TMI Tax Updates - e-Newsletter
October 16, 2012

Case Laws in this Newsletter:

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

News

1. State Farms Corporation Earns Rs. 58.18 Crore Profit; Pays Rs. 1.57 Crore Dividend to Government

2. Index Numbers of Wholesale Prices in India (Base: 2004-05=100) Review for the month of September, 2012

3. Statement by the Finance Minister of India Shri P. Chidamabaram at the Development Committee Meeting of the World Bank in Tokyo

Notifications

Service Tax

1. F.No.137/99/2011 - dated 15-10-2012 - ST

Extension of time to file return in Form ST3 - 1st April 2012 to 30th June 2012, from 25th October, 2012 to 25th November,2012.

Highlights / Catch Notes

Income Tax

• High Court or Supreme Court decisions are mistakes apparent from the record u/s 254(2) and must be corrected.

  Case-Laws - AT : The decision of the High Court or the Hon’ble Supreme Court rendered prior to or even subsequent to the order, will constitute mistake apparent from the record within the meaning of Section 254 (2) and it should be corrected by the Tribunal. - AT
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• Tax Deducted Salary Not "Undisclosed Income" u/s 158BB.

  Case-Laws - HC : Salary income of the assessee on which he had been subjected to deduction of tax at source, cannot be categorised as “undisclosed income” as defined in section 158BB - HC
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• Cash Payments Over Rs.20,000 to Associates Not Justified for Disallowance Deletion u/s 40A(3) of Income Tax Act.

  Case-Laws - AT : Payments made in excess of Rs.20,000/- in cash was not a justifiable reason for deleting the disallowance under Section 40A(3) of the Act as payment is made to associate concern. - AT
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• High Court Clarifies Operational Shortcomings Don't Disqualify Societies u/s 12A from Charitable Status.

  Case-Laws - HC : Charitable purpose - registration u/s 12A - The shortcomings by themselves cannot be put on par with lack of genuineness of the Society - HC
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Service Tax

• Form ST3 Filing Deadline Extended to November 25, 2012, for April-June 2012 Period.

  Notifications : Extension of time to file return in Form ST3 - 1st April 2012 to 30th June 2012, from 25th October, 2012 to 25th November,2012. - Notification
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Case Laws:

• Income Tax

• 2012 (10) TMI 405
  Tax on receipts from Dubai, UAE companies - u/s. 44D r.w.s. 115A OR u/s. 44BB - Held that:- Undoubtedly Hon'ble Jurisdictional High Court has held that income in this case is chargeable u/s. 44D read with section 115A but the issue as to whether the assessee was entitled to relief under Article 22 of the DTAA between India and UAE has not been looked into. Also this issue was also earlier remitted by the Tribunal to the file of the AO and AO has not considered it the matter needs to be referred back to the Assessing Officer to consider the same - in favour of assessee for statistical purposes.

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• 2012 (10) TMI 404
  Adjustments made to the purchase price of imports from Associated Enterprises - rejection of CUP method claimed by the assessee - CIT(A) deleted the addition - Held that:- The assessee had furnished proper details to show comparable transactions of Non-AE parties which match with the transaction of the assessee with its AE. Persuing the chart reproduced from the order of CIT(A), it was observed that the rate of diamonds per carat varies between Rs. 38,561/- to Rs. 98,499/-. It was the submission of assessee that the transaction compared being in the immediate vicinity of the transaction entered into by the assessee with its AE is sufficient to prove that the price charged by its AE was comparable with price charged by Non-AEs. However, he could not produce details about the quality of the diamond mentioned with reference to invoices. Therefore, CIT(A) has wrongly accepted the CUP method and TPO was right in observing insuffciant details were furnished to prove the justification of applicability of CUP method. As the ALP can be worked out only with respect to international transaction of the assessee with its AE it is just and proper to restore this issue to the file of AO with a direction to verify the aforementioned calculations submitted by the assessee after giving the assessee reasonable opportunity of hearing and if the aforementioned calculations are correct then the difference being within the safe harbour of +/- 5%, no addition with regard to ALP should be made - in favour of revenue by way of remand.

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• 2012 (10) TMI 403
  Reopening of assessment u/s 147 - Held that:- In the reasons recorded of reopening the assessment AO raised two contentions, firstly, he contended that certain figures do not match with the Tax Audit Report and, secondly, that with respect to certain expenditure of R and D, double benefits were claimed in the form of depreciation as well as deduction under section 35AB but when the assessee objected to such grounds and pointed out in detail that the claims were valid and that there was no double claims made, the AO in the order rejecting the objections went on yet different aspect altogether. We are not commenting on the validity of this new angle sought to be brought in by the Assessing officer. Suffice it to note that the notice for reopening must fail or succeed on the basis of the reasons recorded. If a new ground occurs to the Assessing Officer after he recorded the reasons for reopening of assessment and issued notice for such purpose, surely this cannot be a ground to support the notice, thus no valid basis for reopening the assessment - in favour of assessee. Non-remission of export sale proceeds - Held that:- The assessee had made full disclosure about the claim under section 80HHC including the the sum of Rs.3,03,970/- towards the export sale proceeds, for which the assessee had also also sought extension. When such material was placed before the AO, at the time of original assessment, he could have disallowed the same. However, by no stretch of imagination, it can be said that the assessee failed to fully and truly disclose all material facts. In fact, in the original assessment AO scrutinized the claim of the assessee under section 80HHC. Even in the order disposing of the objections, the Assessing Officer has nowhere stated that the assessee failed to disclose full facts with respect to such claim - in favour of assessee. Assessee had debited lease equalization amount in the profit loss and account - Held that:- Neither in the reasons recorded nor even in the order disposing of the objections of the petitioner, the Assessing Officer has been able to demonstrate that the assessee had failed to disclose truly and fully all material facts. On this ground, reopening of assessment would not be permissible - in favour of assessee Interest on delayed payment - rate much higher than the prevailing market rate - Excess claim of deduction under section 80IA - Held that:- The only disclosure was that the assessee had earned interest income of Rs.3,03,48,973/-. There was no further information available on record that such interest included overdue payment charges at the rate of 24% received from the sister concern, viz. Aditya Medisales. Even without the aid of explanation (1) to proviso to section 147, therefore, it was perhaps open for the Assessing Officer to contend that there was no true and full disclosure on the part of the assessee in this respect. At any rate, by applying such explanation, it can be easily gathered that the assessee failed to disclose fully and truly all material facts. Counsel for the petitioner, however, vehemently contended that these were not primary facts. Only primary fact was that the assessee had earned interest income. We are, however, of the opinion that in the context of the close connection between the petitioner and Aditya Medisales, the fact that the assessee was eligible for deduction under section 80IA the interest income received from the sister concern had relevance to the provisions of section 80IA(10), primary facts were not on record - against assessee.

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• 2012 (10) TMI 402
  Capital Gains v/s Income from Business - Held that:- Through out the assessee’s intention was to maintain two separate portfolios – one for the investment purpose and the second for the trading purpose and has segregated his transactions. The assessee has also been consistent in this approach right from earlier years which has been accepted by the Department after full scrutiny and examination. The shares which were held for a period of less than sixty days, the assessee has incurred net loss and maximum gain has come from the shares which were held for a period of nine months or so. Thus, the theory of the AO as well as the CIT(Appeals) gets demolished from the above facts that the assessee has gained a lot and has entered into several transactions. It is a known phenomenon in Stock Exchange that a single transaction is split by the computers trading in the Stock Exchange into many smaller transactions but that does not mean the assessee has carried out several transactions. Thus, the findings of the CIT (Appeals) as well as the AO that the short term capital gain is to be assessed under the head “Income From Business” solely on account of frequency of transactions cannot be sustained. As decided in The Commissioner of Income Tax Versus Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] if the assessee has maintained two separate books of account, separate portfolios i.e., one in relation to investment in shares and other relating to business activities involving dealing in shares and such an approach has been consistently being followed by the assessee and allowed by the Department, the sale of shares shown under the head “Investment” cannot be treated and taxed under the head “Income From Business”. Thus the shares held as investment by the assessee and the income arising on sale of such shares is assessable under the heads “Short Term Capital Gains” & “Long Term Capital Gains” and not under the head “Income From Business” - in favour of assessee.

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• 2012 (10) TMI 401
  Rectification u/s 254(2) – Disallowance u/s 14A – Since the matter has been left un-adjudicated and therefore, there is an apparent mistake in the impugned order of this Tribunal, which requires to be rectified. Issue needs fresh consideration following the decision in case of Godrej but the disallowance was made by the AO and confirmed by the CIT(A) on the very same point. For exercising the jurisdictional u/s 254(2), it is the mandatory condition that such mistake should be wide apparent, manifest and patent and not something which could be involved serious circumstances of disputes of question of facts or law and can be established by long drawn process and reasoning on the point to be rectified. Therefore, the Tribunal has no power to review its order passed on merit and in the grab of rectification of mistake no order can be passed u/s 254(2) which amounts to reversal of the order passed after discussing all the facts and statutory provisions in detail. Issue decides in favour of revenue.

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• 2012 (10) TMI 399
  Validity of notice issued u/s 158BD – Satisfaction recorded by AO in pursuance of issuance of notice u/s 158BD - Assessee contended that no satisfaction whatsoever has been recorded by the A.O of the searched persons(s) against the assessee which could validate the assessment proceedings against the assessee - AO of the assessee requested the AO of the searched persons(s) to issue him a letter so that the proceedings can be started against the assessee u/s 158 BD - Notice u/s 158BD cannot be issued by him unless a letter to that effect is received - Held that:- The quantification by the DDI(Inv) of the undisclosed income in the hands of assessee cannot be termed or equated with “satisfaction” recorded by the AO of the searched persons(s). And also no material whatsoever has been handed over by the AO of the searched person(s) to the AO of the assessee on the basis of which such alleged “satisfaction” is recorded. There is complete lack of any “satisfaction” recorded by the AO of the searched persons(s) as the letter dated 8/3/2001 does not record any “satisfaction” against the assessee which can only be said to be the “satisfaction” of AO of the searched person(s). Therefore, assessment proceedings carried out against the assessee are not valid for the reason that notice u/s 158BD was issued without fulfilling the condition precedent necessary for issue of notice u/s 158BD. Appeal decides in favour of assessee

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• 2012 (10) TMI 398
  Rejection of books u/s 145 – Accommodation entries/bills – Whether books were rejected u/s 145 merely on the basis of, if one of the director of assessee company is engaged in providing accommodation bills - AO concluded that the assessee is also engaged in the business of providing accommodation bills - The AO estimated the commission/brokerage/consideration from providing the accommodation bills/entries @1% (net of expenses) on the total turnover – Held that:- Only because of such person in his statement has accepted of providing accommodation bills cannot ipso facto make the assessee company also to be engaged in the same kind of business. There is no reference of the name of the assessee company in the statement given by such person & document there from. As we have held that commission income is not assessable in the hands of the assessee, its return as per account is accepted and the addition made with respect to commission is deleted. Appeal decides in favour of assessee.

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• 2012 (10) TMI 397
  Rectification of Order u/s 254 - Whether non-consideration of a decision of Jurisdictional Court or of the Supreme Court can be said to be a "mistake apparent from the record” - Held that:- it is settled principle of law that the decision of the jurisdictional High Court or the Hon’ble Supreme Court rendered prior to or even subsequent to the order, will constitute mistake apparent from the record within the meaning of Section 254 (2) and it should be corrected by the Tribunal. Decision of Apex Court in ACIT Vs. Saurashtra Katch Stock Exchange of India (2008 (9) TMI 11 - SUPREME COURT) followed.

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• 2012 (10) TMI 396
  Disallowance of FCCB issue expense – accrual of expenditure - CIT(A) disallow on the ground that the expenditure pertains to the earlier year – Held that:- When the bills were raised in the year under consideration and the assessee received the bills only in the year under consideration, then there was no occasion for the assessee to book the said expenditure in the absence of the bill raised by the 3rd party. Further, the assessee has not claimed this expenditure in the earlier years and booked the same only in this year after the bills were received and payments were made. Expenditure is required to be booked only when it is crystallised by way of raising the bill by the other party. Issue decides in favour of assessee Disallowance of repair & maintenance expense – Capital v/s revenue in nature – Held that:- Except the expense in relation to erection and commission of effluent treatment plant, all other expenditure does not bring any new asset in existence but incurred only in respect of the existing is assets. When the expenditure is incurred in respect of existing asset, then the same is allowable as revenue in nature u/s 37 (1). Product development expenses u/s 35(2AB) – Disallowance was made by the authorities below by following the order for the A.Y. 2005–06 - Held that:- Assessee has furnished the bifurcation of expenditures in the note attached to the return of income itself. The assessee also filed details before AO. Tribunal has principally decided the issue in favour of the assessee for the assessment year 2005-06. There is no confusion or dispute on the bifurcation of amount for the year under consideration. Issue decides in favour of assessee Addition u/s 41(1) – AO’s ground is that some of the creditors are outstanding for a period of more than 3 years – Held that:- AO invoked Sec. 41(1) merely on the ground that the liabilities were three years old. Following the decision in case of Dsa Engineers (2009 (3) TMI 646 - ITAT MUMBAI) that if the assessee has not written off the liabilities reflected in sundry creditors account it was not open to the AO to make addition invoking Sec. 41(1) without proving that there was cessation of liabilities. Issue decides in favour of assessee Disallowance u/s 14A – Expense incurred in relation to earn exempt income – Assessee contended that his own funds and surplus are more than the investment made in the shares - Most of the dividend income received by the assessee is from foreign companies and the same is not exempt income – Held that:- Following the decision in assessee’s own case wherein it has been held that prior to assessment year 2008-09, Rule 8D was not applicable. However, the disallowance is warranted under section 14A of the Act. The A.O. must adopt a reasonable basis or method consistent with the facts and circumstances of the case. Issue remand back to AO. Depreciation on royalty payment – Held that:- Following the earlier order of this Tribunal that the royalty in payment has been made to acquire the brands and it is evident that such payment forms part of the cost of acquisition of brands and therefore, forms part of the total cost of the asset. Issue decides in favour of assessee Disallowance u/s 43B for delayed payment of PF and ESI – Held that:- Since payment are made within grace period of 5 days. Therefore, allowed the claim of the assessee by observing that the payment made within the grace period is allowable u/s.43B. Issue decides in favour of assessee Deduction u/s 35(1)(iv) – Whether both land and building excludes from the purview of Sec. 35(1)(iv) - AO argues that the buildings used for R&D are also excluded from the purview of Sec. 35(1)(iv) – Held that:- We see no merit in the above contortion because, firstly, when the legislature specifically excludes only the land from the purview of Sec. 35(i)(iv) it would be improper to enlarge the scope of the expression ‘land’ to include ‘building’. And assessee sought deduction on building and not on land. Issue decides in favour of assessee

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• 2012 (10) TMI 395
  Addition made on account of Credit note – Weather credit notes are account for in books on accrual or received basis – Held that:- Even on accrual basis, the amount can be accounted for only when credit note is received. The amount becomes debt to the dealers as and when the credit note is received in books of assessee. Therefore what they receive from Telecom Company as a credit note is for dealer. In such a situation nothing has been added in the hands of the assessee as the benefit was intended for dealers and not for him. Appeal decide in favor of assessee Disallowance of interest free loan – Assessee has also taken & also provided interest free loan – AO issue show cause notice to assessee to explain why interest liability should not be disallowed – Assessee did not reply - Held that:- As interest free amount ( capital plus loan) was in possession of assessee which is more than amount of loan given. Therefore it cannot be said that the money was lent from borrowed funds and not from interest free funds. Decision in favor of assessee Disallowance of expense u/s 37 – Held that:- As AO have a clear finding in respect of staff welfare expenses and travelling and local conveyances expenses use by assessee and his family. Treat it as personal expenditure and disallowed the same. No verification has been made in respect of the personal user of telephone and petrol expenses and these expenses are not fully vouched therefore allowed. Appeal partial allowed.

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• 2012 (10) TMI 394
  Search & seizure - block assessment - salary income earned during the block period treated as undisclosed Income on account of non-filing of return and late filing of returns - Held that:- When an assessee is a salaried employee and on such salary income, suffers deduction of tax at source and such tax is also shown to have been deposited by the employer with the Revenue, it can hardly be stated that such income is undisclosed income. Employer u/s 192 is required to deduct tax at source on salary income. Section 199 provides for credit of such tax deducted at source. Section 205 provides for a bar against direct demand of tax where such tax is deductible at source. Upon overall consideration of the statutory provisions noted hereinabove and the judicial trend, it is held that salary income of the assessee on which he had been subjected to deduction of tax at source, cannot be categorised as “undisclosed income” as defined in section 158BB - Decided in favor of assessee

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• 2012 (10) TMI 393
  Addition on account of sales return – Goods sold by assessee is a branded commodity – Cover Under the regulations of Essential Commodity Act - In search and seizure undisclosed sale bills are seized - Assessee claims huge sales returns – Sales return claimed against profit because of non- acceptance by manufacturer - Held that:- It cannot be assumed that any brand will manufacture defective goods to such an extent. In normal circumstances, assessee cannot be allowed such goods return as claimed. Therefore sale returns claimed by assessee restricted to estimated 5% when the books of accounts are rejected. And undisclosed sales will be worked out accordingly. Case referred back to AO Addition on account of investment on out of books (Uchanti) purchases - The sales rejected as above, are on the basis of seized sale bills during search – And there is no evidence of any purchases outside the books of account – Held that :- Assessee has indulged in wide spread undisclosed sales. No reason is advanced as to how such a huge turn over can be carried out without some undisclosed purchases. In view of ITAT addition was very reasonable addition by AO. Decided in favor of revenue

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• 2012 (10) TMI 392
  Dis-allowance u/s 14A - assessee submitted that they have already offered an amount of Rs.1 lac for dis-allowance in pursuance of earlier ITAT’s orders - AO not accepting submissions of the assessee, disallowed Rs.18,41,918/- in terms of Rule 8D - Held that:- Indisputably, Rule 8D is not applicable in the year under consideration in view of the decision in Maxopp Investment Ltd (2011 (11) TMI 267 - DELHI HIGH COURT). Moreover in the assessee’s own case for the AYs 2001-02 and 2003-04, 2004-05, co-ordinate bench upheld the disallowance of Rs.1 lac. In the light of consistent view taken in these decisions in identical circumstances, and nothing contrary being brought on record by Revenue, dis-allowance of only Rs 1 lac is upheld. Dis-allowance of claim u/s 35D - expenses incurred on issue of shares and increase in authorized capital - denial on ground that benefit of S35D could be availed for a period of 10 successive years beginning with the previous year in which the business commences which have been lapsed - Held that:- Indisputably expenditure was incurred in the FY 1999-2000 and 2000-01, for issuing the shares. The assessee claimed 1/10th of these expenses since then and no disallowance has been made in any of the earlier years. There is no dispute that the entire expenditure is revenue in nature and was allowable in the year when it was incurred. Instead of claiming the entire expenditure in that year, the assessee deferred the amount, claiming only 1/10th in each of the subsequent 10 years. Hence, expenditure does not fall within the ambit of section 35D and needs to be allowed as revenue expenditure. Depreciation on computer peripherals - UPS - Held that:- Since it is part of the computer system, hence entitled to depreciation at the higher rate of 60 per cent. See BSES Rajdhani Powers Ltd (2010 (8) TMI 58 - DELHI HIGH COURT ) - Decided against Revenue

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• 2012 (10) TMI 391
  Disallowance of Payments made to Associate Concern in cash - Held that:- Payments made in excess of Rs.20,000/- in cash was not a justifiable reason for deleting the disallowance under Section 40A(3) of the Act as payment is made to associate concern. CIT(Appeals) fell in error in deleting the disallowance merely on the submission of the assessee, ignoring the ledger copies annexed to the assessment order by the Assessing Officer himself. The payments were all effected in cash and each of such payment exceeded Rs. 20,000/- the Assessing Officer had rightly made disallowance under Section 40A(3) of the Act - Order of CIT(Appeals)is set aside and order to reinstate the addition made by the A.O. under Section 40A(3) of the Act has been passed - in favour of Revenue.

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• 2012 (10) TMI 390
  Charitable purpose - registration u/s 12A - Genuineness of Activities of Society - Held that:- The object of the Trust so long as it fits into any one of the objects as mentioned under Section 2(15) of the Act, the first requirement is fulfilled and the second requirement will be met by the genuineness of the activities of such institutions are also to the satisfaction of the authority. We do not find any recording by the Registering Authority about the lack of genuineness of activities, but the Registering Authority did notice some shortcomings on the part of the Society, in the manner of its functioning. The shortcomings by themselves cannot be put on par with lack of genuineness of the Society - decided in favour of assessee.

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• 2012 (10) TMI 389
  Revision u/s 263 - Order Passed being erroneous and prejudicial to interest of Revenue - Held that:- omission on the part of AO in not including the amount of Rs.8 lacs to the income of the assessee without making appropriate inquiry, while passing the assessment order in the case of assessee for the relevant assessment year was undoubtedly erroneous and prejudicial to the interest of the revenue. The matter relates only to the amount of Excise Duty to be reimbursed by the assessee's sister concern M/s. Plasto Packs International Pvt. Ltd. in regard to job work and not with regard to any liability of Excise Duty borne by the assessee on other manufacturing activities undertaken by it. Regarding the amount of double addition and double taxation, suffice it to say that these are the matters to be gone into by the AO while passing the assessment order afresh after due consideration of the material on record. - remand order as passed by ITAT sustained.

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• 2012 (10) TMI 388
  Research and Development Expense - Assessee contended that the expenditure incurred by the assessee for purchase of imported products of unique nature was for investigation and research in nature and hence allowable as Revenue expenditure. Held that:- AO disallowed the deduction of the rgound that importing of pumps and motors for research and development are not connected to assessee’s business and are not for any innovative purpose therefore, the assessee is not eligible for deduction u/s 37 of the Act. The assessee has not filed any evidence to substantiate his case neither before the Assessing Officer nor before the ld. Commissioner of Income-tax(Appeals) or even before the Tribunal - Order passed by CIT(A) set aside and matter remanded back to AO for fresh decision.

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• 2012 (10) TMI 387
  Unexplained Cash Credits - Contention of Assessee was that he was able to explain and prove the source of the credit in its account, it was not incumbent upon the assessee to prove the source of income of the creditor. However he had written to the bank to supply necessary details to the Department but the bank refused to divulge information about the transactions in the account of Mr. Masqooth Ali. Held that:- the assessee had co-operated to establish the identity and capacity of the creditor and also genuineness of the transaction. The assessee has discharged his liability in proving that the amount of Rs.19,00,000/- which has been reflected in the books of accounts of the assessee was received from Mr. Masqooth Ali.Thus Cash credit is explained by Assessee properly - Appeal allowed in favour of assessee.

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• Customs

• 2012 (10) TMI 386
  Refund claim of duty paid under protest rejected on ground that if the assessment is not challenged by filing any appeal, the refund claim made u/s 27 would not be maintainable - assessee imported Coking coal classifiable under heading 27011910 and claimed benefit of exemption Notification No.21/2002 - provisional assessment under Heading 27011910 @5% BCD - Held that:- The basic philosophy denying refund without challenging an Assessment Order, as held by the Apex Court in case of PRIYA BLUE INDUSTRIES LTD (2004 (9) TMI 105 - SUPREME COURT OF INDIA), rests on the principle that the proceedings of refund and filing of appeal against an assessment order are two separate proceedings and the scheme under the Act meticulously provides relief to the assessee, when the assessment order is not acceptable to him. It provides that when an assessee is aggrieved by the assessment order, the recourse open to him is to file an appeal before the appellate forum instead of asking for refund directly by short-circuiting the process of appeal prescribed to be followed under the Act, before the appropriate authority. Appeal filed by the Appellant is dismissed.

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• 2012 (10) TMI 385
  Demand of duty – import of goods from Nepal - importer had claimed exemption under Notification 40/2002-Cus., - goods were intercepted by Directorate of Revenue Intelligence and seized under the belief that the importer had mis-declared the goods in the Bill of Entry for claiming the exemption under Notification 40/2002-Cus., - alleged that exemption under Notification 40/2002-Cus. was meant for goods of Napalese origin; the goods imported were pure Calcium Di-Pantothenate, classifiable under Customs Tariff Heading 29.36 and the goods were imported from Germany – Held that:- Case of the department is proved based on test reports - When the goods were available for testing and were tested and found to be different from what was declared, the appellant was just trying to avoid coming before the department - His agent was accepting that the certificate was forged - department did not make enquiries with the Nepal Chamber of Commerce which is stated to have issued the certificate is not a major flaw in investigation - no need for any joint visit by the Indian Customs and Napalese Customs to the factory of the exporter to find out the correctness of the certificate issued Whether goods could have been confiscated absolutely – alleged that goods were prohibited goods and liable to confiscation under 111(d) of the Customs Act – Held that:- Goods in question is not of a type which causes injury to public health or can cause damage or threat to the society if released into Indian market - goods have been sold by the Customs in Indian market - goods should have been released to the importer against a redemption fine rather than the customs department selling the goods after absolute confiscation. Value of the goods - Appellants have raised the objection that the basis for such assessment is not disclosed in the SCN or in the order-in-original - When the description was wrong the value declared cannot be accepted – Penalty – Held that:- Penalty imposed on the firm is about 45% of the assessed value of seized goods - Considering that goods were absolutely confiscated, and the relief from such order is being granted only after more than 8 years, and thus the appellant has suffered severe penal consequence we reduce the penalty

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• Corporate Laws

• 2012 (10) TMI 383
  Winding up of the Company - Petitioners contended that order of winding up against the respondent company be passed because the respondent company has, according to the petitioner, lost capacity to discharge its financial obligations and it is unable to pay its debt. The amounts in dispute were deposited by the petitioner companies towards security deposit in pursuance of identical agreements entered into between the petitioner companies and the respondent co. the petitioners have terminated the agreement in accordance with the terms thereof and that therefore the respondent company is under obligation to return the amount deposited towards security deposit. However, despite repeated reminders and requests and even after due and proper service of statutory notice at the Registered Office of the respondent company, the payment has not been made. The petitioners, therefore, have filed present petition. Held that:- in case of the three petitioners the respondent has not refunded a total sum of Rs.16 lacs (between the three petitioners) and upon service of statutory notice, in its reply through advocate it has for the first time made reference of its right to forfeit the security deposit of the two petitioners. - it prima facie appears that the dispute or defence sought to be raised by the respondent in case of all three petitioners are in nature of afterthought and they are not genuine and bona fide but are, as described by the Apex Court, ingenious mask invented by the respondent to defeat the petition and seem to have been raised only with a view to shielding or hiding its neglect as well as inability to refund the security deposit and delay or frustrate the obligation to refund the deposits. - it becomes relevant and necessary to examine as to whether there is any bona fides in the dispute sought to be raised by the respondent or not. The respondent is directed to deposit in the Registry of this Court, within 30 days from receipt of the certified copy of present order, 30% of the deposited amount by each of the three petitioners, i.e. Rs.4.80 lakhs (Rupees Four Lakh Eighty Thousand only) in the interest of justice and the Registry shall list the three petitions being Company Petition Nos.179 of 2010, 181 of 2010 and 182 of 2010 on 16th July, 2012 for further orders.

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• Service Tax

• 2012 (10) TMI 408
  Principle of natural justice - assessee contended that Commissioner (Appeals) has not dealt with various pleas raised by the appellant and has simply confirmed the demand, by giving an impression as if the appellant have admitted their duty liability and have not contested the same - Held that:- On comparison of paragraphs as reproduced in the order and is originally contained in the memo of appeal, it comes out clear that the appellate authority has only reproduced a part of said paragraphs, leaving out the balance lines. As such, the entire colour of the submissions made by the appellant got changed. Commissioner (Appeals), being the first appellate authority, is expected to go through the facts of the case as also the grounds raised before him, record the submissions made before him and to give his own finding on the same. Disposal of the appeal with distorted reproduction of appellant's submission and mere endorsement of the order of original adjudicating authority cannot be appreciated at all. Matter remanded to Commissioner (Appeals) for fresh decision.

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• 2012 (10) TMI 407
  Setting aside of Penalty imposed - Held that:- Penalty imposed is set aside - No malafide intention and suppression of Facts by appellant - As decided in case of [DCM Textiles Versus Commissioner of Central Excise [2012] 35 STT 88 (NEWDELHI-CESTAT)] For imposition of Penalty the intention to evade the duty must be proved. Merely not obtaining service tax registration or non-payment of tax, cannot be a ground of evasion of duty - penalty set aside.

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• 2012 (10) TMI 406
  Levy of Interest and Penalty on Service Tax paid on GTA Services - Held that:- Interest and penalty cannot be imposed as there is no failure to pay the duty at the time Liability to pay arises.As decided in case of [CCE v. Nahar Industrial Enterprises Ltd.2010 (5) TMI 608 - PUNJAB AND HARYANA HIGH COURT], Payment made initially through Cenvat credit was a good discharge of the tax liability and hence there cannot be a demand for interest. Tax paid again in cash only to avoid unnecessary litigation cannot be a reason to demand interest and as there was no delay in payment of Tax Liability Penalty cannot be imposed.

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• 2012 (10) TMI 378
  Cenvat credit - assessee had taken service tax credit of service tax paid on civil construction work in the factory – Held that:- Services used in connection with the setting up, modernization, renovation or repair of the factory or premises of output service provider, or office relating to such factory or premises are covered by the definition of ‘input service’ - requirement of pre-deposit of Cenvat credit demand, interest and penalty is waived

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• Central Excise

• 2012 (10) TMI 384
  Clandestine manufacturing activity - 100% EOU for manufacture of Needles - One cannulae was needed for manufacturing one needle – alleged that stock as per RG-1 was nil on 26-7-2000 and there was no production recorded – Held that:- Unaccounted final products are seized from the possession of the Appellants. Their private records showed receipt and issue of cannulae - appellants had manufactured the needles as alleged. As a Hundred Percent EOU they were supposed to maintain account of raw materials and finished goods. They preferred to show these items to be nil and to continue manufacturing activity - confiscation of needles under the provisions of Central Excise Rules is upheld - redemption fine on needles is upheld.

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• 2012 (10) TMI 382
  Valuation of aerated waters - whether rental charges was to be added to the assessable value or to be allowed as deduction - Held that:- Renting of containers in the case of packing of gases and liquids in reusable containers is a common trade practice. This is an ancillary or allied venture and the gains or profits from this activity are not to be added to the assessable value of the goods as decided in INDIAN OXYGEN LTD. Versus COLLECTOR OF C.E. [1988 (7) TMI 58 - SUPREME COURT OF INDIA]. The show-cause notices issued did not question the correctness of the amount claimed as rental on crates amounting to Rs. 15.23. On behalf of the assessee, it was also submitted that the rental could vary based on the nature of crates such as plastic or wooden. Thus the Commissioner despite having rejected the allegation of relationship, accepted the sale price, and in-principle accepted the deduction towards rental charges, has given no valid reasons to disallow part of the value claimed towards such rental on crates especially in the absence of any allegation that the amount claimed was inflated with a view to suppress the assessable value - in favour of assessee. Commissioner dropped the demand on the portions of value representing cost of advertisement and on the notional interest on advance deposit - Held that:- Regarding the dropping of demand on advertisement expenses as these expenses cannot be attributed to activities aimed at promotion of the product. Therefore, the Commissioner's reliance placed on the decision in the case of Philips India Ltd. [1997 (2) TMI 120 - SUPREME COURT OF INDIA] cannot be faulted - dropping of the demand relating to advance deposits as the department is presuming that such deposits must have been taken from all dealers on the ground that aerated waters could be supplied only in bottles and carried in crates. Such presumption cannot be the basis for confirming a demand. No evidence was adduced to show that taking a deposit has reduced the assessable value of the subject goods - in favour of assessee.

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• 2012 (10) TMI 381
  Refund claim of duty paid on transportation charges - revenue contention that refund claims filed were barred by limitation - Held that:- The assessee addressed the communication to the Asstt. Commissioner for treating the assessment as provisional. Merely because the Asstt. Commissioner did not pass the order for provisional assessment cannot be held to be deterrent to the assessees stand. It was the duty of proper officer to accept the above request for treating the assessment provisional and to pass appropriate orders. The lapse on the part of the Asstt. Commissioner cannot be taken as a ground by the Revenue for treating the demands as barred by limitation thus the refund claims are not hit by bar of limitation - in favour of assessee.

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• 2012 (10) TMI 380
  Restoration of the Appeal – appeal dismissed earlier for want of clearance from the Committee on Disputes – Held that:- Once it is apparent that merely on the ground of refusal of the permission by the Committee on Disputes, the appeal could not have been dismissed and yet the appeal was dismissed solely on the said ground, as rightly pointed out on behalf of the department, such an order deserves to be recalled

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• 2012 (10) TMI 379
  Demand of duty and interest - appellant were manufacturing Pan Masala containing tobacco up to Retail Sale Price (RSP) of Rs. 1.05 per pouch and paid the duty @ Rs. 12 lakhs per packing machine per month - alleged that besides packing Gutkha with RSP of Rs. 1.50 per pouch, the Appellants were also manufacturing Gutkha weighing 2 gm per pouch having no printed RSP on the pouches for export purposes – Held that:- Rate of duty is to be determined only with reference to pouches on which RSP is fixed - This is a case where the department is trying to fix, duty rate with reference to cases where RSP was not fixed - It is not as if the Appellants were required to fix RSP and they had not affixed. They were not required to fix RSP on such pouches and there is no case of the Revenue to work out RSP on such export goods based on its own method which had no sanction under law - this is not a case where any revenue loss has really happened to the exchequer but the Revenue is trying to give its own interpretation to the law which did not deal with the situation at hand – demand and interest set aside

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• 2012 (10) TMI 377
  Demand of duty and penalty - clandestine production and removal – alleged that Computer printouts showing clearance of SS Flats were seized – Held that:- Evidence of one of co-noticee cannot be relied upon against another co-noticee, unless it is corroborated by independent evidence - merely because incriminating oral evidence is recorded the same is not sufficient to establish a serious charge of clandestine production and removal of excisable goods - computer printouts are hit by the provisions of Section 36B(2) of the Central Excise Act. The genuineness of other loose slips is required to be established with corroborative evidence - duty demand on SS Flats is misdirected against them as they have admittedly never manufactured SS Flats but they are the manufacturers of SS Ingots only and there is no duty demand on SS Ingots - order set aside and matter remanded to the Commissioner for de novo adjudication

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• 2012 (10) TMI 376
  Writ petition - time-limit – Held that:- High Court under Writ jurisdiction cannot direct the custom authorities to ignore time-limit prescribed under Section 27 of Customs Act, 1962 even though High Court itself may not be bound by the time-limit of the said Section - Custom authorities, who are the creatures of the Customs Act, cannot be directed to ignore or cut contrary to Section 27 of Customs Act - As Section 11B of the Central Excise Act, 1944 provides for the time-limit and there is no provision to extend this time limit. As such the revision application is clearly time-barred as it was filed after the time-limit specified under Section 11B of Central Excise Act, 1944.

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• CST, VAT & Sales Tax

• 2012 (10) TMI 409
  Evasion of tax - non furnishing of the set of documents viz. Bill/invoice and GR at the ICC in respect of the consignment of 370 bags of 'Bidis' - Penalty imposed u/s 51(7) (b) of the Punjab Value Added Tax Act, 2005 - Held that:- As due to over-sight of driver he had left the invoice No.1900505 covering 370 bags in the vehicle and on being pointed out by the officer on duty, the driver went back and picked up the remaining documents from the vehicle and produced the same before the officer-in-charge. If the driver had been hiding to evade the payment of tax, he would have kept back Form ELTA-12 as well as Declaration Form-85. When all the documents relating to 370 bags were genuine, proper and complete in all respects and the transaction was voluntarily reported at the ICC, it would be treading in the realm of injustice to uphold the penalty. Leaving behind invoice No.1900505 ibid on the seat, does not seem to be intentional, rather oversight, which being a human mistake was rectifiable and by producing the same within no time before the officer on duty was rectified. The act being attributed to the driver, in no manner, was violative of the provisions of Section 51(2) of the Act. Consequently, the Penalizing Officer was not justified in imposing the penalty under Section 51(7)(b) of the Act, nor the first appellate authority has directed himself in the right perspective by affirming the findings of the officer incharge- cum-ETO, ICC Khallar Khera - in favour of assessee.

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