Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 5, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Highlights / Catch Notes
Income Tax
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Deduction u/s 80IA - Industrial park - Nature of Income from renting - If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. - Deduction u/s 80IA allowed - HC
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Short term Capital Gain - sale to sister concern at the rate of less than market value - The property sold to a third party cannot be the basis for determining the capital gain tax in respect of a sale in favour of the sister concern. - HC
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Deduction u/s 80IB(10) - Interest received from the purchases on delayed payments - Such receipt cannot be stated to be not arising out of the assessee's business of development of housing project - deduction allowed - HC
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Registration u/s 12A and 12AA - only because the Trust has not commenced the activities, the Commissioner would have no authority to ipso facto reject the application for registration on that count alone - HC
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Validity of notice u/s 148 - The mere fact that the Assessing Officer did not give reasons for not disturbing the claim made by the Assessee in the final order of assessment would not authorize the Assessing Officer to reopen the same issue even within a period of four years - HC
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Unaccounted receipts of hiring charges - A.O. made addition on the ground of amount of freight whereas the CIT(A) was of the view that only profit is to be added which is correct - AT
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Initiation of proceedings u/s. 153C - AO has not recorded any satisfaction that any seized document or material belongs to any person other than the person searched - therefore no infirmity in the order of the CIT(A) in quashing the proceedings u/s 153C. - AT
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Exemption u/s 10(13A) - house rent allowance (HRA) - As per AO assessee and his wife are living together as a family. Therefore, it can be inferred that the house owned by wife of the assessee is occupied by the assessee also - The assessee has fulfilled twin test - exemption allowed - AT
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Recovery of dues - Notice u/s 226(3) - Once the third party noticee has disputed that he owes any money or holds any money on account of the assessee, the Assessing Officer would not have any jurisdiction to proceed further against the third party. This is also abundantly clear from the language of clause (vi) of Section 226(3) of the Act. - HC
Customs
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Export obligation - Value Based Advance Licenses - The date of the licence by itself may not decide chronology but the date of import of the goods may be more relevant. But it is not as if only one import was made against any particular licence. In such a complicated situation, the rationale adopted by Revenue of arranging the licences according to the date of the licence has no logical support not to talk of legal support - AT
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Import of boric acid - Subordinate legislation cannot be violative of any plenary legislation made by Parliament or the State Legislature subordinate legislation in the form of the condition in the export-import policy was clearly violative of Section 38 of the plenary legislation i.e; the Insecticides Act - HC
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Penalty u/s 116 – There was no requirement of proving mens rea on the part of person-in-charge of conveyance - CGOVT
Service Tax
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‘Intellectual Property Rights Services’ – It is well settled that there is no law relating to the trade secrets or confidential information in India. Therefore, the trade secrets obtained by Thermax from Purolite, USA is not an intellectual property right as defined in Section 65 (55a). - AT
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Sale of liquors - Business Auxiliary services - Commission – Within the framework of the agreements, considered in the context of the taxable BAS, as defined in Sections 65 (19) read with 65(105) (zzb) of the Act, the conclusion is uncontestable that the appellant was rendering the taxable BAS since the appellant was clearly marketing and providing services in relation to sale of goods (IMFL , Beer etc.) produced / belonging to the distilleries - AT
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Classification of services under C&FA or under storage and warehouse - Section 65A(2)(b) - Storage of frozen goods in cold storage is an inseparable part of assessee’s activity of clearing & Forwarding operation - Therefore essential character of service is C&FA service and therefore service is classifiable under C&FA service. - AT
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Service tax on service of cargo handling - As per assessee the payments received were distributed among fellow labourers, who did the same job – Activity of the assessee did not constitute cargo handling service, since there was no loading or unloading from any vehicle or vessel involved - AT
VAT
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Exemption from CST - the higher rate of tax payable for non compliance of the amended provisions of Section 8 (5) namely non production of Form C/D, cannot be taken to be a ground to deny the set off of such higher rate of tax from the limits prescribed in the eligibility certificate under Section 4-A of the Trade Tax Act - HC
Case Laws:
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Income Tax
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2013 (8) TMI 113
Deduction u/s 80IA - Industrial park - Nature of Income from renting - Business income or income from house property or income from other sources - various agreements - Held that:- What is the object of entering into more than one said transactions is to be looked into. However, if for enjoyment of lease, the subject matter of all the agreements is necessary, then notwithstanding the fact that there are more than one agreement or one lease deed, the transaction is one. As all the agreements are entered into contemporaneously and the object is to enjoy the entire property viz: building, furniture and the accessories as a whole which is necessary for carrying on the business, then the income derived there from cannot be separated based on the separate agreement entered into between the parties. What has to be seen is, what was the primary object of the assessee while exploiting the property. If it is found applying such principle that the intention is for letting out the property or any portion thereof, the same may be considered as rental income or income from properties. In case, if it is found that the main intention is to exploit immovable property by way of complex commercial activities, in that event it must be held as business income. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. In fact, any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country. In that view of the matter, the finding recorded by the Appellate Authority as well as the Tribunal is in accordance with law and does not suffer from any legal infirmity which calls for interference. - Decided in favor of assessee. Short term Capital Gain - sale to sister concern at the rate of less than market value - Held that:- the sale of land to the sister concern is not in dispute. The legality of the said transaction is not questioned. The consideration received under the said agreement is also admitted. Further, admittedly, the said consideration is more than guidance value prescribed by the Government for sale of such property. As it is clear from the material on record that the assesse has borrowed money from financial institution, it has crossed its limit, it needed further funds. The land which is sold to the sister concern was lying idle. It is in those circumstances, the said sale transaction came into effect. The earlier sale made in favour of the sister concern is not vitiated in any manner whatsoever. Therefore, the Assessing Authority was not justified in taking the market value. The property sold to a third party cannot be the basis for determining the capital gain tax in respect of a sale in favour of the sister concern. - Decided against Revenue.
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2013 (8) TMI 112
Deduction u/s 80IB - Work contract - Tribunal granted deduction - Held that:- assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk - Therefore, it cannot be said that the assessee acted only as a works contractor - Following decision of CIT v. Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] - Decided against Revenue. Deduction u/s 80IB(10) - Interest received from the purchases on delayed payments - Income from development of housing project - Tribunal deleted disallowance - Held that:- during the course of business in developing housing project, assessee had made payments to the suppliers towards various purchases made. On such payments, the assessee would occasionally deduct some amounts and pay the bill. Difference between the bill amount and payment actually made would be the amount generated during the course of business. Assessee therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act - as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor unintentional short supply. This could be the reason why assessee instead of making full payment, deducts a portion of the supplier's bill - such margin would go to reduce the assessee's cost of acquisition of the supply. Such amount therefore, cannot be dissociated or divested from assessee's business. Such receipt therefore, cannot be stated to be not arising out of the assessee's business of development of housing project - Following decision of Nirma Industries Ltd. v. Deputy Commissioner of Income-tax[2006 (2) TMI 92 - GUJARAT High Court] - Decided against Revenue.
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2013 (8) TMI 111
Undisclosed income - Difference in opening and closing stock - CIT upheld addition - Tribunal deleted addition following previous decisions - Held that:- assessee had filed his return of income for the AY 99-00 earlier and the Revenue had not initiated any proceedings u/s 147 of the act for that year - Therefore, the capital of the assessee as n individual together with the capital of Nanak Cutlery Mart as reflected in that return of income should be taken into consideration by the AO while determining the difference between closing balance for the AY 1999-00 and the opening balance for AY 2000-01 and the difference between the same would be upheld as addition - However, this had not arisen from the seizure of the assets/records during search; therefore, such addition cannot be made - Following decision of N.R. Paper & Board Limited & Ors. vs. DCIT[1998 (3) TMI 102 - GUJARAT High Court] and CIT vs. Shambhulala C. Backkaniwala[1999 (9) TMI 25 - GUJARAT High Court] - Decided against Revenue. Undisclosed income - Gift from mother - Tribunal deleted addition - Held that:- identity of donor had been proved and the cash book of donor was found to be having sufficient cash balance to gift - There was a declaration of gift executed and all the accounts of the donor had been maintained by computerized books - no error in the reasonings of the Tribunal to interfere as the assessee succeeded in proving identity, genuineness of the transaction and creditworthiness of the donor. The assessee had discharged the burden - Decided against Revenue. Unaccounted investment - Investment in Co-op. Housing Society - Held that:- there was no conclusive documentary evidence to hold that the assessee-respondent had invested a sum in Ninad Co-op. Housing Society by using his four employees as conduits for booking of flats - No opportunity of cross objection was given to person in whose books of account, the said transaction of Co-op. Housing Society had emerged - when the Tribunal found that there was violation of principles of natural justice by not allowing cross examination despite such request coupled with absence of any evidence, no error much less any substantial error is committed by the Tribunal in deleting the said amount - Decided in favour of Revenue. Unaccounted investment - Investment made in house property - Held that:- The statement of person with whom transaction was done was recorded by the Assessing Officer, however, no permission was granted to cross examine him. Although it can be noticed that the legal suit was initiated against the builder & necessary documents were also produced. The agreement concerned was of March, 1995 whereas the block period was from 01.04.1996 to 06.09.2001. The Tribunal rightly held that the transaction would not fall within the block period under consideration - Decided against Revenue. Unaccounted investment in shares - Held that:- Assessing Officer did not consider the genuineness of the entries appearing in computerized cash book - Majority of the investments made through cheques and the paper books presented had contained all the details - Tribunal has reduced the disallowance made by A.O. - Decided against Revenue.
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2013 (8) TMI 110
Registration u/s 12A and 12AA - DIT(E) refused to grant registration - Tribunal granted registration - Held that:- only because the Trust has not commenced the activities, the Commissioner would have no authority to ipso facto reject the application for registration on that count alone - there was nothing to indicate any material to conclude that the objects of the Trust or the activities of the Trust were not genuine or any doubt arose in respect of the genuineness of the activities - Decided against Revenue.
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2013 (8) TMI 109
Validity of notice u/s 148 - Claim u/s 10B scrutinized in original assessment - Tribunal held notice not valid - Held that:- claim of the assessee for exemption under section 10B of the Act was scrutinized by the Assessing Officer in detail in the original assessment - The claim of exemption under section 10Bof the Act was not disturbed and this was done without giving detailed reasons for the same - The mere fact that the Assessing Officer did not give reasons for not disturbing the claim made by the Assessee in the final order of assessment would not authorize the Assessing Officer to reopen the same issue even within a period of four years from the end of relevant assessment year - Following decision of Gujarat Power Corporation Ltd. Vs. Assistant Commissioner of Income Tax [2012 (9) TMI 69 - Gujarat High Court] - Decided against Revenue.
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2013 (8) TMI 108
Unproved freight and route expenses payable - CIT(A) deleted the addition - assessee is engaged in the business of transportation on contract basis - Held that:- A.O. did not appreciate the system of accounting and the entries passed in the books of account. The procedure available for accounting freight payable in the books of account explained to A.O. vide assessee letter dated 18.11.2010 which stated that the assessee has submitted the desired details of freight payable with Freight memo number, date, amount etc. before your good self for your verification. AR in support of the procedure of making entries in books of account demonstrated by referring various pages of the paper book where copies of relevant challans and builty, copies of freight memo for engaging the truck, consignment note, consignment receipt note etc. He has also demonstrated that the assessee has followed such practice and such amounts were shown payable in past years. In the past years the revenue has accepted the system of accounting followed by the assessee and did not make such addition. Thus AR has demonstrated that the outstanding freight payable were paid in subsequent years and in subsequent year the payment to this outstanding freight has been accepted by the A.O. while making the assessment under Section 143(3). The list showing freight payable with date of its payment has been placed. In the light of above admitted facts and as per the detailed dissections made by the CIT(A) CIT(A) has rightly appreciated the system of accounting maintained by the assessee & has rightly deleted the addition - appeal of the Revenue is dismissed.
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2013 (8) TMI 107
Disallowance u/s.14A r.w.r. 8D - Held that:- CIT(A) following the decision of Godrej & Boyce Manufacturing Co. Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT) substituted the same with an illogical formula, i.e.,total expenditure (direct and indirect) x the value of transactions yielding tax-exempt income/value of the total transactions in shares. The same has no basis in facts. In fact, in the assessment for A.Y. 2005-06 u/s. 143(3), 2% of the dividend income had been disallowed by the Assessing Officer (AO). A similar disallowance for the current year would, it was pleaded by him, meet the ends of justice. Against assessee. Bad debts disallowed - assessee-company a share broker has only the brokerage as embedded in the value of shares purchased or sold, i.e., as included in the debt being written off, that could be subject to an allowance u/s.36(1)(vii) in view of section 36(2)(i) - Held that:- As in CIT vs. Shreyas S. Morakhia [2012 (3) TMI 103 - BOMBAY HIGH COURT] clarified that both the brokerage as well as the principal sum of the shares transacted by a broker on behalf of his clients form part of the debt realizable there-from and, thus, is to be considered as taken into account in computing the income of the assessee-broker in terms of s.36(2)(i). Thus entire such amount would stand to be considered as eligible for deduction u/s. 36(1(vii). In favour of assessee. Penalty levied by the Stock Exchange - Held that:- As it has been consistently held by the tribunal as being not toward any default constituting any offence in law, so as to attract disallowance with reference to Explanation to Section 37(1). The same is clarified to be in respect of procedural defaults, which cannot be equated with any violation or contravention of any law, therefore, direct its deletion. In favour of assessee.
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2013 (8) TMI 106
Unaccounted receipts of hiring charges - CIT(A) deleted part additions - Held that:- As decided in CIT Vs Krishnaveni Ammal (1983 (1) TMI 3 - MADRAS High Court) law of evidence mandates that if the best evidence is not placed before the court, an adverse inference can be drawn as against the person who ought to have produced it. Similar is the circumstances in the case under consideration that the assessee simply contended that the receipt belonged to his elder brother but failed to furnish the necessary evidence before the Revenue authorities and before us also. As regards merit of the case, we noticed that the A.O. made addition on the ground of amount of freight whereas the CIT(A) was of the view that only profit is to be added which is correct therefore no infirmity in the order of the CIT(A) in sustaining the addition of Rs.16,78,774/- on account of hiring charges. Unexplained cash deposits in bank - Zero house hold expenses as appearing in bank statement - CIT(A) deleted additions of Rs.11,55,000/- on the ground that he has allowed set off against the addition of Rs.16,78,774/- confirmed on account of truck hiring receipt and the amount of Rs.11,55,100/- and Rs.1,44,000/- were not separately added - Held that:- The CIT(A) in principle upheld the addition but relief was allowed by allowing benefit of its telescoping as above. No infirmity in the order of CIT(A) as against the order of Rs. 11,55,100/- and Rs.1,44,000/- as the addition of Rs.16,78,774/- has been sustained which is sufficient for set off of these two addition of Rs.11,55,100/- and Rs.1,44,000/-.
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2013 (8) TMI 105
Initiation of proceedings u/s. 153C as no paper, document or any adverse material relating to assessment years were found during the search - additions on account of determination of Annual Letting Value u/s. 23(4) of the properties at 7% of investments - Held that:- No material is produced to prove that the AO in the case of person searched was satisfied that any money, bullion, jwellery or other valuable articles or things or books accounts or documents seized or requisitioned belongs to or belong to a person other than the person referred to in sec. 153A. No material is produced to show if any satisfaction was recorded by the AO in that case that the seized material belongs to any person other than the person with respect to whom search was made u/s 132. DR did not produce any material to show if any such satisfaction as required u/s 153C was recorded by the AO in the case of person searched. No material is produced to show that books accounts or documents or assets seized had been handed over to the AO having jurisdiction over such other person. In the absence of any adequate material produced by DR, the contention of assessee was justified that in this case, the AO has not recorded any satisfaction that any seized document or material belongs to any person other than the person searched - therefore no infirmity in the order of the CIT(A) in quashing the proceedings u/s 153C. The AO did not make any addition against the assessee on the basis of any adverse material. The AO passed the assessment order u/s. 153C making addition on account of determination of Annual Letting Value u/s. 23(4) of the property at 7% of investments only on notional basis and for that, no incriminating material was found against the assessee. Therefore, all the additions made in the assessment orders u/s. 153C would stand deleted. In favour of assessee.
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2013 (8) TMI 104
Addition on account of sale, purchase and manufacture of silver ornaments etc. out side the books - as per AO assessee could not establish the job work during the course of assessment proceedings - CIT(A) deleted the addition - search u/s 132 - Held that:- CIT(A) after a detailed discussion in his order found that the assessee is engaged in job work business and not in purchase and sale of silver ornaments & was able to show that the contents of the documents seized as per Annexure-7 related to job work undertaken by the assessee for various constituents whose name along with quantity of alloy received on different dates and subsequent return of processed goods after job work to them is written. A.O. was not able to place on record or identify any bills either found in the course of search proceedings or in the course of assessment proceedings to support the stand that the assessee has made alleged purchases of silver weighing 2441 kgs. and effected sales of Rs.60,00,000/- each in Assessment Year 2002-03 and for the part period in 2003-04. CIT(A) found that there is no material on record to suggest that the details of job work noted against the names of the persons in any way could be presumed or inferred as purchase and sale business of the assessee as held by the A.O. on mere presumption. The CIT(A) further noticed that even at the time of search under section 132 in the course of recoding of his statement under section 132(4) the assessee has categorically stated that the papers relate to business of job work done in his individual capacity. The A.O. has converted the job work into purchase and sale on the basis of presumption. Thus no infirmity in the order of CIT(A) - appeal of the Revenue dismissed.
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2013 (8) TMI 103
Deduction of Interest from income from house property - deduction u/s 24(b) - assessee contended that he has paid interest on borrowed capital for construction of house to City Bank of Rs.52,964/- which was related to pre-construction period. The assessee has claimed this interest as part of cost of construction and accordingly claimed in the return of income. It is further submitted that the interest expense related to pre-construction period either can be added to cost of construction or can be claimed 1/5th every year. - Held that:- the assessee is entitled for deduction u/s.24(b) of the Act. The AO directed to delete the addition - decided in favor of assessee. Exemption u/s 10(13A) - house rent allowance (HRA) - As per AO assessee and his wife are living together as a family. Therefore, it can be inferred that the house owned by wife of the assessee is occupied by the assessee also - Held that:- the requirement of the section is that any allowance (by whatever name called) granted to an assessee by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed. However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him. Assessee paid the rent - The assessee has fulfilled twin requirements of the provision, i.e. occupation of the house and the payment of rent. Under these circumstances, the assessee is entitled for exemption u/s.10(13A) of the Act. - Additions made by the AO deleted - decided in favor of assessee.
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2013 (8) TMI 102
Recovery of dues - Notice u/s 226(3) - appropriating a sum of Rs. 95,85,30,934/- which was lying in escrow with the bank - Held that:- Section 226(3) of the Act neither confers jurisdiction nor provides a machinery for an Assessing Officer to adjudicate the indebtedness of a third party to the assessee and the provisions of section 226(3) must be confined to those cases where a third party admits to owing money or holding any money on account of the assessee or in cases where it is indisputable that the third party owes money to or holds money on account of the assessee. However, in cases where there are contentious issues raised by a third party who disputes his liability to pay any money to the assessee there is no mechanism provided or jurisdiction conferred upon the Assessing Officer to proceed further in the matter and take upon himself the mantle of adjudicating the said disputes. It is well settled that even in cases of garnishee proceeding under Order 21 Rule 46 of the Code of Civil Procedure (hereinafter referred to as the “CPC”), the Court may pass a garnishee order enabling a judgment creditor to obtain satisfaction of his claim only in those cases which are similar in scope as to judgments on admission under Order 12 Rule 6 of the CPC. A Court cannot issue garnishee order under Order 21 Rule 46 of the CPC against a debtor of the judgment debtor who disputes his indebtedness unless an issue in this regard is struck and tried as provided under Order 21 Rule 46C of the CPC. Unlike the CPC, Section 226(3) of the Act does not have any provision similar to Order 21 Rule 46C of the CPC which confers jurisdiction on the Assessing Officer to adjudicate the question regarding indebtedness of a third party to an assessee who disputes the same. Once the third party noticee has disputed that he owes any money or holds any money on account of the assessee, the Assessing Officer would not have any jurisdiction to proceed further against the third party. This is also abundantly clear from the language of clause (vi) of Section 226(3) of the Act. There is also no reason why either the purchaser of shares of a company or the selling shareholders have any occasion to pay any part of the consideration for sale and purchase of shares of a company to the company. A company is an independent entity completely distinct from its shareholders. A transaction relating to sale and purchase of shares is a transaction inter-se the selling shareholders and purchasers and a company cannot stake claim to any part of the consideration as shares of a company are not the assets of the company but those of its shareholders. The assessee company is neither a party to the Share Purchase Agreement or the Escrow Agreement nor can claim any sum from the parties to the Escrow Agreement. No money is due to the assessee company by respondent no.2 or is held by or may subsequently be held by Respondent no. 2 on account of the assessee company. The conclusion of the Assessing Officer that the amount of money kept with respondent no. 2 in escrow is available to the assessee for meeting its income-tax demand is thus erroneous. - revenue directed to refund the amount collected from the bank. - Decided in favor of assessee.
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Customs
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2013 (8) TMI 101
Export obligation - Value Based Advance Licenses - import without payment of customs duty - Notification No.203/92-Cus - Amnesty Scheme - whether the appellant is to be punished by demanding a high amount for his default by adopting the method suggested by Revenue or by demanding minimum possible amount by adopting the method adopted by appellant. - confiscation of the goods under section 111(o) of Customs Act 1962 and penalty on the importer under section 112(a) and 114(a) of Customs Act, 1962. - Held that:- if the appellants had paid about Rs.5 lakhs more as on 31.1.97,their entire liability under the 14 licences could have been discharged but for the issue that interest was paid through RG-23A account rather than through cash. The wording of the amnesty scheme was not very explicit that interest could not be paid by reversal of credit. When the payments were reported to the jurisdictional officers they did not take any immediate objection to such payment but took objection almost after six months. Immediately the appellants responded by paying the amount in cash. In such factual matrix non-payment of interest through cash is not a ground to deny the benefit of the amnesty scheme. In fact such issue is not raised in the impugned order because it is seen that payments made in respect of 12 licenses have been accepted for qualifying for amnesty. Once the High Court has ordered that amnesty scheme is to be extended considering each licence on a case to case basis, it is for the appellant to appropriate the payments made by them towards the liability under each licence. The Hon. High Court has not ordered any particular order in which licenses have to be considered for eligibility for amnesty. There is no undue benefit that is being granted to the appellant by following the method suggested by the appellant. Such method is not against any of the conditions of the amnesty scheme or order of Hon. Madras High Court. We do not find any legal backing for the argument of Revenue that the licences have to be first arranged in the chronological order and then appropriations of amounts paid prior to 31-01-1997 are to be made. The date of the licence by itself may not decide chronology but the date of import of the goods may be more relevant. But it is not as if only one import was made against any particular licence. In such a complicated situation, the rationale adopted by Revenue of arranging the licences according to the date of the licence has no logical support not to talk of legal support. It only results in a much higher liability to the appellant for a small default of about Rs.5 lakhs. Such approach is not warranted in the facts and circumstances of the case. - Decided in favor of assessee.
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2013 (8) TMI 100
Import of boric acid - Whether by a condition in the import policy of the Government of India obtaining the registration under the Insecticides Act was necessary - Held that:- Condition in the import policy requiring the assesses to take out a registration under the Insecticides Act for applying for licence to import boric acid was arbitrary and unsustainable and liable to be quashed - Subordinate legislation cannot be violative of any plenary legislation made by Parliament or the State Legislature subordinate legislation in the form of the condition in the export-import policy was clearly violative of Section 38 of the plenary legislation i.e; the Insecticides Act - A rule was not only required to be made in conformity with the provisions of the Act whereunder it was made - but the same must be in conformity with the provisions of any other Act - relied upon Kerala Samsthana Chethu Thozhilali Union v. State of Kerala and Others {2006 (3) TMI 688 - SUPREME COURT}. Whether a condition for obtaining a licence to import of boric acid if such import was not for the purpose of using the same as an insecticide condition in the import policy is legally sustainable - If boric acid was imported for the purposes other than for use as an insecticide the authorities under the Insecticides Act were not legally obliged to entertain an application for registration - For valid imposition of such a condition on importers Section 38 should had been qualified by words like, “subject to provisions of the export-import policy”, “except otherwise provided for in any other law for the time being in force” - Or else an appropriate provision should be made in the Act or at least in the import policy making it obligatory on the authorities under the Insecticides Act to consider applications for registration of boric acid - which was not intended for use as an insecticide – Decided in favor of assessee.
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2013 (8) TMI 99
Penalty u/s 116 –person-in-charge of conveyance - All the containers had been received empty – steamer agents could not provide a satisfactory explanation for short-landing and was accountable for the declared quantity of the cargo especially when the seals provided by him were used for sealing the containers - assesse contended that u/s 116 penalty can be imposed only on person-in-charge of the conveyance and not on steamer agent, that seals of containers were found intact and therefore no penalty can be imposed u/s116 - Held that:- As such steamer agent was liable to penal action u/s116 - Section 148 makes it clear that such agent shall be liable for fulfillment in respect of matter in question of all obligations imposed on such person in-charge and to penalties and confiscation which may be incurred in respect of that matter. Knowledge of empty containers – Held that:- It was not at all possible that master of the vessel did not know the fact of empty container loaded in the vessel. Mens- rea - Assesse contended that there was no mens rea on the part of person-in-charge – Held that:- Section 116 makes it clear that penalty was imposed for not unloading the goods which were loaded in vessel for importation into India - There was no requirement of proving mens rea on the part of person-in-charge of conveyance – relying upon M/s. ITC Ltd. v. CCE Delhi [2004 (9) TMI 103 - SUPREME COURT OF INDIA] – order upheld – Decided against assesse.
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Service Tax
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2013 (8) TMI 119
‘Intellectual Property Rights Services’ – Assessee entered into agreement with the M/s. Purolite, whereby M/s. Purolite agreed to irrevocably transfer to Thermax all claims, rights and interests necessary to use Purolite Technology and Information and Thermax shall jointly co-own with Purolite the Purolite Technology and Information in perpetuity and not subject to any geographical restrictions or customer restrictions. Upon the technology transfer, Thermax became co-owner in the Purolite Techology and Information and was entitled to use, assign, sell, license, transfer or convey their respective interests in the Purolite technology and information - Transfer of technology from Purolite USA to Thermax Ltd. India amounts to receipt of service by Thermax and the service so received merited classification under "intellectual property rights service" as defined in Section 65(55a) and 65 (55b) read with Section 65(105) (zzr) of the Finance Act, 1994 – Held that:- As per Section 65 (55a) "intellectual property right" means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright - To constitute a intellectual property it should be either a trade mark, design patent or any other similar intangible property under any law for the time being in force in India. As per the decision of the US District Court of Pennsylvania, the information obtained by Thermax in contravention of the US law was relating to Purolit's trade secrets and/or confidential information - It is well settled that there is no law relating to the trade secrets or confidential information in India. Therefore, the trade secrets obtained by Thermax from Purolite, USA is not an intellectual property right as defined in Section 65 (55a). Thermax became a co-owner of the intellectual property right and was entitled to use, assign, sell, license, transfer or convey their interests in the in the said trade secret/information. In other words, it was not a temporary transfer of an intellectual property right or a permission to use or enjoy the intellectual property right. The transaction involved ownership of the intellectual property right and therefore, the transaction does not satisfy the requirement of Section 65 (55b) - In this regard, the circular issued on 17.09.2004 by the Board at the time of introduction of IPR service is relevant and the same states that IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services. Decision of Hon’ble Tribunal in the case of Royal Western India Turf Club Ltd.[2012 (11) TMI 526 - CESTAT, MUMBAI] is squarely applicable in the present case , wherein it has been held “ …demand for service tax has been made under the category of ‘Intellectual Property Right Services', neither the show-cause notices nor the orders relating thereto give a clear proposal or finding as to what is the intellectual property rights involved in the transactions, i.e., whether it is a patent, copy rights, trade mark or design or any other category of intellectual property rights. When service tax is confirmed under the taxable service category of Intellectual Property Right Services, the order confirming the demand should clearly classify the transaction under one or more of the Intellectual Property Rights which are covered under Intellectual Property Right Services' law. The Boards Circular issued on 17.09.2004 in this regard makes it abundantly clear that the Intellectual Property Right Services covered under the service tax laws should be in respect of such services in respect of which laws have been made in India and such laws should cover the Intellectual Property Right Services involved and only in such a situation, demand for service tax can be raised whenever there is a transfer of Intellectual Property Rights by the holder of the Intellectual Property Right to the person who receives or uses the Intellectual Property Rights. In the impugned orders we do not find any such findings by the authorities" – Relying upon the above decision appeal in the present case allowed – Decided in favor of Assessee.
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2013 (8) TMI 118
Sale of liquors - Business Auxiliary services – Marketing service in relation to sale of goods (IMFL , Beer etc.) produced / belonging to the distilleries - Appellant a Government of Rajasthan Undertaking, registered under the Companies Act, 1956 is entrusted by the State Government with the business of purchase of IMFL and Beer (liquor) from manufacturers, transport of liquor to various depots of the appellant and for further sale thereon to various licensees (i.e. with the wholesale trade in liquor), with a view to regulate supply of liquor through conferring the exclusive privilege of purchase and sale in the wholesale thereof upon the appellant. As a consequence of the monopoly assumed by the State Government in this area and confirment of the privilege on the appellant, it is mandatory for all manufacturers/distilleries/suppliers to sell liquor in the State only through the canalising agency, namely the appellant – Held that:- Relying upon the Tribunal judgment dated 21.12.2010 in the case of Kerala State Beverages (Mfrg . & Mktg.) Corpn., it has been held that on analysis of the agreement between the appellant (RSBCL) and the manufacturers / distilleries, (illustrated by the agreement dated 31.03.2008 with M/s Khasa Distillery Company, Prop. Bhagat Industrial Corporation Limited), the conclusion that the ownership/property in liquor continues with the distilleries and has not passed to the appellant, is inescapable and compelling. The several clauses of the agreement clearly demonstrate this variety. On analysis of the several clauses of the agreement (referred to above), it is clear that the appellant was never the owner of the liquor nor had title in the liquor supplied to it. It was merely acting as the consignee of the goods belonging to the supplier/distilleries. Within the framework of the agreements, considered in the context of the taxable BAS, as defined in Sections 65 (19) read with 65(105) (zzb) of the Act, the conclusion is uncontestable that the appellant was rendering the taxable BAS since the appellant was clearly marketing and providing services in relation to sale of goods (IMFL , Beer etc.) produced / belonging to the distilleries – Decided against the Assessee. Extended period of Limitation - Held that:- The statement of the General Manager of the appellant was recorded in April 2008 under Section 14 of the Central Excise Act, 1944 disclosed sufficient particulars of the activities of the appellant. The requisite information was provided by the appellant to Revenue only in bits and pieces. Eventually a show cause notice was issued on 11.07.2008, within three months of recording of the statement of the appellant's representative, under Section 14 - There was wilful suppression of relevant material with a view to evade liability to tax, cannot be faulted nor considered inconsistent with the statutory prescriptions that justify invocation of the extended period of limitation – Decided against the Assessee.
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2013 (8) TMI 117
Service Tax on C&F Service - Assessee received an amount of ₹ 1,46,05,000/- from M/s Hindustan Lever Ltd. (HLL) for carrying out services of cold storage/clearing and forwarding operations of frozen products. According to department, the said service is chargeable to service tax - Assessee is paying service tax under C&FA service except on the cold storage charges - Cold storage facility is distinct and different for C&F operation and therefore these charges are not liable to be included in taxable value of C&FA services – Held that:- In para 2.1 of the agreement, assessee has agreed to provide cold storage for the purpose of storing and forwarding the frozen products belonging to HLL. In Article 2.13 to 2.29 of the Agreement in view of perishable nature of the goods, assessee is required to maintain specific temperature for storage of frozen goods before dispatching the same as per direction of HLL. Therefore, the storage of the goods in cold storage is an inseparable part of Clearing & Forwarding activity undertaken by the assessee - Since storage of the goods in cold storage is essential part of assessee’s C&F operations, cold storage charges are required to be added in taxable value of C&FA services – Decided against the Assessee. Classification of services under C&FA or under storage and warehouse – Held that:- For classification one has to apply Section 65A(2)(b) of the Finance Act under what services is to be classified under service which gives essential character of the service - Storage of frozen goods in cold storage is an inseparable part of assessee’s activity of clearing & Forwarding operation - Therefore essential character of service is C&FA service and therefore service is classifiable under C&FA service. Limitation – Held that:- For the first time the Revenue wrote a letter dated 27.9.2002 asking assessee to pay tax for the period Sept. 2001 to July 2002. Assessee replied this letter vide their letter dated 8.11.2002 thereafter there was correspondence on 20.11.2002 from the department and replied by assessee on 9.12.2002 - Assessee is not paying duty on cold storage charges was known to department in 2002. Quantum of Cold Storage Charges is already part of agreement and is fixed on monthly basis - Therefore extended period based on suppression of fact cannot be invoked in the present case and therefore demand beyond period of one year is time-barred in the present case – Decided in favor of Assessee.
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2013 (8) TMI 116
Pre-deposit - Appellant has not discharged the Service Tax liability on Club and Association services – Held that:- ld. Counsel has fairly submitted that in an identical issue in respect of very same assessee, wherein this Bench vide Stay Order No.S/1339/WZB/AHD/2012, dt.5.7.2012, has directed the appellant to deposit an amount of Rs.2.50 lakhs against the Service Tax liability of Rs.19.27 lakhs - Issue involved in the current appeal and in the appeal No.ST/245/2012 (Stay Order dt.5.7.2012) is the same - There is no change in the circumstances which requires deviation from the order of pre-deposit in the earlier case - Appellant directed to deposit an amount of Rs.1 lakhs (Rupees One Lakh only) within a period of eight weeks.
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2013 (8) TMI 115
Service tax on service of cargo handling - Assessee received payments as sugar loading contractors in respect of loading, unloading and shifting of sugar bags from the floor of the mill house to the godown; and from one godown to another as desired by the employer; and for movement/handling of the goods - Assertion of the assessee that he was just a labourer who was given the responsibility of overall supervision, movement and loading/unloading of the material and in no way performed services as a contractor or a provider of the cargo handling service nor a cargo handling agency. The assessee contended before the appellate authority that the payments received were distributed among fellow labourers, who did the same job – Held that:- Activity of the assessee did not constitute cargo handling service, since there was no loading or unloading from any vehicle or vessel involved – Decided against the Revenue.
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2013 (8) TMI 114
Stay application – Waiver of pre-deposit - Service Tax liability on the appellant under the category of Erection, Commissioning services and also under Man Power Recruitment services – Held that:- Appellant himself has discharged Service Tax liability on an identical activity which was done for the some other client - Issue needs to be considered from various angles, in as much as that the contract entered with M/s Sagar Construction and the contract entered by him with M/s Tata Projects Ltd., whether these are on the same terms or not and what is the difference - Appellant has not made out a prima facie case for complete waiver of the amounts involved. Accordingly, we direct the appellant to pre-deposit an amount of Rs.50,000/- (Rupees Fifty Thousands only) as against confirmed demand of Rs.2,43,753/- - Pre-deposit to be made within a period of eight weeks.
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Central Excise
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2013 (8) TMI 123
Correction of mistakes in the order dated 8.8.2012 [2013 (8) TMI 122 - GUJARAT HIGH COURT] - Held that:- mistake is corrected and Rs.25 Lacs mentioned on the last line of first paragraph and on page 2 first line should be corrected to read as Rs.75 Lacs.
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2013 (8) TMI 122
Correction of mistakes in the order [2013 (8) TMI 121 - GUJARAT HIGH COURT] – Held that:- The amount of Rs.30 Lacs mentioned in paragraph 5 is corrected to read as Rs.1,13,42,000/- (Rupees One Crore Thirteen Lacs Forty Two Thousand Only) - Further, while granting time to the petitioner for the said pre-deposit, in place of word 'months', the word 'weeks' be corrected.
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2013 (8) TMI 121
Waiver of pre-deposit – Stay application -Issue involved is regarding demand of duty on the appellant on the ground of under valuation of finished goods 'Frit' and clandestine removal thereof. The demand is also on the ground that the appellant exceeded the SSI exemption limit of Rs.4 crores, subject to addition of confirmation of demand in respect of under-valuation and clandestine removal – Held that:-Adjudicating authority has relief upon only the consumption of gas used for fire and kiln - Statement of one of the appellant's manufacture, to whom the appellant had supplied the raw material “Frit”, was recorded and on the basis of such statement, the lower authority has come to the conclusion that there was gross clandestine removal of the goods - Issue is contentious one and needs to be gone into detail, which can be done as at the time of final disposal - The Petitioner is directed to deposit Rs.25 lakhs with the department within a period of 12 weeks – Decided in favor of Assessee.
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2013 (8) TMI 98
Welding electrodes used for repair and maintenance of plant and machinery, are eligible for Cenvat Credit or not – Held that:- Relying upon the judgment of Hon’ble Chhattisgarh High Court in case of Ambuja Cement Eastern Ltd. [2010 (4) TMI 429 - CHHAITISGARH HIGH COURT ], it has been held that welding electrodes used for repair and maintenance of plant and machinery eligible for Cenvat Credit - Hon’ble Karnataka High Court in case of Alfred Herbert (India) Ltd. reported in [2010 (4) TMI 424 - KARNATAKA HIGH COURT ] has also held that the goods used for repair & maintenance of plant and machinery are eligible for Cenvat Credit – Also, Apex Court in case of Grasim Industries Ltd. reported in [2011 (10) TMI 2 - SUPREME COURT OF INDIA] has held that repair & maintenance of machinery is not manufacture and therefore steal scrap, arising in course of the said activity is not excisable, this judgment does not help the Department, as for determining the eligibility for Cenvat Credit of an item used in an activity, what is relevant is as to whether without that activity in which the item, in question, is used, manufacturing operation are commercially feasible, and it is not relevant as to whether that activity by itself amounts manufacturer. In the case of Sree Rayalaseema Hi-Strength Hypo Ltd. reported in [2012 (11) TMI 255 - ANDHRA PRADESH HIGH COURT] decided by Hon’ble Andhra Pradesh High Court, the point as to whether without regular repair & maintenance of the plant and machinery by using welding electrodes, manufacturing operations, were commercially feasible, had not been considered – Decided in favor of Assessee.
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2013 (8) TMI 97
Cenvat Credit for input services - Outdoor catering service for providing canteen facilities to the employees, manpower supply service for gardening and land scaping for compliance with the directions of Pollution Control authorities, cleaning service for keeping the factory neat and clean and rent a cab service for provide transport facility to the employees for bringing them to the factory and dropping them back at their homes – Held that:- Outdoor catering has been availed for providing canteen facility to the workers which is necessary for compliance with the provisions of Section 46 of the Factories Act - Gardening and land scaping service, the same is required for maintaining green belt which is the requirement of pollution control laws - Service of cleaning, the same had been availed for keeping the factory neat and clean and dust free, which is also the statutory requirement of Section 7A and Section 11 to 16 of the Factories Act, 1956 - service of rent a cab availed for bringing the workers to the factory and dropping them home, this issue also stands decided in favour of the appellant by the judgments of Hon’ble Punjab & Haryana High Court and Karnataka High Court in the case of CCE, Chandigarh II vs. Federal Mogul Goetze (India) Ltd. reported in [2011 (9) TMI 120 - PUNJAB AND HARYANA HIGH COURT] - Availment of these services has to be treated as services availed in or in relation to manufacture of the finished product – Decided in favor of Assessee.
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2013 (8) TMI 96
Percentage of the quantity of molasses lost during that period came to 0.021% as total production – The loss amounts to 3,40,875 qntls - The duty involved on this molasses was Rs. 5,628/- - Held that:- Relying upon the judgment in the case of Mawana Sugar Works vs. CCE, Meerut -I reported in [ 2008 (3) TMI 122 - CESTAT NEW DELHI ], wherein it was held that loss on account of natural causes upto 2% is condonable is applicable in the instant case considering the facts and circumstances of the case - Loss is only 0.021% of the total quantity of molasses produced during 2007-2008 sugar season. The loss being due to natural causes should have been condoned specifically in view of the fact that there is not even allegation that the quantity claimed by the appellant as loss has been illicitly removed - Therefore, the judgment of Allahabad High Court in the case of Kesar Enterprises Ltd. (Sugar Div.) vs. CCE, Meerut -II [2007 (7) TMI 160 - HIGH COURT ALLAHABAD ] is not applicable to the facts of this case – Decided in favor of Assessee.
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2013 (8) TMI 95
Classification - Appellant are printing various texts on the steel sheets received by them as per the design and the specifications of the sheet suppliers – Held that:- Printed sheets have to be treated as products of printing industry and hence, the process of printing would amount to manufacture – Relying upon the Apex court judgment in the case of Metagraphs Pvt. Ltd. [1996 (11) TMI 68 - SUPREME COURT OF INDIA] and Johnsons & Johnsons [1997 (7) TMI 138 - SUPREME COURT OF INDIA] has held that printed aluminium labels, paper printed labels, plastic printed labels and cloth printed labels are the products of printing industry classifiable under Chapter 49 of the Tariff - Under Chapter 49 of the Tariff, the rate of duty is nil and as such, the duty demand by classifying the printed sheets under heading 7210.30 would not be sustainable – Decided in favor of Assessee.
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2013 (8) TMI 94
Excess amount of stock of finished goods found than the recording in RG-1 register – In respect of excess of 17.822 M.T. of laminated fabrics and 2350 woven sacks - Production of the woven sacks is 3,00,000 and during one 8 hours shift they would have produced 1,00,000 bags. Since production of the previous day has been entered in the RG-1 register at 8 a.m. on 30th January 2010, the production recorded at 5 p.m. on the day of visit would represent the production of about two shifts which would be about 2,00,000 bags, as against this the stock found was 1,71,000 which is well within the quantity of the bags which would have been produced during that day and which would have been entered in the RG-1 register next day - Respondent were producing on an average 15.6 M.T. of laminated fabrics in a day. The Panchnama does not show as to whether for determining the excess unaccounted production of laminated fabrics, the fabrics in unpacked condition has also been included. Looking to the fact that every day, the factory manufacturers 15.6 M.T. of laminated fabrics and on any day in addition to this, there was some quantity of laminated fabricated in unpacked condition - There was no excess stock and that the stock which is alleged to be unaccounted excess stock would have been entered in the RG-1 register on the next day – Decided against the Revenue.
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2013 (8) TMI 93
Circular No.967/01/2013-CX dated 01.01.2013 – Recovery - The circular obligating the concerned authorities to initiate recovery proceedings on the expiry of period as mentioned therein so far as it relates to the situations where appeals with stay applications have been filed, but no stay had been granted and the stay applications had been kept pending for reasons not attributable in any manner whatsoever to the petitioners/assessees and resultantly, no interim relief had been granted, is non est – Held that:- recovery proceedings stayted - (i) In each case of the petitioners herein, the concerned Appellate Authority shall fix a date for hearing on the stay application/s immediately, if not already fixed and shall inform the concerned petitioner accordingly; (ii) The parties shall appear before the concerned Appellate Authority on the date so fixed for hearing on the stay application; (iii) The stay application shall be heard and disposed of at the earliest by the Appellate Authority, preferably within a period of six weeks from the date of hearing; (iv) The respondent-Department shall not adopt coercive recovery proceedings in relation to the amount in question until final disposal of the stay application/s by the concerned Appellate Authority – Decided in favor of Assessee.
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CST, VAT & Sales Tax
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2013 (8) TMI 120
Validity of amendment to Central Sales Tax Act by Finance Act No.20 of 2002 - Violation of principle of promissory estoppel - Held that:- amendment to the Central Sales Tax Act by Finance Act No.20 of 2002 published on 13.5.2002, are valid and do not suffer from any vice of discrimination, and also do not violate principle of promissory estoppel qua the petitioner, the higher rate of tax payable for non compliance of the amended provisions of Section 8 (5) namely non production of Form C/D, cannot be taken to be a ground to deny the set off of such higher rate of tax from the limits prescribed in the eligibility certificate under Section 4-A of the Trade Tax Act, subject to other conditions namely the maximum limit for particular year or period and maximum amount for which such exemption is provided - Following decision of M/s Yamaha Motor Excorts Limited v. State of U.P. & Ors. [2010 (1) TMI 1060 - ALLAHABAD HIGH COURT] - Decided in favour of assessee. Benefit of exemption of Central Sales Tax is not allowed in respect of Item Nos.16 and 19 on the aforesaid items and for which no adjustment was given.
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