TMI Tax Updates - e-Newsletter
February 19, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Highlights / Catch Notes
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Income Tax:
Taxability of surplus on sale of Development Rights – This is LTCG, but, does not entail any capital gain tax, as there was no cost involved with the assessee's CHS - AT
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Income Tax:
If the income of the assessee for the year under consideration is assessed u/s 144 of the act, that itself is no ground to disallow the setoff of earlier year losses, which the assessee otherwise entitled to claim as per law - AT
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Income Tax:
The cost of acquisition of 'BSE card' shall be the cost of acquisition of BSE shares and the shares are deemed to be acquired on the date of acquisition of 'BSE card' and not from the date of their conversion - AT
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Income Tax:
Since the assessee does not fulfill the conditions of the main provision of Section 2(1A)(c), the factum of the building being in the immediate vicinity of the land, by virtue of being constructed thereon, does not bring the income earned by the assessee within the ken of 'agricultural income' as defined in Section 2(1A)(c) - AT
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Income Tax:
Partnership Firm - the share in assets and goodwill are non-separable rights acquired at the time of admission by paying cost, the same is liable to tax under the provision of capital gain - AT
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Income Tax:
Valuation u/s 50C - AO is to recompute the gain after reducing the valuation arrived at by the DVO by 20 % or the actual sale consideration received by assessee, whichever is higher - AT
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Income Tax:
Deduction u/s 80P - No material could be brought before us to show that the assessee was a Co-operative Bank within the meaning of sub-section(4) of section 80P and not a Co-operative Credit Society - AT
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Income Tax:
Even if, a refund has already been granted the same would be subject to the provisions of section 234D - Explanation-2 to section 234D of the Act makes it clear that it would be applicable to pending proceedings - AT
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Income Tax:
Withdrawal from the reserve of a provision has to be deducted while computing book profits u/s 115 JB of the IT Act, as per the Section - AT
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Income Tax:
Merely because section 10(23C)(vi) of the Act provides for exemption of the income of an educational institution it does not follow that such institution cannot avail exemption u/s. 11 - AT
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Customs:
Legality of notice u/s 6 and Forfeiture of properties u/s 7 of Smugglers and Foreign Exchange Manipulators (Forefeiture of Property) Act, 1976 (SAFEMA) - The Act is not violative of Article 20 of the Constitution. - SC
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Customs:
Suspension of clearance of imported goods - Confiscation of goods - Infringement of Intellectual Property Rights - Dy. Commissioner of Customs to pass fresh orders giving ‘reasons to believe’ - HC
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Customs:
Constitutional validity of recovery of cost of Custodian Charges - Regulation 5(2) of Regulations, 2009 has no legal substratum to survive - HC
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Indian Laws:
Finance Bill, 2014 - To Prescribe Basic Rates of Income Tax
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Service Tax:
Levy of penalty where the appellant paid entire tax liability and interest - relief u/s 73(3) - unless there is a case of active suppression, provisions of Section 73 (3) should be extended. - AT
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Service Tax:
Natural justice - adjudicating authority failed to consider the submissions made by the appellants - Matter remanded back for fresh decision - revenue to bear cost of Rs. 10,000/- - AT
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Service Tax:
Service Tax on GTA - abatement of 75% vide Notification no. 32/2004 - 75% exemption as well as cenvat credit of service tax so paid allowed. - AT
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Service Tax:
Waiver of pre-deposit - Valuation - reimbursement of expenses - Servicing and repair of two wheeler motor vehicle as an authorized service station - from 2006-2007 to 2009-2010 - stay granted. - AT
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Service Tax:
Cenvat credit – The word “used” is used in the definition of “inputs“, “capital goods“ and “input service“ - The word is not used as past tense of “use“ but as past participle which is an adjective to the words in question. - AT
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Service Tax:
The activity or the action of service provider or not depositing the same in the Government Treasury will not bar the service recipient from taking Cenvat credit on the service tax paid, if eligible - AT
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Central Excise:
CENVAT Credit - Use of steel items for fabrication of tanks - If Jurisdictional Assistant Officer fails to verify the ER-1 return, extended period of limitation cannot be invoked - AT
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Central Excise:
Prior to 25-6-1999 the adjudicating authority could adjust the excess payments made at the time of provisional assessment towards short-payments arising at the time of final assessment - AT
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Central Excise:
Reversal of cenvat credit more than the credit availed on removal of inputs as such - appellant to deposit an amount of Rs.1,68,99,531/- in cash - stay denied. - AT
Articles
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2014 (2) TMI 688
Taxability of surplus on sale of Development Rights – Whether the receipt can be treated as capital receipt or not and non-taxable – Held that:- The decision in ACIT vs IGE India Ltd [2013 (12) TMI 235 - ITAT MUMBAI] followed –The TDR is embedded in the land for the purposes of additions made by the owner (or lessee) - The TDR in the form of additional FSI is negotiable by the owner to the buyer/developer only for prospective development - there is no element of cost to the owner – On reading of the various clauses of the development agreement, the sale of TDR was acquired on behalf of the developers and sold normally to the developers (as emerging from the Development Agreement) - This is LTCG, but, does not entail any capital gain tax, as there was no cost involved with the assessee's CHS – the order of the CIT(A) set aside and the AO is directed to delete the addition – Decided in favour of Assessee.
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2014 (2) TMI 687
Rejection of books of accounts – Assessement of income u/s 144 of the Act – Necessary details not provided – Held that:- Estimation of income made by the CIT(A) at the rate of 5% of the net profit on total sales is concerned, an estimation is quite reasonable – Relying upon C.Packirisamy vs. ACIT [2008 (12) TMI 190 - MADRAS HIGH COURT] - in case of Best judgment assessment, estimation of net profit at 5% of total sales is in accordance with the established principles – thus, there was no infirmity in the order of the CIT(A). Set off of losses – Held that:- The authorities have not given any finding as to why the earlier year losses should not be allowed to be set off against the income of the relevant assessment year and after set off if the net result is loss why not the same be allowed to be carried forward as per provisions of the Income Tax Act - If the income of the assessee for the year under consideration is assessed under section 144 of the act, that itself is no ground to disallow the setoff of earlier year losses, which the assessee otherwise entitled to claim as per law - the assessee is entitled to set off of loss of earlier years against the income directed by the CIT(A) to be estimated for the relevant assessment year - the assessee will be further entitled to carry forward if the resulting income will be negative – Decided partly in favour of Assessee.
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2014 (2) TMI 686
Disallowance of transaction charges u/s 40(a)(ia) of the Act – Held that:- The decision in Techno Shares & Stocks Ltd. v. CIT [2010 (9) TMI 6 - SUPREME COURT OF INDIA] and T.R.F. Ltd. v. CIT [2010 (2) TMI 211 - SUPREME COURT] followed – the transaction charges paid by the assessee to stock exchange constitute fees for technical services u/s. 194J of the Act - the assessee was liable to deduct tax at source while crediting the transaction charges to the account of stock exchange – there was no infirmity in the findings of CIT(A) for disallowing expenditure relating to transaction charges – Decided against Assessee. Calculation of Indexation benefit – Cost of Acquisition of shares – Held that:- As per the express provisions for determining the holding period of capital asset being equity shares allotted in pursuance to demutualisation or corporatisation of a recognised stock exchange in hand, the period for which the assessee was a member of the recognised stock exchange prior to such demutualisation or corporatisation shall also be included - the holding period of the asset is to be calculated from the acquisition of date of 'BSE card' and not from the date of conversion of 'BSE card' into equity shares - As per the section 55(2)(ab) of the Act, the cost of acquisition in relation to equity shares allotted to a shareholder under a scheme of demutualisation or corporatisation shall be the cost of acquisition of his original membership of the exchange - The cost of acquisition of 'BSE card' shall be the cost of acquisition of BSE shares and the shares are deemed to be acquired on the date of acquisition of 'BSE card' and not from the date of their conversion – thus, the date of holding/acquisition of an asset being equity shares allotted pursuant to demutualisation or corporatisation of a recognised stock exchange will be the date of acquisition of original 'BSE card' – thus, the enhancement of income made by the CIT(A) on this account is set aside – Decided in favour of Assessee.
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2014 (2) TMI 685
Jurisdiction u/s 263 of the Act – Held that:- Only if the Assessing Officer has taken a view patently unsustainable in law, that power u/s 263 can be exercised, where the taking of such an erroneous view results in loss of revenue, thereby satisfying the twin requisite conditions of erroneous assessment order and prejudicial to the interests of the revenue, for invocation of Section 263 of the Act. On the other hand, if the view taken by the Assessing Officer is a view possible in law, power u/s 263 of the Act cannot be exercised – Relying upon Malabar Industrial Company vs. CIT [2000 (2) TMI 10 - SUPREME Court] - unless the assessment order is erroneous, substitution of the judgement of the Commissioner for that of the Assessing Officer does not stand visualized under the provisions of Section 263 of the Act. Nature of Income – Income from letting out of godown – Whether the income to be assessable as income from house property or not – Held that:- The assessee's contention that the godown building stands constructed on agricultural land belonging to the partners of the assessee firm does not help him, since the full requirement of Proviso (i) to Section 2 (1A) (c) is not only of the building being in the immediate vicinity of the land, but also that the building is required by the receiver of the rent or the revenue, or the cultivator, or the receiver of the rent-in-kind, by reason of his connection with the land, as a dwelling house, or as a store-house, or other out-building - Proviso (i) is subservient to the main provision of Section 2 (1A) (c) and since the assessee does not fulfill the conditions of the main provision of Section 2(1A) (c), the factum of the building being in the immediate vicinity of the land, by virtue of being constructed thereon, does not bring the income earned by the assessee within the ken of 'agricultural income' as defined in Section 2 (1A) (c) - the explanation offered by the assessee before the Assessing Officer was accepted by the Assessing Officer without dealing with as to how such explanation was acceptable – thus, the grievance of the assessee is rejected and the action of the. CIT in holding the assessment order to be an erroneous order prejudicial to the interests of the revenue is confirmed – Decided against Assessee.
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2014 (2) TMI 684
Allowability to set off unabsorbed depreciation - Income from other sources – Held that:- The Commissioner of Income Tax(A) has held that the income received in the form of penalty/damages is not an income from business but the same is income from other sources - The finding of Commissioner of Income Tax(A) has attained finality - The CIT(A) has allowed set off of unabsorbed depreciation/business loss against the income from other sources and the balance unabsorbed depreciation/business loss have also to be allowed to be carried forward - The Commissioner of Income Tax(A) was right in holding that the income shown by the assessee as damages/penalty for non-execution of sale deed of land was income assessable under the head of income from other sources. The claim of the assessee for set off against this income for business loss/unabsorbed depreciation requires a thorough examination and verification at the end of Assessing Officer - the order is set aside and the issue of allowability of set off of income from other sources against business losses/unabsorbed depreciation is restored to the AO for examination – Decided in favour of Revenue.
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2014 (2) TMI 683
Deletion made u/s 80(2)(a)(i) of the Act – Scope of deduction - Held that:- Whether co-operative society providing credit facilities to its members covered in sub-section (4) of section 80P or not – Held that:- The assessee is in the business of providing credit facility to its member and accepting the deposits from the member - The decision in Commissioner of Income Tax Versus Jafari Momin Vikas Co-Op Credit Society Ltd. [2014 (2) TMI 28 - GUJARAT HIGH COURT] followed - the income of the assessee is eligible for deduction under Section 80P(2)(a)(i) since the only activity of the assessee is to provide credit facility to the members and therefore the interest earned from short term deposits is business income and is eligible for deduction under Section 80P(2)(a)(i) and no portion thereof can be taxed under Section 56 as income from other sources – Decided against Revenue. Disallowance made on account of doubtful debt – Held that:- The decision in M/s. Vijaya Bank Versus Commissioner of Income Tax & Anr. [2010 (4) TMI 46 - SUPREME COURT] followed - Disallowance was made on account of doubtful debt and to that extent assessee-bank income increased - the additions were made on account of building funds had been debited in the assessee’s income generated from providing credit facility to its members – thus, it is equally eligible for deduction u/s. 80P thus were allowed the appeal of the assessee – Decided in favour of Assessee.
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2014 (2) TMI 682
Transfer pricing adjustment - Selection of comparables – Held that:- The data available in the public domain leading to the conclusion that ICC International Agencies was operating in unique circumstances during the period under consideration prima facie requires be considered and verified - it cannot be outrightly rejected taking a specious plea that the comparable was proposed by the assessee itself - the data for two years prior to the year in which transaction took place can be considered if it is revealed that these facts could have an influence on the determination of transfer prices in relation to the transactions being compared - sub-Rule (3)(i) requires a certain degree of comparability vis-à-vis the differences remaining and clause (d) of sub-Rule (2) of Rule 10B amongst others mandate that conditions prevailing in the market include amongst others criteria a consideration of laws and Government orders is force at the relevant point of time. The assessee cannot be barred from pleading for the exclusion of a comparable when it pleads the existence of extra-ordinary circumstances - The existence of such a fact would make a specific period creating extraordinary circumstances in the case of a functional comparable an incomparable - only like can be compared with like and once the existence of unique circumstances is raised by a party even if the comparable was proposed by the said party itself if the party based on information subsequently available in the public domain, is able to show the existence of unique circumstances – thus, there is nothing in law which bars the assessee to move the authorities or the Appellate Forums to look into and seek an adjudication on the issue. A comparable can be taken as a comparable purely and simply only for the reason that it is a comparable and alternately it most definitely cannot be "declared" to be a comparable only on the ground that it has been offered as a comparable by a party to the proceedings ignoring the arguments that it was offered on a mistaken belief of law and facts – there was no statutory or legal impediment in the stand of the assessee as to why the said comparable should not be excluded and also do not see any reason as to why the assessee be saddled with the said comparable – thus, the matter remitted back to the TPO for excluding the comparable after allowing the assessee to lay evidence in support of its claim. Power of making further enquiry u/s 144C of the Act – Refusal to consider the additional evidences - Identification of New comparables - Held that:- The assessee is not barred even at the Appellate stage before the CIT(A) to seek permission to produce additional evidence which the Rules mandate can be admitted on the fulfillment of the conditions set out in clauses (a) to (d) in sub-rule (1) of Rule 46A - The First Appellate Authority while admitting additional evidence is required to pass an order in writing recording the reasons for admitting the evidence as per sub-rule (2) of Rule 46A and thereafter by sub-rule (3) is required to confront the same to the AO - The reason for inclusion of the four additional comparables has been stated to be that the names of the four comparable coming up on applying the changed search criteria of the TPO to the updated data available in the public domain - the procedure has implicitly been followed as the Remand Report has been obtained - The mere argument that a comparable has been accepted in some year is not sufficient by itself to warrant an inclusion of such comparable – thus, the assessee is directed to address the 4 comparables it seeks to be included backed by segmental data including specific facts and information to support its claim instead of merely reiterating for the inclusion of the 4 comparables stated to be thrown up applying the search criteria of the TPO – Decided partly in favour of Assessee.
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2014 (2) TMI 681
Deduction u/s 80P(2)(a)(i) of the Act – Applicability of Sec.80P(4) of the Act – Held that:-CIT(A) was of the view that the provisions of section 80P(4) has got its application only to cooperative banks - Section 80P(4) does not define the word “cooperative society”. -The existing sub-section 80P(2)(a)(i) shall be applicable to a cooperative society carrying on credit facility to its members -This view is also clarified by Central Board of Direct Tax vide its clarification No.133/06/2007-TPL dated 9th May, 2007 - Subsection( 4) of section 80P will not apply to an assessee which is not a co-operative bank - Circular clarified that the entity not being a cooperative bank, section 80P(4) of the Act would not apply to it - the Revenue’s contention cannot be entertained that section 80P(4) would exclude not only the cooperative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks - assessee is not a credit co-operative bank but a credit cooperative society - Exclusion clause of sub-section(4) of section 80P would not apply – Decided against Revenue.
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2014 (2) TMI 680
Disallowance of deduction u/s 80IA of the Act – Income derived from business of civil contracts - Held that:- The decision in M/s. Sushee Infra Pvt. Ltd. (Formerly Sushee Hi Tech Constructions Pvt. Ltd. Versus Dy. Commissioner of Income-tax [2013 (6) TMI 599 - ITAT HYDERABAD] followed - where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80 IA of the Act - the assessee has carried out the development of infrastructure work in Consortium and not as a subcontractor, then also the assessee is entitled for deduction u/s 80IA of the Act - The orders of the Commissioners (Appeal) modified for both the years under appeal - and the AO is directed to allow the claims of the assessee with regard to deduction under S.80IA of the Act in respect of execution of civil contracts on own account – Decided in favour of Assessee.
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2014 (2) TMI 679
Chargeability of amounts – Amount received from other continuing partners – Share in partnership – Held that:- Assessee contended that there are separate rights and the right to share in partnership (goodwill) is separate for which no cost was paid and provisions of section 55(2)(b) are not applicable as it is a professional firm - The decision in A.R. Krishnamurthy vs. CIT [1989 (2) TMI 2 - SUPREME Court] followed - The determination of the cost of the right to excavate clay in the land in terms of money may be difficult but was nonetheless of a money value and the best valuation possible must be made - Once the cost of the leasehold rights was determined then there was no difficulty in making apportionment - The value of leasehold rights in the cost of acquisition of land being determinable, the computation provisions under the Act were applicable and section 45 would be attracted - The computation made by AO is approved for taxing the amounts received from the other three continuing partners by the retired partner (assessee ) – thus, there is no need to consider the alternate contentions that provision of section 55(2b) are not applicable - the facts indicate that the share in assets and goodwill are non-separable rights acquired at the time of admission by paying cost, the same is liable to tax under the provision of capital gain – Decided against Assessee. Error in computation of Capital gain – Held that:- On examination of computation of income, assessee’s contention is found to be correct - Assessee offered short term capital gain on transfer of receipts in share of assets of partnership - Assessing Officer included the consideration received again in his working while determining the capital gains on both rights of share in asset/goodwill - Thereafter, the capital gain offered was again brought to tax (as per statement) - Thus, the amount was brought to tax twice – thus, the AO is directed to exclude the amount at the time of passing order – Decided in favour of Assessee.
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2014 (2) TMI 678
Computation of capital gains as per Section 50C of the Act - Legality of reference made by the Assessing Officer u/s 55A to the DVO – Held that:- As per provisions of Section 55A when the Assessing Officer finds that value of the asset as claimed by assessee is at a variance with its fair market value, with a view to ascertain the fair market value of a capital asset for the purpose of computing capital gains under Chapter IV of Income-tax Act, 1961, the Assessing Officer may refer the valuation of capital asset to a DVO. Since Assessing Officer, was computing capital gains, issue of commission u/s 131(1)(d) to the DVO for ascertaining the fair market value u/s 55A was justified - Thus, there was no infirmity for the reference made to Valuation Officer u/s 55A for ascertaining the fair market value of the property. Correctness of Valuation arrived at by DVO – Held that:- The question of correctness of valuation by DVO, is a purely question of fact - In a reference made u/s 55A, the DVO has to estimate/determine fair market value of assets as on the date of transfer - Such estimation of fair market value depends on the advantage/disallowance-advantages attached with the property - since the valuation arrived at by Stamp Duty Authority was excessive, the Assessing Officer has made a reference to the Valuation Officer u/s 55A for ascertaining/estimating the fair market value as on the date of transfer - On the basis of such estimation/value arrived at by the DVO, the capital gain on transfer of property is being ascertained - All the factors are having definite bearing on the fair market value of land - By taking all these adverse factors into consideration, the approved valuer had valued the land as against value arrived at by the DVO - no defect was pointed out by any of the lower authorities in the valuation so arrived at by the approved valuer – the AO is to recompute the gain after reducing the valuation arrived at by the DVO by 20 % or the actual sale consideration received by assessee, whichever is higher – Decided partly in favour of Assessee.
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2014 (2) TMI 677
Allowability of deduction u/s 80IA(4) of the Act – Held that:- Once the Tribunal has set aside the orders impugned in the appeals before it on the issue and restored the matter to the file of the Assessing Officer with the above findings, the duty of Assessing Officer is to pass orders giving effect to the order of the Tribunal - The findings of the Tribunal are unambiguous, clear and categorical in as much as it has specifically directed that the assessee should not be denied deduction u/s S.80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract - the contracts which contain the above features to be segregated and on this deduction u/s. 80IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitled for deduction u/s. 80IA of the Act - The order of Tribunal is binding on the Assessing Officer and he cannot pick up a word or sentence from the order of the Tribunal de hors the context of the question under consideration and construe it to be complete law declared by the Tribunal - A judgment must be read as a whole. Recall of order u/s 254 of the Act - Rectification of mistake apparent on the record - Held that:- If the assessee is aggrieved, may give rise to first appellate proceedings there against or further appellate proceedings by the assessee - the grievance of the assessee on account of alleged mistakes in such consequential orders, either on account of interpretational differences or even on account of disrespect/disregard to the directions of the Tribunal, shall not vest any power or jurisdiction back with the Tribunal, to oversee the correctness of the correctness of the consequential orders passed, much less, to give directions to revise or rectify the same, even if there is any mistake in the same - In the absence of any specific mistake which warrants any rectification within the scope of the provisions of S.254(2) of the Act, in the order of the Tribunal – there is no reason to rectify the earlier order – Decided against Assessee.
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2014 (2) TMI 676
Nature of Assessee - Whether the assessee is a Co-operative Bank OR Primary Agricultural Credit Society – Deduction u/s 80P of the Act claimed – Held that:- Section 80P(4) has got its application only to cooperative banks - Section 80P(4) does not define the word 'Cooperative Society' - The existing sub section 80P(2)(a)(i) shall be applicable to cooperative society carrying on credit facility to its members – CIT(A) held that new sub-section(4) was brought into the statute for prohibiting deduction to Co-operative Banks only and not to Co-operative Credit Societies - The revenue could not point out any specific error in the order of the ld. CIT(A) - No material could be brought before us to show that the assessee was a Co-operative Bank within the meaning of sub-section(4) of section 80P and not a Co-operative Credit Society - No material was brought before us to show that the provision of accepting nominal members was not in accordance with the Cooperative Societies Act or Rules or the persons who were made nominal members were, in fact, not the members of the assessee-society – thus, there is no reason to interfere with the order of the CIT(A) – Decided against Revenue.
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2014 (2) TMI 675
Deletion made on account of delayed payment – Payment to ESI and PF and superannuation fund u/s 43B of the Act – Held that:- The amounts were paid before the due date of filing of return for the assessment year under consideration – Relying upon C.I.T. vs. Vinay Cement Ltd. [2007 (3) TMI 346 - Supreme Court of India] - due date for payment of contribution towards superannuation fund relating to the financial year could only fall in the immediately following financial year - The amount of contribution towards superannuation funds gets qualified / crystalised only after the salary of the last month of the financial year has been paid, just on or after 31st March of that financial year and due date for payment of such contribution can only be after and not before the 31st March of the financial year – thus, the findings of the CIT(A) accepted that the balance amount being superannuation fund was within the due date and the disallowance of the same u/s. 43B of the Act was not warranted - Decided against Revenue. Deletion made towards installation of plant – Held that:- The assessee has incurred the expenses on the replacement of heavy duty internal mixer and reduction gear box – the Assessing Officer has not made out the case that the expenditure in question has resulted in bringing into the existence any independent capital asset nor the same has in any way enhanced the capacity / efficiency of the machines – Relying upon COMMISSIONER OF INCOME-TAX Versus SARAVANA SPINNING MILLS P. LTD. [2007 (8) TMI 16 - SUPREME COURT OF INDIA] - since the items in question are part and parcel of Banbury mixture and 3 Roll Calendar respectively, the same would fall within the meaning of current repairs only – the expenditure has been incurred by the assessee on Banberry mixtures etc. in the earlier years also - it is a running expenses incurred to keep the machine in running condition - Thus, the disallowance of expenditure in the relevant previous year is not sustainable even on the ground of consistency – the order of the CIT(A) upheld – Decided against Revenue. Disallowance of prior period expenses – Electricity and Water Charges - Held that:- The CIT(A) is correct in holding that assessee has not accepted the said liability in as much as representation has been made before the Power Ministry – thus, it cannot be said that the amount has become ascertained liability - payment / adjustment was made during the assessment year under consideration - Therefore, the same should be allowed as deduction - the Assessing Officer is directed for examination - Decided in favour of Assessee. Exgratia payment – Held that:- The assessee claim that the expenditure in this regard should be allowed in the current assessment year cannot be sustained as it is the duty of the assessee to satisfy the primary requirement of law that the expenditure claimed under the head ‘prior period’ expenses was actually laid down or expended wholly and exclusively for the purposes of the business and furthermore, the same has been incurred and got crystallized only in the year under consideration – thus, there is no infirmity in the order of the authorities - Decided against Assessee. Disallowance of interest u/s 37(1) of the Act - Interest paid on late payment of purchase tax and sales tax - Held that:- The CIT(A) has disallowed the sum on the ground that assessee has not submitted necessary details / evidence in this regard - assessee has contended that this amount was allowable – but, the assessee has not submitted any detail in this regard – also he claimed that the interest paid by the assessee was compensatory and not penal in nature there was no infirmity in the order of the CIT(A) - Decided against Assessee. Disallowance of loan procurement charges – Held that:- The Assessing Officer and Ld. Commissioner of Income Tax (A) had noted that assessee has not submitted any detail/ supporting with respect to this expenditure – the claim of the assessee is not supported with any credible or tangible evidence - There is no information as to the immediate requirement of the funds, if any, borrowed and services rendered by these parties in arranging the funds in question - since the assessee has failed to submit the proper evidence in this regard – there was no Infirmity in the order of the CIT(A) – Decided against Assessee. Disallowance of interest free loan – Loan advanced to group companies – Held that:- There is no fresh loan or advance made by the assessee to M/s Modi Stone Ltd. during the relevant previous year - The advance was made in the earlier period - Assessee had business relationship with Modi Stone Ltd. In such situation, there is cogency in the submissions of the assessee that there was commercial expediency involved in advancing the loan in this regard – Relying upon SA Builders Ltd. vs. C.I.T. [2006 (12) TMI 82 - SUPREME COURT] - in the absence of one to one nexus between borrowed funds and loan advance to Modi Stone Ltd., the presumption in law is that the loan to Modi Stone Ltd. should be presumed to have come out of own funds – thus, the order of the CIT(A) set aside- Decided in favour of Assessee.
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2014 (2) TMI 674
Taxability of offshore design revenues – Fees for Technical Services - Revenue earned by the head office – Held that:- The assessee has categorically stated that the Permanent Establishment has no role in earning the Fees for Technical Services/royalty in question. Having said so that the Permanent Establishment of the assessee has no role in earning of the income from Fees for Technical Services under offshore design contract then the exclusion clause under Article 12(5) of Indo-Japan treaty shall not be attracted and consequently the provisions of Article 12 relating to Fees for Technical Services will be applicable - The authorities have not considered the relevant provisions of DTAA and particularly Article 12 of Indo-Japan treaty in the light of the terms and conditions of the contract in question to arrive at the finding that the income in question is taxable in India even under Indo-Japan DTAA – thus, the matter is remitted back to the AO for examining the provisions of Article 12 of Indo-Japan DTAA. Rate of Tax – Held that:- The decision in Dy. Commissioner of Income Tax Versus M/s Toyo Engineering Corporation [2009 (12) TMI 852 - ITAT MUMBAI] Followed - the AO was right in applying tax rate of 48% as per the Act instead of 35% as claimed by the assessee invoking provisions of Article 24 of Indian Japan treaty – Decided against Assessee. Denial of exemption u/s 10(6A) of the Act – Held that:- The decision in Dy. Commissioner of Income Tax Versus M/s Toyo Engineering Corporation[2009 (12) TMI 852 - ITAT MUMBAI] Followed - The tax on income derived by the foreign company, if it is payable under the terms of the agreement by the Government or the Indian concern, the tax so paid cannot form part of total income - Section 10(6A) clearly lays down the tax paid or payable, under such circumstances is exempt u/s 10(6A) - Once an amount has been paid as tax to the Central Government on behalf of a foreign company, by the Indian concern in terms of an agreement covered in clause (a) and clause (b) of section 10(6A), such payment cannot be treated as income – Decided in favour of Assessee. Levy of Interest u/s 234D of the Act – Held that:- The decision in Commissioner of Income Tax Versus M/s. Indian Oil Corporation Ltd. [2012 (9) TMI 517 - BOMBAY HIGH COURT] followed - As there was no provision of interest on the grant of refund under Section 143(1) it became necessary to provide for the same by having a charging provision - This was done by section 234D in respect of all pending assessments in which refund was given - even if, a refund has already been granted the same would be subject to the provisions of section 234D - The refund which has been granted under section 143(1) of the Act is provisional, to be finally determined when final assessment order is passed under section 143(3) of the Act - Explanation-2 to section 234D of the Act makes it clear that it would be applicable to pending proceedings - Decided in favour of Assessee .
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2014 (2) TMI 673
Power of the TPO to determine ALP u/s 92C of the Act – Held that:- The TPO is empowered only to determine the ALP as per the provisions u/s. 92C by applying any one of the methods stipulated in sub section (1) of Sec.92C and by applying the most appropriate method - The decision in LG Polymers India (P.) Ltd. Versus Additional Commissioner of Income-tax, Range-3 [2011 (9) TMI 259 - ITAT VISAKHAPATNAM] followed - TPO is not empowered to hold the transaction as sham transaction - He has jurisdiction to decide a method and arrive at the ALP and nothing more – thus, the order of the TPO is quashed – Decided in favour of Assessee. Validity of reopening of assessment u/s 147 of the Act – Held that:- The reopening was beyond 4 years from the end of the assessment year in appeal and the assessment under sec. 143(3) has been made, the Assessing Officer while recording the reasons for reopening should indicate what the assessee has omitted to furnish at the time of original proceedings which resulted in escapement of income - The TPO has passed an order on 23.10.2009 for the assessment year 2004-2005 and applied the same criteria for the purpose of determining the arms length price - the Assessing Officer should have given further opportunity to the assessee to provide necessary clarifications and replies so that the assessment can be completed under section 143(3) read with section 147 and not section 144 of the Act. Relying upon CIT v. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] – re-assessment beyond four years is a condition precedent i.e., failure to disclose material facts necessary for assessment by the assessee - When the assessee made full disclosure and the A.O. examined the issue by raising queries, the assessment cannot be reopened - the information that payment was made to a non-resident partner was available before the Assessing Officer and at the time of completion of regular assessment, a reference was not made to the TPO and consequently, the said amount was disallowed by applying the provisions of section 40(a)(i) of the I.T. Act – thus, there is no escapement of income or non-furnishing of any particulars by the assessee – thus, the AO is not justified in initiating the proceedings under section 147 of the I.T. Act – Decided in favour of Assessee.
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2014 (2) TMI 672
Disallowance of depreciation – Held that:- The decision in Deputy Commissioner of Income Tax, Circle-11 (1), New Delhi. Versus M/s Escorts Finance Ltd. [2012 (9) TMI 473 - ITAT, DELHI] followed -assessee was claiming depreciation on old vehicles only which were already let out on hire and on which the assessee had already been allowed depreciation @ 40% - vehicles owned by a non-banking finance company leased to third party are eligible for higher rate of depreciation @ 40% - thus, the assessee was rightly eligible for depreciation at higher rate – Decided in favour of Assessee. Treatment of capital loss – Speculation loss as per Explanation to Section 73 of the IT Act OR not – Held that:- The decision in Deputy Commissioner of Income Tax, Circle-11 (1), New Delhi. Versus M/s Escorts Finance Ltd. [2012 (9) TMI 473 - ITAT, DELHI] followed - Explanation to Section 73 does not apply to investments in Govt. Securities, and also the fact recorded by the CIT (A) that the assessee is not in the business of trading in share and has incurred a loss on its investment - the actions of the AO in invoking Explanation to Section 73 is wrong – Decided against Revenue. Disallowance u/s 14A of the Act – Held that:- The decision in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - Delhi High Court] followed – the matter remitted back and the AO is directed for fresh adjudication – Decided in favour of Revenue. Deletion made on account of reversal of income charged to P&L A/c – Held that:- The assessee has recognized the income in the earlier assessment years - it is not the case of recognizing current year income - the parties accounts would have been debited, increasing the balance in the debtor account to the extent of interest accrued but not received - Reversal of such income, which is already accounted as income in the earlier assessment year would be possible only by, part write off the debts - The accounting entries and treatment in the books have to be considered and it has to be seen whether there is part write off of debts in the books of accounts - Verification of facts is required – Matter remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Disallowances of calculation of book profit u/s 115JB of the Act – Held that:- The assessee company while preparing the computation of income added back the provision - In the current A.Y. 2008-09 a part of this provision for doubtful advances was written back to the profit & loss a/c on the ground that the provision in question is no longer required - Such withdrawal from the reserve of a provision has to be deducted while computing book profits u/s 115 JB of the IT Act, as per the Section - there was no infirmity in the order of the first appellate authority – Decided against Revenue.
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2014 (2) TMI 671
Disallowance u/s 14A of the Act r.w. Rule 8D of the Rules – Exemption claimed u/s 10(34) of the Act - Dividend income earned – Held that:- The decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Rule 8D cannot be invoked for assessment year 2006-07 - Rule 8D cannot be invoked for this assessment year and only a reasonable amount can be considered for disallowance for earning exempt income. As seen from the reserves and profits assessee has more funds than investments, so disallowance of interest without establishing nexus does not arise. Considering that assessee has earned dividend income of Rs.12.06 crores, 1% of the amount can be considered as reasonable – thus, 1% of the dividend earned can be considered as reasonable amount for disallowance under section 14A on the given facts – Decided partly in favour of Assessee. Disallowance of deduction u/s 40(a)(ib) of the Act - STT paid on behalf of assessee – Held that:- The decision in IL & FS Investsmart Ltd. Versus Addl. CIT & DCIT[2014 (2) TMI 254 - ITAT MUMBAI] followed – there was some force in the contention of the Counsel for the assessee so far as the treatment of brokerage inclusive of STT is concerned – thus, the matter is remitted back to the AO for fresh adjudication. Disallowance of bad debts – Held that:- The decision in CIT Vs. Shreyas S. Morakhia [2012 (3) TMI 103 - BOMBAY HIGH COURT] followed - , in the business of share broking, the amount payable by the clients are also considered as 'amount taken into account' – the AO is directed to allow the amount as bad debts - Decided in favour of Assessee. Entrance fee paid to club – Held that:- The decision in CIT vs. Samtel Color Ltd [2009 (1) TMI 26 - DELHI HIGH COURT] followed - admission fee paid towards corporate membership was an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account as it facilitated the smooth and efficient running of a business and did not add to the profit earning apparatus of a business enterprise - thus, the AO is directed to allow the amount as expenditure u/s 37(1) - Decided in favour of Assessee. Amount paid to stock exchange – Disallowance of Penalty - Held that:- The decision in IL & FS Investsmart Ltd. Versus Addl. CIT & DCIT[2014 (2) TMI 254 - ITAT MUMBAI] followed - The penalty was on account of irregularities committed by the assessee's clients - the capital market regulations of the stock exchanges were in the nature of indoor management governing relations between the member and the stock exchange and not an offence punishable by the statute - the CIT(A) has rightly deleted the addition – the order of the CIT(A) upheld – Decided against Revenue. Calculation of Interest u/s 234B of the Act – Held that:- The levy of interest u/s. 234B is mandatory as Decided in CIT vs Anjum M H Ghaswala [2001 (10) TMI 4 - SUPREME Court] and is to be calculated on the assessed income - levy of interest u/s 234B is compensatory in nature and is chargeable not-withstanding the fact that default is bonafide - No discretion can be exercised in matter of levy of interest u/s 234B – thus, exclusion of the amount as considered by the CIT(A) is not according to the provisions of law – the order of the CIT(A) modified and AO is directed to levy interest u/s. 234B, if applicable – Decided partly in favour of Revenue.
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2014 (2) TMI 670
Eligibility for exemption u/s 11 of the Act – Approval u/s 10(23C) of the Act not granted – Held that:- The appellant would be eligible for the claim of exemption u/s 11, even if the conditions u/s 10(23C)(vi) had not been complied with, subject to the fulfilment of the conditions u/s 11 to 13 – there is no finding of any charging of donation etc. in the case of the appellant by the Assessing Officer, the Assessing Officer is directed to verify this aspect while giving effect to this order - Relying upon Assessment. Director of IT (E), III, Hyderabad Versus M/s Vasavi Academy of Education [2010 (2) TMI 970 - ITAT HYDERABAD] - The institutions falling u/s. 10(23C)(vi) are eligible for exemption u/s. 11 also - Merely because section 10(23C)(vi) of the Act provides for exemption of the income of an educational institution it does not follow that such institution cannot avail exemption u/s. 11 subject to fulfilment of the conditions laid down. Whether the approval under sub-section (vi) to section 10(23C) is distinct from registration u/s 12A of the IT Act – Held that:- It is mandatory on the part of the assessee in terms of section 11(4A) of the Act to maintain separate set of books of account for letting out of function hall - The assessee taken a plea that the assessee has maintained separate books of account - if the assessee maintained separate books of account for letting out the function hall it has to be produced before the Assessing Officer - assessee had collected money over and above prescribed by concerned authority for admission of student, such an amount was to be classified as capitation fee and it could be said that assessee's case was a clear case of sale of education by assessee – thus, it could not be considered as charitable institution under section 2(15) of the Act because the purpose of the organisation as a whole was to make profit - The issue remitted back to the AO to consider the entire facts and verify the records whether the assessee collected capitation fees from students for the purpose of giving admission – Decided partly in favour of Revenue.
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Customs
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2014 (2) TMI 715
Legality of notice u/s 6 and Forfeiture of properties u/s 7 of Smugglers and Foreign Exchange Manipulators (Forefeiture of Property) Act, 1976 (SAFEMA) - Violation of principle of natural justice - Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (hereinafter referred to as the “COFEPOSA”) - Reasons were not communicated to the appellant - whether such forfeiture violated Article 20 of the Constitution of India - Held that:- there is no express statutory requirement to communicate the reasons which led to the issuance of notice under Section 6 of the Act. - the reasons, though not initially supplied alongwith the notice dated 4.3.1977, were subsequently supplied thereby enabling the appellant to effectively meet the case of the respondents. - an order of forfeiture is an appealable order where the correctness of the decision under Section 7 to forfeit the properties could be examined. - Decided against the appellant. Forfeiture of “illegally acquired property” - The submission of the appellant is that since the Act provides for a forfeiture of the property of the appellant on the ground that the appellant was detained under the COFEPOSA, the proposed forfeiture is nothing but a penalty within the meaning of the expression under Article 20 of the Constitution - Held that:- the properties of persons belonging to any one of the said five categories only could be forfeited under the Act. Even with reference to the properties held by any one falling under any of the abovementioned five categories, their entire property cannot be forfeited except the property which is determined to be illegally acquired property as defined under section 3(c) of the Act. Of all the five categories of persons to whom the Act is made applicable, only one category specified under section 2(2)(a) happens to be of persons who are found guilty of an offence under one of the enactments mentioned therein and convicted. The other four categories of persons to whom the Act is applicable are persons unconnected with any crime or conviction under any law while the category of persons falling under section 2(2)(b) are persons who are believed by the State to be violators of law. Article 20 would have no application for the reason, conviction is only a factor by which the Parliament chose to identify the persons to whom the Act be made applicable. The Act does not provide for the confiscation of the properties of all the convicts falling under Section 2(2)(a) or detenues falling under Section 2(2)(b). Section 6 of the Act authorises the competent authority to initiate proceedings of forfeiture only if it has reasons to believe (such reasons for belief are required to be recorded in writing) that all or some of the properties of the persons to whom the Act is applicable are illegally acquired properties. The conviction or the preventive detention contemplated under Section 2 is not the basis or cause of the confiscation but the factual basis for a rebuttable presumption to enable the State to initiate proceedings to examine whether the properties held by such persons are illegally acquired properties. It is notorious that people carrying on activities such as smuggling to make money are very clandestine in their activity. The Act is not violative of Article 20 of the Constitution. Even otherwise as was rightly pointed out by the learned Addl. Solicitor General, in view of its inclusion in the IXth Schedule, the Act is immune from attack on the ground that it violates any of the rights guaranteed under Part III of the Constitution by virtue of the declaration under Article 31-B. Except challenging the order of forfeiture on the two legal grounds discussed earlier in this judgement, there is no other ground on which correctness of the order of forfeiture is assailed in the writ petition. For the first time in this appeal, an attempt is made to argue that the conclusions drawn by the competent authority that the properties forfeited are illegally acquired - is not justified on an appropriate appreciation of defence of the appellant. In other words, the appellant seeks reappreciation of the evidence without even an appropriate pleading in the writ petition. It is a different matter that the High Court in exercise of its writ jurisdiction does not normally reappreciate evidence - Decided against assessee.
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2014 (2) TMI 703
Suspension of clearance of imported goods - Confiscation of goods - Infringement of Intellectual Property Rights - After the suspension, the Customs Authorities allow a right holder and the importer or their duly authorized representative to examine the goods, supply the information to the right holder as well as the importer and determine as to whether the goods are infringing the Intellectual Property Rights of the right holder - Held that:- in the absence of judicial pronouncement, in the case of patent violation, the determination is to be done by the authority stipulated in Rule 7 though with extreme caution. What can be deduced therefrom that while exercising this extreme caution, the competent authority would in a simple case of violation may determine whether there is a violation or not and pass necessary orders under Rule 7 and other IPR Rules. However, in case the competent authority is of the opinion that the case involves serious complexity and such a determination as to whether there is an infringement or not, is not possible, the competent authority has the discretion to relegate the parties to civil proceedings. This according to us is the interpretation which is to be given to the Rules read with the aforesaid [Circular] dated 29-10-2007. Otherwise, the said Notification cannot be read in the manner which totally annihilates or supplant a particular provision of the Rules. on the facts of this case the learned Single Judge has rightly held that the aforesaid order does not disclose on what basis the Dy. Commissioner had entertained the “reason to believe” that the goods in question infringed the patent claimed by the appellant herein - order of the Dy. Commissioner dated 30-3-2011 does not show any application of mind, we sustain the order of the learned single judge. However, we set aside that portion of the direction contained in the impugned order dated 19-12-2009 whereby the appellant was directed to approach the competent Court to assert its claim to patent and, on that basis, seek injunction against release of the consignment of the Respondent No. 4 herein. Instead, the aforesaid direction is substituted by the direction to the Dy. Commissioner of Customs to pass fresh orders giving ‘reasons to believe’. In case he comes to the conclusion that the imported goods are suspected to be goods infringing patent rights of the appellant herein, before passing such order, the Dy. Commissioner of Customs shall give fresh hearing to both the parties. It would be open to the respondent to argue that the matter is complex and it may not be possible/feasible for the competent authority to come to any such prima facie conclusion for ‘reason to believe’. The competent authority shall deal with such a contention, if raised, and thereafter may either pass an order suspending the clearance of goods giving specific and clear ‘reason to believe’ that goods in question infringed the patents claimed by the appellant or else it would be within its discretion to direct the appellant to approach the competent Court to assert its claim to patent - Decided partly in favour of assessee.
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2014 (2) TMI 702
Constitutional validity of recovery of cost of Custodian Charges - Regulation 5(2) of Regulations, 2009 - Petitioner has asserts that the cost component of the customs officials salary bill is not collected from the cargo operators at other airports namely Delhi, Mumbai, Chennai, Trivandrum, Ahmedabad and Cochin Airports - Liability of the custodian appointed in terms of Section 45 of the Customs Act, 1962, to pay for this cost recovery - Held that:- Payment of one-time fee for appointment as a customs airport or for recognizing a person as a custodian of goods in a customs area is different from obligating such a person to pay regularly for the costs of the customs officers posted at the customs port or customs airport. Both are not the same - The concept of cost recovery is generally associated with the service rendered by a person or a set of persons or a public organization to another, which service is not otherwise liable to be provided. Assuming that what is levied is not a tax but a fee, it would be imperative to notice that a fee is a charge for special services rendered to individuals or organizations by some governmental agency or the other and such a charge has an element of quid pro quo ingrinded into it. It is true, that there is no grave distinction between a tax and a fee since both are compulsory exactions of money by public authorities. However, it will be appropriate to bear in mind that a tax is imposed as part of the scheme to garner revenue by the State or public authority for purposes of expending it to achieve and implement public purposes. Consequently, a tax is seldom supported by any considerations. With the expansion or advent of quality infrastructural inputs such as roads, highways network, etc., rapid industrialization and manifold increase of commercial activities can be expected as the most inevitable corollary. Industrialization and increased commercial activities can lead to increase of import and export activity. Both imports and exports of goods are subject to levy of duty. Thus, in the process, the State’s revenue gets augmented, apart from increased economic activity and development of human resources. The increase in the quantum of imports and exports therefore has a direct proportionate impact upon the revenue garnering and overall development. It is purely incidental, that the custodian may in turn earn some revenue for himself by charging the importer or exporter for facilities provided by him for smooth and eventual clearance of goods by the customs. That is of least importance in the matter of collection of customs duty by the State. I am therefore clearly of the view that, no services are being specially provided by the customs officials to the custodians at a customs port or customs airport, to enable them to collect any fee, from such a custodian. “Cost Recovery” of the salaries and allowances paid to the customs officials is only a dignified form of collection of a fee. Since, no services are specially or generally provided to the custodian, no such fees is liable to be charged. Clearing the international passengers or goods, imported or meant for export is a sovereign function of the State. For purposes of effective and efficient discharge of these functions, the custodian is required to provide the necessary infrastructural facilities. Sans such facilities, the customs clearance duties become imminently impaired. Therefore, while a demand for making available standard infrastructural facilities for facilitating efficient discharge of customs clearance functions is legitimate, but however, demand of reimbursement of cost recovery is totally unjust. When the State directly pays to its employees, the State in turn expects absolute integrity and loyalty from such employees. In the case of employment between the State and its servants, it is appropriate to bear in mind that it is not regulated purely by contractual terms or by general conditions which are otherwise part of any master and servant relationship. There is a status conferred by the State upon its employees. By virtue of this status, it undertakes to protect them from undeserved and undesirable wants. Therefore, a provision is made in the budgetary proposals annually towards the head of their salaries and pensions - Regulation 5(2) of Regulations, 2009 has no legal substratum to survive and accordingly the consequential levy made on the petitioner by the respondents towards cost recovery charges is wholly unsustainable - Decided in favour of petitioner.
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2014 (2) TMI 701
Confiscation of goods - release of goods - Tribunal had stayed the order of the Commissioner on condition that the petitioner has to pay a sum of Rs. 3 lakhs - Sum already paid by assessee - However, the petition filed to release the goods has been dismissed by the second-respondent Tribunal; since the goods have been lying for a period of three years - Held that:- only remedy now sought by the petitioner is that goods have to be released on his furnishing bank guarantee as directed by the Tribunal to the tune of Rs. 45 lakhs. According to the learned counsel for the petitioner, instead of making payment of Rs. 45 lakhs in the form of cash, the petitioner is willing to pay the said amount by way of bank guarantee. Respondent is directed to release the goods, however, on the petitioner furnishing bank guarantee to the tune of Rs. 22.50 lakhs and making cash payment to the tune of Rs. 22.50 lakhs (totally Rs. 45 lakhs) and also on the petitioner filing an affidavit of undertaking to the effect that the said bank guarantee will be kept alive for a period of one year or till the disposal of the appeals - Decided in favour of assessee.
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2014 (2) TMI 700
Denial of refund claim - Unjust enrichment - Whether CESTAT was correct in holding that the doctrine of unjust enrichment under Section 21 of the Customs Act is not applicable to the claim of refund of customs duty paid on the capital goods - Held that:- Though the original authority and the appellate authority have clearly observed that no documents were produced before them to prove that there was no case of unjust enrichment, the fact remains that the CESTAT has not considered the said aspect and proceeded to hold that there was no necessity to prove that there was no unjust enrichment in case a claim is made under Section 27 of the Customs Act - in respect of any claim for refund, the party should prove that there was no case of unjust enrichment by producing acceptable materials, the matter requires consideration by the authorities after giving opportunity to the assessee to produce materials. Since the order passed by the CESTAT does not contain any averment with respect to the materials produced by the assessee to prove that there was no case of unjust enrichment and the duty burden has not been passed on, we are of the view that opportunity should be given to the assessee to produce materials - Matter remitted back - Decided in favour of Revenue.
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Service Tax
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2014 (2) TMI 713
Levy of penalty where the appellant paid entire tax liability and interest. - relief u/s 73(3) - Held that:- When provisions similar to section 73 (3) was introduced in Central Excise Act, 1944 as section 11A (2B) in the year 2001, it was clarified that these provisions are meant for encouraging immediate realization of short payments detected by audit teams so that whoever discharges the short paid tax immediately need not get entangled in protracted litigations. Therefore, unless there is a case of active suppression, provisions of Section 73 (3) should be extended. - This is view of the Karnataka High Court also in the case of CCE & ST, LTU, Bangalore Vs ADECCO Flexione Work Force Solutions Ltd. - [2011 (9) TMI 114 - KARNATAKA HIGH COURT]. - Levy of penalty set aside.
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2014 (2) TMI 712
Natural justice - adjudicating authority failed to consider the submissions made by the appellants - Business Auxiliary Service - Held that:- The Authority committed a gross error in omitting to refer to, analyse and apply the decision of the full Bench of the Tribunal in Paul Merchants Ltd. While the counsel for the appellant contends that this omission is by design; the ld. A.R. for Revenue would contend that the omission is a default and unintentional. In any event this omission is fatal; and at least amounts to casual adjudication. An adjudicating authority, even where one is a departmental officer but is performing a judicial function, must bring to his function the minimum standards of fairness, neutrality and professionalism, in the discharge of functions. A judicial function requires a neutral appreciation of facts; due and conscious reference to the material on record; carefully and precise statement of the competing contentions and precedents if any relied upon by either party; analysis of facts; of the relevant statutory provisions and of precedents referred, followed by a synthesis of the culled out legal facts and the applicable provisions of law and the principles culled out from the precedents. Only thereupon must an adjudication record conclusions. Failure to adhere to the minimal standards of adjudicatory discipline is a compelling inference where an adjudication authority fails to record all relevant contentions, the statutory provisions and the authorities cited; fails to analyse the facts and the law; and fails to record conclusions after following the rigour of the preceding process. The order impugned herein is in this sense a non-speaking order bereft of relevant analysis and is therefore perverse. The respondent/adjudication authority shall record independent conclusions while disposing of the proceedings afresh. The consequence of this casual adjudicatory approach has not only burdened the assessee with avoidable litigation but had also added to the docket load of this Tribunal. We therefore allow the appeal as above with costs of ₹ 10,000/- payable to the appellant/ assessee within two weeks from the date of receipt of a copy of this order. - Decided in favor of assessee.
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2014 (2) TMI 711
Service Tax on GTA - 75% abatement in terms of exemption notification no.32/2004-ST and its successor notification no.1/2006-ST, GTA service provider is required to declare that no Cenvat credit in respect of any inputs or capital goods has been availed by him. The respondents contention is that this requirement stands fulfilled as the challans issued by the transporter do carry such a declaration. - Held that:- There is no allegation in the show cause notice that the GTA service provider has not given the required declaration regarding non-availment of Cenvat credit by them. - there is no condition that where the recipient of GTA Service is required to pay service tax on the GTA Service received by him, for 75% abatement he cannot take any Cenvat Credit in respect of inputs, capital goods or input services used by him for his final product or output service. - 75% exemption as well as cenvat credit of service tax so paid allowed.
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2014 (2) TMI 710
Waiver of pre-deposit - classification - erection, commissioning and installation services - Held that:- the service falls within the ambit of works contract service, an independent taxable service, introduced w.e.f.1.6.2007 and is required to be classified only as works contract service, in view of the classification discipline mandated by Section 65 (A) of the Act, the amount of ₹ 26,01,012/- being the tax liability assessed on Erection, Commissioning and Installation service is unsustainable. Insofar as Management, maintenance or repair service is concerned - The agreement between the petitioner and the Noida Authority requires the petitioner to take over the operation of DG sets and the pump houses and cater to the management, maintenance and repair of these equipment and infrastructure as well. We do not prima facie consider the operational responsibility to be the essence of the contract. The management of these movable or immovable properties is the essence of the agreement and the maintenance or repair is integral to the overall assumption of the management function. - there is no analysis on or reference to provisions of Section 65(64) of the Finance Act, which defines the taxable service of Management, Maintenance and Repair. Stay granted partly.
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2014 (2) TMI 709
Waiver of pre-deposit - Valuation - reimbursement of expenses - Servicing and repair of two wheeler motor vehicle as an authorized service station - from 2006-2007 to 2009-2010 (upto September) - Held that:- the appellant in their invoices show the value of the service component and the value of the spare parts and consumable used separately and while pay Sales Tax/VAT on the amount charged for spare parts and consumables, the service tax is paid only on the labour/service component. - Hon’ble Delhi High Court in case of Intercontinental Consultants & Technocrop Pvt. Ltd. vs. Union of India [2012 (12) TMI 150 - DELHI HIGH COURT] has held that Rule 5 (1) to be ultra vires the provisions of Section 66 and 67 of the Finance Act, 1994. No judgment of the Apex Court staying or reversing this judgment of Hon’ble Delhi High Court or of any other high expressing a contrary view has been shown. - stay granted.
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2014 (2) TMI 708
Allowability of Cenvat credit – Construction activity – Nexus between Input and Output services – Waiver of Pre-deposit – Held that:- The word “used” is used in the definition of "inputs", "capital goods" and "input service" - The word is not used as past tense of "use" but as past participle which is an adjective to the words in question. In the case of capital goods normally the goods arrive much earlier than it is put to use and credit of duty paid is always allowed and there is no reason why a different interpretation should be adopted for input services - The decision in CCE, Visakhapatnam Vs. Sai Sahmita Storages (P) Ltd. [2011 (2) TMI 400 - ANDHRA PRADESH HIGH COURT] followed - Input services can be allowed in such cases – thus, prima facie the assessee is able to make out a case in their favour – stay granted.
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2014 (2) TMI 707
Denial of refund claim - Whether the appellant is eligible for refund of service tax paid on ‘Courier Services’ utilized for export of motor vehicle parts for replacement under warranty - Held that:- show-cause notice itself admits that exports were made to fulfill warranty obligations and therefore at this juncture, it may not be appropriate to take up a detailed finding on the ground which was not before the original authority or the appellate authority at any time. Further when parts are supplied to fulfill warranty obligation, naturally there will be no sale proceeds. In such situations, whether Condition No. 4 is to be fulfilled or not is another issue which requires detailed consideration. Since prima facie there is no dispute that goods have been supplied free of cost and no foreign exchange was to be realized, I consider that appellant has made out a case for waiver of pre-deposit and grant of stay - Stay granted.
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2014 (2) TMI 706
Waiver of the pre-deposit - Availment of ineligible cenvat credit - Held that:- if an assessee makes the payment of the invoices which indicate service tax payable and avail the Cenvat credit, the activity or the action of service provider or not depositing the same in the Government Treasury will not bar the service recipient from taking Cenvat credit on the service tax paid, if eligible - appellant has made out a prima facie case for the waiver of pre-deposit of the amounts involved. Accordingly, the application for the waiver of pre-deposit of amounts involved is allowed and recovery thereof stayed till the disposal of appeal - Stay granted.
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2014 (2) TMI 705
Demand of service tax - Secretarial Service Tax under the heading Member Club and Association Service - convention service - specialised services which are nothing but recovery of charges for issuing country of origin certificate - Held that:- Except the convention service, the other two services are whether in relation to provision of service, facility or privilege to membership does not come out clearly form the adjudication order, which is a pre-requisite of the taxing entry. Prima facie, it does not appear that the impugned services are integrally connected to the membership. However, we do not express any opinion at this stage. But so far as convention service is concerned, there is already a deposit of Rs. 9,00,000/- approximately as stated by learned Counsel. Subject to verification thereof by Revenue as against the demand of Rs. 12,66,921/-, on that count realisation of the balance demand raised in adjudication shall be stayed during pendency of the appeal - Stay granted.
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2014 (2) TMI 704
Stay application - Reverse Charge - Levy of service tax on Intellectual property Rights (IPR) - Trade Mark License Agreement - whether only a registered trademark has a right under any law for the time being in force In India and whether any law other than enacted law In force In India will come within the meaning of “any law for the time being in force - Held that:- we are not in agreement with the argument of the appellant in view of Section 11(3) of the Trademarks Act, 1999 and Section 27(2) of the said Act in view of the fact that the trademark owner is legally entitled to enforce certain rights against any other person using such trademark even though the trademark Is not registered In India - Applicant directed to make pre deposit of 50% tax - Following decision of AREVA T & D (INDIA) LTD. Versus COMMISSIONER OF C. EX., LTU, CHENNAI [2013 (3) TMI 82 - CESTAT CHENNAI] - stay granted partly.
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2014 (2) TMI 694
Availment of CENVAT Credit - Department was of the view that to the extent the Cenvat credit availed input services have been used in respect of trading activity, they would not be eligible for the Cenvat credit - Imposition of interest and equivalent penalty - Held that:- input services, in question, have been used in or in relation to providing the taxable output services authorised service station service and business auxiliary service and also trading activity, which was not a taxable service during the period of dispute - appellant have not been able to establish prima facie case in their favour - Conditional stay granted.
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Central Excise
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2014 (2) TMI 699
Assessment in terms of provisions of Rule 8 of Central Excise Valuation Rules - Imposition of penalty - Held that:- lower authorities have advanced their case on wrong premises that repair of damaged and defective motors amount to manufacture. Admittedly provisions of Rule 8 are applicable in respect of captively consumed goods and cannot be held to be invocable in case of clearances of repaired items. Though the said issue does not need the support of any precedent decision but we may refer to Tribunal’s decision in the case of CCE, Indore v. Hotline CPT Ltd. [2009 (9) TMI 854 - CESTAT NEW DELHI] observing that the process of repair does not amount to manufacture. If that be so, the provisions of Rule 8 are not applicable - Decided in favour of assessee.
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2014 (2) TMI 698
Waiver of pre-deposit - Cenvat Credit - According to Revenue, no duty was payable but the supplier has paid the duty - the product Zinc Dross, Flux Skimming and Zinc Scaling - Held that:- The rules entitled the recipient manufacturer to avail of the benefit of the duty paid by the supplier manufacturer. - Following decision of MDS Switchgear Ltd. Vs. CCE Aurangabad [2001 (4) TMI 130 - CEGAT, MUMBAI] and upheld by Apex Court in [2008 (8) TMI 37 - SUPREME COURT] Decided in favour of assessee.
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2014 (2) TMI 697
Valuation of goods - interconnected undertakings but not related - Revenue held that prices at which the appellant had sold the goods to independent buyers should be taken as the basis in terms of the rule 4 of the valuation Rules, 2000 - Held that:- Though the appellant and the buyer are interconnected undertakings as defined in Section 2(g) of the MRTP Act and hence, related in terms of the provisions of Section 4 (3)(b), they are not related as defined in the Companies Act. Therefore, in terms of Rule 10 of the Central Excise Valuation Rules, 2000 as the appellant is not related to the buyer as defined in the sub-clause (ii) (iii) & (iv) of the sub-rule (3) of Section 4, valuation has to be done by treating both the parties as if they are not related persons for the purposes of sub-section (1) of Section 4. No evidence has been adduced by the revenue to show these two firms are related as provided for in the Companies Act or they have mutuality in the business of each other. As regards the application of Rule 4 to the transactions, the said Rule envisages making of adjustments on account of difference in the dates of delivery of such goods and of the excisable goods under assessment as may appear reasonable. There is a variation in the dates of delivery but also the quantities lifted by JSW Steel are substantial and regular when compared to the quantities sold to other independent buyers. In these circumstances, there is merit in the contention of the appellant that the discount of about 2% in the prices when compared to those sold to independent buyers cannot be considered as unreasonable. This factor has not been considered by the adjudicating authority. Therefore, we are of the considered view that the matter has to go back to the adjudicating authority for fresh consideration - Decided in favour of assessee.
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2014 (2) TMI 696
Waiver of the pre-deposit - Availment of cenvat credit of CVD, Education Cess, S.H.E. Cess and additional duty paid - Lower authorities have held that appellant herein having exported the pipes and got the same calibrated from the units situated abroad cannot avail cenvat credit the duty of customs paid on importation therefore, credit of duty paid cannot be availed by the appellant as the process of calibration carried out on the pipes by the units situated does not amount to manufacture - Held that:- appellant herein undisputedly discharged appropriate customs duty, CVD, and additional duty on the pipes imported by them. It is also not disputed that the appellant utilized/used these calibrated pipes for further manufacturing of their final products and paid proper duty on such final products. It is also not disputed that the appellant had filed bills of entry, when the calibrated pipes were imported and the customs authorities have assessed the bills of entry. On the face of such a factual matrix both the lower authorities have over looked the legal provision inasmuch as duty paid as CVD is eligible to be availed as cenvat credit; if an assessee is able to show that the inputs/capital goods were utilised/used, directly or indirectly in the manufacture of final products on discharge of appropriate duty. That the appellant had utilized/used the calibrated pipes in the manufacture of their final products being undisputed, in our view, the lower authorities have erred in denying the cenvat credit of duty paid as CVD, Education Cess, S.H.E. Cess and additional of customs - Decided in favour of assessee.
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2014 (2) TMI 695
Penalty u/s 11AC - Demand on the basis of shortages of raw material and the hypothetical calculations of production of final product and clandestine clearances of the same - Held that:- Investigation team did not find any stock during investigation. Inextricable link of clandestine removal of finished goods was established from incriminating documents and evidence including private recorded found in the course of investigation. Unaccounted sale was admitted by buyer. Shortage of scrap of 175.608 MT of scrap, 3.92 M.T. of Ferro Manganese and 50 Kg. of Ferro silicon was well evident from statement of Shri P.S. Gehlot. These goods were used in manufacture of steel castings on the basis of clear admission of assessee. Evasion of duty of ₹ 6,65,309/- was established. Therefore, nothing was presumed nor assumed by investigation when that remained un-rebutted in adjudication. Accordingly decision of the learned technical member cannot be said to have been based on no evidence or inadequate evidence - impugned order of Commissioner (Appeals) is set aside and Revenue's appeal is allowed by restoring the order of original adjudicating authority - Decided in favour of Revenue.
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2014 (2) TMI 693
Availment of CENVAT Credit - Use of steel items for fabrication of tanks - Revenue held that appellant would not be eligible availing credit on steel items as the same appear to have been used in erection of permanent supporting structure used mainly for making the machinery of vibration fee - Held that:- The appellant s claim is that they are eligible for Cenvat Credit in respect of steel items, in question, as the same have been used by them for fabrication on capital goods/parts of capital goods namely tanks and accordingly the steel items would have to be treated as inputs used in the manufacture of capital goods and would be eligible for Cenvat Credit. It is also seen that para 2 of the Show Cause Notice itself states that on scrutiny of the said returns filed by the appellant, it was revealed that they have taken Cenvat Credit on the structural steel items like Angle, Channel, Beam used by them in manufacturer of parts of capital goods and that Cenvat Credit was availed appears to be inadmissible. Since in this case the availment of Cenvat Credit in respect of Steel items, in question, and their use has been declared for ER-1 Return, it was the responsibility of Jurisdictional Assistant Officer to immediate verify their claim and as such it cannot be said that the appellant did not disclose the availment of Cenvat Credit in respect of the inputs in question of their use. Therefore, the appellant have strong prima facie in their favour on limitation and hence the requirement of pre-deposit Cenvat Credit demand, interest thereon and penalty is waived for hearing of the appeal and recovery thereof is stayed - Stay granted.
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2014 (2) TMI 692
Demand of differential Central Excise duty, interest thereof and imposition of penalty - Held that:- appellant herein, on being pointed out by the Audit party, has paid the differential Central Excise duty worked out by the Audit party along with interest on 24.03.2010. It is also noticed from the records that the appellant has paid 25% of the amount of duty as penalty on 19.04.2010. In my view, having discharged the entire duty liability, interest thereof and 25% of the amount of duty as penalty, the issue should have been closed by the authorities as per the provisions of Section 11A (2B) of Central Excise Act, 1944. It is also noticed from the adjudication order that the adjudicating authority has, while adjudicating the issue, done the very same - Appellant, having discharged differential Central Excise duty, interest thereof and also 25% of the amount of duty liability, as pointed out by the Audit party, before the issuance of show cause notice, has to be construed as conclusion of the proceeding, if any, initiated against him - Decided in favour of assesssee.
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2014 (2) TMI 691
Finalization of provisional adjustment - adjustment of excess payment with short payment - Held that:- any excess payments made can be adjusted towards short-payments at the time of finalizing of the provisional assessments. The finalization of the assessments has been done vide Order-in-Original No. 14/1995, dated 24-6-1995. Therefore, the adjudicating authority has correctly adjusted the excess payments made by the assessee towards the short-payments which were due from them - This provision has been incorporated in the statute vide Notification No. 45/99-C.E., dated 25-6-1999. Therefore, prior to 25-6-1999 the adjudicating authority could adjust the excess payments made at the time of provisional assessment towards short-payments arising at the time of final assessment - Decided against Revenue.
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2014 (2) TMI 690
Assessable value of goods - Duty liability on processed fabrics at the price at which M/s Suzuki Textiles sells the goods in the market - Assessee contends that M/s PGO Processors and M/s Suzuki Textiles are independent units - Demand has been confirmed by the Commissioner taking the sale price of M/s Suzuki Textiles as assessable value - whether Suzuki Processors was the real manufacturer of the output manufactured by PGO processor - Held that:- While prima facie case is one of the consideration, irreparable injury that may be caused by an interim order is a vital consideration. So also balance of convenience cannot be brushed aside to consider interim prayer. No doubt, pre-deposit is rule and waiver thereof is an exception. Interest of Revenue weighs equal importance while undue hardship is considerable - Show-cause notice does not throw light on any allegation on the proprietary interest of Suzuki Processors on PGO Processors Pvt. Ltd. and manner of control over its affairs including influence if any on valuation of goods cleared to Suzuki Processors. Admittedly revocation of registration was done in 2012 and show cause notice was also issued two years before to the impugned period expired. Prima facie, it appears that the matter in controversy warrant extensive examination from various angles testing evidence rigorously. When PGO Processors is stated to have paid duty on the goods cleared valuation issue depends on several factors including the terms of the aforesaid notifications to be tested by an elaborate hearing. Prima facie , appreciating whim and caprice are alien to justice, and noticing that balance of convenience tilts in favour of the assessee, dispensation of pre-deposit till disposal of appeal would serve interest of justice - Stay granted.
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2014 (2) TMI 689
Reversal of cenvat credit more than the credit availed on removal of inputs as such - Waiver of pre-deposit - The Hon’ble High Court has reversed the decision of the Tribunal and held that the appellant cannot pay excess amount on the inputs as duty and holding so, they directed the appellant to pay the entire amount paid in excess through PLA and also upheld the penalties imposed under Rule 15 of the Cenvat Credit Rules, 2004. - Held that:- appellant to deposit an amount of Rs.1,68,99,531/- in cash - stay denied. Regarding penalty under Rule 25 - Held that:- prima facie, the penalty imposed by the adjudicating authority under the provisions of Rule 25(1)(a) of the Central Excise Rules, 2002 may not arise, as the said provisions would indicate that the penalty under Rule 25(1)(a) can be imposed only if the manufacturer removes any excisable goods in contravention of any of the provisions of this rule. It is on record that the appellant had discharged the Central Excise duty on the inputs removed as such and that too more than the actual duty. Hence, the provisions of Rule 25(1)(a) of Central Excise Rules do not prima facie get attracted. - Stay granted towards penalty. Regarding penalty under Rule 15 - Held that:- the said issue was not argued before the Hon’ble High Court and framed as question of law and we find that during the relevant period in this case i.e. July, 2006 to June, 2008, the period during which the appellant discharged the duty on the inputs cleared by them through CENVAT account, they had an order of the Tribunal in their favour and the provisions of Rule 15(1) reproduced herein above may not prima facie indicate that the appellant needs to be penalized for such contravention. - Stay granted towards penalty.
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CST, VAT & Sales Tax
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2014 (2) TMI 714
Assessment u/s 7A(1)(a) - Revision u/s 16 - Turnover less than chargeable limit under Secton 3(1) of the Tamil Nadu General Sales Tax Act - Held that:- A perusal of Section 3(1) of the Tamil Nadu General Sales Tax Act, as it stood at the relevant time, shows that in the case of a dealer the liability to pay tax arises when the total turnover exceeded ₹ 1 lakh. In the case of casual trader or agent of a non-resident, the liability is fastened irrespective of sales turnover. Tax at flat rate at 8% was liable to be paid at the point of first sale - As far as Section 7A is concerned, it deals with levy of purchase tax. This is a charging Section by itself. A reading of Section 7A shows that the chargeability under Section 7A is attracted under stated circumstances. Without purchase of goods from any registered dealer or other persons whose sale or purchase, though liable to tax, does not suffer tax by reason of circumstances given under Sections 3 and 4 and such purchased goods were used and consumed in the manufacture of other goods or for sale or otherwise or in any manner other than by way of sale in the State or despatched them to a place out the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. Then alone the charge under Section 7A stands attracted. On the admitted fact herein that the assessee, a dealer in bakery products, had effected sales locally only and that none of the circumstances given under Section 7A of the Act stood attracted to the facts herein, we do not find that the Revenue has a case for assessing the turnover under Section 7A of the Act - Therefore there is no ground to sustain the assessment - Decided against Revenue.
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