TMI Tax Updates - e-Newsletter
April 17, 2013

Case Laws in this Newsletter:

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

Articles

1. TAXATION OF PROPERTY TRANSACTIONS

   By: Dr. Sanjiv Agarwal

News

1. Anand Sharma Reviews India-EU BTIA With EU Commissioners Next Ministerial Meeting to be Held in June

2. Auction for Sale of Government Stocks

Notifications

Customs

1. 38/2013 - dated 15-4-2013 - Cus (NT)

Amends Notification No. 36/2001-Customs (N.T.), dated the 3rd August, 2001

Income Tax

2. 27/2013 - dated 30-3-2013 - IT

SECTION 10(46) OF THE INCOME-TAX ACT, 1961 - EXEMPTIONS - STATUTORY BODY/AUTHORITY/BOARD/COMMISSION - NOTIFIED BODY OR AUTHORITY - ASSAM STATE AIDS CONTROL SOCIETY

3. 25/2013 - dated 28-3-2013 - IT

SECTION 120 OF THE INCOME-TAX ACT, 1961 - INCOME-TAX AUTHORITIES - JURISDICTION OF - DGIT INVESTIGATION) - AMENDMENT IN NOTIFICATION NO. S.O. 734(E), DATED 31-7-2001

Circulars / Instructions / Orders

VAT - Delhi

1. F.(20)/2008-2009/CTT/EDP/Vol-III/Pt. file/13 - dated 4-4-2013

New Procedure for online & manual registration under the DVAT Act and documents to be enclosed for this purpose

Highlights / Catch Notes

Income Tax

• Section 68 Addition Challenged: Unexplained Cash Credits From Earlier Years Not Applicable to Current Year's Accounts.

  Case-Laws - AT : Unexplained cash credits - Addition made u/s 68 - Amount belong to earlier years - Since the amount was not credited in the books of accounts during the year, no addition u/s 68 - AT
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• Offset Dividend Income Against Speculation Loss Before Carrying Forward for Future Profit Offsetting.

  Case-Laws - AT : Dividend income is to be set off against the speculation loss and only the balance amount is to be considered to be speculation loss to be carried forward to be set off only against the speculation profit in subsequent years. - AT
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• Assessee in Default Possible u/s 201 for Shortfall, But No Disallowance u/s 40(a)(ia) Allowed.

  Case-Laws - AT : If there is any shortfall due to any difference of opinion the assessee can be declared to be an assessee in default u/s. 201 but no disallowance u/s 40(a)(ia) is allowed - AT
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• Transfer of tenancy rights not subject to section 50C of the Income Tax Act, court concludes.

  Case-Laws - AT : Transaction of transfer of tenancy rights - whether the impugned transfer of tenancy rights attracts the provisions of section 50C - held No. - AT
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• Tribunal Rules DTAA Omits Surcharge and Education Cess; Taxpayer Can Utilize DTAA Provisions for Tax Deduction.

  Case-Laws - AT : Since the DTAA is silent about the surcharge and education cess for the purpose of deduction of tax at source, this Tribunal is of the considered opinion that the taxpayer may take advantage of that provision in the DTAA for deduction of tax. - AT
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• Online Ad Receipts on Google and Yahoo Exempt from Indian Taxation per Income Tax Act and Tax Treaties.

  Case-Laws - AT : Receipts in respect of online advertising on Google and Yahoo cannot be brought to tax in India under the provisions of the Income Tax Act, as also under the provisions of India US and India Ireland tax treaty. - AT
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Customs

• Corrosion Inhibitors Imported Under DFIA License Eligible for Benefits Under Notification No. 40/2006.

  Case-Laws - AT : Any product which is ‘Corrosion Inhibitor' imported under DFIA licence, is eligible for benefit of Notification No.40/2006. - AT
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Indian Laws

• Supreme Court Rules Beta Crystalline Form of Imatinib Mesylate Ineligible for Patent Due to Non-Patentability.

  Case-Laws - SC : Fundamental that for grant of patent the subject must satisfy the twin tests of “invention” and “patentability” - the beta crystalline form of Imatinib Mesylate, fails in both the tests of invention and patentability - SC
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Service Tax

• Refund Claim Denied as Time-Barred; Authorities Must Follow Statutory Provisions Strictly According to Rule.

  Case-Laws - AT : Refund claim rejected as time bar - The original authority and the lower appellate authority being creatures of the statute, prima facie are required to follow the statutory provisions - AT
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Central Excise

• Manufacturers can't claim Cenvat credit for Sugar Cess under Sugar Cess Act, 1982; Rule 3 lacks provision.

  Case-Laws - AT : Cenvat credit on Sugar Cess - Rule 3 - there is no mention of credit that can be availed by a manufacturer on the Sugar Cess, paid under the Sugar Cess Act, 1982. - Credit not allowed. - AT
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• Service Tax Burden Falls on End Users, Not Manufacturers, Who Cannot Claim Credit for This Portion.

  Case-Laws - AT : Once proportionate service tax is borne by the ultimate consumer of the service, namely the worker/ beneficiary, the manufacturer cannot take credit of that part of the service tax - AT
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• Central Excise Officers must follow Board clarifications, even if Section 37B isn't mentioned in the circular.

  Case-Laws - HC : Any clarification issued by the Board is binding to the Central Excise Officers who are duty-bound to observe and follow such circulars. Whether Section 37B is referred to in such circular or not is not relevant. - HC
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Case Laws:

• Income Tax

• 2013 (4) TMI 347
  Addition of excise duty payable on closing stock as per the provisions of section 145A - Held that:- As decided in CIT-vs- Loknete Balasaheb Desai S.S.K. Ltd. [2011 (6) TMI 48 - BOMBAY HIGH COURT] in respect of excisable goods, manufactured and lying in stock, the excise duty liability would get crystallised on the date of clearance of goods and not on the date of manufacture. Thus held, that the manufactured sugar lying in stock and was not cleared from the factory Central excise liability was not incurred and consequently the addition of excise duty made by the Assessing Officer to the value of the excisable goods was liable to be deleted - in favour of assessee. Expenditure of interest paid on capital borrowed disallowed when the capital borrowed was used to give interest free loans to subsidiary and other companies - Held that:- Set aside the order of the CIT(A) and restore this issue to the file of the AO with the direction that the AO shall re-decide this issue, as per direction of the Hon'ble High Court for the assessment year 1994-95. This ground stands allowed for statistical purposes.

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• 2013 (4) TMI 346
  Unexplained cash credits - Addition made u/s 68 - CIT(A) deleted the addition - Held that:- No addition u/s 68 can be made during the year as the amount has not been received in the assessment years under consideration as the amount as is apparent is received by the assessee in the financial years 1992-93 and 1997-98 much prior to the impugned assessment year. During the year the assessee has transferred the amount to the share application account from advance for flats. Thus no fresh amount has been received by the assessee during the year u/s 68. The amount held to be added in the year in which the amount is credited in the books of accounts of the assessee where the assessee has offered an explanation about the nature of the concern of the amount or explanation offered by the assessee before the AO is not satisfactory. Since the amount was not credited in the books of accounts during the year, therefore, CIT(A) has rightly deleted the addition. Unexplained investments - Addition u/s 69 - CIT(A) deleted the addition - Held that:- The finding of the fact that from the audited balance sheets for the year ending 31.03.2004 and 31.3.2003, it is seen that balance of Rs.21,33,299/- representing the advance for flats in those years and during the year after that if a sum of Rs.5 lakhs was transferred to the share application money which has already been dealt with in ground no.1 and a sum of Rs4,85,500/- was refunded by the assessee to the parties. Under these facts, it is not a case where the provision of section 69 will be applicable - the order of the CIT(A) confirmed and delete the additions. Advance for construction of the flat - assessee has shown advance for construction of the flat at Rs.2,93,000/- and similarly a sum of Rs.2,28,577/- was shown by the assessee as receivable in cash &in the absence of any explanation being offered the AO added a sum of Rs.5,21,577/- - Held that:- As assessee has not submitted any books of account before the AO even the CIT(A) has also not examined the books of accounts so that it may be ascertained that these advances were duly recorded in the books of the assessee. The assessment has been framed u/s 144 of the IT Act and the copy of the ledger account along with the details of the party were also filed by the assessee for the first time before the CIT(A). Under these facts and circumstances of the case the assessee has not discharged his onus fully and the AO could not examine the books of accounts of the assessee whereas this information are reflected in the books of assessee. Therefore, in the interest of both the parties restore this issue to the file of the AO with the direction that the AO shall re-examine this issue.

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• 2013 (4) TMI 345
  Set off dividend income against the speculation loss - AO contested against the directions of CIT for directing to set off ignoring the fact that speculation loss cannot be set off with any income other than speculation income &only the balance amount is to be considered to be speculation loss to be carried forward and to be set off only against the share business profit in subsequent years - Held that:- It is not denied that the shares are held by the assessee as stock in trade and the assessee earned dividend income on the shares as stock in trade. The finding of CIT(A) that the assessee is engaged in speculation business and the loss incurred by the assessee on the purchase and sale of shares by applying Explanation (b) to section 73 and the Revenue has not come in appeal against this finding. The dividend income earned by the assessee on stock in trade of such speculation business formed integral part of such deemed speculation business and was eligible to be set off against its so called speculation loss. In this regard, it is held that the dividend income is to be set off against the speculation loss and only the balance amount is to be considered to be speculation loss to be carried forward to be set off only against the speculation profit in subsequent years. Respectfully following the said decision of the Tribunal no infirmity in the order of the CIT(A) is found - against revenue.

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• 2013 (4) TMI 344
  Disallowance made u/s 40(a)(ia) - assessee had deducted TDS but the tax deduction is not in accordance with the rate as has been prescribed u/s 194C, 194H and 194J of the IT Act - CIT(A) deleted the disallowance - Held that:- As decided in CIT vs M/s. S.K.Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] Section 40(a)(ia) refers only to the duty to deduct tax and pay to government account there is nothing in the said section to treat the assessee as defaulter where there is a shortfall in deduction. And if there is any shortfall due to any difference of opinion the assessee can be declared to be an assessee in default u/s. 201 but no disallowance u/s 40(a)(ia) is allowed - confirm the action of the CIT(A) so far as it relates to the short deduction by deleting the disallowance made by the AO u/s 40(a)(ia) - in favour of assessee. Balance amount of Rs.5,071,483/- - contention of the assessee that it had deducted the tax in course of various provisions but payment of the tax so deducted was made before filing of the due date of the return u/s 139(1) - Held that:- Once the issue is decided in Virgin Creations case [2011 (11) TMI 348 - CALCUTTA HIGH COURT] that the amendment made in the provisions of section 40(a)(ia) by the Finance Act 2010 as curative and remedial and TDS paid before filing of the return u/s 139(1) the deduction in respect of the amount on which the TDS is shown is allowed. As in the present case since the DR vehemently contended that the AO has not verified the date of payment of the TDS by the assessee the order of the CIT(A)so far it relates to Rs.5,071,483/- is set aside & restore the matter to the file of AO for the purpose verification whether the assessee has deposited the TDS before the due date of filing of the return u/s 139(1) of the IT Act - in favour of revenue for statistical purposes.

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• 2013 (4) TMI 343
  Disallowance u/s 40(a)(ia) - Held that :- As decided in Merilyn Shipping & Transports vs ADIT, Range-I, Visakhapatnam [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] that section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at source – Decided in favor of assessee. Addition made u/s 40(a)(ia) - assessee contended that the expenses represented only the reimbursement of the customs clearance expenses incurred by both the parties & does not represent the payment being made for the services rendered by the clearing agent - Held that:- It is a fact that if the assessee reimbursed the expenses towards freight incurred on its behalf under an agreement for which separate bills is raised, and to such payments the provision of section 194 of the I.T.Act is not attracted. See INCOME TAX OFFICER Versus DR. WILLMAR SCHWABE INDIA PVT. LTD. [2005 (3) TMI 398 - ITAT DELHI-D] - As when it is not disputed that the said amount has been incurred for reimbursement of the expenses deletion of the addition confirmed - in favor of assessee.

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• 2013 (4) TMI 342
  Disallowance of commission payment - whether the said payments are allowable u/s. 37(1) - assessee was engaged in the business of manufacturing electrical items supplying material to Railways and BHEL - Held that:- While carrying out its business, assessee-company had availed services of certain persons and made payment to them it cannot be held that expenditure incurred was not for business. Documents referred to by the assessee clearly indicate that assessee was getting orders/payments/ pieces of information from the persons payments have been made. Getting information about the material required by Indian Railways/BHEL was one of the activities of the agents and they were paid for it. Assessee is situated at Mumbai and for procuring orders, if he avails services of agents instead of opening branch offices at different places, it can easily be termed a prudent decision. One cannot forget that advertisement for procuring the orders are not always published in national news papers. When goods are required in smaller quantities, tenders are floated in local news papers only. Assessee-company can have access to such tenders through local agents only. In these circumstances, if agents have been paid commission, it has to be held an allowable expenditure. Thus payments made by the assessee to agents were not against public policy rather same were pure business transactions. Assessee did not make any payment in contravention of law of the land and hence cannot be treated as expenditure incurred against public Policy & the expenditure is allowable as business expenditure - in favour of the assessee.

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• 2013 (4) TMI 341
  Disallowance of cash expenditure for purchase of raw material and freight charges - Provisions of section 145(3) invoked - assessee is a partnership firm engaged in building construction activities - Held that:- The expenditure in question is directly connected to the project Gagan Galaxy only and the AO has not appreciated this fact by closely examining the material available before him. Further, the CIT (A) allowed the claim of the assessee after examining the nature of the expenditure and the genuineness of the expenditure. The date of 12th December 2006 ie the date of application filed by the assessee for want of 'Completion Certificate' should not assume so much of significance so as to made disallowance of Rs 50 lakhs, when the genuineness and business connection to the Gagan Gallaxy project is established. As such the AO does not have any incriminating material in his possession to demonstrate that the impugned expenditure is incurred in connection with any other project. It is the case of wild allegation against the assessee that the said expenditure is not incurred for Gagan Gallaxy Project and such allegation should only be made when the AO has some incriminating material in his possession. Therefore, no reason to interfere with the order of the CIT (A).

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• 2013 (4) TMI 340
  Transaction of transfer of tenancy rights - whether the impugned transfer of tenancy rights attracts the provisions of section 50C - whether u/s 2(47)(v) the giving of possession in part performance of a contract as per section 53A of the Transfer of Property Act is deemed to be a transfer - Held that:- The Tribunal's decision in the case of Shri Atul G. Puranik vs. ITO (2011 (5) TMI 576 - ITAT, MUMBAI) which of course deals with the case of 'transfer of lease rights' in principle shall apply to the impugned transfer of 'tenancy right', which is neither land nor building nor both. Like the 'lease rights', the 'tenancy rights' are also the capital rights attached to the 'land or building or both' and however, they are not covered by the definition of 'land or building or both' specified in the provisions of section 50C, which is marked as deemed provisions. The deemed provisions are not to be extended to items of capital assets which are not mentioned in section 50C and it is the settled legal position. Therefore, considering the above settled nature of the issue the provisions of section 50C which is the deeming fiction of substituting the value adopted or assessed or assessable by the stamp valuation authority only in respect of land or building or both cannot be extended or extrapolated to the transaction of transfer of the tenancy rights. Accordingly, grounds raised by the Revenue are dismissed and decided in favour of the assessee.

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• 2013 (4) TMI 339
  Deduction of tax at source on surcharge and education cess - surcharge portion was not taken into consideration while deducting the tax. - Held that:- It is obvious that in respect of a taxpayer to whom the double taxation avoidance agreement applies, the provisions of the Indian Income-tax Act shall apply to the extent they are more beneficial to that taxpayer. Thus if the provisions of DTAA are more beneficial to the taxpayer, then the provisions of DTAA would prevail over the Indian Income-tax Act. Since the DTAA is silent about the surcharge and education cess for the purpose of deduction of tax at source, this Tribunal is of the considered opinion that the taxpayer may take advantage of that provision in the DTAA for deduction of tax. The CIT(A) has only deleted the tax component to the extent of surcharge and education cess at the rate applicable under the DTAA. Therefore, this Tribunal do not find any infirmity in the orders of lower authority. Accordingly the same are confirmed.

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• 2013 (4) TMI 338
  Online advertising to US based entities i.e. Google, Ireland and Yahoo, USA - whether an Obligation to deduct tax at source under section 195 arises? - whether according to the provisions of the DTAA, no portion of payments made to the non resident companies is taxable in India - CIT(A) deleted the addition? - The assessee is a florist using advertising on search engines, i.e. by Google and Yahoo, to generate business - disallowance of advertisement expenses made by the A.O. by invoking the provisions of sec.40(a)(i) - Whether payment to Google and Yahoo could be treated as 'Royalty' or 'FTS' - Held that:- The service which is rendered by the Google is generation of certain text on the search engine result page. This is a wholly automated process. There is no dispute that in the services rendered by the search engines, which provide these advertising opportunities, there is no human touch at all. The results are completely automated and, as evident from the screenshots reproduced earlier in this order, these results are produced in a fraction of a second- 0.27 seconds in the screenshot reproduced earlier. For the reason that there is no human touch involved in the whole process of actual advertising service provided by Google, in the light of the legal position that any services rendered without human touch, even if it be a technical service, it cannot such a technical service which is covered by the limited scope of Section 9(1)(vii), the receipts for online advertisement by the search engines cannot be treated as fees for technical services taxable as income, under the provisions of the Income Tax Act, in the hands of the Google. The wordings of Explanation 2 to Section 9(1)(vii) as also that of the definition of fees for technical services under Article 12(2)(b) being similar in material respects, the above legal proposition equally applies to the definition under article 12 (2)(b) of India Irish tax treaty. The income earned by Google, in respect of online advertising revenues cannot be brought to tax as income deemed to accrue or arise under section 9(1)(vii), i.e. last limb of Section 9(1), as well. Once come to the conclusion that the online advertising payments made to Google Ltd cannot be brought to tax in India, under section 5(2) r.w.s. section 9 these amounts are not exigible to tax in India at all. The facts relating to Yahoo being admitted similar in material aspects, the same conclusion holds good in respect to Yahoo as well. Since Yahoo is a USA based Delaware company and since Indo USA tax treaty provides for a make available clause which restricts the source taxation of only such technical services, referred to as 'included services' in Indo US tax treaty, as make available the technical knowledge etc. The connotations of expression 'make available' were examined by the Tribunal in the case of Raymond Ltd. v. Dy. CIT (2002 (4) TMI 891 - ITAT MUMBAI). Thus rendering of technical services cannot be equated with making available the technical services. Accordingly unless services rendered by the service provider results in transfer of technology and enable the recipient of service to make use of technical knowledge by himself, and without recourse to the service provider, mere rendition of such services cannot be brought to tax as fees for technical service. Clearly, so far as online advertising is concerned, there no transfer of any technology of any kind, and as such any payment for such service is outside the ambit of source taxation under Article 12. For this reason also, the payments made to Yahoo could not be brought to tax in India. Thus the receipts in respect of online advertising on Google and Yahoo cannot be brought to tax in India under the provisions of the Income Tax Act, as also under the provisions of India US and India Ireland tax treaty. Revenue has not brought anything on record, either at assessment stage or even before us, to suggest that Google or Yahoo had a PE in India, and as held by a Special Bench of this Tribunal in the case of Motorola Inc v. DCIT (2005 (6) TMI 226 - ITAT DELHI-A) that the burden is first on the Revenue to show that the assessee has a taxable income under the DTAA, and then the burden is on the assessee to show that that its income is exempt under DTAA". No such burden is discharged by the Revenue. Accordingly, there is no material to come to the conclusion that Google or Yahoo had a PE in India, which, in turn, could constitute the basis of their taxability in India. The law is now very well settled in the case of GE India Technology Centre Pvt Ltd v. CIT (2010 (9) TMI 7 - SUPREME COURT OF INDIA) wherein held that, "where a person responsible for deduction is fairly certain, then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof". Thus there was no failure in deduction of tax at source by the assessee inasmuch as the assessee did not have any obligation to deduct tax at source under section 195 for the simple reason that income embedded in impugned payments was not exigible to tax in India. Accordingly, the disallowance under section 40(a)(i) was uncalled for. Learned CIT(A) rightly deleted the impugned disallowance. In favour of assessee.

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• Customs

• 2013 (4) TMI 337
  Appellant claimed the benefit of Notification No. 40/2006-Cus dated 1.5.2006 for imported goods ‘Sodium Saccharin' – Denied, as the goods under import does not satisfy the description given in the licence and the goods for which the licence has been issued is different in quantity compared to the item indicated in the licence- lower appellate authority, allowed their appeal based on the DGFT's Circular No.50/2008 and the Board's Circular No.46/2007 – Aggrieved revenue filed this appeal Held that - The appellant has imported Sodium Saccharin and ‘Sodium Saccharin' is a ‘Corrosion Inhibitor' as clarified by the Norms Committee of the Ministry of Commerce in consultation with the Department of CECRI-CSIR, Govt. of India. Therefore, any product which is ‘Corrosion Inhibitor' imported under DFIA licence, is eligible for benefit of Notification No.40/2006. From the records, it is also seen that the respondent herein has not exceeded the quantity and value limit specified in the licence. we dismiss the appeal filed by the Revenue as devoid of merits.

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• 2013 (4) TMI 336
  Pendency of the appeal for final hearing - revenue is not finalising their subsequent assessments - Held that - we direct the respondent to finalize the assessment provisionally assessed pending as per law, without waiting for the decision of the appeal no. C/491/09.

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• Corporate Laws

• 2013 (4) TMI 335
  Application u/s 543 – Directors of respondent Company (in winding up) abused their fiduciary position – breach of trust – non furnishing investments documents – Held that - As Official Liquidator does not state what was the value of these shares as on the date of winding up order was passed or even as on the date of filing of statement of particulars by ex-directors so as to arrive at a conclusion that on account of such non-handing over of shares certificates it has resulted in financial loss to the company (in liquidation) which otherwise would not have occurred. Considering same view that none of these ingredients being present in this application hence, application stands rejected.

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• 2013 (4) TMI 334
  Section 9 of Arbitration and Conciliation Act, 1996 - Violation of the terms of the Agreement - Section 27 of the Contract Act, 1872 as the doctrine of restraint of trade - Nature of interim order - Held that :- . It has been argued that incase, the respondent is allowed to get away from his such deeds without any pinch, wrong message would also go to the similar situated employees who may do the same without any fear and fairness - In normal case, such argument would not have been considered but in the present case it is evident from the entire gamut of the matter, the respondent had been negotiating with the competitor of the petitioner during the terms of the agreement. Further, the modus operandi adopted by him at the time of termination of contract was not straight and frank. Rather in his e-mail dated 13th February, 2013 he asked the petitioner not to resort to manipulating tactics and reserved his right to take action against the petitioner for damages and loss. In order to give him a correct message, it has become necessary to pass some interim directions, the respondent is restrained for the period of seven days between 12th April, 2013 to 18th April, 2013 from any manner engaging or providing services either as a presenter, host, anchor, reporter or in any other manner on-screen solo of television in any channel including in the channel where he has been recruited - No further orders are required to be passed - The petition is accordingly disposed

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• 2013 (4) TMI 333
  Section 11(6) of the Arbitration & Conciliation Act, 1996 - Appointment of arbitrator under clause 8 of the agreement - Claims & Application filed U/s 11 are time barred - Execution MOU - Regarding issue of limitation - Held that:- The Constitution Bench of the Supreme Court in the case of SBP Vs. Patel Engg. 2005 (8) SCC 618 has held that the proceedings U/s 11 of the Arbitration & Conciliation Act, 1996 is not before the court - In my view as the application U/s 11 is not before the court, the provisions of the Limitation Act, 1963 are not applicable to such application filed U/s 11 - Thus there is no substance in the submission of learned counsel for the respondent that application U/s 11 having been filed in the year 2009 is barred by law of limitation. Regarding reliance placed on the MOU - Held that:- Though there was reference to the said alleged MOU dated 14th July, 2003, in the said letter, the respondents unconditionally agreed to resolve all the disputes between the parties by referring the said disputes to arbitration - The respondent had agreed that the arbitrator be appointed from the Indian Council of Arbitration and had requested the applicants to suggest five names - The said letter clearly indicates that even otherwise, the parties have recorded arbitration agreement in terms of section 7(4)(a) of the Arbitration & Conciliation Act,1996 - Shri. N.N. Shrikhande is appointed as sole arbitrator -Application is disposed of.

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• 2013 (4) TMI 332
  Scope of Arbitration agreement - Whether arbitration agreement recorded in partnership deed dated 24th April, 2000 entered into between the parties is exhausted and ceased to have effect on declaration of the award dated 25th June, 2007 made by the Arbitral Tribunal in the earlier proceedings and if the same is not exhausted whether dispute now having arisen between the parties can be referred to arbitration under the said arbitration agreement? - Held that:- On perusal of the prayers setout by the learned arbitrator in para (7) of the said award, it is clear that the respondent himself had sought a declaration that Mr.Mahendra Thakkar, opponent no.5 in the said proceedings be declared as senior partner of the firm as setout in clause 10(a) of the said partnership deed dated 24th April, 2000. The respondent had also prayed for expulsion of the applicants herein from the said firm w.e.f. 22nd August, 2003 and on 1st October, 2003 in view of the alleged breaches of partnership deed as contemplated under clause 9(a) and 9(b) of the said partnership deed dated 24th April 2000. The respondent had also applied for resolution of dispute between the parties on the basis of the arbitration agreement recorded between the parties in the said deed of partnership dated 24th April, 2000. It is not the case of the respondent that there existed any other arbitration agreement between the parties other than the arbitration agreement recorded in the said deed of partnership dated 24th April, 2000. These findings of fact recorded by the learned arbitrator in the said award dated 25th June, 2007 are final and binding. Thus the respondent himself having invoked arbitration clause under the same partnership deed dated 24th April, 2000 which culminated in the said award, which proceedings were filed after 2000, respondent cannot be permitted to raise a plea that the terms and conditions of the partnership deed including arbitration agreement ceased to exist in view of the parties not having executed a fresh partnership deed after 24th April, 2000. From the arbitration proceedings initiated by the respondent himself which culminated in award, it is clear that the rights and obligations of the parties under the said deed of partnership dated 24th April, 2000 including arbitration agreement continued. The respondent has acted upon the said arbitration clause and had demanded various reliefs based on the provisions of the said partnership deed. It is not in dispute that the learned arbitrator has rendered a finding that the partnership business continued on the basis of the said partnership deed. Mr.Mahendra Thakkar also stood retired from the partnership under clause 12(a) of the said partnership deed dated 24th April, 2000 on attaining the age of 65 years in the financial year 2006-07. Thus respondent cannot be permitted to blow hot and cold at the same time. It is not in dispute that the respondent himself has applied for expulsion of the applicants of the said partnership by relying upon clause 9(a) and (b) of the said partnership deed dated 24th April, 2000 in the said arbitration proceedings. The perusal of the Memorandum of Understanding and the Consent Terms relied upon by both parties would indicate that the Consent Terms dated 8th September, 2005 were arrived at between the parties in the proceedings filed under section 9 by the applicants. Perusal of various letters addressed by the respondent to the applicants annexed to the affidavit dated 23rd November, 2012 in Arbitration Petition No. 856 of 2012 makes it clear that the arbitration agreement is not exhausted and continued to be in force and binding on both parties. The respondent himself has repeatedly referred to such arbitration agreement and proceedings initiated by the applicants by letter dated 26th September, 2009. The respondent refused to comply with various requisitions of the applicants by categorically inviting the attention of the applicants to the existence of such arbitration agreement and by repeatedly contending that all such disputes were subject matter of arbitration. The question as to whether profit and loss ratio of the partners remain the same that was recorded in the said partnership deed or was revised and if so, at what rate and distribution of the profit and withdrawal of capital account, disbursement of expenses etc. would be a dispute in connection with the partnership or the said partnership deed which can be referred to arbitration in terms of the said clause. Thus not inclined to accept the submission made by the respondent that the Memorandum of Understanding and the Consent Terms entered into between the parties after execution of the partnership deed dated 24th April, 2000 shall be read in isolation or that the said two documents signed by the parties were in substitution of the partnership deed. The applicants in the present application have prayed that the arbitrator be appointed on behalf of the respondent or in the alternative to appoint Mr.Justice S.K.Shah, former Judge as the sole arbitrator. In view of the fact that the respondent has not agreed to appoint any arbitrator and did not agree to the name of Mr.Justice S.K.Shah, former Judge of this Court as arbitrator, Mr.Justice J.P.Devadhar, former Judge of this Court is appointed as an arbitrator on behalf of the respondent. Both the learned arbitrators are requested to appoint the presiding arbitrator in accodance with the provisions of the Arbitration and Conciliation Act, 1996.

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• Service Tax

• 2013 (4) TMI 352
  Refund claim rejected as time bar - Service provider, namely, M/s.Aban Offshore Ltd., has paid the impugned tax amount under the category of Mining Service without disputing the same - Held that:- As it is settled law that unless the assessment has been disputed, no refund can be sanctioned as decided in M/s.Flock India (2000 (8) TMI 88 - SUPREME COURT OF INDIA) and M/s.Priya Blue (2004 (9) TMI 105 - SUPREME COURT OF INDIA). Prima facie, in this case, the assessments have not been challenged by the service provider who is the tax payer and, therefore, it cannot be said that the respondents have a prima facie case in their favour for grant of refund of the impugned amount. Also the respondents have filed the refund claim under Section 11 B of the Central Excise Act as made applicable in respect of service tax. The original authority and the lower appellate authority being creatures of the statute, prima facie are required to follow the statutory provisions while dealing with a refund claim filed under the same statute under Section 11B. Therefore it appears that the order passed by the lower appellate authority disregarding the provisions relating to limitation and unjust enrichment etc. provided under the said Section 11 B may not be legal and proper and beyond his jurisdiction. The balance of convenience lies in staying operation of the impugned order passed by the lower appellate authority allowing liberty to both parties to the dispute to file an application for early hearing considering the high amounts involved in this case.

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• 2013 (4) TMI 351
  Service tax on Cleaning Services - assessee pleaded that services being rendered to the hospitals, religious and charitable institutions are not covered under the category of services as they are not commercial concerns hence no liability to service tax - Held that:- The impugned order does not talk about the details of hospitals, religious and charitable institutions and non commercial concerns for coming to a conclusion whether these institutions are excluded from the definition of service. From the impugned order it is found that the lower authorities are recording that these details are not produced. Also Chartered Accountant plea that the value of the material has been included for the purpose of arriving at the service tax liability, is erroneous on the ground that the lower authorities in the subsequent show cause notices are issued demanding the service tax on the actual services rendered by them - the issue needs reconsideration by the adjudicating authority by appreciating all the pleas which the appellant takes before him.

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• 2013 (4) TMI 350
  Eligibility for the benefit of Notification No. 32/2004-ST dated 03.12.2004 denied - 75% abatement of the gross value of the transportation charges incurred subject to condition that the cenvat credit is not availed by the said transporter - denied - Held that:- It is undisputed that the adjudicating authority has confirmed the demand only on the ground of non production of declaration for non availment of cenvat credit & if the contention of the counsel has to be accepted, then in this case the evidences need to be produced before the adjudicating authority who may consider the same in proper perspective. Thus the matter needs appreciation by the adjudicating authority in the remand proceeding.

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• 2013 (4) TMI 349
  Waiver of pre-deposits - demand of service tax - Appellant has rendered the services of maintenance and repairs of roads – Held that - since the issue is now covered by the retrospective amendment in Section 97 of Finance Act, 2012, we find that the impugned order is liable to be set-aside. Impugned order is set-aside and appeal is allowed.

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• Central Excise

• 2013 (4) TMI 331
  The issue involved in this case is regarding the discharge of differential duty which has been worked out by the lower authority based upon the difference between the theoretical yield and the actual yield as recorded by the appellant of a bulk drug intermediate. - Held that – It shows that the findings arrived at by the adjudicating authority are on the basis of assumptions and presumptions and in the absence of any independent evidence, cannot be upheld. Decision of the Tribunal in the case of Swati Polyester [2005 (8) ELT 216 (Tri. Mumbai)] would also be applicable in this case as the confirmation of the differential duty is based upon the assumption made. I find that the impugned order is unsustainable and is liable to be set aside. The impugned order is set aside and the appeal is allowed.

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• 2013 (4) TMI 330
  Eligibility of Cenvat credit on Sugar Cess - Held that - Rule 3 of the Cenvat Credit Rules clearly stipulates the credit which can be availed by a manufacturer. In the said list of credits that can be availed by a manufacturer, I find that there is no mention of credit that can be availed by a manufacturer on the Sugar Cess, paid under the Sugar Cess Act, 1982. The appeals are rejected.

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• 2013 (4) TMI 329
  Waiver of pre-deposit - Wrong availment of Cenvat Credit - CHA Services, THC and GTA Services - Held that:- As regards the Cenvat credit of service tax paid on CHA Services, THC and GTA Services, there are various decisions which indicate that appellant/ assessee is eligible for availing Cenvat credit of the service tax paid by the service providers. As regards the service tax paid on the Export Sales Commission, we find that the Honble High Court of Gujarat is against the appellant as held in the case of Cadila Health Care. Since the first appellate authority has dismissed the appeal only for non compliance with the order of pre deposit and without recording any findings on the merits of the case - We direct the appellant to deposit an amount of Rs. 34,000/- within a period of four weeks from today and report compliance before the learned Commissioner (Appeals) - The first appellate authority, on such compliance being shown to him, will take up the appeal for disposal and decide the same on the merits of the case, after affording reasonable opportunity of being heard - Appeal disposed of as indicated hereinabove.

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• 2013 (4) TMI 328
  Disallowance of cenvat credit proportionate to the amount recovered from the employees/ workers of the appellant - Held that:- As decided in the case of Ultratech Cement Limited [2010 (10) TMI 13 - BOMBAY HIGH COURT] that once proportionate service tax is borne by the ultimate consumer of the service, namely the worker/ beneficiary, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. Thus proportionate credit, to the extent it is embedded in the cost of food recovered from the employee/ beneficiary, is not admissible to the appellant. It has been rightly held by Commissioner (Appeals) in his findings that no evidence has been produced by the appellant to the effect that service tax element embedded in the payment received from the employees is not recovered from the employees/ beneficiary. Like a concept of unjust enrichment for refunds under Section 11B of the Central Excise Act, 1944, the onus is on the appellant to establish with documentary evidence that the element of service tax paid by the appellant is not recovered from the beneficiary/ employees of the appellant. On merits, therefore, the case goes against the appellant and in favour of the Revenue. Application of limitation under Section 11A of the Central Excise Act, 1944 - Whether limitation will be applicable when the credit improperly taken has been noticed during the course of second audit - Held that:- The judgment MTR Foods Limited (2012 (10) TMI 165 - KARNATAKA HIGH COURT) & Kay Kay Press Metal Corporation vs. CCE Valsad [2011 (5) TMI 768 - CESTAT, AHMEDABAD] as relied upon by assessee are distinguishable on facts as in the present case no separate data were given by the appellant to the department in the monthly returns & the fact that certain amounts were recovered from the beneficiaries/ workers by the appellants, was suppressed from the department and the same came to the knowledge of the department only through an audit - against assessee.

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• 2013 (4) TMI 327
  Interest on Refund - Writ petition - the claim of interest was rejected on the ground that earlier refund was denied on the ground of unjust enrichment, meaning thereby that the refund was lying with the Consumer Welfare Fund and was not with the department. Therefore, no interest is payable to the petitioner - Held that:- this writ petition is totally misconceived, and is nothing but misuse of the process of the Court. The petitioner in this writ petition challenged the order of Commissioner of Central Excise (Appeals) dated 23.01.2007. In the counter filed to the writ petition, it was disclosed, that the impugned order already stood set aside in appeal. The copy of the order was also placed on record. Inspite of order of the CESTAT, the petitioner did not choose to challenge that order in not granting interest. It is well settled law, that no relief can be granted, which is not claimed and qua which there is no pleadings in the affidavit to support the prayer made. It is true, that the petitioner had disclosed in the writ petition, that the petitioner had also challenged the order before CESTAT and that the writ petition was on the plea, that petitioner did not expect justice from the Tribunal. - This cannot be a ground to maintain the writ petition. The writ as framed itself was not maintainable in view of the settled law, that it is not open to the party to continue two parallel proceedings, i.e., appeal and writ petition on the same cause of action. Even on merit, the plea raised by petitioner for grant of interest is not sustainable in law, in view of the law laid down by the Honble Supreme Court in the cases of Union of India vs. Shreeji Colour Chem Industries [2008 (9) TMI 12 - SUPREME COURT], and Union of India vs. E.Merck (India) (1994 (12) TMI 95 - SUPREME COURT OF INDIA). - Decided in favor of revenue.

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• 2013 (4) TMI 326
  Whether the Bagasse based plain and pre-laminated particle boards falling under chapter Heading No. 4410 of the Central Excise Tariffs Act, 1985 are liable for payment of excise duty @ 8% ad valorem as provided under Notification No. 4/2006-C.E., dated 1st March 2006 (Serial No. 87) or eligible for full exemption under Notification No. 6/2006-C.E., dated 1st March 2006 (Serial No. 82). - Seizure of documents by revenue. - Maintainability of writ petition - Held that - In Harbanslal Sahnia and Another v. Indian Oil Corporation Limited and Others, reported in [2002 (12) TMI 564 - SUPREME COURT], Supreme court observed the contingencies in which the High Court could exercise its writ jurisdiction in spite of availability of the alternative remedy. - in this country of stiff competition it would be virtually very difficult for the petitioner to survive in the business. Companies manufacturing pre-laminated plain particle board made of Bagasse in other States of the country have not to pay any duty, whereas for the same product the petitioner in this particular State is being asked to pay duty of 8% ad valorem. It is for this reason that we are of the view that this writ petition seeks enforcement of fundamental right to carry on trade or business without any discrimination of any nature. The present petition is not the one in which the controversy centres around the issues which are primarily questions of fact. - here are good grounds in the present case so as to entertain this petition despite the fact that there is a remedy of appeal available under Section 35G of the Act. Any clarification issued by the Board is binding to the Central Excise Officers who are duty-bound to observe and follow such circulars. Whether Section 37B is referred to in such circular or not is not relevant. - Decision in the case of Ranadey Micronutrients v. Collector of Central Excise [1996 (9) TMI 124 - SUPREME COURT OF INDIA] followed. The submission that the letters issued by the Board in the present case were communications answering queries raised by the Commissioners of particular areas and hence such letters were not binding because they were not issued under Section 37B is not the correct proposition. When other Central Excise authorities of equal and higher rank have followed and acted as per the clarifications, the Commissioner, Surat, could not have taken a contrary view on the assumption that the clarifications were only letters and not orders under Section 37B. It is declared that the goods manufactured by the petitioner, namely, Bagasse Board, is chargeable to nil rate of duty under Serial No. 82(vi) of Table to Notification No. 6/2006-C.E. - Decided in favor of assessee.

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• CST, VAT & Sales Tax

• 2013 (4) TMI 355
  Application for interim relief - Stay granted to the extent of 55% of the tax amount - Held that:- As decided in I.T.C. Ltd. vs. Commissioner (Appeals), Custom & Central Excise, Meerut-I [2003 (10) TMI 70 - HIGH COURT OF JUDICATURE AT ALLAHABAD] while considering the application for stay/waiver of a pre-deposit, as required under the law, the Court must apply its mind as to whether the appellant has a strong prima facie case on merit. Keeping in view the settled position of law on the point in issue and from the perusal of the appellate order passed by the appellate tribunal thereby passing the impugned orders, the said authorities have not indicated its mind so far as the existence of the prima facie case on merits on appeal as well as the financial condition which are to be considered by them while passing the impugned orders on an application for stay pending in the first appeal. The said mandatory condition is to be taken into consideration while disposing of an application for interim relief moved by the assessee by the appellate authority as well as tribunal during the pendency of appeal - the present revision is disposed of with a direction to the FAA to decide the appeal filed by the assessee expeditiously say within a period of two months from the date of receiving a certified copy of this order.

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• 2013 (4) TMI 354
  Cancellation of Registration - Procedure for registration U/s 39 - Held that:- The authority has not at all followed the procedure prescribed under Sub Sections 14 and 15 of Section 39 of the Act in giving an opportunity of hearing to the dealer before cancelling the certificate of registration. It is the cardinal principle that any authority, who is vested with quasi judicial function, should mandatorily comply with the procedure contemplated under the relevant Act and any violation against such procedure can be termed as violation of the principles of natural justice. The impugned order, being one passed in violation of the principles of natural justice, is unsustainable and is accordingly quashed - The matter is remanded back to the respondent with liberty to the respondent to proceed afresh by affording an opportunity of hearing to the petitioner and then proceed further to pass appropriate orders in accordance with law within a period of four weeks from the date of receipt of a copy of this order - The writ petition stands allowed with the above directions - Connected miscellaneous petition is closed.

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• 2013 (4) TMI 353
  Assessment under the KVAT Act - Granting stay on condition that the petitioner remits 50% of the amount under orders under KVAT Act and furnishing security for the balance - Has defaulted in the payment of installments due to which recovery proceedings initiated - Held that:- Subject to the petitioner paying the balance amount due under orders passed by the 1st respondent and furnishing security as ordered therein, within two weeks from today, further proceedings will stand stayed pending disposal of appeals by the 1st respondent. Petitioner will produce a copy of this judgment along with a copy of the writ petition before the 1st respondent for compliance - Writ petition is disposed of as above.

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• Indian Laws

• 2013 (4) TMI 348
  Patent application rejected - Does the product for which the appellant claims patent qualify as a “new product” which comes by through an invention that has a feature that involves technical advance over the existing knowledge and that makes the invention “not obvious” to a person skilled in the art? - In case the appellant’s product satisfies the tests and thus qualifies as “invention” within the meaning of clauses (j) and (ja) of section 2(1), can its patentability still be questioned and denied on the ground that section 3(d) puts it out of the category of “invention”? - whether the appellant is entitled to get the patent for the beta crystalline form of a chemical compound called Imatinib Mesylate which is a therapeutic drug for chronic myeloid leukemia and certain kinds of tumours and is marketed under the names “Glivec” or “Gleevec” - Held that:- Fundamental that for grant of patent the subject must satisfy the twin tests of “invention” and “patentability”. The subject product, the beta crystalline form of Imatinib Mesylate, does not qualify the test of Section 3(d) of the Act but that is not to say that Section 3(d) bars patent protection for all incremental inventions of chemical and pharmaceutical substances. It will be a grave mistake to read this judgment to mean that section 3(d) was amended with the intent to undo the fundamental change brought in the patent regime by deletion of section 5 from the Parent Act. That is not said in this judgment. Section 2(1)(j) defines “invention” to mean, “a new product or …”, but the new product in chemicals and especially pharmaceuticals may not necessarily mean something altogether new or completely unfamiliar or strange or not existing before. It may mean something “different from a recent previous” or “one regarded as better than what went before” or “in addition to another or others of the same kind”. However, in case of chemicals and especially pharmaceuticals if the product for which patent protection is claimed is a new form of a known substance with known efficacy, then the subject product must pass, in addition to clauses (j) and (ja) of section 2(1), the test of enhanced efficacy as provided in section 3(d) read with its explanation. Also as seen that in the US the drug Gleevec came to the market in 2001. It is beyond doubt that what was marketed then was Imatinib Mesylate and not the subject product, Imatinib Mesylate in beta crystal form. It is also seen above that even while the appellant’s application for grant of patent lay in the “mailbox” awaiting amendments in the law of patent in India, the appellant was granted Exclusive Marketing Rights on November 10, 2003, following which Gleevec was marketed in India as well. On its package the drug was described as “Imatinib Mesylate Tablets 100 mg” and it was further stated that “each film coated tablet contains: 100 mg Imatinib (as Mesylate)”. On the package there is no reference at all to Imatinib Mesylate in beta crystalline form. What appears, therefore, is that what was sold as Gleevec was Imatinib Mesylate and not the subject product, the beta crystalline form of Imatinib Mesylate. If that be so, then the case of the appellant appears in rather poor light and the claim for patent for beta crystalline form of Imatinib Mesylate would only appear as an attempt to obtain patent for Imatinib Mesylate, which would otherwise not be permissible in this country. In view of the findings that the patent product, the beta crystalline form of Imatinib Mesylate, fails in both the tests of invention and patentability as provided under clauses (j), (ja) of section 2(1) and section 3(d) respectively, the appeals filed by Novartis AG fail and are dismissed with cost. The other two appeals are allowed.

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