TMI Tax Updates - e-Newsletter
November 18, 2013

Case Laws in this Newsletter:

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

Articles

1. ANGEL FUNDS

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Auction for Sale (Re-Issue) of Government Stocks

2. Gross Direct Tax Collections during April-October in 2013-14 is up by 11.58 Percent and Stands at Rs.3,37,907 Crore as Against Rs.3,02,844 Crore in the Same Period Last Year

3. Date Extended for Giving Suggestions for the 3rd & 4th Tranche of Draft Rules Under the Companies Act 2013

4. RBI Reference Rate for US $ and Euro

Highlights / Catch Notes

Income Tax

• Taxation of Deemed Dividends u/s 2(22)(e) Should Target Shareholders, Not Group Companies; Protective Assessments Overturned.

  Case-Laws - AT : Deemed dividend u/s 2(22)(e) - The intention of the legislature is to tax dividend only in the hands of the share-holder and not in the hands the concern - protectvie assessments in the hands of group companies set aside - AT
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• Tax Authority Upholds Use of Current Year Data for Profit Margin, Dismissing Department's Complaint on Procedure.

  Case-Laws - AT : Determination of ALP by TPO – The CIT (A) has simply followed the statutory provision while determining the OP/TC margin of the comparable companies by applying the current year data, hence in these circumstances, the grievance of the department that no opportunity was granted to the TPO cannot be accepted - AT
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• Section 50C of Income Tax Act: Not Applicable for Unregistered Land Sale Documents.

  Case-Laws - AT : Addition made u/s 50C of the Income tax act on sale of land - Once the documents were not registered, invocation of provisions of section 50C for adopting the same stamp value does not arise. - AT
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• AO and CIT(A) Misclassify Recoveries from Deposits as Cash Credits u/s 68 Despite Assessee's Evidence.

  Case-Laws - AT : Addition u/s 68 - Since Assessee furnished details of debtors and also the entries made in the books of account, both the AO and the CIT(A) have erred in considering recoveries from deposits as cash credits - AT
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• Property Sale After Flat Construction Not an Adventure in Trade; No Conversion of Capital Assets to Stock.

  Case-Laws - AT : Adventure in the nature of trade or sale of capital asset - sale of property after getting the flats constructed - is it a case of coversion of capital assets into stock in trade - Held no - AT
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• Tax Assessments: Six-Year Limit on Reopening Ensures Fairness and Timeliness u/s 149(1) of Income Tax Act.

  Case-Laws - AT : Limitation u/s 149 – Violation of section 150(1) – As per the provisions of sec. 149(1), no assessment can be reopened beyond a period of 6 years from the end of the relevant assessment year. - AT
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• No TDS Required u/s 194C for Excise Duty on Principal-to-Principal Sale Agreements.

  Case-Laws - AT : Disallowance u/s 40(a)(ia) - excise duty was charged on the goods sold - The claim that the agreement of sale was on principal to principal basis is not controverted - No TDS u/s 194C - AT
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• CIT(A) Can Set Aside Assessment, Refer Case Back to AO for Tax Calculation: Jurisdiction Upheld.

  Case-Laws - AT : Jurisdiction of CIT(A) - Power to set aside the assessment and refer the case back to the AO - What the AO has to do in the set aside proceedings is merely calculation of the tax for which the respondent can be treated as an “Assessee in default” - order of CIT(A) sustained - AT
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• Interest-Free Loans to Subsidiaries: ALP Determined at LIBOR + 2% for Arm's Length Transactions.

  Case-Laws - AT : Arm Length Price (ALP) - Interest free loans to the sister concern by the Assessee-company - AE's who are 100% subsidiaries - The appropriate rate would be LIBOR plus 2% - AT
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• Commissioner of Income Tax's Revision u/s 263 Upheld; Doctrine of Merger Not Applicable to Section 253.

  Case-Laws - AT : Revision u/s 263 - CIT(A) has never considered and decided the issue which is sought be revised u/s 253 - doctrine of merger as pleaded by the assessee is not applicable to the facts of this case - AT
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• Court Disallows 'Take or Pay Rental' Charges as Tax Deduction; Deemed Advance Until Liability is Certain After 5 Years.

  Case-Laws - AT : Disallowance of provisions for 'take or pay rental' charges - ascertained liability or not - the liability to pay in respect of shortfall in quantity will crystallize only after the lapse of five years and till then, even if this amount is paid, it is in the nature of advance payment only and not an expenditure incurred. - AT
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• Arm's Length Price Adjustment: Rejecting Comparables, Considering Unbilled Revenues and Customer Advances for Accurate Tax Reflection.

  Case-Laws - AT : Adjustment of arm's length price - Rejection of comparables - unbilled revenues and advance from customers have to be taken into account while working out the working capital adjustment. - AT
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Customs

• Oil Equipment Importer Wins Case, Retains Foreign Trade Policy Benefits Despite Claiming Exemption Under Notification 21/2002-Cus.

  Case-Laws - AT : Benefit of exemption under Notification 21/2002-Cus - Export and import of oil well equipments - merely because they have claimed benefit at the time of importation, even though they were eligible for the benefit under the EXIM policy, the benefit of the Foreign Trade Policy cannot be denied to the appellant - AT
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• Zircon Concentrate Qualifies for Exemption; Zircon Sand Equals Zircon Ore for Benefits Under Notification.

  Case-Laws - AT : Benefit of exemption notification - Imported raw material is Zircon Concentrate or Zircon ore - Zircon sand are nothing but the Zircon Ore - benefit of exemption allowed - AT
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• Confiscation Case u/s 113: Appellant Gains Benefit of Doubt Due to Missing Panch Witness Evidence.

  Case-Laws - AT : Confiscation u/s 113 - Attempt of illegal export - the failure of the department to produce the panch witness invariably strengthens the case of the appellant and the benefit of doubt is in their favour - AT
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• Refund Claim Denied as Time-Barred Under Notification No. 102/2007; Interpretation of "From" Excludes Event Day in Time Limit Calculation.

  Case-Laws - AT : Rejection of refund claim - Time barred - Refund under Notification No. 102/2007 - if the word “from” is used, the day on which that event has taken place has to be excluded. - AT
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• Appellant Can Claim Refund Without Contesting Bill of Entry Due to Officer's Exemption Oversight.

  Case-Laws - AT : Rejection of refund claim - . As the assessing officer failed to give the exemption, therefore appellant are entitled to claim refund without challenging the bill of entry - AT
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• Appellant Challenges Limitation of DEPB Benefits Based on Indian Market Value in Export Price Inflation Case.

  Case-Laws - AT : DEPB credit – Alleged that appellant have show inflated export price with intent to avail higher DEPB benefit – There is no legal basis for restricting the benefit on the basis of market value of the goods in India - AT
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Service Tax

• Service Tax Only on Services, Not Spare Parts, During Warranty Period - Exemption Notification No. 12/03-ST Clarified.

  Case-Laws - AT : Valuation - Exemption Notification No. 12/03-ST - spare parts used while providing service within the warranty period - prima facie service tax is payable only on the value of the services and not on the value of goods involved in this transaction - AT
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• Court Rules Services as "Manpower Supply" Not "IT Services" Affecting Tax Classification and Compliance.

  Case-Laws - AT : Manpower supply service or IT service - classifiation - what was provided was actually ‘manpower supply service’, even though the assessee claimed it under ‘information technology service’ - AT
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• Waiver of Penalty for Service Tax Payment Not Applicable if Willful Evasion u/s 73(4) is Proven.

  Case-Laws - AT : Waiver of penalty - service tax has been deposited before issuance of show cause notice u/s 73(3) - where there was wilful contravention of the provisions with a view to evade payment of service tax, provisions of sub-section 3 would not apply, in view of the provisions of sub-section 4 of Section 73 - AT
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• Service Tax Debate on Renting Property, Ad Space, and Club Services Referred to Larger Bench for Review.

  Case-Laws - AT : Demand of service tax - Renting of immovable property - Sale of space or time for advertisement - Club or Association Service - Amount received from BCCI as subsidy for various activities - matter referred to larger bench - AT
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Central Excise

• Clandestine Removal Charges Demand Solid Evidence, Not Just Unverified or Loose Documents.

  Case-Laws - AT : Charges of clandestine removal are serious charges and cannot be established on the basis of some loose documents of unverified nature - AT
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• MSP starches classified as native under CETH 1103.00, not as modified starches under 3505.90.

  Case-Laws - AT : Classification of modified starch - MSP starches manufactured by the assessee belong to category of native starches of CETH 1103.00 and not modified starches of 3505.90 - AT
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• Interest Applies on Wrong CENVAT Credit Availment u/r 14, Even if Credit Not Utilized.

  Case-Laws - AT : Interest on wrong availiment of cenvat credit - The word ‘OR’ found in Rule 14 cannot be read as ‘AND’. - The assessee’s contention that they did not utilize this credit towards payment of duty cannot be accepted - AT
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• Cenvat Credit Reversal Required: Polymers Repacked in Bags Not Considered Manufacturing Activity Under Tax Law.

  Case-Laws - AT : Cenvat Credit - polymer in metal crates and the polymer is debulked from metal crates into bags and the polymer bags are cleaned, repacked and relabeled - prima facie the activity is not a manufacuring activity - appellant is required to reverse the cenat credit - AT
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• Reversing Unused Cenvat Credit After Wrongful Availment Under SSI Exemption Does Not Require Interest Payment.

  Case-Laws - AT : Interest on wrong availment of cenvat credit while availing SSI exemption –– In case the wrongly availed credit stand reversed without utilizing the same, no interest would become liable to be paid - AT
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• Goods Classification Under Tariff Chapters 11 or 35 Depends on Specific Tests for Accurate Classification.

  Case-Laws - AT : Classification of Goods - Chapter 11 OR Chapter 35 - unless certain parameters are ascertained on test, it cannot be conclusively found as to whether the impugned goods are correctly classifiable under Chapter 11 of the Tariff or Chapter Heading 3505 of the Tariff. - AT
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• Used Mercury Packing in 30 kg Cans Not Manufacturing per Chapter Note 10, Chapter 28 Regulations.

  Case-Laws - AT : Packing activity manufacture or not - the packing of used Mercury in 30 Kg Cans in which the same was sold would not amount to manufacture in terms of Chapter Note 10 to Chapter 28. - AT
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Case Laws:

• Income Tax

• 2013 (11) TMI 820
  Writ petition without going to the Assessing officer – Re-opening made u/s 148 of the Income tax act – In the present case, the petitioner has not filed objections before the Assessing Officer and has directly approached the court by way of the present writ petition - Held that:- Followed the decision in the case of GKN Driveshafts (India) Limited versus ITO, [2002 (11) TMI 7 - SUPREME Court] , wherein it was held that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. - Decided against the assessee. To protect the interest of assessee - Held that:- The Assessing Officer will first dispose of the objections by a speaking order meeting the contentions and issues raised by the petitioner. In case the objections are rejected, the Assessing Officer will give at least three weeks” time to the petitioner to approach the court before taking up the re-assessment proceedings on merits. The aforesaid directions will protect the interest of the petitioner and in case the objections are rejected, it will be open to them to approach the court and raise all contentions and issues, including the contentions and issues raised in the present writ petition.

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• 2013 (11) TMI 819
  Assessee in default u/s 140A(3) – Penalty for non payment of self assessment tax - Held that:- Tribunal has returned a finding that though the stand of the assessee was lack of liquidity of funds, but in view of communication dated 22/25.03.1985 that the factory premises of the assessee situated at Najafgarh Road and Okhla Industrial Area were substantially destroyed by a mob, when such mob forced their entry into the factory premises and burnt and damaged the trucks parked inside and set on fire the furniture and factory - Assessee has been given very nominal payment of insurance claim and that such amount had to be immediately invested in the repairs and maintenance of the plants and buildings and purchase of shells besides the basic raw materials. Therefore the orders of penalty were quashed w.e.f. 01.11.1984 onward. It is also matter of common knowledge that the assassination of Mrs. Indira Gandhi on 31.10.1984 led to wide spread riots in National Capital Region of Delhi, wherein the property of a particular community was extensively damaged. Therefore, the order of deletion of penalties after 01.11.1984 onwards is fair and reasonable keeping in view the unfortunate circumstances – Decided against the Revenue.

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• 2013 (11) TMI 818
  Addition on account of section 2(22)(e) - Deemed dividend - Shri Sunil P.Mantri is a common shareholder of M/s. Sunil Mantri Realty Ltd. and its 3 group concerns, namely, M/s Mantri Power Ltd, M/s Sunil Mantri Builtech Pvt Ltd and M/s Mantri Lifestyle Developers Pvt Ltd – Held that:- Merely because the assessee, Sunil P. Mantri has not received any sum directly from the lender concern M/s Sunil Mantri Realty Ltd. or through above said 3 group concerns, it cannot be said that assessee has not received any benefits from the transactions - Lender concern, M/s Sunil Mantri Reality Ltd is not engaged in the business of money lending - Loans/advances have not been made in the normal course of business. Contention of the assessee that the MoU dated 15th May, 2007 evidences payments of advances towards awarding of preferential contract to lender concern of any new project that may arise in future by the recipient concerns is hypothetical in nature which lacks any evidentiary value as the MoU pertains to future projects, if any which does not quantify any amounts of consideration – Thus, Sunil P.Mantri clearly falls u/s 2(22)(e) of the Act – But, additions are to be restricted only to the extent of the accumulated profits of the lender concern up to March 31st of the previous years relevant to the assessment years under consideration during which the loans/advances have been made to various concerns - Decided against the assessee. Computation of income from House property on estimated basis @ 7% of cost of the property - Disallowance/addition on account of notional interest in respect of the property located at Ambey Valley, Lonawala and the allowability of interest expenses respectively - AO estimated the gross annual value @ 7% of the cost of acquisition and after allowing 30% standard deduction u/s 24(a), the AO determined the income from house property – Held that:- When the assessee claims for a lower ALV, the assessee is duty bound to file municipal valuation to substantiate his claim of lower value, which he has not discharged during the assessment/appellate proceedings – No any merit in the contention of the Ld.AR that the estimation of gross annual value ought to have been made as per the rent fixed by the municipal authority - Gross rent estimated by AO @ 7% of cost of the property is reasonable - Assessee has paid interest on borrowed capital is also not disputed – Decided against the Assessee. Protective assessment against the companies for taxing deemed dividend - Held that:- The deeming provisions as it applies to the case of loans or advances by a concern to concern in which its share-holder has substantial interest, is based on the presumption that the loans or advance would ultimately be made available to the share-holder of the concern giving the loans or advances. The intention of the legislature is therefore to tax dividend only in the hands of the share-holder and not in the hands the concern. The said proposition is supported by the decision of the Bombay High Court in the case of CIT Vs. Universal Medicare P. Ltd. [2010 (3) TMI 323 - BOMBAY HIGH COURT]. Accordingly, the decision of the Ld. CIT(A) in deleting the additions made by the AO on protective basis in the hands of the recipient concerns are upheld.

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• 2013 (11) TMI 817
  Determination of ALP by TPO – Selection of comparables – Held that:- Rule 10B(4) makes it clear that only the data relating to the relevant financial year has to be relied upon for computing the OP/TC margin of the comparable company. Therefore, when the current year data of the comparable companies were available on public domain, the TPO was not justified for using multiple data in violation of Rule 10B(4) of I T Rules - The average OP/TC margin of comparable companies, even after including Hinduja TMT Ltd., as a comparable, comes to 8% which is much below the margin of 11.03% shown by the assessee - No adjustment can be made to the arm s length price declared by the assessee – Decided against the Revenue. No opportunity to the TPO while disturbing the margins by adopting financials – Held that:- TPO has used multiple year data for arriving at the average OP/TC margin of the comparable companies. Whereas Rule 10B(4) of IT Rules specifically provides for considering the current year data of the comparable companies unless it falls within the exception as provided in proviso to Rule 10B(4). It is also a fact on record that current year data of the comparable companies were available in public domain. The CIT (A) has simply followed the statutory provision while determining the OP/TC margin of the comparable companies by applying the current year data, hence in these circumstances, the grievance of the department that no opportunity was granted to the TPO cannot be accepted – Decided against the Revenue.

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• 2013 (11) TMI 816
  Addition made u/s 50C of the Income tax act on sale of land - Assessee has entered two agreements for sale of property on 31-03-2006 - Consideration was received substantially in FY 2006-07 – Held that:- These two agreements of sale entered on 31-03-2006 were not registered. Once the documents were not registered, invocation of provisions of section 50C for adopting the same stamp value does not arise. This issue was already crystallized by various orders of ITAT wherein it was held that when sale agreement was not registered, provisions of section 50C of the Act, would not apply – Reliance has been placed on the judgment in the case of ITO Vs. Kumudini Venugopal [2011 (4) TMI 940 - ITAT, CHENNAI] – Decided in favor of Assessee. Year of chargeability of capital gains - Held that:- If we go by the provisions of section 2(47) of transfer, as per the revised agreement, even the condition of transfer was not completed till the balance consideration was received even as per the revised agreement dated 07-01-2008, therefore, provisions of section 2(47) on deeming the transfer under the Transfer property Act, does not arise in AY 2007-08. - Since the amount is not taxable as such in AY 2007-08 and Assessee's counsel fairly admitted that Assessee is willing to get the same taxed in AY 2008-09 as the document was registered in that year, accordingly directed the AO to bring capital gains on the sale of property in AY 2008-09 and if required invoke provisions of section 50C in that year. Therefore, the capital gains to that extent offered by Assessee in this assessment year has to be excluded - The AO is directed to exclude in AY 2007-08 and include the capital gain in AY 2008-09, for which necessary proceedings can be initiated, if not done.

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• 2013 (11) TMI 815
  Disallowance of expenditure towards electricity and furnace oil - AO disallowed 25% of the expenditure incurred towards electricity and furnace oil in the respective assessment years on the reason that Assessee has not substantiated claim – Held that:- AO has no basis to disallow the expenditure, particularly, when he was completing assessments based on search & seizure operation. There is no iota of information that Assessee has either inflated or suppressed production - The expenditure is reasonable and payments have been made by way of cheques to various public sector undertakings, which can be verified by the AO, if he intended to do so – Decided against the Revenue.

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• 2013 (11) TMI 814
  Addition towards unexplained cash credit u/s 68 of the Income tax Act - Addition of Rs. 2,75,97,214/- - Both the AO and CIT(A) treated the amounts received by Assessee and deposited in the bank account as cash credits. It is Assessee's submission that there are outstanding debtors in the books from whom Assessee has to collected monies since Assessee was out of business during the year and all these outstanding debtors have been collected in cash and, therefore, these are not cash credits, but, are trade receipts in the form of cash - Held that:- Amounts received by Assessee are not cash credits but the same were recovery of the debtors, which are available in the books of account. Since Assessee furnished details of debtors and also the entries made in the books of account, both the AO and the CIT(A) have erred in considering recoveries from deposits as cash credits - It is also not the case of the AO that investments made in Sree Rayalaseema Steel Rerolling Mills from unexplained sources. Having explained the source of investment in the other firm being recoveries from debtors, the same cannot be doubted just because Assessee recovered them in cash – Decided in favor of Assessee.

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• 2013 (11) TMI 813
  Classification of head of Income – adventure in the nature of trade or sale of capital asset - sale of property after getting the flats constructed - whether it is case of conversion of property (capital asset) into the stock in trade u/s 45(2) - Whether the income falls under the head Capital Gains or Business income - Held that:- The arrangement between these co-owners and GPIL cannot be termed as commercial arrangement for the simple reason that the piece of land including the bungalow inherited by these co- owners was a capital asset. These co-owners got constructed the building comprising of many flats for their residential purposes. Therefore, an agreement was entered into with GPIL. GPIL constructed the building as per agreed terms - Three flats were sold for paying the cost of construction to GPIL. Therefore, no doubt remains that the character of these asset, which was capital in nature, remained the same even after construction – Capital gains accrues from the sale of flats – Decided against the Revenue.

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• 2013 (11) TMI 812
  Limitation u/s 149 – Violation of section 150(1) of the Income tax act – Re-opening of assessment u/s147 of the Income tax act after the period of 6 years - Notice for re-opening issued u/s 148 of the Income tax Act - The facts are that the original assessment for the assessment year under consideration was made under section 143(3) of the Act. Further, the assessment was made under section 143(3) of the Act for assessment year 2005-06 making addition of Rs.80,84,380/- on the ground that sundry creditors amounting to Rs.80,84,380/- were bogus – Held that:- There is no such direction given by the ld. CIT(A) vide order dated 28.08.09 while deciding the appeal for assessment year 2005-06 for reopening the assessment. For the purpose of sec. l50, so as to enable the AO to issue the notice u/s 148 at any time without being curtailed by the time limit prescribed u/s 149, there must be satisfaction of either of the two ingredients under sub-section (1) of sec. 150. The first ingredient is that the reopening must have been done for the purpose of giving effect to any 'finding' contained in any order passed by any authority in any proceedings under the Act by way of appeal, reference or revision or by a Court in any proceeding under any other law. The second ingredient is that the reopening must have been done for the purpose of giving effect to any 'direction' contained in the order passed by any authority. Assessment was reopened u/s 147 on 6/11/2009, while as per the provisions of sec. 149, no notice u/s 148 could have been issued to the assessee beyond 31/03/2008. A cursory look at the order of the Ld. CIT(A) for the A. Y. 2005-06 would reveal that no such "finding" or "direction" was contained therein which would justify raising the bar of limitation of making the assessment u/s 147 - No proceedings u/s 147 could have been initiated by the AO u/s 147 to give effect to a finding contained in the appellate order of CIT(A) for the A.Y. 2005-06. Ld. CIT(A) has not given any directions to make the assessment of the purchases or sundry creditors in question as income in the A.Y. 2001-02 - He has merely stated that the AO was free to examine the purchases, albeit within the four corners of law. The four corners of law prohibits the Assessing Officer from conducting any enquiries in respect of time-barred matters. Notice u/s 148 could not have been issued for making an assessment or reassessment or recomputation in consequence of or to give effect to any "finding" or "direction" contained in the order passed by the Ld. CIT(A) for the A.Y. 2005-06 since there was no such "finding" or "direction" as contemplated in sec.150(1). As per the provisions of sec. 149(1), no assessment can be reopened beyond a period of 6 years from the end of the relevant assessment year. In the present case the notice u/s 148 was issued beyond the period of 6 years from the end of the relevant assessment year. Hence, the said notice was barred by limitation and was without jurisdiction. Therefore, the reassessment completed by the Assessing Officer was without jurisdiction. For reaching this conclusion, reliance is also placed on the decisions of the Hon'ble Bombay High Court in the cases of Lotus Investments Ltd. [2006 (11) TMI 115 - BOMBAY HIGH COURT] and Rakesh N. Dutt [2007 (10) TMI 285 - BOMBAY HIGH COURT] – Decided in favor of Assessee.

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• 2013 (11) TMI 811
  Addition u/s 68 - source of credits entries in the bank account - assessee borrowed these amounts from his in-laws and filed confirmation letters - When the enquiries were extended to the said in-laws, father-in-law and mother-in-law AO noted that these in- laws are not income tax assessees. When the sources were examined, it was noticed that the sources of the loans are out of sale of jewellery – Held that:- The appellant has not been able to provide any proof of a return of income filed by the above 2 persons wherein capital gains on the sale of jewellery has been declared to prove that there indeed was a sale. In view of these discrepancies the contention of the appellant cannot be accepted. No co-relation can be provided by the appellant vis-à-vis the said sale of jewellery and the deposit of cash in his bank account. For example there is a deposit of Rs. 30,100/- in his bank account on 7/5/2005 which cannot be related to any of the so-called sales made by his father-in-law order or his mother-in law. Similarly there are other deposits which also do not co-relate with the sales made. The appellant has not been able to explain this discrepancy that was pointed out. No reconciliation statement has been submitted. It was also not explained why funds were received in a piece meal manner especially when the claim was that it was against sale of immovable property. In view of this, addition made is confirmed. Disallowance of commission expense - Commission expense of Rs. 40,262/- – Held that:- Appellant had not furnished the name and address of the parties to whom the said commission had been paid. In the absence of details the commission payment claimed had been disallowed

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• 2013 (11) TMI 810
  Disallowance u/s 40(a)(ia) - TDS u/s 194C - Work contract or manufacturing cum sale - Held that:- Provisions of section 194C are not attracted merely because a product or thing is manufactured according to the specifications of a customer unless raw material has been purchased from the customer who ordered the product - so long as the agreement is on principal to principal basis and the manufacturer has own establishment where the product is manufactured, and obtained material from its own source for manufacturing the product, without depending on the ultimate purchaser, merely because the purchaser desired to get the product with certain specifications, it cannot be said that there is a contract of job work between the purchaser and the manufacturer - It is not in dispute that the assessee did not supply any material to the manufacturer and the supply of final product was on principal to principal basis in which event provisions of section 194C are not applicable and payments made to the above mentioned two concerns are not attracted by provisions of section of 40(a)(ia) - excise duty was charged on the goods sold by the above mentioned parties. The claim that the agreement of sale was on principal to principal basis is not controverted by the Revenue. - Decided against Revenue. Disallowance u/s 14A - Held that:- It is well settled that the income need not be proportionate to the expenditure and vice-versa. In certain cases there may not be any income in the initial years though the assessee had incurred expenditure wholly and exclusively for the purpose of making or earning income on a particular head - merely because an assessee has not received dividend income in a particular year the expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income should not be disallowed. By applying the same logic, in the instant case also the assessee having made huge investment it cannot be said that there is no expenditure indirectly attributable to the investment and for earning the dividend income. In fact the Legislature having noticed that it is difficult to determine the exact amount of expenditure, which is indirectly attributable to earning of dividend income, the formula was discussed under section 14A read with Rule 8D of IT Rules - Decided in favour of Revenue.

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• 2013 (11) TMI 809
  Reopening of assessment u/s 147 - Notice u/s 148 - Bar of limitation - Held that:- The assessment was reopened after expiry of four years from the relevant assessment year. Therefore, the proviso to sec. 147 is applicable on this case. The mandatory condition for reopening of the assessment after the expiry of 4 years from the end of the Assessment Year is that there is failure on the part of the assessee to disclose fully and truly all the relevant material facts necessary for the assessment - It is clear from the reasons given in the reassessment order that the assessment was reopened on two grounds i.e. method of accounting and non admission of rental income. As regards the method of accounting is concerned, the Assessing Officer has duly accepted the profit on work-in-progress declared by the assessee in the original assessment as well as in the subsequent years. Thus, it is clear that the assessee has been following the percentage completion project method of accounting and accordingly declaring the profit. In the original assessment order passed u/s 143(3), the Assessing Officer has duly recorded and acknowledged the facts that the assessee is declaring profit of work-in-progress method. Therefore, undoubtedly there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment on this issue. As regards the non offering of rental income is concerned, the Assessing Officer has recorded in the reasons that the assessee has shown the bungalows in question in the balance sheet and no new material or information came to the knowledge of the Assessing Officer after the completion of the assessment u/s 143(3). The Assessing Officer accepted the fact that the assessee has already shown the rental income in the P&L account. Therefore, the reasons regarding reopening on this issue is vague so far as the rental income in respect of the bungalow at Belapur has been duly offered to tax by the assessee as the same was shown as income in the P&L account. Thus, the reasons for reopening on this issue is contrary to the fact that has already existed on record. Thus, in the absence of any new tangible material as well as failure on the part of the assessee to disclose duly and truly all material necessary for assessment, the reopening on this issue is not permissible after expiry of four years as the same is hit by the proviso to sec. 147 of the act. The Commissioner of Income Tax(Appeals) has already decided this issue in favour of the assessee subject to verification. Hence, both the issues on merit were decided in favour of the assessee by the CIT(A). Therefore, the reopening on such issue is not sustainable, particularly in the facts of the present case - Decided in favour of assessee.

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• 2013 (11) TMI 808
  Unaccounted and unexplained transfer of funds - Transfer from seized funds - Held that:- assessee has produced the books of account and copy of ledger account of Naresh Kumar & Co., wherein it is pointed out that the amount of Rs.1,75,000/- was recorded in the bank account and the entire expenses incurred, which was reimbursed is also recorded in the books of Naresh Kumar & Co. and assessee also. As the assessee has produced sufficient evidence to prove the claim as bona fide, we are inclined to accept the same - Therefore, these are not unexplained, rather these are explained entries - Decided in favour of assessee. Disallowance u/s 40A(3) - Cash payments - Several payments on different dates in contravention of the provisions of section 40A(3) - Held that:- there is no basis of making this addition by the AO and he has not brought any instance of cash payment in violation of provisions of section 40A(3) of the Act. Unless and unitl revenue is able to bring any material from the seized material or from the books of account, the addition cannot be sustained - Decided in favour of assessee. Disallowance u/s 2(22)(e) - Advance payment - Business expediency or ultimate benefit of the shareholders - Held that:- The provisions of section 2(22)(e) are attracted, when a company makes payment to its shareholders whereas in contrast in present case payments have been made by the shareholder to the company. According to us, therefore, the provisions of section 2(22)(e) of the Act will not apply - Following decision of Assistant Commissioner of Income-tax v. Bhaumik Colour P. Ltd. [2008 (11) TMI 273 - ITAT BOMBAY-E] - Decided in favour of assessee.

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• 2013 (11) TMI 807
  Jurisdiction of CIT(A) - Power to set aside the assessment and refer the case back to the AO for making a fresh assessment - Held that:- Proceedings u/s.201(1) of the Act cannot be said to be akin to proceedings for assessment in the context of Sec.251(1)(a) of the Act - Sec.246A of the Act which provides for what orders are appealable draws a distinction between an order of assessment and an order u/s.201(1) of the Act - The CIT(A) in the impugned order has applied the said principle and concluded that the respondent herein cannot be treated as an ‘assessee in default’ u/s. 201 of the Act and consequently interest levied, where the deductee has filed returns and declared the payments received from the deductor in their returns of income and paid taxes thereon. By doing so, the CIT(A) is not referring the case back to the AO for making a fresh assessment. The CIT(A) has laid down the basis on which the quantum of money in respect of which the Assessee should be treated as an “Assessee in default”. What the AO has to do in the set aside proceedings is merely calculation of the tax for which the respondent can be treated as an “Assessee in default” - provisions of section 251(1)(a) of the Act are not attracted and in any event, the directions given by the CIT(A) cannot be equated with an order setting aside the assessment and referring the case back to the AO for making fresh assessment - Decided against Revenue.

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• 2013 (11) TMI 806
  Arm Length Price - Interest free loans to the sister concern by the Assessee-company - AE s who are 100% subsidiaries - The Assessee s case is that it has actually not earned any interest and it was commercially expedient to extend these interest free loans – Held that:- This is not a case of ordinary business transaction. The question relates to scrutiny of international transaction to determine whether or not the same it as arm s length. The principle of transfer pricing aims at determining the pricing in the situations of cross-border international transactions, where two enterprises which are subject to the same centre or direction or control (associated enterprise) maintain commercially or financially relation with other. In such a situation, the possibility exist that by way of intervention from the centre or otherwise, business conditions must be accepted by the acting units which differs from those which in the same circumstances would have agreed upon between unrelated parties. The aim is to examine whether there is anomaly in the transaction which arise out of special relationship between the creditor and the debtor. Hence the contention of having actually not earned any income cannot come to the rescue of the assessee in this scenario – Decided against the Assessee. Rate of interest to be charged for computation of Arms Length Price of an International transaction – Held that:- Since the issue of LIBOR has been considered and decided by the Tribunal in various cases as relied upon by the assessee, therefore, to maintain the rule of consistency, followed the decision of the coordinate Benches of this Tribunal, and accept LIBOR for benchmarking interest on interest free loans to AEs. Since the LIBOR is a rate applicable in the transactions between the banks and further the loans advanced by the bank to clients are secure by security and guarantee; therefore, a loan which has been advanced without any security or guarantee as in the case of the assessee has to be benchmark by taking the Arm s Length interest rate as LIBOR plus - The appropriate rate would be LIBOR plus 2% - Directed to determine the Arm s Length interest by considering the LIBOR plus 2% on the monthly closing balance of advances during the financial year relevant to the AY under consideration.

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• 2013 (11) TMI 805
  Unaccounted investment in purchase of property – Held that:- The assessee had purchased a property - As per the seized diary the actual consideration received by assessee was recorded at Rs. 165 lakhs as against the consideration of Rs. 65 lakhs in the registered sale deed – Following CIT v. P.V. Kalyanasundaram [2007 (9) TMI 25 - SUPREME COURT OF INDIA] - The burden of proving the actual consideration in the purchase of property is on the Revenue - The assessment made should have enough material and it should stand on its own legs - The basis for addition cannot be only the loose sheet or a third party statement. In the absence of corroborative material - The Revenue has failed to discharge its duty – The Department has not brought on record the date on which the payment was made and the source from which it is paid and/or any details of bank account from where the cash was withdrawn - The authorities made up a case on surmises and conjectures which cannot be allowed – Decided in favour of assessee. Amount received from father – Held that:- Following CIT v. P. Mohanakala [2007 (5) TMI 192 - SUPREME Court] - Where there is a relation between the donor and the donee and there was an occasion to make gift, the same has to be considered as genuine - The donor was assessee's father and the gift was given to settle the life of his daughter, the assessee and the donor being a father, it is natural in the Indian social system to give gift to daughters – Decided in favour of assessee. Loan from father’s friend – Held that:- The assessee could not furnish any confirmation letter except furnishing of a self-declaration - The assessee also stated that she does not know lender personally - The credit cannot be considered as genuine and the same has to considered as income of the assessee - The assessee has not proved the genuineness of this amount – Decided against assessee.

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• 2013 (11) TMI 775
  Jurisdiction of CIT to revise an order u/s 263 - Deduction u/s 80IB - doctrine of merger - AO denied deduction - The sole ground on which the deduction is denied by the AO was that the project was approved prior to 1/10/1998 and according to one of the conditions laid down in section 80 IB(10), deduction can be allowed only in a case where project has started after 1st day of Oct.1998 - Held that:- CIT(A) has decided the issue relating to deduction under section 80 IB (10). A careful perusal of the order passed by Ld. CIT(A) will reveal that neither he has applied his mind on the fulfillment of condition laid down in Explanation (ii) section 80 IB(10) and nor it was the case of the assessee that it has fulfilled the other condition/ conditions regarding completion of project as this was never the issue which was either raised by the assessee before Ld. CIT(A) nor it can be said that Ld. CIT(A) has considered and decided this issue. The language of section 263, clause (c) is very clear and unambiguous. The restriction is for the matters which have been “considered” and “decided” in the appeal. On perusal of order of Ld. CIT(A) can it be said by any stretch of imagination that he has considered and decided the issue regarding admissibility of the deduction under section 80 IB(10) on the ground of completion of the project which was to be considered as complete only on furnishing completion certificate to be issued by the local authority under Explanation (ii). Therefore, it can be said that the issue regarding completion of project was never considered and decided by the Ld. CIT(A). It can also not be said that if an assessee has not fulfilled the condition as laid down in Explanation (ii) than also he can be held to be entitled for deduction u/s. 80 IB(10). Therefore, looking into the plain provisions of language of clause (c) of section 263, it is held that Ld. CIT(A) has never considered and decided the issue regarding compliance of condition by the assessee regarding furnishing of completion certificate to be issued by the the local authority as per provisions of Explanation (ii). Therefore, doctrine of merger as pleaded by the assessee is not applicable to the facts of this case. It is difficult to accept the proposition that when deduction claimed under a particular section is subject matter of appeal and issue has been decided by the Appellate Authority, the jurisdiction of Ld. CIT under section 263 is totally precluded on that section. Such a contention will be contrary not only to the express language of clause (c) to section 263 but is also contrary to cardinal principle governing the doctrine of merger. According to these principles, while considering the cases of merger it is obligatory upon Courts to carefully go through the appellate or revisional order and also the concerned provisions of the statute. After such exercise the issue of merger should be carefully determined. There may be several judicial pronouncements in which Courts have held that when a particular deduction was considered by the Appellate Authority then the jurisdiction of Commissioner Under section 263 is ousted . At the same time there are several cases in which Courts have held that despite the fact that whether deduction under a particular section was considered and decided by the first appellate authority then also doctrine of merger would not be applicable. This has so been held after perusing the revision order as well as appellate order - CIT has rightly invoked his jurisdiction under section 263 and the assessment order did not merge with the appellate order - Decided against assessee.

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• 2013 (11) TMI 774
  Transfer pricing adjustment - Computation method - Determination of value of shares - Held that:- The Tribunal [2013 (9) TMI 802 - ITAT CHENNAI] had remitted the file back to the Assessing Officer with a direction to rework the value afresh in accordance with the directions and observations made in the said order. The transaction relates to the sale of remaining stake of 38.19% (16613483 equity shares) of AITPCL to M/s. Ascendas Property Fund (India) Pte Ltd. Since the first leg of the transaction has been remitted back by the Tribunal to the Assessing Officer for reworking the value afresh, the second leg of the transaction which is part and parcel of the composite agreement dated 30.03.2007 has to go back to Assessing Officer - matter remitted back.

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• 2013 (11) TMI 773
  Capital expenditure or revenue expenditure - Corporate Debt Restructuring expenses - Held that:- Expenditure incurred should be allowed proportionately during the period during which the assessee will continue to get the benefit in respect of reduction in interest liability because of restructuring. Therefore, we hold that the impugned expenditure is not capital expenditure but revenue expenditure but the same should be allowed proportionately during the period during which the assessee will get benefit in the present year as well in future in the light of this judgement of Hon’ble Apex Court rendered in the case of Madras Industrial Development Corporation Ltd. (1997 (4) TMI 5 - SUPREME Court) and hence, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision in the light of above discussion after providing adequate opportunity to the assessee. - Decided against Revenue. Disallowance of provisions for 'take or pay rental' charges - ascertained liability or not - Held that:- Payment on account of shortfall in quantity can be offset within any of the five subsequent years against excess quantity which may be lifted by GCPTCL and, therefore, the liability to pay in respect of shortfall in quantity will crystallize only after the lapse of five years and till then, even if this amount is paid, it is in the nature of advance payment only and not an expenditure incurred. Under this factual position, we do not find any merit in the main contention of the assessee and therefore, the same is rejected. Regarding the alternative contention, we find force in the submission of the Ld. A.R. because once the liability is disallowed in the present year, no income is taxable in the subsequent year when the amount is credited in the P & L account by writing back the liability already disallowed. Hence, the A.O. is directed to verify this aspect in the next year and if it is found that on the write back of this liability in the next year, any amount was taxed then to this extent, income should be reduced in such next year - Decided partly in favour of Revenue. Disallowance of interest to UTI - Contigent liability - Held that:- UTI has not agreed with the CDR package regarding payment of lower rate of interest ultimately, the assessee had to pay agreed rate of interest, without any benefit from the CDR package. Under these facts, it cannot be said that liability has not accrued and not crystallized. Hence, this disallowance is deleted - Decided against Revenue. The A.O. should verify the fact as to whether the amount of Rs.95.54 lacs debited by the assessee in the present year is the proportionate amount of Rs.1886.82 lacs paid by the assessee in assessment year 1999-2000 for 20 years and whether any deduction was allowed in that year and subsequent years on this basis that the same is deferred revenue expenditure. He should also verify this aspect as to whether this issue was decided by the Tribunal or by Ld. CIT(A) against the assessee in any earlier year as has been noted by Ld. CIT(A) in the present year. After verifying all these facts and after providing reasonable opportunity of being heard to the assessee, the A.O. should pass necessary order as per law. Disallowance u/s 14A - Nexus between the investment and interest bearing borrowed funds - Held that:- Since the own funds of the assessee are much more than the investment and there is no nexus established by the A.O. between the investment and interest bearing borrowed funds, it cannot be said that any interest expenditure is incurred by the assessee for earning exempt dividend income and hence, no disallowance can be made u/s 14A out of interest expenditure. Regarding other expenditure, it cannot be said that there is no expenditure incurred by the assessee at all for earning dividend income because admittedly, the assessee was holding these investments in Dmat account and, therefore, there must be some expenditure incurred in respect of such Dmat account. Normally, we restore this type of matter to the file of the A.O. for deciding the disallowance of expenditure on a reasonable basis but in the facts of the present case, considering the smallness of the mount, we feel that this will be a futile exercise and hence, we hold that a disallowance of Rs.50,000/- will meet the ends of justice - Decided partly in favour of Revenue.

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• 2013 (11) TMI 772
  Adjustment of arm's length price - Internation transaction with associated enterprise - Rejection of comparables - Held that:- The TPO has come to a wrong conclusion that 25% employee cost filter is not satisfied by excluding the cost of outsourcing incurred by this company. The fact remains that this company has never outsourced any of the project. The conclusions of the TPO are therefore erroneous. This company is therefore directed to be accepted as a comparable company. From a perusal of the formulae which has been advocated by the OECD shows that unbilled revenues and advance from customers have to be taken into account while working out the working capital adjustment. The TPO's computation as done at page 161 of the order shows that he has not considered the aforesaid items pointed out by the Assessee. We are of the view that it would be just and appropriate to set aside this issue to the TPO and direct him to consider this objection in the set aside proceedings as the same has not been considered by the TPO or the DRP.- AO directed to work out the ALP as per directions - Decided in favour of assessee.

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• Customs

• 2013 (11) TMI 793
  Benefit of exemption under Notification 21/2002-Cus - Export and import of oil well equipments - Violations of requirements of Notification 21/2002-Cus - Held that:- The goods were imported by the appellant claiming the benefit of Notification 21/2002. As per the said Notification, for availment of exemption, the importer has to produce a certificate from the DGH certifying that the imported goods are required for petroleum operations in terms of a contract under the new exploration licensing policy. In the present case, the appellant has produced such a certificate from the DGH at the time of importation of the goods and, therefore, they have fulfilled the terms and conditions of the Notification. Further, the appellants have used the capital goods during the period permitted in the certificate issued by DGH. After completing their use, they have sent these goods to the Visakhapatnam SEZ which activity is deemed as “export: under Section 2(m) of the SEZ Act, 2005. Thus there is no failure on the part of the appellants in fulfilling the terms and conditions of exemption. As regards the requirement of re-export, in the Foreign Trade Policy 2004-2009 provided for importation without a licence of second-hand capital goods on re-export basis by executing a legal undertaking with the Customs authorities. However, the said Policy provides that the import of second-hand capital goods shall be allowed freely without any condition of re-export. If that be so, merely because they have claimed benefit at the time of importation, even though they were eligible for the benefit under the EXIM policy, the benefit of the Foreign Trade Policy cannot be denied to the appellant. In any case, the appellant has supplied the material to the Visakhapatnam SEZ which is a deemed export as per the provisions of the SEZ Act - Therefore, assessees are eligible for benefit of exemption under Notification 21/2002-Cus. - Decided in favour of assessees.

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• 2013 (11) TMI 792
  Benefit of exemption notification - Imported raw material is Zircon Concentrate or Zircon ore - Assessee manufacturing the Zicronium Silicates - Principal raw material is Zircon sand - Classified the same under CTH 2615 10 00 - Whether import of goods and declared the same as Zircon sand (Zircon Ore) and claimed the benefit of non-payment of CVD by availing the benefit of Notification No. 4/2006-C.E., is correct or not – Held that:- since the experts in the field like Indian Rare Earths Ltd Research Centre, Kollam and Indian Bureau of Mines has opined categorically that the goods which were imported i.e. Zircon sand are nothing but the Zircon Ore, and the said expert opinion having been not rebutted by any other opinion from any other expert, and specifications of imported goods seems to match with specification of the ISI standard for Zirconium Ore, we have to hold that the goods imported by the appellant are eligible for the benefit of Notification No. 4/2006-CE as the goods which are imported are nothing but Zirconium Ore - Following decision of CLASSIC MICROTECH PVT. LTD. Versus COMMISSIONER OF CUS. . AHMEDABAD [2013 (1) TMI 469 - CESTAT, AHMEDABAD] - Decided in favour of assessee.

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• 2013 (11) TMI 791
  Confiscation u/s 113 - Attempt of illegal export of 15 silver bars weighing 10.235 Kgs. - Commissioner (Appeals) set aside the order of confiscation - Held that:- It is amply clear that the seizing authority has failed to substantiate the legality of the seizure inasmuch as that they failed to produce the Panch Witness as per direction of Hon’ble CESTAT. Without the panch witness the veracity of the seizure and the place of seizure cannot be fully established. Since the department is not able to substantiate the legality of its action the order of confiscation and imposition of fine and penalty are not sustainable in the eyes of law. Therefore, the failure of the department to produce the panch witness invariably strengthens the case of the appellant and the benefit of doubt is in their favour - Decided against Revenue.

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• 2013 (11) TMI 790
  Demand of differential duty - Provisional assessment done - Dispute over Date of payment - Held that:- Prior to 13-7-2006 there were no provision for demand of interest on differential duty on finalization of provisionally assessed Bill of Entry. The provision came in force with effect from 13-7-2006 and the same is applicant on the imports made after 13-7-2006. Admittedly, in this case, imports have been made during the period 1999-2003; therefore, the provision of Section 18(3) of the Customs Act, 1962 for demand of interest is not applicable in this case - Decided in favour of assessee.

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• 2013 (11) TMI 789
  Rejection of refund claim - Time barred - Refund under Notification No. 102/2007 - Commencement and termination of time - Held that:- according to the Notification No. 102/2007, the importer is required to file the claim for refund before expiry of one year from the date of payment of additional duty of customs. The Notification does not explain the exact meaning of the word ‘from’ - the provisions of Sec. 9 of General Clauses Act, 1897 has been correctly applied in view of the manner in which Sec. 9 has been enacted - It can be seen that in any of the Central Act or Regulations, if the word “from” is used, the day on which that event has taken place has to be excluded. Because of this reason, nowhere in Central Acts or Notifications, when the words “from” and “to” are used, the meaning thereof is explained - Decided against Revenue.

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• 2013 (11) TMI 788
  Rejection of refund claim - Import of Germinated Oil Palm Seed for home consumption - Exemption under Notification 21/2002, dated 1-3-2002 - Held that:- It is not disputed at the time of filing of bill of entry the appellant has complied with Condition of Notification 21/2002. Therefore, it is duty of the assessing officer to give benefit of exemption under Notification 21/2002 as the assessing officer failed to assess the goods properly. In this case the appellant are entitled to claim refund without challenging the assessment of bill of entry - when the exemption is available it is the duty of the assessing officer to give the exemption to the assessee. As the assessing officer failed to give the exemption, therefore appellant are entitled to claim refund without challenging the bill of entry and the facts of this case are distinguishable from the decision in the case of Flock India and Priya Blue [2004 (9) TMI 105 - SUPREME COURT OF INDIA] - Following decision of Sasa Goa Ltd. [2010 (9) TMI 948 - CESTAT MUMBAI] - Decided in favour of assessee.

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• 2013 (11) TMI 787
  EXIM – DEPB credit – Alleged that appellant have show inflated export price with intent to avail higher DEPB benefit – Held that:- as per law DEPB benefit is to be granted on FOB. value of the goods. There is no legal basis for restricting the benefit on the basis of market value of the goods in India. There is no restriction as to the quantum of profit a person can earn in an export transaction. Further the market value of the goods in India as ascertained based on opinion of three other exporters can only be approximate. In the absence of more convincing proof demonstrating that the value realized was for any consideration other than the value of goods exported, we do not consider it proper to fix the FOB value based on market enquires regarding value of goods in India and restrict DEPB benefit based on such calculation - Decided against Revenue.

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• Corporate Laws

• 2013 (11) TMI 786
  Trademark infringement - Ownership of trademark - Defendants claims to be the registered owner of Plaintiff's trademark PTA and PATTA - Held that:- As regards the plaintiff”s right in the trademark PATTA is concerned. the same is not disputed by the defendant, who claims no right in it or user thereto. Consequently, the interim injunction qua the trademark PATTA is made absolute till the disposal of the suit. However, with regard to the trademark PTA, the claim of the plaintiff is that the plaintiff is embossing the same on the products. Learned counsel for defendant No.1 has taken me through the booklets on screws and print out from the websites of the plaintiff of its products i.e. document filed by the defendant from pages 162 to 210 which have been admitted by the plaintiff. In none of the booklets the screws show the mark of PTA embossed on the heads of the screws. It is evident from the record that in the plaint the plaintiff has misstated facts. It is stated that in relation to its trademark PTA the registration applications are pending before the Trade Mark Authority. The present suit was instituted on 30th May, 2011 by which time the applications of the plaintiff No. 1870842 had already been rejected. Even the application filed by Kanta Aggarwal on behalf of the sister concern i.e. M/s. RSA Fastners had been rejected. Further, in the application No. 1898926 the date of user was shown to be “proposed to be used” and it was not claimed that the trademark was being used. There is no dispute that the defendant No.1 is the registered owner of the trademark PTA and has been selling its goods since the year 2002. Honesty of adoption at the initial stage itself has to be established to take benefit of concurrent registration under Section 12 (3) of the Act. If the user at the inception is dishonest, subsequent concurrent user will not purify the dishonest intention. Commercial honesty at the initial stage of adoption is required. What is protected is innocent use of a mark by two or more persons unknown to each other and unaware of the mark used by the other. The onus and burden is on the defendant to show that the user and adoption at the initial stage was honest. Further where an alleged infringer had built up the trade with the specific knowledge of the proprietor, the prejudice suffered by the infringer was a relevant factor and an additional circumstance to deny injunction. Plaintiff is not registered trademark holder of the trademark PTA in India. The only invoice dated 13th October, 2004 relating to the use of screws with mark PTA embossed on the heads related to the defendant No. 2, which according to the defendants were customized goods manufactured from them. Indubitably while deciding a dispute regarding a trademark not only the rival claims of the parties are a relevant consideration, but the fact that an honest consumer of goods and service is not deceived has to be equally borne in mind. Further admittedly the plaintiff in its application has stated that it proposes to use the mark PTA. In none of the advertisement, folders and the websites print out which have been admitted by the plaintiff during admission/denial of the documents the mark PTA has been found to be embossed on its products. The plaintiff has not been able to prove itself to be the prior user of the trademark PTA as against which the defendant No.1, who is owner of the trademark PTA. Consequently, the applications are disposed of confirming the ad interim ex parte injunction against the defendants qua the trademark PATTA, however, vacating the same qua the trademark PTA - Decided in favour of appellant.

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• Service Tax

• 2013 (11) TMI 803
  Stay application - Held that:- there is a deemed service of notice of hearing in all these applications. Stay applications are taken up today, however there is no representation on behalf of the applicants/ appellants nor any application for adjournment. In the circumstances, stay applications are dismissed as not pressed - Stay denied.

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• 2013 (11) TMI 802
  Valuation - Exemption Notification No.12/03-ST - Value of spare parts used while providing such service within the warranty period - Waiver of pre deposit - Held that:- The meaning of 'sale' used in the Finance Act, 1994, and in Rules made thereunder, has to be understood as it is defined in the Central Excise Act, 1944 and as per such definition at Rule 2(h) there is a sale of property when there is transfer of possession of goods by one person to another for valuable consideration. In the facts of the case there is payment of valuable consideration by HML and transfer of possession to the customer of HML. The question whether it is sale to HML can be considered at the time of final hearing of appeal. Considering the decision of the Hon. Apex Court in the case of BSNL Vs. Union of India [2006 (3) TMI 1 - Supreme court], prima facie, we are of the view that service tax is payable only on the value of the services and not on the value of goods involved in this transaction - Prima facie case in favour of assessee - Stay granted.

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• 2013 (11) TMI 801
  Recovery of Refund already granted - earlier service tax paid on GTA service without claiming 75% exemption - later they filed refund claim - Asstt. Commissioner allowed the full refund claim - Commissioner (Appeals) revered the order of Asstt. Commissioner and disallowed the refund claim stating that refund claim is time barred - Held that:- Commissioner (Appeals) findings with regard to unjust enrichment as in respect of inward freight where the Appellant have paid the Service tax on the GTA Service received as service recipient is not correct, as in such cases there is no question of recovery, the service tax paid from their customers. Limitation period under section 11B would be applicable, as there is nothing in Apex Court’s judgment in Mafatlal Industries Ltd. Vs Union of India [1996 (12) TMI 50 - SUPREME COURT OF INDIA] from which it can be inferred that for refund of the excess duty paid by an assessee, the limitation period under section 11B would not apply. In this regard the Appellant has cited the judgment of Tribunal in the case of Singla Pipes Pvt. Ltd. Vs. Commissioner of Central Excise, Chandigarh, reported in [2006 (6) TMI 413 - CESTAT, NEW DELHI]. However, ratio of this judgment is not applicable to the fact of this case - Prima facie case not in favour of assessee - Stay granted partly.

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• 2013 (11) TMI 800
  Stay application - Service tax demand - Payment of royalty, agency commission and other technical charges - Held that:- Prima facie demand of tax prior to 18.4.2006 is covered by the decision of Hon’ble Bombay High Court in the case of Indian National Ship Owners Association (2008 (12) TMI 41 - HIGH COURT OF BOMBAY). The demand in respect of period after 18.4.2006, it is evident that applicant already paid Rs.45,28,541/- and additional deposit of Rs.1.09 crores would partly include the present period. The applicant is also contesting the demand on time bar. In view of that, we find that applicant has made out prima facie case for waiver of pre-deposit of balance amount of tax, penalty along with interest. The issue raised is that for the services rendered prior to 18.4.06 and amount received after 18.4.06, whether tax is leviable or not would be examined at the time of appeal hearing. In view of that, pre-deposit of balance amount of tax along with interest and penalty is waived and its recovery is stayed during pendency of appeal - Stay granted.

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• 2013 (11) TMI 799
  Stay application - Classification of service - Manpower supply service or IT service - Held that:- what was provided was actually ‘manpower supply service’, even though the assessee claimed it under ‘information technology service’ - No doubt there were clauses relating to deliverables and quality of work in the contracts but these by themselves do not indicate that the appellants are providing information technology software services to TCS and Infosys - Any person or organization obtaining skilled personnel had to ensure that such men deliver work of standard quality - No one would employ a person who was not skilled enough and no one would pay for shoddy work even if done by a skilled man - Following decision in the case of M/s. Sasken Communications Technologies Ltd. [2013 (9) TMI 431 - CESTAT BANGALORE] - Assessee is directed to make a pre deposit - Prima facie case not in favour of assessee - Stay granted partly.

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• 2013 (11) TMI 798
  Levy of penalty where service tax has been deposited before issuance of show cause notice - Section 73(3) versus Section 73(4) - Business Auxiliary Service - The adjudicating authority did not impose penalties, by relying on provisions of Section 73(3) of the Act. - Revenue filed an appeal against the order - Held that:- where there was wilful contravention of the provisions of Chapter 5 of the Act, with a view to evade payment of service tax, provisions of sub-section 3 would not apply, in view of the provisions of sub-section 4 of Section 73. It is axiomatic Legislation is operative proprio vigore on its enactment and effectuation. The operation of legislation is not contingent upon affirmation by the judicial branch, even where a challenge to its constitutionality is presented before the Courts. No person therefore, could reasonably harbour any manner of doubt that when legislation is under challenge, the challenged legislation is in eclipse to be upheld. A doubt. The appellate authority has rightly rejected the appellant's claim in this regard and has rightly reversed the order of adjudicating authority on a true and fair construction of Section 73(4) of the Act. The order of the Appellate Commissioner is impeccable and warrants no interference - Decided against assessee.

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• 2013 (11) TMI 797
  Eligibility to avail cenvat credit of the proportionate service tax after 10.09.04 - Service tax paid by insurance companies - Waiver of pre-deposit – Held that:- Cenvat credit availed by a manufacturer on an invoice of service tax provider issued prior to 10.09.04 - The issue is a debatable one - the appellant has reversed the amount of cenvat credit taken by them and are contesting the issue on merits - the amount can be considered as enough deposit to hear and dispose the appeal - Application for the waiver of the pre-deposit of the balance amounts allowed till the disposal – Stay granted.

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• 2013 (11) TMI 796
  Eligibility to cenvat credit - Service tax on garden services and repairs and maintenance services of the sewage plant – Scope of Input Services under Rule 2 (I) of Cenvat credit Rules,2004 - Waiver of Pre-deposit – Held that:- The assessee is claiming cenvat credit in relation to the manufacturing of their final product - the issue is being contested on merits - the amount reversed by the appellant is enough to hear and dispose the appeal - application for the waiver of the pre-deposit of the balance allowed till the disposal – Stay granted.

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• 2013 (11) TMI 795
  Charge of wrong availment of cenvat credit - Service tax paid on CHA services and foreign courier services – Waiver of Pre-deposit – Held that:- Following CCE, RAJKOT Versus ADANI PHARMACHEM P. LTD. & ORS. [2008 (7) TMI 102 - CESTAT AHMEDABAD] and Commissioner of Central Excise & Customs, Guntur Versus CCL Products (India) Ltd. [2009 (3) TMI 136 - CESTAT, BANGALORE ]- CHA services received at the port as input services as also courier service is an input service - the appellant has made out a prima facie case for the waiver of pre-deposit of the amounts – stay granted.

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• 2013 (11) TMI 794
  Demand of service tax - Renting of immovable property - Sale of space or time for advertisement - Club or Association Service - Amount received from BCCI as subsidy for various activities - Business support service - Penalty u/s 76, 77, 78 - Difference of opinion - matter referred to larger bench on the following issues: i) Whether the appellant, M/s. Vidarbha Cricket Association is liable to service tax on the services rendered to its members under ‘Club or Association Service' as held by the Member (Technical) on the ground that the appellant is not rendering any public service nor are they a charitable organization and the provisions of Income Tax Act, 1961 are not pari materia with Chapter V of the Finance Act, 1994 - OR - The appellant, M/s. Vidarbha Cricket Association is not liable to service tax under ‘Club or Association Service' as held by Member (Judicial) on the ground that the appellant is treated as a charitable organization under the Income Tax act, 1961 ii) Whether the appellant is liable to penalties under Sections 76, 77 and 78 of the Finance Act, 1994 in cases where the service tax demands have been confirmed invoking the extended period of time as held by Member (Technical) - OR - The appellant is not liable to penalty under the above provisions on the ground that there is no contumacious conduct on the part of the appellant and the disputes had arisen as a matter of interpretation of the tax provisions, as held by Member (Judicial). iii) Is there any inherent contradiction in the waiver of penalty by Member (Judicial) inasmuch as he has upheld the confirmation of demand of service tax invoking the extended period of time and the same pre-supposes suppression of facts on the part of the appellant whereas while waiving of the penalty, the learned Member (Judicial) has held that there is no contumacious conduct on the part of the appellant. Further for imposition of penalty under Sections 76 and 77 no mens rea is required and mere contravention of the statutory provisions would suffice. Referred to larger bench.

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• Central Excise

• 2013 (11) TMI 785
  Clandestine Removal of goods – Held that:- Charges of clandestine removal are serious charges and cannot be established on the basis of some loose documents of unverified nature – Following COMMISSIONER OF C. EX., AHMEDABAD-II Versus TEJAL DYESTUFF INDUSTRIES [2008 (7) TMI 412 - HIGH COURT OF GUJARAT AT AHMEDABAD] - having obtained confessional statements, Revenue officers did not carry out the detailed investigations into the relevant aspects of the case, particularly the bank accounts and working of the assessee’s factory - recording of a confessional statement would not put an end to investigation and the Revenue officers should be careful to ensure that they are not tricked out of a regular and detailed investigation. Entire Stock lied in the factory to be measured or not – Held that:- The department has admitted that physical verification of entire stock was not taken - The department itself believes that all fabrics received in the factory are first entered in kachcha chits and thereafter entered in the lot register, therefore, physical stock verification of entire stock was required to be carried out. -This having not been done, the department has not made out a case beyond doubt that there was shortage of particular MMF/CF and certain quantity of these fabrics was in excess. Apart from the loose papers which are held as not carrying much evidentiary value, there is virtually no evidence on record to establish clandestine activities of the respondents – Relying upon COMMR. OF C. EX., CUS. & SER. TAX, DAMAN Versus NISSAN THERMOWARE P. LTD. [2010 (12) TMI 487 - GUJARAT HIGH COURT] - A case of clandestine removal of goods has to be made out on facts which find corroboration from the material on record - In absence of any corroborative material, no demand could have been raised merely on the basis of a statement recorded under Section 14 of the Act, which had been subsequently retracted – Decided against Revenue.

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• 2013 (11) TMI 784
  Demand of Duty under rule 96 ZQ of central excise act 1944 – Hot Air Stenter Independent Textile Processors Rules - Held that:- In view of the language contained in the notification dated 1st March, 2001, the same can only afford protection to action already taken while Rule 96ZQ was in force, but cannot justify initiation of a new proceeding which will not be a thing done or omitted to be done under the rule but a new act of initiating a proceeding after the rule had ceased to exist - Any obligation or liability etc. acquired, accrued or incurred under Section 3A of the Act would not be saved by Section 6 of the General Clauses Act. When the charging Section itself is deleted without any saving clause, no recovery under the said Section can be made by resorting to Rule 96ZQ of the Rules. Action, if any, can be taken only under the regular provisions of the Act - in case of proceedings initiated prior to the omission of Rule 96ZQ, 96ZP and 96ZO of the Rules, if the same were not concluded prior to the omission of Section 3A of the Act, there was no power to proceed further and conclude the same - any action taken under Rules 96ZQ, 96ZO and 96ZP of the Rules after Section 3A of the Act came to be omitted from the statute book without any saving clause, would be without authority of law and as such any orders passed in respect thereof after the omission of Section 3A of the Act would be non est. Virus of penalty provision - Held that:-Manufacturers of goods specified under Section 3A of the Act are evidently subjected to harsh treatment of unreasonable penalty under Rule 96ZQ(5)(ii) compared to manufacturers of other excisable goods – Decided in favour of Assessee.

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• 2013 (11) TMI 783
  Classification of modified starch of Chapter 3505 and native starch as of Chapter 11 can only be made after proper chemical testing - Indian Standard of modified starches and native starch are available – Held that:- When the sample of the MSP manufactured by the assesse was not tested properly by keeping the Indian standards in mind, then there does not seem to be any irregularity on the part of adjudicating authority to get samples drawn and tested as per parameters given in Indian Standard, when such an exercise was done in the presence of officers of Central Excise - During subsequent testing of starch samples manufactured by the respondent and the cross examination of Dr. G.P. Sharma, the Chemical Examiner, it has clearly come out that the MSP starches manufactured by the assessee belong to category of native starches of CETH 1103.00 and not modified starches of 3505.90. Time-barred appeal - The adjudicatory authority has also dropped proceedings on the ground that extended period cannot be invoked in the case - Proceedings regarding demand of duty being time-barred, has not be questioned by the Revenue – Decided against Revenue.

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• 2013 (11) TMI 782
  Accrual Date of Interest Liability - Whether liability of interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB arises from the date of taking wrong credit in books of accounts or when such credit is taken (utilized) while clearing the finished products – The assessee has taken the input service credit on 12.01.2009 against an invoice - They again took the credit of the said amount against the same invoice on 16.01.2009 - They however, reversed the excess credit on 13.01.2009 i.e. after a period of about 11 months from the date of taking the wrong credit - Held that:-Following Union of India Vs. Ind-Swift Laboratories Ltd. [2011 (2) TMI 6 - Supreme Court] - The manufacturer of the provider of the output service becomes liable to pay interest along with the duty where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded and the provision of Section 11AB would apply for effecting such recovery - The word ‘OR’ found in Rule 14 cannot be read as ‘AND’. The assessee’s contention that they did not utilize this credit towards payment of duty cannot be accepted when there were clearances of final products and duty has been debited from the credit account cannot be accepted - during the period, the liability to pay duty/service tax would have arisen any number of times, in fact every month – Interest on irregular credit would arise from the date on which credit was wrongly taken irrespective of the fact whether the credit was utilised or not - thus, the Appellant is liable to pay interest from date of taking the wrong credit – Decided against Assessee.

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• 2013 (11) TMI 781
  Clearance of duty paid imported goods as such - Reversal of cenvat credit as per Rule 3(5) of cenvat credit rules - Held that:- There is no chapter note under Chapter 39 of the Central Excise Tariff to show that repacking amounts to manufacture - The applicants while clearing polymer as such, reclassified the same under Chapter 38 of the Central Excise Tariff - as the applicants are clearing the imported duty paid polymer on which credit has been availed as such, therefore the applicants are liable to reverse the credit availed in respect of polymer. Activity Manufacture or not as per section 2(f) of the central excise act - The applicants never disclosed to the Revenue regarding their activity that they are clearing polymer as such rather the applicants have shown in their declaration as chemical additives - The applicants are receiving polymer in metal crates and the polymer is debulked from metal crates into bags and the polymer bags are cleaned, repacked and relabeled - the activity cannot be considered as amounting to manufacture as per the provisions of Section 2(f) of the Central Excise Act. Waiver of Pre-deposit - The applicants have not made out a prima facie case for total waiver of duty - The applicants are directed to deposit an amount equal to 50% of the duty as pre-deposit – upon such submission rest of the duty to be waived till the disposal – half of the amount granted to be stayed.

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• 2013 (11) TMI 780
  Interest and penalty on wrong availment of cenvat credit – Appellant took SSI exemption – benefit of Cenvat credit availed by mistake – Duty along with interest and penalty demanded - Held that:- The credit availed by the assessee was lying unutilized in their records and was immediately reversed on being pointed out by the Revenue – Following UOI and Ors. Versus Ind-Swift Laboratories Ltd. [2011 (2) TMI 6 - Supreme Court] and CCE & ST, Bangalore vs. Bill Forge Pvt. Ltd. [2011 (4) TMI 969 - KARNATAKA HIGH COURT] - In case the wrongly availed credit stand reversed without utilizing the same, no interest would become liable to be paid – the demand of interest set aside. The appellant have accepted that they had wrongly availed the credit but it was on account of inadvertent mistake and the fact that appellant continued to reflect the same in their statutory records i.e. Cenvat credit account as also in the quarterly return reflects upon the bonafide of the appellant - The fact of non-utilization of credit and reflection of the same in statutory records reflects upon absence of attempt and commitment causing any prejudice to the Revenue, there is no occasion for imposition of penalty - the appellant was availing credit with due knowledge of the Revenue and was reflecting the same in the statutory records - there was no malafide on the part of the assessee for inviting any penal action against them – Duty demand confirmed and the Penalty set aside – Decided in favour of Assessee.

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• 2013 (11) TMI 779
  Classification of Goods - Chapter 11 OR Chapter 35 - Assessee manufactured various kinds starch – Cleared the goods at Nil rate of Duty - Held that:- Following RIDDHI SIDDHI GLUCO BIOLS LTD. Versus COMMR. OF C. EX., BELGAUM [2011 (4) TMI 970 - CESTAT, BANGALORE] - the product i.e. Maize Starch would merit classification under Chapter 11 - Modified starches may be distinguished from unmodified starches of Chapter 11 on the basis of changes in their properties - different physical and chemical properties distinguish modified starches of Chapter Heading 3505 from native starches of Chapter 11 - unless these parameters are ascertained on test, it cannot be conclusively found as to whether the impugned goods are correctly classifiable under Chapter 11 of the Tariff or Chapter Heading 3505 of the Tariff. Commercially an item is considered as modified starch only if the parameters such as matching with the IS specifications for modified starches - The use depends on the type and extent of modification - Most of the starch derivatives (modified starches) can be distinguished by physical and chemical methods and with instrumental analytical techniques – Decided Against Revenue.

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• 2013 (11) TMI 778
  Determination of assessable value of made up articles of textiles as per Rule 7 and rule 11 of central excise valuation rules, 2000 - Data submitted for justifying the total retailing expenses is around 44% - Only 16.34% has allowed without any justification – Held that:- Commissioner has only recalculated the liability instead of considering their request of deduction of retailing expenses which is around 40-44% - initially they have submitted the data whereby the retailing expenditure was computed at 46%, but after detailed calculation, it has come down to 44%, duly supported by Chartered Accountant’s Certificate. The figure was given on the basis of the retailing expenditure incurred by the Applicant from all their retail outlets, including Kolkata - a mechanism has to be adopted for determining the retailing expenses pertaining to Kolkata only - all data relating to the determination of the retailing expenditure would be submitted by them – Matter remanded back for the fresh adjudication - Assessee directed to submit Rupees one lakh and twenty five thousand as pre-deposit – upon such submission rest of the duty to be waived till the disposal – Partial stay granted.

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• 2013 (11) TMI 777
  Clandestine removal of goods – Held that:- Following Takshila Spinners v/s CCE [2001 (5) TMI 79 - CEGAT, NEW DELHI] - No enquiry has been made from the transporter regarding truck number and the transporter did not produce any records as stated by him in his statement - The statement was recorded after a gap of 4 years in the absence of the assesse - The assessees were not given opportunity to cross examine the transporter despite making specific request - It was alleged in the show cause notice that goods under cover of proforma GRs were transported to M/s Uttam Cottage Industries Calcutta and no duty was paid - But the firm was not interrogated to know the facts - absence of Adjudication based on the statements only of witnesses who could not be cross-examined, coupled with total lack of any corroborative evidence, not sustainable as legally statements of such persons who failed to submit themselves for cross-examination could not be accepted or taken into evidence. Undervaluation of Papers – Lack of evidence – Held that:- Following CCE Meerut v/s Raman Ispat (P) Ltd.[ 2000 (7) TMI 118 - CEGAT, NEW DELHI] - Allegations in show cause notice based on a private note book seized from the factory premises -No evidence collected in support of the alleged receipt of inputs and the presumed manufacture in excess of the recorded figures Writer of the diary not examined - Proceedings were rightly dropped by the Commissioner on the ground that the department collected no material to prove the authenticity of the seized private note books and for failing to trace/examine material witnesses - the charge of undervaluation is not sustainable. Extended period of limitation – Held that:- The word willful is omitted before the word suppression or mis-statement in the notice to show case, the extended period is not invokable – Relying upon Cosmic Dye Chemical V/s CCE [1994 (9) TMI 86 - SUPREME COURT OF INDIA] - for the longer period to apply, the term suppression or mis-statement must be qualified by the immediately preceding word ‘wilful’ - the preceding words are omitted in the show cause notice, extended period is not invokable - Decided against Revenue.

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• 2013 (11) TMI 776
  Packing activity manufacture or not - Whether packing of re-generated Mercury into 30 Kg Cans would amount to manufacture in term of Chapter Note 10 to Chapter 28 – Held that:- There is nothing to show that the 30 Kg Cans in which Mercury was sold, are pre-packed commodity for sale satisfying the criteria prescribed in this regard in the Board’s Circular dt. 08.10.97 – thus, the packing of used Mercury in 30 Kg Cans in which the same was sold would not amount to manufacture in terms of Chapter Note 10 to Chapter 28. Period of limitation – Held that:- The Show Cause Notice has been issued after expiry of normal limitation period of one year from the relevant date and same would not survive unless the Department proves that the respondents had deliberately suppressed the relevant facts from the Department with intent to evade the duty - the assessee is a Public Sector Undertaking wholly owned by the Government of India - it would be absurd to accuse a wholly Government owned company of non-payment of excise duty with intent to evade the tax - it would not be correct to allege that the assessee have suppressed the relevant facts from the Department with intent to evade the payment of duty and as such longer limitation period under proviso of Section 11A(1) and the penalty under section 11AC would not be applicable - the duty demand is not sustainable on limitation also – Decided against Revenue.

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• CST, VAT & Sales Tax

• 2013 (11) TMI 804
  Tax Evasion - no evidence was produced by the assessee inspite of allowing time to produce the record, and on the basis of this, the Assessing Officer had passed the assessment order reiterating the earlier assessment order - Held that:- While as per the remand order, the Assessing Officer was required to frame a fresh assessment order after complying the remand order passed by the Revisional Authority, but it appears that mechanically assessment order was passed by the Assessing Officer. When remand order was very specific in respect of certain directions, then those points ought to have been considered by the Assessing Officer even without production of any material by the assessee. The Assessing Officer ought to have recorded a fresh finding that there was tax evasion by the petitioner, on the basis of some material and documentary evidence tax evasion was found proved. But, in the Assessment Order and Revisional Order we do not find any such finding while it was necessary for the Assessing Officer and Revisional Authority to record such findings. From the perusal of the impugned order, it is find that after narration of the facts, the Revisional Authority because of non-production of any material before it by the petitioners reiterated the earlier order only, while as per directions issued by the Revisional Authority the Assessing Authority was under an obligation to meet out all the directions, but it appears that the Assessing Officer impressed with the fact that no evidence was produced before it by the assessee reiterated the earlier order, while it was under an obligation to decide the matter as directed by the Revisional Authority. When the important and vital issues are not considered by the Assessing Officer, the assessment order after remand cannot be sustained under the law - Matter remitted back to Assessing Officer to comply with the remand order - Following decision of M/s Shri Sharda Domestic Fuels Pvt. Ltd. Versus State of M. P. and others [2013 (4) TMI 464 - MADHYA PRADESH HIGH COURT] - Decided in favour of assessee.

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