TIOL Update - 2017-TIOL-INSTANT-ALL-416

Standard Operating Procedure (SOP) to be followed by the Assessing Officers in verification of Cash Transactions relating to demonetisation-regd.

PUNJAB SIND DAIRY PRODUCTS PVT LTD Vs DCIT: SUPREME COURT OF INDIA (Dated: February 17, 2017)

Keywords - search and seizure - rejection of books of account - estimation of income - undisclosed income

The Assessee preferred the present SLP challenging the decision of High Court, whereby it was held that rejection of books was sustainable, where the Assessee had failed to produce the Registers indicating Production, Issuance and Consumption. The assessee also challenged the action of High Court in upholding the estimation of income on the basis of the material on record and the statements made by the employees and directors during search and survey proceedings.

On appeal, the Supreme Court disposes of the pending applications and dismisses the SLP filed by Assessee, thereby concurring with the opinion of the High Court.

PR CIT Vs ADANI PORT AND SPECIAL ECONOMIC ZONE LTD: SUPREME COURT OF INDIA (Dated: February 17, 2017)

Keyword - Revisional jurisdiction - possible views - erroneous order - Amortization value of leasehold land

The Revenue preferred the present SLP challenging the decision taken by High Court, whereby the order passed u/s 263 was held as unsustainable, because in the given facts & circumstances there were two possible views and the AO has taken one of them.

On appeal, the Supreme Court condones the delay, however dismisses the SLP preferred by Revenue only on ground of low tax effect.

PR CIT Vs V MOKSHA TECHNOLOGIES PVT LTD: SUPREME COURT OF INDIA (Dated: February 17, 2017)

The Revenue preferred present SLP challenging the decision of High Court, whereby the ITAT's direction to allow set off of losses pertaining to non-10A unit against profit of 10A unit, was upheld.

On appeal, the Supreme Court condones the delay and disposes of the petition in terms of the judgment dated 16.12.2016 passed in Civil Appeal No.8498 of 2013.

2017-TIOL-80-SC-IT-LB

COROMANDEL MARKETING INDIA PVT LTD Vs ADDL CIT: SUPREME COURT OF INDIA (Dated: February 17, 2017)

Income Tax - Section 37

Keywords: stockists - actual payment - contingent liability - commercial expediency & reimbursement

The assessee company is engaged in marketing electric goods such as bulbs and tubes. It had entered into a contract with Mysore Lamps under which they had undertaken to supply specified goods as per the requirement of assessee. AO disallowed the claim for expenditure towards damages payable by assessee to the stockists holding it to be the contingent liability. AO did not accepted the correspondence exchanged between the stockists and assessee for accepting the liability as claimed towards the stockists. It was held that the targets were fixed unilaterally and there was no formal contractual agreement and that the letters written by the stockists/dealers claiming losses were general and vague. CIT (A) also confirmed the order of AO. On further appeal, Tribunal allowed the appeal partly against the order of CIT(A) and allowed the deduction holding that assessee was entitled for deduction u/s 37, of only the payments made by them as expenditure incurred out of commercial expediency.

On appeal, HC held that an assessee would be entitled to claim deduction on actual payment/reimbursement to the stockists, even if such damages payable to the stockists, were shown by assessee in the nature of contingent liability.

On an SLP filed by assessee, the Apex Court held that there is no legal and valid ground for interference. It had confirmed the verdict given by the High Court and therefore, dismissed the Special Leave Petition filed.

Assessee's SLP dismissed

2017-TIOL-347-HC-MAD-ST

CHITRA CONTRACTOR Vs DCCE: MADRAS HIGH COURT (Dated: February 1, 2017)

Service Tax – Restoration of appeal – Tax demands adjudicated and agitated before the Tribunal, who ordered pre deposit – Since the petitioner failed to pre deposit the amount within the stipulated time, the appeal was dismissed for non-compliance of the provisions of Section 35F of the Central Excise Act, 1944 – Petitioner filed for restoration of appeal, meanwhile Revenue issued recovery notice, culminating in the instant writ petition.

Held: Having regard to the fact that money equivalent to 69% of the tax demand has already been deposited, Tribunal is requested to consider and dispose of the applications for restoration as, expeditiously, as possible - However, pending disposal of the applications for restoration, the operation of the impugned order shall remain stayed - It would be open to the Tribunal, if it comes to the conclusion that the appeal ought to be restored, to continue the stay qua the impugned order, if it deems it necessary in the given facts and circumstances of the case. [Para 7, 8]

2017-TIOL-346-HC-AHM-CUS

CC Vs FARMSONS FABRICS PVT LTD: GUJARAT HIGH COURT (Dated: January 25, 2017)

Customs - Refund - Revenue is aggrieved by the Tribunal order holding that the duty deposited at the time of provisional release of goods cannot be made subject matter of doctrine / principle of unjust enrichment and would undergo fundamental change in its nature so as to entitle to be treated as deposit.

Held: in view of the instruction contained in the Board's communication No.390/MISC/163/2010JC dated 17.12.2015, the present Tax Appeal stands dismissed as the monetary limit is below the permissible limit to file the appeal before the High Court; however the question of law, if any, is kept open. [Para 2]

Appeal dismissed

Customs - Provisional release - Petitioner, in the business of export of hand knotted woolen carpets, had filed ten shipping bills, whereas the respondent viewed that the petitioner sought to clear hand woven carpets - Goods were detained, samples drawn and sent to Textiles Committee for examination, and statements of certain individuals were recorded -WP seeking quashing of seizure dismissed, however, granting liberty to seek directions for exportation - Subsequently, the request filed for provisional release under Section 110(2) of the Customs Act, 1962 was denied, culminating in the instant WP.

Held: The Act does not define either terms, i.e., detention, or, seizure - Ordinarily, the word "detention" applies to person and not goods; however, in the context of the statute, detention is the terminology, which is also used in the context of goods - Therefore, while seizure is an act of taking possession of a property, i.e., goods in pursuance of an legal authority or process, detention of goods is carried out by the respondents, as it were, by way of an administrative practice - Since, the practice of detention has received approval by its usage, over a period of time, detention of goods was also backed by legal authority and/or legal process - the CBEC, vide circular dated 04.01.2011, exhorts the officers to allow the provisional exportation of goods, even, when there is a mis-declaration, with regard to quantity, value and description - in the present case, the respondents, on their own showing, had rejected the petitioner's request for provisional release of the subject goods, as the mis-declaration constituted a fraud, within the meaning of paragraph 2.2(c)(iii) of Chapter XV of the Customs Manual. [Para 8.1-8.4, 8.6, 8.7]

Fraud, if at all, as allegedly committed by the petitioner, pivots around the allegation that the petitioner had declared the subject goods as "hand knotted woolen carpets", whereas, enquiries had revealed that they were "hand woven carpets" - the respondents have also charged the petitioner with mis-declaring the value - CBEC's circular dated 04.01.2011 takes into account these very circumstances, and advises the customs authorities to ensure that inordinate detention of seized goods, leads to delays in fulfillment of export orders and at times their cancellation, as also, congestion in ports and accumulation of demurrage charges, and therefore, mis-declared goods, which are seized and are liable for confiscation, should be released provisionally, on the terms, indicated in the circular - the respondents, in derogation of the circular dated 04.01.2011, rejected the request of the petitioner for a provisional release of the subject goods meant for export - the fine distinction between "detention" and "seizure" of the goods, if any, was lost, as the respondents chose not to release the goods on terms or otherwise, despite, the petitioner's letter - therefore, the continued detention of the subject goods is illegal and the petitioner should be handed over the custody of the subject goods. [Para 9, 9.1, 9.2, 9.3, 10, 10.1]

The re-determined value of the subject goods, according to the respondents, was a sum of Rs.24,93,291, whereas, the duty draw back, which, the petitioner had claimed was a sum of Rs.27,12,946 - The said amount had been claimed by the petitioner by way of duty draw back, based on the value of the subject goods at Rs.3,10,30,857 - Therefore, whether or not Section 76(1)(b) of the Act would be applicable, would be an issue that would arise during adjudication proceedings, which, the respondents are required to carry out, pursuant to the issuance of show cause notice dated 05.08.2016 - the respondents have already rejected the petitioner's request for provisional release, and there is no duty element involved - the goods can be released to the petitioner, upon a personal bond being furnished by him, whereby, he will undertake to pay fine and penalty, if found payable, upon adjudication by the appropriate forum - the petitioner will also disclose the details of its movable and immovable assets to the respondents [Para 11.3, 12.1, 12.2]

WP disposed of

Central Excise - Exemption / set off - Petitioner engaged in the manufacture and clearance of machine rolled cigarettes - officers visited the premises and observed that the assessee was availing partial exemption from payment of duty under Notification No.355/86-CE dated 24/06/1986, determining their duty liability on the basis of effective rate of duty prescribed under Notification No.3/94-CE dated 01/03/1994 - Under the Notification No.355/86-CE dated 24/06/1986 the assessee was availing exemption from payment of duty on cigarettes of the amount equal to the duty already paid on the Cut Tobaco used in the manufacture of such machine rolled cigarettes - assessee submitted "Blend and Brand Information" in respect of each brand of cigarettes, on the basis of which they calculated the amount of exemption - The assessee therefore availed of partial exemption under Notification No.355/86-CE dated 24/06/1986 and accordingly paid duty after subtracting the amount of concessions available to them - It was observed that though the assessee actually paid duty at concessional rates under Notification No.355/86-CE dated 24/06/1986 in respect of machine rolled cigarettes, they indicated on the duty paying documents the entire amount of excise duty as per the rates prescribed under Notification No.3/94-CE dated 01/03/1994 and consequently recovered the entire amount of excise duty from the customer- Demands were proposed under Sec 11D of the CEA 1944, apart from penalty under Rule 210 of the erstwhile CER 1944, but dropped in adjudication - the first appellate authority confirmed the demand mentioned in the show cause notice, which was agitated before the Tribunal, who, vide the impugned order, dismissed their appeal; now agitated herein.

Held: The following substantial questions of law are raised and examined in the instant appeal:

(i) Whether Notification No.355/86-CE dated 24/06/1986 is a notification granting Set Off of the duty paid on the input viz., cut tobacco while paying duty on the finished product i.e. Cigarettes or is a notification granting exemption, simplicitor from payment of excise duty to Cigarettes?

(ii) Whether the Board Circulars dated 06/07/1990 and 01/04/1981 and the Trade Notice dated 08/08/1986 did not establish that Notification No.355/86 in effect conferred benefit on the manufacturer in the nature of Set Off and the same was not in the nature of an exemption notification simplicitor?

(iii) Whether by virtue of the operation of Notification No.355/86-CE dated 24/06/1986, the appellants had in fact paid the full effective duty on the final products and hence were within their rights to recover the full duty from their customers?

(iv) Whether the provision of Section 11D of the Central Excise Act, 1944 could be invoked in respect of payment of duty under Notification No.355/86 when the duty collected from the buyer of the finished products was not more than the duty already paid on the input and the duty paid on the finished product at the time of removal cumulatively?

(v) Whether the Tribunal did not err in treating a delay of six years as reasonable on the ground that this is a mere technicality?

On fair reading of the NotificationNo.355/86-CE dated 24/06/1986, it is rightly held to be exemption Notification, and therefore, while making payment of excise duty leviable on Cigarettes, excise duty is required to be reduced to the extent equivalent to the duty of excise already paid on "Cut Tobaco" - exemption Notification is required to be construed strictly and having regard to the language employed therein; no error has been committed by the learned tribunal in holding the cited Notification as exemption Notification; it cannot be said that it is a Notification granting set off of excise on the duty already paid on Cut Tobaco- Ratio of Apex Court ruling in the case of H.M.M. Ltd inapplicable to the instant case; question no.(i) is answered against the assessee and in favour of the revenue. [Para 8.1, 8.2]

The cited Board Circular and the Trade Notices are clarificatory in nature with respect to the procedure to be followed while availing set off /claiming the set off with respect to the amount of excise duty paid on input - Cut Tobaco; hence the said Trade Notices, as such, cannot be said to be in conflict with the Notification No.355/86-CE dated 24/06/1986 - It is already held that it is a Notification granting exemption on excise duty payable on Cigarettes to the extent of duty paid on the input, namely, Cut Tobacco; question no.(ii) is answered against the assessee and in favour of the revenue. [Para 9]

It is clear from the invoice that while making payment of excise duty on finished product, the assessee deducted /debited the duty already paid on input (Cut Tobaco) after availing benefit of set off - though the assessee paid the excise duty at Rs.80/- (after debiting Rs.20/- paid on input, namely, Cut Tobacco) they recovered excise duty at Rs.100/- from the customer - Thus, Rs.20/- was recovered by the assessee in excess of the duty payable, and therefore, to that extent, Rs.20/- can be said to be enrichment, which is not permissible, in terms of Section 11D, and question no.(iii) is answered against the assessee and in favour of the revenue[Para 10]

Section 11D of the Act came to be amended by the Finance Act, 2000 making it applicable retrospectively with effect from 20/09/1991, and therefore, the cause of action for the Department to invoke the provisions of Section 11D of the Act can be said to have occurred on amendment of Section 11D of the Finance Act, 2000 - When Section 11D of the Act is made applicable retrospectively with effect from 20/09/1991, show cause notice has been issued in the month of December, 2000, and therefore, it cannot be said that the same can be said to have been issued after unreasonable period - question nos.(iv) & (v) are also answered against the assessee and in favour of the revenue [Para 11, 11.1]

Central Excise – Exemption - appellant, engaged in manufacturing DG sets, sold goods to the Horticulture University under Notification dated 1.3.1997, without payment of duty – Revenue viewed the exemption inadmissible, denied the exemption, and adjudicated duty demand with interest and penalty – Commissioner (Appeals) set aside penalty and the matter was agitated before the Tribunal, who held that the exemption was available to the appellant and allowed the appeal to that extent - However, the Tribunal made further observations regarding admissibility of cenvat credit and its reversal in the event it was found irregular; which portion is contested in the instant petition.

Held: When the issue was only limited to the entitlement of exemption available to the assessee, the Tribunal ought to have limited its judicial scrutiny to that extent only – In the absence of any cross appeal by the Department, or examination by the first authority, which had issued the show cause notice, the observations of the Tribunal were beyond the subject matter of the appeal and could be said as exceeding the power of the Tribunal - Tribunal did not only relegate the authority to examine the said aspects but has made a concluding observations that as a consequence of the exemption available, the assessee would not be entitled to the cenvat credit of duty paid on various inputs used in the manufacture of DG Sets - If the Tribunal has already recorded the conclusion, no useful purpose would be served while remanding the matter; the remand, if any, may be interpreted for the calculation of the figures, but not for examining the aspect of availability of cenvat credit or otherwise - Hence, the above stated observations made by the Tribunal in the impugned order cannot be sustained [Para 6, 7, 8]

Central Excise - Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 – The question of law raised by Revenue herein is whether 7th Proviso is connected to 6th Proviso of Rule 9 of the Pan Masala rules cited; or whether 7th Proviso is independent.

Held: The provisos pertaining to the payment of duty and the interest upto 5th proviso provide for the manner, the quantum and the rates of the duty including the unpaid duty and the interest payable thereon - However, 6th proviso is for chargeability of the duty applicable to the highest retail sales in the event the manufacturer has manufactured the goods but has not filed declaration in accordance with the provisions of this rule or the manufacturer has manufactured the goods in contravention to his declaration - Whereas, 7th proviso further provides that whether the duty was payable but is not paid and the manufacturer continues to operate in packing machine, the manufacturer would be liable to pay duty for the remaining month of the financial year on the number of packing machines declared for the month for which the duty was last paid by him or the total number of packing machines found / available in his premises, whichever is higher - Therefore, the proviso restricts the liability to pay the duty for the remaining months meaning thereby the period during which the declaration is either not filed or the declaration is contravened - The availability of the packing machines may be assessed either on the basis of the declaration made in the month when the duty was last paid or the available machines in the premises by verification - Under these circumstances, it is not possible to accept Revenue's contention that the 7th proviso would operate independently for the whole year by excluding the word 'for the remaining of the financial year' nor it is possible to accept the contention that the 7th proviso is not relatable to 6th proviso for the purpose of liability to pay the duty irrespective of the fact that no declaration is filed or that the declaration is contravened while undertaking the manufacturing activity - it cannot be said that the Tribunal has committed any error; the question needs to be necessarily answered in affirmative, in favour of the assessee and against the revenue. [Para 7-9]