2018-TIOL-140-HC-AHM-GST
JAY CHEMICAL INDUSTRIES LTD Vs UoI: GUJARAT HIGH COURT (Dated: October 11, 2018)
GST - Case of the petitioner is that TRAN-1 was actually filed within the time originally permitted - However, after the time limit was over, the petitioner noticed certain errors in the declaration made inasmuch as three transactions which were in pipeline when GST was brought into force, due to oversight, were not included in such declaration - Petitioner, therefore, desires that such declaration in TRAN-1 may be permitted to be corrected and that not granting opportunity to correct the declaration would result into substantial financial loss to the petitioner and other similarly situated dealers - Counsel for the department submitted that the petitioner had time upto 27.12.2017 to make a declaration which would include the opportunity to correct a declaration already made, if any error was spotted.
Held: Court has in the case of Willowood Chemicals Pvt. Ltd. - 2018-TIOL-133-HC-AHM-GST rejected the contentions of the petitioner and upheld the time limit prescribed under rule 117 of the Rules - under the circumstances, High Court does not see any scope for directing the respondents to allow the petitioner to correct the TRAN-1 declaration already made - such time limit initially provided in the rules was extended from time to time and lastly upto 27.12.2017 - limited extension has also been granted by the Government to cover cases where genuine hardships were felt in uploading said declarations due to technical glitches - case of Bombay High Court in case of O/E/N India Ltd. & Anr. (2018-TIOL-134-HC-MUM-GST) is distinguishable - present situation is entirely different, hence petition dismissed: High Court [para 11 to 13]
Petition dismissed
2018-TIOL-386-SC-VAT + Case Story
TVS MOTOR COMPANY LTD Vs STATE OF TAMIL NADU: SUPREME COURT OF INDIA (Dated: October 12, 2018)
Tamil Nadu Value Added Tax - Writ - Section 19(5)(c) & 80(1); Rule 10(9)(a) - Constitution of India - Articles 14, 19(1)(g), 256 & 301;
Keywords - Form C - Input Tax Credit - Inter-State sales - Intra-State sales
The assessees filed the present writ petitions challenging the constitutional validity of Section 19(5)(c) of the Tamil Nadu Value Added Tax Act 2006 as well as Rule 10(9)(a) of the TNVAT Rules 2007. The assessees challenged such provisions on grounds that they contravened the mandate of several provisions of the Constitution of India, including Articles 14, 19(1)(g), 246 & 301. The present dispute began when the Committee of Finance Ministers released a White Paper in 2005, clarifying that set-off of Input Tax Credit against liability on all intra-State & inter-State sales, would be permitted.
Thereafter, the TNVAT Act was introduced in 2006, seeking to amend the law pertaining to sale or purchase of goods. Section 19(5)(c) of the Act disallowed input tax credit on the purchase of goods sold as such or used as intermediate goods in the course of inter-State trade or commerce. Subsequently, the Rule 10(9)(a) was notified, stating that input tax credit on inter-State sales were permissible only if Form C prescribed in the CST Rules 1957 was submitted.
During assessment for the relevant AYs, the assessees were served SCNs raising duty demand for reversal of input tax credit, on grounds that the requisite Form C had not been filed & so the assessees could not avail benefit of concessional rate of tax. The assessees paid the differential tax arising out of the assessment order for one AY and also reversed the proportionate Input Tax Credit. However, the assessees were then served another notice proposing to deny the ITC credit availed against the transactions for which Form C were not filled & seeking reversal of credit on inter-State sales without Form C. Such demands were later upheld by the jurisdictional High Court. Hence the assessees claimed that the provisions of Section 19(5)(c) ran contrary to the objective of the Act as well as the White Paper that preceeded it.
In writ, the Apex Court was of the view that,
Whether a provision seeking declaration in Form C as a pre-requisite for availing ITC on inter-State transactions, can be treated as arbitrary, where such provision was created with the justified purpose of stemming loss of revenue or tax evasion due to inter-State transactions with unregistered dealers - NO: SC
Whether availment of ITC cannot be claimed as an absolute right & is a concession only - YES: SC
Whether nonetheless availment of ITC can be permitted without insisting on filing Form C where dealers make sales to Governments of other States - YES: SC
++ in ALD Automotive Pvt. Ltd. & Anr. v. The Commercial Tax Officer & Ors. (SLP (Civil) Nos.36112-36113 of 2013) pronounced in today’s date, the scheme of this very provision is discussed again in detail to the same effect. It is very clear from the aforesaid discussion that this Court held that ITC is a form of concession which is provided by the Act; it cannot be claimed as a matter of right but only in terms of the provisions of the statute; therefore, the conditions mentioned in the aforesaid Section had to be fulfilled by the dealer; and subsection (20) of Section 19 was constitutionally valid. It was also noted, in the process, that there were valid and cogent reasons for inserting that provision and the main purpose was to protect the Revenue against clandestine transaction resulting in invasion of tax;
++ the reasoning given in that judgment while upholding sub-section (20) of Section 19 shall equally apply while examining the validity of Section 19(5)(c) thereof. The High Court has noted the specific stand taken by the State Government to the fact that in respect of unregistered dealer in other States, the State of Tamil Nadu has no mechanism to prevent evasion of tax and loss of revenue cost by trade with such unregistered dealers in the State of Tamil Nadu. Therefore, the provision was aimed at achieving a specific and justified purpose and could not be treated as discriminatory;
++ to put it tersely, sale by a dealer who is registered in the State of Tamil Nadu which is effected outside the State of Tamil Nadu will qualify for ITC only when the said sale is made to a registered dealer. If it is to an unregistered dealer, it would not be admissible. This classification is based on intelligible differentia having a proper rationale. Insofar sales to unregistered dealers are concerned, that too situated outside the State of Tamil Nadu, the State would not have any mechanism to find out the genuineness of these sales. In essence, the State is putting the condition that ITC would be admissible when Form ‘C’ is given, which can be given only in those cases where sale is to a registered dealer. Prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective. Consideration of this aspect in the context of the very nature of the ITC scheme, which is a concession and not a right, would lead us to the conclusion that it was open to the Legislature to make such a provision;
++ thus, wherever the State Government buys, sells, supplies or distribute goods, it shall be deemed to be the dealer for the purposes of TNVAT Act. At the same time, TNVAT Act does not require registration by the State Government inasmuch as Section 38 which deals with registration of dealers explicitly provides, under sub-section (8) thereof, that this provision shall not apply to any State Government or Central Government. A conjoint reading of the two provisions would show that when a sale is made to the State of Karnataka, it is made to a dealer but that dealer is under no obligation to get itself registered under the TNVAT Act. Because of this exemption, no State Government does that and since it is not a registered dealer, it would not be in a position to issue any Form C. But for that, the genuineness of sales made to a State Government cannot be doubted. This situation puts those dealers who are making sales to the State Government in disadvantageous position, even when it is clear that there is no possibility of tax evasion as there cannot be any such apprehension in case of sales to the State Government. We may point out here that benefit of ITC is given whenever sale is made to a dealer outside State of Tamil Nadu and the said dealer is a registered dealer;
++ thereby, the provisions of Section 19(5)(c) are to be read down by construing that those dealers who are making sales exclusively to the other State Governments (i.e. outside the State of Tamil Nadu), the said States would be deemed as registered dealers for the purposes of availing benefits of ITC. Otherwise, in such a situation, it would be difficult to hold that test of reasonable classification is met in this limited context. Hence the judgment of the High Court is upheld with one rider, namely, that in those cases where a dealer makes sales exclusively to the other State Government(s), benefit of ITC would be allowed without insisting on the furnishing of Form ‘C’. However, in order to avail this benefit, a certificate from said the State Government to whom the supplies are made would be obtained by the dealer claiming ITC and submitted to the VAT authorities.
Assessees' SLPs dismissed
2018-TIOL-385-SC-VAT
ALD AUTOMOTIVE PVT LTD Vs CTO: SUPREME COURT OF INDIA (Dated: October 12, 2018)
Tamil Nadu VAT Act - Sections 3(3), 19(2) & 19(11)
Keywords - Belated claim - delayed receipt of tax invoices - input tax credit - non-compliance of provision - revised return
The assessee company is engaged in the business of leasing and fleet management of the motor vehicles and resale of used motor vehicles. The head office of the company situated at Mumbai used to negotiate the purchase price with the local registered dealers in Tamil Nadu and issues the purchase order to the dealer along with the payment including the tax payable under Tamil Nadu VAT Act. The registered dealer then raises the tax invoice as and when the motor vehicle was ready for delivery to the assessee. The tax invoices of such purchases were received after a considerable delay as the original documents were sent to the Regional Transport Authority for registration of motor vehicles. The assessee entered the details of the tax invoice containing the payment of tax in its books of accounts. It had outsourced the job of collection of original tax invoices to one M/s. MID Controls Private Limited, an Agency specialised for collecting documents. The assessee was entitled to claim input tax credit of the amount of tax paid on the purchases made from the registered dealer of motor vehicle as per Section 19(2) of TNVAT Act. When the assessee filed its returns for the A.Y 2007-08 for want of the tax invoices, the said input tax credit could not be claimed. The assessee however, filed revised returns claiming input tax credit on the receipt of tax invoices from the dealer. The CTO however rejected the input tax credit claimed by assessee in the month of March, 2008. When the matter came to be challenged before the Writ Court, the order confirming the proposal to disallow the input tax credit was set aside and the CTO was directed to pass appropriate orders in accordance with law.
Thereafter, even when the assessee stated that the delay in getting the original tax invoices was only due to the fact that the original tax invoices were received belatedly from the registered dealers, the assessee's objections were rejected treating the entire amount of Input Tax Credit of Rs.1,28,36,822/- as not admissible for the A.Y 2008-09 taking the view that it was a belated claim. Similarly, large number of petitions were preferred challenging denial of input tax credit on account of non-compliance of Section 19(11) of Tamil Nadu VAT Act. The Division Bench however, upheld the validity of Section 19(11) of Tamil Nadu VAT Act, and upheld the orders passed by Commercial tax Department denying the benefit of Input Tax Credit. The High Court further, in the cases where final orders of assessment had been challenged, granted liberty to the assessee to prefer statutory appeal within sixty days from the receipt of a copy of the order, the same was to be entertained by the Appellate authority subject to the assessee fullfilling other mandatory statutory conditions. Challenging the same, the assessees had approached the Apex Court.
On appeal, the SC held that,
Whether the provisions of Section 19(11) which contain condition for claiming input tax credit, can be said to be inconsistent with the charging provision of Section 3(3) which permits reduction of tax of registered dealers - NO: SC
Whether the input credit being in nature of benefit/concession extended to dealers under statutory scheme, can be received by the beneficiary only as per the scheme of the Statute - YES: SC
Whether when some concession is given by a statute, the conditions thereof are to be strictly complied with in order to avail such concession - YES: SC
Whether the statutory scheme delineated by Section 19(11) can be said to be arbitrary or violative to the right guaranteed to the dealer under Article 19(1)(g) of the Constitution - NO: SC
++ the provision of Section 3(3) of TNVAT Act is a provision which entitled a registered dealer to obtain tax credit which has been explained in Section 19. Therefore, the submission that Section 19 is inconsistent to Section 3(3) is wholly misconceived. What is envisaged u/s 3(3) is amplified and explained u/s 19. The reduction in the tax as contemplated u/s 3(3) has to be in manner and as provided u/s 19. Section 19(11) contains a condition for claiming the input tax credit. As noticed, there are other various provisions in Section 19 itself where it contains provisions where no input tax credit is allowable. Thus, it cannot be said that the provisions of Section 10 are inconsistent to Section 3(3) which permits reduction of tax of registered dealer. When the input tax credit is to be allowed and when it is to be disallowed is elaborated u/s 19 which is self-contained scheme and benefit u/s 3(3) can be claimed only when conditions as enumerated in Section 19 are fulfilled;
++ the input credit is in nature of benefit/concession extended to dealer under the statutory scheme, and this concession can be received by the beneficiary only as per the scheme of the Statute. Reference is made to the judgment of this Court in Godrej and Boyce Mfg. Co. Pvt. Ltd. and Others versus Commissioner of Sales Tax and Others, (1992) 3 SCC 624, wherein it was held that Rule making authority can provide curtailment while extending the concession. This court also had occasion to consider the Karnataka Value Added Tax Act, 2013 in State of Karnataka versus M.K. Agro Tech.(P) Ltd - 2017-TIOL-359-SC-VAT, wherein it was held that it is a settled proposition of law that taxing statute are to be interpreted literally and further it is in the domain of the legislature as to how much tax credit is to be given under what circumstances. This Court in Jayam and Company versus Assistant Commissioner and Another - 2016-TIOL-128-SC-VAT, held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession. The Constitutional validity of Section 19(20) was upheld. This decision is a clear authority with proposition that Input Tax Credit is admissible only as per conditions enumerated u/s 19 of Tamil Nadu VAT Act. The interpretation put up by this Court on Section 3(2) and 3(3) and Section 19(2) is fully attracted while considering the same provisions of Section 3(2) and 3(3) and provision of Section 19(11) of the Act. The Statutory scheme delineated by Section 19(11) neither can be said to be arbitrary nor can be said to violate the right guaranteed to the dealer under Article 19(1) (g) of the Constitution;
++ the alternative submission pressed by assessee's counsel was that Section 19(11) cannot be held to be mandatory and it is only a directory provision, non-compliance of which cannot be ground of denial of Input Tax Credit. The conditions under which Input Tax Credit is to be given are all enumerated in Section 19. The condition under which the concession and benefit is given is always to be strictly construed. In event, it is accepted that there is no time period for claiming Input Tax Credit as contained in Section 19(11), the provision become too flexible and give rise to large number of difficulties including difficulty in verification of claim of Input Credit. Taxing Statutes contains self-contained scheme of levy, computation and collection of tax. The time under which a return is to be filed for purpose of assessment of the tax cannot be dependent on the will of a dealer. The use of word ‘shall’ in Section 19(11) does not admit to any other interpretation except that the submission of Input claimed cannot be beyond the time prescribed. Section 19(11) in fact, gives additional time period for claim of Input Credit. The Statutory scheme contemplates filing of the timely return before 20th of the succeeding month. Rule 7 of Tamil Nadu Value Added Tax Rules, 2007 deals with filing of returns. Section 19(11) thus allowed an extended period for Input Credit which if not claimed in any month can be claimed before the end of the financial year or before the 90 days from the date of purchase whichever is later. The provision of Section 19(11) is thus an additional benefit given to dealer for claiming Input Credit in extended period. The use of word "shall make the claim" needs no other interpretation.
Assessee's appeal dismissed
2018-TIOL-384-SC-IT + Case Story
ITO Vs URBAN IMPROVEMENT TRUST: SUPREME COURT OF INDIA (Dated: October 12, 2018)
Income tax - Sections 10(20) - Constitution of India - Article 243P & 243Q.
Keywords: District Board - Exemption - Improvement Trust - Local Authority - Municipal Committee -
Whether when the Legislature deliberately deleted Sec 10(20A) to make the income of certain Housing Boards taxable as clearly stated in the Explanation, even then an Urban Improvement Trust can claim exemption as per Clause (iii) of the new Section 10(20) inserted in the Act vide Finance Act, 2002 - NO: SC
Whether merely because the Urban Improvement Trust is assigned certain powers under the municipal act, it can claim to be put on equal footing with a municipal committee for the purpose of income tax exemption - NO: SC
The assessee, Urban Improvement Trust, had claimed exemption as a local authority as per Sec 10(20). Since the relevant Section was amended vide Finance Act, 2002 the Revenue issued a notice u/s 142(1). In reply the assessee had claimed that it was a municipality within the meaning of Article 243P of the Constitution of India, hence it was not required to file an income tax return. Assessing Officer passed an assessment order dated 28.03.2006 rejecting the contention of the assessee that its income was exempted under Section 10(20). Its stand was upheld by the CIT(A). On appeal, the ITAT reversed the CIT(A) order but the same was again reversed by the High Court.
On appeal, the Apex Court held that,
++ section 10(20A), which existed prior to amendments made by Finance Act, 2002 exempted any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both. The Rajasthan Urban Improvement Act, 1959 was enacted for the improvement of Urban Areas in Rajasthan. Section 10(20A) specifically granted exemption to income of an authority constituted in India by or under any law and the Rajasthan Urban Improvement Act, 1959 was, thus, clearly covered by Section 10(20A) as was availing exemption under Section 10(20A) prior to Finance Act, 2002;
++ what is the consequence of deletion of Section 10(20A) and further insertion of Explanation under Section 10(20) providing for an exhaustive definition of the word “local authority”, which was not defined under the I.T. Act prior to Finance Act, 2002? For definition of local authority, the provisions of General Clauses Act, 1897 - Section 3(31) were looked into and applied;
++ the Explanation added to Section 10(20) now defines the definition of local authority in four clauses. Clause (i) relates to Panchayat as referred to in clause (d) of article 243 of the Constitution. Clause (ii) relates to Municipality as referred to in clause (e) of article 243P of the Constitution. Clause (iv) relates to Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924). The counsel for the assessee claims that the assessee is covered under Clause (iii) of Explanation to Section 10(20), which is to the following effect:- “(iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or”
++ a perusal of the Scheme of the Rajasthan Urban Improvement Act, 1959 as well as the Rajasthan Municipalities Act, 1959 indicate that Urban Improvement Trust undertakes development in the urban area included in municipality/municipal board. Urban Improvement Trust is not constituted in place of the municipality/municipal board rather it undertakes the act of improvement in urban areas of a municipality/municipal board under the Rajasthan Urban Improvement Act, 1959. It may also perform certain limited power of the municipal board as referred to in Sections 47 and 48 but on the strength of such provision Urban Improvement Trust does not become a municipality or municipal board. After the insertion of Part IXA in the Constitution by the Constitution (Seventy-fourth) Amendment Act, 1992 w.e.f. 01.06.1993, Articles 243Q deals with constitution of Municipalities. Section 10(20) Explanation, Clause (ii) relates to Municipalities;
++ the counsel for the assessee has not based its claim on the basis of Clause (ii) of Explanation rather it has confined its claim to only Clause (iii). Under Clause (iii) claim of the assessee is that it is a “Municipal Committee”. We, thus, have to answer as to whether it is a Municipal Committee within the meaning of Explanation to Section 10(20) or not?;
++ the word “Municipal Committee” as occurring in Section 10(20) Explanation came for consideration before this Court in Agricultural Produce Market Committee Narela, Delhi Vs. Commissioner of Income Tax and Another. In this case, this Court had examined the Explanation to Section 10(20) as amended by Finance Act, 2002 and the definition of local authority contained therein;
++ this Court has held that the words “Municipal Committee and District Board” in Explanation were used out of abundant caution. In 1897, when the General Clauses Act was enacted there existed in India Municipal Committees and District Boards, which were discharging the municipal functions in different parts of the country. The expression “Municipal Committee and District Board” were included by amendments incorporated by Finance Act, 2002 to take into its fold those Municipal Committees and District Board which are still discharging municipal functions where no other municipalities or boards to discharge municipal functions have been constituted;
++ this Court further noticed the constitutional provision of Part IX-A and noticed that any law relating to municipalities in force in a State immediately before the commencement of the Constitution (Seventy-fourth Amendment) Act, 1992, even if inconsistent with the provisions of Part IX-A, shall continue to be in force until amended or repealed by a competent legislature;
++ the word “Municipal Committee” occurring in Clause (iii) Explanation, thus, has a definite purpose and object. Purpose and object was to cover those bodies, which are discharging municipal functions but are not covered by the definition of municipalities as was required to be constituted by Article 243Q of the Constitution of India. Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959, thus, cannot be held to be covered by the definition of Municipal Committee as contained in Clause (iii) of Explanation to Section 10(20) of the I.T. Act;
++ further, prior to deletion of Section 10(20A), Section 10(20A) was a provision which exempted the income of authority constituted in India by or under any law enacted for the purpose of planning, development or improvement of cities, towns and villages or for both. There cannot be any dispute that Urban Improvement Trust, i.e. the assessee was fully covered by the definition of authorities as contained in Section 10(20A) prior to its deletion. When there is a specific deletion of Section 10(20A), the said deletion was for an object and purpose. The Explanatory Notes in Paragraph Nos. 13.1 to 13.4 clearly mentioned that “income of certain Housing Boards etc. to become taxable”. The deletion of authorities, which were enumerated in Section 10(20A) was a clear indicator that such authorities, which were enjoying exemption under Section 10(20A) shall no longer be entitled to enjoy the exemption henceforth. The deletion of Section 10(20A) thus has to be given a purpose and meaning;
++ the provisions of Sections 47 and 48 are to permit certain powers of the municipal boards to be performed by the Trust which does not transform the Trust into a Municipal Committee. The power entrusted under Sections 47 and 48 are for limited purpose, for purposes of carrying out the improvement by the Improvement Trusts.
Revenue's appeals allowed
2018-TIOL-2175-HC-MP-CUS
GLOBAL EXIM Vs UoI: MADHYA PRADESH HIGH COURT (Dated: September 18, 2018)
Cus - Petitioners are challenging the action of the respondent No.3 in not allowing to import Bearings even though mentioned in the Duty Free Import Authorizations (DFIA) issued by the respondent No.1 in terms of Foreign Trade Policy, 2009-2014 [FTP] without payment of customs duty under notification no.98 of 2009-Cus dated 11.9.2009 on the ground that the imported goods are not covered by the DFIA and that the imported goods must be actually used in the manufacture of export goods:
Held: In the case in hand, the resultant product is 'Agricultural Tractors' which is not specified under para 4.32.2 of HBP and, therefore, the petitioners are not required to correlate the technical specification, quality and characteristics of the imported goods - once the DFIA is made transferable by the licensing authorities, the petitioner is not bound to show the actual use of the imported goods in the export product and is free to import any goods covered under the description and quantity mentioned within the overall CIF value allowed in the DFIA, (as amended upon completion of export) and there is no necessity to satisfy the requirements of para 4.1.15 of FTP - the writ petition of the petitioners are allowed in part in terms of the law laid down by the Punjab & Haryana High Court in the case of Pushpanjali Floriculture Ltd. - 2016-TIOL-1375-HC-P&H-CUS and is accordingly, disposed of: HIGH COURT [para 28, 39, 42]
Writ Petition disposed of
2018-TIOL-2174-HC-DEL-IT
PR CIT Vs GREEN DELHI BQS LTD: DELHI HIGH COURT (Dated: October 5, 2018)
Income Tax - Concessionaire agreement - Capital expenditure - Encashment of bank guarantee & Revenue expenditure.
The assessee company, engaged in the business of developing, maintaining and operating of Bus-Q-Shelters (BQS), metro stations, highways, filed its return for the relevant AY. During the assessment proceeding, the AO disallowed expenditure of Rs 2.08 cr as capital loss suffered by the assessee for failure to perform its part of the concessionaire agreement with the Delhi Transport Corporation. On appeal, the CIT(A) upheld the order of AO. On further appeal, the Tribunal held that such addition was not applicable as it was revenue expenditure.
On appeal, the High Court held that,
Whether if the bank guarantee furnished as per the Concessionaire agreement is encashed for failure to perform, such loss is to be treated as capital loss - NO: HC
++ the Assessment Order does not refer to the enduring or permanent benefit acquired by the assessee and therefore on default and failure to abide by the terms, the expenditure or loss incurred by the assessee was capital expenditure/loss. Cost of construction as recorded was not capital expenditure. Further, the assessee was liable to pay monthly fee of Rs.4.09 crores to the Delhi Transport Corporation, which is certainly revenue expenditure. Additionally, the assessee was under obligation to maintain and operate shelters which again would be revenue expenditure;
++ thus, the Tribunal has rightly held that Rs 2.08 cr was revenue expenditure and not capital expenditure. The Tribunal has also directed that if the assessee were to succeed in the Arbitration case initiated, the amount refunded would be taxed in the said year;
++ further, in the second contention it must be noticed that in the present case, the Delhi High Court had dismissed the objections raised by the assessee and had permitted encashment of bank guarantee. Consequently, the assessee became liable to pay to the bank the said amount and this liability had accrued the day the Delhi High Court gave its decision permitting encashment. The factum that the payment was to be made would not make a difference. The assessee was held liable to pay interest from the date interim order was passed till payment was made.
Revenue's appeal dismissed
2018-TIOL-2173-HC-AHM-IT
PR CIT Vs GREEN ASSOCIATES: GUJARAT HIGH COURT (Dated: October 8, 2018)
Income tax - Sections 68 & 80IB(10)
Keywords - developer of housing project - ownership over land
The Revenue Department preferred the present appeal challenging the action of ITAT in allowing the deduction u/s 80IB[10] after treating the assessee as a developer of the Housing Project even though the project as a whole was not primarily developed and built by the assessee itself and the assessee had merely acted as a contractor.
On appeal, the HC held that,
Whether deduction claimed by the contractor u/s 80IB on development of housing project undertaken at his own risk & cost, need not be denied simply because the land was held by the original owner when the housing development project was executed - YES: HC
++ it is pointed out that in case of similar assessee for the earlier assessment years, ITA Nos. 1154 & 1155 of 2018 raising similar questions came to be dismissed by observing that: "....The assessee had undertaken the development of housing project at their own risk and cost. The owner of the land had accepted the full price of the land. He was therefore not concerned with the successor or failure of the housing project. In such background, reference was made to the definition of term "transfer" u/s 2(47) and held that merely because the land was held by the original owner when the housing development project was executed, would not be detrimental to the assessee's claim of deduction u/s 80IB(10)...." Therefore, without recording separate reasons, these questions are not considered.
Revenue's appeal dismissed
2018-TIOL-2172-HC-AHM-IT
PR CIT Vs HITACHI HOMES AND LIFE SOLUTIONS INDIA LTD: GUJARAT HIGH COURT (Dated: October 9, 2018)
Income tax - estimated expenditure - provision for warranty - principle of consistency
The assessee company is engaged in the business of manufacturing & selling of Air Conditioners and Air Conditioning System. On such supplies, the assessee provided five years warranty to the customer. For the A.Y 2000-01, the assessee had claimed such expenditure to the tune of Rs.28.29 lakhs on estimation basis. When questioned, the assessee pointed out that it had provided five year warranty and the estimate was based on number of compressors on such machines which failed every year in last five years. The AO however, did not accept such explanation, and rather opined that letters produced by assessee were for A.Ys 2008-09 which would not be useful for the year under consideration. Assessee's contention that in the past, no such objection was raised was also not accepted. On appeal, the Tribunal deleted the addition on the short ground of consistency.
On appeal, the HC held that,
Whether expenditure consistently claimed over years on the basis of estimation which is derived through some scientific exercise, merits acceptance - YES: HC
++ quite apart from the Tribunal's observations on the issue of consistency which seem to be commencing, independently also, this Tribunal think that the disallowance was not justified on merits. The assessee who was engaged in the business of manufacturing and selling air conditioned units would provide five year warranty to the customer. The expenditure was estimated on the basis of data of past five years of failure of the compressors which obviously in all air conditioned units would be the main concern. The principle of allowing expenditure on the basis of estimation which is derived through some scientific exercise, which in statistical terms used as actuary is well established.
Revenue's appeal dismissed
2018-TIOL-2171-HC-MAD-IT
DAYANIDHI MARAN Vs ACIT: MADRAS HIGH COURT (Dated: October 10, 2018)
Income Tax - Writ - Section 148.
Keywords: Communication of reasons - Limitation - Issuance of the notice - Reopening of assessment & Share subscription.
The assessee Mr.Dayanidhi Maran assumed the Office of the Union Minister for Communications and Information Technology on May 21, 2004 and he resigned from the Office on May 13, 2007. He filed returns for the AY 2008-2009 and the same was assessed and reached finality. However, thereafter, the notice u/s 148 was issued by the AO to reopen the assessment for such year. On receipt of notice, the assessee addressed a letter to the AO to provide reasons for reopening the assessment for the AY 2008-2009. However, on expiry of the statutory period of six years, the AO furnished the reasons for reopening the AY 2008-2009.
Thereafter, the AO passed the order, rejecting the objections and confirmed the reopening of the assessment proceedings for the AY 2008-2009. At the time of of issuing the notice u/s 148, the charge sheet filed by the Central Bureau of Investigation (CBI) in respect of the allegations was pending. However, the assessee filed a discharge petition before the CBI and he was discharged from the charges framed by the CBI Court under the Prevention of Corruption Act.
The contention of the assessee was that if a notice is decided to be issued by the AO u/s 148, then the reasons for reopening of the escaped assessment must be stated and communicated to the assessee. According to the assessee, providing reasons subsequently after issuance of notice was not sufficient. It was further contended that it was a precondition that in the event of any reason to believe and a decision is taken by the Competent Authorities, then, the reasons must be recorded in the notice and the same should be communicated to the Assessee. Thus, according to the assessee, in the event of not establishing the reasons for such reopening of the assessment quid pro quo, the reopening orders were non est in law.
In writ, the High Court held that,
Whether if the issue of notice u/s 148 is only initiation of proceedings for reopening of the assessment already finalised, and not the final order, mere non-quoting of the reasons formed by the AO in such notice will not vitiate entire proceedings - YES: HC
Whether such very initiation of reopening process warrants interfere by the High Court in a routine manner, especially in absence of any valid legal grounds - NO: HC
++ mere issuance of notice cannot be construed as a final order. Initiation of the proceedings are to be construed as informations to the Assessee and can never be concluded as a final proceedings. Thus, the issuance of notice is an information provided to the Assessee, enabling him to avail of all further opportunities contemplated under the Statutes. Thus, the Court cannot come to the conclusion that non quoting of the reasons by the Assessing Officer in the impugned notice will vitiate the entire proceedings. If such a proposition is adopted, then it would be certainly difficult for the Executives to reopen the cases as per the provisions of the Act. The procedures are contemplated under the Act, enabling the Assessee to avail the opportunity and defend their case in accordance with law. The proceedings have not reached its finality. It is only an initiation of proceedings under Sections 147 and 148 of the Act. The very initiation cannot be interfered with by the Courts in a routine manner. Judicial review against such initiations under the provisions of the Act, is certainly limited. The Court cannot intervene on such initiations in a routine manner in the absence of any valid and acceptable legal grounds. Thus, the exercise of judicial review in such matters regarding the initiation of the proceedings are to be exercised cautiously. In the present cases, admittedly, on receipt of the notice, the assessee submitted a letter to the respondents on 24.4.2015, seeking reasons for reopening of the assessment for the assessment years 2008-2009 and 2009-2010. The respondents also furnished the reasons for reopening of the assessment on 8.5.2015. Thereafter, the Assessee must co-operate for the scrutiny and for completion of the reassessment process;
++ the assessee, who was holding the high position as Union Minister, is duty bound to respond to the notice to prove his innocence or otherwise. Contrarily, the writ petitions are filed at the notice stage itself, and the same will hamper all further proceedings of the Department and such an idea would if any developed can never be encouraged by the Courts. On receipt of the notice in the present writ petitions, rightly the assessee had approached the respondents for furnishing the reasons. The respondents have also furnished the reasons and the letters. Thus, it is left open to the assessee to defend his case in the manner known to law and allow the officials to scrutinise the assessments based on the new materials available and thereafter, take a decision and pass assessment or reassessment orders by following the procedures contemplated under the Act;
Whether section 148 mandates communication of all the reasons for reopening of assessment at the time of issuance of notice - NO: HC
++ the requirement under Section 147 of the Act i.e., the reason to believe, does not mean that the authorities at the time of issuance of notice under Section 148 should furnish all the reasons and the decisions taken by the authorities to reopen the closed assessment which is certainly unwarranted. Such a procedure is not contemplated and not intended by the provision of law. By adopting the principles of constructive interpretation, any law enacted should achieve its purpose and the object sought to be achieved. If the argument of the assessee is considered, then the very purpose and object of the provisions and the amendments made thereunder will be defeated and the Authorities Competent would not be in a position to reopen any assessment at all;
++ the reason to believe has been incorporated for the subjective satisfaction of the Assessing Officer and not for the purpose of communicating all the reasons even at the initial stage of issuance of notice to the Assessee under Section 148 of the Act. The provision is a check for the Income Tax Officials. Such a check provided under the Statute to the Officials, cannot be taken undue advantaqge by the Assessee. The word "reason to believe" incorporated is to indicate the Officials that, they cannot reopen the assessment in a routine and mechanical manner. The Assessing Officer in the event of receipt of any new material or information regarding the suppression, must have a reason to believe and the reasons must be recorded in the files and thereafter issue notice to the Assessee and the Assessee on receipt of the notice is entitled to seek the reasons or otherwise from the respondents, enabling them to adjudicate the matter in the manner known to law. This being the interpretation to be adopted, the arguments as advanced on behalf of the assessee deserves no consideration at all;
Whether when the notice u/s was issued within the timeline provided by virtue of section 149(1)(b), challenge raised by the assessee on the point of limitation is not sustainable - YES: HC
++ the assessee has to exhaust the remedy provided under the Act, this Court cannot entertain the writ petition, when there is a remedy available to the aggrieved person under the Statute. The High Court cannot usurp the power of the Appellate Authorities in respect of the adjudication of the merits and the demerits of the matter. The High Court cannot appreciate the mixed question of law and facts, at the initial stage, when a notice under Section 148 of the Income Tax Act, 1961 was issued to the Assessee for reopening the assessment. Such complex facts and circumstances are to be adjudicated by producing documents and by adducing evidences by the parties concerned. Such an exercise can never be done by the High Courts under Article 226 of the Constitution of India. Thus, entertaining a writ petition at the notice stage, must be sparingly and cautiously done. The High Courts must be restrained from entertaining such writ petitions when the very notice itself is under challenge. The point of limitation raised deserves no consideration in view of the fact that the notice under Section 148 of the Act, was issued to the assessee within the time limit prescribed under Section 149(1)(b) of the Act. The date of communication of the reason cannot be the point for reckoning period of limitation. Thus, there is no infirmity in respect of the notice issued to the assessee under Section 148 of the Act;
Whether considering the fact that the assessee was holding high position of the Union Minister and since, the transaction are believed to be multifolded, which warrants further investigation, issuance of notices on multiple choice cannot be faulted - YES: HC
++ the "common economic interest" term used by the respondents cannot have any implication in respect of the notice issued under Section 148 of the Act. The word "common economic interest" has been used not as a concept by the respondents. The phrase has been used to denote that the money has been transferred to the company belongs to the blood brother of the assessee and they are having certain interests in business and family interest for their business activities and therefore, informations now received by the respondents are subject to further investigations and for scrutiny. When one of the family members or one of the families have dealt with the issues in a particular manner creating an impact in respect of other family members and the transaction appears to be having some interest over the assessee , who was holding high position of the Union Minister, then the Department has every reason to believe that the transactions are multifolded and the interests in respect of the persons concerned are wide, warranting further investigation and scrutiny. Therefore, the issuance of notices on multiple choice cannot be found fault with. Such notices are certainly required for the Department to cull out the truth regarding the transactions. The very purpose and the object of the investigation is to investigate all such complex factual issues and to cull out the truth, enabling the Department to arrive a conclusion in respect of facts as well as the law applicable;
++ the huge transactions like that of the present cases on hand, the authorities must be in a position to investigate the issues thoroughly and by using an intelligent way of investigation. Under these circumstances, the Courts cannot interfere in a routine manner in respect of the notice issued under Section 148 of the Act. Whenever such allegations are raised against the Assessee, who was holding a high position of Union Minister, then the Department shall be allowed to investigate the matter with all fairness and by adopting an intelligent way of investigating the issues. The very concept of income tax assessment is that the Assessee is taxed by the Department based on the returns filed by the Assessee. Section 2 of the Act provides "definitions". Section 2(8) defines "assessment includes reassessment". Thus the very meaning of the assessment provided under the Act includes reassessment also. Thus, the reassessment is not a separate concept and it is included within the meaning of the assessment under Section 2(8) of the Act. Thus, an assessment and reassessment are part and parcel of the procedures and therefore, there cannot be any doubt in respect of the power of reassessment provided under the Act;
++ undoubtedly notice was issued based on the reasons recorded by the Assessing Officer under Section 147 of the Act. However, the reasons arrived had not been communicated to the assessee . But the assessee requested the reasons to be furnished. Responding to the letter sent by the assessee, the Assessing Officer communicated the reasons to the Assessee/assessee and the objections were rejected. Thus, the assessee has not been prejudiced in respect of the proceedings communicated by the Assessing Officer. Thus, this Court, has to consider the very fact that, whether any prejudice has been caused to the Assessee resulting any injustice or otherwise in the present writ petitions on hand. The assessee very well can respond to the Assessing Officer and establish his genuinity or otherwise by producing the materials available with him and by providing informations known to him. Without doing so, the assessee filed the present writ petitions, challenging the notice. This being the principles to be followed, the assessee has miserably failed to establish any legally acceptable ground for the purpose of interfering with the actions initiated by the respondents by invoking the provisions of the Income Tax Act, 1961.
Assessee's writ petition dismissed
2018-TIOL-2170-HC-MAD-IT
NEYVELI LIGNITE CORPORATION LTD Vs ACIT: MADRAS HIGH COURT (Dated: September 18, 2018)
Income tax - Sections 80IA & 80IB
Keywords - components of price - sale price of electricity - tax liability
The assessee company preferred the present appeal challenging the action of ITAT in holding that components of price for sale of electricity fixed on the basis of tax liability should not be taken as part of the transfer price of coal and sale price of electricity in computing the relief u/s 80IA/80IB.
On appeal, the HC held that,
Whether the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams, does not change the character of such a component as income not to be excluded in considering the relief u/s 80IA/80IB - YES: HC
++ it is seen that the issue under present appeal was decided by the Division Bench of this Court, in favour of assessee, by the judgement of this Court reported in Neyveli Lignite Corporation - 2012-TIOL-1227-HC-MAD-IT, wherein it was observed that: "Where under the agreement the tax component is part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams, does not make such a component as not income to be excluded in considering the relief u/s 80IA/80IB." The counsel for Revenue does not dispute this legal position. Thus, following the decision in assessee's own case for earlier A.Y, the substantial question is answered against the Revenue.
Assessee's appeal allowed
2018-TIOL-3134-CESTAT-BANG
ITI LTD Vs CCE: BANGALORE CESTAT (Dated: September 25, 2018)
CX - Appellant filed refund claim on 9.10.2007 for Rs.7.33 crores claiming to be the excise duty paid by them on the goods viz., Integrated Fixed Wireless Terminals [IFWT] cleared by them during the years 2003-04 and 2004-05 - the Department rejected the refund claim on the ground that the assessment was not provisional and even if it was provisional, refund is premature and that the appellants did not pay duty under protest; the appellants did not produce proof that the equipment manufactured by them were same as those covered by the Bangalore Tribunal's Final Order No.937/2006 dated 17.5.2006 and they have not given proof that they have not passed on the incidence of duty:
Held: Appellants have submitted the documentary proof that the goods cleared by them were manufactured out of the imported items or equipments - the department could have well verified the claim - the records of the case are very clear that the assessments were provisional for not only the impugned period but for subsequent periods also - Bench in the case of IJM Gayatri Joint Venture - 2008-TIOL-713-CESTAT-BANG has observed that once the assessment is provisional for a particular reason, it will be provisional for any other reason - once the assessment is provisional, there is no question of time bar and the short-payment can always be recovered at the time of finalization - applying the ratio of the judgment, it is held that the same is applicable to refund also - the refund claim made by the appellants is not hit by limitation - prima facie, a strong case has been established by the appellants that there was no scope for believing that the incidence of duty has been passed on by the appellants to their customers - therefore, there is no question of unjust enrichment in the instant issue - this aspect can be verified by the lower authority on finalization of the provisional assessments - as the assessments are not finalized, the issue requires to be sent back to the original authority for finalization of provisional assessment and thereup on, sanction the refund to the appellants as a consequence - appeal allowed by way of remand: CESTAT [para 5, 5.1, 5.2, 5.3, 5.4, 6]
Appeal allowed by way of remand
2018-TIOL-3133-CESTAT-BANG
ITI LTD Vs CCE: BANGALORE CESTAT (Dated: September 25, 2018)
CX - (i) Whether inspection, testing and loading of software on the imported IFWT-Telephone Instruments, before the clearance by the assessee, amounts to manufacture? and (ii) Whether the credit availed on the Power Supply Units, in respect of which it has been alleged that proper accounts have not been maintained, is factually correct, if not, whether cenvat credit is allowable?:
Held: (i) the Supreme Court in the case of Flex Industries - 2012-TIOL-01-SC-CX held that the process of manufacture is complete only when the product is rendered marketable - moreover, the Central Excise Department is not very clear on the issue whether the processes undertaken by the appellants amounted to manufacture or otherwise - the department has not raised any issue with reference to manufacture by the appellants in a different case involving a refund claim of Rs.7.33 crores for the period 2003-04 and 2004-05 - revenue cannot change the goal posts and have two different approaches to the same issue for different periods more so when the facts are identical - therefore, the issue requires to go back to the original adjudicating authority who on examination of the issue involved in both the cases, shall take a view as a whole of the issues taking into consideration the submissions made by the appellants, records of the case and the evaluation of Law on the concept of the manufacture (ii) prima facie the appellants have made out a case that they have maintained record pertaining to the receipt, storage, usage and clearance of the power supply unit - assessee's own records were taken as an evidence for arriving at the demands raised in the SCN - therefore, on this issue also, the matter is required to go back to the original adjudicating authority for a proper appreciation of records maintained by the appellants - appeal allowed by way of remand : CESTAT [para 5.1, 5.2, 5.3, 6]
Appeal allowed by way of remand
