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TMI Tax Updates - e-Newsletter
September 11, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Income Tax
- Instruction No. 12/2013 - dated
9-9-2013
SET OFF OF REFUNDS AGAINST TAX REMAINING PAYABLE - STRICT COMPLIANCE OF SECTION 245 BEFORE MAKING ANY ADJUSTMENT OF REFUND
FEMA
- 40 - dated
10-9-2013
Overseas Foreign Currency Borrowings by Authorised Dealer Banks – Enhancement of limit
- 41 - dated
10-9-2013
Overseas Direct Investment – Amendment
Companies Law
- Draft Rules under Companies Act, 2013 - dated
9-9-2013
Chapter XII - Draft Rules under Companies Act, 2013
- Draft Rules under Companies Act, 2013 - dated
9-9-2013
Chapter XVI - Draft Rules under Companies Act, 2013
- Draft Rules under Companies Act, 2013 - dated
9-9-2013
Chapter XIX - Draft Rules under Companies Act, 2013
- Draft Rules under Companies Act, 2013 - dated
9-9-2013
Chapter XVIII - Draft Rules under Companies Act, 2013
- Draft Rules under Companies Act, 2013 - dated
9-9-2013
Chapter XXII - Draft Rules under Companies Act, 2013
- Draft Rules under Companies Act - dated
9-9-2013
Chapter XXIV - Draft Rules under Companies Act, 2013
- Draft Rules under Companies Act - dated
9-9-2013
Chapter XXVI - Draft Rules under Companies Act, 2013
Central Excise
- 973/07/2013-CX - dated
4-9-2013
Regarding reversal of amount under Rule 6(3) the CCR, 2004 on domestic clearances under Notification Nos.29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE and 33/2012-CE all dated 9th July, 2012
Highlights / Catch Notes
Income Tax
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Disallowance of premium paid for acquiring lease - nature of payment - TDS u/s 194I - default u/s 201 - payment for acquiring leasehold land is a capital expenditure - not liable for TDS u/s 194I - AT
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Income from salary - inclusion of perquisites - TDS u/s 192 - residential accommodation provided to employees - ownership of accommodation - state governments are the owners and not the assessee - No TDS is required to be on prerequisite value - AT
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TDS u/s 192 - obligation of the assessee to deduct tax at source on medical reimbursement - The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) & 201(1A) is therefore bad in law and rightly quashed by the CIT(A) - AT
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Disallowance u/s 40(a)(ia) - Payment to consignment agents - Since this is not a commission payment, therefore, there is no question of deducting tax at source under Section 194H of the Act - AT
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Deduction u/s 080IA - Container Freight Station(CFS) - it is not a condition precedent that CFS of the assessee should be situated at port. So, non- situation of the CFS of the assessee at port does not disentitle it from claiming deduction u/s. 80 IA(4) - AT
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Loss of security deposit - There is no enduring benefit to the assessee. - The loss in question is in the revenue field and has been rightly claimed u/s 28. This is not a bad debt. - AT
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Transfer pricing - ALP - First onus of selection of comparables was discharged by assessee. Thereafter it became duty of TPO to find whether those were in fact comparable in all respect or not. - - AT
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Transfer pricing - ALP - Whether said foreign A.E. is having losses, or otherwise not benefitted in any tax savings in that country, is not matter of examination in this Chapter-X of IT Act - it is incorrect to hold that ‘functional similarity' is to be preferred over and above 'product similarity' - AT
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Capital or Revenue receipt - Nature of Subsidy received from holding company State Trading Corporation of India (STC) - The intention and purpose behind the said payment was to secure and protect the capital investment - The receipt is capital in nature - HC
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Disallwance u/s 40((a)(ia) - No deduction of TDS or Non deposit of TDS even before due date of filing of return - Whether disallowance u/s 40(a)(ia) of the I.T Act could be made only in respect of such amounts which are payable as on 31st Mach of the year under consideration - Held no - AT
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Deduction u/s 10A - AO directed to exclude the expenditure incurred in foreign currency which was excluded from export turnover from the total turnover for the purpose of computing relief under section 10A of the Act - AT
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Deduction u/s 80IC - there is nothing to show that Flour Mill is distinct from Roller Flour Mill - the activity of Flour milling or article or thing under which can be called “Flour“ is not eligible for deduction u/s 80IC by virtue of its entry in the negative list in Part B of Schedule XIII. - AT
Customs
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Issue regarding pre-deposit in stay application - the contention of the applicant that the amount which was rejected by the Asstt. Commissioner can be treated as a pre-deposit in the present appeal against imposition of penalty is not acceptable. - AT
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Import of Second hand personal computers / laptops - whether Hazardous electronic waste – goods cannot be considered as hazardous waste - matter remanded to the original authority for the limited purpose of re-adjudicating the cases for violation of Foreign Trade Policy and for allowing clearance on payment of applicable duty and reasonable amounts of fine and penalty to be determined by him - AT
Service Tax
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Cenvat Credit - Non-registration of Head Office as Input Service Distributor - Special provisions prevail over the general provisions and should be given full effect to - credit denied - AT
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Eligibility of CENVAT Credit of Service Tax paid on the services received by the appellant and invoices raised in the name of their head office - credit allowed - AT
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Export of Service - Scientific and Technical Consultancy Service - it would be treated as an export of service if it had been received by the person abroad and had been used by that person in relation to his business and payment for the same had been received in convertible foreign exchange - AT
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Service tax demand – Reverse charge on GTA - prima facie individual transporters did not issue any consignment note for transportation of the goods cannot be called Goods Transport Agencies - appellant not liable to pay any amount of service tax under the head GTA service under Section 65(105)(zzp) - stay granted - AT
Central Excise
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Maintainability of Second Notice – Once a show cause notice invoking extended period had been issued, no further show cause notice for the subsequent period invoking extended period can be issued to the assesse on the same issue. - AT
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Short Payment of Duty - Whether short-payment of duty for the month of March, 2008 would amount to “default in payment of duty - The assessee was bound to pay equivalent amount of duty from PLA, with interest thereon under Section 11AB of the Central Excise Act - AT
Case Laws:
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Income Tax
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2013 (9) TMI 309
Disallowance of premium paid for acquiring lease - nature of payment - TDS u/s 194I - default u/s 201 - Held that:- A careful reading of the said lease deed transpires that the premium is not paid under a lease but is paid as a price for obtaining the lease, hence it precedes the grant of lease. Therefore, by any stretch of imagination, it cannot be equated with the rent which is paid periodically. A perusal of the records further show that the payment to MMRD is also for additional built up are and also for granting free of FSI area, such payment cannot be equated to rent. It is also seen that the MMRD in exercise of power u/s. 43 r.w. Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act and other powers enabling the same has approved the proposal to modify regulation 4A(ii) and thereby increased the FSI of the entire 'G' Block of BKC. The Development Control Regulations for BKC specify the permissible FSI. Pursuant to such provisions, the assessee became entitled for additional FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area - Following decision of The ITO (TDS) 3 (5), Versus M/s. Wadhwa & Associates Realtors Pvt. Ltd. [2013 (9) TMI 261 - ITAT MUMBAI] - payment for acquiring leasehold land is a capital expenditure - not liable for TDS u/s 194I - Decided against Revenue.
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2013 (9) TMI 308
Interest on NPA - non accrual of income, - the outstanding balance was converted into equity capital in the investee- company - non-recognizing interest income on NPAs by the assessee-bank following RBI guidelines - Held that:- a settlement was arrived at between the parties, whereby while the assessee waived the interest receivable to the extent of Rs. 17.37 lacs, the borrower issued it shares for the balance amount due, i.e., Rs.83 lacs. Any lender, for whom interest income is a primary source of income, would resort to such a measure only with a view to safeguard his capital, i.e., as a measure of last resort. This is as this would put a stop to its regular source of income; the dividend income on the shares being uncertain and, in any case, would arise only subject to adequate profits being earned by the borrower, and then, again, only at the discretion of the management. In fact, it needs to be appreciated that this amounts to conversion of a trading asset (interest bearing advance) to a capital asset, with an uncertain remunerative potential, which is neither an easy nor a desirable proposition for any business enterprises. Further, on what basis does the Revenue state it to be a device (for tax avoidance) is not understood, and which allegation cannot be lightly made. In fact, the borrower also would not book the liability to this extent, so that until and unless the transaction is not genuine would not be entered into. In any case, such an allegation has to have its basis in fact/s and support of materials, while we find it to be de hors any basis. As such, we are unable to appreciate the Revenue's case. At the same time, there is no finding by either of the authorities below that the borrower has not booked this liability in its accounts. This is fundamental to the validity of the financial arrangement under reference. The assessee has also in fact neither claimed so, i.e., of the borrower having not booked the liability to interest, or of having after booking reversed it pursuant to this arrangement, nor placed the settlement agreement on record. As such, subject to the confirmation of the borrower having not booked this liability in its accounts, i.e., toward interest for Rs. 17.37 lacs, we confirm the non accrual of the same as income to the assessee for the year - Decided against assessee. Interest on assumed value of shares - Held that:- accommodation provided is non-fund based. There is no charge of the assessee being entitled to any guarantee fee or commission, and which was also clarified by us during hearing from the ld. AR, and which, in any case, is not the Revenue's case. Under these circumstances, we are unable to comprehend or appreciate the Revenue's case in the least. All that has transpired is that, being a part of the RPJ group, the assessee has placed its investment by way of shareholding in the group concerns with the trustee as a part of the financial arrangement to enable funds being borrowed by its group concerns from the financial institutions. The assumption of interest under the circumstance is purely notional, without basis either in fact/s or in law - Decided in favour of assessee. Non accrual of interest on NPA as per RBI guidelines - Held that:- So, however, the issue before us is not on the merits of the issue, but as to whether the decision by the apex court in Southern Technologies Ltd. (2010 (1) TMI 5 - SUPREME COURT OF INDIA) covers the issue qua recognition of income on NPA accounts in view of the RBI guidelines. The same, as aforesaid, is in our view a question of fact. The same being subject to two different, in fact, opposite, views by the orders by the coordinate benches of this tribunal, the matter was put across to the assessee. It admitted to, firstly, the matter being a question of fact and, two, of being subject to different, irreconcilable views. Strictly, per the procedure, the matter ought to be referred to a special bench of the tribunal. On this proposition being mooted, the ld. AR, after taking time for seeking instructions from his client, the assessee-appellant, confirmed that it was in a position to meet the case on the merits of the addition on quantum inasmuch as the interest under reference has not been received even by now, i.e., after a lapse of a number of years. The matter may, therefore, be proceeded with on the footing of the applicability of decision by the apex court in the case of Southern Technologies Ltd. (supra), i.e., on merits, and restored back to the file of the assessing authority for necessary determination. - matter remanded back. Addition in respect of interest in the sum of Rs.157.20 lacs assumed on the value of the shares (Rs.1309.94 lacs) pledged by the assessee-company to IDBI Trusteeship Services Ltd. - Held that:- the accommodation provided is non-fund based. There is no charge of the assessee being entitled to any guarantee fee or commission, and which was also clarified by us during hearing from the ld. AR, and which, in any case, is not the Revenue's case. - All that has transpired is that, being a part of the RPJ group, the assessee has placed its investment by way of shareholding in the group concerns with the trustee as a part of the financial arrangement to enable funds being borrowed by its group concerns from the financial institutions. The assumption of interest under the circumstance is purely notional, without basis either in fact/s or in law. - Decided against the assessee. Disallowance of bad debts - Held that:- write off by the assessee in its accounts of a debt as irrecoverable would itself deem or signify it as having become bad. No doubt, this would not preclude the Revenue from disallowing the claim where the write off is not genuine, but we are unable to come to any such finding. In fact, the amount has been written off, as clarified in the notes to the accounts, on the basis of the decision by the Board of Directors. Further, the interest arising on the said loans has remained unpaid and, as it would appear to us, for a period beyond the current year, i.e., when the two, the amount of interest and the amount of the principal, are compared (with each other). In any case, the onus to establish that the claim is not genuine is only on the Revenue, while its case rests solely on the non-discharge by the assessee of the onus on it to establish the debts under reference as having become bad - Decided in favour of assessee. Reversal of provisions for NPA - assessee had written back the provision against the NPA outstanding in its accounts for Rs.160 lacs - Held that:- If no deduction, as claimed, had been claimed or allowed to the assessee for an earlier year qua the provision now written back, how we wonder the same, i.e., its write back, or to this extent, gives rise to any tax liability for the current year. There is surprisingly no clarity on this aspect of the matter in the orders of the Revenue authorities. This aspect having not been verified by the A.O. at the assessment stage, the matter is to be remitted to him for the purpose.
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2013 (9) TMI 307
Income from salary - TDS u/s 192 - Perquisite value of the residential accommodation - ownership of accommodation - Section 17(2)- Whether License fee determined under the Punjab Civil Service Rule shall only be taken as taxable perquisite under Rule 3(1) of the Income-tax Rules - Assessee in default u/s 201 - Held that:- accommodations provided by the BBMB to the State Government employees were the properties owned by the Government of Punjab and the other States. Admittedly, the said properties were not owned by BBMB and in terms of section 79 of Punjab Reorganization Act, 1966, the residential accommodation established for the employees of the Beas Project was the work pertaining to Bhakra Project, which was owned by Punjab Government and later by partner States. Consequently we find no merit in the order of the Assessing Officer in treating the residential accommodation provided to the employees by BBMB as owned by BBMB. Since the accommodation to the employees of BBMB had been provided by the respective State Governments, and where the Government of Punjab was the owner of the land originally allotted to the Bhakra Project and since BBMB was functioning under the direct control of the Central Government, wherein the employees of BBMB were to be treated as the employees of the Central or State Government, the ingredients of Sr.No.1 of Table-1 under Rule 3 of the Income-tax Rules stand fulfilled. The said provisions relates to the accommodation provided by the Central Government or any State Government to its employees or employees serving with any body or undertaking under the control of such Government on deputation. The employees employed with BBMB were the employees of the State Government, which in turn was functioning under the control of Central Government and consequently the perquisite value of the rent free accommodation provided to such employees was to be the licence fees determined by the State Government as reduced by the rent actually paid by the employees. Admittedly in the facts of the present case the licence value had been determined in accordance with Rule 5.23 of Punjab Civil Service Rules, Vol. I, Part-I and had been included as taxable perquisite under Rule 3(1) of the Income-tax Rules, in the case of the assessee - The accommodation in the present case provided to the employees of BBMB was owned by the respective States and was not owned by BBMB and since the basic condition of ownership of the accommodation has not been specified in the present case, nor the premises had been taken on lease by the BBMB from the respective States, the provisions of Rule 3(1) of the Income-tax Rules is not applicable - Decided against Revenue.
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2013 (9) TMI 306
Addition u/s 145- Unutilised modvat credit in closing stock - Held that:- valuation of purchases and sale of goods and inventory is required to be made in accordance with method of accounting regularly employed by assessee and further adjustment is required to be made to include amount of any tax, duty cess or fees actually paid or incurred by assessee to bring goods to place of its location and condition as on date of valuation . It is therefore clear that adjustment on account of tax, duty etc. is required to be made not only to closing stock but also in purchases, sales and opening stock. In present case, AO had made adjustment only in closing stock. CIT (A) has directed him to make adjustment in opening stock also in addition to closing stock. He has however omitted to consider aspect that adjustment is also required to be made to purchases and grievance of assessee is only on this account. We therefore modify order of CIT (A) by holding that adjustment on account of tax duty will also be made in purchases - Decided in favour of assessee. Disallowance of bad debt - Held that:- It is settled legal position as held by Hon ble Supreme Court in case of TRF Ltd.(2010 (2) TMI 211 - SUPREME COURT) that after amendment of provisions from assessment year 1998-99, burden is no longer on assessee to establish that debt has actually become irrecoverable. only conditions which are required to be fulfilled for allowance of bad debt is that debt should have been taken into account in computation on inomce of earlier year and should have been written off in books of accounts. There is no dispute that bad debt had actually been written off in books of accounts. CIT (A) has held that assessee had not produced any detail and evidence to show that such debts had been taken into account in computating income of ealier year. Issue is restored to file of AO for fresh decision after allowing opportunity of hearing to assessee to show that debt had been taken into account in computation of income of earlier year - Decided in favour of assessee. Disallowance of discount and commission expenses - Held that:- assessee could not submit complete details along with names and addresses of parties with supporting evidence which was specifically requisitioned by AO. Such details were also not been filed before CIT(A), and, therefore, he upheld disallowance. Merely because no disallowance had been made in earlier years or in subsequent year cannot be basis for making claim for relief in this year, because it is not possible for AO to make detailed examination of each and every issue relating to assessment every year. This year he has taken up matter for detailed examination and found that expenses were not supported by details and evidences. It is however settled legal position that even in cases where details and evidences are not available, AO is required to compute disallowance on an objective basis on basis of material available on record. In this case from comparative details of expenses filed we find that expenses on account of discount and commission have been claimed at .55% total sales of ₹ 344 crore compared to .43% on turnover of ₹ 345 crore in immediate preceding year. Therefore, if we compute expenditure this year at same percentage as in immediate preceding year, expenditure comes to ₹ 1.47 crore against claim of ₹ 1.89 crore. Thus on basis of claim in preceding year, there is an excess claim of about 42 lakhs. AO has made estimated disallowance of only ₹ 5,00,000/- - Decided against assessee. Computation of deduction u/s 80HHC - 90% exclusion of net interest/rent or gross interest/rent Held that:- Ninety per cent of not gross interest/rent but only net interest/rent, which has been included in profits of business of assessee as computed under heads PGBP is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining profits of business. Matter remanded back to A.O. to work out deductions Following decision of M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) Others Versus Commissioner of Income Tax, Central-IV, Mumbai Others [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - Decided in favor of assessee. Transfer pricing adjustment - Import of Bisoprolol Fumarate - Admission of additional evidence - Held that:- certificate dated from factory manager of assessee had been produced which had been rejected by authorities below as being not contemporary. Quality of product is important as it affects comparability of transactions and it influence pricing of product. There was however no independent evidence produced before lower authorities to show superior quality of assessee s product. assessee vide letter has filed an additional evidence before Tribunal in form of quality certificate from Bee PharmLabs (Pvt.) Ltd. an independent accredited third party and also comparative selling rate of same product produced by Torrent Pharmand Unichem Laboratories Ltd has been filed and it has been requested that additional evidence may be submitted. It was argued that assessee was made aware of these additional evidence only after passing of order by CIT (A) and accordinlgy it has been requested for admission of same. In our view an independent evidence regarding quality of products and comparative prices will be useful in deciding issue - Decided in favour of assessee. Import of pigments - Held that:- assessee had placed sufficient material on record in support of its plethat low margin in case of pigment was not because of high import price but because of low selling price in domestic market which was highly competitive. comparison made by AO of pigment segment with non AE trading which had no pigment, in our view is not justified on facts of case. best comparison would have been with an independent party importing pigments from same foreign market and trading in local market but no such comparative case has been placed on record by TPO. though it was TPO who separated pigment segment for purpose of transfer pricing study - Addition of TPO deleted - Decided in favour of assessee. Payment of technical know how fees - Held that:- law is quite clear on subject that TP adjustment is required to be made by applying one of prescribed methods. TPO has not applied any prescribed method and has only disallowed part of expenses as done in normal assessment, which is not permitted under tranfer pricing regulation as per which adjustment on account of any internationl transaction is required to be made as per method prescribed. TPO thus had applied CUP method and made adjustment on account of nine services on average basis - agreement listed certain services on which assessee requires guidance/assistance from time to time. assessee was thus entitled to any of services as and when required. Therefore, applying CUP method to service not availed by assessee during year is not justified. It would have been appropriate if AO had applied CUP method to payment made during year by assessee for three services and compared with similar payment for such services by an independent party. No efforts have been made by TPO/AO to determine market value of services received by assessee during year relating to SAP implementation and quality control to show that assessee had paid more compared to any independent party for same services. assessee had submitted that in case assessee had paid to AE at man hour rate for technical services provided during year in relation to SAP implementation, fees payable would have been significantly higer - Following decision of McCann Erickson IndiPvt. Ltd., Versus Addl. Commissioner of Income Tax Range 6 [2012 (7) TMI 728 - ITAT, DELHI] - Decided in favour of assessee.
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2013 (9) TMI 305
TDS u/s 192 - obligation of the assessee to deduct tax at source on "medical reimbursement" - Default in deducting TDS - Assessee in default u/s 201 - Held that:- exemption in respect of medical expenditure is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of the provision are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the process adopted in considering the exemption proviso to section 17(2). The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) & 201(1A) is therefore bad in law and rightly quashed by the CIT(A) - there are grievances regarding lack of opportunity to the AO before CIT(A) and grounds challenging the finding that there is no dispute that the Assessee has satisfied itself that the employees were entitled to exemption under proviso (v) to Sec.17(2) of the Act. As far as lack of opportunity is concerned, we find that the CIT(A) has only called for break up of the figures regarding medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employee on production of evidence by the employee. In fact, the figures so given are the same figures on the basis of which the AO has passed order u/s.201(1) and 201(1A) of the Act - Decided against Revenue.
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2013 (9) TMI 304
Adjustment of transfer pricing - ALP - Held that:- appellant company had prima facie demonstrated that its prices are comparable and Arm's length price fixed objectively, honestly and in a bona fide manner as required by statutory regulations. This being directly explained by the appellant and as held by the Delhi Bench of the Income-tax Appellate Tribunal, [Mentor Graphics (Noida) (P) Ltd. (2007 (11) TMI 339 - ITAT DELHI-H )] the same cannot be varied by the Transfer Pricing Officer or the Assessing Officer unless it can be shown that these aspects were not properly examined in the report submitted. Therefore, in the light of above decision of the Delhi Bench of the Tribunal, it is held that the Transfer Pricing Officer or the Assessing Officer should not have rejected the arm's length price determined by the appellant without showing how the pricing worked out by the appellant was incorrect or perverse. In the present case, the appellant was given the financial statements of M/s. Qpro Infotech Ltd. by the TPO with a direction to compare its transactions with that company. The appellant vide its letter dated 19-05-2006 demonstrated that its profit percentage is better than that of M/s. Qpro Infotech Ltd. as of March, 2004. The TPO however, did not accept the same and handed over the financial statements of another company, viz., M/s. New Gen Imaging Systems Pvt. Ltd. and directed the appellant company for comparison. The assessee company, vide its letter dated 06-11-2006 addressed to the TPO, explained that the line of activity of M/s. New Gen. Imaging Systems Pvt. Ltd. was different from them. Therefore, the assessee explained that it was a futile exercise to compare the uncomparables. The TPO however, disregarded these facts and proceeded to hold that the appellant's pricing is lower than the average rate of M/s. New Gen Imaging Systems Pvt. Ltd. and held that the appellant company has lowered its profit margin and has diverted its profit to the parent company. From the material placed on record and on a careful examination of the same, it is found that the learned TPO has erred in attempting to compare the financial statements of the assessee company with those of M/s. New Gen Imaging Systems Pvt. Ltd. because both these companies are uncomparable - TPO is arbitrary in assuming that the appellant has lowered Its profit margin by diverting its profit to the parent company. This assumption is found to be baseless. The TPO's observations with regard to the AE siphoning off the appellant's profits are based merely on surmises and conjectures. Moreover, the transfer pricing provisions, as narrated above under the Income-tax Act, nowhere authorises the TPO to arbitrarily estimate the transfer price. The basis recorded by the TPO is devoid of merits. Therefore, the addition of Rs. 1,58,59,366/- is directed to be deleted - Decided against Revenue.
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2013 (9) TMI 303
Disallowance u/s 40(a)(ia) - Payment to consignment agents - TDS not deduction from agent's commission - CIT upheld disallowance - Held that:- The commission is said to be payment of commission if it is evident that it is being paid for service of a person provided in respect of sale of product of the assessee - The concerned parties have also furnished the sale Patti along with claim of the expenses on sale of consignment goods the claim of expenses given detail the expenses pertaining to the monthly selling expenses loading and unloading dealing with expenses. These expenses have been adjusted and accounted for in the account of respective parties - impugned payment is reimbursement of the expenses and are not the commission as the concerned party did not give any services in respect of the payment of expenditures made. Providing services is essentially requirement of the nature of transaction of a commission. Since this condition is not satisfied in the case under consideration therefore it is a case of reimbursement of the expenses incurred by the concerned party on behalf of the assessee - Since this is not a commission payment, therefore, there is no question of deducting tax at source under Section 194H of the Act. Since the payment is not subject to tax deducted at source, therefore, provisions of Section 40(a)(ia) of the Act is not applicable - Following decision of M/s. Pee Cee Cosma Sope Limited vs. JCIT [2013 (8) TMI 380 - ITAT AGRA.] - Decided in favour of assessee. Disallowance u/s 36(1)(iii)/14A - interest expenditure - Use of interest bearing borrowed funds in the investment of shares - Held that:- The deduction contemplated by the section is in relation to the expenditure which could properly be regarded as necessary for the purpose of the business or profession. Expenditure incurred on account of commercial expediency for the purpose of business would be allowable under this provision. The expenditure to be allowed must have a nexus with the business of the Assessee. If the expenditure incurred is ostensibly incurred for the business, but if in reality is not for the purpose of business then such expenditure is not allowable - assessee has right to replace his own capital with borrowed funds which were already used for the purpose of business in acquiring assets and other - for the purpose of ascertaining profit and gains, the normal principles of commercial accounting should be applied, so long as they do not conflict with any express statutory provisions - The onus is on the assessee to furnish the relevant material regarding replacement of borrowed funds by own capital and interest free funds available with the assessee - Following decision of M/s. Pee Cee Soap Chemicals (P) Ltd. Versus Addl. Commissioner of Income Tax [2013 (8) TMI 379 - ITAT AGRA] - Decided in favour of assessee.
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2013 (9) TMI 302
Deduction u/s 080IA - Container Freight Station(CFS) not being structure situated "at Port" – Held that:- Relying upon the decision of Special Bench in the case of All Cargo Global Logistics Ltd. vs. DCIT [2012 (7) TMI 222 - ITAT MUMBAI(SB)], it was held that CFS owned by them are better placed as ICDs considered in the case of Container Corporation of India [2012 (5) TMI 260 - DELHI HIGH COURT] were located far away at the places like Jameshedpur, Jodhpur,Jaipur etc. The CFS were situated nearly 5 Kms away from the Port. In the present case also CFS of the assessee is situated only 15 Kms away from the Port. So for the grant of deduction under section 80 IA(4), as per decision of Special Bench in the case of All Cargo and decision of Delhi High Court in Container Corporation of India, it is not a condition precedent that CFS of the assessee should be situated at port. So, non- situation of the CFS of the assessee at port does not disentitle it from claiming deduction u/s. 80 IA(4). In the present case also the assessee has been provided with a certificate by JNPT that the assessee's CFS is an extended arm of the Port - Such certificate issued by JNPT was also withdrawn in those cases dealt by Special Bench - Such withdrawal by the JNPT was not considered as material by the Special Bench for denial of deduction under section 80IA(4). Moreover, in the certificate dated 31/3/2006, JNPT has clearly stated that assessee's CFS may be considered as an extended arm of the Port related activities in accordance with Circular No.133/95 dated 22/12/95 issued by Central Board of Excise & Customs, New Delhi, whereas in the so called withdrawal letter, which is highly relied upon by the revenue, it has no where been stated that how and on what basis the CFS of the assessee has suddenly ceased to be an extended arm of the Port. Moreover, Co-ordinate Bench in the case of Ayush Ajay Construction Ltd. vs. ITO, [2000 (7) TMI 225 - ITAT INDORE] while interpreting the provisions of section 80IA(4), even in the absence of agreement, on recognition of the work done has come to a conclusion that assessee was entitled to get deduction – Also, following observation has been made in the case, “the object of its insertion to the tax statute in the light of the budget speech of the Hon'ble Finance Minister and the above said judicial pronouncements, we would find that the legislature has given a fillip of deductions to those enterprises who engage themselves in developing, maintaining and operating any infrastructure facilities for economic growth of the nation as it was felt by the legislature that inadequate infrastructure was a key constraint of our economic progress. As held by the apex Court in the case of Bajaj Tempo Ltd. vs. CIT[1992 (4) TMI 4 - SUPREME Court], the provisions of promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it.” – Decided in favor of Assessee. Further, the deduction for the years under consideration cannot be denied to the assessee on the ground that there is no provision for withdrawal of this deduction for the subsequent year for breach of certain conditions unless the deduction granted in initial A.Y.2004-05 is withdrawn. Such proposition is supported by the decision of Jurisdictional High Court in the case of CIT vs. Paul Brothers (1992 (10) TMI 5 - BOMBAY High Court). No contrary decision was cited by the other side. - Decided in favor of assessee.
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2013 (9) TMI 301
Loss of security deposit - business loss or bad debts - Capital or Revenue expenditure - conditions specified u/s 36(2) r.w.s.36(i)(vii) - whether the loss of security deposit in question is a business loss in the revenue field - Held that:- the above loss is a business loss ;for the reason that the assessee has taken on lease many premises spread over many parts of the country, and this act of taking this show room on lease is in the normal course of business. In fact 84 show rooms are taken on lease at various places. Six months rent was given as security deposit. This was given in the course of business. The transaction is intimately connected with the business of the assessee - There is no enduring benefit to the assessee. The loss in question is in the revenue field and has been rightly claimed u/s 28. This is not a bad debt. - It is a deposit in the usual course of taking show rooms on lease. - Following decision of Empire Jute Co.Ltd. vs. CIT [1980 (5) TMI 1 - SUPREME Court] - Decided in favour of assessee.
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2013 (9) TMI 300
Transfer pricing - ALP - Shifting of profit outside India - Associate Enterprise suffered losses - Held that:- entire Chapter X in I.T.Act is devoted to determine Arms Length Price in respect of a cross border transaction made by an Indian entity, which is to be taxed in India. Whether said foreign A.E. is having losses, or otherwise not benefitted in any tax savings in that country, is not matter of examination in this Chapter-X of IT Act - Decided against assessee. Rejection of Appellant's economic analysis - Valid reason not provided - assessee had given twelve comparable instances but it was noted that those instances were in respect of companies in production of 'glass products'. As against that assessee had manufactured 'glass mosaic'. Although it was informed that there was no major player in glass mosaic sector but Revenue Department has selected a comparable instance and bench marked international transaction against Bisazza India Pvt. Ltd. - while adopting TNMM method only profit based comparison is advisable, but start point for every comparison is product which is subject matter of international transaction - fundamental start point for comparison is similarity amongst nature of transaction, which depends upon none other than transaction of product. Without first establishing similarity of product between two comparable how is it practically possible to judge FAR? If nature of transaction is dissimilar in product then that should lead to an incongruous result. economic analysis, therefore, of comparable companies as attempted by assessee was not proper in eyes of law primarily because of reason that those companies were admittedly manufacturing ' glass wares' and not 'glass mosaic', particularly when revenue department was in a position to lay hand to compare transaction of assessee with a comparable company also dealing in glass mosaic. This product is undisputedly identical with product of assessee manufactured. Without first establishing proximity of products it is difficult to hold that comparables are from same economic segment. And without having intimate economic segment quoted companies can not be treated as "comparables". In sequence of preference it is incorrect to hold that ‘functional similarity' is to be preferred over and above 'product similarity' - Decided against assessee. First onus of selection of comparables was discharged by assessee. Thereafter it became duty of TPO to find whether those were in fact comparable in all respect or not. At that juncture TPO had emptied basket of comparables of assessee by mentioning that first criteria of similarity of product had failed in said selection of assessee. Rather in this case a subtle allegation of TPO was that assessee has done cherry picking. Once selection of assessee had been discarded then begins duty part of TPO. He is duty bound to select most close comparable instances available to him being in public domain. There can be an initial selection of 'industry segment' - if broad segment has several other sub-segments then naturally next filter is required to be applied. - Decided in favor of revenue. Use of data not in public domain - Benchmarking analysis - Violation of principle of natural justice - Held that:- TPO had exercised his powers by invoking provisions of Section 133(6) of IT Act for purpose of collecting information to determine ALP. As far as this power is concerned, same is enshrined under section 92CA(7) of IT Act - information collected after issuing notices under Section 136(6) is required to be communicated to assessee and AO is under obligation to furnish entire information to assessee. In present case, since undisputed fact is that assessee had in fact been given an opportunity to contradict material gathered by TPO - Following decision of MARUTI SUZUKI INDIA LTD. versus ADDITIONAL COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICER NEW DELHI [2010 (7) TMI 84 - DELHI HIGH COURT]. Tax administrator has more information available to them. But requirement is that it would be unfair to apply that information against assessee, unless that data/information is disclosed to assessee so that assessee can safeguard its legal interest - assessee has first entered into international transaction and thereupon to justify ALP he has cited few comparables. But law is that assessee is required to establish that international transaction was ALP transaction. Only to compute ALP it is expected to compare data's with other identical nature of companies, rather than collect information to defend ALP in respect of said international transaction which had already been completed - data of a private limited company as selected by TPO once communicated to assessee and assessee had been granted opportunity to refute same, then requirement of law has been fulfilled by TPO - Decided against Assessee. Arbitrary approach in selection of comparables - Held that:- if only one comparable is left then selection is as per lawcomparables which were selected by assessee were not identical in respect of product manufactured. TPO had found that only one company happened to be manufacturing same article i.e. Glass Mosaic. Moreover, comparables which were selected by assessee did not have same line of manufacturing activity - It is not correct to say that merely on ground that TPO could have laid hand on one comparable than he was expected to do more research - ALP can be computed even on basis of one comparable - Following decision of Haworth (India) P. Ltd. Versus Deputy Commissioner of Income-tax [2013 (8) TMI 421 - ITAT DELHI] - Decided against assessee. Application of 'Internal TNMM' - Some times it is find that internal comparables may have more direct as also closer relationship to transaction under consideration than external comparables. First similarity is resemblance of product. Likeness of product exported with product sold in domestic market can not be questioned. Even OECD guide lines have suggested an ideal situation with reference to profit indicator that same taxpayer earns in comparable uncontrolled transaction - . A general rule on determination of ALP is that prices may vary across different markets even for transaction involving product. Therefore to achieve comparability it requires that market in which independent and A.E. operate are comparable. Another possibility is that to achieve comparability domestic market sales can be compared with export market sales of that very assessee. By this procedure at least one thing is assured that products manufacture and sold is alike. Then economic factors, management factor, finance involvement etc. are also indistinguishable. These factors being dove tailed, either cross-border or domestic sales, hence impossible to tear apart therefore uniformly applies on both type of transaction of same assessee - internal comparable" can be considered but after certain adjustments - Decided in favour of assessee.
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2013 (9) TMI 299
Capital or Revenue receipt - Nature of Subsidy received from holding company State Trading Corporation of India (STC) - Held that:- In the present case, Rs.25 lakhs was not paid by a third party or by a public authority but by the holding company. It was not on account of any trade or a commercial transaction between the subsidiary and holding company. The holding company was a shareholder and the shares partake and were in nature of capital. Share subscription money received in the hands of the respondent assessee was a capital receipt. The intention and purpose behind the said payment was to secure and protect the capital investment made by STC Ltd. in the respondent. The payment of grant by STC and receipt thereof by the respondent was not during the course of trade or performance of trade, thus, could be categorised or classified as a gift or a capital grant and did not partake character of a trading receipts. - The receipt is capital in nature - Decided in favor of assessee. The findings recorded by the Delhi High Court in their earlier decision in the case of the respondent/assessee [1981 (12) TMI 25 - DELHI High Court] is the grant given by the holding company was of capital nature and not revenue or contributing to the trading income of the respondent. Even when we apply the purpose test applied in the case of Sahney Steel & Press Works Ltd. (1997 (9) TMI 3 - SUPREME Court) as explained in Ponni Sugar and Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT). It cannot be said that the earlier decision of the Delhi High Court [1981 (12) TMI 25 - DELHI High Court] has been overturned or overruled by the Supreme Court in the two decisions mentioned above. - Decided against Revenue.
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2013 (9) TMI 298
Disallowance u/s 14A - Held that:- the assessee has earned exempt income of Rs. 7,09,157, as dividend and no expenditure under section 14A was disallowed by the assessee. The Assessing Officer also, without any basis, has taken 17% of the administrative expenditure without looking to the nature of expenditure debited in the Profit & Loss account. Looking to the fact that the assessee has not incurred any interest expenditure, the disallowance of Rs. 45,000 on account of other administrative expenditure seems to be reasonable. Consequently, we do not find any reason to disturb the findings given by the Commissioner (Appeals) and the same are hereby upheld for the reason that, admittedly, the provisions of rule 8D are not applicable for the assessment year 2005-06 as held by the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, (2010 (8) TMI 77 - BOMBAY HIGH COURT) - Decided against Revenue. Unexplained investment u/s 69 - Held that:- The assessee, before the Assessing Officer, contended that it has made investment of Rs. 5,00,000 only in Reliance Mutual Funds and the second investment of Rs. 5,00,000 has not been made by it. To clarify this contention, the assessee has filed the proof of investment made in the name of associate concern Brook Trading Company Pvt. Ltd. which had made the investment. Along with that a photocopy of cheque dated 1st March 2005, and the bank account was given before the Commissioner (Appeals). The Commissioner (Appeals), after verifying these details, has deleted the addition. The Commissioner (Appeals) having a co-terminus power with that of the Assessing Officer can very well examine these facts in the course of appellate proceedings. He has merely verified the assessee's contention from the copy of cheque and bank account along with the proof of investment in the name of Brook Trading Company Pvt. Ltd. Under these circumstances, it cannot be held that there is a violation of rule 46A. Thus, under these facts, the findings given by the Commissioner (Appeals) are affirmed - Decided against Revenue. Commissioner (Appeals) and, accordingly, the same is confirmed - Decided against Revenue.
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2013 (9) TMI 297
Deduction u/s 80IC - Eligibility - Flour Mill versus Roller Flour Mill - Held that:- Assessee was running Flour Mill on which deduction u/s 80IB(4) has already been allowed by the Assessing Officer at 25%. Later on it is claimed that the same was upgrade to Roller Flour Mill and the assessee was entitled to 100% deduction u/s 80IC. - the assessee though argued that this item should be interpreted on the basis of a trade name but no Trade Journal or any other material was produced to show that in the trade parlance "Flour Mill" is distinct from "Roller Flour Mill". In any case the assessee itself has been shown to be running a Flour Mill - even in the trade Roller Flour Mill and Flour Mill is understood as one and same and in any case as observed in case of Pooja Industries (2013 (9) TMI 295 - ITAT CHANDIGARH) there is no material before us to reach a different conclusion. - Assessee is not entitled to deduction u/s 80IC - Decided against the assessee. Disallwance u/s 40((a)(ia) - No deduction of TDS or Non deposit of TDS even before due date of filing of return - Whether disallowance u/s 40(a)(ia) of the I.T Act could be made only in respect of such amounts which are payable as on 31st Mach of the year under consideration - Held that:- Hon'ble Gujarat High Court has considered all aspects of the issues raised in the decision of Special Bench in case of Merilyn Shipping Transporters V. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). We further find that that even Hon'ble Calcutta High Court has overruled this decision in case of CIT Vs. Cresent Export Syndicate [2013 (5) TMI 510 - CALCUTTA HIGH COURT]. Moreover Chandigarh Bench of the Tribunal consistently has been following the decision of Hon'ble Gujarat High Court in case of CIT V. Sikandarkhan N Tunwar and others (2013 (5) TMI 457 - GUJARAT HIGH COURT) as well as the decision of Hon'ble Calcutta High Court in case of CIT Vs. Cresent Export Syndicate (2013 (5) TMI 510 - CALCUTTA HIGH COURT). Therefore, with respect to above we decline to following the decision of Hon'ble Allahabad High Court for the above reasons. - Decided against the assessee.
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2013 (9) TMI 296
Deduction u/s 10A - Reduction of expenditure incurred in foreign currency from export turnover - DPO & Assessing Officer reduced the expenditure incurred in foreign currency from export turnover while computing the deduction under section 10A - Held that:- The Assessing Officer has given a finding that the assessee has incurred these expenses in the process of exports of software. This expenditure incurred was in providing technical services outside India. Therefore, this expenditure was excluded from the export turnover by the Assessing Officer which was affirmed by the DRP. The assessee could not able to substantiate its claim that such expenditure was not incurred in rendering any technical services. In the circumstances, the contention of the assessee that this expenditure should not be excluded from the export turnover is rejected. However, we agree with the assessee that this expenditure having excluded from the export turnover, it should also be excluded from the total turnover, in view of the decision of the Special Bench Tribunal in the case of Sak Soft Ltd. (supra). Therefore, we direct the Assessing Officer to exclude the expenditure incurred in foreign currency which was excluded from export turnover from the total turnover for the purpose of computing relief under section 10A of the Act - Decided in favour of assessee. Disallowance u/s 14A - Whether DRP and the Assessing Officer ought to have granted deduction under section 10A on the enhanced income on account of the aforesaid disallowance - Held that:- Though the counsel for the assessee submits that during this year there were no borrowings and all the investments were made out of own funds, therefore, the provisions of section 14A cannot be invoked as it becomes academic, in view of the alternative ground of the assessee that deduction under section 10A has to be granted on the enhanced income on account of disallowance made under section 14A. As we incline to accept the alternative ground of appeal that the deduction under section 10A has to be granted on enhanced income on account of disallowance under section 14A - Disallowance shall go to enhance the profit eligible for deduction under section 10A. Accordingly, we direct the Assessing Officer to enhance the disallowance made under section 14A as part of the eligible profit for the purpose of section 10A - Following decision of Godrej & Boyce Manufacturing Co. Ltd., Vs. DCIT. [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Decided in favour of assessee.
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2013 (9) TMI 295
Deduction u/s 80IC - Eligibility - Flour Mill versus Roller Flour Mill - Held that:- This classification under various NIC standards has been issued by Ministry of Statistics and Programme Implementation, Government of India. Code 15311 has been mentioned in Part B of Schedule XIII at Col. 8. Since this Division pertain to Food and Brewages and only one item in respect of Flour Milling is there, it becomes clear that the Parliament was clear in its intention that activity of Flour Milling would not be entitled to deduction u/s 80IC and that is why the same has been placed in Schedule XIII along with Excise classification Code 11.01 as well as National Industries classification under Division 15 at Sl No. 15311. Therefore, the activity of Flour milling or article or thing under which can be called "Flour" is not eligible for deduction u/s 80IC by virtue of its entry in the negative list in Part B of Schedule XIII. Assessee though argued that this item should be interpreted on the basis of a trade name but no Trade Journal or any other material was produced to show that in the trade parlance "Flour Mill" is distinct from "Roller Flour Mill". - CIT(A) has correctly brushed aside this clarification because it deals with the sales tax etc. which is a State subject and this clarification can not negates the intention of the Parliament given in Part B of Schedule XIII which is a negative list for deduction u/s 80IC. - Decided against the assessee.
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Customs
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2013 (9) TMI 321
Re-examination of the bills of entry and goods - whether contemporaneous evidence should be basis of adjudication against the appellant – Held that:- Only after proper examination of the features along with the contents of contemporaneous evidence the finding could be acceptable to law - Terms of contracts, quantum of import, value prevailing at the relevant point of time, feature of goods use of the goods should also receive his consideration - assessee shall get fair opportunity of defence without seeking any adjournment - above exercise of determination of the issue shall be completed as expeditiously as possible – appeal decided in favour of assessee.
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2013 (9) TMI 320
Confiscation - Removal of Goods – The Customs Department on receipt of information that certain imported goods which were not yet examined by the Customs officers were also removed by the appellant, visited the Vadinar port and conducted further enquiry into the matter. On completion of enquiry and investigation, it was noticed that one of the imported item Coker Fractionator was removed from the Customs area without examination and without obtaining any order under Section 47 of Customs Act, 1962. - Held that:- The removal of Coker Fractionator from the Customs area by the assesse was inadvertent error and mistake - It was also to be noted that the said Coker Fractionator could not be considered as dutiable goods in order to be liable for confiscation under Section 111(j) of Customs Act, 1962, as the assesse had discharged the assessed duty liability on the complete 64 packages imported by them, before unloading. Following ASSOCIATED CEMENT COMPANIES LTD. Versus CC [2001 (1) TMI 248 - Supreme court of India] - During the material period, finished leather attracted duty at specified rate under the tariff but Exemption Notification No. 21/2002-Cus. (as amended) granted full exemption from payment of duty thereon - during that period, the Revenue was not entitled to charge any duty on the goods - Where duty was not so chargeable, the goods were said to be not chargeable to duty and, by virtue of the above definition, they were not dutiable goods - Where the goods were not dutiable, the penalty u/s 112(a)(ii) of the Customs Act was not liable to be imposed on the importer of the goods - order to the extent it was in challenge was liable to be set aside - Decided in favor of assesse.
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2013 (9) TMI 319
Issue regarding pre-deposit in stay application - Misdeclartion of goods - import of drugs - Prednisolone BP/USP/IP - Confiscation of goods u/s 111(d) and 111(m) - Penalty u/s 112(a) – whether the goods were liable to confiscation and the appellants were liable to penalty - Held that:- the goods were imported without a valid permission - they were liable to confiscation under the provisions of Section 111(d) - There was a clear omission on the part of the importer which had rendered the goods liable to confiscation - the assesse cannot be escaped the penal consequences u/s 112(a) and he cannot abdicate his responsibility to the indenting agent - mens rea was not required for imposition of penalty u/s 112(a) - Once the activity of importation was complete, the goods become chargeable to Customs duty - The liability to confiscation of goods arises when imported goods violate the provisions contained in clause (a) to (p) of Section 111 – relying upon UOI v. Security & Finance (P) Ltd [1975 (10) TMI 30 - SUPREME COURT OF INDIA]. The ld. Counsel appearing on behalf of the applicant submitted that the lower appellate authority had rejected their appeal filed against the Order-in-Original passed by the Addl. Commissioner of Customs. Since the goods have been absolutely confiscated and no clearance of goods were given to them they were not required to pay any duty at all and therefore the duty paid by them is sufficient to be treated as pre-deposit. - Held that:- the applicant had filed application before the Asstt. Commissioner of Customs claiming refund of customs duty paid by them against the impugned Bill of Entry. Their refund claim was rejected by the Asstt. Commissioner of Customs. The order passed by the Asstt. Commissioner rejecting the refund claim is not part of present appeal. Therefore, at this stage, the contention of the applicant that the amount which was rejected by the Asstt. Commissioner can be treated as a pre-deposit in the present appeal against imposition of penalty is not acceptable. Waiver of pre deposit – Assesse could not make prima facie case in his favor – Rs. 50,0000 was ordered to be pre deposited - stay granted partly.
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2013 (9) TMI 318
Import of Second hand personal computers / laptops - whether Hazardous electronic waste – confiscation u/s 111(d) – Redemption fine – penalty u/s 112(a) and 114AA – Held that:- Any re-export was not warranted and the assesses can redeem the goods on payment of appropriate duty of customs and the fine determined by the lower appellate authority - they should pay the penalty imposed on them – computer systems imported were lying in the customs area for nearly a year and had not caused any hazard or danger to anyone so far - The same also cannot be considered as waste electrical and electronic assembly - The assesses being traders had imported the used computer systems for the purpose of trading at a profit since these were available at cheaper rates abroad having become obsolete there but still had use in a developing country market – Similar imports earlier made by the assesses as well as others and such imports had been regularly allowed without treating such used computer systems as hazardous waste. Second hand personal computers / laptops cannot be freely imported under the Foreign Trade Policy - the assesses were willing to pay reasonable amounts of fine and penalty for such imports as had been done in the past - goods cannot be considered as hazardous waste - orders are set aside and all the four appeals were remanded to the original authority for the limited purpose of re-adjudicating the cases for violation of Foreign Trade Policy and for allowing clearance on payment of applicable duty and reasonable amounts of fine and penalty to be determined by him – Confiscation order sustained – Redemption allowed after submission of fine – Penalty sustained – decided partly in favor of assesse.
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Corporate Laws
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2013 (9) TMI 317
Property Liable for Attachment or Not - Whether the suit property was subject to attachment and was under control of the Official Liquidator who in turn wished to put it to sale - Held that:- The contentions of both appellants that the attachment order was not binding and was held to be meritless and was consequently rejected - The orders passed and the affidavits found and noticed to have been filed from time to time before the Special Court, the Special Court could not be either faulted for its conclusions or that the specific findings arrived at that the consent order taken together with the affidavit of undertaking covered within its fold the property of the appellant-company in question for being proceeded against in execution of the decree passed for recovering the amount due as declared in the consent order could not be said to be vitiated in any manner warranting our interference. Consequently, it would be permissible for the Custodian to proceed against the property comprised in Units 3 and 4 belonging to the appellant- company also by means of an appropriate execution application as and when he choose to do so. It was nothing but a self-serving attempt found to be made as a pure afterthought to wriggle out of the lawful commitments made and retrace the position in which the Directors of the company have allowed themselves to be landed in - On the other hand, the terms as well as the tenure of the above proceedings make clear the dominant intention and purpose of them to be merely an undertaking given by a third party to the proceedings to the Court to abide by a particular course of action if the judgment-debtor failed to satisfy the decree - the undertaking as well as the consent decree only enabled the Custodian to initiate execution proceedings against the properties in question of the appellant- company and it was only in the event of such sale, the question of coming into existence any document which would require compulsory registration under Section 17 of the Act would arise and not at this stage - In substance and effect what has been undertaken to the Court was to preserve the properties intact for being proceeded against in a given eventuality and deliver peaceful possession of the property in the event of such action becoming necessary.
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Service Tax
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2013 (9) TMI 326
Non-registration of Head Office as Input Service Distributor - Manufacturing unit of the company at Mangalore chose to take CENVAT credit on BOFS provided by Corporation Bank, on the strength of the invoices issued by the bank to the Mumbai office of the company - Transactions involved distribution of CENVAT credit by the Mumbai office of the appellant-company to its Mangalore unit without obtaining ISD- registration and issuing invoices in terms of sub-rule 2 of Rule 4A of the Service Tax Rules, 1994 – Held that:- Availment of CENVAT credit by the Mangalore unit on the basis of the invoices issued to the Mumbai office by the input service provider is not vitiated by the nature and/or the contents of the invoices used by the manufacturing unit, it would be tantamount to rendering the ISD related provisions otiose - Special provisions governing the registration and conduct of input service distributors must prevail over general provisions - Special provisions prevail over the general provisions and should be given full effect to – Decided against the Assessee.
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2013 (9) TMI 325
Eligibility of CENVAT Credit of Service Tax paid on the services received by the appellant and invoices raised in the name of their head office - Services were received by the appellant and head office of the appellant was not registered as input service distributor – Held that:- Non-endorsement of invoices in the name of head office and after the credit availed by the factory, is a curable defect and can be issued subsequently as long as there is no dispute as regards receipt of the services and Service Tax liability being discharged by service provider – Decided in favor of Assessee.
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2013 (9) TMI 324
Export of Service - Scientific and Technical Consultancy Service u/s 65(105)(za) - Revenue was of the view that the assesse had provided the taxable services of scientific and technical consultancy and it does not constitute export of services under Export of Services Rules, 2005 - Held that:- Prima-facie the assesse’s activity was of service which was scientific and technical consultancy services taxable u/s 65(105)(za) - The service provided by the assesse had to be treated as an export of service and hence, in terms of Rule 4 of the Export of Services Rules, no service tax would be chargeable - the activity of the assesse would be taxable only when the service had been provided to a customer in India and it would be treated as an export of service under Export of Services Rules, 2005, if it had been received by the person abroad and had been used by that person in relation to his business and payment for the same had been received in convertible foreign exchange. The service of developing the process of synthesis of drug molecules provided by the assesse had to be treated as having been provided to their overseas they cannot be treated as sub-contracts and on that basis having provided the taxable service - Since the service of scientific and technical consultancy covered by Section 65(105)(za) was service in relation to business and is covered by a Rule 3(1)(iii) of the Export of Services Rules and the same prima facie had been received by the overseas clients for the use in their business, the payment for which had been received in foreign currency. Waiver of Pre-deposit – Prima facie assesse had a case in their favour - order set aside - The requirement of pre-deposit of service tax demand, interest and penalty was waived for hearing of the appeal and recovery to be stayed till the disposal of the appeal – Stay granted.
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2013 (9) TMI 323
Waiver of pre-deposit - Tour operator service - Held that:- applicants are engaged in the business of planning, scheduling, organizing or arranging tours for the Ranthambore National Park - benefit of notification No.1/2006 now claimed by the applicant was not clamed before the lower authority. Therefore, contention of the applicant regarding eligibility of notification has not gone by the adjudicating authority - stay granted partly.
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2013 (9) TMI 322
Service tax demand – Goods Transport Service section 65(105)(zzp) - The case of the appellant is that the individual transporters who did not issue any consignment note for transportation of the goods cannot be called "Goods Transport Agencies" and therefore the appellant should not be held liable to pay any amount of service tax under the head "GTA service" under Section 65(105) (zzp) of the Finance Act 1994 read with Section 65 (50b) of the Act. - Held that:- Prima facie case is in favor of assessee - stay granted.
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Central Excise
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2013 (9) TMI 316
Cenvat Credit in respect of MS angles, Channels, CTD bars, sheets etc. used for fabrication and erection of supporting structures of the machinery – Held that:- During the period from November 1994 to August 1995, the definition of the term capital goods as given in Explanation to Rule 57Q covered machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about in any change in any substance for manufacture of final products, the components, spare parts and accessories of the above-mentioned machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose, mould and dies, generating sets, and weight bridges used in the factory of manufacturer w.e.f. 16/3/95 some more items were added to the definition of capital goods adding clause (d) and (e) to the definition of capital goods. It is only by Notification No. 14/1996-CE (NT) dated 23/7/96 that the above definition of capital goods was fully replaced by new definition mentioning specific Chapter heading and items and new definition did not contain the word ‘plant’. Thus, there is a factual mistake in para 7 of the final order dated 23/3/12 which mentions that w.e.f. 16/3/95, the above definition was amended and in the new definition, the general expression machines, machinery, plant, equipment, apparatus, tools and appliances used ‘for’ was not there and instead the definition of capital goods covered the goods of certain specific headings of the Central Excise Tariff and their components, spare parts, accessories, as, through out during the period of dispute, it is the definition of capital goods in Rule 57Q, as the same stood during the period prior to 23/7/96, which would be applicable and since that definition covered the word ‘plant’, in view of the judgment of the Apex Court in the case of Jawahar Mills Ltd. vs. CCE, Coimbatore [1999 (4) TMI 153 - CEGAT, NEW DELHI], the MS Angles, Channels, Sections etc. used for supporting structures of the machinery would be eligible for Cenvat credit. Subsequently these judgments were overruled by Larger Bench judgment of the Tribunal in case of Vandana Global Ltd. v. CCE, Raipur reported in 2010 (4)TMI 133 – CESTAT, NEW DELHI (LB),wherein it was held that MS Angles, channels, bars, plates etc. used for erecting supporting structures are not eligible for Cenvat credit either as inputs or as capital goods, as these items are neither covered by the definition of capital goods nor the same can be treated as input used for the manufacture of capital goods, as the supporting structure are capital assets fixed to the earth, not capital goods. But during period prior to 23/7/1996, to which this case pertains, the position was different and the definition of capital goods included plant also. In view of the above discussion - (a) the portion of the impugned order disallowing Modvat credit in respect of MS Angles, Channels, Sections, Bars, etc. used for supporting structures for machinery for the period prior to 16/03/1995, is set aside and the portion of the order disallowing the Modvat credit in respect of these items for the period w.e.f. 16/3/1995 is upheld; - (b) Out of Modvat credit demand of Rs. 1,02,237/- and Rs. 42,605/-, the demand of Rs. 41,775/- and Rs. 38,815/- respectively is upheld. - The appeal is, therefore, partly allowed with consequential relief
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2013 (9) TMI 315
SSI Exemption - Appellant is a manufacturer of Submersible Copper Winding Wire/Insulated Copper Wire - Undertaking manufacturing activities without Central Excise registration – Show cause Notice was issued denying the benefits of SSI Exemption - Statement recorded of the proprietor Shri Parag Patel and one Shri Bhatt. The said statements were recorded on 29th April & 18/02/2003. Also seen from the records that Shri Parag Patel and Shri Rupesh Chudgar, Proprietor, had retracted the statements given by swearing on oath on affidavit and submitted the same to the DGCEI authorities and also to the Commissioner concerned – Rejecting the affidavit , DGCEI again recorded the statements of the said persons and the statements recorded were again retracted – Appellants were forced and pressurized on in making pencil entry in statutory Sales Tax register. In bail application by proprietor of the appellant, his father had clearly indicated that DGCEI officers had put pressure during inquiry, force and threat were applied for making pencil entries in the Sales Tax Register – Held that:- Department could not conclusively establish clandestine removal based on the private records as they were retracted and needs to be supported by other independent corroborative and tangible evidence - Adjudicating authority has entered into an arena of presumption and assumption - From private records, appellants have demonstrated that there was no clandestine removal of goods from the factory and all entries were recorded. Appellant had informed lower authorities names and address of purchasers of finished goods and investigating authorities have not recorded any statements, and even if recorded are not relied upon as is evidence from allegations in show cause notice – Relying upon the judgment of Hon'ble High Court of Gujarat in the case of Vishwa Traders P. Ltd. [2013 (4) TMI 55 - GUJARAT HIGH COURT] would be very relevant as the said judgment clearly holds as to the evidential value of the retracted statements and corroborative evidence which are required - There is also no endeavour of the lower authorities to corroborate allegations of clandestine removal of goods, in as much as, there is no evidence brought on record of the transporters having transported the goods without bills - Statements were recorded by lower authorities by putting pressure and under coercion and they were made to make pencil entries on Sales Tax register – Appeal allowed – Decided in favor of Assessee.
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2013 (9) TMI 314
Maintainability of Second Notice – Extended period invoked - Whether a second show-cause notice issued by the Department for the period 4/2008 to 6/2009 for extended period on an issue was maintainable - the earlier show-cause notice dated 22-10-2008 had been issued for extended period on the same issue - Held that:- The distinction attempted to be made by the Department of the grounds of appeal were not acceptable and rejected - if the second show cause notice was for the period prior to October, 2007 to March, 2008 when the method of taking Cenvat credit was first detected by audit - For the subsequent periods Department was aware of the credit taking methodology of appellant. NIZAM SUGAR FACTORY Versus COLLECTOR OF CENTRAL EXCISE, A. P. [2006 (4) TMI 127 - SUPREME COURT OF INDIA] - once a show cause notice invoking extended period had been issued, no further show cause notice for the subsequent period invoking extended period can be issued to the assesse on the same issue. A show cause notice for the period October, 2007 to March, 2008 was first issued to the appellant on the same issue that appellant was taking credit on M.S. Channels, Angles, Beams, Jointing sheets etc. which was not considered admissible by the Department -The period of demand in the second show-cause notice is April, 2008 to June, 2009 was after the period October, 2007 to March, 2008 for which the first show cause notice was issued – Decided against revenue.
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2013 (9) TMI 313
Short Payment of Duty - Whether short-payment of duty for the month of March, 2008 would amount to “default in payment of duty - Held that:- The view taken by the Commissioner (Appeals) was correct view - Certainly non-payment in March, 2008 was a default in payment of appropriate duty for that month which attracted the provisions of Rule 8(3A) of the CER, 2002 - Consequently there was a bar on utilization of CENVAT credit for payment of duty on any excisable goods, whether final product or inputs as such, cleared from the factory in the subsequent quarter. GODREJ HERSHEY LTD. Versus COMMISSIONER OF C. EX., BHOPAL [2010 (11) TMI 263 - CESTAT, NEW DELHI ] - As far as term “default” is concerned, the same has not been defined either in the said Rules or in the Central Excise Act, 1944 - The term “default” had been defined in the Black’s Law Dictionary 6th Edition to mean “by its derivation, a failure - An omission of that which ought to be done. Specifically, the omission or failure to perform a legal or contractual duty”. Apparently, therefore, any omission or failure to comply with the obligation relating to payment of duty in the manner prescribed and within the period specified under Rule 8(1) of the said Rules would amount to default in payment of duty - It may be a short payment of duty or it may be total failure to pay the duty. As per the decision in CCE, Chandigarh v. Ralson Carbon Black Ltd. [2008 (3) TMI 567 - CESTAT, NEW DELHI - The assessee was bound to pay equivalent amount of duty from PLA, with interest thereon under Section 11AB of the Central Excise Act - Upon such payment of duty with interest, the assessee will be entitled to recredit of the amount irregularly debited in CENVAT account at the time of clearance of inputs as such in May, 2008 – Decided against Assessee.
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2013 (9) TMI 312
Duty Liability - Stitched Garments From Fabric - Job Work - Whether the appellants were liable to pay excise duty in respect of garments stitched by them from fabric bought or brought by the customers - Held that:- Tailor-made garments stitched to the measurement of one individual was also goods which can be brought and sold in the market and thus were excisable - The argument with reference to the budget speech was a very weak argument because reference to such material extraneous to the enacted law can be made only in situations where there was some doubt regarding scope of words and expressions used in the concerned enactment - it was seen the budget proposal itself got changed as normally happened during the consideration stage of the budget as evidenced by rescinding of Notification No. 12/2001-C.E. - So we do not find any reason to deviate from the earlier decision dated 2-5-2008 of the Tribunal in the matter of dutiability of the garments stitched from fabrics bought or brought by customers. Ready-made garments were also stitched according to certain measurements for different sizes and if such garments can fit many customers there was no reason why a garment made for one individual cannot fit another person - the argument that such garments cannot be sold in the market was not acceptable - For deciding marketability, what is to be considered was not whether it was actually brought to the market and sold but whether it can be brought to the market and sold – This rule does not state that for textile items job-worker was not the manufacturer - It only says that the duty was to be paid by the person supplying the material as if he was the manufacturer - the appellant had no obligation to pay excise duty on garments stitched out of fabrics bought or brought by the customers - Further if duty liability was determined as if the customer was the manufacturer he should be eligible for exemption for SSI units also. As per Rule 7AA of the Central Excise Rules, 1944 and its successor rules, the responsibility to pay duty on textile articles got manufactured on job-work basis was put on the person who gets goods manufactured on job-work basis - He had to discharge such liability “as if he was the manufacturer” - This rule does not say anywhere that the person supplying the raw material would be the manufacturer - The rule only says that such person had to discharge the liability and that in the normal course was done by the manufacturer. The matter as to who was the manufacturer when raw material was supplied by a person and manufacturing activity was done by another first arose in the context of deciding eligibility for exemption notification issued under Section 5A of the Act mentioning criteria with reference to the manufacturer. Lifting of Corporate Veil - Clubbing of Entities - Another issue made out by Revenue was that these firms did not have any separate existence and were floated just to avail the benefit of small scale exemption, in respect of garments shown to have been manufactured by these two firms – Held that:- The quantum of duty involved on account of the issue of clubbing was not coming out very clearly in the order because such demand was jumbled with a few other issues and hence it needed to be re-determined - The claim for exemption under Notification 12/2001-C.E. for the period 1-3-2001 to 30-4-2001 also needed to be examined and the consequence of such claim on the duty demanded needed to be determined - appellant had substantially paid the duty on this count and had at the investigation stage expressed their willingness to settle this matter if that was the only issue involve. K. P. POUCHES (P) LTD. Versus UNION OF INDIA [2008 (1) TMI 296 - HIGH COURT OF DELHI ] - the respondents should be given an opportunity for settling the matter by payment of the dues as envisaged in Section 11AC of the Act - the role played by each of the persons may be specifically stated and penalty determined considering the lower duty liability that would arise as per this order and the co-operation extended by the appellants by making advance payment and interest made by the main company during investigation stage – order set aside - Decided in favour of Assessee.
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2013 (9) TMI 311
Notification 5/98, Notification 5/99, Notification 6/2000, Notification 3/2001 and Notification 6/2002-C.E - Revenue enforced the bond executed at the time of provisional release of the said goods, and directed appropriation of the security deposit tendered against the same, and imposed penalty u/s11AC of the Act and under Rule 173Q of the Central Excise Rules, 1944 r.w. Rule 25 of the Central Excise Rules, 2002 - The dispute was related to the period October 1996 to December 2002 - During the period various Notifications granted exemption to cotton fabrics subjected to various processes were issued – Held that:- The allegations against the appellants, as levelled in the Show Cause Notice and confirmed by the Commissioner, to be bereft of substance - No case for clubbing the processes carried out at Bhagyalakshmi and Famous can be said to have been made out - They were evidence on record clearly independent units independently working for the grey fabric supplier on their own account - The allegation of usage of power in mercerizing and stentering was also on the basis of the material on record without substance - In any event, in view of the fact that (i) the processes carried out at Bhagyalakshmi and Famous nave been held to be independent and not liable to be clubbed, (ii) the fabric cleared by Bhagyalakshmi to Famous is admittedly not marketable, (iii) there was no demand confirmed against Famous and (iv) the processes of baling and packing cannot be regarded as amounting to “manufacture”, no case for enforcing any duty demand against Bhagyalakshmi can be said to exist. The demand, as confirmed by the Commissioner against Bhagyalakshmi, along with the penalties on Famous and Shri N.K. Gajera, were not sustainable and the Commissioner’s order does not survive. All the evidences, which were produced by the appellant before the Commissioner had not been contradicted or controverted during the course of hearing by the learned SDR - The invoice dated 16-12-2002, whereunder the motor found in the premises of Bhagyalakshmi was stated to have been purchased, as actually relating to such purchase - the Commissioner’s ground for rejecting the said invoice was only that it had not been produced during the course of investigation - In the backdrop of other evidence relied by the appellant, the said invoice appeared to have been believable and in any case no case for presuming that the appellant had, in the past, operated, apart from already existing motor of 10 HP and 3.5 HP, another 10 HP motor on the mercerizing machine, can be said to exist, especially in view of the certificate of the Gujarat Vidyut Board which, coming from a statutory governmental authority, necessarily had to be accepted, in the absence of any evidence to discredit its trustworthiness. As the usage of power in the process of stentering at Famous was concerned, as had already been noticed, even if stentering were assumed to have taken place with the aid of power, that would not make any difference, as no demand had been confirmed against Famous - That apart, the only evidence to support the allegation of usage of power in stentering was the statements of the personnel of Bhagyalakshmi and Famous which, for the reasons already stated cannot be relied upon as the sole evidence to sustain the charge levelled by the Revenue - As against this, the learned Counsel for the appellant had pointed out that the photographs taken at the time of search/visit indicated that LPG Cylinders were used in stentering process - no demand having been confirmed against Famous, this issue was not of any substantial significance. The mere fact that grey fabrics were initially procured and finally dispatched by Bhagyalakshmi, or that common account was maintained for the processes carried out at Bhagyalakshmi and Famous cannot justify clubbing the processes or arrogating duty liability on all the said processes to the final fabrics as cleared from Bhagyalakshmi after baling and packing - As regards the usage of power in the process of mercerizing carried out in Bhagyalakshmi, was woefully insufficient to sustain the case of the Revenue - The allegation of high level of electricity consumption, etc., can hardly be taken into account, as neither the Show Cause Notice nor the impugned Order-in-Original, indicated that any analysis was conducted to ascertain what the normally acceptable level of electricity consumption would be, or how the consumption by Bhagyalakshmi was disproportionate in this regard.
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2013 (9) TMI 310
Valuation - inclusion of excess amount of sales tax recovered - Duty Demand Confirmed or Not - The appellant paid 21.6% towards sales tax and collected additional amount because of adoption of cum sales tax value of the petroleum products received by them to calculate sales tax amount recoverable under heading “other charges” -Held that:- it is seen that said definition, the exclusion of duty of Excise and other taxes actually paid or actually payable, would be applicable only in the cases where the taxes collected are payable but not paid. That is not the issue in the case before me. In view of the above, reliance placed by ld. SDR on the definition of transaction value will not carry the case of Revenue any further. Relying upon M/s. Baroda Electric Meters Ltd. v. Collector of Central Excise [1997 (7) TMI 126 - SUPREME COURT OF INDIA] and M/s. Gujarat Guardian Ltd. v. CCE, Surat [2005 (4) TMI 428 - CESTAT, MUMBAI]- Excess recovery of freight or of insurance amount collected from the buyers than the amount actually incurred was not required to be added in the assessable value - Even if the appellants have recovered excess amount from buyers by calculating the Sales Tax liability on the assessable value, they were not liable to pay any amount on that ground to Revenue, as such excess recovery was on account of non-manufacturing activities and have no nexus to the price of the manufactured goods - Any amount recovered/attributable to other expenses i.e. sales tax was not includible in the transaction value and excess recovery had to be considered as profit on non-manufacturing activities. Bar of Limitation - The issue was capable of two different interpretations and if the appellant have re-calculated the Sales Tax on the total which value including the value of Sales Tax, which calculations have come on higher side - the appellant cannot be held guilty of any suppression - The issue was definitely a bona fide dispute as regards interpretation of the relevant valuation provisions - Following M/s. Padmini Products v. CCE [1989 (8) TMI 80 - SUPREME COURT OF INDIA] and COLLECTOR OF CENTRAL EXCISE Versus CHEMPHAR DRUGS & LINIMENTS [1989 (2) TMI 116 - SUPREME COURT OF INDIA] - the demand was barred by limitation - The confirmation was required to be set aside along with setting aside of confirmation of demand. Intention of the Appellant - the appellants were showing the amount which has been collected by them in form of sales tax on the Invoice. - The appellant was a Public Sector Undertaking and cannot be said to have any mala fide intention to evade duty - This stand held in the case of M/s. Hindustan Petroleum Corpn. Ltd. v. CC, Kolkata [2000 (12) TMI 191 - CEGAT, KOLKATA] was fully applicable to them - The imposition of penalty upon them in any case was not justified. Difference of Opinion - Member (Technical) was not in consonance with the Member (Judicial) Therefore he delivered the separate Judgement with his Reasoning – As majority was into the favour of Assessee the relief was granted - Decided in favour of Assessee.
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