TMI Tax Updates - e-Newsletter
June 18, 2016

Case Laws in this Newsletter:

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

TMI SMS

• E-way bills/ fraud - petitioner having user ID, password & maintaining privacy of account cannot be exonerated from liability to pay tax -HC

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• Demand of service tax of the dissolved partnership firm from the erstwhile partners - Partners liability is unlimited - HC uphold the demand

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Articles

1. Levy and Exemption under GST - supply of goods or services or both

   By: CA Akash Phophalia

2. DRAFT – THE INTEGRATED GOODS AND SERVICE TAX, 2016 – PART I

   By: DR.MARIAPPAN GOVINDARAJAN

3. PAYMENT OF GRATUITY – SOME ISSUES

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Non Resident Indians (NRIs) can now join and subscribe to NPS online through eNPS

2. RBI Reference Rate for US $

3. Regular Review Meetings being held to monitor payment and settlement crisis in National Spot Exchange Limited (NSEL);Key decisions taken in this regard

Notifications

Customs

1. 37/2016 - dated 16-6-2016 - Cus

Seeks to further amend notification No. 27/2011-Customs, dated 01.03.2011 so as to impose export duty of 20% on raw sugar, white or refined sugar

Highlights / Catch Notes

Income Tax

• High Court Rules No Additional Tax on Company u/s 40A(2) if Directors Already Taxed Equivalently.

  Case-Laws - HC : Addition u/s 40A(2) - excessive remuneration - whether the Revenue can tax the same income in the hands of the company on which the Directors had already paid the tax at the same rate at which the company would have been liable to be assessed? - the question of revenue neutrality would immediately arise. - No addition - HC
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• Jumbo Roll Conversion and Printing Qualifies as Manufacturing for Section 80-IC Income Tax Deductions.

  Case-Laws - AT : Deduction u/s 80-IC - buying jumbo rolls and slitting into smaller rolls - These rolls are converted into round strips and thereafter printing is done on such round strips. - held as manufacturing activity - deduction allowed - AT
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• Re-classification of Assets for Depreciation: Minor Adjustment in Machinery and Computer Blocks, Revenue-Neutral Impact.

  Case-Laws - AT : Disallowance on account of depreciation - The re-classification of asset at the most makes a benign shift in the claim of depreciation of machinery block and computer block. Depreciation being a carried over allowance based on WDV; rate of tax being same is a revenue neutral exercise - AT
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• Windows XP Professional Purchase Deemed Revenue Expenditure Due to Rapid Obsolescence, Not a Capital Asset.

  Case-Laws - AT : Since the expenditure was incurred for purchase of Windows XP Professional, an application software for its office use and becomes obsolete very fast, it cannot be treated as capital asset and therefore the same is to be treated and allowed as revenue expenditure - AT
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• Revenue Must Prove Assessee's Income Sources Beyond Agriculture, Sole Income Claimed as Agricultural Earnings.

  Case-Laws - AT : Unexplained investment - The stand of the assessee is that he has no other source except agriculture income. He has saved this income from agriculture operation. Now, it is for the Revenue, who has alleged that the assessee has some other source of income - AT
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• No Penalty for Honest Disagreement on Arm's Length Price u/s 271(1)(c) Between Taxpayer and Revenue.

  Case-Laws - AT : Penalty u/s 271(1)(c) - ALP determination - an honest difference of opinion between the assessee and the Revenue can never be a cause for imposition of penalty. - AT
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• Non-resident agent services for export commitments not classified as technical services; Section 195 TDS not applicable.

  Case-Laws - AT : TDS - the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services - Section 9 of the Act is not applicable to the case on hand and section 195 of the Act does not come into play - AT
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• Taxpayer Disputes ALP Adjustment; CIT(A) Criticized for Deviating from Transfer Pricing Norms Under Income Tax Act.

  Case-Laws - AT : Transfer pricing adjustment - determination of ALP - Not only changing the tested party from the assessee to its AE, the CIT (Appeals) has also selected a domestic company as a comparable to the AE of the assessee. Therefore the entire exercise of determining the ALP by the CIT (Appeals) is contrary to the provisions of transfer pricing under the I.T. Act. - AT
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• CIT (Appeals) Rejects Entity-Level Profit Margin; Reassesses ALP for International Transactions Under Transfer Pricing Rules.

  Case-Laws - AT : Transfer pricing adjustment - determination of ALP - Once the CIT (Appeals) has rejected the entity level profit margin of the assessee for the purpose of bench marking the international transactions with ALP, the CIT (Appeals) was required to redo exercise of determination of ALP as per the provisions of transfer pricing - AT
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Customs

• Criminal Proceedings Against Customs Officer in Calcutta Halted Due to Limitation Period, High Court Rules.

  Case-Laws - HC : Criminal proceedings against the Examining Officer, Customs House, Calcutta - period of limitation - prevention of corruption - Since the criminal proceeding against the petitioner is barred by limitation, the continuation of the said criminal proceeding against the petitioner will be an abuse of the process of the court. - HC
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• Penalty Levied on Vessel Agent for Short Landing of Goods u/s 116: Appellant Held Liable as "Any Other Person.

  Case-Laws - HC : Levy of penalty on person-in-charge of vessel or its agent - short landing of goods - The appellant, for all practical purposes, is liable to be treated as "any other person" if not as an agent of the "person-in-charge" of the conveyance and hence liable to suffer the penalty as provided for u/s 116 - HC
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Service Tax

• Government Commission for Disbursing Teachers' Salaries Exempt from Service Tax under Business Auxiliary Services.

  Case-Laws - AT : Business Auxiliary Services - commission received by the appellant from the Government of Maharashtra for disbursement of government teachers salary, cannot be charged to Service Tax - AT
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• Port Services Before July 1, 2010: Not Taxable, Says Document on Scope and Taxability of Port Operations.

  Case-Laws - AT : Scope of the term and taxability of Port Service - Authorized operations - for the period prior to 1.7.2010 various services which were rendered within the port area by the appellant were not taxable - AT
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• Cenvat Credit Available on Eligible Inputs Before Service Tax Registration, Documents Confirm Receipt of Goods and Services.

  Case-Laws - AT : Cenvat Credit - appellant was entitled to avail Cenvat credit on documents evidencing receipt of eligible inputs, capital goods or input services , even before the date they obtained service tax registration. - AT
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• Refund Denied: No Interest Applicable on Penalty or Interest Paid Post-Adjudication Order.

  Case-Laws - AT : Claim of refund of interest and penalty paid earlier - interest is not payable on penalty amount and also on the interest paid subsequent to the Adjudication order. - AT
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• Cenvat Credit Applicable: Input Services for Office Maintenance Not Excluded Under Works Contract Services Rule.

  Case-Laws - AT : Cenvat Credit - Works Contract Services are excluded only when it is used for construction service, whereas in the present case input services were used for maintenance of office equipment and building therefore, this particular works contract service does not fall under the exclusion category in the definition of input service - AT
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• High Court Rules Former Partners Liable for Dissolved Firm's Service Tax as per Section 25 of Partnership Act.

  Case-Laws - HC : Demand of service tax of the dissolved partnership firm from the erstwhile partners - Section 25 of the Partnership Act clearly mandates that all the partners are jointly and severally liable for all acts of the firm done while he is a partner - Tribunal clearly was in error in setting aside the demand - HC
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Central Excise

• Cenvat Credit Allowed for Supplementary Invoices Issued Before April 1, 2011, Despite Unamended Rule 9(1) Restrictions.

  Case-Laws - AT : Cenvat Credit in respect of supplementary invoice issued by the service provider for payment of service tax for the past period - prior to 1.4.2011 the credit cannot be denied borrowing the restriction provided in unamended Rule 9(1). - AT
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• Cenvat credit denial for Unit-I's service tax on behalf of Unit-III overturned due to integral unit connection.

  Case-Laws - AT : Denial of Cenvat credit of service tax paid by Unit-I for Unit-III - dependency and integral connection comes out, there cannot be denial of Cenvat credit of service tax paid by Unit-I for Unit-III - AT
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• Tribunal Dismisses Appeal Due to Amount Below Rs. 50,000 Threshold, Ignoring Case Merits.

  Case-Laws - AT : Tribunal discretion to refusal of to admit the appeal - appeal is dismissed only on the ground that amount is below threshold limit of ₹ 50,000/- without going into merit of the case. - AT
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VAT

• Petitioner Liable for Tax on Turnover from E-Way Bills Despite Adhering to Privacy Norms Set by Central Government.

  Case-Laws - HC : E-Fraud - the petitioner who was provided with user ID and password and maintaining privacy of the account as per the norms affixed by the Central Government, the petitioner cannot be exonerated from liability to pay tax on the turnover covered by E-way bills which was generated by the petitioner - HC
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• Authority Can Investigate Tax Invoice Authenticity and Verify Genuine Sales for Input Tax Credit Claims.

  Case-Laws - HC : Input tax credit - mere production of a tax invoice would not disable the assessing authority from enquiring whether the sale of goods, referred to in the said tax invoice, is genuine or whether the said tax invoice has been issued by a registered VAT dealer. - HC
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Case Laws:

• Income Tax

• 2016 (6) TMI 602
  Reopening of assessment - taxability of income of the sugarcane - reasons to believe - Held that:- It is undoubtedly true that the original return was not taken in scrutiny by the Assessing Officer and was merely accepted under section 143(1) of the Income-tax Act, 1961. However, the central question of taxability of income of the sugarcane in the background of reasons recorded had come up before this Court on couple of occasions in the past. A Division Bench of this Court in the case of Shri Chalthan Vibhag Khand Udylog Mandli Ltd. vs. Deputy Commissioner of Income-Tax, reported in [2015 (7) TMI 297 - GUJARAT HIGH COURT ], had quashed the notice for re-opening which was based on identical reasons, it was held that the difference between the price to be paid to cane growers and the purchase price declared by the Government under sugar Sugar Control Order cannot be said to be by way of distribution of profits. It was held that the Assessing Officer had not carried out any inquiry before coming to a contrary conclusion and that he should not have a reasonable belief for forming the opinion that the income chargeable to tax had escaped the assessment. - Decided in favour of assessee

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• 2016 (6) TMI 601
  Unaccounted investment in purchase of lands - Rectification of mistake - application for rectification contending that the question of grant of cross-examination of Indravadan Prajapati would arise only in relation to the lands bearing block no. 445 and would not govern the other purchase of lands by the assessee - whetehr Tribunal erred in remanding the assessment on all counts ? - Held that:- We agree with the submission of Shri Vora for the assessee that in the original judgment, the Tribunal had referred to the contention of the assessee of being denied opportunity to cross-examine the witness. Under the circumstances, the issue pertaining to assessee's appeal, that is, addition is concerned, the land bearing block no.445 should have been restored to the file of the Assessing Officer. But without any discussion, the Tribunal also remanded the issue arising in the Revenue's appeal which is completely unrelated to the question of grant of cross-examination of the witness. In that view of the matter, the assessee was justified in seeking rectification at the hands of the Tribunal since there was a clear error apparent on record. The Tribunal was thus justified in recalling the order in so far as it disposed of Revenue's appeal also. However, having done that, the Tribunal ought to have put the Revenue to notice, heard both the sides on merits and thereafter proceeded to pass the order as found appropriate in law. The Tribunal in one go recalled its earlier order and dismissed Revenue's appeal. We are not sure whether the Revenue had even an opportunity to make submissions on such revived appeal. In the result, in so far as the impugned order of the Tribunal dismissing the Revenue's appeal is concerned, the same is set aside. The order recalling the Tribunal's first order in connection with Revenue's appeal is sustained. Revenue's appeal is revived, restored to file and placed before the Tribunal for fresh disposal in accordance with law after hearing both the sides

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• 2016 (6) TMI 600
  Penalty under section 271(A)(c) - difference in bad and doubtful debts claimed - Held that:- The issue of the assessee's larger claim of deduction of bad and doubtful claims had to be resolved through opinion of the third member of the Tribunal. Clearly the issue of taxability was debatable. But apart from this, the Tribunal found that there was no concealment of income on the part of the assessee. All facts were on record to enable the Assessing Officer to make addition if he was of the opinion that the claim made by the assessee was not sustainable in law. A bonafide raising of a wrong claim by itself would not give rise to penalty. Supreme Court in the case of Reliance Petroproducts Pvt.Ltd. (2010 (3) TMI 80 - SUPREME COURT ) held that where there is no concealment of particulars of income or the assessee has not furnished inaccurate particulars of income, penalty cannot be imposed. It was held that submitting incorrect claims in law do not give rise to penalty proceedings. - Decided in favour of the assessee

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• 2016 (6) TMI 599
  Allowability of commission expenditure - case of the Revenue was confined to the contention that the assessee without filing a revised return could not have made such a claim and the Tribunal therefore, ought not to have accepted the same - Held that:- The assessee had in the returns filed, appended a note suggesting that the commission expenditure is not being currently claimed but would be claimed after actual payment. During the course of assessment, the assessee however, changed its position and sought to raise such a claim. The Assessing Officer did not reject the claim on the ground that no revised return was filed. In any case, when the material was already on record, the CIT(Appeals) and the Tribunal could have entertained such a claim.

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• 2016 (6) TMI 598
  Transaction in shares - Short Term Capital Gains OR Business Income - Held that:- Referring to guidelines for ascertaining whether in case of certain assessee buying or selling of shares is done by way of investment. These tests have to be applied cumulatively. The Tribunal noted that the assessee had a history of being investor. The activity of transactions relied only to five strips. All transactions were delivery base. The assessee had not termed the activity of sale and purchase on daily basis. The assessee had showed the shares by way of investments in the books of accounts, had not borrowed any finance acquired such shares. Majority of the capital gain relied to shares held for more than 60 days. Appellate Tribunal was justified in holding that transaction in shares made within a short period was Short Term Capital Gains and not Business Income as treated by the Assessing Officer - Decided against revenue

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• 2016 (6) TMI 597
  Commencement of business - whether in case of an assessee, whose main object is to construct dam, canal, etc., the business commences only when the entire project for construction of dam, canal, etc. is complete, and not when the first brick was put up at the construction site? - Held that:- What is to be regarded is as to whether the business of the assessee has been set up or not so that the assessee could avail benefits under the Act. Broadly speaking, the activity of the assessee could be divided into three categories ( i) Construction of Dam and related works (ii) HydroPower Plant and (iii) Narmada Main Canal. Considering the different categories of work, it can not be said that such objects could be achieved without contemplating different stages of completion.It would be wrong to uphold the contention of Revenue that only on completion of work of entire Canal, the assessee’s business can be said to have been set up. In a Project like the “Sardar Sarovar”, there are bound to be different stages where different activities take place and those activities being integral part of business and when they are set up phase wise, the assessee cannot be deprived of the benefits of fiscal legislation in disregard of the well settled principles on the issue. - Decided in favour of assessee Allowability of interest expenditure u/s.57 against the interest income - Held that:- The expenditure of interest paid on borrowings raised by the assessee for the purpose of construction of Dam would be allowable deduction since the purpose of expenditure is manifest and there is a clear nexus between the expenditure and the earning of income. Therefore, essentially, the expenditure is a part of the business expenses of the assessee - Decided in favour of assessee

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• 2016 (6) TMI 596
  Addition u/s 40A(2) - excessive remuneration - whether the Revenue can tax the same income in the hands of the company on which the Directors had already paid the tax at the same rate at which the company would have been liable to be assessed? - Held that:- We may recall that consistently before Assessing Officer, CIT(Appeals) and Tribunal, the assessee had canvassed that all the four Directors who had received such remuneration, were taxed in the highest bracket of 30%; at the same rate at which the assessee company at the relevant time was assessed. In fact, the assessee had demonstrated before CIT(Appeals) that the tax liability of the company on such disputed remuneration amount was exactly the same as the tax the four Directors had paid to the Revenue. To these factual aspects, even the Revenue has, at no stage raised any dispute. We may therefore, proceed on the basis that the element of excessive remuneration represents that income of the company which was eventually taxed in the hands of the Directors at the same rate at which; had it not been so distributed; would have been taxed in the hands of the company. In that view of the matter, the question of revenue neutrality would immediately arise. A certain income has already been taxed in the hands of the Directors. Permitting the Revenue to tax the same income again at the same rate in the hands of the principal payer would amount to double taxation. Only on this count, we answer question in favour of the appellant-assessee and against Revenue

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• 2016 (6) TMI 595
  TDS u/s 194H - Disallowance of the expenses claimed as ‘incentive paid to retailers’ - disallowance u/s 40(a)(ia) - non deduction of tds - Held that:- The assessee in the instant case has just shown the incentive paid as an expense without adjusting the same from the sales account. We further find that in none of the case, incentive has been paid to the retailers in cash which was just the method of accounting and presentation that assessee has shown incentives paid to the retailers as an expense in its profit and loss account. We have also found the ledger of the incentive paid to retailers which is placed on pages 49 to 51 of the paper book and find that the incentive is nothing but a trade discount. As decided in Pareek Electricals v. ACIT [2012 (11) TMI 813 - ITAT CUTTACK] the discount available to the second and third tier franchisees was a matter of availability of products at its maximum retail price and not because they had made income from the service provider. The payments made by the assessee is in the category of principal to principal and the provisions of section 194H of the Act would come into play only when the payment is from principal to agent - Decided in favour of assessee Addition u/s 68 - On question raised by AO about the payment of the incentive in the subsequent year, the assessee submitted that the documents was stolen from its office on 12.10.2011 and therefore the supporting evidences are not available for the purpose of verification - Held that:- AR has not brought anything before us at the time of hearing in support of his ground of appeal. No FIR was filed by the assessee for the stolen books of accounts. Accordingly, we find no infirmity in the order passed by the lower authorities. - Decided against assessee

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• 2016 (6) TMI 594
  Revision u/s 263 - Exemption u/s 80-IC - manufacturing activity or not - buying jumbo rolls and slitting into smaller rolls - Held that:- These rolls are converted into round strips and thereafter printing is done on such round strips. The assessee is duly registered with the Director of Industries. It is registered with the Excise Department and it has been filing its returns in respect of the manufacturing process carried on by it. In these circumstances, we are of the opinion that the learned CIT was not justified in holding that assessee is not engaged in manufacture or processing any article or thing and hence not eligible for claiming deduction under Section 80-IC of the Act. Accordingly, the order passed by the Assessing Officer allowing deduction cannot be said to be erroneous so as to be prejudicial to the interest of the Revenue. We thus hold that the order passed by the CIT is not a valid order and the same is quashed. In the result, assessment order dated 30.12.2010 passed by the AO is restored and grounds of the appeal of the assessee are allowed.

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• 2016 (6) TMI 593
  Disallowance on account of depreciation claimed applying the provisions of explanation-3 below Section 43(1) - Held that:- Explanation 3 to Section 43(1) can be invoked in the given facts of the case. It prescribes that Assessing Officer must record a proper satisfaction that the main purpose of the transfer of such assets was reduction of liability to income-tax. This mandatory finding is conspicuously missing from the order impugned of the Assessing Officer. Besides, if it is not a case of transfer of assets, in that case the Explanation itself would not apply. In my considered view, it is purely factual matter where a new company is duly formed after transferring assets of a firm and undertook reclassification of the assets in proper blocks on which no adverse remark has been made by authorities below. Alternatively also, the Hon’ble Supreme Court in a recent judgment in the case of CIT vs. Excel Industries Ltd, reported in (2013 (10) TMI 324 - SUPREME COURT ), has held that the preponement or postponement of year of claim or allowance is a basically revenue neutral in character, more so when the rate of income tax in case of company is nearly same. The re-classification of asset at the most makes a benign shift in the claim of depreciation of machinery block and computer block. Depreciation being a carried over allowance based on WDV; rate of tax being same, following the Hon’ble Supreme Court judgment, is a revenue neutral exercise. So, in any case, the assessee cannot be blamed for the re-classification as deliberately to reduce its tax liability as contemplated by sec. 43(1) expln. 3. In view of these observations, see no justification in reduction of depreciation claim made by the assessee which is deleted. - Decided in favour of assessee

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• 2016 (6) TMI 592
  Expenditure on Software Licence Fees - revenue v/s capital - Held that:- In the light of the factual and legal matrix of the case and respectfully following the ratio of the decisions of the Hon'ble Bombay High Court in the case of Raychem RPG Ltd. (2011 (7) TMI 953 - Bombay High Court ) and Amway India Enterprises (2008 (2) TMI 454 - ITAT DELHI-C ) and the finding of facts rendered in the assessee’s own case for A.Y. 2010-11 we hold and direct that out of expenditure claim for software licence fees amounting to 60,35,642/-, the amount of 55,57,875/- (i.e. 60,36,642/- less 4,77,767/-) is incurred in respect of application software acquired which is in the nature of revenue expenses. The remaining expenditure of 4,77,767/- paid to Fadv Corporation for acquiring True UP Licences Fees being for a period of 36 months is held to be expenditure capital in nature as it results in enduring benefit to the assessee and we direct the AO to allow the assessee eligible depreciation thereon in accordance with law. Foreign Exchange Loss - Held that:- On an appreciation of the facts of the case on hand, it is seen that the foreign exchange loss has arisen on account of trade transactions entered into by the assessee and is with respect to the revaluation of foreign currency sundry debtors and creditors as on 31.03.2009. In our view, the claim of the assessee in the case on hand in respect of loss on account of foreign exchange sundry debtors and creditors is allowable as it is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of CIT vs. Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT ).- Decided in favour of assessee. Software Expenses - revenue v/s capital - Held that:- Since the expenditure was incurred for purchase of Windows XP Professional, an application software for its office use and becomes obsolete very fast, it cannot be treated as capital asset and therefore the same is to be treated and allowed as revenue expenditure.- Decided in favour of assessee.

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• 2016 (6) TMI 591
  Reopening of assessment - non filing of return - Unexplained investment - Source of income - agriculture income or not - Held that:- The assessee has not been filing the return. In other words, he had never filed return. The AO got information that the assessee has made investment in LIC. The investment was of 15 lakhs. Once the assessee was not filing the return, then, there is no mechanism with the AO to verify the source of such investment. It can only be verified by inquiring from the assessee, and therefore, he has to issue notice under section 148 of the Income Tax Act. We do not see any error in the reopening of the assessment. - Decided against assessee. Unexplained investment - whether the agriculture land of roughly 16 acres could generate income, out of which, 15 lakhs can be spared for investment ? - Held that:- The AO took guidance of income from the bills of sale of sugar cane. It is to be appreciated that bills came to the possession of the assessee, because, sugar cane was sold to cooperative sugar mill, where mandatory bills were raised. Otherwise, in rural background, hardly any bills were issued for sale of crop or sale of plants. Possibly, there cannot be any evidence in the possession of the assessee, because, he was not operating in a very large scale in an organized manner. He has produced bank statement for the last three years. In such situation, onus was upon the Revenue to demonstrate that assessee has some other source of income, out of which, he has generated 15 lakhs. The stand of the assessee is that he has no other source except agriculture income. He has saved this income from agriculture operation. Now, it is for the Revenue, who has alleged that the assessee has some other source of income. But, the ld.AO failed to bring any evidence on record to demonstrate generation of such income, apart from agriculture activity. If we go by circumstantial evidence, then, 16 acres of agriculture land along with running of a nursery, could generate 15 lakhs over a period of time. The AO ought to have not doubted the stand of the assessee.- Decided in favour of assessee.

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• 2016 (6) TMI 590
  Addition on account of transfer pricing adjustment - selection of comparable - Held that:- We are covered under the first situation in which the TPO referred to seven new companies as comparable in his order but ignored them on the touchstone of parity in not considering any new company as comparable including those proposed by the assessee. Once, the assessee has assailed the non-inclusion of its company, namely, Kusalava International, which it is also lawfully entitled to and we accept such contention, then simultaneously the other seven companies originally selected by the TPO should also be taken up for consideration. We hold accordingly. In our opinion, considering the comparability of these seven companies does not amount to making out a new case by the AO/TPO because these seven companies were specifically taken note of by the TPO as comparable in his order. Turning to the merits of comparability, we find that there is not much discussion in the TPO's order about the functional profile of Kusalava International Ltd., on one hand and other seven companies viz., Varroc Engineering, Hi Tech Arai, Varroc Engineering, Asco India Ltd., Perfect Circle India Ltd., Rane Engine Valve Ltd., Auto Gallon Industries Ltd., on the other. Under such circumstances, we deem it befitting to set aside the impugned order and remit the matter to the file of TPO/AO for considering the comparability or otherwise of Kusalava International Ltd. and other seven companies afresh, after allowing a reasonable opportunity of being heard to the assessee. Apart from the inclusion of the Kusalava International Ltd., the ld. AR also pressed for the inclusion M/s Design Auto System in the list of comparables. It was fairly admitted that this company was not chosen by the assessee as comparable either before the TPO or before the DRP. Referring to the Annual report of this company, it was argued that the same was functionally similar. The ld. DR opposed the inclusion of this company in the list of comparables. As in an earlier para, we have restored for fresh consideration of Kusalava International Ltd. and seven other companies to the TPO after allowing due opportunity to the assessee. While carrying out this exercise, the TPO is also directed to consider the comparability or otherwise of Design Auto Systems and then deal with it accordingly. Non granting of working capital adjustment - Held that:- If a company carries high trade receivables, it would mean that it is allowing its customers relatively longer period to pay their dues, which will result into higher interest cost and the resultant low net profit. Similarly, by carrying high trade payables, a company benefits from a relatively longer period available to it for paying back the dues to its suppliers, which reduces the interest cost and increases profits. In order to neutralize the differences on account of carrying high or low inventory, trade payables and trade receivables, as the case may be, it becomes eminent to allow working capital adjustment so as to bring the case of the assessee at par with the other functionally comparable entities. We, therefore, agree in principle with the grant of working capital adjustment. The view taken by the Dispute Resolution Panel for not allowing such an adjustment that the assessee did not furnish necessary details is not tenable since the assessee did furnish the necessary details, which have been adverted to during the course of proceedings before us. However, since such details qua the grant of such an adjustment have not been examined because of refusal to grant such adjustment at the threshold, we are of the considered opinion that it would be fit and proper to set aside the impugned order on this issue and send the matter back to the file of the AO/TPO for computing and allowing working capital adjustment, if any, available to the assessee Computation of transfer pricing adjustment in respect of transaction with Associated Enterprises (AEs) and non-AEs - Held that:- Under the TNMM, the process is simple in initially finding out the operating profit margin of the assessee and then the average adjusted operating profit margin of comparable cases. Such adjusted profit margin of the comparables constitutes benchmark margin, which is then compared with the operating profit margin from the assessee's international transactions with its AE. It is not permissible to make transfer pricing adjustment, by applying the average operating profit margin of the comparables on the assessee's universal transactions entered into with both the AEs and non-AEs. As the entire exercise under Chapter-X is confined to computing total income of the assessee from international transactions having regard to the arm's length price, there is no scope for computing income from non-international transactions having regard to the ALP. As the TPO has computed the transfer pricing adjustment qua all the transactions carried out by the assessee with reference to the base of 'total sales', also inclusive of sales made to non-AEs, we vacate the impugned order on this issue and restore the matter to the file of the TPO/AO for recalculating the amount of addition of transfer pricing adjustment by taking into consideration the international transactions only to the exclusion of transactions with non-AEs. Assessee appeal is allowed for statistical purposes.

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• 2016 (6) TMI 589
  Addition on account of transfer pricing adjustment - selection of comparable - Held that:- Airline Financial Support Services (I) Ltd. - As find from the Annual report of this company, which is available on page 107 onwards of the paper book, that as against its gross revenue from service fees amounting to 29.32 crore, there is receipt of revenue from its associated enterprises to the tune of 9.31 crore. This shows that the percentage of RPT is 32% (approx.), thereby failing the RPT filter of 25% as held in several cases discussed above. In view of the fact that the RPTs of this company are more than 25%, it becomes a controlled transaction and disqualifies from being considered as a comparable uncontrolled transaction, so as to find a place in the list of comparables. Ergo, we uphold the action of the ld. CIT(A) in excluding Airline Financial Support Services (I) Ltd. from the list of comparables. CS Software Enterprises Ltd. and Spanco Telesystems and Solutions Ltd. - Held that:- When we compute the percentage of Personnel cost to Total cost on the basis of these two figures, there emerges figure of 45%. If we go ahead with the correct ratio of the assessee’s Personnel cost to total cost at 45%, even the filter applied by the TPO between 48% to 53.5% becomes erroneous because that was based on the TPO’s calculation of the assessee’s ratio of Personnel expenses to total expenses at 52.11%, which itself is wanting. Under the given circumstances, we are of the considered opinion that the impugned order treating these two companies as comparable cannot be upheld on the assigned reasoning and, at the same time, the action of the TPO in excluding these two companies on the basis of incorrect calculation of the assessee’s percentage of Personnel cost to Total expenses and the consequential wrong filter also cannot be countenanced. In our considered opinion, the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is remitted to the AO/TPO for a fresh determination of the comparability or otherwise of CS Software Enterprises Ltd. and Spanco Telesystems and Solutions Ltd.

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• 2016 (6) TMI 588
  Penalty u/s 271(1)(c) - ALP determination - Rejecting the application of TNMM on entity level, the TPO proposed transfer pricing adjustment by determining Nil ALP of the three international transactions under the CUP method by basing his conclusion on the fact that the assessee did not avail any services inasmuch as no benefit was derived by it and, in any case, it amounted to duplication of services - Held that:- The necessary criteria for imposition or non-imposition of penalty is not the surrender or nonsurrender of income; acceptance or non-acceptance of addition; and confirmation or deletion of addition in quantum proceedings. In fact, it is the evaluation of the circumstances leading to the surrender/addition or confirmation of addition, which decide the fate of penalty. Where a surrender or an addition is made due to absence of bona fide in the conduct of the assessee, it may be a good case for imposition of penalty. On the other hand, if a surrender or an addition is made due to failure of the assessee to establish his case to the satisfaction of the AO despite the genuineness of the explanation, it will not call for imposition of penalty, notwithstanding such an addition having been confirmed in appeals. Further, an honest difference of opinion between the assessee and the Revenue can never be a cause for imposition of penalty. Under such circumstances, the contention of the ld. DR that the factum of the assessee not assailing the addition in quantum proceedings should be considered as fatal, in our considered opinion, is devoid of merits. The assessee’s case is covered by another decision of the Mumbai Bench of the Tribunal in DCIT vs. RBS Equities India Ltd. (2011 (8) TMI 459 - ITAT MUMBAI ) in which penalty u/s 271(1)(c) has been deleted in somewhat similar circumstances. If we accept the contention of the ld. DR that addition on account of transfer pricing adjustment invariably means absence of good faith and due diligence, then, each and every case involving transfer pricing adjustment would call for imposition of penalty u/s 271(1)(c). The proposition so propounded on behalf of the Revenue is too wide and clearly unacceptable inasmuch as the intention of the legislature is to impose penalty due to addition on account of transfer pricing adjustment only when good faith and due diligence are lacking and not because of a genuine and valid difference of opinion in the determination of ALP of an international transaction. The exercise done by the TPO in determining Nil ALP on the premise that either no services were availed by the assessee or in any case it was a case of duplication of services, is not only unsubstantiated but contrary to the material on record. The mere fact that the TPO determined Nil ALP of the international transactions cannot be a reason to impose penalty u/s 271(1)(c) of the Act. In view of the foregoing discussion, we are satisfied that the assessee has satisfied all the requisite conditions as stipulated in the exception crafted in Explanation 7 granting immunity and hence it cannot be visited with penalty u/s 271(1)(c) of the Act. Ex consequenti, the impugned order is set aside and the penalty is deleted. - Decided in favour of assessee

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• 2016 (6) TMI 587
  Scope of rectification of mistake - Addition to the closing stock - adopting cost of goods at the year end OR Cost or realisable value -Held that:- The Tribunal in earlier occasion fairly considered the entire arguments of the assessee and has given a finding and decided the issue against the assessee. Now, the assessee’s counsel wants to re-argue the settled issue by putting some arguments. In our opinion, if we consider the arguments of the assessee’s counsel, it will amount to review of our earlier order of this Tribunal, for which, the Tribunal has no power. An order under section 254(2) does not have existence de hors the order under section 254(1). Re-calling of the order is not permissible under section 254(2). Recalling of an order automatically necessitates rehearing and re-adjudication of the entire subject-matter of appeal. It is well-settled that statutory authority cannot exercise power of review unless such power is expressly conferred. There is no express power of review conferred on this Tribunal. Even otherwise, the scope of review does not extend to rehearing of the case on merit.In view of the above, we are inclined to reject the arguments of the assessee’s counsel on the issue of valuation of closing stock in all these Misc. Applications. - Decided against assessee Addition towards stock discrepancies - Held that:- Tribunal has considered the issue in dispute and categorically given a finding and decided the issue against the assessee and there is no reason to recall the earlier order of the Tribunal. Being so, as discussed in earlier para, we are inclined to reject the arguments of the ld. AR in all these three Misc. Applications, on this issue. - Decided against assessee Disallowance towards lease commitment charges - Held that:- Tribunal has given a finding that the expenditure of Rs. one crore incurred by the assessee towards lease commitment charges cannot be considered as wholly and exclusively for the purpose of business. Hence, it is decided against the assessee. Now, the assessee’s counsel wants to re-argue the case and it cannot be possible. As discussed in earlier para, we are inclined to reject the arguments of the ld. AR in all these three Misc. Applications, on this issue also. - Decided against assessee Addition towards unexplained jewellery - Held that:- As unsigned copy of grounds on our records, wherein the assessee raised unexplained jewellery u/s.69A of the Act. Being so, we are not in a position to uphold the argument of the assessee’s counsel.- Decided against assessee

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• 2016 (6) TMI 586
  Disallowance u/s 14A - investment in tax-free securities - disallowance of 25% of the salary of Sr. Vice- President, Finance .26,45,886/- [ .15,37,990 + .11,07,896], which was not accepted by the ld. CIT(A) since there was no substance as the investment of the assessee is quite substantial. The ld. CIT(A) has passed a detailed order, which is reproduced hereinabove. In view of the above, we are unable to accept that only the expenditure of .26,45,886/- would have incurred to handle the investment of huge magnitude of . 338.98 crores. Under the above facts and circumstances, the Assessing Officer has rightly applied Rule 8D and worked out the expenditure relatable to earning of exempt income, which was confirmed by the ld. CIT(A) and we find no infirmity in the order passed by the ld. CIT(A). - Decided against assessee. Disallowance u/s 14A - Held that:- The Department has not disputed over the quantum of investment made by the assessee to the extent of .338.96 crores and receipt of exempt income amounting to .11.70 crores. The value of investment was .344.74 crores and .338.96 crores as on 31.3.2007 and 31.3.2008 respectively. The investment as on 31.3.2008 was 338.96 crores. The sale proceeds of investments during the year was .964.52 crores, which was higher by .5.78 crores than purchase of investments of .958.74 crores. There is no dispute on the free reserve and surplus funds available with the assessee of .791.40 crores. When the assessee got its own fund and non-interest bearing funds more than the investment in tax-free securities, then there is no question of deeming that the assessee has used the borrowed funds for investment in tax-free securities. By following the decision of the ITAT, Mumbai in the case of HDFC Bank Ltd. v. DCIT (supra), wherein it was held that if assessee’s own fund and non-interest bearing funds are more than the investment in tax-free securities, then there is no basis for deeming that the assessee has used the borrowed funds for investment in tax-free securities, the ld. CIT(A) has held that the assessee had sufficient interest-free funds of its own to make investment in tax-free territory and hence no interest can be disallowed under Rule 8D(2)(ii). No infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue stands dismissed. Disallowance of expenses on dies and moulds - Held that:- As decided in assessee's own case for earlier AYs replacement of dies and mould was only "revenue expenditure" after distinguishing the facts of the assessee's case from that of the Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills Pvt. Ltd (2007 (8) TMI 16 - SUPREME COURT OF INDIA ). - Decided in favour of assessee Disallowance of product launch expenditure - Held that:- CIT(A) has held that the expenditure on product launch, advertisement and sales promotion is allowable as revenue expenditure under section 37(1) of the Act and moreover, amortization of the impugned expenditure under section 35D is also not warranted. As the Department has not accepted the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Brilliant Tutorials Ltd. [2007 (1) TMI 147 - MADRAS High Court] relied on by the ld. CIT(A) and against this decision, the Department has preferred SLP Before the Hon’ble Supreme Court. However, the ld. DR could not file any decision against the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Brilliant Tutorials Ltd. (supra). Until and unless the decision is reversed, the decision of the Hon’ble Jurisdictional High Court is having binding nature, therefore, we find no infirmity in the order passed by the ld. CIT(A) on this issue- Decided in favour of assessee TDS u/s 195 - disallowance under section 40(a)(i) - non-deduction of tax at source on the foreign remittances made for agency commission - Held that:- With regard to the issue as to whether the TDS has to be deducted or not when the commission payment made to the overseas agents, the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. [2014 (8) TMI 170 - MADRAS HIGH COURT ] wherein held the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services - Section 9 of the Act is not applicable to the case on hand and section 195 of the Act does not come into play – Decided against Revenue. Set off of the loss of 80IC units against the income of other units - Held that:- With regard to set off of losses of 80IC unit against the profit of other units, we find that the Hon’ble Delhi High Court in the case of CIT v. KEI Industries Ltd.(2015 (3) TMI 618 - DELHI HIGH COURT) has held that loss suffered by the assessee in a unit entitled to exemption under section 10B of the Income-tax Act, 1961 cannot be set off against income from any other unit not eligible for such exemption. - Decided in favour of revenue

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• 2016 (6) TMI 585
  Assessment u/s 153A r/w s. 143(3) - The assessments presently under appeal before us (as well as the corresponding penalty appeals) are consequent to a search action u/s. 132(1) of the Act at the assessee’s different, as it appears, Short Street and Camac Street premises, at Kolkata on 05.1.2007. The same formed part of a concerted action by the Revenue on Hassan Ali Khan and other related parties at different place across India. Various issues of additions towards unexplained investments / deposits, unexplained expenditure, dis-allowances and set off of losses including Admission of additional evidences by the tribunal, presumption that the document found during search as true and correct - All the quantum appeals are partly allowed.

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• 2016 (6) TMI 584
  Disallowance of commission - assessee was claiming the commission expense on the basis of orders procured by commission agent but Authorities Below did rejected the same on the ground that commission expense which are corresponding to the sales made during the year should be allowed as deduction in the year under consideration - Held that:- We find force from the argument of Ld. AR that no such disallowance was made in earlier years and expenses were duly claimed in its books of account after getting the bills from the concerned parties and after TDS deduction. We find that services rendered by commission agents have not been doubted by the Authorities Below. We further find that assessee’s claim of commission expense on the basis of bills raised by commission agents for the value of orders arranged by them consistently and these were allowed in the past years also. We also find that assessee having the arrangement with the commission agent for procuring the orders from the Electricity Boards and once the order has been arranged then the commission agent is entitled for the commission on the value of such order arranged by him. In this point of argument, Ld. DR has not brought anything on record to controvert the argument raised by Ld. AR. - Decided in favour of assessee. Disallowance of deduction u/s 80G of the Act on account of donation - Held that:- Ld. CIT(A) has disallowed the donation on the ground that assessee failed to submit the exemption certificate issued to the institution registered u/s 80G of the Act by the Competent Authority. However, Ld. AR drew our attention on page 73 of the paper book where the certificate issued by Competent Authority u/s. 80G(5) clause (iv) to the institution was placed along with PAN No. Accordingly, we are inclined to reverse the orders of Authorities Below - Decided in favour of assessee.

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• 2016 (6) TMI 583
  Transfer pricing adjustment - determination of ALP - bench marking technique - Held that:- There is a strength in the contention of the learned Authorised Representative that in view of the complexity of the transactions between the assessee and its AEs as well as the third party transactions in which the assessee has to pay the selling commission to the AE, the assessee adopted entity level operating margin for the purpose of bench marking its international transactions. However, this method is not permitted as per the provisions and rules of the transfer pricing under Income Tax Act and I.T. Rules and therefore to that extent, we find that the learned CIT (Appeals) was justified in rejecting the methodology applied by the assessee as well as by the TPO. Once the CIT (Appeals) has rejected the entity level profit margin of the assessee for the purpose of bench marking the international transactions with ALP, the CIT (Appeals) was required to redo exercise of determination of ALP as per the provisions of transfer pricing. Instead of following the proper procedure stipulated under Chapter X of the I.T. Act as well as Rule 10 of I.T. Rules, the CIT (Appeals) has proceeded to take the AEs of the assessee as tested party and further recomputed their profit margin by excluding certain expenses which we find is not permitted under the provisions of transfer pricing. Not only changing the tested party from the assessee to its AE, the CIT (Appeals) has also selected a domestic company as a comparable to the AE of the assessee. Therefore the entire exercise of determining the ALP by the CIT (Appeals) is contrary to the provisions of transfer pricing under the I.T. Act. Hence in view of the facts and circumstances of the case, we set aside the impugned order of the authorities below and remit the issue to the record of the Assessing Officer / TPO for deciding the matter afresh by considering the segment-wise data of the assessee and then compare the same with the comparable companies in the light of various decisions relied upon by the assessee. We find that in the series of decisions, this Tribunal has come to a conclusion that the threshold limit of the RPT should not be more than 15% in normal circumstances where there is no difficulty in selecting the comparable companies. Therefore we direct the TPO to apply the RPT filter at 15% instead of 25% and then consider the comparability of the companies. Since the assessee did not fully co- operate with the authorities below in the first round of the proceedings therefore we direct the assessee to co-operate in the proceedings before the A.O./TPO and furnish the relevant and requisite details in order determining the ALP. Needless to say that the Assessing Officer/TPO also consider the benefit of tolerance range of + / - 5% as per the proviso to Section 92C(2) as well as working capital adjustment. Reduction of foreign currency expenses from the export turnover - Held that:- We direct the Assessing Officer/TPO not to reduce the expenses from the export turnover for computation of deduction under Section 10A Foreign tax credit - Held that:- In the outcome of the remand proceedings if any tax liability is determined by the Assessing Officer, then the tax credit in respect of the foreign tax paid by the assessee is also required to be considered. We accordingly direct the Assessing Officer to consider the appropriate credit for foreign tax paid. Computation of deduction under Section 10A - Held that:- The Hon’ble Karnataka High Court in the case of CIT v M/s Tata Elxsi Ltd. & Others ( 2011 (8) TMI 782 - KARNATAKA HIGH COURT ) had held that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator.

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• Customs

• 2016 (6) TMI 629
  Import of betelnuts - testing of samples - whether or not fit for human consumption - Held that:- CFL now reports that the betelnuts are fit for human consumption. In view of such report, obtained from a recognised Government organisation, the customs authorities should have no further reservation in releasing the consignment to the petitioners. - betelnuts covered by the relevant consignment ordered to be released to the petitioners, subject to payment of appropriate duty, within a fortnight.

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• 2016 (6) TMI 628
  Smuggling of foreign currency - levy of penalty - applicability of section 111 and section 113 of the Customs Act, 1962 - Held that:- The foreign currency in this case was attempted to be improperly exported. It is one thing to say that the currency may have been taken without complying with FEMA and the Rules thereunder, but on reaching the foreign country, these persons were deported. On deportation, they boarded a flight to return to India, but with the currency with them. It is these goods which were taken away without the above compliance. The Tribunal found that once this is an admitted case of illegal export of foreign currency from India by concealing the same in baggage and considering the substantial quantum of currency seized, the discretion ought not be exercised so as to allow release of the same by paying redemption fine, then, this is not a case of any perversity or an error of law apparent on the face of the record. Rather, this is a case where the prohibited act was rightly dealt with. This is not a case where any other provision but section 113 could be applied. In the facts peculiar to this case, the invocation and application of section 113 also was permissible. - Decided against the appellant.

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• 2016 (6) TMI 627
  Seeking release of gold bars - whether the seized gold is a smuggled goods or not - show cause notice was issued - Though the respondent seemed to have produced an authorisation letter, dated 13.10.2013, to carry gold from Kolkatta to Chennai, it is the contention of the department that the said authorisation letter is a fabricated document to bring smuggled gold bars to Chennai. - Held that:- if the subject gold is ultimately sold by the dealer, it would not be possible for verification or production before the competent authority, in the adjudication proceedings and to protect the interests of the revenue, the appellants are directed to release 15.160 kg of Gold Bars to the respondent, which was seized vide Mahazar dated 14th October 2013, subject to the conditions.

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• 2016 (6) TMI 626
  Levy of penalty on person-in-charge of vessel or its agent - scope of the term agent / any other person - Import of MS Scrap/plates from UAE - Import General Manifest - entire manifested quantity of 797.37 MTS of MS Steel Scrap and 302.29 MTS of MS Plates, has not landed as all the 40 containers were found empty. - penalty proceedings for short landing of the goods has been initiated under Section 116 of the Act. - Held that:- A careful scrutiny of Sub-Section (2) of Section 148 of the Act makes it abundantly clear that an agent appointed by the person-in-charge of a conveyance and any person who represents himself to any officer of customs as an agent of any such person-in-charge, and is accepted as such by that officer, shall be liable for the fulfilment in respect of the matter in question of all obligations imposed on such person-in-charge by or under the Act. Thus, the liability to pay penalty set forth in Section 116 of the Act upon the 'person-in-charge' is, therefore, liable to be fulfilled by the agent appointed by such person-in-charge of the conveyance as well. The import manifest is not a mere document of intimation of arrival of a vessel carrying imported goods but also contains a verified statement to vouchsafe for the truthfulness of the contents of the import manifest. The importance and significance of lodging import manifest can be gazed from Section 31 of the Act. Lodging import manifest under Section 30 of the Act has a direct bearing upon the controversy at hand. Thus, whoever lodges the import manifest with the proper officer of the Customs, acts as such, as an agent of the Master of the vessel. Whoever delivers the import manifest under sub-section (1) of Section 30, other than the person-in-charge of the carrier/conveyance falls within the expression "any other person" The appellant, for all practical purposes, is liable to be treated as "any other person" if not as an agent of the "person-in-charge" of the conveyance and hence liable to suffer the penalty as provided for under Section 116 of the Act. - Decided against the appellant.

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• 2016 (6) TMI 625
  Criminal proceedings against the Examining Officer, Customs House, Calcutta - period of limitation - Proceedings under Section 120B read with Sections 420/511/468/471 of the Indian Penal Code and under Section 13(2) read with Section 13(1) (d) of the Prevention of Corruption Act, 1988 - Held that:- , the criminal prosecution against the present petitioner will be barred after expiry of three months from the date of accrual of cause of action and without giving notice in writing of one month as laid down in Section 155(2) of the Customs Act, 1962. The present criminal proceeding initiated against the petitioner after about 14 months from the date of accrual of cause of action is, thus, barred under Section 155(2) of the Customs Act, 1962. Since the criminal proceeding against the petitioner is barred by limitation, the continuation of the said criminal proceeding against the petitioner will be an abuse of the process of the court. Said criminal proceeding against the petitioner quashed.

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• Service Tax

• 2016 (6) TMI 624
  Business Auxiliary Services - commission received towards disbursement of salary of Government teachers - Held that:- the very same issue in the appellant s own case is reported as Janata Sahakari Bank Ltd. Vs. Commissioner of Central Excise, Pune-III - [2015 (5) TMI 635 - CESTAT MUMBAI], this Tribunal has held that commission received by the appellant from the Government of Maharashtra for disbursement of government teachers salary, cannot be charged to Service Tax. - Demand set aside - Decided in favor of assessee.

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• 2016 (6) TMI 623
  Scope of the term and taxability of Port Service - Authorized operations - Held that:- By reading the provisions in respect of definition of port services , as it was defined for the period prior to 1.7.2010 and for the period after 1.7.2010 and also after making a reading of corresponding taxable service(s) under Section 65(105)(zn) and (zzl), it is clear that various services which were rendered within the port area by the appellant in question, the said services cannot be called and categorised as port service for levying service tax when the definition of port service during the relevant period did not exactly cover such services which were rendered by them for transportation of goods , handling of cargo , etc., within Port area. Any service rendered by anyone unless it was by the Port itself or unless there was proper authorisation for port services only could not be taxed under the head of port services - in respect of the respective services rendered by the appellant, M/s. HML Agencies (P) Ltd., Mangalore during the relevant period, they cannot be made liable to pay service tax under the category of port services. Consequently the impugned order confirming the demand along with interest and imposing penalties under various provisions of Service Tax Law i.e., the Finance act, 1994 is hereby set aside - Decided in favor of assessee.

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• 2016 (6) TMI 622
  Banking and Financial Service - eligibility of cenvat credit before seeking registgration - bonafide belief that the activities were not subject to service tax - Extended period of limitation - Held that:- adjudicating authority himself has accepted that the appellants were advised by their statutory auditors that services rendered by them attract service tax and that they thereon obtained service tax registration on 08-06-2009. It is also not in dispute that the appellant, pursuant to scrutiny of records by department in August 2009, but well before the issue of the show cause notice on 24-04-2010, had worked out their service tax liability for the period December, 2004 to August, 2009 as being 3,77,37,965/-, and had partly discharged the said liability by adjustment of 2,21,20,238/- from Cenvat credit and balance of 1,56,17,727 along with interest liability thereof 27,09,290/- total 1,83,27,017/- was paid by them by GAR-7 Challan dated 17-09-2009. The department has demanded a slightly higher tax liability, for the same period, of 3,89,86,389/- along with interest thereon. Cenvat Credit - appellant was entitled to avail Cenvat credit on documents evidencing receipt of eligible inputs, capital goods or input services , even before the date they obtained service tax registration. They can very well adjust part or whole of their service tax liability by utilization of such credit availed, subject to the relied upon invoices/ documents evidencing sufferance of tax/duty found to be otherwise eligible for such availment pe se for the purposes of Cenvat Credit Rules, 2004. There is no justification for equal penalty under section 78 of the Finance Act, 1994; the same requires to be set aside, which we hereby do. We however do not interfere with the penalties imposed under Sections 76 and 77(1) (a) ibid. - Decided partly in favor of assessee.

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• 2016 (6) TMI 621
  Waiver of pre-deposit - appellants sought rectification of mistake/modification of stay order - Held that:- the contention of the petitioner/appellant that the Tribunal committed an error and observed that petitioner has handed over 42 flats to the land owner does not appear to be correct. During the hearing, the Bench asked the learned counsel to point out in the impugned order, the relevant portion in which the valuation /demand is arrived at by observing that the petitioner has handed over 30 flats only to land owner. However, the learned counsel could not do so. Instead, he submitted that in the Annexures/tables to the show cause notice on counting the number of flats given to land owner, it would come to 30 flats. With regard to the contention of the appellant that the Bangalore Bench of Cestat has granted entire waiver of pre-deposit, we are not bound by the said decision in stay application, as it is not a precedent being an interim order and further, from the facts presented by the case in hand, it appears that the facts are not identical. The stay order does not call for any modification/rectification. The appellants are therefore, directed to comply with the direction of pre-deposit passed in the stay order dated 14-12-2015/12-04-2016 within a period of 4 weeks. - No relief to the assessee.

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• 2016 (6) TMI 620
  Claim of refund of interest and penalty paid earlier - whether the Appellant would be eligible for interest on penalty of 78,763/- and interest on interest of 2,03,472/- which was paid pursuant to the OIO and whether the rate of interest would be 6% or 12% p.a. - Held that:- Larger Bench of the Tribunal in the case of Advance Mechanical Works [2004 (12) TMI 107 - CESTAT, MUMBAI], after referring to the judgment of Hon'ble Supreme Court on the subject held that interest is not payable on penalty amount and also on the interest paid subsequent to the Adjudication order. Interest @ 6% on the delayed refund as per the relevant notification would only be admissible. - Decided against the assessee.

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• 2016 (6) TMI 619
  Refund - Cenvat Credit - Export of services - Scope of Rule 2(l) - input service - The Commissioner has rejected the refund of works contract service on the ground that the said services was excluded from the definition of the input service under Rule 2(l) of Cenvat Credit Rules, 2004 - Claim of interest on delayed refund. Held that:- Works Contract Services are excluded only when it is used for construction service, whereas in the present case input services were used for maintenance of office equipment and building therefore, this particular works contract service does not fall under the exclusion category in the definition of input service, therefore works contract service in the present case is input service and eligible of refund under Rule 5. - Decided in favor of assessee. Interest on delayed refund - Held that:- irrespective of any circumstances whatsoever, if there is delay beyond three months from the filing of refund, the department is duty bound to grant the interest for the delayed period in sanctioning the refund. - Decided in favor of assessee.

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• 2016 (6) TMI 618
  Levy of penalty - Cenvat Credit - duty paying documents - removal / transfer of capital goods to SSAs - Held that:- The appellant ought to have paid the duty or reversed the credit availed when the capital goods were transferred. The appellant has reversed the credit after passing of the order-in-original. The violation of provision of Rule 3(5) is explicit. - There is no ground for waiver of penalty - Decided against the assessee.

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• 2016 (6) TMI 617
  Refund - Cenvat Credit - Export of services by 100% EOU - nexus of various input services with output service - Held that:- The period involved is prior to 01-04-2011 when the definition of input service had a wide ambit as it included the words ‘activities related to businesses’. Most of the services are mentioned in the inclusive portion of the definition. - appellant is eligible for refund. - Decided in favor of assessee.

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• Central Excise

• 2016 (6) TMI 616
  Validity of Bill of Entry with the endorsement on a separate sheet of paper made in pursuance with the Circular No. 179/13/96-CX dated 29.2.1996 for the purpose of availing credit - Held that:- The said Circular initially permitted availment of credit on the basis of Bill of Entry with endorsement by the proper officer of Customs. Later on, on 22.3.006 the requirement of endorsement of Proper Officer of Customs was done away. Therefore, in terms of Circular the importers’ endorsement was sufficient. In view of the above, the endorsements done by the importer become sufficient for the purpose of availement of credit on the strength of Bill of Entry. - Decided in favour of assessee

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• 2016 (6) TMI 615
  Cenvat credit on services received - non payment of duty - though the entire Service Tax was recovered from the appellant by the service provider M/s Radha Enterprises but the same was not deposited with the department - Held that:- Appellant took cenvat credit on the basis of cenvatable documents received from M/s Radha Enterprises, Durgapur. No evidence could be produced by the Revenue that at the time of taking credit appellant was aware of non tax payment status. It is also observed from the case records that appellant has relied upon the following case laws that for nonpayment of service tax action can be taken against the service provider & not against the assessee who takes Cenvat Credit like Vikas Pipes Vs. CCE Chandigarh [2003 (10) TMI 59 - PUNJAB AND HARYANA HIGH COURT ] In view of the above cenvat Credit was rightly taken by the appellant.

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• 2016 (6) TMI 614
  Cenvat Credit in respect of supplementary invoice issued by the service provider for payment of service tax for the past period - Commissioner (Appeals) allowed the Cenvat Credit on the ground that the restriction provided under Rule 9(1) (b) of Cenvat Credit Rules was not applicable in respect of service tax paid whereas the same was applicable to the inputs and capital goods.Held that:- As during the relevant period of this case, Rule 9(1) (b) of Cenvat Credit Rules, 2004, does not put any restriction for availing the Cenvat Credit on the supplementary invoice in respect of input services received by the assessee. Admittedly, the restriction was brought by insertion of Sub-clause (bb) of Rule 9(1) of Cenvat Credit Rules w.e.f. 1.4.2011. Therefore prior to 1.4.2011 the credit cannot be denied borrowing the restriction provided in unamended Rule 9(1). This proposition has been endorsed by the various Tribunal decision as cited by the Ld. Counsel. - Decided in favour of assessee

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• 2016 (6) TMI 613
  Reduction of penalty to 25% under Section 11AC - whether option of reducing penalty can be allowed after passing the adjudication order at the appellate stage ? - Held that:- As the very same issue has been decided by the Jurisdictional High Court of Bombay in the case of Castrol India Ltd. (2012 (6) TMI 697 - BOMBAY HIGH COURT ) that the benefit of 25% as provided under Section 11AC cannot be extended at the appeal stage, irrespective of whether the option in explicit manner given by the adjudicating authority in the adjudication order or otherwise. Following the ratio of the above judgment, I find that the impugned order does not suffer from any infirmity and the same is upheld

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• 2016 (6) TMI 612
  Interest on refund - Held that:- There is a time gap between the refund received and paying back thereof to the Treasury. Learned Adjudicating Authority is directed to realise interest for the time gap due to availing of public money by the appellant and appropriate notice be issued in that regard upon calculation for recovery. Adjudicating Authority is directed to conduct an enquiry within 15 days of receipt of this order on the basis of material available on record as well as seeking co-operation of the appellant. On the basis of the outcome of the enquiry confronting the result thereof, the Authority shall pass appropriate order. It is expected that the whole process is completed by the end of June, 2016.

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• 2016 (6) TMI 611
  Tribunal discretion to refusal of to admit the appeal - Held that:- The present case, the impugned order was passed by the Commissioner(Appeals) under Section 35A which is specified under Clause (b) of sub-section (1) of Section 35B. In view of Second proviso to Section 35B (1), this Tribunal has discretion to refuse of to admit the appeal in respect of order referred to clause (b) or Clause (c) or clause (d) where amount of duty, amount of fine or penalty determined by such order does not exceed 50,000/-(before 6/8/2014) and 2 Lakhs (on or after 6/8/2014). In view of the above discretion provided to this Tribunal, refuse to admit this appeal. Therefore appeal is dismissed only on the ground that amount is below threshold limit of 50,000/- without going into merit of the case.

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• 2016 (6) TMI 610
  Cenvat Credit in respect of services namely Customs House Agents, Port Authorities, and Storage of Warehousing at Port - denial of claim on the ground that they have received the services at Port, which is beyond the place of removal - Held that:- This Tribunal consistently taken a view in various decisions that in case of export, the place of removal stand extended to the port of export therefore the services received and used in respect of export is not beyond the place of removal. The Board Circular No. 996/6/2015-CX dt. 28.2.2015 also clarified that in case of export the place of removal is the port of export, therefore all the services received and used in relation to export of goods are admissible input services. As regard refund since the amount of refund is towards the deposit made during the proceedings of the Cenvat Credit case and since the appellant is entitled for the Cenvat Credit the amount deposited in connection with the said proceeding shall stand refundable to the appellant. Thus appellant is entitled for the Cenvat Credit in respect of all the three services and consequently entitled for the refund.

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• 2016 (6) TMI 609
  Non imposition of equal amount of penalty under Section 11 AC - main contention raised by Revenue is that when the demand is confirmed, the penalty should be equal to the demand confirmed - Held that:- AR is using the words confirmation of demand and determination of duty interchangeably. We cannot agree to this submission. Section 11 AC uses the word duty as determined . The Commissioner (Appeals) has relied on several judgments while upholding the view taken by adjudicating authority in giving the benefit of adjusting the Cenvat credit. In Aditya Industries Vs. CCE, Hyderabad (2007 (2) TMI 550 - CESTAT, BANGALORE ) the Coordinate Bench of the Tribunal observed that, since the Modvat credit available to the appellants is much more than the duty demanded, no further demand is sustainable. The said demand can be adjusted against the credit claimed by the appellants. Therefore, the penalties on the appellants are not sustainable. - Decided in favour of assessee

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• 2016 (6) TMI 608
  Denial of Cenvat credit of service tax paid by Unit-I for Unit-III - Held that:- In absence of any negative finding made by grass root level officers as to the non-existence of Unit-III or no integral connection between Unit-I and Unit-III, which were engaged in the manufacturing operation and the rental of Unit-III was paid by Unit-I to achieve the object of manufacture, but dependency and integral connection comes out, there cannot be denial of Cenvat credit of service tax paid by Unit-I for Unit-III. - Decided in favour of assessee

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• 2016 (6) TMI 607
  Penalty imposed under Rule 15(2) of Cenvat Credit Rules - suppression of fact or fraud - whether the Commissioner (Appeals) has no power to remand? - Held that:- The Commissioner (Appeals) has not remanded the matter. The Commissioner (Appeals) upheld the recovery of credit availed and used for civil construction and machinery support structures and directed the jurisdictional Divisional Officer to quantify the demand. In fact there is no order of remand for adjudication of an issue passed by the Commissioner (Appeals). Therefore, the first ground raised by Revenue fails. In the Order-in-Original the original authority has observed that the respondent availed credit by suppressing the fact of utilisation of items and details of manufacture. The credit was availed as inputs. It is not disputed that the respondent has disclosed the credit availed in ER-1 returns and the Cenvat credit statement filed by them. In fact, the show cause notice is issued on the basis of these ER-1 returns and furnishing of informations by the respondent. There is no case for revenue that any hidden information was received by inspection or search. So the conclusion of the Commissioner (Appeals) that the facts of the case do not pose a situated for imposing penalty, does not call for any interference.

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• 2016 (6) TMI 606
  Credit on MS items used for repair and maintenance of storage tanks used for storing petroleum products - Held that:- The storage tanks are used for storing petroleum products. It is compulsory for the appellant to have these tanks kept under the earth as safety measure. This does not make a storage tank a civil structure. The product that is stored in these tanks are extremely dangerous and there are statutory norms to be followed while transferring, carrying or storing petroleum products. The appellant has to abide by standards/guidelines issued by Oil Industry & Safety Directorate. The product manufactured has to be stored in metallic tanks, which are kept under the earth and these tanks have to be periodically repaired and maintained to prevent seepage. Hence repair and maintenance of storage tanks can be said to be integral part of manufacturing process carried out by appellant. Thus the credit on steel items used for repair and maintenance of storage tanks is admissible. - Decided in favour of assessee

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• 2016 (6) TMI 605
  Appropriation of interest amount against the rebate claim sanctioned to appellant - Held that:- This Tribunal vide Final Order allowed the refund of 43,96,488/- holding that the credit availed on duty paid on ethyl alcohol is admissible. On such score, it is find that the appropriation of the amount of 18,18,986/- being the interest upon 43,96,488/- against the rebate claim sanctioned to the appellant is not legal or proper. The appellant is eligible for the sanctioned rebate claim without reduction of interest of 18,18,986/-

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• 2016 (6) TMI 604
  Tribunal discretion to refusal of to admit the appeal - Held that:- The present case, the impugned order was passed by the Commissioner(Appeals) under Section 35A which is specified under Clause (b) of sub-section (1) of Section 35B. In view of Second proviso to Section 35B (1), this Tribunal has discretion to refuse of to admit the appeal in respect of order referred to clause (b) or Clause (c) or clause (d) where amount of duty, amount of fine or penalty determined by such order does not exceed 50,000/-(before 6/8/2014) and 2 Lakhs (on or after 6/8/2014). In view of the above discretion provided to this Tribunal, refuse to admit this appeal. Therefore appeal is dismissed only on the ground that amount is below threshold limit of 50,000/- without going into merit of the case.

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• CST, VAT & Sales Tax

• 2016 (6) TMI 631
  E-Fraud - Andhra Pradesh Value Added Tax, 2005 (AP VAT) - validity of assessment order - principle of natural justice - E-way bills were generated in the name of petitioner, but in fact they were not generated by the petitioner from the AP VAT portal. - The main endeavor of the learned counsel for the petitioner is that the petitioner is not liable to pay VAT and CST as the petitioner did not generate the E-way bills except two CST E-way bills referred above on 19.05.2015 and 09.06.2015, more particularly, when those E-way bills were generated by the third party and criminal complaint was filed against the person who hacked the Commercial Taxes Website and generated E-way bills. Held that:- The complaint filed against unknown, but during investigation, arrested the accused on suspicion, produced before the Magistrate along with remand report may at best, the allegation made against those persons, for commission of alleged offence, till it is proved beyond reasonable doubt before the criminal court, it is difficult to accept the contention of the petitioner. Therefore, in those circumstances, the petitioner who was provided with user ID and password and maintaining privacy of the account as per the norms affixed by the Central Government, the petitioner cannot be exonerated from liability to pay tax on the turnover covered by E-way bills which was generated by the petitioner. Therefore, we find no ground to exercise judicial discretion to grant any relief in this writ petition. - Writ petition dismissed.

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• 2016 (6) TMI 630
  Refund of excess tax credit - genuineness of credit - purchase of goods from local VAT dealers, and sale of those goods partly in inter-state trade and commerce, and partly as export sales - denial of credit on the ground that the selling dealers, i.e., the dealers from whom the petitioner had purchased the subject goods, had not effected sales of edible oil - Held that:- While the purchasing VAT dealer would not be entitled to claim input tax credit without obtaining a tax invoice from the selling VAT dealer, mere production of a tax invoice would not disable the assessing authority from enquiring whether the sale of goods, referred to in the said tax invoice, is genuine or whether the said tax invoice has been issued by a registered VAT dealer. Section 16 of the Act relates to burden of proof and, under subsection (1) thereof, the burden of proving that any sale or purchase effected by a dealer is eligible for input tax credit shall lie on the dealer. It is for the petitioner, in reply to the show cause notice issued by the assessing authority, to prove that the goods were physical delivered to him by the 6th respondent, and the mode and manner in which they paid the sale price to the 6th respondent; and to satisfy the assessing authority that, notwithstanding failure of the selling VAT dealer to disclose the turnover (representing the sale of goods by them to the petitioner) in their returns, the goods had, in fact, been sold to them. Maintainability of writ petition - Held that:- In the exercise of its jurisdiction, under Article 226 of the Constitution of India, this Court would not sit in appeal over the findings of fact recorded by the assessing authority, or cause a roving enquiry as to whether or not the selling VAT dealer had deliberately suppressed the turnover in their returns after effecting sales to the petitioner herein, or to examine whether or not the petitioner had taken delivery of the subject goods and had paid the sale consideration to the 6th respondent. This Court would also not substitute its views for that of the assessing authority. It is only if the impugned order suffers from an error of law apparent on the face of the record would this Court interfere. The impugned order does not suffer from any such infirmity. Writ petition fails - Dismissed.

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• Indian Laws

• 2016 (6) TMI 603
  Liquor licences - power/authority to add, delete or cancel any kind of category of licence in the Excise policy without amending the relevant Acts and the Rules where there is a chart of liquor licences - Held that:- (i) The respondent is empowered to incorporate sub clause (ii) of clause 2.14 in the Excise Policy 2016-17 but the same is held to be invalid and inoperative to the extent it does not prescribe the manner and the method of its issuance by the manufacturers or the distilleries. It shall be open to the respondent-authorities to make appropriate amendment and prescribe necessary guidelines to the manufacturers/distilleries for issuing consent/authority letter to eligible applicants either by draw of lots, auction or any other mode providing equal opportunities in a transparent and objective manner. It shall, however, be open for the respondents to retain such right with the concerned authority, if so required. - (ii) If after taking corrective measures and inviting fresh applications/offers, in case no fresh offer or application comes forth, the allotments, if any, already made shall continue for the rest of the period.

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