TIOL-DDT 2399
18.07.2014
Friday

CBDT has appointed a Committee of 5 Commissioners headed by Rani S Nair, Chief Commissioner, Ahmedabad as Chairperson to appraise the efficacy of existing dispute resolution forums of CsIT (A) & ITAT and to suggest steps to reduce litigation before these forums.

The Committee shall submit its report within 8 weeks and it has a heavy agenda:

(i) To carry out detailed analysis of appellate orders and assessment orders, on various aspects and recommend steps to reduce litigation before the CIT (A).

(ii) To study the efficacy of existing system of filing appeals to the ITAT by the Department and suggest steps to reduce litigation before the ITAT.

CBDT wants the Committee to follow the following guidelines:

(i) Sample should be drawn from the orders passed by the 1TAT during the month of June, September, December and March of the FY 2013-14.

(ii) (a) Approximately 200 orders should be selected for study from each of the 8 major cities: Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad and Bangalore.

(ii) (b) Approximately 150 orders should be selected for study from each of the stations: Chandigarh, Jaipur, Indore, Lucknow and Kochi.

(iii) As far as possible, orders in cases of corporate and non-corporate assessees should be selected in equal numbers, particularly in Metro charges whereas in non-metro, sample of non-corporate assessees may be larger. It must also be ensured that some orders in search cases are in select basket.

(iv) As number of appeals filed by the Department before ITAT is much larger than appeals filed by the assessee, the order in appeals filed by the Department and by the assessee may be selected in the ratio of 2:1.

The Board wants the Committee to analyse the following aspects:

(i) Assessment Orders: Nature of additions made in general, guidance of supervisory authorities, sustainability of additions in appeal, quality of addition made and average tax effect of additions.

(ii) Orders of CIT (A): Whether relief allowed is based on proper marshalling of facts and legal position. The decisions are also to be analysed in the light of the order of the ITAT.

(iii) Authorization by CIT: The filing of second appeal is to be examined as to whether the same is filed mechanically by applying the monetary limits or on sound grounds after examining the merits of each order.

(iv) The success rate of appeals filed by the Department / Assessee before the ITAT to be analysed.

Is it possible to undertake such a great study in 8 weeks? And doesn't the Board already know the answers?

CBDT F. No. 279/Misc./M-84/2014-(ITJ), Dated: July 17 2014.

Customs - New Exchange Rates from Today

CBEC has notified new exchange rates for Imported Goods and for Export Goods with effect from 18th July 2014. The US Dollar is 60.70 rupees for imports and 59.70 rupees for exports.

The Exchange rates were last notified on 3rd July, 2014.

Notification No.53/2014-Cus (N.T.), Dated: July 17, 2014

Company Law - Related Party Transactions - MoCA Clarifies

MINISTRY of Corporate Affairs clarifies that:

1. Scope of second proviso to Section 188(1): - Second proviso to sub- section (1) of section 188 requires that no member of the company shall vote on a special resolution to approve the contract or arrangement (referred to in the first proviso), if such a member is a related patty. It is clarified that 'related party' referred to in the second proviso has to be construed with reference only to the contract or arrangement for which the said special resolution is being passed. Thus, the term 'related party' in the above context refers only to such related party as may be a related party in the context of the contract or arrangement for which the said special resolution is being passed.

2. Transactions arising out of Compromises, Arrangements and Amalgamations dealt with under specific provisions of the Companies Act, 1956/Companies Act, 2013, will not attract the requirements of section 188 of the Companies Act, 2013.

3. Requirement of fresh approvals for past contracts under Section 188.:- Contracts entered into by companies, after making necessary compliances under Section 297 of the Companies Act, 1956, which already came into effect before the commencement of Section 188 of the Companies Act, 2013, will not require fresh approval under the said section 188 till the expiry of the original term of such contracts. Thus, if any modification in such contract is made on or after 1st April, 2014, the requirements under section 188 will have to be complied with.

MoCA General Circular No. 30/2014,Dated: July 17 2014.

International Competitive Bidding - Sub-contractors too eligible for exemption - Another Problem persists

CBEC had in a recent budget document clarified that exemption is also available to sub-contractors for manufacture and supply of goods for or on behalf of the main contractor (who has won the bid for the project through ICB) for execution of the said project, subject to compliance of conditions specified, if any. (Please see DDT 2396)

But there is a related problem:

The department is denying the exemption on two grounds - 1) The sub-contractor did not participate in ICB and 2) the sub-contractor or Indian main contractor has not fulfilled some of the conditions prescribed at Sl.No. 41, 43 (in case petroleum exploration contracts) and 93 (in case of supplies to Mega Power projects) of the Customs notification. The clarification given only settles the issue relating to the eligibility of sub-contractors in availing the exemption for supplies to mega power projects/petroleum exploration projects. The other issue in the litigation is still open.

The Notification No. 12/12-CE (Currently in force) at Sl.No. 336 exempts goods falling under any chapter if supplied against International Competitive Bidding subject to fulfilment of conditions prescribed at 41.

The condition 41 reads as under

Customs Notification No. 12/2012 dated 17.03.2012 at Sl.No. 356 to 359 provide exemption to goods imported in connection with petrol exploration/petroleum operations and at Sl.No 507 exempts goods supplied to Mega power projects as project imports, subject to fulfilment of conditions prescribed at 41,43 and 93 of the Customs Notifications.

Some of the conditions relate to declaration/certification to be submitted with AC/DC before clearance of goods imported as project imports for supplies to petroleum operations/mega power projects. The contention of the department is that since the exemption under Customs is not absolute, but subject to fulfilment of certain conditions specified, even the domestic suppliers availing exemption under Sl.No 336 of Notification No. 12/12-CE are required to fulfil those conditions, as the exemption is linked to exemption provided under Customs Notification.

The assesses availing the said exemption on the other hand argue that since the condition prescribed under Customs Notification at 41, 43 and 93 are in connection with imported goods, they need not fulfill those conditions as no imports are involved.

Tribunal in 2014-TIOL-211-CESTAT-MUM accepted the contention of the appellants with regard to non-requirement of conditions attached to customs notification and allowed the appeals. And as usual the department has not accepted the Tribunal decisions and is pursuing the matter on appeal to higher forums and the litigation continues even though the exemption is in existence for more than a decade.

If the Government is really serious about ending the litigation, it has to go a little further and clarify that the conditions prescribed under Customs notification is not required to be fulfilled by domestic suppliers availing exemption at Sl.No. 336 of Notification No. 12/12-CE. The other alternative is de-link both the notifications by prescribing suitable conditions that may be required for domestic suppliers. Another alternative is that the Government can explore the possibility of putting all the details/permissions/certificates required in connection with the exemption in a website, so that the field formation can allow clearance of goods on verification of details available in the website,

It is hoped that the senior officers at the field, who have been undergoing training at world famous business schools under MACP at the expense of tax payers' money, would apply the knowledge (?) they obtained in training and take a bold decision in dropping further proceedings in all SCNs issued in this regard and not to take litigation any further. At least the Board should expand its clarification to include this issue.

IRS (IT) Probationers with the President

PRESIDENT of India speaking to the 67th batch of IRS (Income Tax) Probationers at Rashtrapati Bhavan yesterday. Senior CBDT officers were also present

DDT Cartoon

Jurisprudentiol - Monday's cases

Customs

Seizure of Gold from under sea - Captain of vessel arrested on charge of throwing gold into sea - Trial court acquits accused - Revenue Appeal Dismissed: HC

THE accused was arrested in May 1987. After seven years, the trial court acquitted him. Customs took the matter in appeal to the High Court which dismissed the appeal in July 2014 - after 27 years!

The statement under section 108 is admissible and it can be relied also. However, if at all it is retracted, then, weightage can be given to it only if there is corroboration on other material particulars. In the present case, as the panchas did not corroborate and the prosecution did not examine the other panch, that material evidence collapsed.

Income Tax

Whether disallowance under section 14A can exceed total administrative expenditure debited by assessee in Profit & Loss account - NO: ITAT

THE assessee is a non-banking financial company deriving interest income from money lending and income from investment. The assessee had shown short term capital gain and long term capital gain from the sale of shares. The assessee, during the course of assessment proceedings, in response to the show cause notice, filed details submissions with regard to the overall transactions of shares, holding period, treatment given in the books, number of transactions undertaken and the history of the assessee's case in the earlier years. Assessing Officer rejected the assessee's contention on the ground that the purchase and sale of shares was not an unrelated activity but incidental to the business of the assessee. The assessee had continuously and systematically carried out the activity of trading in shares over the period of one year and had borrowed funds to fund his activity for purchase and sale of shares. The Assessing officer was of the view that the assessee had shown all the characteristics of a trader rather than an investor. Thus, the profit claimed as capital gain was taxed as business income.

THE issue before the Bench is - Whether disallowance under section 14A can exceed the total administrative expenditure debited by the assessee in the Profit & Loss account. And the answer goes against the Revenue.

Central Excise

Demand of duty on clandestine clearances - findings of Tribunal on suppression of manufacture and removal of dutiable product cannot be faulted - However, MODVAT credit extended on raw materials: HC

THE appellant is a small-scale industrial unit engaged in the manufacture of acid slurry, soap oil and waste weak acid since 1989-90. The main raw materials for manufacture of acid slurry are: linear alkyle benzene (LAB), oleum and water. The appellant was availing Modvat credit of duty paid on the raw materials after filing necessary statutory declarations before the concerned authorities.

There was an inspection at the premises of the appellant by the Directorate General of Anti-Evasion, Hyderabad certain records were seized. Based on the inspection and the information obtained, a show-cause notice was issued alleging that the appellant had not accounted for purchase of raw material namely, LAB made from a public sector organization, M/s.Tamil Nadu Petro Products.

Aggrieved by the order of Commissioner confirming the demand, the appellant filed an appeal before the CESTAT and the same was dismissed vide 2004-TIOL-446-CESTAT-BANG.

The appellant contended that the order of the Tribunal is purely based on surmises and conjectures and there is no material whatsoever evidencing purchase of LAB by the appellant and the same having been received in the Factory by the appellant. There is no material with respect to manufacture of acid slurry, a product which attracts higher rate of duty and also there is no material evidencing clearance of acid slurry from the premises.

See our Columns Monday for the judgements

Until Monday with more DDT

Have a nice weekend.

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