Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 6, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Disallowance of rent - Tribunal viewed the entire expenditure not from the angle of prudence but from the question of genuineness thereof. It is true that such genuineness was examined on the basis of normal conduct of a business man - disallowance confirmed - HC
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Undervaluation of closing stock - If the AO was not satisfied with the market value taken by the assessee, he could have taken the assistance of the expert but the AO merely rejected the method of valuation consistently followed by the assessee - additions deleted - HC
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Refund by the Income-tax Department which included interest - Revenue taxed it at 20% as per section 115A as per Article 24 of Indo-Singapore DTAA wheres assessee claimed taxation of such interest @ 15% as per Article 11 of the DTAA - Action of revenue sustained - AT
Customs
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Valuation - import of cars in SKD / CKD conditions - inclusion of costs towards transfer of technology and trademark licence - just because the transaction value under Rule 4(1) is to be adjusted with the costs and services under Rule 9(1), cannot be said that Rule 9 is a residuary Rule - AT
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Amendment in the Bill of Entry - The appellant was entitled to make such amendment in the Bill of Entry - the declaration of proofing machine two times in the Bill of Entry is an obvious mistake committed by the CHA - AT
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Nature of entitlement – duty credit - Target Plus Scheme (TPS) - The nexus has to be maintained that ‘product group’, viz., the category of the products which is exported. If the import also falls in the same category/group, it would be allowable. - HC
Service Tax
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Business Auxiliary service - RCM (Right Concept Marketing) Business Marketing Plan is neither a new arrangement nor there is any concept of dividends - the service is taxable - AT
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Where a show cause notice is invalided for violation of due process, and in particular violation of principles of natural justice, a fresh opportunity could be given to revenue.- AT
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Validity of Show-cause Notice - party to whom a show cause notice is issued must be made aware of the allegation against it and that this is a requirement of natural justice. Unless the assessee is put to such notice, he has no opportunity to meet the case against him – Notices quashed - AT
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Manpower Recruitment agency service - Valuation - inclusion of value of Provident Fund and other statutory dues - these amounts constitute the gross amount charged by the appellant for having provided the taxable service - AT
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Valuation - Value of goods/material is separately shown in contract itself for each category of transformers. Moreover VAT has been paid on these goods/materials. Therefore there is no reason to deny the benefit of Notification No. 12/2003 dated 20.06.2003 - AT
Central Excise
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Rule 11 of the central Excise Rules read with Rule 25 of the Central Excise Rules,2002 - TThe reason that the goods were not available to confiscation should not be a reason to avoid penalty - AT
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Eligibility to take Cenvat Credit in respect of shortage quantity of input items - The fact that the mistakes are random mistakes, is also evident from the fact that in respect of a number of other items, there is excess also - credit allowed - AT
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Cenvat Credit of insurance premium for insurance of company’s vehicles – , providing of cars to the officers for company’s work as well as for commuting between the residence and the factory cannot be called welfare activity - credit allowed - AT
Case Laws:
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Income Tax
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2013 (8) TMI 144
Penalty u/s 271(1)(c) - Unexplained expenditure - Rejection of books of accounts - Tribunal deleted penalty - Held that:- merely because account books of assessee were rejected and that profit was estimated on the basis of fair gross profit ratio, no penalty can be imposed - No evidence was brought by the Revenue to suggest that assessee had retained a portion of sales tax with it - Decided against Revenue.
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2013 (8) TMI 143
Disallowance of rent - CIT allowed expenditure u/s 37 - Tribunal upheld order of A.O. and disallowed expenditure - Held that:- as per the agreement dated 13.9.1991, the assessee company was obliged to make payment for godown space which the assessee committed to hire from M/s. Coastal Roadways Ltd irrespective of whether such godowns utilised by the assessee or not - M/s. Coastal Roadways ltd made a false representation in the agreement to the assessee of owning or possessing godowns at four different locations for which it went on charging the assessee company full rent for the entire period of six months without even having acquired such space for a single day during the entire period of six months. Tribunal viewed the entire expenditure not from the angle of prudence but from the question of genuineness thereof. It is true that such genuineness was examined on the basis of normal conduct of a business man and in such context the Tribunal did make some observations with respect to what in the opinion of the Tribunal a prudent business man would do. However, such observations cannot be seen in isolation losing the background in which same was made - assessee was to execute its export contracts latest by 15.2.1992. Assessee however, rented the godown for more than a full month thereafter till 31.3.1993 - No substantial question of law arises - Decided against assessee.
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2013 (8) TMI 142
Deduction u/s 80IB(10) - Assessee not owner of land - Tribunal deleted disallowance - 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 - Supreme Court dismissed decision appeal in case of CIT v. Radhe Developers[2011 (12) TMI 248 - GUJARAT HIGH COURT] - Therefore, Decided against Revenue.
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2013 (8) TMI 141
Deduction u/s 80IB - Disallowance of labour expenses u/s 40(a)(ia) - Tribunal allowed deduction - Held that:- It may be that certain expenditure may be disallowed on the ground that tax deductible at source at the time of making such payment was done by the assessee. Nevertheless, no effect of such disallowance would be there on the assessee's profit from its construction activity since it would be increased to that extent. Nevertheless, such increased income would also qualify for deduction, even otherwise, available under the statute - Following decision of CIT v. Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] - Decided against Revenue.
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2013 (8) TMI 140
Undervaluation of closing stock - CIT confirmed the addition - Tribunal deleted addition - Held that:- assessee had wherever found that the rough diamonds are having cost less than the market value, it had valued them at the cost. Wherever the market value of the rough diamonds is less than the cost, the assessee has applied the market value. This fact was not denied by the Assessing Officer. Any objection raised by the Assessing Officer was against the market value determined by the assessee. The onus is on the assessee to prove that the market value of the stock is less than the cost but it is a case where there is no independent evidence available which may confirm the market value. In the case of rough diamonds it is only the estimate, which can work out by the expert. If the Assessing Officer was not satisfied with the market value taken by the assessee, he could have taken the assistance of the expert but the Assessing Officer merely rejected the method of valuation consistently followed by the assessee and accepted by the Revenue in the earlier year and hence without obtaining any expert's opinion on the subject the Assessing Officer could not have rejected market value taken by the assessee - Following decision of The Assistant Commissioner of Income Tax Versus B. Sureshkumar & Co (RF) [2008 (7) TMI 849 - GUJARAT HIGH COURT] - Decided against Revenue. Genuineness of the transactions - Certificate for deduction at lower rate issued - Tribunal deleted addition - Held that:- when the certificate for deduction at source has already been issued, the question of doubting the identity of the payee or the genuineness of the transaction would not arise - No substantial question of law arises - Decided against Revenue.
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2013 (8) TMI 139
Non-deduction of TDS u/s 194C - franchise fees paid by the assessee to the Licensee - CIT(A) deleted the addition - Held that:- As decided in assessee's own in [2012 (4) TMI 440 - DELHI HIGH COURT] it is held that the tenor and purport of the terms of the agreement were that it was not a case where the licensee was doing any work for the assessee even within the wider meaning of the term “any work” as defined in Section 194C - In favour of assessee. Disallowance u/s 14A read with Rule 8D - CIT(A) partly deleted the addition - Held that:- CIT(A) has sustained the disallowance just by an estimate based at the rate of 5% without looking into whether the expenditure which has been disallowed has a proximate relationship with the income which has been earned by the assessee not forming part of total income. Therefore, set aside the order of the CIT(A) and restore taback to the file of AO with a direction to re-decide after giving the finding with all the expenditure whether have a proximate relationship with the income earned by the assessee on the shares and than accordingly he should estimate the disallowance - in favour of revenue for statistical purposes. Bonus paid to directors - disallowance u/s 36(1)(ii) - CIT(A) deleted the addition - Held that:- As decided in assessee's own case [2010 (12) TMI 746 - ITAT, Delhi] wherein held that as one of the directors would have received the bonus as dividend in case bonus was not paid. Otherwise, the bonus has been paid as per resolution of the Board of Directors. Therefore, the provision contained in section 36(1)(ii) is not applicable - Decided in favor of assessee. Addition on a/c of non-refundable portion of advance fee - CIT(A) deleted the addition - Held that:- As decided in assessee's own case [2010 (12) TMI 746 - ITAT, Delhi] only that part of the receipt is taxable in this year which accrued to the assessee as income. Decided in favor of assessee. Addition on a/c of bad debts - CIT(A) deleted the addition - Held that:- As decided in TRF Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee. In favor of assessee. Addition on a/c of processing charges - CIT(A) deleted the addition - Held that:- As decided in India Cement Ltd. Vs. CIT [1965 (12) TMI 22 - SUPREME Court] such expenses are clearly allowable under section 36(1)(iii). In favor of assessee. Addition on a/c of advance written-off - CIT(A) deleted the addition - Held that:- The assessee has written off the advance given to the employees, when the employees left the employment as the amount no more could be recovered from the employee. CIT(A) although deleted the disallowance u/s 36(1)(vii), but section 36(1)(vii) is not applicable, but this will be a loss incidentally to the business of the assessee as the advance was given during the course of business. In favor of assessee. Disallowance of 4/5 of the advertisement expenditure - Held that:- the expenditure on publicity and advertisement has to be treated as revenue in nature which is allowable fully in the year in which it has been incurred. The expenditure was incurred to facilitate the appellant's trading operations. No fixed capital was created by this expenditure and there was no advantage which accrued to the appellant in the capital nature. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfills the tests laid down u/s 37 and it has to be allowed. Only in exceptional cases of the nature of expenses as mentioned in Madras Industrial Investment Corporation Ltd. (1997 (4) TMI 5 - SUPREME Court), the expenditure can be allowed to be spread over, that too when the assessee chooses to do so. The same ratio has been laid down in the case of CIT vs. CITI Financial Consumer Finance Ltd [2011 (3) TMI 622 - Delhi High Court]. In favor of assessee.
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2013 (8) TMI 138
DTAA between India and Singapore - assessee is a company resident of Singapore engaged in the business of Computerized Reservation System (CRS) - assessee received payment from its activity of providing airline reservations in India, which was not offered for taxation stating that it did not have any permanent establishment (PE) in India - AO estimated of the profit margin at 10% of the receipts attributable to Indian operations - Held that:- Considering the assessee's own case for the earlier years ITAT has held that 15% of the receipts should be attributed as income accruing or arising in India and since 25% of the receipts were paid to ADSIL in India as marketing fees, there was no income chargeable to tax as relying on Galileo International Inc. v. DCIT [2007 (11) TMI 329 - ITAT DELHI-B] as affirmed by Hon'ble Delhi High Court [2009 (2) TMI 497 - Delhi High Court]. Refund by the Income-tax Department which included interest - Revenue taxed it at 20% as per section 115A as per Article 24 of Indo-Singapore DTAA wheres assessee claimed taxation of such interest @ 15% as per Article 11 of the DTAA - Held that:- The burden is on the assessee to prove that the amount of income was remitted to or received in Singapore. This burden can be discharged by showing a credit in the bank account maintained by the assessee in Singapore. Production of a copy of pay in slip showing deposit of refund voucher in a bank a/c in Singapore which is eventually credited to the bank account, or even a certificate from a Bank in Singapore in this regard, are the instances of sufficient compliance of the requisite condition. A bald submission not backed by any supporting evidence to prove the fulfillment of the requisite condition, cannot be a good reason for drawing an inference in favour of the assessee. It is more so because there is an unambiguous command of Article 24 which casts obligation on the assessee to prove this fact positively. Thus the authorities below were justified in refusing the benefit of Article-11 of the DTAA by taxing the interest on I.T. refund @ 20% as per section 115A. Claim of reimbursement of expenses - Held that:- As seen from the findings given by the CIT (A) on the first issue is viewed in the light of superseding order holding the attribution of income from Indian operations at 15% of the gross receipts, there remains no doubt that the marketing fees paid to ADSIL is still more than the income attributable to the business operations in India including the amount of ₹ 1.72 crore - ground raised by the assessee that the expenses reimbursed by the ADSIL amounting to ₹ 1.72 crores should be considered as reimbursement of expenses is liable to be and hereby dismissed. Against assessee.
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2013 (8) TMI 137
Disallowance made u/s 40(a)(ia) - not deposit of TDS before the expiry of time prescribed under sub-section (1) of section 200 - Held that:- As decided in CIT vs. Virgin Creations [2011 (11) TMI 348 - CALCUTTA HIGH COURT] amendment to the provisions of sec. 40(a)(ia) by the Finance Act, 2010 would be applicable retrospectively from 1-4-2005 & if an assessee has deposited the TDS amount before due date of filing of return u/s 139(1), no disallowance can be made u/s 40(a)(ia) of the Act. In the facts of the present case, there is no dispute that the assessee has deposited TDS amount before the due date of filing the return u/s 139(1), hence, the no disallowance can be made by invoking the provisions contained u/s 40(a)(ia) - appeal filed by the assessee stands allowed. Unaccounted cash credit - CIT(A) deleted the addition - whether assessee has not substantiated the sources for the credits/deposits made into the bank account with corroborative documentary evidence - first group of deposits - Held that:- The assessee has submitted that these amounts had been deposited out of the cash withdrawal of ₹ 4,90,000 on 27-5-2008 which had been withdrawn for hte medical treatment of the assesse's (aunt). AO has not accepted this explanation stating that the sum of ₹ 4,90,000 had been used for repayment of loan to Sri P. Nageswara Rao. It is seen from the entries in the bank account and the assessee 's explanation that the repayment has taken place subsequently, i.e., on 27-8-2008 and on 11-9-2008. Before this, the assessee had made a self withdrawal of ₹ 4,91,500 on 31-5- 2008. However, as per the assessee, this amount was eventually not utilised and was re-deposited on the dates mentioned above. AO has ignored this withdrawal of ₹ 4,91,500 in his order without giving any justification. Thus the assessee's explanation is reasonable and deserves acceptance. Against revenue. Second group of deposits - Held that:- The assessee submitted that he had borrowed a sum of ₹ 6 lakhs from Sri Rajeev Aurangabadkar for the purpose of development of land at Gandhamguda village. The borrowals are not disputed by the Assessing Officer. The assessee further submitted that he had paid advances to Sri M.V. Bhadra Rao (contractor for electrical works) and Sri G. Shanker (contracator for civil works). Since the project did not materialise, the assessee recovered the advances from the two persons and the deposits were made out of these amounts. The fact that payments were made to these two persons is borne out fo the bank details extracted in the assessment order. The subsequent deposits also tally exactly with the subsequent disputed deposits. The assessee 's explanation, therefore, is logical and reasonable. Third set of deposits - Held that:- The fact remains that the assessee had returned an income of ₹ 2,61,250/- and agricultural income of ₹ 72,630/- which has been accepted by the Assessing Officer in his order. These amounts, which reflect the net income of the assessee, would themselves be sufficient to explain the deposits of ₹ 1,44,500/-. It would also be safe and logical to presume that the deposits were made out of the gross receipts of the assessee which naturally would be more than the returned (and net) income. The explanation of the assessee is, therefore, accepted as reasonable. Determination of net profit at the rate of 5% of the purchases and stock put for sale during the year - Held that:- Income of the assessee in this particular line of business of liquor has to be estimated at 5% on purchase of stock put for sale as decided in case of M/s Amaravati Wine Shop [2012 (8) TMI 706 - ITAT, HYDERABAD].
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2013 (8) TMI 136
Sale and purchase of shares - capital gain v/s business income - Held that:- Total number of transaction is 68 out of which 40 transactions relate to LTCG. 15 transactions relate to STCG and 30 transactions relate to close out transaction of STCG. The total number of scrips dealt by the assessee is 26. Further average holding period for capital gains is 37 days or 1.75 years. The average holding period for STCG is 217 days. These facts speak for themselves. The past history of the assessee also shows that right from assessment years 2001-02 to 2006-07, when the assessments has been made after thorough scrutiny u/s 143(3) the Department has accepted the profit under the head capital gain. Thus following rule of consistency no reason to take a different view as from the past assessment of the assessee. Against revenue. Disallowance u/s 14A - CIT(A) restricted the disallowance u/s 14A to Rs. 18,65,942/- whereas the disallowance as per Rule 8D worked out to Rs. 2,96,23,551/- - Held that:- As it is settled that Rule 8D is prospective as held in Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT), . However , at the same time a reasonable disallowance accepted to be made so far as earning of exempt income is concerned CIT(A) has restricted the disallowance to the extent of expenditure claimed. Thus no reason to interfere with the finding of CIT(A). Against revenue.
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2013 (8) TMI 135
Levy of penalty u/s 271(1)(c) - payment of fee for technical services to non-resident without deduction of TDS thus disallowance u/s 40(a)(i) - technical default of delay in payment - Penalty upheld by CIT(A) - Held that:- The facts as stated by the CIT(A), rather than being adverse to the assessee favour it. This is as it is clear that the assessee was of the clear view that tax was not deductible on the said payment. Accordingly, neither any tax stood deducted, nor paid to the credit of the Central Government. It is only subsequently, on being so pointed out by the tax auditor, that the said default came to light, and the assessee realized his mistake in having not deposited the tax on the impugned sum. The matter stands duly reported by the tax auditor in his report u/s.44AB, and which accompanies and forms part of the assessee's return of income. How could, therefore, it be said that the assessee has not disclosed the correct particulars of its income. Further, following the advice of its tax advisor, tax has also been deposited to the account of the Government on 20.11.2003, prior to the filing of the return for the relevant year on 27.11.2003. No doubt, it does not explain the basis of the claim for the current year; the provision itself providing for the contingency and consequence of delayed payment, deferring the claim to the year of actual payment – the fact remains that the deduction becomes exigible for the subsequent year. The assessee would be entitled to claim the deduction for the immediately succeeding year, and which it has ostensibly not. In terms of the provision itself, therefore, it becomes a case of satisfaction of the principal condition for deduction, i.e., the payment of TDS, though subsequently. It is this that prompted us to state of the provision as having been substantially complied with. It would decidedly be a different matter if the provision made no such exception, as in that case there would be no question of the principal condition of the payment having been met and, thus, of the assessee being substantially compliant. This, therefore, serves as a valid explanation under Explanation (1B) to section 271(1)(c). In favour of assessee.
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Customs
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2013 (8) TMI 134
Valuation - import of cars in SKD / CKD conditions - inclusion of costs towards transfer of technology and trademark licence - Investigation was taken up on the basis of intelligence assesses had not declared the value correctly and consequently evaded customs duty - the Commissioner ordered that 45 million USD charged as Technology Transfer is attributable to pre-importation activity and, therefore, this amount has to be added and included in the assessable value, applicable to each imported car kit - Agreements between the two companies fraudulent and fabricated - whether the payment of lump sum made to SKODA towards technological fees for manufacturing car kits calculated on the basis of USD per unit as per FIPB application and as per cost sheet recovered during the investigation was includable in the assessable value or not - clauses from (a) to (e) of Rule 9(1) are independent - just because the transaction value under Rule 4(1) is to be adjusted with the costs and services under Rule 9(1), cannot be said that Rule 9 is a residuary Rule - transaction value under Rule 4(1) is to be adjusted with the costs and services mentioned in any of the clauses (a) to (e) of Rule 9(1) depending upon the fact situation of each case. It is needless to mention that each of the clauses from (a) to (e) of Rule 9(1) is independent. Further, just because the transaction value under Rule 4(1) is required to be adjusted with the costs and services under Rule 9(1), it cannot be said that Rule 9 is a residuary Rule. Technical Documentation - the Supply Agreement and the Technology Transfer and Trademark Licence Agreement are complementary to each other - both the Agreements had to be taken as indivisible and composite contract. Lumpsum (Technological Fee) vis-à-vis royalty – royalties will be addable to the value of the imported goods - only the lumpsum amount of USD 45 million paid towards technical documentation (technology transfer fee) which was different from royalty was addable to the assessable value of the goods - State Bank of India V/s. CC, Bombay –(2000 (1) TMI 177 - SUPREME COURT OF INDIA ). Limitation - The show cause notice had demanded duty for the period from October, 2001 to July,2007 by invoking the extended period of limitation u/s28 (1) – There were clear suppression of fact attracting the extended period of limitation – the notice needed to be issued either within the normal period or within the extended period from the relevant date - CCE, Surat-I v/s. Neminath Fabrics Pvt. Ltd. ( 2010 (4) TMI 631 - GUJARAT HIGH COURT) - date of knowledge cannot be imported into the relevant date as prescribed by the Act. Jurisdiction: - the show cause notice had been issued - the officers of the Directorate general of Central Excised Intelligence at various levels were also officers of Customs with all India jurisdiction vide Notification No. 27/2009-Cus - Further, they are also ‘proper officers' for the purposes of Section 28 in terms of Notification No. 44/2011. Confiscation - this was a case of misdeclaration of value of the goods by suppressing the fact of payment of USD 45 million in the guise of technical documentation - the Commissioner had rightly held that the goods are liable to confiscation u/s 111(m) and imposed redemption fine in lieu of confiscation as the goods were not physically available at the time of adjudication. Penalties - the short levy had arisen as a result of suppression of facts of payment of USD 45 million in the guise of technical documentation - the Commissioner had rightly imposed penalty of SAIPL u/d114A – penalties were reduced - the goods were not physically available at the time of adjudication - redemption fine imposed by the Commissioner was not imposable – decided partly in favour of assessee.
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2013 (8) TMI 133
Amendment in the Bill of Entry - assessee imported the goods – by mistake in the bill 6 items were mentioned instead of 5 - filed an application for amendment of Bill of entry in terms of provisions of Section 149 - application was rejected by the original adjudicating authority on the ground that the appellants had themselves made the declaration and the goods stand cleared as per the assessment done by the proper officer – Held that:- The appellant was entitled to make such amendment in the Bill of Entry - the declaration of proofing machine two times in the Bill of Entry is an obvious mistake committed by the CHA - It was only such type of mistake which are permitted to be amended in terms of section 149 of the Act - all the evidence relied upon by the importer are the documentary evidence which were available at the time of clearance of the goods – evidence lead to only one inevitable conclusion that only 5 machines were imported by the appellant – decided in favour of assessee.
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2013 (8) TMI 132
Reduction in redemption fine - old and used photocopier machines imported was imported without licence by bill of entry was low compared to the NIDB date for which that should be enhanced – assessee filed an appeal - The fines and penalties imposed by the original authorities in these cases of repeated offences were not unreasonable or arbitrary or whimsical considering the fact that the authorities under the law have a duty cast upon them to prevent illegal imports and effectively implement the Import Policy validly laid down by the Government and to curb undervaluation and mis declaration apart from preventing repeated offences – decided against assessee. Reduced penalty – penalty on import without licence was reduced – Held that:- decided the lower appellate authority was totally unjustified in reducing the fines and penalties in these cases to very low levels - orders passed by the lower appellate authority were set aside as they relate to lowering of redemption fines and penalties and restore the orders passed by the original authorities – adjudication was modified only on penalty aspect and order of ld. Commissioner (Appeals) was upheld on valuation aspect setting aside his order on fine and penalty in both cases – decided in favour of revenue.
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2013 (8) TMI 131
Nature of entitlement – duty credit - export incentive under the scheme called the Target Plus Scheme (TPS) - Nexus with import - Whether a change to the duty credit entitlements announced by the FTP can be brought about without amending such policy and by issuing Circulars and Notifications or Forms – Held that:- credit can be used for import of any inputs, capital goods including spares, office equipments, professional equipment and office furniture. Such imports can be used not only by the exporter, but even by the supporting manufacturer. Obviously, office equipment, professional equipment and office furniture have no nexus with the exports, the question is about inputs. When the expression is “import of any inputs” whether it would mean only those inputs which have nexus with the nature of goods exported. That is not following from the scheme. When we read the later portion of this para dealing with import of agricultural products, we find that some items which are allowed to be imported are specifically mentioned. Again, when those items are mentioned, it is not necessary that they will have nexus with the exports made by a particular export houses. When we look the matter from this angle and even proceed on the basis that ‘broad nexus’ criteria used in Handbook of Procedures Vol. I for the period from 1-9-2004 to 31-3-2009, the word ‘broad’ prefixed with nexus, the word ‘nexus’ has to be assigned same meaning. The nexus has to be maintained that ‘product group’, viz., the category of the products which is exported. If the import also falls in the same category/group, it would be allowable. Imports under TPS may be carefully scrutinized with reference to the provisions of the FTP, Handbook of Procedures, the customs notifications and Board’s Circular referred to above so as to ensure that the laid down provisions regarding ‘inputs’, ‘broad nexus’ and ‘use’ and ‘supporting manufacturer(s)’ are complied with - FTP by itself does not indicate that the imported goods should constitute ‘inputs’ in the goods exported - Relying upon Atul Commodities Pvt. Ltd. v. Commissioner of Customs [2009 (2) TMI 18 - SUPREME COURT] and Narendra Udeshi v. Union of India [2002 (10) TMI 646 - BOMBAY HIGH COURT] – Decided against assesse.
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Service Tax
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2013 (8) TMI 149
Business Auxiliary service - Revenue proceeded against the assessee for having provided ‘Business Auxiliary Service’; for failure to obtain registration and filing returns disclosing amounts received from the taxable service - Commission received from M/s Fashion Suitings Pvt. Ltd., Bhilwara Rajasthan (for short FSL), for providing the Business Auxiliary Service of promotion and marketing of FSL products – Held that:- On analysis of the terms and conditions of similar agreements between the FSL and the petitioners, the adjudicating authority confirmed the tax liability against the appellants. We are satisfied that RCM (Right Concept Marketing) Business Marketing Plan is neither a new arrangement nor there is any concept of dividends as suggested by the Ld. Counsel. This is a clear Multilevel Marketing Service Scheme. The consideration/commission received by the appellants from FSL (this fact is not disputed) is the result of the marketing/promotion of FSL products by the appellants and constitutes a service (Business Auxiliary Service), provided in respect of FSL products to FSL. The commission/consideration is provided according to the terms and conditions, for marketing/promotion efforts by the appellants. The receipt of commission by the appellants clearly makes them providers of Business Auxiliary Service as defined under Section 65 (19) of the Act Penalty under Section 76 of the service tax act – Held that:- Imposition of penalties on the appellants is not sustainable as the appellants were under the bona-fide belief that the service provided by them was not Business Auxiliary Service . We are unable to accept this contention as we discern no ambiguity in the statutory definition of Business Auxiliary service that could have sustained on given rise to any bona-fide belief as to the activities of the appellants being not Business Auxiliary Service – Decided against the Assessee.
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2013 (8) TMI 148
Validity of Show-cause Notice - Two show cause notices dated 21.4.2010 and 20.4.2011 were issued for the period April 2008 to March 2011 alleging that the assesee had provided Business Auxiliary Service and had failed to remit tax on amounts received for providing such service – Held that:- The show cause notices were issued on the basis of a prima facie assumption by Revenue that the assessee was assessable to levy of service tax for providing BAS. The reasons for such prima facie assumption of Revenue were however not specified in the show cause notices. Mere extraction of the entire provisions of Section 65(19) of the Act does not fulfill the requirement - Show cause notices dated 21.4.2010 and 20.4.2011 are invalid. This infirmity is incurable; these show cause notices are therefore quashed. Since the adjudication order is the consequence of the invalid show cause notices, it is also quashed – Relying upon the judgment in the case of Kaur & Singh vs. C.C.E., New Delhi [1996 (11) TMI 84 - SUPREME COURT OF INDIA], it has been held that the party to whom a show cause notice is issued must be made aware of the allegation against it and that this is a requirement of natural justice. Unless the assessee is put to such notice, he has no opportunity to meet the case against him – Decided in favor of Assesse. Liberty to Revenue to initiate proceeding afresh by issuance of a fresh show cause notice – Held that:- Appellant reliance on the judgment in the case C.C.E. vs. HMM Ltd. [1995 (1) TMI 70 - SUPREME COURT OF INDIA], is not sustainable, wherein no liberty to Revenue is granted therein to initiate proceeding afresh by issuance of a fresh show cause notice - Where a show cause notice is invalided for violation of due process, and in particular violation of principles of natural justice, a fresh opportunity could be given. The absence of such liberty specified in Judicial orders is not an indicator of a principle that no such liberty inheres – Decided against the Assessee.
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2013 (8) TMI 147
Manpower Recruitment agency service - Valuation - inclusion of value of Provident Fund and other statutory dues - Assessee was engaged in providing the taxable man-power recruitment or supply agency service and had received a total amount of ₹ 3,47,481/- towards the provident fund contribution in respect of personnel deployed by the assessee to M/s Hindalco Industries Ltd – Held that:- It is admitted that the liability to remit Provident Fund to Provident Fund Authorities is a statutory liability on the appellant, the an employer of persons who were deployed to serve the needs of M/s Hindalco Industries Ltd., towards the taxable ‘manpower recruitment or supply agency’ service. M/s Hindalco consideration for such taxable service provided by the appellant had remitted to the appellant not only the amount agreed to between the parties for remunerating the personnel so deployed but also the amount of provident fund payable by the appellant to Provident Fund authorities, in terms of the appellant’s statutory obligation. Both these amounts therefore constitute the gross amount charged by the appellant for the taxable service provided to M/s Hindalco Industries Ltd., since the taxable service was provided for a consideration in money. Both these amounts therefore constitute the gross amount charged by the appellant for having provided the taxable service – Appeal is dismissed – Decided against the Assessee.
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2013 (8) TMI 146
Online Database Access or retrieval Service - Central Reservation System (CRS) - There is difference of opinion between Member (Judicial) and Member (Technical) – Held that:- The Registry was directed to place the matter before Larger Bench of the Hon’ble Tribunal, for deciding the following points of difference. 1. "Whether on the facts and in the circumstances of the case, the appellant permitted by Reserve Bank of India (RBI) to carry out air transport activity in India was a branch in India and was recipient of "online Database Access or retrieval Service" from CRS/GDS service provider abroad and liable to service tax in terms of section 65(105)(zh) read with section 65(75) of Finance Act, 1994 on reverse charge mechanism basis u/s 66A of the said Act w.e.f. 18.4.2006 or exempt in terms of section 66A(2) thereof". 2. "If service tax is payable by the appellant in respect of the service provided by the CRS/GDS companies, whether longer limitation period under provision to section 73(1) finance Act, 1994 would be available to the Department for recovery of tax and whether penalty on the appellant u/s 78 ibid would be attracted?"
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2013 (8) TMI 145
Valuation - exclusion of cost of goods sold - Service tax only on Labour Charges under Management, Maintenance or Repair service and are not paying service tax on entire cost of repair including the cost of various items replaced during the repair of transformers though said repair is being done under a composite agreement - During the course of repairs, Respondents are replacing LV/HV Leg coils, Transformer Oil and other items - Contract shows that rates quoted in contract are exclusive of Excise duty, VAT/Sale Tax and Service tax. There is no dispute that the VAT has been paid by the Respondents on cost of LV/HV Leg coil, Transformer oil other supplies items Notification No. 12/2003-Service Tax dated 20.6.2003 – Held that:- Under Notification No. 12/2003-Service Tax dated 20.6.2003, value of goods and material sold by the service provider to service recipient is exempted subject to the condition that there is documentary evidence indicating value of goods/material - Value of goods/material is separately shown in contract itself for each category of transformers. Moreover VAT has been paid on these goods/materials. Therefore there is no reason to deny the benefit of Notification No. 12/2003 dated 20.06.2003 to the Respondents – Decided against the Revenue.
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2013 (8) TMI 124
Waiver of pre-deposit – Stay application – services of Electrical Research and Development Activities - Club or Association - Charitable activities or Not - Appellant in this case is an institution which has been registered under Society’s Act for providing the services of Electrical Research and Development Activities - Revenue’s submission that the services rendered by assessee to their members would fall under the category of club or association service - Held that:- Major portion of the demand is hit by limitation as they have been regularly filing the returns and they were under a bonafide belief that they do not fall under the category of Club or Association – Since, the issue is arguable one and the major portion of the demand seems to be, prima facie, time barred, Appellant is directed to deposit an amount of ₹ 2.50 lakhs (Rupees Two Lakhs, Fifty Thousands only) against the demand that can arise within the limitation period in order to hear and dispose the appeal. The said pre-deposit is to be made within a period of eight weeks.
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Central Excise
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2013 (8) TMI 130
Interest on interest under excise Act - JAC granted the refund and the amount was granted by the JAC vide his order No. ANK-III/BCP/195 dated 27.02.08 without any interest under Section 11B and as per Board’s circular No.670/61/2002-C.EX dated 01.10.02. The appellant requested the JAC on 13.10.08, for grant of interest and the JAC vide his order No. ANK/BCP/271/REFUND/2008 dated 22.01.09 sanctioned the interest amounting to Rs.28,120/from the date of final order i.e. 12.02.08 to 05.10.08. The appellant was paid remaining amount of interest amounting to Rs.8,78,293/- - Aggrieved by such an order, the assessee preferred an appeal before the first appellate tribunal. The first appellate authority after following the due process of law, set aside the impugned order and directed the lower authorities to pay interest on belated payment of interest to the assessee – Held that:- The ratio of Larger Bench judgment in the case of Sun Pharmaceuticals Industries Ltd. [2005 (5) TMI 90 - CESTAT, NEW DELHI] - the legislature thought it fit not to provide for any interest on interest even in case of delay in payment of interest on refund amount. To read the liability to pay interest on interest in the provisions of law contained in Section 11BB of the Act, would virtually amount to legislate upon the Act and that is not the function of the Tribunal which is creation under the said Act itself and has to exercise power conferred upon it under the Act. It may also be added that before the introduction of Section 11BB, the Tribunal had no power to award interest by exercising inherent power, on the amount of refund of duty even if paid late. In this context, reference may be made to the judgment of the Hon’ble Allahabad High Court in the case of Prestige Engineering (India) Pvt. Ltd. v. Union of India [1990 (7) TMI 118 - HIGH COURT OF JUDICATURE AT ALLAHABAD)] ruled that When the Act (Central Excise) and the Rules made thereunder did not provide for payment of interest in case of refund of duty, It is to be presumed that the Parliament advisedly did not provide for the same, while enacting Section 11B in 1978. The authorities under the Act have to operate within the four corners of the Act and the Rules made thereunder. Since the Act or the Rules did not provide for grant of interest, the authorities under the Act, including the CEGAT, had no power to award interest - interest on delayed payment of interest, cannot be held to be permissible under the Central Excise Act and the Rules made thereunder – Decided in favor of Assessee.
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2013 (8) TMI 129
Rule 11 of the central Excise Rules read with Rule 25 of the Central Excise Rules,2002 - Two of the appellants, are second stage dealers as defined in rule 2 (s) of Cenvat Credit Rules, 2004 for selling of excisable products and issuing invoices showing excise duty payment on the goods as per provisions of Rule 11 (7) of Central Excise Rules, 2002 - Two second stage dealers had procured non-duty paid MS scrap from open market and supplied it under invoices which showed payment of duty on materials which were used by buyers(manufacturers) who were not interested in taking Cenvat credit – Held that:- Non-duty paid goods cleared to the manufacturers under invoice showing duty payment there is a clear violation of rules with intent to evade payment of excise duty on final products manufactured (by paying such duty through fraudulent credit) - This duty liability is not on the second stage dealer. But, still in my view, the situation will be covered by Rule 25 (d) and also in respect of non-duty paid goods supplied to the manufacturer under invoice showing duty payment. So, both the goods were liable to confiscation. This explains the slight contradiction between the orders of the two lower authorities. But this is not critical to the adverse consequence that visits the appellants due to his misdeeds. The reason that the goods were not available to confiscation should not be a reason to avoid penalty - Hon’ble High Court of Punjab and Haryana in the case V. K. Enterprises Vs. CCE [ 2011 (7) TMI 970 - CESTAT, DELHI] has held that penalties can be imposed in such cases under Rule 25 of the rules as it existed at that time. Since there is decision of a High Court in line with argument in present case, it is not considered necessary to follow any decision of the Tribunal to the contrary – Appeals filed by dealers rejected – Decided against the Assessee.
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2013 (8) TMI 128
Eligibility to take Cenvat Credit in respect of shortage quantity of input items - Shortages of inputs on inspection are not real shortages - Appellant use a large number of inputs about 60 to 80, for manufacture for their final products - Shortages in respect of 6 items mentioned above which had been detected in course of annual stock taking conducted by the appellant themselves - In respect of some other items, there was excess quantity also – Held that:- Shortage according to the appellant, in terms of percentage is about 2% and this fact is not refuted by the Department - In respect of solid inputs weightment is done by the weighing scale and in respect of furnace oil, the weightment is done by the dip-reading - Mistake are possible in determining the weight of inputs by weighing scale or by dip-reading. The fact that the mistakes are random mistakes, is also evident from the fact that in respect of a number of other items, there is excess also - Alleged shortages of inputs are not real shortages relying upon the decisions in the case of Triveni Glass Ltd. Vs. Commissioner of Central Excise, Allahabad reported in [2007 (8) TMI 194 - CESTAT, NEW DELHI] and other similar cases – Decided in favor of Assessee.
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2013 (8) TMI 127
Cenvat Credit on HR Coils – Lack of investigation and evidence - The invoices issued by the registered dealers M/s. Rishav Trading & M/s. Bansal Structurals mention that M/s. Pasondia Steel Profiles Ltd. had supplied the HR Coils to M/s. Rishav Trading and M/s. Bansal Structurals. Though statements of, Proprietor of M/s. Rishav Trading and Director of M/s. Bansal Structurals were recorded, there is nothing in these statements from which it can be inferred that they had not purchased HR Coils from M/s. Pasondia Steel. What they have admitted is the fictitious nature of their transactions with M/s. Pasondia Steel regarding CR Strip & CR Sheets. But their statements are totally silent about their transactions regarding purchase of HR Coils from M/s. Pasondia Steel. On this point neither any questions was put to them, nor have they made any statement. Thus, the statements of Proprioter/Director of the abovenamed company do not in any manner support the Department’s allegation with regard to HR Coils – Held that:- Invoice issued by the registered dealers mentioned the Truck Nos. in which the goods covered under the invoices had been transported. But absolutely no enquiry has been conducted with the truck owners. The entire case of the Department against the Respondent relies upon the evidence with regard to fictitious nature of the transactions of M/s. Pasondia Steel regarding the supply of CR Sheets by showing their bogus productions and bogus sale. But this evidence is of no relevance to the case where the claim of the respondent is they have purchased HR Coils from two dealers i.e. M/s. Rishav Trading & M/s. Bansal Structurals, who, in turn, claim that the HR Coils in question, had been purchased by them from M/s. Pasondia Steel - There is no evidence produced by the Department to show that M/s. Pasondia Steel had not sold any HR Coils to these two registered dealers – Decided against the Revenue.
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2013 (8) TMI 126
Cenvat Credit of insurance premium for insurance of company’s vehicles – Held that:- Since it is not disputed that the vehicles are also used by the officials for company’s work and since it is the Appellant company which benefits by arrival of its officials to the factory in time for which also the cars, in question, are used, providing of cars to the officers for company’s work as well as for commuting between the residence and the factory cannot be called welfare activity and is to be treated as activity related to business and the judgments of the Tribunal, in the cases of Commissioner of Central Excise, Raipur Vs. Topworth Steels Pvt. Ltd. reported in [2012 (9) TMI 235 - CESTAT, NEW DELHI], DSCL Sugar Vs. Commissioner of Central Excise, Lucknow reported in [2012 (12) TMI 221 - CESTAT, NEW DELHI], would be applicable – Decided in favor of Assessee.
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2013 (8) TMI 125
Limitation – Longer period for issuance of Show Cause Notice – cenvat credit - input services - outward transportation - Held that:- For invoking longer limitation period under proviso to Section 11A (1) of the Central Excise Act, the department has to prove that the wrong availment of Cenvat credit took place on account of fraud, wilful misdeclaration, misstatement or contravention of the provisions of the Central Excise Act, 1944 or of the rules made thereunder with intent to evade the payment of duty - Interpreting the provisions of proviso to Section 11A, the Apex Court in the case of Continental Foundation Jt. Venture vs. CCE, Chandigarh I [2007 (8) TMI 11 - SUPREME COURT OF INDIA] has held that when on account of conflicting judgments on an issue during some period, there was scope for entertaining doubt in respect of the view to be taken, the longer limitation period under proviso to Section 11A (1) would not be applicable - In this case allegation of intention to evade payment of Service tax has not even been made even in the show cause notice and only for this reason, the Jurisdictional Assistant Commissioner, after confirming the Cenvat credit demand, has not imposed penalty under Section 11AC, observing that he does not find default or the intention of the assessee to evade the duty, the proviso to Section 11A (1) would not be invokable – Extended period not invokable – Decided in favor of Assessee.
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CST, VAT & Sales Tax
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2013 (8) TMI 150
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.2, 4, 5 on the aforesaid items and for which no adjustment was given.
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