Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
April 22, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Cash found during the search – The time gap between the cash withdrawal and the date of search was only two full days, thus, it may not be correct to reject the explanations furnished by the assessee without bringing any material on record to contradict the same - AT
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Determination of Permanent Establishment - Article 5 of Indo-Mauritius DTAA – GPI project – the assessee clearly has a PE in India during the relevant years - AT
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Disallowance of service tax written off which was non recovered from the customers / clients – service tax already taken as part of receipts, the same can be claimed as loss in this year - AT
Customs
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Import of goods under Duty-Free Import Authorisation Scheme (DFIAS) - importers have suppressed the fact of availing the CENVAT credit and have claimed the undue benefit in respect of additional duty of customs - AT
Corporate Law
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Sanction to the proposed reduction of the Subscribed and Paid-up Equity and Preference Share Capital of the petitioner Company - scheme approved - HC
Service Tax
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If the export of the consignment is done in the month of March 2010 and the invoice/debit note specifically records the same the refund application filed by the appellant on 30/08/2010 is within the period as mentioned in Notification No.9/2009-S - AT
Central Excise
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Valuation of goods - nature of transaction - pure sale purchase or Job work - in situations where price is not sole consideration, it does not mean that invariably Department has to resort to the valuation under Rule 10A of Central Excise Valuation Rules, 2000 - AT
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CENVAT Credit - input service - courier service availed by them for despatch of the final products to their customers - matter referred to larger bench - AT
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Demand of duty - Clandestine removal of goods - Demand cannot be made on the basis of the entries made by the staff in the rough registers maintained by them without their being any corroborative evidences - AT
VAT
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Whether registration came to be cancelled from inception u/s 27 - unless and until the dealer is convicted and that too in an offence under the Act or the earlier law, the registration cannot be cancelled - HC
Case Laws:
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Income Tax
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2014 (4) TMI 713
Admission of appeal - Disallowance of expenses u/s 14A of the Act – Correctness of the claim – Held that:- Assessee contended that the AO did not record his dissatisfaction with the correctness of the claim made by the assesssee – thus, the appeal cannot be admitted as no substantial question of law arises for consideration – Decided against Revenue.
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2014 (4) TMI 712
Validity of dismissal of revenue’s appeal and admission of Cross objection – No claim of deduction on purchase of land - Held that:- The Tribunal rightly dismissed the appeal of the revenue as the assessee had not claimed any deduction of the sum of Rs.42,36,000/- invested in purchasing the land - there was no reason why the addition was made by the assessee – but, the cross objection filed by the assessee was wrongly allowed by the Tribunal on the ground that no expenditure had really been claimed with respect to the amounts disallowed by the AO - When an expenditure of a revenue nature was incurred and shown as work in progress, it could not be said that the provisions of section 40(a)(ia) were not attracted – thus, the order of the Tribunal is modified – Decided partly in favour of Revenue.
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2014 (4) TMI 711
Addition of wastage – Held that:- The Tribunal rightly held that the assessee had claimed wastage 8.84% and shown gross profit rate of 10.75% - the wastage that was claimed in the assessment year was more or less similar to that claimed in the preceding assessment year - this was not a case of inflating the expenses or claiming unreasonable expenses on account of wastage - once having rejected the books of account, AO could not have made further additions by relying upon the same books – the order of the Tribunal upheld – Decided against Revenue. Addition on account of undervaluation of stock – Held that:- The Tribunal rightly held that merely because the assessee did not maintain certain details on the computer was no ground for rejecting the explanation given by the assessee – thus, the order of the Tribunal is upheld – Decided against Revenue. Disallowance of job charges paid – Held that:- The Tribunal rightly held that merely because initially there was a discrepancy, was no ground to make the addition once the assessee had explained the discrepancy in the books of account - the AO had not made proper investigation in the matter0 thus, it could not be said that the assessee had inflated the job charges – the order of the Tribunal is upheld – Decided against Revenue. Addition of salary expenses – Held that:- Tribunal found that the profit ratio of the assessee was better as compared to the earlier years and it would be reasonable to make a lump sum addition to protect the interest of the revenue -The Tribunal set aside the additions and made a lump sum addition of Rs. 2 lakh – the order of the Tribunal is upheld – Decided against Revenue. Addition of unsecured loans u/s 68 of the Act – Disallowance of interest expenses – Held that:- The Tribunal held that the assessee had been able to prove the identity of the creditor and the genuineness of the transaction in the matter - upon issuance of the summons to the creditor, Mr. Prem Ratan Sharma, he had responded to the same and filed reply before the AO - the AO did not ask the assessee to produce the creditor for examining him nor did he bring any evidence on record that the cash deposits in the bank account of the creditor came from the side of the assessee - the assessee had been able to prove the identity of the creditors, genuineness of the transaction in the matter and creditworthiness of the creditor, the Tribunal found no reason for making the addition treating the same as unexplained cash credit – the order of the Tribunal is upheld – Decided against Revneue.
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2014 (4) TMI 710
Computation of capital gains - Adoption of lower value of WDV of building – Capitalization to building account and land ignored – Held that:- As it has been decided in earlier assessment year, the disallowances have been allowed – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Calculation of indexed cost of acquisition - Adoption of date of acquisition – Held that:- The transaction of sale in the year 1992 is for conversion of lease hold rights into free hold rights by way of improvement of title – Relying upon CIT Vs. Smt. Rama Rani Kalia [2013 (9) TMI 962 - ALLAHABAD HIGH COURT] - the conversion of rights of lessee in the property from lease hold right into free hold only results in improvement of his/her rights over property and it would not have any effect on taxability of capital gains from such property which is related to period over which property is held - the property has been held by M/s. Tool Craft, on lease hold basis since 1974 and the assessee has acquired the partnership firm in the year 1978 to which the title over the property in question has been improvised by conferring free hold rights, the year of acquisition of the said property is to be held as 1974 and not the year 1992 – thus, the assessee is entitled for the indexed cost of acquisition since 1981 as claimed – Decided in favour of Assessee. Inclusion of interest on self-assessed tax u/s 234A of the Act – Held that:- For the purpose of calculating the interest u/s 234A, interest is to be charged on assessed tax after reducing the amount of tax paid before filing the return of income – Relying upon CIT Vs Pranay Roy [2008 (9) TMI 150 - SUPREME COURT] - the levy of interest u/s 234A is compensatory and not penal in nature – thus, the AO is directed to give credit of self-assessed tax paid before filing the return of income and thereby reduce the same for the purpose of charging interest u/s 234A of the Act – Decided in favour of Assessee.
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2014 (4) TMI 709
Penalty u/s 271(1)(c) of the Act – Disallowance of director’s remuneration – Disallowance of technical knowhow – Held that:- The Tribunal has deleted the disallowance on payments of director’s remuneration – thus, there is no justification for levy of penalty for disallowance of payment of remuneration - the assessee has made full disclosure of expenditure incurred for technical knowhow - It was clearly shown in the balance sheet as deferred revenue expenditure - the entire expenditure was paid during the year in the computation of income, same was claimed as revenue expenditure u/s 37(1) – Relying upon CIT Vs. Wavin (India) Ltd. [1997 (9) TMI 6 - SUPREME Court] - thus, there was no concealment of facts by the assessee in the return of income – there was no justification for the imposition of penalty for disallowing the payment claimed u/s 37(1), since there was full disclosure of expenses so incurred for technical knowhow, genuineness of expenses were not doubted, mere disallowance on the plea of expenses being capital in nature, do not warrant any imposition of penalty u/s.271(1)(c). Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD [2010 (3) TMI 80 - SUPREME COURT] - for levy of penalty under Section 271(1)(c), there has to be concealment of particulars of income of the assessee and revenue is required to show that assessee must have furnished inaccurate particulars in his income - When there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false, there is no question of inviting penalty u/s 271(1)(c) - A mere making of claim will not amount to furnishing inaccurate particulars regarding the income of the assessee – thus, the order of penalty u/s 271(1)(c) of the Act set aside – Decided in favour of Assessee.
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2014 (4) TMI 708
Addition on account of unexplained income – Cash found during the search – Held that:- The assessee has withdrawn a sum of Rs.7.00 lakhs on 17.08.2009 from the bank account maintained in his name with M/s Vijaya Bank - The search took place on 20-08-2009 and the revenue found cash balance of Rs.6,31,100/- at his residence - the cash found at the time of search was lesser than the amount withdrawn from the bank two days prior to the date of search - CIT(A) that the first appellate authority is only talking about the possibility of the amount being spent away on the reasoning that the assessee is in building development business and hence he would not keep the money idle. The time gap between the cash withdrawal and the date of search was only two full days, thus, it may not be correct to reject the explanations furnished by the assessee without bringing any material on record to contradict the same - the explanation of the assessee about the sources of the cash found during the course of search have to be examined on the basis of evidences and explanations furnished by the assessee - There is no material to show that the money so withdrawn was spent away or utilized for any other purpose - assessee has explained the sources of the cash found at his residence at the time of search – thus, no addition is warranted and the order of the CIT(A) set aside – Decided in favour of Assessee.
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2014 (4) TMI 707
Validity of re-opening of assessment u/s 147 of the Act – Held that:- CIT(A) rightly held that the AO has tangible material before initiating proceedings u/s 147 – AO obtained information u/s 133(6) and thereafter, he has initiated proceedings for reopening the assessment - the assessments are reopened within 4 years from the end of the assessment year - there was no scrutiny in earlier proceedings and returns were accepted u/s 143(1), the principles laid down in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. [2007 (5) TMI 197 - SUPREME Court] would apply – Decided against Assessee. Allowability of deduction u/s 54B of the Act – Capital gain on transfer of land used for agricultural purposes - Held that:- CIT(A) gave findings that assessee has not furnished necessary evidences with reference to agricultural operations on the land - Assessees have placed a paper book with regard to pahanies, connection of power and also some photographs relevant for agricultural operations - these were seems to have been placed before the AO – this aspect could not be examined as there is no discussion - while agreeing that the assessees claim u/s 54B cannot be denied so long as the lands were used for agricultural purposes before sale, this aspect of usage for ‘agricultural purposes’ require verification by the AO – thus, the matter is remitted back to the AO for verification - Assesses are directed to furnish necessary evidence if not furnished already before the AO so as to substantiate that the lands were used for agricultural purposes before sale – Decided in favour of Assessee.
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2014 (4) TMI 706
Determination of profits in the business of wines – Rejection of books of accounts – Held that:- There was no reason to interfere with the order of the CIT(A), following Income-tax Officer, Ward 1, Warangal Versus Shri P. Ramaiah, Warangal and others [2013 (12) TMI 1001 - ITAT HYDERABAD] - consistent directions has been made to adopt the rate of 5% of the purchase value or stock put to use whichever is more – thus, the order of the CIT(A) upheld – Decided against Revenue.
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2014 (4) TMI 705
Disallowance of interest on loans – Held that:- The term loan obtained by assessee among various other secured loans was in fact carried-over term loan which was reflected in the Balance Sheet as on 31st March, 2008 as well - assessee has submitted detailed explanation before the CIT(A) that it has its own funds available and no part of the borrowed funds were diverted – but, the CIT(A) did not examine the facts and went by the observations of the AO - Even though, CIT(A) accepted that funds were given to the sister concern for purchase of land, he was of the opinion that it is diversion of funds – though, the contentions of assessee were examined by the authorities, the matter is required to be re-examined – thus, the matter is matter is remitted back to the AO for examination about the borrowed funds and see whether any part of the amount has been diverted for non-business purposes – Decided in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act – Held that:- Assessee contended that the amount added back need not be added back is correct - since the CIT(A) has already directed the AO to verify and as submitted by the assessee the details of payments are already stated in the 3CD report as well as enclosure to the returns, AO is directed to allow the amount, if the amounts are paid by due date as per the amended provisions of the Act - It was also contended that the amount of Rs.33,99,622/- was also paid within the period - This amount is also required to be verified and if paid within the dates as permitted by amended provision, no addition can be made – Decided in favour of Assessee. Disallowance for want of evidence – Held that:- It is an admitted fact that the assessee failed to produce any bills or vouchers and in the absence of necessary evidence – AO as well as CIT(A) disallowed the amount – assessee contended that the disallowance pertains to amounts paid to various Government organisations for land development, permissions, approvals etc. - but, in the absence of any evidence of expenditure, it cannot be allowed – Decided against Assessee.
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2014 (4) TMI 704
Determination of profits in the business of wines – Rejection of books of accounts – Held that:- There was no reason to interfere with the order of the CIT(A), following Income-tax Officer, Ward 1, Warangal Versus Shri P. Ramaiah, Warangal and others [2013 (12) TMI 1001 - ITAT HYDERABAD] - consistent directions has been made to adopt the rate of 5% of the purchase value or stock put to use whichever is more – thus, the order of the CIT(A) upheld – Decided against Revenue.
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2014 (4) TMI 703
Deletion of penalty u/s 271(1)(c) of the Act – Furnishing of inaccurate particulars – Held that:- CIT(A) rightly was of the view that there is no furnishing of inaccurate particulars by assessee –Only issue is whether assessee’s claim under section 80IB and 80HHE, which are allowable to assessee, are to be calculated on the same income or after excluding one from the other - The issue is a debatable and it cannot be found fault with the claim of assessee at the time of filing of the returns - that itself per se does not lead to levy of penalty u/s 271(1)(c) as it cannot be considered that assessee has either concealed incomes or furnished inaccurate particulars of income, two of the parameters necessary for levy of penalty u/s 271(1)(c). Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] - Mere disallowance of a claim does not lead to penalty u/s 271(1)(c) of the Act – Where there is no finding that any details supplied by assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c) - A mere making of a claim, which is not sustainable in law, by itself , will not amount to furnishing inaccurate particulars regarding the income of assessee - Such a claim made in the return cannot amount to furnishing inaccurate particulars - the order of the CIT(A) upheld – Decided against Revenue.
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2014 (4) TMI 702
Determination of Permanent Establishment - Article 5 of Indo-Mauritius DTAA – GPI project – Held that:- The matter is principally factual would require an exposition and a clear understanding of the concept of PE - the words “permanent establishment” postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another, which can be attributed to a fixed place of business in that country - It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country onto the soil of another country - The rule to be invoked shall be the base rule of Art. 5(1), which is also commonly referred as ‘the basic rule PE’ - The ‘service’ rule, or any other sub-rule for that matter, is only derived from this basic rule and not in derogation. The assessee’s claims and contentions raised besides being un-evidenced, are at polar opposite to what would one would normally expect as well as the material on record in the form of the base documents and the communications exchanged between the parties in the regular course of business - The plea of the employees being subject to change is without material - The claim of the personnel only executing planning and supervising work, is again without substance and contradictory of the contract work as profiled by the documents, and as stated here-in-before - a fixed place of business, as contemplated in the definition of PE under Art. 5, does not at all imply or is confined to a place where the top management of the company is located - A branch of an enterprises may well be its’ PE; only the profit attributable to the same being liable to be taxed in the source State - as is apparent from the modus operandi to be adopted, the regular interviews, interactions, meetings, training sessions and seminars, etc., both by the consultants and the principal consultants, forming Tier I and Tier II of the assessee’s teams deputed on the project, and which are admittedly and principally at the GPI’s premises, is as much a part of the work undertaken by the assessee-company as is the independent collection, collation, analysis and review, etc. of the data/information being sought from the organization during any phase of the project management – thus, the assessee clearly has a PE in India during the relevant years – Decided against Assessee. Profit attributable to PE – Held that:- The issue though not raised by the assessee per its memorandum of appeal, was agitated during hearing, and being germane to the issue is admitted – as held in Dit (International Taxation) Versus Morgan Stanley And Company Inc. [2007 (7) TMI 201 - SUPREME Court], economic nexus is an important aspect of the principle of attribution of profits – thus, the matter is required to the remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Restriction of claim for business expenses – Held that:- The claim has been restricted by the Revenue on the ground of it being not subject to verification - the assessee failed to produce the relevant vouchers - The plea that the records being old, so that the same are not traceable, is not admissible – thus, there is no need for interference – Decided against Assessee. Disallowance u/s 40(a)(iii) of the Act wrongly mentioned as 40(a)(ia) of the Act – Held that:- As decided in assessee’s own case, that the limitation as regards the actual expenses, made particularly with reference to section 44C, has also been clarified by him as not applicable in view of Circular No.333 dated 02.04.1982 by CBDT, so that Art. 7(3) of Indio-Mauritius DTA would prevail – Decided against Revenue. Disallowance of indirect expenses – Held that:- The ‘indirect expenditure’ as reflected in the assessee-company’s global audited accounts can be, without demur, taken as a legally firm basis for applying the same to the Indian operations in terms of Art. 7(3) of the treaty - The Revenue may further seek a certificate from the auditors of the company after arriving at an agreement as to what constitutes and comprises ‘indirect expenditure’ - Insistence on the production of vouchers would be exaggerated – Decided against Revenue.
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2014 (4) TMI 701
Computation of capital gains - deduction of amount from sale consideration incurred by the purchaser towards vacating the encroachment, earth filling etc. - Deletion of payment made after execution of sale deed – Payment not a part of sale deed – Held that:- once the assessee is claiming that it has not received the full consideration, as mentioned in the deed of conveyance and only sum of Rs. 31 lakhs has been received, then onus to prove is on the assessee with some credible evidence - the claim of the assessee that the purchaser had incurred Rs. 15 lakhs is also not corroborated by any evidence that the purchaser had actually incurred this amount for getting the encumbrance free plot and how it has been quantified. The deed of conveyance is completely silent on this point that the assessee was liable for incurring such an expenditure or the purchaser shall incur this amount which shall be reduced from the total sale consideration agreed upon between the parties - If it has not been mentioned in the conveyance deed that it is axiomatic that the sale consideration mentioned in the conveyance deed is the actual consideration receivable by the assessee - No evidence or details have been submitted by the purchasers with regard to expenses incurred - The content of the letter also raises a doubt in the wake of the fact that how only the assessee is responsible alone for liability of Rs. 15 lakhs from his share of sale consideration receivable to him and will be reduced from the sale and not the other seller - Thus, the letter dated 31st March 2005 cannot be held to be conclusive proof of reduction of sale consideration by Rs. 15 lakhs when the registered deed of conveyance is completely silent about such a reduction of amount by Rs. 15 lakhs – the order of the CIT(A) set aside – Decided in favour of Revenue.
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2014 (4) TMI 700
Rejection for registration u/s 12A of the Act – Genuineness of the activities - Held that:- Nowhere the DIT(E) has either discussed the objects of the trust and the purpose for which the trust or the institution has been established - Simply noting the fact that the trust has received loan from the trustees that itself does not lead to any inference that the activities of the trust itself is not genuine - Provisions of section 12AA are amply clear which provides that the Commissioner of Director of Income can call such information to satisfy about the genuineness of the objects and also about the genuineness of the activities of the trust and then only he can either grant or refuse the registration - The law mandates that he has to examine the objects and also the genuineness of the activities – thus, the matter is required to be remitted back to the DIT(E) for fresh examination of the issue of registration u/s 12A of the Act –Decided in favour of Assessee.
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2014 (4) TMI 699
Jurisdiction u/s 263 of the Act – Validity of order of relooking of the cash deposits – Applicability of section 44AF of the Act - Held that:- An order cannot be termed as erroneous unless it is not in accordance with law - If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, the order should have been written more elaborately - AO has not applied his mind with respect to the deposit in bank account, which led to increase in the capital of the assessee - where the AO frames assessment without application of mind and without making enquiry, the order of the AO becomes erroneous as well as prejudicial to the interest of Revenue - it is clear from the reply of the assessee before the CIT that bank account was deposited was not disclosed in the return of income - it was also contention of the assessee that the amounts so received and deposited was on account of sale of business which comes under Section 44AF – the order of the CIT is modified and the AO is directed to examine the applicability of provisions of Section 44AF – Decided partly in favour of Assessee.
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2014 (4) TMI 698
Disallowance of commission on sales – Manufacturing and trading of safety gloves and industrial safety products – Held that:- The assessee had paid similar commission to ACL which has been accepted by the Department under the scrutiny proceedings u/s 143(3) - The nature of transaction on the domestic sales by the assessee through ACL is on account of ordinary course of business and it was a business expediency that the assessee had decided to make the sales in the domestic market through ACL - In the cases where sale has been made to ACL, then it has been made on pre-determined price and whatever further sales has been made by the ACL is not the concern of the assessee. It is prerogative of the businessman to conduct the business in the manner it suits its business expediency and necessity - the business expediency cannot be doubted looking to the overall transaction undertaken by the assessee through ACL - the genuineness of the payment is also corroborated by the fact that the assessee has deducted TDS on such a commission and has also deposited in the Government treasury - This leads to some credence about the genuineness of the commission of payment and its claim for deduction u/s 37(1) - the payment of commission to ACL is genuine business expenditure which has been paid on account of business and commercial expediency – thus, the claim is duly allowable u/s 37(1) of the Act – Decided in favour of Assessee.
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2014 (4) TMI 697
Disallowance of service tax written off which was non recovered from the customers / clients – Held that:- The assessee has been billing its client towards professional fees which also includes service tax leviable - It is the liability of the assessee to deposit the service tax which is to be collected from the clients - If any of the client has not paid the service tax and the assessee had already taken into consideration the service tax in its gross receipt and also paid the said service tax to the Government account, then the assessee has to recover it from the client - If for some reason, the assessee is unable to recover the service tax, then, either it can write–off in this year or can claim as loss by such an amount - Even under the cash system of accounting, the fees which has been received including service tax, the same has to be taken as receipts of the year. If there is any unrealized amount on account of service tax already taken as part of receipts, the same can be claimed as loss in this year - if the unrealized amount is received later, the same would become taxable in the year of receipt and in such situation also, it cannot be disallowed or added in this year - the finding of the CIT(A) cannot be upheld as the amount which has been written-off on account of service tax is allowable because it has already formed part of income and only the unrealized amount has been written–off, which has to be allowed as deduction, while computing the income from profession u/s 28 – thus, the order of the CIT(A) set aside – Decided in favour of Assessee.
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2014 (4) TMI 696
Stay application - Demand raised u/s 201(1) and 201(1A) of the Act - non deduction of TDS – 100% tax amount already paid by the receipient - Held that:- The contention of the assessee that the recipient of income has already paid taxes on their income, therefore, recovery of tax from the assessee amounts to double recovery of tax in respect of the income requires verification on the part of the AO – Relying upon M/s. Hindustan Coca Cola Beverage Pvt. Ltd Versus Commissioner of Income Tax [2007 (8) TMI 12 - SUPREME COURT OF INDIA] - if the payee has made demand of tax then to that extent, the assessee should not be considered as the assessee in default – the assessee’s liability for levy of interest u/s 201(1A) cannot be denied with respect to the delay in payment of taxes – the assessee has already paid more than 100% of its demand raised u/s 201(1A) for all the years, assessee cannot be asked to pay further amount with respect to demand raised u/s 201(1A) - thus, stay granted till the disposal.
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2014 (4) TMI 695
Valuation of stock - Addition made on account of suppression of value of stock – Held that:- Scrutiny assessment was framed u/s a43(3) wherein the assessee company has accepted the reworking of opening/closing stock at average cost and accepted the addition – also, in the assessment year 2009-10 framed u/s 143(3) the assessee has revised return of income due to reworking of the opening/closing stock at average cost - in assessment year 2010-2011 also, the assessee has revised return of income due to reworking on opening/closing stock at average cost – thus, the matter is required to be remitted back to the AO for reworking of the opening/closing stock at average cost and fresh adjudication – Decided in favour of Assessee.
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2014 (4) TMI 694
Disallowance of claim u/s 48(1) of the Act assuming that appellant had claimed deduction as business expenditure under Section 37 – Held that:- The matter has been remitted back to the Tribunal for fresh adjudication - as the assesse is ready to give up his claim of deduction u/s 37, this issue cannot be taken into remand proceedings - the claim of the assessee related to deduction u/s 48 of the act only needs to be considered – Decided in favour of Assessee.
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Customs
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2014 (4) TMI 723
Waiver of pre-deposit – import of goods under Duty-Free Import Authorisation Scheme (DFIAS) - The applicants were of the view that the condition implied that they should not have availed Cenvat credit of Countervailing duty imported under DFIAS, whereas the Revenue was of the view that no Cenvat credit on any materials used in export goods should have been availed. - Held that:- Even though the provisions were very clear the applicants had availed CENVAT credit on inputs used in exported goods and the importers had availed exemption from additional duty of Customs on imported goods – The applicants should not have claimed exemption under Notification 40/2006-Cus - Here, the importers have suppressed the fact of availing the CENVAT credit and have claimed the undue benefit in respect of additional duty of customs. Considering information given by the applicants regarding duty liability in respect of bills of entry filed after the amendment each of the parties were directed to make pre-deposit of the sum of the amounts shown in Cols. 4 & 5 against each of the respective applicant and report compliance - Upon compliance with the orders both the parties are at liberty to mention the matter for further disposal of the appeal itself - Stay denied.
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2014 (4) TMI 722
Anti-dumping duty - import of goods - revenue of the opinion that, goods are "Plastic Processing or Injection Molding Machines" classifiable under Heading 84771000 - Abetment – Non furnishing of documents - Waiver of pre-deposit - Held that:- The order has been passed without complying with the principles of natural justice striking at the very root of maintainability of the order - In the normal course there can be no reason for not supplying copy of any document in the possession of the department - If there was any such reason it is not recorded - The same is the position w.r.t. cross-examination of witnesses - Since the order is passed without complying with principles of natural justice, no purpose will be served by keeping this appeal pending in the Tribunal - Therefore, after waiving the requirement of pre-deposit, impugned order is set aside - Matter remanded back to the adjudicating authority to comply with the principles of natural justice and pass order thereafter – Decided in favour of appellants.
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Corporate Laws
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2014 (4) TMI 721
Sanction to the proposed reduction of the Subscribed and Paid-up Equity and Preference Share Capital of the petitioner Company - Held that:- The first observation made by the Regional Director expresses the apprehension that the proposed reduction of capital is in substance a ruse to distribute profits. The rationale for reduction of capital, that is provided by the petitioner, is that the current capital of the company is in excess of its requirements. It has also been stated that the object of the proposed reduction of share capital is to provide a partial exit to the investor shareholders (i.e. foreign investors). Apparently, the company does not envisage that the current quantum of share capital would be required for its future needs. Present capital of the company is in excess of its requirements and there is no material on record which would indicate to the contrary. The observation made by the Regional Director is solely premised on the fact that the petitioner company is a profitable one. There is no principle of law which prohibits a profitable company from reducing its share capital and thus the fact that the petitioner company is a profitable one cannot possibly, in absence of any other material fact, lead to the conclusion that the reduction of capital is for a collateral purpose. The fact that the petitioner is a profitable company would only indicate that the company has in addition to its capital also generated further funds and the same would not negate the reason that the petitioner has capital in excess of its requirements. It is also relevant to note that the reduction of capital is not on proportionate basis. Therefore, the ratio of the entitlement of the shareholders to future profits by way of dividends would also stand altered by reason of reduction in capital as proposed. Approval of reduction in the share capital cannot be withheld on the basis of the above mentioned observation made by the Regional Director - there is no infirmity in the procedure adopted by the petitioner for reduction of capital. The resolution for the same has been passed by the Board of Directors of the Company. The shareholders of the company have also unanimously passed the resolution for reduction of capital as proposed. The petition has been duly advertised - The procedure prescribed for sanction of a scheme under Section 391-394 of the Act, in substance, is similar to the procedure for approval of reduction in share capital. And, I see no reason why approval to the reduction not be granted, in given facts where the shareholders have unanimously consented to a reduction of capital in a particular manner - proposed reduction in the paid-up share capital of the Company is duly authorized by Article 3.1 of its Articles of Association. The Special Resolution has been unanimously approved and adopted by the shareholders of the Company at the EOGM held on 08.07.2013. None of the creditors have opposed the reduction of capital - Decided in favour of petitioner.
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Service Tax
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2014 (4) TMI 728
Denial of refund claim - Bar of limitation - Whether the refund application filed by the appellant is within time or is beyond the time limitation as provider under clause 2(e) of Notification No.9/2009-ST - Held that:- appellant had paid the amount to CHA in the month of January 2010, though services were received in the month of March 2010. It is the findings, that once the amount has been paid in January 2010, the appellant should have been filed the refund claim within 6 months from that date. I find that both the lower authorities have misconstrued the entire issue. On perusal of the debit note raised by M/s. Sri Ganesh Forwarders Pvt. Ltd., CHA, on the appellant, I find that the debit note is dt. 08/03/2010 and specifically talks about discharge of service tax liability of Rs.31,303/- on the wharfage for an export done by them on behalf of the appellant on 04/03/2010. If the export of the consignment is done in the month of March 2010 and the invoice/debit note specifically records the same, in my opinion, the refund application filed by the appellant on 30/08/2010 is within the period as mentioned in Notification No.9/2009-ST dt. 03/03/2009 - Decided in favour of assessee.
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2014 (4) TMI 727
Denial of CENVAT Credit - Denial on the ground that the credit had nothing to do with the business of manufacture of the appellant - Held that:- entire demand is beyond the normal time limit of one year and the learned counsel submits that the credit denied is on services like appellant's own aircraft maintenance, airport services, charges paid by the appellant in respect of their own aircraft and air travel agents services and cleaning service (cleaning of toilets has not been considered as a service admissible) - prima facie none of these services can be said to be not relatable to the business of manufacture of the appellant. Therefore, there shall be waiver of predeposit and stay against recovery during the pendency of appeal - Stay granted.
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2014 (4) TMI 726
Waiver of pre-deposit - Disallowance of CENVAT Credit - Whether structural parts having been embedded into the earth for structures which are eventually used in the manufacture of cement for an expanded production capacity are capital goods entitling availment of Cenvat credit - Held that:- we are not inclined to grant unconditional and total waiver of pre-deposit or unconditional stay of the adjudication order impugned in the appeal - stay granted partly.
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2014 (4) TMI 725
Waiver of pre-deposit - services provided by clinical research organizations - Exemption under Notification Nos.11/2007-ST and No.83/2011 - export of services - Held that:- In the impugned order, the adjudicating authority failed to analyze or discuss the first claim of the petitioner for exemption, based on the exempted Notification. In respect of the second claim, based on provisions of the Export of Service Rules, 2005, the adjudicating authority rejected the same on the ground that the whole of the services were not provided within the territory of India - waiver of pre-deposit in full and stay all further proceedings pursuant to order impugned pending disposal of the appeal - Stay granted.
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2014 (4) TMI 724
Waiver of pre deposit - Demand of service tax - training on ‘Corex Technology’ to employees of another company - commercial training or coaching - Held that:- amount already deposited by appellant is sufficient as pre-deposit. Accordingly, requirement of pre-deposit of balance dues is waived and stay against recovery of the same is granted during pendency of the appeal - Decided in favour of assessee.
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Central Excise
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2014 (4) TMI 720
Valuation of goods - nature of transaction - pure sale purchase or Job work - whether the valuation adopted by SGSPL for discharging the Central Excise duty on the goods manufactured by them is correct or the Revenue is correct by demanding the duty on the value of the goods based upon the sale price of the goods in the market and to hold whether SGSPL is a job worker under the provisions of Rule 10A of Central Excise Valuation Rules, 2000 or otherwise - Held that:- agreement which was entered by the SGSPL with Atlantic was prior to 01.04.2007. The said date is important as the provisions of Rule 10A came into existence from that date i.e. to say that the appellants were engaged in manufacturing and clearance of the product with the said atlalntic prior to introduction of said provisions on the very same terms and conditions. We also find on perusal of the agreement that the agreement indicate the sale and purchase of the goods from the said SGSPL to Atlantic and Petronas. he first distinction in the valuation of excisable goods required to be made is whether under Section 4 of the Central Excise Act, 1944, the transaction is one of sale or a case of manufacture of goods from inputs and goods supplied by principle manufacturer. In the later option, the manufacturer should get only the job charges for converting the inputs/goods but the predominant part of the inputs or goods is required to be supplied free of charge by the principle manufacturer to the job worker. Such supply of inputs/goods free of charge has not been established by the Revenue Valuation under Section 4(1) of Central Excise Act, 1944 is sought to be discarded on the ground that the price is not the sole consideration in these cases. In our view, in situations where price is not sole consideration, it does not mean that invariably Department has to resort to the valuation under Rule 10A of Central Excise Valuation Rules, 2000. In our view, the conditions required for bringing the assessee under the provisions of Rule 10A of Central Excise Valuation Rules, 2000 have not been properly appreciated by the adjudicating authority in this case - Following decision of Ravikiran Plastics Pvt.Ltd [2014 (2) TMI 211 - CESTAT AHMEDABAD] - Decided in favour of assessee.
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2014 (4) TMI 719
CENVAT Credit - input service - courier service availed by them for despatch of the final products to their customers - Bar of limitation - Difference of opinion - matter referred to larger bench with following questions:- Whether bar of limitation as prescribed under rule 14 of the Cenvat credit rule 2004 read with Section 11A of Central Excise Act, 1944 is invokable and Cenvat credit was not recoverable for extended period as held by Member (Judicial). Or Whether bar of limitation as prescribed under rule 14 of the Cenvat credit rule 2004 read with Section 11A was not attracted and Cenvat credit was recoverable as held by Member (Technical).
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2014 (4) TMI 718
Demand of duty - Clandestine removal of goods - Penalty u/s 11AC - Held that:- entire case of the Revenue is that during the period 2000-01 to 25.09.2003, the appellants have issued 1,94,376 Armature Assembly/shafts, but have shown the production of starter motors in their RG-I register only to the extent of 1,76,001. As such, it is their case that the balance quantity of Armature Assembly issued, stands used in the manufacture of starter motors, which were cleared without payment of duty - Apart from the said entry showing issuance of Armature Assembly in work-in-progress register, which is admittedly not a statutory register, the Revenue has neither alleged nor produced any other evidence in respect of other raw-materials which are also required for production of starter motors. It is not the Revenue s case that the appellants were buying unaccounted for cooper wire, yolk, bearings, brakes, slot insulators, laminations and commutators, which are also required for the manufacture of starter motors. In the absence of these raw-materials, it is not possible to manufacture their final product with just Armature Assemblies. Demand cannot be made on the basis of the entries made by the staff in the rough registers maintained by them without their being any corroborative evidences. Further, in the absence of any allegations as regards receipt of other raw-materials, demand cannot be confirmed on the basis of one of the inputs shown to have been received. Further, the quantum of final product calculated mathematically on the basis of receipt of one of the raw-materials and on input-output ratio cannot be held to be just and fair. By applying the above ratio of law declared by various courts in umpteen number of cases, it has to be held that the Department has not been able to establish its allegations and charges made against the appellants, especially, when the appellants have accounted for and have given explanation for each and every Armature Assembly/shaft - Decided in favour of assessee.
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2014 (4) TMI 717
Waiver of pre deposit - Demand of differential duty - Discharge of 10% of the value of the finished goods cleared from the factory premises of the appellant who is functioning as a job worker - Held that:- issue is an arguable one and needs to be gone into detail which can be done only at the final disposal of the appeal. In our considered view, the issue is not free from doubt, as to the aggregate value to be adopted for discharge of 10% of the value of the goods should include the value of the inputs which were supplied by the principle manufacturer. Accordingly, we are of the view that the appellant needs to be put to some conditions for hearing and disposing the appeal - Conditional stay granted.
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2014 (4) TMI 716
Waiver of pre deposit - Penalty under provisions of Rule 26 of the Central Excise Rules, 2002 - appellant has only issued the invoices facilitating the purchase to avail cenvat credit which were ineligible as the material/input was not supplied along with the invoices - Held that:- issue is not free from doubt in as much as the statement of the authorised signatory of the appellant clearly indicates as being confronted with the report from RTO, he has admitted the vehicles were in capable of carrying the quantity of inputs as mentioned against the invoices. At the same time, we also find that the invoices which are attached to the appeal memoranda indicate vehicle numbers and weigh bridge slips. All the invoices attached to the appeal memoranda and the findings recorded by the adjudicating authority needs to be considered in detail which can be done only at the time of final disposal of the appeal. Accordingly, we find that the appellant has not made out a prima facie for the complete waiver of the amount of penalty imposed - Conditional stay granted.
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2014 (4) TMI 715
Waiver of pre deposit - Denial of benefit of modvat credit - invoice issued by registered dealer - Revenue entertained a view that it was only paper transaction without the actual movement of the goods to the appellant factory. - Held that:- Entire evidence on record is required to be taken into consideration for arriving at a final conclusion. Suffice it to say, at this interim stage, the appellants have not been able make out a good case in their favour so as to allow the stay petition unconditionally. As regards limitation, we find that in such cases of fraud, the extended period is available to the Revenue - apart from making a bald statement in the stay petition, there is no evidence reflecting upon the poor financial status of the appellant - Conditional stay granted.
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2014 (4) TMI 714
Waiver of the pre-deposit - Clandestine removal of chhakdo rickshwas - Violation of principle of natural justice - Non furnishing of various documents - Held that:- conduct of the assessee before the lower authorities is also deplorable, in as much as they have been seeking documents at various times and sometimes asking for the copies of the show cause notice stating that they were misplaced. Suffice to say that the assessee has been trying to delay the adjudication proceeding by seeking various documents at various times - Decided conditionally in favour of assessee.
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CST, VAT & Sales Tax
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2014 (4) TMI 732
Rate of royalty - Royalty on consumption/removal of minerals – u/s 9 of the Mines and Minerals (Development and Regulation) Act, 1957 - Proper Notice - Quashment of Demand Notice - Vires of Rule 64D of the Mineral Concession Rules, 1960 – Held that:- When it was found that the sale price as disclosed by the assessee and the data supplied by the Department of Mines, Chaibasa were not in conformity with each other and the assessee had intentionally paid less VAT by showing lesser sale price, AO proceeded to assess the value of goods and consequently tax and penalty u/s 35(7) and 40(2) respectively - A separate notice under u/ 35(7) was not required to be issued as it was in continuation to the proceeding under the regular assessment proceeding u/s 35 (5) of the Act. Issuance of Fresh Notice - Sufficiency of Opportunity of hearing – Judgment in J.K. Steel Ltd. v. Union of India [1968 (10) TMI 45 - SUPREME COURT OF INDIA] followed - If the exercise of power can be traced to a legitimate source, the fact that the same was purported to have been exercised under a different power does not vitiate the exercise of the power in question - Incorrect mentioning of the provision of law or even if it is not indicated in the notice issued to the assessee that AO has proceeded u/s 35(7), it would not prejudice the assessee as from the materials on record it is evident that AO has recorded reasons for proceeding against the assessee and thus, the assessee knew as to the nature of the proceeding and the demand raised by AO - From the proceeding before the Assessing Officer, it is clear that sufficient opportunity was given to Assessee - The petitioner was heard by AO - There was not required in law for issuing fresh notices u/s 35(7) and 40(2) to the assessee and therefore, held that impugned order dated 11.02.2013 has not been passed in violation of the principles of natural justice. Availability of remedy of Appeal/Review/ Revision – Held that:- Judgment in Asstt. Collector of Central Excise v. Dunlop India Ltd. 1984 (11) TMI 63 - SUPREME Court] followed - the Hon'ble Supreme Court has observed that Article 226 is not meant to short circuit or circumvent statutory procedures – Since JVAT Act, 2005 provides an effective remedy of appeal, these writ petitions cannot be entertained by this Court and accordingly, the writ petitions are dismissed – No opinion is expressed on the merits of the case - Decided against Assessee.
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2014 (4) TMI 731
Rate of Tax – Classification - Nature of Works Contract – Entry 22 and 23 or under Entry 4 of the Sixth Schedule – Clading - Interpretation of Statute - Held that:- Insofar as the works contract, executed by the assessees, consisting of structural glazing, external cladding etc. are concerned, they are of two types - One, ACP cladding, glazed glass cladding etc., and two, glazed glass sheets of sufficient strength bonded to rigid rectangular aluminium frames fastened to the supporting RCC bases, pillars, roof edges etc., of a building - The word 'cladding', in the first type of works, itself is an indication that it is for covering or coating with metal (ACP) or glass and thus in any case it cannot be a substitute to external wall or it cannot serve as external wall - The works mentioned/described in the second type of works, however, could serve as external wall or a substitute to external wall - From the very nature of works classified by the Tribunal would show that it is not covered only by Entry-4 - It is found that the Tribunal has not taken into consideration the nature of work so as to hold that they are covered by Entry No.4 only - The order of the Tribunal is not only incomplete but it is perverse. Classification of "Fabrication" and "external structural works" - Entry 4 of the Sixth Schedule - Interpretation of Statute – Held that:- The expressions "fabrication" and "external structural works" are not defined in the Act - The structural glazing is not only fixing glasses so as to enhance the aesthetic quality and outlook of the building - Structural glazing, glass glazing etc. could be a substitute to external wall and if that be so, it would fall in the category of "structural works" as contemplated by Entry 4 - The Tribunal has not considered whether the nature of works executed by the assessees would fall under any other entry as was considered by the Assessing Authority and the appellate authority. Merely because, the assessees also undertakes to construct cabins in empty halls, it cannot be stated that it is a part of structural works and it amounts to structural works within the meaning of Entry 4 - This in opinion of this Court, would amount to interior work done for the client by the assessees - The Tribunal has not endeavoured to find out on the basis of the materials on record as to whether the works contracts executed by the assessees were "composite" in nature, as contemplated by Entry 23 – This Court do not find any whisper in the order of the Tribunal of having considered whether any part of the contracts executed by the assessees would fall under Entry 3 or any other entry for that matter coupled with the works not covered by any other categories in Entries 1 to 21 - It has also not recorded any reason for either setting aside the findings recorded by the authorities below, holding the works contract as composite works contract or for disagreeing with such view - The impugned orders dated 20.10.2009 and 08.02.2010 passed by Tribunal are set-aside and the appeals, disposed of by the Tribunal are restored to file – Matter Remanded back to Tribunal for Fresh consideration – Decided in favour of assessee.
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2014 (4) TMI 730
Waiver of pre-deposit - Consideration of appeal by Tribunal on merits – whether requirement of pre-deposition is valid before proceeding with the appeal u/s 73(4) of Gujarat Value Added Act, 2003 - Held that:- Decision in Benara Valves Ltd. v. CCE 2006 [2006 (11) TMI 6 - SUPREME COURT OF INDIA] followed - In view of section 73(4) such appeal could not have been entertained unless in terms of proviso, the appellate authority for reasons recorded in writing relaxed the requirement of full pre-deposit – The Tribunal ought to have placed appeal back to the Appellate Commissioner, on such condition that the Tribunal thought fit to impose on the appellant - without expressing any opinion on the Appellate Commissioner imposing the condition of part pre-deposit on the appellant, the Tribunal accepted the appellant's Second Appeal as if there was no intermediary stage of the appeal before the Appellate Commissioner or any requirement of pre-deposit under section 73(4) – Assessee also contributed to the complication as he never prayed for setting aside the appellate order of imposing condition and subsequently, dismissing his appeal when he failed to fulfil such condition - The Tribunal could have either permitted the appellant to suitably amend the prayer or if the appellant was not willing to do so, dismiss his appeal as not maintainable - the Tribunal could not have by-passed the first appellate authority and statutory requirement of pre-deposit, unless it was waived by an order in writing - Earlier order of Tribunal quashed - Assessee directed to amend the appeal - Matter remitted back to Tribunal for fresh consideration - Decided in favour of Assessee.
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2014 (4) TMI 729
Whether registration came to be cancelled from inception u/s 27 of the Act - Gujarat Value Added Tax Act, 2003 - Held that:- it does appear to be a case where provisional registration in terms of rule 5(16) of the said Rules was converted into a permanent registration - only on the grounds mentioned u/s 27 of the Act, such registration could be cancelled – Section 27(5)(g) permits the authority to cancel such registration if the dealer is convicted of an office under the said Act or the earlier law - Even in such a case, the Commissioner has to grant a hearing and pass an order recording his reasons for the same - The proposed grounds on which the Commissioner desired to rely for cancellation of registration are never conveyed to the petitioner - we cannot uphold the said order - The impugned order dated 21.1.2013 of the ACC is quashed - This is without prejudice to the respondents to pass a fresh order in accordance with law after following the legal requirements - it would be open for the petitioner to raise all contentions, including the grounds that unless and until the dealer is convicted and that too in an offence under the Act or the earlier law, the registration cannot be cancelled – Decided in favour of asseessee.
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