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Notice under section 142 should be complied with the proper address of the assessee or it cannot be treating valid

Posted on 22 September 2012 by Apurba Ghosh

Court

INCOME TAX APPELLATE TRIBUNAL


Brief

It would be relevant to recount the facts of the case in brief. The assessee's return of income for the year, filed on 30-11-2006 at a loss of Rs.226.07 lakhs, was selected for scrutiny, serving notice u/s. 143(2) of the Act. There being no response to notice u/s. 142(1), the assessment was framed by the AO u/s. 144 of the Act, also considering the paucity of time, estimating the income at 5% of the turnover of Rs.1852.65 lakhs, i.e., at Rs.92.63 lakhs. In first appeal, the assessee raised contentions qua assessment u/s. 144 as well as on the quantum of the income assessed. The Revenue having served notice u/s. 142(1), i.e., which was not complied with, at the new address of the assessee, taking pains to locate the same (from the website of the Registrar of Companies), the assessee's contention that there was no service of the said notice could not be accepted; it being incumbent on it to notify any change in its address to the Revenue, and which it had clearly failed to. As such, the framing of assessment u/s. 144 of the Act could not be assailed, and was accordingly upheld


Citation

DCIT, Circle-9, Ayakar Bhawan, 5th Floor, P7, Chowringhee Square, Kolkata – 700 069 (Appellant) V/s. Negamum Suppl iers Pvt . Ltd. , 4, Fairl ie Place, Mazanine Floor, Room No.M-32, Kolkata-700001[PAN: AAACN 9884A] (Respondent)


Judgement

 
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "A" KOLKATA
 
Before Shri Mahavir Singh, Judicial, Member and
Shri Sanjay Arora, Accountant Member
 
ITA No.574/Kol /2012
Assessment Year: 2006-07
 
DCIT, Circle-9,
Ayakar Bhawan, 5t h
Floor, P7,
Chowringhee Square,
Kolkata – 700 069
(Appellant)
 
V/s.
 
Negamum Suppl iers Pvt .
Ltd. , 4, Fairl ie Place,
Mazanine Floor, Room
No.M-32, Kolkata-700001
[PAN: AAACN 9884A]
 (Respondent)
 
By Appellant Shri A.K.Paramanik, DR
By Respondent None
 
Date of Hearing 23-08-2012
Date of Pronouncement 3-08-2012
 
O R D E R
PER Sanjay Arora, AM:-
 
This is an Appeal by the Revenue directed against the Order by the ld. Commissioner of Income-Tax (Appeals)-VIII, Kolkata ('CIT(A)' for short) dated 05-01-2012, partly allowing the assessee's appeal contesting its assessment u/s. 144 of the Inc-tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y) 2006-07 vide order dated 22-12-2008.
 
2. The appeal raises a single issue, though per two grounds of appeal, i.e., Ground Nos. 1 & 2. In fine, the Revenue impugns the estimation of the assessee's net profit, assessed on best judgment basis by the Assessing Officer (AO), at 5% of the assessee's turnover for the relevant year, i.e., at Rs.92,63,238/-, and which stood modified by the first appellate authority to 0.50% of the said turnover.
 
3. It would be relevant to recount the facts of the case in brief. The assessee's return of income for the year, filed on 30-11-2006 at a loss of Rs.226.07 lakhs, was selected for scrutiny, serving notice u/s. 143(2) of the Act. There being no response to notice u/s. 142(1), the assessment was framed by the AO u/s. 144 of the Act, also considering the paucity of time, estimating the income at 5% of the turnover of Rs.1852.65 lakhs, i.e., at Rs.92.63 lakhs. In first appeal, the assessee raised contentions qua assessment u/s. 144 as well as on the quantum of the income assessed. The Revenue having served notice u/s. 142(1), i.e., which was not complied with, at the new address of the assessee, taking pains to locate the same (from the website of the Registrar of
Companies), the assessee's contention that there was no service of the said notice could not be accepted; it being incumbent on it to notify any change in its address to the Revenue, and which it had clearly failed to. As such, the framing of assessment u/s. 144 of the Act could not be assailed, and was accordingly upheld.
 
On merits of the income assessed, the ld. CIT(A) culled out the principles attending the framing of a best judgment assessment in his order, i.e., that it should reflect an honest estimate, taking a reasonable view of the entirety of the facts and circumstances and the material on record, even as some element of guess-work would always obtain, which though would not make operate to invalidate the same as long as the estimate represents a fair and reasonable view of the matter, and is not wild or arbitrary, i.e., is guided by the rules of justice, equity and good conscious. Reliance for the purpose was made by him on the decisions in the case of CIT v. Laxminarain Badridas (1937) 5 ITR 170 (PC); State of Kerala v. C. Velukutty (1966) 60 ITR 239 (SC) and CIT v. Ranicherra Tea Co. Ltd. (1994) 207 ITR 979 (Cal). Further, though the principle of res judicata does not apply to the proceedings under the Act, when a question of law or of fact stood decided in the assessee's own case for an earlier year, the Tribunal would be justified in placing reliance on its earlier decision in the absence of any new material or change in the circumstances – CIT v. Velimalai Rubber Co. Ltd. (1990) 48 Taxman 356 (Ker.) [181 ITR 299] and CIT v.  National Bearing Co. Ltd. (1994) 208 ITR 872 (Raj).
 
The assessee pleading before him that the AO had not given any reasons in support of his estimation, the matter was remanded by the ld. CIT(A) to the file of the AO for verification of facts. In the remand proceedings, in terms of the remand report itself, the relevant part of which stands reproduced by the ld. CIT(A) at page-10 of his order, the assessee produced the necessary evidences and clarifications before the AO, and which were examined by him, to, however, no adverse comment in the matter. The assessee's declared and assessed profit for the immediately preceding year, i.e., A.Y. 2005-06, and which was the first year of its operations as a liquor trader, was at 0.42% of the turnover. The assessee, though sought to explain its returned loss for the year in terms of excessive licence payments as well as increase in the overhead expenses, seeking to justify the same with reference to the outstanding liability at Rs.74.55 lakhs as at year-end, the ld. CIT(A) found that the bulk of the said liability was for capital outlay, so that it would not impact the operating margin. He, therefore, estimated the assessee's profit for the year at 0.5% of the turnover. Aggrieved, the Revenue is in appeal before us.
 
4. Before us, both the parties relied on the orders of the authorities below, i.e., to the extent favourable thereto.
 
5. We have heard the parties, and perused the material on record.
 
5.1 We, firstly, observe that the assessee is not in appeal, so that the assessment has to be considered as an assessment u/s. 144 of the Act, i.e., an aspect on which the impugned order carries a definite finding, even as it wrongly states of the assessment order as being one u/s. 143(3) of the Act. That being the case, in our view, it was not proper for the first appellate authority to have remitted the matter back to the file of the AO for allowing the assessee an opportunity to present its case, as well as produce the necessary documents or evidences and clarifications before him, as was afforded by the ld. CIT(A). Reference in this context is made to the decision in the case of CIT v. Rayala Corporation Pvt. Ltd. (1995) 215 ITR 883 (Mad). So, however, the same inconsequential as the Revenue has not challenged the said remission before us; both its grounds, as aforesaid, concerning the estimation of the net profit or the quantum of the income assessed.
 
5.2 Coming, next, to the issue on merits. The material on which reliance has been ostensibly placed by the authorities below in framing their respective estimates is not before us. It is incumbent on the party challenging an order to show as to in what manner the same is un-informed, and which could only be with reference to underlying records, i.e., the material on which the assessment, as also the revision therein as made, is purportedly based. In the instant case, the assessment order is completely silent on the basis of the estimation of profit by the AO at 5% of the turnover, being guided perhaps by a general notion that that should be a reasonable margin for a businessman to operate on. The same, thus, to that extent cannot be said to be a speaking order, which is a perquisite for the same to be considered as a valid one in the eyes of law. The appellate order makes reference to the assessee's returned and assessed income for the immediately preceding year, and is therefore more complete and on a sounder basis, even as the reference is per force to only a single year in the past, and which may not be very representative of the assessee's trade. Also, though definitely preferable, and thus it would only have been more appropriate, to refer also to the working results of other similar traders in liquor business for the relevant year, and to the industry results/average in general; the said information being available in the public domain, and considered and factored in the making an estimate, not having done so by the ld. CIT(A) would not by itself make his order un-sustainable in law. This is particularly so as the Revenue has not led any material to impugn the estimation as made by him, making out a prima facie case in its favour. Merely stating that the results are too low, without anything more, would be by itself be of no consequence. In fact, even where so, so that the Revenue exhibits an apparent infirmity or incongruity in the estimation as adopted by the first appellate authority, the
principle of natural justice would warrant a remand back to the file of the adjudicating authority to meet the same. Under the circumstances, we find no reason to interfere with the findings by the first appellate authority and, accordingly, uphold his order. We decide accordingly.
 
6. In the result, Revenue's appeal is dismissed.
 
Order pronounced in Open Court on the date mentioned hereinabove at caption page.
 
Sd/-                                                                             Sd/-
(Mahavir Singh)                                                                 (Sanjay Arora)
Judicial Member                                                            Accountant Member
 
Kolkata,
*Dkp
23/08/2012 
 
Copy of Order Forwarded to:-
 
1. Appellant
2. Respondent
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Kolkata
6. Guard file.
 
/True Copy/
 
By order
Astt. Registrar,
Kolkata Benches
 
Strengthen preparation & delivery of orders in the ITAT
 
1) date of taking dictation 23/08
2) direct dictation by Member straight on computer/laptop/dragon dictate No
3) date of typing & draft order place before Member 27/08
4) date of correction 27/08
5) date of further correction -
6) date of initial sign by Members 27/08
7) order uploaded on 28 /08
8) short-hand note attached to file Yes
9) final order and 2nd copy send to Bench Clerk on 28 /08




In the absence of insufficiency addition is rightly be deleted and late payment of tax is compensatory

Posted on 22 September 2012 by Apurba Ghosh

Court

INCOME TAX APPELLATE TRIBUNAL


Brief

Brief facts are the assessee is engaged in business of manufacturing and trading of perfumery compounds, aromatic chemicals & other oils. Survey operations were carried out in the case of M/s. Surya Vinayak Industries Ltd. (SVIL) and associated concerns including assesses' (GBIL). The survey operations were carried out in the wake of information received from Investigation Wing of the department that one Sh. Atul Kumar Bansal and his associated concerns were engaged in business of providing accommodation entries by issuing purchase bills which included M/s. Kumar Bansal Traders Pvt. Ltd. and M/s. Varun Trading Company


Citation

DCIT, Cen. Cir. 13, New Delhi. (Appellant) Vs. Global Busines India Pvt. Ltd., Zone H 4/5, 53 & 54 Suvidha Kunj, Pitam Pura, Delhi. PAN: AABCG 4576F (Respondent)


Judgement

 
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" New Delhi
 
BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR
 
ITA No. 1622/Del/08
A.Yr. 2004-05
 
DCIT, Cen. Cir. 13,
New Delhi.
(Appellant)
 
Vs.
 
Global Busines India Pvt. Ltd.,
Zone H 4/5, 53 & 54 Suvidha Kunj,
Pitam Pura, Delhi.
PAN: AABCG 4576F
 (Respondent)
 
Appellant by: Shri R.I.S. Gill CIT (DR)
Respondent by: Shri Rajeev Saxena Adv.
 
O R D E R
PER R.P. TOLANI, J.M::
 
This is revenue's appeal challenging deletion of following additions by CIT (A):-
 
1. Rs. 5,62,17,980/- on account of bogus purchase
2. Rs. 4,50,405/- on account of payment of interest for sales tax deposit.
3. Consideration of interest of FDR of Rs. 6,38,558 for calculating deduction u/s. 80IB.
 
2. Brief facts are the assessee is engaged in business of manufacturing and trading of perfumery compounds, aromatic chemicals & other oils. Survey operations were carried out in the case of M/s. Surya Vinayak Industries Ltd. (SVIL) and associated concerns including assesses' (GBIL). The survey operations were carried out in the wake of information received from Investigation Wing of the department that one Sh. Atul Kumar Bansal and his associated concerns were engaged in business of providing accommodation entries by issuing purchase bills which included M/s. Kumar Bansal Traders Pvt. Ltd. and M/s. Varun Trading Company.
 
According to AO the raw materials used in assessee's business were available in cash market and it was difficult to purchase them in regular market. To overcome this difficulty, assessee employed a modus operandi of purchasing raw materials in cash and obtaining accommodation bills supported with payments by cheques. Assessee was found to have purchased goods aggregating to Rs. 22,48,71,920/- by the bills issued by M/s. Kumar Bansal Traders Pvt. Ltd. and M/s. Varun Trading Company from these entities operated by Mr. Atul Bansal. Besides many other issues also cropped up during the course of assessment proceedings. The case was sent to Addl. Commissioner of Income Tax, Range – 12, New Delhi for directions under Section 144A of IT Act.
 
2.1. The Addl. CIT, after hearing the assessee, issued following directions to AO in this behalf: -
 
(i) The assessee has shown purchases from M/s. Kumar Bansal Trader Pvt. Ltd. And M/s. Varun Trading Company amounting to Rs. 22,48,71,920/- which were found to be bogus in the form of accommodation entries. Therefore, 25% of the purchase price accounted for in books of account through invoices in the name of these two suppliers will not be allowed as expenditure, which will come to Rs. 5,62,17,980/- and will be considered part of total income while computing total income of the assessee company.
 
(ii) The above disallowance is not in the nature of profit derived, which is eligible or 80IB deduction and, hence while computing 80IB deduction, the above disallowance of Rs. 5,62,17,980/- is not to be considered as forming part of the business profits eligible for 80IB deduction.
 
(iii) While working out 80IB deduction, the trading profits of Rs. 14,17,500/- are to be excluded from deduction under section 80IB.
 
(iv) The interest income amounting to Rs. 6,38,558/- is not to be considered for allowing 80IB deduction.
 
2.2 Accordingly, AO framed the assessment under these directions and as the above concerns were held to be accommodation entities, AO disallowed 25% of the purchases amounting to Rs. 5,62,17,980/- following ITAT judgment in the case of M/s. Vijay Proteins Ltd. Vs. ACIT, reported in 58 ITD 428.
 
2.3 An amount of Rs. 4,05,405/- paid by the assessee as interest on late deposit of Sales tax was held by the AO to be in the nature of penalty and was disallowed u/s 37 of the IT Act.
 
2.4 The assessee had earned interest of Rs. 6,38,558/- which according to AO was not attributable to assessee's business of manufacturing, therefore, the same was excluded in the computation of deduction under section 80IB. 2.5 Some other addition were also made which are not before us.
 
2.6 Aggrieved assessee preferred first appeal before CIT (A) agitating all these grounds.
 
3.1 On the first issue CIT (A) deleted the addition by following observations:-
 
"4.2. From the totality of all the facts and circumstances, I have come to the conclusion that as far as the purchase of raw material are concerned, they are genuine but it is likely that the bills in respect of those purchase have been purchased from the market. My conclusion is drawn on the basis that the purchases have been entered into stock register. Although the linkage of these purchases with the sale is not ascertainable because the purchases of raw material has undergone the various processes before its sale as a finished product. The raw material and finished goods have different entity and cannot have direct link. But its purchases and sales have been accepted by the Excise and Trade department. The other evidence such as, the freight receipts for bringing the goods inside the factory by citing the vehicle no. etc… their entry in stock register, purchases against Form no. ST-38 issued by the Excise and Trade Department of the purchases and sales of the assessee company are the evidences which cannot be ignored. These evidences had clearly shown the authenticity of the purchases. Furthermore, the sale have been accepted expenditure corresponding to it have also to be accepted in view of the simple reason and analogy that the income figure as a result of sales has not been questioned and accepted, the outgo figure in the form of purchases has to be accepted as such unless there is definite material finding on record to establish otherwise.
 
4.3. In the present case, the AO has not disputed/doubted the genuineness of purchases made by the appellant to the tune o Rs. 22,48,71,920/- of materials for sale. Admittedly the rate of purchases of goods had also been accepted by the AO as that of the prevailing market rate of those days in the case of similar items or materials. The G.P. rate, the net profit as worked out by the appellant in the computation of income as per audited statement and as per its books of accounts has not in dispute here. Similarly, the sale figures and the expenditure incurred by the appellant for earning such income has not been doubted by the AO. Once the sale/income or profit has been accepted, the corresponding expenditure has also to be accepted. The only area doubtful, according to the AO is in the case of the two parties from whom the appellant has made
the said purchases. This cannot be a sufficient and justifiable ground for making the said addition for the simple reason that there can be no sales without corresponding purchases. In the case of Nishant Housing Development Vs. ACIT 52/ITD/103 (Patna Branch) it was specifically held that if any addition is made on the ground of expenditure incurred the source of which is to be treated as unexplained, then similar amount will have to be simultaneously allowed as expenditure to earn that income. Similarly, in the case of Kamal Kumar Sararia vs. CIT reported in 73 Taxman 299 (Gau) it was held that rejection of part to be also accepted. In view of the aforesaid decisions and considering the facts involved, I am of the considered opinion that the addition of Rs. 5,62,17,980/- is not justified as per law and facts of the case and accordingly, the same stands deleted.
 
3.2 The interest on delayed payment of sales tax was allowed by CIT (A) by following observations:-
 
"13. I have duly considered the submission of the A/R including the ratio of decisions cited by him to support the instant ground. It is apparent that the AO has added the amount of Rs. 405405/- being interest for late deposit of sales tax, as being penal in nature. However on careful consideration I find the same would not amount to infraction of law and not being penalty in nature. The assessee had paid interest to Haryana Trade Tax & Excise Dept. due to late deposit of sales tax during the year under consideration and I am of the considered view that the same payment would not be penalty in nature. In other words, non-payment of statutory dues like sales tax, income-tax etc… may entail penalty but late payment of the same may not necessarily attract penalty but interest for such delayed payment/deposit. This view has been reinforced by the decisions wherein it was held that interest paid by the assessee to the sales tax department on arrears of sales tax/purchase tax is an admissible deduction (Western India State Motors 167 ITR
395 (Raj)/CIT Vs. Western Indian State Motors 174 ITR 116/(Raj)/CIT vs. Lachhman Das Mathura 124 ITR 411(ALL)/CIT Vs. Chodavaram Co-op Sugars Ltd. 163 ITR 420 (AP)/CIT vs. Shri Sarvaraya Sugars Ltd 163 ITR 429 (AP)/Mahalaxmi Sugar Mills Co. Ltd. Vs. CIT 157 ITR 683 (Del). Moreover, the stated decisions have reinforced the above view in favour of the appellant company. Accordingly the addition of Rs. 405405/- is directed to be deleted.
 
3.3 Aggrieved revenue is before us.
 
4. Ground no. 3 raises issue about interest on FDR to be excluded from computation of deduction u/s 80IB is conceded by assessee to be covered against it by Supreme Court Judgment in the case of Liberty India 317 ITR 218, therefore, this ground of the revenue is allowed and not dealt any
further.
 
5. Ld. DR relied on the order of AO and contents that the AO has rightly relied on ITAT Judgment in the case of Vijay proteins (supra) and disallowed of 25% of the purchase amount from accommodation entities. Consequent to survey the facts emerged that said two concerns i.e. M/s. Kumar Bansal Traders Pvt. Ltd. and M/s. Varun Trading Company were held to be non existing companies. The raw material though is accepted to be purchased by the assessee in cash from market however supporting bills were obtained by way of accommodation bills from these two entities operated by shri Atul Bansal. Thus it was in the hands of the assessee to inflate the purchases prices in the accommodation bills. AO in these circumstances was correct in drawing an analogy from the case of Vijay Protiens (supra) conforming to the directions of Adl. CIT. AO, therefore, following this case disallowed a part of purchase price i.e. 25% of such raw material purchased. CIT (A) without appreciating these facts deleted the addition holding that the cost of purchases debited by the assessee was comparable to market rates.
 
5.1. Apropos the second issue about disallowance of interest on delayed payment of the sale tax, Ld. DR contends that in the relevant sales tax law the late payment of sales tax dues is termed as penalty, therefore, the amount was rightly disallowed being infraction of law. Order of AO is relied on.
 
6. Ld. Counsel for the assessee contends that:
 
6.1. The asseessee fully cooperated in the assessment proceedings. Proper explanations were filed from time to time and its group director Shri Sanjay Jain made a statement before DDI(Inv) unit-III New Delhi as under:
 
"According to me any transaction running in my bank account in any of my concerns is genuine trade transaction done for the payment of dues created due to purchase of raw material from the four entities mention in Q. No. 20. After all the payments to the above four entities have been made either through A/c payee cheque/ demand draft/ pay order no. cash payment what so ever has been made to the above mention four entities. It is not my duty to look into bank accounts/ financial record of my supplier that after getting the payment from me through the official channel what they are doing in their bank accounts. Neither I can check or ask them that what you have done with the cheque/demand draft which I have given to you.
 
As far as the purchase of raw material is concerned from them all the material purchased is being sent to Agartala factory from Delhi for which I have fully supporting documents such as sales tax permit, forest transit permit which are enough and self explanatory that the material has really gone from Delhi to my Agartala factory which is around 3,500 K.M. from Delhi. One more thing I want to say is that after August 2003 all the material is being sent from Delhi to Guwati by Indian Railway and from Guwati to Agartala with the help of reputed local transporters which are registered with the Govt. of Assam is fearful that material can be unloaded in Guwati city also. To avoid this they have take bank guarantee equipment to the amount to sales tax for the material in transit from Guwahati to Agartala.
 
Regarding the ale of finished goods from Agartala I want to explain that for any sale transaction, the mode of transport used is Indian Air Lines which is govt. carrier also all the ales from any of my concerns is made to genuine and established parties which are in this trade for any decades, as far as mode of transport used for sending raw material to Agartala and bringing finished goods from Agartala in M/s Global business India (P) Ltd. it is air transport only for which genuine and
officially recognize proofs are available. This I have explained in detailed just to show that both my sales and purchase are genuine and unchallengeable since they carry lot of documents evidence with them.
 
In view of the foregoings your honour it is an established fact that the purchases made by the assessee are genuine."
 
6.2. Thus it is not the case of the revenue that goods were used at Delhi only, it is important to note they were transported to Agartalla factory. Relevant documents about transportation were produced. Likewise manufactured goods also sold by transporting them by Indian Airlines. The quantities of purchases and sales have been otherwise accepted.
 
(i) The assessment has been framed only on the directions issued by Adl, CIT which in turn only relied on the basis of information of the investigation wing, there is neither independent investigation nor appreciation of facts.
 
(ii) Assessee has demonstrated better trading results, sales and other record has been accepted by AO, no other mistake have been found in the books of accounts.
 
(iii) No enquiry or investigation has been carried out by AO to controvert the statement of Director. Simillarly nothing has been brought on record as to what happened to the survey and subsequent assessments in the cases of Shri Atul Bansal or alleged accommodation entities. Thus the entire basis of additions is only the suspicion raised by information of Investigation Wing, which is apparent from AOs following observations:
 
"The assessee's main argument is that the fact of receipt of raw material, is transportation and consumption of raw material has been proved by the assessee and evn if supplier of raw material is 'Y' party instead of 'X' party, it will not have any effect on profits declared by the assessee company.Looking to peculiar and unique circumstnaecs of assessee's case and looking to the manner in which accommodation entries have been taken from two concerns controlled by Atul Kumar Bansal, it remains to be decided whether the evidences (on the basis of which assessee has claimed deduction I respect of purchases made, from two suppliers) which have been found to be fabricated as the two concerns ae found to be issuing only purchase bills without supply of any goods to the assessee company, can be relied upon? At the addresses given, the two supplier concerns have not been found that the clinching evidence with the Department is the Investigation Wing report, which says that the two supplier concerns from whom the assessee company is showing purchases of raw material, are in fact accommodation entry providers, who have provided accommodation entry in the form of purchase bills of raw material to the assessee company. Once it has been held by investigation report that the two suppliers are only accommodation entry providers, then the purchases shown from these to suppliers cannot be held to be genuine purchases. Even if raw material, represented by purchase bills issued by two accommodation entry providers, have been actually received by some other supplier and used in production, the assessee will not get full deduction in respect of said purchase amount, as the purchase bills produced by the assessee from said two accommodation entry providers, have been found to be fabricated and fictitious and, therefore, to this extent the books of account maintained by the assessee company to work out true and fair taxable profits of the assessee company."
 
Thus only the Investigation wing report has been held to be a clinching evidence to sustain the additions. Similarly it has been alleged that two suppliers were not found at the given address. Without bringing on record type of efforts undertaken to find them, who inquired and what report in this behalf was available on record, nothing has been referred by AO.
 
iv. Ld DR has neither filed any paper book, evidence nor made any arguments on these infirmities in the assessment proceedings and cross confirmation of additions in the case of said Atul Bansal.
 
v. Thus the entire basis of additions is on assumptions, some unverified information accepted on face value and by applying an ITAT judgment in the case of Vijay Proteins, which is clearly distinguishable.
 
vi. Purchases are duly accounted for, entered in regular stock registers maintained on quantitative basis, no objection has been raised on such quantities. Purchases are through account payee cheques, corroborated by transport receipts and other supporting documents.
 
vii. The reliance on Vijay Proteins case is misplaced as in that case the purchases were not supported by transport receipt and in some cases services were denied by the transporters. In assessee's case these adverse facts are conspicuously absent.
 
viii. Thus the impugned additions are summarily made, disallowing 25% of purchases only on an assumption that purchase may be inflated by the assessee. This is belied by CIT (A)'s observations that AO has accepted purchases to be at market rates. Besides goods were purchased against statutory form ST-38 issued by Excise & Trade Department. If the purchases were bogus, there was no necessity to issue such forms. The Excise and Trade Department cross verifies proper utilization of such forms, nothing adverse has been reported in this behalf from such assessments.
 
ix. CIT(A) held that AO did not dispute the fact that the raw material were purchased by the assessee on prevailing market rates. In these circumstances even if a part of books is in respect of such purchases is rejected; the fact remains on record that raw materials were purchased at market rates and consumed in the production of finished products whose sales are clearly accepted. The quantity and value of sales of finished goods has been fully accepted by AO which
is evident from his order.
 
x. Even if assesses books are rejected the assessment has to be based on reasonable considerations conforming to a best judgment assessment. It has to be based on a fair estimate and not arbitrary one.
 
xi. Reliance is placed on - Hon'ble P & Haryana High Court judgment in the case of CIT v. Leader Valves Pvt. Ltd. 285 ITR 435 rendered on the facts similar to assessee i.e addition on account of alleged bogus purchases. It is held that such unverifiable adjustments to gross profit were rightly deleted by ITAT.
 
xii. AO relied on ITAT judgment in the case of Ahmedabad bench decision in the case of Vijay Proteins however Hon'ble Gujrat High Court on similar type of issue has taken a different view in the case of Dy CIT v. Adinath Industries 252 ITR 476 holding as under:
 
"It appeared that 'GI' was supplying materials not only to the assessee but to others. In case of AI, the amount paid to GI was disallowed. However, the Tribunal on appreciation of evidence deleted the entire disallowance which had been upheld by the High Court and by the Apex Court. In AI, against the decision of the High Court, special leave petition was preferred by the revenue
and the same had been rejected. The Tribunal had considered that aspect also.
 
In the instant case, details about purchase were furnished. Transactions were through a broker whose bill was produced. All details from the stage of receipt to production were produced. For further verification the assessee produced gate pass, Avak Chithi (receipt note) and weight note. The assessee produced laboratory report and sample report. It pointed out the difference paid or recovered in view of reports. The assessee produced R.G. 4 Form to show the details entered as per Excise Rules. The assessee pointed out the production and purchase of raw materials. The assessee submitted the details about the transaction, truck number, etc. Thus, the assessee produced relevant materials to show purchase of materials and their use in production. The Assessing Officer had accepted the existence of 'GI' in case of AI for the assessment year 1985-86. The Tribunal appreciated all these facts in arriving at a conclusion. It clearly appeared that matter had been disposed of on appreciation of evidence and when a matter has been decided by the Tribunal on appreciation of evidence, it cannot be said that that raises a question of law. The Tribunal pointed out that at best it could be inferred that these parties were set up by somebody else and the reasons could be manifold for that. It was very much surprising that in the instant case the Assessing Officer had drawn a presumption that the amount had come back in the assessee's hands, without any evidence whatsoever merely on the basis of with-drawal of amounts from the account of 'GI'.
 
It was required to be noted that the amount had been paid by cheques and the party had withdrawn the amount by bearer cheques. The revenue submitted that from the same bank the amount had been withdrawn. It went without saying that it was within the knowledge of the banker as to who the account holder was and who withdrew the amount from the same bank. The Assessing Officer by due diligence could have unearthed the fact that 'GI' was a bogus party by recording statement of the bank manager, accountant or cashier or the party who introduced 'GI' to the bank. The matter was in the realm of appreciation of evidence and no interference was called for in the matter. In the circumstances, the appeals were to be dismissed." It is pleaded that SLP in this case also has been dismissed by Hon'ble Supreme Court.
 
xiii. It is vehemently argued that the sole basis of addition being a report from Investigation Wing has been arbitrarily held to be a clinching evidence. On the other hand assesses purchases are duly supported by other records and registers including Excise & Trade Departments record and forms, quantity of purchases and sales have been accepted by AO. Even if books of accounts are partly rejected the book results and GP being satisfactory additions cannot be made on these shaky assumptions.
 
7. We have heard rival contentions and perused the material available on record. As the facts emerge the information of Investigation Wing of the department is held to be clinching evidence by the Adl. CIT whose directions were binding on the AO. In our considered view:
 
i. An information supplied by an agency of the department cannot be held as clinching evidence without independent inquiry and corroboration. An information may be useful for further investigations or corroboration but on its own, it cannot be held as clinching evidence.
 
ii. No light has been shed by AO as to what happened in the assessments of Shri Atul Bansal and his accommodation entities. Similarly statement of Director Shri Sanjay Jain stating the facts about  verification of purchases has not been controverted.
 
iii. Quantities of purchases and sales and value of sales has been accepted by AO, thus to this extent nothing adverse has been found in the books of accounts.\
 
iv. All the purchases are through account payees cheques, transportation vouchers to Agartalla factory, likewise all the sales are accepted by AO, supported by Indian Airlines transportation vouchers. Purchases are supported by form ST-38 issued by Excise and Trade Department. Nothing adverse has been found in this behalf.
 
v. AO has relied on the ITAT judgment in the case of Vijay Proteins case (supra) which in our view is distinguishable as in that case there were no transport vouchers and some transporters denied having transported such goods. These adverse facts are conspicuously missing in this case. In our view Hon'ble Gujrat High Court judgment in the case of Adinath Industires and P & H High court in the case of Leader Valves(supra) helps assesses case.
 
vi. AO has only created a suspicion that purchase rates may have been inflated as it was possible for assessee. In our considered view it amounts to a surmise. In order to bring home his point, some instance of such inflation should have been pointed by AO. Suspicions howsoever strong cannot partake the character of proof.
 
vii. Even if part rejection of assesses books is upheld the consequent estimate should be just and reasonable. In the absence of any allegation about insufficiency of trading results such addition has been rightly deleted by CIT(A), we uphold his order on this issue. This ground of the revenue is dismissed.
 
8. Apropos revenue's ground no. 2 we see no infirmity in the order of CIT(A) as it has not been disputed that that impost is compensatory in nature for late payments of Sales Tax dues. Merely because term penalty is used in the statute will not detract from the actual nature of payment being compensatory in nature. It is trite law that impost occasioned by late payment of taxes is compensatory in nature and cannot be disallowed u/s 37 of the IT Act.
 
9. Third ground of the revenue has been already allowed.
 
10. In the result revenue appeal is partly allowed.
 
Order pronounced in open court on 24-08-2012.
 
                                                     Sd/-                               Sd/-
                                          (T.S. KAPOOR)              (R.P. TOLANI)
                                 ACCOUNTANT MEMBER JUDICIAL MEMBER
 
Dated: 24-08-2012.
MP
 
Copy to:
 
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR





Respected Dipak Shah,
In this newsletter, we summarize the important amendments, Case laws and current issues in the field of indirect taxes of the past week. We hope this newsletter help you to abreast of all the latest happening in the indirect tax discipline and information needs. We look forward for your feedback at pradeep@capradeepjain.com.
Publish Date:22/09/2012 PJ/Weekly Newsletter/2012-13/025
Tickers
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Subject News
Excise duty on television parts
Single GST For India
CBI launches search at iron ore exporters, miners
Nambiar elected chairman of export promotion council 
Tariff value of Gold, silver, RBD Palmolein, Brass scrap and Poppy Seeds has been changed.[See Notification no. 81/2012-Cus(NT)]
Kattupalli port, Tamilnadu appointed as Customs Port [See Notification No. 82/2012-Cus(NT)]
E-payment of Customs duty become mandatory [See Notification No. 83/2012-Cus(NT)]
 Quantity of Rough Marble and Travertine Blocks for import for Financial Year 2012-13 allocated [See Trade Notice no. 04/2012]
Extracts from the Intervention of Union Finance Minister Shri P. Chidambaram at the meeting of the full Planning Commission Today
Central Board of Excise & Customs makes e-payment mandatory for importers
Service tax on toll: IRB Infra moves Highways Ministry
Bringing Indian Railways into service tax net will help organisation's finances
Marble Import licence will not be issued to specified firms [See Trade Notice no. 05/2012]
Common Adjudicating authority appointed 
Goods for which foreign buyer made failure to take delivery in case of re-import shall also include goods rejected by the foreign buyer [See Notification no. 53/2012-cus]
Maize bran exempted from customs duty [See Notification no. 54/2012-cus]
Imported Liquefied petroleum gases (LPG) exempt if supplied by IOCL, HPCL & BPCL [See Notification no. 55/2012-cus]
Service tax evasion worth Rs 2.36 cr recovered from builders
< a href="http://new.capradeepjain.com/redirect_ntsview_11405">Rolling back excise on diesel to deal Rs 6,000-cr blow
Exchange rates notified [See Notification No. 84/2012-Cus(NT)]
FM making efforts to ensure speedy rollout of GST
Indian team in Canada to study GST, but consensus still a far cry
Duty on non-subsidised LPG waived
Seminar on efficient vigilance mechanism
The amount paid during investigation is a deposit and not duty. The unjust enrichment and limitation does not apply {See PJ/Case Laws/2012-13/1226 in what's new}
When the MRP is not to be printed on goods meant for industrial customer then they cannot be subjected to MRP based valuation {See PJ/Case Laws/2012-13/1227 in what's new}
The manufacturing process stops when the goods are completely finished and dismantling the same for ease of transportation have no effect {See PJ/Case Laws/2012-13/1228 in what's new}
Whether ROM application can be allowed when the larger bench decision is ignored by the bench {See PJ/Case Laws/2012-13/1229 in what's new}
Rule 18 cannot   be read independent of requirement of limitation in Section 11B {See PJ/Case Laws/2012-13/1230 in what's new}
The life membership fee are chargeable to Service tax unless the same are substantiated that the same is refundable {See PJ/Case Laws/2012-13/1231 in what's new}
Whether the se rvices provided by the respondent are covered under the definition of "Rent-a-cab scheme operator" provided under Section 65(59) of the Finance Act, 1994 {See PJ/Case Laws/2012-13/1232 in what's new}
Whether the structural items could be treated as 'capital goods' under Rule 2(a) or as 'inputs under Rule 2(k) of the CENVAT Credit Rules, 2004 {See PJ/Case Laws/2012-13/1233 in what's new}
Whether the renting out of low-floor buses to RSTRC on contract basis covered under the head 'Rent-a-Cab Service {See PJ/Case Laws/2012-13/1234 in what's new}
The penalty cannot be imposed for technical lapse of non production of re-warehousing certificate.{See PJ/Case Laws/2012-13/1235 in what's new}
Changes in certain SIONs [See Public Notice no. 17/(RE-2012)/2009-14]
Whether the contention of the appellant that Rule 9 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 is attracted only when 100% sale is to related party is correct {See PJ/Case Study/2012-13/24 in what's new}
Budget News
Sri Lanka to be home to exclusive auto SEZ for Indian companies
Government should now push more for land acquisition, PFRDA and GST reforms
Swedish companies eye Gujarat's defence SEZ to set up units
India seeks Canadian expertise on GST reform
Government should now push more for land acquisition, PFRDA and GST reforms
Government clears stake sale in 4 PSUs
Cairn pays higher advance tax in Q2, urges government to allow crude oil sale to RIL SEZ
RBI cuts CRR by 0.25%, holds repo rate
No timeframe for tax complaints, says ombudsman
India's steel exports slip 1%to 19 LT in April-Aug
Dumping duty to continue on ductile iron pipes from China
Cairn India seeks government nod to export Rajasthan crude to RIL SEZ
More reforms such as GST, land acquisition and greater competition in coal mining needed
Exemption granted for LPG if supplied by PSUs under PDS [See Notification No. 36/2012-CE]
Do not meddle with sugar trade on ad hoc basis
Simplify laws for easy tax collection: CVC
Diesel price hike may hit profit margins of cement companies
Foreign direct investment to improve capital structure of airlines: Report
Govt, Vodafone likely to resolve tax issue
Cairn seeks consent to sell crude oil to Reliance's SEZ unit
Steelmakers oppose import surge from Japan, Korea
Index
Amendments
Custom
DGFT
Excise
Case Laws
PJ/Case Laws/2012-13/1226
PJ/Case Laws/2012-13/1227
PJ/Case Laws/2012-13/1228
PJ/Case Laws/2012-13/1229
PJ/Case Laws/2012-13/1230
PJ/Case Laws/2012-13/1231
PJ/Case Laws/2012-13/1232
PJ/Case Laws/2012-13/1233
PJ/Case Laws/2012-13/1234
PJ/Case Laws/2012-13/1235
Case Study
PJ/CASE STUDY/ 2012-13/24
Queries
Res.Sir, we have executed EPC contract with IOCL-Orissa in which , recently IOCL has directly made payment to our sub contractor on behalf of us. work completion is prior to July-12 , bill raised in Sep-12 in which his classification of service is construction service and he is proprietor. Pls guide me the service tax implication if material and labour both are involved
Dear Sir, Hello. First of all i would like to appreciate the pain which you and your team is taking in making the members aware of the new service tax structure. My query is that, as w.e.f. 02-07-2012, the new definition of service has came into effect and as a result the person who was earlier paying service tax only on GTA services on reverse charge method, now has also to pay service tax on other services also, under reverse charge method. Now please let me know that whether there need to make any amendment in the existing Registration Certificate. If the answer is yes, than please quote the legal provision and if not, than the basis on which the answer is in negative. Manoj Khatri, Kanpur
Sir, Cenvat credit on Service tax paid by the dealer to manufacture,Can manufacturer take cenvat credit particularly after the notification no. 28/12 dated 20-jun-12 and exclusion clause made availbe therein
Dear Sir, one of my client is a private limited company and availing the services of Manpower supply. In the bill of August 2012, service tax to the tune of 12.36% was added and due to ignorance of new service tax provisions my client paid the entire billed amount with total service tax to the service provider. Now my client has come to know that under RCM they were liable to pay 75% of the service tax but due to 100% payment of service tax to the service provider they are unable to decide what to do in the matter. Please evaluate the situation and let me know what my client should do in this situation. does 100% payment of service tax by the service provider gives relief to the service receiver to pay the service tax portion under RCM ? Manoj Khatri Advocate
Dear Sir, One of my client is providing web designing facilities to the companies involved in advertisement through internet. Whether the person providing services of web design or modules of advertisement on the net will be exempted? Wether the exemption can be claimed from FY 08-09?
Dear Sir Hello !! Please take note of point no. (v) of Notification No. 30/2012-ST dated 20-06-2012, wherein in reference to manpower supply and works contract service it has been mentioned that in order to pay service tax on reverse charge mechanism the service receiver has to be "a business entity registered as body corporate". The word "body corporate" has not been defined anywhere in this negative based service tax regime. But if we go through the deleted Section 65 of the Finance Act, sub-clause (14) of Section 65 stated that body corporate has the meaning assigned to it in section 2(7) of the Companies Act, 1956. When we see the definition of body corporate in companies act the picture still remain unclear on the issue whether an HUF, Society, LLP, Firm (Partnership or Proprietorship), AOP comes under the definition of body corporate. Please evaluate the aforesaid position and let me know whether HUF, Society, LL P, Firm (Partnership or Proprietorship), AOP comes under the definition of body corporate?? Manoj Khatri Advocate
Sir, we are having centralized registration of service tax at Mumbai. We are receiving GTA service at various C&F locations all over India. C&F agents make payment on our behalf as pure agent and later reimbursed by us. our query is should we register each c&f location under centralized registration for payment of service tax on GTA service when these locations are not our property.
Assessee entered a contract with UPPCL for repair of transformers using his own HV/LV leg coils and charges service tax on labour as per contract.The balance sheet reflects outward freight incurred on transportation of the same through his own regd truck.Please clarify whether service tax is payable on the freight charges which is not charges from his customers separately.
i have property on rent for which i pay service tax i also own commercial vehicles can i claim service tax rebate on insurance premium on these vehicles
Whether there is no cenvat credit possible when the service provided is 'Renting of Immovable Property' Kindly clarify.
A company is incorporated in 2011 from the date of incorporation the client has only service tax input but no output so he doesn't registered for Service tax and all the service tax input shown in profit & loss as an expense but in current year the company started charging service tax from his customer from June 2012 so he get registered for service tax in the month of June 2012.But question is whether company can take service tax input of the current year i.e., from April 2012 to set off with output or not?
sir, whether road construction in tourist complex will attract service tax under previous provisions and after new budget
Sir, Indeed comments and thought provoking articles from you are very helpful. We are engaged in garden development and maintenance work. We have our own team of gardeners, supervisors and experts and take contracts to develop and maintain garden plants, trees, lawns, flowers, etc. Since July 2012 these type of services seem to be covered under service tax. Though a negative list has agriculture in it. Your expert comments would throw light on: Whether garden maintenance is covered under service tax? Thank you. Regards, Naresh Pancholi
Sir, Annual maintenance charges of transmission lines is also covered under the electricity transmission or electricity distribution service or not ? Kindly get your valuable advice.
Dear Sir, we have to deposit service tax under reverse charges on account of Legal Fees Services ( payment to advocate) i would like to know which accounting code will be applicable for depsoiting service tax ?
Event Calendar
30/09/2012 - Submission of Proof of Export for the month of August-2012
 
Form:
Annexure-19   Provision: Rule 19

Amendments

• 84/2012-Cus(N.T.), Dated: 20/09/2012
Custom
 TARIFF NOTIFICATION
 • 54/2012-Cus, Dated: 17/09/2012
 From Notification No. 12/2012 the Government exempted various goods from customs duty leviable thereon. Now Maize bran (T/H 2302 10 10) has been added to that list of exempted goods. Thus the same will be exempt from customs duty.  Read More
 
 • 55/2012-Cus, Dated: 18/09/2012
 Earlier Liquefied propane and butane mixture, Liquefied propane, liquefied butane and liquefied petroleum gases (LPG) imported were exempt from the duty of customs if supplied to household domestic consumers at subsidized prices under the public dist Read More
 
 • 53/2012-Cus, Dated: 13/09/2012
   For Goods re-imported within one year from the date of exportation from the unit due to failure of the foreign buyer to take delivery when imported or procured from a public warehouse appointed or a private warehouse appointed or licensed or  Read More
 
 NON TARIFF NOTIFICATION
 • 81/2012-Cus(N.T.), Dated: 14/09/2012
 The Tariff Value of Gold, in any form, in respect of which the benefit of entries at serial number 321 and 323 of the Notification No. 12/2012-Customs dated 17.03.2012 has now been increased from US$ 540 per 10 grams to US$ 563.50 per 10 grams a Read More
 
 • 82/2012-Cus(N.T.), Dated: 14/09/2012
 Kattupalli port of Tamilnadu has been appointed as Customs Port for the purposes of Unloading of imported goods and loading of export goods or any class of such goods. Read More
 
 • 83/2012-Cus(N.T.), Dated: 17/09/2012
 E-payment of Customs duty become mandatory for :- (i) Importers registered under Accredited Clients Programme; and (ii) Importers paying customs duty of one lakh rupees or more per bill of entry. Earlier the department has issued circular number Read More
 
 • Order Dated: 17/09/2012
 Commissioner of Central Excise (Adjudication), New Custom House, New Delhi will be adjudicating authority over the Show Cause Notice relating to M/s Asian Hotels Ltd., Hyatt Regency, Bhikaji Cama Place, New Delhi. Read More
 
 
 Rate of exchange of conversion of each of the foreign currency into Indian currency or vice versa relating to imported and export goods has been notified by the Government with effect from 21st September, 2012.  Read More
 
DGFT
 POLICY NOTICE
 • 17(RE-2012)/2009-14, Dated: 20/09/2012
 SION No. A-1691 of Chemical product group has been amended to reflect a more specific name for the export product from 'Nylon Fabric' to "Relevant Nylon Tyre Cord Fabric". In SION No. H-207 permissible quantity for import Read More
 
 MISCELLANOUS
 • Trade Notice no. 04/2012, Dated: 14/09/2012
 In terms of Notification No.12(RE-2012)/2009-2014 dated 22.8.2012, the DGFT has made allocation of 6 lakh MTs of Rough Marble and Travertine Blocks for import to 449 applicants. Issue of import license by RAs of DGFT would commence from 17th&nb Read More
 
 • Trade Notice no. 05/2012, Dated: 17/09/2012
 RA will not issue import licenses to following firms until clearance from DGFT (Hqrs). These firms would need to comply with the deficiencies to DGFT (Hqrs) within a period of one week from the date of issue of this Trade Notice, before their cases c Read More
 
Excise
  TARIFF NOTIFICATION
 • 36/2012-CE, Dated: 18/09/2012
  Notification No. 12/2012-CE dated 17.03.2012 exempts propane, butane and LPG for supply to household domestic consumers at subsidised prices under the public distribution system (PDS) Kerosene and Domestic LPG Subsidy Scheme, 2002, as no Read More
 
 

Case Laws

PJ/Case Laws/2012-13/1226
 Case: Kodak India Ltd. V/s Commissioner of Customs, C. Ex., Indore (MP)
 
Citation: 2012 (282) E. L. T. 478 (Tri. – Del.)
 
Issue:- The empty containers of inputs will not attract duty at the time of their sale.
 
The amount paid during investigation is a deposit and not duty. The unjust enrichment and limitation does not apply. Read More

PJ/Case Laws/2012-13/1227
 Case:-   HENKEL CAC PVT.LTD VERSUS COMMR. OF CUS. (IMPORT), JNCH, MUMBAI

Citation: - 2012(282) E.L.T. 566 (Tri-Mumbai)

Issue:- When the MRP is not to be printed on goods meant for industrial customer then they cannot be subjected to MRP based valuation. Read More

PJ/Case Laws/2012-13/1228
 Case:-   M/S SALORA INTERNATIONAL LTD VS COMMISSIONER OF CENTRAL EXCISE, NEW DELHI

Citation: - 2012-TIOL-67-SC-CX

Issue: - The manufacturing process stops when the goods are completely finished and dismantling the same for ease of transportation have no effect. Read More

PJ/Case Laws/2012-13/1229
 Case:- ASSOCIATED CEMENT COMPANIES LIMITED VERSUS COMMR OF C.EX, BHOPAL

Citation: - 2012 (282) E.L.T. 553 (Tri-Del.)

Issue: -  Whether ROM application can be allowed when the larger bench decision is ignored by the bench? Read More

PJ/Case Laws/2012-13/1230
 Case:- EVEREST FLAVOUR LTD. VERSUS UNION OF INDIA
 
Citation: - 2012 (282) E.L.T. 481 (Bom.)
 
Issue: - 1). Rule 18 cannot   be read independent of requirement of limitation in Section 11B?
 
2). Mere presentation of an ARE-1 does not constitute the filing of valid rebate application ?
 
3). Whether EP copy of shipping bill is mandatorily be filed together with the rebate claim? Read More

PJ/Case Laws/2012-13/1231
 Case: -BUILDER'S NGV CLUB V/S COMMISSIONER OF CENTRAL EXCISE, BANGALORE  
 
Citation: - 2012(27) S.T.R. 384 (Tri.-Bang.)
 
Issue:- The life membership fee are chargeable to Service tax unless the same are substantiated that the same is refundable. Read More

PJ/Case Laws/2012-13/1232
 Case: -DEEPAK TRANSPORT BUS SERVICE V/S COMMISSIONER OF C. EX., PUNE-III
 
Citation: - 2012(27) S.T.R. 357 (Tri.-Mumbai)
 
Issue:- Whether the services provided by the respondent are covered under the definition of "Rent-a-cab scheme operator" provided under Section 65(59) of the Finance Act, 1994? Read More

PJ/Case Laws/2012-13/1233
 Case: -COMMISSIONER OF CENTRAL EXCISE VISAKHAPATNAM-II COMMISSIONERATE V/S M/S SMILAX LABORATOREIS LTD
 
Citation: - 2012-TIOL-1224-CESTAT-BANG
 
Issue:- whether the structural items could be treated as 'capital goods' under Rule 2(a) or as 'inputs under Rule 2(k) of the CENVAT Credit Rules, 2004? Read More

PJ/Case Laws/2012-13/1234
 Case: -M/S SPEEDWAY CARRIERS PVT LTD V/S COMMISSIONER OF CENTRAL EXCISE, JAIPUR
 
Citation: - 2012-TIOL-1230-CESTAT-DEL
 
Issue:- Whether the renting out of low-floor buses to RSTRC on contract basis covered under the head 'Rent-a-Cab Service? Read More

PJ/Case Laws/2012-13/1235
 Case:- Commissioner of  Central Excise & Cus., Vapi  versus Sterlite Industries P. Ltd. 

Citation:- 2011 (274) E. L.T. 178 (Guj.)

Issue:-The penalty cannot be imposed for technical lapse of non production of re-warehousing certificate. Read More

Case Study

PJ/CASE STUDY/ 2012-13/24
 
The present appeal has been filed along with stay application under Section 35 of the Central Excise Act, 1944 by the appellant M/s Somi Conveyor Belting Ltd., aggrieving by the order-in-original issued by the Addl. Commissioner, Central Excise Commissionerate, Jaipur-II. The appellant is of the view that Rule 9 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 is applicable only when the 100% sale is to the related party. But they have sold the goods to related party as well as are also selling the goods to the other independent buyers. The Tribunal has already held in a case of Birdi Steels cited by the appellant that the provisions of Rule 9 are attracted only in the case when the goods are sold wholly to the related person or when the entire sale is affected through the related person. But the department has given demand under Rule 9 and adjudication authority has also confirmed the same. This is the issue in present appeal.
  ;Read More

Queries

Res.Sir, we have executed EPC contract with IOCL-Orissa in which , recently IOCL has directly made payment to our sub contractor on behalf of us. work completion is prior to July-12 , bill raised in Sep-12 in which his classification of service is construction service and he is proprietor. Pls guide me the service tax implication if material and labour both are involved
 Firstly you have not provided information completely. The date of payment is missing. Secondly, all are dependent upon point of taxation i.e. which rate is applicable; category of service etc will be depend upon point of taxation. According to Rule 4 of Point of taxation rules:- In case there is change effective rate (including change in abatement also):--- When service has been provided before change in effective rate of tax, invoice is issued after such change and also payment is received after the change then point of taxation will be 'date of payment or date of issuing invoice whichever is earlier'. As in your case there is change in effective rate i.e. changes under work contract service. Therefore point of taxation will be date of payment or date of issuing invoice whichever is earlier. Accordingly service tax will be computed as per provisions of work contract service. Read More

Dear Sir, Hello. First of all i would like to appreciate the pain which you and your team is taking in making the members aware of the new service tax structure. My query is that, as w.e.f. 02-07-2012, the new definition of service has came into effect and as a result the person who was earlier paying service tax only on GTA services on reverse charge method, now has also to pay service tax on other services also, under reverse charg e method. Now please let me know that whether there need to make any amendment in the existing Registration Certificate. If the answer is yes, than please quote the legal provision and if not, than the basis on which the answer is in negative. Manoj Khatri, Kanpur
 No, you are not required to amend your existing registration. Now the negative list has been effective and accordingly classification of services is not there. The form for service tax registration i.e. has also been amended and in service classification column of new form of ST-1, the only one entry is shown for all the services as follows: "Service other than in the Negative List" and it is common for all the assessees. So the above description of service will common for all assessees and there is no requirement of amend the service tax registration.If you want to be particular, file application electronically for amending regis tration certificate. Now only option available is 'All taxable Services other than in Negative List'. Click and add. Get print out of the amended registration certificate and send copy to department Read More

Sir, Cenvat credit on Service tax paid by the dealer to manufacture,Can manufacturer take cenvat credit particularly after the notification no. 28/12 dated 20-jun-12 and exclusion clause made availbe therein
 your query is not clear, please explain how a dealer can pay service tax to manufacturer and under what service? Read More

Dear Sir, one of my client is a private limited company and availing the services of Manpower supply. In the bill of August 2012, service tax to the tune of 12.36% was added and due to ignorance of new service tax provisions my client paid the entire billed amount with total service tax to the service provider. Now my client has come to know that under RCM they were liable to pay 75% of the service tax but due to 100% payment of service tax to the service provider they are unable to decide what to do in the matter. Please evaluate the situation and let me know what my client should do in this situation. does 100% payment of service tax by the service provider gives relief to the service receiver to pay the service tax portion under RCM ? Manoj Khatri Advocate
 There is no provision in Service Tax Law as well as in Cenvat Credit Rules, 2004 which provide e.g. payment of service tax by service provider gives relief to service receiver when liability to pay service tax is on service receiver. However, at the same time, it is basic principle that the service tax cannot be paid twice on the same service. But to avoid litigation, we will suggest you to ask service provider to refund the excess service tax and then you deposit the service tax with the department. If the same is not possible then you have plead in light of above case laws. Read More

Dear Sir, One of my client is providing web designing facilities to the companies involved in advertisement through internet. Whether the person providing services of web design or modules of advertisement on the net will be exempted? Wether the exemption can be claimed from FY 08-09?
 Sl. No. (g) of negative list as given under section 66D exempts follows: "(g) selling of space or time slot for advertisements other than advertisement broadcast by radio and television" The above exemption will be available when there is service of selling of space or time slot but in your there is service of web designing for advertisement and not selling of space for advertisement. Further the service is not covered under any entry of mega exemption notification or under negative list therefore will be taxable. Read More

Dear Sir Hello !! Please take note of point no. (v) of Notification No. 30/2012-ST dated 20-06-2012, wherein in reference to manpower supply and works contract service it has been mentioned that in order to pay service tax on reverse charge mechanism the service receiver has to be "a business entity registered as body corporate". The word "body corporate" has not been defined any where in this negative based service tax regime. But if we go through the deleted Section 65 of the Finance Act, sub-clause (14) of Section 65 stated that body corporate has the meaning assigned to it in section 2(7) of the Companies Act, 1956. When we see the definition of body corporate in companies act the picture still remain unclear on the issue whether an HUF, Society, LLP, Firm (Partnership or Proprietorship), AOP comes under the definition of body corporate. Please evaluate the aforesaid position and let me know whether HUF, Society, LLP, Firm (Partnership or Proprietorship), AOP comes under the definition of body corporate?? Manoj Khatri Advocate
 The definition of body corporate as given under Company Act, 1956 is as follows: "Sec. 2 (7) Body Corporate or corporation includes a company incorporated outside India but does not include – a. A Corporation Sole b. A Co-operative Society registered under any law relating to co-operative societies and c. Any other body corporate (not being a Company as defined in this Act), which the Central Government may by notification in the Official Gazette, specify in this behalf" The concept of Corporation Sole is not defined anywhere in the Act. But concisely, apart from those excluded specifically, a body corporate means any entity that has its separate legal existence apart from the persons forming it. It enjoys a completely different legal status apart from its members. So, a body corporate shall include: a company, a foreign company, a corporation, a statutory company, a statutory body, an LLP, etc. and such bodies that have separate legal existence and exclude proprietorship, partnership, HUF, AOP and Society (already excluded under the above definition). Read More

Sir, we are having centralized registration of service tax at Mumbai. We are receiving GTA service at various C&F location s all over India. C&F agents make payment on our behalf as pure agent and later reimbursed by us. our query is should we register each c&f location under centralized registration for payment of service tax on GTA service when these locations are not our property.
 No, you are not required to register in each location. Even according to rule 4(2)(ii) of Service Tax Rules, 1994:---- Where a person, liable for paying service tax in the case of taxable services, receive such service in more than one premises or offices, and has centralize billing or centralize accounting system, he may opt for centralized registration. Read More

Assessee entered a contract with UPPCL for repair of transformers using his own HV/LV leg coils and charges service tax on labour as per contract.The balance sheet reflects outward freight incurred on transportation of the same through his own regd truck.Please clarify whether service tax is payable on the freight charges which is not charges from his customers separately.
 According to s ection 66D following service is exempt:- "(p) Services by way of transportation of goods- (i) by road except the services of – (A) a goods transport agency; or (B) a courier agency" And according to section 65B: "(26) goods transport agency means any person who provides services in relation to transportation of goods by road and issues consignment note, by whatever name called." So service tax is applicable when service is provided by a person covered under the above definition of GTA. In the instant case, when you are not goods transport agency who issues consignment note. You are using your own trucks for transportation. Hence the service tax on GTA is not applicable in the instant case. Read More

i have property on rent for which i pay service tax i also own commercial vehicles can i claim service tax rebate on insurance premium on these vehicles
 As per Rule 2(l) of Cenvat Credit Rules, 2004 "(i) input service means any service used by a provider of output service for providing an output service". It means credit of input services can only be available when input service is used for providing output service. As in your case input service i.e. insurance premium of vehicle is not used for providing output service i.e. renting of property, therefore credit can't be taken. Also, the Cenvat credit on insurance of motor vehicle is allowed only when it falls under the definition of capital goods or to the manufacturer of motor vehicle. Read More

Whether there is no cenvat credit possible when the service provided is 'Renting of Immovable Property' Kindly clarify.
 Under negative list, every such activity which falls in the definitio n of "service" as given in clause 44 of section 65B of the Finance Act are taxable unless otherwise exempted. The exemptions to certain services have been given in the negative list and also in notification no. 25/2012-ST DT 20.6.12. The following exemptions are related to renting of immovable property services as given in negative list and mega exemption notification:- Under Negative list:- •At clause no. (m) of section 44:- Renting of residential dwelling for use as residence. Under mega exemption notification:- •At entry no. 5:- Renting of precincts of a religious place meant for general public. • At entry no. 9:- Services provided to or by an educational institution in respect of education exempted from service tax, by way of,- (a) auxiliary educational services; or (b) renting of immovable property; • At entry no. 18:- Renting of hotels, inn, guest house, club, campsite or other commercial places meant for residential or lodging purpose, having declared tariff of a room below rupees one thousand per day or equivalent is exempt. Since the above referred services are totally exempted under service tax law, no Cenvat Credit is available if the service provider is SOLELY providing these services. However, concept of declared service has also been introduced in the negative list era where certain activities are declared to be a service for the purpose of levying the service tax. The list of declared services has been prescribed in section 66E which reads as follows:- "66E. The following shall constitute declared services, namely:- (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority. Explanation.- For the purposes of this clause,- (I) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:- (A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (20 of 1972.) (B) chartered engineer registered with the Institution of Engineers (India); or (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority; (II) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; (g) activities in relation to delivery of goods on hire purchase or any system of payment by installments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity." Thus, the list of services prescribed under "Declared services" includes the "Renting of immovable property services". Thus, all the types of renting of immovable property services are taxable undoubtedly other than those prescribed under negative list and mega exemption notification as discussed above. Further, Notification no. 26/2012-ST dated 20.6.2012 prescribes the abatement of 40% in case of "6. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes." Thus, the abatement of 40% is allowed in case of renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. Further, where the abatement is claimed for these services, the credit is not allowed on 'Inputs' and 'Capital goods'. As such, where these services are provided; the credit of "Input services" is allowed alongwith abatement. In respect of all the other types of immovable properties (which are taxable beyond any doubt by virtue of section 66E); the service tax is payable to the full applicable rates. Further, no specific prohibition has been imposed regarding the allowability of Cenvat Credit on these services. As such, we are of opinion that the Cenvat Credit is allowed on all the other types of renting of immovable property services. However, if the various types of immovable property services are provided, some exempted and some taxable, provisions of rule 6 of Cenvat Credit Rules, 2004 will apply accordingly. Lastly, in context of service tax by way of positive list, circular no. 98/1/2008-ST dated 4.1.2008 was issued regarding Cenvat Credit on renting of immovable property service. The relevant portion of this circular is as follows:- Reference Code- 096.01 / 04.01.08 Issue:- Commercial or industrial construction service [section 65(105)(zzq)] or works contract service [section 65(105)(zzzza)] is used for construction of an immovable property. Renting of an immovable property is leviable to service tax [section 65(105)(zzzz)]. Whether or not, commercial or industrial construction service or works contract service used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the CENVAT Credit Rules, 2004? Clarification:- Right to use immovable property is leviable to service tax under renting of immovable property service. Commercial or industrial construction service or works contract service is an input service for the output namely immovable property. Immovable property is neither subjected to central excise duty nor to service tax. Input credit of service tax can be taken only if the output is a 'service' liable to service tax or a 'goods' liable to excise duty. Since immovable property is neither 'service' or 'goods' as referred to above, input credit cannot be taken. Thus, in the above referred circular, it was clarified that the credit on input services is not available if the services provided by the assessee are renting of immovable property services. However, now the immovable property has been specifically declared as taxable service under section 66E. Further no specific restriction has been imposed regarding the availment of Cenvat Credit on these services in context of negative list. Thus, we can say that the above circular will not hold good now under negative list scenario. We hope the above will satisfy your query. Disclaimer: This opinion is given to best of knowledge and belief. The service tax is a complicated law and interpretations of the law keep on changing based on judicial discipline and Board's clarifications. Our opinion is also subject to the same. Read More

A company is incorporated in 2011 from the date of incorporation the client has only service tax input but no output so he doesn't registered for Service tax and all the service tax input shown in profit & loss as an expense but in current year the company started charging service tax from his customer from June 2012 so he get registered for service tax in the month of June 2012.But question is whether company can take service tax input of the current year i.e. , from April 2012 to set off with output or not?
 The 'input service' means any service used by a provider of output service for providing an output service. This definition makes it clear that the service provider can take the credit of those services only which is used for providing output service. This is also supported by Rule 6 which says that the credit of input or input services used for exempted product or exempted service will not be allowed. Further the condition as given under small scale threshold exemption notification no. 33/2012-ST (threshold exemption) is as follows: "The provider of taxable service shall avail the CENVAT credit only on such input or input service received, on or after the date on which the service provider starts paying service tax, and used for the provision of taxable services for which service tax is payable" As your company started charging service tax from customer from June only, hence the above provision will apply. Thus, you can take the credit of services received on or after the date from which company has started charging service tax i.e. in June. Read More

sir, whether road construction in tourist complex will attract service tax under previous provisions and after new budget
 Under new negative list concept service tax will be leviable if activity is covered under the definition of 'service' as give under clause 44 of section 65B and not covered under Negative List and Mega Exemption Notification. "Service means any activity ca rried out by a person for another for consideration and includes declare services." Your service i.e. construction of road is clearly covered under the above definition. Further Sl. No. 13 of Mega exemption notification 25/2012-ST exempts the following service: "13(a) Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a road, bridge, tunnel, or terminal for road transportation for use by general public" The above exemption will be available when service is use by general public. The term General public is defined in Serial No. (q) of para 2 of notification 25/2012-ST dated 20.6.2012 as follows: "'general public' means the body of people at large sufficiently defined by some common quality of public or impersonal nature." In this query it is not clarify that what type of tourist complex is there whether it is for general public or used by some specific person e.g. which purchase the ticket for this. So if the road is used by GENERAL Public, it will be exempt and if it is used by some specific community or section of persons, the exemption under this entry will not be available. For the earlier period, the exemption was available on road construction under "Commercial or industrial construction". Read More

Sir, Indeed comments and thought provoking articles from you are very helpful. We are engaged in garden development and maintenance work. We have our own team of gardeners, supervisors and experts and take contracts to develop and maintain garden plants, trees, lawns, flowers, etc. Since July 2012 these type of services seem to be covered under service tax. Though a negative list has agriculture in it. Your expert comments would throw light on: Whether garden maintenance is covered under service tax? Thank you. Regards, Naresh Pancholi
 Negative list given under section 66 exempts "services related to production of any agriculture or agricultural produce by way e.g. supply of farm labour, agricultural operations directly related to production of any agricultural produce etc. The exemption is available to agricultural related services and according to section 65B (3) "agriculture means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products" The garden maintenance is not a agricultural activity therefore will not be covered under the negative list, hence will be taxable. Read More

Sir, Annual maintenance charges of transmission lines is also covered under the electricity transmission or electricity distribution service or not ? Kindly get your valuable advice.
 Section 66D specifies negative list of services and sub section (k) of Section 66D Covers following service. "Transmission or distribution of electricity by an electricity transmission or distribution utility" But your service is maintenance of transmission line towers, not transmission or distribution of electricity as mentioned in negative list and further the above exemption available to an electricity transmission or distribution utility. So service provided by way of maintenance of transmission line towers is a taxable service. Read More

Dear Sir, we have to deposit service tax under reverse charges on account of Legal Fees Services ( payment to advocate) i would like to know which accounting code will be applicable for depsoiting service tax ?
 According to Circular No.161/12/2012 –ST accounting codes for the purpose of payment of service tax under the Negative List approach, with effect from 1st July, 2012 and common for all the services, is as follows: Basic Service tax: 00441089 Primary Education Cess: 00440298 Secondary and Higher Education Cess: 00440426 Read More

Event Calendar

30/09/2012 - Submission of Proof of Export for the month of August-2012
 
Form:
Annexure-19   Provision: Rule 19
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----- Forwarded Message -----
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Sunday, 23 September 2012 7:17 AM
Subject: Government to handle selection of auditors for public sector banks

Government to handle selection of auditors for public sector banks
New Delhi 
September 21, 2012
The government will now handle the selection of auditors for state-run banks, a finance ministry official said, signalling growing concern over laxity in the audit followed by lenders and possible overstatement of profits.
The finance ministry is expected to issue a directive on the issue soon. "We are in consultation with key players. We expect to issue the directives in the next few days," the official said. The issue of public sector banks selecting auditors on their own had earlier been flagged by the Institute of Chartered Accountants of India (ICAI), which said the appointments should be done by an independent regulator, such as the Reserve Bank of India. The ICAI regulates the profession of accountants in India. "The institute has repeatedly written to the ministries of corporate affairs and finance regarding the new practice of management self-selecting auditors in PSU banks. This is not ethical, given the conflict of interest," a ICAI member, who did not want to be named, told ET. According to the ICAI council member, the selection of auditor in most state-run banks is now being done by the bank heads without consulting either the auditing committee or the central bank, as was the norm earlier.
"Most selections were made on who knows whom," the member said. However, the chief of a public sector bank said, "We will be more than happy if government decides to appoint regulators. There was a lot of push and pull from different influential people and associations. If ministry does it we will not be in a spot anymore." The finance ministry believes that appointment of independent auditors will also address the concern that there is possibility of overstatement of profits. Earlier this year, the ministry had written to some banks saying they had not followed the RBI's income recognition and asset classification norms. As per the RBI, the gross non-performing assets of public sector banks climbed to 3.2% of gross advances at the end of 2011-12, from 2.3% at the end of the previous fiscal. The restructured standard advances in these banks increased to 5.7% of gross advances by at the end of 2011- 12 from 4.2% a year ago.
"There was this issue of not making enough provisioning against stressed assets. We hope that this will also be addressed by the new norms," the finance ministry official said. As per the RBI's annual report 2011-12, restructuring increased substantially in the fourth quarter of 2011-12, taking restructured loans at the end of the year to about 5% of the loan book of the scheduled commercial banks, up from 3.9% a year ago. The central bank carries out an annual financial inspection of banks and suggests corrective measures.
[Source: The Times of India]

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Best Wishes

CA. V.M.V.SUBBA RAO
Chartered Accountant
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