TaxTMI Updates e-Newsletter
Mar 16,2016

Distinction between business income and capital gains - test to distinguish trading income from capital gains - concurrent findings of fact - substantial question of law

Memorandum of association and nature of income - Whether the Memorandum of Association rendered the respondent's income from shares necessarily business income for AY 2007-08 - HELD THAT: - The Court recorded that the Memorandum of Association was neither produced nor formed part of the record before the Tribunal, and that the Revenue had not raised or argued this point before the Tribunal. Consequently the question as framed did not arise from the impugned order and did not constitute a substantial question of law. The Court declined to entertain the contention because it was not the subject matter of the Tribunal's decision and no prohibition in the memorandum had been shown. [Paras 8]

Not entertained; no substantial question of law arises on this ground.

Consistency of treatment across assessment years - Whether acceptance in Assessment Year 2008-09 that profits on sale of shares were business income compelled treating the same receipts in AY 2007-08 as business income - HELD THAT: - The Court noted that the assessment order for AY 2008-09 was not part of the record before the Tribunal and that no such submission had been made below. Therefore the question did not arise from the impugned order and could not be entertained as a substantial question of law. The Court declined to consider the unplaced assessment order for a subsequent year. [Paras 9]

Not entertained; no substantial question of law arises on this ground.

Distinction between business income and capital gains - test to distinguish trading income from capital gains - concurrent findings of fact - Whether the CIT(A) and the Tribunal were correct in classifying the respondent's gains from specified share transactions as capital gains for AY 2007-08 - HELD THAT: - On the merits the Court observed that both the CIT(A) and the Tribunal had considered the facts - including board resolution identifying certain scrips as investments, the holding period, the stated object of earning dividends, non use of borrowed funds, and bookkeeping treatment - and applied the established tests to distinguish trading income from capital gains. The Tribunal also relied on earlier acceptance in AY 2006-07. These conclusions were concurrent findings of fact and were not shown to be perverse or arbitrary. In view of concurrent factual findings by two fora, no substantial question of law arose from the factual conclusion that the specified receipts were chargeable as short term and long term capital gains. [Paras 11]

Appeal dismissed on merits; the gains were properly classified as capital gains and the concurrent findings stand.

Final Conclusion: The appeal is dismissed. The Court declined to entertain the two framed questions as they did not arise from the Tribunal's order; on merits the concurrent factual findings upholding the classification of the specified share receipts as capital gains were affirmed and not found to be perverse.

Deduction under Section 80HHC - Effect of subsection (9) of Section 80IA on computing other Chapter VI deductions - Interaction between Section 80HHC and Section 80AB - Exclusion of profits already allowed deduction under another provision

Deduction under Section 80HHC - Effect of subsection (9) of Section 80IA on computing other Chapter VI deductions - Interaction between Section 80HHC and Section 80AB - Deduction under Section 80HHC must be calculated after excluding profits of an undertaking for which deduction has already been allowed under another provision of subchapter C (for example, 100% deduction under Section 80IB), and Section 80AB does not override this requirement. - HELD THAT: - The Court followed the reasoning in Commissioner of Income Tax v. M/s. Atul Intermediates and held that subsection (9) of Section 80IA disentitles an assessee to claim duplicate deductions under subchapter C: where profit or gain of an undertaking has already been allowed as a deduction under one provision, that profit must be ignored when considering a claim under Section 80HHC. This application is at the stage of computing the deduction under subsection (3) of Section 80HHC, i.e., while working out eligible profits. The Court rejected the view that Section 80AB nullifies the effect of subsection (9) of Section 80IA on Section 80HHC: Section 80AB's saving language operates within the section under consideration and does not permit ignoring the limitation placed by subsection (9) of Section 80IA which restricts total deductions to the profit and gain from the eligible business that has not already been allowed a deduction.

Question answered in favour of the Revenue; deduction under Section 80HHC to be computed excluding profits already allowed deduction under another provision of subchapter C.

Final Conclusion: The High Court allowed the tax appeal, holding that profits on which deduction has already been allowed under another provision of Chapter VI (subchapter C) must be excluded while computing deduction under Section 80HHC; Section 80AB does not operate to permit double benefit.

Allowability of depreciation under Section 11 - double deduction doctrine - distinction between Chapter III (sections 11-13B) and Chapter IV (computation under heads of income) - binding precedent of Society of the Sisters of St. Anne - distinguishing Escorts Ltd. on facts and scope - prospective operation of statutory amendment

Allowability of depreciation under Section 11 - double deduction doctrine - distinction between Chapter III (sections 11-13B) and Chapter IV (computation under heads of income) - binding precedent of Society of the Sisters of St. Anne - distinguishing Escorts Ltd. on facts and scope - Depreciation is allowable in computing income of a charitable trust under Section 11 and its allowance does not constitute a prohibited double deduction in the facts of these appeals. - HELD THAT: - The Court held that income of a charitable trust is computed under Chapter III (Sections 11-13B) on normal commercial principles and that a notional deduction for depreciation is a legitimate outgoing to reflect wear and tear of assets. The Division Bench's earlier decision in Society of the Sisters of St. Anne is binding and supports allowance of depreciation for trusts so as to preserve the corpus and reflect true income. The ratio in Escorts Ltd. was examined and held distinguishable: Escorts dealt with a statutory scheme and explicit context where the Apex Court found a legislative intent to avoid double allowance in that particular statutory setting; that reasoning does not control computation under Section 11 for charitable trusts. Consequently, the Assessing Officer's contention that allowing depreciation would amount to double deduction was rejected and the Tribunal's orders upholding allowance of depreciation were sustained. [Paras 17, 18, 19, 20, 26]

Claim for depreciation under Section 11 upheld; there is no impermissible double deduction in the facts of these cases and the Tribunal's orders in favour of the assessees are correct.

Prospective operation of statutory amendment - interpretation of Finance Act insertion of Section 11(6) - Section 11(6), inserted by Finance Act (No.2) 2014, operates prospectively with effect from 1.4.2015 and applies to assessment year 2015-16 and subsequent years. - HELD THAT: - The Court examined the text of the amendment, the Notes on Clauses, the Memorandum explaining provisions and CBDT circulars, and applied the principles in Vatika Township concerning retrospectivity. Noting that the amendment expressly takes effect from 1.4.2015 and that legislative material and official explanations point to a prospective operation, the Court concluded that Section 11(6) is prospective and does not apply to earlier assessment years including those before 2015-16. [Paras 21, 22, 23, 24, 25]

Section 11(6) is prospective and applies from 01.04.2015 (assessment year 2015-16 onwards).

Final Conclusion: All appeals dismissed. Depreciation claimed by the charitable assessees for the assessment years before the 2015 amendment is allowable under Section 11 on the reasons stated; the amendment in Section 11(6) operates prospectively from 1.4.2015 (AY 2015-16) and does not affect the earlier assessments decided in these appeals.

Section 40(a)(iib) prospective application - privilege fee as business expenditure - distinction between tax and fee; price of privilege - Assessing Officer's jurisdiction to question State legislation - CBDT Circular No.3/2014 binding on Assessing Authority

Section 40(a)(iib) prospective application - CBDT Circular No.3/2014 binding on Assessing Authority - Applicability of the amendment inserting sub-clause (iib) in clause (a) of Section 40 of the Income-tax Act to assessment years prior to 2014-15 - HELD THAT: - The Court accepted that Clause (iib) was inserted by the Finance Act, 2013 with effect from 1.4.2014 and, on a plain reading of the statute and the legislative material (including the Bill memorandum and the CBDT Circular No.3/2014), the amendment operates prospectively and applies to assessment year 2014-15 and subsequent years only. The CBDT circular explaining the amendment is binding on the Assessing Authority. In consequence, the Assessing Officer was not entitled to disallow privilege fee for the assessment years 2009-10, 2010-11, 2011-12 and 2012-13 on the basis that the amendment had clarificatory retrospective effect.

The amendment in Section 40(a)(iib) applies from 1.4.2014 and does not justify disallowance of privilege fee for the listed earlier assessment years.

Privilege fee as business expenditure - distinction between tax and fee; price of privilege - Assessing Officer's jurisdiction to question State legislation - Characterisation of the privilege fee paid to the State Government and the Assessing Officer's conclusion that such payments were appropriations of income and thus not allowable - HELD THAT: - Relying on the constitutional and precedent analysis articulated in Har Shankar and applied to the facts, the Court held that the State may charge a price for parting with its exclusive rights and that such a charge may not be a 'tax' in the constitutional or statutory sense but can be the price of a privilege. The State's power to fix the privilege fee and the timing of notifications under the Karnataka Excise Act fall within the domain of the State and are not matters for the Assessing Officer to invalidate in the assessment proceedings. Given that the inserted statutory provision cannot be applied to the earlier years, and having regard to the nature of the levy as the price of a privilege, the Assessing Officer was not justified in treating the privilege fee paid in the years before 2014-15 as an appropriation of income disallowable as business expenditure.

Impugned assessments are set aside insofar as they treat the privilege fee paid for the specified earlier years as taxable income; the privilege fee as charged by the State could not be disallowed on the grounds taken by the Assessing Officer for those years.

Other disallowances remand - Adjudication of ancillary disallowances made in the assessment orders (e.g., under Section 14A, provision for ex-gratia, increase in share capital, Section 40(a)(ii) questions) and the procedure to be followed - HELD THAT: - The Court did not finally decide the several other disallowances recorded by the Assessing Officer. Instead, it directed that those matters be re-examined by the Assessing Officer after affording the petitioner an opportunity of hearing for each relevant assessment year. The remand requires fresh consideration and decision on merits by the Assessing Officer in accordance with law.

These other disallowances are remanded to the Assessing Officer for fresh examination after giving the petitioner an opportunity of hearing.

Final Conclusion: Writ petitions allowed to the extent that assessments are set aside insofar as the privilege fee for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 was treated as taxable; the amendment in Section 40(a)(iib) operates from 1.4.2014 only; other disallowances are remanded to the Assessing Officer for fresh hearing and decision.

Deduction under Section 10A - export turnover - expenses incurred in foreign currency - per diem allowance - binding precedent - effect of High Court decision pending Supreme Court SLP - liberty to pass consequential order

Deduction under Section 10A - per diem allowance - expenses incurred in foreign currency - export turnover - binding precedent - Whether the Tribunal was right in directing the assessing authority not to exclude expenses incurred in foreign currency (per diem) from export turnover for computing deduction under Section 10A, having regard to earlier decisions of this Court. - HELD THAT: - The Court observed that the question pressed by Revenue is covered by the earlier decision of this Court in ITA No.660/08 in Commissioner of Income Tax vs. Tata Elxsi Ltd., which upheld the view that per diem/allownces paid in foreign currency are not to be reduced from export turnover for computing the statutory deduction. Relying on that binding precedent and on this Court's prior decision in Commissioner of Income Tax And Another vs. MICO, the Court found no merit in entertaining the appeals and concluded that no substantial question of law arises for fresh consideration. The appeals were therefore dismissed and the assessing authority directed to give effect to this Court's decision. [Paras 4, 7]

Appeals dismissed as the issue is covered by this Court's earlier decision; assessing authority to give effect to that decision.

Effect of High Court decision pending Supreme Court SLP - liberty to pass consequential order - binding precedent - Whether the effect of this Court's decision should be deferred pending disposal of SLPs filed before the Apex Court and what consequential steps the assessing authority may take. - HELD THAT: - The Court rejected Revenue's contention that effect should be deferred until the Supreme Court decides the pending SLPs. It held that when an issue is covered by this Court's decision the assessing officer must give effect to that decision forthwith. At the same time, the Court granted the assessing officer liberty to pass further consequential orders in the event the Apex Court ultimately decides the SLPs in favour of Revenue. Thus immediate compliance with the High Court's decision is directed, subject to future variation if the Supreme Court rules otherwise. [Paras 5, 6, 7]

Assessing officer to give effect now to this Court's decision; liberty reserved to pass consequential orders if the Apex Court takes a different view.

Final Conclusion: The appeals are dismissed as the questions pressed are covered by this Court's earlier decision in Tata Elxsi Ltd.; the assessing officer shall give effect to that decision immediately, with liberty to pass consequential orders if the Supreme Court subsequently overturns the High Court's view.

Transactional Net Margin Method (TNMM) - Profit Level Indicator (PLI) - Return on Capital Employed (ROCE) - Total Cost (TC) as base - identification or segregation of capital employed - application of Rule 10B(e)(i) of the Income Tax Rules - Arm's length principle - entity level application of TNMM

Transactional Net Margin Method (TNMM) - Profit Level Indicator (PLI) - Return on Capital Employed (ROCE) - Total Cost (TC) as base - identification or segregation of capital employed - application of Rule 10B(e)(i) of the Income Tax Rules - Appropriateness of RoCE as the PLI and whether Tribunal erred in applying Total Cost as the base under TNMM to determine ALP - HELD THAT: - The Tribunal did not disturb the choice of TNMM as the most appropriate transfer pricing method. Although RoCE is one permissible base under Rule 10B(e)(i), the Tribunal rejected the use of RoCE on the facts because the assessee operated with a common pool of capital for transactions with associated enterprises and for other transactions; there was no identification or segregation of capital employed attributable to international transactions. In that factual matrix RoCE would not yield an appropriate arm's length margin for the international transactions. The Tribunal therefore applied Total Cost as the base under TNMM, relying also on earlier Tribunal orders in the jewellery trade applying cost or sales as the base. The court held that this conclusion is a reasonable and possible view and that Revenue had not demonstrated the RoCE approach to yield the ALP in the assessee's industry in the present facts.

Tribunal's rejection of RoCE and application of Total Cost as the base under TNMM affirmed; no substantial question of law arises.

Arm's length principle - entity level application of TNMM - Whether adjustment must be restricted only to international transactions when overall margins are below arm's length and whether shortfall must be attributed solely to associated enterprise transactions - HELD THAT: - The court recorded that the questions raised on this point are concluded against Revenue by this Court's earlier decisions in CIT v/s. Tara Jewels Exports (P) Ltd and CIT v/s. Thyssen Krupp Industries India (P) Ltd. . In view of those precedents the Revenue's contention did not give rise to any substantial question of law and the appeal on this point was not entertained.

Questions challenging the restriction of adjustment to international transactions rejected in view of binding precedent; no substantial question of law is made out.

Final Conclusion: The appeal is dismissed. The Tribunal's determination to apply Total Cost as the base under TNMM (rather than RoCE) on the facts of Assessment Year 2008-09 is a reasonable view and questions on allocation of shortfall to international transactions are concluded against Revenue by precedent.

Appealability of demand notices under Section 234E - Amendment to Section 200A and Section 246A w.e.f. 01/06/2015 - Right to appeal to the Commissioner (Appeals) - Condonation of limitation for filing appeals - Challenge to vires of Section 234E abandoned

Appealability of demand notices under Section 234E - Amendment to Section 200A and Section 246A w.e.f. 01/06/2015 - Right to appeal to the Commissioner (Appeals) - Condonation of limitation for filing appeals - Impugned demand notices issued under Section 156 pursuant to Section 234E are appealable to the Commissioner (Appeals) in view of the amendments to Section 200A and Section 246A with effect from 01/06/2015, and petitioners may file such appeals within 15 days with limitation not to stand in the way. - HELD THAT: - The Court recorded the departmental communication reproducing the Finance Act, 2015 amendments to subsection (1) of Section 200A and to Section 246A effective from 1 June 2015, which provide for computation of fee under Section 234E, adjustment in determination of sums payable or refundable and extension of appellate forum provisions to deductors/collectors. In consequence of these amendments, the impugned orders/demand notices are amenable to appeal before the Commissioner (Appeals). The Court directed that, if appeals are filed before the competent authority within 15 days from the date of the order, any limitation will not operate to bar such appeals.

Appeals against the demand notices are maintainable before the Commissioner (Appeals); petition disposed directing filing of appeals within 15 days and limitation, if any, is not to stand in the way.

Preclusive effect of earlier tribunal decision - Reliance on Sanjay Kumar Dwivedi - The petitioners' reliance on the decision in Sanjay Kumar Dwivedi and another (ITA Nos.551/Ind/2014 and 552/Ind/2014) shall not preclude them from filing appeals before the competent authority as directed by this Court. - HELD THAT: - Although counsel for the petitioners had relied on the earlier Income Tax decision to contend non-maintainability of appeals under Section 234E, the Court expressly recorded that that decision shall not stand in the way of the petitioners filing the appeals mandated by the present order. The Court therefore removed any practical obstacle arising from that precedent to the filing of appeals within the directed time.

The said decision shall not prevent the petitioners from preferring appeals as directed.

Final Conclusion: Writ petition disposed to the extent that the impugned demand notices under Section 234E are appealable to the Commissioner (Appeals) in view of the 01/06/2015 amendments; petitioners permitted to file appeals within 15 days and limitation, if any, is condoned for that purpose; challenge to vires of Section 234E was not pressed.

Additional depreciation - allowability of depreciation on windmill - Section 32(1)(iia) - manufacture or produce - generation of power - precedent of Texmo Precision Castings

Section 32(1)(iia) - additional depreciation - allowability of depreciation on windmill - manufacture or produce - precedent of Texmo Precision Castings - Whether additional depreciation under Section 32(1)(iia) is allowable on a windmill acquired by an assessee engaged in manufacturing of machineries - HELD THAT: - The Assessing Officer disallowed the claim on the ground that the windmill only generated electricity and did not "manufacture or produce" any article or thing, distinguishing generation from manufacture and referring to other provisions dealing with power generation. The CIT(A) allowed the claim following the decision in Texmo Precision Castings, holding that it is not necessary that the new machine itself must produce an article or thing so long as the assessee is engaged in the activity of producing articles or things; acquisition of a new machine used in the business of an assessee who manufactures is sufficient to attract additional depreciation. The Tribunal, after hearing parties and noting that the assessee is engaged in manufacturing machineries and had acquired a new machine (windmill), observed that the CIT(A)'s conclusion was supported by the precedent relied upon and that the revenue did not controvert the CIT(A)'s finding. Applying that reasoning, the Tribunal upheld the allowance of additional depreciation on the windmill under Section 32(1)(iia). [Paras 3, 6]

Additional depreciation under Section 32(1)(iia) was allowed on the windmill acquired by the assessee engaged in manufacture of machineries; the CIT(A)'s order was upheld.

Final Conclusion: The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s allowance of additional depreciation under Section 32(1)(iia) on the windmill for A.Y. 2006-07, following the precedent relied upon by the assessee.

Reopening of assessment under Section 147 on the basis of material from a search - notice issued under Section 148 and its validity where return was processed under Section 143(1)(a) - addition under Section 68 relating to unexplained credit and creditworthiness of a creditor - burden to prove genuineness and creditworthiness of the lender - right to cross examination and principles of natural justice where third party statements are relied upon

Reopening of assessment under Section 147 on the basis of material from a search - notice issued under Section 148 and its validity where return was processed under Section 143(1)(a) - Validity of reopening the assessment by issue of notice under Section 148 for A.Y. 2003-04 - HELD THAT: - The Assessing Officer reopened the assessment after a search in the M/s B.C. Purohit group (search dated 12/4/2005) which generated information that certain parties, including the assessee, had received accommodation entries. Although the return had earlier been processed under Section 143(1)(a) and no scrutiny under Section 143(3) had been undertaken, the Tribunal held that the material emerging from the search constituted a reason to believe sufficient to validate the action of reopening the assessment under Section 147 and issuance of notice under Section 148. The Tribunal therefore confirmed the Assessing Officer's reopening of the assessment. [Paras 3]

Reopening of the assessment for A.Y. 2003-04 is sustained; action of the Assessing Officer in issuing notice under Section 148 is confirmed.

Addition under Section 68 relating to unexplained credit and creditworthiness of a creditor - burden to prove genuineness and creditworthiness of the lender - right to cross examination and principles of natural justice where third party statements are relied upon - Addition of Rs. 3 lakhs under Section 68 and reliance on statements recorded during search without permitting cross examination - HELD THAT: - The Assessing Officer relied on statements recorded during the search in the B.C. Purohit group to treat the Rs. 3 lakhs received from M/s K.G. Petrochem (P) Ltd. as an accommodation entry and made an addition under Section 68 on the ground that the assessee failed to prove the creditworthiness and genuineness of the lender. The Tribunal found that neither the Assessing Officer nor the CIT(A) provided the assessee with the opportunity to inspect/provide copies of the said statements and seized material or to cross examine the persons whose statements were used against the assessee. Applying the principle in Andaman Timber (as relied upon by the assessee), the Tribunal held that this procedural omission vitiated the reliance on such statements and set aside the issue to the Assessing Officer for de novo adjudication, directing provision of the statements/seized material and appropriate opportunity to the assessee to explain and, if desired, to cross examine. [Paras 8]

Addition of Rs. 3 lakhs under Section 68 is set aside and remanded to the Assessing Officer for de novo consideration after furnishing the relevant statements and seized material and affording the assessee the opportunity to explain and to cross examine.

Final Conclusion: The reopening of assessment for A.Y. 2003-04 is upheld; however, the addition of Rs. 3 lakhs under Section 68 is set aside and remanded to the Assessing Officer for fresh adjudication after providing the assessee requisite statements/seized material and opportunity to cross examine. The appeal is disposed of as allowed for statistical purposes.

Levy of fee under section 234E - processing of TDS statements under section 200A - applicability of section 234E prior to amendment effective 1st June 2015 - intimation under section 200A cannot raise demands under section 234E before enabling amendment - appealability of intimation issued under section 200A

Levy of fee under section 234E - processing of TDS statements under section 200A - applicability of section 234E prior to amendment effective 1st June 2015 - Legality of levying late filing fee under section 234E by way of intimation issued under section 200A prior to 1st June 2015 - HELD THAT: - As the law stood prior to the amendment effected by the Finance Act 2015 (with effect from 1st June 2015), section 200A permitted adjustments when processing TDS statements only for arithmetical errors, incorrect claims apparent from the statement and computation of interest; there was no provision permitting adjustment for fee under section 234E. The amendment effective 1st June 2015 expressly inserted computation of fee under section 234E in the scheme of section 200A. Consequently, any intimation under section 200A issued before 1st June 2015 could not lawfully include a demand for fee under section 234E because there was no enabling provision to make such an adjustment at that time. Further, the tribunal followed the Coordinate Bench precedent which held that such levy was beyond the scope of section 200A as it then stood and was therefore unsustainable, entitling the assessee to deletion of the fee levied.

Demand of late filing fee under section 234E raised by intimation under section 200A prior to 1st June 2015 deleted; appeal allowed.

Final Conclusion: Appeal allowed: the levy of late filing fee under section 234E by intimation under section 200A issued before the statutory amendment effective 1st June 2015 is unsustainable and is deleted; thus the assessee's appeal is allowed for AY 2014-15.

Deemed dividend under section 2(22)(e) - taxability in hands of registered shareholder versus beneficial shareholder - peak debit balance treated as deemed dividend - concept of substantial interest in a concern

Deemed dividend under section 2(22)(e) - taxability in hands of registered shareholder versus beneficial shareholder - peak debit balance treated as deemed dividend - Whether the peak debit balance in the books of AMPL could be taxed as deemed dividend under section 2(22)(e) in the hands of M/s AVA Merchandising (P) Ltd., which was not a registered shareholder of the creditor company but where a common person had substantial shareholding in both companies. - HELD THAT: - The Tribunal, following the detailed reasoning of the First Appellate Authority, held that section 2(22)(e) can be invoked only in respect of payments made to a shareholder (or to a concern in which such shareholder has substantial interest) and that the provision cannot be applied to tax a payment in the hands of a non shareholder merely because a common person is a beneficial shareholder in both companies. The authorities relied upon by the CIT(A) - including the ITAT Special Bench and the Jurisdictional High Court decision in CIT v. Ankitech Pvt. Ltd. - were held to support the proposition that a concern which receives a loan from a company cannot be treated as a shareholder of the lender simply because a shareholder of the lender has substantial interest in that concern, and that had the legislature intended to tax such loans in the hands of the deeming shareholder, an express deeming provision would have been enacted. Applying these precedents to the facts (peak debit balance of the assessee in AMPL), the Tribunal found no infirmity in the CIT(A)'s conclusion that the amount could not be treated as deemed dividend in the hands of the assessee company and upheld the deletion of the addition. [Paras 5, 7]

Deletion of the addition made as deemed dividend under section 2(22)(e) in the hands of the assessee company is upheld and the Revenue's appeal is dismissed.

Withdrawal of cross objection - Disposition of the assessee's cross objection filed before the Tribunal. - HELD THAT: - The cross objection was filed beyond the statutory period and an application for condonation of delay was made; however, at the hearing the assessee's counsel withdrew the cross objection and endorsed the withdrawal on the grounds of cross objection. The Revenue did not press any serious objection to the withdrawal. [Paras 8]

The withdrawn cross objection is dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of the addition under section 2(22)(e), holding that deemed dividend cannot be taxed in the hands of a non shareholder merely because a person has substantial shareholding in both companies; the Revenue's appeal is dismissed and the assessee's withdrawn cross objection is dismissed.

Deduction under section 80IB(10) - municipal plan approval in name of landowner not fatal to deduction - allowability of deduction limited to sanctioned constructed area - verification of revised plans and constructed area on remand - estimation of income for non-production of books of account

Deduction under section 80IB(10) - municipal plan approval in name of landowner not fatal to deduction - Assessee entitled to deduction under section 80IB(10) though initial municipal permission was in the name of the landowners rather than in the name of the developer. - HELD THAT: - The Tribunal applied its earlier decision in the assessee's own case for A.Y. 2009-10 and followed the Coordinate Bench's view that what matters for allowance under section 80IB(10) is that permission was granted for the project; it is not decisive that the original sanction bore the name of the landowners. On this basis the Tribunal upheld the CIT(A)'s conclusion that the assessee is eligible for the deduction subject to other factual verifications.

Deduction under section 80IB(10) is allowable to the assessee despite the municipal approval being initially in the name of the landowners; the CIT(A) view on eligibility is sustained.

Allowability of deduction limited to sanctioned constructed area - verification of revised plans and constructed area on remand - estimation of income for non-production of books of account - Whether deduction is allowable for the excess constructed area beyond the original sanctioned plan, and whether estimation of income was justified, are not finally decided and are remitted to the Assessing Officer for fresh examination. - HELD THAT: - The Tribunal observed that the original and revised plans were not placed on record and it was unclear whether the alleged increase in built-up area (including penthouse) was reflected by change of plans or otherwise. The Tribunal directed the AO to examine original and revised plans, verify whether constructed apartments conform to norms under section 80IB(10) (excluding balconies and common areas from 'flat area'), ascertain whether the project remains eligible for 80IB(10) for any revised plan, and re-examine books of account and stocks before making any estimation of income for alleged non-production of books. These aspects were restored to the file of the AO for re-consideration with opportunity to the assessee to be heard.

Issues concerning excess construction, entitlement of deduction for the entire constructed area, and the AO's estimation of income are remitted to the Assessing Officer for detailed verification and fresh decision.

Final Conclusion: Tribunal upheld the assessee's entitlement to deduction under section 80IB(10) despite municipal permission being in the landowners' name, but remitted factual issues concerning excess constructed area, revised plans and the justification for estimation of income to the Assessing Officer for fresh consideration; both appeals disposed of as allowed for statistical purposes.

Determination of annual value under section 23(1) - the sum for which the property might reasonably be expected to let from year to year - actual rent received as annual value where it exceeds fair rent - comparison of rents between identical rooms and municipal ratable value - cross leasing arrangements as device to defeat tax

Determination of annual value under section 23(1) - actual rent received as annual value where it exceeds fair rent - cross leasing arrangements as device to defeat tax - comparison of rents between identical rooms and municipal ratable value - Whether the Assessing Officer and the Commissioner (Appeals) were justified in treating the actual rent of Rs. 5,89,600 received from M/s West Coast Construction Pvt. Ltd. as the annual value of the assessee's property instead of the lower license fee declared for other identical rooms. - HELD THAT: - The Tribunal found on the material on record that the assessee actually received rent of Rs. 5,89,600 in respect of rooms No.51 & 52 of the same size and in the same building, while rooms No.31 & 32 were shown as licensed at a much lower licence fee. The scheme disclosed a cross licensing pattern among flat owners which, on the facts, was designed to reduce tax liability and to defeat the law. Section 23(1) directs that annual value is the sum for which the property might reasonably be expected to let, but where the actual rent received by the owner in respect of a let property is in excess of that sum, the amount so received is to be taken. The municipal ratable value filed by the assessee exceeded the lower declared licence fee, supporting the conclusion that the declared lower amount was not the fair rent. Decisions relied upon by the assessee were distinguished on their facts because in those cases there was no evidence of non genuine transactions or the factual receipt of higher rent. On the basis of the assessee's own figures and the surrounding circumstances indicating an arrangement to suppress fair rent, the Assessing Officer and the Commissioner (Appeals) acted reasonably in treating the actual higher rent as the annual value.

The finding that the annual value should be based on the actual rent of Rs. 5,89,600 was upheld and the assessee's appeal in respect of the rental estimation was dismissed.

Final Conclusion: The Tribunal dismissed the appeal, upholding the treatment of the actual rent received from M/s West Coast Construction Pvt. Ltd. as the annual value of the property in view of the factual receipt of higher rent and the cross leasing arrangement designed to reduce tax.

Addition on unexplained investments - treatment of agricultural receipts as agricultural income or undisclosed income - addition under section 68 - verification of identity and creditworthiness of lenders - acceptance of banker records and contemporaneous bank clearing entries - partial allowance in reassessment and direction for computation starting with earlier assessment figure

Addition on unexplained investments - verification of sources and evidentiary burden - Deletion of addition of Rs. 81,29,522 made by the Assessing Officer treating 20% of total assets as unexplained investment - HELD THAT: - The Tribunal examined the AO's reliance on stamp duty/market value comparisons made by the CIT(A). It held that the AO/CIT(A) relied on presumed market values for stamp duty purposes and not on evidence showing that the assessee paid any extra undisclosed consideration for acquisition. The statutory amendment to treat stamp duty value as income (under section 56(1)(vii)(b)) applies only from assessment year 2014-15 and is therefore inapplicable to the assessment year before the Tribunal. In absence of material to show that the assessee paid any excess consideration, the ad hoc addition of 20% of total assets could not be sustained and was deleted. [Paras 6]

Addition of Rs. 81,29,522 is deleted.

Treatment of agricultural receipts as agricultural income or undisclosed income - verification of sources and evidentiary burden - Quantum of agricultural income to be accepted out of the claimed Rs. 35.25 lakhs - HELD THAT: - The assessee produced purchase deeds, fasli records and agreements showing receipts from persons cultivating the land. The AO's remand evidence contained statements with inconsistencies, which the Tribunal resolved in favour of the assessee (treating certain payments as monthly rather than annual). On the basis of statements about area given on batai and applying a reasoned per-bigha agricultural yield valuation (Rs. 20,000 per bigha per annum as the Tribunal's estimate), the Tribunal accepted agricultural income aggregating Rs. 14.00 lakhs out of the claimed Rs. 35.25 lakhs, rejecting the balance as not proved as agricultural income. [Paras 10]

Agricultural income of Rs. 14.00 lakhs is accepted; the balance claim is disallowed (ground partly allowed).

Addition under section 68 - verification of identity and creditworthiness of lenders - acceptance of banker records and contemporaneous bank clearing entries - Deletion of addition of Rs. 39.50 lakhs made treating unsecured loan from Shri C. P. Goel as unexplained - HELD THAT: - The assessee produced partial cheque details, bank statements of the lender showing clearing/credits and significant overdraft facilities. The lender furnished a written confirmation (with medical certificate explaining inability to appear) and the remand summons were served. The Tribunal held that the lender's identity and creditworthiness were established by his bank records (including overdraft and clearing entries) and by his confirmation to the AO; inability to produce further cheque particulars due to illness did not justify an adverse inference. Consequently, the addition under section 68 was not sustainable and was deleted. [Paras 17]

Addition of Rs. 39.50 lakhs under section 68 is deleted.

Addition on unsecured loans from banks - verification of sources and evidentiary burden - Deletion of balance addition of Rs. 12,41,524 sustained by CIT(A) in respect of unsecured loans - HELD THAT: - CIT(A) had accepted that major part of unsecured loans represented bank liabilities and confirmed only a residual addition. The Tribunal found that the remaining challenged sum also represented amounts outstanding from two banks and therefore held that the partial addition sustained by CIT(A) was unjustified and deleted the same. [Paras 21]

Addition of Rs. 12,41,524 is deleted.

Verification of sundry creditors and outstanding liabilities - acceptance of bank statements as evidence - Disposal of addition of Rs. 5,30,765 treated as sundry creditors/expenses payable - HELD THAT: - Bank statements filed in the paper book corroborated three specific outstanding amounts to banks; those three items were accepted. The remaining amount (approximately Rs. 2.10 lakhs) was found not traceable and was therefore sustained as addition. The Tribunal accordingly deleted the verifiable portion and confirmed the untraceable balance. [Paras 25]

Verifiable sundry creditors (totaling the deleted portion) are accepted; untraceable amount of Rs. 2.10 lakhs is confirmed (ground partly allowed).

Partial allowance in reassessment and direction for computation starting with earlier assessment figure - Direction to Assessing Officer to compute the reassessment order under section 147 starting from income assessed under the earlier section 143(3) order and to give effect to appellate reliefs - HELD THAT: - The Tribunal observed that in reassessment proceedings the AO ought to have started computation from the income already assessed under section 143(3). While the Tribunal treated the failure to do so as an irregularity (not a jurisdictional illegality), it directed that on giving effect to the appellate orders, the AO should commence computation in the section 147 order from the figure assessed under section 143(3), allow reliefs granted by the Tribunal and CIT(A), and thereafter make only those additions which were legitimately brought in under section 147 and confirmed. This procedural direction is given to ensure the addition of Rs. 35.25 lakhs does not reappear. [Paras 29]

AO directed to recompute the section 147 assessment beginning with the section 143(3) assessed income and to give effect to appellate adjustments; matter remitted for computation accordingly.

Challenge by Revenue to deletion of unsecured loans - Revenue's appeal against CIT(A)'s deletion of unsecured loans aggregating Rs. 1,28,83,028/- (and related reliefs) dismissed - HELD THAT: - The Tribunal noted that CIT(A) allowed relief insofar as loans were shown to be from banks, and that the Tribunal further deleted the small residual addition (see other issues). As the appellate relief related to bank-origin liabilities and the Tribunal found no infirmity in that conclusion, the Revenue's challenge was rejected. [Paras 34, 35]

Revenue appeal dismissed; deletions and adjustments made by CIT(A) and the Tribunal are upheld.

Final Conclusion: Both appeals of the assessee are partly allowed (deletions and partial admissions as set out above) and the Revenue's appeal is dismissed; the AO is directed to recompute the reassessment under section 147 starting from the income assessed under section 143(3) and to give effect to the appellate adjustments and directions of the Tribunal.

Commercial expediency - deduction of interest under section 36(1)(iii) - nexus between borrowed funds and advances - principle of judicial consistency - for the purpose of business (wider than earning profits) - onus on the assessee to prove use of borrowed funds for business purposes

Commercial expediency - deduction of interest under section 36(1)(iii) - for the purpose of business (wider than earning profits) - Allowability of interest on borrowed funds advanced as interest free loans/share application money to subsidiary/group companies where such advances are said to be made out of commercial expediency. - HELD THAT: - The Tribunal applied the ratio of S.A. Builders Ltd. (and subsequent authorities) that the test for allowance under s.36(1)(iii) is whether the advance was made as a measure of commercial expediency and not strictly whether the borrowed amount was used in the assessee's own trading operations. The court noted that the assessee, being a holding/investment company, had pleaded and produced material that the subsidiaries used the funds for their business and that the advances were motivated by commercial expediency; there was no finding by the Assessing Officer that the funds were not used for business purposes. Having examined the statutory scope of s.36(1)(iii) and relevant precedents, and having found the facts to be consistent with commercial expediency (including that major amounts were advanced in earlier years and the subsidiaries carry on identical business), the Tribunal held that interest attributable to the borrowed funds used for such advances was allowable and reversed the CIT(A)'s disallowance. [Paras 2]

Interest on the borrowed funds advanced to group/subsidiary companies was held to be allowable under s.36(1)(iii) as the advances were for commercial expediency; the disallowance was reversed.

Principle of judicial consistency - nexus between borrowed funds and advances - onus on the assessee to prove use of borrowed funds for business purposes - Whether the Revenue could sustain disallowance in the assessment year when identical claims in earlier year (A.Y. 2007-08) were accepted and no new adverse material was produced. - HELD THAT: - The Tribunal applied the principle of judicial discipline/consistency: where an identical view was taken by authorities in an earlier year (no disallowance in A.Y. 2007-08) and the Revenue has not brought forward any contrary material for the subject year, it is not appropriate to adopt a contrary stance. The court observed that no fresh facts were placed on record to rebut the assessee's case and reliance on earlier judicial decisions supporting the consistency principle was placed. While acknowledging that the onus to prove nexus lies on the assessee, the Tribunal found that, on the record before it, the consistency principle favoured the assessee and bolstered the conclusion that the advances were made out of commercial expediency. [Paras 2]

In absence of contrary material and given prior acceptance in A.Y. 2007-08, the Revenue could not sustain a contrary disallowance; the consistency principle supports allowing the interest.

Final Conclusion: The Tribunal allowed the assessee's appeal, holding that the interest on borrowed funds advanced to group/subsidiary companies was deductible under s.36(1)(iii) as the advances were made out of commercial expediency and, in view of prior acceptance for A.Y. 2007-08 and no fresh contrary material, the disallowance was reversed.

Right of cross-examination in quasi-judicial/adjudication proceedings - Relevancy of statements under Section 138B of the Customs Act, 1962 - Scope of admissibility of statements recorded by gazetted customs officers in non court proceedings - Prejudice caused by denial of opportunity to cross-examine - Judicial review of exercise of power under Section 138B

Right of cross-examination in quasi-judicial/adjudication proceedings - Relevancy of statements under Section 138B of the Customs Act, 1962 - Prejudice caused by denial of opportunity to cross-examine - Whether the adjudicating authority was justified in denying the petitioner an opportunity to cross-examine two persons whose statements were relied upon in the adjudication proceedings. - HELD THAT: - The Court examined Section 138B, which renders statements made and signed before a gazetted customs officer relevant in certain circumstances, and noted its parity with Section 9D of the Central Excise Act as interpreted by this Court. Prior decisions establish that when a statement is used against a noticee in quasi judicial proceedings, the noticee ordinarily is entitled to cross examine the maker of the statement unless the statutory exceptions (e.g., death, unavailability, incapacity or unreasonable delay/expense to procure presence) are established. Such exceptions must be objectively formed on sufficient material and reasons recorded. In the present case the Department relied substantially on the statements of the partners of the importer. The adjudicating authority's order declining cross examination did not demonstrate that any exception under Section 138B was made out, nor did it indicate any prejudice to the Department from permitting cross examination. Denial of the right in these circumstances was therefore contrary to the law as explained in the authorities relied upon by the Court. [Paras 13, 14, 15, 16, 17]

The order refusing the petitioner the opportunity to cross examine the two persons relied upon by the Department is set aside.

Scope of admissibility of statements recorded by gazetted customs officers in non court proceedings - Judicial review of exercise of power under Section 138B - What remedial directions should follow where a denial of cross examination is held contrary to law. - HELD THAT: - Having set aside the impugned refusal, the Court directed the adjudicating authority to provide the opportunity for cross examination forthwith. The Court specified a concrete timetable: the AA must fix a date within two weeks for the appearance of the persons for cross examination; the petitioner must complete cross examination within one week thereafter and without seeking adjournments; and the time for completing adjudication is extended by two months from the conclusion of cross examination. These directions implement judicial review by remanding the matter for compliance with the requirement of opportunity to test adverse statements in accordance with Section 138B and established precedents. [Paras 18, 19]

The matter is remitted to the adjudicating authority with directions to allow cross examination on the prescribed timeline and to complete adjudication within the extended period.

Final Conclusion: The High Court set aside the adjudicating authority's refusal to permit cross examination of two persons whose statements were relied upon; directed the authority to fix dates for their cross examination within two weeks and for completion within a further week, extended the adjudication period by two months from the conclusion of cross examination, and disposed of the writ petition accordingly.

Claim for refund under Section 27 of the Customs Act - maintainability of refund claim despite absence of an assessment order - effect of amendment to Section 27 with effect from 8th April 2011 - self-assessment and assessment order - requirement to entertain refund application and adjudicate on merits - limitation and payment under protest

Claim for refund under Section 27 of the Customs Act - effect of amendment to Section 27 with effect from 8th April 2011 - maintainability of refund claim despite absence of an assessment order - Whether refund claims filed by the importer for duties paid or borne are maintainable under Section 27 as amended with effect from 8th April 2011 even where no assessment order has been passed or no appeal has been filed against any assessment. - HELD THAT: - The Court held that the structure of Section 27 after the amendment of 8th April 2011 permits any person to claim refund of any duty or interest paid by or borne by him, without the conditionality that such payment must have been made pursuant to an assessment order. Once an application under Section 27(1) is made in the prescribed form, the Assistant/Deputy Commissioner is obliged under Section 27(2) to consider and determine whether whole or any part of the duty is refundable. Where an assessment order exists it will be a relevant material for the authority to consider, and if reviewed or modified on appeal that too will be taken into account; but the absence of an appeal against an assessment or the absence of an assessment order does not render a refund application non maintainable under the post amendment provision. The Court contrasted earlier decisions (which arose in the context of Section 27 as it stood prior to the amendment) with the amended statutory scheme and concluded that those decisions do not preclude entertaining a refund claim under the amended provision. [Paras 11, 12, 13]

Refund claims by a person who has paid or borne duty are maintainable under Section 27 as amended on 8th April 2011 even in the absence of an assessment order or an appeal.

Self-assessment and assessment order - requirement to entertain refund application and adjudicate on merits - Whether the Assistant Commissioner (Refund) was correct in rejecting the petitioner's refund applications on the ground that the bills of entry were already assessed and that the refund could not be maintained without review under Section 28 or modification in appeal. - HELD THAT: - The Court found that the Assistant Commissioner erred in treating clearance of goods upon filing of Bills of Entry and payment of duty as necessarily constituting an 'assessment order' for the purpose of denying the petitioner the right to seek refund. The Court observed that clearance after self assessment is not per se an assessment order in the pre amendment sense, and in any event the amended Section 27 requires authorities to entertain refund applications where duty was paid or borne. The Assistant Commissioner's reliance on earlier decisions that involved factual situations where assessment orders had been passed was misplaced in the present factual and statutory context. Accordingly the impugned orders rejecting the refund claims on maintainability grounds were set aside and the applications were restored for adjudication on merits. [Paras 7, 13, 14, 15]

The Assistant Commissioner's rejection on maintainability grounds was plainly erroneous; the refund applications are to be restored and decided on merits.

Limitation and payment under protest - claim for refund under Section 27 of the Customs Act - The effect of payment of duty 'under protest' on limitation and on the obligation of the authority to consider a refund claim. - HELD THAT: - The Court noted that the second proviso to Section 27(1) preserves the exception to the one year limitation where duty has been paid under protest, i.e., the time bar does not apply in that situation. However, whether or not duty was paid under protest does not affect the authority's obligation to entertain and determine a properly filed refund application under the amended Section 27; payment under protest only relates to the applicability of the one year limitation. The petitioner had not endorsed protest on the challans and therefore the claims must be treated as made in cases where duty was paid without protest, but this does not absolve the authority from deciding the refund applications on merits. [Paras 3, 11, 12]

Payment under protest affects only the one year limitation; regardless of protest, a properly filed refund application must be considered and adjudicated under Section 27 as amended.

Final Conclusion: The Court set aside the three orders dated 21st December 2015 rejecting the petitioner's refund claims for August 2014, September 2014 and October 2014, restored the applications to the Assistant Commissioner (Refund) and directed fresh adjudication on merits in accordance with law after hearing the petitioner.

Provisional release of goods - discretion of quasi-judicial authority under the Customs Act - invalidity of administrative circular curtailing adjudicatory discretion - bank guarantee for differential duty - security by bond equal to value of goods - auto-renewal clause and RBI guidelines for bank guarantees

Invalidity of administrative circular curtailing adjudicatory discretion - discretion of quasi-judicial authority under the Customs Act - Validity of Circular No. 34/2015-CI dated 29/30th December 2015 to the extent it mandates furnishing a bank guarantee equivalent to the differential duty in all cases of provisional release. - HELD THAT: - The Court held that the portion of the alert Circular which insists that the quasi-judicial authority must, in all cases of provisional release, impose a condition of a bank guarantee equivalent to the differential duty, impermissibly curtails the discretion vested in the authority exercising powers under the Customs Act. The DRI cannot, by issuing a circular, fetter or mandate a uniform condition that removes case-by-case exercise of discretion; therefore that part of the Circular cannot be given effect to. The Court proceeded on the basis of earlier judicial decisions brought to its notice in similar contexts, including the decisions in Navshakti Industries Pvt. Ltd. v. Commissioner of Customs, ICD, TKD, New Delhi and the modification by the Supreme Court in Commissioner v. Navshakti Industries Pvt. Ltd. , and held that administrative instructions cannot oust or unduly restrict judicial/quasi-judicial discretion in granting provisional release subject to appropriate conditions. [Paras 8]

The impugned portion of Circular No. 34/2015 which mandates a bank guarantee equivalent to differential duty in all provisional release cases is not to be given effect to.

Provisional release of goods - bank guarantee for differential duty - security by bond equal to value of goods - auto-renewal clause and RBI guidelines for bank guarantees - Relief to the petitioner in respect of provisional release of imported Areca Nuts and the conditions to be imposed for such release. - HELD THAT: - Applying the principles that provisional release may be granted subject to appropriate securities and drawing on the Court's earlier directions in analogous cases, the Court directed provisional release of the petitioner's goods on specified conditions. The petitioner is to execute a bond for an amount equivalent to 100% of the value of the goods and furnish a bank guarantee as security equal to 30% of the differential duty; the bank guarantee must contain an auto-renewal clause and conform to RBI guidelines. The order tailored the conditions to the facts of the petition rather than imposing the universal requirement contained in the impugned Circular. [Paras 9]

Provisional release allowed subject to execution of a bond equal to 100% of the value of the goods and furnishing a bank guarantee equal to 30% of the differential duty with an auto-renewal clause and as per RBI guidelines.

Final Conclusion: The Court set aside the mandatory aspect of the alert Circular insofar as it required a bank guarantee equivalent to differential duty in every provisional release case, and, on the facts of this petition, directed provisional release of the imported goods subject to a bond equal to the value of the goods and a bank guarantee equal to 30% of the differential duty (auto-renewal and RBI-compliant).

Renewal of registration under the Courier Imports and Exports (Clearance) Regulations, 1998 - show cause notice and opportunity of hearing - requirement of a speaking order and fresh decision-making - remand for fresh consideration in view of bona fide administrative error - remedy against ex-parte administrative action

Renewal of registration under the Courier Imports and Exports (Clearance) Regulations, 1998 - remedy against ex-parte administrative action - Validity of earlier orders passed without issuing a show cause notice and entitlement of the petitioner to fresh consideration of its renewal application - HELD THAT: - The respondents conceded that the earlier orders of 6th June, 2014 and 27th August, 2014 resulted from a bona fide error in dealing conjointly with an enquiry and the petitioner's renewal application. In view of that concession and the petitioner's grievance about having been proceeded against ex parte, the Court permitted the respondents to correct the error by issuing a fresh show cause notice and thereafter passing a speaking, composite order. The respondents undertook to furnish a show cause notice containing the relevant allegations and reference to material documents, and to afford the petitioner an opportunity to reply. The parties agreed that service on the petitioner's advocate with all annexures would suffice. The Court directed that the fresh decision on renewal would be taken afresh without being influenced by the observations and findings in the earlier orders, and that all contentions of the petitioner remain expressly open for adjudication. [Paras 10, 11, 12, 13, 14]

Respondents to issue a detailed show cause notice within four weeks, petitioner to file a detailed reply within four weeks of receipt, and respondents to pass a speaking composite order dealing with the prior enquiry and the renewal application within four weeks of receipt of the reply, applying their mind afresh and not being influenced by earlier orders; petition disposed of on these terms.

Final Conclusion: Writ petition disposed of by permitting respondents to set aside the consequence of earlier ex parte administrative action and to re-open the matter by issuing a show cause notice and thereafter passing a fresh speaking composite order on the renewal application after affording the petitioner an opportunity of reply; all contentions kept open.

Standards for food safety at time of release - Applicability of amended standards to pending imports - Regulatory nature of Food Safety and Standards Act standards - Protection of public health under Article 21 - Legitimate expectation subject to change of State policy

Standards for food safety at time of release - Applicability of amended standards to pending imports - Legitimate expectation subject to change of State policy - Whether the standards for aflatoxin applicable to imported betel nuts are those prevailing at the time of import or those prevailing at the time of release. - HELD THAT: - The Court held that an importer's right to bring in foodstuffs is subject to the State's regulatory policy and to standards framed under the FSS Act, which exist to protect public health rather than to confer rights on importers. Relying on constitutional imperatives concerning protection of life and health, the Court observed that standards may be amended in public interest and that an importer's legitimate expectation cannot override such changes. Consequently, when the law has changed by the date of release, the consignment must satisfy the standards in force at that time. The Court rejected the submission that the standard prevailing at importation (higher aflatoxin limit) should govern release, noting that the relevant point for reckoning compliance is the date of release when public-safety standards in force must be met. [Paras 6, 7, 8]

The standards in force at the time of release govern; the importer's consignments must meet the aflatoxin limit applicable on the date of release.

Final Conclusion: Writ petition dismissed; consignments must comply with the aflatoxin standard in force at the time of release.

Release of seized goods against bank guarantee - redemption fine and penalty - interim relief pending appellate proceedings - effect of appellate stay

Release of seized goods against bank guarantee - redemption fine and penalty - interim relief pending appellate proceedings - Permissibility of releasing the petitioners' seized finished leather goods on furnishing bank guarantees for the full amount of redemption fine and penalty while departmental appeals remain pending before the CESTAT. - HELD THAT: - The petitioners sought release of goods which had been seized and remained detained for over a year. The petitioners offered to furnish bank guarantees for the entire amounts of redemption fine and penalty as quantified in the Order in Original dated 5th February 2015. The Commissioner (Appeals) had earlier set aside the Orders in Original, but that relief was stayed by an order of the CESTAT. Balancing the petitioners' offer of adequate security and the fact of prolonged detention of finished goods, the Court directed release of the goods upon each petitioner furnishing a bank guarantee in favour of the Department for the entire amount of redemption fine and penalty as ordered in the Order in Original, while preserving the Department's appellate rights and subject to any further order the CESTAT may pass in the departmental appeals.

Upon furnishing bank guarantees for the full amounts of redemption fine and penalty as ordered on 5th February 2015, the goods shall be released to the petitioners, subject to any further order by the CESTAT.

Final Conclusion: Writ petitions allowed to the extent that the seized goods are to be released to each petitioner on furnishing bank guarantees for the full amount of redemption fine and penalty, the release being subject to any subsequent order that may be passed by the CESTAT in the pending appeals.

Applicability of proper custody powers under Section 451 Cr.P.C. - Distinction between proper custody (Section 451) and determination of the person entitled to possession (Sections 452/457) - Duty to report and produce seized property under Section 102(3) Cr.P.C. - Adjudicating Authority's power to release seized goods on bond under Section 110-A of the Customs Act

Applicability of proper custody powers under Section 451 Cr.P.C. - Whether Section 451 Cr.P.C. applied to the claims and order made by the court below at the stage when the seized property was produced - HELD THAT: - The court held that Section 451 Cr.P.C. governs orders as to the 'proper custody' of property produced before a criminal court during an inquiry or trial. In the present case the property was produced before the Magistrate pursuant to the police report under Section 102(3) Cr.P.C., but the stage of proceedings before the court below was neither an inquiry nor a trial. Consequently Section 451 Cr.P.C. had no application to authorize release of the property in the circumstances, and the court below ought not to have allowed claims under Section 451 Cr.P.C. [Paras 6, 9, 12]

Order releasing property under Section 451 Cr.P.C. by the court below is not in accordance with law.

Distinction between proper custody (Section 451) and determination of the person entitled to possession (Sections 452/457) - Which Cr.P.C. provision was the correct forum power for deciding custody/possession at the stage when the property was produced - HELD THAT: - The court explained the scheme: Sections 451 and 452 apply where property is produced during inquiry or trial (451 for proper custody pending conclusion; 452 on termination to decide entitlement to possession). Where seizure is reported to the Magistrate and property is produced but there is no inquiry or trial, Section 457 Cr.P.C. governs and the court must decide who is entitled to possession. Since this case did not involve an inquiry or trial before the Magistrate, the court below should have proceeded under Section 457 rather than Section 451. [Paras 6, 7, 8, 11, 12]

Question of custody/possession at that stage fell to be determined under Section 457 Cr.P.C., not Section 451 Cr.P.C.

Duty to report and produce seized property under Section 102(3) Cr.P.C. - Whether the police complied with their duty under Section 102(3) Cr.P.C. and the legal effect of production of the seized property before the Magistrate - HELD THAT: - The court found the police complied with Section 102(3) by promptly reporting the seizure to the nearest Magistrate and producing the seized property. Where property is produced under Section 102(3) and there is no inquiry or trial, the Magistrate retains jurisdiction to decide entitlement under Section 457 Cr.P.C.; production before the court does not deprive the court of the power to act under Section 457. [Paras 1, 2, 10, 11]

Police action in reporting and producing the property under Section 102(3) Cr.P.C. was proper; consequent proceedings should have been considered under Section 457 Cr.P.C.

Adjudicating Authority's power to release seized goods on bond under Section 110-A of the Customs Act - Availability of relief to the petitioner before the Customs Adjudicating Authority and effect of earlier observations by the Magistrate regarding smuggling - HELD THAT: - The court noted that the Customs Authorities had taken custody and initiated adjudication under the Customs Act. It observed that under Section 110-A the claimant may apply to the Adjudicating Authority for release of goods on furnishing bond and security, and the claimant must establish ownership before that Authority. Observations by the Magistrate characterising the gold as smuggled were premature and legally unsustainable, and should not influence the Adjudicating Authority. The court granted liberty to the petitioner to file an application under Section 110-A and directed the Adjudicating Authority to decide any such application expeditiously. [Paras 13, 14, 15, 16, 17]

Petitioner may approach the Adjudicating Authority under Section 110-A of the Customs Act to seek release on bond; prior observations by the Magistrate about smuggling are not binding on the Adjudicating Authority.

Final Conclusion: The court set aside the legal basis of the impugned release order under Section 451 Cr.P.C. (finding Section 451 inapplicable at that stage), held that entitlement should have been determined under Section 457 Cr.P.C., observed that custody is presently with Customs and that the petitioner may seek release under Section 110-A of the Customs Act, and directed the Adjudicating Authority to dispose of any such application expeditiously.

Just and equitable - conclusiveness of certificate of incorporation - summary jurisdiction of the company court - limitation on inquiry into disputed facts - availability of alternative remedies under Section 443(2) - duty of candour - disclosure of material facts by petitioner - winding up as a remedy of last resort

Just and equitable - winding up as a remedy of last resort - Whether the respondent-company should be wound up under Section 433(f) of the Act on the ground that it is just and equitable - HELD THAT: - The Court examined the scope of the "just and equitable" jurisdiction under Section 433(f) read with Section 443(2) and applied established principles that winding up is an extraordinary remedy and a last resort. The court emphasised that the interest of the company as a whole, including creditors, employees and the public, must be weighed and that mere allegations or grievances of individual members do not automatically justify winding up. Having considered the facts and rival contentions, and the existence of other statutory remedies, the Court found that petitioners had not established that winding up was the only available or appropriate remedy. [Paras 5, 6, 9, 23]

Winding up on the ground of "just and equitable" is not appropriate; petition dismissed on this ground

Conclusiveness of certificate of incorporation - Section 35 - Whether objections to legality or irregularity of incorporation can be entertained after issuance of certificate of incorporation - HELD THAT: - The Court held that once the Registrar has issued a certificate of incorporation, Section 35 renders that certificate conclusive evidence that the statutory requirements for registration and matters incidental thereto have been complied with. The Court relied upon established authorities to conclude that objections going behind the certificate of incorporation are impermissible in the company court proceedings for winding up and that incorporation enjoys statutory finality absent specific statutory exceptions. [Paras 11, 16, 19, 30]

Objections to the formation/registration of the company after issuance of the certificate of incorporation cannot be entertained; such conclusiveness bars the petitioners' challenge

Summary jurisdiction of the company court - limitation on inquiry into disputed facts - complex or disputed factual questions - Whether the company court should adjudicate contested, complicated or disputed questions of fact (e.g., genuineness of documents, validity of powers of attorney) in winding up proceedings - HELD THAT: - The Court reiterated that the company court exercises summary jurisdiction under the Act and is not the forum for in-depth adjudication of complicated or highly disputed factual issues which are more appropriately tried in a civil court. The court noted prior orders excluding disputed documents from consideration and emphasised that the company court should decline to decide intricate factual conflicts in a winding up petition. [Paras 24, 25, 31]

The company court will not adjudicate complicated or seriously disputed factual issues in these summary winding-up proceedings

Duty of candour - disclosure of material facts by petitioner - availability of alternative remedies under Section 443(2) - Whether the petitioners fulfilled their duty to disclose material facts and whether they unreasonably omitted available alternative remedies - HELD THAT: - The Court applied the principle that petitioners invoking Section 433(f) must disclose all material facts and alternative remedies available under Section 443(2). It found that the petitioners had not acted with the requisite candour: certain documents were not produced and earlier orders had excluded disputed documents from consideration. The Court also observed that alternative statutory remedies existed and that petitioners had not shown that winding up was the only efficacious remedy. [Paras 7, 33, 34]

Petitioners failed to discharge the duty of full disclosure and did not demonstrate that alternative remedies were exhausted or unavailable

Final Conclusion: The petition for winding up under Section 433(f) is dismissed: the certificate of incorporation is conclusive, the company court will not resolve complicated disputed factual issues in summary winding-up proceedings, petitioners failed to disclose material facts and alternative remedies exist, and winding up is not just and equitable in the circumstances.

Service tax on renting of immovable property - service provided in relation to renting of immovable property - interpretation of Section 65(105)(zzzz) of the Finance Act, 1994 - validity of Notification No.24/2007 - scope of levy of service tax on renting for use in the course or furtherance of business or commerce

Service tax on renting of immovable property - service provided in relation to renting of immovable property - interpretation of Section 65(105)(zzzz) of the Finance Act, 1994 - validity of Notification No.24/2007 - Whether Section 65(105)(zzzz) and Notification No.24/2007 permit levy of service tax on renting of immovable property as such or only on a service provided in relation to renting of immovable property, and whether the provision is constitutionally valid. - HELD THAT: - The Court applied its earlier decision in Cinemax India Limited and held that Section 65(105)(zzzz) (as introduced by the Finance Act amendments relied upon) and Notification No.24/2007 are to be construed as attracting service tax where the immovable property is rented for use in the course of or for the furtherance of business or commerce. The provision does not levy tax on mere renting for non-business uses falling within stated exclusions. The Court specified that the levy is not attracted in the following situations: (i) vacant land used solely for agriculture, aquaculture, farming, forestry, animal husbandry or mining; (ii) vacant land, whether or not having facilities incidental to such use; (iii) land used for educational, sports, circus, entertainment and parking purposes; and (iv) buildings used solely for residential purposes and buildings used for accommodation including hotels, hostels, boarding houses, holiday accommodation, tents and camping facilities. Applying that construction, the challenge to the constitutional validity of Section 65(105)(zzzz) was rejected and the impugned notification and circular were held to be within the scope of the statute as so construed. [Paras 44, 45]

Section 65(105)(zzzz) and Notification No.24/2007 are not unconstitutional; the service tax applies only where immovable property is rented for use in the course of or for furtherance of business or commerce, and the writ petitions are dismissed.

Final Conclusion: Writ petitions dismissed as covered by the Court's decision in Cinemax India Limited; rule discharged, interim relief vacated and no costs.

CENVAT credit on input services - use in or in relation to the manufacture of final products - outdoor catering services as eligible input service - prospective effect of exclusion notification - tribunal's duty to record findings of fact

CENVAT credit on input services - outdoor catering services as eligible input service - use in or in relation to the manufacture of final products - The assessee was entitled to avail CENVAT credit of service tax paid on outdoor catering services as input service for the period prior to 1.4.2011. - HELD THAT: - The Court upheld the Tribunal's allowance of the assessee's appeal and answered the substantial question against the Revenue. It relied on earlier decisions favouring assessees and observed that the Commissioner himself had recorded that the outdoor catering services were actually consumed by persons engaged in the assessee's business activities. Given that finding, the Court treated the services as input services within the ambit of CENVAT credit for the relevant period prior to the exclusion notification taking effect. [Paras 7, 10, 12]

Claim for CENVAT credit on outdoor catering services allowed for the period in question.

Tribunal's duty to record findings of fact - use in or in relation to the manufacture of final products - It was not necessary for the Tribunal to record a fresh finding of fact on consumption of the catering services because the Commissioner had already recorded that these services were consumed by the assessee's employees engaged in business activities. - HELD THAT: - The Court rejected the Revenue's contention that the Tribunal failed to apply its mind by not recording a specific factual finding under Rule 2(l). The Court noted that the Order in Original contained a clear finding (recorded by the Commissioner) that the services were consumed by employees engaged in the assessee's business, and therefore the absence of an independent finding by the Tribunal did not vitiate its decision. [Paras 10]

Absence of an explicit finding by the Tribunal did not invalidate allowance of credit where the Commissioner had recorded the relevant factual finding.

Prospective effect of exclusion notification - CENVAT credit on input services - The exclusion of outdoor catering services by Notification No.3/2011 (effective 1.4.2011) did not affect the liability for periods prior to 1.4.2011. - HELD THAT: - The Court observed that the notification excluding outdoor catering services came into effect from 1.4.2011 and the disputes related to periods antecedent to that date. Consequently, the exclusion could not be applied retrospectively to deny credit for the earlier period. [Paras 11]

Exclusion notification of 1.4.2011 inapplicable to the periods under adjudication.

Final Conclusion: The substantial questions of law raised by the Revenue were answered against it; the Tribunal's order allowing the assessee's claim for CENVAT credit on outdoor catering services for the periods in question is sustained and the civil miscellaneous appeal is dismissed.

Quashing of non-speaking order - requirement of speaking and reasoned order - remand for fresh consideration - hearing of parties before re adjudication

Quashing of non-speaking order - requirement of speaking and reasoned order - remand for fresh consideration - hearing of parties before re adjudication - Whether the Tribunal's order dated 9-1-2015 could be sustained where it disposed two cross appeals but recorded no consideration of one of the appeals and gave no reasons for allowing one and not the other. - HELD THAT: - The Court found from the face of the Tribunal's order that two appeals (ST/152/2012 and ST/189/2012) were pending and that the Tribunal's order disposed of both. The Tribunal's order discussed only the contentions of the respondent in one appeal and contains no consideration or reasons regarding the appeal preferred by the appellant. The absence of any discussion or reasoning on the appellant's appeal renders the Tribunal's order non speaking and unsustainable. In the circumstances the proper remedial course is to set aside the impugned order and remit the matter to the Tribunal to pass a fresh, reasoned and speaking order after hearing both parties afresh, without reference to the earlier order. The Court directed attendance before the Tribunal's Registrar to obtain dates for regular hearing and mandated that the fresh order should explain reasons for acceptance of one appeal and rejection of the other, as may be appropriate. [Paras 3, 5, 6, 7]

Impugned order dated 9-1-2015 set aside; matter remitted to the Tribunal for fresh hearing and a speaking, reasoned order after hearing both parties; parties directed to appear before the Registrar for listing.

Final Conclusion: The Tax Appeal is allowed: the Tribunal's order dated 9-1-2015 is quashed and the matter is remitted for fresh, reasoned disposal after hearing both parties; directions given for listing before the Tribunal's Registrar.

CENVAT credit on inputs or capital goods re-exported as such under bond - Reversal obligation under Rule 3(5) of the Cenvat Credit Rules, 2004 - Applicability of Board Circulars regarding non-reversal of credit on export of inputs as such - Penalty extinguished where duty liability does not survive

CENVAT credit on inputs or capital goods re-exported as such under bond - Reversal obligation under Rule 3(5) of the Cenvat Credit Rules, 2004 - Applicability of Board Circulars regarding non-reversal of credit on export of inputs as such - Whether CENVAT credit availed on imported inputs/capital goods which were found defective and subsequently re-exported as such under bond was required to be reversed under Rule 3(5) read with Rule 14 of the Cenvat Credit Rules, 2004 - HELD THAT: - The Tribunal held that Board Circular No. 283/117/96 dated 31.12.1996 clarifies that credit availed in RG-23A Part II against export of inputs as such under bond need not be reversed and that Circular No. 345/2/2000-TRU dated 29.08.2000 (para 8) and para 3.4 of Chapter 5 of the CBEC Manual reiterate that inputs or capital goods removed as such for export under bond can be re-exported without reversal of credit. The Tribunal found the facts distinguishable from the Supreme Court decision in M/s KCP Ltd., and followed the Tribunal precedents (including Zydex Industries) holding that where imported inputs/capital goods are re-exported on account of defect/quality and drawback or other export reliefs are available, the credit need not be reversed. Applying those circulars and precedents to the facts before it, the demand for reversal of CENVAT credit was held unsustainable. [Paras 6, 7, 8, 9, 10]

Demand for reversal of CENVAT credit in respect of imported inputs/capital goods re-exported as such under bond set aside.

Penalty extinguished where duty liability does not survive - Whether the penalty imposed pursuant to the demand for reversal of credit survives after the demand is set aside - HELD THAT: - The Tribunal observed that once the duty/credit implication does not subsist, the basis for the penalty also falls away. Consequently, having set aside the demand for recovery of credit, the concomitant penalty imposed by the adjudicating authority and sustained by the Commissioner (Appeals) was also set aside. [Paras 11]

Penalty imposed in the impugned orders set aside.

Final Conclusion: Appeals allowed; impugned orders set aside insofar as they demanded reversal of CENVAT credit on imported inputs/capital goods re-exported as such under bond and imposed penalties; consequential relief granted.

Interest on delayed payment of duty - computation of differential interest rates - appropriation of duty and interest payments - penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 - delayed payment under Rule 8 - mens rea for imposition of penalty

Interest on delayed payment of duty - computation of differential interest rates - appropriation of duty and interest payments - Whether the interest on delayed payment for the relevant clearances was correctly computed by applying 13% for the period up to 31.03.2011 and 18% thereafter, and whether the appellants are liable to pay the differential interest. - HELD THAT: - The Tribunal examined the payment dates and the statutory change in the rate of interest effective 01.04.2011. For the duty not paid for January, 2011, interest was correctly computed by the adjudicating authority at 13% up to 31.03.2011 for the initial period and at 18% for the remaining period until payment. The appellants' computation applied 13% for the entire delayed period for January, 2011, which did not take into account the statutory increase in rate from 01.04.2011. The adjudicating authority had appropriated amounts already paid by the appellants towards interest. The Tribunal found no merit in the appellants' contention and upheld the adjudicating authority's computation and appropriation. [Paras 5]

Demand of interest of Rs. 17,35,425/- is confirmed; since interest of Rs. 15,45,788/- was already paid and appropriated, the differential amount of Rs. 1,87,637/- is liable to be reversed.

Penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 - delayed payment under Rule 8 - mens rea for imposition of penalty - Whether penalty under Section 11AC was sustainable in view of the facts that the assessee, a 100% EOU, had filed ER-2 returns and subsequently paid the duty with interest before adjudication, and whether penalty under Rule 25 of CER was attracted. - HELD THAT: - The Tribunal noted that the appellant, being a 100% EOU, regularly filed ER-2 returns which disclosed duty payable while the column for duty paid was left blank. The non-payment was discovered by the department through those returns and proceedings ensued. The factual matrix established that the case was essentially one of delayed payment under Rule 8 and that payments (with interest) were made before the adjudication order. Given absence of mens rea or intention to evade duty, the Tribunal held that penalty under Section 11AC was not sustainable. However, since penalty had been proposed under Rule 25 of CER and the adjudicating authority imposed an equivalent penalty by invoking Section 11AC read with Rule 25, the Tribunal held that liability for penalty under Rule 25 remains. [Paras 5]

Penalty imposed under Section 11AC is set aside; the appellants are liable to penalty under Rule 25 of CER.

Appropriation of duty and interest payments - penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 - Extent of relief to be granted and consequential orders on confirmation of demand, interest and penalty. - HELD THAT: - The Tribunal upheld the adjudicating authority's confirmation of the duty demand and interest as computed and appropriated, but found the equivalent penalty under Section 11AC unsustainable for lack of intent to evade duty. The Tribunal quantified the consequence of setting aside Section 11AC penalty by imposing a penalty under Rule 25 of CER in substitution. The adjudicated and appropriated payments were taken into account in arriving at what remains payable. [Paras 6]

Impugned order upheld insofar as demand and interest are confirmed; equivalent penalty under Section 11AC set aside and penalty of Rs. 5,00,000/- imposed under Rule 25 of CER; appeal is partly allowed.

Final Conclusion: The Tribunal confirmed the duty demand and the interest computation (taking into account the change in statutory interest rate from 01.04.2011), dismissed the appellants' challenge to the interest computation, set aside the penalty under Section 11AC for lack of mens rea, and imposed a penalty under Rule 25 of CER of Rs. 5,00,000/-, thereby partly allowing the appeal.

Exemption under Notification 10/97 dated 01.03.1997 - scientific and technical apparatus for research purposes - DSIR registration and certification by an officer not below the rank of Deputy Secretary - use for general purposes versus use exclusively for research apparatus

Exemption under Notification 10/97 dated 01.03.1997 - scientific and technical apparatus for research purposes - use for general purposes versus use exclusively for research apparatus - Whether air conditioning units, condensing units, chillers and walk-in cold rooms supplied to a registered research institution attract exemption under Notification 10/97 dated 01.03.1997 - HELD THAT: - The Tribunal noted that Notification 10/97 grants exemption to specified goods supplied to public funded research institutions where the goods qualify as scientific and technical apparatus (including computers) for research purposes, and the institution is registered with the Department of Scientific and Industrial Research with certification by an officer not below the rank of Deputy Secretary that the institution is not engaged in commercial activity and that the goods are required for research. The respondent produced the requisite certificate and complied with the conditions of the Notification. Although the Revenue contended that the impugned goods were for general purpose use and not exclusively attached to any scientific instrument, the Tribunal relied on its earlier decisions holding that air conditioning and related equipment are not excluded and that exemption cannot be denied where the statutory conditions are satisfied. Applying those precedents and finding that all conditions of the Notification were fulfilled, the Tribunal found no infirmity in the Commissioner (Appeals) orders allowing the exemption. [Paras 7]

The exemption under Notification 10/97 dated 01.03.1997 is admissible for the impugned goods supplied to the registered research institution; the Revenue's appeal is dismissed and the Commissioner (Appeals) orders are upheld.

Final Conclusion: The Tribunal dismissed the Revenue's appeal, holding that the respondent complied with Notification 10/97 dated 01.03.1997 and is entitled to exemption on the impugned goods supplied to the registered research institution.

Valuation under Section 4 versus Section 4A (MRP/retail sale price based assessment) - Multi-piece package and applicability of Standards of Weights & Measures Rules exemption for packages below 10 g - Retail sale price declaration and wholesale package exception - Consequential refund claim arising from reclassification of valuation

Valuation under Section 4 versus Section 4A (MRP/retail sale price based assessment) - Multi-piece package and applicability of Standards of Weights & Measures Rules exemption for packages below 10 g - Retail sale price declaration and wholesale package exception - Correct basis of assessment of chewing tobacco packed in 6 g / 7 g pouches whether under Section 4 or under Section 4A (MRP / RSP based) by treating larger polythene packs as multi-piece packages. - HELD THAT: - The Tribunal affirmed the Commissioner (Appeals) finding that the small retail pouches of 6 g and 7 g are not governed by the SWM Rules for RSP declaration and therefore cannot be taken as multi-piece packages attracting Section 4A valuation. The larger polythene packets containing multiple such small pouches were held to be wholesale packages and not intended for retail sale; packages of net weight 10 gms or less are exempt from RSP declaration under the relevant Rules and clarifications by State Legal Metrology authorities. The Tribunal found no reason to disturb the Commissioner (Appeals) conclusion that the respondent sold the chewing tobacco by weight and that the impugned packs fall outside the RSP / multi-piece package regime, applying the settled principle that packages below the 10 g threshold are excluded from RSP based assessment. [Paras 6, 7, 8]

Assessment to be made under Section 4 and not under Section 4A; the packs are not multi-piece packages for RSP based valuation.

Consequential refund claim arising from reclassification of valuation - Refund consequential to reclassification of valuation - Whether the respondent was entitled to consequential refund following the Commissioner (Appeals) decision that valuation is under Section 4. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) allowance of the refund claim on the consequential reliefs flowing from the reclassification of valuation. The Commissioner (Appeals) had examined the documentation and was satisfied on both the legibility of documents and the respondent's proof that duty incidence was borne and not passed on to buyers. The Tribunal found no infirmity in those findings and agreed that consequential refund relief granted by the Commissioner (Appeals) was justified. [Paras 3, 6, 8]

Refund claim allowed by Commissioner (Appeals) on consequential basis is upheld.

Final Conclusion: Revenue appeals dismissed; Tribunal affirms that chewing tobacco in 6 g/7 g retail pouches (and larger wholesale packets containing them) are outside the RSP / multi-piece package regime and are to be valued under Section 4, and the consequential refund allowed by the Commissioner (Appeals) is sustained. Cross objections disposed of.

Mounting or fitting amounting to manufacture - extended period of limitation for suppression or misstatement - revenue neutrality and credit adjustment - penalty under Section 11AC of the Central Excise Act, 1944 - job work procedure under Notification No. 214/86

Mounting or fitting amounting to manufacture - extended period of limitation for suppression or misstatement - job work procedure under Notification No. 214/86 - revenue neutrality and credit adjustment - Whether the demand for central excise duty for the period April 2002 to July 2005 could be raised beyond the normal limitation period by invoking the extended period on the ground of suppression or misstatement, having regard to the facts that service tax was paid on mounting charges and the job-work procedure was followed. - HELD THAT: - The Tribunal noted that the appellant indisputably discharged service tax on the mounting charges and the Revenue accepted those payments without objection. The manufacturing and mounting activities were performed under two purchase orders and, in any event, the appellant operated under the job-work procedure envisaged by Notification No. 214/86. Extended limitation is available only where there is positive suppression or misstatement with malafide intention to evade duty. Given that duty on bodies was paid and that such duty was available as credit to the principal-customer, the Tribunal found no malafide suppression or intention to evade tax. Consequently a portion of the demand was held to be time-barred. The Tribunal, however, recognised that part of the alleged demand falls within the limitation period and therefore is not finally extinguished on limitation grounds. [Paras 6, 7]

A part of the demand is barred by limitation for lack of suppression or malafide; however, a remainder falls within limitation and is not finally adjudicated on merits.

Quantification and adjustment of duty with service tax credit - revenue neutrality and credit adjustment - Quantification of the portion of the duty demand that remains within the limitation period and the method of giving credit for service tax paid by the appellant on mounting charges. - HELD THAT: - The Tribunal remitted the matter to the original adjudicating authority to quantify the demand that falls within the limitation period. While determining the liability, the adjudicating authority is to give the appellant the benefit of service tax already discharged so as to neutralize liability to the extent of tax paid on mounting activities. The remand is for computation/quantification and adjustment rather than for fresh adjudication of suppression or malafide, which the Tribunal found absent. [Paras 7]

Matter remanded to the original adjudicating authority for quantification of duty within the limitation period and adjustment by giving credit for service tax paid.

Penalty under Section 11AC of the Central Excise Act, 1944 - extended period of limitation for suppression or misstatement - Whether penalty under Section 11AC should be sustained in view of alleged suppression or misstatement. - HELD THAT: - Having held that there was no malafide or positive suppression by the appellant-who had paid service tax on mounting charges, whose customers availed duty credit, and who operated under a job-work notification-the Tribunal found no justification for imposing penalty. The absence of fraudulent intent or concealment disentitled the Revenue from levying the penalty under Section 11AC. [Paras 8]

Penalty imposed under Section 11AC is set aside.

Final Conclusion: Part of the excise demand for April 2002 to July 2005 is time-barred for lack of suppression or malafide; the balance is remitted for quantification with direction to adjust liability by the service tax already paid; the penalty under Section 11AC is quashed.

Reversal of CENVAT credit on written-off inputs - Liability to reverse credit only on removal from factory premises - Retrospective operation of amendment inserting Rule 5B in Cenvat Credit Rules

Reversal of CENVAT credit on written-off inputs - Liability to reverse credit only on removal from factory premises - Retrospective operation of amendment inserting Rule 5B in Cenvat Credit Rules - Whether CENVAT credit availed on inputs written off as obsolete in accounts but physically lying in factory/stores for the period 2000-2003 was liable to be reversed - HELD THAT: - The Tribunal applied its earlier reasoning in Philips Electronics India Ltd. and other precedents to hold that Rule 3(5) (and the subsequently inserted sub-rule (5B) by Notification dated 11-5-2007) impose reversal obligations on removal of inputs from factory premises or where the written-off inputs are not physically available. The insertion of sub-rule (5B) came into force on 11-5-2007 and is not retrospective; the period under adjudication is 2000-2003. The show-cause notice itself admitted that the inputs removed from financial accounts continued to remain in stores awaiting removal, and there was no finding of physical non-availability or actual removal. On these facts, earlier decisions establish that no reversal or demand can be made merely because the inputs were written off in the books when the goods physically remain in the factory/stores; duty or reversal is exigible on actual removal. Consequently the demand based on non-use or write-off prior to 11-5-2007 could not be sustained. [Paras 5, 6]

Demand for recovery of CENVAT credit in respect of inputs written off in accounts but physically lying in stock for 2000-2003 is not sustainable; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that for inputs written off as obsolete but physically lying in factory/stores during 2000-2003 no reversal of CENVAT credit could be demanded; the amendment inserting Rule 5B (w.e.f. 11-5-2007) is not retrospective and does not apply.

Definition of "Capital goods" under the Cenvat Credit Rules, 2004 - Cenvat credit admissibility for goods falling under specified chapter/headings - prohibition on deciding new grounds not embodied in the show cause notice - requirement of opportunity to meet the case urged by Revenue

Definition of "Capital goods" under the Cenvat Credit Rules, 2004 - Cenvat credit admissibility for goods falling under specified chapter/headings - Wires and cables falling under Chapter 85 and refractory materials falling under Chapter 69 are capital goods within the meaning of the Cenvat Credit Rules, 2004, and Cenvat credit on them cannot be denied on the ground that they are not capital goods. - HELD THAT: - The definition of "Capital goods" in Rule 2(a)(A) of the Cenvat Credit Rules, 2004 expressly includes goods falling under Chapter 85 and refractories/refractory materials. On plain reading, the wires and cables (Chapter 85) are covered by sub-clause (A)(i) and refractories by sub-clause (v). Consequently, the goods in question fall within the statutory definition of capital goods and entitlement to Cenvat credit cannot be denied on the ground that they do not constitute capital goods. The tribunal therefore set aside the denial of credit made by the lower authorities on this basis. [Paras 6]

Credit allowed as the goods are capital goods within the statutory definition; impugned denial set aside.

Prohibition on deciding new grounds not embodied in the show cause notice - requirement of opportunity to meet the case urged by Revenue - The Commissioner (Appeals) could not sustain disallowance of Cenvat credit on a fresh factual ground (invoices showing two addresses) which was not raised in the show cause notice or adjudicated by the original authority. - HELD THAT: - The tribunal found that the Commissioner (Appeals) raised for the first time a subsidiary factual contention that invoices bearing two addresses meant the goods were not received in the appellant's factory. That contention was neither included in the show cause notice nor adjudicated by the original authority, nor was any investigation undertaken by the Revenue to establish that the goods were not received or used in the factory. Established authorities, as cited by the appellant, prohibit creating a new case against a party after issuance of the show cause notice and without giving the party an opportunity to meet that case. Since the appellant was not put on notice of this issue, it was impermissible for the Commissioner (Appeals) to deny credit on that basis. [Paras 6]

Fresh ground raised at appellate stage not permissible; denial of credit on that basis set aside.

Final Conclusion: The appeal is allowed: Cenvat credit on wires and cables (Chapter 85) and refractories (Chapter 69) is upheld as they are capital goods under the Cenvat Credit Rules, 2004, and the Revenue's attempt to deny credit on a fresh ground not raised in the show cause notice is rejected.

Pari passu charge - one time settlement - disbursement of sale proceeds by court registry - confirmation of sale pending challenge - return/undertaking obligation pending final adjudication - deposit to remain invested pending further orders

One time settlement - disbursement of sale proceeds by court registry - Permitting the applicant and opponent No.5 (IDBI) to give effect to their One Time Settlement and directing the Registry to issue a cheque in favour of Industrial Development Bank of India Limited out of sale proceeds lying with the Court pursuant to earlier order dated 15th January, 2009. - HELD THAT: - The Court recorded that the applicant and opponent No.5 have agreed a One Time Settlement crystallising the bank's dues at the stated amount and, having regard to the order dated 15th January, 2009 in Special Civil Application No.11524 of 2002 which governs disbursement of the sale proceeds, permitted the parties to give effect to their settlement. The Registry was directed to issue a cheque in the name of Industrial Development Bank of India Limited out of the funds lying with the Court, breaking the Fixed Deposit if required, so as to effect the settlement in accordance with the terms agreed between the parties. The direction implements the earlier scheme for disbursement while preserving the procedural framework established by the 15th January, 2009 order. [Paras 5]

Applicant and opponent No.5 are permitted to implement the One Time Settlement and Registry shall issue a cheque in favour of Industrial Development Bank of India Limited from the sale proceeds.

One time settlement - timing of disbursement - Timing obligations relating to the One Time Settlement and the obligation of opponent No.5 to issue a No Due certificate on receipt of payment. - HELD THAT: - The Court directed that, because the One Time Settlement fixed a deadline for acceptance, the Registry must ensure the cheque is issued on or before the prescribed date and that upon receipt of the specified amount opponent No.5 shall furnish a No Due certificate to the applicant within two weeks. These directions provide for prompt implementation of the settlement and an administrative timeline for verification and closure between the parties. [Paras 5]

Registry to issue the cheque on or before the settlement deadline and opponent No.5 to issue a No Due certificate within two weeks of receipt.

Deposit to remain invested - disbursement of sale proceeds by court registry - Disposition of the residual sale proceeds and requirement for Registry to report the status of the balance amount. - HELD THAT: - The Court ordered that the balance of the sale proceeds, after the directed disbursement, shall remain invested in the Fixed Deposit. Further consideration of the matter was adjourned and the Registry was directed to place the matter for further orders on the specified date, with a report regarding the status of the balance amount in the Fixed Deposit. This preserves the remaining funds pending any further adjudication or applications in terms of the earlier order. [Paras 5, 6]

Balance amount to remain invested in Fixed Deposit and Registry to submit a status report on the balance when the matter is placed for further consideration.

Disbursement of sale proceeds by court registry - Permissibility for opponent No.5 to obtain a copy of the Court's order for procedural compliance. - HELD THAT: - The Court expressly permitted opponent No.5-IDBI Bank to obtain a copy of the order to enable necessary procedural steps at its end while the Registry completes the required formalities for issuing the cheque. This facilitates the bank's administrative compliance with the settlement directions given by the Court. [Paras 7]

Opponent No.5 is permitted to obtain a copy of the order for necessary procedural action.

Final Conclusion: The High Court allowed implementation of the One Time Settlement between the applicant and IDBI by directing the Registry to disburse the specified amount from the sale proceeds (breaking the Fixed Deposit if necessary) by the settlement deadline, required issuance of a No Due certificate by IDBI on receipt, ordered the balance to remain invested with a Registry report on status to be placed for further consideration, and permitted IDBI to obtain a copy of the order for procedural purposes.