TMI Tax Updates - e-Newsletter
July 1, 2013

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. RELEVANT INTERPRETATION PRINCIPLES (PART- II)

   By: Dr. Sanjiv Agarwal

2. APPLICABILITY OF SERVICE TAX ON CONSTRUCTION WORK IN RESPECT OF CANAL , DAM, OR OTHER IRRIGATION WORK DONE FOR SARDAR SAROVAR NARMADA NIGAM LIMITED

   By: Anuj Mehta

News

1. Index of Eight Core Industries (Base: 2004-05=100), May, 2013

2. RBI Reference Rate for US $ and Euro

3. The Institute of Company Secretaries of India Organizes ICSI Convocation 2013 – Southern Region at Chennai

4. New Circulars on Transfer Pricing of Development Centres.

Circulars / Instructions / Orders

Income Tax

1. 05/2013 - dated 29-6-2013

Withdrawal of Circulars No. 2 dated 26th March, 2013

2. 06/2013 - dated 29-6-2013

Circular on conditions relevant to identify development centres engaged in contract R&D services with insignificant risk

Customs

3. 25/2013 - dated 1-7-2013

Regarding import of Pets under Baggage

Highlights / Catch Notes

Income Tax

• Application for Section 80IA(4)(iii) Deduction Denied if 2002 Scheme Was Inactive or Inapplicable in 2007.

  Case-Laws - AT : Deduction u/s. 80IA - Mere moving an application for being notified u/s 80IA(4)(iii) on 8th January, 2007 to the Secretary, DIPP cannot confer the benefit when the 2002 scheme was not in operation and not applicable - AT
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• Tribunal Can Permit New Appeal Grounds Without Amending Original Memorandum of Appeal.

  Case-Laws - AT : Additional grounds - Tribunal has power to permit assessee to raise new ground of appeal, not set forth in memorandum of appeal, even without formal amendment of grounds provided - AT
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• Interest on Loan to Managing Director Not Automatically Non-Business; Requires Proof of Diverted Funds. Decision Sent Back.

  Case-Laws - AT : nterest on loan to Managing Director - unless interest payment is directly related to the diverted funds, it cannot be said that interest incurred by the assessee was for non business purpose - remit this issue to AO to decide afresh. - AT
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• Intangible Assets from Slump Sale Qualify for Depreciation as "Business Rights" u/s 32(1)(ii) of Income Tax Act.

  Case-Laws - AT : Specified intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature“ specified in section 32(1)(ii) and were accordingly eligible for depreciation under that section. - AT
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• Assessee Entitled to Section 80IB Deduction Despite Land Ownership Issue; Profit and Loss Solely Theirs.

  Case-Laws - AT : Deduction u/s. 80IB - ownership of land is not with the assessee - All these activities of the assessee show that the profit as well as loss would have accrued to the assessee only - deduction allowed - AT
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• Penalty Confirmed u/s 271(1)(c) of Income Tax Act for Bogus Transaction Identified as Not Genuine.

  Case-Laws - AT : Penalty u/s 271(1)(c) - it has become evident that the transaction is bogus and not genuine. - penalty confirmed. - AT
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• Taxpayer's Payments to GAIL Subject to TDS u/s 194C of Income Tax Act.

  Case-Laws - AT : TDS - the transmission charges paid by the assessee to GAIL certainly attracts the provisions of section 194C - AT
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Customs

• High Court Questions CESTAT's Decision Due to Lack of Prima Facie View on Lower Appellate Authority's Order in Smuggling Case.

  Case-Laws - HC : Smuggling - import of notified goods - In the absence of any prima facie view expressed by the CESTAT regarding the correctness of the order passed by the Lower Appellate Authority, it is difficult to sustain the order of CESTAT. - HC
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Service Tax

• Sales and Service Tax Can Coexist Despite Overlap in Goods and Copyright Use Rights.

  Case-Laws - HC : Transfer of right to use the goods or permission to use the copyright or enjoyment of copyright operate in different fields. There may be overlapping. The impugned legislation cannot be held to be vitiated merely because there is overlapping and that both sales tax and service tax becomes leviable. - HC
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• High Court Upholds Service Tax on Film Distributors, Sub-Distributors, and Theatre Owners; Validates CBEC Circular No.148/17/2011-ST.

  Case-Laws - HC : Service tax from film distributors/sub-distributors/theatre owners - Circular No.148/17/2011-ST dated 13.12.2011 cannot be said to be beyond the powers of CBEC - Writ petitions dismissed. - HC
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• Tribunal Reconsiders Stay Petitions for Waiver of Pre-Deposit on 64 Lakh Duty Demand.

  Case-Laws - HC : Stay/pre-deposit waiver – duty demand of more than 64 lakhs - Stay petitions before the Tribunal revived. - HC
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Central Excise

• Goods Made on Job Work Aren't Exempt; Duty Payment is Principal Manufacturer's Responsibility u/r.

  Case-Laws - AT : Cenvat Credit - goods manufactured on job work basis and cleared without payment of duty cannot be considered as exempted goods since principal manufacturer has to pay duty on the same. - AT
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• CENVAT Credit Approved for Wooden Articles in Propeller Manufacturing Process; No Dispute on Input Usage Validity.

  Case-Laws - AT : CENVAT credit on wooden articles - there is no dispute about its use in the factory premises of the appellant for manufacturing of propellers by casting - considering inptus, credit allowed - AT
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• Cenvat Credit Available for Materials Used in Plant and Machinery Repair Under Central Excise Regulations.

  Case-Laws - AT : Cenvat credit - PMP Plates, Hot Strip, Mill Plates, MS Plates, HR Plates, H.R. Sheet - activity of repair and maintenance of plant and machinery is an activity which has direct nexus with manufacture of final products and the goods used in this activity would be eligible for Cenvat credit. - AT
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Case Laws:

• Income Tax

• 2013 (7) TMI 19
  Interest u/s 234B and 234C - money seized during the search operation - whether be adjusted against the assessed tax as self assessment or advance tax - Held that:- If the assessee has declared income, during the year under consideration in that eventuality he is liable to pay advance tax as per law therefore the A.O. is required to find out whether such liability was existing on the date of seizure. If such liability is existing then he is empowered to apply/adjust the money seized in discharge of the existing liability even without any written representation from the assessee. Thus allow the appeal of the assessee and direct the A.O. to give credit of Rs.8 lakhs as advance tax as requested by the appellant.

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• 2013 (7) TMI 18
  Deduction u/s. 80IA - non granting of deduction stating that the approval from Ministry of Commerce & Industry under the Industrial Park Scheme and subsequent notification in this regard by CBDT has not been received by the assessee - Held that:- As at the time of making initial application by the assessee to DIPP there was no scheme under Industrial Policy Scheme, 2002. A new scheme was framed and gazetted only on 8th January 2008 and this scheme has been implemented with effect from 1st April 2006. Being so, it cannot be held that the 2002 scheme continued to be in operation till 8th January, 2008. Being so, the assessee cannot take advantage or benefit u/s. 80IA(4)(iii). A new scheme was framed on 8th January 2008 and made applicable with effect from 1st April, 2006. Thus the assessee is not duly approved by the competent authority for availing benefit of deduction u/s. 80IA(4) which is mandatory in nature. Mere moving an application to the Central Government for being notified under clause (iii) of section 80IA(4) on 8th January, 2007 to the Secretary, DIP & P, Ministry of Commerce & Industry, New Delhi cannot confer the benefit when the 2002 scheme was not in operation and not applicable. The benefit u/s. 80IA(4)(iii) could be availed by the assessee only after the approval by the DIPP under the scheme. Accordingly, the assessee cannot claim deduction u/s. 80IA(4). Against assessee. Disallowance towards interest expenditure u/s 14A - Held that:- There is no necessity for using the borrowed funds for investment in sister concerns. However, there is no finding that any investments in sister concerns have been made in this assessment year out of borrowed funds on which interest is payable by the assessee. Unless there is a finding that interest is directly related to the diverted funds to the sister concerns, we are not in a position to hold that interest incurred by the assessee is for non-business purposes. Thus it cannot be held that interest incurred by the assessee is for nonbusiness purposes. Therefore, the provisions contained in Rule 8D(2)(ii) cannot be made applicable. If the assessee diverted any interest bearing funds to the sister concern then it is business taken by the assessee to make such an investment and even if it is resulted no income to the interest, notional interest cannot be disallowed on the reason that the assessee should have used its non-interest bearing funds for the purpose of its own business purposes instead of using borrowed funds for its business. The Assessing Officer cannot sit in the armchair of businessman and decide what the assessee has to do to maximise his profits. In favour of assessee. Treatment of income from relinquishment of right in the property - business income v/s capital gain - Held that:- The word "transfer" is inclusive of definition which inter alia provides 6 situations under which there can be transfer in relation to the capital asset. Relinquishment of any rights in the capital asset is one of the situation enumerated in section 2(47). The word "relinquishment" denotes that relinquishment should be only in the case of capital asset with reference to the word "transfer" has been defined. The right of the assessee over the landed property which was part and parcel of the business undertaking of the assessee is a capital asset. The moment assessee losses the right attached to a part of the business undertaking of the assessee there is relinquishment of right over the said property. The relinquishment of assets or extinguishment of any right in it which may not amount to a sale can also be considered as a transfer. Therefore, do not agree with the findings of the CIT(A) that there is no transfer u/s. 45 and the assessee has done only business transaction. Thus the income accrued to the assessee out of relinquishment of right over the property is to be chargeable u/s. 45 and computation of capital gain has to be done in accordance with section 48. In favour of assessee.

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• 2013 (7) TMI 15
  Legality of assessment order - no notice under Section 143(2) or 142(1) of the Income Tax Act, 1961 was served on the assessee - ITAT quashed assessment order as being illegal and void ab initio - Held that:- The appellant could not show before us that it had produced before the Tribunal any such material, which could have proved, beyond any shadow of doubt, that notices, under Sections 142(3) and 142(1), were, indeed, issued to the assessee-respondent herein and served upon the assessee-respondent herein as the appellant claims. At any rate when the assessee had denied receipt of notice, imperative it was, on the part of the dept. to produce requisite materials and, if available, such person(s), who had sent the notices as had been claimed by the Revenue. Nothing of the sort was, however, done by the appellant. Thus finding reached by the Tribunal, cannot be described as perverse. In favour of assessee.

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• 2013 (7) TMI 14
  Seizure of cash in the course of search proceedings - Assessee submitted that out of the total cash seized, Rs. 10 lacs be treated towards payment of advance tax in the case of assessee and similarly balance of Rs. 33 lacs be treated towards payment of advance tax in case of family members/group companies - rejection of rectification application u/s 154 - charging interest u/s 234B and 234C - Held that:- It is an undisputed fact that during the course of search at the residence of directors on 8.2.2007 and locker on 7.3.2007 aggregate cash of Rs. 43 lacs was seized. It is also an undisputed fact that Assessee vide his letter dated 13.3.2007 submitted that out of the cash seized, Rs. 10 lacs be treated towards payment of advance tax in the case of assessee and similarly balance of Rs. 33 lacs be treated towards payment of advance tax in case of family members/group companies. It is also a fact that vide aforesaid letter, the Assessee had requested that cash of Rs. 8 lacs be considered as advance tax in the case of Shreeji Prints P. Ltd. [2013 (7) TMI 19 - ITAT AHMEDABAD]. Thus on interpretation of applicability of explanation, and amendment made by Finance Bill 2013 the amended Explanation cannot be applied in present case. Therefore allow the appeal of the Assessee and direct the AO to give credit of Rs. 10 lacs as advance tax. Thus the appeal of the Assessee is allowed.

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• 2013 (7) TMI 13
  Additional grounds during course of proceedings – CIT objected – Held that:- Tribunal has power to permit assessee to raise new ground of appeal, not set forth in memorandum of appeal, even without formal amendment of grounds provided that new ground does not involve further investigation into facts – Purpose of assessment proceeding to assess taxable liability of assessee correctly in accordance with law – If assessee entitled to certain relief, assessee should not be deprived of it, even if claim first time made before Tribunal during pendency of appeal – Issues raised in additional grounds are legal issues which go to root of matter – Matter restored to CIT to examine additional grounds – Following the decision of Vijay Kumar Jain v. CIT [1974 (3) TMI 18 - PUNJAB AND HARYANA High Court] and National Thermal Power Co. Ltd. v. CIT [1996 (12) TMI 7 - SUPREME Court] – Appeal allowed. Principal of natural justice not followed – Appeal disposed of ex-parte – Held that:- Order of CIT set aside to give adequate opportunity of hearing to assessee, and readjudicate on issues involved – Appeal allowed.

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• 2013 (7) TMI 12
  Disallowance of depreciation - as per Dept. the acquisition of client base of SKS society is neither an intangible asset nor a business or commercial right of similar nature - Held that:- It is not disputed that the assessee has acquired the entire business and commercial asset of SKS on payment of lumpsum consideration which included the cost of acquisition of the existing customer base of SKS Society. It is also a fact that, the customer base acquired by the assessee has provided an impetus to the business of the assessee as the customers acquired are with proven track record since they have already been trained, motivated, credit checked and risk filtered. They are source of assured economic benefit to the assessee and certainly are tools of the trade which facilitates the assessee to carry on the business smoothly and effectively. Therefore, by acquiring the customer base the assessee has acquired business and commercial rights of similar nature. As decided in Areva T & D India Ltd. Vs. DCIT (2012 (4) TMI 79 - DELHI HIGH COURT) while interpreting the term "business or commercial rights of similar nature" by applying the principle of ejusdem generis held that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in section 32(1)(ii) and were accordingly eligible for depreciation under that section. Thus the MOU between the assessee and SKS Society cannot be said to be purely personal & the acquisition of rights over the assets of SKS Society including the customer base is an intangible asset against the entire World, therefore, client acquisition cost paid by the assessee is towards acquiring an intangible asset and therefore eligible for depreciation u/s 32(1)(ii). In favour of assessee. Proportionate expenditure u/s 14A r.w.r. 8D disallowed - Held that:- As relying on Godrej Boyce Mfg. Co. Ltd vs. DCIT(2010 (8) TMI 77 - BOMBAY HIGH COURT) wherein held while making that determination the AO should provide a reasonable opportunity to the assessee for producing its accounts or relevant material having a bearing on the facts and the circumstances of the case. In the present case AO has not afforded adequate opportunity to the assessee and has not given any finding whether the assessee has incurred direct or indirect expenditure for earning dividend income from mutual fund. The CIT (A) has also not given any conclusive finding in this regard. Thus remit this issue to the file of the AO for reconsideration. Interest on loan to Managing Director and notional interest at the rate of 9% on account of advancing loans to employees welfare trust disallowed - Held that:- From the assessment order of the CIT (A)no clear cut finding whether the assessee has utilised borrowed funds for giving loan to the MD or employees welfare trust aroses. In case of SSPDL Ltd. Vs. DCIT [2013 (7) TMI 18 - ITAT HYDERABAD] held that unless interest payment is directly related to the diverted funds, it cannot be said that interest incurred by the assessee was for non business purpose - remit this issue to AO to decide afresh. De-recognition of interest on NPA disallowed - Held that:- As decided in Southern Technologies Ltd. Vs. JCIT (2010 (1) TMI 5 - SUPREME COURT OF INDIA) that income recognition with regard to NPAs should be as per section 45Q of the RBI Act. & CIT vs. Vasisth Chay Vyapar Ltd., and another (2010 (11) TMI 88 - Delhi High Court) that where even the principal amount itself had become doubtful of recovery it cannot be said that interest thereupon had accrued & that having regard to the provisions of section 45Q of the RBI and prudential norms issued by the RBI in exercise of its statutory powers where interest was not received on non performing asset and the possibility of recovery was almost nil it could not be treated to have been accrued in favour of the assessee direct the AO to delete the amount as it cannot be said that interest amount has accrued to the assessee.

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• 2013 (7) TMI 11
  Valuation of converted share of Off-shore India Ltd. - assessee has taken two contradictory methods for valuation of the same share for the same assessment year - CIT(A) deleted the addition - case of the assessee is that it values unquoted shares on the basis of fair market value, which is in case of unquoted shares determined on the basis of break-up value of the last available balance- sheet - Held that:- In the instant case, shares of two companies were converted as on 01.04.2003 from investment to stock in trade. Both these shares were valued at fair market value being less than cost as on 31.03.2003 and the same was duly accepted by the department. On the very same value, the said shares were converted into stock in trade on the immediately next date i.e. 01.04.2003. Thus, the shares were converted into stock in trade on the fair market value as on the date of conversion. Out of the shares of two companies which were converted on the same system, the department has accepted the system as correct in the case of Yield Investments Pvt. Ltd. and has disputed only in the case of Off-Shore India Ltd. As on 01.04.2003, the fair market value of Off-Shore India Ltd. was determined on the basis of break-up value of last available balance-sheet as on that date, which was also accepted by the Revenue as the market value as on 31.03.2003, there was no reason to dispute that the same was not the market value as on 01.04.2003 on the basis of data available on that date. Thus, no specific error in the order of the CIT(A) could be pointed out by the Revenue by bringing any relevant material on record - ground of Revenue is dismissed.

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• 2013 (7) TMI 10
  Income from undisclosed sources - CIT(A) deleted the addition - whether CIT(A)-VIII erred in law in deciding the appeal in favour of the assessee without giving opportunity to AO as per provision of Rule 46A of the I.T.Rule, 1962 - reopening of assessment as that there was deposits in cash as well as cheque in the bank account maintained by the assessee with ABN AMRO bank with assessee having only interest income which was much less than the amount of deposit - Held that:- In the instant case the income which was added in the re- assessment was not on the basis of any subsequent information received by the AO but was only for the reason that the assessee could not prove sale transaction of unquoted equity shares already recorded in the books of account. In the recorded reasons the AO formed belief about escapement of income on the ground that there was deposit in AMB AMRO bank of the assessee by cash as well as by cheque and there was increase in cash balance as at the end of the relevant years in compare to the opening cash of those years and as in the opinion of the AO the assessee has not sold any shares during the year under consideration and therefore he believed that income chargeable to tax has escaped assessment. It was not the case of the Revenue that bank account with ABN AMRO bank of the assessee was not a disclosed bank account recorded in the regular books of account maintained by the assessee. Further in the impugned years the AO admitted that the assessee has shown sale of shares in both the years and therefore the contrary facts observed in the recorded reasons were erroneous. Thus the belief about the escapement of income was formed on the basis of an erroneous assumption of facts and therefore reopening of assessment was not valid. In favour of assessee.

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• 2013 (7) TMI 9
  Penalty u/s. 271(1)(C) - undisclosed income to tax - reopening of assessment - AO & CIT(A) while levying penalty has categorically mentioned that no reply was filed by the assessee in compliance to the notice dated 16.05.2011, which was served upon the assessee - Held that:- However, since the copy of reply has been placed on record before us claiming the same being received by the office of the AO on 26.05.2011 as evidenced by the seal of AO's office of even date and penalty order was passed by the AO on 30.05.2011, the same cannot be ignored. Therefore, matter requires fresh adjudication at the end of AO - appeals of assessee allowed for statistical purpose.

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• 2013 (7) TMI 8
  Deduction u/s. 80IB denied - as per AO assessee is not owner of the land on which he has claimed the deduction of business income - assessee's submitted that there is no requirement of ownership of land for claiming the deduction u/s. 80IB(10) as assessee fulfills all the conditions mentioned in the Act for claiming deduction - CIT(A) allowed the claim - Held that:- As during the appellant proceeding CIT(A) after going through the agreement for development, found that assessee was de facto owner of the land and assessee had full freedom to develop the plot in the manner he desired. He had also undertaken the entire task of development, construction and sale of the housing units to be located on the land being developed by him. The assessee had taken financial risk of developing the project as the investment in purchasing the land in the name of the society was also made by the assessee. The assessee was enrolling the members, receiving the contributions and the price of the unit was also decided by the assessee. All these activities of the assessee show that the profit as well as loss would have accrued to the assessee only. Thus CIT(A) has rightly held that the assessee was entitled for deduction u/s. 80IB(10) following the decision of Gujarat High Court in case of Radhe Developers and Others [2011 (12) TMI 248 - GUJARAT HIGH COURT]. Revenue's appeal is dismissed.

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• 2013 (7) TMI 7
  Penalty u/s 271(1)(c) - Held that:- The assessee had made claim of expenditure which was held not to be genuine by the AO as well as by the CIT(A) and by the Tribunal. Further, the assessee had grossly failed to prove that consultancy services were obtained from M/s. Super Consultancy Services for the purpose of the assessee's business. The circumstantial evidences also showed that the assessee did not obtain any services from M/s. Super Consultancy Services as held by the Tribunal. Thus, it has become evident that the transaction is bogus and not genuine. In these circumstances, it is not necessary to interfere with the order of the CIT(A) sustaining the penalty made by the AO u/s 271 (1) (c). Against assessee.

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• 2013 (7) TMI 6
  Disallowance of non-genuine brokerage expenses - Held that:- AO had made a specific finding that an abnormal amount of commission was claimed in the month of March coupled with various other discrepancies which is required to be met out by the assessee. Payment of commission by cheque and deduction of TDS alone cannot establish by itself that the expenditure is genuine. Therefore, in the interest of justice, we remit this issue back to the file of the learned CIT(A) for de novo consideration. Thus, this ground is allowed for statistical purpose. Addition made u/s 68 and disallowance of interest expenses - Held that:- CIT(A) rendered relief to the assessee by observing that the learned AO had given superficial reasons to treat the loan as unexplained which we find is not tenable. The learned AO had categorically mentioned that the assessee had not provided the correct address of the lenders to issue notice for summons. Therefore, in the interest of justice remit this issue also to the file of the CIT(A) for de novo consideration. Addition on Account of excess shortage - CIT(A) deleted addition - Held that:- It is pertinent to note that the books of account maintained by the assessee have not been rejected. No defect has also been pointed out by the AO with respect to the books of account. No discrepancies with regard to shortage affecting the yield were also pointed out by the AO. Thus addition made by the AO based on 2% shortage cannot be sustained. Addition u/s 69B for stock difference - CIT(A) deleted addition - Held that:- CIT(A) deleted the addition since the AO could not find any defect in the stock statement arrived at on the basis of physical verification. Further, AO had ignored the reconciliation statement for quantity difference submitted by the assessee. Thus it not necessary to interfere in the order of the CIT(A).

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• 2013 (7) TMI 1
  Transmission charges being part of purchase price of gas - Non deduction of TDS u/s 194C - assessee company, engaged in manufacturing of fertilizers, had purchased natural gas from GAIL same transported to the manufacturing unit of the assessee through the pipeline of GAIL for which the assessee had paid the transmission charges to GAIL - Held that:- In the instant case GAIL has not only supplied/transported the gas sold by it but also the gas purchased by the assessee from other sellers. In those cases the transmission charges paid by the assessee to GAIL certainly attracts the provisions of section 194C as per circular no. 9/2012 [F.No. 275/11/2012-IT(B)] dated 17.10.2012 of CBDT. From a careful perusal of the orders of the lower authorities, it is find that the assessee has also admitted in his written submissions filed before the CIT(A) that it has also purchased the gas from other sellers i.e. Reliance Industries Ltd. apart from the GAIL but the same was transported by the GAIL and the assessee had paid transmission charges to the GAIL and also deducted TDS on the payment but this aspect has not been clarified by any of the lower authorities as they have treated the entire payment of transmission charges as has been made u/s 194I or 194C of the Act. In the light of these facts, this aspect is required to be examined by the lower authorities as to how much transmission charges are paid by the assessee to GAIL for transportation of the gas purchased by it from GAIL and also the amount of transmission charges paid by the assessee to GAIL for transportation of gas purchased from other agencies - restore the matter to the file of AO with the direction to reexamine the issue afresh - in favour of assessee for statistical purposes.

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• Customs

• 2013 (7) TMI 17
  Enhancement of the assessable value of imported Non-Texturised Lining Cloth - rejection of revenue claim by Commissioner (Appeals) - Held that:- Revenue in their memo of appeal has referred to NIDB data as there is no direct evidence reflecting upon the under valuation of the imported goods. It is well settled that NIDB data cannot be adopted as a reason for enhancement of the assessable value. Against revenue.

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• 2013 (7) TMI 16
  Smuggling - import of notified goods - order of CESTAT - held that:- it is seen that the CESTAT has merely quoted the reasoning given by the Commissioner of Customs (Appeals) and has not given any independent finding as to whether the Tribunal has agreed with the reasoning given by the Lower Appellate Authority or not. In the absence of any prima facie view expressed by the CESTAT regarding the correctness of the order passed by the Lower Appellate Authority, it is difficult to sustain the order of CESTAT. Order of CESTAT is quashed and set aside and the matter is restored to the file CESTAT for fresh consideration in accordance with law.

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• Service Tax

• 2013 (7) TMI 23
  Temporary transfer or permitting the use or enjoyment of any copyright - except the rights covered under sub-clause (a) of sub-section (1) of Section 13 of the Indian Copyright Act for the period from 1.7.2010 to 31.06.2012 and the period from 01.4.2013 onwards since the levy of service tax on Copyright Services (Section 65(105)(zzzzt) is revived from 1.4.2013 with the exception of Section 13(1)(a) or Cinematograph films for exhibition in a cinema hall or a cinema theatre - assessee contested that Copyright is considered as transfer of right to use the goods, which is a sale in terms of Article 366(29A) read with Entry 54 and not a service - Assessee's contention that Temporary transfer or use or enjoyment of the copyright is a sale of goods falling under Entry 54 of List II - Held that:- Section 65(105)(zzzzt) seeks to tax viz., "temporary transfer or permitting the use or enjoyment" of copyright which is a service provided by the producer/distributor/exhibitor. Service Tax is a levy not on the "transfer of right to use the goods" as described under Article 366(29A) sub-clause (d); but on the temporary transfer" or "permitting the use or enjoyment" of the copyright as defined under the Copyright Act, 1957. In the case of Sales Tax Act, there would be "transfer of right to use the goods". Whereas under the Service Tax Act what is levied is temporary transfer/enjoyment of the goods. The pith and substance of both enactments are totally different. "Temporary transfer" or "permitting the use or enjoyment of the copyright" is not within the State's exclusive power under Entry 54 of List II. Therefore, there is no merit in the contention that the taxable event provided under Section 65(105)(zzzzt) is covered by Article 366(29A). The impugned levy is a tax on service and in terms of the definition of taxable service under section 65 (105)(zzzzt), it means any service provided or to be provided to any person by any other person and two types of such services are contemplated one being transferring temporarily and the other being permitting the use or enjoyment of copyright. Therefore, the impugned levy is not a levy of tax on the "transfer of the right to use the goods", but, on the service provided or to be provided for transferring temporarily or permitting the use or enjoyment of any copyright, except the rights covered under section 13(1)(a) of the Copyright Act. It is a levy which is distinct from the levy under Entry 54 of List II or Entry 92A of List I. Therefore, there is nothing wrong for Parliament to claim taxing power under Entry 97 of List I and all that is required to be shown is that that tax is not mentioned in List II or List III. Resorting to Entry 97 of List I. The Parliament brought out the amendment Section 65(105)(zzzzt) bringing the activity of temporary transfer or permission to use or enjoy the copyright for consideration under the ambit of service tax net on the service provided by resorting to Entry 97 of List I and the same cannot be said to be ultra vires the Constitution. Transfer of right to use the goods or permission to use the copyright or enjoyment of copyright operate in different fields. There may be overlapping. The impugned legislation cannot be held to be vitiated merely because there is overlapping and that both sales tax and service tax becomes leviable. Legislative competence of the Parliament - As decided in MAFFTALAL INDUSTRIES LTD.,v UNION OF INDIA [1996 (12) TMI 50 - SUPREME COURT OF INDIA]in the matter of taxation laws the Court permits a great latitude to the discretion of the legislature and the State is allowed to pick and choose objects, persons, methods, and even rates for taxation, thereby having wide discretion. Permission to use and transferring temporarily or enjoy the intangible goods such as designs, patents and trademarks were subject matter of levy to service tax from 2004. Though copyright is also once such intangible item, it was excluded from the scope vide section 65 (55a). Now copyright service has been brought under the category of taxable service, by virtue of section 65 (105)(zzzzt). Therefore, the respondents may be justified in stating that when temporary transfer of other categories of intellectual property such as designs, patents and trademarks are liable to service tax, there is no justifiable reason to exclude copyright services from such category. Writ petitions dismissed.

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• 2013 (7) TMI 22
  Service tax from film distributors/sub-distributors/theatre owners - challenge the Circular No.148/17/2011-ST dated 13.12.2011 bearing F.No.354/27/2011-TRU - service tax on Copyright Services - Held that:- The impugned Circular above has examined different types of arrangements between distributor/sub-distributor or exhibitor of the movie. It is a clarification on levy of service tax on distributors/sub-distributors of films and exhibitors of movie. Under the new service tax regime, as per Section 66D, all services will be liable to tax except those which are specifically mentioned in the exemption notification and the Negative List. Section 66B of the Act levies tax on all services other than those services specified in the Negative List. Section 66D of the Finance Act 1994 sets out the various services that are not liable to be taxed in the sense that they do not fall under the charging Section 66B. As per Section 66D(j), "admission to entreatment events or access to amusement facilitates", are exempted from service tax, thus are non-taxable Negative List services. What is not taxable is "tax on admission to entertainment events or access to amusement facilities", the reason, being, "tax on admission or entry of such events is covered in the State List, which is subjected to Entertainment Tax. The Central Government has issued Mega exemption Notification No.25/2012-S.T dated 20.06.2012. As pointed out earlier, from 2012, the basis of levying service tax was changed from "service specific levy" to "levying tax on all services except services specified in Negative List and the Exemption Notification." By a combined reading of Section 66D(j), Notification Nos.25/2012-S.T dated 20.06.2012 and 3/2013-S.T. Dated 1.3.2013, it is clear that what is exempted is only an admission to entertainment events or access to amusement facilities or exhibition of cinema in a theatre. The variant modes of transaction between the distributor/sub-distributors of films and exhibitors of movie and the revenue sharing arrangement between them are neither in the "Negative List Services" nor exempted. The impugned Circular No.148/17/2011-ST dated 13.12.2011 cannot be said to be beyond the powers of Central Board of Excise and Customs. The Circular does not restrict the powers of the officials to decide a particular dispute in a particular manner and the impugned circular is not violative of Section 37B. All the writ petitions are liable to be dismissed.

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• 2013 (7) TMI 21
  Validity of show cause notice - Section 73 of the Finance Act or 71A of Finance Act – whether the liability under Section 73 does not cover the case on whom liability is cast under Section 71A -liable to pay Tax – Held that:- Section 73 does not cover the classes of persons coming under Section 71-A - the show cause notices issued under Section 73 was not maintainable – as decided by the supreme court in CCE v. L.H. SUGAR FACTORIES LIMITED(2005 (7) TMI 106)- appeal dismissed.

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• 2013 (7) TMI 20
  Stay/pre-deposit waiver – duty demand of more than 64 lakhs - the amount of duty demand along with penalties and interest – Held that:- Tribunal had given sufficient opportunities to the petitioners to appear and argue their stay petitions on merits. - Such opportunities were not availed. - However, looking to the sizable amount of duty demand which was confirmed in the order in original and its overall impact along with penalties and interest, on certain suitable condition of imposing cost, we are inclined, as a special case, to enable the petitioners to appear before the Tribunal and argue their stay petitions on merits. - earlier orders to be set aside - Stay petitions before the Tribunal revived.

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• Central Excise

• 2013 (7) TMI 5
  Input credit denied - allegation of appellant using furnace oil as fuel for manufacturing of dutiable goods as well as job work goods & not maintaining separate account of fuel consumed in the manufacture of dutiable goods and job work goods - Held that:- As appellant are manufacturers of excisable goods as well as they are undertaking job work of excisable goods. Rule 6(2) applies where assessee is not maintaining separate account of input/input service for manufacturing dutiable as well as exempted goods. In this case appellant are not manufacturing any exempted goods. The understanding by lower authorities that job work goods are exempted goods are not sustainable and they have misinterpreted the law. As decided in Sterlite Industries Ltd. V CCE (2004 (12) TMI 108 - CESTAT, MUMBAI) input credit of duty paid on inputs used in the manufacture of final product cleared without payment of duty that manufacture of final product which are cleared by the principal manufacturer are not hit by the provision of Section 57C of Central Excise Rules, 1944. Also in the case of CCE V. J. H. Kharawala P. Ltd. (2008 (7) TMI 287 - CESTAT, AHMEDABAD) held that goods manufactured on job work basis and cleared without payment of duty cannot be considered as exempted goods since principal manufacturer has to pay duty on the same. In favour of assessee.

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• 2013 (7) TMI 4
  Reversal of CENVAT Credit - CERA audit officers directed the assessee to reverse the amount of CENVAT Credit - Solvents, Master-coat, M.S. Bar, Angle, Beam, HR Coils etc. - Held that:- Strong force in the contentions raised by assessee that if an assessee has correctly availed the CENVAT Credit and is directed to reverse the same by audit officers on the ground which is not examined by them, it would amount to forcibly directing the appellant to reverse the CENVAT Credit. As apparently the reversal of the amount in the RG23A Part-II register was made without any verification and on the basis of the direction of the officers who conducted the audit. Moreover, the reversal was not a conclusion of any legal process. Subsequently, when the assessee found that they were not eligible for the credit, they have promptly reversed the ineligible portion of the credit on their own. Therefore what has been done by the appellants is basically adjustment of the credit and it has no link to any transaction other than taking credit. Therefore, it is a mere adjustment and squarely covered by the decisions of Lark Wires & Infotech Ltd (2008 (7) TMI 167 - CESTAT AHMEDABAD. In favour of assessee.

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• 2013 (7) TMI 3
  CENVAT credit on wooden articles denied - demand and recovery of CENVAT Credit - Held that:- There is no dispute that these wooden propellers are used by the appellant for making sand moulds from which he manufactures the casting propellers. It is also undisputed that the Excise duty has been paid on such wooden propellers by the manufacturer. It is seen that the appellant has taken the CENVAT Credit of the duty paid under the capital goods. As the definition of the input in CENVAT Credit Rules, 2004 clearly indicate at Explanation (ii) that input includes the goods used in the manufacture of capital goods which are further used in the factory of the manufacturer, the item, even if it is not the capital goods, it can be considered as an input as there is no dispute about its use in the factory premises of the appellant for manufacturing of propellers by casting. See Meghmani Dyes & Intermediates Ltd (2009 (7) TMI 868 - CESTAT, AHMEDABAD). In favour of assessee.

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• 2013 (7) TMI 2
  Cenvat credit denied - PMP Plates, Hot Strip, Mill Plates, MS Plates, HR Plates, H.R. Sheet & angles used in relation to repair & maintenance of plant and machinery - Held that:- Repair and maintenance of plant and machinery is an activity without which smooth manufacturing is not possible. Commercially, manufacturing activity is not possible with malfunctioning machines, and leaking tanks, pipes and tubes. Therefore the activity of repair and maintenance of plant and machinery is an activity which has direct nexus with manufacture of final products and the goods used in this activity would be eligible for Cenvat credit. For eligibility of an input for Cenvat credit what is relevant is whether the activity in which that input is used has nexus with the manufacture of final product and the nexus has to be determined on the basis of criteria as to whether that activity is commercially essential for manufacture of the final products. In favour of assessee.

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