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2026 (7) TMI 503 - ITAT AHMEDABADIncome Tax

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BSNL VRS compensation exemption and leave encashment ceiling relief applied under the Income-tax Act for eligible employees.
BSNL VRS-2019 compensation was treated as exempt under section 10(10B) because the facts were identical to an earlier ITAT ruling on the same scheme, subject to verification of eligibility conditions; tax deducted or paid was refundable. Leave encashment was directed to be examined under section 10(10AA) within the prescribed statutory ceiling, including the enhanced limit under the CBDT notification, and exemption was allowed only to that extent. On both issues, the assessee obtained relief and the appeals were allowed.

Exemption of compensation under BSNL Voluntary Retirement Scheme-2019 - Retrenchment compensation exemption - Leave encashment exemption on retirement BSNL VRS-2019 compensation exemption - Retrenchment compensation - Government-approved voluntary retirement scheme - Compensation received under BSNL Voluntary Retirement Scheme-2019 entitlement to exemption under section 10(10B) - HELD THAT: - The Tribunal recorded that it was undisputed that the assessee had received compensation under BSNL VRS-2019 on voluntary retirement from BSNL. Finding the facts to be identical to those considered in an earlier co-ordinate Bench decision Jayeshkumar Tulsidas Sutaria [2026 (2) TMI 930 - ITAT AHMEDABAD], it followed that view and held that compensation received under the Government-approved restructuring scheme was to be treated as eligible for exemption u/s 10(10B). On that basis, the amount received under the scheme could not be brought to tax, with consequential refund of tax deducted or paid thereon. [Paras 9] The assessee was held entitled to exemption for BSNL VRS-2019 compensation u/s 10(10B), subject to verification, and the receipt was directed not to be taxed. Leave encashment exemption - Statutory limit under section 10(10AA) - CBDT notification limit - HELD THAT: - On leave encashment, the Tribunal held that the claim had to be examined in the light of the facts on record and the CBDT Notification dated 24.05.2023. It therefore directed the AO to verify the claim and allow exemption in accordance with the statutory ceiling prescribed under section 10(10AA). [Paras 9] The Assessing Officer was directed to verify and allow exemption on leave encashment as per the statutory limit under section 10(10AA). Final Conclusion: Both appeals were allowed. The compensation received under BSNL VRS-2019 was held exempt under section 10(10B), subject to verification of eligibility, and the leave encashment claim was directed to be examined and allowed in accordance with section 10(10AA) and the applicable notification for both assessment years.

2026 (7) TMI 473 - CESTAT BANGALORECustoms

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Customs penalty cannot rest on regulatory omission alone without evidence of knowledge or active participation in smuggling.
Penalty under Section 114 of the Customs Act, 1962 was held unsustainable against a Customs Cargo Service Provider where the only allegation was non-compliance with Regulation 6(1)(k) of the Handling of Cargo in Customs Areas Regulations, 2009. In the absence of admissible evidence that the provider knew the goods were liable for confiscation, or actively participated in or colluded with the smuggling attempt, penalty could not rest merely on an alleged regulatory omission. The penalty was therefore set aside.

2026 (7) TMI 467 - BOMBAY HIGH COURTIBC

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Issues: (i) Whether the order classifying the petitioner's account as fraud was vitiated for want of reasons and failure to consider the petitioner's defence under the RBI fraud directions; (ii) Whether, on the facts of the case, the bank could restart or continue fraud proceedings for the relevant review period against the petitioner.

Issue (i): Whether the order classifying the petitioner's account as fraud was vitiated for want of reasons and failure to consider the petitioner's defence under the RBI fraud directions.

Analysis: Clause 2.1.1.4 of the Master Directions on Fraud Risk Management requires a reasoned order stating the relevant facts and circumstances, the submissions made against the show cause notice, and the reasons for classification as fraud or otherwise. The impugned order merely recited the background, reproduced the forensic auditor's observations, and recorded the issuance of opportunities, but did not deal with the petitioner's specific defences or explain why they were unacceptable. The order was found to be substantially a reproduction of the show cause notice, with conclusions appended without independent reasoning.

Conclusion: The fraud classification order was held to be wholly unreasoned and unsustainable, and it was quashed.

Issue (ii): Whether, on the facts of the case, the bank could restart or continue fraud proceedings for the relevant review period against the petitioner.

Analysis: The petitioner had ceased to be a director before the account was declared NPA, and the materials relied upon did not disclose any transaction attributable to him during the short period in which he remained a director within the review period. In these peculiar facts, further fraud proceedings for the same review period were found incapable of being sustained.

Conclusion: Liberty to reinitiate fraud proceedings against the petitioner for the review period was declined.

Final Conclusion: The fraud declaration against the petitioner was set aside and no fresh fraud proceedings for the same review period were permitted, resulting in complete relief to the petitioner.

Ratio Decidendi: Where a regulatory direction mandates a reasoned fraud classification order, the authority must independently address the noticee's defence and record reasons for rejecting it; a mere reproduction of the show cause notice or forensic report without such reasoning is invalid.

Reasoned fraud classification orders must address the defence; mere reproduction of a notice or report is unsustainable.
A fraud classification order under RBI's fraud directions must be reasoned and must independently address the noticee's defence; a mere reproduction of the show cause notice or forensic report is invalid. The Bombay HC found the impugned order substantially unreasoned because it recorded background facts and conclusions without explaining why the petitioner's specific objections were rejected, and quashed the fraud classification. On the facts, the petitioner had ceased to be a director before the account was declared NPA and no material showed attributable transactions during the relevant review period, so fresh fraud proceedings for that same period were declined.

Reasoned order in bank fraud classification - failure to consider the petitioner's defence under the RBI fraud directions - Compliance with the Master Directions on Fraud Risk Management - Reinitiation of fraud proceedings for the review period - Non-speaking order - Non-application of mind Validity of the order declaring the petitioner as fraud - Non- compliance with the requirement of a reasoned order under the Fraud Master Circular of 2024 - HELD THAT: - The Court held that clause 2.1.1.4 of the Fraud Master Circular of 2024 mandates a reasoned order containing the relevant facts and circumstances relied upon, the submissions made against the show-cause notice, and the reasons for classification as fraud or otherwise. On examining the impugned order, the Court found that it merely set out the banking facilities, the NPA date, the appointment of the forensic auditor, and reproduced the forensic auditor's observations, but did not deal with the petitioner's defences or explain why they were unacceptable. The order was found to be almost identical to the show-cause notice and to contain only the final conclusion without reasoning. The Court therefore held that the order was wholly unreasoned and unsustainable. [Paras 12, 13, 14, 15] The impugned order classifying the petitioner as fraud was quashed and set aside as being wholly unreasoned and contrary to the mandate of the Fraud Master Circular of 2024. Reinitiation of fraud proceedings for the review period - HELD THAT: - Though the Court noted that, ordinarily, quashing of the order would permit the bank to restart the proceedings after considering the petitioner's defences, it declined such liberty in the facts of the case. The determinative consideration was that the petitioner was a director only for 1 month and 25 days during the review period, and the forensic audit report did not refer to any transaction during the period for which he remained a director. On that basis, the Court held that fraud proceedings against the petitioner for the review period forming the subject matter of the forensic audit report could not in any event be sustained. [Paras 16] No liberty was granted to the bank to reinitiate proceedings for declaring the petitioner as fraud for the review period covered by the forensic audit report. Final Conclusion: The writ petition was allowed. The order declaring the petitioner as fraud was set aside for failure to pass a reasoned order and, in the facts found by the Court, the bank was denied liberty to recommence fraud proceedings for the review period in question.

2026 (7) TMI 458 - CESTAT KOLKATAService Tax

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Form 26AS-based service tax demand failed for want of corroboration and could not be saved by extended limitation.
Service tax demand based mainly on Form 26AS data was found unsustainable because it lacked independent verification and corroborative material establishing taxable service liability. The record showed that a substantial part of the demand had already been dropped on documentary evidence, which reinforced the finding that the notice was issued without proper investigation. In the absence of material showing suppression or any other ground justifying the extended limitation period, the demand was held time-barred and the extended period under section 73 of the Finance Act, 1994 was not invokable.

2026 (7) TMI 457 - CESTAT KOLKATAService Tax

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Reverse charge manpower supply demand failed where evidence showed lump-sum works contract services instead of manpower supply.
Service tax demand under reverse charge for alleged supply of manpower services failed because the audit material and show cause notice were inconsistent on the nature of the transaction. The Tribunal found that the underlying work described in the spot memo related to works contract activities such as plastering, brickwork and concreting, while the demand was framed as manpower supply. Documentary evidence and the Chartered Accountant's certificate showed that the sub-contractors rendered lump-sum works contract services, not manpower services, except for one isolated instance where tax had already been paid. On those facts, the confirmed demand could not stand and was set aside.

2026 (7) TMI 456 - CESTAT NEW DELHIService Tax

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Issues: (i) Whether road cutting and allied services received from government or local authorities were exempt under Entry 13 and Entry 60 of Notification No. 25/2012-ST. (ii) Whether the extended period of limitation could be invoked for the demand of service tax.

Issue (i): Whether road cutting and allied services received from government or local authorities were exempt under Entry 13 and Entry 60 of Notification No. 25/2012-ST.

Analysis: Entry 13 of the mega exemption notification covers services by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a road for use by the general public, and road cutting was treated as falling within that exemption. Entry 60 was also found applicable because the services were rendered by government or local authorities and related to functions entrusted to a Panchayat under Article 243G of the Constitution of India, including roads and rural electrification. The monetary threshold introduced by Notification No. 22/2016-ST did not assist the appellant because the payments substantially exceeded the prescribed limit.

Conclusion: The appellant was entitled to exemption for the services in question under the relevant entries, but the threshold-based restriction under Notification No. 22/2016-ST remained relevant.

Issue (ii): Whether the extended period of limitation could be invoked for the demand of service tax.

Analysis: The dispute turned on the applicability of the exemption notification, which was treated as an interpretational issue. In the absence of fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty, the conditions for invoking the extended period were not satisfied.

Conclusion: The extended period of limitation could not be invoked and the demand raised on that basis was unsustainable.

Final Conclusion: The impugned demand was substantially set aside, with the appeal succeeding on the limitation issue and on the substantive exemption claim for the road cutting and related governmental services, while the notification-based monetary restriction was left undisturbed.

Ratio Decidendi: Services consisting of road cutting for public infrastructure and services rendered by government or local authorities for Panchayat functions fall within the relevant mega exemption entries, and an interpretational dispute on exemption without fraud or suppression does not justify invocation of the extended period of limitation.

Mega exemption for road cutting services upheld; extended limitation period rejected absent fraud or suppression
Road cutting and allied services connected with public infrastructure were treated as falling within the mega exemption under Notification No. 25/2012-ST, including services linked to functions entrusted to a Panchayat under Article 243G. The exemption was upheld for services received from government or local authorities, while the monetary restriction introduced later under Notification No. 22/2016-ST remained relevant where the prescribed threshold was exceeded. On limitation, the dispute was treated as an interpretational issue; in the absence of fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty, the extended period could not be invoked and the demand on that basis was unsustainable.

Exemption for road cutting services relating to public roads - Exemption for services by Government or local authority in relation to Panchayat functions - Benefit of exemption under Entry 13 and Entry 60 of Notification No. 25/2012-ST - Monetary threshold under amended Mega Exemption notification - Extended period of limitation in interpretational disputes - Suppression of Facts - Intent to Evade Duty - Reverse Charge Mechanism - Exemption from Service Tax - Demand of service tax on the services received by the appellant from government or local authority under reverse charge mechanism [RCM] invoking the extended period of limitation under section 73 Road cutting services - Mega Exemption for public roads - HELD THAT: - In the case of M/s MP Audyogik Kendra [2024 (8) TMI 1409 - CESTAT NEW DELHI], where the learned, Single Member of the Tribunal, considered whether the amount received towards road cutting charges, would fall under Entry 13(a) of the exemption notification on which the categorical finding has been arrived that the benefit of the exemption notification cannot be denied in so far as the road cutting charges were concerned. The Tribunal held that the exemption entry covering services by way of construction, repair, maintenance, renovation or alteration of a road is widely worded and is not confined to construction alone. On that construction, the activity of road cutting was treated as falling within the scope of the exemption for roads used by the general public. The Tribunal adopted the same view as taken in an earlier Tribunal decision on road cutting charges and held that service tax was not chargeable on that activity under reverse charge on that basis. [Paras 7] The benefit of the exemption was held available in respect of road cutting activity. Applicability of Entry 60 of the notification - Services by Government or local authority - Functions entrusted to Panchayat - HELD THAT: - The Tribunal found that the first condition stood satisfied because the services were admittedly rendered by Government or local authorities. It further held that the services were in relation to functions entrusted to a Panchayat under Article 243G, specifically roads and rural electrification. Since the appellant's work related to laying optical fibre cable in rural areas and included road cutting and rural electrification related activity, the services received were held to fall within that exemption. [Paras 8] The services received were held to be covered by the exemption for activities in relation to Panchayat functions. Amended Mega Exemption notification - Gross amount threshold for services by Government or local authority - HELD THAT: - The Tribunal accepted the Revenue's contention that the exemption notification had to be read together with the amending notification. It held that, by virtue of the amended entry prescribing exemption only where the gross amount charged did not exceed the stated monetary limit, the earlier benefit stood restricted in cases exceeding that limit. Since the payments in the present case were beyond that threshold, the Tribunal held that the monetary-limit condition was not satisfied. [Paras 9, 12] The amended notification was held applicable, and the exemption was treated as restricted by the monetary threshold. Extended period of limitation - Absence of mala fide in interpretational dispute - HELD THAT: - The Tribunal held that the dispute turned on the applicability of exemption notifications and was therefore interpretational in nature. It further held that, the appellant being a Government undertaking, mala fide intention to evade payment could not be attributed, and the settled requirements for invoking the extended period demand proof of fraud, collusion, wilful misstatement or suppression with intent to evade duty, and something positive beyond mere inaction. As the entire demand had been confirmed only by invoking the extended period, it was held to be unsustainable. [Paras 10, 11] Invocation of the extended period was held invalid, and the demand confirmed on that basis was set aside. Final Conclusion: The Tribunal held that road cutting and the services received in relation to Panchayat functions were covered by the claimed exemption entries, though it also held that the amended notification imposed a monetary threshold restriction on exemption for services by Government or local authority. Nevertheless, as the entire demand was founded on the extended period in an interpretational dispute without mala fide, the demand, interest and penalty could not survive, and the impugned order was set aside except to the extent of the finding on applicability of the amending notification.

2026 (7) TMI 381 - CUSTOMS AUTHORITY FOR ADVANCE RULINGS, NEW DELHICustoms

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Misrepresentation in advance rulings under the Customs Act can void an AAR ruling where facts were materially misstated.
Advance rulings under section 28K of the Customs Act, 1962 can be declared void ab initio where they are obtained by fraud or misrepresentation of material facts, and the existence of an appeal under section 28KA does not bar that remedy. The Authority found that investigation material, section 108 statements, the Chartered Engineer's report and documents showed the imported goods were complete, identifiable mobile-phone parts, while the covers had already acquired their essential character after moulding and machining. It held that the applicant had projected complete functional parts as mere inputs for cover manufacture, so the ruling was procured by misrepresentation and was liable to be treated as void ab initio.

Advance ruling obtained by fraud or misrepresentation of material facts - Independence of void ab initio jurisdiction from appellate remedy - advance ruling on imported goods used with front cover, back cover and middle cover of mobile phones was obtained on a materially inaccurate factual premise - HELD THAT: - The Authority found that the original application had projected the imported antenna modules, conductive foams, heat dissipating films, silicon pads and similar items as inputs indispensable for manufacture of the covers. On the materials later placed on record, including investigation inputs, statements recorded under Section 108, and the Chartered Engineer's opinion, the Authority held that the covers acquired their own identity and essential character upon moulding and machining, while the imported items were complete and functionally distinct parts of mobile phones retaining independent identity even after affixation. The subsequent activity was only assembly of ready-to-use components on already manufactured covers and did not amount to manufacture of the covers. The Authority therefore held that the factual basis on which the earlier ruling proceeded had not reflected the true nature, identity and role of the imported goods. It further held that Section 28KA concerns c-97 allenge to the correctness or legality of an advance ruling, whereas Section 28K operates independently where the ruling has been obtained by fraud or misrepresentation of facts; hence, the existence of an appellate remedy did not denude the Authority of jurisdiction under Section 28K. [Paras 2] The earlier advance ruling was held to have been obtained by misrepresentation of material facts and was accordingly declared void ab initio under Section 28K. Final Conclusion: The Authority held that the applicant had misrepresented the true nature and role of the imported goods while seeking the earlier advance ruling. On that finding, it invoked Section 28K and declared the advance ruling void ab initio, rejecting the objection that the Department was confined to the appellate remedy.

2026 (7) TMI 377 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHIIBC

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Issues: (i) Whether the personal guarantor's Section 94 application was barred by limitation; (ii) Whether the subsequent petition was not maintainable on the ground of res judicata and abuse of process; (iii) Whether the appeal against dismissal of the Section 94 petition deserved interference.

Issue (i): Whether the personal guarantor's Section 94 application was barred by limitation.

Analysis: The record showed that a demand notice had been issued to the personal guarantor on 20.03.2017. A prior Section 94 petition filed in 2024 was dismissed as time-barred, and the present petition was a later, identical filing. The contention that limitation should run only from the possession notice dated 27.01.2022 was rejected because a demand notice had already been issued to the guarantor in 2017.

Conclusion: The petition was held to be barred by limitation against the appellant.

Issue (ii): Whether the subsequent petition was not maintainable on the ground of res judicata and abuse of process.

Analysis: Multiple Section 94 petitions had been filed by the appellant and another personal guarantor after the corporate debtor entered insolvency and liquidation. The repeated filings, after earlier dismissals, were treated as attempts to obtain interim moratorium and stall recovery proceedings rather than to seek genuine insolvency resolution.

Conclusion: The subsequent petition was held to be not maintainable as an abuse of process and hit by res judicata.

Issue (iii): Whether the appeal against dismissal of the Section 94 petition deserved interference.

Analysis: No infirmity was found in the adjudicating authority's order dismissing the petition. The appellant was also found to have withheld material facts, and costs were justified in the circumstances.

Conclusion: Interference was declined and the appeal was dismissed.

Final Conclusion: The dismissal of the personal guarantor's Section 94 petition was sustained, the appeal failed, and costs were imposed for misuse of the insolvency process.

Ratio Decidendi: Where a personal guarantor has already been issued a demand notice and has pursued repeated Section 94 proceedings after earlier dismissals, a later identical petition may be rejected as time-barred and as an abuse of the insolvency process intended to secure interim moratorium rather than genuine resolution.

Limitation and abuse of process bar repeated Section 94 petitions by a personal guarantor; NCLAT declined interference.
A personal guarantor's repeated Section 94 insolvency petition was rejected as time-barred because a demand notice had already been issued in 2017, and limitation was not shifted to the later possession notice. The later identical filing was also held not maintainable, as multiple petitions after earlier dismissals amounted to res judicata and abuse of process, with the filings viewed as attempts to secure an interim moratorium and stall recovery rather than pursue genuine insolvency resolution. Finding no infirmity in the adjudicating authority's order and noting withholding of material facts, the NCLAT declined interference, dismissed the appeal, and sustained costs for misuse of the insolvency process.

Subsequent application by personal guarantor under Section 94 - barred by limitation - Principle of Res-judicata - Maintainability of subsequent petition - Limitation for insolvency application - Abuse of interim moratorium Section 94 application by personal guarantor - Res judicata - Abuse of interim moratorium - A subsequent application under Section 94 filed by the personal guarantor after an earlier fresh application had already been dismissed on merits as barred by limitation - HELD THAT: - The Appellate Tribunal found that, after the first defective petition had been dismissed with liberty to file afresh, the appellant had in fact filed another fresh petition which was dismissed on merits as barred by limitation. The present petition was therefore not the petition filed pursuant to the earlier liberty, but another identical attempt. The Tribunal held that suppression of this intervening dismissal and repeated filing of petitions by personal guarantors of the same corporate debtor showed a design to obtain interim moratorium and obstruct recovery proceedings rather than seek genuine insolvency resolution. On that basis, the subsequent petition was held to be hit by res judicata and to amount to abuse of process. [Paras 29, 31, 32, 33, 36] The subsequent Section 94 petition was rightly treated as not maintainable and the dismissal was upheld. Limitation for insolvency application - Invocation of personal guarantee - HELD THAT: - The Tribunal rejected the appellant's case that the personal guarantee had not been invoked until issuance of the possession notice and that limitation should therefore run from that later date. It recorded that, apart from the notice issued to the corporate debtor, a separate demand notice under Section 13(2) had also been issued to the personal guarantor on 20.03.2017. The earlier order dismissing the appellant's fresh Section 94 petition as time-barred had proceeded on that basis, and the Tribunal accepted that reasoning. It further held that the decision relied on by the appellant was factually inapplicable. [Paras 27, 30, 34] The plea that limitation commenced only from the later possession notice was rejected, and the finding of limitation against the appellant stood affirmed. Costs for abuse of process - HELD THAT: - The Tribunal found the conduct of the appellant serious, noting that material facts were not fully disclosed and that the process under Section 94 was being used for a purpose other than insolvency resolution. Having concluded that the repeated filings were intended to stall the secured creditor's recovery process, it held that the matter warranted imposition of substantial costs. [Paras 31, 37] Costs were imposed on the appellant in addition to dismissal of the appeal. Final Conclusion: The Appellate Tribunal upheld the dismissal of the appellant's Section 94 application, holding that the subsequent filing was barred by res judicata and that the plea to compute limitation from the later possession notice was untenable in view of the earlier demand notice issued to the personal guarantor. Finding repeated filings to be an abuse of the insolvency process intended to stall recovery, it dismissed the appeal and imposed costs.

2026 (7) TMI 376 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHIIBC

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Set-off in liquidation requires mutual dealings between the same parties; cross-dues against separate group entities could not defeat admitted liability.
Set-off against an admitted liquidation liability was unavailable where the claimed cross-dues related to separate group entities rather than the same parties. The corporate debtor was treated as a distinct juristic person, each entity had undergone separate insolvency or liquidation proceedings, and Regulation 29 of the Liquidation Process Regulations permits set-off only on mutual dealings between the same parties. Separate load security deposits and separate billing supported the absence of mutuality. The liquidator was acting within statutory duties under the Insolvency and Bankruptcy Code, and the admitted dues remained recoverable assets of the liquidation estate. The Electricity Act argument did not change this result, and payment of the admitted amount with interest was upheld.

Mutual dealings and set-off in liquidation - Separate juristic identity of group companies in insolvency - Applicability of the "Group of Companies Doctrine" - Whether the Appellant/ Operational Creditor is liable to pay the alleged outstanding dues to the Respondent despite the applicability of the "Group of Companies Doctrine" read with Regulation 29 of the Liquidation Process Regulation, 2016 ? - HELD THAT: - It is evident and established in the eye of law that the Corporate Debtor is a separate juristic person, distinct from other group entities, and each of the BISCON entities namely Brahmaputra Galvochem Pvt Ltd, Brahmaputra Iron & Steel Pvt Ltd, Brahmaputra TMT Bars Pvt Ltd and Brahmaputra Tubulars Pvt Ltd have undergone separate CIRP or liquidation proceedings. The Appellate Tribunal held that the corporate debtor retained its distinct juristic identity notwithstanding its association with other BISCON group entities. Each entity had undergone separate CIRP and liquidation proceedings, with separate electricity connections, separate load security deposits, separate billing, and separate treatment under the insolvency process. Regulation 29 contemplates set-off only where there are mutual dealings between the corporate debtor and the same counterparty; it cannot be invoked by aggregating claims involving third-party group entities. The appellant had itself filed separate claims in the respective proceedings and had not disclosed any mutual set-off in its claim form against the present corporate debtor. The plea founded on the group of companies doctrine and on common administrative handling by the same resolution professional or liquidator was therefore rejected. The Tribunal also held that the liquidator was entitled to recover the refundable balance forming part of the corporate debtor's liquidation estate, and any reliance on other laws could not defeat the scheme of the Code in view of its overriding effect. [Paras 37, 38, 39, 40, 41] The direction requiring payment of the admitted amount to the liquidator was upheld, and the defence of cross-entity set-off was rejected. Final Conclusion: The appeal was dismissed. The Appellate Tribunal affirmed that dues recoverable by the liquidator from the appellant could not be set off against claims allegedly arising from other group companies, since Regulation 29 applies only to mutual dealings between the corporate debtor and the same party.

2026 (7) TMI 374 - CESTAT NEW DELHIService Tax

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Issues: (i) whether service tax demand based on differences between receipts reflected in the balance sheet and ST-3 returns required fresh verification and reconciliation; (ii) whether denial of Cenvat credit stated to have been availed while claiming benefit under Notification No. 26/2012-ST dated 20.06.2012 required reconsideration.

Issue (i): whether service tax demand based on differences between receipts reflected in the balance sheet and ST-3 returns required fresh verification and reconciliation.

Analysis: The difference between the two sets of figures was claimed to arise from the use of different accounting bases, with the balance sheet prepared under AS-7 and the returns filed under the point of taxation framework. As the record required reconciliation of receipts, advances, and tax payment particulars, the matter could not be finally determined on the existing material.

Conclusion: The demand on this issue was set aside for fresh adjudication after giving the assessee an opportunity to produce documents and evidence.

Issue (ii): whether denial of Cenvat credit stated to have been availed while claiming benefit under Notification No. 26/2012-ST dated 20.06.2012 required reconsideration.

Analysis: The dispute turned on whether the assessee was entitled to Cenvat credit on input services despite availing abatement and whether the requisite nexus with output services could be established. As these were factual questions requiring verification of records, the issue was not suitable for final determination without a fresh examination by the adjudicating authority.

Conclusion: The denial of Cenvat credit was set aside and the matter was remanded for reconsideration.

Final Conclusion: The impugned order was annulled and all three appeals were remitted to the Commissioner for fresh decision after granting a reasonable opportunity of hearing and production of supporting material.

Ratio Decidendi: Where the tax demand and Cenvat credit dispute depend on factual reconciliation and verification of records, the proper course is remand for fresh adjudication after affording an effective opportunity of hearing.

Factual reconciliation of service tax receipts and Cenvat credit eligibility led to remand for fresh adjudication.
Service tax demand based on discrepancies between balance sheet receipts and ST-3 returns required fresh reconciliation because the figures were said to arise from different accounting bases and the record needed verification of receipts, advances and tax payments. The demand was set aside and remanded for fresh adjudication. Denial of Cenvat credit claimed alongside abatement under Notification No. 26/2012-ST also turned on factual verification, including eligibility and nexus with output services, so it was likewise remanded for reconsideration. The impugned order was annulled and the matters were returned for a fresh decision after opportunity to produce supporting documents and evidence.

Demand based on differences between receipts reflected in the balance sheet and ST-3 returns - Verification of Cenvat credit on input services under abatement notification - claiming benefit under Notification No. 26/2012-ST - Principles of natural justice - Point of taxation Balance sheet and ST-3 reconciliation - Point of Taxation Rules - HELD THAT: - The Tribunal noted that the assessee's case was that the balance sheets were prepared under AS-7, whereas the ST-3 returns were filed in accordance with the Point of Taxation Rules, and that this difference in accounting basis explained the variation in figures. Since the Commissioner himself did not dispute that the returns and the balance sheets could be prepared on different legal bases, the determinative question was whether the figures could be reconciled on the basis of supporting documents. The Tribunal held that the assessee ought to be given an opportunity to produce evidence for such reconciliation and that the service tax liability, if any, could be determined only after such verification. [Paras 13] The demand on this count was set aside and remanded to the Commissioner for fresh examination after giving the assessee an opportunity to produce documents and reconcile the figures. Cenvat credit on input services - Abatement under Notification No. 26/2012-ST - HELD THAT: - The Tribunal recorded that the undisputed legal position was that where the assessee availed the abatement under Notification No. 26/2012-ST, Cenvat credit on inputs was not admissible. The assessee's specific stand, however, was that the disputed credit pertained to input services, for which the notification imposed no such restriction. Since the Commissioner rejected the claim on the ground that nexus between the input services and the output service had not been established, the Tribunal treated the controversy as a factual dispute requiring verification of the relevant documents rather than adjudicating the claim on merits. [Paras 14, 15, 16] The denial of Cenvat credit was set aside and remanded to the Commissioner for fresh decision after giving the appellants an opportunity to place the relevant material on record. Final Conclusion: The Tribunal set aside the impugned order and remanded both the service tax demand based on balance sheet-ST-3 differences and the denial of Cenvat credit for fresh adjudication. All questions on merits were left open, with a direction to afford the appellants a reasonable opportunity of hearing and to produce supporting documents.

2026 (7) TMI 335 - CESTAT KOLKATACustoms

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Issues: (i) Whether diversion of duty-free gold to job workers not originally endorsed as supporting manufacturers justified confiscation and redemption fine; (ii) whether excess gold jewellery found at the time of export was liable to confiscation on the allegation of attempted improper export; (iii) whether gold seized from a supporting manufacturer was liable to absolute confiscation on the premise that it was not imported under the Advance Authorisation; and (iv) whether penalties were sustainable under Sections 112(a)(i) and 114(iii) of the Customs Act, 1962.

Issue (i): Whether diversion of duty-free gold to job workers not originally endorsed as supporting manufacturers justified confiscation and redemption fine.

Analysis: The imported gold had been sent to job workers for manufacture of export jewellery under the Advance Authorisation scheme. The names of some supporting manufacturers were not entered in the authorisation at the relevant time, but they were subsequently endorsed by the DGFT and the lapse was thus regularised. In these circumstances, non-entry of the job workers' names was a curable procedural lapse and did not establish diversion to unauthorised entities or violation of the Actual User condition.

Conclusion: The confiscation of 266619.708 grams of gold and the redemption fine imposed in lieu thereof are unsustainable and are set aside.

Issue (ii): Whether excess gold jewellery found at the time of export was liable to confiscation on the allegation of attempted improper export.

Analysis: The excess quantity found during weighment was explained as a clerical mistake in the export documents. The circumstances showed no pecuniary gain, no inferior quality, and no mala fide intent, and the contemporaneous assessment also indicated that the explanation was plausible. In the absence of mens rea, the excess quantity could not be treated as an attempt to export improperly for the purpose of confiscation.

Conclusion: The confiscation of 4083.900 grams of gold jewellery and the associated redemption fine are set aside.

Issue (iii): Whether gold seized from a supporting manufacturer was liable to absolute confiscation on the premise that it was not imported under the Advance Authorisation.

Analysis: The seized quantity formed part of the gold imported under the Advance Authorisation and had been sent for manufacture of jewellery towards fulfilment of export obligation. The seizure occurred before expiry of the time limit for completing export obligation, and the record did not support the conclusion that the quantity had come from an unauthorised source.

Conclusion: The absolute confiscation of 1796.740 grams of gold is set aside and the quantity is directed to be released.

Issue (iv): Whether penalties were sustainable under Sections 112(a)(i) and 114(iii) of the Customs Act, 1962.

Analysis: Once the confiscations were found unsustainable, and no concrete evidence of diversion, improper export, or mala fide conduct was established, the foundation for penal action also disappeared. The case rested on assumptions and presumptions rather than proof of culpable conduct.

Conclusion: The penalties imposed on the appellants are set aside.

Final Conclusion: The impugned order is wholly set aside and the appeals are allowed with consequential reliefs.

Ratio Decidendi: A curable procedural lapse under an Advance Authorisation scheme, once regularised by the competent authority and unaccompanied by proof of diversion or mala fide intent, does not justify confiscation or penalties; absence of mens rea is fatal to penal consequences based on alleged improper export.

Advance Authorisation lapses and lack of mens rea defeated confiscation and penalties over duty-free gold and export discrepancies.
Advance Authorisation compliance was treated as a curable procedural matter where supporting manufacturers were later endorsed by DGFT, so non-entry of job workers' names did not by itself prove diversion of duty-free gold or breach of the actual user condition. Excess gold jewellery found at export was not liable to confiscation because the discrepancy was explained as a clerical error and there was no evidence of mens rea or attempted improper export. Gold seized from a supporting manufacturer was also found to be part of the authorised import, and the penalties failed once the confiscation findings and proof of culpable conduct fell away.

Actual User condition under Advance Authorisation - Diversion of duty-free imported gold in contravention of the conditions of the Advance Authorisation Scheme and the applicable provisions of the Foreign Trade Policy - Excess gold jewellery found at the time of export - Procedural lapse in use of unendorsed supporting manufacturers - mens rea - Absolute confiscation of duty-free gold before expiry of export obligation period - Penalty imposed under Sections 112(a)(i) and 114(iii) - fulfilment of 'Actual User Condition’ as per Notification No. 18/2015-Cus. Diversion of duty-free gold to job workers not originally endorsed as supporting manufacturers - HELD THAT: - The Tribunal found it undisputed that the appellant did not itself manufacture jewellery and got the imported gold converted through job workers and supporting manufacturers. Though some of those supporting manufacturers were not entered in the Advance Authorisation when the gold was sent to them, the appellants had applied for their inclusion and the DGFT subsequently endorsed and regularised them. On these facts, the omission to have their names entered before dispatch of the gold was held to be only a curable procedural lapse. Once the very entities to whom the gold was sent were later approved and regularised by the DGFT, the movement of gold to them could not be treated as diversion to unauthorised entities or breach of the Actual User condition. [Paras 15, 16] The seizure and confiscation of 266619.708 grams of gold were set aside, and the redemption fine imposed in lieu thereof was also set aside. Confiscation of excess export jewellery in absence of mens rea - Clerical mistake in export documents - HELD THAT: - The Tribunal accepted the explanation that the excess quantity found over the invoice declaration arose from a clerical mistake and that, because of the seizure, the appellant could not rectify the export documents. It further held that export of a higher quantity than declared would not confer any pecuniary benefit on the appellant and that the circumstances did not disclose any improper intent. In the absence of mens rea, the excess jewellery could not be treated as liable to confiscation merely because the invoice description had not been corrected before interception. [Paras 17, 18] The confiscation of 4083.900 grams of gold jewellery was set aside and no redemption fine was held imposable. Absolute confiscation of duty-free gold before expiry of export obligation period - Gold forming part of authorised import - HELD THAT: - The Tribunal noted that the seized quantity was found at the premises of a supporting manufacturer and that the time available under the Advance Authorisation for fulfilling the export obligation had not expired on the date of seizure. Since the seizure took place while the appellant was still within the permitted period for conversion of the imported gold into jewellery for export, the quantity in question was held to be part of the authorised import meant for fulfilment of export obligation. On that basis, the allegation that it had not been imported under the Advance Authorisation or had been procured from unauthorised sources was rejected. [Paras 19, 20] The order of absolute confiscation of 1796.740 grams of gold was set aside and the gold was directed to be released to the appellant for fulfilment of export obligations. Penalty for alleged diversion of duty-free imported gold - Absence of evidence and mens rea - Penalties on the firm and connected noticees - diversion rested on assumptions and no mala fides or improper export attempt was proved - HELD THAT: - The Tribunal held that the imports were made under a valid Advance Authorisation and that the appellants were in possession of proper gold intended for export after conversion into jewellery. It found that no mens rea had been established and that the Revenue had produced no evidence of any mismatch between the quantity of duty-free gold imported and the subsequent export of jewellery so as to substantiate diversion. Having already found that the confiscations were unsustainable, the Tribunal concluded that the foundation for penalties also failed. [Paras 21] All penalties imposed on the appellants under Sections 114(iii) and 112(a)(i) were set aside. Final Conclusion: The Tribunal set aside the entire impugned order. It held that the use of later-regularised supporting manufacturers was only a procedural lapse, that the excess export jewellery involved no mala fide intent, that the seized gold could not be treated as unauthorised while the export obligation period was still running, and that the penalties were therefore unsustainable.

2026 (7) TMI 329 - CESTAT NEW DELHIService Tax

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Issues: (i) Whether, for the period prior to 01.07.2012, an assessee receiving services from outside India could discharge service tax payable under reverse charge mechanism by utilising CENVAT credit; (ii) whether the demand was time-barred by limitation, including invocation of the extended period.

Issue (i): Whether, for the period prior to 01.07.2012, an assessee receiving services from outside India could discharge service tax payable under reverse charge mechanism by utilising CENVAT credit.

Analysis: The Tribunal read Rule 3(4) of the Cenvat Credit Rules, 2004 with the definitions of "output service", "provider of taxable service", and "person liable for paying service tax". It held that, in respect of imported services, the Indian recipient became the person liable to pay service tax and, by legal fiction, the provider of taxable service, so the tax could be paid through CENVAT credit. The Explanation inserted in Rule 3(4), barring such utilisation where the recipient was liable to pay tax, was treated as creating a substantive prohibition and was held to be prospective from 01.07.2012. The Tribunal relied on the prevailing High Court authorities taking the same view and declined to follow the contrary Tribunal view relied on by the Department.

Conclusion: The assessee was entitled to utilise CENVAT credit for discharge of reverse charge service tax for the period October 2011 to March 2012; the demand on that ground was unsustainable and in favour of the assessee.

Issue (ii): Whether the demand was time-barred by limitation, including invocation of the extended period.

Analysis: Once utilisation of credit was held permissible for the relevant period, the basis for alleging evasion or suppression was negated. On the facts, the Tribunal found no material justifying invocation of the extended period and held that the notice, issued after the relevant period, was beyond limitation.

Conclusion: The demand was barred by limitation and the extended period could not be invoked, in favour of the assessee.

Final Conclusion: The impugned demand and penalties could not be sustained, and the appeal succeeded with the order-in-original set aside.

Ratio Decidendi: For periods prior to 01.07.2012, service tax payable on imported services under reverse charge could be discharged through CENVAT credit, and a later inserted prohibition on such utilisation could not be applied retrospectively.

Reverse charge service tax through CENVAT credit permitted before 01.07.2012; later bar held prospective and demand time-barred.
For the period before 01.07.2012, service tax payable on imported services under reverse charge could be discharged through CENVAT credit because the recipient was treated as the person liable to pay tax and, by legal fiction, as the provider of taxable service. The later Explanation to Rule 3(4), which barred such utilisation, was held to be a substantive restriction operating prospectively from 01.07.2012 and not retrospectively. On limitation, the Tribunal found no basis for the extended period once credit utilisation was held permissible, and held the notice time-barred. The demand and penalties were therefore unsustainable.

Utilization of CENVAT credit for reverse charge service tax on import of services - Prospective operation of substantive prohibition - Extended period of limitation - Whether the assessee can discharge the service tax liability under reverse charge mechanism in respect of services received from outside India during the period prior to July 2012 by utilizing the Cenvat credit ? - HELD THAT: - The Tribunal held that, under the scheme of the CENVAT Credit Rules read with Section 66A, the recipient in India who was liable to pay service tax on services received from abroad became the person liable for paying service tax and, consequently, the provider of taxable service for the purpose of the Rules. Such service was therefore to be treated as an output service, permitting utilization of CENVAT credit for payment of service tax under reverse charge during the pre-July 2012 period. It was further held that Rule 5 of the Taxation of Services Rules dealt only with availment of credit and did not bar its utilization. The contrary reliance placed on Sangam India Ltd.[2012 (8) TMI 560 - CESTAT, NEW DELHI] was found inapplicable in view of the High Court decisions noticed by the Tribunal. [Paras 10, 11, 12, 13, 14] Denial of utilization of CENVAT credit for payment of reverse charge service tax for the period in dispute was unsustainable. Prospective application of Explanation to Rule 3(4) - Substantive prohibition - Limitation on show cause notice - HELD THAT: - The Tribunal found that the Explanation introduced in Rule 3(4) created a substantive prohibition against use of CENVAT credit for payment of service tax where the recipient was liable under reverse charge. As a provision creating liability or imposing prohibition, it could operate only prospectively and was therefore inapplicable to the period October 2011 to March 2012. Once utilization of credit for that period was held lawful and the tax itself stood paid through such credit, there remained no basis to allege evasion so as to justify invocation of the extended period. The show cause notice covering the entire demand period was therefore held barred by limitation. [Paras 9, 13, 14] The Explanation to Rule 3(4) was held inapplicable to the period in dispute, and the demand was also barred by limitation. Final Conclusion: The Tribunal held that, for the period prior to 1st July 2012, the assessee was entitled to utilize CENVAT credit for payment of service tax on imported services under reverse charge. As the later Explanation to Rule 3(4) was only prospective and the extended period was not invocable, the demand, interest and consequential penalties were set aside and the appeal was allowed.

2026 (7) TMI 323 - CESTAT KOLKATACentral Excise

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Clandestine removal demands tangible corroboration; private records and statements alone are insufficient to sustain duty and penalties.
Clandestine manufacture and clearance can be sustained only on positive, tangible and corroborative evidence of actual unaccounted production and removal. Private records, pen drive data and statements, without independent support such as excess raw material procurement, transport proof, sale proceeds, electricity use, labour records or other operational indicators, are insufficient to establish the charge. On that basis, a demand for duty, interest and penalties based on the same unproved foundation cannot be sustained, and the impugned order was set aside with consequential relief.

Clandestine manufacture and removal - Corroborative evidence for private records and pen drive data - Penalty on Director - Burden of Proof - Tangible Evidence - Presumptions and Assumptions - Preponderance of Probability Clandestine manufacture and removal - Private records and pen drive data - Corroborative evidence - discrepancies in pen drive data, private records and stock entries without independent corroborative evidence - HELD THAT: - The Tribunal held that a charge of clandestine removal is a serious one and cannot rest merely on discrepancies in pen drive data, private documents or non-matching entries in statutory records. It applied the settled principle that such allegations must be established by positive and tangible evidence showing actual clandestine manufacture and clearance, and not by presumption or inference. Relying on Commissioner of Central Excise, Haldia Vs. Lords Chemicals Ltd.[2009 (7) TMI 831 - CALCUTTA HIGH COURT], Sulekhram Steels Pvt. Ltd. [2008 (12) TMI 423 - CESTAT, AHMEDABAD], Brims Products [2008 (9) TMI 603 - PATNA HIGH COURT], Oudh Sugar Mills Ltd. [1962 (3) TMI 75 - SUPREME COURT], Nabha Steels Ltd. [2016 (5) TMI 777 - CESTAT CHANDIGARH], Century Metal Recycling Pvt. Ltd. [2016 (1) TMI 967 - CESTAT NEW DELHI] and Gupta Synthetics Ltd. [2013 (11) TMI 1525 - CESTAT AHMEDABAD], it found that the Revenue had not fulfilled the accepted criteria for proving clandestine manufacture and removal. The case lacked corroboration through evidence such as excess raw material procurement, actual transportation, identified buyers, receipt of sale proceeds, power consumption or other independent material linking the recovered records to clandestine clearances. On that reasoning, the allegation itself failed. [Paras 9, 10, 11, 12, 13] The demand of duty with interest, founded on the allegation of clandestine manufacture and clearance, was set aside. Penalty on Director - Consequential penalty - HELD THAT: - The Tribunal held that, in the facts of the case, no penalty was imposable on the Director once the Revenue failed to establish clandestine manufacture and removal against the manufacturing appellants. The penalty was thus only consequential to the principal charge and could not stand independently after the duty demand and related penalties were found unsustainable. [Paras 14] The penalty imposed on the Director was also set aside. Final Conclusion: The Tribunal held that the Revenue had failed to establish clandestine manufacture and clearance by cogent and independent corroborative evidence. The duty demand, interest and penalties against the manufacturing appellants, as well as the penalty on the Director, were therefore set aside and the appeals were allowed with consequential relief.

2026 (7) TMI 269 - CESTAT KOLKATACustoms

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Burden of proving smuggling for non-notified goods failed; confiscation, penalties and vehicle seizure were set aside.
Exotic birds and mammals not notified under Section 123 of the Customs Act placed the burden on Revenue to prove foreign origin, smuggling and unlawful import. The record suggested domestic movement within Mizoram, and without tangible corroborative evidence, mere suspicion and uncorroborated statements were insufficient to sustain confiscation. The same failure of proof meant the vehicle could not be confiscated as an instrument of smuggling. As a result, confiscation was set aside, penalties were held unsustainable, and release of the vehicle was directed.

Smuggling of exotic birds and mammals - Burden of proof - Non-notified goods under Section 123 - Confiscation of exotic wildlife seized in domestic movement - Penalty and conveyance confiscation in absence of proof of smuggled nature - statement recorded under Section 108 - tangible and corroborative evidence - Transportation and possession of certain live birds and mammals stated by the Department to be exotic wildlife of foreign origin, allegedly brought into India in contravention of the provisions of the Customs Act, 1962 read with the Wildlife (Protection) Act, 1972 and the Foreign Trade Policy Confiscation of the exotic birds and mammals, together with the vehicle allegedly used for their transport - HELD THAT: - The Tribunal held that exotic birds and mammals are not notified goods under Section 123 of the Customs Act, 1962 and, therefore, the burden remained on the Revenue to establish their smuggled character. On the material noticed by the Tribunal, the supplier's statement itself showed that the live consignment had been received from a person in Mizoram and supplied thereafter in the domestic area. In that situation, the noticees stood explained as to domestic procurement, and the Revenue was required to prove illegal importation through independent corroborative evidence. As no such proof was produced, mere allegation of foreign origin or suspicion was insufficient to treat the 35 animals and birds seized at Kolkata and the 19 birds seized at Pune as liable to confiscation. Following Rajesh Agarwal @ Raju Sagar [2021 (1) TMI 523 - CESTAT NEW DELHI], the Tribunal held that possession or domestic movement of such exotic species, by itself, did not establish smuggling. [Paras 18, 19, 20, 21, 22] The confiscation of both sets of seized exotic birds and mammals was set aside and their release was upheld. Penalty for dealing with alleged smuggled exotic wildlife - Failure to prove smuggled nature - HELD THAT: - The Tribunal treated the penalty issue as consequential to the failure of the Department's case on smuggling. Since the Revenue had not proved that the seized birds and mammals were procured through illicit means or were smuggled in nature, the foundational requirement for penalty under the Customs Act was absent. On that reasoning, the penalty sustained against the assessee was liable to be set aside, and no infirmity was found in the appellate order setting aside the penalty on the co-noticee. [Paras 22] The penalty on Domnic Jacob Sequeira was set aside, and the setting aside of penalty on Gouse Gaffar Shaikh was affirmed. Confiscation of vehicle used for transportation of alleged smuggled goods - Conveyance confiscation in absence of proof of smuggled nature - HELD THAT: - The Tribunal held that confiscation of the vehicle could not stand independently once the Department failed to establish the smuggled nature of the exotic birds and mammals. The basis for treating the conveyance as liable to confiscation thus disappeared along with the failure of the main allegation. [Paras 22] The vehicle was held not liable to confiscation and its release without redemption fine was upheld. Final Conclusion: The Tribunal held that, since exotic birds and mammals are not notified under Section 123 and the Revenue failed to prove their smuggled character, confiscation of the seized birds and animals could not be sustained. Consequently, the penalty on Domnic Jacob Sequeira was set aside, the relief already granted to Gouse Gaffar Shaikh was maintained, and release of the vehicle was upheld.

2026 (7) TMI 238 - CESTAT NEW DELHIService Tax

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Issues: (i) whether the demand for the earlier period could be sustained by invoking the extended period of limitation on a reverse charge liability where the case was revenue neutral; (ii) whether the amounts booked towards labour, repair and maintenance, and freight and cartage could be classified respectively as manpower supply service, works contract service, and goods transport agency service for reverse charge levy; (iii) whether the disputed labour component required factual verification and, if service tax became payable, refund would follow under the transitional GST provision.

Issue (i): whether the demand for the earlier period could be sustained by invoking the extended period of limitation on a reverse charge liability where the case was revenue neutral.

Analysis: The normal limitation under Section 73 of the Finance Act, 1994 governs service tax demands, and the extended period is available only on fraud, collusion, wilful misstatement, suppression of facts, or deliberate evasion. Where the liability arises on reverse charge and the assessee could immediately avail CENVAT credit, the demand is revenue neutral and the element of intent to evade is absent.

Conclusion: The demand for the earlier period was unsustainable and the order confirming it was set aside in favour of the assessee.

Issue (ii): whether the amounts booked towards labour, repair and maintenance, and freight and cartage could be classified respectively as manpower supply service, works contract service, and goods transport agency service for reverse charge levy.

Analysis: Payments for executing work contracts to contractors cannot, by themselves, be treated as manpower supply. Pure repair work and purchases do not constitute works contract service, and reverse charge cannot be fastened without the legal ingredients of the taxable entry. Likewise, transport-related expenditure does not attract goods transport agency tax unless a consignment note is issued. On these heads, the demand was not sustainable.

Conclusion: The demands under works contract service and goods transport agency service were set aside, while the manpower supply classification was rejected except for the labour component requiring verification, in favour of the assessee.

Issue (iii): whether the disputed labour component required factual verification and, if service tax became payable, refund would follow under the transitional GST provision.

Analysis: The material concerning receipts collected by one person on behalf of several labourers required verification to determine whether that person acted as the manpower supplier. If any tax became payable on that basis, the amount would be refundable in cash under Section 142(7)(b) of the Central Goods and Services Tax Act, 2017.

Conclusion: The matter was remanded only to that limited extent, with the corresponding demand and penalty otherwise set aside, in favour of the assessee in part.

Final Conclusion: The earlier appeals were allowed and the later appeal was partly sent back for limited factual verification, with the remaining demands and penalty relief granted to the assessee.

Reverse charge limitation and service classification failed where revenue neutrality and missing taxable ingredients defeated the demands.
Extended limitation under service tax was held unavailable on reverse charge liability where the dispute was revenue neutral and no intent to evade was shown, so the earlier-period demand was set aside. Amounts booked for labour, repair and maintenance, and freight and cartage were not automatically classifiable as manpower supply, works contract, or goods transport agency service absent the legal ingredients of those taxable entries; the corresponding demands were set aside. The labour component required limited factual verification to determine whether one person collected receipts on behalf of multiple labourers and acted as manpower supplier. If tax became payable on that basis, refund would be available in cash under the transitional GST provision, and the matter was remanded only for that issue.

Extended period of limitation - Revenue neutrality - amounts booked towards labour, repair and maintenance, and freight and cartage - classified respectively as manpower supply, works contract service, and goods transport agency service for reverse charge levy - Cash refund under transitional provisions - demand for the earlier period - non-payment of service tax is by reason of fraud or collusion or wilful mis-statement or suppression of facts or violation of the Act or Rules with an intent to evade payment of service tax Extended period of limitation - Revenue neutrality - Reverse charge service tax - service tax demand raised under reverse charge for the period covered by the first show cause notice - HELD THAT: - The Tribunal held that a demand beyond the normal limitation period under section 73 of the Finance Act, 1994 could be sustained only if the non-payment was by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade tax. In a reverse charge case where the assessee, upon payment of service tax, could have immediately availed CENVAT credit and utilised it, the situation was revenue neutral. In such circumstances, intent to evade could not be alleged. Since the entire period covered by the first show cause notice fell beyond the normal period, the order confirming that demand could not be sustained. [Paras 5] The demand, interest and penalties arising from the first show cause notice were set aside, and the appeals against that order were allowed. Cash refund under transitional provisions - Reverse charge after GST transition - HELD THAT: - The Tribunal held that, although the liability had to be examined under the Finance Act, 1994 and the CENVAT Credit Rules, the proceedings were initiated after the introduction of GST, when CENVAT credit was no longer available. By reason of section 142(7)(b) of the CGST Act, any amount admissible to the claimant in such proceedings had to be refunded in cash. Therefore, if any service tax liability under reverse charge for the relevant period was ultimately determined and paid, the assessee would be entitled to refund of the entire amount in cash. [Paras 8, 9] Any service tax determined as payable in the remanded portion was directed to be refundable to the assessee in cash under the transitional provision. Reverse charge liability on manpower supply - Nature of contract - Remand for factual verification - HELD THAT: - The Tribunal held that the nature of the service had to be ascertained from the contract. Payments to petty contractors for execution of specified work, such as earth work, brick work or flooring work, were payments for completion of work and not for supply of manpower; hence such contracts could not be treated as manpower supply service. Likewise, wages paid by the assessee to its own regular or ad hoc labourers could not be treated as receipt of manpower supply service. At the same time, the Tribunal found substance in the departmental submission that where wages in the names of several labourers were received by a single person, factual verification was necessary to determine whether that person had in fact supplied manpower, and, if so, the corresponding tax liability under reverse charge. [Paras 14, 18] The demand under manpower supply was set aside except to the limited extent of amounts paid in the names of various labourers and received by one person, which was remanded for fresh determination. Works contract under reverse charge - Pure repairs - Services from body corporate - HELD THAT: - On the material accepted by the Tribunal, expenditure representing pure purchase of maintenance items was not consideration for any service. Pure repairs, without the elements necessary to constitute a works contract, could not be taxed as works contract service under reverse charge. Further, where the services were received from body corporates, reverse charge did not apply; and, for the limited amount received from service providers other than body corporates, the assessee had already discharged service tax. On this basis, the demand under this head was found unsustainable. [Paras 22] The demand under works contract service was set aside. Goods transport agency service - Consignment note - HELD THAT: - The Tribunal held that transport-related expenditure, by itself, did not attract service tax under the category of goods transport agency service. Liability under reverse charge would arise only where a goods transport agency was involved and a consignment note was issued. In the absence of that essential requirement, the demand could not be sustained. [Paras 24] The demand under GTA service was set aside. Final Conclusion: The appeals against the first order were allowed in full on limitation, the extended period having been held inapplicable in a revenue neutral reverse charge case. In the appeal against the second order, the demand survived only to the limited extent remanded for verification of whether one person receiving wages on behalf of several labourers acted as a manpower supplier; the remaining demands and the penalty were set aside, and any amount ultimately paid was held refundable in cash under the transitional provision.

2026 (7) TMI 2015 - ITAT HYDERABADIncome Tax

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Issues: (i) Whether the delay of 1,114 to 1,826 days in filing the first appeals by BSNL employees should be condoned; (ii) Whether ex-gratia compensation received under BSNL Voluntary Retirement Scheme-2019 is wholly exempt as retrenchment compensation under Section 10(10B) of the Income-tax Act, 1961, notwithstanding the earlier claim under Section 10(10C).

Issue (i): Whether the delay of 1,114 to 1,826 days in filing the first appeals by BSNL employees should be condoned.

Analysis: Identically situated BSNL employees had obtained condonation of comparable delays both before first appellate authorities and in numerous Tribunal decisions. The explanation based on lack of awareness of the available exemption, incorrect professional advice, and subsequent favourable decisions was accepted consistently with that treatment.

Conclusion: The delay was condoned in all cases, in favour of the assessees.

Issue (ii): Whether ex-gratia compensation received under BSNL Voluntary Retirement Scheme-2019 is wholly exempt as retrenchment compensation under Section 10(10B) of the Income-tax Act, 1961, notwithstanding the earlier claim under Section 10(10C).

Analysis: The claims had been rejected without examination on merits solely because they were first made in appeal without revised returns. Consistent coordinate-bench decisions treated the Government-approved BSNL VRS-2019 ex-gratia payment as retrenchment compensation eligible for exemption under Section 10(10B), and permitted the claim through a revised computation before the appellate process.

Conclusion: The entire eligible ex-gratia compensation under BSNL VRS-2019 is exempt under Section 10(10B), in favour of the assessees.

Final Conclusion: The Assessing Officer must verify the claims for both assessment years, allow the exemption, and determine the resulting tax payable or refund in accordance with law.

Ratio Decidendi: BSNL VRS-2019 ex-gratia compensation, being retrenchment compensation in substance, qualifies for exemption under Section 10(10B), and a delayed appellate claim may be entertained where sufficient cause and consistent parity warrant condonation.

Retrenchment compensation exemption applies to eligible BSNL VRS-2019 ex-gratia payments, with delayed appellate claims entertainable on sufficient cause.
BSNL VRS-2019 ex-gratia compensation is treated as retrenchment compensation eligible for full exemption under Section 10(10B), despite an earlier exemption claim under Section 10(10C). The exemption claim may be raised through a revised computation during appellate proceedings where it was not made in a revised return. Delays in filing first appeals by similarly placed employees may be condoned where lack of awareness, incorrect professional advice and parity with favourable decisions establish sufficient cause. The Assessing Officer must verify eligibility for both assessment years, grant the exemption where due, and determine resulting tax liability or refund.

2026 (8) TMI 745 - ITAT CHENNAIIncome Tax

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Transfer-pricing comparables for barite exports require functional similarity, reliable segmental data, and verified operating margins under TNMM.
Transfer-pricing benchmarking of barite exports under the Transactional Net Margin Method requires functionally comparable trading entities and reliable operating-margin data. A company cannot be treated as persistently loss-making if it earned profit in one of the three relevant financial years, making Ashok Alcochem Ltd. eligible for inclusion. Entities predominantly engaged in processing or manufacturing, or lacking segmental information to isolate trading activity, are unsuitable comparables; HD Micrones Ltd., Shivom Minerals Ltd., Gimpex Pvt. Ltd. and Naga Ltd. are therefore excluded. The remaining comparable margins require verification against annual reports before recomputing the arm's length price.

2026 (8) TMI 458 - ITAT BANGALOREIncome Tax

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Netting related-party payables against delayed receivables limits notional-interest adjustments, with LIBOR plus 200 basis points as benchmark.
Delayed receivables from associated enterprises constitute an international transaction, but any notional-interest adjustment must reflect corresponding payables to the same associated enterprise arising in the ordinary course of business. The assessing authority or transfer pricing officer must verify the nexus between those receivables and payables and compute an adjustment only on the net receivable amount. Where an adjustment remains after netting, the applicable benchmark rate is LIBOR plus 200 basis points rather than LIBOR plus 450 basis points.

TP adjustment for delayed associated-enterprise receivables - Netting of associated-enterprise receivables and payables - Benchmark interest rate for delayed foreign-currency receivables TP adjustment for delayed receivables from associated enterprises where corresponding payables to the same associated enterprises were claimed - Netting of associated-enterprise receivables and payables - HELD THAT: - The additional evidence bearing on corresponding payables was admitted, as it went to the root of the controversy. Delayed receivables cannot be examined in isolation where the assessee also enjoys credit from the same associated enterprise; ignoring such payables would produce an artificial adjustment not reflecting the economic substance of the transaction. Verification was necessary as to whether the receivables and payables related to the same associated enterprise and arose in the normal course of business. We further find merit in the contention of the assessee that while determining the adjustment on account of delayed receivables, the existence of corresponding payables to the same AE cannot be ignored. In this regard, we find support from the decision of Pathpartner Technology (P.) Ltd. [2026 (6) TMI 1166 - ITAT BANGALORE] wherein the Tribunal held that the issue requires examination of the net receivable position after considering the corresponding payables.[Paras 11] The matter was restored to the AO/TPO to verify the nexus and, if established, compute any adjustment only on the net receivable amount. Benchmark interest rate for delayed foreign-currency receivables - Rate applicable for computing transfer pricing adjustment on delayed realization of receivables from associated enterprises - HELD THAT: - The rate of LIBOR plus 450 basis points adopted by the TPO required reconsideration. For any adjustment surviving after netting of eligible payables, the appropriate benchmark was directed to be LIBOR plus 200 basis points. [Paras 11] The AO/TPO was directed to recompute the arm's length price of notional interest at LIBOR plus 200 basis points after granting the directed netting-off relief. Final Conclusion: The appeal was partly allowed for statistical purposes. The transfer pricing adjustment on delayed receivables was remanded for verification of net receivables after considering eligible payables, with any surviving interest adjustment to be computed at LIBOR plus 200 basis points.

2026 (8) TMI 378 - ITAT COCHINIncome Tax

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Reassessment limitation under Section 149 cannot be revived through Section 148A procedure after the former limitation period expires.
The first proviso to Section 149(1) bars reassessment notices for assessment years beginning on or before 1 April 2021 if they were already time-barred under the erstwhile limitation regime. For assessment year 2015-16, the former six-year limitation expired on 31 March 2022, making the Section 148 notice issued thereafter invalid. Compliance with Section 148A procedures and exclusions or extensions under the erstwhile third and fourth provisos to Section 149(1) cannot override the first proviso or revive a barred notice. The reassessment order was therefore quashed.

2026 (8) TMI 264 - ITAT CHENNAIIncome Tax

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Issues: (i) Whether deduction for the third year under section 80JJAA could be denied solely because Form 10DA was not furnished with the return. (ii) Whether a transfer-pricing adjustment for notional interest on outstanding receivables from an associated enterprise was sustainable.

Issue (i): Whether deduction for the third year under section 80JJAA could be denied solely because Form 10DA was not furnished with the return.

Analysis: The additional Form 10DA was admitted because the claim related to the third year of deduction arising from the same additional employee cost accepted in the earlier years. The substantive eligibility conditions are to be fulfilled in the initial year, while the subsequent deduction continues in respect of that eligible cost. Since the report was produced and no variation in the qualifying employee base or employee cost was shown, delayed furnishing of the report could not by itself defeat the substantive benefit. The particulars in the report nevertheless require factual verification.

Conclusion: In favour of the assessee; the deduction claim shall be verified by the Assessing Officer and allowed in accordance with law if the prescribed conditions are satisfied.

Issue (ii): Whether a transfer-pricing adjustment for notional interest on outstanding receivables from an associated enterprise was sustainable.

Analysis: Although outstanding receivables constitute a separate international transaction, their arm's length price must be determined on the facts of the case. The assessee had sufficient own funds and no interest-bearing borrowings, and no material established financing cost, economic prejudice, or a comparable uncontrolled transaction under which independent parties would charge interest for delayed realization.

Conclusion: In favour of the assessee; the notional-interest adjustment on outstanding receivables is deleted.

Final Conclusion: The employment-linked deduction is restored for limited verification, while the transfer-pricing addition for receivables is eliminated.

Ratio Decidendi: A procedural delay in furnishing a prescribed report cannot defeat a substantive statutory deduction where eligibility is otherwise undisputed and the report is subsequently produced; a notional-interest adjustment on receivables requires factual support showing an arm's length financing charge.

Procedural reporting delay cannot defeat a substantiated employment deduction, while receivables interest adjustments require arm's length financing evidence.
Delayed furnishing of Form 10DA does not by itself defeat a third-year employment-linked deduction where eligibility arose from employee costs accepted in earlier years and the report is later produced; the claim remains subject to factual verification of prescribed conditions. Notional interest on outstanding associated-enterprise receivables requires factual support for an arm's length financing charge, including evidence of financing cost, economic prejudice, or comparable independent-party practice. Where the taxpayer has sufficient own funds, no interest-bearing borrowings, and no such evidence, the adjustment is unsustainable.

Deduction claimed u/s. 80JJAA - Belated furnishing of Form No. 10DA - Transfer pricing adjustment for outstanding receivables Deduction for employment generation u/s. 80JJAA - Belated furnishing of Form No. 10DA - HELD THAT: - The substantive eligibility conditions for the employment-generation deduction are to be satisfied in the year in which the additional employee cost is incurred; deduction in the succeeding years is a continuation of that benefit for the same eligible cost. Where the prescribed report was produced before the Tribunal, the third-year claim corresponded with the amount disclosed in the first-year report, and no variation in the qualifying employee base or employee cost was shown, delayed furnishing of the report could not defeat the substantive benefit in the absence of prejudice to the Revenue. [Paras 5, 6, 7] The matter was restored to the Assessing Officer for limited verification of Form No. 10DA and the continuity of the eligible employee cost; subject to verification and fulfilment of remaining statutory conditions, the deduction was directed to be allowed. Transfer pricing adjustment for outstanding receivables - Notional interest adjustment on outstanding receivables from an associated enterprise in the case of a debt-free assessee - HELD THAT: - Although outstanding receivables constituted a separate international transaction requiring benchmarking, its arm's length price had to be determined on the facts of the case. The assessee had sufficient own funds and no interest-bearing borrowings, while the Revenue produced no material showing financing cost or economic prejudice from delayed realisation, or any comparable uncontrolled transaction establishing that an independent enterprise would have charged interest in similar circumstances. [Paras 9] The adjustment towards notional interest on outstanding receivables was deleted. Final Conclusion: The appeal was allowed for statistical purposes. The section 80JJAA claim was remanded for limited verification, and the transfer pricing adjustment for notional interest on outstanding receivables was deleted.

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2026 (7) TMI 329 - AT - Service Tax

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Reverse charge service tax through CENVAT credit permitted before 01.07.2012; later bar held prospective and demand time-barred.

For the period before 01.07.2012, service tax payable on imported services under reverse charge could be discharged through CENVAT credit because the recipient was treated as the person liable to pay tax and, by legal fiction, as the provider of taxable service. The later Explanation to Rule 3(4), which barred such utilisation, was held to be a substantive restriction operating prospectively from 01.07.2012 and not retrospectively. On limitation, the Tribunal found no basis for the extended period once credit utilisation was held permissible, and held the notice time-barred. The demand and penalties were therefore unsustainable.

Issue (ii): Whether the demand was time-barred by limitation, including invocation of the extended period.

Conclusion: The demand was barred by limitation and the extended period could not be invoked, in favour of the assessee.

Final Conclusion: The impugned demand and penalties could not be sustained, and the appeal succeeded with the order-in-original set aside.

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2026 (7) TMI 329 - AT - Service Tax

Taxation of Services (Provided from Outside India and received in India) Rules, 2006

Cenvat Credit Rules, 2004

Service Tax Rules, 1994

Finance Act, 1994

Reverse charge service tax through CENVAT credit permitted before 01.07.2012; later bar held prospective and demand time-barred.

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Taxation of Services (Provided from Outside India and received in India) Rules, 2006

Cenvat Credit Rules, 2004

Service Tax Rules, 1994

Finance Act, 1994

Reverse charge service tax through CENVAT credit permitted before 01.07.2012; later bar held prospective and demand time-barred.

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