TaxTMI Updates e-Newsletter
Jan 16,2017

Deductibility of discount under employee stock option/stock appreciation right schemes as revenue expenditure - ascertained liability (not contingent) for ESOP/SAR expenses - deduction under section 37(1) of the Income-tax Act as employees' remuneration - mercantile/accrual concept and vesting-period apportionment of ESOP/SAR cost - adjustment of provisional deduction at the time of exercise of options - Fringe benefit recognition of discounted allotment as consideration for employment

Deductibility of discount under employee stock option/stock appreciation right schemes as revenue expenditure - ascertained liability (not contingent) for ESOP/SAR expenses - deduction under section 37(1) of the Income-tax Act as employees' remuneration - Stock Appreciation Right (SAR) related expenditure written off/claimed as loss is revenue in nature and allowable as deduction; the disallowance treating it as capital expenditure (and capital loss) is erroneous for AY 2008-09. - HELD THAT: - The Tribunal examined the SAR scheme mechanics (trust purchases shares, companies fund the trust, employees receive differential between sale price and fixed base) and applied established principles on ESOP discounts. Relying on the reasoning that discounted allotment under employee share schemes is essentially remuneration to employees and not a short capital receipt, the Tribunal held such obligation to be an ascertained business liability incurred during the vesting period and therefore deductible under section 37(1). The order adopts the special bench reasoning that discount/discount-like obligation under employee share schemes is an employee cost and not a contingent or capital loss, and notes supportive decisions of High Courts addressing similar schemes. The Tribunal further observed that under mercantile accounting the liability accrues over the vesting period and is deductible as incurred. Consequently, the assessing officer's disallowance of the written-off amount as capital loss was reversed. [Paras 7, 8]

The disallowance of Rs. 1,147,623 (treated as capital loss) for AY 2008-09 is held to be erroneous; the SAR/SAR-trust related expenditure is revenue in nature and allowable, and the addition is deleted for AY 2008-09.

Mercantile/accrual concept and vesting-period apportionment of ESOP/SAR cost - adjustment of provisional deduction at the time of exercise of options - Fringe benefit recognition of discounted allotment as consideration for employment - The like disallowance for AY 2009-10 arising from SAR expenses is likewise to be deleted; the same legal principles governing deductibility and treatment over vesting/exercise apply to AY 2009-10. - HELD THAT: - As the facts and legal characterisation of the SAR scheme for AY 2009-10 were identical to AY 2008-09, the Tribunal applied the same legal analysis: the liability created by the SAR scheme is an ascertained business liability (not contingent), deductible over the vesting period under mercantile accounting principles and, where necessary, adjusted on exercise or lapse. In consequence, the assessing officer's disallowance for AY 2009-10 was set aside following the conclusions reached for AY 2008-09. [Paras 9]

The disallowance of Rs. 15,12,621 for AY 2009-10 is deleted and the appeal is allowed for AY 2009-10.

Final Conclusion: Appeals allowed. The Tribunal set aside the assessing officer's and CIT(A)'s disallowances treating SAR/ESOP-related amounts as capital, holding such amounts to be revenue expenditure/ascertained employee-costs deductible under section 37(1) and applying the same conclusion to AY 2008-09 and AY 2009-10; the additions for both years are deleted.

Minimum Alternate Tax (MAT) - exclusion under section 115JB(6) - Special Economic Zones Act definitions of "Unit", "Special Economic Zone", "developer" and "entrepreneur" - interpretation of statutory exception

Minimum Alternate Tax (MAT) - exclusion under section 115JB(6) - Special Economic Zones Act definitions of "developer" and "entrepreneur" - Unit and Special Economic Zone - Whether the assessee is excluded from applicability of section 115JB by virtue of section 115JB(6) on the ground of being a developer/entrepreneur or being situated in a Unit/SEZ as defined under the SEZ Act - HELD THAT: - The Tribunal considered the amended provision contained in section 115JB(6), which was inserted by the SEZ Act, 2005, and observed that the exception applies specifically to concerns qualifying as an "entrepreneur" or "developer" and situated in a "Unit" or a "Special Economic Zone" as defined under the SEZ Act. The CIT(A) found, and the assessee conceded before the Tribunal, that the assessee did not satisfy those definitions and was not situated in a Unit or Special Economic Zone as defined under the SEZ Act. The CIT(A) concluded that the assessee therefore could not invoke the exception; the exception cannot be construed so broadly as to swallow the main charging provision of section 115JB. In light of the assessee's concession and the statutory scheme, the Tribunal found no reason to interfere with the CIT(A)'s conclusion that the exclusion under section 115JB(6) was not attracted. [Paras 4, 6]

Assessee not covered by the exclusion in section 115JB(6); MAT under section 115JB applies.

Final Conclusion: The appeal is dismissed; the Tribunal upholds the CIT(A)'s finding that the assessee does not qualify for the exclusion under section 115JB(6) and is liable to pay tax on book profits under section 115JB for Assessment Year 2012-13.

Addition under section 68 relating to unexplained cash gifts - onus of proof for genuineness and capacity of the donor - rejection of explanation based on suspicion without material - adverse consequence of non-prosecution of a ground of appeal

Addition under section 68 relating to unexplained cash gifts - onus of proof for genuineness and capacity of the donor - rejection of explanation based on suspicion without material - Deletion of the addition of Rs. 4,56,000 treated as unexplained cash gift under section 68. - HELD THAT: - The assessee's father appeared pursuant to summons and admitted the cash gift of Rs. 4,56,000 and produced evidence of agricultural land and a Tahsildar certificate (dated 4.1.2012) stating agricultural income of Rs. 3,15,000 and expressly linking that income to F.Y. 2008-09 relevant to A.Y. 2009-10. The Assessing Officer did not bring any positive material to disprove the donor's statement or the documentary evidence produced; his conclusion that the donor lacked capacity rested on suspicion and conjecture (notably observations about cash custody, absence of bank account, and discrepancies not supported by contrary proof). Applying the principle that a plausible explanation cannot be rejected on mere suspicion and that the department must place material to rebut the evidence (as recognised in Sreelekha Banerjee ), the Tribunal held that the initial onus on the assessee was discharged and the reassessment/addition under section 68 could not be sustained. [Paras 10, 11, 12]

Addition of Rs. 4,56,000 made under section 68 is deleted; assessee's ground is allowed.

Adverse consequence of non-prosecution of a ground of appeal - Disposition of the ground challenging adhoc disallowance of Rs. 47,180. - HELD THAT: - The assessee's authorised representative did not press or make substantive arguments in support of this ground before the Tribunal. In the absence of prosecution or argument, the Tribunal dismissed the ground for want of prosecution and did not admit further submissions on that issue. [Paras 13, 14]

Ground challenging adhoc disallowance of Rs. 47,180 dismissed for want of prosecution.

Final Conclusion: The appeal is partly allowed: the addition of Rs. 4,56,000 under section 68 is deleted, while the challenge to the adhoc disallowance of Rs. 47,180 is dismissed for want of prosecution.

Royalty - fees for technical services (FTS) - make available - reimbursement vs income characterization - withholding liability under section 195 - application of Article 12 of the India-Canada DTAA

Royalty - reimbursement vs income characterization - withholding liability under section 195 - application of Article 12 of the India-Canada DTAA - Characterisation of payments of Rs. 9,19,96,649 made for group-level IT support services - whether taxable as 'royalties'/FTS or mere reimbursements entitling recipient to no Indian-taxable income and absolving payer from TDS under section 195. - HELD THAT: - The Tribunal found on the material that the payments to BT Canada were cost-allocated reimbursements for group IT support, determined by explicit pricing or sharing keys, and did not confer any use or right to use equipment or transfer copyright. Even if equipment or software were used in service rendition, that use did not vest any right in the assessee to use the equipment/software. It is neither practicable nor permissible to dissect the payment into hypothetical components and treat a segment as consideration for use of equipment. The Tribunal agreed with the CIT(A)'s reasoning that under the India-Canada DTAA and domestic law the payments lacked the essential element of a right to use or transfer of copyright and therefore did not constitute 'royalty' or taxable income in the hands of the non-resident. In consequence, the sums were not 'chargeable to tax' in India and there was no obligation on the payer to deduct tax under section 195. [Paras 8, 9]

Payments characterised as reimbursements, not 'royalties'; no income chargeable in India in recipient's hands; no TDS under section 195 required. Ground no. 2 dismissed.

Fees for technical services (FTS) - make available - application of Article 12 of the India-Canada DTAA - withholding liability under section 195 - Characterisation of Rs. 7,21,21,518 paid for group-level administration, management and support services - whether these payments constitute 'fees for included services'/FTS under Article 12(4) (i.e., they 'make available' technical knowledge) and attract withholding under section 195. - HELD THAT: - The Tribunal applied Article 12(4) of the India-Canada DTAA and the established meaning of the 'make available' requirement: services must result in transmitting technical knowledge/know how so that the recipient can apply the technology independently in future. On the facts, the services were routine management/consultancy/support, rendered year-on-year, did not involve training or transfer of technology, and did not enable the assessee to perform the services independently without recourse to BT Canada. The AO had relied on conjecture that technical inputs would equip the assessee; the Tribunal held such inference insufficient. Following relevant precedents and the CIT(A)'s findings, the make-available test was not satisfied and the payments could not be characterised as FTS/fees for included services; hence no component of income chargeable to tax in India arose and no withholding under section 195 was warranted. [Paras 14, 15, 16, 17, 18]

Payments not FTS under Article 12(4) as they do not 'make available' technology; no income chargeable in India; no TDS under section 195 required. Ground no. 3 dismissed.

Final Conclusion: The Tribunal upholds the CIT(A)'s deletions: (i) payments for group IT support are reimbursements and not royalties, and (ii) payments for management/administrative/support services do not 'make available' technology and are not FTS under the India-Canada DTAA; consequently, the assessee had no obligation to withhold tax under section 195 for the assessment year 2013-14. Appeal dismissed.

Reopening of assessment - reason to believe - tangible material - change of opinion - jurisdictional fact - speaking order on objections - coram non judice

Reopening of assessment - reason to believe - tangible material - change of opinion - jurisdictional fact - speaking order on objections - coram non judice - Validity of reopening assessment under section 147 for AY 2001-02 - HELD THAT: - The Tribunal examined the reasons recorded by the AO for reopening and applied settled law that recorded reasons must exhibit a rational nexus with escapement of income and must constitute fresh tangible material rather than a mere change of opinion or speculative suspicion. The recorded reasons stated that (i) exemption under section 11 was claimed though the trust was not registered under section 12A and (ii) personal expenses were claimed against income from other sources not allowable under section 57. On perusal of the return and records the Tribunal found that the assessee was not registered under section 12A and had not claimed exemption under section 11, and that no personal expenses were claimed against income from other sources; only TDS entries and corresponding income were shown in returns filed for deities/Idols. Consequently there was no live link between the reasons recorded and escapement of income nor any fresh tangible material on which a reasonable belief could be founded. The Tribunal further held that the AO failed to decide the assessee's objections to reopening by a speaking order as required by authority, which compounded the jurisdictional defect. Because the jurisdictional fact necessary for valid exercise of power under section 147 was absent, the reopening and subsequent assessment were held to be coram non judice and void ab initio. [Paras 7, 8, 9]

Reopening under section 147 for AY 2001-02 quashed; assessment under section 147 held void and appeal allowed.

Reopening of assessment - reason to believe - tangible material - change of opinion - jurisdictional fact - Validity of reopening assessment under section 147 for AYs 2002-03 to 2004-05 - HELD THAT: - The parties agreed that the same legal view taken in respect of AY 2001-02 would apply to the remaining assessment years. In light of the Tribunal's finding that the AO lacked fresh tangible material and had no valid reason to believe income had escaped assessment, the Tribunal applied the same conclusion to AYs 2002-03 to 2004-05 without deciding other contested grounds on merits as they became academic. [Paras 10, 11]

Reopenings and assessments for AYs 2002-03 to 2004-05 quashed; appeals allowed on the same ground.

Final Conclusion: All four appeals (AYs 2001-02 to 2004-05) allowed: the Tribunal quashed the reopenings and assessments framed under section 147 as being without jurisdiction for lack of fresh tangible material and for failure to record a speaking order on objections, rendering the proceedings void ab initio.

Taxability of interest on non-performing assets on receipt basis - mercantile system of accounting versus cash/receipt basis for NPAs - income recognition as distinct from computation of taxable income - Real Income Theory - Accounting Standard AS-9 on Revenue Recognition - RBI prudential norms for income recognition and asset classification - overriding effect of Section 45Q of the RBI Act vis-a -vis income recognition - precedential effect of UCO Bank and Mercantile Bank decisions

Taxability of interest on non-performing assets on receipt basis - mercantile system of accounting versus cash/receipt basis for NPAs - RBI prudential norms for income recognition and asset classification - overriding effect of Section 45Q of the RBI Act vis-a -vis income recognition - Accounting Standard AS-9 on Revenue Recognition - Real Income Theory - precedential effect of UCO Bank and Mercantile Bank decisions - Interest on loans classified as non-performing assets by the assessee (a cooperative bank) is to be accounted for as income in the year of receipt and not on accrual for the Assessment year 2009-10. - HELD THAT: - The Tribunal accepted the assessee's consistent practice, followed pursuant to mandatory RBI prudential norms and the apex cooperative-bank directives, of recognising interest on NPA accounts on receipt basis. Applying the Real Income Theory and Accounting Standard AS-9, the Court observed that income recognition (when an item becomes part of 'real income') is a distinct question from computation of taxable income under the Income-tax Act. Insofar as recognition is concerned, the RBI Directions (prudential norms) govern cooperative banks and, by virtue of the overriding provision in Chapter IIIB of the RBI Act, including Section 45Q, the RBI guidelines prevail over conflicting accounting-treatment rules; accordingly section 145 (mercantile accrual principles) does not displace the mandatory RBI position on recognition of income from NPAs. The Tribunal relied on and followed the decisions of the Apex Court in UCO Bank and Mercantile Bank (which uphold receipt-basis recognition for doubtful loans) and subsequent High Court and Tribunal authorities holding that cooperative banks must follow RBI directions on income recognition. The Revenue's reliance on the majority view in State Bank of Travancore was held misplaced in view of later authoritative decisions and the 1984 CBDT circular considered in UCO Bank. For these reasons the CIT(A)'s deletion of the addition treating NPA interest as taxable only on receipt was upheld. [Paras 23, 24, 25, 26, 27]

The order of the CIT(A) deleting the addition and treating interest on NPAs as taxable in the year of receipt is affirmed; Revenue's appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s finding that, for Assessment year 2009-10, interest on loans classified as NPAs by the cooperative bank is taxable only in the year of actual receipt, having regard to RBI prudential norms, AS-9, the Real Income Theory and the overriding effect of the provisions of Chapter IIIB of the RBI Act.

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - change of head of income - bona fide belief - reclassification of income by assessing officer

Penalty under section 271(1)(c) - change of head of income - bona fide belief - Whether the penalty under section 271(1)(c) is leviable where the assessing officer reclassified income declared as short term capital gains as business income, without any evidence of concealment or furnishing of inaccurate particulars. - HELD THAT: - The Tribunal examined the factual matrix and found that the assessee had declared income from dealings in shares and securities as short term capital gains and that the AO merely reclassified that income as business income without making any addition to income. The assessee had explained that her treatment was bona fide and pointed out that in the subsequent assessment year the AO accepted her claim of short term capital gains. Relying on the decision of the Hon'ble Bombay High Court in Bennett Coleman & Co. Ltd., and a Coordinate Bench decision, the Tribunal held that where there is only a change of the head of income and no evidence that the assessee's claim was not bona fide, penalty under section 271(1)(c) for furnishing inaccurate particulars cannot be sustained. The Revenue did not produce material to controvert the assessee's bona fides or to show concealment; tax consequences from reclassification alone do not establish that inaccurate particulars were furnished. [Paras 3]

Penalty of Rs. 1,18,735/- imposed under section 271(1)(c) for A.Y. 2008-09 deleted as there was only a change of head of income and no evidence of non bona fide or concealment.

Final Conclusion: The appeal is allowed; the penalty under section 271(1)(c) for A.Y. 2008-09 is deleted because the assessing officer's reclassification of short term capital gains as business income did not amount to furnishing inaccurate particulars in the absence of evidence that the assessee's claim was not bona fide.

Nature of income - business income versus capital gains - intention of the assessee and classification of securities as investment - treatment under section 68 as income from undisclosed sources - onus of proof on assessee to establish genuineness and creditworthiness of counterparties - reliance on stock exchange records and payment through account payee cheques (including STT evidence) - treatment of dividend income and period of holding

Nature of income - business income versus capital gains - intention of the assessee and classification of securities as investment - Income from sale-purchase of securities was correctly assessable as capital gains and not business income. - HELD THAT: - The Tribunal found that the assessee consistently showed securities as investments in books and offered corresponding gains under the head 'capital gains' for the year under appeal and the preceding year. The Assessing Officer's reliance solely on magnitude, frequency and period of holding to treat the transactions as business was rejected. The Tribunal held that the AO cannot substitute the assessee's commercial judgment and that the assessee's intention, as reflected in accounting treatment and past practice, is determinative. Reliance was placed on precedent to the effect that frequency or magnitude alone does not convert investment into trade, and where transactions are recorded and treated as investments, they merit acceptance as capital gains. [Paras 6]

Ground allowed; income to be treated as capital gains.

Treatment under section 68 as income from undisclosed sources - onus of proof on assessee to establish genuineness and creditworthiness of counterparties - reliance on stock exchange records and payment through account payee cheques (including STT evidence) - Addition treating the long term capital gain as bogus income from undisclosed sources was not sustained and was deleted. - HELD THAT: - Although the AO doubted the genuineness of the sale (inter alia because the purchaser had SEBI restrictions and had not filed financial statements), the Tribunal found that the assessee produced contract notes, evidence of payments by account payee cheques, STT payment and exchange records showing the purchase and sale. The lower authorities did not bring concrete evidence to displace the assessee's documents nor issue statutory summons to the third parties; mere failure of a broker or purchaser to produce records or non filing by the purchaser with the exchange does not automatically render the transaction bogus. The Tribunal therefore reversed the additions, following jurisdictional precedents that an assessee should not be penalised for defaults of brokers or purchasers where the existence of transactions and payments are not in dispute. [Paras 11]

Ground allowed; addition deleted and long term capital gain accepted.

Treatment of dividend income and period of holding - reliance on stock exchange records and payment through account payee cheques (including STT evidence) - Disallowance of dividend income on the ground that the investment was made and dividend received on the same date was reversed. - HELD THAT: - The assessee produced bank statements and account entries showing investment of Rs.75,000 and receipt of the dividend credited to bank accounts; the Tribunal noted there was no contrary material produced by Revenue. The AO's conclusion that dividend could not accrue on the same day as investment was not supported by evidence and the transaction records were accepted. Accordingly the CIT(A)'s confirmation of the AO's disallowance was reversed. [Paras 15]

Ground allowed; dividend income accepted.

Final Conclusion: All grounds raised by the assessee are allowed and the appeal is allowed.

Jurisdiction of High Court under Article 226 - finality of Settlement Commission orders and its effect on writ jurisdiction - scope of judicial review of Settlement Commission limited to illegality, bias, fraud, malice or contravention of the IT Act - assessment by settlement distinct from regular assessment but governed by provisions of the Act - powers and duties of the Commissioner under Chapter XIX-A and role as adversarial/reporting authority - power of the Settlement Commission under Section 245D(4) to pass orders in accordance with the Act - misrepresentation or non-consideration of material (Section 245D(6) context) as ground for interference - failure to verify genuineness of alleged loans/advances for making additions

Jurisdiction of High Court under Article 226 - finality of Settlement Commission orders and its effect on writ jurisdiction - powers and duties of the Commissioner under Chapter XIX-A and role as adversarial/reporting authority - Whether the Commissioner of Income-tax is entitled to invoke writ jurisdiction under Article 226 to challenge the order of the Settlement Commission - HELD THAT: - The Court held that Chapter XIX-A constitutes a self-contained code for settlement proceedings but does not convert the Commission's orders into an unreviewable rule ousting constitutional jurisdiction. The Commissioner, within Chapter XIX-A, performs an adversarial/reporting role and does not exercise adjudicatory power conferred exclusively on the Settlement Commission. Consequently the report filed by the Commissioner is not an adjudication; the Commissioner is not precluded from approaching the High Court under Article 226 to challenge the Commission's order. The Court relied on the distinction between assessment by settlement and regular assessment and observed that statutory finality does not oust writ jurisdiction; prior decisions (including those addressing finality of Settlement Commission orders) restrict but do not eliminate judicial review to questions of illegality, bias, fraud, malice or contravention of the Act. The factual and statutory matrix of Mohtesham Mohd. Ismail was held distinguishable. [Paras 8, 9]

The Commissioner is entitled to move the High Court under Article 226 to challenge the Settlement Commission's order.

Failure to verify genuineness of alleged loans/advances for making additions - misrepresentation or non-consideration of material (Section 245D(6) context) - scope of judicial review of Settlement Commission limited to contravention of the Act or failure to apply mind - Whether the Settlement Commission correctly declined to make additions on account of alleged advances shown in the Cash Flow Statements - HELD THAT: - The Court found that the Settlement Commission accepted the assessee's claim regarding advances without recording reasoning and despite the Commissioner's report that details of creditors and creditworthiness were not furnished and could not be verified. The Commission's brief conclusion - that no addition was called for - was held to be without adequate consideration or explanation. Reliance was placed on authority holding that conclusions about genuineness of loans require reasoned findings and that the Commission cannot merely refer to parties' stands. Given the absence of reasoned consideration of the report and the lack of verification of creditors, the Court concluded that the matter has not been properly adjudicated by the Settlement Commission. The Court therefore set aside that part of the order and remanded the issue for fresh consideration in accordance with law, permitting the Commission to examine the report, seized records and the Commissioner's contentions and to record reasons while applying the provisions of the Act. [Paras 10, 11, 12, 13]

The Settlement Commission's conclusion on the advances is set aside and the matter is remanded for fresh consideration and reasoned decision regarding the genuineness and verifiability of the alleged loans/advances.

Final Conclusion: Writ petition allowed; the Settlement Commission's order is set aside insofar as it declined to make additions on account of advances shown in the Cash Flow Statement, and the matter is remanded to the Settlement Commission for fresh, reasoned consideration of that aspect in accordance with law; no costs.

Summary order. Special leave petitions dismissed; delay condoned.

Carry forward of unabsorbed depreciation - amendment of section 32(2) by Finance Act, 2001 - effect of CBDT Circular No.14 of 2001 dispending the eight year limit - deeming fiction of addition of unabsorbed depreciation to following year - precedent of jurisdictional High Court in General Motors India P. Ltd. v. DCIT

Carry forward of unabsorbed depreciation - amendment of section 32(2) by Finance Act, 2001 - effect of CBDT Circular No.14 of 2001 dispending the eight year limit - precedent of jurisdictional High Court in General Motors India P. Ltd. v. DCIT - Carry forward and set off of unabsorbed depreciation computed in years prior to the amendment (including A.Y. 1997-98) and its availability in subsequent years including A.Y. 2006-07. - HELD THAT: - The Tribunal held that the CIT(A) erred in not considering and adjudicating the assessee's reliance on the jurisdictional High Court decision in General Motors India P. Ltd. v. DCIT. That decision interprets the amendment to section 32(2) effected by Finance Act, 2001 and the accompanying CBDT Circular No.14 of 2001 as dispensing with the earlier eight year limit with effect from 1st April 2002 (A.Y. 2002-03). Any unabsorbed depreciation available to an assessee on 1st April 2002 would be governed by section 32(2) as amended by Finance Act, 2001 and, accordingly, unabsorbed depreciation from prior years (including A.Y. 1997-98 through A.Y. 2001-02) which stood carried forward to A.Y. 2002-03 became part of depreciation for that year and thereafter is available for carry forward and set off without the eight year restriction. Applying that binding principle to the facts before it, the Tribunal directed the Assessing Officer to allow the carry forward of depreciation which had not been allowed, since unabsorbed depreciation up to A.Y.1997-98 became depreciation of the current year and must be treated in accordance with law as interpreted by the High Court and followed by the Tribunal. [Paras 5, 6, 7]

Allowance of carry forward of the unabsorbed depreciation disallowed by the AO is directed; appeal allowed.

Final Conclusion: Following the jurisdictional High Court's interpretation and CBDT Circular No.14 of 2001, the Tribunal allowed the assessee's appeal and directed the Assessing Officer to permit carry forward and set off of the unabsorbed depreciation in accordance with the amended section 32(2), quashing the disallowance impugned in the assessment for A.Y. 2006-07.

Purpose test for characterisation of subsidy - capital receipt versus revenue receipt - characterisation of subsidy not governed by accounting treatment - nature of transport subsidy under incentive schemes

Purpose test for characterisation of subsidy - capital receipt versus revenue receipt - nature of transport subsidy under incentive schemes - characterisation of subsidy not governed by accounting treatment - Transport subsidy received by the assessee during Assessment Year 2001-02 is capital in nature and not taxable as revenue receipt. - HELD THAT: - Applying the purposive or 'purpose' test as enunciated in Sahney Steel & Press Works Ltd. and reiterated in Ponni Sugars & Chemicals Ltd., the court examined the object of the Transport Subsidy Scheme, 1971 and the incentive packages for the North-Eastern region. The court held that where the object of the subsidy is to promote industrial development, encourage investment in backward and remote areas, and generate employment (rather than merely augment the recipient's profits), the receipt is to be treated as capital. The timing, source or form of payment is irrelevant to this enquiry. The court rejected the Revenue's reliance on accounting treatment: Tuticorin Alkali Chemicals & Fertilizers makes clear that accountancy practice cannot determine tax character where legal principles govern. The court further distinguished decisions on other types of subsidies (for example power subsidy in Rajaram Maize Products) by noting that the nature of subsidies varies and each case must be decided on its own facts. Applying these principles and the authorities including Jai Bhagwan Oil and Flour Mills, the court concluded that the transport subsidy was intended to stimulate industrial activity in the North-East and therefore is a capital receipt not chargeable to tax. [Paras 21, 22, 23, 24, 25]

Transport subsidy is capital in nature and not taxable in the hands of the assessee for Assessment Year 2001-02.

Final Conclusion: The substantial question of law is answered in favour of the assessee: the transport subsidy received in Assessment Year 2001-02 is a capital receipt intended to foster industrial development in the North Eastern region and is not taxable; appeal disposed of with parties to bear their own costs.

Explanation 1 to section 37(1) of the Income-tax Act - business expenditure wholly and exclusively for the purposes of business - inadmissibility of expenses prohibited by law - applicability of Indian Medical Council Regulations, 2002 to pharmaceutical companies - CBDT Circular No. 5/2012 - scope and retrospective effect - contemporanea expositio and limits of administrative circulars

Explanation 1 to section 37(1) of the Income-tax Act - applicability of Indian Medical Council Regulations, 2002 to pharmaceutical companies - CBDT Circular No. 5/2012 - scope and retrospective effect - business expenditure wholly and exclusively for the purposes of business - Allowability of sales promotion, CRM, KAM, gift articles and sample-related expenses claimed by a pharmaceutical company in light of Explanation 1 to section 37(1) as construed by CBDT Circular No.5/2012 - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the impugned expenditures were incurred as promotional/business expenses and not as prohibited 'freebies' under the Indian Medical Council Regulations, 2002. The MCI Regulations (including clause 6.8 as amended) prescribe ethical conduct for registered medical practitioners and impose sanctions on doctors; the regulations do not, on their face, regulate or proscribe conduct of pharmaceutical or allied-health industry entities. Consequently, Explanation 1 operates to deny deduction only where the expenditure is an offence or is prohibited by law as applicable to the assessee claiming the deduction. The CBDT Circular No.5/2012 sought to apply the MCI prohibition to pharmaceutical companies; the Tribunal held that such enlargement of the scope of the MCI Regulations by administrative circular is without enabling statutory sanction and, insofar as it imposes a new burden, cannot be given retrospective effect to disallow expenditures for A.Y. 2010-11. On the facts the assessee demonstrated that the items (seminars, sponsored lectures, low-cost promotional articles bearing company/product name and physician samples marked not for sale) were for product promotion and brand awareness and were not unlawful freebies to doctors; comparable decisions and distinguishing factual features of cases relied upon by Revenue were considered. For these reasons the disallowance under Explanation 1 was unwarranted and the CIT(A)'s deletion of the disallowance was upheld.

The Tribunal upheld the CIT(A)'s allowance of the disputed expenditure and held that Explanation 1 to section 37(1) and CBDT Circular No.5/2012 did not operate to disallow the claimed expenditures for A.Y. 2010-11.

Final Conclusion: Revenue's appeal dismissed; the order of the CIT(A) deleting the disallowance of the sales-promotion and related expenditures for A.Y. 2010-11 is upheld.

Disallowance of interest on borrowed funds used for non-business purposes - application of section 36(1)(iii) regarding deduction of interest - test of business nexus for interest deduction - use of balance-sheet and source-utilisation evidence to determine application of funds

Disallowance of interest on borrowed funds used for non-business purposes - application of section 36(1)(iii) regarding deduction of interest - test of business nexus for interest deduction - Whether proportionate interest paid on bank borrowings is deductible when borrowed funds were utilised for making interest free advances to sister concerns. - HELD THAT: - The Tribunal upheld the findings of the AO and the CIT(A) that the assessee had shown substantial interest free advances to sister concerns while concurrently having sizeable interest bearing borrowings and interest expense. The assessee's contention that advances were made out of capital reserves was rejected on the factual basis that reserves and share capital were already applied towards fixed assets and that bank borrowings were taken in earlier years contemporaneously with the making of advances. In these circumstances the Tribunal concluded that borrowed funds, wholly or partly, were applied for non business purposes (interest free advances to related concerns), thereby breaking the requisite business nexus for deduction of interest. The Tribunal found the case law relied upon by the assessee distinguishable on facts and held that the proportionate disallowance under the provision dealing with deduction of interest was warranted.

Proportionate disallowance of interest of Rs. 30,80,000 under section 36(1)(iii) is upheld and the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the appeal and upheld the disallowance of proportionate interest on the ground that borrowed funds were utilised for making interest free advances to sister concerns, thereby negating the business nexus for deduction under the relevant provision.

Capital work-in-progress and disallowance of interest - diversion of interest-bearing funds by share application money - deductibility of interest as commercial expediency - disallowance under section 14A and Rule 8D - bidding expenses - revenue v. capital - use of AIR information and need for reconciliation - allowability of repairs claim against insurance proceeds - verification remand for reconciliation or computation

Capital work-in-progress and disallowance of interest - Deletion of interest disallowance of Rs. 13,62,536/- attributable to capital work-in-progress for AY 2006-07. - HELD THAT: - The Tribunal accepted the assessee's position that capital work-in-progress (CWIP) of Rs. 1.36 crores was met out of internal accruals and own funds while borrowed funds were used to advance share application money to a subsidiary. The assessee's available own funds substantially exceeded the CWIP. In these circumstances there was no requirement to disallow interest attributable to CWIP under the proviso to the relevant provision, and the CIT(A) order restoring the amount was set aside. [Paras 7, 9, 10]

Disallowance of Rs. 13,62,536/- is deleted and Assessing Officer directed to delete the addition.

Diversion of interest-bearing funds by share application money - deductibility of interest as commercial expediency - Allowability of interest expenditure wholly disallowed by AO (Rs. 1,48,10,695/-) on account of advance as share application money to subsidiary for AY 2006-07 and AY 2007-08. - HELD THAT: - CIT(A) found, and the Tribunal accepted, that the advances by way of share application money to the wholly owned subsidiary were made in the course of the assessee's business of infrastructure development/finance and that a nexus between the advance and the business purpose was established. The CIT(A) applied the commercial expediency test - it is not necessary that the advance directly benefits the assessee immediately or pays interest, but there must be a business nexus. On facts the proviso relied upon by the AO was not applicable. The Tribunal found the CIT(A)'s view plausible and declined to interfere for both years. [Paras 6, 11, 12, 30, 31]

The disallowance of interest on account of advances as share application money is not sustained; CIT(A)'s allowance is upheld.

Allowability of repairs claim against insurance proceeds - Deletion of addition of Rs. 62.00 lakhs alleged by AO as income on account of insurance claim for AY 2006-07. - HELD THAT: - The ledger for Repairs & Maintenance showed that the assessee credited Rs. 62.00 lakhs to the Repairs & Maintenance account and the net figure was debited to the Profit & Loss account; therefore the amount had been reflected in the P&L (not omitted) and effectively offered as income. The AO had not properly appreciated these facts. The CIT(A)'s deletion was held to be correct. [Paras 13, 14, 15]

Addition of Rs. 62.00 lakhs is deleted.

Disallowance under section 14A and Rule 8D - Extent of disallowance under section 14A for exempt dividend income is restricted to 10% of dividend income for AY 2006-07 and AY 2007-08. - HELD THAT: - Rule 8D was held by the jurisdictional High Court to apply only from AY 2008-09; for earlier years disallowance under section 14A must be computed on a reasonable basis. Considering the assessee's limited investment activity during the years and factual matrix (timing of investments and funding from sales/internal accruals), the Tribunal found that restricting the disallowance to 10% of exempt dividend income is a reasonable method and directed the AO to compute accordingly for AY 2006-07 and affirmed the same approach for AY 2007-08. [Paras 16, 17, 18, 32, 33]

Disallowance under section 14A to be restricted to 10% of the dividend income for the years in issue; AO directed to compute accordingly.

Use of AIR information and need for reconciliation - verification remand for reconciliation or computation - Addition of Rs. 1,45,749/- based on AIR information for AY 2006-07 is remanded for fresh verification and reconciliation. - HELD THAT: - The Tribunal observed that the discrepancy between the assessee's declared rental income and AIR required reconciliation. The assessee contended it had reconciled TDS and that any error may be on the payer's side. The matter requires collection of details from the payer and explanation from the assessee; therefore the CIT(A) order confirming the addition was set aside and the matter restored to the AO for examination and reconciliation. [Paras 19, 20]

Issue restored to the file of the AO for collection of details from the payer and fresh decision after reconciliation; assessee to assist.

Verification remand for reconciliation or computation - Addition of Rs. 97,118/- on account of alleged 100% depreciation on low-cost machinery is remanded for limited verification. - HELD THAT: - The assessee explained that 100% depreciation figure appeared only in book (Companies Act) depreciation and that tax depreciation was claimed at applicable rates; AO's assessment shows depreciation of Rs. 2,41,65,640/- allowed. The Tribunal directed the AO to verify whether the allowed tax depreciation already included the disputed Rs. 97,118/-. If not included the addition must be deleted; if included, the addition may be sustained. The CIT(A) order was set aside for this limited verification. [Paras 21, 22, 23]

Matter remitted to the AO to verify whether the allowed tax depreciation includes the disputed amount; deletion if not included, otherwise sustain the addition.

Bidding expenses - revenue v. capital - Bidding expenses of Rs. 2,76,76,530/- incurred for filing bids for airport modernization are revenue in nature and deductible for AY 2006-07. - HELD THAT: - The Tribunal found that the expenses were incurred in the course of the assessee's business of infrastructure development and were incurred to procure contracts (bids/tenders). The fact that bids were unsuccessful does not convert such expenses into capital expenditure; they were neither the creation of a capital asset nor expenditure on commencement of a new unrelated business. The Tribunal disagreed with the CIT(A)'s view (which misapprehended facts as to capitalization) and relied on consistent authority that bidding expenses in the ordinary course of business are revenue and deductible under section 37. [Paras 25, 26, 27, 28, 29]

Disallowance of bidding expenses is deleted; AO directed to allow the expenditure as revenue deduction.

Final Conclusion: The Tribunal allowed the assessee's appeal for AY 2006-07 largely in part (deleting interest disallowance relating to CWIP, permitting interest on advances to subsidiary, deleting repair/insurance addition, allowing bidding expenses, restricting 14A disallowance to 10%), remitted specified issues for verification (AIR-related addition and depreciation entry), and dismissed the Revenue's appeals for AY 2006-07 and AY 2007-08 on the contested issues (interest and section 14A disallowance restricted to 10%).

Burden of proof in alleged smuggling of non-notified goods - limitation for issuance of show-cause notice under extended period (five years) - non-joinder of the registered owner in confiscation proceedings - confiscation with option of redemption under Section 111(1) of the Customs Act, 1962 - penalty liability under Section 112 of the Customs Act, 1962

Burden of proof in alleged smuggling of non-notified goods - non-joinder of the registered owner in confiscation proceedings - penalty liability under Section 112 of the Customs Act, 1962 - confiscation with option of redemption under Section 111(1) of the Customs Act, 1962 - Whether the appellant, a bona fide purchaser of a motor bike classified as non-notified goods, is liable to duty, confiscation, redemption fine and penalty where the Department failed to establish illegal importation and did not join the registered owner in proceedings. - HELD THAT: - The Tribunal found that the motor bike is non-notified goods and that the legal burden to establish that the goods were smuggled lay upon the Department. The Department's investigation was held to be incomplete and inconclusive: it did not trace the importer or CHA, did not verify engine numbers, and did not prosecute the registered owner whose title was recorded in the registration certificate. In these circumstances, the Department failed to discharge the burden of proof necessary to sustain confiscation or to impose customs duty on a bona fide purchaser. Further, the absence of the registered owner from proceedings and the failure to issue notice to that owner were treated as material defects in the Department's case. The Tribunal also found that no adequate reasons were furnished to justify imposition of penalty under Section 112 against a purchaser who had acted in bona fide belief in the seller's title. Applying settled principles that non-notified goods require positive proof of illegal importation and that deficiency in investigation and non-joinder of the person with primary title is fatal, the Tribunal concluded the appellant could not be held liable to pay duty, fine or penalty, and that the confiscation order could not be sustained.

Confiscation, demand of duty, redemption fine and penalty set aside insofar as they are aimed at the appellant; appellant held not liable on merits for duty, fine or penalty.

Limitation for issuance of show-cause notice under extended period (five years) - Whether the show-cause notice dated 30.10.2013 was barred by limitation having regard to the Department's own finding that the import occurred on 02.06.2008. - HELD THAT: - Relying on the Department's verification from Mumbai Customs that the Bill of Entry in question was filed on 02.06.2008, the Tribunal applied the rule that the extended period for issuing a show-cause notice in such cases is five years from the date of final assessment. The Tribunal computed that the show-cause should have been issued on or before 01.06.2013, and observed that the actual notice was issued on 30.10.2013, which fell beyond the extended limitation period. The Tribunal therefore concluded that the demand premised on that notice is time-barred.

Show-cause notice and consequential demand set aside as barred by limitation.

Final Conclusion: The impugned orders of confiscation, demand of duty, redemption fine and penalty were set aside: the Department failed to prove illegal importation of non-notified goods or to join the registered owner, and the show-cause notice was issued beyond the extended five-year limitation period; appeal allowed with consequential relief.

Jurisdiction to issue show cause notice - scope of judicial review of a show cause notice - power to investigate violations of advance licences and diversion of duty free inputs

Jurisdiction to issue show cause notice - scope of judicial review of a show cause notice - power to investigate violations of advance licences and diversion of duty free inputs - Whether the Directorate of Revenue Intelligence had jurisdiction and power to issue the show cause notice impugned and to investigate diversion of duty free imported inputs under advance licences. - HELD THAT: - The Court held that the scope of judicial review of a show cause notice is limited and confined to cases where the issuing officer plainly lacks jurisdiction. It relied on the prior decision of this Court in Abishek Mundhra v. A.D.G., D.G. of Revenue Intelligence, Chennai, and on the Supreme Court's ruling in Sheshank Sea Foods Pvt. Ltd. v. Union of India to conclude that the Directorate of Revenue Intelligence has authority to investigate alleged violations of the terms of advance licences and to issue show cause notices in respect of diversion of duty free inputs. The petitioner did not demonstrate that the officer issuing the notice lacked jurisdiction; accordingly, the challenge to the notice could not be sustained. [Paras 5, 6, 7]

Writ petition dismissed; liberty granted to the petitioner to pursue remedies according to law.

Final Conclusion: The challenge to the show cause notice issued by the Directorate of Revenue Intelligence was rejected; the DRI is competent to investigate alleged diversion of duty free inputs under advance licences and to issue the impugned notice, and the petitioner may pursue available legal remedies.

Revocation of Customs House Agent licence - Obligation of physical verification of principal's particulars - Interpretation of Regulation 11 - Board Circular dated 08.04.2010 - Factual findings and absence of substantial question of law

Revocation of Customs House Agent licence - Obligation of physical verification of principal's particulars - Interpretation of Regulation 11 - Board Circular dated 08.04.2010 - Whether the revocation of the respondent's Customs House Agent licence was justified on the ground that the respondent failed to physically verify the particulars of the party it sought to represent, in light of Regulation 11 and the Board Circular of 08.04.2010. - HELD THAT: - The Tribunal examined Regulation 11 and the Board Circular dated 08.04.2010 and, relying on earlier authority, concluded that the respondent was not under an obligation to carry out physical verification of the principal's particulars in the circumstances of the case. The Tribunal found that the partnership firm concerned was an existing, duly registered concern and that the respondent had verified documentary records including IEC copy, PAN card, telephone bill of the firm, Voter IDs of the partners and the partnership deed. Given these factual findings of documentary verification and the Tribunal's construction of the regulatory requirement, the High Court held that the factual determinations could not be faulted and that no substantial question of law arose for interference.

The revocation was set aside by the Tribunal and the High Court dismissed the Revenue's appeal, finding no substantial question of law and upholding the Tribunal's factual and legal conclusion that physical verification was not required in the circumstances.

Final Conclusion: The appeal is dismissed; the Tribunal's setting aside of the revocation of the Customs House Agent licence is upheld on the basis that documentary verification undertaken by the respondent and the Tribunal's interpretation of Regulation 11 and the Board Circular do not disclose a substantial question of law requiring interference.

Maintainability of company petition where civil suit on same cause of action is pending - Scope of Tribunal's jurisdiction in rectification of register of members versus Civil Court in disputes involving title, fraud and complex factual issues - Limitations of summary enquiry by the Tribunal - Interpretation of rights under sections 397, 398 and eligibility under section 399 of the Companies Act, 1956 - Principle of subjudice and forum shopping

Maintainability of company petition where civil suit on same cause of action is pending - Principle of subjudice and forum shopping - Scope of Tribunal's jurisdiction in rectification of register of members versus Civil Court in disputes involving title, fraud and complex factual issues - The Company Petition is not maintainable before the Tribunal insofar as core reliefs depend on facts and questions which are substantially the same as those raised and pending in the civil suit. - HELD THAT: - The Tribunal held that the cause of action pleaded in the civil suit and the Company Petition substantially overlap: central disputes relate to non transmission of 40497 shares, alleged manipulation of the Register of Members, and the validity of the sale of company property. Those allegations (fraud, fabrication and title) form the bundle of facts essential to the plaintiff's right to relief in the civil suit and are also the foundation of the rectification and oppression/mismanagement claims before the Tribunal. Where such complicated questions of title and fraud are raised, they fall outside the exclusive ambit of a summary rectification exercise by the Tribunal and require full adjudication by a Civil Court. Reliance is placed on the principle that rectification jurisdiction is confined within its proper field and on authority that cases involving complex title issues must be tried by a civil court; accordingly the pendency of the civil suit and the substantial identity of issues render the Tribunal incompetent to decide those matters in a summary proceeding.

The Tribunal cannot adjudicate the core reliefs (rectification of register and cancellation of sale) because those matters are subjudice and involve complex title/fraud issues for determination by the Civil Court; the Company Petition is not maintainable to that extent.

Interpretation of rights under sections 397, 398 and eligibility under section 399 of the Companies Act, 1956 - Limitations of summary enquiry by the Tribunal - The petitioner did not have locus standi under sections 397 and 398 read with section 399 at the time of filing the Company Petition. - HELD THAT: - Sections 397 and 398 permit 'any member' to apply, and section 399 prescribes the eligibility thresholds. The petitioner was not shown on the Register of Members and, as on the date of filing, held only 500 shares (a fraction of the issued capital) amounting to less than one tenth of the issued share capital; thus she did not meet the quantitative eligibility under section 399. Further, the petitioner's claim to the larger block of 40497 shares derived only by succession from her father, whose title itself was disputed and had not been established; consequently the petitioner could not assert a better right than that of her father. The Tribunal observed that rectification in relation to the disputed 40497 shares would require proof of alleged fraud and manipulation, matters for civil adjudication, and that without such determination the petitioner could not qualify as a member entitled to invoke ss. 397/398.

The petitioner lacks the requisite locus standi and statutory eligibility to maintain the petition under sections 397 and 398 read with section 399; point answered against the petitioner.

Consequential relief on dismissal where maintainability and locus standi are negatived - Consequential order flowing from findings on maintainability and locus standi. - HELD THAT: - Given the conclusions that the Tribunal is not competent to decide the disputed title/fraud issues (which are subjudice and require full trial) and that the petitioner did not satisfy the eligibility criteria in section 399, the appropriate consequential relief is dismissal of the Company Petition. The Tribunal also exercised its discretion on costs in light of the familial relationship and nature of the disputes.

The application challenging maintainability is allowed; the Company Petition is dismissed and each party shall bear its own costs.

Final Conclusion: The Tribunal held that the Company Petition is not maintainable insofar as its principal reliefs require adjudication of complex title and fraud issues pending in a Civil Court; the petitioner lacked statutory locus under sections 397/398 read with section 399 when the petition was filed; consequently the Company Petition is dismissed and each party shall bear its own costs.

Special Courts - Trial of scheduled offences by Special Court - Notification under Section 43 of the PMLA - Jurisdiction to remand under Section 167 Cr.P.C. - Production warrant under Section 267 Cr.P.C.

Notification under Section 43 of the PMLA - Special Courts - Trial of scheduled offences by Special Court - Competence of the XI Additional Sessions Judge, City Civil Court, Chennai, to remand and try offences under the PMLA in absence of notification under Section 43 of the PMLA. - HELD THAT: - The Court found that the XI Additional Sessions Judge for CBI Cases, City Civil Court, Chennai, had not been designated as a Special Court by notification under the PMLA and therefore was not competent to try scheduled offences under that Act for the relevant territorial area. Given the statutory scheme that scheduled offences under the PMLA are triable only by Special Courts constituted for the area, the XI Additional Sessions Judge lacked jurisdiction to exercise powers to remand the petitioner in respect of the ECIR registered under the PMLA. The enforcement agency acknowledged the lack of notification and had applied for transfer to the Principal Sessions Judge; accordingly the High Court directed transfer of the proceedings to the Principal Sessions Judge, Chennai.

Proceedings in Crl.M.P.No.48 of 2017 in ECIR No.19 of 2016 pending before the XI Additional Sessions Judge, City Civil Court, Chennai, are to be transferred forthwith to the learned Principal Sessions Judge, City Civil Court, Chennai, since the XI Additional Sessions Judge is not a notified Special Court under the PMLA and lacked competence to try the scheduled offence.

Production warrant under Section 267 Cr.P.C. - Jurisdiction to remand under Section 167 Cr.P.C. - Validity of the production (PT) warrant issued by a court not notified as a Special Court under the PMLA and the related exercise of remand powers. - HELD THAT: - The Court noted that production warrants under Section 267 Cr.P.C. may be issued for production in inquiries, trials or other proceedings. However, where production relates to proceedings under the PMLA, the forum to which the person is produced must have jurisdiction to deal with scheduled offences. Because the XI Additional Sessions Judge had not been notified as a Special Court under the PMLA, the exercise of remand powers in respect of the PMLA proceedings was improper; the appropriate remedy was transfer of the matter to a notified Special Court (the Principal Sessions Judge, Chennai) for further proceedings.

PT warrant and subsequent remand before a court not designated as a Special Court for PMLA offences were improper insofar as they related to ECIR No.19 of 2016; the matter is to be transferred to the Principal Sessions Judge, Chennai, for continuation.

Final Conclusion: The petition is disposed of by directing immediate transfer of Crl.M.P.No.48 of 2017 in ECIR No.19 of 2016 from the XI Additional Sessions Judge, City Civil Court, Chennai, to the Principal Sessions Judge, City Civil Court, Chennai, since the XI Additional Sessions Judge was not a notified Special Court under the PMLA and therefore lacked competence to try or remand the accused in respect of the scheduled offence.

Service Tax on Commission - Business Auxiliary Services - Double Taxation - Assessable Value inclusive principle

Service Tax on Commission - Assessable Value inclusive principle - Double Taxation - The commission of Rs.15 per SIM card retained by the respondent was already part of the assessable value on which BSNL discharged service tax; no separate service tax is leviable on the respondent. - HELD THAT: - Revenue itself furnished the breakup of the retail SIM price as Rs.331, of which Rs.31 was admitted to be service tax, leaving an assessable value of Rs.300. The Tribunal accepted the Commissioner (Appeals) approach that this Rs.300 comprised Rs.285 payable to BSNL and Rs.15 retained by the respondent as commission. On that factual and accounting basis the commission formed part of the assessable value on which BSNL had paid service tax, and permitting a separate demand on the respondent would amount to double taxation on the same assessable value. For these reasons the Tribunal found no merit in the Revenue's claim for an additional service tax demand on the commission and dismissed the appeal.

Appeal dismissed; cross-objection disposed of.

Final Conclusion: The Revenue's appeal was dismissed on the ground that the commission retained by the respondent was already included in the assessable value on which BSNL had discharged service tax; the cross-objection was disposed of accordingly.

Summary dismissal - Decision on basis of precedent - Delay in filing appeal - Dismissal of appeal

Decision on basis of precedent - Summary dismissal - Appeal dismissed on the ground that the issue raised is settled by a prior decision of this Court. - HELD THAT: - The Court recorded that the substantive question raised in the appeal stands settled by the judgment in Deputy Commissioner, Central Excise and Ors. v. Sushil & Company - 2016 (4) SCALE 292 and, on that basis, dismissed the appeal. The Court therefore disposed of the matter by applying the settled position in the cited precedent without undertaking fresh adjudication on the merits.

Appeal dismissed as the issue is settled by this Court's decision in Deputy Commissioner, Central Excise and Ors. v. Sushil & Company - 2016 (4) SCALE 292.

Delay in filing appeal - Dismissal of appeal - Delay of 2847 days in filing the appeal was noted but the appeal was dismissed on the settled-law ground. - HELD THAT: - The Court recorded the existence of a delay of 2847 days in filing the appeal. However, rather than condoning the delay or deciding the matter on that procedural ground, the Court concluded the appeal was to be dismissed because the substantive issue is already settled by authoritative precedent. The procedural default was therefore not the basis for disposal.

Delay noted; appeal dismissed on the ground of settled precedent rather than by condonation or other procedural remedy.

Final Conclusion: The appeal is dismissed and the miscellaneous applications are disposed of; the dismissal is based on the Court's conclusion that the substantive issue is already settled by existing precedent.

Maintainability of writ challenging a statutory show-cause notice - facial illegality / error apparent on the record - violation of principles of natural justice by absence of material particulars in a show-cause notice - competent authority's jurisdiction to issue show-cause notice - availability of alternative statutory remedy in fiscal matters - refusal of blanket mandamus restraining issuance of show-cause notices - remand to adjudicating authority for consideration on merits after opportunity of hearing

Maintainability of writ challenging a statutory show-cause notice - availability of alternative statutory remedy in fiscal matters - Writ petition challenging the show-cause notice is not maintainable and must be dismissed when alternative statutory remedies exist and no jurisdictional defect is shown - HELD THAT: - The Court held that the issuing authority possessed competent jurisdiction and the petitioner did not challenge that jurisdiction. Absent a clear showing that the show-cause notice is ex facie illegal or that there is an error apparent on the face of the record, the High Court will not entertain a collateral challenge under Article 226 in fiscal matters where alternative statutory remedies are available. The Court followed established precedents that discourage short circuiting the statutory adjudicatory process when factual disputes and merits are to be determined by the authority or appellate fora vested with such power.

Writ petitions dismissed as not maintainable on this ground; petitioner to pursue statutory remedies.

Facial illegality / error apparent on the record - violation of principles of natural justice by absence of material particulars in a show-cause notice - The show-cause notice is not ex facie illegal and does not lack material particulars such as to constitute a breach of natural justice warranting immediate judicial interference - HELD THAT: - On inspection the show-cause notice set out the audit observations, alleged availment of Cenvat credit on common input services, and the basis for requiring proportionate credit; therefore the Court found that material particulars were disclosed. Whether those particulars are ultimately relevant or sufficient is a question of fact and merits for the adjudicating authority to decide after considering the petitioner's objections. Any views expressed in the show-cause notice are prima facie and not final conclusions; the petitioner can remedy any perceived prejudice by filing a reply and seeking adjudication.

Contention that the notice lacked material particulars and breached natural justice rejected; challenge premature.

Refusal of blanket mandamus restraining issuance of show-cause notices - competent authority's jurisdiction to issue show-cause notice - Prayer for a blanket mandamus forbidding respondents from issuing show-cause notices for specified years cannot be granted - HELD THAT: - The Court refused to preclude the competent authority from exercising statutory functions or discharging duties under the statute. A blanket prohibition preventing the authority from issuing show-cause notices for the years 2012-2013 to 2015-2016 would unlawfully restrain statutory powers and was therefore not permitted.

Prayer for blanket forbearing mandamus rejected.

Remand to adjudicating authority for consideration on merits after opportunity of hearing - remand for adjudication of disputed factual question of availment of Cenvat credit - Adjudication of the factual controversy whether the petitioner availed Cenvat credit is to be decided by the adjudicating authority on merits after the petitioner files its explanation and is given opportunity of personal hearing - HELD THAT: - Although the writ petitions were dismissed as not maintainable, the Court granted the petitioner limited relief to file its explanation within four weeks. The Court directed the adjudicating authority to consider the explanation, grant personal hearing, and pass orders on merits and in accordance with law expeditiously. The factual dispute regarding alleged availment of Cenvat credit and entitlement to proportionate credit is therefore remitted to the statutory adjudicator for fresh consideration.

Petitioner's explanation to be filed; adjudicating authority to decide the show-cause notice on merits after hearing.

Final Conclusion: Both writ petitions dismissed as not maintainable; petitioner granted four weeks to file explanation to the show-cause notice and adjudicating authority directed to decide the matter on merits after giving personal hearing; blanket prohibition on issuance of show-cause notices refused.

SSI exemption - rural area - industrial area located within Gram Sabha - Clause 4(C) read with Clause 5H of Notification No.8/2003-CE - manufacture and clearance of goods bearing brand of another

SSI exemption - rural area - industrial area located within Gram Sabha - Clause 4(C) read with Clause 5H of Notification No.8/2003-CE - manufacture and clearance of goods bearing brand of another - Entitlement of the appellant to exemption under Notification No.8/2003-CE for the period 2004-05 despite manufacturing and clearing biscuits bearing the brand of another person. - HELD THAT: - The Tribunal found on the material on record, including the certificate of the State revenue authority, that the appellant's unit is situated in an Industrial Area which lies within the Gram Sabha. Notification No.8/2003-CE defines "rural area" by reference to areas comprised in a village as per land revenue records and expressly excludes municipal bodies and areas notified as urban; it does not separately exclude an industrial area declared within a Gram Sabha. The appellate authority's view that a notified Industrial Area displaces rural status was not sustained on the facts because the unit remained located in the Gram Sabha according to revenue records. Applying Clause 4(C) read with Clause 5H of the Notification, the Tribunal held that the unit qualifies as being in a "rural area" for the purposes of SSI exemption and is therefore entitled to the benefit, notwithstanding that some clearances bore the brand of another party. [Paras 13]

Appeal allowed; appellant entitled to exemption under Notification No.8/2003-CE for 2004-05.

Final Conclusion: The impugned order is set aside; the appellant is held entitled to SSI exemption under Clause 4(C) read with Clause 5H of Notification No.8/2003-CE for 2004-05, and the pre-deposit is to be refunded with interest as directed.

Inclusion in assessable value - nexus with manufacture - drawings and documents charges - site erection and as-built drawings

Inclusion in assessable value - nexus with manufacture - drawings and documents charges - Amounts recovered for Piping Material Specifications, Piping Layout and Equipment Fabrication Drawings are includable in the assessable value of goods supplied by the appellant. - HELD THAT: - The Tribunal examined whether the specific drawings had a causal or functional connection with the manufacture of the final products cleared by the appellant. The appellant demonstrated that the piping layout drawings are prepared for site laying, insurance, regulatory submissions and post-commissioning maintenance records, and that the equipment fabrication drawings operate as 'goods for construction' and 'as built' records prepared in the course of site erection. These drawings are neither used in the shop-floor manufacture nor required for the fabrication process intrinsic to manufacture of the goods; their function relates to post-clearance activities at site and regulatory/insurance purposes. On this basis the Tribunal concluded that the charges recovered for these drawings lack the requisite nexus with manufacture and therefore are not includable in the assessable value. [Paras 6, 7]

The value of the specified drawings is not includable in the assessable value; the impugned order is set aside and the appeal is allowed.

Final Conclusion: The Tribunal held that the charges recovered for the piping specifications, piping layout and equipment fabrication drawings do not form part of the assessable value of the goods since they do not have nexus with the manufacture but relate to site erection, regulatory submissions and post-delivery records; the appeal is allowed.

Invocation of extended period of limitation - proviso to sub section 1 of Section 11A of the Central Excise Act, 1944 - show cause notice issued after audit delay - invocation of extended period in absence of deliberate suppression - application of precedent in limitation matters

Invocation of extended period of limitation - proviso to sub section 1 of Section 11A of the Central Excise Act, 1944 - show cause notice issued after audit delay - application of precedent in limitation matters - Sustainability of the show cause notice issued by invoking the proviso to sub section (1) of Section 11A where the audit was conducted on 20.06.2012 and the notice was issued after more than 30 months. - HELD THAT: - The Tribunal noted that the departmental audit took place on 20.06.2012 and the show cause notice under challenge was issued on 09.02.2015, i.e., after a period exceeding 30 months. Applying the ruling of the Hon'ble Allahabad High Court in Triveni Engineering & Industries Ltd., the Tribunal held that a show cause notice issued after such a delay by invoking the proviso to Section 11A is not sustainable where the material disclosing the alleged duty liability was available to the department on audit and the extended period is invoked without a clear finding of deliberate suppression. The Tribunal found the Triveni Engineering precedent squarely applicable and, on that basis, concluded that the impugned show cause notice and the consequential adjudication could not be sustained. [Paras 7]

Impugned show cause notice held not sustainable; the Order in Original set aside and the appeal allowed.

Final Conclusion: The appeal is allowed; the Order in Original confirming demand and penalty is set aside as the show cause notice issued after more than 30 months by invoking the proviso to Section 11A was held not sustainable in light of the applicable precedent, and consequential relief is granted to the appellant.

Penalty under Section 11 AC - clandestine removal - RG-I statutory record - determination of duty as precondition for penalty - voluntary payment of duty - show cause notice void ab initio

Penalty under Section 11 AC - clandestine removal - RG-I statutory record - voluntary payment of duty - Whether penalty sustained on the respondent-company for alleged short-landing/clandestine removal of finished goods - HELD THAT: - The Tribunal found that the finished goods were duly recorded in the RG I register, a statutory record, and no clandestine removal was established. The authorised person was absent and invoices were not raised though goods were recorded; the assessee debited and paid the duty on the date of inspection. The Court held that where duty has not been determined as evaded and the assessee has paid the duty and interest on inspection, the precondition for imposing a penalty under the statute is absent. Consequently the show cause notice seeking penalty in respect of the alleged shortage was held void ab initio and the appeal by the assessee against confirmation of penalty was allowed. [Paras 6, 7]

Penalty confirmed by the original order on the company set aside; appeal by the assessee allowed.

Penalty under Section 11 AC - determination of duty as precondition for penalty - show cause notice void ab initio - Whether penalty imposed on the Director, Sushil Kumar Goyal, was rightly deleted by Commissioner (Appeals) and whether Revenue's appeal against that deletion is maintainable - HELD THAT: - The Tribunal applied the same reasoning to the Director: since no evasion of duty was established, duty had been paid on the date of inspection and there was no determination of duty demonstrating fraud, collusion or willful suppression, liability to penalty could not arise. The Commissioner (Appeals) had correctly deleted the penalty against the Director and the Revenue's appeal was dismissed. [Paras 6, 7]

Revenue's appeal against deletion of penalty on the Director dismissed.

Final Conclusion: The show cause notice seeking imposition of penalty was held void ab initio; the penalty confirmed against the company was set aside and the penalty deleted against the Director is upheld-the assessee's appeal allowed and Revenue's appeal dismissed.

Refund of wrongly paid excise duty - unjust enrichment - passing on and reversal of duty burden - credit notes as evidence of refund - entitlement to refund where duty passed is withdrawn

Credit notes as evidence of refund - passing on and reversal of duty burden - unjust enrichment - refund of wrongly paid excise duty - Whether the appellant is entitled to refund of excise duty paid on inputs used captively where excise duty earlier charged to customers was subsequently withdrawn by issuing credit notes - HELD THAT: - The Tribunal found on the material before it that the appellant had initially collected Central Excise duty from customers and thereafter issued credit notes to the same buyers specifically refunding the duty amounts, thereby reversing the transfer of duty incidence to customers. Reliance was placed on High Court decisions holding that where credit notes are raised and the benefit is passed back to customers, the assessee does not suffer unjust enrichment and is entitled to refund. On this basis the Tribunal concluded that the duty burden, having been withdrawn by the appellant through issuance of credit notes, removes the bar of unjust enrichment and entitles the appellant to refund of the wrongly paid duty. The Tribunal therefore allowed the appeal and granted consequential relief in accordance with law. [Paras 5, 6]

Appeal allowed; appellant entitled to refund as duty incidence passed on to customers was subsequently withdrawn by issuance of credit notes.

Final Conclusion: The Tribunal allowed the appeal and directed refund of the excise duty, holding that issuance of credit notes reversing the duty charged to customers removes unjust enrichment and establishes the appellant's entitlement to refund.

Cenvat credit - attested copy of Bill of Entry - verification of original documents - remand for verification - technical irregularities not to defeat substantive right - proviso to Rule 9(2) of the Cenvat Credit Rules, 2004

Cenvat credit - technical irregularities not to defeat substantive right - remand for verification - Whether denial of cenvat credit on the basis of procedural or technical defects should be sustained without verification of original documents - HELD THAT: - The Tribunal recorded that the appellant did not deny receipt or use of inputs, input services or capital goods for manufacture of dutiable final product; the denial by the authorities proceeded on alleged procedural lapses-non-production of documents for verification, invoices addressed to warehouse rather than factory, and reliance on xerox copies. Having regard to the appellant's submissions that attested Bills of Entry and original invoices are in its possession and can be produced, and to authorities recognising attested/ certified copies of Bill of Entry as acceptable where substantive conditions are satisfied, the Tribunal held that the matter required factual verification rather than summary rejection on technical grounds. Consequently the impugned order was set aside and the matter remanded to the original authority to verify the documents and decide the appellant's claim after affording opportunity to produce originals for verification. [Paras 5]

Impugned order set aside and matter remanded to the original authority for verification of documents and fresh decision after affording opportunity to the appellant.

Attested copy of Bill of Entry - verification of original documents - proviso to Rule 9(2) of the Cenvat Credit Rules, 2004 - Whether attested/certified copies of Bill of Entry and corrected invoices can sustain claim for cenvat credit subject to verification - HELD THAT: - Relying on precedents cited by the appellant and the appellant's undertaking to produce attested Bills of Entry and corrected invoices, the Tribunal emphasised that attested or certified copies of Bill of Entry have been held to be valid documents for availment of credit where the substantive requirement of receipt and duty-paid character is not in dispute. Rather than deciding the admissibility on the papers before it, the Tribunal directed the original authority to verify the attested/certified Bills of Entry and any original invoices produced, and to determine the claim in accordance with law and Rule 9(2) proviso where applicable. [Paras 5]

The question of admissibility of credit on attested/certified Bills of Entry and corrected invoices remitted to the original authority for verification and decision.

Final Conclusion: Appeal allowed by way of remand; the impugned order is set aside and the matter is remitted to the original authority to verify the documents relied upon by the appellant, afford opportunity for production of originals, and decide the claim for cenvat credit in accordance with law.

Abatement of proceedings on death of sole proprietor - binding precedent of the Hon'ble Supreme Court - duty to drop proceedings once death of sole proprietor is on record - invalidity of orders passed against a deceased sole proprietor

Abatement of proceedings on death of sole proprietor - binding precedent of the Hon'ble Supreme Court - invalidity of orders passed against a deceased sole proprietor - Proceedings against the appellant are not sustainable after the death of its sole proprietor and must abate in view of controlling authority. - HELD THAT: - The proprietor of the appellant firm died on 17-5-2013 and this fact was placed before the Commissioner (Appeals). The Commissioner (Appeals) treated the matter as appellate proceedings and declined to allow abatement, observing that no statutory basis for abatement had been furnished. The Tribunal found that this approach ignored the binding decision of the Hon'ble Supreme Court in Shabina Abraham (supra) and subsequent consistent decisions of this Tribunal. Once the fact of death of the sole proprietor is on record, proceedings cannot be sustained and the proper course is to drop the proceedings rather than pass an order against the deceased. The Commissioner (Appeals) therefore committed an error of law by proceeding despite knowledge of death of the sole proprietor. [Paras 4, 5, 6, 7]

The appeal is allowed as proceedings against the appellant are abated on account of the death of its sole proprietor; the appeal is disposed of with consequential relief, if any.

Final Conclusion: In view of the proprietor's death and the binding Supreme Court precedent, proceedings against the appellant abate; the appeal is disposed of accordingly.

Time barred demand - invocation of extended period of limitation under proviso to Section 11A - SSI exemption applies only to clearances for home consumption - exclusion of export turnover from computation of first clearance benefit - binding Supreme Court precedent on limitation and extended period

Time barred demand - invocation of extended period of limitation under proviso to Section 11A - binding Supreme Court precedent on limitation and extended period - The demand raised by the Department is time barred and the extended period of limitation was not invoked in the show cause notice. - HELD THAT: - The show cause notice was issued in March 2007 in respect of clearances from July 2004 to December 2004, i.e., after the expiry of the one year limitation. The notice contains no averment or reasons invoking the extended period of limitation and therefore the extended period could not be relied upon. The Tribunal applied binding Supreme Court decisions (CCE v. Rajasthan Textile Mills and Collector of Central Excise, Kanpur v. U.P. Lamination) which hold that, absent specific averments satisfying the proviso for extended limitation, proceedings initiated after the normal limitation period are barred. On this basis the demand based on the impugned notice is held to be time barred. [Paras 5]

Demand quashed as time barred for want of invocation of the extended period of limitation.

SSI exemption applies only to clearances for home consumption - exclusion of export turnover from computation of first clearance benefit - On merits, the SSI exemption under Notification 9/2003 CE covers only clearances for home consumption and does not include export clearances for the purpose of computing the first clearance threshold. - HELD THAT: - The Tribunal examined the scope of Notification 9/2003 CE and concurred with the view taken in the cited authorities that exports effected under rebate are not to be excluded when computing eligibility for the SSI first clearance exemption which is confined to home consumption. Having regard to that legal position, the demand, insofar as it seeks differential duty on account of excluding exports from the exemption calculation, is unsustainable on merits as well. [Paras 6]

Impugned demand is also unsustainable on merits because the SSI exemption applies only to home consumption clearances and not to exports.

Final Conclusion: The impugned order of the Commissioner (Appeals) is set aside: the demand is held to be time barred for want of invocation of the extended period of limitation and, additionally, the SSI exemption at issue applies only to home consumption clearances; consequential relief, if any, granted to the appellant.

CENVAT credit on inputs used in fabrication of capital goods - eligibility of credit for MS angles, channels, plates and sheets used as parts/components of capital goods - precedential effect of Rajasthan Spinning & Weaving Mills Ltd. on earlier contrary view in Vandana Global Ltd. - documentary proof by Chartered Engineer certificate and inspection report as evidence of use

CENVAT credit on inputs used in fabrication of capital goods - eligibility of credit for MS angles, channels, plates and sheets used as parts/components of capital goods - documentary proof by Chartered Engineer certificate and inspection report as evidence of use - Credit on MS angles, channels, plates and sheets used in fabrication/manufacture of capital goods during February 2005 to April 2007 is admissible. - HELD THAT: - The period in question predates the amendment of 07/07/2009 which introduced restrictions regarding use of MS items in the definition of inputs. The assessee furnished a Chartered Engineer certificate and a Range Officer's inspection report establishing that the subject MS items were used in fabrication of capital goods and their parts/components (for example, induction furnace, concast machine, weighing machine, overhead crane, bundling machine, chimney and effluent-carrying pipes). Tribunal decisions have consistently held credit admissible where such proof of use is established and have applied the decision in India Cements Ltd. and subsequent authorities (including Monnet Ispat and Energy Ltd., CCE v. Rajasthan Spinning & Weaving Mills Ltd. (SC), and Commissioner v. SLR Steels Ltd.). The Tribunal in APP Mills observed that the Larger Bench view in Vandana Global Ltd. was rendered before the Apex Court's decision in Rajasthan Spinning & Weaving Mills Ltd. and is therefore not good law. Applying these precedents and having regard to the evidence of use, the disallowance of credit was not justified.

Impugned order disallowing the credit is set aside and the appeal is allowed with consequential reliefs, if any.

Final Conclusion: The Tribunal allowed the appeal, holding that CENVAT credit on MS angles, channels, plates and sheets used in fabrication of capital goods for the period February 2005 to April 2007 is admissible, setting aside the Commissioner (Appeals) order and granting consequential reliefs.

Reference of questions of law under Section 35H(1) of the Central Excise Act, 1944 - remand to adjudicating authority - application of Rule 57CC of the Central Excise Rules, 1944 - availability of MODVAT/credit on levy molasses - imposition of penalty

Reference of questions of law under Section 35H(1) of the Central Excise Act, 1944 - remand to adjudicating authority - Application under Section 35H(1) for reference of questions of law to the High Court - HELD THAT: - The Tribunal by its judgment dated 07.12.2001 remanded the matter to the Adjudicating Authority to determine the amount payable or reversible at the rate of 8% under Rule 57CC and to decide the question of imposition of penalty in the light of the Tribunal's discussions. As the Tribunal has remitted the substantive issues for fresh adjudication, there is no concluded question of law presently available for reference under Section 35H(1). The Court accepted Revenue's concession that the entire matter is to be decided pursuant to the remand and therefore no question of law arises for referral to this Court.

Application for reference of questions of law under Section 35H(1) is dismissed; no question of law is referred to the Court.

Application of Rule 57CC of the Central Excise Rules, 1944 - availability of MODVAT/credit on levy molasses - imposition of penalty - remand to adjudicating authority - Tribunal's remand of determination of 8% under Rule 57CC and the question of penalty to the Adjudicating Authority - HELD THAT: - The Tribunal expressly remanded the matter to the Adjudicating Authority to determine the amount at the rate of 8% payable or reversible under Rule 57CC and to decide whether any penalty should be imposed, in accordance with the reasoning set out in the Tribunal's judgment dated 07.12.2001. These matters were not finally adjudicated on merits by the Tribunal but were sent back for fresh consideration and quantification by the Adjudicating Authority.

Determination of liability under Rule 57CC (8% computation) and the question of penalty stand remanded to the Adjudicating Authority for fresh adjudication.

Final Conclusion: The application under Section 35H(1) is dismissed. The Tribunal has remanded the substantive questions - determination of the 8% under Rule 57CC and the issue of penalty - to the Adjudicating Authority, and those matters are to be decided afresh by that Authority; accordingly no question of law is referred to this Court.

Inter-State sale - appropriate State for levy and collection of Central Sales Tax - movement of goods occasioned by contract of sale - branch transfer versus sale - maintainability of writ against assessment order

Inter-State sale - movement of goods occasioned by contract of sale - appropriate State for levy and collection of Central Sales Tax - branch transfer versus sale - Whether the assessing authority correctly treated the despatches from Nagpur as the situs of inter-State sales and thereby raised tax liability in Maharashtra instead of treating the movement as occasioned from Hyderabad (erstwhile Andhra Pradesh) for the purposes of levy under the Central Sales Tax Act, 1956. - HELD THAT: - The court applied the statutory scheme of the CST Act, 1956, particularly sections 3, 4 and 9, and the principles laid down by the Supreme Court (notably in Bharat Heavy Electricals Ltd. and other precedents) to determine the situs of an inter-State sale. The decisive test is whether the sale occasions the movement of goods from one State to another and where that movement commences pursuant to the contract of sale. The High Court found on the admitted facts that orders for supply emanated from the headquarter, the missiles were assembled at Hyderabad, and the transfer to Nagpur for warhead integration was a step in execution of those contracts; the movement thus commenced from Hyderabad. The assessing officer's conclusion treating Nagpur as the place of appropriation because of final assembly there was held to rest on an erroneous premise that movement of finished goods from Maharashtra was determinative; this misapplied the statutory test and failed to appreciate that the movement was occasioned by the contract leading to appropriation at the Hyderabad establishment. The court distinguished authorities relied upon by revenue on their facts and rejected the assessing officer's factual construction where it conflicted with admitted material showing that warheads remained at Nagpur and that the Hyderabad unit effected the contractually occasioned movement. Consequently the assessing officer's view that the transactions were taxable in Maharashtra under section 9(1) was vitiated in law. [Paras 55, 61, 66, 70, 71]

The assessment treating Nagpur/Maharashtra as the appropriate State for levy of Central Sales Tax is legally unsustainable; the movement of goods was occasioned from Hyderabad (erstwhile Andhra Pradesh) and the assessing officer's conclusion is set aside.

Maintainability of writ against assessment order - Whether a writ under Article 226 is maintainable to challenge the assessment order in the circumstances of this case. - HELD THAT: - Although alternate remedies exist under the sales tax statutes, the court held that where an assessment order is vitiated by a fundamental legal error and there is no real factual dispute preventing adjudication, a writ petition under Article 226 is maintainable. The court found such a legal error in the assessing officer's application of the CST Act and therefore entertained the writ to correct the error rather than requiring the petitioner to pursue statutory remedies. [Paras 74]

Writ petition under Article 226 is maintainable in the present case and has been entertained to correct the legal error in the assessment.

Final Conclusion: The writ petition succeeds. The High Court held that the assessing officer erred in law in treating Nagpur/Maharashtra as the appropriate State for levy of Central Sales Tax; the movement was occasioned from the Hyderabad establishment (erstwhile Andhra Pradesh) and the assessment order is set aside. No order as to costs.

Detention of goods - compounding of offence - undervaluation - concessional levy for windmill components - release of goods on deposit and personal bond - right to adjudication by the competent authority

Detention of goods - compounding of offence - undervaluation - concessional levy for windmill components - release of goods on deposit and personal bond - Validity of the Goods Detention Notice and Compounding Notice and interim relief by directing release on conditions - HELD THAT: - The Court found as a fact that one Form KK (FKK28121600008657019) understated the basic price (concessionally or inadvertently), a position which was conceded by the petitioner and recorded by the Court. There was also material prima facie indicating import from the named foreign supplier and an exemption certificate issued by the Ministry of New and Renewable Energy. The statutory classification indicated that parts used for windmill generation attract a concessional tax rate of 5% under the schedule relied upon. The impugned compounding notice, however, computed tax on the entire invoiced value (including duty) at a higher rate (14.5%) and levied compounding fee at twice the tax. In the circumstances and to secure revenue while preserving parties' rights, the Court directed interim release of the goods upon deposit of tax equal to 5% of the understated amount (the admitted discrepancy of Rs.10,00,000) and furnishing of a personal bond for the balance tax claimed, observing that this course would protect the revenue and allow the adjudicatory process to proceed on merits. [Paras 6, 7, 9, 10, 11]

Goods directed to be released on deposit of tax at 5% of the understated value and on furnishing a personal bond for the balance; payment to be credited to the dealer (SEL).

Right to adjudication by the competent authority - remand for merits - Whether the Court's interim directions preclude fresh adjudication on merits by the statutory authority - HELD THAT: - The Court made clear that its observations are without prejudice to the adjudicating authority's consideration of the matter on merits. The petitioner and/or the dealer (SEL) retain the right to raise all contentions before the concerned adjudicating authority, and the authority is free to adjudicate afresh. The interim directions were confined to release on conditions and did not constitute a final decision on liability or substantive claims. [Paras 8, 11]

Merits left open for fresh consideration by the adjudicating authority; interim order is without prejudice to the rights of the parties.

Final Conclusion: Writ petition disposed by directing release of the detained consignment on deposit of tax at 5% of the admitted understated value and execution of a personal bond for the balance; observations are without prejudice to adjudication on merits by the competent authority and the petitioner/dealer may pursue all contentions before that authority.

Exemption of sales outside the State - burden of proof for inter state sales - rectification under Section 69 - availability of alternative remedy by way of appeal - pre deposit requirement for filing statutory appeal - maintainability of writ petitions where alternative remedy exists

Maintainability of writ petitions where alternative remedy exists - availability of alternative remedy by way of appeal - Maintainability of the writ petitions in view of alternative statutory remedies against the assessment order. - HELD THAT: - The Court held that the petitioner has alternative remedies to challenge the impugned assessment order, namely appeal under the statutory scheme and rectification under the statute, and therefore the writ petitions are not the appropriate forum for adjudication of disputed factual and tax questions. The Court declined to examine the evidence on merits and avoided commenting on the correctness of the assessing authority's findings so as not to prejudge the alternative remedies. The availability of these remedies rendered the writ petitions unsustainable for final adjudication by the High Court. [Paras 7]

Writ petitions not entertained on merits for want of absence of exhausted alternative statutory remedies; matters to be pursued through available remedies.

Rectification under Section 69 - burden of proof for inter state sales - exemption of sales outside the State - Whether the question of denial of exemption for sales claimed to be made outside Karnataka is to be decided afresh and by what procedure. - HELD THAT: - The Court directed that the petitioner may seek rectification under the statutory rectification provision if it believes that the impugned order contains apparent mistakes of fact, and that the Assessing Authority must consider the rectification application on merits. The Court observed that the determination whether the sales claimed as outside Karnataka were indeed out of state sales requires examination of factual evidence to satisfy the statutory test (movement/origin of goods) and proof such as LR/contractual documents. The Court did not adjudicate the exemption claim itself but remitted the controversy to the Assessing Authority for fresh consideration of the evidence produced in support of the claim. [Paras 8, 9, 12]

Petitioners permitted to file rectification application under Section 69; assessing authority directed to consider evidence and pass a speaking rectification order on merits by 31.03.2017.

Pre deposit requirement for filing statutory appeal - rectification under Section 69 - Interim condition for permitting statutory challenge by way of rectification in lieu of immediate prosecution of an appeal requiring pre deposit. - HELD THAT: - Recognising the financial difficulty faced by the petitioner and the statutory pre deposit ordinarily required for filing an appeal, the Court exercised discretion to facilitate an interim arrangement: the petitioner was directed to make a specified deposit with the assessing authority within a stipulated period and thereafter permitted to file a rectification application which would be decided on merits. The Court required cooperation and fixed a date for initial appearance before the Assessing Authority. [Paras 10, 11, 12]

Writ petitions disposed of on terms: petitioner to deposit the directed sum within one month, file rectification application, appear before the Assessing Authority as directed; rectification to be decided on merits by 31.03.2017.

Final Conclusion: Writ petitions disposed of as alternative statutory remedies exist; petitioner permitted to deposit the directed amount and to seek rectification under Section 69, and the Assessing Authority directed to decide the rectification application on merits by 31.03.2017 after permitting production of relevant evidence concerning the claimed out of State sales.

Federal supremacy of Union legislation under Article 246(1) - Repugnancy between Union and State laws (Entry in List I vis-a -vis Entry in List II) - Doctrine of pith and substance - Validity and dominance of provisions of the SARFAESI Act, 2002 in relation to sale of secured assets - Restriction on transfer of tribal land under State land reform legislation - Compliance with valuation requirements under the Security Interest (Enforcement) Rules

Federal supremacy of Union legislation under Article 246(1) - Repugnancy between Union and State laws (Entry in List I vis-a -vis Entry in List II) - Validity and dominance of provisions of the SARFAESI Act, 2002 in relation to sale of secured assets - Restriction on transfer of tribal land under State land reform legislation - Doctrine of pith and substance - Whether the provisions of the SARFAESI Act, 2002 permitting sale of immovable property by a secured creditor without restriction as to class of buyers prevail over Section 187 of the Tripura Land Revenue and Land Reforms Act, 1960 which restricts sale of mortgaged tribal land to members of scheduled tribes - HELD THAT: - The Court analysed the legislative fields: the Act of 2002 is referable to Entry 45 of List I (banking and related centrally regulated activities) and the Tripura Act to Entries in List II dealing with land revenue and agrarian reform. While the doctrine of pith and substance and attempts at reconciliation are to be applied where possible, the constitutional scheme embodied in Article 246(1) gives Parliament exclusive power over matters in List I and contemplates federal supremacy where there is an irreconcilable conflict. Sale of mortgaged property by a bank is an integral part of banking activity falling within the dominant Central entry. Once Parliament enacted a comprehensive law governing enforcement of security and sale of secured assets under the Act of 2002, a State provision that imposes an inconsistent embargo on buyers (Section 187) encroaches upon the dominant field and must give way pro tanto. The Court distinguished earlier decisions where Central enactments lacked parallel provisions (e.g., first charge) and reiterated that absence of such central provision in earlier cases kept State law operative, but where Central law directly covers the matter, it prevails. Applying these principles, the Court held Section 187 insofar as it restricts sale by a secured creditor is invalid to the extent of such inconsistency with the Act of 2002. [Paras 9, 16, 17, 18]

The SARFAESI Act, 2002 prevails over Section 187 of the Tripura Act, 1960; the State restriction on sale to members of scheduled tribes is pro tanto invalid and does not defeat the sale under the Central Act.

Compliance with valuation requirements under the Security Interest (Enforcement) Rules - Validity of sale under SARFAESI Act, 2002 - Whether the impugned sale notification dated 26.06.2012 is invalid for non compliance with Rule 5 and Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 requiring valuation before sale - HELD THAT: - The Court examined the record and the bank's averments. The sale proclamation disclosed a reserve price and the property was sold at auction above that reserve. An approved valuer's report valuing the property prior to sale was placed on record and taken into account by the Court. On these facts the procedural requirements of Rule 5 and Rule 8(5) - namely obtaining a valuation and fixing a reserve price in consultation with the secured creditor before sale - were held to have been complied with. Consequently, the sale could not be invalidated on the ground of absence of valuation. [Paras 20, 21]

Requirements of Rules 5 and 8(5) were satisfied; the auction sale is not vitiated for want of valuation.

Final Conclusion: The High Court order setting aside the sale notification is reversed. The appeals are allowed; the sale under the SARFAESI Act, 2002 is upheld. No order as to costs.