TMI Tax Updates - e-Newsletter
April 10, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Highlights / Catch Notes
Income Tax
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Deemed dividend u/s 2(22)(e) - The receipt and payment of money to give effect commercial transactions does not fall within the definition of the deemed dividend u/s 2(22)(e) of the IT Act - AT
Customs
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Waiver of pre-deposit – Appellant was not the consignee; as CHA it merely facilitated the filing of the bill of entry and other documents - The direction to deposit Rs.20 lakhs appears to be excessive and harsh - HC
Service Tax
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Export of services or not - Activities undertaken by the applicant under the Agreement for promotion and marketing of spare parts, obligation of collection of receivables etc. in India, hence it cannot be said that the service is used outside India - stay granted partly - AT
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Recovery of Refund - export - the applicants failed to show that the services which received in 2008-2010 were used in the output services which are exported in 2011-12. - stay granted partly - AT
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Business Auxiliary Service - Collection of Passenger service Fees - demand confirmed with interest and penalty for the period w.e.f 16.6.2005 - AT
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CENVAT Credit - service Tax paid on the seizing charges - services of recovery agent - for the period before 1.4.2011, the recovery agent's service is prima facie an eligible input service. - AT
Central Excise
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CENVAT Credit - input services - GTA service - sale of parts and accessories of tyres as such - reversal of proportionate credit - proportionate credit to be reversed - AT
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SSI Exemption - whether DE is the dummy unit of DEPL - How DEPL can become the manufacturer and DE a dummy unit when DE had the labour and machinery and DEPL did not have anything is a question - AT
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Job Work - Suppliers being SSI units and are not registered but are availing exemption under SSI exemption notification - despite no undertaking, once all goods are account for and there is proper challans, exemption allowed - AT
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In the absence of other evidences, only on the basis of the evidences of non-passing of the vehicles through the check-posts or the vehicle numbers mentioned in the invoices were incorrect, cannot be ground & to deny the CENVAT credit - AT
VAT
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Levy of sales tax – turnover - shame transactions for obtaining loan from bank - no real business transaction and the entire transaction was false and forged - demand set aside - HC
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The company once exercise its option under compounding scheme cannot be permitted to turn around and resile from its liability mere on the ground that it had no turn over or had not produced during the said period - HC
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Classification - Dry fruits – Roasting or salting does not result in the creation of a new article, or a significantly altered one as to amount to “manufacture” - HC
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2014 (4) TMI 322
Validity of order passed by the High Court – Proceedings u/s 12AA(3) already dropped by the CIT - Held that:- The High Court was not justified in issuing certain directions to the CIT including a direction to pass an order u/s 12AA(3) of the Act – thus, the order of the HC is modified – Decided in favour of Assessee.
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2014 (4) TMI 321
Bar on Jurisdiction of the HC u/s 269UN OR u/s 293 of the Act - Whether the present suit is either expressly or impliedly barred under any provisions of law and more particularly under the provisions of Section 269 UN and/or 293 of the Act - Held that:- The cause of action is a bundle of facts which is taken with the law applicable to them gives the plaintiff the right to relief against the defendant - every fact which is necessary for the plaintiff to prove to enable him to get a decree should be set out in clear terms - if clever drafting has created the illusion of a cause of action it should be nipped in the bud at the first hearing by examining the parties under Order 10 of the CPC - in Rangamall and others Versus Union of India [1962 (7) TMI 36 - MADRAS HIGH COURT] it has been held that merely by casting the prayer in the form of a declaration the substance of the prayer could not be hidden. The decision in Commissioner of Income-Tax And Another Versus Parmeshwari Devi Sultania And Others [1998 (3) TMI 3 - SUPREME Court] followed - the amendment made to the section is more comprehensive in nature - the scope of Section 293 of the Act has been widened and improved and it is not merely confined to set aside or modify the order - the form of suit is not relevant - It is the substance which has to be seen - when the statute prescribed certain proceedings thereunder are held and order passed, it is difficult to accept a contention that the proceeding and/or order can be modified or set aside in a civil suit filed by a third party - Section 293 is specific and does not admit filing of a suit which has the effect of even indirectly setting aside or modifying any proceeding taken under the Act - what relief cannot be claimed directly, cannot be claimed indirectly - If the relief of declaration as sought by the plaintiff is granted, it would amount to permitting the plaintiff to question the proceedings initiated by the appropriate authority, which is clearly barred under Section 293 of the Act. The 'Notes of Clauses' to the finance Act, 1986 provided that any order made by the appropriate authority u/s 269UD or any order made by the appropriate authority u/s 269UF shall be final and conclusive and shall not be called into question in any proceeding under the Income Tax Act or any other law for the time being in force, it clearly indicates the intention of legislature that such orders are final and cannot be called into question in any proceedings under Income Tax Act or any other law for the time in force - civil suit is clearly barred for claiming such declaration - seeking a declaration in the present case is a direct attempt or in any view of the matter an indirect attempt of the plaintiff to set aside the order dated 12th September 2002 which is clearly barred. It is clear that the plaintiff is challenging the proceedings initiated by the appropriate authority under Chapter XXC and also makes an attempt to challenge the order passed by appropriate authority u/s 269UD(i) which is clearly barred u/s 269UN and 293 of Income Tax Act 1961 - in view of Section 9 of the Code of Civil Procedure, 1908 the Court has no jurisdiction to try the suit in view of such suit being barred u/s 269UN and 293 of the Income Tax Act, 1961 Decided against Assessee.
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2014 (4) TMI 320
Pending appeal with CIT(A) - Scope of section 10 (26AAB) – Held that:- The income tax authorities should give some time to the assessee to approach the appellate authorities and seek interim order - the Court cannot be oblivious of the provisions which enables the Revenue to reduce the period if the circumstances so warrant - The CIT(A) before whom the assessee’s appeal is pending should decide the matter at his earliest convenience – Decided in favour of Assessee.
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2014 (4) TMI 319
Order u/s 197 of the Act challenged – Request to determine lower rate of TDS rejected u/s 194I of the Act - Whether the activity of provision of passive infrastructure by Indus to the mobile operator constitutes renting within the extended definition under Explanation to Section 194-I or whether the activity is service, pure and simple without any element of hiring or letting out of premises – Assessee contended that there is no intention to rent or lease the premises or facilities or equipment and what is contemplated by the parties is a service - Held that:- The decision in FAQIR CHAND GULATI Versus UPPAL AGENCIES PVT. LTD. [2008 (7) TMI 159 - SUPREME COURT] followed - There cannot be any generic observation on the question whether a particular transaction amounts to leasing, or letting out or hiring premises or other properties - Courts’ endeavor should in all cases be to ascertain the parties’ “operative intention” and the mandate of the law, which defines what is rent or amounts to letting out, etc. - Section 194-I through the Explanation does enlarge the scope of what can be termed as traditional concept of letting or renting, by using the expression “other arrangement” aimed at permitting “use” of either immovable property (land and buildings) or other properties (plant, equipment, machinery, etc). The Parliamentary intent was clear that transactions - the consideration for which otherwise may not be covered by rent - also ought to be within Section 194-I, by use of the expression “other … arrangement for the use” - Whilst there is no doubt that the intention of the parties was to ensure that the use of technical and specialized equipment maintained by Indus should be resorted to - at the same time, there is no escape from the fact that the infrastructure is given access to, and in that sense, it is given for the “use” of the mobile operators - The towers in a sense are the neutral platform without which mobile operators cannot operate - If one goes back in time each mobile operator - which is now Indus’ customer - used to carry out this activity, by necessarily renting premises and installing the same equipment. The rent paid then to the owner, whenever such transactions were leases, were business expenses - Yet leases or such like arrangement had to be resorted to - That situation has remained unchanged - instead of the mobile operator performing the task, it is done exclusively by Indus - The dominant intention in the transactions - between Indus and its customers - is the use of the equipment or plant or machinery - thus, the contention of Indus, that the transaction is not “renting” at all, is incorrect - The underlying object of the arrangement or agreement (in the MSA) was the use of the machinery, plant or equipment, i.e. the passive infrastructure - That it is necessary to house these equipment in some premises is entirely incidental. The petition is entitled to succeed to the extent that the tax deductions to be made by Indus are to be at the rate directed in Section 194-I (a) for the use of any machinery or plant or equipment at the rate indicated for that provision, i.e. two percent – decided in favour of Assessee.
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2014 (4) TMI 318
Rejection of claim – Disallowance of capital loss - Inter-corporate Deposit - Whether the claim is qualified as capital asset u/s 2(14) of the act and transferred as per section 2(47) of the Act – Held that:- The Authorities found that the Assessee has written off the advances of the sum and claimed the same as a capital loss to be carried forward for set off for subsequent years - The details have been noted and equally the relevant legal provisions – the Tribunal found that there is no evidence to show that it is a case of an ICD because before the AO it was claimed that the loss was on account of writing off of the advances given to M/s Bharat Starch Industries Limited and M/s JCT Limited - Then it was claimed that the advances were written off - There is no material to show that the case of ICD has been made out - The loans cannot be termed or construed as capital assets - the findings of fact rendered in the peculiar factual backdrop do no give rise to any substantial question of law for consideration – Decided against Assessee.
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2014 (4) TMI 317
Nature of Income - STCG or business income – Valuation of investment in shares at cost – assessee made payment of STT but did not claim any rebate u/s.88E of the Act for the reason that it is not a trader - Held that:- The Tribunal rightly of the view that the investment in shares were always valued by assessee at cost, thereafter, foregoing the advantage of notional loss or profit on diminution of market value of shares - Whether the income arose from business or from out of short term capital gain is not a pure question of law, but it is a mixed question of fact and law - the Tribunal after considering the facts and circumstances arrived at the findings – thus, there is no such mistake in the reasoning adopted – Decided against Assessee.
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2014 (4) TMI 316
Receipt of interest income - Non disclosure of Interest received on delayed payment of price of raw jute - assessee contended that he had received interest and had passed on the same to the suppliers of jute. - The Tribunal was of the view that the assessee has not been able to establish that the interest was passed to the constituents - the issue of addition as income from other sources - the question formulated at the time of admission of the appeal - It cannot be said that the view taken by any of the authorities is inconsistent or arbitrary - Even before the Tribunal, the assessee did not disclose any evidence, far less satisfactory evidence, to show that the money admittedly received by him on account of interest was passed on to the suppliers of jute – Decided against Assessee.
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2014 (4) TMI 315
Penalty levied u/s 271(1)(c) of the Act - Excess claim u/s 10B of the Act – Held that:- The decision in Income Tax Officer Ward-2(1) (4) Versus M/s. Greytrix (India) Pvt. Ltd. [2013 (1) TMI 381 - ITAT MUMBAI] and Income Tax Officer 3(2) (1), Mumbai Versus M/s Jewelex International P Ltd., Mumbai [2010 (9) TMI 906 - ITAT MUMBAI] followed - once a conclusion is reached that the interest income forms part of total income, sub section 4 of section 10B takes over and the interest income can be included in the profits for the purposes of claiming deduction u/s 10B of the Act - levy of penalty on excess claim made u/s 10B for inclusion of the interest income is not sustainable. Inclusion of insurance and freight charges – Held that:- Levy of penalty for inclusion of the insurance and freight charges within the excess claim, section 10B of the Act specifically excludes the insurance and freight charges from the export turnover - the assessee has not shown any tangible material or basis as to why the clear statutory provision which excludes the insurance and freight charges has been included by the assessee in the claim - the voluntary disclosure does not release the assessee from the mischief of penal proceedings - The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty – thus, levy of penalty for inclusion of the insurance and freight charges within the excess claim is justifiable – thus, levy of penalty on excess claim made u/s 10B for inclusion of the interest income is not sustainable in law and levy of penalty for inclusion of the insurance and freight charges is justifiable on facts – Decided partly in favour of Assessee.
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2014 (4) TMI 314
Deletion made u/s 40(a)(ia) of the Act – Non-deduction of tax – Payments made to various parties – Held that:- Ocean freight charges, air freight charges and in land charges are covered by the circular of the CBDT bearing no. 723 dated 19.09.1995, according to which no TDS is to be deducted on such payments – the decision ITO Vs. Freight System (India) (P) Ltd. [2005 (10) TMI 229 - ITAT DELHI-F] followed - payment of ocean freight is not liable for tax deduction at source u/s 194(c) in view of provisions of section 172. Inland charges u/s 172(8) of the Act - the decision in DCIT Vs. Hasmukh J. Patel [2011 (3) TMI 353 - ITAT, Ahmedabad] followed - the payments made to shipping agents of non- residents is nothing but reimbursement of charges which has been clarified by the CBDT circular no. 723 which states that the provisions of section 172 would apply in such cases and no deduction of taxes required as per section 194(c) - CIT(A) has correctly appreciated the facts and position of law in deleting the additions made by the AO – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue. Admission of additional evidence in violation of Rule 46A of the Rules – Held that:- The contention of the Revenue could not be accepted because revenue could not specifically point out the additional evidences relied by the CIT(A) – Decided against Revenue.
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2014 (4) TMI 313
Disallowance of interest on investment – Investment made in borrowed funds – Held that:- The assessee has not received any interest from Tellicherry Medical Foundation & Infrastructure Ltd. -The assessee is entitled only for the dividend on the investment made in preferential shares - the question arises for consideration is whether the dividend income received by the assessee is liable to be included in the total income of the assessee or not? If the dividend income received / receivable by the assessee would form part of the total income of the assessee, then the interest on the borrowed funds for making the investment would be an allowable expenditure - In case, if the dividend income received by the assessee from Tellicherry Medical Foundation & Infrastructure Ltd would not form part of the total income of the assessee then the interest on the borrowed funds for making such investment cannot be allowed as expenditure - the factual aspect needs to be verified – thus, the order of the AO is set aside and the matter is remitted back to the AO for fresh adjudication as per the law laid down in Commissioner of Income Tax Versus Popular Vehicles and Services Ltd. [2010 (1) TMI 730 - Kerala High Court] – decided in favour of Revenue.
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2014 (4) TMI 312
Deletion on account of material purchase – Held that:- The expenses have been claimed in respect of material consumed despite the assessee-company a labour work contractor – CIT(A) was of the view that the appellant had earned Rs.2,47,14,317/- from contract work and the spent on materials was only Rs.9,12,549/- which is very negligible - the terms of agreement also provides for use/supply of some materials – revenue could not bringing any contrary material on record to controvert the findings of the CIT(A) – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue. Deletion u/s 40A(3) of the Act – Cash payment exceeds the per day limit – Held that:- CIT(A) was of the view that the provisions u/s 40A(3) of the Act provides for certain exception for the application of the provisions - the project undertaken by the appellant was in a remote area and no banking facility was available - If the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town – the site where the work is being carried out is not served by any bank - Revenue has not placed anything on record suggesting that there was any branch of bank near the place where the payment has been made – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue.
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2014 (4) TMI 311
Disallowance of weight shortage expenses – Evidences and debit notes not considered – Held that:- The AO as well as the CIT(A) has disallowed the expenditure on the basis that in earlier year the assessee has not claimed such kind of expenditure - since the assessee has placed on record the debit notes raised by various parties to whom the material was supplied, therefore the authorities were not justified in disallowing the expenses claimed by the assessee – thus, the AO is directed to delete the addition – Decided in favour of Assessee. Disallowance of expenses on adhoc basis – Invocation of section 14A of the Act – Held that:- The decision in Godrej & Boyce Mfg.Co.Ltd. vs. Dy.CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - proportionate disallowance u/s. 14A should be limited to only interest liability and not overhead or administrative expenditure, which should be considered for disallowance under Rule 8D of the I.T. Rule, 1962 from 2007-08 – the AO is directed to delete the addition – Decided in favour of Assessee.
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2014 (4) TMI 310
Levy of penalty u/s 271(1)(c) of the Act – Held that:- The penalty order deserves to be quashed - Simply because the additions made were not challenged by the assessee this fact by itself is not a good enough reason to confirm or impose penalty - There can be many reasons which may prevail on the mind of an assessee on account of which the assessee may not challenge the additions in a certain year - The mere fact of accepting the additions ipso facto does not lead to the conclusion that the assessee has nothing to say - it is a matter of record that the assessee has been crying hoarse right for the penalty proceedings itself that on merits had the assessee chosen to agitate the claim of higher depreciation the claim would have been allowed – there was no reason as to why the explanation was not considered by the authority. Addition made u/s 14A of the Act – Excess depreciation claimed – Held that:- The assessee has contended that there was full disclosure and it is only a case that disallowance made by the assessee was found to be inadequate which issue had the assessee chosen to challenge may have resulted in relief - The explanation too warranted a consideration - quantum proceedings and penalty proceedings are separate and distinct - The explanation offered in the penalty proceedings necessarily has to be considered judiciously within the Statutory framework - Relying upon COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. [2010 (8) TMI 58 - DELHI HIGH COURT] – the order and the penalty proceedings set aside – Decided in favour of Assessee.
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2014 (4) TMI 309
Rejection of books of accounts u/s 145(2) of the Act - Addition made on account of non-tallying off bills and vouchers – Undervaluation of sales of flats and shops – Validity of additional evidences – Compliance of Rule 46A of the Rules not made – Held that:- The assessee is a builder and developer - the flat sold by the assessee during the year constituted its stock-in-trade, there is no justification for making any addition by taking the value adopted by Sub Registrar for Stamp Duty purchased as per provisions of Section 50C - the flat so sold constituted stock-in-trade, there is no justification for upholding the addition on the basis of notional value determined by Stamp Duty authorities as against actual sale price received by the assessee, insofar as there is no evidence on record to hold that assessee was in respect of consideration in excess of what was stated in the sale-deed - the flats sold are not its capital assets but stock-in-trade - there is no justification on the part of the CIT(A) for making/sustaining addition on this count for the assessment year under consideration i.e. 2007-08 - the income declared by the assessee on sale proceeds gives rise to the profit rate of 3.30%, which is very low in case of a builder and contractor. Even though the mistakes pointed out by the AO is not so fatal and sufficient to reject the entire book results of the assessee, but the observation made by the AO to the effect that vouchers do not tally with the amount mentioned in the profit and loss account, some of the expenses are not routed through P&L account, means payments were made outside the profits and loss account, expenses debited in the P&L account was not supported by proper vouchers, cannot be brushed aside out rightly, in view of very low profit declared by the assessee as a builder and developer – thus, the order is modified and the AO is directed to take profit @ 5% of the sale proceeds – Decided partly in favour of Revenue.
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2014 (4) TMI 308
Validity of reopening of assessment u/s 147 of the Act - The original assessment was not framed u/s 143(3), there was merely processing of return u/s 143(1) – the return of assessee was just processed u/s 143(1), there is nothing wrong in the initiation of reassessment proceedings - ground taken by the assessee challenging the validity of reopening u/s 147 is dismissed. Revaluation of capital network rights – Capital gain in the hands of the partner - Revaluation reserve was credited to partners’ capital account and the assets account was debited in the books of the partnership firm – Held that:- There is neither division of assets nor any realsiation of assets - there is no official dissolution of the firm and distribution on assets of the firm among the partners, even the provisions of Section 45(4) will not be applicable to the firm or to the partner - there is absence of word “transfer” as envisaged u/s 2(47), the charging provisions of Section 45(1) will not be applicable, since the vesting of property in the company from the firm is not consequent to a transfer - crediting the amount of revaluation reserve to partners’ capital account does not amount to transfer of partnership firm’s assets to the individual partner. During continuation of partnership, partners do not have separate rights over the assets of firm in addition to interest in the share of profits – the rights were property of partnership firm till the date of conversion into the company by operation of law as per Part IX of the Companies Act - Relying upon CIT Vs. Texspin Engineering and Manufacturing Works [2003 (3) TMI 56 - BOMBAY High Court] - Section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied – thus, the latter part of Section 45(4), which refers to computation of capital gains u/s 48 by treating fair market value of the asset on the date of transfer, does not arise - there was no merit in the action of the lower authorities for brining gains on revaluation under the tax net on revaluation of assets of partnership firm, which was distributed to the partner and partnership firm was converted into company by operation of law under Part IX of the Companies Act – Decided partly in favour of Assessee.
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2014 (4) TMI 307
Disallowance of brokerage – Brokerage paid for the services rendered in connection to procurement institutional clients - Held that:- There is no change in the facts and circumstances of the case during the year - the allegations made by the AO that Porecha Brothers have low income are mere conjecture and surmises - onus is on the Revenue to prove that consideration paid by the assessee is in excess of the fair market value of the services for which such consideration is paid - there was proper documentation in the form of agreement between the assessee company and partnership firm – but, the fact cannot be denied that the reports were prepared by the people attached to the partnership firm – thus, it would be appropriate to allow the brokerage to the partnership firm to the extent of Rs.12 lakhs in each of the year as against Rs.15 lakhs paid by the assessee – Decided partly in favour of Assessee. Enhancement of capital gain – Sale of shares of BSE – Held that:- There is no justification in the action of the CIT(A) for allowing indexation from the year 2006, insofar as assessee company has taken the membership card from partnership firm in the year 1997 - the cost paid by the assessee company to the partnership firm is eligible for indexation from the year 1997 and not the year 2006 as per provisions of Section 55 (2)(b) r.w. clause (iii) of Explanation to Section 48 – thus, there is no infirmity in the action of the assessee in claiming indexation from the year 1997 while computing capital gains on transfer of shares of BSE Ltd. – Decided in favour of Assessee.
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2014 (4) TMI 306
Justification of invoking section 263 of the Act – Denial of deduction u/s 80P(2)(a)(i) of the Act - Whether the CIT is justified in invoking the revisionary jurisdiction u/s 263 of the Act directing the AO to deny the benefit of deduction u/s 80P(2)(a)(i) of the Act to the assessee society – Held that:- The decision in CIT vs. Jafari Momin Vikas Co-Op Credit Society Ltd. [2014 (2) TMI 28 - GUJARAT HIGH COURT] followed - sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank - CBDT Circular No. 133 of 2007 dated 9.5.2007 clarified that the entity not being a cooperative bank, section 80P(4) of the Act would not apply to it – thus, the Revenue's contention 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 bankscannot be accepted - assessee is not a credit co- operative bank but a credit co-operative society - Exclusion clause of sub-section (4) of section 80P would not apply – thus, the CIT is not justified in denying the benefit of section 80P(2) to the assessee society – Decided in favour of Assessee.
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2014 (4) TMI 305
Deletion of disallowance u/s 40(a)(ia) - employees on deputation – Amount paid as reimbursement of manpower costs and professional charges - Liability to deduct TDS – Held that:- CIT(A) rightly held that the Mudra is not into the business of supply of manpower or rendering services by providing its employees to others - There is no element of profit involved in the transaction – the amount paid does not warrant deduction of TDS - the amount paid is the exact amount of salary paid by Mudra to its employees - the payment has been made for the actual period for which the persons were on deputation - the payment made has no element of profit which is a primary condition for treating the nature of payment to be that in the nature of Professional Fees - Mudra has not been nor was it into the business of supply of manpower or rendering service by providing its employees. The expenses claimed was purely "Reimbursement Of Salary Of Deputed Personnel" and in the nature of "COST SHARING" based purely on distribution of cost as per work done and hence cannot be disallowed under section 40a(ia) – Relying upon M/s. Utility Powertech Ltd. Vs. ACIT [2013 (10) TMI 94 - CESTAT AHMEDABAD] - The assesee has actually shared the cost with MUDRA to the extent of actual utilization of employees time, and there has been no profit element involved at all - the amounts paid purely as reimbursement of manpower cost cannot be subjected to TDS - the payment was nothing but a reimbursement as admitted by CIT(A) – thus, there is no need to interfere in the order – Revenue could not brought any contrary material - Decided against Revenue.
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2014 (4) TMI 304
Nature of income – Principle of Mutuality - Exemption to income from house property - Whether exemption to income from house property is to be allowed on the principle of mutuality or to be taxed under that head – Held that:- As decided in assessee’s own case for the earlier assessment years, it has been held that, The main reason for rejecting the claim of the assessee was that the assessee has not fulfilled the condition regarding distribution of surplus assets only amongst the members of the association on its dissolution - In the absence of clear cut provisions for distribution of surplus, claim of the assessee on both the grounds of appeal was rejected - The assessee has however, modified the bye-laws by adding clause 9 (A) referred to above which was accorded sanction by Director of Sugar, Gandhinagar and accordingly it was put in form No.4 also – the papers were not before the AO for consideration –The issue of mutuality is primarily restored to the file of AO for Asst. Years 2003-04 to 2005-06 - then following the same the issues arising in Asst. Year 2006-07 are required to be remitted back to the AO for fresh adjudication after considering the amendment in the constitution, whether it is a retrospective and accordingly it would be applicable to earlier years – Decided in favour of assessee.
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2014 (4) TMI 303
Deemed dividend u/s 2(22)(e) of the Act – Loans received – Held that:- CIT(A) was right in holding that all the facts were not taken into consideration by the AO while passing the assessment orders - The assessment orders do not contain any reference to them - The AO went entirely wrong in observing that the interest income of M/s Shivalik Dairies was a part of about 0.02% of gross receipt – Relying upon CIT vs. V.S. Shiva Subramaniam [1996 (1) TMI 18 - MADRAS High Court] - where the assessee was a shareholder in a company doing only money lending business, the loan taken by the assessee could not be treated as deemed dividend, even though the company had accumulated profits – thus, the amount of loan from M/s Shivalik Dairies Pvt. Ltd. by the assessee was loan in the ordinary course of business and for that interest has been charged during the year and in subsequent years - The receipt and payment of money to give effect commercial transactions does not fall within the definition of the deemed dividend u/s 2(22)(e) of the IT Act - Revenue has not been able to counter the observations of the CIT (A) – Decided against Revenue.
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Customs
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2014 (4) TMI 302
Waiver of pre-deposit – Deposition of ₹ 20 lakh by CHA as directed by the tribunal - Held that:- Whilst the requirement of pre-deposit for an appeal is undisputed in terms of the provisions of the Customs Act, yet the Court has to be aware of the circumstances of each case - Appellant was not the consignee; as CHA it merely facilitated the filing of the bill of entry and other documents - As to whether it was negligent in the observance of the KYC Regulations is a matter it would have gone into in the appeal - At the same time, it does not appear from the record nor it was so argued by the Revenue that the CHA has been penalized under independent regulations for the performance of its duties - The direction to deposit ₹ 20 lakhs, in the peculiar circumstances of the case appears to be excessive and harsh - Therefore, the impugned order is modified; instead of ₹ 20 lakhs, the appellant is directed to deposit ₹ 5 lakhs or furnish bank guarantee or appropriate security in lieu thereof as a pre-condition of hearing of the appeal - The appeal is partly allowed – Decided partly in favour of Appellants.
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2014 (4) TMI 301
Waiver of pre-deposit – valuation - inclusion of value of software required to running equipments - Mis-declaration - Confiscation, Liability of duty and Penalty – Held That:- On examination of the facts placed before the Tribunal and before this Court, we do not think that the assessee has made out a case for complete waiver of the pre deposit and stay of the entire due - Nevertheless, when there were two divergent views rendered by the Tribunal and the assessees had placed certain materials before the Tribunal to distinguish their case from that of the case of Bharti Airtel and supported by the decision of the Co-ordinate Bench of the Tribunal in the case of Vodafone Essar, the Court is of the view that the assessee has made out a prima facie case for at least partial waiver of the pre-deposit. Considering the point raised and bearing in mind the interest of Revenue, the assessees is directed to pay 50% of the demand of duty made, in each case, pending appeal before the Tribunal - On such deposit being made, there shall be a stay on the balance amount payable by the assessees - Both these appeals are allowed in part - Consequently, the connected miscellaneous petitions are closed – Decided partly in favour of assessees.
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Service Tax
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2014 (4) TMI 326
Waiver of pre-deposit of service tax - Export of services or not - Business Auxiliary Service - Agreement for promotion and marketing of spares and accessories manufactured and supplied by the Singapore firm as well as for promotion and marketing, technical support, sales promotion of CNC machines, spares and accessories and installation and commissioning of CNC machines manufactured and marketed by the Singapore firm - Held that:- as per terms and conditions of the Agreement applicants undertake the sale and promotion of goods manufactured and supplied by the Singapore firm in India and the applicants undertake the activity of technical requirement of Indian customers, assisting the customers in providing an understanding of the various spares supplied by the Singapore firm. In addition to this, as per the Agreement applicants also to undertake the activity of assisting in evaluating the creditworthiness of potential customers in India. Activities undertaken by the applicant under the Agreement for promotion and marketing of spare parts, obligation of collection of receivables etc. in India, hence it cannot be said that the service is used outside India - applicants have not made out a case for total waiver of the pre-deposit of the service tax - stay granted partly.
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2014 (4) TMI 325
Waiver of pre-deposit of service tax - Information Technology Software Service and Consulting Engineers Service - Held that:- admitted facts are that the applicants filed refund claim on 24.04.2012 in respect of the credit availed on the input services received during the period 16.5.2008 to 31.3.2010. As the applicants are claiming refund of the service tax paid on the input services which are used for the output services which were exported, therefore the onus is on the applicants to show that the service tax paid on the services in respect of which refund claim is being filed are used for the export of output service. In the present case the applicants failed to show that the services which received in 2008-2010 were used in the output services which are exported in 2011-12. As per the provisions of Notification No. 5/2006-CE (NT) where the procedure has been prescribed in filing refund under Section 5 of the Cenvat Credit Rules, 2004 it has been specifically provided that refund is to be filed before the expiry of the period specified under Section 11B of the Central Excise Act. In view of the above the applicants failed to show that input services regarding which refund claim is filed are used in providing the output service as the refund claim is in respect of the services which were received during the period 2008-2010 and the output service was exported in 2011-2012 prima facie the applicants have failed to make out a case for total waiver of the pre-deposit - Conditional stay granted.
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2014 (4) TMI 324
Duty demand - Business Auxiliary Service - Collection of Passenger service Fees - Penalty u/s 76, 77 & 78 - Held that:- From statutory definition, it is clear that if a person collects payment for the services rendered by another person and remit the same, then the activity would come under the purview of Business Auxiliary Service as defined in Section 65(19) (vii) and the activity would be leviable to Service tax. Collection of charges for the service rendered is more specifically covered under ‘Business Auxiliary Service' and not under ‘Business Support Service'. As per the Section 65A of the Finance Act, 1994, which deals with the classification of taxable services, sub-clause (105) of Section 65 which provides the most specific description shall be preferred to sub-clauses providing more general description. In the case before us Section 65(19) read with sub-clause (zzb) to Section 65(105) provides the most specific description. Thus the activity undertaken by the appellant is specifically covered under ‘Business Auxiliary Service' and not under ‘Business Support Service'. Extended period of limitation - Held that:- Appellant did not declare the activity to the Revenue authorities during the relevant period and filed the returns only in October 2006. Only from the returns filed in October 2006, the Revenue came to know about the activity under taken by the appellant. The show-cause notice was issued in June 2007, well within the normal period of one year, from the date of filing returns and, therefore, the demand for the period with effect from 16.6.2005 is clearly sustainable in law. Penalty - As regards the penalty imposed under Sections 76 and 77, as pointed out by the learned A.R. appearing for the Revenue, no mens rea is required to be proved and mere contravention of law would suffice. Therefore the penalties imposed under these sections are sustainable, subject to re-quantification of the amount of the service tax liability from the period w.e.f. 16.06.2005. As regards the penalty imposed under Section 78, it is settled position in law that the said penalty is imposable if any of the elements specified in the said Section i.e. fraud, collusion, suppression, willful mis-statement or contravention of any of the provisions of the law with an intent to evade payment of duty are present. In the present case, the appellant did not declare to the department the activities undertaken by them prior to 01.07.2006. Thus the service tax liability of the appellant has to be quantified for the period w.e.f 16.6.2005 and on such recomputed liability, the interest and penal liabilities would accrue - Decided partly in favour of assessee.
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2014 (4) TMI 323
CENVAT Credit - input services - service Tax paid on the seizing charges - services of recovery agent used in Banking and Financial Service and Insurance Auxiliary Service - Revenue contends that Service Tax paid on the seizing charges is not permissible under the law inasmuch as the seizing of vehicles is not an input service for the lending activity undertaken by the appellant - Held that:- expression activity relating to business in the definition of input service is very wide and any activities which are in relation to the business would be an eligible input service. Therefore, there is merit in the contention of the appellant that the recovery agent's services engaged by them is an eligible input service for the period 2007-08 to 2010-11. However, w.e.f. 1.4.2011, the definition of input service has undergone a change and the expression ‘activity related to business' has been omitted and therefore, for the period before 1.4.2011, the recovery agent's service is prima facie an eligible input service. - After 1.4.2014 the same would not be eligible input service - stay granted partly.
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Central Excise
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2014 (4) TMI 300
CENVAT Credit - input services - GTA service - sale of parts and accessories of tyres as such - reversal of proportionate credit - Suppression of facts - Mis declaration - Malafide intention - Held that:- Proportionate credit attributable to trading arrived at in accordance with standard accounting principles is required to be reversed. - Decided against the assessee. Extended period of limitation - If the GTA service credit entry is reflected in return and the appellants have specifically written about their trading activity, it cannot be said that they have suppressed the facts. As regards miss-declaration, having regard to the size of the appellant and the fact that the appellant never took Cenvat credit of service tax attributable to GTA service for inward transportation of tubes and flaps (as stated by learned counsel in reply to query from the Bench), the fact that tubes and flaps were inserted into tyres and the weight of tubes and flaps compared to the weight of tyres is comparatively less, it cannot be said that there was miss-declaration with intention to evade duty - appellant is directed to proportionately reverse the Cenvat credit attributable to service tax paid on GTA service utilized in respect of tubes and flaps inserted into tyres in accordance with standard accounting principles within the normal period of limitation - Decided in favour of assessee.
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2014 (4) TMI 299
CENVAT Credit - Credit on tubes and flaps - parts and accessories of tyres - according to revenue, since the appellants were bringing these tubes and flaps as inputs in respect of the clearances made to OEMs and availing Cenvat credit, treating such clearances as clearances of inputs as such, the demand for differential duty (difference between the Cenvat credit taken and duty paid at the time of clearance) in respect of Trichur unit was made - Held that:- The tyres in question are not tubeless tyres. They required inner tubes as an essential item for functioning, the flaps are also useful and make the functioning of the tyres more convenient and trouble free. Therefore, while tubes can as well find place as part of component of tyre, the flap will clearly be an accessory - appellant’s claim of reversal of Cenvat credit at the time of clearance would amount to reversal of Cenvat credit availed on the tubes and flaps also is also valid - Following decision of Balakrishna Industries Ltd. vs. Commissioner of Central Excise, Jaipur-I [2007 (6) TMI 85 - CESTAT, NEW DELHI] - Decided in favour of assessee.
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2014 (4) TMI 298
SSI Exemption - whether DE is the dummy unit of DEPL - DE was availing SSI exemption - Clandestine removal of goods - Evasion of duty - Held that:- boiler licence is in the name of DE and DE did have machinery and the labour required for manufacture. This is admitted by the Commissioner(Appeals) himself since he says machinery and labour to conduct the manufacturing activities were in the name of DE. However, other than observation that there was a door between the two units and labour was common, there is no evidence to show that the manufacture was undertaken by DEPL. If machinery and labour were in the name of DE and they were installed in the premises registered in the name of DE by the Revenue, question arises how could DEPL be considered as manufacturer. Further the boiler licence is in the name of DE and it is also an observation by the Revenue as recorded as part of evidence that DEPL did not own any machinery of their own. How DEPL can become the manufacturer and DE a dummy unit when DE had the labour and machinery and DEPL did not have anything is a question for which no answers are forthcoming - Matter remanded back.
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2014 (4) TMI 297
Availing exemption for goods manufactured on job work basis in the absence of undertaking given by the supplier manufacturer - Suppliers being SSI units and are not registered but are availing exemption under SSI exemption notification - Notification No.214/2006 or 83/94 - Held that:- in the challans the SSI units who had supplied the raw materials had specifically stated that they are availing the benefit of SSI exemption Notification and, if and when, they cross the limits prescribed under Notification they would pay duty. - once the goods have been supplied under challan and properly accounted for by both the principal manufacturer and the job worker, the benefit of Notification No.83/94 CE cannot be denied on the ground that there was no undertaking given by the principal manufacturer. - appellant is eligible for the benefit of Notification in respect of their supplies made to the SSI units. Decision in the case of decision in the case of International Engg. and Mfg. Services P. Ltd. [2000 (11) TMI 232 - CEGAT]. distinguished - Decision in the case of Salem Weld Mesh [2007 (8) TMI 172 - CESTAT, CHENNAI] and in the case of Bharat Foundry [2009 (2) TMI 606 - CESTAT, AHMEDABAD] followed - Decided in favour of assessee.
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2014 (4) TMI 296
Waiver of predeposit of CENVAT credit - Credit taken on bogus invoices - allegation of non receipt of inputs - Held that:- In the absence of other evidences, only on the basis of the evidences of non-passing of the vehicles through the check-posts or the vehicle numbers mentioned in the invoices were incorrect, cannot be ground & to deny the CENVAT credit, when the basis of sale is ex-delivery - applicant is able to make out prima facie case for total waiver of dues adjudged and accordingly predeposit of all dues adjudged is waived and its recovery stayed during the pendency of the appeal - Stay granted.
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2014 (4) TMI 295
Clandestine removal - non accounting of manufactured goods in stock register - Confiscation of goods - Imposition of redemption fine - it is the case of the assessee that goods in question are already duty paid as procured from another party - Held that:- exactly same quantity was received by the appellant from M/s Anant Syntex Ltd - the entire movement of the MMF fabrics from M/s Anant Syntex Ltd to the hands of the appellant have been properly recorded and all the documentary evidences were available. Revenue did not agree with the contentions that the said goods were duty paid on the ground that having paid the duty, the goods could not remain in the factory premises. In my considered view, this seems to be very irrational and illogical way of coming to conclusion that the goods are liable for confiscation. The findings of the lower authorities as to the appellant has not cancelled and re-entered the said stock with proper intimation to the Department, cannot be the reason to hold that the goods were liable for confiscation as the confiscation of the goods can be made only if they are non-duty paid or duty liability has not been discharged. - goods are not liable to for confiscation - order set aside - decided in favor of assessee.
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CST, VAT & Sales Tax
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2014 (4) TMI 329
Levy of sales tax – turnover - shame transactions for obtaining loan from bank - Whether Tribunal was justified in ignoring the evidences to show that there was no sale – Held that:- The Revenue does not dispute the fact that there is a charge sheet filed by the CBI authorities as against the Indian Bank in granting loans or offering discounting on sham documents - yet the Tribunal rejected the assessee's case on the ground that no reliance could be placed on the charge sheet to decide whether there was sale transaction or not – Thus, with the proceedings still pending before the Criminal Court on the allegation of fictitious loan transaction dealt with by the Bank and one of the parties being the assessee, no hesitation in setting aside the order passed by the Tribunal insofar as the appeals filed by the assessee are concerned. In the case of one of the group concern relating to a similar transaction, the Sales Tax Appellate Tribunal noted that in the proceedings initiated by the Central Bureau of Investigation against Indian Bank Authority, in the charge sheet filed it was stated that there was no genuine transaction in all these cases and no goods as per LC documents were actually procured/supplied/transported. Based on the proceedings thus taken, the Tribunal held that there was no real business transaction and the entire transaction was false and forged. Thus, the asessement in that case was set aside. There is no justification to draw a different conclusion as far as the present case is concerned. Accordingly, all the Tax Case (Revisions) stand allowed and the order of the Sales Tax Appellate Tribunal is set aside. - Decided in favor of assessee.
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2014 (4) TMI 328
Refund of deposit – Levy of Tax - Composite Scheme - withdrawal from the composition scheme - Held that:- Clause 16 of the agreement specifically provides that it would not be open to the dealer to pay a reduced amount or to resile therefrom as that clause clearly contemplated that once a dealer agreed to pay the tax in lump sum, they cannot insist on payment of the tax on the basis of actual turnover or any other reason for e.g. started production very late - Assessee himself voluntarily applied under the compounding scheme deposited the requisite tax and submitted the form on the proforma, it implies that the petitioner had accepted the terms and conditions voluntarily - As scheme specifically provided that there would not be reduction in the composition money. Object of Scheme - Held that:- Relying upon Bhadauria Gram Sewa Sansthan, Fatehpur Vs. Assistant Commissioner, Sales Tax, Allahabad and others [2006 (1) TMI 554 - ALLAHABAD HIGH COURT] – This Court has considered Section 7-D and explained the object of it - The object of introducing such a scheme under a taxing statute is well established as so many advantages are attached to such scheme besides being hassle free to the dealer - It also avoids unnecessary litigation - The department in its turn receives a fixed amount of tax without undertaking the assessment work and, thus, saves a lot of time - It also facilitates the speedy recovery of tax. Agreement to Scheme - Held that:- Relying upon Venkateshwara Theatre v. State of Andhra Pradesh [1993 (5) TMI 157 - SUPREME COURT OF INDIA] - Liability of payment of tax is dependent upon the agreement entered into by the parties and the amount so agreed would continue to be payable by the company notwithstanding the fact that the company could not produce during the period for which it had opted for composition under Section 7-D - The said scheme is not relatable to any actual turn over but depends upon the agreement under the scheme - The company once exercise its option under compounding scheme cannot be permitted to turn around and resile from its liability mere on the ground that it had no turn over or had not produced during the said period - Government Orders dated 12.01.2007, 30.07.2007 and 22.05.2009 are fully justified and sustainable in the eyes of law – No need to interfere with orders - Writ petition, being devoid of merits, fails and is dismissed – Decided against assessee.
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2014 (4) TMI 327
Entitlement for Deduction/ Exemption – Classification - Dry fruits – unprocessed salted or roasted – Interpretation - Held that:- Judgment in Tungabhadra Industries Ltd v The Commercial Tax Officer, Kurnool [1960 (10) TMI 51 - SUPREME COURT OF INDIA] and Dunlop India Ltd. & Madras Rubber Factory Ltd. vs Union of India & Ors [1975 (10) TMI 94 - SUPREME COURT OF INDIA] followed – In manufacturing groundnut oil from purchased groundnuts and refining the oil and hydrogenation to converting it into Vanaspati, no change had occurred in its essential nature and it remained an oil - a glyceride of fatty acids- that it was when it issued out of the press - Entry 31 specifically stated “fried grams” during the period 10.04.2005 to 10.05.2005 - It was subsequently amended with effect from 11-05-2005 to read “Fried and roasted grams” - This suggests that the legislature was aware about the process of roasting and could have provided for it - However, that aspect by itself cannot be conclusive; what is important in the given circumstances is the process of salting or roasting do not change or transform dry fruits into something else - The Court relied upon Dunlop India Ltd. & Madras Rubber Factory Ltd. vs Union of India & Ors [1975 (10) TMI 94 - SUPREME COURT OF INDIA] Similarly, dry fruits – unprocessed salted or roasted- have equal claim to be classified as kirana items under Entry 81 of Schedule III to the Act - Roasting or salting does not result in the creation of a new article, or a significantly altered one as to amount to “manufacture” - Consequently it would be inappropriate to relegate them to the orphanage of the residuary item - The goods are, therefore, held to be classifiable under Entry 81 of the third schedule to the DVAT Act - The appeal is consequently allowed - Decided in favour of the assessee.
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