TMI Tax Updates - e-Newsletter
October 24, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

Articles

1. SAFE HARBOUR RULES

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. FM: Asks Regulators to Take all Possible Concrete Measures to Avoid any Adverse Impact of Tapering Off of the Quantitative Easing (QE) in the USA on the Indian Economy; to Finalise an Action Plan for Implementation of all the FSLRC Principles Relating to Regulatory Governance, Transparency and Improved Operational Efficiency that do not Require Legislative Action

2. RBI Working Paper Series 10: Net Interest Margin, Financial Crisis and Bank Behavior: Experience of Indian Banks

3. RBI Reference Rate for US $ and Euro

4. Auction for Sale (Re-Issue) of 1.44% Inflation Indexed Government Stock 2023

Notifications

Customs

1. 25/2013 - dated 22-10-2013 - ADD

Seeks to finalize provisional assessments of all imports of vitrified/ porcelain tiles falling under CTH 6907 or 6908 or 6914, by M/s Foshan Qiangbiao Ceramics Co. Ltd, China PR (producer) through M/s Sheenway Corporation Ltd., Hong Kong (exporter) which have been subjected to provisional assessment pursuant to the notification No. 35/2012-Customs (ADD), dated the 10th July, 2012

Circulars / Instructions / Orders

Income Tax

1. F. No. 225/117/2013/ITA.II - dated 24-10-2013

Order under Section 119 of the Income-tax Act, 1961 - Due date for filing of Tax Audit Report (TAR) and Income Tax Returns extended from 30-9-2013 to 31-10-2013

DGFT

2. 33 (RE: 2013)/2009-2014 - dated 24-10-2013

Amendment are made in the Handbook of Procedures Vol II.

Highlights / Catch Notes

Income Tax

• Interest Penalties Imposed for Non-Payment of Advance Tax u/ss 234B, 234C Related to Section 115JA/115JB Obligations.

  Case-Laws - HC : Interest under Sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under Section 115JA/115JB. - HC
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• High Court Confirms Moving Ship Operations Create Permanent Establishment for Foreign Enterprise Under Tax Law.

  Case-Laws - HC : PE in relation to moving ship - The foreign enterprise has the place of permanent establishment in this Country. The foreign enterprise thus satisfying the presence a permanent establishment. - HC
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• High Court Rules Dealer Discounts on SIM Cards and Recharge Coupons Are Commission, Tax Deduction Required u/s 194H.

  Case-Laws - HC : Whether allowing discount to the dealers on SIM Cards and re-charge coupons will attract the provision for tax deducted at source under section 194H - held yes - HC
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• Court Rules Only Profit Element of Bogus Purchases Subject to Taxation, Not Entire Purchase Amount.

  Case-Laws - HC : Whether the purchases themselves were bogus - not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax - HC
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• No Unabsorbed Depreciation Available for Book Profit Reduction in 2004-05 u/s 115JB of Income Tax Act.

  Case-Laws - AT : Mat - book adjustment u/s 115JB - Since unabsorbed depreciation as per books is nil for assessment year 2004- 05, it will not be permissible to reduce any amount on account of unabsorbed depreciation or brought forward business loss from book profit - AT
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• Agricultural land in rural areas remains excluded from 'capital asset' definition u/s 2(14)(iii)(b) of the Act.

  Case-Laws - AT : In view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in rural areas continues to be excluded from that definition - AT
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• Die Tooling Costs Classified as Revenue Expenditure for Modernizing Existing Projects, Not Capital Expenditure.

  Case-Laws - AT : Die tooling charges as revenue expenditure or capital expenditure - It was held to be revenue in nature since the expenditure were incurred for modernization of existing projects - AT
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• Assessee Seeks Rectification of Alleged Mistake via Section 154 Application; No Appeal Filed Against Assessment Order.

  Case-Laws - AT : Rectification of mistake u/s 154 - The assessee did not appeal against the assessment order - It though moved an application u/s. 154 of the Act on 16.06.2008, claiming a mistake - AO to reconsider the claim - AT
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• Tax Tribunal Rules in Favor of Taxpayer: Mark to Market Loss on F&O Transactions Recognized, Tax Additions Deleted.

  Case-Laws - AT : Disallowance on account of 'mark to market loss' on F&O transaction - additions deleted - AT
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• Deposit for Boundary Dispute Land Not Taxable This Year Due to Supreme Court Approval in 2008.

  Case-Laws - AT : Deposit received for the “boundary dispute land“ cannot be bought to tax in the year under consideration as the consent terms and conditions itself were approved by the Hon'ble Apex Court vide its order dated 23.10.2008 - AT
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Customs

• Importers Cannot Retroactively Fix Licensing Errors for Marble Imports, Petitioners Denied Benefits for Initial Wrongdoing.

  Case-Laws - AT : Import of marbles without licence - The importers who are importing goods without licence and then seek to validate the import by obtaining subsequent licence or licences cannot be allowed to take advantage of their own wrong. The petitioners are one of them. - AT
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Corporate Law

• Supreme Court Rules: Pay Double Cheque Amount as Compensation Instead of Jail in Cheque Dishonor Case.

  Case-Laws - SC : Dishonour of cheque - Compensation in lieu of incarceration - amount to be paid by the appellant, which in no case could go beyond twice the cheque amount - SC
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Service Tax

• Service Tax Dispute on Royalty Payments in Installments Pre and Post April 18, 2006 Lacks Prima Facie Case.

  Case-Laws - AT : Import of services - payment of royalty in installments - levy of service tax pre and post 18.4.2006 - Applicant could not able to make out a prima facie case for the installments paid after 18.04.2006 - AT
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• ERP Services Classified as IT Services Effective May 16, 2008.

  Case-Laws - AT : Implementation of the ERP services is specifically covered under the information technology service, which was effective only from 16-5-2008 - AT
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• State Police Housing Project: No Prima Facie Service Tax Liability on Government-Allotted Quarters.

  Case-Laws - AT : If the project is executed for the State Police Housing Corporation Limited, the said quarters are allotted by the State Government, service tax liability, prima-facie, does not arise - AT
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• Service Tax Penalties u/ss 76, 77, 78: Stay Granted After Pre-Notice Payment for Imported Services.

  Case-Laws - AT : Penalty u/s 76, 77, and 78 - service tax with interest deposited before issuance of show cause notice - import of services - Stay granted - AT
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• Show Cause Notice Questioned: Can a Private Limited Company Have a Proprietor? Misunderstanding or Misclassification?

  Case-Laws - AT : Show cause notice has been issued to the appellant herein as a Proprietor of M/s. Bombay Garrage (Rajkot) Pvt. Limited. In our view, Private Limited Company can never have a proprietor. - AT
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• Court Supports Waiver of Pre-Deposit for Old Tyre Retreading; Conflicting Judicial Decisions on Valuation Cited.

  Case-Laws - AT : Retreating of old tyres - There are contrary decisions on the issue, the assessee cannot be faulted with, for his entertaining a bonafide belief about the valuation of such services and his contention for granting waiver of pre-deposit - AT
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Central Excise

• Court Rules Collected Amounts Not Excise Duty, Impacts Appellant's Financial Obligations Under Cenvat/Modvat Credit Reversal.

  Case-Laws - AT : Nature of amount collected from the customers against reversal of Cenvat Credit / Modvat Credit on Exempted goods - the appellant never indicated the amount paid by them as excise duty - demand set aside - Ti
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• Commissioner Overrules Demand Due to Lack of Investigation by Lower Authorities; Decision Set Aside.

  Case-Laws - AT : Confirmation of Demand – Self Assessment – Commissioner (A) has confirmed the demand only on the ground that such investigation/verification was not taken up by the lower authorities - demand set aside - AT
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• Merged Company Entitled to GSIL's Pre-Deposit Refund; Authorities Cannot Deny Due to Payment Origin.

  Case-Laws - AT : Refund Claim – Pre-deposits made by holding company - the appellant was a subsidiary of GSIL and now both have become one company and on the ground that amount was paid by GSIL and not by the appellant, refund cannot be denied - AT
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• Assessee Rightfully Assumed Excise Duty Exemption Amid Conflicting Tribunal Views on SSI Exemption; Later Resolution Supports Position.

  Case-Laws - AT : SSI exemption - When there was conflicting views among different benches of the Tribunal, which was resolved much later, then during the relevant period, the assessee is held to be justified in proceeding on the basis that it was exempted from excise duty - AT
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• 2008 Central Excise Tariff Amendment Confirms Cut Flowers Remain Non-Excisable, No Excise Duty Imposed.

  Case-Laws - AT : Even after amendment to the Central Excise Tariff in 2008 cut flowers remains a non-excisable goods - If the goods are non-excisable goods, the question of levy of excise duty would not arise at all - AT
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Case Laws:

• Income Tax

• 2013 (10) TMI 937
  Interest u/s 234-B and 234-C of the Income Tax Act, when the income was assessed u/s 115 JB of the Act as the advance tax is not paid – Held that:- Relying upon the judgment of Joint Commissioner of Income-tax vs. Rolta India Ltd [2011 (1) TMI 5 - SUPREME COURT OF INDIA], it was held that Section 115JB, is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under Section 115JB, it was liable to pay interest under Sections 234B and 234C of the Act. Interest under Sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under Section 115JA/115JB. For the aforestated reasons, Circular No. 13/2001 dated 9.11.2001 issued by CBDT has no application. Moreover, in any event, para 2 of that Circular itself indicates that a large number of companies liable to be taxed under MAT provisions of Section 115JB were not making advance tax payments. In the said circular, it has been clarified that Section 115JB is a self-contained code and thus, all companies were liable for payment of advance tax under Section 115JB and consequently provisions of Sections 234B and 234C imposing interest on default in payment of advance tax were also applicable – Decided against the Assessee.

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• 2013 (10) TMI 936
  Whether ship comes under the fold of word Plant Held that:- Plant would include any article or object fixed or movable, live or dead, used by a business man for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical or industrial business. Thus, plant includes every tool, apparatus, equipment or machinery, not limited to machinery used in tool. In fact, even in Section 43(3) of the Income Tax Act, the expression used is unless the context otherwise requires . Thus, when the context does not require otherwise , the meaning of the word plant as defined under Section 43(3) would be relevant to understand what equipment would mean. Thus, with the inclusive definition on plant embracing within its fold so diverse a matter from a ship to a book, or medical equipment, every tool, apparatus, plant includes all equipment used by a business man for carrying on his business Therefore, ship comes under the fold of plant. Nature of expenditure as Revenue expenditure of Capital expenditure Royalty u/s 9(1)(vi) of Act - Whether payment made to the owner of vessel is in the nature of royalty charges or in the nature of purchase Held that:- Till the last month of the payment or the option exercised, the assessee was not the owner of the vessel. The assessee opted to make the balloon payment of US $2.75 million on 12.1.2005. A sale certificate was issued only on 12.01.2005. The consideration paid periodically was in the nature of hire charges for the use of the Vessel, as described in the agreement and not sale consideration Hire charges to be treated as revenue expenditure - By the exclusion Clause in Clause (iva) referring to cases falling under Sec 44 BB of the Income Tax Act. A payment made for the use or the right to use an equipment thus qualifies as royalty and in this case, considering the nature of time charter agreement and the rights and obligations of the charterer, for the privilege of using the ship, the fee paid is royalty, falling under Clause (iva) of Explanation (2) to Section 9(1)(vi) of the Income Tax Act Meaning of Permanent establishment in india as the place of business Held that:- For permanent establishment, there must be a place for the business to be carried on through that fixed place. The concept of permanent establishment assumes significance in the context of the determination of the rights of the Contracting State to tax the profits of an undertaking of the other Contracting state. In the context of the various business activities, in the case of equipment, a fixed place can be found to exist even though the equipment by the nature of business may be relocated from one site to another for a single customer under one integrated contract. A movable place of business is thus treated as fixed place of business and most of the equipment is used at fixed points within a proximate area on a repetitive continuous basis for sufficient period of time as required by the business. Thus, when the business activities are peripatetic and the equipment is moved between neighbouring location, a single place of business could be considered to exist where the location to which the equipment is moved. Thus the submission of the Revenue that the moving ship has a place of business in the place where the ship is docked and the fact that the ship moved from one point to another is the result of the nature of business contract and the movement is an integrated one having business and geographical coherence leads to the inference that the foreign enterprise has the place of permanent establishment in this Country. The foreign enterprise thus satisfying the presence a permanent establishment. Whether the penal provisions u/s 201 and 201A of the Income Tax act apply on the agents of Non-residents u/s 160 163 of the Income Tax Act :- Held that:- Section 195 relates to TDS on payment to a non-resident. The Section states any person responsible for paying to a non-resident would has to deduct tax at source. Section 195(2) states that the person responsible for deduction of tax at source can apply to the Assessing Officer for general or special order for determination of appropriate proportion of tax deductible, where the amount paid could not be fully taxable, the assessee responsible for TDS can ask for nil certificate. The non-resident or the agent could make an application for a certificate of nil deduction at a lesser rate. Thus, as far as Section 160 is concerned, this is a procedural and enabling Section for the determination of the quantum of income of the non-resident assessee and the tax to be demanded. Reliance has been placed upon the judgment in the case of Transmission Corporation of A.P. Ltd. and another V. CIT reported in [1999 (8) TMI 2 - SUPREME Court] - Proceedings under Section 201 and 201A of the Income Tax act has nothing to do with the status of the assessee as an agent under Section 160 and 163 which would assume significance only for assessment purposes. Thus so long as the Revenue is able to show the receipt as falling under Section 9 of the Income Tax Act, provisions of Section 160 of the Income Tax Act would stand attracted - The contention that Sections 163 and 201 of the Income Tax Act cannot go together is not correct for the reason that they operate on different spheres. Section 195 casts an obligation on TDS on any person responsible for paying, whereas Section 163 is for assessment purposes.

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• 2013 (10) TMI 935
  Whether exists question of law, when the estimation of income is done on the basis of loose papers – Held that:- Assessment of business income and estimation of investment were made on the basis of loose papers found during search operation – No any question of law much less substantial question of law arises for consideration by the Court under Section 260-A of the Act – Decided against the Revenue.

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• 2013 (10) TMI 934
  Whether allowing discount to the dealers on SIM Cards and re-charge coupons will attract the provision for tax deducted at source under the Act or not – Held that:- Relying upon the judgment of the C.I.T. vs. Idea Cellular Ltd ., reported in [2010 (2) TMI 24 - DELHI HIGH COURT]; Vodafone Essar Cellular Ltd., vs. ACIT reported in [2010 (8) TMI 691 - KERALA HIGH COURT], it has been held that the provision of Section 194H is applicable in respect of amounts paid to the agents in connection with sale of SIM cards and other services is adaptable – Decided against the Assessee.

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• 2013 (10) TMI 933
  Bogus purchases - whether the parties from whom such purchases were allegedly made were bogus – Held that:- Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2008 (3) TMI 323 - GUJARAT HIGH COURT] – Decided against the Revenue.

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• 2013 (10) TMI 932
  Whether the Tribunal was justified in holding that it cannot examine the legality and correctness of the raid conducted under section 132 of the Act because the very issue is pending before the High Court at the instance of the appellant-assessee – Held that:- Appellant has now submitted that they do not wish to prosecute the writ petition in the High Court and hence they may be allowed to withdraw the writ petition with a liberty to raise and challenge the legality and propriety of the raid before the Tribunal in the appeal out of which this appeal arises by remanding the appeal to the Tribunal. Once the appellant seeks withdrawal of the writ petition filed by the appellant wherein the challenge was laid to the legality and propriety of the raid, then they can be permitted to raise and challenge the legality of the raid before the Tribunal because the purpose is to invite finding from competent court of law on the issue as to whether the raid is legal or not? Though the Tribunal rightly recorded a finding that it cannot go into the question because the issue is pending before the High Court but now in the light of the submissions made by the appellant's counsel seeking withdrawal of the writ petition, the Tribunal is now entitled and competent to examine the legality and propriety of the raid in an appeal filed by the appellant out of which this appeal arises - Let the appeal be now decided by the Tribunal within a period of six months.

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• 2013 (10) TMI 931
  Interpretation of Section 36 to allow guarantee commission as deduction - high court has decided in favor of assessee [2013 (10) TMI 878 - BOMBAY HIGH COURT] - Held that:- matter remanded back to HC for fresh disposal after condoning the delay following Commissioner of Income Tax vs. Essar Projects Ltd [2013 (7) TMI 422 - SUPREME COURT]. Regarding allowance of interest paid on inter-corporate deposits by interpreting section 36(1)(iii) and allowance of enhancement of lease rental u/s 37 are pure - held that:- those are the questions which have been decided by the Tribunal as well as by the High Court purely on facts.

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• 2013 (10) TMI 930
  Reopening of Assessment u/s 147 – Held that:- Prima-facie income has escaped assessment for which reopening were justified - There is no question of change of opinion on this issue since earlier assessing officer did not express any opinion on the issue - Revenue pleaded that the AO has recorded his satisfaction before the reopening of the assessment - That satisfaction was duly communicated during the course of assessment proceedings - attention has also been drawn on the order passed u/s. 143(3), dated 6.12.2006 for A.Y. 2004-05 for the purpose that the AO had failed to examine the calculation of unabsorbed depreciation for the purpose of computation of tax liability u/s.115JB of IT Act - The discrepancy in the first assessment order has pointed out by the Revenue Department appears to be corrected - there is no mention at all about the computation of brought forward unabsorbed depreciation - once the admitted factual position was that the amount of unabsorbed depreciation had already been exhausted in A.Y. 2003-04 then legally the assessee is not entitled for double claim in A.Y. 2004-05 - the reopening of the assessment u/s. 147 r.w. Section 148 was justifiable – Decided against Assessee. Adjustment of unabsorbed depreciation while computing the book profit u/s. 115JB – Held that:- Wherever either of the figures is nil, no deduction is to be made from book profit - Under the clear provisions, assessing officer did not allow deduction of unabsorbed depreciation in the current assessment year on the ground that unabsorbed depreciation was fully utilized and reduced from the book profit in assessment year 2003-04 and therefore there is no unabsorbed depreciation available which can be reduced in this year - Since unabsorbed depreciation as per books is nil for assessment year 2004- 05, it will not be permissible to reduce any amount on account of unabsorbed depreciation or brought forward business loss from book profit - there is no brought forward unabsorbed depreciation available in assessment year 2004-05, there is no question of reducing the same from book profit - The action of the assessing officer is therefore confirmed – Decided against Assessee. Deletion of Penalty u/s 271 (1)(c) – Concealment of Income – Held that:- Following COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] - Income of the appellant is computed under section 115JB and therefore addition made in normal computation will not attract penalty - concealment of income will not be there once the income is assessed on the book profit u/s. 115JA and not under the normal provisions of the Act - Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c) - A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee - Such a claim made in the return cannot amount to furnishing inaccurate particulars – Decided against the revenue.

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• 2013 (10) TMI 929
  Disallowance u/s 14A of the Income tax act - Disallowance of expenses relating to exempt dividend income – Held that:- Placing reliance in case of Godrej Boyce Manufacturing Co Ltd.[2010 (8) TMI 77 - BOMBAY HIGH COURT] have held that Rule 8D is applicable only from assessment year 2008-09 and in respect of prior years it has been held that disallowance of both indirect and indirect expenses has to be made on a reasonable basis after allowing opportunity of hearing to the assessee. The assessment year involved in the present appeal is assessment year 2007-08 and, therefore, Rule 8D is not applicable - Restored the matter to the file of AO for passing afresh order after necessary examination in the light of judgment of the Hon'ble High Court of Bombay in case of Godrej Boyce Manufacturing Co Ltd. Allowability of claim of funds raising expenses - Assessee during the year had incurred expenditure of Rs. 2,70,35,500/- for issue of fresh capital through Qualified Institutional Placement (QIP) route. The expenditure had been claimed as revenue expenditure – Held that:- Taking note of the judgment of the Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation[1996 (12) TMI 6 - SUPREME Court], it was held that expenditure incurred for expansion of capital base is capital in nature - Also rejected the alternate claim of the assessee for allowing the expenditure u/s 35D of the IT Act on the ground that there was no evidence for issue of capital in connection with extension of the existing business or for setting up of a new business – Matter restored to the file of AO for passing afresh order after detailed examination and after allowing opportunity of hearing to the assessee – Decided against the Assessee for statistical purpose.

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• 2013 (10) TMI 928
  Agricultural land to be ‘Capital Asset’ within the meaning u/s 2(14) of the Income Tax Act – Held that:- Agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad Municipality (GHMC) is covered by the amended definitions of 'capital asset'. Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situated in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in rural areas continues to be excluded from that definition. In the present case, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order in the case of M.S. Srinivas Naicker vs. ITO [2007 (1) TMI 149 - MADRAS High Court] Sale of agricultural land to fall within the head ‘Business Income’ – Held that:- Intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade - Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade – Decided in favor of Assessee.

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• 2013 (10) TMI 927
  Land to be agricultural land falling ouside the definition of ‘Capital asset’ u/s 2(14) – Held that:- Central Government in exercise of such powers has issued the above notification, as amended latest by Notification No. 11186 dated 28.12.1999 clearly clarifies that agricultural land situated in rural areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance notified by Central Government from local limits i.e. the outer limits of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view of sub-clause (b) of section 2(14)(iii) of the Act even under the amended definition of expression 'capital asset', the agricultural land situated in rural areas continues to be excluded from that definition. In the present case, admittedly, the agricultural land of the assessee is outside the Municipal Limits of Hyderabad Municipality and that also 8 km away from the outer limits of this Municipality, assessee's land does not come within the purview of section 2(14)(iii) either under sub clause (a) or (b) of the Act, hence the same cannot be considered as capital asset within the meaning of this section. Hence, no capital gain tax can be charged on the sale transaction of this land entered by the assessee. This is supported by the order in the case of M.S. Srinivas Naicker vs. ITO [2007 (1) TMI 149 - MADRAS High Court]. Sale of agricultural land to fall within the head ‘Business Income’ – Held that:- Intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade - Though intention subsequently formed may be taken into account, it is the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention must be present at the time of purchase. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade – Decided in favor of Assessee.

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• 2013 (10) TMI 926
  Disallowance u/s 14A of the Income Tax Act - Constitutional validity of Section 14A( 2) & (3) of I.T.Act and Rule 8D of the Income Tax Rules – Held that:- As per Hon'ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd[2010 (8) TMI 77 - BOMBAY HIGH COURT], court held that the provisions of Rule 8D were not ultra virus the provisions of sect ion 14A and it was also held that the same do not offend article 14 of the constitution. It was further held that the provision of Rule 8D was to be applied prospectively w.e.f 01.04.2007 i.e. in relation to assessment year 2008-09 and subsequent year as the memorandum explaining the provisions of the Finance Bill 2006 states that this amendment would take effect from 01.04.2007. The courts further held that even in the absence of sub-section(2) and (3) of Section 14 A and Rule 8D, the Assessig Officer was not precluded from making apportionment on account of expenditure relatable to earning of exempt income. No merit in the content ion of the assessee that no expenditure is attributable to the earning of the dividend income - Upheld the order of the CIT(A) in restricting the disallowance of Rs. 2 lacs being the expenditure attributable to the earning of tax free income. The provisions of Rule 8D are applicable w.e.f. assessment year 2008-09 and consequently have no application to the year under appeal. Accordingly, the estimates made by the Assessing Officer by applying the aforesaid provisions of Rule 8D are not warranted – Decided against the Revenue. Disallowance towards Director’s Foreign Travelling – Held that:- Assessee has filed return under fringe benefit tax and any element of personal nature gets duly covered on account of said payment. This is to mean that no separate disallowance on account of estimated expenditure of personal nature needs to be made once FBT at stipulated rates is paid. Therefore, disallowance made by the Assessing Officer is to be deleted - Assessing Officer has made addition on adhoc basis which is not permissible under the law and therefore, confirmed the order of Commissioner(A) – Decided against the Revenue.

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• 2013 (10) TMI 925
  Nature of expenditure on civil, electrical, plumbing on extension of the improvements to the leasehold building, being of revenue or capital in nature – Held that:- The expenses relating to transport, freight, general expenses and upholstery have been allowed as revenue expenditure - Expenditure on civil, electrical, plumbing on extension of the improvements to the leasehold building is capital in nature - CIT(Appeals) was justified in directing the A.O. to allow the expenditure, which was in the revenue field and disallow the claim of expenditure, which was in the capital field – Decided against the Assessee. Loss out of restatement of loan and interest on the balance sheet date - held that:- If the foreign exchange loss account by the assessee arising out of restatement of a loan, which was in the capital field, was not allowed, then similar gains also could not have been taxed. An Assessing Officer is duty bound to give an assessee all the legitimate deductions and claims allowable to it under the Act, even when this was omitted to be claimed by the assessee. - matter remanded back for verification. Disallowance of website development charges of Rs. 2,10,32,191/- - Held that:- Upgradation of a website could not be treated on par with development of a new website. A website created by a commercial entity is not a static one. It requires dynamic changes according to improvement in products and addition of new features or services. Every change in the product of a commercial entity would require an upgradation of its website. Otherwise, its website will become obsolete and unuseful to its customers - Expenses incurred for the upgradation of an existing website will be equivalent to the maintenance of an existing asset. Such expenditure which is incurred periodically, cannot be treated at par with the creation of a new website as such. Such maintenance expenditure can only be deemed as a revenue outgo – In the instant case, none of the authorities have verified the claim of the assessee whether the expenditure of Rs. 2,10,32,191/- incurred by it was for development of a new website or only for improvement of an existing website, by adding new features to it - Remitted the issue regarding claim of Rs. 2,10,32,191/- of the assessee for website development, back to the file of the A.O. for consideration afresh. Taxability of commission to franchisee agents of the assessee abroad - Whether fee for technical services – liability to deduct TDS - Held that:- When assessee is marketing its time share unit abroad, without doubt, the business is being carried on outside India in respect of such time share units and the income earned is also from a source outside India. Franchisees are also earning their income by virtue of marketing the time share units of the assessee abroad. The franchisees were also therefore, earning income in the course of their business or profession carried abroad. Thus, whether "such persons" to be the non-resident entity or to be the assessee in India, it means that as long as the fees were for service utilized in a business or profession, carried outside India, it could not be treated as income chargeable to tax - CIT(Appeals) was justified in considering the amounts to be not taxable in India. Revenue has not taken any ground assailing the correctness of the work out of provision of Rs. 8,22,19,575/-. It is only aggrieved that CIT(A) allowed such claim despite non-deduction of tax at source - Already held that assessee is not obliged to deduct tax on commission payment – Decided in favor of Assessee.

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• 2013 (10) TMI 924
  Die tooling charges as revenue expenditure or capital expenditure – Held that:- Tribunal in the case of DCIT vs Metalman Auto Private Ltd [2000 (6) TMI 123 - ITAT CHANDIGARH-A] Chandigarh, on identical fact, decided in favour of the assessee - It was held to be revenue in nature since the expenditure were incurred for modernization of existing projects, which was already manufacturing the same products, and simply to increase the business more efficiently and more profitability, especially when the expenses were incurred for making technological changes. It is not the case of the revenue that new machinery was installed rather the assessee incurred expenses for the improvement of product and quality with an object of achieving maximum output by improving the already existing machinery, therefore, it cannot be said that it is setting up of altogether new business – Decided in favor of Assessee. Expenditure as Revenue or capital - The assessee paid a sum of Rs. 58,44,711/-, under technical collaboration agreement, to M/s Ring Tech Company. Japan. A sum of Rs. 25,53,906/- was paid under the original agreement for the period of 3 years from 23.6.97 to 22.6.2000 and Rs. 32,90,805/- was paid under the new agreement which is extension of original agreement from 23.6.2000 to 22.6.2002, for a period of 2 years - Main purpose of these agreements was to increase the productivity from present average level of 210 wheels pear hours to 340 wheels per hours and further for reduction of rejections substantially - Main object of the second agreement was to improve productivity, resolution of licenses, chronic quality problems, reducing process rejection/rework and technical up-gradation in the existing car line and introducing of the manufacturing facility of tractor wheels – Held that:- The object was to effect economy and efficiency in the manufacturing process. The acquisition of the knowledge has helped in substantial increase in production but in face of swift changes occurring in the technological world, it cannot be said that the changed method of the technology acquired by the appellant would be of permanent nature. Reliance has been placed upon the judgment in the case of CIT vs Swaraj Engines Ltd [2006 (5) TMI 57 - PUNJAB AND HARYANA HIGH COURT], wherein the assessee claimed deduction for an amount of Rs. 26,65,340/- paid to M/s Kirloskar Oil Engines Ltd as royalty on the basis of agreement for the purposes of acquiring technical know how. It was decided in favour of the assessee by upholding the decision of the Tribunal.

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• 2013 (10) TMI 923
  Rectification of mistake u/s 154 - The assessee did not appeal against the assessment order - It though moved an application u/s. 154 of the Act on 16.06.2008, claiming a mistake in respect of the last two disallowances listed supra, i.e., interest u/s.36(1)(iii) and of rent u/s. 40A(2)(a)– AO rejected the application - Held that:- the A.O. has clearly and unmistakably committed a mistake in overlooking a vital fact of nearly the same sum, as it appears, having been availed of by the assessee on interest-free basis from its directors, to whom, as a class, interest-free loans had been given, and qua which the disallowance stands effected by him. It is well-settled that no prejudice could be caused to the subject (assessee) by any action or non action on the part of the court (A.O.). - The assessee's claim admitted and the matter restored back to the file of the A.O. to allow relief qua interest disallowed u/s.36(1)(iii) as exigible to the assessee on the basis of the material on record – Decided in favour of Assessee. Disallowance of Rent u/s 40A(2)(a) – Held that:- The assessee was required to justify its claim during the assessment proceedings by the A.O., to which it responded - The disallowance has been effected upon due consideration of the assessee's explanation - No case of any 'mistake', much less one apparent from the record, has been made out by the assessee - the matter, as apparent from the assessee's explanation, being debatable, involving a mixed question of fact and law - no specific arguments with regard to its grievance stood raised before us during hearing by the assessee, and which the case before the authorities below - The assessee fails on this issue – Decided against Assessee.

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• 2013 (10) TMI 922
  Disallowance u/s 14A – Held that:- Relying upon Godrej & Boyce Ltd. Mfg. Co. VS. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT ] Rule 8 D of the Income Tax Rules for calculating disallowance under section 14A of the I.T. Act is applicable from A.Y.2008-09 onwards - The present case is relating to the A.Y. 2007-08. In such year, obviously Rule 8D could not have been applied, but the disallowance was required to be worked out on some reasonable basis - The ld. CIT(A) did not consider the computation made by the assessee while adopting his formula to calculate the disallowance - He also did not consider the contention of the assesse that the entire shares were taken as stock in trade and the dividend income was just incidental to it. The order set aside and the matter restored to the file of the AO for deciding the quantum of disallowance afresh, in accordance with law - The assessee will be at liberty to raise its contentions in this respect - The A.O. will give proper opportunity to the assessee to present its case and produce documents, if any - The AO will be at liberty to call for any record/evidences or statement etc. from the assessee as may be required by him for deciding the issue under consideration – Decided in favour of Assessee.

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• 2013 (10) TMI 921
  Disallowance of Rent – Held that:- The only ground that the assessee wanted to engage in a new business but it did not do so, is not justified to make the disallowance of the entire rent amount - Even the ld. CIT(A) while confirming the disallowance has not considered this aspect of the matter - There is no denial to the fact during the financial year in consideration, the assessee company had been engaged in the business, assessed to income tax, and the premises in question was used for the business purpose of the assessee - since the assessee has contended that it intended to also engage into business activity of trading and software development, hence the possibility cannot be ruled out that the business premises was taken on rent taking into consideration the future requirements relating to the said business activity also - a reasonable disallowance of Rs.10 lakhs out of the entire rent disallowance made by the AO will be justified. Accordingly, the disallowance is restricted to Rs.10 lakhs on account of rent paid for the business premises. Restricting the Disallowance u/s 14A of the Income Tax Act r.w Rule 8D of the Income Tax Rules - Held that:- Relying upon Godrej & Boyce Ltd. Mfg. Co. VS. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT ] - Rule 8D was not applicable for the year under consideration - Even otherwise for application of Rule 8D, the AO was required to record his dissatisfaction to the calculation/computation made by the assessee - The disallowance under this head was required to be made by the AO on some reasonable basis by way of a speaking order but no such procedure was followed by the AO - The ld. CIT(A) taking into consideration the overall facts and circumstances restricted the disallowance to the amount which seems to be quite reasonable – there was no reason to interfere in relation to the finding of CIT (A) regarding confirmation of disallowance – Decided against Assessee. Disallowance on account of 'mark to market loss' on F&O transaction – Held that:- Following CIT v. "Woodward Governor India (P.) Ltd. [2009 (4) TMI 4 - SUPREME COURT] Profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments - Unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually - the disallowance made by the ld. CIT(A) in respect of mark to market losses on derivatives is hereby ordered to be deleted – Decided in favour of Assessee.

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• 2013 (10) TMI 920
  Rejection of Books of Accounts u/s 145 (3) – Held that:- The reason given by the CIT (A) for upholding the rejection of books of accounts u/s 145(3) of the Act is not justified as the assessment order itself mentions that the assessee produced all the books of account along with supporting vouchers - The auditor of the assessee has specifically stated in his statutory audit report in form 3CB u/s 44AB of the Act that the profit and loss account gives a true and fair view of the profits of the assessee for the year. The AO has applied the net profit rate of 5.85% on the basis of A.Y. 2007-08 even when the same is without giving any reason to reject the assessee's view point of reduction in Net Profit because of increase in cost of bitumen - The rate has been applied devoid of any bearing thereon of the reasons given for rejection of books of account - the order passed by the CIT Udaipur u/s 263 of the Act for the A.Y. 2008-09 does not give any conclusive finding regarding any specific defect in the books of accounts and consequent specific disallowance - He has only given a direction to verify certain expenditure, which are claimed at an amount higher than the preceding years - Such directions in absence of any conclusive finding would not have a bearing on the case for A.Y. 2009-10 - rejection of books of account u/s 145(3) of the Act is not justified - the entire addition id deleted – decided in favour of assesse.

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• 2013 (10) TMI 919
  Disallowance of discounting charges/ interest - Held that:- On the appreciation of the entire material / evidence placed by the assessee before the A.O. in the fresh round of proceedings, the learned CIT (A) has recorded a categorical finding that these expenses were incurred during the course of business - Apart from relying on the assessment order, the learned Departmental Representative could not controvert the findings given by the learned CIT(A) in support of the grant of deduction - D.R. has not brought before us any distinguishable fact which may justify departure from the findings of the co-ordinate bench of the tribunal given for the preceding year based on similar facts and circumstances - the order of the ld. CIT(A) deleting the disallowance relating to the issue is upheld Decided against Revenue. Disallowance of interest on call money Held that:- The claim of assessee is certainly allowable in favour of the assessee - the payment of interest on the amounts of the call money stands in the same footing as payment of like interest in the same amount, therefore, such interest constitutes revenue expenditure - the order of the CIT (A) is reasonable and it does not call for any interference - DR has not brought any distinguishable fact which may justify departure from the findings of the co-ordinate bench of the tribunal given on similar facts and circumstances in the case of group concern of the assessee - the order of the ld. CIT(A) deleting the disallowance relating to this issue is also upheld Decided in favour of Assessee.

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• 2013 (10) TMI 918
  Amount received on account of ‘boundary dispute land’ to be included in sale consideration of land for computation of tax purpose - Consideration amount received is Rs.11,86,83,483/- and the balance amount of Rs.4,13,16,517/- is the deposit received relating to another transaction of land i.e. "boundary dispute land" – Held that:- Contention of the assessee cannot be ignored particularly when the assessee categorically stated that it was following the procedure of accounting profit on sale of land in the year in which actual conveyance made but only at the instance of department, the assessee recognized the transaction of sale of land relating to the land situated in Survey No.41 of village Oshiwara and paid the taxes accordingly to buy peace and to avoid litigation as agreed to by the department. Deposit received for the "boundary dispute land" cannot be bought to tax in the year under consideration as the consent terms and conditions itself were approved by the Hon'ble Apex Court vide its order dated 23.10.2008. Therefore, any deposit received by the assessee relating to the said "boundary dispute land", cannot be assessed to tax in the assessment year under consideration i.e. in the assessment year 2007-08. The assessee has given break up of the amount of Rs.11,86,83,483/- arrived at for the NDZ land and we observe that the AO doubted the said calculation merely on suspicion and ignoring the fact on record placed by the assessee before the authorities below merely to bring the said amount of Rs.4,13,16,517/- to tax in the assessment year under consideration though the said amount has been shown by the assessee in its books of account as deposit. The assessee has rightly contended that the said deposit of Rs.4,13,16,517/- cannot be considered as payment for the purchase price of the land as the land was to be demarcated and rates were to be determined as per agreed consent terms - Addition of Rs.4,13,16,517/- received by assessee from SDC, as sale consideration in the assessment year under consideration is not justified – Decided in favor of Assessee. Requirement of revised return, when the claim already made in the original return has not been allowed by the AO – Held that:- AO could not refuse to consider the correct facts when the claim of the assessee is already on record and assessee claimed wrong amount by making incorrect bifurcation. AO is bound to consider the claim of the assessee correctly as per law and on the basis of documents produced before him in respect of a claim made in the return. It is not a new claim which was made by the assessee. Hence, the reliance placed on the decision of Hon'ble Apex Court in the case of Goetze India Ltd [2006 (3) TMI 75 - SUPREME Court] by AO and not considering correct claim was not justified on the ground that the said claim could be made only by way of revised return because it was not a new claim. That the AO has to consider the correct amount to be allowed as deduction while making the assessment on the basis of evidence as may be furnished before him. Hence, in view of above facts, assessee was not required to file revised return – Decided in favor of Assessee.

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• Customs

• 2013 (10) TMI 954
  Duty demand u/s 28AB - Counter-signing the PIA certificates - Held that:- petitioner has relied upon the forged PIA certificates. The petitioner is, however, claiming ignorance of forgery and has placed the responsibility on the Project Implementing Authority. The filing of the writ petition for counter-signing the PIA certificates by the Line Ministry is an issue, which is being agitated unsuccessfully by the petitioner so far and in any case the pendency of the writ petition cannot be a ground to avoid statutory appeal - Decided against assessee.

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• 2013 (10) TMI 953
  Guilty of the offence under Section 15 of the Narcotic Drugs and Psychotropic Substances Act, 1985 - on search of the bags of appellant it was found that those contained 2.680 Kgs. of poppy straw powder packed in 2 bags of polythene - appellant contested that in the absence of corroboration from independent witnesses the evidence of only police officials should not have been given credence to - Held that:- It is noticeable that the evidence of PW-7 has been supported by PW-5, as well as other witnesses. It has come in the evidence of PW7 that he had asked the passerby to be witnesses but none of them agreed and left without disclosing their names and addresses. On a careful perusal of their version nothing by which their evidence can be treated to be untrustworthy. On the contrary it is absolutely unimpeachable. As there is no absolute rule that police officers cannot be cited as witnesses and their depositions should be treated with suspect therefore, the prosecution case cannot be doubted for non-examining the independent witnesses. Non-compliance of Section 50 of the NDPS Act - Held that:- In the case at hand 2 bags of poppy straw powder weighing 2.680 Kgs. had been seized from two bags. It has not been seized from the person of the accused-appellant. It has been established by adducing cogent and reliable evidence that the bags belonged to the appellant. As relying on Madan Lal v. State of H.P.[2003 (8) TMI 474 - SUPREME COURT] and State of H.P. v. Pawan Kumar [2004 (9) TMI 602 - SUPREME COURT] applying the interpretation of the word “search of person” to facts of present case, it is clear that the compliance with Section 50 of the Act is not required. Therefore, the search conducted by the investigating officer and the evidence collected thereby, is not illegal. No recovery was affected from the person of the accused and in fact the recovery was from the checked-in baggage of the accused, therefore, there was no requirement for compliance of Section 50 of NDPS Act. Non-examination of independent witnesses does not cast doubt on the prosecution case - no rule of thumb can be laid down to arrive at a conclusion as to what is the effect of non-examination of panch witnesses. Each case has its own facts - Following decision of Ram Swaroop Versus State (Govt. NCT) of Delhi [2013 (5) TMI 693 - SUPREME COURT] and Gita Lama Tamang v. State of (G.N.C.T.) of Delhi [2006 (11) TMI 545 - DELHI HIGH COURT] - Decided against assessee.

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• 2013 (10) TMI 952
  Import of marbles without licence - Modification of the quantum of redemption fine and penalties - Whether, as per DGFT Notification No. 23/2005-2009 dated 31.8.05, read with Circular No. 24 (RE-05) 2004-2009 dated 30.8.2005, import of goods covered under CTH (HS) 2515 1210 are restricted and needed a valid import licence - Held that:- petitioners who are in the business of marble and have become a habitual importer of goods in spite of the fact that they are very well aware of the law that the imports have to be backed by a valid licence. Inspite of this, if the petitioners are repeatedly including in importing marbles without licence, or subsequently obtain licence to cover up illegal imports then it would be a duty of writ Court to arrest such tendency prevailing amongst the importers of the goods. The Apex Court in the case of Her Shankar and Others v. Deputy Excise who have no respect for the law of land and who are deliberately indulging in committing breach thereof. This Court would not be justified in invoking writ jurisdiction in favour of such persons. Writ jurisdiction is available to further the cause of regime of law, not to abrogate the same. In the facts of this case the consignments confiscated by the Customs authorities cannot be allowed to be released on the licence which were sought to be produced by the petitioners. The importers who are importing goods without licence and then seek to validate the import by obtaining subsequent licence or licences cannot be allowed to take advantage of their own wrong. The petitioners are one of them. In view of the above background of Marble block imports before the appellants affected the present imports, it is evident that imposition of lower fines and penalties have not deterred the marble traders from importing the sensitive commodity which may affect indigenous industry. No contemporary imports of rough marble slabs have been brought on record by the appellants where lesser redemption fine and penalties were imposed. There is also no evidence produced by the appellants that they had to pay huge demurrage charges in the detention and clearance of the impugned consignments. In view of the above observations there is no case for modification of the quantum of redemption fine and penalties imposed by the adjudicating authority - Decided against assessee.

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• 2013 (10) TMI 951
  Refund Claim – Stay Application - The assessee had achieved only 44% of the export obligation during the relevant period, the proportionate duty foregone to the extent of the unachieved portion of the export obligation and interest till the date of payment of duty has to be paid - the assessee filed a refund claim on the ground that the appellant had fulfilled the entire obligation of duty payment on de-bonding, if they pay an amount equal to 56% of the duty liability - The Commissioner (Appeals) accepted this stand and has allowed the refund claim to the assessee – Held that:- For the units who continue to function and would like to clear a portion of the capital goods on payment of duty, paragraph 4 is to be applied whereas where the duty is being demanded at the time of closure of the unit, paragraph (3)(d)II) of the Notification would apply - I am not convinced with the arguments advanced by the learned counsel - If this is correct, where a unit achieved export obligation within first year or second year, they need not pay any duty - This interpretation does not follow from the notification - ground taken by the department is prima facie correct - the department has made out strong prima facie case in their favour - the stay is required to be granted – the order is stayed as prayed by the department – Stay granted.

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• 2013 (10) TMI 950
  Restoration of Appeal – Held that:- The letter of the party was not placed before the bench on 26.3.2004 - Apparently, there was no representation for the party before the bench on 26.3.2004 - having found no evidence of COD’s clearance having been obtained by the PSU, this bench dismissed both the appeals on 26.3.2004 - the present applications cannot be rejected for want of explanation of delay thereof - The fact that Committee on Disputes clearance was duly intimated to the Registry by the appellant on 15.3.2004 is undeniable - though there is no explanation for non-appearance of the appellant or their counsel on 26.3.2004, we are inclined to allow these applications - The final order insofar as it pertains to BPCL is recalled and both the appeals are restored to the respective original numbers.

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• Corporate Laws

• 2013 (10) TMI 949
  Dishonour of cheque - Compensation in lieu of incarceration - Held that:- A reading of the impugned order appears to indicate that the payment of further sum of Rs. 69,500/-, in the instalments indicated in that order would be over and above the said sum of Rs. 80,000/-. This would violate Section 138 of the N.I. Act inasmuch as it would exceed the double of the cheque amount. This leads us to conclude that the intention of the High Court was that upon deposit/payment of the further sum of Rs. 69,500/- (in addition to the earlier sum of Rs. 80,000/-), the sentence of imprisonment for six months would stand withdrawn - Palpably, the convict has filed appeals all the way to the Apex Court which would have entailed further expenses of no mean measure. We think that with the receipt of Rs. 80,000/-, the complainant has received compensation for the dishonoured cheque as per the adjudication of the Trial Court. In these circumstances, any further payment would be in the nature of fine. Accordingly, we clarify that the Appellant must pay a sum of Rs. 80,000/- receivable by the complainant within four weeks from today, if not already paid. Process comprises two stages. First, when the Court determines the amount of fine and levies the same subject to the outer limit, if any, as is the position in the instant case. The second stage comprises invocation of the power to award compensation out of the amount so levied. The High Court does not appear to have followed that process. It has taken payment of Rs. 80,000/- as compensation to be distinct from the amount of fine it is imposing equivalent to the cheque amount of Rs. 69,500/-. That was not the correct way of looking at the matter. Logically, the High Court should have determined the fine amount to be paid by the appellant, which in no case could go beyond twice the cheque amount, and directed payment of compensation to the complainant out of the same. Viewed thus, the direction of the High Court that the appellant shall pay a further sum of Rs. 69,500/- does not appear to be legally sustainable - Decided partly against assessee.

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• 2013 (10) TMI 948
  Prosecution for Offence u/s 97(3) of Companies Act – Held that:- The very fact that the petitioners have filed Form No.5 and remitted an amount towards fee and additional fee subsequent to Annexure-B judgment of the appellate court would conclusively reveal the factum of violation of statutory mandate - No case was brought out by the revision petitioners to find that the judgments suffer from palpable, perverse appreciation of evidence warranting interference with the conviction of the revision petitioners under Section 97 (3) of the Companies Act invoking the revisional jurisdiction of the court - the conviction entered against the revision petitioners calls for no interference and accordingly it was confirmed. Sentence Imposed u/s 97(3) - Whether the sentence imposed against the revision petitioners for the conviction under Section 97 (3) of the Act calls for interference – Held that:- On considering the circumstances and the failure of the revision petitioners to file Form No.5 for the increased share capital and also the failure to pay the fee and the additional fee, the appellate court while reducing the fine and directed the revision petitioners to pay a fine – The conviction of the revision petitioners under Section 97 (3) of the Companies Act was confirmed and the sentence imposed on the petitioner to pay fine was reduced and modified - the revision petition was allowed in part.

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• Service Tax

• 2013 (10) TMI 966
  Wrong availment of interest paid on service tax as Cenvat Credit - Penalty under section 11AC OR Rule 15 - Revenue pointed out that assessee were not eligible for credit of interest amount paid - Revenue was of the view that the appellant should pay a penalty equal to the cenvat credit wrongly taken – Held that:- Penal provisions under Rule 15 (2) and Section 11AC are of different nature - If there is circumstance for imposing penalty under section 11AC only that section will apply - Otherwise, penalty should be imposed under Rule 15 (2) only - this is not a case of suppression, collusion or willful mistake with intention to evade payment of duty - thus section 11AC is not warranted - only penalty under Rule 15 (2) of Cenvat Credit Rules 2004 is warranted - the penalty reduced to be paid under Rule 15 (2) of the Cenvat Credit Rules, 2004 – Decided partly in favour of Assessee.

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• 2013 (10) TMI 965
  Import of services - payment of royalty in installments - levy of service tax pre and post 18.4.2006 - Held that:- Applicant had paid the license fees for using the software supplied/sold by the overseas supplier. It is also not in dispute that the license fees were required to be paid in ten installments to the overseas supplier. We find force in the arguments of the ld. Advocate for the Applicant that the installments paid prior to 18.04.2006 cannot be subjected to service tax under the reverse mechanism in view of the decision of the Hon’ble Bombay High Court in Indian National Shipowners Associations (2008 (12) TMI 41 - HIGH COURT OF BOMBAY), which has been upheld by the Hon’ble Supreme Court. Accordingly, predeposit of dues relating to ST Appeal No.250/11 is waived and its recovery stayed during the pendency of Appeal. Prima facie, we agree with the ld. Special Counsel for the Revenue that the installments paid after 18.04.2006 could be subjected to levy of service tax under Intellectual Property Rights. Thus, the Applicant could not able to make out a prima facie case for the installments paid after 18.04.2006. In these circumstances, keeping in view the interest of the revenue and the principle of laws settled in disposal of stay petition by the Hon’ble High Court and the Hon’ble Supreme Court, we direct the Applicant to deposit the entire amount of Service Tax of Rs.90,86,338 within a period of twelve weeks from today, and on deposit of the said amount, the balance dues adjudged would stand waived and its recovery stayed during pendency of the Appeals. Failure to deposit the said amount would result into dismissal of the said Appeal without further notice to the Applicant - stay granted partly.

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• 2013 (10) TMI 964
  Demand - Photography Service and Video Tape Production Service - Held that:- Prima facie, we find that they are not eligible for abatement in view of the decision of the Tribunal and the amount was quantified on the basis of their documents. Accordingly, the applicant is directed to deposit a sum of Rs. 13 lakhs (Rupees Thirteen lakhs only). It is also directed that the payment made by the applicant would be adjusted against the pre-deposit amount subject to verification by the Division Office and the amount would be deposited within six weeks. Upon predeposit of the said amount, the balance amount of tax along with interest and penalties are to be waived and its recovery thereof stayed till the disposal of the appeal - Decided in favour of assessee.

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• 2013 (10) TMI 963
  Information Technology Services - Taxability of ERP related services i.e (a) ERP planning and advice. (b) Actual ERP implementation service involving implementation and adaptation of ERP software. - As regards ERP planning and advice, the appellants are discharging Service Tax liability under the management consultancy services. - However, with regard to the ERP implementation service, according to the Department, the said service would be liable to a tax under the category of management consultancy service, whereas according to the appellants, they would be taxable with effect from May 16, 2008 under the category of ‘information technology software services’ - Tribunal’s earlier decisions categorically held that such services falling under the category of consulting engineering services, however, they were exempted by Notification 4/99-S.T., dated 28-2-1999 and excluded from definition itself subsequently – In the present case, the ER implementation service is definitely for use in furtherance of business and commerce and the service under dispute is for the implementation. So, implementation of the ERP services is specifically covered under the information technology service, which was effective only from 16-5-2008. Under these circumstances, it cannot be liable to Service Tax for a period prior to that - Following decision of IBM INDIA PVT. LTD. Versus COMMISSIONER OF SERVICE TAX, BANGALORE [2009 (4) TMI 314 - CESTAT, BANGALORE] - stay granted.

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• 2013 (10) TMI 962
  Stay application - appellant constructed Police Station, Electrification work, Strengthening of Police Quarters and various other Construction Services - Held that:- appellant as a sub-contractor of Gujarat State Police Housing Corporation Pvt. Limited constructed dwellings and is not eligible for the benefit of reduced service tax liability. Findings of the adjudicating authority that appellant being contractor, and the dwellings which are constructed for Gujarat State Police Housing Corporation Pvt. Limited, are not residing in the said residences. The adjudicating authority has confirmed the demand on the ground that the said dwellings are given by the Gujarat State Police Housing Corporation Pvt. Limited to police personnel and the personnel of jail department, hence the service tax liability arises. We find that in an identical issue, the coordinate Bench of the Tribunal in the case of S. Kadirvel vs. Commissioner Central Excise & S.T., Tiruchirapalli [2013 (8) TMI 262 - CESTAT CHENNAI], has held that if the project is executed for the State Police Housing Corporation Limited, the said quarters are allotted by the State Government, service tax liability, prima-facie, does not arise - Stay granted.

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• 2013 (10) TMI 961
  Penalty u/s 76, 77, and 78 - service tax with interest deposited before issuance of show cause notice - import of services - Held that:- appellant herein had been charged with non-discharge of Service Tax liability under the provisions of Section 66A of the Finance Act, 1994 on the fees paid to ICICI Bank Hongkong. On being pointed out, the appellant herein has paid the amount of Service Tax liability and interest thereof on 11.06.2010. Subsequently, show cause notice was issued to the appellant on 26.05.2011 for appropriation of the amounts paid and also for imposition of penalty. We find that the provisions of Section 73(3) of Finance Act, 1994 may be attracted. Prima facie, we are of the view that the penalty imposed on the appellant may not be warranted as the appellant has paid the entire amount of Service Tax liability and interest thereof before issuance of show cause notice - stay granted.

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• 2013 (10) TMI 960
  Import of services - Commission paid to foreign entity for raising an amount as Foreign Currency Convertible Bonds - Held that:- Since the appellant has deposited the entire amount of service tax liability and disputing the issue on merits, we consider the same as enough deposit to hear and dispose the appeal. Accordingly, application for the waiver of pre-deposit of the balance amounts involved is allowed and recovery thereof stayed till the disposal of appeal - stay granted.

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• 2013 (10) TMI 959
  Waiver of pre deposit - Royalty and Technical know how and Intellectual Property services - Held that:- applicant has deposited an amount of Rs.67,116/- which includes Service Tax and interest against the total liability of Rs.1.50 Lakhs. We feel the amount deposited is sufficient for hearing of the appeal. In these circumstances, pre-deposit of balance dues adjudged is waived and its recovery stayed during the pendency of the appeal - stay granted.

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• 2013 (10) TMI 958
  Defect in issuance of Show Cause Notice - Business Auxiliary Services - appellant being person is running Company-owned Company-operated petrol pump of BPCL. - Held that:- show cause notice has been issued to the appellant herein as a Proprietor of M/s. Bombay Garrage (Rajkot) Pvt. Limited. In our view, Private Limited Company can never have a proprietor. To ensure that appellant herein is not a proprietor, we perused the agreement enclosed with the appeal memoranda, entered by M/s. BPCL with M/s. Bombay Garage (Rajkot) Pvt. Limited, in the entire agreement the appellant is shown as Director of M/s. Bombay Garage (Rajkot) Pvt. Limited. Reading of the said agreement indicates that a Private Limited Company entered into contract with BPCL for running a Company-owned Company-operated petrol pump. If that be the fact, in our view, the show cause notice issued to the appellant herein as a proprietor or as an individual for the recovery of service tax, is mis-joinder and is unsustainable in the eye of law, as the show cause notice needs to be issued to the service provider in order to initiate proceedings for recovery of service tax, if any - there being mis-joinder for demanding service tax liability, the impugned order against the current appellant is unsustainable by any stretch of imagination - Decided in favour of assessee.

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• 2013 (10) TMI 957
  Waiver of pre deposit - Retreating of old tyres - Held that:- The appellants are carrying out retreading of old tyres used in motor vehicles. Revenue proceeded against the appellants on the ground that they were not including the value of materials such as tread rubber, cushion gum, vulcanizing solution, which were used/consumed in the activity of retreading/reconditioning of tyres in the value of taxable services for the purpose of payment of Service Tax - There are contrary decisions on the issue, the assessee cannot be faulted with, for his entertaining a bonafide belief about the valuation of such services and his contention for granting waiver of pre-deposit. We find that appellant has made out a prima facie case for the waiver of amounts involved - Following decision of Chakita Ranjini Udyam Versus Commissioner of Central Excise, Customs & Service Tax, Mysore [2009 (3) TMI 135 - CESTAT, BANGALORE] - Therefore, appellants are entitled for the benefit of the Notification No. 12/2003 - stay granted.

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• Central Excise

• 2013 (10) TMI 956
  Clandestine removal of Goods – Waiver of Pre-deposit – Held that:- There was clandestine removal of the rickshaws - there was under-valuation of the said rickshaws which were cleared from the factory premises - the appellant admitted that they were procuring the diesel engines and gear boxes which are required for the manufacture of rickshaws in their name as well as in other fictitious names and manufacturing and clearing the rickshaws - All the legal points and issues raised can be considered at the time of final disposal of appeal - the appellant has not been able to make a prima facie case in his favour - the appellant directed to deposit an amount of Rupees Twenty Five Lakhs as pre-deposit – upon such submission rest of the duty to be waived till the disposal – Partial stay granted.

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• 2013 (10) TMI 947
  Reversal of cenvat credit - Proportionate input and input credit – input and input services used in generation of power - CESTAT had remanded back the matter for reexamination of the matter - Held that:- There was no substantial questions of law as framed for consideration of this Court arises for consideration of the Court - The order of the Tribunal does not prejudices the interest of the revenue in any manner - Even if separate accounts were not maintained the Adjudicating Authority was required to examine the aspects detailed and to record findings - The CESTAT has left it open to authority to hear the appellant and to decide the issue afresh – Decided against Revenue.

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• 2013 (10) TMI 946
  Waiver of Pre-deposit – undue hardship - alleged that appellant forged documents for availing cenvat credit - CESTAT in [2012 (11) TMI 963 - CESTAT, NEW DELHI] dismissed the stay application - Held that:- The order passed by the Appellate Tribunal modified to the limited extent that if the petitioner deposits Rs.7 crores towards its assessed liability including the interest and penalty and furnishes irrevocable and unconditional bank guarantee for the balance amount, the Tribunal shall decide the petitioner's appeal on merits and in accordance with law. Reference made to the law laid down in Benara Valves Ltd. Versus Commissioner of Central Excise [2006 (11) TMI 6 - SUPREME COURT OF INDIA].

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• 2013 (10) TMI 945
  Nature of amount collected from the customers against reversal of Cenvat Credit / Modvat Credit on Exempted goods - Deposits under Rule 57CC - Excise duty OR not - Appellant has cleared exempted products manufactured out of the common inputs by paying 8% of the amount as provided under Rule 57CC of the erstwhile Central Excise Rule - Revenue is of the view that appellant could not have recovered the amount of such debit from his clients – Held that:- The real identity of the amount ‘collected’ (whether excise duty payable or not) is of no relevance for Section 11D - What is relevant is only whether the collection was ‘represented’ as duty of excise - The representation may as well be entirely false - The qualifying of the representation through the words ‘in any manner’ makes this clear - the contentions of both sides on the question, as to whether deposits under Rule 57CC are excise duty or not, are beside the point – Relying upon COMMISSIONER OF CUSTOMS (IMPORTS), NHAVA SHEVA Versus AJAY EXPORTS [2008 (2) TMI 347 - CESTAT MUMBAI] - the appellant had paid and collected the amount as excise duty - the appellant never indicated the amount paid by them as excise duty – order set aside – Decided in favour of Assessee.

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• 2013 (10) TMI 944
  Clandestine removal - Confiscation of Goods – Non-duty paid goods - penalty - pan masala / gutkha - Held that:- The GRs covering the 182 bags bear the codes numbers mentioned above assigned to Pan King brand Gutkha by M/s Pawan Carriers - from the statements it is clear that 182 bags of Pan King brand Gutkha covered under the invoices of M/s Malhotra Trading Co., Delhi had actually been cleared by MRS/MRT, Delhi without payment of duty and had been booked for transport with M/s Pawan Carriers and M/s Pawan Carriers as transporters, had transported these non-duty paid goods knowing very well, that the same are non-duty paid and hence are liable for confiscation - the duty demand on 182 bags of Gutkha seized from the three trucks parked and confiscation of the three trucks is upheld. Goods Cleared without Invoice – Held that:- All the GRs issued by M/s Pawan Carrier for transportation to Ahmedabad with M/s Malhotra Trading Co., Delhi consignor were in respect of consignments of Gutkha cleared from the factory of MRS/MRT at Samaypur, Badli, Delhi which had been brought to the office of M/s Pawan Carriers through Shri Than Singh - Since no Central Excise invoices has been issued in respect of these consignments of Gutkha and the total quantity of Gutkha has been transported under these GRs, the duty has been correctly demanded in respect of the consignments. Caldestine Removal 0f Goods - Extended Period of Limitation – Evasion of Duty – Penalty u/s 11AC - Held that:- The goods cleared clandestinely without payment of duty, the extended period under proviso to Section 11A (1) has correctly been invoked in view of the fraud committed against Revenue with intent to evade the duty and penalty on MRS/MRT under Section 11AC of Central Excise Act, 1944 for the period w.e.f. 28/9/96 and under Rule 173Q (1) (d) of the Central Excise Rules, 1944 for period prior to 28/9/96 has been correctly imposed. Interest on Duty u/s 11AB - The Section had been inserted by Section 76 of Finance Act, 1996 w.e.f. 28/9/96, interest on duty under this Section would be chargeable only in respect of clearances w.e.f. 28/9/96 and not in respect of clearances made during the period prior to 28/9/96. Penalty on Director under Rule 209A of the CE Rules – Penalty on Partners - Held that:- He would be liable for the penalty as he has knowingly dealt with the excisable goods which he knew or had reason to believe were liable for confiscation - The fact that in the GRs, instead of writing actual description of the goods, only the codes were being written also indicates that they were aware of the actual description of the goods – thus M/s Pawan Carriers and its partners are involved in transportation of the excisable goods which they knew were liable for confiscation and therefore penalty on them has been correctly imposed under Rule 209A of Central Excise Rules, 1944.

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• 2013 (10) TMI 943
  Confirmation of Demand – Self Assessment – Held that:- The show-cause notice itself accepts the fact that the material under dispute was scrap in the eyes of BHEL and was leftover material in the eyes of assessee - no investigation was conducted as to what was the real nature of the material and whether it could have been used by the appellant or not especially in view of the fact that show-cause notice was issued on the ground that these were not inputs - The whole system of collection of indirect taxes is based on the trust placed on the assessee and the assessee has to do the self-assessment and considering whether a particular item is input or not, whether credit is admissible or not, and same can be used or not is a part of assessment process. The adjudicating authority when accepted the reply to the show-cause notice by the assessee since he had no reason to disbelieve the assessee - What can be said is that at the time of issue of show-cause notice and subsequently at the time of adjudication, officers exercised their discretion and believed the assessee in what they have claimed - the Commissioner (A) has confirmed the demand only on the ground that such investigation/verification was not taken up by the lower authorities - This means that the Commissioner, without any basis but the disbelief on the assessee claim and on a totally new ground, allowed the appeal - the confirmation of demand and allowing the Revenues appeal on this ground is against the spirit or letter of law and would not be proper. Notification No.214/1986 - Return of Goods – Held that:- Goods should have been returned when the assessee purchases the leftover materials from BHEL, the obligation under Notification No.214/1986 in respect of the assessee as well as BHEL can be said to have been fulfilled –order set aside – Decided in favour of assessee.

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• 2013 (10) TMI 942
  Refund Claim – Pre-deposits made by holding company - Appellant the subsidiary of a company had to made a pre-deposit of Rs.2 lakhs as per the directions of the Tribunal to hear the appeal, the pre-deposit was made by GSIL and not by the appellant - Held that:- The appellant/assessee produces the documentary evidence to show that the amount is treated as receivables and not collected from the customers and further it was shown as receivables, it becomes a rebuttable evidence and Revenue has to make some efforts to rebut this and the refund cannot be denied on the basis of assumptions and presumptions that the same might have been passed on by adding to the cost - In the absence of any rebuttal by the Revenue and in the absence of any evidence to show that this amount was collected and in the presence of positive evidence produced by the appellant, the appellant has a valid claim for refund - As far as the payment of GSIL is concerned, the appellant was a subsidiary of GSIL and now both have become one company and on the ground that amount was paid by GSIL and not by the appellant, refund cannot be denied – Decided in favour of Assessee.

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• 2013 (10) TMI 941
  Interest on amount reversed - Reversal of cenvat credit – Held that:- The question whether any reversal of credit is required on account of the waste products has already been decided in the case of Manakpur Chini Mills Vs CCE Allahabad [2012 (7) TMI 474 - CESTAT, NEW DELHI] - there is no need for reversal of any cenvat credit in respect of inputs contained in such waste products as per Rule 6(3) of CCR 2004 - Once the duty demand itself was not legally sustainable, the appellant cannot be asked to pay the interest payment now being insisted upon to be paid in cash - there is no justification in sustaining the penalty - there is no need for any further reversal or recovery towards interest and penalty from the appellant – Decided in favour of Assessee.

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• 2013 (10) TMI 940
  SSI exemption Notification No.16/97-CE and 8/98-CE - Bar of Limitation – Extended Period of limitation - Whether there was suppression on the part of the assessee with intent to evade duty, which is prerequisite for invoking longer period of limitation – Held that:- When there was conflicting views among different benches of the Tribunal, which was resolved much later, then during the relevant period, the assessee is held to be justified in proceeding on the basis that it was exempted from excise duty – Relying upon CCE, Jaipur vs. J.K. Synthetics [1999 (10) TMI 75 - SUPREME COURT OF INDIA] - when there are divergent views of High Courts, benefit of doubt as to non dutiability of the goods, can be entertained by the assessee, the extended period of limitation cannot be invoked by the Revenue. There was sufficient reason for the appellant to exercise bonafide belief as regard availability of exemption notification - The contention that the fact of using brand name was not intimated to the Revenue, cannot be appreciated, inasmuch as such non intimation was also on bonafide belief, which stands formed by the assessee - a part of the demand would fall within the limitation period - demand beyond, six months would be barred by limitation, we direct the lower authorities to quantify the quantum of demand which would fall within the limitation period – there was no justification to impose penalty upon the appellant.

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• 2013 (10) TMI 939
  Levy of Excise duty on cut flowers - Revenue was of the view that Customs duty leviable on the imported inputs which have gone into production or manufacture of the non-excisable items and the demand of duty on cut flowers is sustainable in law – Held that:- The period involved in these appeals is April 1998 to September 1998 and January 1999 to June 1999 & July 1999 to September 1999 - During the period, the Central Excise Tariff did not specify “cut flowers” as excisable goods nor any rate of duty was prescribed for “cut flowers” - even after amendment to the Central Excise Tariff in 2008 cut flowers remains a non-excisable goods - If the goods are non-excisable goods, the question of levy of excise duty would not arise at all – Decided against Revenue.

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• 2013 (10) TMI 938
  Waiver of pre-deposit – consignment wise payment of duty in cash - alleged that Appellant did not pay the duty payable by cash, as per their ER-1 return by the due date - Neither did they pay it with interest – Held that:- Following Baba Viswakarma Engg. Co. (P) Ltd. Vs. CCEx., Ghaziabad [2012 (9) TMI 814 - CESTAT, NEW DELHI ] - Department has not taken the initiative to make use of the provisions regarding confiscation since no seizure has been effected. So the only consequence will be penalty - there is no case for demanding the duty paid through Cenvat credit to be paid again through cash/PLA - there is no case for imposing penalty equal to duty defaulted - the requirement of predeposit of all dues waived and its recovery stayed during pendency of appeal – Stay granted.

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• Indian Laws

• 2013 (10) TMI 955
  Refund Claim - Auction sale - Kerala Abkari Shops (Disposal in Auction) Rules – Doctrine of Frustration – Statutory Contract - Validity of the judgment whereby the Division Bench held that the State was entitled to forfeit the entire deposited amount - Whether the appellant could invoke the doctrine of frustration or impossibility or whether she will be bound by the terms of the statutory contract – Held that:- On the failure of the auction purchaser to execute the agreement whether temporary or permanent, the deposit already made by auction purchaser towards earnest money and security money shall be forfeited - The appellant was declared as auction purchaser and she had deposited 30% of the bid amount in terms of Rule 5(10) of the Rules. A statutory contract in which party takes absolute responsibility cannot escape liability whatever may be the reason - In such a situation, events will not discharge the party from the consequence of non-performance of a contractual obligation - in a case in which the consequences of non-performance of contract is provided in the statutory contract itself, the parties shall be bound by that and cannot take shelter behind Section 56 of the Contract Act - Rule 5(15) in no uncertain terms provides that “on the failure of the auction purchaser to make such deposit referred to in subrule 10” or “execute such agreement temporary or permanent” “the deposit already made by him towards earnest money and security shall be forfeited to Government” - the appellant had not carried out several obligations as provided in sub-rule (10) of Rule 5 and consequently, by reason of sub-rule (15), the State was entitled to forfeit the security money - In a contract under the Abkari Act and the Rules made thereunder, the licensee undertakes to abide by the terms and conditions of the Act and the Rules made thereunder which are statutory and in such a situation, the licensee cannot invoke the doctrine of fairness or reasonableness – Decided against Assessee.

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