TMI Tax Updates - e-Newsletter
July 16, 2013

Case Laws in this Newsletter:

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

Articles

1. ELIGIBILITY FOR REBATE OF DUTY FOR EXPORTING FREE SAMPLES

   By: DR.MARIAPPAN GOVINDARAJAN

2. RELEVANT INTERPRETATION PRINCIPLES FOR SERVICE TAX (PART- IV)

   By: Dr. Sanjiv Agarwal

News

1. RBI Reference Rate for US $ and Euro

2. Engineering Sector Searches for New Markets in Africa

3. Union Finance Minister, Shri P. Chidambaram to inaugurate conference of Chief Commissioners/Directors General of Indirect Taxes.

4. Compliance Function in Banks: Back to the basics (Inaugural address by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at the launch of certificate programmes on Compliance Function and Training on July 12, 2013 in Mumbai)

5. Change in Tariff Value of RBD Palmolein, Brass Scrap (All Grades), Poppy Seeds, Areca Nuts, Gold and Silver Notified

6. RBI announces Measures to address Exchange Rate Volatility

7. RBI penalises 22 Banks

8. Auction of Government Stock

Notifications

Customs

1. 75/2013 - dated 15-7-2013 - Cus (NT)

Amendment Notification No. 36/2001-Customs (N.T.), dated the 3rd August, 2001

Indian Laws

2. 17(12)2007-Expls. - dated 9-7-2013 - Indian Law

Amend the Ammonium Nitrate Rules, 2012

SEZ

3. S. O. 1840(E) - dated 20-6-2013 - SEZ

Set up a sector specific Special Economic Zone for Electronic Hardware and Software and related activities at Muppireddypally Village, Toopran Mandal, Medak District in the State of Andhra Pradesh

Circulars / Instructions / Orders

Income Tax

1. Instruction No. 08/2013 - dated 16-7-2013

Standard Operating Procedure for appeals/SLPs tiled by the assessees in the Supreme Court and related matters: Instruction regarding.

2. Instruction No. 07/2013 - dated 15-7-2013

Payment of interest u/s 244A of Income Tax Act 1961 when assessee is not at fault - regarding.

3. Instruction No. 06/2013 - dated 10-7-2013

Past adjustment of refunds against the arrears where procedure u/s 245 of Income Tax Act was not followed - regarding.

FEMA

4. 12 - dated 15-7-2013

External Commercial Borrowings (ECB) Policy Repayment of Rupee loans and/or fresh Rupee capital expenditure – USD 10 billion Scheme

Highlights / Catch Notes

Income Tax

• High Court Denies Deduction for Warranty Provision Due to Lack of Scientific Method and Failure of Triple Test.

  Case-Laws - HC : Provision for Warranty - The assessee had not proved the provision of warranty expenses based on any scientific method in such circumstances - Triple test was not passed - deduction not allowed - HC
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• High Court Confirms Co-Operative Societies Are "Persons" Under Income Tax Act Sections 2(31), 142, and 133.

  Case-Laws - HC : Co-operative societies – whether person u/s 2(31) for the purpose of inquiry u/s 142 and power to call for information u/s 133 - Held Yes - HC
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• Taxpayer Must Prove Free Samples to Doctors Comply with Medical Council Rules, Says High Court.

  Case-Laws - HC : Distributing free articles / samples to doctors - it is for the assessee to satisfy the Assessing Officer that the expense is not in violation of the Medical Council Regulations - HC
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• High Court Reviews ITAT's Decision on AO's Addition u/ss 43B and 145A for Unpaid Excise Duty Dispute.

  Case-Laws - HC : Unpaid Excise Duty - Whether the ITAT erred in deleting the addition made by the AO u/s 43B r.w. Section 145A - The assessee cannot profit or take advantage from that default or omission. - HC
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• Exemption u/s 10(23C)(vi) can be claimed without Section 12A registration; Section 11 conditions not required. (23C.

  Case-Laws - HC : Exemption u/s 10(23C)(vi) can be claimed by an assessee without applying for registration u/s 12A as it is not required to fulfil the conditions mentioned under section 11 - HC
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• Trusts Can Claim Depreciation u/s 11, Even If It Leads to Double Deductions.

  Case-Laws - AT : Entitlement to exemption u/s. 11 - Claim of depreciation - in case of trusts, so called double deductions are allowable. - AT
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• Unspent Subsidy Receipts Not Considered Income u/ss 4 and 5 of Income Tax Act.

  Case-Laws - AT : Unrealized subsidy - It is a trite law that every receipt does not tantamount to income, as per charging sections 4 & 5 - the receipt of unspent amount does not become income of the assessee. - AT
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• False Depreciation Claim Leads to Penalty u/s 271; CIT(A) Deemed Unjustified in Deleting Penalty.

  Case-Laws - AT : Penalty u/s 271 - claim of depreciation - business was closed - since the assessee has failed to make a satisfactory explanation for makings such patently false claim, the CIT(A) was not at all justified in deleting the penalty. - AT
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Customs

• Disciplinary Actions Dropped; Penalties Nullified for Officers Under CCS (CCA) Rules Proceedings.

  Case-Laws - AT : When the disciplinary proceedings against the officers under CCS (CCA) Rules have been dropped, the imposition of penalty against them based on the same charges would also not survive - AT
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Service Tax

• Exemption for Road Maintenance Services Not Applicable to Runways; Runways Not Classified as Roads.

  Case-Laws - AT : Benefit of exemption available to maintenance/repair of roads will not be available in respect of such activities carried out in respect of runways - runway cannot be considered as a road. - AT
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• Court Denies Request to Carry Forward Credit as Refund Alternative, Citing Non-Permissibility Under Current Regulations.

  Case-Laws - AT : The request of the appellant that if the refund cannot be allowed, they may be allowed to carry forward the amount as a credit, also cannot be accepted as it would virtually amount to refund - AT
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• ISD Can Claim Credit Distributed to Service Stations Under Service Tax Regulations for Effective Utilization.

  Case-Laws - AT : Input Service Distributor (ISD) – assessee would be entitled for the credit taken by one of the service stations based on the credit distributed by the ISD - AT
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• Rule 2(l) Clarifies Cenvat Credit on Input Services; "Business" Should Not Be Narrowly Defined in Business Support Services.

  Case-Laws - AT : Cenvat Credit - Input Services - Rule 2(l) - Business support services - the term business appearing in the definition of input service cannot be given a restricted definition - AT
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Central Excise

• Assessees Can Choose Most Beneficial Exemption Notification; Department Cannot Dictate Choice.

  Case-Laws - AT : When two exemption Notifications are available to an assessee, he can opt for the Notification most beneficial for him - Department can not force him to avail a particular exemption Notification - AT
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• Cenvat Credit Reversal: Paying Duty on Non-Excisable Goods Equals Input Credit Reversal Impacting Tax Management.

  Case-Laws - AT : Cenvat Credit – Payment of duty on non excisable goods - when they have cleared their finished product on payment of duty, the same may be treated as reversal of Cenvat Credit availed on inputs - AT
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• Penalty Reduced to 25% u/s 11AC; Argument for Late Payment with Interest Rejected Due to Unclear Duty Date.

  Case-Laws - AT : Reduced penalty u/s 11AC @ 25% - date of payment of duty not known - interest was not computed - the contention that since interest was computed, deposit of amount beyond 30 day to be accepted cannot sustain - AT
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VAT

• Court Rules Specific Tax Entry for Medical Electronics Takes Priority Over General Entry to Determine Tax Rate.

  Case-Laws - HC : Rate of tax - medical electronic items - when there is a special entry to deal with the item in question, one has to give preference to the same over the general entry. - HC
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Case Laws:

• Income Tax

• 2013 (7) TMI 392
  Provision for Warranty - Whether the Tribunal was right in law in holding that the 'warranty liability' is only a provision for unascertained liability – Held that:- The provision for warranty claims created by the assessee was a contingent liability and the same was not deductible - whether such act of non-consideration or omission would result in an erroneous order or prejudicial to the interests of the Revenue has been considered by this court in the decision reported in K. A. Ramaswamy Chettiar v. CIT (1995 (9) TMI 31 - MADRAS High Court) - wherein it was observed that when the Income-tax Officer is expected to make an enquiry of a particular item of income and if he does not make an enquiry as expected - that would be a ground for the Commissioner of Income-tax to interfere with the order passed by the Income-tax Officer under section 263 – Here also such an order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Following precedents - Whether the Tribunal was right in law in not referring to and following the judgment of the Supreme Court in the case of Rotork Controls India P. Ltd. v. CIT [2009] 314 ITR 62 relied on and cited before it at the time of hearing - Court explained the provision by quoting the judgement of Rotork Controls India P. Ltd. v. CIT (2009 (5) TMI 16 - SUPREME COURT OF INDIA) - in considering the claim on a provision made for warranty claim, the apex court held that 'a provision is recognised when : (a) an enterprise has a present obligation as a result of a past event ; (b) it is probable that an outflow of resources will be required to settle the obligation ; and (c) a reliable estimate can be made of the amount of the obligation - If these conditions are not met no provision can be recognized - the apex court pointed out that the provision has to be made based on reliable estimation of the obligations - Unless the three conditions recognising the liability are satisfied the claim could not be automatically allowed as a provision made on a historical trend - the provision for service charges payable by the assessee by way of warranty provision was not made on any scientific data - it was further observed therein that the provision made was only on ad hoc basis which was a fact recorded by the Tribunal. The assessee had not proved the provision of warranty expenses based on any scientific method in such circumstances - Even otherwise the assessee has to pass through the triple test as declared therein in order to succeed in his claim on provision for warranty - In the absence of any such finding in its favour satisfying the said triple test, the assessee can not rely on the said decision of the apex court – decided against the assesse.

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• 2013 (7) TMI 391
  Co- operative societies – whether person u/s 2(31) or not for the purpose of inquiry u/s 142 and power to call for information u/s 133 - Revenue contended that the appellants societies would fall within the four corners of the definition "person" under section 2(31) for the reason that it is an association of persons - Held that:- the appellants are registered under the Co-operative Societies Act the appellants must be treated as bodies corporate, therefore, juristic person capable of exercising all the rights of natural person as provided in the Act – u/s 2(31) a person comprehends juristic entity - It would make them persons - the proceedings are taken admittedly under section 142 – appeal decided against assessee.

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• 2013 (7) TMI 390
  Onus of proving - agriculture income - source of deposit of huge cash in investment in shares - the assessee is claiming loss –Held that:- No details regarding the expenses on cultivation was filed except copy of the books of account. No evidence in support of purchase of seeds, fertilizers and pesticides were made available. What infrastructure the company had for doing this agricultural activities were also not furnished. In the light of the above observations as well as the observations of the Assessing Officer in his assessment order, the plea of the appellant regarding agricultural income cannot be accepted. Appellant failed to provide adequate material on the points raised by the AO as well as the CIT (Appeals) and even before the learned Appellate Tribunal - the appellant was not the owner of the land and the agreements were full of discrepancies pointed out by the AO - it was for the appellant to produce the owner to the satisfaction of the AO for examining or by acceptable evidence or otherwise as also in meeting with the various defects/discrepancies pointed - but the appellant did not produce the said land owners and to meet with the various points. Validity of transaction - Purchase and sale of shares is available but no details of opening and closing stock given. No details given as to shares of which company have been purchased or sold - Without such details, one cannot ascertain the quantum of profit or loss - appellant was not able to prove from reliable evidence as to deposit of amount in cash in the bank of the amount and investing/trading in shares despite of several opportunities provided to him – appeal decided against the assesse.

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• 2013 (7) TMI 389
  Monetary limit for filing an appeal - When the subject-matter of the appeal u/s 260A is less than Rs. 10 lakhs - the appeal is not tenable – The revenue having pursued the matter by way of special leave petitions which are pending before the Supreme Court – reserving liberty to the Revenue to revive the appeal in the event of success in the special leave petitions said to have been filed in respect of a similar order. appeal decided against the revenue.

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• 2013 (7) TMI 388
  Gross profit rate - AO applied the rate @32.72 per cent - CIT(A) and ITAT applied 25% rate - Whether the Tribunal was justified in allowing the relief out of trading addition made by AO while approving the action of the CIT (Appeals) in rejecting the book result by relying on the decision of Howrah Trading Co. (P.) Ltd. v. CIT (1966 (2) TMI 17 - CALCUTTA High Court). - Held that:- this is the first year of the company and, hence, past results are not available and cannot be taken into consideration - The CIT(Appeals) has rightly distinguished the case on the strength of which the AO had applied the gross profit rate – On a reasonable estimate the CIT (Appeals) and the Tribunal have not committed any error in taking the figure of sales. Validity of order - orders as passed by the CIT (Appeals) and the Tribunal do not appear suffering from any perversity or from application of any wrong principle - the matter had been of putting a reasonable estimate on the quantum of sales and on the gross profit rate while recording the findings on facts - the authorities have recorded such findings with cogent reasons and on relevant considerations, court do not find any reason to interfere - The decision of Howrah Trading Co. P. Ltd. v. CIT relied upon by the AO is squarely applicable to the facts of the case - court approve the action of the CIT (Appeals) in rejecting the book results – the gross profit rate applied by CIT(Appeals) declared by the assessee is reasonable and does not warrant any further increase – decided against the revenue

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• 2013 (7) TMI 387
  Deduction u/s 37(1) - Distributing free articles / samples to doctors - Held that:- The claim of any expense incurred in providing the freebees in violation of the provisions of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, shall be inadmissible under section 37(1) of the Income-tax Act being an expense prohibited by the law - Explanation to section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession - the sum and substance of the circular is also the same - paragraph 4 of the circular itself clarifies that the value of the freebies enjoyed by the medical practitioner is also taxable as business income or income from other sources- if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the Medical Council then it may legitimately claim a deduction, but it is for the assessee to satisfy the Assessing Officer that the expense is not in violation of the Medical Council Regulations referred to above – appeal decided against assesse.

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• 2013 (7) TMI 385
  Unpaid Excise Duty - deduction u/s 43B - valuation of stock u/s 145A - Whether the ITAT erred in deleting the addition made by the AO u/s 43B r.w. Section 145A on account of Excise Duty - the sum was undoubtedly unpaid and the assessee’s contention is not merited - the goods were actually removed – thus the duty was payable - The assessee cannot profit or take advantage from that default or omission. Having regard to the object and the wording of Section 145-A it is held that the AO’s opinion could not have been faulted - Section 145 of the Act obliges every assessee to maintain, subject to accounting standards which may be notified by the Central Government, books of accounts on cash or mercantile basis. Section 145-A begins with a non-obstante clause, and prescribes that the value of goods shall be further adjusted to include the amount of any tax, duty, cess or fee by whatever name called actually paid - section 145 was introduced in 1999 and overrides other provisions – The decision of the Supreme Court in Orient Paper Mills Ltd. Vs. Union of India (1967 (3) TMI 47 - SUPREME COURT OF INDIA) holds authority on the issue that removal of goods from the factory premises, or other specified place implies that it is leviable, and not postponed – appeal decided in favour of revenue.

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• 2013 (7) TMI 384
  Cancellation of registration u/s 12AA - Exemption u/s 10(23C)(vi) - Whether the Tribunal was justified in law that registration under section 12AA cannot be cancelled by taking into consideration an order passed under section 10(23C)(vi) by the CC as both the proceedings are independent proceeding - the Tribunal was justified or not in law in not appreciating the fact that the assessee was not doing any charitable activity as found by the AO - Held that:- exemption under section 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration under section 12A of the Act as it is not required to fulfil the conditions mentioned under section 11 of the Act while claiming the exemption under section 10(23C)(vi) - Tribunal had rightly restored the registration on the ground that in the A.Y. 2004-05 and 2006-07 the benefit of exemption/deduction under section 11 of the Act was allowed to the assesse - the order passed by the CIT there is no doubt that the assessee has not fulfilled any of the conditions of section 11 for claiming it to be a charitable institution – appeal decided against revenue.

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• 2013 (7) TMI 383
  Validity of order - Reassessment - change of opinion - The petitioner contended that without even supplying the reasons for reopening recorded the AO assumed jurisdiction and proceeded with the reassessment proceedings - the assessee made full disclosure about expenditure - the AO called upon the assessee to explain all expenses. The sum was a sizable expenditure which the assessee claimed by way of business expenditure - He gave detailed reply to the queries raised by the AO in this respect - He pointed out that the assessee had received various deposits from the co-operative societies - Such deposits were retained without paying any interest - Against that the assessee had the responsibility to meet with part of the maintenance expenditure of the society - The expenses which were the petitioner borne in six months of the year were less than 4 per cent. of the deposit amount - after examining details the AO had framed his original assessment - in such assessment, he had not made any specific mention of accepting such expenditure. Held that:- Without there being anything additional on record any attempt on the part of the AO to disallow expenditure by reopening the assessment would be based on mere change of opinion and thus not permissible in law – order of the AO quashed - decided in the favour of assessee.

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• 2013 (7) TMI 382
  Entitlement to exemption u/s. 11 - Held that:- AO has not doubted the fact that the assessee is imparting education and as per the settled law of taxation imparting education is covered by the word charitable activity. If income earned by a trust is utilised for charitable purposes it cannot be held that trust is carrying out business. FAA has rightly pointed out that there is no evidence on record that profit earned by the assessee-trust were not utilised by it for non charitable purposes. It is also a fact that there is no instances of violation of provisions of sections 11-13 by the trust. See Gujarat Maritime Board [2007 (12) TMI 7 - SUPREME COURT OF INDIA] and Surat City Gymkhana [2008 (4) TMI 16 - SUPREME COURT] - In favour of assessee. Claim of depreciation - AO held that the provisions of section 11 provided for deduction on expenditure incurred for objects of the trust and the deduction of depreciation on capital assets would amount to double deduction thus disallowed - Held that:- As decided in case of Institute of Banking Personal Selection, Bombay [2003 (7) TMI 52 - BOMBAY High Court] in case of trusts, so called double deductions are allowable. Income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets - In favour of assessee.

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• 2013 (7) TMI 381
  Reopening of assessment - disallowance of deduction u/s 10B and addition towards difference in valuation of closing stock made - CIT(A) quashed reassessment orders - Held that:- As seen from the reasons given by AO except alleging that the assessee violated the provisions of section 80I(2) and the assessee has not received export proceeds within the time limit prescribed and it has suppressed the value of closing stock as on 31.3.2004, nothing has been mentioned on the failure of the assessee in disclosing fully and truly all material facts necessary for completion of assessment. AO did not point what details or material facts necessary for completion of assessment, the assessee had failed to disclose in the course of original assessment proceedings. Thus AO has merely reopened the assessment based on the materials which are already available on record and it is mere change of opinion and in case of change of opinion based on the facts already available on record, reassessment is not permissible under section 147 as decided in CIT Vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA)& E.I. Dupont India Pvt. Ltd., & Another Vs. DCIT., (2013 (2) TMI 406 - DELHI HIGH COURT). Thus agreeing with the CIT(Appeals) that there was no failure on the part of the assessee in disclosing fully and truly all material facts necessary for completion of assessment - In favour of assessee.

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• 2013 (7) TMI 380
  Transfer pricing adjustment - retrospective applicability of sec. 92CA(2B) - powers of assessing officer to make such reference and the powers of TPO to furnish report in this behalf - Held that:- Respectfully following the Special Bench judgment in the case of L.G. Electronics India (2013 (6) TMI 217 - ITAT DELHI) these legal grounds are to be decided against the assessee as a consequence thereof, the relevant grounds raised in the memo of appeal, touching these legal aspects stand dismissed. Advertisement, marketing and sales promotion expenses - Scope of AMP Expenses - Whether the AO justified in holding that the assessee should have earned a mark up from the Associated Enterprise in respect of AMP expenses alleged to have been incurred for and on behalf of the AE? - Held that:- Merit in the argument of assessee as there being no objection or adverse comment in respect thereof coming from any of the lower authorities i.e. AO/ TPO, DRP and also ld. CIT(DR), there is no justification in setting aside these expenses for verification again to AO/TPO as supported by judgment in the case of M/s Glaxo Smitkline Consumer Healthcare Ltd. (2012 (4) TMI 279 - ITAT CHANDIGARH). The figures mentioned at Placitum 'E' of the table are set aside back to the file of AO/TPO to decide the issue of AMP expenses by applying the proper comparables after hearing the assessee - grounds about TP adjustments in respect of AMP expenses are partly allowed for statistical purposes. Provision for warranty disallowed - Held that:- The assessee has been consistently following the 4 step method for quantifying the provision for warranty. The amount and procedure of provision for warranty in respective years and consumption of provision of warranty ranges between 99.99% to 62.08%. As in the case of Rotork Controls India (P) Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA) has clearly held that the provision for meeting warranty claims on the sales effected which are computed on the accrual basis by a scientific method and taking into account the past practice, is an allowable expenditure, thus in the present case the provision for warranty on accrual basis on the basis of sales is an allowable deduction. Unrealized subsidy - Held that:- It is a trite law that every receipt does not tantamount to income, as per charging sections 4 & 5 of the I.T. Act. From the record it clearly emerges that the subsidy provided by CSPL is in lump sum with specific direction that this amount is to be spent only for specified purposes and the unspent amount is to be held in trust for and on behalf of CSPL. This is duly confirmed by CSPL and this fact is further corroborated by the fact that unutilized amount is not credited to the P&L A/c but taken to balance-sheet as a current liability. Once it is acknowledged as current liability assessee does not become owner of this amount and the receipt of unspent amount does not become income of the assessee. Besides, this method of accounting has been followed by the assessee consistently unspent subsidy being not income of the assessee but a liability to be spent for specified purposes and recoverable for non-utilization for specific purposes cannot be treated as income of the assessee. Club expenses - Held that:- The issue is squarely covered in favour of the assessee by cases of Samtel colour Ltd. (2009 (1) TMI 26 - DELHI HIGH COURT) and Nestle India Ltd. (2007 (4) TMI 180 - DELHI HIGH COURT). Besides, DRP itself has allowed the expenditure in AY 2008-09. Thus allow club expenses. Depreciation on printers, scanners, UPS and switches etc. - 60% or 15% - Held that:- As decided in CIT v. BSES Yamuna Power Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] computer accessories and peripherals form an integral part of a computer system and therefore, depreciation has to be allowed at the rate of 60%. Claim of double taxation relief in respect of deduction of tax in Japan for A.Y. 2008-09 - the tax withheld by Canon Japan comes to Rs. 42,76,065/- against which the assessee has claimed foreign tax credit amounting 24,44,934/- in accordance with Article 23 of Indo-Japan DTAA - profit margin of 3.35% by AO as against 8.63% given to assessee - Held that:- When the eligible income from STPI is sought to be determined and the relevant facts and figures are available, in such circumstances, the income from software development from STPI unit is to be estimated by taking relevant figures and not adopting adhoc approach by applying the lower profit margin of 3.35% which is relatable to trading activities. Merit in the contention of the assessee and 8.63% being undisputed income from the export of software to STPI double taxation benefit claimed by the assessee as per Article 23 of Indo-Japan DTAA is justified and is to be allowed. This ground of the assessee is also allowed. Appeals filed by the assessee are partly allowed for statistical purposes.

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• 2013 (7) TMI 379
  Penalty u/s 271 - disallowance of depreciation claimed on plant and machinery - CIT(A) deleted penalty - Held that:- Assessee was engaged in manufacturing and selling of food items & during the year, no manufacturing activity was carried out which was clear from the audited accounts where opening stock was nil and quantity manufactured during the year was also shown as nil. The assessee has stopped manufacturing activity in the year 2000. Assessee has not started manufacturing activity till date. Only the trading activity was resumed in the financial year ended on 31.03.2005 relevant to Assessment Year 2005-06. As per the Form 3CD attached with the return of income for the year under consideration, the Annexure 2 for Clause 14 of the Form the written down value of building other than residential building was of Rs.3,53,80,368/- as on 31.03.2002. Thus, this was opening WDV of building. However, as on 31.03.2003, the written down value of building is nil. This fact shows that building was sold out during the year. Assessee was not having factory, godown or office at the end of the year. In respect of plant and machinery, the written down value as on 31.03.2002 was Rs.2,76,38,427/-. As on 31.03.2003, the WDV was Rs.1,07,70,855/-. As per clause 32 of Form No.3CD, there has been no production during the year. The stock-in-trade at the end of the year was nil. All these facts clearly establish that stopping of manufacturing activity in the year 2000 was not on account of temporary lull in the business. The facts show that assessee was intended to close the manufacturing activities. These facts make the claim of depreciation on the plant and machinery was a prima facie inadmissible claim made in the return of income. Since the assessee has failed to make a satisfactory explanation for makings such patently false claim in the return of income, the CIT (A) was not at all justified in deleting the penalty. There is nothing on record which could establish that claim was due to varying legal interpretation. Therefore, restore the order of AO for levying the penalty u/s 271(1)(c) - appeal of the revenue allowed.

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• 2013 (7) TMI 378
  Non deduction of TDS on Interest payment on unsecured loans, Payment of salary (AY 2001-02 only), Payment of professional fees & Payment to contractors - reopening of assessment - AO worked out the demand and interest payable on account of the defaults u/s 201(1) & 201(1A) - assessee contested against demand as barred by limitation - CIT(A) deleted the addition - Held that:- CIT(A) in the appeals under consideration, orders u/s 201(1) and 201(1A) for the FY 2000-01 to 2002-03 to the assessment years 2001-02 to 2003-04 were passed on 28/02/2008 i.e. beyond a period of 4 years from the end of the respective financial years. Therefore no infirmity in the order of the CIT(A) in cancelling the orders passed by the AO u/s 201(1) and 201(1A) and deleting the demands raised consequentially. In favour of assessee.

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• Customs

• 2013 (7) TMI 377
  Penalty under Section 112 of the Customs Act - proceedings against the officers of the department - abetted in illicit clearance of goods under seizure without out of charge order - Held that:- Disciplinary proceedings had been initiated against all these respondents under CCS (CCA) Rules on the charge of abetting the smuggling activities & on completion of the inquiry and on considering the inquiry of such report, the charges against all these respondents have been dropped by the department. Thus in view of this, when the disciplinary proceedings against the respondents under CCS (CCA) Rules have been dropped, the proceedings for imposition of penalty against them under Section 112 (a) of Customs Act, 1962 which are based on the same charges and the same evidence, would also not survive.

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• Service Tax

• 2013 (7) TMI 396
  Management, maintenance and repair services – appellant contended that notification no. 24/2009-ST dated 27/07/2009 exemption was provided for whole of the service tax leviable thereon under section 66 and section 97 - exemption has been given retrospective effect for the period from 16/06/2005 to 26/07/209 – Held that:- When the impugned order was passed, the retrospective amendment had not come into force - the matter needs to be remanded back to the adjudicating authority for extending this exemption and re-computation of demand. Benefit of exemption for runways –Held that:- Benefit of exemption available to maintenance/repair of roads will not be available in respect of such activities carried out in respect of runways - According to International Civil Aviation Organization (ICAO) ‘runway' is defined as “a rectangular area on a land aerodrome prepared for the taking off of aircraft” - as per the definition ‘runway' is only a rectangular strip of land for landing or taking off of aircrafts - By no stretch of imagination, the runway can be constructed as a road or as a species of a road - in the case of runways public access is prohibited and it is only meant for landing or taking off of the aircrafts - thus runway cannot be considered as a road. The specific exemption for maintenance or repair of roads by the legislature retrospectively clearly shows that the said activity is a taxable activity and, therefore, in public interest the same has been given exemption. If the activity was not taxable ab initio, there was no need for the legislature to pass a specific legislation for this purpose. This also shows that the reliance placed by the appellant on the various case laws in this regard does not support the contentions raised by the appellant. As regards the claim of the appellant that in respect of runways constructed in defence airports, the benefit of retrospective exemption under section 98 of the Finance Act, 2012 would be available, this aspect needs consideration by the adjudicating authority as this issue had not been raised or considered by the said authority.

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• 2013 (7) TMI 395
  CENVAT credit – input service - assessee is into the activity of manufacturing of water treatment plant - whether assessee was eligible to CENVAT credit on service tax paid – Held that:- Appellants are engaged in manufacture of water treatment plants and installation, erection thereof, the service obtained in relation to parts and equipments should be treated as output service also - main requirements for claiming credit is that the invoice/bill/challan should have been issued after 14.05.03 and input services should have been received and consumed in relation to rendering of output service – appeal decided in the favour of the assessee.

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• 2013 (7) TMI 394
  Refund claim on double payment – period of limitation - whether assessee would be eligible for claiming refund of service tax when he had mistakably paid the same twice – the demand of the assessee is beyond the period of one year - Court relied upon the decision of CCE, Pune-III V/s Beharay & Rathi Constructions 2008 (12) TMI 95 - CESTAT MUMBAI - Held that:- Service Tax paid when it is not due, can be claimed as refund within time limit as prescribed in Section B - the request of the appellant that if the refund cannot be allowed, they may be allowed to carry forward the amount as a credit, also cannot be accepted as it would virtually amount to refund – appeal decided against the assessee.

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• 2013 (7) TMI 393
  Input Service Distributor (ISD) – assessee was an authorized distributor of two and three wheelers - whether the assessee would be covered under the category of input service provider – Held that:-The sales office of the assessee is an office – he being a service provider and that the sales office is an office of the service provider - definition indicated that it is to be an office of the manufacturer or producer of final products - assessee would be entitled for the credit taken by one of the service stations based on the credit distributed by the ISD – appeal decided against the department.

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• 2013 (7) TMI 370
  Cenvat Credit - Input Services - Rule 2(l) - Business support services - Input to be integrally connected with business of manufacture of final product – Held that:- As per decision in the case of CCE, Nagpur vs. Ultratech Cement Ltd. [2010 (10) TMI 13 - BOMBAY HIGH COURT] - The criteria for coverage of input services is that the same is integrally connected with business of manufacture of final product and the scope of the definition being very wide, the same would cover services not only used directly or indirectly in or in relation to the manufacture of final products, but also various services used in relation to business of manufacture, whether prior to manufacture or after manufacture . The definition of input service seeks to cover every conceivable service used in business of manufacture. Similarly, in the case of Coca Cola India Pvt. Ltd. vs. CCE, Pune - III reported in [2009 (8) TMI 50 - BOMBAY HIGH COURT], it stands held that the term business appearing in the definition of input service cannot be given a restricted definition. - Decided in favor of Assessee.

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• Central Excise

• 2013 (7) TMI 376
  Valuation - production of bulk lubricating oil - inclusion of royalty charges - extended period of limitation - MRP based u/s 14A - difference of opinion - Held that:-no intention for evading duty on the part of the appellant - extended period cannot be invoked. Since there is no difference of opinion between the Members, that the demand which is confirmed by invoking extended period is liable to be set-aside on the Revenue neutrality, on this point itself, the view expressed by the learned Member (Judicial) needs to be concurred with. - Decided in favor of Assessee.

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• 2013 (7) TMI 375
  Penalty - Extended period of limitation - Received raw materials from units who availed deemed exports facility under paragraphs 8.3(a) and (b) of the Foreign Trade Policy (FTP) - Determination of rate of duty - Appellant continued to pay duty as per Sr. No. 3 of Notification No. 23/2003-CE dated 31.03.2003 even after amendment by Notification No. 29/2007-CE dated 06.7.2007 - The supplied raw materials under paragraph 8.3(a) and (b) of the Foreign Trade Policy have to be treated as imported goods and duty at the rates applicable from time to time under serial No. 2 of the Notification No. 23/2003-CE dated 31.3.2003, required to be made applicable. Held that:- So far as imposition of penalties upon the appellants - it has been prima facie brought out that Appellant had no knowledge of the fact that GHCL were availing deemed export facility under Para 8.3(a) and (b) of FTP. Appellants have thus made out a good case for non imposition of penalties under Rule 25 and 26 of the Central Excise Rules - Aappellant is directed to deposit the entire differential duty liability along with interest. Subject to the payment of above deposit, there shall be stay on the remaining amounts of penalties till the disposal of appeals. Limitation - show cause notice was issued within one year of the date of debonding. - Held that:- Since the PC are a 100% EOU, demands can be raised as per the provisions of the B-17 bond executed by them. As per this bond, there is no time limit for demanding duty in the case of short payment by an EOU – In the case before CESTAT, even the B-17 bond was not invoked by Commissioner but in the instant case before us, B-17 bond has been invoked both in the show cause notice as well as the adjudicating order. Accordingly, first appellant has, prima facie, no case on time bar. - Decision in Endress + Hauser Flowtec (I) Pvt Limited vs. CCE, Aurangabad [2008 (11) TMI 159 - CESTAT, MUMBAI] distinguished - Decided against the assessee.

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• 2013 (7) TMI 374
  Pricipal of Natural Justice to be followed - As regards the applicability of depreciation till the date of cancellation of letter of permission by DGFT and as regards considerations of the applications moved by the assessee for re-export of the capital goods. Held that:- Remanded the matter back to the adjudicating authority for reconsideration - Adjudicating authority to follow the principles of natural justice before coming to any conclusion.

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• 2013 (7) TMI 373
  Principles of Natural Justice - Adjudicating Authority not given the relied upon documents which were sought by the appellant for contesting the demands raised on them. Held that:- Adjudicating authority to provide relied upon documents within 30 days - Appellants to file reply to the show cause notice within sixty days - Adjudicating authority to reconsider the issue afresh after following the principles of natural justice.

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• 2013 (7) TMI 372
  Availment of the Notification No. 30/2004-CE or Notification No. 29/2004-CE – simultaneously - manufacture and clearance of yarn (textile) - when the assessee have not availed input duty credit, whether they have option to avail the Notification No. 29/2004-CE where the rate of duty is 4%. Held that:- Exemption Notification No. 29/2004-CE - an unconditional exemption which prescribes a rate of duty of 4% advelorum. There is no condition in this notification that for availing of this exemption prescribing concessional rate of duty of 4% adv., input duty Cenvat Credit must be availed. The condition of non-availment of input duty Cenvat Credit is for nil duty under Notification No. 30/2004-CE. But this does not mean that an assessee not availing input duty credit can not avail the exemption under Notification No. 29/2004-CE, as this is an unconditional Notification - When an assessee does not avail of input duty credit, he has option to pay 4% duty under Notification No. 29/2004-CE and also the option to clear goods at nil rate of duty under Notification No. 30/2004-CE - When two exemption Notifications are available to an assessee, he can opt for the Notification most beneficial for him - Department can not force the assessee to avail a particular exemption Notification. - Decided in favor of Assessee. Stay on Pre-deposit . Held that:- Assessee have a strong prima facie case in their favour. Hence the requirement of pre-deposit of Cenvat Credit demand, interest thereon and penalty is waived – Stay application allowed. - Decided in favor of Assessee.

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• 2013 (7) TMI 371
  Cenvat Credit – Payment of duty on non excisable goods - When the process does not amount to manufacture – Held that:- As per the decision of this Tribunal in the case of Ajinkya Enterprises [2013 (6) TMI 610 - CESTAT MUMBAI] wherein this Tribunal held that although the activity undertaken by the appellant does not amount to manufacture but when they have cleared their finished product on payment of duty, the same may be treated as reversal of Cenvat Credit availed on inputs - Assessee are not required to reverse the Cenvat Credit as they have already paid duty on their clearances. In favor of Assessee. Extended period of limitation – Held that:- As the activity undertaken by the appellant was in the knowledge of the department, the extended period of limitation is not invokable.

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• 2013 (7) TMI 369
  Order beyond the scope of SCN -Whether Adjudicating authority be given a leeway for adjudicating the issue, even on the charges not mentioned in the show cause notice? – Held that:- Adjudicating authority is totally at variance of the settled position of law - Revenue authority cannot go beyond the charges levied in the show cause notice. Adjudicating authority directed to reconsider the issue afresh of allowing CENVAT Credit to the Appellant on the inputs, keeping in mind the Chartered Engineer’s certificate produced - Directed to pass an order within the framework of the show cause notice – Remanded back to the Adjudicating Authority. In favor of Appellant.

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• 2013 (7) TMI 368
  Reduced payment of penalty u/s 11AC @ 25% - Duty demand was confirmed by the original adjudicating authority along with interest thereon - quantum of interest has not been specified in the said order – Held that:- Only part payment of duty made and have not made the full amount of duty confirmed, the question of quantifying the interest amount does not arise since the date of payment of duty is not known. Interest is a consequential liability and has to be discharged, whenever there is a default in payment of duty by the due date and, therefore, it cannot be said that in all cases of duty demand, the department should specify the interest amount also, especially when the date of payment of duty on a subsequent period is not known - Therefore, the contention that the interest amount should be computed and should be communicated and, thereafter Assessee will discharge the same within a period of 30 days from the date of such communication and the benefit of reduced penalty of 25% penalty be allowed has no merit - Hon'ble apex Court in the case of Rajasthan Spinning & Weaving Mills [2009 (5) TMI 15 - SUPREME COURT OF INDIA] held that mandatory penalty under Section 11AC is a punishment for an act of deliberate deception, therefore, the said penalty cannot be reduced subsequently by an appellant authority. Decided against the Assessee.

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• CST, VAT & Sales Tax

• 2013 (7) TMI 397
  Rate of tax - Assessee is a manufacturer and dealer in medical electronic items - Tribunal levied tax at rate of 5% - Held that:- There is specific entry in TNGST Act, 1959, to deal with medical instruments and appliances, which makes no reference to it being electrical or electronic - Thus irrespective of whether the parts or the heart of the instrument is electronic, the instrument of the petitioner is that of the medical instrument and the appliances, the Assessing Officer rightly brought the item under Entry 20, Part C of the First Schedule, assessable at 5%. It is settled law that when there is a special entry to deal with the item in question, one has to give preference to the same over the general entry. Entry 50, Part B of the First Schedule being the general entry, Entry 20, Part C of the First Schedule being one to deal with the instruments and appliances in medical, surgical, dental or veterinary science, we have no hesitation in confirming the order of the Sales Tax Appellate Tribunal that the assessee's product attract 5% tax as it comes under Entry 20, Part C of the First Schedule - Decided against assessee.

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