TMI Tax Updates - e-Newsletter
June 9, 2014

Case Laws in this Newsletter:

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

Articles

1. JOb Work under Central Excise & Service Tax

   By: Madhukar N Hiregange

News

1. Union Finance Minister Holds Pre-Budget Consultation with the Representatives of Industry and Trade Groups; Calls for Directional Thrust to Translate Enthusiasm among the Industry into better Results

2. Union Finance Minister Holds Pre-Budget Consultation Meeting With the Representatives of Trade Union Groups; Skill Development to be Given Priority for Generating Employment Oppurtunities

Notifications

FEMA

1. 305/2014-RB - dated 22-5-2014 - FEMA

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Sixth Amendment) Regulations, 2014

Circulars / Instructions / Orders

FEMA

1. 141 - dated 6-6-2014

Pledge of shares for business purposes in favour NBFCs

Highlights / Catch Notes

Income Tax

• Court Rules on "Reason to Believe" Requirement in Tax Assessment Reopenings; Emphasizes Strict Criteria Compliance.

  Case-Laws - HC : Validity of notice for reopening of assessment – Reason to believe - Remedial actions indicated could not be said to be satisfying the requirement of having held the belief - HC
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• Income Tax Act Section 271(1)(c) Penalty Confirmed: Tax and Related Interest Not Deductible u/s 37.

  Case-Laws - AT : Penalty u/s 271(1)(c) - If income-tax itself is not a permissible deduction u/s 37, any interest payable for default committed by the assessee in discharging his statutory obligation under the Act, which is calculated with reference to the tax on income cannot be allowed as a deduction - penalty confirmed - AT
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• Non-compete fees may count as salary income, even with separate agreements, if the work benefits the employer.

  Case-Laws - AT : Non-compete fee as salary income – the mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when all the work done under the agreement was performed by the employee for the benefit of the employer - AT
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• Repairs and renovations on rented office premises are revenue expenses, not capital assets for taxpayers.

  Case-Laws - AT : Nature of expenses – even if the substantial amount is spent on repairs and renovation of office premises taken on rent, it is to be allowed as revenue expenditure because no capital asset is acquired by the assessee - AT
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Customs

• Goods Classified as Household Water Filters Due to Their Purification Process and Functionality.

  Case-Laws - AT : Classification of goods - Water purifier or water filter - processes undertaken are all purification of water through filtration and different materials are used to undertake the filtration to achieve higher levels of purification - qualify to be classified as household type filters - AT
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Service Tax

• Appellant's 'Cargo Handling Service' Activities Cannot Be Combined for Service Tax Imposition, Court Rules.

  Case-Laws - AT : Cargo Handling service - clubbing all the activities undertaken by the appellant under ‘Cargo Handling Service’ and levying service tax under the said category cannot be sustained in law. - AT
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• CENVAT Credit Denied for Services in Building Construction; Partial Stay Granted by Court.

  Case-Laws - AT : CENVAT Credit - it has been specifically provided that the credit would not be available when the services are used for construction of a building or a civil structure or a part thereof. - stay granted partly - AT
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Central Excise

• Valuation of Motor Vehicles for Job Work Set u/r 10A, Based on First Sale by TML.

  Case-Laws - AT : Determination of assessable value - Job work - Since the said motor vehicles were not sold by the appellants and sold for the first time by TML, the value was to be determined in this case under Rule 10A of the Central Excise Valuation Rules - AT
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• Mandatory Penalties Without Mens Rea: Assess Each Case Individually; Authorities Should Have Discretion in Minor Delay Instances.

  Case-Laws - HC : Constitutional validity of mandatory penalty even in the absence of mens rea - Each case must be decided on its own facts and circumstances. There may be cases where the delay is only of a day or two and the authorities must be given the discretion to impose the penalty which they feel is reasonable in the facts and circumstances of the case - HC
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Case Laws:

• Income Tax

• 2014 (6) TMI 189
  Disposal on merits – legal representative - civil dispute with regard to who are the legal heirs are still to be resolved - Held that:- Unless there is proper adjudication by the civil court with regard to the legal representatives of late M.P. Jairaj, nothing can be done further in the matter - the Tribunal was justified in directing the AO to await the outcome of adjudication with regard to L.Rs of late M.P.Jairaj by the civil court –there was no substance in the appeal – the Tribunal has rightly refused to interfere with the order – Decided against Revenue.

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• 2014 (6) TMI 188
  Validity of notice for reopening of assessment – Reason to believe - Held that:- Relying upon Gujarat Fluorochemicals Ltd. v. Asst. CIT [2013 (8) TMI 287 - GUJARAT HIGH COURT] – the noting made by the AO that the AO did not hold any belief that income had escaped assessment – Examination of noting clearly and unequivocally reveals that the AO had not only not accepted the objections raised by the audit party but after deliberating over the issue raised, preferred to adhere to her earlier version that the income which never materialised cannot be taxed. Remedial actions indicated could not be said to be satisfying the requirement of having held the belief - while issuing notice for reopening, the AO had not formed any independent belief that the income had escaped assessment - the AO has issued notice not on forming her own belief, but on compulsion asserted – thus, the assumption of jurisdiction on the part of the AO itself is not sustainable - any action of reopening solely at the behest of objection raised by audit party without any independent belief while recording the reasons would surely make the very assumption of jurisdiction vulnerable - the petitions is to be allowed on the ground of assumption of jurisdiction for issuance of notice of reassessment being contrary to law and unsustainable - Decided in favour of Assessee.

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• 2014 (6) TMI 187
  Benefit of deduction u/s 80IB of the Act - Revenue contended that in mixing, the complete manufacturing does not occur and it is only one of the several processes involved in the work, therefore, the claim that mixing charges also constitute income from "manufacturing" was rejected – Held that:- Following Midas Polymer Compounds P. Ltd. v. Asst. CIT [2010 (12) TMI 414 - Kerala High Court] - The Tribunal has held that the assessee is eligible for such deduction - the Revenue did not file special leave petition before the Supreme Court as the tax effect was below the prescribed monetary limits for filing special leave petition – thus, there is no need for interference in the order of the Tribunal – Decided against Revenue.

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• 2014 (6) TMI 186
  Permission from Committee of disputes - Disallowance of claim of bad debts as per Explanation to clause (vii) read with clause (viia) of section 36(1) of the Act – Held that:- Revenue submitted that it was not open to the assessee to raise an issue of disallowance of bad debts before the FAA arising from the order of assessment passed after the order dated October 10, 2003, passed by the Commissioner in revision u/s 263 of the Act - he submitted that the order dated March 28, 2002 had attained finality - it was not open to the appellate authority to consider the issue of disallowance of bad debts and allow the appeal - This position has not been disputed he submitted that he has no objection for remand of the matter to the first appellate authority to consider the issue of disallowance of bad debts afresh including the contentions urged by Mr. K. V. Aravind - when the Revenue filed an appeal against the order of the FAA before the Tribunal, they had raised the issue in the present appeal and before the Tribunal they challenged the order of the first appellate authority in respect of the disallowance of bad debts on the merits – thus, the matter is required to be remitted back to the FAA for fresh adjudication – Decided in favour of Revenue. Deletion of accrued interest on broken period – Held that:- During the pendency of the appeal, the Revenue informs the court that the COD refused permission to file an appeal - the appeal raising the substantial question is not maintainable and the question need not be answered – Relying upon Electronics Corporation of India Ltd. v. Union of India [2011 (2) TMI 3 - Supreme Court] - permission of the COD in fact was not required - revenue could not and did not convince to take the matter further in view of the Office Memorandum – Decided against Revenue. Permission from Committee of Disputes – Subsequent restoration of appeal not recorded – Adjustment of book profits u/s 115JA of the Act – Held that:- The Tribunal dismissed the appeal of the Revenue on the assumption that permission was refused by the COD and, therefore, the Tribunal did not record any finding on the merits of the case and the Tribunal dismissed the appeal without reserving liberty to the Revenue to file a fresh appeal after obtaining permission of the COD - the COD granted permission to file an appeal before the court against the order of the Tribunal on the same issue and, the matter is required to be remanded back to the Tribunal for fresh adjudication – Decided in favour of Revenue.

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• 2014 (6) TMI 185
  Disallowance u/s 14A r.w. Rule 8D of the Act - Bifurcation of expenses – Held that:- The assessee was having shareholding funds and the investment - the assessee had sufficient funds for making the investments and it has not used the borrowed funds - there is nothing on record to indicate that there has been any actual expenditure incurred by the assessee for earning tax-free income of Rs. 14 crores – Relying upon CIT v. Suzlon Energy Ltd. [2013 (7) TMI 697 - GUJARAT HIGH COURT] - the Tribunal has rightly bifurcated the expenditure in two parts-first related to investment in foreign subsidiaries - the dividend income from such subsidiaries is taxable in India and that therefore, section 14A would have no applicability - The remaining amount pertain to investment of Rs. 38 crores-(rounded off) made in Indian subsidiaries - the assessee had to its disposal, own interest-free funds many times over the investment - it clearly emerges from the material on record that no expenditure was incurred for earning the exempted income and that being the question of fact, the disallowance of 1 percent of interest expenditure artificially or on the basis of assumption rightly has not been sustained by the Tribunal – Decided against Revenue.

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• 2014 (6) TMI 184
  Validity of revisional order - Status of assessee - Co-operative bank or a primary co-operative credit society – Claim of benefits u/s 80P of the Act - Held that:- The entire discussion of the revisional authority is directed against the application of mind by the AO with reference to the nature of business conducted by the assessee - the AO is required to apply his mind and conduct proper enquiry and also verification at the time of assessment - Lack of this exercise on the part of the AO leads to erroneous order - the reasoning of the revisional authority was not merely based on the name of the assessee but with reference to the factual situation in relation to an enquiry to arrive at a conclusion whether the benefits can be extended or not in the light of section 80P(4) of the Act. The revisional authority observe that the AO has to reconsider the matter in the light of the observation made in the order of the revision by which it means what exactly should be the nature of enquiry to be conducted by the AO and it does not mean that he has to complete his assessment proceedings after concluding the same similar to the conclusions arrived at by the revisional authority – there was no erroneous observations made by the revisional authority – the AO is directed to pass a fresh assessment order after making necessary enquiries as observed in the order of revisional authority – Decided against the assessee.

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• 2014 (6) TMI 183
  Admissibility of appeal as per Rule 19 of the ITAT Rules, 1963 - Held that:- Following CIT vs Multiplan (India) Pvt. Ltd. [1991 (5) TMI 120 - ITAT DELHI-D] - issuance of notice under Rule 19 itself does not make the appeal admissible - Non-attendance makes the appeal defective and the assessee has to correct the same by giving proper address - the appeals are to be held as unadmitted with a liberty to assessee to move appropriate application and explaining the reasons for its non-appearance if so advised and pray for a recall of the order and adjudication on merits – Decided against Assessee.

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• 2014 (6) TMI 182
  Deduction u/s 43B against payment of past dues - Relevant Financial year - payment of service-tax and sales-tax – Held that;- The extended period for paying any sum covered u/s 43B is only in respect of the sums for which the liability arises during the relevant previous year, so that even if not paid during the year but by the date of furnishing the return for that year, deduction in its respect, notwithstanding the prescription of section 43B, i.e., actual payment, would hold – it would apply only to the sums pertaining to the FY 2007- 08, the PY relevant to A.Y. 2008-09 - the entire liability relates to a period/s prior to FY 2007-08 – thus, it would be allowed only in the year of payment, and which happens to be the PY relevant to the current AY – there was no merit in the revenue’s appeal – Decided against Revenue.

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• 2014 (6) TMI 181
  Deletion of penalty u/s 271(1)(c) of the Act - Addition of excess expenses – Disallowance u/s 43B of the Act – Held that:- CIT(A) has mentioned that similar addition was made for the immediately succeeding AY 1999-2000 on which penalty imposed by the AO came to be finally deleted by the tribunal - revenue could not controvert the factual position stated in the order - the tribunal has ordered for the deletion of penalty on identical facts, the order of the CIT(A) in deleting penalty is upheld. Disallowance of Production bonus – Held that:- The assessee did not accept the addition made by the AO but challenged the same, which was knocked down in the first appeal in the quantum proceedings – revenue has failed to refute the finding in the order that the Revenue did not carry this issue before the tribunal in quantum proceedings - the bedrock for the penalty on the issue, being the addition does not exist, there can be no question of imposing or confirming any penalty on the amount. Interest income earned but not offered for taxation – Held that:- The assessee earned such interest income but instead of showing it as income directly took it to reserve account - When a particular item of income earned by the assessee is routed to balance sheet without passing through the Profit and loss account, the natural interference which is to be drawn is that the assessee did not intend to offer such amount to tax - No explanation has been advanced on behalf of the assessee as to under which circumstances the amount was not offered for taxation but straightway taken to the reserve account in balance sheet- It is a clear cut case of concealment of income warranting the imposition of penalty - By overturning the order, the penalty was rightly imposed by the AO on the amount – the order of the CIT(A) is set aside. Abandonment reserve – Assessee’s 25% share in expenses from PSC for the exploration of crude oil – Held that:- The amount of abandonment cost fell on the assessee at the end of each year though it was to be discharged at the end of the stipulated period - Under the mercantile system of accounting, an expense is allowed as deduction on incurring the liability irrespective of the actual discharge - it cannot be ruled out that the assessee took a possible view in claiming deduction for the amount - where two possible views exist and the assessee has taken one of them, then the penalty is not leviable, if the possible view canvassed by the assessee is not accepted - the assessee has prima facie demonstrated that the deduction claimed by it for such Abandonment cost is a possible view despite the same having not been challenged in the quantum proceedings. Disallowance of Interest expenses – Held that:- Payment of income-tax is not an item of expenditure - The amount of income-tax is an item of appropriation of income and not a charge against the income - the amount of income-tax can be ascertained only after the amount of profit is first determined - What to talk of claiming deduction for payment of income-tax, even the interest paid for payment of income-tax is not an allowable deduction – Relying upon Bharat Commerce and Industries Ltd. Vs CIT [1998 (3) TMI 2 - SUPREME Court] - The liability in the case of payment of income-tax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business - If income-tax itself is not a permissible deduction u/s 37, any interest payable for default committed by the assessee in discharging his statutory obligation under the Act, which is calculated with reference to the tax on income cannot be allowed as a deduction - the assessee claimed deduction for payment of income-tax by clubbing it with `Interest expenditure’, which amount is clearly not allowable, the provisions of sec. 271(1)(c) of the Act were rightly magnetized – Decided partly in favour of Revenue.

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• 2014 (6) TMI 180
  Reduction of disallowance – Relevant details not furnished - Held that:- CIT(A) restricted the disallowance and was of the view that in the absence of cogent reasons, since authenticity of expenditure could be susceptible, some reasonable amount could be disallowed, but not the entire amount as pointed out by the AO - Revenue was called upon to furnish the details such as total turnover, total expenditure incurred towards wages, salaries, conveyance, and other expenses and travelling expense – revenue was not able to furnish any details - it is not the case of the Revenue that the expenditure incurred by the assessee is excessive or it was not incurred at all - the assessee contended that even though fool-proof evidence could not be furnished, authenticity of such expenditure cannot be disputed, but for want of foolproof vouchers, at best, reasonable percentage of expenditure can be disallowed – revenue was unable to point out how the expenditure incurred by the assessee was excessive or unreasonable – revenue could not point out or place any material to contradict the findings of the CIT(A), thus, the order of the CIT(A) is upheld – Decided against Revenue.

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• 2014 (6) TMI 179
  Eligibility for deduction u/s 80IA of the Act - Interest on delayed payment - Sale proceeds of power generated mills – Held that:- The assessee is engaged in the business of generation of power from windmill and sale – Following M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] - what was received by the assessee from the purchaser was a component of interest towards delayed payment of the price of the goods sold, supplied and delivered by the assessee - the price realized by the assessee from the sale of goods manufactured by the price realized by the assessee from the sale of goods manufactured by the industrial undertaking constituted a component of the profits and gains derived from the eligible business - The purchaser, on account of the delay in payment of the sale price also paid interest to the assessee - This formed a component of the sale price also paid interest to the assessee - This formed a component of the sale price and was paid towards the lag which had occurred in the payment of the price of the goods sold by the assessee - the payment of interest on account of the delay in payment of the sale price of the goods supplied by the undertaking partook of the same nature and character as the sale consideration – thus, the direction given by the learned Commissioner (Appeals) is legally and factually correct and the same is upheld – Decided against Revenue.

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• 2014 (6) TMI 178
  Allowability of deduction u/s 80HHC of the Act – Deduction u/s 80IB of the Act not deducted – Held that:- Following The Asstt. Commissioner of Income-Tax Versus M/s. Transasia Bio-Medicals Limited [2014 (5) TMI 987 - ITAT MUMBAI] - the reasonable construction of section 80-IA(9) would be that where the deduction is allowed u/s 80-IA(1), then the deduction computed under other provisions under heading C of Chapter VI-A have to be restricted to the profits of the business that remain after excluding the profits allowed as deduction u/s 80-IA, so that the total deduction allowed under the heading C of Chapter VI-A does not exceed the profits of the business – thus, the assessee is eligible for deduction u/s 80HHC of the Act – Decided against Revenue.

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• 2014 (6) TMI 177
  Deduction u/s 80IB(10) of the Act – Residential units exceeding 1000 sq. ft. – Qualifying conditions not met - Held that:- Relying upon Brahma Associates. & others Versus Joint Commissioner Of Income-tax [2009 (4) TMI 215 - ITAT PUNE] - a housing project approved upto 31.03.2005, commercial user to the extent permitted under the development control rules/regulations framed by the respective local authority would hold in-as-much as the amendment in law, prescribing the said limitation came w.e.f. 01.04.2005 - Phases VII and X were approved by the local authority on 25.01.2001 and Phases XI and XIA on 14.01.2004, i.e., both prior to 01.04.2005 w.e.f. from which date clause (d) stands inserted to section 80-IB(10) –thus, the amendment would have no bearing on the allowability of the deduction under the provision for the phases of the housing project - a perusal of the details of the deduction u/s.80-IB(10) for the current year reveals a claim in the negative sum for the Phase, so that no positive deduction stands claimed for the current year – Decided against Revenue.

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• 2014 (6) TMI 176
  Admissibility of appeal as per Rule 19 of the ITAT Rules, 1963 - Held that:- Following CIT vs Multiplan (India) Pvt. Ltd. [1991 (5) TMI 120 - ITAT DELHI-D] - issuance of notice under Rule 19 itself does not make the appeal admissible - Non-attendance makes the appeal defective and the assessee has to correct the same by giving proper address - the appeals are to be held as unadmitted with a liberty to assessee to move appropriate application and explaining the reasons for its non-appearance if so advised and pray for a recall of the order and adjudication on merits – Decided against Assessee.

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• 2014 (6) TMI 175
  Addition of non-compete fee as salary income – Held that:- Following Commissioner of Income-tax – XIII Versus Kanwaljit Singh [2012 (12) TMI 168 - DELHI HIGH COURT] - the mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when all the work done under the agreement was performed by the employee for the benefit of the employer – Decided against Assessee. Deletion of interest u/s 14A of the Act – Held that:- The business income declared by the assessee towards receipt of non-compete fees has been taxed by the AO under the head ‘Salaries’ without granting any deduction for certain expenses which were originally claimed by the assessee - there is no business income left with the assessee and consequently there are no expenses for which any deduction could be allowed under Chapter IV-D of the Act - once there is no expenditure claimed as deduction by the assessee, there can be no question of making any disallowance u/s 14A because the disallowance under the section pre-supposes the claim for deduction of expenses - unless there is a deduction for any expenditure incurred by the assessee, there cannot be any disallowance u/s 14A – Decided against Revenue. Levy of interest u/s 234B and 234C of the Act – Held that:- The assessee has accepted that the addition being the non-compete fees receivable by him from Uzind Corporation should be assessed as salary income - the character of the amount of non-compete fees in the hands of the assessee is not final so far – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue.

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• 2014 (6) TMI 174
  Rejection of books of accounts – Held that:- The assessee produced the books of account and vouchers - the AO found that the voucher does not tally with the cashbook - When the voucher does not tally with cashbook, the assessee has not maintained the books of account properly - the book result will not reflect the correct profit of the assessee – thus, the AO rightly rejected the books of account – there was no infirmity in the order of the lower authority in rejecting the books of account and estimating the profit. Estimation of profit – Held that:- There was no justification in the distinction made by the revenue to show that the Tribunal estimated the profit at 8% - Relying upon State Of Kerala Versus C. Velukutty [1965 (12) TMI 32 - SUPREME Court] - section 44AD would be applicable in respect of a case where the gross contract receipt does not exceed Rs. 40 lakhs - Wherever the gross contract receipts exceed Rs. 40 lakhs the provisions of section 44AD are not applicable - the profit can be estimated either at lower than 8% or above 8% depending upon the factual situation - for the purpose of estimating the profit various factors such as the profit ratio of the assessee in the earlier year, profit ratio of the similarly placed traders in the same locality, demand for the product, availability of labourers, raw materials, etc., and the time gap available for executing the contract work, etc., have to be taken into consideration - reference to earlier order of the Tribunal alone for the purpose of estimating the profit at 12.5% may not be justified at all. Claim of seigniorage charges – Held that:- The material supplied by the Government/contractor will not have any element of profit – it shall be reduced from the contract receipts - the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit – the AO is directed that while computing the total contract receipts the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. Claim of depreciation – Held that:- Following Indwell Constructions Versus Commissioner Of Income-Tax [1998 (3) TMI 121 - ANDHRA PRADESH High Court] - an addition was made towards interest and remuneration paid to the partner when the profit was estimated and no separate addition shall be made - Depreciation is allowable u/s. 32 of the Act - as provided in section 44AD no further/separate deduction shall be allowed – thus, the claim of depreciation on the estimated income is not justified. Payment of interest and salary to the partner – Held that:- The assessment year was 1981-82 - Section 44AD was introduced in the statute book with effect from 1.4.1994 – there was no occasion to consider the provisions of section 44AD as it is applicable for the assessment year under consideration and as it would be applicable with effect from 1.4.201 – thus, the entire issue is remitted back to the file of the AO for fresh consideration – Decided in favour of Revenue. Deletion of outstanding as pointed out by the AO – Held that:- Out of the total expenditure towards diesel purchase, Rs. 4.32 crores is properly vouched – the plea of the revenue does not make any sense - the addition can be sustained at Rs. 6 lakhs - the addition at Rs. 6 lakhs which is not properly vouched. Restriction of disallowance of salaries and wages – Held that:- CIT(A) was rightly of the view that the assessee has undertaken the work in forest area and nearly 200 feet below the ground for removing the over burden - the assessee has to engage labourers and the expenditure is mostly towards wages only - payments were made by self-made vouchers only to the labourers and in this line of business it is not possible to have foolproof third party evidence - the CIT(A) sustained only Rs. 5 lakhs out of the total addition made by the AO under the head salaries and wages - the order of the CIT(A) is very reasonable and justified – Decided partly in favour of Revenue.

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• 2014 (6) TMI 173
  Assessment u/s 144 of the Act – Proper opportunity of being heard not given – Change of address – Held that:- Assessee contended that non-intimation of the change of address was not intentional but was an inadvertent omission from the assessee - due to ex parte assessment and heavy demand, the assessee has also suffered litigation and incurred the expenditure - it would meet the ends of justice if the order of the authorities is set aside and the matter is remitted back to the file of AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (6) TMI 172
  Confirmation of addition – Peak credit - Undisclosed bank account maintained - Unexplained income – Held that:- The AO noticed that certain deposits were made in the bank account maintained with State Bank of India which included cheque as well as cash deposits but the deposits were not offered to tax and in the absence of satisfactory explanation from the Assessee, the entire deposits were considered as undisclosed income - there is no material on record to demonstrate that on the evidence that were filed by the Assessee before CIT(A), any remand report or comments were called by CIT(A) - Revenue should be allowed an opportunity to examine the evidence that were filed before CIT(A) and on the basis of which relief was granted to the Assessee - With respect to cash deposits, it is the submission of the Assessee that that the entire cash deposits cannot be considered as income but only the peak credit should be considered as income - only peak credit has to be considered as income and not the entire credit – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (6) TMI 171
  Exemption u/s 10A - Relief of exclusion of communication charges from total turnover – Held that:- There was no infirmity in the order of the DRP – Following CIT vs. Gem Plus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] - communication charges attributable directly to the export of article or thing outside India has to be excluded both from export turnover as well as total turnover while computing exemption u/s 10A of the Act – thus, the order of the DRP is upheld – Decided against Revenue.

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• 2014 (6) TMI 170
  Nature of expenses – Capital or not - Purchases of timbers and laminations for repairs and maintenance of furniture and fixtures – Held that:- CIT(A) has rightly stated that considering the total block of furniture and fixtures amounting to Rs. 5.25 crores, the repairs and maintenance expenditure of Rs. 60 lakhs could not be stated to be unreasonable, particularly when the furniture and fixtures were being used for business centre - furniture and fixtures at business centre require inherently higher maintenance expenditure as business centres are used by a large number of people for commercial purposes resulting in higher wear-andtear of the furniture etc. - the assessee itself had capitalized a sum of Rs. 28 lakhs approximately on account of new furniture and fixture - Relying upon CIT vs. A.M. Singhvi [2007 (8) TMI 265 - RAJASTHAN HIGH COURT] - even if the substantial amount is spent on repairs and renovation of office premises taken on rent, it is to be allowed as revenue expenditure because no capital asset is acquired by the assessee – thus, there was no infirmity in the order of CIT(A) – Decided against Revenue.

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• Customs

• 2014 (6) TMI 194
  Maintainability of appeal - Single member bench of CESTAT decided the appeal against the assessee denying the request for adjournment - similar issue was pending before the division bench of the CESTAT of the same assessee - Held that:- This is a peculiar situation where the appeals filed by the Revenue as well as the petitioners ought to have been heard and decided together especially on account of the fact that the appeals had arisen from a common order. When it was brought to the notice of the Single Member of the Tribunal that the appeals were pending before the Division Bench, the said authority ought to have refrained from passing an order on merits. Under these circumstances, I am of the view that Ext.P4 is liable to be interfered with despite the fact that the petitioners have an appellate remedy. There is a peculiar situation in this case by which the petitioners will not be in a position to agitate the matter pending before the Division Bench on account of the orders passed in Ext.P4. Hence, it is necessary in the interest of justice that the petitioners should be given an opportunity to agitate their rights in the appeal and accordingly Ext.P4 is liable to be set aside - Decided in favour of assessee.

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• 2014 (6) TMI 193
  Penalty u/s 114 - export Iron Ore Fines containing Fe + 64-65% - Fe content of Iron Ore exported by the respondent-exporter was found to be more than 65% - Confiscation of goods ordered - Order on the basis of CIQ reports - Commissioner in the course of hearing of the case, seem to have made reference to the report of chemical examiner at the receiving port in China and so also to some other documents which admittedly were not referred to in the show cause notice. Based on that material, the Commissioner passed the order dated 31.08.2006 imposing penalty of Rs. 25 lakhs on the respondent-exporter under Section 114 of the Customs Act - Held that:- Even if it is assumed that what learned counsel appearing for the appellant submitted is correct, still, in our opinion, the material on which the Commissioner relied upon cannot be the ground to hold that the Fe content of Iron Ore samples was more than 65%. The Commissioner held against the respondent-exporter placing reliance upon the two reports of the Laboratory at China dated 28.06.2004 and 07.07.2004 (CIQ report). It is not clear nor any attempt was made by the appellant to show that while conducting chemical analysis, what was the method adopted by the laboratory in China or what were the standards prescribed for collecting the samples and conducting chemical analysis there. The report of the chemical laboratory at China which has shown 0.27% more Fe content than what is prescribed. Admittedly, the show cause notice did not make any reference, direct or indirect to these reports. Therefore, in our opinion, the reports of laboratories in China are of no avail to the appellant to take their case any further. Even the other material which was relied upon by the Commissioner, was not disclosed/reflected in the show cause notice and in any case that would not help the appellants to contend that there was an admission on the part of the respondent-exporter that the Fe content of Iron Ore exported by them was more than 65%. As a matter of fact, respondent-exporter, right from inception has contended that the Fe content of Iron Ore exported by them was not more than 65%. - Decided against Revenue.

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• 2014 (6) TMI 192
  Classification of goods - Water purifier or water filter - Different techniques used for purification - Denial of CVD exemption under Notification No. 6/2006, dated 1-3-2006 under Sr. No. 8B - Revenue charged CVD @ 5% after allowing Notification No. 6/2006-C.E. under Sr. No. 8D - Held that:- The product catalogue says that Pura Fresh Deluxe is an advanced six-stage purification process that provides anti-microbial protection and reduces ionic particles including heavy metals, pesticides and total dissolved solids from the water - From the product literature, it is seen that 4 different types of filters are used to achieve various types of purification of water; nonetheless all of them undertake filtration of different kinds of contaminants present in the water. Merely because different types of technology are used, it does not cease to be a filter. From the product catalogue and literature on the subject, it is clear that the processes undertaken are all purification of water through filtration and different materials are used to undertake the filtration to achieve higher levels of purification. Therefore, the impugned goods are nothing but water filters and as they are commonly used in households, they qualify to be classified under Heading 8421 21 20 dealing with a household type filters - Sr. No. 8B excludes from its scope Heading 8421 21 20. Therefore the lower authority has correctly denied the CVD exemption. However, under Sr. No. 8D all water filtration or purification equipment falling under CTH 8421 21 are eligible for a concessional rate of CVD of 4% which has been extended to the appellant in the instant case. Therefore, the assessment done by the lower appellate and adjudicating authorities are correct in law - Decided against assessee.

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• 2014 (6) TMI 191
  Confiscation under Section 113(d) - Re export of goods - Revenue contends that in the airway bill, the goods are shown as polished diamonds whereas in the invoice submitted by the exporter it is shown as rough diamonds and therefore, there is a discrepancy between the two and hence, things are not in order - Held that:- Airway bill is prepared by the Airlines. If they have committed an error in preparing the airway bill, no blame can be laid on the importer. In the invoice the impugned goods are clearly shown as rough diamonds and the value is also shown and the appellate and adjudicating authority have accepted the value given in the invoice for the purpose of adjudication. If that be so, they could not have taken a view that merely because in the airway bill, the goods are declared as polished diamonds, the import is not in order. - Following decision of Sahil Diamonds Pvt. Ltd. [2010 (4) TMI 1015 - Supreme Court of India] - importer allowed to re-export the diamonds as per the procedure prescribed by the Board in the said circular - Decided in favour of assessee.

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• Service Tax

• 2014 (6) TMI 206
  Waiver of pre deposit - whether, when the entire service tax alongwith interest was paid by the appellant before the issue of show cause notice, there is a justification for imposing penalty - Held that:- prima facie, when the entire service tax alongwith interest is paid and there is no invocation of extended period on elements of fraud / suppression / misstatement, etc. then no penalty is imposable. Appellant has, therefore, made out a good case for complete waiver of the penalty imposed. Accordingly, it is ordered that there will be stay on the recoveries of the penalty till the disposal of this appeal - Stay granted.

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• 2014 (6) TMI 205
  Cargo Handling service - Support Service of Business or Commerce - whether all the activities undertaken by the appellant for M/s. RINL would come within the purview of ‘Cargo Handling Service’ or only a part of the activity would be covered within the definition of ‘Cargo Handling Service’ - Held that:- demand of Rs. 1.05 crore (approx) under the category of cargo handling services, the contract entered into by the appellant with M/s. RINL is for handling and internal transportation of stores materials within the Visakhapatnam Steel Plant site. The scope of the work included handling and internal transportation of stores materials such as plant, machinery, equipments, etc. at the plant site including crushing of coke breeze meant for Visakhapatnam Steel Plant, job contract for miscellaneous works awarded from time to time, supply of LCVs and packing of materials for transportation. Thus, a number of services are required to be provided by the appellant. While handling of stores materials along with internal transportation might merit classification under cargo handling service. We have also pursued some of the invoices raised by the appellant on the service recipient which describes the activities as transportation and the payment is made to the appellant based on the quality of goods transported. Similarly, the appellant has provided labour for undertaking miscellaneous jobs and payment has been made to the appellant based on number of man-days involved. This service also would not come under the category of cargo handling service. Therefore, clubbing all the activities undertaken by the appellant under ‘Cargo Handling Service’ and levying service tax under the said category cannot be sustained in law. The adjudicating authority has to examine the individual activities carried out by the appellant and then classify the same, considering the definitions provided in the law, which has not been done - Matter remanded back - Decided in favour of assessee.

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• 2014 (6) TMI 204
  Waiver of pre deposit - CENVAT Credit - commercial/industrial construction services - Held that:- Definition of inputs service underwent a change on 1-3-2011 and because of the change, assessee became ineligible for Cenvat credit of Service Tax paid on input services used in relation to setting up of a factory which was available prior to 1-3-2011. The appellant had undertaken expansion of their cement plant and it was submitted that modernization, renovation or repair of the factory is covered and the activity undertaken by them is nothing but modernization of the factory. However, on going through the definition, we find that in clause A of the definition of ‘input service’ it has been specifically provided that the credit would not be available when the services are used for construction of a building or a civil structure or a part thereof. Prima facie, the appellants have taken credit on the services used for construction of the factory and therefore, the appellant is required to be put to terms to this extent at least. It has been submitted that the total amount payable within the normal period of limitation would come to about Rs. 6,00,000/-. The appellants are directed to deposit an amount of Rs. 6,00,000 within six weeks - Conditional stay granted.

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• 2014 (6) TMI 203
  Demand of Service Tax - profit earned on Ocean Freight Charges on exports and imports - Business Auxiliary service - Held that:- in regard to the demand of service tax on the profit earned on Ocean Freight Charges, the appellants and their counterparts in different countries do not prima facie appear to be taxable under the Head “Business Auxiliary Service”. As such, the pre-deposit of the demand relating to this issue is waived during the pendency of the appeal. As regards the other two issues at (ii) and (iii) above, learned counsel volunteers to pre-deposit the entire amount of service tax amounting to Rs. 6,90,702 - Conditional stay granted.

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• 2014 (6) TMI 202
  Service Tax liability - business auxiliary services - Revenue contends that appellant had shown miscellaneous income received as documentation charges during the course of high sea sales - Held that:- show cause notice proceeds on the ground that this activity will fall under the category of business auxiliary services without pin-pointing the correct head in the said BAS, will the income fall. First appellate authority has also not discussed this relevant point which was raised by the appellant before him during the time of appeal was filed. Prima facie, we are of the view that amounts received for the documentation charges for the sale made on high sea sale basis, may not be covered under the category of business auxiliary services. In view of this, we find that the appellant has made out a prima facie case for the waiver of the amounts involved. Application for waiver of pre-deposit of the amounts involved is allowed and recovery thereof stayed till the disposal of appeal - Stay granted.

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• Central Excise

• 2014 (6) TMI 201
  Determination of assessable value - method of Valuation - body-built motor vehicles, namely Dumpers & Tippers - Job Work - Clearance of goods by the Appellants to the Depot of TML pursuant to the chassis supplied to them free of cost, by TML - Determination under Rule 10A or Rule 6 of the Valuation Rules read with Section 4(1)(a) of the Central Excise Act, 1944 - Held that:- According to Chapter Note: V of Chapter 87 of the Central Excise Tariff, building of body or fitting of a structure or equipment on the chassis falling under Heading 8706, amounts to manufacture of motor vehicles. We find that there is no sale of motor vehicles by the appellants either to TML or to any other customers. These vehicles were for the first time sold by TML from their depots and therefore, the clarification that the appellants sold the body, is of no help to them. We find that the chassis were supplied to the appellants free of cost. On fabrication of components of the body, it results into emerging a final product namely, motor vehicle which is distinct from the chassis. Since the said motor vehicles were not sold by the appellants and sold for the first time by TML, the value was to be determined in this case under Rule 10A of the Central Excise Valuation Rules, which provided for determination of value of the final products manufactured on behalf of the principal manufacturer - Following decision of Audi Automobiles & Others [2009 (5) TMI 426 - CESTAT, NEW DELHI] and M/s. Hyva (India) Pvt. Ltd. (2013 (8) TMI 770 - CESTAT MUMBAI) - Matter remanded back - Decided in favour of Revenue.

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• 2014 (6) TMI 200
  Condonation of delay - whether there was sufficient cause for condonation of delay of about one and a half year in filing the appeal before the Tribunal - Held that:- no ground for condonation of colossal delay of about one and a half year in filing the appeal before the Tribunal has been made out. Even the Tribunal while dismissing the application for condonation of delay filed along with the appeal against the order dated 9.8.2010 (Annexure P-3) passed by the Commissioner (Appeals), noticed that the application was blank as number of days of delay in filing the appeal had not been mentioned therein and also the verification date was blank. It was one Bindu Gupta, DE (Legal) Office of GMT, Patiala who had verified such application by an affidavit - In the absence of definite averments and substantive proof with material to substantiate the reasons for condonation of delay, no justification for condonation of exorbitant delay of about one and a half year in filing the appeal before the Tribunal arises - Decided against the assessee.

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• 2014 (6) TMI 198
  Constitutional validity of mandatory penalty even in the absence of mens rea - Whether the Tribunal was correct in holding that penalty of an equal amount is mandatory under Rule 96ZO(3) and discretion for lesser penalty is not available under the said Rule - Held that:- provision for minimum mandatory penalty equal to the amount of duty even for slightest bonafide delay without any element of discretion is beyond the purpose of legislation. The object of the rule is to safeguard the revenue against loss, if any. The penalty has been provided in addition to interest. Mere fact that without mens rea, an can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme, power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test. When Section 37, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention. Furthermore, even when intention may be there, the penalty must be reasonable and cannot, in all cases, be fixed at 100% of the excise leviable. Each case must be decided on its own facts and circumstances. There may be cases where the delay is only of a day or two and the authorities must be given the discretion to impose the penalty which they feel is reasonable in the facts and circumstances of the case - Decided in favour of assessee.

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• 2014 (6) TMI 197
  Constitutional validity of mandatory penalty even in the absence of mens rea - Whether merely demanding interest and imposing penalty from/on the assessee in case of violation of certain Sections/Rules, the provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalty for delay in payment, without any discretion and without having regard to extent and circumstances for delay can be held to be ultra vires of the Act and the Constitution - Held that:- provision for minimum mandatory penalty equal to the amount of duty even for slightest bonafide delay without any element of discretion is beyond the purpose of legislation. The object of the rule is to safeguard the revenue against loss, if any. The penalty has been provided in addition to interest. Mere fact that without mens rea, one can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme, power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test. When Section 37, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention. Furthermore, even when intention may be there, the penalty must be reasonable and cannot, in all cases, be fixed at 100% of the excise leviable. Each case must be decided on its own facts and circumstances. There may be cases where the delay is only of a day or two and the authorities must be given the discretion to impose the penalty which they feel is reasonable in the facts and circumstances of the case - Decided against of Revenue.

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• 2014 (6) TMI 196
  Waiver of pre depsit - Duty paid on MRP Basis - Held that:- As the duty has been paid on MRP basis and the Revenue is not denying, therefore the abatement cannot be denied. In view of this, pre-deposit is waived for hearing of the appeal - Stay granted.

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• 2014 (6) TMI 195
  Determination of rate of duty - Held that:- Matter relates to clearance of excisable goods without payment of duty under EPCG license. Therefore, the matter has to be decided by a Division Bench of this Tribunal as per the provisions of Section 35D(3) of the Central Excise Act, 1944. Accordingly, I direct the registry to place the matter before the Division Bench of this Tribunal for consideration and disposal of this appeal.

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• CST, VAT & Sales Tax

• 2014 (6) TMI 207
  Penalty under section 10(b) of the CST Act - Penalty @ 150% tax liability - Whether the Tribunal was justified in reversing the order passed by the Appellate Assistant Commissioner in deleting the penalty levied - Held that:- assessing officer while issuing notice dated October 21, 2005 did not make any specific allegation that there was an element of mens rea on the part of the assessee and that the conduct of the dealer was contumacious and they have deliberately violated the statutory provisions and what is stated is that the said item of machinery was not included in the CST registration certificate. The assessee in response to such notice submitted their explanation on November 5, 2005 setting out the fact that owing to the bona fide circumstances, they thought they would be entitled to the concessional rate of tax of four per cent. To substantiate such claim, the affidavit of the accounts officer of the assessee was also filed. The assessing officer did not outrightly reject the explanation offered by the assessee, but proceeded to partially accept the same and reduced the levy of penalty to 100 per cent though the proposal was 150 per cent. Tribunal, while considering the appeal filed by the State, did not examine the facts of the case thoroughly rather it gave a peculiar finding that the assessee ought to have been careful enough to issue C form declaration only in respect of such goods, which are authorised in the form B certificate issued to them. Such a finding would not be sufficient to uphold the penalty levied by the assessing officer - Order of Tribunal erroneous - penalty waived - Decided in favour of assessee.

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• Indian Laws

• 2014 (6) TMI 199
  Legality of an arbitral award - Valuation of properties- HDFC appointed as arbitrator - Appellants contends that parties had a right to insist that after the submission of the final report, the valuer should participate in an oral hearing to submit itself to questioning by the parties and to enable the parties to present their expert evidence on the valuation of the properties - arbitrator rejected this submission holding that the deadlock between the parties had been resolved when they entered into an agreement dated 20 March 2007 - Therefore, legality of award questioned - Held that:- During the pendency of the arbitral proceedings, an agreement was arrived at between the parties on 20 March 2007. The agreement contemplated in its first part that the distribution of the properties would take place on the basis of market value. This was in substitution of the book value which was to be treated as the basis of distribution under the deed of partnership and the deed of dissolution. By their agreement dated 20 March 2007, the parties while stipulating that the distribution of the properties would take place on the basis of market value, agreed that the date of the valuation and the valuer would be decided by the arbitrator. The valuer was required to hear the parties. In the concluding part of the agreement, the parties stipulated that "all other contentions of the parties, except the valuation at the market value, are kept open. Question of construing the terms of the agreement dated 20 March 2007, arose before the arbitrator in the course of the arbitral proceedings. As we have noted, two of the three contesting parties were in fact in agreement before the arbitrator that the valuations fixed by HDFC Limited were binding on all parties. This was not merely the position of the Claimants namely, the Kolkata group but a solemn statement made before the Arbitrator by the counsel appearing for the Kanpur group. But apart from that, the construction that has been placed by the arbitrator on the terms of the agreement which envisaged that all other contentions of the parties, except the valuation at the market value are kept open, was a possible construction which would not warrant interference in proceedings under Section 34 of the Act of 1996. The learned Single Judge has found no basis to set aside the arbitral award on this aspect. Surely, as a Division Bench exercising appellate jurisdiction from a decision of a learned Single Judge declining to set aside an arbitral award under Section 34, we must exercise caution and circumspection. The construction of the agreement fell within the province and domain of the arbitrator. Where a possible view is taken, no case arises for interference with the award under Section 34. It would be necessary to advert to the circumstances in which the Juhu property at Mumbai came to be awarded to the Kolkata group. The objection of the Mumbai group is that the valuation of the Juhu property should be lower than Rs.89.66 crores as determined by the valuer. The Mumbai group had submitted a proposal before the arbitrator suggesting that the three groups may be mutually allowed to bid for every single property and that the property may be given to the highest bidder. The proposal contemplated that thereafter the total value fetched would be divided into three parts with each group would having credit of one third of the bid amount which would be debited with the amount of the property retained by the group. Direction of the learned arbitrator in paragraph 26(b) to the effect that the Kanpur group would receive an amount of Rs.22.71 crores only against the delivery of vacant possession free from all encumbrances of all the properties allotted to the Mumbai group is severable and has to be read subject to the findings in paragraph 24, which is to the effect that it was agreed between the parties that the properties at sr.nos.7 and 8 would not be allotted free from all encumbrances since they were in the possession of outsiders. The operative direction of the learned arbitrator, as noted above, is therefore, to be subject to the aforesaid stipulation. Parties have agreed in arbitration that the properties at serial no.7 (which is in the occupation of an outsider) and serial no.8 (which is substantially in the occupation of an outsider) do not have to be allotted free of encumbrances - Decided against appellants.

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• Law of Competition

• 2014 (6) TMI 190
  Breach of section 3(3)(b) of the Competition Act, 2002 - M/s. B.R. TV, Mumbai was a producer of the TV serial 'Mahabharata' and had entrusted the sole and exclusive rights to M/s. Magnum TV Serials to dub the Hindi version of the said serial in Bangla and for exploiting its Satellite, Pay TV, DTH, IPTV, Video, Cable TV and Internet Rights till September 2016 - Informant was appointed sub-assignor by M/s. Magnum TV Serials and the said serial Mahabharata was dubbed in Bangla language by the Informant. - OP-4, Shri Sanjoy Das received a letter from OP-2, CTVN (the 'Appellant') to stop the telecast of the above serial - It was also pointed out to OP-4, M/s. CTVN Plus that if the telecast is not stopped, its channel will face non-cooperation - Whether the act and conduct of imposing restrictions on telecast of the said serial is in violation of provisions of the Act. Held that:- Relevant market as held by majority order is too broad to be accepted. Nature of the Information does not show anything, which could even be distinctly connected with the whole 'Film and Television Industry in the State of West Bengal'. The Information is only against showing the dubbed serials on the television. It has no relation, whatsoever, with production, distribution etc of any film or any other material on the TV channels. The controversy is very specific. While some channels were actually showing the other language serials, dubbed in Bangla, that precisely was being opposed. The relevant market is, therefore, the 'telecasting of the dubbed serials on the television in West Bengal'. In this behalf, the finding by the minority order appears to be more appropriate, as compared to the majority order. There is no question of trading of any goods, or provision of any services, much less by the persons engaged in identical or similar trades or provision of services. These were protests raised by the Co-ordination Committee of which there were few members, who were either technicians or artists and all that they were doing, was protesting against the showing of the dubbed films/ TV serials. Now there had to be some evidence available to show that any such action, limited or controlled the production, supply, markets, technical development and investment or provision of services. There is no such evidence available. In fact, because of the strikes or demonstration, as the case may be, the OP-4, CTVN Plus did not even stop showing the 'Mahabharata' serial on its channel. Further, OP-3, Channel-10 stopped showing the said serial on its channel on account of advise by leading actor Shri Mithun Chakraborty. Essentially, section 3(3)(b) applies to the competitors. The action as contemplated in section 3 should, therefore, result in limiting or controlling the production, supply by the competitors or should at least limit or control the market or the technical development, or investment or provision of services. In so far as the competitors are concerned, nothing of that sort has happened. In our opinion, the decision by the majority order that the viewers were deprived of seeing dubbed Mahabharata serial on a TV channel is also faulty, since OP-4, CTVN Plus never gave-in to the protests by the members of the Co-ordination Committee. The Co-ordination Committee was legitimately protesting and voicing their grievance for the benefit of their members. They may be under the wrong impression that showing of the dubbed TV serial would affect their prospects of getting further work, but that by itself does not raise a competition issue. This is not a case, where the production of the television serials or supply thereof has been affected. If at all, the complaint could have been made only by a competitor. In our opinion, therefore, the CCI has committed an error in holding the Co-ordination Committee guilty of contravention of section 3(3)(b). - Decided in favour of Appellants.

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