2020-TIOL-NEWS-020, Dated: Thursday, January 23, 2020

2020-TIOL-NEWS-020 | Thursday January 23, 2020

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DIRECT TAX


	2020-TIOL-154-HC-KAR-IT Sri Jayesh S Mehta Vs DCIT Whether AO can be said to have exceeded the brief of instructions given by the Tribunal in respect of computation of gross profit rate, where the Tribunal does not state that the undisclosed income filed by the assessee itself should not be taken into account - NO: HC - Assessee's appeal dismissed : KARNATAKA HIGH COURT 2020-TIOL-153-HC-KAR-IT Microlabs Ltd Vs ACIT Whether expenses incurred on account of research & development can be allowed to a certain unit only if any products have been manufactured by it - YES: HC - Assessee's appeal allowed : KARNATAKA HIGH COURT 2020-TIOL-147-HC-MUM-IT Pr.CIT Vs Annasaheb Patil Mathadi Kamgar Sahakari Patpedhi Maryadit Ltd On hearing the matter, the High Court observes that the issues raised by the Revenue had been settled in favor of the assessee through the judgment in Commissioner of Income Tax Vs. Shri Kulswami Co-op. Credit Society Ltd. Thus the issue concerning validity of the revisionary power exercised by the CIT was rendered academic. - Revenues application dismissed: BOMBAY HIGH COURT 2020-TIOL-126-ITAT-MUM Kiran Aluminum India Pvt Ltd Vs ACIT Whether if deduction in respect of donation u/s 35(1)(ii) has been found to be permissible in earlier AY, it calls for allowance of similar claim in identical facts & circumstances in the current AY as well - YES: ITAT - Assessee's appeal allowed: MUMBAI ITAT 2020-TIOL-125-ITAT-MUM Tata Steel Ltd Vs Pr.CIT Whether where claim of netting off the interest received on tax refund as against interest paid u/s 234B & 234C is found to be in order, no revisional order is warranted from such plausible view of the AO - YES: ITAT - Assessee's appeal allowed: MUMBAI ITAT 2020-TIOL-124-ITAT-MUM Zensar Technologies Ltd Vs ACIT Whether any payment to ward-off rival competition in a particualr business segment to make the business more efficient & profitable is deductible as revenue expenditure - YES: ITAT Whether if misc receipts as write backs & recoveries accrues in the course of business activities, in absence of anything in the contrary such income cannot be classified under the new stream of income from other sources - YES: ITAT - Assessee's appeal partly allowed: MUMBAI ITAT 2020-TIOL-123-ITAT-SURAT Ayush Murarilal Agarwal Vs ITO Whether issuance of reassessment notice merely to re-examine the applicability of section 194C to taxpayer case without having any fresh tangible material amounts to change of opinion & is therefore erroneous & illegal - YES: ITAT Whether the AO can improve the reasons recorded in the notice issued u/s 148 during the assessment proceedings - NO: ITAT - Assessee's appeal allowed: SURAT ITAT

MISC CASE


	2020-TIOL-152-HC-JHARKHAND-CT Prabhu Coke Manufacturing Company Vs State of Jharkhand Whether solely on the basis of blue colured road permit in Form XXVIII-B, the sale & purchase trasaction cannot be held to be an instance of inter-state sales under the CST Act - YES: HC - Assessee's writ petition allowed: JHARKHAND HIGH COURT 2020-TIOL-146-HC-MAD-VAT TJSV Steel Fabrication and Galvanizing India Ltd Vs ACCT In writ, the High Court notes that the Revenue filed an appeal against the order of the FAA. Thus it allows both writ petitions and the order passed for the relevant AY is quashed, whereas the pre-assessment notices issued are to be kept in abeyance till disposal of the Revenue's appeal by the Sales Tax Appellate Tribunal. - Assessee's writ petition allowed: MADRAS HIGH COURT

GST CASE


	2020-TIOL-155-HC-AHM-GST Paresh Nathalal Chauhan Vs State of Gujarat GST - Officers staying back at the residence, where the petitioner's mother, wife and young daughter reside, throughout the day and night to find out the whereabouts of the taxable person; recording conversations of family members on mobile phones - officers acting beyond powers vested in s.67(2) - High Court deprecates such conduct in strictest terms and directs the Chief Secretary of State to look into the matter - respondent tendered a report of inquiry made by Chief Commissioner of State Tax - Upon perusal of report, it emerged that it was no better than the earlier report dated 20.10.2019 submitted by Assistant Commissioner of State Tax, and did not meet with the directions issued by the Court in letter and spirit - It appeared that the Chief Commissioner of G.S.T. had taken a very lenient view in the matter and instead of examining the action of the officers concerned in the context of the relevant provisions of Goods & Services Tax Act, had tried to justify the action of the officers concerned, which is required to be deprecated in the strictest terms - The respondent prayed for time to submit another report and accordingly the the matter was adjourned - Accordingly, a report was submitted on 19.12.2019 by the Chief Commissioner of State Tax, Gujarat State and the matter was heard - High Court observed that the manner in which the search had taken place, whereby a search for any goods liable to confiscation or any documents or books or things, has literally been converted to a search for the taxable person and the search party has camped in the residential premises of the petitioner for in all eight days, during which period the family members of the petitioner were at the mercy of the authorised officer and were confined to the searched premises and kept under surveillance and were not permitted to leave the premises without the permission of the authorised officer, has shocked the conscience of this court; that, therefore, High Court is of the view that it would be failing in its duty as a sentinel on the qui vive if it were to turn a blind eye to the violation of the legal and fundamental rights of citizens by authoritarianism and remain a mute spectator - High Court has, therefore, thought it fit to comment upon the validity and nature of the search proceedings. Held: ++ The entire action of the search party after the first day, i.e. from 12.10.2019 to 18.10.2019, was illegal, invalid and not backed by any provision of the GST Acts - The only reason why the search party remained back appears to be to intimidate the family members of the petitioner to extract information about the petitioner or records of his business, and to either coerce the petitioner to return home or to apprehend him if he returns home. ++ From the facts recorded in the panchnama, it is abundantly clear that while the authorisation issued to the officer concerned was to search the premises mentioned in the authorisation, the entire search was converted to a search for the dealer, namely the petitioner herein. ++ Admittedly, no summons was issued to the petitioner under section 70 of the GST Acts nor is it the case of the respondents that he was summoned, but had not remained present - While the petitioner was not present at the premises when searched, there could be a reasonable explanation for his absence - Moreover, even if the petitioner may have been intentionally avoiding the authorities, the same is not a valid ground for converting the search proceedings to a search for the petitioner, more so, when no such power is vested in the authorities. ++ Moreover, as is evident from the contents of the panchnama, the members of the petitioner's family were literally under house arrest and were not permitted to leave the premises without the permission of the authorised officer and at times without being escorted by a member of the search party. ++ It may be noted that there is no provision under the GST Acts which empowers the authorised officer to confine family members of a dealer in this manner and to interrogate them at all times of the day and even late at night as has been done in this case. ++ Apart from the illegality of the continuation of the search proceedings, the conduct of the search officers in confining the family members of the petitioner to the house and of interrogating them time and again is nothing but a blatant abuse of powers. ++ Since, the continued stay at the premises of the petitioner after 11 th October, 2019 was not for search of the premises but to search for the petitioner and to obtain further information about where else he could have secreted documents, books or things relevant for any proceedings under the GST Acts, such continued stay was totally unauthorised as it was not backed by any statutory provision. ++ Powers conferred by subsection (2) of section 67 of the GST Acts is to search for goods liable to confiscation, documents, books or things which in the opinion of the proper officer shall be useful for or relevant to any proceedings under that Act. ++ Section 348 of the Indian Penal Code provides that whoever wrongfully confines any person for the purpose of extorting from the person confined or any person interested in the person confined, any confession or any information which may lead to the detection of an offence or misconduct or for the purpose of constraining the person confined or any person interested in the person confined to restore or to cause the restoration of any property or valuable security or to satisfy any claim or demand or to give information which may lead to the restoration of any property or valuable security, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine. ++ Unauthorised action of the concerned officers may tantamount to an offence under the Indian Penal Code; what is not permissible in law cannot be done under the guise of discharge of statutory functions. Action of the respondents cannot be countenanced. ++ GST Acts are new enactments. Officers acting under the relevant provisions are required to study the scope of their powers under the statutory provisions under which they are acting and cannot act on the basis of presumptions or past precedents under a previous enactment. If the common man is supposed to know the law and face penalty for any infraction thereof, the officers enforcing such provisions are required to be well versed with the statutory provisions and the scope and limits of their power and cannot take shelter behind ignorance of law to justify their illegal actions. ++ It appears that the idea behind taking assistance of the SRP constable appears to be to intimidate and shame the family members, more so, in view of the prolonged presence of the search party at the residential premises of the petitioner. ++ It may be noted that even the police, during the course of investigation, do not have the powers to reside at any residential premise and the officer concerned is required to carry out investigation and thereafter, leave the premises. The action of the respondents in continuing to reside at the residential premises of the petitioner without any valid reason despite the fact that search was concluded is unwarranted and uncalled for. It may be that ultimately, the respondents might have been able to extract some material from the conversation recorded in the mobile phone regarding where some books of account and other documents were secreted, but the end does not justify the means and does not validate the unauthorised and illegal action of the concerned officers. ++ Stand of the Chief Commissioner in the report is that in view of past precedent under the Gujarat Value Added Tax Act, 2003, the officers under the GST Acts have recorded statements of the family members of the petitioner. ++ Chief Commissioner has placed reliance upon the provisions of section 88 of the Gujarat Value Added Tax Act, 2003 which relates to authorisation to investigate; overlooking the fact that in the present case the authorisation was for search and seizure and not investigation inasmuch as recording of statements under section 161 of the Code finds place in Chapter XII thereof which pertains to “Information to the police and their powers to investigate” and not under the provisions of the Code relating to search and seizure. ++ One fails to understand as to what the officers concerned were doing at the residential premises of the petitioner for a whole week, along with two panchas and an SRP Constable when the search was concluded on day one. Such action on the part of the respondents is abhorrent and cannot be countenanced. No provision of the Code of Criminal Procedure, for investigation, search or seizure, empowers a police officer to remain a moment longer at any premises once the search is over. ++ In the facts of the present case, the power under subsection (2) of section 67 of the GST Acts has not only not been exercised strictly in accordance with law, but has also not been exercised for the purposes for which the law authorises it to be exercised, namely that though the power was to be exercised for carrying out search and seizure of goods liable to confiscation, documents, books or things at the place in respect of which the authorisation of search was given, the search was converted to a search for the dealer and into an investigation to find out other places where documents, books or things could have been secreted, which was beyond the scope of the powers vested in the authorised officer. ++ It is a matter of deep regret that the Chief Commissioner of State Tax has attempted to justify such wrongful action on the part of the officers of the department by placing reliance upon the provisions relating to power of investigation under an earlier enactment to justify the actions of the concerned officers who were exercising powers of search and seizure under section 67(2) of the GST Acts. ++ One would expect the higher officer to reprimand the subordinate officers for their unauthorised actions. But in this case, the higher ups, for reasons best known to them are trying to shield the actions of the subordinate officers though they are not in a position to show the relevant provisions of law under which such officers were empowered to act in this manner. All that the court can say at this stage is that the reports submitted of the Chief Commissioner in response to the orders dated 25.10.2019 and 20.11.2019, do not meet with the standards expected from an authority of his stature. ++ Lastly, the court may sound a word of caution to the authorities exercising powers under the GST Acts. Subsection (2) of section 157 of the GST Acts says that no suit, prosecution or other legal proceedings shall lie against any officer appointed or authorised under the Act for anything which is done or intended to be done in good faith under the Act or the rules made thereunder. An action like the present one which is not contemplated under any statutory provision and which infringes the fundamental rights of citizens under article 21 of the Constitution of India may not be protected under this section. An action taken may be said to be in good faith if the officer is otherwise so empowered and he exceeds the scope of his authority. However, in a case like the present one where the authorisation was for search and seizure of goods liable to confiscation, documents, books or things and the concerned officer converted it into a search for a person and an investigation, which is not otherwise backed by any statutory provision, it may be difficult to accept that such action was in good faith. Protection of such action under section 157 of the GST Acts may unleash a regime of terror insofar as the taxable persons are concerned. ++ It is clarified that this court does not condone any alleged illegal acts on the part of the petitioner and in case he has indulged in any illegalities, the law should take its own course. ++ However, the court found it necessary to pass the present order to curb any further abuse of powers in this manner by the authorities under the GST Acts. ++ Matter to be listed for hearing on merits on 23.01.2020. [para 18 to 23, 25, 27 to 29, 31] - Matter listed: GUJARAT HIGH COURT

INDIRECT TAX

SERVICE TAX

2020-TIOL-154-CESTAT-DEL

Maharana Pratap Haldighati Museum Vs Commissioner of CGST

ST - The assessee is a private museum and it charged entry fee from visitors - In addition, the assessee also provided Renting of Immovable Property service, by renting out portions of the museum to different persons - The Revenue initiated proceedings and the assessee paid the applicable service tax with interest & penalty u/s 75 and 78 of the Finance Act - Meanwhile, the assessee approached the Central Govt seeking exemption from service tax and the same was granted and Notfn No 9/2017-ST was issued exempting service tax on entry fee for visit to the museum with retrospective effect - The assessee then claim refund of service tax paid and the same was sanctioned, but not the component of penalty, on grounds that the notification exempted only service tax and interest but not the penalty - Also, regarding service tax on renting of immovable property service, no abatement was granted and refund was rejected on grounds that the claim was beyond the prescribed limitation period of one year from the date of payment of service tax u/s 11B of the CEA - On appeal, the Commr.(A) sustained such findings in the O-i-O - Hence the present appeal.

Held - The issue at hand is whether the penalty paid by the assessee is required to be refunded in view of Notfn No 9/2017 dated 28.2.2017, by which service tax and interest was waived - Since the service tax and interest itself have been exempted by the issuance of the notification under Section 11C of the Excise Act, there is no question of payment of any penalty on service tax - Even if it is presumed that the penalty is governed by the provision of 11B, that would not be appropriate and proper - At best, it can be treated as the duty collected without the authority of law for which prescribed time limit under Section 11B is not applicable - Therefore, the refund of penalty amount paid by the assessee is justified and required to be granted to it - Regarding the second issue on payment of service tax on renting of immovable property, such issue has to be read along with the provisions of Section 11C in the circumstances which six months from date of issue of notification dated 28.2.2017 - If the value portion service rendered by the assessee is excluded by the issuance of the notification the assessee falls within the threshold limit of the Notification No. 33/2012 dated 20 June, 2012 - Thus service tax which is otherwise not leviable in view of exemption notification will be without authority of law and the provision of Section 11B of Excise Act would not be applicable - Hence the O-i-A merits being set aside - The adjudicating authority is hereby directed to sanction refund within three months from the issuance of this order, if otherwise in order: CESTAT

- Assessee's appeal allowed: DELHI CESTAT

2020-TIOL-153-CESTAT-CHD

Rajeev Chopra Vs CCE & ST

ST - The assessee is engaged in construction of residential flats and did not pay service tax on such activity - On investigation, an SCN was issued to the assessee proposing duty demand under Construction of residential flats and under renting of immovable property service - On adjudication, the demands raised were partly dropped - On appeal, the Commr.(A) too allowed partial relief - Hence the present appeal.

Held - It is submitted that the issue at hand stands settled through the decision in Suresh Kumar Bansal vs. UOI - Considering that there is no stay granted by the Apex Court in this case, wherein it was held that there is no mechanism of recovery of service tax from the assessee therein, in such circumstances, no service tax is payable by the assessee - Considering the decision of the Tribunal in M/s G S Promoters & Developers the assessee is not liable to pay service tax under Construction of Residential Complex - Hence the demand raised thereof is quashed and no penalty is imposable - Regarding the duty demand conceded by the assessee, the same is recoverable with interest & penalty: CESTAT

- Assessee's appeal partly allowed: CHANDIGARH CESTAT

CENTRAL EXCISE

2020-TIOL-152-CESTAT-HYD

Bramhani Industries Ltd Vs CCE

CX - CENVAT Credit on rails falling under Chapter 73 of the Tariff - Whether the duty paid by the appellant on rails used in construction of railway-lines & sleepers, pipes, pumps, valves etc. are the capital goods/input and thus could be availed by the appellants as CENVAT Credit - Rails is used for the transport of raw material inside the factory for manufacturing final product - said rails have been utilised in the construction of railway-line from Muddanur Railway Station to the factory premises of the appellant which was to run for merely 10 kms - Amendment to the CCR, 2004 by notification 16/2009-CX(NT) dated 07.07.2009 could operate only prospectively - The opinion of larger bench in Vandana Global - 2010-TIOL-624-CESTAT-DEL-LB has been held to be based on conjectures and surmises - Otherwise also, the 2009 notification, in no uncertain terms, states that it shall come into force from the date of its publication in the official gazette - Clearly, if, the intention would have been to simply clarify or to give it retrospective effect, it would have been brought into force from a date anterior to the date of publication of the notification - Seen from all these decisions and for no evidence by the department that rails/sleepers and other goods have no nexus with the manufacture of cement, the final product of the appellant, Bench is of the opinion that the adjudicating authority has wrongly denied the CENVAT Credit to the appellants while confirming the reversal of the credit already availed: CESTAT [para 10, 11]

CX - CENVAT - The fact that manufacturing activity has not yet been started, to our opinion is also not sustainable to deny the CENVAT Credit to the appellant - There is no rule or statutory provision which makes the manufacturing unit to be functional or the registration thereof, a condition precedent for availing credit - The CENVAT Credit shall be available on the documents evidencing receipt of eligible inputs, capital goods or input services even before the date assessee started the manufacturing activity or obtained the service tax registration - The credits can very well be adjusted after the manufacturing is started or registration is taken: CESTAT [para 13]

- Appeals allowed: HYDERABAD CESTAT

2020-TIOL-151-CESTAT-HYD

Sri Chakra Cement Ltd Vs CC, CE & ST

CX - Assessee is a manufacturer of cement and clinker falling under Tariff heading 2523 - During the period April, 2009 to September, 2014, they have cleared cement bagged in individual bags to industrial buyers in bulk in terms of Sl.No.1C of the notification 04/2006-CE - The department was of the view that the customers to whom the assessee has sold the cement cannot be termed as industrial consumers and, therefore, duty has to be paid in terms of Sl.No.1A of the notification - The five categories of buyers are (a) Individual buyers who buy cement bags for construction of their own house/building etc.; (b) Contractors/Builders who buy cement bags for use in the construction of Buildings etc. and sell the buildings/constructions after completion of construction; (c) Industries who buy cement bags for construction of their factory or for construction of any civil structures in their factory; (d) Industries who buy cement bags as inputs and cleared as such and (e) Industries who buy cement bags for use in the production, manufacturing etc. - Question before the CESTAT, therefore, is - 'Whether the cement manufactured by the assessee and bagged in 50 kg bags marketed as cement for industrial use and on which no retail sale price is printed and which bags are sold in bulk to the above said five categories of bulk consumers is entitled to benefit of exemption notification 04/2006-CE (Sl.No.1C) or not'.

Held: Bench finds that the issue is no longer res integra as it has been decided by the Karnataka High Court in the case of Mysore Cements Ltd - 2009-TIOL-1775-CESTAT-BANG that the benefit of exemption notification 04/2006-CE (Sl.No.1C) is available to cement bagged in 50 kg bags but marked as cement meant for bulk use without printing the RSP and supplied to industrial/institutional consumers - Held that the assessee is entitled to the benefit of exemption notification 04/2006-CE (Sl.No.1C) in respect of the cement supplied to institutional consumers in 50 kg bags - appeals disposed of: CESTAT [para 7, 8]

- Appeals disposed of: HYDERABAD CESTAT

CUSTOMS

2020-TIOL-150-CESTAT-HYD

CC & ST Vs Vijaya Visakha Milk Producers Company Ltd

Cus - The appellant imported dairy machinery including the packing machine under Bill of Entry [B/E] dated 25.2.2010 classifying the entire machinery under CTH 84342000 -the Asstt. Commissioner was of the opinion that the packing machine which is a part of it deserves to be classified under CTH 84223000 - the B/E was assessed accordingly and appropriate amount of duty was recovered – on appeal, the first appellate authority, vide impugned order accepted the assessee's classification of the machinery under CTH 8434 2000, holding the entire machinery as an integrated dairy machinery meant for processing, filling and packing of the milk -accordingly, he set aside the assessment of the B/E by the Asst. Commissioner – Revenue is aggrieved and, therefore, before CESTAT.

Held: It is rather an unusual situation where the same B/E was assessed by the Revenue under CTH 8422 3000 against the assessee's classification under CTH 8434 2000 and the matter has been adjudicated and the appeal was decided by the first appellate authority and further appeal was pending before this Bench -meanwhile, another arm of the Department i.e. DRI came to a different conclusion that the machinery is classifiable under CTH 8419 and, accordingly, issued a SCN challenging the classification while the appeal is pending before this Tribunal -the second SCN was also decided by the Commissioner against the same B/E and the same machinery proposing a third classification –after analysing the nature of the plant, he has come to the conclusion that the imported goods are classifiable under CTH 8434 2000 as claimed by the assessee in the B/E -accordingly, he also found that similar goods were also classified similarly by the other assessees in other B/E -for that reason, he came to the conclusion that the machinery in question is classifiable under CTH 8434 2000 as claimed by the assessee –consequently, he dropped the demand -it is also found that the Department has not filed any appeal against this order of the Commissioner -therefore, the matter has reached finality –the Bench also agrees with the findings of the Commissioner that the machinery in question is an integrated plant and is to be classified as Dairy Product in view of the Section Notes 3, 4 and 5 for the Section XVI of Custom Tariff - the appeal filed by the Revenue is without merits and deserves to be rejected - the appeal is rejected and the impugned order is upheld : CESTAT [para 8, 10, 11, 12, 13]

- Appeal rejected: HYDERABAD CESTAT

2020-TIOL-149-CESTAT-AHM

Hindalco Industries Ltd Vs CC

Cus - Issue is whether the appellants are entitled to benefit of notification no.24/2011-Cus dated 1.3.2011.

Held: The appellants have produced a provisional assay certificate from the mining Company at the time of import - they have finalized the price with the supplier who is not a mine - in view of the clear cut finding of the Tribunal in the appellant's own case - 2015-TIOL-807-CESTAT-AHM and approved by the Apex Court, it cannot be said that the notification can be denied just because final assay certificate has not been produced from the Mining Company and a provisional assay certificate has been produced - it is seen that the O-I-O disputes the provisional assay certificate itself on the ground that the said certificate does not contain the Customer number and Sales Order No. - the said issue has not been dealt with by the First Appellate Authority - thus, the impugned order is set aside and matter is remanded to First Appellate Authority to examine if the provisional assay certificate produced by the appellant relates to the disputed consignment - if it is found to be the same, then assessment may be done in terms of the Tribunal Order in the appellants own case referred above - appeal is allowed by way of remand: CESTAT [para 5, 6, 7, 8]

- Matter remanded: AHMEDABAD CESTAT

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