GUEST COLUMN

'GST - Enjoy the bountiful showers, dear taxpayers !' - Part-I

CASE LAWS

2018-TIOL-06-AAAR-GST

Kansai Nerolac Paints Ltd : APPELLATE AUTHORITY FOR ADVANCE RULING (Date: August 3, 2018)

Krishi Kalyan Cess (KKC) accumulated credit appearing in the service tax return of Input Service Distributor (ISD) as on 30 June 2017, and carried forward in the electronic credit ledger maintained under CGST Act, 2017 cannot be allowed as admissible Input Tax credit – FAQ issued by CBIC has clarified against Sl. No. 112 that ITC of KKC cannot be carried forward under GST - Order of Advance Ruling Authority maintained and appeal dismissed: AAAR

Appeal dismissed

2018-TIOL-05-AAAR-GST

HAFELE INDIA PVT LTD : APPELLATE AUTHORITY FOR ADVANCE RULING (Date: August 2, 2018)

Caesarstone imported by the appellate merits classification under HSN 6810 in view of rule 1 of the Rules for Interpretation of the Customs Tariff, applicable to classification under GST, read with chapter note 1 of Chapter 25 and terms of heading 6810 - no reason to interfere with the ruling given by the Advance Ruling Authority - Appeal dismissed: AAAR

Appeal dismissed

2018-TIOL-1550-HC-KERALA-IT + Case Story

CIT Vs ANNADAN TRUST VECHOORETTU BUILDINGS: KERALA HIGH COURT (Dated: July 23, 2018)

Income Tax - Section 12AA.

Keywords: Charitable activities - Contract amount - Establishment of fund - Mere change of opinion - Profit motive - Supply of food - Sub-contract & Welfare schemes.

The assessee-trust was engaged in establishing funds for carrying out public charity. Based on the registered deed, the assessee applied for registration u/s 12AA and the same was allowed by the Commissioner. The Commissioner stated that the question of eligibility for exemption u/s 11 would be decided by the AO during the assessment proceeding. However, after looking at the transactions of the assessee for the years 2008-09 and 2009-10, the Commissioner cancelled the assessee's registration. On appeal before the ITAT, the assessee submitted that it had participated in social welfare schemes of various State Governments and thus, carried on work of distribution of food in various schools. The ITAT observed that as per the object clause, there was a specific object in respect with aiding and supporting distribution of food to students or poor people or the downtrodden. The Tribunal was of the view that as long as the profit motive was absent, the assessee's participation in social welfare scheme of the State Government would be covered under the ambit of 'charitable activities'. Accordingly, the Tribunal set aside the cancellation.

On appeal, the High Court held that,

Whether sub-contract received by the so-called assessee-trust from either State Governments or intermediaries to supply food to the poor amounts to chartiable activity when the AO has noted that the so-called trust has made profit and accumulated the same in a fund not utilised for charitable activities - NO: HC

Whether when the assessee's receipt is confined to such contract amounts, it is to be deemed as charitable - NO: HC

++ the specific object is for carrying on charitable activities for which the assessee intended establishment of a fund for public charitable objects. There is no such fund established nor is there a claim of contributions, donations and endowments having been received from the Public, Government Bodies or Institutions. The specific case of the assessee is that it implements welfare schemes of other State Governments, with the funds supplied by the State Governments through another Trust, as per a contract awarded for the implementation. There cannot be any requirement that charitable activities should be from self generated funds because charitable institutions relies on donations, endowments and other contributions from philanthropic people and institutions to carry out such work. However, when a particular institution is involved in implementation of welfare schemes of the Government, we cannot find any charity in that. The mere assertion that there is no profit motive will not suffice especially when for implementing the schemes the assessee takes money from the State Government or the intermediary. Thus, the implementation of such schemes would not lead to any charitable activity by the assessee entitling registration u/s 12AA;

++ the transaction as admitted by the assessee is not one which would enable registration u/s 12AA. The proceedings were initiated for cancellation, on the report of the AO that the objectives of the Trust has been departed from and the assessee is carrying on business as sub-contractor, implementing the welfare schemes of various State Governments, supplying food to the poor school children. It was also reported that there was net profit earned from the sub-contract; which funds were accumulated to the Trust fund, without any charitable activity being carried on. The assessee also did not proffer any evidence as to a charitable activity carried on other than asserting that from its inception the activity of the assessee was of feeding the poor. However, this activity was, as an implementing agency of the State Governments, on funds earmarked and disbursed by the State Govt. There is no charity in implementation of welfare schemes of the Govt, with the funds of the State. Charity of the right hand, it is said, shall not be disclosed to the left hand. Here, the welfare measure of the State implemented with State funds is claimed as charity by the implementing agency, who receives consideration for such implementation;

++ the Commissioner, initially, had granted registration clearly specifying the exemption to be available only on the satisfaction of the AO. The instant proceedings were on the report of the AO that the objects of the Trust are deviated from. We do not find a mere change of opinion, and the Commissioner has dealt with the transactions of the assessee and also examined the accounts for the two years, which squarely fall under the exercise as provided for u/s 12AA(3). The Commissioner was satisfied that the activities of the Trust are not being carried out in accordance with the objects of the Trust. The sub-contract of the assessee cannot be considered to be a charitable activity, especially since the supply of food is with the funds of the State Government, received by the assessee as contract amounts. The activity of the assessee confined to such sub-contracts cannot be deemed to be a charitable activity and hence, the Trust is not entitled to registration u/s 12AA. The Commissioner looked at the activities of the assessee and cancelled the registration for reason of the assessee being unable to substantiate the contention of charity in the two AYs. The assessee, as rightly found, is engaged in a business and there can be no registration as a charitable institution.

Revenue's appeal allowed

2018-TIOL-1549-HC-DEL-PMLA

ANUP PRAKASH GARG Vs ENFORCEMENT DIRECTORATE: DELHI HIGH COURT (Dated: August 6, 2018)

PMLA - The applicant is a banker - accused of bagging kickbacks from Directors of a private firm - FIR registered by CBI under Prevention of Corruption Act 1988 r/w Sections 420, 467, 468 and 471 of the Indian Penal Code - the Enforcement Directorate also booked a case and raided the applicant's premises - After investigations the ED proceeded to arrest him - In the complaint, the ED alleged that the applicant was a director in Andhra Bank and that he had allowed the company to avail credit facilities to the tune of Rs 23.5 crores for an alleged kickback of about Rs 1.52 crores - Besides, such allegations got substantiated upon search & survey proceedings conducted by the Income tax department - Investigation as well as statements of the applicant taken u/s 50(2) & 50(3) of the PMLA revealed that the money was diverted by purchasing shares in a company owned by the applicant's son which was a shell company - It was also alleged that the applicant used such money to purchase land, houses, cars and also put some money in fixed deposits - The applicant who was arrested, finally filed for bail.

Held - The chargesheet for the offence punishable u/s 13(1)(d) r/w Section 13(2) of the PCA is yet to be filed by the CBI - As per mandate of Section 44 of PMLA the trial in the scheduled offence & the complaint filed by the respondent is to be conducted jointly - Besides, a co-accused has been granted bail on grounds that the case is based on bank transactions which were already recorded & which cannot be tampered with - Moreover, 'offence' as defined u/s 3 and punishable u/s 4 of the PMLA entail minimum punishment for 3 years imprisonment which is extendable upto 7 years - Hence the applicant be released on bail and also personal bond of Rs 2 lakhs as well as two surety bonds of the same amount: HC (Para 2,3,4,8,9)

Bail application allowed

2018-TIOL-1540-HC-DEL-CUS

CC Vs ANISH IMPEX : DELHI HIGH COURT (Dated: August 01, 2018)

Cus - Revenue is in appeal against order of Tribunal which upheld the order of appellate Commissioner who had granted the respondent/importer's appeals, holding that it was entitled to refund of Special Additional Duty of Customs paid for Bills of Entry on which duty was paid the next day - The appellate authority followed the ruling of a Division Bench of this Court in M/s/ Sony India Pvt. Ltd. 2014-TIOL-532-HC-DEL-CUS - Revenue submitted that the facts in case of Sony and in this case are different inasmuch as in that decision, the importer was caught between the transition period when one notification was substituted by another and that this detail distinguishes the facts of the present case - Sony went by formulation of settled principles of constitutional law that a delegated legislation cannot firstly travel beyond the confines of parent statute and that the purpose of limitations like the provisions of penalties and offence are the subject matter of primary legislation by competent legislative body, i.e. the State legislature - That rationale applies equally to the facts of this case - No question of law arises: HC

Appeal dismissed

2018-TIOL-1539-HC-DEL-CUS

Pr.CC Vs COL SANJEEV SETHI : DELHI HIGH COURT (Dated: August 03, 2018)

Cus - Revenue's grievance is that the Tribunal remanded the issues for reconsideration by concerned Commissioner in view of previous judgment of this Court in Mangli Impex Limited 2016-TIOL-877-HC-DEL-CUS - This was on account of a dichotomy of judicial opinion with respect to competence and jurisdiction under amended Section 28 of Customs Act, 1962–One view holding that no jurisdiction laid with DRI and the other view endorsed in a subsequent judgment of this Court in Vipul Overseas Pvt. Ltd. & Ors. 2017-TIOL-2478-HC-DEL-CUS - Following the order in Forech India, appeals allowed and Tribunal would independently apply its mind to the question of jurisdiction and also decide the appeal on merits including the aspect of imposition of penalty if any: HC

Appeals partly allowed

2018-TIOL-1538-HC-AHM-VAT

JIGNESH HEMANTBHAI DHRU Vs STATE OF GUJARAT : GUJARAT HIGH COURT (Dated: August 02, 2018)

Gujarat Value Added Tax - Writ - Agricultural land - Attachment of property - Auction

A sum of about Rs 15.38 crores was owed by an automobiles dealer during the relevant AY, on account of VAT, Entry Tax and interest payable to the VAT Department. So as to recover the same, a piece of agricultural land & one residential bungalow were attached and were to be auctioned. Then the assessee approached the High Court seeking permission to sell the land and undertook to pay the entire sale consideration to the VAT Department in six EMIs. The assessee also offered some other properties for attachment. In light of the same, the Court issued some directions. However, the assessee was unable to comply with them and could not even fulfil the undertakings made to the court. In defence, the assessee claimed that the purchaser of the property backed off from the purchase & the assessee was unable to sell the land & consequently deposit it with the Department. Besides, the assessee also sold one of the properties which had been offered for attachment. When the purchaser of such property filed a writ petition, the present writ was filed.

In writ, the High Court held that,

Whether the Revenue can proceed with auction of property placed under attachment, where owner of the property is unable to sell the property & clear tax dues payable to the Govt - YES: HC

Whether therefore, such property can be auctioned where the owner of the property fails to comply with guidelines issued by the writ court regarding disposal of alternate properties offered for attachment - YES: HC

++ the counsel appearing for the assessee has stated at the Bar that even the new proposed purchaser is not ready and willing to purchase the property–agricultural land bearing survey No.75, Block No.76 situated at mouje Kumbhariya, Tal. Choryasi, Dist. Surat. Therefore, now the property is already under attachment pursuant to the order passed by this Court;

++ it is required to be noted that in March 2017, this Court shown indulgence in favour of the assessees. However, the indulgence shown by this Court has been misused. A huge sum to the extent of approximately Rs.16 crores is due and payable towards VAT, Entry Tax & interest;

++ as it is now reported that even the proposed purchaser–Kirit Bhimjibhai Patel is not ready and willing to purchase the agricultural land in question, the counsel appearing on behalf of the assessee does not press the present application and seeks permission to withdraw the same. Under the circumstances, the present application stands dismissed as withdrawn, as it is reported and it is not in dispute and it is an admitted position that the assessees and others have not acted as per the order passed in SCA No.2173 of 2017 and they have even not acted as per the undertakings given by them and as the properties are in fact under attachment for the dues of the VAT Department;

++ therefore, now the Department to dispose of the properties under attachment of this Court pursuant to order passed by this Court dated 28.03.2017 in SCA No.2173 of 2017 by public auction and realize the amount and the amount of sale consideration shall be appropriated towards dues of M/s.Dhru Automobiles. Till then, the properties, except property at Sr. No.3-3/2885/C, Bhanawala Appartment, Salabatpura, Surat shall be continued under attachment. The Department now through public auction to realize the amount towards its dues at the earliest, but not later than 4 months from today. The present order shall be without prejudice to the rights and contentions of the of the Department to initiate appropriate contempt proceedings for breach of the undertakings given by the respective parties in SCA No.2173 of 2017.

Assessee's writ petition disposed of

2018-TIOL-1537-HC-AHM-IT

Pr.CIT Vs GUJARAT STATE FERTILIZERS AND CHEMICALS LTD : GUJARAT HIGH COURT (Dated: July 31, 2018)

Income Tax - Sections 2(14), 14A & 80IA; Rule 8A

Keywords - Business income - Exempt income - Fertilizer bonds - Interest-free funds - Subsidy income

The assessee company received exempt income of about Rs 14.76 crores as dividend and about Rs 29.82 lakhs as interest on tax-free ITI Bonds, during the relevant AY. The assessee incurred expenses of about Rs 40,281/- against such exempt income. On assessment, the AO made disallowance u/s 14A(2) r/w Rule 8(d) of the expenditure incurred in relation to income not includible in total income. On appeal, the CIT(A) upheld the disallowance. Thereafter, the Tribunal quashed such disallowance on grounds that the assessee already had surplus interest-free funds. Moreover, the assessee had claimed loss arising from sale of fertilizer bond as a business loss. It also claimed deduction u/s 80IA on power generated for captive consumption in its factory. Both were allowed by the Tribunal. Hence the Revenue's appeal.

On appeal, the High Court held that,

Whether disallowance u/s 14A(2) r/w Rule 8D is unsustainable where the assessee has sufficient interest-free funds available with it - YES: HC

++ considering the findings and decision of the Division Bench of this Court of the very assessee for the Assessment Year : 2004-2005, the Division Bench of this Court in the case of the very assessee has set aside / deleted the similar disallowance made by the Assessing Officer u/s 14A of the Act, the same has been been subsequently followed in the case of the very assessee that in the proceeding years, i.e. 2005-2006 to 2007-2008. The Division Bench of this Court in the decision has specifically observed that in a case where the assessee was having sufficient funds available with it, more than amount invested for earning the dividend, the disallowance in respect of interest expenditure under Section 14A of the Act read with Rule 8(d) of the Rules is not permissible. The decision of the Division Bench of this Court in the case of the very assessee for the Assessment Year : 2004-2005 has attained finality. In the present case, it is required to be noted that in the earlier years also more particularly, even in the Assessment Year : 2004-2005, the assessee was also having mixed funds and still considering the fact that the assessee was already having sufficient surplus interest free funds, the Division Bench of this Court has held that the disallowance under Section 14A of the Act is not permissible. At the cost of repetition, it is observed that the said decision has attained finality between the parties. Not only that, but the Department has followed the same in the subsequent assessment years also. Considering the facts and circumstances, it cannot be said that the Tribunal has committed any error in deleting the disallowance made by the Assessing Officer under Section 14A of the Act. Therefore, the two Tax Appeals No.900/2018 and 901/2018 stands dismissed so far as the proposed question No.2 (a) is concerned;

Whether where it is settled law that subsidy income is not business income, the loss arising from sale of fertilizer bonds issued by Govt in lieu of subsidy, can be treated as business loss - YES: HC

++ from the facts and circumstances of the case and considering the material on record, it appears that the fertilizer bonds were issued by the Central Government in lieu of the subsidy. It is not disputed that the subsidy income cannot be said to be a business income. If that is so, in that case, the fertilizer bonds which were given by the Central Government in lieu of the subsidy when the same was sold at a lower price and the assessee suffered loss, the same was required to be allowed as business loss incurred and it cannot be treated as capital. We are in complete agreement with the view taken by the learned Tribunal while considering the loss incurred on sale of fertilizer bond as purely business loss.

++ the appeal are admitted to decide the question as to whether the Tribunal correctly allowed deduction u/s 80IA for generating power for captive consumption, when the assessee had adopted rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB.

Revenue's appeal partly allowed