TMI Tax Updates - e-Newsletter
February 17, 2012

Case Laws in this Newsletter:

Income Tax Customs Central Excise

Articles

1. DISCIPLINARY PROCEEDINGS AND CRIMINAL PROCEEDINGS

   By: DR.MARIAPPAN GOVINDARAJAN

2. Time barred assessment is void ab-initio,no need to deposit 25% u/s 62(5) under PVAT Act, 2005

   By: AMIT BAJAJ ADVOCATE

News

1. Need to move from government regulation to self regulation says Moily.

2. Cash Worth Rs 2.03 Crore, Jewellery and Ornaments worth the Value of Rs.5.18 Crore, Fixed Deposits of Rs.4.4 Crore, and Large Number of Documents Seized During the Search Operations by Income Tax Department.

3. Legal Agreement to Provide Potable Drinking Water Facility and Sanitation Interventions to about 1.84 million Rural people in Kerala Covering at the Cost of Rs. 1022 Crore Signed with World Bank.

4. Change in Tariff Value of Brass Scrap (all Grades) and Poppy Seeds Notified.

5. Govenrment to Provide Citizen-Centric Governance in Order to Improve Taxpayer Services and Redressal of Public Grievances : FM.

Notifications

Customs

1. 11/2012 - dated 15-2-2012 - Cus (NT)

Amends Notification No. 36/2001-Customs(N.T) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values.

DGFT

2. 96 (RE – 2010)/2009-2014 - dated 15-2-2012 - FTP

Minimum Export Price of Onions.

Circulars / Instructions / Orders

FEMA

1. 77 - dated 15-2-2012

Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Money changing activities.

2. 78 - dated 15-2-2012

Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer Service Scheme.

3. 79 - dated 15-2-2012

Clarification - Purchase of Immovable Property in India – Reporting requirement.

4. 80 - dated 15-2-2012

Export of Goods and Services- Simplification and Revision of Softex Procedure.

Highlights / Catch Notes

Income Tax

• India-France DTAA: Computer Servers Define Permanent Establishment, Impacting Tax Obligations for Cross-Jurisdictional Operations.

  Case-Laws - AAR : Indo-French DTAA – Article 5 of India France DTAA states that even existence of a computer server amounts to existence of a PE within a jurisdiction...... - AAR
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• Court Disallows Foreign Travel Expenses: Partners' Sons' Attendance Not Sufficient for Business Justification.

  Case-Laws - AT : Foreign travel expenditure - Merely stating that the assessee has booked a stall and the sons of the partners were attending is not sufficient. The circumstances exhibits that the sons of partners were taken as those were in close relationship of partners and nothing to do with the business of the firm..... - AT
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• Surrender of tenancy rights not taxable if Section 45 of Income Tax Act is inapplicable, says court ruling.

  Case-Laws - HC : Assessbility of amount received for surrender of tenancy right – Once Section 45 cannot be applied, it is not open to the Department to impose tax on such capital receipt by the assessee under any other section..... - HC
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• Court Orders Tax Department to Pay Rs. 1,00,000 to Assessee-Trust; Highlights Unfortunate Litigation u/s 80G.

  Case-Laws - HC : Unfortunate litigation - Deduction under 80G - Department to deposit Rs. 1,00,000 as cost in favour of the Rural Project Fund of the assessee-trust. .... - HC
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• Arm's Length Pricing Case Rules Against Employee Termination for Low Capacity, Impacting Labor Cost Evaluations for Taxes.

  Case-Laws - AT : Transfer Pricing - Arm Length Price - Adjustment on the basis of labour charges - When regular employees are working with an assessee, he cannot terminate their services because of lesser capacity utilization during the year. .... - AT
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• Sales Tax Subsidy as Capital Receipt Excluded from Book Profit Calculation u/s 115JB of Income Tax Act.

  Case-Laws - AT : MAT - Sales Tax Subsidy - Capital or Revenue Receipt - Capital receipt in the form of Sales Tax incentive needs to be excluded from profit as per P&L Account for the year in computing Book profit u/s 115JB of the Act...... - AT
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• Section 80-IC Deduction Stands: Conversion to Partnership Doesn't Affect Eligibility Despite Section 80-IA's Amalgamation Rule.

  Case-Laws - HC : Deduction under 80-IC - Proprietorship Converted into Partnership Concern - Benefit of 80IC cannot be denied only on the ground that section 80-IA embraces only cases of amalgamation or demerger of Indian Company.... - HC
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• Applying Correct Arm's Length Price Under DTAA Prevents Additional Tax for Foreign Enterprises, Ensures Fair Taxation.

  Case-Laws - HC : DTAA - Arm length Price - if correct ALP is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprise. .... - HC
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• Section 80-IB(11) Interpretation: Cold Storage Deductions Require Both Transport and Storage; Exemption Granted Despite Ruling.

  Case-Laws - AT : Deduction under section 80-IB(11) of the Income-tax Act - in the cold storage plant - One could come to the conclusion that cold chain facility becomes complete only when it caters to transportation and storage and it remains incomplete when only storage is involved, therefore, the word "or" should be read as "and" - However exemption granted on the ground of judicial discipline... - AT
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• Tax Deduction Denied: Section 80IB Conditions Unmet, Clauses (a)-(d) Not Fulfilled by Taxpayer.

  Case-Laws - AT : Disallowance of deduction u/s 80IB - all the four conditions laid down in the clauses (a), (b), (c) and (d) of sub-sec. (10) of 80IB were not fulfilled. - no deduction .... - AT
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Customs

• Tariff Values Updated for Palm Oil, Palmolein, Soybean Oil, and Brass Scrap Under Notification No. 11/2012-Customs.

  Notifications : Amends Notification No. 36/2001-Customs(N.T) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values. - Ntf. No. 11/2012 - Customs (N. T.) Dated: February 15, 2012
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• Authority Misclassifies PVC Paste Resin in Anti-Dumping Investigation and Sunset Review; Decision Against Assessee Remains Unchanged.

  Case-Laws - AT : Anti Dumping Duty - Wrong classification by designated authority (DA) - PVC Paste Resin has remained the same during the original anti-dumping investigation as well as during the Sunset Review. The scope of the product under consideration has not been varied otherwise. - decided against the assessee .... - AT
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• Appellant Challenges Excess Customs Duty Collection; Case Sent for Reconsideration u/s 17(5.

  Case-Laws - HC : Refund of customs duty - Notification No.04/2006 - appellant lodged protest before the Assistant Commissioner of Customs complaining realization of excess amount of duty - matter remanded back to decided the issue in terms of sub-Section 5 of Section 17.... - HC
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DGFT

• DGFT Sets Minimum Export Price for Onions to Stabilize Domestic Market Under 2009-2014 Policy Framework.

  Notifications : Minimum Export Price of Onions. - Ntf. No. 96 (RE – 2010)/2009-2014 Dated: February 15, 2012
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FEMA

• Softex Procedure Revamped: Streamlined Process for Exporters to Enhance Compliance with FEMA Regulations and Reduce Admin Burdens.

  Circulars : Export of Goods and Services- Simplification and Revision of Softex Procedure. - Cir. No. 80 Dated: February 15, 2012
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• New Circular Sets AML/CFT Standards for Cross-Border Remittances Under Money Transfer Service Scheme, Dated Feb 15, 2012.

  Circulars : Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer Service Scheme. - Cir. No. 78 Dated: February 15, 2012
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• AML & CFT Standards Update for Money Changers under FEMA: Circular No. 77 Highlights Compliance Measures Against Illicit Finance.

  Circulars : Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Money changing activities. - Cir. No. 77 Dated: February 15, 2012
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Service Tax

• Refund Granted for Service Tax Paid Under Reverse Charge (Aug 2002-Aug 2004), Subject to Unjust Enrichment Compliance.

  Case-Laws - AT : Refund of Service Tax paid under Reverse Charge from August, 2002 to August, 2004 - Refund Claim allowed subject to the provisions of unjust enrichment.... - AT
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Central Excise

• Show cause notice against legal heir of deceased sole proprietor ruled unsustainable.

  Case-Laws - AT : Show cause notice - Notice issued after the death of sole proprietor of the concern to the legal heir of the proprietary concern is not sustainable. .... - AT
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• UPS System Valuation Must Include Bought-Out Battery Costs for Central Excise, Court Rules Consistent with Case Law.

  Case-Laws - AT : Valuation - manufacturing of UPS - inclusion of cost of the battery - value of bought out items is required to be added in the assessable value.... - AT
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VAT

• High Court Upholds Commissioner's Classification of "Resin Coated Sand" under Residuary Clause of KVAT Tax Regulations.

  Case-Laws - HC : Clarification in respect of revised tax under KVAT Act - Commissioner is justified in regard to the classification of the "Resin Coated Sand" under Residuary Clause.... - HC
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Case Laws:

• Income Tax

• 2012 (2) TMI 173
  Indo-French DTAA – French Company entered into an IT Agreement with the applicant to provide support services in the area of IT - whether royalty or FTS – whether payment would fall under the provisions of Article 13 of the Indo France DTAA in view of the Fact that foreign company does not have a PE in India – assessee contending such payment to be reimbursement of expenses - Held that:- Services provided under the IT agreement are in the nature of Fees for Technical Services and taxable under the DTAA as well as under the Act. It is also clarified that payment under the proposed agreement does not represent reimbursement of cost and is taxable in India. Article 5 of India France DTAA states that even existence of a computer server amounts to existence of a PE within a jurisdiction. In such circumstances, Areva T&D SAS France has a PE in India, the payment to it would not fall under the provision of Article 13 of the DTAC. As the Applicant has a PE in India, the income by way of FTS will be taxed under Section 44DA and at the rate provided under the Finance Act for the relevant year and tax withheld accordingly.

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• 2012 (2) TMI 172
  Transfer pricing - What is the data to be considered by the TPO at the time of determining ALP - Whether the appellant should have been given an opportunity to refute the material sought to be utilized by the TPO – Turnover filter – deduction u/s 10A - Held that:-By providing a specified date in the Act, the obligation is cast upon the assessee to keep and maintain the documents for that period. But, it does not restrict the TPO from making enquiries thereafter for determining the correct ALP. TPO shall take into consideration the contemporaneous data. TPO need not inform the assessee about the process used by him for issuing the notices u/s 133(6) nor is he under any obligation to furnish the entire information to the assessee. However, principles of natural justice requires that appellant has to be given a reasonable opportunity of hearing on that material. In present case, TPO had furnished all the information to the appellant, to which appellant has raised objections. Non- consideration of objections would be an error of judgment, but, not violation of principles of natural justice. Turnover Filter - TPO considered turnover range of Rs. 1 crore to Rs. 200 crores and Rs. 1 crore to Rs. 500 crores – Held that:- Turnover of the company is in the range of 24 crores, therefore, the companies, which have turnover of Rs. 1.00 crores to 200 crores alone should be taken into consideration for the purpose of making TP study. Therefore, this issue requires to be remitted back to the file of the TPO for fresh consideration with directions in this regard. Deduction u/s 10A - Held that:- While computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. See CIT v. Gem Plus Jewellery India Ltd.(2010 - TMI - 76903 - Bombay High Court ) - Decided partly in favor of assessee for statistical purposes.

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• 2012 (2) TMI 171
  Waiver of penalty u/s 271(1)(c) – dis-allowance of bad debts – assessee funished records & confirmations during penalty proceedings – non-examination of documents by A.O./CIT(A) – Held that:- Tribunal went into the details, examined the records and the confirmations which were furnished by the assessee and has come to the conclusion that the levy of penalty u/s 271(1)(c) was not justified. In the present case, A.O. and the CIT(A) failed to consider/examine the veracity and correctness of the said papers without any reason. Revenue is unable to show what and where the tribunal has made a factual error or mistake – Decided against the Revenue.

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• 2012 (2) TMI 170
  Foreign travel expenditure - Son of partner, technical person - AO disallowed expense being personal in nature - CIT(A) affirmed AO - Held That:- Merely stating that the assessee has booked a stall and the sons of the partners were attending is not sufficient. The circumstances exhibits that the sons of partners were taken as those were in close relationship of partners and nothing to do with the business of the firm. Decided against assesee. Repair on rental building - Capital OR Revenue Expenditure - Held That:- In view of Madras Auto Service (P.) Ltd. (1998 - TMI - 5686 - SUPREME Court), repairing expenses carried out on a rental building are revenue in nature. Payment for Labour Charges - job work for sister concern - Held That:- Job work done is almost 5 times than the actual production. This clearly shows that the alleged job work charges have been paid to sister concerns merely with a view to avoid payment of legitimate taxes. Thus provisions of 40(A)(2) are clearly applicable.

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• 2012 (2) TMI 169
  Sale/Purchase of Shares - "Capital Gain" OR "Business Income" - One share of Jubilant Organosys Limited held as long Term - Investment in (JOL) under Special resolution - Motive to earn dividend - Shown as Investment In B/ST - Held That:- Taxable under head Capital Gains. Shares held for small period of time - motive to earn profit - Held That:- Short term capital gain assessable under Business Income. Expennditure in relation to exempt Income - Held That:- In view of Godrej Boyce Mfg. Co.(Mumbai High Court). Appeal allowed for statistical purposes.

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• 2012 (2) TMI 160
  Power of Commissioner u/s 12AA(3) to cancel the registration granted u/s 12A – Charitable society – Tribunal revoked cancellation of Registration by Commissioner – Held that:- Section 12AA(3) stipulates specific finding by the Commissioner that the activities of the trust or institution are not genuine or not being carried out in accordance with the objects of the trust. In present case, the only reason given by Commissioner is that the activities of the trust were not charitable. Therefore, Tribunal was justified in holding that none of the conditions u/s 12AA(3) were violated and registration granted to the assessee u/s 12A(a) would hold good – Decided against the Revenue.

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• 2012 (2) TMI 159
  Charitable Trust – CIT rejected application of registration on ground that objects of the Trust are both charitable and religious in nature – Held that:-Section 11(1)(a) and 12AA is applicable to both the Trusts established with the object of charitable as well as religious purposes. Even if the Trust is not created with both the objects, law does not make any disqualification for the trust to make an application for registration. Accordingly, the order passed by the Tribunal holding that the assessee trust is entitled to registration u/s 12AA is confirmed – Decided against the Revenue.

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• 2012 (2) TMI 158
  Validity of notice issued u/s 148 beyond a period of four years from the end of the relevant A.Y. - manufacturer of jewellery in a SEZ – deduction u/s 10A - assessment order for A.Y. 05-06 framed u/s 143(3) – reopening sought on the basis of the findings contained in the assessment order for A.Y. 07-08 - Held that:-A.O. having failed to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts for A.Y. 05-06, the reopening beyond a period of four years is clearly not valid. There was a finding of fact by the A.O. in the assessment order for A.Y. 2005-06 that the business activity of the assessee is manufacturing of jewellery in a Special Economic Zone entitling deduction u/s 10A – Decided in favor of assessee.

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• 2012 (2) TMI 157
  Validity of re-opening of assessment beyond a period of four years from the end of the relevant A.Y. - assessee authorized vide order issued u/s 195(2) to reimburse expenditure incurred by foreign principal company for providing support services, without TDS - reasons set out for re-opening that certificate u/s 197 is valid only for payment or credits made after the date on which a certificate had been issued – assessee had credited the amount before obtaining certificate – Held that:- A.O. has not even indicated that there was any failure on part of assessee to disclose fully and truly all material facts. Further, certificate, as a matter of fact, was issued on an application that was filed u/s 195(2) and not under section 197. Moreover, A.O. also, made no reference at all to whether the payment which was effected to the foreign principal represented income chargeable under the provisions of the Act. Therefore, jurisdictional condition for reopening of the assessment has not been fulfilled - Decided in favor of assessee.

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• 2012 (2) TMI 156
  Period of limitation – search & seizure conducted – special audit u/s 142(2A) – writ petition filed against the order u/s 142(2A) – stay granted - High court held that time schedule fixed u/s 153B shall apply if the special audit was ordered - time spent in prosecuting the petition shall be excluded for the purpose of computing the time for completion of assessment – assessee contending that A.O. had already availed the period of 60 days in view of the stay order passed by the court – Held that:- In the present case, because of the stay order passed, the period during which the stay order was in operation in the High Court has to be excluded. In terms of proviso to the Explanation to Section 153B(1), A.O. had the extended period to complete the assessment proceedings – Decided in favor of Revenue.

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• 2012 (2) TMI 155
  Calculation of Profits - GP of preceding assessment year vis a vis average of last two assessment year - Held That:- In the case of Best Judgment assessment OR rejection of books, the estimates of income must be honest and fair and should not be arbitrary, although some element of guess work is necessary. There being no material to suggest that the GP rate applied by the CIT(A) was not reasonable or was without any basis, we uphold the order of the CIT(A) and the ground of the Revenue is dismissed. Additions on account of unverifiable purchases and unverifiable consumption - Held That:- When CIT has upheld the action of AO in rejecting books of account and applied GP rate there is no justification for making any addition on the basis of same rejected account books on account of the defects in the account books. Payment of PF & ESI before date of filing of return - Held That:- In view of Sai Consulting Engineers P. Ltd (Ahmedabad bench), deduction allowed under 43B.

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• 2012 (2) TMI 154
  Calculation of Profit - CIT relied on GP rate - Assessee carrying other business - - Books of account rejected - After considering additional income GP rate comes to 17.5% - Held That:- Once the books of accounts of the assessee are rejected and a flat rate of GP is to be applied, some element of estimate is inevitable. In this case, there is no material on record to suggest that the GP rate of 17.5% was not justified. Unexplained Investments in sales outside the books - Held That:- During the course of search no unaccounted sale bills, purchase bills and unaccounted value of debtors or creditors were found which could suggest that unaccounted working capital was utilised by the assessee for carrying out unaccounted turnover. - Thus CIT(A) rightly deleted the additions.

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• Customs

• 2012 (2) TMI 146
  Interest on the refund amount of pre-deposit and sale proceeds of confiscated goods – order for absolute confiscation of gold bars on 22.05.98 – Commissioner (Customs) vide order dated 11.12.01 permitted for release of 21 gold biscuits in de-novo proceedings – gold bars being sold by Department on 09.03.01 – Held that:- In view of decision in case of Miles India Ltd. Vs ACC (1984 - TMI - 41925 - Supreme Court Of India) holding that the authorities created by a statute are governed by the provisions of statute, it is laid down that in as much as there is no provision regarding payment of interest in respect of sale proceeds of confiscated goods, the same cannot be ordered. Since Commissioner has not given any finding regarding interest on refund of pre-deposit, matter is remanded back to the Appellate Authority – Decided partly in favor of Revenue.

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• Central Excise

• 2012 (2) TMI 163
  Modvat Credit of duty paid on the cleanflow, welding electrodes and various iron and steel items – Held that:- As regards Cleanflow, issue already stands decided in the appellants own case, thereby, held to be eligible Modvatable input and credit is allowed in respect of same. Steel items – Following the decision in case of Jaypee Bela Plant vs CCE (2011 - TMI - 210276 - CESTAT, DELHI), we remand the matter to original adjudicating authority for examining the availability of credit in respect of various steel items, depending upon actual use of the same. Welding electrodes – Held that:-Original adjudicating authority would also re-decide the issue of availability of credit on welding electrodes in the light of decision in case of Ambuja Cements Eastern Ltd. vs. CCE, Raipur (2010 - TMI - 77888 - Chhaitisgarh High Court).

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• 2012 (2) TMI 162
  Determination of relationship - principal to principal or agent and principal - assessee engaged in the blending and packing of Glucon D' for M/s Heinz India Pvt. Ltd – excise duty paid at aggregate of cost of raw material, packing material and their job work charges – Revenue seeking to levy duty on wholesale price of the product - Tribunal quashed additional excise duty levied – Held that:- Neither Tribunal addressed the aspect that whether the relationship between the Assessee and Heinz was one of principal to principal or that of an agent and principal, nor did it consider whether the Assessee and Heinz are related persons. It based its decision solely on the observation made by the Adjudicating Authority that assessee status is of hired labour. Therefore, matter is remanded back to the Tribunal. If the Tribunal finds that the Assessee and Heinz are related, it shall remit the matter to the Adjudicating Authority for fresh determination of the assessable value of the goods in question in accordance with law - Decided in favor of revenue for statistical purposes.

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• 2012 (2) TMI 161
  Acquittal of accused from the charges u/s 135(1)(b) of the Customs Act, 1962 - seizure of recovery (gold biscuits and Indian currency) from accused – petitioner(prosection) challenging the same – Held that:- Trial Judge observed that Prosecution failed to examine independent witnesses without any sufficient reasons. It was a very material lacuna in the case of the prosecution which cast a very strong doubt over the seizure memo/punchnama dated 01.11.1990. Benefit of doubt goes in favour of the accused. Therefore, Trial judge has acquitted the accused not only on the ground argued but also considered the other evidence also – Decided against the petitioner.

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• 2012 (2) TMI 145
  Recovery of duty - Petition filed to restrain the respondents from proceeding further, pursuant to the order passed by the CESTAT, Chennai - appeal preferred by the petitioner before the Supreme Court, against the order passed by the CESTAT, Chennai - Supreme Court had ordered the issuance of notices to the respondents, on 7.3.2011- Held that:- In given circumstances, it would not be appropriate for this Court to entertain the writ petition and grant the relief. Therefore, writ petition is not maintainable and is dismissed.

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• 2012 (2) TMI 144
  Whether use of brand name of a person, who is director of the respondents company amounts to use of same brand name of another person so as to disallow the benefit of SSI - Commissioner(Appeals) decided in favor of assessee based on earlier order of the Tribunal in the case of same assessee – Revenue challenged the order of Tribunal before the higher appellate forum - Held that:-The said appeal stands rejected by Supreme Court vide order dtd. 01.04.10. Hence, earlier order of the Tribunal stands confirmed and has attained finality – Decided against the Revenue.

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• 2012 (2) TMI 143
  Whether duty is leviable on clearing of samples in the laboratory situated in the factory premises assessee contended that samples were meant for testing - Held that:- In view of decision in case of CCE Chandigarh Vs. Dabur India Ltd (2010 - TMI - 206171 - Himachal Pradesh High Court), the samples drawn for testing and not cleared from the factory are not required to discharge any duty liability Decided in favor of assessee.

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