TMI Tax Updates - e-Newsletter
September 2, 2014

Case Laws in this Newsletter:

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

Articles

1. Stipend of articled clerk of CA is not taxable as income. In view of author, stipend is ‘capital receipt’ and is scholarship for education.

   By: DEVKUMAR KOTHARI

2. Simultaneous deduction of Interest on Housing Loan u/s 24(b) and HRA exemption on rent paid. Further upon sale of said property, interest already claimed as deduction u/s 24(b) can be added to cost of property for the purpose capital gain

   By: CA Paras Dawar

News

1. Index of Eight Core Industries (Base: 2004-05=100), July, 2014

2. RBI Reference Rate for US $

3. Pradhan Mantri Jan-Dhan Yojana: No Burden on Banks Rather Makes A Reasonable Business Case for Them

4. Steps Taken by the Government Starts Showing Results: GDP Shows A Growth Rate Of 5.7 Per Cent in Q1 Of 2014-15 Over the Corresponding Quarter of the Previous Year; Headline WPI Inflation Comes Down to 5.1 Per Cent in July 2014 Among Others

Highlights / Catch Notes

Income Tax

• Assessing Officer Failed to Apply AS-7 for Income, Lacked Justification for Rejecting AS-2 by Assessee.

  Case-Laws - HC : Pre-operative expenses – Genuineness of expenses proved - AO did not follow or apply AS-7 for computing the income and has not commented why AS-2 applied by the assessee was not applicable - HC
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• Assessee Challenges Section 50C; Valuation Not Referred as Required, Case Sent Back for Review.

  Case-Laws - HC : Applicability of section 50C – even though the assessee had made an objection for invoking Section 50C(1), the AO had not referred the valuation to the Valuation Officer as per Section 50C(2) - matter remanded back - HC
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• High Court Rules on Leave Encashment Liability: Claims Must Be Supported by Evidence in Tax Matters.

  Case-Laws - HC : Ascertainment of liability towards leave encashment – Even though they may not be in a position to give the accurate details, but that does not allow the assessee to claim a figure in an arbitrary manner without there being any supportive material - HC
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• Appellant's Business Officially Established with Infrastructure Acquisition and Start of Salary Payments.

  Case-Laws - HC : Effective date for set up of business – The business of the appellant had been setup as the assessee had acquired the necessary infrastructure and had also started making payment of salary and wages - HC
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• Tribunal Misjudges Despite Accepting Lands as Agricultural u/s 2(14) of Income Tax Act; Relies on Revenue Records.

  Case-Laws - HC : Once the Tribunal has accepted that the classification of lands as per the reveue records are agricultural lands, which are evidenced by the adangal and the letter of the Tahsildar and satisfies other conditions of Section 2(14) of the Income Tax Act, the Tribunal has misdirected itself. - HC
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• Court Rules TDS Amount is Income, But Taxpayer Can't Claim TDS Credit Now Due to Cash Basis Accounting.

  Case-Laws - HC : Claiming TDS credit whereas interest income was not recognized following cash basis of accounting - TDS amount deserves to be treated as income - but tds credit cannot be claimed at this time - HC
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Customs

• Supreme Court Stresses Fair Chance for Importers to Challenge Customs Valuation Based on Non-Comparable Transactions.

  Case-Laws - SC : Valuation - enhancing value based on computer printouts - import of Cyanuric Chloride - A reasonable opportunity must be given to the appellant to demonstrate (if at all) that the transactions relied upon by the Revenue are not comparable transactions. - SC
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• EOU Imports Solenesol and Octacosanol Duty-Free; Order Issued Without Addressing Appellant's Application Deemed Unjust.

  Case-Laws - AT : 100% EOU - import of 500 Kgs of Solenesol and 20 Kgs. of Octacosanol without payment of duty - passing of the order-in-original without waiting for a decision and without taking a decision on the application made by the appellant was unfair and cannot be justified. - AT
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Corporate Law

• Supreme Court: Stop payment orders may lead to liability u/s 138 of Negotiable Instruments Act; High Court erred.

  Case-Laws - SC : Even “stop payment” instructions issued to the bank are held to make a person liable for offence punishable under Section 138 of the NI Act - On factual issue, as to whether the complainant had discharged its obligations or not, the High Court could not have given its final verdict at this stage - SC
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Service Tax

• Cenvat Credit Denied for Tower Parts and Office Items; Classified as Immovable Property, Not Capital Goods or Inputs.

  Case-Laws - HC : Cenvat Credit - tower parts, green shelter, printers and office chairs - immovable property - the items being neither capital goods not inputs not accessory of antenna, credit cannot be allowed - HC
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• Cenvat Credit Allowed for Capital Goods, Inputs in Construction of Property Used for Rental Services.

  Case-Laws - AT : Cenvat Credit - capital goods, input and input services used for making of immovable property, which is further put to renting of immovable property service - credit allowed - AT
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Central Excise

• High Court Rules in Favor of Assessee: No Over-Valuation in Excise Duty Rebate for Exported Pharmaceuticals.

  Case-Laws - HC : Recovery of excessive refund / rebate of excise duty granted earlier - export of pharmaceutical products - allegation of over-valuation of goods - Decided in favor of assessee - HC
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• Deemed Exports Count in DTA Entitlement Calculations for Central Excise; Key Interpretation for Businesses Involved.

  Case-Laws - AT : Computation of DTA entitlement - prima facie view that the clearance effected by way of deemed exports can be taken into account for computing the DTA entitlement - AT
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• Court Rules B-17 Bond Execution Doesn't Exempt EOU from Section 11A Provisions Under Central Excise Law.

  Case-Laws - AT : 100% EOU - Extended period of limitation - merely because the respondent has executed a B-17 bond they would fall outside the purview of Section 11A is illogical and irrational. One cannot interpret the law in such a way so as to make the provisions of law redundant. - AT
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VAT

• Court Rules Entry Tax Applicable on Twist Drills, Cutters, Reamers, and Taps; Clarifies "Parts and Accessories" Definition.

  Case-Laws - HC : Levy of entry tax on twist drills, cutters, reamers, taps, etc. - scope of the words “parts and accessories“ - Decided in favour of Revenue. - HC
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Case Laws:

• Income Tax

• 2014 (9) TMI 20
  Pre-operative expenses – Genuineness of expenses proved - Held that:- Assessee-company was formed on 26.10.2007 and had entered into an agreement with Wellworth Homes (P) Ltd. on 05.11.07 for purchase of land measuring 7.781 acres in Village Dharuhera, Tehsil and District Riwani, Haryana - assessee became absolute and exclusive owner of the land and licenses were granted for development of the land - For purchase of the land with licenses and approvals, expenditure was incurred and the payments had been made – AO was of the view that the project was at the initial stage - the project had taken off and commenced - The expenditure incurred is not in dispute and is not projected as bogus or fictitious in nature - the AO did not follow or apply AS-7 for computing the income and has not commented why AS-2 applied by the assessee was not applicable – the amount had to be carried forward and taken into consideration in the next year etc. - Details for assessment of the next year are not on record though opportunity was granted to Revenue to place the details – Decided against Revenue.

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• 2014 (9) TMI 19
  Deduction of unabsorbed investment allowances – Computation of deduction u/s 80HHC(1) and (3) – Adjustment to be made under the head PGBP – Held that:- The deduction u/s 80HHC(1) is to be allowed on the profits and gains as computed under the head "Profits and gains of business or profession - the deduction u/s 80HHC(3) is required to be computed after setting off of the unabsorbed investment allowance u/s 32A(3) from profits of the business – relying upon Ipca Laboratory Ltd. Versus Deputy Commissioner of Income-Tax [2004 (3) TMI 9 - SUPREME Court] - Section 80HHC would be governed by Section 80AB - deduction u/s 80HHC has to be computed out of the income of profits and gains of business in accordance with the provisions of the Act as stated u/s 80AB. The deductions under Chapter VI-A in which Section 80HHC falls, has to be computed on the gross total income from business determined after deducting all deductions allowable under sections 30 to 43D of the Act - for the purpose of computing the benefits u/s 80HHC, unabsorbed investment allowance is required to be set off while computing the income chargeable under the head "Profits and gains of business or profession” – Decided in favour of revenue.

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• 2014 (9) TMI 18
  Order of the Tribunal u/s 263 – Commission paid u/s 36(1)(ii) – Inflation of profits by booking majority expenses against trading unit for exemption u/s 80IC – Held that:- assessee was maintaining separate books of accounts for the manufacturing unit receipts and expenditure which was exempt under Section 80-IC; and the trading activities - there were certain common expenses, which were to be segregated. Common expenses were/are not unusual, abnormal or unique in such cases - when the AO had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the AO has taken one view with which the CIT may not agree. Tribunal did record and has reproduced the relevant portions of the notice u/s 143(2) wherein details of the commission paid to related parties, etc. were mentioned - it did not notice the letters/ replies dated 22nd June, 2009, 2nd July, 2009; and, 17th August, 2009, filed before the AO and has observed that the assessee was unable to furnish the details enclosed with the reply or to show that the questions in this regard were asked by the AO - the order of the Tribunal upholding the order of CIT passed u/s 263, cannot be sustained - the Tribunal has not considered the factual matrix or the various documents on record and has not examined the scope of Section 36(1)(ii), the matter is remitted back to the Tribunal for re-examination and re-hearing of appeal – Decided in favour of Assessee.

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• 2014 (9) TMI 17
  Bogus purchase - documentation for showing import - the main focus and contention of the appellant-assessee is that once invoice dated 3rd July, 1981 was accepted and no addition was made, then no addition was justified in respect of the invoice dated 3rd June, 1981. – Held that:- In respect of the consignment covered by the second invoice, no addition has been made by the AO primarily for the reason that M/s. Asia Transport Company had confirmed having sent the lorry receipt for transportation of goods along with their bill to UET- the assessee was given benefit and no addition was made in respect of this invoice - there was no evidence or material whatsoever - the statement of accounts furnished by M/s. H.M. Doyal & Co. did now show any opening balance as on 10th September, 1981 - G. Kapoor, in his statement recorded on oath under Section 131 of the Act, had stated that they were purely a trading concern and had dealings with four companies - They used to make local purchases at a petty scale - they purchased imported material for their manufacturing operations - They had procured import licences upto 1970-71 but thereafter no licences had been procured by them - Their firm had not purchased any import licence after 1970-71 up till 1982-83, but some persons had approached him for signatures, as actual user for importing goods under the licences, and he had received, commission @ 2% in cash on the goods imported, but he had never used the said goods and did not even know what goods were imported. The Assessing Officer was rather liberal in accepting the case of the appellant-assessee in respect of the invoice dated 3rd July, 1981 and this cannot be a ground or justification for not making any addition in respect of the invoice dated 3rd June, 1981. – thus, the order of the Tribunal is upheld – Decided against Assessee.

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• 2014 (9) TMI 16
  Transfer u/s 2(24) - capital gain - assessment proceedings under Section 158BC - undisclosed income of the block period - Held that:- There is a broad consensus between the advocates appearing on behalf of the respective parties that the judgment and orders passed by the tribunal be quashed and set aside and the appeals be remanded to the tribunal to decide the same together afresh in accordance with law and on its own merits – thus, the matter is remitted back to the Tribunal for fresh adjudication – Decided in favour of Assessee.

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• 2014 (9) TMI 15
  Undisclosed income u/s 158BD r.w. section 158BC - Whether the Tribunal was right in holding that additions deleted could not have been made as they do not represent the undisclosed income for the purpose of Section 158BD r.w. Section 158BC – Held that:- The assessee during the course of appellate proceedings before the Tribunal had not challenged satisfaction or rather had given up challenge to validity of proceedings u/s 158BD of the Act - whether or not the AO had rightly and validly initiated proceedings u/s 158BD would depend upon whether the AO of the person searched had recorded his satisfaction - It is nowhere stated or indicated that the assessee would be entitled to challenge initiation or validity of proceedings u/s 158BD of the Act - the block assessment proceedings were initiated by issue of notice u/s 158BD on 31st May, 1996 - after a lapse and delay of 16 years, it would not be possible for the Revenue to locate complete records, papers and file notings therein - There must have been a good and strong reason for the same – Decided in favour of revenue.

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• 2014 (9) TMI 14
  Deduction on interest on borrowed loans – interest free loan given to sister concern - Held that:- Assessee borrowed certain amounts from a financial institution and claimed the deduction of interest paid - the conclusion of the AO could have been approved or upheld, if only he was able to demonstrate that what was advanced by the respondent to its sister concern was nothing but the amount borrowed from the financial institution - It is not uncommon that even where an entrepreneur is possessed of resources to establish a business undertaking, borrowing of the amount for that very purpose may prove to be beneficial to him - once it emerges that the AO did not record any finding to the effect that the assessee has borrowed the amount on interest and straight away passed on it to the sister concerned, without levying interest, there was no way he could have disallowed the interest – Decided against revenue.

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• 2014 (9) TMI 13
  Applicability of section 50C – Adoption of valuation made by DVO - Evidentiary value of registered document – LTCG on transfer of capital asset - Held that:- Relying upon S.Muthuraja V. CIT [2013 (8) TMI 40 - MADRAS HIGH COURT] -when an objection is made by the assessee to the AO with regard to the adoption of market value u/s 50C(1) of the Income Tax Act - The provision of Section 50C(2) of the Income Tax Act gets attracted - even though the assessee had made an objection for invoking Section 50C(1), the AO had not referred the valuation to the Valuation Officer as per Section 50C(2) of the Income Tax Act - Without doing so, the AO had estimated the capital gains tax, which was confirmed by the Tribunal - mere assertion by the assessee is suffice - while upholding the reasoning of the Tribunal in so far as Section 50C of the Income Tax Act, the assessee has made out a case for consideration as claimed in terms of sub-clause (2) of Section 50C, which has not been done – thus, the order of the Tribunal is set aside - matter remanded back – Decided in favour of Assessee.

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• 2014 (9) TMI 12
  Computation of deduction u/s 80HHD - Expenditure tax, luxury tax and sales tax to be included or not – Held that:- Following the decision in CIT Vs Adyar Gate Hotels Limited [2006 (2) TMI 155 - MADRAS High Court] - expenditure tax, luxury tax and sales tax should not be included in the total business receipts for the purpose of computing of deduction u/s 80HHD – revenue could not controvert or filed any higher Court's decision on this issue to take a different view – the order of the Tribunal is upheld – Decided against Revenue.

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• 2014 (9) TMI 11
  Rejection in condonation of delay u/s 249(3) - Delay of three years two months and three days – Continuous perusal of appeal before CIT(A) as well as Tribunal on same issues for earlier assessment years - Held that:- For the AYs 2004-2005, 2005-2006 and 2006-2007, the assessee has been diligently pursuing the matter before the higher forum and has succeeded in getting a decision in its favour, holding that income from letting out of warehouses is business income - when reopening of assessment was done, the assessee had made a specific request to the AO to rectify the original assessment order in the light of the orders passed by the CIT(A) and the Tribunal treating the income from letting out of warehouses as business income for the earlier assessment years, but such request was rejected by the AO - assessee has been continuously pursuing his appeals for the earlier assessment years on the very same issue before the CIT(A) and the Tribunal - the assessee's plea is bona fide and it would constitute “sufficient cause” for not presenting the appeal within the prescribed period – thus, it is a fit case where the assessee is entitled to the benefit of Section 249(3) of the Act – relying upon Collector, Land Acquisition v. Katiji, [1987 (2) TMI 61 - SUPREME Court] – thus, the delay is condoned and the matter is remitted back to the CIT(A) for fresh consideration – Decided in favour of Assessee.

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• 2014 (9) TMI 10
  Maintainability of appeal - Tax effect below prescribed limit - Held that:- Tax effect in all the appeals is less than Rs. 2,00,000 - in view of the CBDT Circular No. 1979, Dated 27th March, 2000, and which has been given effect from 1st April, 2000, it was not open for the revenue to prefer an appeal, where the tax effect is less than Rs. 2,00,000 – the appeal cannot be admitted – Decided against Revenue.

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• 2014 (9) TMI 9
  Ascertainment of liability towards leave encashment – contingent liability - Mercantile system of accounting - application of Bharat Earth Movers Versus Commissioner of Income-Tax [2000 (8) TMI 4 - SUPREME Court] – Held that:- The assessee filed the return of income attaching the Statutory Audit report dated 29.7.1998, the note No.17 of Schedule XIV regarding accounting of gratuity and leave encashment benefits to the staff (amount not ascertained) clearly mentioned that it was on cash basis instead of accrual basis - the assessee was able to quantify the gratuity amount as at 31.3.1998 and 302.80 lakhs as on 31.3.1997 - leave encashment benefits was stated to be not ascertained - for the previous assessment year they have followed the cash system of accounting and since they have switched over to mercantile system of accounting from the accounting year 1998-99, they should have estimated the encashment benefits with reasonable certainty based on the relevant data available, which they failed to do at the first instance. Since the assessee is following mercantile system of accounting from the accounting year 1998-99, they should have determined the leave encashment amount on the basis of accepted principles of commercial practice and accountancy - Even though they may not be in a position to give the accurate details, but that does not allow the assessee to claim a figure in an arbitrary manner without there being any supportive material - in view of the vagueness in the nature of the leave encashment benefits as claimed by the assessee, the assessee is not entitled to claim deduction on the leave encashment, which was rightly rejected by the AO as well as the CIT(A) - there could be an estimation with reasonable certainty though no actual quantification is required - there is no attempt on the part of the assessee to satisfy the requirements except placing reliance on the decision - for the relevant AY, the assessee has been inconsistent that for the benefit of leave encashment deduction, they are following cash system of accounting and for the rest, they are following mercantile system of accounting – thus, the Tribunal was not justified in passing a cryptic order by just following the decision which is not applicable to the facts of the present case – Decided in favour of Revenue.

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• 2014 (9) TMI 8
  Reopening of assessment u/s 147/148 – Reason to believe – True and full disclosure of necessary facts - Held that:- The notice is issued after a period of almost nine years from the end of the relevant AY i.e. 1993-94 - the order of the Tribunal dated 25th October 2002 was dealing with appeal for block assessment i.e. 1st April 1986 to 1st August 1996 - the scope of regular assessment is to ensure that there is no undue payment of tax while block assessment is only to assess the undisclosed income - the question of rate of depreciation cannot be subject of examination in block assessment as otherwise, there would be no finality to the regular assessment already completed prior to the search. Following the decision in ITO v/s. Murlidar B. Deo [1964 (1) TMI 5 - SUPREME Court] - a 'finding', can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year - The Appellate Assistant Commissioner may hold that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year - The finding in that context is that that income does not belong to the relevant year - the Tribunal in its order was concerned with an appeal from orders passed in block Assessment and held that the ambit/ scope for assessment for the block period under Chapter XIVB is only to assess the undisclosed income for the block period and not for the total income or loss suffered in the previous year which is subject matter of regular assessment. The reasons in support of the notice do not indicate even remotely that there has been any failure on the part of the Petitioner to disclose truly and fully all material facts necessary for the assessment - all the other conditions precedent to issue of reopening notice u/s 147/148 of the Act have to be satisfied - during the assessment proceeding u/s 143(3) of the Act, the AO called for details relating to the assets available and the claim for depreciation – assessee responded to the same and was subject matter of consideration by the AO inasmuch as he disallowed the claim of 100% depreciation in respect of three items i.e. Semi Conductor, Comber Machine restricting it to 25% - the AO had applied his mind to the depreciation claimed by the Petitioner during regular assessment proceeding – thus, the notice is also not sustainable as being issued on mere change of opinion – Decided in favour of assessee.

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• 2014 (9) TMI 7
  Reassessment u/s 147/148 – Change of opinion – Reason to believe - Disallowance u/s 36(1)(viia) – Held that:- The reasons indicate are that on account of a mistake on the part of the AO the income had escaped assessment – relying upon WEL INTERTRADE PRIVATE LIMITED (FORMERLY WEL INTERTRADE LIMITED) & ANOTHER Versus INCOME TAX OFFICER, WARD 18 (3) [2008 (8) TMI 18 - HIGH COURT DELHI] - a mistake on the part of the AO is not sufficient to invoke the provisions of Section 147, particularly, in view of the first proviso thereof wherein one of the pre-conditions is that there must be failure on the part of the assessee to make a full and true disclosure of the material facts which would be necessary for making the assessment - Since there is no failure on the part of the assessee, the provisions of Section 147 could not at all have been invoked after the period of four years from the end of the assessment year - Insofar as the disallowance under Section 36(1)(viia) of the said Act is concerned, the revenue reiterated that there was a clear case of change of opinion which, in any event, was not permissible. Also in RANBAXY LABORATORIES LIMITED Versus COMMISSIONER OF INCOME TAX [2011 (6) TMI 4 - DELHI HIGH COURT] – section 147 has the effect that the AO has to assess or reassess the income which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings - It is clear that no addition has been made on account of reason (a) - It is also clear that though the specific point was taken in reason (a) and it was one of the “reasons” to believe that income had escaped assessment yet, no addition was made - The proposition that by “mistake” or through “inadvertence” the Assessing Officer did not make the addition, cannot be accepted - when an AO raises a specific issue in the assessment proceedings and yet does not make any addition in the assessment order, it should be accepted that the AO did not find any ground or reason to make the addition - the AO consciously did not make any addition after examining the entire issue. The general statement at the end of the reassessment order cannot be regarded as a finding or an addition - The AO have indicated the specific amount of short levy of interest had to return a conclusive finding resulting in an addition - The note sheet entry of 16.03.2013, cannot, by any stretch of imagination be regarded as a notice u/s 148 - Where are the “reasons to believe” that income had escaped assessment and, more importantly, that escapement was on account of the assessee’s failure to disclose truly and fully all material facts necessary for assessment - By virtue of Section 148(2) the AO is mandated to record his reasons before issuing any notice u/s 148 - in cases where the first proviso to Section 147 applies, “in addition to the AO have reason to believe that any income chargeable to tax has escaped assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee failing to make a return u/s 139, etc., or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, for that assessment year.” - This essential pre-condition is clearly missing even if we were, for the sake of argument, to assume, which cannot, that the note-sheet entry of 16.03.2013 was a notice u/s 148 as also the “reasons to believe” rolled into one. The disallowance in the reassessment order does not pertain to AY 2005-06 but to an earlier year which was not the subject-matter of reassessment - This is clearly impermissible in law - This is apart from the fact that reassessment for an earlier year was in any event time-barred and would also amount to a “change of opinion” which is also not permitted in law – thus, the reassessment order as also the proceedings pursuant to the notice u/s 148 cannot be sustained – Decided in favour of Assessee.

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• 2014 (9) TMI 6
  Effective date for set up of business – 1.4.2004 or 30.6.2004 - Approval as 100% EOU taken and operations commenced from 1.4.2004 - AO and ITAT observed that the appellant assessee had commenced its operations only from 1.6.2004, i.e. the date on which the appellant assessee entered into "service agreement" with its parent company - AO and ITAT capitalized the expenditure incurred between 1.4.2004 to 31.5.2004 - Held that:- Keeping in view the nature of business activity of the appellant-assessee, it cannot be held that training, imparting skills to employees recruited, or, testing their performance can be treated as a pre-setup expenditure - The appellant assessee had either employed or taken help of trainers/seniors for the said purpose - The moment employees were recruited and enrolled, and infrastructure to use their service was in place, setup was complete - It was indicative of the fact that business operations had been setup. The reasoning given by the Tribunal and the AO cannot be said to show that the business of the appellant-assessee had not been setup - The business of the appellant had been setup as the appellant-assessee had acquired the necessary infrastructure from their sister concern, M/s Agilis, and had also started making payment of salary and wages - This training was given by professional experts under the supervision and control of the appellant-assessee - The moment the operations were commenced, the business had been setup and the subsequent rendering of service to third parties would be at a later date when the actual services were rendered to the parent/holding company – relying upon CIT Vs. Saurashtra Cement and Chemical Industries Limited [1972 (8) TMI 19 - GUJARAT High Court]. Upon recruitment of employees, the factum that expenditure under the different heads, as noticed above, was incurred is indicative that business was set up - Training to the employees was given to ensure that when the work was undertaken and performed, there were no glitches, trouble or problems - It is not indicative of the fact that necessary infrastructure was not there and actual business could not have commenced or was not set up - Training was post set up as the employees were recruited - The training continued even when the business was in operation. It was part and parcel of the business activities as a service provider – Decided in favour of assessee.

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• 2014 (9) TMI 5
  Penalty u/s 271(1)(c) – Inaccurate particulars furnished or not – Claim of deduction u/s 10A – Held that:- As decided in assessee’s own case, it has been held that there was no material brought forward to prove that the assessee has not furnished any inaccurate particulars of income nor had it found that there was any concealment on the part of the assessee - the additions were sustained particularly in the quantum appeal by disallowing the expenditure on interpretation of the provisions of law and the part of this amount had been restored to the file of the Assessing Officer for reconsideration – the order of the Tribunal is upheld – Decided against Revenue.

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• 2014 (9) TMI 4
  Validity of notice u/s 148 – Full and True disclosure - Held that:- While the AO mentioned that income had escaped assessment because of the failure on the part of the assessee to fully and truly disclose the material facts for assessment, he has not indicated as to which material fact had not been fully and truly disclosed by the assessee - Relying upon Rural Electrification Corporation Ltd. vs. Commissioner of Income Tax [2013 (5) TMI 388 - DELHI HIGH COURT] - merely having a reason to believe that income had escaped assessment is not sufficient for reopening the assessment beyond the four year period - It is essential that the escapement of income from assessment must be occasioned by the failure on the part of the assessee to, disclose material facts, fully and truly - it has not been specifically indicated as to which material fact or facts was/were not disclosed by the petitioner in the course of its original assessment u/s 143(3) of the Act - the AO had in mind the fact that the petitioner was carrying out its activities on “job work” basis when he observed that the petitioner had failed to disclose fully and truly all material facts - even on this presumption the AO was not correct. In the Transfer Pricing Report submitted by the assessee it had been clearly indicated that it had processed raw beads to the extent of 1,03,213 Kgs into finished imitation pearls in the financial year 2004-2005 which related to the AY 2005-2006 – thus, the entire activity and particularly the nature of manufacturing/production activity carried out by the petitioner “on job work basis” was clearly revealed before the AO in the original round as well as in the round of re-assessment - the statement of the AO in support of the notice dated 23.03.2012 that there had been failure on the part of the petitioner/assessee to fully and truly disclose the material facts, is completely belied by the records of the case – thus, the notice for reopening of assessment is set aside – Decided in favour of Assessee.

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• 2014 (9) TMI 3
  Nature of land sold – Agricultural or not – Invocation of section 50C – Exemption of LTCG - Whether the lands sold by the assessees are agricultural lands and whether they are entitled to the benefit of exemption from capital gains tax – Held that:- The lands are classified as agricultural lands in the revenue records and they are dry lands - the assessees have qualified under clause 11(1) since as per the adangal records, these lands were classified as agricultural lands and the assessees have also paid revenue kist, namely, revenue payment - the Tribunal has misconstrued the judgment of the Commissioner Of Income-Tax, Gujarat-II Versus Siddharth J. Desai [1981 (9) TMI 48 - GUJARAT High Court] that all conditions should be satisfied, which is not a correct interpretation - once the Tribunal has accepted that the classification of lands as per the reveue records are agricultural lands, which are evidenced by the adangal and the letter of the Tahsildar and satisfies other conditions of Section 2(14) of the Income Tax Act, the Tribunal has misdirected itself. The plea of the Revenue that there was no agricultural operations prior to the date of sale is of no avail as the definition u/s 2(14) of the Income Tax Act has the answer to a plea raised - the lands are agricultural lands classified as dry lands, for which kist has been paid – relying upon Commissioner of Income-tax V. Raja Benoy Kumar Sahas Roy [1957 (5) TMI 6 - SUPREME Court) - There was authority for the proposition that the expression "agricultural land" mentioned in Entry 21 of List II of the Seventh Schedule to the Government of India Act, 1935, should be interpreted in its wider significance as including lands which are used or are capable of being used for raising any valuable plants or trees or for any other purpose of husbandry - the Tribunal was not justified in rejecting the exemption – Decided in favour of Assessee.

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• 2014 (9) TMI 2
  Claiming TDS credit whereas interest income was not recognized following cash basis of accounting - accrual of income – Held that:- By adopting the cash system for this component of his returns, the appellant did not pay any tax on the interest payable to him by the 1st company, on the ground that the amount has not been paid at all - The 1st company made TDS in respect of the amount payable to the appellant as interest and issued certificate - The assessee wanted to use the certificate in its entirety – assessee cannot be permitted to blow hot and cold at one and the same time - If no TDS was affected and interest was not paid, he would not have been under an obligation to show the amount of interest in his returns, much less to pay tax - once TDS is affected, he cannot be permitted to use the certificate to cover other amounts even while refusing to show the amount of interest in his returns. Since the appellant has adopted the cash system and he did not receive the interest regarding which the TDS was affected, the TDS amount deserves to be treated as income. However, the attempt made by him to treat that amount as tax for the corresponding amount, cannot be permitted – Decided partly in favour of Assessee.

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• 2014 (9) TMI 1
  Benefit of section 80-O – Claim of 50% of commission received - Assessee contended that it has entered into an agreement with certain foreign companies for providing guidance and supply of information about the activities in India, of the foreign company, by name CSTP of French origin – Held that:- The contention of revenue that the Tribunal ought to have remanded the matter, could certainly have been accepted, if only the Tribunal recorded any finding on the basis of the material, which did not form part of the record before the AO - Not a paper or a word was added to the record over and above what was there before the AO - It is an appreciation of same set of facts and record, that the Tribunal arrived at the conclusion that the claim fits into one of the categories provided for u/s 80-O of the Act - The mere fact that the same set of facts are treated as constituting the basis for a category, other than the one that was pleaded before the AO, does not bring about a situation, warranting remand, nor does it fall outside the scope of the powers of the Tribunal. Whatever may be the restriction placed upon the fora, which are conferred with restricted power of revision or the review, the jurisdiction and power of an appellate forum to arrive at the conclusions different from those arrived at by the primary authority on the same facts is, virtually unbridled - an appeal happens to be continuation of the original proceedings, unless the concerned statute restricts the powers of the appellate authority - The necessity to remand would arise, if only a new set of facts are pleaded, that too on the basis of additional material, which did not form part of the record of the original authority – thus, there was no error of law or jurisdiction on the part of the Tribunal – Decided against Revenue.

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• Customs

• 2014 (9) TMI 24
  Valuation - enhancing value based on computer printouts - import of Cyanuric Chloride - revenue allege that cost of the unit price in each one of those imports was US $ 1950/- PMT(CIF) as against the value declared by the appellants of US $ 500/- PMT - Held that:- Whether Cyanuric Chloride was imported at the relevant point of time by others in comparable transactions, i.e., is “a sale at the same commercial level and in substantially the same quantity” etc. is a matter to be considered on the examination of the material relied upon by the Revenue. A reasonable opportunity must be given to the appellant to demonstrate (if at all) that the transactions relied upon by the Revenue are not comparable transactions. In the absence of any material produced by the Revenue in proof of the alleged comparable imports at a higher value, the impugned order which eventually confirmed the original order of assessment by the Assistant Commissioner of Customs dated 31.3.2001 cannot be sustained for two reasons – (1) the mere existence of an alleged computer printout is not proof of the existence of comparable imports; (2) assuming such a printout exists and the contents thereof are true, the question still remains whether the transaction evidenced by the said computer printout are comparable to the transaction of the appellant. The appellant will have to be given reasonable opportunity to establish (if he can) that the transactions are not comparable. - Decided in favor of assessee.

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• 2014 (9) TMI 23
  100% EOU - import of 500 Kgs of Solenesol and 20 Kgs. of Octacosanol without payment of duty - Notification No.52/2003-Cus dated 31.3.2003 - Appellant did not utilized the material for 3 years nor did they clear it on payment of duty and nor they obtained extension of warehousing period in respect of these two inputs - Held that:- No doubt, the application was made much after the period was over, yet, once the application was made, a formal decision should have been taken and communicated to the assessee. We also find that even the CBEC Circular had observed that such applications for extension of warehousing period could be made even after the warehousing period is over - passing of the order-in-original without waiting for a decision and without taking a decision on the application made by the appellant was unfair and cannot be justified. Accordingly, we set aside the impugned order and remand the matter to the first adjudicating authority with a direction to consider the issue after the application made by the appellant for extension of warehousing period is decided. - Decided in favour of assessee.

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• 2014 (9) TMI 22
  Exemption from duty – Whether or not jewellery re-imported was eligible for exemption under Notification No.94/96-CUS, dated 16.12.1996 - benefit denied by Revenue on the ground that the item re-imported was different from that exported which was established in examination; and contested herein - Held that:- The crucial evidence not being reconciled by either side, that gave rise to difference between two parties. It is evident that when there was export of huge quantity of goods taking photograph thereof was impracticable - For such peculiar facts and circumstances the appeal is allowed. But saying so, no precedent is created by this order. - Decided in favour of assessee.

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• Corporate Laws

• 2014 (9) TMI 21
  Offences punishable under Section 138 and 142 of the Negotiable Instruments Act - cheque bounced - Payment stopped by drawer - failure to fulfill the obligation by the drawee - The High Court observed that “stop payment” instructions were given because the complainant had failed to discharge its obligations as per agreement by not repairing/replacing the damaged UPS system. - Held that:- The High Court fell into a grave error when it proceeded to quash the complaint. Even “stop payment” instructions issued to the bank are held to make a person liable for offence punishable under Section 138 of the NI Act in case cheque is dishonoured on that count. In Modi Cements v. Kuchil Kumar Nandi [1998 (3) TMI 632 - SUPREME COURT OF INDIA] this Court made it clear that even if a cheque is dishonoured because of “stop payment” instructions given to the bank, Section 138 of the NI Act would get attracted. Whether complainant had failed to discharge its obligations or not could not have been decided by the High Court conclusively at this stage. The High Court was dealing with a petition filed under Section 482 of the Code for quashing the complaint. On factual issue, as to whether the complainant had discharged its obligations or not, the High Court could not have given its final verdict at this stage. - Decided in favor of appellant.

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• Service Tax

• 2014 (9) TMI 38
  Cenvat Credit - capital goods or not - being tower parts, green shelter, printers and office chairs - immovable property - tower would qualify as “part” or “component” or “accessory” of the capital goods i.e. antenna or not - Held that:- It is clear that each of the component had independent functions and hence, they cannot be treated and classified as single unit. It is clear that all capital goods are not eligible for credit and only those relatable to the output services would be eligible for credit. The goods in question in any case cannot be held to be capital goods for the purpose of CENVAT credit as they are neither components, spares and accessories of goods falling under any of the chapters or headings of the Central Excise Tariff Schedule as specified in sub-clause (i) of the definition of capital goods. Hence a combined reading of sub-clause (a)(A) (i) and (iii) and sub-rule (2) indicates that only the category of goods in Rule 2(a)(A) falling under clause (i) and (iii) used for providing output services can only qualify as capital goods and none other. Admittedly the goods in question namely the tower and part thereof, the PFB and the printers do not fall within the definition of capital goods and hence the appellants cannot claim the credit of duty paid on these items. Whether inputs or not - Held that:- A plain reading of the definition of input indicates that in the present context, clause (i) of Rule 2 (k) may not be of relevance as same pertains to manufacturing activity and pertains to goods used in relation to manufacture of final product or any other purpose within the factory of production. Sub- clause (ii) has been referred to as relevant by the appellant as the same pertains to goods except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service. Tower and parts thereof are fastened and are fixed to the earth and after their erection become immovable and therefore cannot be goods. Whether tower is an accessory of antenna - held that:- It would be misconceived and absurd to accept that tower is a part of antenna. An accessory or a part of any goods would necessarily mean such accessory or part which would be utilized to make the goods a finished product or such articles which would go into the composition of another article. The towers are structures fastened to the earth on which the antennas are installed and hence cannot be considered to be an accessory or part of the antenna. The subject items are neither capital goods under Rule 2(a) nor inputs under Rule 2(k) of the Credit Rules and hence CENVAT credit of the duty paid thereon was not admissible to the appellants. - Decided against the assesssee.

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• 2014 (9) TMI 37
  Waiver of pre-deposit - tribunal dismissed the appeal for non compliance of stay order - Construction of residential complexes and commercial complexes - ownership - undue hardship - Held that:- the order of the Tribunal directing payment of pre-deposit has been duly complied with by the appellant, though belatedly. - The word undue adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant - appeals restored to the file of the Tribunal - The Tribunal shall take up the appeals in the usual course and dispose of the same on merits and in accordance with law - decided in favor of asssessee.

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• 2014 (9) TMI 36
  Condonation of delay - revenue appeal - delay of 98 days - it is evident that the issue has been taken by the appellant before the Board for its approval to file appeal and as a consequence, delay occasioned - Held that:- The facts and circumstances of the present case clearly justifies condonation of delay of 98 days, in any event, 48 days from the date the Board granted its approval, whereinafter some time is required for preparation and filing of the appeal. The Tribunal should have taken a pragmatic view and should have condoned the delay in filing the appeal on the facts and circumstances of the case, which the Tribunal failed to do. Therefore, this Court is of the considered view that the impugned order passed by the Tribunal is liable to be set aside. - delay condoned - matter restored before tribunal - decided in favor of revenue.

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• 2014 (9) TMI 35
  Cenvat Credit - capital goods, input and input services used for making of immovable property, which is further put to renting of immovable property service - Held that:- The definition of ‘inputs’ is limited to the definition of ‘input services’ as can be seen from the definitions. Credit of duty paid on inputs is available when the inputs are used for providing an ‘output service’. Therefore, there is a need to say that the inputs have been used for providing an ‘output service’. In the case of ‘input service’, the definition includes input services used by a provider of taxable service for providing an output service. Therefore the definition of input and input service are pari-materia as far as the service providers are concerned. That being the position, the decision of the Hon’ble High Court of Andhra Pradesh in the case of CCE, VISAKHAPATNAM-II Versus SAI SAHMITA STORAGES (P) LTD.[2011 (2) TMI 400 HC)] would be applicable to the present case. In that case also, the Hon’ble High Court took the view that without use of cement and TMT bars for construction of warehouse assessee could not have provided ‘storage and warehousing service’. In this case also, without utilizing the service, mall could not have been constructed and therefore the renting of immovable property would not have been possible

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• 2014 (9) TMI 34
  Waiver of pre-deposit of service tax - charge for excess baggage - transportation of goods by air service - Held that:- As the Co-ordinate bench of Bombay in the case of Kingfisher Training & Aviation Services Ltd. (2010 (9) TMI 327 - CESTAT, NEW DELHI) waived the pre-deposit of dues which were confirmed on the same ground. Respectfully, following the above decision, the pre-deposit of dues are waived and recovery of the same is stayed during the pendency of the appeals - Stay granted.

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• 2014 (9) TMI 33
  Maintenance or Repair Service - Held that:- no service tax can be levied on services, which are under the category of Management, Maintenance or Repair of roads for the period from 16.6.2005 to 26.7.2009. In view of the above, impugned order is set aside - Decided in favour of assessee.

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• Central Excise

• 2014 (9) TMI 29
  Recovery of excessive refund / rebate of excise duty granted earlier - export of pharmaceutical products - allegation of over-valuation of goods - Held that:- it is understood that the entire process of launching a new product involves huge expenditure. These hidden costs are also have to be considered for arriving at the sale price of such innovative product. Further, Dr. Reddy's vide their letter dated 17.08.2011 have undertook to submit the Bank Realisation Certificate on receipt of export proceeds. In view of these facts, the declared value is acceptable. The assessee is therefore, eligible for a rebate-under Rule 18 of the Central Excise Rules, 2002 read with Notification No.19/2004- C E (N T) dated 06.09.2004, as amended. However, as the duty is calculated and paid on the value declared in ARE.1 for arriving at transaction value the actual freight amount, Insurance, commission and local freight, if any paid are to be deducted from CIF Value. Therefore, basing on the information furnished, the duty has been re-worked put and arrived at the rebate to be given in cash. The revisionary authority discarded these prices on the ground that the price charged by the inventor cannot be a basis for comparison and that the substantially lower price charged by Sun Pharmaceuticals in India is a better comparison. It was further held that the substantial mark-up in the transaction between Dr. Reddy’s and its Jersey subsidiary implied some distortion in the transaction value. Thus, the best judgment method was used with a cost plus 10% mark up as the correct value. This reasoning is unacceptable. Under Rule 18- which contemplates return of the excise duty paid in cases of exported goods,- the market price must necessarily refer to the market where the goods are sold, - in this case, the United States market. The goods in question are neither meant for, nor did they ever enter, the Indian market. In the present case, approximately Rs. 411 crores was received in India in foreign exchange from the sale of these drugs. On this basis, excise duty was paid and later recovered. At no point did Dr. Reddy’s receive a net benefit from the transaction. If the Revenue’s argument is to be accepted, a higher price is accepted by it at the time of payment of excise duty on the basis of the price in the foreign market, but a different (and lower) price is mandated on revaluation for the purposes of refunding that very amount. Rule 18 ensures any duty paid is returned, and that excise duty is not added to the cost of exports who are selling abroad. The revenue effect in such cases is to be nil. Thus, it is unfortunate that in the present case it has resulted in two orders of revision under Section 35E(2), the two appellate orders and the common revisionary order, which have led to an appeal before the CESTAT and the present writ petition. - Decided in favor of assessee.

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• 2014 (9) TMI 28
  Computation of DTA entitlement - demand export to be considered or not - Held that:- High Court of Gujarat in the NBM Industries [2011 (9) TMI 360 - GUJARAT HIGH COURT] and Gujarat Fashion cases (2014 (2) TMI 57 - GUJARAT HIGH COURT) and the Tribunal's decision in the case of Amitex Silk Mills Pvt. Ltd. (2005 (10) TMI 128 - CESTAT, NEW DELHI), we are of the prima facie view that the clearance effected by way of deemed exports can be taken into account for computing the DTA entitlement. Thus, the appellant has made out a prima facie case for waiver of pre-deposit of the dues adjudged against them. Accordingly, we grant waiver from pre-deposit of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal - Stay granted.

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• 2014 (9) TMI 27
  CENVAT Credit - nexus with the activity of providing services under the category of "Business Auxiliary Services" and "Goods Transport Agency Service" - Held that:- Services have been provided in a residential colony which was not having any nexus with the business activity of the assessee but in this case the CENVAT Credit have been availed by the respondent for their activity of coal washing. Therefore, as per the decision of the Hon'ble High Court of Bombay in the case of Ultratech Cement Ltd.[2010 (10) TMI 13 - BOMBAY HIGH COURT], reported in wherein the Hon'ble High Court has held that any provider of output service is entitled for input service credit on the services availed by them in the course of their business activity. There is no doubt that all the services availed by the respondent for the activity of coal washing only. Therefore, I hold that the respondent is entitled for input service credit for all the service discussed here-in-above. In the circumstances, I do not find any infirmity with the impugned order and the same is upheld - Decided against Revenue.

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• 2014 (9) TMI 26
  100% EOU - Bar of limitation - Self removal procedure - Held that:- From the records it is clearly seen that the respondent had declared to the department that they would be availing the benefit of Notification 23/2003 in respect of advance DTA sales to be effected by them in terms of the permission granted by the Development Commissioner as early as in 2004 itself. Therefore, the respondent cannot be said to have withheld any information from the department. The respondent's plea that they were entitled for the benefit of exemption under Notification 23/2003 under the belief that they were entitled for benefit of such Notification cannot be said to be a mis-declaration as held by the hon'ble apex Court in Northern Plastics Ltd. vs. Collector of Customs & Central Excise [1998 (7) TMI 91 - SUPREME COURT OF INDIA]. If the department felt that the respondent was not entitled to such exemption, they should have issued the show cause notice within the period stipulated under Section 11A. Revenue's reliance on the decision of the Tribunal in the case of Endress + Hauser Flowtech (I) Pvt. Ltd. (2008 (11) TMI 159 - CESTAT, MUMBAI) does not come to their rescue for the reason that B-17 bonds are executed not only by the 100% EoUs but also units in the DTA. If Section 11A is applicable in respect of units in DTA who have executed B-17 bonds before the department, the same logic would apply in respect of 100% EoUs as well. Therefore, the argument that merely because the respondent has executed a B-17 bond they would fall outside the purview of Section 11A is illogical and irrational. One cannot interpret the law in such a way so as to make the provisions of law redundant. Decided against Revenue.

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• 2014 (9) TMI 25
  100% EOU - Concessional rate of excise duty under Notification No. 23/2003-CE dated 31.3.2003 - department sought to deny the concessional rate on the ground that MS Wire Rods has not been specified as a product in the LOP given by the Development Commissioner and, therefore, the appellant is liable to discharge the excise duty at the full tariff rate and not at the concessional rate - Held that:- There is a technical breach of the condition of the LOP by the appellant in this case, which could have been rectified by the appellant by making suitable application before the Development Commissioner which can still be done. We find merit in the appellant's contention that they had not suppressed any information in this regard and, therefore, the extended period of time could not have been invoked in the present case. In this factual scenario, deposit of duty for the normal period of limitation would suffice for hearing of the appeal which the appellant has already done. Accordingly, we grant waiver from pre-deposit of the balance of dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal - Stay granted.

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• CST, VAT & Sales Tax

• 2014 (9) TMI 32
  Benefit of exemption from payment of tax under Section 6-B of the Karnataka Sales Tax Act - levy of resale tax - Held that:- The word used in clause-(x) and the aforesaid clause(xiv) are identical. After amendment, it is called as resale tax. Earlier it was called as turnover tax. Both are leviable unless the goods falls under the proviso. If the goods falls under the proviso, the benefit of exemption was granted. Therefore, the Tribunal was not justified in denying the exemption when the earlier proviso also provided for such exemption. In that view of the matter, to that extent, the judgment of the Tribunal requires to be set aside and accordingly, it is set aside. It is held that assessee is entitled to the benefit of exemption from payment of turnover tax for the assessment years 2000-01 and 2001-02 in terms of the law which was prevailing then and is entitled to exemption from payment of resale tax for the assessment year 2002-03 as held to be entitled by the Tribunal. Assessing Authority shall grant exemption to the assessee for the assessment years 2000-01 and 2001-02 from payment of turnover tax in terms of Clause-(xiv) to the proviso to Section 6-B. For the assessment year 2002-03, the assessee is entitled to the benefit of exemption from payment of resale tax in terms of Clause-(x) of proviso to Section 6-B. After giving the aforesaid exemption, if the assessee is still liable to pay any tax, the Assessing Authority is at liberty to frame an appropriate assessment order - Decided partly in favour of assessee.

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• 2014 (9) TMI 31
  Classification of goods - Whether the Tribunal is justified in classifying 'Odonil' sold by the assessee as an item falling under entry 85 of the First Schedule as against the stand of the Department that the commodity would fall only under entry 127 of the First Schedule to the Kerala General Sales Tax Act - Held that:- Items so specifically mentioned are all relating to items which are used on the human body for beautification, grooming and having cosmetic qualities or properties. The product Odonil which is admittedly a room/cup-board freshener, cannot be brought under the description of perfumery in entry 127. Obviously, the product will not answer the description of any of the items listed in the entry; nor can it be said to be perfumery or cosmetic, more so when it is not an item used on the human body. Just as words take colour from each other, when used in conjunction; they should be understood in the common analogous sense and not in a general sense. Construing entry 127 and the words employed therein, we are unable to agree with the assessing officer; applying the rules of "ejusdem generis" and "noscitur a sociis". The contention of the State that the product would fall under the said entry hence, according to us, cannot be sustained. Liability at the rate of eight per cent under section 85 of Schedule I - Held that:- Entry 85 of Schedule I specifically refers to mosquito repellents and insect repellents. The expansive definition is not relevant, since this product is not an electric or electronic gadget. The contention of the assessee is that the vital component being para-dicholoro benzene, the composition of which in the product, is more than 99 per cent., the same is an insecticide. True, the chemical paradicholoro benzene is an insecticide under the Insecticides Act. However, a query regarding licence obtained under the Insecticides Act was answered in the negative by the assessee. Product "Odonil" has been consistently put forth as a moth repellent and the sweet fragrance is said to be an additional quality to mask the bad odour of the chemical. The wrapper of the product indicates that it is an air freshener and also a moth repellent. The predominant function is not discernible from the records. There is also no warrant for assumption that the product is only used for its repellent qualities. The assessee too has understood it as an air freshener and also a moth repellent. The fragrance provided is projected as masking the bad odour of the chemical and also for avoiding bad odour in rooms/covered space. In such circumstances, it cannot be said that the dominant use of the product is that of a moth repellent and the same would fall under entry 85 of Schedule I. In that view of the matter, we hold that the product "Odonil" is liable to tax under the residuary entry, at the rates specified for the residuary entry under the First Schedule to the Act. The exigibility under section 5(2) - Held that:- assessee is trade/brand name holder of certain products, more specifically tooth paste and tooth brush sold in the trade name "Promise" and "Meswak". The assessing officer found that the claim of second sale was not admissible by virtue of section 5(2) of the KGST Act, since the sale by the assessee would be deemed to be the first sale exigible to tax under the Act. The assessing officer, however, granted deduction for the tax paid on the purchase of the said products from the manufacturer. The assessing officer rejected the contention of the assessee that the manufacture was by another entity, by name M/s. Besta Cosmetics Limited, with which the assessee had an agreement and the said manufacturer was also granted licence to manufacture products under the trade name. Section 5(2) is also an anti-evasion measure and it contemplates the liability to be at that point of sale in the case of sale of manufactured goods other than tea, within the State, (i) made under a trademark/brand name (ii) by a trademark/brand name holder. The sale, hence, should be not only by a trademark/brand name holder, but it should also be under trade/brand name. In the instant case, the sale between the manufacturer and the assessee being between two trade/brand name holders, it cannot be said to be a sale under a trade/brand name. Section 5(2) applies with its full force in such a transaction and deems liability to be, to that sale made by the assessee. The first sale by the manufacturer to the assessee, latter of whom is also a trade/brand name holder is of course sale by a trade/brand name holder, but not a sale under trade/brand name. Hence, the second sale effected by the assessee being again a sale by a trademark/brand name holder and also a sale under trade/brand name, is liable to tax under section 5(2). We respectfully follow the Division Bench judgments cited above with the additional reasons enumerated in the above discussion. We are unable to sustain the order of the Tribunal confirming the order of the first appellate authority. Decided partly in favour of Revenue.

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• 2014 (9) TMI 30
  Levy of entry tax on twist drills, cutters, reamers, taps, etc. - scope of the words "parts and accessories" - Taxability of goods covered under entry 52 of Schedule I to the Karnataka Tax on Entry of Goods Act, 1979 - Held that:- Scope of entry 52 of the First Schedule to the Act cannot, in our understanding, be understood or explained with reference to an entry occurring in the KST Act, assuming that it is a like entry or analogous to an entry in the KST Act, but even if the argument is to be accepted to this extent, condition or further condition which occurs in an entry in another enactment to be imported into the Act is, in our considered opinion, not permitted by any principle of law. There is no denial in all these cases that the particular product with which the assessee is dealing is one which has been used in combination with other machinery part and has no use of by itself. It obviously amounts that it becomes a tool for the working of another machinery or an accessory because of the enhanced utility of another machinery or machinery with which in combination with its use enhanced or even that it can be such a tool without which the main machinery may even become disfunctional, as in the case of a drilling machine, which is not of much use without a drilling bit. In a situation of such nature, drilling machine or drilling bit or blade or any other such accessory may even assume the role of being a part of the main machinery. It is, therefore, we are of the opinion that there cannot be a generalization or an examination de hors the particular product in combination with the machinery with which makes use of the goods or product. - Order of tribunal set aside - Decided in favor of Revenue. Levy of entry tax on drill-bits which are also called as machinery tools and wear parts such as drill-bits, reamers, cutters, etc. - Held that:- The fact of the notified goods coming into local area and the purpose for which it is brought are both significant and it is a combined operation of the two, which completes the charges in respect of the specified goods. Therefore, assuming that use, application or consumption, etc., takes places not at the entry point but later cannot make any difference to the charge so long as the purpose for which the goods have been brought into the local area is for one of the three enumerated purposes such as use, consumption or sale by the dealer which manner of application of goods may occur later. - Decided in favor of revenue. Levy of entry tax on movement inside the local area, namely, fly knives and Chainin saw chains - Held that:- The limited understanding of what constituted component part or a part in the wake of a specified type of machinery may not necessarily be useful or applicable in understanding the scope of the words "parts" and "accessories" of all types of machinery. - If the arguments addressed on behalf of the assessee are to be accepted, then the levy of tax under the entry in respect of parts and accessories virtually becomes redundant or impossible. No redundancy can be attributed to the Legislature and it has to be effectuated and purposive interpretation has to be attempted in harmonizing the conflict, if any. The argument to the effect that at the entry point it was not identified as a part of the particular machinery, but it was known otherwise, etc. rejected - In the hands of the assessee-dealer, it was very well known and does become a part or component in the combination with type of machinery employed or used by the assessee - Decided in favour of Revenue.

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