TaxTMI Updates e-Newsletter
Jan 14,2015

Arm's length price - Transfer Pricing Officer's order binding on Assessing Officer - Maximum Retail Price (MRP) not determinative for income-tax valuation - Rejection of books of accounts - satisfaction required under section 145(3) - Ad hoc disallowance of expenditures - estimation without rational basis

Rejection of books of accounts - satisfaction required under section 145(3) - Validity of Assessing Officer's rejection of the assessee's books of account - HELD THAT: - The Tribunal held that under section 145(3) the AO must record satisfaction about incorrectness or incompleteness before rejecting books. The DRP had directed production of books and vouchers during remand; having allowed production, the AO was bound to accept and examine them. The AO's two contradictory remand reports (one stating nothing adverse and a later one rejecting the books for lack of time and reason) were held to be unjustified. In these facts the rejection of books was not based on justified or legal reasoning and is set aside. [Paras 10, 39]

Rejection of books of account by the AO is not sustainable; ground no.4 allowed.

Ad hoc disallowance of expenditures - estimation without rational basis - Whether the DRP erred in deleting the AO's proposed ad hoc disallowance of 10% of expenses - HELD THAT: - The DRP found no rational basis in the draft order or remand report for the 10% ad hoc disallowance and noted that nothing adverse regarding expenses emerged from DRI/customs proceedings. The AO's initial remand report accepted the books (nothing adverse) and there was no valid reason for the AO's subsequent change of stance. Given the invalidity of the AO's rejection of books, the estimated disallowance was without basis and correctly deleted by the DRP. [Paras 11, 52, 53]

DRP was correct to delete the ad hoc 10% disallowance; revenue's grounds dismissed.

Arm's length price - Transfer Pricing Officer's order binding on Assessing Officer - Maximum Retail Price (MRP) not determinative for income-tax valuation - Validity of addition on account of 'suppressed sales' by substituting actual sale value with MRP declared to customs and whether TPO's ALP determination must be given effect - HELD THAT: - The TPO had examined transfer pricing documentation and held the international transactions to be at arm's length; post amendment law (w.e.f. 1.6.2007) requires the AO to act in conformity with the TPO's determination. The Tribunal applied authority recognising the binding effect of the TPO's order and held that MRP - a legal fiction for customs/excise valuation - cannot be imported into the Income tax Act to quantify the assessee's sales to its Indian AE. The AO/DRP's estimation multiplied an average differential of three products' MRPs across all 83 product types (including low value items), producing an unsound and arbitrary computation. In view of the TPO's findings and the infirmity of the AO/DRP's estimation methodology, the addition was not sustainable. [Paras 33, 37, 40, 45, 46]

Addition based on MRP/suppressed sales set aside; grounds 1, 2, 2.1-2.4 allowed.

Arm's length price - Ad hoc disallowance of expenditures - estimation without rational basis - Revenue's challenge to DRP deletion of the AO's estimated disallowance (revenue appeal) - HELD THAT: - On reviewing the remand reports and DRP's reasoning, the Tribunal found the AO's initial acceptance of books (nothing adverse) and no credible material to sustain the AO's later estimation. The DRP's specific finding that the adhoc 10% disallowance lacked rational basis and that nothing adverse emerged from DRI/customs was upheld. Consequently the revenue's appeal against deletion was dismissed. [Paras 52, 53]

Revenue's appeal against deletion of the 10% ad hoc disallowance dismissed.

Final Conclusion: The assessee's appeals are partly allowed: the AO's rejection of books is set aside and the addition computed by substituting MRP for actual sales (alleged suppressed sales) is quashed; the DRP correctly deleted the ad hoc 10% disallowance and the revenue's cross appeal is dismissed. Order accordingly.

Appropriation of net profits - diversion of income by overriding title - deductibility under income-tax law of statutory transfers from net profit - accrual versus payment (timing of deduction)

Appropriation of net profits - diversion of income by overriding title - deductibility under income-tax law of statutory transfers from net profit - Allowability as deduction of 1% contribution to the Cooperative Education Fund under section 63(1)(b) of the Multi State Cooperative Societies Act, 2002 - HELD THAT: - The Tribunal held that the 1% contribution mandated by section 63(1)(b) is an allocation made out of "net profits" after computation of income and taxes and is therefore a below the line appropriation of profits and not an expenditure incurred in the ordinary course of business. Applying established tests from Supreme Court and High Court authorities, the court emphasised that diversion by overriding title requires that income be diverted before it reaches the assessee; here the society receives the profit and only thereafter the statutory provisions prescribe its disposal. The fact that the obligation is triggered only when there are profits (and is not payable in loss years) further indicates that the provision effects an appropriation of profits and not a pre receipt diversion. Consequently the amount is not deductible as a business expense under the Income tax law. [Paras 6, 12, 13]

Contribution under section 63(1)(b) is an appropriation of net profits and not a deductible business expenditure; the addition by the Assessing Officer is upheld.

Accrual versus payment (timing of deduction) - deductibility under income-tax law of statutory transfers from net profit - Whether the contribution paid during the year relevant to A.Y. 2010-2011 but quantified with reference to profits of an earlier year is allowable in that assessment year - HELD THAT: - The Tribunal noted that the assessee had quantified the 1% contribution with reference to profits of the earlier year (year ending March, 2009) and paid that sum during the year relevant to A.Y. 2010 2011. On the accrual principles applicable to computation of income, the liability related to the earlier year's profits; the payment in the later year therefore did not constitute an expense of the year under assessment. For this independent timing ground, the claimed deduction for A.Y. 2010 2011 was unsustainable. [Paras 10, 11, 13]

Amount paid in the year under appeal related to profits of an earlier year and is not allowable as a deduction in A.Y. 2010 2011.

Final Conclusion: Appeal dismissed; the Tribunal upheld the Assessing Officer and CIT(A) in holding that the 1% contribution to the Cooperative Education Fund is an appropriation of net profits (not a deductible business expense) and, additionally, the sum claimed in A.Y. 2010 2011 related to profits of an earlier year and therefore was not allowable in that assessment year.

Depreciation is optional - foisting depreciation not claimed by assessee - deduction under Chapter VI-A - Explanation 5 to section 32(1) (effective 01/04/2002) - block of assets concept

Depreciation is optional - foisting depreciation not claimed by assessee - Explanation 5 to section 32(1) (effective 01/04/2002) - deduction under Chapter VI-A - Whether the Tribunal was correct in law in holding that depreciation has to be imposed on the assessee even where the assessee did not claim depreciation, for the purpose of computing deduction under Chapter VI-A prior to insertion of Explanation 5 to section 32(1). - HELD THAT: - The Court held that the question was concluded by earlier decisions of this Court and that depreciation is optional to the assessee. Applying the reasoning of the CIT(A) and prior authorities, the scheme of section 32(1) read with related provisions shows that allowance for depreciation is an exception and depends on the assessee claiming it; expressions such as those in section 43(6)(b) and the procedural mechanism under section 143(3) support the view that an assessee can elect not to claim depreciation and the Assessing Officer is not bound to allow it. Administrative guidance (CBDT Circular) directing that where particulars are not furnished and no claim is made, income should be estimated without allowing depreciation was noted. The Court therefore held that, before Explanation 5 to section 32(1) (effective 01/04/2002), depreciation could not be foisted upon the assessee for computing deduction under Chapter VI-A where the assessee had not claimed it; the same optionality applies to block of assets as well. [Paras 12]

The Tribunal was not right in law in holding that depreciation, whether claimed or not, must be foisted upon the assessee prior to insertion of Explanation 5 to section 32(1); the question is answered in favour of the assessee.

Final Conclusion: Appeals allowed; the Tribunal's view that depreciation must be imposed even when not claimed (for purposes of Chapter VI-A) prior to Explanation 5 to section 32(1) is set aside and the matter is decided in favour of the assessee.

Condonation of delay in filing return - exercise of discretion under Section 119(2)(b) of the Income tax Act - consideration of bona fides and past compliance in condonation applications - treatment of tax collected at source as refundable subject to assessment - direction to complete assessment after condoning delay

Condonation of delay in filing return - exercise of discretion under Section 119(2)(b) of the Income tax Act - consideration of bona fides and past compliance in condonation applications - Ext.P10 rejection of the petitioner's application for condonation of delay in filing the return for Assessment Year 1999-2000 was liable to be quashed. - HELD THAT: - The petitioner had a consistent history of filing returns and assessments for earlier years, including assessments showing nil or minimal tax liability, and possessed tax collection certificates issued in April and May 1998. The petitioner explained the delay by reference to his father's medical condition and produced the certificates; the rejection under Ext.P10 proceeded on the view that sufficient cause was not shown. On the facts the court found the lapse to be an isolated instance and the petitioner not to be a habitual offender; consequently the discretion under Section 119(2)(b) ought to have been exercised leniently. The court therefore quashed Ext.P10 and treated the delay as condoned so that assessment proceedings could be taken up.

Ext.P10 set aside; delay in filing the return for Assessment Year 1999-2000 treated as condoned and petitioner entitled to have assessment completed.

Direction to complete assessment after condoning delay - treatment of tax collected at source as refundable subject to assessment - The matter was remitted for completion of assessment and verification of tax collected at source certificates and accounts, with consequent orders but without entitlement to interest on any refund. - HELD THAT: - Having directed that the delay be condoned, the court required the assessing officer to complete the income tax assessment for Assessment Year 1999-2000 on the basis of the returns and the Ext.P2 series of tax collection certificates produced by the petitioner, and after verifying the accounts submitted to substantiate the declared income. The court permitted assessment to be finalised within a specified timeframe and clarified that any refund arising from that assessment would not carry interest in favour of the petitioner.

Assessment remitted to the assessing officer for completion within three months; verification of TCS certificates and accounts to be undertaken; if refund arises no interest shall be payable to the petitioner.

Final Conclusion: On the facts the High Court quashed the order refusing condonation, treated the delay in filing the return for Assessment Year 1999-2000 as condoned, and directed completion of assessment after verification of the tax collected at source certificates and accounts; any refund, if granted, shall carry no interest.

Reopening of assessment on the ground of income escaping assessment - proviso to Section 147 concerning time-bar and failure to disclose fully and truly all material facts - requirement of an assessment under Section 143(3) for invocation of the proviso to Section 147 - remand to Tribunal for consideration of merits

Proviso to Section 147 concerning time-bar and failure to disclose fully and truly all material facts - requirement of an assessment under Section 143(3) for invocation of the proviso to Section 147 - Whether the proviso to Section 147 is attracted where no assessment under Section 143(3) was made. - HELD THAT: - The Court found that the return for Assessment Year 2001-2002 was filed on 31.10.2001 and no assessment under Section 143(3) was made. The proviso to Section 147 operates only where an assessment under sub-section (3) of Section 143 or an assessment under that section has been made; absent such assessment, the pre-condition for invoking the proviso is not satisfied. The Tribunal erred in treating the case as one falling within the proviso to Section 147. Consequently, the reopening notice issued on 26.3.2008 cannot be validated on the basis of that proviso. [Paras 5]

Proviso to Section 147 does not apply because no assessment under Section 143(3) was made; the Tribunal's contrary finding is erroneous.

Remand to Tribunal for consideration of merits - reopening of assessment on the ground of income escaping assessment - Disposition of the appeal following the finding that the proviso to Section 147 is not attracted. - HELD THAT: - Having held that the Tribunal erred in treating the case as falling under the proviso to Section 147, the High Court refrained from deciding the substantive legal questions raised by the Revenue. Instead, the Court set aside the Tribunal's order and remanded the matter to the Tribunal for consideration of all issues on merits, directing a fresh adjudication of the controversy without addressing the merits itself. [Paras 6]

Tribunal's order is set aside and the matter is remanded to the Tribunal to consider all issues on merits.

Final Conclusion: The appeal is allowed by way of remand: the High Court holds that the proviso to Section 147 is not attracted in the absence of an assessment under Section 143(3), sets aside the Tribunal's order, and directs the Tribunal to decide the matters afresh on merits; no order as to costs.

Deduction under section 80IB(10) r.w.s. 80IB(1) - Deemed transfer/ownership for tax purposes under section 2(47)(v) read with section 53A of the Transfer of Property Act - Profit from sale of unutilized FSI and its eligibility for deduction under section 80IB(10)

Deduction under section 80IB(10) r.w.s. 80IB(1) - Deemed transfer/ownership for tax purposes under section 2(47)(v) read with section 53A of the Transfer of Property Act - Whether the assessee was entitled to deduction under section 80IB(10) despite municipal approval and completion certificate being in the name of the landowner and transfers to end users being effected by the landowner. - HELD THAT: - The Court held that the question is governed by the decision in Commissioner of Income Tax v. Radhe Developers. That decision concluded that where assessees, in part performance of an agreement to sell, have been given possession and have carried out construction, a combined reading of the relevant deeming provision and section 53A leads to the land being treated as transferred for the purposes of the Income tax Act. Consequently, for the limited purpose of claiming deduction under section 80IB(10), the assessees satisfy the condition of ownership even though registered title may not have been executed. Applying that precedent, the Tribunal's allowance of the deduction was in accordance with law and the appeal raising this contention did not merit admission. [Paras 4, 5, 6]

Tribunal rightly allowed deduction under section 80IB(10); question answered in favour of the assessee and against the Revenue.

Profit from sale of unutilized FSI and its eligibility for deduction under section 80IB(10) - Deduction under section 80IB(10) r.w.s. 80IB(1) - Whether profits attributable to sale of unutilized FSI formed part of income eligible for deduction under section 80IB(10). - HELD THAT: - The Assessing Officer treated profit from sale of unutilized FSI as beyond the ambit of section 80IB(10) and made an addition. On appeal the CIT(A) and the Tribunal deleted the addition, relying on Radhe Developers. The High Court held that the question is governed by the same precedent and that the Tribunal's view - which endorsed deletion of the addition and allowance of deduction as per the settled position - stands. Accordingly, the contention that profit from sale of unutilized FSI was not entitled to deduction did not succeed before the Court. [Paras 4, 5, 6]

Profit arising from the transactions in the facts of this case was considered under the precedent; the Tribunal's deletion of the addition was upheld and the issue resolved in favour of the assessee.

Final Conclusion: The appeal was dismissed as the questions raised were covered by the High Court's earlier decision in Radhe Developers; both contentions were answered in favour of the assessee and against the Revenue, and there was no merit in admitting the appeal.

Application of income for acquisition of capital assets vs subsequent claim of depreciation - double deduction - claim of exemption under section 11 of the Income-tax Act in relation to application of income - precedential effect of Framjee Cawasjee and Institute of Banking Personnel Selection on allowance of depreciation - error of law apparent on the face of the record

Application of income for acquisition of capital assets vs subsequent claim of depreciation - double deduction - precedential effect of Framjee Cawasjee and Institute of Banking Personnel Selection on allowance of depreciation - Whether depreciation could be allowed in subsequent years where the assessee had earlier applied income for acquisition of the assets, without resulting in a prohibited double deduction. - HELD THAT: - The Tribunal and Commissioner allowed depreciation on assets whose cost had been treated as application of income in an earlier year. The Court applied the ratio of this High Court's decisions in Framjee Cawasjee and in Commissioner of Income Tax v. Institute of Banking Personnel Selection, which hold that treating expenditure on acquisition as application of income in the year of purchase does not preclude claiming depreciation in subsequent years on those assets. The Tribunal also considered and distinguished the revenue's reliance on Nagpur Hotel Owners' Association and the Supreme Court decisions, concluding that those authorities did not establish an error of law apparent on the face of the record. The High Court found no reason to hold that the Tribunal's upholding of the Commissioner's view involved any legal error warranting admission of the appeal, and observed that similar contentions had repeatedly been refused admission by this Court in earlier matters. The Court therefore concluded that allowance of depreciation in the circumstances before it did not constitute an impermissible double deduction and that the adjudicatory authorities had correctly applied the binding precedents. [Paras 6, 8]

The Tribunal's conclusion upholding the Commissioner in allowing depreciation despite prior application of income for acquisition of the assets is upheld; no substantial question of law is disclosed and the appeal is dismissed.

Final Conclusion: The appeal is dismissed for lack of any substantial question of law: depreciation could be claimed in subsequent years though the capital expenditure had been treated as application of income in the year of acquisition, and the Tribunal's application of the relevant High Court precedents did not involve any error of law apparent on the face of the record.

Prima facie adjustment under Section 143(1)(a) - power of the Assessing Officer to make adjustments without hearing - tax deduction at source under Section 194C on advance payment not amounting to assessable income

Prima facie adjustment under Section 143(1)(a) - tax deduction at source under Section 194C on advance payment not amounting to assessable income - Whether the Assessing Officer was justified in treating Rs. 16,30,000 (amount shown in TDS certificate) as assessable income by making a prima facie adjustment under Section 143(1)(a) instead of accepting Rs. 13,70,000 shown by the assessee as work-in-progress and billed to Ravi Organizers. - HELD THAT: - The Court examined the record and found that the assessee had carried out work as a sub-contractor for Ravi Organizers, received payments aggregating Rs. 16,30,000 during the year, but raised bills only for Rs. 13,70,000 and carried forward the excess in the Balance Sheet. Relying on the principle that an AO can make adjustments under Section 143(1)(a) only on the basis of material in the return and that substantial adjustments requiring examination of evidence or a hearing are not contemplated, the Court held that treating the TDS certificate figure as conclusive to make a prima facie adjustment was not justified. The Court further noted that TDS under Section 194C can be deductible even on advances and that such deduction does not ipso facto convert the advance into income of the payee. Applying the decisions of the Bombay and Gauhati High Courts, the Court concluded that the claim of the assessee was supported by the Balance Sheet and there was no basis for the AO, CIT(A) or Tribunal to reject it by way of a prima facie adjustment under Section 143(1)(a). [Paras 10, 11]

The prima facie adjustment adopting Rs. 16,30,000 was not justified; the Tribunal was incorrect to confirm the Assessing Officer's action and the appeal is allowed in favour of the assessee.

Final Conclusion: Appeal allowed; the Assessing Officer's treatment of the TDS certificate amount as assessable income by way of prima facie adjustment under Section 143(1)(a) is set aside and the question is answered in favour of the assessee and against the Revenue.

Addition based solely on difference between stock statement submitted to bank and books of account - genuine books of account supported by vouchers - assessing officer's burden to establish unaccounted purchases or incorrect books - inflated stock statements furnished to banking authorities for obtaining higher credit facilities

Addition based solely on difference between stock statement submitted to bank and books of account - genuine books of account supported by vouchers - assessing officer's burden to establish unaccounted purchases or incorrect books - inflated stock statements furnished to banking authorities for obtaining higher credit facilities - Deletion of addition of differential stock value recorded in bank statement as against books of account was justified. - HELD THAT: - The Court applied its prior decision in Commissioner of Income-tax v. Riddhi Steel and Tubes (P) Ltd. and held that a difference between the stock value shown to a bank and the stock disclosed in the assessee's books does not, by itself, justify an addition to income. Where the books of account and accounting system are found to be genuine and are supported by vouchers and explanations, and where inflated figures were furnished to banking authorities to secure larger credit facilities (with stock hypothecated and remaining with the assessee), the Assessing Officer must independently establish unaccounted purchases or other material to show that the books are incorrect. Absent such affirmative proof, the Tribunal was correct in deleting the addition made by the Assessing Officer. [Paras 7, 9, 10]

Appeals dismissed; question of law answered in favour of the assessee and against the Revenue.

Final Conclusion: The Gujarat High Court, following its earlier precedent, upheld the Tribunal's deletion of the addition arising from a discrepant stock statement furnished to the bank where the assessee's books were found to be genuine and no independent proof was produced by the Assessing Officer to contradict them; appeals rejected.

Application of income for charitable purpose - payment of donation to another charitable trust - charitable activity as defined u/s.2(15) - registration under section 12A - genuineness of activities

Application of income for charitable purpose - payment of donation to another charitable trust - charitable activity as defined u/s.2(15) - Giving donation to another trust out of trust funds constitutes a genuine application of income for charitable purposes and amounts to charitable activity. - HELD THAT: - The Court upheld the view in Commissioner of Income-tax v. Sarladevi Sarabhai Trust No.2 and the Board's Instruction that a donor charitable trust does not lose exemption merely because the donee trust has not spent the donation in the year of receipt. Once a donor trust transfers funds to a donee trust for utilization towards its charitable objects, that transfer is proper application of income for charitable and religious purposes; utilization by the donee need not be immediate and may be kept as corpus with recurring income used for charitable objects. Applying that precedent to the facts, the Tribunal was justified in treating the donations made to other trusts as falling within charitable activity. [Paras 5]

Accepted; donation to another charitable trust is a proper application of income for charitable purposes and qualifies as charitable activity.

Registration under section 12A - genuineness of activities - The Income Tax Appellate Tribunal was justified in granting registration under section 12A despite the trust's activities not having commenced. - HELD THAT: - The Court relied on its earlier decision in Tax Appeal No.918/2011 holding that the Commissioner must be satisfied about the objectives and genuineness of activities and may call for documents, but absence of commenced activities alone is not a ground to reject registration. The Commissioner may reject only if sufficient material demonstrates lack of genuine objects or activities. Applying that principle, the Tribunal correctly reversed the Commissioner's rejection and granted registration. [Paras 6]

Accepted; registration under section 12A was correctly granted by the Tribunal.

Final Conclusion: Both substantial questions of law are answered in favour of the assessee and against the Revenue; the appeal is dismissed.

Revenue expenditure versus capital expenditure - current repairs and maintenance - enduring advantage test - preserve and maintain an existing asset

Revenue expenditure versus capital expenditure - current repairs and maintenance - preserve and maintain an existing asset - Expenditure on interior decoration, refurnishing and replacement works held to be revenue expenditure and allowable under Section 37(1) of the Act - HELD THAT: - The court applied the settled test that expenditure qualifies as 'current repairs' (revenue) only if it is incurred to preserve and maintain an already existing asset and not to bring a new asset into existence or to obtain a new advantage. Although the assessee upgraded flooring, false roofing, furniture, carpets and other fittings to meet international standards, no additional room capacity or extra floor space was created and no new asset came into being. The Tribunal's finding that the works merely preserved and enhanced the existing hotel's facilities without creating a distinct enduring asset was accepted. Reliance on precedent distinguishing total renovation or replacement (where a new asset results) was acknowledged, but the facts here did not meet that threshold. Consequently the expenditure was held to be revenue in nature and deductible under Section 37(1).

The expenditure towards interior decoration, refurnishing and replacement of parts is revenue expenditure and allowable under Section 37(1).

Enduring advantage test - revenue expenditure versus capital expenditure - Increase in receipts after refurbishment does not, by itself, convert the expenditure into capital expenditure - HELD THAT: - The court rejected the contention that higher receipts from room rents, restaurants, banquets and other services in the subsequent year necessarily demonstrate that the refurbishment resulted in a capital asset. While acknowledging that refurbishment may have contributed to improved tariffs and patronage, the court held that mere increase in income is not determinative. The decisive inquiry is whether the acts amounted to creation of a new or distinct enduring asset; where no additional space or new asset was created, higher income alone cannot transform expenditure of a preservative nature into capital expenditure.

The rise in receipts post-refurbishment does not establish capital nature of the expenditure; it remains revenue expenditure.

Final Conclusion: The appeal is dismissed; the substantial questions of law are answered in favour of the assessee - the interior decoration and refurnishing expenses are revenue in nature and allowable, and increased receipts do not by themselves render such expenditure capital.

Limitation for block assessment - clarificatory amendment to limitation provision - date of conclusion of search as triggering event - violation of principles of natural justice - remand for fresh adjudication where opportunity was not afforded

Limitation for block assessment - clarificatory amendment to limitation provision - date of conclusion of search as triggering event - Whether the block assessment was barred by limitation in view of Explanation 2(a) and (b) added to Section 158BE. - HELD THAT: - The Court accepted the Tribunal's conclusion that the Explanation added to Section 158BE is clarificatory and applies to the assessment proceedings. The amendment, which declares that the authorisation in case of a search shall be deemed executed on the conclusion of the search (as recorded in the last panchnama), governs the computation of the limitation period. The assessment, having been completed within two years of the conclusion of the search, could not be said to be time-barred. The Court concurred with the Tribunal's reliance on the Kerala High Court decision and found no error in treating the Explanation as operative for the purpose of limitation.

Assessment not barred by limitation; first question answered against the assessee.

Violation of principles of natural justice - remand for fresh adjudication where opportunity was not afforded - Whether the Tribunal was justified in remanding the assessment after holding that the assessee was not afforded a reasonable opportunity of hearing. - HELD THAT: - The Tribunal found that adequate opportunity was not provided to the assessee and, for that reason, set aside the assessment and remitted the matter to the Assessing Officer for fresh adjudication. The High Court held that no prejudice to the assessee could be inferred from that course; where a decision is vitiated by failure to adhere to principles of natural justice, the appropriate remedy is to direct the authority that breached those principles to re-appraise the matter and pass a fresh order. The Court found the Tribunal's action of remand to be justified and not arbitrary or perverse.

Remand to Assessing Officer for adjudication afresh upheld; second question answered against the assessee.

Final Conclusion: Questions of law framed at admission are answered against the assessee: the block assessment is not time barred in view of the clarificatory Explanation treating conclusion of search as the triggering event for limitation, and the Tribunal rightly set aside and remanded the assessment for fresh adjudication after finding that the assessee had not been afforded adequate opportunity.

Revenue expenditure vs capital expenditure - commercial expediency and business expansion - software licence for operational use treated as revenue expense - percentage completion method and treatment of work-in-progress

Revenue expenditure vs capital expenditure - commercial expediency and business expansion - Deletion of disallowance of fees paid for due diligence (feasibility report) - whether such expenditure is revenue or capital in nature. - HELD THAT: - The Tribunal treated the fees paid for preparing a feasibility report for laying pipeline as revenue/business expenditure on the ground that the expenditure was incurred directly to facilitate and expand the assessee's regular business (laying pipelines for gas supply) and was commercially expedient. The High Court found that this case differs from authorities relied upon by the appellant where the project concerned establishment of a new, unrelated undertaking; here the feasibility study related to an expansion of the assessee's existing business activity. On that basis the Tribunal's conclusion that the expenditure was revenue in nature was not erroneous. [Paras 5, 7, 8]

The Tribunal correctly treated the due-diligence/feasibility fees as revenue expenditure; the appellant's challenge on this point is dismissed.

Software licence for operational use treated as revenue expense - revenue expenditure vs capital expenditure - Deletion of disallowance of expenses claimed for purchase of software - whether the expense is in the nature of capital (licence) or revenue. - HELD THAT: - The Tribunal found that the software acquisitions were revenue expenditure because the licences were for use in running day-to-day business and not for resale. The High Court saw no error in that conclusion, accepting that licences used in ordinary course of business operations can constitute revenue expenses rather than capital outlays. [Paras 9, 10]

The Tribunal rightly held the software-related expenditure to be revenue in nature; the appellant's contention fails.

Percentage completion method and treatment of work-in-progress - Deletion of addition on account of estimated profit on work-in-progress where assessee followed percentage completion method of accounting. - HELD THAT: - The Tribunal observed that, since the assessee had routinely offered income on the percentage completion basis, there was no justification for treating work-in-progress and related expenses under a different method for assessment purposes. The High Court found no error in the Tribunal's approach and its refusal to make a separate addition for estimated profit on WIP. [Paras 11, 12]

The Tribunal's deletion of the addition for estimated profit on WIP is upheld; the appellant's challenge is rejected.

Final Conclusion: All three challenges to the Tribunal's order were rejected and the appeal is dismissed.

Exemption under Section 194A(3)(iii)(f) - Tax deduction at source - Effect of Official Gazette notification - Requirement to apply for exemption

Exemption under Section 194A(3)(iii)(f) - Effect of Official Gazette notification - Tax deduction at source - Payments made to societies wholly financed by the Government are exempt from deduction of tax at source under Section 194A(3)(iii)(f) once the Central Government has issued the relevant notification in the Official Gazette. - HELD THAT: - The Court held that Section 194A(3)(iii)(f) exempts from the operation of sub section (1) those institutions or bodies which the Central Government notifies in the Official Gazette. The Central Government had issued a notification covering societies wholly financed by the Government. Consequently, when the assessee paid interest to such societies without deducting tax, Section 194A(1) did not apply. The notification itself renders the statutory obligation to deduct tax inapplicable; no further act by the assessee is required to bring the exemption into effect. [Paras 8]

The Appellate Authority's order upholding the exemption was affirmed and the finding that no TDS was payable in respect of payments to the wholly government financed societies was accepted.

Requirement to apply for exemption - Effect of Official Gazette notification - Assessee is not required to apply for or seek exemption once the Central Government has issued the notification; the requirement to record 'reasons in writing' pertains to the Central Government prior to notification and not to the assessee. - HELD THAT: - The Court observed that the phrase 'reasons to be recorded in writing' relates to the internal exercise of power by the Central Government before issuing the notification and does not impose any obligation on the assessee to apply for exemption. Therefore, upon issuance of the statutory notification (which was not challenged), the exemption operates automatically and the assessee need not obtain any separate exemption order or seek permission from tax authorities. [Paras 9]

No application by the assessee was necessary; the notification alone sufficed to render Section 194A(1) inapplicable to payments to the notified class.

Final Conclusion: Appeal dismissed; the Appellate Authority's order was upheld and payments made by the assessee to societies wholly financed by the Government for the financial year 2010-11 were held not to attract TDS in view of the Central Government's notification, with no requirement on the assessee to apply for exemption.

Genuineness of gifts - jurisdiction of the Income Tax Appellate Tribunal to remand - capacity of the donor - assessment remand and directions for reconsideration - offset of additions against surrendered partnership income

Genuineness of gifts - capacity of the donor - jurisdiction of the Tribunal - Tribunal acted within jurisdiction in directing reconsideration of the genuineness of gifts and in treating the gifts as genuine without separately adjudicating the donor's capacity. - HELD THAT: - The High Court found no error of law in the Tribunal's exercise of jurisdiction in remitting the matter for reconsideration and in its approach to the gifts. Subsequent proceedings after the Tribunal's remand (fresh assessments framed and again set aside) rendered the controversy largely academic for the present petitions. Having affirmed the order of remand passed by the Tribunal in the assessee's appeals, the Court held that the Tribunal was entitled to direct the Assessing Officer to re-examine the genuineness of the gifts and that such exercise did not amount to a jurisdictional infirmity. The Court therefore answered the revenue's challenge on this point against the revenue.

Answered against the revenue; no error in the Tribunal's exercise of jurisdiction on the genuineness of the gifts.

Assessment remand and directions for reconsideration - precedent reliance and authority of Tribunal to direct reconsideration - Tribunal was correct in directing the Assessing Officer to reconsider the genuineness of gifts despite the Assessing Officer having earlier recorded an opinion and despite reliance placed on a jurisdictional High Court judgment. - HELD THAT: - The Court rejected the revenue's submission that the Tribunal lacked jurisdiction to give directions as to reconsideration where the Assessing Officer had formed an opinion. The Court noted the course of subsequent assessments and the affirmation of the remand order in related appeals, concluding that the Tribunal's direction for the Assessing Officer to reconsider was not legally impermissible. Consequently the challenge based on the cited jurisdictional High Court precedent did not merit upsetting the Tribunal's order in these petitions.

Answered against the revenue; Tribunal rightly directed reconsideration of the gifts' genuineness.

Offset of additions against surrendered partnership income - questions remanded for adjudication in subsequent appeals - Whether any addition, if sustained, should be offset against income surrendered by the firm is left open for decision in separate appeals (ITA Nos. 99, 128 and 204 of 2013). - HELD THAT: - The Court observed that the Assessing Officer has already recorded findings in accordance with the Tribunal's directions and that the question of offset arises in assessments that are subject matter of separate appeals. Given that those assessments and findings are pending adjudication in ITA Nos. 99, 128 and 204 of 2013, the Court declined to decide the offset issue in the present petitions and left it to be decided while disposing of the specified appeals.

Left open/remanded for determination in ITA Nos. 99, 128 and 204 of 2013.

Final Conclusion: The petitions are disposed of: the first two substantial questions were answered against the revenue (no error in the Tribunal's exercise of jurisdiction or in directing reconsideration of the genuineness of the gifts); the third question concerning offset against surrendered partnership income is left open to be decided in the specified subsequent appeals, and the present controversy is rendered largely academic by intervening proceedings.

Free exportability subject to FTP and other law - No Objection Certificate requirement for "military stores" as specified by DGFT - Limitations on DGFT's power to modify or add restrictions to the Foreign Trade Policy - DGFT's role to specify items within notified categories, not to create omnibus prohibitions - SCOMET classification and its application

Free exportability subject to FTP and other law - No Objection Certificate requirement for "military stores" as specified by DGFT - Validity of the impugned circular proscribing export of goods "apparently in the nature of military stores" without a NOC from DoDP - HELD THAT: - Paragraphs 8-11 and 13-15 analyse the FTP and Schedule 2 (ITC(HS), 2012). The FTP establishes a default rule of free exportability unless an item is expressly regulated under the FTP or any other law. Entry 4 of Table A contemplates that items specified by the DGFT as "military stores" may require a NOC, but no such list has been specified by DGFT. The impugned circular purports to impose an omnibus prohibition on export of all goods "apparently in the nature of military stores" without a NOC, which is inconsistent with the FTP's scheme that only items expressly specified attract the stated condition. Consequently the circular goes beyond the regulatory role conferred by the notified Export Policy and imposes a restriction not authorised by the FTP or any other law. [Paras 8, 10, 13, 14]

The impugned circular is not in conformity with the FTP and is set aside.

Limitations on DGFT's power to modify or add restrictions to the Foreign Trade Policy - DGFT's role to specify items within notified categories, not to create omnibus prohibitions - Interpretation of FTP by DGFT - Extent of DGFT's authority to issue the impugned circular or otherwise impose export restrictions outside the FTP - HELD THAT: - Section 6 and paragraphs 2.3-2.4 of the FTP confer on DGFT the role of advising, interpreting the FTP and specifying procedures, but do not empower DGFT to amend or supplement the FTP or to exercise powers reserved to the Central Government under Section 5. The DGFT's proper role in relation to entry 4 is to specify those items which fall within the notified category; it cannot, by circular, widen the restriction to all items "apparently" military in nature. Circulars or public notices may clarify procedure or resolve classification doubts, but they cannot effect substantive modification of the Export Policy as notified by the Central Government. [Paras 16, 17, 18, 19]

DGFT lacked authority to issue omnibus directions contrary to the FTP; its power is limited to specifying items and procedures within the framework of the notified policy.

SCOMET classification and its application - No Objection Certificate requirement for "military stores" as specified by DGFT - Whether bullet proof vests are covered by SCOMET or otherwise restricted under the FTP so as to require a NOC - HELD THAT: - Entry 5 and Appendix 3 (SCOMET) do not include bullet proof vests; category 6 (munitions list) remains to be finalised but has not been notified to cover the product in question. Given that bullet proof vests are not specified in the SCOMET list and not otherwise listed under the notified entries that attract restriction, there is no basis in the FTP to treat them as requiring a NOC. Further, the fact that such items are freely importable reinforces that FTP does not disclose an export restriction for the product at present. [Paras 23, 24, 25, 26, 27]

Bullet proof vests are not shown to be part of SCOMET or otherwise restricted under the FTP; export restriction by DGFT circular is unwarranted.

DGFT's role to specify items within notified categories, not to create omnibus prohibitions - Direction to DGFT and DoDP to remedy the regulatory gap identified by the Court - HELD THAT: - Recognising that entry 4 contemplates a list to be specified by DGFT, the Court obliged DGFT to perform that function within a fixed time frame and directed DGFT to ensure DoDP specifies an appropriate timeline for disposal of NOC requests. The direction is procedural and administrative: it does not validate the impugned circular but requires the authorised authority to carry out the specification exercise authorised by the FTP. Meanwhile, the petitioner is permitted to export non lethal items not expressly covered by entries 4 or 5 or other law. [Paras 28, 29, 30]

DGFT directed to specify the list of military stores requiring a NOC within eight weeks and to ensure DoDP prescribes a timeframe for NOC decisions; petitioner permitted interim export of non lethal, non specified items.

Final Conclusion: Writ petition allowed: the DGFT circular imposing an omnibus NOC requirement for goods "apparently in the nature of military stores" is set aside as ultra vires the FTP/FTDR Act; DGFT is directed to specify the items that require a NOC within eight weeks and to get DoDP to prescribe timelines for NOC disposal; in the interim the petitioner may export non lethal items not expressly specified as restricted under the FTP or any other law.

Summary order. Notice issued on the application for stay; Civil Appeals admitted.

Summary order. Special Leave Petition dismissed and delay condoned.

Admission of appeal - Interim relief - stay refused

Admission of appeal - Admittance of the appeals filed by the appellant before the Court. - HELD THAT: - The Court heard the matter and recorded that the appeals are admitted. No reasons are provided in the short order beyond the formal admission of the appeals to be proceeded with on merits.

Appeals admitted.

Interim relief - stay refused - Application for interim injunction in the form of a stay of the impugned action or order. - HELD THAT: - The Court considered the request for interim relief and declined to grant a stay. The order is brief and does not set out detailed reasoning for refusal of interim relief; it records the Court's decision to proceed without staying the contested action.

No stay granted.

Final Conclusion: The Supreme Court admitted the appeals and declined to grant interim relief in the form of a stay; proceedings will continue without a stay.

Liability of burning loss to customs duty - scope of waste and scrap under section 65(2)(b) - requirement of physical clearance for levy of customs duty - consumption in manufacture versus removal for home consumption - exemption notification applicable to goods used under section 65 in a bonded warehouse - precedent on use in bonded warehouse not constituting removal for home consumption

Liability of burning loss to customs duty - scope of waste and scrap under section 65(2)(b) - requirement of physical clearance for levy of customs duty - consumption in manufacture versus removal for home consumption - exemption notification applicable to goods used under section 65 in a bonded warehouse - precedent on use in bonded warehouse not constituting removal for home consumption - Burning loss arising during manufacture in a customs bonded warehouse is not leviable to customs duty under section 65(2)(b) when it is consumed in the manufacturing process and is not physically cleared from the warehouse for home consumption. - HELD THAT: - The Tribunal examined whether the quantity described as 'burning loss' falls within waste and scrap liable to duty under section 65(2)(b). Section 65(2)(b) applies to waste and scrap that result from manufacturing operations and are cleared from the warehouse for home consumption. Where the burning loss is not physically available and has been consumed in the manufacture of the final product, it cannot be cleared from the warehouse and therefore does not fall within clause (b). The exemption notification relied upon by the appellant is granted for raw materials used in manufacture under section 65; since burning loss represents quantity consumed in manufacture and is not a physical clearance, the notification covers the imported input inclusive of such consumption. The Tribunal applied the ratio of the authority holding that use of imported goods in manufacturing within a bonded warehouse does not constitute removal for home consumption and distinguished decisions concerned with physically recoverable waste and scrap cleared for home consumption. Consequently, duty cannot be charged on the non-existent (invisible) burning loss both because it is consumed in manufacture and because it is not physically cleared from the bonded warehouse. [Paras 5, 6, 7]

Orders of the lower appellate authority confirming duty and penalties on burning loss are set aside; appeals allowed with consequential relief and stay application rendered infructuous.

Final Conclusion: The Tribunal held that burning loss which is consumed in the manufacturing process within a customs bonded warehouse and is not physically cleared for home consumption does not attract customs duty under section 65(2)(b); the impugned orders confirming demand and penalties were set aside and the appeals allowed.

Input service - cenvat credit - reverse charge - inclusive definition - quality control - place of removal - post-removal activity - used in or in relation to the manufacture of final products and clearance of final products

Input service - cenvat credit - reverse charge - quality control - post-removal activity - used in or in relation to the manufacture of final products and clearance of final products - Service tax paid under reverse charge on quality control and cleaning services rendered abroad at the buyer's premises is eligible as cenvat credit under the inclusive definition of "input service" in Rule 2(l) of CCR 2004 for the period in dispute. - HELD THAT: - The Tribunal considered whether services of removal of rust, deburring and dimensional checks carried out by an overseas service provider at the buyer's warehouse relate to manufacture or clearance so as to qualify as "input service". The definition in Rule 2(l) contains an inclusive illustration which must be read in totality and not dissected artificially into isolated categories. The activities in question were required to meet the buyer's specification and ISO standards and were integral to ensuring acceptability of the exported Rear Axle Housings; failure to meet those standards would cause commercial loss to the manufacturer. Distinguishing authorities relied upon by Revenue as dealing with commissions, welfare or residential services, the Tribunal held those cases inapplicable as they do not concern post clearance quality control essential to the business of manufacture and export. Following the reasoning in Coca Cola India (as applied in Nilkamal), services that relate to the business and to ensuring conformity with contractual and technical specifications fall within the inclusive definition of "input service" and are therefore eligible for cenvat credit even if rendered outside India or after removal, provided they are in relation to manufacture/clearance as illustrated in the definition. [Paras 7, 8, 9, 11]

The adjudication order denying cenvat credit on the service tax paid under reverse charge was set aside; the respondents are eligible for input credit in respect of the overseas quality control services.

Final Conclusion: Revenue's appeal is rejected; the impugned order allowing cenvat credit of service tax paid under reverse charge for the overseas quality control services is upheld and the respondents' cross objection is disposed of.

Commercial training or coaching centre - Exclusion where an institute issues any certificate, diploma, degree or educational qualification recognised by law - Recognition by law of a course completion / training certificate - Service tax liability for commercial training and coaching services

Commercial training or coaching centre - Recognition by law of a course completion / training certificate - Service tax liability for commercial training and coaching services - Whether the training activity carried out by the appellant falls within the definition of commercial training or coaching centre and is therefore liable to service tax, or is excluded because the institute issues a certificate recognised by law. - HELD THAT: - The Tribunal examined the definition of commercial training or coaching centre and the exclusion for any institute which issues a certificate, diploma, degree or educational qualification recognised by law. The Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulation, 2000 makes practical training from an approved institution mandatory for obtaining an insurance agent licence, prescribes training modules, designates approved institutions and requires passing a prescribed examination. On these statutory/regulatory provisions the Tribunal held that the appellant's certificate of completion of practical training carries recognition by law because the regulations require such training from approved institutions as a pre-condition to licensing and prescribe the content and recognition framework. The Tribunal considered precedent: the Larger Bench decision in Great Lakes (which did not decide the exclusion clause) was held not to assist Revenue; the decision of the High Court of Delhi in Indian Institute of Aircraft Engineering was treated as persuasive on the meaning of "recognised by law" and the exclusion; and the Tribunal's earlier Pasha Educational Training Institute decision was consistent with the conclusion that similarly situated training is not covered. Applying that reasoning, the Tribunal concluded that the appellant's training is legally recognised and thus falls within the exclusion to the definition of commercial training or coaching centre, so service tax is not leviable on the activity. [Paras 9, 11, 16, 17, 18]

Training imparted by the appellant is recognised by law and therefore excluded from the definition of commercial training or coaching centre; the appellant is not liable to pay service tax and the impugned order is set aside.

Final Conclusion: Appeal allowed on merits: service tax liability, interest and penalties confirmed by the adjudicating authority set aside because the appellant's training and certificate are recognised by law and fall within the exclusion to the definition of commercial training or coaching centre.

Refund of CENVAT credit - limitation under Section 11B of the Central Excise Act, 1944 - Rule 5 of the CENVAT Credit Rules, 2004 - applicability of Notification No. 5/2006-C.E. (N.T.) for refund claims - relevant date for computation of one year limitation (date of export/clearance) - time barred refund claims

Refund of CENVAT credit - limitation under Section 11B of the Central Excise Act, 1944 - Rule 5 of the CENVAT Credit Rules, 2004 - applicability of Notification No. 5/2006-C.E. (N.T.) for refund claims - relevant date for computation of one year limitation (date of export/clearance) - Whether refund claims of unutilised CENVAT credit under Rule 5 are subject to the one year limitation prescribed by Section 11B by virtue of Notification No. 5/2006 and, if so, the relevant date for computing limitation. - HELD THAT: - The Tribunal applied the reasoning of the Madras High Court (paras 11-15) and held that although Section 11B on its face refers to refund of duty paid, Notification No. 5/2006-C.E. (N.T.) makes the procedural requirement of Section 11B applicable to refund claims under Rule 5 of the CENVAT Credit Rules, 2004. Rule 5 permits refund of CENVAT credit where inputs or input services are used in manufacture of exported final products, but does not itself prescribe a relevant date for limitation. The notification, however, requires filing the application in Form A with prescribed enclosures before the expiry of the period specified in Section 11B. Reading Rule 5 together with the notification, the relevant date for computing the one year period is the date on which the final products are cleared for export; limitation must therefore be satisfied for claims under Rule 5. The Tribunal found the appellant's refund portion to be time barred on that basis and affirmed rejection of the claim as barred by limitation. [Paras 11, 12, 13, 14, 15]

Claim for refund of CENVAT credit under Rule 5 is subject to the one year limitation under Section 11B as made applicable by Notification No. 5/2006, the relevant date being the date of clearance for export; the disputed portion of the refund was time barred and rejected.

Final Conclusion: Appeal dismissed; the Tribunal upheld the rejection of the refund claim as time barred, holding that Rule 5 refunds fall within the procedural time limit of Section 11B by virtue of Notification No. 5/2006 and that the relevant date is the date of export/clearance.

Service of show-cause notice as foundation for adjudication - remand for verification of deposits and Cenvat credit reversal - exclusion of value of study material from taxable gross under Notification No. 12/2003-ST - re-adjudication following due process of law

Remand for verification of deposits and Cenvat credit reversal - Whether the service tax demand relating to the period 2003-04 to 2007-08 required fresh verification in view of deposits and Cenvat credit reversal claimed by the appellant. - HELD THAT: - The Tribunal recorded that the appellant contends (appeal folder pages 119-120) that deposits and reversal of Cenvat credit exceed the service tax demand shown in the show-cause notice for 2003-04 to 2007-08 and that this aspect requires scrutiny. The Revenue acknowledged absence of specific findings in the adjudication order on this point and the appellant's contention that liability has been discharged as per the record. Given the need to verify available evidence and the factual contention about payments and credit reversals, the Tribunal remitted the matter to the adjudicating authority for verification of the material on record and re-adjudication. [Paras 8]

Remitted to the learned adjudicating authority for verification and re-adjudication of the demand for 2003-04 to 2007-08.

Exclusion of value of study material from taxable gross under Notification No. 12/2003-ST - remand for verification of fulfillment of notification conditions - Whether the claimed exclusion of study material value from gross receipts for the year 2009-10 under Notification No. 12/2003-ST was established and required fresh adjudication. - HELD THAT: - The appellant submitted that separate bills were issued for study material and therefore the value should be excluded from the gross amount for the service 'Commercial Training or Coaching' under Notification No. 12/2003-ST dated 20.6.2003. The Revenue stated that no material had been produced to show compliance with the conditions of the notification but accepted that if conditions were satisfied the benefit could not be denied. The Tribunal found that the adjudication order contained no conclusive finding whether the notification's conditions were met and therefore remitted the issue to the adjudicating authority to verify the record and decide afresh on entitlement to the notification's benefit. [Paras 9]

Remitted to the learned adjudicating authority to verify whether the conditions of Notification No. 12/2003-ST are fulfilled and to re-adjudicate the demand for 2009-10.

Service of show-cause notice as foundation for adjudication - re-adjudication following due process of law - Whether the service tax demand for 2010-11 against the appellant (M/s Narayana Coaching Centre) was sustainable where no show-cause notice had been issued to the appellant for the relevant period. - HELD THAT: - The Tribunal examined the adjudication order and noted that no show-cause notice had been issued to the appellant for the period 1.4.2010 to 30.9.2010, the period during which the appellant carried on 'commercial training or coaching', and that the show-cause notice had been issued only to M/s Narayana Learning Pvt. Ltd. The Tribunal emphasized that issuance of a show-cause notice is the foundation of adjudication and that, absent service of such notice, the appellant was not put on notice of the charge and its defence was denied. Relying on the ratio in Commissioner of C. Ex., Bangalore v. Brindavan Beverages (P) Ltd. as applied in the adjudicatory context, the Tribunal held that adjudication in the absence of a foundational show-cause notice is fatally defective. [Paras 10]

Demand for 2010-11 (Rs. 2,23,16,485/-) does not sustain against the appellant and is set aside.

Final Conclusion: The stay application is allowed; the appeal is partly allowed: the demand for 2010-11 is set aside for lack of a show-cause notice, while the demands for 2003-04 to 2007-08 and 2009-10 are remitted to the adjudicating authority for fresh verification and re-adjudication following due process.

Nullity of proceedings for non-issuance of show cause notice - requirement of issuance of show cause notice before adjudication - remand for fresh adjudication by tribunal - appellate court's limited interference with tribunal's findings of fact

Nullity of proceedings for non-issuance of show cause notice - requirement of issuance of show cause notice before adjudication - appellate court's limited interference with tribunal's findings of fact - Proceedings and adjudication in the absence of a show cause notice are null and void and cannot be sustained. - HELD THAT: - The Tribunal recorded that no show cause notice was issued to the assessee. The High Court accepted the Tribunal's fact-finding and held that where no show cause notice has been issued, the related proceedings are a nullity and the adjudication is non est. Given the Tribunal's finding on this factual matter, the High Court declined to interfere with that finding and its legal consequence that the adjudication cannot be sustained in the absence of a proper show cause notice. [Paras 2]

Proceedings quashed as a nullity for want of issuance of a show cause notice; adjudication held non est.

Remand for fresh adjudication by tribunal - appellate court's limited interference with tribunal's findings of fact - Matters other than the demand relating to Rs. 2,23,16,485/- were remanded to the adjudicating authority for fresh consideration. - HELD THAT: - The Tribunal remanded the matter for fresh adjudication of all issues except the specific demand. The High Court upheld the remand, noting the Tribunal's direction for fresh adjudication and declining to disturb the Tribunal's order on the factual finding that no show cause notice had been issued. The Court therefore allowed the departmental proceedings to be reopened in accordance with law as directed by the Tribunal. [Paras 2, 3]

Remand upheld; matter remitted for fresh adjudication except in respect of the specified demand.

Final Conclusion: Appeal dismissed; the Tribunal's finding that no show cause notice was issued renders the adjudication a nullity and the matters (other than the specified demand) are remanded for fresh adjudication; the department is at liberty to proceed in accordance with law.

Utilisation of CENVAT credit for payment of duty on return of inputs - payment of duty in cash or by CENVAT credit under Central Excise Rules - shifting of accumulated CENVAT credit between manufacturers

Utilisation of CENVAT credit for payment of duty on return of inputs - shifting of accumulated CENVAT credit between manufacturers - Whether the appellant could debit accumulated cenvat credit to pay duty when returning inputs to the original supplier where no excise duty had been paid on original clearance - HELD THAT: - The Tribunal found that the appellant, a 100% EOU, received inputs cleared by domestic suppliers on which no excise duty had been paid at the time of original clearance, and consequently no cenvat credit was taken by the appellant. The factual position prima facie indicated that there was no occasion to pay duty when the goods were returned to the supplier; by debiting accumulated cenvat credit the appellant effectively shifted accumulated credit to the supplier's unit. While the appellant relied on the option to pay duty in cash or by cenvat credit under the Central Excise Rules and on precedent, the Tribunal observed that, on these facts, utilisation of cenvat credit for payment on return of such inputs was not appropriate. In view of the overall facts and submissions, rather than staying the demand in full, the Tribunal directed a partial deposit in cash as a condition for stay of the balance of the demand, with reporting of compliance. [Paras 6]

Appellant directed to deposit 7.5% of the duty demanded in cash within eight weeks and report compliance on 19.01.2015; on payment there would be stay of recovery of the balance amount of duty, interest and penalty.

Final Conclusion: The Tribunal prima facie held that utilisation of accumulated cenvat credit to discharge duty on inputs returned to the original supplier (where no duty had been paid on original clearance) amounted to an impermissible shifting of credit; a conditional interim relief was granted subject to cash deposit of 7.5% of the duty demanded, with stay on the remaining demand upon compliance.

Denial of Cenvat credit - conversion of rods/rounds into bright bars not amounting to manufacture - entitlement to Cenvat credit where duty on final product has been discharged after availing credit - reversal of Cenvat credit where duty paid on clearance of final product

Denial of Cenvat credit - conversion of rods/rounds into bright bars not amounting to manufacture - entitlement to Cenvat credit where duty on final product has been discharged after availing credit - Whether Cenvat credit availed and utilized towards payment of duty on cleared final product can be denied on the ground that the activity did not amount to manufacture. - HELD THAT: - The Tribunal held that where the assessee has discharged the excise liability on the final product after availing Cenvat credit, there is no justification to deny the credit merely because the conversion process has been held not to amount to manufacture. The bench relied upon earlier judicial authority confirming that non-manufacture findings do not permit recovery of Cenvat credit already utilized towards payment of duty on cleared goods, and accepted the view that payment of duty on clearance operates against departmental contention that manufacture did not take place. The Tribunal therefore set aside the impugned order and allowed the appeal, dispensing with the condition of pre-deposit. The judgment discusses and follows precedents including Vee Kayan Industries , Super Forgings and Steels Ltd. , and other Tribunal decisions which support the entitlement to credit in the facts where duty on final products has been paid after taking Cenvat credit.

Appeal allowed; impugned order set aside and Cenvat credit upheld, pre-deposit condition dispensed with.

Final Conclusion: The appeal was allowed: Cenvat credit availed and utilized for payment of duty on final product was upheld despite the conversion not amounting to manufacture; the impugned order was set aside and pre-deposit dispensed with.

Entitlement to CENVAT credit on input services in the course of manufacturing under Rule 3A of the Central Excise Rules, 1944 - input service credit for maintenance of off site power generation plant - use of electricity generated off site and transmitted through State Electricity Board for manufacturing - precedential weight of tribunal and High Court decisions on CENVAT credit entitlement

Entitlement to CENVAT credit on input services - input service credit for maintenance of off site power generation plant - use of electricity generated off site and transmitted through State Electricity Board for manufacturing - Appellant entitled to take CENVAT credit on annual maintenance charges of a wind mill installed outside the factory whose generated electricity is transmitted through MSEB and used in manufacturing. - HELD THAT: - The Tribunal examined whether annual maintenance service tax paid in respect of a wind mill located away from the factory, whose electricity is fed to and drawn back from the State Electricity Board, qualifies as an input service under the manufacturer's entitlement. Relying on Rule 3A of the Central Excise Rules, 1944 and earlier decisions of this Tribunal and the Bombay High Court on identical facts, the Tribunal noted it is an admitted fact that the wind mill was installed to generate electricity used by the appellant in manufacturing. The Tribunal observed that no new binding decision was placed on record to distinguish the precedents relied upon by the appellant. Applying the principle that services availed in the course of manufacturing attract CENVAT credit where the input (electricity) is used in manufacture, and having regard to the precedents (including the Bombay High Court decision referred to), the Tribunal concluded that the annual maintenance service is an allowable input service and the denial by lower authorities was unsustainable. [Paras 7]

Impugned order denying CENVAT credit set aside; appeal allowed and appellant entitled to CENVAT credit on the annual maintenance charges of the wind mill, with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, holding that annual maintenance services of an off site wind mill-whose electricity, though transmitted via MSEB, is used in the appellant's manufacturing-qualify for CENVAT credit; the impugned order denying credit is set aside with consequential relief.

Cenvat credit - excess utilisation of inputs - processing loss - recovery of penal charges/debit notes from job worker - reversal of Cenvat credit - entitlement to credit despite accumulated shortages

Cenvat credit - excess utilisation of inputs - processing loss - recovery of penal charges/debit notes from job worker - reversal of Cenvat credit - Whether Cenvat credit availed on inputs shown as utilised in excess of prescribed norms and for which penal charges were recovered from the job worker must be denied or required to be reversed on the ground that such inputs were not utilised in or in relation to manufacture of final product. - HELD THAT: - The Tribunal accepted the appellants' explanation that the excess utilisation represented accumulated processing loss attributable to technical factors and not non-utilisation of inputs in manufacture. The fact that the appellant raised debit notes or recovered penal charges from the job worker to incentivise efficiency did not convert the accumulated shortages into a basis for denying Cenvat credit. The decision follows precedent in which similar accumulated shortages owing to yield variations were held not to justify duty demand or denial/reversal of credit; thus the appellant's credit entitlement remains intact where excess use arose from processing loss and was addressed contractually with the job worker.

Cenvat credit availed on inputs consumed in excess of norms due to processing loss need not be denied or reversed merely because penal charges/debit notes were recovered from the job worker; the impugned demand is set aside and the appeal is allowed.

Final Conclusion: Appeal allowed; impugned order denying Cenvat credit and imposing corresponding interest and penalty set aside, and the appellant held entitled to retain the Cenvat credit with consequential relief, following Tribunal precedent on accumulated processing losses and debit-note adjustments.

Assessable value - determination of assessable value under Section 4 and Section 4A of the Central Excise Act, 1944 - applicability of Section 4A for supplies to Tamil Nadu Civil Supplies Corporation - precedential effect of earlier Tribunal decision and Supreme Court decision in Jayanti Foods

Assessable value - determination of assessable value under Section 4 and Section 4A of the Central Excise Act, 1944 - applicability of Section 4A for supplies to Tamil Nadu Civil Supplies Corporation - Whether the assessable value of Electric Table Fans and Electric Rice Cookers supplied to the Tamil Nadu Civil Supplies Corporation is to be determined under Section 4 or under Section 4A of the Central Excise Act, 1944. - HELD THAT: - The Tribunal examined the narrow contested question of valuation of the specified goods cleared to TNCSC. The appellants had cleared the goods under Section 4A, while Revenue contended duty was exigible under Section 4. The Tribunal observed that an identical question in the appellants' own earlier case had been decided in their favour by Final Order No. 40783-40788/2014 dated 19.11.2014, which followed the Supreme Court's decision in M/s. Jayanti Foods Processing Pvt. Ltd. and the decision in PG Electroplast Ltd. The present appeal was disposed of by applying those precedents and the Tribunal set aside the impugned order, holding that the valuation adopted by the assessee under Section 4A was correct. Consequential relief, if any, was directed to follow.

Impugned order set aside; appeal allowed on the ground that valuation under Section 4A was applicable to the supplies to TNCSC, following the earlier Tribunal and Supreme Court precedents.

Final Conclusion: The Tribunal allowed the appeal, setting aside the impugned order and confirming that the assessee's valuation under Section 4A of the Central Excise Act, 1944 for supplies to the Tamil Nadu Civil Supplies Corporation was correct, following earlier Tribunal and Supreme Court decisions; stay application disposed of.

Maintainability of appeal - mandatory pre-deposit under Section 35F of the Central Excise Act, 1944 as amended by Finance Act, 2014 - non-consideration of merits where statutory pre-deposit not made - principles of natural justice

Maintainability of appeal - mandatory pre-deposit under Section 35F of the Central Excise Act, 1944 as amended by Finance Act, 2014 - non-consideration of merits where statutory pre-deposit not made - Whether the appeals are maintainable in the absence of the mandatory pre-deposit required by the amended Section 35F. - HELD THAT: - The Tribunal observed that Section 35F, as amended by the Finance Act, 2014, mandates a pre-deposit of 7.5% of the duty/penalty confirmed by the impugned order as a condition precedent to entertaining an appeal. Because the appellants had not satisfied this statutory pre-deposit requirement, the Tribunal held that it was precluded from examining the merits of the challenge to the impugned order. Although the appellants alleged violation of principles of natural justice in passing the impugned order, that contention was not adjudicated on merits because the statutory condition for maintainability was not fulfilled. [Paras 4]

Appeals dismissed as non-maintainable for failure to make the mandatory pre-deposit under the amended Section 35F; merits not considered.

Final Conclusion: Appeals dismissed as non-maintainable for failure to make the statutory pre-deposit prescribed by Section 35F (as amended by Finance Act, 2014); the Tribunal did not examine the merits, including the pleaded breach of natural justice.

Waiver of pre-deposit - Exemption under Notification No.108/95-CE - Requirement of certificate proving project approval by Government of India - Prima facie case test for grant of stay - Stay of recovery during pendency of appeal

Exemption under Notification No.108/95-CE - Requirement of certificate proving project approval by Government of India - Waiver of pre-deposit - Prima facie case test for grant of stay - Stay of recovery during pendency of appeal - Whether the appellant is entitled to waiver of pre-deposit and stay of recovery pending appeal by demonstrating prima facie entitlement to exemption under Notification No.108/95-CE. - HELD THAT: - The Tribunal examined Notification No.108/95-CE which exempts goods supplied for use in a project that has been approved by the Government of India and financed by an international organisation, provided a certificate is produced by the relevant authority confirming that the goods are required for execution of the project and that the project has been approved by the Government of India. The appellant produced a certificate from the Secretary, Finance Department, Government of Tamil Nadu, showing the supplies were made for a project executed under World Bank assistance (Loan No. LN 4798-IN) and the appellant's name appears on that certificate. The Tribunal accepted the submission that a World Bank loan sanction is contingent on approval of the project by the Government of India and held that, on the materials produced, the essential ingredients of the Notification were prima facie satisfied. Applying the prima facie test for grant of interim relief, the Tribunal found that the appellant had made out a case for waiver of the pre-deposit and for staying recovery during the pendency of the appeal, and accordingly exercised its discretion in favour of the appellant.

Requirement of pre-deposit waived and recovery stayed during pendency of the appeal.

Final Conclusion: On a prima facie view of the certificate showing supplies to a World Bank assisted project and the attendant finding that the Notification's conditions appear satisfied, the Tribunal allowed full waiver of the pre deposit and stayed recovery pending the appeal.

Recovery of tax by way of tax deduction at source - liability to deduct tax at source - deemed sale by transfer of right to use - exemption from tax - power to order no deduction or lesser rate - penalty for failure to deduct tax at source

Liability to deduct tax at source - recovery of tax by way of tax deduction at source - deemed sale by transfer of right to use - exemption from tax - Whether the revisionist, a corporation constituted under a State Act, was liable to deduct tax at source under Section 35 on amounts paid to vehicle owners for transfer of right to use buses - HELD THAT: - Section 35 imposes an obligation to deduct tax at source at the rate of four percent where there is an agreement for transfer of right to use goods and the lessee includes a State corporation. The Court recorded that the revisionist is a corporation constituted under a State Act and that the revisionist had itself sought exemption from payment of tax from the State Government, which indicated that it did not treat itself as already exempt from the statutory obligation to deduct. The Tribunal had examined the matter and imposed a reduced quantum of penalty. The High Court found no substantial question of law arising to justify interference with the Tribunal's conclusion that Section 35 applied and that the revisionist was bound by the deduction obligation pending any exemption order by the State.

The Court rejected the contention that the revisionist was not exigible to deduct tax under Section 35 and did not interfere with the Tribunal's finding that the obligation to deduct applied.

Penalty for failure to deduct tax at source - power to order no deduction or lesser rate - Whether the Tribunal erred in reducing the quantum of penalty imposed for failure to deduct tax at source - HELD THAT: - The assessing officer initially imposed penalty at twice the amount; the First Appellate Authority reduced it to an amount equal to the tax which should have been deducted; the Tribunal further reduced the penalty to 20% of the amount which should have been deducted. The High Court noted that the Tribunal granted considerable relief on quantum and found no substantial question of law warranting interference with the Tribunal's exercise of discretion in modifying the penalty, particularly in light of Section 35 which permits the Assessing Authority to order no deduction or a lesser rate in appropriate cases.

The Court declined to interfere with the Tribunal's reduction of the penalty and dismissed the revisions challenging the quantum.

Final Conclusion: The applications for condonation of delay were allowed; on merits the revisions were dismissed as no substantial question of law arose - the State corporation was held subject to Section 35's TDS obligation absent an exemption order, and the Tribunal's reduction of the penalty was not interfered with.

Enforceability of an undertaking given for grant of tax incentive - doctrine of approbate and reprobate / benefits and burdens - linkage between special exemption notification and subsequent tax deferment - restitution and unjust enrichment-obligation to disgorge benefits with interest - application of tax-deferment scheme and pre-payment facility vis-a -vis legally permissible incentive - interest on delayed payment under payment-schedule provisions read with general interest provision

Enforceability of an undertaking given for grant of tax incentive - doctrine of approbate and reprobate / benefits and burdens - Validity and enforceability of the undertaking given by the petitioner under Notification dated 22.2.2002 and liability to repay excess RST incentive for 2001-02 to 2005-06. - HELD THAT: - The Court found that the Notification dated 22.2.2002 was an independent grant of incentive under the State's executive power and was expressly made subject to the specific undertaking given by the petitioner linking its higher benefit to the fate of the Binani litigation. The undertaking, executed in unequivocal terms, obliged the petitioner to deposit the benefit availed exceeding 25% if the High Court's order in Binani was modified by the Supreme Court. The Supreme Court's decision on 19.2.2014 operated the contingency and restored entitlement to 25%, thereby activating the petitioner's obligation under the undertaking. The BIFR proceedings and the sanctioned rehabilitation scheme did not, on the record, relieve the petitioner of that undertaking or otherwise entitle it to retain the excess benefit; the BIFR had no power to unilaterally displace the statutory/notification-linked condition. The petitioner, having accepted and availed the benefit under the Notification on giving the undertaking, cannot now repudiate the burden imposed by that instrument. Therefore the assessment demanding the differential for the RST period was held sustainable. [Paras 60, 61, 62, 64, 72]

The undertaking was enforceable; the petitioner is liable to disgorge the excess RST incentive (exceeding 25%) for the period in question and the writ petitions are dismissed insofar as they sought to avoid that liability.

Linkage between special exemption notification and subsequent tax deferment - application of tax-deferment scheme and pre-payment facility vis-a -vis legally permissible incentive - Effect of Notification dated 31.3.2006 (deferment) and the petitioner's pre-payment under Notifications dated 9.3.2007 / 24.8.2007 on liability for VAT for 2006-07 to 2008-09. - HELD THAT: - The Court held that the deferment Notification expressly linked the percentage of deferment to the percentage of incentive available in the immediately preceding year (clause (6)). Since the Notification dated 22.2.2002 (on which the petitioner relied) was reduced to 25% by the Supreme Court's decision, the legally permissible deferment for 2006-07 to 2008-09 also stood reduced to 25%. The petitioner had therefore availed an excess deferment of 50% for those years which, by operation of law and the linkage created by the deferment notification, had to be repaid. The pre-payment facility could discharge only that portion of the deferred tax which was legally capable of being deferred; amounts retained beyond the legally permissible 25% could not be regularised by pre-payment and were not eligible for the benefit of the pre-payment Notification. The Department's rectifications and credits of amounts paid were noted, and the demand computations taking such credits into account were treated as proper. [Paras 43, 54, 65, 66, 68]

The deferment entitlement was limited to 25% for the deferment years; excess deferment availed must be refunded (subject to credits for legitimate pre-payments), and the assessment for 2006-07 to 2008-09 upholding that liability is sustainable.

Restitution and unjust enrichment-obligation to disgorge benefits with interest - interest on delayed payment under payment-schedule provisions read with general interest provision - Whether interest is payable on the differential amount and the legal basis for computing interest. - HELD THAT: - The Court held that once the obligation to disgorge the excess benefit arose (by operation of the undertaking and the Supreme Court's decision restoring entitlement to 25%), principles of restitution and prevention of unjust enrichment required the petitioner to restore the benefit 'without loss to the exchequer'. The scheme of the Act of 2003 (Section 20(1) read with Section 20(4)) and the general interest provision (Section 55(1)) make interest payable where periodic payments required under the statute are delayed; hence interest liability crystallises from the date the payment was due under the statutory schedule until payment is made. The undertaking's language, and established jurisprudence on unjust enrichment and restitution, support awarding interest to make the State whole; absence of a specific computation formula in the Notification did not negate the entitlement to interest where the statutory scheme prescribes periodic payment and a general interest provision. [Paras 46, 47, 70, 71, 72]

Interest on the differential amount is legally payable in accordance with the scheme of periodic payment and the general interest provision; the assessments imposing interest are sustainable.

Final Conclusion: The writ petitions are dismissed. The assistant commissioner's orders demanding the differential tax (RST and VAT) and interest, arising from the undertaking given under Notification dated 22.2.2002 and the consequent effect on the deferment benefit, are upheld after accounting for legitimate pre-payments and credits.