TMI Tax Updates - e-Newsletter
September 10, 2014

Case Laws in this Newsletter:

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

Articles

1. NEW PRE-DEPOSIT PROVISIONS FOR APPEAL IN SERVICE TAX

   By: Dr. Sanjiv Agarwal

2. STAY ORDER BY INCOME TAX APPELLATE TRIBUNAL NOT EXTENDEDABLE BEYOND 365 DAYS

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. India formally signs Trade in Services & Trade in Investments Agreement with ASEAN

2. RBI Reference Rate for US $

Circulars / Instructions / Orders

SEZ

1. INSTRUCTION NO. 81 - dated 8-9-2014

Exemption of vessels operating under the SEZ Rules, 2006 for oil spill response-regarding.

FEMA

2. 28 - dated 8-9-2014

Risk Management and Inter Bank Dealings: Hedging Facilities for Foreign Portfolio Investors (FPIs)

Highlights / Catch Notes

Income Tax

• Taxpayer's Multi-Year Construction Claim Triggers Reassessment u/s 147.

  Case-Laws - HC : Reassessment u/s 147 – the assessee himself appears to have claimed that the construction was spread over to 2-3 years - reopening of assessment is a natural consequence of the claim for spread over - HC
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• High Court sets aside Section 148 notice on subsidy treatment as capital receipt u/s 263 for 2003-2004.

  Case-Laws - HC : Reopening of assessment u/s 147 – the subsidy was treated as a capital receipt in Section 263 proceedings for the AY 2003-2004 was within the knowledge of the department - notice issued u/s 148 set aside - HC
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• Depreciation on Goodwill Allowed in Slump-Sale Valuation u/s 32(1)(ii) of Income Tax Act.

  Case-Laws - AT : Depreciation in intangible assets disallowed u/s 32(1)(ii) - valuation made during “slump-sale” of business has factored the value of “goodwill” in the composite value of “Maintenance portfolio” - depreciation allowed - AT
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• Revenue Fails to Prove Unexplained Cash Credits and Investments, Leaving Key Issues Unresolved.

  Case-Laws - AT : Unexplained cash credit/debits – unexplained investment - the burden to establish the existence of investment was on the Revenue, which has not been discharged - AT
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Customs

• High Court Upholds Tribunal's Decision to Encash Bank Guarantee for Duty Demand Without Pre-Deposit Requirement.

  Case-Laws - HC : Waiver of pre-deposit - tribunal directed that the Bank Guarantee may be encashed for collecting the demand of duty - order of tribunal sustained - HC
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• High Court Upholds Suspension of Import License for Duty Evasion; Emphasizes Compliance with Licensing Rules.

  Case-Laws - HC : Suspension of import / advance license - absence of valid licence in the names of importer and yet attempts being made to evade customs duty are rightly termed as fraud - HC
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• Customs Department Must Independently Assess Advance License Misuse, Irrespective of Director General's Findings, u/s 111(o.

  Case-Laws - HC : Misuse of advance License with actual user condition - The conclusion arrived at by the Director General of Foreign Trade in the matter of alleged violation of Advance License has absolutely no bearing on the question to be decided by the Customs Department under Section 111(o) of the Customs Department - HC
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Service Tax

• Court Upholds CESTAT Ruling: No Service Tax on Repair Goods with Paid Excise Duty and VAT.

  Case-Laws - HC : Whether the CESTAT has erred in holding that Service tax is not required to be paid on goods used in the repairing process on which Excise duty and VAT has been paid on the value of the said goods - held No - HC
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• Noida Authority Faces Service Tax Demand on Rents from Leasing Vacant Land for Industrial or Commercial Use.

  Case-Laws - AT : Renting of immovable property - Noida Authority - rents received for allotment of plots of vacant land to various persons on lease basis for industrial or commercial purposes - demand for the normal period of limitation confirmed - AT
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• Simultaneous Availment of Small-Scale Exemption and Abatement Confirmed; Stay Granted Under Notifications 6/2005-ST and 1/2006-ST.

  Case-Laws - AT : Small scale exemption upto limit of ₹ 10 lakhs - availing Notification no. 6/2005-ST dated 01.03.2005 while availing benefit of Notification 1/2006-ST granting abatement in value - both Notifications can be simultaneously availed - stay granted - AT
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• Waiver of Pre-Deposit in Business Auxiliary Service Case: Is Service Tax Refund Automatic? Exploring Revenue Neutrality Complexities.

  Case-Laws - AT : Waiver of pre-deposit - Business Auxiliary Service - import of services - reverse charge mechanism - revenue neutrality - The refund of Service Tax so payable is not automatic - prima facie against the assessee - AT
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Central Excise

• Appellate authority's error on CENVAT Credit: Storage tank wrongly classified as immovable property, marketability criterion irrelevant.

  Case-Laws - HC : CENVAT Credit - appellate authority committed a serious error firstly in holding that the storage tank is an immovable property and secondly on the ground that it cannot be bought and sold in the market, the criteria which is totally unwarranted under the circumstances. - HC
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• Conviction Upheld u/s 11 of Prevention of Corruption Act for Accepting Gratification Via Vehicle Donation to Trust.

  Case-Laws - HC : Conviction under Section 11 of the Prevention of Corruption Act, 1988 - Acceptance of gratification - Vehicle was donated by the assessee to Zami Memorial Charitable Trust made in the name of mother of the accused/appellant - awarding of sentence of 6(six) months which is the minimum sentence prescribed under Section 11 of Prevention of Corruption Act, 1988 would have met the ends of justice. - HC
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• Tribunal's Error: Reduced Penalty Offered Despite Unpaid Duty and Interest u/s 11AC in Order-in-Original Case.

  Case-Laws - HC : Penalty under Section 11AC - Neither the duty amount nor the interest has been paid either prior to raising of the demand or after the demand had been finalised in the Order-in-Original - Tribunal has committed an error of having made available the option of reduced penalty. - HC
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VAT

• Entry Tax on Dumpers Depends on Motor Vehicle Classification; Affects VAT and Sales Tax Obligations.

  Case-Laws - HC : Liability of entry tax - Taxability of dumper - when 'Dumper', can be said to be Motor Vehicle it will be 'specified goods' liable for entry tax - HC
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• High Court Rules Section 67 of Andhra Pradesh VAT Act Doesn't Apply to Central Sales Tax Assessments.

  Case-Laws - HC : Whether the provisions relating to Clarification and Advance Rulings contained in section 67 of the Andhra Pradesh Value Added Tax Act, 2005 would automatically apply to assessments made under the Central Sales Tax Act, 1956 - held no - HC
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• Harpic and Lizol taxed as pesticides under Assam VAT Act, entry 19; Dettol classified under entry 21, Fourth Schedule.

  Case-Laws - HC : Products Harpic and Lizol having been declared to be pesticides, would be liable to tax under entry No. 19 of Part A of the Second Schedule to the Assam VAT Act and Dettol would be liable to be assessed as an item under entry 21 of the Fourth Schedule to the Assam VAT Act - HC
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Case Laws:

• Income Tax

• 2014 (9) TMI 294
  Various expenses disallowed - Travelling expenses, Professional charges, Telephone expenses and other expenses – Held that:- In the previous year’s relevant to the assessment years under consideration the assessee company had made bonafide efforts to revive its business and having recognised the seriousness of the Directors to revive its activities, the BIFR sanctioned the rehabilitation scheme and soon thereafter the assessee company commenced its activities and in fact achieved substantial turnover in the subsequent years, which would highlight that the assessee never intended to windup its activity - there was only a ‘temporary lull, in the business, having regard to the circumstances of the case - the plant & machinery, factory premises, etc. were used in the preceding years for the purpose of business and even in the years under consideration they were ready for use and in the language of section 32 of the Act, the assets have been said to be put to use in the form of passive use in which event the assessee is entitled to claim depreciation - CIT(A) has taken into consideration the overall circumstances of the case while granting relief with regard to depreciation, telephone expenses, professional charges, etc. –the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (9) TMI 286
  Rejection of application of withdrawal of notice for reopening of assessment u/s 148 – Extended period of limitation - Notice time barred or not – Invocation of section 150(1) to be made or not – Held that:- The reopening of assessment is proposed to be made in relation to the AY 2003-2004 - the period of six years prescribed u/s 149, is already over - the Department should establish that this case falls within anyone of the two requirements of Section 150(1) - the Tribunal had remitted the matter back to the AO for a fresh consideration on the aspect of cost of construction - But at the same time, the Tribunal also rejected the stand taken by the Department that spreading over is not possible – also in Rajinder Nath Vs CIT [1979 (8) TMI 3 - SUPREME Court] it has been decided that a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case that is to say in respect of the particular assessee and in relation to the particular assessment year - the assessee himself appears to have claimed that the construction was spread over to 2-3 years – CIT(A) rendered a finding that the unexplained investment should be allowed to be spread over - That finding is upheld by the Tribunal – thus, the contention of the revenue that there was a finding and that this lead to the reopening of the assessment, has to be upheld - As a matter of fact, the reopening of assessment is a natural consequence of the claim for spread over – thus, the order fo the Tribunal is to be upheld – Decided against assessee.

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• 2014 (9) TMI 285
  Notice for reopening of assessment u/s 148 – Income escapement – Sybsidy treated as capital expenses - Held that:- An assessment cannot be reopened beyond the ordinary period of limitation because a mistake therein is detected or realised or that something which ought to have come to the notice of the department went unnoticed - There is also no room for “change of opinion” – relying upon Commissioner of Income-Tax V. Eicher Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - when there was a specific observation that this particular subsidy was to be taken as a capital receipt and not a revenue receipt it was gross indiscipline on the part of the Income Tax Officer. Also in Steamship Co. Ltd. v. Joint CIT [2005 (2) TMI 46 - CALCUTTA High Court] it has been held that if the AO had not questioned the entitlement of the assessee to deduction u/s 80-IB in the assessment years, it was their mistake - All information regarding the alleged manufacturing process of the assessee was before them - After the time limit for making assessment or reassessment had long expired, the Revenue cannot turn round, take recourse to an extraordinary provision which is section 147 and attempt to reopen concluded assessments - If such exercise is permitted that would be quite contrary to the intention of the Act – the subsidy was treated as a capital receipt in Section 263 proceedings for the AY 2003-2004 was within the knowledge of the department - Therefore, there was no ground for the Income Tax department to contend that income had escaped assessment and proceed to invoke the extraordinary provisions of Section 147 and 148 of the Act – thus, the notice u/s 147/148 is to be set aside – Decided in favour of assessee.

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• 2014 (9) TMI 284
  Rectification of mistake u/s 154 – Held that:- CIT(A) rightly observed that the assessee should have agitated such matter in an appeal against the original assessment order, which laws not done - What the AO has done in the order u/s 154 is correction of a simple totaling mistake - It is a mistake apparent from record, and it falls within the scope of S.154 - the Tribunal refused to address the question pertaining to the submission of reply on 02.04.1996, on the ground that it was raised for the first time before it - The observation cannot be sustained in law, since the Tribunal happens to be the final forum on facts, in the system of adjudication under the Act - The Tribunal ought to have addressed two aspects in this regard - There was no basis for it to refuse to deal with the question at all on the specious plea that the question was not raised before the Appellate Commissioner - the Appellate Commissioner did not record any finding to the effect that the appellant did not file any explanation - the order passed u/s 154 of the Act, the ITO has not only added the income from house and levied tax upon it, but also proceeded to levy the interest under Section 234-A, B & C of the Act, which is indeed phenomenal compared to the entire assessment – thus, the matter is remitted back to the ITO for fresh consideration – Decided in favour of assessee.

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• 2014 (9) TMI 283
  Reference u/s 256(1) - Deduction of exchange rate fluctuation – Held that:- Following the decision in Commissioner of Income Tax V/s. Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT] - deduction need not be claimed upon actual payment and the same can be claimed even pending such actual payment - the deduction of foreign exchange fluctuation can be claimed in the computation of the assessee's business profits pending such payment – Decided in favour of assessee. Managing Director's remuneration disallowed – Held that:- Following the decision in Mahindra And Mahindra Limited Versus Commissioner Of Income-Tax [2005 (8) TMI 87 - BOMBAY High Court] - the claim for allowance of its Managing Director's remuneration in the computation of business profits is permissible – Decided in favour of assessee.

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• 2014 (9) TMI 282
  Nature of transaction – Finance or Hire purchase agreement – Applicability of section 8(3) of Interest tax act - Held that:- There existed a hire purchase agreement - the ITO went a bit deep into the contents of the agreement and on analysis of the same, he arrived at the conclusion that the transaction par takes the character of financial arrangement - such a course is not permissible - once there exists a hire purchase agreement, further questions as to how much part of the consideration of the vehicle was paid by the assessee, and what are the other terms, become immaterial - Realizing that the hire purchase agreements are very complex in nature, the Central Board of Direct Taxes issued guidelines and clarifications from time to time - The Tribunal has relied upon the clarifications issued through instruction No.1425, dated 16.11.1981- the actual contents of the hire purchase agreement and the purport thereof were discussed by the Tribunal, in detail – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (9) TMI 281
  Dismissal of appeal – Lapse on the part of advocate - Removal of office objection – Held that:- Every Department’s/Revenue’s appeal filed and pending for non-removal of office objection ought to be followed up by not only the Advocate for Revenue but by the Revenue Officials in charge of initiating litigation and in the Higher Court - They ought to be guided by the Superiors as to how the matter needs to be followed up and along with the Advocate - the matters of Revenue and Tax ought to be followed up with due diligence.

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• 2014 (9) TMI 280
  Depreciation in intangible assets disallowed u/s 32(1)(ii) - Whether consideration paid to acquire rights under the contract did not represent depreciable intangible asset, in terms of Section 32(1)(ii) of the Act – Held that:- The assessee has acquired maintenance contracts for 3578 elevators which is the main source of revenue for the assessee, and maintenance contracts for 1001 elevators which are under warranty period and which will start yielding revenue once the warranty period expires - the Assessee has acquired exclusive right to execute the maintenance contracts as it constitutes the very backbone of the business as per the “Undertaking and Sale Agreement” between the parties - the Assessee has obtained all Intellectual Property Rights in the form of know- how relating to the complete business of the “Maintenance Division” of ECE Ltd. - apart from IPR”s, the Assessee has also received leases, licenses, offers and purchase orders etc. relating to the said Maintenance Division of ECE Ltd. Likewise, the Assessee has also obtained various rights, permits, authorizations etc. relating to the business of Maintenance Division of ECE Ltd. including the benefits accruing from existing and prospective service contracts with third parties in whose premises the products of the vendor have been installed. AMCs would not fall under any of the specified intangible assets such as know-how, patents, copyrights, trademarks, licenses and franchises listed under Section 32(1)(ii) of the Act - the present Agreement represent a bundle of rights in the form of “commercial rights” which eventually constitute the basic income earning apparatus of the Assessee – the contention of the assessee is accepted that AMCs are commercial rights and the same should rightly be categorized as “business or commercial rights” for the purposes of Section 32(1)(ii) of the Act - AMCs should get covered within the expression" business or commercial rights of similar nature" specified u/s 32(1)(ii) of the Act and accordingly eligible for depreciation – Decided in faovur of assessee. Admission of additional ground - Depreciation in goodwill u/s 32(1)(ii) – Held that:- Following the decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] - the assessee became aware of its rights to claim depreciation in terms of Sec. 32 on “goodwill of business” and moved an application for admission of additional grounds before us for the first time - the value ascribed to “goodwill” was always part of the accounts of the Assessee in terms of audited balance sheets of the Assessee for the year ending 31.03.2003 and the same were part of the purchase consideration as could be seen from Article 3.1 of the said Agreement – admission of application for additional ground as non- allowance could result in denial of justice – Decided in favour of assessee. Following the decision in Srinivasa Shetty [1981 (2) TMI 1 - SUPREME Court] - because of its intangible nature it (goodwill) remains insubstantial in form and nebulous in character - Its value may fluctuate from one moment to another depending on the changes in the reputation of business - the cumulative amount as shown in the Undertaking and Sale Agreement is inclusive of “goodwill” though this is not specifically the subject matter of slump-sale in the Undertaking Sale Agreement - on the one end the amount of goodwill is not reflected in the Undertaking and Sale Agreement but a cumulative amount inclusive of the value of goodwill is mentioned while, on the other end the balance sheets of the assessee disclose Rs. 1,85,44,612/- as “goodwill” and Rs. 18,34,74,000/- as value for “maintenance portfolio” – thus, excess consideration paid by the assessee over and above the value of net assets should be considered as “goodwill” of business, since “goodwill” is duly accounted for in the audited accounts of the assessee for period ending 31.03.2003 and the valuation made during “slump-sale” of business has factored the value of “goodwill” in the composite value of “Maintenance portfolio” - “goodwill” being in the nature of excess consideration should get covered within the expression "business or commercial rights of similar nature" as specified u/s 32(1)(ii) of the Act and accordingly be eligible for depreciation – Decided in favour of assessee.

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• 2014 (9) TMI 279
  Reconsideration of addition of depreciation of windmills – Rate of depreciation to be 10% or not – Held that:- Following the decision in DCIT Vs. Aminity Developers and Builders [2014 (9) TMI 211 - ITAT PUNE] - cost on the foundation of the wind mill is eligible for the depreciation at the rate 180% or the rate which is applicable to the wind mill as it is integral part of cost of wind mill erection - Same way, the cost for commission and erection cannot be said to be separate from the wind mill as it is directly related to the functioning of wind mill - CIT(A) has rightly allowed the depreciation on the pro rata basis on the cost of foundation to the extent of the civil work – the order of the CIT(A) is upheld – Decided against assessee. Addition u/s 40A(2)(b) deleted – Failure to justify and establish the expenses – Held that:- The assessee has claimed payment of commission to the Directors on the basis of a resolution passed in the Extraordinary General Body Meeting - CIT(A) deleted the addition on the ground that the provisions of section 40A(2) are not attracted when both payer and payee fall in the same tax bracket - the Directors have rendered services and the commission has been paid on the basis of resolution passed at the EGM - the Assessee as well as the Directors fall under the same tax rate and there is no attempt to evade tax – thus, the order of the CIT(A) is upheld – Decided against Revenue. Addition u/s 40A(2)(b) deleted - Admission of new evidences but AO did not get the opportunity to examine as provided under Sub-Rule (3) of Rule 46A – Held that:- The Breakup of the expenses includes payment of Excise Duty, Education cess, Secondary education cess and VAT of which are paid to Govt. Departments - it is highly improbable that any person will make any tax planning to convert an amount by paying tax and various other duties to Govt. amounting to more than Rs. 10 lakhs - evasion of tax is ruled out – thus, the order of the CIT(A) is upheld – Decided against revenue. Addition u/s 43B – Payment of sale tax made – Admission of additional evidence - Held that:- CIT(A) has given ample opportunity to the AO to comment on the admissibility or otherwise of the additional ground before him - the AO had not availed of that opportunity - raising this ground that AO was not given any opportunity is not justified - CIT(A) while allowing the claim of deduction u/s.43B has also decided the issue on merit and the Revenue has no grievance about the allowability of the same as no ground for that has been taken - The grievance was only for admission of the additional ground - In view of the detailed reasoning given by the CIT(A) for admission of the additional ground as well as the decision on merit, it was found that there was no infirmity – Decided against revenue.

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• 2014 (9) TMI 278
  Deduction on written off irrecoverable advances and other debit balances disallowed – Held that:- Majority of the amounts are stated to be towards EMDs of which the earliest amount outstanding is from the year 1997 and the last being outstanding from the year 2001 - the list also includes an amount shown against Amtrex Employees’ Welfare Trust, for which no details have been furnished in the statement - As far as EMD deposits are concerned, the submission of the assessee has not been controverted by the Revenue – relying upon Commonwealth Trust (India) Ltd. Versus Commissioner Of Income-Tax [1999 (11) TMI 58 - KERALA High Court] - the amounts towards EMDs., was having nexus with the business of the assessee and it needs to be allowed - with respect to the “Employees’ Welfare Trust” in the absence of any details, it has rightly been disallowed by the AO - with respect to the balance written amount, it contained various amounts which are shown to be not recoverable from the parties - it also includes certain amounts like provision for gratuity, salary payable, PF payable, staff loan etc. from which the full details thereof not placed – Decided partly in favour of assessee. Amount of donation disallowed while making computation – Held that:- The assessee pointed out to the break-up of the donation – and the amount was given to the society to comply with the social responsibility towards society and was not in the nature of donation - the payments were made on account of business expediency and social responsibility, and hence allowable as deduction - the major amount of donation is to the Red Cross society, and therefore, claimed as business expenditure –revenue did not controvert the submissions of the assessee – Decided in favour of assessee. Adjustment of royalty payment being international transaction – Held that:- The CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years and rightly held that the issue regarding payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from ex-factory sale value of the concerned products - if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e. parent company - only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex-factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the CIT(A), then the effective rate worked out is only 2.3% on sale, as against 3% paid by other group entities – the order of the CIT(A) is upheld – Decided against revenue. Provision of obsolescence of inventory disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that the assessee has claimed the amount as per the normal practice of valuation of closing stock as per the audited accounts and it is an omission on the part of the AO not to have dealt with this issue - CIT(A) has directed the AO to allow the claim of the assessee subject to the assessee furnishing the complete particulars in this regard, if necessary, with adequate proof - no interference is called for in the order of the CIT(A) because he has taken proper care to ensure that all the details and evidences are obtained and are examined by the AO and only thereafter, deduction is to be allowed, if the assessee is able to establish before the AO that such write off in respect of provision for obsolescence of inventory claimed by the assessee is in line with the accepted method of valuation of stock, i.e. at cost or market price, whichever is lower – Decided against revenue. Warranty expenses disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that the assessee-company should scrutinise the historical trend of warranty provision made and the actual expenses incurred against it, and on this basis, a sensible estimate should be made - the expenses provided for by the assessee in respect of warranty should be allowed to the extent the provision is made on a scientific basis, as decided in M/s. Rotork Controls India (P) Ltd. Versus Commissioner of Income Tax, Chennai [2009 (5) TMI 16 - SUPREME COURT OF INDIA] – thus, the matter is to be remitted back to the CIT(A) for fresh decision – Decided in favour of revenue. Deduction for debit balance written off – Sum due from different parties allowable u/s 28 or 37 – Held that:- The Revenue authorities have disallowed the claim of the assessee for deduction for the debit balances written off which were due from different parties, on the ground that the same were not arising out of the sales made by the assessee - the loss incurred during the course of business and that the assessee has written off the amount from its accounts, as the same became irrecoverable – relying upon T.R.F. Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - 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 if the bad debt is written off as irrecoverable in the accounts of the assessee – Decided in favour of assessee. Deduction u/s 40(a)(ia) – Effect of amendment w.e.f. 1.4.2005 – Held that:- The claim of the assessee for further deduction was not before the CIT(A) or the AO, before passing their respective orders – thus, the matter is to be remitted back to the AO for considering admissibility or otherwise of the claim of the assessee – Decided in favour of assessee.

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• 2014 (9) TMI 277
  Application of net profit rate on contract receipts - Interest and depreciation on contract receipt – Held that:- The total turnover of assessee during the year was more than 96 crores, on which, the assessee has disclosed net profit before depreciation @ 6.97% - There is decline in the net profit during the year but gross receipt has gone up by 3 crorers approximately - In A.Y. 2006-07, N.P. rate in assessee's case was 7.02% on gross receipt of 66.75 crores whereas in A.Y. 2005-06, the N.P. rate was 6.73% on gross receipts of Rs. 42.07 crores - the net profit rate has been fluctuating year after year and not constant – AO applied 8% net profit rate subject to depreciation in AY 2005-06 to 2008-09 - The evidence of expenditure were submitted before the lower authorities that during the year, the decline of net profit was due to price increase of bitumen from 16,720/- per ton in preceding year to Rs. 24,350/- during the year - the royalty on Chaja pathhar has increased twice by the State Govt. i.e. from Rs. 8 per ton to 16 per ton. In the line of business, there is a huge competition amongst the contractor to get the contract in their favours by putting lower rates - The contractor has to survive in the business. 8% net profit rate has been provided U/s 44AD for the Act for the smaller contract, in case of gross receipts are more than 40 lacs thus 8% net profit rate cannot be applied on the cases where the gross receipts are more than the prescribed limit of Section 144AD of the Act - The best method of estimating the income on the contractual receipts would be past history of the assessee himself as held in Kansara Bearings P. Ltd. v. Assistant Commissioner of Income-tax [2003 (5) TMI 13 - RAJASTHAN High Court] - The AO is directed to calculate income as per the above observation - The defects pointed out by the AO in case of assessee are sufficient to reject the book result u/s 145(3) of the Act - the rejection of book result U/s 145(3) as justified – Decided partly in favour of assessee. Joint venture charges from Net profit rate not allowed – Held that:- The amount was lying with the assessee from preceding year on which, interest was paid in that year - During the year, the assessee entered in joint venture agreement with M/s Maruti Nandan Colonizers Pvt. Ltd. - The AO held that the joint venture agreement is sham and is on paper - Actually, it is a finance transaction and joint venture expenses also in form of interest to M/s Maruti Nandan Colonizers Pvt. Ltd., which is liable to be deducted TDS U/s 194A of the Act - by getting this amount from M/s Maruti Nandan Colonizers Pvt. Ltd., the assessee became financially sound and had substantial fund with him, on which he earned substantial interest from the outside parties compared to preceding year - no joint venture was executed during the year - The funds were used by the assessee for the business purposes and excess fund was put in the FDs with the bank - In subsequent year, the assessee again reverted this fund from joint venture account to loan account and paid interest on it – the payments are not joint venture expenses but are interest expenses on loan taken of Rs. 15.96 crores of M/s Maruti Nandan Colonizers Pvt. Ltd. - it is allowable deduction from the net income – Decided in favour of assessee.

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• 2014 (9) TMI 276
  Transfer pricing adjustment - Software development services – Held that:- The application of CUP method has been rejected by the TPO as the most appropriate method and a corroborative internal TNMM by relying on the view taken by him in the preceding year – as decided in assessee’s own for the earlier assessment year, it has been held in Hughes Systique India Pvt. Ltd. Versus ACIT, Circle 12(1), New Delhi [2013 (8) TMI 812 - ITAT DELHI] - the internal CUP should be applied and if, for any reasons the CUP method cannot be applied, then TNMM should be resorted to - the CUP method can be used only if the products or services of the assessee are comparable to those of the other uncontrolled transaction - it is of utmost importance to first precisely determine the nature of services offered by the assessee to its AEs in order to make an effective comparison with the services rendered by it to the non-AEs - Unless the nature of services rendered by the assessee to its AEs and non-AEs is accurately ascertained, there can be no question of making a meaningful comparison – thus, the matter is to be remitted back to theAO/TPO for a fresh determination of the ALP of the international transactions – Decided in faovur of assessee. International transaction in the nature of ‘Marketing support services’ – Held that:- The Tribunal for the immediately preceding two AYs restored the matter to the file of AO/TPO for a fresh determination of ALP under this segment as well - The directions given by the tribunal were common to both the segments, namely, Software development services segment and Marketing support services – the matter is remitted back to the AO/TPO for fresh determination – Decided in favour of assessee. Excess claim of depreciation on computer UPS and other peripherals – rate of depreciation to be @ 60% or 15% - Held that:- Following the decision in CIT Vs BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT] - UPS and other computer peripherals are eligible for depreciation @ 60% - Decided in favour of assessee. Addition u/s 40(a)(ia) - Management fees paid – Article 12 Indo-US DTAA - Held that:- In order to make a disallowance by invoking section 40(a)(i), it is sine qua non that apart from other things, the amount which is paid to the person outside India should be the one on which tax is deductible at source and such tax has not been deducted or not paid after deduction - unless the amount paid by the assessee in India is not chargeable to tax in the hands of the resident of other country, there can be no question of invoking section 195 and consequently section 40(a)(i) of the Act - consideration for ‘Managerial services’ is chargeable to tax in India as per Expl.2 to section 9(1)(vii) - the foreign AE rendered services in USA, which were consumed there itself - By rendering such services, nothing was made available to the assessee for use in future - As the foreign AE has not made available any technical knowledge, experience, skill etc. to the assessee for use in present or in future, the consideration for such services cannot be brought within the ambit of ‘making available’ of anything to the assessee, so as to considered as ‘Fees for included services’. The provisions of the DTAA or the Act, whichever are more beneficial to the assessee, are to be applied - the amount is chargeable to tax as per section 9(1)(vii) of the Act in the hands of the foreign AE on standalone basis, but going by Article 12(4) of the DTAA, it is clear that the payment cannot be considered as ‘Fees for included services’ so as to be charged to tax in the hands of foreign AE - once the amount is not chargeable to tax in India as per Article 12 of the DTAA, there can be no question of imposing any liability on the payer assessee to make deduction of tax at source – thus, the provisions of sec. 40(a)(i) cannot be invoked – Decided in favour of assessee.

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• 2014 (9) TMI 275
  Unexplained cash credit/debits – unexplained investment - Held that:- The addition was based on certain entries reflected and retrieved from a pen- drive recovered from Shri Chetan Gupta – revenue was of the view that the seized pen-drive contains computerized accounts of hawala transactions of about 148 people including the account of the assessee, whose identity was denominated as “BIBA” & “KIRAN BIBA” - it does not stand established that the assessee has made the investment - the burden to establish the existence of investment was on the Revenue, which has not been discharged – relying upon CIT Vs. Ashwani Gupta [ 2010 (2) TMI 42 - DELHI HIGH COURT] - once there was violation of the principles of natural justice, in as much as seized material was not provided to an assessee nor was cross-examination of the person on whose statement the AO relied upon granted, then deficiencies would amount to denial of opportunity and would be fatal to the proceedings. The information received by the AO from his investigation Wing, at best, be regarded as a prima-facie material, but could not be construed as conclusive for use against the assessee to fasten any tax liability, because the same was required to be corroborated by credible and independent evidence or was required to be tested in cross-examination by the assessee, quite clearly none of these aspects have done by the Revenue in this case - the Revenue has not proved that the investment has been made by the assessee - the essential pre-requisite of Section 69 of the Act is not satisfied in this case – Decided against revenue.

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• 2014 (9) TMI 274
  Initiation of proceedings u/s 153C r.w. section 153A – Seized material has no reference to the assessee - Held that:- As decided in Sri Pulla Gangadhar Rao, Hyderabad vs. ACIT, Cir.8(1), Hyderabad [2014 (9) TMI 212 - ITAT HYDERABAD] - the documents, i.e. the three loose papers recovered during the search proceedings do not belong to the petitioner - there is a reference to the petitioner inasmuch as his name is reflected in the list under the heading Samutkarsh Members Details and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody's case that the documents belong to the petitioner - the seized document on the basis of which proceeding u/s 153C was initiated cannot be said to be belonging to the assessee - the assumption of jurisdiction u/s 153C has to be held as invalid and consequentially the assessment order passed must be declared as without jurisdiction. Since the seized material has no reference to the assessee, it cannot be considered to be belonging to the assessee for enabling the initiation of proceedings u/s 153C of the Act - as the AO has relied upon the same seized material i.e., A/DNR/18 and since the seized material has no reference to the assessee, it cannot be said to be belonging to the assessee so as to empower the AO to assume jurisdiction u/s 153C of the Act - the assessment proceedings initiated not being in accordance with the provisions of section 153C, and is invalid in law and consequently the assessment order passed is nullity in eye of law – the order of the CIT(A) is set aside – Decided in favour of assessee.

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• 2014 (9) TMI 273
  Rectification of mistake u/s 154 – Bar of limitation - Held that:- CIT(A) has held that the AO has not revised order dated 22.03.2005 but he has revised order dated 19.12.2006 passed u/s 245/251/143(3) of the Act - CIT(A) has also placed reliance upon Hind Wire Industries Limited Versus Commissioner of Income-Tax [1995 (1) TMI 2 - SUPREME Court] - "order" in the expression "from the date of the order sought to be amended" in section 154(7) was not qualified in any way, it did not necessarily mean the original order it could be any order including the amended or rectified order – there was no infirmity in the order of the CIT(A) on this issue – Decided against assessee. Merger of orders by AO – Held that:- The matter in appeal before the authorities below related to allowability of deduction u/s 80IB in respect of income arising from foreign exchange fluctuation, discount on purchase, interest received on FDR with bank, interest received from Super stockist for late payment, rent received from staff and job charges received - As against the above the matter which has been rectified pertains to allowances of 80IB deduction with respect to DEPB/duty draw back/export benefit - the aspect which has been rectified was not at all the subject matter of the appeal before the authorities below - section 154(1)(A) of the Act cannot come to the rescue of the assessee and the order of the CIT(A) is upheld – Decided against assessee. Following the precedent - Decision came subsequently much after filing of the return – Held that:- There was conflict of opinion as to whether DEPB/duty drawback/export benefit would come under the computation of profit eligible for deduction of section 80IB of the Act - at the time of filing of the return by the assessee there was conflict of opinion - The decision in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] came much later and following the decision in Mepco Industries Ltd., Madurai Versus Commissioner of Income Tax & Anr [2009 (11) TMI 24 - SUPREME COURT] - there was a conflict of opinion prior to the decision and as such the mistake cannot be held to be a mistake apparent from the record to come under the ken of section 154 of the Act - rectification of the mistake apparent from record u/s 154 on this issue cannot be upheld – Decided in favour of assessee.

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• Customs

• 2014 (9) TMI 290
  Waiver of pre-deposit - tribunal directed that the Bank Guarantee may be encashed for collecting the demand of duty - Misuse of BMW cars under Export Promotion Capital Goods (EPCG) Scheme - vehicles imported should be used for tourist purposes only - Held that:- there are two important expressions in Section 35-F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. - As the encashment of bank guarantee as ordered by the Tribunal has been effected, we uphold the order of the Tribunal with regard to waiver of pre-deposit of interest and penalty of both the appellants and recovery thereof. The Tribunal shall take up the appeals in the usual course and dispose of the same on merits and in accordance with law. Since the conditional order of stay passed by the Tribunal has been complied with by the appellants and we are directing the Tribunal to dispose of the appeals or merit - Decided against the assessee.

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• 2014 (9) TMI 289
  Suspension of import / advance license - import of bearings - fraud - it was submitted that, imports were effected by different importers under cover of 15 Bills of Entry and those Bills of Entry were filed prior to suspension of the Licence and the goods were also cleared - Appellant contended that The delay in completing formalities of transferring the Licence and prior thereto, endorsing transferability thereon, would not make the import contrary to law attracting any duty leave alone any penalty, The imports were made prior to cancellation. Held that:- the original licence in the name of M/s. Amrit Laxmi Machine Works was valid up to 21th May, 1999. If the same was stated to be lost in September, 1999, the application for issuance of duplicate licence was made only in October, 1999. Pertinently, a duplicate licence was issued in November, 1999 in the name of original licence holder. In other words, when the Bills of Entry were filed on 19th August, 1999, there was no valid licence in the names of importer. There was no application for transferability made on 19th August, 1999 nor the licence was made transferable. Therefore, in respect of the Bills of Entry filed on 19th August, 1999 the question of extending benefits under the exemption notification does not arise. This judgment in the case of Sampat Raj Dugar [1992 (1) TMI 103 - SUPREME COURT OF INDIA] has been rightly distinguished by the Tribunal in the case before us. The Tribunal, while dealing with the argument that the appellants were entitled for duty exemption as the licence was made transferable, but stood cancelled only on 24th December, 1999 and the imports made prior to this date were eligible for duty exemption, has rightly observed in paragraph 6.21 of the judgment that in this case there was no valid licence in the name of importers. Levy of penalty - Held that:- The justification for imposing penalty is based on the conclusion that there was no valid licence in the name of the importer. He could not have allowed filing of documents before the Customs Authorities. The licence was valid only up to 21st May 1999, yet the Bills of Entry were filed on 19th August, 1999, 15th December, 1999, 20th December, 1999 and 28th December, 1999 claiming benefits of duty exemption under the advance licensing scheme and particularly when no valid licence existed in the names of importer. This is, therefore, not a case of any minor or technical dereliction or breach of rules. The absence of valid licence in the names of importer and yet attempts being made to evade customs duty are rightly termed as fraud. - Decided against the assessee.

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• 2014 (9) TMI 288
  Policy governing the import of khas khas or poppy seeds - import restriction - Poppy seeds or khas khas are a by-product of poppy. Poppy seeds do not constitute a narcotic substance. However, since they emanate from the poppy plant, which has narcotic properties, they are the subject matter of regulation under the EXIM policy. - Held that:- Undoubtedly, neither the Manual nor the National Policy can override a document such as the Import Policy which has statutory force but, at the same time, the Narcotics Commissioner in the discharge of his functions must be guided by the role, which has been ascribed to him by both the aforesaid documents. - The statements in both these policy documents constitute a matter of high public policy for the Union Government in its stated object to combat the international trade in narcotic drugs and psychotropic substances. CBN cannot denude itself of the obligation and function which has been cast upon the Narcotics Commissioner. The discharge of the functions by the Narcotics Commissioner must be consistent with the purpose of implementing the important stipulations, which have made in the Import Policy for protecting the nation against the serious consequences of an illegal trade in poppy seeds. Insofar as the petition is concerned, the first prayer seeks strict adherence to the conditions contained in the Union Government’s Notification dated 5 October, 2012. There can be no gainsaying the fact that each of the conditions contained in the notification must be scrupulously enforced. Insofar as the second prayer is concerned, there is no manner of dispute in the submissions urged before the Court by either of the parties that import of poppy seeds is permissible only from a designated country and no import can be effected from a country, which is not designated in the notification. The authorities are sufficiently vested with wide powers to ensure that the law is duly observed. - the regulation of the trade in narcotics including of those ancillaries is a matter of continuous vigil. Hence, if facts are brought to the notice of the Narcotics Commissioner or information is received even after registration of a contract which would indicate that registration has been improperly procured or is obtained on the basis of misrepresentation, fraud or illegality, the Narcotics Commissioner would be duty bound to take recourse to his powers in accordance with law.

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• 2014 (9) TMI 287
  Misuse of advance License with actual user condition - import of SS Coils/Sheets - diverting the duty free imported raw materials instead of utilizing the same for manufacture of resultant export products. - Held that:- The CESTAT proceeded on the premise that only the Director General of Foreign Trade has authority to decide the issue regarding misuse of advance licenses. While quashing the order passed by the Commissioner of Customs, CESTAT ignored the basic fact that the proceedings in question was initiated only under the provisions of the Customs Act and more particularly under Section 111(o) of the Act. The Customs Authorities have nothing to do with the order passed by the Joint Director General of Foreign Trade. Entitlement of duty exemption is a matter to be decided by the Customs Authorities. Joint Director General of Foreign Trade is concerned only with the Import License. The conclusion arrived at by the Director General of Foreign Trade in the matter of alleged violation of Advance License has absolutely no bearing on the question to be decided by the Customs Department under Section 111(o) of the Customs Department. This aspect was not considered by the CESTAT. - Matter remanded back - Decided in favor of revenue.

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• Service Tax

• 2014 (9) TMI 307
  'Management, Maintenance and Repair service - Whether the CESTAT has erred in holding that Service tax is not required to be paid on goods used in the repairing process on which Excise duty and VAT has been paid on the value of the said goods, ignoring the fact that as per the contract the respondents were under an obligation to replace the damaged parts and to maintain the transformers in a proper working condition - Held that:- It has been found as a matter of fact that the value of the goods and materials utilized for repair of the transformers is separately disclosed in the agreement and is separately mentioned in the invoices of the assessee. The assessee has paid excise duty or, as the case may be, value added tax on goods used in the repairing process. It was in this factual background, on which there is no dispute, that the Tribunal held that service tax could not be demanded on that component representing the value of the goods and materials used for carrying out repairs. The mere fact that the cost of the various items was shown for the purpose of price variation was held not to make any difference to the legal position. no substantial question of law would arise - Decided against Revenue. It has been stated on behalf of the assessee that the Revenue serves only a narrative prepared by the Commissioner and not the memo of appeal, as a result of which it becomes difficult for the assessee to track the appeals which are being filed. This is disputed by the learned counsel for the Revenue. We only need to clarify that the Revenue, when it causes service to be effected on the assessee, must ensure that a complete set of the paper book is served on the assessee and not just the narrative so as to enable the assessee to pursue and keep track of the appeal when it is filed.

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• 2014 (9) TMI 306
  Renting of immovable property - Noida Authority - rents received for allotment of plots of vacant land to various persons on lease basis for industrial or commercial purposes - issuance of second show cause notice covering the same issue and same period as covered by earlier SCN - Held that:- giving of vacant land on license, rent or lease for construction of structure at a later stage for furtherance of business or commerce became taxable only w.e.f. 1.7.2010 under Clause (v) of Explanation I to Section 65(105)(zzzz) and this activity was not taxable during the period prior to 1.7.2010. - Decided in favor of assessee. Taxability of long term lease - leases of 90 years - Held that:- all the leases of immovable property as defined in Section 65 (105)(zzzz) would be covered for service tax whether the lease is short term or long term or lease perpetuity. - this very issue has also been examined in detail in paras-5, 6, 7 and 8 of the Tribunal’s judgment in the case of New Okhla Industrial Development Vs. Commissioner of Central Excise & Service Tax [2014 (1) TMI 1203 - CESTAT NEW DELHI] - Decided against the assessee. Levy of service tax only on the lease rent or also on one time premium amount charged in respect of long term leases - Held that:- Service tax under Section 65(105)(zzzz) read with Section 65 (90a) cannot be charged on the ‘premium’ or ‘salami’ paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased. Since the levy of service tax is on renting of immovable property, not on transfer of interest in property from lessor to lessee, service tax would be chargeable only on the rent whether it is charged periodically or at a time in advance. - Decided in favor of assessee. Service tax on various activities - Held that:- the services, which are in connection with the renting of immovable property for business or commerce, would also be taxable under this Section. Therefore, processing charges for application for land allotment on lease basis would also be taxable. However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges, etc. would not attract service tax. As regards restoration charges or penalty, which appears to be the penalty for violating the conditions of the lease, the same, in our view, cannot be said to be the consideration for lease and would not attract service tax. As regards the rent/licence fee received by the appellant from their staff to whom the residential units has been let out, such letting out the residential units to the staff is not renting of immovable property for use in or for furtherance of business or commerce and hence, the licence fee/ rent received from such letting out of houses of Noida Authority would not attract service tax. - Decided partly in favor of assessee. Allotment of vacant land to builders for construction of residential complexes - Held that:- it cannot be said that the vacant land given on lease is for construction of building to be used for furtherance of business or commerce. Therefore, the service tax demand on the lease rent in respect of the allotment of vacant land to builders or group housing societies for the construction of residential complex would not be taxable. For the same reason, wherever such allotments have been made to institutions for construction of their buildings, to be used for non-commercial purposes, the same would also not be taxable. - DEcided in favor of assessee. Taxability of lease where agreement entered into prior to 1.7.2012 - Held that:- Since the taxing event for service tax is provision of service, not the event of entering into an agreement for provision of service, the service provided from the date on which the same became taxable, would attract service tax, irrespective of the fact that at the time of entering into an agreement for provision of service, the same was not taxable. - Decided against the assessee. Extended period of limitation - Held that:- in the circumstances of the case, in our view, longer limitation period of 5 years from the relevant date would not be applicable and the service tax demand would survive only for the normal period of one year from the relevant date, which would be quantified by the adjudicating authority. - Decided in favor of assessee. Waiver of penalty u/s 80 - Held that:- this is a fit case, where by invoking the Section 80 of the Finance Act, 1994, penalties under Sections 76, 77 and 78 have to be waived - penalty waived - Decided in favor of assessee.

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• 2014 (9) TMI 305
  Waiver of pre-deposit - Business Auxiliary Services - export of servcies - distributorship and agency agreement with foreign entity - when acting as a distributor, the appellant will sell in its own name and at on its own account the product of the foreign supplier, and that while acting as an agent, the appellant will solicit customers and promote the sale and services of the products manufactured by the foreign entities and the appellant will also assist in the preparation of any product sale contract between the foreign entity and the Indian buyer and also in the collection of sale proceeds. - Held that:- the service has been provided from India and used outside India. In these circumstances, in terms of the Export of Service Rules, as they stood at the relevant time, the activity of the appellant amounts to export of service. - Decided in favor of assessee. Information Technology Software service received by the appellant through internet - import of services - Held that:- , it is not in dispute that since 01/05/2008 the classification made by the appellant under ‘Information Technology Services' has been accepted by the department. If that be so, we do not understand why the same service would merit classification under ‘On-line Information and Database Access and/or Retrieval Service' for the period prior to May 2008 inasmuch as ‘Information Technology Service' has not been carved out of ‘On-line Information and Database Access and/or Retrieval Service'. Appellant has made out a strong prima facie case for grant of stay. - stay granted.

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• 2014 (9) TMI 304
  Small scale exemption upto limit of Rs. 10 lakhs - determination of eligibility - availing Notification no. 6/2005-ST dated 01.03.2005 while availing benefit of Notification 1/2006-ST granting abatement in value - Held that:- if the benefit of the Notification 1/2006-ST is not considered while computing the exemption and eligibility limits under Notification 6/2005-ST, it would certainly result in taking away the benefit granted under Notification 6/2005. Further, this Tribunal in the case of Surinder Kumar Mittal [2012 (8) TMI 244 - CESTAT, NEW DELHI] has taken a view that both Notifications can be simultaneously availed. - appellant has made out a case for grant of stay. - stay granted.

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• 2014 (9) TMI 303
  Waiver of pre-deposit - Business Auxiliary Service - import of services - reverse charge mechanism - revenue neutrality - commission paid to unidentified overseas agents - appellant has reduced the price in the invoices for making payment to the foreign agent of their buyer. - extended period of limitation - Held that:- As the appellant has also availed DGFT benefit on these payments as ‘commissions’, prima facie, it appears that commissions are paid to the foreign agents through the buyer of the goods but are directly borne by the appellant. Adjudicating authority has also brought out in Para 1.7 of the adjudication order dt.29.11.2013 that the role of such agent is to contact the appellant for requirement, then negotiate the price and other conditions and to ensure that the consignment reaches in time and the same is delivered to the consignees without any problem. It is also felt on revenue neutrality that the exemption under Notification No.41/2007-ST, dt.06.10.2007 is by way of refunds only after Service Tax is paid under reverse charge as per Section 66A of the Finance Act, 1994 and that too after fulfilling certain conditions. The refund of Service Tax so payable is not automatic. Appellant has, therefore, not made out a case for complete waiver of the confirmed dues and is required to be put to certain conditions. - stay granted partly.

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• Central Excise

• 2014 (9) TMI 298
  Levy of penalty and interest - differential duty - Whether payment of Central Excise Duty by the manufacturer before issue of notice but immediately after booking of an offence would absolve him from the liability of penalty under Rule 173Q and 57U of CER, 1944, in case of wilful misstatement with intent to evade duty - Held that:- Section 11AB deals with interest on delayed payment of duty. Similarly Section 11AC deals with penalty for short-levy or non-levy of duty in certain cases. Both these provisions indicate that in case the duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty shall also be liable to pay penalty equal to the duty so determined. The assessee is also liable to pay interest for the period in question. In view of the judgment of the Supreme Court in Rajasthan Spinning and Weaving Mills [2009 (5) TMI 15 - SUPREME COURT OF INDIA], the CESTAT was not correct in their finding that payment of differential duty before issuance of show cause notice would put an end to the penalty proceedings initiated against the assessee. Therefore, the said finding is liable to be set aside - However, penalty reduced to 25% - Decided partly in favour of Revenue.

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• 2014 (9) TMI 297
  CENVAT Credit - Whether, Cenvat Credit is admissible on HR Plates, Sections, Sheets, etc. (falling under Chapter No. 72 of Central Excise Tariff Act, 1985) as Capital Goods - fabrication of storage tank for sugar cane juice clarifier. - components spares and accessories - Held that:- Notification of the Legislature is very clear that it is only "inputs" used in the manufacture or construction of capital goods which is construed as input and cenvat credit is available on the duty paid in purchase of such inputs. If the cement, angles, channels, Centrally Twister Deform bar (C.T.D.) or Thermo Mechanically Treated bar (T.M.T.) and other items are used in the construction of factory shed, building or lying of foundation, the duty paid on such items the assessee would not be entailed to cenvat credit. Similarly, though the assessee is entitled to cenvat credit of cement and steel used in the manufacture of capital goods viz. storage tank, if any structure for support of capital goods is constructed and steel and cement is used for such support, the assessee is not entitled to the benefit of cenvat credit on the duty paid on such cement and steel. Therefore, there is no ambiguity in any of these provisions. When once a storage tank and pollution control equipment constitutes capital goods and any raw material purchased for construction of those goods, the duty paid could be utilized as a cenvat credit by the assessee notwithstanding the fact that the storage tank is an immovable property. Therefore, the appellate authority committed a serious error firstly in holding that the storage tank is an immovable property and secondly on the ground that it cannot be bought and sold in the market, the criteria which is totally unwarranted under the circumstances. Therefore, the Tribunal was justified in setting aside the said order and holding that the assessee is entitled to the benefit. no reason to interfere with the impugned order passed by the Tribunal, the same is hereby sustained along-with the reasons mentioned herein - Following decision of Commissioner of Central Excise, Bangalore-II Vs. SLR Steels Ltd. [2012 (9) TMI 169 - KARNATAKA HIGH COURT] - Decided against Revenue.

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• 2014 (9) TMI 296
  Waiver of pre deposit - Sick company - tribunal dismissed the appeal for failure to comply with its direction to deposit whole of amount - non-consideration of overwhelming factual aspects presented by the petitioner along with severe financial crises pleaded for reduction of the pre-deposit amount. - Held that:- Revenue has not denied the factum of liquidity crunch as well as Company being under the control of Inventory Construction Company Limited. It is also not disputed that the same is registered with the Reserve Bank of India. The details of financial hardship and the inability of the Company to even committed to one time settlement after its account become NPA are some of the glaring facts pointing to the undue hardship of the petitioner. Revenue has objected to the order of pre-deposit relying in the judgment of this Court in M/s. Special Prints Ltd. v. UOI reported in [2008 (7) TMI 369 - AHMEDABAD HIGH COURT] where Court held that merely because Company is declared to be a sick industrial undertaking that would not ipso facto entitle them to get relief of waiver of pre-deposit. Moreover it would apt to note at this juncture that the amount of Rs. 10.00 lakhs is already deposited with the Tribunal and therefore, it cannot be said that the petitioner is not desirous of genuinely pursuing the said cause. All the three orders under challenge passed by the Tribunal of rejecting the request of total waiver of pre-deposit and consequently dismissing all the appeals of the petitioner for non-deposit of amount vide its impugned orders respectively dated 9-9-2010, dated 31-1-2011 and dated 29-3-2011 need to be quashed. Resultantly, orders impugned are set aside and quashed. While allowing this petition, it is being specified, however, that the amount of Rs. 10.00 lakhs already deposited by the petitioner by way of pre-deposit with the CESTAT shall continue to remain with the Tribunal till final disposal of the appeals - Decided in favour of assessee.

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• 2014 (9) TMI 295
  Conviction under Section 11 of the Prevention of Corruption Act, 1988 - Acceptance of gratification - Held that:- From the sub-section (1) of Section 20, it is clear that once it is proved in trial relating to offence punishable under Section 11 that the accused has accepted any valuable thing, it shall be presumed that such person has accepted it as a motive or reward, unless contrary is proved. In the opinion of this Court, the mere fact that the Appellate Authority has upheld the correctness of the order cannot justify the acceptance of valuable thing or money during the proceeding of adjudication or subsequent thereto, particularly when such consideration is accepted not long after the adjudication. Vehicle was donated by the assessee to Zami Memorial Charitable Trust made in the name of mother of the accused/appellant, Smti L.R. Mithran during the proceedings of the adjudication by getting made payment through M/s. Warren Tea Ltd., of which Vinay Kumar Goenka (son of Shri. S.P. Goenka, Chairman of M/s. Kitply Industries Ltd., i.e. Assessee) was the Managing Director. There is sufficient evidence on record establishing the fact as to how Shri S.P. Goenka, Chairman of M/s. Kitply Industries Ltd. (assessee) got made Demand Draft through M/s. Warren Tea Ltd., of which he was the Financial Adviser. Court is in agreement with the trial court that the prosecution has successfully proved charge of offence punishable under Section 11 of Prevention of Corruption Act, 1988 against accused/appellant, Smti L.R. Mithran. As such, the conviction recorded against her does not require any interference. But as far as sentence awarded by the trial court is concerned, in the facts and circumstances of the case, particularly when the order passed by the accused/appellant, Smti L.R. Mithran, Commissioner of Central Excise was not only upheld by the CEGAT (Appellate Authority) but also penalty awarded against the assessee was reduced, this Court is of the view that awarding of sentence of 6(six) months which is the minimum sentence prescribed under Section 11 of Prevention of Corruption Act, 1988 would have met the ends of justice. - Decided against Appellant.

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• 2014 (9) TMI 293
  Clandestine clearance of the goods - Evasion of Central Excise Duty - Held that:- Private note book maintained by a person containing unauthorized entries is not a dependable record for proving clandestine removal unless it is corroborated by other evidences, viz. consumption of raw material, manufacturing of goods and its clandestine sale. The authorities have elaborately and extensively indicated the information derived from the pen drive as well as other registers seized during search. The authorized persons were called to explain such discrepancy and the statements were recorded and the same are depicted in the said show cause notice. There was no satisfactory explanation offered therein. The show cause notice, running in several pages, cannot, at any rate, be said to be lacking material particulars if otherwise proved for commission of offence - This Court does not find any ground to interfere with the show cause notice. - Decided against the assessee.

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• 2014 (9) TMI 292
  Determination of assessable value - normal value - change in sales pattern - Held that:- Section 4 lays down the manner in which the valuation of the excisable goods for the purposes of charging duty of excise shall be made. Clause (a) of sub-section (1) of Section 4 of the said Act of 1944 provides that when the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale, the normal price thereof shall be the value of excisable goods for charging of duty of excise. Clause (b) thereof is applicable when normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason. In such cases, it provided in clause (b) that the value for the purposes of charging duty of excise will be nearest ascertainable equivalent thereof determined in such manner as may be prescribed. The Valuation Rules of 1975 provide for determination of the ascertainable equivalent of value in terms of Clause (b) of sub-section (1) of Section 4 of the said Act of 1944. It appears that after the order of the Appellate Authority, a notice of review was issued by the Union of India which was transferred to the CEGAT. The CEGAT decided the matter by its judgment and order dated 29th November, 1986. The CEGAT referred to the original notice dated 15th October, 1976 in which the Assistant Collector had mentioned in the annexure that the sales were made by the first Petitioner in retail. Therefore, the CEGAT held that the finding of the Assistant Collector that there existed a wholesale price and, therefore, assessable value has to be determined in terms of Clause (a) of sub-section (1) of Section 4 of the said Act of 1944 was rightly set aside by the Appellate Authority. Quashing of SCN - Invocation of principle of res judicata - Held that:- The impugned show cause notice proceeds on the footing that subsequently there is a change in the pattern of sales. If that be so, the principles of res judicata will have no application. Moreover, the finding of CEGAT is on the basis of consideration of the invoices for the relevant period which were produced before it. The learned Senior Counsel appearing for the Petitioners submitted that neither the Department has proved that there was a change in the pattern nor the Petitioners have been called upon to produce the material before this Court. However, all this is a matter of adjudication after reply to the show cause notice is given. The show cause notice specifically makes factual allegations regarding change of pattern of sales. The principles of res judicata cannot be applicable as a change in pattern of sales is alleged. Therefore, we are of the considered view that by invoking principles of res judicata, the show cause notice cannot be quashed. - Decided against assessee.

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• 2014 (9) TMI 291
  Penalty under Section 11AC - Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in extending benefit of reduced penalty under Section 11AC of the Central Excise Act, 1944, when the 1st and 2nd proviso to Section 11AC specifically provide that the benefit of reduced penalty at 25% shall be available only if the duty determined under Section 11A(2), interest payable thereon under Section 11AB and penalty at 25% of the duty determined under Section 11A(2) has been paid within thirty days from the date of communication of the order of the Central Excise officer determining duty payable under Section 11A(2) of the 1944 Act - Held that:- provision of a statute when interpreted in a true spirit, it does contemplate payment of duty and interest as well as penalty within 30 days from the communication of the order passed by the adjudicating authority along with 25% of the penalty amount to avail the benefit of 25% reduced penalty. It also culls out from proviso (4) to Section 11AC of the Act that wherever duty amount is increased at an appellate stage, for availing the benefit of 25% reduced penalty, the assessee needs to pay differential amount of duty within 30 days of crystalisation of such amount. It would not be too much to expect the Revenue authorities to clearly spell out the fulfilment of such requirements in the order itself. The Circular issued by the CBDT shall need to be regarded at this stage, which also noted that the provision has been made for the speedy recovery of the amount in the interest and benefit of both, the Department and the assessee. Thus, if the duty and interest are to be paid along with reduced rate of penalty within the stipulated period. This Court in a number of decisions has also taken a stand that if both the authorities have failed to avail the option of reduced penalty i.e. the Order-in-Original and Appellate Commissioner, the Tribunal can surely avail such benefit at the appellate stage. In the Order-in-Original itself, the adjudicating authority had made available such an option to the assessee by spelling out in no unclear terms that the duty and interest if are paid along with reduced rate of penalty, the penalty shall be worked out at the reduced rate of 25%. The petitioner, however, has chosen not to pay either the duty or interest or the reduced rate of penalty and instead challenged such order before the Commissioner, who of course set aside the order of imposition of penalty on the respondent-Unit and a personal penalty imposed upon the Director. Neither the duty amount nor the interest has been paid either prior to raising of the demand or after the demand had been finalised in the Order-in-Original. It is also not the case that the Order-in-Original does not spell out the availment of reduced rate of penalty in the event of payment of both, duty and interest, within the stipulated period of 30 days. Assessee paid the duty, interest and penalty on January 18, 2012 pursuant to an interim direction, however, payment at that stage surely was not in consonance with the spirit and intent of provision as entire round of litigation before Appellate Commissioner was already resorted to by then, despite a clear indication in Order-in-Original. In such circumstances, at the appellate stage, the Tribunal has committed an error of having made available the option of reduced penalty. This is not only contrary to the spirit of law on the subject, but it is a wrong application of the ratio laid down in the case of Akash Fashion Prints Ltd. (2009 (1) TMI 113 - GUJARAT HIGH COURT ) to the facts of the case of the assessee-respondent. - Decided in favour of Revenue.

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• CST, VAT & Sales Tax

• 2014 (9) TMI 302
  Liability of entry tax - Taxability of dumper - Whether the 'Dumper' can be said to be 'Motor Vehicle' and can be subjected to entry tax under the Act, more particularly, treating the same as 'specified goods' under entry at Serial No. 1 of Part I of the Schedule to the Act - Held that:- Motor Vehicles including Motor cars, Motor taxcabs, Motoettes, Motor omnibuses, Motor vans, Motor lorries, Motor cycles, Motorcycle combinations, Motor scooters, Mopeds is subjected to entry tax under the Act as observed hereinabove and as per the decision of the Division Bench of this Court in the case of Reliance Industries Ltd. (2011 (7) TMI 1043 - GUJARAT HIGH COURT) and can be said to be Motor Vehicle. Merely because 'Dumper' is not specifically mentioned in the entry at Serial No. 1 of Part I of the Schedule to the Act but if it is found to be Motor Vehicle, in that case, it cannot be said that the 'Dumper' is not subjected to entry tax. Considering the fact that 'Dumper' can be said to be Motor Vehicle, the same is subjected to entry tax under the Act. Under the circumstances, when 'Dumper', can be said to be Motor Vehicle it will be 'specified goods' covered under entry at Serial No. 1 of Part I of the Schedule to the Act and, therefore, the same is subjected to payment of entry tax under the aforesaid Act. Under the circumstances, the impugned orders passed by the learned tribunal holding contrary cannot be sustained and the same deserves to be quashed and set aside - Decided in favor of Revenue.

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• 2014 (9) TMI 301
  Exemption from tax - Advance ruling - Whether the provisions relating to Clarification and Advance Rulings contained in section 67 of the Andhra Pradesh Value Added Tax Act, 2005 would automatically apply to assessments made under the Central Sales Tax Act, 1956, inasmuch as section 9 of the latter Act applies the machinery provisions of the former Act to assessments, levy and collection of tax under the latter Act - Held that:- Provision for "advance ruling" is a mechanism introduced by the Legislature to ensure uniformity in orders of assessment, appellate and revisional orders (other than a revisional order passed by the Commissioner), with regard to the classification of goods under different entries of the various Schedules to the Act or the rate of tax applicable to such goods, etc., thereby avoiding conflicting orders being passed by different assessing/appellate/revisional authorities. Such a mechanism can only be introduced by way of a substantive provision in a statute and cannot be implied. Tax collected under the Central Sales Tax Act is ultimately assigned to the State in view of article 269 as explained in N.K. Nataraja Mudaliar's case [1968 (4) TMI 61 - SUPREME COURT OF INDIA] and the Central sales tax though levied for and collected in the name of the Central Government is a part of the sales tax levied and imposed for the benefit of the State. But from this it does not follow nor does it follow from section 9 of the Central Sales Tax Act that every provision of the VAT Act including provisions relating to "advance ruling" would apply to proceedings for assessment, reassessment, collection and enforcement of payment of tax in relation to inter-State sale transactions under the Central Sales Tax Act. First respondent is entitled to initiate and complete the assessment under the Central Sales Tax Act in respect of the petitioner when its application for "advance ruling" was pending before the authority for advance ruling and pendency of its appeal against the said ruling before the S.T.A.T would also not impede or operate to disentitle the first respondent in any way in initiating or completing the assessment under the Central Sales Tax Act, as the provisions of section 67 of the VAT Act would not apply to assessments made under the Central Sales Tax Act. - it cannot be said that the impugned orders dated March 30, 2011 and February 23, 2012, passed by the first respondent under the Central Sales Tax Act are without jurisdiction. - Decided against assessee.

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• 2014 (9) TMI 300
  Liability of Hospital for registration as dealer for selling medicines to patients - Constitutional validity of Section 6 of Kerala Value Added Tax Act, 2003 - whether hospital is a "dealer" within the definition of the term as contained in the KGST Act - The petitioners mainly relied on para 44 of the judgment in the case of Bharat Sanchar Nigam Ltd. judgment [2006 (3) TMI 1 - Supreme court] where the apex court held that hospital service is still outside article 366 (29A) and explained it with an example that if during the treatment of a patient in a hospital, he or she is given a pill, sales tax authorities cannot tax the same as a sale. According to the petitioners, what they render is hospital service and that therefore, the medicine or other consumable sold during treatment is not a sale under the Act to attract levy of tax. On this basis, they contended that since section 6 of the Act authorises levy of tax on such medicines and other consumables, the section is unconstitutional. Held that:- First of all, Bharat Sanchar Nigam Ltd. judgment [2006 (3) TMI 1 - Supreme court] was not rendered in the context of the provisions of the KVAT Act and the issue raised and decided in that case is also not in the context of a comparable controversy. In so far as the finding regarding hospital services or example that is given by the apex court are concerned, the court has only laid down a principle and said that if in the process of treatment a pill is given to a patient, such a transaction cannot be treated as a sale. That example given by the apex court cannot be taken to mean that it was laying down a principle that in all circumstances, every transaction that takes place in a hospital, is a service and is outside the taxation law. This is all the more so in today's context where hospitals are being established by public limited companies which are incorporated with profit-motive. Therefore, if in a hospital, medicines and other consumables are sold to a patient and bills are raised, such transaction cannot be outside the KVAT Act and taking refuge under the example given by the apex court to explain the meaning and content of article 366(29A) of the Constitution, such hospitals cannot avoid statutory liabilities. On the other hand, if in an individual case, a particular transaction is not a sale, it is for the concerned hospital to contest the matter in accordance with law and that does not mean that the whole hospital industry in the State can remain outside the discipline of the KVAT Act. Decision in the case of Malankara Orthodox Syrian Church v. Sales Tax Officer in [2002 (12) TMI 587 - KERALA HIGH COURT] fully answers the contentions raised by the petitioners in these cases regarding their liability to be registered under the Act and to pay tax thereunder. - Decided against assessee.

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• 2014 (9) TMI 299
  Duty exemption - Rate of duty - 12.5% or 4% - Classification of Harpic and lizol under the residual items under entry No. 1 of the Fifth Schedule of the Assam Value Added Tax Act, 2003 or under specific entries provided under Schedule to the said Act - Held that:- The compositions of the products show that these are meant to be disinfectants, to kill germs and bacteria, which has not been seriously contested. The expert opinions by way of certificates from various individuals, organisation, relied upon by the petitioner have not been refuted or contradicted by the respondents. Whether, "Harpic" and "Lizol" if treated as disinfectants, can be considered as "pesticides" for the purpose of entry 19 of the Second Schedule to the Assam VAT Act - Held that:- If the word "pests" is to be given a restrictive meaning by limiting to the dictionary meaning as had been done by the Revenue in the impugned order, disinfectants which primarily kills germs and bacteria cannot be considered "pesticides". However, by giving a broader meaning to the word "pest", by including bacteria and germs within the meaning of "pests", Harpic and Lizol which are disinfectants would be clearly covered by the item "pesticide", in which event, the petitioner would be liable to be assessed only at the rate of four per cent. "Harpic" and "Lizol" which are disinfectants being "pesticides", in terms of the decision of the honourable Supreme Court in Bombay Chemical Private Limited [1995 (4) TMI 59 - SUPREME COURT OF INDIA] would be covered by entry No. 19 of Part A of the Second Schedule to the Assam VAT Act and chargeable at four per cent. Whether Dettol is an item of medicament to be treated as a drug and medicine as contended by the petitioner or is to be treated as "cosmetic" or "toilet preparation" because of its general attributes and would stand excluded from entry No. 21 of the Fourth Schedule in terms of the Explanation to it - Held that:- Revenue does not seem to controvert or deny the use of Dettol for first aid, nappy wash, shaving, uses in personal hygiene, surgical, medical, midwifery and the like. It cannot be denied that use of Dettol for the purposes mentioned above primarily to prevent infections, which is also admitted by the respondents, is only because of its prophylactic properties. The main purpose for the use of Dettol is to prevent infections which may occur due to minor cuts, injuries, abrasions, grazes, insect bites, etc. Thus, by applying the "users test", it would squarely fall under the definition of "drug" as defined under section 3(b) of the Drugs and Cosmetics Act, 1940 as well as under the definition of section of the Medicinal and Toilet Preparations (Excise Duty) Act, 1955. Dettol is definitely not used for beautifying, promoting attractiveness, or altering the appearance. It is not used for cleansing as a substitute for soap or detergent. Though it is used for cleansing, the purpose is to prevent infection and for sanitisation because of its therapeutic and prophylactic properties. Therefore, Dettol cannot be considered to be a cosmetic substance. Further, from the users point of view, it cannot also be considered a toilet preparation in terms of the definition given in the Medicinal and Toilet Preparations (Excise Duty) Act, 1955. Though it may be kept in the toilet, it is not used on human body to improve or alter the complexion, skin, hair or teeth. It is also not used as deodorant or perfume. Of course, it is also used for cleansing purpose, but only because of its prophylactic qualities, i.e., to cleanse any wound, or minor injuries or cuts, etc. It has been also noted that Dettol is manufactured and sold by the petitioner under a licence issued under the Drugs and Cosmetics Act, 1940 and the Drug Price Control Order applies to Dettol also. These are facts which had been pleaded by the petitioner before respondent No. 3, but there is neither any reference to the same in the impugned order nor was it contested by the authorities. These facts are also clearly indicative of the fact that "Dettol" is a drug and not a cosmetic item. Maintenance of hygiene is possible only when such substance is used to prevent illness or disease. Therefore, if Dettol is used for maintaining hygiene, it cannot be said that it does not have prophylactic qualities and its medicinal value cannot be ignored. Therefore, it is difficult to hold the view that Dettol is not a medicament. Products Harpic and Lizol having been declared to be pesticides as discussed above, would be liable to tax under entry No. 19 of Part A of the Second Schedule to the Assam VAT Act and Dettol would be liable to be assessed as an item under entry 21 of the Fourth Schedule to the Assam VAT Act and will not fall within the excluded category under the Explanation. - Decided in favour of assessee.

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