TMI Tax Updates - e-Newsletter
February 15, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Highlights / Catch Notes
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Income Tax:
Penalty u/s 271(1)(b) of the Act – penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation - AT
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Income Tax:
Claim of demurrage charges - As the assessee has taken a business decision the demurrage charges and cancellation charges are allowable as business expenditure - AT
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Income Tax:
Advances not submitted as per section 269SS and 269T of the Act - Penalty u/s 271E of the Act – No penalty being advances in not in the nature of loan or deposit - HC
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Income Tax:
The assessee has not claimed the benefit of section 44AF in the return filed and also could not furnish the requisite vouchers to authenticate the purchases claimed by the assessee, additions confirmed - AT
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Income Tax:
Rejection of application of renewal of approval u/s 80G(5)(vi) - the conclusion reached by the DIT (E) that the assessee trust cannot be held to be a fully charitable organisation is totally unsubstantiated and based on mere imagination than facts - AT
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Income Tax:
Penalty u/s 271(1)(b) - Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act - AT
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Income Tax:
Interest u/s 24(b) not allowable in view of the fact that the Explanation to clause(b) of section 24 of speaks about the constructed property - the property of the assessee has not been constructed - AT
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Customs:
Principles of natural justice - variation made on the bills of entry at the time of its finalization - Any quasi judicial decision which could be subject matter of appeal would require reasons to be given - HC
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Indian Laws:
CBDT BURIES section 14A - Rule 8D CONTROVERSIES Finally, The Might is Right - Article
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Service Tax:
Claim of refund of service tax paid earlier but later services were not provided by the appellants - refund allowed even though not shown as receivable in the balance sheet of the appellant. - AT
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Service Tax:
Cenvat credit - minor issue that invoices raised by Jaya TV is not showing the name of the applicant should not be a reason to deny credit having regard to proviso to Rule 9 (2) of Cenvat Credit Rules - AT
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Central Excise:
Reversal of Credit availed but not utilized - penalty waived but demand of interest confirmed - HC
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Central Excise:
CENVAT Credit - MS plates, Angles, Sheets, and Channels etc - the inputs used for repair and maintenance of the plant would be eligible for CENVAT credit - AT
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Central Excise:
SSI Exemption - Brand Name - extended period of limitation - when divergent views are expression difference decisions, the extended period of limitation cannot be invoked - AT
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Central Excise:
Extended period of limitation - cost of the pattern supplied by the customers is to be included in the assessable value of the finished product - demand beyond normal period of limitation set aside - AT
Articles
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2014 (2) TMI 578
Deletion made on excess cost claimed on sales made - Admission of additional evidences – Held that:- There is no finding of the assessing officer that any of the information regarding financial statement or books of account was no provided by the assessee - it is wrong to consider the calculation as additional evidences - The CIT(A) has to his satisfaction, verified the calculations which he found has correct – there was no merit in the arguments of revenue that verification of computation of allocation of cost, which has not been done by the AO is not within the jurisdiction of the CIT(A) – Decided against Revenue. Deletion made on proportionate cost of area sold – Held that:- The assessee started booking sale of certain units of which possessions have been handed over to customers - the assessee made a systematic estimation of cost still to be incurred which is very near to the expenditure actually incurred at the later stage - the amount of cost still to be incurred for the units of which sale has been booked should be reduced in computing the Profit realizable from sale of those units - The assessee has made a reasonable estimate of entire cost and its proportion to the units already sold - The expenditure finally incurred is higher than the estimate made by the assessee – there was no infirmity in the order passed by the CIT(A) – Decided against Revenue. Deletion of amount including interest cost – Held that:- The books of accounts of the assessee are audited and the Auditor has not given any adverse comment for not following the accounting standards which are mandatory for a company u/s 211 of the Companies Act, 1956 - the inventory of land cannot be valued at a price higher than it is bought - the AS-16 does not allow capitalisation of interest cost alongwith the cost of land - the purchase of inventory is continuation of the same business activity in routine course and cannot be termed as extension of the business activity - The proviso has been inserted to disentitle claim of interest on funds borrowed for acquisition of capital assets for the period upto the asset is put to use - purchase and holding of inventory item itself is a business activity - In absence of this proviso, section 36(1)(iii) earlier entitled assessees to claim interest in respect of capital assets, even for the period during which they were under construction - thus, the interest on funds borrowed to purchase land which is part of inventory of the assessee company is an allowable deduction u/s 36(1)(iii) – Decided against Revenue.
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2014 (2) TMI 577
Penalty u/s 271(1)(b) of the Act – Non-compliance of Notice u/s 143(2) of the Act - Held that:-The show cause notice does not mention about the non-compliance of notice on which penalty has been levied – thus, assumption of jurisdiction is not proper - the assessee was not given proper opportunity as a mandatory requirement – the assessment were completed u/s. 143(3) of the I.T. Act, it does mean the subsequent compliance in the assessment proceedings was considered as good compliance – Relying upon Akhil Bhartiya Prathmik Shikshak Sangh Bhawan Trust vs. Assistant Director of Income Tax [2007 (8) TMI 386 - ITAT DELHI-G ] and Hindustan Steel vs. State of Orissa [1969 (8) TMI 31 - SUPREME Court] - An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation – order of the CIT(A) set aside and the levy of penalty set aside – Decided in favour of Assessee.
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2014 (2) TMI 572
Admission of additional grounds – Held that:- Relying upon National Thermal Power Co. Ltd. vs. CIT [1996 (12) TMI 7 - SUPREME Court] - there may be several factors justifying raising of a new plea in an appeal and each case has to be considered on its own facts - There should be reasonable cause for furnishing additional evidence belatedly - there is reasonable cause for not raising these grounds on earlier occasion the reasons advanced by the assessee are satisfactory – thus, the additional grounds raised by the assessee are admitted for adjudication. Estimation of income at 12.5% of the gross receipts – Held that:- The Tribunal is consistently holding that in case of estimation of income in respect of contract works, the income is to be estimated at 8% of the receipts of main contract works – Relying upon M/s. C. Eswara Reddy & Co. vs. ACIT [2011 (1) TMI 1238 - ITAT HYDERABAD] - the profit at 8% for main contract and for sub contract at 5%. It may not be out of place to mention that the Tribunal uniformly estimating the profit from main contract at 8% to 12.5% depending upon the factual situation and 5% to 7% on the sub contract depending upon the factual situation – thus, estimation of profit at 8% by the CIT(A) on main contract and at 5% on sub contract is justified - Thus, the AO is directed to estimate income of the assessee at 8% of the gross receipts on contract works – Decided partly in favour of Assessee. Addition made u/s 68 of the Act - Held that:- It is for the assessee to provide the explanation for cash credits, when the assessee has not pleaded that the cash credits came out of the past intangible additions, it would not be open to the Tribunal to hold that the cash credits would be covered by such additions – Relying upon CIT vs. G. M. Chennabasappa [1958 (9) TMI 78 - ANDHRA PRADESH HIGH COURT] - The omission to claim set off of past intangible additions against cash credits would give rise to a presumption that the former amounts were not available for set off - When the alternate plea that tangible additions in the past could take care of cash credits of current year is not taken at the earlier stage and no materials are placed on record to substantiate the same, rejection of such plea would be justified - The availability of funds representing the intangible additions should be quantified not with reference to what the assessee offered for taxation but what was actually adopted in assessments for taxation – thus, the assessee failed to show how the addition u/s. 68 is related to estimated income – thus, the addition made u/s 68 sustained – Decided partly in favour of Assessee.
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2014 (2) TMI 571
Deletion made on account of disallowance of labour charges – Held that:- CIT(A) held that book results cannot be regarded as defective on the ground of non- maintenance of quality wise details of diamonds – Relying upon M/s. Dhami Brothers Versus ACIT, Cir. 9 Surat [2010 (8) TMI 817 - ITAT AHMEDABAD] disallowance has been made mainly on the ground that some other entities are making payment of labour charges at the rate which is lower than that of the assessee - The Assessing Officer himself accepts the fact that diamond labour is paid at different rates for different jobs & the rate varies as per size, weight, quality, etc. of rough – the assessee has produced all the relevant evidences in support of the claim of labour charges & therefore no disallowance on presumptive basis should be made if there are no defects in the evidences produced by assessee - there is no basis in restricting the claim of labour charges - there was no infirmity in the order of CIT(A) - Decided against Revenue.
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2014 (2) TMI 570
Addition made u/s 14A of the Act r.w Rule 8D of the Act - Held that:- Assessee contended that the intent was not to earn any exempt income - Investment made in four joint venture companies were with the intention to expend the business of the assessee out of the commercial expediency and not with the intention of exempted income - The earning of exempted income by way of dividend income is only incidental of expanding its business - From making this investment, the assessee is able to enhance its sale substantially – thus, the CIT (A) was not justified in sustaining the addition which was over and above the computation made by the assessee for disallowance as per Rule 8D – Decided in favour fo Assessee.
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2014 (2) TMI 569
Claim of demurrage charges - whether allowable as business expenditure – Held that:- The assessee failed to pay the amount and he asked for further time and ultimately it was agreed between the assessee and Fort Projects Pvt. Ltd. that subject to interest and demurrage charges in case of termination of the contract time was extended - due to cash crunch the assessee has not been able to pay the amount within the stipulated period - During this period there was slump in property deals and as a prudent decision the assessee settled by paying some compensation and demurrages - The assessee has taken a conscious business decision like a prudent businessman - As the assessee has taken a business decision the demurrage charges and cancellation charges are allowable as business expenditure – the order of the CIT(A) upheld – Decided against Revenue. Security charges, warehouse maintenance charges and supervision charges allowed – Held that:- The assessee has maintained the security staff to maintain its warehouse and debited the expenditure in the operating expenses - it has incurred warehouse maintenance charges and supervision charges - The assessee company's main source of income is from letting out of warehouse in Kolkata Dock Area and these warehouses were taken from M/s. Williamson Magor & Co. Ltd. - As these are paid for the purpose of earning this income they have direct co-relation and nexus, the same should have been allowed - The CIT(A) has rightly allowed the expenses – Decided against Revenue. TDS u/s 194I on subletting warehouses - Deletion made u/s 40(a)(ia) of the Act - Held that:- The assessee's major source of income is from subletting warehouses to R. Piyarilal Import & Export Pvt. Ltd. -The income from subletting was accepted by AO - Even the TDS was deducted in the last month of the accounting year even though the provisions of section 194-I of the Act will not apply for the reason that the tenancy is a sub-tenancy under leave and licence agreement for every 11 months and this has been continuing from earlier years – the assessee has deducted TDS on rent paid but only on the last date of the Financial Year on or before the due date of filing of return u/s. 139(1) of the Act – the decision in CIT Vs. Virgin Creations, 2011 (11) TMI 348 - CALCUTTA HIGH COURT] followed – there was no infirmity in the order of CIT(A) - Decided against Revenue.
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2014 (2) TMI 566
Non charging of interest on dues - accrual of income - Application of Section 145(1) of the Act – Sufficient evidences not brought – Chargeability of Interest - Held that:- The assessee failed to produce any evidence to establish that assessee was having interest free advance of its other sister concern of Rs.28 crores - Since no details were brought on record to establish it, the Appellate Tribunal remitted the matter to the AO with the direction to the Assessment Officer to consider on the basis of evidence as may be furnished by the assessee as to whether the assessee for the assessment year 1990-1991 and 1991-1992 was having interest free advances, more than interest free advances given by it, and no interest bearing fund was utilized to give interest free advances to its sister concern/partners/directors – there is no substantial questions of law – Decided against Revenue.
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2014 (2) TMI 565
Allowability of bad debt claim – Applicability of TRF Limited v. CIT [2010 (2) TMI 211 - SUPREME COURT] – Validity of Review u/s 254(2) of the Act – Held that:- The debts have been written off in the accounts have not been controverted by Revenue – thus, there is no reason to interfere with the Order of the CIT [A] - The Tribunal, in the first round of its judgment, lost sight of the decision of the Supreme Court in case of TRF Limited, which was a binding decision directly on the point – thus, it will surely give rise to rectification of the order - The Tribunal correctly recorded that the Department did not controvert that the debt was written off as bad debts – the order of the CIT(A) upheld – Decided against Revenue.
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2014 (2) TMI 564
Advances not submitted as per section 269SS and 269T of the Act - Penalty u/s 271E of the Act – Held that:- What the respondent received from the prospective buyers was advance money simplicitor which was neither a loan nor a deposit even within the meaning of the said term assigned to under section 269T of the Act - When such amount is returned that too without interest, section 269T cannot be made applicable - Section 273B of the Act provides that notwithstanding anything contained in section 271E, no penalty shall be imposable on the person or the assessee as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure – Relying upon Commissioner of Income Tax v. Rugmini Ram Ragav Spinners P. Ltd. [2007 (7) TMI 237 - MADRAS HIGH COURT]. If the assessee proves that there is a reasonable cause, he is not subject to levy of penalty - the amount received by the assessee is only for the purpose of allotment of shares and it is not a deposit or loan - the assessee was under the bona fide belief that the money received is only for the purpose of allotment of shares - there is no material or evidence or any compelling reason produced by the Revenue to prove that the money received is a deposit or loan – It is a question of fact and the order of the Tribunal is not a perverse one - The findings given by both the authorities below is based on valid materials and evidence – Relying upon CIT Vs. P. Mohanakala [2007 (5) TMI 192 - SUPREME Court] - whenever there is a concurrent finding by the authorities below, no interference should be called for by the High Court – thus, there was no error or legal infirmity in the order of the Tribunal – Decided against Revenue.
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2014 (2) TMI 563
Mandatory requirement of reasoned order - TDS u/s 194C - Held that:- The High Court without even adverting to any one of the questions of law that were raised and canvassed before it, by a cryptic and non- speaking order had dismissed the Income Tax Appeals - while disposing of an appeal should first raise substantial question of law for consideration and decision and thereafter decide the same by a speaking order by assigning appropriate reasons - an order which does not contain reasons is no order in the eye of law and requires to be set aside – the order of the HC set aside and the matter remanded back to the HC for disposal – Decided in favour of Revenue.
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2014 (2) TMI 562
Estimation of income - applicability of section 44AF - Disallowance for Non-furnishing of authentic vouchers and payments – Held that:- The AO is of the view that the assessee does not claim the benefit under section 44AF and writes 'Nil' profit in column 33 sub clause (iii) - The assessee has not claimed the benefit of section 44AF in the return filed and also could not furnish the requisite vouchers to authenticate the purchases claimed by the assessee – thus, there is no reason to interfere with the orders in making adhoc disallowance of 10% towards purchases – Decided against Assessee. Disallowance of interest on unsecured loan – Addition of Payment of MVAT and Sales Tax – Non-submission of documentary evidence - Held that:- The CIT(A) stated that the assessee has not produced any evidence towards purchase of plot of land, flat and residential premises - No details in respect of the sources as to how they were utilised for purchase of the above assets were furnished before him to show that the investments on the above assets were made in the earlier years - no evidences were filed by the assessee to controvert the facts as stated by the learned CIT(A) – thus, there is no reason to interfere with the order of the CIT(A) – Decided against Assessee. Addition made on account of low withdrawals for household expenses – Held that:- The CIT(A) has rejected the claim of the assessee of withdrawals of his wife and his son merely because the assessee had not produced copies of the bank account, evidence of source of income and expenditure incurred - Considering the submissions of the assessee and the fact that the assessee has shown total withdrawals without giving further brake up by the authorities - the addition on account of low withdrawals for household expenses is not justified as the same is not supported by facts by the authorities – thus, the addition is set aside – Decided in favour of Assessee.
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2014 (2) TMI 561
Rejection of application of renewal of approval u/s 80G(5)(vi) of the Act – Held that:- The renewal of approval was rejected on the ground that clause-7 of the trust deed gives unbridled power to the trustees to apply funds and income of the trust according to their own discretion – Donation given to another registered charitable trust cannot be a ground for not granting approval u/s 80G (5)(vi) of the Act - approval u/s 80G(5) is to be granted to a charitable trust or institution if it fulfils the condition enumerated in clause(i) to(v) of section 80G(5) - the amount of Rs.5 lakh has been reflected in the income and expenditure account which forms part of balance-sheet it cannot be said that the assessee has not maintained regular accounts of its receipts and expenditure in terms of clause(iv) of section 80G(5) - at the time of granting approval u/s 80G(5)(iv) the authority concerned is only required to examine whether the trust and institution has fulfilled the conditions enumerated under clause (i) to (v) of section 80G(5) – thus, the DIT (E) has to restrict himself within the limitation of statutory mandate and cannot travel beyond it – here, nothing has been brought on record to show that the assessee has not fulfilled the conditions enumerated in clause (i) to (v) of section 80G(5). The material on record clearly proves that the alleged donation had been reflected in the accounts of the assessee – thus, the conclusion reached by the DIT (E) that the assessee trust cannot be held to be a fully charitable organisation is totally unsubstantiated and based on mere imagination than facts – thus, the DIT (E) was not correct in rejecting the assessee's application for renewal of approval u/s 80G(5) – the DIT (E) is directed to renew the approval granted earlier u/s 80G (5) of the Act to the assessee – Decided in favour of Assessee. Deletion made u/s 68 of the Act – Unexplained cash credit – Held that:- The CIT (A) held that when there are both cash credits and repayments, the Assessing Officer cannot consider the cash credits alone ignoring the repayments - when there are both receipts and payments only receipts cannot be considered totally ignoring the repayments -In such situation only the peak amount is to be considered – thus, there was no reason to interfere with the findings of the CIT (A) – Decided against Revenue.
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2014 (2) TMI 560
Determination of Arms Length Price – International Transactions undertaken – Selection of Comparables – Held that:- The decision in Intoto Software India (P.) Ltd. Versus Assistant Commissioner of Income-tax, Circle -2(1), Hyderabad [2013 (10) TMI 599 - ITAT HYDERABAD] followed - The assessee is a captive service provider to the group companies and is providing services on cost plus mark- up basis – TPO in his order has brought out the differences between a product company and a software development services provider - he is aware of the functional dissimilarity between a product company and a software development service provider - the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available - The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products – u/s 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies - the Assessing Officer/TPO has exercised this power to call for details with regard to the various companies - The method adopted by the TPO to allocate expenditure proportionately to the software development services and software product activity cannot be said to be correct and reasonable - Wherever, the Assessing Officer/TPO cannot make suitable adjustment to the financial results of the comparable companies with the assessee-company to bring them on par with the assessee, these companies are to be excluded from the list of comparables – thus, the AO/TPO directed to exclude the comparables as ordered – Decided in favour of Assessee. Risk adjustment relief – Held that:- The TPO has accepted that assessee has a risk free entity and risk adjustment is required - However, as against 7.6% quantified by the assessee, the A.O. arrived at risk adjustment of 0.85% - Even this was not granted to the assessee – thus, the TPO is directed to re-examine the issue and grant risk adjustment after analysing the risk prevailed to the assessee company vis-a-vis the other companies – Decided in favour of Assessee.
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2014 (2) TMI 559
Disallowance u/s 14A of the Act – Held that:- The Assessee has earned dividend income of ₹ 1.75 crores - From the copy of the details of interest which has been reproduced by CIT(A) in its order, it is seen that the major interest component is on account of interest on salary paid to the employees as per the decision of Labour Court and Interest on Service Tax - no details are available as to the days on which the dividend was received the amount of dividends, the number of companies in which the Assessee holds investments – thus, the disallowance made by the AO is not warranted but however a disallowance of Rs. one lac made u/s 14A would could be granted – The AO is directed to disallow the disallowance u/s14A of the Act – Decided partly in favour of Assessee. Disallowance expenses u/s. 14A of the Act - Disallowance of claim for depreciation – Held that:- The CIT(A) has noted that the Assessee has itself claimed only aggregate expenditure in the return of income as against the aggregate expenditure debited to the Profit and Loss account - the nature of administrative expenses claimed by the Assessee was in respect of Audit fees, Conveyance, Bank Commission, Office maintenance etc. – Relying upon CIT vs. New Savan Sugar and Gur Refining Company Ltd. [1989 (4) TMI 12 - CALCUTTA High Court] – the expenditure was allowable in view of the fact that the company had to incur various expenditure as it has to maintain its establishment so long as it is in operation and its name is not struck off from the register of the Registrar of Companies - the expenditure made by the AO u/s 14A was already confirmed and the remaining expenditure on depreciation - the Revenue could not controvert the findings of CIT(A) nor has brought any material on records in support of its contention – thus, there is no reason to interfere in the findings of CIT(A) – Decided against Revenue.
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2014 (2) TMI 558
Penalty u/s 271(1)(b) of the Act – Held that:- The decision in Hindustan Steel vs. State of Orissa [1969 (8) TMI 31 - SUPREME Court] followed - An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings - penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation - Penalty will not also be imposed merely because it is lawful to do so - Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances - Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute – thus, the penalty orders quashed – Decided in favour of Assessee.
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2014 (2) TMI 557
Confirmation of disallowance of interest u/s 40A(2)(b) of the Act – Held that:- After considering the totality of the facts of the case, in the interest of justice the disallowance is restricted to the interest made in excess of 15% - thus, the AO is directed to recompute the disallowance – Decided partly in favour of Assessee. Disallowance of interest u/s 24(b) of the Act - Loan taken for construction of self- occupied property – Held that:- The AO has given finding on fact that the properties were not constructed, therefore in view of the Explanation attached to section 24(b) of the Act, the assessee is not entitled for deduction of interest – there was no infirmity in the order of the CIT(A) as the interest is claimed by the assessee is not allowable in view of the fact that the Explanation to clause(b) of section 24 of the Act speaks about the constructed property - the property of the assessee has not been constructed – Decided against Assessee. Disallowance of unexplained investment – Held that:- The AO has given a finding that the interest- bearing funds were utilized for construction of bungalows which was not for business purpose - the assessee is having business of transport, thus, the addition made by the AO on the basis that the assessee has utilized the borrowed fund for non-business purposes cannot be find any fault – Relying upon S.A.Builders vs. CIT [2006 (12) TMI 82 - SUPREME COURT] - the amount was not utilized for business purpose – Decided against Assessee.
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2014 (2) TMI 556
Revision u/s 263 of the Act challenged – Deletion made by the CIT(A) - Held that:- The decision in Gujarat Road and Infrastructure Co. Ltd. Versus Commissioner of Income Tax [2010 (2) TMI 756 - ITAT, Ahmedabad] followed - Revenue could not point out any specific error in the order of the CIT(A) - The CIT(A) has vacated the disallowance by following the order of the Tribunal for Assessment Year 2004-05 - assessee has submitted that the assets are the very same assets on which depreciation was disallowed in the Assessment Year 2004-05 – Decided against Revenue.
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2014 (2) TMI 555
Purchase cost of films and other production materials – Capital or Revenue - Held that:- Relying upon the decision in ADDL COMMISSIONER OF INCOME TAX Versus M/s JOHNSON & JOHNSON LTD [2013 (6) TMI 286 - ITAT MUMBAI] - The said expenditure is revenue expenditure - Decided in favour of assessee. MODVAT credit attributable to the closing stock – Held that:- Relying upon the decision in ADDL COMMISSIONER OF INCOME TAX Versus M/s JOHNSON & JOHNSON LTD [2013 (6) TMI 286 - ITAT MUMBAI] – The issue has been restored for fresh adjudication. Disallowance u/s 40A(2)(b) – Held that:- Relying upon the decision in M/s. Johnson & Johnson Limited Versus The Addl. Commissioner of Income-tax [2013 (4) TMI 228 - ITAT MUMBAI] - For the payments for legal counseling, it is futile to think of comparables because counsels may not charge standard fee but may charge according to the issue involved – Also the AO have failed to establish the excessiveness of the payment – Decided in favour of assessee. Adhoc disallowance of travelling expenses and professional sponsorship – Held that:- The disallowance on the ground that the expenditure being personal in nature cannot be made in the case of a company – Relying upon the decision in case of Sayaji Iron & Engg. Co Versus Commissioner of Income Tax [2001 (7) TMI 70 - GUJARAT High Court] - DRP has not pointed out the expenses which are not in connection with business activity of the assessee inspite of facts that the details were filed by assessee before DRP – Decided in favour of assessee. Professional sponsorship – In earlier years the expenditure were Rs.2.23 crores and Rs.4.36 crores in assessment year 2001-02 and assessment year 2002-03 respectively under the head "Professional Sponsorship" - Whereas in the assessment year under consideration the total expenditure incurred is of Rs.23,11,26,595 - The assessee filed only scanty details of the foreign visits of doctors etc - The addresses of doctors and the organizers have not been given in the details filed by assessee even before us - The assessee was not able to justify with documentary evidence that entire expenditures had been incurred by the assessee for the purpose of its business - The earlier orders as referred to by ld. AR could not be considered as precedent in the assessment year under consideration - It will be fair and reasonable to make an adhoc disallowance of 2% of the expenditure claimed by assessee which comes to Rs.46,22,500/- as against Rs.11,55,63,298/- disallowed by AO - Payment of FBT does not establish that expenditure was for business purpose – Partly allowed in favour of assessee. Depreciation on testing equipment – Held that:- Relying upon the decision in M/s. Johnson & Johnson Limited Versus The Addl. Commissioner of Income-tax [2013 (4) TMI 228 - ITAT MUMBAI] - The Tribunal passed an order in another group concern of the assessee, whose facts have not been distinguished by the DR is followed - The depreciation should be allowed on the testing equipment provided to laboratories and hospitals free of charge as the said equipments have been provided to the laboratories and hospitals for making profit from the sale of slides – Decided in favour of assessee. Adhoc disallowance of expenditure towards free samples – Held that:- The assessee is required to furnish requisite details to the satisfaction of AO to justify that the expenditure has been incurred for business purpose – Relying upon the decision in the case of Goodyear India Ltd. V/s CIT [2000 (7) TMI 32 - DELHI High Court] - "The details of expenditures, which are not substantiated by vouchers and assessee was unable to furnish the detail to justify the claim, the disallowance made by AO is justified and availability of tax audit report does not preclude AO from calling for supporting materials". Even though it is a commercial practice in the line of business of the assessee, to give free samples to promote its product, the assessee is expected to maintain details to enable the AO to verify as to whether the said samples had been given by assessee wholly and exclusively in connection with its business - Payment of Fringe Benefit Tax (FBT) does not establish that expenditure has been incurred by the assessee for its business purpose - It will be fair and reasonable to restrict disallowance to 2% of the claim of assessee which comes to Rs.31,61,000/-as against Rs. Rs.11,85,03,996/- disallowed by AO – Partly allowed in favour of assessee. TPA - Disallowance of royalty paid – Held that:- Payment of royalty at the rate of 4% is as per RBI formula and the average royalty rate for comparable technical know-how /marketing know-how approval worked out to 4.84% on sales and therefore royalty of 4% paid by assessee to J&J US is lesser than Arm's Length of 4.84% - No disallowance can be made by TPO on the basis that there was no necessity by the assessee to pay royalty at the enhanced rate of 4% as it was excessive and unnecessary. Rule 10B(1) of Income Tax Rules, 1962 does not authorize the TPO to make disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same - Such kind of observations and thereafter to make disallowance by TPO while considering the price at Arm's Length are outside his purview - The quantum of expenditure can be examined by TPO as per law but in judging the allowbility thereof as business expenditure, TPO has no authority to disallow the entire expenditure or part thereof on the ground that the said expenditure is excessive - The TPO has to examine whether price paid or the amount paid was at Arm's length under the provisions of Transfer Pricing and its Rules - It is relevant to state that the Ld.AR stated that the average royalty paid by assessee is comparable and it is lower than the Arm's Length rate of 4.84% as per information available on "website" of SIA which provides rate which is approved by SIA/RBI - The TPO cannot suggest the disallowance merely because as per his assumption it is excessive though the payment is at Arm's length – Decided in favour of assessee. Publicity and sales promotion expenses – Held that:- The TPO has suggested disallowance on the ground that the AE of the assessee viz J&J US is reaping the benefit of higher royalty amount as a result of higher sales realized by assessee by incurring higher expenses by way of publicity and sales promotion undertaken by assessee and therefore the parent company of the assessee-company should share some of the expenses - The TPO is to determine the Arm's length by following one of the method and /or most appropriate method as prescribed in section 92C(1) of the Act - The TPO cannot suggest adjustment/disallowance on the basis of his assumptions that the payment is excessive though it is at arm's length – Relying upon the decision in the case of Kodak India Pvt. Ltd. V/s Addl. Commissioner of Income Tax [2013 (11) TMI 667 - ITAT MUMBAI] - Rule 10B specifically provides the procedure to be followed for determining Arm's Length Price. No specific submissions were made made by the TPO regarding excessiveness of the expenses incurred by following any of the method specified - Considering the fact that the assessee justified the payment of technical know-how royalty at the rate of 4% of net sales which is lower than Arm's length rate of 4.84%, the payment of royalty by assessee to its parent company is at Arm's Length - Decided in favour of assessee.
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2014 (2) TMI 554
Invocation of Rule 27 f the Appellate Tribunal Rules, 1963 – right of the assessee in appeal before Tribunal - Held that:- it is not right to suggest that when an assessee is not in cross appeal or cross objection, it is not permissible for the assessee to challenge correctness of the rejection of any of the grounds, which were rejected in the said order, even if, such grounds having been allowed, would have led to the same conclusion which were ultimately arrived at in the impugned order. All grounds raised by the assessee, if wrongly rejected by the Commissioner (Appeals) in the impugned order even if he has ultimately held the issue in favour of the assessee, can be pursued by the assessee in his capacity as respondent before the Tribunal - Rule 27 filed by the assessee respondent in response to requisition to do so and particularly having taken note of very fair and gracious approach of the learned Departmental Representative - the petition under rule 27 and proceed to decide the issue so raised on merits. Non-discrimination clause under the tax treaties on the scope of Section 40(a)(i) – Held that:- The OECD Model Convention Commentary has a role to play in construing the scope of provisions of the Indo-US tax treaty, only to the extent (i) the relevant provision, though based on OECD Model Convention, is not explained in the Technical Explanation to the US Model Convention, and (ii) specific reference is made to the OECD Model Convention Commentary, and the interpretation so given by the OECD Model Convention Commentary is not in conflict with the Technical Explanation to the US Model Convention - The case does not fit into any of the categories because while the relevant clause of the non-discrimination article is the same as art. 24(2) of the OECD Model Convention, the scope of non-discrimination is, as we will see a little later, well defined in the Technical Explanation and also because the scheme of non-discrimination in the OECD Model Convention and US Model Convention is materially different - a sound interpretation of a sub-article of non-discrimination article cannot be based on reading of that clause in isolation, but it would require that the non-discrimination clause as a whole, or even a treaty as a whole, is to be carefully analysed. Scope of non-discrimination clauses in the tax treaties – Held that:- A differential treatment to the PE of the US tax resident, by itself, cannot be treated as covered by the scope of rule prohibiting non-discrimination - The true test for deciding whether or not there is a non-discrimination is whether or not the resident enterprise and the PE of the other Contracting State, who are similarly situated, get the same tax treatment or not - There could indeed be different tax treatments to the PE of the other Contracting State and the enterprise of the source State, but, as long as such tax differentiation could be justified on the grounds of dissimilarities in their situation, the prohibition against discrimination cannot be invoked. Deletion made u/s 40(a)(ia) of the Act – TDS not deducted on foreign remittances accounted under design and development expenses - Whether deduction neutrality is infringed upon in the cases of payments to non- residents vis-à-vis residents – Held that:- It is necessary that the assessee should have deducted tax at sources so far as payments made during the relevant previous year are concerned - so far as payments made to the non-residents are concerned, it is an admitted position that the disallowance under section 40(a)(i) is also attracted as regards the payments made during the year itself without deduction of tax at source - the issue on the scope of section 40(a)(i) vis-à-vis the controversy on whether amounts actually paid during the relevant previous year itself will be outside the ambit of such a disallowance – thus, so far as payments made to the residents in Ireland, Denmark and Austria are concerned, CIT(A) was justified in upholding the disallowance under section 40(a)(i) – Decided partly in favour of Assessee. Deletion made u/s 40(a)(i) of the Act- TDS not deducted for payments made to non-residents – Held that:- Section 40(a)(i) can only be invoked when the assessee had a liability withhold the taxes and the assessee failed to discharge such a liability – tax withholding obligations under section 195 come into play only when income embedded in the payments is liable to be taxed in India - unless the income embedded in payments in question is held to be taxable in India, the provisions of Section 40(a)(i) cannot be invoked. Payments made to Spanish residents – Held that:- The Spanish vendor has invoiced for samples, sketches and photographs, as also designing lines and collection material - Just because the vendor has developed and transferred technical designs or plans in respect of shoes or such other material, it does not mean that it is not a technical design - the amounts paid seem to be covered by the scope of article 13(4) inasmuch as the payment is made for services which are consultancy and technical services - The payments are made for designs, sketches and photographs but these designs, sketches and photographs are in the context of assessee's line of business and, as stated by the assessee himself, for the purposes of product development by the assessee - The matter remitted back to the CIT(A) for fresh adjudication. The payments are made for the purchases of goods, and as the recipients do not have any PE in India - the transactions do not lead to any taxability in India with respect to its business profits - Business profits of Spanish enterprises can only be brought to tax in India under article 7, when those enterprise have a PE in India in terms of article 5, and then also the taxability is restricted to the extent the profits are attributable to the PE - It is only elementary that tax withholding liability is a vicarious liability, and where it can be shown that principal liability does not exist, the vicarious liability will also not survive - Since the assessee did not have any tax withholding liability in respect of these payments - CIT(A) was justified in deleting the disallowance under section 40(a)(i). Payments made to Italian residents – Held that:- The transactions are in the nature of sale of various types of products and samples - the payments are made for the purchases of goods, and as the vendors do not have any PE in India – the transactions do not lead to any taxability in India with respect to its business profits - Business profits of such enterprises can only be brought to tax in India under article 7, when those enterprise have a PE in India in terms of article 5, and then also the taxability is restricted to the extent the profits are attributable to the PE. It is not even in dispute that the recipients do not have any PE in India - When there is no income embedded in these payments, there cannot be any occasion for the assessee to deduct tax at source from these payments - the assessee did not have any tax withholding liability in respect of these payments, CIT(A) was quite justified, to that extent, in deleting the disallowance under section 40(a)(i). Payment made to UK resident – Held that:- When a particular amount of expenditure is incurred and the sum is reimbursed as such, it cannot be considered as having any part of it in the nature of income - there is nothing to suggest that there is any income embedded in these payments - the assessee did not have any obligations to deduct the tax at source from this payment - the assessee did not have any tax withholding obligation from this payment, the very foundation of disallowance under section 40(a)(i) ceases to hold good in law – thus, the CIT(A) rightly deleted the same. Payment to Belgian resident – Held that:- The payment has been made to N V Muderi, a business entity other than an individual – thus, the provisions of article 14 do not come to the rescue of the assessee - the normal rule is that article 14 comes into play only when services are rendered by the individuals, whereas article 7 comes into play when services are rendered by entities other than individuals - the assessee ought to have deducted tax at source from payment to NV Muderi - failure to do so is to be visited with disallowance u/s 40(a)(i) of the Act - The relief granted by the CIT(A) is vacated and the disallowance by the AO is restored – Decided partly in favour of Revenue.
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2014 (2) TMI 553
Deletion made by CIT(A) – Request for Enhancement of addition u/s 37 of the Act – Held that:- The decision in the CIT(A) upheld which states that there is no ground to doubt the expenditure booked in the hands of the appellant in respect of the two parties - Revenue was unable to place any material on record to contradict the findings of the CIT(A) –the recipients have rendered services and payments are made to them, which were reflected in their income-tax returns - The Assessing Officer has not pointed out any specific defects in the books of account, except making general remarks that the expenditure is excessive – it was disproved by the assessee by placing the percentage of expenditure incurred in the form of payments to Government Departments etc., to highlight that the composition of payments made to the sister concerns was a meager percentage of the total outgo - the tax authorities have not made out a strong case to make the addition – Decided against Revenue.
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Customs
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2014 (2) TMI 552
Principles of natural justice - finalization of a provisionally assessed bills of entry - variation made on the bills of entry at the time of its finalization - import of Muriate of Potash (MOP) - speaking order - The objection of the revenue to invocation of Section 17(5) of the Act is that in this case the assessment was made provisional under Section 18(1) of the Act and were also being finalized under Section 18(2) of the Act. Therefore, it is submitted that Section 17(5) of the Act requiring an issuance of a speaking order will not apply. Held that:- Any quasi judicial decision which could be subject matter of appeal would require reasons to be given. However, in this case in any view of the matter Section 18(2) of the Act at the relevant time read as “when the duty leviable on such goods is assessed finally in accordance with the Act then” certain consequences on finalization of assessment are set out. However, the final assessment of the goods which have been provisionally assessed has to be in terms of Section 17 of the Act. This is so as Section 18(2) of the Act itself does not provide for finalization of assessment but merely states the action to be taken by the Assessing Officer consequent to the finalization of provisionally assessed bill of entry under Section 17 of the Act. Thus the objection of the revenue is unsustainable. - matter remanded back from fresh decision.
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Service Tax
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2014 (2) TMI 580
Claim of refund of service tax paid earlier but later services were not provided by the appellants - claim of refund rejected for want of roper documentary evidence and that the same were not reflected as receivable in the balance sheet of the appellant. - Held that:- otherwise there is no dispute on the fact that the Service Tax was deposited by the appellant in advance relating to the services which were to be provided by them to M/s. DRDPL. Further, there is no dispute that the said services were actually not provided, on account of cancellation of an agreement. Consequently the appellant was not required to pay any Service Tax in respect of the Services, which were not undertaken by them. There is also no dispute that the entire consideration received by them from M/s. DRDPL stand refunded, alongwith service tax amount. In the above scenario, denial of the refund on the sole technical ground that the same was not shown in the balance sheet, as receivable from the revenue, cannot be held to be just and fair. - Refund allowed - Decided in favor of assessee.
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2014 (2) TMI 576
Demand of service tax - Tax not paid for GTA service - Held that:- So far as the activity of processing logs for making veneer for the clients, since veneer is an excisable product classifiable under 48.12, the process would amount of manufacture and hence, we are of the prima facie view that same cannot be considered as service of production of goods not amounting to manufacture. Thus the service tax demand of Rs.1,45,660 does not appear to be sustainable. However, as regards the service tax demand of Rs.71,583 in respect of GTA service recipient, we are of the prima facie view that appellant would be liable to pay the same - appellants are directed to deposit an amount of Rs.17,583 within a period of 4 weeks. Compliance to be reported on 29.4.2013. On deposit of the this amount within a stipulated period, the requirement of pre-deposit of balance amount of Service Tax demand, interest thereon and penalty shall stand waived and its recovery thereof shall stand stayed during the pendency of the appeal - Decided against assessee.
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2014 (2) TMI 575
Waiver of pre deposit - Penalty u/s 78 - Held that:- The appellant is admittedly a GTA service provider and requires truck for providing the services. He may use his own truck or may hire the truck from independent truck owners. Such hiring of trucks by him cannot be held to be business auxiliary services. As such, we are of the view that appellant is entitled to unconditional stay - Stay granted.
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2014 (2) TMI 574
Denial of credit on services rendered – No invoice issued in the name of assessee – Waiver of Pre-deposit – Held that:- In the matter of advertisement, CBEC had clarified that the agent who canvasses timeslots would pay service tax only on the commission earned by them - the intermediary charged service tax only on the commission and the bill raised by the Jaya TV was supplied by the intermediary and reimbursed by the applicant - there is no doubt that the input service was utilized by the them which comes out clearly from the invoices raised by Jaya TV showing that the timeslots were for advertising their brand of Birla Cement and Birla Super and therefore the minor issue that invoices raised by Jaya TV is not showing the name of the applicant should not be a reason to deny credit having regard to proviso to Rule 9 (2) of Cenvat Credit Rules – Relying upon EUPEC-Welspun Coating India Ltd. Vs CCE Vadodara [2008 (8) TMI 515 - CESTAT, AHMEDABAD] – Pre-deposits waived till the disposal – Stay granted.
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2014 (2) TMI 573
Denial of Cenvat credit on input service - Courier service, rent-a-cab service, mandapam service and catering service – Waiver of Pre-deposit – Held that:- Following Hero Honda Motors Ltd. Vs. CCE [2011 (7) TMI 240 - CESTAT, NEW DELHI] - the applicants failed to produce any evidence to establish that the freight charges were not included in the assessable value - there is factual dispute in this case - the applicants failed to make out a prima facie case for waiver of the amount – Assessee directed to deposit Rupees ten lakhs as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted.
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Central Excise
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2014 (2) TMI 568
Calndestine removal of goods - Intention to evade duty - Demand of differential duty - Imposition of penalty - Held that:- Extended period has been invoked and has been upheld on the ground that when the goods have been cleared to the sister unit, the duty was paid only on notional value since supply has been made to the sister unit. The Commissioner (Appeals) has also observed that the advocate for the appellant could not explain whether they were following this practice all along. He has observed that the advocate could not give a proper explanation - appellant had Cenvat credit of more than Rs. 10 lakhs in their account, the differential duty demand is only Rs. 1.24 lakhs approximately. This being the position, the appellant did not gain any benefit by undervaluing the inputs. Further there is no finding that the sister unit did not take the credit of the amount for the goods were diverted by sister unit for imposition of penalty under Section 11AC of the Central Excise Act, 1944 since duty with interest has not been challenged, it is necessary for the department to establish that there was any intention to evade duty. The circumstances of the case clearly show that there could not have been intention to evade duty - Decided in favour of assessee.
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2014 (2) TMI 567
Classification of goods - Classification under CETH 40021100 and organic chemicals falling under CETH 29 - Transaction value adopted for payment of duty was less than the value on which duty was paid by the supplier resulting in more Cenvat credit than what was eligible - Demand of differential duty - Held that:- during the relevant period there were decisions that if the Cenvat credit has not been utilized, no interest is payable. Further, it was also a prevailing view that if excess Cenvat credit is available in the books, it would result in a situation whereby the Cenvat credit has not been utilized in respect of any short levy arising because of wrong utilization of Cenvat credit. In view of the above position, the submission that the provisions of Section 11A(2B) is attracted is valid. Interest is payable whether Cenvat credit has been utilized or not. Therefore the interest quantified by the appellant and adjusted against the rebate claim filed by the appellant is actually payable and has already been paid and therefore the same is confirmed - wrong practice occurred because of non-modification of the software; bona fide belief of the appellants as regards the liability, wrong payment of amount short paid for the period before issue of show cause notice without waiting for proceedings; the payment of dues for the one year period without taking excess and short payments for the whole period, I find that it is only a bona fide mistake which has resulted in short levy and no penalty is warranted - Decided partly in favour of assessee.
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2014 (2) TMI 551
Reversal of Credit availed but not utilized - Tribunal pointed out that the credit though taken was not utilised till its reversal and therefore deleted interest and penalty - The Tribunal being creation of the Statute, whether it can traverse beyond the provisions of Cenvat Credit Rules, 2004, when the same has the force of a statute - Held that:- Though Rule 14 contemplates that Cenvat Credit taken shall be recovered from the manufacturer along with interest the facts of the present case are slightly different as there was no allegation that there was intention on the part of the assessee to evade payment of duty by wrongly availing the credit. Therefore, the provisions of Section 11AC of the Act could not have been invoked by the revenue for the purpose of levy of penalty. Whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the High Court - Held that:- where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty - A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. Therefore, the question of quantum of demand, should not be a going factor, more so, when a substantial question of law is involved - while confirming the order of the Tribunal on the levy of penalty under Section 11AC, we reverse the order of the Tribunal on the question of interest, as per Rule 14 read with Section 11AB and restore the order of the adjudicating authority levying interest - Decided partly in favour of Revenue.
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2014 (2) TMI 550
Demand pursuant to withdrawal of Exemption under Notification No.32/99-CE dated 08.07.1999 vide section 154 of Finance Act, 2003 - a dispute arose as to entitlement of the appellant for refund on the one hand and liability to pay the amount claimed by the department on the other. - adjudicating authority held that the appellant was not entitled to refund and was liable to pay duty - Following the decision in R.C. Tobacco (P) Ltd. & Anr. vs. Union of India & Anr. [2005 (9) TMI 80 - SUPREME COURT OF INDIA] appeal dismissed - Decided against the assessee.
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2014 (2) TMI 549
Demand pursuant to withdrawal of Exemption under Notification No.32/99-CE dated 08.07.1999 vide section 154 of Finance Act, 2003 - Earlier apex Court has uphold the constitutional validity of the withdrawal in R.C. Tobacco (P) Ltd. & Anr. vs. Union of India & Anr. [2005 (9) TMI 80 - SUPREME COURT OF INDIA] - Held that:- substance in the submission of learned counsel for the appellant that the questions which the High Court had to answer were not really dependent on the upholding of the constitutional validity of Section 154 and the High Court ought to have answered those questions. - matter remanded back to High Court to deal with the questions of law.
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2014 (2) TMI 548
Denial of CENVAT Credit - Whether the appellant is eligible for CENVAT credit of duty paid on MS plates, Angles, Sheets, and Channels etc - Original authority confirmed the demand and imposed penalty - Commissioner (Appeals) has allowed the benefit of CENVAT credit following decision in CCE, Coimbatore Vs. M/s. Jawahar Mills Ltd. [2001 (7) TMI 118 - SUPREME COURT OF INDIA] - Held that:- welding electrodes used for repair and maintenance are not eligible for CENVAT credit as the activity of repair and maintenance is distinct from manufacture, in my view when three High Courts as mentioned above held that the items used for repair and maintenance of plant and machinery are eligible for CENVAT credit it is this view which has to be adopted. Moreover, for permitting CENVAT credit what is relevant is as to whether the use of the item has nexus with manufacture and whether without that item manufacture is commercially possible. Since repair and maintenance is an activity which is essential for smooth manufacturing operations and without regular repair and maintenance, manufacturing activity is not commercially feasible, the inputs used for repair and maintenance of the plant would be eligible for CENVAT credit. I, therefore, hold that the impugned order disallowing the CENVAT credit is not sustainable - Following decision of Sree Rayalaseema Hi-Strength Hypo Ltd. v. CC & CE, Tirupati [2012 (11) TMI 255 - ANDHRA PRADESH HIGH COURT] - Decided against Revenue.
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2014 (2) TMI 547
Availment of CENVAT Credit - Reversal of CENVAT Credit on capital goods - Held that:- Capital goods have been procured in the year 1997 and availed CENVAT credit and the same has been cleared for export on 19th July 2005. As per the CBEC Board's letter 345/2/2000-TRU dated 29.08.2000 wherein it has been clarified that under the existing procedure a manufacturer can export the goods under bond without payment of duty. This is a facility that is available to the manufacturer under excise procedure. In such case, the appropriate duty of excise that is payable is nil. Therefore, there is no bar for a manufacturer to remove the inputs or capital goods for export under bond within the explanation - Appellant is not required to reverse CENVAT credit availed on the capital goods - Following decision of Videocon International Ltd. vs. CCE [2008 (7) TMI 275 - CESTAT, AHMEDABAD] - Decided in favour of assessee.
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2014 (2) TMI 546
SSI Exemption - Brand Name - extended period of limitation - Whether the assesses, who are using the already embossed castings, as inputs, in the manufacture of their final products are to be denied the benefit of small scale industries notifications or not - Held that:- there are plethora of decisions of the Tribunal holding that the presence of brand name of another person on the inputs/raw-materials used for manufacture of final products, when no affixation of any brand name being done by the manufacturers would not amount to use of brand name of another person. These decisions are sufficient for the appellant to entertain a bona fide belief of non-use of brand name so as to be entitled to the benefit of Small Scale Notifications. It stands held by the Hon'ble Supreme Court in the case of Menhta Allied Products [2004 (5) TMI 74 - SUPREME COURT OF INDIA] that when divergent views are expression difference decisions, the extended period of limitation cannot be invoked. - Decided in favor of assessee.
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2014 (2) TMI 545
Reversal of CENVAT Credit - removal / return of inputs as such - Import of base oil - Penalty u/s 11AC - Held that:- it is the fact that the appellant had cleared the base oil so obtained on payment of duty by reversing the CENVAT credit taken on the base oil. Under the CENVAT Credit Rules, 2004 when inputs are cleared as such, the appellant is liable to discharged duty liability thereon by reversing the CENVAT credit taken which the appellant has done in the instant case and therefore, the question of recovery of CENVAT credit which has already been reversed at the time of clearance of base oil cannot be sustained in law as it would amount to double demand of duty - Therefore, the confirmation of demand once again on base oil is not sustainable in law. Levy of interest on Reversal of Cenvat Credit - Held that:- The hon'ble apex court in Union of India vs. Ind-Swift Laboratories Ltd.- [2011 (2) TMI 6 - Supreme Court] held that Rule 14 of the CENVAT Credit Rules, 2004 specifically provides for interest on CENVAT credit taken or utilized wrongly or erroneously refunded. Therefore, interest on irregular credit arises from the date of taking of such credit. Whether the extended period of time could be invoked - Held that:- they had declared the taking of credit in ER-1 returns. We have also perused the ER-1 Returns available on record. It is seen that the details of the documents on the strength of which credit has been taken is reflected in the said returns. However, it is nowhere declared that the goods on which credit has been taken is not intended for use in or in relation to the manufacture of excisable goods. Arrangements which the appellant had with VCL for the storage of the goods and its return as and when needed was never disclosed to the department. In these circumstances, the invocation of extended period of time for denial of credit is clearly sustainable in law. Whether the appellant is liable to penalty under Rule 15 or under 26 of the CENVAT Credit Rules, 2004 - Held that:- appellant even though had taken the credit wrongly, did not utilize the said credit at any point of time. This clearly shows that the appellant had no intention to evade any duty. Therefore, in the absence of any mens rea, it is difficult to sustain imposition of equivalent amount of penalty under Rule 15 read with Section 11AC on the appellant. Accordingly, we set aside the penalty imposed on the appellant under the said provisions of law. On the same ground we do not find any reason to impose penalty under Rule 26 of the Central Excise Rules, 2002 and therefore, the same is also set aside.
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2014 (2) TMI 544
MODVAT Credit Claim - whether the mistake committed by the assessee in not reflecting the quantum of credit in RG 23A part II register would disentitle them from the benefit of credit of duty paid on the inputs, especially when the entries has been made in RG 23A Part I record within six months - Held that:- Appellant received the imported inputs during the period 15.11.94 to 20.1.95 accompanied with Bills of Entry and duly recorded in their RG 23A Part -I register. There is a delay in taking the credit in the RG 23A Part - II register which they have done in the month of August and September 1995 - assessee received the inputs during the period May to September 1999 and credit was availed in March 2000. Appellants want us to interpret the rule to mean that the rule in question is not applicable in regard to credits acquired by a manufacturer prior to the coming into force of the rule. This we find it difficult because in our opinion the language of the proviso concerned is unambiguous. It specifically states that a manufacturer cannot take credit after six months from the date of issue of any of the documents specified in the first proviso to the said sub-rule. A plain reading of this sub-rule clearly shows that it applies to those cases where a manufacturer is seeking to take the credit after the introduction of the rule and to cases where the manufacturer is seeking to do so after a period of six months from the date when the manufacturer received the inputs. This sub-rule does not operate retrospectively in the sense it does not cancel the credits nor does it in any manner affect the rights of those persons who have already taken the credit before coming into force of the rule in question. It operates prospectively in regard to those manufacturers who seek to take credit after the coming into force of this rule - Therefore Tribunal was justified in holding that the rule in question only restricts a right of a manufacturer to take the credit beyond the stipulated period of six months under the rule - Following decision in COMMISSIONER OF CENTRAL EXCISE, CHENNAI-III Versus FORD INDIA LTD. [2013 (9) TMI 20 - CESTAT, CHENNAI] and Osram Surya (P) Ltd. Vs. CCE [2002 (5) TMI 49 - SUPREME COURT OF INDIA] - Decided in favour of assessee.
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2014 (2) TMI 543
Valuation of goods - extended period of limitation - Whether the cost of the pattern supplied by the customers is to be included in the assessable value of the finished product - Held that:- Purchase Order numbers were duly mentioned and the copies of Purchase Orders were also enclosed with the price list. A perusal of the Purchase Order clearly reveals that it contained details about the payment made for the tools and the same will be maintained by the Appellants in proper condition during the tenure of the Order and would be returned to the customers on demand or on completion of the Order. Larger period of limitation under Section 11A of the Act is not invokable when the assessee has furnished the copies of the contract for the sale of the computers and this contract showed the entitlement of the assessee to collect charges for maintenance during the warranty period. - demand of Excise duty for the extended period is set aside. The Adjudicating Authority will recompute the demand of duty, which is within the specified period of six months prior to the date of issue of show cause notice in terms of Larger Bench decision in the case of Mutual Industries Ltd. [2000 (3) TMI 74 - CEGAT, COURT NO. I, NEW DELHI] and such demand shall be payable by the Appellants - Decided in partly favour of assessee.
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2014 (2) TMI 542
Violation of principle of natural justice - Partial witness were examined - Though the process of cross examination was going on before the adjudicating authority during the period 2005-2006, the present impugned order stand passed by the Commissioner in the year 2011, without affording cross examination of the balance witnesses - Revenue contends that appellants have themselves dropped the cross examination of the remaining witnesses - Held that:- After conducting the personal hearing in December, 2005 and February, 2006, the matter was kept pending for a long period and was again taken up for adjudication in October, 2008, after a gap of around 3 years. During the said period, the Commissioner could have called the witnesses for cross examination and could have completed the adjudication process well within time instead of justifying his action, on the ground that it was the appellants themselves who dropped the cross examination request - Therefore, impugned order is set aside once again and the matter remanded to the Commissioner for affording the cross examination of the said 5 witnesses, whose address stand given by the appellant - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2014 (2) TMI 579
Assessment u/s 7A of the Tamil Nadu General Sales Tax Act - Levy of tax on purchase of edible oil - Held that:- where the goods does not suffer tax at the point of first sale for some reason or other, as per second proviso to Section 3(2), the said goods are brought under the net of taxation. The second proviso to Section 3(2) states that in the case of goods taxable at the point of first sale, the tax shall be payable at least once either by the first seller or by the second earliest of the successive dealers who is liable to tax under the section. This proviso does not shift the liability, but only the payability to tax. In the circumstances, this Court held that Section 7A of the Act stood attracted to cases of conditional exemption and there was no shift in the policy of taxation - edible oil sold to the assessee had enjoyed the exemption under the Government Order by reason of the sellers' turnover being below ₹ 300 crores limit and that the goods sold to the assessee was consumed in the manufacture of biscuits thus the edible oil is no longer available for further tax treatment as per proviso to Section 3(2), rightly the assessment was brought to tax under Section 7A of the Act. Given the object of introduction of Section 7A, to plug the leakage and to prevent evasion of tax, even though there is no 'evasion of tax' as such in the sense in which 'evasion' is understood - Decided against assessee.
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