TMI Tax Updates - e-Newsletter
August 3, 2013

Case Laws in this Newsletter:

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

TMI SMS

• Taxable Service - franchise of DPS - services provided by the assessee under several agreements in their essential character fall within franchise service -Tri

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Articles

1. DECLARING IMPERMISSIBLE AVOIDANCE ARRANGEMENT

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Continuing scheme of Technology Upgradation/ Establishment/ Modernization of Food Processing Industries during the 12th Plan (2013-17) for meeting the committed liabilities of 12th Plan

2. Amendment to the Right to Information Act, 2005

3. Continuation of Rajiv Gandhi Grameen Vidyutikaran Yojana in 12th Plan

4. Revision of the terms and conditions of the rehabilitation package for Hindustan Organic Chemicals Limited

5. OFS of India Tourism Development Corporation (ITDC) and State Trading Corporation (STC) Subscribed and the Government will Receive Rs. 34.45 Crore as Divestment Receipts

Notifications

VAT - Delhi

1. F. 3(364)/Policy/VAT/2013/PF/516-527 - dated 26-7-2013 - DVAT

All the TAN holders shall issue TDS certificates electronically in Form DVAT-43 with effect from 01/07/2013.

Highlights / Catch Notes

Income Tax

• Tribunal Must Reassess Whether Income from Share Sales Is Business Income, Crucial for Accurate Tax Classification.

  Case-Laws - HC : When the specific case of the assessee was that the income arising from the sale of shares could not be treated as income from business, in fairness to the claim of the assessee, the Tribunal ought to have considered the same in detail to arrive at a factual finding - HC
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• High Court Rules Developer's Income from Landowner Agreement Subject to Capital Gains Tax.

  Case-Laws - HC : Nature of income in the hands of land developer (vendor) - third party agreement with land owner - the receipt would attract capital gains at his hands - HC
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• Section 148: New Assessing Officer Can't Use Notice to Fix Previous Officer's Legal Error in Reopening Assessment.

  Case-Laws - HC : Notice u/s 148 - Change of opinion - If, in the process, AO made a legal error, the succeeding Assessing Officer cannot correct such an error, through the process of re¬opening of the assessment - HC
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• High Court Upholds Additions u/s 68 of Income Tax Act for Unjustified High-Interest Borrowings by Assessee.

  Case-Laws - HC : Addition u/s 68 - the assessee had no justification for borrowing such amounts at high rate of interest, even without disturbing the well established principle of not insisting on the assessee proving source of the source, on the robust facts of the revenue authorities, additions confirmed - HC
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• Interest on Delayed Payments Not Penal, Deductible Under Income Tax Act Section 37(1), High Court Rules.

  Case-Laws - HC : Deduction u/s 37(1) - Whether, payment of interest on delayed payment of instalments is penal in nature - Held No - It was simplicitor liability of interest on delayed payment of installments - HC
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• No +/- 5% range needed for Cost Plus Method in transfer pricing without comparable prices.

  Case-Laws - AT : Transfer pricing adjustment - No need for provision of +/- 5% range for CPM of the arm's-length price as there are no comparable prices in the instant case providing a set or range of multiple prices to be addressed by the +/-5% range. - AT
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• No Penalty for Assessee u/s 271(1)(c) Due to Bona Fide Explanation and Genuine Book Entries.

  Case-Laws - AT : Penalty u/s 271(1)(c) - The assessee has not failed to offer any explanation and the explanation of the assessee was not found to be false & has made bona-fide explanation based upon the entries in books of account maintained of the earlier years. - No penalty - AT
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• Company's Club Expenses for Employees Subject to Fringe Benefit Tax u/s 115WB(2)(N) of Income Tax Act.

  Case-Laws - AT : Levy of Fringe Benefit Tax (FBT) - The assessee being a company, the club expenses incurred would be so only for its employees and, therefore, in clear view fall to be covered u/s. 115WB(2)(N). - AT
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Customs

• Importing Hazardous E-Waste Requires MOEF Approval; Unauthorized Imports Face Confiscation Under Customs Rules.

  Case-Laws - AT : Import of Hazardous Waste – e-waste - Datagraphic Display Tubes which are used in computer monitors. - no permission of the Ministry of Environment and Forests (MOEF) had been obtained for import for the purpose of re-use the same would be liable for confiscation - AT
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Indian Laws

• Court Lacks Jurisdiction: MOA Executed in Kolkata, Performance in West Bengal; Delhi Invoices Insufficient for Jurisdiction.

  Case-Laws - HC : Jurisdiction of the Court to decide the issue - MOA was executed at Kolkata and the performance of the contract was to be carried out in West Bengal. Merely because invoices were raised from New Delhi or payments were made by the plaintiff on account of service tax/education cess at New Delhi, are not sufficient to clothe this court with jurisdiction - HC
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• Arbitration Proceedings Infructuous After Disallowance Order Set Aside; Respondents Can't Continue Arbitration.

  Case-Laws - HC : Arbitration award - If respondents were entitled to invoke arbitration by virtue of Assessing Officer's disallowance of depreciation, respondents could have done so separately. Proceedings which had become infructuous by virtue of initial order of dis-allowance of depreciation having been set aside, such proceeding could not have been continued by respondents - HC
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Service Tax

• Franchise School Services Classified as Taxable: Agreements Deemed Franchise Services Under Tax Regulations.

  Case-Laws - AT : Taxable Service - franchise of the school (DPS) - classification - Whether any taxable service under any category was provided by the assesse - services provided by the assessee under the several agreements in their essential character fall within franchise service - AT
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• Court Grants Partial Stay on 67% Rebate Claim for Services Due to Lack of Invoice Proof for Tax Liability.

  Case-Laws - AT : Claim of 67% rebate on Erection, Commissioning and Installation Services. - no invoices have been brought in or shown to indicate that sales tax liability is discharged - stay granted partly - AT
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• Charges for Computing Linkage Not Stock Broker Services, Stay Granted in Case.

  Case-Laws - AT : Collecting the charges by the appellant from his customers and paying the same to Commodity Exchange for Computing Linkage, prima-facie, will not fall under the category of Stock Broker Services - stay granted - AT
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• Waste Removal and Housekeeping Deemed 'Cleaning Services' for Service Tax; Partial Stay Granted.

  Case-Laws - AT : Removal of waste and housekeeping, in our considered view, prima-facie would get covered under the ‘Cleaning Services’, as removal of waste is nothing but cleaning of that area - stay granted partly - AT
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Central Excise

• Court Grants CENVAT Credit for Plastic Granules in IV Fluid Production Despite Final Product Duty Exemption.

  Case-Laws - HC : CENVAT credit in case the final product is exempted from payment of duty - Appellant was entitled for CENVAT Credit on proportionate plastic granules which generated the scrap in the manufacturing process of intravenous fluids (IV Fluids) - HC
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• Appellant Allowed Cenvat Credit for Input Services Despite Manufacturing Exempted Goods; Stay Granted in Favor.

  Case-Laws - AT : Cenvat Credit - merely because the Appellant manufactures exempted goods, that would be no justification to disallow to it the benefit of availing of Cenvat credit on that quantity of input service which is utilised in or in relation to the manufacture of dutiable final products - stay granted - AT
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• Cenvat Credit Confirmed for Outward Transportation Charges Under GTA Services; Service Tax Credit Permitted.

  Case-Laws - AT : Cenvat Credit on GTA services for outward transportation charges - cenvat credit of the service tax paid on the outward transportation is eligible and allowed - AT
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VAT

• Uttar Pradesh Paddy Purchase Tax Not Adjustable Against Central Sales Tax, Reassessment Confirms Decision.

  Case-Laws - HC : Purchase tax paid in the State of U.P. Reassessment - Adjustment of tax paid on purchase of paddy - the purchase tax paid in the State of U.P. cannot be adjusted against the central sales tax. - HC
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Case Laws:

• Income Tax

• 2013 (8) TMI 83
  Business income or short term capital gain - Receipt from sale and purchase of shares and securities - Tribunal held that income as business income - Held that:- If the Tribunal decides that the findings of the Commissioner of Income Tax (Appeals) was without any material, nothing prevented the Tribunal from going into those facts and the findings to arrive at a finding based on the records - When the specific case of the assessee was that the income arising from the sale of shares could not be treated as income from business, in fairness to the claim of the assessee, the Tribunal ought to have considered the same in detail to arrive at a factual finding - recording of reasons is meant to serve the wider principles of justice and the quasi-judicial authority must record reasons in support of his conclusions and the decision of the Apex Court pointing out that insistence on reason is a requirement for both judicial accountability and transparency, it goes without saying that the order passed by the Tribunal on the mistaken impression that the assessee had not raised any dispute on the facts found by the Assessing Officer, calls for interference by this Court - Following decision of M/s.Kranti Associates Pvt. Ltd. and another V. Sh.Masood Ahmed Khan and others [2010 (9) TMI 886 - SUPREME COURT OF INDIA] - Decided in favour of assessee.

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• 2013 (8) TMI 82
  Capital gain or business income - Ownership of property - Nature of income in the hands of land developer (vendor) - Tribunal held income as capital gain - Held that:- Original agreement between the assessee and the original owners makes no reference to the profession status of the assessee for taking the services of the assessee - when possession was given to the assessee enabling exercise of general control for discharging certain services, in consideration whereof the assessee was to be given 3 grounds of land coupled with the power given to the assessee to sell the 3 grounds, then the receipt would attract capital gains at his hands - Decided against Revenue.

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• 2013 (8) TMI 81
  Notice u/s 148 - Change of opinion - Held that:- When the earlier Assessing Officer had framed scrutiny assessment and examined certain deductions thoroughly, it was, thereafter, simply not open to the latter Assessing Officer to re-open the assessment on the basis that the earlier Assessing Officer committed a legal error. Once the claim was examined, scrutiny assessment was framed and Assessing Officer came to the conclusion with or without recording reasons in the assessment order, such an assessment could not have been subjected to the process of reopening - it is not a case where the Assessing Officer, while framing original scrutiny assessment, did not examine the petitioner's claim of deduction. He was acutely conscious of such a claim and was also of the opinion that the entire claim was not required to be granted. He called for explanation of the assessee and after taking into consideration the explanation, made disallowance to the extent he was convinced to do. If, in the process, he made a legal error, the succeeding Assessing Officer cannot correct such an error, through the process of re¬opening of the assessment - Following decision of Commissioner of Income Tax Vs. Kelvinator of India Ltd.[2010 (1) TMI 11 - SUPREME COURT OF INDIA] - Decided in favour of assessee.

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• 2013 (8) TMI 80
  Bogus purchases - Tribunal held that purchases are not bogus since there are entries in books of accounts for them - Held that:- Assessee had made payment through crossed cheques and assessing officer did not find that payment made came back to assessee. Assessing Officer has made addition in respect to the outstanding amount as on 31.3.2001 which has been cleared in the succeeding years. The ratio of the creditor to the purchases is normal considering the past records of the assessee - The issue is essentially based on facts - no question of law arises - Decided against revenue. Disallowance of brokerage commission - CIT sustained addition - Tribunal deleted addition due to lack of evidence - Held that:- Assessee made payment of commission through account payee cheques for sales canvassed by the party and also in consideration of the collection recovered from purchaser. Payments cannot be unreasonable particularly when M/s. Shree Shantinath Silk Industries is not related to the assessee and so even disallowance made by CIT(A) is not proper - The issue is essentially based on facts - no question of law arises - Decided against revenue.

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• 2013 (8) TMI 79
  Addition u/s 68 - Credits received from donors - credit worthiness - Tribunal held that source of income of donors not disclosed therefore upheld addition - Held that:- assessee, when once discharges initial burden of proving the source, he is not required to prove the source of the source - The factor that the donors did not possess independent source to make such deposits must be viewed in light of the findings that the assessee had no justification for borrowing such amounts at such high rate of interest. These aspects would have a bearing on the genuineness of the transaction and the credit worthiness of the donors and cannot be seen as an attempt to throw the burden to prove source of the source on the assessee - substantial amount of cash was deposited in the bank accounts of all the creditors shortly prior to issuance of cheques and insufficiency of the fund with the creditors when could be duly established from the overall facts and circumstances of the case and when it is further found as a matter of fact that the assessee had no justification for borrowing such amounts at high rate of interest, even without disturbing the well established principle of not insisting on the assessee proving source of the source, on the robust facts of the revenue authorities have rightly not concluded in favour of the assessee - Decided against Assessee.

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• 2013 (8) TMI 78
  Deduction u/s 37(1) - Whether, payment of interest on delayed payment of instalments is penal in nature - Held that:- payment in question concerned interest for delayed payment of instalments. Though the agreement referred to as penal interest, the same was rightly not treated by the Tribunal as penalty. Merely because the agreement referred to such interest as a penal interest, any such payment would not partake the character of penalty. It is not even the case of the Revenue that the sum expended by the assessee was for payment of penalty. It was simplicitor liability of interest on delayed payment of installments - Decided against Revenue.

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• 2013 (8) TMI 77
  Notice u/s 148 - A.O. rejected assessee s objection to notice of reassessment - Held that:- impugned notice has been issued beyond a period of four years from the end of relevant assessment year - neither any order rejecting the petitioner s objection nor Revenue contends that the belief of the Assessing Officer that income chargeable to tax has escaped assessment, is based on any material outside of the record - full facts were there before the Assessing Officer in the form of declarations made in the returns filed as well as through correspondence during the course of scrutiny assessment. This therefore, is not a case where the assessee is stated to have failed to disclose truly and fully all material Acts necessary for assessment - Decided in favour of assessee.

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• 2013 (8) TMI 76
  Assessment of income - whether CIT(A) erred in confirming the addition to the extent of Rs.2,70,000/- as income from other sources instead of exempt agricultural income - Held that:- Considering the material available on record claim of the assessee regarding cultivation of 180 bigha of land was accepted by the CIT(A) who has taken an amount of Rs.3500/- per bigha as net income from agricultural operations. He has taken Rs.6500/- to Rs.7000/- per bigha as gross amount of sugar cane value which on the basis of 50 qtl. yield per bigha gives a rate of Rs.130/- per qtl. of sugar cane which the AR has claimed and which the CIT(A) has also considered. CIT(A) only deducted the amount of agricultural expenses which he estimated at 50% of gross receipts which is justified. AR has not commented anything about expenses, he only insisted that that rate of sugar cane should have been taken @ Rs.130/- per qtl. which was taken by CIT(A) and after reducing expenses, he arrived at Rs.3500/- being net income per bigha. Therefore, no infirmity in the order of CIT(A) - appeal filed by the assessee dismissed

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• 2013 (8) TMI 75
  Transfer pricing adjustment - reference to TPO - whether there existed an AE relationship between the assessee and M/s O s Length Price - Held that:- When the assessee has chosen a Most Appropriate Method (MAM) and substantiated the choice in its TP study, it is up to the TPO to record and substantiate the reasons as to why the assesse s MAM is incorrect and why some other TP method needs to be the Most Appropriate Method (MAM). In the instant case however no substance in any of the TPO s multiple arguments for rejection of assessee s internal CPM and adoption of external TNMM. Also as decided in DIT (Intl. Taxation) vs. Morgan Stanley (2007 (7) TMI 201 - SUPREME Court) "the most appropriate method has to be applied for computation of the arm s-length price. It will depend on facts and circumstances of each particular international transaction....". Applying this ratio internal CPM seems to be the Most Appropriate Method (MAM) rather than external TNMM. In favour of assessee. Whether a sick company under BIFR would be erroneous to compare it cursorily using external TNMM - Held that:- Correct comparability analysis would be a non-trivial exercise and the entire TNMM application is bound to be sub-optimal. Given that internal CPM is available and easily applicable in the instant case, no merit in applying external TNMM in the instant case. In favour of assessee. Adjustments during the computation of the arm s-length price - whether be restricted only to the international transactions and not to the entire turnover of the assessee? - Held that:- As decided in Lionbridge Technologies (P) Ltd. vs. DCIT [2012 (8) TMI 326 - ITAT, MUMBAI] assessee entered into international transactions with its AEs and also non-AEs and transfer pricing adjustment can be made only with reference to the international transactions with the AEs and not non-AEs. Thus AO is directed to restrict the adjustments, if any, only to international transactions. In favour of assessee. No need for provision of +/- 5% range for CPM of the arm s-length price as there are no comparable prices in the instant case providing a set or range of multiple prices to be addressed by the +/-5% range. Against assessee.

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• 2013 (8) TMI 74
  Deduction u/s. 80IB(10) disallowed - contention of the assessee that the assessee commenced its business by 10.3.2006 and in order to claim deduction u/s. 80IB(10) the project was completed by 31.3.2011 relevant to the assessment year 2011-12 i.e. within 5 years from the end of the financial year and for which completion certificate was received on 20.9.2011. Further it was stated that though the assessee was following block-wise completion contract method of accounting. Held that:- The meaning of "date of completion" as given in section 80IB(10)(a) (ii) would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held in the case of Bajaj Tempo vs. CIT (1992 (4) TMI 4 - SUPREME Court) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. Further section 80IB(10)(a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. Of course if such period exceeded the prescribed limit, Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, AO need not insist on the completion certificate in this assessment year, this is the right meaning of the statute. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009 As for the assessment year 2010-11, the assessee's claim u/s. 80IB(10) was granted on the basis of completion certificate issued by the GHMC, Circle-12, West Zone, Hyderabad vide letter dated 20.11.2011 showing that the project is completed within 5 years from the date of commencing of the project. When the Department accepted the same certificate in the A.Y. 2010-11, there is no reason to doubt the same certificate in the A.Y. 2009-10 to deny the deduction u/s. 80IB(10). See Kura Homes (P.) Ltd. Versus ITO [2012 (11) TMI 466 - ITAT HYDERABAD] - appeal of the assessee is allowed.

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• 2013 (8) TMI 73
  Jurisdiction power u/s 263 by CIT(A) - determination of the capital gain is not correctly made by the AO - Held that:- Since the issue of entire capital gain assessable in accordance with the development agreement was held by the Tribunal as assessable for the assessment year 1997- 98 and, therefore, no part of the capital gain is assessable for the assessment year under consideration. Hence, the CIT(A) should have decided the appeal on merits by considering the fact that the capital gain is not assessable for the assessment year 2002-03 when it was assessed for the assessment year 1997-98 and that the amount was actually determined for the assessment year 1997-98 which cannot be assessed again now. Therefore, set aside the order of the CIT(A) in all the appeals under consideration and allow the grounds raised by the assessees in their respective appeals.

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• 2013 (8) TMI 72
  Penalty u/s 271(1)(c) - inaccurate particulars of income on account of liability in the name of sundry creditor M/s Shri Ram Udyog - Held that:- The assessee has filed copy of the account of M/s Shri Ram Udyog for the assessment year under appeal to show that there was opening credit balance of Rs.94,758.60 as on 01.04.2004. At the end of the year, on 31.03.2005 there is credit balance of Rs.1,20,850/-. The assessee has also filed copy of the balance sheet of the preceding assessment year as on 31.03.2004 in which the credit balance on 31.03.2004 in the name of M/s Shri Ram Udyog is mentioned as Rs.94,758.60. Thus, the aforesaid amount is coming up from the preceding assessment year and was shown as opening balance in the account of the assessee on 01.04.2004. Therefore, not a transaction related to the assessment year under appeal even if the addition is maintained on quantum as was not pressed before CIT(A). Thus, the item which did not pertain to assessment year under appeal and was merely a opening balance in the assessment year under appeal which was coming up from the earlier year, cannot be considered for any purposes for fastening liability upon assessee. The books of account of assessee for preceding assessment year have not been doubted by the Revenue authorities. For opening balance no adverse view could be taken in the assessment year under appeal. The assessee has not failed to offer any explanation and the explanation of the assessee was not found to be false & has made bona-fide explanation based upon the entries in books of account maintained of the earlier years. As decided in M/s Rajasthan Spinning Weaving Mills [2009 (5) TMI 15 - SUPREME COURT OF INDIA] "on every demand penalty is not automatic.". Also the case of CIT Vs The Shahabad Coop. Sugar Mills [2009 (10) TMI 154 - PUNJAB & HARYANA HIGH COURT] held that making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty under section 271(1)(c). Also see CIT Vs. Reliance Petro Products Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) wherein held mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of assessee. Thus penalty should not be imposed against the assessee. In favour of assessee.

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• 2013 (8) TMI 71
  Validity of the levy of Fringe Benefit Tax (FBT) on the various fringe benefits deemed to have been allowed by the assessee - levy of tax vide order u/s. 115WE(3)- expenditure is on the maintenance of guest house - Held that:- It is only where and to the extent the guest house is used during the relevant year by the assessee's employees, that the impugned expenditure would stand to be covered u/s. 115WB(2)(K), and the said provision be said to be applicable. The total expenditure incurred during the year would therefore be required to be proportioned in the ratio of the user by the assessee's employees as against non-employees. The assessee succeeds partly, and the matter will travel to the AO to allow the assessee an opportunity to furnish the relevant details. Expenditure on hotel during travel, and motor car expenses, which are claimed by the assessee to have been incurred for the purpose of its business, leading to no benefit to the concerned employees. As evident, the same stand covered by the various decisions Tata Motors Ltd. [2013 (5) TMI 372 - ITAT MUMBAI], Tata Asset Management [2012 (6) TMI 137 - ITAT MUMBAI], Toyota Kirloskar Motor Pvt. Ltd [2012 (6) TMI 484 - ITAT, Bangalore] therefore, the same are not liable for the charge of FBT. Club expenses - Held that:- The assessee's only claim is that the club expenditure is incurred for the purpose of its business. The Revenue, however, does not dispute that, and neither is it the bone of contention between the two, so as to be relevant. What is relevant is whether the same nevertheless results in a provision of any benefit, direct or indirect, to the assessee's employees. The assessee being a company, the club expenses incurred would be so only for its employees and, therefore, in clear view fall to be covered u/s. 115WB(2)(N). The assessee's case, accordingly, is without merit - assessee's appeal is partly allowed.

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• Customs

• 2013 (8) TMI 70
  Conditions for granting bail - Whether the court was right in imposing conditions while granting the bail - athe petitioner was arrested by Customs Officer in purported exercising power conferred under Section 104 of the Customs Act, 1962 in connection with a consignment of export made by the said company - Held that:- The petitioner should be permitted to take back his passport from the concerned authority to go abroad strictly only for a month according to his requirement subject to the conditions - the State is within its domain to put restriction about freedom of movement but a balance has to be struck between ‘liberty’ and ‘justice’ – court heavily relied upon Maneka Gandhi vs. Union of India (1978 (1) TMI 161 - SUPREME COURT). On inquiry the counsel for the respondent could not give any positive and acceptable answer over the question “whether custody trial is needed in such type of case”- even the respondent cannot give any clear-cut probable time during which the trial may be concluded - the respondent sat idle - the rationality and proportionality of the prayer of the petitioner should be considered - deprivation of his personal life and liberty has to be taken care of – petition allowed in the favour of petitioner.

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• 2013 (8) TMI 69
  Confiscation of goods – waiver of Penalties imposed – Held that:- Assesse had not made out prima facie case for complete waiver of penalties - assesses could not produce any documentary evidence to indicate that the rough diamonds seized correspond to the description and value given in the bills of entry under which the rough diamonds were imported – maintenance of stock register/account, the assesse could not explain as to how the stock of imported rough diamonds was maintained and how the same were disposed off – pre deposit of an amount Rs. 50,000 was ordered – on such submission rest of the duty was waived – decided partly in favor of assessee.

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• 2013 (8) TMI 68
  Suspension of CHA license – Held that:- order deserves no merit and liable to be set aside - appellant had not even filed bill of entry - they had no role to play for clearance of the consignment wherein in the consignment of furniture some cigarettes were found – decided in favour of CHA.

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• 2013 (8) TMI 67
  Import of Hazardous Waste – e-waste - Datagraphic Display Tubes which are used in computer monitors. - confiscation of goods - Appellant challenged the notice issued for confiscation of the goods imported u/s 111(d) and for imposition of penalty - Department was of the view that the goods were e-waste whose import was restricted under Import Export Policy 2009-14 r.w Board's Circular No. 27/2011- Held that:- The goods had been imported without permission from the MOEF the import would have to be treated contrary to the restrictions - it would be liable for confiscation u/s 111(d) - goods imported were electronic assemblies for direct re-use - they would be covered by Serial No. 1110 of Part B of the Schedule-III to the Hazardous Waste Rules, 2008 – they would require prior permissible from MOEF - no permission of the Ministry of Environment and Forests (MOEF) had been obtained for import for the purpose of re-use the same would be liable for confiscation - appeal decided against assessee.

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• Service Tax

• 2013 (8) TMI 92
  Taxable Service - franchise of the school (DPS) - classification - Whether any taxable service under any category was provided by the assesse - Held that:- The assesse provided service not to itself but to the other parties to the agreements – following the decision of FAQIR CHAND GULATI Versus UPPAL AGENCIES PVT. LTD.[2008 (7) TMI 159 - SUPREME COURT] - There was no element of service to the assessee itself - an agreement which placed the entire financial burden of establishing and maintaining the school, including the liability to fund the entire capital and non-capital expenditure - under writing the entire financial liability - liability arising out of any litigation and obligating further that all available and remaining assets on determination of the agreement would revert to the other party alone would not tantamount to a joint venture arrangement - description of the arrangement as a joint venture or a collaborative arrangement was regardless - The fact that the other party was required to pay a specified amount to the assessee clearly and compellingly indicates that the assessee was remunerated for services provided to the other party to the agreement – Decided against assesse. Scope of the activity - whether prior to 16.06.2005 the activities of the petitioner fall outside the ambit of franchise defined in Section 65(47) - Held that:- The assessee had provided the taxable service - the agreement clearly fulfills the all the four ingredients of the definition of franchise - franchisee being granted a representational right to provide service or undertake any process identified with the assessee was not involved - the assessee provided the concept of business operations to the franchisee including knowhow, method of operation, managerial expertise, marketing techniques, standard of quality control but excluding the passing of the ownership of all the knowhow to the franchisee was equally satisfied - the agreement enjoined obligation on the franchisee not to engage in providing similar services or process identified with any other person – Decided against assesse. Applicability of amendment - Whether on and after the amendment of the definition of franchise the activities of the assessee fall outside the ambit of the taxable franchise service - since no representational right was granted by the assessee to the franchisee to provide service or undertake any process identified with the assessee - particularly since under a joint venture agreement / arrangement no representational right was conferred on one joint venture partner to represent the other parties – Held that:- The services provided by the assessee do not fall within Intellectual Property Services - except the temporal permitting of the use or enjoinment of the assessees intangible property other services performed under the agreements were outside the purview of Intellectual Property Service - The services falls appropriately and clearly within the framework of the taxable franchise service rather than the other namely Intellectual Property Service – Decided against assesse. Classification of service - Whether the activities of the assessee always constituted Intellectual Property Service and outside the ambit of franchise service even prior to 10.09.2004 - the assessments cannot also be justified as Intellectual Property Service after 10.09.2004 as well - since the assessee was never put on notice - classification of services as set out in Section 65A where composite services consisting of a combination of different services cannot be classified in the manner - these were required to be classified as if they consisted of a service which gives them their essential character – services provided by the assessee under the several agreements in their essential character fall within franchise service – Decided against assesse. Period of Limitation - Whether the adjudication orders invoking the extended period of limitation to the extent the extended period was invoked were unsustainable – Held that:- The extent of the liability of the assessee to service tax within the normal period of limitation u/s 73(1) was required to be remitted to the adjudicating authority for de novo computation of the liability - the extended period of limitation could not be invoked when there was a bona fide dispute between the parties in regard to issues as to tax liability – following the judgements of Tecumseh Products India Ltd. vs. C.C.E., Hyderabad [2004 (5) TMI 76 - SUPREME COURT OF INDIA] and Fedders Lloyd Corporation Pvt. Ltd. vs. C.C.E., New Delhi [2007 (12) TMI 8 - SUPREME COURT OF INDIA] - the department was aware of the essential ingredients of the transactions on which liability to tax could be determined and no suppression could be inferred when the assesee had categorically sensitized the Department as to the relevant facts on which a view could have been taken as to the liability to tax – Decided in favor of assesse. Penalty - Whether imposition of penalty was unsustainable since the failure of the assessee to remit service tax was on account of a bonafide belief as to its immunity to service tax arising out of a bonafide interpretation of the relevant provisions – Held that:- There was no reason to interfere with imposition of penalties u/s 76 and 77 – There was no justification for a generic invocation of the provisions of Section 80 to eschew levy and collection of penalties u/s 76 and 77 - quantum of tax and the penalties imposed u/s 76 and 77 as adjudicated were confirmed – Decided against assesse.

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• 2013 (8) TMI 88
  Stay Application – Waiver of pre-deposit - Claim of 67% rebate on Erection, Commissioning and Installation Services. - Benefit of Notification No. 1/2006-ST by reducing 67% of the total value he has received for the services rendered, explaining as insulating material such as Aluminium sheet, thermocole, PU Blocks, Aluminium sheets supplied by them as sale of goods, for which the VAT is paid by them – Held that:- From the record no invoices have been brought in or shown to us so as to indicate that sales tax liability is discharged - keeping in mind the appellant’s claim to rework out the demand considering the cum-tax value, directed appellant to deposit an amount of Rs. 5,00,000/- (Rupees five lakhs only) within a period of eight weeks.

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• 2013 (8) TMI 87
  Stay application – Waiver of pre-deposit - Amount collected by the appellant as Computer Linkage Charges from his customers and paying the same to the Commodity Exchange - Demand of service tax liability is on the amount collected by the appellant – Held that:- Issue involved in this case is debatable one - Collecting the charges by the appellant from his customers and paying the same to Commodity Exchange for Computing Linkage, prima-facie, will not fall under the category of Stock Broker Services - Appellant has made out a prima facie case for the waiver of pre-deposit of amounts involved – Waiver of pre-deposit allowed – Stay allowed.

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• 2013 (8) TMI 86
  Waiver of pre-deposit – Stay application - Appellant is engaged in removing waste from the factory premises of Tata Chemicals and is not indulging in any cleaning services – Held that:- Removal of waste and housekeeping, in our considered view, prima-facie would get covered under the ‘Cleaning Services’, as removal of waste is nothing but cleaning of that area – As per the counsel of the appellant there is definite connotation for ‘Cleaning Services’ in the definition and also for the ‘Housekeeping Services’ a different connotation, needs to be gone into detail - Appellant is directed to deposit an amount of Rs. 3,00,000/- (Rupees three lakhs only) within a period of eight weeks – Stay granted in part.

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• 2013 (8) TMI 85
  Stay application – Waiver of pre-deposit - Issue involved in this case is whether the appellant herein is required to include the cost of free supply of material given by the service receiver for ascertaining gross value for discharging Service Tax liability or not - There were contrary views expressed by different Benches, the matter was referred to a larger bench in one case – Held that:- Since the issue involved in this case is before Larger Bench, as a convention, appellant has made out a case for waiver of pre-deposit of amounts involved – Stay granted.

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• Central Excise

• 2013 (8) TMI 66
  CENVAT credit in case the final product is exempted from payment of duty - Appellant, is engaged in manufacture of goods including intravenous fluids (IV Fluids) falling under the Chapter 30 of the Central Excise Tariff Act, 1985. During the course of manufacture (iv fluids) by form fill and seal technology plastic scrap is generated as waste. The appellant availed exemption on clearance of waste and scrap under notification no.89/95-CE dated 18th of May, 1995 – Held that:- CENVAT credit can be utilized for payment of duty on waste and scrap for the simple reason that waste and scrap are "final products" within the definition under Rule 57 AA (c) - Appellant was entitled for CENVAT Credit under Rule 57AA of the Central Excise Rules on proportionate plastic granules which generated the scrap in the manufacturing process of intravenous fluids (IV Fluids) – Appeal allowed – Decided in favor of Assessee.

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• 2013 (8) TMI 65
  Stay application – Waiver of pre-deposit – Submission of the appellant that there is an error in the impugned order in as much as the first appellate authority has held that the appellants should have filed two appeals against the show cause notices decided by the adjudicating authority – Held that:- This Bench vide Stay Order No. M/12324 to 12327/WZB/AHD/2013, dt.13.05.2013, on an identical issue, has held that the first appellate authority should not have held that the appellant should have filed two separate appeals against the two separate show cause notices – Also, issue involved in this case is regarding the classification of Salmonella Antigens. In the appellant’s own case, vide Final Order dt.03.10.2011, as reported in [2011 (10) TMI 93 - CESTAT, AHMEDABAD], this Bench has taken a view holding in favour of the assessee - Appellants have made out a case for complete waiver of pre-deposit of the amounts involved – Decided in favor of Assessee.

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• 2013 (8) TMI 64
  Pre-deposit – Stay application – Clandestine removal - Contentions raised by Ld. Counsel that even in the case of clandestine removal, various judicial for as have taken a view that the benefit of CENVAT Credit of the duty paid on the inputs cannot be denied – There are various decisions holding that while arriving at duty liability, the amount which has been considered as a value, be considered as cum-duty price and duty liability should be worked back - Entire issue needs to be gone into detail, which can be done only at the time of final disposal of appeals - Appellant has not made out a prima facie case for complete waiver of the pre-deposit of the amounts involved - Direct the main assessee M/s Shubham Polymers to pre-deposit an amount of Rs.15 lakhs (Rupees Fifteen Lakhs only) within a period of eight weeks – Decided against the Assessee.

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• 2013 (8) TMI 63
  Stay application – Held that:- Appellant has been callous not to file any reply and attend the personal hearing before the adjudicating authority as well as first appellate authority. The same attitude is seen even in appeal before the Tribunal also despite the notice of hearing having been dispatched long back - Seems that the appellant is not serious in prosecuting the Stay Petition filed by him – Directed appellant to pre-deposit an amount of Rs.2 lakhs (Rupees Two lakhs only) within a period of eight weeks – Decided against the Assessee.

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• 2013 (8) TMI 62
  Waiver of pre-deposit – Stay application - Cenvat credit on the basis of attested copies of bills of entry - Adjudicating authority is of the view that the appellant could have availed the cenvat credit only on the duplicate copies of bills of entry - During the course of transportation of goods from Kandla Port to the appellant’s factory, the duty paying documents i.e. bill of entry was lost or misplaced – Held that:- In an identical situation, coordinate Bench of the Tribunal in the case of Balakrishna Industries Limited vs. Commissioner of Central Excise & S.T., Jaipur-1 [ 2013 (5) TMI 35 - CESTAT NEW DELHI], has specifically held that credit needs to be allowed - Decision of the coordinate Bench in the case of Balakrishna Industries Limited is squarely on the point raised before us - Following the view taken by the coordinate Bench, appellant has made out a prima facie case for the waiver of pre-deposit of the amounts involved – Decided in favor of Assessee.

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• 2013 (8) TMI 61
  Cenvat Credit in input service when both of dutiable and exempted products are manufactured – Held that:- The Appellant, as a manufacturer of exempted products would not be entitled to Cenvat credit on such quantity of input service which is used in the manufacture of exempted goods, this being the plain stipulation contained in rule 6(1). This is subject to Rule 6(5) which has an over-riding provision which allows the availment of Cenvat credit in respect of certain specified taxable services unless they are used exclusively in or in relation to the manufacture of exempted goods. But the point to note is that merely because the Appellant manufactures exempted goods, that would be no justification to disallow to it the benefit of availing of Cenvat credit on that quantity of input service which is utilised in or in relation to the manufacture of dutiable final products - Crude oil which is subject to a further process of manufacture at the Uran plant for the production of dutiable final products is exempted from central excise duty. ONGC admittedly also produces dutiable final products. The production of those dutiable products is possible only on the continuous supply of crude oil. Held that:- The credit of Service Tax taken with respect to services availed on the platforms cannot be disallowed for the services availed with respect to dutiable exempted goods. There are no findings to the extent that Sour gas is directly sold by ONGC from Bassein and Satellite off-shore platforms which is exempted. Secondly, it is also relevant that ISD certificate issued by ONGC from their ISD registered premises cannot be questioned at the recipient’s end - Appellants have made out a prima facie case for complete waiver of the confirmed demands, interest and penalties imposed – Decided in favor of Assessee.

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• 2013 (8) TMI 60
  Waiver of pre-deposit of penalty – Held that:- Both the lower authorities have not recorded any reasoning for visiting the appellant with penalty under 173Q of the erstwhile Central Excise Rules, 1944. In fact, the said Rule specifically requires that assessee be put to notice under which sub clause the penalty is sought to be imposed. In the absence of any such findings, appellant has made out a prima facie case for the waiver of pre-deposit of the amount of penalty – Decided in favor of Assessee.

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• 2013 (8) TMI 59
  Cenvat Credit on GTA services for outward transportation charges - Purchase orders categorically indicate that the goods are to be supplied by the appellant at the purchasers’ doorstep on FOR terms. LRs which were also produced along with the specimen sample also indicate of door delivery to the purchasers of the goods. The invoice which has been raised by the appellant indicate specifically the purchase orders and the terms therein mentioned. In light of such a factual matrix, the appellant had contracted for delivery of the goods manufactured by him to the purchasers’ doorstep – Held that:-Relying upon the judgment of Hon’ble High Court of Punjab & Haryana in the case of Ambuja Cements Ltd. [2009 (2) TMI 50 - PUNJAB & HARYANA HIGH COURT] and also in the case of Palco Metals Ltd. [ 2011 (8) TMI 88 - CESTAT, AHMEDABAD] , cenvat credit of the service tax paid on the outward transportation is eligible and allowed – Decided in favor of Assessee.

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• CST, VAT & Sales Tax

• 2013 (8) TMI 91
  Purchase tax paid in the State of U.P. Reassessment - Adjustment of tax paid on purchase of paddy - it was contended that the authorities below was not justified in initiating the proceedings under Section 21 of the Act, even if there is an escapement of turnover. The authorities should have invoked jurisdiction under Section 10-B of U.P. Trade Tax Act i.e. revisional jurisdiction of the Act - Held that:- It is a case where the Assessing Authority has wrongly allowed deduction of tax paid on purchase of paddy while computing the payment of sales tax liability of central sales tax. The assessment order would show that the Assessing Officer did not satisfactorily deal with the point whether such deductions are permissible or not within the meaning of Section 15(c) of the Central Sales Tax Act - Following decision of Gaya Deen Kailash Chand v. State of U.P. & Ors. [2013 (3) TMI 425 - ALLAHABAD HIGH COURT] and Satnam Overceas (Export) v. State of Haryana [2002 (10) TMI 361 - SUPREME COURT OF INDIA] - Decided against assessee.

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• 2013 (8) TMI 90
  Increase the indent of the sales tax exempted high speed diesel - Held that:- 3rd respondent is directed to dispose of the representation, dated 22.9.2012, on merits and in accordance with law, within a period of eight weeks from the date of receipt of a copy of this order, after giving an opportunity of hearing to the petitioner and the other persons concerned, if any. The petitioner is directed to furnish a copy of the representation, dated 22.9.2012, to the 3rd respondent, along with a copy of this order - Decided in favour of assessee.

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• Indian Laws

• 2013 (8) TMI 89
  Jurisdiction of the Court to decide the issue - Plaintiff is a company incorporated under the Companies Act, 1956 having its registered office at New Delhi and head office at Gurgaon, Haryana - The defendant is a body corporate constituted by the West Bengal Act, LIX 1980 - Vide Memorandum of Agreement (MOA hereinafter), the defendant awarded a contract to the plaintiff to operate and maintain at Palta, West Bengal – Held that:- As per the judgment in the case of South East Asia Shipping Co. Ltd. v. Nav Bharat Enterprises Pvt. Ltd. and Ors.,[1996 (3) TMI 471 - SUPREME COURT], “….cause of action consists of bundle of facts which give cause to enforce the legal injury for redress in a court of law. The cause of action means, therefore, every fact, which if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court. In view of the admitted position that contract was executed in Bombay, i.e., within the jurisdiction of the High Court of Bombay, performance of the contract was also to be done within the jurisdiction of the Bombay High Court; merely because bank guarantee was executed at Delhi and transmitted for performance to Bombay, it does not constitute a cause of action to give rise to the respondent to lay the suit on the original side of the Delhi High Court…………” In the present case too, the MOA was executed at Kolkata and the performance of the contract was to be carried out in West Bengal. Merely because invoices were raised from New Delhi or payments were made by the plaintiff on account of service tax/education cess at New Delhi, are not sufficient to clothe this court with jurisdiction - Parties was to confine the jurisdiction to Kolkata only.

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• 2013 (8) TMI 84
  Lease agreement - Indemnity clause - Arbitration award - interpretation of agreement - On the issue as to whether claim made by the respondents for creation of fund would fall under clause 14 of the lease agreement or not and whether such claim was beyond the scope of clause 14 or not, the learned arbitrator held that clause 14 was wide in its scope and could not have been given any narrow interpretation as sought by the petitioners. - Held that:- Respondents had initially prayed for creation of fund in view of pendency of appeal before Income Tax Appellate Tribunal filed by them - Petitioners had agreed to keep respondents indemnified against any loss or seizure of equipment under distress, execution or other legal process or destruction or damage to equipment by fire, accident or other cause - Expression ‘all losses, damages, claims, penalties, expenses, suits or proceedings’ would apply only to situation where there was any damage to equipment by fire, accident, any risk or liability arisen due to death or loss of limb of any person whether employee of Lessee or any third party - it is clear that same would not apply for creation of fund arising out of dis-allowance of claim for depreciation made by Assessing Officer - Clause 14 has to be interpreted as whole to ascertain intent of parties and not few words in isolation - Decided in favour of petitioner. Whether claim made for creation of fund by respondents in statement of claim was beyond scope of reference - Held that:- Arbitration agreement did not require party to state nature of claim and dispute which such party proposed to make in arbitration proceedings for which notice is issued invoking arbitration agreement, such party cannot be precluded from making any additional claim or claims not notified in such notice in arbitration proceedings - Following decision of Ms. Veena Naresh Seth vs. Seth Industries Limited [2010 (10) TMI 931 - BOMBAY HIGH COURT] - Decided against petitioner. Whether cause of action as claimed in statement of claim filed by respondents survived - Held that: - claim for depreciation which was disallowed by Assessing Officer and on setting aside such order by Income Tax Appellate Tribunal, there was no demand of any income tax from Income Tax Department. If respondents were entitled to invoke arbitration by virtue of Assessing Officer's disallowance of depreciation, respondents could have done so separately. Proceedings which had become infructuous by virtue of initial order of dis-allowance of depreciation having been set aside, such proceeding could not have been continued by respondents - Decided in favour of petitioner. Limitation period - Whether claim made by Respondents is time barred - Held that:- payment of residual amount of 26th March, 2004 by petitioners to respondents would not extend period of limitation. Cause of action had already begun on 31st March, 1997 when Deputy Commissioner disallowed depreciation for assessment year 1994–95 and on 31st March, 1998 when said claim was disallowed for assessment year 1995–96. Merely because appeal was filed by respondents before Commissioner of Income Tax or before Income Tax Appellate Tribunal, limitation would not stop - said payment would even otherwise not extend limitation as same was not within period of three years from date of accrual of cause of action. Accord and satisfaction - partial claim accepted - whether there was any accord and satisfaction in view of respondents accepting residual amount from petitioners during pendency of appeal before Income Tax Appellate Tribunal - Held that:- respondents having accepted residual value unconditionally and by issuing proforma invoice in favour of petitioners, respondents could not raise any demand subsequently based on letter of sanction/agreement against petitioners - Decided in favour of petitioner. Whether there was any ambiguity and whether principle of contra proferentem would come into operation or not - Held that:- there was no ambiguity in any of terms of agreement and thus principles of Contra Proferentem would not be attracted in this case - there is no merit in submission of petitioners that there was any ambiguity and/or inconsistency in any of terms of lease agreement which would attract principles of Contra Proferentem or that benefit arising out of such ambiguity has to be given to petitioners - Decided against petitioner. Whether continuation on part of respondents to encash cheques for lease rental at old rate inspite of there being change in income tax rate would amount to waiver of its right under clause 16 of lease agreement or not - Held that:- due to negative inflow in this particular transaction there may not be actual payment of income tax. Petitioner cannot plead that though depreciation claim is disallowed and that would affect over all deduction claimed by respondents unless respondents shows actual payment of income tax on individual transaction, respondents cannot raise demand - Decided against petitioner. Whether respondents could have raised demand for increased rentals or for creation of fund with view to secure claims of respondents irrespective of respondents having suffered any loss due to disallowance of depreciation by assessing officer - Held that:- there is no merit in submission of petitioners on this issue that only in event of respondents paying any income tax due to disallowance of depreciation on this individual transaction, respondents could have demanded said amount from petitioners and not otherwise - Decided against petitioner. Whether claims for creation of fund so as to secure respondents’ from any liability which may arise due to disallowance of depreciation, respondents could claim only such amount which would be required to be paid by respondents or respondents could ask for creation of fund by claiming increase in rental with retrospective effect with interest at rate of 30% per annum in accordance with provisions of lease agreement - Held that:- even if respondents could have invoked clause 14 for creation of fund, claims by invoking indemnity and for creation of security in favour of respondents could not exceed amount which respondents would be ultimately liable to pay to income tax department due to such disallowance of depreciation on equipment. - Claim of indemnity cannot be calculated based on provision for payment of revised lease rental with retrospective effect with penal interest - arbitrator failed to appreciate that by directing petitioners to pay amount calculated by respondents towards revision of lease rent deemed to in default with retrospective effect and with compound interest at rate of 30% per annum would amount to unjust enrichment in favour of respondents and against petitioners - Decided in favour of petitioner. Whether interest at rate of 30% per annum was exorbitant or not - Held that:- since award of principle amount itself by arbitrator is illegal, arbitrator could not have awarded interest thereon. In any event, even if principle amount was required to be awarded for securing claim of respondents, arbitrator could not have awarded interest at rate other than what was required to be paid under Income Tax Act, 1961 and not at rate provided in agreement between parties. arbitrator also could not have awarded interest on interest and that also from 12th December, 2006 i.e. period prior to date of award. arbitrator atmost could have awarded interest on principle amount from date of award till payment at rate provided under Income Tax Act, 1961. Since award granting principal amount is set aside, award interest cannot sustain - Decided in favour of petitioner.

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