2018-TIOL-NEWS-272, Dated: Thursday, November 22, 2018

2018-TIOL-NEWS-272| Thursday November 22, 2018

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CASE STORIES


	ST - Actual consideration for CC/OD services is only higher interest rate and nothing else - since exemption is granted in r/o interest charged, services are to be treated as exempted and attract rule 6 of CCR, 2004: CESTAT I-T - High remuneration paid to Directors cannot be construed as a tool to shift profits to evade tax if same is offered to tax through personal returns: ITAT

DIRECT TAX


	2018-TIOL-2188-ITAT-MUM + Case Story DCIT Vs Bombay Samachar Pvt Ltd Whether high remuneration paid can be considered as tool to evade tax by shifting of profit even if remuneration paid to the Directors are offered to tax - NO: ITAT Whether payment of remuneration to the directors is not excessive or unreasonably high if in past many years assessee is paying remuneration at increasing rate and is allowed by AO during scrutiny assessments - YES : ITAT Whether when remuneration paid to the directors is compared with previous year payment and is not found unreasonably high then it can not be disallowed by invoking the provisions of section 40A(2)(a) of the Act - YES : ITAT Whether if quantum addition based on which penalty is imposed itself has been removed during appellate proceedings, the penalty imposed can not survive - YES : ITAT Whether since genuineness of payment of remuneration to directors is not under doubt, merely part disallowance of claim can not be called as concealing the particulars of income to justify penalty- YES: ITAT - Revenue's appeal dismissed: MUMBAI ITAT 2018-TIOL-2187-ITAT-MUM DCIT Vs Varsity Education Management Pvt Ltd Whether premium received on Convertible Preference Shares is determined between the parties on the basis of commercial considerations and agreed mutually cannot be questioned by the tax authorities - YES: ITAT Whether share premium is capital receipt and can not be added as receipt of income - YES: ITAT Whether since amendment in sec. 68 of the Act, assessing of excess share premium as income applies from AY 2013-14 onwards, for relevant AY no addition u/s 68 for excess premium charged on issue of Convertible Preference Shares can be made - YES: ITAT - Revenue's appeal dismissed: MUMBAI ITAT 2018-TIOL-2186-ITAT-MAD Siechem Technologies Pvt Ltd Vs DCIT Whether the matter warrants remand where assessee does not provide break up of expenses claimed to be revenue expenses before the CIT(A) - YES: ITAT - Revenue's appeal dismissed: CHENNAI ITAT 2018-TIOL-2185-ITAT-CHD State Bank of India Vs DCIT Whether when the Regular Bench has become functus officio in relation to adjudication and matter is pending consideration before Special Bench, then interim stay granted earlier to assessee deserves extension, even though merits of case is in favour of Department - YES: ITAT - Assessee's application allowed: CHANDIGARH ITAT 2018-TIOL-2184-ITAT-PUNE ITO Vs Dirk India Pvt Ltd Whether manufacturing of Pozzocrete from Fly-Ash can be said to be the waste management and thus, is an infrastructure facility - YES: ITAT Whether therefore, the assessee engaged in the same is eligible to claim benefit of section 80IA(4) - YES: ITAT - Revenue's appeal dismissed: PUNE ITAT 2018-TIOL-2183-ITAT-AHM Oceanic Buildcon Pvt Ltd Vs ACIT Whether if the assessee has set up its business during the year and Mall under construction was capitalized, loss is to be treated as business loss - YES : ITAT - Assessee's appeal allowed: AHMEDABAD ITAT 2018-TIOL-2182-ITAT-AHM DCIT Vs Sigma Institute Of Technology And Engineering Whether a charitable trust is entitled to depreciation allowance, notwithstanding fact that entire expenditure incurred for acquisition of capital assets were admitted as application of income - YES: ITAT - Revenue's appeal dismissed: AHMEDABAD ITAT 2018-TIOL-2181-ITAT-MUM Shridhar P Iyer Vs ACIT Whether the business income received from shares transaction, if the said transaction is held for less than 30 days, can be considered as short term capital gain -YES: ITAT - Assessee's appeal partly allowed: MUMBAI ITAT 2018-TIOL-2180-ITAT-DEL ITO Vs Jaidka Woolen And Hosiery Mills Pvt Ltd Whether In the absence of any specific finding highlighted by Revenue, electric repair and maintenance expenses cannot be treated as capital in nature - YES : ITAT Whether when complete details on account of fabrication expenses under various heads and supported details are filed and considering the nature of business, fabrication charges are essential expenses for conduct of the business, can not be disallowed entirely - YES : ITAT - Revenue's appeal dismissed: DELHI ITAT

INDIRECT TAX

SERVICE TAX

2018-TIOL-3516-CESTAT-MUM + Case Story

HDFC Bank Ltd Vs CCE

ST - Banking and Financial Services, as defined in section 65(12) of FA, 1994 comprises of a basket of various services - It is very clear that the intention of the legislature is not to treat the entire gamut of services provided by a banking/ financial Company en-bloc as a whole, or else the definition would have been simply “all the services provided by a banking/ financial company to its customer” - By listing the various aspects and services provided by such banking/financial company separately, the intention of legislature is quite clear that each and every activity has to be treated separately for the purpose of levy of Service Tax and also for the purpose of exemption - doctrine of pith and substance is required to be applied for ascertaining the true nature of exemption provided by the said notification 29/2004-ST - Cash Credit/ Overdraft facilities provided by the bank/ financial company to its customers is a separately identifiable taxable service - Claim of the Appellant in respect of administrative fees etc. charged by them separately in respect of CC/OD services is contrary to RBI Circular - Actual consideration for CC/OD services is only higher interest rate and nothing else – since by Notification No 29/2004-ST , exemption is granted in respect of the interest charged on Cash Credit, Over Draft and Bill Discounting Services, the services per se are to be treated as exempted services as defined in rule 2(e) of CCR, 2004 and attract rule 6 of the CCR, 2004 – Tribunal decisions in Gautam Sahakari Bank Limited - 2018-TIOL-1377-CESTAT-MUM , Vaidyanath Urban Co-operative Bank Limited - 2014 TIOL 3299 CESTAT MUM and Ambejogai Peoples Co operative Bank Ltd - 2015 TIOL 2471 CESTAT MUM are sub silentio and cannot be followed - Tribunal decision in UCO Bank - 2014-TIOL-1902-CESTAT-KOL relied upon - since the claim of the appellant that the demand is hit by limitation as ST-3 returns disclosed all the transactions in question has not been specifically addressed to by the adjudicating authority, matter is remanded for the said purpose - penalty and interest quantum would be required to be recomputed accordingly - Matter remanded: CESTAT [para 6.2, 7.2, 7.4, 7.5, 7.6, 7.7, 8.2, 9, 10, 11, 12]

- Matter remanded : MUMBAI CESTAT

2018-TIOL-3510-CESTAT-BANG

Centre For Management Development Vs CC, CE & ST

ST - The assessee was issued a SCN seeking demand alleging that they have rendered services under category of management consultants, commercial coaching or trading services and Mandap Keeper service - The assessee have strongly been contending the invocation of extended period stating that they had not acted in any manner against statutory prescriptions; they had acted only under the honest and genuine belief that their activities did not constitute any taxable service in respect of which Service Tax is liable to be paid since the Department raised the issue; they moved to the Ministry of Finance for seeking clarification on receipt of clarification they had proceeded to as strictly in accordance with the law and got themselves registered and started collecting and paying Service Tax extended period cannot be invoked - Going by the ratio of decisions of Supreme Court, it is very clear that a mere suppression of facts or mis-statement or non-disclosure of facts cannot be a reason for invoking extended period - Such an act should be positive, willful and with an intent to evade payment of duty - What is underlined that such suppression should be willful; the assessee being a Government-sponsored organization cannot be alleged to have intent to evade payment of duty - Understandably, no personal benefit or for that matter, no benefit whatsoever across the organization for such non-payment of tax, though the above decisions are rendered in evaluating the provisions of Section 11(A) of CEA, 1944 - It is applicable to the provisions of Service Tax also - It can be seen that the provisions are exactly similar to those contained under Section 11(A) of CEA, 1944 - Therefore, no such positive act or willful suppression, willful mis-statement and an intention to evade Service Tax is established - A major part of the SCN is hit by limitation - However, assessee is liable to pay Service Tax in the normal period i.e. after 20.04.2005: CESTAT

- Appeal partly allowed: BANGALORE CESTAT

2018-TIOL-3509-CESTAT-BANG

Abideep Interlock Pavers Pvt Ltd Vs CCE

ST - Assessee is engaged in manufacture of interlocking concrete bricks and is availing benefit of SSI exemption under Notfn 8/2003-CE - They are also undertaking embedding of interlocking bricks at the site of customers for laying of internal roads and approach roads to the compound of building on labour basis - The Department alleged that assessee is providing construction services during the period September 2004 to November 2005 - It is clear that construction of roads if undertaken as a part of contract for construction of a commercial complex or industrial building, is taxable - In the instant case, the assessee have not undertaken any such activity and their contract with their buyers was limited to laying of interlocking paver blocks and the approach roads - Therefore, the findings of impugned order appear to be yond the scope of provisions of law and the Circular issued - Tribunal in the case of Shilpa Construction Pvt. Ltd . - 2010-TIOL-1132-CESTAT-AHM and ATN Advertising Services - 2017-TIOL-4426-CESTAT-ALL has taken the same view: CESTAT

- Appeals allowed: BANGALORE CESTAT

CENTRAL EXCISE

2018-TIOL-2447-HC-MAD-CX

King Bell Apparels Vs CCE

CX - (1) Whether on facts and in the circumstances of the case, the respondent was right in invoking extended period of limitation under section 11A of the Central Excise Act [Act] and imposition of penalty under section 11AC when all relevant information were within the knowledge of the department from 02.12.2003 ? (2) Whether in the facts and circumstances of the case, the invocation No.30/2004-CE dated 9.7.2004 exempting the excisable goods dealt by the assessee would have retrospective effect though such exemption was withdrawn vide Circular No.703/19/2003-CCE dated 25.3.2003, which withdrew exemption on the products dealt with by the assessee with effect from 1.4.2003.

Held : With regard to the question of law no.2, the contention that the notification re-instituting the exemption w.e.f. 9.7.2004 would have retrospective effect stems from the decision of the Supreme Court in the case of WPIL - 2005-TIOL-51-SC-CX-LB - by virtue of notification No.30/2004, exemption which was earlier withdrawn was once again granted - admittedly, during the period in question, that is, between 16.05.2003 and 10.07.2004, the goods dealt with by the assessee were excisable goods - the decision in WPIL's case can have no application to the facts of the present case - in the case on hand, the notification dated 9.7.2004 is neither clarificatory nor explanatory of what is implicit, but a new notification and cannot have retrospective effect - thus, the substantial question of law no.2 framed above is answered against the assessee -the Division Bench of High Court of Gujarat, in the case of Neminath Fabrics Pvt. Ltd. - 2011-TIOL-10-HC-AHM-CX held that benefit of 25% penalty is applicable only when the assessee has paid the duty, reduced penalty and interest within 30 days of the communication of the order passed by the Adjudicating Authority and only where penalty was enhanced at the appellate stage that in case of the 25% of the differential amount, the penalty amount can be paid within 30 days of the order and not otherwise - in the light of the above decision, the plea raised by the assessee that they should have been granted the opportunity to pay 25% is unacceptable on the facts of the case -further, the contention that once knowledge has been acquired by the department, there is no suppression and the ordinary statutory period of limitation prescribed under sub-section (1) of section 11 would be applicable was rejected as a fallacious argument inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularity, the suppression would not be obliterated - in the instant case, it has been established that there has been suppression, there has been clandestine removal of excisable goods without payment of excise duty, the assessee having collected excise duty from the customers did not remit it to the department and the assessee did not obtain registration from the department nor maintained any records and obtained registration under the provisions of the Act only on 16.5.2003 -thus, these facts would clearly establish that the extended period of limitation was invocable in the assessee's case - the first substantial question of law is answered against the assessee and in favour of the Revenue - in the result, the appeal fails and the same is dismissed answering both the substantial questions of law against the assessee and in favour of the Revenue : HIGH COURT [para 8, 10, 11, 14, 16, 19, 20, 24, 25]

- Appeal dismissed: MADRAS HIGH COURT

2018-TIOL-3508-CESTAT-BANG

Suretex Prophylactics India Ltd Vs CCE

CX - The assessee is 100% EOU and manufacturers and exporters of rubber contraceptives under Public bonded Warehouse License /In Bond Manufacturing Sanction Order - It appeared that assessee have wrongly availed CENVAT credit on input services - It was alleged in SCN that final products rubber contraceptives attracts nil rate of excise duty as well as customs duty hence as per Rule 6(1) of CER, 2004, the assessee cannot avail cenvat credit - As far as canteen services are concerned, the Larger Bench of Tribunal in case of Wipro Ltd. has held that outdoor catering service is not eligible for input service credit post-amendment vide Notfn 3/2011 - Therefore the canteen services post 01.04.2011 is disallowed and prior to 01.04.2011 is allowed - As far as freight charges are concerned, in the case of export, port is the place of removal and therefore the freight charges fall in the definition of input service and assessee is eligible for CENVAT credit - With regards to insurance policy, as far as insurance policy of plant and machinery is concerned, assessee is eligible for credit - But with regard to insurance policies of employees are concerned after 01.04.2011, it has been specifically excluded from definition of input service as prescribed in Rule 2(l) of CCR, 2004 - As far as transportation charges are concerned, since these charges are used for pick up and drop of employees engaged in production and therefore, it falls in definition of input service, the CENVAT credit is allowed on transportation charges - As far as waste disposal is concerned, waste disposal fall in the definition of input service as it related to business - Therefore, assessee is entitled for CENVAT credit - The appeal is partly allowed but for the purpose of verification of the document, the matter is remanded to the original authority for examining and verifying the documents and to decide the assessee's claim of CENVAT credit: CESTAT

- Appeal partly allowed: BANGALORE CESTAT

2018-TIOL-3507-CESTAT-HYD

Thejo Engg Services Pvt Ltd Vs CCCE & ST

CX - The assessee is engaged in the manufacture of lagging sheets & it cleared the same to their branches located across the country for executing service contracts using such goods - The assessee dicharged duty by adopting value on such goods used for servicing based on cost of production (+) 15% / 10% u/r 8 of the Central Excise (determination of price of excisable goods) valuation rules, 2000 - The Revenue opined that provisions of Rule 8 are inapplicable since the sheets were neither sold nor consumed by them or on their behalf in the production of other articles - SCNs were issued for various periods seeking payment of differential duty - On remand by the Tribunal, the Commr.(A) opined that the provisions of Rule would apply & upheld the duty dcemands with interest while setting aside the penalties - Hence the present appeals by both the assessee as well as the Revenue.

Held: It needs to be seen whether the Revenue correctly held that the assessable value of the lagging sheets cleared by assessee to their depots for executing various contracts needs to be valued as per the provisions of Rule 7 or Rule 8 - The issue stands settled by the Apex Court in Servo- Med Industries Pvt. Ltd. v. Commissioner of Central Excise in favor of the assessee wherein it was held that valuation of lagging sheets needs to be done as per Rule 8 of Valuation Rules - Hence the assessee's appeals merit being allowed: CESTAT (Para 2,9,10)

- Assessee's appeal allowed: HYDERABAD CESTAT

2018-TIOL-3506-CESTAT-ALL

Til Ltd Vs CCE

CX - The assessee company manufactured Forklifts, D.G. Sets & Cranes - It was served SCN alleging that it received four DG Sets from its sister unit on stock transfer basis and the assessee had claimed Cenvat credit on inputs utilized in their manufacture - The Department held that such credit could not have been availed since the inputs were not used in manufacture - The assessee claimed that such DG sets were inoperational and that it had to add certain accessories to the DG sets to make them operational - Further, such refurbished DG Sets were sold to customers - However, the Department rejected such contentions & raised duty demand with interest & equivalent penalty for recovery of such credit.

Held: The assessee's addition of control panels onto the DG Sets and the activity of testing the refurbished product cumulatively is tantamount to manufacture - Hence credit was correctly availed & demands for recovery of such credit merit being set aside: CESTAT (Para 2,7)

- Assessee's appeal allowed: ALLAHABAD CESTAT

CUSTOMS

2018-TIOL-2446-HC-KERALA-CUS

VV Mineral Vs ACC

Cus - Petitioner, a registered Partnership Firm established to carry on the business of separation and processing of beach sand minerals, seeking to quash Exts.P2 and P3 dated 21.12.2016 and 22.12.2016 issued by the 1st and 2nd respondents, directing the petitioner to produce necessary certificates/documents viz., certificate of legally mined minerals from the concerned District Collector/transport permits along with bulk permits, certifying the legal source of such Beach Sand Minerals brought to the Customs Area for export, under Section 50 of the Customs Act, 1962, and intimating the petitioner that it has been decided to verify the source, Beach Sand Minerals being sent for export, and requiring the petitioner to produce necessary documents secured from competent authority, respectively..

Held - it is evident from the provisions of the Customs Act itself that, it is not only the provisions of the Customs Act that are to be taken care of while exporting goods, but the Act itself takes care of other prohibitory laws, like MMDR Act, 1957, the Tamil Nadu Prevention of Illegal Mining, Transportation and Storage of Minerals and Mineral Dealers Rules, 2011 - therefore, the contention advanced by the petitioner that, so far as an export is concerned, the law that is to be taken into account is only the provisions of the Customs Act, the Foreign Trade Policy and the Foreign Trade (Development & Regulation) Act cannot be sustained at all - therefore, "any other law" that is prescribed under sec. 2(33) as well as sec. 11H of the Customs Act, 1962, will also take in any other prohibitory law - if the intention of the Parliament was only the law relating to export as specified above, it should have been made specific in the Customs Act - having not done so, and taking into account the provisions of MMDR Act, 1957, it is patent and clear, a harmonious and coordinated action is envisioned in the matter of providing mining lease, despite the fact that the Central Government is vested with powers for making Rules - it is also clear from the provisions thereunder, the entire operations are regulated, controlled and managed by the State Government - since the petitioner has submitted that all its activities are in accordance with law, and after securing necessary mining permit and transportation permit, this Court is at a loss to understand why the petitioner is hesitant to produce such documents before respondents 1 and 2, which will facilitate the export, as is requested by the petitioner - the Customs Authorities have issued Exts.P2 and P3 in accordance with the powers conferred on them under the Customs Act, the notifications issued by the Government of India specified above under the provisions of Foreign Trade Policy, 2015-2020 read along with sec. 5 of the Foreign Trade (Development & Regulation) Act - there is no case made out by the petitioner, justifying interference of this Court under Article 226 of the Constitution of India, there being no illegality, arbitrariness, or unfairness on the part of respondents 1 and 2 in issuing Exts. P2 and P3 - however, it is made clear that, if the petitioner is able to produce the necessary documents as is required in Exts.P2 and P3, it is for the Customs Authorities to consider the same in accordance with law - the writ petition is dismissed with the aforesaid observations : HIGH COURT [para 47, 48, 52, 53, 54]

- Writ Petition dismissed: KERALA HIGH COURT

2018-TIOL-3505-CESTAT-MAD

CC Vs Sri Krishna Sounds And Lightings

Cus - Assessee filed Bill of Entry for clearance of goods declared as Furniture and Electronics goods - During check, it was found that the items declared as ‘Electronic Power Pot' classified under CTH 94059900 as parts of ‘Lamps and Light Fittings' were actually found to be ‘Stage Silver Fountain' which are fire crackers correctly classifiable under CTH 36041000 - Further, some items like amplifiers and speakers were found to be old and not declared as such by assessee - The original authority rejected the value declared and confiscated the goods with option to redemption and imposed penalties under Section 112(a) as well as under Section 114AA of Customs Act, 1962 - In appeal, Commissioner (A) set aside the penalty imposed under Section 114AA - The Commissioner (A) has analyzed the object and the purpose of this Section and has held that in view of the rationale behind the introduction of Section 114AA of the Customs Act and the fact that penalty has already been imposed under Section 112(a), the appellate authority has found that the penalty under Section 114AA is excessive and requires to be set aside - Thus, the penalty under Section 114AA is not set aside merely for the reason hat penalty under Section 112(a) is imposed - Commissioner (A) has rightly set aside the penalty under Section 114AA since the present case involves importation of goods and is not a situation of paper transaction - There is no merit in the appeal filed by department and the same is dismissed: CESTAT

- Appeal dismissed: CHENNAI CESTAT

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