TMI Tax Updates - e-Newsletter
July 10, 2013

Case Laws in this Newsletter:

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

Articles

1. Section 115J, 115JA and 115JB may be ultravirse the Constitution of India and the Income-tax Act,1961 - a study with reference to some very weekly prepared and contested cases about validity of provision for tax on book profit / minimum alternate tax (MAT) and some suggestions for tax payers and government both

   By: DEVKUMAR KOTHARI

2. REDEMPTION FINE – A PENALTY?

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. RBI Reference Rate for US $ and Euro

2. FROM THE DESK OF CHAIRPERSON, CBDT

3. Commerce Minister Arrives in USA on Four-Day Official Tour

4. Direct Tax Collection for June Quarter

Notifications

Income Tax

1. 52/2013 - dated 5-7-2013 - IT

Amount received in the form of grants-in-aid from the Central Government - Gujarat State AIDS Control Society

Circulars / Instructions / Orders

VAT - Delhi

1. VAT AUDIT/HQ/2013-14/ 2601-2608 - dated 9-7-2013

Regarding file audit report in Form-AR-1

Income Tax

2. Instruction No. 05/2013 - dated 8-7-2013

Return of Income - Credit of TDS U/s 199 to an assessee when the tax Deducted has been Deposited With Revenue By Deductor - Direction of Hon'ble Delhi HC in the case 'COURT ON ITS OWN MOTION Versus UNION OF INDIA & ORS. IN WP(C) 2659/2012 & WP(C) 5443/2012'dated 14/03/2013

FEMA

3. 08/2013-14 - dated 1-7-2013

Master Circular on Remittance Facilities for Non-Resident Indians / Persons of Indian Origin / Foreign Nationals

4. 07/2013-14 - dated 1-7-2013

Master Circular on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities

5. 10/2013-14 - dated 1-7-2013

Master Circular on Memorandum of Instructions governing money changing activities

6. 11/2013-14 - dated 1-7-2013

Master Circular on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad

7. 14/2013-14 - dated 1-7-2013

Master Circular on Exports of Goods and Services

8. 13/2013-14 - dated 1-7-2013

Master Circular on Import of Goods and Services

9. 04/2013-14 - dated 1-7-2013

Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin

10. 02/2013-14 - dated 1-7-2013

Master Circular on Non-Resident Ordinary Rupee (NRO) Account

DGFT

11. 17(RE: 2013)/2009-2014 - dated 9-7-2013

Notifies a new SION A-3643

12. 16 (RE: 2013)/2009-2014 - dated 9-7-2013

Modification of SION A-1442

Highlights / Catch Notes

Income Tax

• High Court Condones Co-operative Society's Delay in Filing Revised Tax Return Due to KCS Act Obligations.

  Case-Laws - HC : Condonation of delay in filing revised return - delay cannot be attributed to the petitioner since being a co-operative society is bound by the provisions of KCS Act - delay condoned - HC
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• High Court Quashes Reassessment Notice Due to Assessing Officer's Year-Long Delay in Providing Necessary Reasons.

  Case-Laws - HC : Re-asssessement - Though the reasons were very much available with the Assessing Officer, he consumed nearly one year in supplying the same leaving less than four weeks before the assessment was to become time-barred. - Notice quashed - HC
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• Short-term capital gains from depreciable assets not classified as business income; impacts tax treatment.

  Case-Laws - HC : Short term capital gain on sale of depreciable assets is not profits and gains of any business or profession - HC
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• Section 32(2)(iii): Unabsorbed Depreciation Cannot Offset Short-Term Capital Gains from Sale of Depreciable Assets.

  Case-Laws - HC : Benefit u/s 32(2)(iii) - Carried forward unabsorbed depreciation cannot be set off with short-term capital gain arising from sale of depreciaible assets - HC
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• Assessment Reopened: AO to Examine Trust's Compliance with Income Tax Act Sections 11 and 13 for Tax Exemption.

  Case-Laws - HC : Reopening of assessment – AO has not examined; the question whether the Trust fulfilled the condition laid down in Section 11 and 13 and whether the income earned from the business is exempt from Tax - reopening justified - HC
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• Notional Interest on Debentures Not Income Until Realization is Certain; Anticipated Losses Accounted Early on Uncertainty.

  Case-Laws - AT : Notional interest on debentures - the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization, while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. - AT
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• Assessments Valid as Individual; No Association of Persons (AOP) or Warrant Involved in Proceedings.

  Case-Laws - AT : Neither any AOP was existing nor any warrant was issued in the name of AOP - the assessments have been properly done in the capacity of individuals. - AT
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• Assessing Officer's Lack of Opinion Makes DVO Reference Unwarranted u/s 55A(a) Conditions.

  Case-Laws - AT : Referring to the DVO u/s 55A - conditions as enumerated in clause (a) of section 55A are also not satisfied in the present case as AO has not formed any opinion - reference is unwarranted - AT
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Service Tax

• Refund Claim for Unutilized CENVAT Credit Remanded for Further Examination Due to Lack of Clarity on Service Connections.

  Case-Laws - AT : Refund – unutilized CENVAT credit – no attempt was made to determine the exact nature of the output services exported, nor to determine the nexus between the input services and the output services - matter remanded back. - AT
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• Appellant Challenges Service Tax on Mithi River Work, Claims It's a Nalla, Not Dredging u/s 65(36)(a).

  Case-Laws - AT : Dredging Service - Section 65(36)(a) - appellant’s main contention is that the work done by them in respect of the the Mithi River is not a River but a Nalla - demand confirmed - AT
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• Section 83A Broadens Authority: Not Limited to Penalties, Expands Scope in Determining Service Tax Liabilities.

  Case-Laws - AT : Power to determine service tax liability u/s 83A - the said section cannot be interpreted in a narrow sense to restrict the power to imposition of penalty alone- section 83A does not read as “only penalty” or “solely penalty” - AT
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• Commissioner of Central Excise (Appeals) is a Central Excise Officer u/s 2(b); no reappointment needed for Mumbai.

  Case-Laws - AT : Jurisdiction of Commissioner - - As per section 2(b) of the Central Excise Act CCE (Appeals) is also Central Excise Officer - no need to appoint CST, Mumbai as a Central Excise Officer all over again - AT
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Central Excise

• CENVAT Credit Denied for Claiming Without Receiving or Using Raw Materials: Appellant's Appeal Rejected.

  Case-Laws - AT : Wrong availment of CENVAT credit without receipt of raw materials and their use by Appellant - cenvat credit denied - AT
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• Court Rules CENVAT Credit Cannot Be Denied Once Duty is Discharged; Prima Facie Case Favors Assessee.

  Case-Laws - AT : Stay Application – Once the duty was duly discharged and accepted by the department, CENVAT Credit cannot be denied on the input Silico Manganese - prima facie case is in favor of assessee - AT
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• Cenvat Credit Confirmed for Goods Under Chapter-X Procedure; Not Classified as Exempted Goods.

  Case-Laws - AT : Cenvat Credit - Exempted goods - Chapter-X procedure cannot be termed as exempted goods. - cenvat credit allowed - AT
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Case Laws:

• Income Tax

• 2013 (7) TMI 233
  Deduction u/s 80HHC - Held that:- where the export turnover of an assessee exceeds Rs.10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid) of Section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit - Following the decision of Topman Exports Vs. Commissioner of Income-Tax1 [2012 (2) TMI 100 - SUPREME COURT OF INDIA] - Decided in favour of Assessee.

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• 2013 (7) TMI 232
  Deduction u/s 80-IB – Income from Business - inclusion of duty draw back - Held that:- Following decision of Liberty India v. CIT [2009 (8) TMI 63 - SUPREME COURT] - Decised in favour of Revenue.

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• 2013 (7) TMI 231
  Amendment to section 40(a)(ia) - TDS deposited before filing of return u/s 139(1) instead of depositing withing 7 days - retrospective amendment to section 40(a)(ia) at time of filing of appeal - Held that:- It is not in dispute that on the date the assessee deducted the tax, he had to pay/remit the money within seven days from that date and if the amount is actually paid when the credit is given, then the tax is payable within two months. Admittedly, in the instant case, the assessee did not comply with the legal requirement. However, the assessing authority was justified in making the disallowance, but on the date the appeal was filed, the section came to be amended, giving retrospective benefit. Therefore, the appellate authority extended the benefit of the amended provision and held that the disallowance is paid and the order has been upheld by the Tribunal. Therefore, by the Finance Act, 2008, which is given retrospective effect from April 1, 2005, the benefit of that provision had been extended to the assessee, though the assessment order passed initially cannot be found fault. With the change of law, when the effect of the amendment is to give benefit to the assessee, the appellate authority and the Tribunal were justified in extending the said benefit. In that view of the matter, the order passed by the Tribunal is in accordance with law and does not call for interference - Decided against revenue.

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• 2013 (7) TMI 230
  Condonation of delay in filing revised return - CBDT declined to extend the benefit of accepting the cause shown to condone the delay in filing the revised return - Held that:- The non-filing of the return and revised return within the time stipulated under section 139 of the Act, as observed by the CBDT in the order Annexure-C, cannot be attributed to the petitioner since being a co-operative society is bound by the provisions of KCS Act to have its books of account audited by a statutory auditor and until the submission of the final audit report. The delay in submission of the reports by the statutory auditors cannot but be said to be beyond the control of the petitioner. The averments in paragraph 7 of the application dt. 9.1.2010 Annexure-B is over sufficient cause for the delay in filing the return on 6.7.2006 and the revised return on 30.5.2008, though the words 'revised return filed on 30.5.2008' is not specifically stated - The reason assigned by the CBDT in its order Annexure-A declining the request of the petitioner to correct/revise the order dt. 11.7.2011 Annexure-C insofar as it relates to condoning the delay upto 30.5.2008 when the revised return was filed, in the factual matrix, is perverse - the order dt 11.7.2011 Annexure-C stands modified to condone the delay in filing the revised return of income for the assessment year 2005-06 - Decided in favor of assessee.

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• 2013 (7) TMI 229
  Determination of income u/s 44AC - Tribunal directed the AO to excluse 'Nirgam Mulya' from the purchase price - country liquor contractor - Held that:- provision of section 44AC do not dispense with the regular assessment in accordance with sections 28 to 43C of the Act. It has further been held that section 44AC is a valid piece of legislation and is in adjunct to and explanatory to section 206C of the Act. - questions raised by the Department are academic in nature as the income has been calculated as per sections 28 to 43 of the Act - Decided against Revenue.

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• 2013 (7) TMI 228
  Assessment u/s 153C - search in pursuance of search of others - whether seized documents belonging to assessee - Held that:- a condition precedent for issuing notice under section 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, resort cannot be had to the provisions of section 153C of the Act. Document on the basis of which the Assessing Officer initiated proceedings under section 153C of the Act was admittedly not written by the assessee. It, of course, had certain references to the estimations and expenditure, etc. of the properties belonging to the assessee - When the very foundation for instituting the proceedings by the Assessing Officer was missing, the consequential actions and orders must fail - Decided against Revenue.

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• 2013 (7) TMI 227
  Deduction u/s 10B - Re-asssessement - Excess deduction granted than entitlement - Held that:- quite apart from the reasons recorded for re-assessement, even from the record, nothing emerges to permit the Assessing Officer to form a belief that income chargeable to tax had escaped assessment for the reason of the assessee’s failure to disclose truly and fully all material facts - There was no failure on the part of the assessee to disclose true and full facts - Therefore, beyond the period of four years to the relevant assessment year, the assessment could not have been reopened - Decided in favour of Assessee. Reasons of re assessement not given - Held that:- upon receipt of notice for reopening dated 9.3.2012, the petitioner had requested the Assessing Officer under its communication dated 19.3.2012 for supplying the reasons recorded by him. Since the reasons were not supplied, the petitioner reiterated the request under communication dated 18.7.2012. The reasons were ultimately communicated under letter dated 6.3.2013 - Entire sequence of events will demonstrate that the Assessing Officer effectively frustrated the directives contained in the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd v. I.T.O. [2002 (11) TMI 7 - SUPREME Court] - The entire purpose to supply reasons recorded by the Assessing Officer to the petitioner-assessee is that the the assessee would have a fair opportunity of raising objections and an expectation that such objections would be considered objectively - Though the reasons were very much available with the Assessing Officer, he consumed nearly one year in supplying the same leaving less than four weeks before the assessment was to become time-barred. - Notice quashed - Decided in favor of assessee.

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• 2013 (7) TMI 226
  Benefit u/s 32(2)(iii) - Partial cessation of business - set off of unabsorbed depreciation - Held that:- The provision mandates that business or profession for which the allowance was originally computed should be continued by the Assessee in the previous year - It nowhere mandates that business should continue for the entire year - In the present case, the Assessee did continue business up to 30.09.1998 - Legislature by not using the word 'entire' clearly showed its intention that it was not necessary that the business should be carried on for the entire year - Proviso does not prevent the Assessee from taking advantage of section 32(2)(iii), if the other conditions are satisfied - Decided in favour of Assessee. Unabsorbed depreciation - Set off only against the profits and gains of any business or profession - Held that:- In calculating the income under a head, certain deductions can also be made - These deductions are provided in that particular head itself - Normally, loss under one head can be set off only against the profit in that head, unless it is so provided under any provision of the Act - Section 32(2)(i) provided that it could be set off against profits and gains, if any, of any business or profession carried on by the assessee and in case it could not be done then it could be set off from the income of the Assessee under any other head under section 32(2)(ii) of the Act - The unabsorbed depreciation allowance that could not be so set off, was to be carried forward for the next eight years under section 32(2)(iii)(b) - In section 32(2) (ii), any other income is specifically mentioned, but it is not so mentioned in section 32(2)(iii). This clearly shows the intention of the legislature that the carried forward unabsorbed depreciation allowance cannot be set off against income other than the income from profits and gains of business or profession - Decided against assessee. Intention of legislature - Whether speech of the Finance Minister be taken into account, while interpreting a clear and unambiguous section - Held that:- Following decision of P.V. Narsimha Rao v. State [1998 (4) TMI 503 - SUPREME COURT], The intention of the legislature is to be seen from the use of the words in the statute. The question is not what might be intended but what has been said - it is the language of the statute that determines the legislative intention - Speech of a minister cannot be taken into account to interpret a provision that is clear and unambiguous. Short-term capital gains as business income - Set Off of carried forward depreciation with short term capital gain from sale of depreciable assets - Held that:- Section 41(2) provides that in some cases of sale of buildings, machinery, plant or furniture, if the money payable exceeds the written down value of those assets, then it would be treated as income of the business of the previous year - Assessee was not engaged in generation or generation and distribution of power. It was manufacturing straw boards. In the present case, depreciation was not claimed under section 32(1)(i) of Act, but it was claimed under section 32(1)(ii) of the Act. Section 32(1)(i) as well as section 41(2) of the Act is not applicable here - Short term capital gain on sale of depreciable assets is not profits and gains of any business or profession - Carried forward unabsorbed depreciation cannot be set off with short-term capital gain - Only current unabsorbed depreciation can be set off against the 'Profits and gains of business or profession' as section 32(2)(ii) of the Act provides that it (current unabsorbed depreciation) can be set off with any other income. - Decided in favor of revenue.

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• 2013 (7) TMI 225
  Violation of Section 13(3) - interest free loans to three societies - CIT rejected exemption u/s 11 and 12 - ITAT allowed the exemption - Held that:- merely the respondent society had given interest free loan to another society, so the loan was neither investment nor deposit. The provisions as contained in Section 13(3) of the Act were not applicable - No substantial questions of law involved - Following decision of Director of Income-Tax (Exemption) vs. Acme Educational Society [2010 (7) TMI 159 - DELHI HIGH COURT] - Decided against Revenue.

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• 2013 (7) TMI 224
  Reopening of assessment – Substitution on section 11(4A) vide Finance Act, 1983 and vide Finance (No.2) Act, 1991 – Assessee asserted that notice of reassessement is merely because of change in opinion – whether the show cause notices are beyond the period of limitation as per the amended provisions of the Act – Held that:- From 1st April, 1989 onwards, any action for opening or reopening an assessment for the asst. yr. 1988-89, and earlier assessment years will have to be taken in accordance with the amended provisions – Provisions of amended Act would be applicable only in those cases where the limitation in respect of old law has not expired. In the case of the assessee, the power could have been exercised under the repealed section as well as the amended section. The matter with regard to the applicability of the repealed section is merely an academic argument, however, in view of the fact that the power of reopening was existing in respect of escaped assessment prior to 1st April, 1989, therefore, it cannot be said that any new right has been acquired by the ITO or the said amendment has effected any vested right of the assessee. Re–assessment proceedings could be initiated within the time limits prescribed under the un–amended Section 149 of the Act subject to the fulfilment of certain conditions. If such conditions are satisfied, the revenue has right to initiate proceedings for reassessment. Such right cannot be curtailed by subsequent amendment, when no specific provision was made to curtail the period of limitation for initiating such proceedings. The amending Act changing the period of limitation for issuance of notice for reassessment has not made provision of the amending Act applicable retrospectively. Though the limitation is a provision dealing with procedure and all amendments in respect of procedure are retrospective but where the amendment has the effect to curtail a right vested, then the amended provisions cannot be applicable to the vested rights – Since the intimation of the assessment was given to the assessee, it cannot be said that the Assessing Officer has examined the return which may bar the Assessing Officer to reopen the assessment. Work in connection with the business is mainly carried on by the beneficiaries of the Trust. The trustees are running the newspaper and cannot be the beneficiaries of the Trust. The trustee and the beneficiary have the conflicting interest and thus, one person cannot be a trustee and a beneficiary – Balance sheets produced by the petitioner do not show that separate books of accounts were maintained in respect of charitable activities undertaken by the petitioner. Reason for re–assessment is that the Assessing Officer has not examined; the question whether the Trust fulfilled the condition laid down in Section 13 read with Section 11 of the Act and whether the income earned from the business is exempt from Tax as it has been utilized for the beneficiaries and by keeping separate accounts. Since the question was not examined by the Assessing Officer while framing assessment under Section 143(3) of the Act, and that the assessment framed was in ignorance of the statutory provisions and thus, the test that the income has escaped assessment on the basis of return filed stands satisfied. - Following decisions of Chandi Ram Vs. Income Tax Officer & another [1995 (12) TMI 6 – RAJASTHAN High Court], T. Kaliamurthi v. Five Gori Thaikkal Wakf [2008 (8) TMI 789 - SUPREME COURT] and Yeshwantrao Laxmanrao Ghatge Vs. Baburao Bala Yadav [1978 (2) TMI 203 - SUPREME COURT] – Decided in favour of Revenue.

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• 2013 (7) TMI 223
  Addition on Arm's Length Price u/s.92C - sale of ship to wholly owned Subsidiary - CIT(A) considered the sale price of SHIP at US$11.32 million as against US$9.50 million dollar - CIT(A) rejected the Valuation report of M/s. J.B. BODA SURVEYORS & ADJUSTERS PVT. LTD. certifying the value of ship at US$9.60 million only on the ground that valuation report was submitted at the fag end of the assessment proceedings - CIT (A) also not considered the 5% of the difference allowable - Held that:- Sale of ship is an international transaction between associate enterprises and therefore, transfer pricing provisions are applicable. The findings of the CIT (A) on this issue are therefore, upheld. The sale has taken place in November, 2002, therefore, the CIT (A) findings that the adoption of value of February, 2003 by AO is not correct has to be upheld. Adjustment of prices based on the capacity in DWT - Held that:- As verifying the records relating to the vessel and it is confirmed that both the figures are correct, i.e. 43,595 and 42,430, respectively, as they relate to summer and winter dwts of mv Prabhu Puni. Typically, when a vessel is described for sale/purchase purposes, the same is described in terms of its summer dwt enclosing extracts of information from independent sources, viz. Wikipedia, MarineTraffic.com, Clarkson Research Services Ltd. and Shippingdatabase.com. The extracts would show that the vessel, mv Prabhu Punis' dwt is 43,595. We are not in a position to approve the value of the CIT (A) on the basis of average prices of different category of ships adopted, as he has relied on prices quoted in a magazine and adopted an average method which is not prescribed. As noticed that the JB Boda certificate which was relied upon by assessee before the CIT (A) was issued in connection with the insurance of the Ship by M/s United India Insurance Co. Ltd as on 1.7.2002. The ship was insured for a sum of Rs.50.00 crores. In that the United India Insurance Company Ltd has stated that the Hull and Machinery insured value at Rs.50.00 crores. This Insurance was valid w.e.f. 1.7.02 to 30.06.03. In view of the above document available, this value accepted by the Insurance Company for the ship can be taken as reasonable value to arrive at ALP rather than going by the estimation on the basis of the quoted figures in a monthly magazine as was done by the CIT (A). M/s Simpson Spence and Young London certificate will not be acceptable as it is not based on inspection of the vessel, condition of the vessel and further they have furnished a revised certificate as stated in the note with reference to the dead weight of the ship. Even though the JB Boda certificate dated 11.06.2002 was for internal purposes, may be for the purpose of insurance, the insurance value as accepted by the insurer can be considered as reasonable valuation for the purpose of arriving at the ALP. Therefore, AO directed to adopt the value of Rs.50.00 crores for the purpose of arriving at the ALP. 5% standard deduction can not be allowed in view of change in law as well as there is only one price determined - appeal filed by assessee is partly allowed.

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• 2013 (7) TMI 222
  Notional interest on debentures - additions as the said interests have been accrued to the assessee - assessee stated to be following mercantile system of accounting - Held that:- As regards the findings of the AO and CIT(A) that various resolutions have been back dated and the same cannot be relied is based on presumptions and assumptions as the perusal of the records and the subsequent events leading to the amalgamation establishes that the debenture issuing company has been under serious financial crisis and the impugned resolutions passed to the effect of waiver of interest are reliable. Regarding the requirement of the resolution to be registered u/s 106 r.w.s. 192 of the Companies Act as observed by the CIT(A), it is pertinent to mention that the said provisions are not applicable as the resolutions passed by the debenture issuing company do not fall under the resolutions prescribed by the provisions of section 192(4) of the Companies Act. Also in similar set of facts, the ITAT in the case of Riya Holdings Ltd [2012 (11) TMI 756 - ITAT Mumbai] has directed the AO delete a similar amount of interest brought to tax concluding that merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it. As one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization, while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. In favour of assessee.

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• 2013 (7) TMI 221
  Slum Rehabilitation Authority charges - revenue v/s capital - Held that:- CIT(A) after proper application of mind has bifurcated the SRA expenses into two categories i.e. one which are in the nature of capital expenses and the other which are in the nature of revenue expenses treating the deposits i.e. Maintenance deposit of Rs. 7,36,700/- and Maintenance Deposit of Rs. 1,12,000/- as capital expenses, however rest of the expenses have been treated as revenue expenses being incurred on account of development charges, interest on development charges and infrastructure charges being incurred by the assesee for getting the income of Rs. 77,50,080/- towards the sale of TDR. No infirmity relating to the finding of the CIT(A) which has been made after proper application of mind. Disallowance of expenses on building materials - CIT(A) deleted disallowance of Rs. 3,50,370/- out of total disallowance of Rs. 6,38,756/- - Held that:- CIT(A) separately dealt with each type of expenses in view of the evidence and explanation furnished before him by the appellant and also taking into consideration the remand report of the Assessing Officer. There were certain expenses incurred by the Assessee, even after completion of the project which were claimed by the Assessee. The disallowance pertaining to the expenses which were supported with bills etc. has rightly been deleted by the CIT(A) whereas the disallowance of expenses which were not supported with proper bills have rightly been sustained by the CIT(A). The finding of the CIT(A) on this issue is hereby upheld. Disallowance of maintenance, telephone, vehicle etc. - CIT(A) sustained part disallowance - Held that:- CIT(A) has held that the disallowance of 20% made by A.O. was right and also sustained the said addition made by the A.O. towards Vehicle expenses as well as telephone expenses, however he has deleting the disallowance made by the A.O. under the head 'Repair and Maintenance'. The revenue has not contested the deletion of the disallowance under the head 'Repair & Maintenance' rather revenue has appealed against the deletion of 20% depreciation on motor car expenses which in fact has not been deleted by the CIT(A), rather has been sustained. Appeal of revenue dismissed.

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• 2013 (7) TMI 220
  Assessment in case of search or requisition - AO treated the income shown under the head "Income from agriculture income as income from other sources" - CIT(A) did not admit the assessee additional evidence in the form of original lease agreements, original affidavits of farmers, original affidavits of assessee affirming deriving of agricultural income, original Khasra, Khatauni and Form No. P-2 and original receipt of payment of lease rent & confirmed the addition - Held that:- Since the documents submitted with CIT(A) were necessary to determine the correct nature of income having been offered by the assessee, the CIT(A) was not justified in not accepting these documents which goes to the root of the issue. As per record, the claim of assessee was that the agricultural operation of the assessee was being looked after by Ajab Singh, who was employed by the assessee & in-spite of making request to AO and CIT(A) none of the authorities have called Ajab Singh to verify the work and correctness of agricultural income having been earned by the assessee - restore the matter to the file of AO for deciding afresh after considering the documents filed before CIT(A) under rule 46A. Addition on account of deemed dividend u/s 2(22)(e)- Held that:- Additions made u/s 2(22)(e) while framing assessment u/s 153A, was not justified in so far as no incriminating material was found during the course of search. As per the finding recorded by AO in the assessment order u/s 153A, the fact that advances having not been made for business purposes by the alleged company to the assessee came to the notice of Department only during the assessment and not during course of search - the additions made u/s 2(22)(e) in the assessment years 2003-04 to 2006-07 are restored back to the file of A0 for deciding afresh. It appears that the AO has made cumulative addition u/s 2(22)(e) without reducing addition made on account of deemed dividend in earlier years. AO has made addition on account of deemed dividend in excess of accumulated profits in RHPL, which is in violation of provisions of Section 2(22)(e). It appears that the AO has not reduced deemed dividend assessed in the hands of assessee shareholder in past assessment year from the surplus while determining the accumulated profit in the hands of company in the next year. However, while deciding the issue afresh as directed above, the AO should take this in to account. Unexplained investment made in purchase of house no. HIG 38, Old Subhash Nagar, Bhopal - Held that:- As the assessee has filed additional evidence under rule 29 in the form of letter of Housing Board regarding transfer of house from Prabhakar Dwivedi to the assessee and also agreement with Prabhakar Dwivedi for purchase of house matter is restored back to the file of AO for deciding afresh after examining the ledger account indicating respective payments having been made through account payee cheque and the additional evidences filed under rule 29. Addition on account of cash and jewellery found during course of search - Held that:- Cash of Rs. 15,350/- found that the assessee was duly explained and the same was very reasonable in view of various incomes shown by the assessee in his return of income in the past. Similarly, jewellery of Rs. 1,712,740/- was deleted by the CIT(A) in terms of CBDT circular No.1916 & also recorded a finding to the effect that gold ornaments found was explained, accordingly, no addition is required. There is no infirmity in the order of CIT(A) on the issue. Addition made in respect of House No. E-3/10, Arera Colony, Bhopal - Held that:- As per the finding recorded by the CIT(A) vis-à- vis documents placed on record, it is clear that entire investment in this house came out of the books of M/s. Raj Homes Private Limited and Minal Builders Private Limited. Accordingly, the direction issued by the CIT(A) for examining the source of investment in the hands of these two companies are fully justified and no interference is required therein. Unexplained investment in House No. A-1304, Vinayaka Hiranandani Complex, Mumbai - Held that:- CIT(A) that property belongs to M/s. Raj Homes Private Limited, hence investment for this property is required to be examined in the hands of the said company and no addition is warranted in the hands of the assessee in his individual capacity. Addition made on account of contract receipt - Contention of assessee that only 8 % of contract receipt should be taxed on presumptive basis - Held that:- Nothing could be produced to conclude that alleged amount was actually on account of some work undertaken by the assessee, therefore, no reason to interfere in the order of lower authorities for treating the entire contract receipt as assessee's income from other sources. Unexplained expenditure on marriage of niece - Held that:- As nothing was found during the course of search to indicate expenditure was incurred on marriage by the assessee no infirmity in the order of CIT(A) for deleting addition made in the hands of the assessee. Unexplained expenditure as mentioned in diary BS-3 found and seized from residential premises at HIG 38, Old Subhash Nagar, Bhopal - Held that:- Keeping in view cash flow statement filed before AO to substantiate the cash deposits in bank account wherein assessee was having surplus cash in hand to verify repetitive nature of entry and the expenditure which was found in the diary also found recorded in the regular books of account and the surplus cash found available with assessee restore the matter to the file of Assessing Officer. Unexplained expenditure in diary A-3 - Held that:- entries were found to the effect that payments were made for purchase of Open Car. The entry was done in the handwriting of the assessee. After giving due opportunity, the Assessing Officer made addition with regard to the payment so made and the same was confirmed by the ld.CIT(A). Nothing was brought to our notice by ld. Authorized Representative to persuade us to deviate from the finding recorded by the lower authorities additions confirmed. Cash deposited in the bank account - Held that:- As at the beginning of each of the assessment year, the cumulative cash available with the assessee was more than the amount deposited in the Bank during that year. Accordingly, no addition is warranted in any of the year. Levy of interest u/s 234B - Held that:- In view of decision of Lakshmikanthan ( 2011 (1) TMI 1187 - Kerala High Court ), AO is directed to recompute the interest u/s 234B which provides that where original assessment completed u/s 143 is revised either u/s 147 or u/s 153A, then interest for non-payment or short payment of advance tax is payable only for the period mentioned in Section 234B(3) which provides for interest from the date of completion of regular assessment u/s 143(1) till the date of completion of reassessment. Framing of assessment in individual capacity in place of AOP - Held that:- Neither any AOP was existing nor any warrant was issued in the name of AOP, therefore, no search was possible in the case of AOP, which did not exist. Since the warrant have been issued in the individual cases, the assessments have been properly done in the capacity of individuals. Accordingly, we do not find any infirmity in the order of Assessing Officer for making assessments in individual capacity rather than in capacity of AOP.

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• 2013 (7) TMI 219
  Referring the matter to the DVO u/s 55A - Rejection of valuation report given by Registered Government Approved Valuer in respect of the property sold by the appellant - assessment of income of the assessee at Rs.17,20,920/- instead of Rs. 2,54,740/- as declared by the appellant - Held that:-Refering to Sarala N. Sakaraney v/s ITO [2010 (7) TMI 832 - ITAT MUMBAI] the conditions as enumerated in clause (a) of section 55A are also not satisfied in the present case as AO has not formed any opinion that value declared by the assessee on the basis of registered valuer's report is not correct or less than FMV. Thus, the reference to the DVO itself was unwarranted in terms of section 55A. - Decided in favour of assessee.

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• Customs

• 2013 (7) TMI 218
  Rejection of appeal as time barred - Held that:- It noticed that the appellants have filed application for condoning the delay in filing the appeal against the assessment order dated 1.10.2009. It is admitted fact that the assessment order was communicated on 1.10.2009 and the appeal was filed on 25.10.2010. As decided in Singh Enterprises Vs. CCE 2008 (2007 (12) TMI 11 - SUPREME COURT OF INDIA) that the Commissioner (Appeals) has no power to condone the delay beyond the condonable period of 30 days. Therefore reason to interfere with the order of the Commissioner (Appeals).

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• 2013 (7) TMI 217
  Cancellation of the auction sale and return of the plant and machinery that was sold to the auction purchaser - allegation of auction sale of goods that were confiscated by the Customs Department in 1997 - Held that:- The proceedings that took place before the Court from time to time reveal that the Customs Department was unable to produce before the Court any inventory of the goods of YMIL which was drawn up at the time of confiscation in 1997. This is critical for considering the plea of the Customs Department for cancellation of the auction sale. What has been produced are B/Es and packing lists dated 1990 and 1991 regarding ‘capital goods’ and ‘raw materials’. In the absence of any inventory prepared by the Customs Department at the time of confiscation in 1997 it is not possible to verify whether the ‘capital goods’ described in the B/Es and packing lists nearly six years earlier to the confiscation, were the ones that were in fact confiscated. Secondly, in the absence of any mark on such ‘capital goods’ to indicate that they have been confiscated by the Customs Department, it is not possible to conclude that they were the ‘plant and machinery’ which were sold to and handed over to the auction purchaser in February 2007. In other words, there is nothing to verify that the goods which have been sold by auction sale in 2007 were in fact the very goods that were confiscated by the Customs Department in 1997. This Court is not inclined to entertain the prayer of the Customs Department for cancellation of the auction sale and return of the auction goods to the Customs Department. Correspondingly, petition filed by the auction purchaser is allowed. The auction purchaser is permitted to further sell the plant and machinery purchased by him in the auction sale and hand over possession thereof to the purchaser.

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• Service Tax

• 2013 (7) TMI 240
  Jurisdiction of Commissioner - whether the Commissioner of Service Tax, Mumbai has jurisdiction to issue show-cause notice - CBEC needs to appoint ‘Central Excise Officer' to exercise powers within the territorial jurisdiction – appellant contended that the CST, Mumbai is not a Central Excise Officer for the purpose of Chapter V and Chief CCE, Mumbai cannot delegate the powers of adjudication for determination of Service Tax and interest liability – Held that:- As per section 2(b) of the Central Excise Act CCE(Appeals) is also Central Excise Officer - no need to appoint CST, Mumbai as a Central Excise Officer all over again – relying on Raghunath International Ltd. Vs. UOL (2012 (11) TMI 951 - ALLAHABAD HIGH COURT) - Once the power is exercised in accordance with law, there cannot be any challenge to the same. Power to determine service tax liability - Power u/s 83A - power delegated to the Chief Commissioner covers not only the power under Section 83A but also powers under Rule 3 which provides for levy and collection of Service Tax - purpose and object of Section 83A is to provide powers of adjudication in service tax cases - power of determination of service tax and interest liability in addition to the power of imposition of penalty - the said section cannot be interpreted in a narrow sense to restrict the power to imposition of penalty alone- section 83A does not read as “only penalty” or “solely penalty” – as decided in UOI vs. Tata Iron & Steel Co. Ltd.(1975 (12) TMI 79 - SUPREME COURT OF INDIA). The next issue for consideration is whether the Chief CCE has the power to assign adjudication of specific cases to any other officer within his jurisdiction - The CBE&C vide the Notification No. 6/2009-ST dated 30.1.2009 issued under Section 37A of the Central Excise Act, as made applicable to service tax by Section 83 of the Finance Act, 1994, read with the provisions of Section 83A and Notification No. 16/07-ST dated 19.4.2007 has delegated the power of assigning adjudication of cases to the Chief Commissioner of Central Excise within his jurisdiction – thus the Chief CCE can assign adjudication of service tax cases to any CEO within his jurisdiction.

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• 2013 (7) TMI 237
  Refund – unutilized CENVAT credit – business auxiliary services - the substantive issue arose as to whether the company was entitled to claim refund of unutilized CENVAT credit taken on input services which were claimed to have been used for providing their output services exported – Held that:- no attempt was made to determine the exact nature of the output services exported by the assessee, nor to determine the nexus between the input services and the output services. - The nature of activities should be correctly deciphered from the terms of the relevant agreements and the same should be classified under the appropriate head under Section 65(105) of the Act. It is not open to the taxman to approbate and reprobate in this exercise. A correct decision on the subject refund claims should depend on the correct classification of the output services provided by the assessee to the foreign entities. Hence a remand of the case is warranted. Reverse charge mechanism – another issue was whether the assessee was liable to pay service tax under reverse charge mechanism - the service classified as "manpower recruitment or supply agency service" from abroad - the classification of the output services exported by the assessee has got to be done with reference to the entry (under Section 65(105) of the Act) claimed by the assessee and any particular rival entry invoked by the Revenue. - the dispute involved in the Department's appeal also has to be remanded for de novo adjudication.

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• 2013 (7) TMI 236
  Service tax liability – ‘Dredging Service' - Section 65(36)(a) - a show-cause notice was issued for demanding Service Tax on the activity undertaken under the category of ‘Dredging Service' – the appellant’s main contention is that the work done by them in respect of the the Mithi River is not a River but a Nalla – Held that:- From the documentary evidences ( Tender Notice and work awarded) it is clear that the work pertains to Widening and Deepening the depth of Mithi River - the contract is the work as to dredging of river and not as anything else – earlier having agreed to and undertaken the work as widening and deepening of the river, the appellant cannot turn around now and say that what he has done is dredging of a nalla and not a river - the activity undertaken by the appellant squarely falls within the definition of taxable service u/s 65(36a) - the Service Tax demand confirmed in the order along with interest thereon is sustainable in law. Imposition of penalty - suppression of facts or mis-statement with intent to evade Service Tax is not attracted in the facts of the case - The activities undertaken by the appellant was in the public domain - The charge against the appellant can at best be described as mis-interpretation of law - mis-interpretation is not a mis-statement or suppression of facts - imposition of penalty under Section 78 is not warranted – penalty set aside. CENVAT Credit - claim for CENVAT credit was never made before the adjudicating authority - the appellant is at liberty to substantiate their claim for eligibility to CENVAT Credit before the competent authority.

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• 2013 (7) TMI 235
  Service tax demand – stay - Held that:- Jurisdiction to the matter held to be in the favour of the revenue in STANDARD CHARTERED BANK & OTHS. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI [2013 (7) TMI 240 - CESTAT MUMBAI] Sale or service tax - The appellant’s contention that the transaction is of sale and not of service is not tenable because from the beginning he has discharged service tax under "renting of immovable property" classified under service. Time barred - The appellant raised the issue being time barred – Held that:- It is a question of both fact and law and can be gone into in detail at the time of final hearing - From the facts available on record the matter came to light only when the department started investigation into the activities of the appellant. Financial hardship – Held that as per the decision in SQL Star International Ltd. V/s CC, CE and Service Tax Commissionerate (2011 (7) TMI 868 - Andhra Pradesh High Court) - balance of convenience and irreparable loss to Revenue have to be taken into account while considering grant of interim stay. Stay application - assessee directed to make a pre-deposit of 50% of the service tax demand - On submission of the pre-deposit of balance of dues and stayed during the pendency of the appeal.

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• 2013 (7) TMI 234
  Stay - Health club and fitness service – Extended period of limitation - Held that:- The appellant were under bona fide belief that they are not liable to pay Service Tax - being a Municipal Corporation, the suppression of facts with intent to evade duty is not sustainable in law. - assessee offers to make pre-deposit of Service Tax demand involved during the normal period of time, which is approximately Rs.35 lakhs. - stay granted subject to deposit of Rs. 35 lakhs.

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• Central Excise

• 2013 (7) TMI 241
  Appeal to Tribunal in case of Rebate under Rule 18 of the Central Excise Rules – As regards rejection of rebate claim, Appellant preferred an appeal to the Commissioner (Appeals) - There was a delay of four days in the filing of that appeal – Commissioner (A) dismissed the appeal as time barred – Against the order of Commissioner (A), appellant filed an appeal to Tribunal - remedy available to the appellant is an application to the Central Government under Section 35EE of the Act (revision by Central Government). Accordingly it is urged that the appeal be dismissed as not maintainable – Held that:- Appellant has not raised any contention in relation to the rebate claim and has only raised grounds for condonation of the aforesaid delay of the appeal preferred to the Commissioner (Appeals) - Refusal by the Commissioner (Appeals) to condone the above delay is unjust. The delay is liable to be condoned - Allowed this appeal by way of remand with a request to the Commissioner (Appeals) to pass a speaking order on the substantive issue after condoning the above delay and giving the party a reasonable opportunity of being personally heard on the said issue.

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• 2013 (7) TMI 216
  Wrong availment of CENVAT credit without receipt of raw materials and their use by Appellant - According to the Revenue, appellants did not receive Aluminium Ingots weighing 663.062 MTs, Aluminium scrap totally weighing 417.580 MTs and 26.548 MTs of Copper scrap thereby wrong credit of more than Rs.1.36 crores was availed - Held that:- Appellants (AMA-II) did not receive these inputs but took the credit based on the evidences - test reports and copper content of the finished Aluminium alloy ingots manufactured by AMA-II during the period from 18/12/2004 to 11/03/2005, it was found that there was a shortage of 26.548 MTs of copper scrap "dream" - Investigation which found that there were no stamps of check posts on transport documents etc. in the case of M/s. Chawla Roadlines in respect of supply of ingots from M/s. Kirshore vehicle owners/drivers also gave statements that their vehicles were not used, etc – Decided against the Assessee. On the one hand Department has demanded CENVAT credit on the ground that inputs were not received whereas on the other hand they have demanded duty on clandestine removal and both cannot co-exist - Held that:- The case relating to clandestine removal is based on non-transportation and non-receipt of Aluminium scrap and the clandestine removal charge is based on specific quantity of raw materials accounted for and feasible production therefrom. Both can co-exist – Decided against the Assessee. Cleared Aluminium Alloy ingots without payment of duty - Held that:- Appellant cleared Aluminium Alloy ingots without payment of duty and the demand of duty to more than Rs.94 lakhs can be justified on various grounds - Generation of Aluminium ash and iron waste has been shown to be around 33% of the total production whereas it is quite well known that in Aluminium industry other than melting loss and evaporation of 2 to 3%, there cannot be any other loss - Also gathered evidences in the form of statements of transporters to show that no ash or iron waste transported and also made efforts to contact the buyers. None of them can be traced out, etc. – Decided against the Assessee. Personal Penalties under Rule 13/15 and under Rule 26 of Central Excise Rules, 2002 has been levied with modification as had been ordered by Commissioner. Liniency shown on Mr. V.K.Jha on the ground that no admission by Shri V.K. Jha that he was involved in accountal of production and removal etc. The benefit of doubt has to be extended to Shri V.K. Jha.

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• 2013 (7) TMI 215
  Stay Application – Waiver of pre-deposit - processes of grinding, sizing and packing to semi-finished Silico Manganese – Applicant received a huge order and the factory was not capable of carrying out the entire processes - On the finished Silico Manganese they had paid duty which has been duly accepted by the department – Held that:- Once the duty was duly discharged and accepted by the department, CENVAT Credit cannot be denied on the input Silico Manganese The decision of the Tribunal in the instant case gets support from the decisions in cases Commissioner of Central Ex. & Cus., Surat-III vs. Creative Enterprises [2008 (7) TMI 311 - GUJARAT HIGH COURT], followed by the Mumbai Bench of this Tribunal in the case of Brom Chem (India) Pvt. Ltd. vs. CCE, Belapur and also the judgement of Hon'ble Delhi High Court in the case of A One Laminators Pvt. Ltd. vs. CCE[2011 (7) TMI 24 - DELHI HIGH COURT] - Applicant has been able to make out a prima facie case for total waiver of pre-deposit of duty and penalty - The pre-deposit of duty and penalty is waived and recovery thereof is stayed during pendency of the appeal. Stay application allowed. - Decided in favor of Assessee.

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• 2013 (7) TMI 214
  Cenvat Credit - Exempted goods - Goods cleared under Notification 6/2002-CE dated 01/03/2003 under Chapter-X procedure – Held that:- The Tribunal as reported in [2005 (2) TMI 649 - CESTAT, MUMBAI] has held that the impugned goods i.e. Diethyl Carbamyl Chloride cleared under Chapter-X procedure cannot be termed as exempted goods. Therefore, Cenvat credit cannot be denied and demanded from the Respondent. Decided against the Revenue.

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• 2013 (7) TMI 213
  Withdrawal of the appeal filed before Tribunal - First proviso to sub-section (1) of section 35B of the Central Excise Act, 1944 – Assessee to establish that goods which were cleared from the factory were actually exported. - Held that:- No appeal shall lie in such cases to the Tribunal – Withdrawal of case is allowed from the Tribunal - Assessee at liberty to take up the matter with the appropriate forum, as provided under the Act.

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• 2013 (7) TMI 212
  Rebate of duty paid on wire drawn - Amendment in Rule 16(1) of Central Excise Rules, 2002 – Wire drawn from the wire rods - Vide Circular No. 720/36/2003, dated 29-5-2003, the Central Board of Excise and Customs clarified that the process of drawing wire from wire rods does not amount to manufacture – As per the decision in the case of Technoweld Industries [2003 (3) TMI 123 - SUPREME COURT OF INDIA], the process of drawing wire from wire rod did not amount to manufacture. Held that:- Retrospective amendment in Rule 16 is aimed at facilitating “wire drawing units” which had paid sum equal to the duty leviable on “drawn wire” after availing the credit of duty paid on inputs for the said period. It is aimed at regularizing availment of credits at two stages and payment of an amount representing duty at one stage. The purpose of the amendment is to regularize credit taken at the input stage (on wire-rod), credit taken by the downstream user of “drawn wire” and the amount paid as central excise duty on clearance of drawn wire - amendment made in Rule 16 ibid for the period 29-5-2003 to 8-7-2004 was aimed at facilitating wire drawing units for regularizing availment of Cenvat credits at two stages (i) at the input stage on wire rods (ii) second by the downstream user of drawn wire and the amount paid as Central Excise duty on clearance of drawn wire. Sum paid equal to duty leviable has been treated as duty and shall be allowed as credit to the buyer of drawn wire as per the said amendment. As per Rule 18 of Central Excise Rules, 2002 and Not. No. 19/2004-C.E. (N.T.), dated 6-9-2004, duty paid on exported goods is allowed to be rebated. amount paid is treated as payment of duty by virtue of retrospective amendment in Rule 16, the rebate of the said duty paid is admissible to the applicant. As per CCE, Chandigarh v. Punjab Lighting Aids Pvt. Ltd [2011 (6) TMI 221 - CESTAT, DELHI], amendment in Rule 16 is that units making wire from wire rod were to be treated as the assessee who had received the goods for being “re-made, refined, re-conditioned or for any other reason” under Rule 16(1) and thus he could take Cenvat credit of duty paid on wire rods and the amount paid as duty on the clearances of wires was to be treated as Central Excise duty. Therefore held that applicant is entitled to rebate of duty paid on exported goods in terms of Rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004. Decided in favor of Assessee.

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• 2013 (7) TMI 211
  Procedural lapses – rejection of rebate claim on the ground that applicants failed to incorporate self-certification on ARE-2 as prescribed in para (iii) of the Notification No. 42/2001-C.E. (N.T.) r/w para (5) of the Notification No. 21/2004-C.E. (N.T.) – Also filing of declaration and getting the input-output verification done after export of goods. - Held that:- A manufacturer intending to claim input rebate should file a declaration with the jurisdictional Deputy/Assistant Commissioner of Central Excise for verification and approval of input-output ratio prior to export of the goods and obtain the permission of the Deputy/Assistant Commissioner of Central Excise for manufacture or processing and export of finished goods. However, the said approval was granted by department subsequently. So this condition stands satisfied. As regards, non-mentioning of self-certification in ARE-2, Government notes that it is a procedural requirement as laid down in Notification No. 42/2001-C.E. (N.T.). But, it is a record that goods have been exported. Government notes there is no dispute about the use of duty paid goods in the manufacture of exported goods. Hence, Rebate claim rightly allowed. Against the Revenue.

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• CST, VAT & Sales Tax

• 2013 (7) TMI 238
  Classification of Lizol and Harpic - Authorities classifying items as unclassified items - Held that:- Interim order is quashed with the direction that the tribunal shall consider the application of the petitioner for interim protection afresh as expeditiously as possible preferably within six week and till the consideration/decision of the application afresh or the decision of the appeal whichever is earlier, the disputed amount of tax for the assessment year 2008-09 shall not be realized from the petitioner subject to deposit made or security furnished pursuant to the order of the first appellate authority - Decided in favour of Assessee.

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• Wealth tax

• 2013 (7) TMI 239
  Valuation of shares - wealth tax assessment - deductible liability - Contingent liability towards sales tax - whether the sales tax demand could be treated as contingent liability or an accrued liability - Held that:- Even after the assessee had taken the sales tax demand in appeal to higher authorities, the liability of sales tax remained intact - Following decision of Late C.S. Ramachary Vs. Commissioner of Income-tax [1991 (1) TMI 103 - MADRAS High Court] and Kedarnath Jute Mfg. Co. Ltd., V. Commissioner of Income Tax [1971 (8) TMI 10 - SUPREME Court] - Decided against the revenue.

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