TMI Tax Updates - e-Newsletter
April 14, 2017

Case Laws in this Newsletter:

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

TMI SMS

• Service Tax on Construction Services (Flats) / Works Contract wherein the cost of Land is involved - Retrospective amendment

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• Deemed sale - the equipment and technical personnel provided on charter hire while retaining the full control - Not liable to VAT - HC

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Articles

1. Service Tax on Construction Services / Works Contract wherein the cost of Land is involved - Retrospective amendment

   By: Surender Gupta

2. Section 5.2.(a) -second article in view of Circular dated 11.04.2017 – the scope of Circular must be wider to avoid litigation in other cases.

   By: DEVKUMAR KOTHARI

News

1. Prez gives assent to four supporting legislations on GST

2. Dr. (Ms.) Mukulita Vijayawargiya takes charge as Whole Time Member, IBBI

3. Pradhan Mantri Mudra Yojana (PMMY) crosses the target of ₹ 1.8 lakh crore for 2016-17

4. Business Reform Action Plan 2017

5. The Union Finance Minister to release Gender Parity Index specific to India in the formal sector tomorrow

6. RBI Reference Rate for US $

7. Cabinet approves listing of 11 CPSEs on stock exchanges

Notifications

Central Excise

1. 9/2017 - dated 12-4-2017 - CE (NT)

Central Excise (Settlement of Cases) Amendment Rules, 2017

Customs

2. 13/2017 - dated 13-4-2017 - Cus

Amendment in Notification No. 12/2012-Customs, dated the 17th March, 2012

3. 39/2017 - dated 13-4-2017 - Cus (NT)

Tariff Notification in respect of Fixation of Tariff Value of Edible Oils, Brass Scrap, Poppy Seeds, Areca Nut, Gold and Sliver

4. 38/2017 - dated 13-4-2017 - Cus (NT)

Amendment in Notification No. 78/2014-Customs (N.T.), dated the 16th September, 2014

Circulars / Instructions / Orders

FEMA

1. 44 - dated 13-4-2017

Exim Bank's Government of India supported Line of Credit of USD 31.29 million to the Government of the Republic of Nicaragua

Highlights / Catch Notes

Income Tax

• Taxpayer's Unexplained Investment for Flat Challenged; Payment Claims Unsubstantiated by Evidence, Broker and Society Deny Receipt.

  Case-Laws - HC : Addition of sum paid to secure the possession of the flat - unexplained investment - since the broker had denied the receipt of payment and the Society had also denied the same, the AO could not have held that the assessee had paid a sum to Shri Chokhani for securing the possession of the flat though no paper evidencing the payment except a letter of the broker was seized - HC
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• Tax Deduction Approved for Third-Party Manufacturing u/s 80IC: Assessee's Claim Valid for VAT-Inclusive Sales.

  Case-Laws - AT : Deduction u/s.80IC in respect to third party manufacturing done by the assessee - assessee is engaged in the manufacturing and selling of the products on its own account and is also manufacturing the products as per specification of third party by using its raw material, packing material etc. and is selling finished products to the third parties after charging VAT - Deduction allowed - AT
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• Court Rules on Section 69C: Taxation of Peak Amount in Fictitious Transactions to Avoid Auditor Scrutiny.

  Case-Laws - AT : Unexplained purchase u/s 69C - addition of the peak of financial transaction - the entries were bereft of reality and are prepared only to escape any negative observations of the auditors and authorities - it will properly be taxed if the peak amount is taken as income of the assessee - AT
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• Assessee Denied Additional Depreciation on Leased Property with Furniture After Claiming Standard Deduction.

  Case-Laws - AT : Once the assessee has claimed the standard deduction in relation to the leased property which includes furniture and fixtures, the assessee is not entitled to further depreciation on such leased asset. - AT
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• Section 14A of Income Tax Act not applicable for incidental investment holding in banking business of assessee.

  Case-Laws - AT : Addition u/s 14A - Once holding of investment was considered incidental to the business of banking to the assessee, Section 14A of the Act could not have been applied. - AT
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Customs

• Extended Limitation Period for Mis-declared Goods Value; Missing Invoice Details Constitute Suppression Under Customs Regulations.

  Case-Laws - AT : Suppression and mis-declaration of value of goods - extended period of limitation - Leaving column of invoice value blank, failure to mention invoice number and declaration is also suppression. - AT
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• Court Denies Refund for Cess Paid on Tobacco Exports; No Challenge to Assessed Bills of Entry Made.

  Case-Laws - AT : Refund claim without challenging the assessed bill of entry - whether the appellants are eligible to refund of cess paid against 48 assessed shipping bills during the period April 2005 to February 2006 for export of tobacco and tobacco products? - Held No - AT
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Service Tax

• Amendment Clarifies Service Tax on Construction Contracts Including Land Cost; Ensures Uniform Taxation and Financial Clarity.

  Articles : Service Tax on Construction Services / Works Contract wherein the cost of Land is involved - Retrospective amendment - Service Tax
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• Court Considers Financial Hardship, Reduces Penalty for Non-Payment of Service Tax Due to Rehabilitation Needs.

  Case-Laws - AT : Failure to pay tax - financial difficulty - repeated failure - keeping in mind that financial difficulties of appellant have escalated to a point that they have had applied to BIFR for financial rehabilitation, there is a case for granting partial reduction of the penalty amount - AT
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• No Penalty for Exporter: Manganese Ore Transport Service Tax Exemption Upheld Due to Bona Fide Belief.

  Case-Laws - AT : Since the appellant is an exporter of manganese ore, on which no duty and tax is payable, there was scope for entertaining the bona fide belief that no service tax is payable on the GTA service as a recipient of such service - No penalty - AT
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• CENVAT Credit Denied for Construction Expenses and Telephone Usage in Managing Director's Quarters and Apartment.

  Case-Laws - AT : CENVAT credit was rightly denied on Construction of cabin chair, etc., bill for miscellaneous work in MD quarters, bill for miscellaneous work in apartment and use of telephone - AT
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• Complex Equipment Servicing Classified as 'Maintenance Services' for Tax, Not 'Consulting Engineer's Service'.

  Case-Laws - AT : Deploying highly skilled and trained personnel for taking care of periodical servicing or even putting those people throughout the year on such job in respect of servicing and maintenance of complex hydraulic and mechanical equipments will not make these services ‘Consulting Engineer’s service’, when they are actually in the category of ‘maintenance services’ - AT
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Central Excise

• CENVAT Credit Available for Calcined Lime Byproduct; Rule 6(3) Not Applicable Due to Unavoidable Generation During Manufacture.

  Case-Laws - AT : CENVAT credit - calcined lime is generated unavoidably during the course of manufacture of lime - Rule 6(3) is not applicable in case of calcined lime which is by product in the present case - AT
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• No Duty Liability for Medicine Samples Used in Testing Due to No Factory Clearance of Finished Goods.

  Case-Laws - AT : Samples of medicine for testing - duty liability discharged by the appellant itself does not arise as there is no clearance of the finished goods from the factory premises - AT
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• EPCG License Holder Cleared of Fraud Allegations; No Grounds for Extended Limitation Period Show Cause Notice.

  Case-Laws - AT : Since the appellant had categorically informed the department regarding supply of goods under EPCG licence and filed the re-warehousing certificate, the allegation of suppression, fraud, etc. cannot be leveled against the appellant justifying the issuance of show cause notice by invoking the extended period of limitation - AT
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VAT

• Court Rules Drilling Dealer's Service Tax Liability Not a Wrongful Deprivation Under A.P. VAT Act, 2005.

  Case-Laws - HC : A dealer entrusted with the task of carrying out drilling operations in the west-coast on the Arabian Sea, when subjected to service tax liability by the concerned authorities, cannot be said to have wrongfully deprived the State of its revenue under the A.P. VAT Act, 2005 - HC
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• No Transfer of Use: VAT Implications on Equipment and Personnel Charter Hire Arrangement, Section 4 Analysis.

  Case-Laws - HC : Deemed sale - VAT - the equipment and technical personnel provided by the petitioner to the main contractor are on charter hire, where the complete control was retained by the petitioner. All responsibilities were placed only upon the petitioner by the main contractor himself - transfer of the right to use not taking place - HC
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Case Laws:

• Income Tax

• 2017 (4) TMI 573
  Addition of sum paid to secure the possession of the flat - unexplained investment - Held that:- The description of the flat in the loose papers did not tally with the description of the flat at Matunga. It was also not possible to gauge from the loose chits that were seized during the search operations that the flat at Matunga was referred to in the said chits. It was held by the Tribunal that there was no material to hold, as held by the Assessing officer, that the assessee had made the payment of Rs. 66,50,000/for securing the possession of the property from Shri Chokhani. It was also observed that the Assessing Officer could not have disbelieved the version of the Society or the broker on the ground that the Society did not know the whereabouts of Shri Chokhani after he left the flat that he was occupying for a period of ten years. The Tribunal held on an appreciation of the material on record that the addition made on the basis of the indication of purchase of flat and payment based on a piece of paper, cannot be upheld. In the instant case, since the broker had denied the receipt of payment and the Society had also denied the same, the Assessing Officer could not have held that the assessee had paid a sum of Rs. 66,50,000/to Shri Chokhani for securing the possession of the flat though no paper evidencing the payment except a letter of the broker was seized. The findings recorded by the Tribunal are pure findings of facts based on a proper appreciation of the evidence on record. The Tribunal has held on an appreciation of the material on record that there was no evidence, much less any cogent evidence to prove that the assessee had paid sum of Rs. 66,50,000/to secure the possession of the flat. In the circumstances of the case, the question of law is answered in the affirmative and against the Revenue.

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• 2017 (4) TMI 572
  Deduction u/s.80IC in respect to third party manufacturing done by the assessee - rectification application - Held that:- CIT(A) has taken note of the JCIT’s order u/s. 144A wherein the JCIT has clearly made a finding that the assessee is engaged in the manufacturing and selling of the products on its own account and is also manufacturing the products as per specification of third party by using its raw material, packing material etc. and is selling finished products to the third parties after charging VAT. This particular fact has been reconfirmed by the Ld. CIT(A) in the impugned 154A proceedings from the AO vide report dated 16.05.2013 wherein the AO has confirmed the finding of the JCIT on this issue. CIT(A) has also taken note of the fact that in the subsequent assessment year i.e, AY 2010-11 the AO himself has given deduction to the assessee for third party manufacture in the assessment order passed u/s. 143(3) of the Act on 30.03.2013. Since the JCIT and AO have confirmed that the claim made by the assessee under the head ‘third party manufacture’ was indeed executed by the assessee as per the specification of third party, however the goods/products were manufactured by the assessee using its own raw material, packing material etc. and has sold the finished products to such third parties after charging VAT and further, we note that in the subsequent assessment year 2010-11 the AO himself has allowed the claim of the assessee in respect to third party manufacture and held it as qualifying for 80IC deduction, so, we do not find any infirmity in the order passed by the Ld. CIT(A) and, therefore, dismiss the appeal of the revenue.

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• 2017 (4) TMI 571
  Unexplained purchase u/s 69C - addition of the peak of financial transaction - Held that:- The books of accounts of appellant are not maintained on account of any regular business activity but merely it records make-believe transactions that existed only on paper, to build a reservoir of bogus stock earnings in crores which could be transacted on paper so as to explain the introduction of unaccounted cash in the other actual running business of the group or of others. Therefore, the entries were bereft of reality and are prepared only to escape any negative observations of the auditors and authorities. Further, as the total amount invested by the assessee company in the above transaction will properly be taxed if the peak amount is taken as income of the assessee which Ld. CIT appeal has adjudicated, with which we also agree. In view of this we do not find any infirmity in the order of the Ld. CIT appeal in restricting the addition on account of bogus purchases and bogus administrative expenses of Rs. 8517740/– and Rs. 346294/– to the extent of Rs. 1392364/– on the peak basis. - Decided against revenue

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• 2017 (4) TMI 570
  Determining the profit of the assessee @ 8% of the gross receipts - Held that:- We find that the nature of the work of the assessee has not been doubted and in the similar facts and circumstances various Hon’ble courts have held that a reasonable percentage of profit can be worked out. Thus we are inclined to direct the lower authorities to work out the taxable net profit from the business @ 6.0% approx of the gross receipts. Therefore we are inclined to reverse the order of authorities below. Hence the grounds of appeal raised by the assessee are partly allowed.

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• 2017 (4) TMI 569
  TDS u/s 194C - disallowance u/s. 40(a)(ia) - CIT-A deleted the addition - as per DR violation of section 194H of the Act is there and not u/s. 194C - Held that:- As from the details furnished before the department, it is seen that the payments were of small amount and which were mostly less than Rs. 1300/- on any one occasion and there was no reason to doubt the genuineness of the payments. In the light of the aforesaid factual background, we do not find any infirmity in the order passed by the Ld. CIT(A) in allowing the claim of the assessee since the disallowance could not have been made u/s. 40(a)(ia) of the Act invoking sec. 194C of the Act as has been done by the AO. Assessee during the original assessment which was concluded on 13.05.2008 has made a claim of deduction that the amount of Rs. 45,74,228/- has been given to truck owners about 300 in numbers and details of it were mentioned in more than 110 pages in respect to the amount of ‘freight paid’ and just because word commission has also been added in the 3CD report along with the hiring charges to the transporters cannot be the ground on which the department can turn around and term that the entire amount has been paid for commission and not for hiring charges when the facts emerging from the assessment leaves no scope for any doubt that claim made by the assessee was for hiring of trucks and disallowance was made by AO invoking section 194C of the Act. Therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) and, therefore, we dismiss the appeal filed by the revenue. - Decided in favour of assessee

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• 2017 (4) TMI 568
  Disallowance of depreciation on furniture and fixtures - rental income relating to which has been offered by the assessee under ‘Income from house property’ - Held that:- Admittedly, no separate lease rent deed has been executed from furniture and fixtures but the said furniture and fixtures are part of the leased units and have not been used for the business purpose of the assessee as the income derived from the said leased units has been offered by the assessee under the head ‘Income from house property’. The assessee has also claimed standard deduction as admissible on ‘Income from house property’ as per provisions of section 24 of the Act. Once the assessee has claimed the standard deduction in relation to the leased property which includes furniture and fixtures, in our view, the assessee is not entitled to further depreciation on such leased asset. This issue is accordingly decided against the assessee and in favour of the Revenue Proportionate disallowance of expenditure relatable to leased property - Held that:- CIT(A) has noticed that the assessee had been maintaining separate account for the maintenance charges received from each of the building rented out and as well as the expenditure actually incurred on maintenance of these buildings. The assessee had maintained separate account for maintenance charges and other common expenses incurred, which means the assessee has segregated out the expenses incurred on maintenance out of the common expenses and the same were not debited to profit and loss account and under these circumstances there was no question of further making of proportionate disallowance in relation to the maintenance of building/leasing activity. He, therefore, deleted further disallowance made by the AO except the suo-moto disallowance offered by the assessee. - Decided against revenue

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• 2017 (4) TMI 567
  Disallowance on account of club expenses and the expenditure to advertisement - Held that:- No distinguishable material has been produced before us to which it can be assumed that the finding of the CIT(A) is wrong against law and facts. The assessee is an advocate and claiming the club expenses in view of his profession. The advocate is being restricted for advertising in view of the regulation of BAR Council of India and such type of expenditure has been hit by Explanation to Section 37(1) of the Act. No plausible explanation has been given before us to justify the claim of the assessee. In view of the said circumstances, we are of the view that the CIT(A) has passed the order judiciously and correctly on these issues which nowhere require interference at this appellate stage. Therefore, these issues are decided in favour of the revenue against the assessee. Disallowance of Portfolio Management fee - Held that:- It is not in dispute that in connection with the present matter of controversy there are two views which have been taken by the Hon’ble Income Tax Appellate Tribunal. One is in favour of the assessee and the other is against the assessee. In view of the above mentioned case i.e. Serum International Ltd. Vs. Addl CIT and vice versa (2015 (6) TMI 794 - ITAT PUNE) the view which is in favour of the assessee is liable to be taken wherein held 'PMS' fees paid by the assessee is an allowable deduction from the capital gains. The finding of the said case is based upon the finding of Hon’ble Supreme Court of India in case [CIT Vs. Vegetable Products (1973 (1) TMI 1 - SUPREME Court)]. In view of the said circumstances we set aside the finding of the CIT(A) on this issue and Assessing Officer is directed to allow the appropriate relief of the assessee in terms of the above said decisions in accordance with law. Accordingly, these issues are decided in favour of the assessee against the revenue. Application of section 14A(2) read with Rule 8D - Held that:- In case titled as Godrej & Boyce Mfg. Co.[2010 (8) TMI 77 - BOMBAY HIGH COURT] Bombay High Court, it is specifically held that Rule 8D is not retrospective and it applied for the period w.e.f.2008-09 and disallowance has to be worked out on reasonable basis u/s.14A of the Act. However, at the time of argument, the learned representative of the assessee took the plea that he received the Long Term Capital Gain directly through broker and did not expend anything nor received Long Term Capital Gain from Kotak PMS, therefore when no expenditure was incurred by the assessee, therefore the same is not liable to be added. Since the matter is being ordered to be set aside and remanded to the Assessing Officer, therefore, we are of the view that this issue is required to be re-examined by the Assessing Officer after giving an opportunity of being heard to the assessee in accordance with law Penalty u/s 271(1)(c) - Held that:- There is lot of ambiguity to levy the penalty as initiated by the Assessing Officer in his order. Two different views have been taken by both the authority. Moreover, while deciding the appeal on merit in the instant case, the claim of the assessee was allowed and in the said circumstances when the quantum has been deleted then no penalty is sustainable in the eyes of law. Therefore, in the said circumstances the finding of the CIT(A) is not sustainable in the eyes of law. Therefore, we delete the penalty. Accordingly, the appeal of the assessee is hereby allowed.

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• 2017 (4) TMI 566
  Addition u/s 14A - as per assessee shares/units held by it whether classified as “investment” or “stock-in-trade” in balance sheet, that has to be considered as stock-in-trade only for tax purpose, and Section 14A of the Act had no application - Held that:- CBDT itself has accepted the line of thinking that income from investment made by a banking concern is part of its business of banking to be considered under the head ‘Business and Profession’. Direct result of this view is that such investments would be only a part of stock-in-trade. In our opinion, how the assessee has treated the shares and mutual funds in its balance sheet prepared under Banking Regulation Act may not be relevant when the income therefrom is treated as a part of business profit and not under the head of ‘Income from other sources’. There is no case for the Revenue that assessee was holding these investments solely for the purpose of earning dividend. Once holding of investment was considered incidental to the business of banking to the assessee, in our opinion, Section 14A of the Act could not have been applied. Thus disallowance under Section 14A of the Act could not have been made in the assessee’s case for investments which were considered as part of stock-in-trade for tax purposes. - Decided in favour of assessee Method of calculation of Aggregate Average Rural Advances for the purpose of application of Section 36(1)(viia) not adjudicated by the Ld. CIT(Appeals) - Held that:- Irrespective of the fact whether computation made by the Assessing Officer is having an effect on the taxable income of the assessee, Ld. CIT(Appeals) ought to have decided the ground raised by the assessee on merits. We are, therefore, of the opinion that ground No.10 raised before the Ld. CIT(Appeals) needs to be adjudicated by him. We, therefore, set aside the order of the CIT(Appeals) and remit the issue back to the file of the Ld. CIT(Appeals) for consideration Disallowance of clam under Section 36(1)(viii) - Held that:- Assessee cannot be stopped from making an enhanced claim of deduction. It is not a case where the assessee had not made any claim under Section 36(1)(viii) of the Act in its original return. In other words, it is not a fresh claim altogether. It had only revised its claim based on fresh method of computation which was not earlier adopted by it. In our opinion, the lower authorities ought have verified whether the method of computation adopted by the assessee for the enhanced claim was acceptable under law. We are of the opinion that by virtue of judgment of Hon'ble Apex Court in the case of National Thermal Power Corporation Ltd. (1996 (12) TMI 7 - SUPREME Court ) assessee could make such a claim before Ld. CIT(Appeals). Considering the facts of the case we are, therefore, of the opinion that the matter requires a fresh consideration by the A.O. We set aside the orders of the lower authorities and remit the issue regarding deduction under Section 36(1)(viii) of the Act back to the file of the A.O. for consideration afresh Addition for stale draft account - Held that:- Just because a draft remained unclaimed by the beneficiaries, in our opinion, would not entitle the assessee to claim it as its money or property. Assessee was always obliged to pay the amount either to the beneficiary or the original drawer. Assessee held the money only as a trustee in fiduciary capacity. Once the money is held as trustee, the question of limitation will not arise at all. In any case, RBI itself has issued a Notification on 24.05.2014 mandating the banks to transfer such unclaimed amounts to “Depositor Education and Awareness Fund Scheme”. In our opinion, in such circumstances, Ld. CIT(Appeals) was justified in taking the view that the amount cannot be construed as income of the assessee. - Decided in favour of assessee Disallowance for ex-gratia payment made by the assessee - Held that:- Assessing Officer could not have put himself in the shoes of the businessman and decide whether employees concerned were eligible for such ex-gratia payment. When part of employees alone were eligible for bonus under Payment of Bonus Act, the assessee, in our opinion, was justified in taking a business decision as to how to treat those employees who were not covered by such enactment. Assessee cannot be faulted for making such payment so as to ensure smooth and better relationship with its employees. In any case, we find Hon'ble jurisdictional High Court in the case of Kumaran Mills Ltd.(1997 (12) TMI 31 - MADRAS High Court) had held that ex-gratia payments could not be disallowed if it was found to be commercial expedient. Therefore, in our opinion, Ld. CIT(Appeals) was justified in disallowing this issue.- Decided in favour of assessee Disallowance of entertainment expenses - Held that:- It is not disputed that the claim of entertainment expenditure was in relation to customers of the assessee-bank. There is no ground for the Revenue that entertainment expenditure was incurred by the employees of the assessee for their own benefit. In the nature of business of the assessee, we cannot say that the entertainment expenditure claimed by the assessee was not required to be incurred. In any case, there is no reason why an ad-hoc disallowance of 5% was made. If the Assessing Officer was of the opinion that any expenditure was not vouched, he could have made disallowance for such expenditure. In our opinion, the CIT(Appeals) was justified in deleting 5% disallowance made by the Assessing Officer. Addition made for interest accrued on NPAs - Held that:- Only for non-viable or sticky advances having irregularities falling within sub-clause (ii) alone the six months limitation apply. However, where accounts or information of accounts show usual signs of sickness, this condition regarding six months may not be applicable. In any case, once the rule does not follow the guidelines issued by RBI, in our opinion, it becomes necessary to read down such rule so that it is in consonance with the RBI regulations or prudential norms for recognizing income.Therefore, in our opinion, CIT(Appeals) was justified in deleting the addition made on interest on NPAs. - Decided in favour of assessee Claim of disbursement on actual payment basis - Held that:- The provision made by the assessee for such wage arrears in earlier year was disallowed. Against such disallowance, assessee has taken no grounds before this Tribunal in its appeal for assessment year 2010-11. Accordingly, the claim of the assessee that it had to be allowed on actual payment basis was, in our opinion, rightly allowed by the CIT(Appeals). However, whether the assessee had actually disbursed Rs. 17,66,43,818/- requires to be verified by the A.O. For this limited purpose, the matter is remitted back to the file of the Assessing Officer.

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• 2017 (4) TMI 565
  Condonation of delay - Cancellation of registration of assessee charitable trust u/s 12A - Held that:- In the first affidavit dated 9th July, 2012, the assessee Trust states that it became aware of the formalities to be carried out after consulting the tax consultants and consequently the appeal was filed late. In the second affidavit which is notarized on 07.05.2016, the assessee pleads reason of ignorance of the provisions relating to filing of appeal and further solemnly states that it had no guidance of the tax consultant. It has also solemnised that accounts were audited by the Chartered Accountant but he does not much deal with the cases relating registration u/s 12A etc. In the third affidavit which is notarized on 23.12.2016, the assessee changes its stand and states that it had forwarded the papers to Ramesh C. Shinde who was advocate looking after the Civil matters of the assessee and matters before the Charity Commissioner that arises under the Bombay Public Trust Act and Societies Registration Act. The assessee has changed its stand of availability of the consultant from one affidavit to the last one. - Decided against assessee.

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• Customs

• 2017 (4) TMI 601
  Imposition of penalty on CHA - the classification of the goods declared in the said Bill of Entry as also the value was not correct - Held that: - the fact stated is of mis-declaration of classification as also valuation by the main importer, M/s. Maya Overseas and there is no evidence to show that the CHA knew about the in correct classification and valuation of the Goods - the CHA declared the goods in the Bills of Entry based upon the information given to him by the importer and is not expected to investigate and find out the correct classification or value of the goods - penalty imposed on CHA not justified - appeal allowed - decided in favor of appellant-CHA.

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• 2017 (4) TMI 583
  Imposition of penalty u/s 114 of CA, 1962 - Export of prohibited items - Liability of Customer Freight Station (CFS) and a custodian of goods - goods originally packed in the container, natural granite chips, were substituted clandestinely and without the knowledge of the appellant at the time of transportation to the port for export - According to the appellant, transportation was the domain of custom house agent and not the custodian - Whether there is scope for imposing penalty u/s 114 of CA 1962 in the absence of any knowledge on the part of the appellant of the offence alleged to have been committed by the exporter? Held that: - Increasing clarity has been brought in with regard to the role and responsibility fastened upon the custodian with the evolution of the guidelines from 1993 to 1998. It is made incumbent on the CFS/custodian to assume responsibility, not merely for duty liability on loss/pilferage of goods under transportation, but for the goods itself - The very fact that a custodian is to be held responsible for loss of the goods means that the ultimate responsibility in relation to the contents of the container lies with it. This will include loss of the original goods by substitution which has happened under the watch of the CFS. The custodian is, but one link in the chain of events relating to the movement of goods in the course of import and export. Accepting the argument of the appellant would weaken one link of the chain, thus compromising the entire network. The provisions of section 114 will stand automatically attracted in the event of violations by way of omission and commission of the acts - appeal dismissed - decided against assessee.

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• 2017 (4) TMI 582
  100% EOU - import of prohibited item - Ball Bearings - confiscation on the belief that they were imported into India though the import of fully finished Ball Bearings was not permitted under the 100% Export Oriented Unit license. Goods entered for export - Held that: - instead of fully finished ball bearings, the consignment consisted of old, rusted and junked ball bearings and bushes valued at only Rs. 2.65 Lakhs. This is conclusively established the mis-declaration on the part of the appellant. They have admitted to export old and junked ball bearings in the guise of fully finished ball bearings. Consequently, there is no reason to interfere with the impugned order in respect of confiscation of the export goods - confiscation upheld - goods allowed to be redeemed on payment of redemption fine of Rs. 5,00,000/- Goods seized from Bonded Warehouse, shops and godowns - goods imported through 8 consignments under N/N. 13/81-Cus - Held that: - The charges made against the appellant are very serious and have not been substantiated by tangible and solid evidences to establish that the imported consignments were fully finished ball bearings as well as were diverted in the local market. The demand solely resting on the retracted statements, cannot be upheld. At best, such statements may raise a suspicion in our minds that the appellant might have indulged in such fraudulent activities - The demand for customs duty needs to be established at least on the basis of preponderance of probability. The said evidence should at least result in the reasonable conclusion in the minds of a prudent man that such allegations are true. Decided partly in favor of appellant.

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• 2017 (4) TMI 581
  Suppression and mis-declaration of value of goods - extended period of limitation - clearance of empty drums unit located in SEZ to DTA - the price at which appellant were selling the drums were higher than the price at which they were paying Customs duty - appellant case is that since the price was being fixed by the Custom and each Bill of Entry on clearance was approved by the Custom, there was no charge for suppression or misdeclaration, and extended period cannot be invoked on them - Held that: - Leaving column of invoice value blank, failure to mention invoice number and declaration is also suppression. In these circumstances, there is a clear case of suppression and misdeclaration and therefore, the extended period of limitation has been rightly invoked. Invocation of Section 28 of the CA, 1962 - Held that: - penalty has been rightly imposed as this is a clear case of suppression - option to pay penalty at the rate of 25% of duty has not been extended in the impugned order-in-original. The appellants would be given an option to pay penalty at the rate of 25% of duty subject to payment of entire amount of duty along with interest and the penalty within 30 days from the date of communication of this order. Imposition of penalties on buyers of materials - Held that: - when the buyers were aware of the actual price at which the goods were being assessed and also the actual price at which they were purchasing the goods, their connivance in the evasion of tax cannot be denied - penalty upheld. Imposition of penalties on Factory Manager, Commercial Manager and Logistic Officer - Held that: - it is apparent that the employees had nothing to gain from the practice. Though these employees were aware of the practice, their knowledge of any wrongdoing has not been brought out. In these circumstances, there is justification in imposing penalties on the employees - penalty withheld. Decided partly in favor of appellant.

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• 2017 (4) TMI 580
  Refund claim without challenging the assessed bill of entry - whether the appellants are eligible to refund of cess paid against 48 assessed shipping bills during the period April 2005 to February 2006 for export of tobacco and tobacco products? - Held that: - similar issue decided in the case of PRIYA BLUE INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS (PREVENTIVE) [2004 (9) TMI 105 - SUPREME COURT OF INDIA], where also the assesse imported ship for breaking purpose and filed bill of entry accordigly, and after assessment the of duty was paid accordingly, which they sought later as refund without challenging the assessed bill of entry. It was decided in the case that without challenging the assessment order, the claim for refund cannot be considered - impugned order rejected - appeal dismissed - decided against assessee.

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• 2017 (4) TMI 579
  Revocation of CHA licence - forfeiture of security deposit - penalty - CHA-appellant failed to discharge his duty properly - time limitation - Held that: - the appellants were issued with notice under Regulation 20 on 15.06.2015, whereas the Inquiry Officer submitted his report only on 30.09.2015, which is beyond the period of 90 days prescribed by the said Regulation, the time limit has not been adhered in completion of the inquiry - It has been consistently held by this Tribunal as well as by the various High Courts that the time limit specified in Regulation 20 of CBLR are required to be adhered to in exercising powers under the said Regulation - whole proceedings is without jurisdiction - appeal allowed - decided in favor of appellant-CHA.

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• Corporate Laws

• 2017 (4) TMI 575
  Maintainability of company application - claims of ownership - injunction in respect of the property in question - Held that:- A perusal of the averments made in the company application filed by the applicants for various reliefs and reply filed by the respondent no.3 indicates that both the parties are claiming their rival claims of ownership in respect of the property in question. The applicants have not challenged the documents executed by the respondent no.1 in favour of the respondent no.3 pursuant to the order passed by this Court. In my view, the rival claims of ownership inter se between the parties post sale of the property which originally belonged to the respondent no.2-company cannot be decided in this company application by the Company Court. The scheme of compromise has been implemented in so far as the sale of property by the respondent no.1 committee appointed by this Court is concerned. The only provisions relied upon by the learned counsel for the applicants for filing this company application for various directions and injunctive reliefs are Section 392 of the Companies Act, 1956 and the Rule 86 of the Companies (Court) Rules, 1959. In view thereof, since in this company application, the applicants are inter alia praying for an injunction in respect of the property in question against the parties on the premise that there is a dispute about title in respect of the property in question between the applicants and the respondent no.3 is not maintainable before the Company Court, Rule 86 of the Companies (Court) Rules, 1959 is not attracted. Reliance placed by the learned counsel for the applicants on Rule 86 of the Companies (Court) Rules, 1959 is totally misplaced. In my view, the Companies Act, 1956 being a self-contained code, all the proceedings which can be entertained by the Company Court are specifically prescribed therein. The Company Court cannot entertain any other proceedings which are not prescribed under the provisions of the Companies Act, 1956 or the Companies Act, 2013. This company application inter alia praying for an injunction and for taking various documents on record is not maintainable and is beyond the jurisdiction of this Court. Company Court cannot exercise jurisdiction in this case also for the reasons that (a) reliefs sought do not relate to the scheme sanctioned by this Court but seeks declaration of civil rights i.e. injunction against the auction purchaser of the property and indirectly seeking determination of title of the applicants; (b) reliefs relate to the property purchased by the respondent no.3 and does not relate to the company incorporated under the provisions of the Companies Act, 1956; (c) the applicants are not interested in the affairs of the respondent no.2 company or in the scheme of the company; and (d) the application is not made for the purposes of carrying out the scheme of compromise and/or arrangement of the respondent no.2 company.

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• Insolvency & Bankruptcy

• 2017 (4) TMI 576
  Winding up petition - Held that:- When large number of petitions are filed against the respondent which are pending for about three years for winding up of the respondent, and in view of several attempts made by the respondent for delaying the out come of these petitions on one or other frivolous grounds, we not inclined to accept the submission for the respondent to postpone the hearing of this petition along with other companion petitions and to await for the out come of the said isolated petition filed by the ICICI Bank Limited which is not even admitted till date. This petition along with other companion petitions, which are pending for about three years cannot be adjourned since die and be made subject to the out come of the said company petition filed by the ICICI Bank Limited. Insofar as the merits of the petition is concerned, the respondent could not dispute that the decree passed by this Court against the respondent has attained finality in view of the appeal filed by the respondent against the order passed by the learned single Judge of this Court and Special Leave Petition filed before the Supreme Court having been dismissed. There is no bonafide defence raised by the respondent to the company petition. The liability of the respondent in this case is not disputed. In view of the respondent having been heavily indebted and in view of large number of creditors, including unsecured creditors the petitioner has made out a case not only for admission of this company petition but also for appointment of the Official Liquidator as a Provisional Liquidator. In my view there are not even remotest possibility of revival of the respondent company. Before the remaining assets of the respondent are friterred away, appointment of the Official Liquidator as Provisional Liquidator is absolutely warranted. Insofar as so called support to the respondent made by some of the workers, who are represented by Ms.Singhania, learned counsel appearing for the intervenor is concerned, though the Company Court has to consider the say of the workers of the respondent company even at the stage of admission of the company petition, the opposition of the company petition by the workers is not decisive for the purpose of entertaining the winding up petition at the admission stage. A perusal of the two affidavits filed by the intervenor shows inconsistencies. Be that as it may, even according to the said affidavits filed by the intervenor, it is clear that even according to the workers, the respondent has not paid their dues since July, 2016 till date. The Company Petition is admitted and shall be advertised in two local newspapers, namely (i) Free Press Journal (in English) and Navshakti (in Marathi) as also in the Maharashtra Government Gazette. Any delay in publication of the advertisement in the Maharashtra Government Gazette, and any resultant inadequacy of notice shall not invalidate such advertisement or notice and shall not constitute non-compliance with this direction or with the Companies (Court) Rules, 1959. The company petition is made returnable on 19th June, 2017. The petitioner shall deposit Rs. 10,000/- towards publication charges with the Prothonotary & Senior Master, under intimation to the Company Registrar, within three weeks from the date of admission, failing which the petition shall stand dismissed for the non-prosecution without further reference to the Court. After the advertisements are issued, the balance, if any, shall be refunded to the petitioner. The service of the petition under Rule 28 of the Companies (Court), Rules, 1959 shall be deemed to have been waived. The Company Application (Lodging) No.887 of 2015, filed by the intervenor is allowed.

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• Service Tax

• 2017 (4) TMI 593
  Validity of subsequent adjudication proceeding - The main ground of challenge to the order passed in the second adjudication proceeding was that the points decided against the appellant were beyond the scope of the SCN - Held that: - considering the fact that substantial part of the demand already stands deposited and that the appellant was enjoying an interim order during pendency of the writ petition out of which the present appeal arises, we stay the operation of the impugned judgment and order until disposal of the appeal - matter stayed until the disposal of appeal.

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• 2017 (4) TMI 592
  Levy of penalty - Failure to pay tax - financial difficulty - repeated failure - demand of duty, interest and penalty - Held that: - While the appellant is doubtlessly a sick unit, they have also got into the habit of not only making payments belatedly, but also expecting every time, waiver of penalty amounts. In the instant case, they have also not discharged their interest liability - the full waiver of penalty imposed on them would be unjust to Revenue and to the exchequer. However, keeping in mind that financial difficulties of appellant have escalated to a point that they have had applied to BIFR for financial rehabilitation, there is a case for granting partial reduction of the penalty amount. Accordingly, the penalty amount is reduced to Rs. 6,00,000/- - appeal disposed off - decided partly in favor of appellant.

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• 2017 (4) TMI 591
  Construction of commercial, industrial and residential complex - Charitable Institutions or not? - Held that: - the Hon’ble Supreme Court in the case of Larson & Toubro Limited [2015 (8) TMI 749 - SUPREME COURT] has clearly laid-down that no service tax is leviable for the period prior to 01.06.2007 in respect of activities which are in the nature of works contract. Works contract as a separate service was included in the statute only from 01.06.2007 - The nature of the activity carried out by the appellant definitely involves service alongwith supply of materials required for construction. Accordingly, the activity would be rightly covered under the category of works contract from 01.06.2007 - The decision of the Apex Court in the case of Larsen & Toubro Limited was not available to the lower authorities at the material time when the impugned order was passed. Consequently, matter on remand the issue to the original adjudicating authority for denovo decision - appeal allowed by way of remand.

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• 2017 (4) TMI 590
  Penalty u/s 78 of the FA, 1994 - Upon issuance of SCN, the appellant had paid the service tax attributable to the GTA service along with interest, the prayer of the appellant in this case is that since there is no element of mens rea in defrauding the Government revenue, penalty cannot be imposed - Held that: - Since the appellant is an exporter of manganese ore, on which no duty and tax is payable, there was scope for entertaining the bona fide belief that no service tax is payable on the GTA service as a recipient of such service - present case is not attributable to any fraud, collusion, wilful misstatement, suppression of facts, with intent to evade the tax - benefit of section 80 extended - appeal set aside - appeal allowed - decided in favor of assessee.

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• 2017 (4) TMI 589
  Natural justice - Commissioner (Appeals) has failed to examine the certain facts of the case, which the appellant seeks to be reconsidered - Held that: - the Commissioner (Appeals) has failed to examine the fact that the appellant constructed one unit residential housing which are not covered by the definition of ‘residential complex’ - also, the fact that the construction of milk parlour is for State Govt.’s Enterprise-Rajasthan Cooperative Dairy Federation, has not been examined by the impugned order - matter is remanded for decision afresh for examination of full facts afresh - appeal allowed by way of remand.

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• 2017 (4) TMI 588
  Reversal of CENVAT credit - Rule 6(3)(c) of CCR - As per Rule 6(3)(c) the appellant is entitled to utilize Cenvat credit only to the extent of 20% whereas they have utilized Cenvat credit in excess to 20% , the said excess utilized Cenvat credit was demanded - Held that: - there is no bar in availment of the credit. Even if the appellant utilize excess credit in a particular month/period there will be a short utilization in the subsequent month this will amount to deferment of payment from cash from particular month to the subsequent month, this factual aspect was not looked into by the adjudicating authority - matter remanded to the adjudicating authority for passing a fresh de novo adjudication order - appeal allowed by way of remand.

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• 2017 (4) TMI 587
  CENVAT credit - denial on account of change of addresses - Held that: - There is no enquiry conducted to find out whether the amounts related to the appellant are not. In absence of any contra finding, there should not be denial of the Cenvat credit just for a technical defect - credit allowed. Construction of cabin chair, etc., bill for miscellaneous work in MD quarters, bill for miscellaneous work in apartment and use of telephone - Held that: - There is no justification nor any relevancy or integral connection brought out by appellant on the grounds of appeal to establish that those were essential input services for providing output service - credit denied. Construction of toilet for staff quarter - Held that: - the basic amenities for the employees have been provided like the obligation under Factories Act - credit allowed. Services of pest control - Held that: - it is essential requirement to carry on business to protect record for verification of the public authorities. Therefore, denial of Cenvat credit to such services shall be contrary to public interest - credit allowed. Appeal partly allowed - decided partly in favor of appellant.

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• 2017 (4) TMI 586
  Classification of service - post-sales services such as arrangements for checking the equipments periodically, providing the services of personnel, who are highly skilled and trained’ - classified as ‘consulting engineering service’ or as maintenance service? - Held that: - Deploying highly skilled and trained personnel for taking care of periodical servicing or even putting those people throughout the year on such job in respect of servicing and maintenance of complex hydraulic and mechanical equipments will not make these services ‘Consulting Engineer’s service’, when they are actually in the category of ‘maintenance services’ - appeal rejected - decided against Revenue.

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• 2017 (4) TMI 585
  Interpretation of statute - condition (c) to first proviso of N/N. 41/2012-S.T., dated 29-6-2012 - Held that: - Notification has to be strictly construed and that the conditions for taking refund under notification also to be strictly interpreted - In the present case, the condition certainly does not state that amount in para 3 will be subtracted from the amount in para 2, or that the resultant amount will be equal to “para 2 minus para 3” or even that amount in para 2 will the minuend and amount in para 3 will be the subtrahend - appeal dismissed - decided against Revenue.

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• 2017 (4) TMI 584
  Commercial or industrial construction service - Works Contract - Levy of service tax prior to 1.6.2007 - the decision in the case of Sobha Developers Ltd. Versus Commissioner of Central Excise and Service Tax, Bangalore [2009 (9) TMI 342 - CESTAT, BANGALORE] contested - Held that: - The present appeals, therefore, will be squarely covered by the decision of this Court in Larsen and Toubro Limited [2015 (8) TMI 749 - SUPREME COURT] - appeal dismissed - decided against the revenue.

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• Central Excise

• 2017 (4) TMI 600
  Rectification of mistake - appellant claims that Since the Tribunal order dated 19-8-16 and the grounds of appeal were not considered there is apparent mistake in the final order dated 13-10-2016 - Held that: - there is apparent mistake in the Order dated 13-10-2016. Since against the Order-in-Original whatever demand of duty and penalty was confirmed has been set aside by this Tribunal Order No.A/89440-89441/EB dated 19-8-2016 in Appeal No.E/3886 & 3887/05. Penalty in the present case being consequential to the said demand of duty will not survive, accordingly Order No.A/94266/16/EB dated 13-10-2016 is recalled, and after considering the fact that demand case has been already decided in favor of the applicant, Appeal No.E/1982/06-Mum is allowed - ROM application allowed.

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• 2017 (4) TMI 599
  Valuation - advertisement/publicity activity - reimbursable expenses - includibility - 70% expenses were already included in the assessable value by the assessee-Appellants. The dispute is regarding 30% expenses borne by the dealers - Held that: - This issue was adjudicated by the Hon’ble Supreme Court in the case of CCE, Surat Vs Surat Textile Mills Ltd., [2004 (4) TMI 81 - SUPREME COURT OF INDIA], wherein it was held that only when a manufacturer has enforceable legal right against his customers/ dealers to insist on incurring of expenses on advertisement, the advertisement expenses incurred by the dealers can be added to the assessable value - amount not to be included in assessable value - appeal allowed - decided in favor of assessee.

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• 2017 (4) TMI 598
  CENVAT credit - job-work - valuation - case of Revenue is that appellant have overvalued the goods and accordingly availed excess deemed credit which is attributed to the overvaluation of job work goods - Held that: - the department has not verified at what value the goods have been exported by the merchant exporter. Even if value of merchant exporter is adopted the said value which will be obviously more than value arrived at on job work basis - the deemed credit which is attributed the valuation of the job work goods cannot be disputed - appeal allowed - decided in favor of assessee.

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• 2017 (4) TMI 597
  CENVAT credit - emergence of exempted by-product - calcined lime - case of Department is that calcined is also manufactured goods therefore Cenvat credit attributed to the quantity of calcined lime cleared without payment of duty is required to be reversed - Held that: - calcined lime is generated unavoidably during the course of manufacture of lime - Rule 6(3) is not applicable in case of calcined lime which is by product in the present case - credit allowed.

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• 2017 (4) TMI 596
  Samples of medicine for testing - dutiability - whether the appellant is liable to discharge the duty liability in addition to the duty discharged by them in respect of the samples of medicines drawn for ‘in house testing and analysis’ for suitability and marketability of the medicines for sale? - Held that: - duty liability discharged by the appellant itself does not arise as there is no clearance of the finished goods from the factory premises - appeal allowed - decided in favor of assessee.

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• 2017 (4) TMI 595
  Shortage of stock - appellant case is that the difference in the stock of finished goods is due to wrong method of measurement by the officers - Held that: - whatever shortage was found at the time of visit of the officers and the panchnama was drawn for which no dispute was raised by the representative of the company who was present at the time of panchnama, all explanation given subsequently are of no help to the appellant - appeal dismissed - decided against assessee.

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• 2017 (4) TMI 594
  Terminal Excise Duty (TED)- Clearance of the vehicles under FTP without payment of duty - Department case is that the appellant ought to have first discharged the TED and should have claimed the refund - extended period of limitation - Held that: - Since the appellant had categorically informed the department regarding supply of goods under EPCG licence and filed the re-warehousing certificate, the allegation of suppression, fraud, etc. cannot be leveled against the appellant justifying the issuance of show cause notice by invoking the extended period of limitation - demand confined to normal period - since there is no suppression with intent to evade payment of duty, the penalty cannot be imposed on the appellant - appeal allowed - decided partly in favor of assessee.

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• CST, VAT & Sales Tax

• 2017 (4) TMI 578
  Validity of assessment order - lack of jurisdiction of the 3rd respondent to levy tax - violation of principles of natural justice - transfer of the right to use the rigs or not - contracts entered into within the State of Andhra Pradesh. Appellant claim that that the offshore drilling contracts were neither entered into nor executed within the State of Andhra Pradesh and hence the authorities under the A.P. VAT Act have no jurisdiction to assess such a contract to value added tax under the provisions of the A.P. VAT Act - also, it is their claim that the finding that there was a transfer of the right to use the rigs in terms of Section 4(8) of the Act was completely perverse. Whether the contracts entered into by the petitioner with the contractor of ONGC, could be taken to have been either entered into or executed/performed within the State of Andhra Pradesh, so as to confer jurisdiction upon the authorities under the A.P. VAT Act, 2005, to proceed against the petitioner? - Held that: - A dealer entrusted with the task of carrying out drilling operations in the west-coast on the Arabian Sea, when subjected to service tax liability by the concerned authorities, cannot be said to have wrongfully deprived the State of its revenue under the A.P. VAT Act, 2005. Therefore, all the reasons contained in the impugned order, assuming jurisdiction on the ground that the agreements should be presumed to have been entered into in the State of Andhra Pradesh, are wholly unsustainable in law and are completely perverse - issue of jurisdiction answered in favor of the writ petitioner. Whether in the facts and circumstances of the case, it could be deemed that there was a transfer of the right to use the rigs? - Held that: - the equipment and technical personnel provided by the petitioner to the main contractor are on charter hire, where the complete control was retained by the petitioner. All responsibilities were placed only upon the petitioner by the main contractor himself - transfer of the right to use not taking place. Appeal allowed - decided in favor of appellant.

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• 2017 (4) TMI 577
  Principles of natural justice - materials relied on by the Assessing Authority were not furnished to the petitioner - Held that: - when the respondent relied on certain materials collected from import data for passing the assessment, he has to furnish the same to the assessee so that the assessee can file a suitable objection/ reply to the allegations made in the SCN - the impugned orders of assessment cannot be sustained solely on the ground of violation of the principles of natural justice and consequently, the matter has to go back to the Assessing Authority for redoing the assessments once again - petition allowed by way of remand.

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• Indian Laws

• 2017 (4) TMI 574
  Penal provisions of the NDPS Act - inclusion of 'Ketamine' in the list of Psychotropic Substances specified in the Schedule to the Narcotic Drugs and Psychotropic Substances Act, 1985 vide Notification dated 10.02.2011 of the Ministry of Finance, Government of India - Held that:- The word "and" appearing in between clause (a) and clause (b) of Section 3 of NDPS Act should be read as "or" and the two clauses need to be given a disjunctive reading so as to give effect to the intention of the legislature lest sub-section 3(a) would be rendered otiose. The law is well settled that while considering the validity of the delegated legislation, the scope of judicial review is limited. The interference would be warranted only if it is shown that the statutory authority failed to exercise the power conferred within the four corners of the specific provision contained in the relevant statute under which the power is conferred or where the power was exercised on grounds which were not germane or relevant to the policy and purpose of the Act or where it was made on grounds which were mala fide. We have already held that the word "and" appearing in between clause (a) and clause (b) of Section 3 of NDPS Act should be read as "or" so as to give effect to the true intention of the legislature. We have also taken note of the fact that both CND and INCB recommended to put in place appropriate control measures to address the growing problem of Ketamine abuse and diversion to illicit channel for non-medical use. We are also satisfied that there is enough material before the Respondent with regard to trafficking of Ketamine. That being the case, Section 3(a) of the NDPS Act has been satisfied and the Respondent cannot be held to have exceeded the power conferred thereunder in issuing the impugned Notification dated 10.02.2011. Consequently, the challenge to the Notification dated 21.06.2011 which specifies the ‘small’ and ‘commercial’ quantity of ‘Ketamine’ for the purpose of penal provisions of the NDPS Act does not survive.

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