TaxTMI Updates e-Newsletter
Mar 26,2016

Reopening of assessment under Section 147 - reasons to believe - satisfaction of the Assessing Officer - change of opinion - opinion of audit party - annulment of reassessment

Reopening of assessment under Section 147 - reasons to believe - satisfaction of the Assessing Officer - opinion of audit party - change of opinion - Validity of reopening the assessment by AO under Section 147 where reasons recorded reflect only the audit party's opinion and not the Assessing Officer's own satisfaction that income has escaped assessment. - HELD THAT: - The reasons recorded for reopening merely recited the audit party's view that 0.5% was a reasonable shortage and that excess shortage should be disallowed, quantifying an alleged underassessment. Section 147 allows reopening only where the Assessing Officer has his own reason to believe that income chargeable to tax has escaped assessment; the Assessing Officer must record his satisfaction. On plain reading, the reasons did not disclose any independent satisfaction by the Assessing Officer but only the audit party's opinion. Consequently the reassessment was a case of change of opinion based on conjecture and not a valid exercise of power under Section 147. The Commissioner (Appeals) correctly annulled the reassessment and the Tribunal rightly upheld that annulment.

Reopening held invalid; reassessment annulled; Tribunal order upholding annulment sustained.

Final Conclusion: The revenue's appeal is dismissed. The reassessment framed on the basis of reasons reflecting only the audit party's opinion was annulled for want of the Assessing Officer's independent satisfaction under Section 147, and no substantial question of law arises for interference.

Computation of total turnover for Section 10A exemption - treatment of foreign exchange expenses for technical services provided outside India - treatment of communication charges in export turnover/total turnover - interpretative effect of High Court decision in Gem Plus Jewellery India Ltd. - finality of High Court decision absent stay by the Supreme Court

Computation of total turnover for Section 10A exemption - treatment of foreign exchange expenses for technical services provided outside India - interpretative effect of High Court decision in Gem Plus Jewellery India Ltd. - Whether expenses in foreign exchange for providing technical services outside India are to be excluded from "total turnover" while computing income exempt under section 10A. - HELD THAT: - The Tribunal excluded foreign exchange expenses for technical services provided outside India from the "total turnover" by following this Court's decision in Gem Plus Jewellery India Ltd. The Revenue accepted that the issue is concluded against it by the Gem Plus decision and did not show that the Gem Plus decision has been stayed by the Supreme Court. In that factual and legal posture the questions framed do not raise a substantial question of law warranting interference with the Tribunal's order. [Paras 3, 4, 5]

The Tribunal's exclusion of foreign exchange expenses from "total turnover" is left undisturbed; the question is not entertained and the appeal is dismissed.

Computation of total turnover for Section 10A exemption - treatment of communication charges in export turnover/total turnover - interpretative effect of High Court decision in Gem Plus Jewellery India Ltd. - Whether communication charges should be excluded from the "total turnover" while computing income exempt under section 10A. - HELD THAT: - The Tribunal excluded communication charges from "total turnover" in accordance with this Court's Gem Plus decision. The Revenue candidly accepted that Gem Plus conclusively addresses the matter and has not shown any stay of that decision by the Supreme Court. Given that the Tribunal applied the binding High Court precedent, the question does not present a substantial question of law for this Court to entertain. [Paras 3, 4, 5]

The Tribunal's treatment excluding communication charges from "total turnover" is sustained; the question is not entertained and the appeal is dismissed.

Computation of total turnover for Section 10A exemption - definition and scope of export turnover under Explanation to section 10A - finality of High Court decision absent stay by the Supreme Court - Whether the Explanation to section 10A, which defines "export turnover", precludes exclusion of communication charges and foreign exchange expenses from "total turnover". - HELD THAT: - The Tribunal's conclusion followed this Court's ruling in Gem Plus, which the Revenue accepts binds the present controversy. The Revenue's contention that the Explanation unambiguously excludes those items from "export turnover" but not from "total turnover" was not held sufficient to displace the binding precedent. As the Gem Plus decision has not been shown to be stayed, the Court declined to entertain the questions framed since they are concluded by existing High Court authority. [Paras 3, 4, 5]

The Tribunal's approach is sustained; the legal questions are not entertained and the appeal is dismissed.

Final Conclusion: The appeal under Section 260A is dismissed. The Tribunal's order for Assessment Year 2004-05, which followed this Court's decision in Gem Plus Jewellery India Ltd., is left undisturbed; the questions raised do not give rise to any substantial question of law and the Gem Plus decision stands operative in the absence of a stay by the Supreme Court.

Characterisation of discounting charges as interest - Meaning of interest under section 2(28A) and under the India-Singapore DTAA - Business income and taxation in absence of permanent establishment under the DTAA - Relevance of CBDT circulars on discounting and TDS - Reliance on coordinate bench and precedential consistency (Raghubir Singh principle)

Characterisation of discounting charges as interest - Meaning of interest under section 2(28A) and under the India-Singapore DTAA - Relevance of CBDT circulars on discounting and TDS - whether amounts received by the assessee from Indian group companies on discounting bills of exchange / promissory notes were interest taxable in India or discounting charges not taxable as interest - HELD THAT: - The Tribunal examined the nature of the transactions - purchase of promissory notes/bills on a without recourse basis at a discounted price, payment of net proceeds to the Indian concern, and realisation by the non resident purchaser. It applied the statutory definition of "interest" under section 2(28A) and the scheme of the Act, and relied on earlier decisions of the Tribunal and the Delhi High Court which held that immediate discounting of bills by a non resident purchaser constitutes a price paid for the bill and is not "interest" within the meaning of section 2(28A). The Bench rejected the Revenue's attempt to reframe the transactions as loans or as interest by emphasizing that no moneys were borrowed or debt incurred by the Indian concern vis a vis the assessee and that the assessee acquired the negotiable instruments and bore the associated risks on a without recourse basis. The Tribunal also considered and dismissed the Revenue's reliance on CBDT circulars and regulatory (RBI/FEMA) arguments as altering the true nature of the receipts; regulatory obligations or accounting heads used by the Indian entities do not convert a discounting transaction into interest for tax characterisation. Having found no distinguishing factual matrix sufficient to depart from the coordinate decisions in the assessee's own cases and related Cargill matters (which were affirmed by the Delhi High Court and whose SLP was dismissed), the Tribunal held that the receipts were discounting charges and not interest liable to tax in India as interest. [Paras 20, 21, 22, 23, 24]

Discounting charges are not interest as defined under section 2(28A) and, being business receipts of a non resident without a PE in India, are not taxable in India as interest.

Business income and taxation in absence of permanent establishment under the DTAA - Reliance on coordinate bench and precedential consistency (Raghubir Singh principle) - whether the Revenue's factual objections and allegations of colourable device justified departing from earlier Tribunal/High Court decisions and treating the receipts as taxable - HELD THAT: - The Tribunal considered the Revenue's contention that earlier orders did not appreciate certain factual aspects (role of other group companies, regulatory provisions, alleged non cooperation and incomplete documentary trail) and that the scheme was a device to route interest. It examined the DRP/AO observations and found that the alleged missing facts or regulatory references were not shown to be material so as to change the legal characterisation of the receipts. The Bench observed that the questions raised by the Revenue largely related to commercial expediency or facts not squarely affecting the legal issue before the Tribunal and that the coordinate decisions (confirmed by the Delhi High Court and not successfully challenged before the Supreme Court) had already adjudicated the determinative legal question. Applying the principle that a coordinate bench should not lightly depart from earlier findings absent a plainly erroneous decision or failure to consider vital points, the Tribunal declined to distinguish the precedents relied upon by the assessee and refused to accept the Revenue's invitation to treat the transactions as colourable. Consequently, no interference with the earlier conclusions was warranted. [Paras 14, 15, 16, 23, 24]

Revenue's factual objections and allegations did not justify departing from earlier Tribunal/High Court rulings; the appeals are allowed and earlier precedents upheld.

Final Conclusion: Appeals allowed. The receipts in issue are discounting charges and not interest taxable in India; the Tribunal upheld its and the Delhi High Court's prior conclusions and rejected the Revenue's attempt to recharacterise the transactions as interest or a colourable device.

Charitable purpose / general public utility - incidental activity doctrine - dominant object test - rendering service to trade and commerce - cancellation of registration under section 12AA - proviso to section 2(15) - restrictive interpretation - binding precedent of the Madras High Court

Charitable purpose / general public utility - incidental activity doctrine - rendering service to trade and commerce - proviso to section 2(15) - restrictive interpretation - cancellation of registration under section 12AA - Whether issuance of certificate of origin for exported goods by the assessee constitutes rendering service to trade and commerce so as to deprive the assessee of registration granted under section 12AA by operation of the proviso to section 2(15). - HELD THAT: - The Tribunal accepted that the assessee issues certificates of origin to members and non-members and charges a fee, but applied the dominant object test and the incidental activity doctrine. Relying on the binding decision of the Madras High Court in the assessee's earlier case, the Tribunal held that issuance of certificates of origin is only an incidental activity in furtherance of the assessee's main object of promoting trade and commerce for public utility and there is nothing to show it was carried on for profit. The Tribunal also followed the Delhi High Court's reasoning that the expressions 'trade', 'commerce' and 'business' in the first proviso to section 2(15) must be read restrictively so as not to exclude organizations whose dominant object is charitable merely because they undertake incidental fee bearing activities. Applying these principles, the Tribunal concluded that the proviso to section 2(15) does not apply to the assessee and therefore the Director's cancellation of registration under section 12AA was unsustainable.

The Tribunal set aside the cancellation order of the DIT(E), held that issuance of certificates of origin is incidental to the assessee's charitable/public utility object and restored the registration granted under section 12AA.

Final Conclusion: Appeal allowed; the order cancelling registration under section 12AA is set aside and the assessee's registration is reinstated.

Revision of assessment under section 263 of the Income tax Act - Power of the Commissioner of Income Tax to revise an assessment - Requirement of relevant material before invoking section 263 - Remand for fresh consideration and opportunity to be heard

Revision of assessment under section 263 of the Income tax Act - Requirement of relevant material before invoking section 263 - Remand for fresh consideration and opportunity to be heard - Whether the Commissioner was justified in setting aside the assessment under section 263 and remanding the matter to the Assessing Officer in view of non production of details by the assessee, and what relief should follow once the assessee files the missing particulars. - HELD THAT: - The Tribunal observed that while the CIT has wide powers under section 263 to revise an assessment, those powers are not unfettered and the necessary conditions for invoking them must exist; the CIT must examine relevant material to conclude that an assessment is erroneous and prejudicial to revenue. In the present case the CIT set aside the assessment because the assessee had not earlier produced the requisite TDS particulars before him. The assessee subsequently placed branch wise TDS statements before the Tribunal and explained why those details were not earlier furnished. Having admitted those documents, the Tribunal held it appropriate to remit the matter to the file of the CIT for fresh consideration in the light of the paper book now filed by the assessee. The remand is directed with the clear expectation that the CIT will re look the assessment on merits and afford the assessee a fair opportunity of being heard before arriving at any revised quantification of tax or interest liability. [Paras 5, 6]

Admitted the documents filed before the Tribunal and remitted the matter to the Commissioner to reconsider the assessment in light of those documents, directing that the assessee be given a fair opportunity of hearing.

Final Conclusion: Appeal allowed for statistical purposes; the assessment order set aside by the CIT is to be re examined by the CIT in the light of the paper book filed before the Tribunal and after affording the assessee a fair opportunity of being heard.

Resale Price Method under Rule 10B(1)(b) - Transactional Net Margin Method (TNMM) - Most Appropriate Method - Determination of arm's length price - Comparability analysis and adjustments for RPM - Provision for warranty - present obligation, probability of outflow and reliable estimate - Amortisation of preliminary expenses under section 35D

Resale Price Method under Rule 10B(1)(b) - Transactional Net Margin Method (TNMM) - Most Appropriate Method - Comparability analysis and adjustments for RPM - Determination of arm's length price - Selection of the Most Appropriate Method for the distribution segment and pricing of international transactions remitted to the file of TPO/AO for fresh consideration. - HELD THAT: - Assessee had adopted RPM for purchases of finished goods resold as such; TPO substituted TNMM and applied the same comparable (Euro Merchandise (India) Ltd). The Tribunal held that before rejecting RPM the authorities should have undertaken a close comparability analysis of the products sold by the tested party with those sold by the proposed comparables and verified whether the adjustments required under Rule 10B(1)(b) could be made with reasonable accuracy. RPM depends on verification of gross profit margins and adjustments for material differences; RPM can be rejected only if such adjustments are not possible. The lower authorities did not sufficiently verify availability and adequacy of comparable public-domain data or test product-level comparability; accordingly the question of MAM and pricing for the distribution segment requires fresh adjudication by the TPO/AO. The Tribunal therefore set aside the impugned findings on MAM and remitted the matter for fresh consideration, keeping related sub-issues open for determination by the assessing authorities. [Paras 10, 11]

Matter remitted to TPO/AO for fresh consideration on choice of MAM and arm's length pricing for the distribution segment; related sub-issues left open for fresh adjudication.

Provision for warranty - present obligation, probability of outflow and reliable estimate - Determination of arm's length price - Allowability of the warranty provision made by the assessee disallowed by the AO. - HELD THAT: - Tribunal applied the three-fold test derived from the Apex Court in Rotork Controls India (Pvt) Ltd: (a) existence of a present obligation from past events; (b) probability of outflow of resources to settle the obligation; and (c) ability to make a reliable estimate of the obligation. While the Tribunal accepted that a present obligation existed and an outflow was probable, it found that the assessee failed to produce scientific or sufficient historic data to support the claimed 1% provisioning as a reliable estimate. The parent company's long experience abroad did not substitute for the assessee's own demonstrable, reliable estimate. In absence of a reliable estimate, the warranty provision could not be allowed. [Paras 16, 17]

Assessee's claim for warranty provision disallowed; ground dismissed.

Amortisation of preliminary expenses under section 35D - Whether the expenditure paid to Registrar of Companies for increasing authorised capital is eligible for amortisation under section 35D. - HELD THAT: - Section 35D permits amortisation of specified preliminary expenses in the manner set out therein. The DRP had accepted the assessee's claim for amortisation of the share-issue related expenditure. The Tribunal held that once the expenditure falls within the categories specified in subsection (2), the AO should allow deduction by way of amortisation as provided in subsection (1). Therefore the AO was directed to grant amortisation of the fees paid to the Registrar of Companies in accordance with section 35D. [Paras 19]

AO directed to allow amortisation of the Registrar of Companies fees under section 35D; ground partly allowed.

Final Conclusion: Appeal partly allowed for statistical purposes: the choice of Most Appropriate Method and pricing for the distribution segment remitted to TPO/AO for fresh consideration; warranty provision disallowed; amortisation of Registrar of Companies fees under section 35D directed to be granted by the AO.

Reasonableness of interest paid to relatives under section 40A(2)(b) - Assessment-year consistency and precedential treatment of similar transactions - Market rate for unsecured loans as a guide to fair and reasonable payment

Reasonableness of interest paid to relatives under section 40A(2)(b) - Market rate for unsecured loans as a guide to fair and reasonable payment - Assessment-year consistency and precedential treatment of similar transactions - Deletion of disallowance made under section 40A(2)(b) in respect of interest paid to partners and family members. - HELD THAT: - The Assessing Officer disallowed interest paid at 18% to partners and relatives, proposing to restrict allowance to 12%. The CIT(A) moderated the restriction to 15%. The Tribunal noted that in an earlier assessment year the Revenue had allowed interest at 18% in the assessee's own case and that those findings were not disturbed on appeal. Having regard to the nature of the loans (unsecured, market loans available without collateral and formalities), the Tribunal accepted that unsecured loans command a higher market rate than secured bank borrowing and that the businessman is best placed to judge business expediency. Applying the statutory standard of whether the payment was excessive or unreasonable in the facts and circumstances, the Tribunal held that the CIT(A)'s partial restriction was not justified and that the disallowance sustained was unwarranted. On that basis the addition under section 40A(2)(b) was deleted and the interest as claimed was allowed.

Disallowance of interest sustained by the CIT(A) deleted and the appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for AY 2008-09, deleted the disallowance under section 40A(2)(b) relating to interest paid to partners and family members, and restored the interest as claimed.

Penalty for concealment or furnishing inaccurate particulars in international transactions - Application of Explanation 7 regarding good faith and due diligence in transfer pricing adjustments - Use of Comparable Uncontrolled Price (CUP) method versus Cost Plus Method (CPM) in benchmarking international transactions - Agreed transfer pricing adjustment under section 92C

Application of Explanation 7 regarding good faith and due diligence in transfer pricing adjustments - Use of Comparable Uncontrolled Price (CUP) method versus Cost Plus Method (CPM) in benchmarking international transactions - Agreed transfer pricing adjustment under section 92C - Whether penalty under clause (c) of section 271(1) is leviable where transfer pricing adjustment under section 92C was agreed by the assessee and Explanation 7 requires proof of computation of price in good faith and with due diligence - HELD THAT: - The Tribunal found as an undisputed fact that the assessee had international transactions routed through associated enterprises in Cyprus, UK and Switzerland and that uncontrolled transactions (CUPs) existed for the two products in question. The assessee conceded the adjustment under section 92C and agreed to the addition proposed by the TPO. Explanation 7 was quoted and the determinative enquiry as to penalty turned on whether the assessee proved that the prices were computed in accordance with section 92C in good faith and with due diligence. The assessee's submissions before the Assessing Officer and CIT(A) explained the commercial reasons for routing transactions through foreign entities but did not address, with factual or documentary particularity, the twin requirements of good faith and due diligence or explain why CUPs were not applied on a transaction to transaction basis. The Tribunal, after perusal of the paper book and the TP study, held that the assessee failed to demonstrate due diligence in not using available CUPs and failed to show good faith in the selection and application of CPM instead of transaction to transaction benchmarking. In these circumstances, Explanation 7 did not operate to protect the assessee from penalty and the confirmations by the lower authorities were affirmed. [Paras 9, 10, 11, 12]

Penalty under clause (c) of section 271(1) read with Explanation 7 is sustainable as the assessee failed to prove computation of price in accordance with section 92C in good faith and with due diligence; appeal dismissed.

Final Conclusion: The Tribunal affirmed the levy of penalty under section 271(1)(c) read with Explanation 7 for Assessment Year 2003-2004 because the assessee agreed to the transfer pricing adjustment under section 92C and failed to prove that the prices were computed in good faith and with due diligence (failure to use available CUPs and to benchmark on a transaction to transaction basis).

Deduction under section 54B - Deduction under section 54F - Capital gains account scheme deposit requirement - Due date under section 139(1) for deposit - Effect of filing belated return under section 139(4) - Deduction under section 48

Deduction under section 54B - Capital gains account scheme deposit requirement - Due date under section 139(1) for deposit - Effect of filing belated return under section 139(4) - Deduction under section 54F - Entitlement to deduction under sections 54B and 54F where the new asset was purchased within two years but the return was filed belatedly under section 139(4) and no deposit was made in the capital gains account scheme by the due date under section 139(1). - HELD THAT: - The Tribunal examined section 54B(1) which requires purchase of the new asset within two years of transfer and section 54B(2) which prescribes that capital gain not utilized before the date of furnishing return under section 139 must be deposited in the notified capital gains account scheme on or before the due date applicable under section 139(1). The scheme introduced by Finance Act, 1987 and explained in CBDT Circular No.495 is intended to avoid subsequent rectification of assessments by treating deposits in the capital gains account scheme as deemed cost of the new asset. The Tribunal held that section 54B(2) does not dilute the initial condition in section 54B(1): utilization for purchase must be within two years. Section 54B(2)'s deposit requirement is a regulatory mechanism applicable where the capital gain is not utilized before the due date under section 139(1). Applying these provisions, the Tribunal rejected the argument that an assessee who actually purchases the new asset within two years but files the return belatedly under section 139(4) must nevertheless be treated differently from one who files under section 139(1); the cut-off for deposit under section 54B(2) is the due date under section 139(1) irrespective of whether the return is ultimately filed under section 139(1) or section 139(4). However, where the assessee satisfies the condition in section 54B(1) (purchase within two years) and has neither claimed nor deposited unutilised capital gains in the capital gains account scheme, there is no occasion to deny the deduction: the assessee who has actually utilized the capital gains for purchase within two years is eligible for deduction. The Tribunal held that the provisions of section 54F(2) are pari materia and the same reasoning applies to claims under section 54F. The AO was directed to allow the deductions after verifying satisfaction of conditions under section 54B(1) and 54F(1). [Paras 2]

Deductions under sections 54B and 54F allowed where the assessee purchased the new asset within two years and satisfied conditions of sections 54B(1) and 54F(1); the AO to verify and grant deduction notwithstanding that the return was filed belatedly under section 139(4) and no deposit in the capital gains account scheme was made.

Deduction under section 48 - Allowability of deduction under section 48 for cost of improvement and sale expenses where the return bringing capital gains to tax was revised belatedly and the assessing officer had disallowed the claim on the ground that the revised return was void-ab-initio. - HELD THAT: - The AO disallowed the deduction on the basis that the original return was belated and the revised return was void-ab-initio. The CIT(A) confirmed the disallowance and noted absence of evidence as to fair market value as on 01.04.1981. The Tribunal observed that once capital gains are brought to tax, it is just and proper to allow legitimate deductions under section 48 subject to verification. The Tribunal therefore directed the AO to allow the claim of deduction after necessary verification of supporting evidence. [Paras 4]

Claimed deduction under section 48 is to be allowed after verification; ground allowed.

Final Conclusion: The appeals are partly allowed: deductions under sections 54B and 54F are permitted where the assessee purchased the new assets within two years and satisfies the conditions of sections 54B(1) and 54F(1) (AO to verify), and the deduction under section 48 is directed to be allowed after verification; other grounds not pressed are dismissed as not pressed.

Reopening of assessment under section 147 - Reason to believe - Change of opinion - Requirement of fresh and tangible material for reassessment - Determination of income under section 44AD - Obligation to record and supply reasons under section 148 - Acceptance of books of account and audit report in original assessment

Reopening of assessment under section 147 - Reason to believe - Change of opinion - Requirement of fresh and tangible material for reassessment - Acceptance of books of account and audit report in original assessment - Validity of notice issued under section 148 and assumption of jurisdiction to reopen assessment under section 147 for AY 2007-08 - HELD THAT: - The Tribunal examined whether the AO had a valid reason to believe that income had escaped assessment so as to justify reopening under section 147. On the record it was found that during the original assessment under section 143(3) the assessee had produced books of account and the audit report which were accepted in the assessment proceedings. The AO's reasons for reopening reiterated that books, bills and vouchers were not verifiable and applied a notional profit rate under section 44AD, but no fresh or tangible material surfaced after completion of the original assessment to justify a different conclusion. The Tribunal relied on an earlier coordinate bench decision in respect of identical facts holding that the reassessment in those cases was founded on a mere change of opinion and that the AO had not produced fresh material; the decision further noted the AO's duty to address objections by a speaking order before proceeding. Applying that reasoning to the present cases, the Tribunal concluded that initiation of proceedings was without jurisdiction. [Paras 7, 8]

Proceedings under section 147/148 were invalidly initiated; reassessment orders are quashed and the appeals are allowed.

Final Conclusion: On the facts and following the Tribunal's earlier decision on identical facts, reopening proceedings under section 147/148 for AY 2007-08 were held to be invalid as based on change of opinion and lacking fresh tangible material; the reassessment orders are quashed and the assessee's appeals are allowed.

Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars - effect of filing revised return on liability for penalty - penalty not automatic on mere disallowance where full disclosure is made - escapement of income

Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars - effect of filing revised return on liability for penalty - Whether penalty under section 271(1)(c) can be sustained where the assessee filed a revised return on discovering an error and there was no intention to furnish inaccurate particulars. - HELD THAT: - The Tribunal found that the assessee, upon discovering an error in the return for A.Y 2003-04, filed a revised return and there was no material to show intentional or deliberate furnishing of inaccurate particulars. The Assessing Officer had not scrutinised the assessment or issued any notice prior to the filing of the revised return, and the conduct of filing the revised return indicated absence of fraudulent intent. Reliance was placed on authorities that a mere disallowance does not automatically attract penalty where full disclosure has been made and the claim is debatable or reasonably arguable. Applying these principles, the Tribunal held that the CIT(A)'s finding of guilty furnishing of inaccurate particulars was inappropriate and the penalty could not be sustained. [Paras 13]

Penalty under section 271(1)(c) is not leviable as there was no intention to furnish inaccurate particulars and the assessee filed a revised return on discovering the error.

Penalty not automatic on mere disallowance where full disclosure is made - escapement of income - Whether the Revenue's appeal against deletion of penalty relating to disallowance of reimbursement of communication fees to directors is maintainable where the quantum appellate authority (ITAT) deleted the disallowance. - HELD THAT: - The Tribunal noted that in the quantum proceedings the ITAT had deleted the disallowance of reimbursement of communication fees as not being payment for royalty or fees for technical services. Since the disallowance was deleted by the ITAT, there was no escapement of income on that issue and, consequently, no basis to sustain penalty for that addition. Therefore the Revenue's ground seeking to uphold the penalty on this count was unsustainable. [Paras 10, 13, 14]

Revenue's appeal is dismissed as the ITAT deleted the disallowance relating to communication fees, leaving no escapement of income to support the penalty.

Final Conclusion: The assessee's appeal is allowed and the penalty under section 271(1)(c) is deleted; the Revenue's appeal is dismissed.

Nature of asset (intangible v. plant and machinery) - functional test for classification of plant and machinery - depreciation rate applicable to intangible assets - Explanation 3 to Section 43(1) - substitution of actual cost on related party transfer - requirement of satisfaction by Assessing Officer before invoking Explanation 3 - valuation evidence and market/arm's length valuation in related party transfers

Nature of asset (intangible v. plant and machinery) - functional test for classification of plant and machinery - depreciation rate applicable to intangible assets - Classification of the Film Software Library and the rate of depreciation allowable thereon - HELD THAT: - The Tribunal examined whether the film software library (copyrighted films and programmes stored on physical media) is an intangible asset or falls within "plant and machinery" so as to attract a lower depreciation rate. The AO applied a functional test, treating the library as a vital tool of trade because CDs/storage media are used to store telecast content, and thus allowed depreciation at 15%. The Tribunal rejected that approach, noting that the library, though essential for content, is not integral to hardware nor indispensable to the assessee's capacity to carry on its business (the assessee could telecast other content). Guidance from Ind AS 38 and precedents shows an intangible may be treated as plant only where the intangible is an integral part of the related hardware or tool. Applying this test to the material facts, the Tribunal held the asset consists of copyrighted films and programmes and is an intangible asset eligible for depreciation at 25%, and therefore rejected Revenue's ground seeking treatment as plant and machinery. [Paras 11]

The Film Software Library is an intangible asset and depreciation @25% is allowable; Revenue's ground seeking treatment as plant and machinery is rejected.

Explanation 3 to Section 43(1) - substitution of actual cost on related party transfer - requirement of satisfaction by Assessing Officer before invoking Explanation 3 - valuation evidence and market/arm's length valuation in related party transfers - Applicability of Explanation 3 to Section 43(1) to the purchase of the film library and whether the AO properly substituted the seller's WDV as the assessee's actual cost - HELD THAT: - The Tribunal analysed the statutory conditions for invoking Explanation 3: (i) asset used by another for business prior to transfer (undisputedly satisfied), and (ii) the AO must be satisfied that the main purpose of the transfer was reduction of income tax liability by claiming depreciation on an enhanced cost. The AO concluded that, as the transfer was between related parties and the purchase price was substantially higher than the seller's WDV, Explanation 3 was attracted and adopted the seller's WDV. The CIT(A) held Explanation 3 inapplicable, partly because the AO had not recorded requisite satisfaction and because the AO's approach ignored substantial parts of the library outside the WDV basket; the Tribunal found the factual matrix (notably the asserted third party investment and commercial reasons for valuation by Ernst & Young) required verification. The Tribunal concluded that the record does not satisfactorily resolve whether the stated commercial circumstances (third party investment conditions, loans, subsequent investor acceptance of the valuation) negate the inference of tax motivation, and therefore remitted the issue to the AO for limited verification of facts. It directed that if the AO ultimately finds Explanation 3 attracted, the AO should not merely adopt the seller's WDV but, with prior approval of the JCIT, determine actual cost having regard to all circumstances and, if rejecting the valuer's report, give a speaking order and revalue the asset by a lawful method. [Paras 16, 17, 19, 32]

Issue remanded to the AO for limited factual verification of the stated commercial circumstances leading to the transfer; if those circumstances are proved, Explanation 3 will not apply, but if not proved the AO may invoke Explanation 3 only after proper determination of actual cost (with JCIT approval) and not by simply adopting the seller's WDV.

Final Conclusion: The Tribunal affirmed that the Film Software Library is an intangible asset eligible for depreciation at 25% (Revenue's challenge on classification dismissed), but remitted the question of applicability of Explanation 3 to Section 43(1) to the Assessing Officer for limited verification of the commercial circumstances surrounding the transfer; if AO finds Explanation 3 attracted he must determine actual cost in accordance with law (with JCIT approval) and not merely adopt the seller's WDV.

Addition under section 68 - burden of proof and initial onus to establish identity and creditworthiness of creditors - admissibility of fresh evidence before the first appellate authority - obligation of the Assessing Officer to make enquiries into creditors and documentary evidence - allowability of interest corresponding to loans held to be genuine

Addition under section 68 - burden of proof and initial onus to establish identity and creditworthiness of creditors - obligation of the Assessing Officer to make enquiries into creditors and documentary evidence - admissibility of fresh evidence before the first appellate authority - Deletion of addition of Rs. 2,21,50,000/- made by the AO under section 68 on account of unsecured loans from three creditors. - HELD THAT: - The Tribunal accepted the findings of the CIT(A) that the assessee discharged the initial onus by filing confirmations from the three creditors with PAN and addresses and, in the appellate proceedings, by placing on record audited accounts, income-tax returns and assessment orders of the creditors to demonstrate receipts, profits and interest income. The AO rejected that documentary evidence as fresh and refused to consider it under Rule 46A, but the CIT(A) admitted it on the ground of sufficient cause. The Tribunal noted that the AO, after receipt of the audited accounts, did not make any enquiries nor produced material to show those accounts were false or fabricated. In absence of any contrary material or enquiries by the AO, the documentary evidence could not be rejected and the assessee's initial burden to establish identity, creditworthiness and genuineness of the loans was met. Consequently, the CIT(A)'s deletion of the addition was upheld. [Paras 8]

The deletion of the addition of Rs. 2,21,50,000/- under section 68 is upheld and the Revenue's ground is dismissed.

Allowability of interest corresponding to loans held to be genuine - Deletion of disallowance of interest of Rs. 9,99,175/- debited to Profit & Loss account in respect of the unsecured loans. - HELD THAT: - The AO disallowed interest on two bases: (i) corresponding loans had been treated as unexplained under section 68 (leading to disallowance of interest of Rs. 9,99,175/-) and (ii) other interest disallowed as funds were said to be diverted to interest-free advances and investments. Having upheld the deletion of the additions in respect of the unsecured loans, the Tribunal held that the corresponding interest (disallowed only because the loans were treated as unexplained) became allowable. The CIT(A)'s deletion of the interest disallowance was therefore sustained. [Paras 9, 10]

The deletion of the disallowance of interest of Rs. 9,99,175/- is upheld and the Revenue's additional ground is dismissed.

Final Conclusion: Both the Revenue's appeal and the assessee's cross-objection are dismissed; the Tribunal upholds the CIT(A)'s deletion of the addition under section 68 and the corresponding disallowance of interest.

Penalty under section 271C - Reasonable cause for failure to deduct tax at source - Contumacious conduct requirement for imposition of penalty - Assessee in default under section 201 - Failure to deduct TDS on advertisement - Failure to deduct TDS on salary - Failure to deduct TDS where no explanation is offered

Failure to deduct TDS on advertisement - Reasonable cause for failure to deduct tax at source - Contumacious conduct requirement for imposition of penalty - Deletion of penalty under section 271C for non-deduction of TDS on advertisement payments - HELD THAT: - The assessee explained that payments to newspapers/agents were for announcing dates for receipt of applications and appointment of staff and were in the belief not to be 'advertisement' attracting TDS. Applying the test of reasonable cause (as explained in Woodward Governors India (P) Ltd. v. CIT) - i.e. an honest belief founded on reasonable grounds which is not frivolous - the Tribunal found the explanation to be bona fide and not contumacious. The assessee deposited the TDS with interest when the default was pointed out and thereafter deducted TDS on similar payments, which supported the bona fides. Relying on the requirement of contumacious conduct for levy of penalty (as recognised by the Apex Court in Bank of Nova Scotia), the Tribunal held penalty under section 271C not leviable in respect of the advertisement defaults and deleted the penalty. [Paras 10, 11]

Penalty under section 271C imposed for non-deduction of TDS on advertisement payments deleted.

Failure to deduct TDS on salary - Assessee in default under section 201 - Reasonable cause for failure to deduct tax at source - Deletion of penalty under section 271C for non-deduction of TDS on salary payments - HELD THAT: - For AY 2008-09 the assessee failed to deduct TDS on certain salary payments which were later regularised: an order under section 154/201(1)/201(1A) recorded that the amounts were either paid by the deductees or relief was claimed under section 89 and the demand on the assessee was deleted (with only interest under section 201(1A)). The assessee's explanation (software omission and genuine mistake leading to short deduction) was not found to be false. There was no contumacious conduct; applying the Apex Court's requirement of contumacious conduct for penalty under section 271C, the Tribunal held penalty not leviable for the salary-related defaults and deleted the penalty. The Tribunal noted that having deleted penalty on grounds of reasonable cause it did not adjudicate the separate contention on assesssee-ship under section 201 further. [Paras 12]

Penalty under section 271C imposed for non-deduction of TDS on salary payments deleted.

Failure to deduct TDS where no explanation is offered - Penalty under section 271C - Upheld penalty under section 271C for non-deduction of TDS on AMC charges where no explanation was furnished - HELD THAT: - The assessee failed to offer any explanation for non-deduction of TDS on AMC charges (small amount). In the absence of any explanation or reasonable cause and having found no supporting facts to show bonafides or lack of contumacious conduct, the Tribunal sustained the levy of penalty under section 271C for this specific default. [Paras 13]

Penalty under section 271C for non-deduction of TDS on AMC charges upheld.

Final Conclusion: The appeals are allowed insofar as penalties under section 271C levied for non-deduction of TDS on advertisement and on salary (AYs 2008-09 and 2010-11) are deleted for want of contumacious conduct and on the basis of reasonable cause; the penalty in respect of non-deduction on AMC charges is upheld; the appeal for 2009-10 is partly allowed and the other appeals are allowed as recorded.

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - reliance on registered valuer report - surrender during survey - intention to defraud the revenue

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - reliance on registered valuer report - surrender during survey - intention to defraud the revenue - Levy of penalty under section 271(1)(c) for alleged inaccurate particulars of income in respect of unexplained investment in construction of house property. - HELD THAT: - The assessee had surrendered an estimated amount for unexplained investment in construction of house property during survey, but subsequently obtained a report from a registered valuer which assessed the cost of construction at a lower figure and the assessee disclosed the undisclosed investment in the return on that basis. The statement recorded at survey shows the surrendered figure was an estimate arrived at by applying per square foot rates and the assessee expressly stated that correct valuation could be made only by a valuer. The Tribunal held that where particulars disclosed in the return are based on a registered valuer's determination and the earlier surrender was an estimate, the disclosure cannot be treated as furnishing inaccurate particulars with an intent to defraud the revenue. Because the registered valuer's report was not rejected by any authority below and the reduction resulted from that valuation, the essential requirement for imposing penalty under section 271(1)(c) - that the assessee furnished inaccurate particulars with culpable intent - was not established. Accordingly the levy of penalty was unwarranted. [Paras 4, 10, 11]

Penalty under section 271(1)(c) set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal and cancelled the penalty under section 271(1)(c), holding that disclosure based on a registered valuer's report did not constitute furnishing of inaccurate particulars with intention to defraud the revenue.

Restoration of appeal - dismissal for non-compliance / non-appearance - parties should not suffer for lapses of counsel - pre-deposit of duty / waiver of pre-deposit - prima facie case for waiver of pre-deposit - chargeability to countervailing duty under Customs Tariff Act read with RSP and Central Excise law - S.W.M. Act applicability

Restoration of appeal - dismissal for non-compliance / non-appearance - parties should not suffer for lapses of counsel - Dismissal of the appeal for non-compliance was recalled and the appeal restored. - HELD THAT: - The Tribunal examined the record and correspondence showing that the advocate originally engaged had withdrawn the brief and that the appellant's factory premises were sold and central excise registration surrendered, facts which were not communicated to the Tribunal. It was found that the appellant did not receive the interim stay order or the final dismissal order and that, upon obtaining a copy of the dismissal order, the appellant promptly filed the restoration application. Having regard to consistent authorities of the High Courts and the Supreme Court's principle that litigants should not be deprived of a hearing on the merits for lapses of their counsel, the Tribunal held that the dismissal for non-compliance should be recalled and the appeal restored so that the merits may be adjudicated. [Paras 4]

Dismissal recalled and restoration application allowed; stay application taken up for hearing on merits.

Pre-deposit of duty / waiver of pre-deposit - prima facie case for waiver of pre-deposit - chargeability to countervailing duty under Customs Tariff Act read with RSP and Central Excise law - S.W.M. Act applicability - No prima facie case for complete waiver of pre-deposit; conditional partial pre-deposit directed in view of financial constraint. - HELD THAT: - On preliminary examination of the impugned order and the appellants' own interim order, the Tribunal found that the adjudicating authority demanded differential duty for CVD purposes and that, prima facie, the goods fell within the S.W.M. Act and, by virtue of Section 3(2) of the Customs Tariff Act read with the RSP and Section 4A of the Central Excise Act and rules, were chargeable to CVD. Therefore the appellants did not establish a prima facie entitlement to full waiver of pre-deposit. However, taking into account the appellants' plea of financial difficulty, the Tribunal exercised its discretion to direct a limited pre-deposit as a condition for continuance of the appeal and stay. [Paras 5]

Appellants directed to pre-deposit the specified sum within the time ordered; upon such deposit the balance pre-deposit shall be waived; failure to comply will result in dismissal of the appeal without further notice.

Final Conclusion: The Tribunal recalled the dismissal for non-compliance, restored the appeal and permitted the stay application to be heard on merits, while directing a conditional partial pre-deposit by the appellant within the stipulated time; non-compliance will lead to dismissal of the appeal.

Conversion of Free Shipping Bills into Export Promotion Scheme/DEEC Shipping Bills - amendment of shipping bills under Section 149 of the Customs Act, 1962 - application and scope of CBEC Circular No.36/2010-Cus. dated 23.09.2010 - effect of EDI/ICES technical failure on permissibility of conversion

Conversion of Free Shipping Bills into Export Promotion Scheme/DEEC Shipping Bills - amendment of shipping bills under Section 149 of the Customs Act, 1962 - application and scope of CBEC Circular No.36/2010-Cus. dated 23.09.2010 - effect of EDI/ICES technical failure on permissibility of conversion - Conversion of the appellant's five Free Shipping Bills into Export Promotion Scheme/DEEC Shipping Bills was permissible and should be allowed by the lower authorities. - HELD THAT: - The Tribunal found that documentary evidence in existence at the time of export showed the consignments were intended to discharge export obligation under the Advance Authorization. The inability to generate DEEC shipping bills arose from a technical malfunction in the Customs EDI (ICES) and unsuccessful manual filing attempts, not from any fraud or manipulation by the exporter. Section 149 permits amendment of shipping bills after export where documentary evidence existed at the time of export; CBEC Circular No.36/2010-Cus. (para 3) envisages conversion on a case to case basis in accordance with Section 149 and subject to DGFT/MOC conditions. Applying these provisions and authorities of the Tribunal (CESTAT, Bangalore in Gennex Laboratories Ltd. and CESTAT, Chennai in Kiran Pondy Chems Ltd.), the Tribunal held the lower authorities erred in refusing conversion merely because the DEEC shipping bills could not be generated by EDI. The facts and contemporaneous documents supported the appellant's entitlement to conversion, and the conversion ought to be permitted without further delay. [Paras 4, 5]

Lower authorities were directed to permit conversion of the five Free Shipping Bills into Export Promotion Scheme/DEEC Shipping Bills and accept the appellant's request.

Final Conclusion: Appeal allowed; the Tribunal directed the Customs authorities to permit conversion of the five Free Shipping Bills into DEEC/Export Promotion Scheme shipping bills on the basis of documentary evidence existing at the time of export and in accordance with Section 149 and CBEC Circular No.36/2010-Cus.

Natural justice - right to cross-examination - prejudice from denial of cross-examination - statements recorded under Section 108 of the Customs Act - admissibility of statements relied upon in adjudication - valuation of non-prime goods - comparative valuation with prime-quality imports - requirement of physical examination for valuation of goods supplied on "as is where is" basis

Natural justice - right to cross-examination - prejudice from denial of cross-examination - admissibility of statements relied upon in adjudication - Whether the adjudicating authority's reliance on statements of third parties, without allowing sought cross-examination, violated principles of natural justice and rendered the adjudication unsustainable. - HELD THAT: - The appellants had specifically sought cross-examination of various persons whose statements recorded by investigating authorities were relied upon in adjudication. The Revenue conceded that no record of what was recorded at the personal hearing (26.03.2010) is available to show that the appellants eschewed cross-examination. Applying the principle in Dharampal Satyapal v. CCE, the Tribunal held that where denial of cross-examination of persons whose statements are relied upon causes prejudice to the appellant, those statements must be ignored. The adjudicating authority's finding of undervaluation was essentially based on such statements and the materials produced through them. Once those statements and attendant details are disregarded because cross-examination was not permitted, the foundation of the impugned order collapses and the order becomes unsustainable. [Paras 5]

Statements of the third parties relied upon in adjudication must be ignored due to denial of the appellants' right to cross-examination; the impugned order based on those statements is unsustainable.

Valuation of non-prime goods - comparative valuation with prime-quality imports - requirement of physical examination for valuation of goods supplied on "as is where is" basis - Whether the valuation comparison with prime-quality imports could be sustained in absence of physical examination of the appellants' imported goods which were alleged to be recycled/non-prime and supplied on an "as is where is" basis. - HELD THAT: - The Tribunal observed evidence indicating that the imported professional video cassettes were recycled/non-prime and were supplied on an "as is where is" basis without warranty, with negotiated prices evidenced by email exchanges. The goods had been examined, assessed and cleared by Customs and were not available for re-examination. It is a settled proposition that non-prime goods cannot be fairly valued by direct comparison with prime-quality imports; valuation of non-prime goods supplied on an "as is where is" basis requires physical examination to ascertain quality and value. There was nothing on record to show the cleared goods were of prime quality, and therefore the comparative valuation methodology adopted in the impugned order could not be sustained. [Paras 5]

Comparative valuation with prime-quality imports is unsustainable absent physical examination proving the goods were of prime quality; valuation based on such comparison cannot stand.

Final Conclusion: Having held that the appellants were prejudiced by denial of cross-examination of witnesses whose statements formed the basis of the adjudication, and that comparative valuation with prime-quality imports was impermissible in the absence of physical examination of allegedly non-prime goods, the Tribunal set aside the impugned order and allowed the appeals.

All Industry Rate of Drawback - Rule 19(2) of the Central Excise Rules, 2002 - proviso 2(f) of Notification No. 26/2003-Cus (N.T.) dated 01.04.2003 - neutralisation of input-stage duties (drawback) principle - strict construction of fiscal and taxation statutes

All Industry Rate of Drawback - Rule 19(2) of the Central Excise Rules, 2002 - proviso 2(f) of Notification No. 26/2003-Cus (N.T.) dated 01.04.2003 - Entitlement to the Customs allocation of the All Industry Rate of drawback where the goods were manufactured or exported after removal under Rule 19(2) of the Central Excise Rules, 2002. - HELD THAT: - The Court held that Notification No. 26/2003-Cus (N.T.) expressly excludes applicability of the All Industry Rates of drawback to commodities or products which are manufactured or exported in terms of sub rule (2) of Rule 19 of the Central Excise Rules, 2002. The petitioner admitted manufacture and export under Rule 19(2). The Notification's General Note 2(f) operates as a categorical exclusion of the whole All Industry Rate drawback in such cases; there is no scope for judicially bifurcating the drawback into separate Customs and Central Excise allocations so as to grant the Customs component alone. Circulars and earlier administrative clarifications relied upon by the petitioner cannot be read in isolation to override the clear proviso: Para 4 of the cited Circular itself requires that exporters must not avail all facilities under Rule 19(2) while allowing drawback. Fiscal statutes must be strictly construed and the Court will not read words into the proviso to permit a 'back door' entry into the drawback scheme. Consequently the authorities below rightly rejected the claim for All Industry Rate drawback (Customs allocation) on the admitted facts. [Paras 9, 13, 14]

Claim for the Customs allocation of the All Industry Rate of drawback is inadmissible where the goods were manufactured or exported under Rule 19(2); petition dismissed.

Final Conclusion: The writ petition is dismissed. The authorities' rejection of the drawback claim under Notification No. 26/2003-Cus (N.T.) read with proviso 2(f), in respect of goods manufactured/exported under Rule 19(2) of the Central Excise Rules, 2002, is upheld.

Provisional release pending adjudication - adjudication of seizure - direction to commence and complete adjudication within fixed time - provisional release of seized goods under section 110-A of the Customs Act - confiscation of goods liable under section 111(d) and 111(l) of the Customs Act

Adjudication of seizure - provisional release pending adjudication - Petition for provisional release of seized gold pending adjudication and direction regarding commencement and completion of adjudication. - HELD THAT: - The Court noted that adjudication in O.S.No.1366 of 2015 had not yet been commenced by the respondents. In view of the non-commencement, the Court declined to order provisional release of the seized gold at this stage and instead directed the respondents to commence adjudication forthwith and complete it within twelve weeks from receipt of the order. The Court held that the petitioner may seek release of the gold after completion of the adjudication, thereby deferring any determination on provisional release until adjudication is concluded. [Paras 6]

Respondents directed to commence and complete adjudication within twelve weeks; petitioner may seek release of the gold after adjudication is completed.

Provisional release of seized goods under section 110-A of the Customs Act - Permission to file an application under section 110-A of the Customs Act and its consideration by respondents. - HELD THAT: - The Court declined to grant immediate relief by way of provisional release but granted liberty to the petitioner to file an application under section 110-A of the Customs Act. The respondents were directed to consider any such application on merits and in accordance with law. This leaves the statutory route under section 110-A open for the petitioner without deciding the merits of such an application at present. [Paras 7]

Liberty granted to petitioner to file an application under section 110-A of the Customs Act; respondents to decide it on merits and in accordance with law.

Final Conclusion: Writ petition dismissed. Respondents directed to commence and complete adjudication within twelve weeks; petitioner may seek release after adjudication and is granted liberty to file an application under section 110-A of the Customs Act for consideration on merits.

Classification and reasonable nexus to object - Equality before law and non-discrimination (Article 14) - Right to carry on business and level playing field (Article 19(1)(g)) - Arbitrariness, artificial and evasive classification - Permissible administrative latitude versus discriminatory policy

Classification and reasonable nexus to object - Equality before law and non-discrimination (Article 14) - Arbitrariness, artificial and evasive classification - Permissible administrative latitude versus discriminatory policy - Validity of the impugned classification into Category 'A' and Category 'B' for allocation of the country cap for import of poppy seeds. - HELD THAT: - The Court held that the classification premised on having imported in at least three of the last five financial years lacks a reasonable nexus to the object of regulating imports for public interest and ensuring supply. The classification was characterised as illusory, artificial and evasive because all importers use poppy seeds for the same purpose and the scheme substantially prejudices new entrants and smaller importers by subordinating their allotment to Category 'A'. The Court applied the principle that differentia must be sound and reasonably related to the legislative or policy object, and that administrative latitude does not permit exclusionary classifications that produce monopoly or hostile discrimination. Reliance on authorities recognising permissible latitude did not save the impugned scheme, since the instant classification did not demonstrate a rational connection to its stated aims and failed the test of non-discrimination and level playing field embodied in Articles 14 and 19(1)(g). Consequently, the classification provisions of the public notice were unsustainable in law. [Paras 9, 10, 11, 15, 18]

Impugned public notice PS-7/2015 insofar as classification into Category 'A' and Category 'B' is set aside as violative of Article 14 and the principle of level playing field.

Right to carry on business and level playing field (Article 19(1)(g)) - Permissible administrative latitude versus discriminatory policy - Maintainability of the writ petition by a petitioner who had not applied under the impugned public notice. - HELD THAT: - The Court found that a challenger need not have participated in the impugned scheme to impugn the legality of the public notice; the petitioner had applied under an earlier policy which was subsequently withdrawn and thus had locus to challenge the basis of the new notice. The Court observed that the writ petition could be considered on merits because it attacked the foundational legality of the classification rather than contesting an individual allocation outcome. [Paras 16]

Writ petition held maintainable; petitioner entitled to challenge the impugned public notice despite not having applied under the specific notice.

Final Conclusion: Writ petition allowed; public notice PS-7/2015 dated 14.09.2015 is set aside insofar as the A/B classification, and respondent No.4 is at liberty to issue a fresh notice consistent with law and the principles of equality and level playing field; no order as to costs.

Disbursement of adjudicated secured claim under Section 530 of the Companies Act, 1956 - verification and quantification of claim by Official Liquidator's appointed chartered accountants - priority of distribution from liquidation proceeds subject to earlier court-directed set-aside - conditional undertaking to refund in event of higher priority claims (taxes and government dues) - permission to meet liquidation expenses from company account

Disbursement of adjudicated secured claim under Section 530 of the Companies Act, 1956 - verification and quantification of claim by Official Liquidator's appointed chartered accountants - priority of distribution from liquidation proceeds subject to earlier court-directed set-aside - Permission to disburse the adjudicated claim amount to the State Bank of India from the liquidation account of M/s Jechins Pharmaceuticals Limited. - HELD THAT: - The Recovery Certificate issued by DRT, Ahmedabad, adjudicated the applicant's claim and the Official Liquidator invited and received the claim in Form No.66 which was verified and quantified by chartered accountants appointed by the Official Liquidator. The Official Liquidator's fund position as on 30.11.2015 showed sufficient funds after setting aside an amount required by an earlier order of this Court in Company Application No.6/2012 in favour of GSFC. In view of the verified quantification and available balance after the mandated set-aside, the Official Liquidator was permitted to disburse the adjudicated claim amount to the State Bank of India, subject to the conditions recorded in the order. [Paras 3, 4, 5, 6, 8]

The Official Liquidator is permitted to disburse Rs. 1,39,65,796.12ps. (adjudicated claim) to the State Bank of India out of the available liquidation funds under Section 530 of the Companies Act, 1956.

Conditional undertaking to refund in event of higher priority claims (taxes and government dues) - Requirement that the State Bank of India file the usual undertaking before the Official Liquidator accepting liability to refund if higher priority claims necessitate recoupment. - HELD THAT: - The Official Liquidator sought and the Bank agreed to give the customary undertaking that, if amounts are subsequently required to satisfy dues of the Income Tax Department or other Government authorities, the Bank will refund such amounts when called upon. The Bank's counsel confirmed willingness to file this undertaking prior to disbursement. [Paras 6, 7, 8]

The State Bank of India shall file the usual undertaking with the Official Liquidator before payment is effected.

Permission to meet liquidation expenses from company account - Authority to make specified payments for advertisement expenses and chartered accountant's fees from the company's liquidation account. - HELD THAT: - The Official Liquidator sought permission to effect payments from the company's account towards advertisement charges of the public notice and fees of the chartered accountants as per bills produced. The Court, noting these are liquidation expenses properly incurred and documented, permitted the Official Liquidator to make those payments from the company account. [Paras 5, 8]

The Official Liquidator is permitted to pay the advertisement expenses to M/s.Navnitlal & Co. and the fees to M/s.P.Dalal & Co. from the company's account as directed.

Final Conclusion: Application allowed: the Official Liquidator may disburse the adjudicated secured claim to the State Bank of India from the liquidation funds subject to the Bank filing the usual undertaking; the Official Liquidator is also permitted to meet specified advertisement and chartered accountant expenses from the company account.

Scheme of amalgamation sanction under Sections 391-394 of the Companies Act, 1956 - Supervisory jurisdiction of the Company Court to ensure transparency, fairness and absence of statutory violation or prejudice to public interest - Procedural non-compliance and compounding under the Companies Act, 1956 - Income-tax liability as distinct from sanction of a scheme of amalgamation

Scheme of amalgamation sanction under Sections 391-394 of the Companies Act, 1956 - Supervisory jurisdiction of the Company Court - Sanction of the scheme of amalgamation between Rajasthan Hardware Private Limited (transferor) and Rajasthan Aluminium House Private Limited (transferee). - HELD THAT: - The Company Court's role on an application under Sections 391 and 394 is supervisory and limited to ensuring that the proposed amalgamation is transparent, fair and reasonable and that no statutory rule is violated nor public interest prejudiced. On consideration of the scheme, the affidavits filed by the Regional Director and the report of the Official Liquidator (which recorded no objection and found no conduct prejudicial to members, creditors or public), and the material on record, the Court found no ground to deny sanction. The requisite procedures for initiating the merger and seeking court sanction were followed and nothing in the scheme was found prejudicial to creditors, members or public interest. Accordingly the scheme as set out in Annexure-5 to the petition was sanctioned and declared binding on creditors and equity shareholders of both companies.

The company petition is allowed and the scheme of amalgamation is sanctioned and declared binding on creditors and equity shareholders of both companies.

Procedural non-compliance and compounding under the Companies Act, 1956 - Income-tax liability as distinct from sanction of a scheme of amalgamation - Effect of alleged procedural defaults and Income Tax clearance on sanction of the amalgamation. - HELD THAT: - The Regional Director pointed out procedural defaults under the Companies Act, 1956 and the transferor's belated compliance with a provision relied upon; the petitioner undertook to seek compounding where required. The Court accepted that alleged procedural violations do not, by themselves, warrant denial of the scheme where compliance can be achieved or compounding sought and where no prejudice to members, creditors or public is shown. The Court further held that Income Tax clearance is not a requirement that flows directly from Section 391; Income Tax liability is distinct and remains enforceable as per law for periods before and after sanction, and the petitioner undertook to comply with the Income Tax Act, 1961. Consequently absence of Income Tax clearance did not prevent sanctioning the scheme.

Procedural defaults noted do not bar sanction where compounding or compliance may be pursued; absence of Income Tax clearance is not a ground to deny sanction, subject to the companies' undertaking to comply with tax laws.

Final Conclusion: The High Court, exercising its supervisory role under Sections 391-394, sanctioned the scheme of amalgamation between the two companies as not prejudicial to creditors, members or public interest; procedural defaults and the absence of Income Tax clearance did not preclude sanction, subject to the companies' undertaking to seek compounding and comply with tax laws.

Exemption from service tax for construction services to governmental authority - definition of "governmental authority" in Notification No.25/2012 as amended by Notification No.2/2014 - interpretation of disjunctive statutory or notification clauses - service tax liability on works contracts - refund entitlement and undue enrichment

Exemption from service tax for construction services to governmental authority - definition of "governmental authority" in Notification No.25/2012 as amended by Notification No.2/2014 - interpretation of disjunctive statutory or notification clauses - Whether construction of the academic block of the Indian Institute of Technology, Bihta (an institute set up by an Act of Parliament) is exempt from service tax under Notification No.25/2012 as amended by Notification No.2/2014. - HELD THAT: - The court found it undisputed that the Institute was established by the Indian Institutes of Technology Act, 1961 and therefore falls within the category of an authority set up by an Act of Parliament. Notification No.25/2012 grants exemption for services by way of construction provided to the Government, a local authority or a governmental authority. Notification No.2/2014 amended the definition of "governmental authority" by substituting clause (s) as comprising two disjunctive sub-clauses: (i) an authority set up by an Act of Parliament or a State Legislature; or (ii) an authority established by Government with 90% or more participation by way of equity or control to carry out functions under Article 243W. The court held that sub-clauses (i) and (ii) are independent and disjunctive; the 90% participation condition applies only to sub-clause (ii) (authorities established by Government) and not to bodies set up by statute. Consequently, an authority constituted by an Act of Parliament qualifies as a "governmental authority" for the purpose of the exemption, and construction activity carried out for such an institute is exempt from service tax under the notification as amended. [Paras 9, 11]

Construction of the Institute's academic block is exempt from service tax under Notification No.25/2012 as amended by Notification No.2/2014; the 90% participation condition does not apply to authorities set up by an Act of Parliament.

Service tax liability on works contracts - refund entitlement and undue enrichment - Whether service tax paid/collected in respect of the exempted construction activity can be retained or must be refunded, and whether refund would amount to undue enrichment. - HELD THAT: - Having held that the levy was not chargeable, the court concluded that amounts paid as service tax by the petitioner or respondent No.4 and collected by respondent No.1 cannot be lawfully retained. The argument that refund would result in undue enrichment was rejected: the court observed the petitioner itself paid the service tax and sought reimbursement from the Institute in terms of the contract, rather than having collected tax from numerous consumers. Therefore the payment does not constitute an indirect collection giving rise to undue enrichment. On the basis that the levy was not chargeable, respondent No.1 was directed to refund the deposited service tax to the petitioner or respondent No.4 as appropriate, expeditiously. [Paras 12, 13, 14]

The service tax paid/deposited in respect of the exempted construction activity must be refunded; refund is not barred by undue enrichment.

Final Conclusion: The petition succeeds: the construction services for the Institute (set up by an Act of Parliament) are exempt from service tax under the notification as amended, the communications directing payment are quashed, and the duty-holder (respondent No.1) is directed to refund the service tax deposited to the petitioner or the Institute expeditiously.

Valuation of taxable services for charging Service Tax - Reverse Charge Mechanism - Actual consideration to be the value of taxable service provided from outside India - Interpretation and application of Section 67 of the Finance Act, 1994 - Service Tax (Determination of Value) Rules, 2006 - Rule 7

Valuation of taxable services for charging Service Tax - Actual consideration to be the value of taxable service provided from outside India - Reverse Charge Mechanism - Whether the amount of Income Tax discharged by the appellant on payments to a foreign architect forms part of the taxable value under the Reverse Charge Mechanism or Service Tax is exigible only on the actual consideration billed by the foreign service provider. - HELD THAT: - The Tribunal examined Section 67 which prescribes that where service is for consideration in money the value is the gross amount charged by the service provider, and construed it together with Rule 7 of the Service Tax Valuation Rules, 2006 which provides that value of taxable service received from outside India shall be equal to the actual consideration charged. On the facts the appellant produced the invoice issued by the foreign architect and had discharged Service Tax on the amount billed. There is no material that the appellant recovered from the architect the Income Tax (TDS) amount or that such tax formed part of the consideration charged by the service provider. Applying the statutory scheme, the Tribunal held that valuation for Service Tax under the Reverse Charge Mechanism is to be undertaken with reference to the amount billed by the foreign service provider (the actual consideration charged) and not by augmenting that billed amount with the Income Tax paid by the recipient. [Paras 6, 7, 8, 9, 10]

Service Tax under the Reverse Charge Mechanism is exigible only on the actual consideration billed by the foreign architect as per Section 67 read with Rule 7; the Income Tax discharged by the appellant does not form part of the taxable value.

Final Conclusion: The impugned order set aside; appeal allowed and the appellate order of the Commissioner (Appeals) is quashed, with consequential reliefs if any.

Support services of business or commerce - Pure Agent - Value of taxable service - CENVAT Credit - Extended period of limitation - Revenue neutrality - Service tax chargeability

Support services of business or commerce - Service tax chargeability - Whether the activities of the appellant in 2006-07 and 2007-08 amounted to a taxable service classifiable as "Support services of business or commerce". - HELD THAT: - The Tribunal found that the appellant merely procured common services from third parties and allocated the costs to Participating Group Companies under a cost sharing arrangement; it did not itself provide the specified business support activities to those companies. The receipts were reimbursements of actual costs incurred and not consideration for rendition of a taxable service. The amended wider definition introduced prospectively w.e.f. 1.5.2011 cannot be applied to the relevant period. Reliance on earlier circulars and authorities supported that reimbursements at actual were not includible in value of taxable service for the period in question. On these determinative facts and legal position the Tribunal held there was no rendition of a taxable service by the appellant during 2006 07 and 2007 08 and the demand could not be sustained. [Paras 5]

The activities did not qualify as taxable "Support services of business or commerce" for 2006-07 and 2007-08; no service tax demand could be sustained on that basis.

Pure Agent - Value of taxable service - CENVAT Credit - Whether the appellant satisfied the conditions of a "Pure Agent" under Rule 5(2) of the Valuation Rules so that reimbursements are excluded from the value of taxable service. - HELD THAT: - The Tribunal applied the conditions of Rule 5(2) and its Explanation and found that the appellant (a trustee/manager) procured services on behalf of Participating Group Companies, incurred payments to third parties, was authorized by the recipients, did not hold title or use the services, and recovered only the actual amounts paid. The invoices and a CA certificate substantiating CENVAT related inputs were produced and the appellant met the prerequisites for exclusion as a pure agent. Authorities were cited where reimbursements were held not leviable to service tax. Consequently the amounts recovered as reimbursements could not be included in the taxable value. [Paras 5]

The appellant qualified as a "Pure Agent" for the relevant reimbursements and those amounts were excludable from the value of any taxable service.

Extended period of limitation - Revenue neutrality - Whether the extended period of limitation for demand could be invoked and whether penalty/extended demand survived in view of revenue neutrality and lack of mala fide intent. - HELD THAT: - The Tribunal noted that the Participating Group Companies were registered and had availed or could avail CENVAT credit of the service tax allegedly paid, rendering the exercise revenue neutral. The adjudicating authority itself recorded absence of intent to evade and acknowledged revenue neutrality. Reliance on precedents established that where transactions are revenue neutral and there is no mala fide intent, invocation of extended period and imposition of penalty is infirm. On this basis the Tribunal concluded that the extended period could not be validly invoked and attendant penalty/demand could not be sustained. [Paras 5]

Extended period of limitation and related penalty/demand were unsustainable in the facts of this case given revenue neutrality and lack of intent to evade.

Final Conclusion: The appeal is allowed. The impugned Order in Original confirming service tax demand, interest and penalty for Financial Years 2006 07 and 2007 08 is set aside and the appellant is given consequential relief.

Trading not a service (prior to explanatory amendment) - prospective operation of an Explanation to subordinate rules - apportionment of CENVAT credit for inputs/input services used partly for exempted activities - availability and reversal of CENVAT credit on common inputs/input services

Trading not a service (prior to explanatory amendment) - prospective operation of an Explanation to subordinate rules - Trading was not a service and the Explanation inserting trading as an "exempted service" in Rule 2(e) of the CENVAT Credit Rules, 2004 operates prospectively from 1-4-2011. - HELD THAT: - The Tribunal examined the nature of "trading" during the period before 1-4-2011 and concluded, following analysis of earlier authorities, that trading could not be treated as a "service" and therefore could not be an "exempted service" prior to the insertion of the Explanation. The Explanation introduced by notification with effect from 1-4-2011 was held to be prospective and could not be invoked to alter the legal characterisation of trading for periods antecedent to its effective date. Reliance placed on previous decisions was considered, and the Tribunal found the reasoning in Mercedes Benz India Pvt Ltd (cited in the order) persuasive on the point that the Explanation did not have retrospective effect.

Trading is not to be treated as a service for the period up to 31-3-2011 and the Explanation operates only from 1-4-2011.

Apportionment of CENVAT credit for inputs/input services used partly for exempted activities - availability and reversal of CENVAT credit on common inputs/input services - CENVAT credit on inputs and input services used both for taxable output services and for trading (not an output service) must be apportioned and the ineligible portion reversed. - HELD THAT: - Given the finding that trading was not an output service (and not an exempted service prior to 1-4-2011), services used commonly for output services and trading could not be wholly availed as credit. The Tribunal agreed with the approach in the cited decision of the Tribunal in Mercedes Benz India Pvt Ltd that apportionment is appropriate, and that turnover may be used as a basis for apportioning the credit between manufactured/output activity and trading/imported traded goods. Consequently, the portion of input service tax not attributable to output services must be reversed.

Credit for input services used in common must be apportioned and the ineligible portion reversed, with apportionment on the basis of turnover being an acceptable method.

Availability and reversal of CENVAT credit on common inputs/input services - The appellate authority's order reducing tax liability after granting benefit of Rule 6(5) and directing appropriate apportionment/reversal of credit was proper and equitable. - HELD THAT: - Applying the conclusions above, the Tribunal found no reason to interfere with the impugned appellate order which had modified the assessing authority's demand by allowing the benefit of Rule 6(5) to the extent indicated and setting aside the penalty. The appellate authority had apportioned the credit (on a turnover basis) and computed the reversal accordingly; that method and result were sustained as reasonable in the circumstances.

The impugned order is proper and equitable and stands affirmed.

Final Conclusion: The appeal is dismissed; the finding that trading was not a service for the period up to 31-3-2011, the requirement to apportion and reverse CENVAT credit on inputs/input services used partly for trading, and the appellate order reducing the liability are affirmed.

Associated enterprises - point of taxation - gross amount charged - deeming provision of book entries - valuation of taxable services - penalties under Section 76 and 77

Associated enterprises - management or control - Whether the respondent is an associated enterprise of the service recipient within the meaning of the statutory definition. - HELD THAT: - On applying the statutory tests in the definition of associated enterprises the Tribunal concluded that the respondent, being the investment manager and exercising managing and controlling functions in relation to the mutual fund, falls within the definition. The show cause notice was premised on that status and the respondent had not objected to their classification as an associated enterprise before the adjudicating authority. The Commissioner (Appeals) had reversed that classification without recording any reasoning; the Tribunal found that there was no basis in the record to hold the respondent outside the definition and therefore accepted that the respondent is an associated enterprise of the service recipient.

Respondent is an associated enterprise of M/s. Deutsche Mutual Fund.

Point of taxation - deeming provision of book entries - gross amount charged - valuation of taxable services - Whether the point of taxation is determined by provisional book entries or by the subsequent final entries and invoices. - HELD THAT: - The Tribunal interpreted the Explanation to the valuation provision to give wide scope to accounting entries in transactions between associated enterprises. The Explanation treats any amount credited or debited to any account (including a "suspense account" or provisional booking) as part of the gross amount charged for determining value of taxable services. The Tribunal relied on precedent holding that there is no distinction between provisional and final entries for this purpose and that the first accounting acknowledgement of the transaction is the relevant point for taxation. Consequently, provisional entries made in the books, even if subsequently adjusted, trigger the tax point and liability for interest when tax is not paid accordingly.

Point of taxation is the date of the initial (provisional) book entries; provisional entries determine tax liability.

Penalties under Section 76 and 77 - Whether penalties under Section 76 and 77 are imposable in the circumstances of the case. - HELD THAT: - The Tribunal noted that the adjudication related to demand of interest arising from delayed payment and that there was no dispute about the payment of service tax itself. The penal provisions are attracted for non-payment or short payment of service tax; given that the core controversy concerned interpretation of the valuation/point of taxation provisions and the demand was limited to interest, the Tribunal held that imposing penalties under Section 76 and 77 was not justified.

Penalties under Sections 76 and 77 are not imposable and are set aside.

Final Conclusion: The Tribunal held that the respondent is an associated enterprise of the mutual fund; the point of taxation is fixed by the initial book entries (including provisional entries), which sustains the demand of interest for delayed payment; however the penalties under Sections 76 and 77 are not imposable and are accordingly quashed, and the Revenue's appeal is partly allowed.

Suppression of facts with intent to evade - Ineligibility for limitation benefit under Section 73(3) read with Section 73(4) - Penalty under Section 78 subject to statutory maximum and reduction to 100% of tax liability - Imposition of penalty under Section 77

Suppression of facts with intent to evade - Ineligibility for limitation benefit under Section 73(3) read with Section 73(4) - Whether the appellant was entitled to the benefit of limitation under Section 73(3) or was excluded by reason of fraud, collusion, willful mis-statement or suppression of facts under Section 73(4). - HELD THAT: - The Tribunal found that the appellant did not disclose full details of services rendered and that the Department obtained details from the appellant's customers only after making enquiries. These facts demonstrate suppression of liability and conduct evincing an intention to evade payment of service tax. Where such suppression or intent to evade is established, the proviso in Section 73(4) excludes the operation of the benefit under Section 73(3). The case-law relied upon by the appellant was distinguished on the ground that those decisions involved absence of intention to evade; the present facts show malafides on the part of the appellant and therefore the appellant cannot claim the benefit of Section 73(3). [Paras 4]

Appellant not entitled to the benefit of limitation under Section 73(3) due to suppression of facts with intent to evade; liability for service tax for October 2005 to March 2008 sustained.

Penalty under Section 78 subject to statutory maximum and reduction to 100% of tax liability - Imposition of penalty under Section 77 - Whether the penalties imposed under Section 78 and Section 77 were justified and, if so, whether the quantum of penalty under Section 78 was appropriate. - HELD THAT: - The Tribunal noted that at the relevant time the statutory scheme permitted imposition of penalty up to twice the amount of tax sought to be evaded, but having regard to the facts and circumstances of the case the imposition of penalty equal to 200% of the tax was not justified. The Tribunal exercised its power to moderate the penalty and reduced the Section 78 penalty to 100% of the tax liability. The penalty under Section 77 was found to be without reason to interfere and was therefore sustained. [Paras 4]

Penalty under Section 78 reduced to 100% of the service tax liability; penalty under Section 77 upheld.

Final Conclusion: Appeal allowed in part: service tax liability for October 2005 to March 2008 sustained (appellant not entitled to limitation under Section 73(3)), penalty under Section 78 reduced to 100% of the tax liability, penalty under Section 77 sustained; appeal otherwise dismissed.

Refund of pre-deposit deposited during investigation - interest on delayed refund of pre-deposit - appropriation of deposit against redemption fine - pre-deposit under Section 35F and Circular No. 802/35/04-CX dated 8.12.2004 - application of tribunal precedents to similarly situated assessee (Interscape and other decisions)

Refund of pre-deposit deposited during investigation - appropriation of deposit against redemption fine - application of tribunal precedents to similarly situated assessee (Interscape and other decisions) - Entitlement of M/s Shoreline Hotel Pvt. Ltd. to refund of Rs. 11 lakhs deposited during investigation which had been appropriated against redemption fine after the Order in Original was set aside by the Tribunal. - HELD THAT: - The Tribunal found that the Rs. 11 lakhs deposited by the assessee during investigations (10.12.1997 to 3.2.1998) arose from the same set of investigations and statements as the show cause notices later adjudicated. Although the deposit was appropriated against a redemption fine in Order in Original of 23.1.2001, that Order in Original was set aside by the Tribunal on 19.7.2005. Relying on Tribunal precedents including decisions cited for treatment of deposits made during investigation as pre deposits and on Circular No. 802/35/04 CX dated 8.12.2004 (directing return of pre deposits on successful litigation), the Court held that the deposit must be treated as a pre deposit and becomes payable on the setting aside of the order which justified its appropriation. The Tribunal's earlier orders in the related Interscape matter, directing refund of deposits in similar circumstances, were applied to the assessee since the refund claim resulted from the setting aside of the adjudicating order that had appropriated the deposit. [Paras 5]

Refund of the Rs. 11 lakhs deposited during investigation is payable to M/s Shoreline Hotel Pvt. Ltd., the deposit being treated as a pre deposit and becoming due upon setting aside of the Order in Original.

Interest on delayed refund of pre-deposit - pre-deposit under Section 35F and Circular No. 802/35/04-CX dated 8.12.2004 - Entitlement of M/s Shoreline Hotel Pvt. Ltd. to interest on the refunded pre deposit for delay in refund. - HELD THAT: - The Tribunal applied its earlier order in the Interscape case (as modified) which directed refund of pre deposits along with interest within three months of the remand order, and held that where a deposit treated as a pre deposit is refunded pursuant to the setting aside of the adjudicating order, interest is payable at the applicable rate for delay. The Circular and subsequent introduction of statutory provision for interest (Section 35FF with effect from 10.5.2008) were considered in context; the Tribunal concluded that interest is due in the present case in terms of its precedent awarding interest on refunds of pre deposits when the refund arises from successful challenge to the adjudicating order. [Paras 5, 6]

The assessee is entitled to interest on the refunded pre deposit in accordance with the Tribunal's orders in the related Interscape matter and the principles set out in the Circular.

Final Conclusion: The Revenue appeal is dismissed; the appeals of M/s Shoreline Hotel Pvt. Ltd. are allowed insofar as refund of the deposit paid during investigation and payment of interest thereon are concerned, in accordance with the Tribunal's precedents and Circular No. 802/35/04 CX dated 8.12.2004.

Cenvat credit - interpretation of documentary proof under CENVAT Credit Rules, 2004 - courier bill of entry as supporting document - limitation / time-bar of demand - wilful misstatement or suppression affecting extended period - departmental audit and knowledge estopping extended limitation

Cenvat credit - courier bill of entry as supporting document - interpretation of documentary proof under CENVAT Credit Rules, 2004 - Cenvat Credit is allowable on the basis of courier bill of entry. - HELD THAT: - The Tribunal accepted that the appellants received imported inputs and utilised them in manufacture of final products cleared on payment of duty. Reliance was placed on the Bill of Entry Regulation, 1976 and the proviso to Regulation 5(3) of the Courier Imports and Exports Clearance Regulation, 1988 to treat courier bill of entry as a valid document for clearance of imported goods. Having regard to the documentary content of the courier bills (duty details, description of goods, assessable value, registration particulars and address) and the appellants' consistent use of such documents to claim credit, the Tribunal held that denial of Cenvat credit on the ground that the document was a courier bill of entry was not sustainable and the credit was allowable. [Paras 6, 8]

Allow Cenvat Credit on the basis of courier bill of entry.

Limitation / time-bar of demand - wilful misstatement or suppression affecting extended period - departmental audit and knowledge estopping extended limitation - The demand based on denial of Cenvat credit is time barred and cannot be sustained. - HELD THAT: - The Tribunal noted that the appellants had been disclosing in their regular returns the fact of availing Cenvat credit on the basis of courier bill of entry and that departmental audits, including an audit in 2007, had examined the records without raising objection to such claims. The Department did not produce any material to show wilful misstatement, suppression of facts or contravention with intent to evade duty which would justify invocation of the extended period. In those circumstances the Tribunal concluded that the demand issued by the authorities is barred by limitation. [Paras 7, 8]

Demand is time barred and not sustainable.

Final Conclusion: The appeal is allowed; the appellants are entitled to Cenvat credit on the basis of courier bill of entry and the demand is held time barred with consequential relief, if any.

Option under Rule 6(3) of the Cenvat Credit Rules - Cenvat credit reversal for exempted goods - input services falling under Rule 6(5) - assessee's choice of method for reversal - interest liability on delayed reversal of credit - remand for computation and verification

Option under Rule 6(3) of the Cenvat Credit Rules - assessee's choice of method for reversal - input services falling under Rule 6(5) - interest liability on delayed reversal of credit - Revenue cannot compel an assessee to adopt a particular option under Rule 6(3); the assessee is entitled to opt for proportionate reversal under Rule 6(3)(ii) and must pay interest on amounts required to be reversed. - HELD THAT: - The Tribunal accepted that the appellants had availed Cenvat credit and that certain services relied upon fall within the category protected by Rule 6(5), for which credit need not be reversed. Relying on the reasoning in Mercedes Benz (as reproduced in the order) and the approach in Maize Products, the Tribunal held that Rule 6(3) provides alternative options and it is the assessee's prerogative to choose an option; revenue is not entitled to impose any particular option. Even where procedural formalities for exercising an option were not strictly complied with or were belated, such lapses are procedural and do not divest the assessee of the substantive right to elect proportionate reversal under Rule 6(3)(ii). The appellants offered to reverse the ineligible proportionate credit and accepted liability for interest; the Tribunal held that interest is payable on amounts ultimately required to be reversed. The Tribunal therefore set aside the original order insofar as it imposed the 10% method and confirmed that the assessee may follow the proportionate reversal route, with interest liability to be discharged for any delayed reversal. [Paras 5, 6]

Assessee entitled to opt for proportionate reversal under Rule 6(3)(ii); revenue cannot impose a different option; assessee to pay interest on reversed amounts.

Remand for computation and verification - Cenvat credit reversal for exempted goods - The matter is remanded to the Commissioner to calculate the amount to be reversed and the interest payable thereon; earlier reversal(s), if any, are subject to verification and adjustment. - HELD THAT: - Having held that the appellants may adopt the proportionate reversal option and that interest is payable on amounts to be reversed, the Tribunal found it appropriate to remit the case to the Commissioner for computation of the reversible credit and interest. The Tribunal noted prior partial reversals by the appellants but required the adjudicating authority to re-determine the precise quantum in accordance with law and to verify any amounts already reversed for adjustment. [Paras 6]

Order-in-original set aside; matter remanded to Commissioner for computation of reversible credit and interest, with verification of any amounts already reversed.

Final Conclusion: The Tribunal held that the assessee cannot be compelled by Revenue to adopt a particular option under Rule 6(3); the assessee may opt for proportionate reversal under Rule 6(3)(ii) (subject to interest on delayed reversal) and the case is remitted to the Commissioner to compute the amount to be reversed and the interest, with verification and adjustment of any prior reversals.

Rectification of mistake in appellate order - power of tribunal to review its own order - extended period of limitation - irregular availment of Cenvat credit on endorsed invoices - requirement to furnish endorsed invoices with monthly ER-I return

Rectification of mistake in appellate order - power of tribunal to review its own order - Application for rectification of mistake in the Tribunal's Final Order dismissed - HELD THAT: - The Tribunal considered the applicant's plea for rectification of its Final Order dated 06.11.2015 and the submissions that an earlier Tribunal decision (Gautam Weaving Mills) was not considered. The bench recorded that the Supreme Court has held that a Tribunal has no power to review its own order and that review by the Tribunal is not permissible through a protracted process. The application for rectification was treated as an impermissible attempt to revisit the merits and not a technical/clerical rectification. On that basis the application was rejected as devoid of merit. [Paras 5]

Application for rectification rejected; Tribunal declined to review its Final Order.

Extended period of limitation - irregular availment of Cenvat credit on endorsed invoices - requirement to furnish endorsed invoices with monthly ER-I return - Tribunal's findings that extended limitation applied and that irregular availment of Cenvat credit was detected were upheld - HELD THAT: - The Tribunal examined the contentions that the demand was time-barred and that endorsed invoices need not be submitted with the monthly ER-I return; it recorded that while there is no statutory requirement to file endorsed invoices with the monthly return, there was no evidence that the department was aware of the availment of credit. The Tribunal found that Central Excise audit officers, on verification of records, detected irregular availment of Cenvat credit, thereby invoking the extended period of limitation. The application for rectification did not persuade the bench to disturb these factual and legal findings. [Paras 6, 7]

Tribunal's conclusion that extended period of limitation applied due to irregular availment of Cenvat credit was maintained; plea based on non-requirement to submit endorsed invoices did not succeed.

Final Conclusion: The application for rectification of the Tribunal's Final Order dated 06.11.2015 is dismissed; the Tribunal's findings rejecting reliance on Gautam Weaving Mills and invoking the extended period of limitation on account of irregular availment of Cenvat credit stand affirmed, and the matter is not reopened as a review.

Voluntary confessional statement as basis for demand - corroboration of confessional statements by witnesses and documents - standard of proof in quasi-judicial proceedings - cum-duty price principle - treatment of sale price as inclusive of excise duty where no proper invoice issued

Voluntary confessional statement as basis for demand - corroboration of confessional statements by witnesses and documents - standard of proof in quasi-judicial proceedings - Sustainability of the demand and penalties based on the voluntary statements of partners and corroborative evidence. - HELD THAT: - The partners of the appellant firm gave voluntary statements admitting clandestine clearances without payment of duty; the dispatch clerk and certain suppliers and buyers provided statements and documentary material which accorded with those admissions. There was no allegation that the statements were not voluntary or that they were retracted. The Tribunal applied the settled principle that a voluntary confessional statement, if voluntary, can serve as the basis for adjudication, and noted that the standard of proof in quasi judicial proceedings is less stringent than for criminal conviction. In the factual matrix the confessional statements, supported by corroborative material, were sufficient to uphold the impugned demand and penalties. [Paras 5]

The demand and penalties were upheld as sustainable on the basis of voluntary confessional statements corroborated by other evidence.

Cum-duty price principle - treatment of sale price as inclusive of excise duty where no proper invoice issued - Whether the sale price should be treated as cum duty price under the Maruti principle. - HELD THAT: - The appellant relied on the Maruti Udyog line of authority to contend that the assessed amount should be treated as cum duty price. The Tribunal distinguished Maruti on its facts, observing that in Maruti the goods were cleared against proper central excise invoices so the price could be treated as inclusive of duty. In the present case goods were cleared without proper invoices and the partners did not assert that the price charged included excise duty. Relying also on Amrit Agro Industries (as cited), the Tribunal held there was no basis to compute duty by treating the price as cum duty price where the manufacturer has not shown that the sale price included excise duty and where clearances were without proper invoices. [Paras 5]

The cum duty price principle was held inapplicable; the price charged could not be treated as inclusive of excise duty.

Final Conclusion: The Tribunal found the impugned demand and mandatory penalty to be validly sustained on the basis of voluntary, corroborated statements and refused to treat the sale price as inclusive of excise duty; the appeal is dismissed.

CENVAT credit on inputs used in non-manufacture processes - Rule 16 of the Central Excise Rules, 2002 - treatment of duty-paid goods as inputs - reversal of CENVAT credit and revenue neutrality

CENVAT credit on inputs used in non-manufacture processes - Rule 16 of the Central Excise Rules, 2002 - reversal of CENVAT credit and revenue neutrality - Admissibility of Cenvat credit on duty-paid inputs used in processes which do not amount to manufacture - HELD THAT: - The Tribunal found the factual position undisputed that duty-paid Polyester/BOPP film and other inputs (inks, adhesives, solvents) were used for printing and lamination, and that the processes were held not to amount to manufacture. The Commissioner (Appeals) allowed credit on the basis of earlier Tribunal precedents and on the ground that credit utilised for payment of duty rendered the revenue neutral. The Tribunal examined Rule 16 of the Central Excise Rules, 2002 which treats goods on which duty has been paid, when brought to a factory for being re-made, refined or re-conditioned, as inputs for the purposes of CENVAT credit; where the process does not amount to manufacture the manufacturer is required to pay an amount equal to the CENVAT credit on removal, and that amount is allowed as CENVAT credit to the person paying it. On a plain reading of Rule 16 the Tribunal concluded that Cenvat credit is permissible even if the subsequent process does not qualify as manufacture, subject to the mechanism of payment on removal (thus preserving revenue neutrality where credit is effectively reversed by duty payment). Applying this statutory provision and the revenue-neutrality reasoning, the Tribunal held that denial of credit was not warranted.

Cenvat credit on the duty-paid inputs used in the non-manufacture processes is admissible under Rule 16; the impugned order allowing credit is upheld and the Revenue's appeal is dismissed.

Final Conclusion: The appeal is dismissed; Cenvat credit on duty-paid inputs used in processes not amounting to manufacture is admissible under Rule 16 of the Central Excise Rules, 2002, and the Commissioner (Appeals) order allowing credit is upheld.

Assessable value - place of removal - transaction value - cost of transportation excluded from transaction value - inspection charges at buyer's instance

Inspection charges at buyer's instance - assessable value - Optional inspection charges obtained at the instance of the buyer are not includible in the assessable value under Section 4 of the Central Excise Act, 1944. - HELD THAT: - The Tribunal found that the additional inspections in question were not mandatory but carried out at the instance of buyers, a fact recorded by the first appellate authority. Relying on co ordinate bench authority and the Apex Court decision in Commissioner of Central Excise, Mysore Vs. M/s. TVS Motors Company Ltd. , the Tribunal held that pre delivery/optional inspection charges recovered at the buyer's instance do not form part of the transaction value for excise purposes. The Tribunal distinguished cases dealing with compulsory, uniformly applied inspections and noted that the determinative principle is whether the inspection is mandatory or optional at buyer's behest; where optional, such charges are excluded from assessable value. [Paras 5, 7]

Inspection charges recovered at the instance of buyers are not includible in the assessable value; the appellant's appeals on this issue are allowed.

Place of removal - cost of transportation excluded from transaction value - transaction value - Freight and insurance charged separately where sale is at factory gate (place of removal) are to be excluded from the transaction value for the period in question and therefore are not includible in the assessable value. - HELD THAT: - The Tribunal examined the statutory definition of 'place of removal' as it stood during the relevant period and Rule 5 of the Valuation Rules (2002). For the period including the demands (17/9/2000 to 30/9/2002), 'place of removal' did not extend to depots or the buyer's premises; it was confined to the factory or specified premises. Rule 5 provides that actual transportation cost from the place of removal to the place of delivery is to be excluded from transaction value provided transportation is charged to the buyer and shown separately in the invoice. Applying the ratio of the Apex Court in Commissioner of Customs & Commissioner of Customs, Nagpur Vs. M/s. Ispat Industries Ltd. , the Tribunal held that where sale is effected at the factory gate and freight/insurance are separately invoiced and charged to the buyer, those amounts are excluded from the transaction value and not includible in assessable value for the period under consideration. [Paras 5, 6]

Freight and insurance separately charged in invoices where sale is at the factory gate (place of removal) are excluded from the transaction value and not includible in the assessable value for the demands period; the appellant's appeal on this issue is allowed.

Final Conclusion: The appeals by M/s Classic Polytubes Pvt. Ltd. are allowed on both counts (inspection charges and freight/insurance for the stated demand period); the Revenue's appeal for remand is dismissed.

Rejection of objections without reasons - setting aside administrative orders for failure to give reasons - remand for fresh consideration - opportunity of personal hearing - consideration of objections on merits

Rejection of objections without reasons - setting aside administrative orders for failure to give reasons - remand for fresh consideration - opportunity of personal hearing - consideration of objections on merits - Validity of the respondent's orders rejecting the petitioner's objections without assigning reasons and consequent relief - HELD THAT: - The Court found that the respondent, having rejected the objections filed by the petitioner, did so without assigning any reasons. The absence of reasons rendered the rejection infirm because objections ought to be considered and decided with reasons and after affording the assessee a proper opportunity to be heard. In view of this failure, the impugned orders could not stand. The Court therefore set aside those orders and remanded the matters to the respondent for fresh consideration. On remand the respondent is directed to consider the objections (including any additional objections the petitioner may file), decide them on merits and in accordance with law, and afford the petitioner a personal hearing before passing fresh orders. [Paras 5, 6, 7]

Impugned orders set aside; matters remanded for fresh consideration with direction to consider objections on merits, permit additional objections, and afford personal hearing before passing orders.

Final Conclusion: Writ petitions disposed of by setting aside the respondent's orders that rejected objections without reasons; matters remanded for fresh consideration and decision on merits after giving the petitioner an opportunity of personal hearing; no costs.

Interest Free Sales Tax Deferral Scheme - refund of sales tax - adjustment of tax payments - implementation of BIFR sanctioned rehabilitation scheme - government order binding on department - writ of certiorari and mandamus

Interest Free Sales Tax Deferral Scheme - government order binding on department - implementation of BIFR sanctioned rehabilitation scheme - Entitlement of the petitioner to the benefit of the Interest Free Sales Tax Deferral Scheme as extended and rescheduled by the Government Order G.O.Ms.26 dated 03.02.2011 - HELD THAT: - The Court accepted the petitioner's case that the Government, by G.O.Ms.26 dated 03.02.2011, extended the period for utilization of the unutilized interest free sales tax loan and rescheduled repayment, in implementation of the BIFR-sanctioned rehabilitation scheme. The respondent's rejection of the petitioner's representation seeking relief for the period from April 2005 (post-reschedulement) was held to be contrary to the Government Order. The Court treated the Government Order and the BIFR direction as operative for the petitioner's entitlement and concluded that the petitioner was entitled to the benefit thereby conferred.

The petitioner is entitled to the benefit of the Interest Free Sales Tax Deferral Scheme as extended and rescheduled by G.O.Ms.26 dated 03.02.2011.

Refund of sales tax - adjustment of tax payments - writ of certiorari and mandamus - Remedial relief to be granted for the sums paid by the petitioner contrary to the Government Order, and form of relief (refund or adjustment) - HELD THAT: - Having found the respondent's rejection inconsistent with the Government Order, the Court set aside the impugned proceedings dated 21.05.2012. Instead of directing an immediate cash refund, the Court directed the respondent to adjust the sum claimed by the petitioner towards existing sales tax dues, while preserving the obligation of the petitioner to pay any excess tax over and above that sum. The respondent conceded entitlement and proposed adjustment; the petitioner accepted payment of any excess, resulting in the Court fashioning relief by way of adjustment rather than mandatory cash refund.

Impugned proceedings dated 21.05.2012 set aside; respondent directed to adjust the sum paid by the petitioner towards existing sales tax dues and the petitioner to pay any excess tax remaining payable.

Final Conclusion: The writ petition is allowed: the impugned order rejecting the claim is set aside; the respondent shall adjust the sums paid by the petitioner in accordance with the Government Order G.O.Ms.26 (03.02.2011) towards existing sales tax dues and the petitioner shall pay any excess tax found payable. No costs.

Validity period of declaration form - Duty of the issuing authority to specify validity period of VAT-47 - Imposition of penalty for defects in declaration forms - Remand for opportunity to cure defects in declaration forms - Mens rea not essential for imposition of penalty under the penal provision

Validity period of declaration form - Duty of the issuing authority to specify validity period of VAT-47 - Whether the assessee could be penalised for use of Form VAT-47 beyond an unspecified validity period. - HELD THAT: - The Court held that Rule 21(5) of the Rajasthan VAT Rules, 2006 places the obligation on the assessing/issuing authority to specify the validity period for the declaration form (VAT-47). In the absence of any validity period being specified by the issuing authority, the assessee could not be faulted for using the declaration form issued on 02.02.2009 which was checked on 10.12.2011. Accordingly, the question of penalising the assessee solely on the ground that the form was used beyond a validity period which was not specified by the authority did not survive. [Paras 3, 5]

The assessee cannot be penalised for using Form VAT-47 where the issuing authority did not specify any validity period; that aspect is excluded from the remand.

Imposition of penalty for defects in declaration forms - Remand for opportunity to cure defects in declaration forms - Mens rea not essential for imposition of penalty under the penal provision - Whether the alleged other defects in the declaration form warranted imposition of penalty and how they should be adjudicated. - HELD THAT: - Having noted the Full Bench guidance (and related authorities) that mens rea need not be proved for imposition of penalty under the corresponding penal provision and that opportunity ought to be afforded to produce or rectify documents, the Court directed that the matter be sent back to the assessing authority. The assessee is to be given an opportunity to remove defects in the declaration form (other than the unspecified validity period). The assessing authority is to enquire and decide the question of imposition of penalty afresh and in accordance with law after allowing the assessee to cure defects and after such enquiry as is permissible under the statutory scheme. [Paras 5]

The matter is remanded to the assessing authority to allow the assessee to remove defects (other than validity-period omission) and for fresh adjudication on penalty in accordance with law.

Final Conclusion: The revision petition is disposed of by remanding the matter to the assessing authority to permit the assessee to cure defects in the declaration form (excluding the unspecified validity period which the issuing authority alone should have specified) and for fresh decision on imposition of penalty; no costs.

Interpretation of pricing clause - liability to pay taxes vested on supplier - deduction of supplier's VAT component before applying discount - value added tax input-credit mechanism and incidence on dealer's margin - quashing of recovery and refund of amounts recovered - verification of VAT actually paid by supplier (remand for verification)

Interpretation of pricing clause - liability to pay taxes vested on supplier - deduction of supplier's VAT component before applying discount - value added tax input-credit mechanism and incidence on dealer's margin - Whether, under the tender pricing clause, CGHS was entitled to deduct the entire VAT component embedded in MRP before applying the tendered discount, or only that portion of VAT which was the supplier's liability, with discount applied thereafter. - HELD THAT: - The pricing clause required bidders to quote a uniform discount on the retail price and stated that liability to pay Taxes/VAT/Levies would be that of the supplier, while CGHS would pay labelled MRP minus local taxes less the tendered discount. Read as a whole, the clause manifests an intention that taxes are the supplier's burden and that the tendered uniform discount operates on the supplier's margin. Given the operation of the value added tax mechanism (input-credit against earlier stage taxes and incidence only on the dealer's margin), deducting the entire VAT embedded in MRP before applying the discount would produce an unduly harsh result inconsistent with the clause's purpose. The proper construction is that the VAT component relatable to the supplier's liability (i.e., the tax burden borne by the supplier on his margin) is to be reduced from MRP and the quoted discount applied thereafter. The later simplified clause in subsequent tenders (discount on MRP inclusive of all taxes) confirms that the earlier formulation was intended to place tax incidence on the supplier and to apply the discount to the supplier's net price, but the subsequent clause does not alter the interpretation of the earlier contract. Applying this construction, past bills where CGHS had paid on the basis of MRP less the petitioner's VAT liability less the offered discount were in accordance with the pricing clause and thus not erroneous. [Paras 8, 9, 12]

Interpretation adopted that only the VAT component relatable to the supplier's liability is to be deducted before applying the tendered discount; CGHS's contention of deducting entire VAT from MRP before discount is rejected.

Quashing of recovery and refund of amounts recovered - verification of VAT actually paid by supplier (remand for verification) - Validity of recoveries made by CGHS from the petitioner's current bills for alleged over-payments under the earlier contract and the scope for any further adjustment after verification. - HELD THAT: - The Court held that where earlier bills had been raised and paid on the basis of MRP less the petitioner's VAT liability less the offered discount, such payments were consistent with the correctly construed pricing clause and recoveries based on the alternate formula adopted later by CGHS cannot be sustained. Accordingly, recoveries already raised are quashed and any amounts already recovered must be refunded. However, the CGHS is permitted to undertake a verification exercise of the VAT actually paid by the petitioner in relation to those supplies; if, upon completion of that limited verification, CGHS determines there remains any genuine over-payment, it may recover or adjust that amount. The remand is confined to verification of VAT paid and not to re adjudication of the contractual interpretation. [Paras 13]

Recoveries for past bills quashed; amounts already recovered to be refunded; CGHS may verify VAT actually paid by the petitioner and, if over-payment is shown after that verification, may recover/adjust accordingly.

Final Conclusion: Petitions allowed; recoveries made by respondents for past bills quashed and refunded where already recovered, subject to CGHS's limited verification of VAT paid by the petitioner and consequent adjustment only if genuine over-payment is established.

Interim injunction - prima facie case - balance of convenience - irreparable injury - prior user rule - protection of goodwill and passing off - dormant registration and non-use - Section 34 of the Trade Marks Act, 1999 - saving for vested rights - Section 47 of the Trade Marks Act, 1999 - removal for non-use

Interim injunction - prima facie case - balance of convenience - irreparable injury - protection of goodwill and passing off - The Trial Court's grant of an ad interim injunction in favour of the Plaintiff-Respondents was rightly sustained on appeal. - HELD THAT: - The Court applied the established tripartite test for interim injunctions and found that the Plaintiff-Respondents had made out a prima facie case by showing prior and continuous use of the trademark PROFOL and resultant market goodwill. Given the appellants' delayed commencement of user and the risk of loss of reputation and market position, the balance of convenience favoured maintaining the injunction and denial would cause irreparable harm. The Court refrained from traversing evidentiary minutiae at interlocutory stage, noting that appellate interference is unwarranted unless the subordinate court's exercise of discretion is palpably perverse; no such perversity was found in the present exercise of discretion. [Paras 4, 10, 11]

Interim injunction in favour of the Plaintiff-Respondents upheld; appeal dismissed.

Prior user rule - dormant registration and non-use - Section 34 of the Trade Marks Act, 1999 - saving for vested rights - Section 47 of the Trade Marks Act, 1999 - removal for non-use - Prior registration of a mark does not automatically defeat the rights of a prior or earlier user where the registrant has not actively used the mark for a substantial period. - HELD THAT: - The Court examined the effect of prior application/registration vis-a -vis actual prior user. Section 34 protects persons who have continuously used a trademark prior to use or registration of another proprietor, and Section 47 enables removal for continuous non-use. In the facts, although the Defendant-Appellant's application dated 1992 preceded the Plaintiff-Respondents' user, the registrant remained dormant and commenced user only in 2004. The statutory scheme and decided authorities indicate that dormant registration and prolonged non-use may not obliterate the equities of a prior market user; consequently the Plaintiff-Respondents' prior user and built-up goodwill prima facie prevail at the interlocutory stage. The Court cited the predominance of the 'first in the market' consideration and noted that registrational priority may be defeated by intervening user and non-exercise of registrant's rights. [Paras 6, 7, 8, 9]

The prior registration did not, on the material before the Court, override the Plaintiff-Respondents' rights as prior users; registrant's prolonged non-use was material in upholding interim relief.

Final Conclusion: The appeals against the interlocutory orders were dismissed; the Trial Court's grant of an interim injunction in favour of the Plaintiff-Respondents was found reasonable and not perverse, having regard to prior user, the dormancy of the registered mark, and the balance of convenience and irreparable harm in favour of the plaintiffs.