TaxTMI Updates e-Newsletter
Feb 04,2015

Payment treated as fringe benefit - Fringe Benefit Tax liability under clause E of section 115WB(2) - exclusion of fringe benefits from perquisites under section 17(2)(vi) - obligation to deduct tax at source under section 192 where payment constitutes salary - relevance of CBDT Circular No. 8/2005 to statutory obligations and FBT exclusion

Payment treated as fringe benefit - Fringe Benefit Tax liability under clause E of section 115WB(2) - exclusion of fringe benefits from perquisites under section 17(2)(vi) - obligation to deduct tax at source under section 192 where payment constitutes salary - Whether uniform and similar allowances paid by the employer were liable to TDS as salary or were taxable only as fringe benefit (FBT) in the hands of the employer so that no TDS under section 192 was required to be deducted. - HELD THAT: - The Court concurred with the Tribunal's reasoning that the disputed payments fall within the definition of fringe benefit and are taxable under the FBT provisions (clause E of sub-section (2) of section 115WB). The statutory scheme and the explanation to clause E show that certain employee welfare expenditures, unless excluded by the Explanation (for example, where incurred to fulfill a statutory obligation), are to be treated as fringe benefits chargeable to FBT and are not perquisites under section 17(2)(vi). The fact that the payments were capable of being attributed to individual employees did not exclude them from FBT. Reliance on CBDT Circular No.8/2005 was noted only to the extent that expenditures which are statutory obligations may be excluded; on the facts, the uniform/washing related payments were not statutory obligations and therefore did not fall within that exclusion. Once the payments are held to be fringe benefits subjected to FBT, they are not taxable as salary in the hands of employees and accordingly the employer was not required to deduct TDS under section 192. The Court did not adjudicate whether the payments might be exempt under section 10(14), leaving that question unexamined. [Paras 4, 6]

Answered against the Revenue and in favour of the assessee: the payments are fringe benefits on which FBT was payable and therefore no TDS under section 192 was required to be deducted; appeals dismissed.

Final Conclusion: The High Court, following its earlier decision, held that the uniform and similar allowances constituted fringe benefits taxable under the FBT provisions and not perquisites forming part of salary; consequently no TDS was required to be deducted by the employer and the revenue's appeals were dismissed.

Deduction under section 32AB - Profit and gains of business or profession as per audited books - Assessing Officer's power to inquire into transactions relating to earlier previous years - Distinction between assessment year and previous year for chargeability - Remand to Tribunal for limited factual re-examination

Deduction under section 32AB - Profit and gains of business or profession as per audited books - Whether the Appellate Tribunal was right in law and on facts in allowing the assessee's claim under section 32AB in respect of the adjustment of Rs. 1,96,117/-. - HELD THAT: - The Court held that section 32AB requires the profit of business or profession to be taken from the audited books prepared in accordance with Parts II and III of Schedule VI, subject only to the specific adjustments listed in subsection (3). Generally the Assessing Officer must accept the figure of profit as per the auditor-certified books and cannot re-open routine items of accounting treatment. However, where an entry in the books relates to income or transactions pertaining to a period outside the relevant previous year (i.e., beyond the span of the assessment year) the Assessing Officer may inquire into that aspect because it goes to the root of chargeability for the assessment year. Applying these principles, the Court found that the Tribunal had not considered whether the Rs. 1,96,117/- adjustment related to a prior period and hence whether it could properly be included for computing the deduction under section 32AB; accordingly the Tribunal's unexamined acceptance of the first appellate authority's conclusion could not stand and required reconsideration. [Paras 6, 10, 11]

Tribunal's allowance set aside for reassessment on the limited question of admissibility of the Rs. 1,96,117/- adjustment for computing investment allowance under section 32AB.

Assessing Officer's power to inquire into transactions relating to earlier previous years - Distinction between assessment year and previous year for chargeability - Remand to Tribunal for limited factual re-examination - Whether the matter should be remanded to the Tribunal for reconsideration of the limited factual question whether the disputed adjustment related to an earlier period and thus was inadmissible for the assessment year 1990-1991. - HELD THAT: - The Court observed that although the Assessing Officer ordinarily must accept audited books, he retains authority to examine transactions that touch the root question of the assessment year - specifically entries that in substance relate to an earlier previous year rather than the relevant assessment year. The first appellate authority and the Tribunal did not examine this span-and-ambit issue; the Tribunal merely affirmed the CIT(A) without addressing whether the adjustment represented income of a prior period. Because this involves subsidiary factual determination within the Tribunal's factual domain, the Court remanded the limited question to the Tribunal to reexamine admissibility of the adjustment and its consequential effect on the section 32AB allowance, directing expedition. [Paras 7, 11, 12, 15]

Matter remanded to the Tribunal for limited reexamination of whether the Rs. 1,96,117/- adjustment pertains to a prior period and for consequential determination of entitlement under section 32AB, to be decided preferably within six months.

Final Conclusion: The appeal is partly allowed: the Tribunal's order allowing the section 32AB claim is set aside and the case is remanded to the Tribunal for limited factual reconsideration whether the Rs. 1,96,117/- adjustment relates to an earlier period and, if so, the consequent effect on the deduction under section 32AB (to be decided preferably within six months); no order as to costs.

Taxability of ESOP/Stock Appreciation Rights as perquisite versus capital gains - perquisite under the head 'Salaries' and Section 17(2)(iii) of the Income tax Act - timing of accrual of perquisite (grant, vesting, exercise, lock in, sale) - notional or unascertainable benefit during lock in cannot be charged as income - capital asset treatment of stock options and SARs - classification as long term or short term capital gains on exercise of ESOP/EOSP - cost of acquisition for Stock Appreciation Rights

Taxability of ESOP/Stock Appreciation Rights as perquisite versus capital gains - perquisite under the head 'Salaries' and Section 17(2)(iii) of the Income tax Act - notional or unascertainable benefit during lock in cannot be charged as income - The amount received on redemption/exercise of Stock Appreciation Rights is not taxable as a perquisite under the head 'Salaries' for the periods in question and may be treated as capital gain. - HELD THAT: - Relying on the decision of the Supreme Court in Commissioner of Income Tax, Bangalore v. Infosys Technologies Ltd., the court held that prior to the statutory provisions that made ESOP benefits specifically taxable, a potential or notional benefit arising during lock in (when there was no cash inflow and the market value was not ascertainable) could not be charged as salary/perquisite. The Tribunal's characterisation of the difference between market value and amount paid as a perquisite was therefore erroneous for the tax periods before the legislative mechanism for valuing such options existed; accordingly, the Tribunal was correct in treating the amounts as capital gains rather than salary/perquisite. [Paras 3, 5]

Answered in favour of the assessee - amounts on redemption/exercise of SARs/ESOP not taxable as perquisite under Section 17(2)(iii) for the periods before the statutory valuation mechanism.

Capital asset treatment of stock options and SARs - classification as long term or short term capital gains on exercise of ESOP/EOSP - The amount received on exercising the option under the Employee's Stock Option Plan (EOSP) is to be treated as long term capital gains rather than short term capital gains (as decided by the Tribunal). - HELD THAT: - Applying the legal rationale accepted from Infosys (that such benefits are not salary/perquisite when unascertainable and are properly addressed under capital gains), the court sustained the Tribunal's classification of the gain arising on exercise of the EOSP as long term capital gains. The court therefore affirmed the Tribunal's view on the nature of the gain for the relevant assessment year. [Paras 6]

Tribunal's classification of the EOSP proceeds as long term capital gains is upheld.

Cost of acquisition for Stock Appreciation Rights - capital asset treatment of stock options and SARs - The Tribunal was not justified in holding that capital gain arose on redemption of Stock Appreciation Rights which had no cost of acquisition. - HELD THAT: - While the court agreed with the Tribunal that the receipts should not be taxed as salary/perquisite and may attract capital gains treatment, it rejected the Tribunal's conclusion that capital gain arose despite there being no cost of acquisition. The court recorded that the Tribunal's finding on absence of cost of acquisition was not justified and therefore that aspect cannot be sustained. [Paras 6]

Tribunal's finding that capital gain arose despite no cost of acquisition is set aside; that specific conclusion was not justified.

Final Conclusion: All substantial questions raised in the appeals are answered in favour of the assessee and against the revenue: the Tribunal was correct in treating amounts received on redemption/exercise of SARs/ESOP/EOSP as capital gains (and in classifying the EOSP proceeds as long term capital gains), but the Tribunal was not justified in holding that such capital gains arose where no cost of acquisition was found.

Benefit of Section 54E - period of six months from the date of transfer - reckoning period from date of receipt in case of compulsory acquisition - strict compliance with conditions of Section 54E

Benefit of Section 54E - period of six months from the date of transfer - reckoning period from date of receipt in case of compulsory acquisition - strict compliance with conditions of Section 54E - Interpretation and application of the six months' time-limit under Section 54E and its application to the assessee's investment. - HELD THAT: - The Court held that an assessee seeking the benefit of Section 54E must strictly satisfy the conditions of the provision, one of which requires deposit of the whole or any part of the net consideration in the specified asset within six months after the date of transfer. The six months' period is to be counted from the date of transfer (the date of execution and registration of the sale deed, viz., 07.08.1982) and not from dates on which instalments of consideration were received, except in the specific contingency contemplated in the provision where the period is to be reckoned from the date of receipt (as in cases of compulsory acquisition). Applying this interpretation, the Court agreed with the Tribunal's finding that the investment of Rs. 1,89,904/- in National Rural Development Bonds on 20.02.1987 fell outside the stipulated period and therefore did not qualify for deduction under Section 54E. The Court rejected the assessee's submission that the six months should be counted from the last receipt of instalment (21.09.1985), finding it misconceived and contrary to the clear language of Section 54E(1) as construed by the Tribunal. [Paras 6, 7, 8]

The claim for deduction under Section 54E was refused as the investment was made after the statutory six months counted from the date of transfer; the Tribunal's dismissal of the appeal was upheld.

Final Conclusion: Appeal dismissed; questions of law answered in favour of the revenue and against the assessee-Section 54E's six months' period is to be computed from the date of transfer except in the limited situation where the statute permits reckoning from date of receipt (e.g., compulsory acquisition), and the assessee's investment made on 20.02.1987 did not satisfy the time-limit.

Transfer of beneficial interest in a trust - chargeability under the integrated code of charging and computation provisions - cost of acquisition - asset inherently incapable of having a determinable cost - item-wise allocation / earmarking test - capital gains not leviable where computation provisions inapplicable

Transfer of beneficial interest in a trust - cost of acquisition - asset inherently incapable of having a determinable cost - capital gains not leviable where computation provisions inapplicable - Capital gain is not chargeable to tax on the sale/transfer of the appellant's beneficial interest in the family trust. - HELD THAT: - The Court accepted the view that the computation provisions integral to the charging provision must be applicable before a surplus on transfer can be taxed; where cost of acquisition cannot be properly ascertained, the transaction falls outside the charge. The tribunal's reliance on treating the settlor's settlement amount apportioned by number of beneficiaries as the assessee's cost of acquisition was held to be incorrect because that figure did not represent a cost to the appellant and an effective cost could not be conceived. The Court applied the principles in D.P. Sandu Bros. Chembur P. Ltd. and PNB Finance Ltd. , and followed this Court's decision in Chintan N. Parikh , to conclude that where item-wise allocation or a determinable cost is not possible, capital gains computation cannot be made and the amount is not taxable under the charging provision. Consequently the Tribunal's order holding the transfer taxable was quashed and the order of the CIT(A) restored. [Paras 8, 12]

Allow appeals; quash Tribunal order and restore CIT(A) order; capital gain not chargeable on transfer of the beneficial interest in the trust.

Final Conclusion: Appeals allowed. The Tribunal was incorrect in holding that capital gains were chargeable on transfer of the beneficial interest in the trust; because the cost of acquisition was not determinable, the charging and computation code could not be applied and no capital gains tax could be levied.

Agricultural income - nursery activity as agricultural operation - basic (primary) agricultural operations versus subsequent operations - nature of product irrelevant to classification as agricultural income - onus of producing material to disbelieve assessment of cultivation

Agricultural income - nursery activity as agricultural operation - basic (primary) agricultural operations versus subsequent operations - nature of product irrelevant to classification as agricultural income - Whether income from cultivation and sale of roses and chikkus in the assessee's nursery amounts to agricultural income exempt from tax. - HELD THAT: - The Court accepted the Tribunal's finding that the assessee carried out cultivation on land owned by him and performed agrarian functions such as tilling, planting, watering, manuring and nurturing up to the stage when plants were ready for sale. Applying the settled principle that income is agricultural where basic operations upon the land involving human skill and labour are performed, and that subsequent operations are agricultural when taken in conjunction with basic operations, the Court held that such nursery operations amount to agricultural operations. The Court noted precedent that the nature of the product does not preclude classification as agricultural income and distinguished authorities where basic operations were not established on the record. On the facts, having found cultivation and agrarian operations, the sale proceeds constitute agricultural income. [Paras 4, 5, 6]

Income from the assessee's nursery cultivation and sale of roses and chikkus is agricultural income and exempt; the substantial question is answered in favour of the assessee.

Onus of producing material to disbelieve assessment of cultivation - Whether the Revenue produced material to displace the assessee's evidence of cultivation. - HELD THAT: - The Tribunal's finding, accepted by the Court, recorded that the Revenue placed no material on record to disbelieve the assessee's contention of cultivation and the assessee produced supporting photographs and evidence of substantial investment and development of rose varieties. In the absence of contrary material, the factual finding of cultivation stood unassailed and supported the classification of income as agricultural. [Paras 4]

Revenue failed to rebut the assessee's evidence of cultivation; therefore the factual finding of agricultural operations is upheld.

Final Conclusion: The Tax Appeals are dismissed; the question whether the nursery activity produced agricultural income is answered in favour of the assessee and against the Revenue for the listed assessment years.

Monetary threshold for filing Revenue appeals - application of Board's instructions to pending appeals - statutory force of Board's instructions issued under section 119 read with section 268A - maintainability of Revenue's appeal in view of Board's Instruction

Monetary threshold for filing Revenue appeals - application of Board's instructions to pending appeals - maintainability of Revenue's appeal in view of Board's Instruction - Maintainability of the Revenue's appeal filed on 01.03.2011 challenging cancellation of penalty for A.Y. 2002-03 in view of Board's instructions and section 268A. - HELD THAT: - The Tribunal examined whether the Board's Instructions prescribing monetary limits for Revenue appeals operate with reference to the date of filing of the appeal or the date when the appeal is heard. Section 268A requires appellate authorities to have regard to the Board's instructions, thereby giving them statutory force for regulating filing of appeals. The Tribunal held itself bound by consistent decisions of the jurisdictional High Court which construe the Board's Instructions as applying to pending (undisposed) appeals so that the monetary limit applicable to an appeal is the limit in force at the time the appeal is heard. Applying that principle, the Tribunal observed that the Instruction in force at the time of hearing prescribed a higher threshold and, on that basis, the present appeal fell below the monetary limit for admission. The Tribunal noted that any departure from the High Court's view would require relief from the High Court itself or the Supreme Court; a subordinate forum cannot override binding High Court precedents. For these reasons the Tribunal found the Revenue's appeal not maintainable and dismissed it in limine. [Paras 4, 5]

Revenue's appeal dismissed in limine as not maintainable under the Board's instructions read with section 268A.

Final Conclusion: The Tribunal, constrained by binding decisions of the jurisdictional High Court on the prospective application of Board's instructions to pending appeals and the statutory weight of those instructions under section 268A, dismissed the Revenue's appeal in limine for want of maintainability.

Deemed dividend under section 2(22)(e) - taxation of deemed dividend only in the hands of shareholder/member - legal fiction limited to enlargement of the definition of 'dividend' and not to 'shareholder' - precedential application of CIT vs. Ankitech Pvt. Ltd.

Deemed dividend under section 2(22)(e) - taxation of deemed dividend only in the hands of shareholder/member - legal fiction limited to enlargement of the definition of 'dividend' and not to 'shareholder' - Whether the amount of Rs. 10,91,340/- could be treated as deemed dividend in the hands of the assessee under section 2(22)(e) when the assessee was not a shareholder/member of the payer company. - HELD THAT: - The Tribunal upheld the First Appellate Authority's conclusion that the deeming provision in section 2(22)(e) expands the definition of 'dividend' but does not extend the concept of 'shareholder' by legal fiction. In reliance on the decision of the Delhi High Court in CIT v. Ankitech Pvt. Ltd., the Tribunal accepted that deemed dividend can be taxed only in the hands of a person who is a shareholder/member of the payer company. Following that precedent and the prior Bench order in ACIT v. ISG Estate (P) Ltd., the Tribunal found that the assessee was not a shareholder/member of M/s Sunglow Overseas Pvt. Ltd.; therefore the loan/advance could not be treated as deemed dividend in the hands of the assessee. The Tribunal noted that, while the conditions of section 2(22)(e) may have been satisfied as to the payment, the legal fiction does not operate to convert a non-shareholder into a shareholder for the purpose of taxation under that provision; the revenue remedy, if any, lies in taxing the dividend in the hands of actual shareholders. [Paras 5, 6, 7]

Addition of Rs. 10,91,340/- under section 2(22)(e) deleted as the assessee was not a shareholder/member of the payer company; Revenue's appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition under section 2(22)(e), following the Delhi High Court's ruling in CIT v. Ankitech Pvt. Ltd. that deemed dividend can be taxed only in the hands of the shareholder/member and that the legal fiction does not extend to convert a non shareholder into a shareholder.

Provision for doubtful debts - allowability under section 36 and 37 of the Income tax Act - provision for contractual obligations - penalty under section 271(1)(c) - write off versus provision - Vijaya Bank precedent - remand for de novo examination by Assessing Officer

Provision for doubtful debts - write off versus provision - Vijaya Bank precedent - remand for de novo examination by Assessing Officer - Claim for deductibility of provision for doubtful debts amounting to Rs. 16,18,319/- in A.Y. 2001-02 was not finally adjudicated but restored to the Assessing Officer for fresh examination. - HELD THAT: - The Tribunal noted that earlier orders (including the Tribunal's decision in the assessee's own case for A.Y. 2005-06) had directed that the issue be examined afresh in the light of the Supreme Court's decision in Vijaya Bank regarding the distinction between an actual write off and a mere provision. The Revenue authorities had not considered the issue in the light of that precedent. In view of the precedent and the need for the Assessing Officer to re examine the facts and accounting treatment to determine whether the amount constitutes an allowable write off or an inadmissible provision, the Tribunal set the matter aside to the file of the AO for de novo adjudication. [Paras 7, 8]

Issue restored to the Assessing Officer for fresh examination in accordance with the cited precedents; ITA No. 5939/Mum/2008 (A.Y. 2001-02) partly allowed for statistical purposes.

Penalty under section 271(1)(c) - provision for doubtful debts - Penalty imposed under section 271(1)(c) for furnishing inaccurate particulars (in A.Y. 2001-02) was quashed as it related to the addition which the Tribunal set aside for de novo examination. - HELD THAT: - The Assessing Officer and Commissioner (Appeals) had treated the claim regarding the provision for doubtful debts as not pressed and held that the assessee furnished inaccurate particulars, thereby invoking section 271(1)(c). The Tribunal, having restored the underlying addition (provision for doubtful debts) to the AO for fresh consideration, held that the penal consequence flowing from that addition could not stand. In consequence, and without objection from Revenue, the penalty levied on account of that addition was quashed. [Paras 11, 12]

Penalty under section 271(1)(c) quashed; ITA No. 2425/Del/2011 (A.Y. 2001-02) allowed.

Provision for doubtful debts - remand for de novo examination by Assessing Officer - allowability under section 36 and 37 of the Income tax Act - Disallowance of provision for doubtful debts in A.Y. 2004-05 was set aside and remitted to the Assessing Officer for fresh examination in the light of relevant precedents. - HELD THAT: - The assessee relied on the Tribunal's earlier direction in its own case for A.Y. 2005-06 and the reasoning in the Supreme Court's Vijaya Bank decision. The Revenue raised no objection. Following the Tribunal's approach in the analogous matters, the Bench directed the Assessing Officer to examine the character of the provision afresh and determine whether it qualifies as an allowable write off or is merely a provision, applying the legal tests laid down by higher precedents. [Paras 15, 16, 17]

Issue restored to the file of the Assessing Officer for de novo examination; ITA No. 5519/Mum/2008 (A.Y. 2004-05) allowed for statistical purposes.

Provision for contractual obligations - remand for de novo examination by Assessing Officer - Disallowance of provision for contractual obligations (Rs. 36,362/-) in A.Y. 2004-05 was remitted to the Assessing Officer for fresh examination following the Tribunal's earlier treatment of similar claims. - HELD THAT: - While the Assessing Officer and Commissioner (Appeals) had found the claim to be an ad hoc provision unsupported by justification, the assessee pointed to earlier Tribunal orders in its own case where similar provisions were directed to be re examined and allowed in substance. The Tribunal, following its precedent and observing no objection from Revenue, directed restoration of the issue to the AO to consider the claim de novo in light of the Tribunal's earlier findings on contractual obligations and warranty type provisions. [Paras 16]

Issue remitted to the Assessing Officer for fresh consideration; consequential relief granted in ITA No. 5519/Mum/2008 (A.Y. 2004-05).

Final Conclusion: The Tribunal restored the disputed provisions claims (doubtful debts and contractual obligations) for A.Y. 2001-02 and A.Y. 2004-05 to the Assessing Officer for de novo examination in the light of the Supreme Court and Tribunal precedents; consequentially, the penalty under section 271(1)(c) for A.Y. 2001-02 was quashed and the appeals were allowed (in whole or in part) for statistical purposes.

Arm's length price - Most appropriate method for transfer pricing - Transactional Net Margin Method (TNMM) - entity-level application - Comparable Uncontrolled Price (CUP) method - averaging of comparable prices - Role of Transfer Pricing Officer vis-a -vis Assessing Officer - ALP determination vs deductibility under section 37(1)

Transactional Net Margin Method (TNMM) - entity-level application - Most appropriate method for transfer pricing - Arm's length price - Admissibility of entity-level TNMM for multiple distinct international transactions and the choice of most appropriate method for the international transaction of sale of finished goods - HELD THAT: - The Tribunal held that section 92(1) requires the ALP to be determined with regard to 'an' international transaction and that multiple transactions can be benchmarked together only if they are 'closely linked' as defined in rule 10A(d). The six separate sets of international transactions undertaken by the assessee were not 'closely linked', therefore TNMM on an entity level was not acceptable. Given the absence of a separate TNMM computation for the sale of finished goods and the availability of internally comparable uncontrolled transactions, the CUP method was held to be the most appropriate method for determining the ALP of the sale of finished goods transaction. The Tribunal also approved the TPO's general approach of comparing AE prices with non-AE prices in the same quarter for identical products. [Paras 4, 5, 6]

Entity-level TNMM rejected; CUP method adopted as the most appropriate method for the international transaction of sale of finished goods.

Comparable Uncontrolled Price (CUP) method - averaging of comparable prices - Arm's length price - Correct manner of selecting comparable uncontrolled prices under the CUP method for specific items in the TPO's table (serial nos. 6, 7 and 9) - whether highest, lowest or arithmetic mean should be used - HELD THAT: - Interpreting section 92C read with rule 10B(1)(a) and the first proviso to section 92C(2), the Tribunal held that where there are a number of comparable uncontrolled transactions, the arm's length price should be identified as the arithmetical mean of the prices determined by the most appropriate method. Consequently, neither the Revenue nor the assessee can 'cherry-pick' the highest or lowest price among comparables. Applying this principle to the facts, the Tribunal computed (for the example at serial no. 6) the average of two comparable non-AE prices and directed that the average price per unit should be used for benchmarking against the AE price. The Tribunal held that the same averaging approach must be applied to serial nos. 7 and 9 and remitted the matter to the AO/TPO for recomputation of ALP for these items in accordance with these directions; all other aspects of the TPO's determination were left undisturbed. [Paras 7, 8, 9, 10]

TPO/AO directed to use the arithmetic mean of comparable uncontrolled transaction prices (not highest or lowest) for items at serial nos. 6, 7 and 9 and recompute the ALP; matter remitted for re-determination in accordance with directions.

Role of Transfer Pricing Officer vis-a -vis Assessing Officer - ALP determination vs deductibility under section 37(1) - Arm's length price - Approach to commission payments to AEs when TPO determines ALP as Nil and AO disallows expenditure - whether the TPO should determine existence/benefit and deductibility or whether such aspects fall to the AO - HELD THAT: - The Tribunal applied the ratio of the jurisdictional High Court in Cushman and Wakefield India Pvt. Ltd., holding that the TPO's function is confined to determining the ALP of an international transaction and does not extend to deciding whether services were actually rendered or whether benefit accrued to the assessee. Those later questions pertain to the AO's domain under section 37(1) when considering deductibility. In the present case the TPO computed ALP of the commission transaction at Nil and the AO proceeded to disallow the expenditure; this approach was inconsistent with the stated division of functions. Accordingly, the Tribunal set aside the impugned order on this score and remitted the issue to the file of the AO/TPO for decision in conformity with the law laid down by the High Court, permitting the TPO to determine ALP and the AO thereafter to examine deductibility under section 37(1). [Paras 11, 12, 13, 14]

Impugned determination on commission payments set aside; matter remitted to AO/TPO for ALP determination by TPO and subsequent adjudication by AO on deductibility under section 37(1) in conformity with Cushman (supra).

Final Conclusion: The appeal is allowed for statistical purposes: entity-level TNMM rejected and CUP held most appropriate for sale of finished goods; for specified items the arithmetic mean of comparable uncontrolled prices must be used and the matter is remitted to AO/TPO for recomputation of ALP for serial nos. 6, 7 and 9; commission payment issue set aside and remitted for ALP determination by TPO and deductibility consideration by AO in accordance with the jurisdictional High Court's ratio.

Return of income as non-est - assessment framed under section 144 ab-initio void - annulment of assessment - unexplained cash credit under section 68 - opportunity to cross-examine a witness

Return of income as non-est - assessment framed under section 144 ab-initio void - annulment of assessment - opportunity to cross-examine a witness - Return of income filed in the name of the HUF was a non-est and the assessment framed on its basis under section 144 is ab-initio void; the assessment was annulled and Revenue's appeals dismissed. - HELD THAT: - CIT(A) found, on the material before him, that the return of income bore glaring discrepancies (blank verification particulars, signatures not of the Karta, differing signatures across years), that the HUF had not applied for PAN and that the return was not filed or verified by the appellant, concluding it to be a scrap of paper reflecting fictitious income, assets and liabilities. The Assessing Officer had treated balances and receipts as unexplained cash credits under section 68 but did not establish that the alleged immovable property, bank account or claimed liabilities actually existed, nor did he conduct adequate inquiry to substantiate the entries. Further, the statement of a witness relied upon by the A.O. (Shri Vinod J. Modi, ITP) was not furnished to the assessee and the assessee was not afforded an opportunity to cross-examine that witness. The Revenue did not place on record any material before the Tribunal to controvert the findings of CIT(A). On these bases the Tribunal upheld CIT(A)'s conclusion that the ROI was not a genuine, verified return and that the assessment under section 144 founded on that return was void ab initio, warranting annulment of the assessment order. The Tribunal applied the determinative principle that an assessment cannot stand if it is founded on a return shown to be fictitious and where the assessing authority has failed to discharge the evidentiary burden to prove the existence and genuineness of the asserted assets, liabilities and receipts, especially when the assessee was denied a fair opportunity to meet adverse evidence. [Paras 4, 7, 8]

CIT(A)'s finding that the return was non-est was upheld; the assessment under section 144 was held void ab initio and annulled, and the Revenue's appeals for the three assessment years were dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeals for A.Ys. 2003-04, 2004-05 and 2005-06, upholding the CIT(A)'s conclusion that the returns were non-est, the assessments framed on their basis under section 144 were void ab initio, and the assessment orders were annulled; the assessee's cross-objections were not pressed and were dismissed accordingly.

Disallowance under section 40(a)(ia) - tax deduction at source under section 194C - reimbursement of expenses versus gross receipts - validity and application of CBDT Circular No. 715 of 1995 - remand for de novo consideration by assessing officer

Disallowance under section 40(a)(ia) - tax deduction at source under section 194C - reimbursement of expenses versus gross receipts - validity and application of CBDT Circular No. 715 of 1995 - Whether the amounts debited as clearing and forwarding charges (including claimed reimbursements) can be disallowed under section 40(a)(ia) for failure to deduct TDS, or whether amounts shown to be pure reimbursements are not liable to deduction and hence allowable. - HELD THAT: - The Tribunal considered the assessee's plea that part of the clearing and forwarding charges represented pure reimbursements of expenses incurred by the C&F agents on behalf of the assessee and therefore were not subject to TDS under section 194C. The assessing officer and the Commissioner (Appeals) treated the entire amounts as liable to TDS relying on section 194C and CBDT Circular No. 715/1995, holding that reimbursements do not escape TDS liability where sums are paid to clearing and forwarding agents. The Tribunal noted that the CIT(A) did not make a factual finding that the amounts were not reimbursements and observed that coordinated Tribunal decisions (ITA Nos. 827 and 1003 relating to Gujarat Narmada Valley Fertilizer Co. Ltd.) had held that pure reimbursements are not chargeable to TDS, a view accepted by the Gujarat High Court in the Revenue's appeal. In view of these considerations and the assessee's production of sample bills, the Tribunal concluded that the question whether specific payments were reimbursements or gross receipts requires fresh factual examination. Accordingly the Tribunal remitted the matter to the assessing officer to examine the assessee's submissions and supporting documents afresh and decide in accordance with law, allowing the assessee to furnish required information to establish the reimbursable nature of the expenditures. [Paras 8]

Remitted to the assessing officer for de novo consideration whether the challenged amounts are pure reimbursements (and thus not liable to TDS) and, if so, to allow them; the ground is allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the CIT(A)'s confirmation on the disallowance under section 40(a)(ia) and remitted the issue to the assessing officer for fresh factual and legal examination of whether the questioned clearing and forwarding payments were pure reimbursements (not liable to TDS); the assessee may furnish necessary documents, and the appeal is allowed for statistical purposes.

Reopening of assessment - reasons recorded / reasons to believe - reassessment proceedings - escapement of income - prima facie belief - rational connection between reasons and escapement - bank deposits as basis for reassessment

Reopening of assessment - reasons recorded / reasons to believe - rational connection between reasons and escapement - bank deposits as basis for reassessment - Validity of reassessment proceedings initiated under the reasons recorded and notice under section 148 for assessment year 2008-09. - HELD THAT: - The Tribunal examined whether the reasons for reopening, as produced, lawfully sustained initiation of reassessment. It held that reasons must be recorded prior to issuance of notice and must be read standalone without addition or omission; they must disclose a prima facie belief that income chargeable to tax has escaped assessment and there must be a rational nexus between the material recorded and the belief of escapement. The reasons on record referred only to aggregate cash/bank deposits and even recorded the service of notice within the reproduced reasons, indicating recording occurred after notice. A mere deposit in a bank account, absent any material linking the deposits to undisclosed income (for example by showing business activity or other relevant cause-effect facts), does not by itself establish escapement of income; it at best warrants further inquiry. Applying these principles, the Tribunal found the recorded reasons insufficient to form the requisite belief that income had escaped assessment and therefore the reassessment proceedings were invalid. [Paras 6, 7, 8, 9, 10]

Reassessment quashed as the reasons recorded were (a) recorded after issuance of notice and (b) in any event insufficient, because mere bank deposits did not furnish a rational nexus to escapement of income.

Final Conclusion: The appeal is allowed: reassessment for AY 2008-09 is quashed because the reasons for reopening were recorded after notice and, on their face, do not furnish a rational basis to believe that income chargeable to tax had escaped assessment; consequent issues on merits are rendered academic.

Appellate jurisdiction of the Appellate Tribunal - rank-based forum competence - appealability under section 253(1) of the Income-tax Act - appeal to Commissioner (Appeals) under section 246A(1)(q) of the Income-tax Act - penalty imposed under Chapter XXI (section 271FA)

Appellate jurisdiction of the Appellate Tribunal - rank-based forum competence - appealability under section 253(1) of the Income-tax Act - appeal to Commissioner (Appeals) under section 246A(1)(q) of the Income-tax Act - penalty imposed under Chapter XXI (section 271FA) - Maintainability of the appeal before the Appellate Tribunal against an order passed by the Director of Income-tax under section 271FA - HELD THAT: - The Tribunal examined whether an appeal against an order imposing penalty under section 271FA (Chapter XXI) by the Director of Income-tax is to be heard by the Commissioner (Appeals) under section 246A(1)(q) or by the Appellate Tribunal under section 253(1). Section 253(1) classifies orders which may be appealed to the Tribunal and, by analogy, recognises that orders passed by Commissioners or officers of equivalent rank are to be challenged before the Tribunal. Though section 246A(1)(q) generally provides that appeals against orders under Chapter XXI lie to the Commissioner (Appeals), Parliament appears not to have contemplated that certain penalties under Chapter XXI (such as under section 271FA) are imposed by the Director of Income-tax who is equivalent in rank to the Commissioner (Appeals). Applying the established understanding of appellate jurisdiction - that an appellate forum must be higher in rank than the forum whose order is under challenge - the Tribunal held that an order passed by the Director of Income-tax (equivalent in rank to the Commissioner (Appeals)) cannot be validly placed before a forum of equal rank; the competent appellate forum is therefore the Appellate Tribunal which is superior in rank. The Tribunal rejected the Revenue's preliminary objection to maintainability and held the appeal properly before it for adjudication on merits. [Paras 7, 8, 13, 14, 17]

The appeal against the order passed by the Director of Income-tax under section 271FA is maintainable before the Appellate Tribunal; the Revenue's objection to jurisdiction is rejected and the appeal is to be heard on merits.

Final Conclusion: The Tribunal held that an appeal against a penalty order under section 271FA passed by the Director of Income-tax is properly maintainable before the Appellate Tribunal (being a forum higher in rank than the Director); the Revenue's preliminary objection as to jurisdiction was rejected and the appeal was directed to be listed for hearing on merits.

International transaction - expanded definition of international transaction under explanation to section 92B(1) - closely linked transactions - aggregation of closely linked transactions for transfer pricing - Rule 10A(d) on aggregation of closely linked transactions - arm's length price (ALP) - cost of funds as arm's length interest rate

International transaction - expanded definition of international transaction under explanation to section 92B(1) - Whether the deferred payment/continuing debit balance from an associated enterprise constitutes an international transaction - HELD THAT: - The Tribunal held that after insertion of the explanation to section 92B(1) the payment, deferred payment, receivable or any debt arising during the course of business falls within the expression international transaction as expanded by that explanation. Accordingly, delay in realization of dues from an associated enterprise in comparison to non-associated enterprises falls within the ambit of an international transaction. However, the Tribunal emphasised that such credit-extension is not necessarily an independent transaction but arises in close connection with the sale to the associated enterprise and must be considered in that context. [Paras 8]

The deferred payment/continuing debit balance is an international transaction within the expanded meaning, but it is closely linked to the sale transaction and must be considered accordingly.

Closely linked transactions - aggregation of closely linked transactions for transfer pricing - Rule 10A(d) on aggregation of closely linked transactions - arm's length price (ALP) - Whether the credit period allowed to the associated enterprise should be examined independently or aggregated with the sale transaction for determining ALP - HELD THAT: - Applying Rule 10A(d) and the concept in the OECD Transfer Pricing Guidelines, the Tribunal held that when transactions are follow-on, inter-linked or where pricing of one transaction depends substantially on the other, they are to be treated as closely linked and aggregated for transfer pricing. The credit period extended to the associated enterprise is a direct result of the sale transaction; the sale price and credit terms influence each other. Therefore the credit-extension cannot be treated in isolation and must be clubbed with the sale transaction for determination of ALP. If treated independently, it must still be tested by comparison with internal comparables (credit allowed to non-AEs). [Paras 8]

Credit period extension is a closely linked transaction to sale and must be aggregated with sale for ALP determination; alternatively compared with internal CUP (non-AE credit terms) if analysed separately.

Arm's length price (ALP) - cost of funds as arm's length interest rate - Appropriate benchmark rate to be applied for computing notional interest in respect of extended credit period - HELD THAT: - The Tribunal rejected the approach of equating the excess credit-period adjustment to prevailing lending rates used by the TPO/DRP. Since the matter concerns excess realization period on sales (not an independent loan transaction), the suitable arm's length interest for any notional adjustment is the assessee's average cost of total funds rather than the rate at which external loans are available. The Tribunal directed the Assessing Officer/TPO to re-do the ALP determination in accordance with this principle. [Paras 8]

Arm's length interest for the excess credit-period should be the assessee's average cost of funds, and the AO/TPO is directed to re-compute ALP accordingly.

Interest under sections 234B and 234C - Levy of interest under sections 234B and 234C - HELD THAT: - The Tribunal observed that the issue of levy of interest under sections 234B and 234C is consequential to the substantive adjustments and did not require separate adjudication in the present order. [Paras 9, 10]

No separate finding - the issue is consequential and not decided independently.

Penalty proceedings - section 271(1)(c) - Maintainability of challenge to initiation of penalty proceedings under section 271(1)(c) - HELD THAT: - The Tribunal held that the contention regarding initiation of penalty proceedings under section 271(1)(c) is premature because it does not arise from the impugned orders of the authorities below and therefore was not admissible for adjudication in the present appeal. [Paras 11]

Ground challenging initiation of penalty proceedings is dismissed as premature.

Final Conclusion: Appeal partly allowed: the Tribunal upheld that deferred payments/continuing debit balances from associated enterprises are international transactions within the expanded meaning of the explanation to section 92B(1) but held that such credit-extension is closely linked with the sale and must be aggregated with (or, if separately tested, compared to internal CUP) for determining ALP; the appropriate arm's length interest is the assessee's average cost of funds and the AO/TPO is directed to re-determine the ALP accordingly; consequential interest issue not separately decided; challenge to initiation of penalty proceedings dismissed as premature.

Waiver of pre-deposit of duty and penalty - requirement of clearance from Committee on Disputes (CoD) - recall of earlier Supreme Court orders requiring CoD clearance - retrospective application of Supreme Court decisions - remand for fresh adjudication in accordance with law

Waiver of pre-deposit of duty and penalty - requirement of clearance from Committee on Disputes (CoD) - recall of earlier Supreme Court orders requiring CoD clearance - retrospective application of Supreme Court decisions - The Tribunal erred in dismissing the application for waiver of pre-deposit on the ground that the appellant had not produced CoD clearance or evidence of having applied for such clearance. - HELD THAT: - The Tribunal dismissed the waiver application on a technicality - absence of CoD clearance or proof of having sought it. Subsequent to the orders which had earlier required CoD clearance being recalled by the Constitution Bench of the Supreme Court, the legal requirement of producing CoD clearance no longer subsisted. A Supreme Court decision that enunciates a principle of law is to be applied to cases generally unless expressly made prospective. Therefore the Tribunal's dismissal on the ground of non-production of CoD clearance was contrary to the law as restated by the Supreme Court and is unsustainable.

The impugned order insofar as it dismissed the waiver application for want of CoD clearance is set aside.

Remand for fresh adjudication in accordance with law - The matter is remitted to the Tribunal for fresh disposal of the waiver application in accordance with law after hearing interested parties. - HELD THAT: - Having set aside the dismissal based on the now-recalled CoD-clearance requirement, the High Court directed the Tribunal to reconsider and dispose of the waiver application afresh. The Tribunal is to afford an opportunity of hearing to all interested parties and decide the matter in accordance with the prevailing law, within the time stipulated by the Court.

The Tribunal is directed to dispose of the application afresh in accordance with law within two months after giving opportunity of hearing to interested parties.

Final Conclusion: The High Court set aside the Tribunal's dismissal of the waiver application for non-production of CoD clearance, held that the recalled requirement of CoD clearance could not sustain the dismissal, and remitted the matter to the Tribunal for fresh disposal in accordance with law within two months; no costs.

Admissibility of laboratory test report - competence of testing laboratory - retesting of samples - right to demand alternative testing - stay of encashment of bank guarantee pending adjudication

Admissibility of laboratory test report - competence of testing laboratory - retesting of samples - Whether the CRCL test report could be treated as conclusive where the laboratory lacked required equipment and whether the appellant was entitled to have the samples retested in a laboratory other than CRCL. - HELD THAT: - The tribunal found that representative samples were drawn and sent to CRCL, but records showed that CRCL did not possess the equipment necessary to analyse the appellant's calcite powder sample. That deficiency rendered the CRCL report doubtful and not acceptable as a conclusive basis for adjudication. Given the absence of requisite testing facilities at CRCL, the appellant had a right to seek retesting of the samples in a laboratory other than CRCL. The tribunal therefore set aside the impugned order rejecting the request for retesting and directed the adjudicating authority to get the samples retested from an alternative laboratory and thereafter to pass an appropriate order in accordance with law. [Paras 7, 8]

Impugned order rejecting retest was set aside; adjudicating authority directed to get samples retested from a laboratory other than CRCL and to pass a fresh order thereafter.

Stay of encashment of bank guarantee pending adjudication - Whether the bank guarantee furnished by the appellant could be encashed pending final adjudication following the direction for retesting. - HELD THAT: - In view of the order directing retesting and remand for fresh consideration, the tribunal directed that until finalisation of adjudication after the retest, the bank guarantee furnished by the appellant shall not be encashed. This protective direction was issued to preserve the status quo pending completion of the proceedings required by the tribunal's order. [Paras 8]

Bank guarantee shall not be encashed until finalisation of adjudication following retesting.

Final Conclusion: The appeal and stay application were allowed to the extent that the impugned denial of retesting was set aside; the adjudicating authority is directed to obtain retesting from a laboratory other than CRCL and to pass an appropriate order thereafter, and the appellant's bank guarantee shall not be encashed pending final adjudication.

Manufacture - benefit of exemption notification - recovery of customs duty foregone - intention to evade - penalty under Section 114A of the Customs Act - penalty under Section 112(b) of the Customs Act

Manufacture - degaussing - spray painting - Whether the processes of degaussing and alignment of CPT and spray painting of imported cabinets amounted to manufacture - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that the imported colour picture tubes (CPT) and plastic moulded cabinets retained their essential character and were capable of performing their function without any processing; the activities described as 'degaussing' and 'alignment' merely removed colour patches and involved mechanical/electronic adjustment, and spray painting only altered appearance. These operations did not change the nature or character of the inputs nor create a new article; they were not recognised in trade parlance as manufacturing processes and were not included in the LOP as manufacturing operations. Consequently the activities did not amount to manufacture. [Paras 5]

Degaussing, alignment and spray painting did not amount to manufacture.

Benefit of exemption notification - recovery of customs duty foregone - Whether the appellants were entitled to retain the benefit of the duty exemption under Notification No.52/2003-Cus. when the imported items were cleared to DTA without being used in manufacture - HELD THAT: - Having held that no manufacturing activity took place, the Tribunal endorsed the view that the condition of the exemption notification - use of imported goods in manufacture of exportable goods - was not fulfilled. The goods cleared in DTA were the imported CPT and PMC themselves and not products of any manufacturing process; therefore the duty foregone at import was recoverable by customs. The Tribunal noted that reliance on central excise treatment was immaterial where the factual premise of manufacture was absent. [Paras 5, 6]

Benefit of the exemption was not available and customs duty foregone is recoverable.

Penalty under Section 114A of the Customs Act - penalty - Whether penalty should be imposed on the appellant-company for causing prejudice to revenue - HELD THAT: - The Tribunal held that the central controversy turned on whether the activities amounted to manufacture. Since that factual/legal issue was decided against Revenue (that the activities did not constitute manufacture) in the context of penalty analysis, the Tribunal concluded that there shall not be levy of penalty on the company. The decision reflects that where the dispute is essentially whether an activity is manufacturing, penalty is not warranted against the company for that factual/legal contention. [Paras 7]

No penalty shall be levied on the appellant-company.

Intention to evade - penalty under Section 112(b) of the Customs Act - Whether penalty imposed on the director is sustainable - HELD THAT: - The Tribunal relied on the Director's statement recorded during investigation indicating conscious knowledge of duty forgone at import and absence of DTA permission for sale of the imported raw materials. On that basis the Tribunal found that intention to evade duty could not be ruled out and sustained imposition of penalty on the director as an officer in default. [Paras 8]

Penalty imposed on the director is sustainable.

Final Conclusion: The appeals were dismissed: customs duty foregone on the imported CPT and cabinets cleared to DTA is recoverable (imports did not amount to manufacture); no penalty is leviable on the company, but the penalty on the director was upheld for conscious knowledge and intention to evade.

Summary order. Respondent directed to dispose of Appeal C/61/2006 MAS filed by the petitioner on merits and in accordance with law within three months from receipt of this order; Court has not expressed any opinion on the merits.

Pre-deposit requirement for filing appeals - deposit percentages for first and second appeals under Finance Act, 2014 - effect of compliance with pre-deposit on stay applications

Pre-deposit requirement for filing appeals - effect of compliance with pre-deposit on stay applications - Whether stay applications were maintainable where appellants had complied with the pre-deposit requirement prescribed by the Finance Act, 2014. - HELD THAT: - The Tribunal noted that with the Finance Act, 2014 coming into effect on 6-8-2014, appellants in appeals are required to deposit a percentage of the duty or penalty as a pre-condition for filing appeals (7.5% where the appeal is a first appeal and 10% where it is a second appeal). In the present matters the appellants had deposited the prescribed 7.5%/10% of the duty or penalty as pre-deposit. Given such compliance with the statutory pre-deposit obligation, the stay applications filed by the appellants were no longer necessary. The Tribunal therefore treated the pending stay applications as infructuous and rejected them on that basis.

Stay applications rejected as infructuous because appellants had deposited the prescribed pre-deposit amounts under the Finance Act, 2014.

Final Conclusion: Because the appellants had complied with the pre-deposit obligations prescribed by the Finance Act, 2014 (7.5% for first appeals; 10% for second appeals), the Tribunal dismissed the stay applications as infructuous.

Condonation of delay - Maintainability of appeal dependent on statutory pre-deposit - Pre-deposit requirement for filing appeal under Customs Act, 1962 after Finance Act, 2014 - Fixed Deposit Receipt not constituting pre-deposit - Direction to deposit prescribed percentage of duty as condition precedent to admission of appeal

Condonation of delay - Condonation of delay in filing the appeal - HELD THAT: - The appellants explained that the order-in-original was received by an employee on 29-3-2014, that medical treatment of that employee followed, and that the appeal was filed immediately after receipt on 6-8-2014, resulting in a delay of 42 days. The Tribunal examined these explanations and found them satisfactory for the purpose of condoning the delay in filing the appeal. [Paras 1]

Delay of 42 days in filing the appeal is condoned.

Maintainability of appeal dependent on statutory pre-deposit - Pre-deposit requirement for filing appeal under Customs Act, 1962 after Finance Act, 2014 - Fixed Deposit Receipt not constituting pre-deposit - Direction to deposit prescribed percentage of duty as condition precedent to admission of appeal - Whether the appeal is maintainable in the absence of the statutory pre-deposit required after enactment of the Finance Act, 2014, and whether the existing fixed deposit receipts could be treated as such pre-deposit - HELD THAT: - The Tribunal observed that the Finance Bill, 2014 had become an Act on 6-8-2014, altering the procedure so that waiver of pre-deposit and stay procedure previously followed no longer applied; consequently the appellant was required to make the statutory pre-deposit of 7.5% of the duty for admission of the appeal (this being a first appeal). The Tribunal held that the fixed deposit receipts furnished in favour of the Commissioner of Customs pursuant to an earlier interlocutory direction could not be treated as the statutory pre-deposit under the Customs Act, 1962 as amended. In view of the non-deposit, the appeal was prima facie not maintainable, but the Tribunal granted a temporal opportunity to cure the omission by depositing the required 7.5% within a specified period, failing which the appeal would be rejected. [Paras 4, 5]

Appeal is not maintainable without the statutory pre-deposit; fixed deposit receipts cannot be treated as pre-deposit. Appellants directed to deposit 7.5% of the duty within eight weeks and report compliance by the specified date, failing which the appeal will be rejected.

Final Conclusion: The Tribunal condoned the delay of 42 days in filing the appeal but held that, following the Finance Act, 2014, the appeal is not maintainable without the statutory pre-deposit; fixed deposit receipts do not qualify as pre-deposit. The appellants were afforded time to deposit 7.5% of the duty within eight weeks and to report compliance by the date specified, failing which the appeal would be rejected.

Rectification of mistake - confiscation under Section 111(d) of the Customs Act, 1962 - Rule 11 of the Foreign Trade (Regulation) Rules, 1993 - reference to Third Member - procedure of Appellate Tribunal under Section 129C

Rectification of mistake - procedure of Appellate Tribunal under Section 129C - Application for rectification of the Tribunal's final order to answer an omitted point was allowed and the matter was directed to be relisted for consideration of that point. - HELD THAT: - The Tribunal accepted that both Members had not given any finding on whether the goods were liable for confiscation under Section 111(d) read with Rule 11 and held that it was necessary to decide that omitted issue before, if required, referring any difference of opinion to the Third Member. The Bench distinguished A.S.C.U. Ltd. on the basis that in that authority the Members had given final findings whereas here the crucial question was left unanswered. Relying on the procedure contemplated by Section 129C (as explained in Suzlon Infrastructure Ltd.), the Tribunal held that the Registry should relist the matter for consideration of the omitted issue and admitted the rectification application. [Paras 6, 10, 11]

Rectification application allowed; matter to be relisted for consideration of the omitted issue.

Confiscation under Section 111(d) of the Customs Act, 1962 - Rule 11 of the Foreign Trade (Regulation) Rules, 1993 - reference to Third Member - Whether the goods are liable for confiscation under Section 111(d) read with Rule 11 was not finally decided on merits and is to be considered afresh by the Bench and, if necessary, referred to the Third Member. - HELD THAT: - The Tribunal recorded that the factual and legal question of liability to confiscation under Section 111(d) read with Rule 11 was not answered in the final order. The Bench held there was a real possibility both Members might conclude the goods are not liable for confiscation, which would obviate the need for reference; accordingly the question must be answered first by the Bench on relisting and only thereafter, if the Members remain divided, a reference to the Third Member will follow. The order therefore remands/relists the confiscation issue for adjudication rather than resolving it on merits in this application. [Paras 6, 11, 14]

Liability to confiscation under Section 111(d) read with Rule 11 is remitted to the Bench for consideration on relisting and, if required, to be referred to the Third Member.

Final Conclusion: The Tribunal allowed the rectification application, directed that the omitted question of liability to confiscation under Section 111(d) of the Customs Act, 1962 read with Rule 11 of the Foreign Trade (Regulation) Rules, 1993 be heard on relisting, and provided that, if the Bench remains equally divided, the point shall thereafter be referred to the Third Member.

Attachment of property under PMLA - vacation of attachment - appellate remedy under PMLA - condonation of delay in preferring appeal - remand for fresh consideration

Condonation of delay in preferring appeal - Delay of 66 days in preferring the appeal was condoned. - HELD THAT: - The Court after hearing counsel allowed the application for condonation of delay for the reasons stated in the application and thereby permitted the appeal to proceed despite the 66 days' delay. The application for condonation was disposed of by accepting the explanation furnished and condoning the delay. [Paras 3, 4, 5]

Delay in filing the appeal is condoned and the application stands disposed of.

Attachment of property under PMLA - vacation of attachment - appellate remedy under PMLA - remand for fresh consideration - Impugned Single Judge order was set aside and the matter was remitted to the Appellate Authority under the PMLA for fresh decision of the appeal. - HELD THAT: - The Single Judge had observed that continued attachment of the properties was unsustainable but qualified that finding as prima facie and disposed of the writ by directing disposal of a representation. The Attorney General submitted that the Single Judge's interpretation of the Act was final in effect but erroneous and that the 2013 amendment to Section 8 had not been adjudicated. The parties agreed that the impugned order should be set aside and that the pending statutory appeal be decided afresh. In consequence the Court set aside the impugned judgment, directed the Appellate Authority to dispose of the appeal preferred by the respondent against the attachment order within eight weeks, and directed the parties to appear before the Appellate Authority on the specified date so that further arguments, if any, could be heard or a date fixed for hearing, ensuring disposal within the stipulated period. [Paras 10, 11, 12, 13, 14]

Impugned order/judgment set aside; the appeal before the Appellate Authority under the PMLA is remitted for fresh disposal within eight weeks with liberty to the parties to address further arguments.

Final Conclusion: Caveat discharged; exemption granted; delay in filing the intra court appeal condoned; impugned Single Judge order set aside and the appeal under PMLA remitted to the Appellate Authority for fresh disposal within eight weeks, with opportunity to the parties to be heard.

Stay of operation of tax recovery orders pending adjudication - completion of adjudication within a stipulated time - recovery subject to final quantification of demand - power under section 87 of the Finance Act, 1994 - pre-adjudication attachment/recovery - prospective suspension of enforcement measures

Stay of operation of tax recovery orders pending adjudication - completion of adjudication within a stipulated time - recovery subject to final quantification of demand - Whether the impugned communications/orders issued under section 87 should be stayed and the adjudication under section 73 finalised within a time-frame with the amounts already recovered kept subject to final quantification. - HELD THAT: - The Court recorded that adjudication under section 73 was pending and that part of the amounts purportedly recovered pursuant to the impugned communications had already been credited to the authority. In view of the pendency of adjudication and the delay in finalisation, the Court directed that the competent adjudicating authority shall finalise the proceedings preferably within three months from receipt of the order. Pending completion of adjudication the operation of the impugned orders is stayed and the amounts already recovered pursuant to those orders shall remain subject to the final quantification of any tax demand. The order implements an interim arrangement preserving the parties' rights while expediting adjudication. [Paras 7, 8, 9, 10]

Operation of the impugned orders is stayed; adjudication under section 73 to be completed preferably within three months; amounts already recovered to remain subject to final quantification.

Power under section 87 of the Finance Act, 1994 - pre-adjudication attachment/recovery - prima facie inapplicability pending adjudication - Whether resort to section 87 for issuance of directions to customers and bankers can be sustained prior to final adjudication of tax liability under section 73. - HELD THAT: - The Court observed prima facie that when a tax demand is yet to be adjudicated it cannot be treated as a tax payable for which section 87 may be available; however, the Court declined to conclusively decide the legal question. Instead, having stayed the impugned orders and directed completion of adjudication within a time-frame, the Court left the question of the applicability of section 87 open for determination in the adjudication or subsequent proceedings. Thus the substantive legal issue is not finally adjudicated by this order. [Paras 3, 6, 7, 9, 10]

The question of the applicability of section 87 prior to final adjudication is not finally decided and is left open for determination; only a prima facie view was recorded.

Final Conclusion: The petition is disposed by directing that adjudication under section 73 be completed preferably within three months; the impugned orders are stayed prospectively and amounts already recovered shall remain subject to final quantification, while the substantive question on the use of section 87 before adjudication is left undecided.

Rent-a-cab service - rent-a-cab scheme operator - taxable service in relation to renting of cabs - stage carriage - extended period of limitation

Rent-a-cab service - rent-a-cab scheme operator - stage carriage - Whether the appellant's provision of buses on contract to factories and others amounts to a taxable rent-a-cab service and whether BMTC is a rent-a-cab scheme operator. - HELD THAT: - The Tribunal held that a rent-a-cab scheme operator is a person engaged in the business of renting of cabs and that the statutory definition of taxable service deliberately identifies the directed service provider. BMTC's primary business is operating buses as stage carriage services for the citizens of Bangalore, and the operation of buses for factories, schools and special requests is part of that transport activity rather than a business of renting cabs. The contractual and commercial features corroborate this conclusion: BMTC did not charge a fixed monthly rent or allocate specific buses to customers; charges were computed on the actual kilometers run at a per-kilometre rate and customers could opt out on short notice-features inconsistent with a conventional rent-a-cab scheme where a fixed rent or minimum kilometre commitment normally applies. For these reasons the Tribunal found that BMTC cannot be regarded as engaged in the business of renting cabs and the services rendered do not fall within the definition of the taxable rent-a-cab service. [Paras 6, 7]

Provision of buses by BMTC on contract to factories and others is not a taxable rent-a-cab service and BMTC is not a rent-a-cab scheme operator.

Extended period of limitation - Whether the demand for service tax (including invocation of extended period) and penalties could be sustained for the period in question. - HELD THAT: - The Tribunal observed that the show-cause notice was issued in September 2011 while significant parts of the asserted demand period were time-barred. Given that the classification issue was highly debatable and arguable on the material and that BMTC's operations differed materially from typical rent-a-cab schemes, the invocation of the extended period of limitation was held not to be sustainable. For the same reasoning-that the liability itself was not established on merits-the imposition of penalties under various provisions of the Finance Act was also held to be unsustainable. [Paras 7, 8]

Invocation of the extended period and imposition of penalties cannot be sustained; the demand proceedings are time-barred in substantial part and penalties are set aside.

Final Conclusion: The impugned demand and penalties are set aside on the merits; the appeal is allowed with consequential relief to the appellant.

CENVAT credit utilisation under reverse charge mechanism - Business Auxiliary Service (BAS) - interpretation of section 66A read with Rule 2(p) and Rule 2(r) of the CENVAT Credit Rules, 2004 - provider of taxable service - revenue neutrality - stay of recovery and waiver of pre-deposit

CENVAT credit utilisation under reverse charge mechanism - Business Auxiliary Service (BAS) - provider of taxable service - Whether CENVAT credit could be utilised to discharge service tax liability under reverse charge on Business Auxiliary Services received from commission agents abroad. - HELD THAT: - The Tribunal noted competing contentions: the appellants relied on section 66A read with Rule 2(p) and 2(r) of the CENVAT Credit Rules, 2004 and on precedents (including the Tribunal decision in Indian Acrylic Ltd.) to contend that they become the provider of the input service and may pay the reverse-charge liability from CENVAT credit; the department urged that the genesis of reverse charge in GTA cases differs and the High Court decisions permitting credit utilisation in GTA cases may not be applicable. The Tribunal observed that resolving the broader legal question requires detailed analysis, but in view of the Tribunal precedent in Indian Acrylic Ltd. involving the identical issue and the factual position of revenue neutrality (the appellants being 100% EOU and, even if tax were paid in cash, being entitled to take CENVAT credit and ultimately claim refund), the appellants had made out a prima facie case. Relying on that prima facie view and the revenue-neutral character of the dispute, the Tribunal granted interim relief without finally deciding the broader interpretative question. [Paras 4]

Prima facie view taken in favour of appellants; appellants entitled to interim relief permitting utilisation/relief pending appeal.

Stay of recovery and waiver of pre-deposit - revenue neutrality - Whether recovery of the confirmed service tax liability should be stayed and the pre-deposit requirement waived pending the appeal. - HELD THAT: - Having regard to the Tribunal's reliance on the prior Tribunal decision and the revenue-neutral position (availability of CENVAT credit or refund to the 100% EOU), the Tribunal found that the appellants had demonstrated sufficient prima facie case for interim relief. On that basis the Tribunal exercised its discretion to grant complete waiver of the pre-deposit and to stay recovery of the impugned liabilities during pendency of the appeal. [Paras 4]

Complete waiver of pre-deposit ordered and recovery of the impugned liabilities stayed during the pendency of the appeal.

Final Conclusion: The Tribunal granted interim relief: the appellants' pre-deposit obligation was waived and recovery of the confirmed service tax liabilities was stayed pending disposal of the appeal, relying on prima facie view drawn from Tribunal precedent and the revenue-neutral character of the dispute.

Cenvat credit on job-worked finished goods - pre-deposit - stay of recovery - prejudice to Revenue

Pre-deposit - stay of recovery - prejudice to Revenue - Direction for deposit of part of the demand and conditional stay of recovery of the balance during pendency of appeal - HELD THAT: - The Tribunal, noting the Revenue's potential prejudice and relying on the prima facie view formed from the adjudication record (referenced by the Tribunal as para 7.16 read with paras 7.4, 7.10, 7.13 and 7.15), directed a pre-deposit. The appellant was ordered to deposit Rs.20,00,000 within eight weeks and to make compliance on 8.3.2015. Subject to such compliance, the Tribunal granted waiver of the remaining pre-deposit requirement and stayed recovery of the balance demand during the pendency of the appeal. The Tribunal recorded the appellant's submissions on entitlement to cenvat credit on finished goods from a job-worker and on reconciliation of another component of the demand, but the order conditions relief on the specified pre-deposit and compliance.

Appellant to deposit Rs.20,00,000 within eight weeks and, on compliance, waiver of further pre-deposit with stay of recovery of the balance demand during pendency of the appeal.

Final Conclusion: Part payment of the disputed demand ordered as a pre-deposit of Rs.20,00,000 within eight weeks; upon compliance, further pre-deposit waived and recovery of the remaining demand stayed during the appeal.

Pre-deposit for interim relief - service tax on advances attributable to future period - conditional stay of demand

Pre-deposit for interim relief - service tax on advances attributable to future period - conditional stay of demand - Direction for deposit as condition for continuation of the appeal against a service tax demand based on inclusion of advances for future period in the taxable value - HELD THAT: - The Tribunal, while noting that the liability arose from treating advances attributable to a future period as part of the gross value of taxable services and that an amendment to the law (2010) was under challenge before the High Court of Madras, exercised its discretion to order a reasonable pre-deposit to reduce the dispute expeditiously. Considering the gravity of the matter and the taxability of the receipts, the Tribunal ordered a conditional interim arrangement rather than an outright stay. The appellant was directed to make a pre-deposit of a portion of the demand in specified instalments and to produce challans to the adjudicating authority; non-compliance with the instalment schedule would vacate the order and result in dismissal of the appeal.

Appellant directed to deposit Rs. 40,00,000 in two equal monthly instalments of Rs. 20,00,000 each by the specified dates as a condition for continuation of the appeal; failure to comply will vacate the order and lead to dismissal of the appeal.

Final Conclusion: Conditional interim relief granted subject to a reasonable pre-deposit: appellant to deposit the directed instalments and produce challans as specified, failing which the order is vacated and the appeal dismissed.

Exemption from service tax for services relating to distribution of electricity - application of Notification No.12/2003 ST excluding value of materials from taxable service value - collection of service tax from customers - effect of non mention of a notification in ST 3 returns - stay of demand

Exemption from service tax for services relating to distribution of electricity - Applicability of the exemption under Notification No.45/2010 ST (relating to distribution of electricity) up to 21.6.2010. - HELD THAT: - The appellants were providing services relating to distribution of electricity and claimed the exemption available under Notification No.45/2010 ST for the period up to 21.6.2010. The Commissioner accepted this stand at adjudication and the Tribunal upheld that acceptance, recognising the appellants' entitlement to the exemption for the stated period.

Exemption under Notification No.45/2010 ST up to 21.6.2010 is accepted in favour of the appellants.

Collection of service tax from customers - Whether the demand could be sustained on the ground that service tax had been collected from the appellants' customers. - HELD THAT: - The adjudicating authority relied on an observation that the appellants had collected service tax from customers. The Tribunal found that the contract rates were stated to be 'inclusive of taxes' and there was no indication that service tax was separately charged or collected from customers. The expression 'inclusive of taxes' was interpreted as a contractual pricing term, not proof of separate collection of service tax. In the absence of any indication of separate collection, the observation forming the basis to sustain the demand was held to be untenable.

Demand cannot be confirmed on the basis that service tax was collected from customers; there is no evidence of separate collection.

Application of Notification No.12/2003 ST excluding value of materials from taxable service value - effect of non mention of a notification in ST 3 returns - Whether the value of materials supplied under the contract must be included in the taxable value of services, and whether the appellants' failure to mention the Notification in their ST 3 returns precludes relief. - HELD THAT: - The appellants showed that the contract separately disclosed the value of materials and the value of services, and produced VAT documents evidencing VAT payment on materials. The Revenue denied benefit solely because the Notification was not referenced in ST 3 returns. The Tribunal observed that the fact that the appellants paid service tax only on the service portion in their returns indicates materials were not treated as part of taxable service value. Mere omission to cite the Notification in returns does not entitle the adjudicating authority to deny its benefit without examining applicability. The Notification's applicability was found to be established on the record, giving the appellants a prima facie case.

Value of materials is not required to be included in taxable value of services under the Notification, and non mention in ST 3 returns does not bar the appellants from claiming the benefit.

Final Conclusion: The Tribunal accepted the appellants' entitlement to the exemption for services relating to distribution of electricity up to 21.6.2010, rejected the contention that service tax was separately collected from customers in the absence of evidence, upheld that the value of materials need not be included in taxable service value under the relevant notification, and consequently allowed the stay application unconditionally.

Site formation and clearance, excavation and earthmoving and demolition service - mining service - registration and liability to pay service tax for commercial or industrial construction services - extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 - conditional waiver of pre-deposit of assessed service tax and interest - credit for part remittance against pre-deposit obligation

Site formation and clearance, excavation and earthmoving and demolition service - mining service - Whether the services rendered by the appellant to M/s. Lafarge India Pvt. Ltd. fall within the ambit of "site formation and clearance, excavation and earthmoving and demolition" service or constitute "mining" service. - HELD THAT: - On examination of the agreement and scope of work, the Tribunal found that the appellant's obligations related solely to removal of overburden, top soil stripping and excavation up to the level of dolomite stone and did not involve mining or extraction of minerals. The Tribunal therefore held that the activity prima facie falls within the definition of "site formation and clearance, excavation and earthmoving and demolition" service and not within the subsequently introduced concept of "mining" service, since no part of the contract obligated the appellant to undertake mining or extraction operations. [Paras 5]

The services were held to fall within "site formation and clearance, excavation and earthmoving and demolition" service and not within "mining" service.

Registration and liability to pay service tax for commercial or industrial construction services - extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 - conditional waiver of pre-deposit of assessed service tax and interest - credit for part remittance against pre-deposit obligation - Whether pre-deposit should be waived and on what conditions, and whether part remittance already made may be credited towards the pre-deposit ordered. - HELD THAT: - The Tribunal noted that the appellant had not obtained registration or filed returns for the taxable service and that proceedings were taken invoking the extended period of limitation. While declining to grant a full waiver of pre-deposit, the Tribunal exercised its discretionary power to allow a conditional waiver: the appellant must remit the assessed service tax and interest under Section 75 within four weeks, excluding penalties under Sections 76, 77 and 78; failure to comply would result in rejection of the appeal for non-pre-deposit. The Tribunal also recorded that any partial payment already made by the appellant (a stated part remittance) may be taken into account and credited against the pre-deposit to be made. [Paras 6]

Pre-deposit was conditionally waived subject to remittance of the assessed tax and interest within the stipulated period (penalties excluded); the appellant may claim credit for any part remittance already made.

Final Conclusion: Appeal proceeded on contested classification of services and pre-deposit; Tribunal held the work to be site formation/excavation service (not mining), invoked extended limitation was permissible on facts, and granted conditional waiver of pre-deposit requiring payment of tax and interest (penalties excluded) within the time specified, allowing credit for any part payment already made.

Storage and warehousing service - warehouse keeper - custody or control - maintenance of storage tank - inspection obligations under the Explosives Act

Storage and warehousing service - warehouse keeper - custody or control - maintenance of storage tank - Whether the respondent provided a taxable storage or warehousing service as a 'warehouse keeper' in respect of liquid oxygen stored in cryogenic tanks installed at the customer's premises. - HELD THAT: - The Tribunal found as undisputed facts that the respondent manufactured and sold liquid oxygen to the hospital, had supplied the cryogenic storage tank to the hospital, and that the tank (and the oxygen contained therein) was in the custody and control of the hospital. The respondent's contractual obligations were limited to maintenance of the tank and arranging inspections as required under the Explosives Act. Those obligations did not transfer custody or control of the stored oxygen to the respondent nor convert the respondent into a warehouse keeper. On these findings, the Tribunal concluded that the activity did not constitute a 'storage and warehousing' service taxable under the Finance Act, 1994, and therefore there was no liability for service tax for the period in dispute.

The respondent was not a warehouse keeper in respect of the liquid oxygen stored in the customer's tanks; the service tax demand was not sustainable.

Final Conclusion: The Revenue's appeal is dismissed and the Commissioner (Appeals) order setting aside the service tax demand is upheld; the respondent's cross-objection is disposed of.

Pre-deposit condition - natural justice - non-communication of adjudicatory decision - opportunity of hearing - remand for fresh adjudication

Pre-deposit condition - Whether the condition of pre-deposit of the balance amount should be insisted upon before proceeding with the appeal. - HELD THAT: - The Tribunal noted that the appellant had already deposited an amount during investigations. In exercise of its discretion the Tribunal dispensed with the condition of pre-deposit of the balance amounts and, having so dispensed, proceeded to consider the matter. This determination was recorded at the outset of the order and formed the procedural basis for the Tribunal to decide the appeal on merits/remand without requiring further pre-deposit. [Paras 1]

Pre-deposit condition dispensed with and appeal taken up for adjudication.

Natural justice - non-communication of adjudicatory decision - opportunity of hearing - remand for fresh adjudication - Whether the impugned order is vitiated for want of compliance with principles of natural justice because the Adjudicating Authority did not accept or reject the appellant's requests for extension and passed the order without there being a defence reply on record. - HELD THAT: - The Tribunal found on the record that the appellants repeatedly requested extensions to file their reply and appeared on the dates fixed for personal hearing. On the last hearing date, counsel requested further time, but the Adjudicating Authority did not record acceptance or rejection of that request and passed the impugned order within seven days. The Tribunal held that when an assessee appears and requests extension, the Adjudicating Authority is under an obligation to either grant the extension or reject the request at the hearing; failure to communicate a decision can reasonably leave the assessee under the impression that the request was granted and that a reply will be filed within the extended period. The impugned order was thus passed without a defence reply on record and without adequate response to the plea for more time, constituting a breach of natural justice. [Paras 2, 3, 4, 5]

Impugned order set aside for breach of natural justice; matter remanded to the Adjudicating Authority for fresh decision after the appellant files detailed reply and after reasonable opportunity of hearing.

Remand for fresh adjudication - opportunity of hearing - Directions and timeframe for de novo proceedings following remand. - HELD THAT: - The Tribunal directed that on remand the Adjudicating Authority shall accept the detailed reply which the appellant represents is ready, offer a reasonable opportunity of hearing to the appellants, and decide the matter afresh. In view of the high revenue involved, the Tribunal expected the Adjudicating Authority to conclude the de novo proceedings within two months. [Paras 5, 6]

De novo adjudication ordered on remand with direction to afford reasonable hearing and to conclude proceedings within two months.

Final Conclusion: Pre-deposit condition waived; impugned order set aside for breach of natural justice due to non-communication of the decision on extension requests and absence of defence reply; matter remanded for de novo adjudication with direction to admit the appellant's reply, afford reasonable hearing and conclude proceedings within two months.

Availability of Cenvat credit of service tax on outdoor catering - Cenvat credit disallowed to the extent cost of outdoor catering is charged to employees - reversal of Cenvat credit and verification by adjudicating authority - interest not leviable where credit is reversed before utilisation - penalty not leviable in absence of mala fide intention

Availability of Cenvat credit of service tax on outdoor catering - Cenvat credit in respect of outdoor catering is allowable where the cost is not recovered from employees. - HELD THAT: - The Tribunal applied its Larger Bench precedent and held that, insofar as the employer has not charged the cost of outdoor catering to employees, the credit is allowable in favour of the assessee. The appellants did not contest credits in respect of supplies where employees were not charged, and the Tribunal set aside the impugned order on this aspect directing quantification consistent with this finding. [Paras 1, 3]

Credit allowable where employees are not charged.

Cenvat credit disallowed to the extent cost of outdoor catering is charged to employees - Credit is not available to the extent the cost of outdoor catering is recovered from employees. - HELD THAT: - The Tribunal noted the law declared by the Bombay High Court in CCE, Nagpur v. Ultratech Cement Ltd. and held that Cenvat credit cannot be claimed for that portion of outdoor catering cost which is charged to employees. The appellants accepted that such proportionate credit would not be available and had already reversed it. [Paras 1, 2]

Credit not available for amounts charged to employees; proportionate reversal required.

Reversal of Cenvat credit and verification by adjudicating authority - Adjudicating authority to quantify the exact quantum of credit to be reversed and verify the assessee's claim of reversal. - HELD THAT: - The Tribunal remanded the matter for the lower authority to quantify the precise amount of Cenvat credit that must be reversed pursuant to the principles stated, and to verify the appellants' assertion that the requisite reversal has already been made. The authority is directed to examine records and pass fresh orders assessing and determining the exact quantum requiring reversal. [Paras 3]

Matter remitted for quantification and verification of reversal by the adjudicating authority.

Interest not leviable where credit is reversed before utilisation - Interest is not payable if the Cenvat credit in question was reversed prior to utilisation. - HELD THAT: - Relying on the Karnataka High Court decision in CCE v. Bill Forge Pvt. Ltd., the Tribunal held that if the credit was reversed before being utilised by the assessee, interest would not be leviable. The adjudicating authority must verify whether reversal occurred prior to utilisation and pass orders on interest accordingly. [Paras 2, 3]

No interest where reversal took place before utilisation; adjudicating authority to verify and decide.

Penalty not leviable in absence of mala fide intention - Penalty imposed is set aside because there was no mala fide intention warranting invocation of penal provisions. - HELD THAT: - On the facts as accepted by counsel, the Tribunal found no evidence of mala fide or deliberate wrongdoing that would justify imposition of penalty. Accordingly, the penalty imposed by the lower authority was quashed. [Paras 4]

Penalty set aside for lack of mala fide intention.

Final Conclusion: The appeals are allowed in part: credits are held allowable where employees were not charged and disallowable to the extent charged to employees; the matter is remitted for the adjudicating authority to quantify and verify reversed credit and to determine liability for interest after verifying whether reversal occurred before utilisation; imposed penalty is quashed for lack of mala fide.

Pre-deposit - waiver of pre-deposit - stay pending appeal - failure to appear - rehearing / remand for fresh consideration - consideration of merits and undue hardship - bona fides in prosecuting appeal

Pre-deposit - failure to appear - consideration of merits and undue hardship - Validity of the Tribunal's direction to pre-deposit the entire demand on the ground of non-appearance of the appellant. - HELD THAT: - The High Court found on the material before it that the Tribunal ordered pre-deposit solely because the appellant did not appear on the listed date, and there is no material to show that intimation of the adjourned hearing was served on the appellant. The record shows the appellant had sought early hearing and filed an affidavit explaining non-appearance was due to lack of intimation. The Tribunal did not consider the merits of the challenge or the appellant's plea of undue hardship, nor did it take into account the appellant's bona fides in prosecuting the appeal. In these circumstances the Tribunal's summary requirement of deposit of the entire demand without considering the appellant's contentions and hardship was set aside. [Paras 5, 6, 7, 9]

Tribunal's order directing pre-deposit of the entire demand set aside.

Waiver of pre-deposit - stay pending appeal - rehearing / remand for fresh consideration - bona fides in prosecuting appeal - Whether the matter should be remanded to the Tribunal for reconsideration of the application for stay and waiver of pre-deposit. - HELD THAT: - Having set aside the impugned portion of the Tribunal's order, the High Court directed that the miscellaneous application for stay and waiver of pre-deposit be re-heard by the Tribunal. The court noted the appellant's demonstrated diligence and bona fides (including application for early hearing) and that the Tribunal had not addressed the merits of the appellant's central contention or the hardship argument. The matter was remitted for fresh consideration of the stay and waiver application, with a judicially indicated time for re-hearing. [Paras 9, 10]

Matter remanded to the Tribunal for re-hearing of the miscellaneous application for stay and waiver of pre-deposit during the 2nd week of February, 2015.

Final Conclusion: The Tribunal's direction for pre-deposit is set aside for lack of consideration of intimation, merits and hardship; the Tribunal is directed to re-hear the application for stay and waiver of pre-deposit (to be taken up in the 2nd week of February, 2015).

Mandatory penalty under Section 11AC of the Central Excise Act - penalty payable when demand is confirmed under proviso to Section 11A - non-waiver of penalty by mere payment of duty after receipt of show cause notice - Tribunal's power to modify statutorily mandated penalty - binding effect of Supreme Court decisions determining mandatory nature of penalty

Mandatory penalty under Section 11AC of the Central Excise Act - penalty payable when demand is confirmed under proviso to Section 11A - binding effect of Supreme Court decisions determining mandatory nature of penalty - Whether penalty under Section 11AC is mandatory where demand is confirmed by invoking the proviso to Section 11A. - HELD THAT: - The Court held that Section 11AC, as interpreted by the Supreme Court in Dharmendra Textile and Rajasthan Spinning & Weaving Mills, makes levy of penalty mandatory once the conditions of Section 11AC are attracted. The statutory provision leaves no scope for discretion in quantifying or waiving the penalty where the proviso to Section 11A has been invoked and the demand is accordingly confirmed. Consequently, the Tribunal's reduction of the penalty proceeded on an incorrect premise and was not permissible in law. [Paras 8, 9, 10]

Penalty under Section 11AC is mandatory when the proviso to Section 11A is invoked and the demand is so confirmed; the Tribunal erred in reducing such penalty.

Non-waiver of penalty by mere payment of duty after receipt of show cause notice - Tribunal's power to modify statutorily mandated penalty - Whether payment of the differential duty immediately on receipt of the show cause notice absolves the assessee from imposition of penalty under Section 11AC. - HELD THAT: - The Court answered negatively. Following the Supreme Court precedents, mere payment of the duty after receipt of the show cause notice is not a ground to waive the penalty mandated by Section 11AC. The statutory mandate cannot be circumvented by subsequent payment, and therefore the Tribunal was not justified in reducing the penalty on that basis. [Paras 10]

Payment of duty after receipt of show cause notice does not by itself entitle the assessee to waiver or reduction of the mandatory penalty under Section 11AC.

Final Conclusion: Following the Supreme Court decisions cited, the substantial question is answered in favour of the Revenue; the Tribunal's order reducing the penalty is set aside and the appeal is allowed, with no order as to costs.

Doctrine of merger - assessable value - place of removal versus place of delivery - cost construction method (captive consumption) - inclusion of freight/transportation charges in assessable value - finality of order-in-appeal

Doctrine of merger - assessable value - place of removal versus place of delivery - inclusion of freight/transportation charges in assessable value - cost construction method (captive consumption) - finality of order-in-appeal - Whether the Tribunal was justified in applying the doctrine of merger to preclude the Revenue's further appeal on valuation and inclusion of freight after the Commissioner (Appeals) had allowed the assessee's appeal - HELD THAT: - The Adjudicating Authority had demanded differential duty by treating the goods as consumed at the work site and by including transportation charges under the cost construction method. The assessee's appeal to the Commissioner (Appeals) succeeded, the Commissioner (Appeals) holding that the work site was a "place of delivery" and not a "place of removal" and that transportation charges were not includable in the assessable value. That order set aside the adjudication and effectively dropped the demand raised in the show cause notice. The Revenue thereafter sought to press a separate appeal before another Commissioner (Appeals) contending valuation on the basis of sale/tender breakup price. The Tribunal held that no adjudication order survived once the Commissioner (Appeals) had finally decided the assessee's appeal and therefore the doctrine of merger applied. The High Court agreed: the core controversy in both appeals-whether duty should be on cost of production plus margin under Rule 8 or on sale/tender price-had been finally decided by the first order-in-appeal which merged the adjudicating order. Consequently the Revenue could not reopen the same issue in a subsequent appeal and the Commissioner (Appeals) in the later appeal could not reconstruct or revisit the matter. The decision in Godrej & Boyce (Bombay) was held distinguishable on facts where competing show cause notices and distinct adjudications existed; those distinctions were absent here.

Doctrine of merger applies; the Tribunal rightly allowed the assessee's appeal and the Revenue's subsequent appeal on the same issue was not maintainable.

Final Conclusion: The admitted question is answered for the assessee: the Tribunal correctly applied the doctrine of merger and dismissed the Revenue's attempt to re-agitate the valuation and inclusion of transportation charges after the Commissioner (Appeals) had finally set aside the adjudication; the Civil Miscellaneous Appeal is dismissed.

Mandatory penalty under Section 11AC - penalty equal to duty determined - absence of discretion to quantify or waive statutory penalty - scope of appellate/tribunal power to modify statutory penalty

Mandatory penalty under Section 11AC - penalty equal to duty determined - scope of appellate/tribunal power to modify statutory penalty - Whether the Tribunal was justified in reducing or waiving the penalty imposed under Section 11AC which mandates penalty equal to the duty determined. - HELD THAT: - The Court held that Section 11AC creates a statutory mandate that, upon satisfaction of the conditions stated in the section, the assessee is liable to pay a penalty equal to the duty determined and that there is no discretion vested in the adjudicating or appellate authority to quantify, reduce or waive that penalty. The Court relied on the Supreme Court decisions in Union of India - Vs - Dharamendra Textile Processors and Union of India - Vs - Rajasthan Spinning and Weaving Mills , interpreting pari materia provisions to the effect that once Section 11AC is attracted the amount of penalty must be the amount equal to duty and cannot be reduced by the Tribunal as a matter of discretion. Applying that principle to the facts, the Court found that the Tribunal erred in taking a lenient view and reducing the penalty to a token amount despite concluding that duty had been evaded; therefore the Tribunal's modification of the penalty was not legally permissible and had to be set aside. [Paras 7, 8, 9, 10]

The Tribunal's reduction of the penalty imposed under Section 11AC was not justified; the Tribunal's order on the penalty is set aside.

Final Conclusion: The substantial questions of law are answered in favour of the Revenue; the Tribunal's modification of the penalty under Section 11AC is set aside and the appeal is allowed. No order as to costs.

Further manufacture - manufacture - classification by name, character and use - removal after payment of duty - attachment of fittings at site not amounting to manufacture - immovable property

Further manufacture - attachment of fittings at site not amounting to manufacture - classification by name, character and use - Whether subsequent fixation of glass and rubber/metal fitments to doors and windows, after clearance on payment of duty, constitutes further manufacture attracting additional duty liability. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals)'s finding that the assessee manufactured doors, windows and frames at its factory and discharged appropriate duty at the time of their removal. The later activity of fixing glass and other fittings at the head office/site did not change the name, character or use of the goods; doors remained doors and windows remained windows. There is nothing on record to show that the fitted components could be removed intact so as to indicate a conversion into a different movable product, or that the activity resulted in emergence of a new product; the possibility of becoming immovable property was noted only in absence of removable fittings. On these findings, the process of attaching glass and fitments at site was held not to amount to a fresh manufacturing activity giving rise to further duty liability.

Tribunal upheld the Commissioner (Appeals)'s conclusion that site fixation of glass and other fittings did not amount to further manufacture and therefore no additional duty was exigible.

Final Conclusion: Revenue's appeal is rejected; the demand for further duty, interest and penalty imposed for alleged further manufacture was found without merit and the appellate order in favour of the assessee is upheld.

Cenvat credit admissibility where duty-paid inputs are received - Correlation of invoices with actual receipt of goods - Denial of credit on mere technical or procedural defect in invoices - Rule 57G(11) - non-disallowance of credit where duty-paid character and receipt are undisputed

Cenvat credit admissibility where duty-paid inputs are received - Correlation of invoices with actual receipt of goods - Denial of credit on mere technical or procedural defect in invoices - Whether Cenvat credit availed on duty-paid chassis could be denied because invoices were initially issued in the name of the supplier's factory (Jamshedpur) and later reflected through the Bombay office or by endorsement. - HELD THAT: - The Tribunal found it undisputed that the duty-paid chassis manufactured and cleared from Jamshedpur were actually received by the appellant for fabrication of bodies and that the original adjudicating authority had correlated invoices issued by the Jamshedpur and Bombay offices showing requisite particulars. In these circumstances the Court held that where the duty-paid character of inputs and their receipt by the assessee are not in dispute, the credit cannot be denied on the ground of technical or procedural defects in invoicing. The Tribunal noted the later insertion of sub-rule (11) to Rule 57G (introduced on 9-2-1999) which expressly provides that, subject to satisfaction of the Assistant Commissioner about duty-paid character and receipt, Cenvat credit shall not be disallowed on technical invoice defects; however the dispute was resolved on the established facts without relying on the amendments. Applying the principle that substantive entitlement to credit prevails where inputs are duty-paid and received, the impugned denial of credit was unsustainable. [Paras 3, 5]

Impugned order denying Cenvat credit set aside; appeal allowed and credit granted with consequential relief to the appellant.

Final Conclusion: The Tribunal allowed the appeal, holding that where duty-paid inputs were received by the assessee and the invoices could be correlated to the goods received, Cenvat credit cannot be denied on mere technical or procedural defects in invoicing; the impugned denial was set aside and consequential relief granted to the appellant.

Condonation of delay - sufficiency of explanation for delay - dismissal of appeal for delay - consequential dismissal of stay petition

Condonation of delay - sufficiency of explanation for delay - Application for condonation of delay in filing the appeals was dismissed for want of sufficient cause. - HELD THAT: - The appellant's affidavit and application stated that during the limitation period they were given the impression by their representative that an appeal could not be filed unless the departmental demand was deposited, and therefore the appeal was not filed. The Tribunal examined the explanation and the affidavit of the director and found that the reasons did not inspire confidence or constitute a bona fide justification for the inordinate delay of 406 days. The Bench observed that it was not explained how such an impression persisted despite a substantial confirmation of demand and recorded that the submissions made by counsel did not persuade the Court to condone the delay. On these findings the application for condonation was rejected. [Paras 4]

Condonation of delay refused and the application dismissed.

Dismissal of appeal for delay - consequential dismissal of stay petition - Consequent upon refusal to condone delay, the appeals and stay petitions were dismissed. - HELD THAT: - Having declined to condone the delay for filing the appeals, the Tribunal applied the consequential statutory and procedural effect that the appeals could not be entertained. The Bench therefore dismissed the stay petitions and appeals as consequential relief following the rejection of the condonation applications. [Paras 5]

Stay petitions and appeals dismissed consequentially.

Final Conclusion: Applications for condonation of delay rejected for lack of satisfactory explanation; appeals and accompanying stay petitions dismissed as consequential orders.

Adjustment of sanctioned rebate against unadjudicated demand - adjustment of sanctioned rebate under Section 35 of the Act - requirement of issuance of show cause notice for demand confirmation - principles of natural justice in revenue demand confirmation - confirmation of interest demand without adjudication

Adjustment of sanctioned rebate against unadjudicated demand - requirement of issuance of show cause notice for demand confirmation - principles of natural justice in revenue demand confirmation - Whether sanctioned rebate claims can be adjusted against an interest demand which was not the subject of any show cause notice or adjudication by the department. - HELD THAT: - The Tribunal found that the Department adjusted sanctioned rebate claims against an interest demand even though no show cause notice was issued and there was no adjudication confirming that interest demand. The record included a departmental letter acknowledging that higher officers had decided not to issue a show cause notice, and counsel for the appellant stated that no show cause notice had been issued subsequently. The Court applied the settled principle that demands on an assessee must follow the principles of natural justice, which require issuance of a show cause notice, an opportunity to be heard and adjudication before confirmation of demand. Reliance was placed on the Tribunal decision in Stella Rubber Works and the Karnataka High Court's confirmation of that view, which held that rebate sanctioned to an assessee cannot be adjusted against demands that have not been properly demanded and adjudicated. In those circumstances, the impugned adjustment of the sanctioned rebate against the unadjudicated interest demand was held to be impermissible and liable to be set aside. [Paras 3, 4]

Adjustment of sanctioned rebate against the unadjudicated interest demand is not justified; the appeals are allowed to the extent of the rebate claim of Rs. 8,01,573/- with consequential relief to the appellants.

Final Conclusion: The Tribunal set aside the adjustment of the sanctioned rebate against interest demands that were not the subject of show cause notices or adjudication, allowed the appeals to the extent of the rebate of Rs. 8,01,573/-, and granted consequential relief to the appellant.

Exemption from tax under S.R.O. No. 731/2004 - quashing of S.R.O. No. 377/2005 - effect of binding judicial decision - assessment order quashed for limited purpose - remand for quantification of liability

Exemption from tax under S.R.O. No. 731/2004 - quashing of S.R.O. No. 377/2005 - effect of binding judicial decision - entitlement of the petitioner (packaged drinking water unit) to the exemption granted by S.R.O. No. 731/2004 in consequence of the quashing of S.R.O. No. 377/2005 - HELD THAT: - The court held that exhibit P6 judgment, which quashed S.R.O. No. 377/2005, has the effect of reviving S.R.O. No. 731/2004 and therefore the petitioner, being a packaged drinking water unit, is entitled to the exemption granted by S.R.O. No. 731/2004. The court emphasised that the purport and import of exhibit P6 must be given full effect; nothing in the appellate remit of the assessment order prevents the assessing authority from taking that exemption into account. The petitioner's series of representations made after exhibit P6 negates any plea of laches. [Paras 3, 4]

The petitioner is entitled to the exemption under S.R.O. No. 731/2004 and the effect of exhibit P6 judgment must be given full effect for the relevant assessments.

Assessment order quashed for limited purpose - remand for quantification of liability - treatment of the assessment orders for 2000-01 and 2001-02 in light of the revived exemption and remand to the assessing authority - HELD THAT: - The court recorded that the assessment for 2000-01 stands remitted to the first respondent under the appellate order (exhibit P5), and expressly directed that the first respondent may take into consideration the effect of S.R.O. No. 731/2004 pursuant to exhibit P6. For 2001-02 the court quashed the assessment order (exhibit P2) for the limited purpose of enabling the assessing authority to quantify liability after giving effect to the exemption. The court therefore remitted the matter to the first respondent to pass necessary orders quantifying liability with notice to the petitioner. [Paras 3, 4, 5]

Exhibit P2 (assessment 2001-02) is quashed for the limited purpose of quantification in view of the exemption; the assessing authority is to give effect to exhibit P6 when dealing with assessments for 2000-01 and 2001-02 and pass necessary orders.

Final Conclusion: The writ petition is allowed: the petitioner is entitled to the exemption under S.R.O. No. 731/2004 as revived by the quashing of S.R.O. No. 377/2005; the assessment for 2001-02 is quashed for the limited purpose of quantifying liability in light of that exemption, the assessment for 2000-01 is to be dealt with by the assessing authority taking the exemption into account, and the first respondent is directed to pass necessary orders with notice to the petitioner within two months.

Entitlement to interest on refund under Section 34A(4B) - Effect of self-assessment and acceptance under Section 16(1)(ii) on refund interest - Scope of the Explanation to Section 34A(4B) regarding "date of payment of the tax" - Requirement of a notice of demand under Section 30 as a pre-condition for payment of interest

Entitlement to interest on refund under Section 34A(4B) - Effect of self-assessment and acceptance under Section 16(1)(ii) on refund interest - Whether an assessee who filed self-assessment returns and whose returns were accepted under Section 16(1)(ii) is entitled to simple interest on refund under Section 34A(4B). - HELD THAT: - The court examined the statutory scheme under Sections 14, 15, 15B and 16 and observed that the Act contemplates prompt consideration of self-assessment returns and, where excess tax is found on the basis of such returns, refund under Section 16(1)(ii). Sub-section (4B) of Section 34A grants simple interest on amounts refunded "where refund of any amount becomes due to the assessee under this Act." The scope of sub-section (4B) is not confined to refunds arising only after an order followed by a notice of demand; it covers every situation where a refund becomes necessary under the Wealth-Tax Act. To restrict interest to cases where a demand notice under Section 30 has been issued would deprive taxpayers who volunteered self-assessment and overpaid of the statutory benefit of interest, contrary to the language and scheme of Section 34A(4B). The court therefore upheld the view that interest is payable when refund becomes due on accepted self-assessment returns. [Paras 8, 9]

The assessee is entitled to simple interest on refund under Section 34A(4B) even where the refund arises from acceptance of a self-assessment return under Section 16(1)(ii).

Scope of the Explanation to Section 34A(4B) regarding "date of payment of the tax" - Requirement of a notice of demand under Section 30 as a pre-condition for payment of interest - Whether the Explanation to clause (a) of sub section (4B) makes issuance of a notice of demand under Section 30 a pre-condition for computation and payment of interest on refund. - HELD THAT: - The court analysed clause (a) and its Explanation and held that the Explanation defines the expression "date of payment of the tax or penalty" for purposes of computing the period for which interest is payable. The Explanation does not narrow the operation of sub-section (4B) to cases where a demand notice under Section 30 has been issued; it is invoked only to determine the relevant date from which interest runs. In refunds under Section 16(1)(ii) (where no demand notice is issued), the period for computation is derived from the dates of payment and refund and the Explanation is not required to defeat the claim for interest. Consequently, a demand notice under Section 30 is not a pre-condition to the entitlement to interest where refund becomes due on accepted returns. [Paras 8]

The Explanation to Section 34A(4B) does not make issuance of a Section 30 demand notice a pre-condition for payment of interest; the Explanation only defines the "date of payment" for computation purposes and does not exclude refunds under Section 16(1)(ii) from interest.

Final Conclusion: Writ appeals dismissed; the High Court's judgment holding that the assessee is entitled to simple interest under Section 34A(4B) on refunds arising from accepted self-assessment returns is upheld, and the Explanation to Section 34A(4B) does not restrict interest to cases where a Section 30 demand notice was issued.

Measure of liquids by volume versus mass - metric system and International System of Units (SI) - litre as a permitted/derived unit for volume - Legal Metrology Act and subordinate Rules - conformity of units and approved methods - writ jurisdiction under Article 226 vis-a -vis contractual arbitration clause

Writ jurisdiction under Article 226 vis-a -vis contractual arbitration clause - contractual dispute resolution - arbitration clause - Maintainability of writ petitions which seek directions that would effectively alter contractual terms between dealers and oil companies where an arbitration clause exists. - HELD THAT: - The Court affirmed the Single Judge's conclusion that the disputes between the appellants' members and the oil companies are governed by the terms of the contracts entered into between them, which provide for arbitration as the dispute resolution mechanism. The appellants failed to place the contracts before the Court and did not demonstrate that the reliefs sought (direction to supply by weight or to apply temperature adjustment) would not affect other contractual terms. In view of earlier conclusions recorded by the Competition Appellate forum and the Supreme Court that the rights of the association are guided by the contractual terms, the Court held that invocation of Article 226 to alter or enforce contractual terms was not permissible without showing that the contractual remedy was inadequate or that the relief would not impinge on the contract; absent such demonstration, the writ petitions were not maintainable and the appellants must pursue the contractual/arbitral remedy or such forum as the contract prescribes. [Paras 2, 3, 6, 7]

Writ petitions not maintainable insofar as they seek directions which would impinge upon the contractual relationship subject to an arbitration clause; appellants must invoke the contractual dispute resolution mechanism or other appropriate fora.

Litre as a permitted/derived unit under SI - measurement of liquids by volume under Legal Metrology Rules - Legal Metrology Act and subordinate Rules - approved methods including dip-rod - remedy under the Legal Metrology Act and authorities constituted thereunder - Whether the Legal Metrology Act and Rules require petrol and diesel to be measured only by mass (kilogram) and prohibit use of litre or the dip-rod/volume methods relied upon by oil companies. - HELD THAT: - The Court examined the Act and the Rules and the SI Brochure and held that while the kilogram is an SI base unit of mass, the litre is a recognised non-SI unit accepted for use with the SI and is a derived/permitted unit for volume (1 L = 1 dm3 = 10-3 m3). The Legal Metrology (National Standards) Rules and the Fourth Schedule admit use of litre as a permitted unit. The General Rules and the Eighth Schedule provide for measurement of liquids (other than water) by volume and specify instruments and permissible errors in litres. The Rules also prescribe procedures for calibration of vehicle tanks and expressly contemplate measurement by dip-rod method with capacities expressed in litres. Consequently, the contention that liquids must be measured only by mass is not supported by the statutory scheme. Where a contravention of the Act is alleged, the proper course is to proceed before the statutory authorities under the Legal Metrology Act and Rules rather than by writ, since those authorities are equipped to adjudicate technical and regulatory aspects. [Paras 11, 12, 13, 14, 15]

Appellants have not established that use of litre or dip-rod/volume methods by the oil companies contravenes the Legal Metrology Act and Rules; any grievance under the Act should be pursued before the authorities constituted under the Act.

Final Conclusion: The appeals are dismissed: the writ petitions were not maintainable because the disputes are governed by contractual/arbitral provisions and the Legal Metrology scheme recognises litre and prescribed volume-measurement methods; appellants must pursue remedies under the contract/arbitration clause or before the statutory authorities under the Legal Metrology Act.