TMI Tax Updates - e-Newsletter
December 2, 2014

Case Laws in this Newsletter:

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

News

1. FM Stresses the Need for Sharing of Global Experiences in the Field of Mergers and Acquisitions to Fully Develop the Competition Law and Practice

2. RBI Reference Rate for US $

3. Change in Tariff Value of Crude Palm Oil, Rbd Palm Oil, others – Palm Oil, Crude Palmolein, RBD Palmolein, Others – Palmolein, Crude Soyabean Oil, Brass Scrap (All Grades), Poppy Seeds, Areca Nuts, Gold And Silver Notified

4. Government approves fifteen (15) proposals of Foreign Direct Investment (FDI) amounting to about ₹ 689.35 Crore

Circulars / Instructions / Orders

Income Tax

1. AST Instruction No.132 - dated 27-11-2014

Functionality for CsIT(CO) for generation of MIS of Auditable cases (u/s 143(3), 144 & 147) - regarding.

Highlights / Catch Notes

Income Tax

• Tribunal Overturns Penalty u/s 271C; Assessee Shows Reasonable Cause for Not Deducting Tax at Source.

  Case-Laws - HC : Penalty u/s 271C - the assessee has proved that there was reasonable cause for failure to deduct tax at source - penalty was righlty set asdide by the tribunal - HC
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• Court Rules Land Ownership Not Required for Deductions u/ss 80IB(10) and 80IB(1) of Income Tax Act.

  Case-Laws - HC : Allowability of deduction u/s 80IB(10) and 80IB(1) – It does not provide that the land must be owned by the assessee seeking such deductions - it can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects and have not acted only as a works contractor - deduction allowed - HC
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• High Court Upholds Case Transfer for Administrative Convenience u/s 127 of Income Tax Act; Affects Three Cases.

  Case-Laws - HC : Power to retransfer the case u/s 127 – the order of transfer of the file of the petitioner to the first respondent states that the proceedings has been passed for administrative convenience and apart from the petitioner's case, two other cases have also been transferred - order of transfer sustained - HC
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• High Court Grants Tax Exemption for Job Work on Ceramic Tiles u/s 80IA, Recognizes New Product Creation.

  Case-Laws - HC : Deduction u/s 80IA - job work of decoration of glazed ceramic tiles - original block does not remain the marble block, it becomes a slab or tile - not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence - exemption allowed - HC
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• Court Rules Charging Fees Doesn't Make School For-Profit, Highlights Casual Handling of Section 10(23C)(vi) Exemption Application.

  Case-Laws - HC : Exemption u/s 10(23C)(vi) – mere fact that a fee is being charged from students would not establish that the institution exists for profit – the rejection of the application for exemption u/s 10 (23C)(vi) has been done in a rather casual manner without applying his mind - HC
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• Eligibility for Section 80G Tax Benefits Requires More Than Just Section 12A Registration; Specific Criteria Must Be Met.

  Case-Laws - HC : Grant of recognition u/s 80G - both the provisions are exclusive - In order to get recognition u/s 80G, mere registration u/s 12A is not sufficient - the assessee has to satisfy the requirement mentioned u/s 80G - HC
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• Exemption u/s 10(10C) upheld for Kirloskar Copeland Ltd. employees; VRS complies with Rule 2BA conditions.

  Case-Laws - AT : Entitlement for claim of exemption u/s 10(10C) - all the conditions of Rule 2BA are fulfilled in the VRS Scheme framed by the employer company i.e. Kirloskar Copeland Ltd. and both the authorities below are not justified in denying the benefit of exemption to these employees - AT
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• Section 271D Penalty: Assessee and Members Are Separate Entities; Transactions Fall u/s 269SS Rules.

  Case-Laws - AT : Levy of penalty u/s 271D – it is not legally correct to contend that the assessee and its members are one and the same person and the transactions with the members are outside the scope of s. 269SS - AT
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• Invalid DVO Reference Voids Assessment Reopening; Reports Cannot Justify Belief of Escaped Income or Wealth.

  Case-Laws - AT : Validity of reopening of assessment - when reference to DVO itself is invalid, the report received as a result of the reference cannot constitute material for forming the belief that an income or wealth tax escaped assessment - AT
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• TPO Rejects Transfer Pricing Adjustment for Export of Vehicle Spares to Associated Enterprises.

  Case-Laws - AT : Transfer pricing adjustment – export to associated enterprises of spares and components required for the purpose of servicing of vehicles sold by assessee - the adjustment computed by the TPO is untenable - AT
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Customs

• Exemption Denied for Special Additional Duty on Imported Aluminium Profiles and Hardware for Furniture Manufacturing.

  Case-Laws - AT : Exemption from payment of SAD to all pre-packaged goods - Import of Aluminium Profiles, hardware for furniture fittings - goods in question, are for manufacture of furniture - exemption denied - AT
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Service Tax

• Chartered Accountants' Services Exempt from Service Tax Before August 1, 2002, as per Notification No. 59/98-ST.

  Case-Laws - AT : Chartered accountants Services or Management consultancy Services - Scope of Notification No. 59/98-ST dtd 16.8.1998 - exemption during the period prior to 1.8.2002 - decided in favor of assessee - AT
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• Appellants' Services Not Classified as Manpower Supply or Recruitment for Sugar Factory, Per Contracts and Statutory Definitions.

  Case-Laws - AT : From the statutory definitions and the contracts entered into by the appellants, it is clear that there is no element of manpower supply or recruitment by the appellants to the sugar factory and therefore, the services rendered by the appellants cannot be classified under manpower recruitment or supply agency services - AT
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• Service Tax Demand Under Reverse Charge for Foreign Branch Expenses Set Aside Due to Limitation Period Issues.

  Case-Laws - AT : Demand of service tax on Reverse Charge Mechanism - amount remitted to the branch offices located outside India towards various expenditure and salaries paid to the employees working in the branch offices abroad - Extended period of limitation - demand set aside - AT
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• Petitioner Directed to Address Service Tax Dispute on Restaurants with Issuing Officer in Inquiry Process.

  Case-Laws - HC : Challenge to the service tax inquiry - Levy of service tax on restaurants - at this stage, the petitioner shall go to the Officer concerned, who has issued the summons. - HC
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• Court Rules Reliance on CERA Report for Extending Limitation Period Illegal; Independent Assessment Required by Commissioner.

  Case-Laws - HC : Challenge to the show cause notice invoking extended period of limitation - The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted mechanically, swayed by the report of the CERA team, which in itself appears to be illegal and unsustainable. - HC
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• Appellant's Services for Foreign Clients and Indian Buyers Covered u/r 3(3) of Export of Taxable Service Rules 2005.

  Case-Laws - AT : Appellant has provided the service of procuring purchase orders for their foreign clients and providing maintenance service to the Indian buyers during the warranty period on behalf of their foreign clients on the instructions of foreign clients are covered by the Rule 3(3) of Export of Taxable Service Rules, 2005 - AT
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Central Excise

• 'Threptin' and 'Prorich' Diskettes Classified Under CETH 2106 90 99 as Food Preparations, Not Textured Protein Substances.

  Case-Laws - AT : Classification of ‘Threptin’ and ‘Prorich’ diskettes - it cannot be said that the impugned goods are textured protein substances - product merit classification under CETH 2106 90 99 as food preparations not elsewhere specified or included - AT
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• Rebate Denied: Duty Paid on CIF Value Excludes Ocean Freight & Insurance Beyond Port as Per Statutory Rules.

  Case-Laws - CGOVT : Denial of rebate claim - Duty was paid on CIF value as admitted by applicant. The ocean freight and insurance incurred beyond the port, being place of removal in the case cannot be part of transaction value in terms of statutory provisions discussed above - amount of rebate restricted - CGOVT
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• Central Excise Duty Reduced to 8% Effective February 24, 2009; Rebate Claims Now Admissible at New Rate.

  Case-Laws - CGOVT : Rebate claim - effective rate of Central Excise duty was reduced from 10% to 8% - rebate is admissible of duty paid at effective rate of duty on 24-2-2009 i.e. @ 8% - CGOVT
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• Taxpayers Can Claim Both Rebate and Drawback Benefits Under Central Excise Laws When Only Customs Portion is Availed.

  Case-Laws - CGOVT : Denial of Rebate claim - Simultaneous benefits of rebate and drawback - In view of position explained there is no bar is availing such rebate claim when drawback of only customs portion is availed. - CGOVT
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VAT

• Commissioner Fails to Act Against Assessing Officer's Section 57 Violation, Withholds Petitioner's Refund Instead.

  Case-Laws - HC : We are shocked that the learned Commissioner of Commercial Taxes instead of taking any action against the Assessing Officer for violating the mandate of Section 57 of the OVAT Act and not following/obeying instruction of the Commissioner for strict compliance of Section 57 of the OVAT Act has passed the impugned order withholding the claim of refund due to the petitioner. - HC
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Case Laws:

• Income Tax

• 2014 (12) TMI 27
  Expenditure towards exempted dividend income disallowed u/s 14A r.w. section 8D – Held that:- The assessee had declared dividend income from mutual funds which it claimed as exempt - no borrowed fund has been utilised towards investment in the mutual funds, the income of which has been claimed as exempt - the AO disallowed an amount of Rs. 3,03,823/- being expenditure incurred for earning the dividend income u/s. 14A r.w. Rule 8D which has been upheld by the CIT(A) - the AO has not recorded any satisfaction with reference to accounts of assessee nor rejected the claim that no expenditure was incurred – following the decision in Raj Shipping Agencies Ltd. Versus Additional Commissioner of Income-tax [2013 (12) TMI 995 - ITAT MUMBAI] - The AO has to examine the accounts of the assessee first - If he is not satisfied with the correctness of the claim, then only he can invoke rule 8D - No such examination was made or satisfaction was recorded by the Assessing Officer - The AO has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under rule 8D - The disallowance u/s 14A required finding of incurring of expenditure. Assessee has offered most of the income under the tonnage tax scheme - the disallowance need not be made on entire expenditure made as the assessee's income from shipping related activity was assessed under section 115VA on presumptive basis – When the income of the assessee from the business of operating ships is computed as per the special provisions contained in Chapter XII-G, only the expenses incurred by the assessee for earning income of the said business are deemed to be allowed and nothing else - The income of the assessee from the business of operating ships having been computed in accordance with the provisions of Chapter XII-G, only the expenses incurred for the said business are deemed to have been allowed and no addition to such income can be made by way of disallowance u/s 14A on account of any expenditure incurred in relation to earning of exempt dividend income – thus, the order of the CIT(A) is set aside and the AO is directed to delete the addition – Decided in favour of assessee.

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• 2014 (12) TMI 22
  Addition of undisclosed cash purchases and bogus sundry creditors – Held that:- The Tribunal was rightly of the view that the addition was made by him by doubting the purchases having been made by paying cash - the assessee has filed copies of respective purchase bills/challans and the details of payment made by account payee cheques drawn in favour of respective creditors and copies of bank statement of respective parties have also been filed - details of ledger account and copies of bill clearly indicate that the purchases were made from these parties and payments were made through bank in favour of these parties - once the goods ordered had been supplied satisfactorily and payments had been made by account payee cheques, the assessee is not supposed to keep track of the addresses of suppliers - these creditors are not old creditors and also paid by account payee cheques after the purchases were materialised so as to presume that there was cessation of liability. AO has not brought any material to establish that the asssessee has made purchases in cash - material on record proved that the payments were made by account payee cheques, which were duly debited in the assessee’s bank account and credited in the bank accounts of the suppliers - AO himself verified the payments made by the assessee and such payments were duly credited in the bank account of the respective parties – the tribunal rightly was of the view that the payments were made by account payee cheques which were duly debited to the assessee’s bank account and credited in the bank accounts of the suppliers and the AO had presumed and made the addition by observing that the assessee had purchased goods by making cash payments – thus, no substantial question of law arises for consideration – Decided against revenue.

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• 2014 (12) TMI 20
  Penalty u/s 271C - Whether the Tribunal has substantially erred in upholding the order of the CIT(A) to delete the penalty u/s 271C – Held that:- TDS not deducted on reimbursement of food expenses paid to its employees u/s 192 – Held that:- CIT(A) and Tribunal was rightly of the view that there was bona fide mistake on the part of the assessee in not deducting the tax at source and that there was no deliberate intention or negligence on the part of the assessee in not deducting the tax at source - the assessee had made out a reasonable cause for failure in deducting tax at source – relying upon Commissioner of Income-tax, New Delhi Versus Eli Lilly & Company (India) Pvt. Ltd. [2009 (3) TMI 33 - SUPREME COURT] – it cannot be held that the provision to be mandatory or compensatory or automatic because u/s 273B Parliament has enacted that penalty shall not be imposed in cases falling - section 271C falls in the category of such cases - the liability to levy of penalty can be fastened only on persons who do not have good and sufficient reason for not deducting tax at source - the assessee has proved that there was reasonable cause for failure to deduct tax at source – thus, the order of the Tribunal in upholding the deletion of penalty u/s 271C is upheld – Decided against revenue.

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• 2014 (12) TMI 19
  Allowability of deduction u/s 80IB(10) and 80IB(1) – Works contract - Whether the Tribunal was right in law in allowing the deduction u/s 80IB(10) r.w.s. 80IB(1) claimed by the assessee without appreciating that the nature of agreement between the assessee and the unit purchasers shows that it was only a "works contract", the agreement was entered into before the construction was completed and not after the flat or unit is sold and also the assessee has not borne any risk through this agreement – Held that:- In Commissioner of Income-tax Versus Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] it has been held that Section 80IB(10) provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances - It does not provide that the land must be owned by the assessee seeking such deductions - it can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects and have not acted only as a works contractor. The assessee had, in part performance of the agreement to sell the land was given possession and had also carried out the construction work for development of the housing project - Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act leads to conclusion even for limited purpose of Income tax that assessee had satisfied the condition of ownership also - assessees were entitled to the benefit u/s 80IB(10) even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners - the meaning assigned to the expression "works contract" in the cannot be imported while construing the meaning of the expression in the context of the provisions of the Income Tax Act – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (12) TMI 18
  Power to retransfer the case u/s 127 – Instructions given by CBDT dated 31.01.2011 - Whether by virtue of the circular issued by the Board, dated 31.01.2011, fixing monetary limit for the officers to deal with the cases would oust the jurisdiction of the third respondent from exercising his power to transfer the assessment file of the petitioner from the second respondent to the first respondent in exercise of his power u/s 127 and the first respondent has jurisdiction to deal with the petitioner's assessment files and whether he has concurrent jurisdiction with that of the second respondent – Held that:- The proceedings dated 31.01.2011/08.04.2011 are instructions and are not orders or circulars - an instruction issued, cannot obliterate or deny the powers of the Director General or the Chief Commissioner or the Commissioner to exercise power of transfer u/s 127 of the Act - The object of Section 127 of the Act is to empower the officers at the level of Director General or Chief Commissioner or Commissioner with the power to transfer the Assessee's files from one or more Assessing Officers to any other Assessing Officers or Assessing Officers both being subordinate to him - the Commissioner has jurisdiction to transfer cases only within his jurisdiction whereas the power of the board is wider and it can transfer the cases from one jurisdiction of one Commissioner to another - The exercise of the power by the Commissioner does not exhaust the power of the transfer by the Board and the Board has independent power u/s 127 of the Act to transfer cases. Circular cannot mitigate against the power u/s 127 of the Act - on the basis of request received from the range head namely, Joint Commissioner Income Tax Circle-II, three cases including the petitioner's case, were transferred for effective and timely completion of scrutiny assessment proceedings, to make equitable distribution of workload – the respondent has completed earlier assessment proceedings of the petitioner for the AY 2009-10, in which certain directions has been given by the CIT(A)-I regarding recomputing derivative laws - there is no inconvenience caused to the assessee. Whether the instruction issued with regard to the pecuniary jurisdiction issued by the Board from time to time is as sacrosanct and cannot be amended – Held that:- After the issuance of the instruction dated 31.01.2011, a subsequent instruction was given on 08.04.2011 - the monetary limit fixed in the instruction dated 31.01.2011, was not a rigid limit - This is manifest from the subsequent instruction dated 08.04.2011, which has given discretion to the Chief Commissioner and Director General to adjust the limits - the amended instruction dated 08.04.2011 itself, came to be issued, as Chief Commissioners have expressed the view that the limits fixed in the instruction dated 31.01.2011, if strictly enforced would lead to unequal distribution of workload between Assistant Commissioner and Income Tax Officers – the order of transfer of the file of the petitioner to the first respondent states that the proceedings has been passed for administrative convenience and apart from the petitioner's case, two other cases have also been transferred - The purpose for such transfer has been elucidated in the counter affidavit -there is no malafide alleged as against the first respondent, though a faint plea was raised at the time of arguments, but nevertheless not pursued, since there was no such averments in the affidavit nor the concerned officer was impleaded in his personal capacity – Decided against assessee.

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• 2014 (12) TMI 17
  Imposition of penalty u/s 271(1)(c) – bonafide mistake - onus on revenue to prove that the ingredients or preconditions based on which imposition of penalty - assessee surrendered his tenancy rights in consideration of these two flats - Held that:- The revenue has to prove that the ingredients or preconditions based on which imposition of penalty is permissible are present and that is why the penalty is imposed - the limited assistance can be derived from the quantum proceeding in the matters but the foundation or basis on which the assessee claimed the benefit was highly doubtful and questionable – the AO, the CIT(A) and the Tribunal all concurrently found that the explanation which was furnished by the assessee falls miserably short of the required standard in that it is not bonafide at all - If the assessee was a tenant of a building and which was required to be pulled down and there was, therefore, an arrangement with the landlady of providing two flats, then, that was a version of the assessee which was being tested - The Authorities had indicated and with sufficient clarity that the claim of tenancy is not genuine - The documents in relation to that claim are highly suspicious and the contents thereof cannot be believed - so long as the list of authorized tenants in the building does not contain the name of the assessee, then, his entering upon the property has to be probed further - the Tribunal rightly held that this was a fit case for imposition of penalty - The entire explanation with regard to the tenancy rights, if surrendered has not been found to be true - Even in penalty proceedings, the assessee was not able to give a satisfactory explanation that the claim made by him in the return of income was bonafide and that he had declared all the material facts for computation of income - once the imposition of penalty was justified and after application of the relevant tests and there was material to impose such penalty, then, this is not a fit case for entertaining this appeal – no substantial question of law arises for consideration – Decided against assessee.

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• 2014 (12) TMI 16
  Deduction u/s 80IA - job work of decoration of glazed ceramic tiles amounts to manufacture or not - Whether the Appellate Authorities were correct in holding that the job work activity carried on by the assessee of screen printing, embossing on ceramic tiles as per the requirements of the customers would amount to a manufacturing activity entitling it to relief u/s 80-IA of the Act, when the assessee did not carry on actual manufacturing activities of providing infrastructure as contemplated in the Section – Held that:- In India Cine Agencies v. CIT [2008 (11) TMI 15 - SUPREME COURT] it has been held that the test to determine whether a particular activity amounts to ‘manufacture’ or not is does a new and different good emerge having distinctive name, use and character - The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes `manufacture takes place and liability to duty is attracted - blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity - The original block does not remain the marble block, it becomes a slab or tile - not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence. The whole industry set up by the assessee is for processing plain glazed ceramic tiles - The process includes application of chemical and other materials like glazes, colours, mediums, glass, luster, etc. and burning at a very high degree of controlled temperature with the help of the kiln which is also imported from Italy by adopting the single fast fired technology, which is the latest development in the ceramic industry - Before that, designing and preparation of a photomechanical film, preparation of screens, colour-recipe-formulation, automatic screen-printing and spray application, three dimensional glass-embossing and single fast-firing is undertaken and the object of this process of printing results in decorating or painting the said glazed tiles which constitutes a distinct and different article in the market - both the Appellate Authorities were justified in holding that the job work undertaken by the assessee constitutes manufacture and they are entitled to the benefit of Section 80-IA – Decided against revenue.

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• 2014 (12) TMI 15
  Order of DIT(E) issued u/s 220(6) under challenge – Application of unconditional stay of demand of Rs. 961.92 Crores – Assessee statutory authority established under the Mumbai Metropolitan Region Development Authority Act, 1974 - Held that:- The order of the AO disposing of the application for stay has in fact been passed in total defiance of the law - in UTI Mutual Fund v/s. ITO [2013 (3) TMI 350 - BOMBAY HIGH COURT] it has been held that where a strong prima facie case is made out, a direction to deposit would itself cause financial hardship - before the financial situation of an applicant can be considered, the authority has to first consider the prima facie case pleaded by the applicant and if the same is covered against the revenue in view of a decision of a superior forum, then the question of considering the issue of financial hardship is irrelevant. In Mumbai Metropolitian Region Development Authority Versus The Deputy Director of Income Tax (Exemption1( 1) & Others [2013 (11) TMI 1378 - BOMBAY HIGH COURT] the court ordered 25% of deposit out of the total tax demand - the assessee has raised the issue of it being an agent of the Government of the Maharashtra and its income not being taxable in view of Article 289 of the Constitution before the AO - an unconditional stay would be warranted, pending the disposal of the Appeal by the CIT(A) – the assessee will not be treated as an assessee in default – Stay granted.

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• 2014 (12) TMI 14
  Denial of exemption u/s 10(23C)(vi) – Educational institution established in rural segment – Object of Trust charitable or not - Held that:- The Chief Commissioner of Income Tax had rejected the application for exemption u/s 10 (23C)(vi) on the ground that the memorandum of association provided for various other objects, apart from educational activities - While assailing that order, assessee contended that though the un amended bye-laws of the society contain various other aims and objects apart from pursuing educational activities, yet, from the application for approval and the material on record, it was clear that the society was only carrying on educational activities – relying upon C.P. Vidya Niketan Inter College Shikshan Society Vs. Union of India & Ors.[2013 (7) TMI 367 - ALLAHABAD HIGH COURT] wherein it has been held that the mere presence of objects in the memorandum providing for other charitable activities would not disentitle a society to claim approval u/s 10 (23C) (vi), where it is established that the institution is, in fact, carrying on only educational activities - the order accepts the fact that the activities of the assessee are restricted only to education - the mere fact that a fee is being charged from B Ed students would not establish that the institution exists for profit – thus, the rejection of the application for exemption u/s 10 (23C)(vi) has been done in a rather casual manner without the Chief Commissioner applying his mind to the essential ingredients of the provision – thus, the order is set aside and the matter is remitted back to the CCIT for fresh decision – Decided in favour of assessee.

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• 2014 (12) TMI 13
  Valuation of finished goods at port - Whether the Tribunal was right in directing to work out the value of finished goods lying at port on the basis of average cost – Held that:- The Tribunal was rightly of the view that the AO is duty bound to examine as to whether the method of valuation as adopted by the assessee has been regularly followed or not and as to whether the correct profits and gains could be deduced from the accounts maintained by following the said method - the assessee has regularly followed the method of valuation of stock on the basis of average cost - there is no specific finding by the AO that the profits cannot be correctly deduced on the basis of the method of valuation followed by the assessee - The provisions of section 145 have not been specifically invoked - CIT(A) has rightly held that in the case of cotton yarn average weighted cost of closing stock may be taken and the valuation of closing stock should be worked out on the basis of weighted monthly cost - the method of valuation of closing stock of raw material has been accepted by the assessee – the order of the Tribunal is upheld – Decided against revenue. Admissibility of deduction u/s 80I on duty drawback – Receipts attributable to conduct of any manufacturing activities of assessee or not – Held that:- Following the decision in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] - the duty draw back would not form part of net profit and no deduction u/s 80I of the Act was admissible – Decided in favour of revenue.

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• 2014 (12) TMI 12
  Grant of recognition u/s 80G - Rejection of application of registration u/s 12A – Object of Trust charitable or not –Held that:- It is open to the revenue to cancel the registration invoking sec. 12AA(3) of the Act, if it is satisfied that the activities of the Trust are not genuine and not being carried out in accordance with the objects of the Trust – Thus, the application filed under sec.12A for registration was granted by its order dated 10/7/2009 - In the meanwhile the assessee had filed an application before the Director of Income Tax seeking recognition u/s 80G of the Act - As the application filed for registration u/s 12A had been rejected, the application came to be dismissed by the Director of Income Tax – both the provisions are exclusive - In order to get recognition u/s 80G, mere registration u/s 12A is not sufficient - the assessee has to satisfy the requirement mentioned u/s 80G - Though grant of registration u/s 12A is a condition precedent, unless the conditions stipulated in sec.80G are fulfilled, the recognition u/s 80G cannot be granted – thus, the order of the Tribunal to that extent is set aside and the matter is remitted back to the DIT for consideration of the application for recognition u/s 80G – Decided in favour of revenue.

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• 2014 (12) TMI 11
  Determination of ALP – Re-computation of disallowance - material brought on record by TPO considered by CIT(A) or not – Held that:- The Tribunal was rightly of the view that while making a comparison of the operating profit with other comparables, the TPO is required to compute the operating profit by applying the same formula - He has no jurisdiction to apply a different formula to work out the operating profit for the comparables and for the assessee – there was no infirmity in the directions given by the CIT(A) to the AO to re-compute the disallowance based on similar status of comparables either with export incentives or without export incentives - the order of the AO u/s 251/143(3) notes that after the order of the CIT(A) dated 30 January 2012 directing the TPO to compute the Arm's Length Price, the TPO agreed with the opinion of the CIT(A) and by a letter dated 18 November 2013 stated that the correct Arm's Length Price would have to be computed by treating the case of the assessee and comparable instances on the same footing by according the same treatment to export incentives - the international transaction of the assessee was considered to reflect the Arm's Length Price – The order of the Tribunal is upheld – Decided against revenue.

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• 2014 (12) TMI 10
  Transfer Pricing Adjustments - Reduction on value of sales as arrived at net sales value – Computation of Royalty 2 5% - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the methodology adopted by the Revenue to rework the net sales value for the purposes of computing royalty payable was not justified - what is liable to be considered as standard bought-out components are such material on which no further processing is required and are directly fitted into the final product and, cost of such material only needs to be deducted from the sale price to compute the royalty payable - it cannot be construed that the so-called constituent material are merely fitted into the final product - on the contrary, it is a case where such material also undergoes a chemical reaction in the process of producing the final product and the same are irretrievable once the finished product is manufactured - the so-called 'constituent materials' classified by the TPO cannot be equated to standard bought-out components so as to reduce their cost from the sales value to compute the royalty payable – there was no justification on the part of the TPO in rejecting the methodology adopted by the assessee to calculate net sales for the purposes of computing the royalty payable – thus, the action of the AO in considering certain raw materials used in the production process as mere 'constituent chemicals' and equating it to standard bought-out components so as to reduce their cost from the sales value for the purposes of computing net sales value eligible for royalty payment is liable to be set-aside - Decided in favour of assessee. Transfer pricing adjustment for royalty payments to AE - Held that:- The appellant company is paying royalty to the AE for transfer of technology in terms of a Foreign Technology Collaboration agreement, which has been duly approved by the Government of India - royalty payments are authorized on domestic sales and on export sales @ 5% and 8% respectively of 'Net sales', subject to taxes - The items of manufacture covered by the foreign collaboration are 'polymerization initiators', which is a product manufactured by the assessee for use as catalyst in manufacturing of polymers - The approval prescribes that the royalty payable shall be calculated in accordance with the provisions of the Foreign Exchange Control Manual of RBI and other subsisting instructions of Govt. of India/Reserve Bank of India - the claim of the assessee is that such chemicals are indeed raw materials used by the assessee in its manufacturing process, and for the purpose of computing royalty payable in terms of Foreign Technology Collaboration agreement, cost of raw material is not prescribed as a deductible item in order to calculate 'Net sales'. What is liable to be considered as standard bought-out components are such material on which no further processing is required and are directly fitted into the final product; and, cost of such material only needs to be deducted from the sale price to compute the royalty payable - it cannot be construed that the so-called constituent material are merely fitted into the final product, on the contrary, it is a case where such material also undergoes a chemical reaction in the process of producing the final product and the same are irretrievable once the finished product is manufactured - the so-called 'constituent materials' classified by the TPO cannot be equated to standard bought-out components so as to reduce their cost from the sales value to compute the royalty payable – there was no justification on the part of the TPO in rejecting the methodology adopted by the assessee to calculate net sales for the purposes of computing the royalty payable. Rate of royalty payment on export sales - Held that:- Assessee has brought out differences between the two agreements i.e. agreement between assessee and the AE and the agreement between TNAPC and the AE on the other hand - The two agreements differ in their period of operation as also the products covered; and such a factual matrix has not been rebutted by the Revenue - the transaction of royalty payment by the Chinese company, M/s TNAPC to the AE cannot be considered as a comparable transaction for the purposes of determining the arm's length price of the international transaction of royalty payment on export sales, under the CUP method applied by the TPO – thus, the TPO erred in re-working the stated value of the international transaction of royalty payment based on his interpretation of the expression 'Net Sales' and considering the royalty payment by TNAPC to the AE as a comparable transaction under the CUP method for the purposes of determining the arm's length price of the international transaction of royalty payment claimed by the assessee –the AO is directed to delete the adjustment made in respect of royalty payment. Export of certain finished goods – Held that:- CIT(A) was rightly of the view that there is no infirmity on the part of the TPO in invoking the CUP method because the product sold is identical - a pertinent point has also been made out by the assessee that after export to the AE, the same product has been ultimately sold by the AE to a uncontrolled party at a price, which can be taken to be the then prevailing international prices - Therefore, it is sought to be made out that the maximum price, which assessee could have realized on export of the product to a non-AE would be the prevailing international price, which was the price for which the AE sold the product to the ultimate customer - It was pointed out that the adjustment permissible in order to bring the transaction to the level of arm's length price can it best be restricted to the difference between the price charged by the AE from the ultimate customer and the price charged by assessee to the AE - the AO shall allow the assessee a reasonable opportunity of being heard and only thereafter he shall pass an appropriate order – Decided in favour of assessee. Selection of comparables - Marketing and sale support services segment – Held that:- The claim of the assessee to exclude M/s Agrima Consultants International Ltd. from the list of comparables cannot be shutout merely because at a certain point of time assessee had included it, in the list of comparables - so long as assessee can demonstrate that the concern is not includible on account of its differences having regard to the FAR analysis the same would be liable to be excluded - in-principle it can make out a case for exclusion of M/s Agrima Consultants International Ltd., although the said concern was included by it in its list of comparables in the Transfer Pricing Study – the concern has also been found to be excludible by the TPO in AY 2006-07 – thus, the matter is to be remitted back to the AO for adjudication – Decided partly in favour of assessee.

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• 2014 (12) TMI 9
  Assessment of profit on sale of land – Income to be assessed under business and profession or not – Held that:- The land, gain from sale of which was subject matter of taxation is situated at Bowrampet Village, Dundigal Mandal, RR Dt. - AO has heavily relied upon observations made in the assessment order passed in case of M/s BCPL and others in the group - the picture which emerges is nature of land sold by assessee is similar to the land sold by BCPL and others within the group to M/s Varun Constructions – Following the decision in Bhavya Commissioner Constructions Pvt. Ltd., MS. Raghava Reddy, R. Srinivasa Rao, R. Uma Maheswar, P. Shivakumar, GC. Subbanaidu, T. Gopichand Versus Asst. Commissioner of Income-tax [2014 (9) TMI 85 - ITAT HYDERABAD] - the land is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the AY as agricultural income - the assessee has not applied for conversion of the agricultural land for non-agricultural purposes before sale of this property and the assessee has not put the land to any purposes other than agricultural purposes - neither the property nor the surrounding areas were subject to any developmental activities at the relevant point of time of sale of the land as per the evidence brought on record. what was the intention of the assessees at the time of acquiring the land or interval action by the assessee between the period from purchase and sale of the land and the relevant improvement/development taken place during this time is relevant for deciding the issue whether transaction was in the nature of trade - when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income - the asset sold by assessee being in the nature of agricultural land cannot be considered as capital asset within the meaning of section 2(14) of the Act. There is nothing brought on record to suggest that assessee is involved in trading activity - assessee had purchased the land in the AY 2005-06 and has sold part of land in the AY for making investment in Bhavya Cements Ltd., therefore, it cannot be considered as a trading activity because sale of land is for a particular purpose – Decided in favour of assessee.

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• 2014 (12) TMI 8
  Entitlement for claim of exemption u/s 10(10C) - Voluntary Retirement Scheme - Whether all these assessees are entitled for claim of exemption u/s 10(10C) on the compensation/monetary benefits received by them for opting to retire from service under Voluntary Retirement Scheme (VRS), 2000 framed by their company – Held that:- The first condition is that the VRS should be applied to the employee who has completed minimum 10 years of service or completed 40 years of age - as per the VRS Scheme first condition is fulfilled - except the Directors of the company or the Co-operative Society, scheme should be applicable to all class of the employees including workers and executives of the company - the logic of the CIT(A) itself is not correct that as the company has applied the scheme to only certain class of the employees hence, the condition of Clause-(ii) of Rule 2BA is not fulfilled - Nothing has been brought on record also by the CIT(A) before making such observations at least calling the data from the company whether in fact there was no overall reduction in the employees/workmen in the company. Relying upon COMMISSIONER OF INCOME-TAX Versus KOODATHIL KALLYATAN AMBUJAKSHAN [2008 (7) TMI 259 - BOMBAY HIGH COURT] - Rule 2BA laid down the guidelines for the purpose of Sec. 10(10C) of the Act but the Rule, will have to be read borne in mind the object of Sec. 10(10C) itself - the term “overall” is a general in nature but from the said term no interference can be made that irrespective of the fact whether there is a surplus employees are not the employer must reduce the workers or employees in all the Sections and Departments of his undertaking - the scheme was initiated for the economic survival of the company and reduction in the cost - the condition in Clause-(ii) is also fulfilled - there is overall reduction in the existing strength of the employees of the company which is discussed while deciding Condition No.-(ii) of Rule 2BA - The next condition is that the employer company should not fill up the vacancies caused by the VRS - it was claimed before the AO that after declaring the VRS subsequently the company was closed down and to that effect an affidavit is also filed before us - once the assessee stated that he has not been employed in any company under the management of his employer company then burden is on the revenue to bring on record evidence to show contrary that such undertaking is not correct. There is a maximum ceiling of Rs. 5,00,000/- on the monetary benefits/compensation to be paid to the worker/employee - apart from that as per Sec. 10(10C), the maximum amount eligible for exemption is to extend of Rs. 5,00,000/- and as per VRS Scheme, there is ceiling on monetary benefit to be given to employee which is maximum Rs. 5,00,000 - the employee has to make the investment of the amount received under the VRS whereby the maximum tax rebate is applicable - The benefit in the nature of the tax incentive was given whereby the maximum employees may opt for the VRS and at the same time the economic viability of the industries can be sustained - all the conditions of Rule 2BA are fulfilled in the VRS Scheme framed by the employer company i.e. Kirloskar Copeland Ltd. and both the authorities below are not justified in denying the benefit of exemption to these employees – thus, the AO is directed to allow the exemption to all these assessees u/s. 10(10C) of the Act – Decided in favour of assessee.

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• 2014 (12) TMI 7
  Prior paid expenses disallowed - Mercantile system of accounting followed by assessee - Held that:- Following the decision in M/s USHODAYA ENTERPRISES LTD Versus DEPUTY COMMISSIONER OF INCOME TAX [2014 (1) TMI 250 - ITAT HYDERABAD] - the prior period adjustment made in that behalf by the assessee, on account of the concerned parties declining to make the payments due to discrepancies in the billing, the same should be allowed as deduction as bad debts – the order of the CIT(A) set aside and the Assessing Officer is directed to restrict the disallowance made - as the assessee has offered the amount as income in the earlier assessment years and has actually written off during the year, assessee will be entitled for deduction u/s 36(1)(vii) – Decided in favour of assessee. Provision for leave encashment disallowed u/s 43B(f) – Held that:- Assessee's claim of deduction cannot be allowed as the Hon'ble Supreme Court has stayed the judgment of the Hon'ble Calcutta High Court in case of Exide Industries Ltd. Vs. Union of India 2007 (6) TMI 175 - CALCUTTA High Court] thus, the matter is to be remitted back to the AO with a direction to decide the same in consonance with the decision of the Hon'ble Supreme Court – Decided in favour of assessee. Depreciation on non-compete fee disallowed – Revenue expenses or not u/s 37(1) – Held that:- AO has treated the agreement entered into between assessee for payment of non-compete fee as a sham transaction as Shri Ramoji Rao is not only the owner of UKT and UKM being the karta of HUF to which these concerns belong but he also in his individual capacity is the Chairman of the assessee company - assessee cannot be considered to be competing with himself – as it is an arrangement between related parties, there is no necessity for payment of noncompete fee. AO further observed that the assessee has entered into agreement for payment of non-compete fee to reduce its tax burden by allowing Shri Ramoji Rao HUF to adjust the non-compete fee against the huge brought forward losses suffered by it - assessee on 25/01/2008 has entered into subscription agreement and share purchase agreement with a domestic company, Viz.; Equator Trading Enterprises Pvt. Ltd. as per which the domestic company agreed to make substantial investment in purchase of equity shares of the assessee company. As a precondition for making such investment, the domestic company required the assessee company to enter into a non-compete agreement with UKT and UKM - assessee has entered into the non-compete agreement with UKT and UKM for a period of 5 years on payment of non-compete fee of Rs. 670 crores, which is also approved by the domestic investor - it cannot be denied that Equator Trading Enterprises Pvt. Ltd is a major stakeholder in assessee company - the transaction entered into by parties for payment of non-compete fee is not genuine or there is no necessity for paying the non-compete fee as the same person is controlling both the assessee company and the two other companies acquired by the assessee, the role of M/s Equator Trading Enterprises Pvt. Ltd. in any decision taken by assessee company has not at all been considered - Neither the AO nor the CIT(A) has examined the effect of acquisition of 39% of equity shares by another entity and whether after such acquisition of shares, it can still be held that Shri Ramoji Rao is the controlling authority of assessee company and it is a transaction between related parties - the inference drawn on mere assumptions and presumptions that the agreement is a colourable device to reduce the tax burden cannot be accepted - without examining the impact of investment made in equity shares to the extent of 39% by the domestic investor and condition imposed by it, the conclusion drawn by the CIT(A) that there is no necessity of payment of non-compete fee as the same person is controlling the assessee company as well as UKT and UKM is without proper appreciation of facts and evidences brought on record cannot be sustained - as the impact of acquisition of 39% of equity shares by M/s Equator Trading Enterprises Pvt. Ltd. has not at all been examined by AO at the time of assessment proceeding or by the CIT(A) while disposing of assessee's appeal and further as the additional evidences produced before us were not examined either by the AO or by CIT(A), which certainly have a crucial bearing on the issue as to whether the payment of non-compete fee is genuine and necessary – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Commission paid to agents on sale of space for advertisement in newspapers and television time slot disallowed u/s 40(a)(ia) – TDS not deducted u/s 194H – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that when the AO raised demand u/s 201 and 201(1A) against assessee for not deducting tax at source u//s 194H on commission paid to agents on sale of space for advertisement in news papers and television time slot, the CIT(A) deleted the demand raised u/s 201 and 201(1A) - there is no liability on the assessee to deduct tax u/s 194H on such payments - while deciding the issue of disallowance made by AO u/s 40(a)(ia) for not deducting tax at source u/s 194H on commission payments made to agents upheld the order of CIT(A) in deleting the addition made by AO – the order of the CIT(A) is upheld – Decided against revenue. Rate of depreciation on computer peripherals to be 60% or not - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that CIT(A) rightly allowed the claim of depreciation at 60% on printers, scanners and modems etc. – Decided against revenue.

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• 2014 (12) TMI 6
  Levy of penalty u/s 271D – Fixed deposits received in contravention of section 269SS - AO was of the view that there was no reasonable cause of the failure on the part of the assessee as prescribed u/s. 273B of the I.T. Act so as to receive fixed deposits in the form of cash in contravention of section 269SS – CIT(A) confirmed the penalty u/s. 271D - Held that:- The assessee is a society earning income from interest received on loan given to the members and also from the fixed deposits - while interpreting the provisions of section the marginal note is not decisive and cannot run contrary to substantive provisions contained therein - Only in case of doubt, the heading can be considered as aid for construction - there is no ambiguity in the language of s. 269SS and the provisions of s. 269SS are not only to counteract the evasion of tax but also to regulate certain transactions of money in a specified form - s. 269SS is not to judge the genuineness or otherwise of the credit entries appearing in account books - the provisions of s. 68 have been incorporated which deal with unexplained credits appearing in assessee's books of accounts. It is not legally correct to contend that the assessee and its members are one and the same person and the transactions with the members are outside the scope of s. 269SS - loan or deposit was involved in cash in excess of the amount specified in the section, the CIT(A) was justified in confirming the penalty – in CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964 (5) TMI 2 - SUPREME Court] it was held that if the profits are distributed to shareholders as shareholders, the principle of mutuality is not satisfied - a shareholder in the assessee-company is entitled to participate in the profits without contributing to the funds of the company by taking loans - the assessee shall show the reasonable cause for receiving the amount by way of cash and what is the reason for not receiving the deposit by way of account payee cheque or bank draft - If there is a reasonable cause for accepting the deposits in the form of cash, then only the assessee could be exonerated from the levy of penalty 271D - The assessee was unable to explain any reasonable cause for accepting the deposits in the form of cash - In the absence of any proof to show that there existed a reasonable cause for receiving the amount in cash, it is not possible to come to the conclusion that the assessee is not liable for payment of penalty - The burden is on the assessee to prove that there was reasonable cause for receiving the deposits by way of cash from the various persons - the lower authorities were justified in rejecting the contention of the assessee – Decided against assessee.

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• 2014 (12) TMI 5
  Validity of reopening of assessment u/s 148 - reason to believe – failure of assessee brought on record or not – Lack of coordination between AOs - Held that:- The Proviso casts onus on the AO to prove failure of the assessee - the AO had to mention, in the reasons recorded, about the alleged failure and had to explain as which material facts were not disclosed by the assessee - the assessee original assessment was completed u/s. 143(3) of the Act, that the AO had issued notice u/s. 148 as the AO had reasons to believe that taxable income had escaped assessment, that the assessee had objected to the notice issued u/s. 148, that the FAA had upheld the reopening of assessment, that the AO had never held that there was any failure on part of the assessee to disclose material facts fully and truly - because of between the DDIT(IT)and certain amounts remained untaxed - He had not held that the assessee had concealed the facts that resulted in escapement of income - If there was lack of coordination between two AOs, the assessee cannot be penalised for that - The power to reopen a completed assessment is one of the extraordinary powers conferred upon the AOs, but it cannot be used in a routine matter-especially when a notice u/s. 148 of the Act is to issue after four years - failure of the assessee had not been brought on record - the re-assessment proceedings were not initiated validly – thus, the order of the FAA is set aside as the reopening id bad in law – Decided in favour of assessee. Validity of notice for reopening of assessment u/s 148 – Held that:- Notice u/s. 148 was issue within the four year - The basis for reopening was taxation of royalty income in the hands of recipient - once the AO found out the factual position about the payment, he reached at certain conclusions and initiated proceedings u/s. 147 - Established principles of reopening envisage that there should be reasons to believe that taxable income had escaped assessment - the Tribunal cannot and should not enter into the merits of the subjective satisfaction of the AO nor should judge the sufficiency of the reasons recorded - What can be seen to whether the belief of the AO is based on tangible, concrete and new information and whether it is capable of supporting such a conclusion - The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the assessee - The satisfaction arrived at by the AO should be prima facie level - AO had rightly invoked the provisions of section 147 of the Act for reopening the assessment – Decided against assessee. Payment made to MTV Asia and other parties – Held that:- The ADIT (IT)-3(2), Mumbai passed u/s. 197 of the Act, addressed to MTV Asia, has directed it that taxes be deducted at source at 4. 30% from the sums payable as distribution revenue to the assessee under its agreement with MNIPL - the assessee had made detailed submissions and had requested the FAA to admit additional evidence, in form of confirmation certificates from the banks/extracts from NSDL website about the payment of taxes, as per the provisions of section 46A of the Income tax Rules, 1962 (Rules) - the assessee had filed a detailed explanation about deducted taxes and reasons for non-deduction of taxes – thus, the matter is to be remitted back to the FAA for fresh adjudication – Decided partly in favour of assessee.

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• 2014 (12) TMI 4
  Estimation restored by CIT(A) - Receipt of sub-contract payments - Whether the CIT(A) erred in resorting to estimation even in respect of so called sub-contractors, who either denied having done any work or denied receipt of sub-contract payments – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the AO disallowed various amounts only of sub-contracts given by assessee and in some cases monies seems to have deposited or advanced to the Directors of the assessee company - revenue could not point out any of those clinching evidences which are to be excluded from the turnover or to be brought to tax separately - as both the authorities of Revenue accepted the estimation of income and as CIT(A) resorted to estimation based on the norms already been formed in this regard i.e., estimation of income at 12.5% on the main contracts and 8% on subcontracts undertaken, there was no reason to interfere with the order of the CIT(A) – Decided against revenue. Disallowance u/s 40(a)(ia) deleted – Held that:- Following the decision in Indwell Constructions vs. CIT [1998 (3) TMI 121 - ANDHRA PRADESH High Court] - section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections - The computation under Section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee - If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment - when such an estimate is made it is in substitution of the income that is to be computed u/s 29 - all the deductions which are referred to u/s 29 are deemed to have been taken into account while making such an estimate - the embargo placed in Section 40 is also taken into account – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (12) TMI 3
  Validity of reopening of assessment u/s 147 – failure on the part of assessee to disclose fully and truly all material facts or not - Held that:- Assessee has not only filed its return of income for the AYs as per section 139, but also, assessments in case of assessee have been completed u/s 143(3) of the Act - at least for the AYs 2002-03 and 2003-04, the first proviso to section 147 comes into play as the reopening of assessment in case of assessee has been made after expiry of four years from the end of the relevant AYs - there is no allegation made by AO that alleged escapement of income is attributable to failure on the part of assessee to disclose fully and truly all material facts required for his assessment for the AYs under consideration - assessee is consistently following the same accounting policy so far as debiting the differential amount of interest payable to IDBI and IFCI to the ‘interest suspense account’ - assessee has made full and true disclosure of all material facts relating to the reduction of interest and transferring it to the ‘interest suspense account’ - it cannot be said that there is failure on the part of assessee in disclosing fully and truly all material facts for his assessment which could have enabled the AO to reopen assessment after expiry of four years from the end of the relevant AYs - in the reasons recorded also, AO has neither made any allegation that there is failure on the part of assessee in making full and true disclosure of material facts for his assessment nor he has specifically pointed out the issues/subjects on which according to AO, assessee has not made full and true disclosures – the reopening of assessment beyond four years from the end of relevant AY is in violation of provision contained u/s 147 read with first proviso - For this reason alone, initiation of proceeding at least for the AYs 2002-03 and 2003-04 is without jurisdiction and consequently assessment order passed is void ab-initio – Decided in favour of assessee.

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• 2014 (12) TMI 2
  Validity of reopening of assessment - Non issuance of notice u/s 143(2) - Whether report of DVO constitute fresh information for reopening of the case - Reference made to the DVO found as illegal - Held that:- The assessee filed the return of income of 29th October 2007, and that the time limit for issuance of notice, u/s 143(2), selecting the case for scrutiny assessment expired on 30th September 2008 - it was only on 24th December 2009 that the AO made a reference, u/s 92CA(3), to the Transfer Pricing Officer for determination of arm’s length price of the international transactions entered into by the assessee with its associated enterprises - as there were no proceedings pending before the AO, nor was, for that purpose, the case of the assessee was even picked up for scrutiny assessment u/s 143(3), the AO proceeded to reopen the assessment, which had by then achieved finality, by reopening the assessment - the reference to TPO was invalid but it does invalidate the findings of the TPO which are based on the facts of the case - The assessee itself appeared before the TPO from time to time and did not contest or, the notice issued by the TPO to compute the arm's length price - Thus the directions of the TPO even on an irregular reference, form a valid ground to reopen the proceedings for reassessment - the notice u/s. 148 was not sent to substitute notice u/s. 143(2) - notice u/s. 143(2) was never issued, therefore, it is wrong to presume that reassessment proceedings u/s. 148 were to substitute the proceedings as stated by the assessee. Reassessment to be based on fresh material/information – Held that:- As decided in Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - as to what is the relevance of an order passed by the Transfer Pricing Officer’s order, in a situation in which the reference itself is unsustainable in law - such a reference could not have been made under the scheme of the Act because the assessment proceedings had come to an end before the point of time when such a reference was made, and as such the reference itself was legally invalid - The stand of the revenue was that even if reference to the DVO is to be held to be invalid, the DVO’s report constituted information and as such it could be a good basis for coming to the conclusion that wealth has escaped assessment - when reference itself is invalid, the report received as a result of the reference cannot constitute material for forming the belief that an income or wealth tax escaped assessment - the initiation of reassessment proceedings are not sustainable in law – the reassessment order is set aside – Decided in favour of assessee.

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• 2014 (12) TMI 1
  Transfer pricing adjustment – Rejection of analysis undertaken to determine ALP - International transaction of export of spare, parts and components with the AE – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that while carrying out the transfer pricing study of an international transaction, it is imperative that a comparison is made with the similarly placed transactions, as far as possible - the assessee benchmarked its International transaction of export of spares and components to its AE on the basis of TNM Method by relying on external comparable companies - the net profit margin in any particular kind of activity is indeed effected by various factors which are industry-specific and can also be unit-specific having regard to the degree of business experience enjoyed by an entity - while undertaking transfer pricing analysis one must examine the transactions undertaken with regard to the relevant factors effecting such transactions vis-à-vis transactions sought to be compared - with regard to the transactions of category ‘B’ and ‘C’, which is in the realm of sourcing of components, quite clearly the same is in the nature of industrial supplies, which are in-turn, used by the buyer in manufacturing of vehicles and the services being rendered by assessee is merely logistic service equivalent. The assessee which manufactures vehicles and sells the same, also undertakes supply of spares and components required for servicing of such vehicles sold by it - the supplies so undertaken are from already firmed-up sources, inasmuch as the assessee is the manufacturer of vehicles in which such components are used, and at the time of procurement for manufacturing the assessee has mandated the dies, design, quality, warranties, etc. - supply of spare-parts and components as purely after-sales distribution results in higher margins - the sourcing of products for overseas AE entailing category ‘B’ and ‘C’ transactions, the assessee has very limited role to play, which is akin to logistics support service provider - even according to the internal TNMM mechanism sought to be applied, the comparison of margin of transactions of category ‘B’ and ‘C’ undertaken with the AEs is incomparable with the transactions undertaken with the third parties (i.e. non-AEs) which are purely in the nature of category ‘A’. In relation to the international transactions of export to the associated enterprises relating to the spares and components required in servicing of vehicle manufactured and sold by the assessee, even on an application of internal TNM mechanism the international transactions undertaken with associated enterprises was at an arm's length price - the adjustment computed by the TPO with regard to the export to associated enterprises of spares and components required for the purpose of servicing of vehicles sold by assessee is untenable, as the transactions undertaken with third-party distributors are comparable to the transaction with the associated enterprises – thus, the matter is to be remitted back to the AO for re-determination of ALP of international transactions of export of spares and components – Decided in favour of assessee. Claim of additional depreciation on computers installed in factory u/s 32(1)(ii)(a) – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the field and has not been altered by any higher authority – the assessee’s claim of additional depreciation on computers installed in its factory is allowed – thus, the order of the CIT(A) is set aside – Decided in favour of assessee.

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• Customs

• 2014 (12) TMI 24
  Denial of drawback claim - out of 25 shipping bills, in case of 13 shipping bills Let Export Order have been issued beyond the period of 36 months from the clearance for home consumption of the impugned goods - Held that:- As per the Notification 33/1994 the relevant date is when the goods entered for export and the Notification under Section 74 shows that when the goods are placed under Customs control for export. Therefore, I have examined that whether the date of LET is the relevant date to determine as the date for goods entered for export or the date when the goods put under control of Customs for export is to be taken as date for consideration in the matter. In the light of this, as the exporter filed shipping bill and the goods were placed before the customs authorities for examination - when the goods entered in the Customs area for export the said date is to be termed as date for consideration under Section 74 of the Customs Act, 1962. With these terms as all the shipping bills and the goods have been brought in the Customs area within 36 months from the date of clearance of the home consumption the appellants are entitled for draw back claim. Accordingly, impugned order is set aside - Decided in favour of assessee.

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• 2014 (12) TMI 23
  Exemption from payment of SAD to all pre-packaged goods - Import of Aluminium Profiles, hardware for furniture fittings - Benefit of Notification No. 29/2010-Cus dated 27.02.2010 - Held that:- The condition of the Notification is that the goods should be in pre-packaged condition intended for retail sale. The Notification further provides that the retail sale price be fixed as required under the provisions of the Standards of Weights and Measures Act, 1976 (now Legal Metrology Act, 2009) or the rules made thereunder. In the Bills of Entry the appellant declared the goods as "Aluminium Profile, hardware furniture fittings". The goods in question are further used by the furniture manufacture. We find as per the provisions of Legal Metrology Act and the Rules 2011 the provisions applicable to package intended for retail sale are not applicable in respect of packaged commodity meant for industrial consumers. The Legal Metrology Act further provides that retail sale is in relation to commodity means the sale, distribution or delivery of such commodity through retails shops or firms for same by a group of individual or another consumers. In the present case though the goods are pre-packed condition but it is not for retail sale as evident from the declaration filed in the Bills of Entry, the goods in question, are for manufacture of furniture. The buyers further use the item in question for manufacture of furniture and the provisions for packaged items intended for sale are not applicable in respect of packaged commodities meant for industrial consumers. - Decided against assessee.

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• 2014 (12) TMI 21
  Denial of refund claim - whether without challenging the assessment order on the Bills of Entry, the appellant is entitled for refund or not - Held that:- As per Section 27 (2), the duty borne by the assessee is refundable without challenging the assessment order. In these circumstances, I hold that the appellant are entitled to file refund claim without challenging the assessment order. appellant had produced the balance-sheet which shows that the amount of Anti Dumping Duty paid by them originally is recoverable advance from the customers. Further, they have produced a certificate to the effect that the Anti Dumping Duty has not formed part of the final product. In these circumstances, I hold that the appellant has passed the bar of unjust enrichment. Therefore the appellants are entitled for refund claim - Decided in favour of assessee.

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• Service Tax

• 2014 (12) TMI 43
  Chartered accountants Services or Management consultancy Services - Whether the appellant is covered under the category of Management Consultancy Services for the services provided by him - Held that:- The appellant is a practicing Chartered accountant and has been registered with the authorities as such. We find that during the period prior to 1.8.2002, the Chartered Accountant services were liable to be taxed and Notification No. 59/98-ST dtd 16.8.1998 specifically exempted the taxable services provided by the practicing Chartered Accountant or a Company Secretary or a Cost Accountant; services which are rendered to a client other than taxable services which were enumerated in the said Notification. In our considered view, the interpretation put forth by the appellant of the said notification are acceptable, as the services which are in question in this case are not covered under the said Notification 59/98-ST till 1.8.2002. The Tribunal has been holding that only services in the nature of providing consultancy or advices for improving the Management of a business entity only will be covered by the definition and not executory type of responsibilities of management got done through another agency. For example collection of bad debts is a responsibility of a Management. If somebody is engaged for collecting bad debts the person engaged cannot be considered to be providing Management or Business Consultancy Services. Though the definition at Section 65(65) includes any service in connection with management of any organization, the scope of the definition gets restricted to services in relation to consultancy as is evident from the name given to the service and commercial understanding of the expression ‘Management or Business Consultancy’. Impugned orders are unsustainable and liable to set aside and we do so - Following decision of Sridhar & Santhanam [2008 (12) TMI 104 - CESTAT CHENNAI] - Decided in favour of assessee. Export of services - Held that:- Appellant has been taking a consistent plea before the lower authorities that the services rendered by them are in respect of the clients situated abroad are in the form of export of services. The said plea of the appellant was supported by documentary evidence of receipt of the amounts for consideration by the appellant’s bank in freely convertible foreign exchange and credited to the appellant s account in Indian Rupees. One such example which we find is in respect of an amount received by Union Bank of India and credited to the appellants account, was as per the direction of Netwest Bank which indicated a credit of amount in Pounds and converted into Indian Rupee, is sent to account of appellant in Union Bank of India. Services were rendered by the appellant to a person or a client situated abroad, in itself qualifies as export of service and the export of services are not taxable. In our considered view, appellant has made out a strong case in his favour in respect of non payment of service tax on the services which are exported - Decided in favour of assessee.

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• 2014 (12) TMI 42
  Classification of service - business auxiliary service or manpower supply service - harvesting and transportation of sugarcane from the farmers’ fields to the sugar factory - Held that:- Tenor of the agreement is for the specific tasks of “harvesting of sugarcane and transportation of the same from the farmers’ fields to the sugar factory”. The agreement is not for supply of any manpower to the sugar factory. The consideration paid also has no nexus to the manpower employed. - As per Section 65(68) of Finance Act, 1994 ‘ “manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise to any other person’ and the taxable service is defined under Section 65(105)(k) as “service rendered to any person by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner”. The appellants are not manpower recruitment agencies as they do not recruit any persons; they also do not supply manpower to the sugar factory. What they have undertaken is harvesting of sugarcane and transportation of the same to the sugar factory. To undertake this work, they have engaged labour/transport contractors who have undertaken the work of harvesting of sugarcane and transportation of the same. In any service activity, manpower is required. That does not make the service as supply of manpower. From the statutory definitions and the contracts entered into by the appellants, it is clear that there is no element of manpower supply or recruitment by the appellants to the sugar factory and therefore, the services rendered by the appellants cannot be classified under manpower recruitment or supply agency services, by any stretch of imagination. It is also worth noting that the appellants do not undertake this work for anybody else except for the sugar factory concerned. In other words, they do not supply manpower to any customer who approaches them. Therefore, the impugned demands by classifying the activity under “manpower supply service” are not sustainable in law. Following the decisions of this Tribunal in the cases of Amrit Sanjivni Sugarcane Transport Co. Pvt. Ltd. [2013 (8) TMI 58 - CESTAT MUMBAI], Samarth Sevabhavi Trust [2013 (8) TMI 218 - CESTAT MUMBAI] and Bhogavati Janseva Trust & Others (2014 (9) TMI 482 - CESTAT MUMBAI) - Decided in favour of assessee.

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• 2014 (12) TMI 41
  Demand of service tax on Reverse Charge Mechanism - amount remitted to the branch offices located outside India towards various expenditure and salaries paid to the employees working in the branch offices abroad - Extended period of limitation - Whether a service is provided and consumed outside India or has been consumed/ received in India - Held that:- From the interpretation made in the case of M/s. British Airways vs. CCE (Adj.) Delhi [2014 (6) TMI 626 - CESTAT NEW DELHI (LB)] it has to be seen in the present proceedings whether while procuring services branch offices of the appellant abroad have acted only in the capacity of ‘facilitators’ and the services so procured were consumed in India or the services so availed were consumed outside India. Learned Senior Counsel appearing on behalf of the appellant relied upon guidelines of 2006 on Emerging concepts for Defining Place of Taxation on VAT/ GST to cross Border Trade in Services and Intangibles. In the light of the emerging international concepts on reverse charge mechanisms and the judgment of M/s. British Airways vs. CCE [2014 (6) TMI 626 - CESTAT NEW DELHI (LB)], the foreign branches/ establishments of the appellant have not acted as ‘facilitators’ but have actually consumed those services abroad for which local VAT/GST of the respective country has been paid. The representative invoices produced by the appellant indicate that local VAT/GST paid is ‘Nil’ when billing by overseas service providers is directly raised upon the appellant in India on which service tax is paid by the appellant on reverse charge basis. When billing is raised on the branch office for a service consumed abroad then local VAT/GST applicable abroad is paid by the branch offices on such transactions. Therefore, payment of local VAT abroad will be an indicator to decide whether a service is provided and consumed outside India or has been consumed/ received in India. The agreements/ documents available with the appellant have to be accepted for the purpose of determining place of providing and consumption of a service in India, as no foul play can be anticipated in the case of appellant who is paying thousand of crores of rupees as service tax and is also eligible to cenvat credit of the service tax payable on reverse charge basis. - demand set aside - Decided in favor of assessee.

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• 2014 (12) TMI 40
  Imposition of penalty - Waiver of penalty u/s 80 -Held that:- As rightly pointed out on the side of the appellant/assessee, such opportunity has not been given by the Appellate Tribunal for coming to a conclusion as to whether the appellant/assessee is entitled to get such kind of benefit/exemption. Since sufficient opportunity has not been given for getting such kind of exemption, this Court is of the view to set aside the final order passed by the CESTAT and remit the matter to its file. - matter remanded back to tribunal.

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• 2014 (12) TMI 39
  Waiver of pre deposit - Whether in the facts and circumstances of the case, the CESTAT is right in not considering the fact that the appellant’s bona fides are proved by the fact that the appellant had paid service tax on flats sold to third parties even prior to the introduction of explanation to Section 65(105)(zzzh) w.e.f. 1-7-2010 and therefore the benefit of waiver of pre-deposit ought to be given to the appellant - Held that:- As on the date when the application was disposed of on 31-12-2013, it was not the first hearing and the case was heard earlier. According to the assessee, the case was adjourned for the purpose of furnishing certain materials. However, the nature of such materials is not placed before this Court. Be that as it may the reason assigned for non-appearance on 31-12-2013, prima facie appears to be genuine in the absence of any rebuttal for the same. Considering the above fact and also the contention that the assessee has already paid a sum of Rs. 83,44,454/- out of the total demand, we deem it appropriate that the assessee should be given an opportunity to place all the materials before the Tribunal. It also appears that the Department representative who appeared before the Tribunal had not placed before the Tribunal, the amounts paid by the assessee prior to the issuance of the show cause notice as claimed by the assessee in the application seeking stay/waiver of pre-deposit. - Matter remanded back - Decided in favour of assessee.

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• 2014 (12) TMI 38
  Challenge to the service tax inquiry - Levy of service tax on restaurants - Restaurants already subjected to sales tax - Held that:- If we read the language employed in Section 14 of the Act, then we can have a presumption without any doubt that the authorities have only issued summons intending to enquire into alleged evasion. Therefore, the petitioner will appear before the authority concerned to know what is the real intention of the issuing authority (sic) vis-a-vis its nexus and if the real intention of the issuing authority is to proceed against the petitioner as a proposed assessee or payee of evaded tax, obviously at that stage, the aforesaid judgment of the Kerala High Court [2013 (7) TMI 431 - KERALA HIGH COURT] would be absolutely relevant. Therefore, we think that at this stage, the petitioner shall go to the Officer concerned, who has issued the summons. The aforesaid judgment of the Kerala High Court shall also be placed by the petitioner before the Officer concerned, who must see the said judgment and take note of it and follow the same without any demur. This exercise shall be completed within a period of four weeks from the date of communication of the order. Till such date, no coercive measures shall be taken by the respondent-authorities. - Decided against the assessee.

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• 2014 (12) TMI 37
  Waiver of pre deposit - Classification of services - business of packing parcels from parties in India handing to courier agencies - Business Support Service or not - Export of services - Held that:- It is to be noted that after the matter was remanded for de novo consideration, the appellant despite opportunity being granted, after 11 months after remand, despite reminders by the Adjudicating Authority, they were unable to produce any records except for certificates from M/s. United Business Xpress India Pvt. Ltd and Professional International Couriers Pvt. Ltd., but failed to produce copies of the agreements or terms of arrangement between the parties concerned or copies of the invoices or details of payment of service tax by the principal courier considering the certificates produced from M/s. United Business Xpress India Pvt. Ltd. and Professional International Couriers Pvt. Ltd., the adjudicating authority confirmed the demand. The Tribunal rightly rejected the plea of the appellant to look into those documents at interim stage as they could be looked into only at the time when the appeal is finally heard. In such circumstances, we do not find any error in the order of the Tribunal. Accordingly, the order of the Tribunal is confirmed. - Decided against assessee.

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• 2014 (12) TMI 36
  Challenge to the show cause notice invoking extended period of limitation - Renting of immovable property - Suppression of facts - Intention to evade tax - failure to comply with the requirements of the statutory provisions of the Finance Act, 1994 - Audit of accounts by CAG of non-government company which is not operated out of the funds of the Union of India or any State Government or any Union territory or any entity owned and/or financed by them - Held that:- there is no provision in Chapter V of the Finance Act, 1994, or for that matter in the CAG Act which empowers the CAG to audit the accounts of an assessee which is a non-government company, not in receipt of aid or assistance from any Government or Government entity. Sub-section (2) of Section 94 also does not empower the Central Government to frame rules for audit of the accounts of an assessee by any audit team under the Comptroller and Auditor-General of India. There can be no doubt that statutory rules, framed in exercise of power conferred by statute cannot introduce something not contemplated in the statute, from which it derives its rule making power. On a harmonious reading of Rule 5A of the Service Tax Rules with the provisions of Chapter V of the Finance Act, 1994, as amended, it may be deduced that any officer authorized by the Commissioner would have to be interpreted to include the members of an audit team, an auditor or an accountant authorized by the Commissioner, and they would all have access to any premises registered under the Rules, for the purpose of carrying out scrutiny, verification and checks as might be necessary, including auditing of accounts, to safeguard the interest of Revenue. The obligation to provide records to the audit party deputed by the Comptroller and Auditor-General is to be construed as an obligation to provide documents and records, when those documents and records are necessary for audit in accordance with law, subject to the provision of the CAG Act, for example, audit of the receipts of the Government meant for deposit in the Consolidated Fund of India or, may be, an audit on the request of the Governor or the President as indicated above. Maintainability of writ petition - Held that:- It is well settled that existence of an alternative remedy is not in itself a bar to entertaining a writ petition. A writ petition can certainly be entertained when a notice is impugned as without jurisdiction. Extended period of limitation - Held that:- Finance Act, 2011, whereby the provisions of the Finance Act, 1994, relating to the service of renting of immovable property have been amended, does not contain any provision which enables the Service Tax Authorities to make any demand beyond the period of limitation prescribed in Section 73(1) of the Finance Act, 1994. Commissioner proceeded on the basis that there had been contravention, as a result of which, some tax payable had not been paid. The Commissioner of Service Tax did not address the issues, which were required to be addressed, for issuing a notice by invoking the extended period of limitation. - Demand raised by issuance of the impugned show cause notice has been pre-determined. When a demand is pre-determined the same does not remain in the realm of a show cause notice as held by the Supreme Court in Siemens Ltd. v. State of Maharashtra reported in [2006 (12) TMI 203 - SUPREME COURT OF INDIA]. When a notice is issued in support of transactions spread over a period of time and it is found that the extended period of invocation has been invoked, the notice cannot be treated as within limitation for some of the same transactions, once it is found that the extended period of limitation is not invocable - The entire claim except at best for, may be, four receipts is barred by limitation. It is well-settled inter alia by the decisions of the Supreme Court in M/s. Raza Textiles Ltd. (1972 (9) TMI 15 - SUPREME Court), Calcutta Discount Company Ltd. (1960 (11) TMI 8 - SUPREME Court) and Shrisht Dhawan (1991 (12) TMI 271 - SUPREME COURT) that an authority cannot invoke jurisdiction to exercise power by deciding jurisdictional facts wrongly. In exercise of the power of judicial review under Article 226 of the Constitution of India, this Court might examine the existence and/or correctness of the jurisdictional facts on the basis of which jurisdiction to exercise power is invoked. Conditions precedent for exercise of jurisdiction to invoke the extended period of limitation were wholly absent. The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted mechanically, swayed by the report of the CERA team, which in itself appears to be illegal and unsustainable. The Commissioner of Service Tax has not properly applied his mind to the issues required to be addressed for invoking the extended period of limitation. The impugned show cause notice has been issued by wrongful invocation of jurisdiction. - Decided in favour of assessee.

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• 2014 (12) TMI 25
  Denial of refund claim - Export of service or not - Appellant appointed by foreign clients to provide repair & maintenance service during warranty period on their behalf to the buyers in India - Business Auxiliary Service - Repair & Maintenance Service - Held that:- Appellant is a Distributor/agent of their foreign clients and procuring orders for supply of equipment by the foreign supplier. The appellant has no connection with the buyers in India. In fact he is identifying the buyers for the foreign clients, and the foreign clients are selling equipment to the Indian buyers, on principal to principal basis. We further find that as the equipment are having warranty and the foreign client have to provide certain services to Indian buyers and for providing that service, the appellants are providing service to Indian buyer on behalf of the foreign clients. In these circumstances, the recipient of the service is located outside India who used the services of the appellant to provide service to their buyers. Appellant are providing the service of maintenance of equipment on behalf of their foreign clients to Indian buyers. They have provided the service on behalf of their foreign clients. We further find that during the warranty period, the repairs and maintenance service was to be provided by the foreign supplier and the appellant acted on behalf of the foreign supplier only. It is an admitted fact that the Indian buyer has not paid any amount towards the service provided by the appellant to the appellant during warranty period whereas the appellant who provided the service to Indian buyers has paid the service tax on maintenance service after the warranty period. - Appellant has provided the service of procuring purchase orders for their foreign clients and providing maintenance service to the Indian buyers during the warranty period on behalf of their foreign clients on the instructions of foreign clients are covered by the Rule 3(3) of Export of Taxable Service Rules, 2005. Therefore, the appellant are not required to pay service tax during the impugned period for their activity. Accordingly, they are entitled for refund claim - Decided in favour of assessee.

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• Central Excise

• 2014 (12) TMI 35
  Invocation of extended period of limitation - Suppression of facts - Wrong classification of goods - Held that:- Commissioner (Appeals) held them guilty of suppression for not taking ‘initiative’ and not consulting the department if they had any doubt while the appellants never stated that they had any doubt. In fact they have claimed that they were clearly of the view that their goods were classifiable where they classified them. The Commissioner (Appeals) has not mentioned anywhere as to what they suppressed which was required to be disclosed as per law. Not taking suo moto initiative has never been a valid ground for sustaining charge of suppression. Thus, prima-facie, the appellants have made out a good case regarding non invokability of the extended period. It is seen that out of the impugned demand, an amount of about Rs. 8.68 lakhs pertains to the normal time limit. Therefore, we are of the view that pre-deposit of Rs. 8.70 lakhs with proportionate interest would meet the requirement of Section 35F of the Central Excise Act, 1944 - Partial stay granted.

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• 2014 (12) TMI 34
  Power of tribunal to grant stay beyond the total period of 365 days - extension of stay granted earlier - extension order should be speaking or not - Held that:- stay was granted to the appellant on 26.12.2013. After granting of stay to the appellant this appeal has never been listed for final hearing. The appeal could not be listed for final hearing by the Registry due to heavy work load as the appeals filed for the earlier period are being listed. Hon'ble Gujarat High Court [2014 (8) TMI 737 - GUJARAT HIGH COURT] have held that extension can be allowed by the Bench looking to the facts and circumstances of this case, there is no fault of the appellant in seeking extension of the stay already granted. The request made by the appellant is genuine and extension of stay is granted for further period of 180 days - Stay granted.

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• 2014 (12) TMI 33
  Classification of ‘Threptin’ and ‘Prorich’ diskettes - Classification under CETH 2106 10 00 or under 2106 90 99 - protein concentrates and textured protein substances or food preparations not elsewhere specified or included - Benefit of Notification 3/2006, dated 1-3-2006 - Held that:- Products are marketed as a protein supplement and contains 30% of protein by weight. Bulk of the product is made up of carbohydrates, which accounts for 48 to 58% of the weight of the product. Therefore, it cannot be said that protein is predominant by weight over other substances. If a product has to be considered as a protein concentrate the minimum concentration that is required would be at least 50% of the weight of the product so that protein predominates over other materials. That is not the fact obtaining in the present case. - As per the expert opinion obtained and produced by the appellant, and also from the technical literature available on the subject matter, it is seen that, to constitute protein concentrate, at least 70% of protein is required, both, in respect of soya protein products as also milk protein products. In the present case, the protein content is only 30% and nowhere near to 70% as mentioned in the technical literature. The expert opinion and the technical literature relied upon by the appellant has not been rebutted in a meaningful way by the Revenue nor any contrary opinion has been produced by the Revenue in support of their contention. As per the technical literature available, even skimmed milk powder contains 33% to 37% of protein and full cream milk powder contains 23% to 27% of proteins, but we do not classify milk powder as a protein concentrate. From the manufacturing process adopted by the appellant, these processes are not undertaken and, therefore, it cannot be said that the impugned goods are textured protein substances. It is a settled position in law, that it is for the Revenue to lead evidence in classification matters and not for the appellant - Revenue has completely failed in this regard. On the contrary, the appellant has led evidences by way of expert opinion and technical literature to show that the products manufactured by them did not come within the category of protein concentrates or textured protein substances. The appellant’s products are consumed as such by people who are recuperating from illness and, therefore, it is a ready to eat packaged product. Consequently, the product merit classification under CETH 2106 90 99 and the appellant is rightly entitled to the benefit of Notification 3/2006, dated 1-3-2006. - Decided in favour of assessee.

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• 2014 (12) TMI 32
  Power of Commissioner (Appeals) for restoration of appeal - Non compliance of pre deposit order - Delay of 63 days to make pre deposit - Availment of credit without filing declaration - Held that:- It is seen that the applicant filed the application for extension of time to deposit the amount and to report compliance before Commissioner (Appeals) as soon as final order of the Tribunal was received, which was not numbered and also not placed before the Bench. It appears that the applicant filed the present applications as the earlier application was not taken up for hearing. It is obligatory on the part of CESTAT, Registry to issue notice and place the application before the Bench, which was not done in the present case. At any event, the applicant should not suffer due to the fault on the part of the Registry. So, the present applications would be treated as part of the earlier application. Commissioner (Appeals) committed an error in law when he came to the conclusion that he could not restore the appeal and the only remedy was by way of preferring appeal before higher forum. Needless to state that, by mere default in making deposit as directed, the appellant does not stand to gain anything and only delays his right to have his case adjudicated. Nor does such a delay in making pre-deposit cause any prejudice to the revenue, in absence of any stay operating in favour of the petitioner. Even if no pre-deposit is made, the appeal may not be heard, but having dismissed the appeal for non-compliance of pre-deposit does not permit the appellate authority to refuse to restore the appeal upon compliance being shown. - Commissioner (Appeals) is directed to hear and decide afresh the Miscellaneous Application for restoration of appeal in accordance with law after giving reasonable opportunity of hearing to the petitioner. - Following decision of Scan Computer Consultancy [2006 (2) TMI 189 - HIGH COURT OF GUJARAT AT AHMEDABAD] - Matter remanded back - Appeal restored.

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• 2014 (12) TMI 31
  CENVAT Credit - inter-unit transfer of capital goods - it is submitted that they have cleared the goods under Rule 4(5)(a) of Rules, 2002 - Held that:- the capital goods was sent as such to other unit for production of the goods and therefore the denial of credit is not justified. This view is also supported by the decision of the Tribunal in the case of Pooja Forge Ltd. (2006 (1) TMI 290 - CESTAT, NEW DELHI) as upheld by the Hon’ble Punjab & Haryana High Court. In any event, Unit - I already reversed the credit which was appropriated by the adjudicating authority. The learned consultant contended that Unit - II also availed the CENVAT credit. As the learned consultant undertakes not to claim refund, the demand of duty is upheld. However, no reason for confiscation and imposition of penalty and demand of interest - Decided partly in favour of assessee.

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• 2014 (12) TMI 30
  Denial of rebate claim - Determination of value for calculating rebate - place of removal - inclusion of ocean freight and insurance incurred beyond the port - duty payable on the transaction value i.e. FOB value is rebateable under Rule 18 of Central Excise Rules, 2002 - Held that:- From the perusal of above provisions it is clear that the place of removal may be factory/warehouse, a depot, premise of a consignment agent or any other place of removal from where the excisable goods are to be sold for delivery at place of removal. The meaning of word “any other place” read with definition of “Sale”, cannot be construed to have meaning of any place outside geographical limits of India. The reason of such conclusion is that as per Section 1 of Central Excise Act, 1944, the Act is applicable within the territorial jurisdiction of whole of India and the said transaction value deals with value of excisable goods produced/manufactured within this country. Government observes that once the place of removal is decided within the geographical limit of the country, it cannot be beyond the port of loading of the export goods. Under such circumstances, the place of removal is the port of export where sale takes place. Duty was paid on CIF value as admitted by applicant. The ocean freight and insurance incurred beyond the port, being place of removal in the case cannot be part of transaction value in terms of statutory provisions discussed above. Therefore, rebate of excess duty paid on said portion of value which was in excess of transaction value was rightly denied. Applicant has contended that if rebate is not allowed then the said amount may be allowed to be re-credited in the Cenvat credit account. Applicant is merchant-exporter and then re-credit of excess paid duty may be allowed in Cenvat credit account from where it was paid subject to compliance of provisions of Section 12B of Central Excise Act, 1944 - Decided partly in favour of assessee.

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• 2014 (12) TMI 29
  Rebate claim - Notification No. 4/2009-C.E., dated 24-1-2009 - Rate of duty - effective rate of Central Excise duty was reduced from 10% to 8%. - Held that:- On perusal of records, Government observes that in the instant case respondent exporter paid duty @ 10% in respect of excisable goods cleared for export vide ARE-1 No. 86, dated 24-2-2009, whereas the effective rate duty on said goods on the said date was 8% vide Notification No. 4/2009-C.E., dated 24-2-2009. Department has contended that respondent was required to pay duty @ 8% on 24-2-2009 and excess paid duty cannot be rebated under Rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004 - notification issued under Rule 18 of Central Excise Rules, 2002, prescribes the conditions, limitations and procedure to be following for claiming as well as sanctioning rebate claims of duty paid on exported goods. The satisfaction of rebate sanctioning authority requires that rebate claim as per the relevant statutory provisions is to be in order. He does not have the mandate to sanction claim of obviously excess paid duty and then initiate proceeding for recovery of the erroneously paid rebate claim. Therefore, the circular of 2000 as relied upon by applicant cannot supersede the provisions of Notification No. 19/2004-C.E.(N.T.). Adjudicating authority has rightly held in his findings that rebate of duty paid @ 8% in terms Not. No. 04/2009-C.E., dated 24-2-2009 is rebatable under Rule 18 but erred in sanctioning the total amount. Government holds that rebate is admissible of duty paid at effective rate of duty on 24-2-2009 i.e. @ 8% in terms of Not. No. 4/2009-C.E., dated 24-2-2009 and part rebate claim of Rs. 60,061/- erroneously sanctioned is recoverable along with applicable interest. Government directs the respondent party to repay in cash the erroneously sanctioned amount of Rs. 60,061/- along with applicable interest to the department and thereafter department may allow the re-credit of said amount in their cenvat credit account in the light of above said judgment of Hon’ble High Court of Punjab & Haryana [2008 (9) TMI 176 - PUNJAB AND HARYANA HIGH COURT]. Government sets aside the impugned order-in-appeal and modifies the impugned order-in-original to this extent - Decided in favor of revenue.

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• 2014 (12) TMI 28
  Claim of rebate on inputs - Polyster cotton blended yarn - non compliance of procedure of Notification 21/2004-C.E. (N.T.), dated 6-9-2004 - Exemption under Notification No. 30/2004-C.E., dated 9-7-2004 - Held that:- The said ARE-1 forms were endorsed with remark read as “Export under NIL Rate of duty vide Notification No. 30/2004-C.E., dated 9-7-2004. After exporting goods in Jan. & Feb., 2011, they realized that they were entitled for refund of duty paid on inputs viz., polyster staple fibre, and they were required to follow the procedure laid down under Notification 21/2004-C.E. (N.T.), dated 6-9-2004. The said rebate claims filed by applicant on 6-5-2011, 6-6-2011 and 21-6-2011 were rejected by original authority for non-compliance of the provisions of Notification 21/2004-C.E. (N.T.), dated 6-9-2004. Commissioner (Appeals) upheld the said order. Government notes that substantial condition for claiming input rebate is that paid inputs are used in the manufacturing of exported goods. The lower authorities have not discussed anything about use of duty paid materials in the manufacture of exported goods. Applicant claimed that they had submitted documentary evidences along with rebate claims to prove the use of duty paid materials i.e. polyster staple fibre in the manufacturing of exported goods. Applicant has now submitted copies of documents mentioned on Exhibit-1, 2 and 3 of this revision application, which are claimed as duty paying documents. The fundamental condition for granting input rebate claim is that duty paid inputs are used in the manufacture of exported goods. So, the original authority is required to conduct verification from the original records to ensure the compliance of above said condition of Rule 18 of the Central Excise Rules, 2002 read Notification 21/2004-C.E. (N.T.), dated 6-9-2004. As such case is required to be remanded for fresh consideration - Matter remanded back - Decided in favour of assessee.

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• 2014 (12) TMI 26
  Denial of Rebate claim - Simultaneous benefits of rebate and drawback - Held that:- Respondent had claimed customs portion of drawback on the said exported goods. The drawback rate specified in drawback schedule shall not be applicable to the export of a commodity or product if such commodity or product is manufactured or exported by availing the rebate of duty paid on materials used in the manufacture or processing of such commodity or product in terms of Rule 18 of Central Excise Rules, 2002. CBEC vide Circular No. 83/2000-Cus., dated 16th October, 2000 has clarified that “where only Customs portion of duties is claimed as per the All Industry Rate of Drawback (erstwhile) Rule 57F(14), does not come in the way of admitting refund of unutilized credit of Central Excise/Countervailing duty paid on inputs used in the products exported.” This clarification also indicates that there is no restriction on granting rebate of duty paid on exported goods when the drawback of Customs portion is availed by exporter. customs portion drawback claim is availed and rebate of duty paid on exported goods is claimed. In view of position explained there is no bar is availing such rebate claim when drawback of only customs portion is availed. As such, Government is in agreement with the findings of Commissioner (Appeals) and the contention of the department is not tenable. - Decided against revenue.

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• CST, VAT & Sales Tax

• 2014 (12) TMI 46
  Withholding of refund - petitioner received the impugned order passed under Annexure-3 withholding the amount of refund till disposal of the Second Appeal - Orissa Value Added Tax Act, 2004 (OVAT) - Held that:- We are shocked that the learned Commissioner of Commercial Taxes instead of taking any action against the Assessing Officer for violating the mandate of Section 57 of the OVAT Act and not following/obeying instruction of the Commissioner for strict compliance of Section 57 of the OVAT Act has passed the impugned order withholding the claim of refund due to the petitioner. It is needless to say that if a subordinate authority will not obey the instruction/order/circular issued by the higher authority in the hierarchy of administration, it would cause chaos in the field of administration and certainly not help in smooth functioning of administration. - impugned order passed withholding refund of Rs. 26,86,357/- which flows from the first appellate order is not legally sustainable. - Decided in favor of assessee. Opportunity of hearing before passing of order under Section 60 (1) of the OVAT Act withholding claim of refund due to the dealer - Held that:- In the present case, admittedly petitioner was not afforded an opportunity of hearing before the impugned order withholding refund claimed by the petitioner was passed. - order for withholding refund claims made by the petitioner is hereby quashed. - Decided in favor of assessee.

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• 2014 (12) TMI 45
  Rate of tax - classification of artificial flower petals - Karnataka Value Added Tax Act, 2003 - item No. 7 in entry 78 - Held that:- In so far as the question of understanding and interpreting entries is concerned, general rule of interpretation is if any particular item or goods fits into any one of the entries mentioned or figuring in any of the Schedules, it necessarily remains there and does not get into the residuary clause or goods of general description in respect of which a uniform rate of tax, viz., 12.5 per cent becomes applicable. It is because goods figuring in the Third Schedule to the Act attract tax at lower rate than general rate, a dealer or an assessee will be keen to get into any one of the entries if is possible and remain there, as tax liability is lower. A mere desire or inclination is not the criterion, but it is the nature of the goods and the description of the goods as figures in the Schedule. If the particular product which is having its origin in textiles or fabrics, but is marked in the shape of artificial flower petals is not so either shaped or marked, but sold as fabric and it remains as an exempted item. But, it has lost its characteristic of "cloth" and fabric or textile, because of being marketed as artificial flower petals and in a particular shape, though made of textiles or fabric. In the present case, the assessee himself having claimed that it is an item fitting into entry 78 figuring in the Third Schedule, we find no need to remand the matter but proceed to accept the submissions and the stand taken by the assessee that the item known as artificial flower petals is used extensively in readymade garments. In the wake of our examination as above, we find that artificial flower petals having its origin in textile or fabrics, necessarily fits into the description of "clothing accessories" figuring as item No. 2 in entry 78 of the Third Schedule to the Act. - Decided in favor of assessee.

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• 2014 (12) TMI 44
  Denial of supply of form F - stock transfer to consignment agent - department claim the same as Sale liable to CST - declaration as envisaged in section 6A(1) of the Central Sales Tax Act, 1956 - It is apparent that full payment of the product value as advance was required to be made by the writ petitioner to the principal along with a blank form F against the indent. It is stated in no uncertain terms that the goods would only be despatched by the transport preferable to the principal, after receipt of the full payment in advance. - Held that:- whatever the suspicion that may invade the mind of the Revenue-appellants that would not give them any authority to refuse issuance of form F for making the declaration within the prescribed time to the appropriate authority in the State where the transactions claimed to be the inter-State transfer have originated from. In view of S.K.F. Ball Bearing [1960 (8) TMI 3 - SUPREME Court] as well as State of Orissa v. K.B. Saha and Sons Industries Pvt. Ltd. as reported in [2007 (4) TMI 362 - SUPREME COURT OF INDIA], where the apex court enunciated the law regarding inter-State sale by way of the covenant, we are of the opinion that the covenant under reference in the writ petition does not accommodate any provision for inter-State sale and as such prima facie it cannot be held simply for making the payment of full value in advance that an inter-State sale has commenced before the movement of the goods/products from the State of Assam to the State of Tripura. If it appears to the Revenue in the State of Tripura that it is a foul mechanism designed by the principal and the writ petitioner to evade tax in any manner, they are not under any disability to make reference to the assessing authority as defined under section 6A(2) of the CST Act, 1956 for making necessary inquiry and to take final view on the nature of transaction. But, at no event the Revenue-appellants are authorised by law to refuse form F to the writ petitioner.

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