TMI Tax Updates - e-Newsletter
October 31, 2014

Case Laws in this Newsletter:

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

TMI SMS

• Nature of activity - imparting computer education in the schools with providing computers for this purpose - held as works contract liable to sales tax - HC

  ---

Articles

1. Income-tax (8th Amendment) Rules, 2014- contains apparent mistake- need correction. Higher rate of depreciation on renewal energy devices like wind mills must be allowed irrespective of date of installation to follow consistency and LTFP.

   By: DEVKUMAR KOTHARI

2. CREDIT OF REFUND CONSUMER WELFARE FUND

   By: Dr. Sanjiv Agarwal

3. DE NOVO ADJUDICATION

   By: Dr. Sanjiv Agarwal

4. e-TRANSIT PASS SYSTEM UNDER TAMIL NADU VALUE ADDED TAX ACT, 2006

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Finance Minister Asks the Senior Officers of the Income Tax Department not to Lose Sight of Domestic Black Money Keeping in view its Much Higher Magnitude and Chase Those Sectors Where its Most Prevalent; Reviews with Senior Officers of the Department the Achievement of Budgeted Targets of Direct Taxes for 2014-15 and Action There of

2. Government Committed to Increase Savings Rate in the Country: Secretary, Financial Services; Various Initiatives Announced; New Products for Mobilizing Savings to be Launched Soon; KYC Norms Simplified to Include Poorest of the Poor in the Formal Financial Sector

3. Reserve Bank of India cancels the Licence of The Baripada Urban Co-operative Bank Ltd., Baripada (Odisha)

4. RBI Reference Rate for US $

5. Review of Foreign Direct Investment policy on the Construction Development Sector

Notifications

Central Excise

1. 30/2014 - dated 14-10-2014 - CE (NT)

Appointment of Officers of Central excise working in Audit Formations and investing them with powers of Central Excise Officers

Law of Competition

2. F. No. 5/31/2007-CS - G.S.R. 728(E) - dated 15-10-2014 - Competition Law

Competition Appellate Tribunal (Term of the Selection Committee and the Manner of Selection of Panel of Names) Amendment Rules, 2014

Circulars / Instructions / Orders

Income Tax

1. F. No. DIT(S)-II/Non-filers/2014-15/4011 - dated 29-10-2014

Measures for Revenue Augmentation - calling for returns of income in the case of non-filers for AY 2014-15 regarding

Highlights / Catch Notes

Income Tax

• High Court Rules Substantial Commission to Non-Resident Agents Doesn't Justify TDS Disallowance Without Legal Challenge.

  Case-Laws - HC : Payment of commission to non-resident agents – Liability to deduct TDS – Question of law not challenged before Tribunal - merely because amount is more, that by itself does not justify disallowance - HC
  Visit to Get Source

  ---

• MAT Calculation: Loss in Section 205(1)(b) of Companies Act is Post-Depreciation. Key for Unabsorbed Depreciation and Business Loss.

  Case-Laws - HC : Computation of MAT - Entitlement for unabsorbed depreciation - Unabsorbed business loss - the term 'loss' as occurring in clause (b) of the proviso to Section 205 (1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the depreciation - HC
  Visit to Get Source

  ---

• High Court Upholds Tribunal Decision: Income from Non-Performing Assets to be Assessed on Cash Basis, Not Mercantile Basis.

  Case-Laws - HC : Whether the Tribuanl was right in holding that the income from non-performing assets should be assessed on cash basis and not on mercantile basis despite the assesee maintain mercantile system of accounting - held Yes - HC
  Visit to Get Source

  ---

• Standard Telecom Services Not 'Technical Service' u/s 194J of Income Tax Act.

  Case-Laws - AT : TDS u/s 194J - offer of a standard facility to a number of customers such as telephone/cell phone users does not amount to rendering any ‘technical service’ within the meaning of the definition of technical service - AT
  Visit to Get Source

  ---

• Court Disallows Construction Costs and Indexation for Capital Gains Due to Absence of Building in Fixed Assets.

  Case-Laws - AT : Capital Gains - Cost of construction and indexation disallowed – proof of construction of building on land - If the examination of balance sheets reveals that there was no building appearing in the fixed assets, then the obvious conclusion is that initially building was constructed by assessee and further these tenant companies had made further additions - AT
  Visit to Get Source

  ---

• Fees for Technical Services in Oil Extraction Not Tied to Permanent Establishment in India; Assessed u/s 115A.

  Case-Laws - AT : The receipts are not connected with PE in India and hence the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil will be assessable u/s 115A of the Act - AT
  Visit to Get Source

  ---

• Preemption charges paid to VSNL for transponder surrender classified as capital expenses.

  Case-Laws - AT : Nature of expenses towards payment of preemption charges to VSNL for surrender of transponders - held as capital in nature - AT
  Visit to Get Source

  ---

• Delivery and Derivative Share Transactions Classified as Non-Speculative u/s 43(5) for Tax Consistency.

  Case-Laws - AT : The fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which creates a deeming fiction - AT
  Visit to Get Source

  ---

Service Tax

• Sending Trained Nurses Abroad Qualifies as Manpower Recruitment and Supply Service, Considered Export Activity Under Tax Rules.

  Case-Laws - AT : Remuneration received from abroad for sending nurses after training on the ground that it amounts to manpower recruitment and supply service - prima facie it is an export activity - AT
  Visit to Get Source

  ---

• Penalties Imposed Despite Tax Paid with Interest Before Notice; Section 73(3) Finance Act, 1994, Applies.

  Case-Laws - AT : Imposition of penalties u/s 76 - discharge of the service tax liability with interest before issuance of show cause notice - the provision of Section 73(3) of the Finance Act, 1994 are directly applicable to this case - AT
  Visit to Get Source

  ---

Central Excise

• Automobile Dealers Face Investigation for Charging Above Ex-Showroom Prices, Potential Violation of Central Excise Regulations.

  Case-Laws - AT : Valuation of goods - dealers of Maruti Suzuki are charging price over and above the ex-showroom price from the ultimate customers of the vehicles - prima facie case is against the assessee - AT
  Visit to Get Source

  ---

• Court Expands Definition of Capital Goods; MS Tanks Qualify for CENVAT Credit Under Central Excise Regulations.

  Case-Laws - HC : Denial of CENVAT Credit - Capital goods - The intent is wide enough to accept MS Tank as capital goods. - HC
  Visit to Get Source

  ---

• Appeal Delay Excused: Appellant Lacked Proper Guidance Until Advocate Consultation at Tribunal.

  Case-Laws - HC : Condonation of delay - since no proper guidance was given till the appellant contacted the learned advocate who represents him before the Tribunal, there was a delay in preferring the appeal - delay condoned - HC
  Visit to Get Source

  ---

VAT

• Court Rules Computer Education Contracts with Computer Supply as Works Contracts, Subject to Sales Tax.

  Case-Laws - HC : Nature of activity - Works Contract or contract of sale or contract of service - imparting computer education in the schools with providing computers for this purpose - held as works contract liable to sales tax - HC
  Visit to Get Source

  ---

Case Laws:

• Income Tax

• 2014 (10) TMI 752
  Unexplained credits u/s 68 – Acceptance of additional evidence - Notice sent to assessee but assessee did not appear before AO – Cash deposit in the assessee’s bank account treated as income from undisclosed sources – Held that:- The contention of the assessee that cash were out of sale proceeds collected by assessee on behalf of his employer M/s. Anup Service Station was not supported by any corroborating evidence like name & address of the persons form whom the cash was collected - Since the assessee has acted as an agent on behalf of his employer, to collect cash for his employer and, therefore, all customers would only have account of Anup Service Station in their books, and assessee’s name shall never appear in their books of accounts and therefore, AO is wrong, impractical and misplaced - CIT(A) had passed a well reasoned and speaking order to delete the addition of Rs. 21,37,000/- out of Rs. 21,82,500/- as it is glorifiable with the documentary evidence – there is no reason to interfere in the order of the CIT(A) – Decided against revenue.

  ---

• 2014 (10) TMI 751
  Cancellation of penalty u/s 271(1)(c) - Refund of amount - Assessee contended that since he succeeded before the Tribunal against the order of assessment, by virtue of provisions of section 275(1A) of the Act, the revenue were required to delete the penalty and refund the amount of penalty – Held that:- The order of penalty was made against the assessee on the basis of the assessment of income done by the AO - since the addition of the amount in the income of the assessee for the purpose of assessment was removed by the order of the Tribunal, the penalty imposed upon the assessee u/s 271 (1)(c) of the Act was required to be cancelled by making necessary order u/s 275(1A) of the Act and the amount of penalty recovered from the assessee by adjustment was required to be refunded to the assessee - since the concerned authorities who were under obligation to pass necessary order for cancellation of penalty by giving effect to the order made in favour of the assessee since failed in passing necessary order for cancelling of penalty and for refund of the penalty amount, the assessee is justified in invoking the powers of the Court under Article 226 of the Constitution of India seeking direction to refund the amount of penalty. Claim of interest on amount to be refunded – Held that:- Section 244 of the Act provides for interest on refund where no claim is needed - Section 244 shall not apply in respect of any assessment for the AY commencing on 1st May, 1989 or any subsequent assessment orders - Section 244A of the Act would apply for interest on refunds – relying upon Sandvik Asia Ltd. Vs. Commissioner of Income Tax I, Pune and others [2006 (1) TMI 55 - SUPREME Court] - a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the revenue must compensate the assessee – revenue are directed to refund the penalty amount of Rs. 1,13,32,499.00 to the assessee within a period of two months from the date of receipt of this order with interest on such amount of penalty as per the provisions of section 244(A)(1)(b) of the Act – Decided in favour of assessee.

  ---

• 2014 (10) TMI 750
  Validity of transfer of cases from DCIT, Circle Shimla to ACIT/DCIT Central Circle-I, Chandigarh - Whether the execution/implementation of the orders would be a ground for dismissing the writ petitions at the threshold stage – Held that:-The writ petitioners have questioned the show cause notices and the orders on the ground that these are unconstitutional, illegal, bad in law and have resulted in depriving the petitioners from contesting their cases conveniently at Shimla. Whether the show cause notices and the orders impugned are bad in law, are liable to be quashed or otherwise and whether the writ petitions would lie - is to be determined after hearing the parties on merits - Following the decision in State of H.P. & ors. Vs. Prem Lal - the preliminary objection raised by the respondent fails and is rejected - the interim direction i.e. stay order granted is adversely affecting the respondent since the actions which are to be drawn in a time bound manner would become time barred or not, since the parties have not argued the cases on merits, it is not fair to return findings whether the stay is to be vacated or to be made absolute - it is made clear that in case any action becomes time barred in the interregnum, the period from the date of passing of the stay order shall be excluded, while computing the time limit - the writ petition is to be hear expeditiously.

  ---

• 2014 (10) TMI 749
  Deemed dividend u/s 2(22)(e) – Amount advances to shareholders - Whether lending of the amount to the shareholder is in the ordinary course of its business and that the activity of lending of money constitutes substantial part of the business of the company are based on material on record or not – Held that:- The assessee-company owed certain sum during the assessment year and it had a sum of Rs. 1,12,24,745 to the credit of the subsidiary company which is much in excess of the amount of Rs. 27,59,932/- sought to be brought to tax under deemed dividend - the subsidiary company was advancing money to the assessee company for the purpose of purchase of raw material and to make payments to M/s. Hindalco Limited to meet their business/trading liabilities - the Tribunal rightly recorded that there is no element of deemed dividend and the amount of undistributed dividend of the subsidiary company cannot be said to be deemed dividend of the assessee company - there was a running account between the parties and interest was charged - Apart from that, a sum of Rs. 1,12,24,745/- was standing to the credit of the subsidiary company – thus, there was no reason to interfere in the order of the Tribunal – Decided against revenue.

  ---

• 2014 (10) TMI 748
  Payment of commission to non-resident agents – Liability to deduct TDS – Question of law not challenged before Tribunal - Held that:- The question of deduction of tax at source under Section 195 would arise only if the payment of commission to a non-resident is chargeable to tax in India the fact that the payment was remitted directly abroad and it cannot be held to have been received on or on behalf of the agent in India - The circular No.7 dt. 22/10/2009 cannot be considered retrospectively to make it applicable for payments made before that date – The Tribunal had rightly held that the non-residents/ foreign agents have provided services for earning commission and the services have been rendered outside India, the Commission so earned by non-resident is a business profit – the question framed was not challenged before the Tribunal, then on what basis substantial question of law can be said to be raised - This shows the lackadaisical approach of the revenue officers - the question does not arise out of the order of Tribunal. It is a finding of fact arrived at by the CIT(A) after elaborate discussion that rate of commission was same for all the foreign agents and when AO has been satisfied about other payments nothing was brought on record by the AO to justify about disallowance of commission payment to these two foreign agents, merely because amount is more, that by itself does not justify disallowance and AO has to bring on record something more to disallow any payment, there is also a finding of fact appreciated by the CIT(A) that the assessee had to establish in foreign markets which are highly competitive, therefore services of these foreign agents/companies was taken by the assessee – thus, no substantial question of law arises for consideration – Decided against revenue.

  ---

• 2014 (10) TMI 747
  Applicability of section 50C - Cases of transfer of land or building where the transaction was not registered with the stamp duty valuation authority within the purview of section 50C or not - Valuation of agricultural land as on 1.1.1981 – Held that:- The AO held that the provisions of Section 50C of the Act were applicable as the transfer of property had been carried out vide a registered sale deed and not in pursuance of sale agreement - CIT(A) held that capital gains arise on transfer of a capital asset and the effective date for computing the capital gain is the date of transfer of capital asset - Since the computation of income from capital gain on sale of land was to be made on the amount of full consideration received or accruing on the date of transfer and on the date of transfer of the land, the provision of Section 50C was not attracted, the AO was not justified in adopting the value assessed by the stamp duty valuation officer on a subsequent year - When the registration of the land sold by the assessee was done after the date of transfer of land, the provisions of Section 50C of the Act were not applicable – the order of the Tribunal is to be set aside and the matter is remitted back to the Tribunal for fresh adjudication in the light of Commissioner of Income Tax III, Ludhiana vs. M/s New P. Grand Resorts, GT Road, Jagraon [2014 (10) TMI 619 - PUNJAB & HARYANA HIGH COURT] - Decided in favour of revenue.

  ---

• 2014 (10) TMI 746
  Violation of principles of natural justice – Opportunity of being heard not provided – Mandatory requirement u/s 245 not fulfilled - Adjustment of refund against outstanding penalty demand – Held that:- As decided in Glaxo Smith Kline Asia (P.) Ltd v. CIT [2007 (1) TMI 113 - DELHI High Court] - before invoking the power u/s 245, the officer is expected to give an intimation in writing to the assessee to whom the refund is due informing him of the action proposed to be taken under the section - On the same date on which the intimation was issued the adjustment was made simultaneously - This is contrary to the spirit of the provisions of Section 245 inasmuch as no opportunity of hearing was given to the assessee before the adjustment was made - Therefore, on this ground alone the adjustment order is to be quashed – Decided in favour of assessee.

  ---

• 2014 (10) TMI 745
  Computation of MAT - Entitlement for unabsorbed depreciation - Unabsorbed business loss - Whether the Tribunal is right in holding that "loss" in explanation (iv) to section 115J means net loss after deduction of depreciation and that the assessee was entitled to deduction of unabsorbed depreciation – Held that:- Following the decision in Surana Steels (P) Ltd. vs. Deputy Commissioner of Income-Tax [1999 (4) TMI 5 - SUPREME Court] - a plain reading of Section 115J shows that if the assessee be a company and its total income determined under the Income-tax Act in respect of a previous year be less than thirty per cent of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent of such book profit - The depreciation is provided for in the Profit and Loss Account - The loss is arrived at after taking into account the depreciation provided - the word loss as used in proviso clause (b) to Section 205 (1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115J of the Income-tax Act, 1961 - the term 'loss' as occurring in clause (b) of the proviso to Section 205 (1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the depreciation and that If 'loss' were to be taken as pre-depreciation loss then the resultant computation will not be in conformity with the tenor of the provisions of Section 205 – the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (10) TMI 744
  Allowability of deduction u/s 80HH and 80I – Ship breaking activity amounts to manufacture and production or not – Whether the Tribunal was right in allowing the deduction u/s 80-HH and 80-I holding that ship breaking activity gives rise to manufacturing and production of altogether a new article or thing - Held that:- Following the decision in Vijay Ship Breaking Corporation and Others vs. C.I.T [2008 (10) TMI 6 - SUPREME COURT] - the ship breaking activity resulted in production of articles which emerged when the ship breaking activity stood undertaken - the important test which distinguishes the word "production" from "manufacture" is that the word "production" is wider than the word "manufacture" - the word "production" cannot derive its colour from the word "manufacture” - the word "production" is wider than the word "manufacture" - the word "production" has a wider connotation than the word "manufacture" - the Tribunal was right in allowing the deduction u/s 80HH and 80-I to the assessee holding that the ship breaking activity gave rise to the production of a distinct and different article - ship breaking activity gave rise to the production of a distinct and different article and therefore the deduction u/s 80HH and 80-I is required to be given – thus, the order of the Tribunal is upheld – Decided against Revenue.

  ---

• 2014 (10) TMI 743
  Non-speaking order passed – Exemption u/s 10(23C)(iv) not granted - Held that:- When the claim in terms of Section (23C) (iv) of the Income Tax Act was submitted before the 3rd respondent who in turn forwarded the application to the 4th respondent with a recommendation for the grant of exemption, it was incumbent upon the 4th respondent to state the reasons that weighed with him while taking the decision for not to grant exemption to the assessee – the order passed by the 4th respondent does not disclose any reason for his decision - A quasi-judicial authority, who is entrusted with the task of adjudicating upon the rights of a person, cannot pass orders that are ambiguous and vague by not stating the reasons that informed his decision - for the sole reason that it is a non-speaking is set aside - The 4th respondent is directed to reconsider the matter and pass fresh orders on the claim of the petitioner for exemption in terms of Section 10 (23C)(iv) – Decided in favour of assessee.

  ---

• 2014 (10) TMI 742
  Benefit of deduction u/s 80HHC - Whether the benefit of deduction u/s. 80HHC can be claimed on the total income before allowing deduction of the unabsorbed losses, unabsorbed investment allowance and the unabsorbed depreciation – Held that:- Following the decision in Commissioner of Income-Tax Versus Shirke Construction Equipment Limited [2007 (5) TMI 194 - SUPREME Court] - in determining business profits for the deduction under section 80HHC the unabsorbed business losses of earlier years under section 72 should be set off – thus, the order of the Tribunal is to be set aside - Decided in favour of revenue.

  ---

• 2014 (10) TMI 741
  Deduction u/s. 80HH and 80I - Interest income on deposit with IDBI u/s 32AB – Interest income from getting bank guarantees of the Forest departments for the purchases of Tendu leaves – Whether the interest income cannot be said to be income derived from industrial undertaking and the same be excluded for the purpose of calculating deduction u/s. 80HH and 80I of the Act - Held that:- Following the decision in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] - duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking - Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB – Decided against assessee. Calculation of deduction u/s 80HH and 80I – Interest income without reducing interest expenses excluded or not - Held that:- Following the decision in Commissioner of Income Tax -Ahmedabad-III Versus Nirma Ltd. [2014 (10) TMI 388 - GUJARAT HIGH COURT] - Ninety per cent of not the gross rent or gross interest, but the net thereof shall have be excluded - the amounts are to be excluded for the purpose of deduction u/s 80HHC of the Act - when the profit is being excluded from the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded – the benefit of deduction u/s 80I of the Act on various incomes, such as, job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste is to be granted – Decided in favour of assessee.

  ---

• 2014 (10) TMI 740
  Accrual of interest on NPAs – Mercantile system of accounting followed - Whether the Tribuanl was right in holding that the income from non-performing assets should be assessed on cash basis and not on mercantile basis despite the assesee maintain mercantile system of accounting – Held that:- Following the decision in Commissioner of Income-tax, Central Circle, Bangalore Versus Canfin Homes Ltd. [2011 (8) TMI 178 - KARNATAKA HIGH COURT] - if an assessee adopts mercantile system of accounting and in his account he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the income to tax - As the definition of non-performing asset shows an asset becomes non-performing when it ceases to yield income - once a particular asset is shown to be a non-performing asset, then the assumption is it is not yielding any revenue - when it is not yielding any revenue the question of showing that revenue and paying tax would not arise - the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assesse has adopted a mercantile system of accounting, he as to pay tax on the revenue which has accrued notionally is without any basis – thus, there was no merit in the appeal – Decided against revenue.

  ---

• 2014 (10) TMI 739
  Transfer pricing adjustment – Selection of comparables – Accentia Technologies Limited – Eclerx Services Limited Mold-Tek Technologies Limited - Extraordinarily high profit of 117% - High profits because of ex-ordinary events – Functionally dissimilar unit - Held that:- Two companies viz., Iridium Technologies and Geosoft Technologies amalgamated with M/s. Accentia Technologies Limited which resulted in a higher profit for the company during the year – following the decision in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 - ITAT HYDERABAD] - The company was excluded since ex-ordinary events like merger and demerger had taken during the relevant financial year which must have impacted the financial results of the company - That besides the high volume of on-site operation of Accentia Technologies Limited also makes it functionally dissimilar to the assessee - These facts are not considered either by the TPO or by the DRP – thus, the matter is to be remitted back to the AO for verification. Accurate Data Convertors Private Ltd. – Asit C Mehta financial services Ltd. (Seg). – Employee cost filter - Held that:- The assessee was not given any opportunity/ information to examine the comparability of the company - Though the TPO is empowered under the provisions of the Act to obtain information with regard to selection of comparables, however before utilising the information obtained, he has to give fair opportunity to the assessee to have its say in the matter - since the TPO has not given any opportunity to the assessee to raise its objections with regard to the company, the matter is to be remitted back to the AO for considering the objections. Vishal Information Technologies Ltd. – Employee cost filter – Held that:- Following the decision in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 - ITAT HYDERABAD] - The company unlike the assessee has outsourced considerable portion of its business to third party vendor - Hence, it cannot be considered as a comparable. HCL Comnet Systems & Services Limited, Infosys BPO Limited and Wipro Limited – Functionally dissimilar unit - Held that:- Following the decision in M/s. Capital IQ Information Systems (India) Pvt. Ltd. Versus Addl. Commissioner of Income-tax [2014 (9) TMI 125 - ITAT HYDERABAD] - These three companies are having huge turnovers like that of assessee during the year - Therefore turnover filter as considered in other cases does not apply here – but, the functional profile of companies as such is different - But, if the BPO division is similar to assessee the same can be considered after proper FAR analysis – thus, the matter is remitted back to the TPO/AO for re-consideration of the comparables after giving due opportunity to assess and fairly analyzing its objections. Inclusion of reimbursement transactions as part of operational cost – Held that:- Reimbursement costs should be excluded as they do not involve any functions to be performed so as to consider it for profitability purposes – relying upon M/s. Four Soft Ltd. Hyderabad Versus The Dy. Commissioner of Income-tax, Circle 1(3), Hyderabad [2011 (9) TMI 634 - ITAT, Mumbai] - for computing the net margin of the assessee for the purposes of transfer pricing, only the cost related to the transaction with the Associated Enterprises has to be considered and accordingly, segmental financials is to be considered for the purpose of arriving at the net margin on the international transaction with the assessee's enterprise in respect of software development services - Since the AO had no occasion to verify the veracity of the segmental financials prepared by the assessee company, the matter is remitted back to the AO for determination of ALP – Decided in favour of assessee. Computation of deduction u/s 10A - Re-characterisation of foreign exchange gain – Held that:- Following the decision in ITO vs Banyan Chemicals P. Ltd. [2008 (12) TMI 296 - ITAT AHMEDABAD] - that foreign exchange gain on account of fluctuation qua exports business is eligible for exemption u/s 10B - since foreign exchange gain is on account of fluctuations of the foreign exchange received for the services rendered by the assessee, has to be treated as business income and it has to be considered as profits of the business for computing the deduction u/s 10A of the Act – Decided in favour of assessee. Reduction of communication charges from the export turnover – Held that:- Following the decision in CIT vs. Gem Plus Jewellery Ltd [2010 (6) TMI 65 - BOMBAY HIGH COURT] - the AO is directed to reduce communication charges both from the export turnover as well as the total turnover for computing exemption u/s 10A of the Act – Decided in favour of assessee.

  ---

• 2014 (10) TMI 738
  Non-deduction of TDS on consultancy charges – Disallowance u/s 40(a)(ia) – Whether the payment is purely for consultancy & not reimbursement of the expenses – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that as per the agreement entered into by this assessee with the concerned Authority it is a compulsory payment to be made as a reimbursement - On this amount, obviously Section 194J is not applicable – the order of the CIT(A) is upheld – Decided against revenue. Non-deduction of TDS on hire charges – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee made entire payment towards hiring of trucks for the shifting of plant from one place to another place - provisions of section 194C are not applicable as decided in Merilyn Shipping & Transports VS. ACIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] - provisions of section 40(a)(ia) of the Act are applicable only to amounts of expenditure which are payable as on 31st March of every year and it cannot be invoked to disallow expenses which have been actually paid during the previous year without deduction of TDS - the order of the CIT(A) is upheld – Decided against revenue. Non-deduction of TDS on payments for Sign Boards - Whether the payment is towards a works-contract or not - Held that:- s decided in assessee’s own case for the earlier assessment year, it has been held that the CIT(A) has rightly observed that there is no evidence on record to show that these payments are not for 'contract for sale' and are for 'contract for work' - the finding of the CIT(A) is cursory and he has mainly relied on the narration on the bills but he has not gone into the real aspect of the controversy - this issue has not been correctly investigated into and examined by the AO – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of revenue. Cancellation of order u/s 201(1) – Held that:- ITO (TDS), Udaipur created the demand u/s 201(1) of the Act only on the basis that the AO while passing the assessment orders for the assessment years held that the assessee was liable to deduct TDS on account of plant shifting charges, consultancy charges, hire charges etc. However, those disallowances made by the AO were deleted upto the level of ITAT and at present no such disallowances are in existence, therefore, CIT(A) was fully justified in deleting the demand created by the ITO (TDS), Udaipur u/s. 201(1) of the Act – the order of the CIT(A) is upheld – Decided against revenue.

  ---

• 2014 (10) TMI 737
  Addition of rental income – Held that:- The lease deed dated June 2, 2003 between the assessee- company and Vanenburg IT Park was amended by an addendum with effect from September, 22,2004 to include lease of additional premises (building 'D' 4th floor) which inter-alia included revised monthly rental and the AO has wrongly considered the amended lease agreement entered into by the assessee and the landlord which was operational with effect from September 22, 2004, without appreciating the fact that Skyworks had occupied the said premises and availed of the facilities up to June, 2004 only - the figure of monthly rentals arrived at by the AO is based on the amended lease agreement and consequently the view of the AO with regard to recovery of the amount from Skyworks computed by the AO was wrong – the AO has wrongly stated that Skyworks has availed the said premises/facilities only 6 months from April 4, 2004 to September, 2004 whereas the Skyworks has availed the premises for a period of 3 months only i.e., during April, May and June, 2004 - the addition determined by the CIT(A) as the rental income is to be deleted. Payment made to 'bandwidth' charges u/s 40(a)(ia) – Held that:- Following the decision in M/s. Market tools Research Pvt. Ltd. vs. DCIT [2014 (2) TMI 312 - ITAT HYDERABAD] - the offer of a standard facility to a number of customers such as telephone/cell phone users does not amount to rendering any ‘technical service’ within the meaning of the definition of technical service - Technical or consultancy service rendered should be of such a nature that it ‘makes available’ the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end - It is enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it - The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider - the CIT(A) erred in upholding the disallowance made by the AO in respect of payment made to towards bandwidth charges u/s. 40(a)(ia) – Decided in favour of assessee. Determination of arm's length mark-up for provision of software development services – Held that:- As decided in Intoto Software Services Pvt. Ltd. vs. ACIT [ 2013 (10) TMI 599 - ITAT HYDERABAD] - the assessee has accepted the Exensys Software Solutions Limited as one of the comparable companies when proposed by the TPO - the fact that there is an amalgamation of two companies i.e., Exensys Software Limited and Holool India Limited, the results of which, has resulted in high operating margin cannot be lost sight for - to compare a company with another company, both the companies have to be brought on par with each other after making the necessary adjustments wherever necessary and possible - As the material relied upon by the learned Counsel for the assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, the matter is to be remitted back to the AO for re-consideration. The TPO has brought out the differences between a product company and a software development services provider - he is aware of the functional dissimilarity between a product company and a software development service provider - the AO ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available - Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software services only - The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products - Under section 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies - the AO/TPO has exercised this power to call for details with regard to the various companies - the AO is directed to rework out the ALP on the remaining comparables in the list and make adjustment, if any – Decided partly in favour of assessee.

  ---

• 2014 (10) TMI 736
  Capital Gains - Cost of construction and indexation disallowed – Cost of improvement – Payment to clear the dues – Held that:- Section 48 provides the mode of computation of capital gain - the income chargeable under the head “capital gain” shall be computed by deducting from the full value of the consideration received or accruing as a result to the transfer of capital asset - The tenants have been manufacturing the goods which were subject to excise clearance - The occupancy certificate issued by the Department of Town & Planning is placed on the record and he further drew our attention towards the lease agreement between her and the tenants - On the strength of these documents he pointed out that building was in existence - Her inability to quantify the cost of construction should not be considered as a sole criteria to exclude that cost of construction while computing the capital gain - The assessee has already taken a report from the Registered Valuer and calculated the cost of construction on that basis - As far as the objection of the AO is concerned that building has not been mentioned in the sale deed, according to the assessee the terms and conditions mentioned in the sale deed are negotiated terms and conditions between the vendor and vendee and does not carry the value equivalent to any statute - There may be a different object of the vendee for not mentioning the building and one of the relevant factors can be a lower payment of stamp duties - Thus non mention of building in the sale deed would not authorize the AO to deny the claim of assessee - During the course of hearing we had confronted to the assessee that the rental income can be an income from the land only - if it was an income simply from leasing out of the land then it would have been assessed as income from other sources and not income from house property. Relevant balance sheet for arriving at the conclusion that these companies constructed the buildings can only be examined from the balance sheet of 31.3.1997 - If the examination of these balance sheets as of this year reveals that there was no building appearing in the fixed assets, then the obvious conclusion is that initially building was constructed by assessee and further these tenant companies had made further additions, the value of which is represented in the balance sheets of these companies as on 31.3.2005 - for this verification the matter is to be remitted back to the AO for verification of balance sheets of these companies for the years 31.3.1997 and if there is no amount appearing with respect to buildings, then he should allow the benefit to the assessee as all other evidences are in favour of assessee - the AO can get verified the valuation report for the purpose of rates taken by valuer as the constructed area matches with the occupancy certificate – Decided in favour of assessee. Payment not made by assessee but in the name of husband of assessee – Held that:- Disallowance only on this account is not a valid disallowance as the AO has not otherwise doubted the payments - CIT(A) himself had held that a considerable portion in the nature of permanent structure was also constructed by tenants - CIT(A) also makes a finding that in the case of M/s Excalibur in the balance sheet as on 31.3.2008, a deduction of an amount was made from the value of building - CIT(A) inferred it to be against the assessee as assessee was not able to reconcile the figure with the amount of compensation received by Excalibur - cost of building as appearing as on 1.4.2006 as per paper book page 140 is Rs. 1,17,77,207/- and on receipt of compensation of Rs..1,30,00,000/- the assessee reduced the total amount from building account in subsequent year - there is nothing wrong in it as when an asset is sold for an amount which exceeds the cost price, the only amount which can be reduced from the cost price is maximum up to cost price appearing in the balance sheet – Decided in favour of assessee.

  ---

• 2014 (10) TMI 735
  Mineral oil, business for prospecting/ exploration, etc. - Taxability of seismic data acquisition and processing services Income deemed to accrue or arise in India - Whether the income of the assessee has to be computed in accordance with the provisions of sec. 44BB of the Act or brought to tax u/s 9 (1) (vii) – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that following the decision in CGG Veritas Services, SA Versus Additional Director of Income-tax, (International Taxation) [2012 (4) TMI 280 - ITAT DELHI] - the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act - the receipts are not connected with PE in India and hence the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil will be assessable u/s 115A of the Act – thus, the order of the CIT(A) is upheld - Decided against assessee. Taxability of mobilization/demobilization revenues - Nature of mobilization/demobilization activities – Held that:- Following the decision in SEDCO FOREX INTERNATIONAL INC. (formerly known as Forex Neptune International Inc.) Versus CIT [2007 (9) TMI 196 - UTTARAKHAND HIGH COURT] - Mobilisation is a stage payment, as part of the total consideration for execution of the contract - The assessee would be moving its machinery from one place of work to another place of work - Mobilisation is paid as an advance for such movement and is generally adjusted against running bills - It is not a case where a separate payment is made for a transportation contract - Mobilisation is an incidental activity to the main activity of carrying out the contract in India – Decided against assessee.

  ---

• 2014 (10) TMI 734
  Advances written off disallowed – Held that:- While AO has disallowed the amount for the reason that they are not in the nature of advance, CIT(A) has sustained the assessee’s claim n the ground that no evidence has been produced by assessee to substantiate that party has refused to repay advance given by assessee and further the said party has refused to supply the pouches for their changed design - So far as the rent deposits are concerned, CIT(A) sustained the disallowance by simply observing that assessee has failed to produce any evidence that landlords have refused to repay the deposits - the conclusion drawn by AO as well as CIT(A) are not correct as it is not in accordance with the statutory provision - As per Section 36(1)(vii) if the debt becomes bad and had actually been written off in the books of account, then, it is to be allowed as a deduction - the amount has been written off in the books of account of assessee - deduction claimed cannot be disallowed only on the reason that assessee has not proved that the persons concerned have refused to make payment to assessee – the addition is to be set aside – Decided in favour of assessee. Nature of expenses towards payment of preemption charges to VSNL for surrender of transponders disallowed – Held that:- Assessee has taken on lease from VSNL 5 numbers of transponders for telecasting its programmes in the channels - the preemption charges of Rs. 4,70,27,466 equivalent to US $ 10,33,000 was towards premature termination of lease in respect of two transponders of VSNL, which were used by assessee as assets of its business - the expenditure incurred by assessee being connected with an asset which is used as a tool for carrying on the business of assessee, certainly, in the nature of capital expenditure – relying upon Aztec Software and Technology Services Ltd. Vs. ACIT [2007 (7) TMI 50 - ITAT BANGALORE] - the expenditure incurred is connected to apparatus with which assessee carried on its business, the nature of expenditure is also capital – thus, the order of the CIT(A) is upheld – Decided against assessee. Depreciation on computer peripherals @ 60% - Held that:- CIT (A) has restricted the depreciation to 25% on modems, switches, routers, printers, scanners etc by treating them as plant and machinery – as decided in assessee’s own case for the earlier assessment year, it has been held that the revenue authorities have not disputed the fact that the items on which the assessee has claimed depreciation at the rate of 60% by treating them as ‘computer’ are being used as input or output device of the computers - relying upon DCIT vs. Datacraft India Limited [2010 (7) TMI 642 - ITAT, MUMBAI] - any device when they are used along with computer and when their functions are integrated with the computer comes within the ambit of the expression ‘computer’ - depreciation at the rate of 60% by treating the screen, key board, mouse, UPS, net working, router as part of the computer system and thereby eligible for depreciation at the rate of 60% as available to computer – thus, the contention of the assessee is accepted that it is entitled to avail depreciation at the rate of 60% on those items as is applicable to ‘computer’ – thus, the AO is directed to allow depreciation @ 60% as claimed by assessee – Decided in favour of assessee.

  ---

• Customs

• 2014 (10) TMI 756
  Failure to fulfill export obligation - Held that:- appellants have failed to fulfill the export obligation and therefore, the duty demand with interest made in the order is fully justified and it cannot be said that liability is disputable - appellant has not been able to make out a prima facie case in their favour at all. - stay denied.

  ---

• 2014 (10) TMI 755
  Confiscation of foreign currencies u/s 113(d) - penalty u/s 114 - appellant was carrying foreign currency without the permission of RBI - Held that:- The authorities took note of the voluntary statement recorded under Section 108 of the Act, wherein the petitioner had categorically admitted that he was taking the currency clandestinely on behalf of one Abdullah for monetary consideration. This particular evidence was held to be acceptable and cannot be brushed aside and there is no record to show that the statement of the petitioner was recorded under duress/pressure and the same was not voluntary. It is settled legal proposition that statement recorded under Section 108 of the Act is admissible unlike a statement recorded by a Police Officer. Thus, the Appellate authority and the Revisional authority considering the peculiar facts and circumstances of the case, the nature of concealment of currency and the fact that the petitioner was carrying the currency on behalf someone else for monetary consideration, rejected the request for redemption. Therefore, I find no valid reasons to interfere with the concurrent finding of the three authorities - Decided against assessee.

  ---

• 2014 (10) TMI 754
  Valuation of goods - Addition of royalty for technical know how fees - Held that:- Under Rule 9(1)(c), the cost of technical know-how and payment of royalty is includible in the price of the imported goods if the said payment constitutes a condition pre-requisite for the supply of the imported goods by the foreign supplier. If such a condition exists then the payment made towards technical know-how and royalties has to be included in the price of the imported goods. On the other hand, if such payment has no nexus with the wording of the imported goods then such payment was not includible in the price of the imported goods - provisions of Rule 10(1)(c) of Customs Valuation Rule (CVR), 2007 are pari materia to Rule 9(1)(c) of the CVR, 1988 - Decided in favour of assessee.

  ---

• 2014 (10) TMI 753
  Valuation of goods - Undervaluation of goods - Determination of transaction value - Held that:- As per the Public Notice, all the importers are required to furnish the details like nature, type, quality, grade of constituent materials used for the frame, filling and upholstery of the furniture. Moreover, size, capacity, brand, model or article number is also required to be furnished. The weight of the item in kilograms irrespective of the unit quantity code and the Maximum Retail Price is also required to be declared by the importers to determine the value on the basis of contemporaneous import/similar or comparable goods is to be seen in receipt of the declaration made by the importers on the basis of consequent material only. More over furniture is an item which in normal course is sold and bought in the market on the basis of real price. We further find that particularly furniture with material filling and upholstery cannot be comparable with details of descriptions on the same with the comparable goods. Further size, capacity, brand, model are also required to be considered at the time of valuation of the goods. As both the lower authorities have failed to exercise in the absence of any similar or comparable goods available, the rejection of the transfer value is not correct. We further find that it is not the case of the department that transaction value declared by the appellant is not genuine. Accordingly, the rejection of transaction value is set aside - Decided in favour of assessee.

  ---

• Service Tax

• 2014 (10) TMI 773
  Irregular availment of CENVAT credit - Banking and Other Financial Services - restriction on utilization of 20% of service tax - Held that:- As regards demand on the ground that the appellants had utilized more than 20% of the service tax payable from CENVAT Credit account, the appellants have produced a Chartered Accountant certificate which shows the details of payments, credit, etc. It is the submission of the learned CA that in the case of Idea Cellular Ltd. [2009 (2) TMI 91 - CESTAT NEW DELHI], the Tribunal had taken a view that the restriction of 20% limit has to be calculated excluding the services which are specified in Rule 6(5) of CENVAT Credit Rules, 2004. - However while calculating, the calculation was made in a different manner which resulted in the conclusion that appellants had utilized more than 20% of CENVAT credit. Two periods were examined by us and in both the cases, we found that the amount of credit utilized by the appellants come to exactly 20%, if the claim of the appellant for method of calculation is accepted. Appellants did not make a clear claim that they had selected invoices randomly and on the basis of these certificates, all the credit taken in respect of common input services have to be treated as correct and the invoices have to be considered as ones relating to services classifiable under services listed in Rule 6(5) of CENVAT Credit Rules, 2004. In such a situation, the observation of the Commissioner that the appellants are eligible only to this extent cannot be faulted with. At the same time, we also have to take note of the fact that the audit observation was based on 1% of the samples and there is no clear finding that these are not common input services. Instead it appears that Department is attempting reclassification of the input services to arrive at this conclusion. - Matter remanded back - Decided in favour of assessee.

  ---

• 2014 (10) TMI 772
  Construction of complex service - renting of immovable property service - transport of goods by road service - Held that:- demand of Rs. 8,81,135/- has been confirmed on an amount of Rs. 23705930/- the details of which are available in the table given in para 10.5 of the same order - It is evident from the details given against these serial numbers 2e, 3c, 4c & 5b that this amount represents the payment received for construction of office building (load dispatch data center). Thus, it is clear that this amount does not pertain to construction of any residential complex or completion & finishing of residential complex or repair, alteration, renovation or restoration in relation to residential complex. Thus it hardly requires any further discussion to hold that the said component of impugned demand confirmed under the Construction of Complex Service is totally untenable. Renting of immovable property service - it is seen that at the time of adjudication, the had not claimed the exemption on the basis of what is stated at the time of appeal before the Tribunal. Regarding the contention in their appeal that vide their letter dated 12.10.2012 they had brought this to the notice of the adjudicating authority, we have perused that letter and it nowhere clearly brings out that the rental income was from for renting out the property for hostel/residential purpose and was not for business or commerce. Therefore it is only fair that this portion of the demand is remanded for denovo adjudication so that the appellants can submit their claim along with the evidence before the adjudicating authority. Regarding the impugned demand of Rs. 11,75,604/- under GTA service, the appellants have claimed that the same is not sustainable because the freight was less than Rs. 750/- for each trip. The appellants have submitted certain invoices in support of their claim. However the adjudicating authority in the impugned Order-in-Original has observed that the only defense which the appellants had taken at the time of adjudication was that this point was not raised in the audit report. The adjudicating authority rightly observed that merely because the point was not raised in the audit report, that cannot be a ground that a Show Cause Notice in that regard cannot be issued. - Decided in favour of assessee.

  ---

• 2014 (10) TMI 771
  Waiver of pre-deposit - valuation - Renting of Immovable Property service - demand is in respect of expenditure incurred on repairs and maintenance of machinery by adding to the assessable value for the purpose of Renting of Immovable Property - Held that:- applicant relies upon the terms and conditions of the lease agreement with the persons who had taken over the factory on rent where it has been specifically mentioned that the responsibility of repairs and maintenance of the machinery is on the person who is taking the factory on rent. Hence the demand is not sustainable - as per the lease agreement the lessee during the tenure of the contract is responsible for the repairs and maintenance of the factory. There is no evidence on record to show that the quantum of rent has been suppressed to the extent of the expenditure incurred on repairs and maintenance of machinery. In view of this prima facie the applicant has made out a case for waiver of dues. - Stay granted.

  ---

• 2014 (10) TMI 770
  Waiver of pre deposit - Construction of Residential Complex Service - Held that:- Applicants are engaged in the construction of a project under the name of ‘Golden Enclave’ of multistoried residential complex comprising of 36 flats and 30 individual villas having common area and common amenities. Prima facie, we are unable to accept the contention of the Ld. Counsel that it is individual villas or single houses or single apartment. We find from the impugned order that the ownership of the property continued to be with the applicant till the construction is completed. It is seen from the impugned order that the applicant had not provided documents viz., copy of the plan and other details to the department and prima facie we are unable to accept the demand is barred by limitation - Partial stay granted.

  ---

• 2014 (10) TMI 769
  Manpower recruitment and supply service and commercial training and coaching service - Held that:- Appellants get the payment made for the training element involved while sending the nurses abroad only, if the nurses join the hospital in America and passes the test that is conducted there successfully. In the event of nurses not proceeding abroad or in the event of their failing the test, the appellants do not get any payment for the same. In such an event the nurses are sent back. The demand has been made in respect of remuneration received from abroad for sending nurses after training on the ground that it amounts to manpower recruitment and supply service and the benefit of treatment of service as export of service has been denied. Prima facie in our opinion, the service amounts to export of service since remuneration was received in convertible foreign currency, service is utilized outside India and it can be definitely said that it was partly performed in India and partly performed abroad. Therefore, we find that the appellant’s claim that they are not be liable to pay has some validity. However, as regards the demand of service tax on commercial training or coaching services, in respect of nurses who do not go or who come back without passing the test, the appellants may not have a case. - In any case this aspect needs more detailed consideration and consideration of agreement vis-a-vis the definition of service, nature of training and the nature of payment received, etc.- this issue is prima facie not in favor of assessee - stay granted partly.

  ---

• 2014 (10) TMI 768
  Imposition of penalties u/s 76 - discharge of the service tax liability with interest before issuance of show cause notice - held that:- Appellant was informed about the short payment of tax by the Jurisdictional Range Officer to which he complied by discharging the said Service Tax Liability by cheque dated 29-9-2009 and informed Range Officer. Secondly, the First Appellate Authority recorded in the impugned order that show cause notice was issued on 14-9-2009 which is factually incorrect and I find that the show cause notice has been issued on 14-9-2010. That is almost after a year the said short payment was made good with interest. In my view the provision of Section 73(3) of the Finance Act, 1994 are directly applicable to this case - Decided in favour of assessee.

  ---

• 2014 (10) TMI 767
  Business support service - Hostel facility service - Canteen service - Held that:- According to the appellant the main business of TCS is software development and running of hostel cannot be termed as a support service. Hostel facility has to be treated as perk of the TCS employee and if it is treated as business support service, TCS should be entitled to take CENVAT credit. After going through the definition of business support service, we find that the appellant does not have a solid case and issue is debatable. As regards out-door catering, the liability arises only when such service is provided in the premises of the service receiver and in this case such service is provided only in the hostel and therefore liability may not arise. demand for the normal period may be sustainable - Partial stay granted.

  ---

• 2014 (10) TMI 766
  Waiver of pre deposit - Classification of service - Interior decorator service or works contract service - Held that:- interior decorator has to be a professional and has to advertise himself to the public that he is an interior decorator. From the bills and work orders produced, we do not find any such claim made by the appellant suggests that they are only undertaking interior works. Our attention also was drawn to one of the work orders wherein the work done by the appellant was certified by an interior decorator which also would show that the appellant may not be considered as an interior decorator. If they were considered to be so and their service was taken on that basis, Dell International, a customer in that case, would not require a certificate from interior decorator about the work done by the appellant. classification itself is debatable and the appellant seem to have a prima facie case to show that they are not interior decorators, the requirement of pre-deposit is waived and stay against recovery granted during the pendency of the appeal - Stay granted.

  ---

• Central Excise

• 2014 (10) TMI 774
  Appeal against the decision of high Court - Applicant withdrawn the matter before the supreme court to pursue matter before Commissioner with an application for condonation of delay - High Court [2012 (3) TMI 326 - Delhi High Court] has held that Wire mesh manufactured by the petitioner even if sold to a poultry farmer for assembling of cages for poultry or battery of such cages cannot qualify as machinery under heading 84.36 and would be an article of iron and steel wire within the meaning of heading 7314.

  ---

• 2014 (10) TMI 764
  Valuation of goods - dealers of Maruti Suzuki are charging price over and above the ex-showroom price from the ultimate customers of the vehicles - whether part of the promotional discount paid from the dealer's margin is includible in the assessable value for the purpose of payment of central excise duty or not - Held that:- it appears that the dealers have not borne their share of discount on their own accord but because of the fact that they are bound by the meticulously designed Dealership Agreement which they are bound to accept in their business interest. It would be commercially unthinkable for any dealer to remain in business without offering promotional discounts on ‘Ex-showroom Price’, while charging over and above that price in the name of ‘Handling Charges’ or by some other name. Therefore, prima facie it transpires that the discounts have been offered in connection with the sale and such discounts were a booster to the appellant to increase the sales. Further, such discounts has character of expenses on account of Advertising or Publicity, Marketing and Selling Organization Expenses, which are covered within the definition of ‘transaction value’ as provided under Section 4(3)(d) of CEA, 1944. Invocation of extended period of limitation - The ‘handling charges’ certainly seems to have been informally fixed by the appellants as the appellant during the course of investigation admitted that the dealers do not have any association by the name of Maruti Dealers Association which means that the dealers did not have a common platform, where they could have fixed the handling charges with consensus. The appellants suppressed this fact from the department that the dealers are charging price over and above the ex-showroom price from the ultimate customers of the vehicles. Thus, Prima facie, the provisions for extended period of limitation have rightly been invoked when discount is compensated through handling charges collected by the dealers indirectly benefiting the appellant to under value the excisable goods while delivering to their dealers. prima facie view that the adjudication has force and pre-deposit is required to be directed in this case to protect interest of Revenue - stay granted partly.

  ---

• 2014 (10) TMI 763
  Denial of CENVAT Credit - Capital goods - Credit taken on MS tanks - Held that:- By no stretch of imagination one can deny that MS Tank used in the manufacturing process is not a plant, machinery, apparatus, equipment etc. items in question were used in the erection of various machineries such as, - new additional Electrostatic Precipitator for raw mill project, additional fly ash handling system, MMD crusher etc., for the Dry Process Cement Manufacturing Plant. It is evident that MS Angles, MS Beams,MS Channels etc., were used in the erection of machineries it become component of the same, which are integral part of Dry Process Cement Manufacturing Plant. It is noted that Fly Ash handlish system is a pollution control equipment and particularly mentioned in 2(A)(A)(ii) of Rules, 2004. The allegation in the above show-cause notice that the Chapter Heading of these items were not covered under Rule 2(a) of the Rules, 2004, is not sustainable, in respect of Pollution control equipments because the rule does not specify the tariff headings under which pollution control equipment should be falling. The appellant established that these items were used for erection of capital goods namely Dry Process Cement Manufacturing Plant, which falls under Chapter 84, as mentioned in Serial No.(i) of Rules 2(a)(A). Thus, the items in question are covered in serial No.(iii) of Rules 2(a)(A) of the Rules, CBEC has clarified that all parts, components, accessories which are to be used with capital goods in serial (i) and (ii) of Rules 2(a)(A) and classifiable under any chapter heading are eligible for availment of CENVAT credit. A plain reading of serial (iii) cannot lead to a different conclusion either. The keyword is that such goods must be used in the factory for the manufacture of the final products and it is relatable to plant, equipment, machinery set out in Explanation (1)(a) to Sec.57Q and which is used for producing or processing any goods or bringing about any change in any substance for the manufacture of final product. The intent is wide enough to accept MS Tank as capital goods. Following decision of The Commissioner of Central Excise & Service Tax Versus M/s. India Cements Ltd. [2014 (7) TMI 881 - MADRAS HIGH COURT] - Decided against Revenue.

  ---

• 2014 (10) TMI 762
  Condonation of delay - ground for seeking condonation of delay is that the appellant was not properly guided in the matter of preferring appeal and was also worried about the huge amount that he would be required to pay at the time of preferring the appeal - Held that:- From the facts stated in the memorandum of application, it appears that the work carried out by the appellant is mainly in the nature of labour work, as such, the case put forth by the appellant that he were not aware of the intricacies of law, and therefore, could not approach the Tribunal in time appears to be quite plausible. It appears that the appellant was represented by a Chartered Accountant before the appellate authority and, therefore, relied upon him to give him proper guidance. However, since no proper guidance was given till the appellant contacted the learned advocate who represents him before the Tribunal, there was a delay in preferring the appeal. In the opinion of this court, the appellant had all the reason to hold a reasonable belief that he would be given proper guidance by the Chartered Accountant who had represented him before the appellate authority - Matter restored before Tribunal - Delay condoned.

  ---

• 2014 (10) TMI 761
  Condonation of delay - ground for seeking condonation of delay is that the appellant was not properly guided in the matter of preferring appeal and was also worried about the huge amount that he would be required to pay at the time of preferring the appeal - Held that:- From the facts stated in the memorandum of application, it appears that the work carried out by the appellant is mainly in the nature of labour work, as such, the case put forth by the appellant that he were not aware of the intricacies of law, and therefore, could not approach the Tribunal in time appears to be quite plausible. It appears that the appellant was represented by a Chartered Accountant before the appellate authority and, therefore, relied upon him to give him proper guidance. However, since no proper guidance was given till the appellant contacted the learned advocate who represents him before the Tribunal, there was a delay in preferring the appeal. In the opinion of this court, the appellant had all the reason to hold a reasonable belief that he would be given proper guidance by the Chartered Accountant who had represented him before the appellate authority - Matter restored before Tribunal - Delay condoned.

  ---

• 2014 (10) TMI 760
  Reference application - Whether the Tribunal was correct in merely dismissing the appeal without having taken the Boards Review order into consideration - Held that:- The power conferred upon the Board under Section 35H of the Act is somewhat typical. Normally, the taxing statutes do not provide for any appeal by the Department, against the order passed by the original or assessing authority. It is only the prerogative of the assessee to prefer an appeal against the order of assessment. Thereafter, if the Department suffers any order to its detriment in appeal, it can certainly carry the matter in further appeal to the CEGAT, or such authority as may be prescribed. wherever a departmental authority is conferred with the power to reopen, or review the proceedings, under the Act to satisfy itself, it has either to confirm or modify or set aside the orders, under its consideration. Under Section 35E of the Act, the order passed in the first instance has to satisfy itself about the correctness thereof. However, if it finds that the order under its consideration is not correct, the only course left open to it, is to require an authority under the Act to prefer an appeal before the Board against such an order. Beyond that, it cannot express any view on merits. Even on close verification of grounds of Reference, hardly there exists any element of law in them - Decided against Revenue.

  ---

• 2014 (10) TMI 759
  Waiver of pre deposit - Extension of stay order beyond period of 365 days - Held that:- Tribunal has noted that a waiver of pre-deposit and unconditional stay on the realisation of the adjudicated liability was granted by the Tribunal since a prima facie case was found in favour of the assessee. The Tribunal has also observed that the appeal has not been disposed of only on account of the pendency of several older appeals and not on account of any delay on the part of the assessee - ends of justice would be met if the Tribunal is requested to dispose of the appeal expeditiously and preferably within a period of six months from date of order - Matter remanded back

  ---

• 2014 (10) TMI 758
  Denial of CENVAT Credit - assessee availed the credit of CVD as paid as per the direction of settlement commission - levy of penalty would on the Managing Director and the Authorized Signatory - Held that:- Settlement Commission in its order has given a categorical finding that as the consequence of their order, the assessees are entitled to a certificate of payment of Counter Veiling duty from the Jurisdictional Commissioner or the DRI who are duty bound to issue such certificate. Consequently, the certificates issued by the DRI in consequence of the order of the Settlement Commission is perfectly legal. Further, Rule 57E is not applicable. We find that the Counter Veiling duty was paid by the assessee in August, 2002 and the certificate was issued on 6th August, 2002 by the DRI. The Cenvat Credit Rules, 2002 came into existence with effect from 1st March, 2002 and, consequently, the Cenvat Credit Rules became applicable. We are of the opinion that Rule 57E of the Central Excise Rules, 1944 is not applicable in the instant case. With regard to imposition of penalty for contravening the provision of Rule 57E(3), (4) and (5) of the Central Excise Rules, 1944 and Rule 7(1)(b) of the Cenvat Credit Rules, 2002, the Settlement Commission granted full immunity to the assessee for levy of penalty or fine under the Act in respect of matters covered in the dispute. - contravention done the Ex-Managing Director and the Authorised Signatory was one of the dispute which was settled by the Settlement Commission and, consequently, it was no longer open to the department to issue a show cause notice for levying such penalty - Decided against Revenue.

  ---

• 2014 (10) TMI 757
  Waiver of pre deposit - Wrong claim of SSI Exemption - Quantum of pre-deposit made - Tribunal ordered the assessee to deposit 25% of duty - Held that:- keeping in view the totality of the facts and circumstances of the case coupled with the fact that the appellant has already deposited a sum of Rs. 25 lacs in terms of the order dated 14.8.2014, we are of the opinion that the ends of justice would be met if the Tribunal is directed to hear the appeal on merits without insisting for pre-deposit of the remaining amount - Decided in favour of assessee.

  ---

• CST, VAT & Sales Tax

• 2014 (10) TMI 765
  Nature of activity - Works Contract or contract of sale or contract of service - imparting computer education in the schools - petitioner had provided computers and software for teaching purpose - Whether the contract dated 29.6.2002 can be construed and interpreted as a 'works contract' within the meaning of Section 2 (1) (f) of APGST Act, 1957 and whether it is exigible to tax under Section 5-F of the said Act - Held that:- On a careful analysis of the recitals and terms and conditions of the contract dated 29.06.2002, there cannot be any doubt that it involves certain goods in execution of the contract and that the same would be transferred to the schools in which the equipment is installed for imparting the computer education. It is no doubt true that the ownership of the said equipment remains with the petitioner till the end of the contract. However the mere fact that the ownership of the computers and the accessories passed on to the respondent at the end of the contract does not alter the nature of the contract. Passing of ownership at a later point of time is permissible as held in Larsen and Toubro Limited's case [2013 (9) TMI 853 - SUPREME COURT] On a combined reading of the terms and conditions of the contact dated 29.6.2002 with reference to the object sought to be achieved, it appears to us that the contract in question involves both a contract of service and a contract of sale of goods. It is a composite contract and by legal fiction provided under Article 366 (29-A) (b) of the Constitution it is permissible to separate the transfer of property in goods (as goods or in some other form) from the contract of service. It is also explained in Larsen and Toubro Limited's case (2013 (9) TMI 853 - SUPREME COURT) that the term 'works contract' cannot be confined to a particular form and it encompasses a wide range of many varieties of contract. It is also laid down in the said decision that for sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract three conditions must be fulfilled namely (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. According to us, all the said three conditions are satisfied in the present case - Decided against Assessee.

  ---