TMI Tax Updates - e-Newsletter
February 27, 2013
Case Laws in this Newsletter:
Income Tax
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
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Income Tax:
DTAA - Retrospective amendments under consideration do not impact interpretation in the context of a DTAA also the Finance Minister’s speech on 7 May 2012 wherein it was clarified that the amendments do not override the provisions of a DTAA which India has signed. - HC
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Income Tax:
Claim of bad debts - there is no bar on the assessee in writing off the bad debts of the year as allowable expenditure when the corresponding credits are showing in the accounts of the year - AT
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Income Tax:
Trust - Belated filing of Form No.10 - Do not agree with the findings of the CIT(A) that the assessee was not permitted to file Form No.10 in the reassessment proceedings - AT
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Income Tax:
Municipal taxes paid by the assessee on yearly basis cannot be considered as a cost of acquisition or cost of improvement allowed while determining the capital gain. - AT
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Income Tax:
Registration granted u/s 12AA cancelled - the activities of the assessee trust clearly constitute activities in the nature of trade, commerce or business because no plots are reserved for any socio-economically lower society, there is no element of donation or support to any cause - AT
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Income Tax:
Unexplained investment u/s 69 – Assessee paid up additional stamp duty on valuation - This by itself would not mean that the assessee made any unexplained investment - HC
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Income Tax:
Violate the provisions of section 269SS and 269T – share application money - penalty u/s 271D and 271E is not automatic - if there is bonafide belief, no penalty u/s 271D and 271E - AT
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Service Tax:
Manpower Recruitment and Supply Services - Trust is only a facilitator for the transaction between the farmers on one side and the sugar factory on the other - stay granted - AT
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Service Tax:
Service tax liability on laying of wooden and synthetic flooring for both Commercial as well as non-commercial Constructions - activity does not appear to be sustained in law - AT
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Service Tax:
Commercial or Industrial Construction Service - Sports Stadium constructed for conducting Commonwealth Games, is a non-commercial construction. - stay granted in full - AT
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Service Tax:
Refund claim of Cenvat credit - Export - Nexus between input and output service - service tax paid on business auxiliary service - ST paid on reverse charge basis - refund allowed - AT
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Central Excise:
Penalty under rule 26 - payment of short paid and non-paid duty by the main manufacturer would not result in conclusion of proceedings against all other persons on whom penalty stands proposed to be imposed in terms of Rule 26 - AT
Articles
Circulars / Instructions / Orders
News
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PRE-BUDGET MEMORANDUM 2013-2014 - FICCI
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Restriction on Issue of Cheques from Saving Bank Accounts
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Capitalising Public Sector Banks
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Mis-Selling of Insurance Products and Unfair Business Practices of Insurance
Companies; Implementing the Integrated Grievance Management System (IGMS)
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Surplus Cash with Public Sector Banks’ (Psbs)
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Trading of Foreign Exchange by Nationalized Banks
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1.52 Lakh Vacancies in Railways to Be Filled up this Year
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Fund Allocation for Rly Staff Quarters Enhanced by 50%
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Railways to Impart Skills to Youth in Railway Related Trades in 25 Locations
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Recipients of Rajiv Gandhi Khel Ratna Award & Dhyan Chand Award to be Provided Complimentary Card Passes for 1st Class/2nd AC
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Land Acquisition for 2,800 Km Dedicated Freight Corridors Nearing Completion
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Highlights of Railway Budget 2013-14
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First Ever Rail Link to connect Arunachal Pradesh This Year
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Frequency of 24 Trains Increased
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Seven New Lines to be Constructed
Doubling of ten Lines Approved
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67 New Express and 26 Passenger Trains to be Introduced
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Major Thrust on Passenger Amenities and Cleanliness
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'Anubhuti' Coaches with latest modern facilities to be introduced in select trains
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Amenities for Differently-Abled Passengers: Escalators and Lifts, Braille Stickers, Wheelchair Friendly Coaches
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Railway to Introduce Next Generation E-Ticketing System
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Quality Catering for all classes of passengers
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Educational Tourist Train 'Azadi Express' to be introduced
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Thrust on Safety; Measures Include Modern Coaches, Elimination of Level Crossings
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Measures Against Fire Incidents
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Stress on Security of Rail Passengers
10% Rpf Vacancies to be Reserved for Women
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Parents of Posthumous Unmarried Bravery Awardees to be Extended Facility of Complimentary Card Pass in 1st Class/2nd AC Passes for Freedom Fighters to be Renewed Every 3 Years
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Support to Metropolitan Transport Projects at Kolkata, Mumbai, Chennai
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Fuel-Linked Revision in Only Freight Tariff From 1st April 2013
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Marginal Increase in Some Charges; Enhanced Reservation Fee Abolished
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Gross Traffic Receipts In 2013-14 Likely To Rise by Rs 18062 Crore
Year 2013-14 To See Balance of Rs 12506 Crore
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Rail Budget Lays Thrust on Safety, Consolidation, Improving Passenger Amenities and Fiscal Discipline
Operting Ratio Likely to Improves to 87.8% In 2013-14
Highest Ever Plan Outlay of Rs. 63,363 Crore
Increase in Passenger Fare Absorbed
10 Year Perspective Plan to be Taken up on Safety
E-Ticketing Through Mobile; Sms Alert to Passengers For Reservation Update
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Green Energy Initiatives
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Outlay of Rs. 63,363 Crore Proposed in Rail Budget
Operating Efficiency Likely to Improve to 87.8%
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Anand Sinha to continue as Deputy Governor, RBI till January 18, 2014
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RBI releases Guidelines for Licensing of New Banks in the Private Sector
Case Laws:
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Income Tax
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2013 (2) TMI 589
Taxability of indirect transfer of shares in an Indian company - India France DTAA - The shares of the Indian company were held by a French holding company (ShanH) with no other assets other than the shares in the Indian company. The Taxpayers (Merieux Alliance, France (MA) and Groupe Industriel Marcel Dassault (GIMD)) transferred the shares of ShanH to Sanofi Pasteur Holding (Sanofi), a French resident third-party buyer. The Taxpayers were companies resident in France. MA incorporated a wholly-owned subsidiary (ShanH) in France with a view to invest in India, MA entered into a share purchase agreement (SPA) in 2006 with shareholders of Shantha Biotechnics Ltd. (Shantha), an Indian company at Hyderabad. Nearly 80% of the shares of Shantha were purchased by ShanH, a subsidiary wholly owned by MA. As in 2009, MA and GIMD transferred their shareholding in ShanH to Sanofi, another French company. The Taxpayers claimed that the subject matter of the transfer were the shares of ShanH (French Company) and not the shares of the Indian company. AAR held that the transfer of shares of ShanH was a scheme for avoidance of Indian tax and that the capital gains arising from the Transaction was liable for tax in India, going by a purposive interpretation of the France DTAA contention of the taxpayer that while transfer of shares in an Indian company is taxable in India under the ITL, an indirect transfer was generally not taxable in Indian in view of the law declared by the SC in the case of Vodafone International Holdings BV (2012 (1) TMI 52 - SUPREME COURT OF INDIA) - prior to the retrospective amendment to the Indian Tax Laws (ITL) on taxation of indirect transfers of Indian assets by Finance Act (FA), 2012 , the Authority for Advance Rulings (AAR) had held the sale to be taxable in India under the ITL as well as under the India-France Double Taxation Avoidance Agreement (France DTAA) - writ petition filed by Tax payers in the jurisdictional HC against the advance ruling Whether ShanH has commercial substance as an entity? Held that:- ShanH as a French resident corporate entity (initially a subsidiary of MA, thereafter a JV of MA/GIMD and eventually a JV comprising MA/GIMD/Georges Hibon) is a distinct entity of commercial substance, distinct from MA and/or GIMD and/or Georges Hibon, incorporated to serve as an investment vehicle, this being the commercial substance and business purpose, i.e., of foreign direct investment in India, by way of participation in SBL. It is not necessary that a corporate entity must involve itself, either in manufacture or marketing or trading of goods or services, to qualify for the ascription of being in business or commerce. Creation of a wholly-owned subsidiary or joint venture for domestic or overseas investment is a well-established business/commercial organizational protocol and investment is of itself a legitimate, established and globally well recognized business/commercial avocation. Whether shares of Shantha were transferred to Sanofi under the SPA in 2009 Held that:- There was no transfer of right, title and interest in or transfer of Shantha s shares in the Transaction between the Taxpayers and Sanofi as per the SPA in 2009, as it was clearly only for transfer of ShanH shares as ShanH continues to hold the shares in Shantha even after the Transaction. Furthermore, ShanH received and continues to receive dividend on its shareholding in Shantha which is assessable to tax under the ITL. Transfer of Shantha s shares in favour of Sanofi was neither the intent nor the effect of the Transaction. Whether retrospective amendments could be read into the France DTAA Held that:- Retrospective amendments under consideration do not impact interpretation in the context of a DTAA also the Finance Minister s speech on 7 May 2012 wherein it was clarified that the amendments do not override the provisions of a DTAA which India has signed. It would impact cases where the transaction was routed through low or no tax countries with which India has no DTAA. Inviting lifting of the corporate veil - Held that:- The Transaction in the present case come under Article 14(5) of the France DTAA. The said article is clear, unambiguous and, in explicit terms, allocates the resultant capital gains to France. It is not legitimate to consider Article 14(5) permitting see through provision on a true, fair and good faith interpretation. Therefore, it cannot be said that the Transaction is taxable in India under the France DTAA on the basis that there was a deemed alienation of Shantha s shares on an artificial and strained construction of the provision. Such a construction would provide taxation rights for India on deemed alienation basis and taxation rights to France on actual alienation basis. Neither the text not context of Article 14(5) legitimizes such a strained construction, especially when the DTAA provisions are unambiguous and their legal meaning clearly discernible. Also, the expression alienation , used and not defined in the DTAA, cannot draw its meaning from a synonymous expression transfer used in the ITA. For this purpose, the expression in the ITA should be identical. Furthermore, if the Transaction involved a deemed alienation of control and underlying assets of Shantha covered under the ITL, taxation rights would be allocated to France under Article 14(6), as the Taxpayers are resident in France. In light of the above conclusions, the HC held that the order passed by the AAR cannot be sustained and allowed the writ petitions filed by the Taxpayers. Thus as per this rulling the principle confirmed is that allocation of taxing rights under a DTAA are unaffected by the ITL amendment on indirect transfers. Where a French company indirectly transferrs its interest in Indian concern to another French company, the transferor was not liable to any tax in India as per India-France DTAA.
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2013 (2) TMI 581
Penalty u/s 271(1)(c) - assessee sold stock options received as a part of employment declaring in his return as long term capital gains whereas revenue treated it as short term capital gains - Held that:- Question whether the sale of the stock options would result in long term capital gains or short term gains was not very clear at the time when the assessee filed his return for the assessment year 2002-03. In fact the view taken by the AO in the quantum proceedings had been reversed by the CIT (Appeals) in the appeal filed by the assessee. The view taken by the CIT(Appeals) was ultimately reversed by the Tribunal and the view of the assessing officer was upheld in the quantum proceedings. This, in itself, is indicative of the fact that the issue was not very clear-cut. That being the position, the case of the assessee cannot be brought within the provisions of section 271(1)(c) of the said Act.
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2013 (2) TMI 580
Condoning the delay - delay of 98 days in filing appeal - rectification of appeal submitted - The case of the assessee is that the assessee sent the copy of the order of the CIT(A) in the month of July 2011 to the same CAs and they have not acted upon - Held that:- Assessee does not have evidence to suggest that the CAs accepted the allegation of negligence as CAs have not filed an affidavit owning the responsibility of the stated negligence. Similarly, there is no evidence placed to suggest that the CAs have given advice to exhaust first the remedy available u/s 154 of the Act. The assessee is not transparent in this case as it is not known why the assessee continued to rely on the CAs, who are declared negligent as evident from the experience with the appeal before CIT (A). In the condonation petition before the CIT(A), the assessee alleged that M/s Anil Thakarar & Co and M/s. K. Bharat & Co are negligent. In that case, why the assessee continued to depend on such negligent CAs or why assessee failed to pursue with the same CAs to file the present appeal before the Tribunal in time. The assessee is himself responsible for the delay in filing appeal, thus the explanation given by the assessee is not substantiated and the assessee does not have adequate/sufficient ground for condonation of delay in filing appeal before us as CAs-centric reasons given are not substantiated - against assessee. Penalty u/s 271(1)(c) - disallowed the claim bad debts stating that the assessee failed to fulfill the conditions envisaged u/s 36(1) - CIT(A) deleted the levy - Held that:- It is an undisputed fact that the assessee disclosed bad debts in the return filed before the Assessing Authority. The AO disallowed the claim hold that the said debts have not become bad and are not evidenced as irrecoverable debts. This line of argument is not sustainable in law in view of plethora of judgments in force as assessee is no longer under obligation to prove that the debts in question are bad and irrecoverable. Further, there is no bar on the assessee in writing off the bad debts of the year as allowable expenditure when the corresponding credits are showing in the accounts of the year. It is for the businessmen to manage his affairs and accounts in such a way which are suited to his business - the allegation of concealment does not have strength to stand - order of the CIT (A) deleing the penalty should not call any interference - in favour of assessee.
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2013 (2) TMI 579
Prohibition u/s.13 (1)(d)(iii) - Deposit of ₹ 55 lakhs with Bharati Vidyapeeth and there is investment of ₹ 5 lakhs in shares which is strictly prohibited u/s.13 (1)(d)(iii) - assessee was established through a deed of trust - Held that:- As decided in the case of Alarippu [2000 (5) TMI 30 - DELHI HIGH COURT] that a loan given by one charitable trust to another with similar object cannot be treated as an investment but an application of income. The words "investment", "deposit", and "loan" have different meanings. Also see Sarladevi Sarabhai Trust [1988 (3) TMI 53 - GUJARAT HIGH COURT] wherein held that if the trust makes an investment in the course of attaining its objectives, that investment is an application of income and it cannot be considered to be violative of section 11(5). As per the settled legal position, which has been laid down in numerous decisions, it is clear that any amount which is laid out by the charitable trust or institution for achieving its charitable object constitutes an application of income to charitable purposes irrespective of whether the amount in question has been laid out irretrievably or whether the amount continued to belong to the charitable trust or the institution or it is recoverable by it. Since in the instant case the assessee trust had advanced loan of ₹ 55 lakhs to Bharati Vidyapeeth, another charitable trust also engaged in educational activity, therefore, in view of the decisions cited above, granting of such loan by the assessee trust to another trust is neither a deposit nor an investment and therefore there is no violation of provisions of section 13(1)(d) of the I.T. Act - against revenue. Denial of exemption u/s.11 on account of belated filing of Form No.10 by the assessee trust - Held that:- The assessee could not envisaged that application for registration under s.10(23C)(vi) would be delayed. Thus, the assessee was required to make alternate claim under ss.11 and 12 of the Act. As held in the case of Mayur Foundation (2004 (12) TMI 48 - GUJARAT HIGH COURT), assessment proceedings are complete when appeal against order of assessment is decided by the Tribunal. Various courts have time and again held that though filing of Form No.10 is mandatory to claim exemption under ss. 11 and 12 the same can be filed at any time during the pendency of assessment proceedings. If so filed the benefit of accumulation of income for charitable purpose cannot be denied. Do not agree with the findings of the CIT(A) that the assessee was not permitted to file Form No.10 in the reassessment proceedings and that the decision of Nagpur Hotel Owner’s Association [2000 (12) TMI 99 - SUPREME COURT] is not applicable in the facts of the present case wherein held that the assessee by filing Form No.10 along with revised return and before completion of assessment has duly complied with requirements of section 11(2) and was therefore entitled to benefit of section 11 - in favour of assessee. Purchase of shares of 2 cooperative societies - violation of provisions of section 13(1)(d) r.w.s.11(5) and therefore the assessee trust is not entitled to exemption u/s.11 - Held that:- Since in the instant case the assessee, on being pointed out by the AO that there is violation of provisions of section 11(5), has liquidated the shares, therefore, respectfully following the decision of the Hon’ble Delhi High Court in the case of Agrim Charan Foundation (2001 (8) TMI 78 - DELHI HIGH COURT) wherein the assessee had kept deposits with two concerns in violation of section 11(5) however, the same were withdrawn when the A.O. had pointed out the default committed by the assessee & H.C. held that the assessee was entitled to exemption u/s.11 and upheld the order of Tribunal - the benefit of exemption u/s.11 cannot be denied to the assessee in the present case - in favour of assessee. Violation of provisions of section 11(5) on account of loan given to Sonhira Sakhar Karkhana Ltd., a cooperative society - Held that:- As loan is neither an investment nor a deposit in the nature of an investment as held above therefore there is no violation of provisions of section 11(5) r.w.s.13(1)(d). Treating the donations received through issue of coupons as income u/s.68 as against towards corpus of the trust as claimed by the assessee - Held that:- Since the coupon donation receipts do not contain the complete address of the donors, the name of the recipient on behalf of the Trust and there is no written direction by the donor to treat the donation towards corpus of the Trust, therefore, we are of the considered opinion that such donations cannot be considered as corpus donations. However, the alternate submission of the the assessee that the same should be considered as revenue receipts is acceptable. Since there is no violation of provisions of section 11(5) r.w.s. 13(1)(d) and also held that exemption u/s.11 cannot be denied for late filing of Form No.10, therefore, since the donations are treated as revenue receipts, it does not make any difference. Exemption u/s.11 is allowable on such donations. The grounds by the assessee are decided accordingly.
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2013 (2) TMI 578
Addition u/s 50C - area is 13,500 sqy or 15,311 sqy - Held that:- Admittedly, in this case the assessee made a rectification deed correcting the area mentioned therein in the sale deed. The assessee also explained the reasons for delay in executing the rectification deed that the assessee is an old lady of 86 years old and she is not aware of the income-tax law. On behalf of the assessee, assessee’s son has been appearing before the Revenue authorities. The mistake mentioned in the area in the sale deed was found at a later stage and on this count rectification deed was executed on 11.12.2009 and registered on 16.12.2009. Thus seen from the contents of the Remand Report, AO confirmed that the area transferred is 13,500 sqy instead of 15,311 sqy. The only reason for not accepting the area transferred at 13,500 sqy by the CIT(A) is that the rectification deed was belatedly executed. Thus as the assessee explained the reasons for executing the Rectification Deed belatedly the area transferred is only 13500 sqy. Being so considering the area at 13,500 sqy as per Rectification Deed which is duly registered with the Sub-Registrar and in the circumstances the value mentioned by the assessee for transferring of 13500 sqy is not less as compared to the value adopted by the State authorities for stamp duty valuation, the addition cannot be sustained on this count. Accordingly, this addition is deleted. Addition towards indexed cost of acquisition - AO took the SRO value as on 1.4.1981 at Rs. 25 per sqy and on the other hand, the assessee submitted that a valuation report from a private valuer stating that the cost of land as on 1.4.1981 was Rs. 300 per sqy - Held that:- The value is to be considered at Rs. 300 per sqy which is based on the Registered Valuer report which is very reasonable as compared to the value of the property as on the date of sale at Rs. 11,000 per sqy. Considering the Registered Valuer report and by applying the reverse indexation method, the value is to be considered at Rs. 300 per sqy as on 1.4.1981 is very reasonable, thus agreeing with the assessee. Addition towards compensation paid with whom agreement for sale was entered into by the assessee in the year 1993 which was not honoured - Held that:- AO has no grievance for allowability of Rs. 1.72 crores and the only objection is with regard to Rs. 64 lakhs out of Rs. 2.36 crores. Accordingly this payment is genuine to the extent incurred by the assessee in relation to the transfer of property. Accordingly, this ground is partly allowed. Addition towards compensation paid to Sri B. Rajendra Prasad - Held that:- AO accepted the payment of Rs. 15 lakhs as genuinely incurred for the purpose of transfer of property. However, he has not accepted payment of Rs. 13 lakhs. Thus when the AO himself accepted the payment of Rs. 15 lakhs as genuine, there is no reason to disallow the same and the same is accepted and allowed. This ground is partly allowed. Municipal taxes paid by the assessee on yearly basis cannot be considered as a cost of acquisition or cost of improvement allowed while determining the capital gain. On the other hand, if it is incurred as a betterment/development charges which is a onetime payment, that is to be considered as part of cost of acquisition of the capital asset and the same has to be considered while computing the capital gain. This issue is remitted back to the file of the Assessing Officer to decide the same accordingly.
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2013 (2) TMI 577
Registration granted u/s 12AA cancelled - assessee is earning huge profits by carrying various activities including the purchase of land at nominal cost, then level and clear it, cut into plots and sell the plots at much higher prices and earning huge profit and also charging fees and fines from the sale of forms, land enhancement fee, building plan fees, road cutting fees, transfer fee, fine and penalties and non construction charges - Held that:- The charitable purpose include relief to the poor, education, medical relief and advancement of any other object of general public utility. As in the present case, the assessee-trust is carrying on various activities in the nature of trade, commerce or business and rendering its services for the purpose of trade, commerce and business, the assessee-trust is charging huge fees. No doubt, the assessee has given some explanation for charging fees for the afore-mentioned activities by stating that the assessee-trust is charging fees as per rules framed by the Punjab Local Bodies Govt. which is clearly the admission by the assessee-trust that the assessee-trust is doing activities not for charitable purpose but for business purpose only. No doubt, these penalties charged by the assessee-trust are in the nature of compensatory but that is not permissible for the charitable institution. FAA has rightly held that the land of the assessee trust is in the same category of other real estate products available in the market offered by the private colonizers and real estate agents. It is a matter of record that the assessee-trust sells off all these plots by organizing a public auction, where through the bidding process and the competition generated in it, the prices of their land keep escalating and finally, the land is sold off to the highest bidder. The surplus income which is generated through the sale of land is again used for buying more land, developing it and selling it the same way, thereby generating more profit. On the facts and circumstances the assessee trust is not merely a mediator in buying and selling of land to the general public. Rather it operates in a business oriented way on the well known principles of profit generation. Therefore, the activities of the assessee trust clearly constitute activities in the nature of trade, commerce or business because no plots are reserved for any socio-economically lower society, there is no element of donation or support to any cause - CIT(A) has rightly cancelled the registration granted to the assessee-trust w.e.f. 12.06.2003 in view of the amended provision of section 12AA(3) on fully satisfied that the activities of the assessee-trust are not genuine and not being carried out in accordance with the objects of the assessee-trust - against assessee.
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2013 (2) TMI 576
Addition on the basis of cheques and hundis found during search – Cheques and hundis were found in the residence of assessee in the name of one Shri Rakesh N.Patel – AO Considered that these were the cash advances given by assessee to Shri Rakesh Patel on the security of the cheques and addition were made – Held that:- Addition was made only on the basis of presumption on the ground that the cheques were received on cash loan advances to Shri Rakesh Patel - There was no corroborative material for sustaining such presumption. This issue is purely factual in nature – Against the revenue. Addition made on account of interest on loan – cheque issued by one Shri Archit Shah was to the tune of Rs.13,50,000/- against the debit balance of Rs.12,14,072/- , difference was added by AO as the income of the assessee derived by way of interest on their loan advances – Held that:- department could not bring on record any material to show that the assessee actually received interest of Rs.1,35,928/- at any point of time – Against the revenue. Addition on the basis of entries mentioned in the seized documents – AO observed that on the seized paper, two amount respectively Rs.30 lacs and Rs.11 lacs were indicated, and on this basis additions were made – Held that:- addition was made only on the basis of the noting on the piece of papers without there being any evidence – It is completely unjustifiable – Against the revenue.
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2013 (2) TMI 575
Unexplained investment u/s 69 – Assessee purchased the properties through registered sale deeds - Additional stamp duty was imposed upon the assessee as per the rate prescribed by Jantri - Stamp Valuation Authority adopted such valuation as per the Jantri which is notional value for the purpose of determining the stamp duty payable – As per AO assessee had paid more consideration as against in sale deeds – Held that:- No material is brought on record to prove that the assessee had invested more than what had been shown in the sale deeds – The Stamp Valuation Authority, however, valued the lands higher than the sale consideration indicated in the sale-deeds – Assessee paid up additional stamp duty on such valuation. This by itself would not mean that the assessee made any unexplained investment - Additional stamp duty paid to avoid litigation and to get clear title of the property – Section 50C of the Act would cover the instances of capital gain upon sale of immovable property by the sellers - provisions of section 50C of the IT Act are not applicable in the hands of the purchaser – Against the revenue.
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2013 (2) TMI 574
Addition on the basis of presumption – AO made addition on the ground that there was on-money transaction in the sale of plots of lands developed by the assessee – AO based his reasoning on statements of witnesses and Site Engineer, indicating booking of plots at a higher rate than reflected in books – Held that:- During search, nothing was found which revealed that the assessee had ever received 'on money' on sale of plots - The disclosure was not on account of profits from such projects specifically - The persons whose statements are recorded have no locus standi to confirm as to what is the rate charged by the assessee - The persons whose statements were recorded have merely visited the site but has not actually transacted with the assessee - The Site Engineer is not empowered either book the plots or to quote the rate – Since these persons are not competent to admit any undisclosed income, their statements cannot be admitted in evidence for taking a view against the assessee - Merely on presumption no amount can be added as undisclosed turnover or profit thereon - Addition not sustainable – Against the revenue.
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2013 (2) TMI 573
Penalty u/s 271D and 271E – Whether receipt of share application money and repayment thereof will violate the provisions of section 269SS and 269T – Assessee has accepted monies on account of shares/ debentures of Rs.20,000/- or more and also repaid monies otherwise than by account payee cheques or account payee Bank Drafts – Held that:- As decided in the case of Rugmini Ram Ragav Spinners Pvt. Ltd.[ 2007 (7) TMI 237 - MADRAS HIGH COURT] provisions of section 269SS and 269T have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan the provisions of sections 269SS and 269T have no application at all. The Court further held that even if there is repayment by cash, it could not be said to attract the levy of penalty automatically under section 271E of the Act. The advances of share application money or repayments of such advances have not flowed from any undisclosed income of the assessee or the concerned persons. In the present case also, the assessee was searched and these share application monies were never the subject matter of addition in the case of the assessee and accordingly the share application money and repayment of the same have not flowed from any undisclosed income of the assessee. Further even the penalty under section 271D and 271E is not automatic there is bonafide belief to the effect that the receipt of advances against allotment of shares and repayment of share money would not be termed as loans or deposits, which would be sufficient to drop the penalty levied in the present case – In favour of assessee.
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Corporate Laws
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2013 (2) TMI 572
The complaint was filed against four persons, namely, against the company, its chairman, managing director and another director – The complainant filed a petition for amendment to introduce a plea to the effect that accused Nos. 2 to 4 were/are persons in charge of and responsible for the conduct of the business of the company – Two cheques in question were signed by the chairman and managing director of the company - Accused Nos. 2 and 3 are not now available, the revision petitioner wanted to rope in the fourth accused and it is for that purpose now the petitioner has come forward with this amendment – Held that:- there is no specific averment to the effect that the fourth accused was in charge of and responsible to the company for the conduct of its business. The two cheques in question were signed by the chairman and managing director of the company. The first accused is the company itself – No conviction can be had against the fourth accused in view of the conspicuous absence of the pleadings required under section 141 of the Act. Even under the provisions of the CPC if there is an admission, it cannot be taken away by the amendment though it may be possible to be clarified by way of amendment, learned counsel for respondent submits. Here, since the particulars required under section 141 of the Act were not incorporated in the complaint, the accused would be entitled to get an order of acquittal. That position cannot be altered by causing amendment to introduce a new plea which was originally not there. It cannot be treated as a correction or a clerical mistake or any such defect that can be cured. The amendment would go to the core of the matter placing the fourth accused in a disadvantageous position which will cause serious prejudice to him. It is a criminal case where the fourth accused can be sentenced to imprisonment also if found guilty – Amendment will cause substantial change in the nature and character of the case causing serious prejudice to the fourth accused. That has got fundamental impact on the defence that can be raised by the fourth accused – Hence such an amendment cannot be permitted at all – This Criminal M.C. is dismissed.
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Service Tax
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2013 (2) TMI 587
Manpower Recruitment and Supply Services - demand for the services for the period 01/04/2005 to 26/04/2008 - appellant submits that the Sanstha is a charitable Trust and is only a facilitator for the transaction between the farmers on one side and the sugar factory on the other - Held that:- From the agreements entered into between the farmers and the transporters with the sugar factory, it is seen that, it is the farmer who is responsible and accountable to the sugar factory for harvesting and supply of sugarcane. Similarly, it is the transporter who is accountable to the sugar factory for the transportation of sugarcane from the farmers' fields to the recipient sugar factory. Thus the services are directly rendered by the farmers and the transporters to the sugar factory. For these services rendered, the payments are made by the sugar factory on the basis of tonnage of sugarcane received and the amounts are routed through the appellant-Trust for crediting to the bank accounts of the farmers and the transporters. As per clause (68) of section 65 of the Finance Act, 1994 ‘Manpower Recruitment and Supply Agency' means the person has to provide the service with regard to supply of manpower but as in the instant case, when the farmers and the transporters have entered into agreements directly with the sugar factory, by no stretch of imagination the appellant-Trust could be considered as a person responsible for supply of manpower to the sugar factory temporarily or otherwise. Further, from the bills raised for the services rendered, it is seen that the amounts are based on quantity of the sugarcane supplied to the sugar factory on the basis of rates agreed upon between the farmer and the sugar factory, and, the transporter and the sugar factory. The appellant-Trust only acts as a facilitator. The payments for the services rendered, though received by the Trust by way of cheques are directly deposited into the accounts of the farmers and transporters and the appellant-Trust does not get any consideration nor do they have any bank account for receiving any money. Thus the appellant has made out a strong case in his favour for grant of interim stay.
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2013 (2) TMI 586
Service tax liability on laying of wooden and synthetic flooring for both Commercial as well as non-commercial Constructions - appellant submits that as against the total demand of they have already paid Rs. 10,41,868/- along with interest & for the balance demand they claimed the benefit of Notification No. 1/2006-ST dated 1.3.2006 - Held that:- Activity undertaken towards laying of wooden and synthetics flooring for Sports Stadium do not fall under Commercial & Industrial Construction Services. Therefore, demand towards Service Tax on such activity does not appear to be sustained in law. As regards the services rendered for other Commercial & Industrial Construction, if the department wants to deny the benefit of Notification No. 1/2006, the appellant would be rightly entitled for CENVAT Credit of the inputs/input services used for rendering of output services. Thus the demand would then come down to Rs. 6 lakhs against which they have already paid a sum of Rs. 10.41 lakhs, thus deposit made by the appellant is sufficient for compliance to the provisions of Section 35F of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1944 - waiver of pre-deposit of the balance amount of dues allowed.
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2013 (2) TMI 585
Demand of service tax of Rs. 9,90,555/- - denial of request to adjust the excess paid amount of Rs. 8,85,841/- for the period 16.07.2001 to 30.09.2002 for the demand payable for the period October 2002 to March 2003 - Held that:- As per Rule 6(3) of Service Tax Rules, 1994 adjustment of excess payment is allowed for subsequent demands. Therefore, the excess amount paid by assessee shall be adjusted against the impugned demand. The applicant is directed to pre-deposit the balance amount within four weeks from today. Compliance is to be reported on 08.01.2013.
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2013 (2) TMI 584
Commercial or Industrial Construction Service - whether the Sports Complex Stadium constructed for the purpose of holding games can be considered as a commercial or industrial construction, merely on the ground that the stadium is used by the public and others later on, on payment of user charges - Held that:- ‘Public utility' means any work, project which is going to be useful to the members of the public at large. The public benefit aided at or intended to be secured need not be to the whole community but to a considerable number of people. Sports Stadia is used in public purpose. Merely because some amount is charged for using the facility, it cannot become a commercial or industrial construction. Even in a Children Pak, entry fee is levied for maintenance of the Park. Merely because some amount is charged for using the Park, it cannot be said that it is a commercial or industrial construction. Adopting the same logic, the Sports Stadia in the present case is also a non-commercial construction for use by the public. Therefore, the Sports Stadium constructed for conducting Commonwealth Games, is a non-commercial construction. The appellant has made out a strong case for complete waiver of pre-deposit of dues adjudged. Thus unconditional waiver of the pre-deposit of dues adjudged and stay recovery thereof during the pendency of the appeal. Since the amount involved in this case is more than Rs. 1 crore, the application for early hearing of the appeal filed by the appellant is allowed and the Registry is directed to list the same for final hearing on 14.3.2013.
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2013 (2) TMI 583
Refund claim of Cenvat credit - Export - Input services - service tax paid on “business auxiliary service” - unable to utilize the credit availed - nexus between input services and the output services rendered. - Held that:- Perusing the agreement relating to marketing fees and as per the “Business Associates Agreement” entered into by the appellant with Syntel Inc., USA has agreed to provide marketing services in relation to software services developed by Syntel International Pvt. Ltd., India and Syntel Inc., USA has to identify customers in USA and make efforts to get the customers and assist Syntel (India) inrespect of sales in USA by providing sales and technical information and other materials regarding Syntel services including sales promotion literature or brochures. It is for rendering these assistance, the consideration is paid. The consideration is paid in convertible foreign exchange and the appellant has discharged the service tax liability on reverse charge basis under Section 66A of the Finance Act, 1994. The said services squarely fall under the category of “business auxiliary service” as defined in Section 65 (19) and the taxable service covered under Section 65 (105) (zzb) of the Finance Act 1994. Such service falls within the definition of input service under Rule 2 (l) of the Cenvat Credit Rules, 2004. Thus assessee allowed for refund of service tax paid on “business auxiliary service” on reverse charge basis, which was rejected in the impugned order - in favour of assessee.
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Central Excise
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2013 (2) TMI 571
Waiver of pre-deposit - Stay of recovery - Manufacturers of laboratory equipment - Cleared the same on payment of excise duty - equipment cleared to the customers are returned back - Rule 16 of Central Excise Rules, 2002 - Repair - recondition - re manufacture - AO argued that goods are cleared after repair/reconditioning, etc. the activity does not amount to manufacture and, therefore, the appellant should have reversed the original credit taken - Held that:- Following the decision in case of MARUTI UDYOG (2002 (8) TMI 155 - CEGAT, COURT NO. II, NEW DELHI) The statement of facts made in the show-cause notice does not lead to any conclusion that the activity undertaken by the appellant does not amount to manufacture. In favour of assessee
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2013 (2) TMI 570
Non payment of excise duty - wrongly availing the exemption under Notification No. 108/95-CE dated 28.08.1995 on the basis of forge certificate - seeking waiver of pre- deposit - Held that:- The appellants cleared the subject goods without payment of excise duty under the exemption notification on the strength of the requisite certificate issued by the Executive Head of the Project Implementing Authority i.e. ICICI Bank purportedly countersigned by the Joint Secretary to the Government of India in the Ministry of Finance. It is not the case of the Revenue that the appellants while clearing the subject goods under exemption notification were aware of forgery if any in respect of the signature of the Joint Secretary or that they were aware that Finance Ministry was not the line Ministry for the purpose of the project undertaken by M/s TEIL or the appellants were in conspiracy with M/s TEIL. Thus, prima-facie bonafide of the appellants clearing the subject goods under exemption Notification No. 108/95-CE dated 28.08.95 without the payment of excise duty cannot be doubted. Whether the liability to pay the excise duty would of the certificate issuing authority i.e. ICICI Bank or the main assessee who receive excise free goods (in this case M/s TEIL) or the manufacturer of the subject goods who bonafide cleared them availing the benefit of exemption notification on the basis of forged certificate - Held that:- As this question requires serious consideration because under the normal commercial practice if a requisite certificate is produced alongwith the purchase order the manufacturer/ supplier is prima-facie expected to accept the correctness of certificate and is not expected to first verify the genuineness of certificate before availing the exemption under the notification. Thus, there is a prima-facie case in favour of the appellants. Otherwise also in show cause notice served on the appellants it is writen that M/s TEIL the main assessee before the issue of the show cause notice had deposited the amount of Rs.2,50,38,883/- which was approximately equal to the central excise duty involved on entire quantity of excisable goods received by them duty free on the strength of invalid certificate from various manufacturer including the appellants. From this, it is prima-facie clear that duty amount has already been paid to the Department and the interest of the Revenue is secured - the appellants have made a prima-facie case to justify the waiver of condition of pre-deposit, accordingly, the stay applications allowed - Appeals be listed in due course.
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2013 (2) TMI 569
Benefit of 1st proviso to section 11A(2) - the respondents are employees, authorised signatories/directors etc. of the main manufacturing units who have discharged duty liability along with interest and penalty equal to 25% of the duty in terms of provisions of section 11A(1A) - whether the respondents would get the benefit of provisions of section 11A(2) when the main manufacturer discharges his duty liability along with interest and 25% of penalty - Commissioner(Appeals) set aside penalties imposed as per Rule 26 of Central Excise Rules, 2002 relying upon Board's Circular No.831/08/2006-CX, dtd. 26.07.06 - Held that:- Proviso to sub-section 2 of section 11A refers to conclusion of proceedings in respect of such person. Such person refer to the persons to whom notice has been served under sub-section 1 of section 11 and who have paid the duty along with interest and 25% of penalty within a period of 30 days of receipt of the notice. Thus the proceedings do not come to an end in respect of all the persons in as much as the expression used in the said proviso is only in respect of such persons and not all the notices. Notices under sub-section 1 of section 11A are served only to those persons who are required to pay duty and have either not paid duty or short paid. The invocation of penal provision of Rule 26 is dependent upon so many factors which are unconnected with the provisions of section 11A. Rule 26 which provides for imposition of penalty in certain circumstances cannot be said to be a part of the proviso to sub-section 2 of section 11A so as to conclude the proceedings in respect of all notice on payment of duty, interest and part penalty by main manufacturer.The said proviso in my views, only concludes the proceedings in respect of the persons against whom notice under section 11A is issued and who have deposited the duty in terms of provisions of sub-section 1A of section 11A. - payment of short paid and non-paid duty by the main manufacturer would not result in conclusion of proceedings against all other persons on whom penalty stands proposed to be imposed in terms of Rule 26. If the legislative intent was extending immunity to all connected persons, the language used would have been simpliciter "in respect of all persons. A reading of Circular No.831/08/2006-CX, dtd. 26.07.06 as relied upon by Commissioner(Appeals) nowhere clarifies the issue as to whether payment by the main manufacturer would result in stopping of proceedings in respect of all the persons or the same would amount to settle the dispute viz-a-viz the main manufacturer only. As such nothing turns on the said Circular, thus Commissioner(Appeals)'s orders allowing the appeals of respondents by extending the benefit of proviso to sub-section 2 of section 11A are not in accordance with law - as the appellate authority has not discussed the merits of the case the impugned orders are set aside and matter remanded for fresh decision after independently examining the role of each and every respondents and the applicability of Rule 26. Revenue's appeals allowed in above terms..
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2013 (2) TMI 568
Rebate of the CENVAT credit reversed - assessee also filed appeal against the same impugned order being stayed waiving the pre-deposit of dues after taking into consideration the amount of credit is already reversed - The appeal is pending - Held that:- Show cause notice issued to deny the credit wrongly availed by the assessee in respect of the bought out items, the value of which is not included, in the assessable value of the finished goods. The adjudicating authority confirmed the demand of CENVAT Credit availed by the applicant. In these circumstances, the rebate claim if filed by the respondents to be kept pending till the disposal of the appeal.
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2013 (2) TMI 567
Sale to related person - demanding duty at the sale price - assessee contested as they are dealing with M/s WTIPL at the arms length & also demand is time barred - Held that:- M/s Sandvik AB, Sweden is holding company of the applicant firm both having more than 50% of the shares in M/s Walter AG Germany, which in turn holds 99.9% of shares of M/s WTIPL, the customer of the applicant. Thus going through the adjudication order it is found that the goods cleared by the applicants were further sold by M/s WTIPL at the higher price, thus in view of the share holding as mentioned above the dealing is not at arms length - issue of limitation is question of law and facts and the same shall be taken at the time of final hearing - applicant has not made out a prima facie case for complete waiver of pre-deposit thus directed to deposit Rs.4.5 lakhs within a period of eight weeks.
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2013 (2) TMI 566
Job work - Waiver of pre-deposit - Stay petition - Demand u/s 11A - Penalty u/s 11AC - Extended period of limitation - Rule 4(5)(a) of CENVAT Credit Rules, 2004 - Cost of production plus 10%/15% of the cost of the goods - Imported raw materials sent to job worker - After processing goods were returned to the applicants - Cleared on stock transfer basis to their other Unit - Reversing the credit taken by them at the time of import - After processing the same, have been cleared on payment of duty - Filing the ER-1 returns regularly Held that:- The applicants are reversing the credit taken by them at the time of import on stock transfer basis and the duty has been discharged by their sister Unit after processing the goods. Therefore, there is no Revenue loss to the department and further it is also contended that clearances made by them are in the knowledge of the department, therefore, extended period of limitation is not invokable The applicants have to discharge their duty liability as per the formula adopted by Ujagar Prints i.e., cost of production plus 10%/15% of the cost of the goods, same has not been done by the applicants. Further, the valuation adopted by the applicants was also not disclosed at the time of clearance of the goods. Therefore, the applicants have failed to make a case for 100% waiver of predeposit and hence they are directed to pre-deposit 50% of the duty confirmed against them. Pre-deposit waive partly.
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CST, VAT & Sales Tax
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2013 (2) TMI 588
Penalty u/s 67 of KVAT Act - stay has been granted subject remitting 1/3rd of the penalty levied - Held that:- Reading of the impugned orders show that the appellate authority was satisfied that the petitioner had made out a prima facie however, in so far as the condition imposed is concerned, having regard to the total amount of penalty payable by the petitioner for the aforesaid 3 years, the condition being onerous, is to be modified. Therefore modify the directions in Exts.P7 to P9 orders requiring remittance of 1/3rd of the penalty levied and direct that the petitioner will remit 1/4th of the amount payable as per Exts.P2, P2(a) and P2(b) penalty orders. Payment shall be made within 4 weeks from today.
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Indian Laws
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2013 (2) TMI 582
Section 4 of the Competition Act, 2002 invoked - Abuse of dominant position - Appellant company was engaged in activities including mining, logistics and infrastructure development used services of rail transport, owned and controlled by opposite parties (OP) for transportation of iron ore extracted from mines of informant - OP reclassified iron ore based upon its end-use, thereby imposing different freights on iron ore based on its end-use - Whether OP's action of reclassification and revision of rates/freight of commodities is violation of provisions of Act and abuse of dominant position? - Whether fixing a rate or issuing a rate circular amounts to a delegated legislation and whether the CCI could go into question of validity of such a circular which was stated to be in the nature of delegated legislation - Held that:- In exercise of the function of reclassification and revision of rates/freight by railways was no prima facie violation of the provisions of the Act as the power of reclassification and revision of rates/freight is entrusted to the Central Government under section 31 of the Railways Act, 1989. The exercise of such functions by itself, in the absence of any other cogent evidence establishing that such conduct is in violation of the provisions of the Act, does not justify a direction by the Commission to recommend the DG to investigate and analyse the conduct of the opposite parties as by the statutory provision, the legislature has authorized the Central Government to classify and revise rates/freight with respect to carriage of passenger and goods uniformly applicable for all the entities who wanted to avail the services of Indian railways for transporting their goods. However, in the absence of any prima facie case of violations of the provisions of the Act, being made out on the basis of available material, no interference is warranted by the Commission in instant case as no abuse of dominant position is proved here.
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