Transfer Pricing—Computation of Arms' Length Price
BOMBAY TRIBUNAL
Transfer Pricing—Computation of Arms' Length Price—Transfer pricing Adjustment—Selection of Comparable—Assessee was in business of providing Information Technology Enabled Services and operations and back end operations—Return of income for year under consideration was filed by Assessee that was selected for scrutiny assessment—Assessee was registered under Software Technology Parks of India Scheme—Assessee company was captive unit of 'X' group in India and performed broad range of back end operations for 'Y' company, that included actuarial finance and information technology support operation—AO referred Assessee's return to TPO for issue regarding transfer pricing—TPO found that Assessee was engaged in providing Information Technology Enabled Services (ITES)— TPO noticed that search process of Assessee did not capture many market players close to functions of company—Secondly, as industry segment was having very positive growth including Assessee, inclusion of heavy loss making companies did not reflect actual scenario prevailing—TPO listed 21 comparables average of which was determined at 29.25%—Comparables used by Assessee were totally rejected and adjustments were made—Held, first company as per the audit report had acquired UK based 'X' company—That acquisition was consistent with company's strategy of looking for inorganic growth via "bolt on" acquisitions which fit well with existing strengths of company—'X' company had also given company an entry platform into new vertical-travel and hospitality, besides consolidating company's position in retail and manufacturing space—Amount to extraordinary event carried on my irst comparable made first company non comparable—Extraordinary event had taken place in case of first comparable that excluded it from list of comparable—Scheme of arrangement involving amalgamation had been made between second comparable, which was Transferor Company and 'Y', which was Transferred company and demerger between MTL—Business and assets and liabilities of comparable company stood transferred to and vested in 'Y'—That was definitely extraordinary event which made second company excluded from final list of comparables on similar lines as discussed by us in first company's case—Assessee's ALP fits within ±5% range—Assessee's Appeal partly allowed.
IT : Where there was no monetary transaction between assessee and cr
IT : Where assessee had accepted loan by way of pay order, since after name of payee in pay order word 'only' was used, same became equivalent to account payee cheque being payable to person named; thus, penalty levied under section 271E was not justified
IT : Firm and partners are not two different persons, payment made by a partner to a firm will not partake of character of a loan or deposit, provisions of section 269SS will not be applicable
IT : Where acceptance of cash by husband from his wife cannot be construed as a loan or advance under section 269SS
[2015] 60 taxmann.com 407 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'C'
Assistant Commissioner of Income-tax
v.
Vardaan Fashion
POWERS OF INCOME TAX APPELLATE TRIBUNAL
Section 253 of the Income Tax Act, 1961 provides for filing appeal against the order of lower authorities before the Income Tax Appellate Tribunal. Section 254 provides for the issue of orders by the Appellate Tribunal. The Income Tax (Appellate Tribunal) Rulings, 1963 gives the procedure to be adopted by the Tribunal while dealing with the appeal filed before it. The rules gives various powers to the Tribunal. Section 254 of the Act provides the power to the Tribunal rectify the mistake. Rule 24 gives powers to the Tribunal to pass ex-parte order. Rule 28 gives powers to the Tribunal to remand the case. The various powers of the Tribunal are discussed in this article with reference to decided case laws.
Powers of rectification
In 'Commissioner of Income Tax V. Earnest Exports Limited' – 2010 (2) TMI 261 - BOMBAY HIGH COURT it was held that the power of rectification under Section 254 (2) is confined to merely rectification of a mistake apparent on record. It does not empower the Tribunal at the stage of deciding the application under Section 254 (2) to substitute its view for the view taken in the order sought to be rectified. The Court further held that the scope of Sec. 254 (2) is only to correct the mistake errors apparent on the facts of the record and it does not contemplate giving a fresh decision on the merits by substituting the earlier view.
Second application for rectification
In 'Commissioner of Income Tax V. Pearl Woollen' – 2009 (11) TMI 48 - PUNJAB AND HARYANA HIGH COURT the Tribunal has dismissed the first application for rectification against an order which had restored addition at the instance of the Department but admitted a second application and deleted the addition. The Department questioned the validity of the second order. The High Court held that the Tribunal cannot readjudicate the matter having once decided on the matter of rectification. Even otherwise an application for a review of decision could not fall within the purview of powers under Section 254 of the Act.
Admitting new plea
In 'Commissioner of Income Tax V. Hindustan Tin Works Limited' –2009 (2) TMI 481 - Delhi High Court it was held that the Tribunal cannot entertain a new plea which had not been raised before the lower authorities. In this case the claim of loss in purchase and redemption of units in mutual funds was not allowed on the ground that it was not the assessee's los, but merely an accommodation entry, which was collusive and could not, therefore, be accepted as genuine. It was during the assessee's appeal before the Tribunal that a further question relating to Section 1 4A of the Act was sought to be raised by the Revenue unsuccessfully, though it was not raised before the lower authorities. The High Court upheld the decision of the Tribunal.
Power to admit new questions
The Tribunal has powers to allow new questions to be raised. But when the new question related to validity of service, it is a matter which cannot be raised for the first time before the Tribunal though the assessment related to a year earlier to the insertion of Section 292BB of the Act. The High Court in 'Aravali Engineer P. Limited V. Commissioner of Income Tax' – 2010 (12) TMI 750 - PUNJAB AND HARYANA HIGH COURT felt that the Section supports the view though not applicable during the year, since it is still a matter, which could not fall under the discretion of the Tribunal. Probably such an argument could be shut out even on the ground that it would require examination of facts not on record.
Recall of the order
The question of recall of the order by the Tribunal may not ordinarily arise. But where there is a mistake, which goes to the root of the matter and the mistake is best rectified by total recall of the order, it should be understood as falling within the power of the Tribunal. In 'Lackmann Dass Bhatia Hingwala (P) Limited V. Assistant Commissioner of Income Tax' – 2010 (12) TMI 105 - DELHI HIGH COURT the Tribunal recalled the order at the instance of the Revenue. The High Court held that such recall was considered justified in the facts of the case after the review of the entire case law on the subject.
In 'K.K. Ravindran V. ITAT' – 2010 (7) TMI 564 - Orissa High Court the Tribunal has deleted an addition of ₹ 17 lakhs as undisclosed investment with reference to the valuation of property on the basis of District Valuation Officer's report on the ground that the valuation was not based upon any material. But later the Tribunal recalled the entire order on a miscellaneous petition filed by the Revenue in the view that the alternative argument for adoption of a fair value instead of what was adopted in the assessment would require consideration. However even the issue was whether the recall would fall within the scope of Section 254. There was no error in the face of the record. If the Revenue was aggrieved by the order, the proper course is to file an appeal against the same. The High Court quashed the order of the Tribunal as it was beyond the scope and ambit of Section 254.
In 'Commissioner of Income Tax V. Satpal Pandit & Co' – 2010 (9) TMI 837 - Punjab and Haryana High Court the assessment was annulled in first appeal on grounds of limitation, which was upheld by the Tribunal but reversed by the High Court. The High Court remanded the matter to the Tribunal. The assessee filed a petition for rectification on the ground that the assessee's other grounds, objections to the assessment in the first appeal had not been considered. On such objection, the order was recalled by the Tribunal and the case was posted for deciding the matters which were not considered. The Department went in appeal against the order of recall. The High Court pointed out that the Commissioner (Appeals) had not touched upon the additions made by the Assessing Officer, so that the issue on merits could not have been decided by the Tribunal. The High Court felt that the order of the Tribunal recalling the order could not be interfered with, so that on revival of the appeal, justice could be done to both the parties by remitting the matter on merits also to the Commissioner (Appeals).
Power of remand
The power of remand is a necessary adjunct to the powers of an appellate authority for obtaining all the relevant information for a fast conclusion. In 'Commissioner of Income Tax V. Mira S. Khurana' – 2010 (4) TMI 745 - Gujarat High Court the gift was said to have been received from an unrelated nonresident with no supporting material as to the financial capacity of the donor with hardly any acquittance with the donor except during a short visit to Dubai with gift being ₹ 10 lakhs allegedly made with two years of such visit. From the facts, it was held that there could be no occasion for inference that all necessary materials on record were not sufficient for a conclusion so as to require a remand. The appeal was restored to the Tribunal for a decision after hearing the appeal. The High Court held that the order of remand by the Tribunal was held to be unjustified.
In 'Satnam Singh V. Commissioner of Income tax' – 2009 (10) TMI 599 - Punjab and Haryana High Court the Assessing Officer issued a notice under Section 148 of the Act. Since service could not be effected in normal course, the notice was served by affixation at the last known residential address of the assessee. Thereafter the assessment was made. On appeal the Commissioner (Appeals) accepted the explanation of the assessee. The Tribunal held that the affixation was not in the presence of two persons and this notice was bad. The Tribunal remanded the matter to the Assessing Officer for passing a fresh order. The High Court held that the Commissioner (Appeals) having set aside the reassessment on merits, the Tribunal was required to adjudicate upon the issue on the merits. There was no justification for remanding the matter.
Power to re-open an ex-parte order
Rule 24 of Income Tax Appellate Tribunal Rules, 1963 provides for an ex-parte order for default of appearance on the part of the assessee. Rule 24 has a proviso which requires re-opening the matter on a representation by the appellant that his non appearance was due to sufficient cause. In 'Devendra G. Pasal V. Assistant Commissioner of Income Tax' – 2010 (10) TMI 256 - Gujarat High Court the assessee's reason for non appearance was his belief that his request for posting at ensuing Baroda camp would be considered, so that there would be no need for appearance earlier. In support of his bona fide an affidavit from a Chartered Accountant was filed and the matter was represented by an Advocate in the matter of petition for restoring the appeal. The Tribunal declined to accept the affidavit of Chartered Accountant on the ground that no power of attorney was filed and the explanation of the Advocate was not accepted on the ground that the assessee being aware that there was no positive response for his application before the date of hearing, should have presented himself so that there was no excuse of non appearance. The Tribunal also noted that the application for posting at Baroda had been rejected by the Vice President which was not known either to the appellant or to the Bench at the relevant time. The High Court found that the averments made in the application for restoration have not been considered and the finding of the Tribunal is contrary to record, since it has not considered the assessee's application for hearing at Baroda. The High Court described the approach of the Tribunal as prompted by 'hyper technical approach' and directed the acceptance of misc. application restoring the appeals preferred by the appellant.
In 'Jagjivaridas Nandlal & Co. V. ITAT' – 2010 (10) TMI 574 - Bombay High Court the High Court observed that the ex-parte order was passed by the Tribunal on factually wrong interference of proper service so that they had been breach of the principles of Natural Justice in passing the order without hearing the assessee and that a decision rendered behind the back of the assessee or his Advocate cannot be sustained. The Tribunal's order has generated litigation, which should have been avoided.
Powers restricted to issues before it
In 'S.A. Rahim V. Commissioner of Income Tax' – 2010 (8) TMI 624 - Andhra Pradesh High Court the High Court found that the matter decided by the Tribunal was beyond its jurisdiction on a matter which was not before it so that the orders of the Tribunal were set aside and appeals allowed.
By: Mr. M. GOVINDARAJAN
GST 34(2)
SUBJECT INDEX TO CASES REPORTED IN THIS PART
SUPREME COURTS
Excise duty --Assessee-- Definition- -Does not include legal heirs of deceased assessee--Recovery of duty--Not permissible from legal heirs of deceased assessee--Central Excise Act, 1944, s. 4(4)(a)-- Shabina Abraham v . Collector of Central Excise and Customs . . . 146
----Assessment- -Death of assessee--No provisions for continuing assessment proceedings against dead person--Legal heirs not persons chargeable to duty--Provisions relating to evasion of tax not relevant--Central Excise Act, 1944, ss. 11, 11A-- Shabina Abraham v .Collector of Central Excise and Customs . . . 146
----Classification of goods--Ketoconazole shampoo and Nizral shampoo--Product used only as medicament for curing dandruff, sold by chemist under prescription by registered medical practitioner or hospital and not used for purpose of cleaning hair--Classifiable as medicament under sub-heading 3003 10--Central Excise Tariff Act, 1985, sub-heading 3003 10--Central Excise Act, 1944, ss. 4A, 11A-- CCE v . Sarvotham Care Ltd. . . . 84
Interpretation of taxing statutes --Principles of morality not relevant-- Shabina Abraham v .Collector of Central Excise and Customs . . . 146
AUTHORITY FOR ADVANCE RULINGS
Service tax --Cenvat credit--Capital goods--Transport of gas through pipeline--Pipes and valves falling under definition of "capital goods" continue to be capital goods even after embedded in earth--Cenvat Credit Rules, 2004, r. 2(a)-- GSPL India Transco Ltd., In re . . . 101
----Cenvat credit--Goods whether "capital goods"- -Time of receipt of goods relevant for determination, not subsequent date-- GSPL India Transco Ltd., In re
. . . 101
----Cenvat credit--Transport of gas through pipeline--Service provider awarding engineering, procurement and construction contract for both supply of pipes and valves and laying pipelines--Direct shipment by manufacturer to service provider of pipes and valves purchased by contractor-- Claim by service provider of Cenvat credit of excise duty paid on pipes and valves--Cannot be allowed unless contractor registered dealer under Central Excise Act--Finance Act, 1994--Cenvat Credit Rules, 2004, rr. 2(ij), 9-- GSPL India Transco Ltd. , In re . . . 101
HIGH COURTS
Excise duty --Settlement Commission-- Settlement of cases--Procedures for allowing application- -Composite show-cause notice--Splitting of issues--Contested issue relating to inadmissible Cenvat credit not placed before Commission-- Not a ground for rejecting application at threshold--Commissi on, while faulting assessee, ought not to decide some issues on merits--Case pertaining to show-cause notice--Commission could not have refused to entertain application- -Central Excise Act, 1944, s. 32F-- JSK Industries P. Ltd. v .Union of India (Bom) . . . 118
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
Excise duty --Charge of duty--Manufacture- -Process of cutting and slitting of various sizes of paper from roll purchased from paper manufacturing unit--Not manufacture- -Central Excise Act, 1944, s. 2(f)-- CCE v . Navneet Publications (I) Ltd .
(Trib.-Mum) . . . 143
I-T - Whether distribution network and brand usage fall within categ
MUMBAI : THE issue before the Bench is - Whether distribution network and brand usage fall within the category of 'commercial rights', so as to entitle the assessee claim depreciation on them u/s 32(1)(ii). YES is the answer.
Facts of the case
A) The assessee company is engaged in the business of manufacturing of chemicals. It had filed the returns for A.Ys 2007-08 and 2009-10 at Rs. 14,77,25,342/ - and Rs. 53,97,90,433/ - respectively. During assessment, the AO found that the assessee had claimed Rs.12.07 crores under the head depreciation on Material Supply Contract (MSC) and on Distribution Network (DN) and Rs. 6.25 crores under the head Brand Uses Expenses (BUE). He directed the assessee to explain as to why the above referred claim should be allowed as revenue expenditure. The assessee in its reply stated that Huntsman Group took global acquisition of the textile effects of CIBA Speciality Chemical Group, that the group operated in India through its Indian companies namely CIBA Speciality Chemicals (I) Ltd. CIBA-India, and Diamond Dye-chem Ltd. (DDCL), and that the assessee entered into an agreement with CIBA-India and DDCL for acquiring the textile business effect assets on a slump sale basis. The assessee also entered into toll manufacturing agreement and had recorded fixed assets and intangible assets at fair value as determined by an independent valuer. As per the agreement, the assessee was granted non exclusive irrevocable and royalty fee licence to use trademarks, domain name for a period of 24 months. The assessee however contended that payment was made for using the brand for only a short period and the benefit accruing to the assessee from such payment for use of brand was transit in nature. With regard to MSC, it was stated that on acquisition of textile effect business the manufacturing facilities of DDCL were not transferred to the assessee, and that in order to protect its business interest it entered into an MSC with DDCL to ensure consistency in quality and quantity of the textile chemicals, that the MSC was a business/commercial right and was similar to know how, patents, copy rights, trade marks licences and franchisees. the assessee contended that MSC was an intangible asset in terms of section 32(1)(ii) and was eligible for depreciation @ 25%.
To enquire into the genuineness of the claim of the assessee, the AO called for information from DDCL and CIBA India u/s 131 and directed them to furnish details of written down value (WDV) of all the blocks of assets transferred to the assessee and also a copy of the report prepared by an accountant in accordance with the provisions of section 50B. On perusal of the same, he found that no intangible assets were transferred to the assessee on account of slump sale. Therefore, a show cause notice was issued to the assessee calling for explanation/ justification for claim of Rs.18.42 crores as depreciation. After considering the submission of assessee, the AO held that the assessee had not incurred any expense on brand use, that the notional value ascribed by the valuer was on the basis of future estimated sales, and that there was no existence of any brand uses right at the time of transfer, that the transferor had admitted that the asset as a brand uses was not in existence at the time of transfer, that the claim of the assessee that an amount of Rs.6.25 crores should be allowed as revenue expenditure was legally untenable. The AO was also of the opinion that the alternative claim of the assessee to allow depreciation u/s.32(1)(ii) was not acceptable, as even if there were asset like MSC, DN and brand uses right as an intangible asset the assessee was not eligible for claim of depreciation as the same were not akin to the assets defined in the provision like knowhow, patents and copyrights.
B) The AO during the assessment found that the assessee had shown international transactions with its AEs and accordingly made a reference to the TPO for determining ALP of such transactions. With reference to the direction of the TPO, the assessee submitted the nature of types of service availed from its AEs for payment for its corporate service charges. The TPO asked the assessee as to why CUP method should not be applied to benchmark the international transaction. In its reply the assessee stated that during the year under consideration it had not entered into similar transaction with third parties as that of its AE.s, that nor had its AE.s entered into similar comparable transaction with third parties during the year, that no information on CUP was available for comparing the transaction entered into by the company with its AE.s. It also explained the nature of services and contended that the services availed by it from its AE.s were essential to the business of the company and did not constitute share holder/stewardship activities of the AE, that the AE possessed the requisite skill sets. The assessee also submitted the segmental profitability of manufacturing, trading and indent business of the PU division. However, the TPO proposed to reject the segmental profitability statement and proposed to reallocate the expenses and to adopt the revised profitability for the purposes of bench marking. Besides, the TPO objected to the use of multiple year data for the purposes of comparability and proposed an adjustment of Rs.11,44,72, 502/-. These adjustment were proposed for manufacturing segment of Polyurethenes Unit (PU) of Rs.6.81 crores and disallowance of corporate service charges for Textile Effect Unit (TEU) of Rs.4.62 crores. On appeal, the DRP upheld the order of TPO.
Having heard the parties, the Tribunal held that,
Depreciation vis-a-vis slump sale
++ it is seen that the Supreme Court in the case of Smifs Securities has held that a reading of the words any other business or commercial rights of similar nature in clause (b) of Explanation 3 to section 32(1) indicates that goodwill would fall under the expression. The principle of ejusdem generis would strictly apply while interpreting the expression which finds place in Explanation 3(b), that Goodwill is an asset under Explanation 3(b) to section 32(1). In the matter of Raveendra Pillai the Kerala High Court has deliberated upon the facts of the case and allowability of depreciation on intangible assets. The High Court therein has held that depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1), but on the intangible assets specifically enumerated in clause (ii) and such of the other business or commercial rights similar to the items specifically covered therein. It is found that the present assessee had acquired Textile Effect (TE) Business from CIBA-India and DDCL as a going concern on a slump sale basis, and that manufacturing facilities of both the entities were not transferred as part of slump sale. Further, as a part of slump sale the entire distribution channel was handed over to the assessee including the customer, dealers, marketing people, marketing plans, laboratory, supply-chain and the warehouses, and that the services of textile effects employees was transferred to the assessee. It is further noted that it had entered into agreement with CIBA-India and DDCL for material supply and for supply of chemical products to the newly acquired TE business;
++ in case of a slump sale, generally no separate value is assigned to each and every asset by the transferor and the party taking over the assets assign specific values to the acquired assets. In the case before us, the assessee had obtained a valuation report from an expert and on the basis of that report had recorded the value of the tangible and intangible assets in the books of account. We find that in the valuation report the valuer had assigned value to MSC, DN and Brand uses, that the AO/DRP has not brought anything on record to disprove the correctness of the valuer. As far as the entries in the balance sheet of CIBA-India and DDCL is concerned, in our opinion same are not decisive factors. What has to be seen in case of a slump sale is the treatment given by the assessee in its books of account to the assets acquired and as to whether the valuation is based on some scientific basis.The assessee had entered into agreements for a period of five years with CIBA India and DDCL and because of the agreements the products manufactured by both the entities were made available at cost to the assessee, the assessee was granted nonexclusive, irrevocable, royalty free license to use trade-marks, domain names for a period of two years. Not only that the assessee got the distribution network, it has got valuable business/commercial rights. Therefore, we are of the opinion that by entering into MCS and getting distribution network,the assessee had acquired business/commercial rights that were of the similar nature as mentioned u/s 32(1)(ii). Same is the case about use of brand name. We are therefore of the opinion that by relying upon the valuation report of an expert the assessee had not contravened any of the provisions of the Act. We have already held that business right, distribution network and brand usage fall in the same category of commercial rights mentioned u/s 32. Therefore, we hold that assessee was entitled to claim depreciation on the intangible assets;
TP adjustment
++ it is found that while filing objection before the DRP the assessee had raised various issues. The assessee had requested the DRP to admit additional evidence as per provisions of the DRP Rules. But, the DRP has not mentioned anything in its order about the issue raised by the assessee and the documents submitted. In our opinion, it was duty of the DRP to reject or accept the additional evidence produced by the assessee once same were filed before it. Secondly, the grounds of appeal relating to TP adjustment was not decided. A glance at the order of the DRP shows that the order is a non speaking order and it has not given any reasons for arriving at its conclusion. It is noted that the DRP talks of failure of the assessee to submit 'even a single evidence' to prove that it had received any services from its AE in lieu of which the payment was made to the AE 'in spite of being given a number of opportunities by the TPO'. We find that DRP has not mentioned anything about the documents submitted by the assessee. The assessee has specifically alleged that the directions of the DRP were also not carried out. The DRP also mentions that the TPO had rightly rejected the TP Study but reasons have not been given for agreeing with the views of the TPO especially when the assessee had made extensive submissions stating that as how the stand taken by the TPO was flawed. The DRP has also endorsed the views of the TPO in a very mechanical way without giving any reasoned finding on the arguments taken by the assessee. Therefore, the matter is remitted back to the file of the DRP to adjudicate the issues raised by the assessee by passing a speaking and reasoned order.
(See 2015-TIOL-1393- ITAT-MUM)
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2015-TIOL-1868- CESTAT-MUM
Mahanagar Gas Ltd Vs CCE
CX - s.35C of CEA, 1944 - Applications filed for extension of stay beyond the period of 365 days - Issue of competency of Tribunal has been considered by LB of Tribunal in the case of Haldiram India Pvt. Ltd. - 2014-TIOL-1965- CESTAT-DEL where it is held that in case the pendency of the appeals are not due to any omission or commission on the part of the appellant stay can be extended even beyond the period of 365 days - following the LB decision, applications allowed: CESTAT [para 2, 3] - Applications allowed : MUMBAI CESTAT
2015-TIOL-1867- CESTAT-BANG
M/s Sudha Engineering Works Vs CCE, C & ST
Central Excise - Duty liability - Proprietary concern - Demise of proprietor - Recovery from successor to business - Appellant not challenging duty/interest element but imposition of penalty - On demise of proprietor business was temporarily suspended and legal heir apparent later on surrendered Excise registration certificate - Unit re-registered thereafter under same business name by deceased wife - Records show that goods were cleared on paper transactions and all the documents were properly maintained - Further more, the unit did not avail any benefit of Cenvat credit or duty paid on the inputs and used in the manufacture of exempted goods - Bonafides cannot be doubted - No malafides can be attributed to evade duty - Penalty set aside giving benefit of doubt - Duty and interest confirmed. (Para 3) - Assessee appeal partly allowed : BANGALORE CESTAT
2015-TIOL-1866- CESTAT-AHM
M/s Zest Packers Pvt Ltd Vs CCE
CX - Whether a manufacturer has option to suo motu avail the benefit of abatement of duty in respect of non-production of notified goods for a continuous period of 15 days or more under Rule 10 of said Rules 2010 - Proviso to Section 3A(3) of the Act, 1944 extended benefit to abate the duty calculated on a proportionate basis for non-production of goods during any continuous period of 15 days or more - Language of Rule 10, being clear and unambiguous, that manufacturer is entitled to calculate duty by reducing the amount on proportionate basis in case factory did not produce the goods during any continuous period of 15 days or more, provided an intimation was filed to Assistant Commissioner/ Deputy Commissioner of Central Excise - It is noticed that Allahabad High Court in case of Steel Industries of Hindustan Industrial Area held that abatement of closure period, depositing of duty was not a pre-condition for claiming it under Rule 96ZQ of erstwhile CER, 1944, which was discussed by Tribunal in case of Thakkar Tobacco Products Pvt.Ltd. & Others 2015-TIOL-690- CESTAT-AHM - Claim of abatement under Rule 10 has no relation to determination of Annual Capacity of Production under Rule 6(2) of said Rules 2010 and therefore, there is no question of challenging of order issued under Rule 6(2) of said Rules 2010, while availing abatement under Rule 10 - Appeal allowed: CESTAT - Appeals allowed : AHMEDABAD CESTAT
CUSTOMS SECTION
CIRCULAR
cuscir15_022
Delay in furnishing reply to the Queries raised by the Department- reg.
CASE LAWS
2015-TIOL-199- SC-CUS + Story
Mangalore Ref And Petrochemicals Ltd Vs CC
Customs - Valuation - Quantity or Price - Duty is payable on the quantity received in India, not the quantity exported from another country: It is clear that the levy of customs duty under Section 12 is only on goods imported into India. Goods are said to be imported into India when they are brought into India from a place outside India. Unless such goods are brought into India, the act of importation which triggers the levy does not take place. If the goods are pilferred after they are unloaded or lost or destroyed at any time before clearance for home consumption or deposit in a warehouse, the importer is not liable to pay the duty leviable on such goods. This is for the reason that the import of goods does not take place until they become part of the land mass of India and until the act of importation is complete which under Sections 13 and 23 happens only after an order for clearance for home consumption is made and/or an order permitting the deposit of goods in a warehouse is made. Under Section 23(2) the owner of the imported goods may also at any time before such orders have been made relinquish his title to the goods and shall not be liable to pay any duty thereon. In short, he may abandon the said goods even after they have physically landed at any port in India but before any of the aforesaid orders have been made. This again is for the good reason that the act of importation is only complete when goods are in the hands of the importer after they have been cleared either for home consumption or for deposit in a warehouse. Further, as per Section 47 of the Customs Act, the importer has to pay import duty only on goods that are entered for home consumption. Obviously, the quantity of goods imported will be the quantity of goods at the time they are entered for home consumption. - para 10 - Appeals allowed : SUPREME COURT OF INDIA
2015-TIOL-197- SC-CUS + Story
M/s Dr Reddy's Laboratories Vs CC
Customs - Classification - what was imported was "auto analysers" and not "photometers&q uot; - CESTAT Order Set aside: Without any analysis of whether the imported equipments were, in fact, auto analysers or were only photometers, the CESTAT went on to conclude that one can never come to a conclusion that a photometer is the same as an auto analyser. The learned Commissioner had held that a photometer is a generic expression and auto analysers are photometers with software installed in them which could then perform various operations. The CESTAT in finding this logic faulty has not given any reason for disregarding the same. It then goes on to say that the whole of paragraph 46 of the Commissioner&# 39;s order is irrelevant. In this paragraph the learned Commissioner referred to the Commissioners&# 39; Conference to arrive at the conclusion that since the process of analysis is automatic, though mixing of samples may be done manually, yet since analysis has to be done automatically, an analyser would fall under the expression "auto analysers" for enzymes, drug levels and biochemical investigations. This finding of the learned Commissioner was important in that the model BTS 370 which mixed both samples automatically and did the analysis automatically, was found by the customs authorities to fit the description of auto analyser. In holding that this paragraph is not at all relevant, the CESTAT does not seem to have come to grips with the real issue at all. - para 9 - Appeal Allowed : SUPREME COURT OF INDIA
2015-TIOL-1865- CESTAT-MAD
M/s Suj Impex Vs CC
Customs - Valuation - Appellant imported secondary / defective CRGO electrical sheet cuttings over the period Nov 1998 to Apr 2001, declaring progressively declining values - Revenue adopted uniform value across the entire period for assessment, confirmed differential duty demands with confiscation inter alia - same agitated herein.
Held: A statement recorded in one proceeding shall not be utilised against the author thereof in another proceeding - But here is a case, where the deposition throws light that the appellant himself submitted to the proceeding stating clearly that it made first import in 1998 and very elaborately explained the questionable modus operandi followed consciously misdeclaring the value bringing close proximity to the present proceedings as well as the case which was covered by appeal no. C/42271/2013 - in the absence of any contrary evidence to dispel the statement recorded in the case relating to appeal no. C/42271/2013, it is difficult to discard plea of Revenue that the deposition has bearing on the present case also - Customs officer not being a Police Officer, the statement recorded by him cannot be brushed aside in terms of the Apex Court ruling in the case of Romesh Chandra Mehta Vs State of West Bengal - Appellant brought out history of the imports and its collusion with the exporter to make under-valuation of imports so as to cover up its losses of past at the cost of Customs - The answer to question no.8 of the deposition recorded clearly brings out appellant' s malafide of under-valuing the goods in association with the exporter - Appellant having been unjustly enriched at the cost of Customs, levy of duty is confirmed even looking to the trend of the value declared by the appellant, which was higher in the year 1998 but significantly lower in the year 2001 against similar imports of future. [Para 5, 6]
So far as levy of penalty is concerned, when the authority found that there was deliberate misdeclaration due to collusion of the appellant and the exporter and appellant was enriched at the cost of Customs, he imposed penalty to the extent of equal amount of duty under Section 114A of the Customs Act, 1962 - In absence of bonafide of the appellant, it is not at all possible to interfere to that aspect of the adjudication; hence penalty imposed is confirmed - Redemption fine is waived. [Para 7 - 9] - Appeal partly allowed : CHENNAI CESTAT
2015-TIOL-1864- CESTAT-AHM
Kiran Ship Breaking Corpn Vs CC
Cus - Assessees imported two vessels for breaking purpose - Adjudicating Authority held that fuel oil, engine oil and ship stores, as spare parts, food stuffs and others, as per sub para (C) of CBEC Circular No. 37/96-Cus. should be classified separately under heading 89.08 and importer should pay differential amount of duty - Commissioner (A) proceeded on basis that subject bunker and stores were declared by master of vessel in the manifest, which was statutory document - No reason to interfere in order of Commissioner (A): CESTAT - Appeal rejected - AHMEDABAD CESTAT
RECENT CASE LAWS
2015-TIOL-1390- ITAT-MAD
M/s Blow Packaging (India) Pvt Ltd Vs ACIT
Whether the Department cannot treat two units as the same unit, merely because one unit is treated as branch unit for administrative convenience - YES: ITAT
Whether the Department is justified in rejecting the claim of the assessee u/s 80IB, on such ground - NO: ITAT - Assessee' s appeal allowed : CHENNAI ITAT
2015-TIOL-1389- ITAT-DEL
M/s Chemical Sales and Services Vs ITO
Whether interest-bearing funds given as non-interest bearing loan to one of the partners for the purpose of the business and on account of commercial expediency can be allowed. - Assessee' s Appeal Allowed : DELHI ITAT
Indirect Tax Basket
CENTRAL EXCISE SECTION
2015-TIOL-1862- CESTAT-MAD
Madras Aluminium Co Ltd Vs CCE
CX - CENVAT credit - Appellant 1 are manufacturers of Aluminium and Articles thereof; they availed credit on material supplied by Appellants 2 and 3 - credit was sought to be denied to Appellant 1 on the ground that suppliers had included the freight and insurance charges upto the point of delivery and passed on higher duty amount - demand for recovery with interest and penalty on Appellant 1 and penalties on Appellants 2 and 3 adjudicated, upheld by Commissioner (Appeals) in terms of the Tribunal ruling in the Guwahati Carbon case; and agitated commonly herein.
Held: High Court of Punjab & Haryana in their order dt.22.7.2010 in C.E.A.No.42 of 2010 upheld the Tribunal decision in the case of DCM Engg. Products - issue is identical and the input suppliers are also same, the ratio of the P & H High Court order is applicable to the facts of the present case; appellants correctly availed the credit and the demand on reversal of credit is not sustainable - Consequently, the imposition of equal penalty on the main appellant and imposition of penalty on Appellants 2 & 3 under Rule 13 of CCR does not survive - impugned orders are set aside. [Para 5, 6] - Appeals allowed : CHENNAI CESTAT
2015-TIOL-1861- CESTAT-MAD
M/s Emox Device Co Vs CCE & ST
Central Excise - Stay / dispensation of pre deposit - Valuation - applicants manufacture 'Electric Mosquito Destroyer Machine (EMD) on behalf of M/s. Godrej Consumer Products Ltd., as job worker and cleared to domestic market on payment of excise duty as per the MRP under Section 4A and also stock transferred the goods to their principal manufacturer for export on payment of excise duty under Section 4 on 110% as applicable - Revenue determined the value in terms of Rule 10A, 10A(2) of Valuation Rules by taking the price at which M/s. Godrej had paid duty; demanded differential duty,and imposed equivalent penalty under Section 11AC on the firms - same upheld by Commissioner (Appeals) and agitated herein.
Held: goods stock transferred are meant for export and the 2nd applicant on receipt of the goods after carrying out quality testing and other activities, exported the same on payment of duty at higher value which is not in dispute - The second applicant also claimed rebate on excise duty paid on the goods exported - On identical case against the second applicant (Godrej Consumer Products), the department disallowed the cenvat credit of duty paid on the finished goods cleared by the first applicant - Tribunal vide miscellaneous Order No. 41031/2014 dated 3.6.14, granted full waiver of pre-deposit on that appeal - Considering the same, as well as the fact that even if the applicant pays the differential duty, the 2nd applicant is entitled to the Cenvat credit, both the applicants made out a prima facie case for full waiver of pre deposit. [Para 4] - Stay granted : CHENNAI CESTAT
ST - Refund - It is seen that appellant had worked out and discharge
ST - Refund - It is seen that appellant had worked out and discharged ST liability considering amount recovered from their customers as cum-tax amount - if that be so, ST liability has been passed on to customers - unjust enrichment attracted: CESTAT
MUMBAI : THE appellant filed an application for refund of Rs. 4,20,49,912/ -. It is the case of the appellant that they are engaged in extraction of iron ores and during the period June, 2005 to May 2007 wrongly paid service tax under the category of 'Business Auxiliary Service' under pressure from the Revenue authorities.
The refund claim was rejected by the original authority.
The lower appellate authority agreed with the appellant on the question of non-taxability under Business Auxiliary Service but rejected the refund claim on the ground of unjust enrichment.
Before the CESTAT, the appellant submitted that service tax liability cannot be fastened under 'Business Auxiliary Services' prior to 01/06/2007, as recorded by the first appellate authority and Revenue is not in appeal against such an order. Further, service tax which has been wrongly paid by the appellant, though it is shown as expenses in PL account, the same is not recovered from their customers and question of unjust enrichment will not arise. Certificate of the Chartered Accountant is also produced as evidence. It is their further submission that the appellant had not collected the service tax from the customers and the invoices which are raised by the appellant showed only extraction charges and not service tax.
The AR submitted that the appellant has not been able to demonstrate that they have not recovered the amount of service tax from their customers; that although the appellant has claimed limitation will not apply in a situation where tax is recovered without authority of law, question of limitation would arise in this case as the appellant themselves have classified their services under BAS and discharged service tax liability.
The Bench observed -
+ It is undisputed that for the period in question, the appellant have discharged the service tax under 'Business Auxiliary Services' . On merits, the first appellate authority has held that for the period in question in this appeal, service tax liability does not arise under the category of 'Business Auxiliary Service' and there being no appeal from the revenue, this finding of the appellate authority is concluded in favour of the assessee.
+ We find from the records that the appellant had raised the bill on their customers which indicated that the same is for extraction of iron ore for the period in question. The said bill does not indicate any tax liability charged by the appellant.
+ It can be seen from the bill that the appellant has not charged any service tax separately but when the revenue authorities directed them to pay service tax under the category of 'Business Auxiliary Service' it is seen that the appellant had discharged service tax liability considering the amount recovered from their customers as cum-tax amount and worked out the service tax liability. This point is not disputed by the appellant in their appeal memorandum.
+ If that be so, it would mean that the amount which has been billed by the appellant to their customers and paid by their customers includes service tax liability and the same has to be held as being passed on to the customers.
+ On this factual matrix, we find that the certificate issued by the Chartered Accountant and relied upon heavily by the counsel may not carry the case of the appellant any further. There being no dispute as to the fact that the service tax liability has been discharged based upon working back from the amount which has been recovered from their customers, question of unjust enrichment arises and the appellant is not able to dislodge the presumptions and that they have recovered the amount of service tax from their customers. On this factual matrix, the appeal fails on the ground of unjust enrichment.
Holding that the first appellate authority' s order is correct and legal and does not suffer from any infirmity, the appeal was rejected.
(See 2015-TIOL-1872- CESTAT-MUM)
Income—Expenditure incurred in relation to income not includi
BOMBAY TRIBUNAL
Income—Expenditure incurred in relation to income not includible in total income—Assessee had earned dividend income which was claimed as exempt u/s 10(33)—AO had applied the provisions of Rule 8D of the Rules and computed a disallowance u/s 14A being expenditure related to the earning of such exempt income on account of interest expenditure as well as out of administrative expenditure—Regardingadministra tive expenditure, CIT(A) had set aside the action of the AO in computing such disallowance by application of clause (ii) of Rule 8D of the Rules and directed AO to determine disallowance on a reasonable basis as per the directions of the Bombay High Court in the case of AO to examine whether the investments made in mutual funds were out of non-interest bearing funds or not; and if the AO found it to be made out non-interest bearing funds, he has been further directed to exclude such investments in mutual funds from the total tax free investments as well as total assets for the purposes of calculation of interest disallowable in terms of clause (ii) of Rule 8D(2)— Regarding administrative expenditure also CIT(A) had rightly directed the AO to determine the disallowance on a reasonable basis following the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg—Revenue's appeal dismissed.
Stay—Outstanding demand—Assessee had filed a loss of r
CHENNAI TRIBUNAL
Stay—Outstanding demand—Assessee had filed a loss of return—Assessment was completed by the AO by making addition of 25 crores u/s 68 towards receipt of share application money through banking channel—AO had made certain additions/disallowa nces—By instant stay petitions, the assessee seeks stay of outstanding disputed demand of tax till the disposal of the appeal by the Tribunal—Held, since the assessee had neither made out a case to establish that there exists financial stringency to pay the outstanding demand by instalments nor had paid any amount so far towards demand no absolute stay was granted—Hence conditionalstay was granted
IT Act doesn't have any provision to make addition of notional interest on interest-free advances
September 4, 2015[2015] 60 taxmann.com 347 (Delhi)
IT : Where assessee-company gave interest-free advance to another company, in absence of any specific provision under Income-tax Act, notional interest income computed by Assessing Officer on said advance was to be deleted
 | Whether the subsistence allowance during the period of suspension of an employee of the bank should be paid by taking into account the increments which fell due during the period of suspension |
Court
High Court of Judicature at Madras
Brief
"The last contention is regarding payment of increments and quarterly allowances to the petitioner during the period of his suspension. Since there is a provision in Clause 17 of Desai Award, suspension allowance has to be paid according to this provision in the award. During the suspension period, pay and allowances of the employee under suspension remains suspended but this is subject to the rules that may be applicable to a particular case. Here Clause 17 as it stands today provides (i) for the first 3 months 1/3rd of pay and allowances, (ii) thereafter half of the pay and allowances (iii) after one year full pay and allowances, if the enquiry is not dela yed for reasons attributed to the concerned workman or any of his representative. The clause speaks of full pay and allowances which means that the employee under suspension is entitled to pay and allowances which the workman would have got but for the suspension. Since the disciplinary proceeding could not be completed within one year, the petitioner is getting full pay which he was last drawing but he has not been paid the allowances which has accrued from time to time including the increments. The interpretation put by the respondents cannot be accepted that the employee is not entitled to increments and allowances during the period of suspension and further if after enquiry the employee is not found guilty of the misconduct alleged, he gets back all the increments which are due to him and he is treated as if he was not under suspension. This is against the specific provision in the award itself. Reliance has been placed on a decision of the Supreme Court in State of M.P. v. State of Maharashtra (supra) but the observations therein that the real effect of the order of suspension is that though the civil servant continues to be a member of the service, he is not permitted to work and is paid only subsistence allowance which is less than his salary and there can be no question of salary accruing or accruing due so long as orders of suspension stand. That was a case where there was no specific provision like Clause 17 of the award. Here the award says that the suspended employee is entitled to pay and allowances which the petitioner would have got if he was not under suspension. Therefore, the petitioner has to be paid all the increments and quarterly allowances which he would have been entitled if he was not under suspension from the date of his suspension in addition to the amount already paid to him by the clause has been correctly interpreted by the other nationalized banks who are paying a suspended employee increments and quarterly allowances payable to an employee which the employee would have got if he was not put under suspension."
Citation
Indian Overseas Bank rep. by its Chairman and Managing Director, 763, Anna Salai, Madras - 600 002. ...Appellant -Vs- 1. All India Overseas Bank Employees' Union rep. by its General Secretary, 764, Anna Salai, Madras - 600 002. 2. The Presiding Officer. Industrial Tribunal, High Court Buildings, Madras - 600 104. ... Respondents
Judgement
Madras High Court
Indian Overseas Bank vs All India Overseas Bank on 23 March, 2005
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 23/03/2005
Coram
The Hon'ble Mr.MARKANDEY KATJU, Chief Justice
and
The Hon'ble Mrs. Justice PRABHA SRIDEVAN
Writ Appeal No. 2688 of 2004
and
W.A.M.P.No. 4970 of 2004
Indian Overseas Bank
rep. by its Chairman
and Managing Director,
763, Anna Salai,
Madras - 600 002. ...Appellant
-Vs-
1. All India Overseas Bank
Employees' Union
rep. by its General Secretary,
764, Anna Salai,
Madras - 600 002.
2. The Presiding Officer.
Industrial Tribunal,
High Court Buildings,
Madras - 600 104. ... Respondents
Appeal filed under Clause 15 of the Letters Patent against the
order passed in W.P.No. 3923 of 1997 dated 22.04.2004.
For Appellant: Mr.V. Karthick
for M/s.T.S.Gopalan
For Respondent: Mr.C.R.Chandrasekaran
J U D G M E N T
Indian Overseas Bank vs All India Overseas Bank on 23 March, 2005
THE HONOURABLE THE CHIEF JUSTICE This writ appeal has been filed against the impugned order of the learned single Judge dated 22.04.2004.
2. Heard the learned counsel for the parties.
3. The facts in detail are given in the judgment of the learned single Judge, and hence we are not repeating the same except where necessary.
4. The writ petition was filed by the respondent praying for quashing of the award of the Industrial Tribunal, Madras dated 29.3.1996. The writ petition was allowed by the learned single Judge, and hence this writ appeal.
5. The short controversy in this case is whether the subsistence allowance during the period of suspension of an employee of the bank should be paid by taking into account the increments which fell due during the period of suspension.
6. The service conditions of the members of respondent no.1 (writ petitioner) are governed by bank awards as modified by the various Bipartite settlements. Paragraph-557 of Sastry Award reads: - "1. For the first three months one-third of the pay and allowance which the workman would have got but for the suspension.
2. Thereafter where the enquiry is departmental by the bank, one half of the pay and allowances for the succeeding months. Where the enquiry is by an outside agency, one-third of the pay and allowances for the next three months and thereafter one half for the succeeding months until the enquiry is over"
7. By the Bipartite settlement dated 08.09.2003 between the bank and its union, paragraph-557 of the Sastry Award, as endorsed by paragraph 17.14 of the Desai Award, was partially modified as under: - " Where the investigation is not entrusted to or taken up by an outside agency subsistence allowance will be payable of the following rates: -
1.For the first three months 1/3 of the pay and allowance which the workman would have got but for the suspension.
2.Thereafter 1/2 of the pay and allowances.
3. After one year full pay and allowance if the enquiry is not delayed for the reason attributable to the concerned workman or any of his representatives"
8. The appellant bank had been paying subsistence allowance up to the year 1988 by taking into consideration the increments which fell due during the period of suspension. However, subsequently the bank decided that the increments which fell due during the period of suspension should not be included for calculation of subsistence allowance and issued circular dated 21.1.1988 to all its offices to discontinue the inclusion of increments for the purpose of calculating subsistence
To read the full judgement, find the enclosed attachment
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