S. 195 TDS to be withhold only on share of Non-resident Seller in co-owned property
It is not in dispute that Mrs. Shyamala Vijai and Mrs. Poornima Shivaram were entitled to half share each over the property that was sold to the appellant. In fact, as we have already seen, the sale deed clearly acknowledges the receipt of sale consideration of Rs.1 .20 crore by both the vendors in equal shares. In law, Mrs. Shyamala Vijai and Mrs. Poornima Shivaram are entitled to half share each over the property. The share of each of the vendors would therefore be Rs.60 lakhs. Mrs. Shyamala Vijai is, admittedly, a non-resident and to the extent of Rs.60 lakhs paid to her, the provisions of section 195 are attracted and the assessee ought to have deducted tax at source while making payments to the non-resident through Mrs. Shyamala Vijai.
The ld. DR has, however, relied on the decision of the ITAT Bangalore Bench in the case of Syed Aslam Hashmi v. ITO in ITANo.13 13/Bang/2010 & 107 6/Bang/2012, dated 28.09.2012. The ld. DR pointed out before us that the Tribunal in the aforesaid decision has held that u/s. 195 of the Act, tax is to be deducted on the entire sale consideration. We have perused the aforesaid decision and are of the view that the same is not applicable to the facts of the present case. In the aforesaid case, the issue was as to whether u/s. 195 of the Act, tax is to be deducted at source on the capital gain arising out of the transfer of a capital asset or on the entire sale consideration for which the capital asset is transferred. In the aforesaid case, there was no dispute that the payment of the entire sale consideration was made to a non-resident. The Tribunal held that tax has to be deducted at source u/s. 195 of the Act on the entire sale consideration and not on the capital gain arising on transfer of the capital asset. As we have already seen, the facts of the present case are different and the issue is only with regard to whether the tax deduction at source is on the entire sale consideration of Rs.1 .20 crores or Rs.60 lakhs which was the payment made to the non-resident out of Rs. 1 .20 crores.
INCOME TAX APPELLATE TRIBUNAL "C" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA No. 1097/Bang/2012 & IT(IT)A No.778/Bang/2013
Assessment year : 2009-10
Shri R. Prakash,
Vs.
The Income Tax Officer, International Taxation
Date of Pronouncement: 12.07.2013
O R D E R
Per N. V. Vasudevan, Judicial Member
These appeals are by the assessee against the order dated 25.06.2012 of the CIT(Appeals)-IV, Bangalore relating to assessment year 2009-10.
2. In these appeals, the assessee has challenged the order of the CIT(Appeals) whereby the CIT(A) held that the assessee is an 'assessee in default' for not deducting tax at source u/s.201(1) of Act, while making payment for purchase of a property.
3. The material facts giving rise to the present appeals are as follows. The appellant is an individual. He purchased residential property bearing No.696, WOC Road, 3rd Stage, 3rd Block Extension, Bangalore, under a registered sale deed dated 27.04.2008. The property in question originally belonged to one Cmdr. J.R. Vijai. Mr. Vijay died intestate on 21.09.2003 leaving behind him, his wife, Mrs. Shyamala Vijai and only daughter Mrs. Poornima Shivaram as Class-I legal heirs, entitled to succeed to his properties. The appellant purchased the aforesaid property for a total consideration of Rs.1 .20 crores. Mrs. Poornima Shivaram, one of the co-owners of the property was a non-resident. She had given a General Power of Attorney (GPA) to her mother, Mrs. Shyamala Vijai. Mrs. Shyamala Vijai executed the sale deed in favour of the appellant for herself and as GPA holder of Mrs. Poornima Shivaram. The sale consideration of Rs.1.20 crores was paid by one cheque for Rs.10 lakhs; 10 DDs for Rs.9,50,000 and 2 DDs for Rs.9 lakhs & Rs.6 lakhs respectively. The DDs were issued in the name of Mrs. Shyamala Vijai. The sale deed acknowledges the receipt of Rs.1 .20 crores in the following manner:-
"In pursuance of the covenants contained herein and the Purchaser having paid the entire sale consideration of Rs.1,20,00,000/- (Rupees One Crore Twenty Lakhs Only), the receipt of which sum the Vendors hereby acknowledge and also confirm the full and final settlement of the entire sale price of the schedule property."
4. As already stated, Mrs. Poornima Shivaram, one of the co-owners was a non-resident. Under the provisions of section 195 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"], any person responsible for paying to a non-resident any interest nor being interest referred to in section 1 94LB or section 1 94LC or any other sum chargeable under the provisions of the Act, shall at the time of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force.
5. Admittedly, the appellant did not deduct tax at source while making the payment. The ITO, International Taxation, Ward 2(1) issued a show cause notice u/s. 201(1) of the Act calling upon the assessee to show cause as to why he should not be treated as an 'assessee in default' in respect of tax not deducted at source as mandated by the provisions of section 195 of the Act. The assessee did not give any reply to the show cause notice. The Assessing Officer therefore proceeded to pass an order u/s. 201(1) of the Act as follows:-
"As stated above, during the financial year 2008-09, the assessee purchased the property at West of Chord Road, Bangalore, from Smt. Purnima Shivaram for a consideration of Rs.1,20,00,000/-. This amount was paid by the assessee to the seller on 04.04.2008 amid 19.04.2008 by Demand Drafts. The payee, Smt.Purnima Shivaram, was a non-resident. The assessee has not deducted any tax at source at the time of making this payment.
Here it may be noted that in the registered Sale Deed dtd.21.04.2008, the seller has given her residential address as No.8, Allen Drive, Kinnelon, NJ 07405, U.S.A.
Thus, the assessee, at the time of making payment of Rs.1,20,00,000/- to the non-resident seller, has not deducted any tax a source as per the provisions of Sec.195 of the Income Tax Act. As the payment of sale consideration of Rs. 1,20,00,000/- to Smt.Purnima Shivaram, a non-resident, is chargeable to tax in India, and as the assessee has failed to discharge its obligation to deduct tax at source as stipulated u/s. 195 of the Income Tax Act, 1961, as per the provisions of Sec.201(1) of the Income Tax Act, 1961, for the asst. year 2009-10, 1 am holding the assessee, Sri.R.Prakash, as deemed to be an assessee in default in respect of tax not deducted at source in respect of payment of Rs.1,20,00,000/-. He is liable to pay the tax deductible in this regard along with the interest u/s. 201(1A).
The tax liability of the assessee, Sri.R.Prakash, u/s.201(1) for asst. year 2009-10 is worked out as under:
| Amount of Sale consideration paid by the assessee on which no tax was deducted at source | 1,20,00,000 |
| Tax deductible at source @ 20% | 24,00,000 |
| Tax liability u/s. 201(1) of the Income Tax Act. | 24,00,000 |
| Add: Surcharge@ 10% | 2,40,000 |
| Add: Education Cess@2% | 48,000 |
| Total tax liability u/s. 201(1) of the Income Tax Act | 26,88,000 |
As per the provisions of Sec.201(1A) the assessee is liable to pay interest @ 1% for every month or part of a month on the tax which it had failed to deduct. Tax liability u/s. 201(1A) for the asst. year 2009-10 is calculated as under:
| Tax liability u/s.201(l) for the asst. year 2007-08 (sic) as computed above | 26,88,000 |
| Interest @ 1% per month for 33 months – from April 2008 to December 2010 on 26,88,000 | 13,87,040 |
| Tax liability u/s. 201(1A) | 40,75,040 |
The total tax liability of the assessee, Sri.R.Prakash, for the asst. year 2009-10, under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, is as under:
| Amount in Rs. | |
| Tax liability u/s.201(l) | 26,88,000 |
| Tax liability u/s.201(lA) | 13,87,040 |
| Total Tax Payable for the asst. year 2009-10 | 40,75,040 |
6. Aggrieved by the order of the Assessing Officer, the appellant preferred appeal before the CIT(Appeals).
7. Before the CIT(Appeals), the assessee submitted that the entire sale consideration of Rs.1 .20 crores was paid to Mrs. Shyamala Vijai, who was a resident and therefore the provisions of section 195 of the Act were not attracted. It was also argued that Mrs. Shyamala Vijai was the absolute owner of the property and Mrs. Poornima Shivaram, her daughter was shown as a party only by way of abundant caution. Alternatively, it was submitted that Mrs. Shyamala Vijai had invested the entire capital gain for purchase of a new property and was entitled to claim deduction u/s. 54F of the Act and therefore no capital gain was chargeable to tax in the hands of Mrs. Shyamala Vijai and hence there could be no liability on the part of the assessee u/s. 195 of the Act. The CIT(Appeals), however, rejected the contention observing as follows:-
" Having heard the contention of the appellant and on perusal of the Order of the Assessing Officer, the above contentions of the appellant are not found acceptable due to the reasons given below:
(i) The sale deed in respect of the property clearly indicates that Smt Shamala Vijay (Resident) and Smt Purnima Shivaram (Non Resident) were the joint owners of the property. It is also clear from the Sale Deed that Smt Purnima Shivaram authorised Smt Shamala Vijay through a general Power of Attorney.
(ii) The Sale Deed has been signed by Smt Shamala Vijay in two capacities i.e. one for herself and another as the GPA Holder of Smt Purnima Shivaram.
(iii) Even after the repeated opportunities and show cause notices issued by the Assessing Officer, the appellant failed to produce any evidence in respect of the share of Smt Purnima Shivaram in the said property.
The above facts make it clear that the payment of 1,20,00,000/- includes the consideration for the shareholding in the property of the Non Resident. The share of the Non Resident in the sale of the property was chargeable to tax in India as per the Provisions of the Income Tax Act."
8. The CIT(Appeals) also referred to the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. v. CIT, 327 ITR 456 (SC) and held that in the event of the assessee having a doubt with regard to deductibility of tax at source on payments made to a non-resident, he ought to have approached the Assessing Officer u/s. 195(2) of the Act and cannot take a plea that the income is not chargeable to tax in the hands of the recipient. The appeal of the assessee was accordingly dismissed by the ld. CIT(Appeals).
9. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred the present appeals before the Tribunal.
10. We have heard the rival submissions. In our view, the order of the CIT(Appeals) can be sustained in part only i.e., with regard to the quantum of tax that needs to be deducted at source and consequential levy of interest u/s. 201(1A) of the Act. It is not in dispute that Mrs. Shyamala Vijai and Mrs. Poornima Shivaram were entitled to half share each over the property that was sold to the appellant. In fact, as we have already seen, the sale deed clearly acknowledges the receipt of sale consideration of Rs.1 .20 crore by both the vendors in equal shares. In law, Mrs. Shyamala Vijai and Mrs. Poornima Shivaram are entitled to half share each over the property. The share of each of the vendors would therefore be Rs.60 lakhs. Mrs. Shyamala Vijai is, admittedly, a non-resident and to the extent of Rs.60 lakhs paid to her, the provisions of section 195 are attracted and the assessee ought to have deducted tax at source while making payments to the non-resident through Mrs. Shyamala Vijai.
11. The ld. DR has, however, relied on the decision of the ITAT Bangalore Bench in the case of Syed Aslam Hashmi v. ITO in ITANo.13 13/Bang/2010 & 107 6/Bang/2012, dated 28.09.2012. The ld. DR pointed out before us that the Tribunal in the aforesaid decision has held that u/s. 195 of the Act, tax is to be deducted on the entire sale consideration. We have perused the aforesaid decision and are of the view that the same is not applicable to the facts of the present case. In the aforesaid case, the issue was as to whether u/s. 195 of the Act, tax is to be deducted at source on the capital gain arising out of the transfer of a capital asset or on the entire sale consideration for which the capital asset is transferred. In the aforesaid case, there was no dispute that the payment of the entire sale consideration was made to a non-resident. The Tribunal held that tax has to be deducted at source u/s. 195 of the Act on the entire sale consideration and not on the capital gain arising on transfer of the capital asset. As we have already seen, the facts of the present case are different and the issue is only with regard to whether the tax deduction at source is on the entire sale consideration of Rs.1 .20 crores or Rs.60 lakhs which was the payment made to the non-resident out of Rs. 1 .20 crores. We are therefore of the view that the decision relied upon by the ld. DR is of no assistance to the plea of the department.
12. We therefore allow the appeals of the assessee in part and hold that the assessee can be considered as an 'assessee in default' only to the extent of Rs.60 lakhs paid to the non-resident. Levy of consequential interest u/s. 201(1A) should be modified accordingly. We order accordingly.
13. In the result, the appeals are treated as partly allowed.
Pronounced in the open court on this 12th day of July, 2013.
I-T - Whether when only a part of the housing project does not comply with approved size of flats, Sec 80IB(10) benefits should be allowed on proportionate basis because it is a benevolent legislation - YES: ITAT
By TIOL News Service
MUMBAI, NOV 07, 2013: THE issues before the Bench are - Whether when only a part of the housing project does not comply with the approved size of the flats, Sec 80IB(10) benefits should be allowed on proportionate basis because it is a benevolent legislation and Whether for the purpose of admeasuring the size of the flat, the approved valuer is warranted to follow the definition of built up area. And the verdict goes against the Revenue.
Facts of the case
Assessee, an AOP, is engaged in the business of builders and developers. The assessee filed its return of income declaring total income at Rs. Nil. AO finalised the assessment determining the total income of the assessee at Rs. 5.57 Crores. During the assessment proceedings, AO found that assessee had developed a housing project called Cosmos Hills in Thane, that the project was a complex of 4 buildings viz. Devgiri (stilt +7 floors), Himgiri (stilt+12 floors), Nilgiri (stilt+12 floors) and Saptgiri (stilt+7 floors), that it had declared net profit of Rs. 5, 57, 28386/-, that entire income had been claimed as deduction u/s. 80IB(10) of the Act. AO further found that first order of sanction/approval for development to the housing project was issued by Thane Municipal Corporation(TMC) on 26.12.2003, that project was first approved before 31.03.2004. Referring to the provisions of section 80IB(10)(a)(i) of the Act, he held that assessee was required to complete the construction of the said housing project on or before 31.03.2008, that it was also required to obtain Occupation Certificate(OC)/Completion Certificate(CC) of all the buildings from the local authority on or before 31.03.2008, that in the case under consideration OC in respect of building no.3 namely Nilgiri for three floors had been issued by TMC on 09.04.2009. For confirming the dates of issue of first approval and date of issue of all the completion certificates issued by TMC, AO sent a letter to Municipal Corporation. Vide its letter dated 10.11.2009, TMC confirmed that project was first approved for development on 26.12.2003 and last OC was issued on 09.04.2009. Considering the above facts AO held that assessee had violated the provisions of sub-section (i) of clause (a) of Section 80IB(1) r.w. explanation (i) and (ii) by not obtaining the OC/CC of the local authorities before 31.03.2008. He issued a notice to the assessee asking to show cause as to why its claim u/s.80IB(10) should not be disallowed. After considering the submission of the assessee, AO held that date of first approval was 26.12.2003 and the date of commencement certificate was 03.3.2004, that both the dates fell before 31.3.2004, that the last date for obtaining OC was 31.03.2008, that assessee had applied for OC on 27. 01.2009, that assessee had neither completed the construction of the project till 31.03.2008 nor has obtained OC before 31.03.2008.
For verifying the area of residential units, constructed in the housing project, AO appointed a Government approved architect. In his report, the approved valuer submitted that four duplex flats in Nilgiri, 2 flats in Saptgiri and 4 flats in Himgiri were constructed by combining last two top floors of the building or by combining two flats with only one entry and one kitchen, that construction of duplex flat was not as per the approved plan, that the built up area of such flats was more than 1000 sq ft. On the basis of the said report, AO held that by constructing the flats of more than 1000 sq ft. assessee had violated the provisions of clause (c) of section 80IB(10) of the Act, that assessee was not eligible to claim deduction u/s 80IB(10). Finally, he disallowed the claim amounting to Rs. 5.57 Crores, made by the assessee.
On appeal, the CIT(A) held that Devgiri, Himgiri, Nilgiri and Saptgiri building of the project Cosmos Hills were situated on plot of land measuring more than 1 acre, that the CO in respect of all the buildings (except Nilgiri) was obtained by the assessee prior to 31.03.2008, that AO had not disputed the fact. Relying upon the orders of the Mumbai Tribunal delivered in the case of Vandana Properties and Saroj Sales Organisation (2008-TIOL-189-ITAT-MUM) he held that ratio laid down by the above decisions was equally applicable in the case under consideration, that concept of housing project did not mean that there should be a group of building and only then it could be called a housing project, that even one building could constitute an independent housing project and would be eligible for deduction u/s. 80IB(10) of the Act, that all the four buildings had been completed prior to 31.3.2008, that assessee had fulfilled all the conditions and parameters laid down by the provisions of section 80IB(10), that claim made by it could not be rejected entirely on the plea that some part of the housing project CC had not been granted by the local authorities, that claim on deduction u/s.80IB(10) should be allowed in respect of those units which had been completed and CC had been granted to those buildings by TMC prior to 31.03.2008. Accordingly, he held that claim of the assessee for grant of deduction in respect of profits derived by it from sale of units in building Devgiri, Himgiri, Saptgiri and Nilgiri (except 10th, 11th and 12th floor) on proportionate basis. He upheld the order of the AO in respect of profit from sale of units on 10th-12th floor of Nilgiri building.
On appeal before the Tribunal, the counsel for the assessee submitted that residential flats were constructed as independent residential units and were completed in all respect by the assessee, that possession of such flats was granted to the purchasers concerned, that each of the constructed flat was as per the sanction plan with independent entry door, kitchen and all other amenities as mentioned in the sale agreements of the flats concerned, that the modification in the flats had been made by the purchasers, that assessee had no control over the changes made by the purchasers, that at the time of grant of OC local authorities had examined this aspect and only then OC was issued, that Approved Valuer had erroneously considered built up area of premises to be "Carpet area + 20%", that as per the provisions of the Act there was specific definition of built up area, that as per the provisions of section 80IB(14)(a) of the Act built up area of flats had to be determined on the basis of the said definition, that built up area determined by the valuer was on ad-hoc basis and was erroneous.
Having heard the parties, the Tribunal held that,
++ we have heard the rival submissions and perused the material before us. Effective ground of appeal filed by the AO is about allowing the claim, made by the assessee, u/s.80IB(10) of the Act. AO had disallowed the entire claim mainly on two grounds - first, assessee had not obtained the OC /CC before a particular date. Second objection of the AO was about the size of flats. As per the AO, area of 10 flats was more than the area prescribed by the Act;
++ we find that except for the three floors (floor no.10, 11 and 12 of Nilgiri) assessee had obtained the required certificates from the local authorities well in time. While deciding the appeal of the assessee, FAA has clearly held that TMC had issued certificates for all the four buildings (except three floors of Nilgiri) before 31.03.2008. DR could not controvert the fact. Therefore, we are of the opinion that FAA was justified in directing the AO to allow the deduction for all the four buildings other than three floors of Nilgiri building. Section 80IB(10) was introduced in the Act for a specific purpose and it has been held to be a benevolent legislation. The section is about development and construction of a housing project of residential units of specified areas and it has to be commenced and completed during specified period and on a plot of particular size. If these basic conditions are fulfilled, AO cannot deny the benefits of the said section to an assessee. AO has mentioned that three buildings were completed before 31.03.2008 and OC was also obtained before due date. Considering these facts, in our opinion, he was not justified in disallowing the claim made by the assessee-AOP for the said buildings. Similar is the position for the nine floors of Nilgiri builidng;
++ now, we would like to discuss the second reason for disallowing the deduction and that is the size of 10 flats. AO had held that the built up area more of 10 flats was more than 1000 sq ft. His opinion was based on the basis of the report of Government approved valuer. After going through the report of valuer, we find that for calculating the area of the residential unit, valuer has added 20% to the carpet area of the unit. We find that words 'built up area' has been specifically defined in the section itself in sub-section 14. We would like to reproduce the section that reads as under :
"…built-up area" means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units."
In our opinion once a word has been defined in a section, then it has to be construed strictly. No one should add or subtract anything to or from that word. Valuer or AO are not authorised to alter the mandate given by the Parliament. It is not known as what was the basis for adding 20% to the carpet are of the residential unit while deciding the built of area of the flats;
++ we find that in the case under consideration first sanction to construct the project was received on 26.12.2003 i.e. before 1.4.2004. Therefore, amendment brought in the section was not applicable to the facts of the present case. Secondly, sub-section, nowhere stipulates that 20% area should to increased for computing the built up area of a residential unit. Lastly, AO had not decided the issue as whether the flats were outside the City of Mumbai? We find that in the CO, assessee has raised the said issue. We will deal with it at appropriate place, but for the present it is sufficient to hold that AO was not justified in denying the claim of the assessee on the basis of the report of the valuer;
++ it is decided law that an assessee is entitled to proportionate deduction u/s.80IB of the Act, even if certain conditions, stipulated by the section, are not fulfilled;
++ we are of the opinion that even if claim was to be disallowed it should have been restricted to ten flats only. We also hold that AO was not justified in denying the entire claim made by the assessee. We find that the FAA had directed the AO to calculate disallowance on proportionate basis. In short, in our opinion, AO was not justified in disallowing the entire claim made u/s.80IB of the Act on both counts - delay in obtaining CC and size of flats. FAA has rightly held that assessee was eligible for proportionate deduction.
(See 2013-TIOL-953-ITAT-MUM)
SERVICE TAX SECTION
2013-TIOL-1656-CESTAT-MAD M/s KG Denim Ltd Vs CCE & ST
Service Tax - Stay/Dispensation of pre-deposit - Cargo Handling service - Handling charges collected from the buyers of cotton waste towards packing and bundling - Prima facie not taxable as cargo handling service - Pre-deposit waived. - Stay granted : CHENNAI CESTAT
M/s Philips Electronics India Ltd Vs CST
Service Tax – Stay/Dispensation of pre-deposit – Online information and data base access and retrieval service received from outside India - Access provided to their own data stored in the computer maintained abroad - Revenue not been able to demonstrate that impugned service results in providing access to the applicant to any data other than their own data - Tribunal, prima facie, has taken a view that if access is provided only to their own data such services will not be covered by the entry for On-line Information Retrieval Service - Pre-deposit waived and stay application allowed. - Stay Granted : CHENNAI CESTAT
M/s Radaan Media Works Pvt Ltd Vs CST
Service Tax - Stay / Dispensation of pre-deposit - Availment of CENVAT Credit on Broadcasting service for payment of service tax on "Sale of Space or Time for Advertisement" - Prima facie case for waiver of pre-deposit in view of the stay order in the appellant's own case - Pre-deposit waived. - Stay granted : CHENNAI CESTAT
CENTRAL EXCISE SECTION
M/s Henkel Adhesives Technologies India Pvt Ltd Vs CCE
Valuation - s.4A of CEA, 1944 - Appellant manufacturing and selling notified goods in retail packs through dealers/distributors by declaring MRP but assessing goods based on transaction value u/s 4 of CEA, 1944 - similar goods imported from sister concerns and CVD paid on transaction value by declaring that the same are for captive use - imported goods were also subjected to relabeling/affixing MRP and which activity amounts to manufacture u/s 2(f)(iii) of CEA, 1944 - Differential duty payable on indigenous goods and also on goods subjected to relabeling activity - claim of the appellant for CENVAT credit and that not all goods imported are covered by the Third Schedule needs verification and which will be decided at the time of final hearing - as no financial hardship pleaded and balance of convenience lies clearly in ordering pre-deposit to safeguard interest of revenue - Pre-deposit ordered of Rs.2 Crores: CESTAT [paras 5.1, 5.2, 5.3, 5.4 & 6] -Pre-deposit ordered :MUMBAI CESTAT
Lee Pharma Ltd Vs CCE
Central Excise – DTA Clearances from EOU without authorization - Prima facie, the clearances by the petitioner/appellant in April 2009, while he had applied for authorization (for clearance of goods in the DTA) on 29.04.2009 and authorization was granted on 1.5.2009, appear to be clearly irregular. Pre-deposit of duty and interest ordered. - Pre-deposit ordered :BANGALORE CESTAT
M/s Pitty Laminations Ltd Vs CCE
Central Excise - CENVAT Credit - Jobwork - By the impugned orders, input service credit has been denied to the applicant on the activity of job work undertaken by them under Notification No.214/1986-CE. The contention of the Revenue is that as job worked goods have not suffered any duty, the applicant is not entitled for input service credit, therefore, the impugned demands have been confirmed. when the final product has suffered duty, there is no bar on availment of CENVAT credit on inputs/input services by job workers. - Pre-deposit waived - Pre-deposit waived :BANGALORE CESTAT
CUSTOMS SECTION
Stainloyz International Vs CC
Cus – Import of hard disk, whether hazardous waste – Reports given by the officers of Customs are at variance – while the first report talked of old and used, the second talked of old and the third talked of old, obsolete and refurbished – Officers who examined the goods are not experts in the field and have also not brought any evidence on record to prove that the goods are used or hazardous waste – Order set aside and appeal allowed: CESTAT [para 4] - Appeal allowed:MUMBAI CESTAT
CX - Sec 4A - Appellant sells goods in retail packs by declaring MRP but assesses goods u/s 4 - similar goods imported from sister concerns and CVD paid also subjected to affixing MRP and which activity amounts to manufacture - Differential duty payable: CESTAT
-- By TIOL News Service
MUMBAI, NOV 07, 2013: THE appellants are manufacturers of solvents, industrial adhesives, sealants and other chemicals falling under various Chapters of the Central Excise Tariff. Most of these goods are sold under the brand name LOCTITE. They also import similar goods from their sister concerns abroad for trading in the Indian Market. Investigation was carried out by the Central Excise Department at Pune about the activities carried out by the appellant. It was noticed that the appellant were selling these goods in retail packs through dealers/distributors and were also declaring Maximum retail Price (MRP) on the goods but they were discharging duty liability on the goods on the transaction value u/s 4 of the CEA, 1944 even though the goods were notified for the purposes of assessment u/s 4A of the said Act. Nonetheless, the appellant had started discharging duty liability on the manufactured goods on MRP basis under section 4A with effect from 15/05/2008 onwards.
As regards imported goods, the appellant cleared the same through Customs by paying CVD on transaction value basis by declaring that the goods were meant for captive use. The imported goods were brought into their factory for re-labeling/affixing MRPs and thereafter sold in the Indian Market through dealers/distributors. This activity allegedly amounted to manufacture in terms of s. 2(f)(iii) of CEA, 1944 as applicable to goods specified in the Third Schedule.
Accordingly a SCN was issued inter alia demanding -
+ differential excise duty of Rs.46,59,372/- for the period from 13/01/2007to 14/05/2008 by assessing the goods as provided for under section 4A of the Act.+ Rs.5,07,19,497/- being central excise duty on imported goods which are being subjected tore-labeling/affixing MRP in their factory for the period from 13/01/07 to March, 2010.+ The amounts of Rs.46,59,342/- paid under protest on the indigenously manufactured goods and Rs.37 lakhs towards traded goods were sought to be appropriated.
As the demand was confirmed by the CCE, Pune-III the appellant is before the CESTAT and submits -
+ The appellant would be eligible for CENVAT credit of Rs.1,75,97,428/- towards the CVD+SAD paid on the imported goods; an amount of Rs.55,13,420/- pertains to the demand in respect of goods not covered by the Third Schedule; that they have already paid Rs.83.59 lakhs and if all these are taken into account, the appellant would have discharged about 60% of the demand confirmed and the same be considered sufficient for the grant of interim stay.+ Since the goods have been supplied to industrial consumers, the appellant is not covered under the PCR and hence provisions of section 4A would not apply.+ they have started affixing MRP labels only with effect from 15/05/08 as is evident from the statement dated 18/11/2008 of the Factory Manager and, therefore, duty demand on MRP basis prior to that date is not sustainable.
The Revenue representative referred to the statements recorded and submitted that the same established that the appellant had sold the goods in retail packages and the same had labels affixed indicating the MRP from the year 2006 onwards and hence the appellant be put to terms.
The Bench inter alia observed -
+ When the goods are sold through dealers/distributors in retail packages by affixing labels indicating MRP, the obvious conclusion is that the goods are meant for retail sale. Therefore, we are prima facie of the view that the demand of differential central excise duty of Rs.46,59,372/- in respect of the goods manufactured by the appellant for the period from 13/01/2007 to 14/05/2008 is sustainable in law.+ As regards the imported and traded goods also, the requirement of affixing MRP was statutorily provided for in Rule 2(p) of PCR as the same applied to imported packages also. Therefore, it was incumbent upon the importer to get the re-labeling done before they were cleared through the Customs. In the present case, the appellant declared in the import documents that the goods are meant for captive use and not for trading. Thus there was a clear mis-declaration on the part of the appellant.+ From the statements of the Logistics Assistant it is evident that the imported traded goods were in retail packages and the appellant had undertaken the activity of re-labeling in the appellant's factory even during the period 13-1-2007 to 14-5-2008. From the statements of…distributors of the appellant firm, it is evident that the imported goods traded by the appellant were in retail packages and were affixed with labels containing details including MRP. In addition the appellants were also circulating price lists indicating MRPs. If the goods were not meant for retail sale, there was no need to undertake any of these activities. Therefore, the claim of the appellant that they started declaring MRP only with effect from 15-5-2008 …stands disproved. From these evidences available on record, it is evident that the goods were meant for retail sale and they were not meant specifically for industrial or institutional consumer. None of these activities were declared or made known to the department by the appellant.+ We are of the prima facie view that since the goods were notified in the Third Schedule to the CEA, 1994, the activity of labeling/re-labeling and affixing MRP amounted to 'manufacture' as defined in section 2(f) of the Act. Further, the extended period of time has also been correctly invoked for demand of excise duty.
As regards the submissions that an amount of Rs.55,13,420/- is not demandable since the goods in respect of which this claim is made is not covered by the Third Schedule and the claim for CENVAT credit of the duty paid on the imported goods, the Bench observed that the same would need verification and would be dealt with at the time of final disposal of the appeal.
Noting that the appellant had not pleaded any financial hardship, the Bench adverted to the decision of the Andhra Pradesh High Court in the case of SQL Star International ltd. - (2012-TIOL-146-HC-AP-ST) and directed the appellant to make a pre-deposit of Rs.2 crores and report compliance for obtaining a stay in the matter.
We are certain to receive more details on the case soon…
Regards,
Pawan Singla
BA (Hon's), LLB
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