TMI Tax Updates - e-Newsletter
February 16, 2012

Case Laws in this Newsletter:

Income Tax Customs Central Excise Indian Laws

Articles

1. CONSULTANT, ARCHITECTURAL, ACCOUNTING AND SIMILAR SERVICES PROVIDED TO SERVICE PROVIDER TO INFRA STRUCTURE PROJECTS ARE LIABLE TO SERVICE TAX

   By: Jayaprakash Gopinathan

2. TAXABILITY OF STEAMER AGENT’S SERVICES

   By: Dr. Sanjiv Agarwal

News

1. Govenrment to Provide Citizen-Centric Governance in Order to Improve Taxpayer Services and Redressal of Public Grievances : FM.

2. FM Confident that Moderation in Inflation Would Continue in the Coming Months ; Expects that the March end 2012 Inflation will be Closer to 6 Per cent; January Food Inflation Negative for the First Time in the Present Round of Inflation

3. Dr. M. Veerappa Moily Express Grief on the Death of Dr. V.S Acharya, Minister for Higher Education in Karnataka

4. Index Numbers of Wholesale Prices in India (Base: 2004-05=100) Review for the month of January, 2012

5. Auction for Sale of Government Stocks

6. GUIDELINES FOR CONVERSION OF COST ACCOUNTANTS FIRMS (PARTNERSHIP/PROPRIETARY) INTO LIMITED LIABILITY PARTNERSHIPS

Circulars / Instructions / Orders

LLP

1. GUIDELINES - dated 22-1-2012

GUIDELINES FOR CONVERSION OF COST ACCOUNTANTS FIRMS (PARTNERSHIP/PROPRIETARY) INTO LIMITED LIABILITY PARTNERSHIPS

FEMA

2. 77 - dated 15-2-2012

Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Money changing activities.

3. 78 - dated 15-2-2012

Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer Service Scheme.

Highlights / Catch Notes

Income Tax

• Lease Rental Income from Complex Activities Classified as Business Income for Taxation, Not House Property Income.

  Case-Laws - AT : Income from Lease Rentals is taxable under “Income from business“ OR “Income from House Property“ - lease rental income arising from a complex commercial activity will be classified as 'income from business'..... - AT
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• Deputy Director's ECB Conditions Deemed Unlawful: Retrospective Changes Impact Exemptions u/s 10(15) and TDS 195 IT Act.

  Case-Laws - AT : Exemption u/s 10(15) - TDS u/s 195 - Utilization of ECB - by imposing a condition by Dy. Director (ECB) during the progress of the scheme was like changing the rules of the game in mid-way and the change of the rule was in respect of a game already played to alter its outcome. A retrospective or ex post facto change in such a manner is an arbitrary approach having no legal sanctity..... - AT
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• Employer-Paid Taxes Are Taxable Perquisites u/s 17(2)(iv) of Income Tax Act, Not Direct Payments to Employees.

  Case-Laws - AT : Whether “Tax Payments“ by employer on behalf of Employee be considered as a taxable Perquisite further liable to tax - Taxes paid by the employer on behalf of the assessee is not a monetary payment but it is discharge of his obligation, and the payment fully fits in the jacket of section 17(2)(iv) of the Act, and it may be a monetary gain or monetary benefits or a monetary allowance but definitely it is not a monetary payment to the assessee. .... - AT
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• Court Upholds Lease Equalization Charges Deduction for Accurate Depreciation under Companies Act Section 211(2.

  Case-Laws - HC : Deduction of lease equalization charges from lease rental income - lease equalization charges is a method of re-calibrating the depreciation – we cannot find fault with the assessee debiting lease equalization charges in the AYs in issue, in its P&L A/c. This represents true and fair view of the accounts; a statutory requirement u/s 211(2) of the Companies Act. .... - HC
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• Section 80HHC of Income Tax Act under scrutiny; Supreme Court directs all cases to Gujarat High Court for decision.

  Case-Laws - SC : Transfer petition - validity of Section 80HHC challenged – Looking to the large number of matters pending in various High Courts and since the question relates to vires, it would be beneficial if all the matters are decided by one High Court in the Country. Therefore, all the matters which have been filed/transferred to this Court be sent to the High Court of Gujarat. .... - SC
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• Tribunal Allows Set-Off of Share Trading Loss Against Service Income; Assessee Not Engaged in Speculation Business Under Sec 73.

  Case-Laws - HC : Setting off loss of share trading against income from service charges – Tribunal was justified, in holding that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of Sec. 73(1) .... - HC
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• Court Rules Company Not Automatically Agent for Deemed Capital Gains; Writ Petition Challenging This is Maintainable.

  Case-Laws - HC : Legal representative - Agent of non resident - Merely because those shares relate to the respondent No. 4 company, that would not make respondent No. 4 as agent qua deemed capital gain purportedly earned by the petitioner, writ petition maintainable..... - HC
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• Court Rules Prohibitory Order on Bank Accounts Invalid u/s 132(3) Due to Lack of Evidence of Undisclosed Income.

  Case-Laws - HC : Prohibitory order under 132(3) - prohibitory order under section 132(3) of the Act issued in respect of bank accounts without forming any belief or without any material on record to conclude that the amount deposited in such bank accounts is either wholly or partly undisclosed income of the petitioner is not sustainable in law..... - HC
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• Supreme Court Rules: Deduct 90% of Net Interest/Rent, Not Gross, for Business Profits u/s 80HHC.

  Case-Laws - SC : Deduction u/s 80HHC - Ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads ‘PGBP’ is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business..... - SC
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• Profit from DEPB transfer: Face value in Section 28(iiib), sale difference in Section 28(iiid) of Income Tax Act.

  Case-Laws - SC : DEPB - any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28.... - SC
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• India-UK Tax Convention: SIPCL Payments Taxed in India Despite No Permanent Establishment Claim Under Article 5; Section 195 Applies.

  Case-Laws - AAR : Double Taxation Avoidance Convention between India and UK – Cost Contribution Agreement (CCA) with SIPCL - payment received by SIPCL is chargeable to tax in India and the declaration provided by SIPCL that it does not have a Permanent Establishment (PE) in India in terms of Article 5 of DTAC, we rule that the applicant is under obligation to withhold tax u/s 195 of the Act..... - AAR
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Customs

• Anti-dumping duties on Chinese and Thai tires criticized for flawed injury determination, harming consumers and lacking public interest alignment.

  Case-Laws - AT : Imposition of Anti-dumping duty on bus and truck radial tyres from China and Thailand - injury determination done by the D.A. for the domestic industry is faulty and not convincing and faulty. - The ultimate sufferer is the domestic consumer and imposition of anti-dumping duty in such a scenario cannot also be considered to be in the public interest..... - AT
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• 3D Mouse Emulation Device Classified Under Heading 84716060 Despite Size, Cost, and Additional Functions.

  Case-Laws - AT : Classification - 3D Mouse Emulation - Heading 84716060 specifically mentions 'mouse' - merely because the said mouse is bigger in size and costlier than the ordinary mouse and also performs other specific functions, the same cannot be held to be a device other than the mouse.
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FEMA

• New Circular Sets AML/CFT Standards for Cross-Border Remittances Under Money Transfer Service Scheme, Dated Feb 15, 2012.

  Circulars : Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer Service Scheme. - Cir. No. 78 Dated: February 15, 2012
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• AML & CFT Standards Update for Money Changers under FEMA: Circular No. 77 Highlights Compliance Measures Against Illicit Finance.

  Circulars : Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards - Money changing activities. - Cir. No. 77 Dated: February 15, 2012
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Indian Laws

• New Guidelines for Converting Cost Accountants' Firms to LLPs: Steps, Documentation, and Compliance Explained.

  News : GUIDELINES FOR CONVERSION OF COST ACCOUNTANTS FIRMS (PARTNERSHIP/PROPRIETARY) INTO LIMITED LIABILITY PARTNERSHIPS
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Wealth-tax

• Court Rules AOP Not Taxable u/s 21AA of Wealth Tax Act Due to Unmet Conditions.

  Case-Laws - HC : Wealth Tax - taxability of net wealth of AOP– S.21AA only ropes in an AOP for being assessed under the Wealth Tax Act but subject to the rider that it’s members should have the income or assets or both of the association on the date of its formation or at any time thereafter. Since in present case, second condition is not satisfied the assessee cannot be considered as falling within the ambit of S.21AA of the Act..... - HC
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Service Tax

• Refund Granted for Service Tax Paid Under Reverse Charge (Aug 2002-Aug 2004), Subject to Unjust Enrichment Compliance.

  Case-Laws - AT : Refund of Service Tax paid under Reverse Charge from August, 2002 to August, 2004 - Refund Claim allowed subject to the provisions of unjust enrichment.... - AT
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• Court Upholds Service Tax on Lottery Commissions; Distributors' Services Deemed Essential for Ticket Sales to Customers.

  Case-Laws - HC : Constitutional Validity of Levy of Service tax on lotteries promoted and marketed by clients - Discount or commission received by the petitioners is nothing but consideration for service rendered to the promoter or organiser of the lottery. Moreover without the service rendered by the distributors namely, the lottery tickets will not reach the ultimate customers who are the participants in the draw. Thus liable to Service Tax. .... - HC
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Central Excise

• Excise Duty Refund Error? Authority Must Issue Show Cause Notice u/s 11A for Recovery, No Appeal Needed.

  Case-Laws - SC : In case of erroneous refund of excise duty the competent authority shall issue show cause notice under Section 11 A, in which the assessee has to show cause as to why the aforesaid amount of refund, which is erroneously refunded, should not be recovered from him. In such a case, there is no question of filing any appeal, as appropriate remedy as provided under Section 11A is available..... - SC
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• Intravenous Fluids with Medicaments Classified as Schedule H, Denied Tax Exemption Under Central Excise Regulations.

  Case-Laws - HC : Intravenous fluids - Exemption under central excise -Additions of dicaments will make it a schedule H Drug. The medicaments of intravenous fluid will certainly make the use thereof for a particular disease and it cannot be used for the common purpose of sugar, electrolyte or fluid replenishment and thus defeating the intention of legislature. Exemption denied.... - HC
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• Court Rules Sub-Rule (1) of Rule 11 Inapplicable to Exemption Notification; Cenvat Credit Transfer Allowed Post-Amalgamation.

  Case-Laws - HC : Transfer of Cenvat Credit - Amalgamation - Sub-Rule (1) of Rule 11 has no application to the Exemption Notification, in the instant case, and therefore the appellate Commissioner as well as the assessing authority were totally in error in denying the benefit of transfer of unutilized Cenvat credit to the assessee..... - HC
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• Printed Products on Paper, Coated Paper, and PVC Films Classified Under Chapter 49 for Central Excise Purposes.

  Case-Laws - AT : Manufacture - products which emerge after printing on paper, polyethylene coated paper and on PVC films - the products should be treated as products of printing industry and classifiable under Chapter 49 instead of 39..... - AT
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• Appellant's Sugar Export Diverted to Domestic Market; No Intent to Evade Duty Found in CT-1 Case.

  Case-Laws - AT : Export - Appellant cleared sugar on CT-1 basis - Exporter diverted the goods to DTA - Appellants cannot be held having mala fide intention to evade duty..... - AT
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Case Laws:

• Income Tax

• 2012 (2) TMI 160
  Power of Commissioner u/s 12AA(3) to cancel the registration granted u/s 12A – Charitable society – Tribunal revoked cancellation of Registration by Commissioner – Held that:- Section 12AA(3) stipulates specific finding by the Commissioner that the activities of the trust or institution are not genuine or not being carried out in accordance with the objects of the trust. In present case, the only reason given by Commissioner is that the activities of the trust were not charitable. Therefore, Tribunal was justified in holding that none of the conditions u/s 12AA(3) were violated and registration granted to the assessee u/s 12A(a) would hold good – Decided against the Revenue.

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• 2012 (2) TMI 159
  Charitable Trust – CIT rejected application of registration on ground that objects of the Trust are both charitable and religious in nature – Held that:-Section 11(1)(a) and 12AA is applicable to both the Trusts established with the object of charitable as well as religious purposes. Even if the Trust is not created with both the objects, law does not make any disqualification for the trust to make an application for registration. Accordingly, the order passed by the Tribunal holding that the assessee trust is entitled to registration u/s 12AA is confirmed – Decided against the Revenue.

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• 2012 (2) TMI 158
  Validity of notice issued u/s 148 beyond a period of four years from the end of the relevant A.Y. - manufacturer of jewellery in a SEZ – deduction u/s 10A - assessment order for A.Y. 05-06 framed u/s 143(3) – reopening sought on the basis of the findings contained in the assessment order for A.Y. 07-08 - Held that:-A.O. having failed to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts for A.Y. 05-06, the reopening beyond a period of four years is clearly not valid. There was a finding of fact by the A.O. in the assessment order for A.Y. 2005-06 that the business activity of the assessee is manufacturing of jewellery in a Special Economic Zone entitling deduction u/s 10A – Decided in favor of assessee.

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• 2012 (2) TMI 157
  Validity of re-opening of assessment beyond a period of four years from the end of the relevant A.Y. - assessee authorized vide order issued u/s 195(2) to reimburse expenditure incurred by foreign principal company for providing support services, without TDS - reasons set out for re-opening that certificate u/s 197 is valid only for payment or credits made after the date on which a certificate had been issued – assessee had credited the amount before obtaining certificate – Held that:- A.O. has not even indicated that there was any failure on part of assessee to disclose fully and truly all material facts. Further, certificate, as a matter of fact, was issued on an application that was filed u/s 195(2) and not under section 197. Moreover, A.O. also, made no reference at all to whether the payment which was effected to the foreign principal represented income chargeable under the provisions of the Act. Therefore, jurisdictional condition for reopening of the assessment has not been fulfilled - Decided in favor of assessee.

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• 2012 (2) TMI 156
  Period of limitation – search & seizure conducted – special audit u/s 142(2A) – writ petition filed against the order u/s 142(2A) – stay granted - High court held that time schedule fixed u/s 153B shall apply if the special audit was ordered - time spent in prosecuting the petition shall be excluded for the purpose of computing the time for completion of assessment – assessee contending that A.O. had already availed the period of 60 days in view of the stay order passed by the court – Held that:- In the present case, because of the stay order passed, the period during which the stay order was in operation in the High Court has to be excluded. In terms of proviso to the Explanation to Section 153B(1), A.O. had the extended period to complete the assessment proceedings – Decided in favor of Revenue.

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• 2012 (2) TMI 155
  Calculation of Profits - GP of preceding assessment year vis a vis average of last two assessment year - Held That:- In the case of Best Judgment assessment OR rejection of books, the estimates of income must be honest and fair and should not be arbitrary, although some element of guess work is necessary. There being no material to suggest that the GP rate applied by the CIT(A) was not reasonable or was without any basis, we uphold the order of the CIT(A) and the ground of the Revenue is dismissed. Additions on account of unverifiable purchases and unverifiable consumption - Held That:- When CIT has upheld the action of AO in rejecting books of account and applied GP rate there is no justification for making any addition on the basis of same rejected account books on account of the defects in the account books. Payment of PF & ESI before date of filing of return - Held That:- In view of Sai Consulting Engineers P. Ltd (Ahmedabad bench), deduction allowed under 43B.

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• 2012 (2) TMI 154
  Calculation of Profit - CIT relied on GP rate - Assessee carrying other business - - Books of account rejected - After considering additional income GP rate comes to 17.5% - Held That:- Once the books of accounts of the assessee are rejected and a flat rate of GP is to be applied, some element of estimate is inevitable. In this case, there is no material on record to suggest that the GP rate of 17.5% was not justified. Unexplained Investments in sales outside the books - Held That:- During the course of search no unaccounted sale bills, purchase bills and unaccounted value of debtors or creditors were found which could suggest that unaccounted working capital was utilised by the assessee for carrying out unaccounted turnover. - Thus CIT(A) rightly deleted the additions.

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• 2012 (2) TMI 137
  TDS - Payments made to agents of foreign shipping Co. - No application filed with AO under 195(2) - Held That:- Payments made to the agents of foreign shipping companies are claimed to be not taxable in India and there is no material produced before us to controvert the said claim. As per Circular no. 723 dated 19.9.95 in case of ships belonging to non-resident, provisions of section 194C and 195 are not applicable. Apex court in view of G.E.India Technology Centre was of the same view that provisions of 195 and 195(2) cannot be applied.

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• 2012 (2) TMI 136
  Disallowance of Sundry balance written off and Traveling Expense as no details were submitted - Held That:- Details only gave the name of the party, amount, date and no further details as to whether these were taken into account in computation of income of earlier years etc. is not available. Similarly, in respect of traveling expenses, the details given are only the date wise payments made to Deep Tours & Travels.CAse remanded back to AO for fresh perusal giving an opportunity to assessee. Disallowance of expense in relation to exempt Income - A/Y 06-07 thus Rule 8D not applicable - Held That:- In view of Godrej and Boyce Manufacturing Co. Ltd case remanded back. Manufacture - conversion of rough marble blocks into polished and finished marble slabs, tiles, table tops - Held That:- The end product was recognized as commercial product distinct from the input.Reliance placed on Lucky Minmat Pvt. Ltd. Vs CIT (2000 - TMI - 5818 - SUPREME Court), decided in favour of assessee.

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• 2012 (2) TMI 135
  Sale/Purchase of Shares assessable under "Capital Gain" or "Business Income" - Held That:- Assessee hold shares for more than One year and upto ten year - Investments have been mostly from Owned Funds - main objects was to make investments. Therefore such income shall be treated as Capital Gain and not business Income.

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• 2012 (2) TMI 134
  Assessee dealer in diamonds - sale not accounted in books - No confirmation by M/s Alpha Exports sale was on approval basis - Held That:- The contention of assessee cannot be accepted as if the transaction was on approval the question on encashing the cheque do not arise. Bad Debt - Held That:- When the sales were not recorded in books, party cannot be treated as Bad Debt thus there was no occasion or question to write off the said debt as irrecoverable in the books of account. Normal Profit in diamond business around 2% to 8% additions assessed income on higher side - Held That:- When a confirmed sale has been made to M/s export there has to be a confirmed purchase of corresponding diamonds. As regards the purchase price of diamonds made by the assessee from M/s White Diamonds Industries Ltd., it is observed that the same has been shown by the assessee himself at Rs.3,36,619/- and there is nothing brought on record by the assessee to show that it was actually more. Decided against assesee.

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• 2012 (2) TMI 133
  Search - Unaccounted Cash to be settled against Advance Tax liability - Held That:- Search conducted on 19.1.09 and advance tax liability was due on 15.03.09, before conduct of search assessee wrote a letter to the Additional Director to adjust the cash towards his liability and the liabilities of the associates. Assessee had no intention to shrink his liability thus CIT(A) has rightly allowed adjustment of cash against Advance tax.

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• 2012 (2) TMI 132
  Period Of Limitation - AO passed order on 27.2.97 - afresh order passed on 31.03.97 - No variance in order facts were on record ever since original order - Held That:- Order passed by the Commissioner in exercise of the revisional jurisdiction on 20.2.2001 is clearly out of time insofar as it relates to order dated 27.2.1997 relating to the assessment year 1994-95. Tribunal correct in rejecting order of CIT.

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• Customs

• 2012 (2) TMI 146
  Interest on the refund amount of pre-deposit and sale proceeds of confiscated goods – order for absolute confiscation of gold bars on 22.05.98 – Commissioner (Customs) vide order dated 11.12.01 permitted for release of 21 gold biscuits in de-novo proceedings – gold bars being sold by Department on 09.03.01 – Held that:- In view of decision in case of Miles India Ltd. Vs ACC (1984 - TMI - 41925 - Supreme Court Of India) holding that the authorities created by a statute are governed by the provisions of statute, it is laid down that in as much as there is no provision regarding payment of interest in respect of sale proceeds of confiscated goods, the same cannot be ordered. Since Commissioner has not given any finding regarding interest on refund of pre-deposit, matter is remanded back to the Appellate Authority – Decided partly in favor of Revenue.

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• 2012 (2) TMI 138
  Appeal for release of consignment – Non-presence of CESTAT, Chennai during proceedings – plea for transfer of appeal to co-ordinate Bench of CESTAT, Karnatka - Held that:- Petitioner may be permitted to make an application, before the third respondent, requesting him to pass an administrative order transferring the matter from the CESTAT, South Zonal Bench, Chennai, to its co-ordinate bench sitting at Bangalore, within a specified time, as per law.

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• Central Excise

• 2012 (2) TMI 145
  Recovery of duty - Petition filed to restrain the respondents from proceeding further, pursuant to the order passed by the CESTAT, Chennai - appeal preferred by the petitioner before the Supreme Court, against the order passed by the CESTAT, Chennai - Supreme Court had ordered the issuance of notices to the respondents, on 7.3.2011- Held that:- In given circumstances, it would not be appropriate for this Court to entertain the writ petition and grant the relief. Therefore, writ petition is not maintainable and is dismissed.

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• 2012 (2) TMI 144
  Whether use of brand name of a person, who is director of the respondents company amounts to use of same brand name of another person so as to disallow the benefit of SSI - Commissioner(Appeals) decided in favor of assessee based on earlier order of the Tribunal in the case of same assessee – Revenue challenged the order of Tribunal before the higher appellate forum - Held that:-The said appeal stands rejected by Supreme Court vide order dtd. 01.04.10. Hence, earlier order of the Tribunal stands confirmed and has attained finality – Decided against the Revenue.

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• 2012 (2) TMI 143
  Whether duty is leviable on clearing of samples in the laboratory situated in the factory premises assessee contended that samples were meant for testing - Held that:- In view of decision in case of CCE Chandigarh Vs. Dabur India Ltd (2010 - TMI - 206171 - Himachal Pradesh High Court), the samples drawn for testing and not cleared from the factory are not required to discharge any duty liability Decided in favor of assessee.

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• Indian Laws

• 2012 (2) TMI 140
  2G Spectrum Scam – whether a complaint can be filed by a citizen for prosecuting a public servant for an offense under the Prevention of Corruption Act, 1988 – High Court dismissed the petition on ground that investigation is in progress hence decision on the application of the appellant either to grant or refuse the sanction cannot be taken - Held that:- There is no provision either in the 1988 Act or the Code of Criminal Procedure, 1973 (CrPC) which bars a citizen from filing a complaint for prosecution of a public servant who is alleged to have committed an offense. Further, while considering the issue regarding grant or refusal of sanction, the only thing which the Competent Authority is required to see is whether the material placed by the complainant or the investigating agency prima facie discloses commission of an offense. If satisfied, then it is required to grant sanction. The Competent Authority cannot undertake a detailed inquiry to decide whether or not the allegations made against the public servant are true. In Vineet Narain's case, time-limit of three months for grant of sanction for prosecution was granted with additional one month, however in present case, due to failure of officers in the PMO and the Ministry of Law and Justice, to apprise respondent No.1 about seriousness of allegations made by the appellant matter lingered for a period of more than one year. In result, order of High Court is set aside, and right granted to appellant to file a complaint for prosecuting respondent No.2. At the same time, it is directed that in future every Competent Authority shall take appropriate action on the representation made by a citizen for sanction of the prosecution of a public servant strictly in accordance with the direction contained in Vineet Narain v. Union of India (1998) SC and the guidelines framed by the CVC - Decided in favor of petitioner

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