TMI Tax Updates - e-Newsletter
March 26, 2016

Case Laws in this Newsletter:

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

TMI SMS

• Sharing of resources and cost with the group companies - No taxable service is provided by the appellant - No service tax liability - Tri

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Articles

1. TAX DISPUTE RESOLUTION – BETTER LATE THAN NEVER

   By: Dr. Sanjiv Agarwal

News

1. Inclusion of Interest Income in the Return of Income filed by Persons liable to Pay Tax

2. Public Private Project Appraisal Committee (PPPAC) recommends projects worth ₹ 5706.73 Crore

3. Memorandum of Understanding between India and United Arab Emirates to mobilise long term investment into the National Investment and Infrastructure Fund

4. Release of additional instalment of Dearness Allowance to Central Government employees and Dearness Relief to Pensioners due from 1.1.2016

5. Finance Minister to leave on Four Day Official Visit to Australia on 28th March, 2016 to attract foreign investment in India: To participate in India Australia CEOs Forum Meeting; To address ‘Make in India’ Conference among others

Notifications

Companies Law

1. F. No. A-42011/03/2016-Ad.II - dated 23-3-2016 - Co. Law

Notification for CRC phase-2 Incorporation

2. F. No. 01/13/2013 CL-V(Pt-I) - dated 23-3-2016 - Co. Law

Companies (Incorporation) Second Amendment Rules, 2016

Circulars / Instructions / Orders

FEMA

1. 54 - dated 23-3-2016

Diamond Dollar Account (DDA) – Reporting Mechanism

2. Press Note No. 1(2016 Series) - dated 23-3-2016

Review of Foreign Direct Investment Policy (FDI) on Insurance Sector

3. Press Note No. 2(2016 Series) - dated 23-3-2016

Review of Foreign Direct Investment (FDI) policy on Pension Sector

DGFT

4. 21/2015-2020 - dated 23-3-2016

Reconstitution of Board of Trade (BoT)

Highlights / Catch Notes

Income Tax

• Indian Enterprise Transactions: Determining True Nature of Interest vs. Discounting Charges in Financial Dealings.

  Case-Laws - AT : Amounts received from Indian associated enterprises - whether were in the form of interest or discounting charges? - The true nature of transaction cannot alter merely by clubbing the discounting charges under the head ‘financial expenses’. - AT
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• Interest Rate on Unsecured Loans Reduced to 15% from 18% u/s 40A; Full Interest Expense Allowed.

  Case-Laws - AT : Disallowance u/s 40A - CIT(Appeals) restricted the rate of interest to 15% as against 18% claimed by the assessee - In the case of market loans, no security is given and no paper or other formalities are required to be completed. The unsecured loan is also available at the call and convenience of the assessee as and when required. - Entire interest expense allowed - AT
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• Appellant eligible for deduction u/s 54B despite not complying with section 54B(2) of the Income Tax Act.

  Case-Laws - AT : Exemption from long term capital gain u/s 54B and 54F - where an appellant satisfies the first condition prescribed under section 54B(1) and at the same time, neither claim nor comply with the second condition as prescribed under section 54B(2) of the Act, the appellant would be eligible for deduction u/s 54B - AT
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• Court Rules Film Software Library as Intangible Asset, Eligible for 25% Depreciation Rate Instead of 15% for Plant & Machinery.

  Case-Laws - AT : Disallowance of depreciation - Addition towards Film Software Library as the same is not intangible asset and it is to be treated as Plant & Machinery - depreciation @ 15% or 25% - asset which consists of ‘Copyrighted Films and Programmes’ is an ‘Intangible Asset’ eligible for depreciation at the rate of 25% - AT
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• No Penalty Imposed for Non-Deduction of Tax on Salaries; No Deliberate Misconduct u/s 271C Found.

  Case-Laws - AT : Penalty under section 271C - failure to deduct tax on payment made on account of salary - No contumacious conduct can therefore be attributed to the assessee - No penalty - AT
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• "Lex Non Cogit Ad Impossiblia" Shields Taxpayers from Retrospective Amendments under Income Tax Act Sections 195 & 40(a)(i.

  Case-Laws - AT : TDS u/s 195 - disallowance under section 40(a)(i) on account of any retrospective amendment - It is a trite legal maxim. “lex non cogit ad impossiblia” which means that, the law cannot possibly compel a person to do something which is impossible to perform. - AT
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Customs

• Appeal Dismissed for Non-Compliance; Parties May Contest Order on Merits if Delay Justified by Counsel's Lapses.

  Case-Laws - AT : Restoration of appeal - Dismissal of appeal for non-compliance and also for non-appearance exparte, should not deprive the parties to contest the order on merits when delay in filing the restoration application has been explained and the contesting parties should not suffer for lapses on the part of their counsel - AT
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• Conversion of Free Shipping Bills to Export Promotion Scheme Valid When Customs EDI System Errors Occur.

  Case-Laws - AT : Conversion of Free Shipping Bills into Export Promotion Scheme/DEEC Shipping Bills -when the fault lies with the EDI system of the Customs, the request of the appellant for conversion of Free Shipping Bills into DEEC/Export Promotion Scheme Shipping Bills is genuine and needs acceptance - AT
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• Customs Clears Undervalued Goods, Cannot Re-examine; Non-Prime Goods' Value Differs from Prime Quality.

  Case-Laws - AT : Undervaluation of goods - The goods were examined, assessed and cleared by Customs and were no longer available for re-examination. It is trite to say that if the impugned goods were not of prime quality, their value cannot be compared with the value of goods of prime quality. - AT
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• Petitioners Not Entitled to Duty Drawback for Bonded Goods Removed u/r 19(2) Benefits.

  Case-Laws - HC : Entitlement for Custom duty drawback - Finished goods were removed under bond without payment of duties - Petitioners have availed of the benefits under Rule 19(2) ibid, the question of availing any drawbacks in terms of said Notification would not arise at all. - HC
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• High Court Overturns 2015 Notice on Poppy Seed Importer Classifications, Highlights Inconsistency in Import Caps.

  Case-Laws - HC : Classification of importers of poppy seeds - cap on import of poppy seeds - It could be seen that even an importer, who continuously imports for a period of two years, would be in a disadvantageous position than the one who did it for the preceding three financial years out of the total five financial years. - public notice dated 14.09.2015 insofar as the classification A and B are concerned set aside - HC
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Service Tax

• Service Tax Liability Not Applicable on Absorbed TDS Amount in Foreign Remittances Under Reverse Charge Mechanism.

  Case-Laws - AT : Liability of Service tax on TDS amount absorbed by the assessee on foreign remittance - Reverse charge - Service Tax liability needs to be discharged on amounts which have been billed by the service provider - Demand set aside - AT
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• Appellant's Resource Sharing Among Group Companies Deemed Non-Taxable; No Service Tax Liability Found.

  Case-Laws - AT : Sharing of resources and cost / expenses with the group companies - The activities carried out by the Appellant enables the Participating Group Companies to share the common services, the best available talent and resources required for carrying out their business activities. No taxable service is provided by the appellant - No service tax liability - AT
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• Cenvat Credit Allocation for Output Services and Trading Upheld by Commissioner (Appeals); No Changes Required.

  Case-Laws - AT : Availment of Cenvat credit - Tax paid on services used in common for ‘output services' and trading - as the turnover has been the basis for apportionment, there is no reason to interfere with the Commissioner (Appeals) order. - AT
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• Service Tax Demand Confirmed on Related Party Transactions with Provisional Debit Entries Finalized as Adjustments in Books.

  Case-Laws - AT : Related party transactions - associated enterprises - once debit entries were made even though provisional basis and subsequently final entries are made, it is only the adjustment in the books of account and for this reason the entries made at the first time cannot be said to be irrelevant for deciding the point of taxation. - demand of service tax confirmed - AT
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• Appellant denied penalty waiver for intentionally hiding facts to evade service tax u/s 73(3)(4).

  Case-Laws - AT : Waiver of penalty - appellant-assessee suppressed the facts from the Revenue with an intention to evade payment of service tax and when when there are malafides proved on the part of the appellant-assessee, they would not be entitled to take the benefit of provisions of Section 73(3)(4) ibid. - AT
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Central Excise

• Refund Eligible After Fine Order Overturned: Deposits and Interest to Be Returned in Investigation Case.

  Case-Laws - AT : Refund claim - pre-deposit - As soon as the order appropriating such fine was set aside, they became eligible to refund of the deposits made during the investigations - refund allowed with Interest - AT
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• Courier Bill of Entry Valid for Cenvat Credit Claims Under CENVAT Credit Rules, 2004.

  Case-Laws - AT : Eligibility of CENVAT CREDIT - whether the courier bill of entry is a proper document for availing Cenvat Credit under the CENVAT Credit Rules, 2004? - Held Yes - AT
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• Appellant Can Choose Proportionate Cenvat Credit for Mixed Production; Authorities Must Respect Rule 6(3)(ii) Choice.

  Case-Laws - AT : Cenvat credit on input services used for both excisable goods as well goods chargeable to nil rate of duty - no option under Rule 6 (3) can be imposed on the appellant and the appellants offer of availing the option of proportionate credit in terms of Rule 6 (3) (ii) cannot be denied to them. - AT
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• Firm Denied Cum-Duty Benefit for Clearing Goods Without Proper Invoices; Price Excluded Central Excise Duty.

  Case-Laws - AT : Evasion of duty -, the goods were cleared without issuing proper invoices and therefore it cannot be said that the price charged included central excise duty. In their statements, partners of the firm also did not claim that price charged was inclusive of duty - cum-duty benefit denied - AT
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• Cenvat Credit Allowed for Inputs in Exempted Goods and Non-Manufacturing Processes Under Tax Rules.

  Case-Laws - AT : Cenvat Credit allowability on the inputs used in the manufacture of exempted goods or non dutiable goods - Cenvat Credit on the inputs used in the process which does not amount to manufacture, is admissible - AT
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• Pre-delivery inspection charges excluded from assessable value for tax purposes; not added to buyer's inspection costs.

  Case-Laws - AT : Assessable value - whether inspection charges with respect to a specific inspection of the buyer is required to be added to the assessable value? - pre-delivery inspection charges cannot be included in the assessable value - AT
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Case Laws:

• Income Tax

• 2016 (3) TMI 831
  Reopening of assessment - ITAT upholding the decision of CIT(A) wherein annulled the re-opening of assessment proceedings by stating that it was a mere change of opinion based on the opinion/views of audit party - Held that:- As can be seen from the reasons recorded, all that is reflected therein is the opinion of the audit party that 0.5% should be considered as reasonable shortage and excess shortage should be disallowed and accordingly an excess shortage of 2.02% is required to be disallowed. It is the opinion of the audit party that excess shortage had been disallowed resulting into an underassessment to the tune of Rs. 33,04,144/-. Thus, from the reasons recorded, there is nothing to disclose that the Assessing Officer has formed any opinion that income chargeable to tax has escaped assessment All that the reasons recorded reflect is the opinion of the audit party. Section 147 of the Act provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may reopen the assessment in terms thereof. Thus, it is the satisfaction of the Assessing Officer which is necessary for reopening the assessment. In the present case, on a plain reading of the reasons recorded, it is evident that no such satisfaction has been recorded by the Assessing Officer. The Commissioner (Appeals), therefore, rightly came to the conclusion that this is a case of clear change of opinion based on conjectures and a case where the opinion was not of the Assessing Officer but clearly of the audit party. The Tribunal, therefore, did not commit any error in upholding the order passed by the Commissioner (Appeals). - Decided in favour of assessee

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• 2016 (3) TMI 830
  Exemption u/s 10A – manner of computation – Held that:- The issue raised herein is stand concluded against the revenue by the decision of this Court in Gem Plus Jewellery India Ltd. (2010 (6) TMI 65 - BOMBAY HIGH COURT) wherein held Freight and insurance do not have an element of turnover - these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary - The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A the addition made on account of the disallowance of the Provident Fund / ESIC payments ought to be ignored cannot be accepted. Also exemption u/s. 10A to be granted on foreign exchange gain earned (due to fluctuation of foreign exchange) on realization of export receipts in the year of export -Decided in favour of assessee

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• 2016 (3) TMI 829
  Amounts received from Indian associated enterprises - whether were in the form of interest or discounting charges? - assessee (“CFSA”), is a company incorporated in Singapore and is a tax resident of Singapore - Held that:- A bare perusal of the observations of AO makes it very clear that he has not at all referred to any RBI Circular, FEMA provision which had bearing on the facts of the case and how the receipt in the hands of assessee took the colour of interest and not the discounting charges. ' The conclusion drawn by ld. DRP is that as per the definition of interest in the Indian Income-tax Act and the DTAA the amount paid by the assessee is a debt to the Indian company and the assessee company has recovered the said debt with interest from the Indian company through another group company. In our opinion, this aspect has received specific consideration of Hon’ble High Court in the case of Cargill Global Trading Pvt. Ltd. (2011 (2) TMI 209 - DELHI HIGH COURT) and, therefore, this conclusion cannot be accepted. We fail to appreciate as to how ld. DRP has drawn the conclusion from the above statement that Indian company is treating this amount as interest. The true nature of transaction cannot alter merely by clubbing the discounting charges under the head ‘financial expenses’. Therefore, this plea raised by ld. CIT(DR) on the basis of observation made by ld. DRP for distinguishing these facts in the current year from earlier years is without any basis. As far as ld. CIT(DR)’s submission regarding non-cooperation of assessee on the basis of observations made by ld. DRP in para 7 are concerned, we find that none of the authorities below have pointed out as to which particular information was missing in the entire trail of transaction. In the submissions filed by assessee it is clearly stated that all the relevant information were furnished before lower revenue authorities. - Decided in favour of assessee

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• 2016 (3) TMI 828
  Registration granted u/s 12AA cancelled - revenue submitted that the assessee is engaged in rendering service to the trade and commerce, therefore, the assessee is not entitled for registration u/s 12AA - Held that:- Issuing certificate of origin in respect of the goods exported is incidental to the main charitable activity of the assessee. Therefore, as observed by the Delhi High Court in the case of India Trade Promotion Organization(2015 (1) TMI 928 - DELHI HIGH COURT), proviso to sec. 2(15) may not be applicable to the assessee's case. Therefore, we are unable to uphold the order of the DIT(E). Accordingly, the same is set aside. - Decided in favour of assessee.

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• 2016 (3) TMI 827
  Tds u/s 194A - non deduction of tds on interest on deposits - revision u/s 263 - Held that:- the direction of the Ld. CIT to re-do the assessment is due to non-submission of the requisite details by the assessee before him. Under section 263 of the Act, CIT has wide powers but does not have unfettered discretion to revise the assessment order and the condition necessary for invoking the power must exist. The CIT can come to the conclusion of the assessment order to be erroneous if the A.O. has not made necessary enquiries before completing the assessment but to come to the conclusion that the assessment order is also prejudicial to the interests of the Revenue, he has to go through the relevant material. But since the assessee did not produce the required details, the CIT proceeded to revise the assessment order by remanding it to the file of the A.O. Now that the details are filed before us, we deem it fit and proper to admit the same and remit the issue to the file of the Ld. CIT with a direction to re-look into the matter in the light of paper book filed by the assessee. Needless to say that assessee shall be given a fair opportunity of being heard. - Decided in favour of assessee for statistical purposes.

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• 2016 (3) TMI 826
  Transfer pricing adjustment - MAM selected - whether RPM can be rejected as MAM? - Held that:- Before rejecting the RPM, TPO should have made an analysis to see whether the required data regarding the set of comparables dealing in similar products could be obtained from public data bases. Only if it can be shown that the adjustment specified in the above Rule was not possible, RPM can be rejected as MAM. In he present case assessee was selling kitchen and bath fittings, and whether there were other comparables in similar business sufficient enough to make a representative sample has not been verified by any of the lower authorities. The question whether RPM is the MAP depends on such an analysis. We are therefore of the opinion that the matter as to the selection of MAM and also the pricing of international transactions of the assessee with regard to its distribution segment requires a fresh look by the TPO / AO. We set aside the orders of authorities below and remit the issue back to the file of TPO / AO for consideration afresh Warranty disallowed - Held that:- While it is true that assessee had a present obligation on account of warranty resulting out of its sales and it was also probable that there could be an outflow of resources for settling such obligation, the third condition, viz., making of a reliable estimate has not been done by the assessee. In our opinion, unless and until scientific data is produced by an assessee in support of the estimate of warranty provisioning, an estimate cannot be presumed as a reliable one. Assessee having failed to do so, disallowance was rightly done by the lower authorities. We do not find any reason to interfere - Decided against assessee Expenditure paid to the Registrar of Companies for increasing authorised capital disallowed - Held that:- It is clear that once the type of expenditure mentioned under subsection (2) is incurred by an assessee, it shall be allowed a deduction as per sub-section (1) in the manner specified therein. Thus it is clear that AO when he had made disallowance of the share issue expenditure in the nature of fees paid to Registrar of Companies for increasing authorised capital, he ought to have allowed the amortisation of such expenditure u/s.35D(1) of the Act. DRP had accepted this claim of the assessee at para 10.2 of its order. We therefore direct the AO to grant amortisation of such expenditure to the assessee as specified u/s.35D of the Act

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• 2016 (3) TMI 825
  Disallowance u/s 40A - CIT(Appeals) restricted the rate of interest to 15% as against 18% claimed by the assessee and 12% allowed by the Assessing Officer - Held that:- The loans were taken from the same persons/relatives. It is true that for the purpose of disallowance under sect ion 40A(2) of the Act, the guiding factor is whether the expenditure is excessive or unreasonable, having regard to the fair market value of the case, services or facilities for which the payment has been made. In our opinion, it is a matter of common knowledge that the interest on unsecured loan is normally more than the interest payable on secured loans. In the case of market loans, no security is given and no paper or other formalities are required to be completed. The unsecured loan is also available at the call and convenience of the assessee as and when required. Keeping in view the peculiar facts and circumstances of the present case, we are of the view that the disallowance sustained by the ld. CIT(Appeals) is unwarranted and hence, we delete the same. - Decided in favour of assessee

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• 2016 (3) TMI 824
  Penalty u/s 271(1)(c) - assessee not adopting for CUP method and not benchmarking each of the transaction separately - Held that:- Failures of the assessee include (i) not adopting for CUP method and (ii) not benchmarking each of the transaction separately. AO actually benchmarked all transactions in aggregation while applying the CPM. Assessee is well aware about the availability of CUPs atleast for the two international transactions. In that sense, we find due diligence is not in existence in not using the CUP method and not benchmarking the transaction with the TP study. As such, assessee agreed to the above benchmark study of the TPO considering the merits of the TPO’s proposals. Next condition relates to the ‘good faith’. Good faith is not demonstrated before us / lower authorities. In fact, the assessee is silent in the explanations on both the ‘due diligence’ and ‘good faith’ issues. We have perused the explanation furnished by the assessee before the AO and the CIT (A) and find, assessee is casual and his explanation is general in nature. Therefore we are of the opinion, this is the fit case for levy of penalty and therefore, we affirm the decision taken by the lower authorities. - Decided against assessee

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• 2016 (3) TMI 823
  Deduction u/s 54B and 54F - Entitlement to claim whether the return has actually been filed under section 139(1) or under section 139(4)? - Held that:- A combined reading of section 54B(2) read with the proviso clearly provides that the amount of the capital gain which is not utilized by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139(1) should be deposited with a bank/institution in a specified scheme irrespective of whether the return has actually been filed under section 139(1) or under section 139(4) of the Act. The legislative intention behind the introduction of subsection 2 to section 54B was therefore to obviate the need for rectification of assessment orders where the assessee fails to purchase the assets within prescribed time limit of 2 years. It was therefore provided that where the assessee deposits the funds in the specified capital gains scheme, the funds so deposited in the specified capital gains scheme were taken into consideration for allowing the deduction and were deemed to be the cost of new asset. The said deposit will therefore act as a safeguard to the Revenue that claim of deduction has been lawfully allowed in absence of actual purchase of the new asset. It is further provided that subsequently where the assessee doesn’t utilize the funds so deposited with the prescribed time limit of two years, the amount not so utilized shall be charged under section 45 as income of the previous year in which the period of two years from the date of transfer of the original asset expires. In other words, the requirements of section 54B(2) are therefore to supplement, support and aid in administration of deduction under section 54B(1) of the Act. Secondly, it is to be further noted that section 54B(2) provides that “for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of new asset together with the amount so deposited shall be deemed to be the cost of the new asset. “ Under section 54B(1) of the Act, it is for the assessee to claim the deduction and it is only when the assessee makes a claim of said deduction, the Revenue is well within its jurisdiction to examine whether the assessee has satisfied the necessary conditions for claiming such deduction. Under subsection 1 to section 54B, it requires the purchase of the new asset and under subsection 2 to section 54B, it is provided that even if the assessee has not purchased the new asset but has deposited the funds in the capital gains account scheme, such deposit shall be considered as deemed cost. In a situation where assessee has neither claimed nor deposited the unutilised capital gains consideration in the capital gains account scheme, where is the question of allowing the deduction at first place. Accordingly, where an appellant satisfies the first condition prescribed under section 54B(1) and at the same time, neither claim nor comply with the second condition as prescribed under section 54B(2) of the Act, the appellant would be eligible for deduction under section 54B of the Act. The provisions of section 54F(2) are pari-materia with the provisions of section 54B(2) of the Act. Hence, the above discussion would hold equally good for the purposes of claim of deduction under section 54F of the Act. The AO is accordingly directed to allow deduction to the appellant under section 54B as well as under section 54F of the Act after verifying the satisfaction of necessary condition by the appellant as prescribed under section 54B(1) and 54F(1) of the Act respectively. - Decided in favour of assessee Disallowance u/s 48 - Held that:- Where the capital gains have been brought to tax, it would be just and proper that the assessee is granted its claim of deduction under section 48 of the Act. The AO is accordingly directed to allow the claim of deduction after necessary verification. - Decided in favour of assessee.

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• 2016 (3) TMI 822
  Reopening of assessment - Held that:- During the course of original assessment proceedings the books of a/c along with the audit report were duly furnished and were accepted while passing order u/s 143(3). The assessee has not filed the assessment order passed u/s 143(3) in the present case. Thus the initiation of proceedings u/s 147 of the Act were not valid. Accordingly, orders of authorities below in all the appeals in question are quashed and the assessee’s appeals stand allowed

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• 2016 (3) TMI 821
  Penalty u/s 271(1)(c) - Held that:- CIT (A) while confirming the penalty imposed by the Assessing Officer, has over looked the facts that the assessee has filed revised return when the assessee company itself came to the knowledge that there was an error in its return for A.Y 2003-04. The fact that company has at no stage hidden or intentionally acted which shows that they have deliberately filed the inaccurate, inadequate returns u/s 271(1)(c). If there is any inaccurate particulars of income furnished with intention then that has to be penalized but in present case, there was no such intention in the present case. The CIT (A)’s finding that the assessee is guilty of furnishing inaccurate particulars of income is in appropriate as the Assessing Officer at any point of time has not scrutinized 2003-04 of the assessment on records and issued any notice before the filing of revised return. Thus, when the error was known to the assessee, the assessee itself has filed the revised return this act shows that it is not intentional furnishing of inaccurate particulars of income on behalf of the assessee. The case laws placed before us are also in support of the assessee’s case. - Decided in favour of assessee

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• 2016 (3) TMI 820
  Disallowance of depreciation - Addition towards Film Software Library as the same is not intangible asset and it is to be treated as Plant & Machinery - depreciation @ 15% or 25% - Held that:- an intangible asset can also be treated as plant, provided, it becomes an integral part of the tools used by the entity to carry on its business. In the case before us, the films and TV programmes are essential for the assessee company to carry on its business of telecasting of films and other programmes, but there is no caveat that the assessee company has to telecast only these films and programmes and none other for assessee’s business. Further, not only the films and programmes in the ‘Film Software Library’, but the assessee may also telecast any other programmes or films on its channels. By purchasing the library, the assessee is gaining exclusive right over the asset but this library cannot be held as a tool for carrying on of its business as assessee can carry on its business even without the ‘Film Software Library’. The said library only assists in determining the content of the telecast, but does not limit the telecast and is not essential for the operations of the assessee’s business and therefore cannot be termed as the tool of the trade. Thus, it fails the functional test adopted by the assessing officer. Therefore, we hold that the asset which consists of ‘Copyrighted Films and Programmes’ is an ‘Intangible Asset’ eligible for depreciation at the rate of 25%. - Decided against revenue Invoking Explanation 3 to Section 43(1) - order of the CIT u/s 263 adopting the WDV of the film software Library in the hands of the previous owner as the ‘Actual cost of the asset to the Assessee’ and allowed depreciation on that value only - Held that:- There is no dispute that the asset ‘Film Software Library’ was used by its previous owner i.e., Shri Ramoji rao (HUF) for the purpose of its business and also by the assessee herein before the transfer of the same to the assessee exclusively. Therefore, undisputedly the first condition is satisfied. CIT(A) has not referred to or verified the circumstances leading to the transfer of the asset to come to the conclusion but has granted relief on the ground that the A.O. has not recorded his satisfaction before invoking the above provisions. Though, the Ld. D.R. has not been able to rebut the factual submissions of the assessee on the circumstances leading to the transfer of the asset, we find that the same needs verification by the authorities below. In view of the same, we deem it fit and proper to remand this issue to the file of the A.O. for the limited purpose of verification of the facts and circumstances stated to be the cause of transfer of the asset to the assessee herein which are reproduced in the above paragraphs and we hold that if the said circumstances are proved to have existed, then the provisions of Explanation-3 to Section 43(1) are clearly not attracted. However, if the above circumstances are not proved or are found to be not the reason/purpose for transfer of the asset, only then shall the A.O. invoke the above provision. But in such circumstances, we direct that if the A.O. is not satisfied with the valuation done by Ernst & Young, then after giving a speaking order for not accepting the same, the A.O. shall revalue the asset in accordance with the provisions of law and shall not adopt the WDV of the asset in the hands of the previous owner.- Decided in favour of revenue for statistical purposes.

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• 2016 (3) TMI 819
  Addition u/s 68 - CIT(A) delted the addition - Held that:- AO without making any enquiry and without bringing any material on record to the contrary, was not justified in rejecting the evidence filed by the assessee and adding back the amount of the unsecured loans to the income of the assessee. Therefore, the addition of Rs. 2,21,50,000/- on this account was rightly deleted by the Ld. CIT(A) while passing a well reasoned order, which in our opinion, does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on this issue and dismiss the ground raised by the Revenue. - Decided in favour of assessee Addition of interest debited to P&L account on the unsecured loan - Held that:- . The amount of Rs. 9,99,175/- has been disallowed on the ground that corresponding unsecured loans on which this interest has been credited, had been held as not explained satisfactorily and were added to the income of the assessee. Since we have upheld the decision of the Ld. CIT(A) of deletion of addition, relating to unsecured loans raised during the year which have been held as explained and the addition of unsecured loans was deleted. Therefore, interest amounting to Rs. 9,99,175/- was allowable to the assessee. Hence, the addition on this account was rightly deleted by the Ld. CIT(A) - Decided in favour of assessee

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• 2016 (3) TMI 818
  Penalty under section 271 C - failure to deduct tax on payment made on account of salary - Held that:- In FY 2008-09 the assessee was found to have failed to deduct tax on payment made on account of salary amounting to Rs. 1,54,072/-. Subsequently an order under section 154/201(1)/201(1A) was passed stating that since the entire amount had either been paid by the deductees or was not required to be paid by the deductees after claiming relief under section 89 of the Act, the entire demand raised on the assessee was deleted and only interest on account of delay in payment of TDS was levied under section 201(1A) amounting to Rs. 499/-. We find that the assessee had given an explanation for non deduction of TDS as stated above by the Ld. AR which has not been found to be false by the authorities below. The same we find is a good and sufficient reason for not deducting tax. No contumacious conduct can therefore be attributed to the assessee and therefore applying the ratio laid down by the Hon’ble Apex Court in the case of CIT Vs. Bank of Nova Scotia [2016(1) TMI 583 (SC) ] we hold that no penalty under section 271 C is leviable for nondeduction of TDS on salary. In FY 2008-09 we find that the assessee has also failed to deduct TDS on AMC charges amounting to Rs. 288/- for which no explanation has been offered. In the absence of any explanation we uphold the levy of penalty on the same. - Decided partly in favour of assessee

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• 2016 (3) TMI 817
  Penalty u/s 271(1) (C) - difference of surrendered and returned Income - unexplained investment in house property - Held that:- The surrender had been based on an estimate made by the assessee which was restricted to the extent of value calculated after getting the proper valuation done by the registered valuer. In such circumstances the assessee was well within his limits to have harbored a belief that the correct value of investment in the house property was that which was determined by the registered valuer and accordingly the disclosure of undisclosed investment in the house property based on the same was not done with intention to defraud the revenue. It cannot in such circumstances be said that the assessee had furnished any inaccurate particulars of income since the particulars of income furnished by him were based on a registered valuer report which has not been rejected by any authority below. In view of the same we hold that the assesse having not furnished any inaccurate particulars of income, levy of penalty under section 271(1)(c) is uncalled for and ought to be dismissed. - Decided in favour of assessee

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• 2016 (3) TMI 816
  Disallowance of interest u/s.36(1)(iii) - advance made to the sister concerns - Held that:- There can be no presumption that the shareholders’ fund of a company is utilized for the purchase of fixed assets. If the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest fee funds at the disposal of the assessee. The facts of the instant case abundantly show that the shareholders fund is much more than the amount advanced by the assessee without any interest to its sister concerns. Respectfully following the precedent, we hold that the ld. CIT(A) was not justified in sustaining addition under the present circumstances - Decided in favour of assessee

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• 2016 (3) TMI 815
  Transfer pricing adjustment - whether the international transaction undertaken by the assessee were at Arm’s Length as against the adjustment made by the AO? - adoption of PLI under the TNMM challenged - correctness of the ALP of the international transactions undertaken by the assessee under both the business models of `Indenting’ as well as 'Trading' - Held that:- We have noticed that operating costs of a `Commission agent’ are always exclusive of cost of goods sold, whereas a `Trader’ has to have it as an essential element. Albeit a `Trader’ can ascertain his operating profit margin as a percentage of VAE to be designated as `any other base’, but in our considered opinion that can not be described as a 'relevant’ base, so as to fall within the ambit of the expression 'any other relevant base’ as used in sub-clauses (i) and (ii) of rule 10B(1)(e). The corollary, which ergo follows, is that whereas `any other relevant base’ under the TNMM in case of a `Commission agent’ can be `Value added expenses’, which, in fact, represents his total operating costs alone, but in case of a `Trader’, it can be cost of goods sold plus other operating expenses, which represents his total operating costs and not `Value added expenses’ to the exclusion of cost of goods sold. We, therefore, set aside the impugned order in comparing OP/VAE of the assessee on combined transactions under both the models with OP/OC of the comparables. Having disapproved the view taken by the ld. CIT(A), we need to judge the correctness of the ALP of the international transactions undertaken by the assessee under both the business models of `Indenting’ as well as `Trading’, which are obviously distinct from each other. It can be seen that the assessee tried to demonstrate that its combined international transactions under both the models were at ALP by comparing its PLI of OP/VAE with OP/OC of comparables, which is an incorrect approach. In the like manner, the TPO, though compared the assessee’s PLI of OP/VAE with OP/VAE of the comparables, but he also fell in error by jointly considering the international transactions of both the business models, namely, Indenting and Trading, under one umbrella. We thus hold that both the assessee as well as the TPO fell in error in considering the international transactions under both the models as of uniform character. It has been noticed supra that the ingredients of Operating costs under the Trading model are different from those under Indenting model. Ex consequenti, transactions under both the models are required to be benchmarked separately. We find that there is insufficient information available on record facilitating the determination of ALP of the international transactions under these two business models separately. We, therefore, set aside the impugned order and remit the matter to the file of AO/TPO for processing the international transactions of `Indenting’ and `Trading’ separately under Chapter X of the Act in consonance with our above analysis. Needless to say, the assessee will be allowed an adequate opportunity of hearing in such a de novo determination. - Decided in favour of revenue for statistical purposes.

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• 2016 (3) TMI 814
  Addition towards conveyance expenses to partners, office maintenance and entertainment to clients - genuineness - bill not produced - Held that:- Assessing Officer disallowed the claim of the assessee of Rs. 6,00,000/- on the ground that the bills of the expenses debited by Sh. U.A. Rana were not produced before him and in the absence of the bills, the said expenses could not be established incurred wholly and exclusively for the purpose of business or profession of the assessee firm. On perusal of the assessment orders of the preceding years, we find that this issue was not examined by the ld. Assessing Officer and thus the rule of consistency will not apply in the present facts. In our opinion, the expenses on car maintenance, office maintenance and entertainment to clients have been debited by Sh. U.A. Rana in his books of accounts and same have been reimbursed to him by the assessee firm claiming to have incurred for the purposes of the business and professions of the assessee firm, however, such bills were not produced before the ld. Assessing Officer for verification whether incurred wholly and exclusively for the purpose of the business or profession of the assessee firm. Therefore, in the interest of justice, we restore the matter to the file of the Assessing Officer to decide the issue afresh, in accordance with law, and also direct the assessee to produce all the said bills for verification and if the same are incurred wholly and exclusive for the purposes of the business/profession carried on by the assessee firm, the same should be allowed - Decided in favour of assessee for statistical purpose..

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• 2016 (3) TMI 813
  Undisclosed investments - Held that:- All the additions deserve to be set aside to the file of Assessing Officer for re-adjudication because at the time of assessment proceedings neither the Assessing Officer was possessing the clinching evidences which could exhibit the unexplained investments exclusively in the hands of assessee nor the assessee could file his explanation with regard to the allegations posed before him on the strength of Panchnama of ACB. It is pertinent to observe that prosecution in the criminal case failed to establish the possession of disproportionate assets by the assessee, meaning thereby the evidence collected by the prosecution was not of that nature which could satisfy the court about unexplained investment by the accused. Bearing this fact in mind, when we perused the assessment orders then it revealed that AO has relied upon the Panchnama/charge sheet prepared by prosecution. On due consideration of these facts we are of the view that it is for the ld. AO to first lay his hands on an evidence which shows unexplained investment by the assessee. The ld. AO thereafter supposed to call upon the explanation of the assessee qua that investment or any assets possessed by him. If the AO is not satisfied with the explanation of the assessee then addition in the hands of assessee can be made. The ld. Assessing Officer shall decide the issues in accordance with law keeping in view the decision of the Special Judge, ACB.

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• 2016 (3) TMI 812
  TDS u/s 195 - disallowance under section 40(a)(i) on account of any retrospective amendment - whether the payment was taxable as ‘fees for technical services’ within section 9(1)(vii) and assessee should have deducted TDS? - Held that:- It is an undisputed fact that the assessee has made payment to HGSL which is a nonresident company based at Switzerland. The payment has been made for training conducted by the HGSL to its delegates outside India. It is an admitted fact here that neither the services have been rendered in India nor such services have been utilized in India. Out of the total payment of Rs. 65,49,217/-, the assessee had not deducted TDS on the payment aggregating to Rs. 33,93,493/- ( on the balance amount TDS has been deducted), on the ground that, such payment relate to services rendered outside India. The revenue’s case is that, in view of the Explanation brought in the statute by the Finance Act, 2010 which got the President’s assent in May, 2010 has been brought in the statute with retrospective effect form 1st June, 1976 and such an Explanation is clarificatory in nature which now provides that, the income of a non-resident shall be deemed to accrue in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included to the total income of the non-resident, whether or not the non-resident has resident or place of business or business connection in India or a non-resident has rendered services in India. Though, such an amendment has been brought in the statute with retrospective effect but at the time of making the payment there was no such provision under the Act and in fact, the law of the land as laid down by the Hon’ble Supreme Court was that, if the services has not been rendered in India and such services are not utilized in India then there is no liability for deducting TDS. It is a trite legal maxim. “lex non cogit ad impossiblia” which means that, the law cannot possibly compel a person to do something which is impossible to perform. Thus, we hold that, at the time of making the payment, assessee could not have visualize to deduct TDS when there was no provision under the Act and in fact, there was a already prevailing law laid down by the in the case of Ishika Wajima-Heavy Industries Ltd vs DIT, reported in [2007 (1) TMI 91 - SUPREME COURT] wherein, it has been held that services rendered outside India will be taxable in India only, if the services has been rendered in India and such services have been utilized in India, no TDS was to be deducted, then obvious conclusion is that on such payment no disallowance under section 40(a)(i) can be made. If the view and contention raised by the revenue is to be accepted that such a law fixing the liability on the assessee is to be reckoned from retrospective date, then it will cause not only great hardship and injustice but also prejudice to the assessee. Accordingly, we hold that, disallowance under section 40(a)(i) on account of any retrospective amendment is wholly vitiated and cannot be sustained. - Decided in favour of assessee

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• Customs

• 2016 (3) TMI 799
  Restoration of appeal - Dissmissed exparte for non-appearance and non-compliance by the appellant - Held that:- the appellant have not received the stay order and also final order of dismissal of appeal for non-compliance and immediately on securing the copy of the order from the Tribunal they filed restoration application. Dismissal of appeal for non-compliance and also for non-appearance exparte, should not deprive the parties to contest the order on merits when delay in filing the restoration application has been explained and the contesting parties should not suffer for lapses on the part of their counsel followed by the decision of Hon'ble High Court in the cases of Indam Recycling Co.(P)Ltd. Vs UOI [2015 (10) TMI 682 - KERALA HIGH COURT] and Atithi Gokul Automobile Works Vs UOI [2014 (4) TMI 883 - GUJARAT HIGH COURT] and Hon'ble Supreme Court in the case of Rafiq and Another Vs Munshilal and Another [1981 (4) TMI 255 - SUPREME COURT]. Pre-deposit of differential duty - Goods are covered under S.W.M. Act and by virtue of Section 3(2) of Customs Tariff Act, goods imported were chargeable to CVD as per RSP read with Section 4A of Central Excise Act and Rules thereunder - Held that:- as the appellants have not made out a prima facie case for complete waiver of predeposit. Therefore, the appellant is directed to predeposit a sum of Rs. 10,00,000/- (Rupees Ten lakhs only)and upon such deposit, there shall be waiver of predeposit and recovery of balance dues. - Decided in favour of appellant

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• 2016 (3) TMI 798
  Conversion of Free Shipping Bills into Export Promotion Scheme/DEEC Shipping Bills - Appellant filed five DEEC declarations in the ICEGATE (EDI) for shipment of Human Rabies Vaccine in discharge of export obligation against said Advance Authorization No. 0910057931 but due to technical problems in the EDI system, export promotion shipping bills could not be generated for those consignments vide copies of screen shots which indicated "No Record found for Licence No. (0910057931)”. Their CHA could not obtain permission to file DEEC shipping bills manually. Therefore they were compelled to export five consignments which were already in the port under five Free Shipping Bills - Held that:- when the facts on record especially the documents and declarations available at the time of export support the case of the appellant and when the fault lies with the EDI system of the Customs, the request of the appellant for conversion of Free Shipping Bills into DEEC/Export Promotion Scheme Shipping Bills is genuine and needs acceptance supported by CESTAT, Bangalore’s decision in the case of Gennex Laboratories Ltd. Vs. CC, Hyderabad [2012 (11) TMI 997 - CESTAT, BANGALORE] and CESTAT, Chennai's decision in Kiran Pondy Chems Ltd. Vs. CC, Chennai [2006 (5) TMI 36 - CESTAT, CHENNAI]. - Decided in favour of appellant

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• 2016 (3) TMI 797
  Undervaluation of goods - Appellants eschewed cross examination of persons - Demand of Customs duty and imposition of penalty - Held that:- it is not in doubt that as statements of various persons whose cross examination was sought by the appellants were relied upon by the Adjudicating Authority against the appellants not permitting their cross examination obviously caused prejudice to the appellants. The minimum consequence of denial of cross examination in these circumstances is that the statement of the persons whose cross examination was sought but was denied have to be ignored which render the impugned order unsustainable. Furthermore, there is an evidence of exchange of emails for negotiating the price of the impugned goods which were supplied on “as is where is basis” without any warranty. The goods were examined, assessed and cleared by Customs and were no longer available for re-examination. It is trite to say that if the impugned goods were not of prime quality, their value cannot be compared with the value of goods of prime quality. For valuation of non prime quality goods supplied on 'as is where is basis' without warranty, their physical examination is necessary to ascertain their value and there is nothing on record to establish that the impugned goods cleared were of prime quality. Therefore, there is no undervaluation of goods and the impugned order do not sustain. - Decided in favour of appellant

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• 2016 (3) TMI 796
  Entitlement for Custom duty drawback in terms of Notification No. 26/2003-Cus (N.T), dated 01.04.2003 - Export of zinc but not entitled to claim drawback on account of excise - Finished goods were removed under bond without payment of duties, covered under the provisions of Rule 2(f) of the Notification dated 01.04.2003 and, therefore, All Industry Rates under Drawback Scheme is not admissible contended by the Department - Held that:- petitioners had manufactured their goods and exported them in terms of sub-Rule (2) of Rule 19 of the Central and Excise Rules 2002, so the question of admitting the claim of the Petitioners towards customs allocation drawback is not at all justified. There is no scope of bifurcating drawback towards customs and excise allocation. It is well settled that the taxation and fiscal statutes have to be strictly construed. The Courts cannot read words into such proviso. Once it is not disputed that the Petitioners have availed of the benefits under Rule 19(2) ibid, the question of availing any drawbacks in terms of said Notification would not arise at all. Therefore, as the petitioners has availed the said benefits and removed exported excisable goods without payment of duty from the factory, the question of availing of any drawback in terms of the said Scheme is not at all justified. - Decided against the petitioner

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• 2016 (3) TMI 795
  Seeking direction to provisional release of goods under section 110A of the Customs Act - Seizure of goods pending adjudication - Held that:- since the adjudication has not yet been commenced, the respondents are directed to commence the adjudication at the earliest and complete the adjudication within a period of twelve weeks from the date of receipt of a copy of this order and the petitioner can seek for release of the gold seized by the respondent after the completion of the adjudication. - Decided against the petitioner

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• 2016 (3) TMI 794
  Classification of importers of poppy seeds - cap on import of poppy seeds - CAs there were numerous importers, a policy was evolved to allot specified quantities of imported poppy seeds on ''first come first serve basis'' - Subsequently, the policy changed through public notice by classifying the importer into two categories - Held that:- In the impugned order, majority of the importers would be under the mercy of the few. The classification sought to be made would lead to monopoly, which in turn, would create an atmosphere of hostile discrimination. The impugned notice also does not reveal any reasons. There is no material to hold that there is a proper distribution of poppy seeds only through category 'A' exporters. Therefore, there is no public interest involved. It appears that the impugned notice is only an attempt to distribute the country cap in view of the large number of applications. Therefore, the object is only commercial. It could be seen that even an importer, who continuously imports for a period of two years, would be in a disadvantageous position than the one who did it for the preceding three financial years out of the total five financial years. Therefore, even though there was no import for two financial years out of five financial years, such an importer will gain predominant position as against others. By applying the decision of the Division Bench of Madras High Court in the case of Hotel & Bar (FL.3) Association of Tamil Nadu Vs. The Secretary to Government & another [2015 (5) TMI 138 - MADRAS HIGH COURT] and the decision of Apex Court in the case of Subramanian Swamy Vs. Director, Central Bureau of Investigation and another [2014 (5) TMI 783 - SUPREME COURT] and Reliance Energy Ltd. Vs. Maharashtra State Road Development Corporation Limited [2007 (9) TMI 409 - SUPREME COURT OF INDIA], the impugned public notice cannot be sustained in the eye of law. While there is a permissibility of latitude, it cannot be said that exclusion of importers on artificial classification can be justified in the eye of law. It is further to be seen that the very purpose of classification itself is for the reason that it is impossible to satisfy all the importers. Also the decision aforesaid has not taken into consideration of the concept of ''level playing field''. - Decided in favour of petitioner

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• 2016 (2) TMI 894
  Seeking grant of bail - Consignment of gold seized - No procedure under Chapter XIV of the Act, has been initiated for confiscating the goods - Held that:- the applicant was arrested on 24.02.2015 and was in judicial custody pursuant to the lodgment of FIR by the police department, the Custom Department has arrested the applicant on 28.08.2015 i.e. after more than six months. There might be some investigation during this period, however it is desirable to comment anything about the reasons for not arresting the applicant for considerable long time. The complaint has also been filed on 60th day from his arrest. This also suggests that customs department has sufficient time to investigate the case i.e. from 24.02.2015 to 27.10.2015 i.e. date of filing the complaint before the learned Magistrate. As far as allegations that in past also, the applicant had indulged in similar activities, which is under investigation, that would not be the ground to reject the application, since the authority had sufficient time to complete the investigation. By relying upon the decision rendered by Apex Court in the case of State of Kerala V/s. Raneef [2011 (1) TMI 1396 - SUPREME COURT] and in the case of Sanjay Chandra[2011 (11) TMI 537 - SUPREME COURT], the applicant is behind bar since more than 10 months which is considered as long period and it is equally true that investigation is almost over. Therefore, this is a fit case to exercise the discretion and enlarge the applicant on regular bail and hence the applicant is ordered to be released on regular bail. - Decided in favour of appellant

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• Corporate Laws

• 2016 (3) TMI 789
  Interest awarded at the rate of 6% per annum as per the Recovery Certificate to the applicant, being a Secured Creditor - directions to official liquidator to use available funds of sale proceeds of the assets of the Company (in liquidation), which was charged to the applicant-Bank at village Kundal - Held that: The Official Liquidator is permitted to disburse the adjudicated claim amount of Rs. 1,39,65,796.12ps. out of the available funds in the account of the company in liquidation to the applicantState Bank of India under Section530 of the Companies Act, 1956. The State Bank of India shall file the usual undertaking before the office of the Official Liquidator. The Official Liquidator is permitted to make the payment of Rs. 2,05,354/from the account of the Company maintained in his office, to M/s.Navnitlal & Co., Advertising Agency, being the advertisement expenses as per the bill raised by the said Agency dated 28.08.2015. The Official Liquidator is also permitted to make the payment of Rs. 28,625/from the account of the Company to M/s.P.Dalal & Co., Chartered Accountants, as per the bill raised by the said Chartered Accountant, dated 27.11.2015.

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• 2016 (3) TMI 788
  Scheme of amalgamation - Held that:- From the affidavit submitted by the Regional Director and the report of the Official Liquidator, on notice being sent to them of the second motion under Sections 391 and 394 of the Act of 1956, it is quite apparent that no ground for denying the scheme of amalgamation is made out in the present case. The issue of Income Tax clearance, is a matter which does not directly flow from the language of section 391 of the Act of 1956. Income Tax liability is a matter distinct from manner of carrying out of business. Income Tax liability would hold as per law both for the period prior to the sanction of the scheme and thereafter. Further, the petitioner companies, as per their undertaking in rejoinder to reply Affidavit of the Regional Director, would be under an obligation to make compliance with the Income Tax Act, 1961 in the matter. They have also undertaken to seek compounding of procedural irregularities/ defaults under the Companies Act, 1956, if required, in accordance with law. Having examined the Scheme of Amalgamation, this Court finds nothing prejudicial to the interest of creditors, members of both the Transferor and Transferee Company or to public interest, in the event the scheme is sanctioned. The required procedures for initiating a merger and seeking sanction thereof from the Company court have been followed.

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• Service Tax

• 2016 (3) TMI 832
  Service tax liability - Construction of academic complex of Indian Institute of Technology (IIT) - Held that:- the Indian Institute of Technology, Bihta, Patna, whose academic block was to be constructed by the petitioner, was set up by an Act of Parliament, i.e., Indian Institutes of Technology Act, 1961 (59 of 1961) as an institute of national importance under Article 248 of the Constitution of India read with 7th Schedule List I. As per the definition of Governmental Authority as amended on 30th January 2014, an authority or board or any other body set up by an Act of Parliament or State Legislature is a Governmental Authority. Therefore, the Notification dated 20th June, 2012, exempts the activity of construction undertaken by the petitioner from payment of service tax. Thus, the service tax paid either by the petitioner or respondent No.4 and collected by respondent No.1, cannot be levied or collected as it is not chargeable levy and Entitlement for refund of Service tax - Undue enrichment - Held that:- the payment of service tax has not been made by the numerous consumers and collected by the petitioner. It is paid by the petitioner alone. The petitioner is entitled for the reimbursement of the amount of service tax by respondent No. 4 in terms of the letter of award of contract. Such payment of service tax by the petitioner is not indirect collection of taxes but the direct payment by the petitioner. Therefore, it is not a case of undue enrichment. Thus, since the levy as collection of service tax paid by the petitioner or respondent No.4, has not been found to be justified, therefore, the respondent No. 1 shall refund the amount of the service tax deposited either to the petitioner or respondent No. 4, as the case may be, expeditiously. - Decided in favour of petitioner

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• 2016 (3) TMI 811
  Liability of Service tax on TDS amount absorbed by the assessee on foreign remittance - Reverse charge as per provision of Section 66(A) of the Finance Act, 1994 - Reverse Charge Mechanism - Amount paid to foreign architect as consultancy charges under Technical Consultancy Services - Department contended that appellant having discharged the Income Tax liability on the amount so paid, Service Tax liability arises on the Income Tax amount deducted as TDS and paid to Government of India - Held that:- appellant had discharged the consideration as raised in the invoice/bill but there is nothing on record that indicates that the appellant had recovered that amount of Income Tax paid by them on such amount paid to the service provider from the outside India and any other material to hold that this amount is paid is consideration for services received from service provider. As per Section 67 with Rule 7 of Service Tax Valuation Rules, the Service Tax liability needs to be discharged on amounts which have been billed by the service provider. Therefore, appellant is not liable to pay service tax. - Decided in favour of appellant with consequential relief

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• 2016 (3) TMI 810
  Sharing of resources and cost / expenses with the group companies - Business Support Services provided for the period 2006-07 and 2007-08 - Section 65(105)(zzzq) of the Finance Act, 1994 - Appellant providing services by way of accounting and processing of certain transaction and certain operational assistance as required by the Participating Group companies under an agreement between the appellant and the group companies - Held that:- the appellant is merely acting as a manager/trustee to incur expenses on behalf of the Participating Group Companies. The object of entering into such cost sharing arrangement is to reduce the cost of operation of the Participating Group Companies. The activities carried out by the Appellant enables the Participating Group Companies to share the common services, the best available talent and resources required for carrying out their business activities. No taxable service is provided by the appellant and therefore in absence of rendition of such service by the appellant to the Participating Group Companies, the demand of Service tax do not sustain as Service tax is a levy on rendition of taxable service. Demand of Service tax vis-a-vis Pure Agent - Rule 5(2) of Service Tax Valuation Rules - Held that:- the goods or services procured by the appellant for the use of Participating Group Companies are not availed by the Appellant for its own use or consumption, and he has no function or existence other than as Trustee / Manager (agent) of the Participating Group Companies cost sharing arrangement. - Therefore, the amount so recovered by the appellant is in the capacity of a Pure Agent and thus the same cannot be subjected to the Service tax followed by Pharmalinks Agency (I) Pvt. Ltd. Vs CCE [2014 (10) TMI 284 - CESTAT MUMBAI]. Availment of CENVAT Credit - CA certificate submitted providing details of the CENVAT Credit available during the period in question but was not noticed by the Adjudicating Authority - Held that:- even if the activities carried out by the appellant are subjected to Service tax, the Participating Group Companies who were duly registered with the Service tax authorities during the relevant period and were discharging Service tax on their activities, would be entitled to avail the CENVAT Credit thereof. Demand of Servive tax - Invokation of extended period of limitation - Held that:- by relying on the judgment of CCEx Vs Reclamation Welding Ltd. [2014 (8) TMI 186 - CESTAT AHMEDABAD], when recipient of same group company is eligible to avail the CENVAT Credit of the duty paid by the assessee, the assessee could not be alleged to have mala fide intent to evade payment of duty and accordingly extended period of limitation cannot be invoked. Therefore, the entire demand and any contrary finding recorded for invoking extended period, are liable to be set aside. - Decided in favour of appellant with consequential relief

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• 2016 (3) TMI 809
  Availment of Cenvat credit - Tax paid on services used in common for ‘output services' and trading - Held that:- in view of the decision of Tribunal in the case of Mercedes Benz India Pvt Ltd v Commissioner of Central Excise Pune - I [2014 (4) TMI 12 - CESTAT MUMBAI], the credit that may be availed of the tax paid on services used in common for ‘output services' and trading during the relevant period is to be so apportioned and appropriate reversals effected. Therefore, as the turnover has been the basis for apportionment, there is no reason to interfere with the Commissioner (Appeals) order. - Decided against the appellant

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• 2016 (3) TMI 808
  Related party transactions - Whether the respondents are associated enterprises in terms of Section 92A of the Income Tax Act, 1961 or not - Held that:- on the basis of the definition of associated enterprises as per Section 92A ibid, the respondent is an associate enterprises of the service recipient. The respondent is managing and controlling the mutual fund. Therefore, it is clearly covered under the definition of associate enterprises. On the issue of point of taxation the relevant Section 67 of the Finance Act 1994 is reproduced below: Point of taxation - Whether to be decided on the date of provisional entries of the transaction in the books of account or on the date of final entry and invoice made by the respondent - Held that:- the provisional entries were made with a specific description of transaction. The explanation does not make any distinction between the provisional entries and the final entries made subsequently. As per the explanation, the moment first time any entry is made irrespective whether it is provisional or final entry the same will be covered under the debit entries as specified under the explanation. Therefore there is no scope in the said explanation to give different treatment to the provisional entries or final entry. So, once debit entries were made even though provisional basis and subsequently final entries are made, it is only the adjustment in the books of account and for this reason the entries made at the first time cannot be said to be irrelevant for deciding the point of taxation. Demand of interest and penalties under Section 76 & 77 of the Customs Act, 1962 - Held that:- the service tax became due in accordance with the date of provisional entries made first time by the respondent in their books of account. Therefore, there is a delay in payment of service tax which attracts interest. With regard to imposition of penalties, the show cause notice was issued for demand of interest and there is no dispute regarding the payment of service tax. As the issue involved is in the nature of interpretation of valuation section and the penal provisions are invoked only for non-payment or short payment of service tax. Therefore, it is only for demand of interest and the penalties under Section 76 & 77 are not imposable. - Decided partly in favour of the Revenue

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• 2016 (3) TMI 807
  Waiver of penalty - suppression of fact - 'Manpower Recruitment and Supply Agency Service' during the period of October 2005 to March 2008 - Held that:- appellant themselves did not gave full details of liability of their service tax and the said details were collected by the Revenue from the customers of the appellant-assessee by the Central Excise Department. Also the appellant took the registration under Service Tax on 05.02.2008 but did not come forward to give the details of services provided by them to their customer recipients, where they had liability of payment of service tax to the Department. This shows that the appellant-assessee suppressed the facts from the Revenue with an intention to evade payment of service tax and when when there are malafides proved on the part of the appellant-assessee, they would not be entitled to take the benefit of provisions of Section 73(3)(4) ibid. Imposition of penalty under Section 77 & 78 of the Finance Act, 1994 - Order-in-original imposed penalty of 200& of the liability of Service tax - Held that:- the penalty of 200% of the Service Tax due, which was the maximum fixed under the then law, can be imposed under Section 78 ibid. Therefore, the penalty of 200% of the tax due is not rightly justified and is reduced to 100% of the liability of payment of Service tax. There is no justifiable reason to interfere with in respect of imposition of penalty under Section 77 ibid. - Decided partly in favour of appellant-assessee

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• Central Excise

• 2016 (3) TMI 806
  Refund claim - pre-deposit - Held that:- In the instant case, an amount of Rs. 11 lakhs was deposited during investigation and was appropriated in the Order-in-Original. The said Order-in-Original was set aside by the order of the Tribunal dated 19.7.2005 and hence, in terms of the Circular No. 802/35/04-CX dated 8.12.2004 the refund of Rs. 11 lakhs becomes due along with interest at the applicable rate. In this very case, this Tribunal has ordered refund of pre-deposit along with interest to M/s Interscape in terms of order dated 21.5.2010 as modified by the order dated 21.1.2011 [2011 (1) TMI 675 - CESTAT, MUMBAI]. The deposits made by the SHPL during investigations were appropriated against redemption fine. As soon as the order appropriating such fine was set aside, they became eligible to refund of the deposits made during the investigations in terms of Circular No. 802/35/04-CX dated 8.12.2004 read with the decisions of the tribunal cited above in this para. In view of the above, the appellants are also entitled to interest

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• 2016 (3) TMI 805
  Eligibility of CENVAT CREDIT - whether the courier bill of entry is a proper document for availing Cenvat Credit under the CENVAT Credit Rules, 2004? - whether the entire demand is time barred or not? - Held that:- Since these appellants have been disclosing in their regular return filed by them that they have been availing Cenvat Credit on courier bill of entry and the department has also conducted the audit from time to time of the records of the appellant and has never raised the objection of availing the Cenvat Credit on the basis of courier bill of entry and further, the respondent has not been able to bring on record any material which shows that there is a wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty. In view of this, the entire demand is time barred and the appellant is entitled to avail Cenvat Credit on the basis of courier bill of entry as relying on Tecumseh Products India P. Ltd. [2007 (3) TMI 170 - CESTAT, BANGALORE] and Controls & Drives Coimbatore P. Ltd. [2007 (11) TMI 57 - CESTAT CHENNAI] as per the Bill of Entry Regulation, 1976, courier bill of entry is a valid document for clearance of any imported goods and this is so provided as per Regulation 5(3) proviso of Courier Imports and Exports Clearance Regulation 1988. - Decided in favour of assessee

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• 2016 (3) TMI 804
  Cenvat credit on input services used for both excisable goods as well goods chargeable to nil rate of duty - non maintenance of separate records in respect of common services used for the excisable finished goods and exempted finished goods - revenue sought to recover an amount equal to 10% of the value of the exempted goods in terms of sub rule 6 (3) (i) of Rule 6 of the Cenvat Credit Rules, 2004 - Held that:- Revenue is not at liberty to impose any of the options given in Rule 6 (3) of Cenvat Credit Rules, on the appellant. Even if the appellants failed to exercise the option and failed to follow due procedure, such failure does not take away substantial right of the appellant. In view of the above offer of the appellant to reverse proportionate ineligible credit in terms of Rule 6 (3) (ii) of the Cenvat Credit Rules has merit. It is further observed that the appellants had already reversed certain amounts but they have not paid interest as yet. The Counsel for the appellant has accepted to pay the interest applicable on ineligible credit which is required to be reversed. In view of the above, it is seen that no option under Rule 6 (3) can be imposed on the appellant and the appellants offer of availing the option of proportionate credit in terms of Rule 6 (3) (ii) cannot be denied to them. However, they will be liable to pay interest on the amounts which are reversed. The order-in-original is set aside and the matter is remanded to Commissioner to calculate the amount required to be reversed and the interest payable thereon.

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• 2016 (3) TMI 803
  Rectification of mistake - Tribunal while passing the order had not considered the earlier decision of the Tribunal in the case of Gautam Weaving Mills vs. Commissioner of Central Excise, Belapur (2008 (1) TMI 771 - CESTAT, MUMBAI ) as is squarely applicable in the present case - Held that:- find that the Tribunal had given a finding that M/s. Gautam Weaving Mills (supra), even the period after 2004, in that case the appellants were engaged in the manufacture of grey fabrics and not the job worker. It is seen that the Tribunal had given a finding for not following the decision of the Gautam Weaving Mills (supra). Regarding the limitation, the Tribunal had recorded the submission of the Learned Advocate in the final order. It is seen that the Tribunal had rejected the submission of the Learned Advocate on the ground that the Central Excise audit officers during the verification of the records detected the irregular availment of the Cenvat Credit. Hence, the extended period of limitation would be involved. In any event, the Hon'ble Supreme Court held that the Tribunal has no power to review its own order and it should not be done, while there is a long drawn process. Hence, do not find any merit in the application filed by the applicant. Rom application is rejected.

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• 2016 (3) TMI 802
  Evasion of duty - voluntary statements making confessions - whether price charged was inclusive of duty.? - Held that:- As find that the partners of the appellant had categorically admitted the impugned evasion of duty in their voluntary statements recorded on various dates. Their statements are also in conformity with the statements of Mr. Ajit Kumar, Dispatch Clerk and some buyers of the goods as well as some suppliers of the raw-material. These statements of the partners categorically and fully establish the impugned evasion. There is no allegation that the statements are not voluntary and they had never been retracted. The Hon'ble Supreme Court in the case of K.I. Pavunny Vs. Asst. Collector, Cochin [1997 (2) TMI 97 - SUPREME COURT OF INDIA ] has held that “confessional statement, if found voluntary, can form the sole basis for conviction”. Needless to say that the vigour of evidence required in quasi-judicial proceedings is lower than the rigour required for conviction. As regards the contention that the amount should be treated as come duty price on the basis of the judgement of Supreme Court in the case of CCE, Delhi Vs.Maruti Udyog Ltd (2002 (2) TMI 101 - Supreme Court ), find that in that case the goods had been cleared against proper central excise invoices while in the instant case goods were cleared without. In the present case, the goods were cleared without issuing proper invoices and therefore it cannot be said that the price charged included central excise duty. In their statements, partners of the firm also did not claim that price charged was inclusive of duty. - Decided against assessee

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• 2016 (3) TMI 801
  Cenvat Credit allowability on the inputs used in the manufacture of exempted goods or non dutiable goods - Held that:- We find that the facts of the case is not much in dispute inasmuch as the respondent have availed the credit on inputs which was used in the process of printing and lamination processes of the Polyester/BOPP Film and this activity was held to be non manufacture. Cenvat Credit on the inputs cannot be denied as per the provisions of Rule 16 of the Central Excise Rules, 2002 as from the plain reading of the above Rule it can be seen that under this provision Cenvat Credit is allowed on the duty paid material treating it as inputs for the purpose of various processes and after processing if the activity is not amount to manufacture the assessee is required to clear such processed goods on payment of duty which is equal to Cenvat Credit and if the activity is amount to manufacture then excise duty is required to be paid on transaction value. As per this clear provision, even if, activity does not amount to manufacture the credit is permissible. As per the above discussion, we are of the considered view that Cenvat Credit on the inputs used in the process which does not amount to manufacture, is admissible. - Decided in favour of assessee

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• 2016 (3) TMI 800
  Assessable value - whether inspection charges with respect to a specific inspection of the buyer is required to be added to the assessable value? - Held that:- As per the definition of 'place of removal' extracted above, given in Section 4 (3) (c) at the relevant time was a factory or any other place or premises or a warehouse wherein the excisable goods have been permitted to be deposited without payment of duty. There is no mention of place of sale of the goods in Section 4 (3) (c) during the relevant time. It has to be held that place of removal is the factory or a premises from where duty is paid and not where the goods are sold. The words, like ''a depot, premises of consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory" were not existing in Section 4 (3) (6) during the relevant period. Further Rule 5 of the Valuation rules, 2002 also provide that cost of transportation from the place of removal to the place of delivery is required to be excluded from the transaction value. In the present case the sale is effected at the factory gate which is the place of removal and transportation cost is separately indicated in the invoices As for the period 1/7/2000 to 31/3/2003, place of removal was only extended to either the factory or a warehouse/premises from where duty was paid. Appeal of the appellant on this account is thus required to be allowed. On the issue of inclusion of inspection charges in the assessable value, it is observed that the same are not mandatory inspections during the manufacture of the goods. A specific mention has been made by the first appellate authority in para 8.1 of the Order-in-Appeal dated 30/11/2006 that these additional inspections are got done at the instance of the buyers and is not mandatory. Commissioner of Central Excise, Mysore Vs. M/s. TVS Motors Company Ltd. (2015 (12) TMI 874 - SUPREME COURT ) also held that pre-delivery inspection charges cannot be included in the assessable value. In view of the above observations and settled proposition of law, optional inspection charges at the instance of buyer cannot be included in the assessable value under Section 4 of the Central Excise Act, 1944. - Decided in favour of revenue

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• CST, VAT & Sales Tax

• 2016 (3) TMI 793
  Levy of penalty of 1.5 times of tax due - Suppressed turnover receipt of room rent - Impugned order passed by rejecting the objections raised by the petitioner and without assigning the reason for the same - Held that:- since the objections of the petitioner were not considered by the respondent in a proper manner, the impugned orders are liable to be set aside and remanded back to the respondent for fresh consideration and deciding the appeal on merits and in accordance with law, after giving due opportunity of personal hearing to the petitioner. Petition disposed of

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• 2016 (3) TMI 791
  Seeking direction for refund of TNGST and CST amounts - Amount paid for the period covered by the Interest Free Sales Tax Deferral Scheme as per Government Order - Respondent pleaded that petitioner is entitled to get a sum of Rs. 34,48,319/-, however, instead of getting refund of the said amount, the respondent may be directed to adjust the said amount towards the existing dues of the sales tax payable by the petitioner, in accordance with law - Held that:- since the respondent had rejected the request made by the petitioner for the refund of the sum of Rs. 34,48,319/- by the impugned proceedings, which is contrary to the Government Order passed by the Government of Tamil Nadu, the same is liable to be set aside. The respondent is directed to adjust the sum of Rs. 34,48,319/- towards the existing dues of the Sales tax of the petitioner and in case of any excess amount payable by the petitioner over and above the said sum, the petitioner shall pay the excess amount towards the existing sales tax dues. Petition disposed of

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• 2016 (3) TMI 790
  Imposition of penalty - Section 76(5) of the Rajasthan VAT Act - Declaration Form VAT-47 used beyond its validity period and certain material particulars were also not filled up - Contention of assessee is that assessing authority at the time of issue did not specify the validity period which was its duty so assessee can not be faulted and punished for the same - Held that:- the case is to be remanded back to the assessing authority for allowing an opportunity to the Assessee to remove the defects, except the question of validity period of the Form VAT-47 in question, because that was obviously, the obligation of the assessing authority in terms of Rule 21(5) of the Rajasthan VAT Rules, 2006, to specify such validity period for the said Form. - Petition remanded back

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• Indian Laws

• 2016 (3) TMI 792
  Correct interpretation of pricing clause contained in the tender notice and validity of recovery raised for the past bills - - Whether while calculating the net payable by the CGHS to the petitioner entire Value Added Tax (VAT for short) payable on the product in question should be reduced from the MRP and then the discounted rates offered by the petitioner could be applied or whether the VAT component to be reduced from MRP would be that relatable to only that is borne by the petitioner - Petitioner awarded a new contract for supply of drugs and medicines to CGHS but CGHS started making deductions from the current bills of the petitioner towards the alleged over-payments for the supplies of drugs and medicines under the old contract - Held that:- pricing clause in the old contract refers to the liability of paying all taxes being on the supplier. It is clarified that the CGHS will pay the labelled MRP minus local taxes less as reduced by tendered discount and such quoted offer would remain constant during the entire duration of the contract. The pricing clause provides for three parameters (i) the MRP, (ii) the local taxes which would be the responsibility of the petitioner and (iii) the discount offered by the tenderer. It provides that the CGHS would pay the labelled MRP minus local taxes less the discount offered. Such formula would remain constant during the entire period of the contract. This clause is open to two interpretations. One approach could be that the literal language used in the clause refers to the liability of CGHS to pay MRP minus local taxes less discount. There is no distinction between the local tax to be borne by the suppliers and the rest. However, the other interpretation equally possible is that the CGHS would pay the MRP less the tax component of the supplier reduced by the offered discount. We are inclined to accept the later interpretation. Thus the final formula which the pricing clause provides is that the CGHS will pay the labelled MRP minus local taxes less tendered discount. The clause in the new contract provides that the bidder would have to offer uniform discount in percentage terms on the MRP (inclusive of all taxes). This clause also provides that such offer shall remain constant during the entire duration of the contract. This pricing clause now thus simplifies the computation of the net payable by the CGHS to the supplier. A simple formula of MRP (inclusive of taxes) less discount to be applied. This is not to suggest that the new clause would govern the interpretation of the old clause. This is only to suggest that the formula that works out the net payable by the CGHS to the supplier after discount has been rationalised and simplified in the new pricing clause. By comparing the Pricing clause in the old contract with the new contract, it is seen that the formula that works out the net payable by the CGHS to the supplier after discount has been rationalised and simplified in the new pricing clause. Therefore, as long as in the earlier bills raised by the petitioner and cleared and paid by the CGHS, the formula of MRP minus the petitioner’s VAT liability less the offered discount on MRP is applied and no error or irregularity is seen. The interpretation now adopted by the CGHS in the formula reproduced hereinabove would not flow from the pricing policy. Also the recoveries raised by the respondents for the past bills already paid are quashed. - Decided in favour of petitioner

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• 2016 (3) TMI 787
  Temporary injunction - infringement of trademark - Held that:- As world shrinks almost to global village, the relevance of the transnational nature of a trademark will progressively diminish into insignificance. The attainment of valuable goodwill will have ever increasing importance. At the present stage, the argument in favour of the Defendant-Appellant that we find holds more water is that in both Milmet and Whirlpool, as distinct from the case before us, the prior user of the successful party predated the date of application for registration of the competing party. The question to examine, then, would be whether prior user would have to be anterior to the date of application or prior to the user by the Defendant-Appellant. In other words, the question before the Court would remain whether the situation on the date of application for registration alone would be relevant, or whether the developments in the period between this date and the date of grant of registration would have any bearing on the rights of the parties. All these considerations will be cast into a curial cauldron to be appreciated by the Court before which the suit is being contested. In these premises, we cannot conclude that a prima facie case has not been disclosed by the Plaintiff-Respondents. It is important to note that litigation was initiated by Plaintiff-Respondents, not Defendant-Appellant, even though the latter could have raised issue to Plaintiff-Respondents using a similar mark to the one for which it had filed an application for registration as early as in 1992. The Defendant- Appellant finally filed a Notice of Motion in the Bombay High Court as late as 14.12.2005, in which it was successful in being granted an injunction as recently as on 31.3.2012. We may reiterate that every High Court must give due deference to the enunciation of law made by another High Court even though it is free to charter a divergent direction. However, this elasticity in consideration is not available where the litigants are the same, since Sections 10 and 11 of the CPC would come into play. Unless restraint is displayed, judicial bedlam and curial consternation would inexorably erupt since an unsuccessful litigant in one State would rush to another State in the endeavour to obtain an inconsistent or contradictory order. Anarchy would be loosed on the Indian Court system. Since the Division Bench of the Bombay High Court is in seisin of the dispute, we refrain from saying anything more. All that we would say in the present Appeal is that since the Plaintiff-Respondents have alleged, and have prima facie supported with proof, that they had already been using their trademark well before the attempted user of an identical or closely similar trademark by the Defendant-Appellant, the former would be entitled to a temporary injunction, in light of the abovementioned ‘first in the market’ test. We find that the Plaintiff-Respondents have made out a prima facie case. The two other factors in an interim injunction, namely the balance of convenience and an irreparable loss, are both in favour of the Plaintiff- Respondents, given the potential loss of goodwill and business they could suffer should an injunction be denied. The Defendant-Appellant has been injuncted from using the mark ROFOL since 2005, after having launched products bearing the mark only in the previous year, so the balance of convenience is in favour of allowing the injunction to continue. In Milmet, this Court had taken note of the fact that the unsuccessful litigating party had in the duration of the litigation started using another mark, and found that this would prima facie assume significance in assessing “irreparable loss”. Decision of the Trial Court, as affirmed by the First Appellate Court, is reasonable and judicious

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