Life Beyond Tax - K V Chowdary, Central Vigilance Commissioner
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CASE LAWS
2016-TIOL-2203-HC-MAD-CX + Story
ARUN SMELTERS LTD Vs CESTAT: MADRAS HIGH COURT (Dated: July 19, 2016)
Central Excise - Compounded levy - Arrears of duty demand for the period under compounded levy - Whether can be paid from CENVAT Credit on inputs received on after 01.04.2000 - As per the judgement of Supreme Court, compounded levy scheme as a comprehensive scheme and the general provisions of the Act and the Rules, are excluded, and further the assessee opting for the scheme, is bound by the terms of that particular scheme - Payment from CENVAT Credit not allowed.
Reading of the provisions, when the Compounded Levy Scheme, was in force, in entirety, makes it clear, as to how, the manufacturer of non-alloy steel ingots and billets, have to make the payment, in the current account, maintained by the manufacturer, under sub-rule (1) of rule 173G of the Central Excise Rules, 1944. As per the scheme, any unutilised balance of input credit and capital goods, lying with the manufacturer, shall lapse forthwith. Therefore, from 1st September' 1997 till 31st March' 2000, duty has to be paid and cenvat credit cannot be availed. Compounded levy scheme also stipulates the time for payment of duty. The then existing provision also provided for imposition of penalty for failure to pay the total amount of duty, payable within the period provided therefor, in the manner, as provided therefor, under the compounded levy scheme. (para 37)
Though the appellant has contended that when the revenue has not chosen to file an appeal against the judgment High Court in Commissioner of Central Excise, Ludhiana v. Punjab Casting Pvt. Ltd., as there was no revenue loss and that the said decision can be made applicable to the facts of the instant case, the same cannot be accepted for the reason that in the above reported judgment, there is no occasion for the Punjab and Haryana High Court to consider the decision of the Hon'ble Supreme Court in Hans Steel Rolling Mill v. Commissioner of Central Excise, Chandigarh 2011-TIOL-30-SC-CX . (para 43)
When the judgment of the Supreme Court has declared that the compounded levy scheme as a comprehensive scheme and also categorically held that the general provisions of the Act and the Rules, are excluded, and further held that the assessee opting for the scheme, is bound by the terms of that particular scheme, reliance made on the decision of the Punjab and Haryana High Court in Punjab Casting Pvt. Ltd.,'s case, is not tenable, as the law of the land is binding. (para 44)
Penalty set aside following Supreme Court decision in Shree Bhagwati Steel Rolling Mills v. Commissioner of Central Excise. (para 30)
Appeals disposed of
2016-TIOL-2202-HC-P&H-CX
CCE Vs ABHISHEK INDUSTRIES LTD : PUNJAB AND HARYANA HIGH COURT (Dated: August 17, 2016)
CX - Rule 5 of CCR, 2004 - Refund of CENVAT - Goods manufactured were not leviable to any tax as exported out of the country, however, refund claimed of input tax credit - Though the adjudicating authority declined the claim of the assessee, the First Appellate Authority accepted it - Revenue appeal rejected by Tribunal, hence appeal to High Court. Held: Tribunal referred to the decisions in Repro India Ltd. - 2007-TIOL-795-HC-MUM-CX and Drish Shoes Ltd. - 2010-TIOL-350-HC-HP-CX (affirmed by Supreme Court) and dismissed the appeals filed by the Department - Once the issue involved in the present appeal has already been gone into by the Supreme Court and judgments of Bombay High Court and Himachal Pradesh High Court have been upheld granting relief to the assessee, Court does not find any substantial question of law arising in the present appeal - appeal dismissed: High Court [para 6]
Appeal dismissed
2016-TIOL-2201-HC-AHM-IT
SUN PHARMACEUTICAL INDUSTRIES LTD Vs ACIT: GUJARAT HIGH COURT (Dated: September 12, 2016)
Income Tax - Sections 115JB, 131(1A), 143(3), 147 & 148.
Keywords: reason to believe - reopening of assessment - transfer of technology - shell companies - post box companies - escapement of income - transfer of profits - show cause notice.
Whether if the assessee company has supplied the technology developed by it to a foreign holding, it has been observed by AO that technology was actually transferred by routing it through other companies only to avoid payment of tax, the same can become the basis for reopening of assessment - YES: HC
Whether at the stage of issue of reassessment notice, the only question is to be considered is that if there was relevant material on which a reasonable person could have formed a requisite belief, the materials would conclusively prove the escapement is not the concern - YES: HC
Whether the mere contention that full and true disclosure have been made cannot be accepted, if it was disclosed by assessee was that its subsidiary received consideration for transfer of technology to foreign holding, as it did not reveal whether such foreign company has any R & D development capabilities - YES: HC
The assessee company had challenged the notice issued by AO for reopening assessment for the AY 2003-04. For the said AY, assessee had filed a return of income declaring 'nil' income. During the period relevant to the said AY, the assessee had transferred a technology to one Sunpharma Global, a company based at British Virgin Islands for USD 4 lacs. The return of the income was taken in scrutiny by AO, who passed an order of assessment u/s 143(3) assessing 'nil' income of assessee. AO thereafter issued the impugned notice which was issued after a period of four years from end of the relevant AY. Upon being supplied with the reasons, assessee raised objections to the notice of reopening under a letter dated 7.11.2011. Such objections were, however, rejected by the AO. Special Civil Application had been filed by Sun Pharmaceutical Industries Limited. In such petition, assessee had challenged the notice issued by AO to reopen the assessee's assessment for AY 2004-05. For the said AY 2004-05, the assessee had filed a return of income on 1.11.2004 which was revised on 31.3.2006. Such return was taken in scrutiny and AO passed an order of assessment u/s 143(3) assessing total income at Rs.169.42 crores rounded off u/s 115JB. Upon being supplied reasons, assessee raised the objections under a communication. Such objections were, however, rejected by AO by an order dated 14.11.2011. Sun Pharma has, therefore, challenged the said notice of reopening.
Reasons recorded by AO in case of Sun Pharma concerning the same transfer of technology, can be summarized as follows. CARACO was a US based subsidy of Sun Pharma. From financial statements filed by Sun Pharma with the return of the income for the AY 2004-05, it was found that Sun Pharma Global Inc of British Virgin Islands was also subsidiary of Sun Pharma. Sun BVI was engaged in sale and distribution of pharmaceutical products and investment activities. Its address provided was of a P.O.Box. According to AO, research organization of this size cannot operate from a P.O.Box address. Inquiry revealed that large number of companies were registered at the same address. During the financial year 2003-04, CARACO entered into a new technology transfer agreement with Sun BVI. It appears that Sun BVI did not have any fixed assets at its disposal. Its operating expenses especially salary were very low. These facts would show that Sun BVI did not have research facilities. Despite this, Sun BVI had reflected significant income and high profit margin which were not taxable in British Virgin Islands. The statement u/s 131(1A) of Shri Sudhir Valia, a key person of group of companies and present director of Sun Pharma was recorded by the investigating wing of the Income Tax Department. In such statement, it had accepted that Sun BVI had no facility of R & D and manufacturing. Further inquiries revealed that Sun BVI had acquired technology from Unimed. It was found that Unimed does not have dedicated R & D facility or work force of scientists required for such research. It had only a small lab and was engaged mainly in production of injections and eye drops. Thus, Unimed was not capable of transferring technology which can fetch high premium subsequently. On the basis of such materials, AO was of the belief that Sun BVI which was a subsidiary of the assessee based in British Virgin Islands was a shell company and was used as a device for diverting taxable profits of Sun Pharma to Sun BVI. During the year under consideration, Sun BVI had received 1.17 crores USD from CARACO on account of transfer of technology. Evidence would point to the fact that the technology was transferred by Sun Pharma to CARACO but routed through its subsidiary Sun BVI so that no tax was required to be paid. Sun Pharma has booked all expenses to develop the technology which was transferred. In the opinion of AO, Sun Pharma had concealed the income to the extent of USD 1.17 crores.
Held that,
++ coming back to the notice for reopening in the case of Sun Pharma, we may notice that in case of this very company in Special Civil Application No.2965 of 2013, the issue had arisen of reopening of assessment where allegedly according to the revenue, technology was transferred by Sun Pharma to CARACO taking exactly the same route as in the present case. In this context, the AO had recorded elaborate reasons alleging that effectively it is the technology developed by Sun Pharma which ultimately reached CARACO through British Virgin Islands route, the intermediaries conduits being Unimed and Sun BVI in British Virgin Islands. It is true that these reasons were based on a survey operations carried out by the Income Tax Authorities in the case of assessee and the nature of material at the command of AO therefore is bound to be somewhat different. In the present case, as per the reasons recorded, previously Sun Pharma and Sun BVI had a Technology Transfer agreement. However, in the present case, technology was transferred by Unimed to Sun BVI for a declared consideration of 4 lac USD which, Sun BVI a subsidiary of Sun Pharma based in British Virgin Islands sold the same technology to M/s CARACO for 1.17 crores USD. The statement of Sudhir Valia key person in the group of companies and at that time director of Sun BVI and presently the director of Sun Pharma was recorded u/s 131(1A) in which he accepted that Sun BVI had no facility of R & D and manufacturing. During the inquiry, revenue also found material to suggest that Sun BVI had acquired technology from Unimed. Unimed also did not have elaborate R & D facility or necessary work force for such purpose. Such R & D facility was only available with the assessee and its research centre. AO therefore formed a belief that Sun BVI is shell company used only as a device to deviate the taxable profits of Sun Pharma as Sun BVI had also not developed any technology on its own. It was found that Sun BVI and CARACO both were subsidiaries of assessee. The assessee company had capacity to produce such technology and in fact between 1997-02, Sun Pharma had supplied such technology developed by it to M/s CARACO. In view of such evidence on record, AO concluded that technology in question transferred was actually done by the assessee to CARACO but was routed through other companies only to avoid payment of tax;
++ elaborate reasons have been recorded by AO which demonstrate how prima facie it can be shown that technology developed by Sun Pharma through use of its R &D facilities was routed to CARACO through Unimed and Sun BVI in British Virgin Islands which ensured that the entire amount escaped assessment in the hands of Sun Pharma. At the stage of considering notice for reopening, one has to see only prima facie whether on the basis of tangible material on record, AO could form a valid belief that income chargeable to tax has escaped assessment. At that stage, it is not necessary to verify whether invariably such income would be brought to tax. SC in the case of ACIT V/s Rajesh Jhaveri Stock Brokers P.Ltd., 2007-TIOL-95-SC-IT , held that section 147 authorises and permits AO to assess or reassess income chargeable to tax if he has reason to believe that income for any AY has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by SC in Central Provinces Manganese Ore Co.Ltd. V. ITO 2002-TIOL-1870-SC-IT , for initiation of action u/s 147(a) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction. The contention that full and true disclosure have been made cannot be accepted. What was disclosed by Sun Pharma was that its subsidiary received consideration of 1.17 crores USD for transfer of penalty to CARACO. It obviously did not reveal whether Unimed or Sun BVI had any R & D development capabilities. In the result, Special Civil Application No.18698 of 2011 filed by Unimed is allowed. The impugned notice dated 30.3.2011 is quashed. Special Civil Application No.17781 of 2011 filed by Sun Pharma is dismissed. Needless to add, our observations are made only for considering whether to uphold the notice of reopening or not and the assessment would be ultimately based on material which may be brought on record unmindful of the observations made above.
Assessee's appeal dismissed
2016-TIOL-2200-HC-DEL-CUS
NPT PAPERS PVT LTD Vs PR CC: DELHI HIGH COURT (Dated: September 9, 2016)
Cus - CESTAT was of the opinion that the letter/communication imposing condition for provisional clearance of the case did not amount to a quasi-judicial order and, therefore, the appeal against the same is not maintainable - appeal to High Court.
Held: CESTAT appears to have completely overlooked that the order of provisional release was appealed against and the Commissioner rejected it on 09.10.2015 - In these circumstances, the opinion of the CESTAT is completely untenable - it would be in the interest of Revenue as well as the appellant if this court makes appropriate orders - condition for release is modified to the extent that instead of the entire differential duty, the appellant be directed to deposit Rs.15 lakhs; other conditions remain undisturbed - adjudicating officer should conclude the hearing at his earliest convenience and pass final orders - appeal allowed: High Court [para 2, 4]
Appeal allowed
2016-TIOL-2199-HC-MUM-CUS
SHAH NANJI NAGSI EXPORTS PVT LTD Vs JOINT DGFT: BOMBAY HIGH COURT (Dated: September 14, 2016)
Cus - Finding is that the petitioner company not only created certain false documents to show transportation and processing of corn, but also sold the imported corn - there is also a clear finding that the petitioner company had a malafide intention and indulged in this act through creation of fabricated documents - Prima facie, the authorities under the Act would not have considered the legality and validity of imposition of a condition - Their findings are that given such a condition, the same was binding on the petitioner and that having not been complied with and the prima facie conclusion being of fraud and malafides on the part of the petitioner - Bench does not think that the petitioner is entitled to an equitable and discretionary interim relief - Petitioner having brought a bank guarantee and instead of making payment of the penalty, Court directs that it would be open for the authorities to encash the bank guarantee, but subject to the final orders that would be passed in the petition - When the encashment is by the authorities under the Foreign Trade Act, 1992 and the Central Government, there is no reason for the apprehension on the part of the petitioner that in the event they succeed, the amount would not be returned back by the authorities - Request is, therefore, rejected: High Court [para 4, 6]
Petition admitted
2016-TIOL-1693-ITAT-DEL
DCIT Vs BANSAL CREDITS LTD: DELHI ITAT (Dated: September 19, 2016)
Income Tax - Sections 68 & 133A
Keywords - Debentures - Unsecured loan - Unexplained credit
Whether addition as to unexplained credit u/s 68 on the surrender made during the course of survey is justified, when the same is not the amount of credit in the assessee's books of account - NO: ITAT
The assessee-company is engaged in the business of financing of automobiles. The company raised funds through secured redeemable non-convertible debentures and fixed deposits from its investors. There was survey u/s 133A at the assessee's business premises. During the course of survey, Director of the company surrendered the sum as he could not provide evidence of genuineness of these debentures and full details concerning these transactions. The assessee retracted the surrender made by him. Soon thereafter, the assessee filed the return of income in which the income surrendered during the course of survey was not disclosed. During the course of assessment proceedings, the AO asked the representative of the assessee company to provide names and details of account holders, in response to which, the assessee produced voluminous details and evidences running into more than 7,000 pages. The Assessing Officer asked the assessee to produce some of the debenture holders and depositors. However, the assessee could not produce any of them. In view of the above, the AO made the addition as unexplained credit u/s 68. On appeal, CIT(A) after considering these facts and evidences, found that the assessee had duly discharged the onus of proving the cash credit u/s 68. Accordingly, he deleted the addition.
The Tribunal held that,
++ the Assessing Officer, without discussing the case of a single creditor, rejected all of them. CIT(A) has discussed all those documents from page 5 to 17 of his order. The Assessing Officer made the addition of Rs.3,50,00,000/- as unexplained credit u/s 68 when admittedly, the sum of Rs.3,50,00,000/- was the surrender made by the assessee during the course of survey and was not the amount of credit in the assessee's books of account. Credit in the assessee's books of account was only Rs.3,09,84,715/-. CIT(A) has also recorded the finding that the credit to the extent of Rs.1,28,39,715/- was not pertaining to the year under consideration. Thus, it is evident that the Assessing Officer made the addition without considering all the facts and evidences on record merely because the assessee has surrendered the same at the time of search. We have already discussed that in view of the decision of High Court in the case of Dhingra Metal Works where it was held that" Since the assessee had been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the Assessing Officer could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey."and of Apex Court in the case of S. Khader Khan Son as well the Circular of CBDT vide letter F.No.286/2/2003-IT(Inv.II) dated 10th March, 2003, the addition cannot be made only on the basis of surrender made at the time of survey. In view of the above legal and factual position, we do not find any infirmity in the order of CIT(A). Accordingly, the same is upheld and Revenue's appeal is dismissed.
Revenue's appeal dismissed
2016-TIOL-2486-CESTAT-MUM
IDEA CELLULAR LTD Vs CST: MUMBAI CESTAT (Dated: July 28, 2016)
ST - CENVAT - Rule 2(l) of CCR, 2004 - Providing taxable and non-taxable services - Rule 6(3)(c) of CCR, 2004 does not provide utilization of 20% monitored on monthly basis - if utilization is considered for the entire period from September 2004 to May 2006 then there will be no utilization in contravention of said rule - issue settled in appellants own case in favour - revenue has no case on this issue: CESTAT [para 7(a)]
ST - Rule 2(l) of CCR, 2004 - CENVAT credit of service tax paid on services utilized for construction of tower is admissible in view of Tribunal's order no. A/86785/15/SMB dated 30.04.2015 - no reason to deviate from such a reasoned order: CESTAT [para 7(b)
ST - CENVAT - Capital goods - Credit availed at one go - Rule 4(2)(a) of CCR, 2004 do not restrict availment of credit of 100% of duty paid on capital goods in the second year - Credit rightly taken: CESTAT [para 7(c)]
ST - Rule 2(l) of CCR, 2004 - CENVAT credit cannot be availed of duty paid on Diesel but there is no bar in availing credit of service tax paid on services associated with delivery of diesel, loading in DG set etc. - credit allowed: CESTAT [para 7(d)]
ST - CENVAT - Rule 2(l) of CCR, 2004 - It is not disputed that appellant has engaged professional service for liaisoning with various authorities for and in respect of the business activity and paid service tax to the government - services are Input services - so also on catering services, credit is admissible: CESTAT [para 7(e)]
ST - CENVAT credit in respect of Tower & Shelter - Issue is no more res integra and is covered against the appellant by the judgment in the case of Bharati Airtel - 2014-TIOL-1452-HC-MUM-ST - appeal fails on this count and appellant is directed to pay back the amount with interest: CESTAT [para 7(f)]
Penalty - Since all the issues involved are of interpretative nature, there is no reason to visit the appellant with any penalty: CESTAT [para 8]
Appeal disposed of
