Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 26, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Deduction u/s 32A(1) of the Act – Investment allowance - If during the assessment year relevant to the year of installation or use the total assessed income of the assessee is nil or negative, then the assessee cannot be expected to create an actual and non-illusory reserve equivalent to 75% of the claim - HC
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Monetary limit for filing an appeal by the revenue - since it is stated that the notional tax effect would be higher than the limits prescribed by the Board in different circulars - Tribunal committed an error in dismissing the Revenue's appeals as being not maintainable - HC
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Income escaping assessment u/s/ 147 - The requirement of law is “reason to believe“ and not “reason to suspect“. In the present case Since the reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rationale basis, the action of reopening of the Assessment is thus clearly contrary to law and unsustainable - HC
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If unaccounted production was taxed and on the other hand, unaccounted purchase are also taxed, then the correct position should have been that the unaccounted purchases, alleged to have been utilized for the said production, ought to have been reduced from the unaccounted production - HC
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Whether upholding the order of the Assessing Officer without adverting to the evidence and material brought on record by the assessee is legally correct - matter remanded back to ITAT - HC
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When the value of an enterprise is fixed based on the present value of its future earnings there is no scope for any further allowance for any perceived risk factor - Discounted cash flow method was appropriate to determine the arm's length price of the international transaction - AT
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Whether Fly Ash Handling System is eligible to be treated as “air pollution control equipment“ for the purpose of granting depreciation at 100% - held yes - AT
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Year in which addition u/s 69C of the Income tax act be made – Amount can be added as unaccounted expenditure under section 69C of the Act only in the year in which expenditure has been actually incurred - AT
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Business loss or speculation loss - Explanation to Section 73 of the Act is not applicable. Hence, the share loss cannot be deemed to be loss from speculation business in the assessment year under consideration. - AT
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Interest u/s 244A - Delay in granting refund - refund due to excess self assessment tax paid - Assessee is eligible for interest u/s 244A for the entire period for which interest is allowable u/s 244A. - AT
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The rate at which Maruti Udyog Limited is claimed to supply the power to its AE cannot be said to be the market rate of the power in that area - There was a loss in the power generation undertaking of the assessee and therefore, there was no eligible profit for allowing deduction under Section 80IA - AT
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As the consideration for live broadcasting does not fall either u/s 9(1)(i) or u/s 9(1)(vi), such amount is not chargeable to tax under the provisions of this Act in the hands of non-resident - No TDS u/s 195 - AT
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Expenditure on spouse/ relatives of Director of the company is disallowed u/s 37 of the Income Tax Act - a sum of Rs. 13.38 lakhs incurred by the appellant-company on the foreign tours of spouses of the directors has rightly been disallowed - AT
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The information / knowledge available to the assessee was made through a licence; consequently, it is covered under the definition of “royalty“ under the domestic law under section 19(1)(iv) and (vi) along with article 13(3) of the Double Taxation Avoidance Agreement with the U.K- AT
Customs
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Confiscation of Goods u/s 71 of the Gold (Control) Act – The gold being vested absolutely in the Union Government, no fault can be found in the action that was pursued of selling of confiscated property - the prayer for the return of the gold ornaments or in the alternative, for the payment of sale proceeds, cannot be acceded to - HC
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Application for Bail - It was correct that new amendment had already set in and the offence had been made non-bailable - It was equally correct that whether an offence was bailable or non-bailable, the main object of criminology was to see smooth flow of justice to arrive at a correct decision. - bail granted - HC
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Refund of Duty Drawback – Petitioner had not used the word “manufacturer” or stated that he had got the goods/garments manufactured on job work. Thus, it can be argued that there was no fraud, suppression of facts or misdeclaration by the petitioner. - HC
Corporate Law
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Jurisdiction of Company Law Board - Removal of auditors - Power to pass order u/s 402 - Whether, CLB was justified in law in not exercising the said powers and in directing the applicant to move a fresh application before the Regional Director under Section 224(7) - held no - HC
Indian Laws
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Time for Furnishing the Report of Audit Electronically Extended till October 31, 2013 but manually to be filed by 30.09.2013
Service Tax
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Valuation of taxable services - inclusion of reimbursement of expenses in the gross value - Reimbursements whether taxable or not - stay granted. - AT
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Waiver of pre-deposit - Commercial Training or Coaching Services - charitable society - condition of pre-deposit of Rs.25 Crores was imposed on proper exercise of the discretion vested in the Appellate Tribunal and on proper appreciation of the facts and circumstances of the case. - HC
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Condonation of delay - The enormous delay of one year and four months thus logically has been as a consequence of its deliberate inaction, negligence and laches, though being aware of the period of limitation for preferring the appeals - HC
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Refund of service tax - export of goods - Proof of export - assessees have attempted to correlate the export goods with the lorry receipts and the shipping bills - matter remanded back for verification - AT
Central Excise
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Valuation - place of removal - in case the goods were cleared to consignment agents premises from where the same were sold, it was the consignment agent’s premises which was to be treated as the ‘place of removal’ - cost upto the place of removal to be included - AT
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Whether the Soya Gum which was settled at the bottom of the storage tank along with some oil and the separation of that oil from the said sludge by the process of decantation/filteration so to recover some crude oil, which was sold by the assessee as recovered oil can be said to be the result of any manufacture or not - held no - AT
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Validity of proviso to Rule 8 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - It was apparent that having failed to substantiate his case before the Adjudicating Authority, instead of filing the appeal the petitioner was taking a chance in the High Court to challenging the vires of the proviso - HC
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Loss of Molasses During Storage – Shortage Amounts to Removal of Molasses OR Not - WThe petitioner applied for remission but the application was rejected - no scope to challenge the levy of excise on the said part of alleged molasses - HC
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CENVAT credit - transfer of credit - Rule 10 - transfer of second unit to the first unit - revenue argued that the factory as a whole need to be shifted. - This appears to be an absurd proposal and shall make the rule unworkable. - AT
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Cenvat Credit of Additional Duty of Customs (CVD) - whether repacking of goods amount to manufacture of not - import of cerium chloride - What is “retail sale” depend on the product involved - stay granted - AT
Case Laws:
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Income Tax
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2013 (9) TMI 812
Deduction u/s 32A(1) of the Act – Investment allowance - Requirement u/s 32A(2) needs to be fulfilled - Assessee is running sugar factory and fully owned by the State of U.P. For the assessment year under consideration, the loss return was filed before passing of the assessment order under Section 143(3) of the Act - Assessee had claimed the investment allowance deduction for Rs.1,40,35,103/- under Section 32A(1) of the Act - Assessee did not comply with the statutory requirement of Section 32A(4)(ii) of the Act, as the assessee has not created the 75% reserve amounts to Rs.1,05,26,327/-, but created a reserve only for Rs.93,26,754/-. The same is less than 75% of the claim for the investment allowance – Held that:- Reliance has been placed upon the judgment of Hon'ble Bombay High Court in the case of Indian Oil Corporation Ltd. vs. S.Rajagopalan, Income-Tax Officer, Companies Circle II(1), Bombay & Ors., [1973 (4) TMI 12 - BOMBAY High Court] and also on the judgment in the case of Commissioner of Income-tax vs. Khandelwal Ferro Alloys Ltd., [1988 (11) TMI 54 - BOMBAY High Court] If during the assessment year relevant to the year of installation or use the total assessed income of the assessee is nil or negative, then the assessee cannot be expected to create an actual and non-illusory reserve equivalent to 75% of the claim and as such reserve can only be created out of assessed profits. There can be no obligation on the part of the assessee to create a reserve as a condition merely for carrying over the development rebate without it being actually allowed to the assessee by setting off the rebate against the assessed profit. So, we are unable to accept the contention of the Department that the assessee must create the reserve in the year of installation or use of the plant or machinery, irrespective of any profits. So, it is expected to create reserve as per condition, in the subsequent years in which assessee is assessed profits – Assessee is directed to create 75% reserve in the subsequent assessment years with the positive income – Decided in favor of Assessee.
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2013 (9) TMI 811
Monetary limit for filing an appeal by the revenue - Appeal of Department barred by Board's circular under Section 268A of the Act - Notional tax effect - Assessee-respondent has filed its return declaring loss of Rs.18,47,71,360/- Tribunal held that tax effect being less than Rs.2,00,000/- lacs, the appeal of the Revenue was not maintainable – Held that:- By virtue of subsequent clarifications contained in circulars dated 15.5.2008 and 9.2.2011, the position prevailing prior to such circulars gets amplified and that therefore in cases of loss returns the Board's instructions did not envisage further appeal also does not impress - In the circular dated 15.5.2008, it is provided that in the case of loss, notional tax effect should be taken into account. This clarification to our mind, contained in circular dated 15.5.2008 and absence of any such clarification in the previous circulars, is of no consequence. Such a clause can, at the best, be seen as clarificatory declaration by the Board to put the controversy beyond any shadow of doubt or debate. It cannot, however, be stated that only on and from 15.5.2008, the Board desired that on the basis of notional tax effect in cases of loss the appeals should be filed. In the previous circulars to reiterate, no such intention emerges. Only because clarification came in the subsequent circular dated 15.5.2008, would not mean that previously the Board desired that such appeals should be filtered out. Merely because even as per the Assessing Officer's order, ultimately income of the assessee is negative, the Revenue's appeal before the appellate Tribunal would not be barred by the Board's circular under Section 268A of the Act. It is, however, clarified that the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals. In all these cases since it is stated that the notional tax effect would be higher than the limits prescribed by the Board in different circulars - Tribunal committed an error in dismissing the Revenue's appeals as being not maintainable - The matter is remanded back to the Tribunal to decide the same strictly on merits.
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2013 (9) TMI 810
Notice for income escaping assessment u/s 148 of the Income Tax Act – Reasons to believe – Held that:- It would be the proximity of the reasons with the belief of escapement of income which would be the determinative factor for reopening of the assessment. The remoteness of the reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion which cannot be a ground for reopening of assessment - The prior period expenses are eligible for deduction during the current year provided the liability was determined and crystallized during the relevant year. In the present case, the assessee has debited a sum of Rs 1,20,765/- in the P & L account on account of prior period expenses after netting income of Rs 30,34,463/- and expenditure of Rs. 31,55,228/- - The Assessing Officers has placed reliance on the notes to the accounts that were available at the time of the scrutiny assessment. But the notes also states that the prior period expenses had crystallized/ settled in the year. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said expenditure had not crystallized during the year relevant to the assessment year. The words "reason to believe" indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The reason to believe recorded do not refer to any material that came to the knowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the expenditure referred to had not crystallized during the relevant year. The reasons to believe recorded that income has escaped assessment are not based on any direct or circumstantial evidence and are in the realm of mere suspicion. The requirement of law is "reason to believe" and not "reason to suspect". In the present case Since the reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rationale basis, the action of reopening of the Assessment is thus clearly contrary to law and unsustainable – Decided in favor of Assessee.
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2013 (9) TMI 809
Addition on the basis of loose papers – expenditure towards building construction have already been made on account of loose papers - Held that:- The admitted facts of the case are that seized/impounded loose papers found at the time of survey were recorded in the books of account and no incorrectness was found in respect of recording such transaction in books of account. Only grievance of the Revenue was that at the time of survey books of account was not found maintained upto the date - The A.O himself admitted before the CIT (A) that all the entries in the loose papers were found duly incorporated in the books of account - A.O made addition on the basis of loose paper which has been incorporated in the books of account and no defect otherwise has been found that those loose paper entries were recorded incorrectly - No addition is warranted – Decided against the Revenue. Difference of Rs.5,05,769/- as unexplained - Error made by Valuation Officer – Held that:- Apart from the technical objections, the CIT (A) found that the difference in C.P.W.D. and P.W.D. rates were well explained which is upto 10% value. It has also been recorded by the CIT (A) that some of the items of expenditure towards building construction have already been made on account of loose papers of which addition of Rs.40,85,115/- has been deleted, that to the extent there is explanation from the assessee - Deleted the addition of Rs.11,83,249/- - Decided against the Revenue. Exemption u/s 10(23C) of the Income Tax Act – Held that:- There is no provision under the Act that if the books of account are not found at the time of survey, the exemption under section 10 (23C) will be withdrawn. When finally at the time of assessment and before the CIT (A) the books of account was found in order, even otherwise also exemption under section 10 (23C) does not depend upon books of account but it depends upon relevant provisions of the Act – Reliance has also been placed upon the judgment in the case of Kedarnath Jute Mfg. Co. Ltd vs. CIT [1971 (8) TMI 10 - SUPREME Court] - Records were not available at the time of survey and some loose papers were found, the assessee had made a statement on specific question regarding maintenance of books of accounts that books of accounts are with the auditor. The AO did not make any effort to get these books of account. After the books of account were produced, no defects or discrepancies were found – Decided against the Revenue.
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2013 (9) TMI 808
Allowability of guest house expenses – Held that:- Expense incurred for the purposes of guest house is not the business expenses and is not liable to deduction – Reliance has been placed upon the Apex Court judgment in Britania Industries Ltd. v. Commissioner of Income Tax & Anr., Apex Court in Britania Industries Ltd. v. Commissioner of Income Tax & Anr., [2005 (10) TMI 30 - SUPREME Court]
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2013 (9) TMI 807
Addition under Section 69B on the sale of land property – Held that:- DVO, for the purpose of valuation, had taken the market price of land in Okhla Industrial Area, New Delhi in 1994 and had referred to 1994 DDA rate of land fixed for Lawrence Road Industrial Area. He came to the conclusion that the difference in land rate in Okhla and Lawrence Road Industrial Area in 1994 was 38.75%, i.e., land at Okhla was more expensive by 38.75%. Thereafter, the DVO referred to one sale deed in Okhla Industrial Area in the year 2001 for a plot measuring 1648 square metres. This property was sold for Rs.3,70,00,000/-. After making some reductions for cost of building etc., he computed the value of the property at Lawrence Road Industrial Area by giving benefit of 38.75% in the year 2001. Since the valuation report of the valuer Sh. K.B.Sharma dated 22nd September, 1999 has not been placed on record, the order passed by the tribunal rejecting the valuation report of the DVO can be questioned and challenged as perverse – Decided against the Revenue.
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2013 (9) TMI 806
Depreciation on the block of assets - Rs.4,27,868/- added by the Assessing Officer towards depreciation of the units on the ground that the factory at Vallabh Vidyanagar had remained closed – Held that:- Relying upon the judgment in the case of Packwell Printers Vs. Assistant Commissioner of Income-tax reported in (1996)59ITD340(JAB., it has been held that depreciation needs to be allowed on the entire block of assets instead of each individual assets.BR Addition on account of section 69C of the Income Tax Act – Held that:- if unaccounted production was taxed and on the other hand, unaccounted purchase are also taxed, then the correct position should have been that the unaccounted purchases, alleged to have been utilized for the said production, ought to have been reduced from the unaccounted production – Decided against the Revenue.
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2013 (9) TMI 805
Whether upholding the order of the Assessing Officer without adverting to the evidence and material brought on record by the assessee is legally correct - Additions on account of bogus purchase - The assessee was engaged in the business of manufacture and sale of hand tools and had shown gross profit on sales which worked out to 13.7% as against gross profit on sales at the rate of 13.7% of the last year – Held that:- Reliance has been placed upon the judgment in the case of M/s Kranti Associates Pvt. Ltd. and another v. Sh. Masood Ahmed Khan and others [2010 (9) TMI 886 - SUPREME COURT OF INDIA], wherein it was held that judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially - A quasi-judicial authority must record reasons in support of its conclusions - Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well - Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power - Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations - Reasons have virtually become as indispensable component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies - Reasons facilitate the process of judicial review by superior Courts. In the present case, A.O. in its order has not recorded its reasons properly – Therefore, decided in favor of Assessee relying upon the judgment in the abovementioned case.
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2013 (9) TMI 804
Penalty u/s 271(1)(c) of the Income Tax Act – Held that:- Reliance has been placed upon the case of CIT vs. Suresh Chandra Mittal; [2001 (6) TMI 63 - SUPREME Court], wherein it was held that if the assessee had offered additional income to buy peace of mind and to avoid litigation, penalty under section 271(1)(c) of the Act could not be levied. In the instant case, there is no malafide intention on the part of the assessee and the A.O. has not brought any evidence on record to prove that there was concealment of income. Before surrender, the A.O. and the assessee have reached to a compromise that no penal action be taken in the instant case but the A.O. has levied the penalty without discovering any new facts. The gift given by one Sri Mohd. Shoaib was accepted by the A.O. without taking any action. Thus, the surrender was on "agreed basis" as per the ratio laid down by this Court in the case of Commissioner of Income Tax vs. Saran Khandsari Sugar Works [1999 (9) TMI 15 - ALLAHABAD High Court]. Moreover, in the instant case, the A.O. did not ask about the amount of sale consideration minus gift in question – Decided in favor of Assessee.
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2013 (9) TMI 803
Deduction under S.35(2AB) - Grant in aid received - Amount not shown in Profit and Loss account - Held that:- CIT(A) has accepted the submissions of the assessee and the assessing officer was not confronted with the said submissions. In any case, this issue revolves around factual aspects and hence it requires only verification of books of accounts. Mere verification of books of accounts to ascertain correct facts would not cause prejudice to anybody. Accordingly, this issue of ascertaining the correct amount of grant in aid pertaining to Research and Development activity is set aside to the file of the assessing officer in order to enable him to satisfy himself about it after carrying out due verification that may be found necessary. Assessee has not treated both the “Grant in Aid” and the related “R & D expenses” as revenue items and accordingly, both the items have not been taken to the profit and loss account - issues relating to the nature of the grant in aid, the R & D expenses incurred out of the said grant in aid, eligibility of the assessee to claim weighted deduction on such expenses, the question whether it is a tied up grant or not, etc. have not been properly examined by the assessing officer. Accordingly, in our view, this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine this issue afresh after duly addressing the submissions/claims made by the assessee and take appropriate decision in accordance with the law. Nature of grant in aid - Aid received towards Versus compensation payment - Held that:- issue may also require fresh consideration at the end of the AO. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the issue afresh after duly addressing the various submissions made by the assessee and decide the same in accordance with the law - matter remanded back.
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2013 (9) TMI 802
Arm's length price - transfer pricing adjustments - Risk adjustment in addition to adjustment made through PV factor for future cash flows of the company – Held that:- Most important aspect in the application of the Discounted Cash Flows (DCF) is the discounting factor used for working out the net present value (NPV) - PV factor is to be spread starting with the year in which the transaction took place - For a valuation to have some amount of objectivity it is imperative that errors in calculations are avoided and variables are considered within a reasonable limit so that acceptable values can be arrived at. Even a slight change in the discounting ratio will result in substantial change in the valuation of the company - A discount for illiquidity of shares should be given, this cannot be accepted for the reason that when weighted average cost of capital is worked out and discounting factor is applied for ascertaining the net present value of the future cash flows, such discounting rate would take into account all associated risks. When the value of an enterprise is fixed based on the present value of its future earnings there is no scope for any further allowance for any perceived risk factor - Discounted cash flow method was appropriate to determine the arm's length price of the international transaction, set aside the issue to the file of the Assessing Officer for re-working the value afresh in accordance with standard practices adopted for such valuation – Decided in favor of Assessee.
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2013 (9) TMI 801
Whether Fly Ash Handling System is eligible to be treated as "air pollution control equipment" for the purpose of granting depreciation at 100% - Held that:- Even when Air pollution control equipments are entitled for special rate of depreciation at 100%, still they remain part of machinery and plant as provided in Appendix I - Therefore, the statute itself has taken a view that even though an item belongs to the class of plant and machinery, still it is possible for that item to have its special identity. Therefore, it is only fair to hold that the special status of the Ash Handling System installed by the assessee company does not get diluted only for the reason that it also forms part of the regular plant and machinery of the assessee. The Fly Ash Handling System installed by the assessee while forming part of the plant and machinery erected by the assessee in its factory, still holds the outstanding quality of "air pollution control equipment". Therefore, obviously, the Fly Ash Handling System installed by the assessee is entitled for higher amount of depreciation at 100%. Principle of interpretation contained in the legal maxim generalia specialibus non derogant.A special provision normally excludes the operation of a general provision. This principle can be resorted for deciding the competing averments of two provisions in the same enactment, a general and a special provision with some overlapping between the two - In the present case, the Fly Ash Handling System, even though classified under plant and machinery as a general item, is still qualified as a different class under the heading "Air pollution control equipment" entitled for higher amount of depreciation. Therefore, the special category, under which air pollution control equipment is placed, applies to the Fly Ash Handing System installed by the assessee. Its eligibility for higher amount of depreciation will not be shadowed by the general rate provided for plant and machinery – Decided against the Revenue.
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2013 (9) TMI 800
Disallowance of commission - Contravention of rule 46A - Held that:- there was a seized material found at the residence of the Director which has to be considered for making the assessment u/s 153A in the case of assessee company and on the basis of such seized material as far as it relates to the undisclosed income of the assessee the addition is required to be made. It is not the material, whether the seized material was found at the premises of the assessee or at the residence of the Director. The company is represented through its Directors, therefore, material found at the residence of the Director is relevant and has to be considered for making the assessments u/s 153A. As far as the scope of the assessment is concerned, we hold that wherever the issues have been considered u/s 143(3) and the assessment has been concluded prior to the initiation of the search the scope of assessment remains limited to the search material and other issues not considered at the time of making the assessment u/s 143(3) of the Act. Considering the totality of the facts and circumstances, we are unable to agree with the contention of the assessee that assessment u/s 153A has been made on the basis of outside the search material and after the change of opinion - Decided in favour of Revenue. Addition u/s 69C - Held that:- . The Assessing Officer has not made any enquiry in respect of correctness of the contents of the correspondence by the brokers. There is no evidence found with regard to the payment of these bills from any source of income. The assessee’s claim that payments of commission had been made by cheques and the necessary TDS were deducted had some force. In our considered view, no addition can be made merely on the basis of certain correspondence on the presumption when addition is to be made u/s 69C of the Income-tax Act while making the assessment u/s 153A of the Income-tax Act. No addition can be made under the scope of section 153A on presumption basis. The revenue has to bring certain corroborative evidence or supporting material by way of making investigation or enquiries. All the brokers were located in Delhi, however, the revenue has done nothing in this regard. Some of the brokers were even corporate assessees. Their records could have been easily verified. The seized material relied upon by the AO alone cannot be made a basis for driving adverse inference with regard to the undisclosed expenditure which can be added u/s 69 of the Income-tax Act. In our considered view, material relied upon by the AO for making the addition was merely a correspondence which alone cannot lead to the inference that assessee had incurred such expenditure. This cannot be made basis for addition made u/s 69 of the Income-tax Act while framing the assessment u/s 153A of the Income-tax Act, 1961. There is no evidence gathered by revenue from anywhere, which could establish a bit of the fact that assessee has paid anything more than whatever recorded in the books of account - Decided against Revenue. There is no new evidence or incriminating document found and seized during the search operation which can make the Assessing Officer to form a belief that income has escaped assessment on this account. In such circumstances, in absence of any evidence of any sort, such disallowances shall be only on the basis of change in the opinion and the same is not permissible in law. Further, on merits also, the assessee was having sufficient and adequate non-interest bearing funds by way of share capital, reserves and advances received from the booking of the plots. The revenue has failed to establish any nexus between the borrowed funds and interest free advances given to sister concerns - Decided against Revenue.
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2013 (9) TMI 799
Year in which addition u/s 69C of the Income tax act be made – Addition u/s 69C be made on account of unexplained expenditure - Addition in the cost of land of Rs.1,32,65,000/- based on the entries made in the impounded document - The explanation of the assessee that it was a hypothetical amount to justify the sale of flats at low price to the trust - Held that:- In cases when there is no direct evidence, findings have to be been given after taking into account the surrounding circumstances and after applying the test of human probability which is an accepted principle as held by the Hon'ble Supreme Court in the case of D.P. More [1971 (8) TMI 17 - SUPREME Court]- On the facts of this case, considering the actual practice in construction industry, the probability of payment being made to government officials is very high which is supported by actual entry on the impounded documents - On the other hand, it is highly improbable that the partner being a religious person will lie to the religious trust and show favours by inflating cost when no favour have actually been given - Sum of Rs.1,32,65,000/- appearing on the impounded document, which is clearly attributed towards various clearances given by the authorities such as commencement certificate, intimation of deficiency etc. represented the money actually paid which is unaccounted. Amount can be added as unaccounted expenditure under section 69C of the Act only in the year in which expenditure has been actually incurred - Dates of clearances, such as, IOD, commencement certificate, condonation of deficiency, occupation certificate etc. can be reasonably taken as the dates of incurring the expenditure - Making addition of the entire amount in this year without ascertaining the dates of incurring such expenditure is not justified – Matter restored to the file of A.O. to pass necessary order after examination. Addition of Rs.57,82,000/-, Rs. 10.00 lacs, Rs.12.00 lacs on the basis of entries made in the impounded documents - The sum of Rs.57,82,000/- has been explained as interest calculated for the period of early payment of installments. It had been explained that since payments had been made before due dates, the interest for the period had been calculated to be reduced from the cost of land. The sum of Rs.12.00 lacs has been explained as brokerage payable by SIWL to Durga Estate which had been paid by the assessee on their behalf and tax had also been deducted at source. As the vendor could not pay the amount, the same was reduced from cost of land - The sum of Rs.10.00 lacs has been explained as paid by the assessee to the vendor who had also given a hundi dated 31.1.2001 for repayment but since amount was not paid, this was reduced from the cost – Held that:- The amount of Rs.57,82,000/- was apparently calculation of interest @18% which had been reduced from the cost. The sum of Rs.12.00 lacs was brokerage paid on behalf of the vendor on which had also been deducted and amount had been reduced from the cost. None of the above amounts had been claimed by the assessee as expenditure in the P&L Account - Sum of Rs.10.00 lacs being personal loan given by the assessee was also reduced from the cost. Moreover, this amount related to assessment year 2001-02 and, therefore, could not be added in this year - Similar entry of Rs.46.00 lacs noted on the same document had been accepted by AO which had also been reduced from the cost – Hence, the addition made is deleted – Decided against the Revenue. Allowability of prorata deduction under section 80 IB(10) of the Act - There were many flats in respect of which built up area exceeded 1000 sq.ft. violating the conditions prescribed under section 80 IB(10) – Held that:- The deduction under section 80IB(10) can be allowed only on fulfillment of certain conditions one of which is that built up area of each flat should be less than 1000 sq.ft. – In the instant case, 14% of built-up area consisted of flats which have built up area exceeding 1000 sq.ft. - Proportionate deduction for 86% of built up area which consisted of flats of built up area less than 1000 sq.ft. is allowed – Decided against the Revenue.
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2013 (9) TMI 798
Business loss or speculation loss - set off of share loss against income under other heads for the assessment year under consideration - Whether the share loss is to be considered as speculation loss or business loss of the assessee - Held that:- findings given by the AO is contrary in itself. On the one hand, AO has held that capital gain arising to the assessee u/s. 50 of the Act is not normal capital gain arising out of sale of investments and has considered it akin to business profit while considering applicability of the Explanation to Section 73 of the Act. Accordingly, AO has held that the share loss to the assessee is more than the income of the assessee under the head “interest on securities”, “income from house property”, “capital gains” and “income from other sources”. Therefore, assessee is not entitled to the exception as provided in explanation to Section 73 of the Act and, accordingly, considered the share loss to the assessee as speculation loss. On the other hand, AO while considering the set off of brought forward business loss of the earlier years, has held that it can not be allowed to set off of the capital gain computed under section 50 of the Act on the ground that said short term capital gain on sale of asset is capital gain and it is not a business income. In the first appeal, ld CIT(A) has held that capital gain arising u/s.50 of the Act should not be treated differently than the other capital gain. Ld CIT(A) has held that provisions of section 45 do not specify the capital gains arrived at u/s.50 to be treated differently. Thus, for all the purposes of Income tax Act, 1961, the capital gains arising u/s.50 of the Act have to be treated as capital gains only in quite normal sense and not otherwise. In view thereof, ld CIT(A) has treated the said short term capital gain computed u/s.50 of the Act as normal capital gain and has held that income of the assessee from capital gain and house property is more than the loss arrived at by the AO on trading of shares. Therefore, said share loss cannot be treated as speculation loss in view of exception to Explanation of Section 73 of the Act. Since ld CIT(A) has treated the capital gain computed u/s.50 of the Act as normal capital gain, he has also held that the unabsorbed business loss cannot be allowed to be set off against capital gain computed u/s.50 of the Act. Short term capital gain computed u/s.50 of the Act has been held by us as capital gain of the assessee and admittedly, the income of the assessee from capital gain and house property is more than the share loss computed by the AO, we agree with ld CIT(A) that Explanation to Section 73 of the Act is not applicable. Hence, the share loss cannot be deemed to be loss from speculation business in the assessment year under consideration. Therefore, we uphold the order of ld CIT(A) in directing the AO to allow set off of share loss against income under other heads for the assessment year under consideration. Consequently, action of the AO to apportion expenses towards speculation loss is also set aside as the same will form part of business expenses of the assessee, which are allowable as per provisions of the Act - Decided against Revenue.
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2013 (9) TMI 797
Disallowance of interest - Delay in granting refund - Held that:- refund is arising out of TDS and advance tax paid by the assessee and not out of any self assessment tax or any other payment of tax and hence, the assessee is eligible for interest from the 1st day of assessment year till the date of granting refund. The A.O. has allowed interest form 27.03.208 to the date of granting of refund and, therefore, for the period in dispute for which interest should be allowed by the A.O. is from 01.04.2006 to 29.02.2008 i.e. for 23 months on refund of Rs.235.62 lacs. The relevant aspect on which the allowability of interest is denied is this that as to whether there was any delay attributable to the assessee in granting refund. In our considered opinion, since the retraction was made by the assessee immediately after filing the return of income and during the course of assessment proceeding also, it cannot be said that the delay in granting refund is attributable to the assessee in the present case and, therefore, interest is allowable to the assessee for this period also i.e. from 01.04.2006 to 29.02.2008 - Decided in favour of assesee. Assessee is eligible for interest u/s 244A for the entire period for which interest is allowable u/s 244A. There is no period for which the refund was delayed because of reasons attributable to the assessee and hence, no period is required to be excluded for computing interest payable to the assessee u/s 244A. Since, in the present case, the refund is arising partly on account of payment of TDS and advance tax, and the major part of refund is arising out of payment of self assessment tax of Rs.168.30 lacs, interest should be grated to the assessee up to the period 29.02.2008 stating form 01.04.2006 in respect of refund arising out of TDS and advance tax and starting from date of payment of self assessment tax in respect of refund arising out of payment of self assessment tax - Decided in favour of assessee.
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2013 (9) TMI 796
Nature of expenditure - Payment of running royalty is a capital expenditure of revenue expenditure - Collaboration agreement was entered into for grant of technical assistance for setting up of the factory and also for the manufacture and sale of the product. But the assessee made separate payment for the technical assistance for setting up of the factory which was $5,00,000. This sum was treated as capital expenditure by the assessee itself. The annual payment for the royalty was based upon the percentage of sale of the motorcycles – Held that:- The case of the assessee is squarely covered by the cases Climate Systems India Ltd [2009 (10) TMI 116 - DELHI HIGH COURT] and Sharda Motor Industrial Ltd [2009 (9) TMI 159 - DELHI HIGH COURT] being identical in the facts – Following the judgments in the abovementioned cases, the running royalty is allowed as revenue expenditure – Decided in favor of Assessee. Eligibility of deduction u/s 80IA of the Income Tax Act - Eligible business are transferred to any other business carried on by the assessee - Goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer - In the eligible business, the assessee is generating the power which is being consumed by the assessee company's manufacturing facility - Profit of the eligible business is to be computed at the market rate of supply of power. It is the assessee's contention that Maruti Udyog Limited is supplying the power to its AE at the rate of ₹ 8.50 per unit while the assessee has computed the profit of the eligible business by taking the rate of power at ₹ 7.08 per unit. The assessee has computed the rate of power by the cost of generation per unit with mark up of 15% - Held that:- Government undertaking i.e. Haryana State Electricity Board has supplied the power to the assessee and other industrial units in the area at the rate of ₹ 3.90 per unit - Rate at which power is being supplied by the Haryana State Electricity Board, to each and every industrial unit situated in the area, in which assessee's manufacturing unit is situated, is the market rate at which power is available - The rate at which Maruti Udyog Limited is claimed to supply the power to its AE cannot be said to be the market rate of the power in that area because as per assessee's own claim, Maruti Udyog Limited is supplying the power to its AE and not to unrelated parties in general - There was a loss in the power generation undertaking of the assessee and therefore, there was no eligible profit for allowing deduction under Section 80IA – Decided against the Assessee. Arms Length Price of Model development – Model development fee claimed by assessee is excessive – Held that:- TPO has not specified how the model development fee paid by the assessee was excessive or unreasonable. It is only his subjective assessment that the arm's length price of the model development fee should have been 25% of the payment made by the assessee. He has held that there was a joint activity of development of new model by the assessee and HMCL – Held that:- There was no such joint activity of the model development - Activity of the assessee started only after the model is developed by HMCL and technology is handed over to the assessee. Then the assessee undertook the research and development activity for absorption of such technology and for indigenization of the spare parts. Thus, the activity of research and development of the model was undertaken by HMCL and not jointly by the assessee and HMCL. No other reason is given by the TPO for determining the arm's length price at 25% of the model fee paid by the assessee. He has not applied any method for determining the arm's length price prescribed under Section 92C(1) of the Income-tax Act – Reliance has been placed upon the judgment in the case of Nestle India Ltd. [2011 (5) TMI 566 - DELHI HIGH COURT] – View adopted by the TPO is incorrect arm's length price of model development should be to the extent of 25% of the payment towards model fee - Addition made on this count is accordingly directed to be deleted – Decided in favor of Assessee. Disallowance of royalty paid on exports made to associate enterprise by determining the arm's length price at nil – Held that:- The assessee is paying royalty as per technical know-how agreement dated 02.06.2004 with HMCL. As per this agreement, the assessee is entitled to use technical know-how provided by HMCL for manufacture and sale of two wheelers and parts - Royalty is payable on such manufacturing of goods - Goods are exported to subsidiaries of the Associate Enterprise i.e. AE of Honda Japan and the assessee also paid export commission, would be no ground for disallowance of the royalty or determining arm's length price of the royalty at nil - The assessee is exporting goods to AE of Honda on principal to principal basis and the price at which export is made is higher than the domestic price - There is no justification for disallowance of the royalty on the export - Accordingly, the addition made by the TPO by determining arm's length price of royalty on export at nil is deleted – Decided in favor of Assessee. Computation of ALP in regard to spare parts etc. - Addition is with regard to the purchase of raw material, spare parts and components – Method to be adopted for computation of ALP – Held that:- For benchmarking international transaction of import of spare/components the most appropriate method is Comparable Uncontrolled Price (CUP) method - There exists a highest degree of similarity between import and domestic purchase of the spares/components - However, while applying the CUP method, it is to be ascertained whether similar goods were available indigenously. If the goods were not available indigenously, then naturally the rate of indigenous goods cannot be applied for determining the ALP. It is the contention of the assessee that when the goods were not available indigenously then only the same were purchased from AE. However, no evidence in this regard is produced by the assessee - No specific opportunity was allowed to the assessee to produce such evidence - Matter is restored to the file of the Assessing Officer – Appeal is partly allowed.
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2013 (9) TMI 795
Nature of payment received - Whether business connection of a company will lead to count its income as accrued in India - TDS on Royalty 195- Broadcasting of cricket matches - 'live feed' or 'recorded feed' - Royalty defined in DTC Bill, 2010 - DDIT has held that income can be held as accruing or arising to Nimbus directly or indirectly through or from any business connection in India. In reaching this conclusion the DDIT has noticed that the assessee, by broadcasting the matches in India will be earning income from advertisement and subscription. This income is taxable in the hands of the assessee. It is on this basis that the DDIT has held that the payment made by the assessee to Nimbus will be held as arising out of business connection in India, - Held that:- Nimbus has provided license for the live broadcast of certain matches to the assessee for a definite consideration. The rights in such broadcast vest with Nimbus. After the live broadcast by the assessee, Nimbus will continue to hold right over such broadcast. The mere act of allowing the assessee by Nimbus to live broadcast the matches for a defined consideration, in our considered opinion, would not constitute a business connection in India. In the case of R.D. Aggarwal And Company And Anothers (1964 -TMI - 49330 - SUPREME Court) the Hon'ble Supreme Court has held that the expression "business connection" undoubtedly mean some thing more than "business". A business connection has been held to be involving a relation between the business carried on by a nonresident yielding profits or gains and some activity in the taxable territories which provides directly or indirectly to the earning of those profits or gains. A stray or isolated transaction has been held to be not constituting a business connection. As the consideration for live broadcasting does not fall either u/s 9(1)(i) or u/s 9(1)(vi), such amount is not chargeable to tax under the provisions of this Act in the hands of non-resident - Following decision of Asstt. Director of Income-tax, (International Taxation), 4(2) Versus Neo Sports Broadcast (P.) Ltd. [2011 (11) TMI 23 - ITAT MUMBAI] - Decided in favor of assessee.
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2013 (9) TMI 794
Expenditure on spouse/ relatives of Director of the company is disallowed u/s 37 of the Income Tax Act - Sanctioning of foreign exchange by the Reserve Bank authorities does not conclude that the expenses on foreign tours with relatives is wholly and exclusively for the purpose of business – Held that:- Expenses incurred by the assessee on the foreign tour of spouses of the directors were wholly gratuitous and for a purpose outside the course of its business - As the incurred expenditure was for extra-commercial reasons, so, same is not deductible under section 37(1) of the Act - Secondly sanction of foreign exchange by the Reserve Bank authorities is of no help to decide the question of foreign tours undertaken by the spouses of the directors of a appellant-company. At best the fact of sanction of foreign exchange by the Reserve Bank authorities may indicate that the assessee has made out a case before them for sanctioning the requisite exchange for the foreign tour of spouses of the directors. However, that would not indicate that the Reserve Bank authorities had, in any manner, decided the question as to whether the visit of spouses is wholly and exclusively for the purposes of business of the assessee - To look in to the issue of incurring of an expenditure "wholly and exclusively for the purposes of business" is outside the purview and powers of the RBI. Taxability or otherwise of an item of expenditure is the sole domain of the Assessing Officer. Assessing Officer and the first appellate authority were right in not allowing the claim advanced by the assessee under section 37 of the Act. On the facts and in the circumstances of the case, a sum of Rs. 13.38 lakhs incurred by the appellant-company on the foreign tours of spouses of the directors has rightly been disallowed – Decided against the Assessee.
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2013 (9) TMI 793
Disallowance of royalty - assessee is accessing a scientific work which is in the nature of intellectual property - whether the subscription fees paid by the assessee to WM constitute royalty for information concerning industrial, commercial or scientific experience and the same is taxable under section 19(1)(vi) and article 13(3) of the Double Taxation Avoidance Agreement with the U. K - Held that:- what is being assessed by the assessee was a scientific work which has a character of intellectual property compiled on the web- site for the purposes of the persons in the field of oil and gas exploration and production thereof. It is a segmented information and the product is in respect of a particular country or region. At the same time, as mentioned earlier, the assessee has been specifically denied the right to sub-licence, rent or loan any product, nor is the assessee authorised to create derivative work based upon any project except as otherwise expressly provided in the agreement. WM has granted a non-transferable and non-inclusive licence to use the confidential name and passwords, if any, subject to the condition to enter the restricted portion of the website for the sole purpose of down- loading to a permitted computer and reproducing in storage media of a permitted computer copies. The terms of the agreement shall end at 00.01 GM on the last of the then current terms unless such terms are extended or terminated. If the totality of the facts are analysed the information/know- ledge available to the assessee was made through a licence ; consequently, it is covered under the definition of royalty under the domestic law under section 9(1)(iv) and (vi) along with article 13(3) of the Double Taxation Avoidance Agreement with the U.K. - Decided against assessee.
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Customs
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2013 (9) TMI 833
Confiscation of Goods u/s 71 of the Gold (Control) Act – Penalty – Redemption Fine – Held that:- The Petitioner was himself to blame in not paying the redemption fine within a period of three months from the date of the order of Tribunal or at least within a reasonable period after passing of the said order - The option of redemption was granted to the Petitioner which he failed to exercise within a reasonable period - About two decades have elapsed since the order of the Tribunal and the filing of the present Petition and by no stretch of imagination can this be regarded as a reasonable period - The Superintendent of Customs (Preventive), Gold Control, by a letter had informed the Petitioner that the Commissioner of Customs had ordered absolute confiscation of gold ornaments - The gold being vested absolutely in the Union Government, no fault can be found in the action that was pursued of selling of confiscated property - the prayer for the return of the gold ornaments or in the alternative, for the payment of sale proceeds, cannot be acceded to.
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2013 (9) TMI 832
Powers under Regulation 21 of the Custom House Agents Licensing Regulations, 2004 – Appellant was prohibited to work as Custom House Agent – Held that:- The appellant had not been given an opportunity to show cause and even the relevant statements of the concerned persons relied upon by the said authority were not furnished, there was a broad consensus between the learned advocates appearing on behalf of the respective parties that the order passed by the Commissioner, Customs, Kandla itself be treated as show cause notice and the appellant be given an opportunity of being heard on furnishing the relevant statements, which the Commissioner, Customs, Kandla had relied upon in the order and thereafter the Commissioner, Customs, Kandla to pass a fresh order in accordance with law and on its own merits.
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2013 (9) TMI 831
Application for Bail - Charge of Offence u/s 135 r.w. section 104 of the Customs Act – Held that:- The ultimate object of the Customs Act is to recover revenue which the State was being wrongly deprived of - This was an application for bail - merit was not required to be gone into very deeply but yet some touch of merit requires for the purpose of consideration of bail - It was correct that new amendment had already set in and the offence had been made non-bailable - It was equally correct that whether an offence was bailable or non-bailable, the main object of criminology was to see smooth flow of justice to arrive at a correct decision. So far no picture had been projected before the Court that the petitioner had ever attempted to show his manouvre to outfox the prosecution - the interest of the prosecution had to be looked into - The prosecution should not be made to suffer at the cost of the exchequer of the country - It was an economic offence, no doubt - But the nature of punishment had been ascribed in the Act itself - the petitioner be released on bail to the satisfaction of the learned Chief Metropolitan Magistrate, Kolkata, to the extent of Rs. 1 lakh with two sureties of Rs. 50,000/- each, one of whom must be local.
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2013 (9) TMI 830
Validity of Show Cause Notice – Rebate Claim – Held that:- The show cause notice was quashed - The Assistant Commissioner was directed to assess the claim of the writ petitioner for rebate in accordance with the above order of the Commissioner (Appeals) dated 17th August, 2009. The Commissioner (Appeals) had made various findings in favour of the petitioner on issues like adherence to the time schedule, non-evasion of duty, proper procedure being followed for export clearance, conformity with the provision of the relevant notification, genuineness of the export, payment of customs duty on inputs, production of shipping bills lorry receipts and so on - Exportation was held to be proved on duty paying in puts – Decided in favour of Assessee.
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2013 (9) TMI 829
Benefit of Duty Exemption Notifications No.46/2011Cus and Notification No.12/2012-Cus – Held that:- Having regard to the fact that the controversy, which was the subject matter of this petition, had already been referred by the respondent revenue to the Central Board of Excise and Customs to whom the petitioner had also submitted its representation dated 20 April 2013, interests of justice would be served, if during pendency of the petition or till the decision of the Central Board of Excise and Customs, whichever was earlier, the respondent authority shall permit the petitioner to avail of benefits of both the exemption notifications, subject to the condition that the petitioner will give a bank guarantee for 20% of the differential duty and bond for the balance amount as sought for by the respondent in the letter dated 8 July 2013. However, this was subject to the petitioner otherwise complying with the conditions, if any, of both the exemption Notifications. The CESTAT had consistently taken a stand that in the absence of any bar in the notification itself, it was open to an assessee to take benefit of more than one notification - This was so held in the matters of Hindustan Lever Ltd. vs. Collector [1989 (2) TMI 195 - CEGAT, NEW DELHI] and SUPER CASSETTES INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI [ 2006 (8) TMI 192 - SUPREME COURT OF INDIA ] - benefit of more than one exemption notification was extended.
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2013 (9) TMI 828
Omission and Commission in the Illegal Attempt to Export - Penalty u/s 114(i) r.w.113 (d) of Customs Act - Held that:- The order passed by the Additional Commissioner of Customs was upheld , which was the subject matter of challenge in the writ petition, was bad on the ground of procedural illegality - Therefore, the order dated 6th November, 2012 was set aside - The matter was remanded back to the Additional Commissioner of Customs - He shall rehear the matter and pass an appropriate order - He shall not rely upon the report of the BSNL unless the same had been proved in accordance with law and an opportunity to cross examine the author of the report had been afforded to the writ petitioner - In case that cannot be done, the report cannot be taken into account in deciding the matter.
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2013 (9) TMI 827
Refund of Duty Drawback – Concession Granted Retrospective OR Not - export of readymade garments - Revenue was of the view that the claim was not admissible as the petitioner had procured the goods for export from traders in open market - the petitioner had made false and wrong declaration in the drawback form as he had used the word “supplier” to avail the drawback - There was suppression of facts - Concession granted to merchant/exporters vide CBEC Circular No.16/2009-Cus on the recommendation of Drawback Committee was not retrospective – Held that:- Petitioner had not used the word “manufacturer” or stated that he had got the goods/garments manufactured on job work. Thus, it can be argued that there was no fraud, suppression of facts or misdeclaration by the petitioner. The word “supplier” used in the form clearly indicates that the goods were purchased from third parties. The show cause notice itself records that the petitioner had not filed details of the job workers or evidence of supporting manufacturer, yet the claim was accepted and payment of drawback was made. The issue raised is covered by decision of this Court in Commissioner of Customs (Export) Vs. Kultar Export [2012 (10) TMI 79 - DELHI HIGH COURT]. It is apparent from the said judgment that Government was concerned with the objections and that the distinction between manufacture/job work and trader purchasers had led to difficulties and denial of claims. Therefore, they had issued Circular No.16/2009 stipulating that duty drawback would be admissible even when merchant exporters purchase goods from the local market for export. The respondents were not entitled to recover the drawback which was paid to the petitioner - The petitioner, it was stated, has already refunded the drawback of Rs.4,00,801/- plus paid interest and penalty of Rs.50,000/-Amount of Rs.4,00,801/- along with interest deposited and Rs.50,000/- will be refunded to the petitioner within a period of two months from the date copy of this order was received - In case payment was not made within the said period, the respondents will pay interest @ 10% per annum from the date of this order till payment was made.
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Corporate Laws
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2013 (9) TMI 826
Jurisdiction of Company Law Board - Removal of auditors - Power to pass order u/s 402 - Whether, CLB was justified in law in not exercising the said powers and in directing the applicant to move a fresh application before the Regional Director under Section 224(7) - Held that:- Regional Director, being the delegatee of the Central Government, is empowered to accord previous approval under Section 224(7) for the removal of the auditors on an application being made to him by the company. Notwithstanding that Section 224(7) of the Act names the Central Government as the authority competent to accord previous approval for the removal of the auditors on the application of the company, it would still be open to the Company Law Board, to accord or refuse such approval while dealing with a petition under Section 397/398 of the Act provided the exercise of such a power has a nexus with the object sought to be achieved by the ultimate order passed under Section 402. In the case before me the pleadings before the Company Law Board show that the removal of the auditors was specifically raised. If, as held by the CLB, the Regional Director is to deal with the question of removal of the auditors, it would result in this situation, namely, that a part of the grievance in the petition under Section 397-398 would be dealt with by the RD, while the other parts of the same grievance would be dealt with by the CLB. This would result in a very anomalous situation. It is well-settled that oppression and mis-management, within the meaning of Sections 397-398, are not constituted by distinct and separate acts, but are constituted by a single continuous act and it is not permissible to dissect the conduct of the alleged oppressor into separate acts of oppression or mis-management. Order passed by the CLB is set-aside and the appeal is allowed. The CLB will now deal with the question of removal of the auditors while disposing of the appellant’s petition under Sections 397 and 398 of the Companies Act.
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2013 (9) TMI 825
Winding up of company - Company deemed unable to pay its debts - appointment of administrator - Held that:- A proceeding for winding up, it is well settled, is not a proceeding for the recovery of outstanding dues. Nor for that matter, can the remedy of a Petition for winding up be utilized to pressurise a company which is commercially solvent to pay a debt which is bona fide disputed. In the present case, there is no dispute about the debt due and payable by the Appellant to the Respondent. The company in the present case is unable to pay. The conduct of the Appellant in failing to utilise any part of the sale consideration from the sale of the MSD Division to repay the bond holders despite a solemn assurance to the shareholders, to the Stock Exchange and even despite a statement on affidavit to the City Civil Court shows a complete absence of bona fides. The fact that the Respondent has instituted a suit for recovery cannot displace the maintainability of a petition for winding up. In a petition for winding up, the issue that falls for consideration is as to whether the Company is unable to pay its debts - material on record would indicate that the Company is unable to pay its debts. The Learned Single Judge has noted that on 17 June 2013, the Company made a settlement proposal for payment to be made to the FCCB bond holders over a three year period in certain proceedings which were pending before the Securities Appellate Tribunal in appeal against an order passed by SEBI. On 4 July 2013, the Company Petition for winding up was fixed for hearing on 26 July 2013. In order to forestall the hearing of the Company Petition, the Appellant made an announcement on the website of the Bombay Stock Exchange to the effect that the Board of Directors had decided to make a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as the accumulated losses had exceeded the net worth of the Company as per the audited financial results on 30 June 2013. On 19 July 2013, the Company made a corporate announcement on the BSE website of its audited financial results for a period of nine months ending on 30 June 2013. On 19 July 2013, a reference was filed before the BIFR which was announced on 25 July 2013 in a corporate statement on the website. On 26 July 2013, the hearing of the Company Petition for winding up was fixed on 29 July 2013, when the Court was informed that a reference has been filed before the BIFR. This Court has been informed during the course of the hearing of the appeal that the reference was found not to be maintainable on 12 August 2013 - Learned Single Judge has provided adequate safeguards by directing that the administrator will ensure that the day to day functioning of the Company is not hampered. The appointment of the administrator has been made, in these circumstances, with a view to safeguard the interests of the shareholders, creditors and the workers. Mr. R.A. Dada, Learned Senior Counsel for workers submitted that forty per cent of the turnover is paid towards the salaries of the employees and many of the employees were engaged in both software and hardware business. As the Learned Single Judge noted, having regard to the track record of the promoters/directors, it was necessary in the interests of employees themselves that an administrator should be appointed in the absence of which, in all likelihood, the business and assets would be wasted and the business would be brought to a standstill. The Learned Company Judge has acted within jurisdiction in issuing this direction - Decided against petitioner.
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FEMA
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2013 (9) TMI 834
Bar in conveyance - Whether there can be a bar in conveying the property over which persons of 'Indian Origin' having rights and interests, in favour of an 'Indian Citizen' - Held that:- petitioner has not actually approached the second respondent and that there was no instance of refusing registration, as alleged by the petitioner. However, in view of the law declared, as above, this Court does not require any second thought to reiterate the same and to hold that the petitioner is entitled to have the reliefs sought for - In the said circumstance, there will be a direction to the second respondent to effect conveyance, as and when the relevant deed is produced, so as to have the desired relief, provided the document is otherwise in order and subject to satisfaction of the requirements under the Registration Act/Rules and satisfies the fees payable in this regard. So as to establish the identity of the petitioner, the petitioner shall produce the required materials, such as Passport or such other legally acceptable documents - Decided in favour of appellant.
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Service Tax
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2013 (9) TMI 838
Demand - C&F service - Commissioner upheld demand - Valuation of taxable services - inclusion of reimbursement of expenses in the gross value - Reimbursements whether taxable or not – Held that:- In INTERCONTINENTAL CONSULTANTS AND TECHNORATS PVT. LTD. V/s U. O. I. & ANR. (2012 (12) TMI 150 - DELHI HIGH COURT), it was held that Rule 5 (1) which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 and travels much beyond the scope of those sections. - prima facie case is in favor of assessee - Following decision of BENCHMARK CONSULTANTS VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND ST, COIMBATORE [2013 (9) TMI 69 - CESTAT CHENNAI] - stay granted.
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2013 (9) TMI 837
Demand - Stay of recovery - Amalgamation of company - Held that:- no substantial questions of law raised by the Central Excise department, namely that the CESTAT had erred in granting stay to the respondent dispensing with the condition of pre-deposit of service tax, interest and penalty on the ground that there was no suppression or mis-statement on the part of respondent to irregularly avail the credit with any malafide intention and the demand raised by invoking the extended period of limitation, arises from the facts of the case and requires consideration of the Court - Decided against Revenue.
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2013 (9) TMI 836
Waiver of pre-deposit - Commercial Training or Coaching Services - charitable society - Held that:- As per the first proviso to Section 35F of the Central Excise Act, pre-deposit of the duty demanded or penalty levied can be waived where the Appellate Tribunal is of the opinion that such deposit would cause undue hardship to the applicant. As we could see, the Order dated 5.4.2013 came to be passed taking into consideration all the relevant factors including the orders passed by this Court and the Apex Court in respect of the earlier demand made for the period 2003-2007 and the payments that were already made by the petitioner. Thus adopting a reasonable approach, the pre-deposit was restricted to ₹ 25 Crores which in fact is less than 1/3 rd of the total demand of Service Tax and Education Cess. The petitioner's request for modification of the said order was rejected assigning valid reasons therefor - condition of pre-deposit of ₹ 25 Crores was imposed on proper exercise of the discretion vested in the Appellate Tribunal and on proper appreciation of the facts and circumstances of the case. Therefore, the impugned order which cannot be treated either arbitrary or irrational, warrants no interference by us on any ground whatsoever - Decided against assessee.
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2013 (9) TMI 835
Condonation of delay - In explaining the delay in filing the appeals before the learned Tribunal, the appellant stated that it had entrusted its Chartered Accountant Shri K.C.Mundra to do so, but “due to some exigencies coupled with developed differences”, the appeals were not filed by him in time and eventually, its Management had to take decision for taking away the files from him and for engaging another counsel locally at Delhi. - Held that:- Not only, the statements made in the application before the learned Tribunal purportedly seeking to explain the delay are vague, those, as has been rightly observed by the learned Tribunal, do not disclose any cause whatsoever cognizable in law for condoning the same. The departure from these statements in the memorandum of appeal, in our comprehension, has an adverse impact on the veracity and authenticity of the explanation as well. Further, the purported explanation that “due to some exigencies coupled with developed differences', the appeals were not filed by the Chartered Accountant in time is not only vague but it also is suggestive of the continual knowledge of the appellant of the intervening developments. The enormous delay of one year and four months thus logically has been as a consequence of its deliberate inaction, negligence and laches, though being aware of the period of limitation for preferring the appeals - Thus, without even analyzing the plea that its Chartered Accountant entrusted with the responsibility of preferring the appeals was or was not its agent, we are constrained to hold that the appellant did fail to offer any cause far less sufficient cause to condone the delay - Decided against assessee.
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2013 (9) TMI 815
Refund of service tax - export of goods - Proof of export - Benefit of Notification - Conditions of notifications not fulfilled - Held that:- movement to Villupuram railway goods yard and then from there to the port would be treated as only transshipment and cannot be held against the assessees for denying refund. As regards non-fulfilment of the condition relating to specific mention of details of exporters invoices, in the lorry receipts and the corresponding shipping bills, I find that the assessees have attempted to correlate the export goods with the lorry receipts and the shipping bills in the form of detailed tabular chart containing details of ARE-1, date, quantity of sugar, shipping bill no. and date etc. I am therefore of the view the attempt of correlation should be carried out by the department and for this purpose, I set aside the impugned order and remit the case to the adjudicating authority who shall carry out the exercise of reconciliation so as to establish that the assessees had fulfilled condition no. (iii) of Notification No. 41/2007 as amended, after holding that the assessees have not contravened conditions of the notification - Decided in favour of assessee.
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Central Excise
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2013 (9) TMI 824
Valuation - place of removal - Short Payment of Duty – Goods Sold to Agent’s Premises - Assesse were manufacturers of Mild Steel and stainless steel Plates and Slabs chargeable to central excise duty - Revenue was of the view that the duty was required to be paid on the price at which the goods were sold from consignment agent’s premises which would include the element of freight from the factory gate to the consignment agent’s premises, the duty was being paid on lower value and as such, the short duty paid on this account – Held that:- Prima facie, the duty had not been paid on the price at the consignment agent premises and as such, the duty demand on this count appears to be on strong footing - In terms of the provisions of Section 4 of the Central Excise Act, 1944 r.w the Central Excise Valuation Rules, 2000, in case the goods were cleared to consignment agents premises from where the same were sold, it was the consignment agent’s premises which was to be treated as the ‘place of removal’ and accordingly, the assessable value would the price of the goods from the consignment agent’s premises at the time of record, which would include all the expenses incurred upto the consignment agents premises including the transportation expenses incurred upto that point. Shortage of Stainless Steel Slabs – Balance Recorded – Held that:- The demand in respect of shortage of Stainless Steel Slabs and Plates vis-`-vis the balance recorded in the RG-I register - From the records, it was seen that the stock taking had been done in the presence of the appellant’s representatives and at that time, they had expressed their full satisfaction with the method adopted for determination of weight of the finished goods on the basis of the dimensions of the slabs/ plates - The appellant were recording the weight of finished goods in the RG-I register on the same basis - Prima Facie appellant’s plea cannot be accepted. Difference between the CENVAT credit - Held that:- Imported Mild Steel Slabs and H. R. Coils, which had been cleared as such and the amount actually paid at the time of clearance which was the duty on the transaction value - Since in respect of the clearance of the cenvated items as such an amount equal to the cenvat credit actually availed was required to be paid, this demand was also on strong footing. Difference between the Raw Materials Dispatched - Held that:- According to the department, a huge quantity of raw materials sent to the job worker was not accounted for - The appellant’s contention was that just on this basis, the allegation of clandestine removal of the finished goods cannot be made - looking to the evidence on record in support of this allegation, some conditions have to be imposed to safeguard the interest of revenue in respect of this demand. Waiver of Pre – Deposit - Stay Application – Assessee was directed to submit pre-deposit – stay granted partly.
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2013 (9) TMI 823
CENVAT credit - Duty on waste product - Whether after insertion of explanation in Section 2(d) of the Central Excise Act, 1944 with effect from 10/05/2008 the Bagasse is an exempted excisable product and whether on its sale value the party is liable to pay an amount at prescribed rate in terms of Rule 6(3) of Cenvat Credit Rules, 2004? - Held that:- controversy on hand is squarely covered in Balrampur Chini Mills Ltd. versus Union of India [2013 (1) TMI 525 - ALLAHABAD HIGH COURT] in favour of manufacturer of Sugar. - Decided against Revenue.
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2013 (9) TMI 822
Waiver of pre-deposit - Held that:- By way of clarification, it may be added that if the interest has not been quantified, the appellant may be permitted to deposit 25% in cash and furnish bank guarantee in respect of the duty - Subject to fulfillment of these conditions, the deposit of interest amount shall be deemed made - Decided in favour of assessee.
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2013 (9) TMI 821
Classification of Goods - Activity Manufacture OR Not - Assesse were engaged in the manufacture of Refined Oil falling under chapter heading No.1503.00 of the Central Excise Tariff Act, 1985 –Whether the Soya Gum which was settled at the bottom of the storage tank along with some oil and the separation of that oil from the said sludge by the process of decantation/filteration so to recover some crude oil, which was sold by the assessee as recovered oil can be said to be the result of any manufacture or not - Held that:- It was seen that the assessee had categorical stand that such Soya Gum which was settled at the bottom of storage tank and was removed gently along with some oil cannot be held to be an excisable item emerged as a result of manufacturing process - We find that Commissioner (Appeals) had discussed the issue in detail and had rightly held that such Soya Gum and recovered oil cannot be held to be the goods emerging as a result of manufacture - Soya Gum and the other impurities were part and partial of the purchased crude oil - The same settle down during the storage of the crude oil in the storage tanks - The upper part of the crude oil was further taken up for refining of the same. What was left at the bottom of the storage tanks was the impurities which were already contained for the said crude oil - As such the impurities along with some oil, which settle down at the bottom of the tank were nothing but part of the crude oil itself - Similarly the separation of said crude oil from the sludge obtained by the process of filteration/decantation was again nothing but crude oil - The same was not refined by the assessee and was sold to the soap manufacturers etc. When the Soya Gum and the recovered oil were part of the crude oil, which was the starting raw material for the manufacture of refined oil, it cannot be said that the appellant have manufactured Soya Gum and recovered oil - The same one admittedly a part of the crude oil, which does not get converted into refined oil - A part of the crude oil had been used by the appellant for the manufacture of the refined oil and a part of the crude oil, which could not be used for the manufacture of refined oil, stands sold by them as Soya Gum and recovered oil - Accordingly we agree with the detailed findings of Commissioners (Appeals), wherein he had taken into account the explanatory note to Chapter 1507.00, the report of the Deputy Commissioner, as also the explanatory note of Chapter 15 – there was no infirmity in his views - the appeal filed by the revenue was rejected.
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2013 (9) TMI 820
Short Payment of Duty - Held that:- Assessee had discharged duty on the yarn and did not discharge duty on the fabrics under the mistaken belief that the excise duty is exempted on fabrics - There was no suppression of facts and it was only under bonafide mistaken belief that once the duty was discharged on the yarn, duty not to be paid on the fabrics stage. Penalty u/s 11AC – Waiver of Pre-Deposit – Held that:- The total liability had worked out around Rs.11.30 lakhs against the clearances of fabrics - The applicant has already paid an amount of Rs.8.32 lakhs on 03.04.1998 and requested for adjustment of Rs.3.79 lakhs paid by them on yarn stage - Even though the applicant has discharged duty liability on 3rd April, 1998 - prima-facie they would also be required to discharge interest also – Upon such submission rest to be waived.
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2013 (9) TMI 819
Constructive Res Judicata - Validity of proviso to Rule 8 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - whether ulta-vires to section 3A - Held that:- The challenge to the vires of the Rules in this second writ petition was barred by principles of constructive res judicata inasmuch as if the petitioner was aggrieved by the Rules, he could have challenged the Rules, when the Rules were notified or when the notice to show cause was served on him, and in any case in the first writ petition challenging the notice - The petitioner having failed to avail the opportunity and having raised all the points including the issue of the validity of the Rules before the Adjudicating Authority, cannot be allowed to file this writ petition challenging the vires, only to avoid filing the appeal - It was apparent that having failed to substantiate his case before the Adjudicating Authority, instead of filing the appeal the petitioner was taking a chance in the High Court to challenging the vires of the proviso – Decided against Petitioner.
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2013 (9) TMI 818
MODVAT Credit - Whether ‘Glass Bottles’ used for packaging/containing aerated water were eligible for modvat credit under Rule 57A of the Central Excise Rules, 1944 as it existed during the material period – Held that:- The law as settled in the reports leads to an inevitable conclusion that the circular dated 13.9.1995, wherein the Board allowed the credit of duty paid on Glass Bottles/Crates only if the value of such Bottle was included in the value of the final product in case of a claim for modvat credit, binds the revenue and they cannot take a stand that the said circular was contrary to either Section 4 of the Act or Rule 57A of the Rules. Interpretation of Explanation (iii) appended below Rule 57A - Whether the CEGAT’s interpretation of clause (b) (iii) of the explanation appended below Rule 57A of Central Excise Rules, 1944 as it existed during the material period of its order was lawfully correct – Held that:- Following C.C.E., Chandigarh-II –vs- Dhillon Kool Drinks & Beverages Ltd. [2007 (12) TMI 228 - HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ] - Under Rule 57A of the Rules, Modvat credit was admissible on the specified inputs used in the manufacture of final product - Explanation (iii) to Rule 57A of the Rules define that inputs does not include packaging material if its value had not been included during the preceding financial year in the cost of assessable value - The Tribunal had categorically found as a fact that the cost of packing material had been included in the assessable value although on installment basis and, therefore, the assessees’ were entitled to Modvat credit of duty. The plea taken by the assessees’ that the cost of glass bottles and plastic crates was included in the aerated water could not be rebutted by the revenue. Overriding Effect of Section 4 - Whether the provisions of Rule 57A of the Central Excise Rules, 1944 can override the provisions of Section 4 of the Central Excise Act, 1944 - Whether the Hon’ble Tribunal was correct in holding that the assessee was entitled to claim modvat credit by exercising his option to include the value of the durable and returnable packaging material or container in spite of the fact that such packaging material of container was specifically excluded from the definition of ‘input’ in Rule 57A of the Central Excise Rules, 1944 read with Section 4 (4) (d) (I) of the Central Excise Act, 1944 - Held that:- The respondent have been including the value of the Glass Bottles and the Plastic Crates on prorata basis in the assessable value of the final products i.e. the aerated water which was permissible under the circular dated 13.09.1995 - The department cannot take a different stand and say that the aforesaid circular offends Section 4 of the Act - The respondent also submitted the report of the Charter Accountant suggesting the aforesaid fact and, therefore, this Court does not find that the stand of the petitioner can at all be tenable. There was a distinction between a decision in a particular assessment by a quasi-judicial authority and a decision on principle by the Board - While an instruction issued u/s 37B cannot be binding upon a quasi-judicial authority under the Act, the departmental officers conducting the lis before such quasi-judicial authority cannot take a stand contrary to the directive/instruction issued. The instructions which may be binding on the Central Excise Officers were not binding on the Assessee who may question the correctness of the same before a quasi-judicial authority and before a Court - Both the quasi-judicial authority and a fortiori, the Court, can question the correctness of the instructions - Decided against the revenue.
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2013 (9) TMI 817
Loss of Molasses During Storage – Shortage Amounts to Removal of Molasses OR Not - Whether petitioner had suffered loss of molasses during storage due to natural process in the season – Held that:- The petitioner applied for remission but the application was rejected - The order was not challenged by the petitioner at any stage - It had not been challenged even in the present writ petition - Therefore, it had attained finality, meaning thereby, that plea of the petitioner that the aforesaid quantity of molasses was destroyed by natural causes during the storage was not accepted by the authorities and had failed - Since the order had not been challenged and having become final shall be treated to have been accepted by the petitioner, leaving no scope to challenge the levy of excise on the said part of alleged molasses - there was no loss due to natural process – it had been removed or disposed of without payment of excise duty and the petitioner as such was liable for its payment and penalty both – Decided against Petitioner.
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2013 (9) TMI 816
Demand of Cash Security – Held that:- Prima facie the investigation was still pending and that though the petitioner had co-operated in giving statements, he submitted a letter providing some more inputs and explaining the deficiency - Even if no show cause notice had been issued, since the investigation was still pending, the respondent had not acted arbitrarily in allowing the release of seized goods provisionally subject to furnishing Appropriate Bond in Form B-11 in which a demand of security or surety can be made in Para 3.2 of Chapter XVII of Supplementary Instructions issued under Rule 31 of the Central Excise Rules, 2002. The interest of revenue will be protected in case the demand of cash security was substituted by bank guarantee for provisional release of seized goods subject to other conditions mentioned – Decided in favour of Petitioner.
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2013 (9) TMI 814
CENVAT credit - transfer of credit - Rule 10 - transfer of second unit to the first unit - Held that:- When Rule 10 was invoked, we have perused the legislative intent appearing in Rule 10(1) of the Cenvat Credit Rules, 2004 dealing with the cases of shifting of units from one site to another site and also the occasions of merger/amalgamation/lease or transfer of the factory to a joint venture permitting Cenvat credit to be utilised. In between these two situations, we notice both the situations appearing in law have their own independent existence and speak for themselves. Ld. DR argues that the factory as a whole need to be shifted. This appears to be an absurd proposal and shall make the rule unworkable. It is elementary principle of law that the interpretation which fosters the legislative intent should be preferred to the interpretation of law which brings chaos - Decided in favour of assessee.
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2013 (9) TMI 813
Cenvat Credit of Additional Duty of Customs (CVD) - whether repacking of goods amount to manufacture of not - import of cerium chloride - Held that:- adoption of any other treatment to render the product marketable to the customer” shall amount to manufacture. It is not only packing of the goods into retail packs which amounts to manufacture. Further, it is also to be noted that Cenvat Credit Scheme is for ensuring that the credit chain from the bulk stage to the ultimate consumer is not broken. The chemical under consideration by its very nature is to be used in industrial processes and different users requiring it may need it in different quantities. What is “retail sale” depend on the product involved - Applicant had made out a prima facie case for total waiver of duty and penalty demanded under the impugned order. I grant such wavier for admission of the appeal - Decided in favour of assessee.
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