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The dispute is regarding addition made by the Assessing Officer on account of computation of capital gain from sale of flats. The assessee who was owner of the land since 1962 had sold the land as per development-cum-sale agreement dated 21-2-2001 to the builder. The consideration agreed was a cash payment of Rs .61 lakh and 55 per cent share in the built-up area to be constructed by the builder amounting to 6147.52 sq.ft. Subsequently, 55 per cent of the share of the assessee was revised to 14322 sq.ft. in view of the property being released from CRZ control. Thus the consideration receivable by the assessee for transfer of 45 per cent right in the land to the builder was payment of Rs. 61.00 lacs and cost of construction of 55 per cent of built-up area to the builder. Since the possession of the land had been given in August 2001, the assessee had declared capital gain from the transfer of 45 per cent right in land in the assessment year 2002-03. The building had been constructed during the period 2002-05. The assessee had been given possession of the flats vide full occupation certificate dated 24.2.2005. The assessee sold two flats during the assessment year under consideration for aggregate consideration of Rs.5.38 crores on 10-4-2006 and 2-5-2006 with each flat having built-up area of 2850 sq.ft. 

The assessee computed the gain from sale of flats as long term capital gain taking holding period from the date of development-cum-sale agreement. The Assessing Officer has not accepted the claim of the assessee and has computed capital gain as short term capital gain as the assessee had taken possession of the flats only on 24-2-2005 and therefore, in his view the flats were held only from that date. The case of the assessee is that it had right of claim in the flats since the date of agreement in the year 2001, which was an asset and therefore, it was right of claim in the flats which was sold by the assessee. It has also been submitted that the expenditure incurred during 2002-05 for construction of building and 55 per cent share of the assessee in the said construction was merely cost of improvement of the asset held by the assessee since 2001. Thus, in the opinion of the assessee the asset had been held for more than 3 years and, therefore, the gain has to be computed as long term capital gain. The assessee has relied on several decisions of the Tribunal and the High Courts in support of the plea. On careful consideration of the entire facts and circumstances, the claim of the assessee cannot be accepted. Right to claim the flat as per agreement in the year 2001 was an asset but the assessee had not sold the right to acquire the flats. The assessee had sold the flats of which he was owner. The right to acquire the flats, no longer subsisted once the assessee acquired the flats and took possession of the same on 24-2-2005. The right to acquire the flats and ownership of the flats are two different assets. The assessee had sold the flats and had not transferred the right to acquire the flat which had extinguished. The capital gain had therefore to be computed in respect of sale of flats and not in respect of right to acquire the flats.

However, there is substance in the alternate plea of the assessee that the right of the assessee in the flats also included the right in the proportionate part of the land as the assessee had transferred only 45 per cent of right/interest in the land to the builder and 55 per cent of the right/interest was retained by the assessee. Therefore, sale consideration also included price paid in respect of right in the land in addition to price for superstructure. There is no merit in the argument of the revenue that this being a fresh plea should not be entertained. The entire issue of computation of capital gain is in dispute before the Tribunal and, therefore, all aspects relating thereto have to be considered. The claim of the assessee to bifurcate the capital gain in two parts i.e. one relating to sale of right in the land and the other relating to sale of superstructure is quite reasonable.

In instant case, the assessee along with flats had also sold right of the assessee in the land which was an independent asset and which was being held by the assessee since 1962 as an owner. Therefore, following the judgment of the High Court of Bombay in the case of CIT v. Hindustan Hotel's Ltd. [2011] 335 ITR 60, the capital gain in respect of transfer of right of assessee in the land has to be computed separately as long term capital gains and gain in respect of sale of superstructure has to be treated as short term capital gain. The assessee has argued that in case of Hindustan Hotels Ltd. (supra), the gain in respect of superstructure had been taken at about 17 per cent and therefore in this case also while attributing the sale consideration towards price of superstructure, a margin of 17 per cent on the cost of construction should be adopted. However, it is noted that in case of Hindustan Hotels Ltd. (supra), the period of construction was 1990-95 and it had been sold soon thereafter, in June 1995 whereas in the instant case the period of construction was 2002-05 and flats had been sold in the year 2006. Considering the facts and circumstances of the case it held that it would be reasonable to adopt a profit margin of 25 per cent on the cost of construction of the flats to arrive at the sale consideration pertaining to the superstructure. The balance sale consideration of the flats will be appropriated towards the sale price for the transfer of right in the land. The capital gain will thus be computed as long term capital gains in respect of transfer of right in the land and short term capital gain in respect of transfer of superstructure of the flats. The assessee will be entitled to the benefit of investment in the Rural Electrification Corporation Bonds under section 54EC in accordance with law. The Assessing Officer will re-compute capital gain accordingly

IN THE ITAT MUMBAI BENCH 'I'

Assistant Commissioner of Income-tax

v.

Jaimal K. Shah

IT Appeal No. 6966 (Mum.) of 2010

[Assessment Year 2007-08]

MAY 30, 2012

ORDER

Rajendra Singh, Accountant Member – This appeal by the revenue is directed against the order dated 30.7.2010 of CIT(A) for the assessment year 2007-08. The only dispute raised in this appeal is regarding computation of capital gain from sale of flats by the assessee during the year.

2. The facts in brief are that the assessee who was owner of land since 1962 had entered into development cum sale agreement dated 21.2.2001 with a builder M/s. Bhagtani Property Development Pvt. Ltd. as per which the assessee handed over land to the developer for development and construction of flats against agreed consideration of Rs.61.00 lacs and 55% share in built up area amounting to 6147.52 sq.ft. The builder was also required to provide alternate accommodation to the assessee being 4-bed room hall tenement equivalent to Rs.1.00 lacs per month for 30 months to facilitate family of the assessee to stay during the period of construction. There was also provision for sharing of TDR @ 55% if available in future. Subsequently, as per supplementary agreement dated 9.10.2002, the assessee got a sum of Rs.2.5 lacs in lieu of 55% share in constructed basement. The supplementary agreement also provided that in case assessee was able to get property released from C.R.Z, assessee will have share in the additional FSI including TDR FSI @ 55%. Subsequently the property was released from C.R.Z in 2004, and C.R.Z notification was made effective from 2001. The construction of the building was complete during financial year 2004-05. Due to release of property from C.R.Z control, the total permissible FSI had increased to 26040 sq.ft. and consequently 55% share of the assessee had also increased from 6477.35 sq.ft. to 14322 sq.ft. Out of his share in the constructed property, the assessee sold two flats on 10.4.2006 and 2.5.2006 of 2850 sq.ft. each on 2nd floor and 4th floor respectively for consideration of Rs.2.72 crores and Rs.2.66 crores respectively. The total sale consideration thus received by the assessee during the year from sale of flats was Rs.5.38 crores.

2.1 The assessee treated income from sale of flats as long term capital gain treating the flats being held since the agreement dated 21.2.2001. From the sale consideration, assessee reduced the indexed cost of 55% share in the land and indexed cost of construction relating to the flats sold. Since land had been held by the assessee since 1962, the cost of acquisition was taken at market value as on 1.4.1981 as per approved valuer report @ Rs. 300 per sq.ft. which came to Rs. 18,44,100/- and indexed cost was computed at Rs. 95,33,997/-. Similarly cost of construction by the builder was determined @ Rs. 1,575/- per sq.ft. which came to Rs. 96,81,525/- for the assessee's share of 6147 sq.ft. and indexed cost was computed as Rs. 1,17,49,647/-. The total cost of acquisition for assessee's share of 6147 sq.ft. thus came to Rs. 2,12,83,641/-. Further, since the share of assessee in FSI had been subsequently increased to 14322 sq.ft. assessee spread the cost over the larger area which gave cost of construction at 1486 per sq.ft. Thus, cost of acquisition of two flats (5700 sq.ft.) was computed by the assessee @ Rs. 1,486/- per sq.ft. which came to Rs. 84,70,200/-. The capital gain was thus computed at Rs. 4,53,29,800/- (53800000 – 8470200). The assessee had made investment in Rural Electrification Corporation Bonds totaling Rs. 3,34,10,000/- and therefore capital gain to the above extent was claimed exempt and net taxable gain was computed at Rs. 1,19,19,800/- and after deducting legal expenses of Rs. 6.00 lacs assessee declared taxable long term capital gains of Rs. 1,13,19,800/-.

2.2 The AO did not accept the computation of capital gain made by the assessee as long term capital gains. The AO observed that the assessee had taken possession of the flats as per full occupation certificate issued by Executive Engineer dated 24.2.2005 and therefore, assessee was holding the said flats from the said date and since flats were sold in April/ May, 2006, the period of holding was less than three years and therefore capital gain had to be treated as short term capital gain . The AO therefore, asked the assessee to explain as to why claim of long term capital gains should not be rejected and assessment be made as short term capital gain. The assessee submitted that as per agreement dated 22.2.2001, the assessee had right of claim in flats which was as asset and which was available to the assessee since 21.2.2001. The assessee argued that he was not claiming flats as an asset. The asset in the hands of the assessee was right of claim in immovable property which he held since 1962. It was also submitted that expenditure incurred between 2002-05 for construction of building and 55% share of the assessee in the said construction was merely cost of improvement of the property. There was no new asset created. It was also pointed out that right of the assessee in the additional FSI consequent to release of property from C.R.Z was also available since 2001 as C.R.Z notification was effective from the year 2001. The assessee referred to the judgment of Hon'ble High Court of Bombay in case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693 in support of the proposition. Assessee also distinguished the decision of the Tribunal in the case of Dy. CIT v. Kishore Kanungo [2006] 102 ITD 437 (Mum.) referred to by the AO on the ground that the said decision was relevant, only for adopting fair market value as on 1.4.1981. The AO however did not accept the contentions raised. It was observed by him that the construction had been completed only during financial year 2004-05 and occupation certificate issued only on 24.2.2005. Therefore, the flats sold had not come into existence on the date of agreement. The assessee had sold flats which had come into his possession only on 24.2.2005 and, therefore, period of holding could only be reckoned from the said date. The AO therefore, held that the capital gain had to be computed as short term capital gain. The AO further observed that the assessee had declared income only in respect of sale consideration of Rs. 61.00 lacs in assessment year 2002-03 and additional consideration being in the form of cost of construction by the builder to the extent of 55% had not been quantified and taxed in the hands of the assessee on the date of the agreement. The AO therefore, held that no deduction was required to be allowed regarding cost of construction in the hands of the assessee. He thus, treated the entire sale consideration of flats of Rs. 5,38,00,000/- as short term capital gain and added to the income of the assessee.

3. The assessee disputed the decision of AO and submitted before CIT(A) that subsequent to development agreement dated 21.2.2001 the assessee had handed over possession of land in August 2001 and therefore, income from transfer of 45% of share in land had been declared by the assessee as long term capital gains in assessment year 2002-03. The sale consideration for this purpose had been taken by the assessee as cash payment at Rs. 61.00 lacs and cost of construction of the 55% share of the assessee by the builder @ Rs. 1,575/- per sq.ft. aggregating to Rs. 96,81,525/- making gross sales proceeds at Rs. 1,57,82,360/-. As the land had been held prior to 1.4.1981, the cost of acquisition had been taken at market value of the land as on 1.4.1981 which was Rs. 18,44,100/- and after deducting the indexed cost of acquisition, the long term capital gain had been computed and declared in the Income tax return for assessment year 2002-03. The AO was, therefore, not correct in stating that the assessee had not declared income in respect of sale of land in the relevant year and that no deduction should be allowed in respect of cost of construction against sale of flats. As regards the period of holding, assessee reiterated the submissions made before AO that the assessee had acquired valuable, exchangeable and legally tenable right on signing the agreement to acquire the flats which was a property within the meaning of section 2(14). In pursuance of the said rights, the builder had delivered flats and, therefore, the assessee was holding the flats since the day of the agreement. The assessee placed reliance on the judgment of Hon'ble High Court of Bombay in the case of H.H. Acharya Swami Ganeshdasji v. Dy. CIT [2001]  and the judgment in case of CIT v. Mrs. Hilla J. B. Wadia [1995] 216 ITR 376 (Bom.) in support of the proposition. In these cases, it was held that in case allotment letter was issued to an allottee under a scheme for allotment of flat, the allottee gets title to the property on the issuance of allotment letter which has to be treated as date of possession of the property.

3.1 After considering the submissions of the assessee, CIT(A) observed that on signing of the agreement on 21.2.2001 the assessee had acquired right for acquisition of the flats which was a property under section 2(14). The cost of the flats acquired was sale proceeds in respect of the land which had been offered by the assessee in the assessment year 2002-03. The CIT(A) has also held that in view of the judgment relied upon by the ld. A.R, the date of booking of the flat had to be considered as date from which property had been held. He accordingly held that holding period in respect of flats sold had to be reckoned from date of agreement i.e. 4.10.2001 as this was the date on which assessee had right in the flats sold. The CIT(A) also observed that in the immediate proceeding year i.e. A.Y 2006-07, the AO had accepted the claim of long term capital gain on sale of flats on identical grounds. The AO had accepted the working of cost of construction and capital gain declared by the assessee in the order dated 18.12.2008 under section 143(3). CIT(A) however observed that in the working of cost of construction, assessee had not taken stilt area of 625 sq.ft. and held that the same should be added to the area available to the assessee and would reduce the cost per sq.ft. to Rs. 1,423.86 against Rs.1,486/- claimed by the assessee. There would be thus enhancement @ Rs. 62.14 per sq.ft. Subject to the above CIT(A) allowed the claim of the assessee of long term capital gain aggrieved by which revenue is in appeal before the Tribunal.

4. Before us, the ld. DR appearing for the revenue assailed the order of CIT(A) and strongly supported the findings given in the assessment order. It was argued that the assessee had sold flats in the relevant year and not the interest in the property which had been acquired by him in the year 2001. The flats had been constructed in financial year 2004-05 and assessee had got possession on 24.2.2005. Since the flats had been sold in the year 2006, obviously the gain from sale of flats had to be treated as short term capital gain. It was further argued that on the date of agreement on 4.10.2001, the assessee had only right of acquisition of flats and that limited right had ceased on getting the possession of the flat. The flat was a new asset which had been sold during the year and, therefore, period of holding in respect of flats has to be reckoned from the date of acquiring possession of the flat. The ld. DR placed reliance on the judgment of Hon'ble High Court of Bombay in case of CIT v. Dr. D.A. Irani [1998] 234 ITR 850/[2000] . He also referred to the decision of the Tribunal in the case of Mrs. Lata Vasudeva v. Addl. CIT [2011]  for assessment year 2003-04 in support of the case of the revenue.

4.1 The ld. AR for the assessee on the other hand reiterated the submissions made before lower authorities and strongly supported the findings given by the CIT(A). The ld. AR placed reliance on the following judgments in support of the case of the assessee.

(i)  CIT v. Jindas Panchand Gandhi [2005] 279 ITR 552 (Guj.)

(ii)  CIT v. Anilaben Upendra Shah [2003] 262 ITR 657

(iii)  Jitendra Mohan v. ITO [2007] 11 SOT 594 (Delhi)

(iv)  Vinod Kumar Jain v. CIT [2010]

(v)  Asstt. CIT v. Smt. Hansaben B. Mehta [2004] 90 ITD 44 (Mum.)

(vi)  ITO v. Smt. Kashmiraben M. Parikh [1993]

(vii)  Asstt. CIT v. Sharad Thadani [2006] 7 SOT 431 (Luck.)

4.2 The ld. AR argued that the judgments relied upon by the ld. Departmental Representative were distinguishable and were not applicable to the present case. Alternatively, it was argued that, in case, claim of long term capital gain was not accepted, the land and building has to be bifurcated for the purpose of computation of capital gain. For this purpose, he placed reliance on the judgment of Hon'ble High Court of Bombay in case of CIT v. Hindustan Hotels Ltd. [2011] 335 ITR 60and the judgment in the case of CIT v. Citibank N.A. [2003] 261 ITR 570. The ld. AR also submitted that the assessee had given only 45% interest in the land to the developer and 55% of the land remained with the assessee. It was submitted that the capital gain had to be computed separately in case of land and in case of building being flats. It was also argued that in case of computation of capital gain from superstructures being flats, short term capital gain should be computed @ 15% of the cost of construction as held in the case of Hindustan Hotels Ltd. (supra).

4.3 In reply, the ld. Departmental Representative submitted that the issue of bifurcation of land and building had not been raised by the assessee before authorities below and, therefore, this issue can not be considered at the level of the Tribunal. It was also submitted that the various cases relied upon by the ld. AR related to the flats being acquired as a member of society or under a scheme of government. It was further submitted that the ld. AR had not referred to any judgment related to development agreement and, therefore, cases cited were distinguishable and not applicable.

5. We have perused the records and considered the rival contentions carefully. The dispute is regarding addition made by AO on account of computation of capital gain from sale of flats. The assessee who was owner of the land since 1962 had sold the land as per development cum sale agreement dated 21.2.2001 to M/s. Bhagtani Property Development P. Ltd., a builder. The consideration agreed was a cash payment of Rs.61.00 lacs and 55% share in the built up area to be constructed by the builder amounting to 6147.52 sq.ft. Subsequently, 55% of the share of the assessee was revised to 14322 sq.ft. in view of the property being released from CRZ control. Thus the consideration receivable by the assessee for transfer of 45% right in the land to the builder was payment of Rs.61.00 lacs and cost of construction of 55% of built up area to the builder. Since the possession of the land had been given in August 2001, the assessee had declared capital gain from the transfer of 45% right in land in the assessment year 2002-03, the details of which have been given in para 2.1 earlier. The building had been constructed during the period 2002-05. The assessee had been given possession of the flats vide full occupation certificate dated 24.2.2005. The assessee sold two flats during the assessment year under consideration for aggregate consideration of Rs.5.38 crores on 10.4.2006 and 2.5.2006 with each flat having built up area of 2850 sq.ft.

5.1 The assessee computed the gain from sale of flats as long term capital gain taking holding period from the date of development cum sale agreement. The AO has not accepted the claim of the assessee and has computed capital gain as short term capital gain as the assessee had taken possession of the flats only on 24.2.2005 and therefore, in his view the flats were held only from that date. The case of the assessee is that it had right of claim in the flats since the date of agreement in the year 2001 which was an asset and therefore, it was right of claim in the flats which was sold by the assessee. It has also been submitted that the expenditure incurred during 2002-05 for construction of building and 55% share of the assessee in the said construction was merely cost of improvement of the asset held by the assessee since 2001. Thus, in the opinion of the assessee the asset had been held for more than 3 years and, therefore, the gain has to be computed as long term capital gain. The assessee has relied on several decisions of the Tribunal and High Courts in support of the plea. On careful consideration of the entire facts and circumstances, we are, however, unable to accept the claim of the assessee. Right to claim the flat as per agreement in the year 2001 was an asset but the assessee had not sold the right to acquire the flats. The assessee had sold the flats of which he was owner. The right to acquire the flats, no longer subsisted once the assessee acquired the flats and took possession of the same on 24.2.2005. The right to acquire the flats and ownership of the flats are two different assets. The assessee had sold the flats and had not transferred the right to acquire the flat which had extinguished. The capital gain had therefore to be computed in respect of sale of flats and not in respect of right to acquire the flats.

5.2 The above view is supported by the judgment of Hon'ble High Court of Bombay in case of Dr. D.A. Irani (supra). In that case, the flat had been originally taken by the father of the assessee on lease at monthly rent of Rs. 175/- in the year 1962-63. The father of the assessee died in 1974 and, thereafter, the flat was in occupation of the assessee and his mother. In 1976, the ownership of the building was transferred to a society and the assessee and his mother like any other tenant paid a sum of Rs. 46,287/- towards purchase price of the flat and became owner of the flat which was earlier occupied as tenant. In the assessment year 1977-78, the assessee and mother sold the flat for a sum of Rs. 1,80,000/- and handed over the possession of the flat. The assessee declared capital gain as long term capital gain taking the holding period since 1962-63. The AO computed capital gain as short term capital gain taking the holding period of the flat since 1976. The Tribunal held that the right of occupation and ownership right had to be taken as a composite estate which could not be bifurcated. The Tribunal also observed that, in case, right of occupation was taken as the main estate then bigger estate has to be considered as cost of improvement and in such a case, the holding period has to be reckoned from the date of holding of the main estate but, in case, the bigger estate was taken as main estate, the holding period has to be reckoned from the date of acquisition of bigger estate. Since, these aspects had not been considered by lower authorities, the Tribunal restored the issue to the file of AO for fresh consideration. The assessee filed appeal against the order of the Tribunal. The Hon'ble High Court observed that the right of occupation or lease hold right did not subsist on the purchase of the flat and was extinguished on that date. In such a case, there was complete union of lessor and lessee which has also been recognized in section 111(d) of the Transfer of Property Act. The Hon'ble High Court accordingly held that the Tribunal was not correct in holding that right of occupation still subsisted after purchase of flat and accordingly it was held that the capital gain had to be computed as short term capital gain. The case of the assessee is similar. The assessee had earlier right to acquire flats which no longer subsisted after flats were acquired by the assessee. The assessee had sold the flats and not its rights to acquire the flat and, therefore, the capital gain in the present case has to be computed in respect of assets being flats.

5.3 The ld. AR for the assessee has placed reliance on several decisions as mentioned in para 4.1 earlier which are distinguishable. In the case of Anilaben Upendra Shah (supra), the assessee had acquired shares of co-operative housing society and allotted flats in 1979. The possession of the flat was obtained in 1981 and flat was sold in Dec. 1982. The assessee declared income as long term capital gain as shares had been held for more than three years whereas the AO computed capital gain as short term capital gain as the possession of the flat had been taken in Oct. 1981. The Hon'ble High Court held that the members of the co-operative society owned only shares and right to enjoy the land or building belonging to the society was merely an incidental right flowing from ownership of the shares. The assessee could not sell the flat, without selling the shares. It was accordingly held that the capital gain had to be computed as long term capital gain. Same view has been taken in case of Jindas Panchand Gandhi (supra) and Hansaben B. Mehta (supra). These cases are distinguishable and not applicable to the facts of the present case as the assessee in this case has not acquired and sold the flats as a member of a co-operative society. In case of Vinod Kumar Jain (supra), the issue related to sale of flat under self financing scheme of DDA. The period of holding in that case had been reckoned from the date of allotment in terms of Circular 471 dated 15.10.1986 of CBDT. Similar was the case of Jitendra Mohan (supra), in which the assessee had been allotted industrial shed by Delhi State Industrial Corpn. and period of holding had been reckoned from the date of allotment. In these cases, the allotment had been made under the scheme of government which is not applicable to the facts of the present case. In case of Smt. Kasmiraben M. Parikh (supra), and in case of Sharad Thadani (supra), the flats had been booked with the builder and later sold on taking possession. The Tribunal in these cases held that the period of holding had to be reckoned from the date of allotment and not from the date of possession of the flat. The decisions of the Tribunal can not be followed in view of the judgment of the Hon'ble High Court of Bombay in case of Dr. D.A. Irani (supra), in which it has been clearly held that the right to acquire the flat is different from the ownership rights and such right does not subsist on acquisition of ownership rights and, therefore, what the assessee had transferred is not the right to acquire the flat but the flat itself. Therefore, as held earlier, the capital gain has to be computed in respect of sale of assets being the flats and not the right to acquire the flats. The argument based on the claim being allowed by the AO in the earlier year cannot be accepted. Each assessment year is independent and the doctrine of res-judicata does not apply in income tax proceedings. Merely because similar claim has been allowed wrongly in the earlier year can not be the sole basis to claim benefits in the subsequent year.

5.4 However, we find substance in the alternate plea of the assessee that the right of the assessee in the flats also included the right in the proportionate part of the land as the assessee had transferred only 45% of right/interest in the land to the builder and 55% of the right/interest was retained by the assessee. Therefore, sale consideration also included price paid in respect of right in the land in addition to price for super structure. We do not find any merit in the argument of the ld. DR that this being a fresh plea should not be entertained. The entire issue of computation of capital gain is in dispute before the Tribunal and, therefore, all aspects relating thereto have to be considered. The claim of the assessee to bifurcate the capital gain in two parts i.e. one relating to sale of right in the land and the other relating to sale of super structure is quite reasonable and in fact this view is supported by several judgments including that of Hon'ble High Court of Bombay in the case of Hindustan Hotels Ltd. (supra). In that case, the assessee was constructing a hotel building through a contractor during the period 1990-95. The construction could not be completed due to lack of sufficient funds. Therefore, the assessee sold the incomplete project in June 1995 consisting of land and partly constructed building for a sum of Rs.11.00 crores. The assessee declared income as income from capital gain. The AO computed the capital gain as short term capital gain on the ground that the building was under construction and had not been held by the assessee for a period of three years. The Tribunal however held that out of sale consideration of Rs.11.00 crores, only a sum of Rs.2.15 crores could be attributed to the sale of super structure and balance consideration was towards sale of land. After deducting cost of construction of Rs.1.85 crores, the Tribunal held that the gain of Rs.30.00 lacs in respect of super structure had to be assessed as short term capital gain and the balance gain arising from sale of land had to be treated as long term capital gain. The Hon'ble High Court of Bombay following the earlier judgment in case of Citi Bank N.A. (supra) upheld the view taken by the Tribunal, that land was a different asset from super structure and therefore profit from sale of land which was an independent asset had to be computed separately and accordingly bifurcation of capital gain into long term capital gains and short term capital gain was upheld.

5.5 The situation is identical in the present case. In this case, the assessee along with flats had also sold right of the assessee in the land which was an independent asset and which was being held by the assessee since 1962 as an owner. Therefore, following the judgment in Hindustan Hotels Ltd. (supra), the capital gain in respect of transfer of right of assessee in the land has to be computed separately as long term capital gains and gain in respect of sale of super structure has to be treated as short term capital gain. The ld. AR has argued that in case of Hindustan Hotels Ltd. (supra), the gain in respect of super structure had been taken at about 17% and therefore in this case also while attributing the sale consideration towards price of super structure, a margin of 17% on the cost of construction should be adopted. However, we note that in case of Hindustan Hotels Ltd. (supra), the period of construction was 1990-95 and it had been sold soon thereafter in June 1995 whereas in the present case the period of construction was 2002-05 and flats had been sold in the year 2006. Considering the facts and circumstances of the case, in our view, it would be reasonable to adopt a profit margin of 25% on the cost of construction of the flats to arrive at the sale consideration pertaining to the super structure. The balance sale consideration of the flats will be appropriated towards the sale price for the transfer of right in the land. The capital gain will thus be computed as long term capital gains in respect of transfer of right in the land and short term capital gain in respect of transfer of super-structure of the flats. The assessee will be entitled to the benefit of investment in the Rural Electrification Corporation Bonds under section 54EC in accordance with law. The AO will re-compute capital gain accordingly.

6. In the result, the appeal of the revenue is allowed partly.

 

A] Classification of Service

Authorised Service Station Services

1. The assessee being an authorised service centre of General Motors had provided services of repairs, reconditioning and restoration of vehicles manufactured by other manufacturers for which it did not have authorisation from the said manufacturers. The Hon'ble Tribunal held that the services provided in respect of other vehicles would not be liable for service tax under the category of service provided by authorised service station

CCE v. Dynamic Motors (2012) 26 STR 145 (Tri - Del)

Business Auxiliary Services

2. The Hon'ble Tribunal held that car dealers who promoted car loans for banks and NBFCs were providing services that were covered within the definition of Business Auxiliary Service under clause (b) "promotion and marketing of services provided by the client" as well as clause (d) "collection or recovery of cheques, accounts and remittance, evaluation of prospective customer," even prior to its amendment on 10-9-2004 adding "development of prospective customer." It was not a case of introduction of new entry and inclusion of new services with presupposition that they were not liable to tax earlier.

It was further held that, the appellant was neither entitled to benefit of exemption Notification No. 14/2004-ST as they were not providing services on behalf of banks and NBFCs nor Notification No. 25/2004-ST as their services were not in relation to banking and other financial service. Also the matter was interpreted by judicial forums in different ways and in such situation extended period cannot be invoked for raising demand.

City Motors & Financial Services v. CCE (2012) 25 STR 449 (Tri - Del)

3. The Hon'ble Tribunal held that purchase agents i.e. commission agents for procurement of inputs would not be liable for service tax under the category of "Business Auxiliary Services" prior to 10-9-2004.

New Quest Corp. Ltd. (2012)25 STR 441 (Tri–Del)

4. The Hon'ble Tribunal held that consideration received by the assessee for the activity of issuing PAN cards on behalf of Income tax department would not be liable for service tax under the category of "Business Auxiliary Services" since they were services in relation to the sovereign function of levy and collection of Income tax.

UTI Technology Services Ltd. v. CST (2012) 26 STR 147 (Tri-Mum)

5. The assessee had a licence to operate a lounge within the airport. In terms of the agreement with the airlines the assessee supplied food and drinks to 'exclusive passengers' of various airlines on production of lounge cards and the assessee charged the airlines for supply of food and drinks to the passengers. The Hon'ble Tribunal held that such services fall under the category of "Business Auxiliary Services" under section 65(19)(iii) i.e. "any customer service on behalf of the client" and not under the category of 'Airport service' under section 65(105)(zzm) as contended by the Revenue.

Oberoi Flight Services v. CCE (2012) 26 STR 41 (Tri- Del)

6. The Hon'ble Tribunal relying on Popular Vehicles and Services Ltd. v. CCE (2010) 18 STR 493 (Tri-Del) held that no service tax was payable on commission received by dealers of motor vehicles from manufacturer of vehicles out of the manufacturer's commission received from finance companies for marketing loans of the finance companies on which the manufacturer has paid service tax.

CCE v. Ajmer Automobiles P. Ltd. (2012) 26 STR 19 (Tri-Del)

7. The assessee was engaged in arranging documents for a bank to evaluate credibility, eligibility and financial status of prospective customer for funding by the bank. The Hon'ble Tribunal held that the assessee was acting as a catalyst in connecting the bank with the borrower and hence was promoting the funding business of the bank. Accordingly, it was liable to pay service tax under the category of Business Auxiliary Service.

S.K. Jalendra & Associates v. CCE (2012) 26 STR 135 (Tri-Del)

Clearing and Forwarding Services

8. The Hon'ble Tribunal on facts, held that since the assessee was not acting as a clearing and forwarding 'agent' but as an independent businessman qua its principal and was selling the products of their principal to their own clients without any interference of the principal they were not liable for service tax under the category of 'Clearing and Forwarding Agency service'.

Kamal Auto Finance Ltd. v. CST (2012) 26 STR 46 (Tri - Del)

Commercial training or coaching service

9. The Hon'ble Tribunal held that an institute imparting training in export-import merchandising and retail management enabling students to take employment or undertake self employment after the training would qualify as a "vocational training institute" and the exemption cannot be denied on the ground that "vocational training" would mean only training in skills like carpentry, smithy, making of gems and jewellery, etc. which are skills meant for people with relatively low levels of education and training imparted to a person with education up to 12th Standard.

Ashu Export Promoters (P) Ltd. v. CST (2012) 25 STR 359(Tri–Del)

Commercial & Industrial Construction and Construction of Complex Service

10. The assessee constructed individual residential houses, each being a residential unit. The appeal was against demand of service tax under the head 'construction of complex' service on the amount collected by the appellants from their clients as consideration for construction and transfer of residential houses. The Hon'ble Tribunal observed that the construction of residential complex having not more than 12 residential units was not sought to be taxed under the Finance Act, 1994. For the levy, it should be a residential complex comprising more than 12 residential units. Hence, it held that the construction of individual residential units was not subject to levy of service tax.

Macro Marvel Projects Ltd. v. CST (2012) 25 STR J 157 (Tri–Chennai)

Cargo Handling Agency Services

11. The assessee provided integrated services of mining for excavation of bauxite ore, loading it into trucks at stockyards and transportation of the same by road and unloading the same at a specified area for two aluminium companies during August 2002 - March 2006. The Revenue treated this as cargo handling service. From 1-1-2005, the assessee discharged service tax as recipient of Goods Transport Agency service on consideration received for transportation of goods. For services other than transportation, it paid service tax from 16-6-2005 under Business Auxiliary Service as services in relation to production were covered under Business Auxiliary Service. According to the appellant, services covered under mining service were not liable prior to 1-6-2007. Relying on several decisions including Sainik Mining & Allied Services (2008) 9 STR 531 (Tri) and Modi Construction (2008) 12 STR 34 (Tri), it contended that handling of goods within factory or mines could not be considered handling of cargo. The Revenue contended that argument of the assessee that mining was a dominant activity was incorrect and relied on Gajanand Agarwal v. CCE (2009) 13 STR 138 (Tri).

The Hon'ble Tribunal allowing the appeal of the assessee observed that the contracts indicated insignificant component of cargo handling service and main activities were mining and transportation. No separate rates were available for loading and unloading as available in the case of Gajanand Agarwal relied on by the Revenue. The Revenue's attempt to convert such activity from transportation and deny abatement claimed appeared farfetched to find legal support. Loading and unloading combined with transportation service rendered in respect of transportation would not become cargo handling service.

R. K. Transport Company v. CCE (2012) TIOL 290 (Tri–Del)

Custom House Agent

12. The Hon'ble Tribunal held that service charges received for liaisoning with customs authorities for collection of duty drawback was within scope of Custom House Agents service in relation to export of goods, and accordingly were liable for service tax.

CCE v. Kochi Logistics Services Pvt. Ltd (2012) 26 STR 30 (Tri-Bang)

Interior Decorator's Service

13. The assessee carried out execution of civil works, sanitation work, plumbing, electrical work and wooden furniture. The Hon'ble Tribunal held that, assessee was not rendering advice, consultancy, technical assistance, planning or designing and therefore not within the scope of Interior Decorator's Service.

Space Decorators v. CCE (2012) 26 STR 346 (Tri - Mumbai)

Information Technology Services

14. The assessee was engaged in managing and monitoring the modernisation and computerisation of various operations conducted by the Department of Company Affairs and in acquisition and installation, commissioning and system integration of IT systems, hosting facilities for central site, preparation and issue of NSSN cards to the members of EPFO. The Hon'ble Tribunal held that the activities would be liable for service tax under the category of "Information Technology Software Services" w.e.f. 16-5-2008 and not prior to that date under the category of "Management Consultancy Services".

UTI Technology Services Ltd. v. CST (2012) 26 STR 147 (Tri–Mumbai)

Maintenance and Repair Services

15. The assessee engaged in retreading of old and used tyres on job work basis claimed that there was sale of materials like tread rubber, patches, bonding gum to their customers and the same should be treated as works contract. The Hon'ble Tribunal observed that, concept of 'deemed sales' and apportionment of value of contract towards material supplied would be relevant only in the context of works contract. The invoices unilaterally raised by the appellant indicating the break up without substantiating the amount attributable to the value of goods supplied cannot be considered as documentary proof for the purpose of Notification No. 12/2003-ST. It held that, mere fact of payment of value of goods sold cannot be considered as evidencing sale of goods for the purpose of Notification No. 12/2003-ST.

It further held that, maintenance and repair service being a specific service cannot be treated as service under category of Works Contract for the service tax purposes. Liability to service tax has to be determined without being influenced by the fact of their paying Sales tax/VAT on portion of the value said to represent the material cost.

Safety Retreading Company (P) Ltd. v. CCE (2012) 26 STR 225 (Tri–Chennai)

Management Consultancy Services

16. The Hon'ble Tribunal held that market research done by an assessee company for its overseas parent cannot be considered as 'Management Consultancy Services' especially since during the period there was a separate entry for "Market Research Services".

Gillette India Ltd. v. CCE (2012) 26 STR 59 (Tri–Del.)

17. The assessee, engaged in the manufacture of sugar in its sugar mill, under an agreement with Indo Gulf Industries Limited, took over the management of Indo Gulf Industries Limited sugar mill in consideration for certain payment. The Service Tax Department treated the above agreement as a Management Consultancy agreement and demanded service tax on this payment. The Hon'ble Tribunal held that the assessee was in-charge of the operation of the factory and thus was performing the management function and hence no service tax would be applicable for rendering these management functions.

Basti Sugar Mills (2012) STR J 157 & 158

Manpower Recruitment or Supply Agency Services

18. The assessee provided contract manufacturing in the premises of principal with machinery, space and all other facilities provided by them. The department sought to tax them under Manpower Recruitment or Supply Agency service.

The Hon'ble Tribunal observed that, agreement between parties talking about products to be manufactured and payments to be made, was silent about number of men or labour to be used or manner in which they have to be used or quantum of payments to be made to them. It was thus held that, there was no liability to service tax
under Manpower Recruitment or Supply Agency service.

Rameshchandra C. Patel v. CST, Ahmedabad (2012) 25 STR 471 (Tri–Ahmd.)

Pandal and Shamiana Services

19. The assessee was registered for providing taxable service of Pandal or Shamiana. On investigation it was found that the assessee was allowing temporary occupation to the customers for organising marriage functions and for this purpose, besides permitting temporary occupations of the premises, the respondent was also providing furniture, fixtures, lighting, catering, etc. A specific provision w.e.f. 1-6-2007 was made that social function included marriage and hence, assessee contended that for the period prior to 1-6-2007, marriages were not social functions. The assessee was of the view that giving their premises to their clients mainly for marriage functions would not be considered social functions prior to 1-6-2007 i.e., during the period of dispute and providing the service in relation to use of Mandap or providing Pandal or Shamiana service for marriage function was not taxable. The Hon'ble Tribunal treated the activity of the assessee as allowing temporary occupation of Mandap for some consideration and was treated as service in relation to use of Mandap which was taxable during the period of dispute. It was held that even though the period of dispute was prior to 1-6-2007, it could not be construed that marriage was not a social function prior to 1-6-2007.

CCE v. Heera Panna Guest House (2012) 26 STR 36 (Tri-Del)

Rent a Cab Service

20. The assessee had a contract with various units of Indian Army for making available means of transportation such as taxi, mini-buses, deluxe buses and non-deluxe buses on hire basis against request. The Hon'ble Tribunal observed that, facts of the case were akin to case of taxi operator on the street and except the rates for a fairly long duration each of the vehicles were not put at the disposal of army for any fixed duration. Therefore, it held that, services were not covered under Rent-a-cab Services.

CCE v. Sapan Mehrotra (2012) 26 STR 219 (Tri–Del)

Renting of immovable property

21. The amended section 65(95)(zzzz) of the Finance Act, 2010 defined taxable service as "any service provided or to be provided to any person, by any other person, by renting of immovable property". The amendment is not clarificatory, but brings about a substantive liability of taxation upon the service providers. The Hon'ble High Court observed that the Parliament's right to legislate or create liability of service tax with retrospective effect can be curtailed only by a restriction placed upon its legislative powers by one or other provision of the Constitution of India. Since, there was no provision of Constitution of India shown restricting the right of Parliament to legislate retrospectively creating a tax liability it was held that the service tax liability arises retrospectively.

Entertainment World Developers Ltd. v. UOI (2012) 25 STR 231 (M.P.)

Telecommunication Service

22. The Hon'ble High Court in the instant case held that, light energy (ACLE) which is used as carrier in Tele-communication service for rendering service is covered by the Parliamentary Legislation i.e. Finance Act, 1994 read with Sections 65 (109-a) and it does not fall within the Entry 54 of List – II of VII Schedule. It further held that, the contract in question was not a composite contract but an indivisible contract and a contract simpliciter. There was no element of sale at all of any extent. It held that, light energy (ACLE) is one form of electromagnetic waves and not goods and hence there is no sale of goods and accordingly, the State had no powers to levy tax on it.

Bharti Airtel Ltd. v. State of Karnataka (2012) 25 STR 514 (Kar)

B] Valuation

23. The Hon'ble Tribunal in the instant case observed that the assessee an advertising agency did not act as a pure agent of its client (the advertiser) in making payments to television channels, print media, hoarding suppliers, etc. for purchase of time slots/ space for advertising. Accordingly, it held that it was liable to pay service tax on the gross amount charged from their clients including the amounts charged as recovery of payments made to the media but would be entitled to avail credit on the media payments.

Quadrant communications Ltd. v. CCE (2012) 26 STR 33 (Tri–Mumbai)

24. The Hon'ble Tribunal in the instant case observed that without engaging clerks and utilising telephones and having godowns for storing the goods and without paying the loading and unloading charges, the assessee could not have rendered the clearing and forwarding services and even if these expenses were separately billed to the client, the expenses would form a part of value of taxable services. In case of transportation services, they were provided by the person operating the vehicles and there was no proof of the fact that the appellant had the responsibility to deliver the goods at the door-steps of the client. For freight revenue, it was conceded that it could be considered as reimbursable expense so long as the actual freight amounts were claimed. For expenses of pre-dispatch inspection, octroi and detention charges, it was held that these expenses were not towards any activity that would constitute service rendered by the appellant and therefore, excludible. Accordingly, it held that abatement from gross receipts received could be allowed for the expenses subject to production of vouchers for such expenses.

Harveen & Co. v. CCE (2012) 26 STR 14 (Tri - Del)

C] CENVAT

25. The Hon'ble High Court in the instant case observed that Rent-a-cab service and Outdoor Catering service to employees working in factory were in relation to manufacture of final products and hence credit was admissible.

CCE v. Bell Ceramics Ltd. (2012) 25 STR 428 (Kar)

26. The assessee manufacturer of readymade garments paid service tax on Intellectual Property Right service under reverse charge mechanism, by utilising CENVAT credit availed on input services. The Hon'ble High Court held that, though assessee was recipient of Intellectual Property Right service, as their service provider was outside India, they were deemed to be service provider and liable to pay service tax, which can be discharged by them using their CENVAT credit.

CST v. Aravind Fashions Ltd. (2012) 25 STR 583 (Kar)

27. The Hon'ble High Court observed that, when assessee provides outdoor canteen facilities because of a statutory obligation imposed on him under section 46 of the Factories Act, 1948, it becomes a condition of service as far as the employees are concerned. It may be welfare measure but certainly not a charity provided by employer to the employees. It held that, merely because these services were not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and assessee was not entitled to CENVAT credit.

CCE v. Ace Designers Ltd. (2012) 26 STR 193 (Kar)

28. The Hon'ble High Court in instant case held as under:

• Since the assessee had not taken benefit of wrong entry in their account books, there was no liability to pay interest. Once entry was reversed, it is as if that CENVAT credit was not available.
• Wrong availment of credit does not attract interest liability, which arises from the date credit is taken or utilised wrongly. It is only when credit has been taken and duty legally due to Government is not paid, Government would sustain loss to that extent. Liability to pay interest arises under section 11AB of Central Excise Act, 1944 from date amount became due, to compensate Government. Without liability to pay duty, liability to pay interest does not arise.
• Taking of credit means actually taking credit in account books while clearing finished goods. It is not merely entry in account books showing entitlement to credit. It is more so as words used in Rule 14 of Cenvat Credit Rules, 2004 are 'taken' or 'utilised' and not 'avail'. If before utilization of credit, entry has been reversed, it amounts to not taking credit on inputs.
• The decision of Supreme Court in UOI v. Ind Swift Laboratories Ltd. (2011) 265 ELT 3 (SC) has been distinguished.

[Note: In this regard reference can also be made to amendments carried out in rule 14 of CCR, 2004 by Notification No. 18/2012-CE(NT) dated 17-3-2012.]

CCE v. Bill Forge Pvt. Ltd. (2012) 26 SIR 204 (Kar)

29. The Larger Bench in instant case held that, cash refund of unutilised CENVAT credit on closure of unit is allowed only when the restriction has been put on utilisation of CENVAT credit for payment of duty and the assessee has been compelled to pay duty out of PLA. There is no provision in CENVAT credit rules to grant refund except in case of exports.

Steel Strips v. CCE (2012) 26 SIR270 (Tri.-LB)

30. The Hon'ble Tribunal held that, repair and maintenance of air-conditioning plant in office was used by employees working in connection with manufacturing business of assessee and hence credit of service tax paid thereon was
    admissible.

BRY Asia Pvt. Ltd. v. CCE (2012) 26 STR 333 (Tri-Del)

31. In instant case, the assessee had taken CENVAT credit of duty paid on capital goods in November, 2005, whereas invoice was dated 5-12-2005 and goods were received in factory on 22-12-2005. The Commissioner (A) upheld the denial of credit. The Hon'ble Tribunal held that, denial of credit was on technical grounds and there was no reason for denial of credit.

Hot Sport Colour Lab v. CCE (2012) 26 STR 336 (Tri-Del)

32. The assessee, a manufacture of medicaments, claimed CENVAT credit of service tax paid on Group medical policy and Group insurance health policy. The Hon'ble High Court observed that, obligation has been cast on manufacturer under Workmen's Compensation Act to obtain insurance policy. Therefore, it held that, policy taken by assessee is a service constituting, activity relating to business which is covered under input service definition and service tax paid on all services utilised directly or indirectly in or in relation to final product was eligible as credit.

CCE v. Micro Labs Ltd. (2012) 26 STR 383 (Kar)

33. The Hon'ble Tribunal in instant case:

• Allowed CENVAT credit of duty paid on HR Plate/coil, joining sheet & MS stud, and welding electrodes used for maintenance and repair of plant and machinery.
• Allowed CENV AT credit of service tax paid on Rent-a-cab Service for transport of inputs and mobiles phones used by officials for company work.
• Held that taking of credit before payment of service tax is only a technical lapse and on such lapses credit cannot be denied.

J. K. Sugar Ltd. vs. CCE (2012) 26 STR 391 (Kar.)

34. The Hon'ble Tribunal held that prior to insertion of explanation to Rule 2(p) of the CENVAT Credit Rules, 2004 which defined 'output services', discharging service tax liability in respect of goods transport agency services by availing Cenvat Credit was permissible.

Shree Rajasthan Syntex Ltd. v. CCE (2011) 24 STR 670 (Tri-Del)

35. The Hon'ble Tribunal held that Credit on telephone service used for sales promotion of products manufactured is admissible [Agsar Paints Pvt. Ltd.v. CCE (2011) 24 STR 422 (Tri-Chennai)]. Also, CENVAT credit of service tax paid on the services of commission agent is admissible being a service in relation to "sales promotion".

CCE v. Rightway Fabrics Pvt. Ltd. (2011) 24 STR 505 (Tri-Del)

36. The Hon'ble Tribunal held that the CENVAT Credit of duty paid on capital goods used in the fly ash extraction plant would not be admissible since on facts it was found that, the fly-ash extraction plant situated away from the factory was neither a captive plant nor was the fly ash exclusively used by them.

India Cements Ltd v. CCE (2011) 24 STR 94

37. The Hon'ble Tribunal held that CENVAT Credit of Service Tax on Insurance policy for Workmen's Compensation claims of the workers who were involved in the manufacturing process of the final product, was admissible.

CCE v. Mahamaya Steel Industries (2011) 24 STR 124 (Tri-Del)

38. The Hon'ble High Court dismissed the appeal by the Revenue against the order of the Tribunal holding in favour of the assessee on a question whether certain services were 'input services' was dismissed by the High Court on the ground that the question whether a service is an input service under Rule 2(l) of the CENVAT Credit Rules, 2004 was a question of fact to be decided by the Tribunal which is the final authority on facts.

UOI v. HEG Ltd. (2011) 24 STR 275 (Chhattisgarh)

39. The Hon'ble High Court held that the credit of service tax paid on outward transportation of final product from the place of removal till it is delivered to the customer was admissible as being a service in relation to 'clearance of final product from the place of removal' prior to 1-4-2008.

CCE v. Parth Poly Woven Pvt. Ltd. (2012) 25 STR 4 (Guj)

40. The assessee took credit on transport of goods by rail which was not liable to service tax during the impugned period. The Hon'ble Tribunal held that there can be no demand on the assessee for recovery of credit since there was no loss of revenue to the exchequer.

Sterlite Industries Ltd. v. CCE (2012) 25 STR 66 (Tri-Che)

41. 41. The Hon'ble Tribunal held that post 14-5-2003 under the Service Tax Credit Rules, 2002, Credit of service tax paid on input service was admissible even in the event the input and output service do not fall within the same category and this credit can be utilised under the CENVAT Credit Rules, 2004 in terms of Rule 11(1).

Idea Mobile Communications Ltd. v. CCE (2012) 25 STR 385 (Tri–Del)

42. The assessee, engaged in manufacture of poly bags/flat films, wrongly availed CENVAT credit. It reversed the said credit account on being pointed out during the course of audit. However, it failed to pay the interest on the credit availed by it. A showcause notice was issued for the recovery of interest. The adjudicating authority held the showcause notice as dropped. On appeal by the Department the same was dismissed by the Hon'ble Tribunal. On further appeal, the Hon'ble High Court observed that in both situations i.e., where CENVAT credit has been wrongly taken or wrongly utilised, interest is recoverable. However, it held that when the entry has been reversed before utilisation, the same amounts to not taking credit and accordingly, no interest is leviable.

CCE v. Dynaflex Pvt. Ltd. (2012) 25 STR 277 (Guj)

43. The question of law referred to the Larger Bench was, whether an assessee was eligible to avail the credit of balance 50% of the credit in respect of capital goods in the subsequent financial year without installing the same and putting it to use as held by Ispat Industries v. Commissioner, (2006) 199 ELT 509 (Tri.) or the assessee cannot avail credit as held by Parasampuria Synthetics Ltd. v. Commissioner, (2004) 170 ELT 327 (Tri.-Del.). In Ispat's case, in Revenue's appeal before the Bombay High Court, reported at (2012) 275 ELT 79 (Bom.), the Hon'ble High Court held that since the Hon'ble Tribunal had held that the expression 'possession and use of the manufacture of final products' have to be read together and would denote that the goods were available for use in the manufacture of final products and since the finding of the fact was that capital goods were under erection process, no substantial question of law had arisen and therefore the appeal was dismissed.

The Hon'ble Tribunal observed that in terms of the above decision of the Bombay High Court, it was held that the condition under the relevant Rule 4(2)(b) of the CENVAT Credit Rules, 2004 for taking 50% credit in subsequent financial years when capital goods are lying in the factory for installation and under the process of erection has to be interpreted as capital goods in possession and use for manufacture and accordingly the Division Bench was directed to decide the appeal on merits.

Bharat Petroleum Corporation Ltd. v. CCE (2012) 277 ELT 353 (Tri.-LB)

44. The assessee in the instant case, claimed CENVAT/Modvat of the duty paid on the basis of the delivery notes. The Revenue in its appeal against the Hon'ble Tribunal's order, contended that delivery notes cannot be considered as valid legal document for availment of the credit. The Hon'ble High Court held that the benefit cannot be denied on the grounds of non-compliance with procedures when sufficient evidence about the duty payment on inputs was available on records.

CCE v. Saturn Industries (2012) 25 STR 428 (Kar)

45. The assessee manufactured stranded wire in their factories and received permission from M.P. State Electricity Board to generate electricity from windmills. It availed services of erection, installation and commissioning, repair, maintenance, insurance and took CENVAT credit. The Department, however, denied CENVAT credit as windmills were located far away from the factory and the power generated by the windmills was not directly received in the factory of the appellant.

The Hon'ble Tribunal observed that in case of wind-power generator, it may not be possible to locate it in the vicinity of factory as wind-power generators have to be located at places where wind with sufficient speed is available throughout the year. The assessee's factories were situated far away from the windmills and they had obtained permission from M.P. State Electricity Board and in the permission, windmills were mentioned as for captive use by the appellant. Therefore, it was held that windmills were to be treated as captive plant and the service of erection, installation and commissioning, repair and maintenance and also insurance used in respect of the same are eligible for CENVAT credit.

Rajratan Global Wires Ltd. v. CCE (2012) 26 STR. 117 (Tri-Del)

46. The assessee, a manufacturer of bulk drugs availed CENVAT credit on inputs used in the manufacture of their final products. The quality control store department rejected some inputs and with reference to a report titled 'Status of Obsolete, slow-moving, non-moving materials' the officers directed that the CENVAT credit availed on such inputs should be reversed immediately and the appellant reversed the same. Later the Department issued a Show Cause Notice imposing penalty under Section11AC on the ground that the appellant had intention not to reverse the credit and they reversed the credit only because the report regarding unusable inputs was detected by the officers of the Department. The appellant contended that the due date for reversal of duty was 20-12-2002 and they reversed the same on  4-12-2002.

The Hon'ble Tribunal held that for imposing penalty under Section11AC short levy of duty should have arisen by reason of fraud, collusion or any wilful misstatement or suppression of facts and to impose penalty such contravention should be made with an intention to evade payment of duty. Hence to impose penalty under this section mens rea (i.e., guilty mind) has to be proved. It observed that in this case the company was in the process of writing of such inputs in their stores and there was nothing to suggest that they would not have reversed the credit at the time of writing off the inputs in their stock. Further, a short delay in reversal did not prove that they had intention to evade duty.

Laboratories Ltd. v. CCE (2012) 26 STR 184 (Tri-Del)

47. The assessee availed CENVAT credit on the basis of the xerox copy of the bil1 of entry. A showcause notice was issued for wrong availment of credit on the basis of xerox copy of the bill of entry. Penalty also was imposed. The assessee contended that the original copy of the bill of entry was not available with them and they had lodged a police complaint. Further they put in efforts to obtain a certified copy of the bill of entry from the Commissioner who denied their request. The Hon'ble Tribunal held that the assessee was entitled for CENVAT credit availed by them on the strength of xerox copy, because they had made efforts to obtain a certified copy of the bill of entry which was denied to them. Also, it was not disputed that the goods had suffered duty and they had been used in the manufacture of final product. Further, the credit could not be denied on the basis of mere technical violence.

CCE v. Shah Precicast P. Ltd (2012) 26 STR 187 (Tri – Mumbai)

D] Penalty

48. The Hon'ble High Court in the instant case held that:

• Assessee was able to prove their bona fides and there was reasonable cause for non-imposition of penalty. Impugned service lax was a new tax. It was more so as not only entire tax was paid within two days of visit by departmental officers, even interest on delayed payment was made good. Also Department itself had issued circular accepting fact that there was confusion and on that basis waived penalties.
• Amendment to section 78 did not have retrospective operation in absence of any specific stipulation to that effect and by its nature was not clarificatory.
• Prior to amendment to section 78 w.e.f. 16-5-2008, sections 76 and 78 operated in two different fields and penalty was imposable under both separately, even if offences were committed in course of same transactions or arose out of same act.
• Onus to prove "reasonable cause" for failure to pay Service tax is on assessee. They have to show that there was sufficient and proper reasons which occasioned their making of short deposits of service tax. Bona fide deposit of service tax was sufficient to invoke section 80.
• Bona fide implies absence of fraud or unfair dealing. Equivalent to this phrase is 'honesty". It refers to state of mind, and its correct province is to qualify things or actions that have relation to mind or motive of individual. Reasonable cause in common parlance means cause or ground which was not unreasonable.

Bajaj Travels Ltd v. CST (20l2) 25 STR 417 (Del.)

49. The Hon'ble Tribunal held that, when intimation is received from service tax assessee about payment of service tax and disputing the liability of interest the provisions of section 73(3) of Finance Act, 1994 come into play. Central Excise Officers should have determined the interest payable and communicated to the assessee and if the assessee did not pay the same, they had one year period for issue of showcause notice. When section and proviso are read together, a letter should have been written to assessee to pay interest and if they fail to pay interest, Showcause notice should have been issued. In the instant case since no such letter was written by Revenue, the penalties under sections 76 and 77 was to be set aside.

Shree Rama Multi-Tech Ltd. v. CST (2012) 25 STR 596 (Tri-Ahmd)

50. The Hon'ble High Court in the instant case held that, assessee was not liable to pay penalties under sections 76 and 77 in the present case, as service tax and interest had been paid availing benefit of Amnesty Scheme.

CST v. Prakash & Co. (2012) 26 STR 303 (Kar)

51. The assessee disclosed information about the receipt of taxable service of procuring export orders on commission basis from commission agents abroad, in their balance sheet and as soon as information in this regard was asked for by the Department the same was provided. Further, they have also applied for and obtained service tax registration and paid substantial part of the demand.

The Hon'ble Tribunal held that, merely non obtaining service tax registration or non-payment of tax, it cannot be concluded that the same was with intention to evade the tax and hence penalty under section 78 was not attracted.

DCM Textiles v. CCE (2012) 26 STR 359 (Tri–Del)

52. The assessee wrongly utilised credit for education cess against service tax. Education cess was meant for specific purpose i.e., welfare of the state. The Hon'ble Tribunal held that the assessee was not entitled to avail credit of education cess against credit for service tax. However, the penalty under Section 76 of the Finance Act, 1994, upon the appellant was waived.

Pahwa International Pvt. Ltd. v. CST (2012) 25 STR 594 (Tri-Del)

53. The assessee was engaged in the manufacture of non-alloy steel ingots who purchased an induction furnace in the year 1994 and took CENVAT credit for the same. It used the said machinery till 2003 and then sold it after payment of duty which was equal to 16% on the sale price. The assessee paid duty on the transaction value but the Revenue was of the view that respondent should have paid duty equal to CENVAT credit availed at the time of purchase of the machinery and also imposed penalty on them. The Hon'ble Tribunal held that the assessee had paid the correct amount of duty because capital goods are used over a period of time and that they lose their identity as capital goods only after use over a period of time. The same became inserviceable and fit to be scrapped. The object of CENVAT credit on capital goods is to avoid the cascading effect of duty. For this, it is provided that if the machines were cleared 'as such' the assessee shall be liable to pay duty equal to the amount of CENVAT credit availed. However, the machine cleared after putting into use for nine years cannot be treated as cleared 'as such'.

CCE v. Raghav Alloys Ltd. (2012) 26 STR 87 (P & H)

E] Others

Abatement

54. The assessee initially claimed the benefit of abatement under the Notification No. 1/2006 dated 1-3-2006 and also availed CENVAT credit in violation of the condition stipulated for availing the benefit of abatement but subsequently, reversed such CENVAT credit. The Hon'ble Tribunal held that the benefit of the abatement cannot be denied to the assessee since reversal of wrongly availed credit along with interest has the effect of not having availed the credit at all.

Khyati Tours & Travels v. CCE (2011) 24 STR 456 (Tri-Ahmd)

Appeal

55. Where the question involved was with regard to the correctness of the reversal of CENVAT Credit as stipulated in Rules 6(2) and 6(3) of CENVAT Credit Rules, 2004, the Hon'ble High Court held that it was a clear case of ascertaining the liability of the assessee which falls within the term of determination of rate of duty and hence the appeal could not be entertained by the High Court in view of section 35G of Central Excise Act, 1944. It was a matter to be agitated in appeal before Supreme Court.

CCE v. Mangalore Refinery & Petrochemicals Ltd. (2012) 25 STR 393 (Kar.)

Burden of tax

56. The Hon'ble Supreme Court in the instant case held that, service tax is indirect tax which may be passed on and assessee can contract to shift their liability. The Finance Act, 1994 is relevant only between assessee and tax authorities and it is irrelevant to determine rights and liabilities between service provider and recipient as agreed in contract between them. There is nothing in law to prevent them from entering into agreement regarding burden of tax arising under contract between them.

Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 26 STR 289 (SC)

Board Circular

57. The Hon'ble High Court held that a Board circular treating a decision of the Tribunal as being relevant only to the facts of that case and not a binding precedent is incorrect and liable to be struck down.

Shiva Tax Fabs Ltd. v. UOI (2011) 24 STR 525 (Del)

Demand

58. The Hon'ble Tribunal observed that the provisions of Finance Act, 1994 does not extend to any place outside India. Thus, where the revenue had issued a showcause notice by invoking the larger period of limitation to the assessee company, located in France who had provided IPR services under the technology transfer agreement, the Tribunal held that since the assessee being situated outside India was not under an obligation to take out registration / file return the allegation of suppression is not maintainable and hence the confirmation of demand by invoking the extended period of limitation is not sustainable.

CCE v. Institut Francais Du Petrole (IFP) (2011) 24 STR 696 (Tri-Del)

Dismissal of an appeal ex parte

59. In the instant case, the Hon'ble Tribunal dismissed appeal ex parte for non appearance of the appellant on numerous counts. The Hon'ble High Court after relying on decision in Viral Laminates Pvt. Ltd. 1998 (100) ELT 335 (Guj) held that, the Hon'ble Tribunal has no power to dismiss appeal in default and appeal has to be decided on merits even in case of non-appearance.

Kiran Ship Breaking Corporation v. Customs, Excise & Service Tax (2012) 26 STR 195 (Kar)

Exemption in respect of receipts of foreign currency

60. The Hon'ble Tribunal held that dividend paid by the assessee company to its overseas parent out of disposable profits was payment for shares and cannot be held as "repatriation of" or "sending outside India" of monies received in convertible foreign exchange for taxable services rendered so as to deny the exemption for receipts in convertible foreign exchange under Notification No. 6/99 dated
    6-4-1999.

Gillette India Ltd. v. CCE (2012) 26 STR 59 (Tri-Del)

Limitation

61. The assessee claimed refund of service tax paid wrongly on Construction Service. The Hon'ble High Court observed that, department has not disputed that, it was not payable due to exemption notification, and that it was not passed on. It held that, department did not have legal authority to collect service tax and if did, it could be challenged as unconstitutional. Mere payment of amount could not authorise Department to regularise/validate and retain it. Department's plea that filing of claim under Form R indicated that assessee intended to claim refund of duty and they could not later claim that it was not a duty, was rejected by the Court. Accordingly, the refund could not be rejected on ground of limitation under section 11B of Central Excise Act, 1944.

CCE v. KVR Constructions (2012) 26 STR 195 (Kar)

Levy of Service Tax

62. The appellant in the instant case received advance payment before 10-9-2004 for providing part of services part of which was provided after 10-9-2004 and had discharged service tax liability @ 8%. The department however, sought to demand tax @ 10.2% on part of services provided after 10-9-2004. The Hon'ble Tribunal held that, department did not take any objection to such payment in advance so at a later date when rate went up, there was no reason for Department to turn around and say that appellant should not have paid tax in advance. Rate that was applicable at the time of receipt of value of service would apply in a case where the
    assessee chose to pay tax on advance amount received.

Vigyan Gurukul v. CCE (2012) 25 STR 459 (Tri-Del)

Liability to pay Service Tax

63. The Hon'ble Tribunal in instant case held that, in terms of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 liability to pay service tax on commission on mutual fund distribution is on recipient of services i.e. mutual fund company and if they did not pay it, liability cannot be transferred to mutual fund distributor.

Raj Ratan Castings Pvt. Ltd. v. CCE (2012) 25 STR 481 (Tri-Del)

Mode of service

64. The Hon'ble High Court in instant case held that, sending of order by 'Speed Post' was not a sufficient compliance to the provisions of section 37C(1)(a) of Central Excise Act, 1944. Order is to be served on the assessee or his agent through Registered Post AD or by other modes of service specified in section 37C. Accordingly, it set aside the Hon'ble Tribunal Order dismissing the appeal by accepting dispatch of order by 'Speed Post' as valid service.

Amidev Agro Care Pvt. Ltd. v. UOI (2012) 26 STR 299 (Bom)

Power of CIT(A)

65. The Hon'ble High Court held that the power of remand was available to the Commissioner (Appeals) in cases where the assessee had no opportunity to even reply to the showcause notice and in absence of any material before the Commissioner (Appeals), it was not possible for the Commissioner (Appeals) to decide the case on merits.

CST v. World Vision (2011) 24 STR 650 (Del)

Precedent

66. Where the Revenue challenged a decision of the Hon'ble Tribunal in a case before the Hon'ble High Court, though it had not challenged the Hon'ble Tribunal's decision in another case involving a similar issue, it was held by the Hon'ble High Court that the Revenue is not precluded from taking such a contrary / different stand
where –

• there is a "just cause"; or
• it is in public interest to do so; or
• when a pronouncement of the higher court is different and / or divergent  views are expressed by the Tribunals or  High Courts (other than jurisdictional High Court).

Shiva Tax Fabs Ltd. v. UOI (2011) 24 STR 525 (Del)

Rectification of mistake

67. The Hon'ble High Court held that if once the order regarding the pre-deposit of duty is not complied with, the Tribunal has no power or discretion but to reject the appeal and such an order would be a final order. Also, the Tribunal cannot entertain an application for rectification of mistake in this regard for recalling its order dismissing the appeal.

V. Ramkrishna Rao v. CCE (2012) 25 STR 395 (Mad)

68. In the instant case the Hon'ble Tribunal rejected the application for condonation of delay in filing rectification application as the delay was beyond 6 months as stated in section 35C(2) of the Central Excise Act, 1944. On appeal, the Hon'ble High court held that in the absence of any express reference to section 5 of the Limitation Act in the Central Excise Act or a power to condone the delay in filing a rectification application, the Hon'ble Tribunal cannot be considered to have committed any irregularity in rejecting an application for condonation of delay in filing rectification application on the ground that it is time barred.

CCE v. Sree Chamlundeswari Sugars Ltd. (2012) 25 STR 400 (Kar)

Refund

69. The Hon'ble High Court held that refund of service tax paid on input services used for export of goods for the period April-June 2008 cannot be granted if the assessee has availed drawback of service tax on the ground that the said condition (i.e., non-availment of drawback) was deleted w.e.f. 7-12-2008 since notifications are always prospective.

CCE v. Shiva Tex Yarn (2012) 25 STR 56 (Tri-Che)

Small Service Providers

70. The Hon'ble Tribunal held that where the appellant was selling and marketing goods of his client as consignment agent and provided business auxiliary services to him, it cannot be considered that the appellant is providing taxable services under a brand name of another person and hence is eligible to avail the benefit of small service provider exemption.

Fashion Square v. CCE (2011) 24 STR 421 (Tri-Del)

S.260A : Appeal – High Court – Order of Special Bench – Non filing of appeal. Not assailing the order of Special Bench for earlier years in appeal can be challenged in subsequent year on question of law.
(S. 143, 261)

Even though the order of the Special Bench of the Tribunal relating to earlier assessment years was not assailed in appeal by the Department itself, it does not take away the right of the Revenue to question the correctness of the assessment order on the same issue in the relevant assessment year, particularly when a question of law is
involved which goes to the very root of the matter.

Catholic Syrian Bank Ltd. v. CIT (2012) 68 DTR1/ 248CTR 1206 Taxman 182/ (2012) 3 SCC 784(SC)

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