Every audit objection can’t lead to invocation of extended period, and levy penalty

LANDIS + GYR LTD. V. COMMISSIONER OF CENTRAL EXCISE (Kolkata - CESTAT)

Every shortcoming noticed during Audit cannot be held as due to mala fide intention on the part of the assessee so as to invoke extended period of limitation and levy penalty

The assessee was engaged in trading and manufacturing activities. On being pointed out in Departmental audit in 2007, the assessee reversed proportionate credit relating to trading activity for past 2 years and paid interest. Later, in 2009, Department issued show-cause notice seeking levy of penalty arguing that if audit had not pointed out wrong credit, amount would not have been recovered from the assessee.

The Tribunal set aside the penalty imposed on the assessee with the following observation

1. Suppression or misstatement of facts with intent to evade payment of tax is a pre-condition of levy of penalty. Show-cause notice had not listed circumstances or facts which were suppressed and how the assessee availed credit with mala fide intentions; 
2. Objective of conducting Audit is to ascertain correctness of payment of tax, etc., hence, every shortcoming noticed during Audit cannot be held as due to mala fide intention on part of the assessee; 
3. Irrespective of fact whether tax was paid either involving extended period or otherwise, or paid voluntarily or in pursuance to a demand notice, penalty under section 78 cannot be justified unless it is found that tax short paid or not paid was on account of suppression of fact, misstatement etc.; 
4. Hence, in absence of mala fide intention of assessee, penalty under section 78 was set aside.

Input service distributor may distribute credit of Service Tax even if it has been paid prior to registration

DAGGER FORST TOOLS LTD. V. COMMISSIONER OF CENTRAL EXCISE (Mumbai - CESTAT)

There is no restriction under CENVAT Credit Rules with regard to period for availing CENVAT credit of service tax paid; hence, Input Service Distributor (‘ISD’) may distribute credit of service tax paid prior to its registration as ISD

The assessee had registered itself as ISD with effect from 04.10.2008. Thereafter, it had distributed the credit of service tax paid on common input service to its various units in respect of services received during the period February, 2008 to October, 2008. The department denied Cenvat credit on ground that the services were received prior to registration as ISD and the taxes were also paid on those services prior to that date.

The Tribunal held in favour of assessee as under:

• There was no restriction under the CENVAT Credit Rules, 2004, with regard to the period for availing CENVAT credit of service tax paid. In other words, a manufacturer/input service provider could avail CENVAT credit of the service tax paid irrespective of any time limitation; 
• The only condition to be satisfied was that they should have paid the service tax prior to availing the credit. So long as this condition was satisfied, there was no time limit prescribed in the Rule within which the CENVAT credit had to be taken. If that be so, there was no reason why in the case of input service distributor alone, a restriction should be placed with respect to availment of CENVAT credit, i.e., input service distributor was permitted to distribute only taxes paid on or after registration. Such a restriction was totally unwarranted and was not provided for in the law; 
• Hence, credit was held validly distributed.

Five C's of Credit

The five key elements a borrower should have to obtain credit: 

1. Character (integrity)
2. Capacity (sufficient cash flow to service the obligation)
3. Capital (net worth)
4. Collateral (assets to secure the debt) and 
5. Conditions (of the borrower and the overall economy).

Transportation of passengers via ropeway isn't covered under tour operator's service

SHAIL SHIKHAR ASSOCIATES V. COMMISSIONER OF CENTRAL EXCISE (New Delhi-CESTAT) (TM)

Leasing of a ropeway installed by Municipal Board and operating it to entertain tourists by carrying them from road to hills and back doesn't amount to Tour Operator's services

In the instant case the assessee had leased a ropeway installed by Municipal Board and was engaged in operating it to entertain tourists by carrying them from road to hills and back. The Department sought to levy service tax on the assessee under Tour Operator's services.

The Tribunal held in favour of assessee as under:

1. By a licence deed, the assessee was allowed to operate the ropeway. In terms of section 65(115) to call a person as "Tour Operator" he should be either a planner of tour or an organizer or arranger thereof. So, scheduling tour brings the service provider to the category of tour operator. Meaning of the term "tour" is given by section 65(113) of the Act. "Tour" means journey from one place to another, irrespective of distance from such place; 
2. The tourists are not governed by any planning, scheduling, organising or arranging for their journey and are not dependent on the licensee-assessee for such planning, scheduling, organizing or arranging for their tours but only avail the facility of ropeway provided by assessee-licensee during working hours on payment of fees prescribed in licence deed. They are not beneficiaries of any planning, scheduling or arranging of tours, since tour to be taxable has to follow activities enumerated under section 65(115); 
3. Accordingly, the assessee had not acted as "tour operator" within the meaning of Section 65(115) for which the taxing entry 65(105)(n) thereof was not attracted. Consequently, the assessee was not liable to service tax.

High Court upholds transfer of order under Sec. 127 for co-ordinated investigation; recommends US like ‘restatement of law’

CIT V. UNION OF INDIA (CHHATTISGARH High Court)

Order of transfer of cases under section 127(2) is administrative and not quasi-judicial merely because assessee is required to be heard before the order is passed. The word 'coordinated investigation' is not vague. It has a definite meaning. The transfer order can’t be set aside merely on the ground that the transfer has been done on vague terms.

In the instant case, following issues arosed before Chattisgarh High Court:

• Whether the power of transfer under Section 127(2) of the Income Tax Act, 1961 is not a judicial power? 
• Order of transfer under sec. 127(2) can’t be passed when there is denial of reasonable opportunity to the assessees? 
• Whether the word 'co-ordinated investigation' is vague and the transfer order can be set aside merely on the ground that the transfer has been done on vague terms?

Deliberating on these issues, the High Court held as under:

1. Section 127(2) of the Act provides that transfer can be done only if opportunity is afforded to an assessee and after recording reasons. But merely for this reason it cannot be said to be quasi-judicial in nature; 
2. The transfer order does not decide the rights of the parties in the assessment; 
3. The ultimate order deciding the right is the order of the assessment which decides the basis and the tax to be paid. This order is a judicial order. The transfer order is merely for administrative reason and it cannot be said that nature of power is judicial; 
4. It was not disputed that the search took place in the premises of Mahamaya group of companies, as well as residential and official premises of its directors and its employees, at different places, where incriminating documents were seized; 
5. The documents were inter-connected and affected the assessment of the parties. It was necessary to see their overall effect on the assessments. It could only be done after analyzing and investigating into all the documents found at different places and not separately, for which a co-ordinated investigation was necessary. Thus, the words 'coordinated investigation' were not vague; 
6. The notice had indicated the reason for transfer as 'centralisation' for 'co-ordinated investigation'. It was for this reason that order for transfer were made. There was no denial of reasonable opportunity to the assesses.

In addition to the aforesaid findings, the High Court also recommended adoption of US-like 'restatement of law'

The submissions raised by the party should have been considered before arriving at the decision. But more often than not, there was an insistence on dealing with every case that was cited. Perhaps, such insistence, even if the decisions were inapplicable or irrelevant, was misplaced. It might not be proper to record in the judgement that a counsel had cited irrelevant, or inapplicable, or overruled, or already distinguished case. It would be of real help to our jurisprudence if we also adopted an approach similar to the US, about 'Restatement of Indian law'. 

Pune ITAT allowed claim of jeweller for business loss incurred due to confiscation of its silver stock

RAJMAL LAKHICHAND v. ACIT (Pune - Trib.)

In the instant case, during search conducted in the business premises of assessee, a jeweller, certain stock of silver was confiscated by customs officials. Assessee claimed deduction on account of loss occurred due to confiscation of silver in relevant assessment year. Said claim was disallowed by the Assessing Officer as well as the CIT(A).

The Tribunal held in favour of assessee as under:

The business loss on account of confiscation could be claimed and allowed in the year in which the assessee prima facie loses the hope for recovery of the goods. Thus, the assessee’s claim of loss was crystallized in the year under consideration when assessee received the order of CEGAT. Therefore, the loss incurred due to confiscation of silver stock was to be allowed as assessee was in the business of silver trade and loss had been suffered during the course of its business.

Human Capital

The set of skills which an employee acquires on the job, through training and experience, and which increase that employee's value in the marketplace.