Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
May 17, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Disallowance of interest on loan – u/s 24 - Loan taken for purchase of flat – the authorities were not justified in refusing deduction u/s 24 in respect of interest incurred by the assessee on loan borrowed for purchase of flat. - AT
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Depreciaition - Merely because the company has shown the cars as its assets in the books of account, cannot put it into the definition of owner of the cars to the exclusion of the legal/registered owners of the cars. - AT
Customs
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Enactments like Customs Act, 1962, and Customs Tariff Act, 1975, are not merely taxing statutes but are also potent instruments in the hands of the Government to safeguard interest of the economy. - AT
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Imports of various consignments - conditional exemption - evidence has to be brought on record by the department to refute the claim that no modvat credit has been availed by the appellants on inputs as well as capital goods. - AT
Corporate Law
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Scope of arbitration agreement - the arbitration clause continues to be enforceable, notwithstanding a declaration that the contract was null and void. - SC
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Arbitration agreement - The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. - SC
Service Tax
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Stay - business support services - where a new entry has been carved out subsequently for the purpose of service tax, it has to be held that the same was not covered by any prior existing category of service. - stay granted - HC
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The “Underwriting Service” rendered by JPMS to JLSL is distinct from the Lead Manager service provided - Underwriting was done outside India, thus no reason to tax the impugned service. - AT
Central Excise
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Confiscation of leased out plant and machinery - request to grant permission for removal from the factory of M/s. RIL cannot be acceded to, since the same was confiscated and their ownership rested with the Government of India. - HC
VAT
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Scope of the term "cloth" - KGST - Entry 10 of the Third Schedule is not intended to cover any products made from cloth such as bed sheets, bed covers, towels, napkins etc. - HC
Case Laws:
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Income Tax
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2013 (5) TMI 392
Determination of income – Sale of shares - Whether STCG or business income? – Assessee submits that the issue involved has already been decided by the Tribunal in his earlier case, however, ld CIT(A) has simply dismissed the appeal without following the correct ratio laid down by the Tribunal decision. Held that:- Assessee’s contention that income from sale of shares is to be treated as STCG and has not been accepted on the ground that looking to the frequency of transactions and holding period is also from “0” to few days. In A.Y. 2006-07 the matter has been restored back to the file of AO to follow the order of the Tribunal. Accordingly, we also set aside the order of the CIT(A) to the file of the AO who is directed to consider the issue in accordance with the findings given by the Tribunal in assessee’s own case for the assessment year 2005-06 and 2006-07.
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2013 (5) TMI 391
Taxability of Income – Whether LTCG or STCG? - Whether the amount of Rs. 17,04,884/- representing the profit on sale of share is taxable under the head LTCG and is consequently exempt u/s 10(38) of the I.T? - Held that:- Assessee had shown STCG at Rs. 1,24,38,554/- on sale of shares of twelve scripts even though number of transactions undertaken were huge and in case of LTCG shown at Rs. 17,04,884/- was on account of sale of shares of four scripts. The learned CIT(A) has treated the income from the sale of shares which were held for less than a month to be a business income and other shares, which were held for more than 30 days as income from capital gains. From the records it is noticed that so far as shares shown in LTCG are concerned, the average period of holding is around 549 days and number of transactions are also less, therefore, income from sale of such shares has rightly been held to be taxable as LTCG. Whether the amount of Rs. 1,24,38,554/- representing profit on sale of shares transactions is taxable STCG, within the meaning of Section 2(13) of the I.T. Act, 1961? – Held that:- it is seen that purchase of shares has been shown as investment in the books of account and the same has been accepted such in the past. All the transactions are delivery based transactions and the assessee has not undertaken any derivative or speculative transactions. If the period of holding of shares under the head of STCG held for less than 30 days is removed, then the average period of holding in most of the shares are more than 180 days. The other important aspect is that in the earlier assessment year i.e. A.Y. 2006-07 similar nature of transactions has been held to be income from STCG and LTCG by the department under scrutiny proceedings. There is no change in facts and circumstances of the case in this year. In view of these facts, the decisions of Hon'ble Bombay High Court in the case of CIT vs Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] gets squarely attracted. Thus, no reason to deviate from the conclusions drawn by the CIT(A) and accordingly, grounds raised by the department, are dismissed.
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2013 (5) TMI 390
Penalty u/s 271(1)(c) – Whether penalty can be levied if the returned income is a loss? - As per ld. CIT (A) levy of penalty on addition to the returned loss which result in reduction of loss was not on statute in the year under consideration as it was introduced w.e.f. 01.04.2003 therefore deleted. Revenue made addition in income on account of interest paid by the appellant company on the bank borrowing which was partly utilized for advancing security deposit of Rs.1 crore to M/s Concast India Ltd for use of their premises as per agreement by the appellant company. Revenue appeal against the order. Held that:- As rightly considered by the learned CIT (A) Just because an addition was confirmed in assessment, that itself does not lead to levy of penalty under section 271(1)(c) as held by the Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd [2010 (3) TMI 80 - SUPREME COURT]. The Revenue is contesting only on legal principles. Even though the legal principle relied on by the learned CIT (A) was no longer valid consequent to the decision of the Hon'ble Supreme Court in the case of CIT vs. Gold Coin Health Food (P) Ltd. [008 (8) TMI 5 - SUPREME COURT] that even in loss cases penalty is leviable as Explanation 4 will apply, the CIT (A) deleted the penalty also on merits which was not contested. Thus, the findings of the CIT (A) was upheld. AO was not justified in his action.
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2013 (5) TMI 389
Disallowance of interest on loan – u/s 24 - Loan taken for purchase of flat – As per revenue deduction should not be allowed because the assessee could not co-relate the fact of obtaining loan and using it for the purchase of flat. - Held that:- Appellant furnished balance sheets of the relevant assessment yeas to prove that the loan was taken in the year of purchase of flat and also furnished a confirmation letter, relevant bank statement and pass book to substantiate its claim of having paid the interest to the lenders. The submission made by the assessee in this regard has been simply brushed aside and the disallowance has been made and confirmed in a general way. In view of the foregoing, the authorities were not justified in refusing deduction u/s 24 in respect of interest incurred by the assessee on loan borrowed for purchase of flat. - Decided in favor of assessee.
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2013 (5) TMI 388
Reopening of assessment – Validity of notice issued u/s 148 - Escaped Income – As per revenue there are two reasons (i) question of the interest income as assessee company advanced a loan to society which earned interest on the special fund but did not disclose it in its return as the money belonged to Assessee Company (ii) that the petitioner had claimed expenses as ‘revenue expenses’ which were actually of a ‘capital’ nature. Held that:- Following the decision of Wel Intertrade Private Ltd [2008 (8) TMI 18 - HIGH COURT DELHI] we had agreed with the view taken by the Punjab & Haryana High Court in the case of Duli Chand Singhania [2003 (12) TMI 23 - PUNJAB AND HARYANA High Court] that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing officer under Section 147 beyond the four year period would be wholly without jurisdiction. In the present case also, there is no whisper in the purported reasons of the petitioner having failed to disclose fully and truly all the material facts necessary for its assessment. Thus, the necessary ingredients of the provisions of Section 147 are not satisfied.
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2013 (5) TMI 387
Disallowance towards labour charges - The AO contended that as the assessee fail to produce the parties AO made addition. Same was sustained by CIT(A). - Held that:- It is found that the addition has been made on account of the fact that the assessee could not substantiate its claim of having paid labour charges to the above three parties. Assessee vehemently argued that he was not provided adequate opportunity of being heard by the authorities. It was submitted that when the assessee tried to place on record evidence in support of payment to the above three parties before the learned CIT(A), he ignored the same. Without going into the merits or otherwise of the addition, in our considered opinion, the ends of justice would meet adequately and the matter is restored to the file of AO. Disallowance towards foreign traveling expenses – As per AO assessee could not co-relate the above foreign traveling expenses with the business purpose – Held that:- Disallowance has been made in respect of foreign visits conducted by Shri Anil Soni, who was neither a partner nor an employee of the assessee-firm. The assessee failed to place on record any evidence co-relating the above visits. In the absence of any nexus, we are of the considered opinion that the said disallowance of was rightly confirmed. - decided against the assessee. Adhoc disallowance of telephone expenses - AO made this ad hoc disallowance for the simple reason that the element of personal expenses included in the total telephone expenses could not be ruled out. No relief was allowed in the first appeal – Held that :- In our considered opinion, there is no basis for making such disallowance more so when the telephones were installed at the business premises of the assessee. - in favor of assessee. Addition made out of conveyance and petrol expenses, repairs and maintenance, miscellaneous expenses and staff welfare – AO submits that assessee could not produce necessary documents in support of such expenses. – Held that:- Assessee showed us a copy of the letter furnished before the AO in support of submitting the details / vouchers etc. of these expenses. Thus, there is no logic in sustaining any ad hoc disallowance. - in favor of assessee. Disallowance at 1/5 of interest on motor car loan – AO disallowed 1/5th of these expenses on the ground that the car might have been used for personal purpose – Held that:- There can be no disallowance in respect of interest on loan obtained for purchase of car because of the reason that such interest is deductible u/s 36(1)(iii). When we turn to section 38(2) providing for disallowance on account of user of building for non-business purpose, what is found that section 36 is absent. The disallowance u/s 38(2) has been contemplated only in respect of sections 30, 31 and 32. In our considered opinion, there is no basis for sustaining the disallowance towards interest on motor car loan. - addition deleted - in favor of assessee.
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2013 (5) TMI 386
Disallowance of incentive bonus paid to the Directors – u/s 40A(2)(b) – Assesse claimed deduction for the payment of incentives to the Directors and also for payment of consultancy charges to the related parties. Held that:- As the assessee could not furnish any justification for the payment of incentives to the Directors and there was no legitimate requirement of business of the company for the payment of such incentive amount nor there seems to be any justification for the same also there cannot be two separate heads for remuneration for services i.e. one for consultation charges and the other incentives for the services over and above the salary paid for such services. In view of the fact that the assessee company has already paid Rs.3,60,000 as salary and further a sum of Rs.3,60,000 as consultation charges to Mr. Ajay A Sukhwani, the payment of Rs.10 lacs extra as incentive does not seem to be justified. Under such circumstances, the finding of the CIT(A) is hereby upheld. So far as the payment of incentive of Rs. 10 lacs each to other two Directors of the assessee company is concerned, it may be observed that the said Directors neither during the current year nor during the past have ever received any remuneration from the assessee company, whereas they are receiving salary income as well as professional fees etc. from other companies. If they have not received any remuneration in the past it does not mean that they are barred from receiving reasonable remuneration. The expenditure each paid to the said to Directors is hereby held to be justified. Disallowance of Depreciation – u/s 32 - Cars were purchased in the name of directors and claimed by the assesse as deduction as the same were shown in the books of the company and are appearing in the balance sheet of the company - Department considered the payment made towards the purchase to be treated as advance/loan to the Directors. Held that :- As held by the Supreme Court in the case of Mysore Minerals Ltd [1999 (9) TMI 1 - SUPREME Court] owner is one who is entitled to own the property to the exclusion of the others. In the present case, the assessee company cannot be said to be holding the property to the exclusion of the Directors especially when the cars are not only purchased in the name of the Directors but also they are the registered owners of the cars. The purchase of the cars in the name of other persons by the assessee company itself implies that the assessee company treated the said persons as owner of the property and did not want to exercise its domain over the property. Merely because the company has shown the cars as its assets in the books of account, cannot put it into the definition of owner of the cars to the exclusion of the legal/registered owners of the cars. The learned CIT(A) has rightly observed.
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2013 (5) TMI 385
Miscellaneous Application – u/s 254(2) - Jurisdiction of the AO was challenged by the assesse to frame assessment u/s 158BC – Held that:- Two necessary conditions must be satisfied for taking recourse to the provisions of section 254(2). First, there should be some mistake in the order of the Tribunal and the second such mistake should be apparent from record. Adverting to the facts of the Miscellaneous Application, I find that both of these two conditions are lacking. There is no mistake in the tribunal order much less an apparent mistake requiring any rectification. Miscellaneous Application cannot be allowed.
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2013 (5) TMI 384
Disallowance of Miscellaneous expenditure – As per revenue the details in respect of miscellaneous expenditure remained to be filed therefore the allowability of such expenditure is not possible and accordingly addition made was made to total income. CIT (A) restricted the disallowance to 10% of the claim on adhoc basis. Held that:- Assessee did not furnish the details as required by AO and so AO had no option than to disallow the amount at 90% of the total claim. The learned CIT (A) without referring the matter to AO, restricted the disallowance to 10% of the claim on adhoc basis. He also did not allow AO to examine the vouchers but gives a finding that the bills and vouchers have not been produced before AO, that is the reason why he is restricting the disallowance to 10%. Considering assessee's submissions that it is a public limited company and all expenses are properly vouched, we in the interest of justice, restore the issue to the file of AO to examine the nature of the miscellaneous expenditure and allow the same after due verification.
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2013 (5) TMI 374
Net loss on foreign exchange contracts outstanding as at March 31,1998 - disallowance on account of notional loss from revaluation of foreign exchange forward contracts - Held that:- As decided in DCIT (International Taxation) v. Bank of Bahrain and Kuwait (2010 (8) TMI 578 - ITAT, MUMBAI) where forward contract is entered into by the assessee to buy or sell the foreign currency at an agreed price at a future date falling beyond the last date of the accounting period, the loss incurred by the assessee on account of revaluation of contract on the last date of the relevant accounting period is an allowable deduction. In view of this Special Bench decision, it is clear that the assessee is entitled to deduction of the said loss - AO is directed to verify and ensure that the preceding year’s notional loss from revaluation of foreign exchange forward contracts not allowed by him but eventually allowed at the appellate level, is properly considered so that there is no corresponding reduction of income once again at the time of settlement of such contracts. Tax neutrality in respect of interest income received on funds placed with its Head Office / Overseas branches - Held that:- As decided in ABN Amro Bank NV v. ADIT [2005 (8) TMI 294 - ITAT CALCUTTA-E] there cannot be transactions with self and as such branch of the assessee bank cannot be treated as a separate entity insofar as the transactions between the Head Office and the Indian branch resulting into interest income or interest expenditure are concerned. As decided in Sumitomo Mitsui Banking Corporation case [2012 (10) TMI 443 - ITAT MUMBAI] there can be neither any income in respect of interest earned by the assessee branch from its HO/ overseas branches nor there can be any deduction for interest paid by the Indian branch to the HO / other overseas branches on the basis of principle of mutuality. Thus following the principle of mutuality arising from the above special bench orders, overturn the impugned order on this issue and direct that neither the interest income should be charged to tax nor the interest expenditure be allowed as deduction. Broken period interest paid on securities - treatment to the securities as stock-in-trade or investment - CIT(A) deleted the addition - Held that:- As decided in American Express International Banking Corporation v. CIT [2002 (9) TMI 96 - BOMBAY High Court] once the broken period interest received by the assessee bank on Government securities was charged to tax as business income u/s 28, deduction for payment made for broken period interest at the time of purchase of these securities could not be denied when the assessee’s method of accounting does not result in loss of tax / revenue for the Department - direct the AO to verify that the cost of the securities for the purposes of computing profit at the time of their sale should be taken at the net of broken period interest figure and not the gross figure. Against revenue. Addition on account of guarantee commission - CIT(A) deleted the addition - Held that:- As decided in Bank of Bahrain and Kuwait case (2010 (8) TMI 578 - ITAT, MUMBAI) if the guarantee commission is refundable on the revocation of guarantee, then it cannot be said that the absolute right to the commission has accrued to the assessee at the time of execution of the contract for furnishing the guarantee, and the commission is to be spread over the period for which the guarantee is given - set aside the impugned order on this issue and remit the matter to the file of A.O. for deciding it afresh in accordance with the ratio laid down in the above case. Interest expenditure incurred for earning interest on tax free bonds - CIT(A) deleted the addition - Held that:- CIT(A) has recorded a categorical finding that the interest free funds available with the assessee in the shape of capital and reserves are far in excess of the amount invested in bonds. In that view of the matter there can be no disallowance of any interest u/s 14A. However, the administrative and other expenses etc. are required to be disallowed u/s 14A on some reasonable basis. Thus AO is directed to compute such disallowance - partly in favour of revenue. Disallowance of net interest earned from head office / other overseas branches in computing the book profit for the purpose of section 115JA - Held that:- The Tribunal in the case of Krung Thai Bank PCL (2010 (9) TMI 18 - ITAT, MUMBAI) has held that the provisions of section 115JB can apply only when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The assessee being a foreign bank in that case, was held to be not governed by the provisions of section 115JB. The instant assessee is also a foreign bank thus also not required to draw its Profit and loss account as per the Companies Act. In the absence of any contrary view brought to notice by the DR, case of Krung Thai Bank PCL (supra) is applicable. As this issue has been raised for the first time and neither taken up nor considered by the authorities below, it will be in the fitness of things if the AO is directed to decide this aspect of the matter as per law Rectification of mistake - Adjustment of bad debts - whether against the opening balance under section 36(1)(viia) as per CIT(A) OR against the closing balance as done by AO - Held that:- CIT(A) has simply held that for allowing deduction in respect of bad debt u/s 36(1)(vii), only opening balance of the provision for bad and doubtful debts will have to be considered. He directed the A.O. to work out the amount of allowable bad debts accordingly. DR as well as AR failed to point out the correct controversy involved in this appeal from the order of the AO. Even the application filed u/s 154 was not available. Thus impugned order on this issue is set aside and the matter is restored to the file of AO for reconsideration.
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2013 (5) TMI 373
Penalty u/s 271(1)(c) - disallowance of deduction u/s 80-IA as assessee was only a contractor executing the work and was not owner of the facility and hence neither designing nor conceiving it - CIT(A) deleted the penalty - Held that:- It is an undisputed fact that the assessee company is under a bona fide belief that it is eligible for deduction u/s 80-IA and the same is evident from the conduct of the assessee, who has not filed appeal before the CIT(A) against quantum additions. From the above write up given by the assessee, it is evident that the assessee would have won the appeal on quantum additions if were to file. Therefore, the attaining finality on the quantum additions against the assessee is no issue for confirming the penalties. As such there exists dispute on the debatable nature of the said provisions. As per the judgment of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT), it is a settled law that no penalty should be levied when the issue is a debatable one and when the claim is wrongly made in the return of income. Considering the settled nature of the issue, CIT (A) has rightly deleted the penalty made by the AO u/s 271(1)(c) and it does not call for any interference. Against Revenue.
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Customs
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2013 (5) TMI 383
Alleged use of false and fabricated Telegraphic Release Advice (TRA) by importers to clear their goods imported duty free using no rightful acquisition of DEPB scrips and such instruments traded by traders, brokers and sub-brokers to make that available to importer appellants causing detriment to the interest of Revenue or to defraud revenue - for which they faced different consequences of law by the impugned orders – Imposition of duty/interest/penalties. Held that - Enactments like Customs Act, 1962, and Customs Tariff Act, 1975, are not merely taxing statutes but are also potent instruments in the hands of the Government to safeguard interest of the economy. One of its measures is to prevent deceptive practices of undue claim of fiscal incentives. Evidence Act not being applicable to quasi judicial proceeding, preponderance of probability came to rescue of Revenue and Revenue was not required to prove its case by mathematical precision. Exposing entire modus operandi through allegations made in the show cause notice on the basis of evidence gathered by Revenue against the appellants was sufficient opportunity granted for rebuttal. Revenue discharged its onus of proof and burden of proof remained un-discharged by appellants. They failed to lead their evidence to rule out their role in the offence committed and prove their case with clean hands. No evidence gathered by Revenue were demolished by appellants by any means. Crystal clear factual findings of the learned Adjudicating Authority and echoing evidence on record do not demonstrate that adjudications were made suspiciously or under surmise. All pleadings of the appellants were ill-founded. Show Cause Notice properly brought them to charge exhibiting civil and evil consequences for opportunity of rebuttal. Nothing was dealt behind their back. Investigation story was backed by evidence and not impeachable. In view of the above findings, we hold that the importer appellants are liable to pay the duty and interest adjudged against the imports made by them covered by the adjudications under appeal and the traders, brokers and sub-brokers of fake TRAs and DEPB scrips are liable to be penalised being instrumental in providing such instruments. We uphold the Orders-in-Original. We order a full investigation of these cases by the office of the DG (Vigilance), CBEC so that appropriate disciplinary action is taken against officials of the Custom House & DRI due to whose involvement or negligence such frauds could be perpetuated. All the 67 appeals are dismissed except for setting aside and reducing penalties in some of the cases as indicated above.
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2013 (5) TMI 382
Imports of various consignments - restriction on Modvat / Cenvat before availing the benefit of Notification No. 203/92 – onus to prove – Held that - There is nothing on record to indicate that the appellant had availed the Cenvat credit of the inputs/capital goods for the manufacturing of the goods which were exported. - Tribunal in the case of Auto Ignition Ltd. has held that evidence has to be brought on record by the department to refute the claim that no modvat credit has been availed by the appellants on inputs as well as capital goods. This judgment was carried in appeal by the Revenue before the Apex Court and the Apex Court on identical set of facts has upheld the order of the Tribunal [2008 (4) TMI 43 - SUPREME COURT] - Decided in favor of assessee.
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Corporate Laws
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2013 (5) TMI 381
Scope of arbitration agreement - whether once the main agreement between the parties was declared void, the entire contents thereof, including any arbitration clause in the main agreement were rendered invalid? - Held that:- The learned designated Judge exceeded the bounds of his jurisdiction, as envisaged in SBP & Co. (2005 (10) TMI 495 - SUPREME COURT). The designated Judge was not required to undertake a detailed scrutiny of the merits and de-merits of the case, almost as if he was deciding a suit as he was only required to decide such preliminary issues such as jurisdiction to entertain the application, the existence of a valid arbitration agreement, whether a live claim existed or not, for the purpose of appointment of an arbitrator. By the impugned order, much more than what is contemplated under Section 11(6) of the 1996 Act was sought to be decided, without any evidence being adduced by the parties. The issue regarding the continued existence of the arbitration agreement, notwithstanding the main agreement itself being declared void, was considered by the 7-Judge Bench in SBP & Co. (supra) and it was held that an arbitration agreement could stand independent of the main agreement and did not necessarily become otiose, even if the main agreement, of which it is a part, is declared void. Also in the case of Reva Electric Car Company Private Limited Vs. Green Mobil [2012 (10) TMI 270 - Supreme Court] wherein held that by virtue of Section 16(1)(b) of the 1996 Act, the arbitration clause continues to be enforceable, notwithstanding a declaration that the contract was null and void. Thus the designated Judge misunderstood the scope of the order passed in the earlier proceedings and the provisions of Section 16 of the 1996 Act in going into a detailed examination regarding the merits of the case and the existence of an arbitration agreement and in holding that once the main agreement between the parties was declared void, the entire contents thereof, including any arbitration clause that may have been incorporated in the main agreement, were rendered invalid - no hesitation in setting aside the impugned judgment and the order of the designated Judge once again and directing that the matter be again considered de novo in the light of the observations made hereinabove and the various decisions cited at the Bar.
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2013 (5) TMI 375
Arbitration agreement - appellant calculated the actual extra cost incurred in completing the work and the total amount recoverable from the petitioner in terms of the contract - Whether the Chief Justice or his designate can examine the tenability of a claim, in particular whether a claim is barred by res judicata, while considering an application under section 11 of the Act? - Held that:- As decided in SBP & Co. case (2005 (10) TMI 495 - SUPREME COURT) The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. The Chief Justice or his Designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his Designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time barred claim and there is no need for any detailed consideration of evidence. The question whether a claim is barred by res judicata, does not arise for consideration in a proceedings under section 11 of the Act. Such an issue will have to be examined by the arbitral tribunal. A decision on res judicata requires consideration of the pleadings as also the claims/issues/points and the award in the first round of arbitration, in juxtaposition with the pleadings and the issues/points/claims in the second arbitration. The limited scope of section 11 of the Act does not permit such examination of the maintainability or tenability of a claim either on facts or in law. Thus the Designate has clearly exceeded his limited jurisdiction under section 11 by deciding that the claim for extra cost, though covered by the arbitration agreement was barred by limitation and by the principle of res judiata. He was also not justified in terming the application under section 11 of the Act as ‘misconceived and malafide’. Nor could he attribute ‘mala fides’ to the appellant, a public sector company, in filing an application under section 11 of the Act, without any material to substantiate it. The Designate should have avoided the risks and dangers involved in deciding an issue relating to the tenability of the claim without necessary pleadings and documents, in a proceeding relating to the limited issue of appointing an Arbitrator. It is clear that the Designate committed a jurisdictional error in dismissing the application filed by the appellant under section 11 of the Act, on the ground that the claim for extra cost was barred by res judicata and by limitation. Consideration of an application under section 11 of the Act, does not extend to consideration of the merits of the claim or the chances of success of the claim - appeal is allowed and the order of the Designate is set aside.
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Service Tax
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2013 (5) TMI 395
Stay for levy and collection of Service Tax - Circular dated 1.1.2013 - Held that:- After hearing the respective parties and in the context of the current ineffectual functioning of the Tribunal, a fact not disputed by the Revenue, it is appropriate to dispose of the writ petitions directing the respondents not to initiate any coercive measures for recovery of the Central Excise liability or Service Tax liability or interest and penalties, as the case may be, as assessed in the Orders-in-Original or as confirmed in the appeals, as the case may be, pending disposal of the applications filed by the petitioners for waiver of pre-deposit and wherever filed, the applications for stay of the Central Excise or Service Tax, interest and penalties, as the case may be. The liability of the petitioners is confirmed, and, shall be subject to orders to be passed by the Tribunal in the interlocutory applications preferred by the petitioners.
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2013 (5) TMI 394
Condonation of delay - only reason forwarded by the appellants for delay is that his advocate was instructed to prepare and file the appeal papers - Held that:- Delay on account of diligence or inaction on the part of the assessee. Things are required to be done by the assessee in a particular manner and within the framework of time granted by the legislation, Courts expect the appellant to be diligent. The present assessee has not shown us any reasons in support of their defence, to accept their explanation inasmuch as they have not even contended that after handing over the papers to the advocates, they kept on inquiring from them about filing of appeal. Certificate of the concerned advocate to whom papers were handed over is also not available on the record supporting the ground taken by the appellant. Thus reasons put forth by the appellant are not bonafide and the delay could have been easily avoided by them by acting with normal care and caution. COD rejected.
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2013 (5) TMI 393
Services received for issue of Foreign Currency Convertible Bond (FCCB) in foreign countries for raising of funds in foreign exchange needed by JLSL - service tax demanded from JLSL as a recipient of service in terms of provisions under Section 66A of Finance Act, 1994 since the service provider was located abroad - Held that:- Not in agreement with the argument of Revenue that the service of Underwriting has to be necessarily provided by merchant bankers. Also disagree that providing Underwriting Service is incidental to the services rendered as a Lead Manager to the issue. This is basically because the latter involves basically organizing an event viz. issue of the FCCBs and the former involves financial risk to the underwriters and the two matters are totally different in nature. It is not acceptable that the contract has to be considered as a whole and classified considering it as a single service and subjected it to tax. This is because the services are distinct in nature and the contract lays down the services as distinct services with separate remuneration fixed for the two services. Further if at all it is to be considered as one single bundle it is not agreeable that the dominant nature of the service is that of Lead Manager’s services, since JPMS is earning a higher commission by underwriting the issue taking the risk involved. As stated by JLSL, that the issue was wholly subscribed by JPMS, the Lead Manager service was a minimal part of the contract in this particular case. Further “Underwriting Service” is specified in a sub-clause of Section 65(105) which occurs earlier than the sub-clause in which Lead Manager’s Service occurs. So going by the criterion laid down in Section 65A(c) of Finance Act, 1994, the service will get classified under “Underwriting Services”. Therefore holding the view that the “Underwriting Service” rendered by JPMS to JLSL is distinct from the Lead Manager service provided. Since the underwriter service is to be subjected to tax under Section 66A of Finance Act 1994 taking into consideration the place of performance as per Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. In this case Underwriting was done outside India, thus no reason to tax the impugned service. JLSL also has a very strong case on the issue of time-bar because they had placed the entire matter before his jurisdictional officers who audited their record and they had initially opined that the tax is payable only on services relating to Lead Manager Service and the same was paid and such payment was reported in the relevant ST-3 returns. Against revenue.
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Central Excise
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2013 (5) TMI 396
Waiver of pre-deposit of service tax dues - business support services - date of levy - Whether CESTAT was justified in holding that the Appellants failed to make out a prima facie case that the agreement is for providing business support services? - Held that:- Petitioner adverted to the decision of an application for stay in Fire Switchgears vs. Commissioner of Central Excise, (2011 (10) TMI 455 - CESTAT, NEW DELHI) in which it was held that "where a new entry has been carved out subsequently for the purpose of service tax, it has to be held that the same was not covered by any prior existing category of service." Having regard to these facts, petitioner has made out a prima facie case on merits raising a serious triable issue. The Court has been informed that for the subsequent period after the insertion of clause 90(a), the petitioner has been paying service tax. The dispute as noted earlier relates to the period prior to insertion of clause 90(a). The issue as to whether the petitioner was providing a support service of business or commerce under the terms of the agreement involves a serious triable question - appellant granted a waiver of pre-deposit.
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2013 (5) TMI 380
Duty on bagasse - waste product v/s by product - whether liable to duty? - Held that:- As decided in Balrampur Chini Mills Ltd. & Others Versus UOI [2013 (1) TMI 525 - ALLAHABAD HIGH COURT] 'Bagasse' generated from the crushing of the sugarcane is neither manufactured goods nor manufactured final product, but it is a residue/waste. The petitioners are not liable to duty either by payment or by reversal in respect of bagasse sold by the petitioner. In favour of assessee.
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2013 (5) TMI 379
Activity of packing carried on at godown at Bhivandi - Whether would amount to manufacture as per Section 2(f)(iii) of the Central Excise Act, 1944? - Held that:- The issue as to whether the Petitioners are engaging in the manufacture of excisable goods within the meaning of Section 2(f)(iii) would have to be determined on the basis of facts and after an adjudication in pursuance of a notice to show cause. This is not a matter which can be decided on the basis of affidavits, in a petition under Article 226. A notice to show cause shall be issued to the Petitioners within a period of three weeks from today and adjudication shall be completed after allowing an opportunity of being heard to the Petitioners within a period of three months thereafter. In the event that the Petitioners make an application, in the meantime, for the clearance of the goods which have been detained against payment of central excise duty, such a request shall be considered expeditiously.
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2013 (5) TMI 378
Benefit of rebate under Notification No.19/2004 dated 6.9.2004 against export - Area bases Exemption - unit situated in Kutch area availing the benefit of Exemption Notification No.39/2001 dated 31.7.2001 - Held that:- Claim for rebate under Exemption Notification No.19/2004 would accrue upon actual export of goods. Mere clearance of the goods for export from the factory premises would not be sufficient. Fulfillment of such a condition is necessary but not sufficient for exporter to claim rebate. Therefore, on all the exports made by the petitioner after 17.9.2007, the petitioner had no accrued right to claim rebate on the basis of unamended notification on the basis of clearance of goods from the factory. Mere fact that such goods were cleared from the factory premises for export before such date, would not give rise to an indefeasible claim of rebate. When by amendment in the Exemption Notification No.19/2004 an additional clause (h) to paragraph 2 was added introducing an additional condition that such amended notification would apply to all exports made after 17.9.2007 stating that in case of export of goods which are manufactured by a manufacturer availing the notifications of the Government of India No.39/99-Central Excise, dated the 31st July, 2001 and some more as specified the rebate shall not be admissible under this notification. It is undisputed that the petitioner is covered by such condition since the petitioner claims benefit of Exemption Notification No.39 of 2001. In that view of the matter, the Appellate as well as Revisional Authorities committed no error. Order beyond the scope of the show cause notice - Held that:- It is true that reference to this objection was in relation to the clarification issued by CBEC in this respect. However, the petitioner itself was acutely conscious of the amendment in the Notification No.19 of 2004. It was precisely for this reason that at the very outset, in the reply to the show cause notice itself, the petitioner raised the contention that such amendment would not apply to the exports, which may have been made after 17.9.2007 but clearance of which was made from the factory for export before such date. Thus the issue whether such amendment would apply in above set of facts was very much at large before the Adjudicating Authority. It is not even the case of the petitioner that any disputed facts are involved for examining this legal issue. Notifications are in the nature of delegated legislation. The question, therefore, is Rule amended or unamended, should apply to admitted set of facts, is pure question of law. Had the petitioner been denied the fair opportunity to raise any contention factually or legally, the grievance of breach of natural justice would have been valid. - Decided against the assessee.
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2013 (5) TMI 377
Initiation of recovery proceedings - Circular dated 1.1.2013 - Interlocutory Application is pending by the Appellate Authority, no order passed either directing stay or refusing stay. - Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any specified, whichever is earlier. Held that:- Petitioner, not being the cause for the Appellate Authority not to hear and pass orders on interlocutory applications. The UOI must refrain from initiating recovery proceedings in respect of the amounts due in terms of the order impugned in the appeals until final orders are passed in appeals or orders on interlocutory applications for stay. Thus, these petitions are disposed of with a direction to the Appellate Authority to consider and pass orders on the interlocutory applications for stay as expeditiously as possible and until such time, the third respondent is refrained from initiating recovery proceedings.
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2013 (5) TMI 376
Confiscation of leased out plant and machinery - impact of award granted by the Arbitrator - Held that:- The confiscation order does not exclude the plaint and machinery of the petitione. The plant & machinery was leased out to M/s. RIL in the year 2003. A dispute arose between the petitioner and M/s. RIL in the year 2006, and was referred to the sole Arbitrator. The Arbitrator entered into the reference and was ceased of the matter until the award was made on 14.03.2012. It is not possible to believe that during the arbitration proceedings for five long years when the factory was close, the petitioner was not aware of the investigation and order of confiscation and penalties. Instead of informing the Delhi High Court in the arbitrary proceedings that the entire plant and machinery has been confiscated, the petitioner informed the Court that they have no objection for removing the plaint and machinery of the petitioner. We do not find anything on record that the Delhi High Court in the appeal arising out of Arbitration proceeding was informed, prior to our order dated 22.08.2012 that the plant and machinery cannot be removed, as the petitioner has been informed by the Central Excise Department vide letter dated 6.2.2012, that its request to grant permission for removal of its plant and machinery from the factory of M/s. Rathi Isptat Ltd., Ghaziabad (M/s. RIL) cannot be acceded to, since the same was confiscated and their ownership rested with the Government of India. - writ petition dismissed - decided against the assessee.
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CST, VAT & Sales Tax
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2013 (5) TMI 398
Stay of demand - Condition imposed to satisfy 35% of the outstanding liability for availing the benefit of interim stay during the pendency of the appeal. - Held that - the assessment was finalized by the concerned authority on the basis of the available materials on record. It was to strike a balance, that the appellate authority passed orders, taking note of the sequence of events and the facts and figures, thus imposing a condition to the tune of 35% to be satisfied for availing the benefit of interim stay. - This Court does not find anything wrong, arbitrary or illegal in having passed such orders and hence interference is declined. However, taking note of the fact that, the time stipulated to satisfy the condition is already over, the petitioner is granted a further period of 'two weeks' from the date of receipt of a copy of this judgment, to effect the deposit, for availing the benefit flowing interim order.
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2013 (5) TMI 397
Whether bed sheet answers the description of "cloth" entitling the appellant for exemption. - appellant's case is that bed sheet made of powerloom cloth is essentially cloth as such and it is entitled to exemption under the specific entry provided under Item 10 of the Third Schedule to the KGST Act and along with that he prayed for waiver of interest. – Department submitted that lack of specific entry in the First Schedule providing for rate of tax on an item does not lead to exemption for the commodity because the residuary entry of the First Schedule specifically states that all those items which are not covered by specific entries would be subject to rate of tax at 8%. Held that - It may be noticed that various tariff entries referred to in Item No.11(i) of the Third Schedule does not take in the above HSN Code, which means that even under the Central Excise Tariff bed sheet is treated as a separate item different from cloth from which it is made. It is worth noticing that when exemption is granted to handloom cloth along with it even readymade garments made of handloom cloth are covered by the said exemption entry i.e. Item 27 of the Third Schedule. So much so, we are of the view that Entry 10 of the Third Schedule is not intended to cover any products made from cloth such as bed sheets, bed covers, towels, napkins etc. - In our view the learned Single Judge rightly held so. - Decided against the assessee. Waiver of Interest - held that:- Waiver will be granted until the date of the judgment of the learned Single Judge against the appellant. However, if payment is not made as above, the partial waiver of interest granted by us will stand automatically vacated and the respondents can proceed for recovery of entire arrears with interest till date of payment.
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