TaxTMI Updates e-Newsletter
Feb 03,2020

Classification of goods by reference to the First Schedule to the Customs Tariff Act and HSN explanatory notes - distinction between particle board and fibreboard - classification under CTH 4411 (fibreboard) vs CTH 4410 (particle board) - applicability of tariff explanatory notes and examples of "other ligneous materials" - rate determination under Notification No. 01/2017 CT(Rate) Schedule II Sl. No. 92

Distinction between particle board and fibreboard - classification under CTH 4411 - classification of Natural Fibre Composite (NFC) Board - Classification of the applicant's "Indowud Natural Fibre Composite (NFC) Board" under the Customs Tariff Heading - HELD THAT: - The Authority examined the product composition and manufacturing process: rice husk is defibred (powdered) and thereafter mixed with fillers, additives and PVC binder; the fibres are recognisable and the product is formed by bonding those fibres. HSN explanatory notes distinguish particle board (made from chips/particles obtained by mechanical reduction of roundwood or wood residues and generally agglomerated with added organic binder) from fibreboard (manufactured from defibred ligno cellulosic material whose fibres are bonded, often relying on lignin, with additional resins if required). Given that the rice husk is first defibred and then bonded to form a board with properties and density akin to fibreboard, the product more appropriately falls within the fibreboard heading rather than particle board. On that basis the Authority held the NFC board is classifiable under CTH 4411 and, more precisely on the facts and properties before it, under the tariff item 441193 (other fibreboard of a density exceeding 0.5 g/cm3 but not exceeding 0.8 g/cm3). [Paras 5]

The NFC Board is classifiable as fibreboard under CTH 441193.

Rate determination under Notification No. 01/2017 CT(Rate) Schedule II Sl. No. 92 - classification-linked exemption/ concessional rate for boards manufactured from agricultural crop residues - Applicable GST rate on the NFC Board as per the entries in Schedule II to Notification No. 01/2017 CT(Rate) - HELD THAT: - Having classified the product as a fibreboard manufactured from rice husk (an agricultural crop residue / natural fibre), the Authority applied the notification schedule which prescribes rates irrespective of the Chapter under which such boards are classified. Sl. No. 92 of Schedule II explicitly lists Rice Husk Board and fibre/particle boards manufactured from agricultural crop residues among goods chargeable at the concessional rate. Consequently, the NFC Board, notwithstanding its classification under Chapter 44, falls within that entry and attracts the concessional tax treatment set out therein. [Paras 6, 7]

The NFC Board attracts CGST at 6% and SGST at 6% under Sl. No. 92 of Schedule II to Notification No. 01/2017 CT(Rate).

Final Conclusion: The Advance Ruling holds that the applicant's "Indowud Natural Fibre Composite (NFC) Board" is classifiable as fibreboard under CTH 441193 and, being a rice husk/ agricultural residue based board, attracts the concessional rate of 6% CGST and 6% SGST as per Sl. No. 92 of Schedule II to Notification No. 01/2017 CT(Rate).

Disallowance of donation under Section 35(1)(ii) - genuineness of donee/research foundation - onus of proof on assessee for eligibility of deduction - reliance on survey report and subsequent cancellation of donee's certificate - banking channel evidence and confirmation by donee as proof of genuineness

Disallowance of donation under Section 35(1)(ii) - genuineness of donee/research foundation - onus of proof on assessee for eligibility of deduction - banking channel evidence and confirmation by donee as proof of genuineness - Deletion of addition disallowing the donation claimed under Section 35(1)(ii) was rightly upheld and the assessee discharged the onus to claim the deduction. - HELD THAT: - The Assessing Officer relied on a survey report and subsequent cancellation of the donee's registration to treat the donation as bogus. The CIT(A) found that the donation was transferred through banking channels and there was no evidence that the amount had been returned in cash; the donee furnished a confirmation that the amount was utilized for scientific research. The Tribunal, applying consistent reasoning in S.G. Vat Care Private Limited, concurred that mere reliance on a survey report and post-facto cancellation, without specific evidence that the donation was repaid or statements from donee representatives contradicting receipt/utilization, was insufficient to sustain the disallowance. In these circumstances the assessee had discharged the evidentiary burden by demonstrating payment through banking channels and obtaining confirmation from the donee; therefore the addition could not be sustained. [Paras 5, 6, 7, 8, 9]

Deletion of the disallowance was affirmed and no interference with the Tribunal's order was warranted.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal's confirmation of the CIT(A)'s deletion of the addition disallowing the donation under Section 35(1)(ii) for A.Y.2014-15 is upheld.

Jurisdiction of writ petition in presence of statutory remedy of appeal - right to be heard before imposition of penalty - penalty under Section 271(1)(c) of the Income Tax Act - judicial non-interference where alternative statutory remedy exists - direction to afford opportunity to reply to departmental notice

Jurisdiction of writ petition in presence of statutory remedy of appeal - judicial non-interference where alternative statutory remedy exists - Maintainability of the writ petition challenging an assessment order where an appeal to the Commissioner (Appeals) is available. - HELD THAT: - The Court declined to exercise writ jurisdiction to adjudicate the challenge to the assessment order dated 23.12.2019 because the petitioner had a statutory remedy of appeal before the Commissioner (Appeals). In these circumstances the court was not inclined to entertain the petition and proceeded by refusing to grant substantive relief by way of writ, adhering to the principle that alternative adequate statutory remedies should be pursued to enable the specialized appellate forum to consider the matter first.

The writ petition was not entertained because an appeal to the CIT(A) was available.

Right to be heard before imposition of penalty - direction to afford opportunity to reply to departmental notice - Relief by direction to permit the petitioner to respond to the departmental notice and fix a date for hearing. - HELD THAT: - Although the writ petition was not entertained on merits, the Court noted that the petitioner, being present in Court and unable to attend the departmental hearing scheduled for the same day, had been prejudiced in her opportunity to be heard. With the consent of the Assessing Officer who was present, the Court directed that the petitioner be permitted to respond to the notice dated 23.12.2019 and to appear before the Income Tax Officer, Ward 30(6), New Delhi on 05.02.2020 at 12:45 PM, and further ordered that no fresh notice need be issued for that purpose. This constituted a limited, interlocutory direction to safeguard the petitioner's right to be heard prior to any order imposing penalty.

Petitioner permitted to respond and to appear before the Assessing Officer on 05.02.2020 at 12:45 PM; no further notice required.

Final Conclusion: Writ petition not entertained as an appeal remedy to the Commissioner (Appeals) was available; nevertheless, the Court directed that the petitioner be allowed an opportunity to respond to the departmental notice and fixed a hearing date before the Assessing Officer.

Tax Deducted at Source (TDS) under Section 195 - Fee for Technical Services as income deemed to accrue or arise in India - Disallowance under Section 40(a)(ia)/40(a)(i) - Double Taxation Avoidance Agreement and Permanent Establishment - Explanation to Section 195 (retrospective effect)

Tax Deducted at Source (TDS) under Section 195 - Fee for Technical Services as income deemed to accrue or arise in India - Double Taxation Avoidance Agreement and Permanent Establishment - Disallowance under Section 40(a)(ia)/40(a)(i) - Whether payments made to non-resident entities for commission, advertisement, registration and exhibition fees were chargeable to tax in India and whether the assessee was obliged to deduct TDS, thereby justifying disallowance under Section 40(a)(ia)/40(a)(i). - HELD THAT: - The Tribunal observed that the Assessing Officer concluded the payments were in the nature of fees for technical services and thus chargeable to tax in India, invoking Section 195 and disallowance under Section 40(a)(ia)/40(a)(i). The assessee maintained the recipients had no permanent establishment (PE) in India and that services were rendered outside India, contending no Indian tax liability arose and therefore no TDS was required. The lower authorities did not examine the actual nature of services rendered, nor did they consider relevant Double Taxation Avoidance Agreements (DTAAs) or the factual question of PE of the recipients. Given that taxability in India (including relevant DTAA/PE determinations) is a prerequisite for invoking Section 195 and consequent disallowance, the Tribunal held that these factual and treaty-linked issues require fresh verification and adjudication by the CIT(A). The Tribunal therefore refrained from finally affirming the disallowance on merits and remitted the matter for fresh consideration with an opportunity of hearing to the assessee. [Paras 9, 10]

Issue set aside and remanded to the file of the CIT(A) for fresh adjudication on whether the payments are chargeable to tax in India (including consideration of applicable DTAAs and PE), with opportunity to the assessee; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the impugned disallowance and remanded the question of taxability and TDS liability (including DTAA/PE considerations) to the CIT(A) for fresh decision after verification and hearing; appeal allowed for statistical purposes.

Section 50C - stamp duty valuation not conclusive of actual consideration - burden on Revenue to prove receipt of extra consideration - reference to Valuation Officer under section 142A - prima facie applicability of sections 69/69A/69B as precondition for valuation reference

Section 50C - stamp duty valuation not conclusive of actual consideration - burden on Revenue to prove receipt of extra consideration - Addition under section 50C on the basis of higher guidance (stamp) value upheld by AO where there is no other material to show receipt of additional consideration. - HELD THAT: - The Tribunal found that though the registration (guidance) value was higher than the sale consideration, there was no material on record to show that the assessee actually received any amount in excess of the consideration recorded in the sale deed. The burden rests on the Revenue to prove that extra consideration was passed between the parties. The court held that there is no rule of law making stamp duty valuation conclusive evidence of actual consideration and, in absence of cogent material establishing receipt of additional consideration, the addition under section 50C could not be sustained. Applying these principles to the facts, the Tribunal concluded that the addition of the differential amount was unjustified and deleted it. [Paras 6, 7]

Addition made by the Assessing Officer under section 50C deleted.

Reference to Valuation Officer under section 142A - prima facie applicability of sections 69/69A/69B as precondition for valuation reference - Whether the Assessing Officer was obliged to refer valuation to the Valuation Officer (DVO) and validity of reference to DVO under section 142A in absence of material invoking sections 69/69A/69B. - HELD THAT: - Relying on precedent and statutory scheme, the Tribunal held that reference to the Valuation Officer under section 142A is permissible only when there is prima facie material indicating applicability of sections 69, 69A or 69B (unexplained investments/amounts). The order noted that the AO must have cogent material to trigger such a reference; absent such contingencies, making a reference would amount to a fishing inquiry. Applying this reasoning, the Tribunal found no material before the AO to justify a reference to the DVO for ascertaining any unexplained additional consideration, and therefore held that there was no need to refer the matter to the Valuation Officer. [Paras 6]

Reference to the Valuation Officer under section 142A was not warranted; the AO's reliance on DVO valuation (or the expectation of such reference) does not validate the addition.

Final Conclusion: The appeal is allowed: the Tribunal deleted the addition made under section 50C and held that no reference to the Valuation Officer under section 142A was warranted in absence of prima facie material invoking sections 69/69A/69B.

Deduction under section 80P(2)(a)(vi) for collective disposal of labour of members - Collective disposal of labour by members versus employment of outside labour/contractors - Remand for verification of disputed questions of fact - Burden of proof under section 101 of the Indian Evidence Act, 1872 - Preclusive effect of earlier High Court decision in assessee's own case

Deduction under section 80P(2)(a)(vi) for collective disposal of labour of members - Collective disposal of labour by members versus employment of outside labour/contractors - Remand for verification of disputed questions of fact - Burden of proof under section 101 of the Indian Evidence Act, 1872 - Whether the assessee is entitled to deduction under section 80P(2)(a)(vi) for AY 2014-2015 or the question should be remanded to the Assessing Officer for limited factual verification. - HELD THAT: - The Tribunal noted that the Assessing Officer had recorded inability to verify the claim because books, bills and vouchers were not produced and applied the principle under section 101 of the Indian Evidence Act placing the burden on the assessee to prove entitlement. The CIT(A) had allowed the deduction relying on consistent earlier Tribunal orders in the assessee's favour, while the Revenue relied on a prior jurisdictional High Court decision against the assessee and the AO's factual findings that work was supervised by a few members while execution was by paid employees and outside labour/contractors. Given these competing factual findings and the assessee's willingness to produce books for verification, the Tribunal held that the disputed question of fact-whether the works were carried out by the collective disposal of the society's own members or by employing outside labour/contractors-required verification at the AO level. Consequently the Tribunal set aside the CIT(A) order on this issue and remitted the matter to the AO to examine, after affording the assessee opportunity to be heard and to produce supporting records, whether the conditions for deduction under section 80P(2)(a)(vi) are satisfied for the relevant year. [Paras 8, 9, 10]

Matter remitted to the Assessing Officer for limited purpose of factual verification whether the works were executed by collective disposal of the society's own members, after giving the assessee opportunity to produce books and evidence; no final adjudication on merits by the Tribunal.

Final Conclusion: The appeal of the Revenue and the assessee's cross-objection were allowed for statistical purposes and the issue of entitlement to deduction under section 80P(2)(a)(vi) for AY 2014-2015 was restored to the file of the Assessing Officer for limited factual verification and fresh decision.

Limitation for initiating proceedings deeming person assessee in default under section 201(3) - effect of filing TDS statement on the applicable limitation period - retrospective applicability of statutory amendment - rectification under section 254(2) for apparent error - treatment of belated TDS statement as non est

Limitation for initiating proceedings deeming person assessee in default under section 201(3) - effect of filing TDS statement on the applicable limitation period - retrospective applicability of statutory amendment - treatment of belated TDS statement as non est - Order passed under sections 201(1) and 201(1A) for FY 2010-11 is barred by limitation. - HELD THAT: - The Tribunal found that the assessee had filed TDS statements for the relevant quarters and therefore the limitation applicable was that contained in the clause governing cases where the statement referred to in section 200 has been filed (i.e., the two year rule as it stood prior to substitution). The Finance Act, 2014 substitution of section 201(3) (w.e.f. 1-10-2014) could not be given retrospective effect to revive proceedings in which limitation had already expired. The Finance Act, 2012 amendment extending the period to six years applied only to the category where no TDS statement was filed and was therefore irrelevant on the admitted facts. Having applied the correct limitation provision, the Tribunal held the order of the Assessing Officer dated 11-9-2015 to be time barred and quashed it, allowing the assessee's appeal. [Paras 14, 15]

The Tribunal quashed the order under sections 201(1) and 201(1A) for FY 2010-11 as barred by limitation and allowed the appeal.

Rectification under section 254(2) for apparent error - mistake apparent on the face of the record - effect of appellate record and paper book on factual assertions - The miscellaneous petition under section 254(2) alleging an apparent error about filing details before the CIT(A) is without merit and is dismissed. - HELD THAT: - The Revenue contended that the Tribunal had erred in recording that the assessee submitted TDS filing dates before the CIT(A) and alleged misleading facts. The Tribunal clarified that it recorded a submission made before the CIT(A), not that the dates were necessarily placed on the file there; the paper book produced before the Tribunal contained the TDS returns showing the filing dates relied upon. The allegation that the assessee misled the court or that there was a mistake apparent from record was not substantiated. The petition raised misconceptions of fact and law and did not disclose an apparent error warranting rectification. [Paras 10, 11, 12]

The miscellaneous petition for rectification is dismissed.

Final Conclusion: The Miscellaneous Petition under section 254(2) is dismissed; the Tribunal's order holding the assessment under sections 201(1) and 201(1A) for FY 2010-11 to be time barred is affirmed and the assessee's appeal is allowed.

Disallowance of business expenditure - classification of income between business and other sources - estimation of net profit for un-audited books - addition under section 68 (unexplained cash credit/gift) - addition under section 69 (unexplained investment) - admission of additional evidence under Rule 24 ITAT

Disallowance of business expenditure - classification of income between business and other sources - estimation of net profit for un-audited books - Whether the disallowance of the entire expenditure of M/s V.K. Transport should be sustained where the transport activity was shown as income from other sources and its books were not audited. - HELD THAT: - Tribunal found that the assessee carried on a transport business (hiring trucks) with separate regular books for M/s V.K. Transport and incurred identifiable business expenses (brokerage, diesel, lorry hire, loading, repairs). The mere classification of receipts under "income from other sources" and absence of tax audit for that division did not disentitle the assessee from claiming expenses incurred for carrying on the transport business. Considering the books were unaudited, the Tribunal estimated a reasonable net profit rate at 8% of gross receipts of Rs. 19,88,592 (amounting to Rs. 1,59,087) and accordingly sustained the disallowance only to the extent of the shortfall between claimed expenses and the estimated permissible profit, resulting in a minimal addition of Rs. 34,047 and relief to the assessee for the balance of the disallowed amount. [Paras 9, 10, 11]

Disallowance of Rs. 18,63,552/- sustained only to the extent of Rs. 34,047/-; remainder of the disallowance deleted (partial allowance of ground no.1).

Addition under section 68 (unexplained cash credit/gift) - admission of additional evidence under Rule 24 ITAT - Whether the addition under section 68 in respect of Rs. 10,00,000 received as gift from the assessee's mother-in-law was justified. - HELD THAT: - On appeal the assessee produced a notarised gift deed dated 04.06.2009 and material showing the donor's identity and creditworthiness (ownership of agricultural land and agricultural income). The Tribunal accepted the documentary evidence filed during appellate proceedings, observed that the donor was a relative within the meaning of the relevant provision, and noted that the authenticity of the gift deed was not disputed. Given these facts and the donor's death, the Tribunal found the assessee had satisfactorily explained the source and genuineness of the gift and deleted the addition made under section 68. [Paras 12, 13, 14]

Addition of Rs. 10,00,000/- under section 68 deleted (ground no.2 allowed).

Addition under section 69 (unexplained investment) - admission of additional evidence under Rule 24 ITAT - Whether the addition under section 69 in respect of Rs. 2,50,000 received as gift from the assessee's father was justified. - HELD THAT: - The assessee produced a notarised gift deed and material indicating that the father derived income from kirana and money-lending business and had accumulated savings though his income was below taxable threshold. The Tribunal accepted the documentary evidence produced at the appellate stage and, having regard to the family circumstances and the subsequent death of the donor, concluded that the source and genuineness of the gift were satisfactorily explained. Accordingly, the addition under section 69 was deleted. [Paras 15, 16]

Addition of Rs. 2,50,000/- under section 69 deleted (ground no.3 allowed).

Telescopic benefit - Whether telescoping relief should be granted to avoid double taxation between the disallowed transport expenses and the additions on account of gifts. - HELD THAT: - The Tribunal observed that the telescopic benefit claim became academic because it had already partly allowed the disallowance of transport expenses and had deleted the additions relating to gifts. Given these outcomes, there was no need to adjudicate the alternative claim for telescoping and the point was not decided on merits. [Paras 17]

Alternate claim for telescopic relief dismissed as infructuous (not adjudicated).

Final Conclusion: Appeal partly allowed: disallowance of transport expenses reduced so that only Rs. 34,047 remains disallowed; additions of Rs. 10,00,000 under section 68 and Rs. 2,50,000 under section 69 deleted; alternate claim for telescoping dismissed as infructuous.

Revisional jurisdiction under Section 263 of the Income tax Act - Deduction under Section 80P(2)(d) for interest/dividend from investments in other co operative societies - Effect of insertion of Section 80P(4) on deduction claimed by a co operative society for investment in co operative banks - Principle of mutuality and its relevance to Section 80P(2)(d) - Concurrent or alternative judicial view not constituting an erroneous order for exercise of Section 263

Revisional jurisdiction under Section 263 of the Income tax Act - Deduction under Section 80P(2)(d) for interest/dividend from investments in other co operative societies - Effect of insertion of Section 80P(4) on deduction claimed by a co operative society for investment in co operative banks - Concurrent or alternative judicial view not constituting an erroneous order for exercise of Section 263 - Validity of the CIT's exercise of revisional power under Section 263 to cancel the AO's allowance of deduction under Section 80P(2)(d) in respect of interest earned on deposits with co operative banks. - HELD THAT: - Section 263 can be invoked only where the assessment order is both erroneous and prejudicial to the revenue; mere existence of an alternative view is insufficient. The AO's allowance of deduction under Section 80P(2)(d) for interest on deposits placed with co operative banks was supported by a co ordinate Tribunal decision (Uttar Gujarat Uma Co op Credit Society Ltd. v. ITO) which examined Section 80P(2)(d), the effect of insertion of Section 80P(4), and the doctrine of mutuality and concluded that an investing co operative society is entitled to deduction on interest from a co operative bank regarded as a co operative society. The Tribunal reasoned that Section 80P(2)(d) grants deduction of the whole of such income from investments in another co operative society and that Section 80P(4)'s denial of benefit to certain co operative banks does not automatically deprive an investing society of the deduction; further, the principle of mutuality is not a pre condition for Section 80P(2)(d) in view of statutory changes. As the issue was debatable and the AO adopted a legally plausible view supported by precedent, the order could not be characterized as erroneous and prejudicial for purposes of Section 263. The contrary decision of the Karnataka High Court was treated as distinguishable or subsilentio on the point because it did not address the distinct scope of Section 80P(2)(d). Consequently, the CIT's revisional action was held to be beyond jurisdiction and was set aside. [Paras 7, 8]

The CIT's order under Section 263 cancelling the AO's allowance of deduction under Section 80P(2)(d) is set aside; the appeals are allowed.

Final Conclusion: The Tribunal held that the AO's allowance of deduction under Section 80P(2)(d) for interest on deposits with co operative banks was a legally tenable view supported by precedent; therefore the twin requirements for exercise of jurisdiction under Section 263 were not satisfied, the revisional order was quashed and the appeals of the assessee were allowed.

Exemption under section 11/12 - charge at Maximum Marginal Rate under the proviso to Section 164(2) - diversion/misuse of charitable funds - disallowance under section 40A(3)-revenue v. capital expenditure - treatment of depreciation where asset cost earlier claimed as application of income

Diversion/misuse of charitable funds - exemption under section 11/12 - charge at Maximum Marginal Rate under the proviso to Section 164(2) - Validity of disallowance of corporate club membership payment and whether violation of Section 13 leads to denial of entire exemption or taxation of only the offending portion at MMR - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that corporate membership of a private club cannot be linked to the objects of the charitable society and accordingly the membership fee is not allowable as an application of income. The Tribunal agreed with the CIT(A) and relied on the principle that club membership is akin to a business expense and not permissible under the governing provisions for trusts. Separately, the Tribunal accepted the legal position that even if provisions of Section 13 are attracted, exemption under sections 11/12 is not to be denied in toto; tax at the Maximum Marginal Rate is chargeable only on the relevant part of income that is rendered non-exempt by Section 13(1)(c)/(d), following the proviso to Section 164(2). The Tribunal noted the precedents relied upon by the assessee and CIT(A) in support of this principle and found no material to disturb those conclusions. [Paras 3]

Disallowance of the club membership expense upheld; exemption under sections 11/12 not denied in entirety and only the part offending Section 13 is to be taxed at MMR; Revenue grounds 1 and 2 dismissed.

Treatment of depreciation where asset cost earlier claimed as application of income - prospective operation of Section 11(6) (Finance Act No.2/2014) - Correctness of deleting disallowance of depreciation where AO found assets' cost had previously been treated as application of income - HELD THAT: - The Tribunal observed that the CIT(A) deleted the disallowance relying on precedents but the Revenue drew attention to the amendment by Finance Act (No.2) of 2014 inserting Section 11(6) effective from AY 2015-16 and to clarifications as to its prospective effect. As the AO had not verified whether in earlier years the assessee had treated the cost of those fixed assets as application of income (or had only claimed depreciation), the Tribunal found that the factual verification by the AO is necessary. In the interests of equity and justice the matter was restored to the file of the AO with a direction to verify earlier-year treatment and to pass a fresh assessment order after giving the assessee a reasonable opportunity of hearing. [Paras 4]

Ground No. 3 allowed for statistical purposes and the issue remanded to the AO for fresh verification and adjudication.

Disallowance under section 40A(3) - revenue v. capital expenditure - Validity of disallowance under Section 40A(3) in respect of cash payments made for acquisition of fixed assets - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that payments made for acquisition of fixed assets and capitalised in the books are not subject to disallowance under Section 40A(3), which, per the CBDT Circular No.34 dated 5-3-1970, applies to revenue expenditure and not to capital expenditure. The payments in question were capitalised and no revenue expenditure was claimed; similar treatment in AY 2014-15 had been accepted by the authorities and no fresh material was produced by the Revenue to rebut the conclusion. Accordingly, the Tribunal found no reason to interfere with deletion of the disallowance under Section 40A(3). [Paras 5]

Disallowance under Section 40A(3) deleted; Ground No. 4 dismissed.

Final Conclusion: The Revenue appeal is partly allowed for statistical purposes: (i) the disallowance of corporate club membership fee is sustained and only the portion of income offending Section 13 is liable to tax at MMR (Revenue grounds 1 and 2 dismissed); (ii) the depreciation issue is remanded to the AO for factual verification and fresh adjudication (Ground 3 allowed for statistical purposes); and (iii) the disallowance under Section 40A(3) in respect of capital payments is deleted (Ground 4 dismissed).

Deductibility of interest on delayed statutory payments under section 37(1) - Interest on late payment of TDS treated as non-deductible - Compensatory versus penal character of interest on statutory dues - Allowability of business loss by theft when recovery becomes impossible or remote

Deductibility of interest on delayed statutory payments under section 37(1) - Interest on late payment of TDS treated as non-deductible - Compensatory versus penal character of interest on statutory dues - Tax treatment of interest paid on late deposit of various statutory liabilities and whether such interest is deductible for the assessment year 2016-17. - HELD THAT: - The Tribunal examined the various heads of interest debited by the assessee and differentiated between interest paid to private parties and banks (ordinary business interest) and interest on late payment of statutory dues (Sales Tax, Excise & Service Tax, EPF and TDS). Following coordinate-bench precedent in the assessee's own case and authoritative decisions, the Tribunal sustained disallowance of interest on late deposit of TDS, holding that interest payable under the TDS provisions partakes the character of the principal tax liability and is not allowable as business expenditure. Conversely, for interest on delayed payment of Sales Tax, Excise & Service Tax and EPF, the Tribunal accepted the view that such interest is compensatory in nature and deductible under section 37(1) as expenditure wholly and exclusively for business, relying on the Coordinate Bench decision in CIT v. Western India State Motors and the Supreme Court decision in Lachmandas Mathura v. CIT. Consequently the AO was directed to allow interest relating to Sales Tax, Excise & Service Tax and EPF but sustain the addition relating to TDS interest. [Paras 3]

Addition on account of interest on late payment of TDS sustained; interest on late payment of Sales Tax, Excise & Service Tax and EPF held deductible and to be allowed.

Allowability of business loss by theft when recovery becomes impossible or remote - Whether the loss by theft claimed in assessment year 2016-17 is allowable though the theft occurred earlier, given that recovery had become impossible or remote in the year under consideration. - HELD THAT: - The Tribunal found no dispute that theft had occurred earlier and that an FIR was lodged; the sole reason for disallowance was timing, the assessee having claimed the loss in AY 2016-17 though theft occurred in an earlier year. On facts the assessee demonstrated that investigations were ongoing earlier and that only in the year under appeal did the assessee conclude that recovery was impossible or remote. Applying the principle in CIT v. Durga Jewellers, that a loss due to embezzlement/theft is allowable in the year in which recovery becomes impossible or chances of recovery become remote (or the year FIR was lodged where appropriate), the Tribunal held the claim admissible in the year under consideration and directed deletion of the addition. [Paras 4]

Claim of loss by theft allowed and addition deleted.

Final Conclusion: The assessee's appeal is partly allowed: the Tribunal sustains the disallowance of interest attributable to late deposit of TDS but directs allowance of interest on delayed payment of Sales Tax, Excise & Service Tax and EPF; separately, the claim for loss by theft is allowed and the corresponding addition deleted.

Credit for tax deducted at source to be given for the assessment year for which such income is assessable - Rule 37BA(3)(i) - temporal nexus between TDS credit and assessable income - Section 199 - rule-making power regarding year for which TDS credit may be given - credit for TDS where income is assessable over a number of years - mercantile system of accounting

Credit for tax deducted at source to be given for the assessment year for which such income is assessable - Rule 37BA(3)(i) - temporal nexus between TDS credit and assessable income - Section 199 - rule-making power regarding year for which TDS credit may be given - mercantile system of accounting - Assessee entitled to TDS credit in A.Y. 2015-16 for tax deducted on invoices accounted as income in that year despite deposit of tax by deductor in the subsequent year. - HELD THAT: - The Tribunal held that section 199(3) empowers the Board to make rules including the assessment year for which TDS credit may be given and that Rule 37BA(3)(i) expressly provides that credit for tax deducted at source shall be given for the assessment year for which such income is assessable. Rule 37BA(3)(ii) further contemplates allocation where income is assessable over multiple years. Applying these provisions, the Tribunal found an inextricable nexus between the TDS and the corresponding assessable income so that TDS credit cannot be divorced from the year in which the income is assessable. The assessee followed the mercantile system of accounting and had recorded the invoices as sales/receipts in the year under consideration; therefore, the TDS corresponding to those invoices must be allowed in A.Y. 2015-16. The Tribunal relied on the reasoning of a coordinate Bench (Mahesh Software Systems P. Ltd.) applying the same rule and reached the conclusion that benefit of TDS is to be allowed in the year the income is assessable, not necessarily the year of deposit by the deductor. [Paras 6, 7]

Allow TDS credit of Rs. 45,41,995/- to the assessee in A.Y. 2015-16 as the corresponding income was assessable in that year.

Verification of claim supporting TDS credit - prevention of double credit across assessment years - The matter was remanded to the Assessing Officer to verify the veracity of the assessee's claim that the sales/receipts corresponding to the TDS were accounted for in A.Y. 2015-16 and to ensure no duplicate TDS credit was availed in A.Y. 2016-17. - HELD THAT: - Although the Tribunal directed allowance of the TDS credit in A.Y. 2015-16, it remitted the matter for limited verification. The AO is to confirm that the assessee had in fact accounted for the relevant sales/receipts in the year under consideration and must take steps to ensure that the same TDS amount has not been claimed in A.Y. 2016-17 where it appears in Form 26AS. This remand is for verification and to prevent double benefit; the Tribunal did not refuse to decide the substantive entitlement but required factual verification before granting the credit. [Paras 7]

Remit to the AO to verify accounting of the relevant receipts in A.Y. 2015-16 and to ensure that the TDS credit was not availed in A.Y. 2016-17 before allowing the credit.

Final Conclusion: Appeal allowed: TDS credit of Rs. 45,41,995/- to be allowed in A.Y. 2015-16 in accordance with Section 199 and Rule 37BA(3)(i), subject to the Assessing Officer's verification that the corresponding receipts were accounted in that year and that no duplicate credit was availed in A.Y. 2016-17.

Status as HUF versus individual - claim of deduction under section 54B - onus of proof for change of status - reassessment under section 148

Status as HUF versus individual - onus of proof for change of status - Whether the capital gains arising on sale of agricultural land for AY 2002-03 is assessable in the hands of the HUF or in the individual capacity of the assessee. - HELD THAT: - The Tribunal found on the material on record that the assessee filed the return in response to notice issued under section 148 in the status of HUF and, thereafter, consciously declared the capital transaction in the HUF's hands both in the original and revised returns. The assessee subsequently sought to contend before the ITAT that the land belonged to him individually but failed to produce any new or cogent evidence during the remand proceedings or on appeal to discharge the burden of proof for changing the declared status. Given that the onus lay on the assessee to establish a different status and that no such evidence was furnished, the fact-finding conclusion recorded by the Assessing Officer and affirmed by the Commissioner (Appeals) that the assessee's status was HUF was held to be unassailable. The Tribunal therefore confirmed the assessment in the status of HUF. [Paras 11, 12, 13]

The capital gains are to be assessed in the hands of the HUF; the assessee failed to prove a change of status to individual.

Claim of deduction under section 54B - reassessment under section 148 - Whether the claim for deduction under section 54B (in computing capital gains for AY 2002-03) is allowable to the assessee. - HELD THAT: - The Assessing Officer disallowed the deduction inter alia on the ground that section 54B relief, as applicable in the assessment year, was available to individual assessee(s) and not to a HUF, and on the ground that the unutilised capital gains were not deposited into the capital gains account scheme within the time prescribed. The appellant argued reliance on a High Court view to dispense with deposit, but the Tribunal observed that the primary determinative fact was the status in which the transaction was declared and assessed. Since the assessee was assessed as HUF and had not discharged the burden to establish an individual status, the claim for deduction under section 54B could not be sustained. The Tribunal therefore confirmed the denial of the deduction on the factual foundation that the assessee is HUF. [Paras 3, 4, 11, 12]

Deduction under section 54B is not allowable to the assessee in the assessment framed in the status of HUF; the claim is dismissed.

Final Conclusion: The Tribunal dismissed the appeal; the assessment of capital gains for AY 2002-03 stands confirmed in the hands of the HUF and the claim for deduction under section 54B is rejected as the assessee failed to prove individual status or otherwise discharge the onus of proof.

Tax Deduction at Source - Tax Collection at Source - Assessee-in-default - By-product versus scrap or waste - Classification of C&F agents as independent contractors - Applicability of section 194C vis-a -vis section 194J - Binding effect of prior identical appellate decisions

Tax Collection at Source - By-product versus scrap or waste - Assessee-in-default - Whether TCS provisions could be invoked on sale of De-oiled Cake (DOC), maize husk and cotton waste for the assessment year 2008-09 - HELD THAT: - The Tribunal upheld the appellate authority's conclusion that DOC, maize husk and cotton waste, as sold by the assessee, are by products arising from the manufacturing process and are not scrap or waste within the scope of the TCS provisions relied upon by the Assessing Officer. The CIT(A) applied and followed the earlier ITAT decision in respect of assessment years 2009-10 to 2012-13, which after detailed factual and legal analysis had held the items to be by products and not scrap/waste; that Tribunal order was subsequently affirmed by the Gujarat High Court. Given identical facts and issues, the Tribunal found no reason to interfere with the CIT(A)'s view and consequently confirmed deletion of the demand and the finding that the assessee was not an assessee in default on this ground. [Paras 5, 6, 7]

Demand under TCS provisions in respect of DOC, maize husk and cotton waste is deleted; items are by products not scrap/waste and the assessee is not an assessee in default on this ground.

Tax Deduction at Source - Classification of C&F agents as independent contractors - Applicability of section 194C vis-a -vis section 194J - Whether payments to C&F agents attract TDS under section 194J (professional services) or under section 194C (contractual payments) for the assessment year 2008-09 - HELD THAT: - The Tribunal approved the CIT(A)'s finding that C&F agents, in the facts of the assessee's case, performed services as independent contractors and that payments comprised reimbursements and agency charges with supporting bills. The earlier ITAT decision for AYs 2009-10 to 2012-13, relied upon by the CIT(A), had held on examination of records and applicable CBDT guidance that C&F agents fall within the scope of independent contractors and are covered by section 194C rather than the definition of 'professional services' under section 194J. That Tribunal reasoning was affirmed by the Gujarat High Court. Applying that precedent to identical facts, the Tribunal found the Assessing Officer's invocation of section 194J unsustainable and sustained deletion of the demand raised on this ground. [Paras 5, 6, 7]

Demand based on invoking section 194J in respect of payments to C&F agents is deleted; payments are taxable under the contract provision (section 194C) and C&F agents are independent contractors for these purposes.

Final Conclusion: Revenue's appeal is dismissed; the Tribunal upholds the CIT(A)'s deletions on both TCS and TDS grounds for AY 2008-09, applying prior identical appellate decisions and the Gujarat High Court's affirmation.

Unexplained cash credit u/s 68 - identity, creditworthiness and genuineness of the creditor - cash withdrawals deposited into bank - remand for fresh examination

Identity, creditworthiness and genuineness of the creditor - unexplained cash credit u/s 68 - Deletion of additions of Rs. 12.00 lakhs and Rs. 4.00 lakhs treated as unexplained cash credit. - HELD THAT: - The assessee discharged the initial onus under unexplained cash credit u/s 68 by establishing the identity and creditworthiness of the creditors. Documentary evidence included income-tax returns/statement of total income showing assessability and sufficient income, confirmation by the brother, and confirmation of transactions involving the brother by the company of which he is a director. Transactions between blood relatives undertaken in cash were accepted as genuine on the material on record. The Tribunal found no reason to doubt the genuineness of the receipts in the facts and documentary evidence before it and therefore held that these cash credits were not liable to be added as unexplained. [Paras 5]

Additions of Rs. 12.00 lakhs and Rs. 4.00 lakhs deleted and AO directed to delete these additions.

Cash withdrawals deposited into bank - remand for fresh examination - unexplained cash credit u/s 68 - The claim that Rs. 14.00 lakhs was deposited from past cash withdrawals was remanded to the AO for fresh examination. - HELD THAT: - The assessee claimed the remaining deposits were from earlier cash withdrawals and produced a cash-flow statement. The AO rejected the explanation without examining the cash-flow statement or the statement of past cash withdrawals. The Tribunal observed there is no prohibition on re-depositing withdrawn cash into bank accounts and that to disallow the claim the AO must show the cash was spent. In absence of such examination, the matter requires fresh verification by the AO with reference to the statement of cash withdrawals and the cash-flow statement tendered by the assessee. [Paras 6]

Order of Ld. CIT(A) set aside on this issue and matter restored to the file of the AO for fresh examination of the claim regarding past cash withdrawals.

Final Conclusion: Appeal partly allowed: additions of Rs. 12.00 lakhs and Rs. 4.00 lakhs deleted; the balance amount of Rs. 14.00 lakhs remanded to the AO for fresh examination.

Disallowance under Section 14A read with Rule 8D - Shares held as stock-in-trade - Apportionment theory for expenditure relating to exempt income - Rejection of the dominant-purpose test - Precedential effect of Supreme Court decision in Maxopp Investments Ltd.

Disallowance under Section 14A read with Rule 8D - Shares held as stock-in-trade - Apportionment theory for expenditure relating to exempt income - Rejection of the dominant-purpose test - Whether disallowance under Section 14A read with Rule 8D is exigible in respect of dividend income earned on shares held as stock-in-trade - HELD THAT: - The Tribunal held that Section 14A, as operationalised by Rule 8D, applies to dividend income even when the shares yielding such exempt dividend are held as stock-in-trade. Relying on the reasoning of the Supreme Court in Maxopp Investments Ltd., the Court rejected the dominant-purpose test advanced by the assessee and endorsed the apportionment theory underpinning Section 14A. The fact that the shares were held for trading and that dividend was an incidental receipt does not exclude the application of Section 14A; expenditure attributable to earning exempt income must be apportioned. Further, orders of coordinate Benches or High Courts inconsistent with the Supreme Court's decision cannot prevail. In the present facts, although opening stock existed and closing stock was nil, that factual position did not alter the legal applicability of Section 14A and Rule 8D; therefore the disallowance worked out under Rule 8D(2)(iii) was sustained. [Paras 7]

Disallowance under Section 14A read with Rule 8D in respect of dividend on shares held as stock-in-trade upheld; CIT(A)'s order sustaining the disallowance affirmed.

Final Conclusion: Appeal dismissed; the Tribunal affirms that Section 14A read with Rule 8D applies to exempt dividend income on shares held as stock-in-trade, following the Supreme Court's decision in Maxopp Investments Ltd., and sustains the disallowance computed by the assessing officer.

Summary order. Delay condoned; leave granted; respondent's counsel accepted notice; counter-affidavit to be filed within six weeks and rejoinder, if any, within four weeks thereafter.

Cancellation and return of the provisional duty bond and bank guarantee - provisional release security - authority to allow collection of bank guarantee

Cancellation and return of the provisional duty bond and bank guarantee - authority to allow collection of bank guarantee - The provisional duty bond was cancelled and the petitioner was permitted to collect the bank guarantee submitted for provisional release. - HELD THAT: - The respondent informed the Court that the bank guarantee in question was not a live instrument and that, by a communication dated 23 January 2020, the Provisional Duty Bond for the amount specified had been cancelled. The respondent further stated that the petitioner had been allowed to collect the bank guarantee dated 26 July 2017 which had been submitted against the relevant bill of entry for provisional release. In light of these statements, the grievances asserted in the writ petition were treated as having been resolved by the respondent and no further adjudication of the claim was necessary.

The relief sought for cancellation/return of the provisional duty bond and collection of the bank guarantee is effectively granted by the respondent's actions; the writ petition is disposed of.

Final Conclusion: The interlocutory exemption application was allowed. The respondent cancelled the provisional duty bond and permitted collection of the bank guarantee, the petitioner's grievance having been resolved; accordingly the writ petition is disposed of.

Re-export of detained goods - waiver of demurrages - demurrages payable under law - mootness

Re-export of detained goods - mootness - Relief seeking release of the imported consignment for re-export - HELD THAT: - The court recorded that the authority had already passed the Order In Original and granted permission for re export. The petitioner had also been communicated the grant of NOC for re export by respondent No.4, rendering the principal grievance in the writ petition academic. In view of the factual position that the re export has been permitted, the court found no live controversy requiring further judicial intervention and disposed of the petition on that basis. [Paras 2]

The prayer for direction to release the consignment for re export was rendered academic and the petition was disposed of accordingly.

Waiver of demurrages - demurrages payable under law - Claim for waiver of demurrages levied upon the petitioner - HELD THAT: - Relying on the court's earlier decision in W.P.(C) 7577/2019 M/s Global Impex Through Its Partner v. Manager, Celebi Import Shed and Anr. dated 20th December, 2019, the court held that demurrages are payable in accordance with law. Applying that precedent, the petitioner was held bound to pay the demurrages, and the court declined to entertain the petition insofar as it sought waiver of demurrages. [Paras 3]

Claim for waiver of demurrages was rejected; the petitioner is bound to pay demurrages as held in the earlier judgment.

Final Conclusion: The writ petition was disposed of: permission for re export had already been granted making that relief academic, and the claim for waiver of demurrages was declined in view of settled law that demurrages are payable.

Provisional release of seized goods pending adjudication - representation for modification of conditions for provisional release - direction to adjudicating authority to reconsider security and bond - guidelines for provisional release of seized imported goods pending adjudication

Representation for modification of conditions for provisional release - direction to adjudicating authority to reconsider security and bond - provisional release of seized goods pending adjudication - Adjudicating authority to consider and decide the appellant's representation seeking modification of conditions imposed for provisional release of seized goods. - HELD THAT: - The Tribunal recorded that there is no bar on the appellant making a request for reconsideration of the conditions imposed for provisional release and that the appellant had indeed made such a representation. The adjudicating authority must consider the representation and is free to reassess and re-determine the value of the bond and the quantum of security required for provisional release. The adjudicating authority should take into account the relevant CBEC guidelines titled "Guidelines for provisional release of seized imported goods pending adjudication" while disposing of the representation. Since the consignment is live, the adjudicating authority is directed to afford personal hearing to the appellant and dispose of the representation expeditiously, preferably within one month of receipt of this order. No observations were made on the merits of the representation and the adjudicating authority's determination is left open. [Paras 5, 6, 7]

The adjudicating authority is directed to consider and decide the representation dated 6.12.2019, after affording personal hearing and having regard to the CBEC guidelines, and to do so expeditiously, preferably within one month.

Final Conclusion: Appeal disposed by directing the adjudicating authority to reconsider the appellant's representation on the conditions for provisional release (including bond and security) in accordance with the CBEC guidelines, after personal hearing, expeditiously and preferably within one month; no decision on maintainability or merits was rendered.

Refund of pre-deposit - interest on delayed refund - deposit made during investigation - binding effect of CBEC Circular No. 984/08/2014-CX (para 5) - obligation under Section 27 of the Customs Act to pay interest on refunds

Refund of pre-deposit - interest on delayed refund - deposit made during investigation - binding effect of CBEC Circular No. 984/08/2014-CX (para 5) - obligation under Section 27 of the Customs Act to pay interest on refunds - Whether the appellant was entitled to interest on the refund of the amount deposited during investigation which was returned after adjudication in its favour. - HELD THAT: - The Tribunal held that where an amount deposited (pre-deposit or deposit during investigation) is required to be refunded after the appellate or adjudicatory process decides the matter in favour of the party, refund must be paid with interest. The CBEC Circular No. 984/08/2014-CX (para 5) directs that refund of such pre-deposits should be accompanied by interest from the date of deposit to the date of refund and that such refund should be paid promptly (within 15 days of the refund request) unless a competent authority has stayed the order permitting refund. Further, Section 27 of the Customs Act imposes an obligation on the Department to grant interest on refunds. Applying these instructions and statutory mandate to the facts, the Tribunal found that the amount deposited during investigation was required to be refunded with interest, and that withholding interest amounted to wrongful retention and harassment by the Department. The Tribunal therefore directed grant of interest on the delayed refund in accordance with law and the CBEC instructions. [Paras 4, 5, 6]

Interest on the delayed refund of the deposit made during investigation is to be granted to the appellant in terms of the CBEC Circular and Section 27 of the Customs Act; the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal and directed that interest be paid on the refund of the deposit made during investigation, in accordance with the CBEC Circular No. 984/08/2014-CX (para 5) and Section 27 of the Customs Act.

Appealability of self-assessment - self-assessment as assessment order - appeal under Section 128 of the Customs Act - remand for decision on merits

Appealability of self-assessment - self-assessment as assessment order - appeal under Section 128 of the Customs Act - Self-assessment effected by the assessee is an order of assessment and is appealable under Section 128 of the Customs Act. - HELD THAT: - The Tribunal applied the principle laid down by the Hon'ble Supreme Court in ITC Ltd. (reported in 2019(368) ELT 216(SC)), holding that an order of self-assessment qualifies as an assessment order under the Act and therefore falls within the ambit of "any order" against which an appeal lies under Section 128. The reasoning in the impugned order - that absence of an order or decision by a proper officer precluded maintainability of the appeal because bills of entry were RMS facilitated and goods cleared on self-assessment - was held to be contrary to law. The Tribunal concluded that Section 128's language is wide and not limited to speaking orders issued by an officer; consequently, the Commissioner (Appeals) erred in treating the self-assessment as non-appealable and should have proceeded to decide the appeal on merits. [Paras 3]

The appealability of the self-assessment was affirmed and the Commissioner's conclusion to the contrary was held erroneous.

Remand for decision on merits - appeal under Section 128 of the Customs Act - Whether the impugned order rejecting the appeal without adjudication on merits ought to be set aside and remitted for fresh decision. - HELD THAT: - Having held that the appeal was maintainable, the Tribunal found that the Commissioner (Appeals) should have examined the appellant's contentions on merits instead of dismissing the appeal on the preliminary ground of non-existence of an assessment order. In view of the settled legal position, the Tribunal set aside the impugned order and remanded the matter to the learned Commissioner with a direction to decide the appeal afresh on merits after affording the appellant a reasonable opportunity of hearing. No adjudication on the merits was undertaken by the Tribunal; the matter is returned for fresh consideration in accordance with law. [Paras 3, 4]

Impugned order set aside and matter remanded to the Commissioner to decide the appeal afresh on merits after hearing the appellant.

Final Conclusion: The appeal is allowed by way of remand: the impugned order is set aside and the matter is remitted to the Commissioner (Appeals) for fresh adjudication on merits after affording the appellant a reasonable opportunity of hearing.

Foreign trade policy authorization - confiscation and redemption fine - re-export order - personal penalty - clearance for home consumption on payment of duties

Foreign trade policy authorization - re-export order - clearance for home consumption on payment of duties - Validity of the order directing re-export of imported goods for lack of DGFT authorization and entitlement to clearance upon payment of redemption fine and duties - HELD THAT: - The goods imported were tested and found to meet the specifications of kerosene, which the revenue treated as restricted to import by State Trading Enterprises unless importers obtain authorization from DGFT. The appellants had not produced any DGFT authorization. The Tribunal observed that the Foreign Trade Policy permits import by persons other than State Trading Enterprises provided they obtain prior authorization from DGFT. Non-production of such authorization constituted a breach of the policy but did not mandate re-export where the statutory scheme allows import with prior authorization. Consequently, the Tribunal held that the direction to re-export the goods after redemption was unsustainable. The Tribunal set aside that portion of the adjudicating order and permitted clearance of the goods for home consumption upon payment of the redemption fine and the customs duties applicable, thereby giving effect to the remedial route available under the policy rather than compulsion of re-export.

Order directing re-export set aside; goods allowed clearance for home consumption on payment of redemption fine and customs duties.

Personal penalty - confiscation and redemption fine - Sustainability of personal penalties and confiscation consequences imposed on the appellants for lack of DGFT authorization - HELD THAT: - While the adjudicating authority confiscated the goods and imposed redemption fine and personal penalties for violation of the Customs Act read with the Foreign Trade Policy, the Tribunal examined the nature of the violation-absence of DGFT authorization-and found that the appropriate remedial course was payment of redemption fine and duties followed by clearance rather than retention of the re-export direction and imposition of personal penalties. In that context the Tribunal set aside all personal penalties imposed by the adjudicating authority, retained the redemption fine and duties as the means for regularization and release, and thereby reversed the punitive component that was not viewed as necessary in light of available authorization-based relief.

All personal penalties set aside; confiscation replaced by redemption fine and payment of duties to permit clearance.

Final Conclusion: Appeals partially allowed: the direction to re-export is set aside; goods may be cleared for home consumption on payment of the redemption fine and customs duties; personal penalties imposed by the adjudicating authority are set aside.

Relinquishment of title under section 26A of Customs Act, 1962 - Refund of duty on relinquished goods - Proviso to section 128(3) - scope of show cause notice - Jurisdictional limits of Commissioner of Customs (Appeals) - Confiscation and penalty proceedings under sections 111 and 112

Proviso to section 128(3) - scope of show cause notice - Jurisdictional limits of Commissioner of Customs (Appeals) - Whether the first appellate authority could initiate show cause proceedings and direct confiscation/penalty proceedings beyond the scope of the original proceedings under the proviso to section 128(3). - HELD THAT: - The appellate authority's jurisdiction is confined to matters arising from the notice that commenced the proceedings which produced the appeal. The proviso to section 128(3) permits issuance of a show cause notice only for enhancing penalty or other detriment or for rejection of a refund sanctioned by the original authority; it does not confer power to initiate a new cause of action or fresh proceedings that were not part of the original notice. Proceedings that may be initiated by the proper officer (for example under sections 28 or 124) do not contemplate the Commissioner of Customs (Appeals) as the proper officer. Consequently, directing drawal of samples and ordering confiscation/penal action beyond the scope of the original proceedings exceeded the appellate authority's powers and was beyond the pale of law. [Paras 5]

Direction of the first appellate authority to issue show cause/penal/confiscation proceedings beyond the scope of the original notice is beyond its jurisdiction and set aside.

Relinquishment of title under section 26A of Customs Act, 1962 - Refund of duty on relinquished goods - Whether the goods already cleared by the importer were eligible for relinquishment and refund under section 26A. - HELD THAT: - Section 26A requires simultaneous fulfilment of prescribed conditions (including re export or destruction where applicable) and relinquishment of title is not permissible in respect of goods already cleared. There is no evidence on record that the goods taken into the importer's possession were the same as those cleared, nor that they were re exported or destroyed in compliance with section 26A. Therefore the claim for refund under section 26A is confined to goods that remained uncleared and were acknowledged as relinquished; cleared goods do not qualify for relinquishment and refund under that provision. [Paras 6]

Claim for refund under section 26A is limited to uncleared goods acknowledged as relinquished; the cleared goods are not eligible.

Relinquishment of title under section 26A of Customs Act, 1962 - Relief to be granted to the appellant in view of the appellate authority's excess of jurisdiction and the limits of section 26A entitlement. - HELD THAT: - Because the appellate authority erred in invoking powers to commence fresh penal/confiscation proceedings and because relinquishment/refund under section 26A is not available for goods already cleared, the appropriate remedy is to set aside the impugned direction that went beyond jurisdiction while leaving the non entitlement of cleared goods intact. The appeal is therefore allowed to the extent of quashing the direction to the Additional Commissioner for further disposition of uncleared goods; there is no fault in refusing claim in respect of cleared goods. [Paras 7]

Appeal allowed in part; direction to Additional Commissioner for further disposition of uncleared goods set aside; no interference with denial of relinquishment/refund for cleared goods.

Final Conclusion: The appeal is allowed in part: the appellate authority's direction to initiate fresh confiscation/penal proceedings and to direct disposition of uncleared goods is set aside as beyond its jurisdiction, while the non entitlement of cleared goods to relinquishment and refund under section 26A is upheld.

Summary order. Miscellaneous application for early hearing allowed and appeal directed to be listed for final hearing on 10.01.2020.

Prematurity of writ against pending show cause notice - Requirement to exhaust statutory remedies before invocation of Article 226 - Complete code doctrine in excise/indirect tax matters

Prematurity of writ against pending show cause notice - Requirement to exhaust statutory remedies before invocation of Article 226 - Complete code doctrine in excise/indirect tax matters - Writ petition dismissed as premature where show cause notice awaited adjudication and statutory remedies have not been exhausted. - HELD THAT: - The Court found that the show cause notice dated 23rd September, 2019 remains to be adjudicated and has not even been replied to by the petitioner; consequently the petition is premature. Reliance was placed on the principle that excise/indirect tax law is a complete code and that a writ under Article 226 should not ordinarily be entertained before a person has raised objections and sought redressal under the statutory scheme. The Court noted the binding guidance in the cited Supreme Court authorities that objections must first be urged before the authority that issued the show cause notice and, if an adverse order follows, constitutional remedies may be sought thereafter. Applying that principle to the present facts, the Court declined to entertain the petition at this stage and dismissed it. [Paras 2, 3, 4, 5]

Writ petition dismissed as premature; petitioner must first pursue and exhaust statutory remedies in relation to the show cause notice.

Final Conclusion: The writ petition challenging the show cause notice dated 23rd September, 2019 is dismissed for prematurity in view of the requirement to first exhaust statutory remedies under the excise/indirect tax code.

Clandestine removal of goods - reliance on documents and statements recovered from a third party - production and cross-examination requirement under Section 9D of the Central Excise Act, 1944 - inadmissibility of third party evidence where statutory safeguards are not complied with - burden on Revenue to produce witness to prove third party records - penalty consequent to clandestine removal

Reliance on documents and statements recovered from a third party - production and cross-examination requirement under Section 9D of the Central Excise Act, 1944 - inadmissibility of third party evidence where statutory safeguards are not complied with - burden on Revenue to produce witness to prove third party records - Whether the adjudicating authority could rely on documents and statement recovered from a third party (M/s Pankaj Ispat Ltd.) without producing the third party witness for examination and offering the assessee an opportunity to cross examine in terms of Section 9D of the Central Excise Act, 1944. - HELD THAT: - The Tribunal found that the Department's case rested on records recovered from M/s Pankaj Ispat Ltd. and the statement of its representative, Shri Pankaj Agarwal. Section 9D requires that where reliance is placed on documents and statements obtained from a third party, the person making the statement must be produced so that the assessee can cross examine. The Revenue failed to produce Shri Pankaj Agarwal to testify to the truth of the documents and his statement during adjudication and did not afford the assessee an opportunity for cross examination. In consequence, the evidence so relied upon had no legal value. The Tribunal applied the principle that third party documentary evidence cannot be treated as conclusive against the assessee where statutory safeguards for proof and cross examination are not observed, following the reasoning in earlier decisions of this Tribunal. [Paras 6, 7]

Documents and statement recovered from the third party could not be relied upon in the absence of production of the witness and opportunity for cross examination; such evidence was inadmissible and of no value.

Clandestine removal of goods - penalty consequent to clandestine removal - inadmissibility of third party evidence where statutory safeguards are not complied with - Whether the allegation of clandestine removal of goods and the consequential demand of duty, interest and penalties against the appellants were sustainable on the material on record. - HELD THAT: - The Tribunal held that the charge of clandestine removal was founded on the third party records and the untested statement of the third party representative. In absence of admissible, corroborative evidence and given the invalidation of the third party evidence for non compliance with Section 9D, the foundational material to sustain the allegation did not survive. Reliance on decisions where uncorroborated third party challans or katcha slips were held insufficient was noted. As the essential evidence was excluded, the demand of duty, interest and penalties could not be sustained. [Paras 7, 9]

The charge of clandestine removal of goods was not sustainable and the demand of duty, interest and penalties was set aside.

Final Conclusion: The impugned adjudication order confirming demand of duty with interest and imposing penalties is quashed. The appeals are allowed and the demand, interest and penalties set aside; consequential relief to follow.

Evidence recorded under Section 14 of the Central Excise Act - procedure under Section 9D of the Central Excise Act - corroborative evidence requirement for clandestine removal - admissibility of extraneous private documents without examination of the author - proof of manufacturing capacity and corroboration by electricity consumption, labour and dispatch records - denial and restoration of Cenvat credit - penalty under Rule 26 of the Central Excise Rules, 2002

Evidence recorded under Section 14 of the Central Excise Act - procedure under Section 9D of the Central Excise Act - corroborative evidence requirement for clandestine removal - proof of manufacturing capacity and corroboration by electricity consumption, labour and dispatch records - Validity of demand of Rs. 44,06,966/- for alleged clandestine manufacture and clearance of 2,118.733 MT of SS Ingots - HELD THAT: - The Tribunal held that the adjudication rested substantially on statements recorded under Section 14 and on unverified private documents; the remand directions to follow the procedure under Section 9D were not complied with by the Commissioner. Absent compliance with Section 9D and without inquiry into corroborative material (purchase of raw material, electricity consumption, dispatch/receipts, recovery of sale proceeds, manufacturing capacity and related investigation), the statements and seized private notebooks could not be relied upon. The Tribunal, applying authorities that require examination of authors of private records and the need for clinching corroboration before inferring clandestine removals, concluded the demand was based on presumptions and assumptions and set aside the demand for alleged clandestine manufacture and clearance. [Paras 6, 7]

Demand of Rs. 44,06,966/- for alleged clandestine manufacture and clearance is set aside.

Corroborative evidence requirement for clandestine removal - penalty under Rule 26 of the Central Excise Rules, 2002 - Liability for duty and penalty on alleged shortages of finished goods and raw materials (demand of Rs. 5,76,425/- and penalty of Rs. 5,76,425/-) - HELD THAT: - The Tribunal found that stock verification was conducted on an 'eye-estimation' basis as per the Panchnama. The Director and the Authorized Signatory had expressed satisfaction with the computed shortage and had deposited duty during investigation. On that factual matrix the Tribunal sustained the demand for duty corresponding to the shortages. However, drawing upon authorities that distinguish mere shortages from proved clandestine removals, the Tribunal held that penalty imposed on account of such shortages cannot be sustained in the absence of proof of clandestine clearance, and therefore set aside the penalty component. [Paras 8]

Duty of Rs. 5,76,425/- on shortages is confirmed; penalty of Rs. 5,76,425/- is set aside.

Denial and restoration of Cenvat credit - evidence recorded under Section 14 of the Central Excise Act - procedure under Section 9D of the Central Excise Act - Validity of denial of Cenvat credit of Rs. 64,244 - HELD THAT: - The denial of Cenvat credit was founded solely on statements of the transporter and the Authorized Signatory, which the Tribunal held could not be relied upon because the Section 9D procedure was not followed during the remand adjudication. In consequence, the basis for disallowance lacked legally admissible evidence and the denial was found unsustainable. [Paras 9]

Denial of Cenvat credit of Rs. 64,244 is set aside.

Procedure under Section 9D of the Central Excise Act - admissibility of extraneous private documents without examination of the author - Appropriateness of remand proceedings and opportunity to lead evidence (failure to summon and examine Revenue witnesses, non-provision of RUDs and hurried adjudication) - HELD THAT: - The Tribunal found that in the remand proceedings the Commissioner did not summon or examine Revenue witnesses nor offer them for cross-examination, and did not supply documents sought (RUDs), despite specific requests and prior directions. The adjudication was concluded hurriedly without affording proper opportunity to the appellant to lead evidence, thereby vitiating reliance on statements and seized records. [Paras 10]

Remand proceedings were procedurally defective for non-compliance with required procedure and denial of adequate opportunity to lead and test evidence.

Penalty under Rule 26 of the Central Excise Rules, 2002 - Consequential reliefs: interest, penalties and penalty on Director - HELD THAT: - Because the primary demand for clandestine removals was set aside, the Tribunal held that interest and penalties attributable to that demand must also fall. The Tribunal therefore set aside interest and penalty associated with the quashed demand and also set aside the penalty imposed on the Director. [Paras 11]

Interest and penalties related to the set-aside demand, and penalty imposed on the Director, are set aside.

Final Conclusion: The appeal is allowed in part: the demand for alleged clandestine manufacture and clearance (Rs. 44,06,966/-) is set aside for lack of legally admissible and corroborative evidence and for non-compliance with the Section 9D procedure; denial of Cenvat credit (Rs. 64,244) is set aside; remand proceedings were procedurally defective. The duty on shortages (Rs. 5,76,425/-) is confirmed but the penalty on those shortages, interest relating to the set-aside demand and the penalty on the Director are set aside; consequential relief to follow.

Eligibility for exemption under notification No.10/1997-Central Excise based on certificates issued by competent authority for specific end-use - eligibility for exemption under notification No.6/2006-Central Excise for goods intended for water treatment plants based on certificates of end-use - treatment of cables and wires in running length as parts, equipment or accessories of machines or plants - precedential weight of tribunal decisions distinguishing Supreme Court authorities on eligibility where competent authority certifies end-use

Eligibility for exemption under notification No.10/1997-Central Excise based on certificates issued by competent authority for specific end-use - treatment of cables and wires in running length as parts, equipment or accessories of machines or plants - Appellant's supplies of cables to publicly funded research institutions were eligible for exemption under Notification No.10/1997-CE where certificates issued by the competent authorities certified specific end-use for research purposes. - HELD THAT: - The Tribunal examined the certificates issued by the competent authorities of the research institutions which certified that the cables supplied were for research end-use. Having regard to consistent decisions of the Tribunal which hold that an exemption under the notification cannot be denied when the competent authority issues the requisite certificate as to specific end-use, the Tribunal concluded that the supplies to LPSC/ISRO and IIT Mumbai qualified for exemption. The Tribunal observed that the question is no longer res integra and relied on the line of tribunal decisions holding that certification of specific end use by the competent authority supports the claim of exemption even where goods (such as cables) are cleared in running length. [Paras 5]

Supplies of cables to the research institutions are eligible for exemption under Notification No.10/1997-CE in view of the certificates issued by the competent authority.

Eligibility for exemption under notification No.6/2006-Central Excise for goods intended for water treatment plants based on certificates of end-use - treatment of cables and wires in running length as parts, equipment or accessories of machines or plants - Appellant's supplies of cables to the Surat Municipal Corporation for use in water treatment plants were eligible for exemption under Notification No.6/2006-CE where the District Collector certified the specific end-use. - HELD THAT: - The Tribunal placed reliance on the certificates issued by the District Collector certifying that the cables were procured for setting up the water treatment plant. Consistent tribunal precedents were held to support the proposition that when competent authority certification as to specific end use is furnished, the exemption under the relevant notification for water supply/treatment plants cannot be denied. On that basis the Tribunal held the appellants entitled to the benefit of Notification No.6/2006-CE. [Paras 5]

Supplies of cables to the Surat Municipal Corporation for use in water treatment plants are eligible for exemption under Notification No.6/2006-CE in view of the certificate issued by the competent authority.

Limitations and extended period for recovery of duty - The Tribunal did not decide issues relating to limitation or extended period; those matters were not adjudicated on merits. - HELD THAT: - Although the departmental orders had also raised points relating to limitation and extended period, the Tribunal, having determined entitlement to exemption on the basis of certificates issued by competent authorities and in view of controlling tribunal precedents, expressly refrained from adjudicating ancillary issues such as limitation or invocation of extended period. The Tribunal therefore did not examine or decide those contentions. [Paras 5]

Issues of limitation and extended period were left undetermined and were not gone into by the Tribunal.

Final Conclusion: The appeal is allowed: supplies of cables to the specified research institutions and to the water treatment plant were held eligible for exemption under the respective notifications in view of competent authority certificates certifying specific end use; ancillary issues including limitation/extended period were not adjudicated.

Validity of closure under Section 11AC(1)(d) without issuance of show cause notice - requirement of issuance of show cause notice in cases covered by Section 11A(4) - limitations of administrative circulars vis-a -vis statutory mandate - free and informed consent for waiver of statutory rights - appealability of departmental communications that have adjudicatory effect - equivalence of a closure letter to an adjudication order where civil consequences follow

Validity of closure under Section 11AC(1)(d) without issuance of show cause notice - requirement of issuance of show cause notice in cases covered by Section 11A(4) - limitations of administrative circulars vis-a -vis statutory mandate - Impugned closure letter dated 29.07.2016 premised on settlement under Section 11AC(1)(d) is invalid insofar as it purports to conclude proceedings without issuance of a show cause notice in a case attracting Section 11A(4). - HELD THAT: - The Tribunal held that where facts attract Section 11A(4) (fraud, suppression, collusion etc.), issuance of a show cause notice is a statutory precondition and cannot be dispensed with by administrative instructions. The CBEC clarification/ circular cannot override the statutory requirement; Clause 2.3 of the circular cannot be invoked to circumvent the mandatory prescription of Section 11A(4) read with Section 11AC(1)(d). The closure letter issued by DGCEI recorded civil consequences and a categorical finding inconsistent with the appellant's stand; such closure without statutory adjudication and without the appellant's free and informed waiver of the specific allegation (i.e., acceptance of non-receipt of inputs) was held to be illegal. The Tribunal further noted that where the departmental communication travels beyond what an assessee accepted in writing, it cannot operate as a valid appropriation or final settlement under the Act. [Paras 34, 36, 41]

Impugned closure dated 29.07.2016 set aside as being in violation of Section 11A(4) read with Section 11AC(1)(d).

Appealability of departmental communications that have adjudicatory effect - equivalence of a closure letter to an adjudication order where civil consequences follow - The communication dated 29.07.2016 was held to have adjudicatory effect and civil consequences and therefore amenable to challenge; it is not a mere inter-departmental note immune from appeal. - HELD THAT: - The Tribunal examined the character and effects of the DGCEI letter and concluded that by recording quantification, directing reversal/appropriation and effecting closure of civil liability it operated as more than an administrative intimation. Because the letter produced grave civil consequences and purported to conclude disputes under the statutory scheme, it amounted to an adjudicatory act susceptible to judicial review and appeal. The Tribunal rejected Revenue's contention that the communication was not an appealable order. [Paras 33, 34, 37]

The DGCEI communication is treatable as an order with adjudicatory effect and is subject to challenge; maintainability objection rejected.

Free and informed consent for waiver of statutory rights - limitations of administrative circulars vis-a -vis statutory mandate - The appellant's purported waiver and payments were not treated as a free, informed consent to the specific allegation of non-receipt of inputs and therefore could not preclude statutory adjudication. - HELD THAT: - On facts the Tribunal found coercion and pressure during the investigation (including arrests, seizures and operational disruption) which vitiated any alleged consent; the appellant consistently maintained that inputs were received and that payments were made to buy peace in face of investigation. The Tribunal held that consent required by the circular must be free, informed and confined to the precise grounds reduced to writing; absent such consent, waiver is invalid and cannot operate to extinguish the statutory requirement of show cause notice and adjudication under Section 11A(4). [Paras 35, 36, 37]

The alleged waiver is invalid for want of free and informed consent and does not preclude issuance of a show cause notice.

Final Conclusion: The closure letter dated 29.07.2016 issued by DGCEI is quashed as being contrary to the statutory scheme (Section 11A(4) read with Section 11AC(1)(d)) and as lacking free informed consent by the assessee; the Tribunal allowed the appeal, set aside the closure, granted liberty to the Revenue to issue a show cause notice following statutory process (limitation excluded from 29.07.2016 to date of this order) and directed that such show cause notice, if any, be issued within three months.