TaxTMI Updates e-Newsletter
Feb 12,2021

Presumption of constitutionality - scope of Article 246A and legislative power over GST - ancillary power to make offences and to arrest/prosecute - application of Chapter XII Cr.P.C. to the CGST Act - protection under Article 20(3) and statutory criminal procedure - interim relief in writ proceedings vis-a -vis ongoing investigations - conflicting Division Bench precedents and per incuriam principle

Presumption of constitutionality - scope of Article 246A and legislative power over GST - ancillary power to make offences and to arrest/prosecute - application of Chapter XII Cr.P.C. to the CGST Act - interim relief in writ proceedings vis-a -vis ongoing investigations - protection under Article 20(3) and statutory criminal procedure - Grant of interim relief restraining investigation or arrest under the CGST Act in writ proceedings - HELD THAT: - The Court, following its view in Dhruv Krishan Maggu, refused to grant interim protection against investigation or enforcement action under the CGST Act. It applied the presumption of constitutionality and accepted that the legislative power over goods and services tax is broad under Article 246A; the power to create offences and to arrest or prosecute is ancillary or incidental to that legislative power. The Court also had regard to decisions treating Chapter XII of the Cr.P.C. as applicable to the CGST Act and to the Supreme Court's pronouncements which, at the interim stage, weigh against staying investigative action in writ petitions. Consequently, submissions that petitioners are deprived of protections under Article 20(3) or Cr.P.C. where the CGST Act is silent were held untenable at the interim stage. The Court emphasised that while it will not interfere with bona fide investigations in writ proceedings, innocent persons must not be arrested or harassed and were left free to seek statutory remedies. [Paras 3, 4, 6, 8]

Application for interim relief restraining investigation/arrest dismissed; parties given liberty to pursue statutory remedies.

Conflicting Division Bench precedents and per incuriam principle - binding effect of High Court decisions and transfer to Supreme Court - Whether the Court's earlier order in Dhruv Krishan Maggu was per incuriam and required departure - HELD THAT: - The Court examined competing Division Bench decisions, including Rajbhushan Omprakash Dixit and Vakamulla Chandrashekhar, and noted that divergent precedents exist. The presence of contrary Division Bench views and the fact that the Supreme Court has transferred a reference to itself (in related proceedings) meant the earlier order could not be said to be per incuriam. The Court further observed that interim orders of other High Courts are not binding on this Bench and that the Supreme Court's endorsement of the Telangana High Court's view militates against following the contrary Punjab and Haryana decision. [Paras 6, 7, 8]

Earlier order not held per incuriam; this Court declined to follow the contrary Division Bench view and proceeded on parity of reasoning with Dhruv Krishan Maggu.

Final Conclusion: Interim relief was refused and the petition dismissed at the interim stage in accordance with the Court's earlier decision in Dhruv Krishan Maggu; the matter is listed before the roster Bench for further consideration.

Constitution of State Bench under Section 109(6) of the CGST Act - Recommendation of the Goods and Services Tax Council for State and Area Benches - Executive prerogative in determining location of Tribunal Benches - State Government's role limited to requesting Area Benches - Invalidity of executive communication inconsistent with State Government's proposal - Mandate to notify and make functional State and Area Benches within a stipulated timeline

Constitution of State Bench under Section 109(6) of the CGST Act - State Government's role limited to requesting Area Benches - Interpretation of Section 109(6) of the CGST Act and the respective roles of the Central Government, the GST Council and the State Government in constituting State and Area Benches of the GST Appellate Tribunal. - HELD THAT: - The Court held that sub-section (6) of Section 109 of the CGST Act mandates that the Central Government shall, by notification, specify for each State a State Bench of the Appellate Tribunal. The State Government's role is confined to making a request for Area Benches; on receipt of such request the Central Government may constitute Area Benches in such number as recommended by the GST Council. The GST Council is the constitutional body to make recommendations under Article 279A and the decision-making domain as to the specification of the State Bench lies with the Central Government. The Court recorded that these legal positions are reflected both in the statutory text and in the parties' own pleadings and affidavits. [Paras 9, 25]

Section 109(6) requires the Central Government to specify the State Bench; the State Government can only request constitution of Area Benches and cannot itself specify the State Bench.

Invalidity of executive communication inconsistent with State Government's proposal - Recommendation of the Goods and Services Tax Council for State and Area Benches - Validity of DO Letter No.20/GST dated 29.05.2020 and the GST Council's 40th meeting recommendation which were based on that letter, in relation to earlier proposals made by the State Government and the Council's 39th meeting approval. - HELD THAT: - The Court found that the DO Letter dated 29.05.2020 was authored by the Commissioner, Commercial Tax, U.P., and that the content of that letter contradicted earlier proposals made by the State Government through its competent authority (Additional Chief Secretary) dated 05.03.2019. Counsel for the State conceded that the Commissioner's letter could not be treated as the State Government's proposal under the applicable Rules of Business. Because the DO letter was inconsistent with the State Government's earlier duly-made proposals which remained unwithdrawn and not quashed, the Court concluded that the DO letter was unsustainable. Consequently, the GST Council's Agenda Item based on that DO letter (40th meeting) could not be sustained and was quashed. [Paras 30, 31]

DO Letter No.20/GST dated 29.05.2020 and the GST Council's Agenda Item/decision in its 40th meeting founded on that letter are quashed as being inconsistent with the State Government's earlier proposal and therefore unsustainable.

Mandate to notify and make functional State and Area Benches within a stipulated timeline - Recommendation of the Goods and Services Tax Council for State and Area Benches - Appropriate remedial directions to ensure availability of the Appellate Tribunal in Uttar Pradesh and the procedural steps to be taken following the GST Council's 39th meeting recommendation. - HELD THAT: - Given the absence of a functional State Bench and Area Benches in Uttar Pradesh and the resulting prejudice to aggrieved persons entitled to appeals under Section 112, the Court directed specific action. The GST Council was directed to forward its recommendation of Agenda Item No.6 of the 39th Meeting (14.03.2020) to the Central Government within two weeks. The Central Government was directed to notify the State Bench at Prayagraj (Allahabad) and four Area Benches at Ghaziabad, Lucknow, Varanasi and Agra within four weeks of receipt of the Council's recommendation. The Court also directed respondent authorities to make the Benches functional as far as possible from 01.04.2021 and protected petitioners from coercive action until appeals are filed or limitation expires. [Paras 31, 32, 33]

GST Council to forward recommendation (39th Meeting) within two weeks; Central Government to notify State Bench at Prayagraj and four Area Benches within four weeks; authorities to make benches functional (target 01.04.2021); no coercive action against petitioners pending filing of appeals or expiry of limitation.

Final Conclusion: The writ petitions are disposed by (i) construing Section 109(6) to place specification of the State Bench with the Central Government while limiting the State's role to requesting Area Benches; (ii) quashing the DO Letter dated 29.05.2020 and the GST Council decision in its 40th meeting that relied on that DO letter; and (iii) directing the GST Council to forward its 39th meeting recommendation and the Central Government to notify the State Bench at Prayagraj and four Area Benches within the prescribed timelines and to make them functional, with interim protection to petitioners against coercive action.

Carry forward of unutilized input tax credit under transitional provisions - entitlement to transitional credit despite procedural non compliance - TRAN 1 filing requirement and transactional formality - GSTR 3B return as reflection of credit - procedural or technical grounds cannot defeat vested right - electronic filing difficulties and relief for bona fide mistakes - verification of facts by tax authorities

Carry forward of unutilized input tax credit under transitional provisions - TRAN 1 filing requirement and transactional formality - GSTR 3B return as reflection of credit - procedural or technical grounds cannot defeat vested right - Petitioner entitled to pursue carry forward of credit reflected in its returns despite non filing of TRAN 1 within prescribed time, and directed to be allowed to submit TRAN 1. - HELD THAT: - The court noted that the petitioner had an amount of credit lying in its Cenvat account on 08.07.2017 and had reflected that credit in its GSTR 3B filed within the prescribed period. The only objection raised by the respondents was non submission of TRAN 1 within the stipulated time; respondents did not dispute entitlement to the credit, its correctness, or that it was reflected in GSTR 3B. Relying on the reasoning in Adfert Technologies Pvt. Ltd. (paragraph 14) the court observed that unutilized transitional credit is a vested right which should not be taken away on mere procedural or technical grounds, particularly in an electronic regime where genuine mistakes or lack of familiarity with the portal may occur. The authorities retain the power to verify facts and figures, and therefore procedural non compliance alone, without disputing the substance, does not justify denial of the credit. In the circumstances and having regard to the portal being closed and the petitioner's claim, the court directed respondents to permit submission of TRAN 1 either electronically or manually by a specified date, subject to verification by the authorities.

Respondents directed to permit submission of TRAN 1 electronically or manually on or before 15.03.2021 and to coordinate with the petitioner for its submission.

Final Conclusion: Petition allowed to the limited extent that the petitioner shall be permitted to submit TRAN 1 (electronically or manually) by 15.03.2021 to claim the transitional credit reflected in its GSTR 3B; respondents may verify the claim but cannot deny the credit solely on procedural grounds.

Violation of principles of natural justice - Opportunity of personal hearing under Section 75(4) - Adjournment on sufficient cause under Section 75(5) - Prohibition on recovery before three months under Section 78 - Quashing of order and attachment - Remand for fresh consideration and hearing

Violation of principles of natural justice - Opportunity of personal hearing under Section 75(4) - Impugned order dated 21.10.2020 was passed without affording opportunity of personal hearing in violation of principles of natural justice - HELD THAT: - The Court found on the materials that the authority passed the impugned order without granting a personal hearing despite a written request by the assessee and correspondence indicating a request for hearing. Section 75(4) requires that an opportunity of hearing be granted where a request in writing is received from the person chargeable with tax or penalty or where an adverse decision is contemplated. The absence of any recorded personal hearing or adjournment in the face of the assessee's written request rendered the order vitiated for breach of the principles of natural justice. The Court therefore quashed the impugned order on this ground without considering the merits. [Paras 5, 13, 16, 18]

Impugned order dated 21.10.2020 quashed and set aside for want of opportunity of personal hearing.

Prohibition on recovery before three months under Section 78 - Quashing of order and attachment - Attachment/ recovery proceedings initiated within one month of service of order were impermissible under Section 78 - HELD THAT: - Section 78 provides that recovery proceedings shall not be initiated before the expiry of three months from the date of service of the order, subject to a written recording of reasons if a shorter period is specified in the interest of revenue. The record showed that attachment of the factory premises occurred within one month of the order. In view of the statutory prohibition and the vitiated main order, the consequent recovery proceedings (attachment) were held to be unsustainable and were quashed. [Paras 14, 15, 18]

Order of attachment dated 17.12.2020 quashed and set aside as recovery was initiated prior to the three-month period and as consequential to the quashed order.

Remand for fresh consideration and hearing - Adjournment on sufficient cause under Section 75(5) - Matter remitted to respondent No.2 for fresh consideration after affording a hearing; merits not decided by the Court - HELD THAT: - Having quashed the impugned order for procedural infirmity, the Court directed that the matter be remitted to the respondent for fresh adjudication. The respondent shall issue a notice fixing a particular date for hearing and the assessee or its authorised representative shall appear and make submissions. The adjudicating authority is to proceed to pass a final order in accordance with law after hearing; the Court expressly refrained from expressing any view on the merits of the claim. Section 75(5) permits adjournments on sufficient cause to be recorded in writing, which the authority must observe in further proceedings. [Paras 17, 18]

Proceedings remitted to respondent No.2 for fresh consideration after giving a notice fixing a hearing date; fresh final order to be passed in accordance with law.

Final Conclusion: Writ petition allowed: impugned adjudication order dated 21.10.2020 and consequential attachment dated 17.12.2020 quashed for want of opportunity of personal hearing and for premature initiation of recovery; matter remitted to respondent No.2 to afford a hearing and decide the matter afresh in accordance with law, the Court making no observation on merits.

Cancellation of GST registration - Service of show cause notice and requirement of appointed date and time for hearing - Principles of natural justice - opportunity of hearing - Validity of ex parte order founded on defective show cause notice - Cancellation for continuous non filing of returns for six months

Service of show cause notice and requirement of appointed date and time for hearing - Principles of natural justice - opportunity of hearing - Validity of ex parte order founded on defective show cause notice - Impugned cancellation of GST registration was quashed as the statutory show cause notice was defective for want of an appointed date and time, resulting in denial of opportunity of hearing and violation of natural justice. - HELD THAT: - The show cause notice in Form GST REG 17 dated 26.02.2020 did not indicate any appointed date or time for personal hearing despite directing the assessee to furnish a reply within seven working days from service and warning of ex parte decision if the assessee failed to appear. The impugned cancellation order dated 13.03.2020 records a system generated statement that the authority had examined the reply and submissions at the time of hearing, whereas, in fact, no date/time was communicated and no opportunity to be heard was afforded. Given the absence of the essential ingredient in the prescribed form, the assessee could not reasonably be expected to file a reply or appear, and the resulting ex parte cancellation cannot be sustained as it offends the principles of natural justice. The court expressly refrained from adjudicating the substantive merits of the alleged six month default and confined its decision to the procedural infirmity in the notice and order. The respondents are, however, at liberty to proceed further in accordance with law if permissible. [Paras 8, 9, 10, 11]

Impugned cancellation order dated 13.03.2020 quashed for procedural infirmity in the show cause notice; respondents may proceed in accordance with law.

Final Conclusion: Writ petition allowed; order of cancellation of GST registration set aside on grounds of defective show cause notice and denial of opportunity to be heard, without expression on substantive merits; respondents permitted to take further action as per law.

Principles of natural justice - opportunity of hearing - quash and remit for fresh consideration - reconsideration after hearing

Principles of natural justice - opportunity of hearing - quash and remit for fresh consideration - Impugned order passed without affording the petitioner an opportunity of hearing violated principles of natural justice and required setting aside and remand. - HELD THAT: - The second respondent disposed of the first appeal without providing any hearing to the petitioner despite the petitioner's request. The respondents concede that no opportunity was given. The absence of any opportunity of hearing renders the impugned order contrary to the principles of natural justice. In these circumstances the proper course is to set aside the order and remit the matter to the second respondent to reconsider the appeal afresh after hearing the parties and passing an appropriate order in accordance with law. The court left the substantive contentions open for fresh consideration by the authority.

Impugned order set aside and the matter remitted to the second respondent for fresh consideration after affording opportunity of hearing to the petitioner.

Final Conclusion: Writ petition allowed; impugned order quashed on ground of violation of natural justice and the appeal remitted to the second respondent to be reconsidered afresh after hearing the parties.

Grant of bail - completion of investigation and custody no longer required - risk of tampering with evidence or influencing witnesses - tripod test for bail - conditions of bail

Grant of bail - completion of investigation and custody no longer required - tripod test for bail - risk of tampering with evidence or influencing witnesses - conditions of bail - Both accused were granted bail on conditions after completion of investigation and in view of changed circumstances. - HELD THAT: - The court applied established principles governing bail, noting that while detailed examination of evidence is not required at the bail stage, reasons must be indicated when granting bail in serious offences. The court observed that the accused have been in custody since 19.11.2020, investigation has been completed and the department possesses the evidence, so custodial interrogation is no longer necessary. Having regard to the likelihood of protracted trial and the absence of any material suggesting that the accused are flight risks or would tamper with evidence or influence witnesses, the court was satisfied that the accused meet the requisite tests for release on bail. The court also emphasised that the grant of bail is discretionary and depends on a composite appraisal of the facts, including the nature of the accusation, the stage of investigation, and the risk of interference with the prosecution. On this basis the court exercised its discretion to release both accused subject to specified conditions.

Bail granted to both accused subject to furnishing process/surety bonds and compliance with enumerated conditions including cooperation with investigation, non-tampering with evidence, deposit of passport and surrender of travel documents as directed, abstention from similar offences and appearance on all hearing dates.

Final Conclusion: The joint bail application is allowed: both accused are released on bail subject to furnishing the required bonds/sureties and compliance with the court's conditions, as the investigation is complete and further custodial detention was not warranted.

Amendment of writ petition - Supplementary counter affidavit - Consent order - Filing timeline and listing directions

Amendment of writ petition - Consent order - Application for amendment of the writ petition was allowed by consent and directions were issued for incorporation of amendments within a specified time. - HELD THAT: - The Court, with the consent of the parties, allowed the Civil Misc. Amendment Application and directed that the necessary amendments be incorporated in the leading writ petition within 24 hours. The allowance was procedural and based on the parties' consent as recorded in court. The order does not adjudicate the merits of the amended claims but permits their inclusion in the pending writ petition for adjudication on the next listing.

Amendment application allowed by consent; amendments to be incorporated within 24 hours.

Supplementary counter affidavit - Filing timeline and listing directions - Respondents were directed to file a supplementary counter affidavit addressing the amended portions and the matter was listed for further hearing on a specified date. - HELD THAT: - Following allowance of the amendment, the Court directed all respondents to file a supplementary counter affidavit to reply to the amended portion of the writ petition before the next date fixed. The petition and connected matters were ordered to be placed on the additional cause list at the appointed time and date for further hearing. These directions are procedural steps to enable adjudication of the amended pleadings.

Respondents to file supplementary counter affidavit before the next date; matter listed on 25th January, 2021 in the additional cause list at 2.00 p.m.

Final Conclusion: By consent, the amendment application was allowed; amendments to be incorporated within 24 hours, respondents to file supplementary counter affidavits in response to the amendments, and the matter was listed for hearing on 25th January, 2021.

Summary order. The Court granted three days' time to the Additional Solicitor General to place on record the papers referred to in agenda item no.7 of the CGST Council minute extract; permitted the petitioners to file an amendment to the writ petition by 20.01.2021; directed the State to file a supplementary counter affidavit within three days clarifying its powers under Section 109 of the CGST Act, 2017 for creation of a State Bench and its stand on the controversy; and listed the matters on the additional cause list on 20.01.2021.

Settlement Application u/s 245C(1) - assessee disclosed additional income during the course of settlement - fresh and substantial disclosure or not - HELD THAT:- Issue notice, returnable on 12.03.2021

Dasti in addition. In the meanwhile, the effect and operation of the order presently under challenge shall remain stayed.

Addition u/s 41 or 28 - Disallowance of principal amount of loan waived off by the lender - Waiver of loan as revenue receipt - loan taken for acquisition/investment of capital assets - application of Section 41(1) where prior allowance was made - As per HC [2019 (9) TMI 1013 - BOMBAY HIGH COURT] Tribunal's and Commissioner (Appeals)'s concurrent finding that the waived loan arose on capital account and is not taxable as a revenue receipt is affirmed, the legal position being settled by precedent.- HELD THAT:- Special leave petition is dismissed on the ground of delay.

Reopening of assessment beyond four years in scrutiny cases - change of opinion - reason to believe - failure to disclose fully and truly all material facts - applicability of section 14A read with rule 8D

Reopening of assessment beyond four years in scrutiny cases - reason to believe - Sustainability of the notice issued under Section 148 to reopen assessment for A.Y. 2012-13 beyond four years in a case assessed under Section 143(3). - HELD THAT: - The Court examined whether the reassessment notice issued under Section 148, proposing reopening beyond four years in a scrutiny case, was sustainable. Applying the principles in CIT v. Kelvinator India and the statutory scheme, the Court held that reopening under Section 147 post the four year period requires tangible material giving rise to a bona fide "reason to believe" and must not amount to a mere change of opinion. On the facts, the material relied upon did not furnish a permissible basis to disturb the earlier concluded scrutiny assessment. The reasons recorded did not demonstrate a live link to fresh tangible information sufficient to justify reopening beyond the statutory period in a case where Section 143(3) assessment had been completed. Consequently, the notice under Section 148 was held not sustainable and was quashed. [Paras 16, 19, 20, 21]

Impugned notice under Section 148 for reopening A.Y. 2012-13 beyond four years in a scrutiny assessment is not sustainable and is quashed.

Change of opinion - failure to disclose fully and truly all material facts - applicability of section 14A read with rule 8D - Whether the reopening was justified on the basis that there was either a mere change of opinion by the Assessing Officer or a failure by the assessee to disclose material facts fully and truly (including non disallowance under section 14A/read with Rule 8D). - HELD THAT: - The Court found that during original assessment the Assessing Officer had specifically queried exempt income and related expenses under Section 14A/read with Rule 8D and the assessee had responded stating no expenditure was incurred to earn the exempt income; those responses were on record. The reassessment attempt essentially sought to revisit that concluded position on the same set of facts, amounting to a change of opinion which, absent new tangible material, cannot justify reopening. Further, the Court held there was no established failure by the assessee to disclose material facts fully and truly that would trigger the proviso to Section 147; mere production of particulars in the original proceedings did not amount to non disclosure. On this basis the Court concluded the reassessment was impermissible. [Paras 17, 18, 19, 20]

Reopening was based on an impermissible change of opinion and there was no failure to disclose fully and truly all material facts; reassessment was therefore unjustified.

Final Conclusion: The writ succeeds; the notice issued under Section 148 for reopening assessment for A.Y. 2012-13 is quashed.

Chargeability of capital gains in the year of transfer - date of transfer under section 45(1) of the Income-tax Act - operation of section 50C as a computation provision (section 48) and not as altering the year of charge - effect of registration under section 47 of the Indian Registration Act, 1908 - integrality of charging and computation provisions for capital gains

Date of transfer under section 45(1) of the Income-tax Act - effect of registration under section 47 of the Indian Registration Act, 1908 - operation of section 50C as a computation provision (section 48) and not as altering the year of charge - Whether the capital gain based on the value adopted by the registering authority under section 50C could be brought to tax in Assessment Year 2011-12 instead of the year in which the sale deed was executed. - HELD THAT: - The Tribunal found that the sale deed was executed on 10.08.2009 and, in absence of any clause postponing its operation, the deed took effect from that date under section 47 of the Indian Registration Act, 1908. Section 45(1) charges capital gains in the previous year in which the transfer takes place; section 2(47) includes sale within the definition of transfer. Section 50C is a special provision for determining the full value of consideration for the purposes of section 48 (computation) where stamp valuation by a State authority is higher than the consideration declared. The Tribunal held that section 50C substitutes the computation value but does not change the year of transfer as fixed by section 45(1). The statutory scheme treats the charging provision and the computation provisions as an integrated code; a computation provision cannot be read so as to create a charge in a year when the charging section does not operate. Applying these principles to the facts, the transfer occurred in the previous year relevant to Assessment Year 2010-11 and therefore the deemed value under section 50C could not be invoked to bring the capital gain to tax in Assessment Year 2011-12. [Paras 8, 9, 10, 14]

Capital gain could not be brought to tax in Assessment Year 2011-12; the addition made by the Assessing Officer is deleted.

Final Conclusion: Appeal allowed: the Tribunal held that the sale operated from the date of execution (10.08.2009) and, while section 50C affects computation of full value, it does not alter the year of charge under section 45(1); accordingly the addition for Assessment Year 2011-12 is deleted.

Allowance of commission as wholly and exclusively for business purposes - precedent reliance on tribunal's decision in assessee's own case - bad debts claim requires reduction from sundry debtors (customers) not loans and advances - remand for factual verification whether amounts are sales-related sundry debtors or loans and advances - set off of brought forward business losses and unabsorbed depreciation subject to proof of timely filing of earlier returns - deductibility of employees' contribution deposited before due date of filing of return - disallowance under section 40(a)(ia) for failure to deduct tax at source (TDS) where expenditure is claimed - deletion of disallowance where alleged expenditure was not debited in profit & loss account

Allowance of commission as wholly and exclusively for business purposes - precedent reliance on tribunal's decision in assessee's own case - Deletion of disallowance of commission expenses for Assessment Years 2012-13 and 2014-15 was upheld. - HELD THAT: - The Tribunal applied its earlier finding in the assessee's own case for Assessment Year 2011-12, where materially identical facts and an existing distribution agreement demonstrated that commission payments were incurred for promotion of business, led to substantially increased turnover, and were assessed to tax by the recipient. Revenue produced no contrary material. Following that precedent, the Tribunal confirmed the Commissioner (Appeals)'s deletion of the disallowances and dismissed the revenue's grounds challenging the commission additions for both years. [Paras 9]

Commission disallowances of Rs. 1,08,95,467/- (AY 2012-13) and Rs. 1,03,81,727/- (AY 2014-15) deleted and revenue's grounds dismissed.

Bad debts claim requires reduction from sundry debtors (customers) not loans and advances - remand for factual verification whether amounts are sales-related sundry debtors or loans and advances - Disallowance of claimed bad debts was remanded for fresh examination to determine whether the amounts were sales-related sundry debtors or loans and advances. - HELD THAT: - The Tribunal noted that the Supreme Court's exposition contemplates bad debts arising from sundry debtors (customers) and reductions from sundry debtors in the accounts. The Commissioner (Appeals) had not examined whether the written off amounts represented unrealised sales (sundry debtors) or were loans and advances. Because this factual/accounting distinction is determinative of tax treatment (deductible as bad debts or to be treated as business loss where loans were given), the Tribunal restored the issue to the file of the Commissioner (Appeals) for verification and decision consistent with that distinction. [Paras 15]

Issue remanded to Commissioner (Appeals) for fresh enquiry and determination whether the written off amounts were sundry debtors (bad debts) or loans and advances; grounds allowed for statistical purposes.

Set off of brought forward business losses and unabsorbed depreciation subject to proof of timely filing of earlier returns - Claim for allowance of brought forward losses and unabsorbed depreciation for AY 2012-13 was remitted to the Assessing Officer for fresh examination. - HELD THAT: - The Tribunal found that the AO's computation and the supporting earlier returns and computations were not on record and no specific findings had been recorded. It directed the AO to examine afresh whether the assessee was legally entitled to set off the brought forward business losses and unabsorbed depreciation, including verifying that the earlier returns showing such losses were filed on time under section 139(1). The remand was to enable determination on the merits after required documents are placed and examined. [Paras 18]

Ground allowed for statistical purposes and matter remitted to AO for fresh examination of entitlement to set off and carry forward.

Deductibility of employees' contribution deposited before due date of filing of return - Deletion of disallowance in respect of belated payment of ESIC and EPF (where employees' contributions were deposited before the due date of filing the return) was upheld for AY 2014-15. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals)'s reliance on precedent that employees' contributions deposited before the due date of filing the return are allowable. Revenue did not place any contrary judicial authority on record. In these facts, the disallowance was rightly deleted and interference was unwarranted. [Paras 21]

Addition of Rs. 4,17,302/- for belated ESIC/EPF deposit deleted; revenue's ground dismissed.

Disallowance under section 40(a)(ia) for failure to deduct tax at source (TDS) where expenditure is claimed - deletion of disallowance where alleged expenditure was not debited in profit & loss account - Disallowance under section 40(a)(ia) in respect of alleged interest on settlement with TIFAC was deleted because the assessee had not debited that amount in its profit & loss account. - HELD THAT: - The AO disallowed the amount on the ground of non-deduction of TDS on alleged interest. The Commissioner (Appeals) found, and the Tribunal agreed, that the assessee had not claimed or debited the disputed amount as expenditure in its accounts; the AO's disallowance therefore lacked basis. Accordingly, deletion of the addition was affirmed. [Paras 25]

Addition of Rs. 25,95,609/- under section 40(a)(ia) deleted and revenue's ground dismissed.

Final Conclusion: The revenue appeals are partly allowed for statistical purposes: commission disallowances and additions under section 40(a)(ia) and the ESIC/EPF disallowance are deleted; the question of bad debts and the entitlement to set off brought forward losses and unabsorbed depreciation are remitted for factual verification and fresh consideration.

Unexplained investment under section 69 - Burden of proof and requirement of corroborative evidence - Finance broker modus operandi and brokerage income - Attribution of unaccounted interest income to assessee - Reliance on search-and-seizure documents vis-a -vis independent inquiry

Unexplained investment under section 69 - Burden of proof and requirement of corroborative evidence - Reliance on search-and-seizure documents vis-a -vis independent inquiry - Finance broker modus operandi and brokerage income - Deletion of addition of Rs. 1,85,72,100/- made as unexplained investment under section 69. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the assessee had consistently explained the business as that of a finance broker arranging loans between lenders and borrowers and earning brokerage. The seized loose papers (BS-28) were shown to record post-dated cheques and entries prepared at the request of outstation borrowers, and the assessee produced ledger extracts and confirmations for several parties evidencing transactions through account-payee cheques. The Assessing Officer did not carry out independent enquiries with the parties or banks named in the seized documents and produced no corroborative evidence to establish that the sums belonged to the assessee. Applying the settled principle that additions cannot be made on mere suspicion and that the onus under section 69 lies on the revenue to prove ownership of the investment, the Tribunal found the coordinate decisions relied upon and the appellate findings persuasive and declined to disturb the deletion except for confirming a nominal brokerage addition already sustained by the CIT(A). [Paras 11, 12]

Finding of CIT(A) deleting the addition of Rs. 1,85,72,100/- is affirmed and Revenue's ground challenging that deletion is dismissed.

Attribution of unaccounted interest income to assessee - Burden of proof and requirement of corroborative evidence - Reliance on search-and-seizure documents vis-a -vis independent inquiry - Deletion of addition of Rs. 2,03,610/- claimed as unaccounted interest income. - HELD THAT: - The Tribunal agreed with the CIT(A) that the Assessing Officer's conclusion that the assessee received cash interest was based on assumption drawn from the loose papers without addressing interest receipts by cheque. The assessee's explanation, corroborated by statements recorded during search and by documentary ledger entries and confirmations, was that interest and principal payments were made directly by borrowers to lenders and the assessee only earned brokerage. In absence of independent inquiry or corroborative material by the AO to attribute the interest to the assessee, the addition was held to be unsustainable and rightly deleted by the CIT(A). [Paras 13, 14]

Finding of CIT(A) deleting the addition of Rs. 2,03,610/- is confirmed and Revenue's challenge is dismissed.

Final Conclusion: Revenue's appeal is dismissed; the appellate tribunal affirmed the CIT(A)'s deletion of the principal unexplained investment addition and the unaccounted interest addition, save for a small brokerage addition already sustained, on the ground that revenue failed to discharge the onus of proving ownership of the amounts or provide independent corroboration of the seized entries.

Allowability of revenue expenditure - Matching principle in accounting - Setting up of business versus commencement of business - Set-off of business loss against income from other sources under Section 71(1)

Allowability of revenue expenditure - Matching principle in accounting - Setting up of business versus commencement of business - Whether the assessee's claimed business expenditure is allowable despite limited business receipts, having regard to the matching principle and whether the business had been set up and was ready to commence. - HELD THAT: - The Tribunal examined the Memorandum of Association, the scope of activities undertaken by PCKL, the governmental orders and board decisions, and the nature of operations performed on behalf of ESCOMs. It held that PCKL is a Special Purpose Vehicle that had been set up and was ready to commence business, as evidenced by the activities and steps taken (including bidding, procurement, coordination with agencies, and approvals and seed-money arrangements). The matching principle does not operate to deny deduction where the business has been set up and expenses are revenue in nature; internal financing arrangements (interest or seed money) do not disentitle the assessee from claiming expenditure under the Act. Applying these principles, the Tribunal concluded that the business expenditure claimed by the assessee for the year in question must be allowed. [Paras 15, 16, 17, 18, 19]

Claim of business expenditure is allowable because the assessee had set up its business and was ready to commence; internal financing arrangements do not preclude allowance.

Set-off of business loss against income from other sources under Section 71(1) - Whether the assessee can set off the business loss against interest income classified as income from other sources. - HELD THAT: - The Tribunal found that the interest income arose from fixed deposits sourced from share capital and correctly characterised it as income from other sources. Noting the statutory provision permitting set-off of business loss against income under other heads, the Tribunal directed that the Assessing Officer allow the set-off of the business loss against income from other sources in accordance with Section 71(1) of the Act. [Paras 20]

Set-off of business loss against interest income (income from other sources) is to be allowed in terms of Section 71(1).

Final Conclusion: The appeal is partly allowed: the Tribunal allowed the assessee's claimed business expenditure for AY 2014-15 on the view that the business had been set up and was ready to commence, and directed that the business loss be set off against income from other sources in terms of Section 71(1).

Section 14A disallowance - Rule 8D - proportionate interest disallowance - administrative expenses disallowance - non-interest bearing funds presumption - income from other sources - pre-operative interest on short-term deposits - netting of interest receipts and interest payments - set-off under Section 72

Section 14A disallowance - Rule 8D - proportionate interest disallowance - non-interest bearing funds presumption - administrative expenses disallowance - Validity and quantum of disallowance under Section 14A read with Rule 8D in respect of interest and administrative expenses related to exempt income - HELD THAT: - The Assessing Officer had made a proportionate interest disallowance under Section 14A r.w. Rule 8D(2)(ii) and an administrative expenses disallowance in respect of investments yielding exempt dividend income. The Tribunal found that the assessee had substantial non interest bearing funds (share capital and reserves) exceeding the investments yielding exempt income, giving rise to the presumption that non interest bearing funds financed the exempt investments. Reliance on the principle in the cited decisions led the Tribunal to delete the proportionate interest disallowance. As to the administrative expenditure disallowance, the Tribunal observed that the lower authorities had applied the gross amount of investments instead of restricting the disallowance to investments actually yielding exempt income; it directed the Assessing Officer to confine the disallowance to the extent of the assessee's exempt income yielding investments and carry out necessary computation.

Proportionate interest disallowance deleted; administrative expenses disallowance restricted to investments yielding the exempt income and recomputed by the Assessing Officer.

Income from other sources - pre-operative interest on short-term deposits - netting of interest receipts and interest payments - Taxability of interest earned on short term deposits (pre operative/invested borrowed funds) and availability of netting against corresponding interest expenditure - HELD THAT: - The Tribunal upheld the view recorded by the CIT(A) that the interest earned on short term deposits constituted income from other sources, applying the precedents that interest on surplus funds or on short term deposits prior to commencement of business is of revenue nature and taxable under that head. However, noting that neither lower authority had applied the netting approach reflected in the Apex Court decision in ACG Associated Capsules Pvt. Ltd., the Tribunal directed the Assessing Officer to allow netting benefit between the impugned interest receipts and the corresponding interest expenditure incurred by the taxpayer, subject to proper computation.

Interest on short term deposits treated as income from other sources; Assessing Officer to allow netting of interest receipts and interest payments as per law.

Set-off under Section 72 - Whether the interest income can be set off against business loss under the provisions for set off of losses - HELD THAT: - The Tribunal noted that the CIT(A) had discussed the assessee's plea for set off of the impugned interest income against business loss but did not specify under which clause of Section 72 relief was denied. Given this uncertainty, the Tribunal held that the question of intra head or inter head set off (including applicability of Section 72) requires fresh consideration in accordance with law and directed that the issue be restored to the Assessing Officer for adjudication.

Issue of set off of the interest income against business loss remitted to the Assessing Officer for fresh consideration; Assessing Officer to decide in accordance with law.

Final Conclusion: The appeal is partly allowed: the proportionate interest disallowance under Section 14A/Rule 8D is deleted; the administrative expenses disallowance is limited to investments yielding exempt income and to be recomputed; interest on short term deposits is held to be income from other sources but netting with corresponding interest payments is to be allowed by the Assessing Officer; the claim for set off against business loss is remitted to the Assessing Officer for fresh consideration.

Income from business or profession - income from house property - license fee assessed as business income - nature of income - letting out of premises versus exploitation of property - intention of the parties as reflected in the licence agreement - revenue sharing licence for operation of hotel - application of precedents distinguishing licence to operate a running hotel

Income from business or profession - income from house property - intention of the parties as reflected in the licence agreement - revenue sharing licence for operation of hotel - license fee assessed as business income - License fee received for licensing a fully furnished hotel along with the licence to operate it is taxable as income from business or profession and not as income from house property. - HELD THAT: - The assessee constructed and operated a five star hotel and subsequently granted to a hotel operator a long term licence to operate the fully furnished hotel on a revenue sharing basis. The arrangement was not a simple letting on a fixed rent; it authorised the licensee to operate the hotel and continued the business activity originally carried on by the assessee. The Tribunal found that the nature of the agreement and the commercial intent of the parties point to a business licence rather than mere exploitation of property as owner. While the lower authorities relied on the Supreme Court principle of examining the assessee's objects to treat receipts from letting as business income where letting is the assessee's main object, the Tribunal noted that the assessee's objects permit leasing but the factual matrix here squarely aligns with the High Court of Kerala's decision in Palmshore Hotels, which held that licence fees for giving a hotel with furniture and fixtures for operation by another company constitute business income. Applying that reasoning, the Tribunal concluded that the licence fee is a business receipt and not rental income chargeable under the head income from house property. [Paras 7, 8, 9]

The assessment treating the licence fee as income from house property was reversed and the licence fee is to be assessed under the head income from business or profession.

Final Conclusion: The assessee's appeal is allowed; the licence fee received for permitting another company to operate the fully furnished hotel on a revenue sharing basis shall be assessed as income from business or profession for Assessment Year 2014 15 and the AO is directed to assess accordingly.

Rule of Consistency - Amortization of expenditure on acquiring control over leasehold land as revenue expenditure - Binding effect of coordinate bench decisions in assessee's own case - Res judicata in income tax proceedings - Judicial discipline in following precedent

Rule of Consistency - Amortization of expenditure on acquiring control over leasehold land as revenue expenditure - Binding effect of coordinate bench decisions in assessee's own case - Whether the amortization expenditure claimed by the assessee in respect of payment for gaining control over leasehold land (allowed in earlier assessment years) is to be disallowed as capital expenditure for AY 2011-12. - HELD THAT: - The Tribunal noted that the assessee had incurred the payment to gain control over the property, treated it as amortizable and claimed revenue expenditure from AY 2003-04 onwards; the Assessing Officer had allowed the claim in assessments under section 143(3) for AYs 2004-05 to 2008-09. There was no change in facts or law in AY 2011-12. The Tribunal relied on its earlier decisions in the assessee's own case for AY 2009-10 (where the coordinate Bench upheld allowance following the rule of consistency) and for AY 2012-13, and applied the principle that, although res judicata does not strictly apply to separate assessment years, the rule of consistency requires the tax authorities to follow an earlier view where facts and law remain unchanged. The Revenue did not contend any change in facts or law. In view of the binding effect of the coordinate bench decisions in the assessee's own case and the authority of higher judicial pronouncements upholding the rule of consistency, the Tribunal concluded that the amortization expense should be allowed for AY 2011-12. [Paras 6, 7]

The disallowance of the amortization expenditure was set aside and the claimed amortization of Rs. 56,28,718/- was allowed for AY 2011-12.

Final Conclusion: The appeal is allowed: the Tribunal, applying the rule of consistency and following its earlier decisions in the assessee's own case, set aside the disallowance and allowed the amortization expenditure claimed for AY 2011-12.

Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 - penalty for furnishing inaccurate particulars of income / concealment of income - effect of deletion of assessment addition on sustainment of penalty - finality of Tribunal's order

Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 - effect of deletion of assessment addition on sustainment of penalty - finality of Tribunal's order - Whether the penalty levied under Section 271(1)(c) can be sustained after the quantum addition on which the penalty was based has been deleted by the Tribunal and that deletion has become final. - HELD THAT: - The Tribunal noted that the penalty under Section 271(1)(c) was levied consequential to an assessment addition of Rs. 19,74,026 on account of alleged bogus purchases. The Tribunal further recorded that the quantum addition which formed the basis for the penalty was quashed by the co-ordinate SMC-II Bench by order dated 20.01.2019 and that deletion has become final. Applying the settled principle that a penalty predicated on a disallowed addition cannot survive when the underlying addition is deleted and that the cause for levy no longer subsists once the Tribunal's deletion is final, the Tribunal reversed the orders of the lower authorities and directed deletion of the penalty. The determinative reasoning is that the foundation for the penalty (the confirmed addition) has been removed by a final adjudication, thereby defeating the sustainment of the penalty. [Paras 3, 7]

Penalty levied under Section 271(1)(c) set aside as the underlying addition has been finally deleted by the Tribunal.

Final Conclusion: Appeal allowed; the penalty of Rs. 6,09,970/- imposed under Section 271(1)(c) is deleted because the quantum addition on which it was based has been quashed and that deletion is final.

Non-genuine purchases - estimation of undisclosed income by applying profit rate - burden of proof on the assessee to prove genuineness of purchases - reliance on information received from Sales Tax Department / DGIT(Inv.) - reopening of assessment under section 147 - use of notices under section 133(6) for verification

Non-genuine purchases - burden of proof on the assessee to prove genuineness of purchases - estimation of undisclosed income by applying profit rate - reliance on information received from Sales Tax Department / DGIT(Inv.) - Disallowance by estimating profit on alleged non-genuine purchases and the correctness of restricting the addition to 12.5% by the Commissioner (Appeals). - HELD THAT: - The Assessing Officer reopened the assessments on receipt of information from the Sales Tax Department identifying certain selling dealers as hawala operators and treated specified purchases as non-genuine. The assessee was called upon to produce delivery challans, transportation bills, purchase bills and goods received notes but did not furnish the required documents in entirety; notices issued under section 133(6) to the selling dealers were returned unserved. Given the failure of the assessee to conclusively prove that purchases were from declared/verifiable sources, the Assessing Officer estimated the profit embedded in such purchases at 25%. The Commissioner (Appeals) reduced the addition to 12.5% having regard to the nature of the assessee's trading business and the practice in similar cases. The Tribunal, on review of the material and reasoning, found no infirmity in the appellate authority's exercise of discretion in moderating the estimated profit rate to 12.5%, and held that the assessee's inability to substantiate the source justified an addition based on a reasonable estimation of profit but not at the higher rate applied by the Assessing Officer. [Paras 5]

Additions estimated by the Assessing Officer at 25% are modified and the Commissioner (Appeals) order restricting the addition to 12.5% is upheld; Revenue's appeals dismissed.

Final Conclusion: On the facts and material received from the Sales Tax Department and the assessee's failure to produce verifying documents, the Tribunal upheld the Commissioner (Appeals)'s reduction of the estimated addition to 12.5% of the alleged non-genuine purchases for the assessment years 2009-10, 2010-11 and 2011-12 and dismissed the Revenue appeals.

Deduction under section 80P(2)(d) for interest/dividend from investments with another co-operative society - exclusion under section 80P(4) as against co-operative banks vis-a -vis co-operative societies - deduction under section 80P(2)(a)(i) for income from providing credit facilities to members by a co-operative credit society - construction favourable to the assessee where two reasonable constructions are possible - principle of consistency in adjudication of identical issues

Deduction under section 80P(2)(d) for interest/dividend from investments with another co-operative society - exclusion under section 80P(4) as against co-operative banks vis-a -vis co-operative societies - construction favourable to the assessee where two reasonable constructions are possible - principle of consistency in adjudication of identical issues - Claim of deduction under section 80P(2)(d) in respect of interest and dividend income earned on investments with a co-operative bank was allowable. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) in allowing deduction under section 80P(2)(d) for interest/dividend earned on deposits with the Mumbai District Central Co-operative Bank. The CIT(A) had followed earlier decisions of the Tribunal in the assessee's own case for A.Y.2013-14 and other Mumbai-Bench precedents which held that a co-operative bank, being registered as a co-operative society, falls within the expression 'co-operative society' for the purposes of section 80P(2)(d). Noting divergent High Court decisions, the CIT(A) applied the principle that where two reasonable constructions are possible a construction favourable to the assessee must be adopted; accordingly the exclusion in section 80P(4) (which excludes certain co-operative banks from section 80P) did not defeat the assessee's claim under section 80P(2)(d) where the income was derived from investments with a body registered as a co-operative society. The Tribunal found no distinction in facts and declined to interfere with the CIT(A)'s reliance on the earlier ITAT decision in the assessee's own case, allowing the deduction and directing recomputation. [Paras 5]

Deduction under section 80P(2)(d) in respect of interest and dividend from investments with the co-operative bank allowed; CIT(A) sustained.

Deduction under section 80P(2)(a)(i) for income from providing credit facilities to members by a co-operative credit society - exclusion under section 80P(4) as against co-operative banks vis-a -vis co-operative societies - principle of consistency in adjudication of identical issues - Assessee, an employees' co-operative credit society providing credit facilities only to its members, was eligible for deduction under section 80P(2)(a)(i) and was not to be treated as a co-operative bank attracting section 80P(4). - HELD THAT: - The Tribunal agreed with the CIT(A)'s conclusion that the assessee's primary object was to provide credit facilities to its members and not to carry on banking business in the broader sense (accepting public deposits, issuing cheques, holding an RBI banking licence). Relying on precedent decisions (including the assessee's own earlier ITAT order for A.Y.2013-14 and relevant High Court and CBDT clarifications), the CIT(A) held and the Tribunal affirmed that section 80P(4) applies to co-operative banks of the excluded category but does not extend to credit co-operative societies which do not discharge the functions of a co-operative bank; accordingly the income attributable to the activity of providing credit to members was deductible under section 80P(2)(a)(i). The Tribunal found the CIT(A)'s reliance on consistent prior decisions justified and declined to interfere. [Paras 6, 7, 8]

Deduction under section 80P(2)(a)(i) allowed for income from providing credit facilities to members; assessee not treated as a co-operative bank for section 80P(4).

Final Conclusion: Having found no distinguishing facts and following consistent Tribunal precedent, the Appellate Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s allowance of the section 80P deductions claimed by the assessee for A.Y.2014-15.

Deduction of interest on non-performing assets - Special provision in case of income of public financial institutions (section 43D) and its application to co-operative banks - Non-retrospective operation of Finance Act, 2017 amendment - Override of mercantile system of accounting by a non-obstante provision - Binding effect of CBDT circulars in guidance to revenue authorities - Scope of revisionary powers under section 263 - requirement of order being erroneous and prejudicial to revenue

Deduction of interest on non-performing assets - Special provision in case of income of public financial institutions (section 43D) and its application to co-operative banks - Scope of revisionary powers under section 263 - requirement of order being erroneous and prejudicial to revenue - Whether the addition of interest on non-performing advances made in assessment for AY.2015-16 in the case of a co-operative urban bank was sustainable, and whether the CIT's invocation of revisional powers under section 263 was justified. - HELD THAT: - The Tribunal examined the legal position regarding taxation of interest on non-performing assets and the applicability of section 43D to co-operative banks. Section 43D creates a special charging rule for interest of certain financial institutions, overriding the ordinary mercantile principle and providing that such interest is chargeable only when credited to profit and loss account or actually received, whichever is earlier. The Tribunal noted authoritative decisions and CBDT guidance which treat interest on specified 'sticky' or non-performing advances as not assessable until credited/received, and recorded that several benches of the Tribunal and High Courts have applied section 43D (and the allied circulars/guidance) to co-operative banks in like circumstances. The Finance Act, 2017 amendment expressly included co-operative banks with effect from 01-04-2018 and is not retrospective; however, the body of precedent treating co-operative banks as entitled to the protective rule under section 43D (or otherwise following the CBDT guidance) led the Tribunal to conclude that the Assessing Officer's treatment did not amount to an order which was erroneous and prejudicial to the interests of revenue for the purposes of invoking section 263. Applying those determinations to the facts, the Tribunal directed deletion of the addition of interest on NPAs made in assessment for AY.2015-16. [Paras 3, 4, 5]

The addition of interest on non-performing advances in the assessment for AY.2015-16 is deleted and the CIT's exercise of revisional jurisdiction under section 263 is quashed.

Final Conclusion: The appeal is allowed: the Tribunal deletes the addition of interest on NPAs made in the assessment for AY.2015-16 and quashes the revisional order of the CIT under section 263.

Business income versus royalty - definition of "royalty" under tax treaty - fees for technical services - reading retrospective statutory amendment into a bilateral tax treaty

Business income versus royalty - definition of "royalty" under tax treaty - Income received from cloud hosting / distribution of off the shelf software and related maintenance/upgrades is not "royalty" under Article 12 of the India US (India Finland in coordinate bench) tax treaty nor in the nature of royalty under the Act for the assessment year 2016 17. - HELD THAT: - The Tribunal applied the reasoning of the coordinate bench decisions in the assessee's own case, examining the distributor agreements and the nature of rights granted. The distributors received non exclusive rights to market and distribute the copyrighted article (software) but were not granted rights to the source code, to modify, reproduce (beyond permitted backup), or to exploit the underlying intellectual property. The supply was for resale/distribution of a copyrighted article and not for the transfer of the copyright itself or the right to use the copyright embedded in the software. Accordingly, amounts received for sale/distribution and for provision of sub releases/main releases (updates) and maintenance/support were held to be business receipts and not payments for use of, or right to use, copyright or industrial/commercial/scientific equipment within Article 12. The Tribunal also rejected the view of importing retrospective statutory explanations contained in the Income tax Act into the treaty definition of royalty, holding that a unilateral amendment to domestic law cannot be read into a bilateral treaty absent a corresponding treaty amendment. [Paras 5]

Payments in question are business income and cannot be characterized as "royalty" for the purposes of the relevant tax treaty or under the impugned statutory construction.

Fees for technical services - business income versus fees for technical services - Income from cloud hosting services / provision of maintenance and support does not constitute fees for technical services under the domestic provision or the corresponding treaty provision, and is to be treated as business income. - HELD THAT: - Following the coordinate bench reasoning and an examination of the contractual matrix, the Tribunal found that the assessee's obligations concerning maintenance, updates and support were ancillary to the sale/distribution of the copyrighted article and did not amount to the provision of managerial, technical or consultancy services that would attract the definition of fees for technical services under the treaty or the domestic explanation. The agreements showed that distributors bore primary responsibility for customer relations and collections, and that technical assistance (where provided) was limited and incidental. Consequently, such receipts do not qualify as fees for technical services but form part of the assessee's business receipts. [Paras 5]

The amounts received for maintenance, support and associated services are business income and not taxable as fees for technical services.

Reading retrospective statutory amendment into a bilateral tax treaty - Retrospective insertions ("Explanation 4", "Explanation 5" and "Explanation 6") to the domestic definition of royalty cannot be read into the definition of "royalty" in the bilateral tax treaty in the absence of a corresponding amendment to the treaty. - HELD THAT: - The Tribunal applied Article 3(2) principles as interpreted by coordinate decisions and higher court authority, holding that where a term is specifically and exhaustively defined in a treaty, subsequent unilateral domestic amendments do not alter the treaty meaning. The Tribunal observed that treaty provisions require bilateral amendment and that retrospective domestic clarificatory amendments cannot be used to extend or change the scope of an international instrument concluded between sovereign states. Reliance was placed on precedent to underline that statutory amendments do not automatically modify treaty definitions. [Paras 5]

The retrospective explanations to the Income tax Act are not to be read into the treaty; the treaty definition governs the characterization of payments.

Final Conclusion: The Tribunal, following coordinate bench decisions in the assessee's own case, allowed the appeal for AY 2016 17: receipts from sale/distribution of off the shelf software, and related maintenance and updates, are business income and neither "royalty" nor fees for technical services under the treaty or domestic law; domestic retrospective amendments to the statutory definition of royalty cannot be read into the treaty.

Non-bailable offence - arrest under Section 104 of the Customs Act - offence under Section 135(1)(b)(i)(A) of the Customs Act - onus under Section 123 of the Customs Act - value ascertainment by registered goldsmith

Offence under Section 135(1)(b)(i)(A) of the Customs Act - non-bailable offence - value ascertainment by registered goldsmith - onus under Section 123 of the Customs Act - Bail application under Section 439 Cr.P.C. rejected - HELD THAT: - The court examined the materials placed on record including the case diary, the petitioner's admissions, seizure particulars and chemical/assaying report. The petitioner was intercepted carrying four gold bars concealed in his vest; he admitted possession and involvement in smuggling and failed to discharge the statutory onus under Section 123 of the Customs Act to show lawful possession. The seized gold was chemically tested and the quantum and value were ascertained through a registered goldsmith. In the absence of any material challenging the legal validity of the valuation, the court accepted the registered goldsmith's valuation which placed the market value above the threshold specified in the provision which renders the offence non-bailable. Having regard to these materials and admissions, the court held that the offence falls within the penaliser provision relied upon and that the case is not fit for grant of bail at this stage. [Paras 5, 7, 10, 14, 17]

Prayer for bail rejected.

Arrest under Section 104 of the Customs Act - non-bailable offence - offence under Section 135(1)(b)(i)(A) of the Customs Act - Lawfulness of arrest and classification of the offence as cognizable and non-bailable - HELD THAT: - The petitioner contended that offences under the Act were non-cognizable and that arrest without warrant was impermissible. The court considered Section 104(1) of the Customs Act and noted that a person charged with an offence under Section 135 (as framed) may be arrested. Since the accepted materials established that the market value of the seized goods exceeded the statutory threshold, attracting the penal consequence in Section 135(1)(b)(i)(A), the offence was to be treated as non-bailable and arrest under Section 104(1) was permissible. [Paras 12, 13, 14]

Arrest held lawful and the offence classified as non-bailable for the purposes of bail consideration.

Gold not a prohibited item - relevance of earlier decisions on importability of gold - Inapplicability of precedents holding that gold is not a prohibited item where materials show smuggling - HELD THAT: - Counsel relied on earlier orders holding that gold per se is not a prohibited importable commodity and may be imported on payment of duty. The court distinguished those decisions on the facts: here the materials and the petitioner's statements indicated smuggling and absence of documents proving lawful import or payment of duty. Further, those decisions arose in different factual contexts and, in some instances, in trial proceedings; the court found them inapplicable at the bail stage where the DRI's materials are relevant for the limited purpose of bail adjudication. [Paras 15, 16]

Earlier decisions cited by petitioner held inapplicable on the facts of this case for bail determination.

Final Conclusion: On the materials produced - seizure of four gold bars, chemical assay, valuation by a registered goldsmith, and the petitioner's statements - the court found the offence to fall within the non-bailable penal provision and the arrest to be lawful; accordingly, bail was refused and the petition disposed of.

Procedural fairness in customs verification - verification of Certificate of Origin under CAROTAR, 2020 - provisional assessment under Section 18 of the Customs Act - suspension of preferential tariff treatment pending verification - mis-declaration of origin - indemnity bond as alternative to bank guarantee for provisional release - Turant clearance

Procedural fairness in customs verification - verification of Certificate of Origin under CAROTAR, 2020 - suspension of preferential tariff treatment pending verification - Holding up assessment/clearance of imported goods cannot be indefinite and must follow the due process under CAROTAR and the Customs Act. - HELD THAT: - The Court held that while the respondents are entitled to initiate verification of the Certificate of Origin and related documents, they cannot indefinitely withhold assessment or clearance without affording procedural fairness. The Court observed that verification under CAROTAR may justify suspension of preferential tariff treatment, but the importer must be given the opportunity to meet any alleged deficiencies before being required to provide security; merely warehousing the goods without passing an order or communicating the specific grounds for verification is impermissible. The Court noted that, on the record, the verification had been initiated and appeared to be on the ground of possible mis-declaration, but no conclusive adjudication had been made; nonetheless, the assessing officer must act in accordance with law and principles of natural justice rather than holding up clearance indefinitely. [Paras 2, 3, 26]

Respondents were directed to proceed in accordance with law and not to hold up assessment/clearance indefinitely; importer must be afforded opportunity to meet deficiencies and the verification process must be concluded within stated timelines.

Provisional assessment under Section 18 of the Customs Act - indemnity bond as alternative to bank guarantee for provisional release - mis-declaration of origin - Turant clearance - Where verification is inconclusive and goods are perishable, the proper course is provisional assessment and release on an indemnity bond, with timelines for completion of verification and consequences for non-payment. - HELD THAT: - Recognising that the verification remained inconclusive and that the importer had not been allowed to meet alleged deficiencies, the Court directed provisional assessment of the Bill of Entry and release of the goods on the petitioner furnishing an indemnity bond undertaking to deposit any differential duty found due after verification. The Court prescribed a short timetable: provisional assessment to be completed within two days of receipt of the order, release within 24 hours of furnishing the indemnity bond, and deposit of any assessed duty within seven days of demand; failure to deposit would attract interest at 15% per annum from the date of import. The Court expressly refrained from adjudicating the merits of the verification (including the question of mis-declaration) which remained pending, limiting its order to preservation of the importer's rights and prevention of hardship for perishable goods. [Paras 26]

Assessing officer to provisionally assess and release the goods on the petitioner's indemnity bond, complete verification within the prescribed short timelines, and enforce duty payment with interest if deposit is not made as ordered.

Final Conclusion: Writ petition disposed directing provisional assessment and release of the imported soybean oil on an indemnity bond, with verification to be completed within two days and payment of any assessed duty within seven days (interest at 15% p.a. from import date if unpaid); no adjudication on merits of verification was made.

Refund of Additional Duty of Customs paid under Section 3(5) of the Customs Tariff Act - sufficiency of Statutory Auditor's certificate and correlation statement for refund claim - applicability of procedural requirements in Notification No. 102/2007 and Circular No. 6/2008 - description/correlation of imported goods and locally sold goods - jurisdictional excess for non compliance with prescribed procedure - entertainment of writ petition under Article 226 despite alternate appellate remedy - violation of principles of natural justice for non issuance of show cause notice

Description/correlation of imported goods and locally sold goods - refund of Additional Duty of Customs paid under Section 3(5) of the Customs Tariff Act - The impugned rejection of the refund claim solely on the ground that the descriptions in the Bill of Entry and the local sale invoice do not literally tally was impermissible and the rejection was quashed. - HELD THAT: - Notification No. 102/2007 and Circular No. 6/2008 require documentary proof and, where produced, a statutory auditor's certificate and correlation statement to establish that the imported goods and the locally sold goods are the same. The authority rejected the claim by equating the phrase 'Elevator in SKD condition' with the specific sale description and concluded they were different without disbelieving or distinguishing the auditor's certificate or producing independent incriminating material. The Court held that superficial differences in description (for example, 'elevator' vis a vis 'lift' or additional model particulars) do not, by themselves, establish that the goods sold are different when the prescribed certificate and correlation statement are on record, and that the adjudicating authority exceeded its jurisdiction in rejecting the claim on that basis. [Paras 10, 11, 12, 13, 20]

The rejection for mismatch of description was contrary to the prescribed procedure and is set aside; the refund claim must be allowed.

Sufficiency of Statutory Auditor's certificate and correlation statement for refund claim - applicability of procedural requirements in Notification No. 102/2007 and Circular No. 6/2008 - A Statutory Auditor's certificate together with the correlation statement and the statutory tax payment documents, as mandated by Circular No. 6/2008, constitute the relevant proof which the authority is bound to accept unless there is material to disbelieve them. - HELD THAT: - Circular No. 6/2008 prescribes that the importer must produce original tax payment documents and a certificate from the statutory auditor correlating the imported goods and sales invoices. Where these mandated documents are produced, the adjudicating authority cannot reject the claim merely on the basis of a difference in description; if the authority doubts the certificate, it must record specific reasons and rely on material to disprove it. The Court applied the Division Bench precedent in P.P. Products Ltd., holding that absent allegation of fraud or material to discredit the auditor's certificate, the certificate must be accepted for the purposes of establishing identity of goods. [Paras 7, 9, 10, 12, 13]

The auditor's certificate and correlation statement, when produced with the required tax documents, satisfy the procedural requirement and the authority's unexplained rejection of them was unsustainable.

Entertainment of writ petition under Article 226 despite alternate appellate remedy - The writ petition was maintainable notwithstanding the availability of an alternative appeal because the impugned order was made in violation of prescribed procedure and therefore without jurisdiction. - HELD THAT: - Although an appeal lay against the Order in Original, the Court found that where an authority has acted in excess of jurisdiction by disregarding the statutory procedure, the High Court may exercise its discretion under Article 226 to entertain a writ petition. The Court also noted that the department's reliance on a prior Single Judge decision was misplaced because that decision was reversed on appeal; further, carelessness in pleading by the department did not confer jurisdiction on the order impugned. Accordingly, the existence of an alternative remedy did not bar relief in the present circumstances. [Paras 14, 15, 16, 17, 19]

Writ jurisdiction was appropriately invoked and maintainability cannot be defeated by the alternate appellate remedy in view of procedural illegality rendering the order without jurisdiction.

Violation of principles of natural justice for non issuance of show cause notice - The impugned order was also vitiated by breach of the principles of natural justice as no show cause notice was issued to afford the petitioner an opportunity of being heard. - HELD THAT: - The order rejecting the refund application was rendered without issuing a show cause notice and without calling for the petitioner's objections, which amounted to denial of opportunity to be heard. The Court observed that such procedural failure independently justifies exercise of writ jurisdiction and supports quashing of the order. [Paras 18]

Failure to issue a show cause notice constituted violation of natural justice and warranted quashing of the impugned order.

Final Conclusion: The Order in Original rejecting the refund claim is set aside; the respondent is directed to refund the claimed Additional Duty of Customs together with interest at 6% per annum from the date of the refund application and to endeavour to disburse the refund within four weeks from receipt of a copy of this order; writ petition allowed.

Conditional exemption - exemption notification interpretation - substantial compliance - end-use certificate - execution of bond as safeguard for revenue - revenue neutrality (CVD adjustable as MODVAT/CENVAT credit) - limitation and extended period of limitation - remand for quantification

Conditional exemption - end-use certificate - execution of bond as safeguard for revenue - substantial compliance - Whether benefit of Exemption Notification No.83/90-Cus should be allowed to the appellant in view of belated production of end-use certificate and absence of bond/execution of procedural formalities - HELD THAT: - The matter was considered on rival contentions that (a) the appellant produced an end-use certificate belatedly and claimed that this satisfied the substantial requirement of Notification No.83/90-Cus and that the bond executed earlier under a different notification could suffice; and (b) the Revenue relied on strict compliance with the notification conditions including use within six months, prior execution of bond and seeking extension where necessary. The Member (Judicial) held that production of the end-use certificate constituted actual/substantial compliance of the material condition and that the bond executed under the earlier notification could be treated as a safeguard for the purposes of Notification No.83/90-Cus, relying on precedents recognising substantial compliance and allowing belated end-use certificates; accordingly he allowed the exemption and directed remand for quantification. The Member (Technical) disagreed, observing that the appellant had not claimed the exemption at importation, had not followed the specific procedural steps (no bond under Notification No.83/90-Cus, no extension sought, and use was not within six months), and therefore substantial compliance could not be found; accordingly he would disallow the benefit. Because the two members differ on this determinative question, the point has been referred for consideration by a third member. [Paras 9, 21, 22, 23, 24]

Referred to President for being placed before a third Member for resolution in view of differing opinions of the two Members.

Revenue neutrality (CVD adjustable as MODVAT/CENVAT credit) - exemption notification interpretation - Whether the demand should be set aside on the ground of revenue neutrality because any CVD payable would have been available as MODVAT credit - HELD THAT: - The Member (Judicial) accepted the appellants' contention that any CVD, if payable, would be admissible as MODVAT/CENVAT credit and therefore the position is revenue neutral; he relied on authority supporting availability of credit and granted relief subject to quantification on remand. The Member (Technical) rejected the revenue-neutrality contention as inconsistent with the appellant's litigation conduct and held that revenue neutrality did not preclude upholding the demand; he relied on authorities that mere potential for credit does not negate liability and observed that if the case were revenue neutral the appellant would not have pursued protracted litigation. Due to this difference of opinion between the Members the question of revenue neutrality has been referred to the President for decision by a third Member. [Paras 10, 11, 26, 27]

Referred to President for being placed before a third Member for resolution in view of differing opinions of the two Members.

Exemption notification interpretation - limitation and extended period of limitation - Whether the appeal should be allowed (granting exemption and remanding for quantification) or dismissed - HELD THAT: - The Member (Judicial) concluded by allowing the appeal by way of remand to quantify the demand after granting the benefit of Notification No.83/90-Cus and accepting revenue-neutrality contentions; he issued directions for re-adjudication. The Member (Technical) would dismiss the appeal, holding that conditions were not complied with and that the appellant's limitation/contention and revenue-neutrality arguments were not sustainable. Because the Members recorded directly opposite conclusions on the ultimate relief, the question of the final disposal of the appeal has been referred to the President for adjudication by a third Member. [Paras 11, 28]

Referred to President for being placed before a third Member for resolution in view of differing opinions of the two Members.

Final Conclusion: The two Members recorded conflicting conclusions: Member (Judicial) would allow the claim under Notification No.83/90-Cus (accepting substantial compliance by belated end-use certificate and revenue-neutrality) and remand for quantification, while Member (Technical) would disallow the benefit and dismiss the appeal. The points of difference have been referred to the President for consideration by a third Member.

Disqualification for appointment of Director - Section 164(2) of the Companies Act, 2013 - disqualification for non-filing of financial statements/annual returns - Presumption against retrospective operation; prospectivity of statute - Automatic disqualification by operation of law - Director Identification Number (DIN) - deactivation/cancellation - Rule 11 - grounds and procedure for cancellation or deactivation of DIN

Section 164(2) of the Companies Act, 2013 - disqualification for non-filing of financial statements/annual returns - Presumption against retrospective operation; prospectivity of statute - Sub-section (2) of Section 164 of the Companies Act, 2013 operates prospectively and the three continuous financial years for attracting disqualification must be counted from 1.4.2014. - HELD THAT: - The Court adopted the analysis in the cited Gujarat High Court decision and applied established principles of statutory interpretation that, absent clear legislative intent, penal or onerous provisions are prima facie prospective. Section 164(2) creates a disqualification not present under the repealed Companies Act, 1956 for directors of private companies; applying it retrospectively would impair accrued rights under the prior law. Consequently the three financial years specified in Section 164(2)(a) must be 2014-15, 2015-16 and 2016-17, and any disqualification on that ground could arise only after the statutory dates for filing returns/statements consequent upon those years. [Paras 2, 5]

Section 164(2) is to be given prospective operation; the relevant three financial years are 2014-15 to 2016-17 and disqualification for the five year period could only arise after the due dates for filing related to those years.

Director Identification Number (DIN) - deactivation/cancellation - Rule 11 - grounds and procedure for cancellation or deactivation of DIN - Automatic disqualification by operation of law - Deactivation of the petitioners' DINs on the basis of the impugned list of directors of "struck off" companies was not legally tenable and DINs must be reactivated for use in other companies, subject to any lawful action under the statute. - HELD THAT: - The Court noted that Rule 11 prescribes specific grounds and a verification-based procedure for cancellation or deactivation of DIN and does not contemplate suo motu deactivation of a DIN merely because a company in which the individual had been a director was struck off or because the person is shown as ineligible under Section 164(2). While the disqualification under Section 164(2) operates by law once its conditions are met, the respondents' publication of the impugned list dated 12.9.2017 and consequent deactivation of DINs was premature and contrary to the Act and Rules. The Court further observed that the condonation scheme introduced later could not validate the prior unlawful publication and deactivation, and that deactivation prevented directors from availing the scheme. The respondents were directed to reactivate the DINs, with liberty to pursue lawful action for any statutory default in accordance with the provisions of the Act and Rules. [Paras 5, 7]

The DIN deactivations and the impugned list are quashed; respondents must activate the DINs for use in other companies, while retaining liberty to take lawful action for any defaults.

Final Conclusion: Writ petitions allowed: Section 164(2) must be given prospective effect (three financial years being 2014-15 to 2016-17) and the respondents' publication and deactivation of DINs on the impugned list were premature and unlawful; respondents are directed to reactivate the petitioners' DINs, subject to any lawful action in accordance with the Act and Rules.

Quantified - written communication - eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - principles of natural justice - remand for fresh consideration

Quantified - written communication - Admission by the declarant in a written communication before the cut-off date constitutes quantification for the purposes of the scheme. - HELD THAT: - The court applied the Board's clarification and its earlier precedents to hold that the term "quantified" under the Scheme means a written communication of the amount of duty payable. Such written communication includes a letter intimating duty demand or an admission of duty liability by the person during enquiry, investigation or audit. The petitioner's letter dated 24.06.2019 acknowledged the total outstanding service tax dues prior to 30.06.2019 and therefore satisfied the scheme's requirement of quantification. [Paras 16, 17]

Petitioner's service tax dues were quantified on or before 30.06.2019 and the petitioner was eligible to file the declaration under the enquiry/investigation/audit category of the Scheme.

Principles of natural justice - eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - A declaration should not be summarily rejected as ineligible without affording the declarant an opportunity of hearing where the Scheme provides for consideration of estimated amounts. - HELD THAT: - Relying on earlier decisions, the court held that rejection of a declaration without hearing, particularly where the Designated Committee may estimate an amount higher than declared, would offend the object of the Scheme and principles of natural justice. When adverse civil consequences may follow from rejection, notice and hearing are required before the decision is taken. Summary rejection without providing the declarant a chance to explain is legally impermissible. [Paras 18]

Rejection of the petitioner's declaration without giving an opportunity of hearing was improper and vitiated by non-compliance with principles of natural justice.

Remand for fresh consideration - eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - Whether the matter should be remanded to respondents for reconsideration treating the declaration as valid and granting consequential reliefs after hearing. - HELD THAT: - In view of the finding that the petitioner's dues were quantified before the cut-off date and that summary rejection without hearing was impermissible, the court set aside the rejection order and remitted the declaration to the designated authorities. The authorities were directed to treat the declaration as a valid declaration under the enquiry/investigation/audit category, afford the petitioner an opportunity of hearing, pass a speaking order and grant consequential reliefs in accordance with the Scheme within a stipulated timeframe. [Paras 19]

Order dated 15.02.2020 set aside; matter remanded to respondents to reconsider the declaration as valid, afford hearing, pass a speaking order and grant consequential reliefs within six weeks.

Final Conclusion: Writ petition allowed; the order rejecting the declaration is set aside and the matter is remitted to the designated authorities to reconsider the declaration as valid under the enquiry/investigation/audit category, afford the petitioner a hearing, pass a speaking order and grant consequential relief(s) within six weeks; no order as to costs.

Classification of service vs works contract - taxability of indivisible works contracts - retrospective/non-retrospective levy of service tax on works contracts - limitation on altering the charge in a show cause notice - effect of Larsen & Toubro on pre-1.6.2007 taxability

Effect of Larsen & Toubro on pre-1.6.2007 taxability - classification of service vs works contract - Whether demands for periods prior to 1 June 2007 could be sustained where the contracts were held to be composite indivisible works contracts. - HELD THAT: - The Commissioner applied the Supreme Court decision in Commissioner of Central Excise and Customs, Kerala vs. Larsen & Toubro Ltd. and recorded that the projects undertaken by the appellant were composite indivisible works contracts and therefore not leviable as the services alleged in the show cause notices for periods prior to 1 June 2007. In view of Larsen & Toubro a works contract is a distinct species of contract and service tax on such composite indivisible works contracts could only be levied with effect from 1 June 2007. The Commissioner accordingly dropped the demands for the period prior to 1 June 2007. [Paras 10, 11, 16, 17, 18]

Demands for periods prior to 1 June 2007 were not sustainable and were dropped.

Limitation on altering the charge in a show cause notice - classification of service vs works contract - Whether the Commissioner could confirm service-tax demands for the period on the basis of classification under works contract when the show cause notices had alleged different taxable services. - HELD THAT: - The Tribunal examined whether, for the period from 1 June 2007, the Commissioner could validate demands by reclassifying the activity as works contract when the show cause notices had proposed tax under (i) commercial or industrial construction, (ii) construction of complex and (iii) management, maintenance or repair. The Court accepted the appellant's submission and earlier Tribunal precedents that a demand framed under one head of service cannot be sustained if the adjudicating authority confirms it under a different head which was not the basis of the show cause notice. Applying those authorities and the reasoning in the impugned order, the Court held that confirmation of demand as works contract where the SCN alleged different heads was not permissible and therefore the Commissioner was not justified in confirming those demands for the post-1 June 2007 period. [Paras 19, 20, 21, 22, 23]

Confirmation of service-tax demands by reclassifying the alleged service to works contract when the show cause notices alleged different heads is not sustainable; the impugned confirmations are set aside.

Final Conclusion: The Commissioner's confirmation of service-tax demand is set aside. Demands prior to 1 June 2007 were rightly dropped as works contracts were not leviable before that date; however, the Commissioner could not sustain demands for the post-1 June 2007 period by reclassifying the services as works contract where the show cause notices alleged other heads, and the confirmations are therefore set aside; the appeal is allowed.

Export of services - Place of performance versus location of recipient - Business auxiliary services provided on behalf of a foreign client - Rebate of service tax under Notification No. 11/2005-ST read with Export of Services Rules, 2005 - Precedential effect of tribunal's final order pending SLP absent stay

Precedential effect of tribunal's final order pending SLP absent stay - Whether the Commissioner (Appeals) was correct in following this Tribunal's earlier final order in the assessee's own case despite an SLP filed by Revenue. - HELD THAT: - The Tribunal noted that it had earlier passed a final order in the assessee's own matter holding that identical services qualified as export of services (Final Order No. ST/A/50142-50143/2015-CU(DB) dated January 8, 2015). Revenue's reliance on filing an SLP against that order did not, on the record, show any stay or setting aside of the Tribunal's order by the Hon'ble Supreme Court or a High Court. In the absence of any stay or reversal, the earlier Tribunal ratio retained precedential force and was correctly followed by the Commissioner (Appeals). The Bench therefore held that the Commissioner (Appeals) did not err in applying the Tribunal's precedent to allow rebate. [Paras 12, 13]

The Commissioner (Appeals) rightly followed the Tribunal's earlier final order; reliance on a pending SLP without a stay did not undermine that precedent.

Export of services - Place of performance versus location of recipient - Business auxiliary services provided on behalf of a foreign client - Rebate of service tax under Notification No. 11/2005-ST read with Export of Services Rules, 2005 - Whether the services rendered by the assessee - repair and maintenance performed in India for customers of a foreign principal and paid for by that foreign principal in foreign currency - qualify as export of services eligible for rebate. - HELD THAT: - The Tribunal accepted the factual position that the assessee contracted with the foreign principal (M/s. SEC, Korea) to provide repair and maintenance services to SEC's customers; there was no privity between the assessee and those customers, and consideration was paid by SEC in foreign currency. Applying the Tribunal's earlier reasoning (which followed authorities treating services performed in India on behalf of a foreign client as export when provided to the client located abroad), the Bench held that such services fall within the concept of export of services (notably as business auxiliary services rendered on behalf of a foreign client) and thus are eligible for rebate under the stated notification and rules. The Tribunal found the case identical to its prior decision and therefore concluded on merits that rebate was admissible. [Paras 9, 10, 11, 12]

Services performed in India on behalf of a foreign client and paid for by that client in foreign currency qualify as export of services; rebate is admissible.

Final Conclusion: Both appeals by Revenue are dismissed: the Commissioner (Appeals) correctly followed this Tribunal's prior final order and the Tribunal found on the merits that the assessee's repair and maintenance services, performed in India on behalf of a foreign client and remunerated by that client in foreign currency, qualify as export of services eligible for rebate.

Stay of proceedings - interim injunction restraining adjudication of show cause notices - entitlement to cenvat credit of additional duty and cesses - classification of activity as manufacture - pendency of related appeal

Stay of proceedings - interim injunction restraining adjudication of show cause notices - pendency of related appeal - Whether the show cause notices issued after the decision of the CESTAT should be restrained from adjudication pending disposal of the related appeal. - HELD THAT: - The related appeal (Central Excise Appeal No.303 of 2013) was admitted on substantial questions of law concerning the appellant's entitlement to cenvat credit of customs duties and cesses and the legality of the CESTAT's finding that the appellant's activity did not amount to manufacture. Several show cause notices issued after the CESTAT decision draw sustenance from the reasons recorded in that order which is the subject matter of the admitted appeal. In view of the age of the related appeal and the direct nexus between the show cause notices and the issues framed in the appeal, it is just and proper to preserve the status quo by restraining further adjudication of those notices until the related appeal is heard and decided. Accordingly, the court granted interim relief restraining the respondents from proceeding with adjudication of the listed show cause notices pending final disposal of the related appeal and directed early listing of the appeal for hearing. [Paras 3, 4, 7, 8, 10]

Interim relief granted: respondents restrained from proceeding with adjudication of the specified show cause notices until disposal of Central Excise Appeal No.303 of 2013; the related appeal to be listed for hearing on 19th March, 2021.

Final Conclusion: Interim application allowed; the show cause notices specified in the prayer are stayed from adjudication pending disposal of the related appeal (Central Excise Appeal No.303 of 2013) and the appeal was listed for early hearing.

Relegation to statutory appellate remedy under Article 226 - availability of alternative remedy under Section 51 of the TNVAT Act - exercise of writ jurisdiction and exceptions to the alternative remedy rule - assessment completed on merits versus summary assessment - purchases from registration-cancelled dealers and entitlement to input tax credit - mismatch in returns and requirement of reconciliation and documentary proof - principles of natural justice in tax proceedings

Relegation to statutory appellate remedy under Article 226 - availability of alternative remedy under Section 51 of the TNVAT Act - exercise of writ jurisdiction and exceptions to the alternative remedy rule - Whether the Single Bench was right in relegating the appellant to the statutory appellate remedy under Section 51 of the TNVAT Act instead of exercising writ jurisdiction under Article 226. - HELD THAT: - The Court reviewed the writ court's reasoning which applied the settled principle that extraordinary writ jurisdiction should not ordinarily be used to bypass an efficacious statutory appeal, subject to narrowly defined exceptions. The Single Bench examined whether any exception permitting interference was made out and concluded none existed. This Court concurred, noting that the disputed matters involved factual contest and the Assessing Officer had recorded reasoned findings after considering the appellant's replies. In these circumstances the remedy of appeal was held to be adequate and appropriate; factual disputes and errors in assessment are to be agitated before the appellate authority and not remedied by a writ petition. [Paras 4, 8]

Writ petitions were rightly dismissed by relegating the appellant to the statutory appeal under Section 51; the Single Bench's course was upheld.

Assessment completed on merits versus summary assessment - purchases from registration-cancelled dealers and entitlement to input tax credit - mismatch in returns and requirement of reconciliation and documentary proof - principles of natural justice in tax proceedings - Whether the Assessing Officer had conducted a summary, brush-off assessment on the issues of purchases from registration-cancelled dealers and invoice-wise mismatches, or whether she had examined the appellant's contentions on merits. - HELD THAT: - The assessment order for 2014-15 (re-assessment following inspection) and the show-cause process were examined. The Assessing Officer issued detailed observations: she considered the appellant's invoice-wise submissions and bank statements, found lack of classified reconciliation and category-wise support, noted absence of documentary proof of movement of goods, and concluded that the appellant had not established genuineness of transactions and appeared to have purchased only bills from dealers whose registration was cancelled. The High Court found that these are reasoned factual findings rather than mere summary dismissal of contentions. Consequently, any challenge to the correctness of those factual findings must be pursued in the statutory appeal where evidence and disputed facts can be examined by the appellate authority. [Paras 7, 8]

The Assessing Officer had recorded reasoned findings on the merits regarding purchases from registration-cancelled dealers and mismatches; those factual conclusions are to be contested in the appeal, not by way of writ.

Final Conclusion: Appeals dismissed; appellant permitted to file the statutory appeal within thirty days from receipt of copy of this judgment, which the appellate authority shall entertain without reference to limitation and decide on merits uninfluenced by this Court's observations.

Vicarious liability of directors - in charge and responsible for conduct of business - requisites of averments in a complaint under Section 141 of the Negotiable Instruments Act - prima facie case at the summoning stage - scope of inherent jurisdiction under Section 482 Cr.P.C.

Vicarious liability of directors - Section 138 of the Negotiable Instruments Act - Section 141 of the Negotiable Instruments Act - prima facie case at the summoning stage - quashing under Section 482 Cr.P.C. - Sustainability of the summoning order and maintainability of complaint under Section 138 read with Section 141 of the Negotiable Instruments Act against the directors; whether the High Court should quash the proceedings under Section 482 Cr.P.C. - HELD THAT: - The Court applied settled principles that to fasten criminal liability on a director under Section 138 read with Section 141 it must be averred that the person was "in charge of and responsible for the conduct of business" of the company at the relevant time; mere designation as director is not ipso facto sufficient. However, the substance of the complaint, not a pedantic recital of particular words, governs whether requisite averments are made. Authorities were examined to show (i) complainant's primary responsibility to make specific averments, (ii) exceptions where managing directors or signatories attract liability without detailed averments, and (iii) that where the complaint read as a whole indicates persons were in charge, the burden shifts to those persons at trial to show otherwise. Applying these principles to the material on record, the complaint alleged that the applicants were directors, that the cheque was issued by applicant No.2 in the presence of applicant No.3, and that they had assured payment; the cheque was dishonoured and statutory notice was issued within time. The Court found that the complaint, read as a whole, discloses necessary averments that the directors were in charge and responsible and thus a prima facie case was made out at the summoning stage. The petition to quash was considered against the limited scope of Section 482 jurisdiction: quashing is to be exercised sparingly and not to stifle legitimate prosecution or to undertake appreciation of evidence at the threshold. There were no exceptional circumstances shown to justify interference; the factual contentions of the applicants (including claim of forgery and that cheque was blank security given by a deceased person) could only be examined at trial. Consequently the High Court declined to quash the summoning order or the complaint and held the matter fit for trial. [Paras 12, 13, 14, 16, 17]

The petition under Section 482 Cr.P.C. is dismissed; the summoning order dated 23.03.2017 and the complaint under Section 138 read with Section 141 of the Negotiable Instruments Act are upheld for trial.

Final Conclusion: The High Court refused to exercise its inherent jurisdiction to quash the complaint or the summoning order; a prima facie case against the directors was held to exist and the matter is to proceed to trial.

Section 138 of the Negotiable Instruments Act - Section 141 of the Negotiable Instruments Act - requirement of legally enforceable debt for offence under Section 138 - criminal liability of company and persons in charge - privity of contract - quashing under inherent jurisdiction (Section 482 Cr.P.C.)

Section 138 of the Negotiable Instruments Act - requirement of legally enforceable debt for offence under Section 138 - privity of contract - Whether respondent no.1 could be prosecuted under Section 138 of the N.I. Act for a cheque issued by respondent no.2 in discharge of a debt owed to the petitioner. - HELD THAT: - The Court found on the record that the petitioner was employed by respondent no.2 and that the cheque was issued from respondent no.2's account and returned for insufficiency of funds. The essential ingredients for a complaint under Section 138 include existence of a legally enforceable debt, issuance of a cheque from the account of the drawer for discharge of that debt, and dishonour of the cheque for insufficiency of funds. Liability under Section 138 ordinarily attaches to the person who issues the cheque from whose account it is drawn; mere coordination or joint execution of a project by two companies does not establish privity of contract or make a non-drawing company liable for the cheque issued by the other. Applying these principles to the material on record, the Court agreed with the Revisional Court's conclusion that respondent no.1 was unnecessarily arrayed as an accused since no legally enforceable debt or cheque issuance by respondent no.1 was shown against it. [Paras 6, 7, 8, 9, 10]

Proceedings against respondent no.1 under Section 138 could not be sustained and the Revisional Court rightly set aside cognizance qua respondent no.1.

Section 141 of the Negotiable Instruments Act - criminal liability of company and persons in charge - quashing under inherent jurisdiction (Section 482 Cr.P.C.) - Whether Section 141 could be invoked to fasten liability on respondent no.1 and whether the High Court should exercise its inherent jurisdiction to interfere with the Revisional Court's order. - HELD THAT: - The Court examined Section 141 and observed that where a company commits an offence under Section 138 every person in charge of and responsible to the company for conduct of its business at the time of the offence may be deemed guilty. However, Section 141 does not extend to fasten liability on a different company which merely executes works in coordination or partnership with the accused company; liability under Section 141 is confined to persons connected with the company alleged to have issued the cheque. The Revisional Court had considered these aspects and recorded a speaking finding that respondent no.1 was not liable. Given those findings and the record showing the cheque and returned memo pertained to respondent no.2, the High Court held that exercise of inherent jurisdiction was not warranted and declined to interfere with the Revisional Court's order. [Paras 6, 8, 9, 10]

Section 141 could not be used to fasten liability on respondent no.1 absent connection with the accused company; the High Court would not exercise inherent jurisdiction to disturb the Revisional Court's order.

Final Conclusion: The petition under the Court's inherent jurisdiction is dismissed; the Revisional Court's order setting aside cognizance against respondent no.1 is affirmed and proceedings against respondent no.1 are not maintainable under Section 138 read with Section 141 of the Negotiable Instruments Act.