TaxTMI Updates e-Newsletter
Jan 25,2020

Provisional attachment to protect revenue - Provisional attachment under section 83 - Summons under section 70 and its limited scope - Rule 159(1) - FORM GST DRC-22 and procedural requirements for attachment - Power to attach bank accounts is drastic and to be sparingly exercised

Provisional attachment under section 83 - Rule 159(1) - FORM GST DRC-22 and procedural requirements for attachment - Summons under section 70 and its limited scope - Power to attach bank accounts is drastic and to be sparingly exercised - Validity of the provisional attachment of the petitioner's bank account under section 83 where only a summons under section 70 was issued in connection with an inquiry against another taxable person. - HELD THAT: - Section 83 permits provisional attachment of property, including bank accounts, only during the pendency of proceedings specified in that section (sections 62, 63, 64, 67, 73 and 74) and upon formation of an opinion that attachment is necessary to protect government revenue. Rule 159(1) and the FORM GST DRC-22 prescribe the format and particulars of the order and show that the proceedings must be launched against the specific taxable person whose property is attached. The impugned order referred to proceedings under sections 67 and 70; however, on the date of attachment no proceedings under section 67 or any of the other sections enumerated in section 83 were pending against the petitioner - only a summons under section 70 had been issued. Section 70 is not one of the contingencies listed in section 83 and a mere issuance of a summons pursuant to an inquiry against a different taxable person does not automatically extend the specified proceedings to justify provisional attachment of another taxable person's bank account. Given the drastic consequences of bank-account attachment, the power under section 83 must be exercised only within the well-defined contingencies provided by the statute and in the prescribed manner. The attachment of the petitioner's account, therefore, lacked jurisdictional basis and was not in accordance with section 83 read with Rule 159(1) and FORM GST DRC-22. [Paras 12, 14, 15, 16, 17]

Order dated 22 October 2019 provisionally attaching the petitioner's bank account was without jurisdiction and is quashed and set aside.

Final Conclusion: The petition succeeds; the provisional attachment of the petitioner's bank account is quashed for lack of jurisdiction under section 83 and the bank account is to be unfrozen in accordance with the order, subject to the two week delay before the mandate takes effect.

Right to personal hearing - adjournment on showing sufficient cause - statutory mandatory opportunity of hearing under Section 75(4) of the OGST Act, 2017 - power to grant time under Section 75(5) of the OGST Act, 2017 - quashing and remand for fresh decision in accordance with law

Right to personal hearing - statutory mandatory opportunity of hearing under Section 75(4) of the OGST Act, 2017 - Whether the impugned orders were vitiated by failure to grant the petitioner an opportunity of personal hearing after a written request under Section 75(4) of the OGST Act, 2017. - HELD THAT: - The Court found that the petitioner submitted a written request for personal hearing (Annexure-4) and that the authorities passed the impugned orders without granting that opportunity. Sub section (4) of Section 75 requires that when an assessee chargeable with tax and penalty makes a written request for an opportunity of hearing, such opportunity should be granted. The authorities did not grant the hearing nor record any decision on the request before adjudication. This omission amounted to a violation of the statutory requirement and vitiated the decision-making process.

Impugned orders quashed to the extent they were passed without granting the requested personal hearing.

Adjournment on showing sufficient cause - power to grant time under Section 75(5) of the OGST Act, 2017 - Whether the impugned orders were vitiated by failure to consider and decide the petitioners' request for additional time to file a reply under Section 75(5) of the OGST Act, 2017. - HELD THAT: - The petitioner sought four weeks' time by letter dated 03.12.2019 (Annexure-4). Section 75(5) contemplates that if sufficient cause is shown, the proper officer should grant time, and the proviso permits adjournment up to three times. The record shows the request was received but no order was passed on the prayer for adjournment before the adjudicatory orders were issued on 09.12.2019 and 10.12.2019. The failure to decide the adjournment request and to grant time where appropriate amounted to non compliance with statutory procedure, thereby vitiating the impugned orders.

Impugned orders quashed for having been passed without adjudication on the request for additional time to file reply.

Quashing and remand for fresh decision in accordance with law - Remand for fresh consideration and adjudication in accordance with statutory requirements. - HELD THAT: - Having found procedural infirmities in that (a) the request for personal hearing was not granted and (b) the request for time to file a reply was not considered, the Court remanded the matter to the State Tax Officer, CT & GST Circle, Barbil for fresh disposal. The remand is directed to be conducted strictly in accordance with law, allowing the petitioner the opportunity of personal hearing and adjudicating the prayer for adjournment as mandated by Section 75. The petitioners were directed to cooperate in the proceedings.

Matter remanded to the State Tax Officer, CT & GST Circle, Barbil for fresh adjudication in accordance with law; petitioners to cooperate.

Final Conclusion: The impugned orders passed on 09.12.2019 and 10.12.2019 are quashed for failure to grant the requested personal hearing and for not adjudicating the request for additional time to file reply; the matter is remanded to the State Tax Officer, CT & GST Circle, Barbil for fresh disposal in accordance with Section 75 of the OGST Act, 2017, with the petitioners directed to cooperate. An urgent certified copy was directed to be issued.

Detention and confiscation under Section 129 and Section 130 of the Central Goods and Services Tax Act, 2017 - release of detained vehicle on deposit pending adjudication - continuation of confiscation proceedings subject to judicial precedent

Release of detained vehicle on deposit pending adjudication - Petition for release of the detained vehicle on interim deposit and stay of show cause notice was disposed by directing deposit and release of the vehicle. - HELD THAT: - The petitioner sought quashing of the show cause notice and release of the vehicle detained after interception and alleged carriage of taxable goods without required documents. Counsel for the petitioner offered to deposit a specified sum as a condition for release without prejudice to the petitioner's substantive contentions before the adjudicating authority. The State, through the Assistant Government Pleader, agreed to the same condition. The Court directed the petitioner to deposit the stated amount with the respondent within two weeks and ordered that upon such deposit the vehicle bearing the specified registration shall be released. The order preserves the petitioner's right to pursue contentions before the statutory authority while providing interim relief by release of the vehicle on deposit. [Paras 7, 8, 9]

Deposit of the stated sum within two weeks ordered; vehicle to be released on such deposit, without prejudice to the petitioner's rights before the adjudicating authority.

Detention and confiscation under Section 129 and Section 130 of the Central Goods and Services Tax Act, 2017 - continuation of confiscation proceedings subject to judicial precedent - Whether confiscation proceedings under Section 130 may continue despite interim release of the vehicle. - HELD THAT: - The Court, while directing interim release of the vehicle on deposit, expressly permitted the respondents to continue proceedings for confiscation under the statutory provision. The respondents were directed to proceed keeping in mind the Court's decision in Synergy Fertichem Pvt. Ltd. . Thus, the order confines its relief to interim release on deposit and does not preclude adjudication on merits or confiscation in accordance with law and the cited precedent. [Paras 9]

Respondents permitted to continue confiscation proceedings under Section 130, subject to the guidance of the cited judicial decision.

Final Conclusion: Writ petition disposed by directing deposit of the stated sum within two weeks for release of the detained vehicle; the statutory confiscation proceedings may continue, guided by the Court's cited precedent.

Migration to the GST regime - carry forward of input tax credit - transition provisions and filing of Form GST TRAN-1 - reliance on GST Council press release - substantive rights not to be defeated by technical procedural lapse - verification of genuineness of credit claims - remedial direction to reopen portal or accept manual filing

Transition provisions and filing of Form GST TRAN-1 - reliance on GST Council press release - substantive rights not to be defeated by technical procedural lapse - remedial direction to reopen portal or accept manual filing - Entitlement of petitioners to have their TRAN-1 declarations accepted despite not logging into the portal before 27.12.2017, in view of their reliance on a GST Council press release indicating an extended date. - HELD THAT: - The petitioners migrated from the VAT regime to the GST regime and were required to file Form GST TRAN-1 on or before the portal cut-off of 27.12.2017 to carry forward accumulated credit. The petitioners did not attempt to log into the portal before that cut-off having been guided by a GST Council press release which suggested the date was extended to 31.12.2017, and they sought clarification by e-mail on 30.12.2017. The respondents rely on system logs categorising the petitioners as having made no attempt to access the portal before 27.12.2017 and therefore deny migration. The Court accepted that the press release was mistaken but held that the petitioners should not be deprived of the substantive benefit of credit solely because of a technical procedural lapse when they had valid reason to assume the later date. The Court noted the Delhi High Court decision in Amon Motors Vs. Union of India and Ors in similar circumstances and, following that approach, quashed the impugned communications denying transfer of credit and directed the respondents to facilitate filing of TRAN-1 electronically by re-opening the portal or, if electronic filing is not possible, to accept manual filing on or before 31.12.2019. The respondents remain entitled to verify the genuineness of the claims; the claim cannot be rejected merely because it was not filed before 27.12.2017.

Impugned communications quashed; respondents directed to enable petitioners to file TRAN-1 electronically or accept manual filing on or before 31.12.2019, subject to verification of genuineness; claim shall not be denied solely for non-filing before 27.12.2017.

Final Conclusion: Writ petitions allowed: petitioners permitted to file TRAN-1 by re-opening the portal or by manual filing on or before 31.12.2019; respondents may verify genuineness but shall not refuse the claim solely because it was not filed before 27.12.2017.

Zero-rated supply - place of supply - inter-State supply - intra-State supply - treatment of supplies to a Special Economic Zone as inter-State supply - destination based taxation - option to supply under bond or Letter of Undertaking without payment of IGST and claim refund

Place of supply - inter-State supply - intra-State supply - treatment of supplies to a Special Economic Zone as inter-State supply - destination based taxation - Whether the supply pursuant to confirmation of sale on 13.07.2018 is an inter State supply or an intra State supply - HELD THAT: - The Court applied Chapter V of the IGST Act and in particular Section 10(1) to determine the place of supply where movement of goods is involved. The acknowledged facts show that after payment and handover at Marayoor Depot the goods were to be moved to the petitioner's unit in a notified SEZ in Madras. Under Section 10(1) the place of supply is the location where movement of the goods terminates for delivery to the recipient, and Chapter IV (Sections 7 and 8) treats supplies to or by an SEZ unit as not falling within intra State supply but as supply in the course of inter State trade or commerce. Given the destination based character of GST and the movement terminating in the SEZ, the Court held that the supply is an inter State supply and not an intra State sale completed at Marayoor Depot. The respondents' contention that the sale was completed within Kerala at the depot was rejected as inconsistent with the statutory place of supply rules. [Paras 19, 24]

The transaction is an inter State supply; the place of supply is the SEZ in Madras and not Marayoor Depot.

Zero-rated supply - option to supply under bond or Letter of Undertaking without payment of IGST and claim refund - treatment of supplies to a Special Economic Zone as inter-State supply - Whether respondents 1 and 2 were legally justified in demanding payment of 18% IGST from the petitioner for completing the sale - HELD THAT: - The Court examined Chapter VII and Section 16 of the IGST Act which define and prescribe the treatment of zero rated supplies, including supplies to an SEZ unit. Section 16(1)(b) makes supply to an SEZ unit a zero rated supply and the statute provides two statutory routes: supply under bond/Letter of Undertaking without payment of integrated tax or supply on payment of integrated tax followed by claim for refund. Applying these provisions to the facts, and having held that the place of supply is the SEZ, the Court concluded that the transaction qualifies for zero rated treatment under the IGST scheme. Consequently, respondents 1 and 2 were not entitled to insist on deposit of 18% IGST as a prerequisite to completing the sale; however the petitioner must comply with the statutory safeguards and procedures (bond/LOU or other prescribed conditions and rules) to ensure against diversion or evasion before movement without payment of IGST is permitted. [Paras 20, 21, 22, 25]

The demand for deposit of 18% IGST as a precondition to delivery was not justified; the supply is zero rated and the petitioner may avail the statutory options subject to complying with prescribed safeguards and procedures.

Final Conclusion: The writ petitions are allowed: the subject sale is held to be a zero rated inter State supply to an SEZ unit; the petitioner is permitted four weeks to comply with all sale conditions except deposit of 18% IGST and to undertake the statutory safeguards for movement without payment of IGST, and the respondents are directed to deliver the sandalwood within one week of the petitioner's communication.

Payment for use of trademark and for obtaining commercial/technical expertise - Capital v. revenue expenditure - expenditure incurred wholly and exclusively in connection with transfer (Section 48) - disallowance under Section 14A in relation to exempt income - foreign exchange fluctuation: capital v. revenue treatment - reasonableness of commission and commercial discretion - HC [2016 (10) TMI 357 - DELHI HIGH COURT] decided all the question in favour of assessee - HELD THAT:- On instructions issued by the Department of Revenue, Ministry of Finance vide F.No.390/Misc./116/2017-JC dated 22.08.2019, seeks permission to withdraw this special leave petition along with pending applications therein due to low tax effect.

The special leave petition and pending applications are dismissed as withdrawn, leaving question(s) of law open.

Deletion of disallowance on account of discount and rate difference - disallowance under section 40A(2) - sublicence fee treated as revenue expenditure - technical assistance and knowhow not amounting to transfer of ownership

Deletion of disallowance on account of discount and rate difference - Whether the deletion of the disallowance on account of discount and rate difference, as upheld by the Tribunal, was liable to be disturbed by the Revenue. - HELD THAT: - The Court dismissed the Tax Appeal insofar as this question is concerned, thereby upholding the Tribunal's order which affirmed the deletion of the disallowance on account of discount and rate difference. The judgment records the conclusion without further interference with the Tribunal's factual and legal conclusion on this head.

Appeal dismissed; Tribunal's upholding of deletion of the disallowance on account of discount and rate difference is affirmed.

Disallowance under section 40A(2) - Whether the deletion of the disallowance made under section 40A(2), as upheld by the Tribunal, was liable to be disturbed by the Revenue. - HELD THAT: - The Court dismissed the Tax Appeal in respect of this question as well, thereby affirming the Tribunal's conclusion to delete the disallowance under section 40A(2). The order records acceptance of the Tribunal's treatment and does not remit or re-open the factual findings or legal application made by the Tribunal.

Appeal dismissed; Tribunal's upholding of deletion of the disallowance under section 40A(2) is affirmed.

Sublicence fee treated as revenue expenditure - technical assistance and knowhow not amounting to transfer of ownership - Whether the non refundable upfront sublicense fee paid for using technology constituted capital expenditure or revenue expenditure, and whether the addition made by the Assessing Officer should be deleted. - HELD THAT: - The Tribunal, agreeing with the CIT(A), held that the appellant acquired a non transferable sublicense to use Monsanto technology for testing, producing and selling genetically modified hybrid cotton seeds and that the payment represented acquisition of technical assistance/knowhow for business use rather than a transfer of ownership of any asset. The Tribunal relied on the decision in CIT vs. J K Synthetic Ltd. to treat such payments as revenue expenditure. The High Court took notice of that reliance, found the reasoning persuasive and recorded complete agreement with the Tribunal's conclusion. Consequently the addition made by the Assessing Officer in respect of the sublicense fee was deleted and the Tribunal's order confirming deletion was upheld.

Appeal dismissed; Tribunal's deletion of the addition in respect of the sublicense fee as revenue expenditure is affirmed.

Final Conclusion: The Tax Appeal is dismissed in respect of all the questions raised by the Revenue for A.Y. 2011-12; the Tribunal's orders upholding deletion of the specified disallowances and the deletion of the sublicense fee addition are affirmed.

Deduction under section 10AA - interpretation of the partnership deed - compulsion to charge interest and remuneration to partners - validity of reassessment/reopening - precedential application of Alidhara Taxspin Engineers

Deduction under section 10AA - compulsion to charge interest and remuneration to partners - interpretation of the partnership deed - Whether the Assessing Officer could disallow part of the deduction claimed under section 10AA by imputing interest and remuneration to partners when the partnership deed does not provide for payment of such interest or remuneration. - HELD THAT: - The Tribunal and the High Court upheld the view of the CIT(A) that where the partnership deed either does not provide for or expressly prohibits payment of interest on capital and remuneration to partners, the assessee cannot be compelled to charge such amounts so as to reduce the deduction under section 10AA. The authorities relied upon the expressed terms of the partnership deed and jurisdictional precedent which held that mere incorporation of interest or remuneration does not make them mandatory; consequently the Assessing Officer's computation excluding the amounts from the deduction was erroneous. The Tribunal concurred that in the peculiar facts of the case the partnership deed clearly laid down that no interest and remuneration was payable and therefore the disallowance under section 10AA(9) could not be sustained. [Paras 8, 10]

The disallowance on account of non-provision of interest and remuneration was deleted and the claim of deduction under section 10AA was upheld.

Precedential application of Alidhara Taxspin Engineers - validity of reassessment/reopening - Whether any substantial question of law arose warranting interference with the Tribunal's order in view of the Court's earlier decision in Alidhara Taxspin Engineers. - HELD THAT: - The High Court applied the dictum in Alidhara Taxspin Engineers and earlier coordinate decisions of the Tribunal/High Court to conclude that the present controversy was squarely covered by those precedents. The Court observed that, applying that binding reasoning, none of the substantial questions of law proposed by the Revenue survived scrutiny. Although the assessment had been reopened under section 147, the Court noted that the additions which were the subject matter of challenge had been deleted and the reassessment ground accordingly did not require separate adjudication in the result. Having applied the precedent, the High Court found no infirmity in the Tribunal's decision and declined to entertain the Revenue's substantial questions of law. [Paras 9, 10, 11]

The Tribunal's order was affirmed in reliance on precedent; no substantial question of law arose and the appeals were dismissed.

Final Conclusion: The appeals by the Revenue are dismissed; the Tribunal's order upholding the deletion of the disallowance and sustaining the deduction under section 10AA is affirmed.

Exemption under section 54F - ownership requirement for benefit under section 54F - interpretation of the term 'purchased' in section 54F - precedential authority of High Court and Supreme Court decisions

Exemption under section 54F - ownership requirement for benefit under section 54F - interpretation of the term 'purchased' in section 54F - Whether the appellant was entitled to claim exemption under section 54F where the property intended for construction was held and the municipal certificates were in the name of the assessee's mother - HELD THAT: - The Assessing Officer denied the section 54F exemption because the land on which construction was stated to have been undertaken, and the commencement and completion certificates, were in the name of the assessee's mother. The Commissioner (Appeals) and the Tribunal upheld that view, following the Division Bench decision of this Court in Prakash v. Income-Tax Officer, which reviewed earlier High Court decisions and applied the authority of the Apex Court in CIT v. Podar Cement P. Ltd. The Division Bench in Prakash distinguished the contrary view taken by the Andhra Pradesh High Court in Mir Gulam Ali Khan. Although the appellant relied on more liberal interpretations of the word 'purchased' by the Delhi High Court in Ravinder Kumar Arora and Kamal Wahal, those decisions were founded on the Andhra Pradesh view which this Court in Prakash has already distinguished. Applying this Court's precedent, the present appeal does not permit the section 54F exemption where the newly purchased/constructed residential house is not owned/held in the name of the assessee. [Paras 6, 7, 8]

The Tribunal's and lower authorities' conclusion that the assessee is not entitled to the benefit of section 54F because the property and municipal certificates were in the mother's name is upheld.

Final Conclusion: Appeal dismissed; the benefit under section 54F is not available where the newly purchased or constructed residential house is not owned/held in the name of the assessee, as applied in this case in view of this Court's precedent.

Reopening of assessment - change of opinion - prima facie satisfaction under Section 148 - application of Section 43A - disallowance of depreciation on grounds of liability met by person other than assessee - objections to reopening - consideration during original scrutiny assessment

Reopening of assessment - change of opinion - application of Section 43A - consideration during original scrutiny assessment - Validity of the notice under Section 148 reopening assessment for Assessment Year 2015-16 in respect of claim of depreciation accounted as foreign exchange loss under Section 43A. - HELD THAT: - The Court examined the reasons for reopening which focused on the claim of depreciation attributable to foreign exchange loss and on allegations that the assessee's operations had ceased and the assets were disposed of, but found that the decisive foundation of reopening was the contention that the liability had been met by a person other than the assessee. The record shows that during original scrutiny the Assessing Officer raised specific queries under Section 142(1) and a show-cause notice calling for justification of the depreciation claim; the assessee furnished detailed responses before the stipulated dates. On a prima facie reading, the Assessing Officer had an opportunity to consider and did in fact raise questions on the very claim now sought to be reopened. Reliance was placed on the established principle that reopening where the Assessing Officer has already consciously examined an issue in regular assessment and formed an opinion amounts to impermissible change of opinion. At the interim stage the Court found that the reopening notice is prima facie vitiated as a mere change of opinion since the claim under Section 43A was put to the Assessing Officer during original proceedings and responded to by the assessee. [Paras 5, 8, 9, 10, 11]

Rule issued; interim relief continued, prima facie holding that reopening amounts to impermissible change of opinion because the Assessing Officer had considered the depreciation claim during original scrutiny.

Final Conclusion: Rule issued and ad-interim relief continued; prima facie the reopening of assessment for Assessment Year 2015-16 is vitiated as a change of opinion since the Assessing Officer had considered the depreciation claim during the original assessment proceedings.

Exemption under Section 10(23C)(vi) - consideration of exemption application by prescribed authority - opportunity of hearing - judicial direction for administrative decision within reasonable time

Consideration of exemption application by prescribed authority - opportunity of hearing - judicial direction for administrative decision within reasonable time - The 1st respondent is directed to consider the petitioner's Ext.P12 application seeking exemption under Section 10(23C)(vi) and to render a considered decision after affording a reasonable opportunity of hearing. - HELD THAT: - The High Court declined to enter upon the merits of the entitlement to exemption under Section 10(23C)(vi) and instead directed the prescribed authority (the 1st respondent) to take up the petitioner's application dated 30-10-2019 for consideration. The authority must afford the petitioner a reasonable opportunity to be heard through an authorised representative or counsel before making any decision. The Court imposed a time-bound directive, requiring the authority to decide preferably within a period of four to five months from the date of production of the certified copy of this judgment. No substantive determination on eligibility, merits, or relief sought in the application was made by the Court; the matter is returned to the competent administrative authority for fresh, considered decision-making in accordance with law and the principles of natural justice.

The 1st respondent shall consider Ext.P12, afford a reasonable opportunity of hearing to the petitioner, and render a considered decision preferably within four to five months from production of the certified copy of this judgment.

Final Conclusion: Writ petition disposed of by directing the competent authority to consider the exemption application afresh after hearing the petitioner and to decide preferably within four to five months; no adjudication on the substantive merits of the exemption claim.

Genuine hardship - condonation of delay under Section 119(2)(b) - discretionary relief - prejudging on merits - misapplication of CBDT Circular No.9/2015

Condonation of delay under Section 119(2)(b) - genuine hardship - discretionary relief - Whether the delay in filing the return for the assessment year 2014-15 should be condoned under Section 119(2)(b) of the Income Tax Act on the facts of the case - HELD THAT: - The Court examined the statutory scope of Section 119(2)(b) and the settled principle that the expression genuine hardship is to be construed liberally so as to advance justice (reference to B.M. Malani). The Court noted that prima facie the delay arose from circumstances beyond the petitioner's control - change of majority shareholding, management deadlock, appointment/resignation of administrator, delay in adoption of audited accounts - and that departmental officers including the Principal Chief Commissioner, Additional Chief Commissioner and Assessing Officer had recommended condonation. Applying the established discretionary standard, and bearing in mind that satisfaction as to genuineness must be reached without prejudging the taxpayer's ultimate claim on merits, the Court held that the petitioner's case warranted liberal exercise of the power to condone delay. [Paras 9, 11]

Delay in filing the return for assessment year 2014-15 is condoned.

Prejudging on merits - misapplication of CBDT Circular No.9/2015 - Whether the impugned CBDT order dated 16.01.2018 rejecting the condonation application was legally sustainable - HELD THAT: - The Court scrutinised the impugned order and found that the Central Board of Direct Taxes had impermissibly examined the return on merits and, by relying on para 5(i) of CBDT Circular No.9/2015, applied that circular in a manner not appropriate to the Board's exercise under Section 119(2)(b). Paragraph 10 of the impugned order recorded a cryptic conclusion that doubts on correctness of the assessee's claims (citing reluctance of the auditor) rendered the claim inadmissible. The Court held that such an approach amounted to prejudging the merits and was inconsistent with the requirement that the authority satisfy itself about genuineness without conducting a close merits adjudication; furthermore, the circular was not properly applicable in the circumstances. Consequently, the impugned order was quashed. [Paras 10, 11]

Impugned CBDT order dated 16.01.2018 is quashed for having examined merits and misapplied the circular.

Final Conclusion: The petition is allowed: the CBDT order dated 16.01.2018 is quashed and the delay in filing the return for Assessment Year 2014-15 is condoned.

Deduction under section 10A - separate eligible unit - exclusion of expenses from total turnover for section 10A computation - interest income as income derived from export business - foreign exchange gains as income derived from export activities - reliance on STPI approval for determination of unit status

Deduction under section 10A - separate eligible unit - reliance on STPI approval for determination of unit status - Unit II is a separate and independent eligible unit for the purpose of claim of deduction under section 10A. - HELD THAT: - The Tribunal examined the remand report of the Assessing Officer and documentary record including rectified STPI approvals, separate customs bonded warehouse licences, separate annual returns filed with STPI and separate monthly reports to the Superintendent of Customs. The Assessing Officer's remand report accepted that the rectified STPI approval and subsequent approvals refer to Unit II as distinct and free of mistakes; it also recorded that Unit I and Unit II had different product domains (higher education v. banking and finance). The assessee's submissions that most employees differed and that STPI's independent verification preceded grant of approval were not rebutted by the Revenue with any material demonstrating that Unit II was merely an expansion or a reconstruction of Unit I. On these facts the Tribunal sustained the CIT(A)'s finding that Unit II is a new and independent unit and therefore profits of Unit II qualify for deduction under section 10A separately from Unit I. [Paras 8]

The finding of the CIT(A) that Unit II is a separate eligible unit is sustained and the addition made by the Assessing Officer is deleted; Ground No.1 dismissed.

Exclusion of expenses from total turnover for section 10A computation - Deduction under section 10A - Computation of deduction under section 10A requires exclusion from total turnover of those expenses that are excluded from export turnover. - HELD THAT: - The Tribunal accepted the reasoning of the CIT(A) and followed higher court authority which holds that the formula in section 10A is intended to arrive at profit from export business and, to be workable, expenses excluded from export turnover must also be excluded from total turnover. The Tribunal relied on the Supreme Court decision cited by the assessee (CIT v. HCL Technologies Ltd.) and held that the Assessing Officer should compute the deduction after reducing from total turnover the same expenses that were excluded from export turnover. [Paras 13]

The CIT(A)'s direction to exclude from total turnover the expenses excluded from export turnover when computing section 10A deduction is upheld; Ground No.2 dismissed.

Interest income as income derived from export business - Deduction under section 10A - Interest income earned on short-term bank deposits of surplus funds linked to export receipts is eligible for deduction under section 10A as income derived from the export business. - HELD THAT: - The Tribunal accepted the CIT(A)'s reliance on the Karnataka High Court decision in Motorola and the coordinate bench's decision in the assessee's own earlier case, holding there is a direct nexus between interest earned on deposits of export proceeds and the business of the undertaking. The Assessing Officer produced no contrary higher authority or material to displace the finding that the deposits represented surplus funds from export operations and that the interest income bore a close link to the export business. Accordingly the interest income was held to form part of the profits of the undertaking eligible for section 10A relief. [Paras 17]

The CIT(A)'s direction to allow deduction under section 10A on the interest income is sustained; Ground No.3 dismissed.

Foreign exchange gains as income derived from export activities - Deduction under section 10A - Foreign exchange gains realized in relation to exports constitute income derived from export activities and are eligible for deduction under section 10A. - HELD THAT: - The Tribunal endorsed the CIT(A)'s reliance on the Bombay High Court in Gem Plus and the Madras High Court in Pentasoft, which held that gains from foreign exchange fluctuation realized within the stipulated period form part of sales proceeds and are directly related to export activities. Applying those authorities, and noting that such gains arise solely by virtue of the assessee's export business, the Tribunal found no infirmity in treating the exchange gains as income derived from the undertaking for section 10A purposes. [Paras 21]

The CIT(A)'s direction to allow section 10A deduction on the foreign exchange gain is sustained; Ground No.4 dismissed.

Final Conclusion: All grounds raised by the Revenue were considered and rejected; the order of the CIT(A) granting section 10A relief in respect of Unit II, directing exclusion of specified expenses from total turnover, and allowing deduction on interest and foreign exchange gains is sustained and the Revenue's appeal is dismissed.

Trust assessable as an individual - association of persons (AOP) versus individual for taxing status - representative assessee under sections 160-162 of the Income tax Act - taxation at slab rates versus maximum marginal rate

Trust assessable as an individual - association of persons (AOP) versus individual for taxing status - taxation at slab rates versus maximum marginal rate - representative assessee under sections 160-162 of the Income tax Act - The assessee-trust is to be treated for assessment as an individual and taxed accordingly instead of being assessed as an AOP and subjected to the maximum marginal rate. - HELD THAT: - The Tribunal accepted the assessee's plea that although the return did not claim exemption under section 11 and the Assessing Officer treated the trust as an AOP and applied the maximum marginal rate, the trust is nevertheless to be assessed in the status of an individual. The Tribunal relied on the decision of the Hon'ble Bombay High Court in DIT(Exem) v. Sharadaben Bhagubhai Mafatlal Public Charitable Trust, which held that trustees act in a representative capacity and that determination of tax liability under the Act requires treating the representative assessee in a manner akin to an individual for purposes of computing income and applicable deductions; consequently a public charitable trust is not necessarily an AOP for assessment purposes. Applying that jurisdictional precedent, the Tribunal directed that the Assessing Officer tax the assessee by treating it as an individual and not as an AOP, thereby obviating the application of the maximum marginal rate. [Paras 6, 7]

Appeal allowed; Assessing Officer directed to assess the trust by treating it as an individual and tax it accordingly instead of applying the maximum marginal rate.

Final Conclusion: The Tribunal allowed the appeal, holding that the charitable trust must be assessed as an individual (following the Bombay High Court precedent) and directed the Assessing Officer to compute tax accordingly for Assessment Year 2012-13.

Assumption of jurisdiction under section 153C of the Income Tax Act - requirement of recording satisfaction before initiating proceedings under section 153C of the Income Tax Act - belongingness of seized documents - relation of seized documents to the assessee - abatement of pending assessment on resumption of seized material - invalidity of assessment framed under section 143(3) without recording satisfaction under section 153C of the Income Tax Act

Assumption of jurisdiction under section 153C of the Income Tax Act - requirement of recording satisfaction before initiating proceedings under section 153C of the Income Tax Act - belongingness of seized documents - Validity of assessments for assessment years 2007-08 and 2008-09 made under section 153C read with section 143(3) where the satisfaction recorded did not specify how seized documents belonged to or related to the assessee. - HELD THAT: - The Tribunal examined the satisfaction note and the assessment orders and found no reference to any seized material that was shown to 'belong to' or even 'relate to' the assessee. The Assessing Officer relied on entries in the regular books of account while simultaneously rejecting those books without identifying incriminating seized material forming the basis of assessment under section 153C. Following the decisions of the jurisdictional High Court in PepsiCo India Holdings Private Limited and Pepsi Foods Private Limited, and consistent precedents involving the Raj Durbar group, the Tribunal held that the satisfaction recorded was deficient and did not fulfil the legal requirements to assume jurisdiction under section 153C. Consequently, the consequent assessments framed on that basis are vitiated and liable to be quashed. [Paras 13, 15]

Assessments for AY 2007-08 and AY 2008-09 under section 153C read with section 143(3) are quashed for want of valid satisfaction and jurisdiction.

Abatement of pending assessment on resumption of seized material - invalidity of assessment framed under section 143(3) without recording satisfaction under section 153C of the Income Tax Act - assumption of jurisdiction under section 153C of the Income Tax Act - Validity of the assessment for assessment year 2009-10 where the Assessing Officer resumed possession of seized documents on 10/3/2010 but proceeded to issue notice under section 143(2) and framed assessment under section 143(3) without recording satisfaction and issuing notice under section 153C. - HELD THAT: - The Tribunal found that notice under section 143(2) could be issued until 30/9/2010, but the Assessing Officer resumed jurisdiction over the seized documents on 10/3/2010 in his capacity as AO of the other person. In accordance with SSP Aviation and followings, pending assessment proceedings abate on such resumption and must be proceeded under section 153A/153C after recording the requisite satisfaction. The Assessing Officer failed to record satisfaction or issue a section 153C notice and instead continued under section 143(2)/143(3), a procedural lapse which goes to the root of the proceedings. The Tribunal upheld the CIT(A)'s conclusion that the assessment for AY 2009-10 was vitiated by this omission. [Paras 16, 18, 20]

Assessment for AY 2009-10 is invalid as the Assessing Officer should have recorded satisfaction and proceeded under section 153C; the CIT(A)'s order setting aside the assessment is upheld.

Final Conclusion: The Revenue's appeals are dismissed: assessments for AY 2007-08 and AY 2008-09 under section 153C are quashed for defective satisfaction and lack of jurisdiction; assessment for AY 2009-10 is vitiated for failure to record satisfaction and proceed under section 153C upon resumption of seized material, and the CIT(A)'s orders are upheld.

Disallowance under section 14A - computation under Rule 8D - only investments yielding exempt income to be considered while computing disallowance - remand for recalculation of disallowance - weighted deduction under section 35(2AB) - role of DSIR in approval of in house R&D facility - assessing officer's duty to allow expenditure once facility is recognized

Disallowance under section 14A - computation under Rule 8D - only investments yielding exempt income to be considered while computing disallowance - remand for recalculation of disallowance - Extent and manner of disallowance under section 14A read with Rule 8D for A.Y. 2014-15 - HELD THAT: - The Tribunal accepted the assessee's contention, following a coordinate-bench decision in the assessee's own case for an earlier year and the Special Bench in Vireet Investments (P) Ltd., that while applying Rule 8D the average value of investments must be computed by excluding those investments which did not yield exempt income during the relevant previous year. In the assessment under challenge the AO had recomputed the disallowance under Rule 8D and made an additional addition after giving credit for the assessee's suo motu disallowance. No contrary binding decision or distinguishing facts were shown by the Revenue. Accordingly the matter was restored to the Assessing Officer for recomputation of disallowance in the manner indicated, with the Assessing Officer to afford a reasonable opportunity of hearing to the assessee. The relief was allowed for statistical purposes in line with the earlier Tribunal order. [Paras 9, 10]

Disallowance under section 14A/Rule 8D to be recomputed by excluding investments which did not yield exempt income and the matter remanded to the Assessing Officer for recalculation.

Weighted deduction under section 35(2AB) - role of DSIR in approval of in house R&D facility - assessing officer's duty to allow expenditure once facility is recognized - Allowability of weighted deduction under section 35(2AB) where DSIR has recognized the in house R&D facility but has not quantified or approved certain expenditure - HELD THAT: - The Tribunal followed its coordinate bench precedent in the assessee's own case and earlier decisions which hold that once the prescribed authority (DSIR) has recognized an in house R&D facility and the requisite agreement/recognition exists, the Assessing Officer's role is to examine and allow the expenditure incurred as weighted deduction under section 35(2AB). Prior to the 2016 rules amendment there was no requirement that DSIR quantify year to year expenditure for eligibility; the post 2016 procedure for quantification does not apply retrospectively to restrict claims under pre amendment law. The AO curtailed the deduction on the basis that DSIR had not approved a part of the expenditure and did not supply reasons; the Tribunal found no merit in such curtailment and directed the AO to allow the weighted deduction as claimed. [Paras 16, 17]

Weighted deduction under section 35(2AB) allowed; Assessing Officer directed to admit the claimed weighted deduction where the R&D facility has been recognized by DSIR.

Final Conclusion: The appeal is allowed: the section 14A disallowance is to be recomputed by the AO excluding investments that did not yield exempt income (with opportunity of hearing), and the weighted deduction under section 35(2AB) is to be allowed in accordance with the Tribunal's directions.

Estimation of income - Burden of proof under section 68 - Peak unexplained credit - Remand for fresh adjudication - Ex parte hearing

Estimation of income - Burden of proof under section 68 - Peak unexplained credit - Remand for fresh adjudication - Whether the appellate finding of estimating the assessee's income at 1% of the total bank credits (and treating share application money and advances as included) was justified, and whether the matter required fresh consideration. - HELD THAT: - The Tribunal noted that the Assessing Officer reopened assessment on information from the Investigation Wing and made additions under section 68 for unexplained bank credits, advances and investments. The CIT(A) accepted investigatory statements and, in the absence of any explanation or supporting evidence from the assessee, estimated net income at 1% of the aggregate credits treating the company as an entry provider receiving commission. The Tribunal observed that the primary onus under section 68 lies on the assessee to explain credits and that the principles in the referenced order concerning peak unexplained credit and avoidance of multiple taxation were relevant. However, the Tribunal held that the CIT(A)'s blanket estimation at 1% without verification of documentary evidence or production of beneficiary parties was not justified. In these circumstances the Tribunal directed that the issue be restored to the CIT(A) for fresh adjudication: the CIT(A) (and AO) must verify documentary evidence, allow the assessee opportunity to produce beneficiaries and other proof of rotation/commission, and apply principles relating to peak unexplained credit and commission determination when deciding taxability. Both parties are to be afforded adequate opportunity of hearing.

The matter is remanded to the Ld. CIT(A) for fresh consideration and verification of documentary evidence regarding the nature and source of the credits and for determination of taxable commission or peak unexplained credit; the Revenue's appeal is allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the CIT(A)'s estimate and restored the issue for fresh adjudication after verification of evidence; the appeal of the Revenue is allowed for statistical purposes.

Deductibility of public issue expenses under section 35D - concession by appellant and effect on contesting issues - rejection of books of account under section 145(3) - estimation of income by adopting gross profit ratio - treatment of non response to summons under section 133(6) - disallowance of depreciation for assets acquired from related concern - admission of additional legal grounds by the Tribunal

Deductibility of public issue expenses under section 35D - concession by appellant and effect on contesting issues - Validity of disallowances made by AO under section 35D in respect of public issue expenses as confirmed by CIT(A). - HELD THAT: - The assessee before the Tribunal conceded that the issue was covered against it and accepted the disallowances confirmed by the authorities below. In view of this concession by the assessee's authorised representative, the Tribunal declined to re examine the merits and confirmed the disallowances as made by the AO and sustained by the CIT(A). [Paras 10, 11, 12]

Assessee's grounds challenging the disallowances under section 35D are dismissed and the additions are confirmed pursuant to the assessee's concession.

Procedural maintainability of Revenue appeal listings - Whether the Revenue's appeal for A.Y. 2003-04 was properly before the Tribunal. - HELD THAT: - The assessee submitted that the Revenue appeal had been wrongly listed and was not restored by the High Court for fresh adjudication, a position to which the Department did not object. The Tribunal examined the position on record and held that the appeal had been wrongly listed for hearing and therefore dismissed it. [Paras 17, 18, 19]

Revenue's appeal is dismissed as wrongly listed for hearing.

Rejection of books of account under section 145(3) - estimation of income by adopting gross profit ratio - treatment of non response to summons under section 133(6) - Whether the assessing officer was justified in rejecting the assessee's books of account under section 145(3) and estimating income by adopting GP @40% instead of accepting GP declared by the assessee. - HELD THAT: - The AO rejected the books on account of a decline in gross profit compared to the preceding year and non confirmation by certain suppliers to notices under section 133(6). The Tribunal reviewed statutory principles governing rejection of books under section 145(3) and found that mere decline in gross profit or non response to enquiries, without the AO pointing to specific defects in the documentary material, is not a sufficient basis to reject accounts. The Tribunal relied on precedents and the factual record which showed the assessee had filed sales/purchase details, inventory particulars, bills for utilities and spares and other account ledgers. The Tribunal concluded that the reasons recorded by the AO and sustained by the CIT(A) were not cogent or specific enough to warrant rejection of books and replacement by an estimated GP, and therefore set aside the addition and directed acceptance of book profits. [Paras 36, 37, 38, 39, 40]

Addition made by adopting GP @40% and rejection of books under section 145(3) is set aside; books of account to be accepted and the addition deleted.

Disallowance of depreciation for assets acquired from related concern - admission of additional legal grounds by the Tribunal - Validity of partial disallowance of depreciation relating to assets purchased from a sister concern and whether the additional ground raising this point could be admitted and adjudicated. - HELD THAT: - The Tribunal admitted the additional ground as a question of law based on facts already on record, exercising its broad powers to consider such grounds. On the merits, the Tribunal noted that in earlier proceedings (ITA Nos. 1140, 1342-1344/AHD/2015) it had allowed the assessee's claim after considering documentary evidence, inspection requests and valuation reports, and had directed appropriate consideration. The present facts were found to be identical and no contrary material was produced by Revenue. Applying the earlier reasoning and for parity, the Tribunal allowed the ground and restored the depreciation claim to the extent favourable to the assessee. [Paras 25, 41, 42, 44, 45]

Additional ground admitted; disallowance of depreciation is reversed in favour of the assessee in line with prior favourable findings and the appeal is allowed on this issue.

Final Conclusion: Appeals by the assessee against disallowances under section 35D for A.Ys. 2003-04 and 2004-05 are dismissed following the assessee's concession; Revenue's appeal for A.Y. 2003-04 is dismissed as wrongly listed. For A.Y. 2006-07 the Tribunal allows the assessee's appeal by setting aside the rejection of books under section 145(3) and deleting the addition based on estimated gross profit, and further allows the additional ground concerning depreciation disallowance in the assessee's favour.

Assessment under section 153A in respect of concluded (unabated) assessments - Abatement of pending proceedings on the date of search - Incriminating material nexus requirement for interference in completed assessments - Reiteration of completed assessments in absence of incriminating material

Abatement of pending proceedings on the date of search - Assessment under section 153A in respect of concluded (unabated) assessments - Whether the assessment year under consideration (AY 2011-12) was an unabated/concluded assessment as on the date of search. - HELD THAT: - The Tribunal examined whether the time limit for issuance of notice under section 143(2) had expired prior to the search on 15-03-2013 and found that no scrutiny notice had been issued within the statutory period. Accepting the reasoning in precedents relied upon (Krishna Kumar Singhania and Vijay Kumar D Agarwal), the Tribunal held that where the statutory window for initiating scrutiny had lapsed, the assessment stood concluded (unabated) as on the date of search. On that basis the year in dispute was treated as an unabated year for the purposes of assessment under section 153A. [Paras 6]

AY 2011-12 was an unabated/concluded assessment as on the date of search.

Incriminating material nexus requirement for interference in completed assessments - Reiteration of completed assessments in absence of incriminating material - Whether the Assessing Officer could make additions in a section 153A assessment for an unabated year in the absence of any incriminating material found during the search. - HELD THAT: - Relying on authoritative decisions of higher fora and the scheme of the law, the Tribunal held that while section 153A empowers the AO to make fresh assessments for years where proceedings have abated, it does not permit disturbing completed (unabated) assessments unless there is some incriminating material unearthed during the course of search that is relatable to the completed year. The Tribunal reviewed decisions (including Kabul Chawla and Saumya Construction) and concluded that in respect of unabated years the AO must follow the conclusions of the earlier assessment unless incriminating material justifying interference is discovered in the search. Applying that principle to the facts, since no incriminating material pertaining to the additions was found during the search, the additions/disallowances made by the AO for the concluded year could not be sustained and were directed to be deleted. [Paras 7, 8]

In the absence of incriminating material found in the search, additions/disallowances in respect of the unabated (concluded) year cannot be made under section 153A and are to be deleted.

Final Conclusion: The Tribunal held that AY 2011-12 was an unabated/concluded assessment as on the date of search and that, in the absence of any incriminating material arising from the search relatable to that year, the Assessing Officer had no jurisdiction under section 153A to make the impugned additions; the Revenue's appeal is dismissed.

Transfer and capital gains treatment on succession of proprietary business to a private company - computation of full value of consideration and cost of acquisition in slump-sale / business transfer - valuation of shares under Section 56(2)(vii)(c) and Rule 11UA - date of allotment / date of transfer for determination of fair market value of shares - application of Section 14A read with Rule 8D - limited to dividend-yielding investments - assessment of alleged suppression of closing stock and requirement of cogent evidence

Transfer and capital gains treatment on succession of proprietary business to a private company - computation of full value of consideration and cost of acquisition in slump-sale / business transfer - Whether the transfer of the proprietary concern to M/s. J.S. Tradex Pvt. Ltd. gave rise to taxable capital gains or whether the agreed takeover value is the full value of consideration and equals the cost of acquisition, resulting in no capital gain. - HELD THAT: - Applying the Tribunal's view in M/s. Aravali Polymers LLP, the value of assets taken over by the transferee as reflected in the takeover agreement is to be treated as the full value of consideration for computation of capital gains, and the cost of acquisition is to be taken as per the books of the transferor. On the facts, the agreed takeover consideration is Rs. 2,70,69,200/-, which also represents the cost of acquisition of the assets transferred. As the sale consideration and cost of acquisition are the same, no capital gain arises. The Tribunal therefore deleted the addition made under the head 'capital gains'. [Paras 12]

Addition under the head 'Capital Gain' deleted; no capital gains arise as full value of consideration equals cost of acquisition.

Valuation of shares under Section 56(2)(vii)(c) and Rule 11UA - date of allotment / date of transfer for determination of fair market value of shares - Whether the Assessing Officer could invoke Section 56(2)(vii)(c) and Rule 11UA to value the shares allotted to the assessee on a date after the transfer (31/03/2012) so as to bring the difference to tax as income from other sources. - HELD THAT: - The Tribunal held that when shares are allotted as consideration for transfer of property, the question of invoking Section 56(2)(vii)(c) to value such shares does not arise because the agreed value of the shares on the date of exchange reflects the consideration for the asset transferred. The AO's valuation on 31/03/2012 (after allotment of additional shares at a premium) to compute FMV and assess the difference is not authorised by the Act. The correct date for determining the value is the date of transfer/allotment (27/03/2012), when the shares stood allotted at face value, and the AO's method of post-facto valuation under Rule 11UA is not permissible to create income in this case. [Paras 13, 14]

Addition under the head 'Income from other sources' under Section 56(2)(vii)(c) deleted; valuation on a post-transfer date is not permissible.

Application of Section 14A read with Rule 8D - limited to dividend-yielding investments - Whether the disallowance under Section 14A read with Rule 8D was correctly made in respect of investments which yielded dividend. - HELD THAT: - The Tribunal did not decide the quantification on merits but set aside the matter to the file of the Assessing Officer for fresh adjudication. The AO was directed to apply the proposition of law in ACIT v. Vireet Investments (P) Ltd. and the Jurisdictional High Court decision in CIT v. REI Agro Ltd., taking into account only those investments which are dividend-yielding for the purpose of disallowance under Section 14A r.w. Rule 8D. [Paras 15]

Issue remitted to the Assessing Officer for fresh adjudication in accordance with law; AO to limit disallowance to dividend-yielding investments.

Assessment of alleged suppression of closing stock and requirement of cogent evidence - Whether the Assessing Officer was justified in making an addition on account of alleged suppression of closing stock (gold) transferred to the company. - HELD THAT: - The Tribunal found the asserted suppression (a small difference claimed by AO) to be negligible relative to the total stock transferred and not supported by cogent evidence. In view of the minuscule nature of the claimed discrepancy and absence of convincing proof, the Tribunal deleted the disallowance made on account of alleged suppression of closing stock. [Paras 16]

Addition for alleged suppression of closing stock deleted.

Final Conclusion: The appeal is allowed: the capital gains addition is deleted because the takeover consideration equals the cost of acquisition; the Section 56(2)(vii)(c)/Rule 11UA valuation and resultant income-from-others addition is deleted as impermissible; the Section 14A disallowance is remitted to the Assessing Officer to be reconsidered limited to dividend-yielding investments; and the minor disallowance for alleged suppression of closing stock is deleted.

Writ of Habeas Corpus and its maintainability where detention is pursuant to remand by a competent court - Effect of prior alleged illegal arrest or police detention on subsequent judicial remand - Judicial remand as a curative of constitutional infirmity if the Magistrate applies mind - Availability of alternative remedy of bail where remand orders exist

Writ of Habeas Corpus and its maintainability where detention is pursuant to remand by a competent court - Maintainability of a Habeas Corpus petition when, on the date of filing, the detenue was in custody pursuant to a remand order passed by a competent court. - HELD THAT: - The Court held that a habeas corpus petition is not maintainable where, on the date of filing and return of rule, the detenue's custody is authorised by a competent court by an order which prima facie does not appear to be without jurisdiction or wholly illegal. Reliance was placed on precedent distinguishing preventive detention cases and arrest/detention cases, and on authorities holding that once judicial remand has been granted after due consideration, habeas corpus is not the appropriate remedy to challenge custody authorised by that remand. The Court observed that the remand orders in the present case were passed by the ACMM after considering submissions and material and therefore the petition challenging custody by way of habeas corpus cannot be entertained. [Paras 16, 24, 28, 29]

Habeas Corpus petition not maintainable because the detenue was in custody pursuant to a remand order by a competent court.

Effect of prior alleged illegal arrest or police detention on subsequent judicial remand - Judicial remand as a curative of constitutional infirmity if the Magistrate applies mind - Whether alleged detention or non-production prior to formal arrest vitiates subsequent remand or requires release. - HELD THAT: - The Court found that merely showing that inquiry was made at an office or that the person was not permitted to leave that office does not necessarily amount to an arrest or detention within the meaning of Article 22(2). Even if there were initial infirmities, where the Magistrate, on production, applies his mind to the remand application and grants custody after considering relevant material and reasons for custody, such remand cures alleged constitutional infirmities. The Court examined the remand order and remand reports and concluded the ACMM applied mind and did not act mechanically, so any earlier alleged irregularity did not entitle the detenue to release by habeas corpus. [Paras 19, 20, 24, 25]

Alleged prior detention at the investigating office did not vitiate the remand; remand passed after application of mind cures the asserted infirmity.

Availability of alternative remedy of bail where remand orders exist - Appropriate remedy where detention is by virtue of remand and challenge to remand is not maintainable by habeas corpus. - HELD THAT: - The Court reiterated that where custody is by virtue of a judicial remand, the appropriate remedy is to seek bail before the competent criminal court. Authorities were cited holding that even if remand orders are alleged to be mechanical or invalid, habeas corpus is not the proper remedy and the detenue should pursue bail proceedings. Given the serious allegations and existence of remand orders, the petitioner was directed to pursue statutory remedies for release. [Paras 26, 30, 31]

Petitioner must avail the remedy of filing a bail application; habeas corpus is not the appropriate remedy in these circumstances.

Final Conclusion: The writ petition under Article 226 seeking habeas corpus was dismissed: the detenue was in custody pursuant to remand orders of the competent Magistrate which, on the material, were not shown to be wholly illegal or passed without application of mind; alleged initial infirmities did not entitle the detenue to release by habeas corpus and the appropriate remedy is to apply for bail before the competent court.

Duty Drawback/DEPB entitlement - Circulars cannot override statute - Export Import Policy as statutory policy - DTA unit eligibility where job work performed by 100% EOU - All Industry rate v. Brand rate of drawback - Binding effect of Board circulars for uniform administration of fiscal laws

Circulars cannot override statute - Export Import Policy as statutory policy - Duty Drawback/DEPB entitlement - DTA unit eligibility where job work performed by 100% EOU - Whether departmental circulars (including Circular Nos.74/1999 and 31/2000 and related Board clarifications) can deny or restrict the statutory entitlement to Duty Drawback/DEPB conferred by the Export Import Policy where a DTA unit supplies inputs for job work to a 100% EOU and the finished goods are exported by the EOU. - HELD THAT: - The Court affirmed the Single Judge's conclusion that the Export Import Policy, formulated under the Foreign Trade (Development and Regulation) Act, 1992, has the force of law and confers entitlement to drawback/DEPB in the factual matrix where a DTA unit supplies inputs which are processed by a 100% EOU and the finished goods are exported. The Board's circulars, issued as administrative clarifications (including clarifications about filing and assessment of shipping bills), cannot operate to curtail or nullify the statutory benefit conferred by the policy. The circulars were held to be administrative in character and intended to clarify procedural aspects (such as which authority would assess the shipping bill), and the impugned language denying drawback/DEPB could not prevail where it conflicted with the statutory scheme. The Court relied on earlier Division Bench decisions of this Court and the Karnataka High Court which construed the statute and rules to permit DTA units to claim drawback/DEPB for inputs processed by EOUs, and which emphasised that fiscal statutes and related administrative circulars must be read harmoniously, the statutory right not being capable of being taken away by contrary circulars. The Court also noted that circulars cannot arbitrarily deny entitlement such as the All Industry rate where the statute and rules provide for it, and that procedural clarifications cannot be read to defeat legislative intent to grant drawback/DEPB. [Paras 6, 7, 8]

The impugned orders denying DEPB/drawback were set aside; the view of the Single Judge upholding the assessee's entitlement was affirmed and the appeals dismissed.

Final Conclusion: The intra Court appeals by the Revenue are dismissed. The High Court's view that Board circulars cannot override the statutory Export Import Policy to deny DEPB/drawback to a DTA unit whose inputs are processed by a 100% EOU (with exports from the EOU) is upheld. No costs.

Extraterritorial application of penal statute - Territorial principle of criminal jurisdiction - Penalty under Section 112(a) of the Customs Act - Abetment - Admissibility of confession under Section 56, Evidence Act

Extraterritorial application of penal statute - Territorial principle of criminal jurisdiction - Whether the Customs Act could be applied to overseas persons and an overseas company for conduct affecting Indian customs revenue. - HELD THAT: - The Tribunal held that municipal penal law ordinarily operates within the territorial limits of the State but a State may assert extra territorial jurisdiction where the wrongful act has an adverse effect on the State's interest. The territorial principle remains the baseline, but where an essential constituent element of the offence or its effect is consummated within the territory, the State may deal with the violation irrespective of the perpetrator's nationality or residence. Comparison with provisions in other statutes (e.g., IPC Sections 3 and 4, or foreign application clauses in other enactments) does not preclude application of customs penal provisions where the acts produced consequences within Indian customs jurisdiction. The Tribunal therefore concluded that the mere fact that the appellants were based abroad did not, by itself, exclude them from the jurisdiction of the Customs Act when their acts had operative effects in Mumbai Customs' territory. [Paras 6, 7, 8, 9]

The Customs Act was held applicable to the overseas company and its NRI CEO insofar as their conduct had operative effect within Indian customs territory; jurisdiction was not a bar to imposing penalty.

Penalty under Section 112(a) of the Customs Act - Abetment - Admissibility of confession under Section 56, Evidence Act - Whether the appellants were liable to penalty under Section 112(a) on the basis of the investigation, recorded statements and admissions. - HELD THAT: - The Tribunal accepted the findings that the appellant company and its CEO aided the importer by issuing dual invoices and causing presentation of lower valued invoices to Customs, conduct which produced its effect in Mumbai Customs' jurisdiction. The CEO's recorded statement admitting issuance of two different invoices and the role played in facilitating presentation of undervalued invoices was treated as an admission within the meaning of Section 56 of the Evidence Act and required no further proof. The Tribunal observed that such assistance amounted to abetment of the wrongful act and therefore attracted penalty under Section 112(a). The Tribunal also noted that the Commissioner had not earlier dealt with the jurisdictional point but found the substantive culpability established on the material on record. [Paras 10, 11]

Penalty under Section 112(a) was held to be correctly imposed on the overseas company and its CEO; the Commissioner's order confirming the penalties was upheld.

Final Conclusion: Appeals dismissed and the Commissioner of Customs (Import II), Mumbai's order confirming penalties under Section 112(a) of the Customs Act is upheld; the Tribunal found the Act applicable to the overseas appellants in respect of acts producing effect in India and upheld penalty based on abetment and the CEO's admission.

Attachment under Section 83 Cr.P.C. - proclamation proceedings under Sections 82/83 Cr.P.C. - claims and objections under Section 84 Cr.P.C. - separate legal personality of a company - piercing or lifting the corporate veil - use of corporate form as a fac ade or sham

Attachment under Section 83 Cr.P.C. - proclamation proceedings under Sections 82/83 Cr.P.C. - Validity of attachment of movable property registered in the name of a company pursuant to proclamation and proceedings under Sections 82/83 Cr.P.C. - HELD THAT: - The Court considered whether the Trial Court erred in ordering and sustaining attachment of vehicles and freezing bank accounts in the name of M/s OIS Advanced Technology Pvt. Ltd. in exercise of powers under Section 83 Cr.P.C. The Trial Court treated the company as effectively controlled by the absconding accused and relied on (a) majority shareholding of the accused in the company and (b) the wide ambit of the phrase 'belonging to' in Section 83. The High Court accepted the Trial Court's conclusion that, on the material before it, the attachment could be ordered because the company functioned as the vehicle for the accused's interests and the process under Sections 82/83 could not be completed otherwise. The Court noted the ongoing investigation and the view recorded that the company might be a front/shell used for the accused's activities, which supported the attachment at this stage. [Paras 20, 23, 24]

Attachment of the vehicles and related orders made under Sections 82/83 Cr.P.C. were not set aside; the Trial Court's order sustaining attachment was upheld.

Separate legal personality of a company - piercing or lifting the corporate veil - use of corporate form as a fac ade or sham - Whether the corporate veil should be pierced to treat company property as belonging to the absconding accused and permit attachment. - HELD THAT: - The Court reviewed the doctrine that a company is a separate juristic person but acknowledged established exceptions where the corporate veil may be pierced. Applying the principles in precedents cited by the petitioner, the Court observed that piercing the veil is to be used sparingly and only where the company is a fac ade used to avoid liability. On the facts, with 90% shareholding by the accused, minimal business activity, and properties held in the company's name for the benefit of the accused family, the Court concluded that the Trial Court was justified in lifting the veil to the extent necessary to permit attachment of company property during the ongoing criminal proceedings. [Paras 8, 24, 25]

Corporate veil could be pierced on the facts; the Trial Court rightly treated the company as effectively controlled by the accused and did not err in ordering attachment.

Claims and objections under Section 84 Cr.P.C. - Maintainability of the petitioner's application under Section 84 Cr.P.C. to seek release of attached properties. - HELD THAT: - The Court examined whether the objection/claim against attachment under Section 84 Cr.P.C. could be entertained. It noted that Section 84 permits claims by 'any person other than the proclaimed person' and that the Trial Court recorded factual findings adverse to the petitioner about the company's status and shareholding. The Trial Court also observed that an application by Kotak Mahindra Prime Ltd. under Section 451 Cr.P.C. for superdari was maintainable in view of the bank's proprietary/hypothecation interest. Given the Trial Court's findings about control and the character of the company, the High Court found no merit in the petitioner's claim for release and upheld the dismissal of the Section 84 relief. [Paras 6, 19, 20, 21]

Petitioner's application under Section 84 Cr.P.C. was rightly dismissed; no release of attached properties granted.

Final Conclusion: The High Court dismissed the petition, upholding the Trial Court's orders of attachment and refusal to release the properties registered in the company's name; the court accepted that, on the material and in the context of the ongoing investigation and the accused's dominant control, piercing the corporate veil and sustaining attachment under Sections 82/83 Cr.P.C. were justified. Interim relief was vacated and pending applications disposed of.

Commercial wisdom of the Committee of Creditors - judicial review limited to satisfaction of Section 30(2) and Section 31(1) - requirement to match liquidation value - treatment of operational creditors under Section 30(2)(b) - withdrawal route under Section 12-A - implementation of approved resolution plan and possession directions

Requirement to match liquidation value - commercial wisdom of the Committee of Creditors - judicial review limited to satisfaction of Section 30(2) and Section 31(1) - Whether a resolution plan approved by the Committee of Creditors must match the liquidation value determined under the Regulations before being approved by the Adjudicating Authority. - HELD THAT: - The Court held that there is no statutory requirement that the bid or upfront payment in a resolution plan must match the liquidation value computed under Regulation 35. The liquidation valuation process assists the CoC in its commercial decision-making, but once the CoC approves a plan, the Adjudicating Authority's role under Section 31(1) is limited to satisfying itself that the plan meets the requirements of Section 30(2) and provides for effective implementation. Interference by the Adjudicating Authority or Appellate Authority on merits of the commercial decision is impermissible except insofar as judicial review ensures that the CoC has taken into account the Code's objectives (maximisation of asset value, balancing interests of stakeholders and protecting operational creditors) as envisaged in precedents such as Essar Steel. The NCLAT erred in directing the Resolution Applicant to raise the upfront amount to match the average liquidation value and thereby substituting its equitable perception for the CoC's commercial wisdom. The Adjudicating Authority's approval of the plan was therefore affirmed. [Paras 26, 27, 28, 29]

The NCLAT's direction to require matching of liquidation value was set aside; the Adjudicating Authority's approval of the resolution plan is affirmed.

Treatment of operational creditors under Section 30(2)(b) - commercial wisdom of the Committee of Creditors - Whether the resolution plan failed Section 30(2)(b) by discriminating against operational creditors and required modification on that ground. - HELD THAT: - The Court noted that Section 30(2)(b) requires that operational creditors be paid not less than specified minima (including liquidation value) and that the CoC must, in exercising commercial wisdom, take into account maximisation of asset value and interests of all stakeholders. Here, the successful Resolution Applicant had offered to pay operational creditors the same percentage as financial creditors and no operational creditor challenged the plan in this Court. Given the CoC's approval and the offer to treat operational creditors on parity, there was no basis to hold that Section 30(2)(b) was violated such as to justify the NCLAT's directions. [Paras 21, 22]

Challenge based on alleged discrimination against operational creditors did not warrant setting aside the Adjudicating Authority's approval.

Withdrawal route under Section 12-A - Whether the interlocutory application by the successful Resolution Applicant seeking withdrawal of the resolution plan and refund of amounts deposited could be entertained under Section 12-A. - HELD THAT: - The Court held that Section 12-A applies to withdrawal of applications admitted under Sections 7, 9 or 10 and is not an exit route for a successful Resolution Applicant after approval processes in CIRP. Having contested matters on appeal and pursued implementation, the Resolution Applicant could not be permitted to seek withdrawal and refund by invoking Section 12-A in these proceedings. The Court also refrained from deciding more generally whether a successful Resolution Applicant could ever withdraw after success in CIRP, noting the factual complexities and encumbrances (funding secured by mortgages) in the present case. [Paras 15, 29]

Section 12-A is not the applicable route for withdrawal; the interlocutory application for refund/withdrawal is dismissed.

Implementation of approved resolution plan and possession directions - Directions regarding implementation: remittance to operational creditors and handing over possession of assets to the successful Resolution Applicant. - HELD THAT: - The Court directed that, as a consequence of affirming the Adjudicating Authority's approval, the successful Resolution Applicant shall remit an additional sum (previously offered to operational creditors) to the Resolution Professional for distribution to operational creditors. The Court further directed the Resolution Professional to take physical possession of the corporate debtor's assets and hand them over to the successful Resolution Applicant within four weeks, with police and administrative authorities rendering necessary assistance. Interim orders were dissolved and connected applications disposed of. [Paras 31, 32, 33]

MSL to remit the additional amount to the Resolution Professional and the Resolution Professional to hand over possession to MSL within four weeks; interim orders dissolved.

Final Conclusion: The appeals by Maharashtra Seamless Ltd. and DB International (Asia) Limited are allowed; the NCLAT order directing enhancement of the upfront amount to match liquidation value is set aside and the NCLT order approving the resolution plan is affirmed. The application for withdrawal/refund is dismissed; MSL to remit the additional sum to the Resolution Professional for operational creditors and the Resolution Professional is directed to deliver possession to MSL within four weeks with assistance from police and administrative authorities.

Corporate Insolvency Resolution Process (CIRP) - Operational Creditor - default - pre-existing dispute - service of demand notice under section 8 - summary jurisdiction of Adjudicating Authority under the Code - mere dispute of amount not sufficient to preclude Section 9 - moratorium

Pre-existing dispute - service of demand notice under section 8 - summary jurisdiction of Adjudicating Authority under the Code - mere dispute of amount not sufficient to preclude Section 9 - Respondent had not brought to the notice of the petitioner any bona fide dispute preceding receipt of the demand notice so as to preclude initiation of CIRP under section 9. - HELD THAT: - The evidence shows supply of 45,000 DSTBs and raising of invoices between 02.06.2014 and 20.08.2015; payments were made up to 20.08.2015 leaving outstanding invoices and a MoU of 22.11.2015 for payment of outstanding amounts. The petitioner issued a pleader's notice and the statutory demand notice under section 8, served on 27.02.2018; the Corporate Debtor did not bring any dispute to the petitioner's attention within the statutory ten-day period. An email dated 28.03.2018 referred to a purported reply dated 08.03.2018 but no material was placed to establish that the reply was in fact sent within the statutory period. The Tribunal, exercising the summary jurisdiction mandated by the Code, held that it is not required to undertake detailed fact-finding or try allegations of fraud or vitiating factors at this stage; it need only ascertain whether a dispute was raised and communicated within the prescribed period. Reliance on mere disagreement as to quantum or counter-claims does not automatically establish a pre-existing dispute that bars admission of an application under section 9. Applying these principles, the Tribunal found that no pre-existing dispute had been validly brought to the petitioner's notice within the statutory period and that a default subsisted, warranting admission of the section 9 petition. [Paras 8, 9, 10, 11]

The contention of a pre-existing dispute is rejected; the section 9 petition is maintainable and is admitted.

Final Conclusion: The Company Petition under section 9 is admitted; CIRP is ordered to commence, an Interim Resolution Professional is appointed and moratorium under the Code is declared.

Corporate Insolvency Resolution Process - Financial Debt - Corporate Guarantee - Default - Admission under Section 7 of IBC, 2016 - Moratorium under Section 14 - Interim Resolution Professional appointment - Jurisdiction of Tribunal - Limitation

Admission under Section 7 of IBC, 2016 - Completeness of application - The Section 7 application filed by the financial creditor is complete and is admitted initiating the CIRP against the corporate debtor. - HELD THAT: - The Tribunal examined the Form-1 application and accompanying records and found the application to satisfy the requirements of Section 7 and the Rules. The Tribunal noted that the default date alleged by the applicant falls within limitation and that the registered office of the corporate debtor is within its territorial jurisdiction. On perusal of the record and documents, and having considered the corporate debtor's denials, the Tribunal concluded that the application is complete and admission is warranted under Section 7(5). [Paras 16, 17, 18]

Application under Section 7 is complete and admitted; CIRP is initiated against the corporate debtor.

Financial Debt - Corporate Guarantee - Default - The debt asserted by the financial creditor is a financial debt arising from a corporate guarantee and default is established for the purposes of admission under the Code. - HELD THAT: - Relying on the definition of Financial Debt, the Tribunal held that liability arising from a guarantee falls within the scope of the Code. The applicant produced the loan agreement, corporate guarantee and supporting records showing disbursement and conduct in accordance with the loan terms. The corporate debtor's challenge to the genuineness of the guarantee was found unsupported by documents on record. On these facts the Tribunal concluded that co-extensive liability of the corporate debtor as guarantor and a default in payment have been established, justifying admission. [Paras 12, 15, 18]

The claim is a financial debt secured by a corporate guarantee; default is established and the corporate debtor is liable as guarantor.

Interim Resolution Professional appointment - Moratorium under Section 14 - An Interim Resolution Professional is appointed and the statutory moratorium under the Code is to apply, with directions for interim funding and administrative steps. - HELD THAT: - The Tribunal appointed the IRP named by the financial creditor subject to confirmation of eligibility and requisite disclosures. The Tribunal directed the financial creditor to deposit an initial sum with the IRP to meet costs, subject to subsequent accounting and adjustment by the Committee of Creditors. On admission under Section 7(5), the moratorium under Section 14(1) follows and the consequential provisions of Sections 14(2) to 14(4) operate. The Registry and relevant authorities were directed to communicate the order and update records accordingly. [Paras 19, 20, 21, 22]

IRP named by the applicant is appointed subject to fulfilment of conditions; deposit for IRP costs directed; moratorium under Section 14 shall operate; registry and authorities to be informed.

Final Conclusion: The Tribunal admitted the Section 7 petition, holding that the claim is a financial debt by virtue of a corporate guarantee and that default is established; an Interim Resolution Professional was appointed subject to conditions, an initial deposit for IRP expenses was directed, and the statutory moratorium under the Code was ordered with consequential administrative directions.

Bonafide third party claimant - attachment under PMLA - provisional attachment order - alternative attachable property - overriding effect of PMLA - due diligence - jurisdiction of Appellate Tribunal under Section 26 PMLA

Bonafide third party claimant - provisional attachment order - attachment under PMLA - due diligence - alternative attachable property - Validity of the confirmation of the Provisional Attachment Order in respect of properties mortgaged with the appellant banks who claim to be bonafide secured creditors. - HELD THAT: - The Tribunal applied the legal principles laid down by the Hon'ble Delhi High Court in Deputy Director, Directorate of Enforcement v. Axis Bank & Ors. and concluded that where a secured creditor (a bonafide third party claimant) had acquired its interest prior to the commission of the proscribed offence and had acted in good faith and with due diligence, the attachment under PMLA cannot defeat that lawful interest. The Tribunal found on the record that the banks had taken security prior to ECIR/FIR, had initiated recovery proceedings prior to provisional attachment, and there was no material on record to show that the mortgaged properties were acquired out of proceeds of crime or that the banks were complicit in money laundering. In that factual matrix, the PMLA attachment, though valid in form, must give way to the banks' lawful secured interest to the extent of their claim; absent prima facie evidence linking the mortgaged properties to proceeds of crime, the confirmation of the provisional attachment was unsustainable. The Tribunal further held that the appellate forum under Section 26 has jurisdiction to examine the validity of the confirmation of attachment so long as the attachment has not attained finality, and that the special court's exclusive adjudicatory role is confined to situations where the attachment has become final, confiscation has been ordered, or trial under Section 4 PMLA has commenced. Applying these principles to the facts, the Tribunal concluded that the Adjudicating Authority had not appreciated the law or material and that the provisional attachment as confirmed must be quashed in respect of the mortgaged properties. [Paras 34, 35, 38, 41]

The confirmation of the Provisional Attachment Order is set aside insofar as it relates to the properties mortgaged with the appellant banks; the Provisional Attachment Order dated 29.03.2016 and the Adjudicating Authority's confirmation dated 22.09.2016 are quashed in respect of those properties.

Jurisdiction of Appellate Tribunal under Section 26 PMLA - overriding effect of PMLA - special court - Scope of the Tribunal's jurisdiction to decide third party claims against attachment when remedies under the Act are not exhausted. - HELD THAT: - Relying on the Axis Bank decision, the Tribunal held that the appellate tribunal under Section 26 is vested with jurisdiction to examine and entertain challenges to confirmation of provisional attachment so long as such orders have not attained finality. The Tribunal rejected the contention that only the special court can entertain claims of third parties in all circumstances, noting that the special court's exclusive jurisdiction to adjudicate claims arises only where the confirmation has attained finality, confiscation has been ordered, or trial under Section 4 PMLA has commenced. Thus, the banks' appeals were maintainable before the Tribunal and the Tribunal was competent to adjudicate the legality of the confirmation of attachment. [Paras 20, 21, 37]

The Appellate Tribunal has jurisdiction under Section 26 to adjudicate the legality of the confirmation of the provisional attachment in the present appeals because the attachment had not attained finality; the special court's exclusive adjudicatory role is not attracted at this stage.

Final Conclusion: The appeals by the banks are allowed in part: the Adjudicating Authority's confirmation of the Provisional Attachment Order dated 22.09.2016 and the PAO dated 29.03.2016 are quashed insofar as they relate to the properties mortgaged with the appellant banks. The Tribunal exercised its jurisdiction under Section 26 PMLA to decide the claims of bonafide secured creditors in light of the Axis Bank principles; no order as to disposal of the properties is made in view of the High Court's clarificatory directions.

Reimbursement of service tax - affording reasonable opportunity of being heard - administrative verification of payment - mandamus to consider claim - directions for expeditious decision

Reimbursement of service tax - mandamus to consider claim - affording reasonable opportunity of being heard - The petition for a direction to the 2nd respondent to consider and decide the petitioner's Ext.P8 claim for reimbursement of service tax was remitted for fresh consideration. - HELD THAT: - The High Court did not adjudicate the merits of the reimbursement claim. Instead, in the interest of justice the Court directed the 2nd respondent to take up Ext.P8 for consideration, afford the petitioner a reasonable opportunity of hearing, and render a considered decision without much delay. A specified timeframe was imposed for expedition - the decision to be given preferably within six to eight weeks from production of a certified copy of the judgment. The Court thereby issued a supervisory direction (in the nature of mandamus) for administrative reconsideration rather than deciding entitlement on merits.

Ext.P8 is directed to be considered afresh by the 2nd respondent after hearing the petitioner, with a considered decision preferably within six to eight weeks from production of the certified copy of the judgment.

Administrative verification of payment - affording reasonable opportunity of being heard - directions for expeditious decision - The Court directed the 3rd respondent to verify and report on the correctness of the petitioner's factual claim regarding payment of service tax and to forward that report to the 2nd respondent and the petitioner. - HELD THAT: - The Court required the 3rd respondent to furnish a report as to the correctness of the petitioner's claim that he had already paid the service tax (as referred to in Exts.P3 and P7). The report was to be submitted to the 2nd respondent preferably within three weeks of production of a certified copy of the judgment, and a copy was to be forwarded in advance to the petitioner to enable him to make submissions to the 2nd respondent. The direction is procedural and for administrative verification; the Court did not decide the underlying factual or legal entitlement but framed the verification process to inform the 2nd respondent's reconsideration of Ext.P8.

The 3rd respondent is directed to verify the petitioner's payment claim and submit a report to the 2nd respondent within three weeks, and to forward a copy of that report to the petitioner in advance.

Final Conclusion: The writ petition is disposed of by directing the 2nd respondent to re consider Ext.P8 after affording the petitioner a hearing and after taking into account the verification report to be furnished by the 3rd respondent; timelines of three weeks for the report and six to eight weeks for the decision were specified for expedition.

Cenvat credit eligibility - agency commission not eligible for Cenvat - common input services and proportionate reversal under Rule 6(3) - priority of Rule 6(5) over Rule 6(1) and Rule 6(2) - services rendered in Jammu & Kashmir treated as exempted services under Rule 2(e) - trading as exempted service (pre- and post-01.04.2011) - remand for verification and recomputation

Agency commission not eligible for Cenvat - Cenvat credit eligibility - Cenvat credit claimed on agency commission is not admissible. - HELD THAT: - The Tribunal followed its earlier decision in respect of the same appellant and the reasoning of the Hon'ble Gujarat High Court in Cadilla Healthcare that commission paid for procuring orders is not a service rendered in relation to the taxable service and therefore does not qualify for cenvat credit. This principle was applied irrespective of whether the commission related to sale of goods or to procurement of Annual Maintenance Contracts, and the appellant is consequently not entitled to cenvat credit on such agency commissions. [Paras 13, 23]

Cenvat credit on agency commission must be disallowed.

Trading as exempted service (pre- and post-01.04.2011) - Cenvat credit eligibility - Trading activity is to be treated as an exempted service for the relevant period (both before and after 01.04.2011) for the purpose of cenvat reversal. - HELD THAT: - The Tribunal accepted the view of the Hon'ble High Court of Madras in Ruchika Global Interlinks and FL Smidth that trading activity amounts to an exempted service both prior to and after the 01.04.2011 amendment. Consequently, turnover attributable to trading must be reckoned as exempted service when computing reversible cenvat credit. [Paras 14, 23]

Trading is an exempted service for computation of reversal and must be treated as such.

Common input services and proportionate reversal under Rule 6(3) - remand for verification and recomputation - The computation of proportionate reversal must exclude input services that were exclusively used for providing taxable services; this factual question is remanded for verification. - HELD THAT: - The Tribunal found that the adjudicating authority's computation appeared to treat all contested services as common input services. Where particular input services were used exclusively for taxable services, they cannot be treated as common input services for proportionate reversal under Rule 6(3). The matter of which services were exclusively used for taxable services requires factual verification and is therefore remanded to the original authority to examine records and recompute the reversible amount accordingly. [Paras 15, 23]

Remand for verification: exclude input services exclusively used for taxable services when recomputing reversal.

Priority of Rule 6(5) over Rule 6(1) and Rule 6(2) - Cenvat credit eligibility - remand for verification and recomputation - Services falling under Rule 6(5) are eligible for full cenvat credit and cannot be treated as common input services for proportionate reversal unless used exclusively for exempted services; verification on this point is remanded. - HELD THAT: - The Tribunal held that Rule 6(5), as it stood during the relevant period, allows credit of the whole of service tax paid on specified taxable services unless such services are used exclusively for providing exempted services, and that Rule 6(5) prevails over Rules 6(1) and 6(2). Therefore, if any contested services fall within Rule 6(5), the appellant is entitled to full credit subject only to exclusion where they are used exclusively for exempted services. The question whether particular services fall under Rule 6(5) and the extent of their use must be verified by the adjudicating authority. [Paras 16, 23]

Services covered by Rule 6(5) are fully creditable; remand to verify applicability and use.

Services rendered in Jammu & Kashmir treated as exempted services under Rule 2(e) - Cenvat credit eligibility - Services rendered in Jammu & Kashmir during the relevant period fall within the definition of 'exempted services' in Rule 2(e) and must be treated as such for reversal computation. - HELD THAT: - For the period prior to 01.04.2011 the statutory definition in Rule 2(e) expressly included services on which no service tax is leviable under Chapter V of the Finance Act, 1994. Since Chapter V did not apply to services rendered in Jammu & Kashmir, such services fall squarely within the definition of 'exempted services'. Applying the plain meaning rule of statutory interpretation (as endorsed by the Supreme Court), the Tribunal held that these services must be treated as exempted services when determining reversible cenvat credit. [Paras 21, 22, 23]

Services rendered in Jammu & Kashmir are exempted services for the purpose of reversal and must be so reckoned.

Cenvat credit eligibility - remand for verification and recomputation - Turnover from manpower supply and recruitment services on which service tax was paid should be treated as taxable services for computation and is to be considered by the original authority. - HELD THAT: - The Tribunal accepted the appellant's contention that services rendered by way of manpower supply and recruitment, insofar as service tax was paid thereon, constitute taxable services and should be treated as such when computing the proportionate reversal. The factual determination of turnover and allocation requires verification and is remanded to the adjudicating authority to consider and recompute the reversible amount accordingly. [Paras 16, 23]

Manpower supply and recruitment services with tax paid are taxable for computation; remand for verification.

Final Conclusion: The appeal is disposed of by remanding the matter to the original adjudicating authority to re-determine the amount of CENVAT credit to be disallowed, and to recompute interest and penalty after (a) excluding input services exclusively used for taxable services, (b) disallowing cenvat on agency commission, (c) allowing full credit where Rule 6(5) applies, (d) treating manpower/recruitment turnover as taxable where tax was paid, (e) treating trading as exempted service, and (f) treating services rendered in Jammu & Kashmir during the relevant period as exempted services; the authority must follow principles of natural justice in the exercise.

Non-speaking order - Requirement of a speaking order - De novo adjudication - Remand for fresh consideration - Service Tax demands, interest and penalties - Export of services - payment realised in foreign exchange - Applicability of exemption notifications and RBI realisation condition - Appropriateness of penalties under Sections 76, 77 and 78

Non-speaking order - Requirement of a speaking order - Impugned adjudication order is non-speaking and inadequate, requiring remand for reconsideration. - HELD THAT: - The Tribunal examined the impugned order and found that, although factual background and defence submissions were recorded, the adjudicating authority's discussion consisted largely of general statements of law and citations of circulars and notifications without applying those legal principles to the material facts, the contracts between parties, or the specific defence contentions. The appellate bench observed that the order fails to demonstrate reasoned application of law to facts and is therefore bereft of the reasoning necessary to determine parties' rights. Reliance was placed on the principle that brevity cannot substitute for necessary clarity and reasoning. Accordingly, the Tribunal held that the impugned order does not satisfy the requirement of a speaking order and cannot stand as a foundation for upholding the confirmed demands, interest or penalties. [Paras 5]

Allow the appeal; set aside the impugned order as non-speaking and remand the matter for de novo adjudication with directions to pass a reasoned speaking order after considering the appellants' submissions.

De novo adjudication - Remand for fresh consideration - Service Tax demands, interest and penalties - Matters remanded for fresh adjudication on merits, including the confirmed demands, interest and penalties framed in the show cause notices. - HELD THAT: - Because the adjudicating authority's order did not apply legal provisions to the case-specific facts and defence submissions, the Tribunal directed that all issues raised in the show cause notices - including the confirmed Service Tax demands, denial/adjustment of CENVAT credit, interest under the Act, and imposition of penalties under the relevant provisions - be reconsidered afresh. The Tribunal instructed the adjudicating authority to hear the appellant, analyze the factual matrix and legal contentions, and pass a speaking order in de novo proceedings. A timeframe of four months from receipt of the Tribunal's order was prescribed for completion of the de novo adjudication. [Paras 5]

Remand the entire matter to the adjudicating authority for de novo adjudication of the Service Tax demands, interest and penalties; direct final determination by a reasoned speaking order within four months after giving the appellants opportunity of hearing.

Final Conclusion: The appeal is allowed. The impugned adjudication order is set aside as non-speaking; the matters concerning Service Tax demands, interest and penalties are remitted to the adjudicating authority for de novo, speaking adjudication within four months after affording the appellant an opportunity of hearing.

Writ of Mandamus - Treatment of representation as filed before proper authority - Administrative adjudication - Opportunity to be heard / audi alteram partem - Decision in accordance with law and governing procedure - Non-adjudication on merits

Treatment of representation as filed before proper authority - Opportunity to be heard / audi alteram partem - Decision in accordance with law and governing procedure - Direction to respondent No.7 to treat Ext.P6 representation as if duly filed before him and to consider and decide it after affording hearing, in accordance with law, within a stipulated time. - HELD THAT: - The Court noted that the petitioner's Ext.P6 representation dated 16/08/2019 was lodged before an incorrect respondent and directed that a copy of Ext.P6 annexed to the writ petition be treated by respondent No.7 as if it had been duly filed before him. The respondent was directed to afford the petitioner a reasonable opportunity of being heard and to render a considered decision in accordance with the norms, procedure and law governing the subject-matter. The Court expressly refrained from examining or deciding the substantive merits of the claim for CENVAT credit and limited its intervention to procedural directions to enable administrative adjudication on the representation. The respondent's decision was to be rendered without undue delay and preferably within six weeks from receipt of a certified copy of the order. The petitioner was directed to forward a copy of Ext.P6 along with a certified copy of the judgment to respondent No.7 to facilitate compliance. [Paras 3]

Respondent No.7 shall treat the copy of Ext.P6 as if duly filed before him, afford the petitioner a hearing, and decide the representation in accordance with law and procedure preferably within six weeks; the writ petition is disposed of.

Final Conclusion: The High Court did not adjudicate the merits of the CENVAT credit claim but directed respondent No.7 to treat the representation as properly filed, to hear the petitioner and to decide the matter in accordance with law within a stipulated period; the writ petition is finally disposed of.

Special audit under Section 14AA of the Central Excise Act, 1944 - jurisdiction to pass order - principles of natural justice - mandamus and limits of judicial command - transfer of statutory power

Special audit under Section 14AA of the Central Excise Act, 1944 - principles of natural justice - Validity of the order dated June 06, 2017 directing a special audit against the assessee - HELD THAT: - The Commissioner, Central Excise, Kolkata - II had earlier been directed by a writ court to pass a reasoned order after affording an opportunity of hearing. The Commissioner conducted a hearing and passed a reasoned order dated June 06, 2017 directing a special audit for the specified periods. The Single Judge in the earlier round had set aside a 2005 order on grounds of breach of natural justice; in the subsequent proceedings the Commissioner complied with those directions by affording hearing and recording reasons. However, compliance with natural justice and articulation of reasons does not cure the fundamental defect that the Commissioner who passed the June 06, 2017 order did not possess the statutory authority to do so at the relevant time, that power having been vested in the Commissioner (Audit)-I. The court held that an order passed by an authority lacking statutory power is without authority and cannot be sustained merely because the assessee participated in proceedings or did not object at that stage.

The order dated June 06, 2017 directing a special audit was set aside on the ground that the Commissioner who passed it lacked the statutory authority to do so.

Mandamus and limits of judicial command - transfer of statutory power - Remedial course and direction for fresh exercise of power by the appropriate authority - HELD THAT: - The writ court's earlier remand to 'the Commissioner' did not and could not authorize an officer who was divested of the relevant power to exercise that power de hors the statute. A mandamus commands performance by the authority vested by law with the relevant duty; it cannot be used to confer or revive statutory powers on an officer who no longer possesses them. Consequently, the correct course is to require the Commissioner empowered under Section 14AA after the relevant statutory changes (post-promulgation of the Central Goods and Services Tax Act, 2017) to consider the matter afresh, after giving the assessee opportunity of hearing and recording a reasoned decision. Given the long pendency, the court imposed a short timeframe to conclude the exercise.

The matter was remitted to the appropriate audit Commissioner empowered under Section 14AA to pass a reasoned order after hearing the assessee, to be completed expeditiously and in any event within four weeks.

Final Conclusion: The impugned order upholding the June 06, 2017 order is set aside. The order dated June 06, 2017 directing a special audit is quashed for want of statutory authority; the matter is remitted to the Commissioner empowered under Section 14AA to pass a reasoned order after hearing the assessee within four weeks.

Availability of Cenvat credit on additional customs duty debited under reward/licence schemes - eligibility of Special Additional Duty (SAD) paid by debiting under Target Plus scheme for Cenvat credit - interpretive effect of Circular No.18/2006 CUS regarding duties debited through DEPB/DFCE/Target Plus - classification of SAD as an additional duty under section 3 of the Customs Tariff Act - precedential weight of a jurisdictional High Court decision on identical issue

Eligibility of Special Additional Duty (SAD) paid by debiting under Target Plus scheme for Cenvat credit - availability of Cenvat credit on additional customs duty debited under reward/licence schemes - interpretive effect of Circular No.18/2006 CUS regarding duties debited through DEPB/DFCE/Target Plus - classification of SAD as an additional duty under section 3 of the Customs Tariff Act - precedential weight of a jurisdictional High Court decision on identical issue - Cenvat credit is admissible in respect of the 4% Special Additional Duty (SAD) of customs debited under the Target Plus scheme. - HELD THAT: - The Revenue assailed the appellate order permitting Cenvat credit on SAD debited under Target Plus, relying on precedents concerning DEPB and similar schemes which held that mere debit under a licences/scrip scheme did not permit credit. The respondent relied upon Board Circular No.18/2006 CUS which explicitly states that duties debited through DEPB, DFCE, Target Plus etc. may be allowed as Cenvat or drawback, and on the jurisdictional High Court decision in RCC Sales (P) Ltd holding that amounts debited under Target Plus towards 4% SAD are eligible for Cenvat/drawback. The Tribunal examined notification No.32/2005 CUS which provides entitlement to drawback or Cenvat credit of additional duty leviable under section 3 of the Customs Tariff Act for amounts debited in such certificates, and noted that SAD is levied as an additional duty under section 3 (albeit a different sub section). Given the binding authority of the jurisdictional High Court on the same question and the Board circular and notification language supporting eligibility, the Tribunal respectfully followed the High Court's ruling and upheld the appellate order allowing Cenvat credit on SAD debited under Target Plus, rejecting the Revenue's appeal. [Paras 8, 9]

Appeal rejected; impugned order upholding availment of Cenvat credit on SAD debited under Target Plus scheme upheld.

Final Conclusion: The Tribunal, following the jurisdictional High Court and having regard to Board circular and the notification permitting drawback or Cenvat of additional duty under section 3, held that the 4% SAD debited under the Target Plus scheme is eligible for Cenvat credit and accordingly dismissed the Revenue's appeal.

Show cause notice defines the four corners of proceedings - enhancement of demand beyond the scope of the show cause notice is impermissible - remand for fresh adjudication where demand confirmed beyond SCN - overlap/duplication of demands and adjustment of overlapping periods - valuation under Section 4(1)(a) read with Rule 5 vis-a -vis valuation under Rule 8 - Rule 8 applicable where goods are captively consumed - need for fresh show cause notice where a new case is sought to be decided

Show cause notice defines the four corners of proceedings - enhancement of demand beyond the scope of the show cause notice is impermissible - need for fresh show cause notice where a new case is sought to be decided - Whether the adjudicating authority could confirm a demand far in excess of the amount and grounds specified in the original show cause notice without issuing a fresh show cause notice. - HELD THAT: - The Tribunal held that the show cause notice delineates the limits within which the adjudication must proceed and that the adjudicating authority cannot travel beyond those limits by deciding matters or confirming demands not foreshadowed in the SCN. Reliance upon authoritative pronouncements of the Apex Court (as set out in the order) establishes that if a new ground or a different legal basis is to be invoked, a fresh show cause notice is required. The Commissioner had confirmed a substantially larger demand than that stated in the SCN by treating the J.D. Cost verification as justifying an expanded case; the Tribunal found this approach contrary to settled law and set aside the enhanced demand, remitting the matter to the Commissioner for fresh adjudication limited to the grounds and quantum specified in the original SCN. [Paras 4]

Enhanced demand confirmed beyond the scope of the original show cause notice set aside; matter remitted to Commissioner for fresh adjudication of the SCN dated 27.11.2013 covering November 2008 to March 2013.

Overlap/duplication of demands and adjustment of overlapping periods - valuation under Section 4(1)(a) read with Rule 5 vis-a -vis valuation under Rule 8 - Rule 8 applicable where goods are captively consumed - remand for fresh adjudication where demand confirmed beyond SCN - Whether the second adjudication (invoking Rule 8) could be sustained for the overlapping period already adjudicated under Section 4(1)(a)/Rule 5, and whether the post-overlap period demand could be upheld without fresh adjudication. - HELD THAT: - The Tribunal recorded that where an earlier order had confirmed demand for certain periods under Section 4(1)(a)/Rule 5, a subsequent proceeding invoking Rule 8 for the same overlapping period cannot validly re-decide those matters; such an approach conflicts with the settled principle that the case must proceed within the scope of the SCN. Further, Rule 8 is conceptually applicable to clearances for captive consumption and therefore cannot be applied in isolation to periods already subject to adjudication under Section 4(1)(a)/Rule 5 without proper notice. The Commissioner had acknowledged overlap and adjusted the second demand, but the Tribunal found the remaining confirmation (for the post-overlap period April 2013 to September 2013) unsustainable in isolation and ordered re-adjudication of that period as well. [Paras 4]

Demand for the overlapping period treated as adjusted; however the demand confirmed for April 2013 to September 2013 set aside and remitted to the Commissioner for re-adjudication.

Final Conclusion: Both appeals are allowed; the Tribunal set aside the enhanced/overlapping demands and remanded the matters to the adjudicating authority for fresh adjudication in respect of the specified periods (November 2008 to March 2013 and April 2013 to September 2013) within six months of receipt of this order.

Inter-connected undertakings - valuation under Section 4(1)(b) of the Central Excise Act - application of Section 4(3)(b) read with Rule 10 of the Central Excise Valuation Rules, 2000 - burden on Revenue to establish shareholding, management or control

Inter-connected undertakings - burden on Revenue to establish shareholding, management or control - valuation under Section 4(1)(b) of the Central Excise Act - Whether the assessee and the marketing firm are inter-connected undertakings and whether valuation in terms of Section 4(1)(b) (and the Explanation incorporating Section 2(g) of the MRTP Act) is attracted - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that the case proceeded under clause (iv) of the definition of inter-connected undertakings, which requires one or more partners of a firm to hold, directly or indirectly, not less than fifty per cent of the shares of the body corporate or to exercise control. The Ld. Commissioner analysed the shareholding in tabular form and concluded that the alleged shareholdings by relatives did not establish that the partner (Smt. G. Suguna) directly or indirectly held controlling interest or exercised control over the company. The Revenue failed to place documentary evidence to show that directors derived power from, or were controlled by, Smt. G. Suguna, or that there was financial flowback between the units. The Tribunal noted that the Adjudicating Authority had verified records showing that sales through the marketing firm constituted only 25-30% of total sales and that the assessee sold at factory gate to independent buyers and government bodies-findings which the Revenue did not challenge. On this record the Revenue did not discharge the requisite burden to establish inter-connection, and therefore valuation under Section 4(1)(b) could not be invoked. [Paras 8, 9, 10, 11]

The Tribunal upheld the reasoned findings of the Adjudicating Authority that the two units are not inter-connected undertakings on the material before the authority and that valuation under Section 4(1)(b) is not attracted.

Application of Section 4(3)(b) read with Rule 10 of the Central Excise Valuation Rules, 2000 - burden on Revenue to establish shareholding, management or control - Whether Rule 10 of the Central Excise Valuation Rules, 2000 and Section 4(3)(b) apply to treat sales through the related person as constituting the entire sales for valuation purposes - HELD THAT: - Rule 10 requires that the entire sales be made through the related person for its applicability. The Tribunal observed that the Show Cause Notice and the Revenue's grounds did not specify or establish that the alleged relationship fitted the clauses relied upon, nor did the Revenue place complete shareholding or management pattern on record. Given the Adjudicating Authority's unchallenged finding that only 25-30% of sales were through the related marketing firm and the remaining were to independent buyers and government bodies, Rule 10 and Section 4(3)(b) could not be invoked. The Tribunal emphasised that where inter-connection is alleged, the Revenue must undertake further enquiry and place documentary proof of shareholding, control or management, which was not done. [Paras 9, 10]

Rule 10 and Section 4(3)(b) do not apply on the material before the authorities; the Revenue failed to establish the preconditions for their invocation.

Final Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the Adjudicating Authority's reasoned findings that the marketing firm and the assessee are not inter-connected undertakings on the evidence before it and that valuation under Section 4(1)(b)/Section 4(3)(b) read with Rule 10 is not attracted.

Scrutiny of returns under Section 27 - Notice under Section 24(2) as pre condition for summary adjustments - Limitation for completion of assessment under Section 33 - Audit assessment under Section 31 distinct from summary adjustments

Scrutiny of returns under Section 27 - Notice under Section 24(2) as pre condition for summary adjustments - Audit assessment under Section 31 distinct from summary adjustments - Limitation for completion of assessment under Section 33 - Whether the Assessing Authority could invoke powers under Section 27 of the TVAT Act in respect of returns for which no notice under Section 24(2) had been issued and which had otherwise become time barred for audit assessment. - HELD THAT: - Section 24(1) obliges registered dealers to furnish periodical returns, while Section 24(2) contemplates issuance of a notice by the Commissioner where he has reason to believe a person's turnover exceeds the taxable limit, requiring return filing as if registered. Section 27(1) subjects returns filed by a dealer to whom a notice under Section 24 has been issued to scrutiny to verify calculations, rates, interest and payment; Section 27(2) permits recovery by notice where mistakes are detected on such scrutiny. Section 27 is thus a provision for limited, prima facie adjustments of returns filed in response to a Section 24(2) notice and is not a substitute for audit assessment under Section 31 or for self/provisional assessments under Sections 29-30. Because Section 27 can be exercised only in relation to returns of a dealer to whom the Commissioner has issued notice under Section 24(2), resort to Section 27 where no such notice was issued improperly circumvents the statutory scheme governing audit assessments and the time limit for completion of assessments under Section 33. Allowing Section 27 to be used in such cases would defeat the Chapter V scheme and the protection of limitation for audit assessments; therefore the impugned orders made under Section 27 in the absence of a Section 24(2) notice were without jurisdiction and liable to be set aside. [Paras 17, 18, 19, 20, 21]

Impugned orders passed under Section 27 in the absence of a notice under Section 24(2) are set aside and any consequential demand notices are invalidated.

Final Conclusion: The petitions are allowed; orders passed under Section 27 without issuance of a notice under Section 24(2) are quashed and related demand notices are invalidated.

Pre-deposit condition under proviso to Section 73(4) of the GVAT Act - discretion of appellate authority to waive or reduce pre-deposit - power of appellate tribunal to re-examine pre-deposit direction - entertainment of appeal subject to proof of payment or security

Pre-deposit condition under proviso to Section 73(4) of the GVAT Act - power of appellate tribunal to re-examine pre-deposit direction - Whether the Tribunal was bound by the First Appellate Authority's pre-deposit direction or could travel beyond it under the proviso to Section 73(4) of the GVAT Act. - HELD THAT: - The proviso to Section 73(4) confers discretion on an appellate authority to, for reasons to be recorded, entertain an appeal without payment, on payment of a smaller sum, or on furnishing security. This discretionary power to direct a lesser payment or accept security is not confined to the First Appellate Authority alone; an appellate tribunal may examine and exercise its own discretion on the question of pre-deposit. Therefore the Tribunal erred in holding that it could not travel beyond the First Appellate Authority's pre-deposit direction. The Court answers the substantial question in favour of the appellant and holds that the Tribunal may reassess the pre-deposit requirement in accordance with the statutory proviso and the facts of the case. [Paras 6, 7, 8, 9]

Tribunal is not bound by the First Appellate Authority's pre-deposit direction and may independently consider waiver, reduction or acceptance of security under the proviso to Section 73(4).

Discretion of appellate authority to waive or reduce pre-deposit - entertainment of appeal subject to proof of payment or security - Whether the Tribunal should reconsider the appellant's plea for waiver or reduction of pre-deposit or permit security in lieu thereof. - HELD THAT: - Having held that the Tribunal can travel beyond the First Appellate Authority's direction, the matter of whether the appellant is entitled to waiver of pre-deposit, payment of a lesser amount, or allowance to furnish security is remitted to the Tribunal. The Tribunal is directed to exercise its discretionary power afresh, on the basis of reasons to be recorded, considering the facts and submissions of the appellant and permitting appropriate security if satisfied. [Paras 10]

Matter remitted to the Tribunal to reconsider and decide afresh on waiver, reduction or acceptance of security for pre-deposit under Section 73(4) proviso.

Final Conclusion: The appeals are allowed to the extent that the Tribunal was empowered to travel beyond the First Appellate Authority's pre-deposit direction; the Tribunal is directed to reconsider, with reasons, whether waiver, reduction or security for the pre-deposit should be permitted and to pass an appropriate order accordingly.

Reimbursement of Central Sales Tax - interpretation of Foreign Trade Policy - validity of executive circular - direction to decide refund application

Reimbursement of Central Sales Tax - interpretation of Foreign Trade Policy - validity of executive circular - Whether the respondents should be directed to decide the petitioner's application for refund of the amount deposited under protest in light of the legal position declared in M/s. Asahi Songwon Colors Ltd. - HELD THAT: - The Court noted that the legal position in M/s. Asahi Songwon Colors Ltd. is that para 6.11 of the Foreign Trade Policy permits reimbursement of Central Sales Tax on goods "manufactured in India" and is not confined to procurements only from Domestic Tariff Area units; further, the circular of 11-4-2014 which purported to restrict the benefit was set aside in that judgment. The petitioner deposited the disputed amount under protest to obtain an NOC and thereafter applied for refund, but the KASEZ authorities did not decide the refund application. Having regard to the binding legal position in Asahi and the petitioner's pending refund application, the respondents were directed to consider and dispose of the refund application within a stipulated period. The Court recorded the respondents' counsel's statement to that effect and disposed of the writ by issuing the direction to decide the refund claim within three months, taking into account the Asahi judgment. [Paras 16]

Respondents directed to dispose of the petitioner's refund application within three months from receipt of the writ, in light of M/s. Asahi Songwon Colors Ltd.

Final Conclusion: Writ petition disposed of by way of direction: respondents to decide the petitioner's refund application for the amount deposited under protest within three months from receipt of this order, having regard to the legal position declared in M/s. Asahi Songwon Colors Ltd.; notice discharged.

Validity of levy of turnover tax under Section 4-A of the Pondicherry General Sales Tax Act - Tax Clearance Certificate conditional on clearance of tax liability pending assessment - Prematurity and maintainability of writ petition seeking Tax Clearance Certificate - Application of Article 286 of the Constitution read with Sections 14 and 15 of the Central Sales Tax Act to state levies on declared goods

Prematurity and maintainability of writ petition seeking Tax Clearance Certificate - Tax Clearance Certificate conditional on clearance of tax liability pending assessment - Whether the writ petitions challenging refusal to issue a Tax Clearance Certificate were premature and maintainable at the stage when assessments were not finalised - HELD THAT: - The Bench held that, apart from a collateral challenge to the constitutional validity of Section 4-A, the petitions were premature and not maintainable because the Assessing Authority's refusal to issue the Tax Clearance Certificate rested on a prima facie factual satisfaction that turnover thresholds under Section 4-A were exceeded. Determination of entitlement to the certificate depends on final assessment of turnover and tax liability by the statutory authority. The Court declined to exercise extraordinary writ jurisdiction to interfere with the Assessing Authority's provisional decision made in the course of assessment proceedings and directed that factual and mixed questions of law be left to assessment and appellate processes. [Paras 7, 8, 9]

Writ petitions dismissed at this stage as premature and not maintainable; questions of turnover, tax liability and entitlement to Tax Clearance Certificate to be decided in assessment proceedings.

Validity of levy of turnover tax under Section 4-A of the Pondicherry General Sales Tax Act - Application of Article 286 of the Constitution read with Sections 14 and 15 of the Central Sales Tax Act to state levies on declared goods - Whether the constitutional challenge to Section 4-A required adjudication in these petitions or should be left for assessment/appellate proceedings - HELD THAT: - The Court observed that the legal controversy concerning the interplay of Article 286 with Sections 14 and 15 of the Central Sales Tax Act and the State levy had been considered by the Constitution Bench of the Supreme Court in Godfrey Philips (as cited in the judgment), and therefore was not res integra. The Bench found no necessity to decide the constitutional validity of Section 4-A in these petitions and declined to enter into factual determination of turnover for application of Section 4-A. The Court left open the right of the assessee to raise legal and factual points before the Assessing Authority or on appeal, noting that mixed questions of fact and law should be addressed in the assessment process. [Paras 3, 9, 10]

Constitutional and interpretative questions regarding Section 4-A and Article 286/Sections 14-15 are not adjudicated in these petitions; such questions may be raised and decided in assessment/appellate proceedings.

Final Conclusion: The writ petitions challenging the refusal to issue a Tax Clearance Certificate are disposed of as premature and not maintainable at this stage; factual and mixed questions concerning turnover tax under Section 4-A are to be determined in assessment and appellate proceedings, and no costs are awarded.

Admission of revision petitions subject to pre-deposit requirement - Pre-deposit of tax or penalty for maintainability of revision - Power to decide revision petition on merits without insisting on pre-deposit - Stay of recovery pending revisional adjudication

Admission of revision petitions subject to pre-deposit requirement - Pre-deposit of tax or penalty for maintainability of revision - Whether the Commissioner may be directed to admit and decide the revision petition without insisting on further pre-deposit of disputed tax and penalty. - HELD THAT: - The proviso to sub-section (2) of Section 70 requires that no petition for revision by a dealer or transporter shall be admitted by the Commissioner unless at least fifty percent of the amount of tax assessed or fifty percent of the amount of penalty levied has been paid. The Court noted a contrary view in a prior Single Judge decision but declined to reopen that issue in the present petition. On the specific facts the petitioner had already deposited the entire penalty amount though that did not amount to fifty percent of the combined demand. Having regard to the relatively small amount involved and the circumstances of the case, the Court directed that the Commissioner should decide the petition for revision on merits without insisting on any further pre-deposit. The Court further restrained any further recoveries arising from the assessment order pending disposal of the revision petition and expected early cooperation by the petitioner for an expeditious disposal.

The Commissioner shall admit and decide the revision petition on merits without insisting on further pre-deposit; recovery under the assessment order is stayed pending disposal.

Power to decide revision petition on merits without insisting on pre-deposit - Stay of recovery pending revisional adjudication - Timetable and interim relief to be afforded pending revisional adjudication. - HELD THAT: - In exercise of its supervisory jurisdiction the Court directed that the Commissioner dispose of the revision petition preferably within three months and ordered that no further recoveries be made against the petitioner arising out of the assessment order until the revision is decided. The petitioner was directed to cooperate to facilitate early hearing and disposal. The Court expressly refrained from pronouncing on the broader interpretative question raised about the proviso to sub-section (2) of Section 70.

The revision petition to be disposed preferably within three months; recoveries stayed pending decision; petitioner to cooperate for early disposal.

Final Conclusion: Petition disposed by directing the Commissioner to consider and decide the petition for revision on merits without requiring any further pre-deposit and by staying further recoveries under the assessment order until the revision is finally disposed of, with a direction to prefer disposal within three months.

Interpretation of sales tax deferral scheme - availability of incentive where manufacture is by job work for a third party - construction of 'production capacity' and 'normal production' - cancellation of deferral for change in mode of production - application of precedential ratio in favour of job-work manufacture

Availability of incentive where manufacture is by job work for a third party - interpretation of sales tax deferral scheme - construction of 'production capacity' and 'normal production' - Whether the sales tax deferral granted to the petitioner stood forfeited or could be validly cancelled because the unit shifted from manufacturing for its own sale to manufacturing on job-work/contract basis for a third party - HELD THAT: - The court held that the deferral scheme, as encapsulated in G. O. Ms. No. 500, is directed to incentivising utilisation of the production capacity created and is not expressly confined to manufacture and sale exclusively by the assessee. Clause 5 links the benefit to sales tax payable on products manufactured by the capacity created and does not, on its face, require that manufacture be by the deferral-holder alone. Clause 9's reference to 'normal production' must be read with reference to production qua installed capacity and not qua the identity of the producing entity. Reliance was placed on the Full Bench decision in East India Cotton Mfg. Co. Ltd., which construed comparable concessional provisions to allow benefit where production is by a unit even if the final sale is effected by a third party, and on the reasoning in Vishnu Metals, subject to the factual caveat emphasised by the Supreme Court that identity of the product must be established. On the facts, there was no dispute that the product manufactured under contract (biscuits) was identical to the product for which the deferral was granted, and production did not stop; the unit continued to operate and utilise capacity. Consequently the shift to contract manufacture reduced the period during which deferral applied (since deferral requires sales by the assessee) but did not amount to stoppage of production or a breach going to the root of the scheme warranting cancellation. The cancellation orders were therefore found to be contrary to the scheme and precedents and were set aside. [Paras 17, 18, 19, 22, 23]

The cancellation of the deferral benefit on the ground that the unit undertook job work for a third party was quashed; the orders withdrawing the deferral were set aside.

Final Conclusion: Writ petitions allowed; orders dated September 22, 2005 and September 30, 2005 cancelling the sales tax deferral set aside. No costs; connected petitions closed.

Contract of skill and labour - photographic services as service and not sale of goods - mutual exclusivity of service tax and value added tax - classification as works contract

Contract of skill and labour - photographic services as service and not sale of goods - Digital photography activity carried on by the petitioner is a contract of skill and labour and not a sale of goods. - HELD THAT: - The Court accepted the settled line of decisions holding that the occupation of a photographer is essentially one of skill and labour and that supply of prints pursuant to photographic work does not convert the contract into a sale of goods. The Full Bench decision in B. C. Kame was relied upon for the principle that where the substance of the contract is the exercise of skill and experience in producing an image, the transaction remains a contract for skill and labour despite transfer of tangible materials. Subsequent authorities (including Rainbow Colour Lab and Associated Cement Companies Ltd.) reaffirmed that photographic work constitutes a service contract. Applying these precedents to the facts - digital capture, computer transfer and printing by the petitioner - the Court held the activity falls within the ambit of photographic services and not sale of goods. [Paras 9, 11, 12, 13, 16]

The activity of digital photography carried out by the petitioner is a service (contract of skill and labour) and not a sale of goods.

Mutual exclusivity of service tax and value added tax - classification as works contract - Receipts which are subject to service tax for photographic services cannot be subjected to value added tax; service tax and VAT are mutually exclusive in this context. - HELD THAT: - Relying on the decision in Imagic Creative Pvt. Ltd., the Court held that payment of service tax and value added tax are mutually exclusive and applicable exclusively having regard to the nature of the levy and the parameters distinguishing composite from indivisible contracts. The petitioner was already remitting service tax on the receipts from photographic services; therefore, there was no justification to subject the same receipts to VAT. The Court applied the principle that where the dominant element of the transaction is service and it is taxed as such, it should not be additionally taxed as sale of goods under the VAT statute. [Paras 14, 15, 16]

Receipts taxable under service tax for photographic services cannot be re taxed under the Tamil Nadu Value Added Tax Act; the assessments imposing VAT are unsustainable.

Final Conclusion: Impugned assessments for the periods 2006-07 to 2009-10 are quashed; the writ petitions are allowed and the assessments under the Tamil Nadu Value Added Tax Act, 2006 are set aside as the activity is a service already subject to service tax.

Reservation for persons with disabilities - identification of posts under Section 32 and reservation under Section 33 of the PWD Act - proviso to Section 33 - power to exempt establishments - carry forward/backlog of reserved vacancies for PH category - notional fixation of pay, seniority and promotion on subsequent appointment - interpretation of social welfare legislation in favour of persons with disabilities

Identification of posts under Section 32 and reservation under Section 33 of the PWD Act - proviso to Section 33 - power to exempt establishments - interpretation of social welfare legislation in favour of persons with disabilities - Whether the Department of Revenue had been validly exempted from the obligation to reserve posts for the B/LV sub-category and whether implementation of Section 33 could be deferred pending identification of posts under Section 32. - HELD THAT: - The Court found no notification exempting the Department of Revenue from the operation of Section 33 and rejected the CAT's premise that such an exemption existed. Relying on the reasoning in Ravi Prakash Gupta and subsequent Supreme Court authority, the Court held that implementation of the reservation mandate cannot be postponed by bureaucratic inaction or delayed pending identification of posts under Section 32. The statutory scheme of the PWD Act (and its pari materia successor provision) must be interpreted to effectuate the social-objective of reserved vacancies for persons with disabilities rather than permit indefinite deferral of that obligation. [Paras 29, 30]

The CAT's conclusion that the Revenue Department was exempt from Section 33 was erroneous; implementation of Section 33 cannot await identification of posts under Section 32 and the Department of Revenue remains subject to the reservation obligation.

Carry forward/backlog of reserved vacancies for PH category - reservation for persons with disabilities - Whether unfilled/ backlog reserved vacancies in the PH quota in IRS (IT) and IRS (C&CE) existed and whether they ought to have been carried forward or could be utilized to accommodate the petitioner. - HELD THAT: - The Court accepted the RTI-produced materials demonstrating unfilled vacancies and a substantial backlog in the PH quota for both services. It held that such vacancies ought to have been carried forward (including for the two-year carry-forward permitted) and that the existence of those unfilled PH vacancies negated the Respondents' contention that there were no PH vacancies available for allocation to the petitioner. The CAT's dismissal on the ground of administrative finality and completed training was not a sufficient answer to the statutory mandate to protect PH reservations. [Paras 26, 29]

There were unfilled/backlog PH vacancies in IRS (IT) and IRS (C&CE) which ought to have been carried forward and considered for allocation to eligible PH candidates such as the petitioner.

Reservation for persons with disabilities - notional fixation of pay, seniority and promotion on subsequent appointment - Whether, and by what remedial process, the petitioner should be considered for appointment to an earmarked PH vacancy in IRS (IT) or IRS (C&CE), and the consequences of such appointment for pay, seniority and promotion. - HELD THAT: - The Court set aside the CAT order and directed the Respondents to ascertain, within eight weeks, which PH earmarked posts in IRS (IT) and IRS (C&CE) can be allocated to B/LV. Within a further eight weeks the Respondents must examine whether the petitioner can be accommodated in any such earmarked vacancy and, if feasible, appoint him. The Court made clear that while no arrears of pay would be payable, for notional fixation of pay as well as for seniority and promotion his appointment will relate back to the date he was originally appointed to IIS (JG) following CSE, 2011. These directions amount to a remand to the executive for fresh consideration and implementation in accordance with the statutory mandate and the Court's timetable. [Paras 31]

The CAT order is set aside; Respondents directed to identify suitable PH posts for B/LV and to examine and, if possible, appoint the petitioner thereto within the prescribed time, with notional fixation of pay and retrospective seniority/promotion consequences but no arrears.

Final Conclusion: The High Court set aside the CAT order, held that the Department of Revenue was not exempt from the reservation mandate and that unfilled PH vacancies existed; it directed the Respondents to identify PH earmarked posts suitable for B/LV and to consider appointing the petitioner thereto within fixed timelines, with notional pay fixation and retrospective seniority/promotion, and disposed of the petition accordingly.

Compounding of offence under the Negotiable Instruments Act - Section 147 of the Negotiable Instruments Act - Power to compound after conviction - Effect of amicable settlement on prosecution under Section 138 NI Act - Quashing of conviction pursuant to compounding - Release of deposited compensation upon formal application

Compounding of offence under the Negotiable Instruments Act - Power to compound after conviction - Effect of amicable settlement on prosecution under Section 138 NI Act - Court may compound the offence under Section 147 of the Negotiable Instruments Act on the basis of an amicable settlement between the parties, even after conviction by courts below, and quash the convictions accordingly. - HELD THAT: - Parties informed the Court that they had amicably settled the dispute and the complainant had no objection to compounding the offence in the event the deposited compensation was released to him. The High Court accepted the compromise and proceeded to exercise the statutory power under Section 147 of the Negotiable Instruments Act. The Court relied on the principle laid down by the Apex Court in Damodar S. Prabhu v. Sayed Babalal H. that compounding may be effected even after conviction by the courts below. In view of the settlement and the settled legal principle permitting compounding post-conviction, the Court found no impediment to compound the offence and to set aside the judgments of the courts below. [Paras 6, 7]

The offence was compounded under Section 147 of the Negotiable Instruments Act; the convictions and sentences recorded by the courts below were quashed and set aside and the accused was acquitted.

Release of deposited compensation upon formal application - Quashing of conviction pursuant to compounding - The amount of compensation deposited in the trial court is to be released in favour of the complainant on his making a formal application, and bail bonds of the accused are to be discharged. - HELD THAT: - Counsel for the parties expressly stated that the complainant would not object to release of the amount deposited with the trial court in his favour. In consequence of compounding and quashing of convictions, the High Court directed that the deposited amount be released to the complainant upon his formal application and ordered discharge of the accused's bail bonds, thereby giving effect to the terms of the settlement and the consequential reliefs flowing from compounding. [Paras 5, 8]

The amount deposited with the trial court shall be released to the complainant on formal application and the accused's bail bonds are discharged.

Final Conclusion: On the parties' amicable settlement and applying the authority permitting compounding after conviction, the Court compounded the offence under Section 147 NI Act, quashed the convictions and sentences of the courts below, acquitted the accused, ordered release of the deposited amount to the complainant on formal application and discharged the accused's bail bonds; the petition is disposed of.

Offence under Section 138 of the Negotiable Instruments Act - Presumption in favour of holder under Section 139 of the Negotiable Instruments Act - Rebuttal of statutory presumption and proof of loss or delivery of cheque - Burden of proof on accused to adduce cogent evidence to displace presumption

Offence under Section 138 of the Negotiable Instruments Act - Presumption in favour of holder under Section 139 of the Negotiable Instruments Act - Rebuttal of statutory presumption and proof of loss or delivery of cheque - Burden of proof on accused to adduce cogent evidence to displace presumption - Whether the accused was rightly acquitted of the offence under Section 138 of the Negotiable Instruments Act or whether the acquittal should be set aside and conviction recorded. - HELD THAT: - The Court held that the complainant was the holder in due course of cheque Ex.CW1/A which was presented and dishonoured with the endorsement 'Drawer has stopped the payment'. The statutory presumption under Section 139 was therefore available to the complainant. The learned trial court's reliance on Raj Kumar Khurana was misplaced because that decision turned on facts showing the negotiable instrument to be provenly lost; no such cogent evidence of loss was placed on record here. During cross-examination the defence suggested that the cheque had been handed over to an employee of the complainant, but the accused did not deny the writings and signatures on the cheque nor seek recourse to the machinery under Section 45 of the Evidence Act by obtaining expert comparison; these omissions undermined the defence and did not constitute cogent rebuttal of the presumption. In the absence of any effective evidence to displace the statutory presumption or to show that no legally enforceable debt existed, the issuance of the cheque was properly construed as made towards discharge of a legally enforceable debt or liability arising from the retreading transactions. Applying these legal findings, the appellate court concluded that the acquittal was based on a misappreciation of evidence and warranted reversal, and therefore convicted the accused under Section 138. [Paras 7, 8, 9, 10]

Acquittal set aside; accused convicted for the offence punishable under Section 138 of the Negotiable Instruments Act and directed to be produced for hearing on sentence.

Final Conclusion: The appeal is allowed; the trial court's acquittal is set aside and the accused is convicted under Section 138 of the Negotiable Instruments Act, with sentence to be considered on the date directed by the Court.