Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 22, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Highlights / Catch Notes
Income Tax
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Capital gain on sale of shares of Indian company - there can be no recourse to Explanation 5 to enlarge the scope of Section 9(1) of the Act so as to cast the net of tax on gains or income that may arise from transfer of an asset situated outside India, which derives bulk of its value from assets outside India - HC
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Addition u/s 68 Share application and share premium amount credited but not proved - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - HC
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Penalty u/s 271D Cash loans received from creditors the genuineness of the creditors have been verified and the transactions were never doubted by the Authorities below - no penalty - HC
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Rate of tax - income of Trust - Merely because 50% of the income and their respective shares were to be accumulated as a special fund in the hands of the trustees for 19 years and the same were to be paid after a period of 19 years, it cannot be said that the Trust is discretionary Trust - HC
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Centralized processing of statements of tax deducted at source (TDS returns) - hen the scheme itself envisages that the intimation must be issued so as to call for a reply from the deductor then it cannot be in the form of a demand u/s 156 - HC
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Claim of deduction u/s 80IB(3) Status of SSI ceased in 9th year - Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it goes out of the definition of the small scale industry, the benefit u/s 80IB cannot be denied - HC
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Deduction u/s 10A If any technical service is rendered in the course of export of computer software then the expenditure incurred in that regard cannot be excluded - HC
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Nature of amount received in pursuance of Consent decree by HC Authorities below rightly treated this sum as a receipt falling under Section 28(iv) of the I. T. Act - HC
Corporate Law
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Dishonour of Cheque - proceedings initiated by the appellant under Section 138 of the Negotiable Instruments Act, 1881 - Validity of handwritten note (Notice) sent by the appellant - Notice is valid - SC
Service Tax
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Business Auxiliary Service - Whether process of milling/ grinding of wheat into maida, suji, atta and bran flour would amount to manufacture - Held yes, stay granted - AT
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Joint venture / consortium partner agreement - sharing of revenue - one partner paid the service tax - prima facie case is in favor of assessee - AT
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Valuation - inclusion of material supplied by the customers - free supply of material shall not be includable in the taxable service under the category of Works Contract Service. - AT
Central Excise
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Denial of MODVAT Credit - split of consignment - Tribunal was correct in denying the Modvat Credit in respect of clearance made in violation of Rule 52A(4) based on photocopies of documents, which we hold is no document at all as per the Rules - HC
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Refund / Rebate claim - Export of goods - Rule 18 - orders are beyond the show cause notice - matter remanded back - HC
Case Laws:
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Income Tax
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2014 (8) TMI 606
Capital gain on sale of shares of Indian company by one Non resident to another Non resident outside India Liability to deduct TDS u/s 195 - Whether the two transactions i.e. for sale and purchase of CRIL shares and Exevo- USA shares are designed prima facie for avoidance of income tax under the Act and whether the applications in respect of the said transactions were liable to be disallowed by the AAR in terms of Clause (iii) of Proviso to Section 245R(2) of the Act introduction of the Explanations 4 and 5 to Section 9(1)(i) of the Act as being clarificatory by virtue of Finance Act, 2012 - Held that:- The object of Explanation 5 was not to extend the scope of Section 9(1)(i) of the Act to income, which had no territorial nexus with India, but to tax income that had a nexus with India, irrespective of whether the same was reflected in a sale of an asset situated outside India. Viewed from this standpoint there would be no justification to read Explanation 5 to provide recourse to section 9(1)(i) for taxing income which arises from transfer of assets overseas and which do not derive bulk of their value from assets in India. In this view, the expression substantially occurring in Explanation 5 would necessarily have to be read as synonymous to principally, mainly or at least majority. Explanation 5 having been stated to be clarificatory must be read restrictively and at best to cover situations where in substance the assets in India are transacted by transacting in shares of overseas holding companies and not to transactions where assets situated overseas are transacted which also derive some value on account of assets situated in India - there can be no recourse to Explanation 5 to enlarge the scope of Section 9(1) of the Act so as to cast the net of tax on gains or income that may arise from transfer of an asset situated outside India, which derives bulk of its value from assets outside India. Even if the transaction had been structured in the manner as suggested on behalf of the Revenue, the gains arising to the shareholders of Copal-Jersey from sale of their shares in Copal-Jersey to Moody UK would not be taxable under Section 9(1)(i) of the Act, as their value could not be stated to be derived substantially from assets in India - the CRL and CMRL cannot be stated to be shell companies so as to ignore their corporate identities - Even according to the revenue, the companies are generating revenue from intra-group services - The fact that a company may render services to its related enterprise would not render the company to be non-existent or give reasons for lifting its corporate veil - The financial statements placed on record indicate that CRL and CMRL have been generating revenues and we also have no reason to doubt the statement that CRL and CMRL have been providing services in relation to business of financial research and market research respectively. Residential status - Whether CRL and CMRL should be considered as residents of UK on account of the alleged role of Rishi Khosla in its affairs Held that:- AAR was rightly of the view that the role of Rishi Khosla highlighted by the Revenue is in respect of the sale transactions undertaken and in pushing them through - It does not appear to be a role in connection with the running of the businesses of the companies concerned - It is not shown that the management of the companies in Mauritius in general, is not with a Board of Directors of those companies sitting in Mauritius and that the management and control is from United Kingdom of which Rishi Khosla is a resident - Even if one were to take the Business Advisory Agreement relied on by the applicants with a pinch of salt, it cannot be said that the role played by Rishi Khosla in these transactions establish that the management and control of the Mauritian companies is with Rishi Khosla - The material on record is insufficient to conclude that the corporate structure of CRL and CMRL should be ignored and the residence of Rishi Khosla be considered as the situs of the said companies Decided against Revenue.
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2014 (8) TMI 605
Addition u/s 68 Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved Held that:- Following the decision in CIT v. Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment - the assessee has categorically established the nature and source of the sum and discharged the onus that lies on it in terms of Section 68 of the Act - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted Decided against Revenue.
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2014 (8) TMI 604
Accrual of income - Interest on securities to be assessed on half yearly due dates Interest accrued at the end of assessment year Claim of Bad debts to non-rural branches u/s 36(1)(viia) - Following the decision in Commissioner of Income Tax v. City Union Bank Ltd. [2007 (2) TMI 187 - MADRAS High Court] - the assessee is taxable for interest on securities only on specified dates when it becomes due for payment, in view of third proviso to Section 145(1) of the Act, which was in force during the relevant assessment years. Bad debts - The scheduled bank will be entitled to the deduction of the entire bad debt relating to advances made by the urban branches written off in the books and also the difference between the amount written off in the books relating to advances made by the rural branches during the previous year relevant to the assessment year and the credit balance in the provisions for bad and doubtful debts account relating to advances made by the rural branches made under clause (viia) - while allowing the claim for bad debts written off in respect of advances made by rural branches, the CIT(A) as well as the Tribunal, was of the opinion that the assessee has not claimed any debts written off in respect of rural branch in the earlier year there was no error in the order of the Tribunal in holding that the claim of bad debts in relation to non-rural branches of the assessee bank is allowable Decided against Revenue.
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2014 (8) TMI 603
Penalty u/s 271D Cash loans received from creditors Reasonable cause for taking loans explained by assessee or not - Held that:- The sundry loans have been extended by the agriculturists within the limits prescribed u/s 269SS of the Income Tax Act and the bonafides of the transactions is not doubted - The genuineness of the sundry creditors have also been verified - The assessee has also given reasonable explanation for availing such loan, which has been accepted by the Authorities below - the CIT(A) and Tribunal are justified in holding that there was no case for invocation of Section 271D of the Income Tax Act on the alleged violation of Section 269SS because, as the assessee has satisfied the test of reasonable cause as required u/s 273B of the Income Tax Act - Relying upon Asst. Director of Inspection (Investigation) Versus Kumari AB Shanthi [2002 (5) TMI 4 - SUPREME Court] - the genuineness of the creditors have been verified and the transactions were never doubted by the Authorities below there was no reason to interfere with the order of the Tribunal as the reasonable cause is a finding of fact Decided against Revenue.
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2014 (8) TMI 602
Reopening of assessment u/s 148 Change of opinion - Held that:- Unless and until it is suggested and / or alleged that the income chargeable to tax as escaped assessment for the reasons that the assessee failing to disclose fully or truly all material facts , reopening of assessment is not permissible - the assessee claimed the income from sale of shares, mutual funds etc. as income from capital gain and to that the petitioner was called upon to furnish the necessary details etc. and thereafter after due consideration the AO framed the assessment order and treated the income from sale of shares, mutual funds etc. as income from capital gain the attempt on the part of the AO now to tax the receipt as a business income would be a mere change of opinion - on mere change of opinion by the AO, the reopening of the assessment beyond the period of four years from the relevant assessment year is not permissible - Relying upon MAPS ENZYMES LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX [2014 (3) TMI 28 - GUJARAT HIGH COURT] - on mere change of opinion by the AO subsequently, initiation of reassessment proceedings is not valid - The notice for reopening the assessment issued u/s 148 of the Act and the order disposing of the objection are set aside Decided in favour of Assessee.
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2014 (8) TMI 601
Rate of tax on allocation of income of Trust to beneficiaries - Maximum marginal rate u/s 164 Specific Trust or Discretionary Trust Held that:- With respect to the AY 1982-83 and 1983-84, Commissioner took a view that the assessee Trust was subjected to income allotted to Schedule-II to tax at the maximum marginal rate in the hands of the Trustees is the beneficiaries income receivable by the beneficiaries to the extent of 50% after 19 years - the shares which are allotted to the respective beneficiaries even with respect to Schedule-I and Schedule-II are specific shares and it can be said to be determinative shares - Merely because 50% of the income and their respective shares were to be accumulated as a special fund in the hands of the trustees for 19 years and the same were to be paid after a period of 19 years, it cannot be said that the Trust is discretionary Trust and/or the Trust is not a specific Trust - the assessee Trust is a specific Trust and therefore, not subjected to the tax at the maximum marginal rate u/s 164 of the Income Tax Act, 1961- Decided in favour of Assessee.
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2014 (8) TMI 600
Invocation of section 50C Circle rate referred at starting point Addition u/s 69 Held that:- The difference between the circle rate and the amount paid was brought to tax as unexplained investment - Revenue has not relied upon Section 50C of the Act as the AO had not made reference to the DVO to compute the fair market value in terms of the provision, the addition made by invoking Section 69 cannot be sustained - The only basis and foundation of the order passed by the AO was the circle rate - Merely and solely on the basis of the circle rate, addition could have been made by the Assessing Officer by invoking Section 69 of the Act - The AO should have followed the procedure u/s 50C once dispute was raised by the assessee and reference should have been made to the DVO the lapse and failure on the part of the AO dents and knocks the foundation on the basis of which addition was made Decided against Revenue.
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2014 (8) TMI 599
Centralized processing of statements of tax deducted at source (TDS returns) u/s 200A which was filed u/s 200 Rectification of order u/s 154 - enhancing the demand - Reasonable opportunity u/s 154(3) of being heared - Held that:- The Department has sought to achieve a comprehensive processing of statements filed under sub-section (3) of Section 200 of the Act, including rectification of a mistake in the statement u/a 154 of the Act - when once a Statement is filed under sub-section (3) of Section 200 of the Act, Clauses (4), (5) and (7) of the Scheme come into operation - The format of the application for rectification is as stipulated in sub-clause (2) - Sub-clause (3) is relevant for the purpose of the case, which states that, where a rectification has the effect of reducing the refund or increasing the liability of the deductor, an intimation to that effect shall be sent to the deductor electronically by the Cell and the reply of the deductor shall be furnished in the form and manner specified by the Director General - no doubt the intimations that are issued u/s 154 of the Act - But, when the scheme itself envisages that the intimation must be issued so as to call for a reply from the deductor then it cannot be in the form of a demand u/s 156 of the Act - what is envisaged is that before any order is passed under Clause (6) of the Scheme, an intimation has to be sent to the deductor, which is in the nature of a showcause notice and after receiving a reply from the deductor and considering the same, an order has to be passed, then it would be deemed to be a notice of demand under Section 156 of the Act. Instead of directing the respondents-authorities to re-initiate fresh proceedings u/s 154 of the Act, for the sake of convenience of the parties, the annexures could be construed as show cause notices or intimations as stated in sub-clause (3) of Clause (6) of the Scheme to which the petitioner is at liberty to reply within a period of three weeks from the date of receipt of a certified copy of this order and on receipt of the reply by the respondents- Authorities, the same shall be considered in accordance with law and a speaking order be passed thereon Decided in favour of assessee.
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2014 (8) TMI 598
Reopening of assessment u/s 147 Reopening at the instance of audit party - Held that:- The reassessment proceedings have been initiated at the instance of the audit party, the noting made and the relevant documents appears that the assessment is sought to be reopened at the instance of the audit party, solely on the ground of audit objections - as such, the AO tried to sustain his original assessment order and submitted to the audit party to drop the audit objections Relying upon Mayur Wovens Pvt. Ltd. Versus Income Tax Officer & 1 [2014 (7) TMI 722 - GUJARAT HIGH COURT] - if the reassessment proceedings are initiated merely and solely at the instance of the audit party and when the AO tried to justify the Assessment Orders and requested the audit party to drop the objections and there was no independent application of mind by the AO with respect to subjective satisfaction for initiation of the reassessment proceedings, the reassessment proceedings cannot be sustained reassessment proceedings set aside Decided in favour of Assessee.
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2014 (8) TMI 597
Block assessment u/s 158BC r.w. Section 264 Statutory appeal filed - Held that:- It is admitted by the assessee that as against the order, a statutory appeal has been filed before the Commissioner of Appeals, Central II there was no reason to entertain a writ petition as against the original order - the Commissioner of Appeals, Central II is directed to dispose of the appeal within a time frame, will meet the ends of justice and the assessee is to be granted an opportunity of hearing Decided in favour of Assessee.
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2014 (8) TMI 596
Claim of deduction u/s 80IB(3) Status of SSI ceased in 9th year - When once the eligible business of an assessee is given the benefit of deduction u/s 80IB on the assessee satisfying the conditions mentioned in Sub-sec.(2) of Sec.80IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry Held that:- In the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years -When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy all these conditions initially, the undertaking is entitled to the benefit of 10 consecutive years - If the object of the Legislature providing for the incentives is kept in mind and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself - Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it goes out of the definition of the small scale industry, the benefit u/s 80IB cannot be denied - If such a literal interpretation is placed on the said provion, it would run counter to the very object of granting incentives - the benefit of deduction is given to an assessee who has availed the opportunity given to him under law and has grown in his business - if a small scale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in its going outside the purview of the definition of a small scale industry, that should not come in the way of its claiming benefit u/s 80IB for 10 consecutive years, from the initial assessment year Decided in favour of Assessee.
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2014 (8) TMI 595
Deduction u/s 10A Amount paid to engineers for technical services and communication charges - Whether the Tribunal was correct in holding that the amount paid to engineers on site for technical services should be added to the export turnover when computing deduction u/s.10A of the Act Held that:- The technical services rendered in post-sale services would stand on a different footing when compared to pre-sale services - If any technical service is rendered in the course of export of computer software then the expenditure incurred in that regard cannot be excluded - What has to be excluded is only technical services rendered which is independent of export of computer software - the matter was remitted back to the Assessing Authority to decide whether the technical services rendered was in connection with the computer software business, export of computer software or it is the case of exclusively rendering technical services Decided in favour of Revenue.
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2014 (8) TMI 594
Nature of amount received in pursuance of Consent decree by HC Purchase of land Business income or Capital gain - Land was purchased but possession was not given to the assessee - During the pendency of the proceedings, consent decree was passed in the suit itself and in pursuance of the same ₹ 35,00,000/- was paid to the Assessee during the assessment year under consideration - The argument was that the agricultural land was agreed to be purchased and that is how the deal was struck, however, on payment of earnest money possession was never handed over. Thus, it is a capital investment in the property - tribunal found the transaction of purchase of land was in the nature of an adventure in trade and not as income in the nature of capital gains Held that:- Authorities below rightly treated this sum as a receipt falling under Section 28(iv) of the I. T. Act - The Tribunal having clearly held that the land was in Urban Agglomeration, non agricultural user of the land was permissible - The land falls within the prescribed area of the Urban Land Ceiling Act and a plan had also been sanctioned for the proposed housing scheme under Section 20 of the Urban Land (Ceiling and Regulation) Act, 1976 - The subsequent conduct of the Assessee is consistent with the intent in acquiring the rights in the property, then all the more the ITO, as also the Commissioner and equally the Tribunal have not committed any error in holding that this was a sum or income chargeable to tax u/s 28(iv) of the I. T. Act no substantial question of law arises for consideration - Decided against Assessee.
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2014 (8) TMI 593
Condonation of delay Delay of 715 days - whether there was sufficient cause for condonation of delay of 715 days in filing the appeal before the Tribunal which was belated Held that:- The question regarding whether there is sufficient cause or not depends upon each case and primarily is a question of fact to be considered taking into totality of events which had taken place in a particular case - after appreciating the matter it cannot be said that there was sufficient cause for condonation of delay - CIT(A) had decided the matter on 25.2.2010 and a copy thereof was sent to the assessee - the appeal before the Tribunal was required to be filed within the stipulated period of limitation of sixty days - But the assessee filed the appeal before the Tribunal on 23.4.2012, after a delay of 715 days - The plea of the appellant as mentioned above relating to death of his father and mother in 2006 and 2008 respectively was much before the decision of the appeal by the CIT(A) on 25.2.2010 and, thus, would not satisfy the test of sufficient cause - The explanation is bereft of details of delay caused in filing the appeal thus, the Tribunal has rightly rejected the appeal keeping in view the totality of facts and circumstances of the present case Decided against Assessee.
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Customs
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2014 (8) TMI 613
100% EOU - violation of the provisions of the Customs Act and the Central Excise Act - Import of plant and machinery, capital goods and raw materials without payment of customs duty - tribunal ordered pre-deposit of the entire customs and excise duty along with interest - Held that:- the Commissioner has given three dates for hearing and the appellants failed to appear. They could have appeared and sought for adjournment. Having not availed the opportunity, the appellants cannot now plead violation of principles of natural justice based on a letter, which never reached the authority in time. Therefore, we reject the plea of violation of principles of natural justice. The present proceedings before the Board for Industrial and Financial Reconstruction dated 8.1.13 is a recent order, which has no relevance for the purpose of adjudication before the Tribunal. Even otherwise, this order has not been produced before the Tribunal to counter the earlier BIFR proceedings dated 21.10.11. Therefore, we are not inclined to accept the present contention raised by the appellants. When the order of the Board for Industrial and Financial Reconstruction dated 21.10.11 provides for recovery of statutory dues, which applies to the present case, we find no reason to hold that Tribunal's order is bad. The third contention relates to confiscation of goods, and it is pleaded that since the goods have been confiscated, the Revenue is safeguarded. However, we find from the records of the original authority that the goods have been removed in violation of the undertaking given and the conditions imposed in the various notifications. Therefore, in such a scenario, the appellants cannot be allowed to say that the interest of the Revenue is safeguarded. - Decided against assessee.
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Corporate Laws
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2014 (8) TMI 608
Dishonour of Cheque - proceedings initiated by the appellant under Section 138 of the Negotiable Instruments Act, 1881 - Bar of limitation - Validity of handwritten note (Notice) sent by the appellant - Held that:- handwritten note dated 27th April, 2012 and found that it was issued within the mandatory period of thirty days of dishonour of cheques and contained (a) the subject amount of ₹ 60,00,000/- given by the appellant as loan to the respondent under promissory notes; (b) the details of Cheque numbers and dates of issue with amounts and particulars of Bank; (c) Returning of Cheques by the banker dishonouring them on the ground of Stop Payment by the respondent; (d) a demand for immediate repayment of the amount; and (d) a caution to the respondent that in case of failure on the part of respondent, the appellant would initiate legal proceedings. Thus, in our opinion, the handwritten note dated 27th April, 2012 fulfilled the mandatory requirements under clause (b) of proviso to Section 138 and could be said to be a valid notice in the light of this Court s Judgment in Central Bank of India Anr. (1999 (10) TMI 718 - Supreme Court of India). It is no doubt true that at the time of filing the complaint, the Magistrate has to take cognizance of the complaint when it is within limitation and in case of delay in filing the complaint, the complaint has to come up with the application seeking condonation of delay. But, the peculiar fact of the present case is that in the complaint, the complainant had only averred that he has sent the legal notice dated 24th May, 2012 but not mentioned about the handwritten note dated 27th April, 2012. Basing on the said averment, the learned Trial Judge was satisfied that the complaint is within the prescribed period of limitation. Hence, in this case, raising the plea of limitation and Court exercising the discretion to condone the delay did not arise at all. In the peculiar facts and circumstances of the case, while keeping in mind the legislative intent and the specific plea of the appellant raised in the grounds for the Special Leave Petition that he should have been allowed to move an application for condonation of delay before the Trial Court as the respondent has not suffered any prejudice by reason of 25 days delay, we strongly feel that the appellant should not have been deprived of the remedy provided by the Legislature. In fact, the remedy so provided was to enable a genuine litigant to pursue his case against a defaulter by overcoming the technical difficulty of limitation. Hence, the High Court has committed an error by not considering the issue of limitation on merits. High Court ought to have remanded the matter to the Trial Court for deciding the issue of limitation - Following decision of Rakesh Kumar Jain Vs. State (Through CBI) (2000 (8) TMI 1097 - SUPREME COURT), MSR LEATHERS Versus S PALANIAPPAN ANR [2012 (10) TMI 232 - SUPREME COURT] and Subodh S. Salaskar Vs. Jayprakash M. Shah [2008 (8) TMI 795 - SUPREME COURT OF INDIA] - criminal proceedings restored to Trial Court - Decided in favour of appellant.
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FEMA
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2014 (8) TMI 607
Contravention of Section 8 (3) read with Section 8 (4) and Section 68 of the Foreign Exchange Regulation Act, 1973 - Penalty upon Director of company - Appellant states that he was a part time, non-executive director of MXL but neither in-charge of nor responsible for the conduct of its day-to-day affairs. MXL commenced its business in the year 1983-84 and had been importing goods/raw materials for its business requirements. MXL was amalgamated with Xerox Modicorp Limited (XML) in the year 2000 - Held that:- Appellant gave a separate reply on 9th April 2001 to the SCN dated 19th February 2001 which has not been discussed in the AO. In other words the DD did not advert to specific defence of the Appellant that at the relevant time he was not a director in-charge of or responsible to the company for the conduct of its day-to-day affairs. The AT too does not appear to have noticed the above decisions of the Supreme Court and has mechanically concluded that since there was no restriction on the exercise of powers by the Appellant in relation to the transactions in question, he should be held liable. In light of the reply dated 9th April 2001 sent by the Appellant it was possible to discern the distinction between those directors who were in-charge of the day-to-day affairs of the company and those were not. The explanation offered by the Appellant is that the Company Secretary of XML placed before the Board of Directors of MXL compliance certificates at every meeting held during the relevant period, which led the directors, including the Appellant, to believe that there were no contravention of any of the statutory provisions, appears to be a plausible one. This explanation has not been considered either by the DD or the AT Appellant on his part discharged the burden in terms of Section 68 (2) of the FERA and was entitled to the benefit of doubt. - Court sets aside the impugned order dated 26th March 2008 of the AT and the impugned AO dated 31st March 2004 of the DD insofar as the Appellant is concerned and exonerates the charge of contravention of Section 8 (3) read with Section 8 (4) and Section 68 of the FERA. - Decided in favour of appellant.
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Service Tax
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2014 (8) TMI 629
Business Auxiliary Service - Whether process of milling/ grinding of wheat into "maida", "suji", "atta" and "bran" flour would amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944 - Held that:- The various goods viz. maida, sooji, atta and bran produced by the roller flour mills are covered under Chapter 11 and the raw-material "Wheat" is classifiable under Chapter 10 of CETA, 1985. As the products "wheat" and "wheat flour" fall under different Chapters, the activity undertaken by flour mills amount to manufacture and gets covered under the exclusion clause of the definition of Clause 19 of Section 65 of the Finance Act, 1994. In this regard the judgement of Hon'ble High Court of Madras in the case of United India Roller Flour Mills Ltd vs Union of India reported in [1980 (9) TMI 89 - HIGH COURT OF MADRAS] may please be referred, wherein the imposition of duty on "Maida" in the Finance Bill 1971 and exemption provided subsequently vide Not. No.162/71 dt 10.08.71 were discussed. Levy of duty on "Maida" confirms that conversion of wheat into "Maida" amounts to manufacture to attract levy under Section 3 of the Central Excise Act, 1944. On a perusal of the aforesaid communications, we find that the Chief Commissioner of Customs & Central Excise Coimbatore Zone as well as Director (CX.1), of Ministry of Finance, Department of Revenue had a view that conversion of wheat' into wheat products' like maida, suji etc., amounts to manufacture. It is noticed that the demand of service for the subsequent period was set aside by the Commissioner (Appeals), Madurai. Hence, the demand of tax, prima facie , is not sustainable. Accordingly, the pre-deposit of tax along with interest and penalty is waived till the disposal of the appeal - Stay granted.
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2014 (8) TMI 628
Waiver of pre-deposit of Service Tax - Joint venture / consortium partner agreement - sharing of revenue - one partner paid the service tax - rendering the services as sub-contractor the principal contractor - construction, erection, commissioning and installation services - Held that:- As the demand pertaining to ₹ 38.75 Lakhs, the Applicant could able to make out a prima facie case, as they could able to show before us that the consortium partner M/s.Rajsekhar Construction has paid the service tax, a fact supported by a Chartered Accountant's Certificate. However, as far as the balance amount of ₹ 11.62 Lakhs is concerned we do not find merit in the submission of the Applicant that unless they receive the Service Tax amount in full from the principal contractor they are not under any obligation to discharge the Service Tax on the taxable value, even though invoices were raised and services rendered long ago - against the outstanding of ₹ 1.00 Crore the Applicant had already received around ₹ 70 Lakhs from the principal contractors. At this stage, fairly it could be inferred that the Service Tax component are included in the received amount of ₹ 70.00 lakhs. In the result the Applicant failed to make out a prima facie case for full waiver of ₹ 11.62 Lakhs. Taking note of the fact that the Applicant has already deposited ₹ 46,000/- we direct the Applicant to deposit the balance amount of ₹ 11.16 Lakhs within a period of 6 weeks - Partial stay granted.
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2014 (8) TMI 627
Valuation - inclusion of material supplied by the customers - Commercial and Industrial Construction service - Works Contract Service - Penalties under Section 76, 77 and 78 - Held that:- value of gods and material supplied free of cost by the service recipient to the provider of taxable construction service, being neither monitory or non-monitory construction paid by or flowing from the service recipient, occurring to the benefit of service provider, would be outside the taxable value or the gross amount charges, within the meaning of later expression in Section 67 of the Finance Act, 1994 and these free supplies do not comprise the gross amount charged under Notification no. 15/04-ST including the explanation thereto as introduced by Notification 4/05-ST. Therefore, we hold that these demands are not sustainable at all. Demand has been confirmed for the value of material supplied by the customers under the category of Works Contract Service. As per Notification 23/09 dated 07.07.2009 shall not be included where works has been commenced prior to issuance of the said Notification. As submitted by the counsel for the appellant that out of 10 contracts, in 3 contract work has been commenced before 07.07.2009 where service tax on free material supplied is not leviable. This fact is to be verified from the records. Therefore, it needs examination at the end of the Adjudicating Authority to ascertain the fact that if the work has commenced prior to 07.07.2009 the free supply of material may not be includable in the taxable service. Therefore, free supply of material shall not be includable in the taxable service under the category of Works Contract Service. Demand has been confirmed on the basis of figures of Profit & Loss Account during October 2007 to March 2012 under the category of Commercial and Industrial Construction service, Erection, Commissioning or Installation Service. In the impugned order, no classification has been provided and it has not been specified why the service tax is payable under these categories. Moreover, the value of service tax paid by the appellant is shown in Profit & Loss Account figures in the gross value of service provided. Further, till 31.3.2011, the service tax was payable on realisation basis. In these circumstances, the Adjudicating Authority requires verification/examination of the documents to ascertain the correct liability of service tax payable by the appellants - matter remitted back - Decided in favour of assessee.
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2014 (8) TMI 626
Demand of service tax - Online examination - Business Auxiliary Service - Commercial Coaching and Training - Held that:- The prospective candidates do not, prima facie, have a relationship of student-teacher in the programme leading to issue of certificates by Sun, USA. The learning/training, if any, is taken from other sources and the appellants are enabling conduct of examination and evaluation. The claim that appellants are selling e-vouchers may not deserve to be accepted. Their activities are, prima facie, in relation to conduct of online examination and evaluation by Prometric in relation to certifying professional competence of the aspiring candidates in various spheres of software skills. - Further, in view of the audit visits in 2005 leading to discussion on the very same activities in 2009 by the Commissioner, the issue of show-cause notice for the period from October 2004 to March 2009 invoking extended period of limitation may not be justified - No financial harship pleaded - stay granted partly.
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2014 (8) TMI 625
Availment of CENVAT Credit - maintenance of SAP system - distribution of input services - Held that:- There is no provision in the law to require the appellant unit to take only proportionate credit. Once the credit is admissible, any of the units can take the credit. Head office should have taken the registration and credit should have been distributed and also submits that he would make detailed submissions at the time of final hearing regarding admissibility - SAP system is definitely relatable to manufacture since SAP system is implemented right from raw material receipt to the clearance of finished products, the accountal is done on the computer system and therefore it may not be correct to say that it has no nexus with manufacturer. As regards proportionate credit I find that issue is covered by the decision of the Tribunal cited by the ld. counsel. Under these circumstances, appellant has made out a prima facie case for waiver of pre-deposit and therefore requirement of pre-deposit of the dues is waived and stay petition is allowed during the pendency of appeal - Stay granted.
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2014 (8) TMI 624
Waiver of pre deposit - CENVAT Credit - Penalty under Rule 15 - Held that:- Appellant intends to end the litigation with the department. It has already reversed the Cenvat credit to the extent indicated in adjudication order with deposit of interest of ₹ 49,401/- as is apparent from the said order. The crucial issue is only penalty that has been imposed under Rule 15(2) of Cenvat Credit Rules, 2004. Learned Adjudicating Authority invoked Section 11AC for imposition of penalty under Rule 15(2). When this sub-rule is read, that does not bring a case of service tax issue since the input and capital goods are coverage of that sub-section. When sub-section (3) has enacted, mechanism to deal with input services which was subject matter at page 8 of the adjudication order, there is no reference to Section 11AC in that sub-section. In absence of legislative intent to invoke Section 11AC for reading sub-section (3) the adjudication order is not sustainable insofar as penalty imposed under Rule 15(2) is concerned. Appropriate sub-section is sub-section (3). It is pertinent to mention that while sub-section (2) deals with element of Section 11AC, sub-section (4) mentions about element of Section 78 of the Finance Act, 1994 for no mechanism provided in sub-rule (3) to invoke Section 11AC of Central Excise Act, 1944, nor Section 78 of the Finance Act, 1994, levy of penalty of ₹ 10,000/- shall be justified in the fitness and circumstances of the case - Decided partly in favour of assessee.
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2014 (8) TMI 623
Cargo handling services - Transport of goods within mining area - Held that:- To call an activity to be cargo handling service there should be an activity of movement of cargo from one place to another place without any internal movement within the mining area. Neither handling service outside the mining area is evident from para 9 of the adjudication order nor destination outside such area has come to record. Therefore, when the factual evidence demonstrates movement of the excavated iron within the mining area from one place to another that operation cannot be called as cargo handling service - Decided in favour of assessee.
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2014 (8) TMI 622
Cenvat Credit - input services - order beyond the scope of show-cause notice - Intellectual property service - Whether, the respondents are doing the transportation of goods from the premises of the licensees to the dealers of the branded goods for promotion of the brand name - Held that:- The adjudication order denies credit for the reason that transportation is not an input service for providing intellectual property service and thus the adjudication order has travelled beyond the scope of show-cause notice. In fact the order of the Commissioner (Appeal) has set aside the adjudication order for this reason as seen from the last but one paragraph and other paragraphs of the many unnumbered paragraphs in the order-in-appeal. The Revenue has filed this appeal challenging this finding of the Commissioner (Appeal) - even though the word utilization has been used in the show-cause notice, the issue of eligibility is part of the issue of utilization. If credit is taken for ineligible credit, then its utilization is not proper. The argument canvassed by the respondent is a hyper technical argument. Further the eligibility for credit is a legal argument which can be taken at any stage of the proceedings. At the same time the respondent has to get an opportunity to argue this point and there has to be clear decision on the issue after statement of facts clearly. The impugned orders of the lower authorities are not maintainable and the issue needs to be decided afresh stating all facts clearly without giving any room for doubts on facts in question and issues in question. So the impugned order is set aside and the matter is remitted to the adjudicating authority for a denovo adjudication after giving opportunity for the respondents to make his submissions on the eligibility to credit. - Matter remanded back - Decided in favour of Revenue.
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2014 (8) TMI 621
Waiver of pre deposit of service tax - Authorized Service Station - Held that:- Tribunal in the case of Mackintosh Burn Ltd. v. CCE, Kolkata reported in [2010 (5) TMI 435 - CESTAT, KOLKATA] and in the case of Shakti Motors v. CCE, Ahmedabad reported in [2008 (7) TMI 85 - CESTAT AHMEDABAD] has observed that the entire consideration would be treated as service tax. We also find favour in the appellants contention as regards invocation of longer period. Admittedly, there is no positive act on the part of the appellant to suppress or mis-statement of any facts with intention to evade payment of duty. The issue involved is of bona fide dispute on the interpretation of provisions of Section 67(2) of Finance Act, 1994 and cannot reflect upon the mala fide on the part of the appellant. As such, we are of the view that appellants have been able to make out a good case in their favour so as to allow stay petition unconditionally - Stay granted.
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2014 (8) TMI 620
Business auxiliary services - Water processing by chemical treatment - Held that:- Processing of water does not amounts to manufacture inasmuch as the said activity resulted in generation of processed water, which cannot be held to be different commodity than the input, which is again water. At this stage, we find that the Revenues contention that appellant have provided services to their client by processing of water has force and the appellants are required to be put to some terms of deposit. We accordingly, direct the applicant/appellant to deposit 50% of the duty involved within a period of six weeks from today, subject to which pre-deposit of balance amount of duty and the entire amount of penalty shall stand waived and its recovery stayed during pendency of the appeal - conditional stay granted.
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2014 (8) TMI 619
Stay application - sub-contractor - main contractor have paid the service tax - Business Auxiliary Services - services to the U.P. Electricity Board - Held that:- M/s. U.P. Power Control Corporation Ltd. entered into a contract with one I.T. Energy for generation of electricity bills, meter reading and collection of bills etc. M/s. I.T. Energy further sub-contracted the job to the appellant herein. It is seen that M/s. I.T. Energy paid the service tax on the entire amount including the value of the services being provided by the appellant. As such, they contested before the Original Authority that inasmuch as the main contractor paid the service tax, the demand of service tax from the appellant would be in duplicate. For the above proposition, they relied upon the Boards Circular dated 2-7-1997, 23-8-1997 and 7-10-1998, which provided that if the main contractor have paid the service tax, levy of service tax against the sub-contractor is not required - appellants plea that the main contractor, M/s. I.T. Energy paid the entire service tax does not stand disputed by the Adjudicating Authority. The Commissioner (Appeals) has not dealt with the same. At this prima facie stage, we are of the view that if the main contractor has discharged the entire duty liability, second time confirmation of the demand against the present appellant, who is a sub-contractor only, may not be justified - Stay granted.
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2014 (8) TMI 618
Services of goods transport agency - by retrospective amendment made to the relevant provisions of the Finance Act, 1994 by the Finance Acts of 2000 and 2003, the appellant became liable for payment of service tax during 1997-98 period as the service recipient - However, they neither paid the service tax nor filed the return under section 70, as there was no provision for them to file the return - Held that:- The show-cause notice dated November 4, 2003 had been issued to the appellant subsequent to the introduction of section 71A which required the appellant to ascertain their service tax liability on self assessment basis, pay the service tax and file one-time return within a period of six months from the date on which the Finance Bill, 2003, receives the assent of the president. But in spite of this provision, the appellant neither paid the service tax nor filed the return as required under section 71A. However, though section 71A had been introduced by section 158 of the Finance Act, 2003, section 73 was not amended - section 73 regarding recovery of service tax not paid or short-paid, did not cover the case where a person was required to file return under section 71A. Section 73 was amended with effect from September 10, 2004 but no show-cause notice under amended section 73 was issued. Since the issue involved in this case stands decided against the Department by the Tribunal in the case in the case of L.H. Sugar Factories Ltd. [2004 (1) TMI 111 - CESTAT, NEW DELHI] and this judgment has been upheld by the honourable Supreme Court vide judgment L.H. Sugar Factories Ltd. reported in [2005 (7) TMI 106 - SUPREME COURT OF INDIA], the impugned order upholding the service tax demand along with interest and upholding the imposition of penalty is not sustainable - Decided in favour of assessee.
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Central Excise
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2014 (8) TMI 615
Denial of MODVAT Credit - split of consignment and transport in various vehicles against single Invoice - duplicate copy of invoice - In the facts and circumstances of the case, whether the first respondent was correct in denying the Modvat Credit to the extent of ₹ 4,63,570/- relating to the inputs received from Visakhapatnam Steel Plant, a Government of India undertaking, merely on the ground that the inputs covered under single invoice were transported by various vehicles by splitting up the consignment, as a matter of convenience for the supplier in transporting such inputs, which is merely procedural in nature - Held that:- It is not in dispute that there is one invoice already produced which shows payment of duty on the goods removed from Visakhapatnam Steel Plant. But insofar as goods which have been split up into several smaller consignments, Rule 52A(4) of the Rules clearly mandates that if all the packages comprising a consignment are despatched in one lot at any one time, only one invoice shall be made out in respect of the consignment. It also provides that if, however, a consignment is split up into two or more lots each of which is despatched separately either on the same day or on different days, a separate invoice shall be made out in respect of each such lot. It further provides that in case a consignment is loaded on more than one vehicle, vessel, pack animal or other means of conveyance which do not travel together but separately or at intervals, a separate invoice shall be made out in respect of each vehicle, vessel, pack animal or other conveyance. The appellant in this case had not complied with the procedure contemplated under Rule 52A(4) of the Rules. Tribunal was correct in denying the Modvat Credit in respect of clearance made in violation of Rule 52A(4) based on photocopies of documents, which we hold is no document at all as per the Rules. - Decided against the assessee. Present case the goods have been supplied by Visakhapatnam Steel Plant, a Government of India Undertaking, and the department has accepted the plea that the entire inputs have suffered duty. However, the only reason attributable for levy of penalty is that the goods were not accompanied with proper invoices, as required under Rule 52A(4) of the Rules. From a reading of the orders of the Tribunal and the authorities below, it is clear that the appellant had no intention either to evade payment of duty or to avail duty wrongfully. In such view of the matter, we set aside the penalty imposed on the appellant in both the cases - Decided partly in favour of the assessee
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2014 (8) TMI 614
Valuation of goods - Whether the finding of the Tribunal that the order of the Commissioner (Appeals) with regard to the period prior to 2.3.2001 holding that the demurrage charges are addable to the assessable value is not correct in the light of Board's Circular No.14/2001, dated 2.3.2001 - Held that:- admittedly, the transactions relate to a period prior to the issuance of Circular No.14/2001-Cus, dated 2.3.2001. It is beyond any cavil that as per the circular issued by the Board of Central Excise in F.No.467/21/89-Cus.V, dated 14.8.1991, which was prevailing during the relevant period, demurrage charges and despatch money do not form part of the assessable value. In the light of the decision of the Supreme Court in Indian Oil Corporation Ltd. case, referred [2004 (2) TMI 66 - SUPREME COURT OF INDIA], the Department cannot be permitted to take a stand contrary to the instructions of the Board - Decided against Revenue.
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2014 (8) TMI 612
Denial of refund claim - double payment of duty on returned and repaired goods - Whether the Tribunal was right in rejecting the refund claim on the ground that the goods in respect of which refund was claimed was disposed off in any manner, then the production of goods of the same class, ignoring the fact that the goods cleared from the factory before repair and after are machineries only - Held that:- It is not in dispute that the goods originally cleared was circular knitting machine falling under sub-heading 8447.00 on which duty was paid. However, on the complaint, the defective parts viz., knitting head assembly and take down drive assembly which falls under sub-heading 8448.90, were returned and similar parts were supplied as replacement. The parts supplied as replacement suffered separate duty. The defective parts returned to the supplier was reconditioned and fitted in an another circular knitting machine and was supplied to another purchaser on which duty was paid. Since the defective parts returned for being reconditioned and subjected to similar process of manufacturing, the assessee claimed refund of duty under sub clause (1) of Rule 173 L. However, proviso (3)(iii) to Rule 173 L would stipulate that the goods (parts) disposed or re-used should be on the production of the goods of same class. What has been returned is not the goods falling under sub-heading 8447.00 of the CETA Schedule, but falling under sub-heading 8448.90 of the CETA Schedule. We find Chapter 84 - Machinery, mechanical appliances and parts thereof, sub-heading 84.48 provides for parts and accessories suitable for use, solely or principally with the machines of this heading or of Heading No.84.44, 84.45, 84.46 or 84.47 (for example, spindles and spindle flyers, card clothing, combs, extruding nipples, shuttles, healds and heald-frames, hosiery needles), 8448.90 - parts. In this case, the goods which have been returned are admittedly fall under 8448.90 parts under separate tariff heading and unless such goods are disposed of in the manner and used for the production of the goods of same class, the question of refund of duty will not arise. - Decided against assessee.
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2014 (8) TMI 611
Jurisdiction of Commissioner - Power to review - Whether the Commissioner (Appeals) has the power to review his own order of pre-deposit - Held that:- such a power is available to the Tribunal under Section 35-C (2) of the Act to rectify any mistake apparent on the record. Therefore, we find that the Tribunal was justified in rejecting the plea of the appellant that the Commissioner (Appeals) ought to have reviewed the order. When there is no power under the statute, the Commissioner (Appeals) has no authority to entertain the application for review of the order. Tribunal has clearly held that in an appeal against the final order of the Appellate Commissioner (dismissing the appeal for failure to pre-deposit), the Tribunal will not adjudicate upon the merits of the appeal, but if the order of pre-deposit passed by the Commissioner (Appeals) in the given facts and circumstances of the case is erroneous, the Tribunal is required to set aside the order of the Appellate Authority and remand the matter to the Appellate Commissioner for de novo consideration after passing an appropriate order as to pre-deposit. We find that this exercise has not been done by the Tribunal in the present case and it has summarily upheld that the rejection of the appeal for failure or pre-deposit is impeccable and, therefore, we have no hesitation to hold that the Tribunal should have considered the pre-deposit issue perforce and to that extent the order has been rightly put to test by the appellant before this Court - Matter remitted back - Decided in favour of assessee.
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2014 (8) TMI 610
Refund / Rebate claim - Export of goods - Rule 18 - denial of rebate on the ground no set in the Show Cause Notice - claim rejected on the ground that final product is not excisable goods - authorities rejected on the ground that procedure for rebate of duty paid on materials required to be followed under Rule 18 of the Central Excise Rules, 2002 r/w Notification No. 21/2004-CE(NT) dated 6.9.2004 has not been followed by the petitioners - Held that:- on that ground, show cause notice was not issued and the rebate claim was not sought to be denied. Under the circumstances, to the aforesaid extent, the impugned orders are beyond the show cause notice. Under the circumstances, we are of the opinion that impugned orders deserve to be quashed and set aside and the matter is required to be remanded to the First Authority to consider the same in accordance with law and on merits - It will be open for the adjudicating authority to issue fresh show cause notice contending aforesaid ground also and same may be considered in accordance with law and on merits and after giving an opportunity to the petitioners on the aforesaid - Decided in favour of assessee.
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2014 (8) TMI 609
COD Clearance entitled to the benefit of the order recalling directions given in the ONGC's Ltd. [2007 (7) TMI 354 - Supreme Court] - Held that:- Spirit of the judgment given by the Apex Court in Electronics Corpn. of India Ltd. (2011 (2) TMI 3 - Supreme Court) should have been kept in mind by the CESTAT, particularly, when such a judgment has already been passed on 17.02.2011, i.e. much before the impugned order was passed by the CESTAT, i.e. 27.11.2012/29.11.2012. That being so, we are of the view that CESTAT should have considered the appeal and the application on its merits instead of dismissing the same for the want of clearance from CoD. - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2014 (8) TMI 617
Whether the Tribunal was correct that the product 'Electric Control Panel and Transformer' manufactured by the appellant is a plant and machinery - Eligibility for benefit of reduced rate of tax on production of A-Form issued under Notification Entry No.A88 u/s 41 of the BST Act, 1959 - Held that:- Articles were used in the manufacture as plant and machinery. From the record as it stands, it is difficult to hold that the finding is incorrect or perverse. No material to the contrary has been indicated. In these circumstances, the issue is not one of law but only of fact. It may in a given case even raise the question of law. In the present case, however, no substantial question of law arises in this regard. - Under the second proviso of section 41(2) of the BST Act, the issue does not raise any substantial question of law in the facts and circumstances of the case. It is important to note that the Assessing Authority had accepted the Respondent's case. The order which was ultimately challenged before the Tribunal arose from the order passed in revision under section 57 of the BST Act. Even in the revisional order, it is merely stated that the Respondent would not be entitled to the benefit if it is found that the registered dealer who had given declaration had not complied with any of the recitals or contrary to the conditions of the declaration. Whether there has been a contravention or not is a question of fact which is not even gone into. Hence, no question of law arises - Decided against revenue.
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2014 (8) TMI 616
Commissioner held that the sale of the technical knowhow was covered by entry 22 of the Lease Act but rejected the prayer for prospective effect - tribunal reversed the decision - Transfer of the right to use Goods for any Purposes Act 1985 (the Lease Act) read with section 52 of the Bombay Sales Tax Act 1959 (the BST Act) - Held that:- One of the reasons for exercising power under section 52(2) of the BST Act was that it is doubtful whether the transaction constituted a sale at all or not. However, that issue was not even determined. It is in this background that it is necessary to ascertain whether the exercise of powers under section 52(2) of the BST Act was valid or perverse - The Tribunal is therefore directed to draw up a statement of the case, frame the question of law and refer it to this Court. It is clarified however that in the event of the question being determined against the respondent, the respondent's rights under section 52(1) would stand revived - Application disposed of.
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