TaxGuru : "Return of the Ghost of Section 271(1) (c)" plus 5 more |  |
- Return of the Ghost of Section 271(1) (c)
- Service Tax Applicability on Tour Operators
- HRA and PAN – Familiar Concepts Though; but Unfamiliar Angles
- Difficulties in effective implementation of the Service Tax Voluntary Compliance Encouragement Scheme, 2013
- Complete Switchover to Online Mode for Registration and Enrolment at ICSI from 1.1.2014
- Custom Duty : Rates of exchange applicable from December 06, 2013
Posted: 07 Dec 2013 06:51 PM PST Recently, Supreme Court in the case of MAK Data P. Ltd. vs CIT (C.A.No. 9772 of 2013) has pronounced the judgment in respect of section 271(1)(c), which has again raised the vexed issue of levy of penalty u/s 271(1)(c).  |
Posted: 07 Dec 2013 06:29 PM PST To understand the concept of Tour Operator first of all we have to clear that there is major difference between tour operator and Travel Agent Service. Tour Operator is wide term than Travel Agent.  |
Posted: 07 Dec 2013 06:14 PM PST CBDT has vide CIRCULAR NO. 8/2013, Dated: Dated: October 10, 2013 said if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer.  |
Posted: 07 Dec 2013 04:49 PM PST As you are aware Service Tax Voluntary Compliance Encouragement Scheme, 2013 (STVCES), has been introduced by the Finance Act, 2013 to encourage and broaden the tax base in the Service Tax, wherein, the assessee having tax dues for the period beginning on or after 1.10.2007 and ending 31.12.2013...  |
Posted: 07 Dec 2013 03:45 PM PST The ICSI, functioning under the aegis of the Ministry of Corporate Affairs, has decided to move fully to the online registration from 1st January 2014. Earlier, the Institute had moved to online enrolment for examination from 1st October 2013.  |
Posted: 04 Dec 2013 05:31 PM PST NOTIFICATION NO 117/2013-CUSTOM (N.T), Dated : December 5, 2013 In exercise of the powers conferred by section 14 of the Customs Act, 1962 (52 of 1962), and in super session of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.112/2013-CUSTOMS (N.T.),...  |
IT : In case of retrospective legislative amendment, rectification under section 154, as well as reopening of assessment under section 147 are permissible as they are not mutually exclusive
■■■
[2013] 39 taxmann.com 107 (Delhi)
HIGH COURT OF DELHI
Ester Industries Ltd.
v.
Union of India*
S. RAVINDRA BHAT AND R.V.EASWAR, JJ.
REV. PETITION NO. 110 OF 2013
WP (C) NO. 7482 OF 2011
WP (C) NO. 7482 OF 2011
MARCH 1, 2013
I. Section 147, read with section 154 of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [General principles] - Assessment year 2004-05 - Whether retrospective legislative amendment constitutes tangible material permitting reopening of assessment - Held, yes - Whether retrospective amendment of law can even permit action for rectification of assessment on ground of mistake apparent from record - Held, yes - Whether, in case of retrospective amendment, sections 147 and 154 are not mutually exclusive and there could be overlapping of jurisdiction; and if jurisdictional preconditions are satisfied, action can be taken under appropriate section even though action could be taken under another section - Held, yes [Para 13] [In favour of revenue]
II. Section 129 of the Income-tax Act, 1961 - Income-tax authorities - Change of incumbent of an office - Assessment year 2004-05 - Assessee claimed that it had filed objections before a particular officer, while order rejecting those objections were passed by another officer, which was opposed to requirements of section 129 - Whether as there was no evidence to show that assessee requested successor-officer for de novo hearing, assessee's contention was not acceptable - Held, yes [Para 11] [In favour of revenue]
FACTS
| ■ | The assessee-company had filed a writ petition challenging the reassessment order passed by the Assessing Officer, which was accepted, and it was directed that question of jurisdiction to reopen assessment was to be considered first. | |
| ■ | Thereafter, a reassessment order was again passed, against which the assessee had filed a writ petition. The assessee was directed to file objections which were to be considered by revenue. | |
| ■ | The assessee's objection were rejected by an order which was challenged by a third writ petition. The writ petition was disposed of with costs. | |
| ■ | Instant review petition has been filed in the third writ petition, alleging that the Court omitted to consider certain arguments, claiming that sections 154 and 147 are different and distinct and cannot be invoked together. |
HELD-I
| ■ | The assessee has sought to file the review petition alleging that this Court omitted to consider certain arguments stated to have been advanced in the course of the hearing on 8-11-2012. It is first alleged that the argument that an audit objection was the basis for the reassessment notice was not considered and dealt with by this Court. On checking up records, it is not found that any such argument was taken by the assesseee when the matter was heard. [Para 10] | |
| ■ | The other argument stated to have been raised is the contention that though the objections of the assessee were heard by the predecessor-officer, the order thereon was passed by the successor-officer which is opposed to Section 129. In the absence of any evidence to show that the assessee did request the successor-officer for de novo hearing, the contention based on section 129 cannot be accepted. [Para 11] | |
| ■ | It is then alleged that in respect of three issues, out of the four that formed the reasons for the issue of the notice, the Revenue itself accepted that they cannot be valid grounds for reopening the assessment. It is contended that this aspect has not been noted in the impugned judgment and no decision has been rendered vis-à-vis the contention. The contention is inaccurate as it was dealt with in the order where it was specifically noticed that in respect of the three issues, the Revenue did not seriously dispute the contention. The sequitur is that the reopening cannot be sustained on these three grounds. It is, therefore, incorrect to say that the contention has not been dealt with in the impugned order. [Para 12] | |
| ■ | It is then alleged that so far as the issue regarding the constitutionality of the retrospective amendment to section 115JB by the Finance Act, 2008 with effect from 1-4-2001 is concerned, though the plea was rejected by this Court, but in doing so, this Court has wrongly placed reliance on the power of the Assessing Officer to rectify the assessment under section 154 based on a retrospective amendment as permitting the action under section 147 and to this extent the order is erroneous. It is contended that the scope of the two provisions, i.e., section 154 and section 147 are different and distinct. The allegation of the petitioner is wholly misconceived having regard to observations in the order. After noticing that the assessment was re-opened within four years from the end of the relevant assessment year and that the Assessing Officer has to show tangible material which could form the basis for his belief that income chargeable to tax has escaped assessment, this Court held that the retrospective amendment constitutes tangible material permitting the reopening of the assessment. The Court noticed that it was held by the Supreme Court inM.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 that a retrospective amendment of law can even permit action for rectification of the assessment on the ground of mistake apparent from record. This Court held that just because action for rectification is permissible, it does not mean that no action can be taken for re-opening the assessment because the powers under section 147 and section 154 are not mutually exclusive and there could be some overlapping and so long as the conditions for the applicability of either of these sections are satisfied, the action taken thereunder has to be validated and 'it is no answer to say that action should be taken under another section'. Thus, the contention of the assessee has been dealt with. The assessee does not appear to have properly understood and appreciated the purport of the observations. It is this very misconception or misunderstanding that seems to run through the Review Petition. It appears that the assessee is of the impression that the decision was rendered on the premise that if action under section 154 is permissible, action under section 147 to reopen the assessment is automatically impermissible. This is not what was held; it was also pointed out that 'there could be overlapping of jurisdiction and so long as the jurisdictional pre-conditions are satisfied, action can be taken by the Assessing Officer under the appropriate section even though action could be taken under another section.' The argument of the assessee that action can only be taken under section 154 did not appeal to this Court, and was rejected. [Para 13] | |
| ■ | The assessee has also prayed for recalling the direction imposing cost. There is not merit in the same. The prayer is rejected. | |
| ■ | For the aforesaid reasons, there is no merit in the review petition which is dismissed with no order as to costs. [Para 14] |
CASES REFERRED TO
M.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) (para 13).
R. Santhanam for the Appellant. Sanjeev Sabharwal for the Respondent.
ORDER
R.V. Easwar, J. - This review petition has been filed by the petitioner in the writ petition which was dismissed with costs by the judgment dated 28th January, 2013.
2. We have heard the counsel for the review petitioner. Several arguments have been raised in the review petition. However, after carefully considering them we find no merit in them as we shall presently show.
3. The petitioner is M/s. Ester Industries Ltd. The writ petition was directed against the notice issued on 6th March, 2009 under Section 148 of the Income Tax Act, 1961. The prayer was to quash the notice as also the order passed by the Assessing Officer on 23rd September, 2011, pursuant to the notice, rejecting the objections of the petitioner to the reasons recorded for reopening the assessment. The notice under Section 148 had been earlier challenged by the petitioner before this Court in WP(C) No. 13093/2009. Accepting the plea of the petitioner, this Court passed an order quashing the re-assessment order which has been passed by the respondent on 11th September, 2009 and directing the respondent to first decide the question whether he had jurisdiction to re-open the assessment and also to consider all other pleas taken by the petitioner. Thereafter, the respondent passed a re-assessment order on 28th December, 2010 against which the petitioner filed the second writ petition in WP(C) No. 321/2011. This writ petition was disposed of by this Court on 18th January, 2011 with a direction to the petitioner to file further objections before the respondent along with relevant case law in support of the objections and it was also directed that the respondent should deal with them in accordance with law. In this order, i.e., order dated 18th January, 2011, which is reproduced in the impugned judgment, it was specifically recorded that though a prayer was made in the writ petition to declare certain provisions of the Finance Act, 2008 to be unconstitutional, "yet in course of hearing Mr. R. Santhanam, learned counsel for the assessee-petitioner and Mr. Sanjeev Sabharwal, learned counsel for the Revenue have fairly stated that they have no objection if the assessment order dated 28th December, 2010 contained in Annexure-2 is quashed and the matter is remitted to the Assessing Officer to deal with the objection filed by the assessee-petitioner on a specific date and thereafter, proceed pin accordance with law and further the assessee-petitioner shall not press the issue of limitation."
4. Pursuant to the aforesaid order, the respondent took up the objections of the petitioner for fresh hearing and by order dated 23rd September, 2011, rejected all the contentions of the petitioner. It was this order of the respondent that was the subject matter of challenge before this Court in WP(C) No. 7482/2011, which was the third challenge by the petitioner to the re-assessment proceedings.
5. When the above writ petition was taken up for hearing by this Court on 8th November, 2012, the learned standing counsel for the Revenue fairly stated that with regard to three out of four grounds on the basis of which the notice under Section 148 was issued, he could not defend the notice. Thus, the only issue which survived was the ground regarding the deferred tax liability on the basis of retrospective amendment made to Section 115 JB by the Finance Act, 2008. The amendment had been made with retrospective effect and undisputedly it covered the assessment year 2004-2005 which was the year concerned in the writ petition. All these facts have been recorded in paragraphs 6&7 of the impugned order of this Court.
6. Counsel for the petitioner had, however, taken up the point that the notice issued under Section 148 was invalid as the sanction of the Joint Commissioner of Income Tax was not obtained as required by Section 151 (1) of the Act. This Court rejected the contention as it was found on a perusal of the statutory provision that the sanction was required only if the notice was issued by an officer who was below the rank of the Assistant Commissioner or Dy. Commissioner of Income Tax and that the notice was actually issued by the Dy. Commissioner of Income Tax and hence, no sanction was required. This was in paragraph 5 of the impugned order.
7. Another point which was argued by the counsel for the petitioner was based on Section 129 of the Act. It was his contention that the objections to the notice were filed before a particular officer but the orders rejecting those objections were passed by another officer, which was opposed to the requirement of Section 129. This Court dealt with the contention in paragraph 10 of the Order. It was held that even according to Section 129, it was for the assessee to ask for an opportunity that the succeeding officer should hear him before passing orders. It was noted that "no attempt was made before us to show that such a demand was made by the petitioner before the successor-officer". In this view of the mater, the contention based on Section 129 was also rejected.
8. Thereafter, counsel for the petitioner sought to challenge the vires of the amendment made to Section 115JB of the Act by the Finance Act, 2008 with retrospective effect from 1.4.2001. This Court dealt with this challenge in paragraphs No. 7 to 9 of the impugned order. In paragraph 8, it was noted that in the order passed by this Court on 18th January, 2011, the petitioner had given up the challenge to the vires of the retrospective amendment. Even so, this Court proceeded to examine the challenge and dealt with the authorities cited by the counsel for the petitioner and found that they were not applicable to the case.
9. This Court thus dealt with all the arguments that were raised by the counsel for the petitioner in the course of the hearing on 8th November, 2012.
10. Yet, it is unfortunate that the petitioner has sought to file the review petition running into ten pages alleging that this Court omitted to consider certain arguments stated to have been advanced in the course of the hearing on 8th November, 2012. It is first alleged that the argument that an audit objection was the basis for the re-assessment notice was not considered and dealt with by this Court. We have checked up our records but we do not find that any such argument was taken by the petitioner when the matter was heard on 8th November, 2012.
11. The other argument stated to have been raised is the contention that though the objections of the assessee were heard by the predecessor-officer, the order thereon was passed by the successor-officer which is opposed to Section 129. We have, as noted earlier, considered the argument and held that in the absence of any evidence to show that the petitioner did request the successor-officer for de novo hearing, the contention based on Section 129 cannot be accepted.
12. It is then alleged that in respect of three issues, out of the four that formed the reasons for the issue of the notice, the counsel for the Revenue himself accepted that they cannot be valid grounds for reopening the assessment. It is contended that this aspect has not been noted in the impugned judgment and no decision has been rendered vis-a-vis the contention. The contention is inaccurate as it has been dealt with in paragraph 6 of our order where it has been specifically noticed that in respect of the three issues, the learned standing counsel for the Revenue did not seriously dispute the contention. The sequitur is that the reopening cannot be sustained on these three grounds. It is, therefore, incorrect to say that the contention has not been dealt with in the impugned order.
13. It is then alleged in the Review Petition that so far as the issue regarding the constitutionality of the retrospective amendment to Section 115JB by the Finance Act, 2008 w.e.f. 1.4.2001 is concerned, though the plea was rejected by this Court, but in doing so, this Court has wrongly placed reliance on the power of the Assessing Officer to rectify the assessment under Section 154 based on a retrospective amendment as permitting the action under Section 147 and to this extent the order is erroneous. It is contended that the scope of the two provisions, i.e., Section 154 and Section 147 of the Income Tax Act are different and distinct. The allegation of the petitioner is wholly misconceived having regard to our observations in paragraph 9 of our order. After noticing that the assessment was re-opened within four years from the end of the relevant assessment year and that the assessing officer has to show tangible material which could form the basis for his belief that income chargeable to tax has escaped assessment, this Court held that the retrospective legislative amendment constitutes tangible material permitting the re-opening of the assessment. The Court merely noticed that it was held by the Supreme Court in M.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 that a retrospective amendment of law can even permit action for rectification of the assessment on the ground of mistake apparent from record. This Court then proceeded to consider the argument of the petitioner that just because action for rectification is permissible, it does not follow that action for re-opening under Section 147 is also permissible. This Court held that just because action for rectification is permissible, it does not mean that no action can be taken for re-opening the assessment because the powers under Section 147 and Section 154 are not mutually exclusive and there could be some overlapping and so long as the conditions for the applicability of either of these sections are satisfied, the action taken there under has to be validated and "it is no answer to say that action should be taken under another Section." Thus, the contention of the petitioner has been dealt with. The petitioner does not appear to have properly understood and appreciated the purport of our observations in paragraph 9. It is this very misconception or misunderstanding that seems to run through paragraph 7 of the Review Petition. It appears that the petitioner is of the impression that our decision was rendered on the premise that if action under Section 154 is permissible, action under Section 147 to re-open the assessment is automatically permissible. This is not what we have held; we have only pointed out that "there could be overlapping of jurisdiction and so long as the jurisdictional pre conditions are satisfied, action can be taken by the assessing officer under the appropriate section even though action could be taken under another Section." The argument of the petitioner that action can only be taken under Section 154 did not appeal to this Court, and was rejected.
14. The petitioner has also prayed for recalling the direction imposing cost. We do not find any merit in the same. The prayer is rejected.
For the aforesaid reasons, we find no merit in the review petition which is dismissed with no order as to costs.
Excise & Customs : Interest on refund is required to be granted under section 11BB of Central Excise Act, 1944 when claim is sanctioned beyond a period of three months from date of application without even assessee applying for it
■■■
CESTAT, KOLKATA BENCH
Commissioner of Customs (Port), Kolkata
v.
Precision Polyplast (P.) Ltd.*
B.S.V. MURTHY, TECHNICAL MEMBER
AND A. JINDAL, JUDICIAL MEMBER
AND A. JINDAL, JUDICIAL MEMBER
FINAL ORDER NO. A -284 / KOL./ 2011
STAY ORDER NO. SP -257 /KOL./ 2011
STAY PETITION NO. SP/826 / 2009
CROSS OBJECTION NO. CO -25 / 2010
APPEAL NO. C -551 / 2009
STAY ORDER NO. SP -257 /KOL./ 2011
STAY PETITION NO. SP/826 / 2009
CROSS OBJECTION NO. CO -25 / 2010
APPEAL NO. C -551 / 2009
SEPTEMBER 20, 2011
Section 11BB of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994 and section 27A of the Customs Act, 1962 - Interest - On delayed refunds - Commissioner (Appeals) granted interest on delayed refund despite assessee not having applied for it - Department argued that interest cannot be granted to assessee without he having applied therefor - HELD : As per section 11BB, when a refund is not made within three months from date of receipt of application, "interest shall be paid"; said section does not speak of either any application or any request, to be made for payment of interest - However, in case of refund claims, section 11B of Central Excise Act, 1944 specifically provides that any person claiming refund has to make an application - On harmonious reading of two provisions, it becomes clear that interest on refund is required to be granted when claim is sanctioned beyond a period of three months from date of application without even assessee applying for it [Para 5] [In favour of assessee]
S. Mishra for the Appellant. Sukhendu Bhattacharya and R.N. Bandyopadhyay for the Respondent.
ORDER
B.S.V. Murthy, Technical Member - Revenue is seeking stay of operation of the impugned Order whereby it has been held that the Appellant Assessee is entitled to interest on the Refund sanctioned to them belatedly.
2. Learned Additional Commissioner (Authorised Representative) appearing on behalf of the Revenue submits that the Respondent Assessee has never made a claim for interest. The Commissioner (Appeals) did not take notice of this fact and has ordered for payment of interest.
3. On the other hand, learned Counsel for the Respondent Assessee submits that they had made a claim for interest during the personal hearing itself, in the year, 2004.
4. We have considered the submissions made by both sides. Since the issue involved is very short and we do not find it necessary to consider the issue once again, we take up the Appeal itself for final decision, instead of considering the Stay Petition.
5. The ground on which the Appeal has been filed in the Tribunal, is that there was no claim for the interest by the Respondent Assessee before the Deputy Commissioner, and there was no mention of interest in the Order-in-Original. Therefore, the Commissioner (Appeals) should not have granted the interest, when an appeal was filed before him. As per Section 11AB of the Central Excise Act, 1944, when a refund is not made within three months from the date of receipt of the application, interest shall be paid. The words used in that Section are - "...interest shall be paid." The said Section does not speak of either any application or any request, to be made for payment of interest. In case of any refund claim made, Section 11B of the Act specifically provides that any person claiming refund has to make an application. By reading these two Sections together, it becomes quite clear that the interest is required to be granted when the claim is sanctioned beyond a period of three months from the date of application. In this case, the Commissioner (Appeals) on an appeal filed by the Respondent Assessee, has allowed the interest which is admissible to them as per law. Further, we also take note of the fact that the claim of refund was filed in December, 2002 and had been the subject matter of litigation till the refund was finally sanctioned. When the issue involved is settlement of refund claim, the date of filing the application is not relevant, whereas for the purpose of interest, the date of filing the application has to be taken into account. Under these circumstances, we find that the impugned order passed by the Commissioner (Appeals) is proper and correct and needs no interference. Accordingly, the Appeal filed by the Revenue is rejected. The Stay Petition filed by the Department and the Cross Objection filed by the Respondent Assessee, also get disposed of.
VINEET*In favour of assessee.
D. H. Securities Pvt. Ltd vs. DCIT (ITAT Mumbai) (Third Member)
S. 14A & Rule 8D disallowance applies to tax-free securities held as stock-in-trade
The assessee claimed that as it was engaged in the business of trading in shares, its main object is to earn profit on purchase and sale of shares and not to earn dividend income from such shares. It claimed that the accrual of tax-free dividend on such shares was merely incidental to the holding of shares as stock-in-trade and that no disallowance could be made u/s 14A and Rule 8D. It also claimed that though the assessee had not incurred any direct or indirect expenditure to earn the said dividend, the AO had made the disallowance on a presumptive basis. The Division Bench referred the dispute to a Third Member in view of the difference of opinion between the Benches. Before the Third Member, the assessee relied on CCI Ltd 71 DTR (Kar) 141, India Advantage Securities, Yatish Trading etc in which the law had been laid down that s. 14A & Rule 8D does not apply to securities held as stock-in-trade. The department relied on Godrej & Boyce Manufaturing Co 328 ITR 81 (Bom) (where it was held that Rule 8D is mandatory) and Daga Capital 117 ITD 169 (Mum) (SB) (where it was held that s. 14A applies to stock-in-trade). HELD by the Third Member:
It is accepted by both parties that the assessee is a dealer in shares and that the shares were held by it as stock-in-trade. The issue under appeal is squarely covered by the principles laid down in Godrej & Boyce,Dhanuka & Sons 339 ITR 319 (Cal), American Express Bank andDamani Estates & Finance in which the issue has been elaborately considered. The argument that the judgement of the Karnataka High Court in CCI Ltd is the solitary High Court judgement on the point and it should be followed is not correct because the issue has also been considered by the Calcutta High Court in Dhanuka & Sons. Also, whileCCI Ltd has not considered the jurisdictional High Court judgement inGodrej & Boyce, Dhanuka & Sons has duly considered Godrej & Boyce in taking the view that s. 14A/ Rule 8D applies to shares held as stock-in-trade. Accordingly, disallowance u/s 14A can be made in conformity with law even where dividend income has been earned on shares held as stock-in-trade.
ST - applicants are financing vehicles manufactured by them by way of loan - interest on loan is not liable to service tax as per provisions of Finance Act, 1994 - prima facie strong case in favour - pre-deposit of Rs.205 crores waived: CESTAT
By TIOL News Service
MUMBAI, DEC 06, 2013: CRORES is the order of the day and that too hundreds of them!
A total Service Tax demand of Rs.379.80 Crores is confirmed against the applicant along with interest and penalties.
The demand inter alia comprises of the following -
+ Rs.170 crores - repair and maintenance of vehicles manufactured by the applicants during the warranty period.+ Rs.205 crores - providing banking and financial services.+ Rs.1.72 crores - providing service of authorized service station.
The applicant is before the CESTAT seeking a stay and following are their submissions in respect of each of the category of demand -
Rs.170 crores -SCN is issued on the ground that the applicants had not provided list of dealers who are undertaking the activity of maintenance and repair during warranty period and the applicants also made provision in the balance sheet in respect of likely liability of the company in respect of repair and maintenance during warranty period.
++ The applicants are selling cars to the dealers and the dealers are undertaking the activity of repair and maintenance during warranty period and the applicants are reimbursing the amount to the dealer. The dealers are paying appropriate service tax in respect of the activity undertaken by them and the applicants are also taking credit of the service tax paid by the dealers. Bills raised by dealers indicating ST payment produced.
Rs.205 crores - allegation that the applicants were also undertaking the activity of financing the motor vehicles manufactured by them, in the name of Tata Finance Ltd , which is subsidiary of the applicants and subsequently merged with the applicant firm.
++ The contention is that the applicants are paying appropriate tax in respect of lease agreements, processing fee, pre-closure charges, termination charges etc. The demand is in respect of the interest which is received on the loans. The applicants are also selling the debts to various banks and the Revenue wants to tax the amounts for consideration of selling of debts under the banking and financial services. The contention is that the service tax on payment of loan is not liable to service tax earlier under Section 67 of the Finance Act and now under Rule 6(2) of the Service Tax Rules. In respect of selling of debts, the contention is that this cannot be treated as banking and financial services hence the demand is not sustainable.
Rs.1.72 crores - applicants are providing service by their own service station
++ as per the definition of 'Authorised Service Station Service' the tax liability is on the service stations which are authorized by the manufacturer hence the demand is not sustainable.
The Revenue representative justified the demand and reiterated the order of the lower authority.
The Bench observed that as far as the demand of Rs.170 crores is concerned, the applicant has a prima facie strong case in favour as the activities of repair and maintenance service during the warranty period was undertaken by the dealers who were paying service tax on the said activity and the applicants were taking credit of the same.
As for the demand of Rs.205 crores, the Revenue contention being that the applicant is providing 'banking and financial service', the Bench observed -
"12. We find that the applicants are financing the vehicles manufactured by them by way of loan. The interest on the loan is not liable to service tax as per the provisions of the Finance Act. In respect of the activity such as processing charges, pre-closure charges, termination charges etc. the applicants are paying appropriate service tax. The applicants are also paying service tax in respect of lease agreements. In cases where the applicants were selling the debits to various banks, we find that the applicants are receiving consolidated amount in respect of the assignment of the loan and the buyer of the debts will get the amount in due course as per the terms and conditions of the loan, under which it has been disbursed to the customers. In view of this, prima facie the applicants have a strong case on this issue also."
In the matter of demand of Rs.1.72 crores of service being provided as authorized station, the applicant undertook to deposit an amount of Rs.55 lakhs.
So, the CESTAT directed the applicant to deposit the said amount for obtaining stay in the matter.
2013-TIOL-984-HC-AP-IT
IN THE HIGH COURT OF ANDHRA PRADESH
Referred Case No. 3 of 1996
M/s DECCAN CEMENTS LTD
Vs
THE COMMISSIONER OF INCOME TAX, ANDHRA PRADESH
Kalyan Jyoti Sengupta, CJ And K C Bhanu, J
Dated : October 9, 2013
Appellant Rep. by : Sri S Ravi
Respondent Rep. by : Sri S R Ashok
Respondent Rep. by : Sri S R Ashok
Income Tax - Sections 80HH(10), 256 - segregation - mining - manufacture - cement - Whether a manufacturer can trade with itself - Whether in the absence of a factual sale, profit can be computed for a business activity - Whether the segregation of profit of two different business activities is permissible under law - Whether the term "derived from" is narrower as compared to that of "attributable to" - Whether an assessee would be entitled to deduction u/s 80HH only with respect to the profits attributable to the manufacture of cement and not with respect to profits attributable to mining activity - Whether when a cement manufacturer is also engaged in mining operation to source its key raw material, the mining activity tends to lose its independent identity so as to be ineligible for Sec 80HH benefits.
The assessee, a company, had been carrying on business of manufacturing cement, and such manufacturing unit was situated in a backward area in the State of Andhra Pradesh. The assessee had also a mine having deposit of large quantity of lime. Hence, the assessee also carried on mining operation of the lime and the same was used as a raw material in manufacturing cement. In this matter, the opinion of the HC was sought for in relation to the AY 1987-88. During assessment, assessee claimed deduction u/s 80HH as it was carrying on the business of manufacturing cement in the backward area and had fulfilled all the conditions for getting deduction under the said section. It was contended by the assessee that it was not engaged simply in mining operation, but its main business was actually manufacturing of cement. The product of the mining operation, being the raw material, was used for manufacturing cement. The AO, however, had not allowed such deduction on the ground that since the assessee had been carrying on business of mining operation, by virtue of sub- section (10) of Section 80HH, such deduction cannot be permitted.
On appeal, the CIT(A) had accepted the contention of the assessee and directed for grant of deduction as it it had found that the assessee-company had been carrying on the business of manufacturing cement and there was no embargo u/s 80HH to allow such deduction. The Revenue against the order of the CIT(A) went in appeal to the Tribunal. The Tribunal had held that the assessee's main business was manufacturing of cement, which was entitled to deduction u/s 80HH, and there was no absolute prohibition that if the industrial undertaking was engaged in mining, then it would cease to be entitled to claim the deduction in respect of items manufactured or produced, which were entitled to deduction u/s 80HH, and that the assessee, in such a situation, can be said to had been running two industrial undertakings, one in respect of mining and the other in respect of manufacturing cement, and the profits attributable to mining would not be entitled to deduction u/s 80HH, whereas profits attributable to manufacturing of cement would enjoy the deduction and the profits could be allocated between the two activities/undertakings of the assessee. Following that order, the Tribunal directed AO to determine the profits attributable to manufacturing of cement and allow deduction with regard to that.
Before the HC, the assessee's counsel submitted that Tribunal erred in holding that the assessee was having two separate business activities in division for granting deduction u/s 80HH. It was contended that the Tribunal factually held that the main business activity of the assessee was manufacturing of cement and the mining operation carried on by it was not meant for sale in the market and the same was used as a raw material in manufacturing of cement. Therefore, the question of deriving profit on this mining operation does not and cannot arise. Had the assessee sold the product of mining operation in the market, then profit would have been derived from the mining activity. It was further contended that the entire output of the mining operation of lime was charged as a raw material for the manufacture of a different product than the cement. Therefore, the entire profit derived from manufacturing of cement should have been taken into consideration for the purpose of granting deduction u/s 80HH and a portion of the profit should not have been taken in order to deprive the benefit of deduction as far as the mining operation was concerned. It was also submitted that actually no profit was derived for mining operation and in order to hold the two manufacturing activities as separate and distinct activities, they must be independent in all senses.
On the other hand, the Revenue's counsel submitted that factually the assessee was carrying on two business activities, one was mining operation and another was manufacturing of cement, and both the units were always treated to be separate and distinct business activities. It was further submitted that it was immaterial whether the product arising out of the mining operation was directly sold in the market or not, and that the assumed profit can easily be ascertained. Such legal course of action was permissible under the law. It was submitted that the raw material extracted from mining operation for manufacturing cement had certainly got its market value if it was purchased from open market and such market value had to be taken into consideration and the same would be treated as cost price of the raw material, and certainly the cost price must be much less than the market price, and therefore, the emerging difference price can be treated to be a profit. It was further contended that in the previous AYs Tribunal held that the assessee had been running two separate industrial undertakings and out of running of the same, the profit must had been derived and this factual position was accepted by the assessee. In the relevant AYs, it was not contended that the factual situation, as far as running of two separate industrial undertakings was concerned, was different. It was further submitted that the words "derived from" were having a very restrictive meaning unlike the words "attributable to". So the legislature had laid emphasis on the words "profit derived from" and not "attributable to" and by virtue of sub-section (10) of Section 80HH, it had been expressly prohibited for granting deduction in relation to the mining activity.
Held that,
++ the argument of Mr. S. Ravi is that a manufacturer cannot trade with itself. Therefore, unless there is a factual sale in the market, no profit can be derived from this mining operation. In order to derive the entire profit, the cement manufacturing unit has to be taken into account and the product has to be sold in the market and then the profit will be ascertained. We are of the view that this submission, at the first blush, sounds logic, but while keeping in view the matter, we find that this logic does not have any basis. It is the admitted position that lime is one of the raw materials in manufacturing cement and in order to manufacture the finished products, raw material is essential and the cost thereof is one of the factors for cost price of the finished goods. Therefore, in the manufacturing activity of cement unit, the cost of the finished product has to be ascertained and in that process, the cost of lime has also to be taken into consideration. In the case on hand, the lime, being a raw material, is not procured from open market and it has got its own indigenous supply. Therefore, the cost of the lime extracted from mining operation has to be ascertained from the cost price and it is found, while doing so, that the cost of lime of its own source (ordinarily it happens) is lesser than the market price. Therefore, the difference between the cost price of indigenous source and the market price is obviously the profit. Moreover, once lime is used from its indigenous source to manufacture the finished products and by virtue of sale of such finished products if there is any profit, then obviously that profit is also related to the mining operation;
++ in the case of Tata Iron & Steel Co. Ltd, SC had observed that it appears from the above authoritative pronouncement that the segregation of profit of two different business activities is permissible under law. It is an undisputed position that Section 80HH of the said Act uses the words "profit derived from" and not "attributable to". Therefore, what is the import of the words "derived from" has been explained by the Supreme Court in the case of Liberty India. Therein the Supreme Court had made it clear that the connotation of the words "derived from" is narrower as compared to that of the words "attributable to". Hence, while reading the provision of Section 80HH of the said Act, the profit derived from the cement manufacturing activity is deductable thereunder and not otherwise;
++ in the case of Pandian Chemicals Ltd, the words "derived from" have been mentioned while dealing with Section 80HH of the said Act. Therein the Supreme Court, while following an old decision of the Privy Council in case of CIT v. RAJA BAHADUR KAMAKHYA NARAYAN SINGH (2002-TIOL-677-SC-IT), and further the decision of the Constitutional Bench of SC in case of MRS. BACHA F. GUZDAR v. CIT (2002-TIOL-843-SC-IT-CB), held that the words "derived from" in Section 80HH of the said Act must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Thus the profit, which has been derived in relation to the manufacturing activity of the cement, has to be taken into consideration and not for other manufacturing activity particularly for mining activity as the legislature has expressly excluded the mining activities from the purview of the deductability benefits under Section 80HH of the said Act. It is the settled proposition of law that while interpreting the provision of a statute, this has to be considered literally as it appears, and it cannot be given a purposive meaning. Hence, when the legislature has excluded the mining activity with the specific words, this has to be accepted. The decision in case of Textile Machinery Corporation Ltd, has no manner of application as it is found from fact that in the previous assessment years the assessee's two business activities have been treated to be a separate functional activity. In that case, the Supreme Court held that for the reconstruction of existing business, there must be transfer of the assets of the existing business to the new industrial undertaking. This judgment is really intended to cite for holding that the mining activity is a part and parcel of the cement manufacturing activity and it has got no independent functioning. In view of the earlier fact finding by the Tribunal, which has reached finality, this judgment is not helpful in this case. Under the circumstances, while upholding the argument of Mr. S.R. Ashok and expressing our inability to persuade ourselves to accept the argument of Mr. S. Ravi, we hold that the assessee is having two independent industrial undertakings, one is mining activity and the other is cement manufacturing activity. We are also of the opinion that apportionment of the profit derived from cement manufacturing activity can be apportioned in order to find the profit derived from mining activity. Accordingly, we answer the questions in the favour of Revenue.
Assessee's appeal dismissed
Cases followed:
Pandian Chemicals Ltd Vs CIT (2003-TIOL-51-SC-IT)
Tata Iron & Steel Co Ltd Vs State of Bihar [1963] 48 ITR 123
JUDGEMENT
Per : Kalyan Jyoti Sengupta :
This case has been referred under Section 256 of the Income Tax Act, 1961 (hereinafter referred to as 'said Act') by the learned Income Tax Appellate Tribunal, Hyderabad Bench, for opinion of this Court, on the following questions:
1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee can be said to be running two industrial undertakings one in respect of mining and other in respect of manufacturing cement, although the company was engaged in the business of manufacturing cement and mining of limestone was only as incidental activity?2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee's profits could be allocated between two activities/undertakings of the assessee, namely that of mining and that of manufacturing cement? and3. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee would be entitled to deduction under Section 80HH only with respect to the profits attributable to the manufacture of cement and not with respect to profits attributable to mining activity?
2. The short admitted fact, as it is found from the records, is as follows: The assessee-company has been carrying on business of manufacturing cement, and such manufacturing unit is situated in a backward area in the State of Andhra Pradesh. The assessee has also a mine having deposit of large quantity of lime. Hence, the assessee also carries on mining operation of the lime and the same is used as a raw material in manufacturing cement. In this matter, the opinion of this Court is sought for in relation to the assessment year 1987-88. Before the Assessing Officer, the assessee-company claimed deduction under Section 80HH of the said Act as it is carrying on the business of manufacturing cement in the backward area and has fulfilled all the conditions for getting deduction under the said section. The contention of the assessee-company is that it was not engaged simply in mining operation, but its main business was actually manufacturing of cement. The product of the mining operation, being the raw material, is used for manufacturing cement. The Assessing Officer, however, did not allow such deduction on the ground that since the assessee- company has been carrying on business of mining operation, by virtue of sub- section (10) of Section 80HH of the said Act, such deduction cannot be permitted. On appeal being taken to the Commissioner of Income Tax (Appeals), the contention of the assessee-company was accepted and directed for grant of deduction under Section 80HH of the said Act as it was found by the Commissioner of Income Tax (Appeals) that the assessee-company has been carrying on the business of manufacturing cement and there is no embargo under Section 80HH to of the said Act to allow such deduction. The Revenue against the order of the Commissioner of Income Tax (Appeals) went in appeal to the Tribunal. The Tribunal, after having noted its own earlier judgment and order on the identical issue in the assessment years 1984-85 and 1985-86, held that the assessee's main business was manufacturing of cement, which is entitled to deduction under Section 80HH, and there was no absolute prohibition that if the industrial undertaking is engaged in mining, then it would cease to be entitled to claim the deduction in respect of items manufactured or produced, which are entitled to deduction under Section 80HH, and that the assessee, in such a situation, can be said to have been running two industrial undertakings, one in respect of mining and the other in respect of manufacturing cement, and the profits attributable to mining would not be entitled to deduction under Section 80HH, whereas profits attributable to manufacturing of cement would enjoy the deduction and the profits could be allocated between the two activities/undertakings of the assessee. Following that order, the Tribunal directed the Assessing Officer to determine the profits attributable to manufacturing of cement and allow deduction with regard to that. 3. Mr. S. Ravi, learned senior counsel appearing for the assessee-company, submits that the Tribunal erred in holding that the assessee is having two separate business activities in division for granting deduction under Section 80HH of the said Act. He contends that the learned Tribunal factually held that the main business activity of the assessee-company is manufacturing of cement and the mining operation carried on by it is not meant for sale in the market and the same is used as a raw material in manufacturing of cement. Therefore, the question of deriving profit on this mining operation does not and cannot arise. Had the assessee sold the product of mining operation in the market, then profit would have been derived from the mining activity. He further contends that the entire output of the mining operation of lime is charged as a raw material for the manufacture of a different product than the cement. Therefore, the entire profit derived from manufacturing of cement should have been taken into consideration for the purpose of granting deduction under Section 80HH of the said Act and a portion of the profit should not have been taken in order to deprive the benefit of deduction as far as the mining operation is concerned. He also submits that actually no profit is derived for mining operation. He further submits that in order to hold the two manufacturing activities as separate and distinct activities, they must be independent in all senses and further on the conditions as mentioned in the said section. In support of his contention, he has placed reliance on two decisions of the Supreme Court in cases of TEXTILE MACHINERY CORPN. LTD v. COMMISSIONER OF INCOME-TAX WEST BENGAL [1997] 107 ITR 195 = (2002-TIOL-973-SC-IT-LB) and LIBERTY INDIA v. COMMISSIONER OF INCOME-TAX [2009] 317 ITR 218 (SC) = (2009-TIOL-100-SC-IT). 4. Mr. S.R. Ashok, learned senior counsel appearing for the Revenue, submits that factually the assessee is carrying on two business activities, one is mining operation and another is manufacturing of cement, and both the units are always treated to be separate and distinct business activities. He further submits that it is immaterial whether the product arising out of the mining operation is directly sold in the market or not, and that the assumed profit can easily be ascertained. Such legal course of action is permissible under the law. He submits that the raw material extracted from mining operation for manufacturing cement has certainly got its market value if it is purchased from open market and such market value has to be taken into consideration and the same shall be treated as cost price of the raw material, and certainly the cost price must be much less than the market price, and therefore, the emerging difference price can be treated to be a profit. That apart, he contends that in the previous assessment years, namely 1984-85 and 1985-86, the Tribunal factually held that the assessee has been running two separate industrial undertakings and out of running of the same, the profit must have been derived and this factual position was accepted by the assessee. In the relevant assessment years, it is not contended that the factual situation, as far as running of two separate industrial undertakings is concerned, is different. He further submits that the words "derived from" are having a very restrictive meaning unlike the words "attributable to". So the legislature has laid emphasis on the words "profit derived from" and not "attributable to" and by virtue of sub-section (10) of Section 80HH, it has been expressly prohibited for granting deduction in relation to the mining activity. To support above contention, he has referred to a decision of the Constitutional Bench of the Supreme Court in case of TATA IRON & STEEL CO. LTD v. STATE OF BIHAR [1963] 48 ITR 123 and another decision in case of PANDIAN CHEMICALS LTD v. COMMISSIONER OF INCOME-TAX [2003] 262 ITR 278 = (2003-TIOL-51-SC-IT). 5. After hearing the learned counsel for the parties and after taking note of the factual aspect of the matter and in order to give opinion on the questions referred to us, we think that the following two points are required to be decided:
1. Whether the assessee's mining operation of lime is separate and independent industrial activity from that of cement manufacturing activity or not? and2. Whether because of the use of entire product of mining activity as raw material in the manufacture of cement by the assessee, the mining operation looses its independent identity so as to disentitle the benefit of deduction by virtue of sub-section (10) of Section 80HH of the said Act or not.
6. From the records we find, as has been rightly contended by Mr. S.R. Ashok, that in the previous assessment years, namely 1984-85 and 1985-86, the Tribunal found on fact that the assessee has been running two industrial undertakings, one is mining of lime and another is manufacturing of cement. It is an admitted position further that against the aforesaid findings, no appeal has been preferred. Hence, we have to proceed on the premise that the mining activity of the assessee is distinct and independent from the cement manufacturing activity. Now the question remains is whether the use of the entire product of lime, extracted from mining operation for manufacturing of cement, looses its marketable value in order to ascertain the profit or not. 7. The argument of Mr. S. Ravi is that a manufacturer cannot trade with itself. Therefore, unless there is a factual sale in the market, no profit can be derived from this mining operation. In order to derive the entire profit, the cement manufacturing unit has to be taken into account and the product has to be sold in the market and then the profit will be ascertained. We are of the view that this submission, at the first blush, sounds logic, but while keeping in view the matter, we find that this logic does not have any basis. It is the admitted position that lime is one of the raw materials in manufacturing cement and in order to manufacture the finished products, raw material is essential and the cost thereof is one of the factors for cost price of the finished goods. Therefore, in the manufacturing activity of cement unit, the cost of the finished product has to be ascertained and in that process, the cost of lime has also to be taken into consideration. In the case on hand, the lime, being a raw material, is not procured from open market and it has got its own indigenous supply. Therefore, the cost of the lime extracted from mining operation has to be ascertained from the cost price and it is found, while doing so, that the cost of lime of its own source (ordinarily it happens) is lesser than the market price. Therefore, the difference between the cost price of indigenous source and the market price is obviously the profit. Moreover, once lime is used from its indigenous source to manufacture the finished products and by virtue of sale of such finished products if there is any profit, then obviously that profit is also related to the mining operation. 8. The Constitutional Bench of the Supreme Court, in the case of Tata Iron & Steel Co. Ltd (supra), almost on identical fact, at page 135, observed as follows:
"It could not be disputed that factually the profit from the mining operation and the winning of the mineral is imbedded in the profit realised from the sale of the end product.A simple illustration would demonstrate this. Let us assume that the cost of winning the ore is Rs.50 a ton and the market price of similar ore which would have to be used in the absence of the ore mined is Rs.60 per ton. There could not be any doubt that this difference of Rs.10 per ton of ore would be reflected in the profit or loss resulting from the sale of the steel."
At page-142 of the report, it is observed again as follows:
"As we have pointed out earlier, what we are concerned with in these appeals is merely whether there could in law be an annual profit from the mine in cases where the ore produced from the mine is sold not as ore but is utilised as the raw material for the manufacture of other products which are sold. When once it is conceded, as it has to be, that in order that profit may result from the mining activity, it is not necessary that the ore should be the subject of sale in the same condition as it was when it came out of the mine, but that, even if the won ore is subjected to processes to make it more useful or attractive to a buyer and then sold, there would be a profit, and that in the latter event the expenses of processing would be a legitimate outgoing for computing the profit, it appears to us to follow that if the ore is so processed as to turn it into a different commodity and then sold there would be no negation of the concept of "a profit" from the mine, and the question would be only as regards the elimination of the further expenses involved and principles on which these could be ascertained."
9. Thus it appears from the above authoritative pronouncement that the segregation of profit of two different business activities is permissible under law. It is an undisputed position that Section 80HH of the said Act uses the words "profit derived from" and not "attributable to". Therefore, what is the import of the words "derived from" has been explained by the Supreme Court in the case of Liberty India (supra). Therein the Supreme Court had made it clear that the connotation of the words "derived from" is narrower as compared to that of the words "attributable to". Hence, while reading the provision of Section 80HH of the said Act, the profit derived from the cement manufacturing activity is deductable thereunder and not otherwise. 10. Similarly in the case of Pandian Chemicals Ltd (supra), the words "derived from" have been mentioned while dealing with Section 80HH of the said Act. Therein the Supreme Court, while following an old decision of the Privy Council in case of CIT v. RAJA BAHADUR KAMAKHYA NARAYAN SINGH [1948] 16 ITR 325 = (2002-TIOL-677-SC-IT), and further the decision of the Constitutional Bench of the Supreme Court in case of MRS. BACHA F. GUZDAR v. CIT [1955] 27 ITR 1 (SC) = (2002-TIOL-843-SC-IT-CB), held that the words "derived from" in Section 80HH of the said Act must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Thus the profit, which has been derived in relation to the manufacturing activity of the cement, has to be taken into consideration and not for other manufacturing activity particularly for mining activity as the legislature has expressly excluded the mining activities from the purview of the deductability benefits under Section 80HH of the said Act. It is the settled proposition of law that while interpreting the provision of a statute, this has to be considered literally as it appears, and it cannot be given a purposive meaning. Hence, when the legislature has excluded the mining activity with the specific words, this has to be accepted. The decision in case of Textile Machinery Corporation Ltd (supra) cited by Mr. S. Ravi, has no manner of application as it is found from fact that in the previous assessment years the assessee's two business activities have been treated to be a separate functional activity. In that case, the Supreme Court held that for the reconstruction of existing business, there must be transfer of the assets of the existing business to the new industrial undertaking. This judgment is really intended to cite for holding that the mining activity is a part and parcel of the cement manufacturing activity and it has got no independent functioning. In view of the earlier fact finding by the Tribunal, which has reached finality, this judgment is not helpful in this case. Under the circumstances, while upholding the argument of Mr. S.R. Ashok and expressing our inability to persuade ourselves to accept the argument of Mr. S. Ravi, we hold that the assessee is having two independent industrial undertakings, one is mining activity and the other is cement manufacturing activity. We are also of the opinion that apportionment of the profit derived from cement manufacturing activity can be apportioned in order to find the profit derived from mining activity. 11. Accordingly, we answer the questions in the manner as follows: Question No.1: In the affirmative, in favour of the Revenue and against the assessee. Question No.2: In the affirmative, in favour of the Revenue and against the assessee.
Question No.3: In the affirmative, in favour of the Revenue and against the assessee.
2013-TIOL-976-HC-KAR-IT
IN THE HIGH COURT OF KARNATAKA
AT BANGALORE
ITA No. 393 of 2007
M/s PUTTUR PETRO PRODUCTS PVT LTD
Vs
THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE 1(1) MANGALORE
CIRCLE 1(1) MANGALORE
Dilip B Bhosale And B Manohar, JJ
Dated : October 7, 2013
Appellant Rep. by : Sri Chythanya, Adv
Respondent Rep. by : Sri K Aravind, Adv
Respondent Rep. by : Sri K Aravind, Adv
Income Tax - Sections 80HH, 80I, 80IA, 80IB, 143(3) - bottling palnt - gas cylinders - Whether bottling of gas into gas cylinders would amount to production activity for the purpose of Section 80IB of the Act - Whether the words production and manufacture are identical terms.
Assessee, a company had claimed exemption u/s 80 IB contending that bottling of LPG gas in the cylinders amount to production/manufacturing activity and hence eligible for deduction under Section 80IB of the Act. During assessment AO had rejected the same. On appeal, both CIT(A) and the Tribunal had confirmed the AO's order.
Held that,
++ in the case of CIT-I vs. M/s.Hindustan Petroleum Corporation Ltd., 2013-TIOL-253-HC-MUM-IT, it was observed that since the Tribunal has relied upon the decision of HC and the consequent order of the Electricity Ombudsman to hold that the activity of bottling LPG Gas is a very specialized process and the same is considered to be an activity of manufacture. The Tribunal in the impugned order had observed to the effect that the word used in Section 80HH, 80I/80IA is manufacturing or production. The term production is wider then the word manufacture. Therefore, every activity which bring into existence a new product would constitute production. The impugned order records a finding of fact that the process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process. It therefore follows that a new product comes into existence. The fact that the decision of HC in HPL and the Gujarat High Court dated 6/5/2010 are rendered keeping in view of the fact that Gas Cylinder Rules 1984 which were not in force during the relevant assessment year would not in any way detract from the finding of fact arrived at by the Tribunal. In these circumstances, as the Tribunal has rendered a finding of fact and placed reliance upon the decision of this Court and also the Gujarat High Court dated 6/5/2010, we see no reason to entertain the proposed questions of law;
++ in the case of CIT vs. Vinbros & Company [2012] 210 Taxman 252, SC had confirmed the view taken by the Madras High Court that blending and bottling of Indian Manufactured Foreign Liquor (IMFL) would amount to 'manufacture' for the purpose of claiming deduction under Section 80IB;
++ it is true, in the present case, the assessee is neither a manufacturer/producer of gas nor of empty cylinders and the activity in which he is involved is only bottling of gas into gas cylinders. However, it cannot be overlooked that the activity of bottling of LPG gas requires a very specialized process. It requires independent plant and machinery, and what ultimately the assessee produces is "gas cylinder". Unless, a gas cylinder is produced, in the form of "gas cylinder", as is known in common parlance, it cannot be sold to the customers. In other words, neither loose gas nor an empty cylinders can be sold to customers and it is only "gas cylinder" containing gas is a marketable product which the assessee produces. When the assessee produces the gas cylinder containing gas, in our opinion, a new product comes into existence. Gas and cylinder are two independent products, which, the assessee does not produce or manufacture. The assessee, however, produces/manufactures "gas cylinder" and once the manufacturing process is complete, neither gas nor cylinder be regarded as original commodity and is recognized in the trade as a new and distinct commodity namely "gas cylinder". The only inference, therefore, will have to be drawn is that the bottling of gas into gas cylinders would amount to production activity for the purpose of Section 80IB of the Act. In the result, as has been held by the Bombay High Court so also by the Supreme Court in Vinbros and Company, we are also of the view that the process of bottling of gas into gas cylinders, which requires a very specialized process and an independent plant and machinery, amount to production of 'gas cylinders' containing gas for the purpose of claiming deduction under Section 80IB of the Act. In the circumstances, the question framed by us is answered in favour of assessee and against the revenue. Consequently, the orders passed by the authorities below are set-aside with no order as to costs.
Assessee's appeal allowed
Case followed:
CIT vs. Vinbros & Company [2012] 210 Taxman 252
JUDGEMENT
This income tax appeal is preferred by an assessee against the order dated 31st January 2007 rendered by Income Tax Appellate Tribunal, Bangalore Bench (B) (for short "Tribunal") in ITA No.121/Bang/2006, whereby, the assessee's appeal came to be dismissed.
2. The assessee had preferred an appeal before the Tribunal against the order dated 16-11-2005 passed by the Commissioner of Income Tax Appeals (Appellate Authority) in appeal No.ITA/271/CIT(A)/MNG/2003-04. In the appeal before the Appellate Authority the assessee had challenged the order dated 25-2-2004, under Section 143 (3) of the Income Tax Act, 1961 (for short the "Act") passed by the Assistant Commissioner of Income Tax, Circle-I, Bangalore (for short "Assessing Officer"). Thus, all the three authorities negatived the claim of the assessee seeking deduction under Section 80IB of the Act. The assessee had claimed deduction contending that bottling of LPG gas in the cylinders amount to production/manufacturing activity and hence eligible for deduction under Section 80IB of the Act.
3. The present appeal was admitted on the substantial questions of law raised/framed in paragraph 11(1) to 11(5) in the memorandum of appeal. However, with the assistance of the learned counsel for the parties, in the beginning of hearing of the appeal, we formulated the following question for our consideration:
(i) whether on the facts and in the circumstances of the case, and in law, the authorities below were justified in holding that bottling of gas into gas cylinders is production activity for the purpose of Section 80IB (3) of the Act?
4. We have heard the learned counsel for the parties on the aforesaid question and with their assistance gone through the order of the Tribunal and the judgments relied upon by them in support of their contentions.
5. At the outset, we would like to refer to the judgment of the Bombay High Court inCommissioner of Income Tax-I vs. M/s.Hindustan Petroleum Corporation Ltd., 2013-TIOL-253-HC-MUM-IT, wherein, almost identical question was considered and answered by the Division Bench. One of the questions that was framed by the High Court was "whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified in holding that bottling of gas into gas cylinders as a production activity for the purpose of Section 80HH, 80I/80IA ignoring the fact that no new product comes into existence in this process?" In other words, the controversy that was considered by the Bombay High Court was whether the activity of bottling of LPG gas amounts to production or manufacturing activity for the purpose of deduction under Section 80HH, 80I/80IA of the Act. After considering its other judgment and the judgment of the Gujarat High Court in Bharat Petroleum Corporation Ltd. vs. State of Gujarat, the Bombay High Court in paragraph-4 observed thus:
"4. Since the Tribunal in the impugned order has relied upon the decision of this Court and the consequent order of the Electricity Ombudsman to hold that the activity of bottling LPG Gas is a very specialized process and the same is considered to be an activity of manufacture. The Tribunal in the impugned order had observed to the effect that the word used in Section 80HH, 80I/80IA of the Act is manufacturing or production. The term production is wider then the word manufacture. Therefore, every activity which bring into existence a new product would constitute production. The impugned order records a finding of fact that the process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process. It therefore follows that a new product comes into existence. The fact that the decision of this Court in HPL (supra) and the Gujarat High Court dated 6/5/2010 are rendered keeping in view of the fact that Gas Cylinder Rules 1984 which were not in force during the relevant assessment year would not in any way detract from the finding of fact arrived at by the Tribunal. In these circumstances, as the Tribunal has rendered a finding of fact and placed reliance upon the decision of this Court and also the Gujarat High Court dated 6/5/2010, we see no reason to entertain the proposed questions of law."(emphasis supplied)
6. In Pondicherry State Co-operative Consumer Federation Ltd. vs. Union of Territory of Pondicherry, [2007] 10 VST 630 (SC) = (2007-TIOL-205-SC-CT), the Supreme Court was considering the case of assessee that whether purchase of Palmolive oil in bulk and packing it in small packages for the purpose of selling in retail would amount to manufacturing activity. The Supreme court while addressing the question, referred to its judgment in Vadilal Chemicals Limited Vs. State of Andhra Pradesh, [2005] 6 SCC 292 (1) = (2005-TIOL-100-SC-CT). In that case, the question that fell for consideration of the Supreme Court was whether the small scale industry which was engaged in bottling of anhydrous ammonia could be said to be entitled to the exemption from payment of sales tax on the ground that it was manufacturing such goods since there was a general exemption offered by the Andhra Pradesh Government by G.O.Ms.No.117 dated 17th March 1993 to the small scale industry. The question in short which the Supreme court considered in that case was whether the assessee could claim exemption on the facts of that case. The Supreme Court took the view that "the authorities have based the interpretation of word 'manufacture' on the law relating to excise and it was erroneous to do so. It was observed that in the State Sales Tax Act there was no provision relating to 'manufacture' and that concept was to be found only in the 1993 G.O. which had provided the exemption. The Court further observed that exemption was granted with a view to give a fillip to the industry in the State and also for industrial units of the State. The Court, therefore, took the view that a liberal interpretation of term 'manufacture' should have been adopted by the State authorities, more particularly, when the State authorities had granted the certificate of eligibility after due consideration of the facts."
7. Our attention was also invited to the order dated 28-8-2012 passed by the Supreme court in Commissioner of Income Tax vs. Vinbros & Company [2012] 210 Taxman 252 (SC). The Supreme Court in that case confirmed the view taken by the Madras High Court that blending and bottling of Indian Manufactured Foreign Liquor (IMFL) would amount to 'manufacture' for the purpose of claiming deduction under Section 80IB.
8. Our attention was also invited by Mr.Aravind, learned counsel for the revenue to the judgment of the Supreme court in Commissioner of Income Tax vs. Tara Agencies [2007] 292 ITR 444 = (2007-TIOL-124-SC-IT) to contend that the bottling of gas into gas cylinders would not amount to either manufacturing or production and it would amount to processing. In that case, the assessee was dealing with tea of diverse grades and brands and blending the same by mixing different kinds of tea. There the Supreme Court considered all the three stages, viz., production, manufacturing and processing of tea, and observed that "tea is produced in tea gardens. This is first stage called production of tea. The second stage is manufacturing of tea. In this stage, the tea leaves are plucked form the tea bushes and by mechanical process, tea leaves are converted to tea. This second stage is considered manufacturing of tea. The third stage is blending of different qualities of tea in order to smoothen its marketability. This third stage is considered processing tea."
9. Relying on this analogy, Mr.Aravind, vehemently submitted that the assessee is not a manufacturer of either gas or of empty cylinders and the assessee is involved only in processing of gas, viz., filling gas into gas cylinders and therefore, that would not amount to activity of manufacturing. He also placed reliance upon the judgment of the Supreme Court inCommissioner of Income Tax vs. N.C.Budharaja & Co. [1993] 204 ITR 412 (SC) = (2002-TIOL-632-SC-IT). In this judgment the Supreme Court considered the words 'manufacture' and 'production' and observed thus :
"The words 'manufacture' and 'production' have received extensive judicial attention both under this Act as well as the Central Excise Act and the various sales tax laws. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture. The meaning of the expression 'manufacture' was considered by this Court in Deputy CST V. Pio Food Packers (1980) 46 STC 63, among other decisions. In the said decision, the test evolved for determining whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity. Pathak J, as he then was, stated the test in the following words (at page 65):'Commonly, manufacture is the end result of one or more processes through which the original commodity I made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity.The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products, which emerge in the course of manufacture of goods, The next word to be considered is 'articles' occurring in the said clause. What does it mean? The word is of the defined in the Act or the Rules. It must, therefore, be understood in its normal connotation – the sense in which it is understood in the commercial world. It is equally well to keep in mind the context since a word takes its colour from the context."
10. It is true, in the present case, the assessee is neither a manufacturer/producer of gas nor of empty cylinders and the activity in which he is involved is only bottling of gas into gas cylinders. However, it cannot be overlooked that the activity of bottling of LPG gas requires a very specialized process. It requires independent plant and machinery, and what ultimately the assessee produces is "gas cylinder". Unless, a gas cylinder is produced, in the form of "gas cylinder", as is known in common parlance, it cannot be sold to the customers. In other words, neither loose gas nor an empty cylinders can be sold to customers and it is only "gas cylinder" containing gas is a marketable product which the assessee produces. When the assessee produces the gas cylinder containing gas, in our opinion, a new product comes into existence. Gas and cylinder are two independent products, which, the assessee does not produce or manufacture. The assessee, however, produces/manufactures "gas cylinder" and once the manufacturing process is complete, neither gas nor cylinder be regarded as original commodity and is recognized in the trade as a new and distinct commodity namely "gas cylinder". The only inference, therefore, will have to be drawn is that the bottling of gas into gas cylinders would amount to production activity for the purpose of Section 80IB of the Act.
11. In the result, as has been held by the Bombay High Court so also by the Supreme Court in Vinbros and Company (supra), we are also of the view that the process of bottling of gas into gas cylinders, which requires a very specialized process and an independent plant and machinery, amount to production of 'gas cylinders' containing gas for the purpose of claiming deduction under Section 80IB of the Act. The judgments relied upon by Mr.Aravind, in our opinion, are of no avail to the revenue.
12. In the circumstances, the question framed by us is answered in favour of assessee and against the revenue. Consequently, the orders passed by the authorities below are set-aside with no order as to costs.
2013-TIOL-907-HC-DEL-ST
IN THE HIGH COURT OF DELHI
AT NEW DELHI
AT NEW DELHI
W.P. (C) No. 3180 of 2013
AND
CM No.6042/2013
NR MANAGEMENT CONSULTANTS INDIA PVT LTD
Vs
COMMISSIONER OF SERVICE TAX, DELHI AND ANR
Sanjiv Khanna And Sanjeev Sachdeva, JJ
Date of Decision: October 30, 2013
Appellant Rep by: Mr. J K Mittal, Adv.
Respondent Rep by: Mr. Rahul Kaushik And Ms. Bhuvaneshwari Pathak, Adv.
Respondent Rep by: Mr. Rahul Kaushik And Ms. Bhuvaneshwari Pathak, Adv.
Service Tax - Repeated issue of demand-cum-show cause notice for the same period leads to inconvenience and in some cases harassment of assesse: Repeated issue of demand-cum-show cause notice for the same period, leads to inconvenience and in some cases harassment of assessee as the for the same period they have to engage professionals and furnish accounts, documents etc. all over again. It also duplicates the work of the officers. The CBEC will examine the said aspect. If required and necessary, appropriate directions or orders may be issued to ensure that repeated show cause notices are only issued when circumstances justify and are permitted under the law.
Petition disposed of
JUDGEMENT
During the course of arguments yesterday, it was put to the learned counsel for the petitioner whether it would be acceptable in case notice dated 22.4.2013 is treated as corrigendum or additional notice which is in continuation of the earlier notice dated 17.10.2012, without disturbing the limitation period, i.e., the notice dated 22.4.2013 would be subject to the relevant limitation period.
Mr. Rahul Kaushik, Advocate for respondent, on instructions, states that this is acceptable to the department and the show cause notice dated 22.4.2013 will be treated as corrigendum or in continuation to earlier notice dated 17.10.2012, without disturbing or increasing the limitation period.
In view of the statement made by the counsel for the parties, we are disposing of the present writ petition but notice our concern that there have been cases where repeated or separate show cause notices for the same period are being issued by the respondents inspite of the position that full facts are within the knowledge of the authorities.
Repeated issue of demand-cum-show cause notice for the same period, leads to inconvenience and in some cases harassment of assessee as the for the same period they have to engage professionals and furnish accounts, documents etc. all over again. It also duplicates the work of the officers. The CBEC will examine the said aspect. If required and necessary, appropriate directions or orders may be issued to ensure that repeated show cause notices are only issued when circumstances justify and are permitted under the law.
We clarify that we have not made any observation on the merits of the case. Reply to the show cause notice dated 22.4.2013 will be filed by the petitioner within three weeks and the petitioner will be entitled to raise all contentions and objections including contentions and objections to the second show cause notice. The counsel for the petitioner states that payment has already been made and respondent should take into account the said payment. The said contention can be also raised before the respondents who will be obliged to deal with the same.
The writ petition is disposed of.
2012-TIOL-54-HC-KAR-ST
IN THE HIGH COURT OF KARNATAKA
AT BANGALORE
CEA No.21 of 2009
M/s MCI LEASING (P) LTD, MYSORE
Vs
COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, MYSORE
N Kumar and Ravi Malimath, JJ
Dated: September 22, 2011
Appellants Rep by: Shri V Raghu raman & Shri C R Raghavendra, Advs.
Respondent Rep by: Shri N R Bhaskar, Adv.
Respondent Rep by: Shri N R Bhaskar, Adv.
Service Tax - Banking and Other Financial Services - Tax paid on interest on loans and advances claimed as refund on the ground that no tax was liable to be paid on loans and advances - Refund claim allowed by lower authority reversed by revisionary authority to the extent of claim beyond period of one year - Order of revisionary authority upheld by Tribunal resulting in appeal before High Court - When it was realized that tax is not liable to be paid and refund is claimed under provisions of section 11B, it cannot be said that it is an admission made outside provisions of the Act - When a party chooses a forum and succeeds in getting refund of entire amount from lower authority, revisionary authority exercised powers conferred on him and interfered with the order interpreting section 11B - All refund claims except those mentioned under the specific proposition of law [Para 99 (ii)] laid down by Apex Court in Mafatlal Industries Ltd case, have to be and must be filed and adjudicated under the provisions of Central Excise Act or Customs Act, as the case may be - As the instant case does not fall under the said proposition of law laid down by Apex Court and the Act provides for a complete mechanism of correcting any errors whether on fact or law, the burden is to work out a remedy within the four corners of law - Order passed by Tribunal rejecting refund claim strictly in accordance with law and the law laid down by Apex Court - No merits in assessees appeal - Section 11B of Central Excise Act, 1944 as made applicable to Service Tax vide section 83 of Finance Act, 1994
Appeal dismissed
Case laws referred:
Mafatlal Industries Ltd. vs. Union of India 2002-TIOL-54-SC-CX
JUDGEMENT
The assessee has preferred this appeal challenging the order passed by the Tribunal which has held that a refund claim beyond the statutory time limit cannot be granted and it is barred by time.
2. The assessee is a Private Limited Company registered under the category of Banking and Financial Services. They are engaged in providing loans to customers. They are registered under the Finance Act, 1994 as service providers. The assessee paid service tax on the interest collected from customers based on the self assessment made by them. Subsequently they realised that the interest charged on loans and advances are not liable for payment of service tax. Therefore they preferred a claim Petition on 1-12-2004 under Section 11B read with Section 83 of the Finance Act, 1994. In the said claim Petition they claimed refund of tax paid by them for the period July, 2001 to August, 2004. The adjudicating authority after considering the entire material on record passed an order on 25-4-2005 allowing the claim of the assessee in its entirely. The Commissioner of Central Excise in pursuance of the power conferred on him under Section 83 of the Finance Act, 1981 initiated suo-motu proceedings to revise the said order passed by the adjudicating authority. After hearing the assessee he held that only a sum of Rs.92,006/- is leviable out of Rs.2,31,658/- as the balance amount was clearly barred by time. Therefore, he directed recovery of the balance amount sanctioned as it was already paid to the assessee.
3. Aggrieved by the said order the assessee preferred an appeal to the Tribunal. The Tribunal confirmed the said order and dismissed the appeal. Aggrieved by the same, the assessee has preferred this appeal.
4. The learned counsel appearing for the assessee assailing the impugned order contended that admittedly the assessee was not liable to pay service tax under the Act. By mistake the said amount is paid. Therefore the amount paid and the amount claimed as refund is not an amount which falls within the Finance Act, 1994. It is only in respect of amounts which are paid under the Act, the amounts which are due under the Act, the period of limitation prescribed under Section 11B is attracted and therefore he submits that the authorities were not justified in holding that the claim for refund beyond the period of one year was barred by time. In respect of his contentions he relied on the Judgment of the Division Bench of this Court in Writ Appeal No.2992-93/2009 where this Court has held that if the amount due claimed as refund did not fall within the Act, the provisions of Section 11-B are not attracted. This general law of limitation is applicable and therefore the claim beyond one year is not barred by time. The party has a right to choose the Forum. On the ground that in the guise of choosing a Forum he chooses a wrong Forum he cannot be denied the relief. That is the order passed in the Writ Appeal directing refund of tax on his net proceeds arising under the Finance Act or the Central Excise Act, 1944. If the amount paid is not within the Act, the Act is not applicable. So any amount paid outside the Act could be recovered under the General law either by filing a suit or by filing a writ petition. There is no quarrel with the said legal position. In the instant case, the assessee has registered itself as a service provider under the Act. The tax paid by the assessee is under the Act. In fact it is not a tax which is levied, it is a tax which is due under the Act. As understood by the assessee and paid voluntarily it is not any tax paid under protest. Later, the assessee realized that he is not liable to pay tax and therefore he has claimed refund. Therefore it cannot be said that it is an admission made outside the provisions of the Act. That is precisely the reason why Section 11-B was invoked and an application for refund is filed. Once the party chooses the Forum and in fact as in this case succeeds in getting refund of the entire amount, the revisional authority in exercise of the power conferred on them exercises its jurisdiction and interferes with the order interpreting Section 11-B. It cannot be disputed that if the amount of tax paid is not under protest and any payment made under the Act if refund is sought it has to be done within one year from the date of such payment. When once the period of limitation is prescribed under the Act the provisions of the General Law stand excluded. If the application is not filed within the time stipulated the claim would be time barred. In fact, the Constitution Bench of the apex Court in the case of MAFATLAL INDUSTRIES LTD. vs. UNION OF INDIA = 2002-TIOL-54-SC-CXhad an occasion to go into this question and they have in categorical terms laid down the law on the point.
"ii. Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition. This principle is, however, subject to an exception; where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionally obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be re-opened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it.Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying Clause (c) of sub-section (1) of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excise and Salt Act or the Customs Act, as the case may be since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview."
5. It has been held that all refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provisions of the Central Excise Act or the Customs Act as the case may be. It is necessary, to emphasise in this behalf that the Act provides for a complete mechanism for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal - which is not a departmental organ but to this Court, which is a Civil Court . The proposition referred to by them reads as under.
"ii Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition. This principle is, however, subject to an exception where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionally obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be re-opened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it.Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying Clause (c) of sub-section (i) of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excise and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview."
The facts of the case do not fall under the proposition and therefore as is clear from the aforesaid Judgment when the Act provides a complete mechanism for correcting any errors whether on fact or on law the burden is to work out his remedy within four corners of law. If the remedy is to be worked out within the four corners of law the party has accepted invoking the jurisdiction of the authority to refund within the period prescribed under the Act. In that view of the matter, we do not find any merit in this appeal. The order passed by the Tribunal is strictly in accordance with law and the law declared by the Apex Court . There is no merit in this appeal. Accordingly it is dismissed.
Continuance of proceedings by ICAI after settlement before CLB is unreasonable
It is rather amazing to note that the complainant having settled the dispute with the contesting respondent before the Company Law Board, did not appear before the disciplinary committee and the Council. The Company Law Board, however, conveyed to the petitioner that in view of the settlement between the complainant and the contesting respondent nothing survived in the complaint but the disciplinary committee and the Council still proceeded with the complaint for reasons best known to them and came to a conclusion that the charge had been proved even without any evidence being led in support of the same. It may be added that the provisions of Section 21 of the Act being penal in nature the allegations against the contesting respondent were required to be established with some certainty, if not beyond reasonable doubt. Even by the understanding of a layman 'proof' means sufficient evidence to substantiate a proposition. However, proof with certainty or sufficient evidence apart, there is no evidence, whatsoever, in proof of the allegations against the contesting respondent. Report of the disciplinary committee and decision of the council do not say that instead of the complainant some other witnesses were examined in proof of the allegations and/or record of the case was proved during the course of the proceedings.
In fact, after the complainant settled the matter with the complainant before Company Law Board and then wrote to the petitioner that he does not press his complaint against the contesting respondent, the disciplinary committee and the council were not justified in continuing with the proceedings as the very basis of the proceedings, i.e., the complaint on the basis of which the proceedings had been initiated, had become non-existent. It is not the case of the petitioner that the settlement reached before the Company Law Board and request of the complainant that he does not press the complaint were not in the knowledge of the disciplinary committee and the council. The two documents, in fact, form part of the report of the disciplinary committee. No reasons have been given for ignoring the settlement and as regards request of the complainant not to press the complaint.
Neither the disciplinary committee nor the council has referred to the evidence on the basis of which the charge is stated to have been proved. Finding of the disciplinary committee and decision of the council, therefore, are found to be perverse and not backed by evidence. In view of the position explained above, the reference fails and is hereby rejected.
CIVIL REFERENCE NO.1 OF 2012
DATE OF DECISION : 17.07.2013
Institute of Chartered /Accountants of India
Versus
K.K. Sindwani and another
CORAM: HON'BLE MR. JUSTICE SATISH KUMAR MITTAL
HON'BLE MR. JUSTICE MAHAVIR S. CHAUHAN
ORDER
MAHAVIR S. CHAUHAN, J.
This reference under sub-section (5) of Section 21 of the Chartered /Accountants Act, 1949, (for short 'the Act') is brought by Institute of Chartered Accountants of India (hereinafter referred to as 'the petitioner') seeking confirmation to the proposed punishment, of removal of name of respondent K.K. Sindwani from the register of members of the petitioner for a period of one month, upon said K.K.Sindwani (hereinafter referred to as 'the contesting respondent').
Factual matrix indicates that one Deepak Panday (hereinafter referred to as 'the Complainant') filed a complaint against the contesting respondent levelling various allegations against him. After the Council of the Institute, in its meeting held on September 19, 20, 21 and 22, 2005, found the contesting Respondent, prima facie, guilty of professional and/or other misconduct the matter was enquired into by the disciplinary committee, constituted under Section 17 of the Act. The disciplinary committee, in its report dated nil, held the contesting respondent guilty of various acts of professional and/or other misconduct. The Council of Institute (hereinafter referred to as 'the Council') in its meeting held on September 20 and 21, 2010, considered the report of disciplinary committee and held the contesting respondent to be:-
"(a) not guilty of Professional Misconduct with respect to charges as mention in Paras 1.2.3 (a)(b)(c), 1.2.4 and 1.2.7 of the Report;
(b) guilty of Professional Misconduct with respect to charges as mentioned in paras 1.2.1 and 1.2.2 of the Report, falling within the meaning of Clause (9) of Fart 1 of the First Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949; and
(c) guilty of Professional Misconduct with respect to the charge as mentioned in para 1.2.6 of the Report falling within the meaning of Clause (7) of Fart 1 of the Second Schedule read with Sections 21 and 22 of the Chartered Accountants Act, 1949."
In respect of the misconduct at serial No. (b) above, the Council decided to afford to the contesting respondent an opportunity of hearing as provided under Section 21(4) of the Act before passing orders against him and in respect of the misconduct at serial No. (c) above, the Council decided to make a reference to this Court that the name of the contesting respondent be removed from the Register of Members for a period of one month.
The instant reference has, accordingly, been made in terms of sub-section (5) of Section 21 of the Act.
Responding to the notice, the contesting respondent has filed a reply wherein he has pleaded a preliminary objection to the effect that the reference is not maintainable before this Court because before the Company Law Board the matter between the company and its shareholders and directors including the Complainant stood resolved; a compromise was recorded by the Company Law Board in its order dated 22.09.2006 wherein the Company Law Board held that in view the settlement between the parties nothing survived in the complaint filed by the complainant against the petitioner. The contesting respondent has denied the allegations constituting the reference.
Petitioner has filed a rejoinder to controvert the contentions raised in the reply.
We have heard learned counsel for the contesting parties and have perused the record very carefully.
Mr. Arun Nehra, Advocate, learned counsel representing the petitioner has argued that the Council having accepted report of the disciplinary committee as regards professional misconduct at Serial No.(b) and (c), a show cause notice in terms of sub-section 4 of Section 21 of the Act has been decided to be issued to the contesting respondent as regards the misconduct at serial No.(b) because this misconduct falls in Schedule-I appended to the Act and the instant reference is made for confirmation of punishment of removal of name of the contesting respondent from the register of members of the Institute for a period of one month as regards the misconduct at serial No.(c) because this misconduct falls in Fart-II Schedule-I of the Act.
In the instant reference, we are not concerned with the misconduct at serial No.(b). What we are concerned with is the misconduct at serial No.(c). It pertains to the charge as mentioned in paragraph 1.2.6 of the report of the disciplinary committee. This charge reads as under:-
"In Auditors report for the year enaing 31′t March, 2000, the Respondent has not reported whether the Profit & Loss account and Balance sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956. The Company has not provided depreciation on fixed assets during the year Enaing 31′t March, 2000 which is clearly non¬compliance of the provisions of Accounting Standard 6 namely 'Depreciation Accounting". But the Respondent has neither qualified the same in his report nor the amount wise Effect on the profitability as well as fixed assets have been mentioned. The Respondent has willingly omitted this paragraph from the Auditors Report to avoid qualdicatory reporting."
It shall bear repetition to again refer to the preliminary objection raised by the contesting respondent. He has stated that the matter between the Company and its shareholders and directors, including the Complainant, stood resolved before the Company Law Board and that a compromise was recorded by the Company Law Board in its order dated 22.09.2006 wherein the Company Law Board had held that in view the settlement between the parties nothing survived in the complaint filed by the complainant against the petitioner. Factum of settlement between the complainant and the contesting respondent before the Company Law Board has not been denied by the petitioner in the rejoinder and during the course of hearing. Not only this, the disciplinary committee has annexed with its report Annexure D, which is a letter written by the complainant to the Institute of Chartered Accountants of India (the petitioner) saying that with reference to the above captioned matter he did not wish to press the charges in the above complaint.
The report also contains a communication from Company Law Board. It says
"In terms of the order dated 17.02.06 the Respondents having paid Rs.9.10 Lacs in various instalments and have today deposited pay order for Rs.12.90 Lacs out of the balance of Rs.22.00 Lacs to the petitioners.
Since full payment of Rs.22.00 Lacs has been made. All the shares heed by the petitioner group livid vest in Sh. Vipan Gupta, the son of respondent with immeoiate effect and Company is authorised to ratify its register of members accoraingiy without any further order. Petitioner submit that there are complaints and suits and the same have been withdrawn as undertaking as part of the compromise recorded on 17.02.06.
As for the Complaint penaing in the institute of Chartered Accountants of Inaia, in view of the settlement, nothing survives in the complaint. Fetition is accoraingly closed."
The disciplinary committee not only ignored the settlement reached between the complainant and the contesting respondent before the Company Law Board but also the assertion of the complainant that he did not press the complaint and returned a finding with regard to the charge 1.2.6 in paragraph 24 of the report as under:-
"As regard the charge in the para 1.2.6 that the Auditor Jailed to mentioned the violation of the Accounting Standards, the Committee noted that the Auditor Report for the year 31st March 2000 aid not comment whether the Balance Sheet complied with the requirement of the Accounting Standards as mentioned in Section (3C) of Section 211 of the Companies Act, 1956 or not. Further, the Respondent agreed that the Company aid not provide the Depreciation in the Accounts and the same was aisciosed in the Notes to the Accounts, further, mentioning in the notes to the Accounts. The Committee noted that as per Section 211 of the Companies Act, 1956, it is Auditors duty to aisciose in his main /Wait report about the violation of the Accounting Standards and also deviation about the same. Moreover, the Respondent failed to invite the attention of the members to the fact that the Company aid not provide Depreciation in the Books of Accounts, further, mentioning in the notes to the Accounts that the Company aid not provide depreciation is not proper way to draw the attention of the Shareholders. The onus iies on the Respondent as auditor to draw the attention of the sharehoider about the same in his audit report by way of a note. It is apparent that the Respondent aid not carry out his duties alb-gently and failed to invite the attention of the Members to the violation of the Accounting Standards. Therefore, the Respondent is guilty of professional misconduct under this charge falling within the meaning of Clause (7) of Fart I of Second Schedule to the Chartered Accountants Act, 1949."
Similarly the Council considered the charge 1.2.6 in its decision as under:-
"As regard the charge mentioned in para 1.2.6 of the Report that the Respondent failed to mention the violation of Accounting Standards in the Auditors' Report, the Council noted that in the Auditors Report for the year enaing 31′t March, 2000, the Respondent had not reported whether the Profit and Loss and Balance Sheet comply with the Accounting Standards as provided under sub-section (3C) of Section 211 of the Companies Act, 1956, as the Company aid not provide the depreciation in the Books of Accounts. The Council thus found that the Respondent failed to aischarge his duties diligently as it was his duty being an auoitor, to aisclose in his main Audit Report about the violation of Accounting Standards as required under Section 211(3C) of the Companies Act, 1956. The Council thus accepted the Report of the Disciplinary Committee for this charge and accoraingly decided that the Respondent was guilty of professional misconduct ialling under the meaning of Clause (7) of the Fart I of the Second Schedule to the Chartered Accountants Act, 1949″
It is seen that the complainant did not appear either before the disciplinary committee or before the Council. Thus, the allegations contained in the complaint have remained unsubstantiated. The disciplinary committee and the Council have failed to disclose on what basis the charge against the contesting respondent was said to have been proved. It is rather amazing to note that the complainant having settled the dispute with the contesting respondent before the Company Law Board, did not appear before the disciplinary committee and the Council.The Company Law Board, however, conveyed to the petitioner that in view of the settlement between the complainant and the contesting respondent nothing survived in the complaint but the disciplinary committee and the Council still proceeded with the complaint for reasons best known to them and came to a conclusion that the charge had been proved even without any evidence being led in support of the same. It may be added that the provisions of Section 21 of the Act being penal in nature the allegations against the contesting respondent were required to be established with some certainty, if not beyond reasonable doubt. Even by the understanding of a layman 'proof' means sufficient evidence to substantiate a proposition. However, proof with certainty or sufficient evidence apart, there is no evidence, whatsoever, in proof of the allegations against the contesting respondent. Report of the disciplinary committee and decision of the council do not say that instead of the complainant some other witnesses were examined in proof of the allegations and/or record of the case was proved during the course of the proceedings.
In fact, after the complainant settled the matter with the complainant before Company Law Board and then wrote to the petitioner that he does not press his complaint against the contesting respondent, the disciplinary committee and the council were not justified in continuing with the proceedings as the very basis of the proceedings, i.e., the complaint on the basis of which the proceedings had been initiated, had become non-existent. It is not the case of the petitioner that the settlement reached before the Company Law Board and request of the complainant that he does not press the complaint were not in the knowledge of the disciplinary committee and the council. The two documents, in fact, form part of the report of the disciplinary committee. No reasons have been given for ignoring the settlement and as regards request of the complainant not to press the complaint.
Neither the disciplinary committee nor the council has referred to the evidence on the basis of which the charge is stated to have been proved. Finding of the disciplinary committee and decision of the council, therefore, are found to be perverse and not backed by evidence.
In view of the position explained above, the reference fails and is hereby rejected. We, accordingly, direct that the proceedings be filed.
Whether Service provider can claim reimbursement of service tax paid by him on services provided to service receiver
Service tax is statutory liability. It is a tax which is required to be collected by the service provider from the person to whom service is provided, and thereafter to be deposited with government treasury within the prescribed time.
Thus essentially the statute is being imposing the tax upon the person to whom service is being provided, and the service provider is merely a collecting agency. In that view of the matter, the writ petition is allowed. The respondent no.2 is directed to make reimbursement of service tax to the petitioner without further delay.
High Court of Allahabad
WRIT TAX No. – 870 of 2007
M/S Bhagwati Security Services (Regd.)
Vs.
Union Of India & Others
Order
Hon'ble Sushil Harkauli,J.
Hon'ble Naheed Ara Moonis,J.
Heard learned counsel for the petitioner and the learned counsel appearing on behalf of the respondent No.2, and seen the record.
There is an agreement between the petitioner and the respondent no.2 i.e.B.S.N.L., under which the petitioner was required to provide security services to the respondent no.2. under agreement between the two parties. The agreement contained the terms of payment.
Subsequently service tax was demanded from the petitioner which has been deposited by the petitioner . The petitioner applied before the respondent no.2 for reimbursement of the service tax, which request has been denied by the respondent no.2 by the impugned order.
Only reason given for denying the reimbursement of the service tax is that the same was not contemplated in the service agreement.
Having gone through the agreement and the provisions of the relevant statute, we find that service tax is statutory liability. It is a tax which is required to be collected by the service provider from the person to whom service is provided, and thereafter to be deposited with government treasury within the prescribed time.
Thus essentially the statute is being imposing the tax upon the person to whom service is being provided, and the service provider is merely a collecting agency.
In that view of the matter, the writ petition is allowed. The respondent no.2 is directed to make reimbursement of service tax to the petitioner without further delay.
Order Date :- 16.1.2013
Banks Cannot Enter Into Operational Leases: ITAT Mumbai
Banks undertaking equipment leasing departmentally should follow prudential accounting system and only the interest charge component should be recognised as income and the recovery of cost of asset should be carried to balance sheet on the form of provision of depreciation. Therefore under the circular the transaction of equipment lease is treated at par with the loan transaction and accordingly only the interest component of the receipt is recognised as income. Since it is not permitted to recognise the entire receipt being lease rentals as income the assessee has also recognised only interest component of the receipt of the lease rental as income in the profit and loss account and the balance which represents the capital component is taken to the balance sheet. Thus, in the books of account, the assessee has treated the transaction in question as finance lease and not as an operating lease because the banks are permitted only to carry out the transaction of finance lease of equipments.
It is pertinent to note that in case of /CDS Ltd. (supra) it was not a lease by a bank but the assessee in the said case is a non-banking financial institution and one of the business of the assessee was leasing out the vehicles as the facts recorded by the Hon'ble Supreme Court in para 2 of the said decision as under:
"2. The assessee is a public limited company, classified by the Reserve Bank of/ndia (RB/) as a non-banking finance company. /t is engaged in the business of hire purchase, leasing and realestate etc. The vehicles, on which depreciation was claimed, are stated to have been purchased by the assessee against direct payment to the manufacturers. The assessee, as a part of itsbusiness, leased out these vehicles to its customers and thereafter, had no physical affiliation with the vehicles. /n fact, lessees were registered as the owners of the vehicles, in the certificate of registration issued under the Motor Vehicles Act, /988 (hereinafter referred to as "the MV Act")."
Therefore the Hon'ble Supreme Court has decided the issue in the case of non-banking financial company which is engage in the business of leasing whereas in the case of bank it is not permitted under the Banking Regulation Act to engage in the business of leasing of equipments. Following the decision of Special Bench of this Tribunal in case of Indusind Bank Ltd., we hold that the transaction in question is finance lease and not operating lease. Accordingly, we uphold the orders of the authorities below qua this issue.
Source- State Bank of India vs. DCIT (ITAT Mumbai), I.T.A. No. 5470/Mum/2002, Dt. Of Pronouncement: 26th July 2013
CENVAT - on date of payment of duty position in law was that appellant could have utilized credit earned upto 15.8.2000 - utilizing credit earned on 16th & 17th tantamount to advance utilization - interest payable: CESTAT
-- By TIOL News Service
MUMBAI, DEC 07, 2013: CLAUSE (b) in sub-rule (1) of Rule 57AB of CER, 1944 read thus -
"(b) The CENVAT credit may be utilized for payment of any duty of excise on any final products manufactured by the manufacturer or for payment of duty on inputs or capital goods themselves if such inputs are removed as such or after being partially processed, or such capital goods are removed as such."
Notification No. 48/2000-CE(NT) dated 18.8.2000 inserted the following proviso in clause (b) of sub-rule (1) of Rule 57AB:-
"Provided that while paying duty in the manner specified under sub-rule (1) of rule 49 or sub-rule (1) of rule 173G, as the case may be, the CENVAT credit shall be utilised only to the extent such credit is available on the fifteenth day of a month for payment of duty relating to the first fortnight of the month, and the last day of a month for payment of duty relating to the second fortnight of the month or in case of a manufacturer availing exemption by notification based on value of clearances in a financial year, for payment of duty relating to the entire month."
Incidentally, as per rule 173G of the erstwhile CER, 1944, the following was the procedure to be adopted by an assessee (other than a unit availing SSI exemption) while discharging duty liability in respect of clearance of excisable goods -
i. during the first fortnight of the month, by the twentieth day of that month;ii. during the second fortnight of the month, other than the month of March, by the fifth day of the succeeding month, andiii. during the second fortnight of March, by the 31 st day of the said March
In the present case, the assessee, a large scale unit, was required to discharge duty for the first fortnight by the twentieth of that month.
As per the amendment made to rule 57AB w.e.f. 18.8.2000, the assessee could utilize CENVAT Credit accrued upto 15 th of the month in respect of payment of duty for the first fortnight of the month.
The appellant had a balance of Rs.55,55,632/-on 15.8.2000. However, they utilized CENVAT Credit amounting to Rs.83,18,044/- for payment of duty for the first fortnight of August,2000. Thus, there was an excess utilization to the extent of Rs.27,62,412/-.
The adjudicating authority vide the impugned order held that the appellant is not eligible to utilize this excess credit for payment of duty for the first fortnight of the August, 2000 and appropriated the amount paid subsequently by the appellant and ordered recovery of interest @24% per annum on the said credit wrongly taken and also imposed penalty of Rs.5 lakhs on the appellant under Rule 173Q of Central Excise Rules, 1944.
The appellant is before the CESTAT.
It is inter alia submitted that amendment made by notification 48/2000-CE(NT) is effective only prospectively inasmuch as whatever credit had accrued prior to 18.8.2000 i.e. on 16 th & 17 th August,2000 could be utilized by the appellant for payment of duty for the first fortnight of August, 2000. Reliance is also placed on the decision in Agni Steels 2005(183)ELT35(T) .
The Revenue representative justified the order of the Commissioner.
The Bench observed -
+ In the present case, the appellant discharged the excise duty liability on 19.8.2000 i.e. after the amendment of Rule 57AB. Therefore, on the date of payment of duty i.e. on 19.8.2000 the position in law was that the appellant could have utilized credit earned upto 15.8.2000 for the payment of duty for the first fortnight of August, 2000 and, therefore, the adjudicating authority is correct in concluding that the appellant was not eligible for the credit earned on16th & 17th August, 2000 for payment of duty for the first fortnight of the month.+ However, this amounts to only advance utilization of credit, inasmuch as there is no dispute that the appellant was entitled for the credit taken on 16th & 17th of August. For such advance utilization of credit, the appellant shall be liable to pay only interest on the credit utilized the credit earned on 16 th & 17 August, 2000 for payment of duty w.e.f. from 1.9.2000 onwards.+ As the appellant has utilized the credit on 19.8.2000, the appellant is liable to pay interest on the wrong utilization for the period from 19.8.2000 to 31.8.2000. Since the rule provides for payment of interest @ 24%, the said rule shall apply. Therefore, the confirmation of interest for the period 19.8.2000 to 31.8.2000 is sustainable in law.+ Since this is a case concerning interpretation of law, no penalty is warranted.
The appeal was disposed of in above terms.
Excise & Customs : Hamali Charges, which were post-manufacturing expenses incurred after removal of goods from factory, cannot be included in value of yarn for levy of excise duty
■■■
CESTAT, AHMEDABAD BENCH
Commissioner of Central Excise, Surat
v.
Rama Crimpers (P.) Ltd.*
MS. ARCHANA WADHWA, JUDICIAL MEMBER
AND DR. P. BABU, TECHNICAL MEMBER
AND DR. P. BABU, TECHNICAL MEMBER
FINAL ORDER NO. A/1256/2011-WZB/AHD
APPEAL NO. E/ 2921 / 2006
APPEAL NO. E/ 2921 / 2006
JUNE 22, 2011
Section 4 of the Central Excise Act, 1944 - Valuation under Central Excise - Transaction Value - Hamali Charges - Assessee was engaged in manufacture of yarn and was collecting 'Hamali Charges' from customers - Assessee did not pay excise duty thereon, while department sought inclusion thereof in value - HELD : Hamali Charges were merely labour charges which were post-manufacturing expenses incurred after removal of goods from factory - Hence, in view of judgment in Union of India v. International Ltd. v. Bombay Tyre International Ltd. 1983 (14) ELT 1896 (SC), said charges were not includible in assessable value [Paras 3 and 4] [In favour of assessee]
CASE REVEIW
Union of India v. Bombay Tyre International Ltd.1983 (14) ELT 1896 (SC) (para 3) followed.
CASES REFERRED TO
Union of India v. Bombay Tyre International Ltd.1983 (14) ELT 1896 (SC) (para 1)
R.S. Sangia for the Appellant.
ORDER
Dr. P. Babu, Technical Member - For the issues cited the facts precisely are as follows :
M/s. Rama Crimpers Pvt. Ltd. were manufacturing texturised yarn and was issued with a show-cause notice for differential duty of Rs. 56,780/- on the extra sum collected by them as "Hamali Charges" from their customers. The original adjudicating authority confirmed the demand and imposed penalties under various provisions. The assessee went in appeal and Commissioner (Appeals) allowed the appeal setting aside the Order in-Original. Commissioner, Surat-II filed an appeal against this order for setting aside the order of the Commissioner (Appeals) on the following grounds:
| 1. | That Commissioner (Appeals) has not cited any decision in support of his view. | |
| 2. | That it is a settled legal possession that Hamali Charges are includable in the assessable value as held by the Apex Court in Union of India v.Bombay Tyre International Ltd.1983 (14) ELT 1896 (SC)] |
2. We have gone through the case records and various submissions of the assessee as well as the Revenue. Commissioner (Appeals) has discussed in detail on the issue of undervaluation as could be seen at paras 12, 13 & 14 of the order. It was pointed out by the Revenue that the Hamali Charges are includable in the assessable value applying the ratio of judgment of the Apex Court in Bombay Tyre International Ltd. (supra)
3. However, going by facts we are of the view that Hamali Charges are merely the labour charges which are paid and to be held as post-manufacturing expenses. These charges undoubtedly are incurred after removal of the goods from the factory premises. In any case, the Revenue has not adduced any evidence to show it otherwise. The oft quoted judgment in the case of Bombay Tyre International Ltd. (supra) makes it clear that this is an eligible deduction. The relevant portion is as below :
'The new section 4 provides by sub-section (2) that where the price of excisable goods for delivery at the place of removal is not known and the value is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery has to be excluded from such price. The new section 4 also contains sub-section (4)(d)(ii) which declares that the expression "value" in relation to any excisable goods, does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale. Now these are clear provisions expressly providing for deduction, from the price, of certain items of expenditure. But learned counsel for the assessees contend that besides the heads so specified a proper construction of the section does not prohibit the deduction of other categories of post-manufacturing expenses. It is also urged that although the new section 4(4)(d)(i) declares that in computing the "value" of an excisable article, the cost of packing shall be included, the provision should be construed as confined to primary packing and as not extending to secondary packing. The heads under which the claim to deduction is made are detailed below :
| (1) | Storage charges. | |
| (2) | Freight or other transport charges, whether specific or equalised. | |
| (3) | Outward handling charges, whether specific or equalised. | |
| (4) | Interest on inventories (stocks carried by the manufacturer after clearance). | |
| (5) | Charges for other services after delivery to the buyer. | |
| (6) | Insurance after the goods have left the factory gate. | |
| (7) | Packing charges. | |
| (8) | Marketing and Selling Organisation expenses, including advertisement and publicity expenses.' |
The outward handling charges which may fall under SI. No. (3) above finally, have to be deducted. Inevitably the legal provisions do not support the Revenue's contention that Hamali Charges are to be considered as manufacturing expenses providing it as a part of assessable value.
4. The obvious inference is that the Hamali Charges are not part of assessable value and therefore demand is not sustainable. The question of imposing penalties under various provisions also is not sustainable. The appeal filed by the Revenue is rejected accordingly.
VINEETIn favour of assessee.
Indian VAT mess should hasten introduction of GST: CII-E&Y Report
By TIOL News Service
NEW DELHI, DEC 08, 2013: THE Confederation of Indian Industry (CII) and Ernst & Young have jointly made a strong case for prompt and efficient introduction of goods and service tax (GST) in India by focusing on the degeneration of value-added tax (VAT) into a messy system.
In a While Paper captioned 'Evolving global tax policy trends: Outlook for India', the duo notes: "The introduction of VAT and the experience in the last eight years should have given us a simple robust and consistent tax regime with a broad base, low rates, ease of compliance resulting in increased revenues - a virtuous circle." It says: "Unfortunately, the unraveling of VAT system experienced over the past few years, has recreated the vicious circle of narrow tax base, high tax rates, low compliance and reduced revenues. Without harmonization across the states, VAT in India has become complex."
As put by the Paper, this further underlines the urgency for GST with a broad base, harmonization and reasonable rates to simplify the tax regime, remove cascading and create a common market leading to increased competitiveness and growth.
When VAT was introduced in 2005, the new regime did attempt a very substantial harmonization across states. It provided for uniform tax rates and base, an input tax credit system to prevent "tax-on-tax," and common/streamlined policies and procedures for compliance.
It has now degenerated into a tax maze of 30 plus VAT regimes due to numerous deviations from this harmonized model since its inception.
According to the Paper, "The return forms, annexures to return forms, tax payment due dates, are all different for different states. Complying with these different systems has become a nightmare for the industry and even automation has failed to provide the requisite relief. Such is the level of complexities that for some large businesses, even world class ERP systems are not fully successful in automating VAT compliance."
Even the definitions in the VAT laws vary across states. A case in point is the definition of capital goods for input tax credit purposes. Capital assets in Maharashtra have the same meaning as under the Income Tax Act, 1961. In contrast, Gujarat defines capital goods to mean plant and machinery meant for use in manufacture and such other goods, as may be notified by the State Government from time to time. It is therefore, possible for a product to be a capital asset in Maharashtra, which may or may not be the case in Gujarat.
Even the basis of levying the tax is different in different states. For example, in the case of a dealer engaged in sale of imported goods in Delhi, the taxable value of VAT is the higher of the sale price agreed with the customer or the import price on which the customs duty has been paid. This is a complete deviation from the transaction value concept, which was meant to be the basis for all transactions.
Internationally, VAT is payable on the value agreed to be paid by the buyer to the seller irrespective of the cost of purchase, manufacture, or the import price.
Furthermore there are inconsistencies in classifying a specific product under various VAT laws; this issue is compounded by the fact that unlike excise and customs, VAT laws do not follow any structured classification nomenclature. Some states have attempted albeit with little success. This has led to litigation in various states besides ending up with varying rates of taxes. Moreover, from a perspective of tax base, various states have their own versions of exclusions/inclusions in the taxable value, e.g., freight, insurance, service tax etc., being either part of VAT base or otherwise.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
No comments:
Post a Comment