Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
February 7, 2018
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Reopening of assessment - when reopening proceedings were initiated pursuant to the audit report of the CAG, the assessing officer had the conviction to stand by what decision he had taken - notice issued u/s 148 for assessment u/s 147 quashed. - HC
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Instructions to subordinate authorities u/s 119(2)(b) in respect of the refund of income tax - discretionary power is given to the Board to issue such instructions and only after that the assessing authority can use such power - HC refused to interfere in the matter.
DGFT
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Amendment in Chapter 2 of the Handbook of Procedure (2015-20) - Amendment in procedure for seeking modification in IEC is notified.
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Advise to exporters to promptly check Shipping Bill transmission status on ICEGATE and DGFT websites
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Amendment in import policy condition of pepper classified under Chapter 09 of ITC (HS), 2017—Schedule—1(Import Policy)
Corporate Law
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Exemption to Government Companies u/s 129(6) of Companies Act, 2013 from recognizing Deferred Tax Assets/ Deferred Tax Liability under AS-22/Ind AS-12
Service Tax
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Scope of SCN - Business Support Services - change in classification of service suo moto - the impugned order passed by the Commissioner (Appeals) going beyond the SCN is not sustainable in law - AT
Central Excise
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CENVAT/MODVAT credit - shortage of stock - It is a clear case of suppression of facts where the appellant has deliberately adjusted the shortage, as if it was used in the manufacture of final products, at the end of every month and created fresh opening balance at every month, without making reversal of credit on the shortage of inputs - demand confirmed - HC
Case Laws:
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Income Tax
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2018 (2) TMI 309
Instructions to subordinate authorities - petitioner u/s 119(2)(b) in respect of the refund of income tax - Held that:- Whenever there is special provision in special enactment fixing the period of limitation even the Court cannot extend that period and the provision of section 5 of the Limitation Act cannot be applied in those cases. There cannot be dispute over that proposition. In the present matter, due to the provision like section 119(2)(b) made in the Income Tax Act, it can be said that discretionary power is given to the Board to issue such instructions and only after that the assessing authority can use such power. As in the past, at the time when the claim of the petitioner was considered, there was no such instruction or order from the Board, in the present matter such benefit cannot be given to the petitioner. Thus, no case is made out for interference in the order made by the Commissioner of Income Tax. In the result, both the petitions stand dismissed.
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2018 (2) TMI 308
Accrual of income - Income in respect of sale of flats accrued when possession of the flat was given and not when allotment letter was issued - genuineness of the letter of possession - Held that:- From the clauses of the allotment letter and clause 9 of the possession letter referred to by the Tribunal it is very evident that the possession of the flats was given on receipt of total consideration only on 1 April 2007. Clause 8 of the allotment letter which is been relied upon by the Revenue does not in any manner indicate that possession was given on 15 March 2007. It only states that the electricity and other charges in respect of the flat being sold to two buyers would be borne by the buyers after the possession of the two flats are handed over to buyers. It does not even remotely suggest that the responsibilities for payment of charges in respect of the said flat was on the buyer from the date of the allotment. This coupled with the fact that the Tribunal records as a matter of fact that there is no dispute about the genuineness of the letter of possession dated 1 April 2007. Moreover, no statement of the buyers or other evidence, even circumstantial in nature, was brought on record to indicate that the facts are different from what has been recorded in the possession letter dated 1 April 2007. In the aforesaid facts, the view taken by the Tribunal on the self evident terms of allotment and possession letter does not give rise to any substantial question of law. It must also be borne in mind that the aforesaid amount which is being sought to be brought to tax in the subject Assessment Year 2007-08 has been offered to tax as income by the Respondent in the next Assessment Year. It is not the case of the Revenue that there are circumstances to indicate that by bringing the said transactions to tax in the next Assessment Year instead of this, there is likely to be a loss to the Revenue. No substantial question of law
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2018 (2) TMI 307
Reopening of assessment - depreciation claim on vendor and dealer network rights and the goodwill - eligible reasons to believe - Held that:- AO while completing the assessment under Section 143(3) of the Act took into consideration both the aforementioned decisions and considered what would be business or commercial rights of similar nature . The assessing officer was fully justified in holding that the vendor and dealer network rights and the goodwill acquired by the petitioner pursuant to the Business Transfer Agreement dated 26.04.2007, would qualify for depreciation under Section 32 of the Act. The assessment was completed after considering the claim for depreciation after seeking for clarification from the petitioner and thereafter, the assessment was completed. Thus, the reasons assigned by the respondent to reopen the assessment is nothing but a clear case of change of opinion. It is pertinent to note that when reopening proceedings were initiated pursuant to the audit report of the CAG, the assessing officer had the conviction to stand by what decision he had taken. This could be seen from the information secured by the petitioner under the Right to Information Act. Though this pertains to the earlier assessment years, find that the response given by the assessing officer to the Director General of Audit, vide proceedings dated 05.12.2013, is elaborate and he had stated on what basis the depreciation shall be liable. However, for reasons best known the assessments have been reopened that to after there was a change of officer. The decision in M/s.Larsen Tubro Ltd. (2017 (3) TMI 1064 - SUPREME COURT OF INDIA), would apply with full force to the case on hand, as it is manifestly clear that the assessing officer had to issue the impugned reassessment notice on the ground of direction issued by the audit party. Thus, this Court being fully satisfied that the impugned reopening of the assessment is contrary to law, the question of directing the petitioner to avail alternate remedy of appeal before the Commissioner of Income Tax does not arise, especially when the case is one of change of opinion - Decided in favour of assessee.
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2018 (2) TMI 306
Loss of eligible units deductiblity from the profits of the eligible units for the purpose of Section 10A deduction - Held that:- The issue raised herein stands concluded against the Revenue and in favour of the Respondent-Assessee not only for the decision of this Court in the Assessee's own case in respect of the Appeal filed by the Revenue for assessment year 2006-07. It also now stands concluded by the decision of the Apex Court in Commissioner of Income Tax Vs. Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT]. Grant receipt in the shape of allotment of land from the State Government - revenue or capital receipt - Held that:- The grant of land to the Respondent is for setting up a unit with the object of creating employment for 3000 people. In this case, the purpose and object of grant of land admittedly is to generate income and employment for 3000 people. The Apex Court in Chaphalkar Brothers (2017 (12) TMI 816 - SUPREME COURT) approved the decision of the Jammu and Kashmir High Court in M/s. Shree Balaji Alloys Vs. Commissioner of Income Tax [2011 (1) TMI 394 - Jammu and Kashmir High Court] as held that the incentives given was in the capital field. In fact, even in the earlier decision the Apex Court in Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) has applied the purpose test to determine the nature of subsidy i.e. in revenue or capital field. In the present facts, the impugned order relies upon the Apex Court decision to hold that the subsidy in the form of lands is in the capital field. - No substantial question of law. Appeal is admitted on the substantial questions of law as listed at Sr.Nos. 1, 3 and 4
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2018 (2) TMI 305
Computing the deduction u/s 80HHC - inclusion of loss incurred in the export business - business profits - Held that:- The computation of profits derived from export, for an assessee doing both export and domestic business, has to be made by resorting to the said formula as available under sub-section (3C) of Section 80HHC. The proportion, which the export turnover bears to the total turnover, has to be applied to the business profits to elicit the exact amount eligible for exemption under Section 80HHC, as profits derived from export. As rightly held by the first appellate authority, the business profits include those derived in the domestic market; that of high sea sales of imported goods, the turnover of which has to be included in the total turnover. This is the incentive permitted by the legislature, for earnings in foreign exchange, whether the export business generated profit or not. We, hence, answer the first question against the Revenue and hold that in computing the deduction under Section 80HHC, the loss incurred in the export business would be of no consequence, since the formula as applied above, would take in the total turnover, the export turnover and the total business profit. Reliance placed on Parry Agro Industries Ltd. [2002 (3) TMI 9 - KERALA High Court] by the Tribunal, is perfectly in order and we answer the said question also in favour of the assessee and against the Revenue.
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2018 (2) TMI 304
Rectification of mistake u/s 154 - assessment of income - Held that:- As far as the service charges paid to BTC is concerned this was never the subject matter of addition in the original order of assessment passed by the AO u/s 143(3) of the Act dated 20.12.2007. In the appeal by the assessee against the order of the AO the only issue was whether income declared by the assessee under the head ‘capital gain ‘ should be assessed under the said head or under the head ‘income from business’. CIT(A) held that income declared by the assessee under the head ‘capital gain ‘should be assessed under the head ‘capital gain'. If the AO was aggrieved by the absence of direction by CIT(A) in his order with regard to service charges paid to BTC, he ought to have filed either an appeal against the order of CIT(A) dated 31.03.2009 or an application u/s 154. The AO did not even bring to the notice of CIT(A) in the course of appellate proceedings the issue with regard to service charges paid to BTC. In these circumstances while giving effect to the directions of CIT(A) in his order dated 15.06.2009, the AO could not have disallowed the service charges paid to BTC. In the case of Bhgwandas Associates vs ITO (2007 (9) TMI 333 - ITAT PUNE-B) wherein it was held that when the AO in an order giving effect to the appellate order commits a mistake by travelling beyond the subject matter of the appeal before CIT(A) it gives rise to a mistake apparent on the face of the record which should be rectified u/s 154 of the Act. The aforesaid decision support the conclusion of CIT(A). Therefore we do not find merit in ground no.1 and 3 raised by the revenue. Disallowance u/s 14A - Held that:- This issue cannot be the subject matter of proceedings u/s 154 of the Act. The question whether the CIT(A) enhanced the disallowance u/s 14A of the Act without proper notice or any disallowance could at all be made u/s 14A of the Act cannot be subject matter of the order dated 15.06.2009 u/s 251 of the Act passed by the AO. If the assessee is aggrieved with the directions of CIT(A) he ought to have fled an appeal against such directions. Filing the application u/s 154 of the Act was not an appropriate remedy available to the assessee. The CIT(A) in our view erred in directing the AO to restrict the disallowance u/s 14A of the Act to 1% of the exempt income. To this extent we find merits in ground no.2 raised by the revenue.
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2018 (2) TMI 303
Assessment of STCG in the hands of the Assessee - Transfer u/s 2(47) - full value of consideration received should be considered for sale of the property under the agreement - property was ultimately sold to a third party - section 50(1) applicability - Special provision for computation of capital gains in case of depreciable assets - Held that:- Admittedly there was no power of attorney whatsoever given by the assessee in favour of Shri Sanjay Todi. We are therefore are of the view that there is no merit in the contentions put forth by the assessee. We hold that the Revenue authorities were correct in coming to the conclusion that there was a transfer of capital asset by the assessee during the previous year relevant to A.Y.2007-08. In the present case the block of assets ceases to exist and therefore the provisions of Sec.50(2) of the Act would apply. Under Sec.50(2) of the Act, it is only the income received or accruing as a result of transfer that should be reduced from the WDV of the block of building as on 1.4.2006 to arrive at the Short Term capital gain. Admitted factual position is that the Assessee was to receive only a sum of ₹ 32 lacs from S.K.Todi as sale consideration in respect of the property. The admitted position is that the difference between ₹ 32 lacs and ₹ 56 lacs has already been taxed in the hands of S.K.Todi. In this factual background, we are of the view that the STCG on sale of the property has to be determined in the hands of the Assessee by adopting the income received as accruing as a result of transfer as ₹ 32 lacs and not ₹ 56 lacs. To this extent the plea of the Assessee is accepted.
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2018 (2) TMI 302
Penalty u/s 271(1)(c) - non mentioning of charge - non striking the inappropriate words - Held that:- The show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled. - Decided in favour of assessee
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2018 (2) TMI 301
Penalty u/s 271(1)(c) - additions in the income of the assessee, one is made by the AO which was deleted by the Tribunal and another is made which was surrendered and offered to tax by the assessee - Held that:- CIT(A) deleted the penalty levied by the AO in respect of the additions made by the AO while passing the assessment u/s 153A and 153B r.w.s. 143(3). Revenue has not disputed the fact that the Tribunal has deleted the additions made by the AO and consequently the penalty levied by the Assessing to the extent of addition deleted by the Tribunal is not sustainable. Hence, we do not find any error or illegality in the impugned order of the ld. CIT(A) when the Tribunal while passing the order dated 20.03.2017 in quantum appeals deleted the addition made by the AO. Therefore, the penalty levied u/s 271(1)(c) would not survive and accordingly has been rightly deleted by the ld. CIT(A). Merely filing of the appeal before the Hon’ble High Court will not help the case of the Revenue when neither the said order is stayed nor reversed by the Hon’ble High Court. Accordingly, in the facts and circumstances of the case when the addition made by the AO itself has been deleted by the Tribunal in the quantum appeals then the levy of penalty has no legs to stand. - Decided against revenue.
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2018 (2) TMI 300
Capital gain declared by the assessee treated as unexplained income - Held that:- Addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account. Addition on account of payment of commission to Shri Deepak Patwari - Held that:- This issue is consequential to the issue involved in ground no. 1 and 2 therefore, when we have given a finding the transaction of purchase and sale shares and consequential long term capital gain cannot be treated as bogus then the addition made by the AO on account of notional commission paid to Shri Deepak Patwari will not be sustainable being consequential to the first issue and hence deleted. Disallowance of legal expenditure - Held that:- We find that the assessee claimed the payment of ₹ 12,500/- to M/s R. Mangal & Co., Chartered Accountants towards legal fees for filing the income tax return. The genuineness of the payment has not be doubted by the authorities below. Therefore, the said expenditure is allowable claim against income declared by the assessee under the head income from other sources for which the assessee has filed the return of income and paid taxes. Accordingly we allow the claim of the assessee.
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2018 (2) TMI 299
TDS u/s 194J - Payment in respect of Transmission charges, wheeling charges, SLDC Charges, Open access Charges, Congestion Charges & Comfort Charges - whether was not in the nature of technical services? - Held that:- As decided in assessee's own case for assessment year 2010-11 Tribunal has held that wheeling charges, transmission charges and open access charges etc are not liable to tax deducted at source - Decided in favour of assessee.
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2018 (2) TMI 298
Income from service as ‘Fees for technical services’ - estimated income @ 2.6 % on total Sales for working out the profits attributable to the PE in India - income of the PE should be attributed @ 2.6% of the ‘Sales’ made by the GE Overseas entities in India - Held that:- It goes without saying that if an invoice has been cancelled, then that cannot be considered for the purpose of computing income. Under these circumstances, we direct the Assessing Officer to examine this aspect as well and exclude the amount from cancelled invoices, after proper verification. The exercise as discussed above can be done by the AO only if the assessee extends co-operation and furnishes all the relevant agreements or other documents as be called for by the Assessing Officer for determining the amount of income from rendition of services. The ld. AR has undertaken to supply all the necessary documents and details as may be required by the AO. It is made clear that if the assessee fails to supply the information/documents as required by the Assessing Officer, as happened during the course of original assessment proceedings, then the Officer will be entitled draw an adverse inference against the assessee and proceed to make a fair and reasonable estimate. With the above observations, we remit the matter to the file of the Assessing Officer for deciding the above issues afresh in consonance with our above observations after allowing a reasonable opportunity of being heard to the assessee.
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2018 (2) TMI 297
Disallowance of interest - assessee had claimed that his minor daughter had paid the same to related parties for making investment in the guest house - no income from the guest house has accrued to the minor daughter of the assessee - Held that:- The income from other sources is taxable under the provisions of I.T. Act and these provisions are contained in section 56 onwards. The deductions permitted to be made from the income u/s 56 are contained in section 57 of the Act. The deductions as contained in section 57 are specific and apply to various income under the head income from other sources. Clause (iii) of section 57 states that any other expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income will be allowed as deduction against income from other sources. The assessee had not been able to substantiate that the interest paid by his minor daughter was for earning of any income as defined in section 56 as income from other sources. Rather the assessee has made out a case that the interest was paid on borrowed funds which were utilized for construction of guest house and which too had not become operational. Therefore, we find that authorities below have rightly disallowed the claim. As regards disallowance of interest which the assessee had paid for earning of income under the head income from other sources, we find that the assessee had earned a gross income of ₹ 20,87,296/- which includes interest on FDR and which the assessee has claimed to have utilized the borrowed funds for earning interest. Therefore, this deduction claimed by the assessee is directly covered by the provisions of clause (iii) of section 57 which allows deduction for any expenditure incurred wholly and exclusively for the purpose of earning such income. We further find that the assessee has duly deducted TDS and further the payment of interest is evidenced from the copy of account of lender which reflects that there was opening balance of ₹ 11,08,000/- as unsecured loan in the hands of the assessee. Therefore, we are in agreement with the arguments of the assessee that disallowance was not warranted as the same was paid for earning of the income. - Decided partly in favour of assessee
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2018 (2) TMI 296
Treatment to the interest earned on money lending - assessed under the head profits and gains from business or profession or as income from other sources - Held that:- Respectfully following the Tribunal order for AY 2008-09 [2013 (8) TMI 1020 - ITAT MUMBAI] treating the interest income earned on money lending operation as Profits & Gains of Business or Profession. - Decided against revenue
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2018 (2) TMI 295
Addition on account of cash deposit in bank - application of gross profit ratio - Held that:- Considering the nature of transaction as reflected in the bank statement we note that every deposit has been represented by the withdrawals of the similar amounts. Therefore we hold that all the transactions of the assessee in the bank accounts are representing the business activities of the assessee therefore in our considered view it would be appropriate to apply the gross profit ratio on the cash deposit in the impugned banks. Also observed that in the subsequent assessment year 2009-10 the AO has applied gross profit ratio @ 8.84% on the amount deposited in the bank account of the assessee. Therefore we are of the view that the rate of gross profit 10% would serve the justice to the assessee. Therefore, we direct the AO to apply the gross profit @10% on the amount of cash deposit by the assessee. Hence, this ground of appeal of the assessee is partly allowed for statistical purposes.
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2018 (2) TMI 294
Penalty u/s 271(1)(c) - defective notice - non-striking of the relevant Clause - Held that:- It is clear from the notices initiating penalty in the present case that the AO did not specifically mention the charge on which the proceedings u/s 271(1)(c) of the Act were initiated against the assessee. The Hon'ble High Court of Karnataka in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT) held that non-striking of the relevant Clause under which the penalty is sought to be imposed will lead to an inference of non-application of mind. - Decided in favour of assessee.
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2018 (2) TMI 293
Disallowance of deduction u/s 10AA - profits derived by SEZ unit of the assessee from the export of IT enabled services - claim allowed in initial assessment year - Held that:- Once the claim of deduction u/s 10AA has been accepted in the first year of the operations and also in the second year, then in the third year same cannot be withdrawn by examining the factors which were required to be seen in the first year of the claim. Thus, on this ground alone, we hold that the AO cannot deny the claim of deduction u/s 10AA with the assessee in this year and hence is directed to allow the same. Also none of the allegation which has been made by the AO appears to be correct, because if he see the expansion and growth of revenue of EOU unit and the revenue of the SEZ unit, as incorporated above, we find that there has been substantial increase in the revenue in the EOU unit also from the financial year 2011-12 to financial year 2016-17. Thus, it cannot be held that after the sun set period the revenue of the EOU has gone down. The chart as submitted by the Ld. Counsel clearly vitiates the observation and the finding of the AO; and hence on the point that there is a less growth of revenue in EOU unit and therefore, presumption can be drawn for splitting up or reconstruction of EOU unit is incorrect and cannot be upheld. The assessee continued to make addition to the fixed assets in the SEZ unit independently and there is no iota of any material to show that the additions to the fixed assets has been by way of transfer from EOU units. Likewise from the perusal of the list of technical man power, we find that except for two or three employees out of 30 employees are newly hired and therefore, it is not a case where the old employees of EOU unit have been entirely shifted to SEZ unit which seems to be the allegation of the AO. Thus, all the issues raised by the AO does not hold ground on the facts and material placed before us and hence on factual matrix also we hold that assessee has not violated any of the conditions prescribed in section 10AA and therefore, it is entitled for claim of deduction u/s 10AA in this year. - Decided in favour of assessee
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2018 (2) TMI 292
Reopening of assessment - eligible reason to believe - Held that:- The assessee had made similar disclosure of its receipts in the return of income and also the auditor in the audit report in Form No.3CEB. Since the facts of the present case are identical to the facts before the Tribunal in the case of M/s. Sandvik Tooling Sverige AB Vs. DDIT (2018 (2) TMI 249 - ITAT PUNE) we uphold the order of CIT(A) in holding that reopening of assessment proceedings in the absence of any tangible material to hold that there was reason to believe of escapement of income, thus is not valid in law. Accordingly, we dismiss the appeal filed by the Revenue. In assessment year 2007-08, the facts are identical but the position of appeals are reverse. The Revenue is in appeal on merits of the case and the Cross Objections have been raised by the assessee against reopening of assessment proceedings under section 147/148. Same reasons for reopening the assessment as in assessment year 2006-07 have been recorded. The assessee had declared the said receipts in its computation of income and claimed them to be exempt and similar declaration was made by the auditor in the audit report. - Decided in favour of assessee
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Customs
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2018 (2) TMI 291
Refund claim - validity of SCN - new case made against appellant after issuance of SCN - Held that: - the decision of the Commissioner (Appeals) dated 29.03.2004 holding that the claim is within the period of limitation has become final and the Revenue has not filed appeal against the same. Therefore, the Revenue has to refund the entire amount of refund claim of ₹ 8,23,824/- whereas the Revenue has only refunded the amount of ₹ 2,22,444/- on their own. In view of the decision of the Madras High Court in the case of Commissioner of Central Excise Vs. EL.P. EM. Industries [2017 (9) TMI 702 - MADRAS HIGH COURT] wherein it has been held that in the earlier proceedings, the adjudicating authority cannot raise the fresh ground for which the assessee has not been given any notice. Appeal allowed - decided in favor of appellant.
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Service Tax
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2018 (2) TMI 290
Scope of SCN - Business Support Services - change in classification of service suo moto - Held that: - Held that: - at the appellate stage, the Commissioner (Appeals) has changed the classification from business support service to brand promotion service suo motu and unilaterally, which is not permitted under law - this issue has been settled in favor of the assessee in the case of M/s Balaji Contractor Versus Commissioner of Central Excise Jaipur-II [2017 (3) TMI 181 - CESTAT NEW DELHI], where it was held that the tax entry of each type of service has got legal implications with reference to tax liability, classification, quantification, exemption, abatement etc. It is for this reason, the assessee should be put to notice about the correct classification under which the demand was sought to be made, so that defence can be made to reply for such allegation - the impugned order passed by the Commissioner (Appeals) going beyond the SCN is not sustainable in law - appeal allowed - decided in favor of appellant-assessee.
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2018 (2) TMI 289
Maintenance, Management or Repair Service - appellant carry out maintenance and repair of streets, street lights, water supply, drainage etc. They collect from the lessees of the plots, an annual fee for providing such services, calling it as service charge - whether the service will be taxable under the head Maintenance, Management or Repair Service? Held that: - the activities performed by sovereign or public authorities under the provisions of law which are in the nature of statutory obligations are covered by clause 2 which provides that the fee collected by such sovereign or public authorities for performing such activities is in the nature of compulsory levy. Only if such authority performs service which is not in the nature of statutory activity and the same is undertaken for a consideration which is not in the nature of statutory fee, service tax would be leviable if the activity undertaken otherwise falls within the ambit of taxable service - service tax not leviable - appeal allowed - decided in favor of appellant.
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2018 (2) TMI 288
Classification of services - appellants had entered into an agreement with M/s. MALCO to carry out mining services - Business Auxiliary Services or mining services - Held that: - similar issue decided in the case of M/s. Thriveni Earthmovers Pvt. Ltd. Versus Commissioner of Central Excise, Salem [2009 (4) TMI 9 - CESTAT CHENNAI], where it was held that activity of loading and transportation of limestone and rejects from mine head to crushing premises under taken within mining area and covered by Mines Act, 1952 would not be taxable under Business Auxiliary Service - levy of service tax as business auxiliary services cannot then be sustained - appeal allowed.
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2018 (2) TMI 287
Short payment of service tax - penalty - Held that: - the benefit of section 80 as contended by the appellants, cannot be extended to them - The provisions of section 73 also makes it clear that in case of suppression, fraud, mis-statement etc., with an intent to evade payment of duty would call for imposition of penalty to the extent of 100% of tax evaded - appeal dismissed - decided against appellant.
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2018 (2) TMI 286
Demand of interest - time limitation - whether the extended period of limitation could be invoked for the demand of interest? - Held that: - limitation would apply to demand of interest also - with effect from 14.05.2015 a new sub section (1B) has been introduced in Section 73 which says that interest payable on self assessed service tax shall be recovered as per Section 87 of the Act ibid, without service of notice. The period in this case is prior to 14.5.2015 - reliance placed in the case of Hindustan Insecticiedes Ltd. Versus Commissioner Central Excise, LTU [2013 (8) TMI 225 - DELHI HIGH COURT]. The demand of interest in hit by limitation - appeal allowed.
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Central Excise
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2018 (2) TMI 285
CENVAT credit - input services - service tax paid on goods that are transported to the purchaser after the sale - place of removal - whether the expression ‘input service’ as defined in Rule 2(l) of the CCR, 2004, in the context of a service provider, would also include services which are used in or in relation to providing taxation output services described in the definition and the outward transportation to the purchaser would be treated as beyond the ‘place of removal’? Held that: - As per the definition of ‘input service’ that was prevailing at the relevant time i.e. prior to April 1, 2008, service used by the manufacturer of clearance of final products ‘from the place of removal’ to the warehouse or customer’s place etc., was exigible for Cenvat Credit - The matter is squarely covered by the Board’s Circular dated August 23, 2007, which states that the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods occurred at the said place. Once it is accepted that place of removal is the factory premises of the assessee, outward transportation ‘from the said place’ would clearly amount to input service. That place can be warehouse of the manufacturer or it can be customer’s place if from the place of removal the goods are directly dispatched to the place of the customer. One such outbound transportation from the place of removal gets covered by the definition of input service. Appeal dismissed - decided against Revenue.
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2018 (2) TMI 284
CENVAT/MODVAT credit - manufacture of additives for lubricating oil - shortage of stock - The SCN were issued by the Commissioner of Central Excise, Chennai on the ground that during the course of verification of MODVAT/CENVAT credit accounts, and connected records, it was noticed by the Jurisdictional Range officer that the appellant was conducting physical stock taking of inputs on monthly basis and the quantity of inputs were found to be short and adjusted in the internal records, as consumption - demand of MODVAT/CENVAT credit taken on the inputs not used in the manufacture of final products during the period from January 2000 to March 2004, was issued u/r 13(2) of the CCR 2001 & 2002 and under erstwhile Rules 57 I(4), 57 AH(2) of CER, 1994 read with Section 11AC of the CEA, 1944. Contention of the appellant is that the shortage and loss are due to evaporation, due to reduction of viscosity and volatile nature of the inputs also. While using the inputs for the manufacture of final products, storage tanks are heated to reduce the viscosity, so as to facilitate the flow of inputs in the pipelines - the demand made by the authorities was for the reason that the inputs were not utilized fully, in the manufacturing process and the percentage of loss was, from 5.56 to 5.58%. Held that: - It is clear from the records that the appellant themselves have recorded such shortage of input, after the receipt of the inputs to their factory. While determining the shortage, it is clear from the records that the inputs found short, were not consumed, in the manufacturing process. When the inputs were not at all used in the process of manufacture, cenvat credit is not allowable. If there was shortage of physical stock, due to evaporation while heating (or due to weighment methods), the appellant could have explained the same, in their reply to the SCN. But it is clear that the appellant has neither explained the same before the officials nor before the Tribunal - It is seen that for the input OLOA 200, there was highest shortage of 12.658 MT in the month of January 2002 and 5.244 MT, in the month of March 2000. Similarly, in the case of Glissopal 1000, the highest shortage of 13.510 MTs was noticed in the month of May 2000 and 10.453 Mts, in the month of January 2001. The inputs have high viscosity and not volatile in nature. Considering the fact that shortage of inputs has been accounted only for specific months, and not in a continuous manner, it is established that shortage of inputs, is not on account of mere difference in variation of weighment methodology, but the said quantity of inputs have not been used in the manufacture of final products, after the receipt of inputs to the appellant factory. The shortage noticed is not a negligible quantity and that the appellant themselves have stated that the shortage is 5.58%. In the case of Bhuwalka Steel Industries Ltd., [2009 (11) TMI 177 - CESTAT, CHENNAI [LB]], the larger Bench of the Tribunal has clearly laid down that while complying the above tolerance limit for each entry is to be allowed, if there are any minor violations due to weighment method should be ignored, provided such violations are within the tolerance limit - Whereas, in the present case, the shortage is neither attributed due to volatile nature nor the percentage of shortage is negligible, as the appellant themselves have stated that the shortage is 5.58%. The appellant has failed to put forth any justifiable reason that the shortage was purely due to the difference in actual weighment, and mass-flow meter - It is a clear case of suppression of facts where the appellant has deliberately adjusted the shortage, as if it was used in the manufacture of final products, at the end of every month and created fresh opening balance at every month, without making reversal of credit on the shortage of inputs - the authorities below have rightly rejected the reasons given by the appellant for the loss/shortage of inputs and ordered as demanded in the SCN. Demand upheld - appeal dismissed - decided against appellant.
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2018 (2) TMI 283
100% EOU - Principles of Natural Justice - main ground of challenge by the appellant in the present Appeal is that the Writ Court did not appreciate the issue in proper prospective, as the issue pending before the 1st respondent, as it stood, while the matter was to be heard finally by the 1st respondent, on 05.04.2016 was with regard to the demand of duty of ₹ 2,92,01,610/- on mould and as to whether claim of 90% of depreciation was allowable? Held that: - The appellant has sought settlement on the admitted liability, and prayed for immunity provided under the law. The direct answer to the grounds raised by the appellant are that even during the preliminary proceedings, wherein an interim order was passed by the respondents, at no point of time, the department has accepted that there is no liability towards the duty on raw materials. In fact, on the submission made by the appellant, at various points of time, when the appellant was assailing against the liability on raw materials, it could be seen from the records that the case of the appellant that the machinery imported was found to be old and unused machinery and because of the wrong supply of sub-standard machines, the appellant could not produce the goods and fulfill the export obligation, in which case, the appellant should have immediately informed the authorities regarding the same, which the appellant failed to do so. It is a clear case and is also admitted by the appellant before the authority that the goods were never lost or destroyed, but they become unfit for consumption, since they were not put into use by the appellant. Besides that the appellant failed to inform the department about stoppage of production at any point of time. When the officers verified stocks, they found shortage of stocks, which the appellant admitted and also paid duty on such quantities of shortage. The authorities below have appreciated the aspect of depreciation of value of capital goods at 90% of the value in terms of CBEC Circular 43/91-Cus. dated 26.06.1998 and accordingly, ordered the appellant to deposit the admitted liability of ₹ 10,17,283/-, which is a direct answer to the grounds raised by the appellant against the order passed by the Writ Court. The letter/submission dated 10.05.2016 is the reply/submission filed by the Jurisdictional Commissioner against the letter/submission of the appellant dated 25.04.2016. The aforesaid submissions of both the appellant and the revenue have been extracted as 'post hearing submissions of the applicant dated 25.04.2016' and 'post hearing submissions of the jurisdictional commissioner dated 10.05.2016' and have been discussed in detail by the Settlement Commission in the order dated 25.05.2016. Therefore, the contention of the appellant that there is violation of principles of natural justice, cannot be accepted. The Settlement Commission has exercised its jurisdiction properly, under Section 127F(1) of the Customs Act, by going through the factual aspects, as well as the legal position, and exercised discretion and allowed 90% depreciation on capital goods and directed the appellant to deposit the admitted liability of ₹ 10,17,283/- - appeal dismissed - decided against appellant.
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2018 (2) TMI 282
CENVAT credit - Clandestine removal - the case of the Revenue is that the main appellant stated to be manufacturing PVC Compound and Master Batches showing more production of PVC Compound and Master Batches, whereas study of consumption of power supplied by NDPL and Generators installed in their factory would reveal that the main appellant actually manufactured less quantity of PVC Compound and Master Batches - issue of invoices without the issue of goods - It was also alleged that the main appellant had not used the said resin in their final product and diverted to the manufacturer of Battery Separator, who are SSI Units and the main appellant availed Cenvat Credit thereon - Held that: - this Tribunal already decided the case in respect of other customer, namely M/s Paramount Communication Ltd., [2018 (1) TMI 350 - CESTAT NEW DELHI] located outside Delhi-I jurisdiction, where the main appellant issued the invoices. In that case, the Tribunal has taken a consistent view that Cenvat Credit cannot be denied merely on the basis of statements, which are un-corroborative in nature. The case of the Revenue is that the buyers made payment of the cheques and the main appellant returned cash after deducting 2-3% commission. The Investigating officer had not made any attempt to examine the Bank Account. No cash was recovered at any place, as the matter involved huge amount of cash - The Tribunal in the case of Aum Aluminium Private Limited Vs. Commissioner of Central Excise, Vadodara [2012 (4) TMI 557 - CESTAT AHMEDABAD] observed that un-accounted sales proceeds in substantial cash from factory or office premises or anywhere else in direct control of the assessee are not recovered and therefore, the charge of clandestine removal of goods cannot be sustained. The appellant cleared the goods on payment of Central Excise duty and also paid VAT/CST. The entire transaction is duly recorded in the books of accounts which were duly audited. Such documents and records cannot be brushed aside merely on the basis of various statements of the transporter, some buyers etc., unless such statements are based on records. In the present case, there is no verification of records maintained by the main appellant and the others. Thus, the denial of credit and imposition of penalties cannot be sustained. Appeal allowed - decided in favor of appellant.
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2018 (2) TMI 281
CENVAT credit - capital goods - period August 2003 to December 2004 - Held that: - the appellants are entitled to cenvat credit of ₹ 1,11,258/- during the period August 2003 to December 2004 for cenvat credit on capital goods during this period. CENVAT credit - period June 2004 to February 2005 - Availment of cenvat on the invoices not consigned to appellant - Held that: - For the period June 2004 to February 2005 the Department cannot recover the alleged irregular cenvat credit availed by the appellant as there was no recovery provision during the relevant period which came only on 01.03.2013. Similarly amount collected through debit notes without reversing the credit to the tune of ₹ 3,89,825/- cannot be recovered from the appellant because there was no recovery provision during the relevant period which came only on 01.03.2013. Denial of other credits for the period January 2004 to February 2005 for the fabrics consigned to others received by the appellant - Held that: - the appellants have submitted detailed documentations to prove their correlation but the same was not considered by both the authorities below. In view of this, the case is remanded back to the original authority to examine afresh all the documents which may be produced by the appellants to establish the receipt of the goods in the factory. Appeal allowed in part and part matter on remand.
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2018 (2) TMI 280
CENVAT credit - capital goods - steel products, such as angles, channels, plates, bars, coils and roof sheeting, used for construction of factory sheds, structures for tanks and storage tanks - Held that: - The amendment to the definition of capital goods in CCR 2004, which was the basis for determination of liability by the original authority, came into effect after the period covered in this dispute. Undoubtedly, the decision of the Larger Bench of the Tribunal in Vandana Global Ltd v. Commissioner of Central Excise, Raipur [2010 (4) TMI 133 - CESTAT, NEW DELHI (LB)] would not exclude the present dispute from the scope of application of the amended definition - credit cannot be denied - appeal dismissed - decided against Revenue.
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2018 (2) TMI 279
Refund claim - deemed exports - supply of goods to units in Special Economic Zone - rule 5 of CCR, 2004 - Held that: - it is apparent that supplies to special economic zones are not exports except then viewed through the provisions of Special Economic Zones Act, 2005 - The decision of the Tribunal in Commissioner of Central Excise, Pune II v. Quality Screens [2008 (1) TMI 746 - CESTAT, MUMBAI] makes it amply clear that only physical exports would entitle the refund under rule 5 of the CCR 2004. The impugned order has erred in allowing the application under rule 5 of CCR 2004 - appeal allowed - decided in favor of Revenue.
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2018 (2) TMI 278
Whether the show cause notice is maintainable as it invoked the extended period of limitation? Held that: - it is evident that the SCN has been only issued by way of change of opinion on the part of the Revenue, there being no mala fide, contumacious conduct, suppression of fact on the part of the respondent-assessee - the SCN is not maintainable - appeal dismissed - decided against Revenue.
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2018 (2) TMI 277
Clandestine removal - demand based upon entries made in the private booklet which was recovered during the visit by the officers to the premises of the main appellant - Held that: - In the absence of any evidence to show or indicate that this booklet on which reliance has been placed by Revenue to hold that there was clandestine removal for the period 1.9.2001 to 15.9.2001, entire case of the Revenue falls down in the absence of any corroborative evidence in the form of purchaser or transporter s document to indicate clandestine clearance from the factory premises of the appellant. The charge of clandestine removal of the goods by the main appellant and consequent penalty on the Director does not stand scrutiny of the law and the demand needs to be set aside. Since the demand is set aside, interest liability and penalty on the main appellant as well on the individual does not survive. Appeal allowed - decided in favor of assessee.
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2018 (2) TMI 276
Restoration of appeal - recovery of dues - appellant has taken the plea that since they are not successor to the business of M/s Raj & Yash Alloys therefore they are not liable for payment of dues of said concern - Do tax dues recoverable under the provisions of the Central Excise Act, have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2005? - Held that: - the Government dues do not have priority of claim over that of the secured creditors. However, if the Legislature makes those dues as having priority of claims. What is the effect of a prior attachment by revenue of the property excisable goods of tax defaulter under the provisions of the Central Excise Act before it is sold by a secured creditor under the provisions of the SARFAESI Act? - Held that: - the issue as framed there would not arise here as there was no previous attachment before the sale under the SARFAESI Act. Can a transfer be said to be a voluntary transfer by "the person" when the transfer takes place under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002? - Held that: - considering the language of the proviso to Section 14 2 of Customs Act and relying on the judgment of Macson Marbles Pvt. Ltd. v. Union of India, [2003 (11) TMI 71 - SUPREME COURT OF INDIA] the transfer can be said to be transfer which is voluntary. Does the mere purchase of the immovable/movable assets of a tax defaulter amount to transfer or disposal of business or trade in whole or in part or result in effecting change in ownership thereof in such business or trade by any other person, consequence of which such person is succeeded in such business or trade by any other person? - Held that: - considering the provisions of the SARFAESI Act, the provisions of the said Act will prevail over the provisions of the Customs Act and Central Excise Act. Once the Petitioner had purchased the assets in an auction held under the SARFAESI Act, they will hold the assets free from any encumbrances - demand is without jurisdiction. Demand set aside - appeal allowed.
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2018 (2) TMI 275
CENVAT credit - MS structures, HR plates, angles, channels, beams, etc - Held that: - the appeal filed by the Revenue is now contradicting the factual matrix of the utilization of these items in the manufacture of rolling mill machinery and its accessories as, I find from the grounds of appeal the Revenue is not disputing the certificate issued by the Chartered Engineer which was produced before the first appellate authority - First appellate authority has held that Since the said Rolling Mill Machinery & its Accessories are classifiable under Chapter 82, 84, 85 and 90 of CETA, 1985 and covered under Rule 2(a) as Capital goods, consequently the goods used in the manufacture of said Rolling Mill Machinery are also squarely covered under the definition of Capital Goods in terms of Rule 2(a)(A)(i) and (iii) of the CCR, 2004 - credit allowed - appeal dismissed - decided against Revenue.
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CST, VAT & Sales Tax
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2018 (2) TMI 274
Recovery of Arrears of sales tax - validity of demand notice in Form No.IV dated 08.12.2014, for alleged arrears of Sales Tax for the years 2002-2003, 2003-2004, 2004-2005, 2005-2006 - APGST Act, 1957 - Whether sales within the State treated as Inter-state sale? - Held that: - It is evident from the show-cause notices issued, and the assessment orders made under the CST Act, enclosed along with the counter-affidavit, that the petitioner was assessed to tax under the CST Act for his failure to submit the declarations in Form-F as proof that the goods were despatched outside the State on consignment to his agent. Payment of sales-tax by the petitioner, under the APGST Act, is on the sale of goods within the State and not for transfer of goods outside the State - the sales made by the petitioner within the State were not subjected to tax as inter-State sales, and it is only the consignment of goods, from the State of Andhra Pradesh to another State, which were treated as inter-State sales on the failure of the petitioner to submit Form-F declarations. The contention that intra-State sales were treated as inter-State sales is, therefore, not tenable. Are the assessments barred by limitation? - Held that: - The Andhra Pradesh Value Added Tax Act, 2005 came into force on 01.04.2005 and consequently, in view of Section 9(2) of the CST Act, it is the provisions of the A.P. VAT Act which is the applicable State law for the assessment year 2005-06. Section 21(4) of the AP VAT Act stipulates that the prescribed authority may, based on any information available or on any other basis, conduct a detailed scrutiny of the accounts of any dealer and where any assessment, as a result of such scrutiny, becomes necessary, such assessment shall be made within a period of four years from the end of the period for which the assessment is to be made - Even for the CST assessment year 2005-06, the assessment order was passed on 18.04.2009 well within the four year limitation period prescribed under Section 21(4) of the AP VAT Act - it is evident that the assessment orders, made for these four years, are within the period of limitation prescribed, for making assessment, both under the APGST Act and the AP VAT Act. Should the period of limitation be computed till the date of passing the assessment order or till the date they are served on the dealer? - Held that: - the prescribed period of limitation, for passing an assessment order under the CST Act for the three year period 2002-03 to 2004-05, is, in view of Section 9(2) of the CST Act, governed by the provisions of Section 14(1) of the APGST Act. For the assessment year 2005-06 the period of limitation for passing an assessment order under the CST Act is, on a conjoint reading of Section 9(2) of the CST Act and Section 21(4) of the AP VAT Act, four years - Much less adducing any proof of the assessment orders having been served belatedly, the petitioner has not even pleaded as such in the affidavit filed by him in support of the Writ Petition. It would be wholly inappropriate for us, in the present case, to examine, even in the absence of a plea in this regard in the writ affidavit, whether there was belated service of the assessment orders necessitating an inference being drawn that the assessment orders were either ante-dated or were passed after expiry of the period of limitation prescribed under Section 14(1) of the APGST Act and Section 21(4) of the AP VAT Act. Is passing assessment orders, at the fag end of the period of limitation, illegal? - Held that: - The period of limitation, for passing an assessment order under Section 14(1) of the APGST Act, is three years from the expiry of the year to which the assessment relates. Likewise an assessment under Section 21(4) of the A.P. VAT Act is required to be made within a period of four years from the end of the period from which the assessment is to be made. As long as the assessment order is within the period of limitation, stipulated in Section 14(1) of the APGST Act and Section 21(4) of the A.P. VAT Act, it matters little whether these assessment orders were passed immediately after the end of the assessment year/assessment period, or at the fag end before expiry of the period of limitation. Since the assessing authority is empowered by law to make an assessment even at the fag end of the period of limitation, and before its expiry, the question whether he should have passed the assessment order immediately after the end of the assessment year, or at the fag end of the period of limitation, are not matters for examination in proceedings under Article 226 of the Constitution of India, as the assessing authority is entitled to pass an assessment order any time after the end of the assessment year/assessment period and before expiry of the period of limitation. Are the assessment orders void and liable to be ignored? - Held that: - As the assessment orders made under the CST Act, for the assessment years 2002-03 to 2005-06, do not bear the brand of invalidity upon its forehead, it is only if necessary proceedings are taken to challenge these orders can they be quashed. These assessment orders would remain as effective as the most impeccable of orders till then. While an order without jurisdiction can be subjected to challenge even in collateral proceedings, other orders, even if they be otherwise illegal, can only be questioned on a direct challenge thereto - the contention, that these assessment orders are liable to be ignored as a nullity, does not merit acceptance. The assessment orders would, unless and until they are declared as void by this Court, continue to remain in force. Can factual pleas, raised for the first time in the reply affidavit, be examined in writ proceedings - Held that: - the petitioner had copies of the assessment orders with him, when he filed the Writ Petition on 27.04.2015. Nothing prevented him from either questioning the validity of the assessment orders or raise these factual pleas, which have now been urged in the reply affidavit, in the affidavit filed in support of the Writ Petition. As these contentions, which are factual in nature, are urged for the first time in the reply affidavit dated 22.01.2018, the very day on which Writ Petition was finally heard and judgment reserved, they cannot be examined as the respondents could not have rebutted these factual assertions in the counter-affidavit filed by them much earlier. Is the demand notice vitiated by malafides? - Held that: - The burden to prove the charge of malafides is always on the person who moves the court for invalidation of the action of the State and/or its agencies and instrumentalities on the ground that the same is vitiated due to malafides. The Court should resist the temptation of drawing dubious inferences of malafides or bad faith on the basis of vague and bald allegations or inchoate pleadings - Challenge to the demand notice, on the ground of malafides, must, therefore, fail. Is a single demand notice for four assessment years and its belated issue, illegal? - Held that: - the assessment order for the assessment year 2002-03 was made on 10.03.2006, for the assessment year 2003-04 on 30.03.2007, for the assessment year 2004-05 on 17.03.2008, and for the assessment year 2005-06 on 18.04.2009. The final notice dated 21.07.2014 was issued just a little more than five years after the assessment orders were passed for the assessment year 2005-06 on 18.04.2009, and therefore the contention that the demand notice was issued after 11 years is factually incorrect - It is only on an assessment being made, and the tax liability determined, can a demand be raised for payment of the assessed tax. As no demand could have been raised even without an assessment order being passed, the contention that the period of four years should be computed from the end of the assessment year, and the demand notice was issued 11 years thereafter, is not tenable. Petition dismissed.
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2018 (2) TMI 273
Validity of assessment order - TNVAT Act - principles of Natural Justice - Section 27 of the TNVAT Act, 2006 - Held that: - This Court was of the opinion that there is not a true compliance of the requirement under Section 27 of the TNVAT Act, 2006 nor would it satisfy the principles of natural justice. This is so because after issuance of SCN, if a dealer submits their objections, there is every likelihood that the Assessing Officer may be convinced with the objections and may even drop the proposal. In such an event, appearing before the Assessing Officer in person is unnecessary. The impugned orders have been passed in violation of the principles of natural justice and that the petitioner did not have adequate opportunity to put forth their objections, as the revision notices were bereft of particulars. Appeal allowed by way of remand.
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