Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 23, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Highlights / Catch Notes
Income Tax
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Computation of capital gain - The conversion of the Pvt. Limited Company into a Limited Liability Partnership does not have the protection of section 47(xiiib) in the assessee’s case - AT
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Rejection of deduction u/s 80IB(10) – Conditions not fulfilled – Merger of three plots - scheme for redevelopment of the slum area - putting any extra condition for discriminating the project under the scheme is outside the scope of notification under clause (a) & (b) of section 80IB(10) - AT
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Computation of capital gain - the proportionate expenditure which has been paid by the assessee to the IL&FS was assessee’s liability and directly relates to sale of shares i.e., transfer of capital asset - deduction of expenditure allowed - AT
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TDS on Passenger Service Fees - PSF charges paid by the assessee on behalf of its customers, do not attract the provisions of Section 194-I of the Act - AT
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Payments made to the banks on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act and no TDS is required to be deducted u/s 194 H - AT
Customs
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Confiscation of Transmitter Broadcasting Equipment Sub-system imported without obtaining requisite licenses - The aspect of usage/function of the equipment, imported is a pure question of fact and no substantial question of law arises - HC
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True it is that the Court must seek corroboration of purported confession from independent sources, however, the principle that when there is independent corroboration, the statement can be relied upon is thus absolute and can be accepted. - HC
Service Tax
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Extended period of limitation - suppression of facts - cleaning service - the fact of non-payment of service tax came to the knowledge of the department only once enquiries were started - demand with penalty invoking extended period of limitation confirmed - AT
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Waiver of pre-deposit - surface transport charges - Even if it is accepted that the activity in question is of cargo handling service but since it is consumed captively in or in relation to manufacture and clearance of coal, it becomes part and partial of the manufacture and sale of coal - stay granted - AT
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Classification - billing and accounting work executed by the assessee - these transactions of the respondent-assessee fall within support service of business or commerce are not liable to the charge of Service Tax for the period anterior to the incorporation of clause (104c) in Section 65 of the Finance Act, 1994 i.e., prior to 1-5-2006 - HC
Central Excise
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Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - The 7th proviso to Rule 9 of the Rules cannot be read in a manner to say that a manufacturer who declared the number of machines by filing necessary declaration and a manufacturer who misdeclared the number of machines are liable for same treatment - AT
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Classification of goods - Classification of Gopal Zarda - the product in question is chewing tobacco and classifiable under Heading 24039910 of the Tariff. - AT
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Waiver of pre deposit - Valuation - MRP value or Transaction value - in this case industrial consumers have not bought the goods from the applicant directly - applicant is required to pay duty as per Section 4A of the Central Excise Act, 1944. - AT
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Classification of Minute Maid Nimbu Fresh under Chapter sub-heading 2202 9020 or under sub-heading 22021020 - The lemon juice concentrate in the MMNF is only 1%. Which falls below the limit of 5% specified in PFA Rules. The MMNF thus squarely falls under CTH 22021020 - AT
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CENVAT Credit - Appellants are not merely undertaking the activity of cutting and slitting of coils, but they are doing the activity of putting of layer of plastic for improving drawability of material, and applying inter-leaving paper for protection of the material so as to be fit for end use application - credit allowed - AT
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Delayed payment of duty - Utilization of CENVAT Credit - the adjudicating authority has committed an error by holding that the payment made through Cenvat Credit account during the default period is sufficient which is not what the law mandates. - AT
Case Laws:
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Income Tax
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2014 (9) TMI 656
Computation of capital gain - Claim of exemption u/s 47(xiib) – Private Limited Company namely Aravali Polymers Pvt. Ltd. was converted into a Limited Liability Partnership under section 56 of the Companies Act - advancing of loans to the partners - tantamount to distribution and/or payment to the partners - Held that:- The Company does not exist after conversion - the question of a violation of Proviso (c) to Section 47(xiiib) does not exist - Coming to the proviso (f) to section 47(xiiib), it bars payment either directly or indirectly to any partner out of the accumulated profit standing in the accounts of the Company on the date of conversion for a period of three years from the date of conversion - Here the assessee-firm gave loans to its partners - This loan, more so a part of the loan, has been paid out of the Reserves and Surplus of the erstwhile Company which, in fact, represents the accumulated profit standing in the accounts of the erstwhile Company - the loan has been paid, it is an interest - free loan coupled with the fact that the loan has been given to its partners in the same ratio as profit sharing shows that the amount has been given directly to the partners out of the balance of the accumulated profits standing in the accounts of the Company on the date of conversion - there is a violation of proviso (f) to section 47(xiiib). Proviso (f) of section 47(xiiib) having been violated the benefit of the provisions of section 47, which deems certain transactions to be not regarded as transfer stands violated. The conversion of the Pvt. Limited Company into a Limited Liability Partnership does not have the protection of section 47(xiiib) in the assessee’s case - the capital gain on the same is liable to be considered - In the computation of capital gains, nowhere in the Act is there provision, more so in section 45, for deeming the sale price in the case of equity shares - The value at which the shares or the assets of the Company Aravali Polymers Pvt. Ltd. was taken over by the Limited Liability Partnership firm, would be the sale price and the cost of acquisition thereof is to be as per books of the erstwhile Company - the issue of computation of the capital gains u/s 45 is restored to the file of the AO - the assessee has not complied with the proviso to section 47(xiiib) - Consequently the benefit of section 47(xiiib) is not available to the assessee - as the assessee did not have the benefit of section 47(xiiib), the provision of section 47A(4) does not apply - The capital gains in respect of the transfer of the assets in the hands of M/s. Aravali Polymers Pvt. Ltd. to the appellant firm Aravali Polymers LLP is to be computed under section 45 of the Income Tax Act for which purpose, the issue is restored to the file of the Assessing Officer – Decided partly in favour of assessee.
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2014 (9) TMI 655
Unexplained investment u/s 69 – Construction of guest house – Held that:- The AO did not reject the books of accounts of the assessee prior to directing the inspector to visit the guest house premises and to make estimate of construction - no books of accounts have been rejected prior to making reference to the DVO to estimate the cost of construction - the whole basis for making the addition was unjustified – Following the decision in Sargam Cinema Versus. Commissioner of Income-tax [2009 (10) TMI 569 - Supreme Court of India] - the Income-tax Inspector is not a technical person to make estimate of cost of construction - He has not given any basis as to how his report was worth reliance and no evidence has been brought on record as to whether the construction was raised in the AY under appeal 2009- 10 - The AO was also not justified in observing that the construction was started in the earlier two financial years to the assessment year under appeal because when the map was sanctioned by the Municipal Authorities on 24.06.2008, there was no question of raising any construction prior to it. There is no substantial difference between the value of construction estimated by the DVO and that reported by the assessee - CIT(A) was justified in holding that no construction was raised in the year and that the record would also reveal that only part of the land was purchased in the year which have been duly shown in the books of account of the assessee – the order of the CIT(A) is upheld – Decided against revenue. Discount allowed to the patients – Held that:- CIT(A) failed to take note of the finding of the AO on this issue - The AO has specifically noted in the assessment order that though the receipts of the assessee are increasing and expenses are also increasing, but the net profit ratio is going down in the year - the net profit ratio of the assessee was found at 29.90% as against net profit rate disclosed in the preceding AY 34.85% and 32.83% - The AO specifically noted that the assessee has earned income during the year and has given discount - It would mean that substantial income is returned back to the patients on account of rebate and discount, which is highly improbable - net profit ratio of the assessee is decreasing would strengthen the finding of the AO that the assessee has adjusted the profit / income in this year and the accounts are not verifiable on this issue - CIT(A) was not justified in deleting the addition – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO – Decided in favour of revenue. Consultancy and dispensary charges – Held that:- CIT(A) without any justification should not have deleted the addition - The AO has also noted that the net profit rate of assessee is decreasing - The AO has given specific finding against the assessee that the patient register and visiting register is not disclosing true picture because of the repetition of the same names were found regularly and different names were not found in whole of the year - The finding of the AO that names are repeated during whole of the year is not rebutted by the assessee through any material on record because it is difficult to believe that in this type of business run by the assessee, the same patients would come regularly for whole of the year - No new persons have been mentioned in the patient register and as such, the AO was justified in estimating the income under this head particularly when the profit rate is decreasing and no plausible explanation has been given to the AO – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO – Decided in favour of revenue.
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2014 (9) TMI 654
Addition of bogus purchase – Held that:- The AO observed that inquiry was conducted by the department in case of M/s. Prakash Marbles Engineering Company, Dabhoi Road, Baroda for A.Y. 2002-03 - bogus purchase by way of accommodation bills for purchase of material without, in actually, any material being purchased, were procured from Shri Jabbarsingh Chauhan, Proprietor of M/s. Girnar Sales Corporation and Shri Navin Raval, Proprietor of M/s. Shiv Metal Corporation - During the course of inquiry, it was also found by the AO that apart from issuing bogus bills to M/s. Prakash Marbles Engineering Co, the parties through their fictitious concerns had issued such bogus bills to various parties in the market and one of them being General Mechanical Works, who had sought these accommodations bogus bills from Shri Navin Raval, claimed to be the proprietor of fictitious firm, M/s. Girnar Sales Corporation during the accounting period relevant to the AY 2002-03. These are the bogus purchases to the extent of ₹ 14,32,750 – relying upon ITO vs. Shri Gumanmal Misrimal [2011 (1) TMI 1284 - ITAT AHMEDABAD] - assessee had not proved the purchase genuine - The supplier had already given affidavits that they have given bogus bills to the assessee - Therefore, burden is heavily on the assessee to prove that these transactions are genuine, which has not been discharged by it - the net profit @ 30% on bogus purchase is reasonable - The A.O. is directed to calculate 30% net profit on bogus purchase and compute the income – Decided partly in favour of assessee.
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2014 (9) TMI 653
Rejection of deduction u/s 80IB(10) – Conditions not fulfilled – Merger of three plots - scheme for redevelopment of the slum area - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee carried out development on three different plots; each of those plots was less than one acre - These plots were not contiguous to each other - Though the plots were located at Dharavi, Mumbai, they were at different places - there were other slums in between these three slum area 'which was rehabilitated by the assessee - the development cannot be said to be done by the assessee in plot of land of one acre and above - the issue of merger of three plots for the purpose of area of plot being 1 acre has been decided against the assessee consistently by this Tribunal – relying upon CIT v. Brahma Associates [2011 (2) TMI 373 - BOMBAY HIGH COURT] - the requirement under the proviso to section 80IB(10) (a) & (b) for exclusion of the conditions prescribed under the clauses is that the housing project is carried out in accordance with the scheme for reconstruction or redevelopment of slum area - the intent of legislation is to exempt the condition of minimum of 1 acre plot size in the case where the housing project is carried out in accordance with the slum reconstruction scheme framed by the Central Government or State Government and such scheme is notified by the board. The projects are carried out in accordance with the scheme for redevelopment of the slum area as framed by the State Government of Maharashtra and the same has been notified by the board vide notification dated 5th January 2011 - once the scheme is notified all projects carried out in accordance with such scheme are entitled for the benefit of the proviso whereby the conditions prescribed under clause (a) & (b) are relaxed - the second part of the notification is inconsistent/contrary to the proviso of clause (a) & (b) of section 80IB(10) as well as to the intent of the legislature inserting the said proviso - The Board cannot insert a new condition in the provisions of a statute which is repugnant to the provisions itself as well as against the very object and scheme of the said provision of the statute - the proviso to clause (a) & (b) of section 80IB(10) mandates the notification of scheme and not the project under the scheme - Therefore, putting any extra condition for discriminating the project under the scheme is outside the scope of notification under clause (a) & (b) of section 80IB(10) - the assessee is entitled for benefit of the proviso to clause (a) & (b) of section 80IB(10) and, therefore, is eligible for deduction u/s 80IB(10) if the other conditions as prescribed under clause (c) to (e) are satisfied – Decided in favour of assessee.
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2014 (9) TMI 652
Penalty u/s 271(1)(c) deleted – Inaccurate particulars furnished for bogus purchase expenses – Held that:- Penalty u/s 271(1)(c) levied by the AO was deleted by the CIT(A) – relying upon Commissioner of Income Tax – I Versus Prakash S. Vyas [2014 (7) TMI 89 - GUJARAT HIGH COURT] where the Hon’ble High Court has admitted appeal against disallowance finding a substantial question of law involved in the matter, the claim of the assessee for deduction cannot be treated as mala fide or frivolous so as to make him liable for penalty u/s 271(1)(c) of the Act - mere admission of an appeal by the High Court cannot without there being anything further, be an indication that the issue is debatable one so as to delete the penalty u/s 271(1)(c) of the Act even if there are independent grounds and reasons to believe that the assessee's case would fall under the mischief envisaged in the said Clause (c) of Sub-Section (1) of Section 271 of the Act - unless there is any indication in the order of admission passed by the HC simply because the Tax Appeal is admitted, would give rise to the presumption that the issue is debatable and that therefore, penalty should be deleted - the order of the CIT(A) deleting the penalty only on the ground that substantial question of law has been framed by the Hon’ble High Court in the quantum appeal is not sustainable - the assessee challenged the levy of penalty on other grounds also and it was not decided by the CIT(A) – thus, the issue of levy of penalty u/s 271(1)(c) is remitted back to the CIT(A) – Decided in favour of revenue.
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2014 (9) TMI 651
Computation of capital gain - Clim of deduction of expenditure from sale / Transfer of shares offloaded in public issue u/s 48(1) – Held that:- Disallowance of the claim of expenditure in computation of capital gain which was on account of expenditure incurred in connection with the transfer of capital asset resulting into long term capital gain - the computation of the income as well as the expenditure were submitted before the AO at the time of original assessment proceedings - While completing the assessment under section 143(3), the AO has not made any computation in the assessment order - in the proceedings u/s 154, he has accepted the computation as shown by the assessee - the assessee had offered sale of shares to the public which was part of the entire lot of shares offered to the public - The IL&FS has incurred the expenditure for the said IPO i.e., the public offer for the entire shares including that of the assessee - the proportionate expenditure which has been paid by the assessee to the IL&FS was assessee’s liability and directly relates to sale of shares i.e., transfer of capital asset - the finding recorded by the CIT(A) after verifying the entire records is factually and legally correct and there is no reason to deviate from findings - allowing the claim of deduction of an expenditure u/s 48 by the CIT(A) in the computation of long term capital gain is upheld. Rate of taxability of LTCG on shares allotted – 10% or 20% - Held that:- The long term capital gain was in respect of listed securities and, therefore, the rate of tax should be 10% and not 20% as per section 112 because for a public issue, the shares have to be listed at the stock exchange and then only they are allotted to the public in the ratio approved by the stock exchange - It is after listing the public receives the shares and is also entitled to sell the shares in the stock exchange – the order of the CIT(A) is upheld – Decided against revenue.
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2014 (9) TMI 650
Non-deduction of TDS on commission paid to banks on credit cards – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held in Income Tax Officer-(TDS) -2(1) Versus M/s Jet Airways (India) Ltd. [2013 (8) TMI 586 - ITAT MUMBAI] - the provisions of section 194H of the Act are not applicable as the banks make payments to the assessee after deducting certain fees as per the terms and conditions in the credit card and it is not a commission but a fee deducted by the banks - there is no relation between the bank and the shop keeper which establishes the relationship of a Principal and Commission Agent - provisions of section 194H are not attracted in this type of transaction - addition made and confirmed by CIT (A) was not justified - the payments made to the banks on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act and no TDS is required to be deducted u/s 194 H of the Act – Decided against revenue. Short deduction of TDS on Passenger Service Fees – Order u/s 201(1) and 201(1A) – Held that:- It is a statutory liability for every licensee to collect PSF - Since it is a statutory liability and the meaning given by the statute has to be considered and in this case the Indian Aircraft Rules, 1937 has used the term "Fees", therefore, same meaning has to be given while considering the PSF - the assessee is only acting as a conduit between the embarking passengers and the Central Government agency - the assessee only collects the PSF from the passengers for and on behalf of the airport authority/operator and passes the same to the airport authority/operator - The CBDT, thus, clarified that the customer is also not given any right to use any demarcated space/place or the machinery of the cold storage and thus does not become a tenant - the provisions of 194-I is not applicable to the cooling charges paid by the customers of the cold storage - the PSF charges paid by the assessee on behalf of its customers, do not attract the provisions of Section 194-I of the Act - the order of the CIT(A) is upheld – Decided against revenue.
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Customs
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2014 (9) TMI 679
Confiscation of Transmitter Broadcasting Equipment Sub-system (Data Processing Unit with transmitting capabilities for broadcasting), software and other standard accessories - not obtaining licence from the DGFT and WPC (Ministry of Telecommunication and Information Technology) - tribunal decided in favor of assessee - Held that:- the equipment is meant for one to one communication between the field and the studio with the help of GSM cellular network. It is at the studio that the signals are processed for the broadcast to the audience at large. In other words, the usage of the equipment is for transmitting the audio-video signals till the studio and not beyond that would necessarily suggest, the broadcasting from the studio to the public at large is done by a separate set of equipment available at the studio. The aspect of usage/function of the equipment, imported is a pure question of fact and no substantial question of law arises for the consideration of this Court in this appeal. - order of tribunal sustained - Decided against the revenue.
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2014 (9) TMI 678
Smuggling of cars of foreign origin - misuse of facility provided under Transfer of Residence Rules - corroborative statement - Held that:- True it is that the Court must seek corroboration of purported confession from independent sources, however, the principle that when there is independent corroboration, the statement can be relied upon is thus absolute and can be accepted. Precisely this is the course adopted by the Adjudicating Authority and the Tribunal in rejecting the version of the present appellant. The attempt is to have re-appreciation and reappraisal of the material before the Tribunal. The Tribunal had once remanded the case and on remand the Adjudication Authority imposed the penalty which exercise has been upheld by the impugned order. - the appeal does not raise any substantial question of law. - Decided against the assessee.
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Service Tax
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2014 (9) TMI 677
Extended period of limitation - suppression of facts - cleaning service - Held that:- After enquiry made by the department, it came out that the appellants were neither registered with the service tax department nor they have discharged service tax payable on the cleaning service. The Commissioner (Appeals) in para 7 of his order has clearly brought out suppression because they have never informed the department about taxable service. - the fact of non-payment of service tax came to the knowledge of the department only once enquiries were started. - Decided against the assessee. As regards the argument that after the facts of non-payment of services came into the knowledge of the department, any show cause notice served beyond the stipulated period of one year is time barred, it is observed that acquiring knowledge by the Department does not take away the period of five years provided by the Law Makers in the Act itself when Department came to know of the willful suppression with intention to evade payment of duty/service tax. - Demand confirmed - Decided against the assessee.
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2014 (9) TMI 676
Waiver of pre-deposit - Cargo Handling Services - surface transport charges - Appellant contended that, they are engaged in mining of coal and the mined coal is sold on principle to principle basis to various customers, hence they are not a cargo handling agency as such no cargo handling service exists. - they contented that, surface transport charge though shown separately but it is part of the sale value of the coal. - Held that:- Even if it is accepted that the activity in question is of cargo handling service but since it is consumed captively in or in relation to manufacture and clearance of coal, it becomes part and partial of the manufacture and sale of coal. Tthe surface transportation charges, on which service tax demanded, has been shown in the invoices as part of the sale value of the coal and on the value including the surface transportation charges, the applicant has discharged the central excise duty as well as sales tax. This clearly establishes that the value including the surface transportation charges is the sale value of coal. It is now settled law by the Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd's case [2006 (3) TMI 1 - Supreme court] that in respect of sale of goods no service tax is leviable. - prima facie strong case is in favor of assessee - stay granted.
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2014 (9) TMI 675
Validity of show cause issued beyond limitation period - Non issuance of Show Cause treating the interim order of the High Court as stay - Held that:- there was no stay of any proceedings for recovery of tax in accordance with law. - The appellant (Revenue) appears to have misunderstood the interim orders of this Court and did not take any action by way of issuing a show cause notice to the assessee for recovery of service tax. It is only after the aforesaid writ petition was disposed of that the appellant issued a show cause notice to the assessee on 19-10-2005 seeking to recover Service Tax. The interim order passed by this Court did not stay service of notice, but only prevented the appellant from recovering tax, which was assessed ex parte and also required the assessee not to file the returns. - revenue's appeal dismissed - Decided against the revenue.
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2014 (9) TMI 674
Restoration of appeal - tribunal dismissed the appeal for non-compliance of order of pre-deposit of 50% amount - Held that:- the condition of pre-deposit of 50% of the Service Tax as directed by the Tribunal stands complied with though belatedly. Keeping in view the totality of facts and circumstances, the delay in deposit of the amount is condoned. - Appeal restored before tribunal.
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2014 (9) TMI 673
Cenvat Credit - GTA - input services - tribunal allowed the credit on outward transportation - Held that:- The Tribunal also relied on observations of the Supreme Court in All India Federation of Tax Practitioners v. Union of India - [2007 (8) TMI 1 - Supreme Court]. The Supreme Court observed that Service Tax and Excise duty are consumption taxes to be borne by the consumer and therefore if credit is denied on transportation service the levy of service tax on transportation will become a tax on business rather than being a consumption tax. The Tribunal observed that the submission of the Revenue that the CENVAT credit cannot be allowed for service if the value thereof does not form part of the value subjected to excise duty runs counter to the fundamental concept of Service Tax laid down in All India Federation of Tax Practitioners’ case. We concur with this analysis. - Credit allowed - Decided against the revenue.
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2014 (9) TMI 672
Classification - billing and accounting work executed by the assessee - Business Auxiliary Services (BAS) or Support Service of Business or Commerce (SSBC) - Held that:- Section 65(104c) of the Finance Act, 1994 defines “Support Service of business or commerce” to mean services provided in relation to business or commerce including inter alia accounting and processing of transactions, infrastructural support services and other transaction processing. In view of the definition of the expression ‘Support Service of business or commerce’ under Section 65(104c) of the Act, we are satisfied that the interpretation of the provision and application of the said provision to the transactions of the respondent-assessee is a fair view of the provision and calls for no interference. Section 65(104c) of the Act has been brought within the Service Tax net as “Support Service of business or commerce”, by the Finance Act, 2006 with effect from 1-5-2006. The transaction in question relates to the period 1-7-2003 to 30-9-2006. In the circumstances the Tribunal has rightly held that these transactions of the respondent-assessee, since they fall within support service of business or commerce are not liable to the charge of Service Tax for the period anterior to the incorporation of clause (104c) in Section 65 of the Finance Act, 1994 i.e., prior to 1-5-2006. - Decided in favor of assessee.
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2014 (9) TMI 671
Supreme Court has dismissed the appeal against the order of High Court [2011 (1) TMI 790 - KARNATAKA HIGH COURT] wherein, it was held that, the liability to pay service tax by the recipient of service is only from 18-4-2006 - In view of the Circular/Instruction F. No. 275/7/2010-CX8A, dated 30-6-2011, nothing remains in these petitions for our consideration. Dismissed accordingly
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2014 (9) TMI 670
Supreme Court has admitted an appeal against the decision of tribunal [2009 (9) TMI 342 - CESTAT, BANGALORE] wherein it was held that, the decision of the commissioner to collect service tax on the value on which the assessee had already paid State Vat was contrary to the principal of fiscal federalism adopted in the constitution. Thus the demand is not sustainable.
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Central Excise
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2014 (9) TMI 666
Waiver of pre deposit - Whether the Hon'ble CESTAT erred in granting waiver of pre-deposit of assessed demand in favour of the respondents during pendency of the appeal thereby extending the period of stay beyond 365 days ignoring the recent amendment to section 35-C of the Central Excise Act, 1944, made through enactment of Finance Bill, 2013 - Held that:- Tribunal has noted that a waiver of pre-deposit and unconditional stay on the realisation of the adjudicated liability was granted by the Tribunal since a prima facie case was found in favour of the assessee. The Tribunal has also observed that the appeal has not been disposed of only on account of the pendency of several older appeals and not on account of any delay on the part of the assessee - the ends of justice would be met if the Tribunal is requested to dispose of the appeal expeditiously and preferably within a period of six months. The waiver of pre-deposit will continue to remain valid for a period of six months - Decided partly in favour of Revenue.
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2014 (9) TMI 665
Interpretation of proviso 7 of the Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Monthly payment of duty - Whether the duty demand is sustainable as per the provisions of 7th proviso to Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 inasmuch as, the said rule provides for demand of duty on the basis of higher of the number of operating machines installed when the duty was last paid and the number of machines found installed when the default in duty payment was made goods and such higher number of machines should be deemed to have been installed as per the said proviso - Difference of opinion - majority order - Held that:- if the contention of the Revenue is accepted then a person who had not filed a declaration regarding number of packing machines as required under Rule 6 of the Rules and the Revenue found that the manufacturer is using higher number of packing machines then declared and a manufacturer who declared the exact number of packing machines intended to be used by filing declaration under Rule 6 of the Rules are to be treated on the same footing. A manufacturer who was found to be declared less than the number of machines and a person who filed a declaration regarding the number of packing machines to be used cannot be treated on the same footing. The 7th proviso to Rule 9 of the Rules cannot be read in a manner to say that a manufacturer who declared the number of machines by filing necessary declaration and a manufacturer who misdeclared the number of machines are liable for same treatment. Appellant filed declaration in April 2011 regarding change of number of packing machines and the declaration was accepted by the proper officer and fixed the monthly liability. There is no evidence on record to show that prior to filing declaration in April 2011 appellants were manufacturing goods with higher number of machines than declared. As there is no misdeclaration found by Revenue on the part of the appellant regarding number of machines used for manufacture of Pan Masala, I agree with the view taken by learned Member (Judicial) holding that the demand by invoking the proviso 7 to Rule 9 of Rules is not sustainable. The appellants are liable to pay duty with interest as per the proviso 2 to Rule 9 of Rules - Decided in favour of assessee.
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2014 (9) TMI 664
Classification of goods - Classification of Gopal Zarda - classifiable under T.H. 24039910 or under T.H. 24039930 - Difference of opinion - Majority order - Held that:- The appellant is claiming the classification of the product under Tariff Heading 24039910 whereas the Revenue is classifying the same under Heading 24039930 of the Tariff. prior to 28.2.2005 the appellants were clearing the product under Heading 2404.41 of the Tariff which covers chewing tobacco and preparations containing chewing tobacco. There is no dispute in this regard. As the Central Excise Tariff is migrated from six digit to eight digit classification from 28.2.2005 the appellants continued to clearing the goods under Heading 24039910 chewing tobacco. The products classifiable under Heading 24039910 are notified under Notification No. 2/2006-CE(NT) dated 1.3.2006 to discharge duty as per the provisions of Section 4A of the Central Excise Act, on MRP basis. The appellant continued to discharge duty as per the provisions of the Notification. The pouches of the product produced by the appellant show that the product is described as under: ‘GOPAL 100 ZARDA Deluxe flavoured chewing tobacco’. The instructions on the pouches are that the product is to be chewed and not to swallow but to spit. - the product in question is chewing tobacco and classifiable under Heading 24039910 of the Tariff. Further the Notification No. 2/2006-CE (NT) dated 1.3.2006 is further amended by Notification No. 16/2006-CE(NT) dated 11.7.2006 whereby the chewing scented tobacco classifiable under Heading 24039910 also notified as assessable under Section 4A of the Central Excise Act, 1944. Prior to the period in dispute 1.3.2006 to 10.7.006 the appellants were clearing the product as flavoured chewing tobacco and thereafter also clearing the same by classifying the product under Heading 24039910 of the Tariff and the product in question is marketed as Chewing Tobacco - Decided in favour of assessee.
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2014 (9) TMI 663
Wrongful availment of CENVAT Credit - Duty paid utilizing credit - Revenue contend that duty should have been paid consignment wise without utilization CENVAT Credit - Held that:- period of default exceeded 30 days from the due date only in respect of May’10, June’10, July’10, Aug.’10 & Sept.’10 and it is in respect of the default periods beyond 30 days from the due date that the provision of Rule 8(3A) would be attracted. There is, however, no dispute that duty for these months has been paid through PLA along with interest for the period of delay. Oce the defaulted amount of duty is paid with interest, the duty payment made through Cenvat Credit during forfeiture period become good payment, even if it is paid before the date on which the default amount has been paid and it is not necessary to ask the assessee to pay the same duty in cash and take re-credit of the equivalent amount debited in the Cenvat Credit Account earlier. Requirement of Rule 8(3A) operates notwithstanding anything contained in sub-rule (1) and sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2004 and when the failure to discharge duty liability for a particular month continues beyond a period of 30 days from the due date, during that period, in accordance with the provisions of Rule 8(3A), duty on the goods cleared would be required to be paid consignment-wise and without utilizing the Cenvat Credit. For the period of default in discharge of monthly duty liability beyond 30 days from the due date, duty on clearances made during the forfeiture period, would be required to be paid through PLA and if the duty had been paid through Cenvat Credit, the same would be required to be paid through PLA by permitting the re-credit of the amount debited in Cenvat Credit amount. Moreover, from the language of Rule 8(3A), it is clear that it is a non obstante provision which operates notwithstanding anything contained in sub-rule (1) & sub-rule (4) of Rule 3 of the Cenvat Credit Rules, 2004 and hence provisions of this sub-rule will have overriding effect over the provisions of the Cenvat Credit Rules, 2004. The total duty paid through Cenvat Credit during the forfeiture period to which the provision of Rule 8(3A) would apply, appears to be much less than ₹ 13,39,225/-, as in respect of in the months of April’10, Oct.’10 and Nov.’10, the period of delay in discharge of duty liability was within 30 days from the due date. In view of this, I direct the appellant to pay an amount of ₹ 6 Lakh through PLA in addition to payment of ₹ 5,000/- towards the penalty for compliance with the provision of Section 35F. No interest on the amount of ₹ 6 lakh is payable. Once the amount of duty of ₹ 6 Lakh is paid through PLA, the appellant would be eligible for re-credit of the equivalent amount in the Cenvat Credit which had earlier been debited by them. Decided partly in favour of assessee.
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2014 (9) TMI 662
Clandestine manufacture and removal of excisable goods - Imposition of penalty - Held that:- claim of the appellant that TMT bars were not manufactured by them but was part of the trading activity of A.K. Agarwal firm and this assertion was made because the department had found the details in the computer showing sale of TMT bars. It was stated that the computer belonged to A.K. Agarwal firm and was kept in the factory since the M.D and the owner happened to be same and it was also stated that TMT bars was only a part of the trading activity. In fact it appears to be a fact the claim of the appellant that TMT bars were traded itself is wrong and in fact even the invoices in the name of A.K. Agarwal firm did not show any transaction of TMT bars. Only paper transactions or paper records have been created. This is the prima facie conclusion that can be drawn based on the records at this stage. Needless to say this is a very complicated case but fact remains that as regards TMT bars it was the claim of the appellant that this was a trading activity of the firm. The situation is nobody can understand what exactly happened. At this stage therefore the only option that would be available is to rely upon the paper records which are recovered which show that there was a trading of TMT bars which was kept in the administrative office and appellants themselves have claimed that it was a trading activity of the firm and that the firm was trading in TMT bars which has been found to be totally false. The appellant is engaged in the manufacture of TMT bars and therefore when they accepted it was a trading activity of the firm and the firm was owned by the M.D. and firm was not undertaking such activity, the obvious conclusion that would emerge is that the first appellant has manufactured TMT bars and has to account for the same. Therefore we find that appellant has not been able to make out a prima facie case in respect of 3.21 crores. Even if the appeal has to be remanded it cannot be remanded without considering the balance of convenience and justice to the public at large and the Government. In our opinion, having retained the money for more than 5 years, the appellant should deposit at least amount which we have found prima facie payable with a small portion of the interest that is payable if the matter is remanded. Normally the matter should be remanded after noting compliance but to avoid further lapse of time, we consider that it would serve the interest of justice and public interest if the matter is sent back at this stage itself. Therefore the appellant is directed to deposit an amount of ₹ 5 crores - subject to the order of pre-deposit matter remanded back.
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2014 (9) TMI 661
Waiver of pre deposit - Valuation - MRP value or Transaction value - whether the tem-adhesive cleared by the applicant packages containing 5 to 25 Itrs. is required to be chargeable to duty as per Section 4A of the said Act - Held that:- classification is not disputed as the goods have been classified under Central Excise Tariff heading No. 3506 91 90. The said Chapter is notified to affix MRP. Therefore, it is to be seen that whether the applicant is entitled for exemption as per Rule 2A of the Weights & Measures (PC) Rules, 1977 or not. In this case learned Technical Member has relied upon the statement of Shri O.P. Agarwal, Vice-President, Plant dated 28-8-2011 wherein there is an admission on this point that basic and only use of the product tem adhesive is for retreading of tyre. The noticee in their statement submitted that tem adhesives are capable of being used in house but no evidence has been placed on record. Therefore, looking into the nature of the product, it is clear that tem adhesive is consumed by Industrial consumers and provisions of Section 4A are not applicable in unit containers as per Rule 2A(ii) Explanation. Plain reading of the explanation to Rule 2A of the said rules clearly shows that if goods are sold to institutional/industrial consumers directly by the manufacturer, the said rule will not apply. In Para 70 of the impugned order, the learned Commissioner has recorded the findings that since noticee’s product tem adhesive is not directly sold to the retailer, but these are sold through dealers and distributors that too some distributors have their own tyre retreading nature. When these facts were on record, it is proved that the applicant has not sold these goods directly to the industrial/institutional consumers, therefore, the applicant cannot avail exemption from affixing MRP on their finished product. To all other institutional or industrial consumers of prepared commodity sold as retail package that chapter would apply. Explanation of industrial or institutional consumer in Rule 2A must also be read only to the provisions to Rule 2(p) for the purpose of Chapter 2. Therefore, the only purchaser of packaged commodities who are institutional or industrial consumer and buy the goods directly from the manufacturers are not required to affix MRP. Admittedly, in this case industrial consumers have not bought the goods from the applicant directly - Therefore, the applicant is not entitled for exemption under Rule 2A of the Standards of Weights & Measures (P.C.) Rules, 1977. In these facts, prima facie, I am of the view that the applicant is required to pay duty as per Section 4A of the Central Excise Act, 1944. - Pre-deposit of duty and penalty shall stand waived and its recovery stayed during the pendency of the appeal - Decided in favour of assessee.
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2014 (9) TMI 660
Clandestine manufacture and removal of goods - Imposition of penalty - Commissioner dropped penalty and duty demand that there was no clandestine activity - Held that:- demand is based on the difference between the weight of the goods mentioned in the invoices and the weight shown in the corresponding weighment slips. The Commissioner s finding is that the difference is 1% to 2% and the same may be on account of weight of the packing material and also that there is no evidence of the appellant having received any amount over and above in the invoice amount in cash. The Department s contention is that the average difference is not 1% to 2% but is much higher 4% to 5% since during the period of dispute i.e. during period from May 1992 to December 1992, the quantity of jute bags used were negligible - 2450 bags as against 35203 plastic bags used, there is no possibility of the weight increase on account of absorption of moisture by the jute bags which are hydroscopic in nature. As mentioned in para 6.2.2 of the Board s review order in some cases, the difference works out to 17.2%, 54% and 34.8% which is not possible. - matter remanded back. The Commissioner being satisfied with the respondent’s explanation has dropped the demand. However, the Department s contention as explained in para 6.3 of the review order is that in the day-to-day account of the consumption of packing bags was being maintained by the respondent and in it they were mentioning the closing balance of bags after deducting the number of bags issued for packing and number of bags gone waste from the sum total of the opening balance and the bags purchased and that there is clear manipulation in the account of the packing bags and as such their plea regarding 6496 bags becoming waste is not acceptable. It is seen that the Commissioner in his findings on this issue has not discussed the evidence on record in this regard as discussed in para 6.3 of the review order and he has come to an abrupt finding that the Department s allegation regarding clandestine clearance of 715.016 M.T. of CPC during period from May 1992 to June 1993 based on the consumption of packing bags is not acceptable. Therefore, this decision of the Commissioner also has to be set aside and the matter has to be remanded to the Commissioner for denovo adjudication. Clearances of 145.1 M.T. of RPC - In respect of this quantity of RPC, the respondent had taken Modvat credit and the same had been cleared as such. According to the Revenue, in terms of the provisions of Rule 9A (3A) of the Central Excise Rules, 1944, which were in force at the material time, in such cases of clearance of Modvat credit availed input as such, an amounts equal to the duty payable on the input at the rate of duty inforce on the date of clearance was required to be paid subject to the minimum of the credit originally taken. However, I find that there was similar provision in Rule 57F (1) (ii) of the Central Excise Rules, 1944 and interpreting the provisions of this Rule Larger Bench of the Tribunal in the case of CCE, Vadodara vs. Asia Brown Boveri Ltd. (2000 (7) TMI 110 - CEGAT, NEW DELHI) has held when modvated inputs are cleared as such, only an amount equal to the Modvat credit originally taken was required to be paid. In view of this, the Commissioner s finding on this point is correct. Penalty under Rule 209A of Central Excise Rules, 1944 on Shri Amitav Chaudhary, Director and Shri G.K. Rai, General Manager of the respondent company, while the Commissioner has dropped the penal proceedings against these two persons, the Department is of the view that these persons were accountable and responsible to the respondent company at the time when evasion took place and the evasion involving the respondent company and their sister unit would not be possible without the direct involvement of three two persons and, therefore, the Commissioner has wrongly dropped the proceedings against them. The question of imposition of penalty on them under Rule 209A of Central Excise Rules would arise only if the duty demand based on difference between the invoice quantity and the quantity mentioned in the weighment slip and the duty demand based on the discrepancies in the ground of bags is upheld. Remanded back - Decided partly in favour of Revenue.
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2014 (9) TMI 659
Classification of Minute Maid Nimbu Fresh under Chapter sub-heading 2202 9020 or under sub-heading 22021020 - Exemption under Notification No. 3/2006 C.E. dt. 01.03.2006 - whether it should be under Sub-heading 22021020 as Lemonade or under sub-heading 22029020 as Fruit Pulp or fruit juice based drinks - appellant describe the MMNF as a drink which is close to house made Nimbu Pani and further relates that “minute Maid Nimbu Fresh offers 'Ghar Ki Yaadon Ka Ras' (memories of home-made lemonade) in every sip” - Held that:- product described in the Prevention of Food Adulteration Rules 1955, is Lime and not lemon. The two words are described differently in Chamber's 21st Century Dictionary. However, even ignoring this point we note that the requirement of Prevention of Food Adulteration Rules 1955 is that the total soluble solid should not be less than 10%. Whereas the appellants technical note describes above states that the solid content of the juice is measure in terms of brix and the lemon juice brix is at 6 degree i.e. 6%. We have also seen the labels on the bottles of the MMNF which also indicate the brix content as 5.7%. Under these Rules too, the appellant's product does not meet the criteria of fruit juice base drink since it does not have the required brix content. The lemon juice concentrate in the MMNF is only 1%. Which falls below the limit of 5% specified in PFA Rules. The MMNF thus squarely falls under CTH 22021020. duty is payable accordingly with interest. However imposition of penalty is set aside. - Decided partly in favour of assessee.
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2014 (9) TMI 658
CENVAT Credit - Activity amount to manufacture of not - Cutting and slitting of coils - Held that:- Appellants are not merely undertaking the activity of cutting and slitting of coils, but they are doing the activity of putting of layer of plastic for improving drawability of material, and applying inter-leaving paper for protection of the material so as to be fit for end use application. - process undertaken by the party is not mere cutting and slitting of coil but various process, which are ancillary to completion of manufacturing process, are undertaken which is "precision in nature" in completion of the end product as a distinct product. - Various processes as explained supra carried out is not for the purpose to cut the big coils, into small one for trade purpose; that the intent here is to customize specifically against OEM's requirements pertaining to specific end usage, without this specific customization, the OEM cannot go ahead in the manufacturing of various products. - Decided in favor of assessee. Period of limitation - Held that:- Appellant has taken registration in 2006 by declaring their activity to the department and they were granted the registration. They are regularly filing their Central Excise Returns showing availment of Cenvat credit on capital goods, inputs and input services. They are also showing the fact that they are paying duty by utilising the Cenvat credit as well as through PLA on the finished product as well as the scrap arising during the course of manufacture. Therefore, the extended period of limitation cannot be invoked. Accordingly, on limitation the appellants are having a good case. Further, we find that for the period which is within limitation, the appellant has discharged duty through PLA also as well as by availing the Cenvat credit, which means they have paid more duty than the Cenvat credit availed. In these circumstances, relying on the decision of Ajinkya Ent. (2012 (7) TMI 141 - BOMBAY HIGH COURT), we hold that appellants are not liable to pay duty, as the duty paid by them on the finished goods shall be treated as reversal of the Cenvat credit during the said period. - Decided in favour of assessee.
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2014 (9) TMI 657
Delayed payment of duty - Utilization of CENVAT Credit - Interest u/s 11AB - Penalty u/s 11AC - Held that:- When an assessee defaults in payment of duty and if the default continues for a period beyond 30 days from the due date, then the assessee has to pay excise duty for each consignment at the time of removal, without utilizing the Cenvat Credit till the date the assessee pays the outstanding amount including interest thereon. Therefore, the duty demand is not in respect of defaulted amount but in respect of the goods cleared subsequently during the default period. As per the show-cause notice, during default period the assessee cleared the goods on which duty liability was ₹ 13,43,70,590/-/. Out of this amount the assessee discharged duty liability to the extent of ₹ 2,38,10,905/- through PLA and ₹ 11,05,59,585/- through Cenvat Credit account. The discharge of duty liability through Cenvat Credit account during the period of default is clearly prohibited under Rule 8 (3A). Therefore, this amount should have been made good by the assessee by paying it in cash along with interest for the delayed payment and thereafter, the assessee should have been allowed to take re-credit of this amount in the Cenvat Credit Account inasmuch as debits have been made to the equivalent extent in the Cenvat Credit account. In the case of defaults, the prohibition under Rule 8 (3A) for utilizing Cenvat Credit account is not with reference to the arrears but to the entire credit lying in the account and therefore the assesse has to pay excise duty through account current for each consignment at the time of removal. Since the Cenvat Credit was unavailable, utilizing the same for payment of duty was an exercise in nullity and could not be recognized as payment towards duty. in respect of goods cleared subsequently, the appellant did not discharge the excise duty liability through PLA account. Therefore, there was non/short payment of duty. Once there is a short payment of duty, the same ought to be recovered invoking the provisions of Section 11A of the Act. Once the provisions of Section 11A comes into picture, and the demand is sustainable under the said section, the liability to pay interest under Section 11AB shall also arise. Therefore, there is no merit in the contention of the appellant that the provisions of Section 11A or 11AB will not come into picture at all. However, in the instant case, we observe that the adjudicating authority has committed an error by holding that the payment made through Cenvat Credit account during the default period is sufficient which is not what the law mandates. matter remanded back for fresh consideration - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2014 (9) TMI 669
Seizure of goods - demand of security for release of goods - Whether under the facts and in the circumstances of the case the Commercial Tax Tribunal was legally justified in directing for release of the goods without any security specially when it was established from the facts of the case that there is no possibility of payment of any tax in U.P. on a transaction of central sale which is taking place in U.P. from Kanpur to Kolkata - Held that:- Tribunal has recorded a finding of fact that all the entries regarding agreements, job work, etc. have been entered in various records and after perusal thereof it has recorded its satisfaction in this regard. The aforesaid satisfaction shown by Tribunal is not shown perverse or contrary to material on record. This is a finding of fact. I am not inclined to interfere with the same unless the same is shown perverse or contrary to material on record. That being so, the Tribunal has rightly found that all the entries are recorded and there was no intention to evade tax. In absence of anything to assail the above findings, it cannot be said that the order of Tribunal is not in accordance with law - Decided against Revenue.
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2014 (9) TMI 668
Penalty under Section 45A - non-filing of return and non-payment of tax due - whether the offence alleged is technical in nature - Held that:- As per Section 45A, if the authority is satisfied that the assessee had failed to submit any return as required under the provisions of the Act or the Rules or and had failed to comply with provisions of the Act or the Rules to make payment of the tax amount due, a penalty not exceeding twice the amount of tax or other amount sought to be evaded can be imposed. In the case at hand the specific allegation is that the petitioner had failed in submitting monthly returns for the periods in question and failed to remit the tax due for the said periods. Non-remittance of tax due under the Act and Rules is an offence coming within the purview of Section 45A. In such case the authority is entitled to impose penalty to the tune of twice the amount of tax evaded or sought to be evaded. Therefore I am of the opinion that the view taken by the authorities that non-payment of tax due is not a technical offence and imposition of penalty at twice the amount of tax is sustainable. First revisional authority had already taken a lenient view and reduced the quantum of penalty to equal the amount of tax. I do not think any further reduction of the quantum is warranted. However, considering the fact that the order imposing penalty was challenged all along and also considering the fact that this writ petition was pending adjudication before this court from the year 2008 onwards, I am inclined to order waiver of penal interest on the amount of penalty finalised, if the petitioner remits the amount of penalty determined by the assessing authority within a period of 3 months from the date of receipt of certified copy of this judgment. - Decided partly in favor of assessee.
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2014 (9) TMI 667
Re-assessment of proceedings - Section 39 of the Karnataka Value Added Tax Act, 2003 - Held that:- Petitioner had in fact sought personal hearing and in the matter, relevant extracts of the reply dated 31/05/2014 are made in the impugned order. However, from the impugned order, it is not forthcoming as to on which date the petitioner appeared through its authorized representative before respondent No.3. No doubt, it is recorded in the last few paragraphs of the impugned order that the petitioner has reiterated its stand in the personal hearing granted to it. But in the absence of there being any personal hearing in the matter, the recording of the fact that there was in fact a personal hearing is incorrect and cannot be accepted. All that the petitioner is seeking is an opportunity of being heard in person so that the case of the petitioner could be explained to respondent No.3 authority and having regard to innumerable details which had to be explained by the petitioner, respondent No.3 ought to have granted a personal hearing to the petitioner. In that view of the matter, the impugned order is set aside, the petitioner is directed to appear before respondent No.3 authority on 04/08/2014 without insisting on any separate notice from that authority. On that date or on any other date ordered by respondent No.3 authority, the petitioner to state its case through its authorised representative. Decided in favour of assessee.
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