TaxTMI Updates e-Newsletter
Jan 17,2024

Cancellation of GST registration - reasonable opportunity to be heard / principles of natural justice - mechanical or contradictory administrative order - restoration of registration and status quo ante - issuance of fresh show cause notice with opportunity to reply and hearing - exercise of power to drop proceedings under sub rule (4) of Rule 22 of the CGST Rules

Cancellation of GST registration - reasonable opportunity to be heard / principles of natural justice - mechanical or contradictory administrative order - restoration of registration and status quo ante - Validity of the order cancelling the petitioner's GST registration in view of opportunity to be heard and apparent mechanical contradictions in the impugned order. - HELD THAT: - The Court found the show cause and impugned cancellation order to have been processed mechanically, noting a direct contradiction in the impugned order's first two lines and that the show cause notice was uploaded digitally without effective communication to the petitioner. In these circumstances the petitioner was not afforded a reasonable opportunity to respond before the drastic consequence of cancellation was imposed. The court followed the reasoning in the Division Bench decision of the Bombay High Court in Ahmed Enterprises and held that the cancellation order must be quashed and status quo ante restored, since the predicate procedural fairness required before cancellation was lacking. [Paras 5, 8]

The order cancelling the petitioner's GST registration is quashed and the registration is restored.

Issuance of fresh show cause notice with opportunity to reply and hearing - exercise of power to drop proceedings under sub rule (4) of Rule 22 of the CGST Rules - Procedure to be followed by the revenue after quashing of the cancellation order. - HELD THAT: - The Court directed that the revenue may issue a fresh show cause notice and proceed in accordance with law after providing the petitioner a reasonable opportunity to reply and to be heard. The Court expressly noted that while reconsidering the matter the authority should take note of sub rule (4) of Rule 22 of the CGST Rules (permitting dropping of proceedings where appropriate remedial action is taken by the registered person). A timetable was indicated as guidance for issuance of the fresh notice and filing of reply, but the merits of any fresh action were left to be determined by the authority in accordance with law. [Paras 8]

Respondent may issue a fresh show cause notice, afford opportunity of reply and hearing, and then proceed; attention to sub rule (4) of Rule 22 of the CGST Rules to be had.

Final Conclusion: Writ petition allowed: cancellation order of 31.01.2023 quashed and GST registration restored; respondent permitted to issue a fresh show cause notice and proceed after affording a reasonable opportunity to the petitioner, with regard to sub rule (4) of Rule 22 of the CGST Rules; no costs.

Interim injunction against invocation of bank guarantee - penalty under Section 129(1) of the CGST/SGST Act, 2017 - conditional deposit as prerequisite for stay of recovery - absence of GST Tribunal as limiting alternative remedy

Interim injunction against invocation of bank guarantee - conditional deposit as prerequisite for stay of recovery - penalty under Section 129(1) of the CGST/SGST Act, 2017 - Interim restraint on invocation of the petitioner's bank guarantee subject to specified deposit condition - HELD THAT: - The Court, on admission of the writ petition challenging the assessment, appellate order and demand notices in respect of penalty proceedings under Section 129(1) of the CGST/SGST Act, 2017, recorded that the petitioner had already deposited 25% of the assessed penalty when approaching the first appellate authority and was facing threat of invocation of its bank guarantees. In view of these facts and the petitioner's difficulty arising from the absence of a constituted GST Tribunal, the Court granted an interim order preventing the respondents from invoking the petitioner's bank guarantee until disposal of the writ petition, on the express condition that the petitioner deposit a further 10% of the assessed penalty within two weeks from the date of the order. The direction is interlocutory and limited to preservation of the petitioner's bank guarantee pending final adjudication, subject to the stated conditional deposit. [Paras 5]

Respondents restrained from invoking the petitioner's bank guarantee till disposal of the writ petition provided the petitioner deposits a further 10% of the assessed penalty within two weeks.

Final Conclusion: Interim protection granted restraining invocation of the petitioner's bank guarantee until the writ petition is finally disposed of, conditional on deposit of an additional 10% of the assessed penalty within two weeks; the order is interlocutory and preserves rights for final adjudication.

Deprivation of statutory remedy due to non-constitution of tribunal - Benefit of stay of recovery under Section 112(9) of the B.G.S.T. Act on deposit - Deposit of 20 per cent of remaining disputed tax as condition for stay - Requirement to institute appeal under Section 112 of the B.G.S.T. Act once Tribunal is constituted - Permission to proceed if appeal not filed within specified period after constitution - Release of bank attachment on compliance with deposit condition - Limitation period to commence from date President/State President of Tribunal enters office

Deprivation of statutory remedy due to non-constitution of tribunal - Benefit of stay of recovery under Section 112(9) of the B.G.S.T. Act on deposit - Petitioner is entitled to the statutory stay under Sub-Section (9) of Section 112 of the B.G.S.T. Act by reason of non-constitution of the Tribunal, subject to specified deposit. - HELD THAT: - The Court found that the petitioner has been deprived of the statutory appellate remedy because the Tribunal under the B.G.S.T. Act was not constituted by the authorities. In view of that deprivation, and recognising the respondents' own acknowledgment by notification delaying the commencement of limitation until the President/State President takes office, the Court held that the petitioner must be extended the statutory benefit of stay under Sub-Section (9) of Section 112 upon deposit of a sum equal to 20 per cent of the remaining disputed tax (in addition to any earlier deposit under Section 107(6)). The recovery of the balance amount and any steps taken pursuant to that recovery are thereby deemed stayed while this condition is complied with. The Court relied on parity with an earlier order in which similar relief was granted. [Paras 6]

Stay of recovery under Section 112(9) granted subject to deposit of 20 per cent of the remaining disputed tax (plus earlier deposits under Section 107(6)).

Requirement to institute appeal under Section 112 of the B.G.S.T. Act once Tribunal is constituted - Limitation period to commence from date President/State President of Tribunal enters office - Stay is not open-ended; petitioner must file the statutory appeal after the Tribunal is constituted and the President/State President enters office. - HELD THAT: - To balance equities created by granting interim relief because of the respondents' failure to constitute the Tribunal, the Court directed that the petitioner must present/file the appeal under Section 112 after the Tribunal comes into existence and the President or State President enters office. The appeal is to be filed observing the statutory requirements and within any period that may be specified upon constitution of the Tribunal, so that the matter can be considered on merits once the appellate forum is functional. [Paras 6]

Petitioner's right to stay is conditional and the petitioner must file the appeal before the Tribunal once constituted and the President/State President enters office.

Permission to proceed if appeal not filed within specified period after constitution - If the petitioner does not file an appeal within the period to be specified after constitution of the Tribunal, respondent authorities are entitled to proceed in accordance with law. - HELD THAT: - The Court made clear that the interim relief granted on account of non-constitution of the Tribunal does not permanently bar the respondents from resuming recovery. The stay is conditional upon the petitioner availing the appellate remedy when the Tribunal is constituted; failure to file the appeal within the period that may be fixed will permit the respondent-Authorities to continue proceedings and take such steps as are permissible under law. [Paras 6]

Respondent-Authorities may proceed in accordance with law if the petitioner fails to file the appeal within the specified period after constitution of the Tribunal.

Release of bank attachment on compliance with deposit condition - Benefit of stay of recovery under Section 112(9) of the B.G.S.T. Act on deposit - Upon deposit of the prescribed sum equivalent to 20 per cent of the remaining disputed tax, any bank attachment pursuant to the demand shall be released. - HELD THAT: - The Court directed that if the petitioner complies with the condition of depositing the sum equivalent to 20 per cent of the remaining disputed tax, then any attachment of the petitioner's bank account effected in consequence of the demand shall be released. This relief flows directly from granting the conditional stay under Section 112(9) and is intended to restore the petitioner's access to funds while the interim protection subsists. [Paras 6]

Bank account attachment to be released upon deposit of the specified 20 per cent sum.

Final Conclusion: Writ petition disposed with directions granting a conditional stay of recovery under Section 112(9) of the B.G.S.T. Act on deposit of 20 per cent of the remaining disputed tax (in addition to earlier deposits), subject to filing of the appeal before the Tribunal once constituted; failure to file within the period to be specified permits respondents to proceed; bank attachments to be released on compliance.

Right to obtain certified copy of order - direction to administrative authority to furnish certified copy - disposal of writ petition at motion stage where relief is limited and agreed

Right to obtain certified copy of order - direction to administrative authority to furnish certified copy - disposal of writ petition at motion stage where relief is limited and agreed - Petitioner entitled to receive a certified copy of the Order-in-Original dated 03.06.2022 and the writ petition can be disposed of by directing production of that copy on a fixed date. - HELD THAT: - The petition concerned a limited prayer for supply of a certified copy of the Order-in-Original dated 03.06.2022. The departmental authority (respondent no. 3) agreed to furnish the certified copy if the petitioner appeared at its office. Given the narrow nature of the relief sought and the respondent's undertaking, the Court found it unnecessary to proceed with fuller adjudication and disposed of the writ petition at the motion stage by issuing a direction. The Court recorded the parties' submissions that the petitioner would appear on the specified date and that the respondent would supply the certified copy upon such appearance, and framed a simple, executable direction to that effect. [Paras 6]

Petitioner directed to appear before respondent no. 3 on 18.01.2024 and respondent no. 3 directed to supply a certified copy of the Order-in-Original dated 03.06.2022 to the petitioner on that date; writ petition disposed.

Final Conclusion: Writ petition disposed by directing the petitioner to appear before the respondent authority on 18.01.2024 and directing the authority to furnish the certified copy of the Order-in-Original dated 03.06.2022 to the petitioner; no further adjudication undertaken.

Extra-ordinary writ jurisdiction - alternative remedy of appeal - show cause notice and non-appearance leading to summary order under Section 73(9) of the CGST Act, 2017 - requirement of deposit under Section 107(6)(a) of the Income Tax Act, 1961 for entertaining an appeal - refusal to exercise writ jurisdiction where party fails to respond to statutory notice

Extra-ordinary writ jurisdiction - alternative remedy of appeal - refusal to exercise writ jurisdiction where party fails to respond to statutory notice - Whether the High Court should exercise writ jurisdiction to interfere with an order passed under Section 73(9) of the CGST Act when the taxpayer did not respond to the show cause notice and an alternative remedy of appeal is available. - HELD THAT: - The Court noted that the impugned order records non-response to the show cause notice and non-appearance for personal hearing. Although the petitioner had sought time to file replies by earlier communications, he ultimately did not appear, resulting in the order under Section 73(9). Counsel for the petitioner conceded that an appeal lies under Section 107 of the Income Tax Act, 1961 and that the appeal would be entertained subject to deposit conditions, including deposit under Section 107(6)(a) as admitted and deposit of 10% of the remaining tax in dispute along with interest. In view of the petitioner's conduct in failing to respond to the statutory notice and the availability of an efficacious alternate remedy, the Court declined to exercise its extra-ordinary writ jurisdiction to entertain the challenge to the impugned order. The Court expressly left the merits undecided and observed that the appellate authority, when hearing the appeal, may take into account the conduct and facts presented by the parties. [Paras 3, 4, 5]

Writ petition dismissed; petitioner granted liberty to pursue the alternative remedy of appeal and comply with the deposit conditions; no observation on merits.

Final Conclusion: Writ petition dismissed for non-exercise of extra-ordinary writ jurisdiction in presence of an alternate remedy of appeal; petitioner permitted to approach the appellate forum subject to the statutory deposit requirements, the merits being left open for the appellate authority.

Condonation of delay - proviso to Rule 23 of the Odisha Goods and Services Tax Rules - revocation of cancellation of registration - acceptance of GSTR-3B return subject to payment of taxes, interest, late fee and penalty - direction to reopen GST portal for filing of return

Condonation of delay - proviso to Rule 23 of the Odisha Goods and Services Tax Rules - revocation of cancellation of registration - Delay in invoking the proviso to Rule 23 OGST Rules is condoned and the petitioner's application for revocation will be considered. - HELD THAT: - The Court condoned the petitioner's delay in invoking the proviso to Rule 23 of the Odisha GST Rules and directed that, subject to compliance with statutory requirements, the petitioner's revocation application shall be considered in accordance with law. The order conditions the condonation and further consideration of the revocation application on the petitioner depositing all taxes, interest, late fee, penalty and complying with other formalities; upon fulfilment of these conditions the competent authority is to entertain the revocation application and decide it on merits in accordance with law.

Delay condoned and revocation application to be considered subject to payment of dues and compliance with formalities.

Acceptance of GSTR-3B return subject to payment of taxes, interest, late fee and penalty - direction to reopen GST portal for filing of return - The proper officer will accept the petitioner's GSTR-3B return and open the portal to enable filing, subject to the petitioner depositing all dues and complying with formalities. - HELD THAT: - On an advance statement by the revenue, the Court directed that so long as the delay is condoned and the petitioner pays all taxes, interest, late fee and penalty and complies with other requirements, the 3B return filed by the petitioner will be accepted. The Court further directed that a copy of the order be produced before the proper officer who, upon the petitioner's compliance with the stated conditions, shall open the portal to enable filing of the GST return.

Proper officer to accept GSTR-3B and reopen portal for filing once petitioner deposits dues and complies with formalities.

Final Conclusion: The writ petition is disposed of by condoning the delay in invoking the proviso to Rule 23 OGST Rules and directing that the petitioner's revocation application and GSTR-3B filing shall be processed and portal reopened provided the petitioner deposits all taxes, interest, late fee, penalty and complies with other formalities; the revocation will be considered in accordance with law.

Maintainability of writ petition - error of jurisdiction - amendment of writ petition to challenge final order - interim stay of recovery pending adjudication - challenge to order under Section 50 of the Central Goods and Services Tax Act, 2017

Maintainability of writ petition - error of jurisdiction - Preliminary objection on maintainability taken on record but not adjudicated at this stage; petition to be finally heard on merits including maintainability. - HELD THAT: - The respondents had raised a preliminary objection as to the maintainability of the writ petition. The petition has been amended to include challenge to the final order passed under Section 50 of the CGST Act. The Court observed that the contention of 'error of jurisdiction' pleaded by the petitioner requires consideration on merits and that the respondents supported that contention in part; accordingly, the Court declined to entertain the preliminary objection at this interlocutory stage and recorded that maintainability will be considered at the stage of final hearing.

Preliminary objection on maintainability not decided and is deferred for final hearing; amendment allowed and matter to be heard finally.

Interim stay of recovery pending adjudication - challenge to order under Section 50 of the Central Goods and Services Tax Act, 2017 - Whether interim relief should be granted to stay recovery of amounts demanded in the impugned orders pending final adjudication. - HELD THAT: - The Court noted that the final order under Section 50 dated 31.08.2023 and an order dated 22.11.2023 have been challenged after amendment and that the petitioner's grievance chiefly relates to demand of interest and penalty for amounts already refunded. The Court found that if recovery is permitted to proceed, the petition's purpose would be frustrated. Balancing these considerations, the Court granted interim relief by staying the impugned orders except insofar as respondents are entitled to recover the specified differential amount; the respondents were also permitted to apply for vacation or modification of the interim order.

Interim stay granted on the impugned orders dated 31.08.2023 and 22.11.2023 except that respondents may recover the differential amount of Rs.16,55,642/- pending further orders; respondents may move to vacate or modify the stay.

Final Conclusion: Amendment of the writ petition permitted; preliminary objection on maintainability deferred for final hearing; interlocutory stay granted on the impugned orders except that recovery of the specified differential amount is permitted subject to further orders; liberty granted to respondents to seek vacation or modification of the stay.

Supply - perquisites provided by employer to employee - input tax credit - Section 17(5)(b) proviso - availability of ITC where employer is obliged by law - mandatory canteen facility under the Factories Act, 1948 (section 46) - Schedule III exclusion (services by employee to employer)

Supply - Schedule III exclusion (services by employee to employer) - perquisites provided by employer to employee - Deduction of nominal amount from employees for subsidised canteen meals is a 'supply' under section 7 of the CGST Act, 2017 - HELD THAT: - The Authority examined Section 7's definition of 'supply' and the exceptions in Schedule III together with CBIC clarifications. The canteen facility is mandatorily provided by the applicant under section 46 of the Factories Act, 1948 and the applicant has shown the arrangement pertains to permanent employees governed by the HR manual. Relying on Circular No. 172/04/2022-GST and the press release position that perquisites provided by an employer to employees in terms of contractual obligations are not subject to GST, the Authority concluded that the deduction recovered from employees for the subsidised meals does not amount to a supply by the employer under section 7. The factual finding that the facility is provided as an obligatory statutory benefit and that the employer does not make a separate commercial supply or derive profit from the employees' portion underpinned this conclusion. [Paras 14]

The deduction from employees for canteen meals is not a 'supply' under section 7 of the CGST Act, 2017.

Input tax credit - Section 17(5)(b) proviso - availability of ITC where employer is obliged by law - mandatory canteen facility under the Factories Act, 1948 (section 46) - Entitlement of the applicant to claim input tax credit on GST charged by the canteen service provider - HELD THAT: - The Authority considered the amended clause (b) of section 17(5) and the CBIC clarification that the proviso to clause (b) applies to the entire clause, making ITC available where the supply is obligatory for an employer under any law. Given that provision of canteen facilities is mandatory under section 46 of the Factories Act, 1948 (and the Gujarat rules), the Authority held that input tax credit on GST charged by the canteen service provider is available to the applicant. The Authority further limited the credit to the extent of cost actually borne by the applicant, disallowing the proportionate credit attributable to that portion of costs recovered from employees, thereby restricting ITC to the employer's net outlay. [Paras 17, 18]

ITC is available to the applicant in respect of GST charged by the canteen service provider for mandatory canteen services, restricted to the extent of cost borne by the applicant (excluding the portion recovered from employees).

Final Conclusion: The Authority ruled that (i) the employees' subsidised contributions for mandatory factory canteen meals do not constitute a 'supply' under section 7 of the CGST Act, 2017, and (ii) the applicant may claim input tax credit on GST charged by the canteen service provider in respect of the mandatory canteen, limited to the proportion of cost borne by the applicant (excluding the portion recovered from employees).

Entry No. 8(b) of Schedule III of the CGST Act, 2017 - High Seas Sale - neither a supply of goods nor a supply of services - transaction value under section 15 of the CGST Act, 2017 - lumpsum turnkey/EPC contract as an indivisible works contract - composite supply treated as a supply of services (Schedule II Sr. No. 6)

Entry No. 8(b) of Schedule III of the CGST Act, 2017 - High Seas Sale - neither a supply of goods nor a supply of services - Classification of the sale on High Seas Sale (HSS) between Tecnimont and IOCL under Entry 8(b) of Schedule III of the CGST Act. - HELD THAT: - The Authority held that transactions effected by endorsement of documents of title after dispatch from a port outside India but before clearance for home consumption fall within Entry 8(b) of Schedule III. Applying section 7(2), such HSS transactions are to be treated neither as a supply of goods nor as a supply of services; accordingly, the HSS transaction itself is not leviable to GST. The finding is grounded on the text of Schedule III read with section 7(2) and the factual matrix showing endorsement/transfer of ownership prior to customs clearance. [Paras 26, 38]

HSS sale to IOCL is covered by Entry 8(b) of Schedule III and, as such, the HSS supply itself is neither a supply of goods nor a supply of services and is not leviable to GST.

Transaction value under section 15 of the CGST Act, 2017 - lumpsum turnkey/EPC contract as an indivisible works contract - composite supply treated as a supply of services (Schedule II Sr. No. 6) - Whether the value of imported goods sold on HSS basis can be excluded from the transaction value of the turnkey works contract for computing GST on the works contract service. - HELD THAT: - The Authority examined section 15 and the contract documents and concluded that the turnkey EPC contract is a single lumpsum/indivisible works contract encompassing both supply of materials and services. Section 15(2) requires inclusion in the value of supply of any amount the supplier is liable to pay which has been incurred by the recipient. Because the applicant is contractually obliged to procure and supply the imported goods for incorporation in the works, the value of those imported goods (though the HSS transaction itself is not a taxable supply) forms part of the transaction value for valuation of the works contract service. The contract and minutes show a post-tender operational carve out to avail customs schemes, but this fiction does not alter the legal character of the lumpsum turnkey contract. Further, in terms of Schedule II Sr. No. 6 and the works-contract definition, the EPC turnkey contract is a composite works contract treated as a supply of services and taxable accordingly; therefore the imported goods value must be included for GST computation on the works contract. [Paras 27, 31, 33, 37, 38]

The value of goods supplied on HSS, while themselves not taxable as standalone supplies under Schedule III, shall be included in the transaction value under section 15 for computing GST on the turnkey works contract treated as a composite supply (service).

Final Conclusion: The Authority ruled that the High Seas Sale transactions are covered by Entry 8(b) of Schedule III and therefore are neither supplies of goods nor services; however, for valuation of the indivisible lumpsum turnkey works contract the value of the imported goods supplied on HSS must be included in the transaction value under section 15 and taxed as part of the composite works contract (treated as a supply of services).

Breach of principles of natural justice - test of prejudice / de facto prejudice - defect in show cause notice under section 271(1)(c) read with section 274 - tidemarking/tick marking of applicable limb in penalty notice - waiver / acquiescence to procedural irregularity - penalty proceedings under section 271(1)(c) as distinct from assessment proceedings

Breach of principles of natural justice - test of prejudice / de facto prejudice - defect in show cause notice under section 271(1)(c) read with section 274 - Whether a taxpayer may, at the third appellate stage in a Section 260A appeal, for the first time contend that a show cause notice under Section 271(1)(c) read with Section 274 was defective for not indicating the specific limb, without demonstrating any prejudice. - HELD THAT: - The Court held that mere procedural defect in a penalty notice does not automatically vitiate proceedings; where the assessee has participated in and responded to the statutory notice and never raised any objection before the adjudicating authorities, a belated plea of defect can be entertained only upon demonstrating real (de facto) prejudice. Section 274 requires a reasonable opportunity to be heard before imposing penalty, but the availability of an opportunity and the assessee's actual participation may amount to waiver or estoppel of a technical complaint if no prejudice is shown. The Supreme Court authorities require that complaints of defective procedure, short of 'no notice/no hearing', be tested on whether prejudice resulted; recent jurisprudence emphasises flexibility and the necessity to show that compliance would have produced a different outcome. Applying these principles to the facts, the Court found the assessee had fully understood and responded to the notice (both limbs were pressed and answered), had not alleged prejudice before any forum, and therefore could not at this late stage succeed with a purely technical objection to the notice format. [Paras 42, 43, 51, 59, 60]

Assessee's belated challenge to the notice for lack of a tick mark on the applicable limb is rejected in the absence of any demonstration of prejudice; the prejudice test applies and is not displaced.

Tidemarking/tick marking of applicable limb in penalty notice - penalty proceedings under section 271(1)(c) as distinct from assessment proceedings - waiver / acquiescence to procedural irregularity - Whether the decision in Ventura Textiles Ltd. (Division Bench) renders the present penalty proceedings vitiated because the show cause notice did not strike out the inapplicable portion or tick the relevant limb of Section 271(1)(c). - HELD THAT: - The Court distinguished Ventura Textiles on facts. In Ventura the ambiguity in the printed notice, when read with contemporaneous assessment material, led to a finding that the notice did not sufficiently indicate the limb invoked and therefore the penalty order there was susceptible to challenge. In the present case the Assessing Officer and the assessee both understood that both limbs of Section 271(1)(c) were engaged; the assessee replied on both counts and actively participated in adjudication for decades without raising any complaint of ambiguity. The Full Bench distinctions and Supreme Court precedents were considered; the Court concluded Ventura does not assist the assessee here because the factual matrix is different and because the prejudice threshold remains applicable where the assessee has not timely protested and has acquiesced. [Paras 56, 58, 59, 61, 62]

Ventura Textiles is not applicable to the facts of this case; the appellant cannot rely on that decision to invalidate the penalty where no prejudice was alleged or shown and the assessee had acquiesced to the proceedings.

Final Conclusion: The appeal is not sustained on the new contention of a defective notice; a technical objection to a show cause notice under Section 271(1)(c)/Section 274 raised belatedly (after participation and without proof of prejudice) cannot vitiate penalty proceedings. The matter will proceed to be heard on the substantial question(s) of law as previously framed; all other contentions are left open.

Service of notices through registered e-mail - Reopening of assessment under Section 148 of the Income Tax Act - Assessment completed under Section 147 read with Section 144 and Section 144B - Principles of natural justice

Service of notices through registered e-mail - Principles of natural justice - Assessment completed under Section 147 read with Section 144 and Section 144B - Validity of service of statutory notices and show-cause communications sent to the e-filing portal e-mail id and whether non-receipt on the ground that the e-mail id was created by an outsider vitiates the assessment for violation of principles of natural justice. - HELD THAT: - The court examined the e-filing portal record and found that the only e-mail id registered on the assessee's e filing account was [email protected] and that all communications, including statutory notices and show-cause notices relating to the reopening and assessment for the assessment year 2017-18, were sent to that registered e-mail id. The assessment was reopened under Section 148 and completed by the order dated 26.04.2023 under Section 147 read with Sections 144 and 144B. In view of the portal records showing service to the registered e-mail id, the petitioner's contention that the id was created by an outsider and therefore notices were not received did not persuade the court. Having regard to the available system/ITBA records confirming dispatch to the registered e-mail, the court found no violation of principles of natural justice warranting setting aside the assessment order. [Paras 5, 6]

Petition dismissed; no merit in challenge to service of notices or in alleged violation of principles of natural justice.

Final Conclusion: Writ petition under Article 226 challenging the assessment order and demand notices for AY 2017-18 dismissed; records on the e filing portal established service to the registered e mail id and no breach of natural justice was found.

Classification of royalty payment as revenue or capital expenditure - enduring benefit test for distinguishing capital and revenue expenditure - licence conferring non-exclusive, non-transferable right to use trademark/logo - treatment of royalty as intangible asset under section 32 insofar as it suggests capitalisation - allowability of expenditure under Employees Stock Option Scheme as revenue expenditure - ascertained liability under SEBI guidelines as basis for deduction

Classification of royalty payment as revenue or capital expenditure - enduring benefit test for distinguishing capital and revenue expenditure - licence conferring non-exclusive, non-transferable right to use trademark/logo - treatment of royalty as intangible asset under section 32 insofar as it suggests capitalisation - Royalty paid for use of the parent company's logo is revenue expenditure and allowable as deduction, not capital expenditure eligible only for depreciation. - HELD THAT: - The court applied the ratio of the Apex Court decisions (including CIT v. Ciba of India Ltd., Wavin (I) Ltd. and Honda Siel Cars India Ltd.) and the decision in the assessee's own earlier batch of cases. Where a licence grants a non-exclusive, non-transferable, limited right to use a trademark/logo and does not transfer ownership or an enduring benefit, recurring royalty payments are revenue in nature. The licence terms (renewable, cancellable, non-transferable and non-exclusive, and recurrent payments tied to turnover) indicate the absence of acquisition of an enduring intangible asset. The enduring benefit test therefore favours revenue treatment; the royalty payments are not capitalised under the guise of an intangible asset merely because they relate to an intellectual property right. The appellate authorities correctly treated the royalty as revenue expenditure and deleted the disallowance made by the assessing officer.

Royalty payments for use of the logo are revenue expenditure and deductible; not to be treated as capital expenditure under section 32 for the assessment years in dispute.

Allowability of expenditure under Employees Stock Option Scheme as revenue expenditure - ascertained liability under SEBI guidelines as basis for deduction - Expenditure incurred under the Employees Stock Option Scheme is revenue in nature and allowable as a deduction. - HELD THAT: - The court followed earlier decisions of this Court and the Tribunal which held that ESOP-related expenditure constitutes a business expense incurred to promote the business and to incentivise employees, and does not create an enduring asset for the company. Where ESOP liabilities are determined and governed by SEBI guidelines, the resulting obligation is an ascertained legal liability and therefore deductible as revenue expenditure. The precedent of this Court (including PVP Ventures Ltd.) and subsequent consideration (including Karnataka High Court in Biocon Ltd.) support allowance of ESOP expenditure as revenue deduction. The Tribunal's deletion of the assessing officer's disallowance was therefore correct.

ESOP expenditure is revenue in nature and allowable as deduction for the assessment years in dispute.

Final Conclusion: The substantial questions of law regarding (i) classification of royalty paid for use of the logo as revenue expenditure and (ii) allowability of ESOP expenditure as revenue deduction are answered in favour of the assessee; the Revenue's appeals are dismissed.

Reopening of assessment - notice under Section 148A(b) - survey under Section 133A - opportunity of being heard (audi alteram partem) - quashing and remand for fresh consideration

Notice under Section 148A(b) - opportunity of being heard (audi alteram partem) - quashing and remand for fresh consideration - Impugned orders issued under clause (d) of Section 148A were challenged on the ground that petitioners were not given adequate opportunity to respond and therefore the orders were unsustainable. - HELD THAT: - The petitioners had responded to the notices under Section 148A(b) but, having asked for documents which were not furnished, had not been afforded a complete opportunity to reply before the impugned orders were passed on 21.04.2023 and 22.04.2023. The Court found that the procedural requirement of providing adequate opportunity to the petitioners had not been complied with and that, for this reason, the impugned orders could not be sustained. In consequence, the orders were quashed and the matters were remitted to the respondent for fresh consideration on merits after furnishing the documents called for and after affording the petitioners a further opportunity to file replies/additional representations within the time fixed by the Court. [Paras 11, 12]

Impugned orders quashed; matters remitted for fresh orders after respondent furnishes documents and petitioners file further replies within the time directed.

Survey under Section 133A - reopening of assessment - Validity of reopening the assessment based on statements recorded during the survey under Section 133A was not finally adjudicated and was directed to be considered afresh by the respondent. - HELD THAT: - Although the petitioners contended that the Department had no authority to reopen assessment on the basis of statements recorded during the Section 133A survey, the Court did not decide the substantive legal question on the merits. Instead, because the impugned orders were quashed for want of adequate opportunity, the correctness of relying on survey statements for reopening was left open for fresh consideration by the respondent when passing fresh orders on merits in accordance with law. [Paras 12, 13]

Matter remitted to the respondent to consider, on merits, whether reopening can be sustained based on survey statements.

Final Conclusion: Impugned orders under clause (d) of Section 148A are quashed for failure to afford adequate opportunity; respondent shall furnish the documents called for within four weeks, petitioners shall file replies/additional representations within four weeks thereafter, and the respondent shall pass fresh orders on merits in accordance with law within four weeks thereafter. Writ petitions disposed of; no costs.

Treatment of Dividend Distribution Tax under DTAA - most appropriate method in transfer pricing (TNMM vs CUP) - treatment of management/marketing support fees and stewardship activities in transfer pricing - allowability of business expenditure under Section 37 - remand for production of evidence and fresh adjudication by Assessing Officer/TPO

Treatment of Dividend Distribution Tax under DTAA - Claim for refund of excess Dividend Distribution Tax paid on dividends to a German resident - HELD THAT: - The Tribunal applied the ratio of the ITAT Mumbai Special Bench in Total Oil India Pvt. Ltd., which held that the DTAA does not operate to alter the statutory incidence of Dividend Distribution Tax (DDT) charged on a domestic company under section 115-O (i.e., where the domestic company itself pays DDT the treaty does not curtail that tax unless the treaty specifically extends protection to the domestic company). On that basis the Tribunal dismissed the assessee's grounds seeking refund of excess DDT paid on dividends to the German shareholder for the assessment years under consideration, holding that treaty relief is not available to negate the domestic company's liability to DDT in the absence of an express provision to that effect in the treaty or its protocol. [Paras 7, 32, 41, 48, 54]

Assessee's claims for refund of excess DDT dismissed for AYs 2010-11 to 2014-15.

Allowability of business expenditure under Section 37 - remand for production of evidence and fresh adjudication by Assessing Officer/TPO - Deductibility of reimbursement payments claimed under Section 37 - HELD THAT: - The Tribunal found that the CIT(A) had upheld disallowance without affording the assessee a fair opportunity to produce relevant documents and evidence to substantiate that the payments were incurred wholly and exclusively for business. In the interests of justice the Tribunal restored the issue to the file of the Assessing Officer/TPO so that the assessee may produce relevant documents/evidence and the AO/TPO can adjudicate the claim on merits after giving opportunity to both parties. For the years where identical grounds arose (notably AYs 2010-11 and 2011-12) the Tribunal directed restoration to the assessing officer/TPO for fresh consideration. [Paras 8, 11, 12, 30]

Grounds relating to reimbursement expenses under Section 37 are restored/remanded to AO/TPO for fresh adjudication (allowed for statistical purposes).

Most appropriate method in transfer pricing (TNMM vs CUP) - Appropriateness of TNMM as the method for benchmarking royalty payments to associated enterprises - HELD THAT: - The Tribunal upheld the CIT(A)'s reliance on prior ITAT Ahmedabad decisions in the assessee's own case holding TNMM to be the most appropriate method (MAM) for benchmarking royalty payments in the factual matrix of the assessee. The Tribunal noted that the issue had been repeatedly decided in the assessee's favour for earlier assessment years and that, on remand, the AO/TPO had conceded that if TNMM were taken as MAM the transactions would be at arm's length. In view of the binding precedents in the assessee's own case and identical facts, the Tribunal dismissed the Department's appeals challenging deletion of the TP adjustments in respect of royalty for the assessment years under consideration. [Paras 15, 16, 17, 18]

Department's transfer pricing adjustments in respect of royalty (based on CUP) are dismissed and the CIT(A) order accepting TNMM is upheld for the relevant years.

Treatment of management/marketing support fees and stewardship activities in transfer pricing - Arm's Length Price of management/marketing support fees paid to Schaeffler Holding (China) and whether services are stewardship activities - HELD THAT: - The Tribunal agreed with the CIT(A)'s findings that the services provided were business services (not stewardship/shareholder activities) and that the assessee had placed on record agreements, invoices and contemporaneous documents evidencing the services. The CIT(A) also drew support from the ITAT Pune decision in a related group company (INA Bearings) which had deleted the TPO adjustments where TPO had treated the services as stewardship activities or had failed to apply a prescribed TP method. Given that for subsequent years similar payments were accepted by the TPO as at arm's length and on a facts on record comparison, the Tribunal found no infirmity in the CIT(A)'s deletion of the management fees adjustments and dismissed the Department's appeals. [Paras 23, 24, 26, 27, 28]

Department's TP adjustments in respect of management/marketing support fees are dismissed; payments held to be at arm's length and not stewardship activities.

Final Conclusion: The Tribunal dismissed the Department's transfer pricing appeals (royalty and management/marketing support fees) and upheld the CIT(A)'s reliance on prior ITAT precedents and factual findings that TNMM was the MAM and that management fees were at arm's length. Claims for treaty based relief against Dividend Distribution Tax were dismissed following the Total Oil (Mumbai SB) exposition. Issues on allowability of certain reimbursement expenses under Section 37 were not adjudicated on merits and were remanded to the Assessing Officer/TPO for fresh consideration after allowing the assessee to produce supporting evidence.

Used for the purpose of business - depreciation on asset put to use - certificate of airworthiness - deferred revenue expenditure - amortisation over lease period - prior period expenses - crystallisation in relevant year - repair and maintenance - supporting invoices - interest on TDS not allowable - opportunity of hearing

Used for the purpose of business - depreciation on asset put to use - certificate of airworthiness - Depreciation claimed on aircraft acquired in July 2012 allowed. - HELD THAT: - The Tribunal held that the assessee became de facto and de jure owner of the aircraft in July 2012 and took steps (ferry flight, insurance, payments to ferry pilot) to make the aircraft ready for business use before the DGCA certificate of airworthiness was issued. The phrase 'used for the purpose of business' in section 32 was interpreted to permit passive user - keeping and making the asset ready for use - and does not require generation of revenue in the relevant year. Reliance on precedents recognising that 'use' may mean kept ready for use supported allowance of depreciation. Consequently, the findings of the tax authorities that absence of DGCA certification precluded 'use' were set aside and depreciation was allowed. [Paras 4]

Decided for the assessee; addition on account of denial/reduction of depreciation set aside.

Deferred revenue expenditure - amortisation over lease period - Claim for deferred revenue expenditure in respect of engine improvement/repairs of leased helicopter remitted for re-examination. - HELD THAT: - The Tribunal noted that the identical issue for AY 2012-13 has been restored to the AO by a coordinate Bench and that the facts are not distinguishable. The coordinate Bench's reasoning (recorded in the order reproduced) recognised that large revenue expenditure conferring benefit over lease period may be amortised and directed verification of documents and facts by the AO. In view of that coordinate Bench order, the Tribunal restored the issue for fresh consideration by the AO for the assessment year under appeal. [Paras 4]

Remitted to the file of the Assessing Officer for re-examination in terms of the coordinate Bench direction.

Prior period expenses - crystallisation in relevant year - opportunity of hearing - Disallowance of prior period expenses of Rs. 8,81,697/- restored for fresh adjudication by CIT(A). - HELD THAT: - The Tribunal disagreed with the CIT(A)'s conclusion that the assessee had admitted the amounts as prior period expenses. The assessee produced invoices evidencing that certain charges (for example, maintenance fee royalty) were billed and crystallised in the relevant assessment year. The Tribunal directed that the CIT(A) give the assessee a fresh opportunity of hearing and consider the evidence regarding receipt of bills in the relevant year and the timing of crystallisation. [Paras 4]

Restored to the files of the CIT(A) for fresh consideration after affording opportunity to the assessee.

Repair and maintenance - supporting invoices - opportunity of hearing - Disallowance of Rs. 9,35,472/- for repair and maintenance restored to CIT(A) for fresh adjudication. - HELD THAT: - The Tribunal found that relevant invoices and proof of payment had been placed on record before the AO (including invoice and cheque copy) but were not taken into account by the CIT(A). In view of the documented evidence that originals were produced before the AO, the Tribunal directed restoration of the issue to the CIT(A) to consider the assessee's evidences after giving a hearing and decide afresh. [Paras 4]

Restored to the files of the CIT(A) for reconsideration in light of the evidence and after hearing the assessee.

Interest on TDS not allowable - Disallowance of interest on TDS upheld. - HELD THAT: - The Tribunal observed that the assessee had effectively surrendered the amount before the AO and that it is settled law that interest on TDS is not an allowable expenditure. No substantive argument was advanced to overturn this position and the tax authorities' finding was affirmed. [Paras 4]

Decided against the assessee; disallowance on account of interest on TDS sustained.

Final Conclusion: The appeal is partly allowed: the denial/reduction of depreciation on the aircraft is set aside in favour of the assessee; deferred revenue expenditure (engine repairs of leased helicopter) is remitted to the AO for re-examination in terms of the coordinate Bench order for AY 2012-13; prior period expenses and the repair & maintenance disallowance are restored to the CIT(A) for fresh consideration after affording opportunity of hearing; the disallowance of interest on TDS is upheld against the assessee.

Admissibility of additions based on survey/inspector report - reliance on loose papers and extrapolation for on-money additions - requirement to refer valuation matters to District Valuation Officer for determination of fair market value - onus on Revenue to produce corroborative evidence to prove suppression or receipt of unaccounted money - prohibition on making additions on the basis of surmise, suspicion or conjecture

Admissibility of additions based on survey/inspector report - requirement to refer valuation matters to District Valuation Officer for determination of fair market value - onus on Revenue to produce corroborative evidence to prove suppression or receipt of unaccounted money - Deletion of addition of Rs. 4,51,00,000/- treated as unaccounted profit from sale of flats for AY 2014-15 was justified - HELD THAT: - The Tribunal found that the Assessing Officer based the addition solely on the Inspector's field report and a loose paper seized during survey without rejecting the assessee's books of account or producing any corroborative incriminating evidence. Purchasers summoned under Section 131/133A did not admit payment of any extra money and the AO did not refer the question of fair market value to the prescribed authority, namely the District Valuation Officer under Section 55A. In these circumstances, reliance on an Inspector's report and extrapolation from seized material, without independent valuation or corroboration, is legally impermissible; additions founded on such surmise cannot be sustained. The Tribunal therefore upheld the CIT(A)'s deletion of the addition. [Paras 5, 6, 7]

Addition of Rs. 4,51,00,000/- deleted and the Revenue's ground in this regard dismissed.

Reliance on loose papers and extrapolation for on-money additions - onus on Revenue to produce corroborative evidence to prove suppression or receipt of unaccounted money - prohibition on making additions on the basis of surmise, suspicion or conjecture - Deletion of addition of Rs. 1,46,12,500/- alleged as unaccounted receipts from sale of duplex penthouses for AY 2014-15 was justified - HELD THAT: - The Tribunal observed that the impugned addition rested on a stray loose paper and the AO's extrapolation of assumed per-unit values without any specific finding linking seized material to identified transactions or persons. The assessee produced confirmations from buyers and explanations on variations in price due to differing fittings, interiors and payment terms; no purchaser admitted payment of unaccounted money. Following settled precedents that additions cannot be sustained on mere suspicion, conjecture or extrapolation from seized notings, and in absence of corroborative evidence or DVO valuation, the Tribunal agreed with the CIT(A) that the addition could not be sustained and directed its deletion. [Paras 5, 6, 7]

Addition of Rs. 1,46,12,500/- deleted and the Revenue's ground in this regard dismissed.

Final Conclusion: The Revenue's appeal is dismissed; the order of the CIT(A) deleting the additions in respect of the alleged unaccounted receipts for Assessment Year 2014-15 is upheld.

Penalty under Section 271F for failure to furnish return - effect of filing return in response to a notice under Section 148 on penalty liability - timeliness of initiation of penalty proceedings where no statutory time-limit is prescribed

Penalty under Section 271F for failure to furnish return - effect of filing return in response to a notice under Section 148 on penalty liability - Assessee liable to penalty under Section 271F despite filing return after issuance of notice under Section 148 - HELD THAT: - The assessee did not furnish the return of income as required under sub-section (1) of Section 139 by the end of the relevant assessment year (on or before 31.03.2016). Although the assessee filed a return in response to the notice issued under Section 148, the Tribunal accepted the view that such subsequent filing in response to reopening does not absolve the assessee of the default of not having filed the original return by the due date. The assessee did not offer any explanation for failure to file the original return on or before 31.03.2016. In these circumstances, the Assessing Officer was justified in concluding that the statutory default under Section 271F had occurred and in imposing the prescribed penalty, and the CIT(A) correctly confirmed the penalty. [Paras 3, 7]

Penalty under Section 271F upheld as the assessee failed to file the original return by the due date and subsequent filing after Section 148 notice did not negate liability.

Timeliness of initiation of penalty proceedings where no statutory time-limit is prescribed - Initiation of penalty proceedings after completion of assessment under Section 147 is permissible provided it is within a reasonable time; no infirmity found in the present case - HELD THAT: - The Tribunal noted that Section 271F does not prescribe a specific time-limit for initiating penalty proceedings. Nevertheless, such proceedings should be initiated within a stipulated or reasonable time. The penalty in this case was initiated after the completion of assessment proceedings under Section 147, but the Tribunal found no abuse of process or impermissible delay warranting interference. There is no finding that the initiation was so untimely as to vitiate the penalty order. [Paras 7]

Penalty proceedings initiated after assessment were held not to be time-barred or vitiated by delay in the facts of this case.

Final Conclusion: The appeal is dismissed; the penalty under Section 271F for AY 2015-16 is sustained because the assessee failed to file the original return by the due date, filing after a Section 148 notice did not absolve that default, and the initiation of penalty proceedings after assessment was not held to be impermissibly delayed.

Deduction under Section 80P(2)(d) - Scope of Section 80P(2)(d) - interest or dividend derived from investments with another co-operative society - Validity of revision under Section 263 - erroneous and prejudicial to the interest of Revenue - Interpretation of Section 80P(4) as limiting exclusion of certain co-operative banks

Deduction under Section 80P(2)(d) - Scope of Section 80P(2)(d) - interest or dividend derived from investments with another co-operative society - Interpretation of Section 80P(4) as limiting exclusion of certain co-operative banks - Validity of revision under Section 263 - erroneous and prejudicial to the interest of Revenue - Legitimacy of disallowance under revision u/s 263 of the assessment allowance of deduction under Section 80P(2)(d) in respect of interest from Yamuna Nagar Central Co-op Bank Ltd. - HELD THAT: - The Tribunal examined whether the Assessing Officer had erred in allowing deduction under Section 80P(2)(d) for interest earned by the assessee (a co operative society) on deposits with Yamuna Nagar Central Co op Bank Ltd. Section 80P(2)(d) permits deduction of income by way of interest or dividend derived by a co operative society from investments with any other co operative society; the provision requires only (i) that the recipient be a co operative society and (ii) that the investment be with another co operative society. The AO recorded and examined the facts, disallowed interest from scheduled commercial banks, and allowed the claim in respect of the Yamuna Nagar Central Co op Bank as meeting the statutory test. The Principal CIT invoked section 263 relying on precedents that addressed different sub sections or circumstances and placed weight on decisions construing Section 80P(4). The Tribunal found those authorities distinguishable: the jurisdictional Punjab & Haryana High Court decision in Doaba Co op Sugar Mills (favouring deduction under Section 80P(2)(d)) is binding and supports the AO's approach; divergent non jurisdictional High Court views do not govern. Further, the Supreme Court's decision in Mavilayi clarifies that Section 80P(4) is a limited proviso excluding only co operative banks that function as full fledged banking institutions and does not, on the facts, negate the claim of a co operative society under Section 80P(2)(d). Given that (a) both parties accepted that the assessee and Yamuna Nagar Central Co op Bank are co operative societies, (b) the AO had examined the claim and followed relevant precedents, and (c) no additional statutory limitation appears in Section 80P(2)(d), there was no legal basis to hold the assessment order erroneous and prejudicial to revenue. Invocation of section 263 was therefore unjustified and the reassessment direction was set aside. [Paras 16, 19, 22, 24, 25]

The order under section 263 setting aside the assessment is quashed; the AO's assessment allowing deduction under Section 80P(2)(d) in respect of interest from Yamuna Nagar Central Co op Bank Ltd. is sustained.

Final Conclusion: The appeal is allowed: the Tribunal set aside the Principal CIT's revision order under Section 263 and upheld the Assessing Officer's allowance of deduction under Section 80P(2)(d) for interest received from Yamuna Nagar Central Co operative Bank Ltd. for Assessment Year 2018 19.

Section 50C - proviso regarding agreement date and earlier receipt by cheque - stamp duty valuation - computation of capital gains

Section 50C - proviso regarding agreement date and earlier receipt by cheque - stamp duty valuation - computation of capital gains - Applicability of the provisos to section 50C for determining full value of consideration where the agreement date and registration date differ and a part consideration was received earlier by account payee cheque. - HELD THAT: - The Tribunal examined the wording of section 50C(1) and its provisos. It noted that where the date of the agreement fixing the amount of consideration and the date of registration are different, the value adopted by the stamp valuation authority as on the date of the agreement may be taken for computing full value of consideration. The second proviso makes this contingent upon receipt of the whole or part of the consideration by an account payee cheque, bank draft or electronic clearing on or before the date of the agreement. On the facts, the agreement was dated 30/12/2015 while part consideration (by cheque) had been received on 14/8/2014. Given these facts, the Tribunal held that the stamp duty valuation as on the date of registration could not be applied; instead the value as on the date of the agreement (with regard to stamp valuation relevant to that date) and the actual sale consideration accepted on the date of the agreement must be adopted for computing capital gains. Consequently, the Tribunal concluded that the invoking of section 50C(2) and 50C(3) based on stamp duty value at registration was not proper in the present case and directed recomputation accordingly. [Paras 8, 9]

Provisions of section 50C(2) and 50C(3) cannot be applied; the Assessing Officer is directed to adopt the actual sale consideration declared and accepted on the date of the agreement (given part payment by account payee cheque) for computation of capital gains.

Final Conclusion: Appeal partly allowed: the assessment is to be revised by adopting the sale consideration as on the date of the agreement (in view of earlier receipt of part consideration by cheque), and the additions based on stamp duty value at registration are displaced.

Scope of rectification under section 154 r.w.s. 143(3) - ad-hoc disallowance of expenses - disallowance under section 40A(3) - treatment of prior period expenses - finality of original assessment adjustments

Scope of rectification under section 154 r.w.s. 143(3) - ad-hoc disallowance of expenses - disallowance under section 40A(3) - treatment of prior period expenses - Whether additions made by the Assessing Officer by way of rectification under section 154 (disallowance under section 40A(3) and prior period expenses) were permissible after an ad-hoc 10% disallowance had been made in the original assessment. - HELD THAT: - The original assessment order dated 23/12/2018 recorded an ad-hoc disallowance of 10% amounting to Rs. 10,91,105/-, made after examining cash-incurred expenses supported by self-made vouchers. Thereafter, on examining the Tax Audit Report, the AO issued a rectification order under section 154 r.w.s. 143(3) making further specific disallowances of Rs. 2,94,503/- as u/s. 40A(3) disallowance and Rs. 83,184/- as prior period expenses. The Tribunal accepted the assessee's contention that where the AO has thoughtfully considered the expenses in the original assessment and made an ad-hoc disallowance, it is impermissible to make additional specific disallowances in a rectification proceeding. Applying this principle, the Tribunal found that the specific additions under section 40A(3) and in respect of prior period expenses were beyond the scope of the rectification and could not stand. The Tribunal thus directed deletion of the additions made in the rectification order. [Paras 7]

The additions made in the rectification order (disallowance under section 40A(3) and prior period expenses) are beyond the scope of section 154 where an ad-hoc 10% disallowance was made in the original assessment; the rectification additions are deleted.

Final Conclusion: Appeal allowed; the Tribunal set aside the additions made by the Assessing Officer in the rectification order and directed deletion of the disallowances recorded by way of rectification.

Validity of communication issued without DIN - Document Identification Number (DIN) - CBDT Circular No. 19/2019 - Exceptional circumstances for manual communication - Regularisation of manual communication - Deemed to have never been issued - Binding character of CBDT circular issued under section 119

Validity of communication issued without DIN - Document Identification Number (DIN) - CBDT Circular No. 19/2019 - Exceptional circumstances for manual communication - Regularisation of manual communication - Deemed to have never been issued - Show cause notice dated 02.03.2022 and revision order dated 30.03.2022 issued without quoting DIN are valid communications - HELD THAT: - The Tribunal examined CBDT Circular No. 19/2019 which mandates that, with effect from 01.10.2019, no communication in proceedings under the Act shall be issued unless a computer-generated Document Identification Number (DIN) is allotted and quoted in the body of the communication. The Circular prescribes limited exceptional circumstances in which manual communication without DIN may be issued, subject to prior written approval and specified regularisation steps. In the present case the show cause notice and the revision order as issued did not quote DIN on their face, and the facts do not fall within any of the exceptional circumstances identified in paragraph 3 of the Circular. Although the Department asserts that DINs were generated subsequently on ITBA and intimated to the assessee, the procedural requirements for issuance or for regularisation set out in the Circular were not complied with by the PCIT. The Circular further provides that any communication not in conformity with its provisions shall be treated as invalid and deemed never to have been issued. The Tribunal applied the binding nature of CBDT instructions issued under section 119 (as reflected in K.P. Varghese) and the reasoning of earlier High Court decisions on the same question, and concluded that non-compliance rendered the SCN and the revision order invalid. [Paras 6, 7, 8, 9]

SCN dated 02.03.2022 and revision order dated 30.03.2022 are invalid for non-compliance with CBDT Circular No. 19/2019 and are to be treated as never issued

Final Conclusion: The appeal is allowed: the revision proceedings initiated by the PCIT by issuing the show cause notice dated 02.03.2022 and the revision order dated 30.03.2022 are invalid for non-quoting of DIN in breach of CBDT Circular No. 19/2019 and are to be treated as having never been initiated.

Deduction under Section 10AA - treatment of notional interest on partners' capital and partners' remuneration - application of Section 40B regarding interest and remuneration to partners - validity of supplementary partnership deed as governing contract between partners - condonation of delay

Condonation of delay - Delay of 38 days in filing the appeal was condoned. - HELD THAT: - The Tribunal examined the affidavit and explanations for the delay, found no deliberate or mala fide intention, and observed that the delay was brief and beyond the assessee's control while seeking legal advice. Having considered the submissions of both parties, the Tribunal held that reasonable cause was shown and condoned the delay, permitting admission of the appeal for adjudication on merits. [Paras 4]

Delay in filing appeal of 38 days is condoned and appeal admitted for adjudication on merits.

Deduction under Section 10AA - treatment of notional interest on partners' capital and partners' remuneration - application of Section 40B regarding interest and remuneration to partners - validity of supplementary partnership deed as governing contract between partners - Disallowance of part of deduction under Section 10AA by treating notional interest and partners' remuneration as payable was deleted and full deduction under Section 10AA was to be allowed. - HELD THAT: - The Assessing Officer disallowed a portion of the Section 10AA deduction by imputing interest on capital and remuneration to partners on the basis of the original partnership deed. The assessee relied on a supplementary partnership deed (dated 19/06/2014) whereby partners agreed not to claim interest or remuneration, and on binding judicial precedent of the jurisdictional High Court holding that mere incorporation of provisions for interest or remuneration in a deed does not make them mandatory. The Tribunal directed production and perusal of the original supplementary deed, found it on record as attested/notarized copy matching the original, and accepted that the partners had mutually agreed not to charge interest or remuneration. Relying on the jurisprudence cited and the verified deed, the Tribunal concluded that the firm could not be compelled to charge such items and therefore deleted the disallowance made by the AO and confirmed by the CIT(A). [Paras 12, 14, 15, 16]

Disallowance of interest on capital and partners' remuneration from allowable profit under Section 10AA is deleted; Assessing Officer directed to allow full Section 10AA deduction.

Deduction under Section 10AA - Ground relating to treating income on late payment of employees' PF/ESI contribution was not pressed and is dismissed. - HELD THAT: - The assessee's authorised representative expressly did not press this ground at hearing. In view of that concession, the Tribunal dismissed this ground without further adjudication on merits. [Paras 17]

Ground concerning income on late payment of PF/ESI contribution is dismissed as not pressed.

Final Conclusion: The Tribunal condoned the short delay in filing the appeal and on merits allowed the appeal in part by deleting the disallowance of notional interest on partners' capital and partners' remuneration for AY 2017-18 (directing full allowance of the Section 10AA deduction) while dismissing the unpressed ground relating to PF/ESI.

Provisional attachment under the Prohibition of Benami Property Transactions Act - Show cause notice under Section 24(1) of the Act - Reasons to believe / formation of belief - Service of notice on a person in judicial custody - Protective securing of property pending adjudication - Distinction between provisional attachment under the Act and attachment under Order XXXVIII CPC

Service of notice on a person in judicial custody - Show cause notice under Section 24(1) of the Act - Validity of issuance and service of the show cause notice and provisional attachment when petitioners were in judicial custody - HELD THAT: - The Court noted that it is not on record that the initiating officer knew the petitioners were in judicial custody when the show cause notice under Section 24(1) was issued and the provisional attachment was made. The petitioners' contention that service ought to have been effected on the Prison Superintendent was not accepted as fatal in the absence of evidence that the respondents knew of the custody. The Court observed that issuance of the Section 24(1) notice and consequent provisional attachment are founded upon a prima facie suspicion which triggers statutory safeguards thereafter. The petitioners had the opportunity to approach the adjudicating authority and to respond to the notice after release from custody. [Paras 6, 7]

The challenge to the notice and service on account of the petitioners being in judicial custody was rejected for want of material showing the initiating officer's knowledge of custody and the petitions on this ground failed.

Provisional attachment under the Prohibition of Benami Property Transactions Act - Reasons to believe / formation of belief - Protective securing of property pending adjudication - Distinction between provisional attachment under the Act and attachment under Order XXXVIII CPC - Whether the provisional attachment under Section 24(3) was unlawful because the properties could not be alienated while the alleged benamidars and beneficiaries were in custody - HELD THAT: - The Court explained that provisional attachment under the Act is a preliminary protective measure founded on prima facie suspicion that a property may be benami and may need to be secured pending adjudication. The initiating officer is required to form an opinion on that suspicion; such opinion need not meet the more exacting standards applicable to attachments under Order XXXVIII CPC which serve a different purpose. Reliance on precedents emphasising that reasons to believe must reflect an application of mind was noted, but, on the facts, the Court found that the statutory scheme contemplates precautionary provisional attachment to prevent alienation while the matter proceeds to adjudication. The matter being pending before the adjudicating authority and the petitioners having opportunity to be heard, the provisional attachment was not held illegal on the ground that custody made alienation impossible on the date of attachment. [Paras 7, 8, 9]

The provisional attachment under Section 24(3) was held to be legally permissible as a protective measure based on prima facie suspicion and not vitiated merely because alleged parties were in custody; the attachment was not quashed.

Final Conclusion: All writ petitions were dismissed; the provisional attachments challenged were held not to be unlawful on the grounds urged, and petitioners retain the statutory remedy of appearing before and placing their case before the adjudicating authority.

Assessment of oil in bunker tanks as part of vessel scrap - separate assessment of ship and bunker oil - precedential effect of earlier coordinate bench order

Assessment of oil in bunker tanks as part of vessel scrap - separate assessment of ship and bunker oil - Whether the oil in the bunker tanks of vessels sent for breaking up is to be assessed as part of the vessel or separately. - HELD THAT: - The Court noted that there were conflicting CESTAT decisions: an earlier CESTAT order held that the ship and the oil should be assessed separately, whereas later CESTAT orders held that the oil is to be assessed as part of the ship. Having considered both positions, a coordinate Bench of this Court held that the later view - treating the bunker oil as part of the ship for assessment purposes - is correct and dismissed the Revenue's appeals. In view of that earlier order of this Court applying the later CESTAT view, the present appeal arising from the same common order could not be sustained and was disposed of accordingly. [Paras 3, 4, 5]

Appeal dismissed as the Court adhered to the earlier ruling that bunker oil is to be assessed as part of the vessel; the present appeal arising from the same common order does not survive.

Final Conclusion: The appeal is dismissed in view of this Court's prior determination that bunker oil in vessels sent for breaking up is to be assessed as part of the ship; pending applications are disposed of.

Classification of imported goods - Documents of title conveying the right to use Information Technology software - Information Technology software recorded in machine readable form - tariff classification based on description at the time of import - exemption notification entry 157

Classification of imported goods - Documents of title conveying the right to use Information Technology software - Information Technology software recorded in machine readable form - tariff classification based on description at the time of import - Whether the paper 'software licence' imported with the software is classifiable under CTH 4907 00 30 or under CTH 8523 80 20. - HELD THAT: - The Tribunal examined the tariff descriptions and Chapter 49 supplementary notes which define "Information Technology software" for tariff item 4907 00 30 as any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form. Documents such as manuals or other paper documents that convey the right to use software fall within Chapter 49. The Board's notification entry No.157 separately lists (i) Information Technology software and (ii) Document of title conveying the right to use Information Technology software, showing distinct classification. The contention that the licence possesses an independent intellectual value or that high declared value should lead to treating the licence as part of the software was rejected: classification depends on the description of the product at import, not on the quantum of value or alleged inseparability. Applying these principles, a paper licence conveying the right to use software is properly classifiable under CTH 4907 00 30 and not under CTH 8523 80 20 which covers information technology software recorded in media. [Paras 7, 8]

The paper software licence is classifiable under CTH 4907 00 30 and the appellate order so holding is upheld.

Final Conclusion: Appeal dismissed; the impugned order holding that the imported paper licence is classifiable under CTH 49070030 is upheld.

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

Failure to comply with customs broker due diligence and KYC obligations - liability for acts and omissions of employees and supervisory responsibility of customs broker - forfeiture of security and imposition of penalty under Customs Broker Licensing Regulations - principles of natural justice in regulatory disciplinary proceedings - proportionality in imposing revocation of licence vis-a -vis monetary penalty

Principles of natural justice in regulatory disciplinary proceedings - Whether the disciplinary proceedings and impugned order violated the principles of natural justice. - HELD THAT: - The Tribunal found that the appellant was granted opportunities at all stages, including responses to show cause notices, a personal hearing and the opportunity to file written submissions post-hearing, and that the Adjudicating Authority considered the statements and representations on record. The contention that the order was passed mechanically or without appreciation of grounds was rejected on the basis that the record shows consideration of the appellant's submissions and the material relied upon by the Authority. [Paras 6]

Principles of natural justice were complied with and the plea of violation is rejected.

Failure to comply with customs broker due diligence and KYC obligations - liability for acts and omissions of employees and supervisory responsibility of customs broker - Whether the appellant contravened obligations under the Customs Broker Licensing Regulations by failing to verify KYC, exercise due diligence and supervise employees, thereby justifying penal action. - HELD THAT: - The inquiry and documentary record, including statements under Section 108, establish that the bill of entry was filed without verification of KYC or documentary reconciliation of weight and related particulars; the broker's employee admitted receiving documents by courier and filing the bill without checking them, and the importer was shown to be a dummy IEC holder with another person effecting imports. Those admissions and investigative findings satisfied the requirements of Regulation 10(d) (advising client/bringing non-compliance to authority), Regulation 10(e) (due diligence to ascertain correctness of information), Regulation 10(n) (verify antecedent, correctness of IEC and identity/functioning of client) and Regulation 13(12) (responsibility for acts/omissions of employees). The Tribunal treated precedents cited by the Revenue as supportive of the view that mere receipt of documents does not discharge the verification obligation and that brokers remain responsible until sealed containers leave their supervision. [Paras 8, 9, 10, 11]

Contravention of the cited regulations was established and the appellant is liable for the acts and omissions proved against his employee.

Forfeiture of security and imposition of penalty under Customs Broker Licensing Regulations - proportionality in imposing revocation of licence vis-a -vis monetary penalty - Whether the penalty of forfeiture of security deposit and imposition of monetary penalty was appropriate and whether licence revocation ought to have been ordered. - HELD THAT: - The Regulations permit a range of sanctions including forfeiture, monetary penalty and revocation. The Commissioner exercised discretion by ordering forfeiture of the security and imposing the maximum monetary penalty available under the Regulations while refraining from revoking the customs broker licence, noting that revocation is a harsh punishment that destroys livelihood. The Tribunal held that this approach was fair and balanced and within the regulatory framework and did not call for interference. [Paras 13, 14]

Forfeiture of security and imposition of penalty were upheld and revocation was not warranted.

Final Conclusion: The Tribunal upheld the adjudicating authority's findings that the customs broker failed to comply with KYC, due diligence and supervisory obligations, found no breach of natural justice, sustained forfeiture of the security deposit and the monetary penalty while declining to order revocation of licence, and dismissed the appeal.

Forgery/Fabrication of documents before customs - Violation of Regulation 10(j) of CBLR, 2018 - Vicarious liability of Customs Broker for acts of employee - Obligation to supervise employees under Regulation 13(12) of CBLR, 2018 - Mens rea not requisite for contraventions of Customs Broker licensing obligations - Proportionality in disciplinary action

Forgery/Fabrication of documents before customs - Violation of Regulation 10(j) of CBLR, 2018 - Submission of forged/fabricated examination instructions in relation to the subject bill of entry constituted contravention of Regulation 10(j). - HELD THAT: - The Tribunal accepted statements recorded under Section 108 that the first print page of the docket was manipulated to show that "Examination has not been prescribed for this B/E" and names of officers were added so as to avoid shed examination. The H-card holder admitted fabricating the document at the instance of the partner of the broker firm, and the importer also admitted pressing for faster clearance. Those admissions, being admissible, established that forged documents were produced before customs and thereby proved contravention of Regulation 10(j). [Paras 10, 11]

Contravention of Regulation 10(j) proved against the customs broker.

Vicarious liability of Customs Broker for acts of employee - Obligation to supervise employees under Regulation 13(12) of CBLR, 2018 - The customs broker is vicariously liable for the acts of its employee and failed to exercise the supervisory obligations under Regulation 13(12). - HELD THAT: - The record showed that import clearances were handled by the G-/H-card holder employee and the partner held substantial interest in the firm. The Broker could not evade liability by blaming the employee; Regulation 13(12) imposes a duty to exercise necessary supervision and renders the broker responsible for acts or omissions of employees. The Tribunal relied on accepted authorities and the employee's admissions to hold that the broker had miserably failed in supervision and is therefore liable for the fabrication implemented by the employee. [Paras 12]

Appellant held vicariously liable and found to have failed supervisory obligations under Regulation 13(12).

Mens rea not requisite for contraventions of Customs Broker licensing obligations - Proportionality in disciplinary action - Imposition of disciplinary punishment (revocation of licence, forfeiture of security, penalty) was justified and mens rea is not a prerequisite for such regulatory sanction. - HELD THAT: - The Tribunal noted that regulatory obligations under the CBLR attract penalties even without proof of intent, endorsing the settled principle that contraventions of such obligations invite punishment irrespective of mens rea. Considering the gravity of fabricating public documents to evade vigilance and undervaluation checks, the Tribunal found the revocation and ancillary penalties not disproportionate. Distinguishing earlier decisions relied upon by the appellant, the Tribunal held this case involved deliberate manipulation of records and fraud vitiating actions; hence leniency was unwarranted. [Paras 17, 18, 20, 21]

Punishment imposed by the adjudicating authority upheld; mens rea not required to sustain the disciplinary action.

Final Conclusion: The appeal is dismissed; the adjudicating order revoking the customs broker licence, forfeiting the security deposit and imposing the penalty is upheld.

Classification under General Rules for the Interpretation of the Import Tariff (GIR) - Distinction between 'apparatus' and 'parts' under Heading 8517 - Application of Section Notes to Section XVI - classification of parts - Interpretive effect of HS (WCO) Explanatory Notes - Eligibility for Basic Customs Duty exemption under Notification No.11/2014 Customs (amending No.24/2005)

Distinction between 'parts' and 'machines/apparatus' under Heading 8517 - GIR 1 and GIR 3 preference for most specific heading - Section XVI Note 2(b) - parts suitable for use with machines of heading 8517 - Imported items are classifiable as 'parts' under CTH 8517 70 and not as 'machines/apparatus' under CTI 8517 62 90. - HELD THAT: - The Tribunal applied the General Rules for Interpretation, relevant Section and Chapter Notes to Section XVI and the HS Explanatory Notes. The impugned items (populated PCBs and modules) do not function independently but are designed to be fitted into the chassis of Ciena networking equipment and contribute to a collective clearly defined function; they therefore fall within the concept of 'parts' as per Section Note 2(b) and the HSN explanation of the third single dash entry (8517 70). Where goods are prima facie classifiable under more than one heading, the rule to prefer the most specific description was applied and, having regard to the goods' nature and use, classification under 8517 70 (including 8517 70 10 for populated PCBs and 8517 70 90 for the remaining parts) was held appropriate. The Tribunal also relied on precedent (Tribunal and Supreme Court decisions in similar factual contexts) as persuasive support for this classification. [Paras 22, 29]

Classification under CTH 8517 70 (8517 70 10 and 8517 70 90) is affirmed for the impugned imports.

Scope of exemption under Notification No.11/2014 Customs (amending Notification No.24/2005) - Interpretation of exclusion of specified products from duty exemption and treatment of parts under Serial No.40 - The appellants are not disentitled to BCD exemption under the amended notification merely on the basis of departmental assertion; parts properly classifiable under 8517 70 are eligible for the exemption in the absence of a conclusive classification showing they are excluded goods. - HELD THAT: - The Tribunal examined the amendment to the exemption entry effected by Notification No.11/2014 and observed that while certain finished goods were excluded from Serial No.13, parts of those excluded goods were made eligible under the new Serial No.40 for import at concessional rate when the prescribed procedure is followed. The adjudicating authority had not established by proper classification, authorized testing or adequate evidence that the impugned items were within the excluded categories (optical transport equipments, POTP/POTS, OTN products, Carrier Ethernet Switches etc.). Reliance on TRAI recommendations, WCO/HSC decisions or an expert report without following sampling/testing procedures under the Customs Act was held insufficient to deny exemption. Consequently, having classified the items as parts, the Tribunal held that the impugned orders denying exemption were not sustainable. [Paras 27, 28, 29]

Benefit of the BCD exemption is available in respect of the impugned items classified as parts; the denial of exemption in the impugned order is set aside.

Final Conclusion: The Tribunal set aside the adjudicating authority's order, holding that the imported modules and populated PCBs are classifiable as parts under CTH 8517 70 (including 8517 70 10 and 8517 70 90) and that denial of Basic Customs Duty exemption was not justified; the appeals are allowed in favour of the appellants.

Penalty under Section 114(i) of the Customs Act - Issue of show cause notice before confiscation under Section 124 - Liability to confiscation under Section 113 - Failure of CHA duties under CHALR, 2004 - Mens rea/active role required for penal liability - Conjecture and suspicion insufficient for invocation of penal provisions

Penalty under Section 114(i) of the Customs Act - Mens rea/active role required for penal liability - Conjecture and suspicion insufficient for invocation of penal provisions - Whether the adjudicating authority could lawfully impose penalty under Section 114(i) on the appellant for the attempted export of prohibited Red Sanders - HELD THAT: - The Tribunal examined the adjudicating authority's findings and concluded there is no positive finding that the appellant conspired, actively participated in, or had knowledge of substitution of declared cargo with prohibited goods. The adjudicating authority's narrative records omissions and instances of alleged laxity (non-insistence on KYC, contacts with the consignor after interception, non-verification of seals), but does not establish active involvement, mens rea, or that the appellant materially supplemented the smuggling attempt. The orders under the CHALR were separately considered and, while the appellant was found wanting under certain regulations, those proceedings attained finality and cannot substitute for the evidential requirement for penal liability under the Customs Act. It is the department's burden to demonstrate a positive role or benefit to the appellant; vague allegations, negligence or conjectural inferences do not suffice to attract Section 114(i). Applying settled precedents, the Tribunal held that penal consequences under Section 114(i) require proof of an active role or abetment, which is absent on the record. [Paras 8, 9, 10, 11, 12]

Penalty under Section 114(i) cannot be sustained and the impugned order imposing penalty is set aside.

Final Conclusion: The appeal is allowed; the order of the adjudicating authority imposing penalty under Section 114(i) is set aside as the record does not establish an active role or mens rea on the part of the appellant and the case is founded on conjecture rather than proof.

Short-term accommodation service vs tour operator service - abatement of 90% for tour operators (Privilege Notifications) - service tax collected 'as representing service tax' - scope of section 73A - duplication of demands under section 73 and section 73A - penalty on officers in quasi-criminal tax proceedings

Short-term accommodation service vs tour operator service - Appellant was not providing short-term accommodation service but was a tour operator and merely facilitated hotel bookings. - HELD THAT: - The Court examined the agreements between the appellant and hotels and the User Agreement with customers and held that the hotels, not the appellant, provided the accommodation. The Privilege Partnership Agreement and User Agreement show that hotels undertake to provide accommodation, that the appellant acts as a facilitator/booking agent, and that the appellant receives commission. The statutory definition of short-term accommodation requires the service to be provided by a hotel; the appellant is not a hotel and does not hold requisite hotel registrations or infrastructure. Consequently, the appellant cannot be treated as the provider of short-term accommodation service. [Paras 23, 24, 26, 29, 32]

Appellant is not a provider of short-term accommodation; it is a tour operator/booking facilitator.

Abatement of 90% for tour operators (Privilege Notifications) - Appellant, being a tour operator qua the person, is entitled to claim the 90% abatement in respect of sole arranging/booking of accommodation subject to the Notification conditions. - HELD THAT: - The Court considered the statutory definition of 'tour operator' and the Abatement Notifications (pre- and post-1.7.2012). It held that qualification as a tour operator is to be seen qua the person and not qua each transaction; a person engaged in arranging/booking accommodation as a tour operator qualifies for the abatement where the notification conditions are met. The appellant operates an online portal arranging accommodation and thus satisfies the definition and is entitled to claim the abatement. [Paras 36, 37, 41, 43, 44]

Appellant qualifies as a tour operator and is entitled to 90% abatement for arranging/booking accommodation as per the Notifications.

Service tax collected 'as representing service tax' - scope of section 73A - interpretation of 'collected' in tax recovery provisions - Section 73A could not be invoked because the amounts shown as 'taxes and fees' were collected on behalf of hotels and remitted to them; there was no prima facie case of collection with intention to retain. - HELD THAT: - For section 73A to apply the amount must have been collected 'as representing service tax'. The Court analysed sample vouchers and accounting - taxes/fees were collected as hotel taxes and remitted to hotels; the appellant discharged service tax on its commission after availing abatement. Reliance on precedent demonstrates 'collected' implies amounts retained with intention to keep; amounts collected and passed on do not attract section 73A. Hence the statutory ingredients for section 73A were not satisfied. [Paras 52, 53, 54, 55, 56]

Section 73A is not attracted; demand under section 73A cannot be sustained.

Duplication of demands under section 73 and section 73A - The impugned order confirmed demands under both section 73 (short-levy) and section 73A (amounts collected) on essentially the same gross amounts, resulting in impermissible duplication; confirmation cannot be sustained. - HELD THAT: - The Court observed that the adjudicating authority confirmed differential tax under section 73 while simultaneously confirming claims under section 73A on the same gross receipts including amounts remitted to hotels. Given the findings that the appellant is a tour operator entitled to abatement and that amounts collected were remitted to hotels (so section 73A inapplicable), the dual confirmation produced duplication. Accordingly, the confirmations of demands as made could not be sustained. [Paras 57, 58]

Confirmation of demands under section 73 and section 73A on the same gross amounts is unsustainable; demands set aside.

Penalty on officers in quasi-criminal tax proceedings - Penalties imposed on the Vice President (Finance), Group CFO and Director cannot be sustained and were set aside. - HELD THAT: - Given that the substantive demands were set aside - the Court found the impugned order unsustainable on the principal issues - penalties levied on the company officials under the impugned order cannot stand. The Court therefore allowed the appeals challenging penalties. [Paras 60, 61]

Penalties on the named officials are set aside.

Final Conclusion: The impugned order dated 29.07.2021 is set aside. The Appellants were held to be tour operators (entitled to the 90% abatement for arranging/booking accommodation), the demands under section 73A were held not to be attracted, and the confirmed demands (including duplicated demands) and penalties were quashed. Appeals allowed.

Composite works contract - construction of complex service - residential complex service - works contract service - vivisection of composite contracts - show cause notice misclassification - composition scheme intimation

Composite works contract - construction of complex service - residential complex service - vivisection of composite contracts - Demand of service tax under construction of complex / residential complex service for contracts that are composite works contracts prior to 01.06.2007 cannot be sustained. - HELD THAT: - The Tribunal applied the ratio of the Hon'ble Supreme Court in Commissioner of C.Ex. & Cus., Kerala v. Larsen & Toubro Ltd., holding that the charging entries for construction-type services prior to 1.6.2007 apply only to service contracts simpliciter and not to indivisible composite works contracts involving supply of materials. The legislative introduction of works contract service w.e.f. 1.6.2007 confirms that composite contracts were not chargeable as construction/complex services prior to that date. On the facts, the adjudicating records and the show cause notices themselves treated the contracts as composite (for example, allowance of abatement), which precludes vivisection to levy service tax under CCS/RCS for the pre-1.6.2007 period. [Paras 9]

Demand under construction of complex / residential complex service for the pre-1.6.2007 period is set aside.

Works contract service - composite works contract - construction of complex service - vivisection of composite contracts - For periods after 01.06.2007, composite contracts remain taxable as works contract service and cannot be confirmed under construction/complex service where the contract is indivisible and involves supply of materials. - HELD THAT: - The Tribunal observed that even after introduction of works contract service, the entries for CICS/CCS/RCS continue to apply only to services simpliciter. Where the contract is an indivisible composite works contract, the taxable character follows the definition of works contract service and not separate construction/complex service classifications. The Tribunal relied on coordinate decisions and the statutory scheme (including the composition mechanism introduced in 2007) to conclude that composite contracts cannot be reclassified as construction/complex services merely for the purpose of confirming demand. [Paras 7, 11]

Demand confirmed under construction/complex categories for post-1.6.2007 periods in respect of composite contracts cannot be sustained; such contracts fall under works contract service.

Show cause notice misclassification - composition scheme intimation - works contract service - A demand confirmed under a service category different from that specified in the show cause notice (or not the correct head for the activity) cannot be sustained; mere failure to intimate option under the composition scheme does not uphold a demand raised under a wrong head. - HELD THAT: - Relying on Tribunal precedents, the Bench held that a show cause notice proposing demand under a particular category must be the basis of confirmation and cannot be sustained by reclassifying the activity under a different head. Separately, prior decisions establish that non-filing of intimation for opting into the Works Contract composition scheme, by itself, cannot justify confirming a demand that is otherwise wrongly classified. Applying these principles to the present appeals, the demands framed and confirmed under construction/complex categories where the contracts were composite are unsustainable. [Paras 11, 12]

Demands confirmed under a wrong head of service and solely on account of non-intimation of composition option are set aside.

Final Conclusion: All three appeals are allowed; the impugned orders confirming service tax, interest and penalties under construction/complex categories in respect of the composite works contracts are set aside with consequential reliefs as per law.

Service tax leviable only if consideration is received - Definition of 'service' and 'consideration' under the negative list regime - Determination of assessable value under Section 67 and Rule 3 of the Service Tax (Determination of Value) Rules, 2006 - Reimbursable expenses and exclusion from taxable value

Service tax leviable only if consideration is received - Definition of 'service' and 'consideration' under the negative list regime - Determination of assessable value under Section 67 - Liability to service tax for warranty support services provided free of charge - HELD THAT: - The Tribunal held that where no consideration is received from the service recipient, the activity does not satisfy the essential element of 'consideration' necessary to constitute a taxable 'service' under the Finance Act in the negative list regime. The adjudicating authority's approach of invoking Section 67 and Rule 3 to determine an assessable value in circumstances of non receipt of any consideration was rejected as misconceived: valuation provisions apply where consideration exists but its amount is not ascertainable, not where there is no consideration at all. The Tribunal relied on the reasoning in the decision reproduced from the Supreme Court/Tribunal in CGST&CE Vs. Edelweiss Financial Services to observe that ascertainment of assessable value under Section 67 cannot be used to convert a non consideration activity into a taxable service. Applying that principle to the admitted facts - that warranty services were provided free and no consideration flowed from customers - the Tribunal held that the demands confirmed under the taxable category of Management, Maintenance or Repair Service could not be sustained. [Paras 9]

Confirmation of service tax on warranty services where no consideration was received is set aside.

Reimbursable expenses and exclusion from taxable value - Gross amount charged does not include pure reimbursements - Taxability of compensation/reimbursement received from OEMs for defective parts replaced during warranty support - HELD THAT: - The Tribunal followed its earlier view in TAFE Access Limited Vs. CGST&CE [2023(5) TMI 1154 - CESTAT Chennai], applying the principle laid down by the Supreme Court in UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., that reimbursable expenses (amounts received as reimbursement of the cost of goods or materials supplied or replaced) are not includible in the taxable value of the service. The Commissioner's reliance on Rule 5(1) to treat the cost of goods used during service provision as part of the gross amount charged was held to be contrary to that principle. Consequently, the confirmed demand relating to reimbursement/compensation from OEMs for replacement parts was held unsustainable. [Paras 10]

Demand confirmed on reimbursement of cost of defective parts replaced during warranty period is set aside.

Extended period of limitation and penalty - Sustainability of demands for extended period and imposition of penalty - HELD THAT: - While the appellant had contended that extended period provisions and penalty could not be invoked because there was no suppression or intent to evade tax and because relevant periods were time barred, the Tribunal's dispositive reasoning rendered the confirmed demands and consequential penalties unsustainable. By holding that the fundamental taxability and the quantification (including reimbursement items) could not be sustained, the Tribunal removed the basis for the extended period demands and penalties recorded in the impugned orders. The Tribunal therefore allowed the appeals and set aside the impugned orders with consequential reliefs. [Paras 11]

Demands confirmed for extended periods and penalties imposed are set aside as the substantive demands themselves are unsustainable.

Final Conclusion: The impugned orders confirming service tax liability on free warranty services and on reimbursement for defective parts, with interest and penalty, are set aside; appeals allowed and consequential reliefs granted.

Exemption for construction of individual and independent residential houses - definition of "residential complex" and its applicability - refund of service tax on account of mistaken / excess deposit - reverse charge mechanism and incidence of tax - unjust enrichment as a bar to refund

Exemption for construction of individual and independent residential houses - definition of "residential complex" and its applicability - unjust enrichment as a bar to refund - Refund claim in respect of service tax deposited by mistake for construction of independent residential houses - HELD THAT: - The Tribunal examined the nature of the houses constructed for the Rajasthan Housing Board and accepted that they were individual and independent residential houses with separate approach, entry and separate electricity and water connections. Applying the reasoning adopted in the Tribunal's earlier order dated 27.02.2023, the Commissioner (Appeals) was found to have erred in treating multiple houses in the same area as excluding the exemption. The Tribunal further held that where the appellant had borne the incidence of tax (as the Housing Board deducted only 50% under reverse charge), the bar of unjust enrichment did not operate to deny refund. For these reasons the impugned portion of the Commissioner (Appeals) order rejecting the refund claim of Rs. 1,10,770/- was set aside and refund allowed. [Paras 8]

Refund allowed and bar of unjust enrichment held not to apply; order of Commissioner (Appeals) set aside in respect of this claim.

Refund of service tax on account of excess deposit - reverse charge mechanism and incidence of tax - unjust enrichment as a bar to refund - Refund claim of excess service tax deposited by the appellant for construction work (multi story / work order related receipts) - HELD THAT: - The Tribunal considered the appellant's contention that it had deposited the entire tax though the Housing Board was liable to deposit fifty percent by reverse charge and had deducted its share, resulting in excess deposit by the appellant. Relying on its earlier reasoned order dated 12.05.2023 (in Service Tax Appeal No. 52955 of 2016) and the subsequent order dated 27.02.2023, the Tribunal found the evidence (work order, Form 16A/26AS, VAT-41 and certificate) consistent with the claim and concluded that the appellant had borne the incidence of tax. Consequently, the Commissioner (Appeals) erred in denying refund on merits and on the ground of unjust enrichment. The refund of Rs. 4,07,671/- was therefore directed to be allowed. [Paras 11, 13]

Refund of excess tax allowed; unjust enrichment held not to bar refund and the Commissioner (Appeals) order set aside in respect of this claim.

Final Conclusion: The Commissioner (Appeals) order dated 09.01.2017 is set aside and the appeal is allowed: the refund claims relating to service tax deposited for construction of independent residential houses and for excess deposit are allowed with consequential relief; the bar of unjust enrichment does not preclude refund in these facts.

Valuation of taxable services under section 67 - Reimbursement / out-of-pocket expenses not being consideration for taxable service - Validity of rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 - Scope of the charging provision under section 66

Valuation of taxable services under section 67 - Reimbursement / out-of-pocket expenses not being consideration for taxable service - Validity of rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 - Whether reimbursement amounts incurred by the appellant for the service recipient form part of the taxable value of clearing and forwarding agent services and could be included under rule 5(1) of the 2006 Rules. - HELD THAT: - The Tribunal applied the authoritative exposition in Intercontinental Consultants, as approved by the Supreme Court, which construes the charging provision as levy on the value of the services actually rendered. Section 67 requires valuation by reference to the gross amount charged by the service provider "for such service" where consideration is money; thus only amounts that are consideration for provision of the taxable service fall within the taxable value. Rule 5(1) of the 2006 Rules sought to include expenses incurred while rendering the service (reimbursed out-of-pocket expenses) within the taxable value. Both the Delhi High Court and the Supreme Court held that amounts not calculated as consideration for providing the taxable service - including reimbursed expenses or material supplied free by the service recipient - cannot be treated as the gross amount charged for the service, and consequently rule 5 exceeded the mandate of section 67. Applying that law, the Tribunal held that the reimbursement amounts could not be included in the appellant's taxable value and that the Commissioner's inclusion of such reimbursements under rule 5(1) was unsustainable. [Paras 9, 10, 11]

The inclusion of reimbursement amounts in the taxable value under rule 5(1) is not permissible; the Commissioner's order is set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the Commissioner's order insofar as it taxed reimbursement amounts, and held that reimbursed out-of-pocket expenses do not form part of the taxable value of the service under section 67 and cannot be included by rule 5(1) of the 2006 Rules.

Liquidated damages - service tax - consideration - service by way of agreeing to refrain from an act or to tolerate an act or a situation - nexus between supply (agreement) and consideration - penal/compensatory payment not being consideration for a service

Liquidated damages - service tax - penal/compensatory payment not being consideration for a service - service by way of agreeing to refrain from an act or to tolerate an act or a situation - nexus between supply (agreement) and consideration - Whether amounts recovered as liquidated damages by the appellant from defaulting contractors constitute taxable 'consideration' for levy of service tax (including under clause (e) of section 66E) for the periods prior to 01.07.2012 and w.e.f. 01.07.2012. - HELD THAT: - The Tribunal held that for the period prior to 01.07.2012 the collection of amounts towards liquidated damages did not fall within any specified taxable service and therefore could not be subjected to service tax. For the period w.e.f. 01.07.2012, the adjudicating authority's view that such recoveries were taxable under clause (e) of section 66E (service by way of agreeing to refrain from an act, or to tolerate an act or a situation, or to do an act) was rejected. Applying the principle that consideration must relate to an activity carried out for another and that the activity contemplated by section 66E(e) requires a specific contractual agreement to do or abstain from an act with a corresponding flow of consideration, the Tribunal accepted the reasoning in South Eastern Coalfields (as cited) that liquidated damages are penal/compensatory in nature and are intended as a deterrent against breach or non-performance and not as payment for any service. The Tribunal also relied on the Board's Circular clarifying that taxability under section 66E(e) depends on an independent contractual arrangement with a necessary nexus between the agreed activity and the consideration. Applying these principles to the facts, the demand could not be sustained.

Demand of service tax on amounts recovered as liquidated damages (for both periods) is unsustainable and is set aside.

Final Conclusion: The impugned order dated 16.11.2018 sustaining recovery of service tax on liquidated damages is set aside and the appeal is allowed.

Unjust enrichment - deposit under protest / pre-deposit made during investigation - refund with interest under provisions made applicable to Service Tax (Section 11B framework) - interest on pre-deposit under erstwhile Section 35FF as applicable to Service Tax matters - appropriation of pre-deposit against confirmed demand and consequential refund - crediting refund to the Consumer Welfare Fund

Unjust enrichment - deposit under protest / pre-deposit made during investigation - Amounts deposited during investigation are not hit by the bar of unjust enrichment and are refundable to the depositor when the demand is set aside. - HELD THAT: - The Tribunal accepted that the sums were paid during investigation on department's insistence and thus constituted deposits/pre-deposits made under protest rather than collections from service recipients. Relying on the consistent line of authority cited and the reasoning of the jurisdictional High Court, the Tribunal held that mere booking of the payment as revenue expenditure in the assessee's accounts does not establish that the incidence of the levy was passed on to customers; consequently the statutory bar of unjust enrichment was not attracted. The authorities and decisions considered indicate that where an amount is paid under protest or as a pre-deposit during investigation and the demand is subsequently set aside, the Revenue has no legal authority to retain such amount and must refund it. [Paras 4]

Refund claim upheld on merits; unjust enrichment bar not applicable and refund payable to the respondent.

Interest on pre-deposit under erstwhile Section 35FF as applicable to Service Tax matters - The respondent is entitled to interest on the refunded pre-deposit under the provisions of erstwhile Section 35FF (as made applicable to Service Tax matters), with the period for interest governed by the dates of deposit and the pre-amendment provisions. - HELD THAT: - The Tribunal found that the amounts deposited qualified as pre-deposit under Section 35F of the Central Excise Act (as made applicable to Service Tax matters) for pursuing the appeal before CESTAT. Consequently, interest entitlement follows under the erstwhile Section 35FF provisions applicable prior to the amendment w.e.f. 06.08.2014, since the deposits were made before that amendment. The Tribunal specified that interest is payable from expiry of three months from the date of communication of the CESTAT's final order until actual payment, subject to computation based on the actual dates of deposit. [Paras 4]

Interest payable to the respondent under the erstwhile Section 35FF regime from the specified post-CESTAT period until refund.

Crediting refund to the Consumer Welfare Fund - appropriation of pre-deposit against confirmed demand and consequential refund - The adjudicating authority's order directing credit of the deposited amount to the Consumer Welfare Fund was erroneous; the amount must be returned to the depositor. - HELD THAT: - The Assistant Commissioner had sanctioned the refund claim but ordered credit to the Consumer Welfare Fund. The Commissioner (Appeals) and the Tribunal held that where the deposit was a pre-deposit made under protest and the demand was subsequently set aside, the amount cannot be routed to the Consumer Welfare Fund and must be refunded to the assessee with applicable interest. The Tribunal relied on precedents and the factual finding that deposits were made during investigation and not collected as tax from recipients, concluding that the adjudicating authority's crediting was impermissible. [Paras 2, 4]

Direction to credit to the Consumer Welfare Fund set aside; refund to be paid to the respondent.

Final Conclusion: Revenue's appeal dismissed; refund of the deposited/pre-deposit amount must be paid to the respondent (not credited to the Consumer Welfare Fund) together with interest in accordance with the erstwhile Section 35FF provisions applicable to the deposits made prior to amendment.

Valuation of taxable services - gross amount charged for such service - Reimbursements and inclusion in taxable value - Supply of goods versus provision of service - Pure agent exclusion under valuation rules - Binding tribunal precedent on identical contractual arrangements

Valuation of taxable services - gross amount charged for such service - Reimbursements and inclusion in taxable value - Supply of goods versus provision of service - Pure agent exclusion under valuation rules - Binding tribunal precedent on identical contractual arrangements - Whether the demand of service tax confirmed by the Principal Commissioner on amounts recovered for diesel (treated as reimbursement) is sustainable. - HELD THAT: - The Appellate Tribunal examined the contractual scope and payment mechanism and applied the Tribunal precedent on similar contracts. The Tribunal noted that the agreement required the service provider to perform diesel-filling as an integral part of the operation and maintenance service and that amounts billed as diesel recovery formed part of the consideration received in the course of providing that service. The Tribunal observed that the present matter is covered by an earlier CESTAT decision dealing with materially similar contractual arrangements and accepted the principles there articulated. Relying on that binding tribunal precedent, the Tribunal did not uphold the Principal Commissioner's view recorded in the impugned order and allowed the appeal. The Tribunal expressly declined to render findings on other ancillary legal questions (such as limitation, interest and imposition of penalties) and therefore left those issues undecided. [Paras 4, 5]

The demand of service tax confirmed by the Principal Commissioner insofar as it relates to the diesel recovery is not upheld; the appeal is allowed.

Final Conclusion: The appeal is allowed; the impugned order confirming the demand is not sustained insofar as the diesel recovery contention is concerned. The Tribunal relied on an earlier CESTAT decision on identical contractual arrangements and did not decide other issues such as limitation, interest and penalties.

Cenvat credit admissibility - Rule 9 of Cenvat Credit Rules, 2004 - proof of receipt of inputs - benefit of doubt - chain of supply

Cenvat credit admissibility - Rule 9 of Cenvat Credit Rules, 2004 - proof of receipt of inputs - Entitlement of the appellant to Cenvat credit for the period January 2015 to June 2017 on invoices issued by first/second stage dealers - HELD THAT: - The appellant had taken Cenvat credit on invoices issued by first stage dealer M/s Tirupati Associates and second stage dealer M/s A.K. Sons/M/s Tirupati Enterprises and produced transport receipts evidencing movement of goods from those dealers to the appellant's factory. The record shows the appellant used the inputs in manufacture and cleared final products on payment of duty. The Tribunal found that these facts satisfy the conditions of Rule 9 of the Cenvat Credit Rules, 2004 which permit taking credit on the strength of invoices showing duty paid, when receipt of inputs is established. The Revenue's contention that the manufacturers were non-existent and had not paid duty since January 2013 did not displace the appellant's documentary proof of receipt nor did it demonstrate that the appellant had not actually received the goods. In these circumstances the appellant was held entitled to the credit claimed. [Paras 6, 7]

Cenvat credit availed by the appellant on the said invoices allowed and the impugned denial set aside.

Chain of supply - benefit of doubt - proof of receipt of inputs - Sufficiency of Revenue's investigation and the evidential burden to deny credit where the supplier/manufacturer is alleged to be non-existent - HELD THAT: - The Tribunal noted the Revenue's investigation established that the manufacturer had not paid duty since January 2013 and was allegedly non-existent, but the inquiry did not examine the first/second stage dealers or the transporters and did not identify when the manufacturer ceased manufacturing. The investigation therefore did not conclusively establish that the appellant did not receive the goods. Given the absence of enquiry at earlier stages of the supply chain and gaps in the investigation record, the Tribunal held that the benefit of doubt must go to the appellant who had produced transport receipts and shown use of inputs in manufacture of goods on which duty was paid. [Paras 6, 7]

Revenue's denial of credit based on the limited investigation is unsustainable; the appellant receives the benefit of doubt.

Final Conclusion: The appeal is allowed; the order denying Cenvat credit on the invoices of the first/second stage dealers for January 2015 to June 2017 is set aside and consequential relief granted to the appellant.

Clandestine manufacture and removal of goods - admissibility and evidentiary value of third party/private records - burden of proof on revenue to establish clandestine clearance - retracted statement and requirement of independent corroboration - requirement of proper investigation and corroborative evidence (transportation, flow of funds, electricity/use of resources) - liability for excise duty is on the manufacturer carrying out the activity (no automatic joint and several liability)

Clandestine manufacture and removal of goods - Whether the allegations of clandestine removal/manufacture against the respondent were established - HELD THAT: - The Tribunal applied established parameters for proving clandestine manufacture and clearance and found no tangible or corroborative evidence of clandestine receipt of unaccounted raw materials, actual removal of unaccounted finished goods, transportation of such goods, receipt of sale proceeds, or increased use of resources (such as electricity or labour) that would support the charge. The entries in private notebooks did not establish actual transactions and no independent evidence linked those entries to the respondent's factory operations. In the absence of such material, the allegations of clandestine manufacture and removal were held unsustainable. [Paras 12, 13, 14, 21, 24]

Allegations of clandestine removal/manufacture were not proved and the findings of clandestine clearance are unsustainable.

Admissibility and evidentiary value of third party/private records - Whether notebooks recovered from the director's residence could be treated as substantive evidence to establish clandestine clearance - HELD THAT: - The notebooks were private third party records and not statutory business records of the respondent. The Tribunal held that such records cannot be relied upon as substantive evidence of clandestine clearances unless corroborated by independent, cogent evidence. The entries were admitted to contain fabricated material by their author, and the department failed to produce independent evidence (transportation records, buyer statements, flow of funds, etc.) to substantiate the entries. [Paras 13, 14, 18, 23]

Private/third party notebooks lacked evidentiary value in absence of corroborative independent evidence and could not sustain the demand.

Retracted statement and requirement of independent corroboration - Legal effect of a retracted statement by the maker and whether the department could rely on it without corroboration - HELD THAT: - The maker of the notebooks initially implicated transactions but subsequently retracted and, in cross examination, admitted fabricating entries and stated later statements as correct. The Tribunal followed precedent that a retracted statement loses reliability and, as a rule of prudence, requires independent corroboration before being acted upon as substantive evidence. Revenue did not produce such corroboration; consequently the retracted statements could not support the charge. [Paras 15, 16, 23]

Retracted statements are unreliable as substantive evidence unless corroborated by independent material; no such corroboration existed here.

Requirement of proper investigation and corroborative evidence (transportation, flow of funds, electricity/use of resources) - Whether the department conducted adequate investigation and produced corroborative evidence required to prove clandestine removal - HELD THAT: - The Tribunal noted that recovery of documents is the starting point of investigation and the department is obliged to pursue enquiries to obtain corroborative material. Here, revenue did not investigate the other transporters whose names appeared, did not interrogate truck owners/drivers, and failed to establish transportation, flow back of funds, or increased resource use. Precedents were applied to hold that demands cannot be sustained on presumptions without clinching corroborative evidence; accordingly the investigative steps were found inadequate. [Paras 17, 19, 20]

Revenue failed to conduct proper investigation and did not produce required corroborative evidence; the demand could not be sustained on the available record.

Burden of proof on revenue to establish clandestine clearance - liability for excise duty is on the manufacturer carrying out the activity (no automatic joint and several liability) - Allocation of burden of proof and scope of liability for excise duty where clandestine removal is alleged - HELD THAT: - The Tribunal reiterated that the burden to prove clandestine removal lies on the department and cannot be shifted merely by seizure of private records; there is no statutory presumption placing that burden on the accused. Further, excise liability arises from the activity of manufacture and cannot be automatically made joint and several without proof; accordingly, where the department failed to discharge its burden, demands and joint liability could not be sustained. [Paras 18, 22]

Burden remained on the revenue to prove clandestine removal; absent proof, demands and any claim of joint and several liability could not be upheld.

Final Conclusion: The Tribunal upheld the impugned order setting aside major portions of the duty demand: findings of clandestine manufacture and clearance were not proved due to reliance on unreliable private records, retracted statements, and inadequate corroborative investigation; the department's appeals are dismissed and related applications are dismissed.

Maintenance of separate records under the Cenvat Credit Rules - liability to deposit 6% under Rule 6(3) of the Cenvat Credit Rules - classification of iron ore fines as non-manufactured residue/by-product - applicability of Explanation to Rule 6 regarding non-excisable or exempted goods

Liability to deposit 6% under Rule 6(3) of the Cenvat Credit Rules - classification of iron ore fines as non-manufactured residue/by-product - applicability of Explanation to Rule 6 regarding non-excisable or exempted goods - Whether the respondent was required to deposit an amount equal to 6% of the value of iron ore fines under Rule 6(3) of the Cenvat Credit Rules for failing to maintain separate records. - HELD THAT: - The Tribunal held that the determinative question is whether the iron ore fines are "manufactured" or merely emerge as a residue/by-product in the process of making sponge iron. Consistent with an earlier final order in the respondent's own case dated 23.05.2019 and with precedent treating iron ore fines as not manufactured but arising incidentally during manufacture of sponge iron, the Tribunal found Rule 6 is not attracted. The added Explanation to Rule 6 concerning exempted or non-excisable goods does not alter this conclusion because it does not change the primary inquiry of whether the goods in question are manufactured. Since the iron ore fines are held to be a residue/by-product and not a manufactured final product, there was no obligation to deposit 6% under Rule 6(3).

No deposit under Rule 6(3) was required; the demand was without merit and set aside.

Final Conclusion: The Revenue's appeal is dismissed and the impugned order of the Commissioner (Appeals) setting aside the demand under Rule 6(3) is upheld.

Status of iron ore fines as a by-product/residue and not a manufactured product - application of Rule 6(1) Cenvat Credit Rules requiring separate record-keeping for inputs used in manufacture of excisable and non-excisable goods - payment of 6% under Rule 6(3) of the Cenvat Credit Rules for failure to maintain separate records - scope of the Explanation to Rule 6 treating non-excisable goods cleared for consideration

Status of iron ore fines as a by-product/residue and not a manufactured product - payment of 6% under Rule 6(3) of the Cenvat Credit Rules for failure to maintain separate records - scope of the Explanation to Rule 6 treating non-excisable goods cleared for consideration - Whether the respondent was liable to deposit an amount equal to 6% of the value of iron ore fines under Rule 6(3) of the Cenvat Credit Rules for not maintaining separate records. - HELD THAT: - The Tribunal examined whether iron ore fines are 'manufactured' goods such that Rule 6(1) and consequently Rule 6(3) would be attracted. The Tribunal noted its earlier final decision in the respondent's own case dated 23.05.2019 and consistent precedents holding that iron ore fines merely emerge during the manufacture of sponge iron as a residue/by-product and are not independently manufactured goods. The Explanation to Rule 6 which treats exempted or non-excisable goods cleared for consideration as within scope does not alter the determinative question of whether the item in question is a manufactured product. Since the iron ore fines were held to be not manufactured but residual/by-product, Rule 6(1) did not apply and there was no liability to deposit 6% under Rule 6(3). On these findings the Commissioner (Appeals) was correct in setting aside the demand, and the Revenue's challenge failed. [Paras 6, 7]

Demand under Rule 6(3) for deposit of 6% of the value of iron ore fines disallowed; impugned order setting aside the demand upheld.

Final Conclusion: The appeal is dismissed and the order of the Commissioner (Appeals) setting aside the demand under Rule 6(3) of the Cenvat Credit Rules is upheld.

Availability of Cenvat Credit where duty is paid bona fide on final products - conditional nature of exemption Notification for medicaments - absolute versus conditional exemption - manufacture on loan license basis and entitlement to credit - non reversion of Cenvat Credit where duty has been paid bona fide

Conditional nature of exemption Notification for medicaments - absolute versus conditional exemption - Whether Notification No. 4/2006-CE (and its successor) is an absolute exemption or a conditional exemption for the medicaments in question. - HELD THAT: - The Tribunal examined the language of Notification No. 4/2006-CE dated 01.03.2006 and Notification No. 12/2012-CE dated 17.03.2012 and held that the notifications incorporate specific conditions for applicability: (i) the formulation must be processed out of or contain one or more bulk drugs specified in List 1 and may include specified pharmaceutic aids, and (ii) it shall not include any substance to which the Drugs and Cosmetics Act, 1940 does not apply. Consequently the Commissioner's finding that the exemption was absolute was incorrect. [Paras 9]

The exemption Notifications are conditional in nature and not absolute; therefore applicability depends on fulfillment of the stated conditions.

Availability of Cenvat Credit where duty is paid bona fide on final products - manufacture on loan license basis and entitlement to credit - non reversion of Cenvat Credit where duty has been paid bona fide - Whether Cenvat Credit on inputs/input services can be denied where the assessee discharged duty on the finished medicaments and cleared them from factory. - HELD THAT: - The Tribunal applied settled authority that when the department has treated the activity as manufacture and duty has been paid on the final product, credit taken on inputs cannot be faulted merely because the product later is argued to be exempt. Relying on the principle that bona fide payment of duty, accepted by the Department at the relevant time, precludes later reversal of legitimately availed credit, the Tribunal found those precedents squarely applicable to the facts where appellants manufactured and discharged duty on the formulations (including on loan license production). Accordingly the denial and recovery of Cenvat Credit with interest and penalty was held to be unsustainable. [Paras 10, 11]

Cenvat Credit cannot be denied or required to be reversed where duty was paid bona fide on the final products accepted as dutiable by the Department; the confirmed demands and penalties are set aside.

Final Conclusion: The Commissioner's order is set aside: the exemption notifications are conditional (not absolute), and since duty was paid bona fide on the manufactured medicaments (including loan license clearances), the appellants' Cenvat Credit cannot be denied; the appeals are allowed with consequential relief as per law.

Valuation of stock transfers to sister units under Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000 - inapplicability of Rule 8 of the Central Excise Valuation Rules where part of production is sold to independent buyers - extended period of limitation under central excise demands - remand for recomputation of differential duty for the normal period of limitation

Valuation of stock transfers to sister units under Rule 4 read with Rule 11 of the Central Excise Valuation Rules, 2000 - inapplicability of Rule 8 of the Central Excise Valuation Rules where part of production is sold to independent buyers - Appropriate rule for determination of assessable value of clinkers cleared to sister units during the period in question. - HELD THAT: - The Tribunal applied the Larger Bench decision in Ispat Industries Ltd. and held that where some part of production is sold to independent buyers, Rule 8 (110% of cost) will not apply and Rule 4 (market sale value nearest to time of removal) read with Rule 11 must be preferred. The Larger Bench reasoning, invoking the principle that subordinate rules must be interpreted so as to serve the object of the parent statute, supports using comparable independent sale prices (with adjustments for time and other relevant differences) to determine assessable value. The Tribunal therefore rejected the appellant's contention that Rule 8 governed transfers to sister units in the presence of independent sales and held that Rule 4 read with Rule 11 is the appropriate method for valuation for the period under adjudication. [Paras 9, 10]

Apply Rule 4 read with Rule 11 to determine the assessable value of clinkers cleared to sister units for the period March 2011 to November, 2013; Rule 8 is not applicable where part of production is sold to independent buyers.

Extended period of limitation under central excise demands - Whether the extended period of limitation could be invoked for the demand raised by the Commissioner. - HELD THAT: - The Tribunal found that the assessee had been regularly declaring the value under Rule 8 in ER-1 returns and discharging duty, and the Department had not raised objections earlier. Relying on precedent including the Tribunal's earlier decision in the assessee's Gujarat unit and the Gujarat High Court's concurrence, the Tribunal held that there was no suppression, fraud or deliberate mis-declaration to invoke the extended period. Consequently, the invocation of the extended period was not sustainable on the facts of this case. [Paras 11, 12, 13]

Extended period of limitation cannot be invoked; demand is confined to the normal period of limitation.

Remand for recomputation of differential duty for the normal period of limitation - application of Rule 4 read with Rule 11 in computation - Remand for recomputation of differential duty and incidental consequences. - HELD THAT: - The Tribunal remanded the matter to the adjudicating authority to recompute the differential duty, and any interest, strictly following Rule 4 read with Rule 11, limited to the normal period of limitation. The Tribunal noted specific procedural and valuation contentions by the appellant (such as timing adjustments, inclusion/exclusion of freight and choice of comparable sales) and directed the Department to apply the provisions and principles of Rule 4 and Rule 11 in computing the demand for the period within limitation. [Paras 14, 15]

Matter remitted for recomputation of assessable value and differential duty for the normal period of limitation applying Rule 4 read with Rule 11; consequential interest (if any) to be computed accordingly.

Final Conclusion: Appeal partly allowed: impugned order set aside insofar as it invokes the extended period of limitation; valuation methodology upheld as Rule 4 read with Rule 11 (not Rule 8) where part of production was sold to independent buyers; matter remanded for recomputation of differential duty and interest for the normal period of limitation.

Classification of goods by importer/manufacturer binding on reseller - Imposition of penalty under Section 67(1) of the KVAT Act requires authority's satisfaction of untrue/incorrect return and intention to evade tax - Applicability of Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act to multifunction devices - Setting aside of penalty orders where mandatory satisfaction for penalty is lacking

Classification of goods by importer/manufacturer binding on reseller - Applicability of Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act to multifunction devices - Validity of petitioners' classification of the machines under Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act when the importer had classified them as HSN 8443 3100 'Digital Multifunctional Device'. - HELD THAT: - The Court held that where the importer-manufacturer had classified the machines as 'Digital Multifunctional Device' under HSN Code 8443 3100 corresponding to Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act, the petitioners as re-sellers were entitled to adopt the same classification and could not be regarded as having adopted a different classification. The Court relied on the principle in Sarvesh Refractories (P) Ltd. v. Commissioner (as reproduced in the judgment) that a consumer or reseller cannot change the classification declared by the manufacturer/supplier. The factual finding that the Customs authorities accepted classification under HSN 8443 3100 was treated as supporting the petitioners' classification under Entry 69(22)(c)(i). [Paras 16, 19]

The petitioners' classification under Entry 69(22)(c)(i) was accepted as not contrary to the importer's classification and therefore not a wilful misclassification.

Imposition of penalty under Section 67(1) of the KVAT Act requires authority's satisfaction of untrue/incorrect return and intention to evade tax - Setting aside of penalty orders where mandatory satisfaction for penalty is lacking - Whether initiation and completion of penalty proceedings under Section 67(1) of the KVAT Act against the petitioners was justified in the absence of the authority's requisite satisfaction of untrue/incorrect return and intention to evade tax. - HELD THAT: - The Court interpreted Section 67(1) and held that two conditions must be satisfied before imposing penalty under that provision: (i) the authority must be satisfied that an assessee filed an untrue or incorrect return, and (ii) there must be intention to evade payment of correct tax. Applying this test, the Court found that where the importer had classified the goods under the relevant HSN code, the petitioners, as re-sellers, had reasonable basis to adopt that classification and therefore there was no wilful or contumacious act evidencing intention to evade tax. Consequently, the mandatory element of 'satisfaction' required by Section 67(1) was not made out and initiation/imposition of penalty was unjustified. The Court distinguished the Revenue's contentions about optional attachments and product specifications but concluded that such matters did not establish the requisite satisfaction of wilful evasion. [Paras 17, 18, 19, 20]

Penalty proceedings under Section 67(1) were not justified; impugned penalty orders set aside.

Setting aside of penalty orders where mandatory satisfaction for penalty is lacking - Whether penalty orders issued against the importer-seller should be set aside in consequence of the Court's decision in respect of the purchasers/resellers. - HELD THAT: - Having set aside the penalty orders against the purchasers/resellers on the ground that the mandatory satisfaction for imposing penalty under Section 67(1) was lacking, the Court held that the penalty orders issued against the importer-seller must also be set aside. The Court applied the same reasoning to the importer-seller's penalty orders and allowed the writ petitions filed by the importer-seller, setting aside Exts.P5 accordingly. [Paras 23, 24, 25]

Penalty orders issued against the importer-seller are set aside; the writ petitions in its favour are allowed.

Final Conclusion: The writ petitions are allowed. The Court held that (a) petitioners as resellers could rely on the importer's classification of the machines under HSN 8443 3100 corresponding to Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act; (b) imposition of penalty under Section 67(1) requires the authority's satisfaction of both an untrue/incorrect return and intention to evade tax, which was not made out here; and (c) therefore the penalty orders impugned against both the purchasers/resellers and the importer-seller are set aside for the assessment years 2011-12, 2012-13 and 2013-14.

Date of commencement of policy - date of issue of policy - suicide exclusion (12 months from date of issue or reinstatement) - reinstatement of a lapsed policy - effectiveness of insurance contract upon receipt/cheque/cover note - construction of insurance policy terms

Date of issue of policy - date of commencement of policy - suicide exclusion (12 months from date of issue or reinstatement) - construction of insurance policy terms - Whether the 12 month suicide exclusion is to be reckoned from the date of issue of the policy or from the date of proposal/receipt/initial premium deposit - HELD THAT: - The Court held that the terms of the policy must be given effect to and where the policy specifies that the 12 month period for the suicide exclusion commences from the date of issue of the policy, that date is the relevant date for computing the period. Mere submission of the proposal form or issuance of an initial premium receipt/cover note is not the date of issue of the policy; a cheque tendered as initial premium does not automatically make the contract effective until the policy is actually issued and the risk accepted. Reliance was placed on precedent that distinguishes the date of commencement of risk and the date of the policy and mandates adherence to the contract language. Applying that principle, the Court found the date of issue of the policy to be the operative date for the 12 month bar under the suicide clause. [Paras 3, 10, 11, 15]

The 12 month suicide exclusion is to be counted from the date of issue of the policy (the date of commencement as stated in the policy), not from the date of proposal or issuance of the initial premium receipt.

Reinstatement of a lapsed policy - date of commencement of policy - suicide exclusion (12 months from date of issue or reinstatement) - Whether, after reinstatement of a lapsed policy, the period of 12 months for the suicide exclusion runs from the original issue date or from the date of reinstatement - HELD THAT: - Where the policy expressly provides that the 12 month period runs from the date of issuance of the policy or the date of any reinstatement, the reinstatement date becomes the relevant commencement date. In the case where the policy had lapsed and was later reinstated upon payment, the Court found that the date of reinstatement (which in the record equalled the stated date of commencement after reinstatement) governs computation of the 12 month period, and that a suicide occurring within 12 months of that reinstatement falls within the exclusion. [Paras 6, 8, 15]

On reinstatement, the 12 month period for the suicide exclusion begins from the date of reinstatement as specified in the policy.

Final Conclusion: The appeals succeed. The Courts below erred in treating proposal/receipt dates as the date for computing the suicide exclusion; where the policy or reinstatement governs, the date of issue or the date of reinstatement controls. The impugned orders are set aside, the respondents' claims rejected, and there shall be no order as to costs.

Presumption under Section 139 of the Negotiable Instruments Act - Reverse onus - Presumption as to consideration under Section 118 of the Negotiable Instruments Act - Probable defence - preponderance of probabilities - Dishonour of cheque - insufficient funds - Notice under proviso to Section 138 - deemed service by registered post - Cheque issued as security attracts liability under Section 138 - Scope of High Court revision under Section 397 Cr.P.C. - narrow supervisory role

Scope of High Court revision under Section 397 Cr.P.C. - narrow supervisory role - Concurrent findings of fact recorded by trial and first appellate courts are not to be reappreciated in revision except for patent error, jurisdictional defect or error of law. - HELD THAT: - The revisional court reiterated the settled principle that it is not an appellate court and its jurisdiction under Section 397 Cr.P.C. is confined to correcting patent defects, errors of law or jurisdiction. Concurrent findings by two courts below after detailed appreciation of evidence will not be disturbed by the revisional court absent exceptional circumstances or perversity. The Court relied on the Supreme Court rulings cited to underscore that reappreciation of evidence in a revision is permissible only in narrow circumstances and hence declined to reappreciate the concurrent factual findings in this case. [Paras 13, 14]

Revision court will not interfere with concurrent findings of fact recorded by the trial and first appellate courts; revision dismissed to the extent based on reappreciation of evidence.

Presumption under Section 139 of the Negotiable Instruments Act - Presumption as to consideration under Section 118 of the Negotiable Instruments Act - Reverse onus - Once the drawer's signature on the cheque is admitted, the Court shall presume the cheque was issued for discharge of debt or liability and the evidential burden shifts to the accused to rebut that presumption. - HELD THAT: - The Court held that the admitted signature on the cheque activates the statutory presumption under Section 139 (and the related presumption under Section 118) that the cheque was issued for the discharge of a legally enforceable debt or liability. This is a reverse onus/evidentiary presumption and, unless the accused adduces evidence to the contrary on the preponderance of probabilities (i.e., a probable defence), the presumed fact must be accepted. The judgment applied binding Supreme Court precedents explaining the nature and standard for rebuttal of the presumption and concluded that the legal burden lay upon the accused to displace the presumption. [Paras 19, 27, 42]

Presumption under Section 139 applied; burden shifted to the accused to rebut the presumption, which he failed to discharge.

Probable defence - preponderance of probabilities - Cheque issued as security attracts liability under Section 138 - Dishonour of cheque - insufficient funds - The accused did not raise a credible probable defence; the defence evidence (DW1) was disbelieved and the plea of the cheque being handed over via a third person or issued as security did not rebut the presumption. - HELD THAT: - The Court examined the testimony of the accused's witness and found it inherently suspicious and contrary to normal human conduct (e.g., inability to recall cheque/account details, having written suggested details on his palm), thereby rejecting it as not meeting the standard of preponderance of probabilities required to rebut Section 139. The Court further noted that a cheque issued as security attracts liability under Section 138 unless cogent evidence shows the contrary, and that the accused himself admitted the cheque was dishonoured for 'insufficient funds', a fact which remained unrebutted. [Paras 18, 28, 38]

Defence failed to raise a probable defence on the preponderance of probabilities; the presumption stood unrebutted.

Notice under proviso to Section 138 - deemed service by registered post - The statutory notice was validly sent to the correct address by registered post and, having not paid within 15 days of receipt of summons, the accused cannot rely on non-receipt of notice. - HELD THAT: - The Court held that the complainant produced postal receipt linking the notice to the address used in the complaint and proceedings; statutory presumptions (including Section 27 of the General Clauses Act and Section 114 of the Evidence Act) support deemed service. Further, where an accused claims non-receipt, he must comply with the proviso to Section 138 by making payment within 15 days of the summons; failure to do so disentitles him from relying on non-receipt. The accused had not paid the amount, so the defence on service failed. [Paras 39, 41]

Notice deemed served and accused failed to make payment within 15 days; requirement of notice satisfied and defence on service rejected.

Deterrent and compensatory object of Section 138 - Sentence of one month imprisonment and compensation awarded by trial court (affirmed by appellate court) are not liable to interference in revision. - HELD THAT: - Recognising the deterrent and compensatory purpose of Section 138, the Court found the one month sentence to be not excessive. Although the Court noted that compensation could, in general, be uniformly levied up to twice the cheque amount with interest as guided by Supreme Court authority, in the absence of any appeal seeking enhancement of sentence or compensation the revisional court declined to interfere with the quantum imposed by the trial court and affirmed by the first appellate court. [Paras 43, 46]

Sentence and compensation awarded by courts below upheld; no interference in revision.

Final Conclusion: The revision petition challenging concurrent convictions and sentence under Section 138 of the Negotiable Instruments Act was dismissed. The High Court affirmed that the statutory presumptions under Sections 118 and 139 applied, the accused failed to rebut the presumption or establish a probable defence, notice was duly served/deemed served and the sentence and compensation awarded by the courts below required no interference.

Compounding of offence under Section 147 of the Negotiable Instruments Act - Effect of One Time Settlement and issuance of No Dues Certificate on criminal prosecution under Section 138 NI Act - Quashing of conviction and setting aside of sentence upon compounding - Applicability of guidelines in Damodar S. Prabhu and K. Subramanian for compounding and imposition of compounding fee - Power to reduce compounding fee in appropriate cases - Release of amounts deposited with court consequent to compounding

Compounding of offence under Section 147 of the Negotiable Instruments Act - Effect of One Time Settlement and issuance of No Dues Certificate on criminal prosecution under Section 138 NI Act - Acceptance of compromise and permission to compound the offence under Section 147 of the Negotiable Instruments Act after conviction, where parties have settled under One Time Settlement and the complainant bank has issued a No Dues Certificate. - HELD THAT: - The High Court took note that the parties have amicably settled the matter under an One Time Settlement (OTS) and that the complainant-Bank has issued a No Dues Certificate and closed the account. Applying the mandate of Section 147 (with its non-obstante clause) and following the authorities in Damodar S. Prabhu and K. Subramanian, the Court held that offences under the NI Act are compoundable and a compromise may be accepted even after recording of conviction. In these circumstances the Court found no impediment to permitting compounding of the offence and accepted the settlement between the parties. [Paras 6, 7, 9, 11, 12]

The petition for compounding of the offence under Section 147 NI Act was allowed and the compromise between the parties was accepted.

Quashing of conviction and setting aside of sentence upon compounding - Quashing of the conviction and setting aside of the sentence imposed by the trial and affirmed on appeal consequent to compounding. - HELD THAT: - Having permitted compounding of the offence in terms of the accepted settlement, the Court proceeded to quash and set aside the impugned judgment of conviction and the order of sentence passed by the trial court and affirmed by the appellate court. The Court recorded acquittal of the accused and discharged any bail bonds as incidental to the compounding and resulting order. [Paras 12, 13]

The judgments of conviction and orders of sentence were quashed and set aside and the petitioner was acquitted of the charge under Section 138 NI Act; bail bonds, if any, were discharged.

Release of amounts deposited with court consequent to compounding - Direction for release of the amount deposited by the accused before the trial court, in view of the settlement and compounding. - HELD THAT: - The Court noted that the accused had deposited a sum with the trial court and, in light of the settlement and the bank's acceptance of the OTS with issuance of a No Dues Certificate, directed the learned Trial Court to release the deposited amount in favour of the petitioner on proper identification and verification. [Paras 7, 14]

The trial court was directed to release the deposited amount in favour of the petitioner.

Applicability of guidelines in Damodar S. Prabhu and K. Subramanian for compounding and imposition of compounding fee - Power to reduce compounding fee in appropriate cases - Imposition of compounding fee in exercise of the Court's discretion under the guidelines and reduction of the fee considering the petitioner's financial condition. - HELD THAT: - Relying on the gradated scheme of costs and the guidelines in K. Subramanian and Damodar S. Prabhu, the Court observed that while a scale of compounding fees is suggested to encourage early settlement, the competent court has discretion to reduce the fee for specific facts and must record reasons for variance. Considering the petitioner's poor financial condition, the Court exercised its discretion to impose a reduced, token compounding fee and directed deposit of the same with the State Legal Services Authority within a specified period. [Paras 16, 17]

The petitioner was directed to deposit a token compounding fee of Rs.10,000 with the H.P. State Legal Services Authority within four weeks.

Final Conclusion: The Court, applying Section 147 NI Act and relevant Supreme Court guidelines, permitted compounding of the Section 138 offence pursuant to an One Time Settlement and No Dues Certificate, quashed the conviction and sentence and acquitted the petitioner; directed release of the amount deposited with the trial court and imposed a reduced compounding fee to be paid to the State Legal Services Authority.

Payment of subsistence allowance under Section 10A - Precondition of marking attendance during suspension - Conformity of Standing Orders or customary practice with statutory provision - Right to subsistence allowance as a statutory entitlement

Payment of subsistence allowance under Section 10A - Precondition of marking attendance during suspension - Conformity of Standing Orders or customary practice with statutory provision - Whether a condition in the suspension order requiring the suspended workman to report daily at the factory gate and mark attendance as a precondition for payment of subsistence allowance is lawful and enforceable in view of Section 10A of the Industrial Employment (Standing Orders) Act, 1946. - HELD THAT: - The Court examined Section 10A as a beneficial statutory provision that prescribes entitlement to subsistence allowance for a workman suspended pending enquiry and observed that such statutory entitlement cannot be curtailed by an employer's customary practice or by a condition in a suspension order. The provision of the Model/Certified Standing Orders requiring that a workman satisfy that he was not gainfully employed cannot be stretched to mean a precondition of daily attendance at the factory gate; customary practice is not a 'law' and cannot prevail over Section 10A. The Labour Court's finding (paragraph No.20 of the Award) that the employer's attendance condition was in consonance with Section 10A was held to be unreasoned and unsustainable. What is required under the statute is that the suspended employee not be gainfully employed; the employer cannot, by introducing a daily attendance stipulation as a precondition, defeat the statutory right. The Court therefore quashed the Award insofar as it upheld the attendance condition and directed payment of subsistence allowance with interest, leaving computation and payment to be carried out as ordered. [Paras 12, 13, 14, 15, 16]

The condition of daily attendance at the factory gate as a prerequisite for subsistence allowance is illegal and the Labour Court's Award upholding it is quashed; the workman is entitled to subsistence allowance from suspension till termination with interest, and the employer is directed to pay after computation.

Final Conclusion: Writ petition allowed; impugned Award dated 13.08.2014 quashed insofar as it sustained the attendance precondition; the employee is entitled to subsistence allowance from suspension until termination with interest; directions given for computation and payment.