TMI Tax Updates - e-Newsletter
February 3, 2012

Case Laws in this Newsletter:

Income Tax Customs Central Excise CST, VAT & Sales Tax

Articles

1. TAXABILITY OF TRANSPORT BY CRUISE SHIPS.

   By: Dr. Sanjiv Agarwal

2. TAXABILITY OF SITE FORMATION AND CLEARANCE SERVICES

   By: Dr. Sanjiv Agarwal

News

1. Jyotiraditya M. Scindia Relaunches India-Romania Economic Engagement Signs 17th Joint Economic Committee Protocol in Bucharest.

2. Finance Minister asks Customs Administration to Function on Principles of Transparency, Predictability, Strong Legal Processes and Productive use of it to Serve Stakeholders Efficiently and to Enhance Competitiveness of Indian Business.

3. DG UNIDO calls on Anand Sharma.

4. WPI Weekly Discontinued with Immediate Effect.

5. ICSI Launches New Syllabus for CS Foundation Programme.

6. DR. M.Veerappa Moily Stresses for A Corporate Culture attuned to the Values of Good Governance–Accountability, Transparency,Responsibility and Responsiveness to Stake holders.

7. Sourcing from MSME will be Rewarding to the Investors: Anand Sharma India EU FTA Negotiations in the Final Stage Addresses World CEO Sustainablity Summit.

8. India seeks to Invest in Pharma Sector in Belarus: AIMS to Provide 50% of Domestic Production Pushes for Long term Agreement for Potash Fertilizer from Belarus Jyotiraditya M. Scindia heads Indian Delegation at Fifth India-Belarus IGC at Minsk.

9. Finance Minister Holds Meeting With Leading Economists as Part of the Pre-Budget Consultation Process; Economists Wants Budget to Restore Investors’ Sense of Confidence in India’s Growth Story.

10. Change in the Tariff Values of Brass Scrap (all Grades), Poppy Seeds, Gold and Silver Notified.

11. India’s Foreign Trade: December, 2011.

Notifications

Customs

1. 10/2012 - dated 31-1-2012 - Cus (NT)

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

Circulars / Instructions / Orders

FEMA

1. 74 - dated 1-2-2012

Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR.

2. 73 - dated 31-1-2012

Opening of Diamond Dollar Accounts (DDAs).

Customs

3. 03/2012 - dated 1-2-2012

Classification of Fused Silica under Customs Tariff Act, 1975 - regarding.

4. F.No. 528/109/2011-STO (TU) - dated 30-1-2012

Implementation of The Pneumatic Tyres and Tubes for Automotive Vehicles (Quality Control) Order 2009 – reg.

Highlights / Catch Notes

Customs

• Automotive Tyres and Tubes Quality Control Order 2009 Enforces Standards for Safety and Performance from January 2012.

  Circulars : Implementation of The Pneumatic Tyres and Tubes for Automotive Vehicles (Quality Control) Order 2009 – reg. - Cir. No. F.No. 528/109/2011-STO (TU) Dated: January 30, 2012
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• Fused Silica Classification Clarified in Circular No. 03/2012 for Uniform Customs Tariff Application.

  Circulars : Classification of Fused Silica under Customs Tariff Act, 1975 - regarding. - Cir. No. 03 / 2012 - Customs Dated: February 1, 2012
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• Amendment to Tariff Values for Palm Oil, Palmolein, Crude Soybean Oil, Brass Scrap under Notification No. 10/2012-Customs(N.T.

  Notifications : Amends Notification No. 36/2001-Customs(N.T) Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values. - Ntf. No. 10/2012 – Customs (N. T.) Dated: January 31, 2012
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FEMA

• India-USSR Deferred Payment Protocols: FEMA 2012 Circular Updates Tax Aspects and Compliance Requirements.

  Circulars : Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR. - Cir. No. 74 Dated: February 1, 2012
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• Guidelines for Opening Diamond Dollar Accounts Under FEMA to Streamline Foreign Exchange for Diamond Exporters.

  Circulars : Opening of Diamond Dollar Accounts (DDAs). - Cir. No. 73 Dated: January 31, 2012
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Case Laws:

• Income Tax

• 2012 (2) TMI 16
  Plea for waiver of penalty u/s 271(1)(c) – undisclosed income traced during search – assessee owned unaccounted transactions – divergent of opinion among the lower authorities as well as the Tribunal while deleting or sustaining the addition - whether the penalty is automatic, even if the assessee corrects his mistake or discretion vested in the officer should be used to not levy the penalty - Held that:- The present case is most befitting case to exercise such discretion. Divergence of opinion among authorities concerned shows that there is no conclusive proof that the assessee concealed income or furnished inaccurate particulars of income. Further as seen from the facts of the case, to avoid litigation the assessee accepted the additions or made fresh offer in the course of the proceedings before the lower authorities. After the A.O. had the clinching evidence of concealment then the offer may not have been accepted and the same should have been proceeded on the basis of material available on record. The lower authorities relied on proceedings before A.O. for levying the penalty. The same do not constitute admission for the purpose of levying penalty. The addition made on the basis of more or less on the offer made by the assessee and the A.O. did not brought enough incriminating material for concealment and there is no material for establishing the concealment independently in the given facts and circumstances of the penalty is not leviable and the same is deleted – Decided in favor of assessee.

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• 2012 (2) TMI 15
  Revenue expenditure vs deferred revenue expenditure - manufacturing and trading in pharmaceuticals products - pharmaceuticals products registered in foreign countries for 5 years - registration amount paid in lumpsum in the first year – Revenue contending it to be deferred revenue expenditure – Held that:- Assessee has been regularly incurring expenditure on registration of pharmaceuticals products in foreign countries. A similar addition made was deleted by CIT(Appeals) in the A.Y. 2003-04 and 2004-05 . Similarily in A.Y. 2005-06, deletion made was appealled by Revenue before Tribunal but was dismissed and no further appeal was preferred before this Court. It therefore, appears that the aforesaid expenditures are being claimed from year to year. Even if the plea of the revenue is accepted, the net effect may be marginal or minimum – Decided against the Revenue

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• 2012 (2) TMI 14
  Nature of Income - Capital gain vs Business income – Insurance agent – purchase & sale of shares – Held that:- Applying the ratio of the various decisions to the facts of the present case with regard to intention of assessee, frequency of transactions, treatment in Balance sheet, borrowed funds etc, it becomes abundantly clear that the transactions in the shares and mutual funds were made by the assessee as investor and not as a trader, therefore, the profit earned from the said transactions is short term capital gain, not business income. Order of A.O. & CIT are set aside and it is directed to A.O. to treat the income as income from short term capital gains and not business income. See CIT vs Gopal Purohit ([2010 (11) TMI 222 - SUPREME COURT]), Sarnath Infrastructure (P.) Ltd. v. ACIT [2007 (12) TMI 261 - ITAT LUCKNOW-B]- Decided in favor of assessee.

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• 2012 (2) TMI 13
  Restriction on appearance before tribunal - Rule 13E states taht, "The President, the Senior Vice-President, the Vice-President and the Members of the Tribunal shall not practice before the tribunal after retirement from the service of the Tribunal" - whether such restriction is ultra virus - held that:- Till the next date of hearing, operation of the impugned rule 13E as well as the judgment in the case of Concept Creations shall remain stayed in so far as they impose a complete ban on the practice by retired members before the Tribunal. - Thus, it would be open for the retired members to practise before the Benches of Tribunal where they had not remained posted and held courts temporarily or on regular basis.

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• 2012 (2) TMI 8
  Penalty u/s 271(1)(c) – dis-allowance of expenses on ground of non-deduction of tax at source u/s 40(a)(i) – Tribunal deleted the penalty levied by A.O. on ground that assessee has been able to justify and discharge the onus under Explanation 1 to Section 271(1)(c) - A.Y. 2000-01 – Held that:- In present case, assessee had contended that Section 40(a)(i) was not applicable as the words used were „tax has been paid or deducted . It is possible to submit that the amendment which came in 2004 was clarificatory in nature, but this is different from stating and holding that the assessee could not have raised the said plea or argued that the dis-allowance under the pre amended Section 40(a)(i) was not justified or mandatory. It is undisputed that TDS has been deducted and paid in the next A.Y. Assessee can in the penalty proceeding show and explain that interpretation was plausible and had merit, though was not accepted. Order of Tribunal deleting penalty is justified – Decided against the revenue.

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• 2012 (2) TMI 7
  Composite sale - Capital Gains - Allocation of sale value towards land and the factory building – composite sale of Rs 17. 50 lacs – reference made to Departmental Valuation Officer on direction of Tribunal – DVO bifurcated sales and estimated sale consideration to be 21.42 lacs – A.O. computed capital gain taking sale consideration to be Rs 21.42 lacs and not Rs 17.50 lacs – Held that:- D.V.O. and A.O. was not required and permitted by the said order to examine the total sale consideration as the appellant in the present case had applied under Chapter XXC and the appropriate authority had accepted the sale consideration mentioned by the appellant. The sale consideration and the quantum thereof was never in question and need not be re-examined. Thus, the enhancement made by the A.O. was not justified and as per law – Decided in favor of assessee.

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• Customs

• 2012 (2) TMI 12
  Classification of super concentrate, a constituent of the antifreeze coolants – assessee submitting super concentrate will fall classification under heading 3824 90 90 – residuary entry – imported product cannot itself be used as anti-freeze coolant - addition of MEG and others is also necessary to reach the desired concentration - Held that:-Rule 2(a) of the General Rules for Interpretation cannot apply to these goods, since it refers to articles presented unassembled or disassembled. Rule 2(b) refers to mixtures and combinations of materials and substances. The rule further states that the classification of goods consisting of more than one material or substance shall be according to the principles of rule 3. To apply this rule, therefore, one has to first see whether the goods in question, prima facie, fall for classification under two or more headings. Therefore, on the basis of meaning of the word “preparations” and the inapplicability of rule 2(a), their classification under heading 3820 00 00 is ruled out. The goods are undeniably products of chemical industry. Consequently, their classification will have to be under the residuary entry of chapter 38 of the tariff i.e. Heading 3824 90 90 – Decided in favor of assessee.

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• Central Excise

• 2012 (2) TMI 11
  Eligibility to avail the credit of balance 50% of the amount of duty paid on the capital goods in the subsequent financial year, without installing the same and putting it into use – reference made to larger bench – A.Y. 2003-04 – Held that:- In view of decision in case of CCE vs. Ispat Industries Ltd (2006 -TMI - 489 - CESTAT, MUMBAI) it is held that the condition imposed under the relevant Cenvat Credit Rules, for taking credit of balance of 50% of amount of duty on capital goods in subsequent financial years, in case the capital goods are lying in the factory for installation and the process of erection was being carried out has to be considered as the capital goods were in possession and use for manufacture. - Decided in favor of assessee.

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• CST, VAT & Sales Tax

• 2012 (2) TMI 5
  Bombay Sales Tax Act 1959 - whether sales made to vendee situated in the Mumbai High Region are sales in the course of export out of India – alternative contention of Revenue to tax it as local sale – assessee is a licensed manufacturer of Helium gas - sales of Helium gas to ONGC situated at Mumbai High – Held that:-Once the customs frontier stands extended to a territory, there can obviously be no export of goods to a territory which falls within the customs frontier. Thus, for period both before and after 15 January 1987, sale was not a sale in the course of export. See Aban Loyd Chiles Offshore Ltd & Anr. Vs Union of India & ors (2008 - TMI - 3611 - Supreme Court) Further, movement of goods from the State of Maharashtra to Mumbai High does not constitute a movement from one State to another State. Mumbai High does not form part of any State in the Union of India. Therefore it cannot be regarded as inter-state sale. In respect of treating it as local sale , we are firmly of the view that this issue did not arise out of the order of the Tribunal. The State has not sought to levy sales tax in the present case on the basis that there was a local sale. Having held that the State was not justified in bringing the sale to tax as a sale in the course of interstate trade and commerce, we are not called upon to decide any other hypothetical issue.

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