Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 12, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Claim of interest u/s 36(1)(iii) - AO cannot force the assessee to earn interest income or save interest expenses for running the business. - The Assessing Officer was unable to demonstrate that interest bearing loans were used by the assessee other than business purpose - AT
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Arm Length Price adjustment – The very foundation of addition in arm's length price on account of excess credit period is devoid of any legally sustainable merits or factual basis – Directed the Assessing Officer to delete ALP adjustment - AT
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Deduction u/s 10(23C)(iiiad) - Assessee claimed deduction u/s 11 and 12 but CIT allowed deduction u/s 10(23C)(iiiad) also - CIT(A) has given specific finding that the conditions of above provisions are fulfilled in the case of assessee - order of CIT(A) is correct - AT
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CIT failed to discharge his statutory duty and instead of taking a clear call and demonstrating errors made by assessing officer and prejudice caused to the revenue, the buck has been passed on to assessing officer by setting aside assessment order, which is against the letter and spirit of provisions of sec.263. Where the authority fails to carry out its statutory obligation, the order cannot be held as tenable and is liable to be quashed. - AT
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Difference between amount shown in agreement to sale and sale deed - Addition u/s 69 - Even if it is assumed to be so, unless it is proved that the agreement was acted upon and unless the amount stated in the agreement was paid for the sale one cannot come to the conclusion that the price mentioned in the sale deed is not correct - AT
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Expenditure u/s 37(1) - lottery business - commission - there was nothing illegal about carrying on the lottery business or mobilizing opinion for continuation of sale of lottery tickets of other States within the State of Madhya Pradesh. Nothing has been brought on record to show that it was even against the public policy - AT
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Penalty u/s 271(1)(c) - Computation of book profit not done u/s 115JB - There was definitely a failure on the part of the assessee to furnish particulars necessary for its assessment. Rigours of Section 271(1)(c) was attracted - AT
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Addition u/s 68 - Corpus donation - To strengthen the claim of the assessee regarding the genuineness of the corpus donation further documents like bank statement of the donor and ITR of donor were filed as additional evidence which had not been admitted by the CIT (A). This stand of CIT (A) was without any cogent reason. - AT
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Addition u/s 69C - Low withdrawals for household expenses - AO did not point out any specific circumstances by which he assumed that assessee had made low withdrawals as against the assumed expenses of Rs.15 lakhs p.a. - However, on the basis of financial position of the assessee, withdrawals made by him do not match with his probable actual expenditure. - AT
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The stand of the AO is that assessee should have used its own fund instead of interest bearing borrowings for running the business. - AO cannot force the assessee to earn interest income or save interest expenses for running the business. - AT
Customs
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Extended period of limitation - Apart from the fact that there was difference of opinion even in the Department, the fact remains that the department officials had been regularly visiting the factory of the appellants and were in the know of the process of manufacture adopted by the appellants and to state that the appellants had played fraud on the department is difficult to sustain. - AT
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Jurisdiction on the Settlement Commission - On a careful reading of Sections 127(A) and 127(B) the Revenue’s contention that since the applicant had not filed bill of entry or that the case was one relating to baggage and therefore did not involve short levy or non-levy was without force - HC
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Mis-declaration of Goods - Prosecution - Criminal proceedings - Assesse had produced the fabricated certificate to show the country of origin as Malaysian origin instead of China with the intention to evade Anti Dumping Duty – Proceedings to continue - HC
Corporate Law
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Pledgee’s and Pledgor’s Rights and duties u/s 176 - The provisions of the section were mandatory and cannot be over-ridden by any contract to the contrary - The section deals with the pledgee’s right where the pledgor makes default - HC
Service Tax
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Construction of Complex Service u/s 65 (105) (zzzh) and Taxable Service u/s 65 (91a) – The fact that individual residential units were for residential use of the purchaser cannot take the complex outside the definition - Any interpretation to the contrary will make the entry otiose. - AT
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Broadcasting Service – CENVAT credit input services - service tax paid towards telecast fee - assesse had made out a good prima facie case on merit - stay granted - AT
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Revenue Sharing agreement - franchise agreement - There is no dispute that the service tax is sought to be charged on 25% of the amount of tuition fee being received by CLIL from the students through the appellant have already paid service tax on that amount. - stay granted - AT
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Adjustment of service tax liability under Rule 6(3) - refund of amount received towards taxable services - The contention that credits made in the books of accounts of the assesse in the name of an intermediary do not amount to refund to the intermediary could not be accepted - AT
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Business Auxiliary Services – Job Work - The word 'processing' was included in the definition only with effect from 16.06.2005 - it is not legal on part on revenue to demand the service tax on the activity of grinding prior to 16.06.2005 - AT
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Clearing and Forwarding Agency Service – Essential character of service is C&FA service and therefore service was classifiable under C&FA service - storage of frozen goods in cold storage was an inseparable part of assessee's activity of clearing & Forwarding operation - AT
Central Excise
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Clandestine Removal - Numbers are mentioned in the Annexure to Panchnama and therefore it is wrong to say that shortage is based on eye estimation. - AT
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Cenvat credit in respect of input services namely, errection, commissioning and installation, man-power recruitment and civil construction, used in the employees staff colony, canteen and residence of the Executive Director of the Company - activities/ services are not covered in any of the services mentioned after the word ‘such as’ – Cenvat Credit not allowed- AT
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Cenvat Credit of Service Tax paid on input service in respect of dismantling/handling of unusable material and its transportation - Activities are basically in relation to repair or renovation of machinery and pipes and are specifically covered under definition of input service - AT
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Waiver of pre-deposit - cenvat credit - duty paying documents - rima facie, the applicant failed to discharge the burden of proof that they received duty paid MS scrap, SS scrap on the basis of Central Excise invoices - AT
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Cenvat Credit – setting of paint shop - items were used in the factory for fabrication and erection of paint shop, which being fixed to the earth structure, is not excisable - The purpose for which the goods were used and whether after use the goods became part of plant and machinery fixed to/embedded to the earth is not relevant - Cenvat credit cannot be denied - AT
VAT
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Carry forward of excess tax - Petitioner paid amount in excess of tax liability - Authority denied carrying forward of tax - There appears no rationale on the part of the respondents in claiming interest and penalty with regard to the payment to be effected by the petitioner in respect of the subsequent assessment years - HC
Case Laws:
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Income Tax
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2013 (8) TMI 341
Disallowance u/s 14A - Deduction of interest u/s 36(1)(iii) - Interest expenditure paid to bankers - Held that:- First Appellate Authority has deleted the disallowance on the ground that assessee has more surplus interest free funds than the advances and investment. In other words on the record Assessing Officer failed to establish that interest bearing funds were used either for making advances to the sister concern or for investment in the mutual funds. If that be so, then how disallowance can be made. The stand of the Assessing Officer is that assessee should have used its own fund instead of interest bearing borrowings for running the business. In our opinion, Assessing Officer cannot force the assessee to earn interest income or save interest expenses for running the business. The Assessing Officer was unable to demonstrate that interest bearing loans were used by the assessee other than business purpose - Following decision of S.A. Builders Ltd. Vs. CIT [2006 (12) TMI 82 - SUPREME COURT] - Decided against Revenue.
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2013 (8) TMI 332
Arm Length Price adjustment – Revenue has made upward adjustment on the basis of Arm’s Length Price – Held that:- Adjustment must be deleted for the short reason that it was part of the arrangement that specified credit period was allowed and thus the cost of funds blocked in the credit period was inbuilt in the sale price. There is no dispute that similar products are not sold to any other concern, at same price or even any other price, and interest is levied on the similar credit period allowed to those independent parties but not to Micro USA - The very foundation of impugned addition in arm's length price on account of excess credit period is thus devoid of any legally sustainable merits or factual basis – Directed the Assessing Officer to delete ALP adjustment – Decided in favor of Assessee. Cost of fund in an International transaction between associated enterprise -Relationship between the assessee and its step down subsidiary Micro USA was simply that of a lender and a borrower - Not only the Micro USA was a significant part of the marketing apparatus of the assessee, and the assessee and the Micro USA had significant commercial relationship on that count, the assessee was a de facto and de jure promoter of the Micro USA – Held that:- Relying upon the decision in the case of VVF Ltd. Versus DCIT [ 2010 (1) TMI 781 - ITAT, Mumbai ] costs of funds have no relevance and it is only the rate applicable for comparable uncontrolled transaction that is to be taken into account – Decided in favor of Assessee.
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2013 (8) TMI 331
Deduction u/s 10(23C)(iiiad) - Assessee claimed deduction u/s 11 and 12 but CIT allowed deduction u/s 10(23C)(iiiad) also - Held that:- The assessee submitted the complete details before the authorities below and made a claim that it was running school - The assessee also claimed that the assessee exists solely for educational purpose.Claim of the assessee was not disputed by the AO. It is also not in dispute that total receipts of the assessee in the assessment year under appeal were less than ₹ 1 crore. Therefore, the claim of the assessee for exemption u/s. 10(23C)(iiiad) on additional ground was correctly raised. The issue was legal in nature, therefore, the ld. CIT(A) correctly admitted the additional ground for the purpose of hearing - assessee has been able to prove that apart from claiming deduction u/s. 11 & 12 of the IT Act, the assessee would be entitled for exemption u/s. 10(23C) of the IT Act. The ld. CIT(A) has given specific finding that the conditions of above provisions are fulfilled in the case of assessee - Following decision of Bar Council of Uttar Pradesh vs. CIT [1982 (9) TMI 37 - ALLAHABAD High Court] and CIT vs. Mayur Foundation [2004 (12) TMI 48 - GUJARAT High Court] - Decided against Revenue. Condonation of delay u/s. 11(2) - Failure to spend 85% of its total income - Held that:- The assessee has produced sufficient evidences and material on record to show that the assessee made full compliance of provisions of section 11(2) & (5) of the IT Act because resolution was passed to the effect of accumulation of surplus fund in the assessment year under appeal by way of converting the amount into FDR with Nationalized Bank, which was to be used for the purpose of construction of school building. Copies of the resolution, balance sheet and auditreport are filed to indicate the intention of the assessee to accumulate the funds for the purpose of making construction in the subsequent assessment year. The assessee also later on made a request for condonation of delay in filing Form No. 10 belatedly before the AO as well as CIT. Therefore, in the facts and circumstances of the case, particularly when surplus funds were accumulated and deposited with the Nationalized Bank, the delay in filing Form No. 10 should have been condoned - Decided against Revenue.
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2013 (8) TMI 330
Deduction u/s 80IAB - transfer of bare shell building as an unauthorized operation under the SEZ Act. - co-developer agreement - A.O. and ACIT allowed deduction to assessee - CIT exercising power u/s 263 reversed order of ACIT holding that it is pre-judicial to Revenue's interest and proper inquiry was not done by A.O. - Held that:- assessing officer asked for justification of 80-IAB claim, which is duly responded by assessee. The assessment record means the proceedings sheets, material available on record and the replies of the assessee. Considering these aspects it emerges that all the required documents were filed and considered by assessing officer and on being satisfied, deduction u/s 80-IAB was allowed which is mentioned in the assessment order -Order is appear to be made while approving the co- developer agreement. This is possibly applicable to co-developer and not the assessee as the condition was put during the course of approval of the agreement between assessee and the co-developer. Be that as it may, in any case, the assessing officer having considered all these pleading and submissions, it cannot be held that he did not examine the allowability of the claim by proper inquiry - It clearly emerges from assessment record that relevant queries were raised by assessing officer, detailed submissions, developers and co-developers agreements were filed, justification of 80-IAB claim as provided by the assessee and the nature of debts owed by DLF Assets consequent to such transfer was also asked for by assessing officer - Following decision of CIT v. Anil kumar Sharma [2010 (2) TMI 75 - DELHI HIGH COURT] - Decided in favour of assessee. No fault attributable to assessee for causing hiatus to the proceedings was found. Assessee's detailed reply covering all the aspects was filed as back as 25-7-2011 i.e. 8 months prior to the proceedings. The CIT himself called the assessing officer in hearing and asked him to submit a report and ensure that the report is filed. Non-seeking of assessing officer's remand report also is not attributable to assessee. CIT failed to discharge his statutory duty and instead of taking a clear call and demonstrating errors made by assessing officer and prejudice caused to the revenue, the buck has been passed on to assessing officer by setting aside assessment order, which is against the letter and spirit of provisions of sec.263. Where the authority fails to carry out its statutory obligation, the order cannot be held as tenable and is liable to be quashed. SEZ Act authorizes activities include construction of bare shell/ cold shell/ warm shall buildings and transfer thereof. BOA has approved it and clarified the same. There is enough material on the record to hold that the transfer of bare shell buildings to co- developers constitute authorized activity. Merely because CIT in his perception held another possible view about claim u/s 80-IAB, the assessment order does neither become erroneous nor prejudicial to the interests of revenue - Following decision of Malabar Industrial Company Ltd vs. CIT [2000 (2) TMI 10 - SUPREME Court] and CIT vs. Max India Ltd. [2007 (11) TMI 12 - Supreme Court of India] - Decided in favour of assessee.
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2013 (8) TMI 329
Difference between amount shown in agreement to sale and sale deed - Block assessment - 158BC - Addition u/s 69 - Addition made on account of purchase of property - CIT upheld addition - Held that:- When the document shows a fixed price, there will be a presumption that it is the correct price agreed upon by the parties. It is true that on the basis of the agreement the sale deed was executed. But it is not necessary that the price stated in the agreement will be the price shown in the sale deed. Sometimes, it may be higher and sometimes it may be lower. Sometimes intentionally a lesser value may be shown in the sale deed. Even if it is assumed to be so, unless it is proved that the agreement was acted upon and unless the amount stated in the agreement was paid for the sale one cannot come to the conclusion that the price mentioned in the sale deed is not correct -There is no rule that the amount shown in the receipt was the actual amount paid - Following decision of CIT vs. Smt. K.C. Agnes [1996 (4) TMI 76 - KERALA High Court] - Decided in favour of assessee.
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2013 (8) TMI 328
Penalty u/s 271(1)(c) - Assessee claimed deduction u/s 80IC - CIT deleted penalty u/s 271(1)(c) but disloowed deduction u/s 80IC - Held that:- deduction u/s 80IC of the Act was disallowed by the CIT (A), not on the ground of old machinery having been used in the business, but on the ground of the assessee having failed to comply with the requirement of substantial expansion. This ground, it is pertinent to note, had never been invoked by the Assessing Officer for making the disallowance for the year. This disallowance was not challenged by the assessee before the Tribunal. However, this fact of the addition not having been challenged before the Tribunal, by itself does not lead to any inevitable conclusion of leviability of concealment penalty. Penalty proceedings and assessment proceedings are separate. Though the findings in assessment proceedings may be relevant for the purposes of levy of concealment penalty, they are not material for such levy, on a stand alone basis. The requirement u/s 271 (1)(c) of the Act is either concealment of particulars of income or furnishing of inaccurate particulars thereof, neither of which is the case herein. Even under Explanation-1 to Section 271 (1)(c), a presumption is raised, which is a rebuttable presumption. In the present case, even this presumption is not, at the outset, even available against the assessee, inasmuch as the explanation offered by the assessee has neither been found to be false, nor has the assessee not been able to substantiate the same, nor has such explanation been shown to be not bona fide - all facts relating to the explanation and material to the computation of the assessee's total income stood duly disclosed by the assessee. where in the return of income filed, the assessee had duly disclosed all the details regarding the claim of deduction u/s 80IC of the Act, which claim was supported by the Tax Audit Report and the Tax Audit Report contained all the facts relating to the substantial expansion as required by Section 80IC, the Assessing Officer nowhere alleged the assessee to have withheld any information or to have furnished any false information, the disallowance had been made merely on account of a bona fide difference of opinion between the assessee and the department regarding the manner of determining substantial expansion for the purpose of the allowability of deduction u/s 80IC of the Act, which determination, undoubtedly, is a highly debatable/vexed legal issue, beside the fact that the disallowance had been made by the Assessing Officer on one issue, whereas that made by the CIT (A) was entirely on a different issue, no penalty u/s 271(1)(c) of the Act is leviable - Following decisions of 'CIT vs. Nalwa Sons Investment Ltd. [2010 (8) TMI 40 - DELHI HIGH COURT], CIT vs. Dharam Pal Prem Chand Ltd. [2010 (9) TMI 155 - DELHI HIGH COURT] and CIT vs. Harshwardhan Chemicals and Minerals Ltd. [2002 (5) TMI 15 - RAJASTHAN High Court] - Decided against Revenue.
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2013 (8) TMI 327
Notice u/s 148 - Reasons given for reassessment - CIT held reasons not sufficient and quashed reassessment proceedings - Held that:- Assessee had given a detailed reply along with tariff order of CERC justifying the reversal. It was after considering all these aspects, that the original assessment order was passed by the Assessing Officer - When specific queries were raised and detailed answers were given, it would be naïve to presume that Assessing Officer had not applied his mind - There was no new material with Assessing Officer for taking a view that claim of the assessee was incorrectly allowed. There was no new tangible material, for resorting to reopening - Following decision of DEPUTY COMMISSIONER OF INCOME TAX Versus M/s NEYVELI LIGNITE CORPORATION LTD [2012 (8) TMI 190 - ITAT, CHENNAI] - Decided against Revenue.
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2013 (8) TMI 326
Expenditure u/s 37(1) - lottery business - A.O. made addition on account of bogus commission - whether payment of commission is against the public policy - CIT deleted addition - Held that:- any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be allowed to be deducted in computing the income - Nothing has been brought on record that the activities of the agents of making representations and mobilizing public opinion for not exercising option under s. 5 of the Central Act was an offence or was prohibited by law - The State Governments were carrying on their respective lottery businesses and the purpose of the Central Act was to limit such activities within the territories of the States at the option of the States. Thus, there was nothing illegal about carrying on the lottery business or mobilizing opinion for continuation of sale of lottery tickets of other States within the State of Madhya Pradesh. Nothing has been brought on record to show that it was even against the public policy - Following decision of CIT Vs. Khemchand Motilal Jain, P. Ltd. [2011 (8) TMI 70 - MADHYA PRADESH HIGH COURT] - Decided against Revenue.
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2013 (8) TMI 324
Addition u/s 68 - Corpus donation - Donor was a non-resident - Proof and identity of donor - Held that:- The assessee was a charitable trust and was engaged in charitable activities as held by CIT (A). This fact has been admitted by the Assessing Officer himself in the Assessment Year 2005-06. CIT (A) granted the relief to the assessee for the year under consideration for claim of exemption u/s 11 of the Act. During the year, the voluntary contribution of corpus donation was received which was clear from the computation of income submitted to the income-tax department - During the relevant period, the assessee enjoying the status of a Trust registered u/s 12A read with section 12AA of the Income-tax Act, 1961. During this period, the assessee was also enjoying the benefit of exemption under section 80G(5)(vi) of the Act. The assessee produced the all details before the Assessing Officer with regard to the corpus donations received by it - The Assessing Officer insisted for the presence of the donor which could not be done for the reason that the donor was located outside India during the relevant period. Donor was a non-resident - To strengthen the claim of the assessee regarding the genuineness of the corpus donation further documents like bank statement of the donor and ITR of donor were filed as additional evidence which had not been admitted by the CIT (A). This stand of CIT (A) was without any cogent reason. The donations were received by cheques from none other than the settler of the trust - assessee was able to discharge the onus by proving the identity of the donor and also the genuineness of the transaction. No adverse inference can be drawn regarding the capacity of the donor - Decided in favour of assessee. Exemption u/s 11 & 12 - Charitable activity or not - Held that:- assessee trust was doing charitable activities during the relevant period also. The Assessing Officer himself conducted thorough examination of the activities for the Assessment Year 2005-06 and 2007-08. There is no change in the facts for this year and the Assessing Officer has not brought out any specific instance which goes contrary to the finding of the Assessing Officer for Assessment Years 2005-06 and 2007-08 - The assessee is a trust enjoying the benefit of registration u/s 12A of the Income-tax Act, 1961 and was also granted exemption u/s 80G of the Act. The Trust was engaged in the various charitable activities during the year under consideration. During the year, the assessee trust entered into a property transaction - Decide in favour of assessee.
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2013 (8) TMI 323
Deduction u/s 14A - Share trading - CIT partly deleted addition - Held that:- assessee has not filed any paper book or the statements of accounts - Therefore, it is not possible to factually verify the veracity of the claim and ascertainment of assessee's business, the amount of stock in trade, investment etc. and the satisfaction about applicability of Rule 8D - Following decision of Esquire Private Limited, Versus DCIT, Range-2 (1), Mumbai [2012 (9) TMI 134 - ITAT MUMBAI] - Matter remitted back.
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2013 (8) TMI 322
Exemption u/s 54 - Transfer of property - investment of capital gains in the new house property - deduction of expenditure in connection with sale - Held that:- Payments were made by cheques to people and were duly acknowledged through receipts wherein the payees has admitted of having received these payments - as the expenditure necessarily represented cost incurred by the assessee for effecting the sale of property as without settlement of earlier deal, the assessee was not in a position to execute the sale deed. Without terminating the agreement to sell, the assessee could not have sold this property to any other person. Therefore, the assessee has incurred these expenditure to finalize the sale transaction, therefore, expenses incurred by the assessee in connection with the said property for the purpose of final sale is to be treated as expenditure in connection with such transfer - assessee had necessarily complied with the conditions for allowability of claim as assessee had entered into an agreement for purchase of house and had invested more than capital gain in the said house property - possession of property is not necessary within the prescribed time, the only condition is the investment which in the present case the assessee has made - Decided in favour of assessee. Addition u/s 69C - Low withdrawals for household expenses - CIT upheld additions - Held that:- in the immediately preceding year, the assessee along with his family members had made total withdrawals of Rs.3,62,868/- and assessment of the assessee was completed u/s 143(3), copy of which is placed at page 60 and there was no addition made by the Assessing Officer on account of low withdrawals. Though principle of res judicata does not apply to Income tax proceedings and every year is considered a separate year yet on the basis of consistency the facts and circumstances of the present year remains same as Assessing Officer did not point out any specific circumstances by which he assumed that assessee had made low withdrawals as against the assumed expenses of Rs.15 lakhs p.a. However, on the basis of financial position of the assessee, withdrawals made by him do not match with his probable actual expenditure. The addition made by the Assessing Officer by assuming an annual expenditure of Rs.15 lakhs is also on a higher side, therefore additions are reduced - Decided partly in favour of assessee.
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2013 (8) TMI 321
Registration u/s 12A - benefits of the research of the assessee's society was made available to the other two societies without any amounts being charged from them - Held that:- the benefit of the judgement of the Hon'ble High Court DIRECTOR OF INCOME TAX Versus SOCIETY FOR DEVELOPMENT ALTERNATIVES [2012 (1) TMI 77 - DELHI HIGH COURT] was not available to the DIT(E) considering the consequent contradictions in the orders passed by the DIT(E) and assessment order namely non-maintenance of separate books of accounts which issue has traveled to the higher forums needs to be taken into consideration. The Hon'ble High Court has considered the issue of offering funds of Rs. 12,00,000/- as collateral security and also the fact that the grants were not voluntary contribution as per section 12 of the Act and were tied up grants monitored by the funding agencies. However, it is also seen that the detailed findings that the benefits of the research of the assessee's society was made available to the other two societies without any amounts being charged from them and those societies were as such allowed to commercially exploit, the same have not been discussed or considered in the order of the Tribunal nor the judgement of the Hon'ble High Court since facts need to be re-considered and reconciled with the finding in the light of the judgement of the Hon'ble High Court in assessee's own case. - Matter remanded back.
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2013 (8) TMI 320
Interest expenditure paid to bankers - user of interest bearing funds for non-business activities - Held that:- First Appellate Authority has deleted the disallowance on the ground that assessee has more surplus interest free funds than the advances and investment. In other words on the record Assessing Officer failed to establish that interest bearing funds were used either for making advances to the sister concern or for investment in the mutual funds. If that be so, then how disallowance can be made. The stand of the Assessing Officer is that assessee should have used its own fund instead of interest bearing borrowings for running the business. In our opinion, Assessing Officer cannot force the assessee to earn interest income or save interest expenses for running the business. The Assessing Officer was unable to demonstrate that interest bearing loans were used by the assessee other than business purpose - Decided against Revenue. Disallowance u/s 14A - CIT deleted addition - Held that:- section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method - Following decision of C. I. T., Mumbai Versus M/s. Walfort Share & Stock Brokers P. Ltd. [2010 (7) TMI 15 - SUPREME COURT] and Maxopp Investment Ltd. vs. CIT [2011 (11) TMI 267 - Delhi High Court] - Decided against Revenue.
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Customs
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2013 (8) TMI 319
Condonation of delay – stay application – appeal was filed for condoning the delay of 534 days - Held that:- The delay was of 534 days and there is no reason for details of long delay – the contention of the applicant was not supported by any evidence - the applicant merely stated that she was not well and she was suffering from gynaecological disorder and also taking treatment in USA as her children were there - condonation of delay depend on the facts of each case and it is the duty of the applicant that they should explain the reason for delay in detail – appeal and stay application rejected – decided against the applicant.
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2013 (8) TMI 318
Differential custom duty - concessional rate of duty under Notification No.21/2002 and Notification No. 21/2005 - import of goods (inputs) of Chapter 84 for manufacturing mobile/cellular phones and parts/components/ accessories of mobile phones. - As per Department the assessee could not validly claim the benefit of Sl. No. 28 either - The investigative findings made their way into a show-cause notice - in adjudication whereof the learned Commissioner denied the benefit of the Notification to the assessee and confirmed the demand of CE duty against them Held that:- The assessee s argument that the assessments on the Bills of Entry could not had been reopened/reviewed by way of issue of a show-cause notice u/s 28(1) of the Customs Act is, prima facie, untenable - UOI Vs. Jain Sudh Vanaspati (1996 (8) TMI 108 - SUPREME COURT OF INDIA) claims of the assessee with regard to CENVAT credit and quantification of duty were no better. It appears, an opinion given by BSNL and one given by VJTI in favour of the appellant are the main basis for the appellant to claim that FWTs could be considered as mobile/cellular phones. Prima facie, BSNL being the buyer of the goods manufactured and supplied by the appellant cannot be considered as a detached and independent expert and therefore BSNL's opinion may not be reliable. VJTI's opinion was taken by the appellant on 03/05/2012 and submitted to the Commissioner and the same was not accepted inasmuch as the Institute's authenticity to issue such opinion/certificate was not established by the appellant and the opinion/certificate was found to have been issued without examining the basic function of the FWTs. Apparently, the adjudicating authority has stated specific and cogent reasons for not accepting either of the two certificates. Extended period of limitation - Held that:- Apart from the fact that there was difference of opinion even in the Department, the fact remains that the department officials had been regularly visiting the factory of the appellants and were in the know of the process of manufacture adopted by the appellants and to state that the appellants had played fraud on the department is difficult to sustain. - Demand beyond normal period set aside. Stay application waiver of pre deposit - the entire demand of duties having been confirmed against the assessee for periods beyond the normal period of limitation court granted the bar of limitation - waiver of predeposit and stay of recovery are ordered against the demands of duties on the ground of limitation - decided in favour of assessee.
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2013 (8) TMI 317
Jurisdiction on the Settlement Commission - Confiscation of Goods – Interest and Penalty – the applicant moved the Settlement Commission under Section 127(1) – Held that:- Provisions relating to baggage fall under Chapter 11 of the Customs Act, the provisions relating to confiscation - which were invoked in the present case were general in nature and apply to all classes of imports - made either where goods are sought to be cleared under Chapter 7 or under Chapter 6 as in the present case. This observation of the Court is strengthened by the fact that Section 127(B) itself enumerates the kinds of cases which cannot be entertained by the Commission, for instance listed in third proviso of Section 127(B)(i) - Having regard to these and the observations of the Madras High Court in Commissioner of Customs v. Customs & Excise Settlement Commission [2007 (10) TMI 83 - HIGH COURT MADRAS ] - the argument of the Revenue on this aspect lacks in merit. In the absence of filing of bill of entry, the application filed was not maintainable was wholly misconceived – Held that:- The application filed was maintainable it was not open to the revenue to contend that the Settlement Commission was in error in entertaining the application – the Commission noticed that baggage is a specific item under Chapter heading 98.03 of the Customs Tariff Act, 1985 - It rested its conclusion on the fact that the duty computed by the Revenue in the show cause notice itself was 35% ad valorem which related to baggage - Idris Y. Porbunderwala [2005 (6) TMI 302 - SETTLEMENT COMMISSION, CUSTOMS AND CENTRAL EXCISE,]. On a careful reading of Sections 127(A) and 127(B) the Revenue’s contention that since the applicant had not filed bill of entry or that the case was one relating to baggage and therefore did not involve short levy or non-levy was without force - The provisions that confer jurisdiction on the Settlement Commission cannot be construed as narrowly as it sought to be urged by the Revenue - If parliamentary intention was to exclude adjudication by Customs Authorities in respect of baggage claim, from the purview of the Commission’s jurisdiction, surely such intention would have been more clearly manifested like in the case of 3 proviso of Section 127(B)(i) – petition allowed – Decided in favor of assesse.
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2013 (8) TMI 316
Mis-declaration of Goods - Prosecution - Criminal proceedings - Assesse imported consignments and cleared the same for home consumption – Revenue was of the view that in order to avoid Anti-Dumping Duty in terms of notification No.147/2003-Cus, mis-declared the consignments of measuring tapes to be of Malaysian origin whereas the goods are of Chinese origin – Whether the declaration given by the accused stating that the consignments were measuring tapes of Malaysian origin was correct or not – Held that:- The issue can be decided only by way of adjudication and by scrutiny of relevant records - on the side of the prosecution, triable issues were involved – the assesse with mala-fide intention of evading duty had mis-declared the items – Held that:- Assesse had produced the fabricated certificate to show the country of origin as Malaysian origin instead of China with the intention to evade Anti Dumping Duty – Assesse knowingly had produced the overseas invoice which was fabricated. Petition for Discharge from Criminal proceedings - Held that:- The petition for dismissing the discharge petition was not entertained - The prosecution case was at a partly heard stage - Revenue had made out that the accused had evaded payment of duty – Decided against assesse.
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Corporate Laws
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2013 (8) TMI 315
Pledgee’s and Pledgor’s Rights and duties u/s 176 - Whether the defence raised by the respondent was substantial - Section 176 of the Indian Contract Act,1872 deals with the pledgor’s and pledgee’s rights and duties which rule out the applicability of section 433 - Held that:- The defence taken by the respondent-company was substantial, had been taken in good faith and had prima facie merit deserving deeper examination - there was prima facie proof of the facts on which the defence rests - It was well settled that winding-up proceedings were not a means of recovering the debts due from a company. The defence based on Section 176 of the Contract Act was an after-thought and no such defence was taken at any point of time during the prolonged exchange of correspondence between the parties which shows the lack of bona fide on the part of the respondent - The provisions of the section were mandatory and cannot be over-ridden by any contract to the contrary - The section deals with the pledgee’s right where the pledgor makes default - Lallan Prasad v. Rahmat Ali [1966 (12) TMI 65 - SUPREME COURT] - It had been highlighted that where the pawnor repays the debt he was entitled to the return of the pawned goods - the pawnee cannot be permitted to get repayment of the debt as also retain the pawned goods and thus gain an unjust double advantage - There was nothing which would militate against the issue sought to be raised by the respondent in the case - Decided against petitioner.
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Service Tax
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2013 (8) TMI 339
Construction of Complex Service u/s 65 (105) (zzzh) and Taxable Service u/s 65 (91a) – Duty Demand – Interest and Penalty - Assesse was engaged in promotion and construction of residential complexes for sale of residential flats - Revenue was of the view that the activities done by them was taxable services – Held that:- There was a relationship of service provider and service recipient between the applicant and the prospective buyers of the individual residential units as it was evidenced by the contract between the two parties. The contract was not for sale of flats but for providing construction service - The residential complex was not for the residence of the assesse but the individual residence units were constructed for residential use of the persons for whom such units were constructed - The fact that individual residential units were for residential use of the purchaser cannot take the complex outside the definition - Any interpretation to the contrary will make the entry otiose. Limitation of Time-Barred – Held that:- The contention of the assesse regarding time bar does not appear to be supported by provisions in statute because the demand does not cover any period beyond one year from the date of disclosure - In respect of demands prior to the date of disclosure the time limit of one year may not apply for issue of Show Cause Nature. Waiver of Pre-deposit – After considering the financial hardship pleaded by assesse and also in the interest of Revenue – 30Lakhs were ordered to be submitted as pre-deposit – upon such submission rest of the duty to be waived – Decided partly in favor of assesse.
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2013 (8) TMI 338
Broadcasting Service – CENVAT credit input services - service tax paid towards telecast fee - Assesse was engaged in producing programmes/tele-serials and obtained service tax registration under ‘TV or Radio Programme Production and Sale of Space for Advertisement’ services - Assesse availed service tax paid on telecast fees as Cenvat Credit as input service credit – Held that:- The chain was clearly established and the assesse was entitled for cenvat credit on service tax paid towards telecast fee. Waiver of Pre-deposit - ABB Ltd. Vs. Commissioner of Central Excise [2009 (5) TMI 48 - CESTAT, BANGALORE] - the expression activities relating to business had a wide import and includes both essential and auxiliary activities of business - the definition of the input service had to be interpreted in the light of the requirements of the business and it cannot be read restrictively - unless the serials were broadcast the assesse was not eligible for free commercial time and the payment of service tax under the category of ‘Sale of space or time for advertisement’ - assesse had made out a good prima facie case on merit and there was no serious contest from the department for the grant of waiver of pre-deposit –Thus the waiver of pre-deposit and stay was allowed till the disposal – Decided in favor of assesse
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2013 (8) TMI 337
Consultancy services – research and development project – Service tax demanded - Held that:- In the interest of justice earlier order was set aside and remand the matter for fresh consideration after granting reasonable opportunity to the appellants - order of the commissioner does not deal with the various issues raised - correspondences exchanged between the department and the appellants which are sought to be relied upon have not been considered by the commissioner - stay granted - petition allowed in the favour of the assessee.
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2013 (8) TMI 336
Revenue Sharing agreement - franchise agreement - Business Auxiliary Services Section 65(105)(zzb) – stay - appellant provided services of commercial training and coaching service – whether the activity would attract service tax – Held that:- Board in its circular dated 23.2.2009 has clarified that in the revenue sharing arrangements where two contracting parties act on principal to principal basis one does not provide service for another and such activities are not covered under service tax - appellant's contract is like a revenue sharing arrangements under which the appellant operate commercial coaching and training centres and get a portion of the fee collected from the students - From the Appellant's contract with CLIL, it appears that the appellant cannot be said to be an agent of CLIL and the transaction between them are on principal to principal basis. Tuition fees - Whether appellant would be liable to pay service tax on the amount of 25% of the tuition fee being received by them – held that:- There is no dispute that the service tax is sought to be charged on 25% of the amount of tuition fee being received by CLIL from the students through the appellant have already paid service tax on that amount. Waiver of pre deposit - prima facie case is there in the favour of appellant – waiver of pre deposit allowed – stay application allowed – appeal decided in the favour of assessee.
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2013 (8) TMI 335
Adjustment of service tax liability under Rule 6(3) - refund of amount received towards taxable services - Interest and Penalty – Refund made directly to the insured and Refund paid through intermediaries - Revenue doubted the correctness of the amounts adjusted in ST-3 returns towards refund for the period and called for verification of the amounts to ensure that the adjustments were correctly claimed - Held that:- Order of the adjudicatory authority was set aside - matter remanded back for de-novo adjudication considering the observations of the Tribunal – this order was not a bar to passing any appropriate order in accordance with law if any revenue loss was demonstrable - evidence should be disclosed to the assesse and they should be given an opportunity to present their defense. Service tax Rules do not prescribe the method of doing any business or maintaining account - The approach of the authorities should facilitate smooth conduct of business by reducing manual work for every assessee if they arrange to do so - The contention that credits made in the books of accounts of the assesse in the name of an intermediary do not amount to refund to the intermediary could not be accepted – If Revenue had any doubt that the full amount was not being refunded and refund from government was claimed for more than the amount actually being refunded to the insured a clear case based on facts which will prove such malpractices should be bought out – Decided in favor of assesse.
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2013 (8) TMI 334
Business Auxiliary Services – Job Work - appellant has received raw herbs from the clients/customers for 'grinding' of the same - issue involved in the present appeal is whether the appellant is liable to service tax under head of Business Auxiliary Services during the period 10.09.2004 to 15.06.2005 - Held that:- The word 'processing' was included in the definition only with effect from 16.06.2005 - it is not legal on part on revenue to demand the service tax on the activity of grinding prior to 16.06.2005 – appeal allowed in the favour of the assessee.
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Central Excise
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2013 (8) TMI 314
Clandestine Removal - Appellants are manufacturer of Black Steel Pipes and GI Pipes - During the course of physical verification 768 No. (29.500 MT) of Steel Pipes and Tubes were found short by the Preventive officers in the stock of finished goods – Statement of Shri Narendra Singh, Factory Manager was recorded under Section 14 of the Central Excise Act, 1994 in which he admitted the above shortage of 768 Nos. weighing 29.500 MT in the finished good - Appellants challenging the Order in Appeal on the ground that shortage was based on eye estimation and there was not physical verification – Held that:- Numbers are mentioned in the Annexure to Panchnama and therefore it is wrong to say that shortage is based on eye estimation. Moreover Shri Narendra Singh Factory Manager had admitted the shortage in the pipes as in his the statement - Shortage of the goods in the factory which is no explained by the factory manager - Concluded that goods were removed without payment of Central Excise duty – Decided against the Assessee.
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2013 (8) TMI 313
Cenvat credit - Welding Electrodes - Commissioner disallowed cenvat credit - Held that:- Welding Electrodes used for repair and maintenance of plant and machinery are eligible for cenvat credit - Following decision of AMBUJA CEMENTS EASTERN LTD. Versus COMMISSIONER OF C. EX., RAIPUR [2010 (4) TMI 429 - CHHAITISGARH HIGH COURT] and UNION OF INDIA Versus HINDUSTAN ZINC LTD. [2006 (5) TMI 44 - HIGH COURT RAJASTHAN] - Decided in favour of assessee.
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2013 (8) TMI 312
Waiver of pre-deposit – Period of limitation – Held that:- Credit was availed for the year 2004 and the show cause notice was issued in 2010, i.e. after five years - the applicant, has a strong case on the ground of limitation – Waiver of pre-deposit allowed – Decided in favor of Assessee.
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2013 (8) TMI 311
Waiver of pre-deposit – Held that:- Applicant was availing the credit in respect of capital goods, without mentioning items in the monthly returns. In view of the facts and circumstances of the case, the applicant has not made out a case for total waiver of duty. The applicant is directed to deposit an amount of Rs.4 lakhs (Rupees Four lakhs only) within a period of six weeks. Cenvat credit in respect of S.S. sheets, Plates, Joists, Channels, Coils, M.S. Angles, H.R. Coils, M.S. Plates, Flanges etc - Items are used in fabrication of storage tank and also in respect of supporting structure and platforms – Held that:- The use of individual items in the manufacture of capital goods will be gone into detail at the time of regular hearing.
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2013 (8) TMI 310
Penalty under Section 11AC of the Central Excise Act – Allegation of fraud not mentioned in the Show-Cause Notice – Held that:- Fraud, collusion and any other such ingredient has not been mentioned either in the show cause notice or in the order in original. In the absence of which it is difficult to sustain the penalty equal to duty amount in the present case – Decided against the Revenue.
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2013 (8) TMI 309
Cenvat credit in respect of input services namely, errection, commissioning and installation, man-power recruitment and civil construction, used in the employees staff colony, canteen and residence of the Executive Director of the Company - These services were not used directly or indirectly in the manufacture of final products and as such, are not eligible to be classified as ‘input services’ as defined in 2(l) of the Cenvat Credit Rules – Held that:- As per the decision in the case of CCE, Hyderabad vs. M/s. ITC Ltd. reported in [2011 (11) TMI 516 - ANDHRA PRADESH HIGH COURT] , services which are crucial for maintaining staff colony such as lawn mowing, garbage cleaning, maintenance of swimming pool, collection of household garbage, harvest cutting, weeding etc. necessarily had to be considered as ‘input services’ falling within the ambit of Rule 2(l) of the Cenvat credit Rules, 2004 - Disputed services in the present case are not mentioned in the services in the list of activities mentioned in the Andhra Pradesh decision - Hon’ble High Court of Gujarat in the case of M/s. Cadila Healthcare Ltd [2013 (1) TMI 304 - GUJARAT HIGH COURT]., the activities related to business will cover only, in its ambit the activities which are mentioned in Rule 2(l) of the Cenvat Credit Rules which follow the words ‘such as’ – In the present case activities/ services are not covered in any of the services mentioned after the word ‘such as’ – Cenvat Credit not allowed – Decided against the Assessee.
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2013 (8) TMI 308
Cenvat Credit/ Modvat Credit on M.S. Sheets and on electrodes - Appellant are engaged in manufacture of V.P. Sugar and Molasses falling under Central Excise Chapter Heading 17.01 and 17.03 of the Central Excise Tariff – Show cause notice issued on the ground that neither M.S.Sheets nor electrodes qualify for as capital goods/inputs under Rule 2(a) of the Cenvat Credit Rule – Held that:- Goods were used in repair and maintenance of the machinery in the factory – Further, relying on the judgment in the case of Ambuja Cements Eastern Ltd [2010 (4) TMI 429 - CHHAITISGARH HIGH COURT], Cenvat Credit is admissible if inputs are used in manufacture of parts and components of the capital goods and also in repairs and maintenance of the capital goods within the factory. Similar decision has been passed in the case of Hindustan Zinc Ltd.[2006 (5) TMI 44 - HIGH COURT RAJASTHAN] - Decided in favor of Assessee.
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2013 (8) TMI 307
Limitation - Respondents are engaged in manufacture of CTD Bar, MS Angle, MS Channel, MS Round, MS Square etc - Sale of Roll scrap, a capital goods are cleared as, waste and scrap assessee is required to pay duty on transaction value under Rule 3 (5A) of the Cenvat Credit Rules - A Show Cause Notice dated 23.03.2009 was issued to the respondents demanding duty – Held that:- Audit team visited M/s. Ramesh Industries, Raipur a sister concerned of the Appellant unit and they had knowledge of this facts right from the date of Audit in M/s. Ramesh industries, Raipur i.e. from 2006, but the department failed to make any investigation against appellants unit – Appeal of revenue rejected – Decided against the Revenue.
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2013 (8) TMI 306
Cenvat Credit of Service Tax paid on input service in respect of dismantling/handling of unusable material and its transportation - Manufacturing activity undertaken by the appellants comprises of making of concentrate by purification of ores. Entire purification process involves handling of abrasive, corrosive materials and acids which lead to corrosion of metallic and others surfaces which are to be removed periodically from the main machines and are to be replaced with new ones. Appellant has given contract for Dismantling, Sorting and transportation of such scraps from underground area, surface area and mill area to Central Store, wherefrom it is auctioned – Held that:- Activities are basically in relation to repair or renovation of machinery and pipes and are specifically covered under definition of input service – Therefore, appellants are eligible for taking credit in respect of these services – Decided in favor of Assessee.
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2013 (8) TMI 305
Waiver of pre-deposit - cenvat credit - duty paying documents - M/s. Praveen Foundry Pvt. Ltd. (Applicant No.1) is a manufacturer of castings of automobiles. They purchased MS scrap and SS scrap from registered dealers and used in the manufacture of castings. Original authority confirmed the demand of duty and imposed penalty of equal amount along with interest on the ground that they received MS scrap but the duty paying documents were showing the goods as MS channels and angles, rods, rounds etc – Held that:- Applicant No.2, Shri A. Radhakrishnan, M.D. of Applicant No.1 company in his statement dated 24.9.2008 categorically stated the details regarding process of receiving M.S. scrap, Lab test, storage and use in the manufacturing of finished goods. In the context of the present case, he stated that they received virgin materials and treated them as scrap. Prima facie, it is difficult to accept that a prudent business would use virgin material as scrap and such statement is contrary to the statements of dealers and this virgin materials usually cannot be used in melting scrap in the Furnace. We find that Rule 9 (5) of Cenvat Credit Rules, 2004 provides that the burden of proof regarding admissibility of the Cenvat credit shall lie upon the manufacturer taking such credit. It is apparent from the evidences, namely statements, process of manufacture etc. that the applicant received non-duty paid M.S. scrap, S.S. scrap in the guise of MS & HR plates, MS Wire coil, MS Round coils etc. from various registered dealers and availed cenvat credit, which is not permissible under Cenvat Credit Rules - Prima facie, the applicant failed to discharge the burden of proof that they received duty paid MS scrap, SS scrap on the basis of Central Excise invoices - Applicant No.1 is directed to deposit Rs.13,00,000/-(Rupees Thirteen lakhs only) within 6 weeks - Upon such deposit, predeposit balance duty along with interest and penalty on the applicant-company as well as penalty on its Managing Director (Applicant No.2) shall stand waived.
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2013 (8) TMI 304
Cenvat Credit of service tax paid on ‘Outdoor catering Service’ - Respondent unit having more than 250 workers in their factory providing canteen facility to the workers and staff of the factory - Held that: - Cenvat Credit would be inadmissible only to the extent the charges for canteen facility are recovered by the Respondent from employees and to the extent the charges are not recovered from the employees, they would be eligible for Cenvat Credit relying upon the decision in the cases of CCE Nagpur Vs. Ultratech Cement Limited reported in [2010 (10) TMI 13 - BOMBAY HIGH COURT] and also in the case of Commissioner of Central Excise, Ahmedabad-I Vs. Ferromatik Milacron India Ltd. reported in [2010 (4) TMI 649 - GUJARAT HIGH COURT] – Also, number of workers in the respondent’s factory is more than 250 and, therefore, in term of the provisions of factories Act, the appellant are required to provide canteen facility to the workers.
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2013 (8) TMI 303
Waiver of pre-deposit under section 35F of the Central Excise Act - Appellant did not file any stay petition before the Commissioner (Appeals) – Held that:- Appellant had neither deposited the amount confirmed nor filed stay petition before the Commissioner (Appeals). Therefore, the Commissioner (Appeals) has rightly rejected their appeal for non-compliance of the provisions of Section 35 – Decided against the Assessee.
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2013 (8) TMI 302
National Litigation Policy framed by the Central Board of Excise and Customs – Amount involved in litigation – Held that:- As per the National Litigation Policy framed by the Central Board of Excise and Customs, department is required not to file any appeal before the Tribunal in cases where the duty involved is less than Rs. Five lakhs - In the present appeals the duty involved, is nominal and much less than the limit of Rs. Five lakhs – Appeal not maintainable – Decided against the Revenue.
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2013 (8) TMI 301
Cenvat Credit – setting of paint shop - items were used in the factory for fabrication and erection of paint shop, which being fixed to the earth structure, is not excisable – Held that:- Objection by the department is absurd, as for permitting capital goods Cenvat credit, what has to be seen is as to whether the goods fall in the Chapters specified in the definition of capital goods or are the items specifically mentioned in the definition of capital goods and secondly whether those goods were used in the factory. The purpose for which the goods were used and whether after use the goods became part of plant and machinery fixed to/embedded to the earth is not relevant - Cenvat credit cannot be denied – Decided in favor of Assessee.
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CST, VAT & Sales Tax
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2013 (8) TMI 340
Carry forward of excess tax - Petitioner paid amount in excess of tax liability - Authority denied carrying forward of tax - Held that:- petitioner has effected much payment well in advance, resulting in excess input tax credit and the amount is lying at the hands of the Government/department, who was virtually generating funds, making use of the same - respondents have adjusted the excess payments against the subsequent liablity in respect of the subsequent assessment years, while the amount of the petitioner was lying at the hands of the Government, without having the same refunded - There appears no rationale on the part of the respondents in claiming interest and penalty with regard to the payment to be effected by the petitioner in respect of the subsequent assessment years - concerned respondent is directed to reconsider the matter, especially with regard to the objection to be placed by the petitioner and also on the other points, if raised, which are not covered in this writ petition but form the subject matter - Decided in favour of Assessee.
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