TMI Tax Updates - e-Newsletter
August 19, 2013

Case Laws in this Newsletter:

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

Articles

1. Co-owners - commercial rent exemption available for each owner.

   By: DEVKUMAR KOTHARI

News

1. Auction for Sale (Re-Issue) of Government Stocks

2. Spending on Corporate Social Responsibility by Companies

3. Investigations by the Serious Fraud Investigation Office

4. Measures to Check the Incidents of Vanishing Companies

5. Cases of Fraud and Cheating by the Chit Fund Companies

6. RBI Reference Rate for US $ and Euro

7. PM Releases Fourth Volume of RBI History (1981-1997)

8. Welcome remarks by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India at the release of Reserve Bank of India’s History Volume IV by Prime Minister Dr. Manmohan Singh in New Delhi on August 17, 2013

Notifications

FEMA

1. 283/2013-RB - dated 14-8-2013 - FEMA

Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Fifth Amendment) Regulations, 2013

2. 282/2013-RB - dated 14-8-2013 - FEMA

Foreign Exchange Management (Permissible Capital Account Transactions) (Amendment) Regulations, 2013

Income Tax

3. 63/2013 - dated 14-8-2013 - IT

DOUBLE TAXATION AGREEMENT - AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH FOREIGN COUNTRIES - SWEDEN - AMENDMENT IN NOTIFICATION NO. GSR 705(E), DATED 17-12-1997

SEZ

4. S.O. 2477(E) - dated 13-8-2013 - SEZ

Set up a sector specific Special Economic Zone for Biotechnology at Kodur and Settipalli villages, mandal Chilamathur, District Anatapur in the State of Andhra Pradesh

5. S.O. 2473(E) - dated 12-8-2013 - SEZ

Set up a sector specific Special Economic Zone for Information Technology/Information Technology enabled services at Nellikode and Pantheerankavu Villages, Kozhikode District, in the State of Kerala

6. S.O. 2472(E) - dated 12-8-2013 - SEZ

Set up a sector specific Special Economic Zone for information technology and information technology enabled services at Village Kakkanad, Taluk Kanayannur, Ernakulam in the state of Kerala

VAT - Delhi

7. F.3(349)/Policy/VAT/2013/645-657 - dated 19-8-2013 - DVAT

All Embassies, international organizations shall be required to file the refund claim online through departmental website (http://www.dvat.gov.in).

8. F.7(433)/Policy-II/VAT/2012/Part File/632-644 - dated 16-8-2013 - DVAT

Date extended to 16.09.2013 for filing online stock statement in Form Stock – 1 for the stock available on 31.03.2013 for dealers having gross turnover upto Rs. 1 crore during the year 2012-13

Circulars / Instructions / Orders

VAT - Delhi

1. F.2(7)/DVAT/L&J/05-06/4585-91 - dated 8-8-2013

Jurisdiction for Objections matters

Highlights / Catch Notes

Income Tax

• Depreciation Permitted for Idle Plant Ready for Use Due to Raw Material Shortage u/s 32. Business Still Active.

  Case-Laws - HC : Depreciation u/s 32 – Plant ready for used but not used in actual due to unavailability of raw-material – business was a going concern and the machinery could not be put to use due to raw material paucity - depreciation allowed - HC
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• Court Orders Special Audit u/s 142(2A) for Thorough Examination of Assessee's Accounts Due to Missing Vouchers.

  Case-Laws - HC : Special audit u/s 142(2A) – assessee has submitted copy of ledger account in 5 volumes but supporting vouchers of receipts and payment has not been submitted on the ground that there are voluminous records - it is in the interest of revenue, justice and fair play to make a reference u/s 142 (2A) of the Act to get the accounts of the assessee audited - HC
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• Payments to Dealer Not Technical Services Under Sec 194J; No TDS Required, No Disallowance Under Sec 40(a)(ia.

  Case-Laws - AT : TDS u/s 194J - sales, servicing and managing a workshop for maintenance of vehicle - dealer has not rendered technical services as contemplated u/s 194J to the assessee for which the assessee paid a particular amount to the dealer and non-deduction of tax at sources on such payments does not attracts disallowance u/s 40(a) (ia) - AT
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• Spontaneously Grown Trees: Sale Not Taxable Due to Zero Acquisition Cost, Considered Capital in Nature.

  Case-Laws - AT : Selling of trees which were grown spontaneously for which there is no cost of acquisition - sale of trees grown spontaneously has to be treated as capital in nature and since there is no cost of acquisition, it is not liable for taxation. - AT
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• Lease to Konkan Railway is a Finance Lease; No Depreciation Allowed, Only Finance Interest Taxable as Income.

  Case-Laws - AT : Depreciation on lease assets given to Konkan Railway Corporation Ltd - the transaction in question is finance lease and not operating lease. - no depreciation on asset will be allowed – Rental income from the lease will not be considered as income of the assessee for the income tax purpose and only the finance interest portion will be considered as income of the Assessee. - AT
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• Assessment Proceedings Invalid for Companies Dissolved u/s 560 of Companies Act, 1956, Even with Participation.

  Case-Laws - AT : Validity of assessment proceedings - Assessment on Amalgamated company - Assessment on a company which has been dissolved and struck off the register of companies u/s 560 of the Companies Act,1956, is invalid, even though the company participated in assessment proceedings - AT
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• Penalty Deleted for Non-Declaration of Long-Term Capital Gains After Petition u/s 273A of Income Tax Act.

  Case-Laws - AT : Penalty u/s 271(1)(c) - Application for reduction of penalty u/s 273A - long term capital gain was not declared in the regular return of income by these assessees and the same was declared along with petition filed by the assessee under section 273A of the I.T.Act. - Penalty deleted - AT
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• Assessing Officer's addition u/s 2(22)(e) reversed; running current account debit balance not deemed dividend.

  Case-Laws - AT : Deemed dividend u/s 2(22)(e) - A.O. made addition on account of debit balance of account - the account is clearly in the nature of a running current account and merely because for a few days there was a debit balance of it cannot be said that such debit balance was either loan or advance by M/s Daisy Motors Pvt. Ltd. to the assessee - AT
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• Tax Officer Can Disallow Expenses If Taxpayer Fails to Provide Sufficient Proof of Claims.

  Case-Laws - AT : Assessing Officer has every right to look into the genuineness of expenses claimed by the assessee and in the absence of non production or inadequate documentary evidence in support of expenses claimed can disallow a part of expenses after recording finding of facts. - AT
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Customs

• Goods Must Physically Leave India for Export Clearance u/s 51; Examination Required Per Section 17(2.

  Case-Laws - HC : Clearance of the Goods for exportation as per Section 51 - The goods did not go outside the territory of India, it could not be said that there could have been any export of the goods before examination and testing of the goods as provided in Section 17(2) of the Act - The procedures prescribed make it clear that examination of the goods was sine qua non for the clearance of the goods - HC
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• Duty Remission Approved for Genuine Goods Shortage u/s 23 of Customs Act 1962 Due to Natural Causes.

  Case-Laws - AT : Remission of Duty - Shortage of Goods - Section 23 of the Customs Act, 1962 - shortage was genuine and did not occur due to negligence, such losses occurred due to natural causes like the nature of the goods being susceptible to moisture, weigh-bridge difference and handling loss due to loading and unloading of the materials at both ends - remission allowed - AT
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• Delay in Export Proceeds Not a Sham; Assessee Rightfully Claims 22% DEPB Credit on FOB Value.

  Case-Laws - AT : Merely because there had been a delay in the realization of export proceeds the Department’s conclusion that the entire transaction was a sham one had no basis and had to be rejected totally - DEPB credit claimed @22% of the FOB value by the assesse was rightly entitled - AT
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• Importer Liable for Duty Due to Shortage in Goods Under Notification No. 25/99 and Concessional Duty Rule.

  Case-Laws - AT : Benefit of Notification No.25/99 - Duty liability for shortage of the quantity imported by availing the benefit of Notification No. 25/99(Cus) read with Customs (Import of Goods on Concessional Rate of Duty for Manufacture of Excisable Goods) Rule - demand confirmed. - AT
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• Confiscation of Over-Valued Rough Diamonds Upheld to Prevent Undue Repatriation of Foreign Currency.

  Case-Laws - AT : Import of low quality rough diamonds - prohibited goods - the extent of over-valuation which if allowed would have resulted in repatriation of foreign currency itself would show that this was a case where no lenient view was called for - Therefore the decision to absolutely confiscate the rough diamonds under seizure had to be upheld - AT
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FEMA

• Returning Resident Challenges SBI on NRI Banking Benefits; Regulation A.15 of Foreign Exchange Manual Under Scrutiny.

  Case-Laws - HC : Whether the petitioner, who returned to India after six (6) years from Saudi Arabia, ought to have been granted the same facilities qua his bank accounts maintained with State bank of India (SBI), which are available to a Non-Resident Indian (NRI) - Regulation A.15 of the Foreign Exchange Manual would be applicable to the petitioner. - HC
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Corporate Law

• Court Rules Workmen's Input Not Required at First Motion of Winding-Up Petition Under Companies Act 1956.

  Case-Laws - HC : Recall of Order - Creditor’s Winding-up Petition u/s 433(e)/434(1)(a)/439 of the Companies Act, 1956 – It was not obligatory for the court to hear the workmen at the first motion stage, for which there was no provision in the Act or the Rules and that the concerns of the workmen may be addressed at the meeting of the secured creditors or at the second motion stage - HC
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Indian Laws

• High Court Rules Vigilance Manual Must Be Public Under RTI Act, Ensuring Transparency in DVAC Operations.

  Case-Laws - HC : Application under RTI Act – Vigilance Manual of the Directorate of Vigilance and Anti-Corruption (DVAC) - Respondent was entitled to have the manual of the DVAC - The manual cannot be kept as a secret document - It was nothing but a set of rules as to how the DVAC was functioning - HC
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Service Tax

• Service Provider Entitled to Full Cenvat Credit Despite Withheld Payment u/r 4(7) in Service Tax Case.

  Case-Laws - AT : Cenvat credit of service tax - Rule 4(7) - Proportionate credit equal to amount received - certain amount withheld by the recipient of services while making payment to service provider - service tax has been paid by the service provider on the full invoice value, even though certain amount was withheld - Rule 4(7) not applicable - full credit allowed - AT
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• High Court Confirms Tribunal's Authority to Require Deposit Before Remand u/s 35C for Case Reconsideration.

  Case-Laws - HC : Whether in exercise of powers u/s 35C of the Act and while remanding the matter back to the original adjudicating authority, the Appellate Tribunal can issue direction directing the assesse to deposit some amount before his case was considered on merits by the original adjudicating authority on remand - Held yes - HC
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• Railways Excluded from Commercial Construction Services u/s 65(30a)(b), No Service Tax on DMRC Operations.

  Case-Laws - AT : Commercial or Industrial Construction Service u/s 65(30a)(b) - In view of the specific exclusion of ‘railways' from commercial and industrial construction service - the question of imposing any Service Tax on the railways run by the DMRC does not arise at all - AT
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• Court Examines Taxation on Club's Holiday Services and Non-Member Room Rentals; Partial Stay Granted Pending Review.

  Case-Laws - AT : Club or Association Services - holiday and leisure service - collection of room rental from non-members - Interest of installment sales – prima facie case against the assessee - stay granted partly - AT
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• Magazines Exempt from Service Tax on Ad Space Sales u/s 65(105)(zzzm); Court Grants Stay on Payment.

  Case-Laws - AT : Sale of space or time for advertisement section 65(105) (zzzm) – Whether magazine is a print media are not liable to pay any Service Tax - stay granted - AT
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• CENVAT Credit u/r 6(3): Improper Credit on Input Services for Trading and Leasing Activities Needs Further Examination.

  Case-Laws - AT : CENVAT credit - Rule 6(3) - trading activity - leasing services - trading was not either the most reasonable conclusion was that credit could not have been taken at all – the issue as to whether any credit has been taken on any of the input service attributable to the impugned incomes needs to be examined - stay granted partly - AT
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Central Excise

• Explosives for blasting limestone in mines qualify for MODVAT credit, even if used outside factory premises.

  Case-Laws - HC : Explosives as Inputs – Eligibility for MODVAT - Whether the Explosives used in mines for blasting lime stone can be considered as inputs eligible for credit - MODVAT cannot be denied on the ground that they were not used as inputs within factory - HC
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• Re-testing of goods allowed despite previous clear reports from recognized labs; impacts Central Excise classification.

  Case-Laws - HC : Classification of Goods - Re-testing of Goods - The application may not be rejected on the ground that the testing was done by Government recognized independent labs, and that the test reports are clear and complete - HC
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VAT

• Section 19(11) TNVAT Act Upheld: Input Tax Credit Must Be Claimed by Financial Year-End or Within 90 Days.

  Case-Laws - HC : Section 19(11) of TNVAT was a valid piece of legislation, cannot be struck down as being either unreasonable or discriminatory and violative of Article 265 and 360A of the Constitution of India – The Legislature consciously enacted Section 19(11) of TN VAT Act with avowed object of incorporating the time frame for availing Input Tax Credit before the end of financial year or ninety days from the date of purchase whichever is later - HC
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Case Laws:

• Income Tax

• 2013 (8) TMI 533
  Business income or Capital gains - Gain on realization of Shares and mutual funds - Held that:- assessee has maintained two separate accounts and has classified his acquisition of share investments under two heads. It is very pertinent to note that in the case of the assessee, sale of shares under the head 'investment' has always been considered as capital gain in the earlier years, which is evident from the fact that the same has been accepted by the Assessing Officer in scrutiny proceedings right from assessment year 2002-2003 to 2005-2006. Not only the assessee has followed this consistent approach with regard to the treatment of shares one as investments and other as stock in trade separately, but the same has also been consistently allowed by the Department - there is no bar for an assessee to maintain two separate portfolios i.e. one in relation to investment in shares and other relating to business activities involved in dealing of shares - It is also noticed that, in the case of assessee, under the head 'short term capital gains' most of the shares have been held for a period of more than three months and six months and there are no intra-day transactions of shares under this head - on the shares held as investment by the assessee, the income arising on sale of such shares is assessable under the head 'long term capital gain' and 'short term capital gain' and not 'business income' as held by AO and CIT(A) - Following decision of The Commissioner of Income Tax Versus Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] - Decided in favour of assessee.

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• 2013 (8) TMI 525
  Depreciation u/s 32 of the Income Tax Act – Plant ready for used but not used in actual due to unavailability of raw-material – Held that:- Relying upon the judgment in the case of Whittle Anderson Ltd Vs. Commissioner of Income Tax, Bombay City I [1968 (12) TMI 27 - BOMBAY High Court]; CIT Vs. Vayithiri Plantations Ltd [1980 (1) TMI 27 - MADRAS High Court], it was held that deprecialtion u/s 32(1) of the Income Tax Act will be allowed – Reliance is also placed upon the decision in the case of Liquidators of Pursa Ltd Vs CIT [1954 (2) TMI 1 - SUPREME Court], wherein it was held that so long as the business was going and the machinery got ready for use but due to certain extraneous circumstances, the machinery could not be put to use, the said fact could not stand in the way of granting relief under Section 32 of the Act – Decided against the Revenue.

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• 2013 (8) TMI 524
  Special audit u/s 142(2A) of the Income Tax Act – On the ground of complexity of accounts - The assessee has submitted copy of ledger account in 5 volumes but supporting vouchers of receipts and payment has not been submitted on the ground that there are voluminous records - In view of the petitioner's audit report that the accounts of the petitioner is not complex or the special audit report has been called for either just for extension of time to complete the assessment or otherwise – Held that:- In absence of vouchers, the correctness of state of affairs could not be verified and looking to the complexities and enormity and assessee's inability to substantiate its income and expenditure by producing supporting vouchers, it is in the interest of revenue, justice and fair play to make a reference u/s 142 (2A) of the Act to get the accounts of the assessee audited – Decided against the Assessee.

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• 2013 (8) TMI 523
  Re-opening of assessment - Challenge to the notice u/s 148 - SAP Implementation charges claimed as Revenue expenditure in P&L A/c – Held that:- SAP Implementation charges in question was never treated as revenue expenditure, clubbing with Administrative expenses - Return and other accompanying documents were brought on record during the assessment proceedings - One such document happens to be the schedule of administrative expenses at Annexure-II, which includes the said sum of Rs.86.17 lac as a part of 'Capital Work in Progress' – In face of such documents on record, the first ground is held to be factually incorrect - When the expenditure itself was never claimed by way of revenue expenditure, the question of disallowing such an expenditure on such basis requiring of reopening of assessment would not arise – Decided in favor of Assessee. Disallowance u/s 14A of the Income Tax Act of proportionate expenditure for earning the tax free income - Petitioner who had earned tax free dividend income should have been subjected to disallowance of proportionate expenditure for earning such income on the basis of the formula provided in Rule 8D of the Income-tax Rules, 1962 - This claim for disallowance u/s 14 A was examined at length and in the assessment order through a speaking order, part disallowance was made – Held that:- Question of disallowance of expenditure or part thereof under Section 14A of the Act for earning exempt income was very much alive before the Assessing Officer during the original assessment proceedings - Entire issue was scrutinised by the Assessing Officer during the original assessment proceedings. It is only upon consideration of the said aspect, assessing officer has made disallowance to the limited extent of Rs.2,11,316/-. Even within a period of four years such assessment cannot be reopened. Any permission to the Assessing Officer to do so would amount to permitting change of opinion - To correct the assessment order passed after a detailed examination by the Assessing Officer, the succeeding Assessing Officer cannot resort to the proceedings of reopening – Notice quashed. - Decided in favor of Assessee.

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• 2013 (8) TMI 522
  Expenses not allowed for non-deduction of TDS u/s 40(a)(ia) - Assessee is a partnership firm and is an agent of M/s Maruti Udyog Ltd. and its business is sales, servicing and managing a workshop for maintenance of vehicle - Assessee had incurred an expenditure of Rs.29,70,172/- and Rs.11,31.388/- under the heads denting and painting expenses and free service charges - No TDS was deducted against denting and painting expenses and free service charges payments – Held that:- Relying upon the judgment in the case of Hero MotoCorp. Ltd. Vs. Addl. CIT in ITA No. 1980/D/2012, it is held that dealer has not rendered technical services as contemplated u/s 194J to the assessee for which the assessee paid a particular amount to the dealer and non-deduction of tax at sources on such payments does not attracts disallowance u/s 40(a) (ia) – Provisions of 194J are not applicable. Regarding applicability to section 194C – Held that:- Individual payments were not exceeding Rs.50,000/- and, therefore, provisions of section 194C are also not applicable – Decided against the Revenue.

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• 2013 (8) TMI 521
  Unexplained investment under section 69 of the Income Tax Act – Claimed by assessee that cash balance of Rs.9,49,500 was available as on 31-03-2003; therefore, sufficient cash balance is available with the assessee for making a deposit of Rs.99,052 in the personal account of the assessee maintained with SBT - Assessing officer has not examined the availability of the cash balance as on 31-03-2003 – Held that:- Since the assessee has filed details of transactions and claims that sufficient funds are available, this Tribunal is of the considered opinion that the details filed by the assessee needs to be examined by the assessing officer – Matter remanded back to the Assessing officer. Addition as income from other sources - Selling of trees which were grown spontaneously for which there is no cost of acquisition - Sale consideration received on sale of the trees which were grown spontaneously without any human aid – Held that:- Trees were grown spontaneously in the property purchased in the year 2001 - As per judgment in the case of Suman Tea & Plywood Industries (P) Ltd [1997 (3) TMI 81 - CALCUTTA High Court], wherein it has been held that sale of trees grown spontaneously as not taxable - Receipt on sale of trees grown spontaneously has to be treated as capital in nature and since there is no cost of acquisition, it cannot be assessed as taxable income - Calcutta High Court judgment in the case of Suman Tea & Plywood Industries (P) Ltd (supra) may be squarely applicable to the facts of the case – Therefore, sale of trees grown spontaneously has to be treated as capital in nature and since there is no cost of acquisition, it is not liable for taxation. Estimation of agricultural income - The copies of the data said to be collected from the Agricultural Officer is not available on record. Details regarding varieties of banana cultivated are also not on record – Held that:- In the absence of the details of varieties of banana cultivation on the land, it is not known how the Agricultural Officer was able to provide the data. The price of each variety of banana would depend upon the prevailing market rate during the relevant assessment year. Moreover, when the assessee claims that he is maintaining the books of account for cultivation, without finding fault with the books of account maintained for cultivation, estimation of agricultural income may not be justified. Therefore, if at all there was any defect in the books of account, it is for the assessing officer to reject the same after examination and thereafter resort to estimation, if required. But without examining the books of account, solely on the basis of the data collected from the Agricultural Officer, the profit cannot be estimated. Accordingly, the matter needs to be re- considered. Hence, the issue is remitted back to the file of the assessing officer.

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• 2013 (8) TMI 520
  Deferred Payment Guarantee Commission chargeable to tax - Assessee is a banking company - The assessee is following the mercantile system of accounting and there from, income is eligible to tax upon accrual - The assessee receives the commission for the entire period of the debt repayment that it guarantees at the time when the guarantee agreement is entered into – Held that:- The right to receive commission for the un-expired period of the guarantee became perfected and crystallized only with the expiry of the unexpired period - Accordingly, the right to receive commission for the unexpired period of the guarantee became perfected and crystallized only with the expiry of the unexpired period and income from deferred guarantee commission did not accrue or arose in the relevant Assessment year, relying upon the decision of the Hon’ble Supreme Court in the case of Madras Industrial Corpn. [1997 (4) TMI 5 - SUPREME Court], which decides the case in favor of Assessee. Disallowance of Staff welfare expenses – Held that:- Tribunal in the earlier A.Y. rejected the claim of the assessee for want of details whereas in the present case the assessee has submitted these details, hence, the decision of the Tribunal in that year is not applicable - Both the Revenue Authorities have treated this expenditure as opposed to the public policy, however, in our view the same cannot be a valid reason for disallowing the expenditure because this aspect does not come within the provisions of I.T. Act, 1961 - It is a matter of corporate policy where policies of this type are framed after due consultation with employees/officers association, hence, it cannot be treated as arbitrary. Further, the officers of the bank do not get any bonus whereas the employees get bonus which can also be treated as arbitrary in the similar manner, if the contentions of the Revenue are accepted - Expenditure incurred by the assessee is allowable as revenue expenditure. Double disallowance of profit tax of Frankfurt office – Held that:- Proper verification is required regarding fact pointed out by the assessee that the provision for profit tax at Frankfurt branch was also part of the provision for foreign tax for all foreign branches of Rs. 32,38,34,950/- and thus there is double disallowance of Rs. 1,40,78,488/- being the profit tax paid by the assessee in respect of Frankfurt Branch. According the AO is directed to verify the point whether there is a double disallowance in this regard and decide the same as per law. Depreciation on lease assets given to Konkan Railway Corporation Ltd - sale and lease back - Finance lease or operating lease - As per the lease agreement the assessee has entered into an operating lease of the asset in question - Asset in question is the railway track which is already owned by the lessee Konkan Railway Corporation Ltd. (KRCL) but because of the requirement of funds the KRCL decided to raise the funds by making the arrangement of sale and lease back of the asset – Held that:- Real object as far as KRCL is concerned for entering into the transaction of sale and lease back is to raise/arrange the funds. The two transaction of sale of the asset in question to the assessee bank and lease back cannot be separated as there was no choice with either of the party to restrict the transaction of sale alone independently because it was neither possible nor permissible to sell out the asset in question by the Konkan Railway Corporation being the integral part of their railway system which is the very basis of the existence of the KRCL - Sale transaction in question is merely on paper and to facilitate the financial arrangement by the assessee to the KRCL without involving any real intention of transfer of the asset in question. In the case in hand the lease is for fix period of 84 months during which the assessee would recover the full value of lease asset with finance cost being interest as agreed between the parties - The risk and reward of ownership of the asset vested with the lessee and therefore for all practical purposes the ownership of the asset was vested with the lessee and not with the assessee - Assessee would recover the investment (cost of asset) with interest and not the asset in question - As per the lease agreement is only for securing the financial interest of the assessee and not intended to really take the asset in its possession on the expiry of lease term or on the termination of the lease agreement - Therefore all the features and attributes of finance lease as discussed by the Special Bench in case of IndusInd Bank [2012 (3) TMI 212 - ITAT MUMBAI] do exist in the case of the assessee – Also, as per RBI Circular No. FSCBC 18/24- 01-001/93-94 dated 14.02.1994 which inter alia deals with equipment leasing do not find any scope for argument that the instant lease agreement be treated as that of operating lease – the transaction in question is finance lease and not operating lease. - Therefore, no depreciation on asset will be allowed – Rental income from the lease will not be considered as income of the assessee for the income tax purpose and only the finance interest portion will be considered as income of the Assessee. Depreciation on matured securities – Held that:- Diminution in the value of securities which had matured and become due for redemption during the year but were not redeemed - There may be some delay on the part of the companies or the State Governments in paying the redemption amount. But, whenever the payment would be made it cannot be expected to be less than the face value - Any liability de futuro is not an ascertained liability in praesenti and cannot be allowed as deduction under the Income-tax Act as held in the case of Indian Molasses Co. Pvt. Ltd. vs. CIT [1959 (5) TMI 5 - SUPREME Court] and Standard Mills Co. Ltd. Vs.CIT [1997 (3) TMI 64 - BOMBAY High Court]. Hence, no such ad hoc deduction could be allowed against the amount receivable on redemption of securities which had matured and become due for payment before the close of the accounting year – Decided against the Assessee. Taxability of recovery of interest credited to Interest Suspense Account - Held that:- the amount recovered during the year out of the interests credited to the suspense account in the earlier year would be taxable. - Decided against the assessee. Loss of revaluation of permanent category investment – Held that:- As per Hon’ble Kerala High Court in the case of Malabar Co-operative Central Bank Ltd. [1973 (10) TMI 23 - KERALA High Court], the banking institution as a part of business activity will have to have ready resources to meet its liability the extent of which could never be foreseen - Security capital employed is a part of normal course of business of a bank and the money which was not lend to the borrower but was invested in the form of deposits in another bank cannot be said to have become ceased to be part of stock in trade of bank - Investment in question very much represented stock in trade of the baking business of the assessee and the loss on the revaluation thereof is allowable as deduction – Decided in favor of Assessee.

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• 2013 (8) TMI 519
  PF and ESIC contribution - Addition made on account of delayed payment - CIT deleted addition - Held that:- if the amount is paid before filing the return under Section 139(1) then no disallowance can be made - If the amount is paid within the grace period then the amount needs to be treated paid in time - Following decision of CIT Vs. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] - Decided against Revenue. Reopening of assessment - Addition on account of depreciation - Held that:- reasons have been recorded on the basis of contents of balance sheet filed along with return of income. The assessment in this case was completed under Section 143(3) on 28-1- 2006 and the return was filed on 25-11-2003 originally. The case of the assessee does not fall under the exception clause provided under section 147(a), where the assessment can be reopened after four years, if the AO found that the assessee has not disclosed all the particulars of income completely and truly - This is not a case of the AO that the assessee has not disclosed fully and truly all materials facts in respect of income earned during the year - While computing the assessment, the block of assessment cannot be segregated - Following decision of Hindustan Lever Limited Vs. ACIT [2004 (2) TMI 41 - BOMBAY High Court] - Decided against Revenue.

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• 2013 (8) TMI 518
  Disallowance of interest expenditure - CIT upheld proportionate interest - Held that:- Assessee has granted interest free loan to a related party - there was sufficient fund available with the company in the form of reserves and surplus. Further nothing has been brought on record by Revenue to prove that interest bearing loans taken by the Assessee for the purpose of own business has been diverted for non business purposes or for lending to related party - No direct nexus has been proved either by Assessing Officer or by CIT(A) between the interest bearing loans taken and the interest free loans granted - If there are funds available both interest free and over draft and or loans taken than a presumption would arise that investment would be out of interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investment - No disallowance can be made - Following decision of CIT vs. Raghuvir Synthetics [2013 (7) TMI 806 - GUJARAT HIGH COURT] - Decided in favour of assessee.

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• 2013 (8) TMI 517
  Validity of assessment proceedings - Assessment on Amalgamated company - CIT quashed assessment proceeding - Held that:- assessee had amalgamated with another company and assessee had participated in assessment proceedings - Proceedings in this case was initiated by virtue of search and seizure operation - Assessment on a company which has been dissolved and struck off the register of companies u/s 560 of the Companies Act,1956, is invalid, even though the company participated in assessment proceedings- There is no provision in the IT Act to make assessment on a dissolved company-it is not a case of discontinuance of business so as to attract section 176 nor does Section 159 cure the lacuna - Following decision of IMPSAT (Pvt.) Ltd. vs ITO ITAT, Delhi 'A' Bench [2004 (7) TMI 299 - ITAT DELHI-A] - Decided against Revenue.

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• 2013 (8) TMI 516
  Penalty u/s 271(1)(c) - Application for reduction of penalty u/s 273A - Long term capital gain - Sale of ancestral property - CIT upheld penalty - Held that:- it is seen that the penalty was deleted by the Tribunal in the case of late Harshadrai Contractor, i.e. father of these two assessees, and also in the case of Shri Balvantrai S. Contractor, uncle of these two assessees, who was co- owner of this land having 73% right of ownership. - long term capital gain was not declared in the regular return of income by these assessees and the same was declared along with petition filed by the assessee under section 273A of the I.T.Act. Following decision of Late Harshadrai Contractor Through L/H. Paresh Contractor v. Income-Tax Officer [2013 (7) TMI 823 - ITAT AHMEDABAD] - Decided in favour of assessee.

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• 2013 (8) TMI 515
  Penalty u/s 271(1)(c) - Confirmation not filed - CIT reduced penalty - Held that:- Assessee had furnished stock register to show the day-to-day purchase and sale of goods - addition made by the AO and reduced by the appellate authorities was on estimation basis - Following decision of M/s.Rolex Tin Works Vs. ITO [2013 (7) TMI 824 - ITAT AHMEDABAD] - Decided in favour of assessee.

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• 2013 (8) TMI 514
  Deemed dividend u/s 2(22)(e) - A.O. made addition on account of debit balance of account - Held that:- there was opening credit balance, then debit balance occurred due to certain payments made by M/s Daisy Motors Pvt. Ltd. to the assessee in the month of April and July. Thereafter, from July 2005 to 22nd March, 2006, there was a credit balance and again on 30th March, 2006, there was a debit balance - From the copy of account, it is evident that the assessee also made purchase of ten vehicles. Thus, the account is clearly in the nature of a running current account and merely because for a few days there was a debit balance of it cannot be said that such debit balance was either loan or advance by M/s Daisy Motors Pvt. Ltd. to the assessee - Following decision of CIT Vs. Creative Dyeing and Printing P.Ltd. [2009 (9) TMI 43 - DELHI HIGH COURT] and CIT Vs. Ambassador Travels P.Ltd. [2008 (4) TMI 428 - DELHI HIGH COURT] - Decided in favour of Assessee. Unexplained expenditure - Household expenses - Held that:- considering the size of the assessee's family and the status of the assessee, the estimate of household expenditure of Rs. 30,000/- per month is quite fair and reasonable - while considering the household expenditure, withdrawal by the assessee's wife should also have been considered - Addition on account of unexplained expenditure reduced - Decided against Assessee.

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• 2013 (8) TMI 513
  Capital receipt or Revenue receipt - Entertainment tax subsidy - CIT held it as capital receipt - Held that:- Ld. CIT (A) in the year before us, has deleted the disallowance by observing that similar additions for Assessment Year 2006-07 and 2007-08 were deleted by the CIT (A) by referring to, inter alia, 'Ponni Sugar' (2008 (9) TMI 14 - SUPREME COURT) and that the facts and circumstances in the years under consideration were similar to those in the earlier years. This has not been disputed - Decided against Revenue. Capitalization of advertisement expenses - enduring nature - CIT deleted the addition on account of capitalization of advertisement expenses - Held that:- Ld. CIT (A) has deleted the addition on merits and it is therefore, that he has not gone into the alternative issue raised by the assessee. - Decided against Revenue.

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• 2013 (8) TMI 512
  Rejection of books of accounts - A.O. made addition on various grounds rejecting books of accounts - CIT deleted addition - Held that:- assessment order of 2005-06 & 2006-07 and from the assessment order under consideration find that the Assessing Officer has rejected the books of accounts by holding similar findings and has not brought out any defect in the books of accounts. The Assessing Officer has rejected the books of accounts and made addition on account of suppression of production on the basis of assumption only - There is discrepancy in the submissions of assessee regarding increase in prices of raw material and decrease in prices of finished goods. He did not point out any defect in the stock register or in the prices of raw material and finished goods as claimed by the assessee - Decided against Revenue. Disallowance of freight, octroi and cartage expenses - proper vouchers and bills not produced - Held that:- Assessing Officer has every right to look into the genuineness of expenses claimed by the assessee and in the absence of non production or inadequate documentary evidence in support of expenses claimed can disallow a part of expenses after recording finding of facts. He has every right to call for explanation and in view of non explanation he is empowered to make reasonable disallowance keeping in view the facts and circumstances of each case - Assessing Officer is directed to obtain the vouchers/bills of these expenses and ascertain the genuineness of the same and disallow amounts under these heads if any on a reasonable and authentic basis - Decided in favour of Revenue.

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• Customs

• 2013 (8) TMI 510
  Clearance of the Goods for exportation as per Section 51 - dispute was with respect to the goods presented for the purpose of clearance, physical verification of the goods as envisaged u/s 51 of the Customs Act - Held that:- The goods were not “examined” by the Customs Authorities - The examination of the goods had not taken place and there was no final clearance - Only endorsement was made subject to the examination of the goods - That could not be said to be authorizing the export after the lapse of the validity of the EARCs - the Customs Authorities were right in not clearing the goods for the purpose of export as the goods had not been examined exported within the validity period of the Export Authorization Registration Certifications - the validity of which stood expired and thereafter there could not have been any export made under those EARCs. The provisions of Sections 50 and 51 of the Act were determinative of time when the process of export commences and when the goods were loaded into the ship after clearance by the proper officer - they must be treated as having been exported so far as the exporter was concerned. The clearance had to be made after goods were physically verified as provided in Customs Manual Chapter 3(II) 40 to 245 - The goods did not go outside the territory of India, it could not be said that there could have been any export of the goods before examination and testing of the goods as provided in Section 17(2) of the Act - Thus export was not complete by presentation of paper of bill of export - The procedures prescribed make it clear that examination of the goods was sine qua non for the clearance of the goods – Decided in favor of revenue.

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• 2013 (8) TMI 509
  Remission of Duty - Shortage of Goods - Section 23 of the Customs Act, 1962 - Assesse had imported a consignment of Chinese Metallurgical Coke and cleared the goods for re-warehousing on the provisionally assessed warehousing bills of entry for the purpose of manufacture of Charge Chrome in their factory - Section 23 of the Customs Act, 1962 was to be extended also to the assesse in case of Transit loss during the transfer of goods from one warehouse to another - Held that:- Revenue had not been able to make out a case for not allowing the remission in case of the genuine loss occurred due to natural causes in the process of warehousing/re-warehousing of the goods – relying upon IOC vs. Collector of Customs, Bombay [1985 (5) TMI 62 - CEGAT, NEW DELHI] and Bharat Petroleum Corporation Ltd. vs. Collector of Customs, Bombay [1983 (7) TMI 195 - CEGAT, BOMBAY]. The Deputy Commissioner dropped the demand on the ground that loss was only to the extent of 1.13%, the goods were highly susceptible to moisture variation and therefore, the shortage was genuine - there was no allegation of theft, pilferage or clandestine removal - He accordingly granted remission of duty on lost, destroyed or abandoned goods under Section 23(1) of the Customs Act, 1962 – the shortage was genuine and did not occur due to negligence, such losses occurred due to natural causes like the nature of the goods being susceptible to moisture, weigh-bridge difference and handling loss due to loading and unloading of the materials at both ends - There was no warrant of demand of duty from them - the Appeal of the Revenue was dismissed and the Order passed by the Commissioner (Appeals) is upheld – Decided against revenue.

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• 2013 (8) TMI 508
  DEPB - Over invoicing - Revision of PMV (Present Market Value) and FOB value – Confiscation of goods u/s 113(d) – Penalty u/s 114 - notice was issued u/s 124 r.w Section 113 alleging misdeclaration of material facts and value of the goods exported - Whether there had been overvaluation of the consignments of steel balls exported by the assesse during the period for the purpose of obtaining higher DEPB credit than eligible – Held that:- FOB values and the PMV declared by the assesse in the shipping bills under which they had undertaken the export were correct and valid in law – The PMV cannot be challenged by going into the cost of manufacture - The burden to prove that PMV was inflated one was on the Department which had not been discharged - Revenue had not succeeded in making out a case against the assesse as the PMV declared was not more than 150% of AR-4 value - during the material period the Department allowed export of goods by other exporters under DEPB Scheme at much higher FOB values than what had been declared by the assesse and the details of the transactions were available with the Department for cross-checking. Additional evidence cannot be allowed to be submitted and considered at the appellate stage - the delay was almost 10 years after the issue of show-cause notice - the request of the Department was very strange and quite unconvincing – Request for filing additional evidence at this stage since it appears to be only a ploy to delay the case further could not be accepted - the present market value arrived at by the assesse were within permissible limits – assesse had realized the full export proceeds through proper banking channels and within the extended period granted by the Reserve Bank of India - Merely because there had been a delay in the realization of export proceeds the Department’s conclusion that the entire transaction was a sham one had no basis and had to be rejected totally - DEPB credit claimed @22% of the FOB value by the assesse was rightly entitled – order set aside – penalty Set aside – Decided in favor of assesse.

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• 2013 (8) TMI 507
  Benefit of Notification No.25/99 - Duty liability for shortage of the quantity imported by availing the benefit of Notification No. 25/99(Cus) read with Customs (Import of Goods on Concessional Rate of Duty for Manufacture of Excisable Goods) Rules - Held that:- The findings recorded by the adjudicating authority for confirming the demand were correct upheld - the assesse was not able to prove the case - As per the said Customs Rules, it was mandated that the appellant should and maintain the stock registers of the goods imported at concessional rate of duty for the use in his factory – In the absence of any such evidence that the said short found quantity was in fact used by the appellant in his factory premises for the purpose of manufacture – Decided against assesse. Penalty u/s 112(a) – Held that:- Managing Partner needed to be penalized for his activity - penalty imposed by the adjudicating authority u/s 112(a) was reduced to half - As the penalty was not proportionate to the demand of the duty which had been confirmed - the person who was looking after the day-to-day affairs of the company should have been more diligent to check and counter¬check the stock position in his factory premises - Due to the non-effective supervision there was a shortage which were imported under concessional rate of duty – decided partly in favor of assesse. Valuation - Transaction value, rejection on suspicion that same underdeclared - Misdeclaration of goods – following the judgement of Crystal Dot Scan Pvt. Ltd. v. CC&CE, Hyderabad-II [2010 (7) TMI 708 - CESTAT, BANGALORE] - Held that:- if value declared is rejected, Revenue should establish with details of contemporaneous imports of such or similar goods, that the price declared is not correct transaction value and the value has to be determined under CVR - Commissioner did not reject the transaction value for valid reasons in the absence of contemporaneous imports of comparable CTP machines at higher prices. - the revision of price, demand of differential duty and interest, confiscation of the impugned machine on the ground that the importer had mis-declared its value and consequent penalties were not sustainable – Decided against revenue.

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• 2013 (8) TMI 506
  Import of low quality rough diamonds - prohibited goods - Misdeclaration of Value – Overvaluation – Confiscation of goods – Penalties Imposed - Revenue was of the view that the value of the rough diamonds was misdeclared and the value declared was highly exaggerated – Whether the over-invoicing as claimed by the department was to be upheld and whether the value revised as per the provisions of Section 14 of Customs Act, 1962 – Held that:- The transaction value cannot to be accepted until and unless it was shown by some contemporaneous evidence that the price declared in the invoice was not the correct price - the department had shown from the contemporaneous evidence that the invoices were either fabricated or fake or that any relationship existed between the importer and the exporter – sufficient evidence had been gathered to show that the price was inflated. Liability of consignments to confiscation Whether the consignments of rough diamonds were liable for absolute confiscation u/s 111(d) and 111(m) of the Customs Act, 1962 – Held that:- The value had been misdeclared and therefore the value declared had to be rejected - We have also taken note of the provisions of the Section 111(d) of Customs Act, 1962 and have already noticed that goods were to be treated as the ones which were prohibited for import under the Exim Policy - Therefore the goods were liable to confiscation u/s 111(d) of Customs Act, 1962. Absolute Confiscation - Whether absolute confiscation was warranted in the case –Held that:- It was not only that the parties concerned had attempted to import rough diamonds at highly exaggerated value but also they attempted to manipulate the records and mislead the department that there was a mistake in preparation of invoice – The extent of over-invoicing was so high that the actual value of the goods was found to be 3.56% of the actual – It would not be fair on to consider the past activity for the purpose of deciding whether goods have to be absolutely confiscated or not - Om Prakash Bhatia v. CC, Delhi [2003 (7) TMI 74 - SUPREME COURT OF INDIA] - the rough diamonds had to be held as prohibited under the law - But the extent of over-valuation which if allowed would have resulted in repatriation of foreign currency itself would show that this was a case where no lenient view was called for - Therefore the decision to absolutely confiscate the rough diamonds under seizure had to be upheld - reduction of value of rough diamonds imported and the revised value determined by the Commissioner was upheld - the order of absolute confiscation u/s 111(d) of Customs Act, 1962 was also upheld. Whether all the assesses were liable to penalty u/s 112(a) of the Customs Act, 1962 - Held that:- As the values of the goods to be imported was highly inflated and the same was also proved beyond doubt - thus Penalties were also imposed u/s 112(a) of Customs Act – Decided against assesses.

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• Corporate Laws

• 2013 (8) TMI 505
  Recall of Order - Creditor’s Winding-up Petition u/s 433(e)/434(1)(a)/439 of the Companies Act, 1956 – Held that:- No case had been made out for recall of the order passed - The present application was frivolous and ill-advised - It was not obligatory for the court to hear the workmen at the first motion stage, for which there was no provision in the Act or the Rules and that the concerns of the workmen may be addressed at the meeting of the secured creditors or at the second motion stage Nature of Transfer - Whether there was a real transfer of shares in favour of P.C. Sen or the transaction was sham – Held that:- The transaction of transfer of shares to P.C. Sen was not a sham and was not made with a view to benefit him at the cost of the workmen and the creditors of SBL or was a fraudulent transaction with ulterior motives - The words “utilize this property” were not capable of conveying any sinister motive - In any case, since P.C. Sen was the sponsor of the scheme, there was nothing wrong if he wanted to “utilise this property”, by which was meant a profitable use of the assets of the company, unless one was inclined to hold the view that utilisation of property by a businessman for profits was proscribed - No objection was taken at any time to the transfer of shares in favour of P.C. Sen, on the ground of non-existence or non-execution of the transfer deed - It was not disputed that this much shares constituted the majority. Bar of Proceedings u/s 22 - Whether the pendency of BIFR proceedings a bar on the present proceedings before the Court – Held that:- Since no proceedings had been shown to be pending under SICA before the BIFR, the argument based on section 22 of SICA need not be examined - No other papers were filed to show that the factual position was different from what was shown in the status report; it was the duty of the applicant, having raised a vehement objection on this ground, to back it up and demonstrate how section 22 of SICA would apply to the present proceedings. Concealment of Facts - Whether the propounder of the revival scheme guilty of concealment of material facts - P.C. Sen had made a public offer to purchase shares in accordance with the SEBI rules and had also received 58 written offers through which he acquired 25,237 shares of SBL which were duly registered in his name - As regards the non-filing of the directors’ report with the balance sheet, at worst it may amount to an irregularity inviting some action by the ROC. It has no impact beyond that on the present proceedings – Application Dismissed.

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• FEMA

• 2013 (8) TMI 511
  Status of the Petitioner - Whether the petitioner, who returned to India after six (6) years from Saudi Arabia, ought to have been granted the same facilities qua his bank accounts maintained with State bank of India (SBI), which are available to a Non-Resident Indian (NRI) - Held that:- Under Regulation A.15 the NRE account of the petitioner had to be re-designated as 'Resident Account' - accounts of NRIs should be redesignated as resident accounts immediately upon the return of the account holder to India if authorized dealer is satisfied that he has returned to India for taking up employment or carrying on a business or vocation for for any other purpose with the intention of residing in India – Where account holder is only on a short visit to India, the account may continue to be treated as Non-resident (External) account even during his stay in this country – The petitioner quite clearly indicated that, since he had returned to India, his status be changed to that of a "Resident". In order to ascertain intention, what is required to be seen is the conduct of the person and the surrounding circumstances - it cannot be said that the respondents had not, correctly, concluded that the petitioner intended to stay in India for an uncertain period and thus, consequently, fell within the rigour of Section 2(p)(ii)(c) of FERA - Regulation A.15 of the Foreign Exchange Manual would be applicable to the petitioner.

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• Service Tax

• 2013 (8) TMI 531
  Power u/s 35 – Remand of Matter – Direction to Deposit - Whether in exercise of powers u/s 35C of the Act and while remanding the matter back to the original adjudicating authority, the Appellate Tribunal can issue direction directing the assesse to deposit some amount before his case was considered on merits by the original adjudicating authority on remand - Held that:- No error and/or illegality has been committed by the Appellate Tribunal issuing the direction while remanding the matter back to the original adjudicating authority - There was no bar u/s 35C of the Central Excise Act, 1944 that while referring the case back to the original authority, the Tribunal cannot impose any condition and/or issue any direction of deposit of some amount before any fresh adjudication on remand and it was held that while remanding the case back to the original authority in exercise of powers u/s 35C Appellate Tribunal may issue any direction as it deems fit which can be inclusive of deposit of some amount. It had become necessary to ensure that the assesse cooperated with the Department and in the facts and circumstances of the case, appellant/assessee be required to deposit amount of Rs. 50 lakh - it was required to be noted that the petitioners have never pleaded any financial difficulty/crunch - no error and/or illegality has been committed by the Appellate Tribunal issuing the direction while remanding the matter back to the original adjudicating authority, directing the petitioner assessee to deposit a sum of Rs. 50 lakh, which calls for interference of this Court in exercise of powers under Article 226 of the Constitution of India - Application Dismissed.

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• 2013 (8) TMI 530
  Commercial or Industrial Construction Service u/s 65(30a)(b) - Assesse undertook civil construction of viaduct and stations of Delhi Metro Railway Project - Revenue was of the view that the assesse were liable to discharge service tax on the activity - Held that:- The demand of Service Tax on construction undertaken for Delhi Metro Rail was clearly unsustainable in law – Demand and Penalty was set aside. In view of the specific exclusion of ‘railways' from commercial and industrial construction service - the question of imposing any Service Tax on the railways run by the DMRC does not arise at all - There was no evidence to show that the Government neither examined the matter and came to such a conclusion nor was there any circular or notification issued by the Government in this regard – DOYPACK SYSTEMS (PVT) LTD Versus UNION OF INDIA [1988 (2) TMI 61 - SUPREME COURT OF INDIA]. The definition had no bearing whatsoever and not applicable for interpreting the law as it stood at the relevant time - Revenue relied upon Section 65D(o) in the context of transportation of passengers by various modes such as monorail, tramways, metro rails etc - The definition came into force only w.e.f 01/07/2012 but the demands in the order pertain to the period prior to 01/07/2012 - The exemption also clearly indicated the legislative intent of not taxing construction work pertaining to Railways - Decided in favor of assesse.

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• 2013 (8) TMI 529
  Club or Association Services - holiday and leisure service - collection of room rental from non-members - Interest of installment sales – interest on instalment sales was merely interest on delayed payment of membership fees and same cannot be equated with "interest on loan" as referred in Section 67, Service Tax (Determination of Value) Rules, 2006 and Board circular - Held that:- It was reasonable to pay tax on interest on installment sales - Notification No.4/2006-ST payment of tax on amount of ninety percent of interest was exempted on financial leasing including equipment leasing and hire purchase - service tax was payable on the income earned by the assessee by way of interest/finance charges in relation to the taxable service - obligation to pay membership fees alongwith service tax would be at the time of entry. Income from securitization – Held that:- Income from securitization was an independent transaction between the bank and the applicant company - income from securitization was the excess of consideration received over and above the principal amount of receivables from the members. Room rental - Held that:- It was possible that the members also paid room rentals for overstaying and booking for their guests - the assesse had not placed the details of room rentals - there was a factual dispute on this issue. Waiver of pre deposit – Held that:- Assesse failed to make out a prima facie case for waiver of pre-deposit of entire amount of tax on the major issues namely, "interest on sales" and "room rental" – the figures taken from balance sheet on accrual basis whereas service tax had to be paid on receipt basis – two crores were ordered to be submitted – on such submission rest of the pre deposit of tax penalty and interest to be waived and stay application allowed – stay granted partly.

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• 2013 (8) TMI 528
  Sale of space or time for advertisement section 65(105) (zzzm) – Whether magazine is a print media are not liable to pay any Service Tax - Held that:- The magazine is a newspaper as defined in the law - the transaction is revenue neutral - the appellant could have taken credit of the Service Tax paid on the transaction as promotion or marketing of the goods come within the purview of input services as defined in rule 2(l) of the CENVAT Credit Rules, 2004. Stay application - unconditional waiver of pre-deposit of the dues and stay granted.

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• 2013 (8) TMI 527
  CENVAT credit - Rule 6(3) - trading activity - leasing services - assesse took credit of service tax paid on input services which were common to both taxable services and non-taxable activities - whether the non-taxable part of the interest on loans received by the applicant will get added in either or both of the factors, namely, "E"&"F" as described in Rule 6 3 (b) (iii) - Held that:- Our prima facie interpretation is that hire purchase, loan against leasing and hypothecation are taxable services and the value of these taxable services is only to the extent of amount charged over and above the principal and interest. Of course determining such value can be difficult because there can be a dispute as to what is the interest amount. Calling an amount as "interest" may not by itself be sufficient to legally recognize the amount as interest. The exemption prima facie only says that the service tax calculated on ninety per cent of an amount, forming or representing as interest is exempt. This implies that the value of the service is calculated as 10% of interest charged for levying tax. But the notification does not imply that rest of the interest is value of service. If the value of the service is more than 10% of the interest that amount can be quantified and such factor will enter "F" as part of taxable service. Only such an approach can be consistent with provision in Rule 6 (2) (iv) of Service Tax (Determination of Value) Rules, 2006 and the notification. The activity was the trading activity and Cenvat credit cannot be taken on input services used for such activity – relying upon Association of Leasing & Financial Service Companies Vs. UOI [2010 (10) TMI 4 - SUPREME COURT OF INDIA] - Parliament is competent to charge service tax on leasing services and interest received can be a good measure of the value of service – the order had taken note of the fact that the Union of India was trying to charge tax only on 10% of the interest which was found to be quite a reasonable measure for charging tax. We propose to arrive at the ratio E/F by including 10% of the interest on services like Hire purchase, Leasing and loan in both the factors "E" and "F" and excluding the balance from both the factors. Waiver of pre- deposit - whether the items of income was to be excluded from both the factors “E” and “F” as argued by assessed at this stage or was to be included in both the factors as argued by Revenue – Held that:- Credit can be taking only if it is either a taxable service or an exempted service - trading was not either the most reasonable conclusion was that credit could not have been taken at all – the issue as to whether any credit has been taken on any of the input service attributable to the impugned incomes needs to be examined – pre-deposit ordered partly.

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• 2013 (8) TMI 497
  Cenvat credit of service tax - Rule 4(7) - Proportionate credit equal to amount received - certain amount withheld by the recipient of services while making payment to service provider - Rule 4 (7) of the Cenvat Credit Rules, 2004 states that the Cenvat credit in respect of input services shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable, as is indicated in the invoice, bill or as the case may be, challan referred to in Rule 9 - Held that:- According to the Board’s Circular No. 122/3/2010-ST dated 30/4/10, credit of full service tax paid by a service provider in respect of service provided to a manufacturer would be available to the manufacturer even if the amount payable to the service provider has been reduced, so long as the service tax paid by the service provider has not changed – Decided against the Revenue. Rule 4(7) had been framed to prevent a situation where while on the basis of the invoice issued by a service provider in respect of some service provided or to be provided, the service recipient takes the Cenvat credit, even though the service provider has not paid the service tax for the reason that for some reasons, there is delay in receipt of payment by him from the service recipient. Rule 4 (7) would be applicable only in a situation where though the service provider has issued the invoice, but he has not paid the service tax. But where there is no dispute that service tax has been paid by the service provider on the full invoice value, even though he has not received full payment from the service recipient and part of the payment due to him has been withheld by the service recipient due to some reason, this rule would not be applicable. Moreover, it is also not the department’s case that the amount withheld was never paid or that the service providers subsequently sought and obtained refund of the service tax amount not reimbursed to them by the respondent. When the service tax paid by the service provider has not varied, the Cenvat credit also cannot be reduced. - Full claim of credit allowed - Decided in favor of assessee.

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• Central Excise

• 2013 (8) TMI 504
  Entertainability of the petition – Interlocutory order - Waiver of pre- deposit - Whether the Petition could be entertained under Article 227 of the Constitution of India as the same had been filed against the interlocutory order - The petitioner had filed this writ petition under Article 226/227 of the Constitution of India being aggrieved by the impugned interlocutory order for not allowing dispensing with the requirement of depositing the entire sum made under the proviso of the Central Excise Act – Held that:-The petition being filed against the interlocutory order passed by the appellate authority under its vested discretionary jurisdiction, could not be interfered under the superintending or revisional jurisdiction of this Court and deserves to be dismissed. Discretionary Jurisdiction u/s 35(F) - It was undisputed fact on record that the order had been passed by the appellate authority by virtue of the proviso of Section 35 (F) of the Act under its vested discretionary jurisdiction. Before proceeding to consider the merits of the matter - the interlocutory order had not been found to be improper or contrary to the proviso of Section 35 (F) of the Act and in such premises - there was no perversity, illegality, arbitrariness or anything against the propriety of law in the interlocutory order - the petition was devoid of any merits was dismissed at the stage of motion hearing – Decided against assesse.

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• 2013 (8) TMI 503
  Explosives as Inputs – Eligibility for MODVAT - Whether the Explosives used in mines for blasting lime stone can be considered as inputs eligible for MODVAT in terms of Rule 57A of Central Excise Rules, 1944 -Held that:- The explosives used in mining by blasting limestone can be considered as input eligible for MODVAT credit in terms of Rule 57-A of the Rules – following Jaypee Rewa Cement Vs. Commissioner of Central Excise, M.P. [2001 (8) TMI 1332 - SUPREME COURT OF INDIA ] and Vikram Cement Vs. Commissioner of Central Excise, Indore [2006 (1) TMI 130 - SUPREME COURT OF INDIA]. If the manufacturer of cement was using duty paid explosives for mining limestone and using such limestone to manufacture cement, though the explosives were not brought within the factory, the manufacturer by virtue of rule 57-A read with Rule 57-J was entitled to MODVAT credit in respect of duty paid on the input - the explosives for blasting mines to produce limestone for use in manufacture of cement/clinkers in factory situated at some distance away from mines, MODVAT cannot be denied on the ground that they were not used as inputs within factory – Decided in favor of assesse.

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• 2013 (8) TMI 502
  Principles of Natural Justice - Opportunity to Cross- Examine - Application for Supplying Additional Documents - Confirmed Duty Demand along with Penalty and Interest - Held that:- The order was set aside and request was made to the adjudicating authority to pass a separate order on the assesses’ application/request letter for granting cross examination of the witnesses - it was incumbent upon the Commissioner to decide the request of cross examination of the assesses before finally adjudicating the show cause notice and culminating the proceedings into an order in original – Assesses personally filed an affidavit and it was clearly made out from the contents of such affidavit that the they were awaiting communication from the Commissioner in respect of the request of cross examination made reiteratively - on account of pendency of such a request, the assesses had also not concluded hearing on the merits - Petition was allowed – Decided in favor of assesse.

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• 2013 (8) TMI 501
  Disallowance of Modvat-credit - t part and accessories of the capital goods - HR/MS/GC sheers plates/angles/channels/supporting structure etc. - Held that:- The Adjudicatory Authority had correctly denied the Modvat-credit - The goods in question were neither used for producing nor for processing of any goods or bringing about any change in any substances for the manufacture of final products. Nature of Goods - Whether the Tribunal was justified in holding that HR/MS/GC sheets plates/angles/channel/supporting structure etc. were not part and accessories of the capital goods installed in the factory - When even the Asstt. Commissioner of Central Excise admitted that these goods were used in the machine - Held that:- The items in the present case were not falling within the meaning of capital goods as defined in explanation to Rule 57Q of the Central Excise Rules, 1944. COMMISSIONER OF C. EX., COIMBATORE Versus JAWAHAR MILLS LTD. [2001 (7) TMI 118 - SUPREME COURT OF INDIA] and COMMISSIONER OF C. EX., COIMBATORE Versus JAWAHAR MILLS LTD [2001 (7) TMI 118 - SUPREME COURT OF INDIA] was on the user test, which was in respect of goods in fabrication of chimney was an integral part of the diesel generating plant. The goods in the present case do not fall within the meaning of Explanation 1(a) of Rule 58Q. We also find that Explanation 1(b) of Rule 58Q is not attracted to the goods in the present case inasmuch as ‘capital goods’ in Explanation 1(b) includes components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or applicants used for aforesaid purpose. – Decided against assessee.

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• 2013 (8) TMI 500
  Classification of Goods - Re-testing of Goods - Revenue was of the view that the rubber sheets manufactured by the assesse were classifiable under tariff entry 40082910 - Assesse made a request for re-testing the sample - Held that:- The reasons given for denial of retesting were not relevant -The right of retesting, for which samples were specifically drawn by the department - The instructions issued under the Central Excise Rules 2004 could not be denied to the assesse. The application may not be rejected on the ground that the testing was done by Government recognized independent labs, and that the test reports are clear and complete - Directions were made that samples 'B' or 'C 'may be sent for retesting by the Central Excise Department and in case samples 'B' & 'C' were not available with the department for any reason, sample 'D', given to the manufacturer, may be sent for retesting -In case sample 'D' was not in a condition for testing for any reason, or was not available with the manufacturer, the department may draw fresh samples from the manufacturer in the manner, which was provided for sending it for retesting – Decided in favor of assesse.

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• 2013 (8) TMI 499
  Confiscation under Rule 25(a) of the Central Excise Rules, 2002 - Polyfil quilts manufactured by the job workers M/s Sea Rose Exim (P) Ltd. and M/s Anmol Knitters (P) Ltd. – The said goods cleared to the appellant without payment of duty under Notification No. 30/2004 dated 09/4/04 which is available to the goods falling under Chapter 63 – Held that:- Goods, in question, had been cleared by M/s Sea Rose Exim (P) Ltd. and M/s Anmol Knitters (P) Ltd. without payment of appropriate duty, thus, the provisions of Central Excise Rules had been contravened in respect of the same - The goods would be liable for confiscation under Rule 25 (1) (a) of the Central Excise Rules, as for confiscation of the goods under Rule 25 (1) (a), the intention to evade the payment of duty is not required to be proved – Decided against the Assessee. Penalty under Rule 26 of the Central Excise Rules,2002 – Held that:- For imposition of penalty under this rule, there must be evidence on record indicating that the appellant had received those goods knowing very well that the same are liable for confiscation or in other words, the appellant were aware that the goods were correctly classifiable under heading 94.04 and not eligible for exemption but still dealt with those non-duty paid goods – There is no evidence in this regard – Penalty under Rule 26 is not sustainable – Decided in favor of Assessee.

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• 2013 (8) TMI 498
  Cenvat credit - Outward transportation of the goods - Commissioner disallowed benefit - Held that:- Commissioner relied on decision of ABB Ltd. Vs. CCE [2009 (5) TMI 48 - CESTAT, BANGALORE] and rejected appeal however, this decision is now reversed by Karnataka High Court [2011 (3) TMI 248 - KARNATAKA HIGH COURT] - Therefore following this decision - Decided against Revenue.

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• CST, VAT & Sales Tax

• 2013 (8) TMI 532
  Constitutionality of Section 19(11) - Whether Section 19(11) of TN VAT Act was violative of Article 265 and 360A of the Constitution of India and was liable to be struck down – Whether Section 19(11) was to be struck down on the ground that Section 19(11) was inconsistent with the Charging Section 3(2) and whether Section 19(11) was inconsistent with the scheme of the Act like Sections 21, 22, 27 and 29 of TN VAT Act – Held that:- After An analysis of various provisions of TN VAT Act and Rules thereon the assessment or revision of assessment made under Sections 22, 24, 27, 28 or 29 of the Act, Section 19(11) does not operate as an embargo for claiming Input Tax Credit - The availment of Input Tax Credit was creature of Statute - The concession of Input Tax Credit was granted by the State Government so that the beneficiaries of the concession were not required to pay the tax or duty which they were otherwise liable to pay under TN VAT Act - Section 19(11) TN VAT Act was enacted because Legislature consciously wanted to set up a time frame for availment of Input Tax Credit before the end of the financial year or ninety days from the date of purchase, whichever is later - Section 19(11) being part of Section 19, to avail Input Tax Credit, the conditions thereon were to be strictly complied with. The intention of the Legislature was to restrict the benefit of "Input Tax Credit" within a particular time-frame - Consequence of non-compliance was very much available in Section 19(11) dealing with non-entitlement of "Input Tax Credit” - challenging the assessment order/show cause notices denying the credit taken in the revised returns involving Section 19(11) of TN VAT Act were not maintainable. Section 19(11) – Directory of mandatory - Whether Section 19(11) was only directory and not mandatory – Held that:- Value Added Tax structure had the ultimate goal of augmenting the revenue by making the procedure simple and more transparent. Legislature in its wisdom mandated time frame for availment of Input Tax Credit accrued on purchases before the end of the financial year or ninety days from the date of purchase whichever is later. Section 19(11), being mandatory, the time-frame stipulated for Input Tax Credit is to be strictly construed. Section 19(11) of TN VAT Act cannot be struck down as being either unreasonable or discriminatory - We do not find any merit in the challenge to the provision of Section 19(11) of TN VAT Act. Section 19(11) specifically used the word "shall" as regards compliance with the time-frame for claiming Input Tax Credit accumulated on purchases either before or end of the financial year or before ninety days after the purchase whichever is later - in order to verify the entries and to prevent any tax avoidance or evasion, time frame was stipulated in Section 19(11) of TN VAT Act to claim Input Tax Credit - The use of the word "shall" is ordinarily indicative of the mandatory nature of the provision. Section 19(11) was mandatory and its contravention will result in forfeiture of the concession of availments of Input Tax Credit -M/s.Mahalaxmi Cotton Ginning Pressing and Oil Industries vs. the State of Maharastra and Ors. [2012 (5) TMI 152 - BOMBAY HIGH COURT] - Provision for availing concession was to be strictly construed – and COMMISSIONER OF C. EX., MADRAS Versus HOME ASHOK LEYLAND LTD [2007 (3) TMI 257 - SUPREME COURT OF INDIA] - Only in case of any of failure or omission to claim Input Tax Credit, in Section 19(11), a time frame had been fixed to claim Input Tax Credit before the end of the financial year or ninety days from the date of purchase, whichever is later. All the writ petitions were dismissed holding that Section 19(11) was a valid piece of legislation, cannot be struck down as being either unreasonable or discriminatory and violative of Article 265 and 360A of the Constitution of India – The Legislature consciously enacted Section 19(11) of TN VAT Act with avowed object of incorporating the time frame for availing Input Tax Credit before the end of financial year or ninety days from the date of purchase whichever is later - The provision was for safeguarding the interest of the revenue and to prevent the cascading effect of tax burden on the ultimate consumer.

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• Indian Laws

• 2013 (8) TMI 526
  Application under RTI Act – Vigilance Manual of the Directorate of Vigilance and Anti-Corruption (DVAC) - Respondent made an application under the RTI Act to the Public Information Officer to furnish him a copy of the Vigilance Manual of the Directorate of Vigilance and Anti-Corruption - The Public Information Officer passed the order rejecting the request of the first respondent on the ground that the Directorate of Vigilance and Anti-Corruption (DVAC) had been exempted from furnishing information under the RTI Act which on appeal was allowed further – thus the present writ was filed by the petitioner - Held that:- On a cumulative reading of Sections 2(f), 4(l)(b)(v), 8 and the provisos to Section 24(4) the respondent was entitled to the manual of DVAC in view of the judgment of the Division Bench read with the provisos to Section 24(4) of the RTI Act. Respondent was entitled to have the manual of the DVAC - The manual cannot be kept as a secret document - It was nothing but a set of rules as to how the DVAC was functioning – the information that were the subject matter before the Division Bench were concerned with the corruption and the consequent action taken by the DVAC and those details were directed to be furnished - Hence, the DVAC cannot refuse to furnish the manual maintained by it – the manual was not exempted from disclosure as per Section 8 of the RTI Act - While Section 8 states that there shall be no obligation to give the information relating to various documents mentioned, the manual of the DVAC was not one among them – Decided against petitoner.

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