TMI Tax Updates - e-Newsletter
December 26, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Highlights / Catch Notes
Income Tax
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Disallowance of Interest – inter-corporate deposit - currency swap arrangement with the Bank to reduce the burden of the interest cost - assessee has not made any excess claim on account of interest - AT
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Land transferred to the developer under the JDA as per section 2(47)(v) or not - the moment the owners have handed over the possession to the developer a right to receive the developed area would accrue to the owners - it is a consideration in kind, which has a value, which can be worked out - AT
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Various expenses incurred prior to setting up of Plant and machinery - the expense which have been incurred by the assessee prior to setting up the plant and machinery are capital in nature and cannot be allowed - AT
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Determination of Arm’s Length Price on international transactions - Foreign exchange transaction loss adjustment to be granted or not – there is no justification for allowing adjustment for the rupee depreciation. - AT
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Rejection of books of accounts - Estimation of income @ 2% of gross sales – mere selling of goods at low margin cannot be made the reason for rejection of books of accounts - AT
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Disallowance of interest paid u/s 40A(2)(b) - excessive claim - borrowed funds from relatives invested in FDRs - merely variation in the rate of interest cannot be the reasons for making the disallowance - AT
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Violation of section 11(2) r.w.s. 13(2)(d) or not - Loans given by assessee to other trusts from unutilized portion exceeded 15% or not – authorities below have failed to consider the provisions of Explanation to section 11(2) and section 11(3)(d) - AT
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Disallowance of depreciation on windmill deleted – civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same - AT
Customs
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Valuation of imported goods - inclusion of BU fees and legal and professional fees paid by the appellant - there is justification whatsoever to relate the payments made for the services received to the value of the goods imported. - AT
Service Tax
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General Insurance Services - appellant had provided General Insurance Service to eligible employees, falling under Employees State Insurance Scheme (ESI Scheme) by way of providing medical and other related insurance service in exchange of premium at different rates - demand set aside - AT
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Levy of service tax on management, maintenance or repair service prior to 1.6.2007 - activity are in the nature of works contract - it cannot be said that the activity was not taxable prior to 1.6.2007 - AT
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Consulting Engineer Service - services provided by branch situated abroad - the appellants have branches abroad, there is no clear finding that the persons who were stationed abroad were part of the branch but not employees - stay granted - AT
Central Excise
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Restriction on utilization of cenvat credit under Rule 8A - meager amount - default in payment of duty or short payment of duty wrongly - decided in favor of assessee - AT
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Reversal of cenvat credit after finished goods become exempted goods - Demand of CENVAT Credit on inputs lying in stock and inputs contained in finished goods lying in stock - demand pertain to the period before amendment - demand set aside - HC
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Processing of the goods for the DTA unit of the assessee by the EOU unit - The applicants have exported goods from the EOU but duty is paid by the DTA unit. Later rebate was claimed for the duty paid on the goods exported - rebate claim allowed - CGOVT
VAT
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Validity of assessment order – order of the AO that on the sales made by the petitioner to other VAT dealers within the State, is only to willfully evade payment of tax, are neither findings based on no evidence nor are such findings perverse - HC
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Constitutional validity of section 11(6) of Gujarat Value Added Tax Act, 2003 – reduction of 2% in credit when goods sold/resold in the course of interstate trade and the commerce - validity upheld - HC
Articles
Notifications
News
Case Laws:
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Income Tax
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2014 (12) TMI 894
Adjustment for difference in depreciation rates – Whether variation in the rates of depreciation can be considered as a relevant factor necessitating adjustment in the operating profit margin of the comparables – Held that:- The assessee charged depreciation in its Profit & Loss account at the SLM rates higher than those provided in the Schedule XIV to the Companies Act - neither any adjustment can be made for a simplicitor higher/lower amount of depreciation in itself or as a percentage of the total operating expenses nor an otherwise comparable company ceases to be comparable because of the above factors - However, an adjustment is called for when there is a difference in the rates of depreciation on similar types of assets under similar method of charging depreciation - there is no provision for determining the ALP of an international transaction for more than one year in a consolidated manner. Unlike the hitherto determination of undisclosed income for the block period as provided under Chapter XIV-B of the Act, as opposed to year-to–year basis, there is no such provision for determining the ALP of an international transaction for more than one year by considering a few years as one unit during which an asset is put to use - Not only is this exercise impermissible under the law, but is also impractical of application. Various assets will have varying useful life spans due to different rates of depreciation and their useful life will not terminate at one common point of time, so as to facilitate the making of adjustment at such point of time - the method of charging depreciation, both by the assessee and its comparables, is by and large the same that is SLM - The assessee is seeking adjustment only due to higher rates of depreciation charged by it under SLM with the lower rates of depreciation charged by four comparable companies, other than Mapro Industries Ltd. and Karvy Consultants Ltd. - the operating profit margins of these four comparable companies should be recomputed by the TPO/AO in line with the rates of depreciation charged by the assessee under SLM. The amount of depreciation of the four comparable companies on their assets shall also be recomputed under the SLM alone as per the rates at which the assessee has provided depreciation - In doing so, if the comparable companies have charged depreciation at a lower rate in comparison with the assessee, then suitable increase should be made to their amount of depreciation and if the comparables have charged depreciation at a higher rate in comparison with the assessee on some of the assets, then suitable reduction should be made in the amount of their depreciation - one of these four companies, namely, Nucleus Netsoft and GIS India Ltd has charged depreciation on all its assets under SLM except for Computers, on which it provided depreciation on written down value basis - The TPO should see if he can correctly deduce the amount of depreciation, on the basis of data available, for the year on ‘Computers’ also under SLM - If due to one reason or the other, such precise calculation is not possible, then no adjustment should be carried out in the calculation of the operating profits of this company, even on other items of assets - since neither the assessee nor the Revenue seek the exclusion of this company from the list of comparables, it cannot be done suo motu - if the assessee as well as the comparable companies are using the SLM and there is a difference in the rates of depreciation charged by them, then there is a need to make suitable adjustment to the profits of the comparables. Risk adjustment – Held that:- The assessee is responsible for effective utilization of its resources and its foreign AE did not assure the assessee of a minimum level of utilization - the assessee bears excess capacity or utilization risk in respect of the provision of services - the assessee is responsible for effective utilization of its resources and there is no assurance of the volume of business generating from its AE - If there is no/less business, the assessee will continue to incur costs for which there will be no compensation from the AE - the assessee also bears foreign exchange fluctuation risk because it incurs expenses in Indian rupees, whereas its revenues are earned in US dollars - the assessee bears substantial business risks with regard to its operations - the assessee is hybrid of a captive unit combined with the attributes of risk taking entrepreneurial unit - the assessee has also undertaken business/capacity/foreign exchange fluctuation risks, the contention that the assessee did not bear any/minimal risks, does not merit acceptance - The other part of the argument about the comparables undertaking much more risks, is not substantiated with any worthwhile evidence - any risk adjustment in the operating profit margins of the comparables on this score cannot be accepted. Allowability of treansfer pricing adjustment – Group Suffering losses –Held that:- Some of the associated enterprises of the overall group may suffer loss due to their own inefficiencies and wrong business decisions and the consequences of such wrong decisions taken by them cannot be allowed to affect the ALP of the international transaction undertaken by the assessee in India - the overall loss incurred by group companies as a whole can never be a criteria to desist from making any TP adjustment, which is otherwise called for as per the statutory provisions under the Act. Exclusion of Fortune Infotech Ltd from the list of comparables – Held that:- There can be no fetters on the assessee in claiming before the authorities that a particular company was inadvertently included in the list of comparables - mere making of a claim of incomparability does not automatically lead to exclusion - If a company, which is actually not comparable, but was inadvertently included by the assessee in the list of comparables, the same is liable to be excluded - the exclusion of the otherwise comparable company from the list of comparables cannot be allowed on the simple ground of higher profit earned by it during the extant year. First proviso to section 92C(2) provides that where more than one price is determined by the most appropriate method, the ALP shall be taken to be the arithmetical mean of such prices - It transpires that the Indian legislation talks of considering all the comparables and then finding out the arithmetic mean of the price/profit of such comparables - Fortune Infotech Ltd. is a comparable company warranting its inclusion in the list of comparables. Provision of expenses disallowed – Held that:- The assessee is constantly making provision for expenses on year-to-year basis on the estimate of reasonable expenses incurred but the bills not received up to the year-ending - When in the subsequent year, the bills are received, such provision is reversed - If the actual amount of expenses for which the provision was made falls short of such provision, then deduction is claimed for the excess expenditure and in the converse situation, the earlier excess provision created is reversed in the succeeding year - the expenses are basically in the nature of professional fee, telephone expenses, communication expenses and consultation, etc. - the deletion of the addition sustained in the first appeal is allowed – decided partly in favour of assessee.
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2014 (12) TMI 893
Transfer pricing adjustment – Determination of ALP on international transaction – software development and system integration services rendered to Bearing Point Group and its worldwide customers – Selection of comparable - Avani Cincom Technologies Ltd. - KALS Information Systems Ltd. - Held that:- It was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables - Non-furnishing the information obtained u/s 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable - this company was not selected on the basis on any search process carried out by the TPO but only on the basis of information collected under section 133(6) - the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also – Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] - since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, the AO/TPO is directed to omit this company from the list of comparables. Celestial Biolabs Ltd. – Held that:- The assessee has brought on record substantial factual evidence to establish that this company is functionally dis-similar and different from the assessee Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] - the functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee - this company ought to be omitted from the list of comparables. Lucid Software Ltd. – Functionally different unit - Held that:- Lucid Software Ltd., is engaged in the development of software products whereas the assessee, is in the business of providing software development services – in Transwitch India (P.) Ltd. Versus Deputy Commissioner of Income-tax, Circle 16, New Delhi [2012 (5) TMI 314 - ITAT DELHI] it has been held that since this company, is engaged in the software product development and not software development services, it is functionally different and dis-similar and is therefore to be omitted from the list of comparables for software development service providers – thus, the Company should be excluded from the list of comparable companies. Thirdware Solutions Ltd. (Segment) – Held that:- The company is engaged in product development and earns revenue from sale of licenses and subscription - the segmental profit and loss accounts for software development services and product development are not given separately - the assessee is rendering software development services – following the decision in M/s. 3DPLM Software Solutions Ltd. (Successor to Delmia Solutions Private Ltd.) Versus Dy. Commissioner of Income Tax [2014 (12) TMI 612 - ITAT BANGALORE] - the AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Persistent Systems Ltd. – Held that:- The company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider - in the absence of segmental details / information a company cannot be taken into account for comparability analysis, this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration - the AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Quintegra Solutions Ltd. – Held that:- Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee - this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs – in 24/7 Customer. Com (P.) Ltd. Versus Deputy Commissioner of Income-tax, Circle 11(2), Bangalore [2013 (1) TMI 45 - ITAT BANGALORE] it has been held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted from the list of comparables. Tata Elxsi Ltd. – Held that:- The company is predominantly engaged in product designing services and not purely software development services - The details in the Annual Report show that the segment “software development services” relates to design services and are not similar to software development services performed by the assessee - Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable - the company should be excluded from the list of comparable companies - The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Infosys Technologies Ltd. – Held that:- The assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] is applicable - Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products - It is also seen that the breakup of revenue from software services and software products is not available - this company ought to be omitted from the set of comparable companies. Wipro Ltd. – Held that:- The company is engaged both in software development and product development services - There is no information on the segmental bifurcation of revenue from sale of product and software services - a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market - this company cannot be considered as a comparable to the assessee - following the decision in M/s. 3DPLM Software Solutions Ltd. (Successor to Delmia Solutions Private Ltd.) Versus Dy. Commissioner of Income Tax [2014 (12) TMI 612 - ITAT BANGALORE] - the companies should be excluded from the list of comparable companies - The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Computation of deduction u/s 10A - Exclusion of telecommunication charges, insurance expenses and travelling expenses from export turnover – Held that:- Following the decision in Commissioner of Income-tax Versus Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] the AO is directed to exclude a sum of ₹ 1,26,19,649/- incurred on telecommunication charges, insurance expenses and travelling expenses from export turnover and total turnover – Decided in favour of assessee. Prior period expenses disallowed – Held that:- The expenditure was wholly and exclusively for the purpose of business and that the same was genuine, the fact that the expenditure relates to an earlier period cannot be a ground to deny the deduction, especially when factually crystallization of liability during the previous year has not been disputed - the expenses claimed by the assessee is to be allowed – Decided in favour of assessee.
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2014 (12) TMI 892
Transfer pricing adjustment – Adjustment to the profitability on deprecation for “like to like” comparison of business model – Held that:- The assessee is engaged in the business of trading of diagnostic instruments and consumables manufactured by its associated enterprises - assessee entered into international transactions representing purchase of goods from the associated enterprises - the arm’s length price of the international transaction is to be benchmarked on Transaction Net Margin Method (TNMM) - To compute Transaction Net Margin Method of the assessee, data of M/s. Span Diagnostics Limited was found to be comparable by Transfer Pricing Officer. As per the Transfer Pricing Officer, the Transaction Net Margin Method of M/s. Span Diagnostics Limited works out to 9.22% whereas the Transaction Net Margin Method of the assessee in respect of aforesaid international transactions comes to 5.75%. The depreciation charged by the assessee in its books of accounts is on Written Down Value (WDV) method whereas the depreciation charged in the case of M/s. Span Diagnostics Limited is on Straight-line method, hence for comparing Transaction Net Margin Method of the two companies, adjustment in respect of depreciation is must – thus, the matter is to be remitted back to the Transfer Pricing Officer for proper verification of the claim of the assessee regarding huge difference in the amount of depreciation between the assessee company and the chosen comparable case and also the difference in the method of providing of depreciation in the two companies - if the methods of depreciation adopted by the two companies are different, then the net margins arrived at are not strictly comparable unless suitable adjustment is made in the amount of depreciation so as to adopt depreciation under the same method in the two cases – thus, the TPO is directed to take into consideration the difference in the method of providing depreciation in the case of the assessee and the chosen comparable case and if the methods are different, then to make suitable adjustment for the same as per law – Decided in favour of assessee. Claim of depreciation in respect of instruments placed at customers’ site and capitalized in the books of accounts disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that AO is right in its rim to examine the agreements entered between the assessee company and its customers for determining the nature of transaction - It is the primary duty of the assessee to furnish all such agreements if required by the Revenue - assessee has failed to do so in spite of the repeated requests made by the AO – thus, the matter is to be remitted back to the AO for examination of the agreements – Decided in favour of assessee. Claim of provision of sick leave u/s 43B disallowed – Held that:- The AO has made disallowance by invoking the provisions of clause (f) of Section 43B and the same was confirmed by CIT (A) also on the basis of Section 43B – as decided in Exide Industries Limited And Another Versus Union Of India And Others [2007 (6) TMI 175 - CALCUTTA High Court] wherein it was held that clause (f) of Section 43B is arbitrary, unconscionable and dehors of the Hon’ble Supreme Court decision, and therefore, not valid - clause (f) of Section 43B is not valid and, therefore, disallowance made by the AO on the basis of clause (f) of Section 43B cannot be sustained – the disallowance made is to be set aside – Decided in favour of assessee.
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2014 (12) TMI 891
Transfer pricing adjustment - profit from Indian operation taxable in India or not - automobile design and engineering services rendered to the TML - TMETC-UK sends its employees/engineers to India for rendering services – Whether the assessee was justified in carrying out comparative analysis on the basis of UK based comparables, rather than by selecting Indian comparables - Held that:- The tested party is TMETC, whose operating profit is to be bench marked by carrying out functional analysis of its controlled transactions for which reliable data for its comparability is available in the country where it is located, then such comparables has to be taken into account for carrying out the comparability analysis for the purpose of Transfer Pricing and bench marking the Arm’s Length Price - The TMETC for the purpose of rendering services in India is incurring all its cost in UK like direct costs, employee costs, legal and professional fees, rent and other operating expenses, then for the purpose of computation of PLI, these costs have to be taken into consideration for determining the profit margin. Since all the main costs attributable to the PE are based on cost incurred in UK, then it can be very well said that PE is influenced by the economic and financial conditions of UK, as against the Indian economic factors - The Indian economic factors are not at all influencing the cost or margin of the assessee, hence it cannot be held that Indian comparables can be used to bench mark the TMETC transaction and the price with Tata Motors - the finding of the TPO as well as DRP that PE is an Indian enterprise, working in India and therefore, its margin is to be bench marked with Indian comparables is not accepted - The PE in India is a service PE, having no establishment in India, nor incurring any costs, deployed any assets, therefore, cannot be held that it is an independent Indian enterprise - nothing has been brought on record that assessee’s PLI is influenced by the economic factors in India, viz, attribution of costs, assets or other factors relevant for determination of profits are based in India - Thus, the TPO and DRP were not correct in holding that UK comparables cannot be taken into consideration for the purposes of comparative analysis and bench marking the assessee’s margin - under the facts and circumstances of the case, the foreign comparables i.e. UK comparables can be taken into account for carrying out FAR analysis and bench marking the Arm’s Length margin of the assessee’s transactions with its AE and the selection of the Indian comparables by the TPO is not accepted. Since the TPO has not carried out any comparability analysis or FAR analysis in respect of UK comparables chosen by the assessee, therefore, he is directed to carry out such analysis and benchmark the assessee’s margin - If such comparables do not stand the test of comparability then, TPO may search other comparable after confronting to the assessee - for the search of comparability assessee will provide necessary assistance to the TPO – thus, the matter is remitted back to the TPO/AO for adjustment to be made – Decided partly in favour of assessee.
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2014 (12) TMI 890
Claim of higher rate of depreciation i.e. 60% on the routers and switches treating them as computers – Held that:- As decided in assessee’s own case for the earlier assessment year, the same rate is followed in allowing depreciation at the rate of 60% - the AO is directed to adopt that rationale for the relevant AY also and allow depreciation at the rate of 60% on routers and switches. Audio visual conferencing equipments and video streaming equipments – Held that:- To treat the equipment as computer or computer system, the nature of the equipment and the functions they perform are to be examined - all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming - Some of the components may exist independently and may also be functioning independently but in the assessee’s business they are only performing the functions as input and output devices - The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity - the AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery - The AO shall allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery - assessee also advanced an alternative argument that once the equipment has entered the ‘fleet of assets’ and depreciation has been allowed at the rate of 60% in the earlier years, the same cannot be treated as plant and machinery during the relevant assessment year and depreciation granted at lower rate of 15%. Administrative support services fee incurred by the assessee disallowed u/s 40A(2)(b) – Held that:- The assessee has filed on 14-7-2014, the break-up of the expenditure as per profit and loss account during the financial year 2007-08 - the services rendered by Cisco India to the assessee are in the nature of Financial and Accounting services, legal and tax related issues information system and related issues, Treasury services, Asset Management/residual value analysis, credit analysis and deal execution - to invoke the provisions of sec.40A(2) of the Act, the AO cannot make an ad hoc disallowance u/s 40A of the Act but has to determine the expenses which are excessive and unreasonable - The AO has failed to point out any particular expenditure which according to him, is excessive or unreasonable but has made an ad hoc disallowance which is not sustainable - disallowance u/s 40A(2) can be made only if the alleged excessive and unreasonable payment is made to any person enumerated under clause (b) of sub-sec.(2) of sec.40A of the Act - the AO has not brought out anything on record to show that Cisco India Ltd., falls in any of the categories of persons enumerated under clause (b) of sub-section (2) of sec.40A - The recipient of the payment i.e. Cisco India, definitely does not fall under any of the categories of persons under clause (b) of sub-sec.(2) of sec.40A - The AO has not carried out any exercise to bring on record that Cisco India has got substantial interest in the business or profession of the assessee or that it falls in any of the categories of persons - the disallowance u/s 40A(2)(b) of the Act is not called for. Computation of total income – set off of brought forward depreciation/loss - Held that:- The AO has given a finding that the tax payer did not produce any supporting evidence to establish that the services were actually received by it - except for stating that the assessee has received administrative management services, no evidence is produced to substantiate the claim - the TPO has held that the assessee has failed to produce any evidence to substantiate its claim of receiving services, but has not compared the margins declared by the assessee with the margins of the comparable companies for similar services – thus, the matter is remitted back to the TPO for re-adjudication – Decided in favour of assessee.
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2014 (12) TMI 889
Disallowance of Interest – inter-corporate deposit - currency swap arrangement with the Bank to reduce the burden of the interest cost - impact the overall interest claim - Held that:- The assessee borrowed a loan of ₹ 81.30 Crores from JP Morgan Chase Bank on 18.12.2006 for the purpose of construction of ‘Forum Value Mall’ at Whitefield, Bangalore on which interest was payable on a monthly basis @ 12.25% per annum - assessee then entered into a currency swap arrangement with ABN Amro Bank to reduce the burden of interest cost and for hedging the interest rate risk - interest paid on the loan of ₹ 81.30 Crores for the period 1.4.2007 to 31.3.2008 totally amounted to ₹ 8,49,32,272 - Out of this interest amounting to ₹ 5,32,82,402 was determined as interest cost relatable to the inter-corporate deposit and the same was debited to the profit and loss account - the finding of the AO that the currency swap arrangement was only in respect of unutilised funds is factually erroneous - the currency swap arrangement and the resultant income therefrom amounting to ₹ 1,75,28,315 was in respect of the entire loan and the same was linked to the loan borrowed for the purpose of reduction of interest cost. The interest debited to the profit and loss account amounting to ₹ 5,32,82,402 was incurred for earning income from the inter-corporate deposit and the currency swap arrangement and in the regular course of business carried on by the assessee and the interest so debited to the profit and loss account is admissible as a deduction u/s 57(iii) of the Act or alternatively u/s 37(1) - an amount of ₹ 3,16,47,870 was capitalised as part of the funds were used for the ongoing construction of ‘Forum Value Mall’ and the balance sum of ₹ 3,57,54,087 (Rs.6,74,01,957 less ₹ 3,61,47,870) only could have been charged to the profit and loss account - while the AO has computed the interest cost pertaining to the intercorporate loan at ₹ 3,85,49,961 @ 12.25% on the day to day balance, the net interest paid charged to the profit and loss account as per the working at ₹ 3,57,54,087 is lower than the interest cost computed at ₹ 3,85,49,961 by the AO - the assessee has not made any excess claim on account of interest – Decided against revenue.
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2014 (12) TMI 888
Land transferred to the developer under the JDA as per section 2(47)(v) or not - Computation of Capital gain - Whether on execution of joint development agreement by the assessee along with his brother Mr. Nandish Reddy on 9.8.2006 with M/s. Akme Projects Ltd, the land comprising 2 acres and 48 guntas was transferred to the developer or not – Held that:- The assessee and his brother have executed an irrevocable license in favour of the builder to enter into the scheduled property and develop the same by putting up the construction - assessee has divested the possession of the land to the developer and in lieu of that, he along with his brother would receive consideration in the shape of 50% constructed area the similar issue has been decided in Additional Commissioner Of Income-Tax, AP Versus GM Omar Khan [1977 (9) TMI 12 - ANDHRA PRADESH High Court] - the moment the owners have handed over the possession to the developer a right to receive the developed area would accrue to the owners - it is a consideration in kind, which has a value, which can be worked out. Assessee contended that the market value of the land to be transferred to the developer as on the date of the joint development agreement should be adopted as a consideration - full consideration is the cost of construction incurred by the builder on the assessee's share of constructed area, because the assessee would receive constructed area in lieu of the land share - whatever is the expenditure incurred for constructing that area is a consideration in kind to the assessee - there cannot be any fault in the computation of capital gain made by the AO – thus, CIT (A) was not justified in holding that no capital gain has accrued to the assessee on account of transfer of land in this year – thus, the order of the CIT (A) is set aside and that of the AO is restored – decided in favour of revenue.
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2014 (12) TMI 887
Remittances to foreign collaborator - Requirement to deduct TDS - Whether the assessee is liable to deduct tax at source u/s 195(1) of the Act in respect of the Design engineering fee, commercial services and other know-how contained in the Technology License agreement dated 30.06.1994 with Paltough – Held that:- The agreement envisages payment for providing design engineering services and technical know-how for erection of plant, providing of commercial services; and, providing of technical and process know-how to enable assessee to manufacture the products - as per the assessee, with respect to the fee paid as per Clause 1(v) towards design engineering vis-à-vis plant know-how, no part of the income of the foreign company arises in India - since the payment relates to acquisition of plant know-how in the form of technical and engineering data, designs, etc. it cannot also be treated as ‘Royalty’ also. Relying upon Commissioner of Income Tax Versus Maggronic Devices Pvt. Ltd. [2009 (10) TMI 38 - HIMACHAL PRADESH HIGH COURT] wherein it has been held that the agreement whereby the know-how delivered to the assessee therein was to remain its property for its full and free use thereof - as per Clause 2(a) of the Agreement assessee is granted a permanent right to use and exploit the design engineering, which is qua the services provided in Clause 1(v) of the agreement - to the extent that the agreement envisages payment for obtaining plant know-how i.e. designing, characterization of plant and machinery, etc. the same cannot be considered as payments falling within the purview of ‘Royalty’ – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh consideration, segregating the nature of remittances to the foreign collaborator. The amounts which are payable on account of acquisition of Plant know-how towards erection of plant and machinery to manufacture a licensed product, the same shall not be subject to tax at source - on the contrary, the payments made for technical Product know-how or Process know-how, the same are liable to be considered for deduction of tax at source; and, such services have been rightly considered by the CIT(A) to be in the nature of ‘Royalty’ – Decided in favour of assessee.
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2014 (12) TMI 886
Validity of order u/s 143(3) – Jurisdiction of order is viod-ab-initio or not as it was not passed in the name of the deceased assessee – Held that:- Shri Gopaldas Nema in whose name assessment has been made already died on 1.3.2009 - CIT(A) rightly took the view that it was duty of the legal heir of the assessee to bring the fact of the death to the notice of the AO along with the address of the legal heir with documentary proof of being a legal heir - from the assessment order, it appeared the return had been filed through e-filing by Shri Gopal Das - Even though the appeal before the CIT(A) has been filed in Form No. 35 by the legal heir on behalf of Late Shri Gopal Das - no evidence was brought to contradict this fact that the return was filed by the legal representative on behalf of Late Shri Gopal Das – the order of the CT(A) is upheld – Decided against assessee. Denial of exemption u/s 54EC – Investment made in REC bonds on 31.03.2008 - investment made before the date of transfer of the property or not – Held that:- Although the wording in the section are similar to the provisions of Section 54EC that the investment in the specified assets has to be made within period of six months after the date of such transfer but the Board has clearly laid down in the circular under para (2) that in its option it is felt that if statutory interpretation is taken that the investment has to be made after the date of transfer, this interpretation would go against the purpose and spirit of the section - the Board have decided that if the assessee invests the earnest money on the advance received in the specified assets before the date of the transfer of the assets, the amount so invested will qualify for exemption u/s 54E of the Income-tax Act, 1961 - it is apparent that each of the assessee has invested into the REC Bond even though prior to the transfer but out of the part of the consideration received on the sale of the assets in respect of which the capital gain has been assessed – similar matter has been decided in SUBHASH VINAYAK SUPNEKAR Versus ASSTT COMMISSIONER OF INCOME TAX RANGE-2, PUNE [2013 (9) TMI 2 - ITAT PUNE] - the order of the CIT(A) is set aside and the AO is directed to allow deduction to all the assessees u/s 54EC – Decided in favour of assessee.
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2014 (12) TMI 885
Various expenses incurred prior to setting up of Plant and machinery - Held that- The expenditure incurred by the assessee on account of salary, wages, power charges, repair maintenance, professional fees etc. are prior to the date of setting up of plant and machinery so acquired by the assessee - though the expenditure has been incurred on account of salary, wages, power charges, repair maintenance, professional fees etc. but the same is with respect to a new plant and machinery acquired by the assessee and before the same is put to use – the expenses was incurred for bringing a new asset into existence – as decided in Dalmia Jain and Co. Ltd. Vs. CIT [1971 (7) TMI 2 - SUPREME Court] it is the real nature and quality of the payment and not quantum or manner of the payment which would prove decisive - If the object of making payment is to acquire a capital asset the payment would partake character of the capital payment even though it is not made in lumpsum but by installment - even in case of expansion of existing business, the expenditure incurred for acquiring the additional plant and machinery will be in the nature of capital expenditure - If the outlay is made for the extension of business, it will be treated in the capital filed and not revenue. Expenses made under the head trial run expenses during construction period – Capital expenses or not - Whether on the date of trial run, the plant and machinery acquired by the assessee was set up or not – Held that:- If the expenditure even on trial run is considered as prior to the setting up of plant and machinery then it cannot be allowed as revenue expenditure but has to be capitalized and being part of cost of the newly acquired capital asset - The plant and machinery is set up when it is established and in ready to start function - the plant must be put into such shape and stage that it can start functioning for the purpose of business of the assessee - the trial run is one stage prior to discharge the functions for which it has been acquired - until and unless a successful trial run is completed, the newly acquired machinery cannot be said to have put in such a shape that it can start functioning as business asset and, therefore, it cannot be said that the plant and machinery has been set up - Prior to the installation of the machinery and bring to the shape to be ready to discharge the function the activities carried out are merely operations for setting up of the plant - the plant and machinery could be treated as set up only as a culmination of all these operations, which are necessary for establishing the plant and machinery and bring in the shape as it is ready to discharge function - the expense which have been incurred by the assessee prior to setting up the plant and machinery are capital in nature and cannot be allowed. Term loan interest to be treated as revenue expenditure or not – Held that:- As per proviso to Section 36(1)(iii), interest on term loan is to be allowed only from the date when asset is first put to use - Prior to it, such expenditure cannot be allowed as Revenue expenditure – as decided in ESSAR STEEL INDIA LTD Versus ADDL COMMISSIONER OF INCOME TAX & ASSTT COMMISSIONER OF INCOME TAX [2013 (11) TMI 278 - ITAT MUMBAI] which is - expenditure was claimed as Revenue but the same was not allowed – Decided against assessee.
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2014 (12) TMI 884
Determination of Arm’s Length Price on international transactions - Foreign exchange transaction loss adjustment to be granted or not – Risk is borne by AE or not - Assessee is engaged in the distribution and marketing of Bearings and other products – Held that:- DRP was rightly of the view that the assessee has worked out the adjustment on the premise that he fixes the sale and purchase in advance and the forex fluctuation loss has to be borne by him – there was no documentary evidence found in support of the claim that price negotiations had happened in advance - assessee has to sell the AEs goods at the list price decided by the AE - If this is so, then the AE must bear the forex loss, because the prices are fixed in advance by the AE - the assessee has to establish with documentary evidence that he had fixed the sale price in the beginning of the year itself, that assessee was to bear the forex risk alone and that he could not have passed on the effect of Rupee depreciation to the customers – thus, there is no justification for allowing adjustment for the rupee depreciation. The assessee company has not produced any sort of evidence to show that the assessee had pre-determined the sale price - when advance fixation of sale price is not proved by any documentary evidence, it is not possible to accept the contention of the assessee that the de-valuation loss is a fait accompli that foreign exchange fluctuation loss could be adjusted in the hands of the assessee company, only if the assessee company has successfully proved with documentary evidence that the sales were made against predetermined rates – DRP rightly was of the view that it is not possible to accept the adjustment of that loss – thus, the order of the DRP is upheld – Decided against assessee. Transfer pricing adjustment – Held that:- Assessee pleaded that it is not possible for a company in the first year of its operation to achieve the optimum possible return of profits – CA rightly contended that this is the first year of the assessee’s business operation - it is understandable that the assessee cannot jump into full swing operation and achieve the optimum level of profit in the first year - a reasonable amount of adjustment is called for on this ground – thus, a deduction of 10% of the income computed on the basis of the TP assessment is allowed – Decided partly in favour of assessee.
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2014 (12) TMI 883
Addition of opening balance of cash in hand – Held that:- Search u/s 132 was carried out in Pandey group of cases on 19/04/2006 – as decided in All Cargo Global Logistics vs. DCIT [2012 (7) TMI 222 - ITAT MUMBAI(SB)] - in those AYs where the assessment has not abated, the assessment u/s 153A will be made on the basis of incriminating material found during search - this is not the case of the AO that any incriminating material was found during the course of search for this assessee - The addition has been made on the basis of cash flow statement filed in course of assessment proceedings - such an addition cannot be made in the absence of any incriminating material having been found in course of search because the assessment of this year has not abated – thus, the addition made by the AO is not sustainable – Decided in favour of assessee. Addition on the basis of cash flow statement – Held that:- It is noted by the AO that in response to notice issued u/s 153C, it was submitted by the assessee that original return of income was filed on 31/10/2001, which may be treated as return filed in response to this notice - Hence, in this case also, the assessment has not abated and therefore on the same basis, the addition made by AO is not sustainable – Decided in favour of assessee. Addition of unsecured loans – Held that:- The AO made addition of ₹ 51,000/- in respect of three unsecured loans of ₹ 15,000/- from Ram Babu, ₹ 18,000/- from Shri Surendra Kumar and ₹ 18,000/- from Rajesh Kumar totaling to ₹ 51,000/- on the basis that the assessee could not file confirmation from these persons - the original return was filed on 06/08/2002 - the assessment for this year has also not abated and the addition made by AO is not sustainable because the same is not on the basis of any incriminating material found in search. Addition of amount estimated as cost of boundary wall – Held that:- The AO asked the assessee to explain the source of investment - the basis of making this addition is also not this that any incriminating material was found during the course of search and the same is on the basis of post search enquiry and in such enquiry also, the facts are not brought on record as to whether the flat was purchased along with the boundary wall or the boundary wall was constructed afterwards - the assessment has not abated and no addition can be made except on the basis of any incriminating material found in search - Since no incriminating material was found in search in respect of construction of boundary wall, the addition is not sustainable – decided in favor of assessee.
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2014 (12) TMI 882
Rejection of books of accounts - Estimation of income @ 2% of gross sales – Disallowance of loss on products traded by assessee – Held that:- No defect was pointed out by the AO in the books of account nor any fault was found with regard to quantity-wise details of purchases, sales opening and closing stock of inventory of various items dealt with, as filed before the AO - Stock was accounted for on FIFO basis and valuation of stock was done as per regular practice followed by the assessee over the years - in ITO V/s Girish M Mehta [2005 (2) TMI 494 - ITAT RAJKOT] it was held that while rejecting books of accounts the onus was on the revenue to prove that either the books of account maintained by the assessee were not correct and complete or the method of accounting adopted was such that the true profit could not be deduced therefrom - as the onus to make out a case for rejection of books of account was on the revenue, the assessee could not be burdened with the responsibility of proving a negative aspect of the matter meaning thereby the assessee could not be held responsible for not having earned profits at a particular rate. Merely because, the assessee was having low gross profit or loss in respect of its trading activities for which due reasons were given before the AO without finding fault in the books of account the AO rejected audited account and estimated profit on sales - nowhere, the AO has stated that particular items were sold at a price below the market price nor it is a case of AO that the assessee has purchased goods at higher price - mere selling of goods at low margin cannot be made the reason for rejection of books of accounts - thus, there was no justification for the rejection of the books of account and adhoc estimation of profit on sales – the AO is directed to delete GP addition made by him – Decided in favour of assessee.
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2014 (12) TMI 881
Lease Equalization Reserve disallowed – Held that:- As decided in assesse’s own case for the earlier assessment year, the concept of Lease equalization charge is discussed and accordingly restored the matter back to the file of the AO for carrying out fresh examination – Decided in favour of assessee. Disallowance made u/s 14A – Held that:- The AO has not examined contentions of the assessee about the availability of own funds - in any case, the assessee is required to prove the nexus between own funds and investments on the date of making investment - since the claim of the assessee requires verification of factual aspects, thus issue also required examination by AO – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh consideration. Addition of the amount disallowed u/s 14A – Computation of ‘Book Profit’ u/s 115JA – Held that:- In CIT Vs. Goetz India Ltd [2013 (12) TMI 607 - DELHI HIGH COURT] wherein it has been held that the amount disallowed u/s 14A of the Act under the normal provisions of the Act is required to be added while computing the book profit u/s 115JA of the Act - since the matter relating to the disallowance to be made u/s 14A is remitted to the AO, this issue is also remitted back for adjudication. Claim of provision for bad debts disallowed – Held that:- A specific query was put to assessee as to whether it would be acceptable to the assessee if the disallowance of Provision for bad debts is confirmed in these two years and a direction is given to the AO to exclude the amount so offered (reversal of provision) in subsequent years from the total income, the assessee, after consulting the company’s representative, agreed to the same - the disallowance of amount claimed as ‘Provision for bad debts’ in both the years stand confirmed – the AO is directed to exclude the amount offered by the assessee by reversal of Provision for bad debts in the years in which it was so offered. Expenses on clubs – Held that:- The club membership fees paid for employees is allowable u/s 37 - the issue requires fresh examination in the light of decision rendered by Hon’ble Supreme Court – thus, the order of the CIT(A) is set aside and remitted back to the AO for fresh consideration – Decided in favour of revenue. Interest claimed u/s 36(1)(iii) - part of interest has to be capitalized or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee is entitled to claim interest expenditure u/s 36(1)(iii) in respect of capital borrowed for acquiring capital assets in these years and the order of the CIT(A) is upheld – Decided against revenue. Claim of depreciation on leased assets – Held that:- In earlier assessment year also, by following the decision in M/s ICDS. LTD. Versus COMMISSIONER OF INCOME TAX. MYSORE & ANR. [2013 (1) TMI 344 - SUPREME COURT] it has been held that the assessee is entitled to depreciation, if it has leased out the assets under operating lease – CIT(A) rightly was of the view that lease transactions were genuine in nature – Decided against revenue.
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2014 (12) TMI 880
Disallowance of interest paid u/s 40A(2)(b) - excessive claim - borrowed funds from relatives invested in FDRs or not and FDRs could be part of business activity or incidental to business of assessee or not - Held that:- In respect of the disallowance u/s. 36(1)(iii), the reservation of the AO is that the assessee made the FD with the State Bank of India, Chalisgaon to the extent of ₹ 4.25 Crores and earned the lower rate of interest when at the same time the assessee had unsecured loans to the extent of ₹ 4.75 Crores on the date of balance sheet on which the assessee has paid interest @ 12% on the said loans - during the year the salary was also credited to the partner of the HUF and the interest was also credited - There were another transfer entry in respect of same account also as well as withdrawal to the extent of ₹ 1,31,51,907/- the assessee has only borrowed ₹ 26 Lacs. The assessee also explained that there is tedious procedure if the money is borrowed from the bank and even then rate of interest is 14.25% + additional mortgage fee of 1%, documentation processing etc. - assessee also explained that as per the provisions of Sec. 40(b) while computing income of the firm, the interest @ 12% p.a. is allowable on credit balances on the partners’ accounts - the borrowing was made for the purpose of business - merely variation in the rate of interest cannot be the reasons for making the disallowance – thus, the order of the CIT(A) is upheld – Decided against revenue. Addition on difference on rate of borrowing and rate on deposits made in banks deleted – Held that:- In assessee’s own case for the earlier assessment year, it has been held that the addition made by the AO is to be set aside – thus, the decision as delivered is to be followed and the order of the CIT(A) is upheld – Decided against revenue.
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2014 (12) TMI 879
Order passed by TPO within the period of limitation or not - Income of assessee increased by TPO - Held that:- The power to pass assessment order other than block assessment in the case of search flows from section 143(3) - Section 153 provides for limitation for passing the assessment order - section 92CA(3A) enables the TPO to pass an order before 60 days prior to the time limit provided for passing the assessment order in 153 or 153B, as the case may be - wherever the issue of adjustment of transfer pricing arises for consideration, the TPO is expected to pass his order before 60 days prior to the period of limitation referred in 153 or 153B, as the case may be - the income is assessable for AY 2009-2010 - three years period expired on 31.03.2013 - However the assessment order was admittedly passed on 28.3.2014 - Therefore, it is beyond the period prescribed u/s 153. The AO do not want to disclose the actual date of receipt of the direction of the DRP - The Office of the ACIT, Circle 1(1), Trivandrum, who passed the assessment order is maintaining register for inward tapals as per the procedure prescribed by Government of India - It is not known how the AO could claim that the date of receipt of the direction of DRP is not recorded in his office - AO cannot take advantage of his negligence in not maintaining the register for inward tapal - when the Income-tax Act provides for one month period for passing the assessment order after receipt of the direction of the DRP, it is a mandatory requirement for the AO to record the date of actual receipt of the direction from DRP - there is no question of any deemed receipt of direction of DRP by the AO in February 2014 especially when the order of the DRP is dated 29.11.2013 and the assessee received the same on 05.12.2013 – thus, when the direction of the DRP is dated 29.11.2013, it ought to have been received within two months period from the date of order - the direction of the DRP dated 29.11.2013 might have been received by the AO by the end of January 2014 – thus, the AO is expected to pass the assessment order by the end of February 2014 - the assessment order passed by the AO on 28.3.2014 is beyond the extended period of limitation provided in section 144C(13) - the impugned order of assessment dated 28.03.2014 cannot sustained and is set aside – Decided in favour of assessee.
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2014 (12) TMI 878
Violation of section 11(2) r.w.s. 13(2)(d) or not - Loans given by assessee to other trusts from unutilized portion exceeded 15% or not – Held that:- Substantial income of the assessee trust was not used by both the assessees for the purposes for which they were formed - when substantial portion of the amount was not used for the purpose for which the trust was established, whether the assessee trusts are entitled for exemption u/s 11 of the Act - the assessee is under legal obligation to apply the income to the extent of 85% for charitable purpose or religious purpose for which the trust was established - Section 11(1) of the Income-tax Act enables the charitable / religious trust to accumulate or set apart only 15% of the income - the authorities below have failed to consider the provisions of Explanation to section 11(2) and section 11(3)(d) - CIT(A) proceeded on the presumption that advancing money to other charitable institution does not amount to investment or deposit - the payment or credit to other trust is prohibited by Explanation to section 11(2) and section 11(3)(d) was not considered by both the authorities below – thus, the matter is to be remitted back to the AO for reconsideration in the light of the law brought in the statute book by Finance Act, 2002 with effect from 2003 inserting Explanation to section 11(2) and section 11(3)(d) – Decided in favour of revenue.
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2014 (12) TMI 877
Claim of higher depreciation on windmill – Expenses made on windmill – Held that:- Following the decision in CIT vs. Parry Engineering and Electronics P. Ltd. [2014 (12) TMI 752 - GUJARAT HIGH COURT] windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential - Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated - Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized - the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant - the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill - The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same - The assessee's claim for higher depreciation on such investment was rightly allowed – Decided against revenue. Contribution to Group Gratuity Scheme disallowed – Held that:- Assessee has filed a Certificate of Commissioner of Income-tax, Ahmedabad-III, Ahmedabad dated 04.10.2011 and submitted that the gratuity fund is now approved by the Commissioner of Income-tax and that the expenditure claimed was allowable deduction to the assessee - this certificate was not available with the assessee during the course of assessment proceedings before the AO and during the course of appellate proceedings before the CIT(A) – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee.
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Customs
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2014 (12) TMI 900
Appropriate forum to be High Court or Tribunal - Direction to be made for implementation of Final Order by Tribunal or not - The Tribunal had earlier taken a view that the assessee is eligible for the benefit of Notification No. 21/02 – Held that:- If a Statutory Authority does not implement the order of the Tribunal, the remedy does not lie in coming to Tribunal again - the remedy lies in approaching jurisdictional High Court by filing a writ petition – Tribunal cannot order the authority implementing the matters relating to food adulteration and direct that authority to allow the consignment to be imported, when they take a stand that according to the Act, such a consignment cannot be allowed to be imported - once the order is passed by this Tribunal, the Tribunal becomes functus-offficio – assessee have failed to make out a case for interference – Decided against assessee. Rectification application – Typographical errors – Held that:- Assessee earlier pointed out three typographical errors - however, during the hearing the assessee submits that there is one more error which has not been mentioned in the application – thus, assessee is given more time for going through the order and find out more typographical errors if any and submit one application.
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2014 (12) TMI 899
Determination of assessable value of goods - inclusion of BU fees and legal and professional fees paid by the appellant - Held that:- The impugned orders do not specify, under which clause of Rule 10 (1), the service charges are includible in the assessable value of the goods imported. It would be relevant at this juncture to peruse the said rule 10 of CVR, which reads as under. Clauses (a) to (d) of Rule 10(1) have no application to the facts before us as they relate to totally different situations and operate in different fields. If at all, only clause (e) would be relevant. The crucial factor for application of the said clause is that the payment should have been made as a condition of sale of the goods imported. There is nothing in the two agreements stipulating such a condition. While the service agreement is for rendering of certain management consultancy services, the secondment agreement is for deputation of staff. These have nothing to do with the import of raw materials. There is also no restriction placed on the appellant that the raw materials should be procured only from the related foreign entity and from nobodyelse. In the absence of any nexus, even remotely, between these two agreements and the import of raw materials, we do not find any justification whatsoever to relate the payments made for the services received to the value of the goods imported. In the case of allegation of under valuation, it is for the Revenue to lead evidence which has not been done in the instant case. - Decided in favour of assessee.
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2014 (12) TMI 898
Import of goods as cotton polyester fabric, died oven fabric of cotton - Classification of goods - Classification under CTH No. 521131.90 or CTH 521142.00 - Confiscation of goods - Misdeclaration of goods - Held that:- There is no findings of the Commissioner on the issue whether the assessment was provisional. We also find that the grievance of the Appellant of re-testing of the samples has not been acceded to by the adjudicating Commissioner. Commissioner in his order has merely observed that there is no need to refer the sample to any other laboratory for further testing as the test report of the departmental Chemist are to be preferred to opinion of outside agencies while classifying a product. We do not endorse this view of the ld. Commissioner, especially as the Appellant had challenged the test report of the Customs House Laboratory. Appellant has taken the plea that they had requested for assessment under “First Check” and therefore there cannot be intention to evade duty. - as the sample was not re-tested, the remnant sample if any should be sent to the CRCL, New Delhi after following proper procedure and a copy of the said report should be supplied to the Appellant before deciding the case - Matter remanded back - Decided in favour of assessee.
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2014 (12) TMI 897
Import of Stainless Steel Coils & Sheets under DEEC Licences - allegation of diversion of diverting the said S.S. Coils & Sheets to various places in Chennai - validity of The physical inspection of the aforesaid detained goods - Held that:- While drawing sample by M/s. Geo-chem Laboratories the appellant had written a letter to the customs to remain present for taking the samples but the departmental officials did not remain present for drawing the samples. Moreover, the manufacturer/supplier of the impugned goods has stated that these goods are considered as scrap from their international classification. Therefore, they were sold to the appellant as third choice material. The said statement of the supplier has not been controverted by the Revenue. Therefore, in this case as Revenue opted not to remain present while drawing samples by the private lab, M/s. Geo-chem Laboratories and no counter to the supplier’s certificate was adduced in the impugned order. Further, we find that no cross-examination of the examiners of IIT, Mumbai was granted. In these circumstances, benefit of doubt goes in favour of the appellants - inspection report of IIT, Mumbai is not acceptable. Therefore the description given by the appellant is accepted. Accordingly, impugned order is set aside - Following decision of Mehta Steel Corporation [1998 (11) TMI 587 - CEGAT, MUMBAI] - Decided in favour of assessee.
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2014 (12) TMI 896
Import of goods - Non affixation of RSP - under-declaration of RSP - Revenue is seeking stay since if the order is implemented, the respondent will be eligible to get the TVs released - Held that:- Non-affixing of RSP on some of the TVs would not render the goods liable to confiscation since according to Foreign Trade Development Rules, such RSP can be affixed before clearance. This issue was not contested when this was pointed out by us - declaration of RSP is not mandatory and there cannot be contravention of provisions relating to valuation and liable to confiscation under Section 111(m) for misdeclaration of RSP. The law requires value to be declared for the determination of Basic Customs Duty (BCD) and for calculation of Additional Customs Duty (CVD) the value has to be arrived at based on the value declared for BCD. That being the position having accepted the value declared for the purpose of BCD, value for the purpose of RSP separately could not have been determined. This is a highly complicated legal issue and in the absence of any contrary decision and since we find the decision to be logical at this stage, we are not in a position to grant stay on this ground. Since affixing of RSP before the goods reached the landmark of India is not mandatory, confiscation under Section 111(d) also prima facie is not sustainable. Rule 28A of the Rules provided for filing an appeal and seeking stay against pre-deposit of duty demanded and penalty. The rule does not cover appeals filed by the Revenue at all. Since the stay application is not covered by the relevant rules at all, on this ground also the stay application has to be rejected - Stay on release of goods denied. - Decided against the revenue.
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2014 (12) TMI 895
100% EOU - De-bonding - Depreciation on capital goods - whether depreciation can be allowed on the capital goods imported under Notification No. 153/93, though the notification does not provide specifically for the same, prior to 2003, most of the notifications issued under the Customs Act, did not provide for depreciation norms when the capital goods were allowed de-bonding - Held that:- C.B.E. & C. issued Circulars right from 1994 onwards allowing depreciation on capital goods at the time of de-bonding. For instance vide Circular No. 314/19/94-FTF, dated 2-9-1994, the rate of depreciation on capital goods at the time of de-bonding of entities working under 100% EOU scheme was prescribed at the rate of 5% per quarter in the first two years and 4% per quarter for the next two years subject to a maximum of 70%. The said norms were modified vide Circular, dated 11-4-1997, wherein the depreciation norms were changed to 7% per quarter in the first year, 6% per quarter in the second year and 5% per quarter for the third year subject to maximum of 70%. Later on vide Circular No. 49/2000, dated 22-5-2000, the norms were further liberalized and the maximum amount of depreciation was permitted at 90% for a period of 8 years and for computer and computer peripherals, accelerated depreciation was allowed. Later on these depreciation rates were incorporated in the notification itself and Notification No. 52/2003, dated 31-3-2003 provides for depreciation norms in para 4 of the Notification itself for capital goods other than computer and computer peripherals and computer and computer peripherals separately. Similarly, Notification No. 22/2003-C.E., dated 31-3-2003 provides for depreciation on capital goods procured independently. Thus from the circulars issued by C.B.E. & C. from time-to-time, it is clear that depreciation has to be allowed in respect of the capital goods, from the date of installation/use of capital goods till the date of de-bonding. Similar provisions exist in respect of domestically procured capital goods also. Therefore, the finding of the adjudicating authority that the appellant is not eligible for depreciation on capital goods is completely contrary to the express provisions of EXIM Policy as also the provision of Notification Nos. 52/2003-Cus., dated 31-3-2003 and 22/2003-C.E., dated 31-3-2003 and Boards Circulars issued from 1994 onwards. Therefore, the said order cannot be sustained in law. In view of the above, the matter has to go back to the adjudicating authority for fresh consideration for determining the quantum of duty which the appellant is liable to pay at the time of de-bonding by taking into account the appellant’s entitlement to depreciation on the capital goods sought to be de-bonded in terms of the rates prescribed under Notification No. 52/2003-Cus. and 22/2003-C.E. from the date of installation/putting to use of the capital goods till the date of de-bonding. - Decided in favour of assessee.
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Service Tax
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2014 (12) TMI 920
Waiver of pre deposit - Erection, Commissioning or Installation Service - Works Contract Service - Held that:- S. Packiaraj, Proprietor of the applicant company in his statement stated that the nature of activity of their firm is installation of various electrical devices as per the requirement of various customers - Services rendered by them are supply of materials as erection commissioning or installation service. It is also noted that the applicants supplied the materials to the customers and therefore they have claimed the service under the category of works contract service for the period 01.06.2007 to 31.03.2010. Prima facie the demand of tax on the gross value is not sustainable. The classification of the service under the category of erection, commissioning or installation service or the works contract service would be decided after hearing at length at the time of appeal hearing. Hence, the applicants have failed to make out a strong prima facie case for waiver of predeposit of entire amount of tax along with interest and penalty. - Partial stay granted.
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2014 (12) TMI 919
General Insurance Services - During the relevant period i.e. from October, 2004 to March, 2007, the appellant had provided General Insurance Service to eligible employees, falling under Employees State Insurance Scheme (ESI Scheme) by way of providing medical and other related insurance service in exchange of premium at different rates. - Section 65(105) (d) of the Finance Act, 1994 - Held that:- Both sides now agree that by virtue of Section 100 of the Finance Act, 1994(No.2), the services rendered by the appellant are exempted from the purview of Service Tax for the relevant period. On a plain reading of the said provision, it is clear that the services rendered by the appellant for the period October, 2004 to March, 2007 are not be leviable to Service Tax. In the result, we do not find merit in the impugned order, accordingly, the same is set aside - Decided in favour of assessee.
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2014 (12) TMI 918
Waiver of pre deposit - Business auxiliary service - air travel agent's service - Held that:- The service rendered by the appellant herein is booking of passage for travel by air, which is squarely covered by the definition of 'air travel agent service' as defined in Section 65(4). As per the said definition, an air travel agent means any person engaged in providing any service connected with the booking of passage for travel by air and the taxable services means any service provided or to be provided by any person by an air travel agent in relation to the booking of passage for travel by air. In view of the above statutory definitions, any activity in relation to booking of passage by air travel agent would be covered under 'air travel agency service'. Whether the ticket is bought directly from the airline or through the GSA, the same would not make any difference. Therefore, the confirmation of demand under 'business auxiliary service' does not appear to be prima facie sustainable in law. This is the view taken by the Tribunal in the case of Zuari Travel Corporation and the appellant's own case cited supra. Hence the appellant has made out a strong case for waiver of dues. Accordingly we grant unconditional waiver from pre-deposit of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal - Stay granted.
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2014 (12) TMI 917
Waiver of pre-deposit of Service Tax - Availment of CENVAT Credit on pure service contract and scheme of abatement in other cases - maintenance and Repair, Erection, Commissioning and Installation services and Commercial or Industrial Construction service - Held that:- Applicant could able to show before us referring to sample work orders that there were pure service contracts and also contracts where services coupled with supply of material are provided. Prima facie, we find that the applicant had been claiming abatement under Notification No. 1/2006-ST dated 1/3/2006, in those cases only where alongwith services, they have supplied materials to their clients. The Ld.Advocate before us submitted that in their reply to the show cause notice, they have enclosed a statement, contract wise, explaining elaborately that in relation to composite contracts, they have availed abatement but did not avail CENVAT Credit; whereas for contracts rendering services only, they availed CENVAT Credit on the input services. It is his submission that Ld. Commisssioner, nowhere, has recorded any contrary observation to the said statement. Regarding the eligibility of CENVAT Credit on Pure service contract and abatement on composite services under Notification No. 1/2006-ST dated-1/03/2006 simultaneously, prima facie, we find it is covered by the decision of this Tribunal in the case of SMP Constructions Pvt. Ltd (2009 (6) TMI 80 - CESTAT, AHMEDABAD). In the result, we are of the view that the applicant could able to make out a prima facie case for total waiver of dues adjudged - Stay granted.
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2014 (12) TMI 916
Levy of service tax on management, maintenance or repair service prior to 1.6.2007 - activity are in the nature of works contract - Held that:- Prima Facie it is incorrect to say that services rendered by them prior to 01.06.2007 will not be liable to service tax merely because they could be classified under works contract service with effect from 01.06.2007, because prior to 01.06.2007 the classification of their services will be as per the provisions existing then. As regards the main contention of the appellants that the services rendered to IIT Kanpur were not liable to service tax is view of the retrospective amendment referred to above, it is to submit that the said retrospective amendment is applicable only to non-commercial Government buildings. It is obvious that the buildings of IIT Kanpur are not Government buildings because IIT Kanpur is neither ‘government’ nor any Department thereof. Obviously then the benefit of said retrospective amendment is not available to the appellants. While detailed analysis of all the facts and appellants' contentions can be taken up only at the time of final hearing, it is seen that the appellant have not been able to make out a prima facie case to justify waiver of pre-deposit of service tax demanded and interest leviable thereon. - entire service tax directed to be deposited - however interest and penalty stayed - stay granted partly.
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2014 (12) TMI 915
Evasion of duty - Goods transport agent service - Invocation of extended period of limitation - Malafide Intention - Held that:- It is the credit of Service Tax paid which is available to the assessee and not credit of Service Tax payable. Admittedly the appellants have paid the Service Tax on the GTA services availed during December, 2004 though they were not liable to pay the same. Having paid the Service Tax, they are entitled to the credit of the same. It is to be noted that no objection was raised by the Revenue at the time of payment of Service Tax by the appellant. The circumstances for imposing penalty and for invocation of longer period are identical. The original adjudicating authority having held that there was no mala fide intention on the part of the assessee to evade duty, I really fail to understand as to how the longer period of limitation, which is primarily based on mala fide intention, would be available to the Revenue. The demand having been raised after the normal period of limitation, is barred by limitation - Decided in favour of assessee.
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2014 (12) TMI 914
Denial of refund claim - period of limitation - input services used in export of goods -Notification No. 41/2007, dated 6-10-2007 - Held that:- Under the Notification No. 41/2007 refund was to be filed within sixty days from date of export of the goods. This period of sixty days was increased to one year under Notification No. 17/2009, dated 7-7-2009. The Commissioner (Appeals) has granted the benefit of Notification 17/2009, dated 7-7-2009 by treating time-limit of one year for granting the refund. I do not find any infirmity in this finding of Commissioner (Appeals). Officers of Department are governed by the provisions of Acts/Rules and Notification issued under Act/Rules. Therefore Commissioner (Appeals) has rightly invoked provisions of Notification Nos. 41/2007 and 17/2009, dated 1-7-2009 in deciding the appeal - Decided against assessee.
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2014 (12) TMI 913
CENVAT Credit - appellant has taken Cenvat credit on the basis of proper cenvatable documents but during the course of Audit it was observed that the service providers did not pay the required service tax - Held that:- It is evident from the provisions contained in Rule 4(7) of the Cenvat Credit Rules that Cenvat credit in respect of input services has to be allowed for the service tax paid or payable as indicated in the invoice, bill or, challan referred to in Rule 9 of the Cenvat Credit Rules. There is no provision in the Cenvat Credit Rules that if any amount of service tax shown to have been paid or payable in the duty paying document is not paid by the original manufacturer or the service provider, then Cenvat credit taken is required to be varied at credit taking end. To clarify this matter further it is observed that C.B.E. & C. under Circular No. 766/82/2003-CX., dated 15-12-2003, issued vide No. 201/45/43-CX, has given clarification and made amply clear that the recipient of the inputs/input services should not be asked to reverse the Cenvat credit availed in such cases so long as the bona fide nature of the consignee’s transaction is not in dispute. In the case of the appellant there is no evidence that the transaction between the service provider and the service recipient was not bona fide. At the time of receiving of duty paying document appellant cannot be expected to verify whether proper service tax has been paid by the appellant or not. In view of the above after allowing the stay applications/appeals themselves are taken up for final disposal. - For the reasons recorded above when service tax credit has been taken on the basis of valid documents by the appellant the credit is required to be allowed in view of Rule 4(7) of the Cenvat Credit Rules which has also been clarified under C.B.E. & C. Circular dated 15-12-2003 by the Revenue - Decided in favour of assessee.
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2014 (12) TMI 912
Penalty u/s 76 & 78 - Non receipt of service tax from ICICI - Held that:- Appellant is providing services relating to granting of loans for and on behalf of ICICI Bank - In view of the above charging of appellant’s activities to service tax under Business Auxiliary Services was prone to different interpretations. Under the circumstances, once the entire amount of service tax along with interest was paid by the appellant and as the issue was disputed and prone to different interpretations, no motive can be assigned to the appellant to evade any service tax. Appellant, therefore, had a reasonable cause for not discharging duty liability in time due to disputable nature of the service. Therefore, it is a fit case for non-imposition of penalties under Sec. 76 & 78 as per the provisions of Sec. 80 of the Finance Act, 1994 - Decided in favour of assessee.
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2014 (12) TMI 911
Waiver of pre deposit - Consulting Engineer Service - services provided by branch situated abroad - Held that:- As per the representative agreement and letter shown, the consulting engineer stationed abroad cannot be considered as a branch and he is nothing but an employee of the appellant. If he is an employee, prima facie the provisions of Section 66A(2) of the Finance Act, 1994 which required a branch to be treated as separate person may not be applicable. Further we also note that in para 68 of the order wherein the Commissioner has reached conclusion that the appellants have branches abroad, there is no clear finding that the persons who were stationed abroad were part of the branch but not employees. - appellant has made out a very strong case on merits on a prima facie basis - on revenue neutrality also the appellant has a strong prima facie case - Stay granted.
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Central Excise
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2014 (12) TMI 908
Valuation of goods - Inclusion of outward freight charges - Held that:- Show Cause Notice does not allege, either expressly or by implication that outward freight charges were separately collected by the appellant. There is also no evidence, oral or documentary on the record to facilitate a finding as to additional collection of outward freight by the appellant. The appellant clearly, specifically and categorically pleaded in response to the Show Cause Notice that since the sales were on FOR destination basis, the transaction value includes the value of freight and that the freight charges were not separately collected from the buyers and further that the amount of transportation charges paid by the appellant were disclosed in its books of account under the head of expenditure. Neither the primary nor the appellate Authority adverted to any evidence whatsoever, documentary or oral, on the basis of which the primary authority perversely in para 17; and the appellate Authority in the impugned order affirmed, that the appellant was required to include the value of transportation charges in addition to the transaction value, on which duty was paid. Neither the primary nor the appellate orders adverted to any evidence on record to justify this perverse conclusion (based on no evidence), concurrently recorded. - Decided in favour of assessee.
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2014 (12) TMI 907
Condonation of delay - Delay in receipt of order - what should be the date of receipt of an order-in-original issued by the department to the appellants - Held that:- As per the arguments made by the Revenue the said order-in-original was delivered to the appellants on 21.3.2013 according to the communication dated 05.3.2014 received by the department from the postal authorities. Appellants argued that the acknowledgement cards furnished do not show any signature on behalf of the appellants. During the course of hearing original acknowledgements were also seen by the bench but no signature of the appellants could be seen at the relevant space. Following decision of S.A. Engineering Works vs. CCE, Vadodara [2013 (11) TMI 705 - CESTAT AHMEDABAD] - order passed by first appellate authority is set-aside. The matter is remanded back to him, after setting aside the OIA dated 13.3.2014, for de-novo consideration of matter on merits after giving an opportunity of personal hearing to the appellants. - Decided in favour of assessee.
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2014 (12) TMI 906
Restriction on utilization of cenvat credit under Rule 8A - meager amount - default in payment of duty or short payment of duty wrongly - Whether due to a calculation error, amounting to a short payment of ₹ 6,158/-, appellant can be slapped with a demand of approximately ₹ 457 Crores, along with interest and an equivalent amount of penalty - Held that:- Field formations are required to take recovery action under Section 11A of the Central Excise Act, 1944 if there is any calculation error and rate of duty difference. If a short calculation of duty is attributed to be a default of Rule 8(3A) of the Central Excise Rules, 2002 then every short payment paid on being pointed out by department, or suo-moto by an assessee, will be a case of default. At the same time any valuation/ classification dispute detected by department and upheld by any appellate authority up to Supreme Court will also be a case of default of Rule 8(3A). Such a situation may arise after years of litigation also and may lead to a position of chaos rather than harmony and certainity in taxation matters. We are, therefore, of the opinion that default in payment of duty mentioned in Rule 8 (3A) will be non payment of duty as assessed by an assessee. However, there could be situations where an assessee deliberately calculates less duty liability in order to avoid penal provisions. The default with respect to Rule 8(3A) should be a deliberate act in total defiance of the law and not for minor calculation errors. For such minor calculation errors the provisions of Section 11A of the Central Excise Act, 1944 are attracted as per circulars issued by CBEC. Appellant themselves detected short payment and paid the amounts along with interest and intimated the department. Appellant had sufficient balance in its duty payment accounts and is paying crores of duty by issuing thousands of invoices. A minor calculation error can not be categorised as defiance of law and will not amount to a default of Rule 8(3A) as these provisions will be applicable to non payment of duty as self assessed by an assessee. In the case of the appellant the short payment is so small that the judgment of Hon ble Gujarat High Court s order, in the case of Baman and Berry Bearing Private Limited vs. UOI (supra), will be applicable even if the act of the appellant is considered as default of Rule 8(3A) - appellant s case is not a default of Rule 8(3A) of the Central Excise Rules, 2002 - Decided in favour of assessee.
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2014 (12) TMI 905
Reversal of cenvat credit after finished goods become exempted goods - Demand of CENVAT Credit on inputs lying in stock and inputs contained in finished goods lying in stock - Tribunal followed decision of Albert David Ltd. v. CCE [2002 (11) TMI 144 - CEGAT, COURT NO. III, NEW DELHI] - Held that:- Assuming for the moment that the credit is available, it can be used for payment of duty on any other excisable articles and not exempted goods. In such view of the matter, we are not agreeable with the view taken by the Allahabad High Court that it will amount to unjust enrichment. We also notice that the decision in Super Cassettes Industries Ltd case, referred [1997 (1) TMI 98 - HIGH COURT OF JUDICATURE AT ALLAHABAD], which has been relied upon by the Division Bench in Brook Bond Lipton India Ltd. Case, referred [2011 (8) TMI 593 - Allahabad High Court], did not find favour with the Supreme Court in Dai Ichi Karkaria Ltd. Case, referred [1999 (8) TMI 920 - SUPREME COURT OF INDIA]. In such view of the matter, it has to be held that the view taken by the Allahabad High Court has not been accepted by the Supreme Court. - Tribunal in Ashok Iron and Steel Fabricators case, referred [2002 (1) TMI 91 - CEGAT, NEW DELHI] as well as the decision of the Bangalore Bench of the Tribunal in the assessee's own case have emphasised over and over again on para (17) of the decision of in Dai Ichi Karkaria Ltd. Case, referred [1999 (8) TMI 920 - SUPREME COURT OF INDIA], which has very clearly set out the position as to how the credit taken on inputs should be utilized. Once it is held that no co-relation between the raw material and the final product is required, the appellant's plea stands answered. If credit can be taken against excise duty on a final product manufactured on the very day, it makes it abundantly clear that there need not be co-relation between the input and the goods cleared and as a result, validly taken credit need not be reversed. The Central Excise Rules would come into play in the following manner, that is to say, on the date when the final goods become exempt from payment of duty, for the inputs received on and after the said date, no credit can be taken. This would be the correct method of understanding of the position of law. The introduction of Rule 11(3) of the Cenvat Credit Rules, 2004, by notification No.10/2007-CE (NT), dated 1.3.2007 and the Tax Research Unit Circular in D.O.F.No.334/1/2007-TRU, dated 28.2.2007 clarifying that it will come into effect immediately, makes it clear that the position of law as it stood decided in the assessee's own case by the Karnakata High Court, the appeal against which was dismissed by the Supreme Court, is the correct position. The Tribunal in this case erred in distinguishing the decision of the Bangalore Bench Tribunal placing reliance on Albert David Ltd. case, referred supra. In any event, Ashok Iron and Steel Fabricators case, referred [2002 (1) TMI 91 - CEGAT, NEW DELHI], is a Larger Bench decision and the same has been upheld by the Supreme Court and that would be binding on the Tribunal, rather than the Two-Member Bench decision in Albert David Ltd. Case, referred [2002 (11) TMI 144 - CEGAT, COURT NO. III, NEW DELHI]. - Decided in favour of assesse.
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2014 (12) TMI 904
Determination of Annual Capacity Production - respondent/assessee is engaged in the manufacture of hot-rolled products of Iron and Steel - Compounded Levy Scheme of Rule 96ZP of the Central Excise Rules, 1944 read with Section 3A of the Central Excise Act, 1944 - imposition of interest and penalty - Held that:- Rule 5 states that in case the annual capacity determined by the formula in sub-rule (3) of rule 3 in respect of a mill is less than the actual production of the mill during the financial year 1996-97, then the annual capacity so determined shall be deemed to be equal to the actual production of the mill during the financial year 1996-97. Hence Rule 5 will have to be taken into consideration for determination of the Annual Capacity Production even when there is any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules. Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules - In the light of the decision of the Supreme Court reported in [2011 (7) TMI 10 - SUPREME COURT OF INDIA] on remand, the competent authority has to determine the same. As a consequence, if duty, penalty and interest is leviable, the competent Authority is entitled to proceed further as provided under the relevant provisions of the Rules by following the procedure prescribed. It is needless to say that opportunity will be given to the assessee so as to avoid an allegation of violation of principles of natural justice. - Appeal disposed of.
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2014 (12) TMI 903
Rebate claim - non production of complete AR-4 - petitioner has produced not only xerox copies but they are of relevant and germane documents viz. Shipping bills, bill of lading, customs invoices, Mate receipt and bank realization certificate - Held that:- When the proof of export is produced and that act is evidenced by production of the documents referred by us viz. Shipping bill, bill of lading etc., then the claim deserves to be entertained / granted. However, in this case, it has been concurrently found that the original and duplicate copies of AR-4, which bear endorsement of Customs Authority have not been submitted. The Authorities found that in some cases AR-4 did not have the Customs endorsement, whereas in some cases only front part of AR-4 was submitted, whereas it is the back portion on which endorsement is put by Customs. The documents pertaining to proof of exports have been categorized. It is not as if any hyper technical view has been taken because each of the Authorities have referred to other documents produced. They have referred to shipping bills, bill of lading, customs invoices, Mate receipts and bank realization certificate. However, those documents have not been relied upon because their first part has not been submitted and it is only the second part which has been placed on record. That may prove export of certain goods, but would not prove further that those were the same goods removed from the manufacturer's factory. In such circumstances, the findings of fact are based on material produced. They cannot be said to be perverse or vitiated by any error of law apparent on the face of the record. - Decided against assessee.
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2014 (12) TMI 902
Denial of rebate claim - Processing of the goods for the DTA unit of the assessee by the EOU unit - The applicants have exported goods from the EOU but duty is paid by the DTA unit. Later rebate was claimed for the duty paid on the goods exported - Held that:- DTA unit will be eligible for brand rate of drawback with regard to duty suffered on inputs. This condition nowhere debars the 'DTA exporter' from availing any rebate benefit, of duty paid at final product if the same is otherwise admissible to DTA unit for such exports. This condition nowhere stipulates that rebate of duty paid at final stage on finished goods is not admissible. Hence, legitimate claim of rebate of duty paid at final stage cannot be held inadmissible by applying provision of Sr.No.(1) of the above said permission. - no cenvat credit can be allowed to DTA unit on the duty paid on inputs procured from DTA and supplied to EOU for job work. In these cases, it has been alleged that the DTA unit has availed cenvat credit of duty paid on inputs supplied to EOU for job work. Government finds in some cases, the applicant availed cenvat credit, which is clearly in violation of permission granted to them. Further, the applicants contended that condition of non-availment of cenvat credit of duty involved on inputs supplied for job work to EOU, imposed vide above said permissions is inconsistent with existing statutory provisions. Government finds that when the applicant supplied the goods to EOU for Job work, subject to condition imposed on permission to do so, they cannot selectively choose or reject the provisions in their favour. There is no allegation that duty on finished goods for which rebate has been claimed in impugned cases, has been paid from improperly availed cenvat credit. Further, there is different statutory provision for recovery of cenvat credit, if availed improperly. Hence, as discussed in this para above, the rebate of duty paid at final stage cannot be held inadmissible provided the same has been paid from property availed cenvat credit. Similarly, in certain cases the applicant also availed benefit of DEPB, which is clearly in violation of condition No.(6) of the said letter. However, Government finds that there is no statutory bar on availing rebate of duty paid at final stage, if DEPB benefit is availed. Further, if DEPB benefit has been availed improperly there are different statutory provisions available for recovery of the same. - export is not covered under the parameter of export scheme EOU scheme and no benefit will accrue to the EOU. If the export is not to be made in scheme of EOU, then it is improper on the part of department to contend that provisions of Section 5A(1A) of Central Excise Act 1944 read with notification No.29/2003 dated 31.3.2003 will be applicable in the impugned cases. Once; the impugned exports brought out the ambit of EOU scheme, the same cannot be applied to deny benefit of rebate by stating that the impugned export was required to be carried out by EOU. The contentions of department are therefore, in total contradiction to conditions of permission granted to the EOU unit for job work and hence, can't be held sustainable. Applicant has violated some of the conditions in impugned permission letters and contended that such conditions are inconsistent with law. - the applicant cannot be allowed to commit such procedural lapses in regular and habitual manner. Hence, they are cautioned and directed to remain compliant to various statutory procedural requirement in future. Failing to do so, rebate claims may be held inadmissible in future for non-compliance of such procedural requirements. Rebate allowed - Decided in favour of assessee.
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2014 (12) TMI 901
Appeal before Commissioner (Appeals) - Period of limitation - Determination date of service of order in original Denial of rebate claim - Denial of rebate claim - Held that:- It is Evident in terms of Section 37C(1)(a), the order needs to be sent by registered post with acknowledgement due, for whom it is intended or his authorized agent, if any. In this case, the impugned orders-in-original were shown to have been issued on 30.7.2008. However, the department claimed that the impugned orders were received by some representative of the applicant company on 21.8.2008. No satisfactory reasons have been given by the department as to why the orders have not been sent by post in spite of having shown as issued on 30.7.2008, and the same orders have been handed over to the representative of the applicant company. If same orders have been shown as issued on 30.7.2008 through post, the same orders cannot be handed over to any person by hand. No satisfactory explanation has been given by the department for such contradiction. Further, the department could not bring on record any valid authorization by the company authorizing the person, who has purportedly received the impugned orders-in-original. Under such circumstances, the impugned orders-in-original cannot be said to have been served to the concerned party. There is also no proof of service of orders, if sent by post to the applicant. Under such circumstances, Government has no option but to accept the applicant's contention that they were not served the impugned orders-in-original either through post or through hand delivery as claimed by the department. As such, applicant's contention regarding receipt of the impugned orders-in-original, only on 21.10.2008 required to be accepted and that the appeals were filed before Commissioner (Appeals) on 6.1.2009, within condonable time limit of 90 days. Hence, the appeals cannot be treated as time barred and may be decided on merits. - Matter remanded back - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2014 (12) TMI 910
Validity of assessment order – Extended period of limitation u/s 21(5) of A.P. VAT Act, 2005 – suppression of inter-State purchases of edible oils - Held that:- the show cause notice alleges that the assessee has committed willful evasion of tax - The findings recorded by the first respondent in the assessment order, which shall be referred to later in this order, also establish that the petitioner had committed willful evasion of tax - as the ingredients of Section 21(5) are attracted, there is no reason to held that the assessment, made for the tax period 2008- 09 and 2009-10, is beyond the period of limitation. Violation of principles of natural justice or not – Whether failure of the assessing authority, to summon the selling dealers, for their cross-examination by the assessee, in violation of principles of natural justice – Held that:- Failure to summon dealers, (who were not even carrying on business in the said premises and whose whereabouts were not known), for being subjected to cross-examination by the petitioner cannot be said to be in violation of principles of natural justice - as the dealers were not even available for examination by the concerned commercial tax officers, the question of making them available for cross-examination by the petitioner does not arise. Extension of benefit of input tax credit – Sale of goods on which input tax credit claimed or not - Would production of a tax invoice by itself, and without anything more, require a dealer to be extended the benefit of input tax credit and whether the assessing authority prohibited from enquiring whether or not the selling dealer had sold the goods for which input tax credit was being claimed – Held that:- The entitlement of a VAT dealer to claim input tax u/s 13(1), in view of Section 13(3) thereof, is only if he is in possession of a tax invoice - the mere fact that the dealer is in possession of the tax invoice does not preclude the assessing authority from ascertaining whether the selling dealer had, in fact, sold goods to the purchasing dealer; whether there was physical delivery of such goods; whether the tax invoice was issued by a registered VAT dealer; whether or not the transactions of sale are genuine, etc. If, on enquiry, the assessing authority is satisfied, on the basis of the material evidence on record, that there has been no sale of goods, or the tax invoice was not issued by the VAT dealer, or there was no physical delivery of goods, or inter-state purchases had been suppressed and bogus tax invoices raised as if the said goods had been purchased by the dealer within the State, he can deny the assessee the benefit of input tax credit. The benefit of input tax credit is given to avoid the cascading effect of levy of sales tax at multiple points of sale - while the purchasing VAT dealer would not be entitled to claim input tax credit without obtaining a tax invoice from the selling VAT dealer, mere production of a tax invoice would not disable the assessing authority from enquiring whether the sale of goods, referred to in the said tax invoice, is genuine or bogus or whether the said tax invoice has been issued by a registered VAT dealer - while the eight dealers from whom the petitioner claimed to have purchased edible oils were registered VAT dealers, they were not carrying on business; some of them had not even registered themselves as carrying on business in edible oils; the tax invoices in their name were issued by third parties; and neither had they disclosed these sales in their returns nor had they paid tax thereon - while non-payment of tax by a genuine registered VAT dealer may not disentitle the purchasing dealer from claiming input tax credit, the assessing authority would be justified in denying the assessee the benefit of input tax credit where the entire transaction is a sham and goods have neither been transported nor delivered by the selling dealer to the purchasing dealer. Adequacy or sufficiency of evidence - Whether judicial review of an assessment order adequacy or sufficiency of the evidence, based on which the assessing authority recorded his findings, can be gone into or not - Held that:- In the exercise of its jurisdiction under Article 226 of the Constitution of India, the Court would not re-appreciate the evidence on record nor would it substitute its views for that of the assessing authority - even if two views are possible, and the view taken by the assessing authority, on the evidence on record, is held to be a possible view, interference by the Court would not be justified - while an appellate authority would be entitled to re-appreciate the evidence, and come to a different conclusion on the same material, such an exercise would not be undertaken by this Court in Writ proceedings under Article 226 of the Constitution of India - If the material on record supports the conclusion of the assessing authority, and the findings arrived at by him are such as a reasonable man would arrive at on the material on record, this Court would refrain from interference. The material on record does support the conclusion of the assessing authority that inter-State purchases of edible oils were suppressed and documents were created as if the petitioner had purchased edible oils from dealers within the State and had made payment to them, when, in fact, they had not purchased edible oils from dealers within the State - The conclusion of the assessing authority that this modus operandi was only to illegally claim the benefit of input tax credit, thereby evade payment of the sales tax due to the Government on the sales made by the petitioner to other VAT dealers within the State, and is only to willfully evade payment of tax, are neither findings based on no evidence nor are such findings perverse - therefore, there is no reason to exercise jurisdiction under Article 226 of the Constitution of India to interfere with the impugned assessment order – Decided against the petitioner.
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2014 (12) TMI 909
Reduction / Restriction of Input tax credit - Constitutional validity of section 11(6) of Gujarat Value Added Tax Act, 2003 – reduction of 2% in credit when goods sold/resold in the course of interstate trade and the commerce or the goods used as input including raw material in the manufacture of goods which are sold in the course of interstate trade and commerce. - Held that:- Considering section 11 of the VAT Act as a whole, the tax credit provided under Section 11(1)(a) to a purchasing dealer is conditional one and subject to subsection (2) to subsection (12) of section 11 inclusive of subsections (3) to (6) of section 11 - Therefore, as such it would be for the State Government to specify any goods or the class of dealers that shall be entitled to whole or partial tax credit, by the notification in the Official Gazette - Therefore, it is for the State Government to specify the goods or the class of dealers that shall not be entitled to whole or partial tax credit and it can be said to be the policy decision of the State Government to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit and the same shall be within the exclusive domain of the State Government for which there need not be any specific guidelines - when it is the policy decision of the State Government to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit and the Act itself confers the power upon the State Government by notification published in the Official Gazette specifying any goods or the class of dealers that shall not be entitled to whole or partial tax credit and more particularly when the tax credit provided under Section 11(1)(a) shall be subject to the provisions of subsection (2) to subsection (12) of section 11, it cannot be said that subsection (6) of section 11 is unconstitutional or violative of Article 14 of the Constitution of India on the ground that subsection (6) of section 11 gives unbridled power to the executives, as contended and/or submitted by the petitioners. The same is with a view to consolidate and amend the laws relating to levy and collection of tax on value added basis in respect of the sales or purchases of the goods in the State of Gujarat - Therefore, when the statement of object and reasons for Gujarat Value Added Tax Act, 2003 is to consolidate and amend the laws relating to levy and collection of tax on value added basis in respect of the sales or purchases of the goods in State of Gujarat, it is always permissible for the State Government to provide for and/or to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit - the intention of the legislature is not to allow the tax credit with respect to all the goods in respect of all the purchasing dealers and the same is conditional one subject to subsection (2) to subsection (12) of section 11 inclusive of subsection (6) of section 11 and Act itself provides that by publication of notification in Official Gazette, the State Government can specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit - as such when such powers are provided u/s 11(6) of the VAT Act, considering section 11 as a whole it cannot be said that subsection (6) of section 11 is unconstitutional and/or ultra vires to Article 14 of the Constitution of India. Validity of Notification dated 29.06.2010 as amended vide notification dated 07.09.2010 – Held that:- As such section 11(6) of the VAT Act can be said to be an independent provision, which authorizes and/or permits the State Government vide notification in the Official Gazette, to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit - as already decided that section 11(6) of the VAT Act is neither unconstitutional nor violative of Article 14 of the Constitution of India - Under the circumstances and more particularly when the input tax credit under Section 11(1) of the VAT Act is subject to the provisions of section 11(2) to section 11(12) of the VAT Act, the notification/s cannot be said to be dehors the provisions of VAT Act. Reduction of input tax credit to the extent of 2% by Notification violative of Article 286(3) of the Constitution or not – Held that:- By impugned notifications as such the State Government is not imposing tax on, or altering the machinery provisions pertaining to tax on, the sale of goods from the State to a destination outside State - the State Government has provided input tax credit under Section 11 of the VAT Act and has reduced the input tax credit to the extent of 2% on the eventuality as mentioned in the said notifications i.e. if the goods are sold outside the State, in exercise of powers under Section 11(6) of the VAT Act - as such for sale from State to a destination outside the State, it is governed by the CST Act and by impugned notifications the State Government has not touched the said sales tax - Under the circumstances, it cannot be said that the impugned notifications are violative of Article 286(3) of the Constitution of India. The notifications are issued reducing the input tax credit to the extent of 2% on the goods supplied outside State of Gujarat in the larger public interest and to ensure adequate funds in the development programme of the State - Reduction of the rate of central sales tax from 4% to 3% with effect from 01.04.2007 and from 3% to 2% with effect from 01.06.2008 and the failure on the part of the Central Government to compensate the State for the losses on account of the aforesaid reduction can be said to be one of the cause and/or reason - as the State has suffered loss of thousands of crores of revenue due to the said reduction and the Central Government failed to compensate the said losses and it has been found that the tax revenue of the State has been adversely affected, when the impugned notifications are issued it can neither be said to be arbitrary nor illegal and/or unconstitutional – Decided against petitioner.
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