Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
April 18, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Deletion made u/s 92CA(3) of the Act – Determination of ALP – When the CIT (A) as well as the Tribunal have accepted the reliability and authenticity of the organisation and its publication of rate list, objection of the TPO must be overruled - HC
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Nature of income - Interest earned on margin money - The margin money from which the interest was earned was placed for the purpose of taking the loan - The loan was given for the purpose of expansion - income not taxable - HC
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Penalty u/s 271E of the Act – Repayment of loan made in cash – the confirmation letter from the father cannot be completely brushed aside, especially when the transaction is between a very close relationship i.e., father and son - penalty waived - AT
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Validity of proceedings u/s 153C of the Act – assessment on a company which has been dissolved by amalgamation u/s. 391 and 394 of the Companies Act, 1956 is invalid. - AT
Customs
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Valuation - department has straightaway adopted the value given in the public ledger which is not a prescribed method of valuation under the Valuation Rules - AT
Service Tax
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Demand of service tax - Manufacture of corrugated boxes from craft paper on job work basis - Business Auxiliary services - demand set aside - AT
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Valuation - inclusion of Delayed Payment Charges (DPC) - DPCs recovered separately and shown separately in the invoices/bills cannot be held liable to payment of service tax. - AT
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Construction residential complex - if the contract involves transfer of property in the execution of such contract leviable to tax sale of goods, can be classifiable as works contract - benefit of composition scheme allowed - AT
Central Excise
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Classification of goods manufactured for use of transport of compressed or liquefied gas - since the tanks were not manufactured/ fabricated on chassis of Motor Vehicles but on semi trailer/ running gear, consequentially the goods merits classification under chapter sub heading 87.16 - AT
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Job Work - appellant should discharge the duty liability as the procedure for functioning under the job work is different and clearance of finished goods manufactured in the appellants factory from his own raw materials is different - AT
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Cenvat Credit - Demand of 5% of the value of the exempted goods cleared from their factory premises which are Bagasse, Press-mud and Bio-compost - demand set aside - AT
VAT
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Leviability of Tax – Sales tax on Brand name holder & Licensee - Tax u/s 5(2) the Kerala General Sales Tax Act, 1963 – It is the brand name holder, who has to pay tax u/s 5(2) - SC
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Rate of tax on Surgical Cotton - Classification – surgical cotton is a separately identifiable and distinct commercial commodity manufactured out of raw cotton - SC
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Valuation - Quarterly discount in the form of quantity discount/scheme discount was allowed in the tax invoices on the basis of performance of the previous quarter and not in respect of the sales reflected in the said invoices - deduction not allowed - HC
Case Laws:
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Income Tax
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2014 (4) TMI 569
Applicability of section 9 of the Act – Royalty for technical services – Supply of software on license – Article 12 of Indo-Singapore Treaty – Liability to deduct TDS u/s 195 of the Act - Held that:- Relying upon Motorola Inc. Versus Deputy Commissioner Of Income-tax, Non-resident Circle [2005 (6) TMI 226 - ITAT DELHI-A] – Copyright is distinct from the material object, copyrighted - It is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript - He has an individual right of exclusive enjoyment - The transfer of the manuscript does not, of itself, serve to transfer the copyright - The transfer of the ownership of a physical thing in which copyright exists gives to the purchaser the right to do with it (the physical thing) whatever he pleases, except the right to make copies and issue them to the public - Just because one has the copyrighted article, it does not follow that one has also the copyright in it. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work - In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work - Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article" - The decision in Director of Income Tax Versus Infrasoft Ltd. [ 2013 (11) TMI 1382 - DELHI HIGH COURT] followed - the assessee has acquired a readymade off - the shelf computer programme to be used in their business and no right was granted to the assessee to utilize the copy right of the programme – the consideration cannot be treated as royalty - As held by the CIT(A), the payments made by the assessee company cannot be held as 'royalties' coming into the ambit of Article 12 of DTAA or 'fee for technical services' u/s 9(1)(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act – thus, the order of the CIT(A) upheld – Decided against Revenue.
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2014 (4) TMI 568
Disallowance of advertisement and sales expenses - Disallowance of miscellaneous expenses - Adhoc disallowance of expenses – Held that:- The disallowance made by the AO is adhoc disallowance without pointing out any defect in the claim of the assessee - Such course of action cannot be adopted by the AO – if assessee has maintained proper accounts which are audited, then the AO, without either rejection of books of accounts or without pointing out any defect in the expenses cannot make an adhoc disallowance - disallowance cannot also be deleted simply for the reason that the accounts of the assessee are audited and there is no adverse comment of the auditor in the audit report - The expenses claimed by the assessee for the purpose of business were subject to examination by the AO and expenses can be claimed only if they have been incurred wholly and exclusively for the purpose of business - CIT(A) has wrongly deleted the addition without recording a finding that the expenses are verified to be incurred for the purpose of business of the assessee –thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Transfer pricing adjustment - Royalty payment made – Held that:- In subsequent years the assessee had submitted the calculations regarding calculation of net domestic / export sales for the purpose of calculating the payment of royalty and described that if the royalties calculated on the basis of agreement of the assessee with Dow Netherland then royalty paid by the assessee will be on lower side and such contention of the assessee has been accepted by the TPO - out of export as well as local sales the cost of imported goods have been reduced and net sales have been computed accordingly, on which royalty payable is calculated - For the year under consideration the computation is made in the similar manner and it has been shown that overall the assessee has paid less royalty as compared to royalty paid by UK AE to Dow Nether land – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue.
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2014 (4) TMI 567
Recording of reasons u/s 147 of the Act – Validity of issue of notice u/s 148 of the Act – Held that:- Scrutiny of assessment was made but notice u/s.148 was issued within four years – Relying ACIT vs. Rajesh Jhaveri [2007 (5) TMI 197 - SUPREME Court] - in case of case processed u/s. 143(1)(a), no opinion has been formed by the AO - thus, no question of change of opinion is there - The reasons recorded by the AO are of subjective satisfaction of the AO and within the realism of him - notice u/s. 148 was within four years and assessee has not demonstrated with evidence that this issue even has been touched by the AO in first scrutiny assessment - The AO has ample power to reopen where scrutiny assessment had been made previously – Decided against Assessee. Confirmation of loss as speculative loss – Held that:- Assessee has only furnished computation of capital loss along with the return and explanation with details but without any evidence and he concluded that the nature of transaction is without delivery and covered u/s. 43(5) of the IT Act – assessee has not produced any evidence by which he can demonstrate that nature of transaction is short term capital loss - In absence on evidence, it is difficult to ascertain the nature of the transaction - There is no evidence of past from the assessee’s record which substantiate assessee’s claim – thus the matter is remitted back to the AO for fresh consideration – Decided in favour of Assessee.
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2014 (4) TMI 566
Deletion of disallowance u/s 40A(3) of the Act – Payments made to the MD –Amount paid for conversion from currency of small denomination into currency of higher denominations – balance represents the advance given for incurring expenditure on behalf of the company – Held that:- The payment made was for a definite purpose, i.e. return after due conversion into currency of higher denomination, so as to facilitate depositing of the same into bank account - at the point of time, when an advance is given for incurring the expenditure, there is no out go of funds of the company, and the actual outgo takes place only when expenditure is actually incurred by Sunil Reddy or such other person to whom he passes on such sums for incurring expenditure on behalf of the assessee - the provisions of S.40A(3) are not applicable even to the amounts of advance given by the assessee to Sunil Reddy or by Sunil Reddy to other employees for incurring expenditure on behalf of the assessee company. The process prior to actual incurring of expenditure or doing any act through the Managing Director or other employees is also recorded in the form of advances given, etc. - Unless and until the amount of advance is in fact spent towards any expenditure incurred on behalf of the assessee company, the money effectively do not go out of the coffers of the assessee company, and it is only the outgo of funds in the form of expenditure exceeding Rs. 20,000 in cash at a time, out of the coffers of the company, that attracts the provisions of S. 40A(3) of the Act - the amount has not been debited to the Profit & Loss Account – thus, the CIT(A) is justified in deleting the disallowance made by the AO u/s 40A(3) of the Act – order of the CIT(A) upheld – Decided against Revenue.
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2014 (4) TMI 565
Block assessment - Addition made on the basis of loose papers – Under invoiced sales of Kattha – Search and seizure - Whether the Tribunal was correct in not upholding the order of the AO wherein the addition on account of under invoiced sales of Kattha was made on the basis of material in the shape of loose papers – Held that:- Revenue is not able to show any document relating to any sale for the financial year 1993-94 which was found during the course of search relatable to addition towards undisclosed income on account of under invoicing - The finding of the Tribunal is finding of fact – thus, no question of law arises for consideration. Unexplained investment in plant & machinery and Factory building – No related documents found – Held that:- The Tribunal has recorded a categorical finding that no documents relating to the investment in the plant & machinery and factory building were found during the course of search - The valuation report has been obtained after the search which could not be made basis for the determination of undisclosed income for the purposes of the assessment u/s 158BC of the Act - no evidence was found relating to investment in the plant & machinery and in the factory building at the time of search - It is only after the search when the matter has been referred to the Valuation Cell for the value of plant & machinery and factory building - there was more investment which has not been disclosed and was unexplained. The Valuation report has been obtained after the search – thus, it does not fall within the purview of evidence found as a result of search and cannot be basis for the determination of undisclosed income u/s 158BB of the Act – Relying upon Commissioner of Income Tax v. G.K. Senniappan [2006 (1) TMI 87 - MADRAS High Court] - the undisclosed income of the block period should be the aggregate of the total income of the previous year falling within the block period computed in accordance with the provisions of the Act, on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years – thus, the order of the Tribunal is upheld – Decided against Revenue.
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2014 (4) TMI 564
Exemption from payment of capital gain u/s 10(37) of the Act - Compensation received as compulsory acquisition of agricultural land – Held that:- The decision in Commissioner of Income Tax Versus Amrutbhai S. Patel [2013 (5) TMI 449 - GUJARAT HIGH COURT] followed - neither of the two facts, either in isolation or cumulatively, would be sufficient to hold that such land was not being used for agricultural purposes by the assessee - The concept of personal cultivation as accepted in agricultural land tenancy laws also recognizes, as can be seen from the statutory provisions contained in the Bombay Tenancy and Agricultural Lands Act, 1948, cultivation of a land through hired labourer or through member of ones family - Merely because the assessee was not residing close to the land or was also pursuing some other business would not by itself be sufficient to hold that the land was not used for agricultural purposes by the assessee - in the earlier years, the assessee had declared agricultural income, which was also accepted by the Revenue – thus, the order of the Tribunal is upheld as no question of law arises for consideration – Decided against Revenue.
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2014 (4) TMI 563
Deletion made u/s 92CA(3) of the Act – Determination of ALP – Authenticity of the rate list – Held that:- The determination of Arm’s Length Price u/s 92C of the Act is to be done as per the Rules contained in Rule 10B Clause A to subsection 10 - In terms of clause (c) of subsection (3) of Rule 10D of the Rules, the price publications as long as it was authentic and reliable, would be relevant materials - mere base of the organisation would be of no consequence - though the price quotations of the MPOB would be entitled to its due and full weightage and respect, would not necessarily mean that the other quotations would lose their significance, unless, it is pointed out that such quotations lack basis - the only objections with the TPO was to take into consideration the rate quotations of the Oil World were, that were not based in Malaysia and that it was an independent organisation, which had nothing to do with the old price prevailing in Malaysia - When the CIT (A) as well as the Tribunal have accepted the reliability and authenticity of the organisation and its publication of rate list, such objection of the TPO must be overruled – thus, there was no substantial question of law arises for consideration – Decided against Revenue.
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2014 (4) TMI 562
Levy of penalty for claim of excess depreciation - Minimum alternate tax - Change in method of charging depreciation - Straight line to written down value method - Held that:- The decision in Apollo Tyres Vs. CIT [2002 (5) TMI 5 - SUPREME Court] followed - the AO while computing the income u/s 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act - The AO has the limited power of making increases and reductions as provided for in the Explanation to the section - the AO does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J - under the Companies Act, 1956, both straight line method and written down value method are recognized - once the amount of depreciation actually debited to the profit and loss account is certified by the auditors – then the decision would go in favour of Assessee. Penalty u/s 271(1)(c) of the Act - Excess depreciation claimed Computation of profits u/s 115J of the Act – Held that:- The decision in Commissioner of Income Tax Noida Vs Aleo Manali Hydro Power P Ltd. [2013 (9) TMI 751 - ALLAHABAD HIGH COURT] followed - when the computation was made u/s 115JB, the concealment had no role to play and was totally irrelevant - the concealment did not lead to tax evasion at all - The book profit disclosed by the assessee for the purpose of the liability of tax u/s 115 J is relevant and not the Income determined under the provisions of Income Tax Act - The Tribunal on the facts and circumstances of the case has further recorded the finding that on the facts and circumstances of the case and on the bonafide of the explanation given by the assessee and the disclosure made in the accounts accompanying the return, no penalty is leviable - The finding of the Tribunal is a finding of fact – Decided against Revenue.
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2014 (4) TMI 561
Admission of appeal - Determination of substantial question of law – Held that:- Appeal of the revenue admitted on the following question of law, "whether the respondent assessee is eligible for deduction under Section 80IA of the Income Tax Act by urging that the Rail system is not a profit center but a cost saving exercise undertaken in terms of subsection (4) of Section 80IA ?"
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2014 (4) TMI 560
Validity of admission of additional grounds – Held that:- Even though the Tribunal order states that the assessee’s plea is cogent with the issues in the appeal to be adjudicated in the light of its all revised returns and figures and therefore admits the additional grounds of the assessee, at the same time in the operative portion of the directions, the Tribunal merely states that the CIT (A) should have adjudicated the objections of the assessee – thus, the scope of the appeal obviously includes the right of the CIT (A) to examine the admissibility of the grounds – thus, no question of law arises for consideration – Decided against Revenue.
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2014 (4) TMI 559
Nature of income - Interest earned on margin money - Whether the interest earned by the assessee on the margin money deposited by it for borrowing amounts to finance its expansion i.e. setting-up of 9th Boiler Project for generation of power was capital in nature – Held that:- The interest received is “inextricably linked’ with the construction of the power project, in as much as the loan was utilized to make advances linked to the expansion - The margin money from which the interest was earned was placed for the purpose of taking the loan - The loan was given for the purpose of expansion – Relying upon CIT vs. Bokaro Steels Ltd. [1998 (12) TMI 4 - SUPREME Court] - the Tribunal’s approach and finding cannot be faulted and no question of law arises – decided against Revenue.
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2014 (4) TMI 558
Inclusion of Pre-operative expenses – Re-computation u/s 115JB of the Act - Whether the Tribunal is right in directing the AO not to include the preoperative interest expenses while re-computing the book profit u/s.115JB of the Act – Held that:- The Tribunal had rightly held that the decision in Apollo Tyres Limited [2002 (5) TMI 5 - SUPREME Court] followed - while assessing a company for income tax under section 115J the correctness of the P&L A/c. prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Part II and III of Scheduled VI to the Companies Act cannot be examined by the Assessing Officer. The AO does not have the jurisdiction to go behind the net profit shown in the P&L A/c. except to the extent provided in the Explanation to section 115J - for the purpose of section 115J of the Act, only those adjustments, which are specified in the explanation to section 115J can be made from the book profits and depreciation not being one of them and further the accounts of the company having been prepared in accordance with Schedule VI to the Companies Act, the AO was in error in disallowing the depreciation as claimed by the company – thus, no substantial question of law arises for consideration – Decided against Revenue.
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2014 (4) TMI 557
Penalty u/s 271E of the Act – Repayment of loan made in cash – Held that:- The assessee had taken loan from his father in the earlier financial years through cheques - The re–payment of a loan in cash clearly violates the provisions of section 269T and, accordingly, penal provisions under section 271E, are triggered - the assessee had submitted that the re–payment of loan in cash was under the circumstances when his father was in urgent need of cash for the purpose of his medical treatment which he was undergoing at that time - no corroborative evidence was given, only a letter of confirmation was filed by the father reiterating the same cause - the confirmation letter from the father cannot be completely brushed aside, especially when the transaction is between a very close relationship i.e., father and son – thus, the penalty levied u/s 271E cannot be sustained in view of the reasonable cause, as envisaged in section 273B – thus, the order of the CIT(A) set aside – Decided in favour of Assessee.
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2014 (4) TMI 556
Validity of confirmation of order u/s 92CA(3) of the Act – Transfer pricing adjustment of international transaction – No material or cogent reason for rejecting the economic analysis – Determination of Arm’s length price - Application of TNMM or CPM – Held that:- Once assessee has given a methodology for working of ALP on selection of a particular method supported by appropriate comparables, the working can be dislodged by TPO on the basis of cogent reasons and objective findings - except theoretical assertions and generalized observations, no objective findings have been given to come to a reasoned conclusion that assessee’s adoption of CPM for manufacturing segment and RPM for trading segment was Factually and objectively not correct - the rejection of methods by TPO as adopted by assessee is bereft of any cogency and objectivity - it is a work of guessing and conjectured - the TNMM method applied by the TPO suffers from the same inherent aberrations - Assessees methods of CPM and RPM respectively worked by applying appropriate comparables is to be upheld - Thus the ALP working returned by the assessee is upheld – Decided in favour of Assessee. Corporate additions – Held that:- Though AO may insist for a revised return the appellate authority has been vested with powers to allow the legitimate claims of the assessee even on the basis or revised computation – the AO is directed to verify the revised computation claim of the assessee – Decided in favour of assessee.
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2014 (4) TMI 555
Deletion on account of provision of doubtful debts – Bad debts written off without verifying the actual value – Held that:- CIT(A) rightly accepted the assessee’s contention that the amount has actually been written off in the books of account - there was no infirmity in the order of CIT(A) - Before the AO, the assessee clearly mentioned that the amount is actually written off and, by mistake, the same was written as provision for bad debts - The AO rejected the assessee’s claim simply stating that the ground is not acceptable, as at the time of original assessment proceedings, the assessee did not disclose this fact before the Assessing Officer - in the original assessment proceedings, the claim of the assessee was accepted, either no explanation was sought at the time of original assessment proceedings - the AO was satisfied with the assessee’s explanation – thus, there was no justification to interfere with the order of CIT(A) – Decided against Revenue.
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2014 (4) TMI 554
Validity of proceedings u/s 153C of the Act – Assessee Company amalgamated into other Company – Assessment of a non-existent Company – Held that:- CIT(A) rightly held that a company incorporated under the Indian Companies Act is a juristic persons - It takes it berth and gets life with incorporation and it dies with the dissolution as per the provision of the Companies Act - On amalgamation, the company seizes to exists in the eyes of the law - Thus, assessment upon a dissolved company is impressible as there is no provisions in Income Tax Act to make an assessment - assessment on a company which has been dissolved by amalgamation u/s. 391 and 394 of the Companies Act, 1956 is invalid. Assessment upon a dissolved company is impermissible as there is no provision in the I.T. Act to make an assessment upon a non-existent company – Relying upon Saraswati Industrial Syndicate Ltd. vs. CIT [1990 (9) TMI 1 - SUPREME Court] - The amalgamation is a blending of two or more existing undertaking into one undertaking, and the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blending undertakings – thus, no assessment can be framed on a non-existent entity – Decided in favour of Assessee.
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2014 (4) TMI 553
Unexplained investment u/s 69 of the Act – Valuation report of DVO – Held that:- The CIT(A) gave a detailed finding of the order which has not been assailed on facts nor any contrary judgement has been brought so as to persuade as to upset the finding - The observation of the AO does not refer to any incriminating evidence found during the search or even otherwise indicating that any additional/unrecorded payment other than what is paid and disclosed in the sale deed executed between the Appellant and Sellers has passed hands - the order has been passed on the reasoning that despite being subjected to two consecutive searches nothing has been found and the assessment u/s 153A read with section 143(3) the department has failed to refer to any incriminating evidence found during the search indicating any unrecorded payment having been paid apart from the payment made in the disclosed sale deed. Relying upon KP Varghese Versus Income-Tax Officer, Ernakulam, And Another [1981 (9) TMI 1 - SUPREME Court] - The two independent sales in the same vicinity wherein the price paid by the assessee is more than the consideration paid in the two instances cited by the assessee in Chhatarpur itself stands unrebutted on record - the DVO’s report the reliance has been placed on the transaction at Satbari, Mehrauli whereas the assessee’s transaction was at Chhatarpur the properties cannot be said to be identically situated in the absence of any factual arguments by the Revenue qua their similarity - Apart from that the circle rate for the relevant period has also been taken into consideration by the CIT(A) which stand un assailed - None of the relevant findings have been assailed nothing is placed to show that on the dissimilarity in the property considered by the DVO and the similarity in the 2 instances cited by the assessee in support of its claim is wrong on facts – Decided against Revenue. Jurisdiction of the AO to make addition – Absence of any incriminating documents during search u/s 132 of the Act – Held that:- The decision in LMJ International Ltd. vs JCIT [2007 (12) TMI 237 - ITAT CALCUTTA-E] followed - where the return of income has been processed u/s 143(1) or an assessment has been completed u/s 143(3) it cannot be said that the assessments are pending and in such cases if no incriminating material has been found during the search then additions based on items which were disclosed in the return of income already filed cannot be subjected to further scrutiny, leading to addition to income, in a proceeding under section 153A/153C of the Act – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue.
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2014 (4) TMI 552
Non-consideration of Additional evidences – Held that:- When the appeal came for hearing before the CIT(A) on 09/01/2014 and the order was passed by the CIT(A) on 17/01/2014 - the assessee has filed certain evidences before the CIT(A) on 5/02/2014 and the CIT(A) did not get an occasion to consider the same as he has passed the order prior to that on 17/01/2014 - the evidences filed before the CIT(A) are very important in deciding the appeal - Since the assessee has not filed these evidences before the AO, the AO had no occasion to consider the same – thus, the matter is required to be remitted back to the AO to consider the evidences filed by the assessee, which are on record – Decided in favour of Assessee.
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2014 (4) TMI 551
Penalty u/s 271(1)(c) of the Act – Assessee contended that it has furnished all the particulars of income and there is no concealment of income in the instant case and hence it is not a fit case for levy of penalty – Held that:- So long as a matter is pending before a court and has not attained finality, the right of the assessee to receive a particular amount would be incomplete, i.e. subject to the final outcome of the proceedings it cannot be treated as income in the hands of the assessee in the year of receipt as held in Commissioner of Income-Tax, West Bengal II Versus Hindustan Housing And Land Development Trust Limited [1986 (7) TMI 10 - SUPREME Court] - Even otherwise the assessee has declared the income in the computation statement and also given a note wherein specific reasons were mentioned as to why, in the opinion of the assessee, it is not taxable in the year under consideration - it cannot be said that the assessee has furnished inaccurate particulars of income – thus, it is not a fit case for levy of penalty – the order of the Penalty u/s 271(1)(c) set aside – Decided in favour of Assessee.
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2014 (4) TMI 550
Confirmation of disallowance u/s 14A of the Act - Held that:- The decision in Godrej & Boyce Manufacturing Co. Ltd.[ 2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable but can be applied only if the assessee's method is not satisfactory - Rule 8D is not retrospective and applies from A.Y. 2008-09 - under section 14A of the Income Tax Act, resort can be made to Rule 8D of the Income Tax Rules for determining the amount of expenditure in relation to exempt income, if, the AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure. The assessee has maintained separate books of account for investment and business purposes - the AO without recording any dissatisfaction with regard to the claim of the assessee that no expenditure was incurred by the assessee for earning the exempt income, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act - CIT(A) also failed to consider the submissions of the assessee that the assessee had been maintaining separate accounts for business and investment purposes while confirming the disallowance – thus, the disallowance made by the lower authorities is set aside and the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Confirmation of House property income u/s 23 of the Act – Held that:- The quantum amount assessed by lower authorities as ALV of the property is upheld - the issue is kept open so far so the method of calculation of ALV is concerned - The assessee will be at liberty to raise his contentions in this respect in subsequent years - The method adopted by lower authorities for ascertaining ALV for the current year will not be binding upon the assessee in subsequent years – Decided against Assessee. Disallowance of expenses on adhoc basis – No evidences produced - Held that:- CIT(A) while confirming the adhoc disallowance has rightly noted that the assessee did not submit any evidence to rebut the findings of the AO regarding none verifiable nature of expenses and personal element involved – thus, there was no infirmity in the order of CIT(A) – Decided against Assessee.
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2014 (4) TMI 549
Income from house property - Notional interest on interest free deposit – Determination of annual value (AV) - Whether the CIT(A) is right in directing the AO to consider the rent of the premises in accordance with the income returned by the assessee instead of fair market rent & ALV arrived at by the AO as per the provision of Section 23(1)(a) of the Act – Held that:- The rent actually received or receivable for the relevant years could only be reckoned for the purpose of section 23(1)(b) which, therefore, would not include any notional interest (i.e., on the interest-free deposit) - This is in view of the absence of any specific provision in law toward the same in-as-much as the same would require a deeming provision - whatever benefit or addition may have been derived by the assessee from the said interest-free deposit, whether by way of saving on the interest or earning interest or making profit by investing the deposit money, etc. would find reflection in computing the income of the assessee under other heads of income – Relying upon CIT vs. J. K. Investors (Bombay) Ltd. [2000 (6) TMI 9 - BOMBAY High Court] - the direction by the CIT(A) to the AO is in conformity with the law - the field is clear for the AO and there are no fetters on him - his mandate under law being to assess the fair rent, and for which all the information and material that is relevant could be employed. Claim of proportionate relief on account of vacancy – Held that:- It is also trite that hardship in a particular case is no reason for not observing the clear mandate of the provision – Relying upon Vivek Jain vs. Asst. CIT [2011 (1) TMI 897 - Andhra Pradesh High Court] - section 23(1)(c) is an incident of the condition of actual letting – thus, the matter is remitted back to the AO for determination of the fair rent, which may or may not exceed the monthly rent. Deduction for municipal taxes – Held that:- The municipal tax/es paid by the assessee, as disallowed, is for the period relating to the previous years relevant to A.Ys. 2002-03 to 2007-08, i.e., prior to the current year - the order of the CIT(A) is confirmed - The tax levied as contemplated u/s. 23 is only as per law - The deduction qua the tax paid shall stand to be withdrawn (i.e., to the extent of the deduction allowed in its respect) on any part of it being directed to be refunded to the assessee - the amount as finally held as not refundable is which can be said to have been paid by way of tax - Decided against Revenue.
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2014 (4) TMI 548
Exigibility to deduction of tax at source u/s 194I of the Act – Validity of demand u/s 201(1) and 201(1A) of the Act – Held that:- 'Rent', though a term of wide import, so that any payment, howsoever described, under any arrangement for seeking or securing enjoyment or possession of inter alia immovable property for any lawful purpose, would fall to be considered as rent - The term being specifically defined under a provision of the Act, recourse to its general meaning or to section 105 of the Transfer of Property Act, is not apposite – Relying upon CIT vs. Raja Benoy Kumar Sahas Roy [1957 (5) TMI 6 - SUPREME Court] -The limit to the scope of the said word, however, is implicit therein, and would not include transfer of a capital asset, i.e., where so, in terms of the defining provision of section 2(14). The assessment order states the annual rent at Rs.60,000 - Though there was no evidence to support the same on record, even so, the same would not, operate to disturb the finding of the same as representing only a nominal rent in view of the substantial rights/interest having been transferred - the arrangement is subject to the assessee-licensee constructing a building complying with the relevant and applicable guidelines within the prescribed time period (of four years), also providing infrastructure facilities as well as parking facilities qua the proposed residential complex - the premium amount has been worked out with reference to the ready reckoner rates for stamp duty purposes, besides being also accounted for as sales by the lessor (CIDCO) - though described as a licensee in the arrangement, the assessee is a lessee, and the arrangement, notwithstanding the restrictive convenants, confers substantial rights in the land, enabling the assessee to, as a developer, transfer the residential units to be constructed thereon to others – the payment represents the transfer price of the land on lease hold basis, so that no part thereof qualifies to be a 'rent' within the meaning of the term u/s.194-I of the Act so as to be exigible for deduction of tax at source there-under – thus, the order of the CIT(A) is upheld – Decided against Revenue.
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2014 (4) TMI 547
Deletion made u/s 68 of the Act - Opportunity of being heard – Held that:- The onus of proving the source of money found to be received by an assessee is on the assessee itself - Where the nature and source of a receipt cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is income of the assessee – The decision in Roshan Di Hatti vs CIT [1977 (3) TMI 3 - SUPREME Court] followed - So far as contention of the assessee that the transaction by cheque is itself a proof, the transaction by cheque itself may not be sacrosanct - the onus to prove the three ingredients i.e. identity, creditworthiness and genuineness of the transaction, is on the assessee – the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue.
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Customs
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2014 (4) TMI 584
Confiscation of foreign currency - Attempt to smuggle - Held that:- Foreign currency equivalent to Rs. 1.25 crore seized on 08/01/2006 is with the department and thus, interest of the Revenue is secured and also taking note of the decision of the hon'ble apex Court in the case of Bhavya Apparels Pvt. Ltd. (2007 (9) TMI 274 - SUPREME COURT OF INDIA), we are of the considered view that the appellants have made out a prima facie case for grant of stay. Accordingly, we grant unconditional waiver from pre-deposit of the penalties adjudged against the appellants and stay recovery thereof during the pendency of the appeals - Decided in favour of assessee.
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2014 (4) TMI 583
Valuation - Payment on Differential import duty – Duty on ‘white poppy seeds' - Held that:- To determine the value of goods under importation the methods prescribed and the procedures set out in the Customs Valuation Rules, 2007 have to be followed strictly – Here, no such exercise has been undertaken by the Customs authorities - They have straightaway adopted the value given in the public ledger which is not a prescribed method of valuation under the Valuation Rules – Relying upon ARUSHI EXPORTS & OTHERS Versus COMMISSIONER OF CUSTOMS, (IMPORT), MUMBAI [2013 (11) TMI 38 - CESTAT MUMBAI] – The matter is remanded back to the adjudicating authority for determination of the value of the goods imported by the appellant in accordance with the methods and procedures set out in CVR, 2007 - Appeal is allowed - The stay petition is also disposed of – Decided in favour of Assessee.
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2014 (4) TMI 582
Valuation - inclusion in the value of import of goods - Nexus of importation of goods with expenses incurred in foreign exchange – Whether the expenditure incurred in foreign exchange has anything to do with the goods imported by the appellant – Held That:- Prima facie it is found that the foreign exchange expenditure incurred by the appellant is in respect of imports made from non-related suppliers abroad and also for the services rendered for their foreign affiliates – These expenses, thus, are not relatable to the goods imported by the appellant. Whether the sales commission also relate to the imports - Held That:- It is contention of appellants that these commissions have been received in respect of goods which are not imported by the appellant and, thus, there is no direct nexus between the commission received and the imports undertaken - The entire matter needs to be examined afresh by the AO in respect of the various expenses incurred by the appellant in foreign currency – Since there is no prima facie evidence of any nexus, it is directed that the imports shall not be loaded in respect of values – The appeal is allowed by way of remand - stay granted – Matter remanded back for fresh adjudication - Decided in favour of appellants.
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Corporate Laws
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2014 (4) TMI 581
Appointment of arbitrator - Reference to arbitration was sought on behalf of the three partners to the PSC - matter was left to the two arbitrators to nominate the third arbitrator who shall be the Chairman of the Arbitral Tribunal - However two arbitrators have not been able to agree on the third arbitrator - Held that:- PSC recognizes that the operator would act on behalf of the contractor. All investments are funded by not just the Petitioner No.1 but also by the other parties, and they are equally entitled to the costs recovered and the profits earned. For the sake of operational efficiency, the Operator acts for and on behalf of the other parties. During the course of his submissions, Mr. Anil Divan had, in fact, submitted that Niko and BP will be affected by the arbitral award and it would be binding upon them too. Therefore, if the Petitioner No.1 was to succeed in the arbitration, the award would enure not only to the benefit of Petitioner No.1 but to all the parties to the PSC. Conversely, if the Government of India were to succeed before the tribunal, again the award would have to be enforced against all the parties. In other words, each of the Contractors would have to perform the obligations cast upon them - arbitration in the present case is an international arbitration. A perusal of some of the provisions of PSC would make it clear that all three entities are parties to the PSC. All three entities have rights and obligations under the PSC [see Article 28.1(a)], including with respect to the Cost Petroleum, Profit Petroleum and Contract Costs (see Article 2.2), all of which are fundamental issues in the underlying dispute. Where RIL acts under the PSC, including by commencing arbitration, it does so not only on behalf of itself, but also “on behalf of all constituents of the contractors” including Niko and BP - In any event, the neutrality of an arbitrator is assured by Section 11(1) of the Arbitration Act, 1996, which provides that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties. There is no agreement between the parties in this case that even a third arbitrator must necessarily be an Indian national. In fact, Section 11(9) of the Arbitration Act, 1996 specifically empowers the CJI to appoint an arbitrator of a nationality other than the nationality of the parties involved in the litigation. Merely because the two arbitrators nominated by the parties are Indian would not ipso facto lead to the conclusion that the parties had ruled out the appointment of the third arbitrator from a neutral nationality. In this case, both the arbitrators had been appointed by the parties, therefore, the condition precedent for appointing an arbitrator, from amongst persons, who are not nationals of the country of any of the parties to the arbitration proceedings, had not even arisen - matter ought to be remitted back to the two arbitrators appointed by the parties to choose the third arbitrator on the basis of the observations made in the judgment. However, given the sharp difference of opinion between the two arbitrators, I deem it appropriate to perform the task of appointing the third arbitrator in this Court itself - Therefore, Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor of New South Wales, Australia as the third Arbitrator who shall act as the Chairman of the Arbitral Tribunal - Decided in favour of Appellant.
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FEMA
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2014 (4) TMI 585
Violation of Section 8(1), 16(1), 9(1)(a) and 9(1)(c)of the Foreign Exchange Regulation Act, 1973 - Special Director purportedly issued a Corrigendum stating that paragraph No. 87 is deleted and in paragraph No. 88 in line No.2 after the words ‘Noticee No.1’ and before the name Mr. Stephen John Michie, the name ‘Shri Raman Narula-Noticee No.2’ is inserted - Held that:- no prior notice was issued to Mr. Narula by the SD when the Corrigendum was issued nearly one month after the original AO was passed. The Court has no hesitation in holding the action of the SD in issuing the Corrigendum dated 7th March 2005 to be in violation of Section 65 FERA. The said Corrigendum is, therefore, illegal. In the first place, it must be noticed that Section 68 applies only to “companies.” Club Med India was certainly not a company or a firm under any law in India. Secondly, if it is taken to be an ‘association of individuals’ apart from the SCN stating that Mr. Narula was in-charge of and responsible to Club Med India for the conduct of its business, no documents or material have been referred to which could constitute the basis of such an allegation. In para 9 of the SCN a reference is made to the statement of Mr. Narula that he was given the authority to open accounts and operate them. It is pointed out that Mr. Narula was permitted to hold accounts only for the needs of Club Med India and he was not otherwise in-charge of its affairs which were being directly controlled by Club Med Hong Kong. It is seen that for the purposes of Section 68 FERA, it was necessary for the ED to have laid a factual basis for alleging that Mr. Narula was in-charge of and responsible to Club Med Indiafor the conduct of its business. The reply of Mr. Narula to the SCN stated that the affairs of Club Med India were controlled by Club Med Hong Kong and in fact Club Med India was not a separate entity. Its accounts were also maintained under the supervision and control of Club Med Hong Kong. It is not possible, therefore, to accept the reasoning of the SD that Mr. Narula could be held liable for the activities of Club Med India under Section 68 FERA - case against Mr. Narula by the ED was not sustainable in law and that both the AO as well as the impugned order of the AT are erroneous. As regards violation by it of Sections 16(1), 9(1)(a) and 9(1)(c) FERA - explanation offered by Club Med India that it was to receive 15% commission, but in fact, it was only issued credit notes as regards the bookings directly made by customers abroad was a plausible one. Further, there was no obligation on Club Med Hong Kong to pay Club Med India 15% commission on such bookings directly made by the customers abroad. The question of Club Med India seeking permission from the RBI would arise only if it claimed payment of the said 15% commission. As it turned out, the said commission was in fact adjusted against the payments which were to be repatriated to Club Med Hong Kong. It turned out to be only an accounting adjustment because in fact no amounts were remitted by Club Med India to Club Med Hong Kong. The explanation offered by Club Med India in reply to the SCN, as explained by its accounts which was available with the ED ought not to have been rejected by the SD. When, in fact, no foreign exchange has been utilised for making any remittance abroad, and the so-called payments which were to be received were in fact not owed to Club Med India, the question of a violation of Section 16 or Section 9(1)(a) and 9(1)(c) did not arise. It does appear that even in respect of the debit notes, the adjustments were part of an accounting procedure. The fact remains that the Indian branch neither remitted nor intended to remit the amount mentioned in the debit notes - Decided in favour of appellant.
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Service Tax
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2014 (4) TMI 589
Demand of service tax - Manufacture of corrugated boxes from craft paper on job work basis - Business Auxiliary services - Held that:- There is no dispute about the nature of the activity of the appellant - making corrugated boxes from craft paper on job work basis. Craft paper is covered by Heading No.4805 of the Tariff, and corrugated boxes are covered by Heading No.4819 of the Tariff - Even the ld. DR agreed that making of corrugated boxes from craft paper would amount manufacture. In view of this, it is difficult to understand as to how a senior officer of the rank of Addl. Commissioner has confirmed the demand of service tax against the appellant by treating their activities as Business Auxiliary services covered by Section 65(105)(zzb) read with Section 65(19) of 1994 Act holding that the process carried out by the appellant does not amount to manufacture under Section 2(f) of the Central Excise Act. The order passed by the Addl. Commissioner shows his total ignorance to the Central Excise Law. It appears that the Additional Commissioner, in his anxiety to confirm the service tax demand made in the show cause notice put up before him for adjudication, did not realize that on the basis of this decision in his adjudication order that making of corrugated boxes from craft paper on job work basis does not amount to manufacture, all the corrugated box manufacturing unit manufacturing corrugated boxes from craft paper would claim that their activity would not attract excise duty. Commissioner (Appeals), instead of deciding the appeal on merits, as an Advocate representing the appellant had appeared before him, has chosen to dismiss the appeal by invoking Rule 5 of the Central Excise (Appeal) Rules, which pertain to the production of additional evidence. Considering the reply to the show cause notice and hearing the appellant when the original adjudicating authority had passed an ex parte order without waiting for the reply to the show cause notice cannot be treated as introduction of additional evidence - Decided in favour of assessee.
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2014 (4) TMI 588
Valuation - inclusion of Delayed Payment Charges (DPC) - Whether the DPC collected by the appellants from their clients in those cases where the appellants have already made payments to the Exchange but has not recovered the same from their clients, are required to be considered as a part of the value of the services, so as to levy the service tax in respect of the same - Held that:- mandate of Section 67A of the Act is that it is only the commission/brokerage, which is liable to service tax and no other recovery made by the stock-broker can be held to be a part of the value of the service. The Tribunal very clearly observed that the receipts not in the nature of commission/brokerage should not be taxed in disguise. In as much as, we have already held that DPC is not a commission or a brokerage for sale/purchase of securities, as the same is not being collected from each and every customers but is relatable to only delayed payments by some of the customers, there is no justification for inclusion of the same in the value of the services. As is seen from the above, the DPCs recovered separately and shown separately in the invoices/bills cannot be held liable to payment of service tax. Admittedly, in the present case, such DPCs were being recovered by the appellants by issuing separate debit notes to their customers and by debiting the amounts in their running ledgers. As such, the clarification issued by the Board is fully applicable to the facts of the present case - appellants were maintaining all the records showing recover of said DPCs and were reflecting the same in their books of accounts as also in their balance-sheet. The Commissioner has invoked longer period only on the short ground that they have never disclosed the same to the Revenue and said non-payment of service tax is indicative of the assesses intention and motive to evade tax. However, we fail to understand that if the fact of non-payment of tax, by itself, can be made a ground by attributing mala fide to an assessee, the limitation period would never be applicable in any case of non-payment and the resultant confirmation of demand. In any case, Commissioner has also observed that it is possible to invoke extended period of limitation in the case of service tax even in a situation where there is nothing to evade payment of duty, in as much there is no requirement that suppression should with intention to evade - Decided in favour of assessee.
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2014 (4) TMI 587
Construction residential complex - Works contract - Assessee pays Vat as well as Service tax - Composition scheme - Held that:- definition of works contract in Section 65(105)(zzzza) clearly covers construction of new residential complex or a part thereof. Therefore in the case of construction of a new residential complex, if the contract involves transfer of property in the execution of such contract leviable to tax sale of goods, can be classifiable as works contract. In this case, the appellants have registered for payment of tax in respect of portion involving transfer of property under the AP VAT Act and the appellant is engaged in the construction residential complex. Therefore, we find that the activity is clearly covered by works contract service. Revenue contended that, appellants were not eligible for composition scheme under works contract in view of the fact that the appellants had availed CENVAT credit on inputs and subsequently the appellants had already paid tax at the normal rate in the year 2009. However, ongoing through para 10 of the impugned order, it was seen that this payment was collected and paid towards preferential allocation and development service and not on the residential complex service. As regards CENVAT credit, the appellant cannot take credit on inputs and capital goods only and not on input services - payment of service tax by the appellants by opting for composition scheme on the services rendered by them during the relevant period is in accordance with law - Decided in favour of assessee.
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2014 (4) TMI 571
Denial of cenvat credit - distribution of credit by the head office as ISD - The lower authority felt that the amount of credit availed by the appellant is ineligible as head office has availed and service tax paid based upon photo copies of debit notes dated 12/10/2004 which did not contain necessary particulars - Held that:- debit notes have been issued by M/s.SSKI Corporate Finance Pvt. Ltd. We find that the said M/s.SSKI has specifically indicated the rate of service tax paid by them, and service tax Registration No. in their invoice. It is also seen that M/s.SSKI has issued the invoices addressed to Head Office at Bombay of appellant. There is no dispute as to services rendered by SSKI to the appellant at Head Office. Appellant's head office has transferred the cenvat credit of service tax paid by M/s.SSKI, as an input service distributor is also not disputed - Following decision of Godfrey Philips India Ltd. [2008 (12) TMI 90 - CESTAT, AHMEDABAD] - Decided in favour of assessee.
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Central Excise
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2014 (4) TMI 580
Classification of the goods - Denial of benefit of SSI exemption - clubbing of clearances - Held that:- as far as clubbing of clearances of M/s Royal Engineering by holding the said unit as dummy of M/s Super Industries is concerned, the allegations and findings were mainly based upon the investigation conducted by the Income Tax department and statements recorded therein. However, from the perusal of the Income Tax assessment orders of the respective units subsequent to investigation undertaken by the Income Tax Department, we find that M/s Super Industries and Royal Engineering and other units were separately assessed. We also find that both these units were granted separate central excise registration and were thus separately filing their declarations as well as RT-12 returns. The central excise authorities never questioned the activities of these firms until investigation was undertaken by the Income Tax authorities. We find from records that M/s Royal Engineering was consuming electricity which shows that the units were engaged in manufacturing activity. Also, in the records of Department of Explosives, the vehicles/goods were shown to have been manufactured by M/s Royal Engineering. Taking into account all these facts, we are of the considered view that M/s Royal Engineering cannot be held as dummy of M/s Super Industries and their clearances cannot be clubbed into the clearances of M/s Super Industries. Classification of goods manufactured for use of transport of compressed or liquefied gas - Adjudicating authority has held that the vehicles are classifiable under chapter sub heading 8707 and thus liable for duty. However from the registration details of some of the vehicles produced before us we find that the chassis of such motor vehicle i.e. the prime mover and the number of running gear on which tank is placed, are different. Also from the perusal of the photographs, find that the tanks of transportation of gas were mounted on semi trailers/ running gears and the same were coupled with the prime movers i.e. the Motor Vehicle for transportation of such tanks. We are of the view that since the tanks of such vehicles were not manufactured/ fabricated on chassis of Motor Vehicles but on semi trailer/ running gear, consequentially the goods merits classification under chapter sub heading 87.16 - Following decision of Mitusha Vessels & Engineers Pvt. Ltd Vs. Comm. [1997 (1) TMI 360 - CEGAT, MUMBAI]. While computing the duty demand, the Appellant needs to be extended the benefit of relevant SSI Exemption Notifications as per the conditions contained therein - demand of duty has been made twice or thrice on the same vehicles due to various reasons such as change of ownership of vehicle, clearance of vehicle in name of some person and registration of same vehicle in name of another person etc. as appearing in the record of Department of Explosives. We thus hold that while computing duty demand such repetition/ duplication of demand should be reduced - when duty has not been collected, the price has to be treated as cum-duty price. Therefore the amount realized by the assessee has to be treated as cum-duty price has to be sustained and accordingly the duty demand has to be computed by treating the value as cum duty price - Decided partly in favour of assessee.
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2014 (4) TMI 579
CENVAT Credit - freight for outward transportation from the place of removal - Whether the respondents are eligible to avail CENVAT credit for the service tax paid on freight for outward transportation from the place of removal during the period March 2005 to July 2007 - Held that:- after considering the decision of the Larger Bench of the Tribunal in the case of ABB Ltd. (2011 (3) TMI 248 - KARNATAKA HIGH COURT) held that CENVAT credit is eligible on service tax paid on GTA service prior to 1.4.2008. The Hon’ble Gujarat High Court is also of the same view in the case of CCE Vs. Parth Poly Wooven Pvt. Ltd. [2011 (4) TMI 975 - GUJARAT HIGH COURT] - Decided against Revenue.
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2014 (4) TMI 578
Duty demand - Job Work - whether the main appellant National Conductors could clear finished goods manufactured out of their own raw-materials without payment of duty under job work challans - Held that:- appellant had cleared finished goods manufactured out of their own raw material as job work items under job work challans. In my view, the lower authorities were correct in holding that the appellant should discharge the duty liability as the procedure for functioning under the job work is different and clearance of finished goods manufactured in the appellants factory from his own raw materials is different. It is statutory requirement that the appellant should record all the production that took place in his factory premises out of his own raw-materials in the statutory books of accounts which were not done so, as it is undisputed that the appellant had cleared the finished goods manufactured out of his own raw materials to their clients. In my considered view, record to be maintained by the appellant for the materials received for job working would show the balance of raw-materials while finished to be manufactured were already dispatched. The provisions of job work scheme is totally different, needs to be followed in a manner prescribed which has been not done by the appellant - Decided against assessee.
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2014 (4) TMI 577
Cenvat Credit - Demand of 5% of the value of the exempted goods cleared from their factory premises which are Bagasse, Press-mud and Bio-compost - Held that:- there is no dispute as to the fact that appellant is manufacturing VP sugar. While manufacturing the said sugar, Bagasse which is the waste of crushed sugarcane, Press-mud and Bio-compost arises - payment of 5% of the value of Bagasse, Press-mud and Bio-compost is contested regularly. It is very clear from the process of manufacture of sugar that the appellant had availed Cenvat Credit of the inputs and input services for the manufacture of VP sugar in the sugar mills. Bagasse, Press-mud and Bio-compost arises / emerges during the manufacturing of said final products VP sugar and it cannot be said that these three items are manufactured by the appellant - Decided in favour of assessee.
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2014 (4) TMI 576
Denial of refund claim - Whether the appellant is eligible for refund of the amount paid in excess by them prior to 25.06.1999 for which there was a provisional assessment - Held that:- referral order [2013 (9) TMI 652 - CESTAT AHMEDABAD] had only referred the question of applicability of unjust enrichment to the refund arising on finalization of provisional assessment. We find that the referral order was specifically referring to only this issue wherein there were contrary views as to applicability of unjust enrichment which were introduced in Rule 9B(V) of Central Excise Rules, 2002 w.e.f. 25.06.1999. Though the referral Bench, in their order, stated two questions that arose in the appeal and fell for their consideration, referral Bench in their wisdom had only referred one question to the Larger Bench - doctrine of unjust enrichment will not be attracted to the refunds pertaining to the finalization of provisional assessment for the period prior to 25.06.1999 when the linking proviso under Rule 9B(5) of Central Excise Rules was not in existence. Since the Larger Bench has already ruled in favour of the assessee, we find that the impugned order to the extent it is contrary to the law, as has been laid down by the Larger Bench, is liable to be set aside - Decided against Revenue.
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2014 (4) TMI 575
Waiver of predeposit of CENVAT credit - Credit was denied on the ground that it was taken on the basis of debit notes - Held that:- it is not clear why the input service provider has issued debit note only in respect of this particular appellant and invoices to others. We find from the Adjudication order that there is factual dispute in this case in so far as CHA issued invoices directly to the applicant for input service. But, in some other services rendered by the third party, CHA issued debit notes. Hence, the applicant has failed to make out a prima facie case for waiver of predeposit of entire amount of credit and penalty - Conditional stay granted.
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2014 (4) TMI 574
Demand of Interest on cenvat credit wrongly taken but reversed before utilization - Held that:- interest would be payable from the date Cenvat credit is taken or utilized wrongly - assessee had not taken or utilized the Credit but only availed wrong credit in their account books and on pointing out the mistake, immediately reversed the entry. As no benefit of wrong entry in account books was taken, interest is not payable - Decision in the case of Commissioner of Central Excise and S.T., Bangalore v. Bill Forge Pvt. Ltd. - [2011 (4) TMI 969 - KARNATAKA HIGH COURT] and Commissioner of Central Excise, Bangalore v. Pearl Insulation Ltd. [2012 (11) TMI 912 - KARNATAKA HIGH COURT] followed - Inasmuch as issue stands decided, by Karnataka High Court by interpreting Supreme Court decision in Ind-Swift [2011 (2) TMI 6 - Supreme Court] and the facts are not in dispute - Decided against Revenue.
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2014 (4) TMI 573
Waiver of predeposit of differential duty - valuation - clearance of clearing the semi-finished goods to their other unit - revenue contended that while arriving at 110% of the value in accordance with CAS-4, assessee hase failed to take into account the increase in administrative overheads from 12.58% to 15.98% during the period from 19.10.2007 to 31.3.2008. Hence the differential duty was demanded. - Penalty of equal amount along with interest - Held that:- prima facie it appears that the applicants are liable to pay duty on the overhead charges and they had not disclosed to the Department - Conditional stay granted.
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2014 (4) TMI 572
Waiver of pre deposit - Availment of ineligible cenvat credit - Availment without actually receiving the goods - Held that:- this case is regarding availment of ineligible cenvat credit by the appellant without actually receiving the goods, during the period February 2005 to May 2005. Show cause notice dated 25.01.2010 was issued for the recovery of such ineligible cenvat credit availed by the appellant - appellant has also deposited/ reversed the entire amount of duty liability confirmed by the lower authorities - appellant has made out a prima facie case for the waiver of pre-deposit of balance amounts involved. Accordingly, the application for the waiver of pre-deposit of waiver of balance amounts involved is allowed and recovery thereof stayed till the disposal of appeal - Stay granted.
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2014 (4) TMI 570
Maintainability of appeal - Compliance with Section 35B - Held that:- notes were prepared by the Inspector and Superintendent and forwarded to the higher officers which in turn placed the file before the Committee of Commissioners. There is no independent recording of the fact that said Committee of Commisisoner’s has gone through the impugned order and has arrived at a conclusion that the same need to be challenged before the Tribunal. As held by the High Court in the above referred matters, mere appending of signatures on the opinion of lower officers, by itself, is not sufficient compliance with the provisions of Section 35B - Following decision of CCE Noida vs. V S Exim Pvt. Ltd. [2012 (11) TMI 378 - CESTAT, NEW DELHI] - Decided against Revenue.
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CST, VAT & Sales Tax
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2014 (4) TMI 594
Leviability of Tax – Sales tax on Brand name holder & Licensee - Tax u/s 5(2) the Kerala General Sales Tax Act, 1963 – Interpretation of Section 5(2) of KVAT Act - Brief Facts - M/s. Bristo Foods Pvt. Ltd. has license and is permitted to use the branded name "CRYPTM', of the assessee herein - The licensee manufactures the goods, namely, confectioneries and effects supply of sale to the brand name holder - It is the brand name holder, who affects the sale of the confectioneries which are to be taxed as Item 39 of the First Schedule to the Act within the State - Held that:- The said sub-Section speaks of a sale made by a brand name holder or the trade mark holder within the State - The Legislature deems that such a sale by the brand name holder or the trade mark holder shall be the first sale within the State - In the opinion of SC this is the only possible construction that can be given to Section 5(2). It is the brand name holder, who has to pay tax u/s 5(2) of the Act - If for any reason M/s.Bristo Foods Pvt. Ltd. has paid the tax while affecting the supply of the manufactured commodity to assessee, assessee and M/s Bristo Foods Pvt. Ltd. can approach the authorities for claiming the refund of the tax paid by them – There is not any infirmity in the impugned judgment and order passed by the High Court - Accordingly, the appeal is dismissed – Decided against assessee.
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2014 (4) TMI 593
Rate of tax on Surgical Cotton - Classification – Interpretation of Statute – Whether the manufacturing process is involved in the production of surgical cotton from cotton in terms of definition mentioned u/s 2(27) of the Act and whether the same commodity in the same entry would be liable for taxation twice specially when the Act suggests that cotton is a commodity of special importance and must be taxed only once u/s 15 of the CST Act - Double taxation - Held that:- The definition u/s 2(27) is an inclusive definition and encompass all processing of goods which would produce new commodity which is commercially different and distinctly identifiable from the original goods - The definition however excludes all such mechanisms of processing of goods which have been notified by the State Government to the said effect - Admittedly, no such exclusion in respect of the process in analysis for surgical cotton has been notified by the State Government - Thus, the process of transformation has to be tested on the anvil of proposition whether surgical cotton is processed such that it is commercially different and distinctly identifiable than cotton - Relying upon CRANE BETEL NUT POWDER WORKS Versus COMMR. OF CUS. & C. EX., TIRUPATHI [2007 (3) TMI 6 - SUPREME COURT OF INDIA] citing the earlier decision in Brakes India Ltd. v. Supdt. of Central Excise [1997 (3) TMI 120 - SUPREME COURT OF INDIA] wherein the process of drilling, trimming and chamfering was said to amount to “manufacture”, has reiterated that if by a process, a change is effected in a product and new characteristic is introduced which facilitates the utility of the new product for which it is meant, then the process is not a simple process, but a process incidental or ancillary to the completion of a manufactured product. After going through the various steps that are carried out by the assessee for getting surgical cotton from raw cotton, it can certainly be said that cotton has undergone a change into a new commercially identifiable commodity which has a different name, different character and different use - The process of transformation is not merely processing to improve quality or superficial attributes of the raw cotton - The cotton looses its original form and it marketed as a commercially different and distinct product - As rightly noticed by the High Court by relying upon the decision in EMPIRE INDUSTRIES LTD. Versus UNION OF INDIA [1985 (5) TMI 215 - SUPREME COURT OF INDIA] wherein this Court has explained the meaning of the expression 'manufacture" as when the result of the treatment, labour and manipulation a new commercial commodity has emerged which has a distinctive new character and use – This court is of considered opinion that surgical cotton is a separately identifiable and distinct commercial commodity manufactured out of raw cotton and therefore, ceases to be cotton under Entry 16 of the said notification – This Court cannot take any exception to the impugned judgment and order passed by the High court – Decided against Assessee. Scope of the term "Include" - Held that:- Judgment in South Gujarat Roofing Tiles Manufacturers Association and anr. v. State of Gujarat and anr. [1976 (10) TMI 147 - SUPREME COURT OF INDIA] and Karnataka Power Transmission Corpn. v. Ashok Iron Works (P) Ltd. [2009 (2) TMI 745 - SUPREME COURT OF INDIA] - The expression “include” is used as a word of extension and expansion to the meaning and import of the preceding words or expressions – When the word “includes” is used in the definition, the legislature does not intend to restrict the definition: it makes the definition enumerative but not exhaustive - The term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. By introducing the word “including” immediately after detailing the definition of cotton, the legislature has expanded the meaning of the expression “cotton” for the purposes of the Act - While the natural import suggests and prescribes only unmanufactured cotton in all forms, the commodities “absorbent cotton wool I.P.” and “cotton waste” manufactured out of “cotton” are intentionally and purposefully included in the relevant entries alongwith cotton in its ordinary meaning – This Court is of the considered opinion that “surgical cotton/absorbent cotton wool I.P.” is also “cotton” for the purposes of the relevant entries in the notifications for assessment years 1993-94 to 1998-99 and therefore is liable to exemption from levy of tax under the Act - In light of the same, judgment and order passed by the High Court cannot be sustained - Judgment and order of the High Court is set aside – Decided in favour of Assessee.
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2014 (4) TMI 592
Liability to pay Entry tax – Entry Tax on import of Crude oil - Constitutional validity of the UP Tax On Entry of Goods Into Local Areas Act, 2007– Issuance of Demand Notice - Held that:- The State has admitted that the assessees, for the period of 2008-2009, 2009-2010 and 2010-2011 have filed monthly returns but have not accepted the liability to pay the entry tax on the import of crude oil - It is also stated that the assessing authority has issued a pre-assessment notice u/s 9(4) - A reading of the affidavit filed by the State would indicate that for the aforesaid period, quantification of the tax liability is yet to be determined - However, it is now open to the State and its authorities to quantify the tax lia1ibity, either based on the returns filed by the assessee or on the basis of best assessment order if the Act so permits for the assessment years 2008-2009, 2009-2010 and 2010-2011 - After such quantification, the State is at liberty to issue appropriate demand notices – Decided partly in favour of assessee. Liability to pay Entry tax – Entry Tax on import of crude oil - Constitutional validity of the UP Tax On Entry of Goods Into Local Areas Act, 2007– Held that:- Since assessees have paid substantial amount by way of Entry Tax to the Department - For the assessment years 2000-2001 to 2009-2010, assessees have filed appeals/revisions before the High Court/statutory authorities and those appeals are pending for consideration - The request of the assessee are acceptable since it is not causing any prejudice to the department - Accordingly, petitioners/assessees granted liberty to make appropriate application/petition before the appellate authorities/revisional authorities/High Court – Respondents instructed not to resort to recovery proceedings against the petitioners till the disposal of the applications/petitions– Decided in favour of Assessee. Constitutional validity of the UP Tax On Entry of Goods Into Local Areas Act, 2007– Liability to pay Entry tax – Pre-deposit - Held that:- The operation of the impugned judgment and order is stayed subject to the appellant in each case depositing 50% of the accrued tax liability/arrears under the U.P.Act, 2007 and furnish bank guarantee for the balance amount - The appellant shall also deposit 50% of the tax liability/arrears, including interest and penalty, and furnish bank guarantee for the balance amount as and when demand notices are issued under the U.P.Act, 2007 for the past period - The interim orders passed by this Court in Indian Oil Corporation Limited vs. State of Assam & Ors. are confined on the demand raised against the appellant in the pending Special Leave Petitions - The Apex Court has adjusted the equities and passed a conditional stay order staying 50% of the past liability subject to bank guarantees to be kept alive - Supreme Court has granted liberty to the respondents to file appropriate application before this Court for modification of the interim orders granted, if for any reason, the appellant in this case has passed, on the tax burden on the consumers - Partial stay granted.
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2014 (4) TMI 591
Whether the Tribunal was justified in affirming the order of seizure even by ignoring its own finding - Order of seizure – Excuse of unavailability of weightment slip - Refusal of acceptance of Documents by AC – Action of AC not Bona-fide - Held that:- Delhi-U.P. border area is of four kilometers which is considered to be a free zone and the transporter could have got weighment done anywhere in the entire area and when it was intercepted still there was sufficient distance within which he could have got his vehicle weighed, hence seizure of goods on the ground that weighment slip was not available, is totally misconceived and is not justified - Moreover, when action of AC has not been found genuine and bona fide, as is evident from the findings recorded by Tribunal, the impugned order, even otherwise, cannot be sustained – The impugned order of Tribunal is quashed - The revision is allowed with costs of Rs. 5000/- - Decided in favour of assessee.
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2014 (4) TMI 590
Valuation - deduction of quantity discounts allowed in the tax invoices – Taxable turnover - Eligibility for Tax Deduction – Held that:- From bare perusal of the invoice it is clear that the discount shown in the invoice is not relatable to the sale of goods by the said invoice, and that being so, the assessee cannot claim deduction under rule 3 of the Rules - Quarterly discount in the form of quantity discount/scheme discount was allowed in the tax invoices on the basis of performance of the previous quarter and not in respect of the sales reflected in the said invoices. Relying upon M/s. Southern Motors –vs- State of Karnataka and another [2008 (7) TMI 862 - KARNATAKA HIGH COURT ] - The proviso to clause (c) of Rule 3(2) of the KVAT Rules makes it mandatory that the said discount should be reflected in the sale invoice and that too it should be in respect of the sale of goods reflected in the said sale invoice, otherwise the dealer – assessee is not entitled for deduction of the amount of discount from the total turnover - The discount shown in the relevant invoices was not relating to the sales reflected in the said invoices, but for the sales effected earlier - No reason is found to interfere with the order passed by the Revisional Authority - Therefore, the appeals are dismissed - Consequently, the interim application stands disposed of – Decided against Assessee.
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Indian Laws
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2014 (4) TMI 586
Discrimination in search advertising and online search - Abuse of dominant position - CCI had ordered investigation into allegations of abuse of dominant position by Google by practices like search bias, search manipulation, denial of access etc and creation of entry barriers of competing search engines and Google engaged in dilatory tactics to prolong investigation - Non submittion of documents called for - Held that:- scope of the present investigations ordered under section 26(1) of the Act is very broad and encompasses various aspects relating to Google's policies with respect to online search advertising. Further, it is not limited to advertisers of any particular industry and would cover all who advertise on Google. Against this background, information sought by the Office of the DG with respect to the suspensions of Adword accounts of remote tech support advertisers, squarely falls within the ambit of the present investigation. In view of the sequence of events adumbrated above, it is evident that the opposite parties have failed to comply with the directions given by the DG in exercise of its powers under section 41(2) read with section 36(2) of the Act. The Commission is constrained to note that despite liberal indulgence shown by the DG to the opposite parties, the opposite parties engaged in dilatory tactics in order to procrastinate and prolong the investigations without any justifiable reason - Commission notes that no cause, much less any reasonable cause, was shown by the opposite parties save and except raising and advancing the pleas based on abstract propositions (broad and complex scope of investigations stretching to every facet of Google's businesses etc.) as noticed and detailed above. In fact, as noted earlier, the opposite parties have conceded the non-compliance with the requisitions made by the DG within the stipulated period - Commission has no hesitation in holding that the opposite parties have rendered themselves liable to be proceeded and punished in terms of the provisions contained in section 43 of the Act. When law casts an obligation upon the party to comply with a direction, the same needs to be complied with in the manner and the time stipulated therein. Further, it is trite to state that every failure to comply with the directions and requisitions constitutes a separate ground for imposition of penalties. In the instant case, as detailed hereinabove, it is manifest that the opposite parties have failed to comply fully with the various notices issued by the DG on different occasions. Despite reminders and opportunities extended by the DG, the opposite parties advanced frivolous and vexatious pleas to delay and avoid compliance. It may be noted that the period of failure to comply commenced w.e.f. 26.02.2013 in terms of the first notice of the DG dated 12.02.2013 whereby the opposite parties were directed to comply with the requisitions contained therein before the said date - fine of rupees one crore is imposed upon Respondent - Decided in favour of appellant.
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