TaxTMI Updates e-Newsletter
Jan 11,2019

Input Tax Credit - input tax credit blocked for goods or services received for construction of immovable property (other than plant or machinery) under section 17(5)(d) of the GST Act - construction cost of a self constructed asset (AS 10 principles) - capitalisation of pre operative lease rent as part of cost of leasehold land - nexus between supply of leasing service and construction of immovable property

Input Tax Credit - input tax credit blocked for goods or services received for construction of immovable property (other than plant or machinery) under section 17(5)(d) of the GST Act - capitalisation of pre operative lease rent as part of cost of leasehold land - nexus between supply of leasing service and construction of immovable property - construction cost of a self constructed asset (AS 10 principles) - Whether input tax credit is admissible on lease rent paid during the pre operative period for leasehold land, when that lease rent is capitalised as part of the cost of the immovable property constructed on the applicant's own account. - HELD THAT: - Applying the accounting principle in AS 10 that the cost of a self constructed asset includes amounts that are an integral part of the cost (including the right to use land), the Authority held that pre operative lease rent paid for the right to use the land on which the resort is built forms part of the cost of constructing the immovable property. Construction of the hotel is dependent on the uninterrupted right to use the land and the lease payments are directly connected to that construction; therefore a direct nexus exists between the leasing service and the construction activity. Since the applicant admits capitalisation of the lease rent as a fixed asset and the immovable property is being constructed on the applicant's own account, the payments fall within the prohibition in section 17(5)(d) of the GST Act which disallows input tax credit for goods or services received for construction of immovable property (other than plant or machinery). Consequently, the tax paid on such lease rent during the pre operative period is not eligible for input tax credit. [Paras 4]

Input tax credit is not admissible on lease rent paid during the pre operative period for leasehold land capitalised as part of the cost of an immovable property (other than plant and machinery) constructed on the applicant's own account.

Final Conclusion: The Authority rules that input tax credit is not available to the applicant on lease rent paid during the pre operative period for the leasehold land, where such lease rent is capitalised and treated as part of the cost of the immovable property being constructed on the applicant's own account; the ruling is subject to the statutory provisos governing advance rulings.

Classification of goods as plastic or textile - Classification under Sub heading 3923 29 - Tariff item 6305 33 00 and the concept of "strip" versus sheet - Meaning of "plastics" under Note 1 to Chapter 39 - Rate of tax under Schedule III of Notification No. 01/2017 C.T. (Rate)

Classification of goods as plastic or textile - Classification under Sub heading 3923 29 - Meaning of "plastics" under Note 1 to Chapter 39 - Rate of tax under Schedule III of Notification No. 01/2017 C.T. (Rate) - PP Non woven bags made from polypropylene fabric are plastic goods classifiable under Sub heading 3923 29 and taxable at 18% under Schedule III of Notification No. 01/2017 C.T. (Rate). - HELD THAT: - The Authority accepted that polypropylene in primary forms is a plastic within the scope of Note 1 to Chapter 39 and that polypropylene sheets used to make non woven bags retain the characteristics of plastics. Reliance was placed on the material submitted (including an industry article) and on the established ratio in Raj Pack Well Ltd that goods woven or made from intermediate polymer forms are to be treated as plastic goods. Applying that principle, sacks and bags made from polypropylene sheets fall within the articles of plastics covered by Sub heading 3923 29. Consequently, the appropriate tax treatment is under Serial No. 108 of Schedule III of Notification No. 01/2017 C.T. (Rate), attracting the 18% rate specified therein. [Paras 6, 7, 8, 9]

PP Non woven Bags made from non woven polypropylene fabric are classifiable under Sub heading 3923 29 and taxed at 18%.

Tariff item 6305 33 00 and the concept of "strip" versus sheet - Classification under Sub heading 3923 29 - Tariff item 6305 33 00 (sacks and bags of polyethylene or polypropylene strip) is not an appropriate classification for the Applicant's bags which are made from polypropylene sheets and not from strips. - HELD THAT: - The Authority examined the ordinary meaning of "strip" and the sample produced by the Applicant and found the bags to be fashioned from sheets of non woven polypropylene fabric cut and stitched into bags rather than being manufactured from narrow ''strips''. Given this factual distinction, the description in tariff item 6305 33 00 does not accurately cover the Applicant's product and hence that tariff item was rejected as the correct classification. [Paras 7]

6305 33 00 is not the correct tariff classification for the Applicant's polypropylene non woven bags.

Classification of goods as plastic or textile - Assumption of facts in absence of full specification - In the absence of detailed disclosure by the Applicant of raw materials and manufacturing process, the Authority proceeded on the reasonable assumption that the bags are manufactured from polypropylene granules into continuous filament, lapped and thermally bonded into sheets from which bags are made. - HELD THAT: - The Applicant did not furnish particulars of raw materials, manufacturing steps, or the Textile Commissioner registration documentation. Given the sample submitted and the Applicant's own admission that its product is the same as that ruled on by the Kerala AAR (JJ Fabrics), the Authority inferred the manufacturing process and raw materials consistent with the material on record. That assumed factual matrix was used to determine classification and taxation. [Paras 4, 6]

Authority assumed polypropylene based sheet manufacture and proceeded to classify and fix the tax rate on that basis.

Final Conclusion: The Authority ruled that PP non woven bags made from non woven polypropylene fabric are plastic goods classifiable under Sub heading 3923 29 and taxable at 18%; classification under tariff item 6305 33 00 was rejected, and the ruling was based on assumed manufacturing details due to the Applicant's failure to furnish complete technical particulars.

Tax deduction at source under section 51 read with Notification No. 1344-FT dated 13/09/2018 - control as defined in Section 2(27) of the Companies Act, 2013 - authority or board established by any Government with 51% or more participation by way of equity or control - established by Government

Control as defined in Section 2(27) of the Companies Act, 2013 - tax deduction at source under section 51 read with Notification No. 1344-FT dated 13/09/2018 - The Applicant is controlled by the Central and State Governments within the meaning of Section 2(27) of the Companies Act, 2013 and thus falls within clause (a)(ii) of the Notification for purposes of tax deduction at source, subject to the condition that it is established by Government. - HELD THAT: - The Authority construed the undefined term "control" in the GST Act by reference to Section 2(27) of the Companies Act, 2013, which includes the right to appoint a majority of directors or to control management or policy decisions directly or indirectly. Although neither the Central nor the State Government holds shares directly, government companies (as defined under the Companies Act) together hold 62.29% of the paid up share capital and constitute a majority on the Board. WBIDC alone holds 49.46% and, in conjunction with other government company holdings and board composition (four votes including casting vote in a nine member Board), the Central and State Governments are able to indirectly control management and policy decisions. On this factual premise, the Applicant satisfies the statutory concept of "control" and thus is covered by clause (a)(ii) of the Notification for TDS obligation, provided the Applicant is an entity "established by Government." [Paras 5, 6]

The Applicant is a company controlled by the Central and State Governments and, if established by Government, is liable to deduct tax at source under section 51(1) read with the Notification.

Established by Government - authority or board established by any Government with 51% or more participation by way of equity or control - Whether the Applicant is an entity "established by Government" was not adjudicated and remains open. - HELD THAT: - The Application did not address or dispute the question of whether the Applicant was "established by Government." The Authority expressly kept that aspect open and proceeded to examine the question of control on the available material. Because the Notification's clause (a)(ii) applies to bodies "set up by an Act of Parliament or a State Legislature or established by any Government," the factual determination as to whether the Applicant was established by Government is a necessary precondition to applying the Notification and was not finally decided. [Paras 3, 4]

The question whether the Applicant is "established by Government" is left open for determination; the TDS liability is contingent on that finding.

Final Conclusion: The Authority ruled that, on the materials before it, the Applicant is controlled by the Central and State Governments within the meaning of Section 2(27) of the Companies Act, 2013 and would therefore be liable to deduct tax at source under section 51(1) read with Notification No. 1344 FT dated 13/09/2018 if it is found to have been established by Government; the issue of establishment by Government was not decided and remains open.

Composite supply of works contract - Government Entity - predominant use for commerce or business - user fees as proceeds from business - applicability of concessional rate under Serial No. 3(vi) - GST rate determination 12% v. 18% - condition of procurement in relation to a work entrusted by the Government

Government Entity - condition of procurement in relation to a work entrusted by the Government - Whether the Inland Waterways Authority of India (IWAI) qualifies as a "Government Entity" under the Rate Notification. - HELD THAT: - The Authority examined the IWAI Act, 1985 and noted that IWAI is a statutory authority set up for regulation and development of inland waterways, with members appointed and removed by the Central Government, receipt of grants and loans, sanction of projects, rule-making power and power of supersession by the Central Government. On that statutory scheme, IWAI falls within the definition of a "Government Entity" in para 4(x) of Notification No. 31/2017-CT (Rate). The GST Council's correspondence also recognises IWAI's status. Thus IWAI is a Government Entity for the purposes of the Rate Notification. [Paras 4]

IWAI is a "Government Entity" as defined in Notification No. 31/2017-CT (Rate).

Predominant use for commerce or business - applicability of concessional rate under Serial No. 3(vi) - composite supply of works contract - Whether the Applicant's works contract for construction of the Multi modal IWT Terminal at Haldia falls within Serial No. 3(vi)(a) (original work meant predominantly for use other than for commerce, industry or any other business or profession) and thus attracts the concessional 12% rate. - HELD THAT: - Although the contract is a composite works contract and the contractee is a Government Entity, the Authority analysed the nature and scope of the project (berths, conveyors, silos, loaders, user facilities, internal roads, IT/communication and other infrastructure) and concluded that the infrastructure is created for facilitating commercial utilisation of the national waterway. The project is intended predominantly for commerce and business, and IWAI may levy user charges from commercial operators. Because the predominant use of the constructed infrastructure is for commerce/business, the work does not meet the requirement of being "meant predominantly for use other than for commerce, industry, or any other business or profession" under Serial No. 3(vi)(a). Therefore the concessional classification in Serial No. 3(vi) is not attracted. [Paras 7]

The Multi modal IWT Terminal project is predominantly for commercial use and does not satisfy Serial No. 3(vi)(a); the concessional rate under Serial No. 3(vi) is not applicable.

User fees as proceeds from business - GST rate determination 12% v. 18% - Whether the user fees collected/levied by IWAI are governmental revenues (credited to Consolidated Fund) or proceeds from business, and the consequent GST rate applicable to the Applicant's supply. - HELD THAT: - The Authority rejected the Applicant's contention that user fees are credited to the Consolidated Fund of India and thus not proceeds from business. The IWAI Act empowers IWAI to act on business principles, to collect user fees with prior approval and to credit such receipts to the Inland Waterways Authority of India Fund (constituted under section 19(1)) rather than to the Consolidated Fund. IWAI also has statutory power to undertake joint ventures and levy fees; absent credit to the Consolidated Fund the receipts constitute proceeds from commerce or business as per the statutory scheme. Given that the work creates commercially used infrastructure and the user fees are business proceeds, the supply does not qualify for the concessional entry and must be taxed at the non concessional rate specified in Serial No. 3(xii). [Paras 7, 8]

User fees are proceeds from business and, accordingly, the Applicant's works contract supply attracts GST at 18% under Serial No. 3(xii) of the Rate Notification.

Final Conclusion: The Applicant's supply of works contract services for construction of the Multi modal IWT Terminal at Haldia does not qualify for the concessional rate under Serial No. 3(vi) and instead attracts GST at 18% under Serial No. 3(xii). The ruling declares Notification amendments inapplicable to the contract as framed and is valid subject to statutory provisions governing advance rulings.

Classification under Chapter 84 of the Customs Tariff - parts suitable for use solely or principally with a particular machine - solar water heater - Evacuated Tube Collector (ETC) - solar power based device - meaning of 'Power' as electricity (Electricity Act, 2003) - concessional rate under Sl. No. 234 of Notification No.1/2017 (Integrated Tax (Rate))

Classification under Chapter 84 of the Customs Tariff - Evacuated Tube Collector (ETC) - parts suitable for use solely or principally with a particular machine - solar water heater - The correct classification of Evacuated Tube Collector (ETC). - HELD THAT: - The Authority examined whether the evacuated tube collector forms part of the solar water heater and falls within Chapter 84 (heading 8419) of the Customs Tariff. Having regard to Section Note 5 to Section XVI and the scope of heading 8419 which covers instantaneous or storage water heaters (non-electric) and parts thereof, the Authority found that the ETC is an integral component of the solar water heater system (comprising the array of tubes and an insulated tank) and is therefore classifiable as part of solar water heater systems under heading 8419. The determinative reasoning rested on the character of the product as a component that is suitable for use principally with the water-heating machine and on the inclusion of solar water heaters in the chapter explanatory notes. [Paras 8]

The Evacuated Tube Collector (ETC) falls under Chapter 84 heading 19 (part of solar water heater systems).

Solar power based device - meaning of 'Power' as electricity (Electricity Act, 2003) - concessional rate under Sl. No. 234 of Notification No.1/2017 (Integrated Tax (Rate)) - Whether the ETC is a 'Solar Power based device' or part thereof and thus entitled to the concessional 5% IGST under Sl. No. 234 of Notification No.1/2017. - HELD THAT: - The Authority proceeded on the premise that eligibility for the concessional rate requires (i) classification under Chapter 84 or 85 and (ii) that the goods be a 'Solar Power based device' or a part thereof. Factually, the ETC is an arrangement of concentric borosilicate glass tubes whose coated inner tube absorbs solar energy to produce heat which is transferred to water by thermosyphon circulation; the process does not convert solar energy into electricity. As the term 'Power' is not defined in GST or Customs notes, the Authority relied on the definition in the Electricity Act, 2003, interpreting 'Power' in this context to denote electricity and 'Solar Power' to mean electricity generated from solar energy. A 'Solar Power based device' was therefore understood to be a device operated by electricity generated from solar energy (i.e., where solar energy is first converted to electrical energy to run the appliance). Because the ETC directly converts solar energy into heat without electrical generation or use of electricity as an intermediary, it does not qualify as a 'Solar Power based device' or part thereof for the purpose of Sl. No. 234. Consequently the ETC is not eligible for the 5% IGST concessional rate under that entry. [Paras 8, 9]

Although classifiable under Chapter 84, the ETC is not a 'Solar Power based device' and is not entitled to the concessional 5% IGST under Sl. No. 234 of Notification No.1/2017.

Final Conclusion: The Advance Ruling: Evacuated Tube Collector (ETC) is classifiable as part of solar water heater systems under Chapter 84 (heading 8419) but does not qualify as a 'Solar Power based device' and therefore is not eligible for the concessional 5% IGST under Sl. No. 234 of Notification No.1/2017 (Integrated Tax (Rate)).

Summary order. Petition for direction to open GST portal for filing TRAN-1 not granted; Court noted portal is open till 30.03.2019, directed counsels to verify portal functionality and inform the Court, and listed the matter as fresh on 10.01.2019.

Summary order. Delay condoned; Special Leave Petition dismissed; pending applications, if any, disposed of.

Summary order. Delay condoned; Special Leave Petition dismissed; pending applications, if any, disposed of.

Penalty under Section 271(1)(c) - furnishing of inaccurate particulars of income - suo motu revised computation of income - bonafide mistake / inadvertent error - auditor's inadvertent error in audit report - Price Waterhouse Coopers principle - rejection of claim does not automatically attract penalty

Penalty under Section 271(1)(c) - suo motu revised computation of income - bonafide mistake / inadvertent error - Price Waterhouse Coopers principle - Validity of levy of penalty under Section 271(1)(c) where the assessee, after inadvertent errors in claiming deductions and an audit report mistake, filed a suo motu revised computation during assessment proceedings. - HELD THAT: - The Tribunal found that certain direct expenses had been inadvertently reduced from CFS income and that other items (indirect expenditure, interest on term loan and depreciation) were omitted when claiming deduction under Section 80-IA; auditors had also made inadvertent errors in the audit report. On realization, the assessee filed a suo motu revised computation of income before the assessing officer during assessment proceedings. Relying on the Supreme Court's decision in Price Waterhouse Coopers and authorities holding that mere rejection of a claim does not automatically attract penalty, the Tribunal concluded that the mistake was bona fide and deleted the penalty. The High Court, after noting the Tribunal's findings and the cited precedents (including the principle that every rejection of a claim will not give rise to penalty), found no error in the Tribunal's conclusion and upheld deletion of the penalty.

Penalty under Section 271(1)(c) was wrongly imposed and deleted; Tribunal's order upheld.

Final Conclusion: The appeals are dismissed; the High Court upholds the Tribunal's deletion of the penalty imposed under Section 271(1)(c) on the assessee.

Definition of "assets" under Section 2(ea) of the Wealth Tax Act - exclusion of property "in the nature of commercial establishments or complexes" - interpretation of plural "establishments" in exclusion clause - requirement of self-occupation where expressly provided elsewhere

Definition of "assets" under Section 2(ea) of the Wealth Tax Act - exclusion of property "in the nature of commercial establishments or complexes" - Whether a property used for commercial purposes (rented out) falls outside the definition of "assets" by virtue of exception (5) to clause (i) of Section 2(ea). - HELD THAT: - The court examined clause (i) of Section 2(ea) and its exception (5), which excludes "any property in the nature of commercial establishments or complexes" from the definition of assets. The reasoning holds that the exception operates to exclude commercial properties irrespective of whether they are self-occupied or let out. The language of exception (5) is clear and does not impose a condition of occupation by the owner; therefore a property put to commercial use (here, rented to a bank) falls within the exclusion and is not an "asset" for wealth-tax purposes. [Paras 6, 7]

A property used as a commercial establishment, even when let out, is excluded from "assets" under exception (5) to clause (i) of Section 2(ea).

Interpretation of plural "establishments" in exclusion clause - requirement of self-occupation where expressly provided elsewhere - Whether the use of the plural word "establishments" in exception (5) requires the property to comprise multiple units before the exclusion can apply. - HELD THAT: - The court rejected the revenue's reliance on the plural "establishments" as imposing a requirement of multiple units. The ordinary reading of the phrase "commercial establishments or complexes" is to denote the class of commercial properties generally, not to limit the exclusion to multi-unit complexes. The court further noted that where the Legislature intended a condition of self-occupation it did so expressly (for example in sub-clause (3) of clause (i)); absence of such a stipulation in sub-clause (5) demonstrates that plurality or self-occupation are not prerequisites to the exclusion. [Paras 7, 8]

The plural expression "commercial establishments" does not restrict the exclusion to properties with multiple units; a single commercial unit is covered by exception (5).

Final Conclusion: The Tribunal's dismissal of the revenue's appeal was upheld: properties rented out and used for commercial purposes fall within exception (5) to clause (i) of Section 2(ea) and are excluded from the definition of "assets", and the plural "establishments" does not require multiple units; tax appeals dismissed.

Exemption under Section 54F - long-term capital gains - residential house versus under-construction property - beneficial provision

Exemption under Section 54F - residential house versus under-construction property - long-term capital gains - Whether the assessee who sold a booked flat in 2005 (sold while construction was incomplete) was entitled to exemption under Section 54F despite the flat becoming a residential unit on eventual completion. - HELD THAT: - The Tribunal's finding, affirmed by the High Court, rests on the factual matrix that the assessee had booked the flat in January 1981 but the builder failed to complete construction; the matter involved prolonged disputes which reached the Bombay High Court, leading to appointment of a committee/receiver to oversee completion. Construction was not completed until February 2011, whereas the assessee sold the unit in 2005. Given that at the time of transfer the unit remained unconstructed/under construction and completion only occurred much later through court intervention, the transferred asset could not be characterised as a residential house for the purposes of denying exemption. Section 54F is a beneficial provision intended to promote purchase/construction of residential houses; on these peculiar facts, the Tribunal correctly concluded that the assessee's sale did not amount to transfer of a residential house and therefore the exemption was rightly allowed.

Tribunal's confirmation of CIT(A)'s allowance of exemption under Section 54F is upheld.

Final Conclusion: The tax appeal is dismissed; the Tribunal's judgment confirming allowance of exemption under Section 54F is affirmed on the factual finding that the unit sold in 2005 was an unconstructed/under-construction property and not a residential house at the time of transfer.

Interest on refunds - Section 244A(2) - delay attributable to the assessee - Entitlement to interest where refund arises from appellate order - Assessing Officer's duty to grant interest unless delay attributable to assessee is established

Section 244A(2) - delay attributable to the assessee - Entitlement to interest where refund arises from appellate order - Whether interest under Section 244A should be denied or curtailed on the ground that the proceedings resulting in refund were delayed for reasons attributable to the assessee when the refund arose from an appellate order. - HELD THAT: - The Tribunal correctly held that subsection (2) of Section 244A was inapplicable because there were no reasons attributable to the assessee that caused delay in the proceedings resulting in the refund. The assessee had made the claim during assessment (by a note to the return) and the Assessing Officer rejected that claim; the Commissioner (Appeals) allowed it and thereby created the entitlement to refund. The Assessing Officer was therefore incorrect in invoking Section 244A(2) to exclude any period from interest merely because the claim was decided at the appellate stage. Precedents confirm that making a claim during assessment or the allowance of a claim on appeal does not ipso facto mean the assessee caused delay disentitling it to interest; nor does an error or mistake by the assessee automatically permit denial of interest. The statutory scheme grants interest on refunds under Section 244A(1), and subsection (2) operates only where delay in issuing the refund order is properly shown to be attributable to the assessee, a finding that was not made on the facts of this case.

Sub-section (2) of Section 244A does not apply on the facts; the Assessing Officer was wrong to exclude any period on the ground of delay attributable to the assessee and interest must be granted in accordance with Section 244A(1).

Final Conclusion: The revenue's appeal is dismissed; the Tribunal's direction to the Assessing Officer to grant interest in accordance with Section 244A is affirmed and there is no merit in excluding any period on the ground of delay attributable to the assessee.

Disallowance under Section 14A in relation to exempt dividend income - Invocation of Rule 8D as a determination in default / best judgment - Requirement of recording Assessing Officer's satisfaction before applying Rule 8D - Invalidity of mechanical application of Rule 8D without examination of assessee's claim - Precedential effect of Godrej & Boyce on applicability of Section 14A(2)/(3) read with Rule 8D

Requirement of recording Assessing Officer's satisfaction before applying Rule 8D - Invalidity of mechanical application of Rule 8D without examination of assessee's claim - Assessing Officer cannot invoke Rule 8D mandatorily without recording dissatisfaction with the correctness of the assessee's claim regarding expenditure in relation to exempt income; mechanical application of Rule 8D is impermissible. - HELD THAT: - The Court examined the assessment order and the appellate orders and held that Rule 8D operates as a mechanism for determination in default or application of a formula only after the Assessing Officer records satisfaction that the assessee's explanation regarding expenditure relatable to exempt income is not acceptable. Rule 8D is not automatically applicable whenever exempt income is present; it is triggered by the AO's subjective satisfaction on the inadequacy of the assessee's claim, as required by Section 14A(2) and (3). The assessment in the present case proceeded by applying Rule 8D without any recorded examination or rejection of the assessee's self-disallowance, and therefore was procedurally and legally incorrect. The Court relied on the settled principle in Godrej & Boyce that the AO must form and record such satisfaction before resorting to Rule 8D or a best judgment determination. [Paras 8, 9]

The AO's mechanical application of Rule 8D without recording requisite satisfaction is not in accordance with law and cannot sustain the addition.

Disallowance under Section 14A in relation to exempt dividend income - Precedential effect of Godrej & Boyce on applicability of Section 14A(2)/(3) read with Rule 8D - Deletion of the addition under Section 14A by the Commissioner (Appeals) and its affirmation by the Tribunal are legally correct in view of absence of AO's recorded satisfaction and relevant factual findings. - HELD THAT: - The Commissioner (Appeals) examined the facts, noting that the AO had not recorded objective satisfaction and had not demonstrated a proximate connection between the expenses disallowed and the exempt income; factual material indicated that interest-bearing funds were not used for the investments yielding exempt dividends. The Tribunal adopted the reasoning of the first appellate authority. Applying the legal principle that Rule 8D may only be invoked after the AO's dissatisfaction with the assessee's claim, the Court found no error in deleting the addition and in the Tribunal's affirmation. [Paras 6, 7, 8]

The deletion of the disallowance by the CIT(A), and the Tribunal's affirmation thereof, are sustained.

Substantial question of law - Precedential effect of Godrej & Boyce on applicability of Section 14A(2)/(3) read with Rule 8D - Whether a substantial question of law arises for consideration in this appeal. - HELD THAT: - The Court observed that the legal position on the necessity of the AO's recorded satisfaction before invoking Rule 8D is settled by the Supreme Court in Godrej & Boyce. Because the present appeal involved application of that settled principle to the facts and the Tribunal had correctly applied the law, no substantial question of law arises. [Paras 9, 10]

No substantial question of law arises; the appeal is dismissed.

Final Conclusion: Application for condonation of delay was allowed. The appeal is dismissed: the Tribunal's affirmation of deletion of the Section 14A disallowance is sustained because Rule 8D cannot be applied mechanically without the Assessing Officer recording satisfaction that the assessee's claim is unacceptable; the legal position is settled by Supreme Court precedent.

Depreciation on valuation of investment portfolio by treating investments as stock-in-trade - disallowance of expenditure relatable to exempt income under Section 14A(1) - write-off of bad debts vis-a -vis provision created under Section 36(1)(viia) - remand for fresh consideration by the Assessing Officer - followance of earlier High Court precedents

Depreciation on valuation of investment portfolio by treating investments as stock-in-trade - followance of earlier High Court precedents - Depreciation on valuation of investment portfolio treated as allowable by treating the bank's investments as stock-in-trade was sustained. - HELD THAT: - The Court held that the substantial question whether depreciation on valuation of the investment portfolio is allowable by treating the investments as stock-in-trade is answered in favour of the assessee. The Court followed its earlier decision in Karnataka Bank Limited v. Assistant Commissioner of Income Tax (reported in (2013) 356 ITR 549 (KAR)) which dealt with the same question of law and concluded in favour of the assessee. Having regard to that precedent, the Tribunal's holding was upheld and the substantial questions on this point were answered accordingly. [Paras 2]

Answered in favour of the assessee; Tribunal's view sustained by following the earlier High Court decision.

Disallowance of expenditure relatable to exempt income under Section 14A(1) - followance of earlier High Court precedents - Deletion of additions representing expenditure relating to earning of exempt income (Section 14A(1) issue) was upheld in favour of the assessee. - HELD THAT: - The Court accepted the earlier decision in Commissioner of Income Tax v. Karnataka Bank Limited (reported in 226 Taxman 187) which had answered the identical question in favour of the assessee. Applying that precedent, the Court held that the Tribunal was right to delete the addition and answered the substantial question accordingly in favour of the assessee. [Paras 3]

Answered in favour of the assessee; the deletion of the addition was sustained by reference to the prior High Court judgment.

Write-off of bad debts vis-a -vis provision created under Section 36(1)(viia) - remand for fresh consideration by the Assessing Officer - The question regarding excess claim of bad debts written off over the credit balance of the provision was not finally adjudicated and was remanded for fresh consideration by the Assessing Officer. - HELD THAT: - The Tribunal had followed an earlier order in the assessee's own case and, in turn, the Court referred to its earlier judgment in Commissioner of Income Tax v. Karnataka Bank Limited (226 Taxman 187) which had remanded the matter to the Assessing Officer. Accordingly, this issue is remanded to the Assessing Officer for fresh consideration rather than being decided on merits by the Court in the present proceeding. [Paras 4]

Remanded to the Assessing Officer for fresh consideration.

Depreciation on valuation of investment portfolio by treating investments as stock-in-trade - followance of earlier High Court precedents - The Tribunal's dismissal of the revenue's appeal (questioning allowability of depreciation by treating investments as stock-in-trade and alleging perversity) was upheld by following earlier decisions in favour of the assessee. - HELD THAT: - The Court observed that the same question had been decided in favour of the assessee in earlier proceedings (Income Tax Appeal No.166 of 2009 disposed on 25.11.2014) and therefore followed that conclusion. Consequently, the contention that the Tribunal's order was perverse was rejected and the substantial question was answered for the assessee. [Paras 5]

Answered in favour of the assessee; Tribunal's order not held to be perverse.

Final Conclusion: The substantial questions of law relating to allowability of depreciation on valuation of investments treated as stock-in-trade and the deletion of additions under the Section 14A(1) principle are answered in favour of the assessee by following earlier High Court decisions; the question concerning excess bad-debt write-off over the provision is remanded to the Assessing Officer for fresh consideration; the writ petition is disposed of with all other contentions kept open.

Carrying on business - investments in subsidiaries as carrying on business - main objects of the Memorandum of Association - allowability of business expenditure and carry forward of business loss

Carrying on business - investments in subsidiaries as carrying on business - main objects of the Memorandum of Association - allowability of business expenditure and carry forward of business loss - Whether the respondent-assessee had set up or carried on business in Assessment Year 2008-2009 by making investments in subsidiary companies pursuant to its main objects, and whether the disallowance of business expenditure and carry forward of business loss was correctly made - HELD THAT: - The Commissioner of Income Tax (Appeals) accepted the assessee's contention that investments made in subsidiary companies engaged in activities specified in the assessee's main objects amounted to undertaking the business contemplated by the Memorandum of Association; reliance was placed on Schedule 3 of the balance sheet showing investments in companies carrying on the specified businesses and on the decision in S.A. Builders Ltd. to hold that investments for purposes of business can amount to business activity. The Tribunal affirmed that acquisition of controlling interest and investments in companies engaged in the same line of business, in terms of the assessee's objects, can be in furtherance of the assessee's business purpose. The High Court noted that in subsequent assessment orders for later years the Assessing Officer did not dispute that the assessee was engaged in business despite no change in the nature of activity. On these grounds the disallowance of the business expenditure was set aside and the carry forward of business loss upheld. [Paras 6, 7, 9]

The findings of the CIT(A) and the Tribunal that the assessee had set up and carried on business by making investments in subsidiary companies in terms of its main objects, and that the disallowance should be set aside allowing carry forward of the business loss, are affirmed; the Revenue's appeal is dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal under section 260A, affirming that investments by the assessee in subsidiary companies engaged in activities specified in its Memorandum of Association amounted to carrying on business for Assessment Year 2008-2009 and upholding the allowance of business expenditure and carry forward of the declared business loss.

Deductibility of interest - income from other sources versus business income - commencement of business / business set up - nexus between borrowing and lending - deduction under Section 57

Deductibility of interest - nexus between borrowing and lending - deduction under Section 57 - Deduction of interest paid to a sister concern was allowable and could be set off against interest received where there was a direct nexus between funds borrowed and funds lent. - HELD THAT: - The Tribunal found, on the basis of the assessee's cash flow statements and ledger accounts, that the ICDs of Rs. 55.30 Crores were received in the preceding year and Rs. 50 Crores were advanced to another group company in the preceding year, establishing a direct nexus between the interest paid (@12%) and interest received (@12.5%). The Court, having been shown no material to demonstrate perversity in those factual findings, upheld the Tribunal's conclusion that interest paid to earn interest was deductible. The Court further accepted the Tribunal's view that even if interest received were held to be taxable as 'income from other sources', the interest paid in earning that income would be allowable as a deduction under Section 57. [Paras 6, 7]

Interest paid to the sister concern is deductible and may be set off against interest received in view of the established nexus; the Assessing Officer and CIT(A) were not justified in disallowing the deduction.

Commencement of business / business set up - income from other sources versus business income - The respondent-assessee's business was held to be 'set up' / commenced for the purposes of the Assessment Year on the basis of the business transfer agreement, performance guarantees and advances made under the agreement. - HELD THAT: - The Tribunal observed that the assessee had entered into a business transfer agreement dated 1 April 2007, furnished performance bank guarantees for the relevant blocks, incurred operational expenses, and advanced funds in furtherance of the agreement, including cash calls for participatory interest. These facts, as recorded by the Tribunal and not shown to be erroneous before the Court, supported the finding that the business was set up. The Court noted that while the Tribunal's reasoning on commencement was not elaborately detailed, the material relied upon (agreements, guarantees, advances and the fact that CIT(A) allowed a related deduction) provided sufficient backing for the conclusion. The Court also observed that the question of commencement was nevertheless of diminished significance given the direct nexus between the interest paid and the interest earned. [Paras 8]

The Tribunal's finding that the business was set up/commenced is supported by the material and is upheld.

Final Conclusion: No infirmity was shown in the Tribunal's factual findings or legal conclusions; the Revenue's appeal is dismissed.

Deduction under Section 80IA(2A) - Scope of 'telecommunication services' for Section 80IA(2A) - Non-obstante clause enlarging scope beyond 'income derived from' - Income from infrastructure sharing (cell-sites and fibre) qualifies as telecommunication services income - Cheque bounce and late payment charges as business receipts eligible under Section 80IA(2A)

Deduction under Section 80IA(2A) - Scope of 'telecommunication services' for Section 80IA(2A) - Income from infrastructure sharing (cell-sites and fibre) qualifies as telecommunication services income - Income received from sharing fibre cables and cell-sites by the assessee qualifies for deduction under Section 80IA(2A) as income of the undertaking providing telecommunication services. - HELD THAT: - The Court held that sub-section (2A) to Section 80IA, read with clause (ii) of sub-section (4), confers a broader entitlement on undertakings providing 'telecommunication services' and does not confine deduction to income 'derived from' the undertaking. The binding decision in Principal Commissioner of Income Tax v. Bharat Sanchar Nigam Limited establishes that the non-obstante clause in sub-section (2A) extends the scope to profits and gains of the eligible business generally. The respondent's receipts from permitting third parties to use spare capacity on cell-sites and fibre cables were not transfers of title or leases of the assets but payments for use of telecommunication infrastructure; such receipts are inextricably linked to and attributable to the telecom business and therefore fall within the ambit of 'telecommunication services' eligible for deduction under Section 80IA(2A). The Assessing Officer's characterisation of the receipts as leasing income unconnected with telecommunication services was rejected as misconceived. [Paras 5, 12, 13, 14]

Income from sharing of fibre cables and cell-sites qualifies for deduction under Section 80IA(2A).

Deduction under Section 80IA(2A) - Non-obstante clause enlarging scope beyond 'income derived from' - Cheque bounce and late payment charges as business receipts eligible under Section 80IA(2A) - Cheque bounce charges and late payment charges received by the assessee are business receipts related to telecommunication operations and qualify for deduction under Section 80IA(2A). - HELD THAT: - The Court noted that sub-section (2A) does not employ the phrase 'income derived from' and, following the reasoning in Bharat Sanchar Nigam Limited, permits inclusion of receipts that constitute profits and gains of the eligible telecom business. The Commissioner of Income Tax (Appeals) correctly characterised late payment charges as trading receipts inextricably linked to billing and telecommunication services; cheque bounce charges, being recoveries of penal bank charges paid by the assessee, were to be adjusted against bank charges for computation of deduction. The Tribunal affirmed these conclusions, and the Court found no error in treating both types of charges as attributable to the telecommunication undertaking for Section 80IA(2A) purposes. [Paras 15, 16, 17]

Late payment charges and cheque bounce charges are attributable to the telecom business and eligible for deduction under Section 80IA(2A), subject to adjustment of cheque bounce recoveries against bank charges as directed.

Final Conclusion: The two substantial questions are answered in favour of the assessee and against the Revenue; the Tribunal's and the Commissioner (Appeals)'s findings are upheld and the appeals are dismissed.

Deduction under Section 10A - Allocation of common expenses between exempt and non exempt units - Rejection of books of account and best judgment assessment - Use of net profit ratio as basis for reallocation - Requirement of cogent evidence to disturb segregated accounts

Deduction under Section 10A - Allocation of common expenses between exempt and non exempt units - Rejection of books of account and best judgment assessment - Use of net profit ratio as basis for reallocation - Whether the Assessing Officer was justified in disallowing the deduction under Section 10A by rejecting the segregated books and reallocating expenses from the non STPI unit to the STPI unit on the basis of differing profit rates - HELD THAT: - The court upheld the concurrent findings of the Commissioner (Appeals) and the Tribunal that the Assessing Officer had no material to show any defect, deficiency or dubious entry in the separate books maintained for the STPI and non STPI units. The Assessing Officer's approach - treating differences in turnover, expenses and net profit rates between the two units as sufficient basis to transpose the expenditure and to adopt a 90:10 apportionment - was held to be surmise and conjecture. Book results maintained in a verifiable manner cannot be rejected merely because profit margins differ between two lines of business; such differences may only furnish a basis for investigation but do not justify substituting the assessee's accounts by best judgment apportionment in the absence of cogent evidence. The court noted that the law does not prohibit an assessee from operating STPI and non STPI units and that no finding was recorded that business or orders were transferred between units. Accordingly the Assessing Officer's wholesale disallowance of the claim under Section 10A by reallocating expenses was not sustained. [Paras 7]

The Assessing Officer's rejection of the segregated books and reallocation of expenses to deny deduction under Section 10A was not justified and the conclusions of the lower authorities upholding the assessee's claim were affirmed.

Deduction under Section 10A - Exclusion of non eligible receipts from exempt income - Whether amounts not derived from eligible export activity or representable as deemed income on cessation/remission of liability are includible in income exempt under Section 10A - HELD THAT: - The Commissioner (Appeals) and the Tribunal identified and excluded certain amounts from the deduction under Section 10A on separate factual and legal grounds - namely, income attributable to remission/cessation of liability and other receipts not earned by export of software or not received in convertible foreign exchange - and the Tribunal corrected factual inaccuracies to exclude those items from exemption. The High Court recorded these adjustments as unchallenged and accepted the narrower exclusion while rejecting the Assessing Officer's broader reallocation approach.

Specific receipts not arising from eligible export activity or representing deemed income on cessation of liability were excluded from exemption under Section 10A, and those factual adjustments sustained by the Tribunal were not disturbed.

Final Conclusion: The appeal is dismissed; the Tribunal's and Commissioner (Appeals)'s conclusions that the Assessing Officer could not reject the segregated books or reallocate expenses merely on the basis of differing profit rates are upheld, and the limited exclusions from Section 10A claimed by the Revenue were sustained on the separate reasons recorded by the lower authorities.

Deductibility of service fees contingent on proof of services - Related-party transactions and section 40A(2)(b) - Tax deduction at source and section 40(a)(ia) - Allowability under section 43B dependent on actual payment - Restoration to Assessing Officer for fresh adjudication

Deductibility of service fees contingent on proof of services - Related-party transactions and section 40A(2)(b) - Restoration to Assessing Officer for fresh adjudication - Claimed deduction of Rs. 27,68,317 paid to related party as Administrative Services Agreement charges - HELD THAT: - The assessee asserted that ASA charges were paid to a related party for services in Human Resources, Marketing and Sales, Finance, Legal and Taxation and IT support. The authorities below recorded absence of contemporaneous evidence demonstrating rendition of such services and disallowed the deduction under the principles governing related party payments. The Tribunal noted that allowance of a deduction for service fees requires proof of receipt of services (for example emails and supporting documents) and that no such evidence was placed on record during proceedings below. In the interests of justice the Tribunal did not decide the claim on merits but set aside the orders and restored the matter to the Assessing Officer to examine the assessee's claim afresh, permitting the assessee to produce relevant evidence; if the assessee fails to satisfy the AO, addition may be made. [Paras 5, 6, 7]

Matter set aside and restored to the Assessing Officer for fresh examination of evidence in respect of the claimed ASA charges; appeal allowed for statistical purposes.

Tax deduction at source and section 40(a)(ia) - Reimbursement vs. income characterisation - Restoration to Assessing Officer for fresh adjudication - Sustained disallowance of Rs. 4,14,207 being portion of reimbursements to related party treated as not having TDS deducted - HELD THAT: - The Assessing Officer treated certain reimbursements as subject to disallowance under the provisions relating to failure to deduct tax at source. The Tribunal observed that the assessee produced only invoices and did not sufficiently demonstrate that the amounts were pure reimbursements without any profit element. Rather than resolving the factual contest on the existing record, the Tribunal exercised its discretion to remit the issue to the AO to permit the assessee to furnish necessary evidence and for the AO to decide the matter afresh in accordance with law after giving reasonable opportunity of hearing. [Paras 8, 10]

Issue remitted to the Assessing Officer for fresh adjudication on production of relevant evidence; appeal allowed for statistical purposes.

Allowability under section 43B dependent on actual payment - Restoration to Assessing Officer for fresh adjudication - Disallowance under section 43B of interest of Rs. 25,52,010 on ground that payment was not proved to have been made by the assessee - HELD THAT: - The assessee claimed that the interest was paid by a sister concern and that payment related to the assessee's unit, but failed to furnish evidence to establish (a) that the interest pertained to the assessee's relevant unit and not the demerged unit, and (b) that payment was actually made within the time prescribed under section 43B. The Tribunal held that, on the present record, the statutory requirement of actual payment was not shown, but in fairness remitted the matter to the AO to examine the assessee's claim and evidence afresh after affording opportunity of hearing. [Paras 12, 14]

Matter set aside and restored to the Assessing Officer for fresh consideration of proof of payment and applicability of section 43B; appeal allowed for statistical purposes.

Final Conclusion: All contested additions were not finally adjudicated on merits; each issue is remitted to the Assessing Officer for fresh examination of evidence and decision in accordance with law after affording the assessee a reasonable opportunity of hearing; appeals are allowed for statistical purposes.

Applicability of CBDT circular on holding of household jewellery - Duty of assessing officer to make independent enquiries before sustaining additions - Burden of proof on revenue to establish undisclosed acquisition in absence of enquiries

Applicability of CBDT circular on holding of household jewellery - Burden of proof on revenue to establish undisclosed acquisition in absence of enquiries - Whether the addition made on account of jewellery found in a locker could be sustained where the assessee claimed the jewellery belonged to family members and the assessing officer did not make enquiries to verify those claims, and whether benefit of the CBDT circular should be given. - HELD THAT: - The Tribunal examined the factual record and the authorities' orders and observed that the assessee had contemporaneously stated that the jewellery found in the locker belonged to other family members and had given particulars of family composition and explanations about gifts and prior acquisition. The assessing officer rejected those contentions for want of documentary proof and because the assessee was a non filer, but the officer did not make any independent enquiries of the persons alleged to own the jewellery or of the alleged donors. The CIT(A) granted limited relief mechanically without conducting enquiries. The Tribunal held that where the revenue declines to accept the assessee's account, it is incumbent upon the assessing officer to make appropriate enquiries and seek verification from the persons said to be the owners or donors before making additions. In the absence of any such verification, the addition could not be sustained. Applying the CBDT instruction regarding reasonable quantum of household jewellery, and considering that no proper enquiries were made by the revenue to rebut the assessee's claim, the Tribunal directed that the benefit of the circular be given and the addition deleted.

Addition on account of jewellery deleted and benefit of the CBDT circular directed to be given; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, held that the assessing officer ought to have made enquiries to verify the assessee's claim that the jewellery belonged to family members or was received as gifts, and directed deletion of the addition with grant of benefit under the CBDT instruction for household jewellery.

Withholding tax under section 195 where payment is chargeable to tax in India - reimbursement of expenses not constituting taxable income where no profit element exists - distinction between royalty and consideration for use of a copyrighted article in software licensing - assessee in default under section 201 for failure to deduct tax at source

Withholding tax under section 195 where payment is chargeable to tax in India - reimbursement of expenses not constituting taxable income where no profit element exists - Whether payments made to non-residents as reimbursement of travel, meeting, relocation, accommodation, consultancy, legal, seminar, research, training and conference expenses were chargeable to tax in India and liable to withholding tax under section 195, thereby rendering the assessee an "assessee in default" under section 201. - HELD THAT: - The Tribunal found on the material on record, including the agreements, invoices and Chartered Accountant certificates, that the amounts in dispute were reimbursements of actual expenses incurred (travel, visa, car parking, diesel, seminar, research, training, legal and related costs) and did not contain any profit element. The Tribunal applied the settled principle that withholding under section 195 is attracted only where the payment is chargeable to tax in India. Following the decisions of the High Courts (including Krupp Udhe GmbH and Industrial Engineering Projects Pvt. Ltd.) and the reasoning that reimbursements which merely recoup expenses (without profit) are not revenue receipts, the Tribunal held that such payments were not taxable as fees for technical services or other income in India and therefore no withholding obligation arose. Consequently the finding of the Assessing Officer treating the assessee as an assessee in default and levying tax and interest under section 201 and 201(1A) could not be sustained. [Paras 9, 12]

Payments characterised as reimbursements of expenses without any profit element are not chargeable to tax in India and are not subject to withholding under section 195; grounds 4 to 7 allowed.

Distinction between royalty and consideration for use of a copyrighted article in software licensing - withholding tax under section 195 where payment is chargeable to tax in India - Whether payments for software, annual maintenance, antivirus and license renewal made to non-resident suppliers constituted "royalty" taxable in India and liable to withholding, or were payments for use of copyrighted articles not amounting to royalty. - HELD THAT: - The Tribunal examined the invoices and supporting CA certificate and noted that the payments were for use of copyrighted software, annual maintenance and software support, i.e., for licensed use of the software product rather than transfer of copyright rights. Applying the distinction elaborated by the Delhi High Court in Infrasoft (as cited) - that payments for enabling the effective operation of software, limited non-exclusive non-transferable licenses and the supply of copyrighted articles do not necessarily amount to royalty - the Tribunal concluded that the receipts could not be characterised as royalty. Consequently such payments were not taxable as royalty in India and did not attract withholding under section 195. Grounds 8 to 10 were therefore allowed. [Paras 13, 16, 17]

Payments for software and license renewal held not to be royalty; grounds 8 to 10 allowed.

Final Conclusion: The appeal is allowed: the payments treated as reimbursements were not taxable and did not attract withholding under section 195, and payments for software and license renewal were not taxable as royalty; the Assessing Officer's treatment and consequent levy under section 201 are set aside.

Advance Licence - Advance Licence for Annual Requirement - Exemption notification - Anti-dumping duty exemption - Actual user condition - Strict interpretation of exemption notifications

Exemption notification - Anti-dumping duty exemption - Advance Licence - Whether Notification No.56/2003-Cus operates as a substitute for Notification No.43/2002-Cus so as to confer exemption from anti-dumping duty on imports made against advance licences - HELD THAT: - Notification No.43/2002-Cus grants exemption from the whole of customs duty, additional duty, safeguard duty and anti-dumping duty for imports against advance licences issued under paras (a) and (b) of paragraph 4.1.1 of the Export and Import Policy. Notification No.56/2003-Cus separately pertains to advance licences issued for annual requirement in terms of paragraph 4.1.7A and exempts only customs duty and additional duty under Section 3; it does not exempt anti-dumping duty. The Court accepted the Tribunal's view that the two notifications address distinct categories of licences and that Notification No.56/2003 is not an amendment or substitute of Notification No.43/2002. Since the Government has not amended Notification No.56/2003 to include anti-dumping duty, the exemption as claimed by the assessee cannot be read into Notification No.56/2003. [Paras 7, 10]

Notification No.56/2003-Cus is not a substitute for Notification No.43/2002-Cus and does not exempt imports under advance licences for annual requirement from anti-dumping duty.

Advance Licence for Annual Requirement - Advance Licence - Actual user condition - Whether licences issued under paragraph 4.1.7A (annual requirement) are to be treated as licences within paragraph 4.1.1 for the purpose of exemption entitlement - HELD THAT: - Paragraph 4.1.1 of the Foreign Trade Policy contemplates advance licences for physical exports; paragraph 4.1.7A separately contemplates advance licences on the basis of annual requirement. The assessee's contention that all licences originate only from para 4.1.1 and thus annual requirement licences must attract the same exemptions was rejected. The Court held that Notification No.56/2003 expressly refers to licences issued in terms of paragraph 4.1.7A and that it is not appropriate to substitute or read into that notification the terms of Notification No.43/2002. Exemption notifications must be interpreted strictly and cannot be extended by judicial substitution of words. [Paras 5, 8, 11]

Licences under paragraph 4.1.7A are distinct for exemption purposes and are not to be treated as licences under paragraph 4.1.1 so as to attract the broader exemptions contained in Notification No.43/2002-Cus.

Exemption notification - Strict interpretation of exemption notifications - Whether the Office Memorandum/communication from the Deputy Director General of Foreign Trade could alter the scope of the Customs notification to permit exemption from anti-dumping duty for annual requirement licences - HELD THAT: - The Deputy Director General's communication opined that the Foreign Trade Policy does not differentiate on duty component and recommended amendment of Notification No.56/2003 to align it with policy. The Court noted that no amendment was made by the Ministry of Finance to Notification No.56/2003. In view of settled principle that exemption notifications are to be strictly construed and interpreted in favour of the Revenue, administrative observations or recommendations unimplemented by amendment cannot be read to expand the scope of an exemption notification. [Paras 9, 10, 11]

The Office Memorandum/communication does not alter the scope of Notification No.56/2003; absent amendment, it cannot be relied upon to claim exemption from anti-dumping duty.

Final Conclusion: The Tribunal's order was upheld: the assessee is not entitled to exemption from anti-dumping duty on imports under Advance Licence for Annual Requirement; the appeal is dismissed and the substantial questions of law are answered against the assessee.

Burden under Section 123 - proof of legal importation - confiscation of smuggled goods - penalty under Section 112 - foreign marked gold (FMG) - seizure outside customs area

Burden under Section 123 - proof of legal importation - foreign marked gold (FMG) - seizure outside customs area - Appellant has not discharged the burden cast by Section 123 to prove that the seized gold bar was not smuggled. - HELD THAT: - The Tribunal found that the persons from whose possession the gold was seized and other implicated persons alleged purchase on credit from M/s. Palanimurugan Jewellery and attempted to connect the seized bar to MMTC Ltd.'s import consignment. However, there was an undisputed discrepancy in the foreign markings on the seized bar vis-a -vis the markings on the imported lot claimed to be the source. The show cause notice and investigation material did not describe the seized markings in the SCN, but the original authority recorded the specific markings on the seized bar which differed from the MMTC import markings. In these circumstances the Tribunal held that the onus placed by Section 123 was not satisfactorily discharged by the appellant and that the statutory operation of Section 123 applies even where goods are seized outside the customs area. [Paras 5]

Burden under Section 123 not discharged; appellant failed to prove legal importation of the seized gold.

Confiscation of smuggled goods - foreign marked gold (FMG) - Confiscation of the seized gold under the Customs law is justified. - HELD THAT: - Because the appellant did not satisfactorily rebut the presumption under Section 123 and there was a material discrepancy in markings between the seized bar and the imported consignment relied upon, the Tribunal concluded that the impugned gold was liable for confiscation. The Tribunal distinguished the precedents relied upon by the appellant on the ground that in those decisions the onus under Section 123 had been discharged on the facts, which is not so in the present case. [Paras 5]

Confiscation under the Customs provisions sustained.

Penalty under Section 112 - proof of legal importation - Penalty imposed on the appellant under Section 112 is justified but is reduced in quantum in the interests of justice. - HELD THAT: - The Tribunal agreed with the authorities below that the appellant's involvement warranted imposition of penalty under Section 112. Taking into account the relative role of the appellant compared with other implicated persons, the Tribunal exercised its discretion to reduce the personal penalty originally imposed. No other part of the impugned order was interfered with. [Paras 6]

Penalty under Section 112 sustained but reduced from the amount imposed by the lower authority to a lesser sum.

Final Conclusion: Appeal partly allowed: confiscation of the seized gold upheld; penalty sustained but reduced by the Tribunal, with no other interference in the impugned order.

Contemporaneous imports as basis for valuation - expert opinion as admissible evidence - inadmissibility of internet printouts as contemporaneous import data - customs valuation - Rule 9 of the Customs Valuation (Determination of Price of imported goods) Rules, 2007 - confiscation and penalty predicated on enhanced valuation

Contemporaneous imports as basis for valuation - inadmissibility of internet printouts as contemporaneous import data - expert opinion as admissible evidence - Enhancement of declared customs value on the basis of internet data and NIDB printouts in absence of contemporaneous imports or expert evidence. - HELD THAT: - The Tribunal examined whether the Revenue could re-determine and enhance the declared value of imported calculators relying on internet-sourced prices and NIDB data when no contemporaneous imports or expert opinion were placed on record. Relying on the settled precedents cited, the Court held that mere computer/internet printouts do not constitute admissible proof of comparable imports and that the statutory and evidentiary regime recognises expert opinion and contemporaneous import data as the appropriate basis for valuation under the Rules. In the absence of any documentary evidence of contemporaneous similar imports or expert evidence justifying the higher value, the enhancement was unsustainable and contrary to the established legal position. [Paras 6, 7]

The enhancement of value based on internet/NIDB data without contemporaneous imports or expert evidence is set aside.

Confiscation and penalty predicated on enhanced valuation - customs valuation - Rule 9 of the Customs Valuation (Determination of Price of imported goods) Rules, 2007 - Validity of consequential measures (confiscation, redemption fine and penalty) imposed on the basis of the enhanced valuation. - HELD THAT: - The adjudicating authority had imposed confiscation with a redemption option and penalty founded on the re-determined higher valuation. Having held that the valuation enhancement was not supported by admissible evidence, the Tribunal concluded that the consequential measures predicated on that valuation could not stand. The impugned order of the lower authorities, which sustained enhanced valuation and thereby the ancillary confiscation and penalty (albeit partly reduced on appeal), was therefore set aside. [Paras 2, 7, 8]

Confiscation, redemption fine and penalty imposed as consequential reliefs to the unsustainable valuation are set aside along with the impugned order.

Final Conclusion: The appeal is allowed; the impugned order enhancing valuation and imposing confiscation/penalty is set aside for want of admissible contemporaneous import evidence or expert opinion, with consequential benefits, if any, to the appellant.

Maintainability of appeal - De novo adjudication - Assessment on MRP basis - Additional Customs Duty under Notification No. 49/2008 - CE (NT) - Application of Legal Metrology (packaged commodities) Rules - Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

Maintainability of appeal - De novo adjudication - First appellate authority erred in rejecting the appeal as not maintainable and the appeals are to be allowed by way of remand. - HELD THAT: - The Tribunal found that the appellant had imported gloves in bulk and that MRP marking is asserted to arise only after sterilisation and repacking for retail sale. The Hon'ble Madras High Court decision on identical facts was placed before the Tribunal and, on that basis, the Tribunal held that the Commissioner (Appeals) was not justified in declining to entertain the appeal. The Tribunal noted that the first appellate authority proceeded on the basis that the appellant had not questioned the assessment before the adjudicating authority, which the Tribunal found improper. In view of these findings the Tribunal directed that the matter be reopened and decided on merits by the adjudicating authority afresh, without being influenced by earlier orders, after giving the assessee adequate opportunity to ventilate its contentions. [Paras 5, 6, 8]

Appeals allowed by way of remand; first appellate rejection set aside and matter restored for fresh adjudication.

Assessment on MRP basis - Additional Customs Duty under Notification No. 49/2008 - CE (NT) - Application of Legal Metrology (packaged commodities) Rules - Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - Question whether additional customs duty assessed on MRP and the applicability of legal metrology requirements to the imported bulk gloves is to be re-adjudicated. - HELD THAT: - The Tribunal recorded that the undisputed factual position is that the imported gloves are brought in bulk for processing (sterilisation and repacking) and that MRP marking is contended to apply only after such repacking for retail sale. Rather than deciding the substantive controversy, the Tribunal directed that the adjudicating authority examine these contentions afresh and determine the applicability of MRP-based assessment, the relevance of Legal Metrology rules and the proper application of Rule 10 of the Customs Valuation Rules to the facts. All contentions were left open for de novo consideration, with opportunity to the assessee. [Paras 5, 7, 8]

Substantive issues concerning MRP-based assessment and applicability of Legal Metrology rules remanded for fresh, de novo adjudication by the adjudicating authority.

Final Conclusion: The appeals are allowed by setting aside the first appellate authority's refusal to entertain the appeal; the matters are remitted for de novo adjudication on merits by the adjudicating authority, which shall consider the appellant's contentions (including applicability of MRP-based assessment and Legal Metrology rules) after affording adequate opportunity, uninfluenced by earlier findings.

Default and non-payment of operational debt - Validity and service of demand notice under Section 8 - Absence of a notice of dispute - Admissibility of a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - Moratorium and its consequential prohibitions under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Appointment of Interim Resolution Professional

Default and non-payment of operational debt - Absence of a notice of dispute - Operational creditor established existence of unpaid operational debt and there was no notice of dispute from the corporate debtor. - HELD THAT: - The petition records supply of cement between 05.05.2012 and 17.09.2012 and invoices and correspondence showing part payments and an outstanding balance. The demand notice in Form-5 (Form-4 invoices attached) was served and received. The corporate debtor did not issue any notice of dispute before or after service of the statutory demand notice; its own correspondence admitted the outstanding liability and a xerox cheque remained unhonoured. The documentary material and affidavit evidence therefore demonstrate default in payment and absence of a bona fide dispute. [Paras 4, 5, 9, 11, 12]

There was a clear default by the corporate debtor in payment of the claimed operational debt and no dispute was shown to have existed.

Validity and service of demand notice under Section 8 - Admissibility of a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - The Section 9 application was complete and met statutory requirements for admission. - HELD THAT: - The Tribunal applied the standard admission criteria: completeness of application, non-payment of the operational debt, service of the invoice/notice on the corporate debtor and no notice of dispute. The petitioner produced the demand notice, invoices, bank certificate/statements showing non-receipt of payment and board authorisation to file the petition. The corporate debtor neither replied to the Companies Act notices nor to the demand notice under Section 8 and did not appear before the Tribunal. On the material before it the Tribunal concluded the Section 9 petition was complete and fit for admission. [Paras 7, 8, 9, 10, 12]

The petition under Section 9 is admitted as it satisfies the statutory conditions for initiation of CIRP.

Moratorium and its consequential prohibitions under Section 14 of the Insolvency and Bankruptcy Code, 2016 - A moratorium under Section 14 was declared with the consequential prohibitions specified in the order. - HELD THAT: - Upon admission of the Section 9 petition, the Tribunal declared the moratorium and set out the standard prohibitions: institution or continuation of suits or proceedings against the corporate debtor, transfer or encumbrance of assets, enforcement of security interests and recovery of property occupied by the corporate debtor. The order also clarified limited exceptions relating to supply of essential goods and any transactions notified by the Central Government and fixed the moratorium effective date and duration linked to completion of CIRP or further orders under the Code. [Paras 14]

Moratorium under Section 14 is imposed with the enumerated prohibitions and consequential directions.

Appointment of Interim Resolution Professional - An Interim Resolution Professional was appointed despite the operational creditor withdrawing its initially recommended nominee. - HELD THAT: - The operational creditor had earlier recommended an Interim Resolution Professional but that consent was later withdrawn and no replacement name was proposed. The Tribunal nevertheless appointed Mrs. Chetna Paresh Sutaria as Interim Resolution Professional to carry out functions under the Code and directed communication of the order to parties and the IRP. [Paras 13, 14, 15]

Mrs. Chetna Paresh Sutaria is appointed as Interim Resolution Professional and the Registry is directed to communicate the order forthwith.

Final Conclusion: The Tribunal admitted the Section 9 petition filed by the operational creditor, declaring that the corporate debtor had defaulted and had not raised any dispute, imposed a moratorium under Section 14 with consequential prohibitions and appointed an Interim Resolution Professional to commence the corporate insolvency resolution process.

Jurisdiction of Adjudicating Authority under the Insolvency and Bankruptcy Code to rule on legality of foreign judgments and decrees - recognition and execution of foreign judgments and decrees - operative scope of the terms Operational Creditor and Operational Debt under the I&B Code

Jurisdiction of Adjudicating Authority under the Insolvency and Bankruptcy Code to rule on legality of foreign judgments and decrees - recognition and execution of foreign judgments and decrees - Adjudicating Authority under the I&B Code has no jurisdiction to decide the legality or propriety of a foreign judgment or decree in proceedings under Sections 7, 9 or 10. - HELD THAT: - Relying on the principle that insolvency resolution under the I&B Code is not a forum for adjudication of the validity of foreign decrees, the Appellate Tribunal held that findings by the Adjudicating Authority on the legality and propriety of the US judgment and decree were without jurisdiction and therefore a nullity. The Tribunal observed that the Adjudicating Authority is not a court or tribunal competent to determine whether a foreign decree was properly pronounced or is enforceable, and accordingly its detailed findings on the foreign decree could not stand. The Tribunal accordingly answered this question in favour of the Appellants by holding that the Adjudicating Authority has no jurisdiction to decide the legality and propriety of a foreign judgment and decree in an application under Sections 7, 9 or 10 of the I&B Code. [Paras 7, 14]

Findings of the Adjudicating Authority on the legality and propriety of the foreign judgment and decree are without jurisdiction and are null; the Adjudicating Authority cannot decide such matters in I&B Code proceedings.

Operative scope of the terms Operational Creditor and Operational Debt under the I&B Code - The Appellants do not qualify as an Operational Creditor because the debt claimed does not constitute an Operational Debt arising from supply of goods or services. - HELD THAT: - On the material before it the Tribunal concluded that the claims asserted by the Appellants in the foreign proceedings arose from contractual and money claims that did not relate to supply of goods or services. The documents relied upon (undated drafts, an MOU and a license agreement) did not establish an operational relationship giving rise to an operational debt under the I&B Code. The Tribunal observed that the pleadings and decree showed the money claim did not pertain to supply of goods or services, and therefore the application under Section 9 was not maintainable as the Appellants were not operational creditors. [Paras 8, 13, 14]

The Appellants are not Operational Creditors; the claimed debt is not an Operational Debt, and the Section 9 application is not maintainable.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority's findings on the foreign judgment are a nullity for want of jurisdiction, and in any event the Appellants do not qualify as operational creditors; consequently no relief can be granted to the Appellants.

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - existence of debt and default - dispute in relation to debt - evidence of default including bankers' books and audited financial statements - limitation and effect of post limitation acknowledgement - moratorium

Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - existence of debt and default - dispute in relation to debt - The Company Petition under Section 7 of the IBC was to be admitted on the basis that a debt existed, a default had occurred and no admissible dispute had been raised by the Corporate Debtor. - HELD THAT: - The Tribunal found that the petition established a debt as defined under the Code and demonstrated default within the meaning of the Code. The Corporate Debtor did not produce evidence constituting a statutory 'dispute' sufficient to defeat admission. The Bench applied the standard that the adjudicating authority need only be satisfied from the records or evidence produced by the financial creditor that a default has occurred; a mere contestation without supporting material does not preclude admission. The petition was also found to be complete and there were no disciplinary proceedings against the proposed resolution professional, satisfying the other conditions for admission under Section 7. [Paras 18, 19, 21]

Petition under Section 7 IBC admitted; corporate insolvency resolution process ordered to commence and moratorium declared.

Limitation and effect of post limitation acknowledgement - acknowledgment of debt and limitation - The plea of limitation raised by the Corporate Debtor did not preclude admission of the petition. - HELD THAT: - The Corporate Debtor argued that the date of default was in 2012 and that acknowledgments relied on (including the audited financial statements for 2016 17) were after the period of limitation and therefore could not revive time barred claims unless coupled with a promise to pay. The Tribunal observed that the debts for 2012 were reflected in the 2016 17 balance sheets and that it was logical to infer continuity in intervening records; on that basis the limitation defence did not survive to defeat the petition for admission. The Bench did not accept that the alleged delay or the timing of the acknowledgments was a bar to admission in the facts before it. [Paras 10, 11, 17]

Limitation defence rejected for purposes of admission; petition proceeded to be admitted.

Evidence of default including bankers' books and audited financial statements - bank statements and documentary sufficiency - The documentary evidence placed by the Financial Creditor (including banker's book certificate and audited financial statements) was sufficient for the adjudicating authority to be satisfied that default had occurred. - HELD THAT: - The Financial Creditor relied on assignment deed, banker's book certificate and the Corporate Debtor's audited financial statements (including auditor's comments and lender wise defaults) to demonstrate the debt and default. Objections by the Corporate Debtor about discrepancies in figures and the form of bank statements were considered but the Tribunal accepted authorities indicating that mismatches in figures or detailed quantification are matters for the Interim Resolution Professional/Resolution Professional and do not ipso facto invalidate a Section 7 petition. On the material before it, the Bench found sufficient evidence of debt and default to admit the petition. [Paras 4, 6, 13, 14, 15]

Documentary evidence held sufficient to establish default for the purpose of admitting the petition; detailed quantification left to the IRP/Resolution Professional.

Final Conclusion: The Tribunal admitted the Section 7 petition, declared a moratorium, directed public announcement and appointed an Interim Resolution Professional, holding that the financial creditor had proved existence of debt and default, the limitation and discrepancy objections did not preclude admission, and the documentary evidence placed on record was sufficient for admission.

Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 - financial debt - default - demand notice requirement under Section 7 - effect of pendency of SARFAESI/DRT on CIRP - limitation defence in IBC proceedings where security and part-payment exist - moratorium - appointment of Interim Resolution Professional

Financial debt - default - initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 - The petition under Section 7 was maintainable and admitted as the Petitioner proved existence of financial debt and continuing default by the Corporate Debtor. - HELD THAT: - The Adjudicating Authority examined the sanction letters, loan agreements, security documents, balance and security confirmation, statement of account and SARFAESI notice and held that the loans were disbursed as term loans carrying interest and thus constituted a financial debt. The Authority found that payments ceased from January 2015 and that default is apparent on the face of the documents; discrepancies in the precise date of default or non-disclosure of a later sanction letter did not negate the existence of debt or continuing default. Objections as to interest calculation or detailed computation were held to be matters for the Resolution Professional on admission of claims and did not preclude admission of the Section 7 petition. [Paras 5, 6, 10, 11]

Petition under Section 7 admitted for commencement of CIRP as debt and default were established.

Demand notice requirement under Section 7 - No prior demand notice is required before filing a petition under Section 7 and natural justice was not violated. - HELD THAT: - The Authority observed that, unlike proceedings initiated by operational creditors, Section 7 does not prescribe issuance of a demand notice before filing. Further, the Corporate Debtor had opportunity to contest the claim by filing reply and written submissions which the Bench considered on merits, so principles of audi alteram partem were satisfied. [Paras 5]

Requirement of a pre-filing demand notice was rejected and natural justice objections were dismissed.

Effect of pendency of SARFAESI/DRT on CIRP - Pendency of SARFAESI or DRT proceedings does not bar initiation of CIRP under the Code. - HELD THAT: - Relying on the statutory mandate of the Code and precedent of the NCLAT, the Authority held that proceedings under SARFAESI Act or the DRT do not preclude a financial creditor from filing a Section 7 petition and that the IBC operates notwithstanding anything inconsistent in other laws. Therefore the existence of parallel recovery remedies was not a ground to reject the petition. [Paras 5]

Pendency of SARFAESI/DRT proceedings does not impede admission of the Section 7 petition.

Limitation defence in IBC proceedings where security and part-payment exist - The limitation defence was rejected on the facts because of registration of mortgage and part-payment and extension acts. - HELD THAT: - The Corporate Debtor's contention that the claim was time-barred was considered in the light of the registered mortgage dated 29.02.2012, a payment of Rs. 56,00,000/- on 19.12.2014 and execution/registration of extension of mortgage on 20.12.2014. On these facts the Authority held that limitation did not bar the claim; reliance on the Supreme Court pronouncement that Limitation Act is applicable to IBC proceedings was held to be not determinative in the circumstances before the Bench. [Paras 5]

Limitation defence rejected and did not preclude admission of the petition on the material placed before the Authority.

Moratorium - appointment of Interim Resolution Professional - On admission the moratorium under the Code was declared and an Interim Resolution Professional was appointed. - HELD THAT: - Having admitted the petition under Section 7 and found the application complete, the Authority ordered the moratorium operative from the specified date until completion of CIRP or approval of a resolution plan or liquidation. The Bench also appointed the named Interim Resolution Professional and directed public announcement and communication of the order to the parties and the IRP. [Paras 6]

Moratorium declared and Ms. Dipti Mehta appointed as Interim Resolution Professional.

Final Conclusion: The Section 7 petition filed by the financial creditor was admitted on the basis that a financial debt and continuing default were established; procedural and substantive objections including demand notice, pendency of SARFAESI/DRT proceedings and limitation were rejected on the material before the Authority; moratorium was imposed and an Interim Resolution Professional was appointed.

Service tax liability for T.V. and Radio Programme Production Service - programme producer "on behalf of" another person - principal-to-principal arrangement - revenue sharing / joint venture - ownership of copyrights and satellite rights - requirement of consideration for levy of service tax - burden of proof and evidentiary basis to sustain a demand

Service tax liability for T.V. and Radio Programme Production Service - programme producer "on behalf of" another person - principal-to-principal arrangement - revenue sharing / joint venture - ownership of copyrights and satellite rights - requirement of consideration for levy of service tax - burden of proof and evidentiary basis to sustain a demand - Whether the demand of service tax, interest and penalties on the respondent for production and telecast of television programmes by M/s UEL could be sustained. - HELD THAT: - The Tribunal examined the Memorandum of Understanding between the parties and found that the contractual scheme was on a principal-to-principal basis. The MOU expressly preserved the respondent's copyright and satellite rights in the programmes and permitted the respondent to commercially exploit and offer the software to other channels; conversely, UEL was free to source programmes from others. The arrangement provided for sharing of advertisement revenue between the parties rather than a straightforward payment for services. Section 65(86b) treats a "programme producer" as one who produces a programme on behalf of another; in the present contract there was no evidence that the respondent produced programmes on behalf of UEL. The Tribunal concurred with the Commissioner that the facts disclosed a joint venture/revenue sharing arrangement and self service commercial exploitation rather than a taxable service rendered for consideration in the ordinary sense. Further, the Tribunal held that mere departmental suspicion, unsubstantiated by evidence in the show cause notice or the record, could not justify confirming a demand; the Department could not sustain the levy without evidentiary support to rebut the contractual rights and revenue sharing character of the transaction. On these determinative findings the Commissioner correctly dropped the proceedings and the demand could not be upheld. [Paras 7, 8]

The appeal by Revenue is rejected and the demand for service tax, interest and penalties is not sustained.

Final Conclusion: On the admitted terms of the MOU the parties stood on a principal to principal revenue sharing arrangement with the respondent retaining copyrights and commercial exploitation rights; the Tribunal upheld the Commissioner's order dropping the proceedings and rejected the Revenue's appeal.

Availability of cenvat credit on capital goods - Input Service Distributor (ISD) distribution of credit - procedural irregularity versus substantive entitlement to credit - limitation for recovery of service tax demands - penalty under Section 78 for alleged suppression

Availability of cenvat credit on capital goods - Input Service Distributor (ISD) distribution of credit - procedural irregularity versus substantive entitlement to credit - Legitimacy of cenvat credit availed by the assessee on capital goods imported by the head office and distributed to the assessee through Material Receipt Orders (M.R.O.)/ISD mechanism. - HELD THAT: - The Tribunal found that the impugned equipments were indisputably imported by the head office and had suffered the requisite duties; the goods were in fact transferred to and used by the assessee in providing output services. Although the strict wording of the law then in force limited ISD distribution to credit attributable to input services and Rule 7(a) extending explicit coverage to inputs and capital goods was introduced only w.e.f. 1.4.2008, denial of credit solely on account of procedural non-compliance (use of M.R.O. and distribution by head office as ISD rather than issuance of excise invoices or registration as an importer-dealer) was held impermissible. The Tribunal applied the precedents relied upon by the assessee and treated the procedural inadequacy as not fatal where substantive entitlement and revenue neutrality were established, and there was no allegation that CVD had not been paid on importation. [Paras 5]

Cenvat credit in respect of capital goods imported by the head office and distributed to the assessee by M.R.O./ISD cannot be denied solely for procedural defects; demand in respect of such credit is unsustainable on merits.

Limitation for recovery of service tax demands - Applicability of limitation to the department's demand and period of recoverable demand. - HELD THAT: - The Tribunal noted the Commissioner (Appeals) finding that the demand prior to 1.4.2007 was time-barred. Having held that there was no infirmity in the LAA's conclusion on limitation, the Tribunal affirmed that only demands from 1.4.2007 onwards survive and that demands earlier than that date are hit by limitation. [Paras 5, 6]

Demand up to 1.4.2007 is time-barred; only demand from 1.4.2007 survives.

Penalty under Section 78 for alleged suppression - revenue neutrality and mens rea in imposing penalty - Validity of imposition of penalty under Section 78 for alleged suppression of facts. - HELD THAT: - The Tribunal accepted the view of the lower appellate authority that alleging suppression against an appellant who files returns and pays service tax regularly is weak. Considering that the availment of credit involved procedural irregularity, bona fide belief, and revenue neutrality, the Tribunal found no basis to interfere with the Commissioner (Appeals) order which had set aside the penalty under Section 78. [Paras 5]

Penalty under Section 78 set aside; no interference with the Commissioner (Appeals) order quashing penalty.

Final Conclusion: The department's appeal is dismissed: cenvat credit on capital goods imported by the head office and distributed to the assessee via M.R.O./ISD cannot be denied merely for procedural shortcomings and demands prior to 1.4.2007 are time-barred; the penalty under Section 78 is not sustained.

Gross amount charged - valuation of taxable services - goods/materials supplied free of cost by the service recipient - construction of commercial or industrial construction service - notification prescribing 33% valuation - explanation to Notification No.1/2006-ST

Gross amount charged - goods/materials supplied free of cost by the service recipient - notification prescribing 33% valuation - explanation to Notification No.1/2006-ST - valuation of taxable services - Value of goods/materials supplied free of cost by the service recipient is not includible in the gross amount charged for determining service tax on construction services. - HELD THAT: - Following the reasoning in the Supreme Court decision reproduced in the order, the term gross amount charged is causally linked to the amount actually charged by the service provider to the service recipient; the inclusive explanation does not permit addition of the value of goods supplied free by the recipient over and above the contract value. The notifications prescribing a valuation at 33% operate on the 'gross amount charged' from the service recipient and therefore cannot be construed to include values of goods not part of the contract consideration. Absent any material to show the notifications intended to treat recipient supplied goods as part of 'gross amount charged', such inclusion would be contrary to the language and purpose of the notifications and the charging provisions. Applying that ratio, the impugned demands and consequential penalties based on adding the value of recipient supplied materials are unsustainable.

Impugned orders set aside; appeals allowed with consequential benefits.

Final Conclusion: Appeals allowed: demands and penalties based on inclusion of value of materials supplied free by the service recipient in the gross amount charged for construction services set aside in accordance with the Supreme Court ratio in Bhayana Builders.

Composite works contract - construction of complex service - works contract service - classification of service for service tax - taxability pre and post 1.6.2007

Composite works contract - construction of complex service - works contract service - taxability pre and post 1.6.2007 - Whether the construction activities carried out by the appellant are exigible to service tax as "Construction of Complex Service"/"Commercial or Industrial Construction Service" or fall within "Works Contract Service" for the period 16.06.2005 to 31.03.2009. - HELD THAT: - The Tribunal, following the decision of the Hon'ble Supreme Court in Larsen & Toubro Ltd. and this Bench's earlier order in Real Value Promoters Pvt. Ltd., held that where contracts are indivisible composite works contracts the tax characterisation cannot be changed to "Construction of Complex Service" or "Commercial or Industrial Construction Service". For the period prior to 1.6.2007 composite works contracts cannot be brought within the fold of CCS/CICS. For the period after 1.6.2007, liability under CCS/CICS continues only if the activities are in the nature of services simpliciter; where construction involves an indivisible composite contract the service component is exigible under "Works Contract Service". Applying these principles to the facts, the demand raised under Construction of Complex Service/CICS in the impugned order cannot be sustained for the periods in dispute. [Paras 5]

Demand confirmed under Construction of Complex Service/CICS cannot be sustained for the disputed period; impugned order set aside.

Final Conclusion: Appeal allowed; impugned demand and order set aside in view of the applicable precedent on composite works contracts and classification; consequential reliefs granted as per law.

Taxability of auction proceeds as consideration for Storage and Warehousing Service - Requirement of service provider and service recipient for levy of service tax - Distinction between sale of goods and provision of service - Priority distribution of auction proceeds under Section 150 of the Customs Act - Board Circular F. No. B11/1/2002-TRU dated 01.08.2002 on abandoned cargo

Taxability of auction proceeds as consideration for Storage and Warehousing Service - Requirement of service provider and service recipient for levy of service tax - Distinction between sale of goods and provision of service - Priority distribution of auction proceeds under Section 150 of the Customs Act - Board Circular F. No. B11/1/2002-TRU dated 01.08.2002 on abandoned cargo - Auction proceeds realised from sale of abandoned imported goods are not liable to service tax as consideration for Storage and Warehousing Service. - HELD THAT: - The Tribunal held that the demand for service tax on the so called "Auction Income" could not be sustained because the transaction of auction and transfer of title to the successful bidder is a sale of goods and, on the material facts, there was no identifiable service recipient to whom a taxable service was provided. The adjudicating authority had not alleged unjust enrichment in the show cause notice; the proper focus, if any, would have been upon any service element of storage and warehousing rather than the residual auction proceeds. The reasoning follows the view that Sections 48 and 150 of the Customs Act envisage a statutory sale and prescribe the order of distribution of auction proceeds, and that once the title passes to the bidder the proceeds assume the character of sale proceeds (subject to sales tax/VAT) rather than consideration for a taxable service. The Tribunal also relied on the Board's instruction in F. No. B11/1/2002 TRU dated 01.08.2002 treating abandoned cargo auctions as not giving rise to cargo handling (or warehousing) services for levy of service tax, and on consistent decisions of the Mumbai Bench applying these principles. Applying those authorities, the appellate order deleting the demand was upheld.

Revenue's appeal dismissed; demand for service tax on auction proceeds held unsustainable.

Final Conclusion: The Tribunal upheld the first appellate authority's deletion of the service tax demand: auction proceeds from sale of abandoned imported goods are to be treated as sale proceeds governed by the Customs Act distribution rules and not as consideration for taxable storage and warehousing services, hence the Revenue's appeal is dismissed.

Service tax on ocean freight - Business Auxiliary Service - steamer agent service - notional surplus

Service tax on ocean freight - Business Auxiliary Service - steamer agent service - notional surplus - Whether amounts collected as ocean freight by the steamer agent are exigible to service tax under Business Auxiliary Service. - HELD THAT: - The appellants, registered as steamer agents, collected ocean freight from customers and remitted the same to liners while discharging service tax on commission received under steamer agent services. The Department treated the collected ocean freight as taxable under Business Auxiliary Service and confirmed demand, interest and penalty. The Tribunal considered earlier decisions including Bax Global India Ltd. and Greenwich Meridien Logistics (I) Pvt. Ltd., which hold that notional surplus charged for ocean freight is not subject to service tax. Applying those precedents, the Tribunal found that ocean freight collected and passed on to liners does not form a taxable service under Business Auxiliary Service and therefore the demand could not be sustained.

The impugned demand, interest and penalty insofar as they relate to ocean freight are set aside and the appeal is allowed with consequential relief, if any.

Final Conclusion: The Tribunal allowed the appeal, holding that ocean freight collected by the steamer agent is not exigible to service tax under Business Auxiliary Service; the impugned order is set aside with consequential relief.

Composite contracts - construction of residential complex services - abatement under Notification 1/2006-ST - Cenvat credit - management, maintenance and repair services - service tax on amounts collected for maintenance services

Composite contracts - construction of residential complex services - abatement under Notification 1/2006-ST - Cenvat credit - Demand of service tax under Construction of Residential Complex Services set aside where contracts are composite - HELD THAT: - The adjudication taxed the appellants under Construction of Residential Complex Services notwithstanding that the contracts involved both supply of goods and rendering of services and that the appellants had availed abatement under Notification 1/2006-ST and Cenvat credit on inputs/input services. The Tribunal applied its reasoning in Real Value Promoters Pvt. Ltd. and Others (supra), holding that where the contracts are composite in nature the levy under Construction of Residential Complex Services is not sustainable. On that basis the demand under Construction of Residential Complex Services for the period in dispute was set aside.

Demand under Construction of Residential Complex Services is unsustainable and is set aside.

Management, maintenance and repair services - service tax on amounts collected for maintenance services - Demand of service tax on amounts collected for Management, Maintenance and Repair Services upheld - HELD THAT: - The appellants had collected sums from purchasers for providing maintenance and repair services of flats/projects. The Tribunal found that levy of service tax on such collections under the category of Management, Maintenance and Repair Services was legal and proper and did not warrant interference. Accordingly, the demand, along with interest and penalties in respect of these services, was upheld.

Demand, interest and penalties relating to Management, Maintenance and Repair Services are maintained.

Final Conclusion: The impugned order is modified by setting aside the demand under Construction of Residential Complex Services for the periods in dispute; the demand, interest and penalties relating to Management, Maintenance and Repair Services are upheld. Appeal No.123/2012 is partly allowed; Appeals No.124 and 125/2012 (concerned only with Construction of Residential Complex Services) are allowed.

Business Support Service - co-loader - co-loader not chargeable to service tax as per Board Circular dated 01.11.1996 - precedent of United Business Xpress India P. Ltd. - followed decision of this Bench in M/s. Concord Express Logistics India Pvt. Ltd. - remand for computation of demand post 22.08.2007 - penalty set aside for absence of suppression of facts

Business Support Service - co-loader - co-loader not chargeable to service tax as per Board Circular dated 01.11.1996 - precedent of United Business Xpress India P. Ltd. - followed decision of this Bench in M/s. Concord Express Logistics India Pvt. Ltd. - Demand of service tax in respect of services rendered by the assessee as a co-loader for the period up to 22.08.2007 was not sustainable. - HELD THAT: - The Tribunal applied the Board Circular dated 01.11.1996 which clarifies that co-loaders render services to courier agencies and not directly to the customer, and therefore charges of co-loaders are not separately chargeable to service tax. The Bench followed its earlier decision in M/s. Concord Express Logistics India Pvt. Ltd., which in turn applied the reasoning in United Business Xpress India P. Ltd., holding that the clarification in the 1996 Circular governed the disputed period prior to the Circular dated 23.08.2007. There being no change in facts, the demand raised in respect of co-loader services for the period up to 22.08.2007 was set aside. [Paras 7]

Demand in respect of co-loader services for the period up to 22.08.2007 is set aside.

Remand for computation of demand post 22.08.2007 - penalty set aside for absence of suppression of facts - Liability and computation of service tax for the period after 22.08.2007 were upheld on concession and remanded for quantification; penalty imposed on the assessee was set aside for lack of suppression. - HELD THAT: - The assessee conceded the demand for the period after 22.08.2007 and the Tribunal therefore upheld liability for that period. The case was remanded to the adjudicating authority to compute the demand for the post 22.08.2007 period and allow the assessee an opportunity to substantiate any claim of prior payment. Separately, because there was no finding of suppression or evasion by the assessee, the Tribunal quashed the penalty levied on that count. [Paras 8]

Demand for the period post 22.08.2007 remanded for computation; penalty set aside.

Final Conclusion: The appeal is partly allowed: demands relating to co-loader services up to 22.08.2007 are set aside following the 1996 Board Circular and applicable precedents; the admitted demand for the period after 22.08.2007 is remitted to the adjudicating authority for computation and verification; the penalty is quashed for want of suppression.

Valuation of taxable services - reimbursable expenses - gross amount charged - rule cannot exceed statute - prospectivity of statutory amendment

Valuation of taxable services - reimbursable expenses - gross amount charged - Whether reimbursements received by the Authorized Service Station from manufacturers for expenditure/costs incurred during warranty service form part of the taxable value of the service rendered. - HELD THAT: - The Tribunal applied the ratio of the Hon'ble Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., holding that valuation for service tax is confined to the consideration paid as quid pro quo for the services actually rendered. Amounts calculated or charged otherwise than for providing the taxable service do not form part of that valuation. Consequently, reimbursable expenses incurred and received from manufacturers for warranty services were not required to be included in the value of the taxable service prior to the statutory amendment that expressly included such expenditures.

The exclusion of reimbursed expenses from the taxable value is upheld and the demand on such reimbursements is not sustainable.

Rule cannot exceed statute - prospectivity of statutory amendment - Whether subordinate rules or departmental practice could lawfully include reimbursable expenses within taxable value prior to the amendment to the valuation provision, and the temporal effect of the legislative amendment that later included such expenses. - HELD THAT: - The Tribunal endorsed the Supreme Court's conclusion that subordinate legislation cannot extend valuation beyond what the statute permits; rules purporting to include reimbursable expenses went beyond the mandate of Section 67 (as it stood) and therefore could not be sustained. Further, the Legislature subsequently amended the statutory valuation provision to include reimbursable expenditure, which is a substantive change and must be given prospective operation; past transactions governed by the earlier statute cannot be retrospectively taxed in the absence of clear legislative intent.

Rules or practices that sought to tax reimbursable expenses prior to the statutory amendment are invalid to that extent, and the amendment operates prospectively.

Final Conclusion: The appeals are allowed following the Supreme Court precedent; the demands insofar as they relate to reimbursement of expenses for warranty services are set aside and consequential relief, if any, shall follow in accordance with law.

Franchise services - royalty - service tax liability on cross-border payments - onus of proof - remand for verification - penalty under Section 78 - double charging of service tax

Service tax liability on cross-border payments - royalty - double charging of service tax - onus of proof - remand for verification - Whether the amounts paid by the appellants to Crest Com International Ltd., U.S.A. had already suffered service tax in India and therefore required no further demand - HELD THAT: - The appellants consistently contended that payments remitted to the foreign franchisor were made only after applicable service tax had been discharged in India and produced a detailed working in reply to the show cause notice. The lower authorities rejected this contention on the ground that the appellant had not placed on record documentary proof that the relevant payments had earlier suffered service tax and had been paid to the department. The Tribunal found that the original authority had not critically examined the appellant's averments and that the appellate authority dismissed the claim by placing the onus on the appellant without adequate verification. In the interests of justice the Tribunal held that the question requires fresh verification by the original authority, giving the appellants an opportunity to produce additional evidence and for the authority to examine whether the payouts to Crest Com International Ltd., U.S.A. had indeed earlier suffered service tax. [Paras 4]

Remanded to the original authority for verification on whether the payments to Crest Com International Ltd., U.S.A. had earlier suffered service tax; appellants to be given opportunity to produce evidence.

Penalty under Section 78 - Validity of the penalty imposed under Section 78 - HELD THAT: - Having considered the genesis of the dispute and the factual matrix, the Tribunal found the imposition of penalty under Section 78 to be excessive. In exercise of its appellate powers the Tribunal concluded that the penalty under Section 78 should be set aside. [Paras 4]

Penalty imposed under Section 78 is set aside.

Remand for verification - Application (MA) for change of cause title - HELD THAT: - The miscellaneous application filed by Revenue for change of cause title was considered and allowed by the Tribunal in the operative part of the order. [Paras 4]

Miscellaneous application for change of cause title allowed.

Final Conclusion: The appeal is partly allowed: the demand question is remanded to the original authority for verification whether the payments to the foreign franchisor had earlier suffered service tax (with an opportunity to the appellants to produce evidence); the penalty under Section 78 is set aside; the Revenue's MA for change of cause title is allowed.

Club or Association Service - doctrine of mutuality - service provided to own members not taxable - taxability of amounts retained for facilitating sale of carbon credits - Business Auxiliary Service

Club or Association Service - doctrine of mutuality - service provided to own members not taxable - Whether membership fees, admission fees, establishment expenses and membership renewal fees collected by the appellant from its member mills are liable to service tax as 'Club or Association Service'. - HELD THAT: - The Tribunal applied the doctrine of mutuality and followed binding precedents of the High Courts of Jharkhand and Gujarat and the Division Bench of CESTAT Chennai which hold that services rendered by an association to its own members do not constitute a taxable service under the Finance Act, 1994. On the facts the appellants are an organisation of member textile/spinning mills and the services at issue were rendered to those members; therefore the foundational element of two distinct legal entities rendering taxable services to one another is absent. Consequently the demand of service tax in respect of membership fee, admission fee, establishment expenses and membership renewal fee cannot be sustained. [Paras 4]

Demand of service tax on membership-related receipts set aside.

Taxability of amounts retained for facilitating sale of carbon credits - Business Auxiliary Service - service provided to own members not taxable - Whether amounts retained by the appellant as consideration (commission/'success fee') in respect of facilitation of sale of carbon credits are liable to service tax under 'Business Auxiliary Service' or any other category. - HELD THAT: - The Tribunal held that the amounts retained by the appellant arose from activities carried out for its own members in relation to carbon credits and are therefore not taxable as services to third parties. Applying the same principle of mutuality and the ratio of the cited High Court and CESTAT authorities, the Tribunal found that the activity could not be treated as a taxable 'Business Auxiliary Service' vis-a -vis the appellant's own members. Accordingly, the demand of service tax confirmed on amounts retained in connection with earning carbon credits was unsustainable. [Paras 4]

Demand of service tax on amounts retained for carbon-credit facilitation set aside.

Final Conclusion: The impugned order confirming demands and penalties is set aside; the appeal is allowed and the demands of service tax in respect of membership-related receipts and amounts retained in connection with carbon-credit transactions for the period in dispute are not sustainable, with consequential relief as per law.

Export of services - co venture/lead venture (not subcontractor) - receipt of consideration in convertible foreign exchange - Cenvat credit and refund under Rule 5 of Cenvat Credit Rules, 2004 - penalties under Section 76 and 77 of the Finance Act, 1994 - interest on duty when payment effected through Cenvat account

Export of services - co venture/lead venture (not subcontractor) - receipt of consideration in convertible foreign exchange - penalties under Section 76 and 77 of the Finance Act, 1994 - Activities carried out by the appellant constitute export of services as co venture and are not taxable as Scientific or Technical Consultancy Services inter se; consequent demand and penalties are unsustainable. - HELD THAT: - The Tribunal accepted the appellants' characterisation that they acted as co ventures with Jubilant Biosys Ltd. (JBL) under the research agreements, with JBL functioning as lead venture and representative for foreign clients. The agreements expressly treated the parties as independent contractors vis a vis the foreign client and not as subcontractors of one another. Documentary evidence, including the chartered accountants' certificate, established that the foreign client paid in convertible foreign exchange into JBL's EEFC account and that the appellant thereafter received its share in convertible foreign currency. Applying the conditions for export of services, namely rendering of service from India and receipt of consideration in convertible foreign exchange by the foreign client, the Tribunal held that the services were exported and not taxable as services rendered to JBL. In consequence, demands and penalties confirmed under the original orders were set aside and the appellant entitled to consequential relief. [Paras 5]

Impugned demands and penalties set aside as the services were held to be export of services by co ventures and not Scientific or Technical Consultancy Services rendered to JBL.

Cenvat credit and refund under Rule 5 of Cenvat Credit Rules, 2004 - interest on duty when payment effected through Cenvat account - No interest is payable where duty liability is discharged by utilizing Cenvat credit and sufficient balance was available in the Cenvat account when the liability crystallized. - HELD THAT: - Relying on precedent cited in the reproduced earlier order, the Tribunal applied the settled principle that where admissible Cenvat credit was available in the account and the duty liability could have been discharged from that account, interest is payable only on the duty finally determined and not on the higher demand raised in the show cause notice. Since nothing was shown to negate availability of sufficient Cenvat credit in the relevant period, the appellant could not be saddled with interest on amounts that were properly payable through Cenvat credit. The Tribunal therefore held that interest was not payable in respect of duty required to be debited to the Cenvat account. [Paras 5]

Interest not payable where duty was to be discharged from available Cenvat credit; appeal allowed on this ground as well.

Final Conclusion: Both appeals are allowed: the impugned orders confirming service tax demands and penalties are set aside, the appellant held entitled to export of services treatment and associated reliefs for the stated periods, and no interest is payable where duty could be discharged from available Cenvat credit; consequential relief to follow as per law.

Definition of "service" excluding provision of service by an employee to the employer - employer-employee relationship - whole time director as employee - reverse charge liability for services rendered by directors

Definition of "service" excluding provision of service by an employee to the employer - whole time director as employee - reverse charge liability for services rendered by directors - Whether remuneration paid to the whole time directors by the appellant during July 2012 to March 2015 is salary (employment income) and thus not a taxable "service" subject to reverse charge under the Notifications invoked by Revenue. - HELD THAT: - The Tribunal identified the decisive legal test in the negative list regime - Section 65B(44) which excludes provision of service by an employee to the employer from the definition of "service" - and applied it to the material on record. The appellant produced statutory and contemporaneous documentary evidence showing the four directors were whole time/executive directors and treated as employees: Board resolutions of appointment, Form 32 filings, Form 16s with TDS under Section 192, EPF returns and employer contributions, and inclusion of the directors in employee statements. The company's finance officer's recorded statement confirmed that the directors were appointed to manage day to day affairs and were paid remuneration as salary with statutory deductions; Revenue produced no contrary evidence to show the directors were not engaged in day to day management or that the payments were other than salary/fees for directorship. Applying the established tests for master servant relationship (as explained in the cited precedents), the Tribunal concluded that the substance of the relationship was that of employer and employee and that the amounts paid were salary. As salary paid to employees, those payments fall within the exclusion in Section 65B(44)(b) and therefore do not constitute a "service" liable to service tax under the reverse charge Notifications relied upon by Revenue. The Tribunal reached this conclusion on the basis of documentary filings, statutory compliance treated as employment by other authorities (income tax assessment), and the absence of rebuttal evidence from Revenue. [Paras 10, 11, 15, 16, 17]

The remuneration paid to the specified whole time directors for the period July 2012 to March 2015 is salary paid to employees and not a taxable service under Section 65B(44); the demand confirmed by the Commissioner is set aside.

Final Conclusion: The appeal is allowed; the impugned Order in Original confirming service tax demand on remuneration paid to the specified whole time directors (July 2012 to March 2015) is set aside, the Tribunal holding that those payments were salary to employees and not taxable services under the negative list regime.

Cenvat credit on input services - Input services used for construction of assets rented out - Renting of immovable property service - Reverse charge mechanism for import of services - Penalty relief where demand on merits is set aside

Cenvat credit on input services - Input services used for construction of assets rented out - Assessee entitled to avail cenvat credit of service tax paid on input services used in construction and related activities where the constructed immovable property was used to provide taxable renting services or otherwise formed part of the assessee's taxable service activity. - HELD THAT: - The Tribunal found that the ratio of earlier decisions relied upon by the appellant consistently supports the proposition that input services consumed in relation to construction of immovable property which is thereafter used for providing taxable output service (including renting/sub-leasing) qualify as eligible input services for cenvat credit. The authority applied the view in the cited precedents, including decisions which recognize that goods and services used in relation to providing a taxable service are eligible for credit, and saw no reason to depart from that ratio. On that basis the adjudicating authority's disallowance of the impugned credits was set aside.

Impugned demands relating to alleged ineligible cenvat credits are set aside and the appeal is allowed on this ground.

Reverse charge mechanism for import of services - Cenvat credit on input services - Credits availed in respect of services imported under the reverse charge mechanism were considered within the same entitlement to cenvat credit when such services were used for construction/design etc. connected to the assessee's taxable activity. - HELD THAT: - It was noted that the appellants had paid service tax under reverse charge on services received from abroad and had availed cenvat credit thereon. Applying the same legal principle that input services used in providing taxable output service are eligible for credit, the Tribunal found these credits to be covered by the favourable ratio and removed the corresponding demands insofar as they related to such imported services.

Credits relating to services paid under reverse charge and availed as cenvat are held to be admissible and related demands are set aside.

Short payment of service tax - Penalty relief where demand on merits is set aside - The admitted short payment of service tax (arrived at by deducting property tax from rent) for the period April 2008 to September 2009 is not pressed by the appellant and remains conceded; penalties imposed in respect of the disputed credits are set aside. - HELD THAT: - The appellant expressly did not press the disputed demand of Rs.15,365 (short payment) confirmed in the adjudication. The Tribunal accordingly left that tax demand (together with applicable interest) intact as conceded by the appellant. However, because the substantive demands relating to cenvat credit were set aside, the penalties imposed in the impugned order were also set aside by the Tribunal.

The conceded short-payment demand is left as payable (with interest as applicable); penalties imposed in the impugned order are set aside.

Final Conclusion: The appeal is allowed: the adjudicating authority's disallowance of cenvat credit (April 2007-July 2009 and August 2009-July 2010) is set aside following the established ratio that input services used in construction for provision of taxable renting services are eligible for credit; the admitted short-payment of service tax for April 2008-September 2009 remains as conceded (with interest as applicable); penalties imposed are annulled; consequential relief, if any, to follow as per law.

Classification of goods for excise liability - extended period of limitation for recovery - application of precedent subject to factual differences - reliance on popular/common parlance in tariff interpretation - appreciation of findings of fact by revenue authorities

Classification of goods for excise liability - reliance on popular/common parlance in tariff interpretation - appreciation of findings of fact by revenue authorities - Whether the products manufactured by the petitioner are excisable shampoos and not ayurvedic medicines, thereby affecting the applicability of the extended period of limitation. - HELD THAT: - The Court held that the factual matrix in Meghdoot Gramodyog Sewa Sansthan was materially different because the composition and curative properties of the products there were admitted, whereas in the present case those aspects were disputed. The Commissioner had recorded a finding after evaluating material on record that the product was known and marketed as a "shampoo" and not as an ayurvedic medicine, relying on common trade parlance and on admissions in a statement recorded under Section 14. The Court accepted that tariff classification may be guided by popular/common parlance and that factual findings recorded by the Commissioner on the identity and use of the product could not be displaced by treating the earlier precedent as directly applicable. Because the factual conclusions in the respondent's case differ from those in Meghdoot, the decision in Meghdoot does not control the present case.

The Commissioner's factual finding that the product is a shampoo and not an ayurvedic medicine is sustainable and the respondent's reliance on Meghdoot is inapplicable on the facts; consequently the impugned judgment was upheld.

Final Conclusion: Special Leave Petition dismissed; the High Court's resolution in favour of the revenue, based on the Commissioner's finding that the product is a shampoo and not an ayurvedic medicine, is sustained and the earlier decision cited by the petitioner does not apply on the facts of this case.

Cenvat credit on input services - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - nexus between services and manufacture (direct or indirect) - receipt of input service need not be physically at factory premises - adjustment/wheeling of electricity through distribution grid as linkage to consumption - extended period of limitation for suppression under proviso to Section 11A(1) of the Central Excise Act, 1944

Cenvat credit on input services - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - receipt of input service need not be physically at factory premises - Availment of Cenvat credit on service tax paid on lease rentals and operations and maintenance charges of windmills situated away from the factory is permissible under Rule 2(l). - HELD THAT: - The Court held that the definition of "input service" in Rule 2(l) is broad and covers services used directly or indirectly in or in relation to manufacture of final products. Rule 3, when read with Rule 2(l), requires only that an input service be received by the manufacturer of final products; it does not mandate physical receipt at the factory premises. The High Court of Bombay decisions and the Apex Court's treatment in related cases were applied to conclude that management, maintenance and operation services for windmills qualify as input services. The Court observed that excluding such services because windmills are located at wind-potential sites would frustrate promotion of renewable energy and special concessions intended for such environmental measures, and therefore adopted the interpretation favourable to allowance of credit. [Paras 18, 19, 20, 25, 26]

Cenvat credit on lease rentals and O&M charges of remotely situated windmills is admissible as credit on input services under Rule 2(l).

Nexus between services and manufacture (direct or indirect) - adjustment/wheeling of electricity through distribution grid as linkage to consumption - Equivalent generation of electricity by windmills and drawal of equal quantity from the State grid, with adjustment/wheeling to the factory, establishes requisite nexus for Cenvat credit purposes despite physical separation of generation site and factory. - HELD THAT: - The adjudicating authority did not dispute that the assessee supplied to the grid the quantity generated and drew an equivalent quantity from the grid for factory use. The Court relied on the reasoning in Endurance Technology (followed by Tribunal Larger Bench decisions) that such admitted adjustment/quantum equivalence establishes the connection between generation and consumption for manufacture. Given that the show cause notice did not allege excess generation or third party sale, issues of hypothetical sale or surplus were not permitted to be expanded into the adjudication. The Court therefore accepted that the wheeling/adjustment mechanism via TNEB suffices to demonstrate the nexus required for allowing credit. [Paras 6, 16, 17, 18, 21]

Where electricity generated by remotely located windmills is adjusted through the grid and an equivalent quantity is drawn for factory use, the requisite nexus to manufacture exists for allowing Cenvat credit.

Immovable property and input service distinction - Cenvat credit and capital goods/inputs distinction - Services relating to windmills (though connected to immovable property) qualify as input services and are not excluded from Cenvat credit on the ground that the asset is immovable. - HELD THAT: - The Court distinguished authorities concerning capital goods or inputs constituted by immovable structures (e.g., cell towers) on their facts and emphasised the admitted factual matrix here-generation adjusted to factory consumption. The definition of "input service" is wider than that of "input" and specifically contemplates services used in or in relation to manufacture. Consequently, the fact that the windmill is an immovable asset does not preclude services for its operation and maintenance from qualifying as input services eligible for credit under the Rules. [Paras 25, 27, 28]

Operation and maintenance services of windmills qualify as input services for Cenvat credit even though windmills are immovable property.

Final Conclusion: The appeals by Revenue are dismissed. The Tribunal's order allowing Cenvat credit on service tax paid on lease rentals and operations & maintenance charges of remotely located windmills (with equivalent adjustment/wheeling of electricity via the grid) is upheld; the substantial questions of law are answered against the Revenue and the interest and penalty imposed were set aside by the Tribunal.

Clandestine removal - admissibility of third-party records - independent corroboration - onus of proof - principles of natural justice - right to cross-examination

Clandestine removal - admissibility of third-party records - independent corroboration - onus of proof - Whether allegations of clandestine manufacture and removal can be sustained solely on the basis of documents recovered from a third party without independent corroborative evidence. - HELD THAT: - The Tribunal held that findings of clandestine removal cannot rest merely on entries or documents recovered from a third party. The adjudicating authority did not search the appellants' factory, nor did it inquire into capacity to produce the alleged quantity, electricity consumption, purchase and transport of raw materials, or identity and verification of buyers. In absence of any such independent and cogent evidence linking the third-party records to removals from the appellants' premises, the third-party records cannot, by themselves, be treated as admissible or sufficient to fasten liability. The judgment relied upon by the Tribunal (citing the Apex Court in CBI v. V.C. Shukla and prior Tribunal decisions) establishes that entries in books or third-party records are at best corroborative and require independent evidence of trustworthiness before they can be the basis for confirming duty and penalties. [Paras 8]

Allegations of clandestine removal could not be sustained on the basis of the transporter's records alone; independent corroborative evidence was lacking and the demand could not be upheld.

Principles of natural justice - right to cross-examination - Whether denial of cross-examination of the transporter's proprietor, whose statement was relied upon, violated principles of natural justice and vitiated the impugned order. - HELD THAT: - The Tribunal found that the adjudicating authority relied upon the statement of the proprietor of the transport firm but did not permit the appellants to cross-examine him. This, the Tribunal held, amounted to a serious procedural defect and a breach of natural justice. Reliance on such untested statements as the basis for confirming demand and imposing penalties rendered the order legally infirm. The Tribunal expressly followed the view that refusal to allow cross-examination of a witness whose statement is made the basis of the order results in nullity. [Paras 10]

Denial of opportunity to cross-examine the transporter's proprietor was a violation of natural justice and vitiated the impugned order.

Final Conclusion: On the combined findings that the revenue relied solely on third party records without independent corroboration and that the appellants were denied cross examination of a key witness, the impugned Order in Original was set aside and both appeals were allowed.

Adjustment of excess excise duty against short payment on finalization of provisional assessment - principle against unjust enrichment - precedential effect of later judicial decisions on earlier Tribunal Larger Bench rulings

Adjustment of excess excise duty against short payment on finalization of provisional assessment - principle against unjust enrichment - Permissibility of allowing the assessee to adjust excess duty paid on some transactions against short payment ascertained at finalization of provisional assessment for other transactions. - HELD THAT: - The Tribunal held that the issue is no longer res integra and followed the line of decisions that permit such adjustments. It observed that the earlier Tribunal Larger Bench decision in Excel Rubber Ltd. was rendered before the Karnataka High Court decision in Toyota Kirloskar Auto Parts Pvt. Ltd. and was subsequently departed from or distinguished by later Benches, including a Larger Bench in Panasonic Battery and subsequent benches in Hindustan Zinc and other cases. The Tribunal accepted the majority view that the total duty payable on all goods subject to provisional and final assessment must be considered, and after accounting for duty payable and duty paid pursuant to final assessment, any remaining shortfall attracts liability including interest. No fresh or compelling reason was found to deviate from these precedents; the principle of unjust enrichment does not operate to bar the adjustment in the circumstances established by the later authorities relied upon. [Paras 5, 6]

Adjustment by the assessee of excess duty paid against shortfall determined on finalization is permissible in view of the subsequent judicial authorities; Revenue's appeal dismissed.

Final Conclusion: The appeal by the Revenue was dismissed; the Tribunal followed subsequent authoritative decisions permitting adjustment of excess duty against shortfall on finalization of provisional assessments and found no reason to depart from that line of authorities.

Admissibility of cenvat credit on input services - distinction between hiring of packing materials and outward transportation services - nexus between service and manufacture - amended definition of input services in Rule 2(l) of the CCR 2004

Distinction between hiring of packing materials and outward transportation services - admissibility of cenvat credit on input services - nexus between service and manufacture - amended definition of input services in Rule 2(l) of the CCR 2004 - Whether cenvat credit availed on services provided by CHEP India Pvt. Ltd. is admissible on the basis that the services constituted hiring of packing equipment and not outward transportation services - HELD THAT: - The Tribunal examined the Equipment Supply Agreement and Schedule which describe the contract as hire of specified equipment (FLC units, lids and inserts) for the movement of automotive components. Although the agreement contains provisions dealing with transport-related charges for delivering and collecting equipment, the factual matrix and contract language show that CHEP supplied specialised packing equipment to facilitate safe movement of the appellant's goods. The appellants used independent transporters to carry their finished goods packed in CHEP equipment, which demonstrates that CHEP did not perform outward transportation of the appellant's finished goods. On this basis the services rendered by CHEP are to be characterised as hiring of packing equipment (an input service) rather than outward transportation service excluded under the amended definition of input services in Rule 2(l) of the CCR 2004. The Tribunal accordingly found that the conclusions of the lower authorities disallowing the disputed cenvat credit and imposing penalty could not be sustained and set those findings aside. [Paras 5, 6]

The cenvat credit availed on the impugned services is admissible as the services constituted hiring of packing equipment and not outward transportation; the findings disallowing credit and imposing penalty are set aside and the appeal is allowed.

Final Conclusion: Appeal allowed: the Tribunal held the services by CHEP to be hiring of packing equipment (input service) and not outward transportation, set aside the disallowance of cenvat credit and the penalty, and granted consequential relief as per law.

CENVAT credit on capital goods - Withdrawal of depreciation claim by filing revised income tax return and rectification under Section 154 - Credit of Education Cess and Secondary and Higher Education Cess on CVD under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004

CENVAT credit on capital goods - Withdrawal of depreciation claim by filing revised income tax return and rectification under Section 154 - Entitlement to retain CENVAT credit on capital goods where the assessee subsequently withdrew a depreciation/deduction claim by filing a revised income tax return and the Income tax Department acted upon it by rectification and demand. - HELD THAT: - The Tribunal accepted the assessee's evidence that, upon detection of the erroneous double benefit, a revised return for Assessment Year 2013-14 was filed and the Income tax Department passed an order of rectification under Section 154 and issued a demand under Section 156. The documents showing that the revised return was acted upon and demand issued satisfy the legal requirement to demonstrate that the earlier improper income tax deduction was withdrawn and thereby the duty component on capital goods was effectively wiped out. Relying on the jurisdictional High Court decisions cited by the assessee, the Tribunal held that once the erroneous deduction has been reversed by the assessee and recognized by the Income tax authorities, penal or recovery consequences in respect of CENVAT credit are not warranted. [Paras 7, 8]

The recovery of CENVAT credit on capital goods was set aside and the ground of appeal allowing retention of the credit was allowed.

Credit of Education Cess and Secondary and Higher Education Cess on CVD under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004 - Whether credit of Education Cess and Secondary and Higher Education Cess paid on Countervailing Duty (CVD) is admissible under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004. - HELD THAT: - The Tribunal examined Rule 3(1)(vii) and the lower authorities' silence as to any specific contravention. Rule 3(1)(vii) permits credit of Additional Duty of Customs (CVD) equivalent to excise duties specified in its clauses, and those clauses encompass Education Cess and Secondary and Higher Education Cess on excise duties. Where identical cess components are payable on imported goods by way of CVD, the plain language of Rule 3(1)(vii) supports the claim for credit. As the adjudicating authorities did not point to any statutory provision or fact showing a violation that would disentitle the assessee, the denial of such credit was held to be without reason and unsustainable. [Paras 12, 13]

The denial of CENVAT credit of Education Cess and Secondary and Higher Education Cess on CVD was set aside and the assessee's claim allowed.

Final Conclusion: Both grounds of appeal were allowed: the Tribunal upheld the assessee's entitlement to CENVAT credit on capital goods in view of the withdrawal of the income tax depreciation claim by revised return and rectification action by the Income tax Department, and it held that credit of Education Cess and Secondary and Higher Education Cess on CVD is admissible under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004; the appeal was allowed with consequential benefits as per law.

CENVAT credit - capital goods - inputs used for repair and maintenance - Rule 2(k) of the CENVAT Credit Rules, 2004 - binding jurisdictional precedent

CENVAT credit - capital goods - Rule 2(k) of the CENVAT Credit Rules, 2004 - binding jurisdictional precedent - Denial of CENVAT credit on MS Angles, Channels and Plates used in construction of plant and supporting structures - HELD THAT: - The Tribunal held that MS Angles, Channels and Plates used in supporting plant and machinery qualify as integral to capital goods and are eligible for CENVAT credit. The decision follows the ratio of the Hon'ble Madras High Court in M/s. Thiru Arooran Sugars, which treated such structural items as part of capital goods and manufacturing of final goods; judicial propriety required following the binding jurisdictional precedent. Applying that ratio, the Tribunal found the denial of credit unsustainable and set aside the adjudicating authority's order on this count.

Denial of CENVAT credit on MS Angles, Channels and Plates set aside; credit held admissible.

CENVAT credit - inputs used for repair and maintenance - Rule 2(k) of the CENVAT Credit Rules, 2004 - Denial of CENVAT credit on Welding Electrodes used for repairs and maintenance - HELD THAT: - The Tribunal observed that identical contention has been considered and decided in favour of assessees by this Bench (M/s. UltraTech Cements Ltd.) and by the Hyderabad Bench (M/s. The Andhra Sugars Ltd.), rendering the issue no longer res integra. Relying on these consistent Tribunal precedents, the denial of credit for welding electrodes used in repair and maintenance of capital goods employed in manufacture was set aside.

Denial of CENVAT credit on Welding Electrodes set aside; credit held admissible.

Final Conclusion: The appeal is allowed; the denials of CENVAT credit on MS structural items and on Welding Electrodes are set aside and the appellant is entitled to credit with consequential benefits as per law.

Eligibility of CENVAT credit on input services - scope of "input service" prior to 01.04.2011 - nexus between services and manufacture / clearance - precedential application of Tribunal decisions

Eligibility of CENVAT credit on input services - scope of "input service" prior to 01.04.2011 - nexus between services and manufacture / clearance - precedential application of Tribunal decisions - Validity of allowing CENVAT/input service credit in respect of Auction Services, Courier Services, Information Technology Services, Photography Services, Rent-a-Cab Services, Travel Booking Services, Business Exhibition Services and AMC (Weigh Bridge/ERP/Laptop) for the period prior to 01.04.2011. - HELD THAT: - The dispute was governed by the wider definition of "input service" applicable prior to 01.04.2011, which embraced any service used by a manufacturer in or in relation to the manufacture of final products and clearance of final products from the place of removal. The Tribunal examined the identical issues as decided earlier by this Bench in the assessee's own case and by the Chandigarh Bench in New Swan Enterprises, finding those decisions squarely applicable. In view of the precedents holding that the impugned services satisfy the requisite nexus with manufacturing/clearance under the pre-01.04.2011 definition, the Commissioner (Appeals) correctly allowed credit on the listed services and the Department's challenge lacked merit. [Paras 8, 9]

The impugned appellate order allowing CENVAT/input service credit in respect of the specified services for the period prior to 01.04.2011 is upheld; Department's appeal dismissed.

Final Conclusion: The Tribunal dismissed the Department's appeal and upheld the Commissioner (Appeals)'s order allowing CENVAT/input service credit on the specified services for the period prior to 01.04.2011, following the wider pre-01.04.2011 definition of "input service" and applicable Tribunal precedents.

Availability of Cenvat credit on capital goods - time of eligibility for credit - at receipt of capital goods - effect of subsequent exemption of final products on accrued credit - bar on credit for capital goods used exclusively in manufacture of exempted goods under Rule 6(4) of Cenvat Credit Rules - 50% provisional availment of credit and balance in subsequent year under Rule 4 of Cenvat Credit Rules

Availability of Cenvat credit on capital goods - time of eligibility for credit - at receipt of capital goods - effect of subsequent exemption of final products on accrued credit - bar on credit for capital goods used exclusively in manufacture of exempted goods under Rule 6(4) of Cenvat Credit Rules - 50% provisional availment of credit and balance in subsequent year under Rule 4 of Cenvat Credit Rules - Assessee was entitled to avail the balance Cenvat credit on capital goods despite the final product being exempted during 07.12.2008 to 06.07.2009; Rule 6(4) did not operate to deny credit already accruing at the time of receipt. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) conclusion that entitlement to Cenvat credit on capital goods is determined at the time the goods are received in the factory. Rule 4 permits only fifty per cent of the credit to be taken in the year of receipt and the balance in subsequent years as a procedural restriction; this procedural staging does not extinguish the substantive right to the remaining credit. Sub-rule (4) of Rule 6 describes the bar on availment of fresh credit for capital goods used exclusively in manufacture of exempted goods, but it does not apply to credits that had already accrued on receipt of the capital goods. Denying the balance credit solely because the final product was exempted at the later date would be unjust and beyond the statutory scheme. The Tribunal also noted reliance on the decision in Hindustan Coca Cola Beverages (P) Ltd. v. CCE as supportive precedent and observed that the Revenue had not successfully distinguished or reversed that view. On these grounds the Tribunal found no infirmity in the lower appellate authority's order setting aside the disallowance and recovery. [Paras 4, 5]

Revenue's appeal dismissed and the Commissioner (Appeals) order allowing the balance Cenvat credit upheld.

Final Conclusion: The appeal is dismissed: the assessee was entitled to avail the balance Cenvat credit on capital goods which accrued at the time of receipt, and the subsequent exemption of the final product during 07.12.2008 to 06.07.2009 did not oust that entitlement under Rule 6(4).

Rebuttable presumption under Sections 118(a) and 139 of the Negotiable Instruments Act - standard of proof: preponderance of probabilities for rebuttal - reverse onus clause - holder's presumption of discharge of debt or liability - agent-principal / standing of complainant - acquittal and appellate interference - perversity standard

Rebuttable presumption under Sections 118(a) and 139 of the Negotiable Instruments Act - standard of proof: preponderance of probabilities for rebuttal - holder's presumption of discharge of debt or liability - Presumptions under Sections 118(a) and 139 are rebuttable and the accused need only raise a probable defence on preponderance of probabilities. - HELD THAT: - The Court reiterated that presumptions created by Sections 118(a) and 139 operate subject to Section 3 and Section 4 of the Evidence Act and are rebuttable. The accused need not displace the presumption beyond reasonable doubt; it is sufficient to adduce evidence that makes the non-existence of the presumed fact reasonably probable. The reverse onus imposed by Section 139 is to be balanced with principles of proportionality and the presumption of innocence; consequently, the standard for rebuttal is the preponderance of probabilities and not proof beyond reasonable doubt. The Court relied on binding precedents to conclude that a probable defence which creates reasonable doubt about existence of a legally enforceable debt or liability will suffice to rebut the statutory presumptions. [Paras 14, 15, 16]

Presumptions under Sections 118(a) and 139 were rebuttable on the standard of preponderance of probabilities; mere denial is inadequate but a probable defence may succeed.

Agent-principal / standing of complainant - holder's presumption of discharge of debt or liability - On the facts, the complainant (manager) lacked standing to claim the cheque discharged a debt owed to him personally rather than to the principal (Vinay Service Station), and this raised a highly probable defence rebutting the presumption under Section 139. - HELD THAT: - Applying the legal principle to the material facts, the Court observed that although the cheque's issuance and dishonour and service of notice were proved, the complainant himself claimed to be Manager of Vinay Service Station and not the principal creditor. If the diesel was obtained from the Service Station, the liability lay against the Service Station and not the Manager personally. That factual position furnished a probable defence that the cheque was not issued to discharge any liability owed personally to the complainant, thereby rebutting the presumption in favour of the complainant and justifying the trial Court's finding of acquittal. [Paras 17, 18]

The trial Court correctly found the defence highly probable and that the presumption under Section 139 was rebutted on the facts; acquittal was justified.

Acquittal and appellate interference - perversity standard - Appellate interference with an acquittal is warranted only on demonstrated perversity of fact or law; no such perversity was found. - HELD THAT: - The Court reiterated the settled principle that an acquitted accused enjoys the presumption of innocence reinforced by the acquittal and that an appellate court should not disturb such an order unless there is perversity in the factual finding or legal conclusion. Having examined the evidence and the trial Court's reasoning - particularly the finding on standing/agency which satisfactorily rebutted the statutory presumption - this Court found no ground to interfere with the acquittal. [Paras 19, 20, 21]

No interference with the acquittal; appeal dismissed.

Final Conclusion: The appellate Court upheld the trial Court's acquittal: the statutory presumptions under Sections 118(a) and 139 are rebuttable on preponderance of probabilities; on the facts the complainant's standing as Manager (not principal) furnished a probable defence that rebutted the presumption; there was no perversity warranting interference. Appeal dismissed and bail bonds, if any, discharged.

Offence under Section 138 of the Negotiable Instruments Act - Quashing of criminal proceedings on settlement/compromise - Inherent powers under Section 482 Cr.P.C. to prevent abuse of process and to secure ends of justice - High Court's powers under Sections 397 and 401 Cr.P.C. - High Court's power under Section 147 of the Negotiable Instruments Act - Compensatory object and summary nature of proceedings under Chapter XVII of the Negotiable Instruments Act - Principle of assessing nature and gravity of offence before quashing

Offence under Section 138 of the Negotiable Instruments Act - Quashing of criminal proceedings on settlement/compromise - Inherent powers under Section 482 Cr.P.C. to prevent abuse of process and to secure ends of justice - High Court's power under Section 147 of the Negotiable Instruments Act - Compensatory object and summary nature of proceedings under Chapter XVII of the Negotiable Instruments Act - Whether, in a cheque-dishonour prosecution under Section 138, the Court can quash the criminal proceedings and modify the sentence in view of a settlement and payment of compensation by the accused. - HELD THAT: - The Court held that it is empowered to accept a settlement and quash criminal proceedings in a Section 138 case where doing so would serve the ends of justice and prevent abuse of the court's process. The inherent jurisdiction under Section 482 Cr.P.C., preserved by Section 482, and powers under Sections 397 and 401 Cr.P.C., as well as Section 147 of the Negotiable Instruments Act, may be exercised for this purpose subject to circumspection and regard to the nature and gravity of the offence. Reliance was placed on the principles distilled by the Supreme Court that (a) the High Court must evaluate whether quashing would secure the ends of justice; (b) offences with an essentially civil or commercial flavour, such as many cheque dishonour cases, may be fit for quashing where compromise has been effected and the possibility of conviction is remote; and (c) serious offences affecting broader public interest are ordinarily not amenable to quashing. The Court also noted the compensatory object and summary character of Chapter XVII proceedings, and that compounding or closing proceedings is to be encouraged where the complainant has been duly compensated. Applying these principles to the facts, the petitioner had paid the compensation and the litigation had endured for several years; in view of the settlement and precedents recognising quashing in such circumstances, exercise of the inherent and statutory powers to modify the sentence and quash the complaint was appropriate.

Criminal proceedings under Section 138 were quashed and the substantive sentence substituted by the already paid compensation; the deposited amount to be released to the complainant.

Final Conclusion: The revision petition is allowed: having regard to the settlement and payment of compensation by the petitioner and the authorities cited, the High Court exercised its inherent and statutory powers to quash the criminal proceedings under Section 138, substitute the substantive sentence by the compensation already paid and directed release of the deposited amount to the complainant; the petition and pending applications are disposed of.

Summary order. Hearing adjourned to enable the Central Government Standing Counsel to produce the relevant original file; matter listed before the Vacation Bench on 24th December, 2018.