TaxTMI Updates e-Newsletter
Jan 28,2020

Applicability of notification exemption for pure labour contracts under the Pradhan Mantri Awas Yojana (PMAY) - Project centric interpretation of exemption (scope determined by nature of work and project, not by status as contractor or sub contractor) - Construction of a civil structure as an original work within the meaning of the notification

Applicability of notification exemption for pure labour contracts under the Pradhan Mantri Awas Yojana (PMAY) - Project centric interpretation of exemption (scope determined by nature of work and project, not by status as contractor or sub contractor) - Construction of a civil structure as an original work within the meaning of the notification - Services supplied by the applicant as a sub contractor by way of pure labour contract for construction of flats under PMAY are covered by Entry 10 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 (as amended) and are exempt from GST. - HELD THAT: - The applicant entered into a sub contract to supply only pure labour contract services (chunai and plaster work) for construction of flats under PMAY. Entry 10 of Notification No. 12/2017 exempts services provided by way of pure labour contracts in respect of construction or other original works pertaining to beneficiary led individual house construction or enhancement under PMAY. The Entry contains three essential elements: (a) services by way of pure labour contract; (b) work relating to construction or other original works of a civil structure; and (c) the work must pertain to PMAY. The definition of "original works" in the notification includes new constructions and related works. The notification's language is project centric and does not confine the exemption to a particular contractual status of the supplier; therefore whether the supplier is a main contractor or a sub contractor does not alter the applicability of the notification if the services fall within the entry. Applying these principles to the admitted facts and the agreement furnished, the applicant's supply of pure labour contract services for the PMAY project satisfies the elements of Entry 10 and is exempt from GST.

The applicant's pure labour contract services supplied for construction under PMAY are covered by Entry 10 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 (as amended) and are exempt from GST.

Final Conclusion: Advance ruling: The services rendered by the applicant as a pure labour sub contractor for construction of flats under Pradhan Mantri Awas Yojana fall within Entry 10 of Notification No. 12/2017 (as amended) and are exempt from GST.

Classification of goods - Essential character test - Chapter 10 exclusion for hulled or otherwise worked grains - Classification under Chapter 19 as prepared foods obtained from cereals - Advance ruling on GST rate

Classification of goods - Essential character test - Chapter 10 exclusion for hulled or otherwise worked grains - Classification under Chapter 19 as prepared foods obtained from cereals - Fortified Rice Kernels (FRK) manufactured and supplied by the applicant are classifiable under HSN 19049090 and attract GST @ 18% (CGST 9% + SGST 9%). - HELD THAT: - The Authority examined the manufacturing process and composition of FRK and found that the source rice is converted to flour, mixed with a vitamin-mineral premix, and then reformed into rice-shaped granules. This process changes the essential characteristics of the rice (from grain to flour and back to a shaped product) and produces an article that cannot be consumed on its own but only when blended with normal rice in a specified ratio. Chapter 10 applies only where grains remain with their essential characteristics intact or where limited operations such as husking, milling, polishing, glazing or parboiling are performed. The FRK manufacture goes beyond these permissible operations and therefore falls outside Chapter 10. Chapter 19 (heading 1904) covers prepared foods obtained from cereals processed beyond the scope of Chapter 10; on that basis FRK is classifiable as "other" prepared foods obtained from cereals under heading 1904 and, specifically, under HSN 19049090. Consequently the applicable GST rate is 18% (CGST 9% + SGST 9%).

FRK is not classifiable under Chapter 10; it is classifiable under HSN 19049090 (Chapter 19) and attracts GST at 18%.

Final Conclusion: The Advance Ruling holds that Fortified Rice Kernels manufactured and supplied by M/s. JVS Foods Pvt. Ltd. are classifiable under HSN 19049090 and liable to GST at the rate of 18% (CGST 9% + SGST 9%).

Supply of tour operator services - Support services - tour operator - tour - consolidated bill inclusive of accommodation and transportation - condition regarding non availing of input tax credit

Supply of tour operator services - tour operator - tour - consolidated bill inclusive of accommodation and transportation - Classification of the applicant's ancillary services as falling under Heading 9985(i) (Supply of tour operator services) or Heading 9985(iii) (Support services). - HELD THAT: - The Advance Ruling Authority examined the definition of 'tour operator' and the meaning of 'tour' in the Rate Notification and found that supply of transport in a tour package is an essential attribute of 'tour operator' services under the Notification. Two conditions for classification as tour operator services were held to be essential: (a) the bill for the service must be a consolidated bill inclusive of accommodation and transportation charges; and (b) input tax credit on goods and services used in supplying the service (subject to the specified exception) must not have been taken. The applicant supplies only ancillary activities (elephant/camel/boat rides, guide charges, meals, saree/turban tying, assistance etc.) and does not provide transportation or accommodation; although consolidated billing to the main tour operator was stated, the applicant does not provide transport/accommodation and therefore does not satisfy the conditions for classification as 'tour operator' services in Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. Consequently, the payments for the applicant's services cannot be classified under Heading 9985(i).

The ancillary services furnished by the applicant do not qualify as 'tour operator' services under Heading 9985(i) of the Rate Notification and are not classifiable as supply of tour operator services.

Support services - Supply of tour operator services - condition regarding non availing of input tax credit - Applicable GST classification and rate for the ancillary services supplied by the applicant. - HELD THAT: - Having concluded that the applicant's services are not 'tour operator' services under Heading 9985(i) because they do not include transportation/accommodation and do not satisfy the consolidated bill condition, the Authority held that such supplies fall within the residual category of 'support services' under Heading 9985(iii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. On that classification, the prescribed rate under the Notification corresponds to an effective GST of 18% (CGST 9% + SGST 9%). The reasoning rests on the exclusion of the applicant's supplies from the 9985(i) carve out and their inclusion in the entry for support services.

The ancillary services are classifiable as support services under Heading 9985(iii) and attract GST at the rate of 18% (CGST 9% + SGST 9%).

Final Conclusion: The Advance Ruling holds that the applicant's ancillary tourism services do not qualify as 'tour operator' services under Heading 9985(i) of Notification No. 11/2017 Central Tax (Rate) and are instead classifiable as support services under Heading 9985(iii), attracting GST at 18% (CGST 9% + SGST 9%).

Summary order. Application for advance ruling withdrawn by the applicant; no ruling issued.

Summary order. Application for oral hearing rejected; review petition dismissed.

Cancellation of GST registration - consent of property owner for registration at additional place of business - verification of documents for grant of GST registration - reasonable opportunity of hearing - judicial direction to decide pending representation

Cancellation of GST registration - consent of property owner for registration at additional place of business - verification of documents for grant of GST registration - reasonable opportunity of hearing - Direction to the 1st respondent to consider and decide the petition (Ext.P7) seeking cancellation of GST registration granted for an additional place of business allegedly without the owner's consent - HELD THAT: - The writ petition did not result in an adjudication on the merits of the petitioner's claim that the 2nd respondent was granted GST registration for an additional place of business without the petitioner's consent or without proper verification. Instead, having noted the petitioner's representation (Ext.P7) and the factual background concerning ownership and an ongoing rent control dispute, the Court directed the 1st respondent to take up Ext.P7 without delay, afford a reasonable opportunity of hearing to both the petitioner and the 2nd respondent, and render a considered decision. The Court limited its intervention to issuing a time-bound mandate for decision-making and procedural fairness rather than determining the substantive legality of the registration. [Paras 4]

The 1st respondent is directed to consider Ext.P7, afford both parties a reasonable opportunity of hearing and decide the petition within 6-8 weeks from production of the certified copy of the judgment.

Final Conclusion: Writ petition disposed of by directing the 1st respondent to decide the petition (Ext.P7) for cancellation of the GST registration after affording both parties a hearing, within 6-8 weeks from production of the certified copy of this judgment; no substantive adjudication was made on the merits.

Condonation of delay of belated refund claim under Section 119(2)(b) - exemption for compensation on compulsory acquisition as agricultural income under Section 10(37) - definition of capital asset and exclusion of agricultural land under Section 2(14) - evidentiary weight of Halqa Patwari report versus notarized/typed certificate allegedly from SDM - limits of writ jurisdiction to re open factual findings on classification of land

Definition of capital asset and exclusion of agricultural land under Section 2(14) - exemption for compensation on compulsory acquisition as agricultural income under Section 10(37) - evidentiary weight of Halqa Patwari report versus notarized/typed certificate allegedly from SDM - Characterisation of the acquired land as a capital asset and consequent ineligibility for exemption as agricultural income. - HELD THAT: - The Court accepted the material produced by the Respondent-notably the Halqa Patwari report and verification from municipal/tehsil records-which indicated that Khasra Nos.1242 and 1243 were described as "Gair Mumkin" (not under cultivation) and that Khasra No.1243 lay within the relevant proximity to the municipal limits of Doraha town such that it falls within the exceptions in sub clause (iii)(b)(II) of the definition of "capital asset". The petitioner conceded that exemption under Section 10(37) is not available to the trust. The typed notarized copy of the SDM certificate produced by the petitioner was held to be of doubtful veracity (not being an original or certified copy, and not produced earlier before the tax authorities) and was therefore given no weight. On the evidence before it the Court concluded that the land could properly be categorised as a capital asset and not as agricultural land exempted from capital gains treatment. [Paras 13, 14, 15, 16]

The land is a capital asset and the compensation received is taxable; the petitioner is not entitled to exemption as agricultural income.

Condonation of delay of belated refund claim under Section 119(2)(b) - limits of writ jurisdiction to re open factual findings on classification of land - Validity of rejection of the belated refund claim and the exercise of writ jurisdiction to challenge factual findings underlying that rejection. - HELD THAT: - The impugned order rejecting the application for condonation of delay in filing the belated refund claim was founded on the conclusion that the compensation was chargeable to tax as capital gains. The Court found no infirmity in the administrative findings relied upon by the tax authorities, and noted that the petitioner had failed to produce original/certified evidence to controvert those findings before the authorities. Given that the factual classification of the land was a matter on which the authorities had made enquiries and recorded reports, the Court held that the petitioner could not, in writ proceedings, re open those factual issues where no adequate documentary challenge had been placed before the tax authorities during the process. Consequently, the rejection of the belated refund as barred by limitation was upheld. [Paras 8, 9, 14, 16]

The order refusing condonation of delay and rejecting the refund claim is valid; the writ petition challenging that order is dismissed.

Final Conclusion: The High Court upheld the Chief Commissioner's order dated 27.12.2018: the acquired land is a capital asset (not exempt agricultural land), the refund claim was rightly rejected as barred by limitation, and the writ petition is dismissed.

True and full disclosure - spirit of settlement - settlement under Chapter XIX-A - procedure under Section 245C and Section 245D - scope of judicial review of Settlement Commission orders - jurisdiction under Article 226

True and full disclosure - revision of settlement application - spirit of settlement - Additional disclosure of Rs. 12 Crore made during Settlement Commission proceedings did not constitute a fresh and substantial revision that vitiated the original application for settlement. - HELD THAT: - The Court examined whether the further disclosure of Rs. 12 Crore rendered the initial disclosure before the Settlement Commission untrue so as to attract the principle in Ajmera Housing Corporation. On the facts this Court found that the additional amount was offered during section 245D(4) proceedings in the spirit of settlement and as an overall enhancement to put an end to the controversy, rather than a covert revised annexure of the sort disapproved in Ajmera. The Commission had before it the Rule 9 report, the assessee's item wise explanations and further disclosures during hearing, and on that basis accepted the overall offer. Given these factual distinctions from Ajmera, the Court held the Commission was entitled to treat the further disclosure as part of the settlement process and not as an impermissible revision that would invalidate the application. [Paras 7, 9, 10, 11]

The additional disclosure of Rs. 12 Crore was not a fresh and substantial revision invalidating the application; the Commission rightly accepted it as part of the settlement.

Procedure under Section 245C and Section 245D - scope of judicial review of Settlement Commission orders - jurisdiction under Article 226 - Whether the Settlement Commission followed the statutory procedure and whether the High Court should interfere with the Commission's order under writ jurisdiction. - HELD THAT: - The Court applied the limited scope of judicial review applicable to Settlement Commission orders, holding that interference is warranted only if the Commission's order is contrary to the Act or procedurally flawed in a way that prejudices the petitioner. On perusal of the impugned order, the Court found that the Commission had followed the procedure under sections 245C and 245D and Rules (including consideration of the Rule 9 report), had afforded hearing to parties, and examined the explanations and further disclosures. Precedents were considered distinguishing cases where impermissible revision or concealment was shown. In the present factual matrix the Commission's decision making process conformed to the Act and did not call for substitution by the Court. [Paras 8, 11, 12]

No procedural illegality or prejudicial violation of the Act was shown; exercise of writ jurisdiction to substitute the Commission's factual conclusion was unwarranted.

Final Conclusion: Writ petitions dismissed: the Settlement Commission lawfully accepted the additional disclosures in the course of proceedings and followed the statutory procedure; there is no ground for interference under Article 226.

Deduction under section 36(1)(viia) conditional on actual debit to profit and loss account - no double deduction by allowing section 36(1)(viia) and section 36(1)(vii) independently - non-deduction of tax at source and section 40(a)(ia) - effect of furnishing Form 15G/15H on obligation to deduct TDS - filing of Form 15G/15H with the prescribed authority is procedural

Deduction under section 36(1)(viia) conditional on actual debit to profit and loss account - no double deduction by allowing section 36(1)(viia) and section 36(1)(vii) independently - Deduction under section 36(1)(viia) cannot be allowed unless the provision for bad and doubtful debts is actually created by debit to the profit and loss account; consequently the provisions cannot be operated to give a double deduction with section 36(1)(vii). - HELD THAT: - The Tribunal, following its earlier decision in the assessee's own case and the subsequent approach adopted by the coordinating Bench which preferred the view of the Punjab & Haryana High Court, held that the statutory entitlement under section 36(1)(viia) is subject to the condition that a provision has been made in the books by way of a debit to the profit and loss account. The AO's disallowance was therefore restored because the assessee had not debited any sum to the provision for bad and doubtful debts account; the Tribunal rejected the contention that the percentage allowances under clause (viia) could be claimed irrespective of actual accounting entries and disallowed the claimed deduction to the extent not reflected by an actual P&L debit. [Paras 8]

Revenue's grounds 1 and 2 allowed; deduction under section 36(1)(viia) limited to amounts actually debited to the profit and loss account and double claim with section 36(1)(vii) not permitted.

Non-deduction of tax at source and section 40(a)(ia) - effect of furnishing Form 15G/15H on obligation to deduct TDS - filing of Form 15G/15H with the prescribed authority is procedural - No disallowance under section 40(a)(ia) can be made in respect of interest paid where the payees had furnished valid Form 15G/15H to the assessee, and the requirement to file those forms with the prescribed authority is procedural and does not attract disallowance. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the disallowance insofar as the interest payments related to depositors who had furnished Form 15G/15H. Applying the view of the Karnataka High Court and the Tribunal's prior decision in the assessee's own case, the filing of the declarations with the prescribed authority (CIT) is directory; once the statutory conditions for non-deduction are satisfied by receipt of Form 15G/15H, section 40(a)(ia) does not operate to deny the deduction merely for non-filing of those forms. The Tribunal therefore dismissed the revenue's ground on this point while leaving open the AO's ability to verify payments to government or exempt categories where supporting particulars were not furnished. [Paras 16]

Revenue's ground 3 dismissed; CIT(A)'s deletion of disallowance under section 40(a)(ia) upheld to the extent of payments where Form 15G/15H were furnished.

Final Conclusion: Appeals by the revenue partly allowed: disallowance of section 36(1)(viia) claims restored where no P&L debit was made; disallowance under section 40(a)(ia) deleted in respect of interest paid to depositors who furnished Form 15G/15H (filing with the prescribed authority held procedural). Cross objections dismissed as infructuous.

Annual lettable value - substitution of rental receipts with commercial receipts of a related company - attribution of portion of receipts to services rendered - principle of consistency in assessment - jurisdiction under Section 147 of the Income Tax Act - validity of reopening where notice basis addition is not made - scope of Explanation 3 to Section 147 and its limits

Annual lettable value - substitution of rental receipts with commercial receipts of a related company - attribution of portion of receipts to services rendered - principle of consistency in assessment - Whether the ALV of the property for A.Y. 2008-09 could be determined by adopting the total receipts of M/s Alt Property Pvt. Ltd. and attributing a percentage to services, instead of accepting the assessee's actual rental receipt. - HELD THAT: - The Tribunal held that the facts and reasoning in the assessee's own earlier decision for A.Y. 2007-08 govern the present year. The Tribunal in the earlier year had vacated the Revenue's approach of equating the company's commercial profits with the intrinsic rental value of the building, emphasising that business profits of a company exploiting the property are conceptually different from the property's rental value and cannot be mechanically adopted as ALV. The Tribunal further relied on the principle of consistency, noting that revenue had accepted the assessee's claimed rateable rental value in preceding years and had taxed the co owner's half differently; such half hearted reassessment was unsustainable. Applying that precedent, the Tribunal found no reason to depart from the earlier view and directed acceptance of the actual rent shown by the assessee as the ALV, setting aside the CIT(A)'s order which had adopted a different percentage attribution. [Paras 5, 6, 7, 8]

The ALV substituted by the lower authorities using the company's receipts is set aside; the AO is directed to accept the assessee's actual rental receipt as the ALV for A.Y. 2008-09 and the appeal is allowed.

Jurisdiction under Section 147 of the Income Tax Act - validity of reopening where notice basis addition is not made - scope of Explanation 3 to Section 147 and its limits - Whether the reassessment framed for A.Y. 2011-12 under Section 147 could be sustained where the case was reopened on the basis of understated rent per TDS records but no addition was made on that very basis in the assessment order. - HELD THAT: - The Tribunal examined the 'reasons to believe' which recorded understatement of rent per TDS as the basis for reopening. It observed that the AO, after reopening, did not assess or make any addition on that specific ground; instead he made additions on other issues arising during proceedings. The Tribunal construed Section 147 to mean that where reopening is based on a particular escaped income, the AO must assess that income and may then also assess any other income that comes to notice during proceedings; if the AO accepts the assessee's position on the original ground (or does not assess it), he cannot independently proceed to assess other income without a fresh notice. Reliance was placed on the principle that Explanation 3 does not obliterate the substantive conditions of Section 147. Since no addition was made on the ground which formed the basis for reopening, the reassessment was held to be without jurisdiction and liable to be quashed. [Paras 18, 19, 20, 21, 22]

The reassessment framed under Section 143(3) read with Section 147 for A.Y. 2011-12 is quashed for want of jurisdiction; the appeal is allowed and other contentions are left open.

Final Conclusion: For A.Y. 2008-09 the Tribunal followed its earlier decision in the assessee's own case and directed that the actual rent received by the assessee be accepted as the ALV; for A.Y. 2011-12 the reassessment was quashed as the AO failed to assess the specific escaped income which had formed the basis for reopening, and both appeals are allowed.

Admission of additional evidence under Rule 46A - onus of proof for sundry creditors under section 68 - evaluation of confirmations and bank evidence to discharge credit balances - remand to the assessing officer for examination of additional evidence

Admission of additional evidence under Rule 46A - remand to the assessing officer for examination of additional evidence - Admissibility of confirmations and bank statements filed by the assessee during appeal under Rule 46A and whether the appellate authority was justified in remanding the matter to the AO for verification. - HELD THAT: - The appellate authority found a factual dispute as to whether confirmations were filed during assessment and observed that even if the confirmations were additional evidence, they could not be regarded as documents created after assessment. The CIT(A) held that where there is a plausible reason for not producing evidence before the AO, and the evidence is relevant and necessary for a proper conclusion, admission in appeal is justified. The CIT(A) sought and considered the AO's remand report; the AO examined the confirmations and bank payment evidence and furnished comments thereon. In these circumstances the appellate authority lawfully admitted the additional evidence and remanded relevant aspects to the AO for examination before deciding the appeal on merits. [Paras 5]

Additional evidence in the form of confirmations and bank payment records was admitted under Rule 46A and the matter was validly remanded to the AO for verification, the CIT(A) properly proceeded to decide the appeal on the basis of those materials.

Evaluation of confirmations and bank evidence to discharge credit balances - onus of proof for sundry creditors under section 68 - Whether the additions made by the AO on account of alleged bogus sundry creditors could be sustained in view of confirmations and bank evidence produced by the assessee. - HELD THAT: - On remand the AO recorded that confirmations showed creditors received their closing credit balances subsequently and that payments were evidenced by cheques from the assessee's bank accounts; the AO did not dispute the genuineness of the confirmations. The CIT(A) held that where creditors confirm the balances and payments are traceable to the assessee's bank account, the primary onus on the assessee to explain credit balances is discharged for those creditors. The appellate authority observed that failure of service of letters by the AO or non-availability of creditors at old addresses are circumstances beyond the assessee's control and cannot alone justify additions where corroborative confirmations and bank payments exist. However, in three cases where confirmations, bills and account copies were not furnished, the assessee failed to discharge the onus under section 68. [Paras 5]

Additions in respect of 23 creditors (and certain others supported by bills and bank payments) were deleted as the confirmations and bank evidence explained the credit balances; additions in respect of three creditors where no confirmation, bill or account copy was produced were sustained under section 68.

Final Conclusion: The Tribunal affirmed the CIT(A)'s admission of additional evidence and its findings on merits: the bulk of the addition made by the AO on account of alleged bogus sundry creditors was deleted after verification of confirmations and bank payment records, while additions in respect of three creditors lacking any confirmation or supporting documents were sustained under section 68; the revenue's appeal is dismissed.

Bogus purchases / accommodation entries - estimation of profit embedded in purchases as alternative to entire disallowance - treatment of purchases from non-existent or suspicious suppliers - payment through banking channels not conclusive proof of genuineness - unexplained expenditure treated as peak of credit

Bogus purchases / accommodation entries - payment through banking channels not conclusive proof of genuineness - estimation of profit embedded in purchases as alternative to entire disallowance - Whether the addition made by the Assessing Officer by disallowing purchases shown to have been made from hawala operators should be the entire purchase amount or only the profit element embedded therein, and whether the CIT(A)'s restriction of the addition to 12.5% of such purchases was sustainable. - HELD THAT: - The Assessing Officer treated the suppliers as hawala operators on information from Sales Tax authorities and, after independent inquiries and failure of summons, disallowed the peak credit in the suppliers' names as unexplained expenditure. The assessee relied on payment through banking channels and produced copies of purchase bills, bank statements and stock/sale records but could not produce the suppliers, delivery challans or transport evidence. The Tribunal recorded that while the suppliers are shown to be suspicious and invoices could not be verified, the assessee's recorded sales were not disputed and, as a trader, some purchases must have been made to effect the sales. Consequently, the Tribunal accepted the approach in the authorities that where parties are non-existent or accommodation entries are involved, it is not necessary to disallow the entire purchases if corresponding sales are genuine; instead the profit embedded in such purchases may be brought to tax. Applying precedents and the factual matrix, the CIT(A)'s estimation of the embedded profit at 12.5% of the allegedly bogus purchases was held to be a just and reasonable method of assessment; the Tribunal found no illegality in restricting the addition to 12.5% and affirmed the CIT(A)'s direction to the AO to make addition accordingly. [Paras 6, 7]

The Tribunal upheld the CIT(A)'s restriction of the addition to 12.5% of the alleged bogus purchases and dismissed the revenue's appeal.

Final Conclusion: The appeal of the revenue is dismissed; the CIT(A)'s order restricting the addition to 12.5% of the purchases from the alleged hawala operators for A.Y.2009-10 is affirmed.

Mistake apparent on record - deciding penalty appeals while quantum appeal is pending - rectification under section 254(2) of the Income-tax Act, 1961 - ex-parte disposal for non-appearance - recall of Tribunal order and restoration for hearing

Mistake apparent on record - deciding penalty appeals while quantum appeal is pending - rectification under section 254(2) of the Income-tax Act, 1961 - recall of Tribunal order and restoration for hearing - Disposal of penalty appeals while the quantum appeal on the same issues was pending before the Commissioner (Appeals) amounted to a mistake apparent on the record and warranted rectification under section 254(2). - HELD THAT: - The Tribunal had disposed of the assessee's appeals against levy of penalty under section 271(1)(c) by an ex-parte order for non-appearance. The assessee demonstrated that the quantum appeal on the same issues was pending before the lower appellate authority and that adjournment requests had been on record. The Tribunal's confirmation of penalty while the quantum matter remained undecided was held to be a mistake apparent on the face of the record. Applying the power of rectification under section 254(2), the Tribunal's order dated 08/02/2017 in ITA Nos. 750 to 753/Mum/2014 was recalled and the penalty appeals were restored for hearing so that the penalty issues could be considered consistently with the pending quantum proceedings. [Paras 3, 4]

Miscellaneous applications allowed; the Tribunal's order dated 08/02/2017 in ITA Nos. 750-753/Mum/2014 recalled and the appeals posted for hearing on 26/02/2020 without issuing fresh notices.

Final Conclusion: The miscellaneous applications under section 254(2) were allowed: the ITAT's ex-parte order confirming penalty while the quantum appeal remained pending was found to be a mistake apparent from the record, the order dated 08/02/2017 in ITA Nos. 750-753/Mum/2014 was recalled and the penalty appeals were restored for hearing on 26/02/2020.

Fringe Benefit Tax (FBT) - perquisite forming part of salary - deduction of tax at source (TDS) - assessee-in-default under section 201 - charge under section 4(2) read with section 192 - exclusion from FBT where tax on perquisite is paid or payable by employee - no estoppel against law

Fringe Benefit Tax (FBT) - perquisite forming part of salary - exclusion from FBT where tax on perquisite is paid or payable by employee - Liability of the assessee to FBT on free electricity supplied to employees where tax on that perquisite has not been deducted or paid by the employees. - HELD THAT: - The Tribunal upheld the assessing authority and CIT(A) in holding that the supply of free electricity to employees is a perquisite under section 17(2) and falls within the ambit of FBT unless tax in respect of that perquisite has been paid or is payable by the employees. Section 115WB(3) excludes from FBT only such perquisites as are charged to tax and where tax is paid or is payable by the employee. In the facts, tax was neither deducted by the assessee nor paid by the employees; therefore the exclusion does not apply and the assessee remains liable to FBT. The Tribunal relied on the decision and reasoning in the Tribunal's order for AY 2006-07 and observed that acceptance of liability to deduct and deposit tax by the assessee would alone save it from FBT; absent such acceptance and payment, the assessee cannot avoid the FBT charge. [Paras 3, 4]

Assessee is liable to FBT on free electricity for f.y.2007-08 because tax on the perquisite was not deducted or paid by the employees, so the exclusion in section 115WB(3) does not apply.

Deduction of tax at source (TDS) - charge under section 4(2) read with section 192 - assessee-in-default under section 201 - Legal effect of the assessee's failure to deduct tax at source on the perquisite and its consequences for FBT liability. - HELD THAT: - TDS is a statutory mechanism by which the payer discharges the payee's tax liability; sections 4(2) and 192 impose the obligation on the employer to deduct and deposit tax. Failure to deduct and deposit renders the payer an assessee-in-default under section 201. The Tribunal held that the assessee cannot take a contrary position of denying its obligation to deduct TDS while simultaneously claiming that tax on the perquisite is payable by the employees so as to escape FBT. Doing so would be taking advantage of its own default, which is impermissible; admission or payment under one liability would preclude the other. Consequently, non-deduction of TDS supports imposition of FBT. [Paras 3, 4]

Assessee's failure to deduct TDS renders it liable under the TDS provisions and cannot be used to exclude the perquisite from FBT; non-deduction supports imposition of FBT.

No estoppel against law - blocking appeals pending decision in related litigation - Whether the Tribunal should block or stay the instant appeal pending the High Court's decision in related proceedings. - HELD THAT: - The assessee sought to block the present appeal pending the outcome of its appeal before the High Court in respect of AY 2006-07. The Tribunal observed that the related writ proceedings before the High Court were disposed of and directed to follow the Apex Court's decision, and that there was no injunction, admission or estoppel in favour of the assessee in the present case. The Tribunal further noted procedural requirements for blocking appeals under section 158A were not observed. Given that the legal position is settled and no stay or injunction was on record in favour of the assessee, the request to block the appeal was refused. [Paras 2, 3]

Application to block the appeal pending the High Court's decision was refused; appeal proceeded to be adjudicated on merits.

Deduction of tax at source (TDS) - Final adjudication on the factual issue of whether the assessee in fact denied liability to deduct TDS on the provision of free electricity (procedural fairness to the assessee). - HELD THAT: - The Tribunal clarified that it was not issuing any final finding on the factual question of the assessee's denial of liability to deduct TDS because the assessee had not been heard on that specific denial. The decision on FBT liability rests on the premise that such a denial, if maintained, would render the assessee liable to FBT. Accordingly, the Tribunal has not conclusively determined all aspects of the TDS denial and related procedural issues. [Paras 4]

No final finding on the specific denial of TDS by the assessee; matter not finally adjudicated and remains subject to further consideration where required.

Final Conclusion: The appeal is dismissed: the Tribunal affirms liability to FBT on free electricity supplied to employees for f.y.2007-08 because tax on the perquisite was not deducted or paid by the employees; the assessee cannot avoid both TDS obligations and FBT by claiming tax payable by employees, and the request to block the appeal pending related High Court proceedings was refused. A factual finding on the assessee's denial of TDS was not finally decided as the assessee was not heard on that specific point.

Disallowance under section 14A read with Rule 8D - Proximate nexus / expenditure "in relation to" exempt income - Use of own funds to rebut disallowance under section 14A - Limitation of disallowance to the amount of exempt income - Non applicability of section 14A to computation under Explanation 1 to section 115JB - Book profit under section 115JB - scope of add backs "relatable to" exempt income

Disallowance under section 14A read with Rule 8D - Use of own funds to rebut disallowance under section 14A - Limitation of disallowance to the amount of exempt income - Whether disallowance under section 14A read with Rule 8D should be made in respect of investment income and, if so, its quantum - HELD THAT: - The Tribunal examined the application of Rule 8D in the facts where the assessee had substantial own funds and invested in group company shares generating exempt dividend. Relying on the principle that available interest free own funds rebut the presumption that investments were funded by borrowings, the Tribunal found no basis for a disallowance beyond what is supportable by Rule 8D and the facts. While the AO and CIT(A) applied Rule 8D(2)/(3) and computed a large disallowance, the Tribunal held that a disallowance cannot exceed the exempt income itself. Applying the proximate nexus tests and authorities recognising that own funds negate the need for disallowance, the Tribunal restricted the disallowance to the amount of exempt dividend received and accordingly allowed the appeal on this aspect. [Paras 5]

Disallowance under section 14A r.w. Rule 8D restricted to the amount of exempt income (dividend) of Rs. 94,00,147; issue decided in favour of the assessee.

Non applicability of section 14A to computation under Explanation 1 to section 115JB - Book profit under section 115JB - scope of add backs "relatable to" exempt income - Whether disallowance under section 14A / Rule 8D is required to be added back to compute book profits under Explanation 1 to section 115JB - HELD THAT: - The Tribunal considered the contention that disallowances under section 14A (which operates for computation of total income under Chapter IV) cannot be imported into the separate regime of section 115JB (Chapter XII B). Emphasising the difference in statutory language - expenditure "in relation to" exempt income under section 14A versus amounts "relatable to" exempt income for add backs under Explanation 1 to section 115JB - the Tribunal held that section 14A cannot be read into section 115JB. On that basis the Tribunal deleted the addition to book profit under section 115JB and allowed the assessee's claim. [Paras 6]

Disallowance under section 14A / Rule 8D is not to be added back while computing book profit under Explanation 1 to section 115JB; issue decided in favour of the assessee.

Final Conclusion: Appeal partly allowed: disallowance under section 14A r.w. Rule 8D restricted to the exempt dividend amount and deleted for purposes of computation of book profit under Explanation 1 to section 115JB for A.Y.2013-14.

Condonation of delay - fee for default in furnishing statements (Section 234E) - processing of statements of tax deducted at source (Section 200A) - appealability of intimation under section 200A - substantial justice over technicalities

Condonation of delay - substantial justice over technicalities - appealability of intimation under section 200A - Whether the delay in filing appeals before the CIT(A) should be condoned. - HELD THAT: - The Tribunal applied the principles in Mst. Katiji emphasizing that substantial justice must prevail over technicalities and that every day's delay must be explained in a pragmatic manner. Noting that an intimation under section 200A became appealable only from 1.6.2015 and that prior to that date there was no legal remedy, the Tribunal observed that the assessees' delay was explained by absence of an earlier remedy and reliance on contemporaneous judicial decisions. The Tribunal also considered an ITAT decision on identical facts and, balancing vigilance against avoidance of technical defeat, concluded that the circumstances warranted condonation of delay so that substantive rights could be adjudicated. [Paras 10, 11]

Delay in filing the appeals is condoned.

Fee for default in furnishing statements (Section 234E) - processing of statements of tax deducted at source (Section 200A) - appealability of intimation under section 200A - Whether the levy of fee under section 234E in respect of the statements and related intimation should be adjudicated on merits by the CIT(A). - HELD THAT: - The Tribunal found that the CIT(A) had not decided the substantive controversy on merits but had dismissed the appeals as unadmitted for delay. In view of condonation of delay, the Tribunal set aside the CIT(A)'s orders and remitted the matters to the CIT(A) for fresh adjudication on merits in accordance with law, directing that the assessee be given due opportunity of being heard to decide the question of levy of fee under section 234E (including issues arising from the temporal effect of amendments to section 200A). [Paras 11]

Matter remanded to the CIT(A) to decide the appeals on merits in accordance with law with due opportunity to the assessee.

Final Conclusion: The Tribunal condoned the inordinate delay in filing the appeals and set aside the CIT(A)'s orders as unadmitted; all appeals are remitted to the CIT(A) for fresh decision on merits (with opportunity to be heard) and are treated as allowed for statistical purposes.

Allowability of prior period expenses under mercantile system of accounting - crystallisation of liability - treatment of advance received towards depreciation - adjustment of advance against future bills and prevention of double taxation

Allowability of prior period expenses under mercantile system of accounting - crystallisation of liability - Disallowance of prior period expenses of Rs. 26,40,010/- while computing income under normal provisions - HELD THAT: - The Tribunal examined whether expenses relating to earlier years but incurred and crystallized in the year under consideration were admissible where the assessee follows the mercantile system of accounting. Relying on settled principles, and authorities holding that under the mercantile system a liability is deductible in the year it crystallizes even if it pertains to an earlier period, the Tribunal held that such prior period expenses, having crystallized in the assessment year, are allowable. The addition made by the assessing officer and confirmed by the CIT(A) was therefore deleted. [Paras 11, 12]

Addition of Rs. 26,40,010/- on account of prior period expenses deleted.

Treatment of advance received towards depreciation - adjustment of advance against future bills and prevention of double taxation - Addition of Rs. 14,92,00,000/- on account of amount received as advance against depreciation and the directions for verification and relief - HELD THAT: - The Tribunal considered the contractual arrangement under the Power Purchase Agreement under which the purchaser agreed to pay an advance depreciation to the assessee to be adjusted against future bills in years of heavy cash outflow. The assessee showed the amount as a long-term liability, but did not satisfactorily demonstrate that the advance has been or will be adjusted against future bills or how it was reflected in subsequent assessment(s). The CIT(A) accordingly directed the Assessing Officer to verify, and if it is proved that income taxed in a subsequent assessment year was in fact adjusted against the advance, that income should not be taxed in the year in which it was shown; this direction was upheld by the Tribunal. The Tribunal found no infirmity in the CIT(A)'s approach of permitting verification and adjustment to prevent double taxation and confirmed the appellate direction. [Paras 15, 16]

Order of the CIT(A) directing verification of adjustment of the advance against future bills and grant of relief if adjustment is proved is confirmed; the related ground is partly allowed.

Final Conclusion: The appeal is partly allowed: the addition relating to prior period expenses is deleted, and the CIT(A)'s direction to the Assessing Officer to verify and, if established, adjust the advance depreciation so as to avoid double taxation is confirmed.

Deduction under section 10B - ratification by the Board relates back to the date of actual grant - apparent mistake in the Tribunal order and recall for limited purpose - simultaneous rehearing / remand of related appeal

Deduction under section 10B - ratification by the Board relates back to the date of actual grant - apparent mistake in the Tribunal order and recall for limited purpose - Whether the impugned Tribunal order contained an apparent mistake in failing to decide ground no. 5.4 concerning allowability of deduction under section 10B for manufacturing services in AY 2009-10 and whether the order should be recalled for that limited purpose. - HELD THAT: - The Tribunal noted in para 29 of the impugned order that once initial permission is granted by the Development Commissioner, subsequent ratification by the Board is a formality and would relate back to the date of actual grant. Despite that finding, the impugned order later dismissed ground nos. 5.1 to 5.4 (para 44) without specifically adjudicating ground no. 5.4 which challenged denial of deduction under section 10B in respect of manufacturing services. This internal inconsistency constitutes an apparent mistake. For this reason the Tribunal recalled its order for AY 2009-10 for the limited purpose of deciding ground no. 5.4, so that the effect of the Board's ratification (as held in para 29) on the allowability of the deduction may be specifically considered and adjudicated. [Paras 6]

Impugned Tribunal order for AY 2009-10 recalled for limited purpose of deciding ground no. 5.4 on deduction under section 10B.

Deduction under section 10B - simultaneous rehearing / remand of related appeal - Whether the appeal for AY 2011-12 should be recalled for rehearing simultaneously because its decision was premised on the outcome of AY 2009-10. - HELD THAT: - The impugned order for AY 2011-12 disposed of the appeal by following the decision in AY 2009-10 (page 53/para 20), allowing the revenue's grounds because the Tribunal had purportedly dismissed the assessee's claim in AY 2009-10. Given that the AY 2009-10 order has been recalled for the limited purpose of deciding ground no. 5.4, the Tribunal directed that the appeal for AY 2011-12 be recalled and fixed for hearing simultaneously so that the allowability of the deduction under section 10B in AY 2011-12 may be adjudicated in light of the fresh decision in AY 2009-10. [Paras 9]

Impugned Tribunal order for AY 2011-12 recalled and both matters directed to be heard together for deciding the relevant section 10B issue.

Final Conclusion: Both miscellaneous petitions are allowed: the Tribunal's order for AY 2009-10 is recalled for the limited purpose of deciding ground no. 5.4 (allowability of deduction under section 10B for manufacturing services), and the Tribunal's order for AY 2011-12 is recalled to be heard simultaneously; both appeals to be set down for hearing in regular course with notice to parties.

Crystallisation of expenditure - contingent liability - allowability of advances to employees - operation of section 40(a)(ia) - effect of departmental certificate permitting lower deduction of tax at source - distinction between short deduction and non-deduction of tax at source - entertainment of additional evidence before appellate authority - co-terminous powers of appellate authority and assessing officer - application of precedent that short deduction does not attract disallowance under section 40(a)(ia)

Crystallisation of expenditure - contingent liability - allowability of advances to employees - Deletion of disallowance of provision for travelling and conveyance advances amounting to Rs. 27,50,000/- - HELD THAT: - The Assessing Officer disallowed the lump sum provision on the ground that it was contingent and had not crystallized in the year. The assessee produced evidence that the amount represented advances actually paid to employees during the year though their reimbursement claims were submitted thereafter, and explained the established internal practice of claims being filed some months after travel. The Commissioner (Appeals) examined the factual material and concluded the expenditure had crystallized in the year. The Revenue produced no material to show the expenditure was claimed in a subsequent year. The Tribunal accepted the appellate authority's factual finding that the sums were not contingent liabilities but crystallized expenditure and found no infirmity in allowing the claim. [Paras 3]

Disallowance deleted; expenditure allowed as having crystallized in the year.

Operation of section 40(a)(ia) - effect of departmental certificate permitting lower deduction of tax at source - short deduction vs non-deduction of tax at source - entertainment of additional evidence before appellate authority - co-terminous powers of appellate authority and assessing officer - application of precedent that short deduction does not attract disallowance under section 40(a)(ia) - Deletion / restriction of disallowances under section 40(a)(ia) in respect of payments of rent, interest, contract labour, freight and forwarding, and sales commission - HELD THAT: - The Assessing Officer invoked section 40(a)(ia) for short or non-deduction of TDS on various payments. Before the Commissioner (Appeals) the assessee produced departmental certificates permitting lower deduction of tax at source and details distinguishing payments covered by such certificates from those not so covered; it also accepted disallowance to the extent payments were not covered. The Commissioner (Appeals) took cognizance of the departmental certificates and facts thus produced and restricted or deleted disallowances accordingly. The Tribunal held that documentary evidence issued by the department is not 'additional evidence' barred by Rule 46A and that the Commissioner (Appeals), being co-terminus with the Assessing Officer, may make enquiries and give consequential relief. Further, on the facts the Assessing Officer himself admitted that tax was deducted at a lower rate (i.e. short deduction) rather than wholly not deducted; applying the precedent that short deduction does not attract disallowance under section 40(a)(ia), the Tribunal found the Assessing Officer's disallowances unsustainable. In respect of freight and forwarding, part payments were shown to be reimbursements of octroi/entry taxes and disallowance was sustained only in part. As to sales commission, the payments were found to be incentives/turnover discounts by way of credit notes to channel partners and not brokerage/commission attracting TDS, and the deletion was upheld. [Paras 4, 5, 6, 8]

Disallowances deleted or restricted as held by the Commissioner (Appeals); additions under section 40(a)(ia) set aside to the extent indicated by the appellate authority.

Final Conclusion: The Tribunal dismissed the Revenue's appeal; the Commissioner (Appeals)'s deletion or restriction of disallowances in respect of the advances to employees and the section 40(a)(ia) adjustments was upheld, with factual findings on crystallisation, applicability of departmental lower-TDS certificates, the distinction between short deduction and non-deduction, and the nature of sales incentives accepted.

Transfer of assessment jurisdiction under section 127 of the Income-tax Act, 1961 - Requirement of recording reasons and giving assessee opportunity of being heard before transfer - Necessity of communication of transfer order to the assessee - Validity of assessment framed after transfer not in compliance with section 127 - Quashing of consequential additions where jurisdictional transfer is invalid

Transfer of assessment jurisdiction under section 127 of the Income-tax Act, 1961 - Requirement of recording reasons and giving assessee opportunity of being heard before transfer - Validity of assessment framed after transfer not in compliance with section 127 - Quashing of consequential additions where jurisdictional transfer is invalid - Whether assessments and consequential additions framed by officers in other wards are valid where the assessee's case was transferred between assessing officers without compliance with the procedural requirements of section 127. - HELD THAT: - The Tribunal found on the material on record that the assessee had filed the return for the year in ward 12(1), the file was moved to DCIT-Circle 12 and thereafter the matter came to ITO Ward 2(3). The statutory mechanism in section 127 requires, inter alia, recording reasons and giving the assessee a reasonable opportunity of being heard before transfer, except in specified circumstances, and the order of transfer must be communicated so the assessee is made aware of the reasons for transfer. The Revenue could not produce any order under section 127 showing compliance with these requirements. Reliance was placed on the principle in Ajanta Industries that recording reasons alone without communicating the same to the assessee does not satisfy section 127. In those circumstances the Tribunal held that the assessments framed by DCIT-Circle 12 dated 27-12-2007 and the consequential assessment under section 143(3) read with section 263 dated 07-12-2010 by ITO Ward 2(3) were invalid for want of jurisdiction as the transfers were not effected in the manner provided by section 127. Because the defect was jurisdictional, the additions made in those orders could not be sustained, and the Tribunal declined to adjudicate the merits of the additions. [Paras 6]

Assessments dated 27-12-2007 and 07-12-2010 are quashed for lack of jurisdiction due to non-compliance with section 127; consequential additions cannot be upheld.

Final Conclusion: The appeal is partly allowed: the assessments and consequential revisional assessment passed by the authorities who did not effect transfer in accordance with section 127 are quashed for want of jurisdiction and the additions sustained thereunder are set aside; the Tribunal did not decide the merits of the additions.

Condonation of delay for filing appeal - deemed income on account of unexplained bullion/jewellery under section 69A - deemed income on account of unexplained cash under section 69A - acceptance of belated wealth tax returns and documentary sufficiency - credit of cash held on behalf of third party concerns / role of official position in explanation

Condonation of delay for filing appeal - Whether the delay of 258 days in filing the appeal should be condoned and the appeal admitted - HELD THAT: - The Tribunal examined the material showing payment of tribunal fee on 16/04/2018, an inadvertent filing of the appeal memo in the office of CIT(DR) on 17/04/2018, subsequent non receipt of a listing notice, and steps taken by the assessee to retrieve and refile the appeal in February 2019. The assessee furnished receipts, challan and correspondence evidencing the mistake and the return of the original record. The CIT(DR) opposed but did not controvert the factual explanation. Considering the plausible, contemporaneous documentary evidence and the totality of facts, the Tribunal held there was a reasonable cause for delay and that the delay was bona fide and thus liable to be condoned. The appeal was therefore admitted. [Paras 5]

Delay condoned and appeal admitted.

Deemed income on account of unexplained bullion/jewellery under section 69A - acceptance of belated wealth tax returns and documentary sufficiency - Whether the addition treating 1919.45 gms of jewellery as deemed income under section 69A was justified - HELD THAT: - The Tribunal reviewed (i) the quantum of jewellery found (total 4,019.45 gms), (ii) the assessee's evidence that total declared/held gold across the assessee and family (gold bonds and wealth tax returns) amounted to 5,207.726 gms, and (iii) the assessing officer's reasons for rejecting part of the claimed entitlement - namely belated filing of wealth tax returns and mismatch of serial numbers of gold bars vis a vis bond certificates. The Tribunal noted that the department had accepted the HUF's jewellery in wealth tax scrutiny assessments and had regularised the family members' wealth tax returns under section 16(3) of the Wealth Tax Act. The assessee's explanation that on maturity gold bars issued on redemption could have been exchanged among family members was not rebutted by the department. Given that the total proved holdings exceeded the quantity found on search, and absent evidence that the gold so shown was diverted elsewhere, the Tribunal found the differential addition unjustified. Applying these determinative facts, the Tribunal deleted the addition made under section 69A. [Paras 15]

Addition in respect of alleged unexplained jewellery (1919.45 gms) deleted.

Deemed income on account of unexplained cash under section 69A - credit of cash held on behalf of third party concerns / role of official position in explanation - Whether the addition of Rs. 5,29,320 treated as unexplained cash under section 69A was sustainable - HELD THAT: - The Tribunal considered that cash of Rs. 24,78,045 was found and the AO accepted Rs. 19,48,725 as explained from the assessee's own concern. The disputed sum related to amounts said to belong to two other entities. The AO rejected that explanation on the basis that the assessee was not an employee or authorised to hold cash of those entities. The assessee produced evidence (cash book of M/s City Filling Station showing cash in hand as on the date of search, record indicating his managerial role before the AO, and Registrar of Companies record showing his directorship in M/s Sarvesh Spinners Pvt. Ltd.) and maintained a consistent explanation that he held cash on behalf of those concerns by virtue of his position. The Tribunal found these contentions were not rebutted by the department and that the assessee's position was verifiable from records. On the totality of facts, the Tribunal concluded the AO's distrust was not justified and deleted the addition. [Paras 22]

Addition of Rs. 5,29,320 on account of unexplained cash deleted.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and admitted it; on merits the Tribunal deleted the additions made under section 69A - the addition relating to unexplained jewellery was deleted after accepting that declared family holdings and gold bond maturities sufficed to account for the jewellery found, and the addition relating to unexplained cash was deleted after accepting the assessee's unrebuffed evidence that the cash belonged to concerns for which he held managerial/directorial responsibility. The appeal is allowed.

Conditional exemption and compliance with post-importation conditions - Liability for duty on shortages and excesses - Reliance on auditor's inventory report - Confiscation and redemption fine-requirement of bond/undertaking - Interest on delayed payment of customs duty - Penalty under Section 112(a) - requirement of deliberate/dishonest conduct

Reliance on auditor's inventory report - Conditional exemption and compliance with post-importation conditions - Liability for duty on shortages and excesses - Demand of customs duty on shortages and excesses of imported aircraft parts upheld. - HELD THAT: - The tribunal accepted the physical verification and inventory report prepared by the chartered accountants appointed by the appellant as credible evidence of shortages and excesses. The imports had availed a conditional exemption which required strict compliance with post import conditions and maintenance of proper inventory; failure to satisfy those conditions disentitled the appellant from exemption and rendered duty leviable. The tribunal rejected the appellant's contention that discrepancies were negligible or that internal reconciliation displaced the audit findings, noting absence of corroborative base documents and that the appellant had opportunity to rectify differences. On that basis the demand of duty for the period covered by the audit was affirmed. [Paras 4, 5]

Demand of customs duty on the shortages and excesses is upheld.

Confiscation and redemption fine-requirement of bond/undertaking - Confiscation of unauthorized imports - Order of confiscation of excess goods and the redemption fine imposed set aside. - HELD THAT: - Although the excess goods were held to be unauthorized imports whose clearance without proper declaration rendered duty leviable, the tribunal found that the goods were never seized nor released against a bond/bank guarantee. Applying the binding approach in the cited larger bench/precedent line, the tribunal held that imposition of redemption fine under Section 125 could not be sustained where goods were not available for confiscation and no bond/undertaking had been executed at clearance; accordingly the confiscation and redemption fine components of the impugned order were set aside while leaving the duty demand intact. [Paras 4, 5]

Confiscation of excess goods and the redemption fine are set aside.

Interest on delayed payment of customs duty - Demand for interest on the duties upheld. - HELD THAT: - Interest under the statute was held to be payable for delay in payment of duty from the due date. Since the tribunal sustained the demand of duty on shortages and excesses, the statutory demand for interest was also upheld as consequential and proper under the relevant provisions. [Paras 4, 5]

Interest on the duty demanded is upheld.

Penalty under Section 112(a) - requirement of deliberate/dishonest conduct - Penalty under Section 112(a) set aside. - HELD THAT: - Taking into account that the inventory verification and report were prepared by external auditors engaged by the appellant as part of its internal control, and considering the scale of operations and absence of evidence of deliberate evasion, the tribunal exercised judicial discretion against imposing penalty. The tribunal applied the principle that penalty of quasi criminal character requires proof of deliberate, contumacious or dishonest conduct and that a bona fide or venial breach does not ordinarily attract penalty; on that basis the penalty was cancelled. [Paras 4, 5]

Penalty under Section 112(a) is set aside.

Final Conclusion: Appeal partly allowed: duties and interest on shortages/excesses for 2010-12 upheld; confiscation and redemption fine set aside; penalty under Section 112(a) set aside.

Inclusion of reimbursed electricity charges in assessable value of service - reimbursement excluded from taxable value when principal liability lies on service recipient and payment is on actual basis - pure agent / reimbursement doctrine - contractual allocation and separate metering as indicia for exclusion of reimbursement

Inclusion of reimbursed electricity charges in assessable value of service - reimbursement excluded from taxable value when principal liability lies on service recipient and payment is on actual basis - contractual allocation and separate metering as indicia for exclusion of reimbursement - Whether electricity charges recovered by the appellant from Gujarat Gas as reimbursement are includable in the service tax assessable value of the services rendered. - HELD THAT: - The contract clause 4.6 places the obligation to pay electricity bills on Gujarat Gas for electricity consumed by compressor and dispensers and requires an independent electricity meter to measure actual consumption. The appellant paid service tax on the fixed charges but did not include the electricity reimbursements in the taxable value. The Tribunal relied on its earlier decision in Kiran Gems Pvt. Ltd., consistent decisions of other benches (including ICC Reality (India) Pvt. Ltd., Hotel Lake View Ashok and S.B. Developers Ltd.), and the pronouncement of the Supreme Court in Intercontinental Consultants and Technocrats Pvt. Ltd., to hold that where the amount is recovered as reimbursement on actual basis pursuant to contractual allocation and measured by a separate meter, such electricity charges are not includable in the gross value of the service. The contractual allocation of liability to the service recipient and the separate metering were treated as determinative indicia that the amounts were not part of the consideration for the service but a reimbursement, and therefore excluded from the assessable value.

Electricity charges reimbursed by the appellant to the extent paid on actual basis pursuant to the contract and measured by a separate meter are not includable in the service tax assessable value; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that electricity charges recovered as reimbursements under the contract (with separate metering and contractual allocation of liability to the service recipient) are not includable in the taxable value of the service.

Eligibility under Arrears Category of SAB KA VISHWAS (Legacy Dispute Resolution) Scheme 2019 - eligibility under Voluntary Disclosure Category of SAB KA VISHWAS (Legacy Dispute Resolution) Scheme 2019 - liberal construction of ameliorative statutory scheme - claims pending adjudication and assessment

Eligibility under Arrears Category of SAB KA VISHWAS (Legacy Dispute Resolution) Scheme 2019 - claims pending adjudication and assessment - Petitioners are not entitled to be considered under the Arrears Category where tax arrears have not been assessed and adjudication is pending. - HELD THAT: - The Court examined the Scheme and the Ministry Circular dated 12.12.2019 which contemplates that the Arrears Category applies to cases where tax dues have been quantified by the stipulated cut-off or where certain conditions (such as finality of appeals or undertakings not to file further appeals) are met. The petitioners' cases involve arrears that are yet to be assessed and adjudication is ongoing; therefore the factual and procedural prerequisites for classification under the Arrears Category are not satisfied and their claim under that Category does not merit consideration. [Paras 3]

Claim under Arrears Category refused as adjudication and assessment are pending.

Eligibility under Voluntary Disclosure Category of SAB KA VISHWAS (Legacy Dispute Resolution) Scheme 2019 - liberal construction of ameliorative statutory scheme - Petitioners are entitled to have their claims considered under the Voluntary Disclosure Category and the Revenue must consider such applications notwithstanding concerns about certain e form fields or statutory blocks. - HELD THAT: - Balancing the statutory purpose of the Scheme as an ameliorative measure to liquidate legacy disputes and the respondents' concession in the Statement of Objections, the Court accepted the petitioners' submission that the Scheme should be construed liberally for the benefit of taxpayers. The Revenue expressly stated that although the petitioners cannot be considered under Arrears Category, they may opt for the Voluntary Disclosure Category and that any apprehension of statutory impediment or e form constraints is unwarranted. On this basis the Court directed that the petitioners' applications, if made appropriately and within time, be considered under the Voluntary Disclosure Category. [Paras 3]

Revenue directed to consider petitioners' claims under the Voluntary Disclosure Category upon appropriate application within time; interim protection against precipitatory action until consideration is complete.

Final Conclusion: Writ petitions allowed in part: petitioners not eligible for Arrears Category because adjudication is pending, but Revenue is directed to consider their applications under the Voluntary Disclosure Category in accordance with law and the assurances given; no coercive action to be taken until conclusion of that process.

Confirmation of demand for evasion of central excise duty - reliance on confessional statements and need for corroboration - right to cross-examination of declarants whose statements are relied upon - use of panchnama and contemporaneous documentary evidence to establish manufacture - penalty under Section 11AC of the Central Excise Act - penalty under Central Excise Rules, 2002 (Rule 26)

Confirmation of demand for evasion of central excise duty - reliance on confessional statements and need for corroboration - use of panchnama and contemporaneous documentary evidence to establish manufacture - penalty under Section 11AC of the Central Excise Act - penalty under Central Excise Rules, 2002 (Rule 26) - Whether the demand of central excise duty and the penalties imposed on M/s Jalaram Steel Furniture Pvt. Ltd. and co-appellants for alleged removal of goods without payment of duty are sustainable. - HELD THAT: - The Tribunal examined the material relied upon by the adjudicating authority and found that panchnamas, documents and records seized from the various associate units showed manufacturing activity at those units and supported their contention of independent manufacture. The show cause notice and impugned order principally relied upon statements recorded (many on the same date) and certain scanned estimate images; the Tribunal held that statements alone, without corroborative evidence, cannot displace the contemporaneous panchnamas and documentary material establishing manufacture by the associate units. The adjudicating authority also declined the cross-examination sought by the appellant of persons whose statements were relied upon; the Tribunal held that denial of opportunity to cross-examine such declarants was a significant procedural infirmity that disentitled the Revenue to confirm the demand based on those statements. The Tribunal further noted that M/s JSFPL did not possess capacity or requisite machinery to manufacture certain alleged goods (notably wooden furniture), a fact supported by chartered engineer certificate and not controverted. On the totality of evidence and the procedural lapse in refusing cross-examination, the charges of removal without payment of duty and the consequent demands and penalties were held to be unsustainable. [Paras 22, 23, 24, 25, 26]

Demand and penalties confirmed by the adjudicating authority against M/s JSFPL and the co-appellants are set aside; the appeals are allowed.

Penalty under Section 11AC of the Central Excise Act - confirmation of demand for evasion of central excise duty - Whether the Revenue's appeal against extension of reduced penalty to M/s JSFPL (to the extent of penalty under Section 11AC) is maintainable after set aside of the demand. - HELD THAT: - The Tribunal observed that the Revenue's appeal against the extension of reduced penalty was consequential upon confirmation of the duty demand. Since the Tribunal has set aside the demand and penalties against the assessee, the Revenue's appeal has no independent sustenance and must fail as consequential. [Paras 27]

Revenue's consequential appeal is dismissed.

Final Conclusion: The Tribunal set aside the confirmed demand of duty and the equivalent penalties against M/s Jalaram Steel Furniture Pvt. Ltd. and the co-appellants, allowed the appeals and dismissed the Revenue's consequential appeal; consequential reliefs, if any, to be granted in accordance with law.

Eligibility for Cenvat Credit of input services - use of input service - supervision and monitoring as use of service - export of input service and tax liability - export of input service under Rule 3(5) of Cenvat Credit Rules

Eligibility for Cenvat Credit of input services - use of input service - supervision and monitoring as use of service - export of input service and tax liability - Cenvat credit availed on service tax paid for research and development/technical consultancy is admissible where the recipient participated in supervision and monitoring of the development even though the invoice and onward export occurred on the same date. - HELD THAT: - The Tribunal examined the contractual terms and factual matrix and found that the appellant had the contractual right of supervision and monitoring over research and development carried out by SPIL and SPARC and was actively involved in directing, monitoring and deciding timelines during the development process. The Tribunal rejected the revenue's contention that coincidence of invoice date and export date proved non-use, observing that the service was provided over a period and was simultaneously consumed by the appellant through supervision and monitoring. The Tribunal further noted the logical principle that export of services should not attract tax and that credit in effect operates as a refund where services are exported. The conclusion was that the service had been used by the appellant and consequently Cenvat credit could not be denied merely because the invoices and outward supply bore the same date. [Paras 8, 9, 10, 11, 12]

The Tribunal held that the services supplied by SPIL and SPARC were used by the appellant (through supervision and monitoring) and that Cenvat credit of the service tax paid is admissible; the revenue's denial was unsustainable.

Final Conclusion: Appeal allowed; Cenvat credit on the service tax paid for the research and technical consultancy services provided by SPIL and SPARC is admissible because the appellant used the services by supervising and monitoring their development, and mere coincidence of invoice and export dates does not negate use.

Entitlement to benefit of exemption notification 04/2006-CE (Sl.No.1C) for cement bagged in 50 kg bags supplied to institutional/industrial consumers - distinction between bulk supplies to institutional/industrial consumers and supplies to individual/retail buyers - remand for limited purpose of quantifying duty and interest

Entitlement to benefit of exemption notification 04/2006-CE (Sl.No.1C) for cement bagged in 50 kg bags supplied to institutional/industrial consumers - distinction between bulk supplies to institutional/industrial consumers and supplies to individual/retail buyers - Whether cement manufactured and bagged in 50 kg bags, marketed for bulk/industrial use without printed retail sale price and sold in bulk to institutional/industrial buyers is eligible for exemption under notification 04/2006-CE (Sl.No.1C). - HELD THAT: - The Tribunal held that the question is settled by the decision of the Hon'ble High Court of Karnataka in Mysore Cements Ltd and followed its own earlier decision in Parasakti Cement Industries Pvt Ltd. Applying that ratio, cement bagged in 50 kg bags and supplied to institutional/industrial consumers as bulk supplies without printed retail sale price falls within the exemption under notification 04/2006-CE (Sl.No.1C). The Tribunal distinguished such supplies from sales to individual/retail buyers, which do not attract the exemption. The Tribunal therefore accepted the assessee's contention in respect of supplies to institutional consumers and upheld the departmental finding only insofar as sales to individuals are concerned. Penalties imposed by the lower authorities were set aside.

Assessee entitled to exemption under notification 04/2006-CE (Sl.No.1C) for cement sold in 50 kg bags to institutional/industrial consumers; demand in respect of sales to individuals upheld; penalties set aside.

Remand for limited purpose of quantifying duty and interest - Whether the matter should be remanded for determination of duty and interest after holding entitlement to exemption for institutional supplies. - HELD THAT: - Following the adoption of the precedents in favour of the assessee, the Tribunal remanded the assessee's appeal to the original authority for a limited purpose: to determine the duty, if any, payable and the interest thereon consistent with the finding that exemption applies to institutional supplies and that sales to individuals remain taxable. The remand is confined to computation and verification in light of the legal conclusion reached.

Appeal remitted to the original authority for limited determination of duty and interest consistent with the Tribunal's decision; departmental appeal rejected insofar as it sought to disturb the appellate order that followed Tribunal precedents.

Final Conclusion: The Tribunal allowed the assessee's appeal by holding that cement in 50 kg bags sold in bulk to institutional/industrial consumers is exempt under notification 04/2006-CE (Sl.No.1C), upheld demands relating to sales to individuals, set aside penalties, remanded the matter to the original authority for limited quantification of duty and interest, and rejected the department's cross appeal.

Offences to be cognizable and non-bailable under the NDPS Act - Section 37(1)(b)(ii) NDPS Act - requirement of satisfaction that there are reasonable grounds for believing the accused is not guilty and is not likely to commit an offence while on bail - Opportunity to the Public Prosecutor to oppose bail - Meaning of "reasonable grounds" - something more than prima facie grounds - Classification of hashish oil as commercial quantity

Section 37(1)(b)(ii) NDPS Act - requirement of satisfaction that there are reasonable grounds for believing the accused is not guilty and is not likely to commit an offence while on bail - Opportunity to the Public Prosecutor to oppose bail - Meaning of "reasonable grounds" - something more than prima facie grounds - Validity of the High Court's grant of post-arrest bail to the accused respondents in absence of the mandatory findings and procedure required by Section 37 of the NDPS Act. - HELD THAT: - The Court held that Section 37 makes offences under the NDPS Act cognizable and non-bailable and imposes a non-obstante limitation on the power to enlarge bail: the Public Prosecutor must be given an opportunity to oppose bail and, where opposed, the court must be satisfied on the basis of the record that there are reasonable grounds for believing that the accused is not guilty of the offence and is not likely to commit an offence while on bail. "Reasonable grounds" contemplates facts and circumstances going beyond prima facie material and requires substantial probable cause to justify satisfaction that the accused is not guilty. The High Court failed to record the satisfaction mandated by Section 37 and proceeded on a liberal approach to bail which is impermissible under the Act. Consequently, the grant of post-arrest bail without the statutory satisfaction was unsustainable and called for interference. [Paras 18, 20, 21, 22, 26]

High Court's orders granting post-arrest bail were set aside for non-compliance with Section 37; bail bonds cancelled and accused directed to be taken into custody; trial to proceed and be expedited.

Offences to be cognizable and non-bailable under the NDPS Act - Section 37(1)(b)(ii) NDPS Act - requirement of satisfaction that there are reasonable grounds for believing the accused is not guilty and is not likely to commit an offence while on bail - Whether grant of bail to co-accused operates to relieve another accused from the rigour of Section 37 of the NDPS Act. - HELD THAT: - The Court rejected the submission that because other accused in the same case had been released on bail and those bail orders had not been challenged, the imprisoned accused could be treated differently. The fact that bail was granted to other accused did not absolve the accused before the court from the statutory rigour of Section 37; each bail application must satisfy the twin conditions laid down therein independently. [Paras 23, 26]

Grant of bail to other co-accused does not validate or excuse the High Court's failure to apply Section 37 in respect of the accused in question; the bail granted to the respondents was set aside.

Final Conclusion: Appeals allowed; impugned High Court orders granting post-arrest bail set aside for failure to comply with the mandatory requirements of Section 37 of the NDPS Act; accused directed to be taken into custody and trial expedited; pending applications disposed of.