Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
December 9, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
Articles
Highlights / Catch Notes
Income Tax
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Recovery of dues - Invocation of section 178 – the claim of the Department that payment of its dues should be given priority and preference over the dues of secured creditors and workmen militates against the provision u/s 529A of the Companies Act and is contrary to the scheme of the Companies Act and cannot be allowed. - HC
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TDS u/s 194J – the broadcast/live telecast is not a work within the definition of 2(y) of the Copyright Act and also that broadcast/ live telecast doesn’t fall within the ambit of Section 13 of the Copyright Act, it would suffice to state that a live telecast/broadcast would have no “copyright”. - HC
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Whether the tax effect being minimal the reference deserve consideration by the Court – once a reference application of the Revenue had been allowed by this Court and reference was called at the instance of this Court, the question of law framed has to be answered on merits. - HC
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Cash gifts received in cheque from relatives and blended with the HUF account - the issue raised by the appellant requires an in-depth analysis of both the provisions, viz., Section 56(2)(vii) and Section 64(2) of the Income Tax Act - HC
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Entitlement for deduction u/s 35(1) – more than 20 years have passed since the assessee incurred the expenditure. Expecting the assessee to now produce minute details of the research activity undertaken would be unreasonable - HC
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Applicability of section 28(iv) - Waiver of loan - If both transactions are loan transactions and one part of it is treated as business income then second part could not have given a different character - HC
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Disallowance on work penalty expenses u/s 40(a)(ia) - Whether the work penalty expenses were actually interest expenses liable to provisions of TDS – Held No - HC
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Exemption u/s 11 - charitable or not u/s 2(15) – Profit making is not the object of the assesse - Profit is merely a by-product which resulted incidentally in the process of carrying out the charitable purpose - exemption allowed - AT
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Nature of expenses on premium paid for buy back of shares – payment made to secure peace and harmony and smooth management of the company, the interest of business would serve and that is the whole purpose of such payment - held as revenue in nature - AT
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Cash Payment - since there is no evidence brought on record by the AO to suggest the availability of banking facility in the place where the properties were purchased by the assessee, therefore, in view of Rule 6DD(g) the disallowance cannot be made u/s. 40A(3) - AT
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Refusal to grant registration u/s 12A – when the religious activity carried on by a particular section of people would be a charitable activity for or towards other members of the community or also public at large. - AT
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Disallowance on depreciation – reduction of subsidy amount from the cost of fixed assets - the accrual of receipts was in favour of the assessee only in the year in which all the terms and conditions of the scheme were duly complied and the loans to the banks were liquidated - to be adjusted in the year of actual receipt only - AT
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Value of inventories written off as obsolete disallowed - the inventories were sold in subsequent years for ₹ 5,00,000/-, therefore, the claim of the assessee that these inventories had Nil value as at the end of the year under appeal cannot be accepted - AT
Customs
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Levy of CVD equal to duty of excise on clearance of goods from SEZ unit to DTA unit - Goods were exempted from levy of Duty of excise - levy of CVD is not proper - HC
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By imposing the condition that if the deposit is not made, the appeal would attract dismissal, such course is neither contemplated under the Customs Act not could confer power upon the statutory authority whose genesis whereof flows therefrom - HC
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Gold ornaments worn by a foreign tourist entering India - In the absence of a statutory prescription in express terms to the effect that a foreign tourist entering India should not wear 24 carat gold jewellery much less gold jewellery, order of confiscation was passed without any legal foundation - HC
Service Tax
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Since the entire disputed amount of duty/service tax has been paid along with interest, even the show cause notice should not have been issued - penalty waived - AT
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Manpower recruitment or supply agency services - secondment of employees - appellant has made out a prima facie case - AT
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When the appellant provided a space to keep the car after cleaning it and also getting it valued and after consulting with the seller, fix price and display for sale and subsequently, when a buyer is found, they would arrange registration and transfer of ownership, etc. - prima facie taxable as BAS - AT
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Commercial or industrial construction service - construction of colleges, Government hospitals or open university - they are non-commercial or non-industrial in nature, falling outside the purview of service tax levy - AT
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Cenvat credit - Inputs used for providing Telecom service - Cenvat credit on (i) transmission towers and parts thereof; and (ii) prefabricated buildings/shelters - this not a case of bonafide belief - prima facie case is against the assessee - AT
Central Excise
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Intermediate products - manufacturing infant foods - vitamin pre-mix and mineral pre-mix are mixtures of starch preparations to which nutrients i.e. vitamins and minerals are added and merit classification under CETH 1901 as preparation of starch attracting Nil rate of duty - AT
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Removal of gold Sludge without payment of duty - waste and scrap of containing precious metal or precious metal compounds - demand of duty confirmed - penalty waived - AT
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Cenvat credit - duty paying documents not in the name of appellants - It is a clear case that the appellants deliberately suppressed the name of M/s.Volvo India Pvt. Ltd. in their letter to evade payment of duty and extended period of limitation would be applicable - AT
Case Laws:
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Income Tax
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2014 (12) TMI 267
Treatment of deferred sales tax liability on remission - Business income or not – Reliance placed upon CBDT Circular No. 496 dated 25th September, 1987 and Circular No. 674 dated 29th December, 1993 - Whether the Tribunal is justified in not upholding the finding of the Income Tax Authorities below that the deferred sales tax liability is chargeable to tax as business income of the assessee u/s. 41(1) on remission thereof and instead treating the same as exempt from tax as capital receipt being remission of loan liability – Held that:- The Assessee collected the total amount towards the Sales Tax of ₹ 7,52,01,378 and the Tribunal holds that it was collected from 1989-90 to 2001-02 - The Assessee treated this liability as unsecured loans in its books of account - the Revenue has not put up a case that there is no conversion provided under the BST or the table provided for determination of NPV is not applicable to the case of the Assessee - to invoke the provisions of section 41(1) of the Act, the first requirement is as to whether in the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assesse – in CBDT Circular No. 496 dated 25.9.1987 it has been clearly stated that “the statutory liability shall be treated to have been discharged for the purposes of Section 43B” - the Tribunal rightly concluded that it is incorrect or erroneous to hold that the assessee obtained benefit of reduction of Sales Tax liability under section 43B of the I.T. Act as per Central Board of Direct Taxes' Circular No. 496 dated 25th September, 1987. Relying upon THE COMMISSIONER OF INCOME TAX AND THE DEPUTY COMMISSIONER OF INCOME TAX Versus M/s McDOWELL & CO LTD NOW KNOWN AS UNITED SPIRITS LTD [2014 (11) TMI 272 - KARNATAKA HIGH COURT] - the statutory levy being discharged by the Assessee, the amount thereunder was refunded to him - That will definitely be a case where he obtains an amount in respect of the expenditure within the meaning of section 41(1) - It will not be a case of “benefit by way of remission/cessation of trading liability” - the Incentive to establish a unit or factory in a industrially backward or hilly area is the core of the Sales Tax Deferral Scheme - Some time has to be given to the unit to establish itself before it starts giving corresponding benefit to the state - That opportunity is granted by deferring the remittance of the Sales Tax collected by the unit like the Assessee - the Government Resolution dated 4th May, 1983 evolves a package of incentives to disperse the industries from Bombay–Thane–Pune belt and to attract them to underdeveloped and developing areas of the State of Maharashtra - To carry this object further and also to achieve the purpose of early remittance of deferred Sales Tax collected by the units availing of the Schemes, the statutory option was incorporated in section 38 by substituting the 4th proviso to subsection 4 of section 38 of the Bombay Sales Tax Act, 1959 – a combined reading of the Schemes and this Circular reveals the legislative intent – thus, the order of the Tribunal is upheld – Decided against revenue.
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2014 (12) TMI 266
Recovery of dues - Invocation of section 178 – Company in liquidation - Dues to be paid in priority over other dues or not – Company in the process of winding up - Whether the Department has a preferential right in matter of payment of dues over the right of the secured creditors (including the workmen) from the proceeds received upon sale of assets – Held that:- The Department has taken out the summons to counter the liquidator's request for permission to disburse the sale proceeds amongst the creditors covered under section 529A of the Companies Act - the liquidator has proposed to disburse the proceeds received from sale of assets which were loaded with “charge” created by the company in favour of the Banks / Financial Institutions - there is nothing in the section which, apart from asking the liquidator to set aside assets sufficient to meet possible tax liabilities (or to set aside sufficient amount), commands the liquidator to pay the tax dues in preference over all other dues and it neither creates any special right nor does it confer preferential ranking or higher priority in favour of Government or the Department or tax dues, and it does not place tax dues or the dues of State / Department in a position higher or better than what is conferred by and what is available under Companies Act. There is an additional feature viz. the Department has not even passed any order u/s 178(2) - The Department's affidavit does not claim that the competent assessing officer has passed order under section 178(2) of the Income Tax Act. That is not the case or claim even of the Department - the obligation cast on the liquidator u/s 178(3) will arise after he is notified by the authorised assessing officer under sub-section (2) of section 178 - section 529A is a non obstante clause and the section 529A is introduced and brought in force subsequently (i.e. From 24.5.1985) it will have overriding effect, and it shall prevail, over other provisions. The costs, charges and expenses properly incurred in winding up may stand ahead in the order of priority prescribed u/s 530 of the Companies Act but the dues covered within purview of section 529A of the Companies Act will have priority and overriding effect - The priority and preference conferred in favour of secured creditors (and the workmen – whose dues rank pari passsu with that of secured creditors) under section 529A of the Companies Act is a superior right and ranks higher compared to all other priorities and they cannot be made subject to the payment of 'costs and charges' covered within purview of section 520 of the Companies Act - the claim of the Department that payment of its dues should be given priority and preference over the dues of secured creditors and workmen militates against the provision u/s 529A of the Companies Act and is contrary to the scheme of the Companies Act and cannot be allowed. Workmen get rights pari passu with those of the secured creditors on the assets of the company in liquidation - Purpose of the section is to ensure that workmen should not be deprived of their rights in the event of liquidation of the company - Section 529A has employed a non obstante clause which says that "notwithstanding anything contained in any other provision of the Companies Act or any other law for the time being in force" - The non obstante clause whittles down the priority of even the crown debts – thus, the claim of the Income Tax Department, except so far as the Department's request relates to the liquidator's obligation to inform the Department about liquidator's appointment in each case, cannot be sustained and the claim and submissions of the Department is to be rejected. The request made by the Department and the submission made by the Official Liquidator are in consonance with the obligation imposed by virtue of section 178 of Income Tax Act and that, therefore, appropriate intimation to the Department in each case when order appointing liquidator is passed and when the process for disposal of assets and/or disbursement of sale consideration received by liquidator begins, ought to be given to the concerned authority / officer of the Department. The Department has nominated one officer as Nodal Officer who may be informed about the appointment of liquidator and/or about the process of sale of properties or about disbursement of sale proceeds - such intimation is not a substitution of the obligation u/s 178 of Income Tax Act - the liquidator is obliged to regularly file the returns and that, therefore, the liquidator shall take necessary action in all cases – Decided against revenue.
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2014 (12) TMI 265
Royalty paid to other centres and live telecast royalty disallowed u/s 40(a)(ia) – TDS not deducted on the expenses u/s 194J – Whether payment for live telecast of horse race is a payment for transfer of any “copyright” and as such “royalty” or in the alternative whether the live telecast of the horse race would be termed as a “scientific work” and payment thereof would be “royalty” - Held that:- The payment has been made by the assessee to other clubs/centres on account of live telecast of races - The payment of “royalty” is covered u/s 194J which was inserted with effect from 13.07.2006 - the assessee was engaged in the business of conducting horse races and derived income from betting, commission, entry fee etc. and had made payment to other centres whose races were displayed in Delhi - It is not known whether such races had any commentary or analysis of the event simultaneously - the broadcast/live telecast is not a work within the definition of 2(y) of the Copyright Act and also that broadcast/ live telecast doesn’t fall within the ambit of Section 13 of the Copyright Act, it would suffice to state that a live telecast/broadcast would have no “copyright”. In Espn Star Sports Versus Global Broadcast News Ltd. & Others [2008 (9) TMI 916 - DELHI HIGH COURT] it has been held that the legislature itself by terming broadcast rights as those akin to “copyright” clearly brought out the distinction between two rights in Copyright Act, 1957 - it was a clear manifestation of legislative intent to treat copyright and broadcasting reproduction rights as distinct and separate rights - the amendment of the Act in 1994 not only extended such rights to all broadcasting organizations but also clearly crystallized the nature of such rights – thus, the broadcast or the live coverage does not have a “copyright” - the word “Copyright” would encompass all categories of work including musical, dramatic, etc. and also his submission that the Copyright Act acknowledges the broadcast right as a right similar to “copyright”. Clause (v) to explanation 2 to clause (vi) or sub section 1 of Section 9 is an inclusive provision for films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting - It was held by the AO that when any person pays any amount for getting rights/licence to telecast any event (which is a copyright of particular person i.e. no one can copy it for direct telecast or deferred telecast) then amount so paid is to be treated as “royalty” and very much covered under Section 9(1)(vi) - “scientific work” has not been defined in the Act nor in the Copyright Act - It is not necessary that because the live telecast of an event is being done at a distant place, the same would be a “scientific work” - when reference is made to films or video tapes, then the intent of the provision is related to work of visual recording on any medium or video tape and can be seen on the television - it is not known nor pleaded that the live telecast, in this case, was accompanied by commentary, analysis etc. It is an issue of fact, which cannot be gone into or raised at this stage – thus, no question of law arises for consideration – Decided against revenue.
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2014 (12) TMI 264
Assessability of asset sale – STCG or LTCG - sale of right - date of allotment letter issued by the builder - Whether the asset which was sold by the assessee would be subject to short term capital gains in terms of Section 2(42A) or long term capital gains in terms of Section 2(29A) – Held that:- The Tribunal placed reliance on Mrs.Madhu Kaul v. CIT [2014 (2) TMI 1117 - PUNJAB & HARYANA HIGH COURT] - a right has been conferred on the allottee to hold a flat which was later identified and possession delivered on a later date - the mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter and the payment of balance instalments, identification of a particular flat and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter - the allottee gets the title to the property on issuance of allotment letter and the payment in instalments is only a consequential act upon which delivery of possession to the property flows – thus, there is no reason as to why the same principle should not be applied to all transactions based on agreements in respect of capital asset - the breach of agreement would only give right to the beneficiary for enforcing the right over the property – thus, the order of the Tribunal is upheld – Decided against revenue.
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2014 (12) TMI 263
Whether the tax effect being minimal the reference deserve consideration by the Court – Held that:- The position has to be seen and has to be governed at the time when the reference application was moved/filed and is thus in-applicable for the old pending references/reference applications – relying upon Commissioner of Income-Tax Vs. Rajasthan Patrika Ltd. [2002 (7) TMI 70 - RAJASTHAN High Court] - once reference has been admitted by the Court u/s256(1) or 256(2), then the matter cannot be disposed off merely because the tax effect is minimal - once a reference application of the Revenue had been allowed by this Court and reference was called at the instance of this Court, the question of law framed has to be answered on merits. Whether the Tribunal was right in holding that the interest u/s 139(8), 215 and 220(2) could not be levied upon the assessee from the date of assessment order i.e. 23.9.1976 – Held that:- Once the order has been revised or modified after passing of the assessment order it relates back to the assessment order as it is extension of the assessment order - the moment there is finality of the proceedings, the original notice of demand comes to the surface and for any default on the part of the assessee, the claim of interest can be revived from inception - the scope of proviso to Sec. 220(2) of the Act, the notice of demand, relates back to the original notice of demand - The revenue was well justified in charging interest u/s 220(2) of the IT Act - the intention of the legislature contemplated a situation, where the interest, being compensatory in nature, though tax having become due, still if the assessee does not pay, then the revenue has to be compensated by charging interest as prescribed u/s 220(2) of the IT Act - thus, the assessee is liable for interest u/s 220(2) as also interest u/s 139(8) and 215 – Decided in favour of assesse.
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2014 (12) TMI 262
Cash gifts received in cheque from relatives and blended with the HUF account - Applicability of section 56 and 64(2) – Affidavits filed by the donors before AO ignored - Whether the Tribunal is right in presuming that the cash gifts were directly received by the appellant-HUF even though the cash gifts through cheques were received in the individual name only and thereafter blended with the HUF account – Held that:- The AO doubted the genuineness of the transaction, however, stated that the gifts received by the individual were duly accounted in HUF account and therefore added in the amount in the name of the HUF – assesse contended that Section 64 (2) alone would get attracted and not Section 56(2) was not considered by the Tribunal and therefore the legal plea raised by the assessee has been totally ignored - the Tribunal has not considered the legal plea so raised and therefore prejudice is caused to the appellant in not considering this legal plea – also, the issue as to the applicability of Section 64(2), as contended, should have been considered by the Tribunal in the manner in which the assessee justifies the transaction - the issue raised by the appellant requires an in-depth analysis of both the provisions, viz., Section 56(2)(vii) and Section 64(2) of the Income Tax Act – thus, the order of the Tribunal is set aside and the matter is remitted back to the AO for fresh consideration – decided in favour of assesse.
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2014 (12) TMI 261
Entitlement for deduction u/s 35(1) – Research activity carried on as per section 43(4) – Held that:- Assessee claimed huge amount as expenses for research and development u/s 35 of the Act – The Tribunal held that the activity carried on by the respondent did constitute research u/s 43(4) of the Act - The assessee had also claimed expenses as royalty as it was appointed as distributor in respect of software packages of two companies – Following the decision in Deputy Commissioner of Income-tax (Asstt.) Versus Mastek Ltd. [2012 (9) TMI 264 - GUJARAT HIGH COURT] wherein it has been held that Section 35(3) of the Act requires a reference to be made by the Board to the prescribed authority when a question arises as to whether and if so to what extent, any activity constitutes or constituted or any asset is or was being used for scientific research. If an assessee puts forth a claim of deduction u/s 35(1) for expenditure incurred on scientific research and if the AO is not inclined to accept such a claim, the question can be stated to have arisen - at no stage, right up to the Tribunal and even during the pendency of these appeals before the High Court, any such attempt was made by the revenue - Secondly, in the meantime, more than 20 years have passed since the assessee incurred the expenditure. Expecting the assessee to now produce minute details of the research activity undertaken would be unreasonable - the Commissioner held that a substantial portion of such expenditure was in any case of revenue nature and in respect of the provision of section 37(1), the assessee was entitled to claim full deduction - such conclusion of the Commissioner was not disturbed by the Tribunal though the revenue had specifically preferred an appeal in this respect – Decided against revenue.
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2014 (12) TMI 260
Correctness of claim to be recorded by AO u/s 14A - Whether the Tribunal was right in holding that the AO had accorded implicit satisfaction u/s 14A(2) which got converted into explicit satisfaction by the reason on discussion in the order passed by the CIT(A) - Held that:- In Maxopp Investment Ltd. versus CIT [2011 (11) TMI 267 - Delhi High Court] it was held that sub-section (2) to Section 14A mandates and requires the AO to record his satisfaction on the correctness of the claim made by the assessee in respect of the expenditure in relation to the income, which does not form part of the total income before embarking on and applying Rule 8D of the Income Tax Rules, 1962 - during the course of remand proceedings, the AO will go into the question of disallowance u/s 14A of the Act made by the assessee and after examination, if he is not satisfied with the claim, he can proceed as per law - the observations of the Tribunal that there was implicit satisfaction of the AO and explicit satisfaction of the CIT(A) is to be set aside – though it was kept open to the AO to examine the claim of the assessee as per Section 14A of the Act and proceed in accordance with law - Decided in favour of assessee.
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2014 (12) TMI 259
Applicability of section 28(iv) - Waiver of loan - Whether the Tribunal failed to note that section 28(iv) which deals with value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession – Held that:- The Tribunal rightly noted that when the loan has been waived by Indya.com in favour of the assessee, the AO sought to apply section 28(iv) by terming such waiver as income of the Assessee and arising from the business of the Assessee - if section 28(iv) was applied that means the loan was treated as connected with the business of the Assessee - in earlier years the Revenue did not accept the loan transactions from Indya.com and to MBPL both as business transactions - it now cannot question or turnaround from its findings - the Tribunal commented on this conflicting stand or versions of the Revenue. Either loans should retain the character originally labeled or attached to or it should answer the term as a `business loan'. Assessee would be entitled to set off, in the sense that if one loan which was advanced to it has been now written off and equally the advance made by this Assessee to MBPL became non-recoverable, then, what it derives by way of loan having been shown as income and what is the amount written off by the Assessee can be adjusted against each other - because of the waiver, the liability of MBPL to repay the same would enable the Assessee to adjust a receipt or claim a set off - the Tribunal rightly concluded that the AO charged to tax receipt of waiver of loan of ₹ 116.52 crores as business income together with interest at ₹ 5.47 crores but did not allow the deduction for waiver of the loan granted to the Assessee to the tune of ₹ 139.58 crores - If both transactions are loan transactions and one part of it is treated as business income then second part could not have given a different character – thus, ₹ 122 crores being the difference of the amount cannot be taken as income u/s 28(iv) came to be upheld – the order of the Tribunal is upheld – Decided against revenue.
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2014 (12) TMI 258
Disallowance on work penalty expenses u/s 40(a)(ia) - Whether the work penalty expenses were actually interest expenses liable to provisions of TDS – Held that:- The Tribunal rightly upheld the decision of CIT(A) that the memorandum of understanding between the assessee and M/s. Unitech Limited did not provide for payment of any interest and as per the terms of the agreement, the entire work had to be completed by the assessee as per the terms of the contract entered into between M/s. Unitech and the main contractee and the assessee was required to indemnify M/s. Unitech Limited for any delay effect or other liability arising from non-performance or non-observance of the stipulation of the main contract - the payment to M/s. Unitech Limited was interest only because it had been debited as such in the books of account of M/s. Unitech Limited. No efforts whatsoever had been made by the AO to prove that the details filed by M/s. Unitech Limited or that the certificate that the payments made by the assessee were not interest, is wrong - the assessee had no control whatsoever over the books of account for the accounting entries passed by M/s. Unitech Limited in its books of account and in the light of the memorandum of understanding between the assessee and M/s. Unitech Limited, which did not provide for levy of any interest, the amount was not in the nature of interest, and the assessee was not required to deduct any TDS on such amount and that there was no question of applying the provisions of section 40 (a)(ia) of the Act – thus, the order of the Tribunal is upheld as no substantial question of law arises for consideration - Decided against revenue.
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2014 (12) TMI 257
Nature of activity of assesse charitable or not u/s 2(15) – Whether the activity of the assessee falls within the description of Section 2(15) of the Act – Held that:- CIT(A) relied on the orders of assessment for AYs 2003-04 to 2008-09 and directed the AO to re-compute the income of the assessee in terms of Sections 11 to 13, keeping in view that the Commissioner of Income Tax-II, Kanpur had already granted registration u/s 12AA - CIT(A) has simply relied on certain orders for previous assessment years without having regard to the facts pertaining to the assessment year in question – thus, the matter is remitted back to the CIT(A) for fresh consideration – Decided in favour of revenue.
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2014 (12) TMI 256
Exemption u/s 11 - Activity carried on by assesse charitable or not u/s 2(15) – Effect of amendment u/s 2(15) w.r.e.f. 01.04.2009 – Whether the activities of assessee association is hit by the newly inserted proviso by the Finance (No.2)Act in section 2(15) of the Act w.r.e.f. 01.04.2009 and thereby falling u/s 28(iii) of the Act being profit of business – Held that:- Held that:- The assessee was a “charitable’ association registered u/s.12A of the Act and carrying on its objects of advancement of trade and commerce - even though the years 1964-65 to AY 1984-85, when exemption u/s 11 of the Act was denied to the assessee, it was nowhere held that the assessee was engaged in “business” activities - all through right from its inception, the facts remained the same whereby none of its activities were ever held to be “business” in nature except in this relevant AY 2008-09 - in a situation where the factual and legal position remains unchanged, any action by revenue to the contrary to what was taken earlier, is not justified - in view of facts remaining same and also legal position being the same, in the face of the history, dominant object for which assessee association was constituted, being a charitable one i.e. promotion and protection of trade, commerce and industries and particularly trade, commerce and industries in or with which Indian are engaged or concerned, any income arising from activity is exempt u/s 11 of the Act. In assessee’s own case as decided in Commissioner of Income-Tax, West Bengal II Versus Indian Chamber Of Commerce [1970 (9) TMI 13 - CALCUTTA High Court] - the expression “any other object of general public utility” u/s 2(15) does not expressly refer to trade or business, for a normal connotation of “general public utility” would not directly include trade or business - the word used in this new law is “activity” and not trade or business - Normally, a trade or business is always with profit or with profit motive, though no doubt, under some recent statutes as in the Sales Tax Act, the new concept of business without profit is being introduced - as defined in section 2(15) post amendment in 1961 Act post amendment is that “activity not involving profits” hits the case of assesse. The purpose for which the assessee association, i.e. The Indian Chamber of Commerce, was established is a charitable purpose within the meaning of S.2(15) of the Act - The assessee is carrying out the said activities which are incidental to the main object of the Association and which are conducted only for the purpose of securing the main objet which is the advancement and development of trade and commerce and industry in India - The activities are not in the nature of business and there is no motive to earn profit - The income arising to the assessee is only incidental and ancillary to the dominant object for the welfare and common good of the county’s trade, commerce and industry - The profits earned are utilized only for the purpose of feeding its dominant object and no part of such profit is distributed amongst its members. Profit making is not the object of the assesse - Profit is merely a by-product which resulted incidentally in the process of carrying out the charitable purpose – Thus, the income of the assessee for both the AYs in question is exempted from tax u/s 11 of the Act – Decided in favour of assessee.
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2014 (12) TMI 255
Nature of expenses on premium paid for buy back of shares – Revenue expenses or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that while accepting the compromise or settlement between the two warring groups, for a proceeding under ss. 397 and 398 of the Companies Act, 1956, the Court will keep in mind the prime interest of the company as well as public interest - the assessee has obtained any right or advantage which would affect its capital structure - The settlement was that as a result of the compromise the assessee acquired the shares and the share capital was reduced - merely represented the mode of settlement and it cannot be the test to be applied to determine the question whether the assessee derived any benefit on capital account - payment made to secure peace and harmony and smooth management of the company, the interest of business would serve and that is the whole purpose of such payment - Therefore, the amount paid for this purpose was on revenue account - by getting rid of the minority shareholders, the company could not be said to have acquired any enduring benefit – thus, there was no infirmity in the order of the CIT(A) allowing the premium paid on buy back of shares as a revenue expenditure – Decided against revenue. Disallowance on payment of PF and ESI made u/s 43B – Payments made after prescribed due dates – Held that:- It has been held in various decisions that PF & ESI dues, if paid before filing of the return prescribed u/s.139(1) is an allowable deduction - the assessee has paid/deposited the PF & ESI dues much prior to the due date of filing of the return, therefore, there was no infirmity in the order of the CIT(A) – Decided against revenue. Amount of compensation debited by assesse - The assessee had assigned the work of interior design of 106 rooms of the Hotel in the year 1997 to one M/s. Jay Arts - Due to certain disputes that arose between the said party and the assessee, a case was filed before the Civil Court who in its judgment dated 10-08-2007 had granted compensation to Jay Arts against the work done with respect to interior designing of the hotel in the year 1997 and some additional work - The assessee had debited compensation of ₹ 2 crores paid to Jay Arts in its profit and loss account for the A.Y. 2008-09 - CIT(A) allowed an amount of ₹ 32 lakhs out of the ₹ 1,82,00,000/- being revenue in nature for the AY and the balance amount of ₹ 1,50,00,000/- in the subsequent year on the ground that there is a court order directing the assessee to pay compensation and interest - the amount of ₹ 2,07,32,232/-, i.e. 48% of the total liability relates to the outstanding amounts and the balance amount is towards interest - Since the assessee has settled the claim of ₹ 3,50,00,000/-, therefore, on prorata basis, the capital expenditure comes to ₹ 1,68,00,000/- and the interest portion comes to ₹ 1,82,00,000/-. Accrual of liability to pay damages - Held that:- Accrual of liability to pay damages from the date on which the MOU is signed for full and final settlement, CIT(A) rightly relied upon Kaveri Engineering Industries Limited. Versus Deputy Commissioner Of Income-Tax [1992 (7) TMI 131 - ITAT MADRAS-B] - there is a difference between a statutory liability and a liability arising on account of a breach of contract or breach of faith - Statutory liability arises on the happening of the taxable event. Such liability arises by reason of the statute itself and merely because the assessee disputes the liability, its accrual does not get postponed. Treatment of interest expenses – Held that:- The CIT(A) rightly followed the decision in Bombay Steel Navigation Company (P) Ltd., Vs. CIT [1964 (10) TMI 12 - SUPREME Court] there was no infirmity in the order of CIT(A) in allowing an amount of ₹ 32,00,000/- out of the payment of ₹ 2,00,00,000/- to M/s. Jay Arts treating the same as revenue expenditure - the order of the CIT(A) in directing the AO to allow depreciation on the capital expenditure is concerned, there is no infirmity in the same - when certain amount is allocated towards capital assets of the assessee company, the assessee is entitled to claim depreciation on the same – Decided against revenue.
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2014 (12) TMI 254
Disallowance u/s 40A(3) toward cash expenditure – No deduction was claimed by assessee - Held that:- Section 40A(4) starts with the non-obstante clause setting out that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head ‘profits and gains of business or profession’ – if a transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used i.e. the Court has to look to the terms of the contract between the parties as to what is the true nature and effect of the terms embodied in an agreement between the parties - the assessee claimed relying upon the agreement entered into with M/s Countrywide promoters Pvt. Ltd. that the assessee had acquired various lands through farmers/villagers and after acquiring the same handed over to the developer for development of an integrated township project and in terms of the collaboration agreement the assessee received a consolidated fee of ₹ 35,000 - relying upon Commissioner Of Income-Tax Versus Industrial Engineering Projects Pvt. Limited [1992 (7) TMI 38 - DELHI High Court] – section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed and the assessee has successfully demonstrated that the payment were reimbursement made by CWPPL – Decided in favour of assessee. Additional payments made to recipients who were not the owners of land – Payment made in cash – Held that:- The expenditure was not claimed as an expense by the assessee and consequently has not been routed through its P&L A/c - the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise - the entire amount is added u/s 37 as opposed to part of the expenditure disallowed u/s 40A(3) is not so material as the finding is arrived at taking cognizance of the material fact that also no such claim of expenditure has been made - The fact that the additional payments were warranted in order to avoid potential disputes amongst the claimants of the land holding which have been passed through to the land holders from generation to generation wherein there may be informal arrangements of ownership and or the payments were for commercial expediency to facilitate peaceful possession and registration of the land holding; where by the time Registry was made the landholders felt a higher payment was necessitated due to increase in value are issues which are not required to be addressed in the present proceedings. Material seized from search – Held that:- During BPTP group of companies which were searched does not have any bearing - The material not having been confronted to the assessee in the face of the argument that even otherwise has no nexus has not been rebutted by the Revenue by any evidence or argument as the thrust of the parties attention remained focused on addressing the additions made - the CIT(A) makes a reference to facts not borne out from the record namely recording of statement of some patwari and Chotu Ram the support drawn by the CIT(A) in sustaining the addition is found to be misplaced – Decided partly in favour of assessee.
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2014 (12) TMI 253
Claim of exemption u/s 10B – Whether the conclusion drawn by AO and CIT(A) that assessee is not eligible for claiming deduction u/s 10B or 10A as it has been established by splitting up or reconstruction of its business already in existence and has been formed by transfer of plant and machinery previously used is correct - Held that:- Even where an assessee has failed to claim relief for which it is legally entitled to within the provisions of the Act, it is the duty of the AO to consider those relief while making the assessment - she has not given any specific decision on this issue apart from observing that the assessee is not eligible for deduction either u/s 10A or 10B - the AO has not allowed deduction u/s 10B to the assessee basically for the reason that assessee has not fulfilled the conditions of subsection (2) of section 10B - ‘splitting up or reconstruction of a business already in existence’ mentioned in clause (ii) of section 10B(2) or for that matter section 10A(2) will mean splitting up or reconstruction of business already in existence of the assessee and not of any other person. AO while denying assessee’s claim of exemption has concluded that assessee company has been formed by splitting up, or reconstruction of CG CoreEL Logic Systems Pvt. Ltd., a business already in existence - Chetan Sanghvi and Crompton Greaves, who are 100% share holders of CG CoreEL Logic Systems P. Ltd. are also holding respectively 29.8% and 28.9% shares in CMS, the parent company of assessee, rest 41.3% shares in CMS are held by others - AO’s conclusion that ultimate shareholders of both the companies are same is without any basis - in the year of formation i.e. AY 2000-01 there is no transfer of assets from CG CoreEL Logic Systems P. Ltd. to assessee - assessee has not violated any of the conditions of section 10B(2) - As the AO has rejected assessee’s claim of exemption only on the ground of violation of clause (ii) and (iii) of section 10B(2), which will not apply to the facts of assessee’s case, it is to be presumed that assessee satisfies all other conditions of the provision - Hence, assessee would be eligible for exemption u/s 10B. Exemption u/s 10B/10A is not granted to Pune Unit, 10A deduction to Bangalore unit should be granted as it is not formed by splitting up or reconstruction of Pune Unit – Held that:- Assessee’s claim for deduction u/s 10A for the Bangalore unit has been basically rejected for two reasons - No separate books of account are maintained for both the units and assessee has not claimed 10A benefit in the original return filed - these cannot be the sole criteria for denying exemption u/s 10A if otherwise it can be proved that the Bangalore unit is not formed by splitting up or reconstruction of existing business of assessee - the assessee has to prove such fact by producing necessary evidence – thus, the matter is remitted back to the AO for fresh adjudication. Computation of book profit u/s 115JB - Provision for expenses disallowed – Held that:-Considering the submissions of the parties and the nature of dispute as to whether provisions made are in the nature of contingent or ascertained liability, thus, the matter is remitted back to the file of the AO for verification – Decided partly in favour of assessee.
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2014 (12) TMI 251
Disallowance on payments made in places where no banking facility is available u/s 40A(3) - Claim of exemption in respect of cash payments – Held that:- Following the decision in The Deputy CIT Circle-1(1) Hyderabad Versus M/s. Abhinandana Housing Pvt. Ltd. [2014 (2) TMI 1021 - ITAT HYDERABAD] - cash payments made are covered by exceptions provided under different clauses of Rule 6DD, hence, no disallowance can be made u/s 40A(3) – in Sahitya Housing Pvt. Ltd. vs. DCIT [2014 (2) TMI 811 - ITAT HYDERABAD] it has been held that Sec 40A(3) itself provides that the exceptions will have to be prescribed having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors - considering the nature of activity of the Assessee and the necessity for them to pay cash to the land owners, it was held that the condition under Rule 6DD for exemption viz., transactions should have taken place on Bank Holidays should be read down in the case of the Assessee - no banking facility is available where the properties were purchased by Assessee, therefore, there was no choice for the assessee except to make the payments in cash due to exceptional or unavoidable circumstances as provided under Rule 6DD - since there is no evidence brought on record by the AO to suggest the availability of banking facility in the place where the properties were purchased by the assessee, therefore, in view of Rule 6DD(g) the disallowance cannot be made u/s. 40A(3) - the CIT(A) is justified in deleting the addition – Decided against revenue. Cash payments made on holidays - payments were made in installments - requirement to make payments on holiday to claim exception under Rule 6DD(j) or not – Held that:- The CIT(A) rightly directed the AO to verify whether cash payments disallowed by the AO were made on public holiday and if it is so to allow the expenditure as per rule 6DD(j) of the IT Rules – Decided against revenue. Addition on payments made to agents sustained – Held that:- Revenue contended that the agents worked for other persons as agents and they cannot be agents to the assessee - There is no prohibition or restriction on a middleman to work as agent of different parties, if he was acting on behalf of the assessee as agent - The assessee's case falls under the purview of clause 6DD(k) of IT Rules, 1962 - Being so, exemption is to be given and addition cannot be made u/s. 40A(3) of the Act. The reasons advanced by the Department are not appropriate. Accordingly, we are inclined to allow the claim of the assessee at ₹ 3,15,65,263 – revenue has failed to bring any material on record to show that facts in the assessment year are in any way different from facts considered by the coordinate bench, respectfully following the aforesaid decision of the coordinate bench, the order of the CIT(A) is upheld – Decided against revenue.
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2014 (12) TMI 250
Refusal to grant registration u/s 12A – Activities not commenced – Whether the Trust or institution should have been established either for religious or charitable purpose and it cannot have mixed objects - Held that:- As decided in assessee’s own case for the earlier assessment year, on the earlier occasion, DIT(E) had rejected assessee’s application solely for the reason that assessee has not commenced its activities - DIT(E) never raised any issue with regard to mixed objects of the appellant trust – it was clearly mentioned that prima-facie objects of the appellant trust were of charitable nature - DIT(E) has found a new reason to deny registration to assessee by stating that as per section 11(1)(a) of the Act, a Trust or institution should have been established either for religious or charitable purpose and it cannot have mixed objects – DIT(E) accepts the fact that objects of the trust are charitable in nature - relying upon Commissioner of Income Tax Versus M/s. Dawoodi Bohara Jamat [2014 (3) TMI 652 - SUPREME COURT] wherein it has been held that in certain cases activities of the trust may contain elements of both religious and charitable and thus, both the purposes may be overlapping - when the religious activity carried on by a particular section of people would be a charitable activity for or towards other members of the community or also public at large. A trust/institution having charitable and religious objects will be eligible for exemption u/s 11 unless hit by restrictions imposed u/s 13(1)(a) or 13(1)(b) of the Act - DIT(E) has not brought any material on record to show that provisions of section 13(1)(a) or 13(1)(b) applies to the assessee, denial of registration u/s 12AA for alleged violation of section 11(1)(a) is not justified - applicability of section 13 of the Act can be looked into by the AO at the time of assessment proceedings and not by DIT(E) while exercising power u/s 12AA of the Act – thus, the order of the DIT(E) is set aside and direct him to grant registration to the appellant trust u/s 12AA of the Act – Decided in favour of assessee.
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2014 (12) TMI 249
Disallowance on depreciation – reduction of subsidy amount from the cost of fixed assets - The amount of ₹ 2.78 crore being an advance subsidy received by the lending banks was kept under subsidy reserve account – At what stage the subsidy actually accrued to the assessee – Held that:- The subsidy was released to the lending banks with the stipulation that the equivalent loan amount would not be charged with interest and subsidy amount would also not earn any interest till the final repayment of loan - since the Corporation had no access to the fund till the satisfactory compliance with the terms and conditions of the scheme and liquidation of the loan, therefore, it cannot be said that the subsidy had accrued to the assessee - If the assessee failed to comply with those terms and conditions and defaulted in liquidation of loans, then the subsidy could not be released to the assessee - the accrual of receipts was in favour of the assessee only in the year in which all the terms and conditions of the scheme were duly complied and the loans to the banks were liquidated – assessee rightly contended that it could be adjusted in the AY in which it was actually received – Decided in favour of assessee. Disallowance of claim of deduction u/s 80IB – Whether new warehouses are mere extension or expansion of the existing business and should not be considered as an 'undertaking' for the purpose of the provisions of section 80- IB – Held that:- Following the decision in A.P. State Warehousing Corporation vs DCIT [2014 (5) TMI 730 - ITAT HYDERABAD] there is no restriction in section 80-IB that an existing business unit cannot set up new undertakings to carry on the integrated business of handling, storage and transportation of food grains - The godowns where this business is to be carried on need not be owned by the assessee - The assessee had collected rentals for storing food grains and had engaged outsiders to transport the food grains - the assessee had been carrying on similar business would not disentitle the assessee from claiming relief u/s 80IB(11A) - deduction under Chap VIA, in respect of new undertakings set up by the assessee by way of expansion of the existing undertakings. Sec 80IB(11A) is applicable to income derived from the integrated business of handling, storage and transportation of food grains - it is engaged in the integrated business of handling, storage and transportation of food grains – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO to verify the claim for deduction u/s. 80IB in respect of new undertaking set up on or after 1.4.2001 and allow the deduction in accordance with law and after giving adequate opportunity of being heard to the assessee - Decided in favour of Assessee.
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2014 (12) TMI 248
Disallowance on claim of expenses on payment of service charges u/s 40A(2)(b) deleted – Held that:- The assessee-company is a Government company which had made payment of service charges to another Government company - A part of the expenses was disallowed by the AO by invoking provisions of Section 40A(2)(b) of the Act - there is no allegation of any evasion of tax - service charges has been paid in pursuance of an agreement dated 25.04.2003 at the rate fixed vide the agreement - Such service charges at the same rate were also paid by the assessee-company to the same company in the AYs 2004-05 and 2005-06 - In the assessment completed u/s 143(3), the Department has not made any disallowance out of the said expenses - the Department in the earlier years accepted the same rate at which service charges were paid during the years under appeal as reasonable - though res judicata is not applicable in the income-tax proceedings but the rule of consistency needs to be adhered to and when the facts remains the same in different years, the Revenue cannot be permitted to draw different inferences in the different years – there was no material to show that the service charges paid by the assessee-company to another Government company were in excess of the fair market value of services – thus, the order of the CIT(A) is upheld – Decided against revenue. Value of inventories written off as obsolete disallowed – Held that:- The assessee debited ₹ 9,45,000/- in the profit and loss account under the head of obsolete inventory - The assessee explained that these inventories became obsolete and therefore, the value of the same was claimed at Nil - the inventories were sold in subsequent years for ₹ 5,00,000/-, therefore, the claim of the assessee that these inventories had Nil value as at the end of the year under appeal cannot be accepted - as no material was brought on record by the Revenue to show that the market value of the inventory was more than ₹ 5,00,000/- as at the end of the relevant previous year, the disallowance to the extent of market value as at the end of the relevant year i.e. ₹ 5,00,000/- and is upheld and the balance amount of disallowance of ₹ 4,45,000/- is set aside – Decided partly in favour of assessee.
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Customs
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2014 (12) TMI 270
Levy of CVD equal to duty of excise on clearance of goods from SEZ unit to DTA unit - Goods were exempted from levy of Duty of excise - Refund of the additional customs duty paid wrongly - Whether the unit can claim exemption from CVD based on an exemption Notification issued under Section 5A in view of specific bar under Section 5A for SEZ - Held that:- Section 30 of the SEZ Act only imposes a condition for a SEZ unit to clear the goods to a DTA. Such condition is payment of authorized duties including CVD as provided in the Customs Tariff Act as applicable and leviable on such goods when imported. By reference, therefore, the charging Section 3(1) of the Customs Tariff Act and such CVD would be leviable as if the goods cleared by SEZ unit to the DTA are in the nature of imports. If, therefore, by virtue of an exemption notification the whole of the excise duty payable as prescribed in the Central Excise Tariff Act is exempt for the local manufacturers, no CVD would be payable under Section 3(1) of the Customs Tariff Act on import of such goods. Section 3(1) uses the expression 'excise duty for the time being leviable on a like article if produced or manufactured in India'. The explanation explains the expression 'excise duty for the time being leviable on a like article if produced or manufactured in India' as to include the duty, which would be leviable on class or description of articles to which the imported article belongs, if such article is not produced or manufactured in India. However, the central concept remains the same, namely, the importer would have to pay CVD equivalent of the excise duty payable on a like article if produced or manufactured in India. In the present case, by virtue of the exemption notifications on a like article produced or manufactured in India there is no duty of excise payable or leviable is leviable. In other words, excise duty levied on such articles manufactured in India being nil, the CVD also, in terms of Section 3(1) of the Customs Tariff Act, would be nil. - The impugned order to the petition is quashed. On DTA clearance of SEZ unit, liability of countervailing duty under Section 30 of SEZ Act was imposed. This countervailing duty was equivalent to excise duty component to be paid by local manufacturer of like goods when produced or manufactured in India. Whether such liability would continue on SEZ units when local manufacturers were exempt has seen to be gathered from the language used in Section 30 of SEZ Act and not from proviso of subsection (1) of Section 5A of Central Excise Act. Even otherwise, Section 51 of SEZ Act gives overriding effect to the provisions of the Act. Thus, the entire legislative scheme has undergone a change by introduction of SEZ Act and the changes made in the Central Excise Act in this regard. As discussed earlier, legislative intention emerging is that a SEZ unit will have no [Sic] liability to pay countervailing duty, if the local manufacturer of like goods is exempt from payment of whole of such duty. - Decided in favour of assessee.
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2014 (12) TMI 269
Power of tribunal to dismiss the appeal for non compliance of order of pre-deposit - Maintainability of appeal before the HC for purposes of assessment allowing or refusing the dispensation of deposit under Section 129E - appeal against the stay order of tribunal - Question having a relation to the rate of duty of customs or to the value of goods - Held that:- It is further held where the alternative remedy by way of an appeal is uncertain and dependent upon certain conditions, the writ jurisdiction can be invoked even in absence of involvement of substantial question of law - power under Article 226 can be exercised even there being an alternative remedy but to be considered as a rule of self-imposed limitation. It is essentially a rule of policy, convenience, a discretion and not a rule of law. Therefore, the writ petition cannot be said to be non-maintainable merely because an alternative remedy is provided under the statute if the case comes within the exceptions as laid down in the above noted reports. The writ jurisdiction can certainly be invoked even if there is an existence of an alternative remedy by way of an appeal if on the face of it, the order appears to have been passed de hors the statute. The power of an appeal before the Appellate Tribunal could be traced from Section 129A of the Customs Act, 1962 which does not contain any provision either to be proceeded by a deposit of the duty and the penalty imposed by the adjudicating authority as a condition precedent or in default of such deposit, the appeal would be liable to be dismissed. In absence of the specific provisions, the authorities cannot innovate the mechanism for dismissal thereof at any stage of the said appeal. The appellate tribunal could very well proceed to decide the appeal and simultaneously therewith, the adjudicating authority can take recourse to the provision of the statute for recovery thereof. The statutory authorities are bound to act within the precincts of the statute and cannot travel beyond it. Power of tribunal to dismiss the appeal for non-deposit of pre-deposit amount as ordered - Held that:- By imposing the condition that if the deposit is not made, the appeal would attract dismissal, such course is neither contemplated under the Customs Act not could confer power upon the statutory authority whose genesis whereof flows therefrom. - the order dated 21-2-2013 by which the appeal is dismissed by the Appellate Tribunal is illegal and beyond the powers conferred under the Customs Act. - appeal restored before the tribunal - decided in favor of assessee.
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2014 (12) TMI 268
Undeclared gold ornaments worn by a foreign tourist entering India - Whether the Customs Act, 1962 and the Baggage Rules, 1998 prohibit foreign tourists entering India from wearing gold ornaments and whether they are bound to declare the gold ornaments worn by them on their person and are not carried in a baggage - Confiscation of goods - Held that:- The second respondent has in the impugned order held that a foreigner cannot import even a single gram of gold free of duty or on payment of duty. He does not however refer to the law which imposes the prohibition. The learned counsel appearing for the respondents was also not able to bring to my notice any provision in the Act or the Baggage Rules, 1998 to that effect. No provision in any other law to that effect was also brought to my notice, in the absence of any prohibition imposed by the Act or any other law to the effect that a foreign tourist arriving in India cannot wear gold ornaments on his person or wear gold ornaments of 24 carat purity, clause (d) of Section 111 could not have been invoked to confiscate the gold chain worn by the petitioner. The gold chain was not concealed in any package and therefore it could not have been confiscated invoking clause (i) of Section 111. Even if it was dutiable, as it was not concealed in any manner in any package either before or after it was unloaded, it could not have been confiscated invoking clause (i) of Section 111 of the Act. At best, only the duty payable could have been levied. The Customs Act, 1962 or the Baggage Rules, 1998 do not stipulate that a foreign tourist entering India cannot wear gold ornaments on his person. The Customs Act, 1962 and the Baggage Rules, 1998 do not provide sufficient warning to foreign tourists entering India that wearing a gold chain is prohibited. The Act and the Rules do not even remotely indicate that a foreign tourist entering India cannot wear a gold chain on his person, in other words, foreign tourists entering India are in a boundless sea of uncertainty as to whether it is prohibited or not. As the Customs Act, 1962 and the rules framed thereunder contemplate confiscation and levy of penalty as also prosecution, the State has a duty to specify with a degree of certainty as to what is prohibited and what is not, without leaving it to the foreign tourist to guess what is prohibited and what is not. The reliance placed by the revenue on Notification No. 117/1992-Cus., is misconceived. Though the learned counsel appearing for the respondents submitted that the gold chain worn by the petitioner was of 24 carat purity, which is prohibited, no statutory stipulation to that effect was brought to my notice. In the absence of a statutory prescription in express terms to the effect that a foreign tourist entering India should not wear 24 carat gold jewellery much less gold jewellery, I am of the opinion that the impugned order cannot be sustained. As I have held that the order of confiscation was passed without any legal foundation, the finding in Ext. P3 that the petitioner attempted to smuggle the gold chain cannot be sustained, consequently, I hold that the order of confiscation and the levy of penalty are liable to be set aside. - Decided in favour of assesee.
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Service Tax
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2014 (12) TMI 289
CENVAT Credit - Business Auxiliary Services - Capital goods - Held that:- Entire goods covered under the invoices have been issued to Head Office have been received in Unit-II. There is also no dispute that each invoice bears an endorsement, that the packed machines were sent to Unit -II. Thus, the conditions prescribed for availment of Cenvat Credit by a factory on the basis of the invoices issued to the Head Office as mentioned in the Board's Circular No.211/45/96/CX dated 14.5.96 are satisfied. The Cenvat Credit demand of ₹ 2,41,060/- along with interest and penalty of equal amount imposed on the appellant is, therefore, not sustainable and is liable to be set aside. Levy of penalty - Held that:- appellant themselves had presented their records to the Audit Officers in course of which the above mentioned short-payment or non-payment of duty/service tax had been detected, it cannot be said that the above mentioned short-payment/non-payment of duty/service tax was deliberate. In fact the disputed amounts had been paid before the issue of SCN and therefore the same have to be treated as the payment of central excise duty/service tax made under Section 11 A(2B) of the Central Excise Act, 1944/section 73(3) of the Finance Act, 1994 and since the entire disputed amount of duty/service tax has been paid along with interest, even the show cause notice should not have been issued. In view of these circumstances, I hold that imposition of penalty on the appellant was not called for and is liable to be set aside. duty /Cenvat credit/Service Tax demands along with interest are upheld, imposition of penalty is set aside - Decided in favour of assessee.
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2014 (12) TMI 288
Waiver of pre deposit - Manpower recruitment or supply agency services - secondment of employees - Held that:- he salary fixed for the employee is to be paid in both in India as well as in home country of the employee. What has to be paid in the home country of the employee is paid by the appellant to their principal who takes the responsibility of making such payments to the employee in his home country. There is no finding forthcoming anywhere from the records or from the findings that any fee or extra amount has been paid to the principal who has seconded the employee at all. Decision of AAR IT in the case of Target Corporation India (P.) Ltd. [2012 (8) TMI 466 - AUTHORITY FOR ADVANCE RULINGS] distinguished. - It is quite clear that the decision of AAR IT is not applicable and the facts in this case are similar to the case of M/s. Volkswagen India (Pvt.) Ltd. [2013 (11) TMI 298 - CESTAT MUMBAI]. In both of which favourable view was taken in respect of the assessee, we consider that appellant has made out a prima facie case in respect of these amounts. Appellant has made out a prima facie case for complete waiver of pre-deposit and accordingly, the requirement of pre-deposit of balance dues is waived and stay against recovery is granted for 180 days - Stay granted.
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2014 (12) TMI 287
Waiver of pre depposit - Business Auxiliary Service - Sale/purchase of a used cars - Held that:- When the appellant provided a space to keep the car after cleaning it and also getting it valued and after consulting with the seller, fix price and display for sale and subsequently, when a buyer is found, they would arrange registration and transfer of ownership, etc. There is no doubt that the appellant was rendering service to both of them. When the car is sold, they act as a ‘commission agent’ in selling activity for the seller and act as a ‘commission agent’ for buying activity for buyer. Prima facie, therefore, we find that the appellant may not have a case on merits. - Partial stay granted.
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2014 (12) TMI 286
Condonation of delay - Bar of limitation - Delay in receipt of order - Held that:- It is seen from the impugned order that the order was sent to the appellants as well as their Ld. Advocate, who appeared personal hearing before the Commissioner (Appeals) as well as before this Tribunal. The appellants in their letter dated 15.12.2011, stated that the appellant was informed by their counsel that the Final Order has been passed. Thus, it is clearly evident that the Ld. Counsel had received the impugned order. Section 37C of the 1994 Act read with Rules 13 and 35 of the 1982 Rules clearly indicate that communication of the order to authorized agent of a person is sufficient communication. Thus when the order was passed by the Tribunal in presence of counsel of the appellant, the order shall also be deemed to be communicated on the same date and the submission of the appellant that unless the order is received by the appellant in person, the order shall not be treated to be communicated to the appellant, cannot be accepted. Revenue placed the evidence in so far as the order was sent to the appellants by speed post, no attempt was made by the appellants to refute this evidence. It is also not disputed the service of order to the Ld. Advocate of the appellant. So, we are unable to accept the contention of the Ld. Advocate that the impugned order was served by letter dated 22.12.2011 of the Superintendent (Appeals). There is a delay in filing of appeal and no COD application has been filed by the appellant for condonation of delay of filing appeals - Decided against assessee.
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2014 (12) TMI 285
Waiver of pre deposit - Site formation and clearance, excavation and earthmoving and demolition service - Penalties under Sections 76, 77 & 78 - Held that:- Contract is either for transportation of minerals or mine to the factory or within the mining area and for hiring tippers, bulldozers, excavators, etc. On going through the contract, we find that in this contract, except for charges for removal of overburden which, in our opinion, is covered by definition of mining service but would not be covered ‘site formation and clearance service’, the other amounts on prima facie basis may not be liable for service tax. appellant has made out prima facie case for waiver of pre-deposit on merits. Accordingly, the requirement of pre-deposit of adjudged dues is waived and stay against recovery is granted during pendency of the appeal - Stay granted.
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2014 (12) TMI 284
Waiver of pre-deposit - cargo handling services - Held that:- Appellant had undertaken to manufacture complete Colour Television in the factory of M/s. Genus Electrotech Ltd. The agreement and the bills which have been raised by the appellant indicate that they were charging them for manufacture of Colour Television production while show cause notice direct them to show cause as to why the said services be not included under the category of cargo handling services. On mere perusal of the definition of cargo handling service as provided in Section 65(23) of Finance Act, 1994, we find that the services rendered by the appellant would not fall under the category of cargo handling services, as it is undisputed that the said services of the appellant were rendered within the factory premises. Prima facie, the services rendered by the appellant will not fall under the category of cargo handling services. appellant has made out a strong prima facie case for waiver of the pre-deposit of the amounts involved. Accordingly, application for waiver of pre-deposit of amounts involved is allowed and recovery thereof stayed till the disposal of appeal. - Stay granted.
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2014 (12) TMI 283
Commercial or industrial construction service - construction of colleges, Government hospitals or open university - Works Contract Service - Notification No. 1/2006-S.T., dated 1-3-2006 - Aabatement of 67% of the gross amount - Held that:- For a construction to be levied to Service Tax, whether under ‘commercial or industrial construction service’ or under ‘works contract service’ the same has to be used for commerce or industry. The construction of colleges, Government hospitals or open university cannot be said to be commercial or industrial in nature. In other words, at the relevant time, the levy did not cover non-commercial or non-industrial construction (other than residential). Therefore, prima facie, there is merit in the contention of the appellant that they are not liable to Service Tax on the amount of ₹ 5,61,69,307/- received by them. If the department has still any doubt, they can call for the copy of the contract and approved plans for the said constructions to satisfy that they are non-commercial or non-industrial in nature, falling outside the purview of service tax levy and the appellant is also directed to submit all the relevant documents in this regard to the department. The work order issued by Maharashtra State Agricultural Marketing Board also indicates the activity undertaken as construction of market yard, cold storage and so on. These are all civil constructions coming under the category of “commercial or industrial construction service” and not “completion and finishing services” as concluded by the department. If completion and finishing services are undertaken as part of the construction service, then the full service rendered has to be seen as a whole to decide the eligibility to the abatement under Notification No. 1/2006-S.T. - None of the issues germane to the transaction has been examined or considered by the adjudicating authority. Therefore, we set aside the impugned order and remand the case back to the adjudicating authority - Decided in favour of assessee.
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2014 (12) TMI 282
Steamer Agent services - Penalty u/s 78 - Jurisdiction of Adjudicating Authority - Held that:- A jurisdictional objection has to be raised at the earliest opportunity. Such opportunity was available to the appellants when the SCN was served on them. They did not challenge the Additional Collector’s jurisdiction while replying to the SCN, nor did they choose to do so before the adjudicating authority later. They have not raised any jurisdictional objection even in this appeal. The appellants, having submitted to, and acquiesced in the jurisdiction of the departmental authorities, are stopped from challenging it as they did through Counsel at this stage - Following decision of Sangameshwar Pipe and Steel Traders case [2002 (1) TMI 115 - CEGAT, COURT NO. II, NEW DELHI]. Amounts were collected by the appellant from their clients for rendering the services of a ‘steamer agent’. The amounts so collected were to be remitted to various governmental authorities towards statutory levies. However, the appellant had collected huge amounts from their clients far in excess of the statutory levies and retained the excess amounts so collected with them. The statement also reveals that the amounts collected from the clients were far higher than the statutory levies required to be collected; in many cases, the same were a couple of times more than the requirement. In other words, the appellants were collecting amounts charges for the services rendered under the guise of statutory levies and retaining the excess amounts with them on which they did not discharge any service tax liability. Therefore, the demand of service tax on the amounts so collected along with interest thereon under Section 73 read with Section 75 of the Finance Act, 1994, is sustainable in law. Invocation of extended period of limitation - Held that:- appellant did not disclose the collection of extra amounts to the department either in the statutory returns or otherwise. The facts came to light only when investigation was undertaken and the statement of the Managing Director was recorded in January, 2002 and the show cause notice was issued in March, 2002. As held by the Hon’ble Apex Court in the Nizam Sugar Factory Ltd. [2006 (4) TMI 127 - SUPREME COURT OF INDIA] case, it is the date of knowledge which is relevant for computation of time limit for issue of show cause notice. In the present case, the department came to know of suppression of value only in January, 2002 when the statement of the appellant was recorded and the notice has been issued in March, 2002. Thus the notice has been issued well within time and the plea of time bar fails. Law as it stood at the relevant time prescribed a minimum penalty equal to the tax sought to be evaded and a maximum penalty of twice the amount of tax. The penalty imposed in the present case is within the limits envisaged under the law. The conduct of the appellant by collecting huge amounts under the guise of statutory levies far in excess of such levies clearly reveals mala fide intention on the part of the appellant. Therefore, imposition of maximum penalty as provided for in the law cannot be faulted. - Decided against assessee.
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2014 (12) TMI 281
Waiver of pre-deposit - Cenvat credit - Inputs used for providing Telecom service - Cenvat credit on (i) transmission towers and parts thereof; and (ii) prefabricated buildings/shelters - Bonafide belief of admissible credit - Held that:- The Circular was issued in the end of February, 2008. Prior to that date, there was correspondence between the department and the appellant. The department asked for particulars of the Cenvat credit availed on towers and parts thereof and also on prefabricated buildings. These particulars were furnished by the party. This happened in January, 2008. There is no material on record to show that the appellant pleaded bona fide belief in their correspondence with the department. As regards ST-3 returns, we agree with the learned counsel that the format of return requires only the amount of Cenvat credit availed by the assessee during the period of return and does not require item-wise break up. However, every return was accompanied by a declaration. The assessee has declared inter alia that they have correctly availed credit in accordance with the provisions of the Finance Act, 1994 and rules thereunder. We have already dealt with those rules and have found that the definition of “input” during the material period was plain and simple. Apparently, it was only after consulting the legal provisions that the assessee in their returns declared as above. This is another factor which contradicts the plea of bona fide belief. - Partial stay granted.
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Central Excise
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2014 (12) TMI 280
Intermediate products like Vitamin Premixes and Mineral Premixes - manufacturing infant foods like 'Lactodoex, Lactodex Starter, Lactodex Follow-up, etc - Denial of the benefit of captive consumption notification No. 67/95-CE dt. 16/03/95 - Classification of goods under Tariff Heading 2936 or chapter heading 1901 - Held that:- From the process of manufacture of vitamin premixes it may be concluded that vitamin pre-mix is excluded from Tariff Heading 2936 by virtue of the above chapter note. The process of manufacture shows that to the processed starch, only vitamins and minerals are added. Thus it is a starch based product. The premix so formed is not a simple mixture of vitamins, either natural or synthesized. Further the language of Tariff Heading 2936 is that the vitamins and derivates are used primarily as vitamins. No evidence is placed on record to show that the pre-mix is primarily used as vitamins, its name notwithstanding. In fact it is a starch based product to which vitamins are added. Evidently the chapter heading 1901 is more specific. The Commissioner (Appeals) referred to Larger Bench decision in the case of Tetragen Chemie Vs. Commissioner reported in [1998 (9) TMI 390 - CEGAT, NEW DELHI] which was affirmed by Supreme Court in [2001 (7) TMI 127 - SUPREME COURT OF INDIA] to rule out classification under CETH 2936. - vitamin pre-mix and mineral pre-mix are mixtures of starch preparations to which nutrients i.e. vitamins and minerals are added and merit classification under CETH 1901 as preparation of starch attracting Nil rate of duty. - Decided against Revenue.
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2014 (12) TMI 279
Modvat credit - Remission of duty - Destruction of goods due to fire - Held that:- Commissioner (Appeals) after considering the certificates of the Insurance company allowed Modvat credit on the finished goods/capital good. It is also seen that the Commissioner (Appeals) had annexed the certificates of the Insurance company with the impugned order. In the present appeal, the Revenue had not disputed the contents of certificates of the Insurance company. I find that the Revenue has not placed any material contrary to certificates of Insurance Company and, therefore, such grounds cannot be sustained - No merit in Revenue's appeal - Decided against Revenue.
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2014 (12) TMI 278
Clearance of petroleum products without payment of duty under cover of ARE-3 Certificates from their factory for the purpose of export warehousing, without coverage of any CT-2 or CT-3 Certificates - Contravention of the provisions of Rule 20 of Central Excise Rules, 2002, read with CBEC Circular Nos.581/18/2001-CX dated 29.06.2001 and 579/16/2001-CX dated 26.06.2001 and Para 4.1 of Part I of Chapter 10 of the CBEC’s Excise Manual - Intention to evade duty - Held that:- It is the claim of the Appellant that even though they are not required to place such evidences in view of the Notification No.37/2007-CE dated 01.11.2007, which rests on their marketing division, however, now, they have procured the necessary Certificates from their marketing division to show the goods cleared by them against indents issued by the Marketing Division, were, in fact, consumed on board of a vessel of Indian Navy/Coast Guard. Regarding the other issues, we find that the Appellant had submitted before the adjudicating authority that in view of the various CBEC s Circulars issued from time to time, the transit losses up to 1% could be condoned, which has not been dealt with by the adjudicating authority in the impugned order. We find from the record that the Appellant had discharged duty against shortages in excess of condonable limit and also paid interest on this count - matter remanded back - Decided in favour of assessee.
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2014 (12) TMI 277
Removal of gold Sludge without payment of duty - waste and scrap of containing precious metal or precious metal compounds - Penalty under Section 11AC - Demand of differential duty - Classification of goods - Held that:- It is seen from the Dispatch voucher No.30046586 dt. 21.5.2002 that the respondent cleared the goods under description "Recovered Sludge from refining", to the quantity of 2525.10 kgs. cleared to M/s.Nirvighnam Plantinum Ltd., Juhu, Mumbai. It is also mentioned that the materials being sent on sale basis, type-non-returnable. The learned advocate on behalf of the respondent during the course of hearing submitted that the goods were sent to the job worker for recovery of gold and approximately 1% would be recovered. According to Revenue, it is waste and scrap of precious metal i.e. gold and it would be classified under Heading 7101 of CETA Commissioner (Appeals) proceeded on the basis of various case laws on the Sludge. All the case laws are related to Base metals which are classifiable under Chapter 72. Note 8 of Section XV of CETA'85 defines waste and scrap; Metal waste and scrap from manufacture of working of metals and metal goods definitely not usable as such of damage on clearance or for other reason. Chapter 71 is covered under Section XIV of CETA. Waste and scrap has not been defined in Chapter 71 of Section XIV of CETA. After going through HSN notes we are very clear that sub heading 7101.80 would cover waste and scrap of any metal containing precious metal used for recovery of precious metal. In the present case, it is a fact that the respondent cleared Sludge containing Gold, for recovery of precious metal. respondent contested the demand claiming Exemption Notification No.89/95-CE dt. 18.5.95 before the adjudicating authority. But, respondent, in their appeal before the Commissioner (Appeals) contested the demand mainly on non-excisability of the goods. Therefore, there is no need to discuss on the eligibility of exemption notification. - demand of duty confirmed - however penalty set aside - Decided partly in favour of Revenue.
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2014 (12) TMI 276
Cenvat credit - duty paying documents not in the name of appellants - appellants submits that the appellant received duty paid goods for repair, recondition under Rule 16 of the Central Excise Rules. - Penalty u/s 11AC - Held that:- Appellant received duty paid goods in their factory for being remade, reconditioned under Rule 16 of the CCR 2002. it is seen that the appellant availed credit on the basis of invoices issued by M/s. Volvo India Pvt. Ltd. consigned to M/s. Nav Bharat Corporation. Admittedly, these invoices are not prescribed under Rule 7 (1) (a) of the CCR 2002 - The second part of the Rule 16 clearly stipulates that the duty paid goods should be received by the appellant and appellant shall be entitled to take cenvat credit under CCR 2002. So they are eligible to avail the credit on the basis of documents as prescribed under CCR 2002. As already stated, the invoices in question are not in the name of the appellant under Rule 7 of CCR and therefore the appellants are not eligible to avail the said credit. Appellant informed that their customer, M/s.Nav Bharat Corporation sent duty paid Trailers to remake and convert for required model. It is also stated that as per Rule 16 of the said Rules, they proposed to bring the duty paid trailers along with the documentary evidence for the duty payment and carry out modifications for converting the trailers as per customer's requirement and return back on payment of duty for the full value of remade trailers. The said letter is silent that the appellant availed credit on the basis of invoices of M/s.Volvo India Pvt. Ltd. It is a clear case that the appellants deliberately suppressed the name of M/s.Volvo India Pvt. Ltd. in their letter to evade payment of duty and extended period of limitation would be applicable. No reason to interfere with the order of Commissioner (Appeals) - Decided against assessee.
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2014 (12) TMI 275
Demand of duty on weaving hard waste, chindi waste and selvedge waste generated during the anufacture of nylon yarn, woollen yarn and plush fabrics - Exemption from duty under Notification No. 27/95-C.E. - Invocation of extended period of limitation - Held that:- Though the show cause notices demands duty on these wastes, and the same has been confirmed by the order-in-original passed by the Joint Commissioner, which has been upheld by the Commissioner (Appeals), neither the show cause notice nor the orders passed by the lower authorities mention as to under which tariff heading these wastes are classifiable and what is the rate of duty applicable to them. In our view, on this very ground only the order-in-appeal passed by the Commissioner (Appeals) merits to be set aside. Besides this, we also find that during the period of dispute, the appellant were filing classification declarations in which these wastes had been declared and the exemption under Notification No. 27/95-C.E. had been claimed. No objection has been raised by the department to the benefit of the exemption Notification No. 27/95-C.E. claimed by the appellant. In view of these circumstances, the appellant cannot be accused of having suppressed the relevant information from the department with intent to evade the payment of duty, and hence the show cause notice, dated 22-6-2000 issued for recovery of allegedly short-paid duty during the period from July, 1995 to September, 1995 is time-barred. Impugned order upholding the duty demand and imposition of penalty under Rule 173Q is not sustainable. - Decided in favour of assessee.
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2014 (12) TMI 274
100% EOU - fulfilling the export obligation - Discharge of duty liability - Non consumption of goods imported - Held that:- there is no evidence to show that this achievement was made without using the goods imported/sourced indigenously. Secondly the observation of the learned original adjudicating authority that the consumables were not consumed also was without basis. In the absence of any evidence to show that the consumables were not used for production of export goods which were apparently produced in view of the fact that 5.31% of export obligation has been fulfilled, the observation of learned Commissioner(Appeals) that consumables were consumed has to be accepted - Decided against Revenue.
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2014 (12) TMI 273
CENVAT credit - availment of full credit of duty on the inputs received from 100% EOU instead of eligible credit - Imposition of equivalent penalty - Held that:- in the first case where inputs were transferred to the other unit, there is no revenue loss at all since credit was not taken in the other unit. In the normal course credit could have been reversed, invoice issued and other unit could have taken credit and therefore there was no revenue loss. As regards the other two amounts, such mistakes can happen because of arithmetical errors. Therefore I find that in this case imposition of penalty on the ground of suppression of fact may not be sustained. Levy of penalty - Once suppression or misdeclaration is established, penalty is mandatory. In this case, the show-cause notice alleged suppression and it was stated that the fact of availment and utilization of CENVAT credit have not been intimated to the Department by the assessee in their monthly ER1 returns or in any manner whatsoever and the same amounts to wilfull suppression with an intention to evade payment of duty. There is no finding clearly that the amounts taken as credit in this case were not part of the total amount of CENVAT credit taken in the ER1 by the assessee in any of the records. Further there is no requirement under the law to intimate to the Department of each and every document on the basis of which credit has been taken. - Decided in favour of assessee.
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2014 (12) TMI 272
Valuation of goods - Determination of assessable value - suo moto order of provisional assessment by the department - Held that:- Sub-rule (1) of Rules 7 of the Central Excise Rule, 2002 states that “where the assessee is unable to determine the value of the excisable goods or determine of the rate of duty applicable thereto, he may request the Assistant Commissioner of Central Excise in writing giving reasons for payment of duty on provisional basis and the Assistant Commissioner may order allowing payment of duty on provisional basis at such rate or on such value as may be specified by him.” If such permission is granted, the rule provides for execution of a Bond by the assessee with such surety or security as the said Assistant Commissioner may specify. The Rule further provides that where the provisional assessment has been sought, the Assistant Commissioner of Central Excise shall pass order for final assessment as soon as may be. when the Central Excise officers, during the scrutiny or otherwise, find that self-assessment is not in order, the assessee may be asked for all necessary documents, records or other information for issue duty demand for differential duty, if any, after conducting proper inquiry and in case the assessee fails to provide the records/information, 'best judgment' method may be adopted to demand the duty. Thus, both the Rule and instructions issued thereon provides for assessment of duty finally in a case where assessee is unable to determine the correct amount of duty or correct rate of duty and also does not opt for provisional assessment - Decided against Revenue.
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2014 (12) TMI 271
Denial of refund claim - unjust enrichment - on appeal before the Commissioner (Appeals) the refund claim was allowed holding that bar of unjust enrichment is not applicable to the facts - Held that:- contention of the AR that the decision of Addison & Co (2000 (11) TMI 146 - HIGH COURT OF JUDICATURE AT MADRAS) is in challenge before the Apex Court, therefore, impugned order is to be set aside. When it was asked, what is the status of the case in Addison & Co. in Apex Court he could not give update of the said case. In the absence of non-finalisation of the decision in Apex Court, the decision of the Hon'ble High Court of Madras is enforceable as on today. Further, the revenue has failed to produce contrary evidence that the respondent have received any amount over and above 8% of the duty from the customers - Decided against Revenue.
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