2018-TIOL-NEWS-256 Part 2, Dated: Friday, November 02, 2018

2018-TIOL-NEWS-256 - Part 2| Friday November 02, 2018

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	Legal Wrangle \| Income Tax \| Episode 85

CASE STORIES


	ST - Appellants were engaged by Court Receiver for guarding suit properties - activity is a sovereign function, not taxable: CESTAT I-T - Investment of LTCG in triplex flats, where all three flats are situated at three different floors, is eligible for deduction u/s 54F: ITAT

DIRECT TAX


	2018-TIOL-398-SC-IT-LB Apeejay Medical Research And Welfare Association (P) Ltd Vs CIT In writ, the Apex Court granted leave to the assessee and issued directions to hear the matter within one year. - Leave granted: SUPREME COURT OF INDIA 2018-TIOL-397-SC-IT CIT Vs Reliance Industries Ltd Whether even though, there is long delay in removing the objections by the Revenue, the same should have been condoned by the High Court to hear the matter on merits, having regard to the case in hand - YES: SC - Revenue's appeal allowed: SUPREME COURT OF INDIA 2018-TIOL-2323-HC-MUM-IT Pr.CIT Vs Skylark Build Whether sums borrowed by the assessee can be alleged as unexplained cash credit to make addition by invoking section 68, when such borrowings were repaid also - NO: HC - Revenue's appeal dismissed : BOMBAY HIGH COURT 2018-TIOL-2007-ITAT-AGRA Hindustan Construction Vs DCIT Whether when in comparison to past years, the relevant year NP rate being 5.65% is actually progressive then ignoring the same and without referring to any instance of comparable case on identical facts or any evidence, Revenue is wrong in applying high profit rate of 8% after rejecting books of accounts - YES : ITAT - Assessee's appeal partly allowed : AGRA ITAT 2018-TIOL-2006-ITAT-AHM Gujarat Apollo Industries Ltd Vs JCIT Whether if the assessee is consistently following the same method of accounting by showing the retention money at the time of realization in subsequent year, no separate addition for unrealized sale is called for - YES : ITAT Whether disallowance of expenses u/s 14A can not exceed the amount of exempt income earned - YES : ITAT - Assessee's appeal partly allowed : AHMEDABAD ITAT 2018-TIOL-2005-ITAT-KOL Dutta Automobiles Pvt Ltd Vs ACIT Whether ad hoc disallowances made during assessment are sustainable where the AO or CIT(A) omits to reject the audited books of account presented by the assessee - NO: ITAT - Assessee's appeal allowed : KOLKATA ITAT 2018-TIOL-2004-ITAT-MUM ITO Vs Indo Energy International Ltd Whether very cryptic order by CIT(A) without referring to fact and figure in the records on both issues of validity of the reopening and on the merits of addition u/s 68 can be accepted - NO : ITAT - Case Remanded : MUMBAI ITAT 2018-TIOL-2003-ITAT-DEL Jatinder Singh Taneja Vs ACIT Whether the assessee can challenge re-assessment proceedings without first obtaining & perusing through the grounds for re-opening assessment - NO: ITAT - Assessee's appeal partly allowed : DELHI ITAT 2018-TIOL-2002-ITAT-DEL KTM India Vs DCIT Whether disallowance of pro rata interest on loan can be made, without considering business purpose & commercial expediencies - NO: ITAT - Assessee's appeal partly allowed : DELHI ITAT

MISC CASES


	2018-TIOL-399-SC-MISC Sushila N Rungta Vs TRO Gold Control Act - The issue arose when the adjudicating authority passed an order against the petitioner, stating the petitioner's failure to declare gold held, in contavention of the Gold Control Rules 1962 - Penalty was imposed under Rule 126I(16) of the Rules - It was also directed that the Gold be released to the petitioner & to be invested in Gold bonds - The petitioner's appeal against such order was dismissed - Thereafter, an SCN was served to the petitioner suo motu under the Defence of India Rules, proposing to confiscate the Gold & enhance the penalty imposed - Such SCN was sustained by the High Court - While the Apex Court directed stay on the proceedings, the Gold Control Act was repealed on grounds that the Act caused hardship & harassment to goldsmiths & artisans and that it had failed to achieve its stated objectives - Hence the petitioner claimed that the SCN sustained by the High Court would not survive by virtue of the Section 6 of General Clauses Act. Held - Considering the grounds stated for repealing the Act, it is seen that the real simpliciter in the present case does not attract provisions of Section 6 of General Clauses Act, since a contrary intention is clearly expressed in the Statement of objects and reasons to the 1990 repeal Act - From the High Court's judgment, it is seen that whenever an amendment is made to the Defence of India Rules or when the Rules were repealed, there was an in-built saving clause - Besides, Section 116 of the Gold (Control) Ordinance No.6 of 1968 clarified that SCNs are not saved even if Section 6 of the General Clauses Act is to apply - Hence the SCN which forms subject matter of this appeal does not survive - Nonetheless, the parties are given liberty to amend or delete the questions in the Wealth Tax Reference within 8 weeks: SC (Para 1,2,3,6,7,9,12) - Assessee's SLP allowed: SUPREME COURT OF INDIA 2018-TIOL-2327-HC-MAD-CT Ramco Cements Ltd Vs CCT Commercial Taxes - Tamil Nadu Value Added Tax Act, 2006 and Central Sales Tax Act, 1956 - CGST, 2017 - Petitioners are aggrieved by letter dated 31 st May 2018 issued by Commissioner of Commercial Taxes, Chennai informing all Joint Commissioners that any dealer, who deals in petroleum crude, high speed diesel, motor spirit (petrol), Aviation Turbine Fuel, Natural gas and Liquor, are alone entitled to effect purchases from other State by availing the concessional rate of tax; that those dealers, who are not dealing in those goods are not eligible to purchase those six goods at the concessional rate of tax at 2% by issue of 'C' Form declaration, as they are trading or manufacturing those goods that are administered under GST Act, 2017 - Commissioner of Commercial Taxes also informed that dealers, coming under the following categories, are entitled to purchase petroleum products and alcoholic liquors as they are dealers in those six commodities; that the Other Dealers not related to the above category being Spinning Mills, Blue Metal crusher Unit, ILFS Tamil Nadu Power Company, Housing Promoters, Cement Companies (Ramco Cement), Mines, Nuclear Power Corporation etc. stand in the excluded list as the goods manufactured by these persons are being taxed under GST - Accordingly, Revenue informed the respective writ petitioners that they cannot generate online 'C' Forms from 01.07.2017 for those six commodities, which are not under the GST Act, 2017 and that the Government did not amend Section 8(3)(b) of the CST Act, 1956 for the reason that once Section 2(d) of the Section CST Act declares which are the commodities which come under the definition of the goods then, automatically, only those goods can be purchased using 'C' Forms - impugned notice dated 17.07.2018 called upon the respective petitioner to file their objections as to why penalty should not be levied as they have generated 'C' Forms for purchasing HSD, which is ineligible - Petitioners are aggrieved by the above proceedings. Held: While such of those petitioners, who are engaged in mining activities by purchasing petroleum product like HSD for the use of such mining activity, the other petitioners, who are engaged in the other activities are purchasing petroleum products like HSD for captive power generation of electricity for doing their activity/manufacturing process - All these writ petitioners are registered dealers with the respective office of the respondents and there is no dispute to the fact that they are holding a valid Certificate of Registration issued by the respondents under the CST Act, 1956 - It is also not in dispute that the said Certificate of Registration entitles the petitioners to purchase petroleum products at concessional rate of tax against 'C' declaration forms for use of the said petroleum product in their manufacturing activities - It is also not the case of the respondents that the Certificate of Registration issued to the petitioners has either been cancelled or any proceedings are initiated to do so - From a reading of the provisions of Section 8(3)(b) of the CST Act, 1956 it is evident that a registered dealer, who is holding a valid Certificate of Registration, which is in force, if satisfies the requirement contemplated under sub clause (3)(b) of Section 8, is entitled to pay the concessional tax, as provided under sub clause (1) of Section 8 - There is no dispute to the fact that even after the introduction of GST, though several drastic amendments were made to CST Act, 1956, this particular provision of law viz., Section 8(3)(b) has not undergone any change - On the other hand, it is admitted by both sides that the said provision still holds the field - it is evident from section 2(d) of the CST Act, 1956 that the inclusive definition of "goods" as stood prior to the amendment has now become exhaustive, after the amendment (Act 18 of 2017 with effect from 01.07.2017), confining only to the above six products - Therefore, the term "goods" wherever it occurs in the Central Sales Tax Act, 1956, has to be construed in the light of the definition made under Section 2(d) after the amendment - it is to be noted that though the definition of "goods" under Section 2(d) was amended as stated supra, the legislature thought fit not to amend Section 8(3)(b) in any manner - On the other hand, in their wisdom, left the said provision as it is, so as to enable the dealers, who come within the purview, ambit and scope of Section 8(3)(b) to enjoy the benefit derived out of the said provision continuously as they were enjoying even before the amendment of Section 2(d) - Even otherwise, if there is an ambiguity in a provision of law or two provisions under the same statute contradict each other, the benefit of interpretation out of such ambiguity or contradiction should always go in favour of the assessee, since tax laws need to be with absolute clarity, not to give any room for interpretation in more than one way - Therefore, even assuming that there is a contradiction between Section 2(d) and Section 8(3)(b) of the CST Act, in terms of the understanding of the definition of "goods" or context in which it has to be dealt with under Section 8(3)(b), High Court is of the firm view that the benefit that is being enjoyed by the dealer out of the unamended provision of Section 8(3)(b) should continue to flow till any change is made to the said provision - it is to be noted that Union of India through its Department of Revenue, State Tax Division, dated 07.11.2017 has issued Official Memorandum specifically by stating that amendment made to Section 2(d) of the Central Sales Tax Act, 1956, does not affect the provision of Section 8(3)(b) of the CST Act, relating to telecommunication network or mining or generation or distribution of electricity or any other form of power - it is evident from the above said Memorandum that the Central Government is clear in their stand that the dealers, who are entitled to the benefit under Section 8(3)(b) of the CST Act, shall continue to enjoy such benefit notwithstanding the amendment made to Section 2(d) of the Central Sales Tax Act, 1956 - Impugned communications, apart from being without jurisdiction, are not sustainable also on the reasons and findings rendered by the Punjab and Haryana High Court on the same issue [in Caparo Power Limited 2018-TIOL-1667-HC-P&H-CT ] , confirmed by the Apex Court [ 2018-TIOL-337-SC-CT-LB ] - all these Writ Petitions are allowed and the impugned proceedings are set aside - Consequently, the respondents are directed to permit these petitioners to download 'C' forms, as has been done in the past for the purpose of purchasing petroleum products against the issuance of 'C' declaration forms: High Court [para 15, 16, 18-20, 25, 26, 28-30, 34, 39, 43] - Petitions allowed : MADRAS HIGH COURT

INDIRECT TAX

SERVICE TAX

2018-TIOL-3324-CESTAT-MAD

C R Narayana Rao Vs CST

ST - Assessee is engaged in providing services namely feasibility of study, pre-design services, project, basic design, construction supervision and project management - The said services were provided to EBENE Cyber city, Mauritius and at Hassamal Complex, Mauritius - The amount was paid to the assessee by foreign company through M/s. Infosys Technologies, Bangalore - The department was of the view that assessee is liable to pay service tax on amount received in Indian currency as these are not export of services - The period involved is prior to 18.4.2006 - The High Court of Bombay in the case of Indian national Shipowners 2009-TIOL-150-HC-MUM-ST has held the issue in favour of assessee and the same has been maintained by Apex Court - Further, SCN has been issued invoking the extended period, which is not sustainable as the issue was interpretational and had travelled upto the Apex Court - Demand is not sustainable both on merits and limitation: CESTAT

- Appeal allowed : CHENNAI CESTAT

2018-TIOL-3323-CESTAT-BANG

T T Enterprises Pvt Ltd Vs CCT

ST - The assessee is engaged in booking space & collection of freight for M/s British Airways World Cargo & provide visa services - The assessee has two divisions, one of which handles logistics while the other handles Visa services - The assessee is the second division & it entered into separate agreements with M/s British Airways World Cargo as 'Cargo Services agreement' and 'Cargo General Sales Agent Agreement' - The Department opined that such services were classifiable as BAS - Duty demands were raised with interest & penalties along with demand for Education Cess - Another SCN was issued for increasing penalty u/s 76 & was confirmed upon adjudication.

Held - The demands raised on account of Visa services are unsustainable as the demands are hit by the Circular No. 137/06/2011-ST dated 20.4.2001 - Regarding, ground handlng services & BAS, it must be determined whether the same amounts to export of services, so as to further determine the service tax liability - Further, the SCN increasing quantum of penalty imposed u/s 76 is erroneous, as the same is tantamount to the Commissioner reviewing his own order - If the Department felt that the earlier order was erroneous, it could have filed an appeal against it - Hence the order confirming such SCN must be set aside: CESTAT (Para 1,4,5)

- Assessee's appeals partly allowed : BANGALORE CESTAT

CENTRAL EXCISE

2018-TIOL-2322-HC-MUM-CX

Kaydour Cables India Pvt Ltd Vs CGST

CX - The impugned order of Tribunal records the fact that assessee has neither contested the demands on merits before Lower Authority or before it - Thus, it had no occasion to deal with merits of demands - Court have to proceed on the basis that the assessee had not made any submission on merits of the demand otherwise the same would have been reflected in the impugned order of the Tribunal - In the absence of the impugned order being rectified, the facts stated therein have to be accepted as final - Thus, as no dispute on merits of the demand was recorded by the Tribunal, no substantial question of law can be said to arise in the present facts - The question as proposed does not give rise to any substantial question of law, thus, not entertained - As regards to whether the Tribunal was correct and justified in passing a non-speaking order which does not give any finding on the merits of the matter and the submissions of assessee regarding demand of interest, appeal admitted: HC

- Appeal admitted : BOMBAY HIGH COURT

2018-TIOL-3322-CESTAT-HYD

Binjusaria Metal Box Company Pvt Ltd Vs CCCE

CX - Assessee is a manufacturer of TMT Bars - Firstly, they converted steel scrap or pig iron or sponge iron into ingots - They also converted MS ingots into TMT bars - During investigation, revenue found that the data as revealed in the balance sheets for years 2004-05, 2006-07 and as derived from their firm registry for the period 2007-08 had shown excess process loss - A SCN was issued to assessee - Nothing found in Central Excise Act or Rules which will enable the department to seek reversal of CENVAT credit on the ground that the reported losses during processing are much higher than what is reasonable - Such an aberration is certainly a cause for enquiry and investigation - It is possible that the assessee had, in fact, not received the goods at all and claimed CENVAT credit - However, these suspicions by themselves cannot form a basis for demand unless investigations can establish as to what had happened in that case - The demand in SCN is based on mathematical calculations based on average losses as per the benchmark of actual losses and on the presumption that differential amount relates to inputs which have been clandestinely removed - The amount of duty sought to be reversed is also calculated based on the average value of inputs and average rates of duty - Such demand based on mathematical calculation is not supported by law - As far as the issue of CENVAT Credit on inputs which are supposed to have been received in vehicles which turnout to be autos and cars are concerned, it is evident that it is impossible to carry inputs weighing in tonnes in these vehicles - It is a well established principle that ‘he who asserts must prove' - This is especially true when one claims an evident impossibility to be a fact - As far as the department is concerned, they have discharged their responsibility by showing that the vehicles mentioned in the invoices have been referred to the Regional Transport Office who explained that these were autos and cars and not transport vehicles - Therefore the assessee could not have received inputs in them and is not entitled to the CENVAT credit on the invoices under which the goods were supposed to have been received from M/s Lakshmi Gayatri Iron and Steel Ltd. - Demand of Rs.79,92,646/- is set aside while the demand of Rs.2,26,303/- is upheld - The interest on the amount will be reduced correspondingly - The penalty on the assessee under Rule 15(2) of CENVAT Credit Rules r/w Section 11AC is also reduced to Rs.2,26,303/-. The penalty on Shri Anil Kedia, Managing Director of assessee is reduced to Rs.50,000/-: CESTAT

- Appeals partly allowed : HYDERABAD CESTAT

2018-TIOL-3321-CESTAT-MAD

Ambi Ply Panels And Doors Vs CCE & ST

CX - The assessee company, engaged in manufacturing Ply Wood & Block Boards, was investigated by the Department during the period of dispute, based on intelligence received - It appeared to the Department that some records such as delivery notes, invoices of unused receipts related to the assessee as well as two other units were found - The Department visited one of the other two units and found some machinery which was normally used in the assessee's line of business - The Department also found that the assessee was carrying out its business in the premises of a third company & had installed its machinery over there - The records of all three units were also found in one place - Hence the Department opined that ostensibly all three units were manufacting Plywood & Block Boards, in reality the assessee was manufacturing the goods while the other two were dummy units - Duty demands were raised with interest & penalties u/s 11AC r/w Rule 25 of CER 2002 on the assessee and the other two units along with personal penalties on certain employees of all three units.

Held - In the SCNs and in the statement of demand, the proposal for imposing penalty have been made against the assessee & the other unit as well as certain key persons employed in both firms - Thereby, all the persons should have been show caused separately - In the present case, the assessee has been asked to explain why penalty should not be imposed on it and on the other persons as well - The assessee cannot be expected to answer for the other companies and their employees - They are different persons & entities in law and all are entitled to receive separate SCNs - The Department contravened the mandate of the principle of Audi Alteram Partem - Since the alleged 'dummy units' have not been served SCNs, the entire proceedings against them for allegedly clubbing value of clearances, become void ab initio - Hence the proceedings against them & the duty demands raised as well as penalties imposed, must be scrapped: CESTAT (Para 2,7.1-7.5,7.22,7.23)

- Assessees' appeals allowed : CHENNAI CESTAT

CUSTOMS

NOTIFICATIONS

dgft_trade_notice_37_2018

Online issuance of RCMC by EPCs and its uploading on the DGFT server

CASE LAWS

2018-TIOL-2321-HC-AHM-CUS

PR CC Vs HV Ceramics

Cus - The assessee, during investigation of evasion of anti-dumping duty, had made pre-deposit of Rs. 25 lacs - The Commissioner of Customs, upon completion of adjudication, dropped the charges against assessee, however, appropriated the amount deposited against the duty liability of one Nalin Mehta holding as an importer - Said Nalin Mehta filed appeal before Tribunal which was allowed on 27.01.2014 - The assessee applied for refund of the said amount of Rs. 25 lacs - Such application was treated as application for refund of duty and since the same was beyond the period of limitation prescribed under section 11B of the Central Excise Act, rejected - Ultimately, the Tribunal held that such limitation would not be applicable since it was not a collection of tax but it was a collection of amount during the course of investigation - The Tribunal, relied on the decision of in case of LSE Securities Ltd - The Tribunal also relied on the circular of CBEC dated 08.12.2004 in which it is provided inter alia that pre-deposit amount must be returned within three months of the date of the order passed by the Appellate Tribunal or the Court unless stay is granted against such order - It was held that, it was the duty of the department to refund such amount - The SCN issued for rejecting the assessee's application for returning the amount itself records this basic facts - Particularly, the amount in question was deposited by way of pre-deposit pending investigation - No question of law arises: HC

- Appeal dismissed : GUJARAT HIGH COURT

2018-TIOL-3320-CESTAT-MAD

Mak Control and Systems Pvt Ltd Vs CCE & ST

CX - The issue in dispute concerns classification of "Rotary Frequency Converter" - The assessee claimed that the item is a Ground Power Unit (GPU) and hence in view of Supreme Court judgment in their own case Ground Power unit is part of aircraft only meant for exclusive use of aircraft, classifiable under CETH 8803 of CETA, 1985 and hence subject to Nil rate of tariff rate of duty - The Revenue has sought to classify the item under CETH 8502 of CETA and attracting Excise Duty @ 16% - A perusal of the Tribunal decision in Mak Controls 2007-TIOL-371-CESTAT-MAD will indicate that the basic test applied while holding that GPU is part of air craft - The adjudicating authority has no doubt followed the ratio laid down by Supreme Court in respect of GPU which runs on diesel - However, he has taken a view that RFCs are separate type of machineries and cannot be compared to the GPU - However, assessee 's arguments to the contrary have not been considered - T aking into account the fact that GPU (Diesel Engine) has been held to be part of the aircraft by virtue of Tribunal decision in Mak Controls affirmed by Supreme Court, interest of justice will be met by remanding the matter back to the adjudicating authority for reconsideration of issue of classification after applying the test laid down by Tribunal in assessee 's own case - However, taking into account that the matter is only one of interpretation of classification of goods, penalty imposed under Rule 25 ibid is unjust and therefore the same is set aside - In the de novo proceedings ordered, assessee should be given sufficient opportunity of presenting their case, including submission of any additional evidence, if any: CESTAT

- Matter remanded : CHENNAI CESTAT

2018-TIOL-3319-CESTAT-MAD

Glow Frieght Logistics Pvt Ltd Vs CC

Cus - The fourth appellant, a company, filed shipping bill for importing 114 cartons containing handicraft items, though its CHA - The goods were certified by the Regional Design and Technical Development Centre, Delhi, stating the goods to be handicraft items - The let export order was then given by Customs at ICD Bangalore - The goods then arrived at Chennai for onward shipment by sea - The Department received intelligence that the containers were carrying prohibited items - Examination of containers revealed Red Sander Wood pieces, which are prohibited for export, as well as other wood items - The goods were seized & confiscated - Penalties were imposed u/s 113(d)(h)(i) and 118(b) of Customs Act on various persons in the appellant firm and the CHA.

Held - The penalties imposed on the individuals employed with the CHA is not sustainable, since neither of them was present when the goods were being stuffed in the containers - They can at best be charged with negligence in discharging their functions as CHA but there is nothing on record to suggest that they knew that the consignment contained contraband items - The penalty imposed on the branch manager of the freight company too is unsustainable, considering his statements to have reached the appellant's premises after the goods were stuffed in containers - He cannot be penalised simply for sealing the container with dummy OTL & there is no evidence of any other role played by him in the export fraud - Regarding the penalties imposed on partners in the fourth appellant, the exporter, their appeals merit being dismissed for attempting to export prohibited items - The penalties imposed on them are justified - Moreover, the two persons claimed that they had requested to cross examine the Forest Department officials who certified the goods, but the Department denied such request - As they did not file appeal against such order, the two persons cannot raise additional plea before the Tribunal - The confiscation is sustained as no request was made to release the goods: CESTAT (Para 1,2,9-15)

- Assessees' appeals partly allowed : CHENNAI CESTAT

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