Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
September 4, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Articles
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Undisclosed income u/s 68 - Genuineness of Gift - Tribunal erred in law in dismissing the appeal only on the ground that since the 3rd Member had agreed with the Accountant Member, the appeal deserves to be dismissed. The question of genuineness of gifts in view of the opinion of the 3rd Member was not considered on merits and was thus still open - matter remanded back - HC
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Deduction u/s 80IB - Duty drawback refund - Nexus with profit - Everything hinges on the findings about the degree of nexus between duty drawback receipts and the industrial undertaking, and it is only when there is a clear finding on this aspect that the correctness of assessee's claim can be tested on the principles of law - AT
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Exemption u/s 11 - violation of section 11(1) and 11(1)(b) - Merely advertising the fact that facility of hostel, seminar halls, auditorium etc. can be used by organizations interested in having leadership programs for the benefit of youth does not make the activity a commercial activity - exemption to continue - AT
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Disallowance u/s 40A(3) r.w.r 6DD - Cash payment - as per the amended provisions, the said provisions shall apply only if the aggregate amount of payments made to single party in a day exceeds Rs.20,000/-. if an assessee makes payment of Rs.20,000/- in a day and he so makes payments in five days, then such splitting up of payments would not be hit even by amended provisions. - AT
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TDS on freight - who is liable for TDS supplier of buyer (Assessee) of the goods - If the supplier takes the responsibility to deliver the goods to the doorsteps of the assessee, then it can be inferred that the contract exists between the lorry owners and the supplier. In that case, even if the assessee makes payment of freight charges, it would be considered as payment made to the concerned supplier. - AT
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Disallowance of depreciation - assessee had claimed 100 percent depreciation as the project was completely abandoned later in the year 1999. Since the machinery was never put to use by the assessee no depreciation is allowable for the assessment year 1998-99 - AT
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Deduction u/s 54F - Exemption from capital gain - merely because the property acquired is in a foreign country, exemption cannot be denied if all other conditions are satisfied - AT
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The entire personal scale business had been sold as a going concern for a lump sum amount, it was a case of a slump sale as defined in section 2(42C) and the profit arising from such slump sale is chargeable to tax as capital gain under the provisions of section 50B - AT
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Rejection of books of accounts - The fact that the assessee has sold its products to its sister-concerns at a price lesser would not be a sufficient ground to come to a conclusion that the books of account of the assessee are not complete and correct. - AT
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Sales promotion expenses - Whether bogus or Genuine - if the sellers are not filing their sales tax return, parties dealing with such person cannot be questioned or held responsible for such lapses. The whole payment has to be considered in the light of the provisions of section 37(1) - AT
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Expenditure incurred on renovation of showrooms on rented premises - Revenue or capital expenditure - - assessee would continue to be the owner of these equipments, though they were installed in the premises of the dealer - held as capital expenditure - AT
Customs
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Classification of Goods - import of Globes/Angle Valves and Cylinder Valves for use in agriculture and/or horticulture purpose - the appellants' claim for the benefit of exemption Notification for the items falling under Heading 84.24 claiming nil rate of duty under Notification No. 56/95 was justified - AT
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Benefit of Notification No. 21/2002 - Assesse setup Petroleum Refinery and imported mobile cranes and claim concessional rate of duty - Cranes not specified in the list - The terminologies used in the Notification would have an important role to play. Where the exemption Notification ex facie applies, there was no reason as to why the purport thereof would be limited by giving a strict construction thereto - exemption allowed - AT
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Benefit of Exemption Notification – import of stainless steel melting scrap - when there were Notifications in force simultaneously then that Notification which was beneficial to the assessee should be applied - AT
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Whether the goods imported by the assesses and declared as raw/rough marble blocks, claiming duty free clearance against DEEC licence were actually rough Marbles or the same are limestone - goods were marble - AT
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Demand of differential duty - Once the assesse had admitted to under-valuation and mis-declaration of goods and also discharged the duty liability willingly - he cannot turn around and now say that the valuation done by the Customs authorities was not sustainable in law - AT
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Rejection of Transaction value - Undervaluation - Appellants had imported the concentrate Scotch whisky for dilution and sale and not for blending - the explanation given by the appellant for obtaining the lower price in respect of the supplies from the foreign supplier was convincing and there was no reason to reject the transaction price declared by them - AT
Corporate Law
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Exclusive Right over Trademark - no one can claim exclusive right for the word 'IMPERIAL' since the word 'IMPERIAL' was only a common word - the petitioner had also registered yet another trade mark 'IMPERIAL RED' - Therefore, the word 'IMPERIAL' had to be looked into along with the colour to decide the issue, 'whether the trade mark of the petitioner could be registered or not' - HC
Service Tax
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Sale of software / download of software - (a) If the software is to be supplied by way of electronic download of software, which involves provision of service and hence taxable. - (b) Applicant has granted license to run Microsoft software is a service and hence liable to service tax. - (c) transfer of software on media will not attract service tax. - AAR
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Service tax liability - Classification - Bundled service - Business Auxiliary service - operating specified Spot Billing Centres and their maintenance - Appellate Commissioner erred in concluding that the transactions of the assessee constituted support services for business or commerce and not business auxiliary services, as held by the adjudicating authority - AT
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Reverse charge on GTA service - it was doubtful whether Revenue can insist that payment should be made by the consignor and not by the consignee especially having regard to the fact that in these cases the payments were made by consignees - stay granted - AT
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Business Auxiliary Service (BAS) u/s 65 (105) (zzb) - Sale of tickets - airlines tickets purchased from GSA/IATA - No commission received from GSSA/IATA agent - Prima facie strong case was in the favour of assessee - stay granted - AT
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BAS - the appellant (Air Travel Agent) used central Computer Reservation Systems (CRS) software - Department had not made any effort to establish that there was Service provider/ receiver relationship between the appellant and CRS developer - When such relationship was not there, there was no service involved between them - No serviced tax on incentive received for use of CRS - Comm
Central Excise
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MODVAT / Cenvat Credit – Capital Goods - Manufacturer versus trader - The appellant had only acted as a trader or as an exporter in relation to the machinery purchased by it, which had been exported and used for setting up a sugar plant in a foreign country - credit not allowed - SC
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Cenvat credit - Input services - Nexus with Business / manufacturing activity - Where the expenditure is incurred by the company in its books of accounts there is a presumption in favour of the appellant that the service is availed in relation to their business. So long as Revenue has not proved anything to the contrary - credit allowed - AT
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Penalty u/s 11AC – Reversal of credit before issuance of SCN - he Modvat credit irregularly availed was reversed prior to the show cause notice, does not afford a good defence of good faith and could not be sustained in law - penalty to be levied - HC
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Entitlement of MODVAT Credit - Capital Goods - ownership - Credit availed by the Job Worker - there was no justification in the Department taking a diametrically opposite view - The clarificatory letter clearly indicated the intention of the Revenue to grant relief in respect of job worker and to the persons who obtained capital goods - HC
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MODVAT credit - CVD paid through DEPB - Notification No.34/97 - In the background of DEPB Scheme and the purpose of MODVAT Scheme, we hold that availing of credit is as good as tax payment for the purpose of Rule 57Q of the Central Excise Rules. - HC
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CENVAT Credit - Separate Accounts - Prima facie it was impossible for the Appellants to maintain separate account and inventory of Zinc Skimming used for manufacture of Zinc Ingots and Zinc Sulphate (Agriculture grade) for the reason that one final product was the by product of the other, Rule 6(3)(b)/6(3)(i) read with Rule 6(2) of Cenvat Credit Rules, cannot be invoked - proportionate reversal by the assessee is acceptable - AT
VAT
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Penalty Proceedings u/s 4-B(5) of the Trade Tax Act, 1948 - The penalty may not be imposed merely because there was a technical or venial breach and not deliberately defiance of law or conscious disregard of obligation by the assesse - The department must establish some sort of mens rea - HC
Case Laws:
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Income Tax
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2013 (9) TMI 112
Deduction u/s 80U - Stay of demand order - Held that:- assessee is physically handicapped person, suffering from 52% physical disability because as per return of income, he is claiming deduction under section 80-U of the Income Tax Act, 1961. The assessee has also attached a copies of Income Tax returns for the assessment years 2010-2011, 2011-2012 & 2012 -2013 along with the computation of taxable income, which shows that the financial position of the assessee is very weak - it is a fit case for grant of stay of outstanding demand in dispute because the assessee has already paid Rs.15,22,450/- out of total demand in dispute and to meet ends of justice, it is sufficient to grant stay of demand - Decided in favour of assessee.
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2013 (9) TMI 89
Undisclosed income u/s 68 - Genuineness of Gift - Held that:- It was found that though the bank pass book is not a book maintained by the assessee for the purpose of Section 68, it made no difference whether Section 68 and Section 69 of the Act would be applicable. The assessee is a wholesale cloth merchant doing the business under the name of Shri Ganesh Traders, which was maintaining the accounts. The accounts stood audited under Section 44AB of the Act in respect of the business as well as personal accounts, which were compiled as final accounts in the form of combined profit and loss account, capital account and personal balance sheet and reflected the capital investments in Shri Ganesh Traders. The assessee had produced these accounts before the Assessing Officer and thus the Tribunal opined in its majority opinion of the Accountant Member and the 3rd Member that Section 68 would be attracted and that even if Section 69 is referred to, the addition was justified under any of these two Sections as the sum was found credited in the books of assessee maintained for the previous years - both the Accountant Member and the 3rd Member have expressly recorded in their orders that they have not gone into the merits of the additions. The 3rd Member also observed that he has refrained himself from getting into the merits of the additions although learned counsels, who appeared, presented certain case laws, which were relevant for deciding the issue on merits. The Accountant Member and the 3rd Member, after having decided the question of law, should have considered the question of genuineness of gifts, which was pressed by the counsel appearing for the assessee. The assessee has lost the right of second appeal on the question of genuineness of gifts, on its merits - Tribunal erred in law in dismissing the appeal only on the ground that since the 3rd Member had agreed with the Accountant Member, the appeal deserves to be dismissed. The question of genuineness of gifts in view of the opinion of the 3rd Member was not considered on merits and was thus still open and on which the Tribunal did not give any decision - matter remanded back. - Decided in favour of assessee.
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2013 (9) TMI 88
Capital of Revenue expenditure - Disallwance of expenditure - Replacement of machinery - Whether the replacement of machinery parts will amount to revenue expenditure or not - Held that:- in considering the claim of the assessee, the decision must be guided by business prudency of the necessity or expediency which compel the assessee to carry on such repairs/replacement and if this repair ultimately has gone in for bettering its business profits in the nature of increasing its profits, as held by the Supreme Court in the case of CIT Vs Ramaraju Surgicial Cotton Mills [2007 (8) TMI 39 - SUPREME COURT OF INDIA] through increase in the production capacity, then the outlay, not being just to carry on the business to earn profit out of its existence, but to enlarge its profit-earning capacity, the expenditure may fall for consideration under the head of "capital expenditure" - Even though the assessee has furnished list of items chart, the data which are available were not available before any of the Appellate Authorities for coming to the right conclusion herein - Hence, the proper course herein is to set aside the order of the Income Tax Appellate Tribunal and remit the matter back to the Commissioner of Income Tax (Appeals) for de novo consideration - Decided in favour of assessee.
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2013 (9) TMI 87
Disallowance u/s 40(a)(ia) - Reimbursement Expenses & Service Charges - Held that:- It is evident that nature of payment is reimbursement as can be verified from the bills issued by M/s. Robinson Air Services for payment made to the Custom Department. These payments were made by the assessee to his agent which were not principal to principal. There is also no profit element in these payments. Thus, TDS is not liable to be deducted on it - Decided in favour of assessee. Disallowance of interest expenses u/s. 36(1)(iii) - Held that:- The appellant had not able to prove whatever reply with evidences produced before the CIT(A), had been furnished to the A.O. at the time of assessment proceeding, as per paper book submitted by the appellant on page nos. 1 to 4 & 5 to 8 i.e. written submission. It is also evident from the order of the CIT(A) that he has not allowed any opportunity to the A.O. on the additional evidence admitted by him during the course of appellate proceeding. Thus, in the interest of justice, on this issue, order of the CIT(A) is set aside for de novo and also directed to allow reasonable opportunity of being heard to the A.O. and pass necessary order as per law - Decided in favour of assesee.
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2013 (9) TMI 86
Undisclosed income - Block assessment - Search and seizure - other party - Section 158BD - Held that:- evidences/materials which are relevant are the copies of two agreements found during the course of search. The said agreements were entered between the searched party and the assessee herein. Thus, the impugned materials belonged to both the parties. The said agreements revealed money transactions, which have been accepted by the assessee herein. Hence, it may not be correct to say that the AO of the searched party could not draw conclusions about the undisclosed income of the assessee herein, as observed by Ld CIT(A). On the date of search itself, the ADIT examined the assessee herein u/s 131 of the Act by administering Oath and the assessee herein has confirmed the veracity of the agreements and also the money transactions noted therein - assessee, being the person other than the searched person, has himself has admitted and accepted the materials found during the course of search, that too, on the date of search itself. In this kind of situation, the AO of searched person was aware of this fact at the time of receipt of the materials and documents from the authorised officer itself, i.e., without examining the seized materials, the AO was aware of the fact that the impugned agreements also belonged to the assessee herein and further he is also aware of the fact that the assessee herein has also accepted the veracity of the agreements and the money transactions recorded therein. In this kind of clear situation, it may not be correct to insist that the AO should necessarily record the satisfaction contemplated u/s 158BD of the Act, as the same would mere be an empty formality, particularly in view of the fact that the assessee herein himself has accepted the incriminating materials - The satisfaction of the Assessing officer of the searched person would be mandatory, if the undisclosed income of such other person is found out by him for the first time and further the said materials were not confronted with such other person - the Assessing officer, before proceeding to assess the undisclosed income, should assume the jurisdiction over the said person in a proper and legally permitted way. There is no dispute in the instant case that the assessing officer of the assessee herein has assumed jurisdiction in a proper manner by issuing notice u/s 158B r.w.s. 158BC of the Act. Accordingly, in our view, the assessment framed by the AO u/s 158BD r.w.s. 158BC of the Act cannot be find fault with, in view of the peculiar facts and circumstances of the instant case - notice issued u/s 158BD was legally tenable - Decided in favour of Revenue.
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2013 (9) TMI 85
Deduction u/s 80IB - Duty drawback refund - Nexus with profit - Whether deduction under section 80 IB was available with respect to refund of excise duty - Held that:- The assessee is virtually a one hundred percent export oriented undertaking - What clearly emerges from these facts is that the industrial undertaking was used only for the purpose of manufacturing and exporting the export products. In a situation in which an important part of the revenues generated as a result of the exports, which is as high as almost 7.4% of total turnover, is duty drawback itself, it may not really be correct to say that duty drawback receipt is an incidental, unintended, ancillary or independent benefit, which can be seen as a standalone or independent source of income. In a situation in which the duty drawback receipts are nothing but additional or incidental profits, and when even in the absence of duty drawback receipts, operations of industrial undertaking make business sense - In a particular fact situation, even material cost may be required to be adjusted for duty drawback - The industrial undertaking so manufacturing precision equipments is a commercial venture for making profits, and exports or no exports, the industrial undertaking is in business anyway. In such a situation, in case the assessee is able to make some exports of the same product on the similar price, the duty drawback income is an incidental or standalone income. However, in another situation, in which, for example, the assessee is a one hundred percent exporter, and he is operating on the basis of costs duly adjusted by duty drawback, as evident from the fact that but for duty drawback receipts, he will have virtually no profits, the duty drawback receipts could as well have the first degree nexus since these cannot be viewed as incidental or ancillary profits or standalone income - What should have been really examined by the authorities below is whether or not, on the facts of this case, the duty drawback receipts can be said to have first degree nexus with the industrial undertaking or whether these profits can be said to be ancillary, incidental or standalone income. Everything thus hinges on the findings about the degree of nexus between duty drawback receipts and the industrial undertaking, and it is only when there is a clear finding on this aspect that the correctness of assessee's claim can be tested on the principles of law. - That exercise has not been carried out at all - matter is remitted back to CIT for fresh adjudication - Following decision of M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] - decided in favor of assessee by way of remand.
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2013 (9) TMI 84
Exemption u/s 11 - violation of section 11(1) and 11(1)(b) - Commercial activity or charitable activity - Advertisement of facility provided i.e utilization the hostel facilities and auditorium and seminar facilities - double deduction on account of capital expenditure on purchase of fixed assets and then depreciaion - Held that:- It is seen that the AO has been guided by the fact that the assessee is charging fees for hostel facilities and has also in its income shown receipts from canteen facilities over and above receipts from hiring of conference hall/auditorium etc. Apart from that he has also been guided by the fact that the Inspector accompanied by tax advisors was allowed to utilize the canteen facilities without any effort or the part of the serving personnel to ensure that only inmates of the hostel were being served - Merely advertising the fact that facility of hostel, seminar halls, auditorium etc. can be used by organizations interested in having leadership programs for the benefit of youth does not make the activity a commercial activity - It is found explained on behalf of the assessee that sometimes the guardians of the girl participants come to the centre to meet them and canteen staff had been instructed not to stop them from taking snacks and lunch if they so want, keeping in mind the fact that the location of the trust was not close to the commercial areas where the guardians of these girls visiting them could have gone. The mere affording of such a courtesy does not lead to the conclusion that the trust was operating on commercial lines. In the courtesy so afforded if the lady Inspector accompanied by two tax advisors were allowed to have lunch/snacks without requiring them to show any identification in no way detracts from the merits of the case - Therefore, decided against Revenue.
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2013 (9) TMI 83
Limitation of 198 days in filing the appeal before ITAT - condonation of delay – Held that:- The delay has occurred on account of sufficient reasons because retification application has been filed in the mean time and assessee waited for the disposal of the same - Hence the delay of 198 days deserves to be condoned – Decided in favor of Assessee. Ground to be raised in appeal are only those which have been raised in rectification application - disallowance made u/s 40A(3) read with Rule 6DD – Held that:- Contention of the Revenue is not legally tenable - The delay has occurred in filing the appeal itself and at this stage, the Tribunal is only considering whether there was sufficient cause for the delay. The question of considering the various grounds urged in the appeal would arise only if the delay is condoned and the appeal is admitted - Hence, the Tribunal is not obliged to look into the grounds urged in the appeal before admitting the appeal for hearing. Even otherwise, the statute permits dissecting of the grounds of appeal in the matter of condoning delay in filing the appeal. Disallowance made u/s 40A(3) of the Act – Disallowance is made in respect of purchase of rice - The assessing officer noticed that the assessee had purchased rice by paying cash in excess of Rs.20,000/- in violation of provisions of sec.40A(3) of the Act – Held that:- The payments of less than Rs.20,000/- made during the course of a day to a single person is not hit by the said provisions. However, as per the amended provisions, the said provisions shall apply only if the aggregate amount of payments made to single party in a day exceeds Rs.20,000/-. For example, if the value of a bill is Rs.1,00,000/- and an assessee makes five payments of Rs.20,000/- each during the course of a day, then the said payments shall not be hit by the provisions of sec. 40A(3) as applicable to the year under consideration. However, under the amended provisions, they would be hit. However, if an assessee makes payment of Rs.20,000/- in a day and he so makes payments in five days, then such splitting up of payments would not be hit even by amended provisions. Retrospective application of amendment in section 40A(3) - Disallowance of 20% as per earlier provision and 100% as per the amended provision of section 40A(3) of Income Tax Act - Ld CIT(A), though held that the amendment is retrospective in operation, however, has restricted to disallowance only to 20% of the expenditure as per the old provisions – Held that:- An amendment cannot have retrospective operation in part. Since the amendment only debars splitting up of payments made to a person during the course of a day and did not debar splitting up in toto and since there is significant variance in the rate of disallowance, the amendment brought out by Finance Act, 2008 can only be considered as substantive in nature and shall have prospective operation only. TDS on freight - who is liable for TDS supplier of buyer (Assessee) of the goods - Held that:- If the supplier takes the responsibility to deliver the goods to the doorsteps of the assessee, then it can be inferred that the contract exists between the lorry owners and the supplier. In that case, even if the assessee makes payment of freight charges, it would be considered as payment made to the concerned supplier. On the other hand, if the assessee is responsible to take delivery from the doorsteps of the supplier, then it can be inferred that the contract exists between the assessee and the lorry owners. In that kind of situation, even if the supplier engages the lorry, it has to be construed that the supplier is acting as the agent of the assessee in the process of booking of lorry for the purpose of transportation of the goods to the assessee - matter remanded back for reconsideration. Disallowance of interest paid to partners - Assessee paid interest of Rs. 92,668/- to one of the partners, Smt. Durgadevi, since she was having credit balance in her capital account – Held that:- As per partnership deed itself interest was payable to partners only when there was a credit balance in the capital account. It is imperative that when interest is payable on credit balance to a partner, interest was also be payable by a partner on the debit balance. It is undisputed fact that there was a net debit balance in the capital account of partners on account of substantial withdrawls by two partners and therefore, in the least, no interest can be debited and charged to the P&L account to reduce taxable income. Interest, if any, payable to one partner has to come from other two partners having debit balance - Assessing Officer was fully justified in disallowing the claim of interest of Rs. 92,668/- on capital - The same is accordingly confirmed – Decided against the Assessee. Addition of actual or notional interest – Held that:- Assessee has paid interest of Rs. 59,441/- to a bank - Ld. CIT(A) was justified in confirming the addition to the extent of Rs.59,441/- and not the notional interest calculated at the rate of 12% amounting to Rs. 1,99,264/-
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2013 (9) TMI 82
Disallowance u/s 14A read with Rule 8D – Held that:- There was availability of sufficient own funds to make investments - Loan raised by IFCI are utilized in acquiring fixed assets and working capital/Packing credit/bill discounting facilities raised by the appellant from other banking institutions are being utilized towards working capital requirements (as evident from the monthly stock statements filed with the banking authorities) - AO is not correct in adding a sum of Rs.69,58,866 under section 14A read with Rule 8 on account of proportionate interest disallowing - However with regard to the disallowance of Rs.9,37,500 on account of administrative and other charges, since from assessment year 2008- 09, the applicability of Rule 8D is mandatory, accordingly by applying the formula of 0.5% on the average investment (Rs.18,75,00,000), a disallowance of Rs.9,37,500 stands confirmed
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2013 (9) TMI 81
Disallowance of depreciation - 100% depreciation claimed on thermopac machine - Held that:- The machinery which was purchased by the assessee in the course of expansion of new project was installed in the year 1996-97 relevant to the assessment year 1997-98. There is nothing on record to suggest that the assessee had put the machinery to use during the assessment year 1998-99. It appears that the assessee had claimed 100 percent depreciation as the project was completely abandoned later in the year 1999. Since the machinery was never put to use by the assessee no depreciation is allowable for the assessment year 1998-99 - Decided against assessee.
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2013 (9) TMI 80
Deduction u/s 54F - Exemption from capital gain - Purchase of residential house outside India - Held that:- assessee is entitled to the benefit - It does not exclude the right of the assessee to claim the property purchased in a foreign country, if all other conditions laid down in the section are satisfied, merely because the property acquired is in a foreign country - since all conditions laid down in this section are satisfied for availing of the said exemption, exemption to be allowed - Following decision of Mrs. Prema P. Shah. Versus Income-tax Officer, Ward 2 (4). [2005 (11) TMI 182 - ITAT BOMBAY-J] and Income tax Officer(Intl. Taxation)-2(1) Versus Dr. Girish M. Shah [2010 (2) TMI 960 - ITAT MUMBAI] - Decided in favour of assessee. The jurisdictional High Court in the case of Director of Income-tax (International Taxation) v. Mrs. Jennifer Bhide [2011 (9) TMI 161 - KARNATAKA HIGH COURT] has held that introducing a word which is not there into a section amounts to legislating when Parliament has not used these words in the said section. In view of this decision, we are precluded from reading the words "in India" into section 54F of the Act, when Parliament in its legislative wisdom has deliberately not used the word "in India" in section 54F of the Act.
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2013 (9) TMI 79
Disallowance of expediture - Acquisition of brand name/trade mark "Libra" - Held that:- The said brand had been acquired by the assessee vide agreement dated June 1, 1998. A perusal of the agreement placed at page 15 of the paper book shows that the assessee had been allowed only exclusive licence to use the brand name. Thus, as per agreement the assessee had been allowed the use of brand name for a period of five years and was not the owner of the brand. However, subsequently on expiry of the five year period, the assessee sold the business along with brand name to a third party. Based on such action, it has been concluded by authorities below that the assessee was actually owner of the brand - no useful purpose will be served in disturbing the claim made by the assessee, which is at a rate lower than the rate of depreciation allowable to the assessee even if the assessee is treated as owner of the asset. The orders of the Commissioner of Income-tax (Appeals) disallowing the claim cannot therefore be upheld - Decided in favour of assessee. Disllowance of loss - Foreign exchange fluctuation - Held that:- The dispute is regarding allowability of loss on account of foreign exchange fluctuation in respect of foreign currency loan taken by the assessee. The assessee had been restating foreign exchange loan liability on the balance-sheet date which resulted into loss which has been claimed as deduction. The loss/gain on account of foreign exchange fluctuation on restatement of the loan liability on the balance-sheet date is required to be taken into account in computation of income if the loan is on revenue account or is a working capital loan. Loss is allowable as deduction under section 37(1) as held by the hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT]. The loan in this case had been taken as working capital loan as is clear from the loan agreement wherein the purpose of the loan is clearly mentioned to use it as a working capital to finance the activities of the company. As held by the hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1978 (9) TMI 1 - SUPREME Court], foreign currency fluctuation loss is allowable as deduction if the foreign currency is held on revenue account or as trading asset or as part of circulating capital employed in the business. As regards the year of allowability, the claim has to be allowed on the basis of restatement of the liability on the balance-sheet date as held by the hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. Thus the claim of the assessee is allowable. In case there is gain in a year and the assessee has not offered it to tax, the Revenue is free to take action under law. In these years, admittedly there is loss which is allowable as deduction - Decided in favour of assessee. Sale of personal weighing scale business - Slump sale - Held that:- the entire personal scale business had been sold as a going concern for a lump sum amount of Rs.30 lakhs and no part of the consideration was attributable to any particular asset or liability. Thus it was a case of a slump sale as defined in section 2(42C) and the profit arising from such slump sale is chargeable to tax as capital gain under the provisions of section 50B which is applicable from the assessment year 2000-01. Therefore, in our view, the capital gain has to be computed in accordance with the provisions of section 50B which is applicable in the case of the assessee. - matter restored before AO for re-computation - Decided in favor of revenue.
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2013 (9) TMI 78
Reassessment of proceedings - whether the reasons recorded by the Assessing Officer justify the reopening of the assessments of the two years - Deduction u/s 80HHC and 10B claimed - Held that:- For both assessment years, the Assessing Officer has felt that there was escapement of income, inter alia, in the computation of exemption under section 10B and the deduction under section 80HHC. For both years, the Assessing Officer has taken the view that the provisions of section 14A shall have effect on the interest expenditure claimed by the assessee vis-a-vis the exempted income. It is an admitted fact that the return of income filed by the assessee for both years were only processed under section 143(1) of the Act earlier, i.e., no regular assessments were carried out earlier. It is also a fact that the Assessing Officer did not accept the workings made by the assessee in respect of the claim of exemption made under section 10B and the deduction claimed under section 80HHC in the earlier years. Under these factual circumstances, it is reasonable for the Assessing Officer to presume that the workings made to claim exemption under section 10B and deduction under section 80HHC in the two years under consideration would result in escapement of income. - reopening of the assessment is valid - Decided against assessee. Exemption u/s 10B - 100% EOU - Held that:- the relevant details, viz., whether the sale proceeds were received by way of foreign exchange or not, whether the assessee has received the drawback benefits, etc., are not available on record. In the absence of such details - factual details require verification at the end of the Assessing Officer. - matter remanded back.
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2013 (9) TMI 77
Rejection of books of accounts - Sale made at lesser price - Held that:- The primary condition for rejecting the book results as laid down under section 145 of the Income-tax Act, 1961 (the Act) is that the Assessing Officer should be satisfied that the books of account maintained by the assessee are not complete and correct. As can be seen from the findings given by the Assessing Officer in the order of assessment, the Assessing Officer has merely proceeded on a surmise that the profits of the assessee are sought to be reduced by selling its products to M/s. Pragathi Automation P. Ltd., the assessee's sister-concern at a lesser price. There is no instance of falsity or incompleteness of the books of account pointed out by the Assessing Officer in the order of assessment. The books of account reflect the true state of affairs of the assessee. The fact that the assessee has sold its products to its sister-concerns at a price lesser than the price at which the same product is sold to the third parties, in our opinion, would not be a sufficient ground to come to a conclusion that the books of account of the assessee are not complete and correct. There is no evidence brought on record that over and above the price shown in the books of account, the assessee received something more from M/s. Pragathi Automation P. Ltd. As rightly contended on behalf of the assessee it is for the businessman to decide the price at which he has to sell its products to its customers. The law is well-settled that the Revenue cannot insist on the way in which businessmen should conduct his business. The Revenue cannot compel a businessman to sell its products at a particular price, so that the assessee derives maximum profit. There is one allegation by the Assessing Officer in the order of assessment (point j) that the sale of raw materials, blackening sales and labour charges sales not tallying with the books and details furnished by the assessee before the Assessing Officer in the course of assessment proceedings. This is a very vague allegation. The Assessing Officer has ultimately concluded that there is no clarity in figures submitted by the assessee and the books of account - The Commissioner of Income-tax (Appeals) found that M/s. Pragathi Automation P. Ltd. was not claiming any tax exemption which necessitates the assessee shifting profits to M/s. Pragathi Automation P. Ltd. In the circumstances, when there is no evidence regarding incompleteness and incorrectness of books of account or facts sufficient to come to a conclusion that the assessee has attempted to defraud the Revenue, the conclusion drawn by the Commissioner of Income-tax (Appeals) are correct and do not call for any interference. Consequently, the appeal filed by the Revenue is dismissed.
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2013 (9) TMI 76
Undisclosed income - Withdrawals of cash from the book of boarding hostel - Held that:- It is a well-settled that the undisclosed income under Chapter XIV-B of the Act has to be computed on the basis of search materials. It is also well settled that any income which has already been either recorded in the books of account or otherwise disclosed to the Department prior to the date of search cannot be treated as "undisclosed income" of an assessee. In the instant case, the learned Commissioner of Income-tax (Appeals) has given a clear finding that the abovesaid withdrawals have been declared in the balance-sheets filed along with the returns of income, which were filed prior to the date of search - Decided against Revenue. Enhancement of relief - Receipt of marriage gifts - Held that:- assessee has furnished the details of donors and also confirmation letters obtained from some of the donors. However, the assessee did not obtain the con firmation letters from all the donors. Hence, on a conspectus of the matter, we are of the view that it would meet the ends of justice if the gift amount is determined at Rs. 3,50,000 - The Assessing Officer is directed to restrict the addition on this issue to Rs. 1,27,500 - Decided in favour of Revenue. There cannot be any dispute that the income already disclosed to the Department shall not form part of undisclosed income. Technically, the action of the learned Commissioner of Income-tax (Appeals) may be wrong, however, it is noticed that the Assessing Officer has also made the impugned addition without making proper verification, simply because certain details are missing in the narration recorded in the books of account. Under these circumstances, the claim of the assessee could be allowed, provided somebody had examined the said claim - Matter remitted back - Decided in favour of Revenue. LIC survival benefits - Held that:- assessee has filed copies of letter received from LIC and also a copy of relevant cheque leaf. According to the learned authorised representative, the assessee has filed the said documents before the Assessing Officer. Since the Assessing Officer has taken a stand that the assessee has failed to substantiate the claim of receipt of LIC amount of Rs. 20,000, therefore the claim of the assessee needs to be examined afresh in the light of documents filed - Decided in favour of Revenue.
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2013 (9) TMI 75
Disallowance u/s 37(1) - Sales promotion expenses - Genuineness of the claim - Onus to prove - Held that:- Assessing Officer has not appreciated the facts of the case in their proper prospective. The assessee has debited Rs. 2,38,36,827 under the head "sales promotion expenses" whereas the Assessing Officer has disallowed a sum of Rs. 3,75,49,810. A perusal of the copy of the ledger account of sales promotion shows that the assessee is receiving reimbursement from its clients which are credited to the scheme reimbursement account such reimbursements are made by companies like Cadbury (India) Ltd., Wipro, Colgate Palmolive (India) Ltd., Timex Watches and UDV India. These companies are reimbursing the claim made by the assessee which itself proves that the assessee-company is actually incurring certain expenses on account of sales promotion otherwise why would such big companies reimburse the claims made by the assessee. The Assessing Officer grossly failed to appreciate this fact. The Assessing Officer further erred in adding the entire amount received as reimbursement to the amount disallowed which is not understandable. Further, in our humble opinion, if the sellers are not filing their sales tax return, parties dealing with such person cannot be questioned or held responsible for such lapses. The whole payment has to be considered in the light of the provisions of section 37(1) of the Act which provides that any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expanded wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession" - Decided against Revenue. Disallowance of foreign travel expenses - Held that:- out of the total disallowance of Rs. 8,10,521, the learned Commissioner of Income-tax (Appeals) has allowed Rs. 1,33,852 as expenses incurred for the purpose of business. Nothing has been brought before us in support of the claim by the authorised representative nor by the Departmental representative to controvert the findings of the learned Commissioner of Income-tax (Appeals). We find that the learned Commissioner of Income-tax (Appeals) has given a reasonable finding on allowing the expenses only to the extent of Rs. 1,33,852 - Decided against Revenue.
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2013 (9) TMI 74
Expenditure incurred on renovation of showrooms on rented premises - Revenue or capital expenditure - Held that:- ownership of assets would continue to remain with the assessee only. Hence, the view of the learned Commissioner of Income-tax (Appeals) is contrary to the facts - the assessee has installed equipments, which can be removed and also can be taken back and reused in some other place - assessee would continue to be the owner of these equipments, though they were installed in the premises of the dealer - Therefore equipments have to be considered as the capital assets of the assessee-company - Decided in favour of Revenue. Club Entrance fees and expenditure on services availed from the club - Expenditure incurred towards entrance fee/subscription can be termed as business expenditure. With regard to the cost of services, it is the responsibility of the assessee to show the commercial expediency in incurring the same. In the absence of the same, the Assessing Officer was justified in disallowing the sum of ₹ 1,48,212. Disallowance u/s 43B - Provision for payment of bonus - Assessing Officer had made similar disallowance in respect of claim of bonus payment in the assessment year 2002-03, i.e., provision created for the year ending March 31, 2001 was paid during the year relevant to the assessment year 2002-03 and was claimed in that year - Held that:- Simply because the assessee has not claimed a particular deduction, it cannot be said to be a colourable device - The deduction relates to payment of bonus which has actually been paid in the present year and deduction has been claimed as per section 43B. Such deduction has been claimed on consistent basis in the year of payment and, therefore, no adverse inference should have been taken - Decided against Revenue. Bebts and advances written off - Held that:- t the advances of ₹ 28,67,407 given for acquisition of capital assets is liable to be disallowed as "capital loss" and the advances of ₹ 2,32,93,575 given for acquisition of revenue items is allowable under section 37 of the Act as current expenses.
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Customs
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2013 (9) TMI 104
Classification of Goods - Benefit of Notification No. 56/95 - Appellants filed two Bills of Entry for clearance of goods Globes/Angle Valves and Cylinder Valves for use in agriculture and/or horticulture purpose claiming the classification of the goods under Entry No.84248100 of the Second Schedule to the Customs Tariff Act, 1975 - Revenue classified the goods under CTH 8481 8090 - Held that:- It was a settled law that the department having accepted the principles laid down in earlier case cannot be permitted to take a contra stand in subsequent cases - Relying upon BIRLA CORPORATION LTD. Versus COMMISSIONER OF CENTRAL EXCISE [2005 (7) TMI 104 - SUPREME COURT OF INDIA] - In the appellants' own case held that valves for use in agriculture and or horticulture are classifiable under heading 8424 and the department did not challenge the same and accepted the order and the order reached finality. An underground network (distribution lines and branchlines which carry the water from the control station to the irrigation zone) and also surface network (dripper lines incorporating the drippers) constitute irrigation system and the above note also emphasises that such system are classifiable under heading 84.24 as functional units within the meaning of Note 4 to Section XVI - The parts thereof were also brought under the Section and the parts as were referred to above include reservoirs for sprayers, spray nozzles, lances and turbulent sprayer heads, to form the irrigation system as they carry out functions of the ground net work for distribution of water and surface network - The irrigation system basically was of these pipes and the other items referred to above, which carry out the functions of distribution and dispersing or spraying in terms of the description under Chapter 84.24 and the said sub-heading 8414.10 dealing with removable appliances of the kind used in agriculture or horticulture - parts thereof were covered by sub-heading 8424.91 - the appellants' claim for the benefit of exemption Notification for the items falling under Heading 84.24 claiming nil rate of duty under Notification No. 56/95 was justified – Order set aside – Decided in favour of Assessee.
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2013 (9) TMI 103
Benefit of Notification No. 21/2002 - Assesse setup Petroleum Refinery and imported mobile cranes and claim concessional rate of duty under Notification No. 21/2002 – The Revenue had denied the benefit of the Notification that the cranes do not stand specifically covered under any of the entries in list 17 - On the other hand the appellants had staked their claim under entries 44 & 45 - Held that:- Keeping in view the various entries of the Notification and the long list of goods specified and the purport and object Notification seeks to achieve - the restrictive meaning given by the authorities below can not be upheld – order set aside – Relying upon Commissioner of Customs (Preventive), Gujarat v. Reliance Petroleum Limited [2008 (5) TMI 13 - SUPREME COURT] - the object of grant of Notification shall be considered in a broad based manner. The words used therein have to be given its natural meaning, the purpose must be allowed to be achieved. The words “all types of materials” should be construed widely. It was not only the items imported for initial setting up of Refinery, which had to be extended the benefit of the Notification but the goods required for running and maintenance of the refinery would also get covered - The purpose for which the exemption was granted must be considered in its entirety - The purpose of grant for exemption cannot be lost sight of - The Central Government must be held to be aware if not for the equipment itself but about the nature which would be required for setting up a Crude Oil Refinery - an exemption Notification should be construed directly but it was also well settled that interpretation of an exemption Notification would depend upon the nature and extent thereof - The terminologies used in the Notification would have an important role to play. Where the exemption Notification ex facie applies, there was no reason as to why the purport thereof would be limited by giving a strict construction thereto – Decided in favor of assesse. Dissenting opinion – Member (Technical) was of the opposing view and delivered the separate judgement – but the Third Member was of the opinion as to the Member (Judicial) – Thus majority Decision was into the favor of assesse.
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2013 (9) TMI 102
Benefit of Exemption Notification –Whether the assesse would be eligible for the exemption of the Notification No. 21/2002 - Held that:- Assesse can claim exemption under Notification No. 21/2002 at Sr. No. 200 – Exemption to imported stainless steel melting scrap falling under Chapter heading -7204.21, in terms of exemption Notification No. 21/2002-Cus - Duty reduced to nil for SI. No.200 in 2008 to improve raw material supply In the case of IOCL v. CCE [1990 (12) TMI 290 - CEGAT, NEW DELHI] - when there were Notifications in force simultaneously then that Notification which was beneficial to the assessee should be applied - MANGALAM ALLOYS LTD. Versus COMMISSIONER OF CUS., AHMEDABAD [2010 (4) TMI 493 - CESTAT, AHMEDABAD] – Decided in favor of assesse.
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2013 (9) TMI 101
Mis-declaration of goods - Nature of goods - Whether the goods imported by the assesses and declared as raw/rough marble blocks, claiming duty free clearance against DEEC licence were actually rough Marbles or the same are limestone – Held that:- There was no mis-declaration calling for any confiscation or imposition of penalty - There was no infirmity in the order of Commissioner (Appeals) - Once it was held that the goods were capable of being used as marble - the same cannot be held to be limestone - The Revenue’s stand that the part of the test report which is to the effect that the goods can be used as commercial marble was redundant because once identity of the goods was established, the principal use had no relevance for the purpose of classification, cannot be accepted - Relying upon Ramdhan Mohan Lal v. CCE Jaipur [2008 (10) TMI 445 - CESTAT, NEW DELHI] – and Stone Man Marble Indus v. CCE, Jaipur [ 2008 (11) TMI 215 - CESTAT, NEW DELHI ] - The Commissioner (Appeals) had referred to various technical meaning of the product and has come to a conclusion of correct findings that the goods were marble as declared by the assesse – Decided against revenue.
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2013 (9) TMI 100
Demand of differential duty - Misdeclaration of Goods - Held that:- On examination of the goods, it was found that there was gross mis-declaration in respect of nature of the goods as also their value - In order to ascertain the value of the goods a market survey was conducted in which the AR of the assesse was present and the assesse also admitted to the valuation done on the basis of market survey in a statement - the assesse paid the differential duty willingly without any protest. Once the assesse had admitted to under-valuation and mis-declaration of goods and also discharged the duty liability willingly - he cannot turn around and now say that the valuation done by the Customs authorities was not sustainable in law – determination of the value by the Customs authorities and the confirmation of duty demand As regards absolute confiscation of goods during the hearing before us, the appellant had pleaded for allowing re-export of these goods. We find merit in this request - Re-export of toys were allowed. Confiscation of goods U/s 111(d) – Penalty u/s and 112(a) and 114A - Held that:- Redemption fine was reduced – Considering the assessable value of the goods the redemption fine imposed was on the higher side - Held that:- There was no reason to interfere with the amount of penalty in case of mis-declaration on the part of the assesse - penalty u/s114A was justified – There was no reason to impose a nominal penalty u/s 112(a) thus it was set aside -Regarding the equivalent penalty imposed on the importer u/s114A - Decided against assesse.
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2013 (9) TMI 92
Rejection of Transaction value - Undervaluation - Appellants had imported the concentrate Scotch whisky for dilution and sale and not for blending - Held that:- The explanation given by the appellant for obtaining the lower price in respect of the supplies from the foreign supplier was convincing and there was no reason to reject the transaction price declared by them - The letter dated 27-10-2009 from the foreign supplier clearly indicated that the Scotch whisky supplied to the appellant was a blend of grain whisky and malt whisky and was suitable to be used for direct consumption after dilution with de-mineralised water - The foreign supplier in the said letter had also confirmed with respect to the difference in the price between the goods supplied to the appellant and other importers in India that each different blend had a different malt content and that the price charged will be dependent on the malt content - The foreign supplier had also in the said letter confirmed that the cost of malt whisky was higher than that for Grain Scotch Whisky - The submission of the foreign supplier was also confirmed by the literature available on the subject matter in the internet wherein it was stated that production of grain whisky was much easier and cheaper than distillation of malt whisky - Wikipedia also confirmed that Neutral spirits, near-neutral spirits and other ‘fillers’ were usually much cheaper to produce than straight or single malt whisky, so blends containing them were usually much cheaper to buy. There was no evidence available on record to prove that the appellant had paid higher sum than what was declared in the import documents as also in the bank documents - the Revenue had completely failed to prove the charge of under-valuation in the case - EICHER TRACTORS LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI [2000 (11) TMI 139 - SUPREME COURT OF INDIA] - merely because of the appellant obtained the higher discount from the foreign supplier that by itself cannot be a reason for rejection of the transaction value – Order Set aside – Decided in favour of Assessee.
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Corporate Laws
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2013 (9) TMI 99
Exclusive Right over Trademark - Whether the respondent can claim any exclusive right over the individual element 'IMPERIAL' when a trade mark consists of several matters – Held that:- By adding a house mark 'RHIZOME' as prefix and a different colour name as suffix, the petitioner had totally made their product as distinguishable - the contention that the trade mark of the writ petitioner was deceptively similar to the trade mark cannot be accepted - no one can claim exclusive right for the word 'IMPERIAL' since the word 'IMPERIAL' was only a common word - the petitioner had also registered yet another trade mark 'IMPERIAL RED' - Therefore, the word 'IMPERIAL' had to be looked into along with the colour to decide the issue, 'whether the trade mark of the petitioner could be registered or not' - The anti-dissection rule which is prevalent both in US as well as in India is really based upon customer behavior - the trade mark of the petitioner looked as a whole, namely, 'RHIZOME'S IMPERIAL GOLD', with the trade mark of the 4th petitioner 'IMPERIAL BLUE without making any dissection or splitting up the word into several words would not cause any confusion in the minds of the purchasers. Application of Provisions of Section 11 - Whether the respondent Board had committed any error in allowing the application filed by the respondent by applying the provisions of section 11 of the Trade Marks Act - Held that:- The order passed by the 2nd respondent was not legally sustainable - the order passed by the 2nd respondent Board, allowing the rectification application for removal of the petitioner's trade mark from the Register of Trade Marks by applying the principle which was available to the trade mark holder before registering the trade mark, suffers from illegality - The grounds embodied under sections 9 and 11 were available to the persons only at the time when they raise objection for registering the trade mark - The said principles cannot be applied for rectification of the registration, particularly considering the factum that the Liquor India Private Limited had withdrawn their objections before the Commissioner on 14.03.2006 and allowed the petitioner to carry on the business under the name of RHIZOME IMPERIAL GOLD – Order set aside – Petition allowed.
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Service Tax
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2013 (9) TMI 110
Applicability of Service-tax - Sale of software - The issues related to the proposed transactions of the applicant of selling/distributing standard off- the- shelf software and non-customized software products in India - Held that:- applicant’s views on the various issues have been accepted by the Revenue to be reflecting the correct position in law. Regarding sale of software and games - Held that:- (a) The domestic transfer of software on media comes under the purview of manufacture as held by the Hon’ble Supreme Court in the case of CIT-V vs. M/s. Oracle Software India Limited, [2010 (1) TMI 9 - SUPREME COURT OF INDIA] Therefore, the activity is not covered within the ambit of Service Tax. - (b) The royalty paid by the Applicant is very much taxable under the reverse charge mechanism. - (c) The TPJW located overseas are going to manufacture software on media on behalf of the Applicant and under negative list regime w.e.f. 01.07.2012, manufacture of goods itself comes under the negative list. Further, under Rule 4 of the Place of Provision of Service Rules, 2012, in case service provided in respect of goods that are required to made physically available by the recipient of the service to the provider of the service or to a person acting on behalf of the provider of service, in order to provide the service, the PPS shall be the location where the services are performed. PKC/WAU and CAL - Held that:- Supply of PKC and WAU are “service” as held by the Hon’ble Supreme Court in Idea Mobile Communications Ltd. Vs. CCE &C, Cochin, [2011 (8) TMI 3 - SUPREME COURT OF INDIA] and accordingly, liable to service tax. Similarly, domestic supply of CALs is incidental to the rendering of telecommunications service as held in the same case i.e. Idea Mobile Communications Ltd Vs CCE& C, Cochin. It would accordingly be liable service tax. VL Model (Volume Licensing) - Held that:- (a) Under VL, the software is to be supplied by way of electronic download of software, which involves provision of service and hence taxable. - (b) Applicant has granted license to run Microsoft software under the VL program and supply of software is a “service” and hence liable to service tax. - (c) As in the case software on media, transfer of VL media will not attract service tax. Loyalty programme - Held that:- The transactions under the “Loyalty programs” which can be a part of contract between the Applicant and its foreign holding company/companies are covered under the reverse charge mechanism and are liable to service tax. The interpretation projected by the applicant accepted.
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2013 (9) TMI 109
Service tax liability - Classification - Bundled service - Business Auxiliary service - operating specified Spot Billing Centres and their maintenance. - processing bills and receiving payments through cheques and for issuing bills cum receipts to consumers - Several agreements between the assessee and Dakshinanchal Vidyut Nigam Ltd. (DVVNL) revealed that it was providing BAS to DVVNL; that for the period in issue - 10.9.2004 to 31.3.2006, the assessee failed to obtain registration as a service tax provider; to remit tax for the taxable services provided; and the assessee is consequently liable to remit service tax, interest and penalties as specified in the Show-cause Notice - Adjudicating authority concluded that the assessee was providing the taxable BAS and confirmed liability of service tax – Subsequently, the appellate authority on independent analysis of the agreements which are the basis for the services provided by the assessee, concluded that services provided are comprehended within support service of business or commerce and not BAS. Held that:- the bundled services provided by the assessee require to be analysed for identifying the appropriate classification, in accordance with the guidance provided by provisions of Section 65A (2)(b). The assessee has offered a bouquet comprising different services which include information technology services and Business Auxiliary Services as well. Which of this complex of services provides the essential character to the asessee’s transaction is the issue. Exclusion of information technology service from BAS - Held that:- from the definition of BAS qua Section 65(19) of the Act, it is clear that to fall within (the excluded) information technology service, the service should primarily be a service in relation to designing or developing software or system networking or any other services in relation to operation of computer system. If however, the designing or developing of computer software or systems networking or services in relation to operation of a computer system is a mere adjunct of another or other substantial raft of services to be provided, the service would not amount to information technology service within the meaning of the expression and the context in which this exclusionary clause is designed in the frame work of the definition of BAS, under Section 65(109) The activities of the assessee relate back office services, to lead tax services, international assignment services and other business activities and not related to development of software. The generic nature of the assessee’s operations was held to fall within BAS and not Information Technology Service. Relying upon the judgment in the case of CCE, Vs. Deloitee Tax Services India Pvt. Ltd [2008 (3) TMI 35 - CESTAT, BANGALORE]; Phoenix IT solutions Ltd. Vs. CCE [ 2011 (1) TMI 642 - CESTAT, BANGALORE], it is held that reasons recorded above that the ld. Appellate Commissioner erred in concluding that the transactions of the assessee constituted support services for business or commerce and not business auxiliary services, as held by the adjudicating authority. This conclusion of the appellate Commissioner is misconceived and is predicated on an erroneous analysis of provisions of Section 65(19) of the Act, applied to the facts and the material on record – Decided in favor of Revenue.
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2013 (9) TMI 108
Commercial or Industrial Construction Service u/s 65(30a)(b) - Revenue was of the view that the Assesse were engaged in providing taxable services - Held that:- Prima facie the services were held to be taxable by the Commissioner after recording his reasons, it would not be correct to say that the assesse had submitted the jurisdiction about classification of services claimed by them in the SCN as non-taxable - The Ld. Commissioner had examined these the work orders and after detail analysis of each of the work orders had come to a finding that even though services under various categories work rendered by the assesse liable to the service tax on various services. Waiver of pre-deposit - The assesse would not be able to make out a prima facie case of total waiver of dues adjudged against them - the applicant had pleaded financial hardship but no documentary evidence had been placed - he was ordered to deposit 25% of the service tax – upon such submission rest of the duty to be waived till the disposal – stay granted.
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2013 (9) TMI 107
Reverse charge on GTA service - Transportation of the goods – Whether the consignment agent was making the payment on behalf of the applicants and who was to pay the service tax - The consignment agents had paid the service tax liability as per the provisions of Rule 2(d)(i)(5) r.w. Notification No. 35/2004-ST under reverse charge mechanism – Held that:- The fact that the consignment agents were acting as consignment agents may not ipso facto mean that they were paying freight also as agent of the principal - Further when both consigner and consignee fall in one of the specified categories under Notification No. 35/2004 - it was doubtful whether Revenue can insist that payment should be made by the consignor and not by the consignee especially having regard to the fact that in these cases the payments were made by consignees – pre deposit of the duty waived – Decided in favor of assesse.
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2013 (9) TMI 106
Business Auxiliary Service (BAS) u/s 65 (105) (zzb) - Sale of tickets - airlines tickets purchased from GSA/IATA - No commission received from GSSA/IATA - Held that:- Prima facie the petitioner was not seen to have received any commission from GSA/IATA, from whom it had purchased tickets to service its customers/air travelers – The record discloses that the petitioner was selling the tickets purchased (from GSA/IATA) to its passengers, for a margin - Prima facie strong case was in the favour of the petitioner/appellant thus Pre-deposit was allowed in full and stay granted to all further proceedings – Decided in favour of Assessee.
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2013 (9) TMI 105
Business Auxiliary Service u/s 65 (105) (zzb) - Air Travel Agent Service - the appellant used central "Computer Reservation Systems" (CRS) software - Department revealed that the appellants as Air travel agents have been receiving incentive/commission from CRS developers and it appeared that this incentive/commission received was taxable with effect from 01.07.2003 under the category of "Business Auxiliary Service" - Held that:- There was no reason to demand Service Tax on the incentives received by the appellant from CRS developers under the category of "Business Auxiliary Service" - The amount collected as incentive was in no way connected to the service rendered by the appellants to their clients in providing the service of booking air tickets nor it was billed to the clients - The appellant were not liable to pay service tax on the amount collected as incentives - As the demand itself was not sustainable, the question of imposing penalty does not arise - Relying upon COMMISSIONER OF C. EX., AURANGABAD Vs BALAKRISHNA INDUSTRIES [2006 (8) TMI 182 - SUPREME COURT OF INDIA] and RAJASTHAN SPINNING & WEAVING MILLS LTD. VsCOMMR. OF C. EX., JAIPUR-II-[2004 (8) TMI 578 - CESTAT, NEW DELHI]. Department had not made any effort to establish that there was Service provider/ receiver relationship between the appellant and CRS developer - When such relationship was not there, there was no service involved between them - Department had also failed to prove that the amount received by the appellant was a consideration for the service provided to the CRS developers - The amount was given by the CRS developer to the appellant as a loyalty incentive for using their software for booking tickets - classifying the activity of the appellant under the category of "Business Auxiliary Service" was untenable – Following Kerala Publicity Bureau Vs. CCE [2007 (5) TMI 151 - CESTAT, BANGALORE ] – order set aside - Decided in favour of Assessee.
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Central Excise
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2013 (9) TMI 98
MODVAT / Cenvat Credit – Capital Goods - Manufacturer versus trader - Appeal against the decision of tribunal [2003 (5) TMI 166 - CEGAT, CHENNAI] - Revenue was of the view that the appellant had wrongly described such parts-equipments-cables etc. as ‘capital goods’ though the said goods were not covered under the definition of ‘capital goods’ under the provisions of Rule 57 Q of the Rules - It was also submitted that such goods were not used in the factory premises of the appellant in any manufacturing process and therefore, the said goods were not capital goods as claimed by the appellant. It was also the case of the department that the said goods had been exported by the appellant along with parts of machinery manufactured by the appellant in a container and the said parts i.e. the parts purchased by the appellant had been exported in the same condition i.e. even without opening the packages or testing them. Thus, the role of the appellant was merely like a trader who had purchased certain goods including parts of machinery, cables etc. from dealers in our country and thereafter exported the same in the exact condition in special containers along with the machinery manufactured by it. Held that:- The appellant had only acted as a trader or as an exporter in relation to the machinery purchased by it, which had been exported and used for setting up a sugar plant in a foreign country - In any case, it cannot be said to have manufactured that plant in its factory - the appellant-assessee did not pay any excise duty on the sugar plant set up by it in Vietnam and therefore there cannot be any question of availing any MODVAT credit – Relying upon Madras Cements Ltd. v. CCE [2010 (5) TMI 8 - SUPREME COURT ] - In order to avail of MODVAT/CENVAT credit, an assessee had to satisfy the assessing authorities that the capital goods in the form of components, spares and accessories had been utilized during the process of manufacture of the finished product. It was pertinent to note that the most important object concerning grant of the MODVAT credit was to see that cascading effect of the duty imposed on the final product cleared at the time of sale was removed - If some duty was levied on the inputs, raw materials etc. and if the final product was also dutiable, then the duty levied on inputs i.e. raw materials was to be reduced from the duty ascertained on the final product. No duty was paid by the appellant on the final product i.e. on the sugar plant which had been set up in Vietnam - there would not be any question with regard to getting credit on the duty paid on the inputs, especially when the appellant had not used the machinery manufactured by other manufacturers in its factory premises while manufacturing machinery which had been transported along with machinery manufactured by the appellant in a common container which had been sent to Vietnam by sea – Decided against Assessee.
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2013 (9) TMI 97
Cenvat Credit on capital goods used in the generation of power – Submission of the Revenue is that bulk electricity was being sold to the State Electricity Board and hence the cenvat credit would not be admissible as the machinery has been used for generation of electricity, and that electricity had not been used in the factory – Held that:- It is not disputed that the respondent was in the process of enhancing their capacity for production of sponge iron and other iron and steel products for which they required more electricity and for this purpose only, their power generation electricity had been enhanced - Just because during the intervening period between installation of power generation machinery for generating additional power and installation of machinery for manufacture of sponge iron and other iron and steel products, the excess power being generated was being sold outside, the capital goods cenvat credit in respect of power generation machinery cannot be denied – Relied upon the case of CCE, Raipur Vs. HEG Ltd. [2009 (11) TMI 648 - CHHATTISGARH HIGH COURT], wherein it was held that cenvat credit would be admissible on the capital goods installed in the factory for captive power generation, even if, substantial portion of the electricity generated was being wheeled out to sister concern and was not being used in the factory – Decided against Revenue.
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2013 (9) TMI 96
Cenvat credit - Input services - Nexus with Business / manufacturing activity - credit taken on (i) Rent a Cab Services, (ii) Telephone Services and (iii) Contract Bus Services for the period 2006-07 to 2010-11 - Distribution of Credit - input service distributor (ISD) - Held that:- Relying upon the decisions in the cases CCE Vs. Cadila Healthcare Ltd.-[2013 (1) TMI 304 - GUJARAT HIGH COURT]; CCE Vs. Manikgarh Cement-[2010 (10) TMI 10 - BOMBAY HIGH COURT] etc., there is a uniformity in view of the Courts and Tribunal that has emerged that rent a-cab services utilized to bring workers or executives to factory is covered by definition at Rule 2 (l) - If there is no management by the corporate office, a manufacturing organization cannot survive finance cannot be procured, raw materials cannot be purchased, manufactured goods cannot sold and so on. So the argument to separate the corporate office from manufacturing activity, for the purpose of deciding eligibility to Cenvat credit on services received, is flawed especially having regard to the fact many services usually received by corporate office is listed specifically in the inclusive portion of the definition of input service. The concept of “input service distributor” as defined in Rule 2 (m) of the Cenvat Credit Rules, 2004 also implies allowing credit of services availed by an office which cannot utilize the credit as in the case of a corporate office. In the first place as per the definition input service means service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The scope of this expression is further expanded by an inclusive portion mentioning specific services to remove any ambiguity in the definition in respect of these services. Such inclusive part has one expression reading activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods. Here again the listing within this category cannot be taken to be exhaustive but only illustrative. Against such legal frame work it is to be decided whether the impugned service will fall within the definition when received at the corporate office. In the matter of extending Cenvat credit to these three services I do not see any distinction that can be made between the factory and corporate office going by the provisions in Cenvat Credit Rules, 2004. Matter is examined above with reference to rent-a-cab service similar logic should apply to contract bus service and telephone service. In the case of telephone service the clarification issued by Ministry vide para 8.3 of Circular No. 97/8/2007-S.T., dated 23-8-2007 is very relevant – Regarding the nexus of input services with the manufacturing activities, it is not understood what sort of nexus is being asked for. Is it necessary to show what was talked in each call through each of the telephone in respect of which Cenvat credit is claimed? Demand for such demonstration can only lead to meaningless harassment to assessees. Where the expenditure is incurred by the company in its books of accounts there is a presumption in favour of the appellant that the service is availed in relation to their business. So long as Revenue has not proved anything to the contrary I do not see any merit in the argument of Revenue – Credit on input services allowed - Decided in favor of Assessee.
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2013 (9) TMI 95
Penalty u/s 11AC – Reversal of credit before issuance of SCN - Whether the Tribunal was correct in holding that demand of interest u/s 11 AB r.w. Rule 57 AH of the erstwhile Central Excise Rules 1944 /Rule 12 of the erstwhile Cenvat Credit Rules, 2001/Rule 12 of the Cenvat Credit Rules, 2002 was not payable if duty was paid before issue of Show Cause Notice notwithstanding delay in payment of Central Excise Duty – Held that:- The periodicity of such a default appeared to be more than once and in more than one case, the assessee had not observed the procedure prescribed and prevailed during the relevant period - Thus looking at the conduct of the assessee, the bona fides not thus established, the facts herein rightly called for levy of penalty - The Modvat credit irregularly availed was reversed prior to the show cause notice, does not afford a good defence of good faith and could not be sustained in law - CESTAT order to cancel the penalty could not be upheld - The assesse lacked bona fide, hardly any other material which the CESTAT considered to come to a different conclusion – Decided in favour of Revenue.
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2013 (9) TMI 94
Entitlement of MODVAT Credit - Capital Goods - ownership - Credit availed by the Job Worker - assessee herein had received the said capital goods under a leave and licence agreement, the ownership of the said capital goods rested with M/s.Hyundai Motors India Limited and the assessee was not the owner of the said capital goods at any point of time - Extended period of limitation - Suppression by Assessee - Rule 57T of Central Excise Rules - Held that:- There was no ground to disturb the order of the Tribunal, more so in the context of the Central Board's clarification that the job workers were entitled to claim MODVAT credit as per the Board's circular. It was a matter of relevance to note that the decision of the Delhi High Court in SHARDA MOTORS INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., CHENNAI-II [2002 (3) TMI 188 - CEGAT, NEW DELHI ] had attained finality and the Department had also accepted the same – there was no justification in the Department taking a diametrically opposite view - The clarificatory letter clearly indicated the intention of the Revenue to grant relief in respect of job worker and to the persons who obtained capital goods – Decided in favour of Assessee.
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2013 (9) TMI 93
Countervailing Duty - MODVAT credit - CVD paid through DEPB - Notification No.34/97 - Whether the duty debit made in Duty Entitlement Pass Book in respect of countervailing duty can be allowed as MODVAT/ CENVAT credit and was it not contrary to the Notification No. 34/97 and to the provision of Rule 3 of CENVAT Credit Rule, 2002 - Held that:- It is no doubt true that under the Scheme available from 1.4.2000, there is a specific prohibition that wherever the additional customs duty is adjusted from DEPB, the assessee would not be entitled to CENVAT/ Drawback. However, in the absence of any such specific prohibition for the period prior to 2000, considering the provision under Paragraph 7.25 that a holder of DEPB shall have the option to pay additional customs duty if any, in cash, the provision under Paragraph 7.41 could only be read as recognising payment in cash too available for adjustment under MODVAT Scheme. Thus, in the absence of any restrictive wording, we do not find any justification to deny the benefit of MODVAT credit available to a case covered by the credit taken under the Passbook Scheme. In the background of DEPB Scheme and the purpose of MODVAT Scheme, we hold that availing of credit is as good as tax payment for the purpose of Rule 57Q of the Central Excise Rules. Scope of Notification No.34 of 1997 dated 01.04.1997 - Held that:- in view of the limited scope of exemption, the Notification cannot be construed as a non-liability for the purpose of claiming MODVAT credit. Read in the context of the decision of the Supreme Court in EICHER MOTORS LIMITED v. UNION OF INDIA [1999 (1) TMI 34 - SUPREME COURT OF INDIA] and the policy relevant to the period in this case, in the absence of any prohibition in Clause 7.41 of the Export and Import Policy with Handbook of procedures as well as under Rule 57Q of the Central Excise Rules, the assessee will be entitled to relief under Rule 57Q of the Central Excise Rules, irrespective of whether the duty is paid in cash or through credit entry in the passbook. - Decided in favour of Assessee.
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2013 (9) TMI 91
CENVAT Credit - Separate Accounts - Duty on Exempted Goods - Assesses were availing the Cenvat credit of Service Tax paid on the input services such as GTA services and Customs House Agents Service - Department was of the view that though common Cenvat credit availed input and input services were being used in the manufacture of dutiable as well as exempted final products, the appellants were not maintaining separate account and inventory of the inputs meant for dutiable and exempted final products and hence in accordance with the provisions of Rule 6(3)(b)/6(3)(i) of Cenvat Credit Rules, 2004, the appellants were liable to pay an amount equal to 10% of value of the exempted goods - Held that:- During the period no credit of additional customs duty was taken and service tax credit taken initially was subsequently reversed - the provisions of Rule 6(3)(b)/6(3)(i) read with Rule 6(2) will not apply and the demand under Rule 6(3)(b) would not be sustainable - The Appellants were not taking Cenvat credit of additional customs duty on Zinc Skimming in proportion to the quantity of the Zinc Ash part of the Zinc Skimmings used in the manufacture of the exempted product Zinc Sulphate, the provisions of Rule 6(3) would not be applicable. Even if the manufacturer wanted to fulfil the condition of Rule 6(2), he cannot do so, as it was impossible - it would be impossible for the Appellant to maintain separate account and inventory of Zinc Skimming meant for use in the manufacture of Zinc Sulphate and the Zinc Skimming meant for use in the manufacture of Zinc Ingots - Lex Non Cogit ad impossibilia - Law does not compel a person to do that which was impossible, was a well settled legal principle applied even in taxation matters. Prima facie it was impossible for the Appellants to maintain separate account and inventory of Zinc Skimming used for manufacture of Zinc Ingots and Zinc Sulphate (Agriculture grade) for the reason that one final product was the by product of the other, Rule 6(3)(b)/6(3)(i) read with Rule 6(2) of Cenvat Credit Rules, cannot be invoked - the Appellants were following the next best option - determining the proportionate Cenvat credit attributable to Zinc ash component of the Zinc Skimming and not availing the same. The requirement of pre-deposit of the amount demanded under Rule 6(3)(b)/6(3)(i), of Cenvat Credit Rules, 2004, interest and penalty was waived for hearing of the appeals and the recovery was stayed till the disposal of the appeal - Stay Applications were allowed.
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2013 (9) TMI 90
CENVAT Credit - Revenue was of the view that in some cases supplying just invoices without any goods to some of its customers to enable them to take fraudulent Cenvat credit - Held that:- The case was made out based on inadequate investigation and unacceptable principle followed during adjudication - The only matter that could have survived was the transportation of 6 consignments weighing more than 500Kgs in each case, and one such case being that of a consignment weighing 705 Kgs transported by an auto-rickshaw. During the adjudication proceedings the Appellants requested for opportunity to cross-examine - Such opportunity was denied to them - the main ground on which the adjudication order and first appellate orders were contested was denial of natural justice by denying cross-examination of persons whose statements were relied upon - during investigation stage the Appellants were not confronted with the evidences appearing against them - A statement was recorded without showing any evidence against them - During the statement the authorized signatory had confirmed that all the goods were received in the factory and payments to the suppliers were made by cheques. The reason for not allowing the cross-examination was not acceptable at all - An argument that at the time of recording the statement he was trustworthy but he cannot be trusted during cross-examination was inherently contradictory - Shalimar Rubber Industries and Ors v. CCE, Cochin [2002 (11) TMI 91 - SUPREME COURT OF INDIA ] denying cross-examination would strike at the root of the evidence given by the concerned persons - More than nine years have passed by - The investigation itself was half-hearted with reluctance to examine the detailed data and reluctance to confront the accused with the data to get their explanation –Decided in favour of Assesses.
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CST, VAT & Sales Tax
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2013 (9) TMI 111
Penalty Proceedings u/s 4-B(5) of the Trade Tax Act, 1948 - Revenue was of the view that the Tendu Leave was not utilized in U.P. which was purchased in U.P. by paying concessional rate of tax - Held that:- The initiation of penalty u/s 4-B(5) of the Trade Tax Act proceedings was not desirable specially when the final verdict in the quantum appeal was yet to come from the Hon'ble Supreme Court - There was no justification for levy of the penalty specially when the quantum appeal had not attained the finality and matter was subjudice before the Hon'ble Supreme Court who had already granted leave being satisfied prima facie. The assessee had purchased Tendu Leave after payment of the Tax on concessional rate - The said raw-materials was exclusive used for the finished goods, which were sold within the State of U.P. Perhaps due to cheap labour, raw-material was sent outside the State on temporary basis but the same was returned in the form of finished goods to the State of U.P., where it was finally disposed by way of sale. The assesse had not concealed any particular or any transaction - Everything was disclosed to the A.O. For the inter State Trade or Commerce, the penalty was leviable u/s 4-B(6) of the Act - but no penalty was levied under the said provision as there was no inter State Trade or Commerce - No finished goods were exported from the State - No sale was made outside the State - Raw-materials was received back in the form of finished goods - The assesse had already deposited the difference of Tax - the tax was already paid @15% along with interest - There was no loss to the revenue - There was no attempt to conceal any transaction. In the case of the BHAGWAN DASS VIJAY KUMAR MANDI DABWALI vs. COMMISSIONER OF INCOME TAX [1980 (4) TMI 10 - PUNJAB AND HARYANA High Court] - The penalty may not be imposed merely because there was a technical or venial breach and not deliberately defiance of law or conscious disregard of obligation by the assesse - The department must establish some sort of mens rea - There was no mens rea on the part of the assessee- petitioner as there was no concealment of any particular or transaction - The entire tax along with the interest was deposited before initiation of proceedings - There was no loss to revenue – Order set aside – Decided in favour of Assesse. .
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