TMI Tax Updates - e-Newsletter
September 26, 2014

Case Laws in this Newsletter:

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

Articles

1. INCOME TAX IMPLICATIONS ON CONVERSION OF COMPANY INTO LLP

   By: CA Paras Dawar

News

1. RBI Reference Rate for US $

Circulars / Instructions / Orders

Service Tax

1. 179/5/2014-ST - dated 24-9-2014

Service Tax –- Joint Venture – reg.

FEMA

2. 33 - dated 25-9-2014

Exim Bank's Line of Credit of USD 52 million to the Government of the Republic of Togo

Customs

3. F. No. 450/148/2014-Cus.IV - dated 19-9-2014

Passengers Facilitation at International Airports – Reg.

Highlights / Catch Notes

Income Tax

• Court Rules No Interconnection Between Existing and New Businesses for Depreciation on Hire Purchase and Leasing Assets.

  Case-Laws - HC : Depreciation on assets of hire purchase and leasing business – setting up of new business i.e. new source of income - There is no interconnection between the businesses of the assessee - HC
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• High Court Confirms Advertisement Costs as Trading Expenses, Allowing Tax Deductions for Businesses.

  Case-Laws - HC : Advertisement and marketing expenses – Trading expenses or not - very year, the assessee has been incurring substantial expenditure on advertisements - It is an expenditure of trading nature - HC
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• High Court Affirms Assessee's Income Declaration Method, No Addition Required u/s 68 of Income Tax Act.

  Case-Laws - HC : Unexplained cash credits u/s 68 – Accrual of income - receipt of service charges for providing maintenance for five years with the supply of spare parts and another five years - assessee had offered the entire amount for tax in proportionate basis, in 5 assessment years - no addition u/s 68 - HC
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• High Court Rules Manufacturing Air Purifiers Qualifies for Deduction u/s 80IC of Income Tax Act.

  Case-Laws - HC : Claim of deduction u/s 80IC – Manufacture of air purifier or air purification systems amounts to manufacturing activity or not – the activity amounts to manufacture - HC
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• Section 40A(2)(b) Invoked: Director's Salary Tax Deduction Allowed Due to Maximum Marginal Rate Compliance.

  Case-Laws - HC : Invocation of section 40A(2)(b) - Salary paid to the Directors – The amount paid to the director had resulted in deduction of tax at source and income tax paid by the said director was at the maximum marginal rate - deduction allowed - HC
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• High Court Reviews If Export Order Commission to Non-Resident Is Technical Service u/s 9(i)(vii) Income Tax Act.

  Case-Laws - HC : Commission paid to non-resident for procuring export orders – Technical service or not u/s 9(i)(vii) - Indeed, technical, managerial and consultancy services may overlap and it would not be proper to view them in water tight compartments - HC
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• Accountability for Cash Credits: Section 68 of Income Tax Act Highlights Individual Responsibility in Company Financial Transactions.

  Case-Laws - HC : Unexplained cash credits u/s 68 - Companies are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the companies - HC
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• High Court Confirms: Interest on Debentures Not Chargeable Under Interest Tax Act.

  Case-Laws - HC : Whether the Tribunal is right in holding that interest on debentures will not form part of chargeable interest under the Interest Tax Act - held yes - HC
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Service Tax

• Consultancy Service for Share Placement Exempt from Service Tax on Merchant Banking Activities Before August 2002.

  Case-Laws - AT : Management Consultancy services - private placement of shares of the client - Since the transaction was undertaken in January, 2000 and the merchant banking activities rendered by ‘body corporate’ came under the tax net w.e.f. August, 2002, prior to that period no service tax would be leviable on merchant banking activity - AT
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Central Excise

• Sugar Duty Dispute: Clearances Made Under Free Sale Quota, Duty Paid Under Levy Quota, Raises Legal Compliance Issues.

  Case-Laws - AT : Demand of differential duty - clearances of sugar was under free sale quota and therefore, the discharge of duty liability on such clearance under levy sugar quota was not in accordance with law. - AT
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• Court Rules Processing of Petroleum Benzine and Hexane as Manufacturing, Not Mere Repacking, Under Central Excise Laws.

  Case-Laws - AT : Manufacturing activity or mere repacking activity - processing of Petroleum Benzine and Hexane for Chromatography Lichrosolv - the contention of the respondent that they have been doing merely repacking and have not undertaken any reprocessing is not correct. - AT
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• Dealer Penalized for Fraudulently Passing Excessive CENVAT Credit at 12% Instead of 8.

  Case-Laws - AT : CENVAT Credit - excessive credit passed by the dealer - Through credit @ 8% was availed, however credit @ 12% has been passed by way of illegal means. Fraudulent intent is clearly manifested - penalty levied - AT
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• Refund Denial of CENVAT Credit on Additional Excise Duty for Textile Exports Upheld by Assistant Commissioner.

  Case-Laws - AT : Refund of CENVAT Credit towards AED (T&TA) credit - export of production about 92%, under bond - the encashment of AED (T&TA) credit has been correctly denied by the Assistant Commissioner - AT
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• Penalty Imposed for Violation of Rule 8(3A) under Central Excise Rules, 2002; Justified Penal Actions Confirmed.

  Case-Laws - AT : Imposition of Penalty - violation of Rule 8(3A) of the Central Excise Rules, 2002 are clearly proved. Provisions Rule 8(3A) are self-contained requiring penal actions. Penalty is imposable - AT
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• Cenvat Credit Applies to 100% Export-Oriented Units for Inputs in Electricity or Steam Production Across Multiple Units.

  Case-Laws - HC : Cenvat credit – 100% EOU - different units - whatever goes into generation of electricity or steam which is placed within the factory which may consists of more than one unit would be an input for the purposes of obtaining credit on the duty payable thereon - HC
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• Court Rules Design Work, Materials, and Foreign Rep Costs Must Be Included in Tax Valuation for Central Excise.

  Case-Laws - AT : Valuation - inclusion of cost of design work, free issue materials, as well as the establishment cost of the foreign representative rendering the services at the manufacturer’s site in the assessable value - prim facie case is against the assessee - AT
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VAT

• Petitioner's Eligibility for Tamil Nadu VAT Compounding System Based on Turnover, Not Affected by Past Inter-State Purchases.

  Case-Laws - HC : Benefit of compounding system of assessment - TNVAT - So long as the petitioner has the taxable turnover for the year under consideration at less than ₹ 50 lakhs and so too during the immediate previous year, the taxable turnover of that year remained at less than ₹ 50 lakhs, the mere fact of his earlier years having inter-State purchase, per se, would not go against the claim of the petitioner - HC
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Case Laws:

• Income Tax

• 2014 (9) TMI 733
  Depreciation on assets of hire purchase and leasing business – setting up of new business i.e. new source of income - depreciation in respect of assets of the hire purchase and leasing business of the appellant has been allowed only for 12 months as against the claim of the appellant -assessee for 22 months. - Held that:- Assessee was having two separate bank accounts for each of the firm - assessee prepared two balance sheets and profit & loss account - The funds provided by the assessee's firm to the new business entity was shown as investment in its balance sheet - There is no interconnection between the businesses of the assessee - The existing business of the assessee is "trading of engines", whereas the new business comprised of "hire purchase and leasing" - there is no common pool of funds for both the businesses – there is no reason to interfere with the order passed by the lower authorities – Decided against assessee.

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• 2014 (9) TMI 732
  Advertisement and marketing expenses – Trading expenses or not - Held that:- The Tribunal has rightly noticed and referred to Commissioner of Income Tax Vs. Pepsico India Cold Drink Ltd. [2012 (6) TMI 256 - DELHI HIGH COURT] - the assessee is entitled to claim deferred revenue expenditure but the AO cannot treat the revenue expenditure as deferred revenue expenditure - the Act itself does not have any concept of deferred revenue expenditure - advertisements do not leave a long lasting and permanent effect in the sense that the product or service has to be repeatedly advertised - Even otherwise advertisement expense is a day to day expense incurred for running the business and improving sales - every year, the assessee has been incurring substantial expenditure on advertisements - Keeping in view the nature and character of the assessee’s business, every year expenditure has to be incurred to make and keep public informed, aware and remain in limelight - This requires continuous and repeated publicity and advertisements to remain in public eye, to do business by attracting customers - It is an expenditure of trading nature – thus, the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (9) TMI 731
  Non-speaking order by Tribunal DVO report u/s 55A - Held that:- The reasoning given in the order dated 28.03.2002 was completely obliterated and the remand made by the AO cannot be sustained - The entire premise and foundation of the order dated 28.03.2002 passed by the Tribunal was on the assumption that the Departmental Valuation Officer s report was u/s 55A of the Act thus, the matter is remitted back to the Tribunal for fresh consideration Decided in favour of assessee.

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• 2014 (9) TMI 730
  Rejection of claim of higher deduction u/s 80HHC – Held that:- Following the decision in Goetze (India) Ltd. Vs. Commissioner of Income Tax [2006 (3) TMI 75 - SUPREME Court] - the question of law is answered in favour of the assessee, but with an order of remand as the claim u/s 80HHC will have to be examined by the AO as is requested by the counsel for the Revenue - The entire claim including the question whether the assessee was a manufacturer and was entitled to claim deduction at a higher rate u/s 80HHC can be examined by the AO - the matter relates to AY 1993-94 but notwithstanding the time gap, the assessee will have to produce and prove their claim along with necessary documents – Decided in favour of assessee.

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• 2014 (9) TMI 729
  Penalty u/s 271(1)(c) – Amount voluntary surrendered by assessee – Held that:- The assessee has surrendered the amount voluntarily to purchase peace - As per the then law, the penalty was not leviable, when the revised return was accepted by the AO as decided in CIT Vs. Shyam Lal [2004 (10) TMI 54 - MADHYA PRADESH High Court] - each deposit was less than Rs. 20,000/- which is meager amount.- The assessee might have contested it on merit, but to purchase peace, he has surrendered the amount, which was accepted by the Department - when it is so, then the penalty is not attributed – thus, the order levying the penalty is to be set aside – Decided in favour of assessee.

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• 2014 (9) TMI 728
  Valuation of jewellery – Charging of capital gains - Held that:- CIT has valued the jewellery as per cost index, but the fact remains that jewellery always contains some impurity - no jewellery can be made from pure gold - This aspect was not examined by the CIT before enhancing the addition - Had he given the benefit of impurity, perhaps there was no occasion to enhance the addition - the jewellery was converted into stock in trade by the assessee - It was not an actual sale - when there are two interpretation pertaining to the charging of the capital gains, then the order passed by AO is not erroneous - It is case of "change of opinion" which is not permissible as decided in C.I.T. Vs. Kelvinator of India [2002 (4) TMI 37 - DELHI High Court] - the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue – thus, the order of the Tribunal is set aside – Decided in favour of assessee. Penalty u/s 271(1)(c) – Held that:- The Tribunal has cancelled the levy of the penalty as the addition in quantum appeal is being deleted, then there is no justification to levy any penalty u/s 271(1)(c) – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (9) TMI 727
  Set off of brought forward losses and unabsorbed depreciation against the business income disallowed – Held that:- Production of edible oil unit at Gajraula was temporarily suspended, because of losses and as business expediency, it was leased out - However, lease was terminated before due date and the production was reverted back, but unfortunately, because of loss it was leased out again - The temporary suspension of business does not convert the 'business income' into 'income from other sources' - the AO has already treated lease rent as business income - when it is so then the set off of business loss deserved to be allowed against the income arising under the head "Business" in respect of the two units - The income derived from leasing of commercial business assets, resulted in commercial income taxable under the head "Business" - Change in the mode and manner of deriving income by exploiting commercial assets either by self or by leasing the same would not change the character of income and such income would continue to be the income under the head "Business income" - the carry forward and set off unabsorbed business losses and depreciation are permissible against lease rental income - the order of the Tribunal is upheld – Decided against revenue. Interest on borrowed capital – Held that:- The assessee has borrowed some funds for expansion of the existing business, on which interest was paid - both the appellate authorities have allowed the claim by observing that the interest on borrowed funds for acquiring capital asset is also an allowable deduction u/s 36(i)(iii) - the borrowed funds was utilized for expansion of the business and the interest paid is allowable - the order of the Tribunal is upheld – Decided against revenue. Amount wrongly mentioned – Held that:- The AO has made the addition by observing that the G.P. rate was lower in comparison to the earlier years - in the earlier years, the excise duty was separately credited to excise duty payable account, whereas, during the AY under consideration, the excise duty is included in the sale price - If the element of excise duty is excluded, the G.P. rate during the year comes to 17.4% as compared to 16.69% of the last year - No defects in the books were pointed out by the AO – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (9) TMI 726
  Reopening of assessment u/s 148 - high level of operating profits - excessive deduction taken u/s 10A – Held that:- Appeal of the assessee has been allowed by the ITAT - As the position stands today, the reasons do not survive - subsequently the position may be altered in case the Revenue files and appeal and succeeds therein - Therefore, the Revenue also has to be protected - the re-assessment proceedings is directed to stand closed and the writ petition is disposed of with liberty to both sides to seek revival in case the need arises - if the case is ultimately decided in favour of the Revenue in respect of the assessment year 2009-10, then the Revenue shall be entitled to revive its proceedings pursuant to the impugned notice u/s 148 of the Act and the assessee shall not take up the plea of limitation - As of now, the re-assessment proceedings initiated by virtue of the notice u/s 148 does not survive – Decided in favour of assessee.

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• 2014 (9) TMI 725
  Unexplained cash credits u/s 68 – Accrual of income - receipt of service charges for providing maintenance for five years with the supply of spare parts and another five years - assessee had offered the entire amount of 55,12,088 for tax in proportionate basis, in 5 assessment years as the corresponding or necessary expenditure would be incurred in the said span of 5 years - Held that:- The Tribunal has referred to remand report of AO in which he had reported that expenditure made for the maintenance of equipments in the subsequent years was adjusted against the provisions made for equipment maintenance by the assessee and the provision for equipment maintenance for AYs 2006-07, 2007-08 and 2008-09 were verified by the AO – the calculations had been made on scientific basis and the balance amount was offered for taxation in the subsequent years - for a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation - where there are a number of obligations the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole - if the historical trend indicates that large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the any of such sophisticated goods would be entitled to deduction from the gross receipts under Section 37 of the Act - It would all depend on the data systematically maintained by the assessee – invocation of section 68 is not warranted - The source of money and genuineness of credit entry was never doubted – Decided against revenue.

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• 2014 (9) TMI 724
  Claim of deduction u/s 80IC – Manufacture of air purifier or air purification systems amounts to manufacturing activity or not – Held that:- The Tribunal was rightly of the view that the product produced and sold was air purification system - For manufacturing the said product, the assessee had purchased parts like base motors, filters, UV lights etc. but the final product produced was entirely different from its constituents or parts -The product manufactured or produced, i.e. the air purifier or air purification system, was completely a new and an entirely different commodity having distinct name, character and use – thus, the activity amounts to manufacture and the assessee is eligible for claim of deduction – Decided against revenue.

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• 2014 (9) TMI 723
  Assessment of income of trust - Charitable purpose u/s 2(15) – Exemption u/s 10(23C) – Advancement of education in music both vocal and instrumental, dance, painting and science, commerce - an educational institution not for profit purpose and having a gross annual receipt of more than Rs. 1crore. - Held that:- The Chief Commissioner of Income Tax neither considered the facts nor the law properly - He was required to consider whether some form of information about or training regarding a subject was being imparted by the petitioner institution – also, whether the instruction resulted in intellectual, moral or social benefit in keeping with the definition of the word “education” in the Concise Oxford Dictionary - He was also required to take into account the judicial pronouncement - the Chief Commissioner Income Tax was required to consider whether the educational process was being carried on in a systematic way by its arrangement into courses, classes, a specific number and length of classes in a day, following set syllabi etc. - The system of promotion, gradation, granting of diploma certificates etc. had also to be gone into – thus, the order of the Chief Commissioner Income Tax is set aside and the matter is remitted back for fresh consideration – Decided in favour of assessee.

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• 2014 (9) TMI 722
  Invocation of section 40A(2)(b) - Salary paid to the Directors – Held that:- Assessee was setting up hotels in Gurgaon and Hyderabad under the guidance of the Director and expenditure as on 31.03.2009 on the capital work in progress was of Rs. 36.70 Crores and due to the efforts of the Director funds of Rs. 49.99 Crores had been raised by the assessee - The amount paid to the director had resulted in deduction of tax at source and income tax paid by the said director was at the maximum marginal rate – the findings are factual and effectively and positively deal with the question of reasonableness of the payment – the order of the Tribunal is upheld – Decided against revenue.

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• Service Tax

• 2014 (9) TMI 749
  CENVAT Credit - Whether input service credit availed on outdoor catering and mandap keeper services was available to the appellants or not - Held that:- There is nothing on record to show whether any expenses were recovered by the appellants from the students. Further there is no allegation has been made in the show cause notice by the revenue. Considering the submission of ld. Counsel and after going through the judgment in the case of Toyota Kirloskar Motors Pvt. Ltd [2011 (3) TMI 1373 - KARNATAKA HIGH COURT] specifically in para 8 and 11 wherein these type of activities have been given a broad interpretation and input service credit has been allowed. I find force in the contention of the appellants. Further, present facts are similar to the facts of judgement quoted by the appellants - Decided in favour of assessee.

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• 2014 (9) TMI 748
  Imposition of penalty - Whether the appellant herein is correct in claiming that the amount of penalty of 25% of tax liability paid by him is sufficient penalty or not - Held that:- appellant has discharged entire service tax liability and interest thereof prior to issuance of show cause notice. It is also undisputed that appellant had paid 25% of the total tax amount as penalty under the provisions of section 78 of Finance Act, 1994 before expiry of 30 days of the order-in-original - appellant has vehemently urged that under Section 73 read with sub-section (1A) of the Finance Act, once show cause notice has been issued then the assessee is required to make payment of penalty. He has further argued that even before the issuance of show cause notice if the Service Tax and interest has been deposited by the assessee, still he would require to deposit the penalty as he would have known as to what penalty would be levied on the assessee, therefore, at least he should have deposited the 25% of the penalty amount within thirty days. - neither any penalty was levied by the appellant nor any quantum of penalty was fixed. Therefore, the assessee has not committed any illegality in not depositing any penalty amount - penalty levied against the assessee in excess of 25% under Sections 76 and 78 of the Finance Act, 1994, has rightly been set aside by the Tribunal. We do not find any illegality in the order of the Tribunal - Decided against the revenue.

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• 2014 (9) TMI 747
  Refund of Service Tax - export of services - effective date of Notification No. 5/2006, dated 14-3-2006 - Prospective effect or retrospective effect - whether the refund claim should be regulated in accordance with Section 11B or not - Held that:- the matter as to whether the refund claim should be regulated in accordance with Section 11B or not is required to be considered in detail and since in any case the matter has to go back to the original adjudicating authority for sanctioning the eligible amount of refund as per the ratio of the decision of this Tribunal, I feel that it would be appropriate to leave this issue as to whether Section 11B provisions would be applicable for the purpose of limitation to the refund claim or not can be left to the original adjudicating authority for a decision after considering all the submissions that may be made before him and relevant statutory provisions as well as the precedent decisions in favour as well as against the Revenue. Relevant date u/s 11AB - date of export or otherwise - Held that:- During the relevant period for which the refund claim relates, the service tax was leviable only when consideration was received. If the service was taxable during the time limit so rendered, date on which the service was to be taxed, cannot be the date of rendering service. Under these circumstances, the best approach and correct approach would be the one where we take the date of service as the date on which consideration is received whether it is part or full or advance. That being the position, for the purpose of calculation of date of export, in this case, in my opinion, the date on which consideration was received can form the basis. Whether the input services in respect of which credit had been denied by the Commissioner are to be held as eligible or not - Held that:- On going through the list of services given therein and the logic adopted in that order and considering the services which are listed in paragraph 9 reproduced above, I consider that all the services which are in dispute in this case can be considered as ‘input services’ for the purpose of refund. In the result the appeal is allowed in terms of the ratios discussed above and matter is remanded to the original adjudicating authority for considering the refund claim in terms of the observations in this order - matter remanded back - Decided in favour of assessee.

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• 2014 (9) TMI 746
  Waiver of pre-deposit - Works contract service - commercial or industrial construction service - Held that:- Since we are, prima facie, in concurrence with the conclusion of the learned adjudicating authority that the transactions entered into by the petitioner with the State of Andhra Pradesh appropriately fall within the ambit of ‘works contract’ service; since EPC contracts are classified within works contract service in clause (e) of Section 65(105)(zzzza)(ii) and the enumerated service in clause (e) does not enjoin EPC contracts executed only for commercial or industrial purposes to be within the ambit of the taxable service, we find no escape from the levy and collection of service tax, in the transactions of the petitioner which are the subject matter of the appeal - demand of service tax with interest to be deposited - stay granted towards penalty only.

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• 2014 (9) TMI 745
  Management Consultancy services - private placement of shares of the client - Held that:- From the circular dated 9-7-2001 of the Board, the scope of the term ‘merchant banking services’ has been explained in detail. From the said circular it can be seen that merchant banking services is any service provided in relation to issue management, either by making arrangement regarding selling, buying or subscribing securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management. The activity undertaken by the appellant squarely falls within this definition. The appellant is also registered as a merchant banker under the SEBI regulations. Therefore, the confirmation of demand under the category of ‘Management Consultancy Service’ is not sustainable under law. Since the transaction was undertaken in January, 2000 and the merchant banking activities rendered by ‘body corporate’ came under the tax net w.e.f. August, 2002, prior to that period no service tax would be leviable on merchant banking activity rendered by a ‘body corporate’ - Decided in favour of assessee.

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• Central Excise

• 2014 (9) TMI 741
  Exemption under Sl. No. 7 of the Notification No. 6/2006-CE - MS Pipes cleared for Water supply scheme - Certificate of intended use - Held that:- appellant is a job-worker - no excise duty is chargeable in the facts and circumstances of the case under the provisions of Notification No. 6/2006-CE on MS Pipes etc. cleared to Nagpur Municipal Corporation for water supply scheme, Pune-IV from it sources to the plant and from there to start point and also satisfied the other condition being pipes of outer diameter exceeding 10 cm when such pipes are integral part of the water supply project stipulated at Sr. No.1 of the Notification is satisfied. Further, the appellant satisfied the condition No. 4 of the said Notification which requires for production of a certificate issued by Collector/District Magistrate/Development Commissioner of the District in which the plant is located, is produced to the Dy. Commissioner / Addl. Commissioner of Central Excise, having the jurisdiction, to the effect that such goods are cleared for the intended use specified in column No. 3 of the table. We further hold that such certificates have to be issued only post supply made by the District authority, as the said condition requires certificate to the effect that "such goods are cleared for the intended use". Thus, we also hold that the Commissioner has misconceived the condition by observing in the impugned order that such certificate is required to be obtained prior to clearance of the concerned goods/pipes - matter remanded back - Decided in favour of assessee.

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• 2014 (9) TMI 740
  Demand of differential duty - appellant cleared certain quantity of sugar during November 1997 to December 1997 paying the concessional rate of duty applicable to levy sale sugar @ Rs. 52/- per quintal - Sale was treated as sale from “Free Sale Sugar” - Subsequently Directorate paid the differential amount of price between levy sale sugar and free sale sugar amounting to Rs. 46,17,427.28 which was received by the appellant in January 1999 - Assessee did not pay the differential duty of Rs. 5,17,473/- on the clearances of 15,681 quintals of sugar - Held that:- From a reading of the tariff description CETH 1701.30 under which the appellant cleared the goods were required by the Central Government to be sold under the provisions of Essential Commodities Act. In the present case though the Directorate of Sugar vide release order dated 30/09/97 and 27/10/97 had directed the appellant to release sugar of quantity of 16,587 quintal under levy sugar quota, subsequently, vide letter F. NO. 1-5/97 SC-II dated 20/10/1997 had directed that the sale be treated as free sale sugar and not as levy sugar. The goods were cleared during November to December 97 and therefore, at the time of clearance of the goods, the goods were treated as free sale sugar and not as levy sugar. Further, vide letter dated 11/12/98, the appellant/assessee was paid differential amount of price between levy sugar and free sale sugar amounting to Rs. 46,17,427.26 and therefore, clearances of sugar was under free sale quota and therefore, the discharge of duty liability on such clearance under levy sugar quota was not in accordance with law. Similarly, interest was demanded under Section 11AB and penalty was sought to be imposed under Rule 173Q read with Section 11AC. Though, the Central Excise Rules, 1944 were substituted by Central Excise Rules, 2002, the provision for demand of duty short paid, not paid or erroneously refunded is Section 11A of Central Excise Act, which was in existence both in 1997 as well as in 2002. Similarly, the provisions for demand of interest invoking Section 11AB is also correct as the said provision was in existence both at the time of clearance a well as at the time of issue of show-cause notice. Therefore, it is incorrect to say that the notice was issued under non-existent provision. It is clear from the records that when the Directorate of Sugar converted the release from levy sugar into free sale quota, the said fact was never intimated to the department by the appellant. Further, even when the consideration was received for the clearances of sugar under free sale quota, the appellant did not inform the department of the receipt of enhanced consideration. Therefore, there was a suppression or willful mis-statement of fact on the part of the appellant as alleged in the show-cause notice and therefore, the invocation of extended period of time is clearly sustainable. Interest is applicable when there was a short payment for the delay in payment of duty. In any case, interest is a compensatory payment for the delay in payment of duty. Accordingly, whenever there is a delay in payment of duty, interest liability has to be discharged from the due date of payment till the actual date of payment. However, penalty is set aside - Decided partly in favour of assessee.

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• 2014 (9) TMI 739
  Rectification of mistake - Scope of SCN - Valuation of goods - Held that:- One of the grounds taken for this allegation was that there were additional considerations flowing from M/s. Legrand to M/s. DIPL by way of free supply of moulds, dyes, certain equipments, free supply of R&D material, provision of manpower to supervise quality control and so on. Thus the allegation that additional consideration flowed from Legrant to M/s. DIPL was clearly spelt out in the show cause notice in several paragraphs in the show cause notice. It was further alleged that in view of these considerations, DIPL was incurring a loss of Rs. 12 lakhs per year thus keeping the price below the cost of production. Thus, in the show cause notice the charge of undervaluation against the applicant-assessee and the grounds therefore were clearly spelt out. Such consideration ought to be included in the assessable value under Rule 6 of the Central Excise Valuation Rules. Mere non-mention of Rule in the show cause notice does not vitiate the show cause notice. One of the decisions relied upon for inclusion of the additional consideration in the assessable value of the goods sold by DIPL is the apex Court's decision in the case of Fiat India Ltd. [2012 (8) TMI 791 - SUPREME COURT]. In the said case, the hon'ble Apex Court held that if goods are sold below cost, resulting in artificial depression in prices such prices are not "normal price" for the purpose of levy of excise duty. It is a settled position in law that when the apex Court lays down the law, the same has to be applied with full force in similar facts obtaining in other cases. In these circumstances, the argument that this Tribunal committed an error merits rejection. The order was passed by the Tribunal on 14th November 2013 when the said circular was not in existence at all. Therefore, when the circular was not in existence, we do not understand how the order passed by the Tribunal could be faulted on the basis of the said circular. In any case, the circular was issued by the Board which is not binding on this Tribunal. Matter remanded back - Rectification denied.

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• 2014 (9) TMI 738
  Exemption under Notification No. 3/2001-CE - exemption to kraft paper and boards cleared for home consumption up to a quantity of 3500 MTs in a financial year - two units of the assessee situated in the same premises - revenue contends that that Unit No. II cannot be treated as a separate factory for claiming exemption as there is no separate excise registration for Unit No. II - Held that:- Any premises or part of any premises wherein any manufacturing process is carried out is a factory for the purpose of Central Excise Act. In the present case, if we apply the definition to Unit No. II, which is located in a different building and has its own plant and machinery for manufacture and where manufacturing process is undertaken is a factory. Therefore, the contention of the Revenue that, merely because there is no separate excise registration there was no separate factory is bereft of any logic and accordingly the same has to be rejected. Further, it is also on record that, before commencement of production, the appellant had intimated to the department that they are commencing production in Unit No. II and they will be applying for Central Excise registration after crossing the exemption limit of Rs. 10 lakhs. It is also on record that, subsequently on 12/03/2002, the respondent-assessee applied for registration for Unit No. II and the department granted separate Central Excise registration for Unit No. II effective from 01/04/2002. The very fact of granting separate Central Excise registration for Unit No. II by the department itself proves that Unit No. II is a separate Central Excise registration. Therefore, non-obtaining of registration prior to 01/04/2002 does not mean that the two units were only one factory and they are not separate factories. - Following decision of Rollatainers Ltd. vs. Commissioner of Central Excise, Delhi III [2004 (7) TMI 92 - SUPREME COURT OF INDIA] - Decided against Revenue.

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• 2014 (9) TMI 737
  Manufacturing activity or mere repacking activity - Whether activity of re-packing/re-labeling/re-fining of laboratory chemicals undertaken by the appellant in respect of Petroleum Benzine and Hexane for Chromatography Lichrosolv - Held that:- A perusal of the flow chart clearly shows that the Hexane raw materials and petroleum ether 60.80 are charged into a reactor and thereafter, concentrated sulphuric acid is added and stirred and the mixture is left for 4 to 5 hours room temperature. After stirring is complete, the acid is drained and the absence of acid layer is checked. Thereafter Ph value of the material is checked till it reaches 7 or sodium carbonate washing is done so as to reach the Ph value of S7. After removal of the acid, the material is treated with AQ sodium Carbonate to remove 100% acid. Similarly in the letter dated 31/01/2008, the manufacturing process of petroleum benzene 60-80 Grand Hexanes chromatography grade is described. It is stated that raw material, namely, hexane fraction from petroleum is charged in to a reactor, treated with acid and aqueous Sodium Carbonate solution is added to remove the acid. The material is checked for neutral PH-7. Thereafter, the material is send for quality analysis in semi finished condition and after getting the analytical report, the material is filtered and packed in consumable pack of 1Lt. glass bottle. After packing, the filled bottles are then pasted with product labels and then sent to shipper ready for dispatch. The contention of the respondent that they have been doing merely repacking and have not undertaken any reprocessing is not correct. The value addition which the appellant has achieved on account of these processes is of order of 200% which is substantial. If the activity undertaken by the appellant is merely repacking, we do not understand how a value addition 200% could be achieved. Therefore, the argument of the appellant that they had undertaken only re-packing is without any basis and merits rejection. In the label for the input raw material, the product is merely declared as Petroleum Benzine 65/70. There is no indication as to the usage for specific industry or otherwise. It is also observed that BIS 3470 – 2002 lays down specifications for hexane, food grade, the parameters of which are satisfied by the products marketed by the appellant. Therefore, we have to conclude that a new product has emerged, having a distinct character, name and use after the various processes undertaken by the appellant and therefore, these processes undertaken by the appellant and therefore, the processes undertaken by the appellant amounts to 'manufacture' as defined in Section 2 (f) of the Central Excise & Salt Act, 1944. Invocation of extended period of limitation - Held that:- department was aware of the various activities undertaken by the appellant. If that be so, the department cannot plead that the appellant had suppressed any fact with respect to the activities undertaken by them and the department should have taken action well within the normal period of limitation. Hence, invocation of the extended period of limitation for confirmation of duty cannot be upheld in the present case. Therefore, duty demand in the present case is sustainable only for the normal period of limitation. Matter remanded back - Decided partly in favour of Revenue.

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• 2014 (9) TMI 736
  CENVAT Credit - excessive credit passed by the dealer - Whether a dealer could have passed on higher credit @ 12% when credit was available only @8% - Held that:- It is admitted by Commissioner (Appeals) in his order that wrongful higher credit has been availed by M/s ABS Steels Ltd. Bhilai. Duty Paid by SAIL was 8%, however, credit passed by M/s ABS Steel was 12%. Acting as dealer and clearing inputs as such, they could not have passed on credit at 12%. This is basic principle of law unless specified otherwise. Once it is evident, excess passing of credit is unlawful manifesting intent to cause subterfuge to revenue. Case laws referred by revenue also amplify the position. Commissioner (Appeals) despite accepting the facts on record, has tried to justify passing on higher credit by the respondents on a ground which is totally unlawful and flimsy. Further it is also evident that respondent i.e. M/s D.M. Engineering (Respondent No. 2) have not taken adequate steps to ensure that no extra credit is availed. Fraud prevention steps are inbuilt in Rule 7 (2) of Cenvat credit Rules 2002. Small effort at their level would have clearly brought out that original material has suffered duty @8% but credit has been passed on @12%. It is clearly established that M/s D.M. Engineering Ltd. (Respondent No. 2) has passed extra amount of credit by manipulating entries in record. Through credit @ 8% was availed, however credit @ 12% has been passed by way of illegal means. Fraudulent intent is clearly manifested. Reversal of excess credit is justified as claimed by revenue. Of course, invocation of penal action is also justified. - Decided against Revenue.

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• 2014 (9) TMI 735
  Refund of CENVAT Credit towards AED (T&TA) credit - export of production about 92%, under bond without payment of duty under Rule 19 of the Central Excise Rules, 2002 - Whether encashment of the Cenvat credit in respect of the inputs used in the manufacture of finished goods, which were not exported, but were cleared for home consumption is encashable in terms of Rule 5 of the Cenvat Credit Rules - Held that:- the encashment of AED (T&TA) credit has been correctly denied by the Assistant Commissioner and as such the impugned order of the Commissioner (Appeals) permitting encashment of this credit is not correct. Encashment of credit in respect of inputs contained in waste cleared for home consumption - Held that:- the encashment of this credit is also not permissible and the same has been correctly disallowed by the Assistant Commissioner. - Decided in favour of Revenue.

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• 2014 (9) TMI 734
  Imposition of Penalty - Violation of Rule 8(3A) - Held that:- Rule 8 (3A) categorically states that the assessee shall pay excise duty for each consignment at the time of removal, without utilizing the Cenvat credit till the assessee pays the outstading amount including interest thereon. The consequence for non-payment of excise duty is also indicated in the very same section as it provided that in case of failure to pay the amount, it shall be deemed that such goods have been cleared without payment of duty and the consequence of penalties as provided in the rules would follow. Rule 8(3A) does not permit the assessee to pay the excise duty by using the Cenvat credit. The provision retrained the assessee from using Cenvat credit till the entire outstanding amount including interest is paid. The explanation is only for the purpose of making the position clear. violation of Rule 8(3A) of the Central Excise Rules, 2002 are clearly proved. Provisions Rule 8(3A) are self-contained requiring penal actions. Penalty is imposable - Decided against assessee.

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• CST, VAT & Sales Tax

• 2014 (9) TMI 744
  Addition in turn over - Penalty - Dismissal of appeal for non compliance with pre deposit order - Held that:- When the appeal before the learned tribunal was against the order passed by the first appellate authority dismissing the appeal on nondeposit of pre-deposit and all through out the learned advocate appearing on behalf of the appellant requested the learned tribunal to remand the matter to the first appellate authority and more particularly when as per the order passed by the tribunal, the appellant deposited the entire amount of pre-deposit i.e. Rs. 1,05,400/- and as first appeal preferred by the appellant for the earlier assessment year was pending before the first appellate authority, in the facts and circumstances of the case, more particularly when as such the learned tribunal has remanded the appeal to the first appellate authority to the extent of penalty and addition made by the Assessing Officer, we are of the opinion that the impugned judgement and order passed by the learned tribunal dismissing the appeal with respect to duty deserves to be quashed and set aside and the matter is required to be remanded to the first appellate authority on all the grounds rather than restricting the remand to the extent of penalty and addition made by the Assessing Officer only - Decided in favour of assessee.

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• 2014 (9) TMI 743
  Benefit of compounding system of assessment - Tamil Nadu Value Added Tax Act, 2006 - Held that:- Perusal of the order of the respondent shows that nowhere it is stated therein that the petitioner's turnover during the previous years relevant to the year under consideration crossed Rs. 50 lakhs, or for that matter this year. In the above circumstances, in the absence of any provision like the one referred to by the assessing officer on the previous year turnover having inter-State sales turnover too to disentitle the petitioner from claiming compounded rate of tax, I do not find any legal support to the contention of the respondent that the petitioner is not entitled to have the benefit of the compounded rate of tax as under Section 3(4) of the Act. So long as the petitioner has the taxable turnover for the year under consideration at less than Rs. 50 lakhs and so too during the immediate previous year, the taxable turnover of that year remained at less than Rs. 50 lakhs, the mere fact of his earlier years having inter-State purchase, per se, would not go against the claim of the petitioner to have the assessment done under Section 3(4) of the Act. - Matter remanded back - Following decision of Bharani Readymades Vs. State of Tamil Nadu and another [2014 (8) TMI 897 - MADRAS HIGH COURT] - Decided in favour of assessee.

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• 2014 (9) TMI 742
  Availability of benefit of exemption of sale of the used cars - Karnataka Value Added Tax Act, 2003 - Whether notification No.FD.300.CSL.05 dated 24.10.2005 as it stood during the period from 24.10.2005 to 31.7.2007 is applicable to the sale of used cars by all dealers or does it apply only to dealers engaged in purchase and sale of the used cars - Held that:- Tribunal did not observe in so many words that the first condition in the notification dated 24-10-2005 was not fulfilled, in effect, it meant that the first condition in the notification was not satisfied by the assessee. The fact remains that the assessee did not have any occasion/reason nor did the authorities below granted an opportunity to the petitioner-assessee to place on record the materials to satisfy whether they fulfilled both the conditions in the notification. The Revision Petitions are partly allowed and remanded to the Assessing Officer to once again examine the matter in the light of the observations made in this order and shall grant an opportunity to the petitioner-assessee to place materials in support of their case that they satisfy both the conditions as stipulated in the notification dated 24-10-2005 - Decided in favour of assessee.

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• 2014 (9) TMI 721
  Refund of excess tax - export of goods - Karnataka Value Added Tax Act, 2003 - petitioner has effected exports to an extent of nearly 95% of the goods manufactured by it - Held that:- On perusal of the endorsement dated 06.11.2013, it is noted that the reason for refusing to refund the excess input tax is that the assessment for the year 2012-13 would have to be audited. It is only after the audit of the said accounts that the excess tax paid could be refunded. The reason given for the refusal of refund of the excess tax paid by the assessee in my view, is not in consonance with the Rules. The quantum of tax to be refunded is also an admitted fact as well as the eligibility of the petitioner to receive refund - impugned endorsement is contrary to Rule 126 of the Rules and therefore, it is quashed - Decided in favour of assessee.

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