened to the copy of the order sent. The date of receipt in the head office is not available. The date of completion of renovation of office is not available. No enquiry has been made by the appellant to find out how the order copy was misplaced in another file. Further the date on which Commissioner’s office sought clarification is also not indicated. The reason as to why the affidavits signed by the same individual contained totally different grounds for condonation of delay are not forth coming anywhere in the documents. It can be seen that the so called consultation with experts started only after August 2013 and thereafter there was no delay at all since within two months, appeal was filed. We have not found any justification for the delay which has occurred and the documents have not been prepared properly and affidavits have not been filed with care and truthfulness or the correctness of the affidavits have not even been considered by the persons signed the same. - Condonation denied.
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2015 (1) TMI 229
Refund claim - export of performance based service - Scientific Testing and Consulting Services. - refund claim filed for refund of credit taken on the ground that assessee could not utilize the services because of export of service - denial on the ground that appellants had not claimed the refund quarter wise and the documents listed therein had not been submitted - Held that:- Services came under Rule 3(1)(2) (sic) of the Rules. It is very much clear that the performance of the service is not complete until the testing and analysis report is delivered to its client. In the present case, when such reports were delivered to the clients outside India it amounts to taxable service partly performed outside India. The performance of testing and analysing has no value unless and until it is delivered to its client and the service is to be complete when such report is delivered to its client. Thus, delivery of report to its client is an essential part of the service report was delivered outside India and same was used outside India. This is not the disputed fact. We hold that the respondent satisfied the conditions of Rule 3(2) and accordingly the respondents are eligible for the exemption under Notification No. 11/2007-S.T. dated 1-3-2007. - Matter remanded back.
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2015 (1) TMI 228
Waiver of predeposit of interest and penalties - Assessee not able to collect the data from filed units - Assessee could not arrive the correct amount of service tax to be paid but, subsequently worked out the actual service tax and paid the service tax by way of debiting it from the cenvat credit account and also filed the revised ST-3 returns - Demand of differential duty - Held that:- adjudicating authority has demanded the interest of ₹ 15,88,761/- for the belated payment of differential service tax paid subsequently due to delay in collecting data from field units. It is noticed that the appellants followed this method of arriving final taxable value and subsequently paying the differential service tax and continued this practice from October, 2007 to March, 2011. It is seen from the annexure-I to show cause notice that the short payment of service tax and delay varied from 70 days to 260 days for each month of due date of payment. The Adjudicating Authority also confirmed the demand of interest of ₹ 2,77,347/- on the in-eligible credit availed by the appellants and subsequently reversed. The number of days from the date of credit availed and credit reversed varies from 100 days to 258 days. - applicant is failed to make out a strong prima facie case for waiver of predeposit of entire amount of tax along with interest and penalty - Partial stay granted.
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2015 (1) TMI 227
Business Auxiliary Service - Commission Agent service - Held that:- Invoice clearly shows that VAT liability has been discharged which indicates the sales of wire harness by Tyco Electronics Corporation India (P) Ltd. to the appellants. The appellant has also issued an export invoice to the foreign buyer and has realised the export proceeds. These documents on records clearly evidence that the transaction involved is one of purchase and sale of goods by the appellant on a principal-to-principal basis and not as an agent of anybody else. Following the decision of this Tribunal in the case of Pratap Singh & Sons cited [2006 (12) TMI 13 - CESTAT,MUMBAI], we set aside the impugned order - Decided in favour of assessee.
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2015 (1) TMI 226
In-roaming services - taxability when services are provided from one circle to another circle - Penalty u/s 78 - Held that:- What the appellants are doing is only book adjustments between the circles and this is being done because each circle is identified as a profit centre. For the purpose of accounting and for the purpose of identifying the source of income in each circle, the said charges are adjusted between the centres and in reality, according to the appellants there is no service provided and services received in this case. All the circles belong to the same company and therefore when one circle provides in-roaming service to another circle, there is no service element involved. Further, as far as the subscriber is concerned, the circle in which he has been a subscriber which is considered as the home circle charges for the services rendered to him for roaming as well as for usage within the circle. Further it was also submitted that according to the Circular issued by the Board (No. 22/2/97, dated 3-9-1997), in such situations, the service provider can collect the amount from subscriber at one point and pay the Service Tax. - IT cannot be said that there are service provider and service receiver in this case. In this view of the matter, we consider that the appellants have made out a strong prima facie case in their favour for complete waiver. - Stay granted.
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2015 (1) TMI 225
Waiver of pre deposit - Commercial and Industrial Construction Service - Benefit of Notification No. 1/2006 - separate Service Tax component in the invoices issued to the customers not raised - Held that:- Service Tax is payable only on the abated value of 33% of the billed amount. So splitting 33% of the billed amount to value and tax appears to be proper rather than splitting the entire value of the project including value of materials into consideration for service and tax and then giving abatement. Further, assessees who pay tax first applies abatement, arrive at 33% of value and calculate Service Tax on it. The method adopted by appellant will result in a bill consistent with this approach. Therefore, we grant waiver of pre-deposit of dues for admission of appeals and stay its collection during the pendency of the appeals - Stay granted.
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2015 (1) TMI 224
On-line information and data base access or retrieval or both service - registration fee collected by the respondent was not declared in the ST-3 returns - Intention to evade tax - Suppression of facts - Held that:- Registration fee is refundable in nature and hence the respondents are not liable to pay Service Tax in respect of this amount. In respect of the time bar issue, the Commissioner (Appeals) held in favour of the respondents are regularly submitting ST-3 returns and were accepted and paid Service Tax regularly and the Revenue has not raised any objection. Respondents were paying Service Tax as provider of online information and data base access or retrieval or both. The respondents are not disputing the taxability of their service. The only issue is whether the registration fee charged from their clients are to be added to the value of taxable service on which the respondents are liable to pay Service Tax. The registration fee is not refundable as such. The registration fee will be adjusted to the first purchase made by the clients in case no purchase is made the registration fee is not to be refunded. In view of this, the registration fee is not refundable as such, hence is required to be added to the gross value of taxable service on which the respondents are liable to pay Service Tax. - respondent has not disclosed this fact regarding collection of registration fee in the ST-3 returns. It is only during the scrutiny of records it was found that the registration fee is not added to the gross value of the taxable service. Hence the allegation of suppression with intent to evade tax is also sustainable. - Decided in favour of Revenue.
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2015 (1) TMI 223
Waiver of pre-deposit - Revenue imposed tax on the assumption that in respect of the service of repair and maintenance during the warranty period since the service is extended free of cost no value of the service is computable and service tax payable thereon; that such service falls within an “exempted category” and therefore separate account should be maintained in respect of service of repair and maintenance during the warranty period and during the extended warranty period, separately - Held that:- assumption of the Revenue is prima facie contrary to the provision of Section 65(105)(zzg) read with Section 65(64) of the Finance Act, 1994. The assumption by Revenue that since no service tax is payable in fact though the service falls within the aforesaid provision, the service constitutes are an exempted category is also prima facie contrary to Rule 2(e) of Cenvat Credit Rules, 2004. - prima facie case in favour of the petitioner and balance of convenience, for granting the petitioner-assessee absolute waiver of pre-deposit and we accordingly grant stay of all further proceedings pursuant to the impugned order in appeal, pending the appeal. - Stay granted.
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Central Excise
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2015 (1) TMI 220
Exemption from payment of tax - benefit under proviso to Sub-Section (3) or Sub-Section (4) of Section 3A - abatement under Sub-section (3) of Section 3A - Held that:- Once Sub-Rule (2) of Rule 96ZP of the Rules provides for filing of an application for abatement, it is just un-understandable as to how any exception can be taken by the Department, to the order passed in it. It is a different matter if the appellant is of the view that the respondent has run the factory during that period. That however is not the case. The main plank of the argument is that an application for abatement under Sub-Rule (2) of Rule 96ZP of the Rules is barred under Sub-Rule (3) thereof. We do not find such mandate therein. - Sub-Rule (3) creates the facility of payment of certain amount in accordance with the formula incorporated therein and the same would constitute compliance with the provisions of the Act and the Rules. The only rider added in that was that a manufacturer, who avails the benefit under Sub-Rule (2) shall not be entitled to claim the benefit under proviso to Sub-Section (3) of Sub-Section (4) of Section 3A of the Act. The application in the instant case is not under that provision. Sub-Rule (3) of Rule 96ZP of the Rules does not bar the filing of applications under Sub-Rule (2). It was not even alleged that after availing the benefit under Sub-Rule (2), the respondent got the benefit under Sub-Rule (3) or vice versa - Decided against Revenue.
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2015 (1) TMI 219
Determination of the annual capacity of Hot Re-rolling Steel Mill - Held that:- Figure that emerged on application of Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 is less than the actual production of the year 1996-97, a representation was made by Respondent raising two objections. The first was that the figures pertaining to 1996-97 included the scrap to an extent of 144.88 MTs., and that some changes of parameters, which have bearing upon the production capacity, were also introduced in the Mill. Omitting the rounds of litigation that have taken place till the latest of the orders were passed, it emerges that the fact that the scrap was included in the figures pertaining to 1996-97 was taken note of and deduction to that effect was made. Therefore, the first grievance of the respondent stood addressed. - grievance was that the changes of the parameters introduced in the machinery, would have their own effect upon the production. It is not in dispute that any change in parameters of a re-rolling mill would become relevant or acceptable only on being certified by the Department. Admittedly, no such certification has taken place. Order of Tribunal set aside - order, passed by the Assessing Officer determining the annual capacity of the Mill for the financial year 1997-98 at 3784.48 MTs., shall stand confirmed - Decided in favour of Revenue.
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2015 (1) TMI 218
Classification of galvanized silo storage system - Classification under Chapter Subheading 8437 10 00 or under Chapter subheading 9406 00 99 - Held that:- It would be appropriate to remand the matter at this stage itself even though in respect of the very same product this Tribunal [2013 (1) TMI 124 - CESTAT BANGALORE] had taken a view that the appellant has to deposit the amount that may be payable during the normal period - appellant should get another opportunity to defend the matter before the original adjudicating authority and the additional submissions which have been made before us and which has not been considered by the Commissioner and other relevant matters can be placed before the Commissioner. To ensure that appellant cooperate when the matter is taken up for fresh consideration and no delay is caused, we consider that the remand of the matter should not be made without any condition. - matter remanded back subject to pre-deposit of part of demand - Decided in favour of assesse.
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2015 (1) TMI 217
Denial of CENVAT Credit - Credit of duty availed on the basis of endorsed duty paying gate passes - Held that:- officers, who visited the appellant s factory on 13.12.1994, did not find any incriminating documents from the premises. The allegations made by the Revenue that these trading firms were being governed by the appellant and they were having the overall control over them, do not emanate any evidence on record. On the contrary, Shri MK Jain, General Manager(Finance) of the applicant company in both his statements recorded on 04.03.1996 and 20.07.1996 have categorically stated that they were receiving the raw-materials from the traders in question, who were major suppliers of the raw-materials. The adjudicating authority has chosen to ignore the said statement of Shri MK Jain. No enquiries stand made from Shri Sundrawat and Shri Duggar, whose names were taken by Shri Anil Khandelwal as the persons who were taking the bills arranged by him and were making the cheques and with whom cheque books of various parties remained. No blank cheque books were recovered from the appellant s factory during the course of search. No enquiries were conducted from the concerned bank so as to corroborate the statements of the said traders. There is not sufficient evidence to arrive at a finding that the appellant had availed CENVAT credit on the basis of bogus gate passes without bringing raw-materials into their factory, we also note that the Revenue has not shown any other alternate source of procurement of raw-materials. Admittedly, the appellant had manufactured their final product, which has been cleared on payment of duty. In the absence of any raw-material, it is not only difficult but virtually impossible and impractical for the appellant to manufacture their final product. There is neither any allegation much less any evidence on record to show that the appellant had procured the raw-materials from other alternate source. - The adjudicating authority has also referred to the fact that some of the vehicles were found to be non-transport vehicles. He has given a list of vehicle numbers in his impugned order. However, we have been shown that all the 23 vehicle numbers found in the said list were never mentioned in the gate passes under the cover of which duty paid material was received by the appellant. It remains undisclosed as to from where the adjudicating authority has picked up the said 23 vehicle numbers. Further, no investigation stands made from the actual manufacturers, who have supplied the goods to the traders, who in turn had endorsed the gate passes. If according to the Revenue, the traders have only endorsed the gate passes, there is no evidence on record as to where the goods actually received by them under the cover of gate passes issued by the manufacturers have vanished. - impugned order is not sustainable - Decided in favour of assesse.
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2015 (1) TMI 216
CENVAT Credit - Penalty u/s 11AC - appellant company had paid the entire amount of disputed Cenvat credit even before the issue of show cause notice alongwith interest and after issue of the adjudication order also paid 25% of the amount towards penalty - Bogus invoices - Held that:- On perusal of these two invoices placed on record, it is seen that these invoices mention M/s Bhagwati Trading Company and M/s Ayushi Steels Company Ltd. as the first stage dealers and both the invoices mention the original manufacturer from whom the goods had been received by the first stage dealers as M/s Pasondia Steel Profiles Ltd., Ghaziabad . In respect of M/s Pasondia Steel Profiles Ltd., there was an investigation by the Department in course of which it had been revealed that while they were purchasing HR Coils, the same were being sold as such but they were still availing Cenvat credit of the same by showing the HR Coils were used in the manufacture of CR Sheets, while there was no such manufacturing activity and they had passed on such wrongly availed Cenvat credit to a number of dealers including M/s Ayushi Steels Company Ltd. and M/s Bhagwati Trading Co. by issuing bogus invoices without supply of any CR Sheets. So far as the supply of CR Sheets from M/s Pasondia Steel Profiles Ltd. is concerned, the same has to be treated as bogus and as such when M/s Pasondia Steel Profiles Ltd. had not supplied any CR Sheets to M/s Ayushi Steels Company Ltd., M/s Ayushi Steels Company Ltd. could not have supplied that material to M/s Steel Mongers (India) Pvt. Ltd. and M/s Steel Mongers (India) Pvt. Ltd. could not have supplied that material to appellant company. Therefore, notwithstanding the fact that no inquiry had been conducted by the Department with the transporters, since M/s Friendz Auto Ltd. have not produced any evidence in support of their claim of having received the CR Sheets, in my view, Cenvat credit cannot be allowed on the basis of invoice issued by M/s Steel Mongers (India) Pvt. Ltd. to them in respect of supply of CR Sheets. Therefore, the Cenvat credit amounting to ₹ 86,845/- has been correctly denied. There is no evidence that during the period of dispute M/s Pasondia Steel Profiles Ltd. were not selling HR Coils. On the contrary,the allegation against them is that during that period they were purchasing HR Coils and selling the same as such while showing their consumption in the manufacture of CR Sheets. There is no investigation to prove that M/s Pasondia Steel Profiles Ltd. had issued only bogus invoices to M/s Bhagwati Trading Company regarding supply of HR Coils. Therefore, the denial of Cenvat credit of ₹ 79,117/- on the basis of the invoice of M/s Steel Mongers (India) Pvt. Ltd. regarding supply of HR Coils is not correct and to this extent the impugned order has to be set aside. Cenvat credit demand is concerned, the Cenvat credit demand of ₹ 86,845/- is upheld but the impugned order confirming the Cenvat credit demand of ₹ 79,117/- is set aside. Since Assessee have wrongly availed Cenvat credit of ₹ 86,845/- in respect of CR Sheets while as discussed above, had not been received by them, penalty would be imposable on them in terms of Rule 15 (2) readwith Section 11 AC. However, since the entire amount of Cenvat credit had been paid before the issue of show cause notice and the interest and 25% of the penalty had been paid within period of 30 days of the date of communication of the order, the penalty is reduced 25% of the Cenvat credit demand upheld - As regards penalty on M/s Steel Mongers (India) Pvt. Ltd., the second stage dealer, since they had wrongly availed the Cenvat credit based on the invoice for CR Sheets issued by the first stage dealer, while no material has been received by them, penalty on the same in terms of the Rule 15 (2) of Cenvat Credit Rules, readwith Section 11AC of the Central Excise Act, would be attracted. However, looking to the fact that only the Cenvat credit demand of ₹ 86,845/- has been upheld, penalty on them is reduced to ₹ 20,000 - Decided partly in favour of assessee.
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2015 (1) TMI 215
CENVAT Credit - Evasion of duty - Suppression of facts - Invocation of extended period of limitation - Held that:- For the period from 1995-2000, a show cause notice had been issued to the appellant to demand duty on various scrap items sold by them and at that time the used dryer screen felt even though the same was being sold was completely omitted. Thereafter from 2000 onwards according to the records produced before us, the appellant was intimating the department as and when they cleared the metal scrap, used dryer screen felt, etc. They were also submitting a copy of the invoice and the amount realized. Same way in March, 2002 Superintendent in-charge of the appellant advised them not to submit invoices relating to the sale of used dryer screen felts. The above facts emerging from the records would show that even the departmental officers felt that there was no duty liability on the used dryer screen felts cleared by the appellant and therefore the steps as mentioned above were taken. That being the position, we find it extremely difficult to agree with the observations made by the lower authorities that appellants have deliberately and intentionally evaded payment of duty, suppressed facts and sold them without intimating to the department. Therefore in our opinion extended period could not have been invoked in this case. As regards the duty demand within the normal period, only one sale covered by the invoice dated 16-7-2004 involving value of the felt of ₹ 43,430/- would be liable to excise duty. In the decision of the Tribunal in the case of CCE, Hyderabad-III v. Navodhaya Plastic Industries Ltd. [2013 (12) TMI 82 - CESTAT CHENNAI], the Tribunal had taken a view in para 10 which we reproduce for better appreciation. Appellant would be liable to pay duty in terms of para 8 of the decision of the Larger Bench of this Tribunal in the case of Navodhaya Plastic Industries Ltd. (supra) - there will be no penalty, the interest applicable from the date of liability till the date of payment is also payable - Decided partly in favour of assesse.
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2015 (1) TMI 214
100% EOU - Benefit of the exemption of Notification No. 7/2003-C.E., dated 1-3-2003 on the DTA clearance - Penalty under Rule 25 - Held that:- As is seen from the reproduced portion of Commissioner (Appeals) order that he has relied upon the Board Circular 305/113/94-FTT, dated 19-2-98. Revenue in their memo of appeal have nowhere contended that the said decisions are not applicable to the facts of the present case or same have been reversed by any higher appellant form. In terms of the Board clarification the goods manufactured by 100% EOU have to be treated as having been produced in India, in so far the same relates to DTA clearance and the effective rate of duty is applicable in respect of such goods. The Tribunal in the relied upon decisions has taken note of the said clarification by the Board and has laid down that the clearances by 100% Export Oriented Units to Domestic Tariff Area would attract effective rate of duty fixed under exemption notification issued under Section 5A of Central Excise Act, 1944. As such, we find not reasons to take a different view. - Decided against Revenue.
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2015 (1) TMI 213
Confirmation of demand of duty on the short found finished goods and the raw materials - Commissioner (Appeals) has set aside the demand of ₹ 4,02,477/- in respect of short found raw materials on the ground that the same were used by the assessee in the manufacture of the final goods, which were found in excess - He also observed that once the raw materials were entered in the records, assessee cannot escape to record the finished goods against the said raw materials - Held that:- Entire case of the Revenue is based upon the alleged shortages detected during their visit in the assessee’s factory. The assessee’s authorised representative, in his statement, has accepted the shortages. However, he is nowhere deposed that the said alleged short found goods were cleared by them clandestinely. Apart from the alleged shortages, there is virtually no evidence on record to corroborate the allegation of clandestine removal. The Tribunal in number of decisions has held that mere shortages cannot lead to inevitable conclusion of clandestine removal. As such, I find no justification for confirmation of duty demand of ₹ 2,26,880/- against the assessee. There were certain excesses also found in the assessee’s factory. Admittedly, the said excess found goods must have been manufactured out of the raw materials entered in the records. There is no evidence that the raw materials for the said excess found goods were procured clandestinely by the assessee. As such, Commissioner (Appeals) has rightly observed that once raw materials entered in the record, an assessee is bound to reflect the use of the same in the manufacture of the final product. If the raw materials contained in excess found goods is taken into consideration, no duty confirmation would fall on the assessee. Otherwise also, I find that there is virtually no evidence on record to show that the said alleged short found raw materials stand cleared by the assessee. Accordingly, I find no infirmity in the said part of the impugned order of the Commissioner (Appeals). - Decided in favour of assessee.
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2015 (1) TMI 212
Rejection of permission for additional space for storage of raw material - denial on the premise that the appellant has not made out export obligation - Held that:- The fact is that the production capacity of the unit has been increased five times after taking the possession of the unit from the earlier owner. Further, the appellant has taken due permission from the Development Commissioner who is authorized to grant Export Licence. I also find that there is no adverse report against the appellant. In these circumstances, the lower authorities have granted the permission to add the additional space for storage of raw material in their licence. Further, I find that there is no bar that only the adjacent place shall be allowed for the storage of raw material. In these circumstances, I hold that the additional space sought by the appellant for the storage of raw material is to be allowed in their licence. - Decided in favour of assesse.
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2015 (1) TMI 211
Imposition of penalty - Attempt to smuggle goods - Misdeclaration of goods - Immunity given to co-noticee in previous cases - Held that:- On going through the observations made by the adjudicating authority I find that on the same allegation when he had no hesitation to drop the penalties imposed on the Reliance Industries Ltd., then why he has not adopted the same principle for dropping the penalties proposed against all other co-noticees. I am of the view that on the principle of equity, immunity to all the co-noticees of the show cause notice is to be granted. When immunity has been granted to M/s. Reliance Industries Ltd., the appellants are also required to be granted immunity from the imposition of penalty on the same cause of action in the impugned show cause notice. Therefore, I set aside the penalties imposed on all the appellants - Decided in favour of assesse.
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CST, VAT & Sales Tax
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2015 (1) TMI 233
Denial of input tax credit on the ground that registration certificate of the supplier has been cancelled ab initio - Necessary proofs to establish the genuineness and bonafide of purchases – Assessee contended that since vendors' registration was cancelled subsequently, the genuine transactions on which tax credit was claimed in the year 2006-07, could not be disallowed merely because the registration certificate of the said vendor was cancelled retrospectively – Held that:- When the appellant/s – dealer/s have failed to satisfy/prove the actual physical movement of the goods alleged to have been purchased by them from the aforesaid two vendors on which the input tax credit have been claimed and when the sale transactions are found to be not genuine and it appears that there were only billing activities, no error has been committed by the AO as well as Tribunal in denying the input tax credit - the input tax credit has / have been denied also on the ground that the respective appellant/s – dealer/s have failed to prove the actual physical movement of the goods alleged to have been purchased by them from the aforesaid vendors and therefore, it is held that there was no actual physical movement of the goods and therefore, the sale transaction is/are not genuine and it was only billing activities to defraud the government - Decided against petitioner assessee. Dismissal of appeal by JC on account of non-payment of pre-deposit - Whether the Tribunal was right in deciding the appeal when the Joint Commissioner had not passed the appeal on merits but dismissing it only for non-payment of pre-deposit – Held that:- The similar issue has been decided in RG SCRAP TRADERS Versus STATE OF GUJARAT [2015 (1) TMI 221 - GUJARAT HIGH COURT] wherein it was held that the Tribunal ought not to have entered into the merits of the case and / or decided the appeals on merits against the order of assessment - when the appellant made submissions on merits against the order of assessment as if the appeals before the Tribunal were against the order of assessment and when the Tribunal has dealt with and considered the same and decided the appeals on merits and when appellant has lost in the appeals on merits, thereafter it not open for the appellant now to make the grievance that the Tribunal ought not to have decided the appeals on merits – thus, it is not open for the appellant now to raise a grievance that the Tribunal ought not to have entered into the merits of the case and dismissed the appeals on merits, when the submissions were made before the Tribunal as if appeals are on merits against the order of assessment also and more particularly, when the appellants have lost on merits. No error has been committed by the Tribunal in entering into the merits of the case and even considering the appeal/s on merits against the order of assessment passed by the DC - as such by judgment and order, the Tribunal has partly allowed the second appeals and has quashed and set aside the order of assessment passed by the AO insofar as imposing maximum penalty is concerned and has remanded the matter to the AO - the judgment and order passed by the Tribunal is partly in favour of the appellant – dealer against which the appellant/s have not made any grievance - no error has been committed by the learned Tribunal in entering into the merits of the case and decided the appeal on merits and against the order of assessment passed by the AO – Decided against petitioner.
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2015 (1) TMI 222
Requirement to furnish security and 20% of amount as pre-deposit – Decision relied upon overruled by subsequent decision of SC - Held that:- On merely establishing a prima facie case, interim order of protection should not be passed - but if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand - Petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand - there can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved - Merely because the Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest - where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens' faith in the impartiality of public administration, interim relief can be given - since the assessing authority has made the assessment relying exclusively on the earlier judgment of the Supreme Court in State of Andhra Pradesh Vs. M/S Kone Elevator [2005 (2) TMI 519 - SUPREME COURT OF INDIA] which has now been overruled by the Constitution Bench of the Supreme Court in Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu [2014 (5) TMI 265 - SUPREME COURT], the revisionist is entitled to complete stay of the demand amount – thus, the order dated 28.7.2014 passed by the Tribunal is modified and a direction is issued to the Appellate Authority to decide the appeal of the revisionist expeditiously in accordance with law within a period of two months from the date of receipt of the certified copy of this order - Till then no recovery shall be made from the revisionist of the remaining amount of 20% of the tax for the AY 2010-11 – Decided in favour of revisionist assessee.
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2015 (1) TMI 221
Determination of State for chargeability of goods - Whether the Tribunal was right in holding that the goods which were sold and made chargeable to tax in the State of Maharashtra are chargeable to tax in Gujarat since the payment thereof was made within the State of Gujarat – Held that:- The tax liability against the appellant has been confirmed by holding that the goods which were purchased by the appellant in public auction held in State of Maharashtra have in fact been sold in the State of Gujarat - on inquiry and investigation by the authority it has been found that all those dealers in whose favour alleged sales / transactions have taken place are non-existence and even they are not registered dealers with the sales authority in the State of Maharashtra – the goods have been sold in the State of Gujarat and in favour of dealers in the State of Gujarat and even payments have also been received in the State of Gujarat - even the appellant is not registered dealer in the State of Gujarat and therefore, appellant could not have sold the goods in the State of Maharashtra - Thus, as such the appellant could not prove and/or establish that in fact goods purchased in the State of Maharashtra were in fact sold to the dealers in the State of Maharashtra - when there are concurrent findings of the facts given by both Tribunal as well as AO, which are on appreciation of evidence, which are neither shown or demonstrated to be perverse, it cannot be said that any substantial question of law arise - Under appellate jurisdiction u/s 78 of the Act, it is not required to re-appreciate the entire evidence on record and / or interfere with the finding given by the authority below which are on appreciation of evidence unless it has been demonstrated that the findings are perverse and / or contrary to the evidence on record. The Tribunal has not held that the goods were chargeable to tax in Gujarat solely on the ground that the payment thereof was made within the State of Gujarat - The entire evidence on record and bundle of facts are required to be considered - The AO as well as Tribunal has held that goods were sold and chargeable to tax in Gujarat on appreciating the entire evidence on record and considering the entire facts and circumstances of the case which are referred to herein above, more particularly, identity and / or existence of the dealers to whom the goods were alleged to be sold in State of Maharashtra is not established; that those dealers in the State of Maharashtra to whom the goods were alleged to have been sold are not registered dealers in the State of Maharashtra; that there are transactions with the dealers in the State of Gujarat; payment with respect to the goods sold is received in the State of Gujarat; that the appellant itself is not registered dealer in the State of Maharashtra and therefore, could not have even sold the goods in the State of Maharashtra. Assessment order barred by jurisdiction or not – Bar of limitation – Held that:- The competent authority did pass an order of extension of period of limitation in exercise of proviso to subsection (2) of Section 42 which empowers the State Government and Commissioner to extend the period specified in subsection (1) of Section 42 - The order of extension which in fact was with the consent of the appellant, has attained the finality – the Tribunal has rightly held that if any valid extension is there, assessment can be made subsequent to the date of expiry of the period provided in subsection (1) of Section 42 - the appellant gave consent for extension of time, 30.3.2006 and the Joint Commissioner of Sales Tax extended the time on 30.6.2006 and the time limit was extended upto 31.3.2007 and the assessment order has been passed on 31.3.2007 i.e. within the extended time limit – thus, the Tribunal has not committed any error and / or illegality in dismissing the appeals and not accepted the contention on behalf of the appellant that the assessment order is bad in law on the ground of limitation. Non deposit of pre-deposit – Held that:- The Tribunal ought not to have entered into the merits of the case and / or decided the appeals on merits against the order of assessment - when the appellant made submissions on merits against the order of assessment as if the appeals before the Tribunal were against the order of assessment and when the Tribunal has dealt with and considered the same and decided the appeals on merits and when appellant has lost in the appeals on merits, thereafter it not open for the appellant now to make the grievance that the Tribunal ought not to have decided the appeals on merits – thus, it is not open for the appellant now to raise a grievance that the Tribunal ought not to have entered into the merits of the case and dismissed the appeals on merits, when the submissions were made before the Tribunal as if appeals are on merits against the order of assessment also and more particularly, when the appellants have lost on merits – Decided against appellant assessee.
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