TMI Tax Updates - e-Newsletter
July 15, 2013

Case Laws in this Newsletter:

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

Articles

1. ABATEMENTS IN SERVICE TAX

   By: Dr. Sanjiv Agarwal

News

1. I&B Ministry seeks views of TRAI and PCI on revised FDI Caps proposal.

2. Index Numbers of Wholesale Price in India (Base: 2004-05=100), Review for the month of June, 2013

Highlights / Catch Notes

Income Tax

• High Court Confirms Mandatory Retrospective Surcharge u/s 113 of Income Tax Act.

  Case-Laws - HC : Surcharge u/s 113 - Surcharge under Section 113 of the Act is mandatory and is applicable with retrospective effect - HC
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• Court Rules Short-Term Capital Loss from Non-Genuine Share Transactions Cannot Offset Other Income for Tax Purposes.

  Case-Laws - HC : Set off of short term capital loss - Transaction in shares - When neither any payment was made nor any delivery was taken, then the transaction can not be held genuine - HC
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• Assessee's Claim for Full Depreciation Denied u/s 10(29) of Income Tax Act for Current Year.

  Case-Laws - HC : Till previous year assessee exempted u/s 10(29) - Assessee has claimed the entire depreciation during the assessment year under consideration, which is not permissible - HC
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• High Court Affirms Separate Depreciation Claims on Truck Chassis and Tanker for Tax Purposes.

  Case-Laws - HC : Depreciation on truck - claim of depreciation on chassis and tanker mounting on chaises separately - claim allowed - HC
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• Court Rules: No Disallowance of Expenditure u/s 14A if Interest-Free Funds Available to Assessee.

  Case-Laws - HC : Disallowance u/s 14A - when there was interest free funds available with the assessee, there does not arise a question of disallowing expenditure under Section 14A of the Act - HC
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• Tax Authorities Cannot Impose Notional Interest if Assessee Hasn't Negotiated or Collected It in Income Tax Cases.

  Case-Laws - AT : Addition of notional interest - if the assessee had not bargained for interest, or had not collected interest, one fails to see how the IT authorities can fix a notional interest as due, or collected by the assessee - AT
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• Court Rules Turnover in TDS Certificates Doesn't Solely Determine Eligibility for Section 80IA Deductions; Government Departments Involved.

  Case-Laws - AT : Disallowance of deduction u/s. 80IA on the basis of turnover as reported in TDS certificate - Government Departments following cash system of accounting - deduction allowed - AT
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• Mark-to-market losses in derivatives affect stock valuation, but anticipated profits from appreciated stock value are excluded.

  Case-Laws - AT : Mark-to-market loss on account of trading in derivative transactions - While anticipated loss is taken into account while valuation of closing stock, anticipated profit in the shape of appreciated value of the closing stock is not brought into account - AT
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• Failure to Address Key Arguments in Tax Decisions Can Lead to Rectification of Errors Under Income Tax Law.

  Case-Laws - AT : Rectification of mistake -If the argument and ground were not disposed off is a mistake apparent from rerecord. - AT
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• Interest on Loans for Business Expansion Considered Revenue; Affirmed by High Court u/s 36(1)(iii.

  Case-Laws - HC : Interest u/s 36(1)(iii) - Loans borrowed for expansion of business - Net unit established - Interest paid on the loan will have to be treated as revenue in nature - HC
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• Business Begins with First Stock Purchase, Not First Sale, per Income Tax Act Section 37.

  Case-Laws - HC : Set Off u/s 37 - date of Commencement of business - a business will commence with the first purchase of stock-in-trade and the date on which the first sale is made is immaterial - HC
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• High Court Overturns Tribunal's Decision on Carry Forward of Speculative Losses in Derivative Transactions u/s 73.

  Case-Laws - HC : Carry forward of losses u/s 73 - Speculative loss - Derivative transaction - Tribunal erred in law in holding that the assessee was entitled to carry forward its losses - HC
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Customs

• Commissioner of Customs, Pune, Lacks Jurisdiction in Issuing Show-Cause Notice per Notification 36/96.

  Case-Laws - AT : SCN under notification 36/96 - instead of Asst. Commissioner of Central Excise, Commissioner of Customs, Pune has issued show-cause notice which is beyond his jurisdiction - AT
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Central Excise

• Authority Violated Natural Justice by Using Uninformed Verification Report Against Assessee, Says Court.

  Case-Laws - AT : Original authority acted in violation of the principles of natural justice when it obtained a verification report from the Range Officer behind the back of the assessee and relied on it to decide the case against them - AT
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• Merchant Exporters Bear Duty Liability for Unexported Goods; Manufacturing Units Not Liable for Proving Exports.

  Case-Laws - AT : Duty liability - export through merchant exporter - Manufacturing units were not responsible for the production of proof of exports and if the goods are not exported the entire responsibility rests on the merchant exporter - AT
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• Reversal of CENVAT Credit on Input Removal Qualifies as Duty Payment; Applicant Eligible for Rebate u/r 18.

  Case-Laws - CGOVT : Nature of reversal of cenvat credit on removal of inputs as such - it is nothing but payment of duty - Rebate claim is admissible to the applicant under Rule 18 - CGOVT
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Case Laws:

• Income Tax

• 2013 (7) TMI 367
  Exemption u/s 10(23C)(iv) - Assessee society running inter college - Amendment made in Petitioner's object clause - CIT rejected claiming that society has not been formed with the sole object of imparting education, but its memorandum of association reflects that it has other aims and objects as well - Held that:- petitioner society is registered charitable society with the Registrar of Societies and is also registered under Section 12A with its objects of establishing, running and maintaining educational institutions. It has a school by the name of C.P. Vidya Niketan Inter College. At present the society does not have any activity other than running and maintaining educational institutions - There are adequate safeguards, that if the activities other than educational activities are undertaken, the exemption may be withdrawn, but in the absence of any such allegation it cannot be said merely on the enumeration of the activities, which are all primarily connected with education and charity that the society does not exist solely for the purpose of imparting education - in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under Section 10 (23C) (vi) of exemption - mere possibility, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under Section 10 (23C) (vi) - Following decision of AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Versus CBDT & OTHERS [2008 (5) TMI 17 - SUPREME COURT OF INDIA], Vanita Vishram Trust v. Chief Commissioner of Income Tax & Anr. [2010 (5) TMI 102 - BOMBAY HIGH COURT] and EWING CHRISTIAN COLLEGE SOCIETY Versus CHIEF COMMISSIONER OF INCOME-TAX [2009 (5) TMI 103 - ALLAHABAD HIGH COURT] - Decided in favour of assessee. Principal of natural justice - Held that:- Chief Commissioner of Income Tax did not give sufficient opportunity to the petitioner, to place documents relevant to the enquiry before rejecting the application - when the petitioner was required to produce the audit report under Rule 16CC in Form 10BB, and the petitioner was granted time to furnish the same within three days - there was no hurry to close the enquiry in as much as the rejection of the application will visit serious consequence on the petitioner in as much as having exceeded the aggregate receipts over and above Rupees One crore, the income of the society in the absence of the exemption under Section 10 (23C) (vi) would not qualify for exemption.

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• 2013 (7) TMI 365
  Deletion of disallowance on loyalty expenditure - Opening of new unit of business - Tribunal held that opening of business was for extension of business - Held that:- In view of the findings recorded by the tribunal, no substantial question of law arises for consideration - Decided against Revenue.

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• 2013 (7) TMI 364
  Unexplained investment - Exhibition of diamond jewellery - VDIS produced - Both appellate authorities deleted addition on account of unexplained investment - Held that:- Partners and family members had given the jewellery to the assessee firm only for exhibition - Assessee firm, soon after receiving the jewellery had issued the vouchers - Vouchers were seized during the course of search, so the genuineness of the vouchers can not be questioned - Both the appellate authorities have observed that diamond jewellery studded with gold is the same jewellery which was received by the assessee from partners and family members and the said jewellery was declared by them under VDIS or in wealth tax return before the date of survey/search - Tribunal is final fact finding authority - No reason to interfere with the impugned orders - Decided against Revenue. Surcharge u/s 113 - Tribunal deleted surcharge by holding that the insertion of proviso to Section 113 was not clarificatory in nature - Held that:- Surcharge under Section 113 of the Act is mandatory and is applicable with retrospective effect - Following decisions of CIT Vs. Rajveer Bhatia [2009 (2) TMI 12 - SUPREME COURT] and CIT Vs. Suresh Chandra Gupta [2008 (1) TMI 396 - SUPREME Court] - Decided in favour of Revenue.

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• 2013 (7) TMI 363
  Set off of short term capital loss - Transaction in shares - Tribunal denied set off of short term capital loss being bogus - Held that:- Assessee made no payment for the purchase of the shares - There was no actual delivery taken by the assessee at any point of time in respect of the shares on which the assessee has claimed the alleged short term capital loss - When neither any payment was made nor any delivery was taken, then the transaction can not be held genuine specially when there was no DEMET Accounting System during the assessment year under consideration - Decided against assessee.

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• 2013 (7) TMI 362
  Special audit u/s 142(2A) - Violation of principal of natural justice - Assessment order barred by limitation period - Held that:- evident that the copy of the letter dated 08.03.2004 written by the A.O. was never served on the assessee. However, the CIT has granted the approval for issuance of the direction for special audit under the said provision. Had an opportunity given, the proper explanation might have been given by the assessee but that was not done, which is the violation of the principles of natural justice. Income-tax Officer gets jurisdiction to pass an assessment order if it is within limitation. If the assessment is barred by time, then any decision on merits would be of no consequence, and for the same reason, the decision, on merits, by the appellate authorities would also be of no consequence and would have to be ignored - underlying principle of natural justice, evolved under the common law, is to check arbitrary exercise of power by the State or its functionaries - Therefore, the principle implies a duty to act fairly - These rules can operate only in areas not covered by any law validly made; they do not supplant the law but supplement it - Order of Tribunal and lower authorities set aside - Following decisions of Sahara India (Firm) vs CIT [2008 (4) TMI 4 - Supreme Court], Rajesh Kumar vs. Deputy CIT [2006 (11) TMI 135 - SUPREME Court] and Commissioner of Income-tax, Delhi, Central-I v. Escorts Farms P. Ltd.[1989 (7) TMI 64 - DELHI High Court] - Decided in favour of assessee.

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• 2013 (7) TMI 361
  Depreciation by straight line method - Till previous year assessee exempted u/s 10(29) - Held that:- basic and normal scheme of depreciation under the Indian Income Tax Act, is that value of the asset decreases every year, being a percentage of the written down value which in the first year is the actual cost and in succeeding years, the actual cost less all depreciation actually allowed under the Income Tax Act or any Act repealed thereby. Thus, depreciation allowance is in respect of such assets as are used in the business and is to be calculated on the written down value - in the "straight line method", depreciation is allowed at a fixed percentage of the original cost year after year till the original cost is exhausted. Assessee has claimed the entire depreciation during the assessment year under consideration, which is not permissible as per the scheme of the depreciation - Though, the income was exempted under section 10 (29) of the Act, but it does not bar the assessee to claim the notional depreciation in its books of accounts - Even the income is exempted nonetheless, the balance-sheet etc. will have to be prepared as per law for each assessment year as per principle of accounting - Matter remanded to the AO to allow depreciation on various items of the assets by taking notional depreciation for the earlier years, but the depreciation cannot be more than 100% of the value of the assets - Decided in favour of Revenue.

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• 2013 (7) TMI 360
  Depreciation on truck - claim of depreciation on chassis and tanker mounting on chaises separately - claim of depreciation @ 100% on such tanker - depreciation at a rate of 40% on leased vehicles instead of normal rate of 30% - ITAT allowed the claim of the assessee following the decision in CIT Vs. Bansal Credits Ltd. [2002 (11) TMI 76 - DELHI High Court] - Held that:- Recently, the Supreme Court in I.C.D.S. Ltd. Vs. Commissioner of Income-tax and Another [2013 (1) TMI 344 - SUPREME COURT] affirmed the said view. The lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out. - Decided in favor of assessee.

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• 2013 (7) TMI 359
  Disallowance u/s 14A - Assessee claimed dividend income and exemption in administrative expenditure - Tribunal deleted disallowance due to lack of evidence produced by A.O. - Held that:- CIT [A] and the Tribunal both have specifically held the said amount has not been rightly disallowed since the same had been expended from interest free funds, though spent for earning exempt dividend income. It is not the question of the total sum of Rs. 471 lacs, but, a limited sum that has been spent for earning the exempt income, therefore, as rightly held, when there was interest free funds available with the assessee, there does not arise a question of disallowing expenditure under Section 14A of the Act - Decided in favour of Assessee.

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• 2013 (7) TMI 358
  Condonation of delay – delay in filing of returns – Held that:- The explanation that it had no expertise in the field of income tax and the refunds of tax deducted at source by the customers who purchased the agricultural produce of farmer members. Regard being had to the nature of business of the petitioner and the persons managing the Co-operative Institution, the Explanation offered cannot, but be said to constitute sufficient cause to condone the delay and therefore, its rejection is perverse. Deduction u/s 80P(2)(iii) - the assesse is into the activity of the sale of agricultural produce of its members is the only source of income – Held that:- He would be entitled to a deduction under Section 80P (2)(iii) of the Act, but it is for the department to process the return filed by the petitioner and effect refund, if the assesse is entitled to in law - If in the processing of the return, it is found that the petitioner is liable to be charged to tax and a demand raised, it is needless to state that the petitioner cannot advance the plea of limitation in the matter of recovery of the said tax – appeal decided in the favor of the assesse.

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• 2013 (7) TMI 357
  Freight charges disallowed u/s 40(a)(ia) - non deduction of TDS u/s 194C - Held that:- The tax authorities have not rebutted the claim of the assessees herein that they have not instructed the suppliers to dispatch the goods by a particular agency. It was also not brought on record that the assessees herein have only requested the suppliers to dispatch the goods by lorries. Thus it cannot be said that mere payments of lorry freights, by itself, constitute a contract between the assessees herein and the transport agencies. Accordingly, the provisions of sec. 40(a)(ia) cannot be invoked in the facts and circumstances of these casesa accordingly direct the AO to delete the impugned addition. Addition of interest calculated on loans and advances balances - Held that:- In the case of as relied upon revenue the interest assessed by the assessing officer is far more than the interest expenditure claimed by the assessee. In the said case, the interest expenditure represented only the interest paid to M/s State Bank of India towards the cash credit loan, major portion of interest paid is to State bank of India C.C account and ICICI bank car loan. Further there is interest payment to the tune of about Rs.1.95 lakhs to two other persons. These factual aspects show that the assessing officer has only calculated notional interest on the interest free loans and advances. In the case law relied upon by the assessee viz., Highways Construction Pvt. Ltd. Vs. CIT (1992 (11) TMI 86 - GAUHATI High Court) if the assessee had not bargained for interest, or had not collected interest, one fails to see how the IT authorities can fix a notional interest as due, or collected by the assessee. Since the assessing officer is not entitled to assess interest on notional basis direct AO to delete the impugned addition. Disallowance of a portion of Phamplets expenses - Held that:- Since these expenses were supported by self made vouchers, AO disallowed a portion of the expenditure claim and the same was confirmed by CIT(A). As before us no material was placed to rebut the findings given by AO thus no reason to interfere with his decision on this issue.

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• 2013 (7) TMI 356
  Non deduction of TDS - CIT(A) deleted the disallowance - Held that:- As it is the case of non-supply of material, however, as stated that in respect to issue of certificate u/s. 194C(4) the same can be verified by AO. In respect to other four parties except Excel Movers Pvt. Ltd. it is a fact that these parties have supplied stone chips, sand, jama, gas, certain other materials for construction of road and it is not the expenditure on account of any contract etc. Hence confirm the order of CIT(A) on this issue. With respect to certificate issued in the case of Excel Movers Pvt. Ltd. u/s. 194(4) by the ITO, Ward-1(2), Kolkata, the same can be verified by the AO at the time of giving appeal effect to this order and in case, there is a certificate, AO will allow the claim of assessee. This ground of revenue’s appeal is dismissed in terms of above. Interest on borrowed fund utilised for advancing interest free loans - CIT(A) deleted the additions - Held that:- As relying on Munjal Sales [2008 (2) TMI 19 - Supreme Court] & CIT v. Reliance Utilities & Power Ltd [2009 (1) TMI 4 - HIGH COURT BOMBAY] if there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. Once assessee has interest free fund available with it, then the interest free advance given to associate concerns is clearly covered in favour of assessee. Against revenue. Foreign tour expenses disallowed - CIT(A)deleted the addition - Held that:- As the assessee company is dealing in a number of engineering and technical activities and projects. Further, directors have undertaken foreign tour to attend trade fair, conferences etc. in UK, Japan, Singapur, Taiwan etc. This finding is not controverted by CIT, DR at the time of hearing and he only relied on the assessment order. Thus deletion made by CIT(A) is quite reasonable and appeal of revenue is dismissed. Disallowance of deduction u/s. 80IA on the basis of turnover as reported in TDS certificate - CIT(A) deleted the disallowance - according to assessee, it has shown turnover with different Government Departments in the previous year under consideration on accrual basis whereas Government Departments following cash system of accounting and have deducted TDS only on payments which actually have been made during the previous year under consideration - Held that:- Finding no infirmity in the reconciliation submitted by assessee and the order of CIT(A) that the assessee has received payments by account payee cheque, which is not controverted by revenue order of CIT(A) upheld and this issue of revenue’s appeal is dismissed.

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• 2013 (7) TMI 355
  Mark-to-market loss on account of trading in derivative transactions - CIT(A) deleted the addition made by the AO - assessee company engaged in the business of granting of loans and advances against shares and securities, also traded in derivative segment by entering into future and option contracts - Held that:- Respectfully following the decision of in the case of Edelweiss Capital Ltd. (2012 (10) TMI 223 - ITAT, MUMBAI) & Shri Ramesh Kumar Damani vs. The Addl. CIT [2010 (11) TMI 851 - ITAT MUMBAI] wherein held that it is not only the actual stock but derivatives can also be held as stock in trade and the principle “cost or market price whichever is lower” has been rightly followed by the assessee in valuing the derivatives and further when the derivates are held as stock in trade then whatever rules apply to the stock in trade will have to apply to their valuation also. While anticipated loss is taken into account while valuation of closing stock, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as not prudent trader would care to show increased profits before actual realization. Respectfully following the law laid the assessee has rightly claimed mark-to-market loss which is liable to be allowed. In favour of assessee.

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• 2013 (7) TMI 354
  Penalty u/s 271(1)(c) - Interest paid to bank disallowed under Section 43B - Held that:- Assessee has duly disclosed the particulars of interest payable in the balance-sheet, however, it could not disallow the interest payable at the time of computation of income as this was the first year in which such a claim was to be disallowed in view of Section 43B. Under these circumstances it can be held that there was a genuine inadvertent mistake by the tax consultants in this case. The ratio laid down in the case of Price Waterhouse Coopers Pvt. Ltd vs. CIT & another (2012 (9) TMI 775 - SUPREME COURT) wherein concluded that if there is a bonafide and inadvertent mistake by the assessee while submitting the income in the return, it cannot be held that assessee was guilty of either furnishing inaccurate particulars of income or concealment of his income. Thus, no penalty can be levied on such bonafide mistake and accordingly the same is deleted. In favour of assessee. Disallowance of depreciation on BSE membership rights - Held that:- As decided in Techno Shares and Stock Ltd. case (2010 (9) TMI 6 - SUPREME COURT OF INDIA) BSE Card is an intangible asset entitled for depreciation if the card has been acquired after 01.04.1998. In this case, the assessee has acquired the card on 31st December, 1997 i.e. three months prior to it. In such a situation, it cannot be held that the assessee's claim for depreciation of BSE Card was bogus or non-genuine. Moreover, it is purely and legal issue that depreciation would be allowable on the card which has been purchased after 01.04.1998 and would be disallowed if it has been purchased slightly prior to this date. Therefore, such a claim cannot be held to be purely not bonafide. Thus, such a disallowance does not warrant any penalty for concealment of income or for furnishing of inaccurate particulars - penalty levied on this score also stands deleted. In favour of assessee.

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• 2013 (7) TMI 353
  Deduction u/s 80IB - disallowance on the ground that conversion of raw material in the therapeutic food does not amounts to manufacture - Held that:- As in the present case various raw materials are subject to various stages of processing like roasting, grinding, mixing, blending, etc through a skilled labours and machines in a proper proposition and ratio. The ultimate product which comes into existence is a therapeutic food, which is a new product, definitely separate and distinct from the raw materials. It has a different characteristics altogether and commercially also it is no longer regarded as original commodity. This therapeutic food cannot be reversibly changed to original form once again. The department in the earlier years all throughout has accepted that the assessee is engaged in manufacturing of therapeutic food and allowed the claim for deduction u/s 80IB. Even though principle of res judicata does not apply to the Income Tax proceedings, however, if the same facts are permeating in all the years which has been accepted by both the parties, the same cannot be disturbed or a contrary view can be taken without any change in the facts and circumstances or change in the law, thus assessee is entitled for deduction u/s 80IA as the same has been allowed in the earlier assessment years. In favour of assessee. Protective addition - Held that:- Computation of deduction u/s 80IB as made by the assessee is wholly erroneous in so far as, while computing the net income for the purpose of deduction u/s 80IB, the assessee has removed the interest paid on partners capital which has resulted into enhancement of profit. This working is wrong as the profit of the firm is always worked out after the interest and remuneration paid to the partner, which is an outgoing expense while computing the net profit of a partnership firm. Thus, the addition of Rs. 5,66,185/-, though made on protective basis by the AO stands confirmed. Since already held above, that the assessee is liable for claim for deduction under Section 80IB, therefore, this addition would be on substantive basis. Thus the ground raised by the assessee is dismissed. Disallowance u/s 40(a)(ia) - outward freight charges paid to different drivers - Held that:- The entire details for the payments made to the various truck drivers as claimed by the assessee has not been furnished. If the assessee has claimed that firstly, there is no privity of contract with the individual truck drivers which have been engaged on random basis and secondly, no payment has been made exceeding 50,000/-, then these aspects need to be proven by the assessee and proper scrutiny and examination is to be carried out to establish that the assessee has made the payments to individual truck drivers who had transported the goods on random basis without any privity of contract. The onus is wholly upon the assessee- thus set aside this issue to the file of the AO to decide the issue afresh - in favour of assessee for statistical purposes. Disallowance of 10% of labour charges paid to different contractors - Held that:- The payments made to the different parties have been made through account payee cheques and nothing has been brought on record that these payments are excessive looking to the fair market rate. Looking to fact that there are certain payments which are not open to full verification, therefore disallowance is to be restricted to 5% - treated as partly allowed. Charging and levy of interest u/s 234B - assessee submitted that entire sale made have been subjected to TDS, therefore, no interest under 234B could have been levied - Held that:- AO is directed to examine the details of TDS and in case if it is found that TDS has been deducted on all the receipts/sales, then interest under Section 234B cannot be levied - treated as allowed subject to verification done by the AO.

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• 2013 (7) TMI 352
  Rectification of mistake - penalty levied is unreasonable and excessive. The AO has levied penalty @ 150% of the tax sought to be evaded - Held that:- If the argument and ground were not disposed off is a mistake apparent from rerecord. As in thus case argument was taken in course of hearing was also not consider and adjudicated. This too is covered by the judgment of CIT Versus Ramesh Chand Modi (2000 (7) TMI 8 - RAJASTHAN High Court). Also see CIT vs. Keshav Fruit Mart (1991 (11) TMI 24 - ALLAHABAD High Court) wherein held that the question for consideration was whether there was a mistake apparent from the record in that a ground raised in the memorandum of appeal before the Tribunal was not at all considered by the Tribunal. Tribunal has not at all discussed that ground in its order and complete omission to discuss the ground set up in appeal is undoubtedly a mistake apparent from the record. Also see B. Karamchand Piarelal vs. ITO [2003 (12) TMI 262 - ITAT AMRITSAR] After considering the above submissions we are satisfied, that the 'addition ground raised' regarding excessiveness of the penalty levied u/s 271(1)(c) of the Act remained unadjudicated. This is a rectifiable mistake inadvertently committed, and this can be rectified under the provisions of Section 254(2). Other submissions are simply admitted at the re-writing of the order which is not permissible under section 254(2). Accordingly the Tribunal Order is recalled only for the limited purpose of deciding the additional legal ground raised and reject other referred mistakes - appeal partly allowed.

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• 2013 (7) TMI 351
  Capital gain or business income - income from transfer of shares - A.O. held it as business income - CIT directed to charge it under capital gain - Held that:- Assessee offered similar income from transfer of shares under the head Capital gain in the preceding years which came to be accepted by the Assessing Officer as such - Revenue failed to highlight any distinguishing feature in the facts of the current year vis-à-vis the earlier years decided by the AO. - Following decision of CIT v. Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] - Decided against Revenue.

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• 2013 (7) TMI 336
  Interest u/s 36(1)(iii) - Loans borrowed for expansion of business - New unit established in the existing premises under the same management and finance control - Held that:- main expenditure incurred was in the nature of salary, wages, repairs, maintenance, design and engineering fee, travelling and other expenses of administrative nature. Certain part of the expenditure was also made for the construction of additional shades, building to keep machines and products safely. But, no separate accounts were maintained - The unit, which the appellant has set up had inextricable linkage with the existing business of the appellant. The proposed business was not an individual business but vertical expansion of the present business. Thus, the test of existing business with common administration and common fund is clearly met - It is a case of interest paid on the borrowed capital - Interest paid on the loan borrowed from the IDBI will have to be treated as revenue in nature and accordingly, the same is allowable - Following decision of CIT vs. Tarai Development Corporation Ltd.[1993 (8) TMI 64 - ALLAHABAD High Court], Rama Synthetics India Ltd. vs. CIT [2009 (9) TMI 635 - Delhi High Court] - Decided against Revenue.

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• 2013 (7) TMI 335
  Set Off u/s 37 - Capital expenditure versus revenue expenditure - date of Commencement of business - Held that:- in the case of CIT Vs. L.G. Electronic (India) Ltd. [2005 (5) TMI 30 - DELHI High Court], it has been observed that the date of setting up of business and date of commencement of business may be two separate dates. This decision in the case of L.G. Electronics (supra) has been followed in CIT Vs. ESPN Software India P. Ltd., [2008 (3) TMI 90 - DELHI HIGH COURT] wherein it has been held that a business will “commence” with the first purchase of stock-in-trade and the date on which the first sale is made is immaterial. Similarly, for manufacturing, several activities in order to bring or produce finished products have to be undertaken, but business commences when the first of such activities is taken. Assessing Officer and the first appellate authority did not specifically go into the factual matrix relating to and to ascertain the date of “setting up” of business, though order of the first appellate authority is more detailed and elaborate - Decided against Revenue with cost of Rs. 10,000/-

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• 2013 (7) TMI 334
  Carry forward of losses - Speculative transactions - Derivative transaction - Benefit u/s 73 - Held that:- In terms of the Explanation to Section 73 (4) in the case of a company, business of purchase and sale of shares is deemed to be speculation business - Assessee is no doubt correct in contending that the only definition of derivatives is to be found in Section 43(5); yet the definition – to the extent it excludes such transactions from the mischief of the expression “speculative transactions” is confined in its application cannot be overlooked. Since the expression “derivatives” is defined only in Section 43 (5) and since it excludes such transactions from the odium of speculative transactions, and further that since that has not been excluded from Section 73, yet, the Court would be doing violence to Parliamentary intendment. This is because a definition enacted for only a restricted purpose or objective should not be applied to achieve other ends or purposes. Doing so would be contrary to the statute - Stated objective of Section 73- apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. Tribunal erred in law in holding that the assessee was entitled to carry forward its losses - Following decisions of The Vanguard Fire & General Insurance Co. Ltd., Madras v. M/S. Fraser And Ross & Anr [1960 (5) TMI 25 - SUPREME COURT] and Rajshree Sugars and Chemicals Ltd. v. Axis Bank Ltd.[2008 (10) TMI 594 - MADRAS HIGH COURT] - Decided in favour of the revenue.

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• Customs

• 2013 (7) TMI 344
  Jurisdiction of Commissioner of Customs - Show cause notice - Held that:- Plain reading of condition 8 of notification 36/96 stipulates that it is the duty of the Asst. Commissioner of Central Excise to take action against the assessee if any of the conditions is violated by the assesse - But, here instead of Asst. Commissioner of Central Excise, Commissioner of Customs, Pune has issued show-cause notice which is beyond his jurisdiction - Decided in favour of Assessee.

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• Corporate Laws

• 2013 (7) TMI 343
  Unfair trade practice - complainant's case that she had booked a plot of land in a scheme launched by the respondent namely 'DLF Qutab Enclave, Phase-IV' and has paid the agreed price accordingly - liability to pay the interest @20% per annum for belated payment as arose by respondent - Held that:- This Commission has no jurisdiction to hand over the possession of plot in question to the complainant; that is the task of the Civil Court. The Hon'ble Supreme Court in Ghaziabad Development Authority Versus Ved Prakash Aggarwal [2008 (5) TMI 411 - SUPREME COURT OF INDIA] the closest term has restrained to this Commission from assuming the power of the Civil Court. It is also clarified in the paragraph that this Court cannot grant any specific performance. The Commission has already recorded a specific statement made before the Court by the complainant, and quoted herein above, that she was not interested in any compensation, but was insisting upon the possession of the plot. This statement was made before the open Court on 15th July, 2011 before Hon'ble Dr. Justice Arijit Pasayat who was the Chairman of this Commission.Therefore, in reality nothing would survive in this complaint, at least in so far as the possession is concerned. If this is not sufficient, in a reported judgment in Saurabh Prakash v. DLF Universal Ltd. [2006 (11) TMI 329 - SUPREME COURT OF INDIA] after taking stock of the provisions of this Act and after considering the definition of 'trade practice' in Section 2(u) and 'restrictive trade practice' in Section 2(o) (i) and (ii) and expression 'service' as also the definition of 'unfair trade practice' as defined in 36-A has quoted in paragraphs 34 and 35 stated that the power of the Commission to award compensation, therefore, is restricted to a case where loss or damage had been caused as a result of monopolistic or restrictive or unfair trade practice. It has no jurisdiction where damage is claimed for mere breach of contract. From the bare reading of this, it is clear that the application under Section 12-B would not lie where a complaint is confined to a breach of contract. Considering the entire facts and circumstances of the case direct to the refund of amount, which was agreed by the DLF. However, since the matter remained pending all these years, refund @ 9% interest also confirmed.

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• Service Tax

• 2013 (7) TMI 366
  Research fee - service tax on sharing of expenses - inclusion in value – Held that:- When a service provider charges a consideration, he takes into account all the expenses incurred by him and includes an element of profit – thus expenses are an integral part of the consideration charged - It may also happen that when the market is down the service provider may not be able to make any profit but may be rendering the service at a loss - that does not mean that the amount received is not a consideration for the services rendered - Service tax is not a tax on income or profits but a tax on provision of service - Whatever amount is charged for such provision service tax is payable irrespective of whether any profit is made by the service provider in the said transaction. Market Research Services – assesse contended that the service provided does not come under the category of ‘Market Research Services' as they do not pertain to any product, service or utility - Held that:- Research on equity is a product research - the term Market Research Agency was defined in section 65(69) We are of the view the equity research undertaken by the appellant falls within the scope of this definition and accordingly - appellant conducted equity research and prepared reports on the financials of the companies listed in the stock exchanges and the stock market performance of equity shares of such companies - Equities definitely come under the categories of products and considered as goods under the Sale of Goods Act, 1934 – the appellant is prima facie liable to pay service tax on the said activity. Period of limitation – The assesse contended that the show cause notice for demand of service tax for the period October, 2000 to March, 2003 has been issued only in March, 2005 and hence the demand is time barred – Held that:- It is the date of knowledge that is relevant for computing the time limit – limitation period is within one year from the date of knowledge It is on record that the appellant did not inform the department of the activities undertaken in this regard any time and only in March 2004 and September 2004 they informed the activities undertaken by them to the department subsequent to the department initiating investigation on the activities of the appellant – court relied on the judgement of NIZAM SUGAR FACTORY Versus COLLECTOR OF CENTRAL EXCISE, A. P. (2006 (4) TMI 127 - SUPREME COURT OF INDIA). Waiver of pre- deposit – 50% of service tax demand ordered to be pre-deposited - stay granted partly.

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• 2013 (7) TMI 349
  Classification of service – whether appellant was providing clearing and forwarding services by handling and distribution of products – Held that:- As the assessee has not provided any of the core enumerated activities of clearing and forwarding operations, it has not directly or indirectly provided any service connected with clearing and forwarding operations in any manner to any other person - appellant is not liable to service tax under the taxable head clearing and forwarding agency - appellant was not engaged in any of the six enumerated activities which constitute clearing and forwarding operations- there is neither the conjunctive service of clearing and forwarding provided by the assessee nor either of the services of clearing or forwarding – following the decision of Larsen & Toubro Ltd. vs. CCE, Chennai reported in 2006 (6) TMI 3 - Appellate Tribunal, New Delhi) - appeal decided in the favor of the assessee

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• 2013 (7) TMI 348
  Business auxiliary services - The applicant claimed that the agreement for laying pipes will fall under the category of Commercial and Industrial Construction service – Held that:- After going through the agreement the court decided The agreement is specifically for manufacture of concrete coated pipes as well as for open cut river crossing which includes de-watering, dismantling the cofferdam, restoring the river bed etc. Waiver of pre- deposit – The court held that the case is not for total waiver of pre-deposit of the amounts involved – Thus directed to deposit an amount of 50%of the duty - On deposit of the said amount the pre-deposit of remaining dues is waived and recovery is stayed.

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• 2013 (7) TMI 347
  Refund of Credit on input services– appellant provided IT enabled services – they claimed refund of un utilised accumulated credit on input services – Held that:- Assessee was entitled for credit on manpower recruitment service and security agency service - ground raised by them is not valid - the recruitment of manpower for rendering the services and no further details were required by the department – appeal decided against the department. Court allowed the refund of credit on advertisement, housekeeping service, hiring of furniture and clearing & forwarding service - the same also should be treated as input service - Appeal decided in the favour of assessee.

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• 2013 (7) TMI 346
  Cenvat Credit - Rule 6(7) - input services - separate accounts - manufacture of exempted goods and for providing output services – provisions relating to dispute between 2004 to 2008 - Held that:- appellant had in fact filed their application with the Commissioner of Service Tax within the prescribed period of 6 months - had it been transmitted at once to the CCE, it would probably have been received at his end also within the said period - a person seeking the benefit of the above sub-rule (which has retrospective effect from 10/09/2004) should make an application to the Commissioner of Central Excise within a period of 6 months - the purpose of the beneficial provisions of Rule 6(7) ibid should not be defeated on the hypertechnical ground that the party’s application, though received by the department within the prescribed period, reached the Commissioner of Central Excise a day or two after such period – case remanded back to the Commissioner for adjudication – application decided in the favour of the assessee.

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• 2013 (7) TMI 345
  Service tax liability – appellant had received the services from the service provider who is situated abroad and the period involved is prior to 18.04.06 – the issue involved is regarding the service tax liability on the recipient of services who is situated in India and the services rendered from abroad for the period prior to 18.04.06 - Held that:- CBEC vide their circular dated 26.09.11 has clearly clarified that service tax liability on any taxable service provided by non-resident or a person located outside India, to a person in India would arise w.e.f. 18.04.06 only - In our view, the circular of CBEC and the judgment of the Apex court in INDIAN NATIONAL SHIPOWNERS ASSOCIATION Versus UNION OF INDIA (2008 (12) TMI 41 - HIGH COURT OF BOMBAY) will cover the issue in favour of assessee - to that extent the order to be set aside. - decided in the favour of the assessee.

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• Central Excise

• 2013 (7) TMI 342
  Limitation – Extended period - Appellants are declaring along with annexure to their Central Excise returns filed monthly regarding the availment of CENVAT credit on the items in question - A query was raised vide letter dated 27.05.2009 and same was replied by the appellant vide letter dated 17.06.2009 and same as received in the office of the Commissioner of Central Excise, LTU, Mumbai on 19.06.2009 – Held that:- Availment of CENVAT credit was in the knowledge of the department on 19.06.2009 itself. Therefore, show-cause notices issued on 22.10.2010 by invoking the extended period of limitation are beyond the period of limitation as there is no fraud, collusion or mis-representation of facts or contravention of Act/Rules with an intend to evade payment of duty – Appeal allowed – Decided in favor of Assessee.

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• 2013 (7) TMI 341
  Benefit of exemption under Notification No. .8 /97-CE, dt.01.03.1997 - Goods manufactured by 100% EOU and cleared to Domestic Tariff Area out of raw material/manufactured goods procured from another 100% EOU – Held that:- Benefit of exemption under Notification No.8 /97-CE is available where raw materials supplied by another 100% EOU are used by a 100% EOU and that such raw materials or goods belonging to 100% EOU would constitute raw materials or goods produced or manufactured in India – This issue been concluded by the decision of Supreme Court in Commissioner of Central Excise, Surat -I Vs Favourite Industries [2012 (4) TMI 65 - SUPREME COURT OF INDIA] – Decided against the Revenue.

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• 2013 (7) TMI 340
  Stay Application – Waiver of Pre-deposit - Cenvat Credit on Services received – Services used in the manufacturing activity of the applicants - Rent-a-Cab Service was recovered from the employees - Management Consultancy Service was providing consultancy to the company regarding financial management, taking policy decisions of the company – Held that:- Rent-a-Cab Service - Money has been recovered from the employees - Prima facie there is no reason to claim CENVAT credit on such amount – Directed appellant to pre-deposit Rs.10,000/- (Rupees Ten Thousand only) on this count - Management Consultancy Services - No prima facie evidence to show that the payment was services rendered to some other company – No Pre-deposit on this count - Subject to such pre-deposit, predeposit of balance dues is waived for admission of appeal and its collection is stayed during pendency of appeal.

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• 2013 (7) TMI 339
  Natural Justice - CENVAT credit - on structural materials such as HR coils, MS angles, channels, plates, flats etc. which were claimed to be capital goods defined under Rule 2(a)(A) of the CENVAT Credit Rules, 2004 - Original authority deputed the Range Officer to the appellant’s factory for inspection and report - On the basis of the Range Officer’s verification report, the original authority held that the structural materials would neither qualify to be capital goods defined under Rule 2(a) nor to be inputs defined under Rule 2(k) of the CENVAT Credit Rules, 2004. It also relied upon the decision in Vandana Global Ltd. Vs. CCE, Raipur [2010decision in Vandana Global Ltd. Vs. CCE, Raipur [2010 (4) TMI 133 - CESTAT, NEW DELHI (LB)] Held that:- Original authority acted in violation of the principles of natural justice when it obtained a verification report from the Range Officer behind the back of the assessee and relied on it to decide the case against them - Set aside orders and allow this appeal by way of remand with a direction to the original authority to supply a copy of the verification report to the assessee and re-adjudicate the dispute in accordance with law and the principles of natural justice – Decided in favor of Assessee.

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• 2013 (7) TMI 338
  Duty liability - Cleared excisable goods through merchant exporter - Merchant exporter, has executed B-1 bond before the adjudicating authority - Appellant had cleared the consignment to merchant exporter as per CT-1s given by them - Reason for demand of duty from appellants is, for non producing copies of ARE-1 for warehousing the goods in SEZ – Held that:- Once the duty liability has been debited in the bond, which was transferred to the appellant’s name by the merchant exporter under permission from the concerned authority, it would amount to discharge of duty liability by the manufacturer. Non receipt of acknowledged ARE-1 from the SEZ unit will not be an issue for the manufacturer, whose goods were cleared for export. If any duty liability arises for non -delivery of the goods to SEZ, it would be on the merchant exporter as the bond which has been entered into, has been debited for clearance of such goods - Manufacturing units were not responsible for the production of proof of exports and if the goods are not exported the entire responsibility rests on the merchant exporter as per the decision in the case of Jay Jagdish Sugar –[2004 (3) TMI 604 - CESTAT, MUMBAI]. Also, Tribunal in the case of Shree Vithal S.S.K. Ltd. v. Collector of Central Excise reported in [1991 (12) TMI 149 - CEGAT, BOMBAY ] has held that in case the finally manufactured goods are not exported by the merchant exporters, the demand of duty can be raised only against the exporter and not against the manufacturer. Decided in favor of Assessee.

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• 2013 (7) TMI 337
  Rule 4(4) of Cenvat Credit Rules,2004 - Simultaneous availment of CENVAT credit and claiming of depreciation – Cenvat Credit taken by appellant was rectified while filing income tax returns for the subsequent financial years - Contravention of Rule 4(4) of the CENVAT Credit Rules 2004 was undone and therefore the denial of the entire CENVAT credit taken on the capital goods is unjustified – Held that:- Appellant has not cared to produce any income tax assessment order to substantiate the plea of rectification of the so-called "mistake –Appellant were acting in blatant contravention of the mandate of Rule 4(4) as rightly held in the case of Yee Kay Technocrat (P) Ltd., Vs. Commissioner of Central Excise, Delhi-IV [2011 (1) TMI 544 - CESTAT, NEW DELHI]. Such contravention of the Rule cannot be nullified by any "corrective measures" taken before Income Tax authorities - The complicated procedure adopted by the appellant - Credit wrongly availed, to be denied – Decided against the Assessee. Limitation – Extended period to be invoked - Show-cause notice invoked Rule 15 of the CENVAT Credit Rules 2004 read with Section 11AC of the Central Excise Act – Show cause Notice did not allege any of the ingredients of Rule 15(2) in support of the proposal for penalizing the party – Held that:- It appeared that appellant misunderstood the mandate of Rule 4(4) of the CENVAT Credit Rules 2004. The party appears to have thought that the CENVAT credit taken by them could be maintained by taking "corrective action" before the Income Tax Authorities in subsequent years. The facts of this case do not disclose any mens rea, for the purpose of penalizing the party. Sub-rule (2) of Rule 15 was not specifically invoked in the show-cause notice. Penalty under Rule 15 read with Section 11AC do not sustain on appellant – Extended period not allowed - Decided in favor of Assessee.

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• 2013 (7) TMI 333
  Nature of reversal of cenvat credit on removal of inputs as such - Rule 3(5) - Whether Duty paid by reversing the amount under Rule 3(4)/3(5) of Cenvat Credit Rules, 2004 is to be treated as payment of duty for the purpose of Rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004 – Held that:- As per the decision of Bombay High Court in the case of CCE, Raigarh v. Micro Ink Ltd [2011 (3) TMI 1272 - BOMBAY HIGH COURT], rule 3(4) of the 2002 Rules is pari materia with Rule 57(1)(ii) of the Central Excise Rules, 1944 it is evident that inputs/capital goods when exported on payment of duty under Rule 3(4) of 2002 Rules, rebate of that duty would be allowable - Therefore entitlement to rebate of that duty cannot be faulted - Reversal of Cenvat Credit under Rules 3(4) and 3(5) is nothing but payment of duty on the goods exported/supplied to SEZ. Rule 3(6) of Cenvat Credit Rules, 2004 clearly stipulates that the amount paid under Rule 3(5) shall be eligible as Cenvat credit as if it was a duty paid by the person who removed such goods under Rule 3(5) of Cenvat Credit Rules, 2004 - Rebate claim is admissible to the applicant under 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 332
  Rebate under Rule 18 of Central Excise Act – Procedural infraction do not prohibit the Assessee from the benefit of rebate - Goods had not been directly exported from a factory or warehouse. The warehouse from which the goods had been exported was a dealer’s godown in which duty paid goods were being stored and it was not a warehouse approved under Rule 20 of Central Excise Rules, 2002 – As per Adjudicating Authority, the identity/correlation of the goods originally cleared from the manufacturing unit with goods cleared from the godown could not be established - The Jurisdictional Superintendent has not supervised/verified the goods – Held that:- Identification marks and Batch numbers on the packages are not the only means to identify the goods. It could be done from other means also - The goods, involved was Acetic Anhydride, which is a “Controlled substance” under Narcotic Drugs and Psychotropic Substances (Regulation of Controlled Substances) Order, 1993, sealing of inlet and outlet of the tankers with tamper proof seal and the description of the said seals has to be entered in the consignment note in Form 3 - A quarterly report has to be submitted to the Zonal Director of Narcotics Control Bureau, when controlled substances are transported from the jurisdiction of one Zonal Director. The controlled substances can be sold to a buyer after establishing his identity and declaration of purpose, for which it is being purchased. Clause 6 lays down the method of labelling of controlled substance for export. The export also requires a ‘No Objection Certificate’ from Central Bureau of Narcotics of Government of India - Applicants had submitted copies of the consignment notes, intimation/returns to Narcotics Control Bureau and Central Bureau of Narcotics - Procedural infractions could not have deprived the applicants of the substantial right of rebate, particularly so when they had kept the Central Excise and NCB department informed at every stage. As per Hon’ble Supreme Court in the case of UOI v. Suksha International – [1989 (1) TMI 3 - SUPREME COURT OF INDIA] has held that an interpretation unduly restricting the scope of beneficial provisions is to be avoided so that it may not take away with one hand what the policy gives with the other. Similarly Hon’ble Supreme Court in the case of Mangalore Chemicals and Fertilizers Ltd. v. DCCE –[1991 (8) TMI 83 - SUPREME COURT OF INDIA] held the same views while drawing distinctions between procedural conditions of a technical nature and substantive condition in interpreting statute. - Allowed the rebate claims after satisfying that duty paid goods have been exported. Decided in favor of Assessee.

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• CST, VAT & Sales Tax

• 2013 (7) TMI 350
  Penalty under TNGST Act - Tribunal confirmed penalty - Held that:- in the absence of specific provision under the Additional Sales Tax and the Surcharge Act during 1996-97, the corresponding levy of penalty on the additional sales tax and surcharge liability would not arise. The levy of penalty under Additional Sales Tax Act itself was introduced only under Act 31 of 1996 with effect from 16.04.1996 - Assessing Officer shall redo the assessment and the corresponding demand on surcharge and additional sales tax - Decided in favour of Assessee.

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