TaxTMI Updates e-Newsletter
Apr 01,2017

Transfer pricing adjustment - arm's length price - transactional net margin method (TNMM) - proviso to section 92C(2) - +/- 5% variation - functional comparability of comparables - inclusion and exclusion of comparable companies - risk adjustment to comparable margins - related party transaction (RPT) filter

Proviso to section 92C(2) - +/- 5% variation - arm's length price - transactional net margin method (TNMM) - Benefit of the proviso to section 92C(2) (+/-5% range) in respect of the manufacturing (turbocharger) segment - HELD THAT: - The TPO applied TNMM and computed the assessee's OP/OC for the manufacturing segment at 3.66% against an arithmetic mean of comparables of 8.54%. The Tribunal found that the margins of the manufacturing segment were within the +/-5% range under the proviso to section 92C(2) and directed the Assessing Officer to verify the claim of the assessee and delete the addition relating to the manufacturing segment. The Tribunal therefore allowed the preliminary contention that no transfer pricing adjustment is warranted for the manufacturing segment if the computed arm's length price falls within the statutory +/-5% band. [Paras 9, 11, 13]

Assessee entitled to benefit of proviso to section 92C(2); AO to verify and delete the addition for the manufacturing segment.

Functional comparability of comparables - inclusion and exclusion of comparable companies - Inclusion of ICRA Online Ltd. as a comparable for the BSS segment - HELD THAT: - The assessee sought exclusion of ICRA Online Ltd. on the ground of functional dissimilarity and abnormal profits. The Tribunal observed that the assessee itself had selected ICRA Online Ltd. as functionally comparable in its TP study and failed to bring evidence of any change in the company's functional profile for the year under appeal. Absent proof of a change in activities, the Tribunal found no merit in the assessee's plea and upheld the inclusion of ICRA Online Ltd. in the final set of comparables. [Paras 16, 17, 21]

Inclusion of ICRA Online Ltd. in the final set of comparables is upheld.

Functional comparability of comparables - inclusion and exclusion of comparable companies - Exclusion of TSR Darashaw Ltd. from the BSS comparables - HELD THAT: - The Tribunal found that TSR Darashaw Ltd. underwent a change in business profile (development and revenue from payroll software) similar to the findings in the earlier assessment year, rendering it functionally different from the assessee's BSS activities. Following earlier Tribunal reasoning, the Tribunal held TSR Darashaw Ltd. to be functionally non-comparable and directed the Assessing Officer to exclude it from the final set of comparables. [Paras 22, 23, 24]

TSR Darashaw Ltd. to be excluded from the final set of comparables for the BSS segment.

Functional comparability of comparables - inclusion and exclusion of comparable companies - Exclusion of Saket Projects Ltd. from the BSS comparables - HELD THAT: - The Tribunal applied the primary test of functional comparability and observed that Saket Projects Ltd.'s business of organising events with sponsors is not functionally comparable to the assessee's BSS activities. On this basis, without addressing other contentions, the Tribunal held Saket Projects Ltd. to be not functionally comparable and excluded it from the final list. [Paras 25, 27]

Saket Projects Ltd. to be excluded from the final set of comparables for the BSS segment.

Functional comparability of comparables - inclusion and exclusion of comparable companies - Exclusion of Access India Advisors Ltd. from the BSS comparables on account of varying/super-normal margins - HELD THAT: - The Tribunal considered the year-to-year volatility in operating margins and turnover for Access India Advisors Ltd., noting a substantial spike in the year under appeal followed by declines in subsequent years. The Tribunal concluded that such substantial fluctuation made the concern unreliable for benchmarking and directed its exclusion from the final set of comparables. [Paras 28, 29]

Access India Advisors Ltd. to be excluded from the final set of comparables for the BSS segment.

Risk adjustment to comparable margins - transactional net margin method (TNMM) - Allowance of risk adjustment in benchmarking BSS transactions - HELD THAT: - The Tribunal observed that the TPO had not addressed the assessee's claim that it was a risk-mitigating entity and that differences in risk profile warranted adjustment. Citing precedents, the Tribunal directed the Assessing Officer to allow risk adjustment and to recompute the margins of comparables applying the ratio laid down by the Delhi Bench in Sony India Pvt. Ltd., and to re-determine any transfer pricing adjustment. [Paras 30, 31, 33, 34]

Risk adjustment to be allowed; AO to recompute margins of comparables and TP adjustment accordingly.

Inclusion and exclusion of comparable companies - functional comparability of comparables - Inclusion of Ace Software Exports Ltd. and Vardan Projects Ltd. as comparables for the AE segment - HELD THAT: - For Ace Software Exports Ltd., the Tribunal noted that the assessee failed to demonstrate any change in the company's functionality for the year under appeal despite volatile margins; Ace was therefore to be included. For Vardan Projects Ltd., the Tribunal held that high margins alone do not disqualify a company if comparability is satisfied, and the assessee did not discharge the burden of proving non-comparability. Accordingly both companies were to remain in the final comparable set. [Paras 41, 42]

Ace Software Exports Ltd. and Vardan Projects Ltd. to be included in the final set of comparables for the AE segment.

Related party transaction (RPT) filter - inclusion and exclusion of comparable companies - Verification of RPT filter applicability to Artefact Project Ltd. (AE segment) - HELD THAT: - Both parties agreed that if Artefact Project Ltd. does not satisfy the RPT filter, it should be excluded. The Tribunal directed the Assessing Officer to verify whether Artefact Project Ltd. meets the RPT filter and to decide its inclusion or exclusion accordingly, restoring the matter to the file of the AO for that factual verification. [Paras 38, 39, 43]

AO to verify RPT filter for Artefact Project Ltd. and decide inclusion/exclusion.

Risk adjustment to comparable margins - Allowance of risk adjustment in AE segment benchmarking - HELD THAT: - The Tribunal extended its direction on risk adjustment (already ordered for BSS) to the AE segment, directing the Assessing Officer to allow risk adjustment in the margins of comparables following the Delhi Bench ratio in Sony India Pvt. Ltd. (i.e. apply the specified percentage) and to recompute TP adjustment, if any. [Paras 44]

Risk adjustment to be allowed in AE segment; AO to recompute margins and TP adjustment.

Final Conclusion: The appeal is partly allowed: the transfer pricing adjustment in respect of the manufacturing (turbocharger) segment is to be deleted if verification confirms the proviso to section 92C(2) (+/-5%) applies; several comparables for the BSS segment are excluded or upheld as directed and the AO is directed to allow and apply risk adjustment (per Sony India) and recompute TP adjustments; for the AE segment certain comparables are retained, Artefact Project Ltd. is remanded to the AO for RPT verification, risk adjustment is to be allowed, and the Assessing Officer shall recompute consequences accordingly.

Stay of demand - Infructuous application - Dismissal of stay application

Stay of demand - Infructuous application - Stay application against demand for Assessment Year 2010-11 - HELD THAT: - The assessee moved for a stay of the demand relating to Assessment Year 2010-11. The Tribunal recorded that the corresponding appeal for the same assessment year had been heard and an order in the appeal was passed on the same day. The Tribunal concluded that, because the appeal had been heard and disposed of, the stay application had become infructuous and no longer required separate adjudication. [Paras 1, 2, 3]

Stay application dismissed as infructuous.

Final Conclusion: The stay application seeking relief against the demand for Assessment Year 2010-11 was dismissed as infructuous because the corresponding appeal had been heard and an order passed; stay therefore refused.

Capital employed in the business of the company - deduction under Section 35D - Explanation to Section 35D(3)(b) - share premium - securities premium account

Capital employed in the business of the company - share premium - deduction under Section 35D - Explanation to Section 35D(3)(b) - securities premium account - Premium received on issue of shares is part of 'capital employed in the business of the company' for the purpose of computing the limit under Section 35D(3)(b). - HELD THAT: - The Explanation to Section 35D(3)(b) expressly defines 'capital employed in the business of the company' as the aggregate of issued share capital, debentures and long term borrowings in the relevant year. The premium collected on issue of shares is neither issued, subscribed and paid-up share capital nor a debenture nor a long-term borrowing, and the statute does not include reserves or share premium within that definition. The Companies Act and its forms (Schedule V Part II, Form of Annual Return and Section 78 regarding transfer to a 'securities premium account') treat premium as a separate account and do not treat it as part of issued share capital. Where Parliament intended inclusion of premium it has said so explicitly in other provisions (as noted by reference to Commissioner of Income Tax, West Bengal vs. Allahabad Bank Ltd. ) and no similar provision appears in Explanation (b) to Section 35D(3). In view of the clear textual definition and legislative scheme, the premium cannot be treated as 'capital employed in the business of the company' for computing the allowable deduction under Section 35D, and the Tribunal and High Court were rightly held to be justified in denying the claim. [Paras 20, 21, 23, 24, 25]

The premium on issue of shares is not part of 'capital employed in the business of the company' within the meaning of Section 35D(3)(b) and therefore the assessee is not entitled to claim deduction in respect of such premium under Section 35D.

Final Conclusion: Appeals dismissed; the High Court and the Tribunal correctly held that share premium is not includible in 'capital employed in the business of the company' for the purposes of Section 35D(3)(b), and the assessee's claim for deduction in respect of share premium was rightly rejected.

Expeditious disposal of appeals - withdrawal of attachment - security substitution for attachment - prohibition on coercive steps during pendency of appeal

Expeditious disposal of appeals - Direction to the Commissioner of Income Tax (Appeals) to decide the pending appeals within a stipulated period. - HELD THAT: - The Court, without adjudicating the merits, ordered that the appeals filed by the appellant before the Commissioner of Income Tax (Appeals) be decided within one month from production of a copy of the order. The direction was given in the interest of justice and to avoid unnecessary delay, with an express instruction to decide in accordance with law and without granting unnecessary adjournments.

CIT (Appeals) directed to decide the pending appeals within one month from production of the copy of this order.

Withdrawal of attachment - Order for withdrawal of amounts already attached by the Income Tax Department. - HELD THAT: - Having noted the parties' positions and without expressing any view on merits, the Court directed the Income Tax Department to withdraw approximately Rs. 400 crores already attached. The direction was adjunct to ensuring fair process while the appeals are decided by the CIT (Appeals).

Income Tax Department directed to withdraw the amount of approximately Rs. 400 crores already attached.

Security substitution for attachment - Permitting the appellant to keep its term deposits as security in favour of the respondents pending disposal of the appeals. - HELD THAT: - The Court accepted that substantial funds are invested by the appellant and ordered that the term deposits of approximately Rs. 1000 crores shall be kept by the appellant in the form of security in favour of the respondents in relation to the disputed demand until the appeal before the CIT (Appeals) is disposed of. This measure was directed as a protective mechanism for the revenue while allowing the appeals to be adjudicated.

Appellant directed to keep the term deposits as security in favour of the respondents until disposal of the appeal by the CIT (Appeals).

Prohibition on coercive steps during pendency of appeal - Prohibition on further attachments or coercive steps by the Income Tax Department during the pendency of the appeal before the CIT (Appeals). - HELD THAT: - To preserve the status quo and prevent prejudice while the appeal is decided expeditiously, the Court restrained the Income Tax Department from attaching any other accounts of the appellant or taking coercive measures during the pendency of the appeal before the CIT (Appeals). This injunction accompanied the directions for security and withdrawal of existing attachments.

Income Tax Department restrained from attaching any other accounts of the appellant or taking coercive steps during the pendency of the appeal before the CIT (Appeals).

Final Conclusion: The Civil Appeals are disposed of by directing an expeditious decision by the CIT (Appeals) within one month, withdrawal of the existing attachment of approximately Rs. 400 crores, retention of the appellant's term deposits as security in favour of the respondents, and a prohibition on further attachments or coercive steps during the pendency of the appeal.

Validity of notice under Section 158BD arising from information discovered in a search - Notice issued in the name of a deceased person and its effect - Effect of prior participation in proceedings under Section 158BC on challenge to subsequent proceedings

Validity of notice under Section 158BD arising from information discovered in a search - Notice issued in the name of a deceased person and its effect - Effect of prior participation in proceedings under Section 158BC on challenge to subsequent proceedings - Whether a notice issued under Section 158BD of the Income Tax Act is vitiated because the original search warrant or a prior notice was issued in the name of a deceased person or was otherwise challenged, when the legal heir had participated in assessment proceedings under Section 158BC. - HELD THAT: - The Court held that the challenge to the validity of the search warrant was not raised prior to issuance of the Section 158BD notice and that the petitioner (as legal heir) had participated in assessment proceedings under Section 158BC where income was declared nil. Participation in the earlier proceedings and the failure to raise the objection earlier meant that information discovered during the search, if capable of generating the requisite satisfaction, remained admissible to support issuance of a Section 158BD notice. Consequently, alleged invalidity of the original search warrant or issuance of earlier notices in the name of a deceased person did not render the subsequent proceedings under Section 158BD invalid on the facts of this case. The Court distinguished earlier decisions relied upon by the petitioner as being on different facts and not controlling here.

Petition dismissed; notice under Section 158BD held not invalid on the grounds advanced.

Final Conclusion: The Special Leave Petition is dismissed: on the facts the objection to the search warrant was not raised earlier and the petitioner had participated in Section 158BC proceedings, and therefore the Section 158BD notice could be validly issued based on information discovered during the search.

Attachment of bank balances under Income Tax Act - garnishee proceedings - interim relief / stay pending appeal to the Income Tax Appellate Tribunal - right to pursue statutory appellate remedy - court's restraint from adjudicating correctness of tax assessment pending appeal

Attachment of bank balances under Income Tax Act - garnishee proceedings - interim relief / stay pending appeal to the Income Tax Appellate Tribunal - Whether the attachment orders issued by the respondent attaching amounts available with garnishees should be set aside pending adjudication of a stay petition before the Income Tax Appellate Tribunal - HELD THAT: - The petitioner, a cooperative bank assessed for the assessment years 2008-09 to 2012-13, had its appeals dismissed by the Commissioner of Income Tax (Appeals) on 20.03.2017 (served 23.03.2017). An attachment under the Income Tax Act was issued on 21.03.2017 attaching amounts payable to the petitioner with the 2nd and 3rd respondents (garnishees), and Rs. 1,51,07,000/- was debited pursuant to that attachment. The Court observed that it could not adjudicate the correctness of the attachment as the petitioner has a statutory remedy of appeal to the Income Tax Appellate Tribunal and is entitled to seek interim relief before that Tribunal. In the circumstances and having regard to the immediate debiting of the petitioner's bank account, fairness requires that the revenue await the Tribunal's decision on any stay application. Consequently the Court set aside the impugned attachment order while directing the petitioner to file an appeal along with a stay petition within a specified short period and directing the Tribunal to decide the stay petition expeditiously, and restrained the revenue from further action until the Tribunal decides the stay petition. [Paras 5, 6, 7]

Writ petition allowed; impugned attachment set aside subject to directions that the petitioner file an appeal and stay petition within 30 days, the Tribunal decide the stay petition within 7 days, and the revenue refrain from further action until the Tribunal's order.

Final Conclusion: The High Court allowed the writ petition and set aside the attachment of the petitioner's bank balances, while directing prompt filing of appeal and stay petition and mandating expeditious disposal of the stay application by the Income Tax Appellate Tribunal; the revenue is to await the Tribunal's decision before taking further action.

Second rectification application not maintainable - recall of appellate order by rectification - finality of order as bar to repeat rectification - rectification under section 254(2) of the Act

Second rectification application not maintainable - finality of order as bar to repeat rectification - Whether the Income Tax Appellate Tribunal was justified in rejecting second rectification applications filed on the same grounds as earlier rectification applications which had been dismissed and had attained finality. - HELD THAT: - The Tribunal recorded that the Revenue, after dismissal of the earlier rectification applications by order dated 26th September 2014 which had attained finality, filed fresh rectification applications on the same set of facts and grounds seeking recall of its appellate order. The High Court held that a second rectification application on the same grounds as an earlier one which has been rejected is not maintainable. The Court applied the Division Bench precedent in Commissioner of Income-Tax v. Vasantben H. Sheth, which had considered decisions of other High Courts and concluded that entertaining a second rectification application on identical grounds was impermissible and the Tribunal erred if it entertained and allowed such an application under its powers to recall its order. Having regard to those authorities and the facts that the earlier applications were dismissed and final, the Tribunal did not commit error in dismissing the subsequent rectification applications. [Paras 6, 7, 8, 9]

The Tribunal was justified in rejecting the second rectification applications filed on the same grounds; such applications are not maintainable.

Final Conclusion: Writ petitions dismissed; the Tribunal correctly held that second rectification applications on the same grounds as earlier dismissed applications (relating to A.Y 2006-2007 and A.Y 2007-2008) are not maintainable and there was no error in rejecting them.

Disallowance under Section 14A - no disallowance where no exempt income is earned - deletion of addition - reliance on binding Division Bench precedent

Disallowance under Section 14A - no disallowance where no exempt income is earned - reliance on binding Division Bench precedent - deletion of addition - Whether the Tribunal was correct in deleting the addition made by the Assessing Officer under Section 14A of the Income Tax Act. - HELD THAT: - The Tribunal relied upon the Division Bench decision in Commissioner of Income-tax Vs. Corrtech Energy P. Ltd. and noted that there was no claim by the assessee of exemption of income for payment of tax. Applying that precedent, the Tribunal held that no disallowance under Section 14A could be made in the absence of exempt income being earned or claimed. The High Court found no error in the Tribunal's conclusion and its application of the Division Bench authority to the facts, thereby upholding the deletion of the addition made by the Assessing Officer under Section 14A. [Paras 3]

Tribunal's deletion of the Section 14A disallowance upheld; appeal dismissed on this point.

Final Conclusion: The Tax Appeal is dismissed insofar as the challenge to the deletion of the Section 14A disallowance (question (F)); questions (A) to (E) have been admitted for consideration and are to be heard subsequently.

Section 171 of the Income-tax Act - partial partition - prior finding under Section 171 - assessment of Hindu Undivided Family - reexamination and remand for fresh decision - limitations of judicial review of findings of fact

Section 171 of the Income-tax Act - prior finding under Section 171 - assessment of Hindu Undivided Family - Impugned order of the Income Tax Appellate Tribunal did not consider the effect of earlier orders passed under Section 171 of the Act and therefore required reexamination. - HELD THAT: - The Tribunal's order does not demonstrate that it considered the effect and impact of the statutory provision contained in Section 171 or the prior orders recorded under that provision regarding partial partition. The High Court found on perusal of the impugned order that the Tribunal neither applied its mind to the import of Section 171 nor examined the consequence of the earlier Section 171 findings on the question whether the assessee continued to be a HUF or had been effectively partitioned. Because the Court is precluded from reappraising findings of fact recorded by the assessing authority, and because the Tribunal's reasoning does not address the determinative statutory issue, the matter cannot be judicially reviewed on the existing record and must be remitted for fresh consideration. The High Court expressly refrained from expressing any opinion on the merits and directed the Tribunal to reexamine all facts and facets and record a reasoned independent decision accepting or rejecting the appellant's contention as appropriate. [Paras 11, 12, 13, 14]

Impugned ITAT order set aside and matter remitted to the Income Tax Appellate Tribunal to reexamine in light of Section 171 and prior orders thereunder and to record a reasoned finding.

Final Conclusion: The appeals are allowed to the extent the ITAT order dated 22.6.2005 is set aside and the matter is remitted to the Income Tax Appellate Tribunal for fresh consideration of the effect of Section 171 and earlier orders thereunder; no opinion is expressed on merits.

Reopening of assessment beyond four years under proviso to Section 147 - failure to disclose true and correct material facts - genuineness of transactions and creditors as basis for reassessment - subjective satisfaction of the Assessing Officer

Reopening of assessment beyond four years under proviso to Section 147 - failure to disclose true and correct material facts - genuineness of transactions and creditors as basis for reassessment - Validity of notice under Section 148 reopening assessment for Assessment Year 2009-10 where reassessment is beyond four years and rests on alleged non-disclosure of genuineness of foreign creditors - HELD THAT: - The Court examined whether the proviso to Section 147 permitted reopening beyond four years by reference to any failure by the assessee to disclose fully and truly all material facts. The reasons recorded for reopening relied on doubts about the genuineness of two foreign creditors and unexplained outstanding purchases discovered during proceedings for a later year. The record established that at the original scrutiny assessment for A.Y. 2009-10 the assessee had produced books of account, purchase orders, invoices and other documents to demonstrate the transactions and creditors, and the Assessing Officer had framed the assessment without treating those liabilities as ceased or unexplained. On the material placed before it the Court found no occasion to conclude there had been a failure on the part of the assessee to disclose material facts necessary for assessment of A.Y. 2009-10. Because the statutory condition in the proviso (satisfaction of failure to disclose) was not met, reopening the assessment beyond four years on the basis of the later doubts was not justified. The Court therefore quashed the reassessment notice and proceedings. The Court's reasoning primarily rested on the absence of non-disclosure rather than addressing any separate deficiency in the Assessing Officer's subjective satisfaction in detail. [Paras 5, 6]

Impugned notice under Section 148 and ensuing reassessment proceedings for A.Y. 2009-10 quashed for lack of requisite failure to disclose material facts permitting reopening beyond four years.

Final Conclusion: The petition is allowed; the notice under Section 148 and the reassessment proceedings for Assessment Year 2009-10 are quashed and set aside.

Validity of notice under section 158BC requiring not less than fifteen days - mandatory versus directory character of procedural provision - strict construction of statutory time-limit for filing return in block assessment - consequence of defective notice on block assessment - invalidity of assessment order

Validity of notice under section 158BC requiring not less than fifteen days - strict construction of statutory time-limit for filing return in block assessment - Notice issued requiring the assessee to file return "within fifteen days" of service was not in accordance with the statutory requirement of "not less than fifteen days" and was therefore invalid. - HELD THAT: - The court accepted the reasoning in earlier decisions that while procedural provisions are to be construed in context, the words "not less than fifteen days" in the provision governing block assessment must be given their plain import. A notice which requires filing a return "within fifteen days" does not meet the statutory prescription of giving a period of not less than fifteen clear days. The authority issuing the notice is required to be aware of and correctly construe the statute; the defect in the notice rendered it invalid. Reliance on prior authorities recognising the need for strict compliance with the time period in the context of block assessments and on related precedents was noted in support of this conclusion. [Paras 4]

Notice was invalid; the Tribunal was correct to set aside the assessment made pursuant to that notice.

Consequence of defective notice on block assessment - invalidity of assessment order - substantial questions answered in favour of the assessee - Because the notice was invalid, the additions and assessment framed thereunder could not be sustained and the appeal is to be allowed in favour of the assessee. - HELD THAT: - Given the invalidity of the foundational notice, the court answered the substantial questions in favour of the assessee and against the revenue. The court recorded that the Tribunal had rightly cancelled the assessment order passed pursuant to the defective notice and, following earlier decisions, allowed the appeal. [Paras 4, 5]

Appeal allowed; issues answered in favour of the assessee and against the department; assessment set aside.

Final Conclusion: The notice requiring filing "within fifteen days" was held invalid for non-compliance with the statutory prescription of "not less than fifteen days"; consequently the assessment founded on that notice was set aside and the appeal was allowed in favour of the assessee.

Penalty under Section 158BFA(2) - application of the first proviso to Section 158BFA - application of the second proviso to Section 158BFA - penalty for undisclosed income in block proceedings - estimation-based additions versus additions based on seized material

Penalty under Section 158BFA(2) - application of the second proviso to Section 158BFA - estimation-based additions versus additions based on seized material - Legitimacy of deletion of penalty by the ITAT under Section 158BFA(2) where assessing officer enhanced undisclosed income by applying an estimated gross profit rate over the amount declared in the block return. - HELD THAT: - The Court examined whether the ITAT erred in deleting the penalty imposed under Section 158BFA(2). The first proviso to Section 158BFA contemplates filing of a return in block proceedings and payment or evidence of tax on the basis of that return; the second proviso applies only where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return. In the present facts the assessee had disclosed undisclosed income in the block return which the Revenue accepted; the Assessing Officer thereafter made an additional GP-based addition by applying a 4.4% gross profit estimate. The Court accepted the ITAT's reasoning that the enhanced addition was a derived estimation and not founded upon material actually seized or documents from which the excess undisclosed income could be objectively determined. Consequently the circumstance envisaged by the second proviso-where the Assessing Officer determines undisclosed income in excess of that shown in the return by objective material-was not satisfied. The ITAT's interpretation of Section 158BFA(2) and its application to the estimation-based GP addition was held to be reasonable and not amenable to interference.

The deletion of the penalty by the ITAT under Section 158BFA(2) is sustainable; the appeal is dismissed.

Final Conclusion: The High Court upheld the ITAT's deletion of the penalty under Section 158BFA(2), holding that the enhanced GP-based addition was an estimation not founded on seized material and therefore did not attract the second proviso; the Revenue's appeal is dismissed.

Addition under section 68 of the Income tax Act - onus of proof on assessee to establish identity and genuineness of share applicants - duty of Assessing Officer to verify adverse information and to conduct independent enquiry - inadmissibility of undisclosed adverse material obtained without opportunity of rebuttal - scope of reassessment and remand in light of investigation reports

Addition under section 68 of the Income tax Act - onus of proof on assessee to establish identity and genuineness of share applicants - Deletion of addition made in reassessment proceedings where assessee furnished particulars, PAN and assessment details, banking evidence and corporate records in respect of share applicants. - HELD THAT: - The Tribunal and the appellate authority found that the assessee had furnished documents establishing the identity of the share applicants and the genuineness of the transactions - including PAN and assessment particulars, bank payments and statements, corporate records and minutes - and that payments were routed through banking channels. The Assessing Officer did not point to any direct or inferential contradiction in the evidence produced nor undertake independent verification despite being afforded opportunity in remand proceedings and possessing powers under the tax law to make enquiries. In that factual matrix the authorities were justified in holding that the assessee had discharged the explanatory onus under section 68, and the addition could not be sustained.

Addition of the share application money and consequential commission were held unsustainable and directed to be deleted.

Duty of Assessing Officer to verify adverse information and to conduct independent enquiry - inadmissibility of undisclosed adverse material obtained without opportunity of rebuttal - Validity of reliance on Investigation Wing report and untested adverse information in support of reassessment additions. - HELD THAT: - The Court endorsed the view that information gathered behind the assessee's back, including investigative reports, cannot be used against the assessee unless the assessee is given an opportunity to rebut and the AO conducts enquiries to verify such material. Where the AO received materials and had statutory powers to verify (including calling witnesses or securing assessment records of the alleged shareholders) but did not exercise those powers and merely relied on the Investigation Wing's report, the use of that untested material violated principles of natural justice and did not furnish a valid basis for sustaining additions.

Adverse material from the Investigation Wing, not subjected to cross examination or independent AO verification, could not sustain the reassessment additions.

Scope of reassessment and remand in light of investigation reports - scope of appellate interference where assessing officer fails to verify - Whether the Tribunal should have remitted the matter for further verification instead of confirming the deletion by the CIT(A). - HELD THAT: - On the facts the Court observed that the assessee had placed substantial documentary material before the authorities and that the Assessing Officer had ample opportunity and statutory powers to verify the same but failed to do so. Given the AO's failure to undertake independent enquiries and the lack of any positive contradictory evidence, the appellate authorities were entitled to delete the addition. The Tribunal was therefore not obliged to remit the matter where the factual record showed absence of verification by the AO and no substantive basis to sustain the addition.

The Tribunal was justified in confirming the deletion; remand for further verification was not required under the circumstances.

Final Conclusion: On the facts of AY 2002-03 the reassessment addition under section 68 was deleted as the assessee furnished acceptable proof of identity and genuineness of subscriptions, the Assessing Officer failed to verify adverse material, and the Investigation Wing's untested report could not sustain the addition; the Revenue's appeal is dismissed and no substantial question of law arises.

Substantial question of law - modvat in opening stock - determination of arm's length price under transfer pricing - technical know how royalty - ALP determination - brand usage royalty and commercial expediency - onus under section 40A(2)(b) - club entrance fee - revenue versus capital expenditure - depreciation on testing equipment - addition for unaccounted production and sales - tax and R&D cess on technical royalty

Modvat in opening stock - substantial question of law - Question whether inclusion of Modvat in opening stock gives rise to a substantial question of law - HELD THAT: - The Tribunal had restored the issue for fresh examination by the Assessing Officer by following a coordinate bench decision in respect of A.Y. 1999-2000. The Court recorded that the Revenue had earlier challenged the coordinate-bench decision in Income Tax Appeal No.2197 of 2013 and this Court had declined to entertain that challenge as not raising any substantial question of law. For the reasons indicated in the earlier order dated 28th March, 2016, the present question does not give rise to any substantial question of law and is not entertained. [Paras 3]

Not entertained - does not raise a substantial question of law

Technical know how royalty - ALP determination - determination of arm's length price under transfer pricing - substantial question of law - Question whether Tribunal was justified in allowing royalty at 2% instead of reducing it to 1% by the TPO - HELD THAT: - The TPO had restricted the royalty to 1% without determining the arm's length price by applying any of the methods prescribed under the transfer pricing provisions. The CIT(A) found the restriction arbitrary and adhoc; the Tribunal upheld that finding. The High Court agreed that the TPO failed to perform the mandated exercise under Section 92C read with Rule 10B and that no reasons justified the adhoc restriction to 1%. Consequently, the question does not raise a substantial question of law. [Paras 4]

Not entertained - does not raise a substantial question of law

Brand usage royalty and commercial expediency - substantial question of law - Question whether brand-usage royalty was payable prior to formal execution of the agreement and whether payment can be allowed on commercial expediency - HELD THAT: - The Tribunal accepted that a draft agreement (providing for royalty w.e.f. 1st July, 2001) was submitted to the RBI on 10th August, 2001 and approval was granted on 20th November, 2001; the final agreement was executed on 14th March, 2002. The Tribunal held there was an understanding to pay royalty from 1st July, 2001 and further held that payments made out of commercial expediency may be allowable, relying on precedent. The High Court found this to be a possible view on the material before the Tribunal and therefore held no substantial question of law arose. [Paras 5]

Not entertained - does not raise a substantial question of law

Onus under section 40A(2)(b) - substantial question of law - Question whether addition under section 40A(2)(b) for alleged excessive payments to advocates was justified - HELD THAT: - The CIT(A) and the Tribunal held that where professional fees to advocates vary and no standard comparable rates exist, the onus lies on the Revenue to establish that payments were excessive before making a disallowance under Section 40A(2)(b). The Revenue had not conducted the requisite enquiries or produced comparables to discharge that onus; the 10% disallowance was therefore held to be adhoc. The High Court found no fault with these findings and did not entertain the question as raising a substantial question of law. [Paras 6]

Not entertained - does not raise a substantial question of law

Club entrance fee - revenue versus capital expenditure - substantial question of law - Question whether club entrance fee is capital (enduring benefit) or revenue expenditure - HELD THAT: - The parties agreed the issue was covered by this Court's earlier decision in Commissioner of Income Tax v. Otis Elevators (I) Ltd., and hence the law is settled in favour of the assessee on identical facts. Consequently the Court held that no substantial question of law arises in the present appeal. [Paras 7]

Not entertained - does not raise a substantial question of law

Depreciation on testing equipment - substantial question of law - Question whether depreciation is allowable on testing equipment used by clients and not by the assessee - HELD THAT: - The Tribunal followed a coordinate-bench decision allowing depreciation on such testing equipment. The Revenue had earlier appealed against a similar order in I.T.A. No.2441 of 2013 and this Court by order dated 4th July, 2016 did not entertain that appeal. For the reasons given in that earlier order, the present question was held not to raise a substantial question of law and was not entertained. [Paras 8]

Not entertained - does not raise a substantial question of law

Addition for unaccounted production and sales - substantial question of law - Question whether addition for unaccounted production and sales could be made in the face of unchallenged books of account - HELD THAT: - The Assessing Officer made an addition on a percentage-yield basis, but the CIT(A) and Tribunal held that the respondent's regular books were not shown to be defective nor were purchases/sales outside books demonstrated; the production loss claim depended on multiple factors and no comparable data showed excess. These are findings of fact not shown to be perverse; hence no substantial question of law arose and the Court did not entertain the appeal. [Paras 9]

Not entertained - does not raise a substantial question of law

Tax and R&D cess on technical royalty - substantial question of law - Question whether deletion of addition on account of tax and R&D cess paid on technical royalty raises a substantial question of law - HELD THAT: - The Court recorded admission of the appeal on this question (along with questions B and C) for consideration on substantial questions of law. The order does not decide this issue on merits but admits the appeal for hearing. The Registry was directed to communicate the order to the Tribunal to keep the papers and proceedings available. [Paras 2, 10, 11]

Admitted for consideration - appeal on substantial question of law

Tax and R&D cess on technical royalty - substantial question of law - Question (B) whether deletion of addition on account of tax on trademark/brand name royalty raises a substantial question of law (admission) - HELD THAT: - The appeal on this question was admitted by the Court as raising a substantial question of law. The order does not determine the merits; it records admission and directs communication to the Tribunal so the papers remain available for the Court's further consideration. [Paras 2, 10, 11]

Admitted for consideration - appeal on substantial question of law

Royalty on traded goods and Article 7 of the agreement - substantial question of law - Question (C) whether deletion of disallowance of royalty on traded goods based on Article 7 gives rise to a substantial question of law (admission) - HELD THAT: - The Court admitted this question for hearing as raising substantial questions of law. No merits were decided; the Registry was directed to inform the Tribunal to keep records available for the Court. [Paras 2, 10, 11]

Admitted for consideration - appeal on substantial question of law

Final Conclusion: The High Court largely declined to entertain most questions raised by the Revenue in respect of A.Y. 2002-03, holding they did not raise substantial questions of law and upholding the Tribunal/CIT(A) conclusions on those points; appeals on questions (B), (C) and (J) were admitted by the Court as raising substantial questions of law and the Registry was directed to communicate the order to the Tribunal to keep the papers available.

Condonation of delay - ignorance of law by agent - quality of legal assistance - prejudice to Revenue - registration under Section 12AA - remand for decision on merits

Condonation of delay - ignorance of law by agent - quality of legal assistance - prejudice to Revenue - Whether the Tribunal erred in refusing to condone a delay of 1631 days in filing the appeal where the delay was attributed to professional inaction and the condonation petition lacked an affidavit of the assessee. - HELD THAT: - The Court accepted that there was a substantial delay and that the condonation petition was not supported by an affidavit of the assessee, but noted the petition bore the signature of the assessee's counsel and specifically referred to the Chartered Accountant who had handled the matter. The Court held that where delay is explained by ignorance of law or inaction of a professional engaged by the litigant, the question must be approached by weighing the period of delay together with the quality of the explanation, the legal assistance actually obtained, and any detriment to the opposing party. Relying on the principle that there is no presumption that every person knows the law, the Court found nothing on record to refute the averment that the Chartered Accountant was unaware of the appellate remedy after the amendment. Applying the balancing exercise - considering the defective legal assistance, the nature of the dispute (registration under Section 12AA) and the negligible prejudice to Revenue if the matter were reopened - the Court concluded that refusal to condone the delay was not justified in the circumstances. [Paras 6, 8]

Delay of 1631 days was condoned and the Tribunal's order refusing to entertain the appeal on grounds of delay was set aside.

Registration under Section 12AA - remand for decision on merits - Disposition of the substantive claim for registration under Section 12AA following allowance of the appeal on procedural grounds. - HELD THAT: - Having allowed the appeal and set aside the Tribunal's order that dismissed the appeal for delay, the Court remitted the matter to the Tribunal for a decision on the merits of the assessee's claim for registration under Section 12AA. The Court emphasized that its observations on condonation would not influence the Tribunal's examination on merits and that the Tribunal must consider the claim afresh. [Paras 2, 3, 8, 9, 10]

Matter remitted to the Tribunal for fresh adjudication on the merits of the claim for registration under Section 12AA.

Final Conclusion: The appeal is allowed; the Tribunal's order refusing to condone delay is set aside, the delay is condoned, and the matter is remitted to the Tribunal for fresh consideration on the merits of the claim for registration under Section 12AA. No order as to costs.

Obligations of Customs House Agent under Regulation 13 of CHALR, 2004 - Due diligence of CHA in furnishing information to client - Scope of CHA's duty to verify exporter identity and IE Code - Mens rea/connivance as requisite for revocation of CHA licence - Proportionality of disciplinary action - revocation as extreme penalty requiring aggravating factors - Liability for acts of unauthorised employee versus principal CHA - Forfeiture and penalty vis-a -vis cancellation of licence

Liability for acts of unauthorised employee versus principal CHA - Mens rea/connivance as requisite for revocation of CHA licence - Whether the appellant CHA can be held liable for mis-declaration and fraud where shipping bills were filed by an employee allegedly without authority and there is no evidence of the CHA's knowledge or active facilitation. - HELD THAT: - The Court found that the appellant consistently maintained that the shipping bills were filed without authority by an employee who was not authorised to perform customs-house functions, and that the appellant did not defend the employee's actions but asserted ignorance. There is no material on record to establish that the CHA had knowledge of or actively facilitated the mis-declaration, and therefore no mens rea to defraud the government can be inferred against the appellant. In the absence of evidence of active facilitation or connivance by the CHA, culpability for the contents of the shipping bills cannot be fastened on the appellant; mis-declaration attributable to the client does not automatically translate into liability of the CHA where the CHA innocently filed documents on the basis of client-supplied information. [Paras 12, 14]

The CHA cannot be held liable for fraud or mis-declaration in the circumstances; no mens rea is attributable to the appellant.

Obligations of Customs House Agent under Regulation 13 of CHALR, 2004 - Due diligence of CHA in furnishing information to client - Scope of CHA's duty to verify exporter identity and IE Code - The proper scope and meaning of Regulation 13 (particularly clauses (e), (l) and (n)) - whether a CHA is required to verify the genuineness of an exporter or the IE Code and perform background KYC of the exporter before filing shipping bills. - HELD THAT: - Regulation 13(e) obliges the CHA to exercise due diligence to ascertain correctness of any information which he imparts to a client with reference to clearance of cargo; clause (l) requires documents to show the name of importer/exporter and the CHA. The Court held that these clauses do not impose on the CHA a duty to investigate or verify the genuineness of the exporter or to perform a background KYC of the exporter where the exporter's IE Code appears on the shipping bill. The presence of an IE Code on the shipping bill gives rise to a presumption that appropriate checks were undertaken by the authorities for grant of that code; the CHA acts as a processing agent and is not an inspector expected to verify the grant or authenticity of the IE Code. Therefore, furnishing of incorrect information by a client does not, without more, render the CHA liable if the CHA acted innocently on documents and information provided by the client. [Paras 11, 12]

Regulation 13 does not require the CHA to verify the genuineness of the exporter or the IE Code; the CHA's due diligence under clause (e) is directed to information it imparts to clients and does not impose an onus to perform background KYC of the client.

Proportionality of disciplinary action - revocation as extreme penalty requiring aggravating factors - Mens rea/connivance as requisite for revocation of CHA licence - Forfeiture and penalty vis-a -vis cancellation of licence - Whether revocation of the appellant's CHA licence, forfeiture of security and imposition of penalty were justified in the absence of aggravating factors such as mens rea or active facilitation, and whether the orders should be set aside. - HELD THAT: - The Court applied the proportionality principle, noting that revocation is an extreme disciplinary measure justified only where there are aggravating factors (for example, mens rea, active facilitation, sale or transfer of licence, corruption). Relying on precedent and proportionality analysis, and given the absence of any finding that the appellant had knowledge of or connived in the fraudulent exports, the Court concluded that revocation and forfeiture were disproportionate. The long duration of suspension itself was a severe punishment; consequently the revocation, the forfeiture of security and the monetary penalty could not be sustained and must be set aside. Directions were given for repayment/credit of the penalty/security and for consideration of licence extension or fresh application in accordance with the Regulations. [Paras 13, 14, 15]

Revocation of licence, forfeiture of security and the penalty are unjustified in the facts and are set aside; amounts to be credited and licence extension or fresh application to be considered under the Regulations.

Final Conclusion: The High Court set aside the revocation of the appellant's CHA licence, the forfeiture of the security deposit and the penalty imposed, holding that Regulation 13 does not obligate a CHA to verify the genuineness of an exporter/IE Code, that no mens rea or active facilitation by the CHA was proved, and that revocation is a disproportionate penalty in the absence of aggravating factors; consequential directions were given for refund/credit and consideration of licence extension or fresh application as per the Regulations.

Appeal not to be filed in certain cases - Monetary limits for filing appeals - Board's power to issue instructions under section 131BA - Non-filing does not preclude future appeals on same or similar issues - No acquiescence by Commissioner of Customs from non-filing - Appellate court to have regard to circumstances of non-filing

Monetary limits for filing appeals - Board's power to issue instructions under section 131BA - Disposition of pending High Court appeals by the revenue where the amount involved falls below the monetary limit fixed by the Board. - HELD THAT: - The Board issued instructions fixing monetary limits for filing departmental appeals, subsequently revised to Rs. 20,00,000/-, and clarified that those instructions apply to pending appeals in High Courts/CESTAT. The appeals before this Court involved amounts below the monetary limit fixed by the Board and the respondents raised no objection to disposal on that ground. In view of the statutory scheme under section 131BA (which empowers the Board to issue such limits) and the Board's instructions and clarifications, the Court disposed of the pending appeals in accordance with those instructions. The Court recorded that the departmental policy and instructions, together with the absence of objection from the respondents, warranted disposal of these appeals as prayed. [Paras 6]

Pending High Court appeals involving amounts below the monetary limit fixed by the Board were disposed of in accordance with the Board's instructions; applications allowed and appeals disposed as prayed.

Non-filing does not preclude future appeals on same or similar issues - No acquiescence by Commissioner of Customs from non-filing - Appellate court to have regard to circumstances of non-filing - Effect of disposing appeals under Board instructions on the Commissioner of Customs' right to file future appeals and on the question of departmental acquiescence. - HELD THAT: - The Court emphasised the statutory safeguards in section 131BA: sub-section (2) preserves the Commissioner's right to file appeals in other cases involving the same or similar issues despite non-filing pursuant to Board instructions; sub-section (3) prevents any party from contending that the Commissioner has acquiesced in the decision by not filing an appeal; and sub-section (4) requires the Appellate Tribunal or court to have regard to the circumstances of non-filing. Consequently, while these particular appeals were disposed of under the Board's monetary-limit instructions, such disposal does not preclude the Commissioner from initiating appeals in other cases on similar questions of law, nor can non-filing be treated as departmental acquiescence. [Paras 7]

Court clarified that disposal under the Board's instructions does not preclude the Commissioner from filing future appeals on same or similar issues and does not amount to acquiescence; appellate forums must have regard to the circumstances of non-filing.

Final Conclusion: All appeals admitted earlier are disposed of in accordance with the Board's instructions fixing monetary limits (as applicable to these matters); applications are allowed and appeals disposed as prayed, with the express observation that such disposals do not preclude the Commissioner from filing appeals in other cases on similar issues and do not amount to acquiescence.

Estoppel - Classification of goods as "buttons" vis-a -vis "fasteners/snap fasteners" - Amendment to exemption notification and its effect on liability to duty - Right of appeal against orders of Deputy Commissioner of Customs - Computation of period of limitation - Invocation and suspension of bank guarantee pending challenge

Estoppel - Classification of goods as "buttons" vis-a -vis "fasteners/snap fasteners" - Amendment to exemption notification and its effect on liability to duty - Whether the earlier CESTAT and High Court decisions estop the Department from reassessing imported snap fasteners/parts of snap fasteners after the amendment to the notification - HELD THAT: - The Court held that the earlier CESTAT decision (Ext.P5) and this Court's confirmation concerned whether parts of a button fell within the Entry then described as "buttons" and did not decide the question whether items described as "snap fasteners" fall under that Entry. Subsequent amendment to the notification (notification 21/2011, incorporated in notification 12/2012) expressly expanded the description at the other entry to read "fasteners including buttons and snap fasteners...", thereby creating a specific entry with conditions for fasteners. Because the prior decisions did not address the classification of "snap fasteners" under the amended entry, and because the amended entry imposes distinct conditions, the Department was not estopped from treating the goods as falling under the amended provision and taking action accordingly. The Court also observed that there is an apparent difference between the commodity described simply as "buttons" and the broader category "fasteners" and that determination is for customs authorities on verification. [Paras 9, 10, 11]

The earlier decisions do not estop the Department from reassessing consignments under the amended notification; the Department may treat snap fasteners as falling under the amended "fasteners" entry subject to compliance with its conditions.

Right of appeal against orders of Deputy Commissioner of Customs - Computation of period of limitation - Invocation and suspension of bank guarantee pending challenge - Relief to petitioners in respect of impugned orders Exts.P13 and P14 and incidental procedural directions - HELD THAT: - Recognising that the petitioners retain a statutory right of appeal against the impugned Deputy Commissioner orders under the Customs code but that the pendency of this writ petition prevented them from pursuing that remedy, the Court granted permission to prefer an appeal against Exts.P13 and P14. The period from 26/8/2013 until the date of judgment is excluded in computing limitation for such appeal. Further, invocation of the petitioners' bank guarantee is stayed for one month from the date of the judgment to enable recourse by appeal. The Court indicated that, if the petitioners can substantiate that the imported items are only "buttons" as per the relevant notification entry, appropriate relief may follow in the appellate proceedings. [Paras 12]

Petitioners permitted to prefer appeal against Exts.P13 and P14; period of pendency of the writ petition excluded for limitation; invocation of bank guarantee kept in abeyance for one month.

Final Conclusion: The writ petition is disposed of by holding that prior decisions do not estop the Department from treating imported snap fasteners under the amended "fasteners" entry; petitioners are granted permission to prefer appeal against the impugned orders with exclusion of the writ-pendency period for limitation, and invocation of the bank guarantee is stayed for one month.

Section 45(1) of the Prevention of Money Laundering Act - bail pre conditions - special statute prevailing over the Code of Criminal Procedure - Section 19 PMLA - arrest by authorised officer and subsequent notice of grounds - presumption as to proceeds of crime and reverse burden under Section 24 PMLA - admissibility of statements recorded under Section 50 of PMLA (parimateria with Section 108 Customs Act) - adequacy of explanation for seized currency as basis for denial/grant of bail - doctrine of merger and effect of Supreme Court dismissal of appeal

Section 45(1) of the Prevention of Money Laundering Act - bail pre conditions - special statute prevailing over the Code of Criminal Procedure - Applicability of the twin limits in Section 45(1) PMLA to the petitioner's bail application. - HELD THAT: - The Court examined precedents including Gautam Kundu and Gorav Kathuria and concluded that the PMLA is a special statute whose non obstante and overriding provisions require compliance with Section 45(1) when offences fall in Part A of the Schedule. As the offences alleged against the petitioner were in Part A (following the 2013 amendment), the twin conditions in Section 45(1) (opportunity to prosecutor to oppose bail; court satisfied there are reasonable grounds to believe accused is not guilty and unlikely to abscond/commit offence on bail) are binding on the High Court considering a bail application under Section 439 Cr.P.C. The Punjab & Haryana High Court's reasoning in Gorav Kathuria does not assist the petitioner in view of the Supreme Court's authority in Gautam Kundu and the fact that the criminal appeal in Kathuria was dismissed without the substantive questions being answered by the Supreme Court. The statutory requirement under Section 45(1) therefore applies to the facts of this case and must be satisfied before bail can be granted. [Paras 22, 23, 24, 30, 31]

Section 45(1) PMLA applies and its twin pre conditions must be satisfied for grant of bail.

Section 19 PMLA - arrest by authorised officer and subsequent notice of grounds - requirement of FIR (Lalita Kumari) vis a vis authorised arrests under special statute - Whether arrest by ED without registration of FIR violated the principles in Lalita Kumari and Patai (Krishna Kumar). - HELD THAT: - The Court noted that Section 19(1) of the PMLA empowers an authorised officer to arrest a person if he has reason to believe an offence under the Act is committed and to inform the arrested person of the grounds for arrest. Applying the special statute framework, the Court held that arrest by ED under Section 19 was in consonance with the PMLA and that the principles requiring prior FIR registration (as urged from Lalita Kumari and Patai) were not applicable to arrests made under the statutory power conferred by Section 19 of the PMLA. [Paras 10, 11]

Arrest by ED under Section 19 PMLA without prior FIR registration did not contravene Lalita Kumari/Patai rules in the facts of this case.

Admissibility of statements recorded under Section 50 of PMLA (parimateria with Section 108 Customs Act) - Admissibility of statements recorded by ED under Section 50 of the PMLA as evidence. - HELD THAT: - The Court observed that Section 50 of the PMLA is pari materia with Section 108 of the Customs Act and that the law is settled that statements recorded under Section 108 of the Customs Act are admissible in evidence. On this basis, and having regard to authority (Naresh J. Sukhawani), the Court held that statements recorded under Section 50 of the PMLA are admissible and cannot be rejected on the ground that they were not recorded after administering oath. [Paras 36, 37]

Statements recorded under Section 50 PMLA are admissible in evidence.

Presumption as to proceeds of crime and reverse burden under Section 24 PMLA - adequacy of explanation for seized currency as basis for denial/grant of bail - Whether the explanation for the seized currency and the documentary affidavits were satisfactory to conclude there are reasonable grounds to believe the petitioner is not guilty, as required under Section 45(1)(ii). - HELD THAT: - The Court considered the facts that Rs.27 lakhs (in demonetized and new notes) were seized during an Income Tax raid, the affidavits of three alleged purchasers claiming to have paid advances earlier (between 5.8.2016 and 5.10.2016), and the statements recorded under Section 50 in which the petitioner and his wife made inculpatory admissions (including admissions about arranged exchanges). The Court noted the timing of payments predated demonetization and that new Rs.2,000 notes did not exist at those dates, leading to the inference that conversion of old notes into new notes was effected by or at the instance of the petitioner or his agents. Coupled with the earlier Lokayukta proceedings alleging disproportionate assets and the absence of any court order exonerating the petitioner on scheduled offences, the Court found the explanation for possession of the seized currency unsatisfactory. Applying the presumption under Section 24 and the reverse burden, the Court held that it could not be satisfied, as required by Section 45(1)(ii), that there are reasonable grounds to believe the petitioner is not guilty and is not likely to commit an offence on bail. [Paras 41, 42, 43, 45, 46]

The explanation for the seized currency is unsatisfactory; the Court is not satisfied as required under Section 45(1)(ii) that the petitioner is not guilty or unlikely to commit an offence if released on bail.

Doctrine of merger and effect of Supreme Court dismissal of appeal - Whether the dismissal of the Punjab & Haryana High Court judgment in Gorav Kathuria by the Supreme Court effected merger of the High Court's reasoning into binding Supreme Court precedent. - HELD THAT: - The Court examined the doctrine of merger and the circumstances in which a Supreme Court order granting leave and dismissing an appeal results in merger of the High Court order. Noting that in the Gorav Kathuria matter the Supreme Court heard and dismissed the criminal appeal but the Union of India was not represented and that the substantial questions framed by the High Court were not decided by the Supreme Court, the Court held that the petitioner could not rely on a purported merger to derive binding precedent inconsistent with Gautam Kundu. Consequently, Kathuria's reasoning could not displace the binding effect of the Supreme Court's pronouncements. [Paras 24, 25, 26, 29, 30]

The doctrine of merger does not render the High Court's Kathuria reasoning binding against the Supreme Court authority in Gautam Kundu; Kathuria does not alter applicability of Section 45(1).

Final Conclusion: The petition for bail is dismissed. The Court held that Section 45(1) PMLA applies to the offences alleged, statements recorded under Section 50 PMLA are admissible, the arrest under Section 19 PMLA was valid, and on the material before it the Court could not be satisfied as required by Section 45(1)(ii) that the petitioner is not guilty or is not likely to commit an offence while on bail.

Refund of service tax under Notification No.41/2007-ST - drawback exclusion for services - requirement of documentary evidence for specified services - acceptability of invoices and alternative documents in lieu of written agreement - port services qualifying for refund - CHA services where service provider is recognised and invoice cites shipping bill - GTA services-invoice and lorry receipt as sufficient proof - remand for verification of documents and adjudication

Refund of service tax under Notification No.41/2007-ST - drawback exclusion for services - Entitlement to refund of service tax paid on specified services used in export of goods where drawback has been allowed only on goods. - HELD THAT: - The Tribunal accepted the Director of Drawback's conclusion that the services listed in the claims are covered by Notification No.41/2007-ST and are linked to exports but do not form part of drawback on goods. Consequently, entitlement to refund of service tax paid on such specified services is not negated by the grant of drawback on exported goods; the refund claims could not be denied on the sole ground that drawback was allowed on the export of goods. [Paras 5, 6]

Refund claims for service tax on the specified services used in export cannot be denied merely because drawback was allowed on the export of goods.

Requirement of documentary evidence for specified services - remand for verification of documents and adjudication - Adequacy of documentary proof for fumigation services and consequent remand. - HELD THAT: - Some refund claims relying on fumigation services lacked a copy of the written agreement before the adjudicating authority. The Tribunal directed that appellants be required to provide the written agreement and remanded those matters to the adjudicating authority for consideration of the agreement; allowance of refund depends on that verification. [Paras 7]

Matters relating to fumigation services are remanded for the adjudicating authority to examine the written agreement and, if in order, allow the refund.

Acceptability of invoices and alternative documents in lieu of written agreement - refund of service tax under Notification No.41/2007-ST - Whether invoices or other documents satisfy the notification's requirement for business auxiliary (commission) services. - HELD THAT: - The Tribunal held that the notification's phrase 'any other documents' contemplates documents such as invoices for commission payments. Where the invoice of the commission agent is on record, that satisfies the condition of the notification and the appellant is entitled to refund of service tax paid on such business auxiliary services. [Paras 8]

Invoice or equivalent documentary evidence suffices to meet the notification's requirement for commission/business auxiliary services and entitles the appellant to refund.

CHA services where service provider is recognised and invoice cites shipping bill - port services qualifying for refund - Entitlement to refund for CHA and other port-related services where invoices are issued by recognised providers and services relate to port operations. - HELD THAT: - Relying on earlier Tribunal decisions, the Tribunal observed that services provided within the port qualify for refund under the notification. Where the CHA or other service provider is recognised by Customs, has paid service tax and the invoice mentions the shipping bill number, the appellants are entitled to refund of service tax paid on such services. [Paras 9, 10]

Refund is allowable for CHA and other port services provided the service provider is recognised and appropriate invoices (e.g., citing shipping bill) are on record.

GTA services-invoice and lorry receipt as sufficient proof - Sufficiency of transporter invoices and lorry receipts as proof for refund claims on goods transport agency (GTA) services. - HELD THAT: - The Tribunal found that appellants produced transporter invoices showing the transporter had issued the invoice and paid service tax. Proof of payment by the appellant was not required where valid invoices and lorry receipts are on record. Thus, invoice and lorry receipt are adequate to claim refund. [Paras 11, 12]

Invoices of the transporter together with lorry receipts suffice for claiming refund in respect of GTA services.

Port services qualifying for refund - refund of service tax under Notification No.41/2007-ST - Entitlement to refund for terminal handling charges, documentation charges and bill of lading charges characterised as port services despite classification as business support or logistics services. - HELD THAT: - The Tribunal followed precedent concluding that where such charges relate to services received at the port and service tax has been paid by the service provider, they qualify for refund under the notification. Prior Board circulars and Tribunal decisions support allowance of refund for THC and related charges even where invoices are raised by a shipping line or service provider is registered under a different category. [Paras 13, 14, 15]

Terminal handling, documentation and bill of lading charges linked to port operations qualify for refund under the notification and the claim cannot be denied on the basis they are business support/logistics services.

Remand for verification of documents and adjudication - Direction to remand matters to the adjudicating authority for verification and sanction of refund where documents are filed or need to be filed. - HELD THAT: - The Tribunal directed that the matters be remanded so that the adjudicating authority may consider the appellants' refund claims in light of the Tribunal's observations. Where documents are already on record, the adjudicating authority shall verify and sanction the refund at the earliest; where documents are not filed, appellants shall be permitted to file them and claims be adjudicated accordingly. [Paras 16, 17, 18]

Appeals disposed by remand: adjudicating authority to verify documents and sanction refunds where due, or permit filing and then decide claims in accordance with the Tribunal's directions.

Final Conclusion: The Tribunal held that service tax paid on specified services used in export of goods is refundable under Notification No.41/2007-ST despite allowance of drawback on goods; certain claims are remanded for verification of documentary proof (e.g., written agreements, invoices, lorry receipts) and the adjudicating authority is directed to sanction refunds where documents satisfy the notification or on filing and verification as directed.

Refund under Notification No.41/2007 for services used in export of goods - services used for export eligible for refund despite claiming drawback on inputs - time bar not attracted where refund filed within extended period under amended notification - refund of service tax paid on CHA and courier services used for export

Services used for export eligible for refund despite claiming drawback on inputs - Claiming drawback on inputs does not preclude refund of Service Tax paid on services covered by Notification No.41/2007 used for export of goods. - HELD THAT: - The adjudicating authority denied refund on the ground that the appellant had claimed drawback on duty paid on inputs. The Tribunal found that the drawback computation related only to inputs used in manufacture and did not include services covered by Notification No.41/2007. Therefore, the fact that drawback was availed does not operate as a bar to claiming refund of Service Tax paid on services eligible under the Notification. [Paras 6]

Denial of refund on the ground of having claimed drawback is not sustainable; refund is not barred by the drawback claim.

Time bar not attracted where refund filed within extended period under amended notification - Refund claim for the quarter ending September, 2008 filed on 11.05.2009 is within time and not barred by limitation. - HELD THAT: - Relying on this Tribunal's decision in Raymond Ltd. and the principle that amendments extending procedural time-limits apply so as to permit claims filed within the extended period, the Tribunal held that the appellant's refund claim falls within the extended one-year filing period introduced by the amendment. The Tribunal therefore concluded that the time-bar aspect does not apply to the present claim. [Paras 8]

Refund claim is within time; limitation bar is not attracted.

Refund of service tax paid on CHA and courier services used for export - CHA and courier services availed for export of goods, on which Service Tax was paid, are eligible for refund under the Notification. - HELD THAT: - The adjudicating authority treated Courier Service and CHA as Business Support Services and denied refund. The Tribunal found that these services were availed for export of goods and that Service Tax was paid thereon (a fact not disputed by Revenue). Applying the Notification's scope to services used in export, the Tribunal concluded that the appellant is entitled to refund of Service Tax paid on CHA and courier services. [Paras 9]

Denial of refund for CHA and courier services is set aside; appellant entitled to refund.

Final Conclusion: The impugned order is set aside; the appellant's refund claim for services covered by Notification No.41/2007 for the quarter ending September, 2008 is held to be within time, not barred by having claimed drawback on inputs, and the Service Tax paid on CHA and courier services used for export is refundable; appeal allowed with consequential relief.

Penalty under Section 78 of the Finance Act - Business Auxiliary Services - service tax registration and filing of ST-3 returns - failure to discharge service tax liability by due date and consequent penalty liability - second proviso to Section 78 - option to deposit 25% of penalty - adjustment of penalty against excess deposits - binding effect of jurisdictional High Court precedent

Penalty under Section 78 of the Finance Act - failure to discharge service tax liability by due date and consequent penalty liability - Sustainability of penalty under Section 78 where assessee received business auxiliary services from an overseas commission agent but had not obtained registration, had not filed returns and had not paid service tax by due date. - HELD THAT: - The Tribunal found that the appellants did not dispute the liability to pay service tax and interest but had not obtained registration, had not filed statutory returns and had not discharged the service tax liability by the due date; these facts emerged only after investigation commenced. Cooperation with authorities, provision of documents and subsequent payment of service tax and interest (even before issuance of show cause notice) did not negate that there was short payment of tax. In these circumstances short payment of tax is sufficient to sustain imposition of penalty under Section 78 of the Finance Act. [Paras 6]

Penalty under Section 78 is sustainable on the facts that tax was short paid and registration/return obligations were not complied with.

Second proviso to Section 78 - option to deposit 25% of penalty - binding effect of jurisdictional High Court precedent - Whether the penalty should be reduced to 25% in view of the second proviso to Section 78 where duty was paid before issuance of show cause notice and the adjudicating authority did not afford the assessee the option to deposit 25%. - HELD THAT: - The Tribunal noted conflicting decisions but followed the Punjab & Haryana High Court's ruling in City Cables to the effect that an assessee must be informed of the option under the second proviso so as to enable deposit of 25% of the penalty; where the adjudicating authority has not given such option and the duty was already paid before issuance of the show cause notice, directing deposit of 25% of the penalty is fair and meets the ends of justice. The appellants had given express consent to pay the reduced penalty and to have it adjusted against amounts already paid. [Paras 6, 7]

Penalty is reduced to 25% in terms of the second proviso to Section 78 and the appellants' consent to such reduced payment is accepted.

Adjustment of penalty against excess deposits - Mechanism for realization of the reduced penalty where the assessee has already made excess deposits. - HELD THAT: - The Tribunal directed Revenue to verify the excess amount already paid by the appellants and realize the reduced penalty by adjusting it against such excess, in line with the appellants' expressed consent and the Tribunal's order reducing the penalty to 25%. [Paras 7]

Revenue to verify excess payments and adjust/realize the reduced penalty accordingly.

Final Conclusion: Penalty under Section 78 sustained on the ground of short payment and non-compliance with registration/return obligations, but reduced to 25% in terms of the second proviso (following the jurisdictional High Court); Revenue directed to verify excess deposits and adjust/realize the reduced penalty.

Refund of service tax for export-related services - debit notes as sufficient documentary evidence - compliance with Rule 4A of the Service Tax Rules, 1994 - CBEC clarification dated 11.12.2008 on documentary evidence for refund - terminal handling charges within scope of port services exemption

Debit notes as sufficient documentary evidence - compliance with Rule 4A of the Service Tax Rules, 1994 - CBEC clarification dated 11.12.2008 on documentary evidence for refund - Refund claim could not be rejected merely because supporting documents were debit notes rather than invoices, where the debit notes contained the particulars required by Rule 4A and thereby constituted reasonable evidence as contemplated by the Board clarification. - HELD THAT: - The Notification prescribes that refund claims be accompanied by documents evidencing payment of service tax. The CBEC clarification of 11.12.2008 treated invoices/challans/bills issued in conformity with Rule 4A as reasonable evidence. The Tribunal followed its Division Bench precedent in M/s Shivam Exports & Others holding that documents in the form of debit notes are acceptable so long as they disclose essential particulars (registration number, service provided, service recipient, value of taxable service) required under Rule 4A. On the facts, the debit notes submitted contained the information required by Rule 4A. The contrary decision relied on by the Revenue (a Single Member authority on cenvat credit) was distinguished as being inapplicable to refund claims under Notification No.41/2007-ST and as not being a Division Bench decision on the same point. [Paras 6]

Objection to refund on the ground that supporting documents were debit notes is unsustainable; issue held in favour of the appellants.

Terminal handling charges within scope of port services exemption - refund of service tax for export-related services - Refund of service tax paid in respect of Terminal Handling Charges for the period prior to the specific insertion of that head in the Notification (i.e., 01.07.2008 to 30.09.2008) is allowable because such charges fall within the scope of port services exempted under Notification No.41/2007-ST. - HELD THAT: - The Commissioner rejected refund on the ground that Terminal Handling Charges were not specifically listed in the schedule at the relevant time. The Tribunal examined the scope of the entry corresponding to Section 65(105)(zn) in Notification No.41/2007-ST and concluded that any service provided in relation to port services to an exporter and used for export is exempted. A subsequent amendment (Notification dated 07.07.2009) explicitly referred to terminal handling charges but that does not exclude terminal handling services provided within the port from the earlier broader exemption under the port services entry. The Tribunal relied on its earlier decision in Nahar Fibres v. CCE, Chandigarh which held that the adjudicating authority's narrow reading excluding terminal handling charges from the port services entry was erroneous. [Paras 6, 7]

Refund in respect of Terminal Handling Charges for the stated period is allowable; the Commissioner's rejection on the ground of non-inclusion is unsustainable.

Final Conclusion: The Commissioner's revision order rejecting portions of the refund claim is set aside; the appeal is allowed and the appellants' refund claim is sustained for the debit-note-supported items and for terminal handling charges for the period 01.07.2008 to 30.09.2008.

Deduction of material component - threshold exemption - remand for limited recalculation of tax payable - penalty under Section 78 - penalty under Section 77

Deduction of material component - threshold exemption - remand for limited recalculation of tax payable - Entitlement to deduct value of materials from gross receipts, grant of threshold exemption for Financial Year 2005-06, and remand for limited recalculation of tax payable. - HELD THAT: - The Tribunal found on the materials before it and the contract terms that the appellant separately billed materials and labour, with sales tax levied on materials, entitling the appellant to deduction of the material component from the gross receipts for computation of service tax. On the appellant's calculations, after allowing the material deduction the turnover for the relevant year falls within the threshold so that the appellant is entitled to benefit of threshold exemption for Financial Year 2005-06 under Notification No. 6 of 2005-ST. In consequence, the Tribunal directed a remand to the Adjudicating Authority for the limited purpose of recalculating the tax payable after allowing the material-component deduction and the threshold exemption, noting that amounts already paid appear to exceed the liability as per the calculation placed before the Tribunal.

Allowed deduction of material component, allowed threshold exemption for Financial Year 2005-06, and remanded to the Adjudicating Authority for limited recalculation of tax payable.

Penalty under Section 78 - penalty under Section 77 - Validity of penalties imposed under Sections 78 and 77 and their disposition. - HELD THAT: - Having accepted that the tax liability requires recalculation and that taxes were paid (and may exceed the recalculated liability), the Tribunal set aside the penalty imposed under Section 78. However, the Tribunal retained the penalty imposed under Section 77 for non-filing of returns, observing no reason to interfere with that specific penalty, and confirmed it at Rs. 5,000.

Penalty under Section 78 set aside; penalty under Section 77 of Rs. 5,000 retained.

Final Conclusion: Appeal allowed in part: entitlement to material deduction and threshold exemption for Financial Year 2005-06 recognised; matter remanded to the Adjudicating Authority for limited recalculation of tax payable; penalty under Section 78 set aside and penalty under Section 77 upheld.

Transfer of property in goods - accretion - service tax on composite repair/maintenance contracts - valuation of taxable service where materials are supplied - recognition of supply of materials as sale in maintenance contracts - no double taxation where VAT paid on materials - Rule 67 of the Finance Act, 1994 - treatment of goods used in repair

Transfer of property in goods - service tax on composite repair/maintenance contracts - no double taxation where VAT paid on materials - Rule 67 of the Finance Act, 1994 - treatment of goods used in repair - Materials used in the respondent's repair/rewinding and installation contracts were transferred to the principal and therefore the material component is not liable to service tax. - HELD THAT: - The appellate authority examined the contract terms which provided that service tax was payable extra (specified as a percentage of the contract value) and that copper scrap generated during rewinding/repair would belong to the principal. The Commissioner (Appeals) relied on precedent recognising that goods and materials used in maintenance or repair may be treated as sold - including reference to Rule 67 of the Finance Act, 1994 and judicial decisions treating supply of materials in annual maintenance contracts as sale - and accepted the assessee's statutory-compliance evidence: VAT was paid on the cost of materials as certified by the Chartered Accountant and materials constituted a substantial portion of receipts. On these findings the Commissioner (Appeals) held that the material component could not be subjected to service tax and that consequential demand, interest and penalty were unsustainable. The Tribunal concurred with that conclusion, holding that there was transfer of materials to the principal and upholding the Commissioner (Appeals) order disallowing service tax on the material component.

The appeal of the Revenue is dismissed; the Commissioner (Appeals) finding that materials were transferred and not liable to service tax, with consequent disposal of demand, interest and penalty, is upheld.

Final Conclusion: The Tribunal affirms the Commissioner (Appeals): materials used in the repair/rewinding and installation work were transferred to the principal and the material component, on which VAT was paid, is not liable to service tax; the Revenue's appeal is dismissed and related demands, interest and penalty are set aside.

Remand for fresh adjudication - relevance of verification report in adjudication - weight of field formation report - reconsideration of CENVAT credit denial on alleged non-receipt of inputs - right to opportunity of hearing

Relevance of verification report in adjudication - weight of field formation report - remand for fresh adjudication - Adjudicating Authority failed to consider the verification report dated 17.04.2012 and the matter is remanded for fresh decision taking that report into account. - HELD THAT: - The Tribunal found that after the panchnama recorded an apparent shortage, the assessee filed a reconciliation statement which the Adjudicating Authority had directed to be verified. The Assistant Commissioner submitted a detailed verification report (dated 17.04.2012, signed 03.05.2012) but the adjudication order was passed on 25.04.2012 without taking that report into consideration. The Commissioner (Appeals) rejected the report on a flimsy ground. The report of the field formation, being a verification of the reconciliation asserted by the assessee, carries due weight and ought to be considered before final adjudication. The Tribunal therefore set aside the impugned order and remanded the matter to the Adjudicating Authority to decide the issue afresh after considering the verification report and after affording the assessee a reasonable opportunity of hearing. No opinion was expressed on the merits of the report or the earlier adjudication; all issues are kept open. [Paras 6, 7]

Impugned order set aside and matter remanded to the Adjudicating Authority for fresh adjudication taking into account the verification report dated 17.04.2012, with opportunity of hearing.

Reconsideration of CENVAT credit denial on alleged non-receipt of inputs - remand for fresh adjudication - right to opportunity of hearing - Allegation of non-receipt of inputs and denial of CENVAT credit is to be re-examined by the Adjudicating Authority along with the issue of shortage on remand. - HELD THAT: - The Tribunal directed that the question of non-receipt of inputs (zinc ingots) on which CENVAT credit was denied must be considered afresh by the Adjudicating Authority together with the shortage reconciliation. The Bench explicitly refrained from expressing any view on the evidence or on the verification report and left all issues open for re-adjudication. The assessee must be afforded a reasonable opportunity to be heard before the Adjudicating Authority concludes on the claim of receipt and admissibility of CENVAT credit. [Paras 6]

Issue of non-receipt of inputs and denial of CENVAT credit remanded for fresh consideration along with the shortage-reconciliation, with hearing opportunity to the assessee.

Final Conclusion: The appeals are allowed by setting aside the impugned adjudication order and remanding the matter to the Adjudicating Authority for fresh adjudication taking into account the verification report dated 17.04.2012 (signed 03.05.2012) and reconsidering the issue of alleged non-receipt of inputs; all issues are kept open and a reasonable opportunity of hearing shall be afforded to the appellants.

Classification of goods - classification under Chapter 72 vis-a -vis CETH 8708/8714 - essential character - semi-finished article - extended period of limitation - time-barred demand

Classification of goods - classification under Chapter 72 vis-a -vis CETH 8708/8714 - essential character - semi-finished article - Blanks manufactured by the appellant are classifiable under Chapter 72 and not under CETH 8708/8714. - HELD THAT: - On the admitted facts the goods in question are metal sheets cut to specified sizes (blanks) which, by themselves, are not usable as motor-vehicle parts and acquire the character of such parts only after further processes undertaken by the buyers. The Tribunal followed earlier decisions treating blanks and castings that require further machining as semi-finished article falling under the chapter for basic metal products rather than headings applicable to finished machine or motor-vehicle parts. The Tribunal noted and applied the reasoning in CCE Vs. Colts Auto Pvt. Ltd. and Tisco Ltd. Vs. CCE (as affirmed by the Apex Court) and the guidance in the CBC Circular distinguishing precision/ready-to-use parts from blanks/semi-finished articles. Applying the principle of essential character, the blanks here lack the essential character of motor-vehicle parts and therefore are correctly classifiable under Chapter 72. [Paras 7]

Classification under Chapter 72 upheld; not classifiable under CETH 8708/8714.

Extended period of limitation - time-barred demand - Demand based on invocation of the extended period of limitation is not sustainable and is time-barred. - HELD THAT: - The appellant had declared clearances of the blanks under Chapter 72 in ER-1 returns, a fact admitted by Revenue. Since the classification used by the appellant was disclosed to the Department in statutory returns, the requirements for invoking the extended period of limitation were not satisfied. As the entire demand arose from application of the extended period, the demand is time-barred. [Paras 8]

Extended-period demand held unsustainable; demand time-barred.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the demand (including interest and penalty) based on reclassification and invocation of the extended period of limitation is rejected as unsustainable and time-barred.

Cenvat credit - presumption insufficient to deny credit - corroborative evidence - investigation of manufacturer and transporter - non-existent dealer / fake invoices - acceptance of ER-1 returns

Cenvat credit - non-existent dealer / fake invoices - corroborative evidence - presumption insufficient to deny credit - investigation of manufacturer and transporter - Denial of cenvat credit to the respondent on the ground that the dealer M/s S.K. Garg & Sons was non-existent and had issued only invoices, without further corroborative investigation. - HELD THAT: - The Tribunal held that mere finding of non-existence of the dealer at its premises and cancellation of the dealer's registration, without any corroborative evidence, is insufficient to deny cenvat credit to a recipient who has claimed receipt and use of goods. Where there is no inculpatory statement of the respondent and no investigation was made of the manufacturers or the transporters to verify movement and delivery of goods, the allegation that the recipient received only invoices and not goods rests on presumption. In such circumstances the Commissioner (Appeals) correctly reinstated the credit because the denial was not supported by tangible evidence revealing non-supply to the dealer or non-delivery to the respondent. The Tribunal relied on its earlier decisions dealing with similar facts to affirm that credit cannot be denied on assumption alone and that absence of storage capacity at the dealer's earlier premises is not by itself conclusive proof of non-supply to the recipient.

In absence of investigation or other corroborative evidence showing non-supply or non-delivery, cenvat credit cannot be denied merely because the supplier-dealer was found non-existent; the impugned order allowing credit is upheld.

Acceptance of ER-1 returns - cenvat credit - Effect of dealer's filing and departmental acceptance of ER-1 returns on the validity of cenvat credit claimed by the respondent. - HELD THAT: - The Tribunal noted that M/s S.K. Garg & Sons had been a registered dealer during the relevant period and had filed ER-1 returns which were accepted by the department. This fact weighs against a finding that the transactions were merely paper deals, particularly where no further inquiry was made into the manufacturers or transporters. The acceptance of statutory returns by the department was treated as relevant contemporaneous administrative action which, in the absence of contrary corroborative evidence, supports the allowability of the credit.

Filing and departmental acceptance of ER-1 returns by the supplier-dealer is a relevant factor militating against denial of cenvat credit in absence of contrary corroborative evidence.

Final Conclusion: Relying on the absence of any investigation of manufacturers or transporters and lack of corroborative evidence to prove non-delivery, the Tribunal upheld the Commissioner (Appeals) order allowing cenvat credit and dismissed the Revenue's appeal.

Removal under bond for export - revenue neutrality of export transactions - acceptance of evidence of export (Shipping Bill, Bill of Lading, B.R.C.) - issuance of show cause notice for duty where export has taken place - imposition of penalty for delayed export

Removal under bond for export - revenue neutrality of export transactions - issuance of show cause notice for duty where export has taken place - Whether issuance of the Show Cause Notice dated 30/03/2006 demanding excise duty was justified where goods removed under bond on 31/03/2005 were finally exported on 10/03/2006 and evidence of export was placed on record before adjudication. - HELD THAT: - The Tribunal recorded that there was no dispute about the fact of export and that the consignment, removed under bond, was finally exported and supported by export documentation including a Banking Realisation Certificate. Consequently, there was no revenue implication as duty had effectively been exported and the transaction had become revenue neutral. In those circumstances issuance of a Show Cause Notice demanding duty was unnecessary; the Adjudicating Authority ought to have allowed the assessee further time to produce additional export evidence (Shipping Bill and Bill of Lading) rather than proceeding to confirm a demand. The Tribunal therefore set aside the adjudication which confirmed duty, holding that the existence of actual export and accompanying evidence negated the justification for the demand.

Show Cause Notice and consequent demand for excise duty set aside as export had taken place and the matter was revenue neutral; adjudication confirming duty was quashed.

Imposition of penalty for delayed export - acceptance of evidence of export (Shipping Bill, Bill of Lading, B.R.C.) - Whether imposition of penalty under Rule 25 was justified where export had ultimately taken place and export evidence was produced. - HELD THAT: - Given the Tribunal's finding that the goods were ultimately exported and that the assessee produced a Banking Realisation Certificate evidencing export, the underlying premise for imposing penalty-that duty remained unpaid because export had not occurred-was absent. The Adjudicating Authority should have considered granting time to file missing shipping documents before imposing penalty. In view of the export having been established and the revenue neutrality, the penalty imposed was not sustainable.

Penalty imposed under Rule 25 set aside as unsustainable in light of established export and produced export evidence.

Final Conclusion: The appeal is allowed; the order confirming demand of duty and imposing penalty is set aside as the goods removed under bond were ultimately exported and export evidence was produced, rendering the demand and penalty unjustified; appellant entitled to consequential relief in accordance with law.

Cenvat credit - inputs for manufacture - burden of proof on the Revenue for non-receipt/transportation of inputs - admissibility and evidentiary value of prior declarations/undertakings - penalty not imposable without a sustainable demand

Cenvat credit - inputs for manufacture - admissibility and evidentiary value of prior declarations/undertakings - Claimed cenvat credit on specified chemicals could not be denied on the ground that they were not inputs for manufacture when the assessee had filed prior declarations and the Revenue had not controverted or examined those materials. - HELD THAT: - The Tribunal found that the assessee had, since the mid-1990s, filed regular declarations/undertakings and explained the use of the chemicals in the manufacture of disproportionate resins/camphor; the usage of each challenged chemical was supported by process descriptions or technical sources. These facts were neither examined nor contradicted by the adjudicating authority. In the absence of any positive evidence from the Revenue disputing the declared use, the court held that the materials could not be held to be non-inputs and denial of cenvat credit on that ground was unsustainable. [Paras 7, 8]

Cenvat credit cannot be denied on the ground that the chemicals are not inputs for manufacture where prior declarations/undertakings as to their usage stand uncontroverted.

Burden of proof on the Revenue for non-receipt/transportation of inputs - cenvat credit - Cenvat credit could not be denied on the basis that a named transporter was non-existent when the Revenue produced no positive evidence of non-transport and did not investigate available lorry owners or drivers. - HELD THAT: - The Tribunal observed that the alleged non-existence of one transporter (M/s ABG Carrier) was based on investigation conducted years after the relevant period and only in respect of that transporter, while invoices showed lorry numbers and other transporters had been used. No inquiries were made of lorry owners or drivers and several other transporters who actually moved the goods were not examined. Given the absence of positive evidence establishing non-receipt of the inputs at the factory, the presumption of non-transport could not be sustained and credit could not be denied on that basis. [Paras 9]

Denial of cenvat credit on the ground of non-transport because a transporter was allegedly non-existent is unsustainable in the absence of positive evidence.

Penalty not imposable without a sustainable demand - Penalty could not be imposed once the demands confirmed against the assessee were set aside for want of sustainable evidence. - HELD THAT: - As the Tribunal set aside the confirmed demands due to lack of evidence supporting denial of credit, it followed that the parallel penalty based on the same unsustainable demand could not be maintained. Therefore no penalty was imposable on the assessee. [Paras 10]

Penalty set aside consequentially upon setting aside the confirmed demands.

Final Conclusion: The Revenue's appeal is dismissed; the assessee's appeal is allowed with consequential relief - the confirmed demands and the penalty are set aside for the period 2002-03 to 2003-04.

Reversal of cenvat credit on capital goods - Liability on sale of dismantled material / scrap under Rule 3(5A) of the Cenvat Credit Rules, 2004 - Applicability of Cenvat Credit Rules, 2004 to goods acquired prior to enactment or where credit was not availed

Reversal of cenvat credit on capital goods - Rule 3(5) of the Cenvat Credit Rules, 2004 - Reversal of cenvat credit under Rule 3(5) on capital goods cleared during March, 2007 to October, 2007 - HELD THAT: - The show cause notice sought reversal under Rule 3(5) where capital goods are cleared as such. The Tribunal found that the assessee had not cleared capital goods as such, that the disputed capital goods were procured prior to 1994 and that no cenvat credit had been availed on those goods. The Revenue did not controvert these facts with cogent evidence. On these findings the statutory requirement to reverse credit under Rule 3(5) was not attracted and the provision was held inapplicable to the facts of this case. [Paras 7]

No reversal under Rule 3(5) was required; the provision is not applicable.

Liability on sale of dismantled material / scrap under Rule 3(5A) of the Cenvat Credit Rules, 2004 - Applicability of Cenvat Credit Rules, 2004 to dismantled building material - Liability to pay duty under Rule 3(5A) on sale of scrap iron and steel alleged to be from dismantling of an old building - HELD THAT: - The respondent produced a report certifying that the scrap consisted of material from dismantling an old building and was not derived from capital goods or manufactured goods on which cenvat credit had been taken. The Tribunal accepted that the scrap was of dismantled old building material and therefore not covered by Rule 3(5A), which applies to inputs / dismantled material where credit had been availed and clearance occurs. In view of the factual finding that the scrap did not arise from credited capital or manufactured goods, Rule 3(5A) was held inapplicable and no duty was exigible. [Paras 8, 9]

No duty payable under Rule 3(5A); the provision is not applicable to the dismantled building scrap in this case.

Final Conclusion: The appeal is dismissed and the order of the Commissioner (Appeals) upholding the dropping of the demands is upheld.

Failure to quantify demand in show cause notice - framing of charges - sustainability of show cause notice - entitlement to consequential relief

Failure to quantify demand in show cause notice - framing of charges - sustainability of show cause notice - entitlement to consequential relief - Whether the show cause notice dated 26.06.1997 which did not quantify the duty demand was sustainable. - HELD THAT: - The show cause notice merely stated that the exact amount of duty would be determined at adjudication because production and clearance figures were not furnished, and did not quantify the demand at the notice stage. The Tribunal found that such omission amounted to a total failure in framing of charges. Because the demand was not quantified in the show cause notice and quantification was deferred to adjudication, the notice was held to be not sustainable. In consequence, the appeal was allowed and the appellant granted consequential relief as provided by law. [Paras 5]

The show cause notice dated 26.06.1997 is not sustainable for failure to quantify the demand; appeal allowed and consequential relief granted.

Final Conclusion: The Tribunal allowed the appeal, holding that the show cause notice which did not quantify the duty demand constituted a failure to frame charges and was unsustainable; consequential relief granted as per law.

Classification of goods under Central Excise Tariff - Classification - Machinery for the industrial preparation or manufacture of food or drink versus kitchen or household articles - Interpretative value of Explanatory Notes - Application of Central Excise Tariff Act, 1985 - Entitlement to exemption under notification

Classification of goods under Central Excise Tariff - Classification - Machinery for the industrial preparation or manufacture of food or drink versus kitchen or household articles - Entitlement to exemption under notification - Mincing machines manufactured and supplied by the respondent are not classifiable under Tariff Item No.84385000 but fall within Tariff Item No.73239100 and are eligible for the claimed exemption. - HELD THAT: - Revenue contended that the machines are covered by Tariff Item No.84385000 (machinery for the industrial preparation or manufacture of food or drink), relying inter alia on a reference in the Explanatory Notes. The Tribunal examined the factual finding of the Commissioner (Appeals) that the machines supplied by the respondent were small kitchen gadgets of a specific design, developed for and used exclusively in Army kitchens for domestic-scale mincing and not in industrial food manufacture. That factual characterisation led to the conclusion that the machines do not qualify as machinery for industrial preparation or manufacture of food or drink and are properly classifiable under Tariff Item No.73239100 (kitchen or other household articles and parts thereof). The Tribunal accepted the Commissioner (Appeals)'s classification and consequent allowance of the claimed exemption.

Appeal dismissed; classification and exemption allowed in favour of the respondent.

Interpretative value of Explanatory Notes - Application of Central Excise Tariff Act, 1985 - Explanatory Notes do not have the force of law and cannot override classification under the Central Excise Tariff Act, 1985. - HELD THAT: - Revenue relied upon the Explanatory Notes (WCO) to support classification under Chapter 84.38. The Tribunal held that Explanatory Notes are for guidance only and lack the force of law; classification must be determined in accordance with the Central Excise Tariff Act, 1985 and the factual characterisation of the goods. On that basis the reliance on Explanatory Notes was held unsustainable and the Commissioner (Appeals)'s statutory-based reasoning was accepted.

Reliance on Explanatory Notes rejected; statutory classification under the Central Excise Tariff Act, 1985 prevails.

Final Conclusion: The Revenue appeal is dismissed. The Tribunal upholds the Commissioner (Appeals)'s finding that the machines are kitchen/household articles properly classifiable under Tariff Item No.73239100, rejects reliance on Explanatory Notes as having legal force, and entitles the respondent to consequential relief as per law.

Clandestine removal - reliability of seized documents - burden of proof in clandestine manufacture - investigation of third parties, transporters and weighbridge owners - benefit of doubt - penalty unsustainable without cogent evidence

Clandestine removal - burden of proof in clandestine manufacture - reliability of seized documents - investigation of third parties, transporters and weighbridge owners - The charge of clandestine manufacture and removal of goods against the respondent was not established. - HELD THAT: - The Tribunal identified specific evidentiary ingredients necessary to sustain an allegation of clandestine manufacture and removal, including (a) existence of manufacturing facility, (b) proof that goods were manufactured and cleared by the respondent, (c) corroborative evidence such as excess electricity consumption, (d) investigation of transporters to establish movement of goods, and (e) verification from weighbridge owners regarding quantities weighed. Loose weighment slips recovered in a third party's premises, some of which were disowned, could not substitute for these missing links. The Revenue failed to investigate the Dharamkanda (slip) owners, transporters and weighbridge owners or to obtain evidence from buyers who in fact denied receipt of the goods. In those circumstances the seized loose slips and other documents did not constitute cogent evidence to prove clandestine manufacture and removal, and the burden of proof remained unmet. [Paras 6, 7]

The allegation of clandestine manufacture and removal was rejected for want of necessary and corroborative investigation and evidence.

Benefit of doubt - penalty unsustainable without cogent evidence - The benefit of doubt was correctly given to the respondents and the penalties and demand confirmed by adjudicating authority were not sustainable. - HELD THAT: - Having found that the foundational elements to prove clandestine removal were absent and that the Revenue did not produce cogent, corroborative evidence (including investigations of third parties, transporters and weighbridge owners), the Tribunal upheld the approach of the Commissioner (Appeals) in giving the benefit of doubt to the respondents. Consequentially, the corresponding penalties and duty demand, being premised on unsustained allegations, could not stand. [Paras 7, 8]

Benefit of doubt granted to respondents; demand and penalties set aside; appeal dismissed.

Final Conclusion: The impugned order granting benefit of doubt to the respondents is upheld; the Revenue's appeals are dismissed and the corresponding penalties and demands are quashed for lack of cogent evidence to prove clandestine manufacture and removal.

Double benefit of Cenvat credit and depreciation - depreciation under Sec. 32 of the Income Tax Act, 1961 - revised income tax return and surrender of depreciation - consequence of surrender on demand and penalty - evidentiary burden on Revenue to contradict documentary proof

Double benefit of Cenvat credit and depreciation - revised income tax return and surrender of depreciation - consequence of surrender on demand and penalty - evidentiary burden on Revenue to contradict documentary proof - Whether the appellant was entitled to set aside the demand, interest and penalty for alleged double claim of Cenvat credit and income-tax depreciation where the assessee subsequently surrendered the depreciation claim by filing a revised return and produced supporting documents. - HELD THAT: - The Tribunal found that for the financial years 2003-04, 2004-05 and 2005-06 the appellant had initially claimed Cenvat credit on capital goods and had also claimed depreciation under the Income Tax Act. However, the appellant filed a revised income-tax return for assessment year 2006-07 and the revised position, supported by a Chartered Accountant's certificate dated 11.4.2012 and the Income Tax assessment order dated 21.11.2008, shows that the earlier depreciation claim was surrendered and the total income was recomputed accordingly. No contrary evidence was placed by the Revenue to dispute these documents. In these circumstances the Tribunal held that the appellant could not be said to have availed both benefits and that the Commissioner (Appeals) was incorrect in holding that the documents evidencing surrender of depreciation had not been filed. On this basis the adjudication confirming demand with interest and imposing equal penalty was set aside and the appeal allowed with consequential relief as per law. [Paras 5]

Impugned order upholding demand, interest and equal penalty quashed as the appellant had surrendered the depreciation claim in the revised income-tax return and produced corroborative documents; appeal allowed with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, set aside the adjudication order confirming recovery with interest and imposing equal penalty, on the basis that the appellant had surrendered the income-tax depreciation in a revised return and produced supporting documentary evidence which the Revenue did not contradict; consequential relief granted as per law.

Clandestine removal - admissions recorded in statements - corroboration of admissions by independent evidence - intent to evade duty - voluntary deposit of duty - reduction of demand by Commissioner (Appeals) - penalty under Section 11AC of the Central Excise Act, 1944

Clandestine removal - admissions recorded in statements - corroboration of admissions by independent evidence - Whether the reduction of the duty demand by the Commissioner (Appeals) was justified - HELD THAT: - The Tribunal found that both partners of the respondent-firm had on different dates admitted clearance of branded auto headlamp glass shells without payment of duty and had given proximate quantities and values for the period in question. The Court noted earlier voluntary deposits by the firm and that the sale books for April-November 2004 established clearances valued at Rs. 9,30,997/-. Having considered these admissions and the material on record, the Tribunal held that the Commissioner (Appeals) erred in reducing the duty demand because the higher proximate clearance value as admitted by the partners was established by their statements and related records. Consequently the original demand confirmed by the adjudicating authority was restored. [Paras 5]

Demand of duty restored to the amount of Rs. 3,11,100/- as originally confirmed

Intent to evade duty - voluntary deposit of duty - penalty under Section 11AC of the Central Excise Act, 1944 - Whether penalties imposed on the respondent-firm and its partner should be sustained - HELD THAT: - While admissions established that clearances without payment of duty took place, the Tribunal found no case of deliberate default or conscious suppression amounting to clearing goods with intent to evade duty. The record showed voluntary deposits of duty by the firm and no material demonstrating culpable intent to evade. In view of these factual findings, the Tribunal concluded that imposition of penalties was not warranted and that the penalties imposed on the firm and its partner should be set aside. [Paras 5]

Penalties imposed on the respondent-firm and its partner set aside

Final Conclusion: The appeal is allowed in part: the duty demand is restored to the amount originally confirmed (Rs. 3,11,100/-) while the penalties imposed on the respondent-firm and its partner are set aside.

Exemption to small-scale units - brand name or trade name of another person - affixation of brand name on specified goods - original equipment clearances for use as OEM components - part or serial number as indicia of origin - exclusive right to use trademark by assignment or licence - strict construction of fiscal exemption notifications

Affixation of brand name on specified goods - part or serial number as indicia of origin - strict construction of fiscal exemption notifications - Whether denial of small-scale exemption was justified because the impugned brand name or part number appeared only on documents and on the original part/serial number on finished components. - HELD THAT: - The Tribunal held that the exclusion in the notification applies only where the specified goods themselves are affixed with the brand name or trade name of another person. The adjudicating authority's conclusion that mere printing of the brand on sale documents or use of the collaborator's part/serial number on finished components attracts the exclusion was rejected. Reliance on the reasoning in Superex and Trimurti Weldmesh supports the plain-language approach: the manufacturer must affix the brand on the goods to be excluded. The definition of "brand name or trade name" does not reasonably extend to a part/serial number used as an aid to manufacture or assembly, and fiscal notifications must be construed according to their clear terms rather than by importing extraneous purposive inferences. [Paras 8, 9, 11, 12]

The exclusion could not be invoked on the basis of brand references in documents or on part/serial numbers; denial of exemption on those grounds was unsustainable.

Exclusive right to use trademark by assignment or licence - brand name or trade name of another person - Whether an exclusive right conferred by agreement to use the trade mark in the territory precludes the mark being treated as the brand of another person for the purposes of the notification. - HELD THAT: - The Tribunal accepted that where a foreign collaborator has assigned or conferred on the manufacturer an exclusive right to use the trade mark in India, the manufacturer uses the mark in its own right and therefore is not using the trade mark of "another person" as envisaged by the exclusion. The decision in Otto Bilz was applied to hold that assignment or exclusive licence converts the mark into the assessee's own mark for the relevant territory and thus does not disentitle the assessee from claiming the exemption. [Paras 13, 14]

An exclusive right to use the trade mark precludes treating the mark as that of another person; exemption could not be denied on that ground.

Final Conclusion: The impugned order denying small-scale exemption was set aside and the appeals allowed: the exclusion applies only where the goods themselves bear the brand/trade name of another person and not where the mark appears only on documents or as an original part/serial number, and an exclusive right to use the trade mark in the territory means the assessee is not using the mark of another person.

Deemed tax invoice / bill of sale - running account bills issued by Government awarder - status of a statutory board as "Government" for the purpose of regulatory proviso - input tax credit entitlement on the basis of running bills

Status of a statutory board as "Government" for the purpose of regulatory proviso - deemed tax invoice / bill of sale - running account bills issued by Government awarder - input tax credit entitlement on the basis of running bills - Karnataka Water Supply Board falls within the meaning of "Government" in the Proviso to Rule 27(2) of the KVAT Rules and running account bills prepared by it are to be treated as tax invoices/bills of sale enabling input tax credit. - HELD THAT: - The Court accepted that the Proviso to Rule 27(2) was enacted to enable contractors executing civil works for Government or its departments to avail input tax credit on the basis of running account bills prepared during the currency of contracts. The Karnataka Water Supply Board, being a creation of statute (the Bangalore Water Supply and Sewerage Act, 1964), was held to fall within the ambit of "Government" for the purpose of the Proviso. Consequently, running account bills issued by the Board are to be construed as tax invoices or bills of sale under the Proviso and may be relied upon by the contractor for claiming input tax credit. The Court found no substantial question of law in the State's challenge and upheld the legal effect attributed by the Tribunal to the Proviso. [Paras 4, 5]

State's challenge dismissed; the Board is within "Government" under the Proviso and its running account bills are deemed tax invoices for input tax credit purposes.

Deemed tax invoice / bill of sale - running account bills issued by Government awarder - calculation and allowance of deduction for tax collected in running account bills - The question of quantification and allowance of deduction corresponding to actual tax deducted in the running account bills remains to be examined by the assessing authority. - HELD THAT: - While upholding the legal character of the running account bills as tax invoices, the Tribunal directed remand to the assessing authority to examine the running account bills and allow deductions to the extent of actual tax deducted at source shown therein. The High Court did not interfere with that direction; accordingly, the factual/quantitative determination of deductions based on the RA bills is left to the assessing authority for verification and allowance in accordance with the Tribunal's order. [Paras 2]

Matter remanded to the assessing authority to examine running account bills and allow deductions to the extent of tax actually deducted therein.

Final Conclusion: The State's revision petition is dismissed. The Tribunal's conclusion that the Karnataka Water Supply Board is to be treated as "Government" under the Proviso to Rule 27(2) and that its running account bills are deemed tax invoices stands; the assessment authority is to examine the RA bills and allow deductions as per actual tax deducted.

Refund of tax and entitlement - Applicability of Section-47 of the KVAT Act (unjust enrichment) - Remand to Jurisdictional Local VAT Officer for fresh consideration - Preclusive effect of earlier judicial decision where statutory provision not considered

Preclusive effect of earlier judicial decision where statutory provision not considered - Refund of tax and entitlement - Earlier decision of this Court (dated 05.11.2015) does not bind disposal of the present petitions because Section-47 of the KVAT Act was not considered therein. - HELD THAT: - The Court found that the petitioner's reliance on the earlier decision in STRP Nos.56/2014 and 276-324/2014 (dated 05.11.2015) was misplaced insofar as it was urged to preclude remand. The earlier decision in M/s. Centum Electronics Limited did not address the statutory provision concerning Section-47 of the KVAT Act and the question of unjust enrichment. Because that statutory issue was not drawn to the Court's attention in the earlier matter, the earlier decision cannot be treated as covering or deciding the present controversy on entitlement to refund. [Paras 5]

The Court declined to hold the present matters to be covered by the earlier decision and rejected the petitioner's contention of foreclosing further consideration on that basis.

Applicability of Section-47 of the KVAT Act (unjust enrichment) - Remand to Jurisdictional Local VAT Officer for fresh consideration - The Tribunal's remand for consideration of Section-47 (unjust enrichment) and its consequential effect is appropriate, and the matter must be considered afresh by the Jurisdictional Local VAT Officer with opportunity to both parties to be heard. - HELD THAT: - The Tribunal remitted the matter to the concerned Jurisdictional Local VAT Officer to act in accordance with law on the question of unjust enrichment and the applicability of Section-47 of the KVAT Act. The High Court endorsed the remand, observing that the statutory issue calls for fresh consideration and that the parties must be heard at that stage. The Court therefore did not interfere with the Tribunal's order of remand and preserved the right of both parties to raise contentions before the assessing authority. [Paras 6, 8]

The matter is remitted to the Jurisdictional Local VAT Officer for fresh adjudication on the applicability of Section-47 and related consequences; all rights and contentions remain open.

Final Conclusion: The petitions are permitted to be withdrawn and stand disposed of; the Tribunal's remand to the Jurisdictional Local VAT Officer for fresh consideration of the applicability of Section-47 of the KVAT Act (unjust enrichment) is upheld and all rights and contentions of the parties remain open for determination by the assessing authority.

Notice of hearing - Deemed service of notice - Opportunity of being heard / Audi alteram partem - Ex parte order - Quashing of demand and certificate proceedings for lack of service - Remand for fresh decision after hearing

Notice of hearing - Deemed service of notice - Audi alteram partem - Ex parte order - Quashing of demand and certificate proceedings for lack of service - Validity of the order dated 9th September, 2014, the Notice of Demand dated 9th September, 2014 and the Certificate Proceeding to the extent they relate to the period 2008-09 in view of non-service of notice on the assessee and consequent ex parte decision. - HELD THAT: - The Court found that the impugned order imposing tax liability was passed without service of notice on the petitioners and that notice had instead been served on the guarantors. Such service on guarantors does not satisfy the minimum legal requirement of serving the assessee with a notice of hearing when tax liability is to be imposed. The Deputy Commissioner proceeded to pass an ex parte order without affording the assessee an opportunity to be heard, thereby violating the principle of audi alteram partem. For these reasons the Court concluded that the impugned orders dated 9th September, 2014, and consequential demand and certificate proceedings insofar as they relate to 2008-09 are vitiated for want of proper notice and hearing and therefore liable to be quashed and set aside. [Paras 2, 3]

Order dated 9th September, 2014 (Annexure 5), Notice of Demand dated 9th September, 2014 (Annexure 6) and Certificate Proceeding (Certificate Case No. 20 of 2014-15) are quashed and set aside insofar as they relate to 2008-09.

Remand for fresh decision after hearing - Opportunity of being heard / Audi alteram partem - Independent decision - Whether the matter should be remitted for fresh adjudication and the scope of such remand. - HELD THAT: - The Court directed remand of the matter to the Deputy Commissioner, Commercial Taxes, Gumla Circle, Gumla for afresh decision on the tax liability for 2008-09. The officer is to decide independently, uninfluenced by the quashed orders, after giving adequate opportunity of being heard to the petitioners. The petitioners were directed to remain present before the officer on 13 February 2017 between 11 a.m. and 1 p.m., after which the officer may fix a convenient date. The petitioners are at liberty to raise all issues and to file any evidence before the authority, and the authority must decide in accordance with law on the basis of evidence on record. [Paras 3, 4, 5]

Matter remanded to the Deputy Commissioner for fresh adjudication of tax liability for 2008-09 after giving the petitioners adequate opportunity of being heard; petitioners permitted to raise all issues and file evidence.

Final Conclusion: Writ petition allowed; impugned orders and proceedings dated 9th September, 2014 quashed insofar as they relate to 2008-09 and the matter remanded to the Deputy Commissioner, Commercial Taxes, Gumla Circle, Gumla for independent fresh decision after affording the petitioners an opportunity of hearing.

Input tax credit - production of tax invoices and statutory forms at appellate or post-assessment stage - verification of payment of tax by the selling dealer - Right to Information Act, 2005 as evidentiary assistance - remand for fresh determination by assessing authority

Production of tax invoices and statutory forms at appellate or post-assessment stage - input tax credit - Whether duplicate tax invoices and the statutory VAT-C-4 produced subsequently can be considered to claim input tax credit - HELD THAT: - The Court accepted the proposition that statutory forms and tax invoices may be produced after assessment proceedings and at the appellate stage to substantiate a claim for input tax credit. The judgment refers to earlier decisions, including Jai Hanuman Stone Crushing Mills and New Devi Grit Udyog , for the principle that production of such documents at a later stage is permissible and that minor errors in invoices are not necessarily fatal where the fact of payment can be verified. The Court noted that the assessee has now placed duplicate tax invoices and the statutory VAT-C-4 on record and that an RTI response indicates the selling dealer deposited the tax collected. Applying these principles, the Court held that the documents so produced are capable of being considered to determine the entitlement to input tax credit.

The Court held that duplicate tax invoices and the statutory VAT-C-4 produced subsequently can be considered to claim input tax credit and the impugned orders denying credit are set aside on this ground.

Verification of payment of tax by the selling dealer - remand for fresh determination by assessing authority - Right to Information Act, 2005 as evidentiary assistance - Whether the matter should be remitted to the Assessing Authority for fresh determination after production of duplicate invoices and original VAT-C-4 - HELD THAT: - Although the Court accepted that the documents could be produced belatedly, it did not itself adjudicate the factual question whether tax was in fact paid to the State by the selling dealer. The Court remitted the matter to the Assessing Authority for fresh determination of the assessee's tax liability after the assessee furnishes duplicate tax invoices and the original statutory VAT-C-4. The Assessing Authority is directed to verify, including by reference to material such as the RTI response indicating deposit by the selling dealer, whether the input tax was actually paid; if payment is confirmed, the input credit is to be allowed.

The matter is remitted to the Assessing Authority for fresh determination of tax liability and verification of payment by the selling dealer; if payment is confirmed, input tax credit shall be granted.

Final Conclusion: The appeal is allowed: the impugned orders refusing input tax credit are set aside; duplicate tax invoices and original VAT-C-4 produced by the assessee may be considered and the matter is remitted to the Assessing Authority for verification and fresh determination of entitlement to input tax credit, with directions to grant credit if payment is established.

Composition of offences / compounding fee - fee versus penalty distinction - ex post facto / Article 20(1) of the Constitution - continuing offence versus completed offence - time of exercise of option to compound as the relevant date - estoppel by voluntary payment

Composition of offences / compounding fee - fee versus penalty distinction - time of exercise of option to compound as the relevant date - The compounding fee payable is the fee prevailing at the time the assessee opted to compound the offence. - HELD THAT: - The Court distinguished between punitive penalties and fees: Article 20(1) and the prohibition on ex post facto enhancement of punishment apply to penalties for crimes, not to fees. While a punitive consequence requires application of the law in force when the offence was committed, a civil or non punitive consequence (a fee) is governed by the law in force when the assessee avails the compounding facility. Applying this principle to the facts - where the offence pertained to assessment year 2008-2009 but the provision was amended before the assessee exercised the option to compound - the amended fee prevailing at the time of the assessee's decision to compound governs. The Court rejected the contention that the law applicable must be that in force at the time of commission and found no legal infirmity in the view that the compounding fee is determined by the date of exercise of the compounding option. [Paras 31]

Compounding fee as prevailing at the time the assessee elected to compound shall apply; appeal dismissed.

Final Conclusion: The appeal is dismissed: the compounding fee payable is governed by the law in force when the assessee chose to compound the offence, and not by the law prevailing at the time of commission of the offence.

Levy of interest on re-assessment of tax paid earlier - interest payable only from date of demand where additional tax is discovered on reassessment - tax liability consequent to change of statutory rate by ordinance - assessing authority's acceptance of returns and revisional correction

Levy of interest on re-assessment of tax paid earlier - interest payable only from date of demand where additional tax is discovered on reassessment - Validity of charging interest on differential tax assessed in revision where original tax (as returned and accepted) was paid within the time permitted - HELD THAT: - The petitioner, having charged and deposited tax at the erstwhile rate as accepted by the assessing authority, faced revisional proceedings on an audit objection that the statutory rate had been amended by ordinance and the product fell in a higher residual rate. The revisional authority assessed the differential tax and levied interest for the intervening period. The petitioner did not dispute the principal tax and paid the differential amount within permitted time, but challenged the levy of interest. Relying on precedents cited in the judgment, the Court accepted the principle that an assessee cannot be expected to foresee an additional demand arising from reassessment or revision; therefore interest on such additional tax cannot be justifiably charged for the period prior to the date the additional demand was raised. Applying that principle to the present facts, the Court held that the levy of interest in respect of the differential tax (which was subsequently demanded in revision) was not sustainable and set aside the demand of interest.

Demand of interest levied on the differential tax assessed in revision is set aside.

Final Conclusion: Writ petitions allowed; the demand of interest imposed on the additional tax raised in revision (although the differential tax was paid) is quashed and set aside.

Depreciation based on purchase consideration - application of accounting principles in depreciation - treatment of depreciation in tariff determination - effect of statutory transfer scheme on asset valuation - transfer consideration as basis for computing depreciation

Depreciation based on purchase consideration - application of accounting principles in depreciation - transfer consideration as basis for computing depreciation - Appellant entitled to compute depreciation with reference to the transfer consideration actually paid by it (Rs. 607.00 Crores) and not the reduced amount (Rs. 431.09 Crores) adopted by the Central Commission/Tribunal. - HELD THAT: - The Court applied established principles of accountancy and held that the relevant value for computing depreciation is the bona fide purchase consideration paid by the transferee. Decisions relied upon by the appellant - which establish that purchase value is the basis for computing depreciation - were held to be substantially in point. The distinction drawn by the Tribunal between treatment under the Income Tax Act and determination of tariff was rejected to the extent that it displaces basic accounting principles governing depreciation. Consequently the Tribunal's restriction of depreciation computation to Rs. 431.09 Crores was set aside as inconsistent with the accounting principle that the transfer consideration paid (Rs. 607.00 Crores) is the proper basis.

Tribunal's order restricting depreciation to Rs. 431.09 Crores is set aside; depreciation to be computed with reference to the transfer consideration of Rs. 607.00 Crores.

Final Conclusion: Appeal allowed. The order of the Tribunal/Central Commission on the disputed computation of depreciation is set aside and the concerned authorities are directed to take consequential steps consistent with this conclusion.

Renewal of lease as a matter of right - municipal power to lease beyond ten years requiring previous permission of State Government - permitted use of leased public land confined to original purpose of lease - effect of arbitral award and decree vis-a -vis statutory limitation on lease tenure

Renewal of lease as a matter of right - municipal power to lease beyond ten years requiring previous permission of State Government - Appellant is not entitled to renewal of the lease as a matter of right. - HELD THAT: - The Court held that the Municipality lacked authority to grant a lease for a term exceeding ten years without the previous permission of the State Government, and the State had permitted renewal only up to 31.03.2012. Consequently, notwithstanding earlier instruments and proceedings, the appellant had no inherent right to a further renewal beyond the period sanctioned by the State. The High Court's conclusion that renewal is not a matter of right was affirmed. [Paras 9, 11]

Renewal of the lease is not a matter of right and cannot be claimed by the appellant.

Permitted use of leased public land confined to original purpose of lease - Use of the leased public land for purposes other than the original purpose (running an oil mill) is not permissible in a manner that converts the public asset into a private commercial profit-making enterprise. - HELD THAT: - The Court noted that the original lease was for running an oil mill and that the leasehold public property, granted at a nominal rent, could not be lawfully utilised for an unrelated commercial purpose. Although the Municipality may have permitted construction, such construction must relate to the original business purpose. The appellant had raised a large commercial complex and was earning substantial rents while paying token lease rent to the Municipality; the High Court's finding on misuse and profiteering was accepted. [Paras 10, 11]

Leased land must be used in connection with the original purpose; the appellant's commercial exploitation did not justify mandatory renewal.

Effect of arbitral award and decree vis-a -vis statutory limitation on lease tenure - An arbitral award and decree in favour of the lessee do not override statutory limits on the Municipality's power to grant or renew leases beyond the period authorised by the State. - HELD THAT: - Although an arbitrator awarded renewal rights and the award was made a Rule of Court, the subsequent cancellation and litigation, and the fact that the State's permission limited renewal to a specified period, meant that the arbitral award could not confer a right inconsistent with statutory constraints. The Court accepted the High Court's approach that statutory power and State permission govern the question of renewal despite earlier awards or decrees. [Paras 5, 6, 9, 11]

The arbitral award and decree do not trump statutory limitations on lease tenure; they do not entitle the appellant to renewal beyond the period authorised by the State.

Final Conclusion: The Civil Appeal is dismissed; the High Court's judgment upholding that the appellant is not entitled to mandatory renewal of the lease (and that the leased land must be used for its original purpose) is affirmed.