Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
December 31, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
Income Tax
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Deductions - In Respect Of Profits And Gains From Industrial Undertakings, Or Enterprises Engaged In Infrastructure Development - Notification
DGFT
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Procedure for Incremental Exports Incentivisation Scheme - Public Notice
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Amendment in Chapter 3 Schemes of Foreign Trade Policy - Incremental Exports Incentivisation Scheme Reg. - Notification
VAT
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Principles of natural justice - If the requirement of an opportunity to show cause is not read into the said Rule, an action thereunder would be open to challenge as violative of Article 14 of the Constitution of India on the ground that the power conferred on the competent authority under the provision is arbitrary. - HC
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2012 (12) TMI 876
Registration u/s. 12A - CIT(A)rejected the application on non submission of documentary evidence regarding its activities - ITAT allowed the claim - Held that:- It can be seen that under Section 12AA the Commissioner has to satisfy himself about the objectives of the trust and the genuineness of its activities. For such purpose, he has the power to call for such documents or information from the trust as he think are necessary. However, this does not mean that if the activities of the trust have not commenced, the Commissioner has authority to reject its application for registration on the ground that the Trust failed to convince him about the genuineness of the activities. That is what unfortunately the Commissioner did in the present case. The Commissioner in the present case did not dispute about the charitable activities as indicated in the object clause of the assessee & in case where the assessee trust did not start charitable activity at the time of granting registration, the same can be verified from the object clause. In that view no error in the Tribunal’s impugned order reversing the order of the Commissioner who merely on the ground that the activities of the Trust had not commenced persuaded to reject the application for registration - in favour of assessee.
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2012 (12) TMI 875
Remuneration to partners - Allowance of sec 40(b)(v) only on the basis of declaration made in the partnership deed declaring them as working partner OR firm to prove that these partners are actively engaged in conducting the affairs of the business - Held that:- Section 40(b)(v) prescribed limit of remuneration which can be allowed to its partner as deduction while computing the business income. It is not in dispute that the remuneration paid to the working partners was within the provision of clause (v) of subsection (b) of Section 40 as all the three partners are working partners in the assessee opp.party firm and the AO has himself allowed the remuneration of Rs.4,00,000/- per annum to each of the partner. The Parliament in its wisdom had fixed a limit on allowing the remuneration to the working partners and if the remuneration are within the ceiling limit provided then recourse to provision of Section 40A(2)(a) cannot be taken. The AO is only required to see as to whether the partners are the working partners mentioned in the partnership deed, the terms and conditions of the partnership deed provide for payment of remuneration to the working partners and whether the remuneration provided is within the limits prescribed under Section 40(b)(v) or not. If all the aforementioned conditions are fulfilled then he cannot disallow any part of the remuneration on the ground that it is excessive. Since in the present case, all the conditions required has been fulfilled the question of disallowance does not arise.
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2012 (12) TMI 874
Re opening of assessment - labour charges and radiography charges to be disallowed u/s 40(a)(ia)- Non deduction of TDS - Held that:- As during the assessment proceedings leading to the assessment order dated 11/11/2009 the petitioner had disclosed all facts with regard to deduction being claimed on account of labour charges and radiography charges. In fact, the assessment order dated 11/12/2009 records the fact that a notice was issued to the petitioner to explain why expenses on account of labour and radiography charges should not be disallowed under Section 40(a)(ia) & petitioner explained its view point and the AO on consideration of those facts in his order of assessment dated 11/12/2009 concluded that these payments on account of radiography charges and labour charges are tax deductible at source in terms of Section 194C. Thus the petitioner has disclosed all primary facts and on consideration of those facts as reflected in the assessment order dated 11/12/2003 therefore, the impugned notice u/s 148 and the reasons in support thereof clearly indicates that it has been issued merely on the basis of change of opinion and would amount to a review of the Assessment Order dated 11/12/2003. The reasons for reopening is not on the basis of any tangible material but merely on verification of the material and primary facts already on record that the AO has duly considered while passing the order dated 11/12/2003 for AY 2007-08. Also that is in the order dated 15/10/2012 rejecting the objections filed by the petitioner with regard to reassessment proceedings for assessment year 2007-08 a completely new ground has been added to reopen assessment is the lack of co-relation between the payment received by the petitioner and the TDS Certificate issued by the persons making payment to it during the assessment year 2007-08. This according to order dated 15/10/2012 resulted in under assessment of income to the extent of ₹ 21.61 lacs. The aforesaid issue was not one of the grounds specified in the reasons communicated to the petitioner on 23/7/2012 for the purpose of reopening the assessment for assessment year 2007-08. Our Court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar, Assistant Commissioner of Income Tax and others reported in (2004 (2) TMI 41 - BOMBAY HIGH COURT ) has held that for the purpose of examining the jurisdiction to reopen a completed assessment one is only concerned with the reasons recorded at the time of issuing notice under Section 148 of the Act. These reasons cannot be supplemented/ improved upon later. Therefore, the order dated 15/10/2012 disposing of the objection also cannot be sustained - the impugned notice dated 28/3/2012 is bad in law - in favour of assessee.
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2012 (12) TMI 873
Disallowance u/s 40(a)(ia) - lesser deduction of tax and also under different head - 194C v/s 194I - Held that:- The conditions laid down u/s.40(a)(ia) for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment cannot be disallowed u/s. 40(a)(ia). Here in the present case the assessee has deducted tax u/s. 194C(2) and not u/s. 194I but there is no allegation that this TDS is not deposited with the Government account. Section 40(a)(ia) refers only to the duty to deduct tax and pay to government account there is nothing in the said section to treat the assessee as defaulter where there is a shortfall in deduction. And if there is any shortfall due to any difference of opinion the assessee can be declared to be an assessee in default u/s. 201 but no disallowance u/s 40(a)(ia) is allowed - no substantial question of law is involved.
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2012 (12) TMI 871
Disallowance u/s 14A r.w.s. 8D - Held that:- Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] holding that Rule 8D is applicable prospectively from assessment year 2008-09 & disallowance u/s 14A for the years prior to assessment year 2008-09 has to be made by adopting some reasonable method. As AY for the present case if 2005-06 impugned order of the CIT(A) confirming the disallowance u/s 14A is set aside and restore the matter to the file of the AO to recompute the disallowance - in favour of assessee for statistical purposes. Addition on deemed dividend u/s 2(22)(e) - loans taken from M/s JMC Securities Pvt. Ltd - Held that:- Interest income earned by M/s JMC Securities Pvt. Ltd. during the year under consideration was to the tune of Rs.9,16,088/- which constituted about 70% of its total business income amounting to Rs.13,04,088/-. Moreover, the maximum amount of loan advanced by M/s JMC Securities Pvt. Ltd. during the year under consideration was to the tune of Rs.95,45,000/- which constituted 32% of the total funds available with the said company. If these facts and figures are considered in the light of the decision in the case of Parle Plastics Ltd. (2010 (9) TMI 726 - BOMBAY HIGH COURT), it becomes abundantly clear that lending of money was a substantial part of a business of M/s JMC Securities Pvt. Ltd. and the loan in question to the assessee was made by the said company in the ordinary course of its business. It, therefore, follows that the conditions stipulated in section 2(22)(e)(ii) were duly satisfied and the amount of loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee could not be regarded as a deemed dividend. As the assessee has also filed a copy of the assessment order passed u/s 143(3) in the case of M/s JMC Securities Pvt. Ltd. for the assessment year 2006-07 wherein the nature of the business of the said company was clearly indicated as "finance" and it was further mentioned in the body of order that the said company continued into business of short term finance of idle funds. Thus the addition made by the AO u/s 2(22)(e) on account of the loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee by treating the same as deemed dividend is not sustainable - in favour of assessee.
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2012 (12) TMI 870
Reopening of assessment - difference in sale price as per the 'agreement to sell' dated 14.10.1999 & sale deed dated 01.09.2002 - undisclosed payment of Rs. 65.80 lacs to the sellers - escaped assessment for the AY 2000-01 - Held that:- There can be no escape in the light of the interpretation of Section 147 that there existed sufficient reasons for the AO to believe that the undisclosed income in the hands of the appellant-assessees escaped assessment in the year 2000-01. The agreement to sell dated 14.11.1999 was admittedly signed by both of them. The Notary Public also supported the cause of Revenue regarding execution of the said agreement. JD Gupta was cross-examined by the assessees at length but he withstood the test of credibility who was blamed to have got the 'agreement to sell' signed by the assessees without letting them see the contents of the agreement. The agreement to sell dated 14.11.1999 referred to four demand drafts which were exactly the same as mentioned in the sale deed dated 13.09.2002. These very demand drafts appeared in the subsequent agreement to sell dated 03.02.2000 also. In the light of this overwhelming material brought on record the AO was fully justified in disbelieving the subsequent agreement dated 03.02.2000. Similarly, the far-fetched plea taken by the assessees that their signatures on the agreement to sell dated 14.10.1999 were obtained without disclosing its contents to them, cannot be accepted. The decisions relied upon by the appellants have no bearing on the point in issue - assessee's plea regarding second agreement to sell dated 03.02.2000 or the agreed sale consideration amounting to Rs. 16 lacs only, was disbelieved concluding that the assessees had made an undisclosed payment of Rs. 65.80 lacs to the sellers and both of them had invested Rs. 43,86,667/- out of their undisclosed income - against assessee.
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2012 (12) TMI 869
Appointment of field organizers - revenue treated it as establishment of sole selling agency system - whether a business expenditure? - Held that:- The assessee created a network of field/sales organizers, who rendered specific services under agreements entered into with them. This was after the sale of cement was decontrolled. As AO has neither doubted the genuineness of the payments nor held that the field organizers did not render any services as per the agreements it follows that the expenditure was rightly allowed by the CIT (Appeals) as business expenditure and his decision was rightly affirmed by the Tribunal. They cannot be called sole-selling agents within the meaning of Section 294 of the Companies Act, 1956 also confirmed by a letter dated 10.11.1989 issued by the Department of Company Affairs, Government of India to the assessee - in favour of the assessee. Deposits received to be treated as secured loans within the meaning of section 40A(8)(b)(1) - Held that:- As decided in L.G.Balakrishnan & Bros. Ltd. Vs. CIT [1998 (4) TMI 16 - MADRAS HIGH COURT] & Super Spg. Mills. Ltd. Versus Commissioner of Income-Tax.[2002 (7) TMI 8 - MADRAS HIGH COURT] fixed deposits secured by a floating charge on specific assets of the company amounts to secured fixed deposits and therefore the interest paid on them cannot be disallowed to the extent of 15% under Section 40A(8) - They are therefore, secured loans and interest paid on them is allowable in full under Section 36(1)(iii) without being regulated by Section 40A(8) read with Explanation (b)(i) - in favour of the assessee. Puja expenses - ITAT allowed the expenditure as business expenditure - Held that:- The Tribunal has taken the correct view having regard to the inclusive nature of the expression “for the purpose of the business” appearing in Section 37(1) and as explained by the Supreme Court in the case of CIT v. Malayalam Plantations Ltd. (1964 (4) TMI 9 - SUPREME COURT) - in favour of the assessee. Retainership paid to tax consultant - whether covered u/s 80VV - Held that:- The retairnership paid to Advocate was not in connection with income tax proceedings but for general advice relating to other laws, thus the provisions of Section 80VV are not attracted. The Section as it stood at the relevant time was applicable only in respect of the expenditure incurred in pursuing income tax assessment proceedings or proceedings before the authorities under the Act. It did not apply to retainership fees paid to consultants or advocates - in favour of the assessee. Depreciation on water distribution system - whether is entitled for depreciation at the rate of plant and machinery or it is to be taken as part of the building for the purpose of depreciation - telephone exchange system - whether it is an office appliance which was entitled to investment allowance, additional depreciation and extra shift depreciation allowance - Held that:- The assessment year involved is 1985-86 thus the matter is more than 25 years old & after such a long lapse of time even if lesser rate of depreciation is allowable on the assets as claimed by the revenue, the whole exercise would only be academic, therefore, return the reference of these two questions unanswered.
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2012 (12) TMI 868
Expenditure incurred on integrated software HIPACK-warranty Module HIPACK-Sales Modules and HIPACK-Parts Module - Revenue v/s Capital - CIT(A) treated as Capital expenditure - Held that:- The assessee is stated to have set up its first manufacturing unit at Greater Noida, commencing operations in 1997 as a joint venture between Honda Motor Company and Usha International of Siddharth Shriram Group. The assessee claimed that it was merely a licensee of the integrated software HIPACK and the right to use the software was subject to the conditions mentioned in the license agreement, which agreement despite repeated adjournments has not been placed by the assessee nor any reasons have been adduced as to why the said agreement could not be furnished. In the absence of relevant agreement, it is not known as to whether or not there was transfer or parting with secret processes and technical know-how to the assessee nor the relevant terms and conditions in respect of use of software are known. The ITAT vide their order dated 26th September,2008 set aside the issue to the file of the AO with the directions to redecide the issue in the light of tests laid down in the case of Amway India Enterprises(2008 (2) TMI 454 - ITAT DELHI-C). In the absence of terms and conditions of the license, it is not known as to how the AO or the CIT(A) could ascertain economic and functional role which the integrated software plays in the business of the assessee. Though in a confirmation dated 6.9.2012 Honda Motor Co. Ltd., Japan stated that it granted license to the assessee and its other subsidiaries worldwide to use HIPACK software, it does not spell out any terms and conditions of the license. A number of factors are relevant to determine whether the advantage operates in the capital field or revenue field. The nature of business of the assessee, an understanding of the business functions or effect of a concern's software. Software normally functions as a tool enabling business to be carried on more efficiently. The scope, power, longevity of such a tool and its centrality to the functions of the business have all bearing on its treatment. Thus in view of the foregoing, especially when the relevant agreement, licensing the aforesaid integrated software has not been placed nor the CIT(A) examined as to how the assessee carried on its functions before acquiring the aforesaid integrated HIPACK software and nor even as to whether or not the said software was part of infrastructure for commencing the business operations in India and whether or not each of the aforesaid four modules could function independently in the light of aforesaid economic and functional test laid down in Amway India Enterprises(supra) while confirmation dated 6.9.2012 of Honda Motors Ltd., Japan was not before the lower authorities, it fair and appropriate to vacate the findings of the CIT(A) and restore the matter to his file with the directions to readjudicate the issue in the light of aforesaid observations. CIT(A) shall pass a speaking order, keeping in mind the mandate of provisions of sec. 250(6) bringing out clearly as to whether or not expenditure on aforesaid integrated HIPACK software is revenue or capital in nature.
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2012 (12) TMI 867
Delay in filing appeal - Rejection of appeal by ITAT without going into the merits - addition made on reassessment - appeal filed before the Tribunal challenging the said order of addition by Commissioner( Appeals) & also an application for rectification u/s 154 - Held that:- The Tribunal committed an error in rejecting the assessee's appeal without examination of issues on merits. After the Commissioner dismissed the assessee's appeal by an order dated 9.1.2002, the assessee's application for rectification was substantially allowed. In such rectification application, the assessee had raised two issues pertaining to an addition of Rs.1 ,48,00,000 /- and other to Rs.43,300/-. The assessee's case with respect to addition of Rs.1 ,48,00,000 /- was allowed. The request for deleting addition of Rs.43 ,300 /- was not accepted. It was only when the Tribunal while allowing the Revenue's appeal and holding that the Commissioner erred in rectifying his own order that the Commissioner's original order dated 9.1.2002 was revived. It was therefore, only by virtue of Tribunal's order dated 31.3.2008 that the appellant's cause to challenge the Commissioner's order dated 9.1.2002 came to be revived. For the first time therefore, after rectification was allowed in favour of the assessee by the Commissioner( Appeals), he was aggrieved by the Commissioner's original order dated 9.1.2002 only when the Tribunal resorted to such an order by judgement dated 31.3.2008. Between 17.3.2003 when the Commissioner had allowed rectification application and 31.3.2008 when the Tribunal reversed such order, the assessee had no cause, no reason, no possibility of maintaining any appeal against the Commissioner's original order dated 9.1.2002. Under the circumstances, he has filed fresh appeal before the Tribunal once the entire reason for challenging the Commissioner's order changed, therefore, delay was technical in nature and well explained. Tribunal having held that Commissioner (A) should not have exercised rectification powers, had the responsibility to examine the assessee's challenge to the original order dated 9.1.2002 by which its appeal came to be dismissed by the Commissioner. The assessee only required an opportunity to challenge on merits the additions made by the Assessing Officer and confirmed by the Commissioner - appeal in favour of the appellant and against the Revenue. Order of the Tribunal is reversed. Delay caused in filing the appeal before the Tribunal stands condoned. Appeal shall be heard by the Tribunal on merits - in favour of assessee
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2012 (12) TMI 866
Shipping business of non-residents - DTAA between India and UK denied - AO has passed composite order u/s 172(4) in respect of all the 45 voyages at 7.5% of total amount of freight - Held that:- The persons covered by section 172 are only those who are in occasional shipping business and not in the regular shipping business. Looking to the magnitude of the voyages undertaken by the freight beneficiary and the fact that the respondent-company has been, as observed by the CIT(A), regularly filing its return of income at Mumbai and being assessed to tax at Mumbai, the finding of the CIT(A) that the freight beneficiary is not engaged in occasional shipping business but in regular shipping business and hence would be outside the scope of section 172 cannot be said to be untenable on facts and in law. His finding in this behalf is therefore confirmed. Similarly, the Department has not placed any material on record to rebut the finding recorded by the CIT(A) that the respondent-company has already filed its return of income at Mumbai. That being the position, the provisions of section 172(7) would apply to the respondent-company that gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act. Besides,this the Income-tax Act does not permit multiple assessments in the hands of the same taxable entity and that too in respect of income from the same business. On these facts, unable to disturb the finding recorded by the CIT(A). The order of the CIT(A) that the respondent-company is liable to be assessed on the basis of return filed u/s 139(1) for its entire income is therefore confirmed. His further order quashing the order passed by the AO u/s 172(4) is also resultantly confirmed. As held in Arabian Express Line Ltd. of United Kingdom (1994 (4) TMI 25 - GUJARAT HIGH COURT) by the very nature of assessment contemplated by section 172, it is not possible to deal with the cases covered by Double Taxation Avoidance Agreement. In the present matter the AO has rejected the claim of the respondent-company that its case falls under DTAA. Such an examination, cannot be undertaken in the proceedings u/s 172 as the AO has no discretion u/s 172(2)/(4) except to compute the income @ 7.5% of freight paid or payable. It is perhaps for this reason that section 172(7) gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act. Once a return is filed by a non-resident u/s 139 claiming the benefit of DTAA, his assessment would need to be completed under the normal provisions of the Income-tax Act. Thus CIT-DR correctly directed AO to verify the position and tax the income of the freight beneficiary (represented by the respondent-company) from the business of handling cargo transportation (including slot chartering business) as per normal provisions of the IT Act.
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2012 (12) TMI 865
Depreciation on the Uninterrupted Power Supply (“UPS”) - disallowing 80% as UPS is not an energy saving device but instead an energy supply device - Held that:- Legislature in its wisdom has chosen to show an Automatic Voltage Controller’ as an electrical equipment eligible for 100% depreciation, falling under the broader head of energy saving devices. Thus once Legislature deemed that an ‘Automatic Voltage Controller’ is a specie falling within energy saving device, it is not for the AO or CIT(A) to further analyse whether such an Item would indeed an energy saving device. In fact it is beyond their powers. Whether an UPS is an Automatic Voltage Controller’? - As it is mentioned in the product brochure that the UPS automatically corrected low and high voltage conditions and stepped up low voltage to safe output levels. Thus there cannot be a quarrel that UPS was not doing the job of voltage controlling automatically. Even when it was supplying electricity at the time of power voltage, the outages remained controlled. Therefore a UPS would definitely fall under the head of’ Automatic Voltage Controller’ eligible for claiming 100% depredation on UPS - in favour of assessee. Disallowance of interest on loan given to subsidiaries - Held that:- Finding substance in the submission of the assessee that no disallowance could be made in respect of the opening balances of loans and advances which were coming from earlier years and in which there were no disallowance as supported by the judgment in case of Sridev Enterprises (1991 (1) TMI 52 - KARNATAKA HIGH COURT) in which it was held that in case loans and advances were being carried forward from earlier years in which there was no disallowance, no disallowance could be made in respect of the opening balance in the current year as the nature and status of the advances on the first day of the current year remained the same as the nature and status of the advances on the last day of preceding year - A categorical finding has been given by the AO that the average interest cost for the AY 2006-07 and 2007-08 are 4.86% and 4.72 % respectively. The assessee had charged @ 6% interest from its subsidiary, therefore, the assessee has charged more interest rate than the average interest rate borne by it on interest bearing funds. Therefore, there is no justification for making any addition - in favour of assessee. Leave encashment expenses - disallowance on ground of double deduction - Held that:- The assessee had been making the claim earlier on the basis of actuarial valuation but consequent to the amendment of section 438 the claim was being made on payment basis from A.Y.2003-04. AO has made estimated disallowance out of the claim made on payment basis on the ground that part of the payments made may relate to earlier year when these were allowed on actuarial basis. AO has made disallowance on estimate which cannot be sustained. Only the payment which had actually been allowed earlier can be disallowed - as matters require fresh examination and disallowance has to be restricted to the amounts allowed in the earlier year restore the issue to the file of AO for passing a fresh order - in favour of assessee for statistical purposes.
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2012 (12) TMI 864
Rectification under section 154 - whether AO is entitled to invoke Section 154 to correct an assessment order of the appellate authorities based on his opinion that the orders of the CIT (Appeals) and the Tribunal are erroneous and contrary to law - The error was on account of the fact that a decision of the Supreme Court be applied to the case as recorded on 15th January, 1992 and the decision of the Tribunal was dated 3rd December, 1991. A plain reading of sub-section (1)(1A) of Section 154, makes it clear that the authority passing the order may amend the order. Thus, an order passed by the CIT(A) cannot be amended by the AO and an order passed by the Tribunal cannot be amended by the CIT(A) or the AO. In any event, neither the AO nor the CIT(A) can sit in judgment over the decision of the Tribunal and they cannot correct an order of the Tribunal. In the present case, the Revenue did not challenge the order of the Tribunal. The matter should have ended by the AO implementing the order of the Tribunal. In fact, upon remand, the AO erroneously did not implement the order of the Tribunal. The AO, ultimately, did so only when the CIT(A) by the said order dated 19th March, 1997 directed him to do so, stating that the AO was bound by the judgment of the Tribunal. The Revenue did not challenge this Order of the CIT(A) either. The matter regarding the claim for depreciation stood concluded, as far as the AO, the CIT(A), as well as the Tribunal are concerned. If the Revenue considered the order of the Tribunal incorrect, it was bound to challenge the same in accordance with law. The AO was not entitled suo motu under Section 154 to do so. AO had not only stated that the Tribunal did not have the benefit of the decision of the Supreme Court as it was rendered earlier, but has taken liberty of criticizing the Tribunal stating that the Tribunal granted depreciation "even though the ITAT was aware that such custom duty was not payable by a subsequent notification by the Govt. of India in 1987." He ought not to have done so - It is not for the AO or for that matter even for this Court to consider whether a decision of the Supreme Court is a correct interpretation of the law or not. Decisions of higher Courts are bound to be followed, irrespective of the personal views of the lower Courts or authorities. This was a case where an application for rectification was made before the Income-tax Officer who had made the order sought to be rectified. In other words, it was not a case where the respondent sought an order from the Income-tax Officer for rectification of an order passed by the appellate authorities. - Decided against the revenue.
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2012 (12) TMI 863
Deduction u/s 80-IB - disallowance as assessee not engaged in production or manufacture of mineral oil - AY 2002-03 - assessee is a joint venture between HPCL and M/s. Colas SA France - CIT(A) confirmed disallowance - Held that:- The assessee has claimed to manufacture/produce products such as bitumen emulsion, cutback bitumen and modified bitumen using bitumen as raw material. In terms of the Board Circular No. 57 dated 23.3.1971, not only crude petroleum but also the liquid products derived from crude petroleum i.e. motor spirit, kerosene etc. which are in the nature of mixture of hydrocarbons have to be considered as mineral oil. Bitumen is the base material produced on refining of crude petroleum. It has not been examined whether bitumen can be considered as liquid product having viscosity recognized for liquids. If bitumen is not found to be mineral oil then the products produced by assessee using bitumen cannot be considered as mineral oil as these have no connection with the mineral base oil. However, in case bitumen is found to be a mineral oil in terms of the definition given by CBDT in Circular No.57 dated 23.03.1971, it is further required to be seen whether bitumen emulsion, cutback bitumen and modified bitumen produced from bitumen can be considered as mineral oil. These products have been held to be mixture of hydrocarbons in the opinion given by IIT Chennai but it is not clear whether these can be considered as liquid products. Further, in case these products are found to be mineral oil, it is further required to be examined whether these have been produced by refining of mineral oil or otherwise because in case of refining of mineral oil, deduction under section 80IB (9) is available only when the refining begins on or after 1.10.1998. But in case of manufacture or production of mineral oil, deduction is available if commercial production begins on or after 1.4.1997. The assessee has claimed that it is a producer of mineral oil and not refiner of mineral oil which has not been examined. This is a highly technical area on which we are unable to arrive at any particular conclusion and matter is required to be referred to IIT Chennai, again as it failed to give opinion whether the products were mineral oil, after giving necessary details regarding the raw material, the products produced and process employed. Therefore, send back the issue to the file of CIT(A) for passing fresh order after obtaining expert opinion and after necessary examination - in favour of assessee for statistical purposes. The assessee admittedly is manufacturing/producing value added products by using bitumen as raw material after applying certain processes. Therefore, it cannot be accepted that the assessee is not an industrial undertaking. The word "undertaking" used in sub-section (9) is a wider term which also includes industrial undertakings. Since the assessee itself has claimed that it is producing commercial products using bitumen as raw material the assessee is to be considered as industrial undertaking. Therefore, the conditions prescribed in section 80IB(2) will be applicable in the case of the assessee. Assessee had not fulfilled the conditions relating to the minimum engagement of workers and use of new plant and machinery - Held that:- The fact whether new plant and machinery have been used in setting up the unit has to be examined in the year in which unit had been set up and in case in that year assessee used new plant and machinery the claim has to be allowed in all subsequent years in which assessee is eligible. In this case, the assessee had not claimed deduction in the earlier years and therefore, this aspect could not be examined. Since assessee has claimed deduction in assessment year 2002-03 onwards it is required to be examined whether in the year of setting up, assessee had used new plant and machinery. Therefore, restore this issue also to CIT(A) for necessary examination and finding after allowing opportunity of hearing to the assessee. Disallowed the claim of deduction u/s 80IB to other income such as interest income and foreign exchange gain etc - Held that:- As decided in Liberty India Ltd. v. CIT [2009 (8) TMI 63 - SUPREME COURT] deduction is allowable only in respect of profit having direct nexus with the eligible business. The section does not cover profit from sources beyond first degree in view of the word derived mentioned therein. Profit attributable to business or incidental profit will not be eligible for deduction under section 80IB - The source of interest income is FDR and not the eligible business of the undertaking and therefore FDR pledged for the purpose of business deduction under section 80IB will not be available. The eligibility of foreign exchange gain will depend upon the fact whether foreign exchange gain is in relation to transactions which are integral part of the operation of the eligible business. The eligibility in respect of other items of income details of which have not been given is also required to be examined therefore, restore this issue to the file of CIT(A) for fresh decision Deduction u/s 35AB - disallowance of deduction claimed of technical know-how fees - assessee had not claimed deduction under section 80IB - petition before CIT under section 264 for claiming deduction - Held that:- AO had allowed the claim u/s 35AB in the original assessment. Subsequently, the assessee filed petition under section 264 before CIT making claim of deduction under section 80IB which the assessee had omitted to make in the original return. CIT in the order dated 12.12.2007 passed under section 264 restored the issue regarding allowability of claim under section 80IB to AO by setting aside assessment order. CIT in the order under section 264 made it clear that while passing fresh assessment, AO shall consider claim of deduction under section 80IB(9). It is thus clear that CIT had set aside the assessment only to consider claim under section 80IB. Assessment had not been set aside to make fresh assessment denovo. CIT under order 264 had no power to pass any order prejudicial to the interest of the assessee denying any claim already allowed to the assessee. Therefore, do not agree with the arguments of the DR that in the fresh assessment proceedings AO could also consider matters in addition to claim of deduction under section 80IB. Disallowance of deduction u/s 80IB - AY 2003-04 & 2004-05 - Held that:- As the assessee here has not made the claim of deduction in the return of income will be covered under the provisions of sub-section (5) of section 80A inserted by the Finance Act, 2009 w.e.f. assessment year 2003-04, as per which claim of deduction could not be allowed in case assessee failed to make claim in the return of income the disallowance is therefore, confirmed on the legal ground Disallowance of Deduction u/s 35AB - Held that:- Assessee has incurred the liability on account of technical know how fees in the year of signing the agreement which was before 1.4.98. Normally an expenditure is allowable as deduction in the year in which liability is incurred even if the payment is made later, but in case of technical know-how fees, the deduction has been spread over a period of six years in view of specific provision of section 35AB. And on proper interpretation of the amended provisions of section 35AB, deduction under section 35AB will be allowable even in respect of payments made after 1.4.1998 if the technical know-how has been acquired before 1.4.1998. Therefore hold that deduction will be allowable under section 35AB in respect of payments made after 1.4.1998 as technical know how had been acquired prior to 1.4.1998. The order of CIT(A) is accordingly set aside and the claim of the assessee is allowed.
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2012 (12) TMI 862
Deduction u/s 33AC on insurance claim - the assessee company has reduced the repair charges on account of insurance claim receivable during the year - Held that:- The assessment order reveals that the Assessing Authority has recorded a finding of fact that the assessee did not discharge the onus that lay upon him for producing evidence to prove that such insurance receipt is his business receipt. Also that such insurance receipt is not assessee's business income and, thus, the same does not qualify for deduction under Section 33AC. This finding of fact is not shown to have been challenged by the assessee in appeal before the CIT(A) as he raised two different grounds in appeal before him. Thus CIT(A) is found to have misconstrued the order of the earlier Tribunal None of the authorities have recorded their satisfaction that the assessee has created adequate reserve and the same does not exceed twice the aggregate of the amount of share capital and assessee having satisfied of conditions as laid down under Section 33AC of the Act, is eligible for deduction in that section. In this view of the matter the matter remitted back to AO for recording a finding of fact as to whether the insurance claim received by the assessee is his profit derived from the business of operation of ships and the same is assessable under the head profits or gains of business or profession or otherwise, it was his other income assessable under the head "income from other sources" - appeal by the revenue stands allowed for statistical purposes.
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Customs
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2012 (12) TMI 861
Preventive detention – Smuggling of goods - Section 3(1) of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA Act) - Smuggling of red sanders to Dubai - The red sanders recovered from the three containers - Seized under the provisions of the Customs Act, 1962 The detenu was served with the grounds of detention, which advert to the continual criminal activities of the detenu necessitating issuance of detention order, with a view to prevent him from indulging into smuggling activities in future Petitioner says and submits that the detaining authority has not formulated the grounds of detention at all - Detaining authority has merely replaced the names of detenu and co-detenues with words like "you" and "your" in the grounds of detention served on the detenu and co-detenues, implying that the grounds of detention have been formulated by the sponsoring authority and not by the detaining authority - The petitioner says and submits that the detention law, in the instant case, has been invoked against the detenu as he refused to bribe the concerned senior officers of the sponsoring authority Held that:- Following the decision in case of Rajesh Vashdev Adnani vs. State of Maharashtra (2005 (10) TMI 493 - SUPREME COURT) that similar cosmetic changes were noticed in the grounds of detention purportedly formulated by the Detaining Authority. The Detaining Authority has not made any amends to ensure that the grounds of detention, and more particularly, the basis on which the subjective satisfaction has been reached must be formulated by the Detaining Authority on his own and not by bodily lifting the contents of the proposal sent by the Sponsoring Authority by making cosmetic changes thereto. Such approach of the Detaining Authority has been repeatedly frowned upon by the Courts considering the fact that the exercise of power to detain a person without a trial on the basis of circumstances of suspicion is a very drastic order to be passed, which cannot be and ought not to be resorted to lightly. Direct the State Authorities to forthwith release the detenu. In favour of assessee
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2012 (12) TMI 860
Provisional release of the vessel - Furnish security in the form of a bank guarantee - Section 129A (1)(a) of the Customs Act - Held that:- With regard to the facts of the case and the urgency pleaded by the assessee. Direct the Tribunal to dispose of the appeal within three weeks from the date of its filing and removal of defects.
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Corporate Laws
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2012 (12) TMI 859
Scheme of Amalgamation - Application seeking directions from Hon’ble court for dispensing with the convening of the meetings of the equity shareholders and creditors of the Applicant Transferor Company - Held that:- Consedring the certificate of Chartered Accountants certifying that the Applicant Transferor Company was having no secured or unsecured creditors there is no need for convening and holding meetings of either secured or unsecured creditors. As all the shareholders of the Applicant Transferor Company have given their consent to the Scheme in writing and that the Applicant Transferor Company does not have any secured or unsecured creditors at all, the convening and holding of meetings of equity shareholders as also of the creditor of the Applicant Transferor Company are dispensed with.
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2012 (12) TMI 858
Scheme of Amalgamation - Held that:- The proposed Scheme has been approved by the Board of Directors of all the Applicant Companies with no proceedings under Section 235 to 251 of Companies Act, 1956 pending against any of the Applicant Companies as on the date of the present Application. In view of the written consents/NOC given, the requirement of convening meetings of Shareholders and secured and unsecured creditors of the Transferor Companies and the Transferee Company are dispensed with - shareholders of the transferor companies and transferee company have also given their consents - scheme of arrangement allowed.
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2012 (12) TMI 857
Winding up petition - flat let out on by Appellant-company on pre defined conditions - respondent in pursuance of the 'mutual discussions' regarding the said flat, vacating the flat with immediate effect and waiving the notice period sought refund of the amounts deposited with the appellant - Held that:- The dispute raised by the appellant about non receipt of the letters dated 12.07.2007 and 12.12.2008 is irrelevant. At least the letter dated 12.07.2007, even if there is nothing to show dispatch/delivery thereof, is in consonance with the contemporaneous events. The appellant in its reply to the winding up petition also admitted that the arrangement between the parties with respect to the flat continued till July, 2007 only. The appellant admits that thereafter no rent as was earlier being paid, was paid by the respondent and no demand therefor was also raised by the appellant on the respondent. This is in consonance with the letter dated 12.07.2007 whereunder the respondent claims to have vacated the flat with immediate effect and demanded refund of security deposit. In this regard, it may also be mentioned that the respondent in its legal notice preceding the winding up petition had expressly referred to the letter dated 12.07.2007 whereunder the flat was vacated and though the appellant had in its reply thereto generally denied the contents of the legal notice but had not expressly denied the receipt of the letter dated 12.07.2007. In fact the appellant in the said reply evaded to even set out as to on what account the amounts aforesaid had been received if not as Security Deposit/Extra Deposit and vaguely stated that they were under some other arrangement known to Mr. Birla only. Such conduct of the appellant also is indicative of the appellant surely building up its defence and the same being not based on true facts. The payment by the respondent to the appellant of Rs. 1,16,340/- per month till July, 2007 was towards rent of Rs. 1,50,000/- per month, less TDS as agreed and not in reimbursement of Rs. 1,50,000/-, admittedly refunded by appellant out of extra deposit of Rs. 54,00,000/-, in terms of letter dated 10.10.2005 supra. Letting was for three years terminable prior thereto by a 12 months notice and which had not been given, that the respondent is thus not entitled to refund of Security Deposit. The appellant has to sail or sink on his pleas and cannot on the one hand contend that the tenancy has not been determined by the respondent and on the other hand also deny enjoyment of the flat as tenant to the respondent. Even otherwise, a Lease for three years could be created by a registered document only and which admittedly does not exist. The Lease in the present case is by delivery of possession on the terms proposed by the appellant itself a couple of months prior to letting and such a Lease would be a month to month Lease and would not require a notice of determination of 12 months notwithstanding a stipulation to the said effect in the letter of offer of the premises. Such a lease is terminable by a 15 days notice and the maximum claim which the appellant can have on the said account can be for 15 days rent only. Thus finally in law, the appellant Company is a distinct entity from its Directors and the payment due to its Director could not have been received by the appellant Company. This is yet another illegality in the defence of the appellant. Seen in this light, it is obvious that the defence of the appellant to the winding up petition indeed was a moonshine and illusory and unsustainable in law and has been rightly rejected by the learned Company Judge. Once the appellant to be having no defence to the refund of the amounts admittedly received by the appellant, the power of winding up has been correctly exercised and no ground in opposition thereto has been urged.
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Service Tax
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2012 (12) TMI 880
Logistic services - service tax demand along with interest and penalties - appellant are logistic division of M/s. Mahindra and Mahindra Limited who providing various logistics services to another division - period is question from 15/12/2007 to 31/03/2010 - Held that:- Considering the submissions made by the Chartered Accountant it is found that Mahindra and Mahindra Limited is a legal entity which is having two separate divisions. Merely by taking two separate service tax registrations it cannot be said that both are separate legal entities. Therefore, demand for the period 15/12/2007 to 10/09/2008 is not sustainable. For the remaining period, the matter needs examination by the adjudicating authority after obtaining reports from the Range Superintendent of Mumbai whether the appellant has paid the service tax or not - matter remanded back to the adjudicating authority for the period 11/09/2008 to March, 2010 thereafter to pass an appropriate order in accordance with law.
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2012 (12) TMI 879
Service tax liability in respect of GTA services - discharged liability utilizing cenvat credit & not in cash - Held that:- As decided in Tribunal's decision in the case of Shree Rajasthan Sytex Ltd. [2011 (8) TMI 265 - CESTAT, NEW DELHI] read with judgement in the case of Nahar Industrial Enterprises [2010 (5) TMI 608 - PUNJAB AND HARYANA HIGH COURT] & also Auro Spinning Mills and Ors. [2011 (7) TMI 849 - HIMACHAL PRADESH HIGH COURT] Cenvat credit is available for payment of GTA services on service tax as recipient of GTA services.
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2012 (12) TMI 878
Business Auxiliary Service - toll tax collection in terms of the agreement entered into assessee & M/s National Highways Authority of India (NHAI)- Held that:- NHAI has availed the services of respondents and the said NHAI is not established by Revenue to be business concern or a commercial concern engaged in any business activities. Therefore, providing BAS to such NHAI is not conceivable As decided in Intertoll India Consultants (P.) Ltd. v. CCE [2011 (5) TMI 257 - CESTAT, NEW DELHI] that toll tax and fee for use of bridge, by retaining the percentage of such collection, the activity cannot be held to be falling under BAS - appeal filed by the Revenue was dismissed. Invoking extended period of limitation - Held that:- As decided in Brij Motors (P.) Ltd. v. CCE [2011 (11) TMI 410 - CESTAT, NEW DELHI] when the issue is interpreted by judicial forums in different ways, the extended period cannot be invoked in such a situation - in favour of assessee.
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Central Excise
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2012 (12) TMI 856
Demand u/s 11D - Reversal of cenvat credit and collected the same from the purchasers - The Department was of the opinion that the entire transaction was irregular, was in breach of the Cenvat Credit Rules, as applicable from time to time. As per Section 11D of the Central Excise Act, therefore, the respondent was liable to refund such amount. - Held that:- The view of the Tribunal that in any case the respondent could have encashed the unutilized credit in the Cenvat account and that therefore the same did not make any difference to the Department, in our view, suffers from fallacy. Firstly, as noted, Rule 5 of the Rules, 2004 permitted refund of Cenvat credit under certain circumstances which provides that such refund shall be allowed subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification. It can, thus, be seen that grant of refund is neither automatic nor a matter of course. Nothing has been brought on record to suggest that the respondent was entitled to such refund as a matter of right. Secondly, utilization of Cenvat credit for the purpose of payment of unauthorizedly collected so called excise duty was not permissible under the Rules. The contention of the Department that by doing so, the respondent passed on Cenvat credit to the purchaser to be availed by them ultimately which credit such purchasers were not entitled to, cannot be brushed aside. Regarding period of limitation - held that:- Section 11D of the Central Excise Act does not provide any rigid time limit. In such cases, as so long as the recovery proceedings are initiated within reasonable time, the same cannot be struck down only as time-barred. Demand u/s 11D confirmed - Order of Tribunal reversed - Decided in favor of revenue and against the assessee.
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2012 (12) TMI 855
Cenvat Credit on tool kits sold along with two wheelers - denial - Held that:- Clause 4(b) of Rule 138 of Central Motor Vehicle Rules, 1989 (as amended) dealing with “signals and additional safety measures” for motor vehicle makes it incumbent on driver of every vehicle to carry the tool kit prescribed by the manufacturer. Since carrying of the tool kit in the vehicle is obligatory for the driver, it can be safely inferred that tool kit and first aid kit are necessary accessories of the motor vehicle as driving of the vehicle without those accessories would be violative of Rule 138(4)(b) of Central Motor Vehicle Rules, 1989. Thus, the appellant had supplied the tool kit as per statutory requirements under Central Motor Vehicle Rules, 1989 as accessories to be used in relation to the manufacture of vehicle. Thus, ‘tool kit' is squarely covered by the definition of ‘input’ given under Rule 2(k)(i) of CRR and that the appellant had rightly availed the Cenvat credit in relation to tool kits - in favour of assessee.
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2012 (12) TMI 854
Exemption under Notification No. 67/95-CE - Naphtha attributable to the electricity generated in the captive power plant used for allied activities such as lighting of the road, administrative office and canteen – Held that: - As decided in CCE vs Solaris Chemtech Ltd [2007 (7) TMI 2 - SUPREME COURT OF INDIA] while interpreting the provisions of Rule 57A of the erstwhile Central Excise Rules, 1944 which provides that input means inputs used for generation of intermediate electricity used within the factory of production for manufacture of final product or for any other purposes held that the electricity generated within the factory which is supplied to the residential colony of the factory, school etc to that extent credit is not admissible. The definition of input under the Cenvat Credit Rules, 2004 is also similarly worded. Benefit of exemption notification 67/95 allowed in respect of (a) Naphtha cleared, availing exemption under Notification No.4/2006-CE dated 1.3.2006 for manufacture of fertilizers under International Competitive Bidding (ICB) and (b) On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for manufacture of exempt goods viz. LPG (Domestic) and Superior Kerosene Oil (PDS) Benefit of exemption notification 67/95 denied in respect of On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for allied activities like lighting in the artillery (sic) roads/yard, administrative building, canteen/cafeteria.
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2012 (12) TMI 853
Wrong Availment of Cenvat Credit - procedure was not proper in contravention of provisions of Rule 6(1) r.w.e. III of the Rule 6(3) and Rule 6(3)(b) of the Cenvat Credit Rules, 2004 - Held that:- As decided in REPRO INDIA LTD. Versus UNION OF INDIA [2007 (12) TMI 209 - BOMBAY HIGH COURT] exempted goods can be exported under Bond/UT-1 in terms of Rule 19 of the Central Excise Rules, 2002. It has also been held that in terms of Rule 6(6)(v) of the Cenvat Credit Rules, 2004, the provisions of Rule 6(1) and 6(3) are not applicable in respect of excisable goods cleared without payment of duty for export under Bond. In view of this, the orders of Commissioner confirming the duty demand of CENVAT Credit cannot be sustained. Consequently, also set aside the order for recovery of interest on the dues. Wrong availment of CENVAT Credit on aggregates (i.e. IC engines, transmission assembly and sheet metal components etc.) used captively in the manufacture of exempted tractors cleared for export - Held that:- Parts of tractors are unconditionally exempted vide Sr. No. 92 of Notification No. 6/2006-CE dated 1.3.2006 when captively used in the manufacture of tractors within the factory. By virtue of Section 5A, Central Government may, in public interest, exempt either absolutely or subject to any condition (to be fulfilled before or after removal) as may be specified in the Notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon - upheld the demand of duty and also Commissioner's order for recovery of interest on these demands confirmed by the Commissioner - these demands were raised invoking normal period of limitation - ingredients of Section 11AC are not present in this case and, therefore, penalty equal to duty imposed by the Commissioner needs reduction - penalties to reduced to Rs. 1.25 crores and Rs.1 crore in respect of Appeal respectively - appeal allowed partly. CENVAT Credit of advertisement services used in relation to manufacture of tractors cleared within the country - Held that:- Assessee is not entitled to take the CENVAT Credit on advertisement services used in relation to manufacture of tractors cleared within the country. Therefore, the CENVAT Credit taken is to be reversed. So far as the interest is concerned, in terms of Rule 14 of the Cenvat Credit Rules, 2004, interest is payable from the date of taking wrong credit - penalty of Rs. 2000/- imposed on the assessee by the Commissioner is set aside.
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2012 (12) TMI 852
Non maintenance of separate accounts of the inputs used in manufacture of dutiable as well as exempted goods - Waiver of pre-deposit of duty, interest and penalty - Held that:- Applicants are required to reverse the proportionate credit in respect of the inputs/input services used in manufacture of exempted goods as they are not maintaining separate records in respect of the inputs used in manufacture of dutiable as well as exempted goods - directed to deposit Rs.15 lakhs within a period of eight weeks and report Compliance on 13.09.2012.
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CST, VAT & Sales Tax
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2012 (12) TMI 881
Outstanding refund amount - order passed as early as on 14/2/2007 - Held that:- Dispose of this writ petition directing that if Ext.P1 order holding that there was no irregularity warranting the detention and furnishing of security has become final and if there is no other liability due from the petitioner, the respondents will ensure that the amount is refunded to him at any rate within 4 weeks of production of a copy of this judgment.
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Indian Laws
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2012 (12) TMI 877
Interfere with the order of acquittal - respondent herein of the offences punishable under Section 302 of IPC, 1860 and imposing the punishment to suffer rigorous imprisonment for life and to pay a fine of Rs. 500/- in default to further undergo one month simple imprisonment - Geeta the sole eye-witness of the occurrence was deaf and dumb - Held that:- A deaf and dumb person is a competent witness. If in the opinion of the Court, oath can be administered to him/her, it should be so done. Such a witness, if able to read and write, it is desirable to record his statement giving him questions in writing and seeking answers in writing. In case the witness is not able to read and write, his statement can be recorded in sign language with the aid of interpreter, if found necessary. In case the interpreter is provided, he should be a person of the same surrounding but should not have any interest in the case and he should be administered oath. There is sufficient material on record that Geeta was able to read and write and this fact stood proved in the trial court when she wrote the telephone number of her father. We fail to understand as to why her statement could not be recorded in writing, i.e., she could have been given the questions in writing and an opportunity to reply the same in writing. Be that as it may, her statement had been recorded with the help of her father as an interpreter, who for the reasons given by the High Court, being an interested witness who had assisted during the trial, investigation and was examined without administering oath, made the evidence unreliable. In such a fact-situation, the High Court has rightly given the benefit of doubt and acquitted the respondent. Fully aware of our limitation to interfere with an order against acquittal. In exceptional cases where there are compelling circumstances and the judgment under appeal is found to be perverse, the appellate court can interfere with the order of acquittal. The appellate court should bear in mind the presumption of innocence of the accused and further that the trial Court's acquittal bolsters the presumption of his innocence. Interference in a routine manner where the other view is possible should be avoided, unless there are good reasons for interference. Thus examine the judgment of the High Court in light of the aforesaid legal proposition, it is not a fit case to interfere with the order of acquittal as there were major contradictions in ocular evidence and medical evidence. The appeal lacks merit and, is accordingly, dismissed.
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2012 (12) TMI 872
Seniority between Income Tax Inspectors of the Income Tax Department - Direct recruits v/s promotees - Held that:- The OM dated 3.3.2008 is in the nature of a "clarification", to the earlier consolidated instructions on seniority, contained in the OM dated 3.7.1986. The term "available" used OM dated 3.7.1986 has been "clarified" to mean, both in case of direct recruits as well as promotees, for the purpose of fixation of seniority, would be the actual year of appointment "...after the declaration of the result/selection, i.e., after the conclusion of the selection process, and after the "...completion of the pre-appointment formalities..." (medical fitness, police verification, etc.). When appointments are made against unfilled vacancies in subsequent year(s), the persons appointed would "not" get seniority with reference to the year in which the vacancy arose, or the year in which the recruitment process was initiated, or the year in which the selection process was conducted whereas as per the OM dated 3.3.2008, when appointments are made against unfilled vacancies in subsequent year(s), the persons appointed would get seniority of the year in which they are appointed "on substantive basis". OM dated 3.3.2008, would only apply prospectively - Held that:- The OM dated 3.3.2008 is in the nature of a "clarification". Essentially, a clarification does not introduce anything new, to the already existing position. A clarification, only explains the true purport of an existing instrument. Therefore it is not possible to accept that the OM dated 3.3.2008, would only apply prospectively. The OM dated 3.3.2008 which is only a "clarification" of the earlier OM dated 3.7.1986, would relate back to the original instrument, namely, the OM dated 3.7.1986. Would the OM dated 3.3.2008 supersede the earlier OMs dated 7.2.1986 and/or 3.7.1986? And, would the OMs dated 7.2.1986 and 3.7.1986 negate the OM dated 3.3.2008, to the extent that the same is repugnant to the earlier OMs (dated 7.2.1986 and 3.7.1986)? - Held that:- The OM dated 7.2.1986 is in the nature of an amendment/modification. The Department of Personnel and Training consciously "amended" the earlier OM dated 22.11.1959, by the later OM dated 7.2.1986. The said amendment was consciously carried out, with the object of remedying the inappropriateness of direct recruits of later years becoming senior to promotees with long years of service. It is not the case of any of the parties that the OM dated 7.2.1986, has ever been "amended" or "modified". It is therefore imperative to conclude, that the OM dated 7.2.1986 is binding for the determination of the issues expressed therein, and that, the same has the force of law. The OM dated 3.7.1986 is in the nature of consolidatory instruction, whereby, all earlier instructions issued from time to time were compiled together. It is relevant to notice, that there is a marginal note against paragraph 2.4.2 in the OM dated 3.7.1986. Therefore, paragraph 2.4.2 must be deemed to have been recorded in the consolidating OM, on the basis of the OM dated 7.2.1986. For all intents and purposes the OM dated 3.3.2008 is with reference to the OM dated 7.2.1986. It is for this reason, that while debating the exact purport of the OM dated 3.3.2008, it has been our endeavour to examine the same, with reference to the earlier OMs dated 7.2.1986 and 3.7.1986, which were inter alia "consolidated" in the OM dated 3.3.2008. A comparison of the conclusions recorded with reference to the OM dated 7.2.1986 and OM dated 3.7.1986 on the one hand, as against OM dated 3.3.2008 on the other, would lead to inevitable conclusion, that the OM dated 3.3.2008 clearly propounds, a manner of determining inter se seniority between direct recruits and promotees, by a method which is indisputably in conflict with the OMs dated 7.2.1986 and 3.7.1986. Of course, it was possible for the Department of Personnel and Training to "amend" or "modify" the earlier office memoranda, in the same manner as the OM dated 7.2.1986 had modified/amended the earlier OM dated 22.11.1959. A perusal of the OM dated 3.3.2008, however reveals, that it was not the intention of the Department of Personnel and Training to alter the manner of determining inter se seniority between promotees and direct recruits, as had been expressed in the OMs dated 7.2.1986 and 3.7.1986. The intention was only to "clarify" the earlier OM dated 3.7.1986 (which would implicitly include the OM dated 7.2.1986). The OM dated 3.3.2008 has clearly breached the parameters and the ingredients of a "clarification". Therefore, for all intents and purposes the OM dated 3.3.2008, must be deemed to be non est to the extent that the same is in derogation of the earlier OMs dated 7.2.1986 and 3.7.1986. Having so concluded, it is natural to record, that as the position presently stands, the OMs dated 7.2.1986 and 3.7.1986 would have an overriding effect over the OM dated 3.3.2008 (to the extent of conflict between them). And the OM dated 3.3.2008 has to be ignored/omitted to the extent that the same is in derogation of the earlier OMs dated 7.2.1986 and 3.7.1986 & is not relevant for the determination of the present controversy. Seniority for direct recruits could not be determined with reference to a date preceding the date of their recruitment. The seniority rule applied in Jagdish Ch. Patnaik's case [1998 (4) TMI 498 - SUPREME COURT] that seniority would be determined with reference to the date of recruitment, date of first appointment. One finds attracted to the observations recorded in Jagdish Ch. Patnaik's case wherein it was observed, "when the language used in the statute is unambiguous and on a plain grammatical meaning being given to the words in the statute, the end result is neither arbitrary, nor irrational nor contrary to the object of the statute, then it is the duty of the court to give effect to the words used in the statute because the words declare the intention of the law making authority best". Having interpreted the effect of the OMs dated 7.2.1986 and 3.7.1986 it is to be satisfied, that not only the requisition but also the advertisement for direct recruitment was issued by the SSC in the recruitment year in which direct recruit vacancies had arisen. The said factual position, as confirmed by the rival parties, is common in all matters being collectively disposed of. In all these cases the advertised vacancies were filled up in the original/first examination/selection conducted for the same. None of the direct recruit Income Tax Inspectors herein can be stated to be occupying carried forward vacancies, or vacancies which came to be filled up by a "later" examination/selection process. The facts only reveal, that the examination and the selection process of direct recruits could not be completed within the recruitment year itself. For this, the modification/amendment in the manner of determining the inter se seniority between the direct recruits and promotees, carried out through the OM dated 7.2.1986, and the compilation of the instructions pertaining to seniority in the OM dated 3.7.1986, leave no room for any doubt, that the "rotation of quotas" principle, would be fully applicable to the direct recruits in the present controversy. The direct recruits herein will therefore have to be interspaced with promotees of the same recruitment year - The claim of the promotees, that the direct recruit Income Tax Inspectors, in the instant case should be assigned seniority with reference to the date of their actual appointment in the Income Tax Department is declined.
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