TaxTMI Updates e-Newsletter
Mar 05,2016

Treatment of government subsidy in computing written down value of a block of assets - application of Section 43(6)(c) regarding computation of WDV of block of assets - retrospective applicability of Explanation to Section 43(1) where actual cost was determined before insertion - treatment of provision for bad and doubtful debts in computing book profit under Section 115JB - principle that provision for diminution in value of assets is not an ascertained liability for addition in book profits - power of appellate authority to remit a claim to assessing officer for fresh adjudication

Treatment of government subsidy in computing written down value of a block of assets - application of Section 43(6)(c) regarding computation of WDV of block of assets - retrospective applicability of Explanation to Section 43(1) where actual cost was determined before insertion - Whether the Assessing Officer was justified in reducing the written down value of the block of assets by the subsidy received in earlier years and disallowing corresponding depreciation. - HELD THAT: - The Tribunal examined the statutory scheme for computation of written down value under Section 43(6)(c) and the effect of a later statutory Explanation excluding subsidy from actual cost. It applied the ratio of the Gujarat High Court in Banco Products (India) Ltd. v. DCIT, holding that where the actual cost of assets was determined and those assets subsequently formed part of a block, the statute permits computing WDV only by the limited adjustments specified in Section 43(6)(c). The insertion of an Explanation after the actual cost had been determined and after the assets entered the block cannot be applied so as to reduce the block's WDV; doing so would impermissibly reduce the cost of all assets in the block, not only those in relation to which subsidy was granted. Revenue did not place any contrary binding decision or distinguish Banco Products. On these grounds the Tribunal allowed the assessee's challenge to the disallowance of depreciation caused by deduction of subsidy from the block's WDV. [Paras 5]

Disallowance of depreciation by reducing the block WDV by the subsidy is not sustainable; ground allowed.

Treatment of provision for bad and doubtful debts in computing book profit under Section 115JB - principle that provision for diminution in value of assets is not an ascertained liability for addition in book profits - Whether the Assessing Officer was justified in adding back the provision for bad and doubtful debts to compute book profit for the purposes of Section 115JB. - HELD THAT: - The Tribunal considered the effect of the retrospective amendment to Section 115JB and the authorities on whether a provision for bad and doubtful debts constitutes an ascertained liability attractable for addition to book profit. It followed the coordinate-bench decision in ACIT v. Vodafone Essar Gujarat Ltd. and the reasoning in the Karnataka High Court and other authorities that where a provision represents diminution in the value of an asset and the corresponding reduction is reflected in the assets side (i.e., debtors shown net of provision), such provision is not an ascertained liability requiring add back under Section 115JB. Revenue did not produce a contrary binding decision or distinguish the precedent relied upon. Applying those principles, the Tribunal held that the AO was not justified in adding back the provision and set aside the addition. [Paras 6]

Addition of provision for bad and doubtful debts to book profit under Section 115JB is unsustainable on the facts; addition deleted.

Power of appellate authority to remit a claim to assessing officer for fresh adjudication - Whether the claim for deduction under Section 80IA(4), raised on appeal though not fully examined by the Assessing Officer, should be adjudicated afresh or dismissed. - HELD THAT: - The Tribunal noted that the Assessing Officer had summarily rejected the 80IA claim and that the Gujarat High Court in CIT v. Mitesh Impex recognised the appellate authority's power to entertain a new claim where the facts necessary to examine it are on record. In the interests of justice and because the AO had not examined the matter on merits, the Tribunal directed that the claim be restored to the file of the Assessing Officer for fresh adjudication, with opportunity of hearing and cooperation from the assessee. The Tribunal thereby exercised its power to remit the matter for proper determination rather than decide the substantive eligibility itself. [Paras 12]

Claim for deduction under Section 80IA(4) remitted to the Assessing Officer for fresh adjudication; remand directed.

Final Conclusion: Both appeals are partly allowed: disallowance of depreciation by reducing block WDV on account of subsidy is set aside; addition of provision for bad and doubtful debts to book profit under Section 115JB is deleted; the claim for deduction under Section 80IA(4) is remitted to the Assessing Officer for fresh consideration.

Addition based on seized diary entry - corroboration for a dumb document - inconsistency between deed registration date and alleged cash receipt date - stamp valuation not determinative of unrecorded cash receipt - project completion method - year of taxation of sale consideration

Addition based on seized diary entry - corroboration for a dumb document - stamp valuation not determinative of unrecorded cash receipt - Deletion of the addition of Rs. 40 lakhs made by the AO and confirmed by the CIT(A) which was founded on a seized diary notation. - HELD THAT: - The Tribunal found that the impugned entry in the seized diary was a 'dumb' or indecipherable noting which by itself did not constitute adequate evidence of receipt of cash. The AO's remand examination of the diary keeper and the purchaser did not elicit any admission or explanatory evidence; the purchaser denied payment and the diary keeper did not recall the entry. No independent corroboration was procured by the revenue to support the inference of a cash receipt. The Tribunal also observed that the stamp valuation being higher than the actual sales consideration did not, without more cogent material, permit an inference of unrecorded cash receipt. In view of these evidentiary deficiencies and material discrepancies, the addition founded solely on the seized diary entry was not sustainable. [Paras 8, 9, 10, 12]

The addition of Rs. 40 lakhs based on the seized diary entry is deleted.

Project completion method - year of taxation of sale consideration - Even if a cash receipt were presumed, the taxation of such amount could only have been in the year in which the assessee had recorded the sale under the project completion method. - HELD THAT: - The Tribunal accepted the assessee's alternative contention that the assessee had booked the entire sale consideration of the project in F.Y. 2005-06 and followed the project completion method. Citing consistent decisions, the Tribunal held that where an unrecorded receipt forms part of the sale consideration of flats, it is taxable in the year in which the sale was recorded by the assessee. Consequently, any addition relating to the impugned sale could not properly be made in A.Y. 2007-08 but only in the earlier year when the sale was booked. [Paras 11]

If a cash receipt had existed, it would have been taxable in the year the sale was recorded (F.Y. 2005-06 / corresponding assessment year), and not in A.Y. 2007-08.

Final Conclusion: The appeal is allowed; the addition of Rs. 40 lakhs made by the assessing officer and confirmed by the CIT(A) is deleted. The Tribunal also observed that, on the alternate hypothesis of any unrecorded receipt, taxation would lie in the year in which the sale was booked under the project completion method.

Buy-back of shares - taxation as capital gains - Deemed dividend - distribution on reduction of capital - Tax deduction at source - liability under section 195 and assessee in default under section 201 - Dividend distribution tax and exemption under section 10(34)/section 115 O - Applicability of India Mauritius Tax Treaty to capital gains - Colourable device doctrine - permissible tax planning versus tax evasion

Buy-back of shares - taxation as capital gains - Deemed dividend - distribution on reduction of capital - Applicability of India Mauritius Tax Treaty to capital gains - Payment made on buy back of shares is to be characterised as capital gains under section 46A and not as deemed dividend under section 2(22)(d). - HELD THAT: - The Tribunal examined the statutory scheme (section 77A of the Companies Act and sections 2(22)(d) and 46A of the Income tax Act), the legislative history including the Finance Minister's speech and CBDT circular, and concluded that the buy back regime is distinct from reduction of capital and that the Act was amended to treat amounts received on buy back as capital gains. Consequently, the transaction cannot be treated as deemed dividend; taxation of proceeds falls under capital gains and, where relevant, Article 13 of the India Mauritius DTAA governs taxation of such gains. The Tribunal therefore rejected the characterisation of the amount as dividend and accepted the assessee's contention that section 46A applies. [Paras 5]

Amount paid on buy back treated as capital gains and not as deemed dividend.

Tax deduction at source - liability under section 195 and assessee in default under section 201 - Dividend distribution tax and exemption under section 10(34)/section 115 O - Assessee cannot be treated as an assessee in default under section 201 for not deducting tax at source in respect of the buy back consideration. - HELD THAT: - Having held that the receipt is capital gains, the Tribunal observed that, if the payment is not chargeable to tax in India (by reason of the DTAA), there is no obligation under section 195 to deduct tax and hence no ground to invoke section 201. Alternatively, even if the amount were regarded as dividend, tax on such dividend would be by way of DDT under section 115 O and the recipient's income would be exempt under section 10(34), so TDS under section 195 would not be applicable. On either view, the precondition for applying section 201 (failure to deduct tax that was legally deductible) is absent. [Paras 5]

No liability as assessee in default for failure to deduct TDS; demand under section 201 is not sustainable.

Colourable device doctrine - permissible tax planning versus tax evasion - The buy back transaction was not a colourable device arranged to evade tax. - HELD THAT: - Relying on the reasoning and authority of the Bombay High Court in the Capgemini/Sterilite line of decisions, the Tribunal held that where the law permits a company to effect buy back by available legal routes, choosing a permissible route that results in different tax consequences does not ipso facto make the transaction colourable. The Tribunal found no violation of statutory provisions, no evidence that the scheme was contrived to effect tax evasion, and accepted that an assessee may legitimately arrange affairs to minimise tax liability so long as the transaction is legally permissible. [Paras 5]

Buy back arrangement is not a colourable device; contention of tax evasion through the scheme rejected.

Final Conclusion: The Tribunal allowed the appeal: proceeds of the buy back are capital gains (not deemed dividend), the assessee is not an assessee in default for non deduction of tax, and the transaction is not a colourable device; the orders of the lower authorities were set aside.

Application of section 44BBB - characterisation of payments as fees for technical services versus payment for construction/turnkey services - role of intergovernmental agreement in characterising commercial contracts - withholding under section 195(2) - consistency in income-tax adjudication - res judicata not strictly applicable to separate assessment years - relevance of DTAA and inter-governmental agreements in international transactions

Application of section 44BBB - characterisation of payments as fees for technical services versus payment for construction/turnkey services - role of intergovernmental agreement in characterising commercial contracts - Whether the payments made by the assessee to Atomstroyexport (ASE) fall within the scope of section 44BBB (i.e. are covered by the special presumptive provision) or are taxable in India as fees for technical services/royalty requiring withholding under section 195. - HELD THAT: - The Tribunal examined the contracts between the assessee and ASE in the context of the intergovernmental agreement and on a holistic basis. The material showed that ASE's role extended beyond merely supplying designs and drawings to active, end-to-end involvement in setting up the nuclear power station (including DPR submission, deputation of specialists, technical supervision and related services). The FAA's earlier consistent decisions in favour of the assessee were noted. On the facts, the transactions were to be read in the backdrop of the intergovernmental agreement and the nature of services rendered brought them within the scope intended to be covered by section 44BBB. Having regard to the composite character of the arrangements and the source intergovernmental treaty framework, the Tribunal found no legal infirmity in the FAA's favourable view (in the matter dealt with at paragraph 4) and confirmed the FAA's order dismissing the AO's contention. [Paras 4]

AO's order holding that section 44BBB did not apply and treating payments as taxable fees was not sustained; the FAA's decision in favour of the assessee on this issue is confirmed.

Consistency in income-tax adjudication - res judicata not strictly applicable to separate assessment years - relevance of DTAA and inter-governmental agreements in international transactions - Whether the FAA was justified in departing from a series of earlier like decisions (by his predecessors) and in treating identical facts differently for subsequent years, and whether those earlier decisions should have been followed. - HELD THAT: - The Tribunal held that while the doctrine of res judicata does not strictly apply to assessment years since each year is separate, the rules of consistency and certainty require that identical factual situations be treated uniformly unless there is a manifest, material change in facts or good and sufficient reasons to deviate. The FAA who took a contrary view did not place any distinguishable feature on record to justify departing from earlier consistent decisions which had gone unchallenged by the AO. The Tribunal also observed that the intergovernmental agreement and the DTAA framework are relevant in characterising international transactions and could not be ignored. In the absence of fresh material or distinguishing circumstances, the subsequent deviation was not sustainable and required reversal. [Paras 6]

The FAA's reversal of his predecessors' consistent view was not justified; on the principle of consistency the appeals filed by the assessee are allowed and the FAA's contrary orders are revised.

Final Conclusion: The appeal filed by the Department is dismissed and the appeals filed by the assessee are allowed: the series of earlier appellate findings in favour of the assessee are to be followed on identical facts, the intergovernmental agreement and the composite nature of ASE's services support applicability of the presumptive treatment under section 44BBB, and deviation by the FAA without distinguishing facts was set aside.

Cessation of liability and its tax consequence under section 41(1) of the Act - treatment of unexplained cash credits and burden to prove identity, genuineness and creditworthiness under section 68 of the Act - ad-hoc disallowance of business expenditure and principle of reasonable apportionment

Cessation of liability and its tax consequence under section 41(1) of the Act - Addition of Rs. 1,59,459 as income by treating creditor liability as ceased and invoking section 41(1). - HELD THAT: - The assessee showed sundry creditors outstanding from earlier years and claimed settlements during the year; however, amounts due from ultimate customers to the creditor (M/s. Dharini Packaging) resulted in the assessee not being required to pay that creditor. The Tribunal accepted the reasoning that where the assessee's liability to a creditor is extinguished because the debtor has paid the creditor, that cessation of liability is income chargeable under section 41(1). In the case of M/s. Swiss Polyplast the assessee failed to produce proof of purchase or payment and the amount appeared adjusted by M/s. Dharini Packaging; accordingly the Assessing Officer and the CIT(A) were justified in treating these liabilities as ceased and adding them under section 41(1). [Paras 2]

Addition of Rs. 1,59,459 treated as cessation of liability and added to income under section 41(1) is upheld.

Treatment of unexplained cash credits and burden to prove identity, genuineness and creditworthiness under section 68 of the Act - Addition of Rs. 2,73,874 as unexplained cash credits under section 68. - HELD THAT: - The assessee furnished explanations and documentary submissions relating to multiple cash introductions (opening bank balance, personal savings and various alleged gifts). The CIT(A) examined the evidence and found no satisfactory proof of withdrawal or source for the opening bank amount or the asserted personal savings, and held that confirmations and bank evidence for the alleged gifts were either not furnished before the Assessing Officer or were not sufficient to establish identity, genuineness and creditworthiness of the donors. A later claim (deposit of Rs. 30,000) was treated as a new contention not before the AO. Given the assessee's failure to discharge the burden of proof, the Assessing Officer and CIT(A) were justified in treating the amounts as unexplained cash credits and adding them under section 68; the Tribunal saw no reason to interfere. [Paras 3]

Addition of Rs. 2,73,874 as unexplained cash credits under section 68 is upheld.

Ad-hoc disallowance of business expenditure and principle of reasonable apportionment - Extent of ad-hoc disallowance out of total claimed business expenditure of Rs. 96,253. - HELD THAT: - The Assessing Officer disallowed 20% of specified expenses as personal/non-business portion, which the CIT(A) reduced to 10%. Applying the principle that ad-hoc disallowances should be reasonable in light of the facts, the Tribunal considered the disallowance excessive and moderated it further. On the record and considering the nature and scale of the business, the Tribunal restricted the disallowance to a fixed amount of Rs. 5,000, thereby reducing the quantum disallowed while leaving a disallowance to reflect non-business elements. [Paras 4]

Ad-hoc disallowance reduced and restricted to Rs. 5,000.

Final Conclusion: The appeal is partly allowed: additions under section 41(1) and section 68 are upheld, while the ad-hoc disallowance is reduced and fixed at Rs. 5,000.

Inclusion of excise duty in valuation of closing stock - unutilized MODVAT/CENVAT credit - Section 145A valuation of inventories - exclusive/exclusion method of accounting for excise - precedential effect of coordinate-bench Tribunal decisions - relevance of Accounting Standards/Guidance Notes as accounting method

Inclusion of excise duty in valuation of closing stock - unutilized MODVAT/CENVAT credit - Section 145A valuation of inventories - exclusive/exclusion method of accounting for excise - Addition of unutilized MODVAT credit to total income by including excise duty in the value of closing stock under Section 145A. - HELD THAT: - The Tribunal examined whether the Assessing Officer correctly added the balance of unutilized MODVAT credit to the assessee's income by treating excise duty as required to be included in closing stock under Section 145A. The assessee consistently followed an exclusion (exclusive) method of accounting, showing unutilized MODVAT as a receivable in the balance sheet and not incorporating it into stock valuation. The Tribunal found that identical issues had been decided in favour of assessees by coordinate-bench decisions, which held that where the books consistently reflect unutilized excise credit as a receivable (and purchases/sales/stock are accounted for on the exclusion method), inclusion of excise duty into closing stock does not call for an addition because the consistent accounting treatment is tax neutral and no manipulation of method of accounting may be effected by the assessing authority. The Tribunal also noted the relevance of Accounting Standards/Guidance Notes as permissible accounting methods. In the absence of any contrary binding decision or distinguishing facts, the Tribunal respectfully followed the coordinate-bench precedents and concluded that no addition on account of unutilized MODVAT credit was called for, directing deletion of the addition and allowing the ground raised by the assessee. [Paras 7, 8]

The addition made by the Assessing Officer on account of unutilized MODVAT credit is deleted and the assessee's appeal on this ground is allowed.

Final Conclusion: Following coordinate-bench Tribunal precedents and having regard to the assessee's consistent exclusion method of accounting and the Guidance/Accounting Standards, the Tribunal deleted the addition of unutilized MODVAT credit and allowed the appeal for A.Y. 2008-09.

Service of notice under Section 143(2) - service by speed post - rebuttable presumption of delivery under section 27 of the General Clauses Act - onus of proof to rebut presumption - duty to notify change of address - concurrent jurisdiction of Assessing Officer - absence of transfer under section 127 and jurisdictional vires - void ab initio for want of jurisdiction

Service of notice under Section 143(2) - service by speed post - rebuttable presumption of delivery under section 27 of the General Clauses Act - onus of proof to rebut presumption - duty to notify change of address - Validity of service of the notice dated 21.07.2008 issued by ITO, Ward 19(4), i.e., whether the notice was duly served within limitation. - HELD THAT: - The Tribunal found on the material that the notice was dispatched by speed post to the address shown in the return/PAN database and postal receipt/tracking evidence was on record; the notice was not returned undelivered. The assessee filed an affidavit denying receipt but produced no independent evidence to explain non-receipt or to show he was not responsible for non-service. The Tribunal applied the settled principle that dispatch to the correct address with postal receipt gives rise to a rebuttable presumption of delivery under section 27 of the General Clauses Act and that mere oral denial is insufficient to rebut that presumption. The Tribunal further noted that the assessee had in fact changed address and had not communicated the change to the Department, which reinforced the conclusion that the assessee failed to discharge the onus to prove non-service. Having considered these factors, the Tribunal held the presumption unrebutted and concluded the notice dated 21.07.2008 was validly served within time. [Paras 7]

Assessee failed to rebut presumption of service; notice dated 21.07.2008 held validly served and this ground dismissed.

Concurrent jurisdiction of Assessing Officer - absence of transfer under section 127 and jurisdictional vires - void ab initio for want of jurisdiction - Whether assessment completed by the Additional Commissioner of Income-tax was within jurisdiction in absence of any order under section 127 or production of a Commissioner's order conferring concurrent jurisdiction. - HELD THAT: - The Tribunal examined the jurisdictional order relied upon and the record. Revenue contended concurrent jurisdiction was conferred, but no order of the Commissioner demonstrating conferral of concurrent jurisdiction over the Income-tax Officer's cases was produced on the record. In absence of any such Commissioner's order or any transfer under section 127, the Tribunal found it cannot be established that the Additional Commissioner had jurisdiction to complete the assessment. The Tribunal distinguished authorities relied upon by parties on the stated facts and held that, on the material before it, the assessment by the Additional Commissioner was without jurisdiction. [Paras 8, 9]

Assessment completed by the Additional Commissioner of Income-tax held to be without jurisdiction and therefore void ab initio; this ground of the assessee is allowed.

Final Conclusion: The appeal is partly allowed: the service of the notice dated 21.07.2008 was held valid and that ground dismissed, but the assessment completed by the Additional Commissioner was held void for want of jurisdiction and the corresponding ground of appeal is allowed.

Unexplained investment under section 69A of the Income tax Act - weight of declared wealth tax returns as evidentiary basis - addition based on suspicion not sustainable - remaking/remodeling charges unsupported by evidence

Unexplained investment under section 69A of the Income tax Act - weight of declared wealth tax returns as evidentiary basis - remaking/remodeling charges unsupported by evidence - addition based on suspicion not sustainable - Deletion of addition made by the Assessing Officer in respect of unexplained investment in jewellery and rejection of 10% addition as remaking charges. - HELD THAT: - The Tribunal examined the wealth tax returns filed by the assessee, her husband and daughter in law which disclosed aggregate jewellery values exceeding the jewellery seized at search. The Assessing Officer had made the addition on the basis of variation in description and the CIT(A) sustained a 10% addition as presumed remaking charges without any cogent material. The Tribunal held that where declared and accepted wealth tax returns establish possession and the declared total weight/value exceeds the seizure, the assessee is entitled to benefit of those declarations. Mere inability to produce documentary evidence of conversion/remaking, or a presumption that remaking must have occurred, cannot sustain an addition. Addition founded on suspicion alone is impermissible. Accordingly, the jewellery found was held to be explained and the 10% addition for remaking charges, being unsupported by evidence, was deleted. [Paras 8]

The addition of Rs. 3,32,04,460 alleged as unexplained investment in jewellery and the 10% remaking charges were deleted; no addition can be made under section 69A.

Final Conclusion: Assessee's appeal is partly allowed to the extent that the additions relating to jewellery (including the 10% remaking charge) are deleted; the Revenue's cross appeal challenging that deletion is dismissed. Other grounds (including validity of framing under search and related issues) were not argued and were not adjudicated.

Penalty under Section 271(1)(c) - Notice under Section 274 - Concealment of income - Furnishing inaccurate particulars of income - Principles of natural justice - Deeming provisions in Explanation 1(A) and 1(B)

Notice under Section 274 - Penalty under Section 271(1)(c) - Principles of natural justice - Concealment of income - Furnishing inaccurate particulars of income - Validity of the show cause notice issued under Section 274 r.w.s. 271(1)(c) and consequential sustainability of the penalty - HELD THAT: - The Tribunal admitted the additional ground challenging the show cause notice as a pure question of law. The notice did not specify whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars, nor did it strike out irrelevant limbs, leaving ambiguity about the basis of the proceedings. Following the reasoning of the jurisdictional High Court in Manjunatha Cotton & Ginning Factory and the co ordinate bench, the Tribunal held that Section 274 requires the assessee to be specifically informed of the ground(s) under Section 271(1)(c) so that he may effectively meet the case; a standard printed form listing all limbs without indication of the relevant limb offends principles of natural justice. The Tribunal applied these principles to the present facts, concluded that the notice was defective for failure to specify the limb of Section 271(1)(c) invoked, and held that a defective notice vitiates the consequential penalty order. Because the penalty was set aside on this technical ground, the Tribunal did not examine the merits of concealment or furnishing inaccurate particulars or other substantive contentions.

Show cause notice under Section 274 was defective for failing to specify the limb of Section 271(1)(c); consequential penalty under Section 271(1)(c) deleted.

Final Conclusion: The appeal is allowed: the penalty under Section 271(1)(c) for Assessment Year 2004-05 is deleted because the show cause notice under Section 274 was defective for failing to specify whether proceedings were for concealment of income or for furnishing inaccurate particulars.

Comparable Uncontrolled Price (CUP) method - arm's length price - cost to cost intra group recharge without markup - cost certificates as evidence of arm's length - admissibility of customs valuation as external comparable for transfer pricing - requirement of contemporaneous comparables under Rule 10B(4)

CUP method - cost to cost intra group recharge without markup - subscription expense treated as arm's length - Deletion of the disallowance of subscription payment made to the associated enterprise - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the subscription payment represented a cost to cost recharge of group software/IT maintenance procured centrally by the associated enterprise and shared with the Indian joint venture without markup. The assessee submitted that the software was purchased on a bulk/group basis for the Alcatel Lucent group and that the Indian entity merely bore its proportionate cost; the TPO's remand report did not controvert the veracity of the submission, observing only that the claim was verifiable. In absence of any concrete reason to treat the subscription value as nil or to negate the cost sharing arrangement, the Tribunal found no infirmity in the deletion of the addition under this head and declined to disturb the CIT(A)'s conclusion that the payment satisfied arm's length standards under the CUP method. [Paras 16]

Addition relating to the subscription payment deleted; CIT(A) sustained.

CUP method - cost certificates as evidence of arm's length - admissibility of customs valuation as external comparable for transfer pricing - Validity of treating equipment purchases from associated enterprises at cost on the basis of cost certificates and customs valuation certificates - HELD THAT: - The Tribunal accepted the assessee's cost certificates from associated enterprises, which certified that the equipments were supplied at actual cost without profit, and noted that customs valuation certificates had declared the imported values truthfully. Relying on settled practice that customs valuations can be a relevant source for comparability and on precedents cited by the assessee, the Tribunal held that one arm of the Government's valuation (customs) should not be lightly rejected by another arm (TPO/AO) absent concrete contrary evidence. Given the assessee's explanation that several components were proprietary, supplied sporadically for R&D and not sold separately in the market, and that cost certificates were furnished, the Tribunal found the CIT(A)'s acceptance of those materials and deletion of the additions to be justified. [Paras 12, 13, 15]

Adjustments to the purchase of equipments were deleted; CIT(A) sustained.

Requirement of contemporaneous comparables under Rule 10B(4) - CUP method - Rejection of the TPO's use of non contemporaneous internet prices (2010 11) to benchmark transactions of earlier year - HELD THAT: - The Tribunal noted that Rule 10B(4) mandates that comparability data should relate to the financial year in which the international transaction was entered into, with limited allowance for data up to two prior years only where relevant. The TPO had relied on internet prices effective in June 2010 to benchmark transactions pertaining to the earlier financial year; the Tribunal observed that such post period prices are inherently unreliable for the year under consideration and that using prices several years after the transaction was contrary to the contemporaneity requirement. This reasoning supported exclusion of the TPO's comparables and reinforced the correctness of the CIT(A)'s deletions. [Paras 14]

TPO's use of non contemporaneous internet prices rejected; CIT(A)'s approach upheld.

Final Conclusion: For Assessment Year 2007 08 the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s deletions: (i) subscription payment treated as a cost to cost recharge and not disallowable; (ii) equipment purchases accepted as at cost based on cost certificates and customs valuation; and (iii) TPO's reliance on non contemporaneous internet comparables rejected as contrary to Rule 10B(4).

Interpretation of the expression 'acquirer' in regulation 7(1A) - person acting in concert (PAC) liability under regulation 7(1A) - interaction of regulation 7(1A) with regulation 7(2) - disclosure obligation to stock exchanges under Chapter II of the Takeover Regulations - penalty for non-compliance with disclosure provisions

Interpretation of the expression 'acquirer' in regulation 7(1A) - person acting in concert (PAC) liability under regulation 7(1A) - Whether the disclosure obligation in regulation 7(1A) is triggered by purchase or sale aggregating 2% or more effected by an acquirer individually or by the acquirer together with persons acting in concert with him. - HELD THAT: - The expression 'acquirer' is defined in regulation 2(1)(b) to include acquisition by a person either by himself or with any person acting in concert. Therefore, wherever 'acquirer' is used in the Takeover Regulations, that defined meaning applies. Regulation 7(1A) is expressly made applicable to an acquirer covered by regulation 11(1) (i.e., one who, together with persons acting in concert, holds 15% or more but less than 55%). On a purposive and harmonious reading, regulation 7(1A) refers to purchases or sales effected by the acquirer either alone or together with persons acting in concert; accordingly, when an acquirer together with persons acting in concert effects purchases or sales aggregating 2% or more, the disclosure obligation under regulation 7(1A) is triggered. The appellants, having acted as persons acting in concert and having aggregate sales in excess of 2%, fell within the ambit of regulation 7(1A) and were obliged to make disclosures to the target company and the stock exchanges, though they had made disclosure to the target company but not to the exchanges. [Paras 16, 17, 19, 23]

Regulation 7(1A) is triggered by purchases or sales aggregating 2% or more effected by an acquirer together with persons acting in concert with him; appellants acting as persons acting in concert were therefore within the scope of regulation 7(1A).

Interaction of regulation 7(1A) with regulation 7(2) - disclosure obligation to stock exchanges under Chapter II of the Takeover Regulations - penalty for non-compliance with disclosure provisions - Whether appellants can be held to have violated regulation 7(1A) read with regulation 7(2) for failure to make disclosure to stock exchanges within the stipulated time and whether the penalty imposed can be sustained. - HELD THAT: - Although regulation 7(1A) requires disclosure of purchases or sales aggregating 2% or more 'within two days of such purchase or sale', SEBI simultaneously amended regulation 7(2) to provide that disclosures under sub-regulations (1) and (1A) shall be made within two days of the events specified in regulation 7(2). The events enumerated in regulation 7(2) relate to allotment or acquisition and do not include sale of shares. Consequently, the combined reading of regulation 7(1A) with the amended regulation 7(2) does not furnish a prescribed two day event-trigger for disclosures arising from sales under regulation 7(1A). SEBI proceeded on the footing that appellants breached regulation 7(1A) read with 7(2) for failing to make timely disclosure to the stock exchanges; that approach is unsustainable because regulation 7(2), as amended, does not contemplate the sale-events covered by regulation 7(1A). In view of this textual and structural infirmity, the adjudication holding appellants guilty for non-compliance with regulation 7(1A) read with regulation 7(2) cannot be sustained and the penalty must be set aside. [Paras 27, 28, 29, 33]

Because regulation 7(2) (as amended) does not prescribe the contemplated event for disclosure of sales under regulation 7(1A), appellants cannot be held to have violated regulation 7(1A) read with regulation 7(2), and the penalty imposed is unsustainable.

Final Conclusion: Appellants, as acquirers acting together with persons acting in concert, fell within the scope of regulation 7(1A) so that aggregate sales in excess of 2% triggered a disclosure obligation; however, because regulation 7(2) (as amended) does not provide for the event-trigger for disclosure of sales under regulation 7(1A), the finding of violation of regulation 7(1A) read with regulation 7(2) and the penalty imposed cannot be sustained. All appeals are allowed and the penalties are quashed.

Business Auxiliary Service - Clearing and Forwarding Agent services - service tax leviability on commission agents - limitation

Business Auxiliary Service - Clearing and Forwarding Agent services - service tax leviability on commission agents - Whether the services performed by the respondents during the relevant period fall within the category of Clearing and Forwarding Agent services or constitute Business Auxiliary Services not liable to service tax then - HELD THAT: - The agreement between the respondents and Lucky Exports records that the respondents were appointed as agents to assist in procuring specified products at most attractive prices by identifying suitable vendors and were to be paid commission at a stated percentage of the purchase amount. Those descriptive activities correspond to the definition of Business Auxiliary Service. Business Auxiliary Services provided by commission agents were outside the scope of service tax levy until 8.7.2009. On that basis the Commissioner (Appeals) correctly concluded that the services were not C&F agent services subject to service tax for the period in question and set aside the demand in the Order-in-Original. There is no material warranting interference with that conclusion.

The services are Business Auxiliary Services and not taxable as Clearing and Forwarding Agent services for the relevant period; the demand in the Order-in-Original is set aside.

Limitation - Whether the demand raised by the show cause notice is barred by limitation - HELD THAT: - The show cause notice was issued on 23.3.2007 alleging liability for the periods 1999-2000 to 2001-2002. The respondents in their Cross Objection contended that the demand was barred by limitation and the Commissioner (Appeals) set aside the demand. The Tribunal noted the contention regarding limitation but found no material requiring interference with the Commissioner (Appeals) order.

Cross Objection on limitation was considered; no interference with the Commissioner (Appeals) order.

Final Conclusion: Revenue's appeal is dismissed; the Order-in-Original demand is set aside as the services were Business Auxiliary Services not liable to service tax for the relevant period, and the Cross Objections are dismissed.

Cenvat credit on capital goods - non-compliance with the time-limit for retention of capital goods installed at customer's premises under Cenvat Credit Rules, 2004 - requirement to seek extension of time for return within 180 days - dismissal for failure to prosecute where appellant fails to furnish required reconciliation/receipt details

Dismissal for failure to prosecute where appellant fails to furnish required reconciliation/receipt details - Whether the appeal should be kept pending when the appellant failed to appear and did not furnish the reconciliation/receipt details ordered by the Tribunal. - HELD THAT: - The Tribunal recorded that the appellant repeatedly sought adjournments from 15-5-2015 onwards to provide calculations and reconciliation/receipt details but failed to furnish the material on the listed dates. Today none appeared for the appellant and there was no compliance with the Tribunal's call for information. In these circumstances the Tribunal held that it was not necessary to keep the appeal pending merely because the appellant had repeatedly sought time without providing the required information, and the appeal was not to be kept pending on that ground. [Paras 2]

Appeal not to be kept pending for non-provision of information; procedural dismissal for failure to prosecute affirmed.

Cenvat credit on capital goods - non-compliance with the time-limit for retention of capital goods installed at customer's premises under Cenvat Credit Rules, 2004 - requirement to seek extension of time for return within 180 days - Whether the revisionary order disallowing Cenvat credit on capital goods was legally infirm where capital goods remained at customers' premises beyond 180 days and no extension was sought. - HELD THAT: - The Tribunal examined the review order which recorded that BSNL availed Cenvat credit on capital goods installed at customers' premises and that such capital goods did not return to BSNL's premises within the stipulated 180-day period. The revisionary authority found this to be a contravention of the relevant provision of the Cenvat Credit Rules and noted that BSNL did not seek permission for extension of time beyond 180 days. The Tribunal found no legal infirmity in the revisionary authority's order in view of the contravention and the absence of any pleaded or established reason that had prevented seeking extension of time; consequently the appellate challenge to that order failed. [Paras 4, 5]

Revisionary order upholding disallowance of Cenvat credit stands; appeal dismissed on merits.

Final Conclusion: The appeal is dismissed: it is not kept pending for failure to furnish required information, and on merits the revisionary order disallowing Cenvat credit for capital goods retained beyond 180 days without an extension is upheld.

Registration as bringing the assessee into the tax net - failure to amend registration certificate and non endorsement of activity - penalty under Section 77 of the Finance Act, 1994 for failure to amend registration - deeming provision for Business Auxiliary Service and discharge of service tax liability - waiver of penalty in absence of deliberate default or evasion

Registration as bringing the assessee into the tax net - failure to amend registration certificate and non endorsement of activity - Non endorsement of a subsequently undertaken taxable activity in the registration certificate does not render the assessee unregistered where the assessee was already registered and had been brought into the tax net. - HELD THAT: - The Tribunal found that the appellant had been registered with the service tax authorities from 1 3 2005 and thus was already within the fold of law. The absence of an endorsement reflecting the later undertaken activity (Business Auxiliary Service) was held to be a deficiency in the registration certificate only, and not to convert the assessee into an unregistered person. The Court treated registration as a paraphernalia for bringing an assessee within the tax net and observed that mere non endorsement of an activity, when the assessee was otherwise registered, is not equivalent to being unregistered.

Non endorsement of the subsequent activity did not amount to the assessee being unregistered.

Deeming provision for Business Auxiliary Service and discharge of service tax liability - penalty under Section 77 of the Finance Act, 1994 for failure to amend registration - waiver of penalty in absence of deliberate default or evasion - Penalty under Section 77 was not warranted and was waived because the assessee had discharged tax liability under the deeming provision and there was no deliberate default or attempt to evade revenue. - HELD THAT: - The Tribunal noted that although the appellant had not amended its registration certificate to record the Business Auxiliary Service from 25 11 2011, it had discharged service tax liability when it received such services from abroad under the deeming provision. There was no finding of deliberate default or conduct indicative of an attempt to evade payment to Revenue. In light of the appellant's registration status from 1 3 2005 and its conscious payment of tax, the imposition of penalty under Section 77 was held to be inappropriate. The Tribunal exercised its discretion to waive the penalty on the stated basis that coercive measures were not required given the absence of deliberate non compliance.

Penalty under Section 77 was waived and the appeal allowed.

Final Conclusion: The appeal was allowed: because the assessee had been registered from 1 3 2005 and had discharged service tax under the deeming provision for Business Auxiliary Service, the Tribunal held that non endorsement of that activity in the registration certificate did not constitute deliberate default warranting penalty under Section 77, and accordingly waived the penalty.

Extended time limit for service tax assessment under Section 73(1) - time-barred demand - penalty under Section 78 - bona fide omission versus deliberate suppression - validity of show cause notice - assessment based on ST-3 returns

Extended time limit for service tax assessment under Section 73(1) - validity of show cause notice - assessment based on ST-3 returns - bona fide omission versus deliberate suppression - Whether the extended period under Section 73(1) could be invoked for the demand raised by show cause notice dated 19-3-2009 for the period in dispute. - HELD THAT: - The Tribunal found that the value of services declared in the periodical ST-3 returns (Rs. 83,27,454/-) exceeded the value relied upon in the show cause notice (Rs. 82,48,726/-) and that the Revenue did not challenge the returns. There was no evidence of fraud, suppression of facts or intentional contravention to evade tax. The shortfall arose from a genuine omission to charge the higher tax rate (8% vis-a -vis 10.2% from 10-9-2004) attributable to reimbursement practice by the service recipient. In these circumstances the extended period under Section 73(1) was not attracted and the show cause notice invoking the extended period was held invalid. [Paras 5]

Extended period under Section 73(1) not applicable; show cause notice dated 19-3-2009 is invalid insofar as it relies on extended limitation.

Time-barred demand - penalty under Section 78 - bona fide omission versus deliberate suppression - Whether the demand for service tax and the penalty under Section 78 survive once the demand is held time-barred. - HELD THAT: - Having held that the extended period could not be invoked and that the omission to pay the higher rate was bona fide and not fraudulent, the Tribunal concluded the demand for the period 2004-05 to 2006-07 was time-barred. Consequent upon the demand being unsustainable, the corresponding penalty under Section 78 could not stand. The Tribunal accordingly set aside the demand and the penalty under Section 78. [Paras 5]

Demand of Service Tax for the period covered by the SCN is set aside as time-barred; penalty under Section 78 is also set aside.

Final Conclusion: The appeal is allowed: the extended time limit under Section 73(1) was not attracted, the demand for the period 2004-05 to 2006-07 is time-barred and set aside, and the penalty under Section 78 is quashed.

Refund of service tax - exemption by notification - one-to-one nexus between input services and export - export incentive - discouragement to exports

Refund of service tax - exemption by notification - one-to-one nexus between input services and export - export incentive - Entitlement to refund of service tax paid on services covered by Notification No.41/2007-ST where the services were availed prior to export of goods - HELD THAT: - The notification grants exemption in respect of the specified services; its object is to ensure that service tax does not render exports uncompetitive. Where the appellant's sole business is export and there were no domestic clearances during the material period, requiring a strict one to one contemporaneous link between the availing of the exempted service and the act of export would defeat the remedial purpose of the notification. Denying refund on the ground that the services were availed prior to the export constitutes a technical impediment inconsistent with the spirit of the exemption and would discourage exports. The procedural possibility of claiming refund in a subsequent quarter indicates that rigid denial by technicality would operate as an embargo on the export incentive. Taxes are not intended to be exported; refusal of refund would increase the cost of exported goods and impair competitiveness. Applying these principles, the denial of refund on the stated ground is unreasonable and unsustainable.

Denial of refund solely because the exempted services were availed prior to export is set aside; appeal allowed and refund claim is to be recognised.

Final Conclusion: Appeal allowed; denial of refund on the ground that exempted services were availed prior to export is unreasonable and set aside so as to permit the refund consistent with the object of the notification.

Cenvat credit - denial of credit in excess of 20% - separate accounts requirement - attribution of input services to taxable output - reversal of common input service credit

Cenvat credit - denial of credit in excess of 20% - separate accounts requirement - attribution of input services to taxable output - reversal of common input service credit - Whether denial of utilisation of Cenvat credit in excess of 20% was justified for failure to maintain separate accounts and whether the appellant's records sufficed to establish entitlement to credit - HELD THAT: - The Tribunal found that the only ground on which lower authorities denied utilisation of credit in excess of 20% was absence of separate records segregating input services for taxable and exempted services. It was accepted on the appellant's case that most input service credit taken related exclusively to taxable services and that common input services (MTNL telephone, chartered accountant, equipment hiring) amounting to a small quantum were reversed. Noting that there is no prescribed proforma for maintenance of separate accounts, the Tribunal held that records which clearly establish that input service credits have been availed exclusively for taxable output services satisfy the requirement of maintaining separate accounts. In the absence of any material showing additional common inputs for which credit was not reversed, the denial of credit in excess of 20% was not justified.

Denial of utilisation of Cenvat credit in excess of 20% was unwarranted; the appellant's records and reversal of common input credits sufficed and the appeal is allowed with consequential relief.

Final Conclusion: The appeal is allowed; the respondents' denial of Cenvat credit in excess of 20% is set aside as unjustified on the facts and on the ground that the appellant's records (together with reversal of common input credits) satisfy the separate accounts requirement, with consequential relief as appropriate.

Works contract service - exclusion of works contracts for railways - precedent treating composite works contracts as non-taxable before 1.6.2007 - interpretation of exclusionary clause - quashing of adjudication order

Works contract service - exclusion of works contracts for railways - precedent treating composite works contracts as non-taxable before 1.6.2007 - interpretation of exclusionary clause - Whether the services rendered by the appellant to the Delhi Metro Rail Corporation fall within the exclusion for works contracts in respect of railways and are therefore not leviable to service tax for the periods covered by the show cause notices. - HELD THAT: - The Tribunal applied the Supreme Court principle that composite works contracts involving rendition of services coupled with deemed supply of goods were not taxable under service heads such as erection, commissioning or installation service prior to 1.6.2007, and noted that works contract service was defined as a taxable service only with effect from 1.6.2007. The Tribunal found that the appellant's contractual work for design, manufacture, supply, installation, testing and commissioning of environmental control and tunnel ventilation systems fell within the scope of the definition in explanation (ii)(a) of the works contract provision. The adjudicating authority's restricted reading-that only works contracts for construction of railway lines are excluded-was held to be a misreading of the unambiguous exclusionary clause and to amount to legislating rather than interpreting the provision. For these reasons the impugned adjudication confirming tax was quashed and the services were declared to be an excluded species of works contract service, attracting no tax. [Paras 5]

Impugned order quashed; services declared excluded from works contract service for the specified periods and no service tax is leviable.

Final Conclusion: The appeal is allowed; the adjudication order confirming service tax demand is quashed and the appellant's contract with DMRC is declared an excluded works contract service, attracting no service tax for the periods listed.

Exemption under Notification No. 18/2009-ST - time-bar under Para (C) of the Notification / filing of Form EXP-2 - conditions for availment of exemption (submission of shipping bills under Para D and E) - Goods Transport Agency services for empty containers / to-and-fro transportation - penalty under Section 76 and requirement of malafide intention - interpretation of exemption notifications on the wording

Exemption under Notification No. 18/2009-ST - time-bar under Para (C) of the Notification / filing of Form EXP-2 - conditions for availment of exemption (submission of shipping bills under Para D and E) - Claim for exemption in respect of GTA services for the period was disallowed. - HELD THAT: - The authorities below rejected the appellant's claim for exemption under Notification No. 18/2009-ST for services used in export on three independent grounds. First, the appellant failed to submit the relevant shipping bills as required by the conditions of the Notification (paras D and E), thereby not fulfilling mandatory documentary conditions for availment. Second, part of the claimed freight related to to-and-fro movement for empty containers, which the authorities treated as outside the scope of the exemption. Third, the claim was time-barred under Para (C) because the statutory Form EXP-2 was filed after the fifteenth-day deadline following the relevant six month period (the return was filed 13 days late). The appellate authority applied the settled principle that exemption notifications are to be interpreted according to their wording and consequently held the claim barred by delay and non compliance with the Notification's conditions. The Tribunal noted that although the finding on to and fro transportation may conflict with an earlier Tribunal decision, the concurrent conclusion on limitation and non-fulfilment of conditions was intact and dispositive.

Disallowance of the exemption claim upheld; appellant disentitled to the exemption for the stated period.

Penalty under Section 76 and requirement of malafide intention - Penalty under Section 76 imposed by the adjudicating authority was set aside. - HELD THAT: - The appellate authority found no evidence of malafide intention in claiming the exemption because there was no dispute that the GTA services were used for export; on that basis the imposition of penalty under Section 76 was held to be unsustainable. The Tribunal endorsed the appellate authority's conclusion and accordingly did not sustain the penalty imposed by the primary authority.

Penalty under Section 76 set aside.

Goods Transport Agency services for empty containers / to-and-fro transportation - interpretation of exemption notifications on the wording - Though the authorities concluded that the exemption did not cover to and fro transportation for empty containers, that finding was noted to be contrary to a prior Tribunal decision, but was not remitted for fresh consideration because the limitation and non compliance findings were dispositive. - HELD THAT: - The Tribunal observed that the lower authorities' conclusion excluding to and fro transportation for empty containers from the Notification's ambit conflicted with an earlier Tribunal decision (CCE, Madurai v. Tata Coffee Ltd.). Nevertheless, because the concurrent findings that the claim was time barred and that prescribed conditions were not satisfied were impeccable and determinative, the Tribunal declined to remit or re decide the controversy on that point and concluded no interference was warranted with the dismissal on merits.

No interference with the dismissal on merits despite the noted conflict; the appeal dismissed on this basis.

Final Conclusion: The appeal is dismissed on merits: the claim for exemption under Notification No. 18/2009 ST for the stated period is rejected for failure to comply with the Notification and as time barred; the penalty under Section 76 has been set aside; no costs awarded.

CENVAT credit on inputs and capital goods - definition of capital goods - inputs used in or in relation to manufacture of final products - eligibility of raw materials used in manufacture of storage tanks for CENVAT/MODVAT credit - replacement/repair parts treated as capital goods

CENVAT credit on inputs and capital goods - eligibility of raw materials used in manufacture of storage tanks for CENVAT/MODVAT credit - inputs used in or in relation to manufacture of final products - Whether credit on fabricated tanks, perforated ladder trays and syntax tank used for storage of raw material is admissible as capital goods/inputs. - HELD THAT: - The Commissioner (Appeals) found that the fabricated tanks and related articles were used for storage of raw material and are ancillary/auxiliary to the manufacturing process, thereby amounting to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944. The Tribunal relied on precedents which treat materials used in the manufacture of storage and processing tanks as eligible for MODVAT/CENVAT credit and held that MODVAT/CENVAT credit is not confined to direct incorporation into final product but extends to goods used in or in relation to manufacture. On the material on record, the items in question were used in the manufacture of storage tanks that serve the manufacturing process; accordingly the denial of credit was not justified. [Paras 6]

Credit on fabricated tanks, perforated ladder trays and syntax tank allowed; Commissioner (Appeals) order upheld.

Replacement/repair parts treated as capital goods - definition of capital goods - CENVAT credit on inputs and capital goods - Whether H.R. plates, plain plates, black steel tubes, M.S. pipes & tubes, channels and similar items used as replacement of worn out parts are covered by the definition of capital goods and eligible for credit. - HELD THAT: - The Commissioner (Appeals) accepted the appellant's submissions that the listed items fall within the definition of capital goods as given in the applicable rules (Rule 57AA(a)(v) of the Central Excise Rules and corresponding provisions of the Cenvat Credit Rules) for the relevant period. The Tribunal noted that such goods used for replacement/repair in machines are covered by the definition and affirmed the view that they qualify for CENVAT credit under the rule-based definition of capital goods. [Paras 6]

Credit on the listed H.R. plates, tubes, pipes and channels allowed; Commissioner (Appeals) order upheld.

CENVAT credit on inputs and capital goods - eligibility of inputs used in manufacture of conveyance/storage within factory - Whether steel tubes, pipes, coils, plates, channels and angles used in manufacture of storage tanks and for conveyance within plant are eligible for MODVAT/CENVAT credit. - HELD THAT: - The Commissioner (Appeals) and the Tribunal referred to authority holding that items used in manufacture of storage tanks and for conveyance between tanks and plant are part of goods used in or in relation to manufacture and thus eligible for MODVAT/CENVAT credit. The Tribunal observed there is no dispute these items were used in relation to manufacture of final products and that MODVAT/CENVAT credit is not limited to directly incorporated inputs. Consequently, denial of credit on these items was not sustained. [Paras 6]

Credit on steel tubes, pipes, coils, plates, channels and angles allowed; Commissioner (Appeals) order upheld.

CENVAT credit on inputs and capital goods - Whether credit denied on water treatment compounds and miscellaneous laboratory chemicals was maintainable. - HELD THAT: - The Commissioner (Appeals) recorded findings on these items and concluded they did not fall within the definition of capital goods. The Tribunal noted the Commissioner (Appeals) had given detailed discussion on the overall issue of eligibility of items used in or in relation to manufacture and, on the material and precedents relied upon, did not find reason to interfere with the appellate conclusion allowing credit in respect of the disputed categories. [Paras 6]

Denial of credit on water treatment compounds and miscellaneous laboratory chemicals not sustained insofar as Commissioner (Appeals) allowed credit; appellate order upheld.

Final Conclusion: The appeal filed by the Revenue is rejected and the order of the Commissioner (Appeals) setting aside the adjudication in respect of the disputed CENVAT/MODVAT credits is affirmed.

Liability under Rule 57CC for exempted goods - refund of amount paid under protest - Section 11B not applicable as payment is not excise duty - deposit retained without legal sanction - binding effect of earlier Supreme Court decision in the same case

Liability under Rule 57CC for exempted goods - binding effect of earlier Supreme Court decision in the same case - Entitlement to refund of amounts paid under Rule 57CC in respect of exempted sulphuric acid in light of the Supreme Court's decision that Rule 57CC does not apply. - HELD THAT: - The Tribunal observed that the Supreme Court in the appellant's own case has held that the provisions of Rule 57CC cannot be made applicable to the sulphuric acid produced and cleared by the appellant because it emerges as a technological necessity and is a by-product, not a final product attracting Rule 57CC liability. Having found that no amount was payable under Rule 57CC on such clearances, the Tribunal concluded that amounts earlier paid under protest pursuant to Rule 57CC must be returned. The Tribunal noted that the lower authorities had not addressed the merits of the refund claims and that the Supreme Court decision disposes the core question of liability in favour of the appellant. [Paras 4, 5]

Amount paid under Rule 57CC in respect of exempted sulphuric acid is recoverable and should be refunded.

Section 11B not applicable as payment is not excise duty - Applicability of Section 11B to the present refund claim. - HELD THAT: - Both parties agreed, and the Tribunal accepted, that payments made pursuant to Rule 57CC were not payments of Central Excise duty and therefore the refund claim is not governed by Section 11B of the Central Excise Act. The Tribunal proceeded on the basis that the payment was of an amount equivalent to a percentage of exempted clearances rather than duty, so the statutory machinery under Section 11B for duty refunds does not apply. [Paras 3, 4]

Section 11B does not govern the refund claim because the amounts were not paid as Central Excise duty.

Deposit retained without legal sanction - refund of amount paid under protest - Whether amounts paid under Rule 57CC, though not excise duty, can be retained by the Government or must be returned. - HELD THAT: - The Tribunal held that even if the amounts paid under Rule 57CC are not treated as excise duty, they constitute a deposit which the Government cannot legitimately retain in absence of legal sanction. Given the Supreme Court's ruling that no liability arose under Rule 57CC for the appellant in the facts of the case, continuation of retention would be impermissible. Therefore the jurisdictional original authority was directed to take necessary action to refund the amounts at the earliest. [Paras 4]

The amounts paid under protest are deposits and must be refunded to the appellant; the original authority directed to refund them.

Final Conclusion: The appeals are allowed: amounts paid under Rule 57CC in respect of exempted sulphuric acid are recoverable and must be refunded; Section 11B is not applicable; the original authority is directed to effect the refund forthwith.

Clearance from DTA to SEZ treated as export - refund of accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 - rebate under Rule 18 of the Central Excise Rules, 2002 - SEZ deemed outside the customs territory - binding effect of Board Circular clarifying export treatment of DTA SEZ supplies

Clearance from DTA to SEZ treated as export - SEZ deemed outside the customs territory - Supply/clearance of goods from Domestic Tariff Area (DTA) to a Special Economic Zone (SEZ) is to be treated as export for the purposes of excise rules. - HELD THAT: - The Tribunal accepted the Board Circular dated 28/04/2015 which explains that under the SEZ Act and SEZ Rules an SEZ is treated as outside the customs territory of India and supplies from DTA to SEZ constitute export. The Circular notes that Rule 30(1) of the SEZ Rules and the earlier DGFT/DGEP circulars support the position that clearances to SEZ are to be treated as export and eligible for rebate under Rule 18 of the Central Excise Rules, 2002. The Tribunal held that this statutory and administrative framework mandates that licit clearances from DTA to SEZ be treated as export for the purposes of excise law.

Supply of goods from DTA to SEZ shall be treated as export.

Refund of accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 - binding effect of Board Circular clarifying export treatment of DTA SEZ supplies - rebate under Rule 18 of the Central Excise Rules, 2002 - Assessee is entitled to refund of accumulated Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 in respect of inputs used in manufacture of goods cleared from DTA to SEZ for the period October 2013-December 2013. - HELD THAT: - Applying the conclusion that DTA SEZ clearances are exports, the Tribunal held that such clearances attract the benefit of rebate under Rule 18 of the Central Excise Rules and correspondingly entitlement to refund of unutilized/accumulated Cenvat credit under Rule 5, CCR 2004. The Board Circular dated 28/04/2015 was treated as clarifying the law and applicable to the notification regime relied upon. On this basis the Commissioner (Appeals) order allowing the refund claim was upheld and the Revenue's challenge was rejected.

Refund of accumulated Cenvat credit under Rule 5 for clearances to SEZ for October 2013-December 2013 is allowed.

Final Conclusion: The appeal filed by the Revenue is rejected; the Tribunal upholds the Commissioner (Appeals) order holding that clearances from DTA to SEZ are to be treated as export and that the respondent is entitled to refund of accumulated Cenvat credit for the period October 2013-December 2013.

Cenvat credit - education cess - Rule 6(3)(b) of the Cenvat Credit Rules, 2004 - reversal of credit - exempted goods - maintenance of separate accounts - ten percent rule under Rule 6

Cenvat credit - education cess - reversal of credit - exempted goods - ten percent rule under Rule 6 - maintenance of separate accounts - Liability to pay an amount equal to 10% of the value of exempted tractors under Rule 6(3)(b) where only education cess credit on common inputs was availed and a proportionate reversal of that education cess credit was made - HELD THAT: - The Tribunal examined whether invocation of Rule 6(3)(b) to demand 10% of the price of exempted tractors was sustainable where no central excise duty credit on inputs had been availed and only education cess credit on common inputs was taken and thereafter proportionately reversed. The Original Authority treated industrial cess and education cess as excise duty and faulted the appellants for not maintaining separate accounts for common inputs, thus invoking the ten percent levy. The Tribunal noted, however, that the appellants had not availed central excise credit on inputs and had utilized education cess credit only for assessable tractors and had recalculated and reversed proportionate education cess attributable to non assessable (below 1800 CC) tractors, a fact admitted in the show cause notice. Relying on the established principle that a debit/reversal of previously availed credit amounts to non availment of that credit, as explained in Chandrapur Magnet Wires (P) Ltd. vs. CCE, Nagpur , and subsequent consistent decisions of the Tribunal and the High Courts, and as affirmed by the Supreme Court in CCE & CUS vs. Precot Meridian Ltd. , the Tribunal held that reversal of credit - even if effected after clearance - renders the ten percent demand unsustainable. Distinctions drawn by the Original Authority based on the belated nature of reversal were rejected as inconsistent with the cited jurisprudence. Consequently, failing to maintain separate accounts did not justify a ten percent imposition where the only credit taken (education cess) had been proportionately reversed. [Paras 4, 5, 6]

Impugned demand under Rule 6(3)(b) set aside and appeal allowed

Final Conclusion: The Tribunal held that where only education cess credit on common inputs was availed and proportionately reversed (even if belatedly), the Revenue could not sustain a demand of 10% of the value of the exempted tractors under Rule 6(3)(b); the impugned order was set aside and the appeal allowed.

Finished goods versus goods in process - requirement of entry in RG-1 register - intention to evade duty - clandestine clearance - onus of strict proof for invocation of penal provisions - seizure, confiscation and imposition of penalty under Central Excise

Finished goods versus goods in process - requirement of entry in RG-1 register - Whether the goods found in factory stock were finished marketable goods requiring entry in RG 1 or were goods in process not yet reaching finished stage - HELD THAT: - The Tribunal examined the material on record including the Certificate of Chartered Engineer which stated that the products required further operations such as cutting to size, sampling, hydro test and inspection before becoming final marketable products. The SCN alleged the goods were fully finished and ready for dispatch, but there was no contemporaneous evidence that the appellants had treated the items as finished or that quality control/tests had been completed. The Tribunal distinguished the Nissan Copper decision on facts, noting that in that case no further processing was required and other indicia of clandestine removal existed. Reliance was placed on authorities (including Supreme Industries and M.B. Laminators) holding that goods kept on hold pending quality control or requiring further operations may be goods in process and not necessarily finished for dispatch. Applying these principles to the facts, the Tribunal found that the goods could not be conclusively treated as finished goods for purposes of RG 1 entry. [Paras 3, 6, 7]

Goods found in the factory were not established to be finished marketable products requiring RG 1 entry; they could be goods in process pending further operations/tests.

Intention to evade duty - clandestine clearance - onus of strict proof for invocation of penal provisions - seizure, confiscation and imposition of penalty under Central Excise - Whether the seizure, confiscation and penalties could be sustained in absence of sufficient evidence of intention to clear goods clandestinely and evade duty - HELD THAT: - The Tribunal observed that the DGCEI's entries recorded the goods as allegedly ready for dispatch, but the statements taken at the time did not admit any intention to clandestinely clear the goods. There was no independent evidence of clandestine removal or other irregularities to support the inference of evasion. The Tribunal applied the legal principle that penal provisions and confiscation require strict proof of intention to evade duty and that mere presence of unaccounted stock, even if packed, is not in itself conclusive proof of clandestine clearance. Earlier decisions of the Tribunal and High Court cited in the order were followed to the effect that, absent sufficient evidence of intention, enforcement of penal consequences is not justified. On this basis the adjudicating authority's order and the appellate order upholding seizure/confiscation and penalties were set aside. [Paras 7, 9, 10]

Seizure, confiscation, redemption fine and penalty set aside for want of sufficient evidence of intention to clandestinely remove goods and evade duty.

Final Conclusion: Both appeals allowed; the original adjudication order and the impugned appellate order set aside and consequent redemption fine and penalty quashed.

Entitlement to refund of excise duty where duty was not collected from buyer - rebuttable presumption of passing on of duty under Section 11B - unjust enrichment doctrine in refund claims - credit note and accounting evidence as proof of non-passage of incidence

Entitlement to refund of excise duty where duty was not collected from buyer - rebuttable presumption of passing on of duty under Section 11B - credit note and accounting evidence as proof of non-passage of incidence - Whether the appellant is entitled to refund of excise duty paid in excess when the duty shown in the invoice was not in fact collected from the buyer and was reversed by issuing a credit note and accounted for in the books. - HELD THAT: - The Tribunal found as an admitted fact that the appellant had not collected the excess duty from its buyer and had issued a credit note reversing the excess assessable value, sales tax and excise duty before receipt of payment. The claim was supported by the appellant's ledger and a certificate from its chartered accountant confirming that the excise duty had not been received from the customer and appears as refund receivable in the books. The statutory scheme requires that a claimant establish that the incidence of duty had not been passed on; the presumption of passage is rebuttable. Applying settled authorities cited by the appellant, the Tribunal held that where the burden of duty has not been shifted to another, allowing refund does not result in unjust enrichment. The Commissioner (Appeals) was in error in rejecting the refund solely because duty was shown in the invoice, since the statutory presumption can be rebutted by cogent evidence such as credit notes and accounting records. The Tribunal therefore allowed the appeal and directed refund with interest. [Paras 5]

Refund of the excess excise duty allowed as the appellant proved that the incidence of duty was not passed on; refund to be disbursed with interest.

Final Conclusion: The appeal is allowed: the Tribunal held that the appellant rebutted the presumption of passing-on by producing the credit note and accounting evidence, and is entitled to refund of the excess excise duty with interest, directing payment within 45 days.

Right to cross-examination - reliability of witness statements - retraction of statement - admissibility of documentary corroboration - proof of receipt of goods - departmental burden of proof in adjudication

Right to cross-examination - reliability of witness statements - retraction of statement - Whether the Commissioner (Appeals) was justified in setting aside the demand because the Adjudicating Authority relied on witness statements without permitting cross-examination and failed to consider retraction and other inconsistencies. - HELD THAT: - The Tribunal observed that the departmental case was founded on the statement of the supplier and statements of transporters, but the respondent had sought cross-examination of those witnesses which was not afforded by the Adjudicating Authority. The record showed that the supplier's statement was retracted at the first opportunity before the Magistrate and that a transporter's evidence was internally inconsistent (claiming to operate three vehicles but not being able to be present in all). An investigation at the respondent's premises found no incriminatory material and statutory records were in order. Having regard to these contradictions and the retraction, and the denial of cross-examination, the Commissioner (Appeals) correctly concluded that no case was made out against the respondent and set aside the demand. The Tribunal found no infirmity in that conclusion and upheld the appellate order. [Paras 5, 7]

The setting aside of the demand by the Commissioner (Appeals) is justified; the Adjudicating Authority's reliance on untested and inconsistent statements was improper.

Final Conclusion: The appeal by Revenue is dismissed; the order of the Commissioner (Appeals) dropping the demand is upheld.

Cenvat credit - capital goods - Rule 3(5) of the Cenvat Credit Rules, 2004 - removal from factory - ownership or control not decisive for entitlement - goods having suffered duty and received in the factory of manufacture

Cenvat credit - Rule 3(5) of the Cenvat Credit Rules, 2004 - removal from factory - capital goods - Entitlement to Cenvat credit on moulds where the moulds were invoiced to customers but remained installed and in use in the factory - HELD THAT: - The Tribunal examined documentary verification and a Chartered Engineer's certificate establishing that the moulds were in the possession of the appellant, installed in the factory and in working condition for manufacture of final products. Rule 3(5) mandates reversal of Cenvat credit only when inputs or capital goods availed of credit are removed "as such" from the factory. Since the moulds were not removed from the factory, the condition for invoking Rule 3(5) was not satisfied and denial of the Cenvat benefit on that basis was unjustified. The factual finding that the moulds remained in the factory therefore disposes of the department's ground of denial under Rule 3(5). [Paras 5, 6]

Denial of Cenvat credit under Rule 3(5) is set aside because the moulds were not removed from the factory and were used in manufacture.

Cenvat credit - ownership or control not decisive for entitlement - goods having suffered duty and received in the factory of manufacture - Whether transfer of ownership or title of capital goods to buyers precludes entitlement to Cenvat credit where statutory conditions are otherwise fulfilled - HELD THAT: - The Tribunal held that ownership or transfer of title is not the decisive factor for entitlement to Cenvat credit. The statutory entitlement requires that the inputs or capital goods have suffered duty and been received in the factory of manufacture of the final product. Because the moulds had suffered duty and were found to be received and installed in the factory, the appellant met the statutory conditions for credit despite invoices indicating recovery of mould cost from customers. The departmental contention based solely on transfer of ownership was therefore rejected. [Paras 5]

Ownership or title transfer does not bar Cenvat credit where the goods have suffered duty and are received and used in the factory; denial on that ground is unsustainable.

Final Conclusion: The Tribunal allowed the appeal, set aside the impugned order demanding reversal of Cenvat under Rule 3(5) of the Cenvat Credit Rules, 2004, and held that Cenvat credit on the moulds is admissible because the moulds remained in the factory and statutory conditions for credit were satisfied.

Rural area versus urban area for concessional exemption - interpretation of governmental order directing civic survey is not equivalent to notification of urban area - meaning of "rural area" in exemption notification - master plan/master development plan as determinative of urbanisable limits

Rural area versus urban area for concessional exemption - interpretation of governmental order directing civic survey is not equivalent to notification of urban area - master plan/master development plan as determinative of urbanisable limits - Whether village Atun is to be treated as rural area for purposes of entitlement to concessional rate of duty under the cited exemption notifications. - HELD THAT: - The State Government order dated 3-7-1981, relied upon by the Department, merely directed that a civic survey be carried out and a master plan be prepared for the Urban Area of Bhilwara and listed certain revenue villages (including Atun) for inclusion in that civic survey. The order contains no language notifying village Atun as being included within urban limits. Under the amended position in the Rajasthan Land Revenue (Amendment) Act, 2002, "urbanisable limits" are those indicated in a master plan or master development plan, and where no master plan exists, the municipal limits are determinative. The appellants did not contend that a master plan had been prepared incorporating Atun, nor is there evidence that Atun falls within municipal limits. The adjudicating authority's characterization of the 1981 order as a notification of urban status was thus incorrect. Applying the statutory/interpretive test, the Commissioner (Appeals) correctly held that Atun remained rural for the purposes of the exemption notifications and that the respondents were entitled to the concessional rate. [Paras 7, 8, 9]

Village Atun is to be treated as rural for the purposes of the exemption notifications; the respondents are entitled to the concessional rate of duty.

Final Conclusion: The appeals are dismissed; the respondents are entitled to the benefit of Notification No. 9/2001-C.E. and Notification No. 9/2003-C.E. for the periods in question.