Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
March 5, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Addition made on account of excess wastage - rejection of books and accounts - order of the Tribunal rather is not based on any sound parameters and runs contrary to the entries in the stock register and other books of accounts, veracity of which entries is not questioned by the revenue even a little - HC
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Interpretation of Section 10A(2) - Revenue’s submission cannot be accepted that it would be giving undue stress and entirely dependent upon the expression “during the previous years relevant to the assessment years” according to Section 10A (2) (i) - HC
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Whether the process of jewellery making through job work in the manner undertaken by the appellant amounts to manufacturing for the purpose of Section 10A - Held yes - HC
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Withholding TDS u/s 195 - lower authorities did not go into the merits of the case on a question of chargeability of income tax in India – the order set aside and matter remanded back - AT
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Addition on contract receipts not recorded in books of accounts – when documents which are not meant for the eyes of the Revenue are unearthed after undertaking an exercise which involves an intrusion into the privacy of the assessee, it is not permissible to discount the veracity, genuineness and truthfulness of the contents therein for the flimsiest of reasons - AT
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Exemption u/s 11 and 12 - charitable institutions registered u/s 12A and doing the activity in the nature of charity, cannot be held to be engaged in the activity of advancement of any other object of general public utility - AT
Customs
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Refund - classification dispute goes in favor of assessee - department cannot withheld the refund application merely on the ground that order of the appellate authority is not “acceptable” to it - HC
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Duty drawback - identification between import goods and export goods - there cannot be any dispute since re-packing cannot, by any stretch of imagination, be called an “operation” or “process” on the goods - HC
Indian Laws
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Whether the prices fixed under the Drugs (Prices Control) Order (for short, ‘DPCO’) in respect of drugs/formulations would be operative in respect of all sales subsequent to 15 days from the date of the notification by the Government in the official gazette/receipt of the price fixation order by the manufacturer - Held yes - SC
Service Tax
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Waiver of penalty u/s 80 - Business Auxiliary Service - Ignorance of law - benefit of ignorance of law goes in favour of the respondent and as per Section 80 of the Finance Act, 1994 - AT
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Refund / rebate claims - Export of services - - Triservices provided in India to international inbound roamers registered with the Foreign Telecom Network Operator but located in India - appellant would be eligible for the refund of service tax paid on input services. - AT
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Demand of service tax - Mere payment of VAT does not take away the activity from the net of the taxing entry under Finance Act, 1994 - stay granted partly - AT
Central Excise
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Denial of refund claim - Original TR-6 challan not produced - attested Xerox copy of the Challan in Form T.R. 6 is sufficient and there is no requirement to file the original TR-6 challan - AT
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Transfer of unutilized cenvat credit alongwith transfer of liability - Change of ownership - clause of transfer liability is not applicable to the facts of this case - but credit can be transferred after payment of duty liability - AT
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Fraudulent transactions - once credit is Prima facie taken on finished goods in the guise of scrap, fraudulent activity clearly surfaces, Prima facie case is in the favour of Revenue - AT
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Waiver of pre-deposit of duty - The main contention of the applicant is that they have paid service tax and therefore demand of central excise duty on the same process cannot be sustained, is not acceptable - AT
VAT
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Compounding tax - Section 8 (f)(i) of the Kerala Value Added Tax Act and Rules - once the dealer had opted out and paid tax under the Scheme of compounding, can never be allowed to revert back - HC
Case Laws:
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Income Tax
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2014 (3) TMI 112
Deletion made on account of low withdrawal for household expenses – Held that:- CIT(A) was of the view that the AO has failed to bring on record any cogent material to justify the addition - The grievance of the revenue is devoid of any sustainable merit - there was no incriminating material whatsoever to suggest as to any expenditure which has not been duly explained by the available fund of the assessee and has not otherwise been disclosed by the assessee - The estimation resorted to by the AO was also not based on any evidence or material in support of such estimation – thus, the order of the CIT(A) upheld – Decided against Revenue. Deletion made u/s 69C of the Act – Undisclosed expenditure/investment in house property – difference between valuation – Reference made to valuation officer u/s 55A of the Act - Held that:- It cannot be said that any incriminating material or evidence was found during the search & seizure operation - CIT(A) has rightly noticed that in the absence of any such material the very reference to Valuation Officer is vitiated in law - No defect or shortcomings were found in the details submitted by the assessee so as to justify the reference to the Valuation Officer - The difference between the value as per valuation report and expenses as per the books of account is reduced to less than 15% which can also be justified on account of normal permissible estimation difference – thus, the order of the CIT(A) upheld – Decided against Revenue.
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2014 (3) TMI 111
Validity of order – Addition made on account of excess wastage - Whether without rejection of books and accounts, the results arrived at by the assessee based on his books can be ignored – Held that:- The claim of wastage of 2.7% could not be termed excessive when wastage to the extent of 4.4% had been allowed in the assessment year 1988-89 - the trading results are being supported by complete stock register and no defects have been pointed out in the said register - the addition made on this account is deleted as claim of wastage is in accordance with the past history of the case – the entire matter is required to be tested on factual matrix – then, there is nothing in the order of CIT(A) which could be assailed on the fact based situation or on any principle of law - order of the Tribunal rather is not based on any sound parameters and runs contrary to the entries in the stock register and other books of accounts, veracity of which entries is not questioned by the revenue even a little – decided in favour of Assessee.
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2014 (3) TMI 110
Claim of deduction – Disallowance of amortization of security premium – computing the income of banks under the head 'Profit and Gains of Business & Profession' - Held that:- The Tribunal allowed the claim following the CBDT Circular dated November 26, 2008 - The assessee as a cooperative bank was bound by the RBI directives - As per the directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity - In the process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortised - The instructions clearly provide for amortisation of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value - Such amortisation would have to be for the remaining period of maturity - This precisely the Tribunal had directed in the order - no contrary instructions of CBDT are brought to notice - The instruction in question having been issued under section 119(2) of the Income Tax Act, 1961, would bind the Revenue – thus, there was no question of law arises – Decided against Revenue.
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2014 (3) TMI 109
Interpretation of Section 10A(2) of the Act - Deduction claimed on income from software exports - Held that:- The decision in Nagesh Chundur v. Assistant Commissioner of Income Tax [2011 (6) TMI 809 - ITAT CHENNAI] followed – Section 10A provides for deduction from the total income of profits derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive years - The tax holiday period commences from the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such article or thing or computer software - Section 10 (2) prescribes certain conditions on the fulfillment of which the benefit of 10A could be availed - the Revenue’s submission cannot be accepted that it would be giving undue stress and entirely dependent upon the expression “during the previous years relevant to the assessment years” according to Section 10A (2) (i) – Relying upon Circular No.1/2005, benefit of section 10(2) is allowed – Decided against Revenue.
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2014 (3) TMI 108
Process amounts to manufacture or not - Whether the process of jewellery making through job work in the manner undertaken by the appellant amounts to manufacturing for the purpose of Section 10A – Held that:- The decision in CIT v. Lovlesh Jain [2011 (12) TMI 93 - DELHI HIGH COURT] followed – the activity amounts to manufacturing – Decided against Revenue. Claim of purchase of machinery and equipments – Held that:- The AO had queried the appellant as to whether transfer of any old machinery had taken place at the time of setting up of unit and he made an adverse comment in respect of non-production of such materials - whether the machinery was new or not was an aspect which the CIT (A) was within its rights to enquire into - he did so by invoking the Rule 46A of the Income Tax Act - The assessing authority was afforded an opportunity and a remand report appears to have been called for – thus, finding of fact concurrently recorded cannot be gone into – there was no question of law arises – Decided against Revenue. Entitlement for benefit of section 10A of the Act – Held that:- The question formulated is limited to the findings of the CIT (A) and the Tribunal with respect to the setting aside of the disallowance - The ground of appeal urged before the Tribunal did not disclose that the Revenue had ever argued that the claim for deduction of these amounts (towards fabrication and designing charges) itself evidenced that the appellant did not carry on any manufacturing activity - The Tribunal noted that it might have been more appropriate for the CIT (A) to have forwarded the bills and vouchers for the examination of the AO – it was in its discretion to make any directions towards remand - the approach of the CIT (A) confirmed by the ITAT cannot be considered perverse as to warrant interference under Section 260A – Decided against Revenue.
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2014 (3) TMI 107
Rejection of books of accounts – Held that:- There was a discrepancy in respect of accounts of two parties i.e., M/s. Soubhik Exports and M/s. PKS Ltd. – assessee contended that the discrepancies noticed in respect of these two parties cannot be generalised so as to reject the books of account - The AO caused necessary enquiry and found that all the sundry creditors' accounts are in correct position and there is no discrepancy in those accounts - it is appropriate to accept the book result in respect of transactions reflected in the books of account and the AO has to estimate the income only in respect of other two parties - The CIT(A) is justified in holding that the AO has not pointed out any discrepancy in maintenance of accounts with respect of the sale of maize and also accounts submitted in respect of other transactions – thus, rejection of books of account is not warranted in the case – Decided against Revenue. Deletion of addition of proportionate business expenses – Held that:- The AO disallowed expenses in the Profit and Loss A/c in proportion to the brokerage received as the books of account of the assessee were rejected and disallowed expenses relating to the brokerage business forming individual part of the Profit and Loss A/c prepared by the assessee - books of account of the assessee cannot be rejected –thus, there is no question of disallowance of proportionate business expenses – Decided against Revenue. Deletion of addition from undisclosed contract – Held that:- The assessee not brought anything on record to suggest that M/s. Mulkanoor Cooperative Credit Society itself sold rice to M/s. Emmsons International Ltd. and assessee is only receiving commission on it - In the absence of positive material to suggest that the rice has been sold by Mulkanoor Cooperative Society directly to M/s. Emmsons International Ltd. - the TDS certificate will be considered as genuine and the same has to be taxed as mentioned in the TDS certificate as income of the assessee – Decided in favour of Revenue. Disallowance of depreciation on vehicles – Held that:- The vehicle is in the name of the partner and the vehicle was used for the purpose of business of the assessee and a partnership cannot be said to be separate from partners and the vehicle is in the name of partner and if it has appeared in the Balance Sheet of the assessee, depreciation on that asset is to be allowed – Decided against Revenue.
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2014 (3) TMI 106
Withholding TDS u/s 195 of the Act - Gross sale consideration paid to foreign nationals – Assessee in default u/s 201(1) of the Act - Held that:- The reason for fastening the obligation to deduct tax at source of the payment to non-resident is only in a situation where such payment was chargeable to tax in India was that it was not the intention of law to fasten an absolute liability on the remitter to deduct tax at source from the payments of nonresident, then, subjected to the non-resident to the rigour process of filing of return and seeking refund and assessments on the basis of such return where remitter was of the opinion that some part of the income may be chargeable to tax in India - The remitter can approach the ITO to demand proper portion of the income that would be chargeable to tax in India and how on which tax was to be deducted at source - when the payment to be made to the non-resident, which chargeable to tax in the hands of the resident recipient TDS to be deducted. Relying upon GE India Technology Centre P. Ltd. Vs. CIT and Anr., [2010 (9) TMI 7 - SUPREME COURT OF INDIA ] a person paying any sum to the non-resident is liable to deduct tax u/s 195 only if such sum is chargeable to tax in India and not otherwise - the Assessing Officer observed that assessee not deducted the TDS as required u/s 195 and, therefore, he treated the assessee as ‘the assessee in default’ - lower authorities did not go into the merits of the case on a question of chargeability of income tax –thus, the order is set aside and the matter remitted back for fresh consideration to determine the income chargeable to tax – Decided in favour of Assessee.
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2014 (3) TMI 105
Deletion of disallowance of interest expenses – Held that:- CIT(A) held that the disallowance of interest is deleted by holding that the borrowed funds have been used for specific purpose of acquiring assets and the availability of surplus funds in making the advances in dispute cannot be disbelieved - the major part of advances was for trading security and balance advances were in any case covered by the availability of interest free funds - CIT(A) while deleting the addition has noted that A.O. has not disputed that the interest free loans were given in earlier years and there was no fresh advances during the year - He has further given a finding of fact that there is absence of direct nexus between the interest free advance given and the loan raised and that the major part of advances was for trading security and the balance advances were covered by the availability of interest free funds – revenue has not brought any material on record to controvert the findings of CIT(A) – thus, there is no reason to interfere with the order of CIT(A) – Decided against Revenue. Deletion of unutilized MODVAT credit as income – Held that:- CIT(A) while deleting the addition made by the A.O. has noted that in assessment year 02-03 similar addition was made by A.O. and the same was deleted by CIT(A) - CIT(A) has further noted that since the facts of the year under consideration were similar to that of A.Y. 02-03 & 03-04, following the decision of Tribunal, the addition made by the A.O. was deleted –revenue could not controvert the findings of CIT(A) nor has brought any material in its support – thus, there is no reason to interfere with the order of CIT(A) – Decided against Revenue.
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2014 (3) TMI 104
Deletion of disallowance of advertisement expenses – Nature of Expenses – Capital OR Revenue – Held that:- CIT(A) held that the appellant has incurred expenses in respect of advertisement and sales promotion expenses during the current year - As against this, the appellant as shown sales -These expenses comprise of various expenses including expenditure on advertisement published in the magazine, media, designing and printing charges of posters, banners, catalogues expenditure incurred for participation in exhibition and branding at distributors and dealers showrooms etc. - The details of each invoice alongwith the purpose for such expenditure was furnished before – the expenses were routine operational expenses for the purpose of sale promotion - None of these expenditure could be held to be instrumental in creating permanent assets or enduring benefits to the appellant company – Relying upon Commissioner of Income-tax Versus Casio India Ltd. [2011 (5) TMI 511 - Delhi High Court] - the expenditure on publicity and advertisement is to be treated as revenue nature allowable fully in the year, in which it was incurred – the addition made by AO set aside. Deletion of shortage of closing stock – Held that:- CIT(A) held that the Assessee has furnished the details of shortage of such 3,558 units of items and informed that out of such short items, 3394 items were issued to the distributors on free of cost basis for display and training purpose - The appellant company also furnished details with name and address with location of its distributors across the country, numbering 94 in all - The appellant has furnished proper item-wise record of such items which were provided to the dealers for display/training - some of the items may have been damaged or lost during transit, therefore such a shortage due to damage or loss is not considered reasonable keeping in view the magnitude of such shortage, being 0.12% of the total sales and hence cannot it be held as an unusual loss - the shortage of 164 units on account of damaged or lost items as a normal loss in the course of business of trading of sanitary-ware items across India to various distributors - no contrary material has been found or placed on record by the revenue and otherwise the conclusion drawn by CIT(A) is found to be just and appropriate – there is no reason to interfere in the findings of the CIT(A) – Decided against Revenue.
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2014 (3) TMI 103
Addition on contract receipts not recorded in books of accounts – Held that:- The findings of the CIT(A) upheld that the addition has not been made merely on the basis of statement recorded during the course of survey but on the contrary it has been made on the basis of corroborative evidence found at the time of survey and which was further corroborated with the statements of the partners and other person recorded u/s 131 and 133A of the Act - assessee not brought any material on record to demonstrate that the statement of the partner was obtained by coercion or under pressure - Relying upon CIT vs Sonal Construction [2012 (11) TMI 11 - DELHI HIGH COURT] - when documents which are not meant for the eyes of the Revenue are unearthed after undertaking an exercise which involves an intrusion into the privacy of the assessee, it is not permissible to discount the veracity, genuineness and truthfulness of the contents therein for the flimsiest of reasons – there is no reason to interfere in the findings of CIT(A). Restriction of addition to 8% of receipts u/s 44AD of the Act – Held that:- CIT(A) held that the provisions of s. 44AD are applicable when the turnover of the Assessee does not exceed Rs 40 lacs but in the case of Assessee after including the "on money" to the turnover declared by the Assessee, the turnover exceeds Rs 40 lacs and therefore the provisions of presumptive tax does not apply - Assessee could not controvert the findings of CIT(A) – Decided against Assessee. Addition on account of unaccounted receipts – Held that:- CIT(A) while granting partial relief has noted that the claim of Assessee that the two receipts of Rs. 20,000/- were Kachha receipts which were later adjusted against total payment was not backed by any evidence –assessee could not bring any material to controvert the findings of CIT(A) – thus, there is no infirmity in the order of the CIT(A) – Decided against Assessee. Disallowance u/s 40A(3) of the Act – Held that:- CIT(A) has given a finding that the payments were not made to any agents so as to cover under the shelter of Rule 6DD(k) and therefore it was rightly disallowed by AO – Assessee could not controvert the findings of CIT(A) – thus, there is no reason to interfere with the order of CIT(A) – Decided against Assessee. Disallowance of interest – Held that:- CIT(A) while upholding the addition has given a finding that Assessee was paying interest on partner's capital account and therefore it was not interest free and therefore it cannot be said that amount was advanced out of interest free funds – assessee could not place any material on record to controvert the findings of CIT(A) - He also could not substantiate his submission that the interest was on account of car loan – thus, there is no reason to interfere with the order of CIT(A) – Decided against Assessee. Survey u/s 133A of the Act – Penalty u/s 271(1)(c) of the Act – Held that:- Penalty proceedings are different from assessment proceedings and the findings given in the assessment though it may constitute good evidence but same is not conclusive in the penalty proceedings - merely because additions have been confirmed in appeal it cannot be the sole ground for coming to the conclusion that the assessee had concealed any income - In the absence of complete and convincing corroborative evidence, the Revenue may justify addition, but in the matter of penalty proceedings, the onus lies heavily on the Revenue to prove that the assessee had concealed its income or has filed inaccurate particulars of its income – thus, no penalty is leviable u/s 271(1)(c) and therefore direct its deletion – Decided in favour of Assessee. Deduction of remuneration u/s 40(b) of the Act – Held that:- The CIT(A) while upholding the order of AO has given a finding that Assessee had not claimed the deduction u/s 40(b) in respect of addition income declared during the survey, before the AO during assessment proceedings, nor assessee had filed any revised return of income - no claim of deduction u/s 40(b) was made even before CIT(A) in appellate proceedings or any application u/s 154 was moved before CIT(A) - the AO has only passed order giving effect to the order of CIT(A) and AO cannot consider the deduction of any amount u/s 40(b) while giving such appeal effect order - assessee has not demonstrated as to how the deduction can be given in rectification proceedings when there was no such claim before AO or CIT(A) – thus, there is no infirmity in the order of CIT(A) and no interference is called for – Decided against Assessee.
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2014 (3) TMI 102
Restriction of addition made – business of building construction - Held that:- The Assessee had received Rs. 1,75,000/- from 8 bunglows aggregating to Rs. 14 lacs which is stated to have been recovered towards maintenance, registration electricity etc. Before us no material has been brought on record by Assessee to show the extent of expenses incurred by Assessee on those count - the entire receipts of Rs. 14 lacs cannot be considered to be income – The submission of the Assessee that it is a contractor for carrying out civil work could not be disproved by Revenue with any tangible evidence - as per the provisions of Section 44 AD as was applicable at the relevant time to an assessee who was engaged in the business of civil construction, a sum equal to 8% of gross receipts was deemed to be profits of business –Relying upon Vijay Proteins Ltd vs. ACIT [1996 (1) TMI 144 - ITAT AHMEDABAD-C ] – thus, the addition is restricted to 30% of the receipts – Decided partly in favour of Assessee. Disallowance of interest – Held that:- CIT(A) while granting partial relief to Assessee has given a finding that there was nexus between expenditure incurred and interest bearing funds, the expenses incurred by Assessee on behalf of society in the previous year was much less and Assessee had also charged interest an advance granted to 2 parties - Revenue could not controvert the finding of CIT(A) – thus, there is no reason to interfere with the order of CIT(A) – Decided against Revenue. Penalty u/s 271(1)(c) of the Act – Held that:- While deciding the quantum appeal the addition is restricted on the basis of 30% of the receipts - quantum proceedings and penalty proceeds are distinct and separate and therefore the fact that addition has been made in quantum proceedings will not automatically justify the imposition of penalty - a penalty cannot be imposed automatically or mechanically after an addition has been made - Even the material on which the additions were made have to be again given a fresh look from the point of view of levying penalty - all the necessary facts were furnished by Assessee and the fact that the addition has been substantially reduced and the addition has been sustained only on estimate basis – thus, the addition does not call for levy of penalty u/s. 271(1)(c) of the Act – Decided in favour of Assessee.
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2014 (3) TMI 101
Allowability of exemption u/s 11 and 12 of the Act – Scope of the term Charitable purposes u/s 2(15) of the Act – Whether the research activity conducted by the society has been found to be in the nature of education which falls u/s 2 (15) of the IT Act - Held that:- The main aims and objects of the assessee Society, as per its Memorandum of Association includes medical research and informal education and communication activities on health and nutritional issues for urban slums and rural communities - the activities in question is undisputedly the activity of research, i.e., techno-medical research support for research and compilation of data on account of ‘ROTA VIRUS’ project, to SAS – thus, the activity carried on by the assessee cannot be said to be beyond its main aims and objects - It also remains irrefuted that the assessee Society continues to enjoy registration u/s 12A of the Act, as a Charitable Trust, confirming that the charitable purpose for which the assessee Society was established remains unchanged - The activity of the assessee during the year is in pursuance of such purpose. The decision in Harnam Singh Harbans Kaur vs. Director of Income-tax (Exemption), Delhi [2011 (12) TMI 232-ITAT DELHI] followed - charitable institutions registered u/s 12A of the IT Act and doing the activity in the nature of charity, cannot be held to be engaged in the activity of advancement of any other object of general public utility - the research report of the assessee, which was published in medical journals, was in the nature of doing education activity - The department has not been able to refute this finding, as also the finding that the assessee is mainly engaged in the field of medical research and during the year under consideration, it has done research work in collaboration with various international organizations, like WHO, UNICEF and Research Council of Norway - this aspect was duly verified by the DIT at the time of granting registration to the assessee u/s 12AA of the Act – thus, there is no reason to interfere in the findings of the CIT(A) – Decided against Revenue.
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2014 (3) TMI 100
Deletion of disallowance – Failure to deduct TDS on market development expenses – Held that:- The decision in Asstt. Commissioner of Income Tax Versus M/s. Hero Management Services Ltd., M/s. Hero Corporate Services Ltd. [2013 (5) TMI 730 - ITAT DELHI] followed - The Commissioner (Appeals) had correctly referred to CBDT Circular No.23J dated 23.7.1969 - where a foreign agent of an Indian exporter operates in his own country and his commission is directly remitted to him, such commission is not received by him or on his behalf in India and that such agent is not liable to Income-tax in India on the commission received by him – CIT(A) held that the appellant was not liable to deduct tax at source under section 195 of the Income-tax Act, as no income accrued or arose or deemed to accrue or arise in India - The disallowance made by the AO on account of alleged failure to deduct tax at source is set aside – Decided against Revenue.
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2014 (3) TMI 99
Deletion of disallowance VRS expenses –Held that:- The CIT(A) following his appellate order for the assessment year 1998-99 in assessee's own case held that the expenditure was to be treated as revenue expenditure - The provision of section 35DDA providing for amortization of expenditure incurred under VRS have come into Statute by the Finance Act, 2001, effective from 2001 - the tribunal held that the expenditure in the case has to be treated as revenue expenditure – it is not applicable to the current assessment year - the order of the CIT(A) upheld – Decided against Revenue. Deletion of LTA and medical expenses – Held that:- Some divisions of the assessee were maintaining books of accounts for medical expenses and LTA expenses on cash basis while some of the divisions were following mercantile system of accounting - The assessee in order to bring uniformity and to comply with the provisions of Companies Act and Accounting Standard accounted for the liability towards these expenses on mercantile basis - The assessee has claimed that the expenses were computed precisely - it was certain liability and not the contingent one –Relying upon Hon'ble High Court in the case of CIT vs. Dolaguri Tea Company (P) Ltd. [1994 (4) TMI 381 - CALCUTTA HIGH COURT] the findings of the CIT(A) upheld that switching over from cash system of accounting to the mercantile system in respect of LTA and medical expenses was on a bonafide change and justified - the computation of liabilities in this regard has not been the subject matter of verification by the AO – thus, the matter remitted back to the AO for computation of liability - Decided partly in favour of Revenue. Deletion of disallowance of warranty and option services contract expenses – Held that:- The assessee has made the provision in the regard on the basis of actuarial valuation – as decided in assessee’s own case the order of the CIT(A) upheld – the AO has not been pointed out any discrepancy and the defect in the actuarial calculation – thus, the AO was not justified in making disallowance – Decided against Revenue. Disallowance on account of depreciation – Held that:- As decided in assessee’s own case that the assessee cannot be forced to claim depreciation - the amendment in section 32(1), Explanation 5 for making the allowability of depreciation compulsory was prospective in nature and was effective from 1.4.2002 – thus, the above amendment is also not applicable for assessment year under consideration - the AO’s action for forcing depreciation on the assessee in preceding assessment years and following the same in this year is not sustainable – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue.
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2014 (3) TMI 98
Deletion of deduction u/s 80IB of the Act – SSI Exemption – Limit of investment - Held that:- The appellant company provisionally registered as SSI on 23/07/1999, as per press note/circular of Commerce and Industries the limit of Investment in plant & applicable to the unit is Rs. 300 lacs and not Rs, 100 lacs - the computation of eligible plant and machinery is of Rs, 1,28,49,101/-, which is below the limit of Rs, 3 crores – the decision in ACIT v/s Shiv Agrevo Ltd. [2009 (2) TMI 252 - ITAT JAIPUR-B] followed - the appellant company fulfills the conditions of SSI during the asst. year 2006-07 – thus, there is no need to interfere with the order passed by the CIT(A) in holding that assessee-company fulfils the condition of SSI during the assessment year and are entitled to deduction u/s 80IB of the Act - Decided against Revenue.
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Customs
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2014 (3) TMI 119
Release of aircraft engines detained - Customs authorities were of the opinion that the bringing of the aircraft engine into India amounts to import and, therefore, attracted duty. They accordingly exercised their rights and detained the engine under Section 110A. - Held that:- the rationale for bringing in the engine was to enable it to be fitted to the cannibalized aircraft to fly it. It is not disputed that the aircraft has been allowed to fly out though with the aid of another engine. - to avoid deterioration in the functionality of the engine, it would be in the interest of justice to allow it to be released subject to conditions - petitioner directed to furnished bank guarantee in the sum of Rs. 8 crores and depositing Rs. 1 crore with the Customs Department - After release, the engine shall be allowed to be re-exported. - Decided in favor petitioner.
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2014 (3) TMI 96
Refund of customs duty - classification dispute goes in favor of assessee - Import of Reach Stackers - Classification as material handling equipment or vehicles - Exemption under Customs Notification No.92/2004 Cus - Served From India Scheme (SFIS) - Held that:- petitioner is justified in making a grievance against the inaction on the part of the respondentsauthorities in not processing the petitioner's refund application, in spite of the fact that the Commissioner of Customs (Appeals) has accepted the petitioner's claim for benefits of exemption notification No.92/2004. In view of the above the petitioner is entitled to utilise the SFIS scrip to pay the dut of customs. When the Tribunal has dismissed the stay application of the revenue, the petitioner is entitled to get benefits of the appellate order, more particularly when the petitioner's case is already covered by the decision of this Court in Ranadip Shipping & Transport Co.Pvt.Ltd. (1989 (3) TMI 136 - HIGH COURT OF JUDICATURE AT BOMBAY). Observations made by the Apex Court in Union of India v/s. Kamlakshi Finance Corporation Ltd. [1991 (9) TMI 72 - SUPREME COURT OF INDIA] in similar circumstances are squarely applicable to the present case also as, "....The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the departmentin itself an objectionable phraseand is the subjectmatter of an appeal can furnished no ground for not following it unless its operation has been suspended by a competent Court." Revenue directed to process the refund application as expeditiously as possible - Decided in favor of assessee.
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2014 (3) TMI 95
Duty drawback - verification of identity between import goods and export goods - Import of sewing needles for the purpose of re-export - petitioner contends that the phraseology of Section 74 admits of only one interpretation and addresses it with the language adopted in Section 75. It is argued that Section 75 allows drawback in respect of goods so long as they are identifiable in all material particulars with the imported goods. - Held that:- In Phoenix (2010 (9) TMI 281 - BOMBAY HIGH COURT), interestingly, the view of the Central Government, (which cannot, of course, be treated as a precedent) itself appears to have been that if the so-called “process” is a mere change of packaging, and fairly disclosed by the assessee/re-exporter, Section 74 would apply and not Section 75. This interpretation of the Central Government may be seen in Torrent (1999 (11) TMI 95 - GOVERNMENT OF INDIA). What the petitioner appears to have done is a matter which cannot be disputed by the respondents since both at the stage of importation and reexport, the goods were verified – i.e. the needles were subject to re-packaging and re-exported. As to the applicability of the ABC (1991 (8) TMI 107 - HIGH COURT OF DELHI AT NEW DELHI), there cannot be any dispute since re-packing cannot, by any stretch of imagination, be called an “operation” or “process” on the goods. The quantity and identity of the goods remained unchanged. In these circumstances, we are of the opinion that the view of the Central Government cannot be sustained and is set-aside. - Decided in favor of assessee.
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2014 (3) TMI 94
100% EOU - Benefit of exemption under Notification Nos. 6/97-C.E., dated 1-3-1997 and 23/2003-C.E., dated 31-3-2003 - Goods cleared without payment of duty in the Domestic Tariff Area - Held that:- for availing the benefit of aforesaid notifications, the rejects, wastes, scrap and remnants arising out of processing, manufacture, production, packaging of articles should be cleared to the Domestic Tariff Area on payment of applicable duty of excise. The question is, what is ‘the applicable duty of excise’ in respect of cotton waste. Notification No. 6/97 exempts cotton waste falling under Heading No. 52.02 of the Central Excise Tariff Act, unconditionally, produced or manufactured by a 100% EOU and allowed to be sold in India. Similarly, Notification No. 23/2003-C.E., dated 31-3-2003 also exempts cotton waste falling under Heading 52.02 when manufactured by a 100% EOU and allowed to be sold in India. These two Notifications specifically deals with the exemption on cotton waste manufactured in a 100% EOU and allowed to be sold in India and provides excise duty exemption on such cotton waste. Therefore, the applicable rate of duty of excise on cotton waste manufactured in a 100% EOU and allowed to be sold in India is ‘nil’ and the applicant has discharged the duty liability in accordance with the aforesaid notifications. Therefore, prima facie, we are of the view that the appellants have fulfilled the terms and conditions of para 3 of the Notification 52/2003-Cus. and para 6 of the Notification No. 22/2003-C.E. and we do not find any infirmity with the said availment - Decided in favour of assessee.
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2014 (3) TMI 82
Release of vessel and permission for taking it out of India - Held that:- Inasmuch as vide order dated 17/05/2013 all proceedings initiated by the Customs have been stayed, we direct the Customs authorities to release the vessel forthwith and allow the vessel to be taken out of India, to the Sultanate of Oman and bring back the same within a period of six months subject to the appellant executing an undertaking to the Commissioner of Customs (Imports), New Custom House, Mumbai, to bring back the vessel within a period of six months from the date of release of the vessel.
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Corporate Laws
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2014 (3) TMI 93
Winding up of company - Inability to pay debts - Non adherence to statutory notice - Held that:- even after receipt of the statutory notice, the dues which have been acknowledged by the respondent-Company have not been paid and the same remained outstanding - it is clearly established that the respondent Company has lost its financial substratum and it has become commercially insolvent. Hence, it would be just and proper to direct that the respondent-Company - M/s. Gujarat Synthwood Limited be ordered to be wound up. Accordingly, the respondent-Company is hereby ordered to be wound up - Decided in favour of petitioner.
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FEMA
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2014 (3) TMI 97
Violation of FERA - hawala payments - Retracted confession - Unreasonable and excessive penalties for Violation of FERA - Held that:- With the evidence on record clearly pointing to the involvement of BTC and with the involvement of its partners also being demonstrated, there was no error committed by SD in proceeding to hold BTC and its partners guilty of contravention of Sections 9(1)(b)(d) and (f) of the FERA. There was no misapplication of Section 68 of the FERA which, in principle and by analogy, could be extended to contravention by the partnership firms. This is in consonance with Section 25 of the Partnership Act. Once it was established that the illegal acts were committed by the firm itself, then there was no difficulty in applying Section 68 of the FERA. The order of the SD may not have explained the precise basis for arriving at the penalty amount of Rs. 2,00,00,000 imposed on BTC and Rs. 1,00,00,000 each on Mr. Lekh Raj Chopra and Mr. Ramesh Kumar Chopra. However, Section 50 of the FERA does envisage a penalty five times the amount involved in the violation. In the present case, that amount is in excess of Rs. 10,00,00,000 and, therefore, on the basis of the parameters set out in Section 50, it cannot be said that the penalty imposed on BTC and the two Appellants, i.e., Mr. Lekh Raj Chopra and Mr. Ramesh Kumar Chopra is excessive or unreasonable or illegal. The penalty imposed in the order dated 10th April 1986 by the SD did not preclude him, on remand, from determining afresh the penalty amount.
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Service Tax
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2014 (3) TMI 118
Waiver of penalty u/s 80 - Business Auxiliary Service - Ignorance of law - Commissioner (Appeals), gave the benefit of ignorance of law as respondent were not aware that they are under the net of service tax - Held that:- Commissioner (Appeals) has relied on various judicial pronouncements of the Tribunal, where the benefit of Section 80 was given to the assessee for their act which shows that assessee was not having a malafide intention to evade payment of service tax. In this case also, the respondent have said that they were not having knowledge that they are required to pay service tax as they were under the belief that service tax is to be paid by Airtel. In these circumstances, benefit of ignorance of law goes in favour of the respondent and as per Section 80 of the Finance Act, 1994, the respondent has been able to prove beyond doubt that there was no malafide intention - Decided against Revenue.
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2014 (3) TMI 117
Refund / rebate claims - Period of limitation - Notification No. 11/2005-ST - services provided in India to international inbound roamers registered with the Foreign Telecom Network Operator but located in India at the time of providing of such services treating the supply of services as export of services under Export of Services Rules, 2005. - Held that:- In view of the earlier decision [2013 (7) TMI 178 - CESTAT MUMBAI] appellant should be eligible for refund of the service tax paid on input services used in or in relation to rendering of the output service which has been exported, under Rule 5 of the Service Tax Credit Rules, 2005, read with Notification 11/2005-ST. Therefore, the appellant would be eligible for the refund of service tax paid on input services. Time bar issue - Held that:- the lower adjudicating authority is directed to verify the date of payment of service tax in respect of seven refund claims pertaining to the period April 2007 to April 2009 and verify whether the refund claims have been filed beyond the period of one year from the date of payment of service tax and if so, the appellant would not be entitled for any refund at all - matter remanded back.
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2014 (3) TMI 116
Waiver of pre deposit - Demand of service tax - Consulting engineers service - Held that:- prime consultant, to whom the appellant provided ‘consulting engineers service’ and from whom the consideration for such service was collected, has declared that they collected service tax from NHAI and deposited the same to the Central Government in respect of the service rendered from 2004 to 2007 - prima facie case found for the appellant - Stay granted.
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2014 (3) TMI 115
Demand of service tax - erection, commission and installation of service - Held that:- erection, installation service shall be brought into tax when such service was dominate in nature. No doubt there may be involvement of goods. We consider the abetment aspect at this stage subject to detailed scrutiny in the course of regular hearing - So far as management, maintenance or repair service is concerned, the discussion made by Adjudicating Authority does not grant immunity to the appellant for taxation. Mere payment of VAT does not take away the activity from the net of the taxing entry under Finance Act, 1994 - stay granted partly.
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2014 (3) TMI 114
Demand of service tax - Abuse of law - Held that:- Gravity of the matter, calls for disposal of the stay application today for the reason attributable to the appellant who has abused process of law. While undue hardship was given due weightage as against extent of demand stated above, Revenue’s interest has also been given utmost importance following ration of the Apex Court in the case of Assistant Collector of Central Excise vs, Dunlop India Ltd.[1984 (11) TMI 63 - SUPREME Court] and in the case of Benara Valves Ltd.vs.CCE [2006 (11) TMI 6 - SUPREME COURT OF INDIA] - Both sides agree that reconciliation is pending. But to protect interest of Revenue, as an interim measure, the appellant is directed to deposit Rs.10 lakhs within six weeks from today - Decided against assessee.
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Central Excise
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2014 (3) TMI 92
Default in payment of Central excise duty - show cause notice requiring the payment of excise duty on each consignment in cash, without utilizing Cenvat Credit until payment of outstanding amount together with interest - Held that:- As under Sub-Rule (1) of Rule 8 of Central Excise Rules, 2002 if an assessee, failed to pay the duty within the time stipulated i.e. on the 6th day of following month if it is paid electronically through internet banking or on the 5th day of following month in any other case, and a further period of 30 days under Sub-Rule (3A) is disentitled to make use of the Cenvat Credit - Following decision of Manjunatha Industries vs. CCE, Bangalore [2013 (4) TMI 534 - KARNATAKA HIGH COURT] - appellant has not made out a case for total waive of pre-deposit of the dues - Conditional stay granted.
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2014 (3) TMI 91
Goods cleared "as such" - Inputs were written off as obsolete in the books of accounts and they cleared after paying duty on these goods on transaction value - Commissioner dropped SCN - Held that:- Inputs were reduced to the value of 5%/10% of the actual value but not less than 5% actual value at the time of writing off in the books of accounts which shows that the inputs were not absolutely held obsolete. Therefore, the provisions of paragraph 3(iii) of Circular dated 16.7.2002 is not applicable as the same is applicable for inputs which has been written off for fully. - para 3.2 of the Circular dated 16.07.2002 is relevant to the facts of this case and I also find that this facts were in the knowledge of the department that the inputs which has been written off in the books of accounts by the respondents are to be treated as auction sale and on this auction sale amount, they are paying duty. Therefore, as per the Circular dated 16.07.2002, they have discharged the duty liability and the same has been considered by the learned Commissioner in the impugned order - Therefore, the learned Commissioner, rightly dropped the show-cause notice - Decided against Revenue.
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2014 (3) TMI 90
Adjustment of excess duty paid - Held that:- In earlier precedents Tribunal has held that adjustment can be done on excess duty paid against the short duty paid. Therefore, following the precedent decision of this Tribunal in [2004 (7) TMI 145 - CESTAT, MUMBAI], I do not find any infirmity in the impugned order - Decided against Revenue.
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2014 (3) TMI 89
Availment of CENVAT Credit - Credit in respect of ASTM, shapes and sections, joists, MSI Beam, MS Angle, Channel, Welding Rods & Black Sheet - Revenue contends that these items does not cover under capital goods - Held that:- cenvat credit would be admissible in respect of the steel items in question only as input, as the same are not covered by the definition of capital goods and for treating these items as inputs, there must be evidence on record to prove that the same have been used for fabrication of capital goods for which, prima facie, there is no evidence in form of any Chartered engineer's certificate and disclosure of manufacture and fabrication of capital goods or their parts in ER-I returns. As regards the issue of limitation, the same is a mixed question of facts and law and hence final view in respect of the same can be taken only at the stage of final hearing. In view of this, this is not the case for total waiver - Conditional stay granted.
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2014 (3) TMI 88
Denial of refund claim - Original TR-6 challan not produced - Bar of limitation - Held that:- As clarified by the CBEC Circular dated 02.01.2002 that attested Xerox copy of the Challan in Form T.R. 6 is sufficient and there is no requirement to file the original TR-6 challan. Same view has been confirmed by the Hon'ble High Court of Kerala in the case of Narayan Nambiar Meloths (2009 (3) TMI 468 - KERALA HIGH COURT). In view of the above reasons, I direct the adjudicating authority to allow the claim for refund of the amount made by the appellant - Decided in favour of assessee.
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2014 (3) TMI 87
Denial of CENVAT Credit - Transfer of unutilized cenvat credit alongwith transfer of liability - Change of ownership - appellant filed an application for transfer of credit lying in their CENVAT credit account attributable to inputs and capital goods, unutilized by them, to Exide Industries Ltd. - Request was denied - Non-compliance of provisions of Rule 57S(5) - Held that:- From the plain reading of the Rule 57S(5), the condition of the transfer liability is applicable to change in site of the factory resulting from sale, merger, amalgamation or transfer to a joint venture. Admittedly, in this case, the factory has not been shifted to anywhere but only the ownership has been changed. Therefore, the clause of transfer liability is not applicable to the facts of this case. With regards to the denial of credit for non-compliance of provisions of Rule 57S(5), the appellant has produced a letter on record for requesting of transfer of the ownership of the factory along with the details of inputs and capital goods lying unutilized in their account is on transfer of the factory to Exide on 04.05.1998. The said document has not been appreciated by the lower authorities at all. When there is evidence on record, therefore the observation by the authorities that they have not produced any documents, is not sustainable - amount is required to be paid by the appellant and in this regard the appellant has written to the concerned authorities for adjustment of the said amount from the CENVAT credit lying unutilized. Therefore, I hold that the CENVAT credit lying unutilized is required to be allowed to transfer of inputs and capital goods to 'Exide' after deducting the outstanding amount payable by the appellant - The amount payable by the appellant is to be adjusted first before allowing the said unutilized CENVAT credit on account of inputs and capital goods - Decided in favour of assessee by way of remand.
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2014 (3) TMI 86
Waiver of pre-deposit - cenvat / modvat credit - allegation of clearing S.S.Billets by mis-declaring the same as OAS billets with intent to evade the payment of duty - allegation of under valuation in respect of S.S. Billets - allegation of taking Modvat Credit without actual receipt of input - Held that:- from a number of test reports of the CRCL in respect of the samples drawn during the period of dispute from the goods declared as OAS Billets it is seen that the Chromium content of the steel was more than 10.5%, while in terms of Chapter Note 1(f) to Chapter 72 the Chromium content of Other Alloy Steel is required to be 0.3% or more but less than 10.5%. Therefore it cannot be said at this prima facie stage that the decision of the case is likely to result in exoneration of the Appellant on this court. Regarding undervaluation - as prima facie for March’94 to Nov.’95 period, there is no justification for drastic reduction in the price of SS Billets when the price of down street production S.S Flats and SS Pattas/Pattis had not decreased and there was no reduction in the price of SS Billets manufactured by other manufacturers. It cannot be said that the appellant have been such a strong prima facie case in their favour which is likely to result in their full exoneration. - appellant directed to pay an amount of ₹ 3 Crore within a period of eight weeks. - stay granted partly.
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2014 (3) TMI 85
Waiver of pre deposit - Fraudulent transactions - Availment of higher Cenvat Credit on rolled products which were described as Non Alloy Steel SLR, Bars & Rods of Non-Alloy Steel Rejected Cut pieces, Bars and Rods of Non-alloy Steel, Non-Alloy Steel Rounds(Rejected), Non-Alloy Steel Rounds (Rejected cut pieces), Round Bar S/L Rejected Round Bar Small Pieces, M. S. Round Cuttings and Non-Alloy Steel Round S/L Rejected. - Held that:- it does not make any economic sense in a competitive world to make the price of final product costlier by buying costly raw-materials as waste which is useable as such - In the normal trade parlance, no one will buy these types of products of rolling industry making it economically unviable and thus creating non-justification of such purchase. There is no justification in appellant’s plea that rolling materials have been purchased to improve the quality of their finished product. - balance of convenience clearly indicates paper transactions with intent to avail fraudulent credit. - once credit is Prima facie taken on finished goods in the guise of scrap, fraudulent activity clearly surfaces, Prima facie case is in the favour of Revenue - Stay granted partly.
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2014 (3) TMI 84
Demand of differential duty - Duty on transactional value - Rule 8 of the Central Excise (Valuation, Determination of Prices) Rules, 2000 - Invocation of extended period of limitation - Held that:- It is very clear from CERA objection raised that the department was aware that these goods were being cleared to other Units for construction activity. Apparently, at that time, the cost of production was higher than the transaction cost and the department had a point to demand differential duty in such a situation. Against such a background, it cannot be said that the department was not aware that the goods were being cleared to other units was being cleared for some other purpose, in a situation where the other Unit were not of a type, where these materials can be raw materials for them is submitted by the learned Counsel for the applicant. Therefore, we see a strong prima facie case on time bar issue as argued by the learned Counsel for the applicant also - Stay granted.
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2014 (3) TMI 83
Waiver of pre-deposit of duty - Whether the process of stuffing, soldering of components carried out by the applicants on the PPCBs supplied by the customers of the applicant on job work basis would amount to manufacture under Section 2(f) of the Central Excise Act, 1944 - Held that:- It appears from the applicant s own submission that both the items are similar in nature. It is contended by the learned advocate that they paid duty which are directly marketed. In other cases, the PPCBs cleared for the purpose of use in R & D, they have not paid any duty. In the case, where the PPCBs were directly not marketed, the applicant paid service tax. The main contention of the applicant is that they have paid service tax and therefore demand of central excise duty on the same process cannot be sustained. We are unable to accept this submission. Prima facie, we find that both the processes are virtually similar. After considering the submissions of the learned advocate that they have already paid service tax of about Rs.68 lakhs and it appears from the show-cause notice that the value of the materials could not be ascertained by both the parties - Conditional stay granted.
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CST, VAT & Sales Tax
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2014 (3) TMI 121
Compounding tax - Section 8 (f)(i) of the Kerala Value Added Tax Act and Rules - Held that:- though the petitioner has indicated that one of the shops was closed, according to the revision petitioner's counsel, the request could have been rejected and he must have been asked for regular assessment instead of compounding. Therefore, the Assessing Authority was not justified in proceeding with the compounding, if it was possible for bifurcating the previous year's turnover and reduced proportionately the tax to be paid - Once the application is accepted and the Assessing Authority completed the assessment, the question of either hearing the revision petitioner or rejecting the application seeking compounding would arise. Therefore, the reason brought out in the revision petition that the Assessing Authority if could not bifurcate the turnover of 2007-08 for the purpose of arriving at the proportionate tax, ought to have rejected as considering the application not in order cannot be accepted - once the dealer had opted out and paid tax under the Scheme of compounding, can never be allowed to revert back - Following decision of Zodiac Regency v. Commissioner of Commercial Taxes and another [2014 (2) TMI 962 - KERALA HIGH COURT] - Decided against assessee.
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2014 (3) TMI 120
Condonation of delay - Delay explained in casual manner - Subject of public importance - Held that:- here is a case which shows a complete careless and reckless long delay on the part of applicant, which has remained virtually unexplained at all. Therefore, I do not find any reason to exercise my judicial discretion exercising judiciously so as to justify condonation of delay in the present case - I have also looked into merits of the matter and finds that no question of law, in fact, has arisen in the matter and it is covered by pure findings of fact - Condonation denied.
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Indian Laws
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2014 (3) TMI 113
Whether the prices fixed under the Drugs (Prices Control) Order (for short, ‘DPCO’) in respect of drugs/formulations would be operative in respect of all sales subsequent to 15 days from the date of the notification by the Government in the official gazette/receipt of the price fixation order by the manufacturer. - Diametrical opposite view taken by two High Courts, Karnataka and Delhi - Held that:- if the departmental circular provides an interpretation which runs contrary to the provisions of law, such interpretation cannot bind the Court. Karnataka High Court has held that, the contention of the Petitioner that revised prices will not apply to the existing stocks but only to new batches of drugs and formulations to be manufactured after 15 days of the notification cannot be accepted. The provisions of the DPC Order are clear that prices should be revised within 15 days even in regard to the formulations which were manufactured prior to the date of notification or those manufactured within 15 days from the date of notification Delhi High Court has gone more by practical difficulties which a manufacturer may suffer and completely overlooked the scheme of the DPCO which is intended to give benefit to the consumer of the reduced current price of the formulation. - The view of Delhi HC are not acceptable. The above view of the Delhi High Court is fundamentally flawed and clearly wrong. The Karnataka High Court has taken the correct view and the same is upheld. - Decided against the manufacturer/distributor and in favor of Union of India.
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