TMI Tax Updates - e-Newsletter
June 12, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Articles

1. Reverse Charge – Practical Issues, Invoice & Cenvat

   By: CA.Ankit Gulgulia

News

1. Union Finance Minister’s Speech at 28th Annual Conference of the Chief Commissioners and Director Generals of Income Tax today.

2. Union Finance Minister to Review the Performance of Banks during the Annual Meeting of CEOs of Public Sector Banks and Financial Institutions tomorrow.

3. LLP Registry is Now Merged with MCA-21 and Decentralization of LLP Approval to Various ROCs.

4. CCI to foster competition and protect the markets from anti competitive practices.

5. Dr. M.Veerappa Moily releases Compendium to High Light the Achievements of the Ministry of Corporate Affairs.

Highlights / Catch Notes

Income Tax

• Section 194C TDS Exemption: Supply Agreement Part of Composite Transaction Excludes Tax Deduction Requirement.

  Case-Laws - HC : 'Work' under Section 194C - TDS on work contract - In a case where three separate agreements entered into and one such agreement is agreement for supply of material and because the said agreement is a part of a composite transaction, section 194C cannot be pressed into service to deduct tax at source. - HC
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• Court Rules Software Use Payments Are 'Royalty' Under Tax Laws for Copyright Transfers.

  Case-Laws - HC : Whether the consideration paid for transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of 'royalty' - held yes - HC
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Customs

• Fertilizer bagging costs excluded from customs assessable value; considered post-importation activity under Indian customs rules.

  Case-Laws - AT : Import of goods - Bagging charges - The charges incurred by the respondents for bagging fertilizers could not be included in the assessable value as the goods have already landed into the Indian territory, and action of bagging is post-importation activity - AT
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Service Tax

• Refund Claims for Service Tax on Terminal Handling, REPO Charges Approved as Port Services Entitlement.

  Case-Laws - AT : Refund claims in respect of Service Tax - Both terminal handing and REPO charges paid to Port authorities are to be treated as a port service, hence appellants are eligible for refund claims filed by them. - AT
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• Court Confirms Service Tax on Commission Earned from Business Auxiliary Service with Jaipur Golden Transport Company.

  Case-Laws - AT : Business Auxiliary Service - appellant received commission from Jaipur Golden Transport Company – demand of service tax confirmed - AT
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• Court Grants Stay in Service Tax Case Favoring Assessee on Tower Construction Land Preparation.

  Case-Laws - AT : Construction of towers - Admittedly, no construction can be effected without first clearing land from unwanted material and preparing the same for construction. - prima facie in favor of assessee - stay granted - AT
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Case Laws:

• Income Tax

• 2012 (6) TMI 211
  Set off of business loss - denial on ground of change in shareholding of the company - losses of AY 98-99 purported to set off against income of AY 2006-07 - assessee contended that A.O. was not competent to forbid the set off of the brought toward business loss for A.Y. 1998-99 against the business income for the current year because the so called change in the shareholding pattern took place in an earlier year and not the previous year relevant to the assessment year under consideration - Held that:- It is noticed that the contention now raised before us has been taken for the first time. Since additional evidence as well as this argument were admittedly not before the authorities below , we are of the considered opinion that it will be in the fitness of things if this aspect is sent back to the AO for taking a fresh decision after considering all the relevant material - Decided partly in favor of assessee for statistical purposes.

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• 2012 (6) TMI 210
  Deduction u/s 80-IA - partial denial on ground that assessee had sold power to its group concern and non-group concerns at different rates - Revenue restricted the allowance Held that:- Section does not provide that if the assessee earns more profit from related parties in compare to unrelated parties, then the allowance of deduction u/s 80-IA is to be restricted to the same proportion at which the profit was derived from unrelated parties, even in the circumstances where such profits derived from related parties were such that it could be expected to arise to such eligible business as ordinary profit. We find that the assessee has not furnished before us the party-wise break up of the rate charged by it in respect of its sister concerns. In our considered opinion, the working for the provisions of Section 80-IA(10) has to be made on individual basis and the same cannot be made on an average basis. Therefore, order is set aside matter is restored to file of AO for proper verification and computation - Decided in favor of assessee for statistical purposes.

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• 2012 (6) TMI 209
  Allowance of debenture redemption reserve and short provision of expenses - invoking Section 154 by A.O. as the assessee did not include the two while determining book profits u/s 115JB – Held that:- if the issue requires debate and discussion, it cannot become a subject-matter of rectification under section 154 of the Act because under this section only patent and obvious mistakes of law and facts can be rectified - it is not open to the AO to go into the true scope of the relevant provisions of the Act in proceedings under section 154 - T.S.Balaram, ITO Vs. Volkart Brothers& Others [1971 (8) TMI 3 (SC)]- as the facts of the case were debatable questions but when the Revenue have not placed any material in order to controvert findings of the ld. CIT(A) nor even pointed out any contrary decision while the issues are debatable no need to interfere with the conclusion of the ld. CIT(A) – against revenue

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• 2012 (6) TMI 208
  Denial of Benefit of declaration under the Kar Vivad Samadhan Scheme –Expenditure incurred by way of interest not eligible to be deducted in computing the income liable to tax - Held that:- Once determination is made under Section 90 towards full and final settlement of tax arrears, there is nothing to be treated as pending for final consideration before any authority which includes the Tribunal - As on the date of filing of its application under the Samadhan Scheme no notice was served on the assessee as regards the pending Revenue's appeal before the Tribunal - when once the amount payable by the declarant was determined by the CIT it amounts to the department having bestowed its attention to the entirety of the tax arrears to pass order under Section 90 - Even as per Section 90 of the Kar Vivad Samadhan Scheme only where the declaration furnished by the assessee is found to be false by the designated authority at any stage, all the proceedings against the declarant shall be deemed to have been revived but in the absence of any such situation arising herein, the Revenue cannot sustain its plea treating as one pending for further consideration at the hands of the Tribunal - the assessee's declaration that the amount payable was determined by the CIT in his proceedings dated 17.6.1999 and that the Revenue's appeal before the Tribunal was filed on 7.7.1999 by which time the Samadhan Certificate had already been made – in favour of assessee.

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• 2012 (6) TMI 207
  Unexplained investment - assessee is a non resident corporate entity registered with SEBI as a sub account under the FII – addition was made on the ground that the assessee could not reconcile the transactions which were considered by the AO as unexplained investments – Held that:- assessee has been successful in identifying the real sub-account to whom the transactions mentioned in the CIB report were allocated and thus, has been able to reconcile the unconcealed transactions which had been treated as unexplained investment by the AO. In the light of the above, he submits that the said additional evidence appearing at pages 1 to 93 of the assessee's paper book may be admitted under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. matter pertaining to all the grounds should go back to the file of the AO to examine the same afresh after considering the additional evidence filed by the assessee and according to law after providing reasonable opportunity of being heard to the assessee. Appeal partly allowed

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• 2012 (6) TMI 206
  Block Assessment - Estimation of the undisclosed income - based on the admission made by the Manager/ Managing partner which is to the effect that the practice of the assessee was to reflect 75% of his business turnover in the books of account – Held that:- irregularity or illegality or anything wrong in law in the Tribunal directing the undisclosed income being computed based on the admission made by the very assessee. Insofar as the assessment of profit on the undisclosed part of the income is concerned, making it at 25% cannot be found fault with Whether income assessed twice i.e., both in the regular assessment and in the block period – Held that:- undisclosed income being taken at 25% over and above the disclosed turnover attributable to the turnover as reflected in the books of account and that being an admission of the assessee and the profit worked out at 25% on the undisclosed turnover, there is absolutely no scope to contend that the same income has been subjected to tax twice cannot succeed. Decided in favour of the revenue. Appeal dismissed

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• 2012 (6) TMI 205
  Revenue expenditure or capital expenditure - treatment of an expenditure - Product Development Expenses - In the account books, the said expenditure had been treated as a deferred revenue expenditure whereas the same was claimed as a revenue expenditure in the course of assessment proceedings - expenditure was incurred on testing and validation of the products already manufactured and sold by the assessee – Held that:- , before addressing the legal aspects of the controversy, it is imperative that the complete and true particulars of the expenditure are culled out. - matter remanded back.

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• 2012 (6) TMI 204
  'Work' under Section 194C - TDS on work contract - nature of Composite contract - whether composite or not - contract agreements on Total Turnkey Basis or Partial Turnkey Basis - setting up of its electrical sub-stations. - Held that:- When the statute was amended to clarify the word "work" under Section 194C by introducing the aforesaid clause, it is obvious that the amendment is only clarificatory in nature and therefore it is retrospective. The Parliament did not intend to change the law because of conclusion which resulted in litigation. The Parliament though it fit to clarify by way of amendment so that the litigation could be avoided. In view of the aforesaid clarification and the statutory provision, it is clear that "work" did not include manufacturing or supplying a product according to the requirement upon specification of a customer by using raw-materials purchased from a person other than such customer, as such a contract is a contract for sale. In a case where three separate agreements entered into and one such agreement is agreement for supply of material and because the said agreement is a part of a composite transaction. Section 194C cannot be pressed into service to deduct tax at source. The whole object of introducing the Section is that it should deduct tax in respect of payments made for a works contract. No deduction is permissible in respect of contract for supply of material for carrying out work. The transaction in question is not a case of composite contract. It is a case of the distinct contracts and the contract for supply of materials is a separate distinct contract in respect of which no deduction is permissible under Section 194C of the Act. - Decided in favor of assessee.

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• 2012 (6) TMI 203
  Whether the consideration paid by the Indian customers or end users to the assessee - a foreign supplier, for transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of 'royalty' as defined under sub-clause [v] to Explanation 2 to Clause [vi] of section 9[1] of the Act – Held that:- yes, it is within the mischief of 'royalty' as defined under sub-clause [v] to Explanation 2 to Clause [vi] of section 9[1] of the Income Tax Act, 1961. Decided in favour of the revenue and against the assessee. Appeal is allowed.

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• 2012 (6) TMI 202
  Surcharge - Whether proviso to Section 113 which was inserted by the Finance Act, 2002 with effect from 1-6-2002 have retrospective application – Held that:- such a proviso is curative in nature and it merely clarifies that for a relevant date for of the financial year would be the year in which the search is initiated under Section 158-BC. in the case of CIT v. Vatika Township (P.) Ltd. (2009 (1) TMI 217 (SC) ) after referring to the aforesaid Supreme Court Judgment, have referred the said matter to a Larger Bench. Accordingly, the matter is referred to the Larger Bench. order of the Tribunal set aside and matter remanded to the assessing authority with a direction to await the Judgment of the Apex Court consequent to the order to be passed by the Larger Bench to that effect. appeal is allowed.

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• Customs

• 2012 (6) TMI 201
  Bagging charges - inclusion in assessable value of the goods imported - Revenue contended that in case of goods imported in bulk, lying in the Customs area are bagged in the Customs area before clearance, the duty has to be discharged on the bagging charges - Held that:- Tribunal held in favor of assessee in case of earlier AY by holding that taxable event is reached at the time when the goods reach the customs barriers and when the bill of entry for home consumption is filed. The charges incurred by the respondents for bagging fertilizers could not be included in the assessable value as the goods have already landed into the Indian territory, and action of bagging is post-importation activity. Hence the same is followed in present appeal - Decided in favor of assessee.

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• Corporate Laws

• 2012 (6) TMI 200
  Winding up - respondent are commercially insolvent and they are unable to pay their debts - Held that:- As petitioner had advanced the loan under a loan agreement and since the respondents have not disputed the claim it is evident that the respondents are not in a position to discharge their liability - as there is negligence to pay the amount which is due to the petitioner the respondent company is liable to be wound up so as to enable the Official Liquidator to take charge of the assets and recover the amounts.

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• 2012 (6) TMI 199
  Winding up – supply of goods to respondent – dishonor of cheque due to insufficient funds - complaints filed under the Negotiable Instruments Act, 1881, are pending disposal Jurisdiction of court - respondent submits that as per the terms and conditions indicated in the invoice, the dispute, if any, is subject to Mumbai jurisdiction and therefore, this court has no jurisdiction to entertain the petition seeking an order of winding up of the respondent-company – Held that:- For the purposes of jurisdiction to wind up companies, the expression 'registered office' means the place which has longest been the registered office of the company during the six months immediately preceding' the presentation of the petition for winding up. registered office of the respondent-company is situated at Vijayawada, which is within the territorial jurisdiction of this High Court. Therefore, this court has territorial jurisdiction to entertain the petition seeking an order of winding up Authorized person to file the company petition for winding up – Held that:- power to file suits and/or proceedings for the recovery of the amounts due or becoming due cannot be held to embrace the power to institute proceedings for winding up under the Companies Act, 1956. Proceedings for winding up under section 433 of the Companies Act can by no stretch of imagination be equated to suits or for that matter suits for recovery of money. constituted attorney, B. Gopala Krishna is authorised to sign and verify plaints, written statements, petitions, vakalats, claims and objections and memorandum of all kinds and to present them in any court in India and offices and to file appeals, revisions and/or reviews for and on behalf of the company before any court in India and to appoint advocates and sign vakalats and to accept service on behalf of the company in connection with such proceedings. Since B. Gopala Krishna, who verified the contents of the petition has no authority to initiate winding up proceedings against the respondent-company, the company petition dismissed.

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• Service Tax

• 2012 (6) TMI 217
  Refund claims in respect of Service Tax paid on terminal handling denied on the ground that the terminal handling is not a notified service in the Notification No.41/2007-ST - Held that:- Both terminal handing and REPO charges paid to Port authorities are to be treated as a port service, hence appellants are eligible for refund claims filed by them. See AIA Engineering Ltd (2010 (7) TMI 486 (Tri)) - Decided in favor of assessee.

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• 2012 (6) TMI 216
  Penalty u/s 76 - short payment of tax of Rs 6306 - dispute regarding calculation - Held that:- Though original adjudicating authority has made a detailed verification of calculation, however appeal memorandum lacks the clarity. Therefore, having regard to the amount involved in the appeal which is very small, and financial hardships of assessee, penalty leviable u/s 76 is waived while demand of service tax and interest is upheld.

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• 2012 (6) TMI 215
  Income declared in the balance sheet filed with Income Tax department is higher than the income declared in their ST-3 returns as revealed by CERA audit – assessee submitted during the hearing that after the audit was conducted by the CERA party, the officers of the Service Tax wing of the department also conducted the audit – Held that:- The period covered by the CERA party is also covered by the audit party of the department and therefore it can be said that the department has conducted the verification of the correctness of the ST-3 returns filed and whatever deficiencies were found, the same has been made good by the appellant - the demand confirmed by the lower authorities amounts to duplication of the demand in respect of the amount already paid by the appellant - both the lower authorities have not considered the audit report of Service Tax wing the fact that the amount has been deposited has also been mentioned in the audit report itself - no indication as to why the audit report and the worksheet prepared by the appellant for the purpose of audit is not acceptable to the lower authorities - the impugned order is set aside and the matter is remanded to original adjudicating authority to adjudicate the matter afresh- in favour of assessee.

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• 2012 (6) TMI 214
  Business Auxiliary Service - appellant received commission from Jaipur Golden Transport Company – Held that:- agreement between the appellant and Jaipur Golden Tpt. Company shows that later was engaged in transport business and the former was engaged in booking goods for the former. There was also prohibitory clause i.e. clause (2) refraining the appellant from carrying out such activity for any other transport. The appellant was getting commission @ 6.5 per cent of the booking amount. All these features clearly suggest that appellant’s earning was linked with transport charges extending its helping hand for marketing the service of M/s. Jaipur Golden Transport Company, appeal is dismissed - Decided against the assessee.

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• 2012 (6) TMI 213
  Stay Petition - construction of towers - condition of pre-deposit - (i) Commercial and Industrial Construction Service and (ii) Site Formation & Clearance Excavation & Earthmoving and Demolition service. - Held that:- Admittedly, no construction can be effected without first clearing land from unwanted material and preparing the same for construction. The efforts of the lower authority to de-link the above activity from main activity of construction and to hold that the same falls under the category of Site Formation & Clearance Excavation & Earthmoving and Demolition service, does not appear to be in accordance with the law. - pre-deposit of duty, penalty waived and Stay Petition allowed

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• 2012 (6) TMI 212
  Stay - Pre-deposit - denial of benefit of Cenvat Credit of duty paid on the capital goods as also credit of tax paid on input services - alleged that inasmuch as the capital goods were not installed at Hazira and the input services were not availed at Hazira, the credit so availed by Hazira in respect of capital goods installed at Vaghodia and services availed at Vaghodia, was not in accordance with the provisions of Cenvat Credit Rules – Held that:- in the case of BSNL (2010 - TMI - 205047 - CESTAT, CHENNAI - Service Tax) held that M/s. BSNL, as a whole, is a service tax assessee, though its different has taken Service Tax registration at different places, prima facie, they are eligible to take credit in respect of capital goods received at Secondary Switching area, station at Vaghodia is a technical necessity so as to boost the pressure of the gas for further transportation to the ultimate place. Inasmuch as the said Vaghodia station is also a part of the same M/s. GAIL, who are discharging their Service Tax liability on the entire activity of transportation of the gas through pipeline, appellant is entitled to avail Cenvat Credit of duty paid on the capital goods or input services availed in respect of their Vaghodia station, pre-deposit of duty, interest and penalty waived and Stay Petition allowed

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• Central Excise

• 2012 (6) TMI 198
  SSI exemption - denial of exemption for Yr 1990-91 on ground that aluminum circles cleared during the period 1989-90 as exempted goods, cannot be treated as exempted goods and consequently the total value of clearances exceeded the limit of Rs 2 Crores - Held that:- It is undisputed that during 1989-90, the appellant had manufactured and cleared the aluminum circles without recording the same and Notification No.180/1988 was applicable in the cases of goods manufactured. Prior to 25.07.91, the benefit of Notification No.180/1988-CE, cannot be denied to the appellant even if the product manufactured by him was cleared without accounting. If that be so, the aggregate value of such clearances under Notification No.180/1988 cannot be considered for the purpose of aggregate value of clearances made during the F.Y. 1989-90, which would mean that the appellant had not crossed the threshold limit of Rs.2 Crores for denying him the benefit of SSI Notification No.175/86-CE for the year 1990-91 - Decided in favor of assessee Whether the pat scrap was excisable to Excise duty - Held that:- Since adjudicating authority in his impugned order has not at all discussed how the duty liability on scrap arises if there is no manufacturing of scrap, hence, we remand the matter back to the adjudicating authority on this point to reconsider the issue afresh.

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• 2012 (6) TMI 197
  Clandestine removal of goods - non-acceptance of retraction of statement of partners - contradiction of the quantity allegedly cleared by the appellant - non co-relation of evidences and substantiation - Held that:- All these inherent commission and omission has to be properly reasoned out by the adjudicating authority in his findings for confirmation of demand against the appellant. In the absence of any such co-relation, we are of the considered view that the issue needs to be reconsidered by the adjudicating authority and hence we set-aside the impugned and remit the matter to the adjudicating authority to reconsider the issue afresh after following the principles of natural justice.

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• 2012 (6) TMI 196
  Challenging the powers of first appellate authority - the first appellate authority has remanded the matter back to the adjudicating authority - Held that:- The issue involved in this case is regarding refund of amounts claimed by the assessee and the adjudicating authority didn't considered the evidences on record and didn't called for more evidences from the appellant before disposing the refund claim - thus the errors are correctly pointed out by the first appellate authority and the case is remanded back to be decided afresh following the principles of natural justice.

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• 2012 (6) TMI 195
  Waiver of pre deposit of penalty as applicant has deposited the total duty involved - appeal filed by the appellant dismissed - Held that:- As the delay involved is only 28 days which is within the condonable period of 30 days, therefore, the delay is condoned - Commissioner (Appeals) has not decided the case on merit the case is remanded back without insisting any pre deposit - in favour of assessee by way of remand.

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• 2012 (6) TMI 194
  SSI exemption - denied - recovery of duty by classifying the products under Heading 84.38 not under 84.33 - Tea Sorting Machine, Tea Extractor Machine and parts thereof - lower adjudicating authority dropped the demands upheld by Commissioner (Appeals) - Held that:- On perusal of SCN no such evidence is shown which was not available to the Assistant Commissioner to determine the classification otherwise and it also did not allege that material facts were suppressed by the respondents - The case records reflect that the department was made aware of classification and it was open to the department to change the classification if the product was held to be classifiable under a different heading/sub-heading - review order also held that there is no estoppel in the matter of taxation - classification accepted by the Assistant Commissioner cannot be challenged who is the proper officer under Central Excise Law to finalize classification - against revenue.

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• 2012 (6) TMI 193
  Writ petition – Cenvat credit - Deputy Commissioner of Central Excise ordered recovery of credit claimed by the petitioner suo motu in their Cenvat Credit account under Rule 12 of the Cenvat Credit Rules 2001 - imposed as fine under Rule 13 of the Cenvat Credit Rules 2001 against which an appeal was filed to the first respondent, the Commissioner of Central Excise (Appeals) along with a stay application claiming waiver of duty and penalty – Held that:- suo motu taking credit by the petitioner is not justified and beyond the scope of Cenvat scheme. issue deserves to be considered in the main appeal filed by the petitioner before the first respondent. Further, the learned counsel for the petitioner states that the company is now revived. since a substantial amount has already been debited and also taking note of the interim order and the pendency of this case for a long period of time, it will be appropriate to direct the disposal of the appeal on merits.

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