TMI Tax Updates - e-Newsletter
November 1, 2014

Case Laws in this Newsletter:

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

TMI SMS

• Principle of estoppel - assessee has admitted the service tax liability whereas high court has held that the activity is not taxable - demand set aside - HC

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• Rent a cab scheme - unless there is control, which is passed to the hirer under the rent-a-cab scheme, there cannot be a taxable service u/s 65(105)(o) - HC

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• Allowance of expenses on actual payment - provisions of section 43B are applicable on non-payment of interest on the delayed payment of due service tax - Tri

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Articles

1. RELEVANCE OF LOCATION IN SERVICE TAX

   By: Dr. Sanjiv Agarwal

News

1. Subash Chandra Garg Relieved to take up His New Assignment As Executive Director, World Bank, Washington D.C.

2. Rajiv Mehrishi takes over as Secretry, Department of Economic Affairs, Ministry of Finance

3. Department of Commerce calls for creative participation for India’s participation at Hannover Messe Invites inputs for theme, tagline and logo

4. RBI Reference Rate for US $

5. Government Announces Measures for Fiscal Prudence and Economy; Every Ministry / Department to Effect A Mandatory 10% Cut in Non-Plan Expenditure; Utmost Economy to be Observed in Organizing Conferences/Seminars/Workshops; Ban on Purchase of Vehicles; in all Cases of Air Travel, the Lowest Air Fare Tickets Available for Entitled Class to be Purchased/Procured.

Notifications

Income Tax

1. 50/2014 - dated 22-10-2014 - IT

Jurisdiction of Income-tax authorities - Authorisation of Income-tax authorities and their jurisdiction

Highlights / Catch Notes

Income Tax

• Section 43B: Interest on Delayed Service Tax Deductible Only When Paid, Not Accrued, for Tax Purposes.

  Case-Laws - AT : Allowance of expenses on actual payment – provisions of section 43B are applicable on non-payment of interest on the delayed payment of due service tax - AT
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• Revenue Authorities Must Examine Books Before Declaring Them Incomplete: Importance of Thorough Financial Review.

  Case-Laws - AT : Rejection of books of accounts – If the books of accounts have never been examined how can the revenue authorities say that the books are not complete - AT
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• Court Deletes Disallowance of Interest Expenses on Interest-Free Advances to Sister Concern; No Income Means No Accrual.

  Case-Laws - HC : Disallowance on interest expenses in interest free advances given to sister concern deleted – where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might have been made in the books of account - HC
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• SEBI Consent Fee Not a Penalty, Acknowledges Potential Lack of Guilt in Appellate Proceedings.

  Case-Laws - AT : Disallowance of consent fee paid to SEBI - SEBI has accepted the position that guilt may or may not be established at the end of the appellate proceedings - The fee paid cannot therefore, be equated to a “penalty“ which must necessarily be a punishment for infraction of a law or a regulation having statutory force - AT
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• Assessing Officer Must Grant Tax Exemption u/s 10(23C)(vi) When Section 11 Is Incorrectly Claimed.

  Case-Laws - AT : Exemption to be allowed u/s 10(23C)(vi) or section 11 – assessee claimed exemption u/s 11 – AO was under obligation to allow exemption u/s 10(23C)(vi) and there is nothing on record that the assessee has contravened any of the conditions as required u/s 10(23C)(vi) - AT
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• Transactions Deemed Speculative, Not Hedging, Due to Lack of Specific Bill and Purchase Order Connection by Assessee.

  Case-Laws - AT : The disputed transactions were speculative and not hedging transaction - assessee could not relate any single bill to any of the contract and it had not provided detail of any purchase order relatable to specific transaction - AT
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• Exemption Claim u/s 54B: Land Need Not Be Agricultural Entire Two Years Before Transfer Date.

  Case-Laws - AT : For the claim of exemption u/s 54B, it is not necessary that the land should have been used for agricultural purposes for full two years immediately preceding the date of transfer and that it is sufficient if it was so used in the whole of the preceding year and for some days in the year earlier to preceding year - AT
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Customs

• Tribunal Denies Waiver of Pre-Deposit for Appellants in Software Import Case Due to Duty Liability Reduction Efforts.

  Case-Laws - AT : Import of software - customised software or embedded with the hardware - If the appellants have put themselves in a situation wherein they have committed an offence to reduce the duty liability in their anxiety to become lowest bidders, it would not be appropriate for the Tribunal to lend a helping hand to them by waiving the requirement of pre deposit - AT
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Service Tax

• High Court Rules No Service Tax Demand: Estoppel Principle Bars Contradiction of Prior Admission of Liability.

  Case-Laws - HC : Principle of estoppel in law against a party - appellant has admitted the service tax liability whereas high court has decided that the activity is not taxable - no demand can be made against the assessee - HC
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• Control Transfer Key for Taxability Under Rent-a-Cab Scheme, Per Section 65(105)(o) & 65(91) of Service Tax Act.

  Case-Laws - HC : Rent a cab scheme - unless there is control, which is passed to the hirer under the rent-a-cab scheme, there cannot be a taxable transaction under Section 65(105)(o), read with Section 65(91) of the Service Tax Act - HC
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Central Excise

• Exemption Notification No.30/2004-CE applies to appellants with multiple factories, including separate POY manufacturing facilities. Exemption granted.

  Case-Laws - AT : Exemption Notification No.30/2004-CE - Whether the appellants are eligible to the benefit of exemption when the appellants are having more than one factories and also have the facilities of manufacturing POY in a factory other than the factory - exemption allowed - AT
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• CENVAT Credit Denied for Capital Goods Initially Used for Exempted Goods, Even if Later Used for Dutiable Goods.

  Case-Laws - AT : CENVAT Credit - Capital goods - initially capital goods used for manufacturing of exempted goods only - later using the same in manufactruing of dutiable goods does not entitle them to avail credit - AT
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• Cenvat Credit Issue: Input Service Distributor's Non-Proportional Credit Distribution for Ads and Sales Promotion Services. Stay Granted.

  Case-Laws - AT : Cenvat credit - non distribution of credit by the Input service distribution in proportion to the turnover of advertisement and sales promotion service - during the relevant period there was no such restriction - stay grated - AT
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• Penalty Dropped: Insufficient Evidence in Section 11AC Case on Clandestine Goods Removal Relied Solely on Wage Payment File.

  Case-Laws - AT : Penalty u/s 11AC - Clandestine removal of goods - Entire investigation has relied only on the salary file which only relates to payment of wages for each labourer - demand dropped - AT
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• CENVAT Credit Reversal Not Required for Exempt Products Post-Credit; Rule 6 Governs Input Stock as of March 1, 2008.

  Case-Laws - AT : CENVAT Credit - reversal of credit when final product become exempt after taking cenvat credit - While the provisions of Rule 11 (3) (ii) of the Cenvat Credit Rules, 2004 are not applicable, the availability of the Cenvat credit in respect of the inputs lying in stock and in process as on 01/03/08 would be subject to the provisions of Rule 6 - AT
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• High Court Rules Steel Plates and M.S. Channels Used in Chimney Fabrication Qualify as Capital Goods for Cenvat Credit.

  Case-Laws - HC : Cenvat Credit - capital goods - steel plates and M.S. Channels used in the fabrication of chimney would fall within the ambit of “capital goods - HC
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Case Laws:

• Income Tax

• 2014 (10) TMI 796
  Interpretation of section 43B – Interest on service tax outstanding – Held that:- The object of section 43B of the Act is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of tax or duty, for a long period but claim deduction from the income on the ground that the liability to pay this amount incurred by them in the relevant previous year, the interest payable to service tax is also a tax and the provisions of section 43B of the Act are very much applicable thereto – Relying upon Mewar Motors Versus Commissioner of Income-Tax [2002 (9) TMI 51 - RAJASTHAN High Court] - interest payable to the sales tax department is also “tax” and the provisions of section 43B of the Act are applicable as the payment of due service tax is a statutory liability - interest payable on the delayed payment of due service tax cannot be treated as different from the payment of service tax by the assesee – thus, the provisions of section 43B are applicable on non-payment of interest on the delayed payment of due service tax - The authorities have rightly disallowed the amount as interest on service tax outstanding under the provisions of section 43B of the Act – Decided against assessee. Addition u/s 40(a)(ia) - Amount outstanding as on the close of the year paid and evidence furnished – Held that:- While deciding the issue the CIT(A) has not specifically addressed the contention of the assessee that with the document in support that whatever amount of TDS was due on 31.3.2009 was duly paid before the due date of filing the return u/s 139 (i) of the Act – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Addition u/s 14A - Applicability of Rule 8D - Expenses on dividend income – Proper application of mind or not – Held that:- Rule 8D of the I.T. Rules 1962 is applicable in the assessment year under consideration – relying upon Maxopp Investment Ltd. VS. CIT [2011 (11) TMI 267 - Delhi High Court] - during the year the assesse had disposed some investments - The company had also taken loans from bank and other to the extent of Rs. 22,65,18,740 - The assessee however could not demonstrate by way of any evidence that none of the loan funds have been used for making investments - the AO has rightly come to the conclusion that the carrying cost of investments in terms of interest paid on loan funds to the extent of investments cannot be denied - Thus by invoking the provisions of section 14A of the Act the expenditure to disallow in the manner provided under Rule 8 D of the I.T. Act 1962 is rightly computed – thus, the order of the CIT(A) is upheld – Decided against assessee.

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• 2014 (10) TMI 795
  Rejection of books of accounts – Counsel of the assessee contended that the books of accounts are not properly examined – Reasons for rejection of books of accounts valid or not - Held that:- The first reason for rejection of books is that the books of accounts are not contemporaneous - there is no denial that the books of accounts are not contemporaneous - the books of accounts have been prepared much after the close of the accounting year - rejecting the books of accounts on this ground is not justified because the books have actually been prepared much after the close of the accounting year - the books cannot be rejected merely because they are unaudited - All that has to be seen is that whether the books of accounts give a true and fair view or not. If the books of accounts have never been examined how can the revenue authorities say that the books are not complete - The revenue authorities should have specifically pointed out which part of the books is not complete - Without pointing out any specific/direct mistake, a general statement stating that the books are not complete would not do any justice - CIT(A) observed that most of the entries in the books of accounts are in the form of journal entries in the names of related person – it could not be understood as to how can this be a reason for rejecting the books of accounts - When a person is maintaining books of accounts on mercantile system of accounting, obviously, most of the entries would be in the form of journal entries - the books of accounts have been prepared on the basis of the evidences which are seized by the authorities which mean that they are still in the possession of the department/custodian - There is no specific instance pointed out which is not backed by any primary documentary evidence - It is also not clear whether the assessee was ever called for to explain any of the transactions recorded in the books of accounts - In the absence of the verification of primary document vis-à-vis entries in the books, assessee’s accounts cannot be treated as unreliable. The auditors were appointed on 5.11.2003 about two years after the death of Shri Harshad S. Mehta who expired on 30.12.2001 - The widow Smt. Jyoti Mehta had already informed the custodian and the Special Court that she had no knowledge of the business of her deceased husband therefore will not be able to meet any queries - The auditor’s commented that there was non-cooperation on the part of the assessee for the purpose of audit and that due to lack of verification, the reliabilities of these books could not be verified does not have any force for the simple reason that in a case of such huge magnitude expecting the widow to answer each and every query was not possible - the books of accounts have been rejected on flimsy grounds without thoroughly examining each and every entry and without confronting specific discrepancy, if any, to the assessee – the matter is to be remitted back to the AO for verification and examination of each entry in the books of accounts without getting prejudice by the fact that books of accounts are not contemporaneous – Decided in favour of assessee.

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• 2014 (10) TMI 794
  Depreciation plant and machinery used in trial production - Whether the Tribunal is right in disallowing the assessee's claim for depreciation allowance u/s 32 in respect of plant and machinery used in trial production during the year – Held that:- Following the decision in Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. [2000 (8) TMI 22 - GUJARAT High Court] - plant and machinery was used till the end of the accounting year - Law does not require that there must be optimum production for granting the benefit - Law only requires that there must be use of plant and machinery for the purpose of business - The assessee was entitled to depreciation on the machinery – Decided in favour of assessee.

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• 2014 (10) TMI 793
  Allowability of business loss u/s 28 - Claim for deduction on gold seized by the Custom Authorities allowable business expenditure or not - Whether the loss incidental to business is allowable u/s 28 and the provision of Section 37(1) of the Income Tax Act, 1961 can override the provision of Section 28 or not – Held that:- Dr. TA Quereshi Versus Commissioner of Income-Tax [2006 (12) TMI 91 - SUPREME Court] the loss which was incurred during the course of business even if the same is illegal is required to be compensated and for the loss suffered by the assessee – Decided in favour of assessee.

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• 2014 (10) TMI 792
  Claim of depreciation @ 80% on installation of windmill – Satisfaction of requirement of second proviso to Rule 5(1A) of the Income Tax Rules or not – Held that:- Following the decision in CIT V. Vijaya Hirasa Kalamkar (HUF) [1992 (9) TMI 4 - BOMBAY High Court] - if the assessee exercised the option in terms of second proviso to Rule 5(1A) of the Income Tax Rules at the time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required - Since the returns are filed in accordance with Section 139(1) of the Income Tax Act and the form prescribed therein make a provision for exercising an option in respect of the claim of depreciation, no separate procedure is required – Decided against revenue.

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• 2014 (10) TMI 791
  Claim of depreciation @ 80% on installation of windmill – Satisfaction of requirement of second proviso to Rule 5(1A) of the Income Tax Rules or not – Held that:- Following the decision in CIT V. Vijaya Hirasa Kalamkar (HUF) [1992 (9) TMI 4 - BOMBAY High Court] - if the assessee exercised the option in terms of second proviso to Rule 5(1A) of the Income Tax Rules at the time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required - Since the returns are filed in accordance with Section 139(1) of the Income Tax Act and the form prescribed therein make a provision for exercising an option in respect of the claim of depreciation, no separate procedure is required – Decided against revenue.

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• 2014 (10) TMI 790
  Disallowance on interest expenses in interest free advances given to sister concern deleted – Held that:- The Tribunal rightly relied upon B & A Plantations Industries Ltd. vs. CIT [1999 (12) TMI 43 - GAUHATI High Court] for the principle that where no interest was charged on the interest free loans to sister concerns, there is no income to be charged as notional income on accrual basis – also in CIT vs. Surji Vallabhdas & Co. [1962 (3) TMI 6 - SUPREME Court] it has been held that where income has, in fact, been received and is subsequently given up in circumstances that it remains the income of the recipient, even though given up, the tax may be payable - where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might have been made in the books of account – thus, the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (10) TMI 789
  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.

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• 2014 (10) TMI 788
  Claim of depreciation on installation of windmill – Satisfaction of requirement of second proviso to Rule 5(1A) of the Income Tax Rules or not – Held that:- Following the decision in CIT V. Vijaya Hirasa Kalamkar (HUF) [1992 (9) TMI 4 - BOMBAY High Court] - if the assessee exercised the option in terms of second proviso to Rule 5(1A) of the Income Tax Rules at the time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required - Since the returns are filed in accordance with Section 139(1) of the Income Tax Act and the form prescribed therein make a provision for exercising an option in respect of the claim of depreciation, no separate procedure is required – Decided against revenue. Unexplained cash credit u/s 68 – Held that:- The Tribunal rightly upheld the order of the CIT(A) that the assessee was able to produce documents and the details of repayment made through cheque - assessee had also furnished identity of persons with complete details of addresses and the FD applications showing details – thus, the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (10) TMI 787
  Method of computation of tax - Whether the Tribunal has erred in allowing the calculation of tax in violation of the provisions of the relevant Finance Act which prescribe calculation of tax as inclusive of cess and surcharge – Held that:- The Tribunal rightly upheld the order of the CIT(A) and directed the AO to compute the gross tax liability on the assessee in accordance with the method of computation provided in ITR-6 for the AY 2011-12 - the method of computation, as directed by the CIT(A) was plainly in accordance with the methodology as provided in ITR-6 – thus, the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (10) TMI 786
  Eligibility for benefit u/s 47(v) - Whether the Tribunal is right in holding that capital gain chargeable to tax u/s. 46(2) will also be eligible for grant of benefit envisaged u/s 47(v) - Held that:- Following the decision in Commissioner of Income Tax vs. Brahmi Investments Pvt Ltd. [2006 (2) TMI 129 - GUJARAT High Court] - Once section 46(2) comes into play, there is no question of invoking the provisions of section 45 of the Act, and the deeming fiction under section 47 of the Act operates only in relation to transfers amenable to the provisions of section 45 of the Act. This is abundantly clear from the opening portion of section 47 of the Act – thus, the capital gain tax is not leviable upon the assessee on the receipt.

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• 2014 (10) TMI 785
  Effect of amendment to section 2(47)(v) - Scope of term transfer - Whether the Tribunal is right in its interpretation that the amendment made with effect from 1.4.1988 by the Finance Act, 1987 enlarging the scope of the word “transfer” used in section 2(47)(v) was retrospective in nature and would apply for the A.Y 1977-78 also or not – Held that:- The interpretation of the Tribunal is erroneous – assessee rightly contended that the Tribunal has erred in law in concluding that the amendment made by the Finance Act, 1987 enlarging the scope of the word ‘transfer’ in section 2(47) (v) has to be treated as retrospective in nature and would therefore apply to AY 1977-78 without considering the fact that the amendment is applicable with effect from 01.04.1988 and cannot be applied retrospectively – the order of the Tribunal is to be set aside – Decided in favour of assessee.

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• 2014 (10) TMI 784
  Deduction of amount of depreciation from profits u/s 115JA – Method of calculation of depreciation changed from Straight line method to WDV – Interest to be charged u/s 234B and 234C or not - Held that:- Following the decision in Deputy Commissioner of Income-Tax (Assessment) v. Farmson Pharmaceuticals Guj. Ltd. [2011 (4) TMI 1037 - Gujarat High Court] the Tribunal was right in upholding the order of the CIT(A) directing not to charge interest u/s 234B and 234 of the Act since the total income was determined u/s 115J of the Act – Decided partly in favour of revenue.

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• 2014 (10) TMI 783
  Penalty u/s 271(1)(c) – Addition of deemed income u/s 50C - Whether the Tribunal was right in holding that the penalty cannot be imposed with reference to addition of deemed income u/s 50C – Held that:- The Tribunal was rightly of the view that this cannot be taken as a case of furnishing inaccurate particulars of income inasmuch as there was a registered sale deed and there was consideration mentioned - the document was forwarded to the Valuer and for determination of the value, by itself would not mean that the Assessee had furnished inaccurate particulars of income or has concealed the income – thus, imposition of penalty was not justified – as such no substantial question of law arises for consideration – Decided against revenue.

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• 2014 (10) TMI 782
  Addition of unexplained investment under various heads – Held that:- Had it been the case of admission of additional evidence by the CIT(A) without confronting to the AO, the Revenue should have taken a ground with regard to the violation of Rule 46A of the Income Tax Rules - from the details furnished, the assessee has given a certificate that the evidences were filed before the AO and the certificate was not disputed by the revenue - the details were available before the AO and before making addition in this regard, the material should have been examined by him - CIT(A) has carefully examined the details of investment from one scheme to the other and finally concluded that actual investment in TATA Assets Management was Rs. 10 lakhs and not Rs. 27,67,236/- as adopted by the AO – the order of the CIT(A) is upheld. Source of investment – Held that:- The document was executed on a plain paper and it is a fake document, as it is not properly legible - It is important to note here that in Uttar Pradesh, agreement for sale of immovable property is required to be registered under the Indian Registration Act, of which Stamp Duty is required to be paid - only that property can be sold which is owned by the seller - In the absence of documents for ownership of the property, the factum of execution of sale agreement cannot be accepted -No prudent man will purchase any property from anyone which is not owned by him - this is the case where the assessee has raised certain funds for investment and onus is upon him to prove the same - It is for the assessee to place the relevant evidence to establish that he in fact has received the amount of Rs. 8.80 lakhs from the buyer on execution of sale agreement - assessee has badly failed to discharge his onus - the claim of the assessee that receipt through execution of sale agreement is also one of the sources of investment, cannot be accepted – thus, the order of the CIT(A) is set aside and the AO is directed to compute the addition. Availability of funds on redemption of investment – Held that:- The details of year-wise investments were not furnished in order to ascertain the nature and quantum of capital gain - the assessee has not offered any capital gain on redemption of these Mutual funds - the CIT(A) had accepted the claim - this issue was not properly examined by the CIT(A) in the light of year-wise investment in Mutual funds and its redemption and also nature of holdings and nature and quantum of capital gain accrued in the impugned assessment year – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication – Decided partly in favour of revenue.

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• 2014 (10) TMI 781
  Disallowance of interest made u/s 14A r.w. rule 8D – Held that:- The AO has to examine the disallowance made by the assessee by having regard to the accounts of the assessee and only thereafter the AO, if he is not satisfied with the correctness of the claim, shall determine the disallowance to be made u/s 14A of the Act in accordance Rule 8D – following the decision in Godrej & Boyce Mfg. Co. Ltd [2010 (8) TMI 77 - BOMBAY HIGH COURT - the workings furnished by the assessee for interest disallowance was not examined at all by the AO, whereas he is required to reject the workings furnished by the assessee after having regard to the accounts of the assessee – thus, CIT(A) was justified in holding that the interest disallowance was required to be made under Rule 8D(2)(i) of the I.T Rules and also in confirming the disallowance of interest – Decided against revenue. Disallowance of consent fee paid to SEBI – Fee paid to SEBI cannot be treated as penalty - Held that:- CIT(A) rightly was of the view that it is very apparent from the Circular of SEBI that in cases of administrative/civil actions which includes, interalia, orders of suspension from trading are different from criminal actions - assessee had been suspended from doing trading activity for a period of four months and had not been awarded any monetary fines - the consent application of the asssessee was without admitting or denying the guilt - SEBI has also accepted the application on this basis - Thus, SEBI has accepted the position that guilt may or may not be established at the end of the appellate proceedings - The fee paid cannot therefore, be equated to a "penalty" which must necessarily be a punishment for infraction of a law or a regulation having statutory force - The fee is claimed to have been paid for the purposes of business, to settle a dispute with the regulator SEBI and to be able to conduct its business without interruption – relying upon Commissioner Of Income-Tax Versus Sales Magnesite Private Limited [1994 (11) TMI 38 - BOMBAY High Court] - if the concerned impost is purely compensatory in nature, it is an allowable expense u/s. 37 of the Act – thus, the fee cannot be equated with a penalty and is a payment to enable the assessee to carry on its business in the normal course – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (10) TMI 780
  Jurisdiction of CIT to invoke section 263 – Assessment order passed by AO erroneous and prejudicial to the interests of revenue or not – Held that:- As decided in Malabar Industries Co. Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME Court] - this is not a fit case for revising the assessment order - the twin conditions, viz., the assessment order should be erroneous in so far as it is prejudicial to the interests of revenue do not co-exist in this case - The assessee had filed return of income and had disclosed the same during the relevant year, alongwith entire requisite details - the AO has made proper enquiries during the assessment proceedings and after examining the proofs so filed by the assessee before him, has made disallowance on being satisfied with the explanation of the assessee - The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted - The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the AO - the assessment framed by the AO was not erroneous and prejudicial to the interests of revenue so as to attract the proceedings u/s. 263 – thus, the order of the CIT(A) is set aside and the assessment order is restored – Decided in favour of assessee.

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• 2014 (10) TMI 779
  Exemption to be allowed u/s 10(23C)(vi) or section 11 – assessee claimed exemption u/s 11 – Held that:- Deduction was claimed u/s 11 of the Act in the return of income and the assessee was not having exemption u/s 10(23C)(vi) of the Act at the time of filing of the return of income - The assessee had made an application for the approval which was received by the assessee for the AY 2005-06 wrongly which was rectified by the CCIT vide her order dated 12.07.2010 for the AY 2005-06 and onwards for all the times to come - the assessee was having approval u/s 10(23C)(vi) from the CCIT, though the same was rectified u/s 154 of the Act on 12.07.2010 - the assessee had option to make claim u/s 10(23C)(vi) or Section 11(1) of the Act as decided in Bharati Vidyapeeth Medical Foundation vs. ACIT [2014 (7) TMI 94 - BOMBAY HIGH COURT] the assessee cannot be forced to go for deduction u/s 11 of the Act - Though the claim was made before the AO during assessment proceedings, as and when the assessee got the rectified order from CCIT - It was only under the exceptional circumstances that the assessee could not claim exemption u/s 10(23C(vi) of the Act, as mentioned hereinabove. Such rectification is bound to be there in view of Circular No.725 dated 16.10.1995 issued by the CBDT – as per the Circular No.725 dated 16.10.1995 of CBDT, the AO was under obligation to allow exemption u/s 10(23C)(vi) of the Act and there is nothing on record that the assessee has contravened any of the conditions as required u/s 10(23C)(vi) of the Act - assessee's income is exempt u/s 10(23C)(vi) of the Act and there was no infirmity in the order of the CIT(A) – Decided against revenue.

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• 2014 (10) TMI 778
  Proceedings u/s 153A - Search and seizure operation u/s 132 Relevant details for verification of genuineness of expenses submitted or not – partial expenses deleted – Held that:- Following the decision in M/s ALL CARGO GLOBAL LOGISTICS LTD Versus DEPUTY COMMISSIONER OF INCOME TAX [2012 (7) TMI 222 - ITAT MUMBAI (SB)] – revenue have not disputed the fact that assessment proceeding for the year was not pending on the date of search - The AO made disallowance and addition out of total expenses claimed by the assessee without any incriminating material said to be found during the course of search and on the estimate and ad hoc basis - CIT(A) deleted the addition with an observation that when the AO himself has failed to invoke the relevant provisions of the Act to ensure compliance of the directions by the assessee, it may not be a strong basis to make a random estimated disallowance out of expenses debited to the P&L account - The CIT (A) was also justified in holding that no defect or even doubt has been pointed out by the AO with regard to any particular expense to which disallowance could have been pegged and under these circumstances, ad hoc disallowance being without any basis is not sustainable - there was no incriminating material before the AO which was found during the course of search to support the ad hoc disallowance and addition – AO made disallowance and addition during the reassessment proceedings u/s 153A of the Act without any basis and justified cogent reason - CIT(A) rightly deleted the disallowance and addition as per letter and spirit of the relevant provisions of the Act – Decided against revenue.

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• 2014 (10) TMI 777
  Search and seizure operation u/s 132 - Addition u/s 153C – Addition of cash payment on the basis of seized documents – Held that:- The seized document was not found from the premises of the assessee nor was it signed by the employee of the assessee nor the name of the assessee was appearing in this seized document on the basis of which addition was made by the AO in the assessment framed u/s 153C read with section 153A of the Act - there is no basis for sustaining the addition in respect of cash transactions in the hands of the assessee - CIT(A) was not justified in sustaining the addition made by the AO in proceedings u/s 153C read with section 153A of the Act on the basis of inference remotely drawn - there was no basis with the AO to make the addition in the hands of the assesee in a proceedings u/s 153C read with Section 153A – thus, the order of addition made by the CIT(A) is set aside and the matter is remitted back to the AO to delete the addition towards cash payment said to be made by the assessee company to various farmers based on the seized annexure from Shri Surender Modi – Decided in favour of assessee.

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• 2014 (10) TMI 776
  Foreign currency forward contract treated as speculation loss – Held that:- The assessee is dealing in diamonds, it had entered in to 24 forward contracts, that total forward contract cancelled were of Rs. 28 Crores, that the total sales during the year amounted to Rs. 27.78 Crores - the amount involved in the forward contract (FC) is more than 100% of the turnover of the assessee, that FC were not relatable to specific bills, that the assessee had not related any single bill to any of the contract and had not provided any purchase order during the assessment or appellate proceedings - the definition of 'speculative transaction' in section 43(5) of the Act, gives a simple test for deciding, for the purpose of Act, as to what a speculative transaction means - The true test is delivery of commodities/goods as per the contract, including a FC Profit/loss in respect of unperformed contracts is considered speculation profit or loss - CIT(A) was rightly of the view that the disputed transactions were speculative and not hedging transaction, that the assessee could not relate any single bill to any of the contract and it had not provided detail of any purchase order relatable to specific transaction, during the assessment or appellate proceedings - Thus, the transactions undertaken by it have to be taken as transactions relatable to Foreign Exchange - the order of the FAA does not suffer from any legal or factual infirmity – Decded against assessee.

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• 2014 (10) TMI 775
  Admission of additional evidence – Held that:- There was no infirmity in the order of CIT(A) in admitting the additional evidence - Revenue has not raised any ground challenging the additional ground admitted by CIT(A) - After an additional ground is admitted generally the additional evidence can be admitted by CIT(A) while exercising his appellate powers - Additional evidence application is supported by valid application and reasons which are elaborately mentioned by CIT(A) in his order - AO’s objections on admission have been properly considered thus an adequate opportunity of hearing in terms of rule 46A was provided – Decided against revenue. Applicability of section 54B – Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases - Held that:- Following the decision in Shri Ramesh Narhari Jakhad vs. ITO [1992 (2) TMI 178 - ITAT PUNE] in case of sale and repurchase of agricultural land sec 54B requires two years period - Further for the claim of exemption u/s 54B, it is not necessary that the land should have been used for agricultural purposes for full two years immediately preceding the date of transfer and that it is sufficient if it was so used in the whole of the preceding year and for some days in the year earlier to preceding year – thus, the exemption u/s 54B is available to the assessee. Land used by assessee or not – Held that:- The objection that land was not used by assessee himself is proved by the assessee from the fact that agricultural income has been accepted by the department - Besides in additional evidence a certificate to this effect has been furnished by the assessee - assessee used the land for himself in earlier years. Part purchase of land in the name of name lender – Held that:- Assessee can purchase a new asset or part thereof in the name of his wife - For this there are sufficient justifications like stamp duty rebate, social, security for ladies, as long as the funds are invested by the assessee, exemption cannot be denied – thus, the order of the CIT(A) is upheld – Decided against revenue.

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• Customs

• 2014 (10) TMI 800
  Waiver of pre deposit - import of software - customised software or embedded with the hardware - Benefit of exemption Notification No. 06/06-CE dated 1.3.2006 - Whether the main parties namely M/s Prithvi Information Systems Ltd. (PISL) and M/s Vuppalamritha Magnetic Components Ltd. (VMCL) had deliberately shown the software which was embedded in the system imported by them and supplied to BSNL as customised software separately imported to avoid payment of duty on the software portion of the imported equipment - held that:- while EMS software and other application software have been specified by name, the embedded software is conspicuous by its absence. The fact that the software was imported through one port and hardware was imported through another port also shows that there is planning and conspiracy on the part of the appellants. If the appellants have put themselves in a situation wherein they have committed an offence to reduce the duty liability in their anxiety to become lowest bidders, it would not be appropriate for the Tribunal to lend a helping hand to them by waiving the requirement of pre deposit which in our opinion prima facie was liable to be paid at the time of importation. - appellant directed to deposit entire amount of differencial duty as demanded. - stay denied. Waiver of penalty on other parties and employees - Held that:- it may not be appropriate to require them to deposit the entire amount of penalties imposed on them and in our opinion, the quantum of penalty may also have to be reduced in view of the fact that ultimately, the BSNL has defaulted to both the suppliers and both the suppliers have claimed financial difficulties and further the penalties under Section 114 A have been imposed on the importing parties. - penalty stayed partly.

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• 2014 (10) TMI 799
  Penalty u/s 112 - Restriction on import - radioactive nature of the goods - Held that:- importing firm had abandoned the goods in question in April-August, 1996 by their various acts of not getting the goods cleared for home consumption and not opposing the auction sale by the Port Trust and by returning the documents of title to the supplier through their Bankers. It cannot be said that the customs authorities had no notice of any of these facts for about 9 months from June, 1996 to March, 1997. It is further observed that as the appellant firm had been dealing in the goods not for the first time, it cannot be accepted that they had no knowledge of the radioactive nature of the goods in question. In this view of the matter, I uphold the impugned order except the amount of penalty sustained at Rs. 5 lakhs on the firm and reduce it to Rs. 2,00,000 - Decided partly in favour of Revenue.

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• 2014 (10) TMI 798
  Denial of refund claim - Unjust enrichment - Held that:- Appellants have submitted before Commissioner (Appeals) the balance sheets for the relevant period, wherein the said excess payment of duty was reflected as “advance payment/credit”. The said fact was also confirmed by Shri R.S. Malhotra, General Manager of the appellants. The appellants also took a stand that they debited the account of clearing agent inasmuch as it was his mistake. They further clarified that they have withheld the payment of CHA and the said amount would be given to the CHA only on receipt of the same from Revenue - appellants have placed on record sufficient evidence to reflect that the amount has been mentioned in the balance sheet as recoverable and the payments of the CHA has also been withheld meaning thereby that the excess duty paid by them stands adjusted against the payments of the CHA for the time being. All these facts are sufficient to establish that the excess payment was not passed on to the buyer. Accordingly, I set aside the impugned order with the consequential relief to the appellant - Decided in favour of assessee.

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• 2014 (10) TMI 797
  Penalty on CHA - involvment of CHA or its employee to the fraudulent transaction - Held that:- From the statement, no conclusion can be reached as to their involvement in the fraudulent transactions. All the appellants in their statements have deposed that they undertook/participated in transaction for export of goods in good faith. The CHA has also submitted the identification document such as bank opening account establishing the identity of the exporter. In these circumstances, invoking the provisions of Section 147 and deeming the CHA and his employee as agent of the exporter is clearly unsustainable in law. This Tribunal decision in case of Aspinwall & Co. (2001 (4) TMI 144 - CEGAT, CHENNAI) affirmed by Hon’ble Apex Court also makes the position very clear. Therefore, in the absence of any evidence, linking the CHA firm or its employee to the fraudulent transaction undertaken by the exporter, and consequent imposition of penalty would not arise at all. As retards the role of Shri Manohar S. Anchan, it is evident that his role was limited to introducing the exporter to the CHA. In the statement recorded under Section 108, he has clearly stated that he has not seen the goods and, therefore, he was not aware of the nature of the goods under export. In these circumstances, no mala fide can be attributed to Shri Manohar S. Anchan as to his knowledge of the fraudulent transaction. Therefore, imposition of penalty is not warranted - Decided in favour of CHA.

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• Service Tax

• 2014 (10) TMI 817
  Rent a cab scheme - principle of estoppel in law against a party - appellant has admitted the liability whereas high court has decided that the activity is not taxable in Commissioner, Customs & Central Excise Versus Sachin Malhotra, Raj Kumar Taneja, M/s. Shiva Travels [2014 (10) TMI 816 - UTTARAKHAND HIGH COURT] Case was de-linked on the basis of the fact that the respondent / assessee had effected payments and also filed affidavits to the effect that he will be paying the balance of the amount - Held that:- Article 265 of the Constitution of Indian mandates that no tax can be levied or collected except as provided by law - fact that the respondent / assessee had made some payments and also made promise to make further payments cannot be used against our refusing to interfere with the impugned order. For the reasons, we have already recorded more elaborately in our common judgment passed and connected case, we have, inter alia, found that when there is only a contract of hire and there is no renting of the cab, there is no question of the assessee being assessed in respect of services rendered in connection with rent–a-cab as there is no renting at all. - Decided against the revenue.

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• 2014 (10) TMI 816
  Rent a cab scheme - whether the person engaged in the business of renting cabs, irrespective of the number of vehicles held by him (even if he does not own and has instead rented even a single cab) is not covered under the definition of Rent-a-Cab operator scheme, and not liable to pay Service Tax - Held that:- Unless there is renting of cabs, there is no question of further enquiring as to the services, which may be rendered therein. In other words, any service, which may be rendered and which does not relate to renting of cabs, would be irrelevant for our consideration. When we consider the matter in the said light, we have no doubt in our minds that the Tribunal has, in this case, correctly propounded the principle that, unless the control of the vehicle is made over to the hirer and he is given possession for howsoever short a period, which the contract contemplates, to deal with the vehicle, no doubt subject to the other terms of the contract; there would be no renting. Under the rent-a-cab scheme, the hirer is endowed with the freedom to take the vehicle, wherever he wishes, and he is only obliged to keep the holder of the licence informed of his movements from time to time. When a person chooses to hire a car, which is offered on the strength of a permit issued by the Motor Vehicles Department, then the owner of the vehicle, who may or may not be the driver, will offer his service while retaining the control and possession of the vehicle with himself. The customer is merely enabled to make use of the vehicle by travelling in the vehicle. In the case of a passenger, he is expected to pay the metered charges, which is usually collected on the basis of the number of kilometers travelled. These are all matters, which are regulated by the Government. Unlike the said scenario, in the case of a rent-a-cab scheme, as is clear from the very fundamental principle underlying the scheme, it is to give the hirer the freedom to use the vehicle as he pleases, which, undoubtedly, implies that he must have possession and control over the vehicle. This is the fundamental distinction between rent-a-cab and a pure case of hiring Though both, rent and hire, may, in a different context, have the same connotation; in the context of rent-a-cab scheme and hiring, we are of the view that they signify two different transactions. What the lawgiver has chosen fit to tax by way of imposition of service tax is only transaction relating to business of renting of cabs. It is also pertinent to bear in mind that, in the case of hiring, the hirer may refuse to provide the service to the prospective customer. - when the lawgiver introduced this new source of taxation, it must be treated as having been aware of the distinct concept of renting a cab for which there is provision in the Central Legislation, namely, Section 75 of the Motor Vehicles Act and also a scheme stood framed as early as in 1989. We are, therefore, of the view that, unless there is control, which is passed to the hirer under the rent-a-cab scheme, there cannot be a taxable transaction under Section 65(105)(o), read with Section 65(91) of the Service Tax Act. Decision of Punjab & Haryana High Court in Commissioner of Central Excise, Chandigarh Versus M/s Kuldeep Singh Gill [2010 (4) TMI 283 - PUNJAB & HARYANA HIGH COURT] distinguished - Decided against Revenue.

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• 2014 (10) TMI 815
  Waiver of pre-deposit of service tax - Commercial and Industrial Construction - exemption Notification No.1/2006-ST, dated 01.03.2006 - Held that:- Prima facie, we find that the applicant availed the benefit of exemption Notification knowing fully well they are not eligible for Cenvat credit and, therefore, it is a clear mis-statement of facts. Hence, the applicant is directed to make a pre-deposit of Rs. 1,00,000 within a period of six weeks from today. Upon deposit of the same, pre-deposit of balance amount of tax, interest and penalty shall remain waived and recovery thereof stayed till the disposal of the appeal - partial stay granted.

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• 2014 (10) TMI 814
  Waiver of pre deposit - valuation - Repair and maintenance service - inclusion of value of spares/parts required for repair and maintenance - Held that:- value of spares and materials used was mentioned in the main part as a summary and there was an annexure to invoice showing details of spares and materials used and sold for the purpose of providing service. Therefore, we found on going through the records and invoice produced that the appellant have followed the provisions of Notification No. 12/2003 and it is not only the fact that they had paid tax as per West Bengal State Govt. VAT Act and on ‘deemed sale’ portion, they have also clearly shown the details of spares/parts used and sold during the course of repair and maintenance. Therefore, appellants have made out prima facie case for complete waiver and stay against recovery. Accordingly, the requirement of pre-deposit is waived and stay against recovery is granted during pendency of the appeal - Stay granted.

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• 2014 (10) TMI 813
  Classification of service - Scientific or technical consulting services or survey and map-making service - Held that:- Revenue wants to classify the service under ‘scientific and technical consultancy service’. As per the provisions of the Finance Act, ‘Scientific or technical consultancy’ means any advice, consultancy, or scientific or technical assistance, rendered in any manner, either directly or indirectly, by a scientist or a technocrat, or any science or technology institution or organization, to any person, in one or more disciplines of science or technology. - Respondents had not provided any advice or consultancy or scientific or technical assistance rather the respondents had undertaken a job of digitization of maps. In view of this, we find no infirmity in the impugned order - Decided against Revenue.

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• 2014 (10) TMI 812
  Business auxiliary service - Appellant are dealer of motor vehicles - Appellant provide table space to bank to promote their business - Held that:- Revenue had not produced any evidence by way of agreement or any guidelines from the Bank or financial institutions for the basis of giving commission to the appellants. In absence of such evidence, it cannot be said that the appellants provided any business auxiliary service to the Bank or financial institution. In view of the above, the impugned order is set aside - Decided in favour of assessee.

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• 2014 (10) TMI 811
  Non complaince of pre deposit order - Held that:- When the matter was called, none appeared from the appellant side. However, a letter dt.2.6.2014 has been received from the appellant wherein he has requested that due to bad financial condition, the appellant is not in a position to deposit any part of directed amount and requested that condition of pre-deposit may be waived and appeal may be heard on merits. I find no valid ground for waiver of pre-deposit has been made by the appellant nor advocate of the appellant is present in the case. Even no case of financial stress was made before the bench when stay application was first heard. In view of above, there is no ground for interference in the earlier order - Appeal dismissed for non compliance.

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• Central Excise

• 2014 (10) TMI 809
  Exemption Notification No.30/2004-CE - Whether the appellants are eligible to the benefit of exemption under Sr.No.6 of the Notification No.30/2004-CE, dt.09.07.2004, as amended, when the appellants are having more than one factories and also have the facilities of manufacturing POY in a factory other than the factory of the appellants where the benefit of Notification No.30/2004-CE, dt.09.07.2004 is being availed - Held that:- The ‘act of manufacture’ is being undertaken by the appellants factory to whom demand show cause notices are issued and each factory will make the person carrying out the activity of manufacture as the ‘manufacturer’. There is nothing in the definition of Section-2(f) to indicate that a ‘legal entity’ only has to be considered as a ‘manufacturer’. Rather each ‘assessee’ has to be treated as a manufacturer and not the entire group of companies as claimed by the Revenue. In the present proceedings also even the demands have been issued by the Revenue to the individual assessee carrying out the exempted processes and not to the head offices of the group companies as a legal entity. Therefore, we are of the considered view that the word ‘manufacturer’ used in Sr.No.6 of the Notification No.30/2004-CE has to be interpreted as a unit where the ‘act of manufacture’ is being undertaken which is the individual factory and not all the factories of a group of companies. As appellants were filing periodical ER-1 returns claiming exemption under Notification No.6/2000-CE. As the words used in both the Notification No.30/2004-CE and Notification No.6/2000-CE are ‘in his factory’, therefore, appellants could have entertained a bonafide belief that words ‘in his factory’ used in Notification No.30/2004-CE means the ‘same factory’ and thus cannot be fastened with the tag of ‘with intent to evade duty’ for invoking extended period. Appellants obtained separate registrations for the manufacturing activity in each factory and were paying duty on POY which will definitely involve captive consumption valuation, under Rule-8/9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000, while sending POY from the factory manufacturing POY to factory undertaking texturising/draw twisting etc. In view of the above observations demands raised beyond a period of one year are also time barred. - admissibility of CENVAT Credit on duty paid on POY as on merits it is held that appellants are eligible to exemption under Notification No.30/2004-CE dt.9.7.2004 as amended - Decided in favour of assessee.

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• 2014 (10) TMI 808
  Denial of the benefit of Notification No. 06/2006 dt. 1.3.2006 amended by Notification No. 12/2012 dt. 17.3.2012 - whether the LSP and anchor rings, and tower doors can be considered to be covered under ‘wind operated electricity generator, its components and parts' which are exempted under Notification No. 6/2006 - Held that:- in case the intention of Govt. was to exempt towers and foundation and its parts, then the notification would have specifically exempted non-conventional energy systems/devices as a whole. Rather, the notification exempts only those non-conventional energy devices/systems which are specified in List-5. And list-5 mentions only wind operated electricity generator, its components and parts. A notification has to be construed by the language its uses. And the language of the present notification is clear. It does not require an extrapolated interpretation. Assessee not been able to satisfy us that the terms wind mill (which includes tower and foundation) and wind operator electricity generator are synonymous or used interchangeably. The guidelines and the forms filed as per requirement of Ministry of New and Renewable Energy nowhere equate the two terms; in fact the Application form at Serial No. 1 (f) of the Ministry's format referred to by Ld. Counsel only refers to ‘Forged Steel Rings for manufacture of special bearings for use in wind operated electricity generators'. It does not refer to tower doors or foundation rings which are completely different items. It is our considered view that the doors, anchor rings and LSP do not fall under the phrase ‘wind operated electricity generator'. The appellants have relied on the judgement of Pushpam Forging [2005 (7) TMI 242 - CESTAT, MUMBAI] which allowed exemption to flanges used in towers and against which order the civil appeal filed by the Department was dismissed by Hon'ble Supreme Court on 20.1.2006. But this decision was not on merits. On the other hand, we find that in the case of Uniflex Cables Ltd. vs. Commissioner [2011 (8) TMI 63 - SUPREME COURT OF INDIA] which is a later decision pronounced in 2011, the Supreme Court referring to the case of Nicco Corporation [2006 (3) TMI 48 - SUPREME COURT OF INDIA] held that the electric cables cannot be considered as parts of wind mills or any specifically designed devices. Though we could have decided this case finally on the basis of our findings recorded above, as a matter of judicial discipline the matter may be placed before the Hon'ble President for constitution of a Larger Bench because our view is contrary to the view taken by a Co-ordinate Bench in the matter of the same assessee for a different period. - Matter referred to larger bench.

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• 2014 (10) TMI 807
  Denial of CENVAT Credit - Capital goods - initially capital goods used for manufacturing of exempted goods only - Held that:- Capital goods had been received during period from September 2004 to August 2005 when the Cenvat credit had been taken and according to the appellant at that time, they had intention to use these goods for the manufacture of fruit pulp based soft drink (exempted goods) as well as for manufacture of aerated waters (dutiable goods) and for this reason only, they had availed capital goods Cenvat credit, while initially using the machinery only for manufacture for the exempted final product. This aspect has to be verified on the basis of records. If the appellant at the time of receipt of the capital goods during September 2004 to August 2005 period, had filed any declaration to the Department or had sent some letter to the Department intimating that they would be using this machinery for manufacture of dutiable final product (aerated waters) as well as exempted final product (the fruit pulp based soft drinks), or there is any other evidence indicating that at the time of receipt, the appellant had plans to use the machinery, in question, for manufacture of dutiable as well as exempted final products [like the machinery, without any modification, being capable of manufacture of both the dutiable final products (aerated/carborated waters) as well as exempted final products (MAAZA) alongwith declaration/intimation of dual use], they would be eligible for Cenvat credit. If there is no such evidence, it would have to be presumed that at the time of receipt, they had plans to use the capital goods, in question, only for manufacture of the fruit pulp based soft drinks (exempted final product) and it is only subsequently they decided to switch over to manufacture of dutiable final product (aerated waters) and in that event, in accordance with the Tribunal s judgment in case of Surya Roshni Ltd. (2003 (5) TMI 95 - CEGAT, NEW DELHI) and Spenta International Ltd. (2007 (8) TMI 25 - CESTAT, MUMBAI), they would not be eligible for Cenvat credit. Accordingly, the impugned order is set aside and the matter is remanded to the Commissioner for denovo decision, keeping in view our above observations.

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• 2014 (10) TMI 806
  Cenvat credit - non distribution of credit by the Input service distribution in proportion to the turnover of advertisement and sales promotion service - Held that:- during the period of dispute i.e. during the period prior to 01/07/2002, there was no provision that the credit distributed by the corporate office/head office of a company as Input Service Distributor to its manufacturing units or units providing Output Service should be in-proportion to their turnover. If such a provision had been there, to the extent the sales promotion and advertisement services were used by the units exclusively engaged in the manufacture of exempted final products, the Cenvat credit would not have been distributed. There is substance in the contention of the appellant that condition (b) is applicable in respect of service which is used in a unit exclusively engaged in manufacture of exempted final product or providing of exempted services and this provision would not be applicable to services like advertisement or publicity services which are used outside the manufacturing unit and which cannot be said to be the service used in a manufacturing unit. - stay granted. Recovery of credit from ISD - Held that:- When much amount of service tax Cenvat credit has been distributed by the corporate office among its manufacturing units and since separate proceedings have been initiated against the manufacturing units for recovery of the credit, there is no justification for recovering the credit amount from the Input Service Distributor. Moreover, the corporate office of the appellant company as Input Service Distributor is neither a manufacturer nor an output service provider and, hence, the provisions of Rule 14 would not be applicable. In fact when the head office or corporate office of a company, is registered as Input Service Distributor (ISD) and it is alleged that credit has been wrongly taken and passed on by the ISD, the proceedings are initiated against the manufacturing units/output service providers which have taken the Cenvat credit on the basis of ISD invoices issued by the head office/corporate office as ISD. Therefore, in this case initiation of the proceedings for recovery of Cenvat credit alleged to have been wrongly passed on, against the corporate office (Input Service Distributor) and imposition of penalty on them were not called for. prima facie view that the provisions of Rule 26 (2) are not attracted to this case and, hence, the requirement of pre-deposit of penalty is also waived - stay granted.

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• 2014 (10) TMI 805
  Penalty u/s 11AC - Clandestine removal of goods - document evidence to prove - Held that:- officers had carried out complete physical stock taking of finished goods, and also verified the production register and tallied with physical stock and concluded there was no difference between physical stock and daily production register. This clearly shows that the officers have not found out any shortage or excess of finished goods other than what was recorded in statutory Register i.e. R.G.1. It is seen that the entire allegation in the SCN was made out only on the basis of salary file recovered from the appellant’s premises. in the case of any clandestine removal of excisable goods, it is mandatory on the part of the investigating officers to establish with corroborative evidence of the actual shortage of quantity or excess production and clearance of goods or evidence of payments received, place of delivery to whom the goods are delivered, details of recipients etc. The entire demand of duty has been arrived purely on the basis of quantity shown in salary file and the statement of Shri R.P. Lakshmana Perumal. Apparently, no other evidence has been brought on record to corroborate shortage of quantity as per salary file with daily production register. Entire investigation has relied only on the salary file which only relates to payment of wages for each labourer. In the absence of any other documentary evidence, the quantity mentioned in the foot note cannot be taken as the total quantity produced during that week. Further, as explained above, the said quantity is not only related to finished goods but related to lap stage production. The adjudicating authority in his order had discussed the issue in detail and by relying on the Tribunal s decisions (supra) had rightly dropped the proceedings against the appellant as well as against Shri R.P Lakshmana Perumal, Managing Director of the company. Therefore, respectfully following the Tribunal s decision (supra) I do not find any merit in the impugned order. Accordingly, the impugned order is set aside and the order of the adjudicating authority is upheld - Decided in favour of assessee.

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• 2014 (10) TMI 804
  CENVAT Credit - reversal of credit when final product become exempt after taking cenvat credit - Rule 6 (1) as well as Rule 11 (3) (ii) of the Cenvat Credit Rules, 2004 - Held that:- sub-Rule would be applicable only in the case when there is only one final product being made from one or more cenvated inputs and that final product has become exempt from duty or if there are more than one final products being made out of one or more cenvated inputs, all the final products have become exempt from duty at the same time. This Rule would not be applicable if more than one final products are being manufactured out of one or more final product and out of them only some have become fully exempt but other final products have remained dutiable. In our view, in such a situation, it would be incorrect to apply this sub-Rule and prohibit the utilization of the Cenvat credit available as on the date of the exemption for payment of the duty on the dutiable final products, as in terms of Rule 3 (4) of the Cenvat Credit Rules, 2004, the Cenvat credit can be utilized for payment of any duty of excise on any final product. Needless to say, various Rules of the Cenvat Credit Rules, 2004, have to be read harmoniously and, therefore, Rule 11 (3) cannot be given an interpretation which is in-conflict with the provisions of Rule 3 (4). From a perusal of Rule 11 (3) as well as 11 (2) it is clear that these two sub-Rules of Rule 11 are also in accordance with the general principles of the Cenvat credit that no Cenvat credit would be admissible in respect of inputs or input services which have been used in or in relation to manufacture of the exempted final products. As observed by the Apex court in its judgment in the case of CCE, Vadodara vs. Gujarat Narmada Fertlisers Co. Ltd. (2009 (8) TMI 15 - SUPREME COURT) mentioned above, this principle is inbuilt in the very structure of the Cenvat credit scheme and Rule 6 (1) and Rule 6 (2) also merely reiterate and highlight this principle. Therefore, no Cenvat credit would be admissible in respect of any inputs which have been used in or in relation to manufacture of final product. While the provisions of Rule 11 (3) (ii) of the Cenvat Credit Rules, 2004 are not applicable, the availability of the Cenvat credit in respect of the inputs lying in stock and in process as on 01/03/08 would be subject to the provisions of Rule 6 and the Cenvat credit would be admissible only to the extent these inputs were used in or in relation to manufacture of dutiable final product and would not be admissible in respect of the quantity of the inputs which were used in the manufacture of exempted final products. Accordingly, in respect of clearance of exempted final products, an amount equal to the Cenvat credit involved on the inputs used in the manufacture of those final products shall be payable. - Matter remanded back - Decided in favour of assessee.

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• 2014 (10) TMI 803
  Waiver of pre deposit - Extension of stay order - Tribunal allowed the stay application unconditionally while dispensing with the condition of pre-deposit of the entire amount of duty, interest and penalty - Whether the Tribunal is correct in granting indefinite stay of proceedings to the recovery of Govt. dues as adjudicated by the competent authority, contrary to the time limit prescribed under the provisions of the Central Excise Act, 1944 - Held that:- No doubt similar provision under Income Tax Act, 1961 or under this Act had been interpreted in favour of the revenue in the pronouncements cited by the learned counsel for the revenue. In the absence of any finding that the delay was attributed to the assessee, learned counsel for the revenue was not able to demonstrate that the assessee was responsible in delaying the decision of the appeal in any manner. Further, in M/s Maruti Suzuki (India) Limited [2014 (2) TMI 1037 - DELHI HIGH COURT] and M/s J.P. Transformers, Kanpur's case (2013 (10) TMI 1194 - ALLAHABAD HIGH COURT), the grant of ad interim stay was not vacated but the Tribunal was directed to decide the appeal expeditiously. - Tribunal to make sincere efforts for expeditious disposal of the appeal preferably within six months - Decided in favour of Revenue.

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• 2014 (10) TMI 802
  Classification of goods - Classification of rexin cloth under Clause 19(i) of the Tariff Act or under Clause 19(iii) - Held that:- Section11-A of the Act, as it stood then, prescribes the period of limitation, within which the Department can recover the arrears of excise duty. One year was stipulated for this purpose. Where however, the default is committed or failure of recovery was on account of acts of fraud or misrepresentation or misstatement, the prescribed limitation is five years from the date on which the amount became due. Department was disabled from recovering the difference of duty between the items that fall under Clause 19(iii) on the one hand and Clause 19(i) on the other hand only on account of the interim orders passed by this Court in W.P.No.2199 of 1981. Once that writ petition ended in the form of a direction to the respondent therein to pass an order and an order was passed on 04.05.1987, affirming the original classification, the question as to whether the period deserves to be excluded in the process of reckoning limitation under - Decided in favour of Revenue.

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• 2014 (10) TMI 801
  Cenvat Credit - capital goods - structural steel items viz., M.S.Plates, Angles, Channels and HR Sheets used for civil construction activity - whether M.S. Flates, Plates and Angles used as a capital goods are entitled to the benefit of modvat credit under sec.57Q - Held that:- his Court in the case of India Cements Limited [2014 (7) TMI 881 - MADRAS HIGH COURT] applied the principles laid down in the decision of Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd. [2010 (7) TMI 12 - SUPREME COURT OF INDIA] and held that the steel plates and M.S. Channels used in the fabrication of chimney would fall within the ambit of "capital goods - credit allowed - decided in favor of assessee.

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• CST, VAT & Sales Tax

• 2014 (10) TMI 810
  Writ petition against the SCN issued under VAT - SCN issued for rectification of the exemption fees certificate in prescribed form VAT-14 - Held that:- While the jurisdiction of the assessing authority under section 33 of the Act of 2003 to rectify the apparent mistake as such is not challenged and possibly cannot be challenged also, the mixed questions of facts and law including certain complex questions, if decided by this court at this stage, would be like putting the cart before the horse. The assessing authority has the quasi-judicial discretion and authority to decide all these questions, which are raised in the present writ petitions and this court is at loss to understand how without even replying the show-cause notice, the petitioner-company chose to straightway invoke the extraordinary jurisdiction of this court under article 226 of the Constitution of India for challenging the impugned rectification proceedings. Taking a view in favour of the Revenue is within the discretion of the assessing; authority and to contend otherwise is the pain of such proceedings for the assessee but it cannot mean that every such show-cause notice or appealable order passed upon such show-cause notice has to be adjudged as right or wrong in writ jurisdiction. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to be seen. If the major component of the end-product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end-products, and the skill and labour are, only incidentally used, the delivery of the end-product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail of the skill and labour of the seller though some material or components may be incidentally used during the process of the end-product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour. While the exemption fees in lieu of tax on works contract is admittedly based on the total value of the contract, which total value may comprise of the taxable portion (supply of goods) of works contract as well as non-taxable (labour and service) of such works contract, still the exemption fee is levied on the gross total value of the contract, therefore, the question of imposition of tax on taxable portion of works contract does not arise in the present case of question of relating to exemption fees on gross value of the contract and, therefore, the judgments relied upon by the learned counsel for the petitioner seeking to contend that the assessing authority is not entitled to levy higher amount of exemption fee on the basis of law propounded in these judgments is an argument, with respects, is an argument off the mark and, therefore, the same is liable to be rejected. Court is not inclined to pronounce upon the identity of two contracts as one and the same is left open for the assessing authority to do so after the assessee files its reply along with relevant evidence and the assessing authority adjudicates upon the said issues, this court cannot agree with the contention of learned counsel for the petitioner that the two contracts in question lie in a water tight separate compartment and cannot be treated as one integrated contract. The said integrated one contract from the stage of designing to commissioning of plant and equipments, if it is ultimately held to be one integrated contract, may fall under clause (3) of the notification dated August 11, 2006 rather than clause (2). Be that as it may, since all these questions are open questions yet to be decided by the assessing authority, this court, advisedly, does not want to go into the finer details of the questions of facts and apply, the law propounded by the superior courts at this stage. - Decided against Assessee.

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