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TMI Tax Updates - e-Newsletter
February 10, 2015
Case Laws in this Newsletter:
Income Tax
Customs
FEMA
Service Tax
Central Excise
Articles
News
Highlights / Catch Notes
Income Tax
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Entitlement to deduction u/s. 80I and 80IA - when the product is to be disposed of immediately even that the product is not fit for human consumption. If it is required to be preserved, it seems to be a manufacturing process - HC
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Accrual of interest income - nonoperational sticky loans in respect of which mercantile actual of interest was shown in the suspense account and not the profit and loss account, would not, in law, be payable on mercantile accrual basis. Interest on such loans would have to be accounted for and paid as and when it is realised. - HC
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Assessment after partition of a Hindu undivided family - The settlement deserves to be given full effect and the legal consequences flowing therefrom cannot be ignored, on the ground that they do not fit into any specific provision of law. - HC
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Registration under Section 12A cancelled - Mere selling some product at profit (as has been the allegation of the revenue) will not ipso facto hit the assessee by applying proviso to Section 2(15) and deny exemption available under section 11. - AT
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Penalty u/s 271(1)(c) - profits from sale and purchase of agricultural land shown as capital gain instead of profits and gains from business - No penalty - AT
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Disallowance of depreciation on commercial property - the issue is whether on purchase of commercial space for a composite consideration, the assessee is entitled to claim depreciation on the composite consideration. - AT
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Addition being transportation charges which was salary paid by the directors to the drivers engaged by them - The only case of the department is that the drivers’ salary of the trucks belonging or hired by the related persons must have been paid by the assessee - No addition - AT
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Revision u/s 263 - Even if the order of the AO u/s 154 was bad in law then also the Ld.CIT was required to give concrete finding on facts as to how the order is prejudicial to the interest of the revenue. - AT
Customs
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Reduction in penalty imposed - Validity of order passed by CESTAT - The maximum possible penalty was ₹ 15.30 crores but the adjudicating authority imposed a total penalty of ₹ 1.75 crores. The CESTAT has reduced penalty to ₹ 12 lacs without assigning any clear and cogent reasons much less reference to any relevant facts or law. - HC
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Demand of differential duty - Re classification of goods - import of base oil - . Once the flash point is above 94° C, the product cannot be classified under heading ‘lubricating oil’ at all, since the flash point has to be below 93.3° C. - AT
Service Tax
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Denial of refund claim - export of software service and software consultancy service - the activity were not taxable during the relevant period - the cap of 20% prescribed under Rule 6(3)(c) have no application whatsoever. - AT
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Classification of service - providing pre-construction anti-termite treatment - activity can by no stretch of imagination be covered under the definition of CICS or CCS. - AT
Central Excise
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Removal of tobacco refuse without payment of duty - just because appellant cleared tobacco refuse without payment of duty, cut tobacco which forms part of such refuse cannot be levied to central excise duty as proposed by the Revenue in these cases - AT
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Manufacture - The PVC sleeves are cut into horizontal pieces of required width which are then mounted on moulds of specific shape and dimensions and such cut sleeves heated upto a specified temperature to get particular shape and so formed sleeves are thereafter used to seal the caps of plastic containers - Held as manufacturing activity - AT
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Duty demand - Manufacturing activity or not - appellant do not manufacture any component of lamp shade/chandeliers or other light fittings but procure the various component of the chandeliers lamp shades and light fittings of a particular design and packed the same in a box. - AT
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Interest claim on refund -The refund application was filed only on 06.07.2004 - The Commissioner (Appeals), however, has granted interest even from much earlier period from 20th February, 2004, against which it is the department which should be aggrieved and not the appellant. - AT
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Refund of unutilized credit - In the event of the factory being taken over by another person, and resuming production, Rule 10 permits the transfer of cenvat credit to the new owner subject to certain conditions. But there is no provision for cash refund of such unutilized credit.
- AT
Case Laws:
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Income Tax
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2015 (2) TMI 294
Entitlement to claim deduction under section 80-IA - AO disallowed the assessees' claim under Section 80IA of the Income Tax Act primarily on the ground that carried forward loss of earlier years should be set off before computing the profit for the current year. - Held that:- All the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. See Velayudhasamy Spinning Mills (2010 (3) TMI 860 - Madras High Court ) - Decided in favour of the assessee.
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2015 (2) TMI 293
Procedure for block assessment - proceedings under sections 158BC and 158BD - reasonable period of time in issuing notice - Held that:- In light of the position of law declared in Commissioner of Income Tax v. V.K. Narang HUF, [2015 (1) TMI 566 - DELHI HIGH COURT] this Court finds that the delay of 5 months in the issuing of notice by the A.O. in the present appeals cannot be unreasonable. Accordingly, the impugned orders of the ITAT is set aside on this aspect. The satisfaction note is held to be validly issued and within a reasonable time. In the light of the above observations of the Supreme Court in Calcutta Knitwears [2014 (4) TMI 33 - SUPREME COURT], particularly the contextual facts discussed (i.e. completion of the searched party’s assessment on 31-03-2005, satisfaction note under Section 158BD issued on 15-07-2005 and notice issued on 10-02-2006) it cannot be said that the delay in issuing the notice (although the satisfaction note was recorded within reasonable time) was fatal to the block assessment against the present assesse. Decided against assessee.
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2015 (2) TMI 292
Entitlement to deduction u/s. 80I and 80IA - Whether processing of seeds is manufacturing activity ? - activity of testing, gradation, drying, fumigation and coating of seeds - processing of seeds which is not fit for human consumption - Held that:- In view of the matter, from the chart, it appears that the same process also been certified by the Gujarat State Seed Certification Agency and from the certificate issued by the said Agency which clearly describes the manufacturing process, and in view of the two decisions of the Hon'ble Supreme Court, the production of the assessee is not fit for human consumption. The production is not fit for human consumption, and therefore, it changes its original form. If we look at the decision of the Hon'ble Supreme Court in the case of Aspinwall and Co. Ltd. v. Commissioner of Income-Tax, it is said that the word "manufacture" " has not been defined in the Act. In the absence of a definition of the word "manufacture" it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.In that view of the matter, we are of the opinion that the contention raised by the department that it is not a manufacturing process, is devoid of merit and the same is required to be rejected. When the product is to be disposed of immediately even that the product is not fit for human consumption. If it is required to be preserved, it seems to be a manufacturing process, and therefore, in our view, the finding of the Tribunal is misconceived and required to be reversed and the view taken in the subsequent year is accepted. Also going through the letter, from which, it is clear that more than 10 employees are working there, which fulfills the condition, and therefore, the assessee is entitled for the benefit under sec. 80IA of the IT Act. - Decided in fvaour of assessee.
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2015 (2) TMI 291
Interest income from housing loans given by the assessee to the seven societies - whether be treated as income accrued or received to the assessee? - assessee was following mercantile system of accounting - Held that:- Chargeable interest is interest that accrued or arose in the previous year, irrespective of whether such interest was actually received. Thus, where any loan or advance is given for a certain term, for example, where a loan is given for 5 years and interest is to be computed periodically, but is actually realised in advance, at the time of disbursement of the loan/advance, there interest would become chargeable. Periodically and not at the time when it is actually realised. Similarly, if the interest is to be computed in monthly, quarterly, or yearly rests, chargeable interest would accrue at the end of the months, quarter or year, as the case may be, even though actual realization may take place at a later date. As already held that nonoperational sticky loans in respect of which mercantile actual of interest was shown in the suspense account and not the profit and loss account, would not, in law, be payable on mercantile accrual basis. Interest on such loans would have to be accounted for and paid as and when it is realised. See UCO BANK VS. CIT, WEST BENGAL-III, KOLKATA [2014 (1) TMI 86 - CALCUTTA HIGH COURT] - Decided in favour of the assessee. Provisions of section 34 of the Code of Civil Procedure relied particularly in view of section 5 of the Income Tax Act, 1961 - Held that:- In this case, it was not any doubtful loan and the interest has not been kept, although, the Tribunal has held, as noted herein above. . The assessee in this case was and had never decided to waive off any loan or interest, but, has filed suits and bad debts can be written-off in terms of Section 37 of the Act.- Decided in favour of the assessee.
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2015 (2) TMI 290
Assessment after partition of a Hindu undivided family - legal character of a family arrangement - whether any amount or property covered by family arrangement can still continue to be the wealth of HUF? - AO entertained a doubt as to whether the arrangement can be treated as a partial partition - Held that:- Family arrangement, wherever it exists and is proved, is a sui generis i.e. a class by itself, with full legal enforceability, de hors the fact that it is not dealt with under any specific provision of an enactment. The settlement deserves to be given full effect and the legal consequences flowing therefrom cannot be ignored, on the ground that they do not fit into any specific provision of law. Once the HUF has settled a sum of ₹ 1,25,000/-, each, in favour of six minor daughters of the Karta, the corresponding amount ceased to be the wealth or the assets of the HUF. The same cannot be treated as part of the wealth of the HUF even thereafter. The returns filed by the HUF is not the avenue to examine the question as to how the amount so settled must be treated in the hands of the person on whom it was settled.Two other reasons assigned by the Tribunal are: (a) the insertion of Section 29A of the Hindu Succession Act in the context of State of Andhra Pradesh, makes the arrangement not binding and (b) clause - IV of the Deed of Settlement, is not legally correct. Both the aspects are totally outside the jurisdiction of the adjudication or determination under the Act. - Decided in favour of assessee.
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2015 (2) TMI 289
Income recognition - unrealizable interest on non-performing advances - not recognized as revenue by the assessee bank following theory of real income while determining accrued income as per provisions of section 145 - Held that:- Neither of the parties have placed material on record to demonstrate that the verification of accrual of interest has been decided on the basis of examination of each account. Respectfully following the decision of Hon’ble Madras High Court in the case of Sakthi Finance Ltd. (2013 (3) TMI 266 - MADRAS HIGH COURT) are of the view that the accrual of interest is a matter of fact which needs to be decided on the basis of examination of the status of each party. We therefore restore the issue back to the file of A.O to decide the issue de novo - Decided in favour of assessee for statistical purposes. Addition to an amount of interest income - Held that:- it is Assessee’s submission that the interest of ₹ 40,35,373/- has already been offered to tax in earlier years. Apart from the submissions that the amount has been offered to tax in earlier years, no details or break up has been placed before us to demonstrate as to when the interest was offered to tax in earlier year. We also find that A.O has also not given any finding about as to when the amounts was claimed by the assessee as deduction and therefore the amount claimed by the Assessee is double deduction. We are therefore of the view that the issue needs re-examination. Restore the issue back to the file of A.O to decide the issue afresh - Decided in favour of assessee for statistical purposes. Disallowance of certain expense - Held that:- A.O had disallowed the expenses for the reason that the Assessee could not explain the discrepancy between the amount appearing in the ledger and its Profit and Loss account. On the other hand we further find that CIT(A) has restricted the disallowance to 20% but while restricting the disallowance to 20%, there is no finding of CIT(A) about the discrepancy which has not been explained by the Assessee. In view of the aforesaid facts and the contentions of the ld. A.R, we are of the view that in fairness, the matter needs to be re-examined and we therefore restore the issue back to the file of A.O to decide the issue afresh after giving adequate opportunity of hearing to the Assessee. - Decided in favour of assessee for statistical purposes.
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2015 (2) TMI 288
Addition on account of low yield of finished product - CIT(A) deleted the addition - provisions of section 145(3) invoked - Held that:- There was an abnormal increase in the purchase of power and fuel as the sodium acetate solution was purchased at 1776.81 MT during the year as against 96.05 MT in the immediately preceding assessment year. We find that the fuel cost has increased from ₹ 14.66 lakhs in the previous year to ₹ 38.33 lakhs during the relevant year. The turnover of the assessee has not increased during the relevant period. The plea of the assessee is that with new manufacturing process it was able to save a net saving of ₹ 18.38 lakhs during the relevant period, is not convincing for the simple reason that the savings, if made in the manufacturing process, should have been reflected in the overall GP rate of the assessee. Provisions of section 145(3) of the Act were rightly invoked by the AO. However, we find that the GP rate of last year at 32.03% was applied for the relevant period, resulting in addition of ₹ 19.63 lakhs, which seems to be on the higher side. The assessee has tried to explain that there was increase in the cost of input material during the year, and there was a change in the manufacturing process of the assessee during the relevant year. Considering the totality of the facts of the case, and the pleading of the assessee, we are of the view that the ends of justice shall be met, if the addition on account of GP is restricted to ₹ 12,50,000/- as against ₹ 19,63,023/- made by the AO and deleted by the CIT(A) - Decided partly in favour of revenue. Deemed dividend - CIT(A) granting relief of rs.26,30,779/- on account of advance of ₹ 43,05,779/- given to the assessee by the company through its unit M/s.Akshay Chemicals (NIPL) - Held that:- CIT(A) has passed a well reasoned speaking order on this issue. The payment against the amount receivable by the assessee could not be taken as deemed dividend in the hands of the assessee. The working of addition after allowing adjustments of the amount payable on the date of payment comes to ₹ 15,44,232/-. We find that the CIT(A) has directed the addition of ₹ 16,75,000/- by adding the figure of ₹ 66,742/- paid to the assessee by the company in February and March, 2007 in the figure of ₹ 15,44,232/- and difference of ₹ 64,000/- was ignored being a meager amount. In these facts, we hold that there being no mistake in the order of the CIT(A) on this issue, the same is confirmed - Decided against revenue. Additional depreciation on plant and machinery - disallowance additional depreciation on plant and machinery confirmed by the ld.CIT(A) - Held that:- There is no material on record on behalf of the assessee to show that the machinery during the year was new and expenditure made by the assessee was not in the form of repairs and maintenance of old machinery or addition thereto. In these facts, we hold that no interference in the order of the CIT(A) is called for, which is confirmed - Decided against assessee. Penalty u/s.271(1)(c) - additional income disclosed by the assessee in the returns filed under section 153A - Held that:- Issue of levy of penalty under section 271(1)(c) of the Act on the additional income offered after the search, in the return filed under section 153A of the Act, is covered with the decision of Kirit Dahyabhai Patel Vs. ACIT (2015 (1) TMI 201 - GUJARAT HIGH COURT) wherein held that in view of specific provision of section 153A of the Act, the return of income filed in response to notice under section 153A of the IT, Act is to be considered as return filed under section 139 of the Act, as the AO has made assessment on the said return and therefore, the return is to be considered for the purpose of penalty under section 271(1)(c) of the Act, and the penalty is to be levied as income assessed over and above the income returned under section 153A, if any. Thus the issue is decided in favour of the assessee and the penalty levied under section 271(1)(c) of the Act for all three assessment years are cancelled - Decided in favour assessee.
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2015 (2) TMI 287
Registration under Section 12A cancelled - whether or not the learned Commissioner was right in exercising his powers under section 12AA(3), in withdrawing the registration granted to the assessee under section 12AA? - objectives/activities of the appellant are not Charitable in nature - appellant is doing the activities for a ‘cess’ or ‘fee’? - Held that:- As long as activities of the trust or the institution are being carried out in accordance with the objects of the trust or the institution, as these objects existed at the point of time when registration granted, it cannot be open to the Commissioner to fault the assessee so far as objects of the trust or the institution are concerned, and, on that basis, cancel the registration granted under section 12 AA(1). The words used in section 12AA(3) are free from any doubt or ambiguity, and, as held by Hon’ble Uttarakhand High Court in the case of Welham Boys School Society Vs CBDT [2005 (10) TMI 66 - UTTARANCHAL High Court ], the only power under which a Commissioner can cancel the registration is power under section 12AA(3) and validity of a an order cancelling the registration is to be examined on the touchstone of legal provisions set out therein. While learned Commissioner has, on the basis of elaborate reasoning set out in the impugned order, concluded that, “the objective clauses of the authority….. are in the nature of business with a view to earn profits” and that “the activities of Muzaffarnagar Development Authority are not charitable in nature nor advancement of general public utility within the meanings of Section 2(15) of the Income Tax Act”, none of these reasons, even if correct, can be legally sustainable basis for exercise of powers under section 12AA(3). The only occasion to examine whether or not the objects are charitable is when the registration is granted is when examining the application of registration under section 12AA(1) and once no adverse inference is drawn, vis -à-vis the objects, at that stage, that aspect of the matter cannot be examined again in the course of exercise of powers under section 12AA(3). Mere selling some product at profit (as has been the allegation of the revenue) will not ipso facto hit the assessee by applying proviso to Section 2(15) and deny exemption available under section 11. Thus mere selling some product at profit (as has been the allegation of the revenue) will not ipso facto hit the assessee by applying proviso to Section 2(15) and deny exemption available under section 11 - Decided in favour of assessee.
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2015 (2) TMI 286
Valid service of notice under section 143(2) - validity of order passed u/s 143(3) - Held that:- Since the notice was dispatched by registered post at the correct address of the assessee, which is recognized mode of service as per Rule 9 of order V of CPC 1908, the notice must be deemed to have been validly served, since the same was not received back un-served. we are in agreement with the conclusion arrived by the ld CIT(A) that the notice dated 15th October 2004 was deemed to have been served upon the assessee. An affidavit of the assessee to state the contrary in this respect, does not in any manner overcome the binding statutory presumption in this respect without any evidence to rebuilt the same. See CIT Vs. Yamu Industries Ltd. [2007 (5) TMI 237 - DELHI HIGH COURT] - Decided against assessee. Addition u/s 43B read with Section 2(24)(x) - employee contribution to PF and deposited late by the assessee - CIT(A) deleted the addition - Held that:- As relying on CIT Vs. Aimil Ltd. [] Where for the assessment year 2002-03 the assessee had deposited employer’s contribution as well as employee’ contribution towards provident fund and ESI after the due date, as prescribed under the relevant Act/ Rules but before the due date for filing the return under the Income-tax Act Held accordingly, that no disallowance could be made in view of the provisions of Section 43B as amended by the Finance Act, 2003. - Decided in favour of assessee. Addition u/s 68 - addition on account of share capital - CIT(A) deleted addition admitting additional evidence - Held that:- CIT(A) ought to have recorded a specific findings spelling out the reason and basis before admitting such evidence and considering them for adjudication. As the statutory pre-condition has not been fulfilled we set-aside the order of the ld CIT(A) as regards the addition of ₹ 223 lakhs. However on the perusal of the remand report we find that the AO also sought to lead additional evidence in the form of investigation carried out by Investigating Wing apart from seeking personal deposition of share holders. In such a scenario, it would be in the fitness of things and interest of justice that the issue in hand as regards, the addition of ₹ 223 lakhs is remanded back to the file of AO for fresh adjudication. The assessee may be permitted to adduce any fresh evidence and the AO before relying upon any evidence should supply the same to the assessee and principles of natural justice shall observed before passing the fresh order before drawing any inference. In the result, the deletion of addition of ₹ 45 lakhs addition on account of share capital includes addition of ₹ 45 lakhs pertains to share capital raised in the preceding Assessment Year. This addition has been rightly deleted by the ld CIT(A) as no sum has been credited in the instant year is upheld and the remaining addition of ₹ 223 lakhs is remitted back to the file of AO for fresh adjudication as directed above. Decided partly in favour of assessee and revenue for statistical purposes. Disallowance of expenditure - CIT(A)has upheld the addition - Held that:- The appellant company neither during assessment proceedings nor during appellate proceeding has brought anything on the records to meet out the observations made by the AO. The appellant has spent substantial amount of construction of building without having proper bills and vouchers. The fabricators has confirmed nil balance to the AO whereas the appellant books of account reflects a debit balance of ₹ 1,83,914/-. Therefore, disallowance as made by the AO in the assessment order is confirmed. - Decided against assessee.
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2015 (2) TMI 285
Penalty u/s 271(1)(c) - profits from sale and purchase of agricultural land shown as capital gain instead of profits and gains from business - CIT(A) deleted levy - Held that:- If complete details of transaction has been revealed by the assessee in its return of income, then penalty u/s 271(1)(c) of the Act will not be imposable just because the claims of the assessee are found to be legally not allowable. In the instant case, the assessee furnished all particulars of purchase and sale of agricultural land which brought profit to the assessee. During the quantum proceedings, the AO treated the profit as business profit instead of capital gains as claimed by the assessee, therefore, by any stretch of imagination, it cannot be held that the assessee has furnished inaccurate particulars of its income or has concealed particulars of its income. We further hold that merely because the assessee proposed the impugned profits from sale and purchase of agricultural land as capital gain but the AO assessed the same under the head of profits and gains from business and profession, in this situation, penalty u/s 271(1)(c) of the Act is not imposable as in any case, it cannot be said that the assessee has furnished inaccurate particulars of its income or has concealed particulars of its income before the AO during quantum proceedings. Thus, the CIT(A) was right in deleting the penalty imposed by the AO and we are unable to see any valid reason to interfere with the impugned order of the CIT(A) in this regard. - Decided in favour of assessee.
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2015 (2) TMI 284
Rectification of mistake - gifts of ₹ 13.25 lacs received by the petitioner from one Kishan Punjabi (donor) were not genuine - Held that:- It has not been shown to us that the findings reached by the Tribunal on examination of the statement of the donor is in any manner perverse and/or arbitrary. So far as reliance in the order dated 10th July, 2007 on th decision of the Supreme Court in P.Mohan Kala (2007 (5) TMI 192 - SUPREME Court) is concerned, it was pointed in the impugned order that it merely records the fact that a gift from abroad does not become genuine merely because it is routed through a banking channel. The Tribunal in its order dated 10th July, 2007 after recording the conclusion of the Supreme Court tested the order of the Commissioner of Income Tax (Appeals) keeping in view that mere receipt of gifts from a foreign party through banking channel would not make it genuine. In fact, it was one of the submissions of the petitioner before the Tribunal that the gift received from the donor who was a foreign national through established banking channel makes it a genuine gift. The petitioner attempted to point out that there are distinguishing features in the decision of P.Mohan Kala (supra) and in present case. However to our mind, facts of the case would not be material for the present purpose as the conclusions of the Supreme Court being relied upon is that in law mere routing of a gift through a banking channel would not by itself establish that the gift is genuine. This finding of the Supreme Court is applicable irrespective of the facts. The genuineness or nongenuineness of the gift would have to be established by other evidence. The Tribunal was thus justified in coming to the conclusion that there has been no error apparent on record in order dated 10th July, 2007. - Decided against assessee.
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2015 (2) TMI 283
Income deemed to accrue or arise in India - Non deduction of tds on commission paid to non-residents for services rendered outside India - Held that:- The assessee has submitted copy of bank account maintained outside India showing credit of his earnings in dollars. We also note that the same issue came up for consideration in case of the assessee for A.Y. 2008-09 and the Hon’ble ITAT 'A' Bench, Chennai following its earlier decision reported [2012 (6) TMI 404 - ITAT CHENNAI] held that in respect of payments made by M/s. Ajapa Integrated Project Management Consultancy Pvt. Ltd. to non-residents, disallowance cannot be made u/s. 40A(1) for the reason that income is taxable in the hands of the non-residents who rendered services abroad vide paragraph 18 in the order of the ITAT reported in ( 2012 (9) TMI 285 - ITAT, CHENNAI). Similar view has been taken by ITAT Chennai Bench in the case of Mahindra Holidays & Resorts India Ltd. vs. JCIT (2013 (10) TMI 925 - ITAT CHENNAI). Therefore, in the light of the ratio of aforementioned cases, in our opinion, the AO is not correct in bringing to tax the amount of ₹ 81,45,025 in the hands of the assessee. Hence, the addition made by the Assessing Officer is directed to be deleted. Decided in favour of assessee.
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2015 (2) TMI 282
Bad debts disallowed - Held that:- Restore this issue to the file of the Assessing Officer for the limited purpose of verifying as to whether the relevant debts claimed as bad have actually been written off by the assessee in the books of account for the year under consideration as irrecoverable. If it is found on such verification that the relevant bad debts have actually been written off as irrecoverable by the assessee, the Assessing Officer is directed to allow the claim of the assessee for bad debts to that extent. The Assessing Officer shall accordingly redecide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance to be made on account of bad debts, while calculating the book profit of the assessee company under S.115JB - MAT provisions - Held that:- Disallowance can be made on account of bad debts written off either while computing the income of the assessee under the normal provisions of the Act or even for computing the book profit of the assessee under S.115JB of the Act. On the other hand, if it is found that the amount in question represented only the provision made by the assessee for bad and doubtful debts, without actually writing off the relevant debts as irrecoverable in the books of account, the same is liable to be disallowed and added back while computing the book profit of the assessee under S.115JB, as per clause (i) of Explanation 1 under S.115JB, being the amount set apart as provision for diminution in the value of the asset. We therefore, restore this issue also to the file of the Assessing Officer for deciding the same afresh in accordance with law after giving sufficient opportunity of hearing to the assessee. - Decided in favour of Revenue for statistical purposes. 100% depreciation on assets whose value is below ₹ 5000/- - Held that:- It is not a case of granting 100% depreciation on assets having value below ₹ 5,000 as made out by the Revenue in its ground. As a matter of fact, the case of the assessee before the learned CIT(A) was that the amount in question represented small spares worth less than ₹ 5,000 purchased during the year under consideration, and the learned CIT(A) directed the Assessing Officer to verify this claim of the assessee and allow appropriate relief. Revenue thus, cannot be said to have any grievance on this issue arising from the impugned order of the learned CIT(A), as projected in ground No.3, and there being no infirmity in the impugned order of the learned CIT(A) on this issue, we find no merit in ground No.3 raised by the Revenue. - Decided against revenue.
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2015 (2) TMI 281
Taxability of the interest and dividend income income earned by the assessee credit Co-operative society - AO declined to allow benefit of deduction u/s. Sec. 80P(2)(a)(i) treating the said interest income as a borrowing part of its business activities - Held that:- There is no ambiguity in the language of Sec. 80P(2)(d). Sindhudurg District Central Co-operative Bank Ltd. is a Co-operative Society though engaged in the business of banking and hence, the assessee is entitled to claim the deduction in respect of the interest earned or received from the Sindhudurg District Central Co-operative Bank Ltd. On the plain reading of the language used in Sec. 80P(2)(d) in our opinion it is an independent deduction other than that of Sec. 80P(2)(a)(i). We, therefore, hold that the interest income earned on the fixed deposit or any other bank account with Sindhudurg District Central Co-operative Bank Ltd. is allowable as a deduction on gross basis u/s. 80P(2)(d) of the Act. - Decided in favour of assessee.
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2015 (2) TMI 280
Disallowance of depreciation on commercial property - AO did not agree with this claim of depreciation and in the light of there being no valuation report regarding the cost of construction etc. proceeded to disallow the entire claim of depreciation. - CIT(A) deleted the disallowance of depreciation - Held that:- From a perusal of the terms of the agreement, we find that it is a composite agreement; and there is no separate consideration attributable specifically to the land. Therefore the issue is whether on purchase of commercial space for a composite consideration, the assessee is entitled to claim depreciation on the composite consideration. Having considered the case law of JCIT Vs. Rajesh Exports [2005 (11) TMI 362 - ITAT BANGALORE ] and in the absence of any other contrary decision in respect of a composite consideration, we are inclined to confirm the impugned order of the ld CIT(A). The ld DR has not assailed the factual position that the consideration paid was not a composite consideration, by pointing out any material so as to persuade us to come to a conclusion that there was bifurcation of consideration between land and building. Decided against revenue.
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2015 (2) TMI 279
Registration u/s 12A rejected - Rejection of application for approval u/s 80G - Held that:- In the present case it appears that the details of the seminars and symposium etc. organized by the assessee society and the literature, newsletters and books on probiotics etc. were not furnished earlier so these were not available to the DIT(Exemption) for her examination and consideration. The claim of the assessee society for getting the registration u/s 12A of the Act is based on these documents. We, therefore, to meet the ends of justice deem it appropriate to remand this issue back to the file of the ld. DIT(Exemption) to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee society and by considering all the documents which are furnished first time before the ITAT.- Decided in favour of assessee for statistical purposes.
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2015 (2) TMI 278
Re-computation of the deduction claimed by the Assessee u/s 80IB in respect of Unit-II and u/s 80IC in respect of Unit-III - Held that:- Assessee has taken the contention before CIT(A) that the realizable value of the powder coating is more than the realizable value of the resin but we noted that in respect of this contention, no evidence or material has been brought on record or referred to before the CIT(A). The other contention taken by the Assessee that the plant and machinery of Unit-I was set up about 20 years back and in respect of Unit-I the Assessee had to incur high maintenance cost. CIT(A) simply relied on the submission of the Assessee. No data in respect of incurring of the high maintenance cost has been provided by the Assessee. We may also mention that the cost of the machinery have increased and therefore if the machinery is established after many years in Unit-II and III, the depreciation will be much higher while in respect of Unit-I the depreciation will be lower. CIT(A) has not appreciated all these facts and has simply allowed the relief to the Assessee on the basis of the submission and rate of profit as agreed by the counsel of the Assessee. In our opinion, the basis adopted by CIT(A) is not correct and in accordance with law. We, therefore, set aside ground nos. 2 & 3 and restore both these issues to the file of CIT(A) as, in our opinion, the profit shown in respect of Unit-II & III are abnormally high as compared to the profit shown by the Assessee in respect of Unit-I. - Decided in favour of Revenue for statistical purposes. Whether Unit-III established by the Assessee has undertaken manufacturing activity or not? - Held that:- The raw materials used are flakes and cannot be marketed as such. For making it marketable it has to be converted into coating powder through manufacturing process with the help of machines and manpower. CIT(A) has exhaustively dealt with the manufacturing process adopted by the Assessee alongwith the definition of the word ‘manufacture’ as given u/s 2(29)(BA) of the Income Tax Act. Thus no interference is called for in the order of CIT(A) in this regard and we, therefore, confirm the order of CIT(A) by holding that Unit-III of the Assessee is engaged in manufacturing activity. Even otherwise also, we noted that this is not the first year for eligibility of the claim of deduction by the Assessee u/s 80IC. The condition whether the Assessee is engaged in manufacturing activity or not has to be decided only in the very first year when the Assessee is eligible for the claim of deduction u/s 80IC. In view of this fact, we confirm the order of CIT(A) on this issue. - Decided against revenue.
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2015 (2) TMI 277
Disallowance of 15% of driver’s bhatta expenses - Held that:- Only basis for disallowance is that expenses have been incurred in cash. The assessee had explained that in the nature of transport business the cash payment to the drivers is inevitable as they are not ready to accept account payee cheques for small amounts ranging from ₹ 200 to ₹ 500. It has been brought on record that in A.Y. 2005-06, 10% of bhatta charges was disallowed, whereas in the A.Y. 2006-07 and 2007-08, lump sum disallowance was made, which comes to 3.05% and 4.61%. Thus looking to the background and the precedence of the earlier and subsequent years, we reflecting the disallowance to 10% of the total expenditure debited.- Decided partly in favour of assessee. Disallowance of 40% of trip expenses and road expenses - Held that:- In the earlier year and in subsequent years, the disallowances under these heads were much less than 10%. The basis given by AO to work out the average expenses is not based on proper analysis as in the transportation business, average diesel expenses, average fare expenses etc. cannot be fixed on standard basis. Thus looking to the past and subsequent history and the present facts of the case, we restrict the disallowance @ 10% which would be quite reasonable.- Decided partly in favour of assessee. Addition being transportation charges which was salary paid by the directors to the drivers engaged by them - Held that:- To prove that there is siphoning of profits of the assessee company by the related persons, it has to be brought on record with some tangible material that the assesse was actually paying the driver’s salary. The entire analysis and exercise done by the AO is based on presumption and that to be mainly on the premise that the sub-contract agreement does not specify, who will make the payment of salary. The source of the payment by these persons has been demonstrated along with the other documents as mentioned above. It is not the case of the department that the hire charges paid by the assessee to the relatives is either excessive or sham. The only case of the department is that the drivers’ salary of the trucks belonging or hired by the related persons must have been paid by the assessee. Thus, we do not find any reason to upheld such a premise, unless the entire hire charges agreement and hire charges paid to the directors is bogus or proved to be excessive. Accordingly the addition sustained by the Ld. CIT(A) is deleted - Decided in favour of revenue.
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2015 (2) TMI 276
Revision u/s 263 - CIT of the view that, rectification cannot be carried out by the AO u/s 154 as it amounts to review has cancelled the order u/s 154 - Additions u/s 68 - Held that:- Even if the order of the AO u/s 154 was bad in law then also the Ld.CIT was required to give concrete finding on facts as to how the order is prejudicial to the interest of the revenue. Under the latter later condition, the Ld. CIT is required to examine the merits and the material on record and give his finding. In the impugned order the Ld.CIT has closed all the doors of justice to the assessee and upheld the original assessment order which was patently erroneous and was in violation of natural justice as the AO has omitted to consider the material placed before him. Thus, the impugned order of the Ld.CIT cannot be upheld at all. Under the facts and circumstances of the cases, we are of the opinion that, firstly, the impugned order of Ld. CIT is set aside and secondly, the entire matter should be restored back to the file of the AO to examine all the material and evidences on record relating to the genuineness of the loan and then decide the issue in accordance with law after giving due and effective proper opportunity of hearing to the assessee. - Decided partly in favour of assessee for the statistical purposes.
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2015 (2) TMI 275
Unexplained investment - CIT(A) deleted the addition admitting fresh evidence without giving the AO an opportunity, violating norms of Rule 46A - Held that:- As regards the addition of ₹ 4.50 crores, the assesse has categorically submitted that the payment regarding development agreement was made through account payee cheques which was duly mentioned in registered documents and in the books of account of the assessee however, the assessing officer without even getting a clarification from the Sub-registrar office has made the said addition. Such an uncorroborated AIR information cannot be said to sacrosanct that AO is even precluded from examining the facts or carry out any inquiry. The AIR information cannot be adversely viewed against the assessee if the assessee has rebutted the transaction reported in the said AIR. Here in this case, the Sub-registrar has duly clarified that, there was a mistake on their part in recording the amount in the column of cash and on said clarification given by a public authority, Ld.CIT(A) has deleted the addition. There is no question of violation of any Rule 46A. Regarding addition of ₹ 6,76,72,000/- it is amply clear from the records and the finding of the Ld.CIT(A) that the transaction relating to nine flats was on account of sale and not purchases, as wrongly understood by the AO. The assessing officer without even applying his mind on the nature of transaction, whether it is sale or purchase, has blindly relied upon uncorroborated AIR information. The assessee has adduced all the evidence before the AO including copy of sale agreements and the copy of ledger accounts, that it was a sale made to the various persons and not purchases. If this aspect has been clarified by the Sub-registrar, then it cannot be held that there was a violation of Rule 46A. Thus, such an addition has rightly been deleted by CIT(A). Regarding addition of ₹ 75 lakhs, it is seen that there was a double entry in the AIR details, the AO without applying his mind and also without verifying the assessee’s contention has made the addition. Such an approach of the AO is wholly unjustified and uncalled for not only in law but also on facts. Thus, there is no merit in the grounds raised by the revenue and hence, same are dismissed. - Decided against revenue. Interest earned on the fixed deposit disallowed - Held that:- Assessee has received deposits from the members of the housing society as corpus funds which was deposited with the bank in the form of FDR’s . This amount was shown as liability towards society in the balance sheet. The interest earned on such deposits has also been treated as income of the society and liability of the assesse. The same has not been treated is income by the assesse as the money has been kept in the form of trust by the assesse. It has also been clarified by the learned counsel that the assessee has not taken any credit of the TDS deducted by the bank on such interest income. Once, the interest has been shown as income nor any credit of TDS has been taken, them, there is no reason to treat the interest income as assessee’s income. Accordingly the interest income of ₹ 4,06,566/- added in the hands of the assessee stands deleted. - Decided in favour of assessee.
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Customs
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2015 (2) TMI 300
Reduction in penalty imposed - Validity of order passed by CESTAT - Whether order passed by CESTAT is arbitrary - Option to redeem goods on payment of partial redemption fine given - Held that:- CESTAT has affirmed intentional mis-declaration of goods but thereafter reduced penalty by merely recording that the penalty is on the higher side. The order, in our considered opinion, is nonspeaking and as a consequence, arbitrary. - CESTAT has assigned a reason for reducing penalty namely that the penalty imposed is on the higher side but while doing so, has not supported its findings by a process of reasoning much less a perceptible process of reasoning. The reduction of penalty without disclosing as to how the penalty is on a higher side, must necessarily be held to be arbitrary. At this stage, it would be appropriate, to point out that penalty has to be calculated under Section 114 of the Customs Act, 1962 and the respondents may be liable either under Section 114(2) or Section 114(3) of the Customs Act, 1962 depending on the date of confiscation and the nature of the provisions in force on the relevant date. The maximum possible penalty was ₹ 15.30 crores but the adjudicating authority imposed a total penalty of ₹ 1.75 crores. The CESTAT has reduced penalty to ₹ 12 lacs without assigning any clear and cogent reasons much less reference to any relevant facts or law. - Consequently, we set aside order dated 15.04.2005, passed by the CESTAT insofar as it relates to reduction of penalty and restore the matter to the CESTAT for adjudication afresh and in accordance with law. - Decided in favour of Revenue.
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2015 (2) TMI 299
Misdeclaration of goods - Confiscation of goods - Imposition of redemption but on condition that before clearance, assessee mutilate the goods at their cost, so as to convert it into scrap. - Whether the imported goods are in the nature of scraps and freely importable or should be treated as old and used CRGO Strips whose import is restricted under the provisions of FTP, 2009-2014 read with Steel and Steel Products Quality Control Orders and the impugned Board s Circular - Held that:- heading excludes articles which, with or without repair or renovation, can be re-used for their former purposes or can be adapted for other uses; it also excludes articles which can be refashioned into other goods without first being recovered as metal. Thus, it excludes, for example, structural steelwork usable after renewal of worn-out parts; worn railway lines which are usable as pitprops or may be converted into other articles by re-rolling; steel files capable of re-use after cleaning and sharpening. - Thus it appears that the Heading 72.04 excludes articles which can be reused for their former purposes or can be adopted for other uses with or without repair or renovation. It is also evident that usability as such/after processing is an important criterion to arrive at the conclusion whether the goods are scrap. Issue requires fresh adjudication by the Ld.Commissioner and before adjudication representative sample of the imported goods should be re-examined in presence of the importer s representative and the experts dealing in the relevant field to ascertain whether the items were usable as such or after their processing to arrive at the conclusion that the imported items are scrap or otherwise. - hence the examination of applicability of the judgements cited by both sides to the facts in our opinion, at this stage would be pre-mature. Accordingly, the order of the Ld.Commissioner is set aside with the direction to pass a fresh order after hearing all the parties. - Matter remanded back - Decided in favour of assessee.
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2015 (2) TMI 298
Denial of refund claim - exemption from special CVD under Notification No. 102/2007-Cus., dated 14-9-2007 - Adjudicating authority sanctioned the refund claim - Commissioner (appeals) rejected the refund claim - Held that:- impugned order is cryptic and have failed to take notice of the categorical findings recorded in the Order-in-Original. Thus, the impugned order of Commissioner (Appeals) is set aside and the Order-in-Original is restored - Decided in favour of assessee.
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2015 (2) TMI 297
Demand of differential duty - Re classification of goods - import of base oil - Rejection of declared value - Held that:- This means that to be classified under ‘lubricating oil’, flash point has to be below 93.3° C. The CTH of ‘lubricating oil’ under 2710 19 80 simply mentions the heading as ‘lubricating oil’. Similar is the position with regard to description under tariff heading 2710 19 60 ‘base oil’ which is the heading claimed by the appellant. However, there is no definition of ‘base oil’ in the chapter notes. The sum and substance of the above discussion is that the only criterion considered for classification of ‘lubricating oil’ is flash point. In this case, according to the report of Customs House Laboratory, the flash point of the imported product is above 94° C. Once the flash point is above 94° C, the product cannot be classified under heading ‘lubricating oil’ at all, since the flash point has to be below 93.3° C. This vital aspect has not been considered by both the lower authorities. When the tariff heading and the description is based only on the flash point, the reliance on other aspects to reclassify the item, in our opinion, may not be proper at all. On this ground alone, it is seen that the reclassification cannot be justified. Once reclassification cannot be justified unless it is shown that the product is not base oil, the Revenue cannot make out a case against the appellant. In view of the above, we do not find any justification to uphold the impugned order - Decided in favour of assessee.
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FEMA
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2015 (2) TMI 296
Condonation of delay - Held that:- A perusal of the averments made in the application moved by the appellant seeking condonation of delay in filing the appeal goes to show that the averments made in the application reflects that the explanation is wholly inadequate and unsatisfactory - Under Section 35 of FEMA, appeal against the decision or order of the Appellate Tribunal may be filed in the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal on any question of law arising out of such order. Proviso to Section 35 of FEMA makes it clear that the High Court if satisfied that the appellant was prevented by sufficient cause from filing the appeal within 60 days, may allow it to be filed within a further period not exceeding sixty days. Thus, under Section 35 of FEMA, appeal against the decision or order of the Appellate Tribunal would lie before the High Court provided the appeal is filed within a period of 60 days, extendable by a further period not exceeding 60 days, if the High Court is satisfied that sufficient cause prevented the filing of the appeal within the prescribed period. To put it simply, any appeal filed before the High Court under Section 35 of FEMA beyond 120 days would be time barred. Admittedly, appeal has been filed after considerable long lapse of time i.e. 352 days. Even if it is assumed that certified copy of the impugned order dated 2.3.2009 was received on 31.3.2009 by the appellant and that period has to be excluded from consideration even then, there is a delay of more than 120 days, which cannot be condoned. - Condonation denied.
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Service Tax
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2015 (2) TMI 312
Denial of refund claim - export of software service and software consultancy service - the activity were not taxable during the relevant period - Unutilized CENVAT Credit - discrepancies were noticed - invocation of Rule 6(3)(c) of the Cenvat Credit Rules, 2004 - Held that:- Notification No. 5/2006-C.E. (N.T.), dated 14-3-2006 has been issued. Rule 6 of Cenvat Credit Rules, 2004 deals with obligation of the manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Under Rule 6(3)(c), the provider of output service shall utilise credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. In the present case, the services provided by the appellant and exported is not a taxable output service inasmuch as software development software service and software consultancy service become taxable only in the Budget 2008. Therefore, the cap of 20% prescribed under Rule 6(3)(c) have no application whatsoever. Therefore, there was no bar on the appellant in availing full credit in respect of IT software services during the material period. Object of EXIM Policy of the Government of India is to promote exports of goods and services and not export of taxes. Service Tax being a destination based consumption tax, in the case of exports there should not be any tax burden and the tax burden, if any, is to be imposed by the Government of the country where the services are consumed. Otherwise, it would render the exports of software uncompetitive. Keeping in view of above policy objective of the government, it is appropriate to hold that the appellants are eligible for the refund of the amount claimed by them of ₹ 2,14,45,060/- during the impugned period on account of export of exempted services subject to the satisfaction of other conditions prescribed in Notification No. 5/2006-C.E. (N.T.), dated 14-3-2006 and the Revenue shall verify the same. - Following decision of mPortal India Wireless Solutions (P.) Ltd. Versus Commissioner of Service Tax [2011 (9) TMI 450 - KARNATAKA HIGH COURT] and assessee's own previous case [2013 (7) TMI 124 - CESTAT MUMBAI] - Impugned order is set aside - Decided in favour of assessee.
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2015 (2) TMI 311
Disallowance of the abatement of 67% from the gross amount of the contract under Notification No.15/2004-ST, dated 10.09.2004 - value of free supplies has not been included in the gross amount charged - wilful mis-statement and suppression of facts - Held that:- As the service was rendered under a work contract, the same is not liable to service tax prior to 01.06.2007 when works contract service [section 65(zzzza) of Finance Act, 1994] was introduced, it is to state that the classification of service is to be determined as per the definitions of various taxable services prevalent during the relevant period and merely because the classification changes with the introduction of a taxable service under which an existing service gets more specifically covered in no way means that the said service was not necessarily taxable during the period prior thereto. As has been conceded by the ld. Departmental Representative, denial of 67% abatement by the adjudicating authority on the ground that value of free supplies was not included in the gross amount charged is no longer sustainable in the light of the CESTAT Larger Bench judgment in the case of Bhayana Builders (P) Ltd. (2013 (9) TMI 294 - CESTAT NEW DELHI (LB)). Accordingly, we set aside the impugned order and remand the matter to the adjudicating authority for de novo adjudication inter alia giving effect to the CESTAT judgment in the case of Bhayana Builders (P) Ltd. (supra) for the purpose of deciding the appellants eligibility for 67% abatement under Notification No.15/2004 / No.1/2006 as the case may be - Matter remanded back - Decided in favour of assessee.
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2015 (2) TMI 310
Waiver of pre deposit - Business auxiliary service - Steamer Agent service - Export of service - Interest - Penalty u/s 78 - Receipt of brokerage - Held that:- The portion of freight forwarding income retained by the appellant is not the consideration for the alleged service provided by them to Maxx but is actually a sum total of the profit margins that they make in their business of arranging freight for export goods. There is no nexus between the alleged taxable activity and the amount sought to be taxed as consideration. - The activity undertaken by the Appellant amounts to export of service and hence not taxable. During the relevant period services provided by a person situated in India and received by a person situated outside India was not taxable, if the service were to be categorized as Business Auxiliary Service. The brokerage of 2% per shipment received by the Appellants from the shipping lines is merely an incentive given by the shipping lines for choosing their company and is not contractually agreed consideration for any activity performed by the Appellants at the behest of the Shipping Lines. - Extended period cannot be invoked with respect to the period July 2003 to March 2008. - Levy of interest is not sustainable when service tax itself is not payable. - There was no intention on the part of the Appellant to suppress facts and such a case has evidently not been made out by the Department. Hence penalty under Section 78 of the Act is liable to be set aside. - The appellant had every reason to believe that neither providing services within warranty period without any consideration not being reimbursed for the defective spares replaced on behalf of the foreign entities would attract service tax. Hence the case is fit for waiver of penalty in terms of Section 80 of the Finance Act, 1994. - Stay granted.
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2015 (2) TMI 309
Waiver of pre-deposit of Service Tax - denial of the benefit of Notification No.12/2003-ST dated 20.06.2003 - Held that:- While confirming the demand the benefit of Notification No.12/2003-ST dated 20.06.2003 was not allowed by the learned adjudicating authority on the ground that the Appellant had failed to provide documentary proof in respect of the goods sold in the execution of contract covered under the show cause notice. The Ld. Consultant has fairly admitted that at the time of adjudication, the assessed VAT returns were not in their possession which they received after the adjudication order was passed. It is also their grievance that while rejecting the VAT Returns, the Ld. Commissioner has not given them an opportunity to explain the entries reflected in the said VAT returns, but arrived at the conclusion unilaterally in confirming the demand. Similar kind of grievance is also advanced in respect of the demand confirmed in relation to service of laying down of roads and Railway lines. Both sides agree that the Appellant be given a fair chance to place all evidences in support of their claims before the adjudicating authority and the issues be decided afresh on the basis of the evidences. Thus, in the interest of justice we set aside the impugned order and remit the case to the learned adjudicating authority for deciding the issues afresh after considering all evidences on record and the evidences that would be produced by the Appellant during the course of adjudication proceeding. - Matter remanded back - Decided in favour of assessee.
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2015 (2) TMI 308
Classification of service - commercial or industrial construction service (CICS) or the construction of complex service (CCS) - Appellants are providing pre-construction anti-termite treatment - Held that:- Even the Board s Circular No.96/7/2007-ST dated 23.08.2007 also nowhere states that all the services provided by a sub-contractor to the main contractor would necessaryily fall under the same classification which is applicable to the service rendered by the main contractor. Thus the lower authorities have clearly misread the said CBEC Circular to hold that the appellants were providing CICS/CCS. Coming back to the legal provisions, it is well settled that the classification of a service is to be determined with respect to the nature thereof vis-a-vis the definitions of various services given in Section 65 read with section 65 A of the Finance Act 1994. Perusal of various job works awarded to the appellants reveals that they were required to provide pre-construction anti-termite treatment. This activity can by no stretch of imagination be covered under the definition of CICS or CCS. Thus, the activity of pest control could arguably be covered under cleaning services only and only if it was being performed on commercial or industrial buildings and premises thereof or factory plant or machinery tank or reservoir of such commercial or industrial buildings and premises thereof. However, we are not expressing any view in this regard and only making a reference to it to show that this also lends support to the view that the appellants service was not covered under CICS/CCS. - Impugned order unsustainable - Decided in favor of assessee.
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Central Excise
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2015 (2) TMI 307
Removal of tobacco refuse without payment of duty - initiation of the proceedings against the appellant to demand duty on cut tobacco denying the benefit of Notification No. 52/2002 CE dated 17.10.2002 - Held that:- - Benefit has been denied on the ground that tobacco refuse is also excisable goods, marketable, can be considered to have been manufactured and can be sold for consideration. Assessee is engaged in the manufacture of Cigarette. During the course of manufacture of Cigarette, and for the process of manufacture of Cigarette, they have to manufacture Cut Tobacco also. Therefore it can be clearly said that the appellant is a manufacturer of Cut Tobacco and Cigarette. Can anyone say that appellant is a manufacturer of tobacco refuse is the moot question to which the obvious answer in the light of the decision of the Tribunal in the case of Golden Tobacco Ltd. is tobacco refuse is not a final product . The Tribunal also while rendering the decision in the case of Golden Tobacco Ltd. had relied upon the decision of the Hon ble High Court of Bombay in the case of Rallis India Ltd. Vs. Union of India [2008 (12) TMI 46 - HIGH COURT BOMBAY] where a similar view was taken. Decision of the Tribunal taking a view that tobacco refuse cannot be considered as a final product of the assessee has to be considered and followed. Once we do that the provisions that nothing contained in the notification shall apply to inputs used in or in relation to manufacture of final products which are exempted, would not be applicable to the present case. Therefore just because appellant cleared tobacco refuse without payment of duty, cut tobacco which forms part of such refuse cannot be levied to central excise duty as proposed by the Revenue in these cases. The demands against the appellants, interest thereon and penalties imposed cannot be sustained. - Decided in favour of assessee.
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2015 (2) TMI 306
Manufacture or not - appellants are receiving duty paid PVC sleeves in the form of flatten PVC tubes, either whole or cut into pieces of specific sizes. The sleeves are cut into horizontal pieces of required width which are then mounted on moulds of specific shape and dimensions (as per the packing container of the user of such sleeves) and such cut sleeves heated upto a specified temperature to get particular shape and so formed sleeves are thereafter used to seal the caps of plastic containers - Invocation of extended period - Imposition of interest and penalty - Held that:- Appellants are getting PVC tubes in the flatten form sometime in running length and sometime cut into pieces of specific length. We have also seen the sample of the same. The flatten PVC tube can be used for packing and other purposes. However, after cutting and forming, the said sleeves cannot be used for packing purpose but can be used only for sealing a plastic container of specific dimensions. We have also gone through the report of the Chemical Examiner wherein it has been clarified that the inputs are bi-axially oriented plain sleeves while the tube/final product is fully oriented blown/formed sleeve for the purpose of shrink wrap. It is clear from the sample once the sleeves is formed as above, these cannot be used for any purpose other than sealing plastic container. - The name, use and character of input and final product are different. The inputs are plain sleeves which can be used for wide variety of purpose and can be used as shrink wrap. The formed sleeves can be used for only sealing the plastic containers. Inputs are biaxially oriented whole output is fully oriented blown/formed. Thus in our view all the three conditions are satisfied and the process would therefore amount to manufacture. Argument of the appellant is that the department knew about it from 2000 onwards while the show-cause notice has been issued in 2003. We find that the said letter was written in pursuance of the investigation initiated by the Revenue. Thereafter the appellant has made representation etc at different levels and investigation continued. The samples were tested in 2003 and after completion of the investigation the show-cause notice has been issued. We agree with the learned A.R. that the knowledge of the department is not relevant for determining whether extended period of limitation can be invoked or not. However in the present case, there is no evidence to indicate that there was willful intention to evade duty. In fact, appellant has also represented their case to high authorities explaining in detail the process and why in their view it does not amount to manufacture. Keeping in view, over all facts and circumstances of the case, we are of the view that the ingredients for invoking the provisio to Section 11A are not satisfied and therefore extended period of limitation cannot be invoked. If the appellant was eligible for getting the benefit of CENVAT Credit the actual demand will come down substantially. We therefore remand the matter to first adjudicating authority to examine the claim of the appellant in respect of CENVAT Credit on inputs. In case they are eligible for the same, recompute the duty liability and accordingly, re-determine the interest. Keeping in view the nature of dispute, as also facts and circumstances, in our view, no penalty is warranted - Appeal disposed of.
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2015 (2) TMI 305
Denial of refund claim - assessee has paid the duty as per the new cart data submitted upto spindle stage - Bar of unjust enrichment - Finalization of assessment - Issuance of Show cause notice - Held that:- In appellants own case for the earlier period the Ld commissioner in the similar proceedings has observed that the assessment which was finalized on 25.05.2003 was reopened in the show cause notice dated 25.05.2004 issued under section 11A. Once the assessment is reopened then all issues can be raised by the appellants and as such the Adjudicating Authority was bound to consider the refund claim on merits. - when the Commissioner (A) in appellants own case for the earlier period has taken up view that when Show Cause Notice has been issued to the appellant for the same period where assessment has been finalized in that case appellant can raise all the issues on merits and relying on the decisions of this Tribunal in the case of Polydyne Corporation, I hold that in this case also when the show cause notice was issued on 29.12.2004 for the said period the appellant was at the liberty to raise all the issues in defence of the show cause notice issued to them. In these circumstances, I hold that order dated 15.01.2004 is nonest and non cooperative. - Matter remanded back - Decided in favour of assessee.
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2015 (2) TMI 304
Concessional rate of duty - manufactures of Yarn - Exemption Notification No. 29/2004-CE dated 09.07.2004 as well Notification No.30/2004-CE dt.09.07.2004 - Held that:- Clearances for domestic consumption had been made by the appellant at nil rate of duty by availing the Notification No. 30/2004-CE and clearances for export had been made on payment of 4% duty under Notification No. 29/2004-CE. There is also no dispute that during the period of dispute no input duty credit had been availed and only capital goods Cenvat Credit had been availed in respect of which there is no prohibition in Notification No. 30/04-CE. Thus the Appellant even in respect of clearances made under Notification No.29/2004-CE also, had not availed input duty credit, though in respect of these clearances, they could have availed the input duty Cenvat Credit. The point of dispute is as to when the appellant have not availed input duty credit, whether they have option to avail the Notification No. 29/2004-CE where the rate of duty is 4%. The Department s contention is that once the appellant have not availed any input duty credit and they have become eligible for Notification No.30/2004-CE, they have no option but to avail of the exemption notification 30/2004-CE only and they can not opt from Notification No.29/2004-CE and pay 4% the duty and in such a situation if any duty payment has been made, it would have to be treated as deposit and the clearances would be have to be treated as clearances of fully exempted goods made under Notification No. 30/2004-CE and accordingly the Appellant would not be eligible for capital goods Cenvat Credit. This contention of the Department is totally in-correct, as Exemption Notification No. 29/2004-CE is an unconditional exemption which prescribes a rate of duty of 4% advelorum. There is no condition in this notification that for availing of this exemption prescribing concessional rate of duty of 4% adv., input duty Cenvat Credit must be availed. The condition of non-availment of input duty Cenvat Credit is for nil duty under Notification No. 30/2004-CE. But this does not mean that an assessee not availing input duty credit can not avail the exemption under Notification No. 29/2004-CE, as this is an unconditional Notification. When an assessee does not avail of input duty credit, he has option to pay 4% duty under Notification No. 29/2004-CE and also the option to clear his goods at nil rate of duty under Notification No. 30/2004-CE and when two exemption Notifications are available to an assessee, he can always opt for the Notification which is most beneficial for him and in this regard the Department can not force the assessee to avail a particular exemption Notification. - Since during the period of dispute the appellant was clearing the goods by availing full duty exemption as well as on payment of duty, the capital goods can not be treated as having been used exclusively in the manufacture of exempted goods and Cenvat Credit in respect of the same can not be denied. - impugned order deserves, no merits, hence the same are set aside. - Decided in favour of assessee.
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2015 (2) TMI 303
Duty demand - assembling of various parts - Manufacturing activity or not - Procurement of procuring the metal/brass parts, fabricated metal items and capsule mirrors, polythene tubes and packing materials, lamp shade, glass shades, decorative glasses and other items for lamp shades and light fittings - Held that:- appellants were procuring the metal/brass parts, fabricated metal items and capsule mirrors, polythene tubes and packing materials, lamp shade, glass shades, decorative glasses and other items for lamp shades and light fittings. There is also a finding that all the components had been got manufactured with a specific design to match the design of the finished item and a specific item number or code number was put at the bottom of each item and cleared with brand name, logo and price tag in a cartoon as finished item. Thus, it is clear that appellant do not manufacture any component of lamp shade/chandeliers or other light fittings but procure the various component of the chandeliers lamp shades and light fittings of a particular design and packed the same in a box. In over view, this activity of the appellant would not amount to manufacture. - Since activity of the appellant does not amount to manufacture and as such the duty demand is not sustainable on merits. Even on limitation also, the duty demand is not sustainable as it is seen that KLS (MU) vide its letter dated 3/4/1989 addressed to Superintendent had intimated department that a part of the factory premises is being leased to another firm which would be conducting trading activity of the retailing of the goods sold to them and other goods purchased by them from the market. Thus, the department was fully aware of the existence of the appellant unit and its activity. In view of this, the longer limitation period of 5 years under proviso of the section 11A(1) of Central Excise 1944 would not be applicable and as such the duty demand raised vide show cause notice dated 31/1/2000 would be time barred. In this regard, the department s contention that the letter dated 3/4/1989 did not mention the exact activity of the appellant, is not acceptable, as once it has been intimated by KLS (MU) to the department that a portion of the factory has been leased by them to another firm for trading activity and along with this letter the ground plant had also been enclosed, it was for the department to ascertain as to what trading activity was being carried on there. In view of the above discussion, the impugned order is not sustainable. The same is set aside. - Decided in favour of assessee.
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2015 (2) TMI 302
Interest claim on refund - Commissioner granted interest on refund claim from belated date - Held that:- Appellant on 26.11.1997 had paid an amount of ₹ 10.00 Lakhs under protest during investigation of the matter against them, as the Departmental officer was of the view that the appellant s activity of filling hydrogen gas from pipeline into retail cylinder amounts to manufacture, subsequently, the additional Commissioner vide order dated 31.10.2002 confirmed the duty demand of ₹ 17.59 Lakhs against appellant holding that their activity amounts to manufacture and specifically appropriated the amount of ₹ 10.00 Lakhs already paid by them. Thus, once the Addl. Commissioner held that the appellant activity amounts to manufacture and confirmed the duty demand of ₹ 17.59 Lkhs against them and appropriated ₹ 10.00 Lakhs as payment towards their assessed duty liability, the ₹ 10.00 Lakhs earlier paid by them becomes the payment of duty by the appellant towards assessed duty liability and ceased to be an amount paid on ad-hoc basis. The refund claim of the amount of ₹ 10.00 Lakhs arose, when the Addl. Commissioner s order was set aside by the Commissioner (Appeals) vide order in appeal dated 20th November, 2003, who held that the appellant s activity does not amount to manufacture and set aside the Addl. Commissioner s order dated 31.10.2002. The refund application was filed only on 06.07.2004. In terms of Section 11BB of the Central Excise Act, the interest liability of the Department for delay in payment of refund under Section 11B arises, only when there is delay beyond 3 months from the date of filing of the refund application. Since in this case refund application had been made on 06.07.2004, the interest liability would start from 07.10.2004 till the refund was paid to the appellant. The Commissioner (Appeals), however, has granted interest even from much earlier period from 20th February, 2004, against which it is the department which should be aggrieved and not the appellant. - No merit in appeal - Decided against assessee.
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2015 (2) TMI 301
Refund of unutilized credit - Availment of cenvat credit of central excise duty paid on inputs and capital goods used in or in relation to manufacture of final product - Closure of factory - Held that:- There is no dispute that the appellant s factory stopped production sometime in June, 2007 and at that time there was cenvat credit balance of ₹ 2,35,86,612/- in their RG 23 A part I and RT-23C pt. II account. In the appellants application dated 27.11.2007, cash refund of the above cenvat credit is sought by invoking Section 11 B (2) (C). In our view, section 11 B is only for the refund of the duty paid either through cash or through cenvat credit or of the cenvat credit wrongly reversed. While refund of duty paid either through cash or through cenvat credit account is subject to the bar of unjust enrichment, the refund of wrongly reversed cenvat credit is not subject to the bar or unjust enrichment. But this section cannot be invoked for cash refund of the unutilized cenvat credit lying in the cenvat credit account of a manufacturer at the time of closure of the factory. In fact, other than Rule 5 of the Cenvat Credit Rules, 2004, there is no provision either in Central Excise Act, 1944 or in any Rules made there-under for cash refund of accumulated cenvat credit Rules, 2004. When a factory closes down, the cenvat credit lying unutilized in its cenvat credit account would lapse, unless the factory resumes production. In the event of the factory being taken over by another person, and resuming production, Rule 10 permits the transfer of cenvat credit to the new owner subject to certain conditions. But there is no provision for cash refund of such unutilized credit. Therefore, the Commissioner (Appeals) has rightly upheld the rejection of the cash refund of the accumulated credit. We are supported in our view of the Larger Bench judgment of the Tribunal in the case of Steel Strips (2011 (5) TMI 111 - CESTAT, NEW DELHI). - Decided against assessee.
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2015 (2) TMI 295
Prolonged inquiries - Without any valid reasons - inquiry regarding the petitioner’s manufacturing activities. - On 13th April 2011, a panchnama was drawn at the factory premises of the petitioner. This was a starting point of inquiry by the Department. Case of the petitioner is that after nearly three years of the said incident, till date, the inquiry/investigation has not been completed - Undue hardship - Held that:- Though there is no outer limit for completion of inquiry /investigation, it cannot be gainsaid that pending and protracted inquiry would cause undue harassment to a citizen. An inquiry, therefore, should not be continued indefinitely without sufficient reasons. It is, of course, true that, often times, the facts being complex, gathering such facts may not be an easy task. In such a situation, inquiries may even continue for a long period of time. This, however, without any justification cannot therefore be always expected. - we would request the Commissioner, Central Excise, Surat-I to apply his mind and take such steps, as may be found necessary, to ensure that the inquiry/investigation is not delayed or dragged beyond reasonable time, that too without any valid reasons. For such purpose, this petition may be placed before the said authority along with the annexures. He may take suitable steps after permitting the petitioner a hearing - Petition disposed of.
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