TMI Tax Updates - e-Newsletter
May 8, 2014

Case Laws in this Newsletter:

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

Articles

1. Best Practice for Professionals

   By: Madhukar N Hiregange

News

1. RBI Reference Rate for US $ and Euro

2. RBI cancels Certificate of Registration of five NBFCs

3. Issue of Rs. 20 Banknotes with incorporation of Rupee symbol (Rs.) without inset letter

4. Issue of Rs. 1000 Banknotes with incorporation of Rupee symbol (Rs.) without inset letter

Circulars / Instructions / Orders

Income Tax

1. D. O. No.. DGIT (L&R)/NJRS/2014-M - dated 29-4-2014

Implementation of the National Judicial Reference System Project of the Income Tax Department.

Highlights / Catch Notes

Income Tax

• Tribunal Rules Transaction Date Key in TDR Case; Power of Attorney Timing Eliminates Substantial Legal Question for High Court.

  Case-Laws - HC : Once the Tribunal has taken the date of the transaction of TDR and arrived at a factual conclusion that the Power of Attorney in favour of the assessee may be irrevocable but it is subsequent in point of time that the Appeal does not raise any substantial question of law for consideration - HC
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• Rental Income from Warehousing Classified as Business Income, Not House Property Income.

  Case-Laws - HC : Warehousing rental charges - Nature of income – the rental charges received by the assessee are assessable under the head income from business and not under home property - HC
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• Court Deletes Disallowance of 2.5% Trade Discount to Sister Concern, Finds No Tax Evasion Intent.

  Case-Laws - HC : Deletion of disallowance of trade discount - assessee Company had arranged to give 2.5% discount to the sister concern - Such facility was also made available to others - there appears no attempt of evading the tax - HC
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• Does Food Prep in Hotels Qualify as Manufacturing for Investment Allowance under Sec 32A of Income Tax Act?

  Case-Laws - HC : Investment allowance u/s 32A – Whether the preparation of food articles in a hotel may be treated as manufacturing of goods - Tribunal has committed error in treating the hotel building as a plant - HC
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• Penalty u/s 271(1)(c) Not Imposed When MAT Exceeds Regular Income, Book Profit Deemed Total Income.

  Case-Laws - AT : Penalty u/s 271(1)(c) - MAT u/s 115JB was greater than the regular income, book profit was taken as deemed total income u/s 115JB of the Act - penalty u/s 271(1)(c) of the Act was not imposable on the assessee - AT
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• Tax Authority Limits Addition to One-Third of Unexplained Cash Deposit u/s 68 of Income Tax Act.

  Case-Laws - AT : Deletion made u/s 68 - since the assessee has failed to prove the source of cash deposited of Rs.14,52,000/- in the joint bank account of three individuals, the addition to one-third of the cash deposit is restricted - AT
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Customs

• Royalty and consultancy fees are excluded from the value of imported goods from foreign collaborators or group entities.

  Case-Laws - AT : The royalty payments made to foreign collaborator or the consultancy service charges paid are not addable to the value of the goods imported by assessee from the foreign collaborator or the group entities - AT
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• Seizure of Betel Nuts Deemed Improper Due to Lack of Inquiry by Revenue from Assam State Agriculture Marketing Board.

  Case-Laws - AT : Seizure of betel nuts - in the absence of any inquiry made by the Revenue from the issuing authority, Assam State Agriculture Marketing Board, rejection of the same on the sole ground that appellants have not maintained any accounts and held the said documents to be fake, is not proper - AT
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Service Tax

• Cenvat Credit Allowed for Input Services by Unregistered Estate Department of Bank, Appellants Can Avail Credit.

  Case-Laws - AT : Whether the Cenvat credit can be availed by the appellants in respect of inputs service credit distributed by the Estate Department of the Bank when that Department was not registered as input service distributor - credit allowed - AT
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• Court Finds CENVAT Credit Eligible for Construction and Housekeeping Services Linked to Manufacturing Process.

  Case-Laws - AT : CENVAT Credit - construction service and housekeeping service - Nexus with manufacturing activity - Prima facie, the case is in favor of assessee - AT
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• Stay Granted on Services for Fly Ash Plant Used in Cement Manufacturing as Procurement Inputs.

  Case-Laws - AT : Since fly ash is one of the raw materials used for manufacture of cement, services availed for fabrication, erection & installation & repair and maintenance and insurance in respect of fly ash plant, have to be treated as the services availed for procurement of inputs - stay granted - AT
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VAT

• Dealer's Commissioning Costs Excluded from Machinery Tax under Tamil Nadu Sales Tax Act, Rules High Court.

  Case-Laws - HC : Whether the expenses incurred in commissioning imported machinery by a dealer for its customer form part of the cost of machinery in order to attract tax liability under Tamil Nadu General Sales Tax Act, 195 - Held no - HC
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Case Laws:

• Income Tax

• 2014 (5) TMI 200
  Violation of section 13(2)(a) of the Act – Lending of money – Held that:- The conclusion arrived at concurrently that there was no material on record, or that the transaction is nothing but a loan, has been rightly interfered with - it was impossible to reach a conclusion that the amount of Rs.5,46,00,000/was a loan given by the Trust to this Private Limited Company - it was an advance so as to enable the Trust to acquire an asset - in the event the construction is not ready and complete and the building is not ready, the amount would be returned back to the Trust – no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (5) TMI 199
  Substantial question of law - Sale of Transferable Development Rights (TDRs) - Jurisdiction of the AO to issue notice u/s 153C of the Act - Quantification of profit on sale of TDR - Proper sale rate per sq.ft of TDR – Held that:- The Tribunal has correctly arrived at a factual conclusion that the assessee has the right of ownership on Parvati land which was taken over by the Pune Municipal Corporation namely, PMC - The PMC in turn granted the TDRs - The assessee got rights on the TDRs as per mutual understanding between the Rauts and the assessee - formal irrevocable Power of Attorney is signed only on 9th March 2001 in favour of the assessee - The transactions in relation to TDR with M/s.SAVM Associates were concluded by Shri T.S. Raut vide agreement dated 29th April 2000 - The Power of Attorney was not in force at the time when the transaction in relation to TDR with M/s.SAVM Associates was concluded by Shri Raut - Power of Attorney and which is stated to be irrevocable is signed only on 9th March 2001. The reference is made by the Tribunal to the entries in the books of account - It is on that footing that a benefit of doubt is given to the assessee - the addition is deleted, merely because the addition is to the extent of Rs.5,61,34,260/-, that by itself and without anything more, will not raise a substantial question of law – the contention of Shri Gupta cannot be accepted that the addition should not have been deleted because the TDR remained in actual possession and control of the assessee - the disposed of as per the directions of the assessee is an attempt to re-appreciate and re-appraise the factual materials - Once the Tribunal has taken the date of the transaction of TDR and arrived at a factual conclusion that the Power of Attorney in favour of the assessee may be irrevocable but it is subsequent in point of time that the Appeal does not raise any substantial question of law for consideration – Decided against Revenue.

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• 2014 (5) TMI 198
  Provision in P&L account – Whether the liability has been crystilised or loss has accrued in the current year or not – Held that:- The assessee company is engaged in the purchase and sale of Government securities, public sector undertaking bonds, commercial papers and other money market instruments – the Tribunal was rightly was of the view that the guidelines issued by RBI in repo and reverse repo transaction requires uniform accounting of repo/reverse repo transactions, and that the company in question has followed those guidelines and accordingly debited the sum as a loss - It has been actually incurred, and finding that it has been actually incurred that the Department's stand in this case has been rejected - Beyond that the Tribunal or CIT(A) have not rendered any findings and which would have far-reaching consequences - All such findings and conclusions must be seen in the backdrop of peculiar facts and circumstances of the case of the assesee - No general principle or rule has been laid down – Decided against Revenue.

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• 2014 (5) TMI 197
  Power to extend the stay beyond 365 days – Effect of insertion of the proviso to section 254(2A) of the Act - Held that:- The Tribunal has failed to take note of the aspect and erroneously held that the Tribunal has power to extend stay of demand beyond the period of 365 days even after insertion of third proviso to sub-section (2A) of Section 254 of the Act - as such, there is no pronouncement in Commissioner of Income Tax versus Ronuk industries Limited [2010 (11) TMI 461 - Bombay High Court] and a statutory authority, which has been granted statutory power, can exercise such power within the four corners of the statute granting such power – the order of the Tribunal is set aside – Decided in favour of Revenue.

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• 2014 (5) TMI 196
  Warehousing rental charges - Nature of income – Income from business OR income from House property – Held that:- Following CIT v. Velankani Information Systems (P) Ltd. [2013 (8) TMI 113 - KARNATAKA HIGH COURT] - firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. Any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country – thus, the rental charges received by the assessee are assessable under the head income from business and not under home property - thus, no substantial questions of law arises for consideration – Decided against Revenue.

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• 2014 (5) TMI 195
  Deletion of disallowance of trade discount - associate concern of assessee – Held that:- The Tribunal was rightly of the view that the AO had not specifically mentioned the provisions of Section 40A(2)(b) of the Act - Relying upon CIT v. A. Raman & Company [1967 (7) TMI 2 - SUPREME Court ] - the trader was not obliged to make the maximum profit that he can make out of the trading transactions and avoidance of tax liability by so arranging the commercial affairs if the charge of tax is distributed and is not prohibited - A taxpayer may resort to a device to divert the income before it accrues or arises – By arranging the trading transactions, the assessee Company had arranged to give 2.5% discount to the sister concern - Such facility was also made available to others similarly situated subject to the same rate of tax and there appears no attempt of evading the tax - no substantial question of law arises for consideration – Decided against Revenue.

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• 2014 (5) TMI 194
  Allowability of claim of carry forward of unabsorbed depreciation – Contravention of the provisions of section 32(2)(iii)(b) of the Act – Held that:- Following GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX [2012 (8) TMI 714 - GUJARAT HIGH COURT] - carry forward of unabsorbed depreciation prior to assessment can be set off in subsequent years without setting time limit - the CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation – The amendment is applicable from assessment year 2002-03 and subsequent years - any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the amendment - current depreciation is deductible in the first place from the income of the business to which it relates. Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 - once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 up to the A.Y.2001-02 got carried forward to the AY 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever – Decided against Revenue.

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• 2014 (5) TMI 193
  Allowability of claim of investment allowance u/s 32A of the Act – Whether the preparation of food articles in a hotel may be treated as manufacturing of goods – Held that:- Following Commissioner of Income-Tax Versus Anand Theatres [2000 (5) TMI 4 - SUPREME Court] - a hotel cannot be held to be a plant - a hotel building remains a building even when constructed to a luxury specification and also a hospital building for infectious diseases which might require special lay-out and other features was not held to be a plant by observing that a purpose-built building is no more than the premises in which the business is conducted. For each and every business, trade or industry, a building is required to carry on such activity - the building plays some role and its function is to shelter the business, but it has no other function except in some rare cases such as dry dock where it plays an essential part in the operations which take place in getting a ship into the dock, holding it securely and then returning it to the river - the Tribunal has committed error in treating the hotel building as a plant – Decided in favour of Revenue.

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• 2014 (5) TMI 192
  Transaction charges paid to the stock exchanges - fees for technical services - TDS u/s 194J - Held that:- transaction charges paid by the assessee to the stock exchange constitute 'fees for technical services' covered u/s 194J of the Act – thus, the assessee was liable to deduct tax at source while crediting the transaction charges to the account of the stock exchange – Decided against Revenue. Following Commissioner of Income-tax - 4(3) Versus Kotak Securities Ltd. [2011 (10) TMI 24 - Bombay High Court], since both the revenue and the assessee were under the bonafide belief for nearly a decade that tax was not deductible at source on payment of transaction charges, no fault can be found with the assessee in not deducting the tax at source in the assessment year in question and consequently disallowance made by the assessing officer under Section 40(a)(ia) of the Act in respect of the transaction charges cannot be sustained.

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• 2014 (5) TMI 191
  Deletion made on account of commission income for arranging bogus bills - Estimation of commission income – Proper evidences not adduced – Rejection of book results – Section 145 not invoked – Held that:- The assessee was in the activity of arranging bogus bills for certain parties, and he has also admitted the fact - CIT(A) has given a finding that the assessee has introduced Shri Dharmendra Pandya, proprietor of Vishal Traders to various parties - the assessee was in the business of earning commission income and the assessee must have earned commission from M/s.Vishal Traders also – but, no incriminating material was found even after the conduct of the search operation at the premises of the assessee in the form of bills or bank account, or property documents or investment in movable and immovable properties, either on his own name or in the name of any his family members, and once the Department could not place any material on record, even after the completion of search operation, suggesting any movable or immovable assets of the assessee, then, the addition should be restricted – Decided against Revenue.

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• 2014 (5) TMI 190
  Addition made u/s 68 of the Act – Unexplained cash credits – Unsecured loan received – Held that:- The amount was received by the assessee as loan per account payee cheque from M/s.Kundan Traders (proprietor Shri Bipin) - creditor has confirmed the copies of the account for the relevant year as well as subsequent years - the interest amount was disclosed by the creditor in his P&L account, and was a part of the total income computed for the relevant AY 2007-08 and necessary evidences has been filed before the Tribunal - The identity of the creditor is not in dispute - the assessee has discharged its onus of proving the identity and creditworthiness of the creditor and the genuineness of the transaction of the loan to the assessee – Decided in favour of Assessee. Addition made without considering the proper and sufficient materials – Held that:- The addition on account of credit entry of M/s.Kundan Traders has been deleted – thus, no disallowance of interest to M/s.Kundan Traders could be made - the amount of credit entry of M/s.Manoj Textiles added in the earlier AY 2005-06 - the interest pertaining to M/s.Manoj Textile during the relevant year could not be disallowed – Decided in favour of Assessee.

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• 2014 (5) TMI 189
  Penalty u/s 271(1)(c) of the Act – Income declared and assessed are same u/s 115JB of the Act – Held that:- It is not fit case for levy of penalty u/s 271(1)(c) of the Act - Merely because originally the AO has computed the income of the assessee under the normal provisions of law, is not decisive of the issue - the order passed u/s 154 of the Act dated 16.6.2011, the AO has computed the income as per the book profit u/s 115JB of the Act - the MAT u/s 115JB was greater than the regular income, book profit was taken as deemed total income u/s 115JB of the Act - penalty u/s 271(1)(c) of the Act was not imposable on the assessee – Following CIT Vs. Nalwa Sons Investments Ltd. [2010 (8) TMI 40 - DELHI HIGH COURT] - the penalty levied u/s 271(1)(c) of the Act – Decided in favour of Assessee. Disallowance of transportation charges – Held that:- The Managing Director of the assessee-company has admitted that there was no movement of goods, and it has issued accommodation sales bills amounting to Rs. 30.69 crores during the year - the profit of Rs. 36.31 lakhs shown in the audited financial statement by the assessee for the relevant period and the same represents the actual sale of Rs. 28 crores and odd of goods effected by the assessee during the year – assessee could not show that any income on account of bogus claim of transportation charges was included in the figure by the assessee somewhere else in the financial accounts of the assessee – thus, the addition of transportation charges was rightly made by the CIT(A) – Decided against Assessee. Addition made as unsecured loan and interest payable – Held that:- Shri Mahendra Bhansali happens to be the Managing Director of the assessee-company and has confirmed the transaction of advancing money to the assessee - Shri Mahendra Bhansali is an existing Assessee, and has given his PAN and it is not the case of the Revenue that the amount of deposit with the assessee-Company was not reflected in the I.T. records of the creditor - no case of addition could be made out. The assessee has discharged its onus of proving the identity and creditworthiness of the creditor by filing confirmation of Shri Mahendra Bhansali who happens to be Managing Director of the assessee-company, and was an existing I.T.assessee and also given his PAN - no case of addition could be made out - Decided in favour of Assessee. Addition made as share application money – Held that:-The assessee could not prove the genuineness of the deposit of share application money by these five companies at Kalkotta - there is no material to justify the charge of premium on the shares despite the fact that the profit of the assessee-company was negligible - The department was able to establish the discrepancies – Following CIT Vs. N.R.Portfolio P. Ltd. [2012 (12) TMI 762 - DELHI HIGH COURT] - the addition of Rs. 97 lakhs of share application money is confirmed – Decided partly in favour of Assessee.

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• 2014 (5) TMI 188
  Deletion made u/s 68 of the Act – Cash credits - Materials brought by AO not appreciated – Held that:- The CIT(A)has given a clear cut finding that a sum was not deposited out of accumulated agriculture income of the father of the assessee - mere mentioning of wrong section while making addition is not decisive of the issue - there is no basis for the observation of the CIT(A) that the amount belonged to father of the assessee, and therefore, the AO should not have made any addition in the hands of the assessee - there is no material brought on record either by the Revenue or by the assessee to prove that the amount deposited in the joint bank account in fact belongs to which one of the joint account holder - there is no evidence in support of the case of the Revenue or the assessee, but on preponderance of probability, the issue could be decided as regard the quantum adding of the assessee is concerned - since the assessee has failed to prove the source of cash deposited of Rs.14,52,000/- in the joint bank account of three individuals, the addition to one-third of the cash deposit is restricted – Decided partly in favour of Revenue.

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• 2014 (5) TMI 187
  Deletion of deemed dividend u/s 2(22)(e) of the Act – Loans and advances – Held that:- The addition made by AO was deleted by CIT(A) - on the submissions that were made by Assessee before CIT(A), no remand report or comments from the AO was obtained by CIT(A) - the AO should be granted an opportunity to examine the submissions made by the Assessee before CIT(A) – thus, the matter is remitted back to the AO for fresh adjudication and to decide the issue in the light of the submissions made before CIT(A) and any other additional evidence – Decided in favour of Revenue.

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• 2014 (5) TMI 186
  Computation of book profit u/s 115JB of the Act – Held that:- Assessee showed bifurcation of brought forward losses and unabsorbed depreciation set off of losses and balance of depreciation/loss after setting off of profit for various years - the working of amount that can be set off for the purpose of Section 115JB was also showed - the break-up of depreciation and losses to be carry forward was also submitted – the statement submitted by Assessee needs to be examined from the records of assessment – thus, the matte is remitted back to the AO for fresh verification – Decided in favour of Assessee.

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• 2014 (5) TMI 185
  Addition of travelling expenses – Held that:- While disallowing the expenses, the AO had not doubted the expenditure nor pointed out any specific instance of personal expenses - CIT(A) has upheld the disallowance by noting that Assessee could not controvert the findings of AO and has held the part of the expenses to be personal in nature - each assessment year is a separate unit and the principle of res judicata is not applicable to income tax assessments - the disallowance is restricted to Rs 1 lac – Decided partly in favour of Assessee. Addition on account of late payment of PFC and ESIC – Employees contribution – Held that:- The Assessee had deposited employees contribution of ESIC and PF for various months after the due dates prescribed under the Act – Relying upon COMMISSIONER OF INCOME TAX II Versus GUJARAT STATE ROAD TRANSPORT CORPORATION [2014 (1) TMI 502 - GUJARAT HIGH COURT] - any sum with respect to the employees contribution as mentioned u/s 36(l)(va), assessee shall be entitled to the deduction of such sum towards the employees contribution if the same is deposited in the accounts of the concerned employees and in the concerned fund such as Provident Fund, ESI Contribution fund, etc provided the sum is credited by the assessee to the employees accounts in the relevant fund or funds on or before the "due date" under the Provident fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise - the amount of employees contribution towards PF and ESIC has been deposited beyond the due dates prescribed under the relevant Act – there is no need to interfere in the order of the CIT(A) – Decided against Assessee. Deletion of penalty u/s 271(1)(c) of the Act – Held that:- During the course of assessment proceedings disallowance of employees contribution was made on account of late payment of employees contribution of provident fund and ESIC - CIT(A) while deleting the penalty has noted that AO has not made out any case that the Assessee had concealed income or furnished inaccurate particulars of income – Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] - Revenue could not controvert the findings of CIT(A) – thus, there was no reason to interfere with the order of CIT(A) – Decided against Revenue.

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• 2014 (5) TMI 184
  Disallowance of deduction u/s 80IB(10) of the Act – Profits attributable to sale of unutilized FSI not allowed – Held that:- Following Commissioner of Income-tax Versus Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] assessee was entitled to the benefit u/s 80-IB (10) even where the title of the lands had not passed on to the assessee and in some cases, the development permissions may also have been obtained in the name of the original land owner - ownership of land is not a necessary condition for claiming the deduction u/s 80IB(10) - Assessee has acquired dominant control over the land, Assessee is responsible for incurring all the expenses and taking all the risks involved - Assessee is not a contractor - Revenue could not controvert the findings of CIT(A) –Decided in favour of Assessee.

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• Customs

• 2014 (5) TMI 206
  Levy of Duty - Re-import of 4-Amino-6 (Tri chloroethyl)-1, Benzene Di-sulphonamide - Notification of Duty free - Mis-declaration – Held that:- It is unable to agree with the contention of the Revenue that there was mis-declaration in the description - The chemical name of the drug was correctly written - It is just that the generic name was not mentioned, so this can be at the most a case of not writing the complete description - In fact, on the basis of the same description at the time of import, the Customs officials on their own sent the sample for clearance from the Assistant Drug Controller - In view of this position, there is no misdeclaration in the description of the goods. Prohibition relating to import - Held that:- There is no prohibition under the Import Policy for the import of the said item is allowed to be imported freely - Letter of the Assistant Drug Controller, dated 27.7.2009, is based upon the assumption that the goods have been manufactured by the respondents - The fact is that the respondents have acted only as a trader in respect of the said goods and the goods were procured from another manufacturer as described earlier - The goods had come under ARE-1 – Therefore, It cannot be said that the goods have been manufactured without proper licence. Offence of manufacturer u/s 18(c) punishable u/s 27(ii) of the Drugs and Cosmetics Act, 1940 – Held that:- Assistant Drug Controller's letter is based on the assumption that the goods have been manufactured by the respondents, which is not the case - Secondly, even if the manufacturer has committed an offence u/s 18(c) which is punishable u/s 27(ii) of the Drugs and Cosmetics Act, 1940, this would not imply that the goods imported are prohibited goods and are, therefore, imported in violation of Section 111(d) - In view of the above position, no infirmity in the impugned order – Decided against Revenue.

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• 2014 (5) TMI 205
  Waiver of Pre-deposit – Import of HSD - Payment of appropriate duty on the value arrived by Administered Price Mechanism (APM) - Collection of excess amount above the Customs duty - Held that:- Judgment in Indian Oil Corporation Ltd. vs. Commissioner of Customs, Kandla – [2008 (4) TMI 93 – CESTAT, AHMEDABAD] followed - The judgement cited by the Ld. Special Counsel apparently not applicable to the facts of the present case as the same is relating to the imported goods Naptha, which was undisputedly not covered under APM, at the relevant time - Following the precedent decisions, the Applicants have been able to make out a prime facie case for total waiver of pre-deposit dues adjudged - Accordingly all dues adjudged, is waived and recovery stayed during pendency of the Appeal - Stay Petitions allowed – Decided in favour of assesse.

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• 2014 (5) TMI 204
  Refund claim of SAD - Condition of Notification - Whether to avail the benefit of Notification no. 102/07, the condition 2(b) of the Notification is mandatory for compliance being a trader who cleared the goods on the strength of commercial invoices - Held that:- As there are two contrary decisions of this Tribunal i.e. Equinox Solution Ltd. Versus Commissioner of Customs (Import), Mumbai [2010 (12) TMI 74 - CESTAT, MUMBAI] & Astra Zeneca Pharma India Ltd. vs. CCE, New Delhi [2013 (11) TMI 1474 - CESTAT NEW DELHI] - It would be appropriate to refer the matter to the Larger Bench of this Tribunal to resolve the issue - Registry is directed to place the matter before the Hon'ble President to constitute a Larger Bench to resolve the issue.

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• 2014 (5) TMI 203
  Includility of Royalty paid in assessable value of goods imported - Determination of duty Liability - Collaboration agreement and consultancy service agreement – No condition of sale - Nexus of Payment either with import of goods or with value of imported goods – Rule 10(1)(e) of Valuation Rules, 2007 - Held that:- Not a single clause in collaboration agreement dated 01/07/2004 and consultancy service agreement dated 01/01/2009, is found which compels assessee to procure the raw material from the foreign licensor or the group companies - There is no condition of sale incorporated in these agreements - Secondly, the royalty is computed excluding the cost of imported materials - Royalty is based on the indigenous value addition, which clearly shows that the payments made by assessee for the collaboration and the consultancy service have nothing to do with the imports undertaken by assessee - Assessee is importing only a small portion of its raw material requirements and even if he does not import any material, the royalty payments would be higher as assessee has to compute the royalty on the net sale value minus cost of imported raw materials -Thus, the payments made by the appellant has no nexus or relationship either with the import of goods or with the value of imported goods - Therefore, the conclusion drawn by the lower appellate authority is completely misconceived and has no basis whatsoever. Explanation in Rule 10(1)(e) is meant for different purpose altogether - The said explanation applies to goods imported which require further processing before being put to use - It is in that context the payments, if any, made for such processing is deemed as a condition of sale and includable in the value of the goods imported - That has nothing to do with the manufacturing processes undertaken subsequent to the importation and sale in India - Relying upon SGL Carbon India Pvt. Ltd. vs. Commissioner of Customs (Imports), Mumbai [2013 (11) TMI 885 - CESTAT MUMBAI] and Maruti Udyog Ltd. vs. Commissioner of Customs, Mumbai [2013 (12) TMI 90 - CESTAT MUMBAI] - If there is no nexus between the goods imported and the royalty payments made and if such payments are not a condition of sale, then royalty payments cannot be included in the assessable value of the goods imported - The royalty payments made to foreign collaborator or the consultancy service charges paid are not addable to the value of the goods imported by assessee from the foreign collaborator or the group entities - Therefore, impugned order passed by the lower appellate authority is set aside and order passed by AO dated 16/08/2011 is restored – Decided in favour of assesse.

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• 2014 (5) TMI 202
  Value of the cut rebilite and cut emerald – No Evidence of import of sample goods - Can the price of cut rubilite and cut emerald be less than the price of the rough rubilite stone - Held that:- Department has got the value of cut & polished rebilite and cut & polished emeralds ascertained by a Panel of Gems experts - The opinion of the experts panel which has been relied upon by the Department does not mention the quality - It is not known as to whether the rough of rubilite whose declared value is US$ 25 per carat, is of superior grade/quality than the cut & polished rubilite & emeralds - Moreover, there is no evidence of contemporaneous import of identical or similar goods i.e. cut & polished rubilite and emeralds of the same quality in comparable quantity at the prices which are sought to be adopted by the department - There is no justification for rejecting the declaration transaction value and as such there is no infirmity in the impugned order – Decided against Revenue.

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• 2014 (5) TMI 201
  Seizure of betel nuts - Identification of Betel nut - Expert opinion - Levy of Penalty - Held That:- The said expert person, gave his opinion about the foreign origin of the goods on the basis of visual examination of the betel nuts - However, no final opinion as regards the country of origin has been given by him - Relying upon Dinanath Maurya vs. CC Lucknow [2000 (11) TMI 580 - CEGAT, KOLKATA] - Tribunal has observed that opinion of a local shopkeeper cannot be held to be an expert opinion and does not prove the foreign origin of the goods, beyond doubt - The Revenue in the present case apart from relying upon so called expert opinion as regards the foreign origin of the goods have not produced any evidence to establish the smuggled nature of the goods - It is not the case of the Revenue that betel nuts of foreign origin are not legally imported into India and the same are not available in the open market - As such, in the absence of any evidence to show that betel nuts in question were actually smuggled, the confiscation of the same cannot be upheld. Act of Cheating - Fake documents – Unverified documents - Non-maintenace of accounts - Held That:- Assessees have produced the Challan form ‘M’ issued by Assam State Agriculture Marketing Board showing the purchase of betel nuts in question - Merely because the two different consignments of betel nut were purchased on two different dates, prior to the transportation of the same will not make such documents as fake - No verification of the said documents have been made by the department from the Assam State Agriculture Marketing Board - Betel nuts do not carry any identification marks so as to relate the consignment to be document produced by the appellants - As such, in the absence of any inquiry made by the Revenue from the issuing authority, Assam State Agriculture Marketing Board, rejection of the same on the sole ground that appellants have not maintained any accounts and held the said documents to be fake, is not proper on the part of the Commissioner (Appeals) – Thus, the impugned order are set aside – Decided in favour of assessee.

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• Service Tax

• 2014 (5) TMI 218
  Denial of CENVAT credit on stockbroker's service - 'Input service under Rule 2(l) of CCR, 2004 - stockbroker's service used for the purpose of disposal of the shares held in another company – Held that:- on a perusal of even the main objects and objects incidental or ancillary to the attainment of main objects of the appellant, it is not that the assessee is carrying only the main objects and not the incidental objects as in sub-para 8 of Part B. But the question whether the incidental object of investing and dealing in shares would in any way relate to and form part of the main business of the assessee has been answered by the authorities in the negative. The fact remains the incidental business which finds mention in para-8 is not being actually carried on and a categorical finding is given by all the authorities in that regard. Therefore, we are of the opinion that the claim for input service credit is not against any liability arising out of the business activity of the assessee and not relatable to the business activity of the assessee and therefore, we find that there is no scope for interfering with the order of the Tribunal - Decided against assessee.

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• 2014 (5) TMI 217
  Maintainability of appeal and stay order passed by the commissioner (Appeals) - Order passed u/s 85 - Appeal u/s 86 - Held that:- From an interactive analyses of the provisions of Sections 83 and 85 of the 1994 Act read with the proviso to Section 35 F of the 1994 Act, the conclusion is compelling that pre – deposit of the entire adjudicated liability including tax / duty, interest and penalty (if any) is normally the sine qua non for triggering the authority of the appellate Commissioner to hear an appeal, whether under provisions of 1944 Act or the 1994 Act. Where discretion is exercised by such appellate authority under the proviso to Section 35F and waiver either wholly or partly is granted, of the pre – deposit requirement, appellate Commissioner gets jurisdiction to hear the appeal thereafter and on compliance by an appellant of the pre – deposit if any is ordered by the appellate Commissioner by an order passed under the first proviso to Section 35 F A pre – deposit (unless wholly waived) either in terms of Section 35 F open compliance with the orders passed under the first proviso to Section 35 F, is a condition precedent to the exercise of the substantive appellate jurisdiction of the Commissioner (Appeals), to adjudicate upon the appeal or an interlocutory proceeding therein such as grant of stay. An order of the appellate Commissioner under Section 35F of the 1944 Act read with Section 83 of the 1994 Act is not a proceeding strict senso under Section 85 of the 1994 Act. It is in the nature of preliminary step leading to the substantive adjudication process, dealing only with the issue of pre – deposit and an application for waiver thereof. On the aforesaid premise, the impugned order of the appellate Commissioner passed under the proviso to Section 35 F of the 1944 Act, directing the appellant to deposit 50% of the adjudicated tax liability (excluding the interest and penalty component) cannot be considered to be an order passed under Section 85 of the 1994 Act. Therefore no appeal to this Tribunal is maintainable under Section 86 of the said Act - Decided against assessee.

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• 2014 (5) TMI 216
  Denial of refund claim - CENVAT Credit - Held that:- Primafacie, this is a case where Revenue wants to deny refund of input taxes for services exported relying for non compliance with procedural provisions, the requirement of which is doubtful for exporters. No case of substantial risk to Revenue is brought out. On this matter already there is a decision of the Karnataka High Court in favour of the respondent. In such situation, I am of the view that prayer for staying the order cannot be granted - Stay denied.

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• 2014 (5) TMI 215
  CENVAT Credit - whether the Cenvat credit can be availed by the appellants in respect of inputs service credit distributed by the Estate Department of the Bank when that Department was not registered as input service distributor - Held that:- We have examined requirement of Rule 9 of Cenvat Credit Rules, 2004 which requires that satisfaction of the Department is to be recorded on the materials produced before it. The documents that need verification under the Rule is that respective challans, invoice or bills issued by the input service distributor under Rule 4A of the Service Tax Rules, 1994 - Cenvat credit claimed is not deniable. But particulars of registration did not appear in the input distribution evidence relied upon by appellant. If an assessee is registered and documents, which are not known to law are produced or such documents become questionable under law, that shall not ipso facto grant right to the claimant to get Cenvat credit even if that contains a registration number. Therefore, while registration is one of the requirement for verification, the documents, which are led in support of the claim, are equally primary to be considered in all material particulars to consider admissibility of Cenvat credit. - In the fitness of the circumstances, considering that subsequent adjudication proceedings were dropped in the case of same appellant, there is nothing to doubt conduct of the appellant as to its existence and issuance of relevant genuine documents relied upon by the appellant. - Decided in favour of assessee.

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• 2014 (5) TMI 214
  CENVAT Credit - construction service and housekeeping service - Nexus with manufacturing activity - Held that:- Prima facie, the argument that renovation of factory has no nexus with the final product is not acceptable especially in view of the fact that such service is included in the definition of “input services” given in Cenvat Credit Rules. The word ‘maintenance’ is not specially mentioned in the definition of “input services” but prima facie maintenance of a factory is required for carrying on manufacturing operation without interruption. Therefore, prima facie, there is nexus between the housekeeping service and the final products. Thus the Appellants have made a prima facie case in their favour. So, I consider it proper to grant waiver of pre-deposit of dues arising from the impugned order. Such waiver is granted. There shall be stay on collection of such amounts during pendency of the Appeal. - Stay granted.

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• 2014 (5) TMI 213
  CENVAT Credit - erection, installation & commissioning, repair & maintenance and insurance - production of fly ash - Held that:- There is no dispute that the services, in question, had been availed in respect of a plant for extraction and handling of fly ash at the premises of M/s. NTPC. The fly ash arises in the course of burning of coal for generation of electricity and as such, it cannot be said that the appellant had produced or manufactured the fly ash. Prima facie, the plant set-up by the appellant at the premises of M/s. NTPC appears to be for extraction & handling of the fly ash. Since fly ash is one of the raw materials used for manufacture of cement, I am of the view that the services availed for fabrication, erection & installation & repair and maintenance and insurance in respect of fly ash plant at the premises of NTPC, have to be treated as the services availed for procurement of inputs. The Department’s case is based on the allegation that the appellant have manufactured fly ash, an exempted final product, which prima facie does not appear to be correct. In view of this, the requirement of pre-deposit of Cenvat credit demand, interest and penalty is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal - Stay granted.

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• Central Excise

• 2014 (5) TMI 208
  Duty demand - Clandestine removal of goods - Held that:- it is case of clandestine removal of the goods and during the investigation, the records have been seized and on the basis of those documents, impugned demands have been confirmed. Therefore, prima facie we are of the view that it is a case of clandestine removal of the goods and matter cannot be examined in detail while dealing with the stay application. Therefore, considering the fact that the applicants have paid a sum of Rs. 15 lakhs during investigation out of total demand of Rs. 1,00,02,843/- we direct the applicants to make a further deposit of Rs. 30 Lakhs at this stage within a period of eight weeks. On such compliance being reported balance amount of duty, interest and penalties shall stand waived and recovery thereof stayed during pendency of the appeals - Conditional stay granted.

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• 2014 (5) TMI 207
  Waiver of pre deposit - Duty demand - Under valuation of goods - Bar of limitation - Held that:- applicants cleared the goods at the higher value from the depot than the value at which duty has been paid at the factory gate. In applicants own case where the demand is confirmed on the same ground the Tribunal directed the applicant to deposit 50% for hearing of the appeal. In view of the earlier stay order, and keeping in view of the facts and circumstances of the case, the applicant is directed to deposit an amount of Rs.8,00,000 within six weeks in addition to the amount already deposited for hearing of the appeal - Matter remanded back - Decided partly in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (5) TMI 212
  Eligibility for sales tax exemption - Maintainability of JCC Tax(A) dismissal order u/s 12-D of the Karnataka Sales Tax Act, 1957 – Can the assessee without questioning the assessment order file application for cancellation order u/s 12-D – Whether Tribunal was justified in dismissing STA No.1129/2003 and ST Rectification Application No.06/2011 u/s 22 (6A) as not maintainable u/s 22 - Held that:- u/s 12-D(3) r/w Section 20 bars filing of appeal – Assessee was not required to prefer appeal against the order dated 2.5.2001 – therefore the appeal rejected as not maintainable by order dated 28.12.2002. U/s 22(1) an appeal to the Appellate Tribunal objecting to an order u/s. 12-D or by the DC or the JC u/s. 20 or 21 within 60 days – u/s 22(2) Appellate Tribunal can admit an appeal preferred after 60 days to 180 days if it is satisfied that the appellant had sufficient cause – Admittedly assessee did not question the order dated 02.05.2001 Annexure-C rejecting the application u/s. 12-D within the time stipulated u/s 22(1) &(2) before Tribunal - STA No.1129/2003 filed by the petitioner calling in question the order dated 02.05.2001, Annexure-C passed u/s. 12-D and the order dated 28.12.2002 filed u/s. 20 before the JCC Taxes(A) was not maintainable appeal u/s 22 - Thus appeal filed u/s 20 was rejected as not maintainable by the JC(A) – Decided against assessee.

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• 2014 (5) TMI 211
  Revision against dismissal of Second Appeal by Tribunal - Levy of penalty u/s Section 10(b) of the Central Sales Tax Act,1956 - Whether mens rea is essential part for levy of penalty - Held That:- Judgment in The State of Tamilnadu rep. by the Deputy Commissioner of Commercial Taxes Versus Nu Tread Tyres [2006 (7) TMI 578 - MADRAS HIGH COURT] followed - Section 10(b) of the Act provides for an offence if any person being registered dealer falsely represents when purchasing any class of goods that goods of such class are covered by his Certificate of Registration - The expression "falsely represents" clearly shows that the element of mens rea is the necessary component of the offence - In the absence of mens rea, resort to penal provision would not be proper unless it is established that the conduct of the dealer was contumacious or that there was deliberate violation of the statutory provision or wilful disregard thereof - If the registered dealer honestly believes that any particular goods are embraced by the Certificate of Registration and on that belief makes a representation, he cannot be held guilty of the offence under Section 10(b) of the Act and no penalty can be imposed under Section 10-A of the Act - The question whether the assessee acted under the honest belief is a question of fact - Thus, "mens rea" is an essential ingredient for the levy of penalty under Section 10(b). In dealing with the question of levy of penalty u/s 10(b) is one has to necessarily keep in mind the nature of the business of the assessee -The nature of the business would not justify the purchase of diesel generator sets as forming part of the machinery to be used in the manufacture - Admittedly, the purchase of the generator set was only a standby to supply electricity whenever there was power failure - The assessee pointed out, in its reply that they were in the first year of business and they had commenced operations in India for the first time in the year 2002 and they had no previous knowledge of tax laws in India and there were none in their pay rolls to advise them on tax matters and they placed reliance on purchase department in-charge, who was an engineering graduate, hence, their bona fides could not be doubted - as against the penalty levied at 150%, the same could be reduced to 50% of the tax due - Confirming the levy of penalty imposed by the AO, the same is reduced to 50% of the tax due - The order of the Tribunal is set aside – Decided partly in favour of assessee.

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• 2014 (5) TMI 210
  Taxable turnover – Whether the expenses incurred in commissioning imported machinery by a dealer for its customer form part of the cost of machinery in order to attract tax liability under Tamil Nadu General Sales Tax Act, 1959 – Expenses of Commissioning import of machinery - Held that:- This court failed to understand how this aspect of rendering of technical assistance would form part of the agreement of purchase of the machinery - So long as the payment made had nothing to do with the transfer of property in any goods, and that the payment made was not on sale of any goods, payment on labour charges has always been held as outside the purview of the Act for the purpose of taxing it. However, where the consideration paid in an indivisible contract could not be apportioned and the cost of materials and labour charges and the divisibility was not possible, the courts took the view that such an indivisible contract would not be brought to tax, but where indivisible contract had divisibility in it, the payment made could be ascertained as one falling for labour charges and other for the goods, the jurisdiction to assess the sale provision was always there - 46th amendment made it possible for the State to treat the indivisible contract as a deemed sale and that by legal fiction, the turnover relating to labour was separated for the purpose of assessment of the purchase in goods - Even under the amended provision, labour would never form part of the turnover for the purpose of assessment - Since the payments were made only for technical services and to meet the expenditure of travel and stay, Tribunal order is confirmed - Consequently, Tax Revision is rejected – Decided against Revenue.

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• 2014 (5) TMI 209
  Nature of Sale – Inter-state sales or local sales – Held that:- Judgment in CCT, Bihar Vs. Bhag Singh Milkha Singh [1973 (5) TMI 94 - PATNA HIGH COURT] followed – The obligation to take goods outside the State may be either an express covenant or an implied one under the contract by a mutual understanding and it is not necessary that in all cases, there must be direct evidence showing certain obligations - The obligation could be inferred from circumstantial evidence also - Relying upon Oil India Ltd. v. Superintendent of Taxes [1975 (3) TMI 96 - SUPREME COURT OF INDIA] it was held that for a transaction, to be an inter-State sale, there must be a movement of goods occasioned by the said sale from one State to another - No matter in which State the property in the goods passes, the movement of goods occasioned by the sale from one State to another would make a sale as one in the nature of inter-State sale - It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement and it is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State must be specified in the contract itself - The decision was applied in Union of India Vs. Khosla amounted to an inter-State sale or purchase and it is not necessary that the contract of sale has to expressly provide for the movement of goods; it was sufficient that the movement of goods is implicit in the sale - Therefore, the criteria for considering the transaction as an inter-State sale or not, is the movement of goods intimately connected with the sale - The fact that the purchaser had borne the insurance charges or the seller had borne the insurance charges or that the purchaser had moved the goods at their own cost would not be a decisive factor for the purpose of determining the nature of sale as inter-State sale or not - The Tribunal and the other authorities had misdirected themselves in placing emphasis on the transport and insurance made by the purchaser as indicators of the sale being a local sale - Order of the Tribunal Set aside – Revision allowed – Decided in favour of assessee.

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