TaxTMI Updates e-Newsletter
Mar 20,2020

Penalty under section 129(3) for detention of goods in transit - updation of Part B of e-way bill on trans-shipment - opportunity of being heard under section 129(4) - penalty under section 122 for transporting taxable goods without cover of documents - relief for minor or procedural breaches and applicability of CBIC circulars

Penalty under section 129(3) for detention of goods in transit - updation of Part B of e-way bill on trans-shipment - Validity of tax and penalty levied under section 129(3) where goods were transshipped and the e-way bill part B was not updated at the time of inspection but was subsequently updated. - HELD THAT: - The Appellate Authority found no dispute as to quantity or existence of invoices and that the e-way bill had been generated on 05-11-2018. The goods were transshipped after the carrying vehicle broke down and the transporter updated part B of the e way bill thereafter. The authority below detained the vehicle and mechanically imposed tax and penalty under section 129(3) despite production of the corrected e way bill. The Appellate Authority concluded that there was no evidence of intention to evade tax or of changing vehicle to evade tax, and that the imposition under section 129(3) was therefore unsustainable in the circumstances. [Paras 7, 9, 11]

Order under section 129(3) setting out tax and penalty is set aside and the amount deposited under that order is directed to be refunded.

Opportunity of being heard under section 129(4) - Whether the determination under section 129(3) complied with the requirement of hearing under section 129(4). - HELD THAT: - The Appellate Authority observed that section 129(4) requires an opportunity of being heard before determining tax, interest or penalty under subsection (3). The authority below proceeded to levy tax and penalty without affording the statutory opportunity, and acted in haste in doing so. This failure was material to the conclusion that the levy under section 129(3) could not be sustained. [Paras 8, 9]

The determination under section 129(3) is vitiated for want of the opportunity of being heard prescribed by section 129(4).

Penalty under section 122 for transporting taxable goods without cover of documents - relief for minor or procedural breaches and applicability of CBIC circulars - Appropriate penalty for the procedural lapse of not updating the e-way bill at the time of inspection. - HELD THAT: - While the Appellate Authority found the transporter guilty of a procedural lapse in not updating part B before resuming the journey, it treated the breach as one warranting a lesser, statutory penalty rather than the tax/penalty under section 129(3). The authority referred to the penal provisions in section 122 and concluded that a moderate penalty was appropriate in view of absence of evasive intent and production of requisite documents. Consequently, a penalty under section 122(xiv) for transporting taxable goods without the cover of documents was imposed as the alternative statutory consequence. [Paras 10, 11]

A penalty of Rs. Ten Thousand is imposed on the taxpayer under section 122(xiv); the deposit made under section 129(3) shall be refunded.

Final Conclusion: The appeal is allowed: the order imposing tax and penalty under section 129(3) is set aside for want of substantive justification and failure to afford the hearing mandated by section 129(4); the sum deposited under that order shall be refunded, and a reduced penalty of Rs. Ten Thousand is imposed under section 122(xiv).

Transitional credit under Section 140 CGST Act - Rule 117 CGST Rules-time bar and limitation - technical glitches on GSTN portal and evidence requirement - GST Council/ITGRC certification for reopening portal - judicial compliance with earlier directions (Jodhpur Truck criteria) - vested right and limitation-Osram Surya principle

Transitional credit under Section 140 CGST Act - Rule 117 CGST Rules-time bar and limitation - technical glitches on GSTN portal and evidence requirement - judicial compliance with earlier directions (Jodhpur Truck criteria) - Entitlement to transitional credit where Form GST TRAN-1 was not filed within the time limit due to alleged technical glitches on the common portal. - HELD THAT: - The Court applied the specific parameters previously laid down by this Court (following Jodhpur Truck) which permitted offline or belated acceptance of TRAN 1 only upon satisfaction of three conditions: (i) failure to upload due to technical glitches on the common portal, (ii) the attempt was made during the currency of the transitional period, and (iii) GST Council recommendation/certificate. The petitioners' representations did not furnish material showing that attempts to upload TRAN 1 during the transitional period failed due to portal glitches. The GST Council/ITGRC considered system logs and classified the petitioners' cases as B 1 (no evidence in system logs of error or submission), and on that factual basis refused reopening. The Court held that, in view of the directions given and the factual finding by the respondents that there was no evidence of error or prior submission, the petitioners were bound by that outcome and could not be granted relief.

The petitions claiming entitlement to transitional credit despite non-filing of TRAN 1 because of alleged portal glitches were dismissed for failure to satisfy the Jodhpur Truck criteria and for lack of evidentiary proof of system error.

Vested right and limitation-Osram Surya principle - Rule 117 CGST Rules-time bar and limitation - Whether denial of credit on account of non-compliance with the time-limit under Rule 117 infringes any vested right of the petitioners who had paid the pre-GST duties. - HELD THAT: - Relying on the principle in Osram Surya, the Court reiterated that prescription of a limitation period does not take away vested rights but only prescribes the time within which those rights must be enforced. Since the constitutional validity of the limitation under Rule 117 and the second proviso to Section 140(1) had been upheld in earlier decisions, the petitioners' plea that their vested right was taken away by application of the time bar was rejected.

The plea of denial of a vested right by application of the limitation under Rule 117/Section 140 was negatived and could not support relief for the petitioners.

Final Conclusion: The writ petitions were dismissed: petitioners failed to demonstrate that they attempted and failed to upload Form GST TRAN 1 during the transitional period due to portal glitches and did not obtain the requisite GST Council recommendation; the time bar under Rule 117/Section 140 stands and the vested right argument is untenable.

Transitional input tax credit under GST transition - filing of Form GST TRAN-1 manually or electronically - extension of time for filing TRAN-1 due to technical difficulties on the common portal - relief where electronic portal failure prevents timely statutory filing

Transitional input tax credit under GST transition - filing of Form GST TRAN-1 manually or electronically - relief where electronic portal failure prevents timely statutory filing - Petitioners permitted to file Form GST TRAN-I electronically or manually on or before 31.03.2020 to claim transitional input tax credit. - HELD THAT: - The petitioners, who migrated to GST, sought to claim input tax credit on stock held upto 30.06.2017 by filing Form GST TRAN-I but were unable to do so due to technical failures and incorrect portal due-date display. The Court, relying on precedent and on Order No.01-2020 issued by the Central Government extending time for submitting TRAN-I for registered persons affected by technical difficulties, held that any credit admittedly due cannot be denied by reason of procedural or system glitches for which the petitioners are not at fault. In light of the factual position not disputed by the Advocate General and consistent decisions permitting similarly situated persons to file TRAN-I either electronically or manually, the Court directed respondents to allow filing of Form GST TRAN-I by the petitioners on or before 31.03.2020. The Court expressly refrained from adjudicating the merits of the petitioners' entitlement to the claimed input tax credit of excise duty and NCCD.

Respondents directed to permit filing of Form GST TRAN-I electronically or manually by 31.03.2020; no expression of opinion on the substantive entitlement to the claimed transitional ITC.

Final Conclusion: Writ petitions disposed directing respondents to allow the petitioners to submit Form GST TRAN-I, electronically or manually, on or before 31.03.2020; substantive entitlement to the claimed transitional credit left open.

Regular bail - consideration of nature and gravity of offence - conditions of bail - non-remand by investigating agency - cooperation with investigation - surrender of passport - undertaking against alienation of immovable properties - application of Sanjay Chandra on arrest and bail

Regular bail - consideration of nature and gravity of offence - non-remand by investigating agency - application of Sanjay Chandra on arrest and bail - Applicant enlarged on regular bail - HELD THAT: - The Court, after hearing counsel and perusing the record, held that the facts warranted exercise of discretion in favour of bail. The Court noted that the applicant had been under arrest since 6.12.2019 and was in custody for almost 90 days, the offences alleged attract maximum punishment of five years though the alleged wrongful availment of Input Tax Credit was beyond Rs.5 crores, and that the officers had not sought remand. Applying the law laid down in Sanjay Chandra, the Court observed that despite the gravity of allegations and without detailed discussion of evidence, the case was fit for enlargement on bail. The trial Court was directed not to be influenced by the prima facie observations made in this order. [Paras 5, 6, 8, 10]

Bail granted; applicant to be released on regular bail on execution of personal bond and surety subject to conditions.

Conditions of bail - cooperation with investigation - surrender of passport - undertaking against alienation of immovable properties - Bail subject to specified conditions - HELD THAT: - The Court imposed specific conditions as part of the bail order. These include execution of a personal bond with one surety of like amount, not misusing liberty or acting against prosecution interests, surrender of passport and prohibition on leaving India without trial court permission, weekly attendance with the investigating authority for two months and cooperation with investigation, disclosure and non-alienation of immovable properties by way of an undertaking to the Court and GST authority, and furnishing and not changing residence without prior permission. The Court also directed that the applicant will not be released if required in any other offence and that the Sessions Judge may take action on breach of conditions; the lower court may modify conditions in accordance with law. [Paras 8, 9]

Specified conditions to be complied with as a precondition for release on bail; courts retain power to modify or act on breaches.

Final Conclusion: Application allowed; applicant enlarged on regular bail on execution of bond and compliance with the stated conditions, subject to the trial Court's jurisdiction to modify conditions or act on any breach.

Integrated Goods and Services Tax on ocean freight - services supplied from a non-taxable territory - transportation of goods to customs station of clearance - unconstitutionality of notification - binding effect of Division Bench precedent

Integrated Goods and Services Tax on ocean freight - services supplied from a non-taxable territory - transportation of goods to customs station of clearance - unconstitutionality of notification - Whether tax under the Integrated Goods and Services Tax Act, 2007 is leviable on ocean freight for services provided by a person located in a non-taxable territory in respect of transportation of goods on a vessel from a place outside India up to the customs station of clearance in India, and whether the impugned notification is constitutionally valid. - HELD THAT: - A Division Bench of the High Court of Gujarat in R/Special Civil Application 726 of 2018 (Mohit Minerals Pvt. Ltd. vs. Union of India & 1 other(s)) held that no tax is leviable under the Integrated Goods and Services Tax Act, 2007 on ocean freight in respect of services provided by a person located in a non-taxable territory for transporting goods from a place outside India up to the customs station of clearance in India, and declared the impugned notification unconstitutional. The present writ petition is covered by that precedent, and the respondents do not dispute that coverage. Applying the binding effect of the Division Bench decision, the High Court allowed the writ petition on the same basis and gave effect to the declaration made in the Gujarat judgment.

Writ petition allowed as covered by the Division Bench decision; the impugned notification is declared unconstitutional insofar as it levies IGST on the described ocean freight services.

Final Conclusion: The writ petition is allowed, following the Division Bench decision of the Gujarat High Court that held no IGST is leviable on ocean freight for services provided from a non-taxable territory up to the customs station of clearance in India and that the impugned notification is unconstitutional.

Entitlement to rent under Order 15A of the Civil Procedure Code - tenant's liability to pay Goods and Services Tax on rent exceeding Rs. 20 Lakhs per annum - direction to deposit GST arrears and consequence of non-payment (striking off defence) - requirement to issue invoice under the GST Act, 2017 for rent and GST

Entitlement to rent under Order 15A of the Civil Procedure Code - Petitioners are entitled to rent for November 2018 which was omitted by oversight in the lower court's direction. - HELD THAT: - The lower court's order acknowledged in paragraph 5 that petitioners were entitled to rents for November 2018, but its operative direction mistakenly began from December 2018. This omission was a patent error in an order passed under Order 15A CPC. The High Court holds that the petitioners are therefore also entitled to the rent for November 2018 and corrects the oversight by directing inclusion of that month's rent in the relief granted. [Paras 3, 4]

The order below is corrected to include entitlement to rent for November 2018 in favour of the petitioners.

Tenant's liability to pay Goods and Services Tax on rent exceeding Rs. 20 Lakhs per annum - direction to deposit GST arrears and consequence of non-payment (striking off defence) - requirement to issue invoice under the GST Act, 2017 for rent and GST - Respondents (tenants) are liable to pay GST at 18% on the monthly rent and must deposit arrears from November 2018; failure will attract striking off of defence. - HELD THAT: - The Court accepts petitioners' contention that where annual rent exceeds Rs. 20 Lakhs, liability to pay GST on rent is fastened on the tenant under the GST Act, 2017. Given the admitted monthly rent, annual rent exceeds the threshold and therefore respondents must pay tax @18% on the admitted monthly rent to the competent authority. The Court directs monthly payment of GST going forward, payment of GST arrears from November 2018 into the court file within four weeks, and stipulates that in default the respondents' defence is liable to be struck off. The petitioners are to issue invoices showing rent and GST for arrears and future payments; amounts deposited by respondents may be withdrawn by petitioners for transmission to the competent authority. [Paras 5, 6, 7]

Respondents directed to pay GST @18% monthly on the admitted rent and to deposit arrears from November 2018 within four weeks, failing which their defence may be struck off; petitioners to issue invoices and transmit collected GST to the competent authority.

Final Conclusion: Civil Revision Petition allowed: the lower court's order is corrected to include rent for November 2018; respondents/tenants are directed to pay GST @18% on the admitted monthly rent, deposit arrears from November 2018 within four weeks, and comply with invoice and remittance directions, with failure attracting striking off of defence; miscellaneous petitions closed, no order as to costs.

Regular bail under Section 439 CrPC - exercise of judicial discretion in grant of bail - nature and gravity of offence - conditions of bail - non-misuse of liberty and cooperation with investigation - precedent of Sanjay Chandra (2012) regarding grant of bail

Regular bail under Section 439 CrPC - nature and gravity of offence - exercise of judicial discretion in grant of bail - conditions of bail - precedent of Sanjay Chandra (2012) regarding grant of bail - Applicant entitled to regular bail subject to conditions prescribed by the Court. - HELD THAT: - Having regard to the facts, the Court exercised its discretion under Section 439 CrPC to enlarge the applicant on regular bail. The Court noted (a) the applicant's arrest on 21 January 2020 and that about 52 days had elapsed without a complaint being filed by the investigating officer; (b) the charge under Section 132(1)(c) of the Central Goods and Services Tax Act, 2017 (offence punishable up to five years) with alleged wrongful availment of input tax credit beyond Rs. 5 crores; and (c) that although the applicant was arrested by departmental officers, no remand was sought. While observing the nature and gravity of the allegations, the Court-relying on the law in Sanjay Chandra-declined to discuss the evidence in detail and concluded that the balance of considerations favoured release on bail. The grant was made on execution of personal bond with one surety and on specified conditions including surrender of passport, prohibition on leaving India without prior permission, periodic attendance before the investigative agency, furnishing and not changing residence without permission, an undertaking restraining alienation of immovable properties and cooperation with investigation; breach of conditions would render the applicant liable to arrest or other action by the trial court.

Application allowed; applicant released on regular bail subject to execution of bond and the enumerated conditions, with liberty for the trial court to vary conditions and to act on any breach.

Final Conclusion: The High Court allowed the bail application and ordered release of the applicant on regular bail subject to specified conditions, while leaving the trial court free to enforce, modify or relax those conditions and noting that its prima facie observations shall not influence the trial.

Typographical/clerical error in tax invoice and E-way Bill - penalty under Section 129(3) for contravention of E-way Bill rules - treatment of minor errors in E-way Bill in light of CBIC Circular No. 64/38/2018-GST and State Circular - absence of mens rea / no intention to evade tax - imposition of nominal penalty under Section 125 in lieu of proceedings under Section 129

Typographical/clerical error in tax invoice and E-way Bill - penalty under Section 129(3) for contravention of E-way Bill rules - treatment of minor errors in E-way Bill in light of CBIC Circular No. 64/38/2018-GST and State Circular - imposition of nominal penalty under Section 125 in lieu of proceedings under Section 129 - Whether a two digit typographical error in the vehicle number on both the tax invoice and the E way Bill justified initiation of proceedings and imposition of tax/penalty under Section 129(3), or whether the case fell within the circulars' dispensation attracting nominal penalty under Section 125. - HELD THAT: - The appellate authority found that the mismatch in vehicle number (HP17B 1790 vs HP17B 4290) was a typographic error made while issuing the tax invoice and generating the E way Bill, with no dispute as to quantity, quality or validity of the E way Bill. The authority applied the guidance in CBIC Circular No. 64/38/2018 GST and the State circular, which identify situations of minor errors in E way Bill/details where proceedings under Section 129 need not be initiated and prescribe imposition of nominal penalty under Section 125. The Proper Officer had imposed the penalty under Section 129(3) in a mechanical manner and did not establish intention to evade tax or any material consequence arising from the digit error. In view of these findings the additional demand under Section 129(3) was held unsustainable and substituted with the nominal penalty prescribed by the circulars. [Paras 7, 8, 9, 10]

Order under Section 129(3) set aside; additional demand refunded; nominal penalty under Section 125 (as per the circulars) imposed.

Absence of mens rea / no intention to evade tax - penalty under Section 129(3) for contravention of E-way Bill rules - Whether mens rea (intention to evade tax) was present and necessary for sustaining the penalty imposed. - HELD THAT: - The authority examined the respondent's contention invoking the mens rea principle but found no substantial evidence to demonstrate deliberate intention to evade tax or that the appellant changed vehicle details to obtain extended validity or to conceal the consignment. The factual matrix - admission of a clerical mistake, correct GSTIN, no dispute on goods or E way Bill validity, and absence of proof of manipulation - led the authority to conclude there was no guilty mind and that the case was one of actus (a typographical error) rather than mens rea. Consequently, the imposition of a heavier penalty under Section 129(3) was not justified. [Paras 7, 9]

No mens rea established; heavier penalty under Section 129(3) not sustained.

Final Conclusion: The appeal succeeds: the detention/seizure penalty under Section 129(3) is quashed and refunded; a nominal penalty under Section 125 is imposed in accordance with the CBIC and State circulars due to a typographical error in vehicle number and absence of intent to evade tax.

International transaction - advertising, marketing and publicity (AMP) expenses - bright line test (BLT) - onus on the Revenue to show existence of an international transaction - remand to Assessing Officer/Transfer Pricing Officer (AO/TPO)

International transaction - advertising, marketing and publicity (AMP) expenses - bright line test (BLT) - onus on the Revenue to show existence of an international transaction - remand to Assessing Officer/Transfer Pricing Officer (AO/TPO) - Whether, in view of the coordinate Bench decision for AY 2010-2011, a substantial question of law arises permitting interference with the ITAT order which remanded the question of AMP-related transfer pricing to the AO/TPO for determination of the arm's length price for AY 2011-12. - HELD THAT: - The Division Bench applied its earlier reasoning in the assessee's own case for AY 2010-2011, where this Court held that the BLT is not an appropriate basis for treating excess AMP expenditure as an international transaction and emphasized that the Revenue must first discharge the initial burden of proving the existence of an international transaction with the associated enterprise. In that earlier decision the Court found the TPO's conclusion rested solely on the BLT and was therefore unsustainable; remand for determination of ALP was unwarranted where no factual foundation demonstrated that AMP expenditure benefited the AE. Applying those principles, the Court found no substantial question of law to entertain the revenue's challenge to the ITAT order for AY 2011-12 and concluded that the coordinate Bench's binding reasoning forecloses interference.

No substantial question of law arises; appeal dismissed.

Final Conclusion: The appeal under Section 260A for AY 2011-12 is dismissed as no substantial question of law arises in view of the Division Bench's earlier decision holding that BLT is not a valid basis for treating AMP expenditure as an international transaction and reiterating that the Revenue must first prove the existence of such an international transaction.

Remand order compliance - remand for verification of classification and quantification - depreciation on energy measuring meters as energy saving devices - availability of higher rate of depreciation where asset falls within specified schedule entry - integral/inextricable part doctrine

Remand order compliance - remand for verification of classification and quantification - Whether the Tribunal should have directed the Assessing Officer to act strictly in terms of its earlier remand order and whether the matter should be remanded for compliance with that order. - HELD THAT: - The Court agreed with the revenue that although the Tribunal had found that electronic/energy meters qualified for higher depreciation, the Tribunal failed to ensure that the Assessing Officer (AO) dealt with the specific matters referred back by the remand dated 05.10.2015. The Court held that the outstanding questions framed by the remand (including the extent of meters qualifying as energy saving devices and the question of bus bars being integral to meters) remained undetermined. Consequently, the Court answered in favour of the revenue and remanded the matter to the AO with a direction to strictly comply with the remand order, particularly paragraphs 12 to 12.5 of the order dated 05.10.2015, limiting the AO's consideration strictly to the scope of that remand.

Matter remanded to the Assessing Officer with a direction to act strictly in terms of the Tribunal's remand order dated 05.10.2015 (paras. 12-12.5 of that order) and to decide only the issues referred in that remand.

Depreciation on energy measuring meters as energy saving devices - availability of higher rate of depreciation where asset falls within specified schedule entry - Whether the assessee was entitled to claim depreciation at the rate of 80% on electronic/energy meters. - HELD THAT: - The Court recorded that the Tribunal had already held that electronic/energy meters falling within the relevant entries of the depreciation schedule were entitled to depreciation at 80% and that this conclusion was upheld by this Court in related proceedings. The Tribunal's earlier remand recognized that the schedule treats electricity/energy measuring meters as energy saving devices and that specific features (such as Time of Day meters) attract the higher rate. The Court accepted that the assessee had demonstrated entitlement to claim depreciation at 80% on electronic/energy meters and that the AO could not reopen the core conclusion that such meters qualify for the higher rate; however, the AO was directed to verify and quantify the extent of meters that are electronic/energy meters in accordance with the remand.

Entitlement to 80% depreciation on qualifying electronic/energy meters upheld; AO to verify and allow 80% depreciation only on those meters after complying with the remand.

Integral/inextricable part doctrine - remand for verification of classification and quantification - Whether the 'bus bar chamber' forms an integral/inextricable part of the meters and is therefore eligible for higher depreciation claimed with the meters. - HELD THAT: - The Tribunal in its remand had directed the AO to examine the assessee's claim that the 'bus bar chamber' is a device through which connections are provided to meters and thus forms an integral part without which the meter cannot function. The Court observed that the AO had not examined this issue in terms of the remand. The Court therefore directed that the AO must verify the claim that the bus bar chamber is integral to the meters and decide the entitlement to higher depreciation on that basis after affording the assessee an opportunity of being heard.

Issue remanded to the AO to verify whether the bus bar chamber is an integral/inextricable part of the meters and to allow depreciation accordingly after hearing the assessee.

Final Conclusion: Appeal disposed of by remanding the matter to the Assessing Officer for strict compliance with the Tribunal's remand dated 05.10.2015 (paras. 12-12.5), directing verification and quantification of meters entitled to 80% depreciation and examination of whether bus bar chambers are integral to the meters.

Efficiency gain - commercial profits vs clear profits - accrual and appropriation of revenue - statutory limitation on appropriation by licensee - Chapter VI-A deduction on profits enhanced by disallowance - administrative binding effect of CBDT Circular No.37/2016

Efficiency gain - commercial profits vs clear profits - statutory limitation on appropriation by licensee - Taxability of amounts characterised as 'efficiency gain' where the licensee is bound by statutory/ regulatory scheme in respect of utilisation of such amounts. - HELD THAT: - The Tribunal applied the ratio of Poona Electric Supply Co. Ltd. (distinguishing the CIT(A)'s contrary view) and examined the statutory scheme under the Delhi Electricity Reforms Act, 2000, the GNCTD notification and DERC orders. Those instruments obliged the licensee to follow a mechanism whereby only 50% of additional revenue from AT&C loss reduction becomes regular taxable income while the balance 50% (the 'efficiency gain') is to be considered by DERC for future tariff fixation and cannot be freely appropriated by the licensee. On that factual and legal basis the Tribunal held that the efficiency gain does not form part of the assessee's real profit for taxation purposes, applying the distinction between commercial profits and clear profits recognised in Poona Electric. The High Court found the Tribunal's application of that ratio to the facts proper and not susceptible to interference. [Paras 5]

Addition on account of de-recognised revenue/efficiency gain rejected; amount excluded from taxable profits.

Chapter VI-A deduction on profits enhanced by disallowance - administrative binding effect of CBDT Circular No.37/2016 - Whether disallowances made by the Assessing Officer, which enhance business profits, preclude claim of deduction under Chapter VI-A (specifically Section 80IA) on the enhanced profits. - HELD THAT: - The Tribunal relied on CBDT Circular No.37/2016 which, after surveying High Court decisions, records the settled position that disallowances related to the business activity against which a Chapter VI-A deduction is claimed result in enhancement of the profits of the eligible business and that deduction under Chapter VI-A is admissible on the profits so enhanced. The Tribunal therefore treated the controversy as academic in view of the Circular and allowed the assessee's claim, subject to the reservation that parties remain free to contest if a superior court denies Section 80IA. The High Court found no perversity in the Tribunal's view and accepted the CBDT circular as settling the issue. [Paras 6, 7]

Deduction under Section 80IA allowed on profits enhanced by disallowance in view of CBDT Circular No.37/2016; issue held academic and resolved in favour of assessee.

Final Conclusion: The High Court dismissed the Revenue's appeal in respect of AY 2009-2010, upholding the Tribunal's exclusion of the efficiency gain from taxable income and its allowance of Chapter VI-A deduction on profits enhanced by disallowance in view of CBDT Circular No.37/2016.

Principles of natural justice - reliance on extraneous material not on record - production of additional evidence before the Tribunal - power of the Tribunal under Section 255(6) read with Section 131 - remand for fresh consideration

Reliance on extraneous material not on record - principles of natural justice - The Tribunal's use of a 'Google study' not on the record without placing it before the parties and the consequent breach of the principles of natural justice. - HELD THAT: - The Court examined the impugned ITAT order and found that the Tribunal had relied upon a Google study to reach its factual conclusion that certain machines were not air pollution control equipment. That Google research was not part of the record and was not put to either the assessee or the Revenue. The Court observed that adherence to the principles of natural justice is implied in the statutory scheme and that a party must be given an opportunity to rebut fresh evidence or research which the Tribunal proposes to rely upon. The Court also considered the statutory framework permitting the Tribunal to call for additional evidence (Rules 29 and 30 of the Income Tax [Appellate Tribunal] Rules, 1963) and the Tribunal's powers under Section 255(6) read with Section 131, noting that those provisions contemplate procedures for taking additional evidence but do not justify covert reliance on material not placed before the parties. On these grounds the Court held that the Tribunal's reliance on the unproduced Google study without affording notice or opportunity to the parties was impermissible and vitiated the impugned decision. [Paras 8, 9, 10]

Findings based on the Google study not on record are set aside as violating the principles of natural justice; Substantial Questions of Law Nos.1 and 2 answered in favour of the assessee.

Production of additional evidence before the Tribunal - remand for fresh consideration - power of the Tribunal under Section 255(6) read with Section 131 - Whether the matter should be remanded to the Tribunal for fresh consideration in view of the procedural infirmity. - HELD THAT: - Having held that the Tribunal acted on material not placed on record and did not afford the parties an opportunity to rebut that material, the Court concluded that the appropriate remedy was to remand the relevant appeals to the ITAT for fresh adjudication. The Court observed that Rules 29 and 30 provide the mechanism for production and mode of taking additional evidence and that the Tribunal, if it requires further material, must proceed by those provisions and afford parties an opportunity. In consequence, the Court set aside the ITAT order insofar as the appeals relating to Assessment Year 2012-13 and directed the Tribunal to hear the matters afresh and afford appropriate opportunity in accordance with law. [Paras 11, 12]

Impugned ITAT order set aside insofar as ITA Nos.1675/Chny/2017 and 1711/Chny/2017 (Assessment Year 2012-13); matters remanded to the Tribunal for fresh consideration and adjudication.

Final Conclusion: The Tax Case Appeals are partly allowed: the ITAT's reliance on a Google study not on the record violated natural justice and the related findings are set aside; appeals for Assessment Year 2012-13 are remanded to the Tribunal for fresh consideration in accordance with Rules 29 and 30 and the Tribunal's statutory powers.

Addition on account of undisclosed purchases - addition of unexplained expenditure as commission - onus on assessee to substantiate purchases and deliveries - third party statement and need for corroboration - reopening assessment and notice under section 148 with supply of reasons

Addition on account of undisclosed purchases - onus on assessee to substantiate purchases and deliveries - third party statement and need for corroboration - Whether purchases shown in books from identified parties amounting to undisclosed/accommodation entries could be treated as unexplained and added back to income. - HELD THAT: - The Tribunal found that the Assessing Officer received independent information and a sworn statement of a third party admitting issuance of accommodation sale bills without supply of goods. In view of that information the assessee was required to discharge the onus of proving actual receipt and movement of goods to its factory at Gurgaon. The assessee produced copies of purchase bills, goods received notes and payment cheques but failed to produce confirmations from the sellers, transport documentation (LRs, mode of transport, freight evidence) or any means to correlate the alleged purchases with the excess stock found at survey. Mere production of bills, GRNs and cheques, in the face of a specific adverse third party admission and absence of delivery/transport corroboration, was held insufficient to rebut the Assessing Officer's finding. The Tribunal therefore sustained the addition treating the purchases as accommodation entries and unexplained purchases for both assessment years, dismissing the assessee's challenge. [Paras 3]

Addition on account of undisclosed/accommodation purchases upheld and ground dismissed.

Addition of unexplained expenditure as commission - third party statement and need for corroboration - onus on assessee to substantiate purchases and deliveries - Whether commission charged by the assesssing authority as expenditure for arranging accommodation entries could be treated as unexplained and added to income. - HELD THAT: - The Assessing Officer levied addition of commission at the rate admitted by the third party as the commission earned for supplying accommodation bills. The assessee did not produce independent evidence to show that such commission related to bona fide transactions or that the underlying purchases were genuine and accompanied by delivery. Given the third party admission of providing accommodation entries and the assessee's failure to produce confirmations or transport/ delivery evidence, the Tribunal agreed with the lower authorities that the commission represented unexplained expenditure connected to bogus/accommodation purchases and was liable to be added. [Paras 3]

Addition of unexplained expenditure by way of commission upheld and ground dismissed.

Final Conclusion: Both appeals are dismissed; additions on account of alleged accommodation/undisclosed purchases and the related commission were sustained for assessment years 2002-03 and 2003-04.

Penalty under section 271E for repayment in cash - Repayment in cash contravening section 269T and purpose of section 269SS/269T - Reasonable cause and discretion under section 273B - Genuineness of transactions and identification of lenders as defence to penalty - Quasi criminal nature of penalty and requirement of culpability for levy of penalty

Penalty under section 271E for repayment in cash - Repayment in cash contravening section 269T and purpose of section 269SS/269T - Genuineness of transactions and identification of lenders as defence to penalty - Validity of imposition of penalty under section 271E for cash repayments aggregating to Rs.5,80,000 where repayments were recorded in books and lenders identified - HELD THAT: - The Tribunal found that the repayments made by the assessee during the relevant year were recorded in the books of the assessee and in the books of the recipients, and the recipients confirmed the transactions. The statutory purpose of sections 269SS/269T - to prevent explanation of unaccounted money as loans/deposits - is not offended where transactions are bona fide and the identity and source are established. Reliance on CBDT explanatory circular and precedents was applied to hold that, on the facts, there was no element of concealment or tax evasion that the provisions seek to prevent. Consequently, the mere contravention of the mode of payment provision did not, in the factual matrix of this case, justify sustaining the penalty under section 271E. [Paras 6, 8, 9]

Penalty under section 271E imposed for the cash repayments set aside and deleted.

Reasonable cause and discretion under section 273B - Quasi criminal nature of penalty and requirement of culpability for levy of penalty - Applicability of section 273B and exercise of discretion not to impose penalty where reasonable cause exists - HELD THAT: - The Tribunal applied section 273B and related judicial authorities to conclude that penalty proceedings are quasi criminal and require culpable, deliberate or dishonest conduct to justify imposition. Where a taxpayer establishes reasonable cause - here, that repayments were made to relatives/friends in exigent circumstances and were bona fide and recorded - the authority has jurisdictionary discretion to refrain from imposing penalty. The assessee's explanation of bona fides and inability to pay by account payee instruments was accepted as reasonable cause, and the discretion was exercised in favour of the assessee. [Paras 6, 8, 9]

Penalty not leviable in view of established reasonable cause and the Tribunal's exercise of discretion under section 273B; penalty deleted.

Final Conclusion: The appeal is allowed; the penalty of Rs.5,80,000 imposed under section 271E for cash repayments in Assessment Year 2013-14 is deleted on findings that the transactions were bona fide, lenders were identified and reasonable cause existed, warranting the exercise of discretion under section 273B.

Penalty under Section 271(1)(c) - Notice under Section 274 - Concealment of income - Furnishing inaccurate particulars of income - Requirement of specific grounds for penalty - Principles of natural justice

Notice under Section 274 - Penalty under Section 271(1)(c) - Requirement of specific grounds for penalty - Concealment of income - Furnishing inaccurate particulars of income - Principles of natural justice - Validity of penalty proceedings where the notice under Section 274 does not specify whether the allegation is concealment of income or furnishing of inaccurate particulars of income, and consequence for penalty under Section 271(1)(c). - HELD THAT: - The Tribunal applied the reasoning in CIT v. Manjunath Cotton & Ginning Factory and found that the notice issued by the Assessing Officer under Section 274 alleged that the assessee "has concealed the particulars of his income or has furnished inaccurate particulars of such income", which is vague and does not specify the limb of Section 271(1)(c) relied upon. The Karnataka High Court's conclusions (para 63) require that the notice under Section 274 should specifically state the grounds under Section 271(1)(c) so that the assessee knows the particular charge to be met; a printed form listing all possible grounds is insufficient and principles of natural justice are offended if the assessee is not informed of the specific ground. The Tribunal distinguished the cited ITAT decision (Shri P. M. Abdulla) because in that case the relevant column for concealment had been ticked by the AO, whereas in the present case the typed notice remained ambiguous. Applying these principles, the Tribunal held that initiation of penalty proceedings on a vague notice did not meet the statutory and procedural requirements and accordingly the penalty could not be sustained. [Paras 4, 5, 6]

Penalty under Section 271(1)(c) deleted as the notice under Section 274 failed to specify whether the allegation was concealment of income or furnishing inaccurate particulars, thereby violating the requirement of specific grounds and principles of natural justice.

Final Conclusion: The assessee's appeal is allowed and the penalty imposed under Section 271(1)(c) is deleted for want of a specific and valid notice under Section 274; the Tribunal followed the Karnataka High Court's guidance requiring clear specification of the limb of Section 271(1)(c) relied upon.

Disallowance of interest expenses for funds not applied to business/use of borrowed funds - Unexplained cash credit under section 68: identity, creditworthiness and genuineness - Onus of assessee to prove genuineness and burden shifts to Revenue on primary proof - Payments through banking channel as evidentiary support for genuineness

Disallowance of interest expenses for funds not applied to business/use of borrowed funds - Onus of assessee to prove genuineness and burden shifts to Revenue on primary proof - Whether the disallowance of interest expenses amounting to Rs. 24,30,617/- should be deleted on the ground that interest bearing funds were not used for non business purposes - HELD THAT: - The Tribunal held that the onus was on the assessee to justify by documentary evidence that interest expenses related to funds borrowed for business purposes and were not diverted to non business use. The assessee failed to produce sufficient documentary evidence to establish that tax payments were made out of interest free funds rather than from interest bearing borrowings. The assessee also made contradictory submissions before the CIT(A) regarding whether interest was paid on loans from Master Developers, undermining its claim. In absence of proof that the interest bearing funds were applied to business, the disallowance made by the AO and confirmed by the CIT(A) was sustained by the Tribunal. [Paras 15, 16, 17]

Disallowance of interest expenses of Rs. 24,30,617/- confirmed; ground of appeal on this issue dismissed.

Unexplained cash credit under section 68: identity, creditworthiness and genuineness - Payments through banking channel as evidentiary support for genuineness - Onus of assessee to prove genuineness and burden shifts to Revenue on primary proof - Whether the sum of Rs. 7,45,00,000/- advanced to the assessee by M/s Master Developers could be treated as unexplained cash credit under section 68 - HELD THAT: - The Tribunal analysed whether the assessee had discharged the primary onus under section 68 by proving identity of the lender, genuineness of the transaction and the lender's capacity. The assessee produced ledger copies, confirmations and bank statements showing the transaction was routed through banking channels; subsequent returns filed by M/s Master Developers declaring substantial income were also placed on record. The Tribunal found the ledger and bank evidence, together with confirmations and the returns filed by MD, sufficient to establish identity and genuineness and to indicate MD's capacity; once primary onus was discharged, the burden lay on Revenue to disprove the transaction, which it had not done. The Tribunal criticised the lower authorities for treating unsigned printouts as having no evidentiary value while ignoring the bank statements and confirmations and for not making available relevant documents that were in departmental possession. [Paras 38, 40, 41, 44, 45]

Addition of Rs. 7,45,00,000/- as unexplained cash credit under section 68 set aside; ground of appeal on this issue allowed.

Final Conclusion: The appeal is partly allowed: the addition treating the Rs. 7,45,00,000/- loan from M/s Master Developers as unexplained cash credit under section 68 is deleted, but the disallowance of interest expenses of Rs. 24,30,617/- is sustained.

Disallowance under section 14A and Rule 8D in banking companies - Treatment of bank investments as stock in trade for tax purposes - Record of satisfaction for invoking section 14A/Rule 8D - Deduction under section 36(1)(vii) - method of computation of profits from eligible business and remand for fresh examination - Deduction under section 36(1)(viia) - computation of average advances of rural branches and reliance on census data - Deductibility of provision for leave encashment and section 43B(f) - Taxability of unclaimed/stale drafts and cessation of liability under section 41(1) in light of Depositor Education and Awareness Fund scheme - Deductibility of ex gratia payments - Accrual of interest on non performing assets (NPAs) for taxability

Disallowance under section 14A and Rule 8D in banking companies - Treatment of bank investments as stock in trade for tax purposes - Record of satisfaction for invoking section 14A/Rule 8D - Whether disallowance under section 14A read with Rule 8D could be made in respect of exempt income arising from investments held by the assessee bank. - HELD THAT: - The Tribunal held that investments made by a banking concern are incidental to the business of banking and are to be treated as part of stock in trade for tax purposes, so that income from such investments is business income. Applying the principles in State Bank of Patiala and subsequent coordinate bench and ITAT decisions, the Tribunal found that Section 14A applies only to expenditure incurred to earn exempt income and, where securities constitute stock in trade and the income is business income, no expenditure is incurred 'in relation to' exempt income. The Tribunal also noted that the appellate authority had recorded satisfaction under Rule 8D, but on the merits followed precedents holding that Rule 8D disallowance is not permissible in the case of banks where investments are part of business trading portfolio; accordingly the disallowance was deleted.

Disallowance under section 14A/Rule 8D deleted; assessee's appeal allowed on this ground.

Deduction under section 36(1)(vii) - method of computation of profits from eligible business and remand for fresh examination - Whether the deduction claimed under section 36(1)(vii) was correctly computed and allowable as claimed by the assessee. - HELD THAT: - The Tribunal observed that the assessee had adopted different methods of computation across years and that earlier years' method had been remitted by the ITAT to the Assessing Officer for fresh examination. Given the inconsistency in methods adopted by the assessee for the relevant years and absence of satisfactory explanation or uniform method, the Tribunal found it appropriate to remit the matter to the Assessing Officer for fresh examination in accordance with law. The assessee was directed to place all material and the AO was permitted to make appropriate enquiries and give effective opportunity before passing a fresh order.

Issue remitted to the Assessing Officer for fresh examination; corresponding grounds of appeal remitted.

Deduction under section 36(1)(viia) - computation of average advances of rural branches and reliance on census data - Admissibility and computation of deduction claimed under section 36(1)(viia) in respect of advances made by 'Rural Branches'. - HELD THAT: - The Tribunal noted that the CIT(A) had not decided the matter on merits, having recorded that computation of average aggregate advances to rural branches required verification (some branches claimed as rural may not meet the statutory definition) but that even after exclusion the claimed amount might still be admissible. The Tribunal accepted the assessee's evidence regarding census data release dates and concluded that since the CIT(A) had not adjudicated the issue, it should be remitted back to the CIT(A) for decision on merits after the assessee places relevant material and after affording opportunity to the parties.

Remitted to the CIT(A) for fresh adjudication on merits; grounds treated as partly allowed for statistical purpose.

Deductibility of provision for leave encashment and section 43B(f) - Whether the assessee was entitled to allow an additional deduction in respect of provision for leave encashment over and above the amount claimed on actual payment basis. - HELD THAT: - The Tribunal noted that the assessee had itself disallowed the provision under section 43B(f) in its return and claimed deduction on actual payment basis. The CIT(A) dismissed the assessee's claim for the additional amount, and the Tribunal observed that earlier coordinate bench decisions and controlling precedents did not support the assessee's contention. The assessee conceded that the tribunal had decided this issue against it in its own case and no reason existed to interfere with the CIT(A)'s order.

Assessee's grounds in respect of leave encashment dismissed; no interference with CIT(A).

Taxability of unclaimed/stale drafts and cessation of liability under section 41(1) in light of Depositor Education and Awareness Fund scheme - Whether amounts in stale draft/unclaimed balances are exigible to tax as income of the bank. - HELD THAT: - Relying on a coordinate bench decision in the assessee's own case and considering the Depositor Education and Awareness Fund Scheme, the Tribunal accepted that the amounts classified as stale drafts/unclaimed balances were not taxable as income where the bank had not written off the liability and the amounts remained trading liabilities. The Tribunal rejected the Revenue's reliance on T.V. Sundaram Iyengar as distinguishable and upheld the deletion by the CIT(A).

Revenue's appeal dismissed; disallowance on stale drafts/unclaimed balances deleted.

Deductibility of ex gratia payments - Whether the ex gratia payments disallowed by the AO were deductible. - HELD THAT: - Following a coordinate bench decision in the assessee's earlier case, the Tribunal concluded that the ex gratia payments were deductible and that the CIT(A) correctly deleted the disallowance. The Tribunal found the precedents relied upon by Revenue distinguishable and upheld the CIT(A)'s order in favour of the assessee.

Revenue's grounds against deletion of ex gratia payment dismissed; deletion upheld.

Accrual of interest on non performing assets (NPAs) for taxability - Whether interest on NPA accounts accrues to the bank and is taxable in the year under consideration. - HELD THAT: - The Tribunal followed the Supreme Court decision in Vasisth Chay Vyapar Ltd. and coordinate decisions in the assessee's own case, holding that interest on NPAs cannot be said to have accrued to the assessee for taxability purposes. Accordingly, additions made by the AO in respect of interest on NPAs were deleted.

Addition on account of interest on NPAs deleted; assessee's appeal allowed on this point.

Final Conclusion: For assessment year 2012 13 the Tribunal allowed the assessee's appeal insofar as disallowance under section 14A/Rule 8D was deleted; upheld deletions made by the CIT(A) in respect of stale drafts/unclaimed balances, ex gratia payments and interest on NPAs; dismissed the assessee's claim on leave encashment; and remitted the disputed issues relating to deductions under section 36(1)(vii) and section 36(1)(viia) for fresh examination by the Assessing Officer / CIT(A) as directed. The appeals are treated as partly allowed for statistical purposes.

Eligibility for deduction under Section 80P(2) read with sub section (4) - Assessing Officer's duty to inquire into the factual activities of a co operative society despite registration certificate - Classification for each assessment year to be determined separately - Treatment of interest income from investments as banking activity for assessment purpose - Rectification under Section 154 where substantive adjudication requires fresh factual enquiry

Eligibility for deduction under Section 80P(2) read with sub section (4) - Assessing Officer's duty to inquire into the factual activities of a co operative society despite registration certificate - Classification for each assessment year to be determined separately - Whether the claim of deduction under Section 80P(2) could be finally denied by the Commissioner (Appeals) under Section 154 without referring the matter back to the Assessing Officer to examine the activities of the society for each assessment year. - HELD THAT: - The Tribunal held that the Larger Bench of the Kerala High Court in The Mavilayi Service Co operative Bank Ltd. v. CIT requires the Assessing Officer to conduct an inquiry into the factual activities of the assessee society when adjudicating claims under Section 80P in light of sub section (4). The Division Bench decision in Chirakkal, which treated the registration certificate as conclusive of eligibility, was overruled by the Larger Bench which relied on the Apex Court precedent in Citizen Co operative Society. Each assessment year is a separate unit and eligibility under Section 80P must be verified year wise. The CIT(A) erred in denying the claim by way of rectification under Section 154 without allowing the Assessing Officer to examine and determine whether the assessees' activities conformed to those of the class of societies entitled to deduction. Accordingly the issue of deduction under Section 80P(2) is restored to the file of the Assessing Officer for factual examination and decision in accordance with the law laid down by the Larger Bench. [Paras 7]

The matter of entitlement to deduction under Section 80P(2) is restored to the Assessing Officer for enquiry into the activities of the assessee societies and determination year wise; CIT(A)'s rectification denial is set aside.

Treatment of interest income from investments as banking activity for assessment purpose - Assessing Officer's duty to examine activities before granting deduction on such income - Whether interest income from investments with treasuries and banks should be treated and examined for deduction under Section 80P. - HELD THAT: - The Tribunal noted a coordinate Bench decision holding that interest earned from investments with treasuries and banks forms part of banking activity and is assessable as business income. However, grant of deduction under Section 80P on such interest income must follow the Larger Bench's ruling in Mavilayi, requiring the Assessing Officer to examine the assessee's activities before allowing deduction. Therefore, while the characterisation as banking activity is endorsed, entitlement to deduction on that income is to be determined after the factual enquiry directed above. [Paras 7]

Interest from investments may be treated as banking/business income, but allowance of deduction under Section 80P on such income is remitted to the Assessing Officer for examination of the assessee's activities in accordance with the Larger Bench ruling.

Final Conclusion: Appeals allowed for statistical purposes by restoring the question of entitlement to deduction under Section 80P(2) to the Assessing Officer for year wise factual enquiry; issues regarding interest income similarly remitted for determination; stay applications dismissed as infructuous.

Reverse indexation - indexed cost of acquisition - fair market value as on 1st April 1981 as basis for indexation - treatment of cost of acquisition under section 55(2) read with section 49(1) and section 48 - disallowance under section 14A read with rule 8D

Reverse indexation - indexed cost of acquisition - fair market value as on 1st April 1981 as basis for indexation - treatment of cost of acquisition under section 55(2) read with section 49(1) and section 48 - Assessee's claim for computation of cost of acquisition by reverse indexation instead of adopting FMV as on 1st April 1981 for computing long term capital gain. - HELD THAT: - The Commissioner (Appeals) allowed indexation benefit by treating the FMV as on 1st April 1981, as determined by the registered valuer, as the cost of acquisition. The Tribunal observed that the assessee had furnished a registered valuer's report fixing FMV as on 1st April 1981; consequently, the cost for indexation must follow the statutory scheme under section 48 read with section 49 and section 55(2). No method of reverse indexation is provided by the relevant provisions and the reverse indexation contended for by the assessee is contrary to the statutory framework. Reliance placed on decisions permitting reverse indexation was distinguished on facts (either mutual acceptance of method by parties or absence of FMV as on 1.4.1981). When FMV as on 1.4.1981 is available, there is no reason to discard it merely because an alternate (more beneficial) reverse-indexation computation is available to the assessee. [Paras 8]

Assessee's claim for reverse indexation rejected; FMV as on 1st April 1981 (as per registered valuer) to be adopted for indexed cost of acquisition.

Disallowance under section 14A read with rule 8D - nexus between expenditure and exempt income - Validity of the Assessing Officer's disallowance under section 14A r/w rule 8D by applying a notional percentage despite assessee's claim that no expenditure was attributable to exempt income. - HELD THAT: - The Tribunal noted that the assessee is a full time professional and maintained that all expenses in the profit and loss account related to the professional activity, with no part attributable to investments yielding exempt dividend. The Assessing Officer recorded no specific satisfaction nor reasoned finding identifying expenditure attributable to exempt income and applied the rule mechanically to disallow 0.5% of average investment. Absent cogent reasoning to rebut the assessee's claim and given no organized investment activity was shown, the notional disallowance under rule 8D(2)(iii) could not be sustained. Decisions cited by the assessee were found to support deletion of such mechanically applied disallowance. [Paras 12]

Disallowance made under section 14A read with rule 8D deleted.

Final Conclusion: Appeal partly allowed: the claim for reverse indexation is rejected and FMV as on 1st April 1981 is to be adopted for indexation; the disallowance under section 14A r/w rule 8D is deleted.

Penalty under Section 271(1)(b) for non-compliance of statutory notices - Effect of completion of assessment under Section 143(3) on levy of penalty for earlier default - Reasonable cause defence to imposition of penalty - Service of show-cause notice and opportunity of hearing in penalty proceedings

Penalty under Section 271(1)(b) for non-compliance of statutory notices - Effect of completion of assessment under Section 143(3) on levy of penalty for earlier default - Whether penalty under Section 271(1)(b) is sustainable where the assessment was ultimately completed under Section 143(3). - HELD THAT: - The Tribunal found that the assessment in the appeals was completed under Section 143(3). Consistent with earlier coordinate-bench decisions relied upon, where the Assessing Officer, in the body of the assessment order, records that the assessee had furnished the information called for and proceeds to pass an order under Section 143(3) (and not under Section 144), such subsequent compliance in the assessment proceedings is to be treated as good compliance. Under those facts, the default earlier alleged cannot be characterised as wilful or deliberate to sustain a penalty under Section 271(1)(b). Applying that principle to the present cases, the Tribunal held that imposition of penalty was patently wrong and directed deletion of the penalty.

Penalty under Section 271(1)(b) cancelled because assessment was completed under Section 143(3), treating subsequent compliance as good compliance.

Final Conclusion: Following the concluded finding that assessments were completed under Section 143(3) and in view of co-ordinate bench precedents treating such completion as acceptance of subsequent compliance, the appeals are allowed and the penalties under Section 271(1)(b) for assessment years 2005-06, 2010-11 and 2012-13 are deleted.

Revenue expenditure versus capital expenditure - royalty payment for use of technical information - technical collaboration / licence agreement and its terms - admissibility of documentary evidence and rectification of filing error - principle of consistency in successive assessments - RBI liberalisation - automatic route for royalty remittance

Revenue expenditure versus capital expenditure - royalty payment for use of technical information - technical collaboration / licence agreement and its terms - admissibility of documentary evidence and rectification of filing error - principle of consistency in successive assessments - RBI liberalisation - automatic route for royalty remittance - Whether the royalty payment of Rs. 31,11,900/- is allowable as revenue expenditure or is capital in nature for Assessment Year 2006-07, and whether the documentary record (later agreement/original signed copy) filed at appeal stage could be considered. - HELD THAT: - The Tribunal examined the nature and terms of the technical collaboration agreements between the assessee and the foreign licensor and the factual matrix showing that royalty was paid only on those sales where the licensor's technical assistance was actually availed. Although different versions of the agreement were placed before the Assessing Officer and the Commissioner (Appeals), the assessee explained that an earlier agreement was filed before the AO by mistake while the later, operative agreement (dated 01.04.2005) bearing signatures of both parties was available with the licensor and was produced before the CIT(A) and the Tribunal (original also produced). The Tribunal accepted that the operative agreement thus furnished should be considered. On the merits, the Tribunal found that the payment was made for technical assistance used in manufacturing specific products for a limited period (the agreement contained temporal and usage-linked terms), the payment had been treated as revenue expenditure in earlier and subsequent assessment years, the TPO made no adverse adjustment, and the Assessing Officer in later years allowed similar claims. Further, the agreement was entered into after RBI liberalisation permitting royalty payments under the automatic route, removing regulatory objection. Having regard to the true terms of the operative agreement, the limited and use linked character of the assistance, the consistency of treatment in other years and lack of adverse transfer pricing or regulatory findings, the Tribunal concluded that the royalty related to the carrying on of business and was revenue in nature. [Paras 8, 9, 10]

Royalty payment of Rs. 31,11,900/- is allowable as revenue expenditure for AY 2006-07; the operative agreement produced on appeal is admissible and is to be taken into account.

Final Conclusion: Appeal allowed; Assessing Officer directed to allow the royalty expenditure as revenue expenditure for Assessment Year 2006-07.

Not fit and proper - disqualification of directors - public interest - appointment of government nominees to the board - officer in default - dual condition under Section 242

Disqualification of directors - not fit and proper - appointment of government nominees to the board - public interest - Validity of the Tribunal's order disqualifying certain past directors and permitting the Central Government to nominate up to three directors to the board of '63 Moons Technologies Limited'. - HELD THAT: - The Appellate Tribunal upheld the Tribunal's finding that the affairs of the company and its subsidiary were conducted in a manner prejudicial to public interest, and that certain persons (Respondent Nos. 2, 3 and 4) were not fit and proper to hold office as directors. In consequence, the part of the Tribunal's order permitting the Government to nominate not more than three directors to the board of the company was also sustained. The court treated the findings concerning the conduct of the exchange, the forensic audit report and the consequent impact on public confidence as supporting the conclusion that intervention was necessary to protect stakeholder and public interest. The Committee earlier constituted was permitted to continue supervision of the matter. [Paras 46, 47, 49, 54]

The impugned order is upheld insofar as it disqualifies Respondent Nos. 2, 3 and 4 as not fit and proper and permits nomination of up to three Government directors; the Committee is allowed to supervise the matter.

Not fit and proper - disqualification of directors - officer in default - Whether Respondent Nos. 9, 10, 11, 13, 14, 15 and 16 were rightly declared as not fit and proper persons and disqualified from holding office. - HELD THAT: - The Appellate Tribunal found that the Tribunal's record as to the dates and capacity in which these respondents were functioning contained discrepancies. After verification of appointment records placed before this Tribunal, it concluded that the part of the impugned order declaring these seven persons as not fit and proper and ineligible to hold directorships was not sustainable. Accordingly, the appeals filed by these respondents were allowed and the declaration of unfitness and disqualification insofar as they were concerned was set aside. [Paras 53, 54]

The declarations and disqualifications of Respondent Nos. 9, 10, 11, 13, 14, 15 and 16 are set aside and their appeals are allowed.

Dates of appointment - remand for verification - Reconsideration of the status and dates of appointment of certain directors where the Tribunal's records and appellants' pleadings conflicted. - HELD THAT: - The Tribunal identified material disputes about whether certain persons were serving as directors prior to 31st July, 2013. The Appellate Tribunal directed that the Tribunal should reconsider those matters to determine whether the persons were engaged in any capacity in the company before that date. If found to have been appointed only after 31st July, 2013, they would be entitled to the same treatment as persons who joined the board after the suspension of trading. The remand is limited to verification of the capacity and dates of engagement and consequential relief. [Paras 53]

The matter is remanded to the Tribunal for fresh consideration limited to verification of dates and capacities of appointment of the disputed directors; if appointed after 31-7-2013, they are to be treated as having joined post-suspension.

Final Conclusion: The Appellate Tribunal affirmed the Tribunal's disqualification of certain past directors (Respondent Nos. 2, 3 and 4) and the grant to the Government to nominate up to three directors, set aside the declaration of unfitness and disqualification in respect of seven other respondents (Respondent Nos. 9, 10, 11, 13, 14, 15 and 16) and remanded limited issues of verification of appointment dates/capacity to the Tribunal; the Committee was permitted to continue supervision.

Corporate Insolvency Resolution Process - operational debt and default - demand notice under section 8(1) of the Insolvency & Bankruptcy Code, 2016 - service of demand notice by e-mail - absence of dispute / ex parte hearing - proof of unpaid debt by invoices and bank statement - compliance with section 9(3)(b) and section 9(3)(c) - admission of application under section 9 - moratorium under section 14 of the Insolvency & Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - public announcement and submission of claims under section 15 - direction to deposit preliminary expenses in ESCROW

Operational debt and default - proof of unpaid debt by invoices and bank statement - The Operational Creditor proved existence of operational debt and default for the claimed amount. - HELD THAT: - The Tribunal found that goods were sold and delivered to the Corporate Debtor as evidenced by the two invoices (Exhibit-P4) and that part payment was made leaving a balance of the claimed amount. The Operational Creditor produced the ledger and bank statement (Annexure-P11) and complied with evidentiary requirements under section 9(3)(c). On these materials the Tribunal concluded that the unpaid amount remained due and payable and that default had occurred. [Paras 3, 4, 5]

Default in payment was established and the operational debt claimed was held to be due to the Operational Creditor.

Demand notice under section 8(1) of the Insolvency & Bankruptcy Code, 2016 - service of demand notice by e-mail - absence of dispute / ex parte hearing - The demand notice was validly issued and received by the Corporate Debtor and no disputed claim or reply was presented. - HELD THAT: - The record shows issuance of the demand notice on 26-11-2018 and delivery by e-mail on 17-12-2018 to the Corporate Debtor's e-mail as reflected in the master data. The Corporate Debtor did not respond to the demand notice, did not raise any dispute over the invoices, and failed to appear despite service by post and e-mail. On this basis the Tribunal treated the Corporate Debtor as absent and proceeded ex parte. [Paras 2, 3]

The demand notice was held to have been validly served and no bona fide dispute or reply was on record.

Admission of application under section 9 - Corporate Insolvency Resolution Process - compliance with section 9(3)(b) and section 9(3)(c) - The Section 9 application was admitted and CIRP was initiated. - HELD THAT: - Having found existence of an unpaid operational debt, valid service of the demand notice and absence of any contesting reply, and after noting compliance with the statutory formalities including affidavits and bank statements, the Tribunal held the application fit for admission. The Tribunal therefore admitted the application under section 9 and directed initiation of the Corporate Insolvency Resolution Process. [Paras 3, 5, 6]

The Section 9 application was admitted and CIRP was ordered to commence.

Moratorium under section 14 of the Insolvency & Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - public announcement and submission of claims under section 15 - direction to deposit preliminary expenses in ESCROW - Consequential reliefs flowing from admission were granted: moratorium declared, IRP appointed, public announcement and claim submission directed, and the Operational Creditor directed to deposit preliminary expenses in ESCROW. - HELD THAT: - On admission the Tribunal declared the moratorium for the purposes set out in section 14 and prohibited specified actions against the Corporate Debtor. The Tribunal appointed the named Insolvency Professional as Interim Resolution Professional and directed him to cause public announcement and call for claims under section 15. The Tribunal further directed the Operational Creditor to deposit a specified sum in an ESCROW account for preliminary CIRP expenses and gave ancillary directions for communication of the order and listing for progress report. [Paras 6]

Moratorium was imposed, the named Interim Resolution Professional was appointed, public announcement and claims procedure were ordered, and the Operational Creditor was directed to deposit monies in ESCROW to meet preliminary CIRP expenses.

Final Conclusion: The Tribunal admitted the Section 9 application, held that operational debt and default were proved and the demand notice validly served, declared the moratorium, appointed the Interim Resolution Professional, directed public announcement and claims submission, and ordered deposit of funds in ESCROW for preliminary CIRP expenses.

Initiation of corporate insolvency resolution process - operational debt and default - demand notice under section 8 of the Code - moratorium under section 14 of the Code - appointment of interim resolution professional

Initiation of corporate insolvency resolution process - operational debt and default - demand notice under section 8 of the Code - CIRP against the Respondent under section 9 of the Insolvency and Bankruptcy Code, 2016 is to be initiated. - HELD THAT: - The Applicant supplied goods to the Respondent and issued a demand notice under section 8 of the Code. The record shows deliveries, invoice/bill particulars and part payments made by the Respondent, while a substantial unpaid sum remained outstanding. The Respondent failed to file a substantive reply despite opportunities and made limited part payments and an unadhered payment plan. The Tribunal found on the material before it that existence of debt and default by the Respondent stood established and, in absence of any effective defence or reply from the Respondent, proceeded to initiate the corporate insolvency resolution process under section 9. [Paras 4]

CIRP initiated against the Respondent with immediate effect.

Moratorium under section 14 of the Code - A moratorium under section 14 is to be imposed from the date of the order until completion of the CIRP. - HELD THAT: - Upon initiation of CIRP, the Tribunal imposed the statutory moratorium. The order restrained institution or continuation of suits or proceedings, transfer or disposition of the Respondent's assets, enforcement of security interests and recovery of property occupied by the Respondent, subject to the statutory exceptions and the continued supply of specified essential goods or services. The moratorium is directed to operate from the date of the order until completion of the corporate insolvency resolution process. [Paras 5]

Statutory moratorium imposed in the terms recorded by the Tribunal.

Appointment of interim resolution professional - The Interim Resolution Professional proposed by the Applicant is confirmed and directed to act. - HELD THAT: - The Tribunal confirmed the Applicant's nomination of Mr. Mohd. Nazim Khan as the Interim Resolution Professional. The IRP is directed to perform the statutory functions and take steps required under the Code, with specific reference to duties under sections 15, 17 and 18, and to file his report within the time specified by the Bench. [Paras 6]

Proposed IRP confirmed; directed to undertake statutory duties and report within 30 days.

Final Conclusion: The Tribunal, having found existence of operational debt and default and in absence of a substantive reply by the Respondent, initiated CIRP under section 9, imposed the moratorium under section 14, and confirmed the Applicant's proposed Interim Resolution Professional to act and report as directed.

Sale of secured assets by secured creditor in liquidation - exercise of rights under section 52(1)(b) and enforcement under section 52(4) - restriction under the Explanation to section 35(1)(f) - ineligibility under section 29A - liquidator's duty to verify security interest under section 52(3) - maximisation of value of assets in liquidation

Sale of secured assets by secured creditor in liquidation - exercise of rights under section 52(1)(b) and enforcement under section 52(4) - restriction under the Explanation to section 35(1)(f) - ineligibility under section 29A - liquidator's duty to verify security interest under section 52(3) - Whether a secured creditor who opts out of the liquidation process under section 52(1)(b) can sell the secured assets to persons who are ineligible under section 29A of the I&B Code - HELD THAT: - The Tribunal held that a secured creditor, even when realising its security interest under section 52(1)(b) read with section 52(4), is subject to the restriction contained in the Explanation to section 35(1)(f) and therefore cannot sell the corporate debtor's assets to persons who are ineligible under section 29A. The court reasoned that the policy of the I&B Code-maximisation of value and protection of public interest-would be defeated if ineligible persons could acquire assets by bypassing the bar applicable to the liquidator. Section 52 does not confer an unfettered right to deal with secured assets free from the liquidation regime: a secured creditor must inform the liquidator, and the liquidator must verify the security interest under section 52(2)-(3) and may condition or reject permission to realise security where proposed purchasers are ineligible. The decision of the Adjudicating Authority imposing a bar on sale to persons disqualified under section 29A and upholding the liquidator's power to impose conditions was affirmed. [Paras 15, 16, 17, 18]

A secured creditor opting out under section 52(1)(b) cannot sell secured assets to persons ineligible under section 29A; the liquidator's verification role and power to impose conditions or refuse such realisation is valid and enforceable.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority rightly held that sales of secured assets in liquidation cannot be made to persons disqualified under section 29A; secured creditors must comply with the verification and conditional-permission process administered by the liquidator under section 52.

Corporate insolvency resolution process - moratorium under section 14 - standing of assignee as financial creditor - limitation - exclusion of period under SICA - default threshold under the Insolvency and Bankruptcy Code - appointment and duties of interim resolution professional

Standing of assignee as financial creditor - corporate insolvency resolution process - Whether the applicant (SASF), as assignee of IDBI, has locus to initiate CIRP against the corporate debtor. - HELD THAT: - The Tribunal accepted the transfer deed dated 30.09.2004 executed by IDBI in favour of SASF, holding that IDBI unconditionally and irrevocably sold, assigned and transferred the financial assistance along with underlying securities to SASF, thereby vesting in SASF the rights to receive amounts due from the corporate debtor. On the materials before it and the applicant's averments, the Tribunal found that SASF possesses the requisite locus as financial creditor to file the insolvency petition and proceeded to adjudicate the application under the Code.

The petition filed by SASF is maintainable as SASF is the assignee and hence a financial creditor entitled to initiate CIRP.

Limitation - exclusion of period under SICA - default threshold under the Insolvency and Bankruptcy Code - Whether the petition is barred by delay given the asserted date(s) of default in 2000 and the filing in 2018. - HELD THAT: - The Tribunal recorded that the corporate debtor's application under section 15(1) of the Sick Industrial Companies (Special) Provisions Act was admitted by BIFR in January 2007 and remained pending until repeal of SICA and abolition of BIFR. Applying the statutory regime in force under SICA, the Tribunal treated the period during which proceedings before BIFR continued as excluded for limitation purposes and observed that the 'right to sue survives'. Having regard to exclusion of the SICA period, the Tribunal concluded that the present petition filed in December 2018 was within three years from the date the cause of action for recovery arose. The Tribunal also noted that the amount in default exceeded the minimum monetary threshold fixed under the Code (in excess of Rs. 1,00,000/-) and therefore the default requirement for initiating CIRP was satisfied.

The petition is not barred by limitation and the statutory default threshold under the Code is met, permitting admission of the application.

Moratorium under section 14 - appointment and duties of interim resolution professional - Reliefs to be granted on admission of the petition and the appointment of an interim resolution professional. - HELD THAT: - On admitting the petition, the Tribunal imposed the moratorium in the terms set out, restraining institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property by owners/lessors against the corporate debtor, while preserving specified exceptions for essential supplies and notified transactions. The Tribunal confirmed the IRP proposed by the applicant, noting the IRP's registration and filed consent, and directed the IRP to perform statutory functions under the Code (including actions under sections 15, 17 and 18) and to file his report within 30 days. The Registry was directed to communicate the order to the parties and to the Registrar of Companies for updating records.

Moratorium under the Code is imposed and the proposed interim resolution professional is appointed and confirmed with directions to carry out statutory duties and file a report.

Final Conclusion: The Tribunal admitted the application under the Insolvency and Bankruptcy Code, held that SASF has locus as assignee/financial creditor, found the petition not barred by limitation in view of the SICA exclusion and the existence of requisite default, imposed the statutory moratorium and confirmed the appointment of the interim resolution professional with directions to proceed under the Code.

Admission of Section 7 application - Corporate Insolvency Resolution Process - Moratorium under Section 14 - Public announcement under Section 15 - Appointment of Interim Resolution Professional - Escrow deposit for CIRP expenses - Time bound conduct of CIRP

Admission of Section 7 application - The Section 7 application filed by the financial creditor is liable to be admitted. - HELD THAT: - The Tribunal found that the corporate debtor admitted having availed the loan and did not dispute the nature or existence of the debt. The financial creditor produced a receipt (Annexure D), a loan sanction letter (Annexure F) and a balance confirmation (Annexure G) showing the outstanding amount alleged. No material was placed to show the claim to be time barred and no disciplinary proceedings were shown against the proposed resolution professional. On the basis of these records and the corporate debtor's admission of liability, the application under Section 7 of the IBC was held to be complete and fit for admission. [Paras 8, 9, 10]

Application under Section 7 admitted and CIRP initiated against the corporate debtor.

Moratorium under Section 14 - Public announcement under Section 15 - A moratorium is to be declared and a public announcement made pursuant to the initiation of CIRP. - HELD THAT: - Upon admission of the Section 7 petition, the Tribunal directed the declaration of moratorium for the purposes enumerated in the Code and required the interim resolution professional to make the public announcement and call for submission of claims in accordance with the statutory scheme. The order specifies the scope of moratorium including prohibition on institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property occupied by the corporate debtor, subject to statutory exceptions.

Moratorium declared and public announcement to be made immediately in terms of Sections 13-15 of the IBC.

Appointment of Interim Resolution Professional - Shri Hrishkesh Dasgupta is appointed as Interim Resolution Professional. - HELD THAT: - The financial creditor had proposed a registered insolvency professional and no disciplinary bar was shown. The Tribunal appointed the proposed professional as Interim Resolution Professional to ascertain particulars of creditors and convene the Committee of Creditors, as required by the Code and Regulations.

Proposed IRP appointed to manage the CIRP and convene the CoC.

Escrow deposit for CIRP expenses - Time bound conduct of CIRP - Preliminary escrow deposit and conduct of CIRP in a time bound manner are directed. - HELD THAT: - The Tribunal directed the financial creditor to deposit a specified sum in an escrow account to meet preliminary IRP expenses, recoverable and payable as per CoC approval and applicable regulations. The Tribunal further directed the IRP to conduct the CIRP in a time bound manner in accordance with the relevant IBBI regulations, and ordered registry communication of the order to the parties and the IRP.

Financial creditor to deposit preliminary expenses in escrow; IRP to conduct CIRP time bound as per Regulations.

Final Conclusion: The Section 7 petition was admitted, CIRP initiated against the corporate debtor; moratorium declared and public announcement directed; the proposed insolvency professional appointed as IRP; an escrow deposit for preliminary CIRP expenses ordered and the IRP directed to conduct the process in a time bound manner.

Refund in cash under Section 11B for unutilised CENVAT credit on account of closure - cash refund under Rule 5 of the CENVAT Credit Rules, 2004 - payment in cash pursuant to Rule 8(3A) notwithstanding periodic debits to CENVAT account - precedential effect of Gauri Plasticulture (Bombay High Court Larger Bench)

Refund in cash under Section 11B for unutilised CENVAT credit on account of closure - precedential effect of Gauri Plasticulture (Bombay High Court Larger Bench) - Whether a cash refund of unutilised CENVAT credit on account of closure of factory is permissible. - HELD THAT: - The Tribunal held that the claim for cash refund of the unutilised CENVAT credit standing to the appellant's account on closure of the factory is not maintainable. The claim raised under Section 11B and subsequently under Rule 5 was considered in the light of the Larger Bench decision of the Hon'ble Bombay High Court in Gauri Plasticulture, which answered the legal questions on cash refund on account of inability to utilise credit and refund on closure against the assessee. Applying that precedent, the Tribunal found the appellant's case indistinguishable for purposes of legal principle and therefore declined to allow a cash refund of the unutilised credit on closure. [Paras 6, 7, 8, 9]

Claim for cash refund of the unutilised CENVAT credit on account of closure is rejected and the impugned order is upheld.

Payment in cash pursuant to Rule 8(3A) notwithstanding periodic debits to CENVAT account - cash refund under Rule 5 of the CENVAT Credit Rules, 2004 - Whether prior payment in cash (by direction of the Department) for a past period, despite contemporaneous debits to the CENVAT account, entitled the appellant to a later cash refund of the closing balance on surrender. - HELD THAT: - The Tribunal examined the appellant's contention that they were directed to discharge duty in cash for April-October 2011 despite having debited their CENVAT account, and that this compelled cash payment should entitle them to cash refund of the closing credit on surrender. The Tribunal noted that the alleged compulsion to pay in cash concerned a separate refund proceeding (a claim filed earlier and adjudicated with an appeal pending) and that the present surrender-based cash refund claim arose four years after the compliance with Rule 8(3A). Relying on the same Larger Bench precedent, the Tribunal found no merit in treating the residual balance on surrender as a basis for cash refund merely because cash had been paid earlier under departmental direction; the matter did not warrant interference. [Paras 6, 7, 9]

The appellant's contention that prior cash payments (despite CENVAT debits) entitle them to a cash refund on surrender is not accepted; no interference with the adjudicator's and Commissioner (Appeals)'s orders.

Final Conclusion: The appeal is dismissed; the order of the Commissioner (Appeals) rejecting the cash refund claim of the unutilised CENVAT credit on closure is upheld in view of the Larger Bench precedent of the Hon'ble Bombay High Court.

Freight charges and assessable value - place of removal - factory gate - transportation charges not part of assessable value - refund of excise duty on differential freight - unjust enrichment

Freight charges and assessable value - transportation charges not part of assessable value - refund of excise duty on differential freight - Differential freight amounts collected by the appellant are not includible in the assessable value and the excise duty paid on such differential freight is refundable. - HELD THAT: - The Tribunal accepted the appellant's submission, supported by precedents, that amounts collected on account of transportation constitute a separate activity from manufacture and do not form part of the assessable value of the goods where the contractual terms indicate ex factory valuation with separate freight. The bench observed that the factual matrix and purchase orders show valuation ex factory with transportation provided separately by the appellant, and therefore any profit component on freight cannot be treated as dutiable value. The Board circular cited by the revenue was held not to alter the conclusion in the appellant's factual context, and the Tribunal relied on its earlier decision in the appellant's other unit and Supreme Court authority to find entitlement to refund of duty paid on differential freight.

Impugned order rejecting the refund claim is set aside; the appellant is entitled to refund of excise duty paid on the differential freight for the period in dispute.

Place of removal - factory gate - freight charges and assessable value - Place of removal is the factory gate for the transactions in question, supporting exclusion of transportation charges from assessable value. - HELD THAT: - The Tribunal relied on the principle that where goods are valued ex factory and the supplier undertakes transportation separately, the place of removal remains the factory gate. Applying this legal position to the contractual terms and the manner of dispatch, the Tribunal concluded that transportation up to the buyer's location does not change the place of removal and thus does not render freight part of the assessable value of the goods.

Place of removal treated as factory gate; transportation charges do not convert into dutiable value.

Unjust enrichment - refund of excise duty on differential freight - Unjust enrichment doctrine does not preclude grant of refund in the facts and circumstances of this case. - HELD THAT: - The Tribunal considered the applicability of unjust enrichment and found that, given the contractual structure (ex factory valuation with separate freight) and the legal position that freight is not part of assessable value, the elements required to deny refund on unjust enrichment grounds were not attracted. Having concluded that the duty was not leviable on the differential freight, the refund could not be refused on the basis of unjust enrichment.

Unjust enrichment is not a bar to grant of refund; consequential relief to follow.

Final Conclusion: The appeal is allowed; the order rejecting the refund is set aside and the appellant is entitled to refund of excise duty paid on differential freight collected during 01,04,2008 to 18.12.2008, with consequential relief as applicable.

Coming into force of notification - Publication and offer for sale of Gazette notifications - Section 5A(5) of the Central Excise Act - Requirement of both conditions for notification to be operative - Refund of erroneously paid excise duty

Section 5A(5) of the Central Excise Act - Publication and offer for sale of Gazette notifications - Coming into force of notification - Refund of erroneously paid excise duty - Notification issued under section 5A(5) comes into force only when both publication and offer for sale conditions are fulfilled, and excess duty paid before both conditions are satisfied is refundable. - HELD THAT: - The Tribunal held that the two conjunctive requirements set out in section 5A(5) must both be satisfied for a notification to come into force. The appellants demonstrated by reference to information obtained under the RTI that, although the notifications were dated and published on the notification dates, they were offered for sale only on later dates. Applying section 5A(5), the Tribunal concluded that the second condition (offer for sale) was not fulfilled during the relevant period and therefore the exemption/notification had not come into force at that time. Consequently, duty collected at the enhanced rate during the intervening period was not lawfully exigible and any excess duty paid was refundable. The Tribunal found the lower authority correctly sanctioned refunds and that the first appellate authority erred in following an earlier pre-amendment ratio which did not account for the post-1998 addition of the offer-for-sale requirement. [Paras 4]

Appeals allowed; lower authority's orders sanctioning refunds reinstated and impugned appellate orders set aside.

Final Conclusion: The appeals were allowed: notifications did not come into force until both publication and offer-for-sale conditions under section 5A(5) were satisfied, excess excise duty paid during the intervening period is refundable, and the impugned first appellate orders are set aside with consequential reliefs.

Link between entry tax rates and local VAT/sales tax rates - power to specify goods under sub-section (1A) of section 3 to redress an inequitable situation - discrimination between goods imported from other States and goods manufactured in the State - principle of a level playing field - Article 304(a) - prohibition of discriminatory taxation between imported and local goods

Link between entry tax rates and local VAT/sales tax rates - principle of a level playing field - discrimination between goods imported from other States and goods manufactured in the State - Continuation of the notification dated 15th February, 2010 prescribing entry tax at 4% after reduction of VAT rate to 1% by notification dated 3rd October, 2012 - validity. - HELD THAT: - The court examined the legislative scheme and legislative history of the Entry Tax Act together with the VAT Act and concluded that the Entry Tax was enacted to achieve a level playing field by aligning entry tax incidence with local sales tax/VAT so as to remove discrimination between imported goods and locally manufactured goods. Where the State reduces the rate of tax on a specified good under the VAT Act, the rate of entry tax must be correspondingly reduced by the State under the Entry Tax Act; continuation of a higher entry tax rate without any justification would create hostile discrimination contrary to the object of the Entry Tax Act and Article 304(a). The State did not point to any circumstance justifying retention of the higher rate as a measure to redress an inequitable situation or to remove discrimination under sub section (1A) of section 3. In the absence of any rational justification for differentiation, the notification of 15th February, 2010 insofar as it prescribes entry tax at 4% is illegal and cannot be sustained vis a vis the 1% VAT notification dated 3rd October, 2012. [Paras 8, 9, 16, 20, 21]

Notification dated 15th February, 2010 is illegal and bad in law insofar as it prescribes entry tax at 4% after the VAT rate was reduced to 1% by notification dated 3rd October, 2012.

Power to specify goods under sub-section (1A) of section 3 to redress an inequitable situation - Article 304(a) - prohibition of discriminatory taxation between imported and local goods - Whether the State in issuing notification dated 15th February, 2010 acted within the scope of sub section (1A) of section 3 by showing adequate grounds to redress inequity or remove discrimination. - HELD THAT: - Sub section (1A) permits the State to specify additional goods by notification only when necessary in public interest to redress an inequitable situation or to remove discrimination between goods entering the State and goods produced within the State. The court found no material or explanation from the State demonstrating existence of such an inequitable situation or any sufficient and reasonable cause justifying retention of a higher entry tax rate. Absent such justification, the impugned notification could not be sustained under the statutory power or consistent with Article 304(a). [Paras 13, 20, 21]

State did not establish grounds under sub section (1A) of section 3 to justify the higher entry tax and the notification is ultra vires insofar as it continues the higher rate.

Link between entry tax rates and local VAT/sales tax rates - input tax credit and refund not licence to levy illegal tax - Validity of consequential demand notices requiring payment of entry tax and the State's contention that payment followed by refund/input tax credit remedies the situation. - HELD THAT: - Because the notification prescribing the higher entry tax rate was held illegal, the consequent notices demanding payment based on that notification could not be sustained. The court rejected the contention that the petitioners must first pay and then seek refund or input tax credit; when the underlying levy is held illegal, there is no basis to compel payment followed by refund. Thus reliance on postulated entitlement to input tax credit under the VAT Act does not validate an otherwise illegal demand. [Paras 22, 23]

Consequential notices dated 23rd January, 2017 are quashed and set aside; petitioners need not pay the demanded entry tax based on the impugned notification.

Final Conclusion: The petition is allowed. The notification dated 15th February, 2010 is held illegal insofar as it prescribes a higher entry tax rate (4%) than the VAT notification dated 3rd October, 2012 (1%); consequential demand notices are quashed and set aside. No order as to costs.

Interpretation of 'sale price' under the Central Sales Tax Act, 1956 - exclusion of freight, delivery and pumping charges from taxable turnover where separately billed - sale in the course of import under section 5(2) of the Central Sales Tax Act, 1956 - penalty under section 9(2-A) of the Central Sales Tax Act, 1956 read with section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 - scope of imposition of penalty where assessment is made under section 12(1) or section 12(2) of the Tamil Nadu General Sales Tax Act, 1959

Interpretation of 'sale price' under the Central Sales Tax Act, 1956 - exclusion of freight, delivery and pumping charges from taxable turnover where separately billed - Freight and pumping charges billed separately in relation to ready mix cement concrete are not includible in the taxable sale price. - HELD THAT: - The Tribunal found, and this Court followed the ratio of co ordinate authority decisions, that the definition of "sale price" in the Central Sales Tax Act, 1956 excludes cost of freight, delivery or installation where such charges are billed separately. The material facts - separate invoicing of freight and pumping charges, purchase orders showing delivery ex works, and the dealer's audited accounts reflecting such receipts under other income - support that the dealer acted as supplier and, when applicable, as carrier, and did not include those charges in the sale price. On the facts before the Tribunal and in light of the binding precedents applied, the disputed turnover representing freight and pumping charges is not taxable and the Tribunal's decision in favour of the assessee is upheld. [Paras 3, 4, 5]

Freight and pumping charges, when separately shown and not included in the price of goods, are excluded from taxable sale price and the Tribunal's allowance is upheld.

Sale in the course of import under section 5(2) of the Central Sales Tax Act, 1956 - Sales occasioned by import pursuant to contracts with the ultimate purchaser qualify as sales in the course of import and are exempt under section 5(2). - HELD THAT: - The Tribunal found that the dealer imported goods pursuant to contracts entered with the ultimate buyers (for example, TNEB), with foreign suppliers shipping goods to consignee addresses linked to the site offices, and that importation was inextricably connected to and occasioned by those contracts. This Court applied the Supreme Court authority which holds that where movement into the State is in pursuance of the contract of sale and goods cannot be diverted for other purposes, the sale occurs in the course of import and is exempt. On the facts found by the Tribunal and the applicable precedent, the disputed sales were rightly held to be in the course of import and exempted. [Paras 9]

Sales occasioned by import pursuant to the contractual arrangements with the buyer are sales in the course of import and are exempt; the Tribunal's conclusion is affirmed.

Penalty under section 9(2-A) of the Central Sales Tax Act, 1956 read with section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 - scope of imposition of penalty where assessment is made under section 12(1) or section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 - The penalty imposed consequential to the disputed tax assessment is not sustainable and was rightly deleted by the Tribunal. - HELD THAT: - The Tribunal set aside the penalty after finding that the turnovers in question were disclosed in the books of account and returns, and that the assessment fell under the provision applicable when transactions are reflected in records. Reliance was placed on precedent holding that penalty under the relevant provision could be imposed only where assessment is under the particular subsection identified by that precedent; further amendments relied upon by the Revenue were not retroactively applicable to sustain penalty for the period in question. Since the tax additions themselves were quashed on merits (freight and import issues), the consequential penalty lacked basis and its deletion is justified. [Paras 10]

Penalty imposed in consequence of the disallowed additions is not warranted and is properly deleted; the Tribunal's deletion of the penalty is affirmed.

Final Conclusion: The Revenue's appeal is dismissed. The Tribunal's decisions - excluding separately billed freight and pumping charges from taxable turnover, treating the contested sales as in the course of import and exempt, and deleting the consequential penalty - are upheld; no order as to costs.