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2023 (12) TMI 87 - DELHI HIGH COURT Customs

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Issues:
The issues involved in the judgment are the detention of goods, jurisdiction of proceedings, release of detained goods, waiver of demurrage charges, and legality of orders recalled.

Detention of Goods:
The writ petition sought relief from continuing illegal investigations and arbitrary actions causing harassment, declaring detention proceedings as null and void, and directing release of detained goods. The Court allowed the petition, noting the absence of irregularities and expressing no objection for release upon payment of differential duty. The respondents moved review petitions objecting to the release of goods and direction for demurrage charges borne by Customs authorities and DRI. Citing the Supreme Court judgment in Mumbai Port Trust, the Court recalled the previous orders.

Release of Detained Goods and Waiver of Demurrage Charges:
A miscellaneous application was filed for appropriate directions as the goods were not released despite court orders. The Court directed the release of goods within a week and ordered Customs authorities and DRI to deposit a sum of Rs.50 lakhs. Respondents sought recall of orders based on the Mumbai Port Trust judgment, arguing against liability for demurrage charges unless detention was wholly unreasonable or mala fide. The Court recalled the orders dated 19 September 2018 and 29 October 2018.

Jurisdiction of Proceedings and Valuation of Goods:
Respondent DRI detained goods due to importation using IEC codes of persons other than the petitioner. The petitioner claimed ownership after a delay, and valuation revealed undervaluation by over 500%. The petitioner accepted the valuation but failed to provide evidence of an agreement with the original IEC holder. The detention was found justified based on the facts presented, and the petitioner's claim for relief was rejected.

Legality of Orders Recalled:
After recalling the previous orders, the respondent filed an affidavit detailing the detention and valuation process. The goods were released, and the valuation was accepted by the petitioner. The Court found no justification for the reliefs sought in the writ petition, rendering prayers (a) and (b) infructuous. The petition was dismissed, leaving open the option for the respondents to recover demurrage charges in accordance with the law.

DRI investigations cannot be prohibited and detained goods release with demurrage waiver denied for non-original importer
The Delhi HC dismissed a writ petition seeking prohibition of DRI investigations and release of detained goods with waiver of demurrage charges. The court found goods detention justified, noting petitioner was not the original importer but claimed beneficial ownership later. Applying SC precedent from Mumbai Port Trust case, the court found no justification for granting relief. The petition became infructuous as goods were already released and valuation exercise concluded by the time of hearing.

Detention of goods - valuation and undervaluation - beneficial ownership - release of detained goods - demurrage charges liability - mala fide or gross abuse of power - liability of importer to pay demurrage - recovery of demurrage in accordance with lawDetention of goods - valuation and undervaluation - beneficial ownership - release of detained goods - Whether the detention of the imported goods and the orders for release were justified, and whether the writ reliefs seeking prohibition and declaration (prayers (a) and (b)) were maintainable. - HELD THAT: - The Court found on the record that the Directorate of Revenue Intelligence detained the goods after concluding that importation had been effected using IECs in the name of persons other than the petitioner and that the petitioner only claimed beneficial ownership later. Post-detention, a valuation exercise was undertaken and a Chartered Engineer's report showed the declared values were understated by over 500%, a fact accepted by the petitioner. On these material findings the detention could not be regarded as unjustified. As the goods had in any event been released and valuation completed by the time of final hearing, the substantive reliefs seeking prohibition of investigation and declaration of the detention proceedings as null and void were rendered infructuous and could not be granted.Detention was justified on the material before the Court; prayers (a) and (b) were rendered infructuous or fail on merits and are not granted.Demurrage charges liability - mala fide or gross abuse of power - liability of importer to pay demurrage - recovery of demurrage in accordance with law - Whether the Customs authorities or the DRI should be directed to waive or bear demurrage/detention charges (prayer (c)). - HELD THAT: - Applying the principle in Mumbai Port Trust that demurrage/detention charges are ordinarily for the importer and that public authorities can be directed to compensate only where their action is shown to be absolutely mala fide or a gross abuse of power, the Court held that no such mala fide or gross abuse is made out on the facts. The detention and subsequent valuation, including the finding of significant undervaluation and the absence of the original IEC-holder from the investigation, preclude a direction that Customs/DRI bear the demurrage. Consequently, the relief seeking waiver of demurrage is liable to be rejected. The Court left open the respondents' right to pursue recovery of demurrage charges as permissible in law.Prayer for waiver/indemnity of demurrage charges against Customs/DRI is rejected; respondents may pursue recovery in accordance with law.Final Conclusion: Writ petition dismissed. Reliefs seeking prohibition and declaration regarding detention were rendered infructuous or fail on merits; relief for waiver of demurrage charges is refused. Respondents are left free to take steps for recovery of demurrage charges as permissible under law.

2023 (12) TMI 34 - DELHI HIGH COURT Income Tax

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Assessee entitled to TDS credit despite deductor's non-deposit; revenue cannot directly recover under Section 205
The HC held that an assessee is entitled to credit for tax deducted at source even if the deductor failed to deposit the TDS with the government; the revenue cannot directly demand payment from the deductee nor adjust the amount against future refunds. Section 205's prohibition on direct recovery applies and the retained amount remains tax in nature, so denial of credit because the deductor defaulted is impermissible. The appeal was dismissed and no substantial question of law was found.

Credit for tax deducted at source - deductor's failure to deposit TDS - Section 199 read in context of Chapter XVII - bar on direct demand under Section 205 - indirect recovery by adjustment against refundCredit for tax deducted at source - deductor's failure to deposit TDS - Entitlement of the assessee to credit for tax deducted at source notwithstanding that the deductor did not deposit the amount with the Central Government - HELD THAT: - The Court held that once the payer/deductor has retained money towards tax by virtue of the statutory TDS regime, the nature of the retained amount remains 'tax' and the deductee/payee is entitled to credit for that amount. Section 201 and other provisions in Chapter XVII create sanctions and modes of recovery against the deductor for failure to deposit TDS, and the statutory scheme treats TDS as payment on behalf of the deductee. Construing Section 199(1)'s phrase 'and paid' in isolation is unsustainable; read in the context of Chapter XVII and the rule-making power in Section 199(3) (and Rule 37BA), the Act does not place the burden of deposit on the deductee nor deny him credit where the deductor has retained the tax but not deposited it. Denying credit on that basis would penalise the deductee despite having grossed up and offered the income to tax, merely because the deductor defaulted in making the deposit. [Paras 10, 11, 13, 14]The deductee is entitled to credit for tax deducted at source even if the deductor failed to deposit the amount with the Central Government.Section 199 read in context of Chapter XVII - bar on direct demand under Section 205 - indirect recovery by adjustment against refund - Whether the revenue can refuse credit or effect indirect recovery (for example by adjusting refunds) on the ground that the deductor has not deposited the TDS - HELD THAT: - The Court applied the statutory bar in Section 205, which prevents a direct demand on the assessee for tax that has been deducted at source, and concluded that the revenue cannot do indirectly what it is barred from doing directly. The instruction dated 1-6-2015 and earlier precedents of this Court (including Sanjay Sudan and other decisions) reinforce that coercive enforcement or indirect adjustment of a demand against the deductee in respect of TDS retained by the deductor is not permissible. The legislative scheme in Chapter XVII provides remedies and penalties against the deductor (including deeming provisions, penalties and prosecution), and the existence of those remedies means the deductee should not be disadvantaged by the deductor's failure to deposit. [Paras 7, 8, 9, 10, 11]Revenue cannot refuse credit or recover the TDS from the deductee by indirect means such as adjustment against refunds where the deductor retained but did not deposit the tax.Final Conclusion: Appeal dismissed; no substantial question of law arises. The assessee is entitled to credit for the tax deducted at source despite non-deposit by the deductor, and the revenue cannot effect indirect recovery or refuse credit on that ground.

2023 (12) TMI 12 - CESTAT ALLAHABAD Customs

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Appeal allowed by remand due to improper dual penalties under Section 112(a) and 112(b) for same offense involving seized gold bars
CESTAT Allahabad allowed the appeal by remand, finding that the Commissioner improperly imposed penalties under both Section 112(a) and 112(b) for the same offense involving seized gold bars, demonstrating lack of understanding of legal provisions. The tribunal held that the appellant was wrongly denied cross-examination of two key persons whose statements were relied upon by revenue. The order was passed hastily without proper findings on basic issues or legal provisions. The matter was remanded to the Original Adjudicating Authority with directions to permit cross-examination before deciding the case.

Right to cross-examination in adjudication - principles of natural justice - relevancy and admissibility of statements recorded under Section 138B of the Customs Act, 1962 - scope of penalties under Section 112(a) and Section 112(b) in adjudication - remand for fresh adjudicationRight to cross-examination in adjudication - principles of natural justice - relevancy and admissibility of statements recorded under Section 138B of the Customs Act, 1962 - Whether the adjudicating authority was justified in denying the appellant an opportunity to cross-examine persons whose statements were relied upon in the show cause proceedings, and what relief follows. - HELD THAT: - The Tribunal examined the adjudicating authority's refusal to permit cross-examination of two persons whose statements and reports the Revenue intended to rely upon. The impugned order relied on a sequence of authorities permitting reliance on inculpatory statements in some circumstances, but the Tribunal noted divergent precedents (including Andaman Timber Industries and allied High Court decisions) establishing that when an adjudication is founded on statements recorded during investigation, denial of an opportunity to test those statements by cross-examination can amount to a breach of principles of natural justice and vitiate the order. The Tribunal also considered the statutory scheme governing relevancy/admissibility of statements recorded before gazetted officers (Section 138B read pari materia to provisions considered in analogous authorities) and the requirement that, unless statutory conditions for admitting such statements are satisfied, the makers must be placed for examination so that the assessee may test the evidence. Having regard to the facts and the authorities cited, the Tribunal concluded that the adjudicating authority ought to permit the cross-examination sought and re-adjudicate after affording that opportunity; accordingly it found the denial unsustainable and ordered remand for fresh consideration after allowing cross-examination. [Paras 4, 5]Request for cross-examination must be allowed; matter remanded to the Original Adjudicating Authority for permitting cross-examination and re-adjudication.Scope of penalties under Section 112(a) and Section 112(b) - remand for fresh adjudication - Whether the penalties imposed on the appellant under Section 112(a) and Section 112(b) were properly recorded and sustainable in the impugned order. - HELD THAT: - The Tribunal observed that the adjudicating authority imposed penalties under both Section 112(a) and Section 112(b) without recording any reasoned findings as to applicability of each limb, reflecting a failure to examine the legal provisions and relevant authorities on the subject. The Tribunal held that the impugned order showed a lack of application of mind on basic issues concerning the scope and operation of those penalty provisions and, therefore, the penalties and related findings cannot stand without fresh consideration. For these reasons the Tribunal directed that the Original Authority reconsider the matter afresh after permitting the cross-examination ordered above and keep all issues open. [Paras 4, 5]Penalties under Section 112(a) and 112(b) to be reconsidered by the Original Adjudicating Authority on remand; no final adjudication in the impugned order.Final Conclusion: Appeal allowed in part. The matter is remanded to the Original Adjudicating Authority for permitting the appellant to cross-examine the named persons and for fresh adjudication of all issues (including the correctness and maintainability of penalties under Section 112(a) and 112(b)); all issues are kept open.

2023 (12) TMI 8 - CESTAT CHENNAI Customs

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EPCG license holder wins appeal against confiscation of capital goods for alleged non-fulfillment of export obligations
CESTAT Chennai allowed appeal by remand in case involving confiscation of capital goods imported under EPCG licenses due to alleged non-fulfillment of export obligations. Tribunal found adjudicating authority acted hastily without granting personal hearing or considering appellant's compliance efforts following EPCG Committee's extension decision. Since Committee granted two-year extension without prescribing specific time limit for compliance and appellant was diligent in attempting compliance within three months, matter required reconsideration. Tribunal emphasized need for DGFT and Customs coordination to effectuate beneficial schemes rather than creating litigation burden. Case remanded to adjudicating authority for fresh consideration of Committee decisions, compliance efforts, and export obligation fulfillment within three months.

Non-fulfilment of export obligation - diversion of capital goods - condonation of procedural irregularities by DGFT - extension of export obligation period - denial of exemption under EPCG notifications - confiscation and redemption under Customs Act - penalties under section 112 of Customs Act - remand for fresh considerationPenalties under section 112 of Customs Act - condonation of procedural irregularities by DGFT - diversion of capital goods - Penalties imposed on supporting manufacturers for installation/diversion of imported capital goods - HELD THAT: - The adjudicating authority imposed penalties on several supporting manufacturers for having installed imported capital goods at premises other than those endorsed in the EPCG authorisations. The Tribunal found that the Policy Relaxation Committee (DGFT) had subsequently condoned the procedural infractions and regularized the installations by its decision dated 02.04.2019. In view of the competent authority's condonation, the penalties confirmed by the adjudicating authority against the supporting manufacturers could not be sustained. The Tribunal accordingly set aside the penalties and allowed the appeals filed by those supporting manufacturers. [Paras 34]Penalties imposed on the supporting manufacturers set aside; the appeals by those manufacturers are allowed.Non-fulfilment of export obligation - extension of export obligation period - condonation of procedural irregularities by DGFT - denial of exemption under EPCG notifications - confiscation and redemption under Customs Act - remand for fresh consideration - Validity of the adjudicating authority's confirmation of duty, interest, confiscation and penalties vis-a -vis 26 EPCG authorisations and the necessity for reconsideration in light of DGFT decisions and appellants' compliances - HELD THAT: - The Tribunal observed that the adjudicating authority proceeded to pass the impugned order without affording the appellants a reasonable opportunity to report compliance of conditions imposed by the EPCG Committee and the Policy Relaxation Committee, which had granted extension of the export obligation period (for 14 authorisations subject to conditions) and condoned procedural lapses (in respect of the remaining 12). The appellants had contemporaneously sought time and thereafter made material compliances including payment of composition fees and applications for EODCs. The Tribunal found that the adjudicating authority acted hurriedly and failed to consider the DGFT decisions and the appellants' steps towards compliance. Given these circumstances, the Tribunal held that the adjudicating authority's confirmation of demands, confiscation and penalties against the main appellant required fresh consideration. The matter is therefore remitted to the adjudicating authority with a direction to examine the DGFT Committee/PRC decisions, verify the compliance made by the appellants (including payment of composition fees and issuance of installation certificates/EODCs) and pass a fresh order preferably within three months from receipt of the Tribunal's order. [Paras 35, 36]Impugned order set aside and the matter remanded to the adjudicating authority for fresh consideration in the light of DGFT/PRC decisions and recorded compliances; fresh adjudication to be completed preferably within three months.Final Conclusion: Penalties imposed on the supporting manufacturers are set aside and their appeals are allowed; the adjudication against the main appellant is set aside and remitted for fresh consideration by the adjudicating authority to examine DGFT/PRC decisions and the appellants' compliance, with a direction to decide preferably within three months.

2023 (11) TMI 1190 - ITAT PUNE Income Tax

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Transfer pricing adjustments upheld for common cost allocation using direct cost method over technical manpower ratio
ITAT Pune dismissed assessee's appeal on transfer pricing adjustments for common cost allocation. The tribunal upheld TPO's allocation based on direct cost rather than technical manpower ratio, finding assessee's method conceptually flawed for general administrative expenses. Several comparables were excluded from benchmarking analysis including Exilant Technologies, E-Infochips, Nihilent, Cybage Software, and Ninestars due to functional dissimilarity, extraordinary events, or incomplete data. Entity-level PLI was rejected as 90% transactions were with non-associated enterprises. Section 14A disallowance was deleted as AO failed to record satisfaction. Additional deduction claim under section 90 was remanded for fresh verification.

Allocation of common costs - Transactional Net Margin Method (TNMM) - Profit level indicator (OP/OC) - Entity-level PLI versus segmental PLI - Comparability of comparable companies - Disallowance under section 14A and application of Rule 8D - Relief under section 90 - Onus on assessee to furnish documentary particularsAllocation of common costs - Transactional Net Margin Method (TNMM) - Profit level indicator (OP/OC) - Onus on assessee to furnish documentary particulars - Allocation key for apportioning G&A/common costs for computing segmental PLI in benchmarking of provision of software development services - HELD THAT: - The Tribunal accepted that TNMM with OP/OC was the appropriate method and PLI. The dispute concerned the appropriate allocation key for G&A/common costs to arrive at segmental operating cost. The assessee proposed allocation based on person months (headcount/APM) whereas the TPO allocated common costs on the basis of direct cost. The Tribunal found that the Transfer Pricing Study Report did not clearly set out the basis of allocation and that the assessee failed to place necessary supporting particulars (including actual branch employee numbers and full explanatory details) before the TPO. The Tribunal noted that the assessee's direct cost allocation itself rested on APMs, but observed that the TPO's choice of direct cost as allocation key was verifiable and readily ascertainable. Given the absence of requisite documentary foundation from the assessee and the TPO's reasons (including geographic variations in direct cost per person), the Tribunal sustained the TPO/DRP allocation on direct cost and dismissed the assessee's ground on the allocation key. [Paras 6, 7]Assessee's headcount/person-month allocation rejected; allocation based on direct cost upheld and Ground No.5 dismissed.Entity-level PLI versus segmental PLI - Transactional Net Margin Method (TNMM) - Whether entity level PLI could be adopted instead of segmental PLI for benchmarking the POSS (software services) transactions - HELD THAT: - The Tribunal examined the relative weight of transactions and observed that nearly 90% of the assessee's turnover arose from non associated enterprises. Adoption of an entity level PLI would therefore be materially influenced by non AE transactions and would distort benchmarking for transactions with AEs. On these factual findings, the Tribunal concluded that entity level PLI was inappropriate for determining ALP of the inter company software services transactions. [Paras 8]Entity level PLI rejected; Ground No.3 dismissed.Comparability of comparable companies - Transactional Net Margin Method (TNMM) - Admissibility of specific comparable companies selected by the TPO for benchmarking the POSS transactions - HELD THAT: - The Tribunal examined the factual matrix and annual report details of each impugned comparable. It found that Exilant Technologies Pvt. Ltd. had extraordinary events and only had accounts for part of the year (share acquisition and other events), and therefore was not suitable as a comparable. E Infochips Pvt. Ltd. carried on sale of products and ITES activities without segregated segmental data, making it unsuitable for comparison with the assessee's pure software development segment. Nihilent Ltd.'s business description showed consulting/analytics/technology offerings materially different from the assessee's activities, rendering it functionally dissimilar. Cybage Software Pvt. Ltd. was found to undertake ITES/BPO and other activities (branding, content marketing) making functional comparability doubtful. Ninestar Information Technologies Ltd.'s annual report was cryptic and did not demonstrate clear software development functions comparable to the assessee. On this review the Tribunal directed deletion of these specific companies from the comparable set and held that Ground No.8 is allowed to that extent. [Paras 12, 13, 14, 15, 16]Exilant Technologies, E Infochips, Nihilent, Cybage and Ninestar directed to be excluded from the comparable set; Ground No.8 allowed.Disallowance under section 14A and application of Rule 8D - Onus on assessee to furnish documentary particulars - Validity of addition under section 14A computed by applying Rule 8D without recording satisfaction or identifying which sub rule was applied - HELD THAT: - The AO made a disallowance under section 14A by applying Rule 8D but did not specify the sub rule relied upon nor record satisfaction regarding the correctness of the assessee's claim. The Tribunal followed the jurisdictional High Court and earlier ITAT precedents holding that invocation of Rule 8D requires the AO to record satisfaction and examine fund position/particulars before applying the formula. Given the absence of such satisfaction or analysis in the assessment order, and the assessee's unexplained fund position, the Tribunal held the disallowance unsustainable and directed deletion. [Paras 17]Addition under section 14A set aside; disallowance deleted.Relief under section 90 - Claim for additional relief under section 90 made after filing the return - HELD THAT: - The assessee submitted that additional withholding tax certificates were obtained after filing the return and that corresponding foreign tax was paid and the income offered to tax in India. The Tribunal did not decide the claim on merits but set the matter aside to the Assessing Officer for de novo verification of the additional relief claim and supporting documentation. [Paras 18]Issue remitted to the Assessing Officer for fresh verification; Ground No.10 allowed for statistical purpose (set aside for de novo consideration).Final Conclusion: The appeal is partly allowed. The Tribunal upheld the TPO/DRP's allocation of common costs on direct cost basis and rejected the assessee's headcount allocation and entity level PLI (Grounds 5 and 3 dismissed). Several comparables (Exilant, E Infochips, Nihilent, Cybage and Ninestar) were directed to be excluded from the comparable set (Ground 8 allowed). The addition under section 14A computed by applying Rule 8D was deleted for lack of recorded satisfaction (Ground 9 allowed). The claim for additional relief under section 90 was remitted to the Assessing Officer for de novo verification (Ground 10 set aside). Other grounds were either not pressed or not adjudicated and the appeal is otherwise dismissed in part.

2023 (11) TMI 1161 - SC Order VAT and Sales Tax

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State Government refunds amount to assessee following court directions, rendering appeal consideration unnecessary but dispute remains unresolved
SC disposed of appeal after State Government complied with HC Division Bench directions by refunding amount to assessee. Court held that compliance rendered consideration of impugned order's correctness unnecessary. However, since underlying dispute remains unresolved, SC reserved liberty for appellants to seek recovery of refunded amount in accordance with law if they succeed in future proceedings.

Compliance of court directions - refund of amounts pursuant to judicial direction - liberty to recover amounts refunded in future proceedings - remand to Assessing Officer for fresh consideration - infructuous/academic appeal where relief has been executedCompliance of court directions - refund of amounts pursuant to judicial direction - infructuous/academic appeal where relief has been executed - liberty to recover amounts refunded in future proceedings - Whether the appeals require further consideration when the High Court's directions have been complied with and the refund has been made to the respondent. - HELD THAT: - The Court recorded that the appellants have complied with the directions issued by the Division Bench of the High Court and that the refund ordered has been paid to the respondent-assessee. In view of that compliance and the narrow compass of the present controversy, the correctness of the impugned orders need not be further examined in these appeals. The Court nevertheless preserved the appellants' right to seek recovery of amounts refunded in accordance with law should they succeed in the main or subsequent proceedings. The conclusion to dispose of the appeals is therefore founded on execution of the High Court's directions, while keeping all substantive contentions open for adjudication in appropriate proceedings.Appeals disposed as the impugned directions have been complied with; liberty reserved to appellants to seek recovery of refunded amounts in accordance with law.Remand to Assessing Officer for fresh consideration - liberty to recover amounts refunded in future proceedings - compliance of court directions - Whether the appellants' right to challenge remanded assessments or the High Court's subsequent orders is affected by compliance with the refund direction. - HELD THAT: - The Court noted that the main disputes in the Tax Revision Cases were remanded to the Assessing Officer by the High Court and that those remand orders have been the subject of further proceedings. Compliance with the refund direction does not preclude the appellants from challenging the High Court's disposals or the remanded assessments before this Court. Accordingly, the Court kept all substantive contentions open and expressly reserved to the appellants the right to seek recovery of refunds if they prevail in later or pending proceedings. The present appeals were disposed on the limited ground of compliance, without deciding the merits of the remanded or substantive disputes.Appeals disposed as infructuous on the ground of compliance; appellants' rights to contest remands and to seek recovery of refunded amounts are preserved.Final Conclusion: The appeals are disposed solely because the appellants complied with the High Court's directions and refunded the amounts to the respondent; the correctness of the impugned orders is not adjudicated, and the appellants retain liberty to seek recovery of the refunded amounts in accordance with law if they succeed in the underlying or future proceedings.

2023 (11) TMI 1136 - CESTAT AHMEDABAD Customs

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Boron Ore exemption claim remanded for fresh adjudication after inadequate consideration of test reports and submissions.
Eligibility for Customs Notification No. 15/2017-Customs depended on whether the imported goods retained their character as Boron Ore after removal of impurities. The adjudicating authority had relied on external sources without properly dealing with the test reports describing the goods as Boron Ore or the judicial authorities cited by the importers. In light of the earlier remand on the same issue, the matter required fresh consideration on the existing record. The exemption claim was therefore not finally decided on merits, and the case was remanded for de novo adjudication with all issues kept open.

Eligibility of exemption for imported Boron Ore - exemption under customs notification - treatment of concentrated versus naturally mined ore - primacy of laboratory test reports over internet sources - remand to the Adjudicating Authority for de-novo considerationEligibility of exemption for imported Boron Ore - treatment of concentrated versus naturally mined ore - primacy of laboratory test reports over internet sources - remand to the Adjudicating Authority for de-novo consideration - Appellant's import of 'Boron Ore' for the period 26.12,2017 to 11.05.2020 was not finally adjudicated on merits by the Tribunal and is remanded to the Adjudicating Authority for fresh de-novo consideration with all issues kept open. - HELD THAT: - The Tribunal observed that the core controversy-whether imports of 'Boron Ore' qualify for exemption under the notification-had been the subject of a prior batch decision in which identical questions were remanded. The record in the present appeal included laboratory test reports indicating the imported goods to be 'Boron Ore' though obtained after removal of impurities. The adjudicating authority had relied on internet sources (Wikipedia and websites) in characterising the goods and had not properly considered the appellants' defence submissions and the judicial authorities cited. Given the availability of test reports and the need to apply relevant precedents, the Tribunal held that the matter requires reconsideration and a de-novo adjudication by the Adjudicating Authority; accordingly all issues were kept open and the impugned order set aside. [Paras 4, 5]Impugned order set aside; appeals allowed by remanding the matter to the Adjudicating Authority for fresh de-novo decision on eligibility of exemption, keeping all issues open.Final Conclusion: The Tribunal allowed the appeals by way of remand, directing the Adjudicating Authority to decide afresh the question whether the imported 'Boron Ore' qualifies for exemption under the notification for the period 26.12,2017 to 11.05.2020, having regard to the laboratory test reports and the authorities relied upon by the appellants.

2023 (11) TMI 1080 - CESTAT AHMEDABAD Service Tax

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Service tax demand set aside on limitation grounds after Commissioner fails to prove deliberate suppression
The CESTAT Ahmedabad allowed the appeal, setting aside the service tax demand on limitation grounds. The appellant provided services to Chief Engineer, Military Engineer Services, claiming exemption under N/N. 25/2012-ST for services to central government for sovereign functions. The demand covered 2016-17 and April-June 2017, with show cause notice issued on 27.08.2020. The tribunal found no deliberate suppression by appellant, as income was recorded in financial statements but not disclosed in periodical returns. The Commissioner failed to establish grounds for extended limitation period under Section 73(1) of Finance Act 1994, making the demand beyond normal limitation period unsustainable.

Extended period of limitation - proviso to section 73(1) of the Finance Act, 1994 - suppression of facts - wilful intent to evade payment of service tax - self-assessment regime - information disclosed in financial statements / public document - services provided to Government in discharge of sovereign/statutory functionExtended period of limitation - proviso to section 73(1) of the Finance Act, 1994 - suppression of facts - wilful intent to evade payment of service tax - self-assessment regime - information disclosed in financial statements / public document - Invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 is not sustainable and the demand falls beyond the period of limitation. - HELD THAT: - The Tribunal applied settled principles that the proviso to section 73(1) can be invoked only where fraud, collusion, wilful misstatement, suppression of facts or contravention of the law is shown with an intent to evade tax. Mere nondisclosure in returns, difference between amounts in ST-3 and financial statements, or operation under self-assessment does not, by itself, establish the deliberate suppression or mens rea required to invoke the extended period. The adjudicating authority reproduced allegations of nondisclosure but did not record any finding of deliberate intent to evade tax; nor did it examine the ingredients necessary for invoking the proviso. The Tribunal relied on precedents holding that information available in public documents (such as balance sheets), bona fide differences of opinion on taxability, or mere failure to seek clarifications do not constitute wilful suppression. In this case the demand arose from comparison with amounts recorded in the appellant's financial statements and the show cause notice was issued after the normal limitation period; the Commissioner failed to establish the requisite deliberate suppression or intent. Applying these principles, the Tribunal concluded the extended limitation could not be invoked and therefore the demand for the periods in dispute is barred by limitation.The impugned order is set aside and the appeal is allowed insofar as the demand falling beyond the period of limitation (periods 2016-17 and April 2017 to June 2017) is concerned.Final Conclusion: The Tribunal set aside the original order and allowed the appeal on limitation grounds, holding that the Revenue failed to demonstrate deliberate suppression with intent to evade such as would justify invocation of the proviso to section 73(1); the demand for the specified periods is therefore barred by limitation and is quashed, with consequential relief.

2023 (11) TMI 1071 - CESTAT AHMEDABAD Central Excise

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Revenue's appeal dismissed for CENVAT credit recovery on waste scrap inputs lacking corroborative evidence
CESTAT Ahmedabad upheld the Commissioner's order dismissing revenue's appeal for recovery of CENVAT credit wrongly availed on 9.857 MTs of waste and scrap inputs. The department alleged the respondent received only invoices without actual receipt of inputs from ship breaking units during April 2007-August 2010. The tribunal found the department's case relied on unreliable broker statements lacking corroborative evidence, with some statements retracted through affidavits. The tribunal emphasized that tangible documentary evidence in favor of the assessee must be given primacy over contradictory third-party statements, particularly when no investigation was conducted at re-rolling mills or broker premises to support the allegations.

Admissibility of third-party statements - requirement of corroborative tangible evidence for third-party statements - primacy of documentary evidence over oral testimony - burden on revenue to prove non-receipt of inputs - identification of nature of scrap from panchnama and photographs - Cenvat credit entitlement where inputs are recorded in RG 23A registers - recovery under Rule 14 of CENVAT Credit Rules read with Section 11A(1) of the Central Excise ActAdmissibility of third-party statements - requirement of corroborative tangible evidence for third-party statements - burden on revenue to prove non-receipt of inputs - Whether the departmental case built largely on statements of brokers, transporters and third parties sufficed to establish non-receipt/diversion of duty paid inputs so as to sustain recovery under the show cause notice. - HELD THAT: - The Tribunal upheld the learned Commissioner's conclusion that the statements of brokers, vehicle owners, transporters and authorised persons are not by themselves sufficient to prove non receipt or diversion of inputs in absence of corroborative tangible evidence. The adjudicating authority formed an opinion under the statutory scheme (including the operation of section 9D procedures) that these statements could not be relied upon without independent corroboration; that opinion was not challenged by the department. The record showed that no independent investigation was carried out at the premises of alleged recipients (re rolling mills) and that brokers' statements contained contradictions and were not supported by brokers' own records. In that factual matrix, the Tribunal applied settled principles that the burden lies on Revenue to establish non receipt of inputs by adequate evidence and that uncorroborated third party statements cannot displace documentary proof of receipt.The departmental reliance on third party statements was held insufficient; the learned Commissioner's rejection of those statements for want of corroboration was upheld and the demand could not be sustained on that basis.Primacy of documentary evidence over oral testimony - Cenvat credit entitlement where inputs are recorded in RG 23A registers - Whether statutory registers and documentary records evidencing receipt and utilisation of inputs merit primacy over adverse oral statements and justify allowance of Cenvat credit. - HELD THAT: - The Tribunal endorsed the Commissioner's conclusion that documentary evidence - notably RG 23A Part I records showing receipt and utilisation of inputs, invoices issued by ship breakers and other statutory registers - must be given due weight, absent proof that such records were fabricated or manipulated. The Tribunal relied on consistent precedents and reasoning that where voluminous and contemporaneous documentary evidence supports receipt of inputs, conflicting oral statements of third parties ought to be treated with caution and cannot solely overturn the documentary record. Consequently, where the documentary registers remain unchallenged and unchecked for fraud, entitlement to Cenvat credit cannot be negatived merely on the basis of oral allegations.Documentary records showing receipt and utilisation of inputs were held to outweigh uncorroborated oral statements; Cenvat credit entitlement was sustained.Identification of nature of scrap from panchnama and photographs - requirement of corroborative tangible evidence for third-party statements - Whether the panchnama and photographs seized at the search and the panchas' apparent lack of recorded expertise sufficed to conclude that bazaar (non excisable) scrap was being used to replace duty paid inputs. - HELD THAT: - The Tribunal agreed with the Commissioner that photographs alone did not permit reliable identification of the nature of scrap and that the panchnama did not establish the panchas' expertise or working experience to qualify as experts for that purpose. The mere presence of some bazaar scrap, and admission by the assessee of occasional purchases of bazaar scrap, did not support an inference that all disputed consignments were not received. In the absence of quantified identification of the seized material and in the absence of expert opinion or other corroborative material, the Tribunal found that the panchnama and photographs could not form a reliable basis for displacing the documentary evidence of receipt.Findings based on the panchnama/photographs and the panchas' opinion were held inadequate to prove substitution of bazaar scrap for duty paid inputs; those materials could not sustain the demand.Final Conclusion: The Tribunal upheld the Commissioner's order dropping the show cause notice. On the facts - uncorroborated third party statements, deficiencies in the panchnama evidence, and unchallenged documentary records (RG 23A, invoices) demonstrating receipt and utilisation of inputs - the departmental demand for recovery of Cenvat credit was liable to be dismissed and the revenue appeals were dismissed.

2023 (11) TMI 1070 - CESTAT AHMEDABAD Central Excise

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Sulphuric acid by-product from copper manufacturing doesn't require CENVAT credit reversal under Rule 6(3)
CESTAT Ahmedabad allowed the assessee's appeal regarding CENVAT credit on sulphuric acid, a by-product. The revenue demanded reversal under Rule 6(3) of CENVAT Credit Rules, 2004, treating the by-product as exempt goods due to non-maintenance of separate records. The tribunal held that sulphuric acid emerged unavoidably during copper manufacturing and was not consciously manufactured. Since by-products cannot be considered manufactured goods under Rule 6(1), and Board Circular dated 25.04.2016 clarified that CENVAT credit on inputs contained in by-products cannot be denied, the demand was unsustainable. The appeal was allowed.

By-product - manufacture requirement for exempted goods - Cenvat Credit Rule 6 - obligation of a manufacturer and options for reversal - Explanation 1 to Rule 6(1) - non-excisable goods cleared for a consideration deemed as exempted goods - reversal of credit under Rule 6(3) - CBEC manual para 3.7 - admissibility of Cenvat on inputs contained in by-productsBy-product - manufacture requirement for exempted goods - Explanation 1 to Rule 6(1) - non-excisable goods cleared for a consideration deemed as exempted goods - Cenvat Credit Rule 6 - obligation of a manufacturer and options for reversal - CBEC manual para 3.7 - admissibility of Cenvat on inputs contained in by-products - Sulphuric acid produced incidentally during smelting is a by-product and not a manufactured exempted good for the purpose of Rule 6 of the Cenvat Credit Rules, 2004; therefore demands under Rule 6(3) based on Explanation 1 cannot be sustained. - HELD THAT: - The Tribunal held that Rule 6(1) requires that the manufacturer must manufacture exempted goods; Explanation 1 inserted w.e.f. 01.03.2015 deems certain non-excisable goods cleared for consideration to be "exempted goods" but did not amend sub-rule (1) to treat goods that merely emerge incidentally in a manufacturing process as goods "manufactured" by the assessee. Sulphuric acid in the present facts is an incidental by-product arising unavoidably in the process of manufacturing copper products and therefore is not a manufactured exempted good within the meaning of Rule 6. The Tribunal relied on the established principle that inputs contained in waste, refuse or by-products do not attract denial of Cenvat (as reflected in CBEC manual para 3.7) and that where a product is a by-product, demand under Rule 6 will not sustain. On that basis the demand premised on Explanation 1 and the Board circular was held unsustainable. [Paras 11, 12, 13, 14]Demand under Rule 6(3) in respect of sulphuric acid as an "exempted good" cannot be sustained because sulphuric acid is a by-product and not a manufactured exempted product within Rule 6.Cenvat Credit Rule 6 - obligation of a manufacturer and options for reversal - reversal of credit under Rule 6(3) - Disposition of the appeals arising from demands under Rule 6 for the stated periods. - HELD THAT: - Applying the above conclusion to the appeals for the periods March 2015 to July 2015, August 2015 to May 2016 and June 2016 to June 2017, the Tribunal found the department's reliance on Explanation 1 and the Board circular insufficient to sustain the confirmed demands. Consequently, the Tribunal allowed the assessee's appeals and dismissed the department's appeal/cross-objection in respect of the contested demands. [Paras 15]Assessee's appeals allowed and revenue's appeal dismissed; cross-objection disposed of.Final Conclusion: The Tribunal held that sulphuric acid recovered incidentally during copper smelting is a by-product and not a manufactured exempted good under Rule 6; Explanation 1 to Rule 6(1) and the related Board circular do not support reversal of Cenvat in these facts. Accordingly, demands under Rule 6(3) for the periods March 2015 to July 2015, August 2015 to May 2016 and June 2016 to June 2017 were not sustained; the assessee's appeals were allowed and the revenue's appeal dismissed.

2023 (11) TMI 943 - PUNJAB & HARYANA HIGH COURT Income Tax

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Issues involved:
The judgment addresses the appeal under Section 260A of the Income Tax Act, 1961 against the orders passed by the Income Tax Appellate Tribunal for the assessment years 2015-16 and 2016-17. The main issue revolves around the additions made by the Assessing Officer on account of disallowances of unsecured loans and unverifiable purchases, which were subsequently deleted by the Commissioner of Income Tax (Appeals).

Issue 1: Addition of unsecured loans and unverifiable purchases

The Assessing Officer had made additions on account of disallowances related to unsecured loans obtained from 8 parties and certain unverifiable purchases. However, the Commissioner of Income Tax (Appeals) deleted these additions after the assessee produced sufficient evidence establishing the legitimacy of the transactions. The Tribunal upheld the Commissioner's decision, noting that the evidence provided by the assessee was satisfactory and the Assessing Officer's conclusions were unfounded.

Issue 2: Admission of additional evidence

The challenge before the Tribunal by the Revenue was that the Appellate Authority admitted additional evidence submitted by the assessee, which did not fall within the exceptions laid down under Rule 46A(1) of the Income Tax Rules, 1962. The Revenue argued that certain creditors had squared off outstanding loans, while for others, regular business transactions were maintained with timely interest payments. However, the Tribunal found that the Appellate Authority had properly considered all evidence and ruled in favor of the assessee, dismissing the Revenue's appeal.

Issue 3: Substantial questions of law

The substantial questions of law raised in the appeal included whether the Tribunal was correct in upholding the decisions of the Commissioner of Income Tax (Appeals) regarding the deletions of additions made on account of unsecured loans and unverifiable purchases. Additionally, questions were raised regarding the admission of additional evidence by the Commissioner of Income Tax (Appeals) in violation of Rule 46A(3) of the Income Tax Rules, 1962. The Tribunal reviewed these questions and found no merit in the appeals, ultimately dismissing them.

Separate Judgement:

No separate judgment was delivered by the judges in this case.

This judgment highlights the importance of providing sufficient evidence to support financial transactions and the authority of the Appellate Authority in considering additional evidence during appeals. The Tribunal's decision to uphold the Commissioner's rulings showcases the significance of thorough assessment and evidence evaluation in tax-related matters.

Revenue loses appeal after accepting purchase transactions but rejecting related outstandings as bogus under Section 133(6)
The HC dismissed the revenue's appeal regarding disallowances of unsecured loans from 8 parties and unverifiable purchases. The AO had accepted purchase and sale transactions but rejected corresponding outstandings, considering purchase creditors bogus based solely on non-response to verification letters under Section 133(6). The ITAT found no rationale in accepting purchases/sales while rejecting related outstandings, noting the AO took a shorter route without proper verification. The AO's comments about illegible ITR and difficult-to-read bank statements were deemed insufficient grounds for rejection. The appellate authority properly considered available material and allowed the appeal, which revenue contested only on technicalities regarding additional evidence rather than merits.

Admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 - powers of the Commissioner of Income Tax (Appeals) coterminous with the Assessing Officer - veracity and creditworthiness of unsecured loans and genuineness of purchases as basis for deletion of additionsAdmission of additional evidence under Rule 46A of the Income Tax Rules, 1962 - veracity and creditworthiness of unsecured loans and genuineness of purchases as basis for deletion of additions - Validity of the Commissioner of Income Tax (Appeals) and Tribunal in admitting evidence and deleting additions in assessment year 2015-16. - HELD THAT: - The Tribunal and the Appellate Authority considered the material on record and found that the assessee had produced sufficient evidence to establish identity, creditworthiness of loan creditors and genuineness of transactions; the Assessing Officer's adverse conclusions (including reliance on non-response under Section 133(6) and unreadable records) were held to be unsustainable. The department did not contest the merits of the CIT(A)'s findings before the Tribunal; its challenge was limited to the contention that additional evidence was taken on file in breach of Rule 46A. The Tribunal recorded that the departmental representative failed to point to any additional evidence accepted by the CIT(A) in contravention of Rule 46A. The High Court, after perusal of the appellate order and assessment record, observed that no material was placed before it to show that the CIT(A) admitted evidence in violation of the Rules and that the Appellate Authority applied its mind to the material on record before deleting the additions. In these circumstances the challenge to the admission of evidence and the consequent deletion of the additions was rejected. [Paras 3, 8, 9, 10]The deletion of additions by the CIT(A), as upheld by the Tribunal, is sustained; the Revenue's challenge that additional evidence was improperly admitted in respect of AY 2015-16 is dismissed.Admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 - persistence of identical facts and issues across assessment years - Application of the same conclusion to assessment year 2016-17 where facts and issues were held to be identical. - HELD THAT: - The Tribunal noted that the facts and issues in the appeal for AY 2016-17 were identical to those in AY 2015-16 and that the Revenue similarly did not contest the CIT(A)'s findings on merits but only raised the technicality of additional evidence. The High Court accepted the Tribunal's view that the reasoning in respect of AY 2015-16 applied mutatis mutandis to AY 2016-17. No material was placed on record to show any different treatment or breach of procedural rules in the second assessment year. [Paras 3, 8, 10]The Tribunal's dismissal of the Revenue's appeal in respect of AY 2016-17 is sustained and the Revenue's challenge is dismissed.Final Conclusion: Both appeals filed by the Revenue against the Tribunal's orders for assessment years 2015-16 and 2016-17 are dismissed; the Appellate Authority's admission/consideration of evidence and deletion of the additions were held to have been made after due appreciation of the material on record and not shown to be in breach of Rule 46A.

2023 (11) TMI 865 - DELHI HIGH COURT Income Tax

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Issues involved:
The issues involved in the judgment are related to the Assessment Year (AY) 2010-11. The primary issues revolve around the disallowance under section 14A of the Income Tax Act and the deletion of addition corresponding to the loss on the sale of loans.

Disallowance under section 14A:
The appellant/revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance under section 14A of the Income Tax Act. The Tribunal restricted the addition on disallowance to Rs. 78,037, differing from the AO's addition of Rs. 7,94,53,077. The Tribunal found that there was no nexus between borrowed funds and investments made in shares, leading to the deletion of the disallowance. The court held that the addition could not have been deleted as the exempt income earned was only Rs. 78,037. The court referred to various judgments to support its decision and concluded that the proposed question regarding this issue did not arise for consideration.

Deletion of addition corresponding to loss on sale of loans:
The second issue pertained to the deletion of the addition of Rs. 103,87,99,712 corresponding to the loss on the sale of loans. The court analyzed the agreement between the respondent/assessee and Shriram Transport Finance Company Limited (STFCL) regarding the sale of debts. The court noted that the sale of debts had not fully materialized in the relevant year, as it was in a transition phase. The court also highlighted the findings of the Dispute Resolution Panel and the Assessing Officer regarding the sale of receivables and the continuation of business activities by the assessee. The Tribunal concluded that the transaction had taken place during the relevant year, and the loss had crystallized, directing the Assessing Officer to delete the addition. The court found that the proposed question 'B' did not arise from the orders passed by the authorities and dismissed the appeal, as the appellant did not challenge the finding that the liability had crystallized in the relevant period.

Separate Judgement:
No separate judgment was delivered by the judges in this case.

Revenue's appeal dismissed on loan portfolio sale loss deduction under ordinary business operations
Delhi HC dismissed revenue's appeal regarding loss on sale of loan portfolio. The assessee sold financial receivables worth Rs. 10,11,71,94,000 to Shriram for Rs. 9,08,29,87,000, claiming the difference as revenue loss. ITAT had allowed the claim, finding that the assessee's right to receive money from debtors arose in ordinary course of business and was not capital in nature. The Tribunal determined the liability crystallized in the assessment year 2010-11 based on the assignment agreement. HC upheld ITAT's decision, noting revenue failed to propose any question of law challenging the factual findings as perverse.

Disallowance under Rule 8D - nexus between borrowed funds and tax exempt investments - crystallisation of loss on sale of loan portfolio - nature of receipt - capital or revenueDisallowance under Rule 8D - nexus between borrowed funds and tax exempt investments - The proposed question whether the disallowance under Rule 8D is not to be restricted to the extent of exempt income does not arise for consideration. - HELD THAT: - The Tribunal had limited the disallowance to the amount of exempt dividend income because (a) the assessee had made a suo motu disallowance of a portion of the exempt income and (b) the Assessing Officer had not recorded satisfaction as to the correctness of that suo motu disallowance nor established any nexus between interest bearing/borrowed funds and the investments yielding exempt income. The High Court noted that jurisprudence permits restricting disallowance to the exempt income where the revenue has not established the requisite satisfaction or nexus and accordingly held that the proposed question of law advanced by the revenue does not arise for consideration. [Paras 12]Proposed question (i) is not entertained; no adjudication on expanding Rule 8D disallowance beyond the exempt income was undertaken.Crystallisation of loss on sale of loan portfolio - nature of receipt - capital or revenue - The contention that the loss on sale of loans was a capital loss does not arise from the statutory orders; the Tribunal's finding that the loss crystallized in the relevant year was upheld and not impugned as perverse. - HELD THAT: - The statutory authorities and the Dispute Resolution Panel examined the sale agreement with Shriram and concluded that the sale had not fully materialised in all respects for certain purposes, yet, after detailed analysis the Tribunal found that the transaction and crystallisation of loss occurred in the year under consideration and allowed the loss. The High Court observed that the question framed by the revenue (that the receipt was capital in nature) was not the question before the authorities; further, the revenue did not challenge the Tribunal's factual finding as perverse. Consequently, the Court declined to entertain the appeal on this point. [Paras 13, 14]Proposed question (ii) is not entertained; the Tribunal's factual conclusion that the loss crystallized in AY 2010-11 stands and the appeal is closed.Final Conclusion: The High Court refused to entertain the revenue's proposed legal questions: the challenge to restriction of Rule 8D disallowance to the exempt income was held not to arise for consideration, and the objection that the loss on sale of the loan portfolio was capital in nature was not a question emerging from the statutory orders and was not shown to be perverse; the appeal was closed.

2023 (11) TMI 758 - DELHI HIGH COURT Income Tax

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Second proviso to Section 40(a)(ia) applies retrospectively from April 1, 2005, relaxing TDS deduction disallowance requirements
The Delhi HC held that the second proviso to Section 40(a)(ia) has retrospective effect from April 1, 2005. The provision disincentivizes non-deduction of tax at source by disallowing deductions, but the second proviso relaxes this rigour by making application dependent on the assessee being declared in default under Section 201(1). Since no adverse findings were made regarding fulfillment of conditions in the first proviso to Section 201(1), and following precedent, the court accepted that the second proviso is declaratory and curative with retrospective application.

Retrospective effect of the second proviso to Section 40(a)(ia) - first proviso to Section 201(1) - protection from being an assessee in default where the payee has filed return, included the sum in income, paid tax and furnished a certificate - curative and declaratory amendment principle - retrospective operation of remedial legislative amendments - disallowance under Section 40(a)(ia) as compensatory and not penal in characterRetrospective effect of the second proviso to Section 40(a)(ia) - first proviso to Section 201(1) - protection from being an assessee in default where the payee has filed return, included the sum in income, paid tax and furnished a certificate - disallowance under Section 40(a)(ia) as compensatory and not penal in character - curative and declaratory amendment principle - retrospective operation of remedial legislative amendments - Applicability and retrospective operation of the second proviso to Section 40(a)(ia) where the first proviso to Section 201(1) is satisfied and the consequent entitlement to deletion of disallowance under Section 40(a)(ia). - HELD THAT: - The Court accepted the reasoning in Commissioner of Income Tax v. Ansal Land Mark Township Pvt. Ltd. and the analysis of the Agra Bench of the ITAT that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and, therefore, merits retrospective effect. The statutory scheme shows that where the conditions of the first proviso to Section 201(1) are fulfilled - the payee has filed a return under Section 139, taken the sum into account in computing income, paid tax on that income and furnished the prescribed certificate - the payer is not to be treated as an assessee in default. The second proviso to Section 40(a)(ia) creates a legal fiction that, in such circumstances, it shall be deemed that tax has been deducted and paid on the date of furnishing of the payee's return; this operates to relax the rigour of Section 40(a)(ia) and avoids disallowance where there is no actual loss to the revenue. Applying this principle to the present facts, no adverse finding was recorded by the Assessing Officer as to satisfaction of the conditions in the first proviso to Section 201(1); the CIT(A) and the Tribunal deleted the addition under Section 40(a)(ia). The Court found no substantial question of law warranting interference, while noting that the final outcome may be influenced by the Supreme Court's decision in the assessee's appeal for AY 2007-08. [Paras 10, 15, 16, 18]The second proviso to Section 40(a)(ia) is to be given retrospective, curative effect in the circumstances described; where the first proviso to Section 201(1) is satisfied and no adverse finding is recorded, the disallowance under Section 40(a)(ia) is not justified and the deletion by the lower authorities stands.Final Conclusion: The appeal is closed as lacking any substantial question of law after endorsing that the second proviso to Section 40(a)(ia) operates curatively and retrospectively where the first proviso to Section 201(1) is satisfied; the ultimate outcome may, however, depend on the Supreme Court's decision in the related AY 2007-08 matter.

2023 (11) TMI 750 - CHHATTISGARH HIGH COURT Money Laundering

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Stringent twin conditions for PMLA bail not met as prima facie material indicated involvement in laundering activity.
In a prosecution under the Prevention of Money Laundering Act, 2002, regular bail under Section 439 of the Code of Criminal Procedure was considered subject to the stringent twin conditions in Section 45: the accused must show reasonable grounds for believing he is not guilty and is not likely to commit any offence while on bail. On the material before the Court, including investigative statements and documentary records, a prima facie case of involvement in laundering activity was found, and the explanation that cash deposits reflected lawful business receipts was rejected. The plea based on prolonged incarceration was also not accepted, and bail was declined for failure to satisfy the statutory rigour.

Twin conditions for bail under Section 45 of the PMLA, 2002 - Non-bailable nature of offences under the PMLA - Prima facie involvement in money laundering as a ground to deny bail - Investigation for scheduled offences distinct from investigation for predicate offences - Right to speedy trial and its interplay with bail under economic offences - Burden of proof under Section 24 of the PMLATwin conditions for bail under Section 45 of the PMLA, 2002 - Prima facie involvement in money laundering as a ground to deny bail - Burden of proof under Section 24 of the PMLA - Whether the applicant is entitled to regular bail under Section 45 of the PMLA, 2002 - HELD THAT: - The Court applied the rigour of Section 45 of the PMLA and held that the applicant must prima facie establish non involvement in money laundering and that he is not likely to commit an offence while on bail. On the material on record the applicant's statements under Section 50 of the PMLA and other investigative material disclose prima facie cash deposits of Rs. 61.02 lacs proximate to registration of land and production of invoices which another witness described as bogus. These facts, taken together with the prosecution case linking the cash to the cartel's illegal levy and the applicant's admitted explanations, lead the Court to conclude that the twin conditions mandated by Section 45 are not satisfied. The Court considered authorities concerning the special rigour of Section 45, the distinction between investigation of predicate and scheduled offences, and the right to speedy trial, but found that prolonged incarceration alone did not outweigh the prima facie material against the applicant. Having regard to the prima facie findings, the burden and legal framework under Sections 24 and 45 of the PMLA, and the evidence adduced at the bail stage, the application for bail could not be allowed. [Paras 16, 17, 18, 19, 20]Bail application under Section 439 Cr.P.C. is rejected; applicant not able to satisfy the twin conditions under Section 45 of the PMLA, 2002.Final Conclusion: Bail refused: on the prima facie material (statements under Section 50 and bank transaction evidence indicating unexplained cash deposits and allegedly bogus invoices) the Court finds the twin conditions of Section 45 PMLA unsatisfied; the trial court will proceed on merits and the observations herein are limited to the bail application.

2023 (11) TMI 749 - CHHATTISGARH HIGH COURT Money Laundering

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Issues: (i) Whether non-arrest of the applicant during investigation entitled him to anticipatory bail under Section 19 of the Prevention of Money Laundering Act, 2002. (ii) Whether the applicant satisfied the twin conditions for bail under Section 45 of the Prevention of Money Laundering Act, 2002 so as to merit anticipatory bail.

Issue (i): Whether non-arrest of the applicant during investigation entitled him to anticipatory bail under Section 19 of the Prevention of Money Laundering Act, 2002.

Analysis: Section 19 confers power to arrest where the authorised officer has reason to believe, on material in possession, that a person is guilty of an offence under the Act. The mere fact that arrest was not made during investigation does not extinguish that power or create a right to anticipatory bail. The Court also noted that the applicant's reliance on cooperation with investigation and on the absence of arrest could not, by itself, justify grant of anticipatory bail in a case involving alleged economic offences and money laundering.

Conclusion: The issue was answered against the applicant.

Issue (ii): Whether the applicant satisfied the twin conditions for bail under Section 45 of the Prevention of Money Laundering Act, 2002 so as to merit anticipatory bail.

Analysis: Section 45 requires satisfaction that there are reasonable grounds for believing that the accused is not guilty and is not likely to commit any offence while on bail. The Court found prima facie material showing the applicant's role in the alleged extortion and laundering network, including handling of cash, maintenance of accounts, and association with the principal accused. In view of the seriousness of the alleged economic offence, the possibility of interference with witnesses and the insufficiency of material to satisfy the statutory conditions, the Court held that the rigour of Section 45 applied equally to anticipatory bail and that the applicant had not met the requisite threshold.

Conclusion: The issue was answered against the applicant.

Final Conclusion: Anticipatory bail was not warranted, as the Court found prima facie involvement in a serious money-laundering case and held that the statutory bail conditions were not satisfied.

Ratio Decidendi: In proceedings under the Prevention of Money Laundering Act, 2002, the absence of arrest during investigation does not by itself justify anticipatory bail, and the rigour of Section 45 applies even to applications under Section 438 of the Code of Criminal Procedure, 1973.

Anticipatory bail under PMLA denied where non-arrest during investigation and Section 45 conditions did not justify release.
Under the Prevention of Money Laundering Act, 2002, the mere fact that the applicant was not arrested during investigation did not create any entitlement to anticipatory bail, because the power of arrest under Section 19 remains available where the authorised officer has reason to believe guilt on material in possession. The Court also held that the statutory rigour of Section 45 applies to anticipatory bail, requiring reasonable grounds to believe the accused is not guilty and is not likely to reoffend while on bail. Finding prima facie material linking the applicant to the alleged extortion and laundering network, the Court held that the twin conditions were not satisfied and refused anticipatory bail.

Applicability of the twin conditions in Section 45 of the PMLA to applications for anticipatory bail - power to arrest under the PMLA and its bearing on entitlement to anticipatory bail - economic offences as a class apart and the court's caution in granting bail - risk of tampering with witnesses and hampering investigation as a ground to deny anticipatory bailPower to arrest under the PMLA and its bearing on entitlement to anticipatory bail - applicability of investigative discretion to arrest and its future exercise - Non-arrest during investigation does not by itself entitle the applicant to anticipatory bail. - HELD THAT: - The Court examined Section 19 of the PMLA and held that the investigating authority's decision not to arrest during a stage of investigation does not extinguish its statutory power to arrest later when reasons for arrest are available. Reliance on authorities including the Supreme Court's recent observations underscores that non-arrest coupled with voluntary participation in investigation cannot be converted into a substantive right to anticipatory bail. The Court therefore rejected the submission that mere absence of prior arrest or the applicant's cooperation automatically entitles him to protection under Section 438 CrPC. [Paras 12, 14, 15]Answered against the applicant; non-arrest during investigation does not justify grant of anticipatory bail.Applicability of the twin conditions in Section 45 of the PMLA to applications for anticipatory bail - economic offences as a class apart and the court's caution in granting bail - risk of tampering with witnesses and hampering investigation as a ground to deny anticipatory bail - The twin conditions under Section 45 of the PMLA apply to anticipatory bail applications and, on the material before the Court, are not satisfied by the applicant. - HELD THAT: - The Court applied Section 45 of the PMLA and relevant Supreme Court precedents emphasising that economic offences require cautious exercise of bail jurisdiction. Having considered the ECIR and material collected by the Enforcement Directorate, the Court found prima facie evidence of the applicant's involvement - including handwritten diary entries and his role in receipt, storage and dispatch of extorted cash - and noted his close association with the principal accused. Given the gravity of the offences, the stage of investigation, and the reasonable apprehension that grant of anticipatory bail could impede investigation or facilitate tampering with witnesses, the Court concluded that the applicant failed to satisfy the statutory twin conditions necessary for release. The Court therefore declined to grant anticipatory bail. [Paras 17, 19, 20, 21, 22]Answered against the applicant; anticipatory bail refused as the Section 45 conditions are not met on the material before the Court.Final Conclusion: The application for anticipatory bail under Section 438 CrPC is rejected; observations are limited to this bail application and shall not influence the trial court on merits.

2023 (11) TMI 746 - MADHYA PRADESH HIGH COURT Indian Laws

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Prospective operation of interim compensation under Section 143-A barred deposit order in a pre-amendment complaint.
Section 143-A of the Negotiable Instruments Act was introduced by the 2018 amendment and was treated as prospective in operation. Because the complaint had been filed before the amendment came into force, the court held that the power to direct interim compensation could be exercised only in complaints arising after the amendment. The order requiring deposit of interim compensation in the present complaint was therefore unsustainable.

2023 (11) TMI 724 - PUNJAB AND HARYANA HIGH COURT Service Tax

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Broad CENVAT input service definition upheld for business-linked and export-related services, with no substantial question of law.
CENVAT credit on input services under Rule 2(l) was upheld because the definition of input service is to be construed broadly and extends to services used directly or indirectly in relation to manufacture, clearance of final products up to the place of removal, and business operations. Services such as engineering support, testing, quality control, sales promotion, dealer network management, software support, export-related services, storage, logistics, recruitment-related services, and services connected with the place of removal were treated as falling within the eligible ambit. The Tribunal's view allowing credit was affirmed, and no substantial question of law arose for interference.

Definition of - Cenvat credit entitlement for services used by a provider of taxable service - Cenvat credit entitlement for services used by a manufacturer in or in relation to manufacture and clearance of final products up to the place of removal - expansive interpretation of input service - place of removal for export determined as port where shipping bill is filed / goods handed over to shipping lineDefinition of - Cenvat credit entitlement for services used by a provider of taxable service - Cenvat credit entitlement for services used by a manufacturer in or in relation to manufacture and clearance of final products up to the place of removal - expansive interpretation of input service - place of removal for export determined as port where shipping bill is filed / goods handed over to shipping line - Entitlement to Cenvat credit in respect of specified services received by the assessee (training and coaching, IT/software, CHA and cargo handling for export, warehouse and storage, land survey/real estate consultant, hotel services, manpower supply services and services at ports) for the period July, 2006 to 2010-11 (including credit taken in 2008-09). - HELD THAT: - The Court upheld the Tribunal's and Commissioner's findings largely allowing Cenvat credit in respect of the services challenged. Applying a wide and expansive construction of the definition of , the Court treated (a) services used by the assessee as a provider of taxable output service, and (b) services used by a manufacturer directly or indirectly in or in relation to manufacture and clearance of final products up to the place of removal, as admissible input services. The Court relied upon co ordinate decisions which divided the definition into the 'means' part and the 'includes' part and held that services connected to manufacture, sale promotion, storage, place of removal (ports), recruitment, quality control, after sales service and dealer network support fall within Rule 2(l). The Court accepted the administrative clarification that, for exports, transfer of property (place of removal) can be said to occur at the port/ICD/CFS where the shipping bill is filed and goods are handed over to the shipping line, and eligibility for Cenvat credit must be determined accordingly. On the specific factual findings recorded below - including that goods remained under the assessee's ownership until export and services were integrally connected to business/manufacturing operations - the Court found no error in allowing credit and in dismissing Revenue's appeal; only services held to be personal/staff welfare in nature (as found by the Commissioner) were excluded by the authorities below and the Court did not disturb the Tribunal's broad acceptance of entitlement.Tribunal's order allowing the assessee's appeals and dismissing the revenue's appeals insofar as it granted Cenvat credit on the specified services was upheld; the revenue's challenge was dismissed.Final Conclusion: The High Court found no substantial question of law requiring interference with the Tribunal's common order; the Tribunal's grant of Cenvat credit on the specified services (subject to the factual exclusions already made below) is upheld and the appeal by the Revenue is dismissed.

2023 (11) TMI 686 - SC Order Service Tax

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Issues involved: Interpretation of relief granted by Division Bench, scope of declaration, liberty to consider cases independently.

Interpretation of Relief Granted: The Supreme Court examined the relief specifically granted by the Division Bench, emphasizing its limitation to parties before the Court. The Court reiterated that the relief did not extend to a universal declaration for all institutions, highlighting the specificity of the granted relief to the parties involved in the appeals. The Division Bench clarified that the declaration applied only to petitioners in the Writ Petitions, allowing the Department to independently assess cases of parties not before the Court. Consequently, the Supreme Court declined to interfere with the impugned judgments, affirming the liberty for appellants to evaluate other parties' cases on their own merits in accordance with the law. The appeals were dismissed, with the Court keeping the question of law open for future consideration.

Scope of Declaration: The Court further delved into the scope of the declaration made by the Division Bench, emphasizing its limited applicability to parties directly involved in the appeals. The Division Bench's declaration was not intended as a blanket statement encompassing all institutions, but rather a specific ruling tailored to the petitioners in the Writ Petitions. This nuanced approach underscored the Court's intention to address the cases before it without extending the declaration universally to all institutions. By maintaining this distinction, the Court upheld the specificity and targeted nature of the relief granted by the Division Bench, ensuring a case-by-case assessment for parties not directly party to the appeals.

Liberty to Consider Cases Independently: In addition to interpreting the relief and declaration, the Supreme Court highlighted the liberty granted to appellants to independently evaluate cases of parties not present before the Court. This liberty underscored the Court's commitment to ensuring a fair and individualized assessment of each case in accordance with the law. By affirming this liberty, the Court reinforced the principle of due process and the need for a thorough examination of cases beyond those directly involved in the appeals. This approach aimed to uphold the integrity of the legal process while allowing for a comprehensive review of all relevant cases, maintaining fairness and adherence to legal standards.

Specific Relief Applies Only to Parties Before Court; No Universal Declaration Made
The SC held that the specific relief granted by the Division Bench applies only to the parties before the Court and does not constitute a universal declaration affecting all institutions. The declaration under the impugned judgments is limited to the petitioners in the Writ Petitions, and the Department may independently examine cases of non-parties in accordance with law. The appeal was dismissed.

Scope of relief limited to parties - no universal declaration - department's liberty to examine other cases on merits - refusal to interfere with High Court judgmentRefusal to interfere with High Court judgment - scope of relief limited to parties - Whether this Court should interfere with the operative part of the Division Bench judgment and whether the relief granted by that judgment extends beyond the parties before the High Court. - HELD THAT: - The Court examined the operative portion of the impugned Division Bench judgment and noted that the relief granted by the High Court was expressly limited to the parties before it. The Division Bench had clarified that it was not making a universal declaration applicable to all institutions and had reiterated that the declaration would apply only to the petitioners in the writ petitions. Having regard to that limited scope and the clarifications recorded by the Division Bench, this Court declined to interfere with the impugned judgments. The Court also recorded the Division Bench's observation that the Department remains free to examine the cases of non-parties independently and in accordance with law.Appeals dismissed; impugned Division Bench judgments left undisturbed and confined to the parties before the High Court.Department's liberty to examine other cases on merits - Whether the Department is precluded from examining the cases of institutions or persons not parties to the writ proceedings. - HELD THAT: - The Division Bench expressly preserved the Department's freedom to consider and examine matters concerning entities or persons not before the Court on their individual merits in accordance with law. This Court endorsed that position and recorded that the Department may proceed to examine such cases independently, thereby clarifying that the High Court's declaration does not bind the Department in respect of non-parties.The Department is at liberty to examine the cases of non-parties on their own merits in accordance with law.No universal declaration - Whether the High Court made a universal declaration affecting all institutions irrespective of their presence as parties in the writ petitions. - HELD THAT: - The Court noted the Division Bench's clarification that it was not issuing a universal declaration in respect of all institutions or in whatever manner they are conducted. The impugned judgment's relief was confined to the petitioners, and therefore no blanket or universal declaration was intended or made by the High Court. The present appeals did not warrant upsetting that limited declaration.It is affirmed that no universal declaration was made; the relief is confined to the parties before the High Court.Question of law kept open - Whether any substantive question of law arising from the proceedings has been finally decided by this Court. - HELD THAT: - While disposing of the appeals and declining interference with the High Court's operative orders, the Court explicitly recorded that the question of law is kept open. No substantive legal issue was finally adjudicated upon by this Court in the present order; the order is confined to dismissal of the appeals with the limited observations recorded.The question of law arising in the proceedings is left open for future consideration.Final Conclusion: The appeals are dismissed; the Division Bench judgments stand affirmed insofar as their operative relief is limited to the parties before the High Court, the Department remains free to examine non-party cases on their merits, and the substantive question of law is kept open.

2023 (11) TMI 679 - SC Order Central Excise

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Legal Questions Reserved for Future: Appeals Focus on Disputed Period; Penalty and Interest Upheld Due to Low Tax Effect.
The SC disposed of the appeals, focusing on the period in dispute and payments made under protest by the respondent-assessee. The substantial legal questions were reserved for future cases. The order imposing penalty and interest was upheld due to the low tax effect, and all pending applications were resolved accordingly.

Payment under protest - refund claim waived - academic disposal - low tax effect - leave to agitate substantial questions of law in other proceedings - no interference with Tribunal's order setting aside penalty and interestPayment under protest - refund claim waived - academic disposal - Whether the appeals should be adjudicated on merits where the assessee has paid the disputed excise duty under protest and has waived any claim for refund. - HELD THAT: - The Court accepted the assessee's categorical statement that the excise duty demands arising from the five impugned Show Cause Notices for the period July 2000 to December 2001 have been paid under protest and that the assessee will not seek a refund of that amount. In those circumstances the Court held that continuation of the appeals would be purely academic and that the Revenue would not be prejudiced by disposing of the appeals on that basis. The Court therefore concluded that no further substantive consideration of the appeals was necessary before this Court.Appeals disposed of as academic in view of payment under protest and waiver of refund; no further adjudication on merits in these appeals.Low tax effect - leave to agitate substantial questions of law in other proceedings - Whether the demand for facility charges and other substantial questions of law require determination in these appeals. - HELD THAT: - The Court noted that a sum claimed as facility charges was not paid under protest and that the assessee contended there was no sale or supply. Without entering into the merits, the Court observed that because of the low tax effect it was unnecessary to decide that aspect in these appeals. The Court expressly left all substantial questions of law which arise in these appeals open to be agitated in any other appropriate case, thereby permitting the issues to be litigated afresh elsewhere rather than deciding them herein.Facility-charge demand and other substantial questions not decided on merits here; left open for determination in other proceedings due to low tax effect.No interference with Tribunal's order setting aside penalty and interest - low tax effect - Whether this Court should interfere with the Tribunal's order setting aside penalty and interest. - HELD THAT: - The Court recorded that the Tribunal had granted relief to the assessee by setting aside the order imposing penalty and interest. Having regard to the low tax effect and the factual posture of these appeals (including the payment under protest and waiver of refund), the Court found no justification to interfere with the Tribunal's order and therefore left that relief undisturbed.No interference with the Tribunal's order setting aside penalty and interest.Final Conclusion: The appeals are disposed of as academic insofar as the disputed excise duty for July 2000 to December 2001 has been paid under protest and the assessee has waived any refund claim; the facility-charge demand and other substantial legal questions are not decided here (left open to be agitated in other proceedings) and the Tribunal's order setting aside penalty and interest is left undisturbed on account of low tax effect.

2023 (11) TMI 665 - DELHI HIGH COURT GST

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Tax Refund Claim Under Section 142 of CGST Act: Authorities Must Process or Provide Reasoned Rejection with Hearing
HC directed tax authorities to process petitioner's refund claim under Section 142 of CGST Act for tax paid on goods sold before GST regime and returned within six months. Respondent must either process the refund with applicable interest or provide reasoned rejection after hearing the petitioner, while reserving all parties' rights and contentions.

Refund of tax paid under pre-GST regime pursuant to Section 142 of the CGST Act - payment of interest on delayed refund - opportunity of being heard and requirement of a speaking order on rejection - treatment of returns of goods sold prior to GST rolloutRefund of tax paid under pre-GST regime pursuant to Section 142 of the CGST Act - payment of interest on delayed refund - Respondent directed to consider and process the petitioner's Section 142 application for refund of tax paid under the pre-GST regime and to pay applicable interest if refund is due. - HELD THAT: - The petitioner filed an application dated 28.06.2018 under Section 142 of the CGST Act seeking refund in respect of tax paid under the Central Sales Tax Act, 1956 for goods sold before the roll-out of GST and returned within six months from the appointed date; the application was acknowledged on 02.07.2018. The Court recorded the respondent's undertaking to consider the application and to process the refund in accordance with law, including payment of applicable interest where due. The direction requires the respondent to take steps to adjudicate the pending application on merits and to conclude the refund process without undue delay.Petitioner's application to be considered and refund, if payable, to be processed with applicable interest.Opportunity of being heard and requirement of a speaking order on rejection - If the Section 142 refund application is rejected, the respondent must pass a speaking order after affording the petitioner an opportunity of being heard. - HELD THAT: - The Court required that in the event the respondent decides to reject the petitioner's claim, the concerned officer shall record reasons in a speaking order and afford the petitioner an opportunity to be heard before passing such order. This obligation was accepted by the respondent's counsel and the Court bound the respondent to that undertaking, ensuring procedural fairness in the adjudication of the refund claim.Any rejection must be preceded by opportunity to be heard and must be communicated by a speaking order stating reasons.Final Conclusion: Writ petition disposed directing the respondent to consider and decide the petitioner's Section 142 refund application (acknowledged 02.07.2018), process any refund found payable with applicable interest, and, if rejecting the claim, pass a reasoned speaking order after affording the petitioner an opportunity of hearing; all rights and contentions reserved.

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