TMI Tax Updates - e-Newsletter
February 7, 2014

Case Laws in this Newsletter:

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

Articles

1. WAREHOUSE

   By: DR.MARIAPPAN GOVINDARAJAN

2. GOVERNMENTAL AUTHORITY - THEN AND NOW

   By: Dr. Sanjiv Agarwal

News

1. CCI imposes Penalty of Rs.62.31 Crores on Three Companies for Forming a Cartel in a Tender for Indian Railways

2. RBI Reference Rate for US $ and Euro

3. 259% Growth in Bilateral Trade Between India and Namibia in 2013 as Compared to 2012

4. Finance Minister Gives Away Star Certificates to Over 300 Candidates of The National Skill Certification and Monetary Reward Scheme (Star) ; Over One Lakh Enrolled Under Star Scheme Since September 2013;

5. Government Decides to Cancel Deferred Auction of Dated Securities Worth Rs. 15,000 crore

Circulars / Instructions / Orders

FEMA

1. Press Note No. 2 (2014 Series) - dated 4-2-2014

Policy on foreign investment in the Insurance Sector- amendment of paragraph 6.2.17.7 of' Circular 1 of 2013-Consolidated FDI Policy'

Highlights / Catch Notes

Income Tax

• TDS Certificates Not Conclusive for Assessing Actual Income of Individuals, Clarifies Court Decision.

  Case-Laws - AT : Accrual of income - TDS certificates would not be a clinching material to determine the actual income assessable in the hands of the assessee - AT
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• Court Rules No Right to Transfer Car Park Rights; No Addition to Long-Term Capital Gain Needed.

  Case-Laws - HC : Computation of LTCG - There was no right to transfer the car park rights which have accrued in favour of the assessee and merely open space was being utilized beyond the permissible FSI for parking of vehicles - no addition - HC
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• Broad Interpretation of "False" Claims Doesn't Justify Penalties Without Proof of Deliberate Misrepresentation.

  Case-Laws - HC : The word “false“ in this context need be given only the wide meaning - The possibility of penalty cannot be a reason to require that it can be treated as undisclosed income only when the claim is found to be made deliberately - HC
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• TPO Validly Applies Markup in Marketing Agent Arrangement to Ensure Arm's Length Price Reflects Fair Market Value.

  Case-Laws - AT : Determination of Arm's Length Price - Marketing agent arrangement –TPO was right in adding a markup as not independent and prudent entrepreneur will provide any service free of cost - AT
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• Employers not liable for TDS shortfall u/s 192 if salary estimates are made in good faith.

  Case-Laws - AT : No tax can be recovered from the employer on account of short deduction of tax at source (TDS) u/s 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer - AT
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• 'Royalty' Exclusion: Advisory Services Abroad Not Taxable in India Under Act's Definition.

  Case-Laws - AT : The term of 'Royalty' as defined in the Act shows that it does not include any information provided in the course of advisory services - services were rendered abroad, no part of income had accrued or arisen in India - AT
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Customs

• 4% Special Additional Duty Applies to Goods from EOU to DTA; No State Sales Tax Exemption Available.

  Case-Laws - AT : Levy of 4% SAD on clearance of goods from 100% EOU to sister concern in DTA - inter unit clearance from EOU to DTA are not exempted from payment of sales tax by the state government - no demand - AT
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• Finished Goods Diverted to Local Market: Duty Required, Raw Materials Exempt from Duty Under CT-1 Regulations.

  Case-Laws - AT : Diversion of goods supplied against CT-1 to the local market - even if there was clearance in excess of permissible limit it may amount to be case of diversion of finished goods, duty shall be payable in respect of finished goods and no duty become demandable on the raw material used in the manufacture of such diverted goods - AT
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Service Tax

• High Court Quashes Tax Notice, Highlights Fairness and Rule of Law in Finance Act 1994 Administration.

  Case-Laws - HC : Recovery of demand - time limit of filing an appeal was not over - They are officers of the State, administering the Finance Act, 1994 and fairness in approach to the tax payers and acting in accordance with the Rule of Law is a sine-qua-non in discharge of all its functions - Notice quashed - HC
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Central Excise

• High Court Rules Minimum Penalty Not Mandatory for Simple Payment Delays u/s 11AC of Central Excise Act.

  Case-Laws - HC : Penalty u/s 11AC - where there is delay in payment simplicitor, levy of minimum penalty cannot be held to be mandatory. - HC
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• High Court Upholds Reversal of CENVAT Credit Due to Damaged Raw Materials, Supports Extended Limitation Period.

  Case-Laws - HC : Reversal of CENVAT Credit - damage of raw material - demand invoking extended period of limitation confirmed - HC
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• High Court Denies Duty Benefits on Cement for 100% Export Oriented Unit, Says No Exemption Under Notification No. 1/95.

  Case-Laws - HC : 100% EOU - appellants claimed that cement is capital goods and, therefore, they were entitled to the benefit of duty paid on cement under Notification No. 1/95 - No exemption - HC
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• OEMs Not Job Workers u/r 10A: Classification Inconsistent With Legal Principles Despite Higher Buyer Sale Price.

  Case-Laws - AT : Valuation - Whether OEM are Job Workers - Trying to bring such type of transactions under provisions of Rule 10A of Valuation Rules, is not in consonance with the settled law, even if the finished products are sold at higher price by the buyer - AT
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• Larger Bench to Review Duty and Interest on Cash Discounts for Late Payments Under Examination.

  Case-Laws - AT : Demand of differential duty and interest - demand towards cash discounts availed for which prompt payments are not made by the customers within the specified period - matter referred to larger bench - AT
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• Cenvat Credit Restored for Service Tax on Services Billed to Head Office, Reversing Prior Denial.

  Case-Laws - AT : Denial of the Cenvat Credit of the service tax paid for the services rendered and billed to the head office of the appellant - credit allowed - AT
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• Insurance Payment for Goods, Including Excise Duty, Validates Cenvat Credit Use as Correct and Regular.

  Case-Laws - AT : Merely because the Insurance Company paid the assessee the value of goods including the excise duty paid, that would not render the availment of the cenvat credit wrong or irregular - AT
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• Company Faces Duty Demand for Late Closure Notice; Factory Deemed Operational July 1-14, 2008.

  Case-Laws - AT : Duty demand - Pan Masala or gutka - The fact of filing the late intimation about the closure of the factory, along with the fact of refusal to get the machines sealed, leads to unavoidable conclusion that the appellants factory was working right from 1.7.08 to 14.7.08 - demand confirmed - AT
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VAT

• Tax Refund Claims: A Vested Right, Protected Unless Revoked by Statutory Law Changes.

  Case-Laws - HC : Right to claim refund is a vested right and that even if it is held to be an existing right and not vested right, such a right cannot be taken away unless it is taken away by a statutory enactment expressly or by necessary implication - HC
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• Court Can't Stop Officer from Fixing Errors Allowed by Law u/s 21 of the Act.

  Case-Laws - HC : Whether a writ court can prevent the Assessing Officer to correct the mistake when law envisages such correction under Section 21 of the Act. The answer is obviously 'No'. - HC
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Case Laws:

• Income Tax

• 2014 (2) TMI 253
  Addition made - Unaccounted production and profits on unrecorded sales – Held that:- The entire addition was made by the AO based on the findings of the Central Excise Department - additions was made by the AO - the CIT(A) modified the same by sustaining addition by adapting the G.P on sale @ 40% amounting being unaccounted investment for effecting the sale - The addition made and sustained by the AO and CIT(A) is not appropriate – 12.5% margin on such uncounted sale will suffice to be considered as profit on such uncounted sale where by additions have to be made – Decided partly in favour of Assessee.

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• 2014 (2) TMI 240
  Addition to the income by way of brokerage – accrual of income - Held that:- The TDS certificates would not be a clinching material to determine the actual income assessable in the hands of the assessee - the CIT(A) while accepting the claims of the assessee with regard to the returned incomes for the years under appeal, also held at the same time that the assessee is eligible to claim credit for TDS only in respect of income offered for tax in the relevant year. In that process, the CIT(A) also upheld the view taken by the Assessing Officer that the assessee cannot claim credit for the TDS unless and until the income in relation to which TDS, was made was offered to tax in the relevant year - the assessee is found to be a del cre dere agent, the role of the assessee, as observed by the CIT(A) in the order, does not cease simply on booking the order for the seller or the delivery of goods to the purchaser, but extends till the time the sale proceeds are realized by the seller from the buyer - Delcredere agent, in which actual receipt of the brokerage would depend on the actual realization of the sale proceeds by the seller from the purchaser, as claimed by the assessee and accepted by the CIT(A), assessee is justified in following cash system of accounting, finding it to be appropriate for its business - When the assessee claims to be following that method of accounting consistently, and it has been recognized by the statute, there is no justification for the Assessing Officer to disturb the book results disclosed by the assessee – there was no infirmity in the order of the CIT(A) – Decided against Revenue. Disallowance of insurance charges u/s 37(1) of the Act – Held that:- There is no justification in contesting the orders of the Commissioners (Appeal) on this issue for the assessment years 2002-03 and 2004-05, as they simply followed the reasoning given in the appellate order of the CIT(A) for the assessment year 2003-04 – it was correctly observed by the CIT(A) in the order for assessment year 2003-04, which has been adopted for the other two years, assessee, being a del cre dere agent, is responsible for payment of sale amounts to the sellers, which in turn depends on the safe delivery of goods to the buyers - it may also be in the nature of an incentive provided by the assessee to the buyers and sellers – there was no infirmity in the orders of the CIT(A) an he was justified in holding that the insurance expenses claimed by the assessee are allowable under S.37(1) of the Act – Decided against Revenue.

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• 2014 (2) TMI 239
  Unexplained investment in shares – Held that:- The assessee submits that the amount was added as unexplained investment in shares and therefore the unexplained amount actually invested should be determined and while doing so, there is nothing wrong in telescoping the amounts available by way of sale of shares for future investment in such shares - The theory of assessing peak credit was well accepted by the Department and therefore this ground of the department may be dismissed - This ground may not even sustain once it is held that the investment in shares were made only in the assessment year 2008-09 and not in the A.Y.2009-10 as there would be no unexplained investment at all for consideration in the assessment year 2009-10 – thus, in the interest of justice, the matter has to be remitted back to the Assessing Officer since all the arguments raised by the assessee in his written submissions were not considered by the Revenue – Decided in favour of Assessee. Profit on sale of shares – Held that:- The CIT(A) held that The A.O is required to look into the aspect, and if found so, the AO may treat the above gains as short term capital gains only- the AO is also required to recomputed the peak investments by considering the above sales as the sales of the financial year 2008-09 - CIT(A) has only directed the AO to verify the relevant dates and recompute the income as per merits and facts of the case –thus, there was no infirmity in the order of the CIT (A) – AO is directed to look into the issue considering the provisions of the Sec.10 (38) of the Act – Decided partly in favour of Assessee.

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• 2014 (2) TMI 238
  Legality of reopening of assessment – Bar of limitation u/s 147 of the Act - The assessee has explained and disclosed the entire facts which would constitute a full disclosure thus, the reopening of assessment is barred by the proviso to section 147 - the Tribunal has correctly appreciated the facts in holding that the reopening of the assessment orders are barred by limitation - the Commissioner of Income-tax (Appeals) as well as the Tribunal has concurrently held from the facts that the proviso to section 147 would not apply to the facts of this case. The reassessment was merely a relook of the earlier assessment with a change of opinion - the Assessing Officer reopens the assessment are actually vague and fanciful - the Commissioner of Income-tax (Appeals) came to a conclusion that the reasoning assigned by the Assessing Officer are not sufficient and thus, the reopening of the assessment was bereft of materials to come to a conclusion that there were reasons to believe that the income has escaped assessment – there was no substantial question of law arises – Decided against Revenue. Licence fee to be deducted as business allowance – Held that:- RPG Life Sciences as well as Philip Carbon Black are group companies of RPG Enterprises Ltd. and that both these companies are paying licence fees to RPG Enterprises Ltd - the expenditure incurred by the respondent assessee towards licence fee payment were relatable to the business expediency and profits of the respondent-assessee and that the benefits availed of by the respondent-assessee from the service of the group resource company was tangible and justified – Decided against Revenue. Interest paid on borrowed capital u/s 36(1)(iii) of the Act – Held that:- The appellate authority and the Tribunal found that the investment made in shares by the assessee by utilising borrowed capital was for strategic business purposes because the companies were promoted as special purpose companies to strengthen and promote its existing business by combining different business segments, thus, the claim was fully allowable under section 36(1)(iii) - the Revenue did not adduce any material to show that the borrowed capital was utilised by the assessee for non-business purposes - The appellate authority was correct in allowing the claim of the assessee and deleting the disallowance made by the assessing authority - the Tribunal in correct appreciation of the matter had in turn confirmed the finding of the appellate authority – Decided against Revenue.

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• 2014 (2) TMI 237
  Computation of LTCG - additions towards car parking spaces allotted - Accrued rights to provide air conditioning equipment – Held that:- The assessee had no freedom to transfer the right, title and interest over the car parking spaces and that the benefit of privilege granted was only personal which could not be transferred to any third party for consideration – even the addition was only an estimate without any legal or factual basis - there was no reason to interfere with the well-reasoned order of the appellate authority in deleting the said notional additions of income and that the Tribunal committed no error in confirming the order of the appellate authority - There was no right to transfer the car park rights which have accrued in favour of the assessee and merely open space was being utilized beyond the permissible FSI for parking of vehicles - the notional additions on account of provision for air-conditioning does not arise in the facts of the present case as no such provision was actually provided by the developer – Decided against Revenue. Indexation benefit to the cost of improvement - Compensation paid to the tenants for vacating possession – Held that:- The compensation paid to the tenants for delivering the vacant possession, improved the right and interest of the assessee over the property, thus, it would amount to improvement cost – there was no erroneous approach or infirmity in the findings of the appellate authority and the Tribunal that the compensation paid to tenants for getting vacant possession would amount to cost of improvement and that the assessee was entitled for indexation benefit on that account - Relying upon Radhasoami Satsang Versus Commissioner of Income-Tax [1991 (11) TMI 2 - SUPREME Court] - section 48(ii) provides for deduction towards "costs of any improvement" – thus, compensation was paid to the tenants to obtain vacant possession so that the property could be put to better use and construct the building for which an agreement was entered into with the developer – hence it would constitute a "cost on improvement" as the said cost is incurred only for beneficial utilisation of the property – Decided against Revenue. Bogus Loss - Disallowance on sale of shares - Reversal of assessment – Held that:- There was no convincing material put forth by the Revenue to establish that the assessee was claiming loss on ostensible sale of shares belonging to the group companies with the motive of tax avoidance - all the required primary evidence relating to sale of shares were produced before the assessing authority and that the assessing authority did not point out any infirmity in those evidence – there was no infirmity in the order passed by the Tribunal confirming the order of the appellate authority directing the assessing authority to assess the loss on sale of shares under the head "Long-term capital gains" - The Tribunal has analysed the materials on record to come to a conclusion that the loss on account of sale of shares was a genuine and that the said loss has occurred in the course of business and cannot be added to the income of the assessee in any manner - the Revenue has failed to demonstrate as to how the loss on account of sale of shares is not genuine but a colourable device – Decided against Revenue. Interest paid on borrowed capital u/s 36(1)(iii) of the Act – Held that:- The appellate authority and the Tribunal found that the investment made in shares by the assessee by utilising borrowed capital was for strategic business purposes because the companies were promoted as special purpose companies to strengthen and promote its existing business by combining different business segments, thus, the claim was fully allowable under section 36(1)(iii) - the Revenue did not adduce any material to show that the borrowed capital was utilised by the assessee for non-business purposes - The appellate authority was correct in allowing the claim of the assessee and deleting the disallowance made by the assessing authority - the Tribunal in correct appreciation of the matter had in turn confirmed the finding of the appellate authority – Decided against Revenue. Licence fee to be deducted as business allowance – Held that:- the expenditure incurred by the respondent assessee towards licence fee payment were relatable to the business expediency and profits of the respondent-assessee and that the benefits availed of by the respondent-assessee from the service of the group resource company was tangible and justified – Decided against Revenue.

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• 2014 (2) TMI 236
  Depreciation allowance u/s 158B(b) of the Act - Interpretation of the words undisclosed income – Held that:- The words "or any expense, deduction or allowance claimed under the Act which is found to be false" was inserted by the Finance Act, 2002 with retrospective effect from 1.7.1995 –Relying upon TCV Engineering Ltd. v. Assistant Commissioner of Income Tax 2006 (3) TMI 86 - MADRAS High Court] - the expenditure claimed by the assessee was found by the Assessing Officer to be unreasonable and there was no finding that it was false - unless and until the Revenue gives a categorical finding that the whole expenditure of deduction is totally false, the disallowance could not be considered for making the block assessment - It is not a case where the expenditure was found to be unreasonable, which involves an element of estimation and that - the assessee could not have claimed depreciation when the asset was being let out and not being used for the purpose of the business - the Assessing Officer did not use the words that the claim is false - the appellant was regularly claiming depreciation on buildings occupied by the tenants - the building has not been used for the assessee's business and no depreciation could be allowed. Significance of the Word “False” – Held that:- The meaning of the word "false" cannot be divorced from the context in which the word occurs and the statutory setting - A penalty provision in a taxing statute is distinguished from a provision creating an offence and the former does not involve the concept of mens rea. The claim for depreciation was made quite without any basis - In view of the amended definition of "undisclosed income" such claim would render it undisclosed income - Merely because it is not in so many words mentioned that the claim is made falsely in the facts of this case it does not mean it is not made falsely - The word "false" in this context need be given only the wide meaning as the direct impact is that amount included will be assessed as undisclosed income -where there can be no explanation from the assessee for illegaly claiming depreciation, there is no need for relegating the matter for regular assessment - The possibility of penalty cannot be a reason to require that it can be treated as undisclosed income only when the claim is found to be made deliberately - the claim is made as it is clear from the facts without any foundation as the claim was made when the building was let out in which circumstances, there is absolutely no scope for claiming depreciation – Decided against Assessee.

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• 2014 (2) TMI 235
  Assessee in default u/s 201 – Non-deduction of TDS on consultancy work– Penalty u/s 201(1A) of the Act – Held that:- The actual payment of the amount was dependent on certain regulatory compliances and approvals which were ultimately not received - The payment had also not been made - Therefore in such a situation no income on account of such payment could said to have been accrued to the non-resident - only on the basis of entry in the books of accounts, the assessee could not be held liable for deduction of tax at source when ultimately the amount was found not payable nor it was paid, income therefore had not accrued to the Overseas Shipbuilding Cooperation Centre - There is no material placed on record to controvert the claim of the assessee that the assessee had no PE in India nor any business connection in India – thus, no tax was required to be deducted – the order of the CIT(A) upheld – Decided against Revenue. Penalty u/s 271C of the Act – Held that:- The penalty had been levied for failure to deduct TDS in respect of amount payable to M/s Overseas Shipbuilding Cooperation Centre - The AO had held that the assessee was liable to deduct tax in respect of the amount payable to the said concern and since there had been failure, the AO treated the assessee in default u/s 201(1) and levied interest u/s 201(1A). In addition penalty had also been levied u/s 271C for said default – it is already held that the assessee was not liable to deduct tax and thus upheld the order of CIT(A) canceling the order of AO u/s 201(1) and 201(1A) - The penalty levied by the AO cannot survive – thus, the order of the CIT(A) upheld – Decided against Revenue.

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• 2014 (2) TMI 234
  Nature of expenses – Capital OR Revenue - Expenses incurred on preliminary survey – Survey for aqua and agro project – Held that:- The Assessee has proposed to set up Aqua Agro Project which was admittedly an expansion of the existing project - The proposed new project is stated to have inextricable linkage with the existing business of the assessee - It is also a fact that no new asset has come to be created by the incurring of expenses - the Revenue could not bring any material on record to controvert the submission of the assessee - Relying upon CIT Vs. Priya Village Roadshows Limited 2009 (8) TMI 765 - Delhi High Court] - the expenditure cannot be considered to be of capital nature and therefore, the claim of the Assessee needs to be upheld – Decided in favour of Assessee. Depreciation u/s 32 of the Act – Greenhouse classified as building instead of plant – Held that:- The "functional test" have to be applied to determine as to whether the building is a plant or is a building simpliciter – Relying upon CIT vs. Victory Aqua Farms Ltd. 2004 (10) TMI 84 - KERALA High Court] – The "green house" is an essential part for a company engaged in the business of Tissue Culture - It cannot be considered as a simple "building" but has to be considered as a plant - the Assessee was right in considering the "green house" as part of "plant and machinery" and claiming depreciation of 25% - Decided partly in favour of Assessee.

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• 2014 (2) TMI 233
  Determination of Arm's Length Price - Marketing agent arrangement – Transfer pricing adjustment – Held that:- The findings of the CIT(A) confirmed that carrying out advertising to increase the viewership is not the part of normal job profile of independent marketing agents (for telecast companies) - It has rightly been observed by TPO as confirmed by CIT(A) that advertising and publicity targeted towards viewers is done under the ambit of distribution activity and not under the advertisement sales activity - The distribution activity involves expansion of subscriber base leading to higher subscriber fees and add sales activity involves attracting potential clients and add agency through specific sales pitch - it was not the normal entrepreneur activity - Such an activity is not performed by a prudent businessman free of cost and without any markup - it was not a mere case of reimbursement of advertisement expenses but a markup was also required to be added as assessee was rendering specific service in this regard - cost of funds had to be separately charged over and above the reimbursement which was also covered under the markup – thus, TPO was right in adding a markup as not independent and prudent entrepreneur will provide any service free of cost – Decided against Assessee. Disallowance u/s 14A of the Act – Expenses incurred for earning dividend income – Held that:- The decision in Maxopp Investment Ltd. v. CIT [2011 (11) TMI 267 - Delhi High Court ] followed - the Rule 8D is applicable w.e.f. 1st April, 2007 and, therefore, the computation made by CIT(A) by applying Rule 8D for AY 2002-03 was not justified – order of the CIT(A) set aside – Decided in favour of Assessee.

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• 2014 (2) TMI 232
  Determination of income – Held that:- CIT(A) erred in determining the gross receipts of the assessees @ 110% of the expenses, on the impression that the co-ordinate bench of Tribunal has taken an identical view - these assessees filed miscellaneous petitions pointing out that the co-ordinate bench of Tribunal set aside the matter to the file of the assessing officer with the direction to examine the issue - Assessments giving rise to the appeals filed by the Revenue were made based on advance ruling given by the Authority for Advance Ruling constituted under the Income Tax Act holding that respondent's operations in India attract tax under the Income Tax Act - The order of the CIT(A) set aside and the matter remitted back to the AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (2) TMI 231
  Disallowance of various expenses – Held that:- The decision in JM. Baxi & Co. Versus The Dy Commr of Income Tax[2014 (1) TMI 1259 - ITAT MUMBAI] followed - the disallowance was restricted to 50% - it is a question of making estimate for disallowing the expenditure for non-business purposes or unsupported by the evidences – it would be adequate if the total disallowance sustained by the learned CIT(A) towards these expenses is restricted to 50% - thus, The disallowance being restricted to 50% of the disallowance in respect of all the expenditure – Decided partly in favour of Assessee. Disallowance made u/s 37(1) of the Act – Fees or services charged from clients – Held that:- The decision in JM. Baxi & Co. Versus Dy. Commissioner of IT., Mumbai [2014 (1) TMI 1258 - ITAT MUMBAI] followed - After the lapse of almost 12 years no useful purpose would be served if the matter is restored back to the file of the A.O, to make fresh enquiries whether the clients of The assessee were aware that they were required to reimburse the illegal expenses - it is clear that after assesse filed its reply neither the assessee nor the AO made any effort to prove that such expenditure was illegal and was being reimbursed by such clients/principals – Advocate agreed that he will have no objection if sundry expenses are disallowed to the extent of 25% of the expenses – thus, the order of the CIT(A) and the AO is directed to make the disallowance of 25% of the sundry expenses – Decided partly in favour of Assessee.

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• 2014 (2) TMI 230
  Liability for deducting TDS u/s 192 of the Act - Payment made to employees – Medical reimbursement, leave travel allowance and meal vouchers - Survey u/s 133A of the Act – Held that:- There is no substance in the plea of the DR - These are not the cases in which the assessment of perquisite in the hands of the employees is being made - the provisions for deducting tax at source are all machinery provisions - The obligation of the person making payment, in the context of these provisions, is only to make a bonafide estimate of the income of the person to whom the payment is made – thus, the estimation made by the assessee is bona fide. Relying upon The Assistant Commissioner of Income Tax (TDS) Versus M/s. Infosys BPO [2013 (9) TMI 205 - ITAT BANGALORE] - The primary liability of the payee to pay tax remains - In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums - To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare - The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evidence furnished by the employees - No exemption is granted in the absence of details and/or evidence - The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees - The exemption is granted even if the payment precedes the incurrence of expenditure - The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee - No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer – Decided against Revenue.

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• 2014 (2) TMI 229
  Deduction u/s 10A of the Act – Reduction of Communication expenses and foreign currency expenses from export turnover – Held that:- The decision in CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] followed - while computing the deduction under section 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, then the same should also be excluded from the total turnover in the denominator – thus, the Assessing Officer is directed to exclude the expenses on communication and travel incurred in foreign currency both from export turnover as well as from the total turnover while calculating the eligible deduction under section 10A of the Act. Transfer pricing Adjustment – Rejection of Transfer Pricing study - Computation of ALP - Selection of comparables – Held that:- The TPO has included the company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act - it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables - Non-furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable – the matter remitted back to the AO for fresh adjudication - The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act. The TPO in his order has not given any reasoning for treating foreign exchange gain / loss as a non-operating item of income / expense - In the remand report submitted to the DRP, the TPO has merely stated that the exchange loss / gain could be on account of hedging / speculative activity owing to which it has been treated as non-operating in nature - In a rejoinder to the remand report, the assessee had submitted that the assessee receives remuneration from its AEs for rendering of services in foreign currency - The foreign exchange gain / loss relates entirely to the rendering of services and there is no speculative hedging activity. The foreign exchange gain should be considered as an operating income while computing the operating margins of the assessee and the comparable companies - the TPO has considered the foreign exchange income as non-operating income based on assumptions and surmises – the foreign exchange gain is to be treated as operating income in the view of the facts in the case on hand and the margins are to be computed accordingly. The TPO has not allowed any adjustment by observing that this has been considered and discussed in detail in the order for earlier years – The decision in We find that on similar facts, different co-ordinate benches of this Tribunal in the case of Intellinet Technologies India Ltd. v. ITO [2012 (6) TMI 237 - ITAT BANGALORE] followed - the TPO ought to have given risk adjustment to the margins of the comparables for bringing them on par with the assessee and remanded the issue back to the file of the TPO – the issue of market risk adjustment remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee.

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• 2014 (2) TMI 228
  Exemption u/s 11 r.w Section 12 of the Act – Held that:- The decision in Commissioner of Income Tax Versus M/s. All Saints College Society, M/s Sherwood Diocesan College Society [2014 (1) TMI 1081 - UTTARAKHAND HIGH COURT] followed - The assessees are trusts established wholly for the purposes of imparting education - They received contributions from their pupils for the purpose of imparting education to them - Merely because the assessees made contributions to other trusts, also registered under Section 12A of the Act and because, in some of the years, their revenue was more than their expenditure; despite non-cancellation of their registration under Section 12A of the Act, the Assessing Authority, in a most blatant manner, held that the assessees are not entitled to the benefits of Sections 11 and 12 of the Act - The order of the Commissioner (Appeals) upheld in holding the assessee society entitled to the benefits of Sections 11 and 12 of the Act – Decided against Revenue.

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• 2014 (2) TMI 227
  Disallowance of interest expenditure on unsecured loans – Held that:- The condition for s. 57(iii), as income would arise only where the borrowing is at a lower rate, and which fact is known in advance - not only is the interest on the loan/s given lower, but also the entire borrowed capital has not been utilized for interest bearing loans - The claim of interest to the extent of the income earned and confirming the disallowance for the balance t be allowed - the same would take care of both the differential in the interest rates as also the shortfall in the utilization of borrowed capital for interest bearing loans. The wide variation between the interest received as well as paid would itself show that the funds invested are much higher than that borrowed, for which the interest is paid, so that the difference would only be on account of investment of own capital - no hard and fast rule in this respect could be prescribed, and it is well open for the assessee to claim that all the borrowed funds have been invested for business purposes – Relying upon CIT vs. Reliance Utilities & Powers Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - the assessee would be liable for deduction of the entire amount of interest paid against the total interest income. Disallowance u/s 14A of the Act r.w Rule 8D of the Rules – Held that:- The decision in High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - There is no reason to interfere in the findings of CIT(A) - the onus to support its case with facts and figures would be on the assessee - The assessing authority, on his part, is bound by law by the directions of a higher appellate authority and, thus, no case for apprehension exists - the A.O.'s working for the year would be guided by the said rule - Decided partly in favour of Assessee.

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• 2014 (2) TMI 226
  Condonation of delay – Deduction u/s 80HHC of the Act – Held that:- The decision in M/s. AV. Thomas Leather & Allied Products Pvt. Ltd. (formerly known as AV. Thomas Leather & Allied Products Ltd.) Versus The Assistant Commissioner of Income-tax [2014 (1) TMI 1265 - ITAT CHENNAI] followed - The assessee was not guilty of negligence or such attributes in not filing the appeals before the Tribunal in time - In fact, the assessee-company has earnestly made a follow-up of its claim of deduction under section 8OHHC in respect of the DEPB - This is clear from the fact that the assessee has claimed deduction – Thus, it would be just and proper to condone the delay caused in filing the appeals – Delay condoned. The quantum of deduction available to the assessee under section 8OHHC in the light of DEPB is to be recomputed by the assessing authority as decided Topman Exports vs. CIT [2012 (2) TMI 100 - SUPREME COURT OF INDIA] - The assessee is entitled for the benefit to the extent explained by the Hon'ble Supreme Court – the matter is remitted back to the AO for re-computation quantum of deduction u/s. 80HHC of the Act – Decided in favour ofAssessee.

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• 2014 (2) TMI 225
  Validity of Order u/s 158BC of the Act – Notice u/s 143(2) not served – Jurisdiction to initiate the proceedings – Held that:- the decision in ACIT & Anr. Vs. Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT OF INDIA] followed - If the assessing officer, for any reason, repudiates the return filed by the assessee in response to notice under Section 158 BC(a), he must necessarily issue notice under Section 143(2) within the time prescribed in the proviso to Section 143(2) - Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically - Thus, when Section 158 BC(b) specifically refers to applicability of the provision, proviso thereto cannot be excluded - even for the purpose of Chapter XIV-B, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions of Section 142 and sub-sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) - The Assessing Officer repudiates the return filed u/s 158BC (a) and proceeds to make an inquiry, he has necessarily to follow the provisions of Sections 142, 143(2) and 143 (3) of the Act - no notice u/s 143 (2) of the Act was issued by the Assessing Officer prior to the framing of the assessment u/s 158BC of the Act, the assessees are right in contending that the assessment framed was without jurisdiction –Decided in favour of Assessee.

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• 2014 (2) TMI 224
  Dis-allowance u/s 14A of the Act r.w Rule 8D of the Rules – Held that:- The decision in Cheminvest Ltd. v. ITO [2009 (8) TMI 126 - ITAT DELHI-B ] followed - if the expenditure is incurred in relation to income which does not form part of total income it has to suffer dis-allowance irrespective of the fact whether any income is earned by the assessee or not – Section 14A does not envisage any such exception - Thus, the dis-allowance has to be made u/s. 14A r.w.r. 8D - the assessee has made investments - Some of the investments made by the assessee are short term - Since assessee is paying capital gains tax on short term investments, the provisions of Rule 8D will not apply on them - The Assessing Officer is directed to re-compute dis-allowance u/s. 14A r.w.r. 8D after excluding short term investments – Decided partly in favour of Assessee. Dis-allowance u/s 40(a)(ia) of the Act – Advisory services provided – Royalty to be paid or not – Held that:- The payments cannot be termed as 'Royalty' as defined under the provisions of the Act - the term of 'Royalty' as defined in the Act shows that it does not include any information provided in the course of advisory services - payments made to M/s. Fund Quest are not in the nature of 'Royalty' and the services were rendered abroad, no part of income had accrued or arisen in India - The assessee is not liable to deduct tax at source on the payments so made – order of the CIT(A) set aside – Decided in favour of Assessee. Repairs of lease-hold premises – Held that:- The decision in Sundaram BNP Paribas Asset Management Co. Ltd. [2011 (1) TMI 1242 - ITAT CHENNAI] - A perusal of the break up of the expenses which have been disallowed clearly shows that the expenditures are on the interior decorations and creation of the office atmosphere - The expenditure has not resulted in any building coming into existence nor has the existing building been modified or the structure altered - As the existing building has not been altered and there is no change to its structure as a result of the expenditure incurred by the assessee, it cannot be said that the expenditure incurred by the assessee is in the capital field - the expenditure incurred is in the revenue field - the expenditure on the repairs and maintenance in the form of electrical fittings, electrification, cabinet, work station, partition, cupboard, stand etc. are liable to be treated as a revenue expenditure – order of the CIT(A) set aside and the AO is directed to grant the assessee the claim of revenue expenditure in regard to the said expenditure – Decided in favour of Assessee. Depreciation on UPS – Depreciation to be allowed at 15% OR 60% - Held that:- The decision in Haworth (India) P. Ltd. Versus Deputy Commissioner of Income-tax [2013 (8) TMI 421 - ITAT DELHI] followed - UPS is an integral part of the computer – when a device is used as part of the computer in its functions, then it would be termed as a computer – thus , the assessee is entitled to claim depreciation @ 60% on UPS – Decided in favour of Assessee. Difference between TDS and actual tax - Investment management fee – Held that:- The assessee should not be taxed twice for the same income or taxed for the income which has not accrued to him - certain reversal entries were made to adjust the excess payments – the tax has been paid on such excess payments - The income which has not accrued to the assessee is not liable to be taxed - The error was discovered during audit which was rectified - the addition made is unjustified – The decision in COMMISSIONER OF INCOME-TAX Versus SUDHIR SEKHRI [2010 (4) TMI 50 - DELHI HIGH COURT] followed – Decided in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act – Payment made to mutual fund distributors – TDS on brokerage/commission not paid as per section 194H of the Act – Held that:- Securities include Mutual Funds and the provisions of Section 194H excludes commission or brokerage paid on securities – the services rendered by Mutual Fund brokers do not fall within the term 'Professional Services' - The services of Mutual Fund brokers cannot be termed as technical services as well, as the brokers do not require any special qualification in the field of law, engineering, accountancy or technical consultancy - Even an ordinary graduate from humanities group can be a broker - The brokers do not provide any technical know-how either, thus services rendered by them cannot be termed as technical services –Decided in favour of Assessee.

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• 2014 (2) TMI 223
  Violation of provision u/s 194J of the Act Professional fees paid Applicability of Section 194C for payment made to Rajasthan State Agriculture Marketing Board for construction/ repairs/ maintenance of the market yards and missing link roads Leviability of Interest u/s 201(1A) of the Act - Held that:- The decision in ITO(TDS), Udaipur vs. Krishi Upaj Mandi Samiti, Pratapgarh, Chittorgarh [2014 (1) TMI 935 - ITAT JODHPUR ] followed when the payee has paid due tax on these payments, there is no further liability of the payer to deduct tax at source there was no merit in the appeal of the revenue Decided against Revenue.

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• 2014 (2) TMI 222
  Deletion made u/s 40(a)(ia) of the Act – Held that:- The Provisions of s. 40(a)(ia) are applicable only to the amount of expenditure which is payable as on 31st March of every year and it cannot be invoked to disallow the expenditure which had been actually paid during the previous year without deduction of TDS - There was no contract between the assessee and M/s Keshriyaji Marble & Granites Pvt. Ltd. -The assessee was purchasing the marble blocks from the market - nothing was payable as on 31/03/2007 on account of job charges – Following the Decision of Merilyn Shipping & Transports Vs. Addl. CIT Range-1, Viskhapatanam [2012 (4) TMI 290 - ITAT VISAKHAPATNAM ] the addition made by the Assessing Officer deleted - No contrary decision was brought on record –There was no infirmity in the order of the learned CIT(A) who has deleted the addition – Decided against Revenue. Deletion on account of excess deprecation on dumpers – Held that:- The decision in Asstt. CIT Versus M/s Sayeed Iqbal [2014 (1) TMI 744 - ITAT JODHPUR] followed - the assessee was eligible for claiming depreciation at the same rate at which depreciation was allowable on motor lorries - The CIT(A) has allowed the claim of the assessee by following the decision of the jurisdictional Tribunal and nothing is brought on record that the decision of the ITAT Jodhpur Bench relied by the learned CIT(A) had been reversed by the higher forum – Decided against Revenue.

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• 2014 (2) TMI 221
  Validity of reassessment u/s 143(3) r.w. Section 147 of the Act – Assessment made without issuance of notice – Held that:- In a case of reopening of assessment u/s 147, the A.O. is bound to comply with the requirement of section 143(2) of the income Tax Act - the A.O. was bound by the mandate to issue notice and on failure to issue notice within the period stipulated in the said proviso, the order of reassessment would be without jurisdiction which is liable to be set aside - The decision in Commissioner of Wealth Tax vs. HUF of H.H. Late J.M. Scindia [2008 (2) TMI 53 - BOMBAY HIGH COURT] followed - the reassessment completed by the A.O. u/s 143(3) r.w.s. 147 without issuing notice u/s 143(2) of the Act is void ab initio and the same is liable to be cancelled – Decided against Revenue in favour of Assessee.

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• Customs

• 2014 (2) TMI 220
  Waiver of balance pre-deposit - Demand of differential duty - Held that:- Undoubtedly the amounts deposited on various duties by the petitioner, out of the assessed liabilities of Rs.414.05 crores is to the tune of 92%, i.e., over Rs.380 crores. The approach of the Commissioner would undoubtedly result in the petitioner’s right to appeal being defeated. The Court does not see any overwhelming interest in denying the relief as there is no material on record to suggest that there was any mis-declaration to deny relief to the petitioner - impugned order to the extent it refuses the assessee’s request for waiver of deposit to the tune of Rs.34,77,62,926/-along with interest is hereby set aside - Decided partly in favour of assessee.

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• 2014 (2) TMI 219
  Search and seizure of goods - Bill of goods not produced - Imposition of penalty - Notification u/s 123 - Commissioner set aside penalty and released goods - Held that:- Commissioner (Appeal) has given a detailed findings while allowing the appeal. He has observed that as per version of the appellant, he purchased the said goods from Chennai and the packages came from Chennai is not in doubt. It is findings of the Ld. Commissioner (Appeal) that the appellant is one of the recipient of the packages as per the address mentioned on the parcel and he has rightly claimed the ownership of the goods as the same was purchased by him from Chennai - goods are not notified under Section 123 and therefore, it was incumbent upon the Revenue officials to prove beyond the doubt that the goods procured were smuggled one - Decided against Revenue.

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• 2014 (2) TMI 218
  Waiver of pre deposit - Import Polyester Textured Yarn - Diversion of goods supplied against CT-1 to the local market - supply to 100% EOU - Exemption under Notification No. 53/97-Cus., dated 3-6-1997 - Held that:- even if there was clearance in excess of permissible limit it may amount to be case of diversion of finished goods, duty shall be payable in respect of finished goods and no duty become demandable on the raw material used in the manufacture of such diverted goods - Therefore, prima facie any duty of customs is not leviable on the imported/indigenously procured inputs used in the manufacture of final products. In this case also, if at all duty is to be demanded, that can be demanded on the final products and the Customs duty on the imported raw materials cannot be demanded - Following decision of CCE, Surat v. Sanjari Twisters [2007 (9) TMI 369 - CESTAT, AHMEDABAD] - Stay granted.

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• 2014 (2) TMI 217
  Clearance of Ferrite magnet & Ferrite magnet rings - Valuation of goods - Declaration of the value based upon the invoices raised by the supplier - Enhancement as per instructions of C.B.E. & C. vide Circular No. 91/2003-Cus., dated 14-10-2003 - Revenue has contended that inasmuch as the appellants cleared the goods on enhanced value, they were precluded from contesting the same - Held that:- The said circular itself makes it clear that proper officer is required to intimate in writing the grounds for enhancing the value and a reasonable opportunity is required to be given to the importer before the final decision is taken. It is only in those cases where both the sides agree to resort to enhancement of value. That no orders are required to be passed. Merely because the importer has cleared the goods at enhanced value to save the demurrage charges or otherwise, by itself, does not mean that the importer is consenting to enhance the value. It is right of the importer to contest the enhancement and fact of clearance of goods, cannot preclude the importer from exercising the right of appeal - Decided against Revenue.

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• 2014 (2) TMI 216
  Condonation of delay - Commissioners were preoccupied with certain urgent sensitive issues and that there was torrential rain and the Customs officers were caught in traffic jam and there was breakdown of the vehicle on the way to CESTAT - Held that:- this is a case where extra duty deposit was taken from the respondents at the time of provisional assessment. The refund of the same arises on account of finalization of the assessment. The provision relating to unjust enrichment has been made applicable in customs cases only w.e.f 13-7-2006. The finalization of the provisional assessment in this case has been done on 4-3-2008. The lower appellate authority has taken a view that since the provisional assessment relates to the period prior to the amendment made in 2006, principles of unjust enrichment will not apply. This view, appears to be erroneous as the provisional assessment has been actually finalized after the date of amendment. Hence, in this case the principles of unjust enrichment are required to be applied and it has been correctly so held by the original authority - it cannot be said that grant of the refund of the amount would unjustly enrich the respondents since this amount has been borne by them and has not been passed to the customers - Condonation of delay and stay denied.

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• 2014 (2) TMI 207
  Duty demand - Levy of 4% SAD on clearance of goods from 100% EOU to sister concern in DTA - Audit party took an objection to non-payment of SAD on the ground that clearance made to their sister concern would fall under the category of ‘exempted from payment of sales tax’ hence they are liable to pay SAD - Interpretation of benefits of Notification No. 23/2003-cus - Held that:- the inter unit clearance from EOU to DTA are not exempted from payment of sales tax by the state government by any notification and as revenue unable to bring on record any notifications issued by the state government or otherwise to indicate that inter unit transfers from EOU to DTA are exempted. The purpose of taking benefit of Notification 23/2003/CE, as amended, the one and only condition specified in respect of the goods being cleared into DTA, is if the said goods are exempted by the state government from payment of sales tax/VAT; in the present case there is no such notification or order issued by the state government exempting impugned goods from the payment of sales tax/VAT Appellant has specifically stated in such returns that they are clearing goods to their sister units and claiming the benefit of exemption of SAD. It was for the lower authorities to call for any explanation from the appellant, which they have not done so, that being so ,revenue authorities cannot turn around and say that they were not informed about the clearance made by the appellant to their sister unit - Decided in favour of assessee.

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• Corporate Laws

• 2014 (2) TMI 215
  Validity of auction sale - Ownership of property - company in liquidation - applicant submitted that land belong to him and not the company and therefore auction sale is illegal - Held that:- lands belonged to the company in liquidation but were registered in the benami name. The entire transaction was found to be in cash and there were no banking transactions. All these facts taken cumulatively should have persuaded the SFIO to hold that the company in liquidation was the real owner of the lands and the claim made by Achyut Kumar Sharma was hollow. Applicant did not challenge the action of the provisional liquidator, who took possession of the lands and also put it to auction, for a period of six years. Moreover, the present application was filed on 16.08.2011 when the applicant came to know that the sale deed was about to be executed in favour of the auction purchaser pursuant to the orders of this Court passed on 10.05.2011; this actually reinforces the contention that the applicant is merely indulging in delaying tactics - Application dismissed with costs.

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• Service Tax

• 2014 (2) TMI 250
  Waiver of pre deposit - Classification - renting of immovable property or business support services - tribunal granted stay ff 50% of service tax demand - Held that:- there was a bonafide belief on the part of the appellant that services being rendered by them was not taxable prior to 1 June 2007. The respondent revenue has accepted the service tax under the head “renting of immovable property” till date without any objection. It was only after two years after the appellant had commenced paying service tax under the category of renting immovable property that a show cause notice demanding service tax from 1 June 2006 to 31 May 2007 has been issued on 22 October 2009. This non payment of service tax by the appellant for the period 1 May 2006 to 31 May 2007 in the present facts could prima facie be considered to be on a bonafide understanding that it is not liable to service tax - Pre deposit reduced to 25% of service tax demand - Decided partly in favour of assessee.

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• 2014 (2) TMI 249
  Reversal of CENVAT Credit - recovery of demand - Held that:- notice issued insisting that the Petitioner should pay the amounts adjudicated upon by order without waiting for the statutory period of three months provided to enable the filing of an appeal and stay application to the Tribunal is over. This is contrary to the circular dated 1 January 2013 issued by CBEC. The impugned communications, to say the least, is high handed. The statute has advisedly provided a period of three months to an assessee to file an appeal before the appellate authority and also obtain a stay. This is with a view to enable the assessee to seek proper advice and considered opinion on the adjudication order before taking a decision and then challenging the adjudication order in appeal proceedings. The officers of Respondent Revenue would do well to realize that their job is much more than merely collecting the tax. They are officers of the State, administering the Finance Act, 1994 and fairness in approach to the tax payers and acting in accordance with the Rule of Law is a sine-qua-non in discharge of all its functions - Notice quashed - Decided in favour of assessee.

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• 2014 (2) TMI 248
  Demand of service tax - Benefit of Notification No. 45/2010-ST dated 20.7.2010 - Exemption from levy of service tax on all taxable services relating to transmission and distribution of electricity - Revenue denied benefit due to lack of nexus between services rendered by the respondent with distribution of electricity - Held that:- nature of activity (supply of manpower for construction of substation for the purpose of distribution of electricity) and examining the provisions of notification, we are, at this stage, unable to disagree with the above finding of the Commissioner (Appeals). Prima facie, there was a nexus between the service in question and distribution of electricity by the above company. This apart, the appellate Commissioner’s order does not appear to be executable - Stay denied.

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• 2014 (2) TMI 247
  Condonation of delay in filing appeal before Commissioner (Appeals) - Demand of service tax - Imposition of penalty - Bar of limitation - Held that:- Commissioner (Appeals) has rightly considered the facts and has clearly examined the issue of time bar and has come to a conclusion that appeal has been filed after the required time limit - appellate authority have no authority to allow appeal presented beyond the said period. Accordingly appeal in violation of Section 85(3) is liable to be dismissed - Following decision of Singh Enterprises vs. CCE, Jamshedpur [2007 (12) TMI 11 - SUPREME COURT OF INDIA] - Decided agaisnt assessee.

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• 2014 (2) TMI 245
  Waiver of pre deposit - Demand of service tax - Works contrsct - Held that:- appellant, having admitted tax liability to the extent of Rs.10.5 lakhs which they did not care to discharge during the material period, has also an irrefutable penal liability and hence they should make a reasonable pre-deposit against both tax liability and penal liability. In this view of the matter, we direct the appellant to pre-deposit an amount - Conditional stay granted.

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• 2014 (2) TMI 244
  Waiver of pre deposit - Stay of recovery - Demand of service tax - Notification No. 12/2003-ST - Denial of benefit on the ground that the goods/ material in issue were consumed in the taxable service of repair of transformers, defined under Section 65 (64) read with Section 65(105)(zzg) of the Finance Act, 1994 - Held that:- Following decision of Aggarwal Colour Advance Photo System vs. CCE, Bhopal [2011 (8) TMI 291 - CESTAT, NEW DELHI (LB)] - Since in earlier circumstances absolute waiver has already been granted - Therefore, Stay granted.

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• 2014 (2) TMI 243
  Waiver of pre-deposit - Stay of recovery of service tax - Denial of benefit of exemption of Notification No. 12/2003-ST - Denial of benefit on the ground that the goods/ material in issue were consumed in the taxable service of repair of transformers, defined under Section 65 (64) read with Section 65(105)(zzg) of the Finance Act, 1994 - Held that:- Following decision of Aggarwal Colour Advance Photo System vs. CCE, Bhopal [2011 (8) TMI 291 - CESTAT, NEW DELHI (LB)] - Since in earlier circumstances absolute waiver has already been granted - Therefore, Stay granted.

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• 2014 (2) TMI 242
  Demand of service tax - Inclusion or exclusion of value of STG services - Held that:- interests of justice are met by waiver of pre-deposit and grant of stay of all further proceedings pursuant to the impugned order, on condition that the appellant remits 50% of the service tax within eight weeks - Conditional stay granted.

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• 2014 (2) TMI 241
  Waiver of pre-deposit - Stay of recovery of service tax - Denial of benefit of Notification No. 12/2003-ST - goods/ material in issue were consumed in the taxable service of repair of transformers - Held that:- since this Tribunal in identical circumstances had granted absolute waiver of pre-deposit and unconditional stay, we also grant waiver of pre-deposit and stay of all further proceedings pursuant to the impugned order in original, pending disposal of the appeal - Following decision of Aggarwal Colour Advance Photo System vs. CCE, Bhopal [2011 (8) TMI 291 - CESTAT, NEW DELHI (LB)] - Stay granted.

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• Central Excise

• 2014 (2) TMI 246
  Waiver of pre deposit - Demand of service tax - Denial of CENVAT Credit - Violation of principal of nautal justice - endorsed Bills of Entry. - Held that:- The impugned order was passed by the learned Commissioner apparently after giving the party a reasonable opportunity of being personally heard. The party did not turn up on most of the occasions. When they turned up through their Cost Accountant on 23.5.2011, they wanted to produce documents like transport documents in proof of receipt of inputs, for which the required time was given by the adjudicating authority. The Cost Accountant undertook to produce such documents by 25.5.2011 but did not produce the documents. The learned Commissioner noted this fact and was constrained to pass the impugned order on 30.5.2011. In this scenario, the plea of violation of natural justice raised before us by the learned consultant is untenable. One of the documents prescribed thereunder for the purpose of availment of CENVAT credit is an invoice issued by the importer of inputs/capital goods. In the present case, the appellant has not shown any such invoice having been issued by any of the so-called principal manufacturers under Rule-9 to enable the appellant to take CENVAT credit of CVD paid on the goods. It is for the adjudicating authority to consider this factual aspect also - This is a case fit for remand for de novo adjudication. Accordingly, the impugned order is set aside and this appeal is allowed by way of remand with a request to the Commissioner for taking up the case for de novo adjudication in accordance with law after giving the party a reasonable opportunity of adducing evidence and of being personally heard - Decided in favour of assessee.

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• 2014 (2) TMI 214
  Penalty u/s 11AC - Denial of CENVAT Credit - Tribunal reduced penalty - Held that:- Plea raised on behalf of the Revenue that there is no element of discretion even in absence of conditions mentioned under Section 11AC, cannot be accepted. In the present case, there is no finding or plea that the conditions mentioned in Section 11AC exist or that there is any mens rea on the part of the assessee. Thus, it is a case where there is delay in payment simplicitor for which penalty is leviable, in addition to the interest liability. In such circumstances, levy of minimum penalty cannot be held to be mandatory. Element of discretion is certainly available to be exercised on the principle of proportionality. The penalty has to be commensurate to the circumstances of default. Reduction of penalty to Rs. 1,00,000/- cannot be held to be arbitrary or perverse - Decided against Revenue.

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• 2014 (2) TMI 213
  Reversal of CENVAT Credit - damage of raw material - Whether the Cenvat Credit availed by the assessee ought to be reversed and whether the assessee willfully suppressed material fact with an intent to evade payment of duty so as to attract penalty - Held that:- assessee did not inform the department about the alleged damage to the goods, it is only during the course of audit objection, the entire matter came to light. Before the Original Authority, the assessee was unable to produce any document to show that the inputs on which they have availed Cenvat Credit, were used for production and partly converted into seat covers i.e., work in progress. The Adjudicating Authority has recorded a factual finding that the raw materials were damaged at the stock godown and not in the factory premises of the assessee. As the assessee failed to establish that the inputs were used in the production or partly used in the production, the question of availing Cenvat Credit on those goods, which was said to have been damaged, does not arise. Therefore, as rightly held by the Original Authority, the Cenvat Credit has to be reversed by the assessee, moreso, when they were unable to produce any documents to show that those goods were used for production or partly used in the production i.e., work in progress. Even before the first Appellate Authority, the assessee were not able to produce any material to prove this fact. Therefore, the order passed by the Original Authority as confirmed by the Appellate Authority, is fully justified. Adjudicating Authority noticed that but for the audit objection, the full facts would not have come to light, the assessee did not report about their insurance claim that they availed and in such circumstances, the provision of Section 11AC of the Act read with Rule 13 of the Cenvat Credit Rules clearly stand attracted. Therefore, there is no justification on the part of the first Appellate Authority for having deleted the penalty. When the Revenue preferred appeal as against this order to the Tribunal, the Tribunal by a non-speaking order without assigning any reasons confirmed the order passed by the first Appellate Authority by merely observing that the order passed by the first Appellate Authority is reasonable and has been passed taking into account the entire circumstances of the case - When the Original Authority had clearly recorded a finding that the conduct of the assessee was with an intention to evade payment of duty, the penal provisions stand attracted and penalty is imposable. As regards the order for payment of interest, that being for the delayed payment is automatic and the assessee is liable to pay interest as applicable on the Cenvat Credit disallowed under Section 11AB of the Act read with Rule 12 of the Cenvat Credit Rules, 2002, is restored to file - Decided in favour of Revenue.

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• 2014 (2) TMI 212
  100% EOU - appellants claimed that cement is capital goods and, therefore, they were entitled to the benefit of duty paid on cement under Notification No. 1/95 - Held that:- This Court is inclined to reject the petitioner s argument that inputs materials such as cement used for construction of industrial estates or industrial property would fall within the description of capital goods. If the intention of the government was to enable such a wide interpretation, the specific mention of "capital power plant" and "raw materials", dispels the notion. The only exception to the list of articles and goods which have been specifically granted exemption is the reference to captive power plant for which the government intends to provide exemption having regard to the fact that the EOU will utilise the power plant in entirety. Raw material would be primarily eligible to the end product i.e. goods and articles produced for the purpose of 100% export. No other interpretation would be without clear guideline and enable the statutory authority as well as courts to keep increasing the number of articles and goods which have per se no relationship with the manufacturing activities undertaken - Decided against the assessee.

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• 2014 (2) TMI 211
  Valuation of goods - Whether OEM are Job Workers - Whether valuation of the goods manufactured by the appellants needs to be made under Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 or under Section 4(1)(a) of the Central Excise Act, 1944 read with Rule 6 of these Rules - Held that:- Transactions between the appellants and M/s. Symphony are held to be Sales transactions. Under Section 4(1) of the Central Excise Act, 1944 even if the price is not the sole consideration but still certain additions are required to be made then also Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 6 of the Valuation Rules, 2000 has to be pressed into service when the transactions are one of Sales and parties are not ‘related persons’ or inter connected undertakings. In all the situations where price is not the sole considerations, it does not mean that invariably valuation has to be done as per Rule 10A of the Central Excise Valuation Rules. If any assessee manufacture final products, independently procuring inputs, paying for the same, utilizing his own manpower and sells the finished products to a purchaser based upon the price agreed between them, the said transaction will be covered by Section 4(1)(a) of the Central Excise Act, 1944. Trying to bring such type of transactions under provisions of Rule 10A of Valuation Rules, is not in consonance with the settled law, even if the finished products are sold at higher price by the buyer - Valuation of goods has been correctly determined by the appellants - Following decision of COMMISSIONER OF CENTRAL EXCISE, HYDERABAD Versus INNOCORP LTD. [2013 (9) TMI 382 - CESTAT BANGALORE] - Decided in favour of assessee.

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• 2014 (2) TMI 210
  Valuation - demand towards cash discounts availed for which prompt payments are not made by the customers within the specified period - scope of definition of ‘Transaction Value’ - Held that:- Valuation under ‘Transaction Value’ under the new Section 4 is different to the Valuation concepts under old Section 4 of the Central Excise Act, 1944, effective up to 01.7.2000 and Section 14 of the Customs Act, 1962. Under the definition of ‘Transaction Value’ of new Section 4 of the Central Excise Act, 1944 even a consideration at a time other than sale will also be required to be added to the assessable value of the goods for the purpose of payment of Central Excise duty at the time of removal. Naturally such consideration, like an escalation of price clause, may not be known at the time of removal. Price payable at a later date could not be said to be the price payable at the time of removal and therefore could not be considered as the transaction value at the time and place of removal. The Bench did not find any significant difference between the deemed price under the old Section 4 and the actual price under the amended Section. In vie of facts and doubts raised by the decision of Lucas TVS Limited vs. CCE, Chennai [2008 (10) TMI 76 - CESTAT CHENNAI] Registry is directed to place the papers before the President for constituting a three Member Bench to come to a conclusion as to whether the issue needs to be referred to five Member Bench or otherwise. - Matter referred to larger bench.

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• 2014 (2) TMI 209
  Denial of the Cenvat Credit of the service tax paid for the services rendered and billed to the head office of the appellant - Held that:- Invoices which are raised for the services rendered were in the name of the head office and their head office was not registered as input service distributor - Cenvat Credit which has been availed for the appellant of the service tax paid based on invoices/challans was in respect of the services provided by the Banks, Insurance Companies, transporters, Telecom Service, CHAs, Couriers, repairing & maintenance services. The invoices were issued on the name of the registered / head office situated at Mumbai. It transpires from the records that there is no dispute as to the fact that the services were rendered in this case. There is no allegation of non-receipt of input service or the allegation of service not relatable to the factory and also in view of the fact that invoice was in the name of head office of the same factory and not in the name of someone else, the decision of the Commissioner that extended period is not invocable also has to be upheld. Since I have taken a view that appellants are eligible for the credit and suppression of facts and extended period are not invocable, the question of penalty does not arise. Accordingly the penalty imposed is also set aside - Following decision of LARSEN & TOUBRO LTD. Versus COMMISSIONER OF C. EX, PUNE’II [2007 (5) TMI 1 - SUPREME COURT OF INDIA] - Decided in favour of assessee.

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• 2014 (2) TMI 208
  Recovery of CENVAT Credit availed - Whether a denial of Cenvat Credit to the appellant on the inputs consumed during the course of manufacturing and got destroyed before reaching the stage of finished goods is liable to be recovered - Held that:- On perusal of the provisions of Rule 3(5C) of the Cenvat Credit Rules, 2004, it is seen that the said rule envisages recovery of duty paid on inputs and availed as Cenvat Credit when as assessee seeks remission of duty under Rule 21 of the Central Excise Rules, 2002. In my considered view, the said Rule 3(5C) of the Cenvat Credit Rules, 2004, can be invoked as and when the assessee seeks remission of duty, which is not the case in hand. In the case in hand, there was no application filed by the appellant for remission of duty quite rightly so as the goods which were destroyed were semi-finished products or work in process and have not attained the stage of finished goods. Merely because the Insurance Company paid the assessee the value of goods including the excise duty paid, that would not render the availment of the cenvat credit wrong or irregular, assessee has paid the premium and covered the risk of this capital goods and when the goods were destroyed in terms of the insurance policy, the Insurance Company has compensated the assessee - Following decision of Commissioner of C. Ex., Bangalore Vs. Tata Advanced Materials Ltd. [2011 (4) TMI 1124 - KARNATAKA HIGH COURT] - Decided in favour of assessee.

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• 2014 (2) TMI 206
  Duty demand - Pan Masala or gutka - appellants addressed a letter dated 7.7.08 - the machines were sealed on 15.7.08, the Revenue entertained a view that appellant was liable to discharge its duty liability for the period from 1.7.08 to 14.7.08. - Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Held that:- when, as per the appellants, their factory stopped production with effect from 1.7.08, the intimation was filed as late as 7.7.08. On 1.7.08 itself, the appellants was aware of the coming into existence of the said Rules, which raised liability against the assessee based upon the number of packing machines etc. installed in their factory. The fact of filing the late intimation about the closure of the factory, along with the fact of refusal to get the machines sealed, leads to unavoidable conclusion that the appellants factory was working right from 1.7.08 to 14.7.08, when their machines were actually put under seal on 15.7.08 - Confirmation of demand against the assessee along with interest and imposition of penalty is in accordance of provisions of Pan Masala Packaging Machine (Capacity Determination and Collection of Duty), Rules, 2002 - Decided against assessee.

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• CST, VAT & Sales Tax

• 2014 (2) TMI 252
  Refund - Bar of limitation - Change law not given retrospective effect - Refund of duty paid under mistake of law - Writ jurisdiction - Held that:- right to claim refund is a vested right and that even if it is held to be an existing right and not vested right, such a right cannot be taken away unless it is taken away by a statutory enactment expressly or by necessary implication. An amendment reducing the period of limitation takes effect prospectively unless it has retrospective effect by express terms or by necessary intendment. Accordingly such an amendment will apply to cases in which right to claim refund arose after the amendment and it cannot govern the cases where the right to claim refund has arisen prior to the date of amendment. When the petitioner sought to submit the application on 20 August 2012 claiming refund for the year 200910, the three years period of limitation had not yet expired as the same was to expire on 31 March 2013. In this view of the matter, the right which was vested in the petitioner or at least which was an existing right on the date of amendment on 21 April 2011, could not have been taken away without express terms or necessary intendment in the Amending Act. Having gone through the provisions of the Amending Act, as quoted hereinabove, we find that the amended section 51(7) of MVAT Act, 2002 reducing the period of limitation from 3 years to 18 months is clearly prospective and not retrospective. Hence, the petitioner was entitled to claim refund within the limitation period of 3 years which was to expire on 31 March 2013. When the refund application was made on 20 August 2012, the respondent authority clearly erred in law in rejecting the refund application on the ground that it was time barred - Following decision of Universal Drinks Pvt. Ltd. vs. Union of India [1984 (4) TMI 59 - BOMBAY HIGH COURT] - Decided in favour of assessee.

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• 2014 (2) TMI 251
  Validity of notices issued under Section 21 (2) of the UP Trade Tax Act - Benefit of Section 8 (2A) of the Central Sales Tax - Adjustment of the State tax paid on paddy in the Central Sales Tax - Jurisdiction of Commissioner of Trade Tax - Held that:- notices under Section 21 (2) are by way of show cause notices as to why limitation be not enlarged for proceeding of re-assessment to tax to deny the adjustment of state tax given on the purchase of paddy in the central sales tax on inter-state sales - directions are merely by way of guidance and do not amount to quashing the Circular nor there was any valid ground on which the Circular letter dated 29.3.2007, could be quashed. In the present case also we do not find any good ground to entertain the challenge inasmuch as the circular is only by way of clarification and does not take away the jurisdiction of assessing authority of re-assessment - Additional Commissioner Grade-I/respondent no. 2 has committed no error in exercise of power under Section 21(2) of the Act in granting the impugned permission permitting the Assessing Officer to initiate the proceeding for reassessment by the order dated 22.02.2008 as contained in annexure-4 of the writ petition. The consequent notice for reassessment under Section 21(2) given by the Assessing Authority dated 11th March, 2008, annexure-6 to the writ petition is also valid. The Assessing Officer has, thus, wrongly given adjustment of Rs. 1,22,245.00. Realizing the mistake, the Assessing Officer wants to correct it. Whether a writ court can prevent the Assessing Officer to correct the mistake when law envisages such correction under Section 21 of the Act. The answer is obviously 'No'. No writ can be issued to prohibit a person to correct a legal mistake. A writ jurisdiction is meant for doing justice and not to perpetuate injustice or technicalities - show cause notices proposing re-assessment of the escaped turnover issued under Section 21 (2) of the U.P. Trade Tax Act are held to be valid - Decided against assessee.

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