GST Council fixes Rs 20 lakhs as exemption limit for goods & services; Service tax assessees to remain with Centre; FY 2015-16 to be base year for computing compensation
NOTIFICATIONS/ INSTRUCTIONS/ CIRCULARS
CBCE Chairmans letter on GST Dated 17-09-2016
stnot16_041
Taxable service provided by State govt. IDCs/undertakings by way of granting long term lease of industrial plots to industrial units exempted to the extent of one-time upfront amount payable
ctariff16_050
Raw materials imported for 'servicing' of aircraft [Hdg 88.02] no longer exempted
F.No.225/120/2016/ITA.II
Withdrawal of clarification regarding Sec. 138 of the Income tax Act, 1961 with reference to CBDT earlier notification No. SO 576 dated 23/05/2003, which was issued by CBDT on 21st September, 2016 vide. F.No. 225/120/2016/ITA.II
dgft_trade_notice_18_2016
Clarification in respect of definition of service provider under Common Service Providers (CSP) in Export Promotion Capital Goods (EPCG) scheme.
review-committee-circular
Review Committee of Chief Commissioners of Central Excise, Service Tax and Customs
CASE LAWS
2016-TIOL-2232-HC-AHM-IT + Story
SHREE KAMDAR EDUCATION TRUST Vs ITO: GUJARAT HIGH COURT (Dated: August 23, 2016)
Income tax - Sections 11 & 13(1)(c)
Keywords - borrowed funds from trustees - diversion of trust income - educational trust - interests on deposit - payment of lease rent & violation of provision
Whether mere charging of high fees as compared to the other schools in the region, would by itself establish that the concerned school was running for profit making - NO: HC
Whether Section 13(1)(c) of the I-T Act prohibits normal transactions between the trust and the persons referred to u/s 13(3) of the Act - NO: HC
Whether mere payment of lease rent or interest on borrowed funds, by an educational trust, without there being any element of such payments being excessive or unreasonable compared to the normal rates prevailing, would fall within the mischief of section 13(1)(c) of the I-T Act - NO: HC
The assessee is an educational trust and is engaged in running a school in the name of Delhi Public School at Rajkot. It had filed the return for the A.Y 2003-04, declaring total loss of Rs.8,47,901/-. The same was taken up for scrutiny and notices were issued to the assessee requiring it to show cause the details in respect to assessee's claim of exemption u/s 11. He pointed out that substantial payments were made by the trust to the settler of the trust as well as the trustees and their near relatives, which according to him, were in violation of section 13(1)(c). These payments were made in the nature of interest on deposits from the trustees and lease rent paid for the land taken on lease from them. He therefore, came to the conclusion that the trust was not engaged in any charitable activity and hence denied exemption u/s 11. In response, the assessee pointed out that the trustees and their relatives have substantial landed properties which were taken on lease. In support of such contention, the assessee produced a lease deed executed between the trustees/relatives of the trustees and one M/s. Max New York Life Insurance Co. Ltd. With respect to payment of interest to the trustees on borrowed funds, the trust pointed out that it needed to raise loan of Rs.2 crores, for which, the Joint Commissioner had also given permission. The AO discarded such defence, and came to the conclusion that the assessee was running the educational institution on commercial basis with profit motive. On appeal, the CIT(A) held that the trust was imparting education with sole motive of profit making. He discarded the comparison of lease rent which the trustees had charged from the Max New York Life Insurance Co. Ltd on the ground that the assessee trust was occupying a larger area, whereas Max New York Life Insurance Co. Ltd. was occupying a very small piece of land and, therefore, comparison of rent was not possible. With respect to borrowing from the trustees, he discarded the assessee's contention that borrowing from the Bank would entail higher interest and lengthy procedure by suggesting that the investment of idle funds by the trustees in the Bank would fetch lower interest than what was offered by the trust. He concluded that such monetary transactions were nothing but planning of tax evasion in camouflage.
Having heard the parties, the High Court held that,
++ the Revenue had two principal contentions for denying the exemption to the assessee. First was that the trust was running the educational institution for profit making. The second was that the trust had diverted its income in favour of the trustees and their near relatives, thereby breaching section 13(1)(c). So far as the first issue is concerned, the revenue authorities seem to be relying on the fact that the assessee was charging, what they considered, was high rate of fees compared to the other schools in the region. That, by itself, would not establish that the school was running for profit making. Through series of decisions, it is by now well settled that the trust, in the course of running an educational institution, is entitled to make a reasonable surplus and setting apart a surplus after expenditure from the receipts, by itself, would not mean that the purpose is profit making. In the present case, in fact, as reproduced by the Tribunal in its impugned order, if we consider the last seven years accounts of the assessee trust, there was not even a surplus after the assessee adjusted its expenditure for the respective years. The first ground of objection of the revenue, therefore, must fail. This brings to the element of diverting the income of the trust to the trustees and near relatives. Section 11 grants exemption to income from property held for charitable or religious purpose subject to fulfillment of condition contained therein. Section 13 on the other hand, pertains to cases where section 11 would not apply. As per section 13(1)(c), nothing contained u/s 11 shall operate so as to exclude from the total income of assessee being a trust for charitable or religious purpose or a charitable or religious institution, if any part of such income or any property of the trust or the institution is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to in sub-section (3). Thus, if any part of the income of the trust was, during the previous year, used or applied directly or indirectly for the benefits of any such person, in relation to such income, section 11 exemption would not apply;
++ in the present case, we may recall that the Revenue relies on two factors to press in service breach of section 13(1)(c). One is that the trust had taken a large part of land belonging to the trustees or relatives on lease, for which, the trust would pay lease rent at the rate of Rs.1/- per sq.ft. per annum. This lease rent, according to the revenue, amounted to applying the trust income in favour of the trustees. The second factor pressed in service by the revenue was the interest on borrowed funds paid by the trust to these persons, Here again, the revenue contended that the income of the trust was being applied for the benefit of such persons. Insofar as the lease rent is concerned, the revenue had not brought on record any evidence to suggest that such lease rent was either excessive or even higher than the normal market rate prevailing in the region at the relevant time. In fact, the assessee produced material to show that a part of the land belonging to the trustees was leased to one Max New York Life Insurance Co. Ltd. at the rate of Rs.5/- per sq. ft. as against the rate of Rs.1/- per sq. ft. being paid by the assessee. The CIT(A) discarded such comparison on the ground that the area occupied by the Max New York Life Insurance Co. Ltd. was much smaller, as compared to the area leased to the assessee. The size of the land under occupation may have some bearing on the lease rent which the land may fetch, nevertheless, in the present case, the difference of rate between two cases was nearly five times. Without there being any further material on record, the CIT(A) could not have come to the conclusion that the rent paid by the assessee to the trustees for the leased land, was excessive. Similarly, the assessee pointed out to the authorities that it needed to raise a fund of Rs.2 crores by taking loan from the financial institutions for which permission was also granted by the Charity Commissioner. The Bank had offered loan at the interest rate of Rs.12.50% per annum which would also require giving securities and executing documents. As against this the trustees offered unsecured loan at the interest rate of Rs.9% per annum. Here again, the CIT(A) discarded such comparison by contending that the trustees themselves would have fetched lower fixed deposit rate from the Bank;
++ for multiple reasons, this was not a correct approach. First, we are trying to ascertain whether the trust was paying the interest at the rate higher than the market rate. What the trustees could have got from the Bank was not correct comparison. Secondly, the trustees were offering unsecured loan, which with inherent risks, invites higher interest than the bank loans. Last but not the least, if the trustees had parked their money in the Bank fixed deposits, the liquidities and security of such investment would be much higher than lending substantial amount to the trust without a collateral security. Section 13(1)(c) does not prohibit normal transactions between the trust and the persons referred to u/s 13(3) of the Act. What is relevant is the use or application of any part of the income of the trust directly or indirectly for the benefits of any such person referred to u/s 13(3). Mere payment of lease rent or interest on borrowed funds, without there being any element of such payments being excessive or unreasonable compared to the normal rates prevailing, would not fall within the mischief of section 13(1)(c). For the reasons recorded above, we do not find that the Tribunal correctly analyzed the situation.
Assessee's appeal allowed
2016-TIOL-2233-HC-AHM-IT
PR CIT Vs DR GARMENTS INDIA PVT LTD: GUJARAT HIGH COURT (Dated: September 14, 2016)
Income Tax.
Keywords: quality claim - furnishing evidence - debit notes - huge discounts - export sale - material on record - detection of defects - detail of inventories.
Whether in case a liability is not only certain, but the same was also discharged at the same time and not deferred for a later date, can the same be disallowed to be claimed as a normal business expenditure treating the same as contingent liability - NO: HC
The assessee was in the business of manufacturing ready-made garments and exporting them. For the assessment year 2009-10, the assessee had filed return of income showing gross turnover of Rs. 21.28 crores (rounded off) and other income of Rs. 2.13 crores (rounded off) and disclosed gross loss of Rs. 4.37 lacs (rounded off). The assessee had claimed deduction of Rs. 2.90 crores towards quality claim which was debited to the profit and loss account. During the assessment year, the Assessing Officer asked the assessee to justify such claim. The assessee pointed out that such claim was towards quality claim expenses which was debited to the profit and loss account. In the course of export business, there are rejections and the buyer does not pay the consideration either in part or in full. AO held that the quantification of such claim was not on the basis of any evidence on record. The same was made only on estimation basis. He was also of the opinion that a mere provision for such expenditure would not be allowable deduction. He, therefore, rejected the claim and added said sum of Rs. 2.90 crores to the income of the assessee.
On appeal before Appellate Commissioner, assessee further pointed out that it was engaged in the manufacturing of readymade garments as per design and technical specification provided by the buyers. Such goods, the assessee exports mainly to UK and other western countries. During the year assessee had exported such readymade garments, some of which were found to be defective or of inferior quality. It was not feasible to re-import such garment and to sale them in India. The assessee, therefore, had to sale such defective garments through retail chain in UK by offering huge discounts. These buyers had claimed allowances by using debit notes on the assessee. Thus, the claim was based on specific material on record. The assessee had also maintained complete item wise and code wise details regarding the inventories in terms of quality and value from which the item and code wise defects could be detected. The assessee pointed out that the buyers had raised debit notes a total of which came to Rs. 2.90 crores. Finally, AAC accepted the assessee's claim.
On further appeal, Tribunal rejected the Revenue's appeal observing that there was material on record to show that the assessee was confronted with quality claims by the vendors. Such claims were quantified and already made. Under such circumstances, the quality claim cannot be said to be a contingent or unascertained liability. Even in a case where a claim was not quantified but it was possible to reasonably estimated; the deduction would be permissible.
Held that,
++ it can be seen that the Commissioner as well as the Tribunal concurrently held that there was sufficient evidence on record to establish that the assessee had, in fact, suffered a loss of Rs. 2.90 crores on account of quality claim. The assessee pointed out that some of the exports suffered from total rejection or objection of inferior quality. Instead of re-importing such goods and selling in India which would be economically unviable, the assessee sold it to traders in the country of export for which the assessee was forced to give huge discounts. The purchasers had raised debit note, and thus charged such discounts to the assessee. This was thus, neither a case of unascertained nor a case of contingent liability. Merely because the assessee in the accounts, mentioned as a provision would not be conclusive of a nature of claim. This is precisely what the Commissioner held and observed. In fact, the assessee had charged such sum to the profit and loss account thereby deducting the expenditure for all practical purpose.
++ in the judgement in case of Bharat Earth Movers Ltd., SC held and observed that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In the present case the liability was not only certain, it was also discharged presently and not differed for a later date. The assessee had received debit notes from the buyers and accepting such liability, had debited a sum of Rs. 2.90 crores in the P & L account. In the result, tax appeal is dismissed.
Revenue's appeal dismissed
2016-TIOL-2231-HC-KOL-CX
BERGER PAINTS INDIA LTD Vs CCE: CALCUTTA HIGH COURT (Dated: September 15, 2015)
CX - Special Audit - Section 14AA of the CEA, 1944 - Commissioner has not specified the materials on the basis of which he has formed the opinion that the petitioner has availed of duty credit or utilised cenvat credit beyond the normal limits having regards to the nature and quantity of finished goods manufactured and cleared - foundational basis for the assumption of jurisdiction by the Commissioner under Section 14AA of the said Act has not been stated in the impugned order. Impugned order is unreasoned - Where a decision by a statutory authority entails a civil consequences and where the section does not expressly debar the application of the principles of natural justice, then a right of hearing has to be read into such provision of the statute it does not appear from the materials made available on record that the authorities have afforded the petitioner an opportunity of hearing prior to the issuance of the impugned order. Impugned Order set aside: High Court [para 6, 8, 9, 10]
Petition allowed
2016-TIOL-2230-HC-P&H-CX
CCE Vs SHIVALIK GLOBAL LTD: PUNJAB AND HARYANA HIGH COURT (Dated: September 20, 2016)
CX - Revenue appeal against order of CESTAT - Issue regarding determination of the rate of duty for the purpose of assessment in view of provisions of section 35G read with section 35L of the CEA, 1944, appeal is not maintainable before High Court - liberty granted to the appellant to avail of appropriate remedy before the appropriate forum - appeal dismissed: High Court [para 3]
Appeal dismissed
2016-TIOL-2228-HC-MAD-CX
KALEESUWARI REFINERY PVT LTD Vs ACCE: MADRAS HIGH COURT (Dated: August 18, 2016)
Central Excise - Refund of amount akin to pre-deposit made by assessee pursuant to interim order to entertain appeal - Has to be refunded along with interest upon assessee succeeding in the appeal - Revenue's insistence for submission of GAR challan to establish payment of amount equivalent to pre-deposit, held is unnecessary in view of production of tax paid voucher with challan status culled out from the official website of the department. (Para 10, 11, 14)
Writ allowed
2016-TIOL-2227-HC-ALL-CX
PREMA CONSTRUCTION Vs ACCE & ST: ALLAHABAD HIGH COURT (Dated: August 24, 2016)
Writ of Mandamus - Writ seeking enforcement of contractual obligations to recover certain money - Permissibility - Nothing on record to suggest that statutory rights involved under the contract to grant writ relief - Thus, in absence of statutory right, High Court cannot invoke writ jurisdiction to issue mandamus to enforce contractual obligation or provide remedy of recovery of money arising out of breach of contract. (Para 9)
Writ dismissed
2016-TIOL-2504-CESTAT-MUM
ALPHA CHEMIE SAPTHAGIRI Vs CC: MUMBAI CESTAT (Dated: August 25, 2016)
Cus - Appellants purchased DEPB licence from open market and imported various goods by debiting the duty in the DEPB scrips, without payment of duty in cash - DRI found that all the DEPB licences purchased by appellants were obtained by various persons fraudulently against submitting fake/forged documents to the DGFT - holding that import against invalid DEPB licences was not entitled for exemption, the duty foregone/debited in the DEPB licence was held recoverable from the appellant - appeal to CESTAT - Appellant submitted that at the time of import and clearance of the goods under the DEPB licence, the same were valid and, therefore, import clearance against the valid licences cannot be questioned - inasmuch as in Sumit Wool Processors - 2015-TIOL-2090-CESTAT-MUM & Ineos ABS India - 2015-TIOL-2891-CESTAT-AHM Tribunal has held that importer being bonafide buyer of DEPB, duty cannot be demanded from importer, and, therefore, appeals be allowed.
Held: On this issue, much water has flown - Division Bench of Tribunal has consistently held that the duty cannot be demanded from the importer who is the bonafide buyer of the DEPB licence even though the licence was obtained fraudulently by some other persons - In all the present cases, the fact that licences were obtained fraudulently came to the notice of the DRI only after the goods were imported and cleared under the said DEPB licence and SCNs were issued thereafter - imports were made in the year 1998 and SCNs were issued in the year 1999 & 2002 - at the time of import of the goods and clearance thereof, DEPB licences were valid in the hands of the appellants-importers, therefore, duty demand against appellant is not sustainable - orders set aside and appeals are allowed: CESTAT [para 5, 6, 7]
Appeals allowed
2016-TIOL-2503-CESTAT-MUM
CCE Vs KALYANI BRAKES LTD (Dated: July 26, 2016)
CX - Valuation - Section 4 of the CEA, 1944 - Goods manufactured by appellant and cleared to KBX who subsequently sold the same - Revenue alleges that since appellant and KBX are interconnected/related parties, the value for discharge of excise duty needs to be based upon the prices of KBX; that they have mutuality of interest as KBX is holding 60% of the shares of PSML and KBX had extended advances and also technology for manufacturing of finished goods - Commissioner(A) setting aside order of original authority and allowing appeal of assessee - Revenue in appeal before CESTAT.
Held: From the findings it is apparent that the Commissioner(A) was correct in coming to such conclusion inasmuch as there is nothing on record to show that PSML had interest in the business of KBX but for selling of the products to them - loans advanced by KBX to PSML were also on an interest which was higher than the bank rate which fact is undisputed in the proceedings before the lower authorities; so also moulds given by KBX to PSML cannot be a reason to state that they had interest in the business of each other - impugned order needs no interference - appeals by Revenue are devoid of merits, hence rejected: CESTAT [para 8, 10]
Appeals rejected
