Raisina (Up)Hill - Episode 4 (Sep 12, 2016)
BREAKING NEWS
Cabinet approves creation of GST Council; Revenue Secretary to be ex-officio Secretary to Council; CBEC Chairman to be permanent invitee to Council proceedings; 4 JS-level posts approved; First meeting likely to be on Sept 22
Revenue collections trend in five-month: Indirect taxes continue to lord over direct taxes mop-up; Rs 77,000 Crore refund released; Net growth in corporate tax goes in negative
MIXED BUZZ
Cabinet okays Exchange of Tariff concessions under APTA
Cabinet approves Higher Education Financing Agency for creating capital assets
CASE LAWS
2016-TIOL-159-SC-IT
AWASTHI TRADERS Vs CIT: SUPREME COURT OF INDIA (Dated: August 30, 2016)
Income tax - Sections 44A(2) & 44AD
Keywords - disallowance of depreciation & gross receipts
Whether the claim of depreciation u/s 44A(2) or u/s 32 can be disallowed to an assessee engaged in the business of civil construction, by applying Section 44AD, where the income of such assessee is above Rs. fourty lacs as factually established by the ITAT - NO: SC
The assessee had preferred the present appeal challenging the order, whereby the High Court had upheld the order of disallowance made by the CIT(A) on assessee's claim of depreciation, by holding that Section 44AD would be applicable to assessee.
Having heard the parties, the Supreme Court held that,
++ admittedly, the proviso to Section 44AD is applicable to the assesse in view of the fact that its income for the A.Y in question, i.e. 2009-2010, is above Rs.40,00,000/-. If that is so, the bar to the entitlement for depreciation u/s 44A(2) will not apply. Further, grant of depreciation u/s 32 would, therefore, become mandatory. The above facts have been over looked by the High Court in holding that Section 44AD is applicable to the case of assessee. The order of the High Court as well as the order of the assessment is therefore set aside.
Assessee's appeal allowed
2016-TIOL-2082-HC-AHM-CT
STATE OF GUJARAT Vs LUBI ELECTRICALS: GUJARAT HIGH COURT (Dated: September 01, 2016)
Gujarat Sales Tax Act, 1969 - Section 2(21) - Gujarat Sales Tax Rules, 1970 - Rule 42.
Keywords: purchase of spares - set off - prohibited goods - electric motors - manufacturing of motors - refund - claim of drawback.
Whether the concern of Revenue that raw materials used for manufacturing of electric motors were not directly sold by the assessee but, were sold after manufacturing pump sets, is sufficient to state that benefit of Rule 42 would not be available to that assessee to claim drawback, set off or refund - NO: HC
The assessee is a maufacturing concern. For the AY 1980-81, AO framed assessment in case of company in which he disallowed the set-off under Rule 42 of the Rules on purchase of spares of electrical motors used in manufacturing pumping set and sold as pumping set in which the electric motors were fitted. The assessee had made purchases of such spares which fell under entry-26 of Schedule-IIA to the Gujarat Sales Tax Act,1969 which were categorized as prohibited goods as defined in Section 2(21). It may be noted that the assessee had also purchased similar spares and used them for manufacturing electric motors which were sold as such on which the department had no dispute about the set-off under Rule 42 of the Rules. The assessee's appeal before the revenue authorities failed, upon which further appeal was filed before the Tribunal. The Tribunal had allowed the appeal and held that the assessee was entitled to set-off on taxes paid for purchase of spare parts used in manufacturing the motors which, in turn, were fitted in the pump sets. The Tribunal observed that when there was sale of pump sets, there was sale of electric motors also and hence, the assessee was entitled to set-off under Rule 42 of the Rules. This particular observation of Tribunal was criticized by the counsel for the State, who contended that what the Rule requires was the sale of goods manufactured by assessee by using the raw-materials. When such goods were used for manufacturing other items and sold in the market, it was not the sale of the primary product but, one manufactured with the aid of such product which was sold. The Tribunal therefore committed a serious error in granting benefit to the assessee on the basis that when a pump set was sold, what was essentially sold was also the electric motor fitted in such pump set.
Held that,
++ section 2(21) defines term 'prohibited goods'. At the relevant time, Section 2(21) provided that prohibited goods means goods described in entries 26, 39, and 43 of Part-A of Schedule-II or in entries 1 to 4 in Part-B of Schedule-II and such other goods as the State Government may by notification in official gazette specify. This definition of prohibited goods would therefore, include entry-26 of Schedule IIA which contain the following entry 'electric motor and spare parts and accessories thereof'. With this background, we may refer to the 4th condition which requires that the goods so manufactured have been sold by the assessee in the State or in course of inter-State trade etc. It can be easily appreciated that Condition Nos.2 and 4 apply independently. For example, in case of goods falling in prohibited category not covered by the proviso, condition No.2 would not be satisfied and the benefit of set off would not be available irrespective of the fact whether condition No.4 is satisfied or not. Conversely, if the goods purchased are taxable goods not falling within the prohibited category, condition No.2 would stand satisfied and condition No.4 would have to be tested independently by examining whether the goods so manufactured have been sold in the State of Gujarat or in the course of inter-State trade etc. The 4th condition has therefore a direct relation to the main body of the rule which provides that in assessing the tax payable by a manufacturer, the Commissioner shall subject to conditions grant him drawback, set off or refund of the whole or any part of the tax in respect of purchase of goods used by him in manufacture. The moment therefore the raw material is used for manufacture by an assessee and subject to other conditions being fulfilled, has been sold in the State of Gujarat or in the course of inter-State trade etc., Rule 42 would enable him to claim drawback, set off or refund as the case may be at prescribed rate on the tax paid on such purchases. That being the position, the concern of the department that the raw material used for manufacturing of electric motors were not directly sold by the assessee but, were sold after manufacturing pump sets, would not be valid. Had we been called upon to interpret the second condition alone, perhaps, we would concur the suggestion of AGP that this condition would require manufacture and sale of the same product since the concession is entry specific. However, no such restriction can be read in condition No.4. If find that the moment as per the proviso to the second condition, the assessee used the raw material which was otherwise prohibited but fell within the entry 26 for manufacture of a product, namely, electric motor which also fell within entry 26, applicability of condition No.2 stood ousted, it was thereafter only required to be seen whether condition No.4 was satisfied, which in our opinion, was done. Therefore, the present tax appeals are dismissed.
Revenue's appeal dismissed
2016-TIOL-2081-HC-AHM-VAT
TRAFIGURA INDIA PVT LTD Vs STATE OF GUJARAT: GUJARAT HIGH COURT (Dated: September08, 2016)
Gujarat VAT Act - Section 45(1).
Keywords: clearances - customs bonded warehouse - storage of goods - domestic buyers - bank guarantee - order of attachment - provisional attachment - ex bond agreement.
Whether when the goods stored by assessee in the bonded warehouse are being sold before the import is completed, there would be no liability on such assessee to pay value added tax on such transaction - YES: HC
The assessee company had challenged the action of the VAT Authorities in attaching the goods of assessee on the allegation that the assessee had avoided payment of duty on clearances worth crores of rupees. Assessee was engaged in the business of trading of high quality refined non-ferrous metals and aluminum, lead, zinc copper and Nickel. Such goods were used by various industries for purposes such as construction, home appliances etc. Assessee imports such goods from its overseas supplier i.e. M/s. Trafigura Pvt. Ltd. and such goods were sold to customers in India. The goods, after landing, were stored in customs bonded warehouse situated at Gandhidham. From there the assessee sales such goods to the domestic buyers. According to assessee, the sale takes place at the bounded warehouse and, therefore, outside the territory of India. Assessee pointed out that there was always an agreement between assessee and the purchasers in India to transfer the goods under an Ex-bond agreement. It was only after said transfer in title that the goods were brought within the customs territories of India. According to assessee, therefore, on such transaction, no VAT was to be paid as held by SC in case of Hotel Ashoka vs Assistant Commissioner of Commercial Taxes 2012-TIOL-08-SC-VAT. The State authorities, on an information received, carried out search operations at the godown of assessee and attached assessee's goods worth Rs. 50 crores in exercise of powers u/s 45(1). In such order, the authority observed that for the years 2012-13 to 2015-16 there was a possible liability of tax, interest and penalty of Rs. 50 crores against the assessee. To secure the interest of Revenue, therefore, such provisional attachment was ordered. It appeared that since the assessee desired to clear the goods which were under attachment, it negotiated with the authorities and was allowed to lift the goods worth Rs. 30 crores upon offering bank guarantee of matching sum. In this context, the authority passed further order restricting the attachment of the goods to Rs. 20 crores. On the premise that the assessee had not breached any provision of VAT Act, if was not liable to pay VAT on the transaction in question and that even after the order of attachment, the authorities had not completed the assessment despite assessee's full cooperation.
Held that,
++ in terms of Section 45(1), the competent authority undoubtedly has the power of provisional attachment where during the pendency of any proceedings of assessment or re-assessment of turnover escaping assessment, he is of the opinion that for the purpose of protecting the interest of Revenue, it is necessary to do so. However, such powers being in the nature of attachment before judgement need to be exercised with due care and caution and only in appropriate cases, where the material is available justifying exercise of such extreme power. In the present case, it would prima facie appear that the goods stored by the petitioner in the bonded warehouse being sold before the import is completed, there would be, as held by the Supreme Court in case of Hotel Ashoka vs Assistant Commissioner of Commercial Taxes no liability to pay value added tax on such transaction. Petitioner has also prima facie shown that the description in nature of goods brought and sold do not carry any significant difference and essentially, the nature of goods remained the same. Be that as it may, when the entire assessment is yet to be made and, in any case, without full material and contention from both sides, we refrain ourselves from making any final observations in this respect. In facts of the case, however, when we find that the petitioner has already offered bank guarantee worth Rs. 30 crores which would largely cover the basic tax liability and possible interest even as calculated by the department, we would not attach any further condition on the petitioner in clearing the goods hereafter. Under the circumstances, subject to the petitioner keeping the bank guarantee of Rs. 30 crores in favour of the department alive till the assessments are framed and subject to the orders contained therein, the petitioner would be free to deal with the goods in question without there being any further attachment.
Assessee's appeal allowed
2016-TIOL-2080-HC-MAD-VAT
BHARI METAL FABRICATION PVT LTD Vs ACCT: MADRAS HIGH COURT (Dated: August 18, 2016)
Tamil Nadu Value Added Tax, 2006 , Central Sales Tax Act, 1956
Keywords - Common Seal - Notice - Penalty
Whether it would be presumed that notice is duly served and received by a Company when the common seal is affixed and the concerned officer has signed the dispatch/delivery file - YES: HC
Whether when several issues are involved in the assessment process, can assessee be allowed to go before the Revenue to present its case subject to certain conditions regarding payment of the tax - YES: HC
The assessee company was a registered dealer. The assessee filed writ petition in the High Court challenging the order of assessment and penalty imposed on assessee for relevant AY. It was submitted that no notice was received by it before the impugned assessment orders were passed and penalty was imposed. To verify the correctness of the submissions, the Court checked the records, from which it was found that all the show cause notices were duly served and received by the assessee. Apart from the signature acknowledging the receipt of the notices and orders, round seal of the Company was also affixed. The assessee submitted that if an opportunity be given to it to appear before the AO, they would be in a position to establish its case.
After hearing parties, HC held that,
++ considering the fact that there are several issues involved in the assessment process and the assessment has been completed on the ground that the assessee has not been able to satisfy their case, this Court is inclined to grant liberty to the assessee to go before the Assessing Officer, but, subject to certain conditions;
++ assessee is permitted to pay 15% of the disputed tax which has been quantified both under the TNVAT Act and CST Act, being Rs.2,23,66,264/-. This payment should be over and above the amount if any already recovered from the petitioner's Bank Account. The assessee is granted eight weeks time to effect the payment. If the assessee effects payment, then they are entitled to treat the impugned orders as show cause notices and submit their objections, along with the documents and on receipt of the objections, the Revenue shall afford an opportunity to the assessee and redo the assessment in accordance with law.
Assessee's Writ Petition dismissed
2016-TIOL-2079-HC-DEL-IT
PR CIT Vs INTERGLOBE ENTERPRISES LTD: DELHI HIGH COURT (Dated: August 19, 2016)
Income tax - Section 14A & Rule 8D
Keywords - exempt income & investment
Whether an amount equal to one-half percent of the value of the investment, income from which does not form part of the total income, should only be taken into consideration for purpose of computing disallowance u/s 14A - YES: HC
The assessee during the relevant year declared certain amounts as tax exempt. During the assessment, seeking to disallow amounts u/s 14A r/w Rule 8D, the AO brought to tax an amount of Rs.77.97 lakhs. On appeal, the CIT(A) restricted the disallowance to Rs.65.81 lakhs. On further appeal, the ITAT was of the opinion that the application of Rule 8D was made in a faulty manner and observed that the disallowance on account of expenditure incurred for the exempt income could be restricted on those investments only where the assessee had earned exempt income.
Having heard the parties, the High Court held that,
++ Rule 8D (iii) clearly postulates that in the calculation of the disallowance amount, "an amount equal to one-half percent of the value of the investment, income from which does not or shall not form part of the total income....." should be taken into consideration. Thus, it is not all investment but only that which is expressly spelt out in Rule 8D (iii) which is to be reckoned for the purpose of calculation of average of half percent. Having regard to these circumstances, we are of the opinion that no question of law arises.
Revenue's appeal dismissed
2016-TIOL-2078-HC-DEL-CUS
ANIL GADODIA Vs ADDL CC: DELHI HIGH COURT (Dated: September 07, 2016)
Cus - Petitioner seeking release of goods viz. alleged to be Red Sanders as well as cash seized on 28.09.2013. Held - SCN issued on 28.08.2014 and reply filed "whether test reports have been made available is not clear" it would be appropriate and in the interest of justice that a final order is made by adjudicating authority. Directions issued to complete the proceedings on or before 31.01.2017. Petition disposed of: High Court [para 3]
Petition disposed of
2016-TIOL-2077-HC-P&H-CUS
R G GUPTA AND COMPANY Vs UoI: PUNJAB AND HARYANA HIGH COURT (Dated September 09, 2016)
Cus - Goods imported by the petitioner as Heavy Melting Scrap and Re Rollable Steel Scrap. Revenue detaining the goods pursuant to inspection by Chartered Engineer who opined that the goods fall in the category of Seconds & Defective CRGO Silicon Steel Strips in Slit Coil Form and Seconds and Defective Cold Rolled Grain Oriented Steel Sheets/Strips cut to different shapes and sizes. Petitioner before High Court challenging detention and submitting that if the department is of the opinion that the goods can be re-used after cutting/punching to the required size and shapes, the petitioner is ready to get the same mutilated at his own cost; that goods be provisionally released. - Held: To take care of the apprehension expressed by the Department that the material can be re-used, the petitioner had offered its mutilation at his own cost before it is released - petitioner should be permitted to do that and, thereafter, the goods be released on provisional basis - Department shall be at liberty to issue show cause notice to the petitioner for any alleged violation of the provisions of the Customs Act - Petitioner will pay the duty on the material imported as scrap and further furnish surety and undertaking to pay the duty, penalty and interest, if any, as may be leviable on such goods, if these are found to be other than scraps. Petition disposed of: High Court [para 5]
Petition disposed of
2016-TIOL-2076-HC-P&H-CUS
CC Vs OSWAL PAPER & ALLIED INDUSTRIES: PUNJAB AND HARYANA HIGH COURT (Dated : September 06, 2016)
Cus - Import of Capital goods under EPCG Scheme - in terms of Notification 111/95-Cus dt. 3.6.95, failure to carry out export necessitates payment of the whole of customs duty on imported goods as well as interest. CESTAT had held that Confiscation and Imposition of penalty is not contemplated in law and hence set aside the same; that Notification 111/95 Cus is a self contained code and, therefore, no action outside of the notification is attracted and called for, being a case of business failure and the penalty is financial loss, therefore, penalties imposed were set aside ? Revenue appeal before High Court. Held: Respondents have submitted that assets of the respondent-company were taken over by the financial institution and have been sold and which sale is under challenge; that company is lying closed. Appellant Revenue submitting that in view of apex court decision in Vidarbha Veneer Industries Ltd. - 2016-TIOL-111-SC-CX the present appeal may be disposed of at this stage, however, with liberty to the department to get the same revived, in case the respondent-company succeeds in challenge to the sale of assets and revives its business. Ordered accordingly: High Court [para 2, 3]
Appeal disposed of
2016-TIOL-2075-HC-AHM-IT
GUJARAT GAS TRADING COMPANY LTD Vs CIT: GUJARAT HIGH COURT (Dated: September 6, 2016)
Income Tax - Sections 143(1) & 264.
Keywords - Commission for performance guarantee - Delay - Period of limitation - Refund Order.
Whether when the normal practice followed by the Revenue is to club refund order with intimation u/s 143(1) but the assessee claims that it did not receive the intimation, in such circumstances, denial of condonation of delay in filing revision application u/s 264 is legally sustainable - YES: HC
The assessee was a company. It filed return for relevant AY. The assessee had made a provision for commission for performance guarantee. According to the assessee, while computing the profit and loss of the business, due to misunderstanding, said amount was added back while computing total income. Assessment was completed and refund order was passed. The assessee having realised the error in not claiming the deduction of expenditure on accrual basis while filing the return, filed a petition before the Commissioner u/s 264, seeking revision of the intimation/order passed u/s 143(1) of the Act. The Commissioner called upon the assessee to produce necessary evidence in support of the date of receipt/communication of the intimation u/s 143(1) of the Act.
Instead of replying to the show cause notice, the assessee filed a fresh petition for revision. This revision petition was rejected for lapse of time. The assessee approached the High Court. The Court was of the opinion that if the Commissioner desired to dismiss the revision petition on the ground of delay, assessee should have been put to notice thereof and also an opportunity to explain the delay. The Commissioner thereupon issued a show cause notice stating that it appear that the assessee had received the refund order and the intimation prior to the said date. The revision petition was therefore, filed beyond the period of limitation. The Commissioner also raised the issue of maintainability of the revision petition prima facie, conveying to the assessee that against intimation u/s 143(1) of the Act, the revision petition would not be maintainable. The assessee contended that though it had received the refund order, had never received the intimation u/s 143(1) of the Act at the relevant time. Ignoring such pleas of the assessee, Commissioner rejected the revision petition on the ground of delay as well as maintainability. Aggrieved assessee filed petition in the High Court.
HC held that,
++ two things thus become clear. One is that the period of limitation would commence from the date on which the order under revision was communicated to the assessee or the date on which he otherwise came to know of it, whichever is earlier. Second aspect is that the Commissioner has the power to condone delay beyond the period of one year, provided, he is satisfied that the assessee was prevented by sufficient cause from making application within such period. In the present case, as noted, the assessee was at any rate served with the order of refund atleast by 11.5.2005. From such date in terms of subsection( 3) of section 264, period of limitation would begin to run. In fact, the Commissioner has placed reliance on the report of the Assessing Officer which suggested that not only the refund order but also the intimation under section 143(1) of the Act was dispatched for service to the petitioner. He noted that the practice of the department invariably is to accompany the order of refund with intimation. He therefore, found it difficult to believe the version of the petitioner that only the order of refund was served and not intimation under section 143(1) of the Act. There is nothing on record to overrule these findings of fact. In any case, even without the service of intimation, the assessee had sufficient knowledge about the acceptance of return as far back as in May 2005. The first attempt to file revision petition, made in December 2008, was thus merely grossly belated. The only explanation that the assessee offered was that since the intimation was served much later, there was no delay at all. However, if it was presumed that the limitation began to run from May 2005, what prevented the assessee from filing the revision petition earlier, there is no explanation at all. The assessee merely referred to the power of the Commissioner to condone the delay for good and sufficient cause being shown, but did not elaborate, in the present case, what such good and sufficient cause was. The Commissioner in our opinion therefore, committed no error in holding that the assessee had failed to show sufficient cause for condoning the delay;
++ during the period when u/s 143(1), the Assessing Officer had the power of making prima facie adjustments, the legislature provided for an explanation that an intimation sent to the assessee under subsection( 1) would be deemed to be an order for the purposes of section 264 with effect from 1.6.1999. Such explanation has been deleted giving a clear indication that such deeming fiction would no longer apply. In other words, as long as the Assessing Officer had the power to make prima facie adjustments while processing the returns of the assessee under section 143(1) of the Act, by a deeming fiction, it was considered as an order for the purpose of section 264 of the Act and, therefore, revisable. Once with amendment of section 143, such powers were rescinded, it was thereafter, no longer necessary to provide for any refund against a mere intimation under section 143(1) and a corresponding change was therefore, made by deleting the explanation and withdrawing the deeming fiction. We therefore, accept the view of the Commissioner that against the intimation under section 143(1) of the Act, the revision petition was not maintainable.
Assessee's petition dismissed
