Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
May 9, 2012
Case Laws in this Newsletter:
Income Tax
Corporate Laws
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Reopening assessment - notice u/s 148 - petitioner contested that he is a non-resident and had no income chargeable to tax in India other than what was declared - HC
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Interest free loan to wholly owned subsidiary - Decision in the case of S. A. Builders Ltd. v. CIT (Appeals) [2006 - TMI - 3364 - SUPREME COURT] needs reconsideration. - SC
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Punitive charges paid to Railways for overloading of the wagons is compensatory in nature, therefore, the same cannot be disallowed by invoking the provisions of Explanation to section 37(1) - AT
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Applicability of section 43B on payment of service tax - Non-inclusion of service tax in gross receipts – AT
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Interest received on the award is an "income from other sources", or an "income from business" - HC
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Whether the Income-tax Appellate Tribunal was justified in denying exemption under section 11 of the Income-tax Act for violation of section 13(1)(d) - HC
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Determination of date of commencement of business - The main issue is with reference to allowance of expenditure claimed by the assessee, disallowed by the Assessing Officer on the reason that the assessee has not commenced the business in the year under consideration - AT
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Real estate agent / booking agent - Difference between commission as per TDS certificate and commission as shown in the profit and loss account. - AT
Customs
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Enforcement of Intellectual Property Rights on imported goods - Clarification on the issue of parallel imports – regarding. - Cir. No. 13/2012-Customs Dated: May 8, 2012
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Classification – Cargo ship is specifically classified under Heading 8901 irrespective of the extent or degree of its navigability. - AT
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Refund – doctrine of unjust enrichment would not apply to fine and penalty - AT
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Where there are two exemption notifications that cover the goods in question, the assessee is entitled to the benefit of that exemption notification which gives him greater relief - AT
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Import - exemption - Whether it was necessary for the Appellant to produce the certificates at the time of filing of the Bill of Entry or whether it was sufficient if the - AT
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Seeks to levy anti-dumping duty on imports of Viscose Filament Yarn, originating in, or exported from, China PR for a further period of five years. - Ntf. No. 23 /2012-Customs (ADD) Dated: May 4, 2012
DGFT
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Amendment in paragraph 6.9 of FTP. - Ntf. No. 115 (RE-2010) /2009-2014 Dated: May 7, 2012
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Indo – China Border Trade. - Cir. No. 110/2009-2014 (RE-2010) Dated: May 7, 2012
FEMA
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Foreign Direct Investment (FDI) in India - Issue of equity shares under the FDI scheme allowed under the Government route. - Cir. No. 120 Dated: May 8, 2012
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Foreign investment in Commodity Exchanges and NBFC Sector - Amendment to the Foreign Direct Investment (FDI) Scheme. - Cir. No. 121 Dated: May 8, 2012
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Transfer of Funds from Non-Resident Ordinary (NRO) account to Non- Resident External (NRE) Account. - Cir. No. 117 Dated: May 7, 2012
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Release of Foreign Exchange for Miscellaneous Remittances. - Cir. No. 118 Dated: May 7, 2012
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External Commercial Borrowings (ECB) Policy - Utilization of ECB proceeds for Rupee expenditure. - Cir. No. 119 Dated: May 7, 2012
Corporate Law
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Liability of authorized signatory of a company to be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused - SC
Indian Laws
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Amendments proposed in Finance Bill, 2012 - Opening Remarks made by the Finance Minister Shri Pranab Mukherjee at the beginning of the Discussion on Finance Bill 2012.
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Validity of Section 31-A of the NDPS Act - mandatory death penalty for drug offences - violative of Articles 14 and 21 of the Constitution of India or not - HC
Wealth-tax
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Sanction for initiation of criminal proceedings - the implementation of the Tax Legislation should be tax payers friendly and at the same time the tax evaders should not be spared. Had the sanctioning authority approached the case, keeping the same in his mind, the sanctioning authority would not have granted sanction for prosecuting the petitioner under section 35-B of the Act. - HC
Service Tax
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Clarification on Rate of Tax - regarding. - Cir. No. 158/9/ 2012 – ST Dated: May 8, 2012
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Supply and installation of storage tanks, vaporizing coils, and plant & machinery for generation of gases - prima facie, activity became taxable w.e.f. 1.4.2008 under supply of "Tangible Goods Service" as defined under section 65 (105)(zzzzj). - AT
Central Excise
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The rebate of duty paid as CVD on the Imported inputs utilized in the manufacture/processing of exported goods is admissible under Rule 18 of the Central Excise Rules, 2002 - HC
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Conversion of M.S. round bars into bright bars through an activity of pickling, cutting, drawing and polishing does not amount to manufacture. - AT
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Whether appellants are entitled to take cenvat credit on the strength of invoices where the goods described as C.R. Sheets instead of H.R. sheets or not - held yes - AT
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Whether unmachined steel castings and rough HRCS castings used for replacement of damaged parts of the cement plant and machinery are eligible for Cenvat credit - held yes - AT
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MRP - Demand of duty - All the MRPs are indicated on the same package although for different regions.- duty - duty to be paid on highest of MRP - Tri.
Case Laws:
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Income Tax
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2012 (5) TMI 100
Withdrawal of registration granted u/s 12AA – Held that:- Objectives of the institution does not fall under the provisions of section 2(15) and therefore, the assessee was entitled to registration u/s 12AA of the Act - CIT was not correct in withdrawing registration already granted by the order of the Tribunal to the Institution - if in any year, the gross receipts of the Institution exceeds Rs. 10 lakhs or Rs. 25 lakhs then in that year, the AO is empowered to examine the allowability of exemption u/s 11 but the same has no effect on granting the registration u/s 12AA of the Act – amended provisions of section 2(15) of the Act does not fall within the permissible limit of section 12AA(3)- in favour of assessee.
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2012 (5) TMI 99
Reopening assessment - petitioner contested that he is a non-resident and had no income chargeable to tax in India other than what was declared - Held that:- No merit in the writ petition - the affidavit filed by department affirmed that he had initiated proceedings for reassessment on the basis of precise information received from the Enforcement Directorate - the petitioner had undisputedly rendered services in connection for the oil under the “Oil for Food Programme” - Clause (i) of sub-section (1) of Section 9 says that all income accruing or arising, whether directly or indirectly, through or from any business connection in India shall be deemed to accrue or arise in India - several documents found by the Enforcement Directorate in the premises of Hamdaan Exports were found to have been addressed to the petitioner which indicated that the petitioner was present in India - the money had come into the bank account of Indrus evidencing to show that certain communications had been addressed to the petitioner in India, the Indian fax number of the petitioner was given in some of the letters addressed to the petitioner which indicated his presence in India – against assessee.
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2012 (5) TMI 98
Addition made for unexplained investment – Clubbing of income - Held that:- AO rejected the submitted copies of all ledger accounts from the books of husband of the assessee indicating proof of source of income in the mutual funds on the ground on doubt and suspicions - once the source of investment is explained, the capital arising thereof is taxable in the hands of the husband of the assessee and not in the hands of the assessee – in favour of assessee.
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2012 (5) TMI 97
Interest free loan to wholly owned subsidiary - Decision in the case of S. A. Builders Ltd. v. CIT (Appeals) [2006 - TMI - 3364 - SUPREME COURT] needs reconsideration.
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2012 (5) TMI 96
Treating short term capital gains in shares as Business income applying maximum marginal rate instead of concessional rate of tax of 10% as per Sec. 111A – Held that:- Where the period of holding is more than six months, the transaction will be in the nature of capital gains and where it is less than six months,it will be in the nature of business - CIT (A) treated the short term capital gains in relation to shares held by the assessee more than six months and the shares held for less than six months have been treated as business income treated not in accordance with the provisions of law - merely because the shares are sold within the short span of one to two months would not change the character of capital gains to the business income - in favour of assessee Assessing short term capital loss on transactions in commodities as Business loss on the basis of nature, volume scale and frequency of transaction – Held that:- AO has not brought any material on record to show that the shares were not held by the assessee as investment - ground in respect of delivery based share transactions, investment and capital loss in respect of commodity transactions on delivery basis both are to be held on account of short term capital gain income and short term capital loss respectively – in favour of assessee. Verify whether the interest paid amounting is compensatory or penal in nature which is not in accordance with the provisions of Section 25(1) – Held that:- Since income to be capital in nature, the direction of ld. CIT(Appeals) about verifying the payment of interest to Indiabulls Financial Services Ltd. becomes infructuous - against revenue.
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2012 (5) TMI 95
Quashing/setting aside the re-assessment proceedings on the ground that the original re-assessment proceedings had abated – Held that:- The tribunal aside the original proceedings on the technical ground and the AO thereafter had recorded fresh reasons and issued notice under Section 147/148 of the Act - the reasons to believe now recorded have to stand independently and separate from the reasons to believe, which were recorded earlier before initiation of the re-assessment proceedings, which abated – thus the said reasons to believe and issue of notice cannot be faulted and rejected on the ground that in the earlier/original assessment or re-assessment proceedings, notice under Section 143(2) was not served on the assessee within the statutory time/period - a valid ground to quash the first/original assessment/re-assessment order cannot be a ground to quash the re-assessment proceedings, which have been initiated afresh after recording reasons to believe – against assessee.
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2012 (5) TMI 94
Gains/income from sale and purchase of securities – ITAT held to be assessable under the head “capital gains” and not under the head “income from business” – Held that:- CBDT in the Circular No.4/2007 dated 15th June, 2007 has elucidated and explained the tests which are to be applied to find out when income from transactions in shares/securities should be treated as “income from business” or the gain which has to be taxed under the head “capital gains” - it is apparent that the tribunal did not examine the said relevant aspects and aceepted the explanation of the assesee that there was no difference in tax rate - an order of remit to the tribunal to examine the issue holistically keeping in mind the parameters/tests - in favour of the Revenue. Deleting disallowance made by the AO under Section 14A – Held that:- An order of remit passed as Rule 8D of the Income Tax Rules, 1962 is not retrospective, but both the direct and indirect expenses in relation to exempt income have to be disallowed under Section 14A - it has been held that no direct or indirect expenditure whatsoever were incurred in relation to tax free income, but there is no finding to the said effect - merely, because the AO was wrong in making disallowance on ad hoc basis, cannot be a ground to hold that no amount whatsoever was relatable directly or indirectly to the earning of the tax free income - in favour of the revenue.
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2012 (5) TMI 93
Rejection of the application for grant of approval under section 80G(5)(vi)– Held that:- Prior to amendment to section 80G(5)(vi)of the Act, there was a proviso which provide time limit for the approval - the approval granted on 13.8.2007 under section 80G(5)(vi) of the Act to the assessee was valid up to 31.3.2010 and the moment, the amendment to section 80G(5)(vi) has been effected, the approval available to the assessee under sec. 80G(5)(vi) of the Act would be deemed to have been intact and the assessee was not supposed to file the application for renewal - The learned Director of Income-tax (Exemption) indirectly by rejecting the application of the assessee on merit cannot withdraw the approval which is automatically renewed by virtue of Finance Act, 2009 – in favour of assessee.
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2012 (5) TMI 90
Applicability of section 43B on payment of service tax - Non-inclusion of service tax in gross receipts – Held that:- As per the Service Tax Law, Service Tax is payable only when the payment/fees for underlying service provided are realized - as the appellant firm has not received the sum till the end of the financial year i.e. 2006-07 question of paying the same did not arise at all - Since the liability to pay service tax does not exist in the present case, the service tax cannot be said to be "payable" and therefore provisions of Sec.43-B of the Act could not also be invoked – in favour of assessee. Dis -allowing the insurance premium to the extent half out of an entire premium amount paid on the life of the partners – Held that:- The maturity proceeds of the Key Man Insurance Policy is taxable and premium paid on such policies is deductible - the CBDT Circular No. 762 dated February 18, 1998 has confirmed it - It is not necessary that a key man insurance policy should be only in the name of the employees and not partners - Sec. 10(1OD) recognize the existence of other types of relationship apart from employer-employee relationship for claiming deduction on account of premium paid on Keyman Insurance Policy as business expenditure - in favour of assessee.
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2012 (5) TMI 89
Gains from sale and purchase of securities should be treated as business income or capital gains - the assessee is an salaried employee had also made purchases and sold securities maintaining two separate portfolios i.e. investment portfolio and trading portfolio – Held that:- Quantum or total number shares/transactions subject matter of short term capital gains is substantial but the transactions in question are only seven in number and the period of holding cannot be treated as insignificant and small - period of holding may indicate intention to make investment - substantial dividend income of more than Rs.19 lakhs and Rs.27 lakhs in the assessment year 2005-06 and 2006-07 can happen even in case of investment portfolio because when investment is liquidated to earn gains and change their portfolio - no mention whether the assessee had indulged in frequent transactions in the previous period or subsequently - Merely because the assessee had sold the said shares in the relevant year and made substantial gains and could not show basically the objective for acquiring the shares was not as an investor but as a trade - in favour of the assessee.
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2012 (5) TMI 88
ITAT held that Order u/s 201(1) & 201(IA) passed by the A.O. beyond four years was time barred – Held that:- Not to disturb the time limit of four years prescribed by the Tribunal and in view of terms of the decision in STATE OF PUNJAB Versus BHATINDA DISTRICT CO-OP. MILK P. UNION LTD. [2007 -TMI - 48068 - SUPREME COURT OF INDIA] action must be initiated by the competent authority under the Income-tax Act, where no limitation is prescribed as in section 201 of the Act within that period of four years - action of the Revenue cannot be said to be within the period of limitation prescribed under the Act – against revenue.
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2012 (5) TMI 87
Claim to deduction under Section 80P(2)(a)(i) on interest earned on deposits made out of the non-SLR funds , especially since the income so earned cannot be said to be earned from the normal banking business/activities – Held that:- Decided by the Division Bench of this Court in Commissioner of Income Tax vs. M/s H.P. State Cooperative Bank Ltd (2009 - TMI - 201840 - HIMACHAL PRADESH HIGH COURT) held that interest on the deposits made by the Bank is directly attributable to the business of the banking - Deduction allowed – against revenue.
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2012 (5) TMI 86
Expenses booked on accrual basis and receipts on actual receipt basis and not account for work-in - progress in the closing stock – Held that:- Assessee has followed mercantile system of accountancy in regard to the expenditure incurred during the year and results were declared on actual receipt - this method is constantly followed by the assesse since last so many years - addition of the amount received in the next year in the month of April should not have been added in the previous year merely on the basis of bills issued and expenditure shown in the assessment year - in favour of the assessee. ITAT deleted the addition made by the AO on account of investment made by the three partners with the assess firm – Held that:- The three partners are income tax assessees and copies of their returns of income were furnished during the assessment proceedings - contribution made by the partners shown in their respective returns could not be said to be from unknown sources of income - in favour of the assessee. Disallowance on account of the purchases of the material and hire charges of the dumper/tractor – Held that:- assessee never produced before the Assessing Authority proof of genuine transactions despite of giving repeated opportunities – finding of no illegality or perversity in the observations made by Authorities as finding of facts recorded are based on logic and does not require interference – against assessee.
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2012 (5) TMI 85
Reassessment - A.O. opined that the interest received on the award is an "income from other sources", and not an "income from business" as claimed by the assessee in the original return - Held that: the amounts under a contract were not paid at the proper time and, as such, the interest was awarded to the assessee for such delay. The interest was only an accretion to the assessee's receipts from the contracts and was attributable to an incidental to the business carried on by it - the interest payable to the assessee is at par with the business receipts, as it was not acquired separately as already held by Hon'ble Apex Court in the case of Govinda Chaudhary & Sons (1992 -TMI - 5424 - SUPREME Court) - Decided in favor of the assessee
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2012 (5) TMI 84
Whether the Income-tax Appellate Tribunal was justified in denying exemption under section 11 of the Income-tax Act for violation of section 13(1)(d) - The finding of the Assessing Officer is that the funds of the Trust have been utilised substantially for personal benefits of the Chairman and family members - Held that: the finding of the Tribunal because as a matter of fact the Tribunal found that there is a violation of section 13(1)(d) inasmuch as Rs. 50,000/- belonging to the trust remained invested during the previous year in a private finance company. Even though counsel for the appellant raised a contention that investment itself is not made in the previous year relevant for the assessment year i.e. 1998-99, we do not think disqualification applies only for deposit made in the previous year, but applies to deposits retained in the previous year - Appeal is dismissed
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Corporate Laws
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2012 (5) TMI 92
Appeal against an order passed by CLB dismissing proceedings instituted u/s 397 and 398 of the Companies Act – assessee contested that once a statement was made in the petition asserting the requisite percentage of share-holding in the company, the petition could no longer be rejected out of hand on a point of demurrer in such regard without the appellants being permitted to explain the circumstances in which they claimed to meet the statutory benchmark - they complain that upon the petition having previously progressed to final hearing - which was completed - it was no longer open to the CLB for rejection – the CLB was of the view that the petition before it was hit by the principles of res judicata, constructive res judicata or issue estoppel and, as such, could not progress - Held that:- The impugned judgment betrays a total non-application of mind and worse - the CLB was not aware of the tools necessary for the assessment - Proceedings under Sections 397 and 398 of the Companies Act are an alternative to winding-up and are founded on the principles of justice and equity- If, according to the CLB, the issues that arose in the company petition had already been conclusively decided in previous proceedings for the principles of res judicata or constructive res judicata or issue estoppel to apply, it flies in the face of reason and logic that the CLB would still grant permission or leave to the petitioners before it to resurrect a matter that had already been previously concluded against them - The respondent no.1 will pay costs assessed at 3000 GM to the appellants - matter will now be heard by the CLB afresh open to arrive at the same conclusion as in the impugned order on the objection pertaining to the appellants' share qualification but with cogent reasons in support thereof
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2012 (5) TMI 83
Liability of authorized signatory of a company to be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused – Held that:- Section 141 of the Act operates in cases where an offence under Section 138 is committed by a company - If a person who commits offence under Section 138 of the Act, the company as well as every person in charge of and responsible to the company for the conduct of business of the company at the time of commission of offence is deemed to be guilty of the offence - the words "as well as the company" appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof - there can be no vicarious liability unless there is a prosecution against the company – in favour of assessee.
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Central Excise
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2012 (5) TMI 91
Applications for rebate/refund of the CVD or additional duty paid on the inputs utilized for manufacture rejected - Held that:- A harmonious and cumulative reading of provisions of Section 3 of the customs Tariff Act there was no good cause or reason why CVD paid should not be or was not intended to be included in the term “duty” in the notification No. 21/2004 - CVD which is imposed is equal to the excise duty and partakes the character of excise duty - the rebate of duty paid as CVD on the Imported inputs utilized in the manufacture/processing of exported goods is admissible under Rule 18 of the Central Excise Rules, 2002 - The amendment notification No. 12/2007 ensures that it fully applies to all cases and there is no discrimination - person who claims exemption or concession has to establish that he is entitled to the concession or exemption - once the assessee satisfies the eligibility clause/criteria, exemption therein to be construed liberally if the contextual construction does not deserve the strict meaning - in favour of assessee.
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2012 (5) TMI 82
CESTAT set aside the demand confirmed by Order in Original - duty was not paid on the inputs, the assessee could not have taken credit of the duty on those inputs – Held that:- Decision on the question as to whether the finished products were cleared without payment of duty or not was wholly irrelevant for deciding the question as to whether the inputs received by the assessee were duty paid or not - the decision of the Tribunal in setting aside the demand raised on wrongful credit taken on the inputs is erroneous - impugned order is set aside and the matter is remanded back to the Tribunal to decide the appeal on merits.
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