TMI Tax Updates - e-Newsletter
May 21, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. Service Tax on GTA - A Guide

   By: Manoj Agarwal

2. Constitutional validity of section 39-A of Punjab VAT Act, 2005

   By: AMIT BAJAJ ADVOCATE

3. Stock Transfer - Exposure Possible?

   By: Madhukar N Hiregange

News

1. RBI Reference Rate for US $ and Euro

2. Auction for Sale (Re-Issue) of Government Stocks

Notifications

Customs

1. F. No. 437/15/2013-Cus IV - dated 19-5-2014 - Cus (NT)

Appointment of Common Adjudicating Authority

FEMA

2. 299/2014-RB - dated 24-3-2014 - FEMA

Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2014

Income Tax

3. 26/2014 - dated 16-5-2014 - IT

INCOME-TAX (FIFTH AMENDMENT) RULES, 2014 - SUBSTITUTION OF FORMS 49A AND 49AA

Circulars / Instructions / Orders

Income Tax

1. 11/2014 - dated 16-5-2014

Orders passed under section 264 of the Income Tax Act – Administrative supervision reg.

FEMA

2. 131 - dated 19-5-2014

Overseas Direct Investments – Limited Liability Partnership (LLP) as Indian Party

Highlights / Catch Notes

Income Tax

• Equity Share Purchase Subject to Withholding Tax u/s 195; LTCG Benefits Apply on Sale Per Section 112(1) Proviso.

  Case-Laws - AAR : Withholding of Tax u/s 195 of the Act – Purchase of equity shares – LTCG arising - the applicant will be entitled to benefit of proviso to Section 112(1) of the Act on sale of equity shares - AAR
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• TDS Not Required u/s 192 for Future Contingency Benefits, Says Authority for Advance Rulings (AAR).

  Case-Laws - AAR : TDS u/s 192 - when the amount does not result in a direct present benefit to the employee who does not enjoy it, but assures him a future benefit, in the event of contingency - no TDS is required - AAR
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• Management Services Under India-France DTAA Taxable in India; "Make Available" Clause Not Included, Withholding Tax Required.

  Case-Laws - AAR : Payment made for management services – DTAA between India and France - the term “make available“ is not figuring in the treaty - as the consideration for the services is held to be taxable in India, the applicant will be liable to withhold tax - AAR
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• Tribunal Confirms Income Addition Due to Lack of Evidence on Agricultural Holdings and Income by Assessee.

  Case-Laws - AT : Agriculture income - assessee did not furnish any details with regard to his agricultural holding or any evidence for earning of agricultural income even in front of Tribunal - addition confirmed - AT
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• Section 68 Additions Challenged: Assessing Officer's Suspicion Lacks Evidence; Assessee Deducted TDS, Repaid Loans.

  Case-Laws - AT : Additions u/s 68 - the factum of the assessee having deducted TDS on the interest of the loans and having repaid the loans also remains undisputed - the addition made by the AO was made only on the basis of suspicion and nothing else - AT
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Customs

• Court Allows Conversion of Free Shipping Bills to Drawback Bills to Prevent Unintended Export Taxes.

  Case-Laws - AT : Conversion of free shipping bills to drawback shipping bills after export - If the duty drawback is not allowed to the appellant, the appellant is perforce required to export the taxes, which gets included in the FOB value. In our view, this being not the intention, conversion of free shipping bills into drawback shipping bills needs to be allowed - AT
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Service Tax

• Court Upholds Service Tax on Food and Drinks in Hotels u/s 66E(i); States Urged to Consider Impact.

  Case-Laws - HC : Constitutional validity of section 66E(i) - Service tax on sale value of the food and drinks - facilities provided in a hotel - Decided against the assessee subject to recommendation to state governments - HC
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• Electricity Costs Excluded from Gross Charges When Valuing Plant Operation Services for Service Tax Assessment.

  Case-Laws - AT : Valuation of service - Addition of price of electricity - cannot be considered as part of the gross amount charged for the service of operation of the plant - AT
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• Company Fails to Register and Pay Service Tax on Advertising Services, Faces Demand for Unpaid Taxes.

  Case-Laws - AT : Sale of space or time for advertisement service to several advertising agencies but failed to obtain registration, file returns or remit service tax on the consideration received for rendition of the taxable service - Demand confirmed - AT
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Central Excise

• Area-Based Exemption: No Cash Refunds for Education and SHE Cesses; Basic Excise Duty Not Fully Exempt.

  Case-Laws - AT : Area based exemption - Notification No. 39/2001-CE - not only Education/SHE Cesses are ineligible to cash refund but also it will not be correct to say that the entire Basic Excise Duty is exempted and that accordingly no Education/SHE Cess should be payable or will be refundable - AT
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• CENVAT Credit Allowed for Service Tax on Warranty Repair and Maintenance Expenses, Considered After-Sales Charges.

  Case-Laws - AT : CENVAT Credit - input services - Appellant is entitled for credit of the Service Tax paid on expenses on such repair and maintenance during the warranty period, which is basically after sales charges - AT
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Case Laws:

• Income Tax

• 2014 (5) TMI 631
  Withholding of Tax u/s 195 of the Act – Purchase of equity shares – LTCG arising u/s 112(1) of the Act – Whether the tax is required to be withheld by the Applicant u/s 195 of the Act on purchase of equity shares of Patni Computer Systems Ltd, being listed security, from iSolutions, Inc. USA of the amount of long term capital gains arising to iSolutions, Inc. as per the proviso to section 112(1) of the Act - Held that:- Following Cairn UK Holdings Limited Versus Director of Income-Tax [2013 (10) TMI 430 - DELHI HIGH COURT] - the first proviso to Section 48 ensures that a non-resident, who utilized his foreign currency, is taxed after taking into consideration the fluctuation in exchange rate - if proviso to Section 112(1) is applied, then almost all assessees covered by the first proviso to Section 48 would be liable to pay tax @ 10% only and not @ 20% on long-term capital gains - it is not possible to decipher and clearly elucidate the exact legislative purpose and object behind the proviso to Section 112(1) in a categorical and unambiguous manner - The purpose and object behind the proviso to Section 112(1) itself is somewhat debatable, except that the legislative intention was to tax long-term capital gain on listed shares, bonds and units @ 10%, without benefit of indexation under second proviso to Section 48 of the Act – the applicant will be entitled to benefit of proviso to Section 112(1) of the Act on sale of equity shares – Decided in favour of Assessee.

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• 2014 (5) TMI 630
  Requirement to deduct TDS u/s 192 of the Act – Contribution made to superannuation fund as perquisite – Held that:- The applicant does not get a vested right at the time of contribution to the fund by the employer - The amount standing to the credit of the funds like the pension and fund account, social security of medical or health insurance would continue to remain invested till the assessee becomes entitled to receive it - The vesting right to receive the amount under the scheme or plan did not occur – Relying upon Commissioner Of Income-Tax, Kerala And Coimbatore Versus LW. Russel [1964 (4) TMI 4 - SUPREME Court] - one cannot be said to allow a perquisite to an employee if the employee has no right to the same - It cannot apply to contingent payments to which the employee has no right till the contingency occurs - The employee must have a vested right in the amount. Also in CIT v. Mehar Singh Sampuran Singh Chawla [1972 (5) TMI 6 - DELHI High Court] it has been held that the contribution made by the employee towards a fund established for the welfare of the employees would not be deemed to be a perquisite in the hands of the employees concerned as they do not acquire a vested right in the sum contributed by the employer - when the amount does not result in a direct present benefit to the employee who does not enjoy it, but assures him a future benefit, in the event of contingency, the payment made by the employer, does not vest in the employee - the new Act does not make any significant departure from this aspect – Decided in favour of Applicant.

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• 2014 (5) TMI 629
  Payment made for management services – DTAA between India and France - the term "make available" is not figuring in the treaty - Whether the payment made by Steria for the management services provided by Groupe Steria SCA will not be taxable in India in the hands of Steria France and whether the applicant will be liable to withhold tax as per the provisions of Section 195 of the Act from the payments made / to be made to Steria France under the Management Services Agreement – Held that:- The said Notification does not include anything about the ‘make available’ provision. Had the intention of the Protocol or the Government is to include ‘make available’ clause in the Tax Treaty between India and France, it should have been done so in the said Notification. We have taken note of the Notification issued in the case of India Netherland Tax Treaty whereby the Protocol was given effect to. The changes in the Treaty on the basis of the Protocol were given effect by Notification only. We do not see any reason as to why different treatment will be given in the present case. Relying upon Perfetti Van Melle Holding B.V.[ 2011 (12) TMI 17 - AUTHORITY FOR ADVANCE RULINGS] - A Protocol cannot be treated as the same with the provisions contained in the treaty itself, though it may be an integral part of the Treaty - Tax Treaties are between two sovereign nations and every country has a particular relation with another countries and same treatment are not given to all the countries - ordinary meaning of the Treaties should be given while interpreting the provision of the Tax Treaties and even to the extent of liberal interpretation of the Treaty, any clause cannot be imported like ‘make available’ in the Treaty that is not there so as to change tax complexion of the Treaty provision. The services being accepted as technical services under the Act and the Tax Treaty, the payment for the services will be covered by ‘fees for technical services’ chargeable under the Act - The submission of the applicant that the services being managerial which was omitted in the definition of fees for technical services in the revised DTAA between India – UK entered into in the year 1993, the managerial services rendered by the applicant will also automatically be omitted in the definition of fees for technical services under the Tax Treaty between India-France by application of the Protocol, is also not acceptable. The payment for services rendered by the applicant will falls under the definition of fees for technical services even under the Tax Treaty between India-France - the payments made by the applicant for the services rendered comes under the definition of fees for technical services both under the Act and the Treaty and is liable to tax in India – thus, the payment made by Steria (India) Limited for the management services provided by Groupe Steria SCA will be taxable as Fees for Technical Services - as the consideration for the services is held to be taxable in India, the applicant will be liable to withhold tax as per the provision of Section 195 of the Income-tax Act, 1961 from the payments made/to be made to Steria France – Decided against the assessee.

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• 2014 (5) TMI 628
  Requirement to deduct TDS - India-Sri Lanka DTAA - Monthly remuneration of retainer fees for services rendered – Reimbursement of various expenses – Held that:- The services rendered are basically for promotion of sales and brand name of the applicant in Sri Lanka - they are basically sales promotion - Ms Geetha was designated as resident executive for Sri Lanka operating from Colombo - The job description fits in more with a marketing executive than anything else - Fees for technical services is defined in explanation 2 to section 9(1)(vii) of the Act - The services rendered by Ms Geetha do not fall under any of the items mentioned in the explanation namely, managerial, technical or consultancy services - The services rendered by her are not technical services as defined in the Act - the payment made to Ms Geetha is not taxable either under the Act or the India-Sri Lanka Tax Treaty - the payments falls under Article 14 of the India-Sri Lanka Tax Treaty and even on that account the same is not taxable in India - Regarding the reimbursement of expenses, they are directly linked with her services in Sri Lanka for the applicant – the reimbursement of the expenses will also not be taxable in India under the provision of the Act or under India-Sri Lanka Tax Treaty – Decided in favour of Assessee.

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• 2014 (5) TMI 627
  Validity of reopening of assessment u/s 147 and 148 of the Act – Mere change of opinion – Held that:- The assessment could not have been reopened in the manner done by the AO - When the assessee had disclosed all the details, particulars and the income was assessed, then, mere change of opinion would not justify passing of the order dated 31st March, 2003, is the conclusion reached concurrently in this case - The assessment years under consideration, namely, 1993-1994 to 1997-1998, the assessee disclosed the income and on identical lines that was assessed - If that was assessed, there was no necessity of issuing a notice to reopen it and particularly when there is no failure on the part of the assessee to disclose fully and precisely all material facts necessary for making an assessment – no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (5) TMI 626
  Allowability of expenses u/s 37 of the Act – Production as a part of news achieve – Held that:- Following Commissioner of Income Tax Versus Director General of Income Tax [2014 (5) TMI 588 - DELHI HIGH COURT] - The data base of the programmes which are utilised for the creation of ‘news archives’ belonged to the assessee - The future likelihood of the resources being a possible source of revenue, it would not be justify to include it in the capital stream - the expenditure is a part of the entire total expenditure incurred by the assessee which is concededly treated as revenue – Decided against Revenue. Allowability of expenses incurred on CNBC expansion project – Revenue expenses OR capital expenses – Held that:- The findings of the CIT (A) and Tribunal are concurrent - no advantage of enduring nature has accrued to the assessee - On account of the expanded work and enhanced capacity, the assessee had incurred expenses towards the salaries of professionals and hire charges also towards media professional charges – the nature of the expenditure required it to be treated as one falling u/s 37(1) of the Act, compelled by business purposes and not resulting in any enduring advantage requiring to be treated in the capital stream – Decided against Revenue.

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• 2014 (5) TMI 625
  Deemed dividend u/s 2(22)(e) of the Act - Money advances to the company – Interest earned – Held that:- CIT(A) and the Tribunal had concurrently recorded that the assessee had running account with the company – M/s Dada Motors Pvt. Limited and had been advancing money to it - the provisions of Section 2(22)(e) of the Act were not attracted as this provision was inserted to stop the misuse by the assessee by taking the funds out of the company by way of loan advances instead of dividends and thereby avoid tax - the assessee had in fact advanced money to the Company and there was credit for only 55 days for which provisions of Section 2(22) (e) of the Act could not be invoked - The findings were not shown to be erroneous or perverse in any manner – thus, no substantial question of law arises for consideration – Decided against Revenue. Disallowance u/s 36(1)(iii) of the Act - Initial purpose of advancing amount could not be established – Held that:- The CIT(A) as well as the Tribunal was of the view that there was no justification for making an addition u/s 36(1)(iii) of the Act - The assessee had not charged any interest on the amount advanced to M/s Nalanda Spinners as the amount advanced to Nalanda Spinners was not returned for which a civil suit was filed and with the assistance of influential people, the same was recovered - for the assessment years 2006-07 and 2007-08, similar additions had been deleted which has attained finality – Decided against Revenue.

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• 2014 (5) TMI 624
  Levy of penalty u/s 271(1)(c) of the Act - Income from sale of shares shown as as capital gain but assessed as business income – Shares in D-MAT form - No trading on the floor of stock exchange – Held that:- The assessee had offered the income from purchase and sale of shares may be as capital gain - The assessee has disclosed the purchase of shares - The purchase of shares is duly recorded in the books of account and has been shown in her Balance Sheet as on 31.03.2003 - The sale of the shares has also been disclosed by the assessee and the same is found recorded in the D-Mat account of the assessee - the assessee has duly disclosed all primary facts i.e. purchase and sale of shares, details of payments made for purchase and payment received for sale of shares - Profit arising from sale of shares was duly disclosed - it cannot be said that the assessee is guilty of concealment of income because the assessee had disclosed the income as capital gain, and department assessed it under some other head – Relying upon CIT vs Reliance Petrochemicals Ltd. [2010 (3) TMI 80 - SUPREME COURT] - it is not a fit case for levy of penalty u/s 271(1)(c) – Decided in favour of Assessee.

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• 2014 (5) TMI 623
  Additions u/s 68 - cash credit - Failure to produce supporting evidences – Source of cash deposited in back – Held that:- The deposit and withdrawal from the bank accounts were in thousands only, sometimes even in hundreds - The deposit or withdrawal at a time has never touched even Rs.50,000 - The bank balance is also in thousands of Rupees - the assessee derives income from business - the fact that assessee carried on the business is not in dispute - the explanation of the assessee that the deposit in the bank account and withdrawal there from were relating to the assessee’s business cannot be ruled out - In the absence of complete day-to-day details having been maintained by the assessee, CIT(A) has already sustained the addition of Rs.1 lakh - Even if the theory of peak credit is applied, then also, the addition will not exceed Rs.1 lakh – there was no reason to interfere in the order of the CIT(A) – Decided against Revenue. Deletion of agricultural income made - Failure to give proof of land holding and sale bills of agricultural produce – Held that:- The assessee did not give any explanation with regard to his land holding or any evidence for the agricultural income - He simply stated that the AO is not justified to reject the agricultural income declared by the assessee and the same was simply accepted by the CIT(A) - the assessee did not furnish any details with regard to his agricultural holding or any evidence for earning of agricultural income even in front of Tribunal – the CIT(A) was not justified in deleting the addition – Decided in favour of Revenue. Levy of penalty u/s 271(1)(c) of the Act - Failure to produce any documentary evidence – Cash deposits in bank account - Failure to give proof of land holding and sale bills of agricultural produce – Held that:- The CIT(A) rightly was of the view that with regard to addition of Rs.19,51,940/- because in respect of such addition, the assessee has given explanation that the deposit was relating to assessee’s business receipt - the assessee had income from business - Though in the quantum appeal learned CIT(A) sustained the addition of Rs.1 lakh on adhoc basis, in the penalty appeal, he has arrived at the conclusion that on such lump sum estimated addition, penalty u/s 271(1)(c) is not warranted - the assessee has given an explanation with regard to bank deposit which is partly accepted by the CIT(A) and partly rejected on estimated basis – Decided partly in favour of Revenue. With regard to agricultural income of Rs.55,400/-, the assessee has not given any explanation either before the AO or before the CIT(A) or before the Tribunal – he has not furnished the details of agricultural holding, if any, by the assessee – thus, penalty u/s 271(1)(c) would be justified on addition of Rs.55,400 – Decided in favour of Revenue.

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• 2014 (5) TMI 622
  Sale of shares – LTCG OR business income – Held that:- Following CIT Vs. Darius Pandole [(2010 (6) TMI 405 - Bombay High Court] - income from sale of shares treated as business income in earlier years by way of assessment u/s 143(3) cannot be taken as capital gain in subsequent year - the principle of consistency should be followed and the parties should not be allowed to register departure from the existing position time and again – also in CIT VS. Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] (Bom) it was held that income from shares as Business income on the basis of the rule of consistency - the view taken by the AO on similar issue has been reversed by the CIT(A) and no material has been brought on record by the revenue to demonstrate that the Tribunal tinkered with such view canvassed by the FAA for the earlier years – Decided against Revenue.

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• 2014 (5) TMI 621
  Disallowance on account of depreciation on computer accessories – Held that:- Following CIT vs. BSES Rajdhani Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] - computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system - the computer accessories and peripherals cannot be used without the computer - they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% - Decided against Revenue. Disallowance u/s 14A r.w. Rule 8D of the Rules – Dividend income - Held that:- The assessee has maintained all through that no expenses were incurred for earning the exempt income by way of dividend – relying upon Assistant Commissioner of Income Tax Circle 10, Kolkata Versus Champion Commercial Co Ltd [2012 (10) TMI 24 - ITAT, KOLKATA] - the AO did not return a finding that the claim of the assessee that no expenses had been incurred for earning the exempt income, was incorrect - She merely held that administrative expenses had to be incurred for earning of exempt income also - The rejection of the assessee’s claim in this manner is found to be improper and the CIT (A) correctly reversed the action of the AO by deleting the disallowance made – there was no error in the order of the CIT(A) – Decided against Revenue.

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• 2014 (5) TMI 620
  Restriction of addition - cessation of liability - Disallowance of purchases being not genuine – Held that:- CIT (A) has observed that the GP rate of the assessee firm for the year was better in comparison to the immediately preceding AY – as such, the purchases made by the assessee ought not to have been doubted by the AO - and that if at all, the amounts outstanding to the credit of the three parties in the assessee’s books of account could have been disallowed u/s 41 (1) of the IT Act - CIT (A) restricted the disallowance on account of cessation of liability of credit balance outstanding in the name of the three parties in the assessee’s books - CIT (A) has correctly held that addition needs only be made of the amounts outstanding to the credit of the three parties in the assessee’s books, on account of cessation of liability of credit balance, u/s 41 (1) of the Act – there was no reason to interfere in the order of the CIT(A) – Decided against Revenue.

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• 2014 (5) TMI 619
  Deletion made u/s 68 of the Act – Unsecured loan – Held that:- CIT (A) has found that the identity of the lenders in the cases of Shri Deepak Gupta, Ms Reena Jain and Shri Sunil Kumar Jain, HUF, stood established - the assessee had filed copies of their income-tax returns along with their confirmed account statements before the AO - documents could have been directly called for by the AO, which was not done - no suspicion or unnatural cash deposits were there - CIT (A) found substantial transactions to exist in most of the bank accounts of the lenders, from which, the credit worthiness of the lenders was available - when the AO had issued summons u/s 131 of the Act to M/s Arhan Commercial Corporation, M/s Kiran Enterprises and M/s Unnati Enterprises, the parties presented themselves for personal verification before the AO - Their income-tax returns, PANs, confirmations and bank statements, etc., were duly furnished. The AO had taken the amounts as unexplained only because their confirmations, ITRs and bank statements had been posted from the nearest Speed Post centre, the confirmations were in the same hand and they contained similar/same recitals, which was not possible - the factum of the assessee having duly identified the lenders and that of the assessee having proved the loans to be genuine, by filing the primary details before the AO, was nowhere rebutted by the AO - The contents of the confirmations issued by the creditors and their bank statements also remained unquestioned by the AO - the factum of the assessee having deducted TDS on the interest of the loans and having repaid the loans also remains undisputed - the addition made by the AO was made only on the basis of suspicion and nothing else - CIT (A) has correctly deleted the additions – Decided against Revenue.

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• 2014 (5) TMI 618
  Method of valuation of closing stock – FIFO – Held that:- It has been decided in the case of the assessee for the earlier assessment year, that the assessee has been following consistent method of valuation of closing stock – the method adopted has been upheld the basis of valuation of closing stock of the assessee – Revenue has not been able to show as to how position has varied in the present AY - the assessee has been consistently following FIFO method for the purpose of valuation of stock – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue.

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• Customs

• 2014 (5) TMI 637
  100% EOU - Encashment of Bank Guarantee and enforcement of B-17 bond - Held that:- It is observed from the show cause notice dt.22.01.2013 and OIO dt.31.04.2013 passed by the adjudicating authority, that no duty demand has been quantified by the lower authorities. As the issue lies in a narrow compass, therefore, after allowing the stay application, appeal itself is taken up for disposal. It is further observed from the Annual Performance Report of the appellant for the year 2003-2004; sent to the office of the Development Commissioner, Gandhidham; that investments made towards the capital goods etc. is available. However, the defense submission and personal hearings recorded in the OIO by the adjudicating authority indicated that all the records available in the present appeals were not produced before the lower authorities. This matter is, therefore, required to be remanded to the adjudicating authority. It is directed that appellant should produce all the records available with him to the adjudicating authority who shall quantify the duty liability of the appellant based on the records available, before enforcing the B-17 bonds and encashing Bank Guarantee, by giving an opportunity of personal hearing to the appellant and following the principles of natural justice - Decided in favour of assessee.

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• 2014 (5) TMI 636
  Penalty u/s 114A - Held that:- provisions of section 114AA of the Act were enacted under Taxation Laws (Amendment) Act, 2006 with effect from 13.7.2006 and the provisions were not in force at the time of import of the goods - Therefore, impugned order is set aside in respect of penalty imposed under section 114A of the Act on the Appellant - Decided in favour of assessee.

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• 2014 (5) TMI 635
  Conversion of free shipping bills to drawback shipping bills - Whether the appellant's application for conversion of free shipping bills into drawback shipping bills needs to be allowed or otherwise, when such application is made after the goods were exported - Held that:- documents relating to the exports i.e. invoice, shipping bills, Bills of lading and the bank realization certificate clearly indicate that the goods were exported and said goods were described in documents as "furnace oil". It is also undisputed that the appellant was exporting the said goods and subsequently the specific brand rate was fixed for the appellant's goods i.e. furnace oil. Documents like ARE-1, Bills of Lading, shipping bills specifically were signed by the Customs officers clearly indicate that the goods which were cleared for export was furnace oil - CBEC vide Circular No.25/2005/Cus, has specifically not accepted the representation of the Trade and the recommendations of the conference of the Chief Commissioners that the manufacturer/exporter's in-house quality control results can be relied upon if the said manufacturers/exporters are awarded with ISO 9000 series certificate. In our view, non-production of appellant's in-house certificate, may not have any bearing on the outcome of the case in as much as there is no contest to the certificate issued by M/s Geochem laboratory who are one of the Government of India's recommended and authorized analytical laboratories. - No reason why the benefit of said circular be not extended to cover the case of the appellant in seeking conversion of free shipping bills into drawback shipping bills, when there is a unimpeachable evidence of export of the furnace oil If the duty drawback is not allowed to the appellant, the appellant is perforce required to export the taxes, which gets included in the FOB value. In our view, this being not the intention, conversion of free shipping bills into drawback shipping bills needs to be allowed - Decided in favour of assessee.

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• 2014 (5) TMI 634
  Classification - Import of flash memory card - Exemption under Notification No. 24/2005, dated 1-3-2005 - concessional CVD of 4% under Notification 6/2006-C.E., dated 1-3-2006 - Held that:- Heading 8523 51 00 covers “solid state non-volatile storage device.” There is no dispute of the fact that the item under importation is a solid state non-volatile storage device. The only dispute is that whether flash memory and flash memory card are the same or are they different. The Notification refers to flash memory meant for external use with a computer or laptop as a plug-in-device. The goods under importation satisfy this description. Therefore, the argument of the lower appellate authority that flash memory and flash memory cards are different items has no sound technical basis. The product literature available on record clearly indicates that the item under importation is a solid state memory card and is meant for external use with a computer or laptop as a plug-in-device. The product literature further states that these cards can be plugged in without the need for an adapter. Thus, from the product literature, it is clear that the product under importation satisfies the description given on the Notification - Decided in favour of assessee.

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• 2014 (5) TMI 633
  Confiscation of goods - Mis declaration of goods - Penalty - Held that:- As the goods are freely importable as per Import-Export Policy 2009. Therefore goods are not liable for confiscation under Section 111(d) of the Customs Act, 1962. Therefore, no penalty under Section 112 of the Customs Act is leviable - Decided against Revenue.

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• 2014 (5) TMI 632
  Denial of refund - Encashment of bank guarantee - applicant has got the unconditional waiver of pre-deposit - Held that:- applicant has already granted unconditional waiver of pre-deposit of the dues adjudged in the impugned order, therefore, the encashment of Bank Guarantee is not warranted. In view of this observation, we direct the concerned Commissioner to refund the amount of Rs. 50 lakhs to the applicant, which was taken by them by encashing Bank Guarantee executed by the applicants at the time of provisional release of the goods - Decided in favour of assessee.

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• Service Tax

• 2014 (5) TMI 653
  Denial of refund claim - Refund claim pertains to unutilized CENVAT Credit - for the period October, 2012 to December, 2012 - Held that:- In fact what we have noted was that despite this Court's order directing the Respondent No.3 to consider the refund applications in accordance with the law laid down by this Court, the refund applications have been considered not taking into account individual facts and circumstances, but by applying some general rule. In fact the findings recorded at page 39 and which are part of the impugned order would indicate that there are some general observations and conclusions recorded. They are not making reference to a particular refund claim and which was before the Respondent No.3. In these circumstances we are of the opinion that the impugned order cannot be sustained. - Matter remanded back - Decided against assessee.

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• 2014 (5) TMI 652
  Constitutional validity of section 66E(i) - Service tax on sale value of the food and drinks - facilities provided in a hotel including an air-conditioned, restaurant and a bar - Whether section 66E(i) of the 1994-Act is violative of Article 366 (29A)(f) of the Constitution - Held that:- Section 65B(44)(ii) of the 1994-Act shows that supply of goods that is deemed to be sale under Article 366(29A) is not included in service. - We are afraid, Article 366(29A)(f) of the Constitution does not indicate that the service part is subsumed in the sale of the food; it rather separates sale of food and drinks from service. - Section 65B (44) as well Section 66E(i) only charges service tax on the service part and not on the sale part. It indicates that the sale of the food has been taken out from the service part as was interpreted by the Supreme Court in the Associated-Hotel case and the Northern-Caterers case. Section 66E(i) of Chapter-5 of the relating to service tax of the Finance Act, 1994 [Statutory Provisions Relating to Service Tax] is intra vires the Constitution. - Decided against the assessee. RECOMMENDATIONS: There is no provision in the VAT-Act to bifurcate the amount. The State Government will do well to frame such rules to this effect. These rules may be in conformity with the bifurcation as provided under the 1994-Act or ensure that the Commercial Tax authorities do not charge VAT on that part of the value of the food and drink on which the service tax is being assessed. The restaurant and caterer are also normally charging VAT on the bill value. This is not proper. They may charge service tax on 40% or 60% as the case may be of the bill value and charge VAT at the rate of 60% or 40% of the bill value, but not on the entire bill value. - The State Government will be well advised to issue a clarification/ direction in this regard and will ensure that the consumers are not unnecessarily doubly taxed over the same amount. Decided against the assessee subject to recommendation to state governments.

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• 2014 (5) TMI 651
  Valuation of service - Addition of price of electricity for determining the taxable value for purpose of service tax - quantum of service tax liability - operation and maintenance of the plant relating to two of its customers - Held that:- gross amount charged by the service provider for the service provided is as per the agreement. The price of electricity cannot be considered as an additional consideration received by the appellant form their customers. The appellant does not get benefitted by the free supply of the electricity in any way. Further, the electricity is consumed in the manufacture of oxygen. Thus, electricity is an input for the manufacture of oxygen. Oxygen, in turn, is used by the appellant's clients in the manufacture of iron and steel products. Electricity cannot be considered as an input for providing the services of operation of air separation plant, it cannot be considered as an additional consideration flowing to the appellant from their client for providing the service of operation of plant and cannot be considered as part of the gross amount charged for the service of operation of the plant - Decided in favour of assessee.

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• 2014 (5) TMI 650
  Demand of service tax - Sale of space or time for advertisement service to several advertising agencies but failed to obtain registration, file returns or remit service tax on the consideration received for rendition of the taxable service - Held that:- A bona fide belief is a belief entertained by a reasonable person. The appellant is a public authority and an instrumentality of the State and should have taken care to ascertain whether it was liable to tax in terms of the provisions of the Act. There is neither alleged, asserted nor established that there is any ambiguity in the provisions of the Act, which might justify a belief that the appellant/service provider,was not liable to service tax. It is axiomatic that no person can harbour a ‘bona fide belief’ that a legislated liability could be excluded or transferred by a contract. The appellant was clearly and exclusively liable to service tax on rendition of the taxable service of ‘sale of space or time for advertisement’. This liability involved the non-derogable obligation to obtain registration, file periodical ST -3 returns and remit service tax on the consideration received during the period covered by such ST-3 returns. These were the core and essential obligations the appellant should have complied with. These orders do not transfer the substantive and legislatively mandated liability to service tax from the appellant who is the service provider to the advertisers, who are the service recipients. The liability of advertisers bear the burden of service tax, in terms of agreement between the parties, is the conclusion of the High Court. The decision cannot be interpreted or understood as shifting the liability or inherence of service tax, under the provisions of the Act, on the service recipient. It is a well settled position that legislation is not rejected or amended by private agreement. - demand of service tax with interest and penalty confirmed - Decided against the assessee.

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• 2014 (5) TMI 649
  Waiver of pre deposit - ‘construction of residential complex’ and ‘commercial or industrial construction’ - Held that:- Prima facie, in view of the decision of this Tribunal in Macro Marvel Projects Ltd. vs. CST, Chennai reported in [2008 (9) TMI 80 - CESTAT, CHENNAI] and the absence of any attribution in the show cause notice or in the impugned adjudication order that constructions by the petitioner were in relation to construction of residential complex service, since more than 12 residential units were constructed and since there is no finding recorded that the residential units were not for the personal use of the recipient in terms of the statutory definition, in particular the explanation set out in Section 65 (91a) of the Act, we see a strong prima facie case in favour of the petitioner - On the aforesaid prima facie analysis and as the entire assessed liability to service tax is predicated on the conclusion that the petitioner had provided construction of commercial complex service to Vikas Parishad and commercial or industrial construction service to several institutions for promotion of educational objectives, we grant waiver of pre-deposit in full stay all further proceedings for realization of the adjudicated liability, pending disposal of the appeal - Stay granted.

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• 2014 (5) TMI 648
  Waiver of pre deposit - Construction of Complex services - Held that:- It is undisputed that the appellant had rendered services/ constructed 112 residential buildings for Surat Municipal Corporation. It is also undisputed that these residential buildings were allotted to the families who are identified as Below Poverty Line families based on lottery system. It is not very clear from the records that Surat Municipal Corporation has charged any amount from these families. We find that the contract entered by the appellant with Surat Municipal Corporation specifically talks about the execution of property only for construction of building under ‘JNURMP’ scheme and they are paid by Surat Municipal Corporation. Prima-facie, we are of the view that the said construction activities of the appellant may not be covered under the taxable category of Commercial Construction - Stay granted.

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• Central Excise

• 2014 (5) TMI 644
  Area based exemption - Denial of refund claim - Chargeability of interest on the recovery of inadmissible refund - refund of Education Cess/SHE Cess under Notification No. 39/2001-CE - Held that:- cash refund of duties imposed under the Central Excise Act, 1944, Additional Duties of Excise (Goods of Specified Importance) Act, 1955 and Additional Duties of Excise (Textiles and Textile Articles) Act, 1978, is only admissible. There is no mention of refund of Education/SHE Cesses in Notification No.39/2001-CE, dt.31.07.2001. Further, as per the provision of Clause 2(a) of this notification, no cash refund is available to a manufacturer with respect to the duties paid by utilizing the CENVAT Credit under CENVAT Credit Rules, 2001. Therefore, legally not only Education/SHE Cesses are ineligible to cash refund but also it will not be correct to say that the entire Basic Excise Duty is exempted and that accordingly no Education/SHE Cess should be payable or will be refundable - refund of Education/SHE Cesses, under Notification No.39/2001-CE, dt.31.07.2001, has been correctly denied by the lower authorities. - Decided against the assessee. Once Coating Section was held to be in-eligible for exemption under Notification No.39/2001-CE, then the refund earlier sanctioned with respect to Coating Section becomes a case of erroneous refund. Such a refund pertaining to the Coating Section was a refund beyond the scope of Notification No.39/2001-CE. In such circumstances, inadmissible refund has to be considered as an erroneous refund recoverable under Section 11A of Central Excise Act, 1944 and appropriate rate of interest will be accordingly applicable on the amount retained by the appellant M/s PSL Ltd. - Decided in favor of revenue. Denial of Cenvat Credit - Held that:- Appellant failed to prove that inputs/services have been used in the coating division and that invoices/bills in respect of which credit is taken were in respect of the Paper Mill Division and not Coating Division - Matter remanded back - Decided in favour of assessee.

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• 2014 (5) TMI 643
  Duty demand - Use of excess raw-materials - Held that:- Commissioner (Appeals), has discussed each and every entry appearing in the balance-sheet and has observed that there is no warrant in law to determine the sale price of the goods on the costing principles, even the costing was done by the Central Excise officers with many flaws. Further, in the absence of any evidence to the contrary, he has held that the entire case of the Revenue is based upon the assumptions and presumptions and the Revenue has failed to establish that there was scrupulous manufacture and removal the goods - Decided against Revenue.

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• 2014 (5) TMI 642
  Duty demand - Clandestine removal of goods - Artificial segregation of the manufacturing activity - compounded levy in respect of independent processors of textile fabrics - Held that:- provisions of Section 3A were inserted w.e.f. 1997 and the appellants were directly covered under the said provisions of Section 3A of the Central Excise Act, 1944 and were liable to pay the Central Excise duty in accordance with the provisions of said Section and the rules made thereunder. On perusal of the said Section 3A, it clearly transpires that the goods which are notified under the said Section are to be levied with the Central Excise duty and the said Central Excise duty shall be collected in accordance with the provisions of this Section. The said Section 3A also starts with non-obstante law. A plain reading of the said Section would indicate that in the case of notified goods, like the goods manufactured by the assessee who is an independent processor, then the duty liability has to be discharged based on the annual production capacity which is required to be determined. Duty liability on the notified goods under Section 3A of Central Excise Act, 1944 has to be worked out as provided thereunder. Since I have already held that the show cause notice is issued on the ground that M/s Super Processors, the main person is independent processor, invoking the provisions of Section 3A would have been more appropriate than invoking the provisions of Section 3 read with Section 11A of Central Excise Act, 1944 against the appellant - entire appeal is allowed in respect of this appellant who is a sole proprietorship firm, on the ground that of non-applicability of the provisions of Section 3 of Central Excise Act, 1944 on the goods notified by the appellant - Decided in favour of assessee.

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• 2014 (5) TMI 641
  CENVAT Credit - Warranty charges - Denial of CENVAT Credit of Service Tax paid on bills/ invoices issued by M/s Jayshree Enterprise, Rajkot who were providing Maintenance and Repairing Services of Diesel Engines cleared by the Appellant within one year warranty period - Revenue contends that such repair & maintenance of engines during warranty period would not fall under the category of input service as the scope of the credit is restricted to the services used at factory premises and not beyond that point. - Penalty u/s 11AC. Held that:- Appellants were engaged in the manufacture of electrical transformers and those were cleared on payment of duty. As per the terms of contract, the assessee was under obligation to repair and maintain the transformers during the warranty period free of charge. Those jobs of repair and maintenance were entrusted to third person who raised bills for repair and maintenance on assessee in turn the assessee took credit of Service Tax so paid. The issue was dealt with by the Tribunal which stands decided in favour of the assessee. In the present case before me the Appellant as per the terms of the warranty were under obligation to provide repair and maintenance service to their customer. Moreover it is an undisputed fact as apparent from the cost accountant s certificate for the respective years annexed with the appeal memo that the value of such services already stands included in the assessable value of the Diesel Engines. Transaction value means the price actually paid or which are payable for the goods when sold and those includes servicing and warranty also. Admittedly the service and warranty is post manufacturing expenses which are to be provided to the customer after sale. I therefore hold that the Appellant is entitled for credit of the Service Tax paid on expenses on such repair and maintenance during the warranty period, which is basically after sales charges and hold that the impugned orders disallowing credit are not sustainable. Issue of availment of credit was apparent from the records and the audits were conducted in the previous periods and no objections were raised. Secondly the issue involved is related to interpretation of term ‘Input Services’. In such view of the facts of this case, the demands raised against the Appellant by invoking extended period of limitation are not sustainable and apart from merits the same are set aside on the ground of limitation also. - Decided in favour of assessee.

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• 2014 (5) TMI 640
  Duty evasion - Removal of scrap and waste - order beyond the scope of show cause notice - Held that:- The material on record would clearly show that the de novo order passed by the adjudicating authority is not based upon the valuation of the scrap materials removed as duty, has been paid before removing the said scrap material and duty is demanded in respect of the loss of 2.04% to be recovered while enamelling copper which was not at all proposed in the show cause notice. It is well settled that the order of adjudicating authority should be confined to the proposals made in the show cause notice and without mentioning the said amount in the show cause notice, no order could be passed by as any order passed by the adjudicating authority beyond the scope of show cause notice is wholly without jurisdiction. Accordingly, we hold that the order passed by the CESTAT setting aside the order of adjudicating authority is justified - Decided against Revenue.

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• 2014 (5) TMI 639
  Waiver of pre deposit - Application under Section 35F - Whether the Tribunal would be competent to decide the appeal filed at the instance of the assessee without deciding first the application for waiver of deposit of the duty demanded or the penalty thereon - Held that:- assessee has not filed any application for waiver at all at the time when the appeal was filed before the Commissioner of Central Excise (Appeals). In such event, the respondent/assessee could maintain the appeal only after the pre-deposit. The Commissioner (Appeals) should not have taken the appeal when the assessee has not made pre-deposit. All the more, the Commissioner (Appeals) has not taken notice of the fact that the assessee has not even filed an application seeking for waiver of pre-deposit so as to enable him to consider the request under the first proviso to Section 35F of the Act - pre-deposit is a condition precedent for filing an appeal before the Commissioner (Appeals) and the filing of application for waiver of such deposit is also a condition precedent, without either of the above, the appeal could not have been entertained by the Commissioner (Appeals). However, keeping the above principle in mind, the facts of the present case should be considered. as the assessee has already paid the entire amount and the Revenue has not raised the said point before the Commissioner (Appeals) and for the first time, it was raised before the CESTAT. We are, therefore, not inclined to interfere with the order of the CESTAT on the facts of the present case. - Decided against Revenue.

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• 2014 (5) TMI 638
  Proof of export - assessee has failed to submit original and duplicate copy in respect of ARE-1 No. 1/04-05, Shipping Bill and Bill of Lading, with due endorsement from the Customs Authorities and in respect of ARE-1 No. 2/04-05, did not submit the shipping bill - Whether the Department is bound to accept Shipping Bill and Bill of Lading without verifying its corroborative value for purposes of ascertaining whether the goods in question have been exported - Held that:- The material on record would clearly show that the fact that the assessee has produced attested copy of the shipping bill is not in dispute. In view of the Circular No. 527/23/2000-CX., dated 1-5-2000, it is clear that production of attested copy clearly indicating the name of the person signing it would itself be proof of export of goods. It is well settled that Circulars issued by the revenue is binding on the department and therefore the order of the Tribunal holding that production of the attested copy of the shipping bill is sufficient to prove the export of goods in view of Circular No. 527/23/2000-CX., dated 1-5-2000 referred to above is justified - Decided against Revenue.

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• CST, VAT & Sales Tax

• 2014 (5) TMI 647
  Exemption u/s 6(2) of the CST Act – Mode of proof – Proof by endorsing the document in the title – Held that:- The burden of proving second inter-State sale rests on the assessee – Relying upon The Deputy Commissioner of Commercial Taxes, Madurai Division, Madurai [1967 (7) TMI 107 - MADRAS HIGH COURT] Court held that:- Making endorsement in the document of title is not the only mode to prove a second inter-State sale – There may be other modes by which the claim can be substantiated - However, when the assessee claims exemption based on the endorsement made in the documents of title or chooses any other mode, it must discharge its burden to the satisfaction of the AO that, there was a second inter-State sale that the assessee had not taken delivery of the goods to break the link in the chain of movement. The assessee admittedly attempted to prove its claim by endorsing the document in the title - However, a reading of the endorsement on the back of the goods consignment notes show the instruction only - Beyond the words thus recorded therein giving direction for delivery, absolutely there was no material to point out the time on which such an endorsement was made to claim second inter-State sale - Thus in the absence of any material to substantiate this fact, it is difficult for anyone to come to the definite conclusion on the basis of the instructions noted that the endorsement was in fact made by the assessee company at Coimbatore before delivery - In the absence of any material to substantiate its claim that the endorsement made thus in fact satisfied the requirements for showing that the assessee had not taken delivery and that the assessee had effected inter-State sale without breaking the movement to claim the benefit of Section 6(2) and in the absence of satisfactory proof thus let in, there is no hesitation in confirming the order of the JC confirming the assessment. No physical delivery - Endorsement in Form XX - Held that:- As the assessee had not substantiated the in-transit sale by choosing one or other mode, it goes without saying that the burden not discharged to the satisfaction of the authority that there was, in fact, second inter State sale, the claim of the assessee that mere endorsement of giving delivery instruction could not be taken as a substantial evidence of in-transit sale - Thus, the Tax Case dismissed – Decided against assessee.

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• 2014 (5) TMI 646
  Validity of learned HC Single Judge order - Preferring of appeal – No proof of payment of tax – Held that:- Judgment in Lakshmi Rattan Engineering Works vs. Assistant Commissioner [1967 (9) TMI 116 - SUPREME COURT OF INDIA] followed - Appellant while preferring an appeal is bound to comply with the conditions prescribed u/s 51 of the Act, more particularly, the condition relating to payment of tax in the second proviso. Input Tax Credit - Whether the appellant is entitled for adjustment of the input tax credit available – Held that:- It is seen that the input tax credit has already been adjusted by the assessing authority in the order of assessment dated 15.10.2010 - Thus, the question whether Section 19 and 51 of the Act have to be read together becomes academic and is not required to be decided in the instant case, since the authorities have already adjusted the ITC. Whether full and proper adjustment has been made by the department – Held that:- The appellant themselves carried forward the ITC of Rs. 14,67,241/- accrued from the amount, which is outstanding as on 31.03.2007, thus leaving the net eligible ITC at Rs. 63,74,247/- - Thus, the assessing authority rightly adjusted the net ITC available for the period of assessment - The appellant would submit that as on date, there is ITC to the tune of Rs. 8,54,851/- and the same should be given credit to - This contention raised by the learned counsel does not merit any acceptance, since the appellant's appeal relates to an order of assessment passed for the assessment year 2007-08 i.e., for the year ended 31.03.2008 and as on the said date, the total tax payable after adjusting ITC comes to Rs. 13,43,453 - Therefore, the respondents have rightly calculated the actual amount payable at Rs. 9,58,613/- for entertaining the appeal by the appellate authority -Therefore , no ground to interfere with the order passed by the learned Single Judge - Writ appeal fails and dismissed - Connected miscellaneous petition is closed – Decided against assessee.

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• 2014 (5) TMI 645
  Imposition of Penalty - Penalty u/s 22(2) of Act - Levy of tax on gallonage fee – Taxable Turnover - Includibility under turnover – Taxable Limit – Conduct of assessee – Assessee had knowledge of turnover being below limit attracting charge - Held that:- It is admitted by the assessee that the turnover during the period 16.7.1996 was Rs. 19,237.50, which was well below Rs. 1,00,000/- turnover limit prevailing during the period - So too the taxable turnover from 17.7.1996 to 31.3.1997 was Rs. 1,32,001/- - By Act 38/96, the turnover limit for attracting charge was raised to Rs. 3,00,000/- - Thus, irrespective of whether the turnover upto 16.7.1996 is taken as one block and from 17.7.1996 to 31.3.1997 as one block, with the total turnover remaining at Rs. 1,76,239/- and hence, below the chargeable minimum, it is too difficult to accept the case of the assessee that when the reported turnover was very much within the knowledge of the assessee at Rs. 1,51,237/- and that too well below the minimum, the assessee could justifiably contend that there are no ground to warrant levy of penalty u/s 22(2) of the Act. The fact that it had remitted the sum before the assessment was not justifiable of its violation, more so when it had the knowledge of the turnover well below the chargeable limit – This court is not satisfied with the claim of the assessee herein in retaining the tax collected without taking any steps to refund the same to the customers even by 31.3.1997, when by that time it had realised the taxable limit was well below Rs. 3,00,000/- - In the absence of any circumstances shown as to the bonafide of its conduct, there is no hesitation in rejecting the plea of the assessee - Consequently, the revision is dismissed – Decided against assessee.

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