TaxTMI Updates e-Newsletter
Mar 13,2013

Filing of auditor's report "along with the return" held directory as to time - entitlement to deduction under Section 80HHC where prescribed audit report is filed during assessment proceedings - pari materia interpretation of Sub sec. (5) of Section 32AB and Sub sec. (4) of Section 80HHC - remand to Assessing Officer for quantification of eligible deduction

Filing of auditor's report "along with the return" held directory as to time - pari materia interpretation of Sub sec. (5) of Section 32AB and Sub sec. (4) of Section 80HHC - Whether the requirement in sub section (4) of Section 80HHC that the accountant's report be furnished "along with the return of income" is mandatory as to time or directory so as to permit filing during assessment proceedings. - HELD THAT: - The Court held that the provisions of sub section (4) of Section 80HHC are pari materia with sub section (5) of Section 32AB and adopted the reasoning of the Division Bench in Dr. L.M. Singhvi's case and of the Punjab & Haryana High Court in Gupta Fabs. While furnishing the auditor's report is a mandatory foundation for claiming the deduction (i.e., the accounts must have been audited before claiming the deduction), the temporal requirement that the report be filed "along with the return" is procedural and directory. Consequently, an auditor's report filed during the course of assessment proceedings cannot be excluded from consideration merely because it was not filed with the return; denial of the deduction solely on that ground is not justified.

Expression "alongwith return of income" in sub section (4) of Section 80HHC is directory as to time; filing the prescribed report during assessment proceedings does not disentitle the assessee to claim deduction.

Entitlement to deduction under Section 80HHC where prescribed audit report is filed during assessment proceedings - remand to Assessing Officer for quantification of eligible deduction - Whether the Tribunal was justified in allowing the deduction at the amount stated in Form No.10CCAC without referring the inconsistency between the amount claimed in the return and the amount certified in the audit report to the Assessing Officer for determination. - HELD THAT: - Although the Court agreed with the Tribunal that the assessee could not be denied the deduction merely because the report was filed during assessment, it expressed reservation about the Tribunal's mechanical allowance of the deduction equal to the figure in Form No.10CCAC when the assessee's return claimed a different amount. Given the inconsistency between the amount originally claimed in the return and the certified amount in the audit report, the Court considered it appropriate that the Assessing Officer be directed to re examine and determine the correct quantification of the eligible deduction and pass consequential orders in accordance with law.

Tribunal's conclusion that the assessee is not disentitled to deduction is upheld, but the quantification of the eligible deduction is remanded to the Assessing Officer for fresh consideration and appropriate orders.

Final Conclusion: The appeal is dismissed on the substantive point: the requirement to furnish the accountant's report "alongwith return of income" in sub section (4) of Section 80HHC is directory as to time and a report filed during assessment cannot be ignored; however, the matter is remitted to the Assessing Officer for determination of the correct amount eligible for deduction in accordance with law.

Penalty under Section 271D - bar of limitation under Section 275(1)(c) - penalty proceedings are independent of assessment proceedings - period of limitation to be reckoned from the first show cause notice initiating penalty proceedings - authority competent to impose penalty (Joint Commissioner) is not the date trigger for limitation

Penalty under Section 271D - bar of limitation under Section 275(1)(c) - penalty proceedings are independent of assessment proceedings - Whether the penalty imposed under Section 271D was barred by limitation - HELD THAT: - The Court held that penalty proceedings for contravention of the provision prohibiting specified cash transactions are independent of assessment proceedings and therefore Clause (c) of Section 275(1) governs the period of limitation. Reliance was placed on the Court's earlier decision in Commissioner of Income Tax v. Hissaria Bros., which established that completion of appellate proceedings arising from assessment has no bearing on initiation or sustenance of independent penalty proceedings. The first show cause notice initiating penalty proceedings was issued on 25.03.2003 (served 27.03.2003); under Section 275(1)(c) the relevant outer limit expired on 30.09.2003. The order imposing penalty by the Joint Commissioner on 28.05.2004 was therefore barred by limitation. The fact that the competent authority to impose the penalty was the Joint Commissioner did not shift the date from which limitation is to be reckoned to the date of the Joint Commissioner's show cause; limitation runs from the date of the first show cause notice initiating the penalty proceedings.

The penalty under Section 271D was held to be barred by limitation and the order imposing it was set aside.

Final Conclusion: The appeal is dismissed; the order imposing penalty under Section 271D, being time barred under Section 275(1)(c), was rightly set aside by the lower authorities.

Section 40A(3) disallowance when net profit rate is applied - Rejection of books of account and application of net profit rate - Reliance on precedent in Commissioner of Income Tax v. Purshottamlal Tamrakar

Section 40A(3) disallowance when net profit rate is applied - Rejection of books of account and application of net profit rate - Whether further disallowance under Section 40A(3) was permissible after the Assessing Officer rejected books and applied a net profit rate - HELD THAT: - The Tribunal and CIT(A) set aside the Assessing Officer's additional disallowance under Section 40A(3) on the basis that the Assessing Officer had already rejected the books of account and applied a net profit rate to estimate income. The High Court applied its earlier decision in Commissioner of Income Tax v. Purshottamlal Tamrakar, which holds that Section 40A(3) does not apply where a net profit rate has been adopted because the net profit computation is deemed to have taken such expenses into account. Applying that principle, the Court found that once the net profit rate was applied by the Assessing Officer there was no scope for any further separate disallowance of expenditure under Section 40A(3). [Paras 8, 9]

The impugned disallowance under Section 40A(3) was held not sustainable where a net profit rate had been applied after rejection of books; the appeals of the Revenue are dismissed.

Final Conclusion: The High Court, following its earlier precedent, dismissed the revenue appeals and upheld deletion of the additional Section 40A(3) disallowance because the Assessing Officer had applied a net profit rate after rejecting books, leaving no scope for further disallowance.

Waiver of interest under notification dated 23.05.1996 - clause (d) of the notification dated 23.05.1996 (as clarified 30.01.1997) - reliance on High Court judgment resulting in no tax liability in earlier year - retrospective amendment or subsequent reversal increasing tax liability - power to waive interest under Section 119(2)(a) of the Income tax Act - requirement that an application must set out grounds bringing the case within the notified category

Clause (d) of the notification dated 23.05.1996 (as clarified 30.01.1997) - waiver of interest under notification dated 23.05.1996 - requirement that an application must set out grounds bringing the case within the notified category - power to waive interest under Section 119(2)(a) of the Income tax Act - Whether the petitioners established entitlement to waiver of interest under clause (d) of the notification dated 23.05.1996 in the applications filed, and whether the rejection of those applications was liable to be set aside. - HELD THAT: - Clause (d) of the notification applies where an assessee had not paid tax in earlier years relying on a High Court order and, following a retrospective amendment or reversal of that order, becomes chargeable to interest; in such cases the competent authority may reduce or waive interest under the delegated power. The Court examined the waiver applications (Exts.P2-P4) filed for the assessment years in dispute and found that none of the grounds pleaded before the respondents were traceable to the contingency contemplated by clause (d). The rejection orders also contain no reference to any contention under the notification and do not indicate that the respondents were asked to, or did, consider clause (d). Because the petitioners did not present a case covered by clause (d) before the authority, the Court could not regard the rejection as erroneous; absent an application that invokes the notified category, there was no basis for interference with the administrative decision refusing waiver. [Paras 6, 8, 9]

Applications for waiver did not invoke clause (d) of the notification and the rejection of the applications was rightly upheld; writ petitions dismissed.

Final Conclusion: The writ petitions are dismissed: the Court found that the applications for waiver did not set out grounds under clause (d) of the notification dated 23.05.1996 and therefore the respondents did not err in rejecting the waiver requests; there is no interference with the impugned orders.

Disallowance under Section 40A(3) of the Income Tax Act - principal-agent relationship - appellate fact finding and perversity review - distinguishing precedent on facts

Disallowance under Section 40A(3) of the Income Tax Act - principal-agent relationship - appellate fact finding and perversity review - Whether the Tribunal was correct in deleting the addition of Rs.60,19,000/- made under Section 40A(3) of the Act. - HELD THAT: - The Tribunal found that the amount of Rs.60,19,000/- was directly deposited in the bank account of Reliance Communication Infrastructure Limited (RCIL), relied upon the paper book before it, and recorded that the assessee acted as an agent of RCIL; on that factual basis it held that disallowance under Section 40A(3) did not arise in the hands of the assessee. The High Court observed that those findings of fact were not shown to be perverse or erroneous and therefore were not open to interference on appeal under section 260A. The Court further distinguished the reliance placed by the Revenue on an earlier decision (SAS Educational Society) by noting that that precedent turned on its distinct factual matrix (relating to denial of opportunity) which is not present in the present case. Given the absence of perversity in the Tribunal's factual findings and the factual basis for the principal agent conclusion, no substantial question of law arose for admission. [Paras 5, 6, 7]

Tribunal's deletion of the addition upheld; findings of direct bank deposit and agency not shown to be perverse, appeal dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal, upholding the Tribunal's finding that the disputed amount was deposited in RCIL's bank account and that the assessee acted as RCIL's agent, and concluding there was no perversity in the factual findings or substantial question of law requiring interference.

Disallowance of stock loss - high seas sale and insurance recovery - deduction of tax at source on reimbursement payments - service connection fee treated as revenue expenditure - remand for fresh adjudication - principles of natural justice

Disallowance of stock loss - high seas sale and insurance recovery - remand for fresh adjudication - principles of natural justice - Deletion of addition made by AO on account of alleged excess debit entry in purchase account relating to claimed loss of imported coal was set aside for fresh adjudication. - HELD THAT: - The Assessing Officer had disallowed Rs.20,88,189 treating the purchase account as debited for 3,500 MT though only 900 MT were received, disbelieving the assessee's claim of loss by flood and noting documentary contradictions as to timing of loss and existence of stock. The CIT(A) deleted the addition accepting the assessee's case that the loss arose under a high seas sale and that the supplier had received insurance proceeds. The Tribunal found that both authorities had not properly examined the facts and evidence in the light of material on record and the parties' submissions and directed that the matter be restored to the AO for fresh adjudication, to be conducted strictly following the principles of natural justice. The Tribunal therefore did not decide the merit of the disallowance on facts but remanded the issue for reconsideration. [Paras 6]

Issue restored to the file of the Assessing Officer for fresh adjudication strictly following the principles of natural justice.

Deduction of tax at source on reimbursement payments - disallowance under 40(a)(ia) - Deletion by CIT(A) of addition under section 40(a)(ia) in respect of payments characterised as reimbursements was upheld. - HELD THAT: - The AO disallowed expenses totalling Rs.41,86,571 treating payments (stevedoring, intra-port transportation, etc.) as amounts on which tax should have been deducted under the TDS provisions. The CIT(A) deleted the addition relying on Tribunal precedent that where payments are reimbursements of freight/port handling charges supported by memos issued by the shipping agent and the payment was made by the supplier with the assessee only reimbursing the corresponding amount, section 194C/40(a)(ia) is not attracted. The Tribunal found no contrary finding by the AO on the nature of the payments and upheld the CIT(A)'s deletion. [Paras 7]

Order of the CIT(A) deleting the addition under section 40(a)(ia) is upheld and Revenue's ground is dismissed.

Service connection fee treated as revenue expenditure - Deletion by CIT(A) of addition treating electricity service connection fee as capital expenditure was upheld; fee held to be revenue in nature. - HELD THAT: - The AO treated a service connection fee of Rs.1,81,000 as capital and disallowed it. The CIT(A) deleted the addition following earlier judicial decisions holding that service connection charges are revenue expenditure because the advantage is not of an enduring nature. The Tribunal found no infirmity in the CIT(A)'s reliance on those judicial pronouncements and accordingly sustained the deletion. [Paras 8]

Order of the CIT(A) deleting the addition on account of service connection fee is upheld and Revenue's ground is dismissed.

Final Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes: the stock-loss addition issue is remanded to the Assessing Officer for fresh adjudication in accordance with natural justice; the deletions by the CIT(A) of the additions under section 40(a)(ia) relating to reimbursement payments and of the service connection fee as revenue expenditure are upheld.

Deductibility of interest under Section 36(1)(iii) - Business of investment in shares versus holding as capital asset - Classification of receipts as business income or capital gains - Substance over form / continuing loan - Colourable transaction

Deductibility of interest under Section 36(1)(iii) - Substance over form / continuing loan - Colourable transaction - The entire interest of Rs. 3,65,14,210/- paid on loans taken by the assessee is allowable as a deduction under Section 36(1)(iii) for the relevant year. - HELD THAT: - The court upheld the Tribunal's finding that the assessee's borrowings were for the purpose of acquiring shares as part of its business. The Memorandum of Association expressly authorised carrying on business of investment and related activities, and the assessee was an RBI-registered non-banking financial company entitled to deal in marketable securities. The pattern of taking loans from sister concerns, repaying them at year-end and obtaining fresh loans at the start of the following year was held to indicate a continuing financing policy (a 'continuing loan') and not merely idle or colourable borrowing. The audit report classified the assessee as an investment company and used valuation method applicable to business stock. These factors led the court to conclude that the interest paid was incurred 'for the purpose of business' and therefore deductible under Section 36(1)(iii); the assessing officer's view that the unutilised portion evidenced a colourable attempt to reduce tax was rejected. [Paras 15, 16, 18, 20]

Tribunal's allowance of the entire interest as a deduction under Section 36(1)(iii) is upheld.

Business of investment in shares versus holding as capital asset - Classification of receipts as business income or capital gains - Substance over form - Income from the assessee's investment activity (including proceeds of sale and dividends) is to be treated as business income rather than as capital gains or income from other sources. - HELD THAT: - The court agreed with the Tribunal that the assessee carried on the business of investment in shares: the Memorandum of Association authorised investment activities, the assessee was RBI-registered as an NBFC, and it held shares to acquire and maintain group control. The fact that some sales were shown as 'long term capital gains' in the books was not conclusive; classification in accounts does not determine the legal character of income. The recurring borrowing and sale of shares, the audit report describing the enterprise as an investment company, and valuation and accounting practices consistent with trading/stock treatment supported the classification of the receipts as business income. [Paras 16, 17, 18, 19, 20]

Tribunal's conclusion that the receipts from investment activity are business receipts/income is affirmed.

Final Conclusion: The appeal is dismissed; the High Court affirms the Tribunal's findings that the assessee was in the business of investment in shares, that the borrowings were for business purpose, the interest paid is deductible under Section 36(1)(iii), and the investment receipts are to be treated as business income.

Profit on transfer of DEPB credit - deduction under section 80HHC - exclusion under Explanation (baa) - DEPB as an export incentive / duty remission - face value of DEPB not constituting cost of acquisition - retrospective amendment to section 28 and Explanation (baa) - legislative intent - application of the mischief rule / Heydon's rule in statutory interpretation

Profit on transfer of DEPB credit - deduction under section 80HHC - exclusion under Explanation (baa) - face value of DEPB not constituting cost of acquisition - retrospective amendment to section 28 and Explanation (baa) - legislative intent - Whether 90% exclusion under Explanation (baa) to section 80HHC applies to the entire sale consideration received on transfer of DEPB credit (i.e., whether the entire sale proceeds are to be treated as 'profit' under clause (iiid) of section 28) - HELD THAT: - The Tribunal erred in holding that only the premium (amount in excess of face value) on sale of DEPB credit constitutes profit under clause (iiid) of section 28. The Court examined the nature of DEPB as a duty remission / export incentive and held that the face value of DEPB cannot be treated as cost of acquisition to the exporter. Legislative history, including the Finance Minister's speech and the retrospective introduction of clause (iiid) to section 28 together with corresponding changes to Explanation (baa) to section 80HHC, demonstrates Parliament's intention to include the entire sale consideration on transfer of DEPB credit as profit. Application of the mischief rule confirms that confining 'profit' to only the premium would frustrate the remedial purpose of the amendment and lead to an anomalous result where retention of DEPB would be taxed on full amount while transfer would be taxed only on the premium. Consequently, the entire amount received on transfer of DEPB credit falls within clause (iiid) of section 28 and, therefore, 90% thereof is to be excluded for computation under Explanation (baa) to section 80HHC as enacted. The Court relied on earlier precedents examining the character of DEPB and on the legislative speech to support this interpretation and reversed the Tribunal's contrary conclusion. [Paras 25, 26, 36, 44, 45]

The Tribunal's view that only the excess over face value is 'profit' is rejected; the entire sale consideration on transfer of DEPB credit is profit under section 28(iiid), and accordingly the exclusion under Explanation (baa) to section 80HHC applies to that amount.

Final Conclusion: The appeal is allowed: the order of the Tribunal is reversed insofar as it held that only the premium on sale of DEPB credit is chargeable; the entire sale proceeds on transfer of DEPB credit constitute profit under section 28(iiid) and are subject to the exclusion mechanism under Explanation (baa) to section 80HHC as interpreted by the Court.

Refund of Special Additional Duty (4% SAD) - unjust enrichment - acceptance of Chartered Accountant's certificate as discharge of unjust enrichment - non-requirement of audited Balance Sheet and Profit & Loss account for SAD refund verification - binding effect of Board circulars on departmental authorities - Notification No. 102/2007-Cus. (refund/exemption of 4% SAD)

Refund of Special Additional Duty (4% SAD) - unjust enrichment - acceptance of Chartered Accountant's certificate as discharge of unjust enrichment - non-requirement of audited Balance Sheet and Profit & Loss account for SAD refund verification - binding effect of Board circulars on departmental authorities - Certificate of the statutory Chartered Accountant suffices to discharge the bar of unjust enrichment for refund of 4% SAD under Notification No. 102/2007-Cus., and departmental authorities cannot insist on audited Balance Sheet/P&L where Board circulars provide otherwise. - HELD THAT: - The Tribunal examined whether the appellant's statutory auditor/Chartered Accountant certificate discharged the condition that the burden of 4% CVD/SAD was not passed on to buyers, thereby removing the bar of unjust enrichment for refund under Notification No. 102/2007-Cus. The Board's circular dated 13-10-2008 clarified that a certificate by the statutory auditor/Chartered Accountant who certifies the importer's financial records is acceptable to satisfy the unjust enrichment condition. The subsequent circular dated 8-7-2010 reiterated that field formations shall accept a Chartered Accountant's certificate and that there is no need to insist on production of audited Balance Sheet and Profit & Loss Account; the importer must also make a self-declaration. The appellant produced a certificate from their statutory auditor confirming the auditor certifies the annual accounts and that the 4% SAD burden was not passed on. The lower authorities, however, examined the balance sheet and P&L and treated the SAD shown as an expense as indicative of pass-through, thereby rejecting the refund. The Tribunal found this approach contrary to the Board's instructions and followed the earlier Tribunal decision in STP Ltd., which held that the CA certificate sufficed to discharge the unjust enrichment bar. In the absence of contrary evidence, the certificate complied with the Board's circulars and was sufficient to entitle the appellant to the refund; the insistence on audited statements was unwarranted. [Paras 11, 13, 14, 16, 17]

Impugned orders rejecting the refund on the ground of unjust enrichment are set aside; the appellant's CA certificate is accepted and the appeals are allowed.

Final Conclusion: The Tribunal allowed the appeals, setting aside the orders rejecting the 4% SAD refund on unjust enrichment grounds; the statutory auditor's certificate together with a self-declaration satisfies the unjust enrichment condition and audited Balance Sheet/P&L cannot be insisted upon contrary to Board circulars.

Binding effect of BIFR sanctioned rehabilitation scheme - Operation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 - suspension of proceedings - Waiver of interest and penalty pursuant to BIFR scheme - Reassessment of statutory demands by statutory authorities in light of BIFR directions

Binding effect of BIFR sanctioned rehabilitation scheme - Reassessment of statutory demands by statutory authorities in light of BIFR directions - Whether the rehabilitation scheme sanctioned by the BIFR is binding on the Haryana State Pollution Control Board and requires reassessment/adjustment of its demands in accordance with the scheme. - HELD THAT: - The BIFR sanctioned a rehabilitation scheme on January 10, 2007 in proceedings where the respondent-Pollution Control Board was represented and present. Paragraph 12 of that sanctioned scheme directed various Government and statutory authorities, including the Pollution Control Board, to reassess their demands taking into account the period for which the company remained closed. Paragraph 7(B)(x) of the scheme specifically provided that the State agencies would accept payment of water cess based on actual discharge till operations ceased, allow payment over twelve months from sanction, and waive interest, penalty and related charges. The respondents did not appeal the BIFR order to the Appellate Authority and admitted that no appeal was filed. Given presence of the Board in BIFR proceedings and absence of challenge, the scheme operates as the sanctioned scheme of the BIFR and is binding on the parties before the BIFR. The appellate authority under the Cess Act had expressly left the question of recoverability open for the assessing authority to examine, but that does not negate the binding effect of the BIFR-sanctioned directions which require reassessment and waiver as provided in the scheme. [Paras 8, 9, 11]

The respondents are bound to implement the BIFR-sanctioned rehabilitation scheme insofar as it directs reassessment of water cess and waiver of interest/penalty, and must act accordingly.

Operation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 - suspension of proceedings - Waiver of interest and penalty pursuant to BIFR scheme - Whether section 22 of the SICA prevents recovery or enforcement proceedings and supports the applicability of the BIFR directions waiving interest and penalty while a sanctioned scheme is under implementation. - HELD THAT: - Section 22 of the SICA suspends proceedings for recovery, execution or enforcement against an industrial company while a sanctioned scheme is under implementation unless consent of the Board or the Appellate Authority is obtained. The court relied on the statutory text and precedents indicating that once a sanctioned scheme is under implementation, the protections of section 22 are attracted. The BIFR-sanctioned scheme here permits the Pollution Control Board to accept payment on the terms specified and to waive interest and penalties. That statutory suspension and the BIFR directions reinforce that recovery or enforcement inconsistent with the sanctioned scheme cannot be proceeded with without appropriate consent and that the waiver/adjustment directions in the scheme must be given effect. [Paras 10, 11]

Section 22 applies where a sanctioned scheme is under implementation and supports giving effect to the BIFR's directions including waiver of interest/penalty; recovery inconsistent with the scheme is barred without BIFR/AAIFR consent.

Setting aside of assessing authority's order in light of BIFR scheme - Whether the assessing authority's order dated September 13, 2000 demanding water cess, penalty and interest should be set aside in view of the BIFR-sanctioned rehabilitation scheme and the operation of section 22 of SICA. - HELD THAT: - The assessing authority's demand included cess, penalty and interest. In light of the BIFR-sanctioned rehabilitation scheme-approved in the presence of the Pollution Control Board and providing for reassessment and waiver of interest/penalty-and the operation of section 22 which restrains recovery proceedings while a sanctioned scheme is under implementation, the court found the relief claimed by the petitioner meritorious. The appellate authority had left reassessment to the assessing authority, but that did not negate the binding directions of the BIFR or the protection afforded by section 22. Consequently, the impugned assessing order was liable to be set aside and the respondents directed to implement the scheme. [Paras 3, 8, 11, 12]

The assessing authority's order dated September 13, 2000 is set aside and the respondents are directed to implement the BIFR rehabilitation scheme insofar as it concerns them.

Final Conclusion: The petition succeeds. The BIFR-sanctioned rehabilitation scheme dated January 10, 2007 is binding on the respondents who participated in the BIFR proceedings and did not appeal; section 22 of the SICA operates to restrain inconsistent recovery or enforcement; the assessing authority's order dated September 13, 2000 is set aside; and the respondents are directed to implement the BIFR scheme (including reassessment and waiver of interest/penalty) within one month.

Designs and drawings assessed as goods under Chapter 49 - consulting engineer service - taxability of services provided from outside India prior to insertion of Section 66A - rule cannot supplant charging section - service tax not leviable where statutory charging provision absent

Designs and drawings assessed as goods under Chapter 49 - consulting engineer service - Whether imported and indigenous designs and drawings forming part of the contract are goods assessed under the Customs/Central Excise Tariff and therefore not subject to Service tax as consulting engineer services. - HELD THAT: - The Tribunal examined the Bill of Entry and invoices and was satisfied that the drawings and designs imported under Contract No. CRMP/CON/SPM/03 were declared and assessed by Customs under Chapter/sub heading 4906.00. Applying the statutory treatment in the Tariff Act and the authority in Associated Cement Companies Ltd., the court held that drawings, plans and similar matter statutorily regarded as goods cannot be recharacterised as taxable services. The same principle applies to indigenous designs and drawings which are assessable under Chapter 49 of the Central Excise Tariff Act. Consequently, the portion of the contract attributable to supply of designs and drawings is not chargeable to Service tax under the head "Consulting Engineer." [Paras 7]

Designs and drawings imported and those procured indigenously, assessed under Chapter 49, are goods and not liable to Service tax as consulting engineer services.

Taxability of services provided from outside India prior to insertion of Section 66A - rule cannot supplant charging section - service tax not leviable where statutory charging provision absent - Whether Service tax could be levied on services rendered by a foreign service provider to an Indian recipient for the period 1-4-1999 to 30-11-2001 in the absence of Section 66A of the Finance Act. - HELD THAT: - The Tribunal applied the ratio of the decisions dealing with Rule 2(1)(d)(iv) and the necessity of a statutory charging provision. It observed that the levy of Service tax on services provided from outside India to recipients in India was introduced by inserting Section 66A w.e.f. 18-4-2006. In absence of that statutory provision for the period in dispute, a rule or administrative instruction could not be made the basis for charging Service tax. Reliance was placed on the decisions holding that a Rule cannot be used to create a charge where the Finance Act contains no charging section for such services. Accordingly, Service tax could not be sustained for services rendered by the foreign appellant to TISCO during the relevant period, and there was no need to adjudicate further on whether the services fell within the scope of "Consulting Engineer." [Paras 7]

No Service tax is payable for services provided by the foreign appellant to an Indian recipient for the period 1-4-1999 to 30-11-2001 because the statutory charging provision (Section 66A) was introduced only w.e.f. 18-4-2006.

Final Conclusion: The impugned demand and penalty are set aside; the appeal is allowed and no Service tax is payable for the period 1-4-1999 to 30-11-2001 on the amounts attributable to imported or indigenous designs and drawings or on services by the foreign provider in absence of a statutory charging provision for that period.

Pre-deposit waiver / stay of recovery - CENVAT credit of service tax - ineligible credit - output service provider - sub-contractor input services - erection, installation and commissioning services - utilisation of credit for discharge of output tax liability

Pre-deposit waiver / stay of recovery - output service provider - CENVAT credit of service tax - erection, installation and commissioning services - Whether the applications for waiver of pre-deposit and stay of recovery should be allowed in respect of demands relating to alleged availing of ineligible CENVAT credit and corresponding service tax liability. - HELD THAT: - The Tribunal examined the undisputed facts that the appellant manufactures diesel generating sets and, in response to clients' requests, undertakes erection, installation and maintenance services for those sets; that the appellant does not perform these services for all sets sold and engages sub-contractors to perform the site work; that the sub-contractors charged service tax which the appellant took as CENVAT credit and then billed the purchaser for the erection/installation services. Revenue's grievance was that the appellant was not the provider of the output services for which the input services were taken. The Tribunal concluded prima facie that the appellant availed subcontractor services to provide an output service classified under erection, installation and commissioning services and that the appellant was discharging service tax liability for that output service. On that prima facie view, the appellant established a sufficient case for relief pending adjudication.

Applications for waiver of pre-deposit and stay of recovery are allowed and recovery of the amounts involved is stayed until disposal of the appeals.

Final Conclusion: The Tribunal granted waiver of pre-deposit and stayed recovery pending appeal, holding prima facie that the appellant, having engaged sub-contractors and charged for erection, installation and commissioning services, is the provider of the output service on which it discharged service tax and therefore made out a case for interim relief.

Construction of a complex intended for sale deemed to be service - retrospective effect of a statutory explanation - interpretation of the explanation inserted by Finance Act, 2010 - weight of departmental clarifications (CBEC) vis-a -vis subsequently enacted explanation

Construction of a complex intended for sale deemed to be service - retrospective effect of a statutory explanation - interpretation of the explanation inserted by Finance Act, 2010 - Whether the explanation inserted by Finance Act, 2010 (with effect from 1.7.2010) operates retrospectively so as to render builders liable to service tax for construction-and-sale transactions carried out prior to 1.7.2010. - HELD THAT: - The Tribunal held that the question of retrospective operation of the explanation is distinct from the constitutional validity of the explanation. The High Court decision in G S Promoters dealt with constitutional validity but did not determine retrospectivity. The Tribunal followed the detailed reasoning in Skynet Builders Developers Colonizers and Others (Final order No. ST/A/190-197/12 CUS 13-03-12), which examined retrospectivity and concluded that the explanation could not be given retrospective effect to impose tax for periods prior to its effective date. Revenue did not show any distinguishing circumstance to depart from Skynet Builders. Consequently, the Tribunal treated the explanation as not creating liability for periods before 1.7.2010 and applied that conclusion to the present appeals and cross-objections.

The explanation inserted by Finance Act, 2010 does not have retrospective effect to impose service tax on the builders' construction-and-sale transactions prior to 1.7.2010; accordingly the appeal ST/124/2010 is allowed and the Revenue appeals are rejected, and the cross-objections disposed of in accordance with this view.

Final Conclusion: The Tribunal followed the precedent in Skynet Builders and held that the Finance Act, 2010 explanation cannot be applied retrospectively to tax builders for activities before 1.7.2010; one appellant's appeal allowed and Revenue's appeals rejected, with cross-objections disposed accordingly.

Effect of Section 73(3) of the Finance Act, 1994 - voluntary payment on self-ascertainment with interest and written intimation - immunity from issuance of show-cause notice upon such payment - penalty under Section 76 and Section 77 of the Finance Act, 1994 - relevance of Board Circular No. 137/167/2006-CX4 dated 03.10.2007

Effect of Section 73(3) of the Finance Act, 1994 - voluntary payment on self-ascertainment with interest and written intimation - immunity from issuance of show-cause notice upon such payment - relevance of Board Circular No. 137/167/2006-CX4 dated 03.10.2007 - Whether, having on their own ascertainment paid the service tax with interest and filed returns with written intimation to the department, the appellant was liable to receive a show-cause notice under Sec.73(1) or was protected by Section 73(3). - HELD THAT: - The Tribunal examined the mandate of Section 73(3), which provides that where a person on his own ascertainment pays the service tax (or tax erroneously refunded) and informs the Central Excise Officer in writing, the officer shall not serve any notice under sub-section (1) in respect of the amount so paid. The Board circular relied upon by the appellant gives the same clarification. The facts show that the appellant filed the returns and paid the service tax along with interest on 17.12.2009 and gave the requisite information to the department. In those circumstances the statutory protection under Section 73(3) applied and the department was not required to issue a show-cause notice for the amount so paid. The Tribunal therefore held that the adjudicatory exercise premised on issuance of a show-cause notice in respect of the self-paid amounts proceeded without jurisdictional necessity and was impermissible. [Paras 5, 6, 7]

The Tribunal held that Section 73(3) bars issuance of a show-cause notice in respect of the amounts voluntarily paid with interest on self-ascertainment and informed to the department; accordingly the show-cause notice ought not to have been issued.

Penalty under Section 76 and Section 77 of the Finance Act, 1994 - immunity from issuance of show-cause notice upon such payment - Whether the penalties under Section 76 and Section 77 could be sustained where the show-cause notice should not have been issued under Section 73(3). - HELD THAT: - Since the Tribunal concluded that the statutory bar in Section 73(3) precluded issuance of a show-cause notice for the amounts which the appellant had voluntarily paid with interest and informed in writing, the basis for imposing penalties under Sections 76 and 77 (which followed adjudication consequent to that notice) failed. The adjudication confirming penalties was therefore found to be without merit in respect of the self-paid amounts and was set aside. [Paras 6, 7]

The Tribunal set aside the portion of the order imposing penalty under Section 76 and Section 77 insofar as it related to the amounts voluntarily paid and covered by Section 73(3).

Final Conclusion: The appeal succeeds. Because the assessee had on its own ascertainment paid the service tax with interest and filed returns with written intimation, Section 73(3) precluded issuance of a show-cause notice in respect of those amounts; consequently the penalties under Sections 76 and 77 confirmed against the appellant are set aside and the appeal is disposed of accordingly.

Separate individual liability - joint and several liability - remand for fresh adjudication - natural justice - supply of relied upon documents - recovery of fraudulently availed rebate - penalty for fraudulent rebate

Separate individual liability - joint and several liability - Validity of CESTAT's direction to determine individual liability of seven beneficiaries instead of enforcing joint and several liability. - HELD THAT: - The Tribunal remanded the matter for the Adjudicating Authority to decide liability for rebate and penalty separately in respect of different individuals. The High Court found that no question of law arises from the Tribunal's direction. The Court observed that where the Tribunal has required individual liabilities to be fixed and given parties an opportunity to be heard, that remand does not present a legal infirmity. The Court treated the Tribunal's instruction to determine individual liability as an appropriate exercise of its power to secure correct adjudication rather than an error requiring interference.

Tribunal's direction to adjudicate individual liabilities upheld; appeals dismissed insofar as they challenge that remand.

Natural justice - supply of relied upon documents - remand for fresh adjudication - Whether the Tribunal was justified in directing the Department to supply relied-upon documents and remanding for fresh consideration where counsel for some respondents had not produced Vakalatnama earlier. - HELD THAT: - The Tribunal directed supply of documents and a fresh opportunity to present the case. The High Court held that if the Department had already supplied the relied-upon documents the Tribunal's direction would be innocuous; but if the documents were not supplied, denial of those documents would risk violation of principles of natural justice. The Court therefore upheld the remand and the requirement to supply relied-upon documents so that respondents receive proper opportunity to meet the case against them.

Remand to Adjudicating Authority with direction to supply relied-upon documents and to afford proper opportunity to respondents confirmed.

Recovery of fraudulently availed rebate - penalty for fraudulent rebate - Disposition of appeals challenging adjudicating authority's recovery and penalty order for fraudulent rebate. - HELD THAT: - The Adjudicating Authority had ordered recovery of the rebate and interest and imposed penalty equivalent to the principal amount, also naming seven beneficiaries from whom recovery was to be effected jointly and severally. The Tribunal remanded for fresh adjudication on individual liabilities and supply of documents. The High Court found the Tribunal's order appropriate and, noting that other appeals were disposed of on the basis of the same reasoning, dismissed the Tax Appeals.

Appeals challenging the recovery and penalty order dismissed; remand ordered for determination of individual liabilities and for supply of relied-upon documents.

Final Conclusion: The High Court found no question of law in the CESTAT's order, upheld the remand to the Adjudicating Authority to determine individual liabilities and to supply relied-upon documents so as to afford respondents proper opportunity, and dismissed the Tax Appeals.

Liability for duty on waste and scrap generated at job worker's premises - undertaking under Rule 4(6) of the CENVAT Credit Rules, 2004 - re-adjudication while an appeal against an appellate order is pending before the Tribunal - stay of operation by the Tribunal - obligation of lower authorities to respect appellate orders and interim stays - consequential relief on setting aside impugned order

Re-adjudication while an appeal against an appellate order is pending before the Tribunal - stay of operation by the Tribunal - obligation of lower authorities to respect appellate orders and interim stays - Whether re-adjudication by the adjudicating authority and disposal by the Commissioner (Appeals) of proceedings was justified when an appeal against the Commissioner (Appeals)'s order was pending before the Tribunal and the Tribunal had stayed operation of that order. - HELD THAT: - Two show-cause notices relating to duty on waste and scrap for the period May 2007 to February, 2008 were originally dropped by the adjudicating authority. The revenue successfully appealed to the Commissioner (Appeals), which set aside the dropping order but gave no direction for re-adjudication. An appeal against the Commissioner (Appeals)'s order lay before this Tribunal and the Tribunal stayed the operation of the Commissioner (Appeals)'s order. Despite the pendency of the appeal and the stay, the adjudicating authority re-adjudicated the show-cause notices and confirmed demand, and the Commissioner (Appeals) later disposed of the resulting appeal instead of keeping it pending. The Tribunal found these actions by both lower authorities improper: absent a direction for re-adjudication and while the appellate proceedings (with interim stay) were sub judice before the Tribunal, neither re-adjudication nor fresh disposal should have been undertaken. The conduct demonstrated failure by departmental authorities to respect the appellate process and the interim order of the Tribunal, resulting in unnecessary litigation. [Paras 6, 7, 8]

Impugned re-adjudication and subsequent appellate disposal set aside; appeal allowed with consequential relief.

Final Conclusion: The Tribunal set aside the impugned order confirming demand and allowed the appeal, holding that re-adjudication and disposal by the lower authorities were unwarranted while the appeal against the appellate order was pending before the Tribunal (and operation of that order was stayed), and granted consequential relief.

Marketability - excisability - captively used goods - burden of proof on the Department - evidentiary requirement of chemical testing

Marketability - excisability - burden of proof on the Department - evidentiary requirement of chemical testing - Whether the corrugation gum manufactured by the appellant is marketable and therefore excisable, rendering the demand for duty on quantities captively used in exempt final products sustainable. - HELD THAT: - The corrugation gum was produced in the factory by mixing starch, borex and caustic soda and used captively in manufacture of corrugated boxes cleared at nil rate. The Department relied on statements of persons from other factories asserting a shelf-life of 3-4 days to contend marketability. The Tribunal held that no chemical analysis of the appellant's product was carried out to show presence of preservatives or to establish shelf-life. Mere statements about corrugation gum from other factories, without testing the product actually manufactured by the appellant, were insufficient. The burden of proving that a particular manufacturer's product is marketable rests on the Department. In absence of direct evidence or chemical test reports establishing that the appellant's corrugation gum was marketable, the Department failed to discharge that burden and could not sustain excisability.

The corrugation gum made by the appellant is not shown to be marketable and therefore is not excisable; the demand confirmed by the Commissioner is set aside.

Final Conclusion: The appeal is allowed; the order confirming duty (and consequential interest/penalty founded on that demand) is set aside as the Department failed to prove marketability of the corrugation gum produced by the appellant.

Refund of rebate under Notification No. 132/82-C.E. - unjust enrichment - Section 11B non-obstante clause - incidence of duty borne by manufacturer

Refund of rebate under Notification No. 132/82-C.E. - unjust enrichment - Section 11B non-obstante clause - incidence of duty borne by manufacturer - Whether refund under Notification No. 132/82-C.E. for excess sugar production during May-September 1982 is subject to the bar of unjust enrichment under Section 11B - HELD THAT: - Notification No. 132/82-C.E. provided exemption in respect of excess production of sugar for the period May-September 1982; the assessee paid duty and later claimed a refund. Because the refund had not been sanctioned till 19-9-1991, the claim falls to be examined under Section 11B as amended w.e.f. 20-9-1991. Sub section (3) of Section 11B contains a non obstante clause making subsection (2) and its proviso determinative of refund entitlement; subsection (2) requires, except as excepted, that refundable duty be credited to the Consumer Welfare Fund. Clause (d) of the proviso to Section 11B(2) preserves refunds only where the claimant proves that the incidence of the duty refunded was borne by him and not passed on to any other person. The Apex Court in Sahkari Khand Udyog v. CCE applied Section 11B to rebate claims of this character and held such rebates subject to the principle of unjust enrichment. Applying that principle, the Tribunal held that refund claims sanctioned after the statutory cut off are subject to the bar of unjust enrichment unless the manufacturer proves the incidence of duty was not passed on. For these reasons the impugned order, which had applied the Tribunal Larger Bench view to permit refund without applying Section 11B, was incorrect. [Paras 6]

Refund under Notification No. 132/82-C.E. for the period 1-5-1982 to 30-9-1982 is subject to the bar of unjust enrichment as governed by Section 11B (as amended), and the impugned order is set aside; Revenue's appeal allowed.

Final Conclusion: The Tribunal allowed the Revenue's appeal, holding that rebate claims under Notification No. 132/82-C.E. sanctioned after 20-9-1991 are governed by Section 11B and subject to the principle of unjust enrichment (the claimant must prove the incidence of duty was not passed on).

Rebate of excise duty on Aviation Turbine Fuel supplied as aircraft stores - administrative instructions and executive orders as binding guidance in claims for rebate - consistency in executive action / judicial discipline in governmental revisional orders - effect of departmental instructions vis-a -vis statutory notifications

Rebate of excise duty on Aviation Turbine Fuel supplied as aircraft stores - administrative instructions and executive orders as binding guidance in claims for rebate - consistency in executive action / judicial discipline in governmental revisional orders - Whether rebate of excise duty was admissible on ATF supplied to Nepal bound flights despite Notification No. 46/94-C.E. (N.T.) excluding Nepal, having regard to executive/administrative instructions and earlier Government revisional order - HELD THAT: - The revisional authority reconsidered the matter in conformity with the Hon'ble Bombay High Court's direction and the Government of India's earlier revisional Order No. 52-58/1999 dated 30-6-1999. That Government order, read with executive instructions cited (dated 1949-1951) and the administrative entries in the Excise Manual, had applied the concession of rebate by executive instruction to certain countries having land frontiers (including Nepal) despite the statutory notification's exclusion. The revisional authority noted the requirement of judicial discipline and consistency in executive determinations as emphasised by the High Court and observed that the Department had not advanced fresh legal grounds to sustain the earlier adverse view. On reconsideration the Government set aside the impugned orders and directed the original authority to sanction the rebate claims in terms of the GOI Order and the High Court order, if the claims were otherwise in order. The authority recorded that statutory notifications cannot be amended by administrative guidelines but, having regard to the Government's own revisional decision and the High Court's remand, the rebate claims were to be allowed in accordance with those executive determinations. [Paras 9, 11, 12]

Impugned orders set aside and original authority directed to sanction the rebate claims in terms of GOI Order No. 52-58/1999 dated 30-6-1999 and the Bombay High Court order dated 26-7-2011, if the rebate claims are otherwise in order.

Final Conclusion: Revision applications allowed in part: the revisional orders are set aside and the original authority is directed to grant sanction for rebate claims on ATF supplies to Nepal bound flights in accordance with the Government's revisional order and the Bombay High Court direction, subject to the claims being otherwise in order.

Refund under Section 11B - place of removal - depot as place of removal - downward revision of MRP - duty demand on upward revision of price - unjust enrichment

Refund under Section 11B - place of removal - depot as place of removal - downward revision of MRP - unjust enrichment - Entitlement to refund of excise duty paid at factory consequent to a downward revision of MRP for goods sold from depots. - HELD THAT: - The appeal was decided on the question whether excess duty paid at the time of removal to depots is refundable when the MRP was subsequently reduced and goods were sold at the lower MRP from depots. Section 11B permits any person to claim refund of duty and interest paid where such amounts were not due to the Government. The definition of "place of removal" includes a depot as one of the places from where excisable goods are sold after clearance from the factory. The department exercises the power to demand additional duty when there is an upward revision of price applicable at depot level; by parity and consistent application of the excise scheme, where excess duty has been paid because of a later downward revision of MRP, the assessee may claim refund subject to the statutory conditions. The principle of unjust enrichment governs entitlement to refund and the refund claim therefore falls to be considered and allowed in accordance with Section 11B if the conditions for refund (including absence of unjust enrichment) are satisfied. Applying these principles, the impugned rejection based on absence of a provision in Section 4A to reduce declared MRP at depot was not tenable, because Section 4A must be read with the definition of place of removal in Section 4. [Paras 5, 7]

Appeal allowed; appellant entitled to refund of excess duty arising from downward revision of MRP on goods sold from depots, subject to compliance with Section 11B and the test of unjust enrichment.

Final Conclusion: The impugned Order-in-Original rejecting the refund claim is set aside and the appeal is allowed; refund shall be adjudicated and granted in accordance with Section 11B and after satisfying the requirement against unjust enrichment.

Principles of natural justice - non supply of relied upon documents - burden of proof for clandestine removal - requirement of corroborative evidence for clandestine removal - availability of MODVAT/input credit - futility of remand where relied documents are not traceable

Principles of natural justice - non supply of relied upon documents - futility of remand where relied documents are not traceable - Whether principles of natural justice were violated by failure to supply the relied upon documents and whether remand would be effective - HELD THAT: - The Tribunal found that during the remand proceedings the department admitted before the Tribunal that the documents relied upon in the show cause notice were not traceable. The record shows repeated requests and visits by the appellants to inspect and obtain copies, but only a small fraction of the seized documents were furnished and crucial documents remained untraceable. Authorities and precedents establish that the Revenue must supply documents relied upon to enable the assessee to defend itself and that refusal or failure to supply such documents amounts to denial of reasonable opportunity. Given the admitted non availability of the relied upon documents, remanding the matter to the adjudicating authority for fresh adjudication would be futile and the adjudication proceeded in the absence of those documents infringed natural justice. [Paras 11, 12, 13, 14, 19]

Violation of principles of natural justice established; remand would be futile where relied upon documents are not traceable.

Burden of proof for clandestine removal - requirement of corroborative evidence for clandestine removal - Whether the allegation of clandestine removal of finished goods to abbreviated firms (in lieu of State Electricity Boards) was proved - HELD THAT: - The Tribunal observed that the purchasers of the conductors were State Electricity Boards, deliveries were recorded against duty paid invoices and payments were made by account payee cheques. The Revenue did not record statements of the State Electricity Boards or the five allegedly fictitious firms nor conduct investigations with those customers to establish non receipt or diversion. Established authority requires that the serious charge of clandestine removal must be proved by affirmative and corroborative evidence. In absence of such corroboration and investigative steps, the finding of clandestine removal cannot be sustained. [Paras 15, 16, 17]

Allegation of clandestine removal not proved; demand based on such allegation is unsustainable.

Availability of MODVAT/input credit - Whether denial of MODVAT/input credit to the appellants was sustainable in view of earlier findings in proceedings against M/s. Pooja Enterprises - HELD THAT: - This Tribunal had earlier set aside adjudication against M/s. Pooja Enterprises, and subsequent appellate and High Court orders upheld that the clearances by Pooja were not shown to be non existent. On the facts, where invoices from suppliers (M/s. Pooja) have been held to be supported by manufacturing and duty payment by that supplier, denial of input credit to the appellant on the ground that the supplier did not effect the clearances is not sustainable. The Tribunal accordingly held that denial of MODVAT credit in the appellant's case cannot be upheld. [Paras 9, 18]

Denial of MODVAT/input credit is unsustainable; credit taken on the strength of invoices from M/s. Pooja Enterprises must be upheld.

Principles of natural justice - remand futility - Ultimate disposition of the appeals - HELD THAT: - Having found violation of natural justice by non supply/non traceability of relied upon documents and, on merits, absence of corroborative evidence to establish clandestine removals and unjustified denial of MODVAT credit, the Tribunal concluded that the impugned adjudication order could not stand. The Tribunal therefore set aside the impugned order and allowed the appeals with consequential relief. [Paras 19]

Impugned order set aside; appeals allowed.

Final Conclusion: The Tribunal held that failure to make available the documents relied upon amounted to violation of principles of natural justice and, on the merits, that clandestine removal was not proved and denial of MODVAT credit was unsustainable; accordingly the impugned order was set aside and the appeals were allowed.

Stay of recovery pending appeal - pre-deposit/waiver of deposit - prima facie case and undue hardship - judicial direction to decide appeal within fixed time

Stay of recovery pending appeal - pre-deposit/waiver of deposit - prima facie case and undue hardship - Whether the revisionist should be relieved from depositing the tax demanded under the assessment order for AY 2008-2009 pending disposal of the first appeal. - HELD THAT: - The Court considered the established principle that interim relief in the form of stay of recovery or waiver of pre-deposit requires application of mind as to whether the appellant has a strong prima facie case and whether deposit would cause undue hardship. Reliance was placed on binding precedents holding that appellate authorities must balance the rights of the State and the appellant and record reasons when granting or refusing interim relief. The Court found that the revisionist has shown prima facie grounds and financial difficulty, and observed that the appellate authority had given no justification for refusing a stay of recovery. In view of these considerations and the jurisprudence cited, the Court directed a limited stay of deposit pending disposal of the first appeal and required the first appellate authority to decide the appeal within a specified short period.

First appellate authority directed to decide the first appeal within two months; until decision or for two months (whichever is earlier) the revisionist is not required to deposit the tax demanded in assessment order dated 5.5.2012 for AY 2008-2009.

Judicial direction to decide appeal within fixed time - Whether the first appellate authority should be directed to decide the pending first appeal within a specified timeframe. - HELD THAT: - In exercise of supervisory jurisdiction the High Court directed expeditious disposal of the first appeal, noting that an interim stay was being granted only for a short period and that timely adjudication by the appellate authority would obviate further interim relief. The Court ordered the appellate authority to decide the first appeal within two months from production of a certified copy of this order.

Direction given to the first appellate authority to decide the first appeal within two months from production of certified copy of this order.

Final Conclusion: Revision disposed of by directing the first appellate authority to decide the pending first appeal within two months; meanwhile, for two months or until decision (whichever is earlier) the revisionist is not required to deposit the tax demanded for AY 2008-2009 under the assessment order dated 5.5.2012.

Forcible extraction of cheque during spot inspection - Power of tax authorities during spot inspection - Requirement of prior notice and assessment order before demanding tax - Procedural due process in tax assessment

Forcible extraction of cheque during spot inspection - Requirement of prior notice and assessment order before demanding tax - Procedural due process in tax assessment - Validity of taking a cheque from the petitioner during a spot inspection without prior notice and without issuing an assessment order - HELD THAT: - The court found that the second respondent and his officers had no power or authority to take a cheque from the petitioner forcibly during an inspection of the business premises. Demanding payment of tax without issuing a prior notice, without passing an assessment order, and without affording the petitioner an opportunity to file objections is not proper. The determinative legal principle is that tax demands must follow the statutory procedure of notice, assessment and opportunity to be heard, and cannot be compulsorily collected during an inspection in the manner deployed here. Applying that principle to the facts, the collection of the cheque was held to be unauthorised and the cheque must be returned. [Paras 6]

The cheque taken during inspection is to be returned to the petitioner as the respondents had no authority to collect it in the manner adopted.

Forcible extraction of cheque during spot inspection - Power of tax authorities during spot inspection - Whether the fact that the cheque was dishonoured precludes its return to the petitioner - HELD THAT: - The respondents urged that the cheque had been dishonoured on presentation and therefore could not be returned. The court, after considering the record, did not accept this contention as a bar to returning the cheque which was taken without authority. The procedural impropriety in obtaining the cheque dictates its return irrespective of the subsequent dishonour. The court nevertheless clarified that the respondents remain free to pursue any lawful procedure to demand tax payable by the petitioner. [Paras 5, 6]

Dishonour of the cheque does not prevent its return; the respondents are directed to return the cheque to the petitioner.

Final Conclusion: Writ petition allowed; respondents directed to return the cheque dated 7.9.2012 within fifteen days, subject to the respondents' entitlement to demand any tax due by following the procedures established by law.