ST - Amounts paid after 01.03.2013 but before enactment of VCES, 2013 on 10.05.2013 cannot be excluded from declaration as such a stand would substantially mutilate the term 'tax dues' - Writ allowed: HC
By TIOL News Service
AHMEDABAD, MAY 03, 2014: THE Service Tax Voluntary Compliance Encouragement Scheme (VCES) proposed by the Finance Bill, 2013 came into effect from 10.5.2013.
One of the many issues that the CBEC had clarified in its Circular 170/5/2013-ST, Dated: August 8, 2013 reads -
| S No. | Issues | Clarification |
8 | A person has made part payment of his 'tax dues' on any issue before the scheme was notified and makes the declaration under VCES for the remaining part of the tax dues.Will he be entitled to the benefit of non-payment of interest/penalty on the tax dues paid by him outside the VCES, i.e., (amount paid prior to VCES)? | No. The immunity from interest and penalty is only for "tax dues" declared under VCES. If any "tax dues" have been paid prior to the enactment of the scheme, any liability of interest or penalty thereon shall be adjudicated as per the provisions of Chapter V of the Finance Act, 1994 and paid accordingly. |
This clarification is under scrutiny in the present Writ Petition filed.
Facts of the case:
Petitioner is a partnership firm engaged in the business of construction. One of its partners is also a petitioner.
On 8.3.2013 preventive officers of the Service Tax Department conducted inquiry at the premises of the petitioners regarding the petitioners' unpaid service tax dues. Statements of the representatives of the firm were recorded. Documents and registers were seized. According to the petitioners various postdated cheques were taken from the petitioners under duress. Against such postdated cheques during the period between 9.3.2013 to 15.4.2013, the petitioners deposited total sum of Rs.35.51 lakhs with the department.
On 14.7.2013 the petitioners deposited further amount with the department so that inclusive of the previous deposit of Rs.35.51 lakhs, the total deposit with the department made by the petitioners came to Rs.47,79,770/-. This was towards the petitioners' unpaid service tax liability upto 31.3.2013 as per the calculations of the department.
Under the Finance Act, 2013, the legislature introduced the VCES 2013. The controversy is with regard to the correct interpretation of term "tax dues" defined in section 105(1)(e) of the Finance Act, 2013.
On 24.8.2013 the petitioners declared tax dues of Rs.43,61,719/-. The petitioners filed a revised declaration on 30.12.2013 and revised the amount of tax dues to Rs.45,76,476/-. This amount included the sum of Rs.35.51 lakhs deposited by the petitioners with the department between 9.3.2013 till 15.4.2013. Case of the petitioners is that in terms of section 105(1)(e) tax dues would include any service tax which remained unpaid as on 1.3.2013. Since these amounts remained unpaid on 1.3.2013, it would qualify to be categorized as tax dues. The case of the department, however, is that these amounts were deposited before 10.5.2013 when the Scheme was promulgated. The declaration of amount, therefore, could not be a declaration under the Scheme.
On such premise the designated authority issued a notice on 13.9.2013 asking the petitioners to show cause as to why their claim under VCES, 2013 should not be rejected.
The petitioners in their reply contended that amount of Rs.35.51 lakhs was deposited after 8.3.2013 i.e. after the cut-off date of 1.3.2013. Such amount, therefore, would also qualify under the Scheme of 2013.
The designated authority, however, by his impugned order dated 31.12.2013 acknowledged the declaration of the petitioners only to the extent of tax dues to the tune of Rs.10,24,656/- and which amount was deposited by the petitioners after 10.5.2013.
The designated authority based his conclusion on the clarification contained in circular 170/5/2013-ST dated 8.8.2013.
After receiving such acknowledgment the petitioners made further representations to the respondents without any response from the respondents.
Hence the petitioners are before the Gujarat High Court.
They inter alia submitted -
++ The intention of the legislature while framing the Scheme was clear and was to give benefit to all declarants covering all tax dues, which remained unpaid on 1.3.2013 and, therefore, the respondents cannot rely on any circular or clarification to override statutory provision. [Inter Continental (India) vs. Union of India 2003 (154) E.L.T. 37(Guj.)]++ Parallels were also drawn to other similar schemes framed by the Parliament in the past for comparison viz. KarVivadSamadhan Scheme, 1998 and when the Parliament desired that only that amount of tax arrears which remained unpaid on the date of the scheme would qualify for immunity, it was so specifically provided in other schemes.
The Counsel for the department opposed the petition by contending that the intention of the VCES 2013 was to give immunity to the tax declared by a person under the Scheme. In the present case, the petitioners had already paid the tax even before the Scheme was promulgated. Quite apart from clarification contained in the circular dated 8.8.2013 the petitioners' declaration qua such amounts was rightly rejected by the designated authority.
The High Court extracted the definition of "tax dues" given in clause (e) of sub-section(1) of section 105, sections 106 (Person who may make declaration of tax dues), 107 (Procedure for making declaration and payment of tax dues), 108 (Immunity from penalty, interest and other proceedings) and after adverting to section 114 authorizing the Central government to make rules viz. Service Tax Voluntary Compliance Encouragement Rules, 2013 observed -
++ In terms of sub-section (1) of section 106 any person can make declaration of his tax dues in respect of which no notice or an order of determination under sections 72 or 73 or 73A of the Finance Act, 1994 has been issued before 1.3.2013.
++ Sub-section (2) of section 106 essentially provides that in cases where any inquiry or investigation against declarant is initiated for non-payment or short-payment of service tax dues which is pending on 1.3.2013, the designated authority would reject the declaration of such a person. In turn, the term "tax dues" defined under section 105(1)(e) means service tax or tax payable for the period between 1.10.2007 to 31.12.2012 but not paid as on 1.3.2013.
++ Combined reading of section 106 with section 105(1)(e) would make it clear that the position of a declarant vis-à-vis his service tax dues would have to be ascertained as on 1.3.2013. If any proceedings for determination of the tax dues of a person have been initiated before 1.3.2013, declaration of such a person would not be accepted. Likewise, arrear of tax which could be declared in such declaration would be the service tax due or payable for the period between 1.10.2007 to 31.12.2012 and which sum is not paid before 1.3.2013. In plain terms, therefore, if any service tax is due and payable by a person for the aforesaid period, the same would be included in the definition of the expression "tax dues" if the same has not been paid as on 1.3.2013.
++ In the present case, admittedly the disputed amounts of taxes were deposited by the petitioners with the department after 1.3.2013. However, the same having been deposited before 10.5.2013 that is the date on which the scheme was framed, the department contends that such amount cannot form part of the declaration under the Scheme.
++ In our opinion, the contention ignores the statutory provisions contained in the Scheme of 2013. As we have noticed, the declaration can be made in terms of section 106 of tax dues. The term "tax dues" is defined in section 105(1) (e). If we accept the stand of the department that any tax which is deposited before 10.5.2013 cannot form part of a declaration, the same would substantially mutilate the definition of term "tax dues' contained in section 105(1)(e).
++ If the intention of the legislature was to exclude any tax deposited before the framing of the scheme, the same could have been provided in plain language. On the contrary, the legislature excluded from the purview of declaration only those taxes which were already paid by 1.3.2013. The period between 1.3.2013 and 10.5.2013 would, by necessary application of the provision of the scheme, be covered for declaration under the Scheme itself.
++ In our understanding, for a valid declaration two of the essential conditions were that the proceedings for either declaration or recovery of the tax dues should not be pending on 1.3.2013 and secondly that the tax should not have been deposited before the said date. In the present case, both the conditions were fulfilled.
++ In response to a query whether the person who has made the payment of tax dues before the Scheme was notified and would later on make a declaration under the Scheme, would such a declaration be valid, the response was that the immunity from interest and penalty is only for tax dues declared under the Scheme. If any tax has been paid prior to the enactment of the Scheme, liability of interest and penalty would be adjudicated as per the Finance Act, 1994.
++ For several reasons this clarification cannot be pressed in service in the present case. It is well settled in law that an authority cannot, through a circular or clarification, override the provisions of the statute. If the clarification thus runs counter to the statutory provision, the same would be invalid.
++ We have already held that the Scheme permits a person to declare his tax dues, even the amount deposited before 10.5.2013, as long as the same was done after 1.3.2013. If the concept of making a declaration under the Scheme which cannot be done till the Scheme is formulated is brought into operation, the very same clarification to Point No.4 would run counter to this principle. The query here was whether a party against whom an inquiry, investigation or audit has been initiated after 1.3.2013 can make declaration under the scheme? Answer to the question was, there is no bar from filing of a declaration in such cases.
++ There is one more reason why the said clarification would not cover the case of the petitioners. The query was concerning a person who has made payment of his tax dues before the Scheme was framed. In the present case, the amount of Rs.35.51 lakhs deposited after 1.3.2013 at the relevant time was never offered as a tax by the petitioners. The same was only deposited under duress.
++ In the present case, till the Scheme was framed the amount remained with the department by way of a deposit. Once the scheme was framed, the petitioners made a declaration and even included such sum of Rs.35.51 lakhs by way of a declaration of their tax dues. Thus the admission on the part of the petitioners that the service tax was short-paid came only by way of declaration under the Scheme. The clarification thus even for this reason would not cover the situation on hand.
In fine, the communication dated 31.12.2013 is quashed to the extent the designated authority failed to cover the additional sum of Rs.35.51 lakhs against the item "tax dues" declared.
The designated authority was directed to issue a fresh acknowledgment or amend the acknowledgment forwarded to the petitioners under communication dated 31.12.2013 so as to include the said additional sum of Rs.31.51 lakhs as tax dues declared in addition to Rs.10,24,656/- for which such acknowledgment was already issued.
The Writ Petition was allowed.
[1994] 72 TAXMAN 406 (GUJ.)
HIGH COURT OF GUJARAT
Commissioner of Income-tax
v.
Deepak Family Trust No. 1
G.T. NANAVATI AND Y.B. BHATT, JJ.
IT REFERENCE NOS. 32, 45 TO 49, 65 TO 69, 85 TO 92, 159 OF 1989, 76 TO 79, 82 TO 84, 86 TO 88, 90, 92 OF 1990, 240 OF 1991, 10 AND 45 OF 1992
DECEMBER 10, 1993
Section 4 of the Income-tax Act, 1961 - Association of persons - Assessable as - Whether trustees of a discretionary trust have to be assessed in status of 'individual' and not in status of 'association of persons' - Held, yes
Section 80L of the Income-tax Act, 1961 - Deductions - Interest on securities, dividends, etc. - Whether trustees of a discretionary trust are assessable as individual and are, thus, entitled to benefit of deductions under section 80L - Held, yes
Interpretation of statutes - Precedents
FACTS
The assessee, a discretionary trust, claimed deduction under section 80L. The ITO rejected the claim made under section 80L on the ground that r elief under the said section was available only to individuals and/or HUFs as they were the only assessees contemplated by that section for the purpose of the benefit conferred by it. On appeal, the AAC held that the trust should be treated as an individual and, thus, it would be entitled to the reliefs under section 80L. On appeal, the Tribunal held that the status of the trustees of a discretionary trust was necessarily that of an individual and, therefore, that would also be the status of the trustees for the purpose of assessment under sections 161 and 162. It, thus, confirmed the order passed by the AAC.
On reference :
HELD
In view of the settled legal position that in income-tax matters regarding interpretation of a section one High Court should follow the view taken by another High Court, following the decision of the Calcutta High Court in CIT v. Shri Krishna Bandar Trust[1993] 201 ITR 989 , it was to be held that the representative assessee in the case of a discretionary trust must be regarded as an individual and, thus, would be entitled to the benefit of deductions under section 80L.
CASE REVIEW
CIT v. Smt. Kamalini Khatau [1978] 112 ITR 652 (Guj.) (FB), Suhashini Karuri v. WTO [1962] 46 ITR 953 (Cal.), Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 (SC), N.V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 (SC), CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC), CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj.), CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 (SC), Orient Club v. WTO [1980]123 ITR 395 (Guj.), W TO v. C.K. Mammed Kayi [1981] 129 ITR 307 (SC), CIT v. Sodra Devi [1957] 32 ITR 615 (SC),Lalch and Tikamdas Makhija v. J.K. Kuriyan, CIT [1991 ] 188 ITR 253 (Bom.), Jyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611 (SC), CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989 (Cal.), Maneklal Chunilal & Sons Ltd. v. CIT [1953]24 ITR 375 (Bom.), CIT v. Chimanlal J. Dalal & Co. [1965] 57 ITR 285 (Bom.), Arvind Boards & Paper Products Ltd v.CIT [1982] 137 ITR 635 (Guj.) and CIT v. Sarabhai Sons Ltd [1983] 143 ITR 473 (Guj.).
M. J. Thakore for the Applicant. H.M. Taleti, Mukesh Patel and J.P. Shah for the Respondent.
JUDGMENT
Nanavati, J. — The question which arises for consideration in these references is whether in a case where the assessee is a discretionary trust, it is entitled to deductions under section 80L of the Income-tax Act, 1961 ('the Act'). In all these cases, the ITO rejected the claim made under section 80L on the ground that the said section was available only to individuals and/or HUFs as they are the only assessees contemplated by that section for the purposes of the benefit conferred by it. The AAC held that trust should be treated as an individual and, thus, it would be entitled to the reliefs under section 80L. The Tribunal held that section 161 and not section 164 of the Act is the basis for assessment of the representative assessee and as the trust is only vicariously liable as a representative assessee and as the tax has to be levied upon and recovered from him in a like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him in the assessment of the representative trustee, exemptions, deductions and benefits have to be given as the beneficiary would have been entitled to in case of direct assessment. The Tribunal held that the trustees of a trust take colour of their status from that of the beneficiary and it cannot be different from the persons they represent. The Tribunal, relying upon the observations made by the Supreme Court in matters arising under the Wealth-tax Act, 1957, held that the status of the trustees of a discretionary trust is necessarily that of an individual and, therefore, that would also be the status of the trustees for the purpose of assessment under sections 161 and 162 of the Act. Taking this view, it confirmed the order passed by the AAC and dismissed the appeal.
2. What is contended by the learned counsel for the revenue is that the decision of the Tribunal proceeds on the basis that section 161 and not section 164 is the basis for assessment of a representative assessee. But the Full Bench of this Court in CIT v. Smt. Kamalini Khatau [1978] 112 ITR 652 has held that section 161 does not create a charge but it is section 164 which creates a charge by using the words 'tax shall be charged'. He further submitted that this Court has also held that section 161 contains general provisions in respect of representative assessees whereas section 164 deals with special cases in respect of representative assessees and, therefore, in cases falling under section 164 one has to look only to the special provision of that section rather than to the provisions of section 161.
In Smt. Kamalini Khatau's case (supra) the question which had arisen before this Court was, whether it is open to the tax authorities to proceed against the beneficiary under a discretionary trust who has actually received some amount from the trustees in exercise of their discretion in view of the language of section 164. After examining the relevant provisions, this Court held that the income under a discretionary trust is only assessable in the hands of the representative assessees as if it were the total income of a fictional AOP and is not assessable in the hands of the beneficiary even if the amount is paid to the beneficiary. In the event of any part of the income of the discretionary trust being paid to the beneficiary the option is only as regards the rate at which the tax shall be charged and that too in the hands of the representative assessee.
3. It is no doubt true that some of the observations made by the Tribunal are not consistent with the view taken by this Court in Smt. Kamalini Khatau's case (supra) ; but that, in our opinion, does not affect the final conclusion reached by the Tribunal. Even if we proceed on the basis that in case of assessment of a representative assessee section 164 would apply, if any part of the income is not specifically receivable on behalf of or for the benefit of any one person, or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are indeterminate or unknown, we fail to appreciate how it can have any bearing on the question as to whether such a representative assessee can get the benefit of section 80L or not. What was submitted was that if the case of a representative assessee is covered by section 164, then clause (iv) of section 160(1) of the Act indicates that in such cases one has to proceed on the basis that the income receivable by the representative assessee is the income of the assessee and not the beneficiary persons. Even this contention cannot be accepted because the fiction created for one purpose cannot be utilised for a different purpose. Section 164 does not provide how total income of the representative assessee is to be computed. Therefore, obviously, the provisions relating to computation of income would be applicable even in a case where the representative assessee has to be assessed under section 164. Therefore, whether an assessee, including a representative assessee, would be entitled to the benefit of deduction under section 80L or not will have to be decided by reference to the provisions contained in that section.
4. Section 80L provides for deductions in respect of interest in respect of certain securities, dividends, etc. These deductions are made available to an individual, or a HUF, or an AOP or a BOI consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu. A discretionary trust is obviously not an HUF nor an AOP contemplated by that section. Therefore, such a trust would become entitled to the deductions provided it can be regarded as an individual. Therefore, the material question that is required to be decided in these references is whether a discretionary trust can be said to be an individual as contemplated by section 80L. It was submitted on behalf of the revenue that a trust is not a living human being and, therefore, it cannot be regarded as an individual. The trust being an assessee under the Act, we have to look to the status of the trust and not to the status of the beneficiaries and as a trust would not fit in any of the categories contemplated by section 80L, it should be held that a trust is not entitled to the benefit of deductions under section 80L.
5. In Suhashini Karuri v. WTO [1962] 46 ITR 953 , the Calcutta High Court held that joint trustees must be taken to be a single unit in law and not as an 'association of persons' and there is nothing wrong in treating such an unit as an individual holding property and becoming assessable under section 3 of the Wealth-tax Act for the purposes of wealth-tax. It was submitted on behalf of the assessee that this decision of the Calcutta High Court has been approved by the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 . It was, however, submitted by the learned counsel for the revenue that these two cases arose under the Wealth-tax Act and the language of the relevant sections of the Wealth-tax Act and the Income-tax Act being different, those decisions cannot be regarded as authorities for the purpose of holding that trustees of discretionary trust should be regarded as an individual.
6. Mr. Patel, the learned counsel, appearing for one of the assessees, submitted that the Supreme Court in N.V. Shanmugham & Co. v.CIT [1971] 81 ITR 310 has held that a firm of persons should not make them an AOP. In that case the question which had arisen was, whether profits should be assessed in the hands of the receivers in the status of an 'association of persons'. The Supreme Court held that they were only representative assessees and the fact that there were three receiv- ers who did not make them an association of receivers. The three receiv-ers jointly represented the real owners. The Supreme Court, after refer-ring to its earlier decision in CITv. Indira Balkrishna [1960] 39 ITR 546, observed that, 'association of persons' means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one, the object of which is to produce income, profits or gains. It was submitted that in case of trustees of a discretio- nary trust, it cannot be said that they have joined in common purpose or common action and the object of their association is to produce income, profits or gains. It was submitted that they become trustees of the trust not because they have mutually agreed to be trustees but because they have been appointed as such under the trust deed. By no stretch of imagination it can be said that they have joined together in common for the purpose of carrying on an activity which would produce income, profits or gains. The persons, who come together as trustees, must be such that left to themselves they might not on their own even sit together or do anything jointly. Therefore, applying the test laid down by the Supreme Court in N.V. Shanmugham & Co.'s case (supra), the trustees cannot be regarded as an AOP.
7. This Court in CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 construed the words, 'body of individuals' occurring in section 2(31) of the Act as a conglomeration of individuals who carry on some activity with the object of earning income. In order to construe the said words, this Court referred to the decisions wherein the expression 'association of persons' came up for consideration. After referring to Indira Balkrishna's case ( supra), this Court observed that according to the Supreme Court for forming an AOP the members of the association must join together for the purpose of producing income and an AOP can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of the members of the association is an essential ingredient. This Court further held that persons holding property as tenants-in-common cannot be said to be an AOP. Similarly, after the partition of a HUF by metes and bounds the erstwhile coparceners who become exclusive owners of separate parcels of land would not constitute an association of individuals merely because they live together in joint mess and one of the coparceners looks after the management of the property. It was submitted that in view of this decision, it becomes quite clear that merely because a combination of individuals receives income jointly without anything further, they cannot be regarded as an AOP.
8. The learned counsel for the assessees also relied upon the following observations made by the Supreme Court in CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555:
"... It may be noted that, while interpreting the corresponding provisions in section 41 of the Indian Income-tax Act, 1922, and section 161 of the Income-tax Act, 1961, this Court in C.R. Nagappa v. CIT [1969] 73 ITR 626 , 632, 633 (SC) approved the following observations made by Chagla, CJ. in regard to the scheme of section 41 of the Indian Income-tax Act, 1922, in CIT v.Balwantrai Jethalal Vaidya [1958] 34 ITR 187 , 194 (Bom.):
'If the assessment is upon a trustee, the tax has to be levied and recovered in the manner provided in section 41. The only option that the Legislature gives is the option embodied in sub-section (2) of section 41 and that option is that the department may assess the beneficiaries instead of the trustees, or having assessed the trustees it may proceed to recover the tax from the beneficiaries. But on principle the contention of the department cannot be accepted that, when a trustee is being assessed to tax, his burden which will ultimately fall upon the beneficiaries should be increased and whether that burden should be increased or not should be left to the option of the department. The basic idea underlying section 41, and which is in conformity with principle, is that the liability of the trustees should be co-extensive with that of the beneficiaries and in no sense a wider or a larger liability. Therefore, it is clear that every case of an assessment against a trustee must fall under section 41, and it is equally clear that, even though a trustee is being assessed, the assessment must proceed in the manner laid down in Chapter III... Section 41 only comes into play after the income has been computed in accordance with Chapter III. Then the question of payment of tax arises and it is at that stage that section 41 issues a mandate to the taxing department that, when they are dealing with the income of a trustee they must levy the tax and recover it in the manner laid down in section 41'." (p. 592)
Placing reliance upon these observations and the observation that the assessment of the trustees will have to be made in the same status as that of the beneficiary whose interest is in deed in the hands of the trustee, it was submitted that what is relevant even for the purpose of section 80L is to find out the status of the beneficiary and decide whether deductions under that section would be available to the representative trustee or not. Therefore, even if the trust cannot be said to be an individual falling within the definition of the word 'person' for the purpose of determining whether deductions under that section should be allowed or not, what is material to find out is the status of the beneficiary or beneficiaries as in all these cases the beneficiaries are individuals. Therefore, it should be held that the benefit of deductions under section 80L was rightly granted.
9. In Orient Club v. WTO [1980] 123 ITR 395 , this Court had to consider whether the assessee-club was an 'association of persons' or an 'individual' for the purpose of the Wealth-tax Act. While deciding that question, a passing observation has been made that the trustees would be covered by the word 'individual' in section 3. This being a decision arising under the Wealth-tax Act and as only a passing observation has been made, we do not think that it can be of any help to the assessees.
10. Mr. J.P. Shah, the learned counsel, appearing for some of the assessees, dre w our attention to the decision of the Supreme Court in WTO v. C.K. Mammed Kayi [1981] 129 ITR 307 , 313, wherein it has been held that the expression 'individual' in section 3 of the Wealth-tax Act, includes within its ambit Mappilla Marumakkathayam Tarwads and they are well within the purview of the taxing provisions of the enactment. Even after their inclusion in the term 'individual', section 3 is not violative of article 14 of the Constitution. In that case, the Supreme Court referred to its earlier decision in CIT v. Sodra Devi [1957] 32 ITR 615 wherein it is held: " '... word 'individual' has not been defined in the Act (Indian Income-tax Act, 1922) and there is authority for the proposition that the word 'individual' does not mean only a human being but is wide enough to include a group of persons forming a (natural) unit'.". This decision, though not directly on point, does lay down that the term 'individual' as used in the Income-tax Act does not mean a single living human being but would include in its ambit a BOI constituting a unit for the purposes of the Act.
11. The Bombay High Court in Lalchand Tikamdas Makhija v. J.K. Kuriyan, CIT [1991] 188 ITR 253 has held that in a case where the shares of the beneficiaries were known or determinate, the fact that the trust was carrying on business was not material and the assessment had to be made in like manner and to the same extent as it would have been made on the beneficiaries separately. For that reason, it was further held that the assessment of the income of the trust in the status of a BOI was not justified. In that case also the question which we have to consider did not directly arise, but it does indirectly help in the sense that even though the assessment of income is in the hands of the trust, it had to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. The learned counsel for the assessees also drew our attention to the decision of the Supreme Court inJyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611 , wherein it is held :
"The trustees in the case of a trust declared by a duly executed instrument in writing are treated as representative assessees by section 160(1)(iv). It is equally true that, in the case of a discretionary trust, the trustees are liable to be taxed in respect of the income received by them at the rate specified in section 164(1). At the same time, section 166 expressly declares that 'nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person, on whose behalf or for whose benefit income therein referred to is receivable or the recovery from such person of the tax payable in respect of such income'. The language of this section is clear. The opening words 'nothing in the foregoing sections in this Chapter' - which means Chapter XV, wherein sections 159 to 165 among other sections occur - give it an overriding effect over the preceding provisions in the chapter. The section states in unmistakable terms that nothing contained in the preceding provisions in the chapter precludes the revenue from making a direct assessment upon the beneficiary and/or from recovering the tax payable from such person. The revenue-has thus been given an option to tax the income from a discretionary trust either in the hands of the trustees or in the hands of the beneficiaries." (p. 612)
The Supreme Court in that case referred to the decision of this Court in Smt. Kamalini Khatau 's case (supra) and observed that it was inclined to agree with the dissenting opinion of P.D. Desai, J. In view of this decision of the Supreme Court, we will have to proceed on the basis that the majority view expressed in Smt. Kamalini Khatau's case (supra) is no longer good law. Our attention was also drawn by the learned counsel for the assessees to the decisions of the Calcutta High Court in CIT v. Shri Krishna Bandar Trust [1993]201 ITR 989 .
In that case, the Calcutta High Court considered the amendment effected by the Finance Act, 1980, and observed as under:
"... The amendment effected by the Finance Act, 1980, has done away with the deeming provisions whereby a trust, under section 164(1), could he assessed as though its were an association of persons. Where, however, a case falls under sub-section (2) of section 164, the tax is chargeable as if the income to be charged were the income of an association of persons. But the fiction of an association of persons as contained in sub-section (2) or, for that matter, sub-section (3) of section 164 relates only to a charitable or public religious trust but not to a discretionary private trust dealt with by sub-section (1) of section 164. Section 164(1) only lays down the rate of tax applicable to a discretionary trust. It is not concerned with the manner of computation of total income. In fact, this section comes into play only after the income has been computed in accordance with the other provisions of the Income-tax Act, 1961. Since the determination of the status of an assessee is a part of the process of computation of income, it is necessary to look into the general principles for determining whether the status of the trustees of a discretionary trust can be taken to be as 'an association of persons' or as 'individual'. It is now well settled that the word'individual' does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires. The word 'association' means 'to join in any purpose' or 'to join in action'. Therefore, 'association of persons' as used in section 2(31)( v) of the Income-tax Act, 1961, means an association in which two or more persons join in a common purpose or common action. The association must be one the object of which is to produce income, profits or gains. In the case of a discretionary trust, neither the trustees nor the beneficiaries can be considered as having come together with the common purpose of earning income. The beneficiaries have not set up the trust. The trustees derive their authority under the terms of the trust deed. Neither the trustees nor the beneficiaries come together for a common purpose. They are merely in receipt of income. The mere fact that the beneficiaries or the trustees, being representative assessees, are more than one, cannot lead to the conclusion that they constitute 'an association of persons'. The trustees of a discretionary trust have to be assessed in the status of an 'individual' and, consequently, deduction under section 80L of the Income-tax Act, 1961, was allowable." (p. 989)
12. As regards what should be the approach of the High Court on the interpretation of the section of a statute, which is an all India statute, the learned counsel relied upon the decision of the Bombay High Court in Man eklal Chunilal & Sons Ltd. v. CIT [1953] 24 ITR 375, 385, wherein the Bombay High Court has observed that,"... in conformity with the uniform policy which we have laid down in income-tax matters, whatever our own view may be, we must accept the view taken by another High Court on the interpretation of the section of a statute which is an all India statute…..".
13. In CIT v. Chimanlal J. Dalal & Co. [1965] 57 ITR 285 ,290, the Bombay High Court again reiterated the same position by observing that,"... Barring some exceptions, it has been the general policy laid down by this Court in income- tax matters that whatever our own view may be, we should follow the view taken by another High Court on the interpretation of a section....".
14. This Court also in Arvind Boards & Paper Products Ltd v. CIT [1982] 137 ITR 635, has observed that in income-tax matters, which are governed by an all India statute, when there is a decision of another High Court on the interpretation of a statutory provision, it would be a wise judicial policy and practice not to take a different view (whatever one's own view may be) barring, of course, certain exceptions, like where the decision is sub silentio, per incuriam, obiter dicta or based on a concession or takes a view which it is impossible to arrive at or there is another view in the field or there is a subsequent amendment of the statute or reversal or implied overruling of the decision by a Higher Court or some such or similar infirmity is manifestly perceivable in the decision.
Following the decision of the Bombay High Court in Maneklal Chunilal & Sons Ltd.'s case (supra), this Court in CIT v. Sarabhai Sons Ltd. [1983] 143 ITR 473, 486 observed that, "... even though we may be persuaded to take a different view, we are not inclined to do so in view of the settled practice referred to in the decision of the Madras High Court and the decisions of the Bombay High Court and the Madhya Pradesh High Court adverted to above….".
15. In view of this settled legal position and also because we agree with the view expressed by the Calcutta High Court, it will have to be held that the representative assessee in case of a discretionary trust must be regarded as an individual and thus would be entitled to the benefit of deductions under section 80L.
16. In the result, we answer the questions referred to in all these references accordingly, that is, in favour of the assessee and against the revenue. No order as to costs.
CBDT Notification No. 25/2014 Dated – April 29, 2014
National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 approved for the purpose of section 36(1)(xii) – 25/2014 – Dated 29-4-2014 – Income Tax
NOTIFICATION NO. 25/2014
NEW DELHI Dated: April 29, 2014
In exercise of the powers conferred by clause (xii) of sub-section (1) of section 36 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the National Bank for Agriculture and Rural Development (PAN: AAACT4020G) established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (No. 61 of 1981) for providing and regulating credit and other facilities for promotion of agriculture and rural development, subject to the following conditions, namely.—
(i) the expenditure, claimed as deductible under the Income-tax Act, 1961, is incurred for the objects and purposes authorised by the National Bank for Agriculture and Rural Development Act, 1981 (No. 61 of 1981), under section 38 of the said Act.
(ii) such expenditure is not in the nature of capital expenditure;
(iii) such expenditure is not eligible for deduction under any other provision of the Income-tax Act, 1961; and
(iv) a separate account of the expenditure claimed under the said clause is maintained by the National Bank for Agriculture & Rural Development.
2. This notification shall be applicable with effect from Assessment Year 2013-14 onwards, relevant to F.Y 2012-13 in which the application seeking notification u/s 36(1)(xii) of the Income Tax Act, 1961 was filed.
[F. NO. 225/229/2013/ITA.I]
Adjustment in book profit for depreciation not permissible in depreciation amount is certified by the auditor
It is an admitted fact that the assessee has changed the method of depreciation from straight line method to written down value method. Deprecation has been calculated in accordance with the new method from the date of assets coming into use. Therefore depreciation for the current year was higher and profit was lower by the same amount. The Hon'ble jurisdictional High Court in the case of Kinetic Motors Co. Ltd. (supra) has held that -
"it was not in dispute that under the Companies Act both the straight line method and written down value method are recognized. Therefore, once the amount of depreciation actually debited to the profit and loss account was certified by the auditor, it was not permissible for the AO to make book adjustments."
The Hon'ble Jurisdictional High Court thus followed the ratio of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. 255 ITR 273. A perusal of the audited statement of account brought before us show that depreciation actually debited to the profit and loss account was certified by the auditors and, therefore, in view of the decision of the Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court (supra), it is not permissible for the AO to make book adjustments. We accordingly direct the AO to delete the addition on account of adjustments made u/s. 115JB amounting to Rs.1,21,61,961/-.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C", MUMBAI
Before Shri I P Bansal, Judicial Member & Shri N K Billaiya, AM
ITA No. 7178/Mum/2011
Assessment Year 2003-04
Pune Heat Treat P. Ltd. Vs. ITO
Appellant By : Dr K Shivaram & Ms. Neelam C Jadhav
Respondent By : Shri M L Perumal
Date of Pronouncement : 30.04.2014
MUMBAI BENCHES "C", MUMBAI
Before Shri I P Bansal, Judicial Member & Shri N K Billaiya, AM
ITA No. 7178/Mum/2011
Assessment Year 2003-04
Pune Heat Treat P. Ltd. Vs. ITO
Appellant By : Dr K Shivaram & Ms. Neelam C Jadhav
Respondent By : Shri M L Perumal
Date of Pronouncement : 30.04.2014
ORDER
Per N K Billaiya, AM:
Per N K Billaiya, AM:
This appeal by the assessee is directed against the order of the CIT(A)-5, Mumbai, dated 09.08.2011 pertaining to A.Y. 2003-04. The grievance of the assessee reads as under:
"1. On the facts and circumstances of the case the learned Commissioner of Income Tax has erred in confirming the appeal for re-opening of the assessment /s. 148 without giving cogent reason.
2. The learned Commissioner of Income Tax appeals has erred in confirming the application of section 115JB in-spite of the fact that the provision are not applicable in this case.
3. The learned Commissioner of Income Tax Appeals was not justified in confirming the order of the Assessing Officer allowing him to make adjustment of Rs.1,21,61,961/- U/s. 115JB in spite of the fact that no such adjustment are required to be made as per law."
2. At the very outset the counsel for the assessee stated that he is not pressing ground no.1. Ground no.1 is accordingly, dismissed.
3. The grievance vide ground nos. 2 & 3 relates to the determination of book profit for the purposes of section 115JB of the Act. It is the claim of the assessee that no adjustments are required to be made as per law.
4. Briefly stated facts of the case are that for the year under consideration the return of income was filed on 28.10.2003 declaring total income at 'nil', which was accepted u/s. 143(1)(a) of the Act vide intimation dated 24.12.2003. Subsequently, on perusal of the record the AO noticed that the assessee has claimed higher depreciation @3.34% as against 1.63% prescribed in Schedule XIV of the Companies Act, 1956. According to the AO as the book profit taxable u/s. 115JB had escaped assessment, assessment was re-opened u/s. 147 of the Act and notice u/s. 148 was issued and served upon the assessee. In response to this, the assessee stated that return filed on 28.10.2003 may be treated as return filed in response to the notice u/s. 148.
5. Thereafter, the assessee was asked to explain the claim of depreciation viz-a- viz provisions of section 115JB of the Act. According to the AO the assessee did not respond to the queries raised during the proceedings. The AO was of the firm belief that as per the Companies Act normal depreciation calculated on the basis of the written down value method should be charged to the profit & loss account.
According to the AO the calculation of the depreciation and charging the same to the profit & loss account in the case of the assessee cannot be said to be in consonance with the provisions of section Part II & III of Schedule VI of the Companies Act, 1956. The AO proceeded to compute the book profit in the light of the provisions of section 115JB and computed the adjustment to be made u/s. 115JB at Rs.1,21,61,961/- The assessee carried the matter before the CIT(A) but without any success.
According to the AO the calculation of the depreciation and charging the same to the profit & loss account in the case of the assessee cannot be said to be in consonance with the provisions of section Part II & III of Schedule VI of the Companies Act, 1956. The AO proceeded to compute the book profit in the light of the provisions of section 115JB and computed the adjustment to be made u/s. 115JB at Rs.1,21,61,961/- The assessee carried the matter before the CIT(A) but without any success.
6. Before us the learned senior counsel for the assessee drew our attention to the audited statement of accounts, in particular , Schedule of fixed assets and depreciation. It is the say of the counsel that during the year under consideration the assessee changed the method of calculating depreciation from the straight line method to the written down value method. The counsel further stated that both the methods are acceptable under the Companies Act. The counsel concluded by saying that the AO doesn't have any power to make adjustment accept provided in section 115JB itself. In support of his submissions the counsel relied upon the decision of the Hon'ble Bombay High Court in the case of Kinetic Motors Co. Ltd. 262 ITR 330. Reliance was also placed in the case of Garden Silk Mills Ltd. 35 CCH 135- Ahmedabad Tribunal. Per contra, DR strongly supported the findings of the lower authorities.
7. We have carefully perused the orders of the lower authorities. We have also considered the decisions relied upon by the counsel. It is an admitted fact that the assessee has changed the method of depreciation from straight line method to written down value method. Deprecation has been calculated in accordance with the new method from the date of assets coming into use. Therefore depreciation for the current year was higher and profit was lower by the same amount. The Hon'ble jurisdictional High Court in the case of Kinetic Motors Co. Ltd. (supra) has held that -
"it was not in dispute that under the Companies Act both the straight line method and written down value method are recognized. Therefore, once the amount of depreciation actually debited to the profit and loss account was certified by the auditor, it was not permissible for the AO to make book adjustments."
The Hon'ble Jurisdictional High Court thus followed the ratio of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. 255 ITR 273. A perusal of the audited statement of account brought before us show that depreciation actually debited to the profit and loss account was certified by the auditors and, therefore, in view of the decision of the Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court (supra), it is not permissible for the AO to make book adjustments. We accordingly direct the AO to delete the addition on account of adjustments made u/s. 115JB amounting to Rs.1,21,61,961/-.
8. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on this 30th day of April, 2014.
IT : Where assessee-bank had claimed deduction for 'Provision for Non-Performing Assets' under section 36(1)(viia), in view of fact that taxonomy of provision had been done by assessee to keep it in line with RBI and NABARD guidelines, but in pith and substance provision had been created for 'Bad and Doubtful Debts', deduction was claimed in accordance with section 36(1)(viia) and assessee was entitled to benefit of same
■■■
[2014] 43 taxmann.com 111 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
Tamilnadu State Apex Co-operative Bank Ltd.
v.
Assistant Commissioner of Income-tax, Business Circle -IX*
DR. O.K. NARAYANAN, VICE-PRESIDENT
AND VIKAS AWASTHY, JUDICIAL MEMBER
AND VIKAS AWASTHY, JUDICIAL MEMBER
IT APPEAL NO. 948 (MDS.) OF 2013
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
JANUARY 21, 2014
Section 36(1)(viia) of the Income-tax Act, 1961 - Bad debts - In case of banks (Provision made for bad & doubtful debts) Assessment year 2009-10 - Assessee bank had claimed provision for Non-Performing Assets' in accordance with section 36(1)(viia) - Assessing Officer disallowed same on ground that assessee had not made any Provision for bad and doubtful debts and, thus, was not entitled to deduction under section 36(1)(viia) - Whether although assessee had named provision as 'Provision for NPA' to keep it in line with RBI and NABARD Guidelines, but in pith and substance provision had been created for 'Bad and Doubtful Debts' and, therefore, assessee had claimed deduction in accordance with provisions of section 36(1)(viia) and was entitled to benefit of same - Held, yes [Para 6] [In favour of assessee]
FACTS
| ■ | The assessee was a co-operative bank. | |
| ■ | The assessee filed its return of income and had claimed 'Provision for Non-Performing Assets' in accordance with section 36(1)(viia). | |
| ■ | The Assessing Officer disallowed the same on the ground that the assessee had not made any Provision for Bad and Doubtful Debts and, thus, was not entitled to the provision made under section 36(1)(viia). | |
| ■ | On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. | |
| ■ | On second appeal, the assessee submitted that although the amount of non-performing assets is much higher but the assessee has claimed deduction of 2.52 crore which was 7.5 per cent of the gross total income in accordance with the provisions of section 36(1)(viia) and that the provision for doubtful debts and the provision for non-performing assets are one and the same thus, disallowance could not be made merely on the change in nomenclature. |
HELD
| ■ | In the instant case, the assessee has admittedly made provision for non-performing assets (NPA) in respect of its urban branches. The assessee has debited Rs. 2.52 Crores (approximately) (i.e., 7.5 percent of the gross total income) in profit and loss account creating provision for non-performing assets in accordance with the provisions of section 36(1)(viia). The revenue has disputed the deduction claimed for the reason, that the assessee has not created provision for bad and doubtful debts. In case of Banking Companies, the accounts are made in accordance with the RBI guidelines and the Banking Regulation Act, 1949. Although the assessee has named the provision as 'Provision for NPA', but in pith and substance the provision has been created for 'Bad and Doubtful Debts'. The taxonomy of the provision has been done by the assessee to keep it in line with the RBI and NABARD guidelines. | |
| ■ | Therefore, the assessee has made provision and claimed deduction in accordance with the provisions of section 36(1)(viia). The assessee is entitled to the benefit of same. The impugned order is set aside and the appeal of the assessee is allowed. [Para 6] |
CASE REVIEW
Kotakkal Co-operative Urban Bank Ltd. v. ITO [2013] 142 ITD 123/32 taxmann.com 240 (Cochin)(para 6) distinguished.
CASES REFERRED TO
Kotakkal Co-operative Urban Bank Ltd. v. ITO [2013] 142 ITD 123/32 taxmann.com 240 (Cochin - Trib.).
R. Viswanathan for the Appellant. T.N. Betgeri for the Respondent.
ORDER
Vikas Awasthy, Judicial Member — The appeal has been filed by the assessee against the order of the Commissioner of Income Tax(Appeals)-IX, Chennai dated 28-01-2013 relevant to the Assessment Year (AY) 2009-10.
2. The assessee is a co-operative bank. In the course of carrying banking business, the assessee is providing credit facilities to its customers. The assessee filed its return of income for the AY.2009-10 on 30-09-2009 declaring its income as Rs. 31,08,26,750/-. The case of the assessee was selected for scrutiny and notice u/s. 143(2) of the Income Tax Act, 1961 (herein after referred to as 'the Act') was issued to the assessee. In its books of account, the assessee had made 'Provision for Non- Performing Assets' in accordance with section 36(1)(viia). The Assessing Officer dis-allowed the same on the ground that the assessee has not made any Provision for Bad and Doubtful Debts and thus, is not entitled to the provision made u/s.36(1)(viia) of the Act, as claimed.
Aggrieved against the assessment order dated 23-12-2011, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) upheld the findings of the Assessing Officer and dismissed the appeal of the assessee.
3. Shri R. Viswanathan, FCA, appearing on behalf of the assessee submitted that the assessee is entitled to the deduction claimed u/s. 36(1)(viia), as the section specifically grants relief to the banking companies. The assessee had made provision to the tune of Rs. 2,27,31,658/- in the books of account towards Non-Performing Assets (NPA). The Assessing Officer as well as the CIT(Appeals) has erred in not considering the same. The ld.AR further submitted that although the amount of non-performing assets is much higher but the assessee has claimed deduction of Rs. 2,52,02,169/- which is 7.5% of the gross total income in accordance with the provisions of section 36(1)(viia). The ld.AR contended that the authorities below have erred in coming to the conclusion that the assessee has not created any provision for doubtful debts. The provision for doubtful debts and the provision for non-performing assets are one and the same. The provision was created and classified as per the directions/guidelines issued by NABARD and Reserve Bank of India. Disallowance cannot be made merely on the change in nomenclature.
4. On the other hand, Shri T.N. Betgeri, representing the department vehemently opposed the arguments raised by the ld.AR of the assessee. The ld. DR supporting the order of the CIT(Appeals) prayed for the dismissal of the appeal of the assessee. The ld.DR contended that the assessee has created provision in general. Specific non-performing accounts have not been identified by the assessee. To support his contentions, the ld.DR relied on the order of the co-ordinate bench of the Tribunal in the case of Kottakkal Co-operative Urban Bank Ltd. v. ITO [2013] 142 ITD 123/32 taxmann.com 240 (Cochin - Trib.).
5. We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below as well as the order referred to by the ld.DR. It is a well settled law that unless provision is created for bad and doubtful debts, by banking companies or co-operative banks, benefit of section 36(1)(viia) cannot be claimed. The provisions of section 36(1)(viia) are re-produced herein below:
"S.36 Other deductions.—(1) The deductions provided for the following clauses therein, in computing shall be allowed in respect of the matters dealt with the income referred to in section 28.
(viia) in respect of any provision for bad and doubtful debts made by—
| (a) | a scheduled bank not being 73 a bank incorporated by or under the laws of a country outside India or a nonscheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : |
Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:"
A perusal of the above provisions of section 36(1)(viia) makes it clear that any schedule bank or non-scheduled bank incorporated as per the Indian Laws or the co-operative bank shall be allowed deduction in respect of any provision for bad and doubtful debts made by it of an amount:
| I. | Not exceeding 7.5% of the total income before computing any deduction under chapter-VIA; and | |
| II. | Not exceeding 10% of the aggregate average advances made by the rural banks of such bank computed in the prescribed manner." |
6. In the present case, the assessee has admittedly made provision for non-performing assets (NPA) in respect of its urban branches. The assessee has debited Rs. 2.52 Crores (approximately) (i.e., 7.5% of the gross total income) in P&L A/c creating provision for non-performing assets in accordance with the provisions of section 36(1)(viia) of the Act. The Revenue has disputed the deduction claimed for the reason, that the assessee has not created provision for bad and doubtful debts. In case of Banking Companies, the accounts are made in accordance with the RBI guidelines and the Banking Regulation Act, 1949. Although the assessee has named the provision as 'Provision for NPA', but in pith and substance the provision has been created for 'Bad and Doubtful Debts'. The taxonomy of the provision has been done by the assessee to keep it in line with the RBI and NABARD guidelines.
The ld.DR has relied on the order of Tribunal in the case of Kottakkal Co-operative Urban Bank Ltd.(supra). The facts of the case are distinguishable from the case in hand. In the said case, the assessee had not made any provision as envisaged in section 36(1)(viia), whereas, in the instant case, the assessee had already made provision though with a different nomenclature. We are satisfied that the assessee has made provision and claimed deduction in accordance with the provisions of section 36(1)(viia). The assessee is entitled to the benefit of same. The impugned order is set aside and the appeal of the assessee is allowed.
RITESHTypes of assessment under Service Tax
CA Jayant Bothra
This article deals with various aspect of assessment under service tax. Unlike in the current scenario there is the system of self assessment in the past there was no such system of self assessment. In past practices under service tax there was the system of regular assessment under which the assessee use of file their return under section 70 and thereafter the Central Excise officer after obtaining written permission from the Commissioner of Central Excise serves the notice for making the assessment under section 71 of the Finance Act, 1994. This articles is an attempt to cover various aspects of assessment.
Types of assessment
At present there are three types of assessment under service tax :-
1. Self assessment
2. Provisional assessment
3. Best Judgment assessment (Section 72)
Self assessment
The Finance act, 2001 has introduced self assessment for service tax returns; thereby sparing the assessees from the rigors of routine scrutiny and assessment. The facility of self –assessment was accorded to various assesses by amendment in Section 70 of the act. Prior to amendment by Finance Act, 2001 section 70 stood as under:-
"70. Every person liable to pay the service tax shall furnish or cause to be furnished to the Central Excise Officer, a return in such form and in such manner and at such frequency as may be prescribed."
The amendment brought in by Finance act, 2001 is as under:-
"70. Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed."
In the system prior to 2004, the assessees use to file their returns under section 70 thereafter the Superintendent of Central Excise on the basis of information contained in the return filed under section 70 verify the correctness of the tax assessed on the services provided. If on verification the Superintendent was of the opinion that service tax on any service provided has escaped assessment or has been under assessed, the Superintendent refers the case to AC / DC, who pass the order of assessment as they thinks fit. The Finance Act, 2004 omitted section 71 w.e.f 10-09-2004 which provided a great relief to the assesses.
Therefore, after 2004 the return filed under section 70 is conclusive and it is not open for the department to call the documents or other information to verify the return, unless the department has some reasonable grounds to believe that assessee has not paid service tax properly.
Provisional Assessment
Where the assessee for any reason is not able to correctly estimate his service tax liability for any particular quarter or month, then he may request in writing to the AC / DC of Central Excise, as the case may be, giving reasons for payment of service tax on provisional basis and the AC / DC on receipt of such application may allow the assessee for payment of service tax on provisional basis on such value of taxable service as may be specified by him.
Procedure for provisional assessment
1. Informing the department: The assessee shall inform the department stating the reason why he wants to pay the service tax on provisional basis. There is no standard format or prescribed form for the application. It can be given on the letter head of the assessee. The AC / DC on receipt of such application may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him.
2. Form ST 3A with the Service Tax return: Prior to 01-04-2010, the service tax return was filed manually, at that time there was a prescribed format for ST 3A which was required to be annexed with the half yearly return i.e. ST 3. In the present scenario the returns are filed online. There is no system of filing ST 3A separately. Infact in the ST 3 return itself there is column A13 in which the provisional order number as well as date is only required to be furnished. However, sub rule (5) of rule 6 is not yet updated as it still contains that – "he shall file a statement giving details of difference between the service tax deposited and the service tax liable to be paid for each month in a memorandum in Form ST 3A accompanying the quarterly or half-yearly return, as the case may be."
3. Completion of 'Provisional Assessment': The AC / DC of Central Excise shall complete the assessment, whenever they deems it necessary, after calling such further documents or records as he may consider necessary and proper in the circumstances of the case.
4. Service Tax payable or refund due on final assessment: After the completion of final assessment, the assessee may be required to pay service tax on the additions made by AC / DC. Similarly, he may entitle to refund in case he paid excess service tax earlier.
In case the assessee is required to pay differential tax after the final assessment, he shall be liable to pay interest on the amount so payable to the Central Government from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof. The rate of interest would be the rate specified by the Central Government by notification issued under section 11AA or section 11AB of the Central Excise Act.
In case the assessee is entitled to refund then he shall be paid interest on such refund from the first day of the month succeeding the month for which such refund is determined, till the date of refund. The rate of interest would be the rate specified by the Central Government by notification issued under section 11BB of the act, ibid.
Best Judgment Assessment (Section 72)
Section 72 is reintroduced by the Finance Act, 2008 to authorize the Central Excise Officer to make assessment in the following case –
- Where the person liable to pay service tax fails to furnish the return under section 70;
- Where the person having made the return, fails to assess the tax in accordance with the provisions of this chapter or rules made thereunder.
the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.
Email: ca.jayantbothra@gmail.com
5 mistakes to avoid while filing your IT returns!!
Saurabh Bajaj
And now its that month of the year, when the running around starts for IT returns filing. With the advent of technology, and the initiatives taken by Income-Tax department, hopefully we will not see long queues in the Income Tax Office.
You can conveniently file your IT returns online. Additionally, for those who are still not too tech-savvy, IT Deptt is coming up with innovative ideas like setting up kiosks in Malls, Societies etc. You can also submit your physical IT Return forms at the kiosks in your neighbourhood. What more can you ask for ??
Now only thing remains with you is to be careful while filling up the information so that it saves lot of after-effort for the IT deptt as well as you to correct the errors.
1. Choose the correct ITR form
With a vast array of ITR forms (ITR 1, 2, 3, 4, 4S and V), people often get confused about which form to fill up. To pick up the right form for you, refer to below list:
A] ITR 1 (Sahaj) : To be filled up by individuals with salary, pension, rental income from one property, tax-free capital gains and income from interest.
B] ITR 2 : To be filled by individual and HUFs with salary, pension, rental income from more than one property, taxable capital gains, income from interest and foreign assets.
C] ITR 3: To be filled by partners in a firm with interest, salary, bonus, commission, capital gains, more than one property.
D] ITR 4 : To be filled up by individuals and HUFs with income from business / profession with gross receipts more than Rs. 60 Lakhs a year. (If gross receipts are less than Rs. 60 Lakhs, but the income is less than 8% of gross receipts, still ITR 4 to be used).
E] ITR 4S (Sugam): To be filled up by individuals and HUFs with income from business / profession and gross receipts upto Rs. 60 Lakhs a year.
F] ITR V : Remember this is "V" and not 5. This is an acknowledgment form and is to be filled by all the above mentioned categories.
2. Remove all TYPOs
The young generation is pretty familiar with the word "TYPO". Any typing mistake they make, and excuse themselves by calling it a TYPO. Sorry friends, but you cant afford to make a TYPO in your ITR. There is a low chance of you getting an error at the time of filling it. But one TYPO can delay your refund by a pretty long time. So be doubly careful while filling up your information especially like PAN, Bank Details and other info too.
3. Verify tax paid data with form 26AS
Most people are only aware about Form 16 or Form 16A that they get from their employer / bank. However, it is equally important to verify the TDS details and the advance tax paid details in Form 26AS. There could be a possibility wherein, your bank / employer has deducted your TDS but it is not credited to your PAN due to some technical errors. It could be an error that the deductor has not quoted your PAN correctly in his TDS return. Also, we might forget to mention some FD interest in our return, which would be verified with 26AS.
4. Fill up the tax saving deductions with utmost care
Whatever tax saving investments etc you have done prior to 31st Mar, need to be carefully mentioned in their respective sections. It is seen that while filling up information on 80C, sometimes people also include employers contribution the PF. Remember, its only the employee contribution that qualifies for 80C.
Another common mistake is that some people write the entire EMI paid on home loan in 80C or 24B. Remember to put the principle in 80C and interest in 24B.
There are some other lesser known sections like 80E (payment of education loan interest), 80G (donations to charitable organisations), 80DD (expenses on a disabled dependent) etc. If you have made payments towards any of these, make sure that you mention them in your ITR, so that you get the deduction.
5. The last step
Do not forget to attach ITR V with your physical return. Chances of missing ITR V in physical return are less, as they would not accept your physical form without ITR V.
But if you are e-filing without digital signature, do not forget to send the signed ITR V to CPC Bangalore. If your ITR V does not reach CPC Bangalore within 120 days of e-filing your return, then your return is not considered to be complete.
You will observe that the way things are moving, you can be more self-dependent for filing of your returns. Taking professional help could definitely help, but now you need not depend on someone just to 'stand in queue' on your behalf. Filing IT returns is in your own interest. They help you for:
- Availing any kind of loan like home, personal or education;
- Visa and immigration processing;
- Income proof / net worth certification;
- Refund claims (in case of excess taxes paid); and
- Applying for a higher insurance cover.
We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)
Beware!! Another Fraud in the Air!!
Saurabh Bajaj
Mr. Rajeev Kumar, a Chartered Accountant, working with a leading Automobile company was worried about his insurance policy. He had bought an insurance-cum-investment plan from a company (say "K") 3 years back with an annual premium of Rs. 24,000 p.a.
When he learnt that this plan is not going to help him for his future, he decided to surrender the plan. He had paid a premium of Rs. 72,000 in last 3 years. But to his great surprise, his total surrender value payable was just Rs. 33,000. He was shocked !! A loss of Rs. 39,000 in a "Guaranteed" product !! He was feeling cheated.
He decided to lodge a complaint with IRDA. He wrote a mail to IRDA with all the policy details.
Within few days, he received a call. The caller, Mr. Harish, claimed to be an IRDA executive and explained Mr. Rajeev that he will resolve his problem.
Mr. Harish told Rajeev that, all he needs to do is, transfer the money from company K to one of the three companies i.e. Company R, Company B and Company A. In fact, the way these options were told was also interesting. He said that Company R will pay 10% interest, Company B will pay 8.5% interest and Company A will pay 7.5% interest.
Like anyone else would do, Rajeev almost decided to go for Company R. However, some more sentences from Harish raised an alarm in Rajeev's mind.
Harish said that these plans are exclusively in collaboration with IRDA. So you wont get these details on Company R's website or their local office or from their local agent.
Rajeev realised that this doesn't sound right. He immediately called up his financial advisor to find out if this was true. Not to his great surprise, he learnt that it was a fraud call. He immediately lodged an FIR against Harish for making a fraud call. Harish was also booked for using unauthorised sources to access Rajeev's information from IRDA.
Rajeev's prudence saved him. But being the favourite season of the mis-sellers, you are highly likely to receive such calls. Please bear following things in mind, when you receive any such call:
- IRDA is Insurance Regulatory and Development Authority. It never "suggests" or "recommends" any policy to policyholders.
- Whatever money you have lost in one policy due to mis-selling, it is virtually impossible to recover it back. This is because, the policy document mentions that you have agreed to pay all those hefty charges and it bears your signature. Thus, you don't really have a legal recourse to the money lost due to your ignorance.
- Treat any such loss as a learning which will prevent you from making mistakes in future. But if you try to recover that loss, such fraud calls will lure you quickly.
- Never ever mix investments and insurance. Buy only term plans for your life insurance needs. Look for pure investment products for your investment needs.
- Don't get trapped by the word "Guarantee". Investors have a tendency to pour in all their money, the moment they hear the word "Guarantee". Understand the intricacies before you invest.
- Seek professional help to understand complicated products. Be willing to pay small professional fees than pay hefty hidden charges.
We look forward to your feedback and comments on the above article. Please feel free to contact us on CEO@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)
IT: Even if Tribunal is unable to hear appeal within 365 days, stay of demand cannot be extended beyond 365 days
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[2014] 44 taxmann.com 318 (Uttarakhand)
HIGH COURT OF UTTARAKHAND
Director of Income-tax (International Taxation)-II, New Delhi
v.
Seacor Offshore Dubai LLC*
BARIN GHOSH, CJ.
AND V.K. BIST, J.
AND V.K. BIST, J.
IT APPEAL NOS. 31 AND 32 OF 2013
MARCH 20, 2014
Section 254 of the Income-tax Act, 1961 - Appellate Tribunal - Powers of (Power to grant) - Whether where Tribunal due to some reason or other could not hear an appeal of respondent-assessee within 365 days, it could not extend stay of demand beyond 365 days, as such power of Tribunal to do so was withdrawn under statute - Held, yes [Para 2] [In favour of revenue]
CASES REFERRED TO
CIT v. Ronuk Industries Ltd. [2011] 333 ITR 99/203 Taxman 90/15 taxmann.com 369 (Bom.) (para 2) and Narang Overseas (P.) Ltd. v. ITAT [2007] 295 ITR 22/165 Taxman 557 (Bom.) (para 2).
Hari Mohan Bhatia for the Appellant. Pulak Raj Mullick for the Respondent.
JUDGMENT
Barin Ghosh, CJ. - The matters in these two appeals are identical and, accordingly, are dealt with by the following common judgment.
2. The Bombay High Court rendered its judgment in CIT v. Ronuk Industries Ltd. [2011] 333 ITR 99/203 Taxman 90/15 taxmann.com 369 on 22nd November, 2010 and, thereby, repeated its decision rendered in the case of Narang Overseas (P.) Ltd. v. ITAT [2007] 295 ITR 22/165 Taxman 557 (Bom.), which was rendered on 30th July, 2007 without taking note of the fact that as on 30th July, 2007, the third proviso to sub-section (2A) of Section 254 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was not in existence, which came to be inserted only with effect from 1st October, 2008. This aspect of the matter, the Tribunal failed to take note of and erroneously held as if it was held in Ronuk Industries Ltd. (supra) that the Tribunal has power to extend stay of demand beyond the period of 365 days even after insertion of third proviso to sub-section (2A) of Section 254 of the Act. First of all, there is no such pronouncement in Ronuk Industries Ltd. (supra) and, secondly, a statutory authority, which has been granted statutory power, can exercise such power within the four corners of the statute granting such power and in the instant case as on the date when the Tribunal exercised the power of extending stay of demand beyond 365 days, the power of the Tribunal to do so was withdrawn by inserting the proviso in question in the statute.
2.1 We, accordingly, interfere, allow the appeals and set aside the orders of the Tribunal under appeals. However, from the orders of the Tribunal, it appears that for some reason or the other the Tribunal could not hear an appeal of the respondent assessee within 365 days' time and, as such, extended the stay beyond 365 days. In the circumstances, it shall be open to the assessee to take such recourse to law as is available to it.
SB Service Tax : Merely because fees are charged for education, educational institutions cannot prima facie be considered a commercial institution and, therefore, construction thereof cannot be charged to service tax; Explanation to section 65(105)(zzzc) is not applicable for interpreting scope of Construction Services
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[2014] 44 taxmann.com 14 (Chennai)
CESTAT, CHENNAI BENCH
Chettinadu Constructions
v.
Commissioner of Central Excise (ST), Madurai*
P.K. DAS, JUDICIAL MEMBER
AND MATHEW JOHN, TECHNICAL MEMBER
AND MATHEW JOHN, TECHNICAL MEMBER
MISC. ORDER NO. 42567/2013
APPLICATION NOS. ST/S/41073 & 41434 OF 2013
APPLICATION NOS. ST/S/41073 & 41434 OF 2013
OCTOBER 22, 2013
Section 65(25b), read with sections 65(27), and 65(105)(zzzc), of the Finance Act, 1994 - Taxable services - Commercial or Industrial Construction Services - Stay Order - Period from 1-4-2010 to 31-3-2011 - Assessee undertook construction work for educational institutions but did not pay service tax thereon on ground that it was not 'primarily used for commerce and industry' - Department argued that institution for which construction activity was being undertaken was collecting substantial fees for providing education and, therefore, activity was commercial activity in view of Explanation to Section 65(105)(zzzc) - HELD : Explanation to Section 65(105)(zzzc) is meant only to cover training or coaching centre - Activity of commercial or industrial construction is made taxable under section 65(105)(zzzq) - These days hardly any education is provided without collecting any fees and for that reason alone, educational institutions cannot prima facie be considered a commercial institution - If such criterion is adopted even IITs has to be considered as undertaking business or commerce - Activities taxable under commercial training or coaching is on different type of activity where coaching for entrance examination etc is sought to be taxed - Hence, requirement of pre-deposit was waived in full [Para 4] [In favour of assessee]
CASE REVIEW
Maltanb Construction Engineers (P.) Ltd. v. CCE & ST [S.O. No. 647 of 2012, dated 29-7-2012] and Chettinadu Constructions v. CCE [Misc Order No. 40595 of 2013 dated 25-2-13 and S.O. No. 647 of 2012, dated 24-7-2012] (para 4) relied on.
CASES REFERRED TO
Maltanb Construction Engineers (P.) Ltd. v. CCE & ST [S.O. No. 647 of 2012, dated 24-7-2012] (para 2) and Chettinadu Constructions v. CCE [Misc Order No. 40595 of 2013 dated 25.02.13 (para 2).
M.N. Bharathi for the Appellant. M. Rammohan Rao for the Respondent.
ORDER
Mathew John, Technical Member - The applicant was in the business of undertaking construction of buildings. They were registered for payment of service tax under the category of commercial and industrial construction service and paying service tax as per their understanding of the scope of the entry. On scrutiny of the financial accounts of the applicants, Revenue found that they had not paid service tax on certain construction work undertaken for educational institutions during the period 01-04-10 to 31-03-11. Revenue was of the view that applicant should have paid service tax on such activity also. Based on such reasoning, a show cause notice was issued and adjudicated. On adjudication, an amount of Rs.1,58,78,494/- is confirmed against the applicant along with interest and penalties. Aggrieved by the order, applicant has filed appeal before this Tribunal along with stay petition.
2. Ld. advocate for the applicant submits that as per the definition of "industrial or commercial construction" under entry at section 65 (25b) only buildings which are to be primarily used for commerce and industry can be covered by the entry. According to him, providing education cannot be considered as "commerce" or "industry" and the Tribunal has been accepting this view and granting stay on similar demands confirmed. He relies on decisions inMaltanb Construction Engg. (P.) Ltd. v. CCE & ST [S.O. No. 647 of 2012, dated 29-7-2012] and Chettinadu Constructions v. CCE Misc. Order No. 40595 of 2013 dated 25-2-13 S.O. No. 647 of 2012, dated 24-7-2012]. Therefore, he prayed that waiver of pre-deposit may be granted for admission of appeal.
3. Opposing the prayer, Ld. AR for Revenue submits that the institution for which construction activity was being undertaken was collecting substantial fees for providing education. Therefore, the activity has to be considered as commercial activity only. It is also argued that while explaining the scope of "commercial training or coaching centre", in Section 65 (105) (zzzc) an explanation has been added to make it clear that wherever training or coaching is imparted for consideration whether or not the coaching centre or institution is registered as a trust or society or similar other organizations with or without profit motive, the institution shall be considered as commercial training or coaching centre. So adopting this meaning incorporated in the explanation at entry 65 (105) (zzzc), educational institution has to be considered as commercial institution only so long as they are collecting fees. Therefore, Ld. AR submits that pre-deposit may be called for.
4. We have considered the submissions on both sides. The explanation relied upon by Ld. AR applies only to cover training or coaching centre which has to be taxed under section 65 (105) (zzzc). The activity of commercial or industrial construction is made taxable under section 65 (105) (zzzq). These days hardly any education is provided without collecting any fees and for that reason alone, the educational institutions cannot be prima facieconsidered a commercial institution. If such criterion is adopted even IITs has to be considered as undertaking business or commerce. The activities taxable under commercial training or coaching is on different type of activity where coaching for entrance examination etc is sought to be taxed. Since in this matter the Bench has already granted waiver of pre-deposit of dues for assessees similarly placed, we grant waiver of pre-deposit of dues arising from the impugned order for admission of appeal in this case also. It is so ordered. Further there shall be stay on collection of dues during pendency of the appeal.
VINEET Cenvat Credit: Where assessee is granted single registration in place of two separate registrations of two divisions in same premises, credit pertaining to one division can be transferred to Cenvat credit register of another division, as Cenvat credit can be used for payment of duty on any product
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[2014] 43 taxmann.com 257 (Madras)
HIGH COURT OF MADRAS
Commissioner of Central Excise, Madurai
v.
Rajshree Sugars & Chemicals Ltd.*
CHITRA VENKATARAMAN AND K.B.K. VASUKI, JJ.
CIVIL MISC. APPEAL NO. 2533 OF 2005
C.M.P. NO. 13308 OF 2005†
C.M.P. NO. 13308 OF 2005†
JUNE 13, 2013
Rule 3 , read with rule 2(k) and 10 of the Cenvat Credit Rules, 2004 and Rule 57F of the Central Excise Rules, 1944 - CENVAT Credit - Utilization of - Assessee obtained separate registrations for its sugar unit and distillery unit, though both were under same management and in same premises - Molasses manufactured by sugar unit were used as input for manufacture of Ethyl Alcohol in Distillery - Later, assessee applied for single registration of both units and transferred unutilized Cenvat credit of distillery division of Rs. 139 lakhs to Cenvat credit register of sugar unit for payment of duty on sugar - Department argued that only credit pertaining to stock of molasses in hand viz. Rs. 44 lakhs could be so transferred - HELD : As per Rule 3(4) (erstwhile Rule 57F), credit of duty allowed in respect of any input can be utilised towards payment of duty on any other final product, irrespective of whether such inputs have been used actually in manufacture of such final product - Sugar unit and distillery unit belonged to same management and were located in same premises and although assessee had maintained two accounts for said two activities, yet, it related to business of same assessee in respect of two inter-connected activities - Assessee's decision to take single registration was in tune with management, administration and control of two units under same head; therefore, mere taking of a single registration as against two registrations, did not amount to merger or amalgamation or transfer within meaning of Rule 10 - Moreover, since department had itself allowed credit of Rs. 44 lakhs, balance credit of Rs. 95 lakhs could not be treated differently - Hence, entire credit was allowable [Paras 10 to 13] [In favour of assessee]
Circulars and Notifications : Board's Order No.10/2/69-CX 6 dated 12-5-1971, Circular No.B42/1/97-TRU dated 1-9-1997 and Trade Notice No.98-CE 94 dated 28-9-1994
CASE REVIEW
Rajshree Sugars & Chemicals Ltd. v. CCE [2005] 1 STT 225 (Chennai) (para 13) affirmed.
KM Sugar Mills Ltd. v. CCE 2001 (133) ELT 567 (Tri. - Delhi) (para 13) and Kesar Enterprises Ltd. v. CCE 2003 (54) RLT 157 (CEGAT - Delhi) (para 13) approved.
CASES REFERRED TO
Dharmpur Sugar Mills Ltd. v. CCE 2001 (129) ELT 73 (Tri. - Delhi) (para 3), Inox India Ltd. v. CCE 2001 (133) ELT 487 (Tri. - Mum.) (para 3), K M Sugar Mills Ltd. v. CCE 2001 (133) ELT 567 (Tri. - Delhi) (para 5) and Kesar Enterprises Ltd. v. CCE 2003 (54) RLT 157 (CEGAT - Delhi) (para 6).
T. Chandrasekaran for the Appellant. T. Ramesh for the Respondent.
JUDGMENT
Chitra Venkataraman, J. - This Civil Miscellaneous Appeal, filed by the Revenue as against the order of the Customs, Excise and Service Tax Appellate Tribunal, Chennai, was admitted by this Court on the following substantial questions of law:
| "1. | Whether the Appellate Tribunal is right in allowing the accumulated Modvat Credit on Molasses, after amalgamation, for the payment of duty on Sugar without transferring the corresponding input as required under erstwhile Rule 57F(12) of CER'44? | |
| 2. | Whether the Appellate Tribunal has committed an error of law in holding that the transfer of accumulated credit without transfer of input, as required under Rule 57(f) (12)?" |
2. The assessee herein is a manufacturer of sugar. The by-products arising on the manufacture of sugar, namely, molasses, was again used by the assessee in the manufacture of Ethyl Alcohol. For the reasons best known to the assessee, originally, although both units are under one Management, it obtained two separate registration certificates, one for sugar unit and another for distillery unit, which is situated adjacent to the sugar unit. Admittedly, the assessee cleared molasses on payment of duty and availed credit for the distillery unit for payment of duty on the dutiable Ethyl Alcohol. It is stated that over a period of time, there was huge accumulation of credit in the distillery unit and the same remained unutilised. Even though the assessee had two registration certificates, one for sugar unit and another for distillery unit, on 30.6.1999, the assessee requested the Revenue for one single registration certificate for both the units. On getting the same, in respect of the unutilised credit in the distillery unit, the assessee sought to use the same on the duty payable on the manufactured sugar. To avail of the same, the assessee sent a letter on 04.10.1999 to the Deputy Commissioner of Central Excise, Dindigul stating that they had transferred the closing balance of Rs.1,38,69,137/- as on 30.9.1999 available under RG23-A Pt.II of the distillery division to RG 23 A Pt.II of Sugar division on 01.10.1999. It is stated that the credit involved in the lying stock of molasses was worked out at Rs.44,06,511/-. On these facts, the Assistant Commissioner of Central Excise issued a show cause notice to the assessee to explain how the assessee would be entitled to the credit of Rs.94,62,626/- taken to the sugar unit from the distillery unit. The notice pointed out that the assessee had wrongly transferred the entire credit amount and that they would be entitled to a transfer of credit of Rs.44,06,511/- only. Thus, the excess credit of Rs.94,62,626/- was liable to be recovered as per Rule 57I of erstwhile Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944. On the above allegation, penalty was also proposed to be imposed on the assessee.
3. The assessee objected to the abovesaid notice contending that in reality, there existed no two factories, but there is only one factory covered under Section 2(c) of the Central Excise Act, 1944; consequently, there is no such thing as transfer of one unit to the other unit. The assessee further pointed out that as the sugar unit as well as distillery unit are under the same management, granting of two registration certificates, one for sugar division and another for distillery division, was a superfluous one even as per the Board's Or.No.10/2/69 CX 6 dated 12.5.1971. In the circumstances, the assessee asked for amendment of the registration certificate by adding Ethyl Alcohol Denatured in the schedule to the Registration Certificate No.1/92 issued for sugar unit. The assessee pointed out that two accounts maintained in respect of these two activities be taken as two different volumes of the same record. They further pointed out that there was no transfer of assets from one unit to other or transfer of management or location of unit, to result in the change in the constitution of the company. In the light of the above facts, the assessee pointed out that when the Revenue had accepted the availability of credit to the extent of Rs.44,06,511/- on Molasses transfer, the proposal to reject the unutilised credit was without any reason. In the circumstances, they sought for dropping of the proceedings. In this regard, they also referred to the decisions inDharmpur Sugar Mills Ltd. v. CCE 2001 (129) ELT 73 (Tri. - Delhi) and Inox India Ltd. v. CCE 2001 (133) ELT 487 (Tri. - Mum.) and submitted that the mere act of getting one registration certificate as against two registration certificates, per se, would not call for any rejection of the claim of the assessee.
4. Satisfied of the claim, originally, the proceedings were dropped by the Assistant Commissioner. This was taken on appeal by the Revenue before the Commissioner of Central Excise (Appeals). After elaborately quoting the Rule on the credit of duty paid on excisable goods used as inputs, the Commissioner held that consequent on the unification of two registration certificates, what was remaining unutilised available at the hands of the distillery unit could not be used for payment of duty on sugar by the distillery unit, because, sugar was not manufactured in the distillery unit. In the circumstances, holding that the credit could be taken only with reference to the inputs received, as recognised by the proviso to Rule 57-F(12), the Commissioner allowed the appeal preferred by the Revenue and confirmed the demand of Rs.94,62,626/-.
5. Aggrieved by this, the assessee went on appeal before the CESTAT contending that even as per Circular bearing No.B42/1/97-TRU dated 1st September, 1997, credit in respect of any input could be used for payment of duty on any final products without checking whether the input had been utilized in the manufacture of that final product or not and that Trade Notice No.98 CE 94 dated 28.9.1994 clarified that one registration certificate would be sufficient in case where the factory had two different portions located in the adjoining premises. Placing reliance on the decisions Inox India Ltd. (supra) and K M Sugar Mills Ltd. v. CCE 2001 (133) ELT 567 (Tri. - Delhi), the assessee contended that there was no illegality in the order passed by the Assistant Commissioner.
6. The Tribunal pointed out that the issue raised in the case on hand was similar to the one decided by the Delhi Tribunal in the case of K. M Sugar Mills Ltd. (supra) and in the case of Kesar Enterprises Ltd. v. CCE 2003 (54) RLT 157 (CEGAT - Delhi). The issue raised in those cases was as to whether the Modvat Credit earned on molasses in the distillery unit could be utilised by the assessee for payment of duty on the clearances of sugar or not. Having regard to the decision given in favour of the assessee, the Tribunal accepted the claim of the assessee and consequently, it allowed the appeal filed by the assessee. Aggrieved by this, the present appeal has been preferred by the Revenue.
7. Learned Standing Counsel appearing for the Revenue placed heavy reliance on Sub-Rule (20) of Rule 57F as well as Sub-Rule (12) of the Central Excise Rules and reiterated the reasoning of the Commissioner of Central Excise (Appeals) that on the transfer of one unit to other unit, whatever remained unutilised not being in respect of the inputs used by the transferor unit, the question of granting any adjustment on the duty payable by the sugar unit did not arise. In the circumstances, he prayed for setting aside the order of the Tribunal.
8. Learned counsel appearing for the assessee, however, drew our attention to the factual position as recorded by the Tribunal that the distillery unit and the sugar unit belonged to the self-same management, located in self-same premises. As such there is no merger or transfer of one unit to another. Although, originally the assessee took two registration certificates, yet, realising the mistake, they had gone for one single registration for both the units. Considering the fact that the Revenue itself had accepted the utilisation of credit on the transferred Molasses to the extent of Rs.44,06,511/-, there is no reason why the balance, being the unutilised credit, should not be available or rejected at the hands of the assessee in the matter of demand of duty on the sugar manufactured.
9. Heard learned standing counsel appearing for the Revenue and the learned counsel appearing for the assessee and perused the materials placed before this Court.
10. We agree with the contentions made by the learned counsel appearing for the assessee. As already seen in the preceding paragraph, the sugar unit and the distillery unit belonged to the self-same management and they are in the same premises. Although there are two units functioning, it is not denied by the Revenue that the resultant Molasses from the manufacture of sugar was used by the assessee in the manufacture of denatured Ethyl Alcohol. Although in respect of two activities, it had maintained two accounts, yet, it related to the business of the same assessee in respect of two activities, which are interconnected too. In the circumstances, the assessee decided to go for one registration alone as against two registrations originally taken. This decision was in tune with the management, administration and control of two units under the same head. In the above circumstances, we do not find any logical reason to accept the plea of the Revenue that on the mere taking of a single registration as against the two registrations, there was merger or amalgamation or transfer to hold that the assessee would not be entitled to any credit adjustment on the duty payable on sugar manufactured.
11. It is a matter of record and admitted by the Revenue too, that both before and after the so called transfer, the same management continued to be in charge of both the units and that the alleged credit is available. The Revenue itself admitted that the assessee would be entitled to the credit to an extent of Rs.44,06,511/- out of a total claim of Rs.1,38,69,137/- and the unutilised credit available was to the tune of Rs.94,62,626/-.
12. In the background of the facts stated above, rightly the assessee contended that what is true of Rs.44,06,511/- is also true of the unutilised credit of Rs.94,62,626/-. We agree with this line of reasoning. Proviso to Rule 57F of the Central Excise Rules provides that the credit of duty allowed in respect of any input be utilised towards the payment of duty on any other final product, irrespective of whether such inputs have been used actually in the manufacture of such final product. The only condition is that the inputs should have been received and used in the factory of production on or after 1st March, 1997. Hence, we have no hesitation in accepting the case of the assessee that there is no transfer of units as understood in the legal parlance and the 'transfer' itself being after 1999, they are entitled to have the advantage of the proviso to the said Rule. In the circumstances, we agree with the assessee's contention and we have no hesitation in affirming the order of the Tribunal.
13. We may point out herein that even though the Tribunal has not reasoned its order in so many words, yet, it followed the decision of the Delhi Tribunal on a similarly positioned assessee. We agree with the decision of the Tribunal. Consequently, we reject the appeal preferred by the Revenue. We may also point out that the Commissioner of Central Excise (Appeals) having accepted the case of the assessee on the quantum of credit to the tune of Rs.44,06,511/-, had not given any reason as to why the claim of the assessee on the unutilised portion of Rs.94,62,626/- should not be available to the assessee in respect of the duty payment on sugar. Thus, going by the proviso to Sub-Rule (12) of Rule 57F of the Central Excise Rules and on facts, we have no hesitation in rejecting the revenue's appeal, thereby confirm the order of the Tribunal.
14. Accordingly, this Civil Miscellaneous Appeal stands dismissed. No costs. Consequently, C.M.P.No.13308 of 2005 is also dismissed.
VINEET †Arising out of order of Tribunal in Rajshree Sugars & Chemicals Ltd. v. CCE [2005] 1 STT 225 (Chennai - CESTAT).
Regards,
Pawan Singla , LLB
M. No. 9825829075
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