25 July 2018   

GST Rebooted | Episode 8 | simply inTAXicating

CASE LAWS

2018-TIOL-1446-HC-MAD-IT + CASE STORY

DXN HERBAL MANUFACTURING INDIA PVT LTD Vs ITO: MADRAS HIGH COURT (Dated: June 21, 2018)

Income Tax - Section 80IB.

Keywords: Capsulation - manufacture - Mushroom powders & New article or product.

The assessee-company, engaged in the business of manufacturing Ayurvedic drugs, filed returns for the relevant AYs and assessment was completed. In determining the income, the AO disallowed the claim for deduction made by the assessee u/s 80IB, on the ground that the assessee was not engaged in any manufacturing activity and instead, it was only doing trading of mushroom powders in capsules. On assessee's appeal, the CIT(A) upheld the decision. On further appeal by the assessee, the Tribunal also upheld the decision of the AO and CIT(A) and dismissed the appeals.

On hearing the matter, the High Court held that,

Whether process of filling mushroom powders into the empty gelatine capsules amounts to manufacture - YES: HC

Whether therefore, argument of the Revenue that activity doesn't bring any new article or product is not sustainable and thus, the assessee cannot be denied benefit of deduction available u/s 80IB - YES: HC

++ it is not in dispute that the manufacturing unit is located in an Industrial area. Though all these licences were obtained by the assessee, none of the three authorities including the Tribunal, have made an attempt to examine from that angle as to whether the process done by the assessee would tantamount to manufacture, especially when the word "manufacture" was not defined under the Act at that relevant time. As pointed out earlier, the order passed by the Tribunal rejecting the claim under Section 80IB is based on its personal opinion and not borne out by any records. Recently, the First Bench of this Court, in the case of M/s.Chettinad Builders P.Ltd., Vs. The Deputy Commissioner of Income Tax, has considered a similar term, the word "manufacture". The assessee therein was engaged in the preparation of ready mix concrete and it was pointed out that preparation of ready mix concrete resulted in transformation of stone, chips, sand, cement, fly ash and other articles into a new and distinct object having a different name, character and use, and once the ready mix concrete is prepared, the ingredients used lose its original character and never can be restored to its original character. So far as the product dealt by the assessee is concerned, mushroom powder was put in the gelatine capsules and the process of manufacture has been described by the assessee, during his submission made before the Assessing Officer. This submission has been outrightly rejected by the Assessing Officer as well as CIT(A) and ITAT, largely based upon the statement given by the employee of the assessee that too behind the back of the assessee. The various licences granted to the assessee clearly states that the products consists of more than one material in a particular proportion. The process has been explained by the assessee and it undoubtedly involves a sterile process and it would be incorrect to state that the entire process is reversible, as stated by the Tribunal. The Tribunal in its order has stated that if the product is taken out of a gelatin capsule, it will retain its original character. For this finding, there is no material before the Tribunal;

++ unless there is a manufacturing unit, the question of payment of excise duty does not arise. For the subsequent years, the assessee's claim has been accepted and the Revenue's appeals have been dismissed. Therefore, the assessee's earlier assessment order cannot be sustained. We support this finding with some more additional reasons. In the assessment year, the Assessing Officer has culled out the admitted facts. On perusal of the order, it is seen that the Assessing Officer has accepted that the assessee has obtained the Central Excise Registration Certificate dated 23.02.2004 for manufacturing of excisable goods. Further, it is admitted that a copy of the return dated 07.12.2005 for excisable goods and availment of CENVAT credit for the month of November 2005, to the Superintendent of Central Excise, Range II-B was produced. Further the Assessing Officer states that the return shows that it classified the goods under CETSH No.3004.90.11, on which excise duty was paid along with necessary description of receipts and consumption of principle inputs and finished products were cleared and waste and scrap arising during process were not cleared, but destroyed;

++ even as per statement given by the employee of the assessee to the officials of the Department when they inspected the unit, the process involved in the production activity was described. The same has been quoted in paragraph No.6 of the order passed by the Tribunal, which would clearly show that the bulk powders are filled in the power hopper and the empty gelatine capsules are filled in capsules hopper of semi-automatic filling machine, and the filling machine would be operated by machine operators and it will be set in such a manner to achieve the weight required for filing each capsules, that the prescribed weight for RG capsule is 270 mg and GL capasule is 450 mg. During production process, it should be ensured that the temperature and humidity are within the limits and the weight of the filled capsules are within the limit. Simultaneously, quality control would carry out necessary tests like disintegration test, microbiological test, moisture content test, stability test, weight test parameters and specification test etc, of the filled capsules, for which, separate records are maintained in the production department. Thereafter, the capsules are polished and quality check was done in Polishing Section, which also maintains a separate job record. Thereafter sorting and inspection is done, followed by a Quality Check Inspector and personnel, who would reject and remove the defective capsules, after which, the product, the sorted out capsules are sent to Counting and Bottling Section, then to Labelling Section, Batch Printing Section, Shrink Pack Section and Packing Section. Further it is stated that all such manufacturing process of each section in production shall be done in the specified temperature and humidity as well as quality control and testing and manufactures as per schedule T of Drugs and Cosmetics Rules, 1945. The statement given by the employee of the assessee, would in fact substantiate the stand taken by the assessee with regard to the manufacturing process adopted by them. Therefore, for such reasons also, we hold that no prejudice was caused to the assessee on account of not making available his former employee for cross-examination;

++ the Tribunal came to the conclusion that the activity does not bring any new article or product and the mushroom powder even after capsulation remains the same and if it is removed from the capsule, the mushroom powder emerges out of it. It is not known as to how the Tribunal rendered such a finding as there was no material available before the Tribunal that there is no change in the composition of the drug on capsulation. As already pointed out, the Tribunal gave a finding wholly unsubstantiated by any material that the bulk form of the drug can be nakedly consume without putting them in an enclosure such as gelatine capsule. It is relevant to note that the agreement between the assessee and the International parent company dated 26.4.2004 states that the Indian Company (assessee) has set up a factory at Pondicherry with an intent to manufacture similar products and has requested the foreign company to make available the know-how to the Indian Company and after negotiations, the foreign company has agreed to make available the know how on the terms and conditions set out in the agreement. The agreement specifically states that the foreign company shall supply to the Indian company all materials such as know how of materials, such as process sheets, calculation sheets, standards and other information as is necessary to understand the utilisation of the said know how and to implement the same in the manufacture of the said product.

Assessee's appeal allowed

2018-TIOL-1445-HC-MAD-IT

CIT Vs SHRIRAM CHITS AND INVESTMENTS PVT LTD: MADRAS HIGH COURT (Dated: July 4, 2018)

Income Tax

Keywords - Business losses carried forward - Depreciation on trucks - Dividend income

THE assessee-company filed returns for the relevant AY, claiming depreciation on some trucks owned by it. It also sought to set off business losses carried forward against dividend income earned by it. On assessment, both the depreciation as well as the set-off were denied. On subsequent appeal, the Tribunal held the assessee to be eligible for deduction. It also permitted the set off of the business losses carried forward against the dividend income. Further, the Tribunal also permitted the assessee to treat as bad debts those amounts of prize money which was not paid by prize chit winners. Hence the Revenue's appeal contesting such findings of the Tribunal & also raising the issue of existence of any debtor-creditor relationship between the assessee & chit fund subscribers, which allows treatment of unpaid amounts as bad debts.

On appeal, the High Court held that,

Whether the Revenue can contest the Tribunal's findings allowing set off of carried forward business losses against dividend income, where the Revenue's appeal against similar findings involving the assessee's sister concern was dismissed - NO: HC

++ the issue regarding bad debts is covered by the assessee's own case in Commissioner of Income Tax vs. M/s.Shriram Chits & Investments Ltd. in Tax Case (Appeal) Nos.996 to 998 of 2005 dated 03.04.2012. Following the relevant findings in such case the Tribunal was correct in treating the money not paid by the prize chit winners as bad debts. Besides, the issue as to whether there is a relationship of creditor and debtor between the assessee and the subscribers to the chit to warrant the treatment of default in payment as bad debt, is also answered in favor of the assessee;

++ in respect of the issue as to whether the carried forward business losses could be set off against dividend income. In this regard, the Tribunal pointed out that this issue has been considered by the Tribunal in the assessee's own case for the earlier years and quoted that portion of the order. However, we find that this is not the assessee's own case, but the assessee's sister concern, viz., Shriram Investments (firm). The appeals being I.T.A.Nos.550 to 552/Mds/1997 for the assessment years 1992-93 to 1994-95. It is not in dispute that the transaction was identical and the Tribunal considered the submissions and held that the assessee's plea that the investments were business investments and the interest on borrowings made for these investments have to be allowed under the head 'business income'. The Tribunal further relied on various decisions and held that, if in substance investments are business investments, the interest on borrowings made for those investments have to be allowed irrespective of the fact that income from dividend has to be assessed under a separate head. The Revenue preferred appeal against the such order of the Tribunal in T.C.(A) Nos.2657 of 2006 and 1017 and 1018 of 2007, which were dismissed by judgment dated 17.09.2014. Thus, the question has to be answered in favour of the assessee and against the Revenue;

Whether the Revenue can assail the Tribunal's findings allowing depreciation on vehicles, where such findings are based on factual appreciation of relevant documents for the vehicles, which were improperly examined by the AO & the CIT(A) - NO: HC

++ regarding the issue of the Tribunal allowing depreciation claimed by the assessee on certain trucks, which the Revenue alleged had been allowed without determining as to whether or not the assessee actually owned the trucks, the Tribunal examined the factual positition & observed that the assets are purchased from various companies and the clients are not taking the assets on lease whereas, various individual persons or organizations have undertaken the sub-lease from the assessee company. After analyzing the factual position, the Tribunal allowed the depreciation on Lease Port Folio Management System and accordingly, the assessee succeeded;

++ in the instant case, the AO doubted the very genuineness of the transaction and also as to whether the vehicles were in existence and the assessee had acted only as a financier. However, for the subsequent year, the details were verified and it was recorded by the Tribunal that the vehicles were registered in various States and it is wrong on the part of the AO as well as the CIT(A) to hold that no assets are involved in the lease transaction. We find from the order passed by the Tribunal that, the Tribunal had gone through the copies of the sublease agreement, the relevant purchase bills for the vehicles and other connected papers including bank documents and registration certificate and rendered such finding. Thus, the issue has been factually concluded by the tribunal and the case of the assessee is also fully supported by the decision in the case of I.C.D.S. Ltd. vs. Commissioner of Income-tax, which decision the Revenue does not dispute. Hence this question too is answered in favor of the assessee.

Revenue's Appeals Dismissed

2018-TIOL-1444-HC-MAD-IT

VASAN HEALTH CARE PVT LTD Vs ACIT: MADRAS HIGH COURT (Dated: July 19, 2018)

Income Tax - Writ - Section 154.

Keywords: Conditional order - CBDT instruction No. 1914 - Financial hardship - Outstanding tax demand - Recovery proceeding & Vague averment.

The assessee company, engaged in providing medical services in the area of eye care had returned income for the AYs 2011-2012 to 2016-17. On 01.12.2015, a search was carried out at the assessee's business premises and its group. Subsequently, on 28.02.2017, notices u/s 153(C) was issued to which the assessee had also filed its reply. Thereon, the assessments were completed u/s 143(3) r/w Ss 153(C) and 153(A). However, the assessee had preferred a stay petition before the AO requesting him not to collect the tax since, it was in the process of filing the appeal against the assessment orders. Accordingly, after referring to a revised instructions of CBDT in number 1914, the assessee was directed to pay 20% of the disputed amount, within 3 days failing to which the stay petition will be rejected. Further, the assessee had again filed a stay petition before the Pr. CIT. While doing so, the tax recovery officer issued prohibitory orders against the Directors of the assessee company. Aggrieved assessee, approached the Madras High Court challenging the assessment orders passed in the stay petition which were dismissed by directing the Pr.CIT to consider afresh the stay applications filed by the assessee.

Pursuant to the direction of the Court, the Pr.CIT passed an order and directed the assessee to pay 30% of the disputed demand and on such payment, the balance tax payable was stayed till the disposal of the appeal. Again, on 13.03.2018, the assessee filed a stay petition before the CIT(A) wherein, the assessee was directed to pay 20% of the total demand. However, this order was not challenged in any way. Meanwhile, the rectification petition filed u/s 154 was rejected by the AO.

Having heard the parties, the High Court held that,

Whether taxpayer can seek interim stay against a recovery proceedings by filing of an appeal against the assessment orders ignoring conditional orders issued by the authorities thereto- NO: HC

Whether in absence of any declaration provided by taxpayer canvassing the issue of its financial constraints, authorities cannot be blamed for imposing any conditions during recovery proceeding - YES: HC

++ the assessee has been filing one stay petition after another before the authorities and was not complying with the conditional orders passed by the authorities. The stay petitions filed by the assessee before the authorities does not contain averments pleading undue hardship by providing the relevant facts and materials and all petitions have been filed in a casual manner. The Single Judge of this Court has also taken note of these facts and held that vague averments have been set out in the applications without the support of any materials and it has given an impression in the mind of the authorities that the stay petitions are not pursued seriously. Therefore, the authorities cannot be blamed for the condition imposed by them in the order, while disposing of the stay application;

++ with regard to the arguments of high pitched assessments, the appeal has already been pending before the CIT(A) and therefore, this Court does not want to go into that issue, since any observation made will have serious impact for both sides in the pending appeal. The Single Judge of this Court has dealt with the scope of the circular and has given finding that the assessee has not made out any case before the authorities by providing sufficient materials and by making necessary averments. The Single Judge of this Court has also taken note of the fact that the intention of the assessee is to drag on the matter and not to comply with the order passed by the authorities and for the first time in the writ petition, the assessee was attempting to canvass the issue of financial constraints;

++ the Single Judge of this Court has dealt with in detail the contentions putforth by the assessee and the Department, and has exercised the discretion with sound reasons. The Single Judge of this Court also took note of the fact that the assessee company has established eye hospitals in various parts of the State and elsewhere in the country and has employed several persons and Doctors and several citizens require the care and attention of these hospitals. After taking into consideration all these factors, the Single Judge thought it fit to give one last opportunity to the assessee by directing the assessee to pay 5% of the tax demanded and thereafter, to move a fresh stay petition before the CIT(A). This Court does not find any ground to interfere with the discretion exercised by the Single Judge of this Court;

++ it is necessary to fix a lumpsum amount to be paid by the assessee in installments and thereafter permit the assessee to prosecute the appeal pending before the CIT(A). This Court is of the view that if the assessee is permitted to file another fresh stay application before the CIT(A), it will unnecessarily result in another round of litigation, which will have impact in disposal of the appeal. Therefore, this Court deems it fit to fix an amount of Rs. 35,00,00,000/- to be paid by the assessee company in 12 equal monthly installments as a condition to stay the recovery proceedings and keep it in abeyance till the disposal of the appeal pending before the CIT(A). It is brought to the notice of the Court that the Department has withdrawn a sum of Rs.2,49,23,951/- by way of bank attachment this month. Therefore, the assessee is directed to pay the balance amount after giving credit to the amount already withdrawn by the Department towards installment for the month of July 2018, on or before 31.07.2018. On completion of the payment of entire 12 installments by the assessee company, the CIT(A) is directed to take the appeals for hearing and dispose it of within a period of 6 months thereafter. In case of any default on part of the assessee company to comply with any of the conditions imposed by this Court, the stay shall stand automatically vacated and the Department will be at liberty to proceed further to recover the tax amounts due from the assessee company, without any reference to this Court.

Case disposed of

 

2018-TIOL-1443-HC-DEL-IT + CASE STORY

SHREYASEN Vs UoI: DELHI HIGH COURT (Dated: July 24, 2018)

Income Tax - Writ - Section 119

Keywords - Aadhar registration number - Filing of returns - PAN number

The petitioners herein are individuals seeking directions enabling them to file income tax returns without having to comply with the pre-condition of providing the Aadhar registration number. The petitioners placed reliance on orders passed by this Court in Mukul Talwar vs. Union of India & Ors and by the High Court of Punjab & Haryana High Court in Pardeep Kumar v. UOI and Ors. In the former case, the CBDT had later issued an order extending the deadline for linking the Permanent Account Number (PAN) with Aadhar by one year. In the latter case, the Union of India gave a statement that the system would accept the petitioners' income tax returns without seeking Aadhaar enrolment number. Hence similar directions are sought through the present writ.

In writ, the High Court held that,

Whether an assessee can be exempted from linking the PAN with the Aadhar, till a mechanism enabling assessee to opt out from such mandatory requirement is put in place - YES: HC

++ in the present petition, the CBDT issued an order under Section 119 of the Income Tax Act, 1961, on June 30, 2018 extending the time for linking the PAN and Aadhar Card till March 31, 2019 for the purposes of filing Income Tax returns;

++ a similar direction as in the case of Mukul Talwar vs. Union of India & Ors. is warranted in this case. Accordingly, the petitioners shall be permitted to file their returns, for AY 2018-2019, without any insistence of linkage of their Aadhar and their PAN numbers and without instance of production of their proof of Aadhar enrolment. In case the returns are filed within the time prescribed by law, without such linkage, they shall be processed in accordance with law and in accordance with CBDT circular dated 27.03.2018 as extended on 30.06.2018;

++ nonetheless, the petitioners point out that even after the CBDT Circular of 30.06.2018, which in effect suspended the requirement of Aadhar linkage with PAN, for one year i.e. up to 31.03.2019, emails have been received from the Income Tax Authorities indicating that, in respect of the grievances like in the present case, parties have to approach the court. In this regard, this court is of the opinion that at least for the period till 31.03.2019, the CBDT shall issue an appropriate direction, and also create a platform by amending the digital form of substituting them properly to enable “opt out” from the mandatory requirement of having to furnish Aadhar Registration or Aadhar linkage, for the duration, the exemption subsists i.e. till 31.03.2019.

Assessee's Writ Petition Disposed Of

ST - Assessee is registered with the department to provide services under category of clearing and forwarding agency service and BAS - During audit, it was noticed that assessee was availing exemption from service tax under Notfn 4/2004-ST - Department was of the view that such exemption is restricted to those services which are consumed within the SEZ - Services provided by assesssee ranges from logistics services, operating as steamer agents, equipment repair services and operating container freight station - International transportation of goods by sea requires that the goods should be stuffed into the seaworthy containers - The stuffing of cargo into container for international transportation can be undertaken either at the factory premises of exporter or at the Container Freight Station (CFS) nominated by Customs Department - In case cargo is to be stuffed into the container at the exporter's factory premises, exporter takes the delivery of empty container from assessee and stuffs the cargo into the container in presence of Central Excise officer at the factory and seals the container - The sealed container moves to the port and loaded on the vessel - In case of CFS stuffing option, the cargo is transported from exporter's factory to CFS by the exporter and at the CFS in the presence of Customs officer, the cargo is stuffed into the container by assesssee and then the containers are moved to the port for onward journey - These import/export cargo services provided by assesssee to the SEZ units are definitely consumed by SEZ Unit - The denial of exemption alleging that these are not consumed entirely within the SEZ unit does not find favour - Taking note of Section 26 as well as Section 51 of SEZ Act, denial of exemption is unjustified - Further, Tribunal in case of Norasia Container Lines 2011-TIOL-574-CESTAT-DEL analyzed a similar issue and held that exemption is eligible - Accordingly, impugned order set aside: CESTAT

Appeal allowed

2018-TIOL-2293-CESTAT-MAD

CCE Vs EID PARRY INDIA LTD: CHENNAI CESTAT (Dated: April 19, 2018)

CX - Assessee is manufacturer of sugar and molasses and also manufactures ethyl alcohol (rectified spirit) from captively consumed molasses - Department views that exemption availed by assessee in respect of clearances of molasses under Notfn 67/95-CE to the extent captively used in manufacture and clearances of rectified spirit from the factory is not in order and that the assessee should have paid appropriate duty on such portion of molasses that was used for the production of rectified spirit - Evidently, the issue in dispute has already been decided by Apex Court in favour of assessee in Sakthi Sugars Ltd. - No doubt, the appeal filed by department in Rajshree Sugars & Chemicals Ltd. 2015-TIOL-323-CESTAT-MAD has been admitted by Supreme Court, however, no stay has been granted by the Apex Court - In the event, the ratio laid down by Supreme Court in said case of Sakthi Sugars will necessarily have to be followed by this Tribunal - This being so, no infirmity found in impugned order, for which reason, the appeal filed by Department is dismissed: CESTAT

Appeal dismissed

2018-TIOL-2292-CESTAT-MAD

DELPHI TVS DIESEL SYSTEMS LTD Vs CCE: CHENNAI CESTAT (Dated: April 16, 2018)

CX - Assessee is engaged in manufacture of fuel injection pumps and are availing the facility of cenvat credit on inputs, capital goods and input services - SCN was issued alleging wrongful availment of credit on various input services which after due process of law culminated in disallowance of credit - The period involved is prior to 1.4.2011 - The services of general insurance have been excluded from input services after 1.4.2011 - The same would be eligible, in case the assessee is able to establish that these services availed for employees of the factory - On perusal of records, it is found that assessee has availed the credit of service tax paid on insurance premium which includes the family members of employees also - In case, the said premium is constant when there has been no variation with regard to dependents / family members, assessee would be eligible for credit - Further, if assessee have availed credit on service tax paid in respect of employees of other units, they are not eligible for credit - These aspects have to be examined - Therefore, matter remanded to the adjudicating authority for verification - In regard to credit availed on Man Power Recruitment Services in respect of recruiting Assistant Pharmacist, Section 45 of Factories Act, 1948 mandates for employing a person holding a certificate in the first aid treatment and for providing necessary medical facilities in the factory - Therefore, the said services are integrally connected to manufacturing activity of assessee and qualifies as 'input service' - Said service is eligible for credit: CESTAT

Appeal partly allowed