9911796707
TMI Blog2002 (6) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... G.K. Kabra Enterprises, Pune run LPG gas filling stations under the brand-name 'Kabsons Gas'. Kabsons Gas is filled in gas cylinders of 2-Kg. capacity and the cylinders are sold with certain appliances like Gas lamp, stove, food warmer, blazing torch, infra-red heater, gas ton door, etc. Each cylinder is sold with a particular appliance. The unit, Kabsons Control, Hyderabad does not run a filling station. It does not even manufacture cylinder or the appliances, but manufacturers regulators and valves used with the appliances/cylinders. In the return filed by the assessee, he described the business of Kabsons Control as under-- "This is a proprietary concern promoted by Mr. G.K. Kabra, who is a qualified Engineer having more than 3 decades of experience in the Engineering line. The concern was promoted to manufacture LPG valves and regulators castings required by M/s. Kabsons Gas Equipment Ltd., who are one of the major suppliers to the oil companies of Government of India. However, the requirements of valves and regulators of other cylinders like Oxygen, Nitrogen, CO2 etc. were also kept in view. From the beginning they are doing machining of valves and die-casting of regulator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1994-95 from M/s. Detective Devices P. Ltd., Hyderabad, utilised them as plant in its gas business, and given them on loan to M/s. PKL Limited (formerly known as Primus Kabsons Ltd.) and received an amount of Rs. 17,28,000 as security deposit from M/s. PKL Ltd. Similarly, in the year of account relevant for the assessment year 1995-96, M/s. Kabsons Control has purchased 14,800 cylinders from M/s. Ideal Engineers at a cost of Rs. 32,58,476 and utilised them in its gas business as plant, and given them on loan to M/s. PKL Ltd. and received an amount of Rs. 36 lakhs from M/s. PKL Ltd. as security deposit. It is claimed that the cylinders had a capacity of 2.3 kg., but each cylinder was filled only 1/2 kg. gas and the gas was sold to M/s. PKL Ltd., whereas the cylinder was given on loan. By this process, as each cylinder was filled with only 1/2 kg. of gas, the total gas sold during the year of account relevant for the assessment year 1994-95 was only 3,600 kgs. of gas. Similar is the procedure adopted for the year of account relevant for the assessment year 1995-96, and thus, the total gas sold during that year was of the order of 7,400 kgs. There was no sale of gas ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added an amount of Rs. 36,00,000 treating the so called security deposit received as sale proceeds; and further added an amount of Rs. 33,31,735 disallowing the assessee's claim for depreciation in respect of those cylinders, and thus, determined the taxable income of the assessee at Rs. 67,42,457, as against returned loss of Rs. 1,89,278. 8. The Assessing Officer subsequently passed modification orders for the two years separately, both dated 28-12-1998, allowing the cost of cylinders as deduction from the security deposit treated as sale proceeds. By this method, he gave a deduction of Rs. 16,01,582 for the assessment year 1994-95; and of Rs. 32,55,476 for the assessment year 1995-96. On this basis, he determined the total income at Rs. 23,60,140 for the assessment year 1994-95 and at Rs. 34,10,722 for the assessment year 1995-96. It may be observed that by the said modification orders, what is brought to tax is only profit on the sale of cylinders along with the disallowance of depreciation on cylinders, as they were, according to the Assessing Officer only stock in trade and not plant and were sold out. 9. When the matter reached the CIT(A), he took a somewhat different view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------- 1995-96 Gasolic 9826772 7409756 1796774 1996-97 12611416 11290963 686291 1997-98 8912575 23677581 (-)15557762 ---------------------------------------------------------------------------------- D. Detective Devices Pvt. Limited ---------------------------------------------------------------------------------- Asstt. year Cylinders Income before Depreciation Net Total given on Depn. on cylinder income deposit to Rs. Rs. Rs. ---------------------------------------------------------------------------------- 1994.95 PKL Ltd. 486588 1133778 823430 1995-96 PKL Ltd. 3760341 2038960 Nil (after adj. of b/f depn. 1540631) 1996-97 4061322 3519406 346361 ---------------------------------------------------------------------------------- E. Kabsons Control - Proprietor Shri G.K. Kabra ---------------------------------------------------------------------------------- Asstt. year Cylinders Income before Depreciation Net Total given on Depn. income deposit to Rs. Rs. Rs. ---------------------------------------------------------------------------------- 1994-95 PKL Ltd. 1426994 1601582 (-)249253 1997-98 150448 2895 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed by her in this regard from the taxable income of the appellant. The appellant gets relief for Rs. 23,97,455 for assessment year 1995-96 and Rs. 6,36,607 for assessment year 1996-97." As the facts of the assessee are similar, the CIT(A) adopted the reasoning given in his appellate order in the case of Kabsons Gas Equipment Ltd. discussed above, and held in the case of the present assessee also as under-- "3.1 Since facts in the present appeals are similar to the facts in the case of Kabsons Gas Equipment Limited for assessment years 1995-96 and 1996-97 following my appellate order dated 29-12-1999 in the case of Kabsons Gas Equipment Limited, I confirm the rejection of the claim of 100% depreciation on cylinders in the present case. I also hold that loaning of the cylinders cannot be treated as sale transaction and the difference between security deposit and cost of cylinders cannot be taxed as profit on sale of cylinders. The appellant will get relief of Rs. 1,26,418 for assessment year 1994-95 and relief of Rs. 3,44,524 for assessment year 1995-96." The CIT(A) observed in the impugned order that the transaction of purchase of cylinders, filling them up with 1/2 kg. of LP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Detective Devices Private Limited reported in 22 ITD Special Bench 9 and also not following judgment of the Tribunal in the appellant's own case for the assessment year 1990-91. 7. Your appellant craves to leave to add, alter, amend, vary or change any of the grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised." The grounds taken in the appeal for the assessment year 1995-96 are almost identical, except for the amount stated in Ground No.1 above, which in that appeal is mentioned as Rs. 32,55,476. 11. Before us, the case was initially argued by Shri KL. Rathi, Advocate. He, however, withdrew his brief, vide his letter dated 4-3-2002, for personal reasons, when Shri Shankar, the learned Counsel took over the case. Shri G.K. Kabra, the assessee himself was also available during the hearing of the appeals by this Tribunal, for giving any clarification. The assessee has also filed two paper-books, and subsequently, at the instance of the Bench, filed a number of papers. He has also filed one volume of written submissions and the case-law on the point at issue. 12. The main case of the assessee has been that so far as the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gas cylinders: (a) Every cylinder shall be marked with the following markings, namely:-- (i) manufacturer's, owner's and inspector's marking and rotation number (these markings shall be registered with the Chief Controller); (ii) specification to which the cylinder has been made; (iii) a symbol to indicate the nature of heat treatment given to the cylinder during manufacture or after repairs; (iv) the date of the last hydrostatic test or hydrostatic stretch test, as the case may be, with the code mark of recognised testing station where the test was carried out. The code mark shall be registered with the Chief Controller. In the case of liquefied petroleum gas cylinders, the quarter and the year of test shall be given as an additional marking in a neck ring or on a shoulder plate; (v) working pressure and test pressure; (vi) tare weight; Explanation--In the case of liquefiable gas cylinders, tare weight shall include the weight of valve fitted to the cylinder. The weight of the valve shall be indicated separately; (vii) water capacity; (b) All the markings, except the manufacturer's markings, which may be on the base, shall be stamped on the neck end of the cylinder. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toxic gas when the total number of cylinders containing such gas does not exceed 15 or the total weight of gas does not exceed 125 kg., whichever is less, at anyone time; 53. to 57.................. 58. Period for which licences may be granted or renewed--(1) A licence in Form 'D' for the import of cylinders filled or intended to be filled with compressed gas may be granted for such period as the Chief Controller may deem necessary subject to a maximum of one year. (2) A licence in Form 'E', or Form 'F for filling and storage of compressed gas respectively granted or renewed under these rules shall remain in force till the 31st day of March of the year up to which the licence is granted or renewed subject to a maximum of three years. (3).......... 59. to 61................ 62. Renewal of Licence.--(1) A licence may be renewed by the Chief Controller. (2) Every licence granted in Form 'E' and Form 'F' under these rules, may be renewable for three financial years where there has been no contravention of the provisions of the Act or any rules framed thereunder or of any condition of the licence so renewed. (3) to (8)............... 13. In the light of the above rules, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase the cylinders is at page 28 of the assessee's paper book, and it reads as under-- ...................... Nagpur, Dated the 10th April 1985 To Mr. G.K Kabra M/s Kabsons Controls 761659/10, Dharam Karam Road Ameerpet Hyderabad 500 016 Sub: Purchase of upto 5 litre water capacity LPG cylinders from M/s. Ideal Engg. Hyderabad Pvt. Ltd. Dear Sirs, Reference your letter dated 4-3-1985. There is no objection to your purchasing empty LPG cylinders of various capacity upto 5 litre water capacity, manufactured by Ideal Engineers Hyderabad Pvt. Ltd. has approved by this department. Please note that the cylinders in question should not however, be filled with LPG without obtaining prior approval of this office. The question of granting such approval will be considered only on receipt of the following particulars: (a) Name and address of the filling plant wherefrom the cylinders will be filled with LPG; (b) Vapour pressure and liquid density of LPG at 65°C, to be filled in each of the cylinders; (c) Manufacturers test and inspection certificate in respect of the cylinders indicating specification and other necessary details thereof; (d) Necessary documents pertaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that he has nothing to do with other concerns like Lata Engineering Company, Ideal Engineers Hyderabad P. Ltd., Detective Devices P. Ltd., M/s. Kabsons Gas Equipment P. Ltd., etc. The Licence dated 27-5-1986 referred to against Sl. No. 4 of the above table, furnished at Page No. 53 of the assessee's paper-book Volume-I, reads as under-- No. GC(SC)-36/AP Government of India Department of Explosives Nagpur, Dated, the 27th May 86 1. M/s. Ideal Engineers Hyderabad Pvt. Ltd. Plot No. 42, CIE, Exp. Prog. Gandhinagar, Balanagar, Hyderabad-37. 2. M/s. Kabsons Industries C-17-18, Sidco Indl. Estate. Hosur-636126 (Tamil Nadu). 3. M/s. Flame Gas Appliances Pvt. Ltd. 32 Civil Lines Roorkee-247667. 4. M/s. G.K. Kabra Enterprises, Gate No. 737, Post Velu, Talap, Bhor, Distt. Pune (MS). Sub: Filling of ES-34 (LPG) in an various water capacity of cylinders in your filling plants-- Dear Sirs, Please refer to your letter No. IEHPL/MD/86/154 dated 26-5-1986. There is no objection to your filling ES-34 (LPG) into cylinders of various water capacity which have been specific and approved by this office. Yours faithfully, Sd/- (S.K. Bhardwaj) Controller of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, noted against Sl. No. 2 in the table extracted above- "Ideal Engineers Hyderabad Private Limited B-14, C.I.E. Balanagar, Hyderabad-500037. IS: 12586 LPG Cylinder Certificate ISI CM/L: 2195758 Certificate No. : IE/BIS/PK/C-893 Date: 21.10.94 Manufacturer: Ideal Engineers Hyderabad Private Limited, Hyderabad Purchaser : M/s. Kabsons Controls, Hyderabad. Order No. : 001 Dtd.25.10.94 Batch No. : C-893 Cylinder description: 4.80 ltrs. water capacity Two piece Brazed LPG cylinder working pressure 1657.32 KPa at 65 Degrees Centigrade Temperature. This is to certify that the cylinders manufactured, inspected and tested in the presence of Shri J. Roy Chowdhury & N.P. Kawale of BIS Hyderabad as mentioned below during the period From 21.9.94 to 21.10.94 at M/s. Ideal Engineers Hyderabad Pvt. Ltd. meet the requirements of Specification: IS: 12586-1988 & Drawing No. : PK 2012/4.8/01 /REV /2 (For details of valves Inspection, refer Annexure 'A' to this certificate) Method of manufacture: (1) Brazing Process : Copper Brazing in Furnace with controlled Atmosphere (2) Method of Support : Joggled joint (3) Heat Treatment : Passed through Brazing Furnace Temperature 1120& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h batch of cylinders and the batch No. is given at the top against certificate No. The plea of the assessee is that it is the owner of the batch as his name figures as the purchaser in the certificate, though the permission to fill the cylinders contained in the batch is obtained in the name of M/s. Primus Kabsons Ltd. (PKL). We shall advert to this plea of the assessee later. 16. The terms and conditions governing the loan of cylinders to its customers by the assessee, are contained at pages 57 and 58 of the assessee's paper-book volume-I, and they are the same as the terms and conditions governing the loan in the case of Detective Devices (P.) Ltd. considered by the Special Bench of the Tribunal. So, we do not find it necessary to reproduce them. It has been made out before us that the Assessing Officer was totally wrong in holding that the case of the assessee is distinct from that of Detective Devices (P.) Ltd. considered by the Special Bench. The learned Counsel for the assessee has also pointed out that the assessee has been extended the benefit of the decision of the Special Bench in the case of Detective Devices (P.) Ltd., vide orders dated 23-10-1990 in ITA No. 1920/Hyd/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f buying some and taking on loan some, from the angle of commercial expediency. When he takes them on loan, they can be returned when the going is not good. When the business is going up, he can buy new stock on own account. So, he claimed that it is from the commercial angle assessee chose to purchase cylinders and to loan them. 18. The CIT(A), according to the learned Counsel for the assessee has proceeded on the facts of a different case, viz. M/s. Kabsons Gas Equipment Ltd., which, according to the assessee, has no semblence with the facts of the case before us. Actually, he called that it did not look like an order on him. When we enquired at him as to what are the differences between the two cases, he mentioned that the CIT(A) was totally wrong in observing that the gas sales were a minor portion of the business of the assessee, whereas actually the gas sales constituted a major portion of the turnover. We have already extracted the turnover of all the three units of the assessee in para 5 above. The learned Counsel for the assessee pleaded that the assessable entity in the present case constituted all the three units, and it is only for the purpose of operational control th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mus Kabsons Ltd. (PKL), which is the loanee of the cylinders from the assessee. When this discrepancy was pointed out, the learned Counsel for the assessee explained that the permissions have to be granted by the CCOE Nagpur in big numbers in a year, and as the said authority is not able to cope with the work, he would give permission in the name of one party out of the buyers figuring in the letter of the manufacturer, who seeks permission on behalf of buyers from CCOE. It is explained that over the years permission has been obtained in the name of concerns like Ideal Engineers, Kabsons Gas and PKL. It was also explained that when the assessee approached the CCOE, they mentioned that the concerned parties could segregate the details. It was also mentioned that the discrepancy in question is of minor significance because the name of the owner or the buyer from the manufacturer is reflected in the certificate issued by the Bureau of Indian Standards (BIS), and so, all concerned parties like the manufacturers, CCOE and the buyers were aware of the identity of the owner and simply because the permission was given in the name of a different party, it did not mean that the permission wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically required to furnish the licence obtained for filling gas in cylinders from the Department of Explosives as mandatory under Rule 3(1)(b) of Gas Cylinder Rules, 1981, M/s. KGEL informed that it is not required to obtain licence cylinders owned by it are filled in the plant of M/s. Ideal Engineers (Hyd.) Ltd. which is holding the required licences. (2) M/s. KGEL also filed a letter dt. 22.2.95 from Department of Explosives, No. G-3(42)/370/P /PM-94 in which permission has been granted to MI s. Primus Kabsons Ltd. to fill gas in cylinders of specified batches. However, in the proceedings before the Tax authorities, these cylinders are claimed to be owned by M/s. KGEL and the same are claimed to be loaned out to M/s. Primus Kabsons Ltd. after filling-in-1 1/2 kg. of gas in each of the cylinder. The remaining portion left out of 2.3 Kgs. is claimed to be filled subsequently by M/s. Primus Kabsons Ltd. (3) It may be observed here that M/s. KGEL claimed that Rule 51 is not applicable to it as no cylinder filled with gas is stored by it in any godown other than gas filling plant of M/s. Ideal Engineers (Hyderabad) Ltd. (4) In this connection, the Chief Controller of Explosives (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 3/5/85 to get their cylinders filled through M/s. Ideal Engineers Hyderabad Ltd. subject to observing the relevant conditions of the licences under Gas Cylinder Rules, 1981 as the provisions of the Gas Cylinder Rules, 1981. (b) As stated above in para (a) above, M/s. Kabsons Gas Equipment Ltd. has been permitted to get their cylinders filled in the bottling plant of M/s. Ideal Engineers Hyderabad Ltd., however, it does not specify the modality of filling. In normal practice the cylinders are filled in single step: The gas charged in to the cylinder should not exceed the filling ratio as per rule 54 of the Gas Cylinder Rules, 1981. (c) M/s. Ideal Engineers Hyd. Ltd. is holding storage Licence under Gas Cylinder Rules, 1981 for storage of 8,000 kg. LPG filled in cylinders. So long the cylinders are stored at the bottling plant of M/s. Ideal Engineers Hyd. Ltd., they are covered under the said licence provided at no time the storage capacity shall exceed 8,000 kg. The licensee has to ensure before delivery of despatch to any person that the person/firm to whom cylinders filled with gas are sent is holding a valid licence for kind and quantities despatched save as provided unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to get their cylinders filled in the bottling plant of M/s. Ideal Engineers Hyd. Ltd. However, it does not specify the modality of filling. In paragraph (a), it has also been mentioned by the Controller of Explosives that Rule 3(1)(b) refers to individual cylinder with specific reference to its standard, design approval and obtaining filling permission in respect of the said cylinder. From the above clarification, I understand that M/s. Kabsons Gas Equipment Ltd. has to take a specific approval of the Department of Explosives in respect of individual cylinders with specific reference its standard, design approval and obtaining and has to take filling permission in respect of the said cylinders. The letter of Controller of Explosives is not clear whether M/s. Kabsons Gas Equipment Ltd. has taken such approval from the Department of Explosives for Financial Years 1992-93 to 1997-98. In case it has not taken the above approval, CCE is requested to clarify whether KGEL can fill in 1/2 kg. gas in the concerned cylinders before loaning it to Primus Kabsons Ltd. In case KGEL, has taken approval of the CCE under Rule 3(1)(b) with specific reference to individual cylinders, it is reque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permission issued under Gas Cylinder Rules, 1981, the cylinder could not be charged even with 1/2 kg. of gas. It is mentioned that no such specific permission was issued to M/s. Kabsons Gas Equipment Ltd. for filling 1/2 kg. of gas in cylinders by this office. Yours faithfully, Sd/- (Shambhu Prasad) Controller of Explosives for Chief Controller of Explosives. ..................." The Revenue authorities rely on this clarification and point out that even CCOE has pointed that it is for the assessee to prove that it has obtained filling permission in respect of each individual cylinder owned by it. Assessee relies on this letter in support of its proposition that the filling permission is granted by the CCOE after scrutinizing the inspection report issued by the BIS and the filling permission is valid till the service life of the cylinder. It may however, be observed that this letter of CCOE is not authority for the proposition that the cylinders can be got filled even before the permission has been obtained, even though the permission once obtained may remain valid till the service life of the cylinders. 24. To sum up, the contention, of the learned Counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the freedom of the citizen to act in a manner according to his requirements, his wishes in the matter of doing any trade, activity or planning his affairs with circumspection, within the framework of law; unless the same falls in the category of colourable device." 26. The learned Counsel for the assessee further stressed that the case of the assessee is totally covered by the decision of the Special Bench of the Tribunal in the case of Detective Devices (P.) Ltd. and that the same decision has been followed by the Tribunal in assessee's own cases for the earlier years. In this context, he relied on the decision of the Apex Court in the case of Ambika Prasad Mishra v. State of UP AIR 1980 SC 1762 in support of the proposition that every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. He also invited our attention to the decisions of Apex Court in Sri Venkateswara Rice, Ginning & Ground Nut Oil Mill Contractors Co. v. State of AP. AIR 1972 SC 51 in support of the proposition that a coordinate Bench of the same High Court cannot take a view contrary to the decision given earlier by another Bench of that Court, and one is boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of each cylinder was obtained in the name of M/s. PKL and not even a single permission was in the name of the assessee, and the plea of the assessee that it made no difference whether the permission was in the name of the assessee or M/s. PKL was totally unacceptable. Statutory permissions have their own sanctity and it is too much on the part of the assessee to try to convince the Bench that the CCOE was so much over burdened with work that he was giving permissions meant for one entity in the name of another entity, and permissions of different parties in the name of one party. He has invited our attention to the letter of the CCOE dated 22-3-1999, which we have extracted above, in which it was specifically mentioned that it was for the assessee to prove that he had obtained the cylinderwise permission. It is also pointed out that even the CCOE in the said letter has mentioned that it is not the normal practice to fill each cylinder with only half-kg. of gas, even though it is not violative of any rule. He has also mentioned that the decision of the Special Bench in the case of Detective Devices (P.) Ltd. is altogether on a different issue, and it proceeded on the assumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a right to arrange his tax affairs, but the arrangement has to be real and not a sham. In this context, reliance is placed on the decision of the Apex Court in the case of Jiajeerao Cotton Mills Ltd. v. CIT [1958] 34 ITR 888, wherein, as per head-note, it has been observed as under- "Every person is entitled so as to arrange his affairs as to avoid taxation, but the arrangement must be real and genuine and not a sham or a make-believe." 28. The learned Counsel for the assessee, in his rejoinder mentioned that it is entirely a pre-conceived notion of the Revenue that the transaction in question is sham. He mentioned that the assessee purchased gas from M/s. Oswal Petro-Chemicals Ltd., Bombay and transported in bullets or tankers and the cylinders were filled in the station of M/s. Ideal Engineers. He reiterated that parallel marketeers like him under the Gas Cylinders Rules have a judicious mix of loaned and owned cylinders, and there is nothing out of way in the assessee's transaction of purchase and loaning of cylinders. Replying to the plea of the learned Departmental Representative that the cylinder-wise permissions were not received from the CCOE, Nagpur by the date of loani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with the stand of the CIT(A) that the transaction of purchase and loaning of cylinders is a sham. 31. Firstly, it appears to us that the Revenue is not unjustified in assuming that the assessee, Shri G.K. Kabra, is the patriach of the family. He is actually the man behind the various concerns under consideration. It is true that it may be that he does not have substantial share holding in any of the concerns and it may also be that he is not on the board of any of the concerns. But, the fact remains that his family members are Directors in those concerns. For example his son is the Director of M/s. PKL and his daughter is a Director of M/s. Ideal Engineers (Hyderabad) Ltd. It may also be noted that the claim of depreciation in the context of purchase and loaning of cylinders is a device adopted in many of the cases, as pointed out by the learned CIT(A). This seems to us to be a mode of dubious tax planning which cannot be given judicial benediction. 32. We have complied from the material given by the assessee and the Department, the batchwise details of the certificates obtained and the permissions for filling obtained from the CCOE and the dates of loan to PKL. This batch-wise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1994 612 300 741 Not Filed IE/GM/M/IG/ 22-02-1995 -do- Dt.19-03-1994 94/2007 dt. 12-5-1995 613 300 741 Not Filed -do- 22-02-1995 -do- Dt.19-03-1994 616 300 741 Not Filed -do- 22-02-1995 -do- Dt.19-03-1994 617 300 741 Not Filed -do- 22-02-1995 -do- Dt.19-03-1994 618 300 741 Not Filed -do- 22-02-1995 -do- Dt.19-03-1994 619 300 741 Not Filed -do- 22-02-1995 -do- Dt.19-03-1994 620 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 621 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 622 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 623 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 624 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 625 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 626 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 627 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 628 300 742 Not Filed -do- 22-02-1995 -do- Dt.20-03-1994 ----------------------------------------------------------------------------------------------- 33. Firstly, it has to be mentioned that all the above batches of cylinders were purchased by the assessee from M/s. Detective Devices P. Ltd. and not from M/s. Id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplied with all the legal requirements. But, we find a situation where the cylinders are filled without permission. Of course, the assessee has sought to explain that the permission is valid over the entire service life of the cylinder and also that post facto permissions have been received. The contention is unacceptable because even if a permission is valid for entire service life of cylinder, it does not mean that a permission validates fillings effected even before the permission was issued. A permission cannot have retrospective effect. At least, no evidence to this effect has been shown to us or brought to our notice. Even the argument that post facto permissions have been received has no basis. Unless it is shown that a letter seeking post facto permission has been addressed, it cannot be assumed that post facto permissions have been issued or that the permissions have been with retrospective effect. 34. Vide his undated written submissions, the learned Counsel for the assessee has mentioned as under-- 'In this connection, reference can be had to the clarification of the Chief Controller of Explosives vide letter dated 22-3-1999 (submitted during the course of hearing pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement showing the actual serial number of Cylinders passed as per Annexure 'A'. We request you to kindly accord filling permission for the above said Cylinders and oblige. Thanking you, Yours faithfully, For Ideal Engineers Hyd. Pvt. Ltd., Sd/-- (M.L. Goud) Encl: Test Certificate and Statement" The following note appears on the copy of the letter filed with us- "Resubmitted along with our office copies of Test Certificates vide Letter No. IE/GM/MLG/94/2008 dt. 26-5-1994 as advised by Mr. Ramdas. This letter is misplaced in CCE Office." It has been explained that the above letter was misplaced and so, it was followed up by another letter dated 26-5-1994, which reads as under- "IE/GM/MLG/94/2008 26-5-1994 To The Chief Controller of Explosives, Department of Explosives, Government of India, Old High Court Building, Nagpur - 440 001. Sub: Resubmission for the Filling permission of 4.80 Litres water Capacity Cylinders Batch No. C-605 to C-611. Ref.: Our Letter No. IE/GM/MLG!94/2005 Dt. 12-2-1994. Dear Sir, As advised to our representative Mr. Ramdas, we are enclosing herewith our office copy of the Test Certificate of Batch No. C-605 to C-611 of 4.80 Litres Water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The permission of CCOE was issued in response to M/s. Ideal Engineers Hyderabad's letter dated 26-5-1994. It is not clear how M/s. Ideal Engineers has consolidated the batches belonging to different concerns inclusive of the assessee. Similar position can be noticed from the other permissions issued by CCOE and certificates issued by BIS. It leads to the inference as pointed out by the learned Departmental Representative that a particular batch series was broken and the name of the assessee was got inserted in respect of some batches of cylinders, and also that the assessee and his sister concerns operated as found convenient without regard to the fact that they are, on paper, separate legal entities. 37. Corresponding tabulation for the assessment year 1995-96 reads as under-- ----------------------------------------------------------------------------------------------- Batch No. of Invoice No. & Date of Letter No. Dt. of Date of Empty Cylind- date of M/s. BIS cer- date of receipt loan to ers (Each batch Ideal Engine- tificate ideal/Engine- of PKI by the consisting ers Hyd. P.Ltd Engineers permission assessee of 400 Hyd. to from cylinders) CCOE Explosives Deptt. -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015, 2027, 2028, 2033 dt. 21-9-94 21-1-1995, 16-2-1995, 8-4-1995 1087 313 19-02-1995 IE/GM/HND/ 24-01-1997 -do- 27-11-1994 94-2014 dt. 30-12-1994 1088 313 19-02-1995 -do- 24-01-1997 -do- Dt. 23-10-1994 1089 313 19-02-1995 -do- 24-01-1997 -do- Dt. 23-10-1994 1090 315 19-02-1995 IE/GM/HND/ 24-01-1997 Betwwen 27-11-1994 2057 dt. 1-11-1994 10-02-1996 & 24-2-1995 1091 316 22-02-1995 -do- 24-01-1997 -do- Dt. 23-10-1994 1092 316 22-02-1995 -do- 24-01-1997 -do- Dt. 23-10-1994 1093 317 22-02-1995 Lr. No. Nill 09-03-1999 -do- Dt. 23-10-1994 ----------------------------------------------------------------------------------------------- 38. For this year, the assessee could not furnish the batchwise details of the exact dates of loan to PKL. The assessee has furnished certain subscription vouchers relating to the loaning of the said cylinders, and the subscription vouchers give the following details of the number of cylinders allegedly loaned vide each voucher-- ---------------------------------------------------------------- Subscription Voucher No. Date Quantity ---------------------------------------------------------------- 500010 01-11-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the quantity of cylinders, the rate at which the Security Deposit was collected and total deposit collected. 7. The records maintained by the assessee in respect of purchases, Batch Nos., Cylinder Nos. etc. is the property of Assessee and the same is of no relevance to the customer who has no liability whatsoever on cylinders or arising out of the cylinder. 8. Refund of Security Deposit on return of cylinder being the obligation of Assessee with or without the Subscription Voucher, is possible only in existing Subscription Voucher terms. Inclusion of Batch Nos. in Subscription Voucher would make return of cylinder and deposit refund impossible since the customer could never be able to return the cylinder belonging to particular batch which he had received the very first time. 9. Customer has only to return the cylinders for obtaining refund of Security Deposit either to dealer, distributor or Assessee's representative and the cylinder returned is identified by the ownership logo of Assessee. The inclusion of Batch Nos. shall be in contradiction of the terms of loaning. 10. The practice of Subscription vouchers carrying only the quantity of cylinders loaned and amount of ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has purchased a particular batch of cylinders, BIS certificate has been obtained showing the assessee as owner. Such an arrangement is possible only among obliging sister concerns. 41. When the filling permission is given in the name of PKL, it must be assumed that the permission is given only to PKL and not to the assessee. Simply because the assessee is shown as a owner on the BIS certificate, it does not appear to follow necessarily that the permission given to PKL has to be treated as relating to the assessee. Apparently, the CCOE is interested only in the safety specifications of a particular cylinder, and so requires the BIS certificate for issuing filling permission. In other words, he is interested in the certificate from the technical angle as to standards and safety. He may also be interested in the identity of the person, who seeks permission, whether owner or not. It has also to be assumed that the CCOE is interested in the identity of the owner but it is not clear from record how the BIS certificate has preceded the invoice in the name of assessee as buyer. The assessee must have been shown as the owner in the BIS certificate before he bought the concerned cyl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sales. The gas sales in Kabsons Control are marginal. Actually each cylinder is filled only once. There is no repetitive filling, which should be there in a regular gas business. Such repetitive filling was there in the case of Detective Devices considered by the Special Bench of the Tribunal. So, the only filling done by the assessee is to the extent of 1/2 kg. of gas in each cylinder while the capacity of each cylinder is 2.3 kgs. Even the CCOE in his letter dated 15-3-1999, mentioned that it is not normal practice to fill 1/2 kg. initially. The assessee has issued separate invoices for the sale of gas and has issued separate subscription vouchers for the loaning of cylinders. The assessee had to show some purchase of gas only to prove that the cylinders in question were utilised in gas business and so, they constituted plant and so, eligible for depreciation. It is the logic of the claim of depreciation that led to the purchase of gas. The purchase of gas was nominal and just sufficient to put up a pretence of regular business. In other words, the purchase of cylinders and gas was only to serve the twin claims of security deposit being not taxable in the light of the Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed by us on the basis of the above two tabulations for the assessment years 1994-95 and 1995-96. 45. For the foregoing reasons, we are of the view that the entire scheme of the purchase of the cylinders and loaning of the same with the twin objectives of claiming 100% depreciation and exemption in relation to security deposit amount received on such loaning, was a sham, and hit by the decision of the Apex Court in the case of McDowell, and the cases relied by the learned counsel for the assessee in this behalf are distinguishable. In the case of Arvind Narottam, the Apex Court was considering a issue relating to the construction of a deed and it held that where the language of a deed is plain and admits of no ambiguity, there is no scope for consideration of any tax avoidance. In the case of Banyan & Parry considered by the Hon'ble Gujarat High Court, the decision was based on the finding of the Hon'ble High Court that the transfer of a business in that case was genuine, and it was not a device to avoid tax. What is a sham transaction has to be decided in the light of the facts of the case and where a question of fact is involved, decided cases are of only limited assistance. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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