TaxTMI Updates e-Newsletter
Apr 02,2020

Detention of goods under Section 129 of the Goods and Services Tax Act - release of detained goods on bank guarantee - compliance with Rule 43 of 2017 - adjudication of alleged violation by competent authority - E-way bill compliance

Adjudication of alleged violation by competent authority - detention of goods under Section 129 of the Goods and Services Tax Act - Whether the High Court should determine on merits if the detention arose from human error or wilful/intentional violation - HELD THAT: - The Court declined to adjudicate the factual and determinative question whether the defect in documents was a human error or a wilful contravention. The judgment records that such a determination falls within the domain of the adjudicating authority empowered under the statutory scheme to decide violations under the GST law. Accordingly, the controversy as to culpability and merits is left open for adjudication by the competent authority. [Paras 5]

The question of whether the detention arose from human error or a deliberate violation is not decided by the Court and is remitted to the adjudicating authority for determination.

Release of detained goods on bank guarantee - compliance with Rule 43 of 2017 - detention of goods under Section 129 of the Goods and Services Tax Act - E-way bill compliance - Whether the detained goods and vehicle should be released pending adjudication and on what conditions - HELD THAT: - While leaving the substantive dispute for the adjudicating authority, the Court directed an interim remedy. Subject to compliance with the conditions contained in the statutory provision permitting release, and Rule 43 of 2017, the petitioner may furnish a bank guarantee and other charges as required under Section 129(1) of the Act. On deposit of the requisite bank guarantee and compliance with statutory conditions, the detained goods and vehicle are to be released. The Court also restrained the respondents from encashing the bank guarantee until the adjudicating authority decides the controversy. [Paras 5]

Detained goods and vehicle ordered released on deposit of the requisite bank guarantee and compliance with the statutory conditions; respondents directed not to encash the bank guarantee till adjudication.

Final Conclusion: The writ petition does not decide the merits of whether the detention resulted from human error or intentional violation; that issue is left to the adjudicating authority. In the interim, the detained consignments and vehicle are to be released on compliance with the conditions in Section 129(1) and Rule 43 of 2017, on deposit of a bank guarantee, which shall not be encashed until the adjudicating authority disposes of the matter.

Interest on Delayed Refunds under Section 56 of the CGST Act - Order Sanctioning Interest on Delayed Refunds under Rule 94 of the CGST Rules - Application for Review of Judicial Order - Judicial discretion to award higher rate of interest in view of peculiar facts - Compensatory relief for delay in refund

Interest on Delayed Refunds under Section 56 of the CGST Act - Judicial discretion to award higher rate of interest in view of peculiar facts - Application for Review of Judicial Order - Whether the review application could succeed in substituting the rate of interest awarded by this Court (9% per annum) with the lower statutory ceiling of 6% under Section 56 of the CGST Act. - HELD THAT: - The Court examined its earlier order dated 10.07.2019 which had directed payment of simple interest at 9% per annum on delayed refunds and observed the statutory framework under Section 56 that ordinarily prescribes interest not exceeding 6% and provides for interest not exceeding 9% where the refund claim arises from an order of an adjudicating or appellate authority or court. Having considered the materials and the earlier reasoning set out in paragraphs 14 to 25 of the order (which included examination of Rule 94, relevant precedents, the concept of compensation for delay and a chart detailing the delay in refund for the writ-applicants), the Court held that the exercise of awarding interest at 9% was made in view of the peculiar facts and circumstances of the case. The review application did not demonstrate any error of law or fact warranting interference with that exercise of judicial discretion. Consequently, there was no merit in the limited review plea seeking substitution of 9% by 6% and the application was rejected.

Review application dismissed; earlier direction awarding interest at 9% per annum upheld in view of the peculiar facts and judicial discretion exercised.

Final Conclusion: The review petition seeking reduction of the interest rate from 9% to 6% under Section 56 CGST Act is rejected; the Court upholds its earlier order awarding interest at 9% per annum having regard to the peculiar facts and its discretionary determination.

Detention and seizure - release on payment of tax and penalty - show cause notice under Section 129 of the Central Goods and Services Act, 2017 - confiscation under Section 130 of the Central Goods and Services Act, 2017 - requirement of recorded reasons for invoking confiscation at the threshold - application of mind and good faith

Release on payment of tax and penalty - detention and seizure - Interim release of the detained vehicle and goods upon payment of the tax in terms of the impugned notice and earlier interim order. - HELD THAT: - The Court recorded that, pursuant to the interim order issued while issuing notice, the writ applicant availed the benefit and obtained release of the vehicle along with the goods on payment of the tax amount. The Court retained that the proceedings on merits are at the stage of a show cause notice under Section 129 of the Act and observed that those proceedings shall continue in accordance with law. The writ is disposed and the rule is made absolute to the extent recorded regarding the release effected in terms of the interim direction. [Paras 4, 5, 8]

The interim release effected on payment of tax is recognised and the petition is disposed to that extent.

Show cause notice under Section 129 of the Central Goods and Services Act, 2017 - confiscation under Section 130 of the Central Goods and Services Act, 2017 - requirement of recorded reasons for invoking confiscation at the threshold - application of mind and good faith - Whether the show cause notice issued in GSTMOV-6 warrants discharge or further consideration. - HELD THAT: - The Court did not decide the merits of the show cause notice. It invited the applicant to make good the case for discharging the notice and expressly permitted reliance on this Court's observations in Synergy Fertichem Pvt. Ltd. (paragraphs 99-104) regarding the limited circumstances in which Section 130 may be invoked at the threshold, the need for material supporting the authority's belief, and the requirement that invocation of confiscation reflect application of mind and good faith. The proceedings under Section 129 are left to continue and be decided in accordance with law; the question of discharge remains for determination on merits. [Paras 6, 7]

Show cause proceedings under Section 129 to proceed; applicant may challenge the notice and rely on the Court's earlier observations; the question of discharge is not finally adjudicated and awaits determination on merits.

Final Conclusion: The writ is disposed; the interim release of the vehicle and goods on payment of tax (as effected) is recognised and the applicant remains free to challenge the show cause notice under Section 129, relying on this Court's observations about the limited and reasoned invocation of confiscation under Section 130; the substantive proceedings shall continue in accordance with law.

Characterisation of receipt as business receipt or capital receipt - Profits chargeable to tax under Section 41(1) of the Income tax Act - value of benefit or perquisite under Section 28(iv) of the Income tax Act - quality and nature of receipt may change by subsequent events (T.V. Sundaram principle) - waiver of loan / one time settlement and write off - cessation of trading liability

Waiver of loan / one time settlement and write off - cessation of trading liability - Profits chargeable to tax under Section 41(1) of the Income tax Act - value of benefit or perquisite under Section 28(iv) of the Income tax Act - characterisation of receipt as business receipt or capital receipt - Taxability of the waiver of principal loan amount of Rs. 8,07,35,116/-whether chargeable to tax under Section 41(1) or Section 28(iv) or otherwise assessable as business income. - HELD THAT: - The court affirmed the Tribunal's finding that the amount written off by the creditor related to principal borrowings credited to capital reserve and was not a trading liability for which any allowance or deduction had earlier been claimed. Section 41(1) operates only where an allowance or deduction was made earlier in respect of a loss, expenditure or trading liability and subsequently there is remission or cessation of that liability; no such earlier deduction was claimed here, hence Section 41(1) is inapplicable. Section 28(iv) taxes the value of a benefit or perquisite arising from business, but on a plain reading is directed to benefits other than money; the waiver here represented a cash receipt and, in any event, the principal loan related to capital deployment by the appellant (borrowings used to advance loans) and was treated as non trading in the accounts. The court applied the precedent that the purpose for which a loan was taken and its treatment in the books determine its character; where the loan was for capital/ non trading purposes and no prior deduction was claimed, its waiver does not give rise to taxable business income under Section 28(iv) or to tax under Section 41(1). Reliance on Mahindra & Mahindra and related authorities supported deletion of the addition; the Tribunal's conclusion that the waiver of the principal amount was not a trading receipt and therefore not chargeable to tax was upheld. [Paras 8, 11, 12]

Addition of Rs. 8,07,35,116/ on account of waiver of principal loan deleted; waiver not taxable under Section 41(1) or Section 28(iv).

Final Conclusion: The Tax Appeal is dismissed. The Tribunal's deletion of the addition relating to waiver of the principal loan amount is upheld as not constituting taxable income under Section 41(1) or Section 28(iv).

Penalty under section 272A(2)(k) for delayed filing of TDS statements - penalty under section 271C for failure to deduct tax at source - declaration as assessee in default under section 201(1) as prerequisite to penalty under section 271C - precedent of coordinate bench

Penalty under section 272A(2)(k) for delayed filing of TDS statements - precedent of coordinate bench - Deletion of penalty under section 272A(2)(k) imposed for delayed filing of TDS statement for the fourth quarter of FY 2009-10. - HELD THAT: - The Assessing Officer imposed penalty under section 272A(2)(k) for delayed filing of Form 26Q for various quarters of FY 2009-10, including the fourth quarter. The Tribunal had earlier deleted penalties for the first three quarters in ITA no. 2916-2918/Mum./2016 dated 11th May 2018 on identical facts, holding there was no mala fide intention. As the facts for the fourth quarter are identical to those considered by the Co ordinate Bench, the Tribunal, respectfully following that precedent, concluded that the penalty imposed for the fourth quarter should also be deleted. [Paras 8]

Penalty under section 272A(2)(k) imposed for the fourth quarter deleted.

Penalty under section 271C for failure to deduct tax at source - declaration as assessee in default under section 201(1) as prerequisite to penalty under section 271C - Deletion of penalty under section 271C imposed for non deduction of TDS where no order under section 201(1) declaring the assessee an assessee in default was passed. - HELD THAT: - The Assessing Officer imposed penalty under section 271C for failure to deduct TDS, despite not having passed any order under section 201(1) treating the assessee as an assessee in default. The Revenue did not dispute the absence of a section 201(1) order. The Tribunal followed precedents which hold that penalty under section 271C cannot be imposed without first declaring the assessee an assessee in default under section 201(1), and accordingly set aside the penalty. [Paras 14]

Penalty under section 271C deleted for want of a prior order under section 201(1).

Final Conclusion: Both appeals are allowed: the penalty under section 272A(2)(k) for the fourth quarter of FY 2009-10 is deleted following the coordinate bench decision, and the penalty under section 271C is deleted because no order under section 201(1) declaring the assessee in default was passed.

Arm's length price - benchmarking of interest on intra-group loans - recharacterisation of share application money as loan - treatment of corporate guarantee commission - eligibility for weighted deduction under section 35(2AB) - allocation of R&D expenditure to units claiming deduction under sections 80IB/80IC - disallowance under section 14A and Rule 8D - withholding obligation under section 195 and disallowance under section 40(a)(ia) - computation of book profit under section 115JB - add-back of provisions

Treatment of corporate guarantee commission - arm's length price - Whether the guarantee commission charged by the assessee is at arm's length and whether the TPO's upward adjustment should be sustained - HELD THAT: - The Tribunal observed that the assessee had charged guarantee commission @ 0.75% and had benchmarked the fee using a quotation from an external bank (HSBC India). The Tribunal followed its earlier decisions in the assessee's own cases for preceding years which had held the guarantee fee at 0.75% (and in some cases even 0.5% as reasonable). In view of the consistent earlier findings and absence of any material distinction for the year under consideration, the Tribunal upheld the Commissioner (Appeals) in deleting the TPO's upward adjustment. [Paras 6, 7]

Upheld the deletion of the TPO's upward adjustment; the guarantee commission charged @ 0.75% treated as at arm's length.

Benchmarking of interest on intra-group loans - arm's length price - Basis for determining arm's length interest rate on loans advanced to overseas associated enterprises - HELD THAT: - The Tribunal noted the assessee had charged interest based on LIBOR plus a margin while the TPO computed a higher rate. Relying on the jurisdictional High Court precedent in CIT v. Tata Autocomp, the Tribunal directed recomputation of interest by the AO/TPO on the basis of the rate prevalent in the country where the loan was consumed (i.e., the country in which the AE utilised the funds). Consequently the assessee's ground was allowed and the revenue's contention became infructuous. [Paras 8, 9, 10]

Directed AO/TPO to recompute interest on the basis of rates prevailing in the country where the loan was received/consumed.

Recharacterisation of share application money as loan - notional interest - Whether share application money remitted pending allotment of shares can be reclassified as a loan and attract notional interest - HELD THAT: - The Tribunal considered the TPO's recharacterisation of share application money as loan and imposition of notional interest. It relied on its earlier coordinate-bench decisions which consistently held that mere delay in allotment of shares does not convert share application money into a loan. The Tribunal therefore found the recharacterisation unsustainable and set aside the TPO's adjustment. Since the Tribunal accepted the assessee's contention on this point, other alternative submissions became academic. [Paras 13, 14, 15]

Share application money cannot be treated as loan merely because of delay in allotment; notional interest disallowed and related addition deleted.

Allocation of R&D expenditure to units claiming deduction under sections 80IB/80IC - Whether R&D expenditure should be allocated to the industrial undertakings claiming deduction under sections 80IB and 80IC - HELD THAT: - The Tribunal noted that the issue had been consistently decided in the assessee's favour in earlier assessment years. The AO had allocated interest and R&D expenditure to eligible units on a turnover basis and denied part of the claimed deductions. Following the Tribunal's prior decisions in the assessee's own case on identical facts, the Tribunal upheld the Commissioner (Appeals) and dismissed the revenue's ground. [Paras 18, 19]

Revenue's allocation disallowance rejected; the assessee's claim under sections 80IB and 80IC upheld following earlier Tribunal precedent.

Eligibility for weighted deduction under section 35(2AB) - Whether payments made for clinical trials and outsourced R&D qualify for weighted deduction under section 35(2AB), and whether the issue requires remand - HELD THAT: - The Tribunal observed divergent findings in the assessee's earlier assessment years and that, in a subsequent year, the Tribunal had restored the issue to the AO for fresh adjudication considering authorities cited by the assessee (including the Gujarat High Court decision in Cadila). In view of the coordinate-bench direction in the assessee's own earlier year to remit the issue for de novo consideration (with specific directions to examine relevant Supreme Court and High Court precedents and to afford opportunity of being heard), the Tribunal followed that course and restored the matter to the AO for fresh adjudication. [Paras 22, 23]

Issue restored to the Assessing Officer for fresh adjudication (remanded) in accordance with directions given in the earlier Tribunal order.

Withholding obligation under section 195 and disallowance under section 40(a)(ia) - Whether payments to non-residents for pilot bio-studies/clinical research attract liability to deduct tax at source and whether the related disallowance under section 40(a)(ia) is sustainable - HELD THAT: - The Tribunal followed its earlier findings in the assessee's own case for preceding years that payments to non-residents for conduct of bio-equivalence/clinical studies were not taxable in India and, therefore, not subject to withholding under section 195. The Commissioner (Appeals) had deleted the AO's disallowance and the Tribunal affirmed that deletion on identical facts. [Paras 24, 26]

Deletion of the disallowance under section 40(a)(ia) upheld; AO's addition on account of failure to withhold under section 195 dismissed.

Computation of book profit under section 115JB - add-back of provisions - Whether marked-to-market (MTM) losses and actuarial provision for gratuity constitute add-backs to book profit under Explanation 1 to section 115JB(2) - HELD THAT: - The Tribunal examined the AO's add-backs made without issuing show-cause notices. For MTM losses, it observed these arose from restatement of trading assets/liabilities and were ascertained and allowable following judicial authority (including CIT v. Woodward Governor India). For gratuity, the Tribunal found actuarial valuation produced an ascertained liability which could not be treated as an unascertained liability under clause (c) of Explanation 1 to section 115JB(2). On both counts the Tribunal affirmed the Commissioner (Appeals) in deleting the AO's add-backs. [Paras 27, 29, 31, 32]

Both the MTM loss and the actuarial gratuity provision cannot be added back to compute book profit under section 115JB; AO's add-backs deleted.

Disallowance under section 14A and Rule 8D - Extent of disallowance under section 14A/Rule 8D to be applied for computation of tax and for computation of book profit under section 115JB - HELD THAT: - On merits the AO and CIT(A) applied Rule 8D to compute a disallowance exceeding the exempt income. The Tribunal noted the Bombay High Court decision in Nirved Traders holding that the disallowance under section 14A should be restricted to the amount of exempt income. Respectfully following that jurisdictional High Court precedent, the Tribunal directed the AO to restrict the disallowance to the extent of exempt income for the assessment year. The Tribunal also upheld the CIT(A)'s deletion in the context of book profit computation by reference to a Special Bench decision. [Paras 33, 40, 41]

Disallowance under section 14A to be restricted to the extent of exempt income; direction given to AO to limit the disallowance accordingly.

Final Conclusion: For AY 2008-09 the Tribunal partly allowed the revenue's appeal and partly allowed the assessee's appeal. The Tribunal: upheld deletion of the TPO's guarantee-fee adjustment; directed recomputation of interest on intra-group loans based on rates prevailing in the country where the loan was consumed; rejected recharacterisation of share application money as loan; upheld the assessee on allocation of R&D expenditure to 80IB/80IC units; remanded the question of weighted deduction under section 35(2AB) to the Assessing Officer for fresh adjudication; deleted the AO's disallowance under section 40(a)(ia) for payments to non-residents; deleted add-backs of MTM loss and actuarial gratuity in computing book profit under section 115JB; and directed that any disallowance under section 14A be restricted to the amount of exempt income.

Revisionary jurisdiction under section 263 - taxation of dividend from specified foreign company under section 115BBD - set-off of losses under section 71 - computational sequence of Chapters IV and VI - permissible view doctrine

Revisionary jurisdiction under section 263 - permissible view doctrine - taxation of dividend from specified foreign company under section 115BBD - set-off of losses under section 71 - computational sequence of Chapters IV and VI - Whether the Commissioner was justified in invoking section 263 to direct separate taxation of foreign dividend under section 115BBD by treating the assessment order as erroneous and prejudicial to revenue where the Assessing Officer had allowed set-off of business losses under section 71. - HELD THAT: - The Tribunal found that the Assessing Officer had called for and examined all relevant information and documents relating to the foreign dividend and the computation of income, and had applied his mind before completing assessment. Section 115BBD does not contain an express restriction excluding specified foreign dividend from the computation and set-off regime under Chapter VI; subsection (2) of section 115BBD only disallows deductions for expenditure or allowance in computing dividend income and does not, on its face, prohibit set-off of losses under section 71. Taxable income must be determined in the sequence laid down by the Act: compute incomes under Chapter IV and apply set-off/carry-forward rules in Chapter VI before applying special tax-rate provisions. Where the statute intends to forbid set-off of losses against income taxed at a specified rate, it does so expressly (as in later amendments to section 115BBE and in section 115BBDA); no such express bar appears in section 115BBD applicable to the year under consideration. Given that the AO adopted one of the permissible views in law and fact, the order could not be characterised as erroneous or prejudicial to revenue for purposes of exercise of powers under section 263. The CIT failed to demonstrate how the AO's order amounted to an incorrect application of law or a lack of application of mind; accordingly the revision under section 263 was not sustainable and was set aside. [Paras 8, 9]

Order under section 263 set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that the Assessing Officer's order was a permissible view and not erroneous or prejudicial to revenue - section 115BBD did not bar set-off of business losses under section 71 for AY 2013-14, and the Commissioner's exercise of jurisdiction under section 263 was therefore set aside.

Slump sale - accrual of income - capital gains chargeability - contingent consideration - escrow arrangement integral to transaction - remand for fresh consideration

Slump sale - accrual of income - contingent consideration - escrow arrangement integral to transaction - capital gains chargeability - Whether the portion of sale consideration placed in escrow and contingent on future performance accrued to the assessee in A.Y. 2012-13 and was chargeable as long term capital gain in that year. - HELD THAT: - The Tribunal examined the Business Purchase Agreement, the Escrow Agreement and the supply agreement and held they must be read as a whole. The escrow arrangement was entered into pursuant to and as part of the slump sale transaction; the escrowed amount was contingent on fulfillment of specified conditions and would accrue only upon those events. Applying principles on accrual of income, the Tribunal accepted that income accrues only when the assessee acquires a right to receive it and that hypothetical or contingent income not yet having resulted cannot be taxed. On the facts the Tribunal found that in A.Y. 2012-13 the assessee had the lump sum sale consideration net of the escrow portion and had offered the first instalment that had accrued; the remaining escrowed amounts accrued in subsequent assessment years and were offered to tax in those years. Accordingly the Assessing Officer and CIT(A)'s inclusion of the entire escrowed sum in A.Y. 2012-13 was reversed. [Paras 32, 33, 40, 46]

The addition of the escrowed/contingent amount is deleted; only the capital gain that had actually accrued in A.Y. 2012-13 (including the first instalment offered) is taxable in that year; the balance accrues and is taxable in A.Ys. 2013-14 to 2016-17.

Defalcation loss - remand for fresh consideration - Disposition of the assessee's claim for defalcation loss and whether it should be adjudicated in the present assessment proceeding. - HELD THAT: - The Tribunal noted that the claim in respect of the defalcation loss had earlier been the subject matter of proceedings for A.Y. 2006-07 and related years and that the Tribunal had restored the matter to the file of the Assessing Officer in those appeals. To avoid duplication the Tribunal directed that the issue be restored/remitted to the Assessing Officer for examination and adjudication in accordance with law. [Paras 47, 48, 50]

The claim of defalcation loss is restored to the file of the Assessing Officer for fresh examination and decision.

Final Conclusion: The appeal is allowed in respect of grounds 1-4: the Tribunal holds that the escrowed contingent portion of the slump sale consideration did not accrue in A.Y. 2012-13 and therefore cannot be included in capital gains for that year; the amounts taxed in A.Ys. 2013-14 to 2016-17 remain the appropriate years of charge. The claim relating to defalcation loss is remanded to the Assessing Officer for fresh consideration. Additional evidence applications and the additional ground/cross objection disposition are dealt with as recorded.

Interest on borrowed capital - deduction under section 36(1)(iii) - revenue expenditure versus capital expenditure - stock-in-trade / inventory of flats - put-to-use proviso to section 36(1)(iii) - percentage completion method

Interest on borrowed capital - deduction under section 36(1)(iii) - stock-in-trade / inventory of flats - revenue expenditure versus capital expenditure - put-to-use proviso to section 36(1)(iii) - percentage completion method - Whether interest claimed on borrowings used for construction of flats held as stock-in-trade is allowable as deduction under section 36(1)(iii) or must be disallowed/capitalised because the projects were not 'put to use'. - HELD THAT: - The Tribunal found that the assessee is carrying on real estate business and the flats under construction were inventory for sale/rent and thus in the revenue field. The interest-bearing borrowings were utilised for these ongoing projects and the interest was charged to profit and loss account as time-cost. The proviso to section 36(1)(iii) relating to expenditure prior to an asset being put to use applies where a capital asset is being set up; here the Tribunal held the activities constituted trading/real-estate operations rather than creation of a capital asset. The Tribunal observed that even if Revenue's contention of capitalisation were accepted, capitalization into inventory would be tax-neutral because such capitalised interest would be allowable as expense when revenue is recognised on sale of the inventory. Although the assessing officer and the CIT(A) noted non-adoption of percentage completion method and absence of contemporaneous fund-flow proof, the Tribunal treated these deficiencies as not determinative of the legal entitlement to deduct interest incurred on borrowings used for inventory in a trading real-estate business and allowed the claim. [Paras 10, 11]

Interest paid on borrowings used for construction of flats held as stock-in-trade was allowable as a deduction in computing income for the impugned assessment year; the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2015-16, holding that interest on borrowings used for ongoing real-estate projects held as stock-in-trade is deductible as revenue expenditure (or tax-neutral if capitalised to inventory) and overturned the disallowance confirmed by the authorities below.

Advertisement, Marketing and Promotion (AMP) expenditure and international transaction - existence of agreement/arrangement/action in concert as pre requisite for an international transaction - bright line test (BLT) not to be used as a recognized transfer pricing method - tested party selection and FAR analysis for transfer pricing benchmarking - remand for de novo speaking order on comparables and tested party suitability

Advertisement, Marketing and Promotion (AMP) expenditure and international transaction - existence of agreement/arrangement/action in concert as pre requisite for an international transaction - bright line test (BLT) not to be used as a recognized transfer pricing method - Treatment of AMP expenditure as an international transaction and consequential transfer pricing adjustment - HELD THAT: - Following the Tribunal's earlier detailed reasoning (reproduced), the Tribunal held that, in absence of any agreement, arrangement or understanding obliging the assessee to incur AMP expenditure for the benefit of its AEs, AMP spend cannot be treated as an international transaction under the Chapter X provisions. Incidental or indirect benefit to an AE is insufficient to convert AMP expenditure into an international transaction. The Tribunal also reaffirmed that the Bright Line Test is not a recognised method for making transfer pricing adjustments and cannot be used to create an assumed transaction for benchmarking. The lower authorities failed to bring on record any cogent evidence showing an agreement or concerted action compelling the assessee to incur AMP for the AEs; the AMP expenditure was held to be wholly and exclusively for the assessee's business expansion in India. On this basis the Tribunal allowed the assessee's grounds relating to AMP for the assessment years before it. [Paras 5, 9]

Adjustment of AMP expenditure as an international transaction deleted; grounds 1-6 allowed in favour of the assessee for the years in dispute.

Tested party selection and FAR analysis for transfer pricing benchmarking - remand for de novo speaking order on comparables and tested party suitability - Whether the foreign associated enterprise (AE) can be treated as the tested party for benchmarking imports of finished goods; adequacy of comparables and benchmarking exercise - HELD THAT: - The Tribunal found that the orders of the lower authorities were cryptic and did not properly consider documentary evidence and submissions placed on record by the assessee concerning the foreign AE and the comparables. Because the TPO/DRP had rejected the assessee's contention applying reasons that were not adequately reasoned and had treated the assessee as the tested party without addressing all material on record, the Tribunal set aside those findings and remanded the matter to the DRP. The DRP was directed to examine, in a reasoned speaking order, the profile of the foreign AE (functions, assets, risks), to apply FAR analysis and Chapter X filters to the comparables proposed by the assessee, to determine suitability or to select alternative comparables in accordance with the rules, and to decide the matter on merits without being influenced by earlier DRP observations. [Paras 20, 21, 30, 31]

Grounds asserting that the foreign AE should be treated as tested party are remitted to the DRP for de novo examination and a detailed speaking order; appeals partly allowed to this extent.

Consequential corporate grounds remitted for fresh decision - Grounds relating to set off of assessed loss (AY 2007 08), taxation of reversal of provision for royalty, allowance of additional TDS credit and alleged recovery of non received refund (grounds 31-34 in ITA No.7744/Mum/2012) - HELD THAT: - These grounds were treated as consequential to the remanded transfer pricing issues. The Tribunal remanded grounds 31-34 to the DRP for fresh adjudication in accordance with law and after giving the assessee an opportunity of hearing, because the main transfer pricing/adjudicatory issues have been remitted and require resolution in the DRP proceedings. [Paras 33, 34]

Grounds 31-34 remitted to the DRP for fresh decision; allowed for statistical purposes pending DRP determination.

Final Conclusion: The Tribunal deleted the AMP related transfer pricing adjustment and allowed the assessee on AMP issues for the assessment years in dispute. Questions whether the foreign AE can be the tested party and the suitability of comparables for benchmarking imports of finished goods were set aside and remitted to the DRP for de novo, reasoned consideration; consequential corporate grounds were also remitted for fresh decision.

Disallowance of transportation charges - proof of genuineness by documentary evidence and banking transactions - addition under section 68 as unexplained cash credit - valuation of closing stock as per Accounting Standard-2 - principle of consistency in inventory valuation

Disallowance of transportation charges - proof of genuineness by documentary evidence and banking transactions - Deletion of addition of transportation charges of Rs. 8,82,059/- held to be justified on production of bills, ledger and bank evidence. - HELD THAT: - The Assessing Officer disallowed the transportation charges on the premise that notices issued to transporters under section 133(6) were returned unserved and the identity and genuineness of the parties were not established. The assessee, however, produced transport bills, ledger entries and bank statements showing payment by account payee cheque. The Tribunal accepted that such documentary evidence and banking channel payments sufficiently establish the bona fides of the transactions and that the assessee could not produce the transporter who did not cooperate. On this basis the addition was deleted. [Paras 8]

Addition of Rs. 8,82,059/- on account of transportation charges deleted.

Addition under section 68 as unexplained cash credit - proof of genuineness by documentary evidence and banking transactions - Deletion of addition of share application money of Rs. 15,37,400/- under section 68 held justified where company accounted for share capital and securities premium, filed statutory form with ROC and reconciled allotments. - HELD THAT: - The Assessing Officer treated the share application money as unexplained cash credit since, he held, quantity and value did not match and identity/creditworthiness of subscribers were not established. The assessee explained the allotment of shares, produced reconciliation showing issuance of shares to named parties (including existing directors/shareholders), and filed Form No. 2 with the Registrar of Companies. The Tribunal found no mismatching after the reconciliation and accepted that the shares were issued to existing shareholders/directors, so identity was not in doubt. Applying these factual findings, the Tribunal deleted the addition made under section 68. [Paras 14]

Addition of Rs. 15,37,400/- on account of share application money under section 68 deleted.

Valuation of closing stock as per Accounting Standard-2 - principle of consistency in inventory valuation - Deletion of addition of Rs. 12,22,515/- sustained by CIT(A) on account of undervaluation of closing stock; Tribunal deleted the addition entirely. - HELD THAT: - The Assessing Officer revalued iron ore fines closing stock at a higher rate on the basis of transportation bills and estimated incidental costs, making an addition. The CIT(A) had made a partial allowance by estimating an intermediate rate. The assessee relied on Accounting Standard-2 showing that cost of inventories includes purchase cost, freight inwards and related incidental costs and submitted that the same consistent valuation method had been applied in earlier years and accepted previously. The Tribunal accepted the assessee's method as compliant with Accounting Standard-2 and, invoking the principle of consistency in valuation applied regularly and accepted in earlier years, directed deletion of the addition sustained by the CIT(A). [Paras 20]

Addition on account of undervaluation of closing stock sustained by CIT(A) set aside and deleted.

Final Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year 2010-11 by deleting the additions relating to transportation charges, share application money added under section 68, and the addition on account of undervaluation of closing stock; the appeal is allowed.

Tax deduction at source under section 194C(6) as it stood prior to the 2015 amendment - Disallowance under section 40(a)(ia) for failure to deduct tax at source - Furnishing of PAN by transport contractors versus statutory intimation to the Income Tax Department

Tax deduction at source under section 194C(6) as it stood prior to the 2015 amendment - Disallowance under section 40(a)(ia) for failure to deduct tax at source - Whether disallowance under section 40(a)(ia) could be sustained where the assessee did not deduct TDS on freight payments but had obtained PAN of the transport contractors for payments made prior to the 2015 amendment to section 194C(6). - HELD THAT: - The Tribunal accepted the assessee's contention that for payments made prior to the amendment effective 01.06.2015 the immunity under section 194C(6) was attracted by the transport contractor furnishing his Permanent Account Number to the payer. The coordinate-bench decision in Soma Rani Ghosh v. DCIT (order dated 09.09.2016) was followed, which held that prior to the 2015 amendment there was no requirement to intimate the PAN details of transporters to the Income Tax Department in the prescribed form within a specified period. Applying that ratio to the facts, the Tribunal found that the assessee having obtained the PAN of the transport contractors was eligible for the exemption from TDS obligation under section 194C(6) as it stood before amendment and therefore was not liable to deduct tax at source on the impugned freight payments. Consequently, the disallowance under section 40(a)(ia) founded on alleged failure to deduct TDS was unsustainable.

The disallowance under section 40(a)(ia) was deleted and the appeal was allowed on the ground that obtaining PAN from the transport contractors sufficed for immunity under section 194C(6) as it stood prior to the 2015 amendment.

Final Conclusion: Appeal allowed: payments of freight made prior to the 2015 amendment were not subject to disallowance under section 40(a)(ia) where the transport contractors had furnished their PAN to the assessee; no separate departmental intimation was required for immunity under pre-amendment section 194C(6).

Reopening of assessment under Section 150(1) where reassessment is time barred - effect of limitation prescribed for issuance of reassessment notice under Section 149 on invocation of Section 150(1) - prohibition on directing reassessment for an assessment year which was time barred on the date of the appellate order

Reopening of assessment under Section 150(1) where reassessment is time barred - effect of limitation prescribed for issuance of reassessment notice under Section 149 on invocation of Section 150(1) - Validity of the CIT(A)'s direction to the Assessing Officer to reopen assessment year 2009-10 under Section 150(1) when reassessment for that year was time barred at the time of the appellate order. - HELD THAT: - The Tribunal held that Section 150(2) excludes application of Section 150(1) where reassessment could not ordinarily be made on the date of the original order because the statutory period for issuance of a reassessment notice had expired. The time limit for issuance of the reassessment notice (under the statutory provision governing time limit) had expired more than six years from the end of the assessment year 2009-10 by the date of the order which was the subject matter of appeal. Reliance was placed on the principle, as stated by the High Court in Parveen Kumari v. CIT, that if initiation of reassessment for a particular assessment year is time barred on the date of the order which is under appeal, Section 150(1) cannot be invoked to permit reassessment for that year. Applying that principle to the facts, the Tribunal found that the CIT(A)'s direction to reopen assessment year 2009-10 was contrary to law and therefore unsustainable. [Paras 6]

The direction by the CIT(A) to reopen assessment year 2009-10 under Section 150(1) was quashed as time barred and the assessee's appeal was allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, quashed the CIT(A)'s direction to reopen assessment year 2009-10 under Section 150(1) as barred by limitation, and set aside that portion of the appellate order.

Applicability of section 40(a)(ia) to payments to transporters in absence of contractual agreement - Deemed assessee in default under section 201 where tax is deductible at source but not deducted - Verification by Assessing Officer of receipt declaration and tax payment by recipients before making demand

Applicability of section 40(a)(ia) to payments to transporters in absence of contractual agreement - Deduction of tax at source under Chapter XVII-B in respect of amounts payable to contractors or for carriage services - Disallowance under section 40(a)(ia) in respect of freight and cartage charges where there was no contractual agreement between the assessee and the transporters - HELD THAT: - The Tribunal noted that section 40(a)(ia) operates where amounts payable to a contractor or sub-contractor for carrying out any work, on which tax is deductible under Chapter XVII-B, have not been deducted or paid. In the present case the assessee's grievance was that there was no contractual agreement with the transporters and that payments were made on the basis of bills issued by suppliers. The Tribunal accepted the assessee's contention that absence of any contractual arrangement with the transporters takes the case outside the mischief of section 40(a)(ia). Applying this legal principle, the Tribunal held that disallowance under section 40(a)(ia) was not sustainable in the facts of this case. [Paras 9]

Disallowance under section 40(a)(ia) cannot be sustained where there was no contractual agreement with the transporters.

Deemed assessee in default under section 201 where tax is deductible at source but not deducted - Verification by Assessing Officer of recipient's income declaration and tax payment before raising demand - Whether a demand can be sustained against the assessee under section 201(1) where the recipients (transporters) have shown the receipts in their returns and paid tax thereon - HELD THAT: - Section 201 deems a person who fails to deduct or pay tax to be an assessee in default. The Tribunal, however, observed that where the recipients are income-tax assessees and have disclosed the receipts and paid tax on them, the Assessing Officer should not create a demand against the payer. Reliance was placed on the decision of the Hon'ble Supreme Court in Hindustan Coca Cola Beverages Pvt. Ltd. The Tribunal therefore directed that the Assessing Officer must verify from the evidence filed by the assessee whether the transporters have shown the income in their returns and paid tax. If such verification establishes that tax has been discharged by the transporters, the demand against the assessee under section 201(1) shall be deleted. [Paras 10, 11, 12]

Matter remitted to the Assessing Officer to verify whether the transporters have declared the receipts and paid tax; if so, the demand under section 201(1) shall be deleted.

Final Conclusion: Appeal treated as allowed for statistical purposes; the Tribunal set aside the CIT(A)'s order, held that disallowance under section 40(a)(ia) is not sustainable in absence of a contractual relationship with the transporters, and remitted the matter to the Assessing Officer to verify whether the transporters have shown the receipts and paid tax, directing deletion of the demand if such verification is affirmative.

Re-opening of assessment - protective assessment - escaped assessment - reassessment void ab initio - assessment on merits and protective/substantive treatment - adjustment of self-assessment tax and refund

Re-opening of assessment - protective assessment - reassessment void ab initio - Validity of re-opening assessment for AY.2009-10 and consequences of protective addition made for that year - HELD THAT: - The Tribunal found that the cash seized from the assessee on 13-04-2009 related to the previous year relevant to AY.2010-11 and not to AY.2009-10. Because the foundational fact for reopening AY.2009-10 (that income had escaped assessment in AY.2009-10) was not validly made, the re-opening and consequent reassessment proceedings for AY.2009-10 were held to be void ab initio. The protective treatment of the amount in AY.2009-10 was therefore unsustainable, and the assessment and additions made for AY.2009-10 were set aside. [Paras 6]

Appeal for AY.2009-10 allowed; reassessment and additions for AY.2009-10 set aside as void ab initio.

Escaped assessment - assessment on merits and protective/substantive treatment - adjustment of self-assessment tax and refund - Sustenance of addition of un-explained cash for AY.2010-11 and consequential tax adjustment - HELD THAT: - The Tribunal upheld the CIT(A)'s confirmation of the substantive addition in AY.2010-11 of the un-explained cash (net of the AO's estimate of available cash). The assessee failed to furnish material before the Tribunal to demonstrate that more than the AO's estimated amount was legitimately explainable as on 13-04-2009; accordingly, there was no ground to interfere with the addition. The Tribunal directed that the self-assessment tax remitted by the assessee for AY.2009-10 be adjusted towards the tax liability for AY.2010-11, with any excess refunded as per law. [Paras 6]

Appeal for AY.2010-11 dismissed; addition for un-explained cash sustained and self-assessment tax for AY.2009-10 to be adjusted against AY.2010-11 liability, balance refundable.

Final Conclusion: The Tribunal allowed the appeal for AY.2009-10 by setting aside the reassessment as void, and dismissed the appeal for AY.2010-11 by confirming the substantive addition of un-explained cash; the self-assessment tax paid for AY.2009-10 is to be adjusted against the AY.2010-11 liability with any surplus refunded.

Capital or revenue expenditure - expenditure wholly and exclusively for the purpose of business under section 37(1) - club membership fees - enduring benefit test - corporate/membership fee not creating a capital asset

Capital or revenue expenditure - club membership fees - expenditure wholly and exclusively for the purpose of business under section 37(1) - enduring benefit test - Whether the life/permanent club membership fee paid by the assessee is capital expenditure or revenue deductible business expenditure for AY 2010-11 - HELD THAT: - The Tribunal applied the established test that an expenditure is capital in nature only if it brings into existence an asset or an advantage for the enduring benefit of the trade. It held that payment of a club membership fee does not create any capital asset or confer a right of enduring possession; it merely confers a limited privilege to use club facilities. The assessee demonstrated that the membership was taken for business purposes (to meet clients) and that business turnover increased in subsequent years after obtaining membership. Weighing these facts and following coordinate and High Court precedents which treat similar membership fees as revenue in nature, the Tribunal concluded that the payment satisfies the negative and positive limbs of the statutory test under section 37(1) and is not a capital expenditure. The enduring-benefit criterion was applied and found not to be attracted because no lasting asset or proprietary right was created by the membership. [Paras 10, 11, 12]

Membership fee is revenue expenditure and the disallowance is reversed; the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2010-11, holding that the club membership fee is revenue expenditure deductible for business purposes and not a capital expenditure creating an enduring benefit.

Penalty under section 271AAA - voluntary disclosure in statement recorded under section 132(4) - fulfilment of mandatory conditions of section 271AAA(2) - surrendered income disclosed in return with taxes paid

Penalty under section 271AAA - voluntary disclosure in statement recorded under section 132(4) - fulfilment of mandatory conditions of section 271AAA(2) - surrendered income disclosed in return with taxes paid - Whether penalty under section 271AAA was rightly levied despite the assessee's disclosure of additional income and compliance with conditions for immunity. - HELD THAT: - The Tribunal found on the record that the assessee, through the statement recorded under section 132(4), admitted additional income of Rs. 15 crores and described it as business income. The disclosure was followed by filing returns and payment of tax in respect of the surrendered amount, and the assessee furnished replies and explanations before the investigating and assessing authorities that the income arose from past business transactions outside the books. The Commissioner (Appeals) relied on precedents and concluded that the three mandatory conditions in subsection (2) of section 271AAA were satisfied. The Tribunal, after reviewing the statement, the profit and loss account entries, the written replies, and the appellate findings, concurred that the statutory conditions for exemption from penalty under section 271AAA were fulfilled and therefore no penalty could be sustained. [Paras 10, 11, 12, 13, 14]

Penalty levied under section 271AAA deleted; revenue's appeal dismissed.

Final Conclusion: The Tribunal upheld the deletion of the penalty under section 271AAA, concluding that the assessee made a voluntary disclosure in the statement recorded under section 132(4), filed returns and paid tax on the surrendered income for Assessment Year 2011-12, thereby satisfying the conditions for immunity and warranting dismissal of the revenue appeal.

Unexplained cash deposits - additional evidence - verification by the assessing officer - unproved sundry creditors - statement of affairs prepared on estimated basis - creditor confirmations - unproved bank loan - bank certificate as additional evidence - deduction under section 80C - failure to produce evidence

Unexplained cash deposits - additional evidence - verification by the assessing officer - Addition of unexplained cash deposits of Rs. 47.73 lakhs set aside for fresh examination - HELD THAT: - The assessee produced a bank certificate before the Tribunal seeking admission as additional evidence to show that part of the cash deposits in the savings account represented withdrawals from his current account and that some deposits were business receipts. The Tribunal observed that the new evidence and the factual claim that deposits consisted partly of earlier withdrawals and business receipts require verification by the AO. Accordingly the Tribunal set aside the CIT(A)'s confirmation and restored the matter to the file of the AO for fresh examination of sources and verification of the additional evidence. [Paras 6]

Order of CIT(A) confirmed on this point is set aside and issue restored to AO for fresh examination.

Unproved sundry creditors - statement of affairs prepared on estimated basis - creditor confirmations - Addition of sundry creditors balance of Rs. 40.00 lakhs set aside for fresh examination - HELD THAT: - The assessee had filed a Statement of Affairs prepared on an estimated basis and declared income on an estimated profit rate. The AO disallowed the sundry creditors shown because the assessee produced only two creditors before the AO who could not confirm balances; the assessee, however, filed creditor confirmations addressed to the CIT(A) which were not placed before the AO. The Tribunal noted the statement of affairs was not based on books and that the confirmations were on record before the Tribunal, and therefore held that the matter requires examination by the AO taking into account (a) that books were not maintained, (b) income was estimated, (c) statement of affairs was estimated, and (d) the confirmations submitted. The Tribunal set aside the appellate order and remitted the issue to the AO for fresh consideration. [Paras 10]

Order of CIT(A) confirmed on this point is set aside and issue remitted to AO for fresh examination, with directions to consider confirmations and the estimated nature of affairs and income.

Unproved bank loan - bank certificate as additional evidence - verification by the assessing officer - Addition of unproved HDFC bank loan of Rs. 0.84 lakh set aside for fresh examination - HELD THAT: - The assessee produced a certificate from HDFC Bank certifying the outstanding loan balance for the first time before the Tribunal. The Tribunal held that such new evidence requires scrutiny and verification by the AO. Consequently the Tribunal set aside the appellate order and restored the issue to the AO to examine the certificate and decide the matter afresh. [Paras 11]

Order of CIT(A) confirmed on this point is set aside and issue remitted to AO for verification of the bank certificate and fresh adjudication.

Deduction under section 80C - failure to produce evidence - Disallowance of deduction claimed under section 80C confirmed - HELD THAT: - The assessee failed to produce any evidence before the Tribunal to substantiate the claim of deduction under section 80C. In the absence of supporting proof, the Tribunal found no reason to interfere with the findings of the lower authorities and confirmed the disallowance. [Paras 12]

Disallowance of the claim under section 80C is confirmed.

Final Conclusion: The appeal is partly allowed for statistical purposes: additions relating to unexplained cash deposits, unproved sundry creditors and the HDFC loan are set aside and remitted to the AO for fresh examination and verification of the additional evidence; the disallowance of the section 80C deduction is confirmed.

Maintainability of appeal against compounding order - appealability of an order rejecting compounding application - absence of crystallized demand for redemption fine - reconsideration of compounding applications on remand

Maintainability of appeal against compounding order - appealability of an order rejecting compounding application - An appeal before the CESTAT under the Customs appellate provisions against an order rejecting a compounding application is maintainable. - HELD THAT: - The Court applied the principle laid down by a Coordinate Bench in Commissioner of Central Excise v. Girish B. Mishra to the customs context, observing that an order rejecting an application for compounding decides the lis of a party and falls within the scope of an "adjudicating authority" as an order or decision under the statute. Accordingly, an order allowing or rejecting compounding is appealable and the tribunal was therefore justified in entertaining the appeal. [Paras 3, 4]

Appeal against the rejection of compounding application was maintainable and the CESTAT rightly entertained the appeal.

Absence of crystallized demand for redemption fine - The tribunal was correct in holding that there was no crystallized demand for redemption fine against the noticees in the order-in-original or show-cause notice. - HELD THAT: - On examination of the records and earlier decisions of the High Court in related matters, the tribunal found that the show-cause notices and the order-in-original did not contain a clear proposal for imposition of redemption fine nor directions making such fine attributable to each noticee. In that factual and legal position, there was no crystallized demand for redemption fine and the rejection of compounding applications solely for non-deposit of such fine was not legally sustainable. [Paras 5, 6, 7, 8]

There was no demand of redemption fine against the appellants; the tribunal's conclusion to that effect was upheld.

Reconsideration of compounding applications on remand - The tribunal's direction to the Chief Commissioner (Competent Authority) to reconsider the compounding applications afresh was accepted and the matter was remanded for fresh decision. - HELD THAT: - The tribunal, having found that compounding applications were rejected only on the ground of non-deposit of a redemption fine which it held was not demanded, directed the competent authority to reconsider the compounding applications and pass fresh orders after affording opportunity of hearing. The High Court treated this as an appropriate course and did not disturb the tribunal's remand direction. [Paras 5]

The matter was remanded to the Chief Commissioner for reconsideration of the compounding applications and fresh decision in accordance with law.

Final Conclusion: The tax appeal by the Revenue is dismissed; the CESTAT's findings that the compounding appeals were maintainable, that there was no crystallized demand of redemption fine, and its direction to the competent authority to reconsider the compounding applications are upheld.

Unjust enrichment - refund of duty - effectiveness of notification from date of publication - interest on delayed refunds - obligation of subordinate authorities to give effect to orders of higher appellate authorities (judicial discipline)

Unjust enrichment - refund of duty - Treatment of the refund claim on the ground of unjust enrichment and whether the incidence of the differential duty was passed on to the buyers - HELD THAT: - The court held that on the record before the Assessing Officer - notably the sales register and credit invoices showing sale of the imported Palmolein in August 2001 and the officer's own computation of sales, cost and profit elements - it is apparent that the sales were completed prior to remittance of the differential duty in September 2001 and that the incidence of duty was not passed on to customers. The Assessing Officer had failed to carry out the examination directed by the CESTAT and impermissibly focused on the form of accounting entries rather than on the primary question whether the incidence had been passed on. Given the documentary material on file and the officer's own findings, the court found no need for further remand and set aside the impugned order rejecting the refund claim. [Paras 5, 8, 9, 10, 11]

Refund claim allowed on merits: unjust enrichment not attracted as incidence of duty was not passed on; impugned order set aside and writ petition allowed.

Obligation of subordinate authorities to give effect to orders of higher appellate authorities (judicial discipline) - Whether the Assessing Officer could disregard or recharacterise the CESTAT's directions and whether remand was necessary - HELD THAT: - The court emphasised the principle of judicial discipline, observing that subordinate authorities must give effect to directions of superior appellate bodies. The Assessing Officer's statements questioning the CESTAT's order and his failure to follow the specific enquiry directed by the CESTAT were held to be unacceptable. Considering the elapsed time since the transactions (2001) and the completeness of the material on record, the court declined a further remand and proceeded to decide the matter on the existing record. [Paras 6, 7, 8, 10, 11]

Further remand refused; subordinate authority's contrary approach reproved and its order set aside.

Interest on delayed refunds - refund of duty - Entitlement to interest on the refunded amount and applicable statutory provision - HELD THAT: - The court analysed the contention that Section 27A would not apply because the refunded amount was not a duty in character. Relying on precedents distinguishing refunds that are outside the statute (e.g., levies without authority) the court found that the present dispute concerned the rate of duty and not an unauthorized levy; accordingly the statutory regime for refunds applies. Having regard to the dates when the refund application was presented and re-presented, and the statutory provisions governing interest, the court directed payment of interest at the rate of 6% from 14.06.2016 until the date of repayment, to be effected within four weeks. [Paras 18, 19, 21, 22, 23]

Interest directed at 6% per annum from 14.06.2016 till date of repayment; payment to be made within four weeks.

Final Conclusion: Writ petition allowed: the refund of the differential duty is granted on the ground that unjust enrichment is not attracted (incidence of duty not passed on); the Assessing Officer's order is set aside without a further remand; interest at 6% per annum is to be paid from 14.06.2016 until repayment, to be paid within four weeks.

Quashing of F.I.R. - exclusive jurisdiction of Customs over bonded warehouse - limits on police power to conduct search and seizure in customs-bonded premises - preclusion of parallel criminal prosecution where Customs has exercised remedial/confiscation powers

Exclusive jurisdiction of Customs over bonded warehouse - limits on police power to conduct search and seizure in customs-bonded premises - The legality of the police search and seizure in the Customs bonded warehouse and whether proceedings arising therefrom could be prosecuted against the applicants. - HELD THAT: - The Court found that the bonded warehouse was under the control and supervision of the Customs Department and the Central Government and that the police had no authority to undertake search and seizure of such premises on their own. The police action in entering and sealing the bonded warehouse amounted to an attempt to usurp powers vested in the Customs Department; police could only request assistance from Customs or the Central Government and could not independently conduct raids in customs-bonded premises. The Court observed that the dispute involved jurisdictional competence between two governmental departments and should have been resolved by their respective heads rather than by unilateral police action. [Paras 6, 7]

Police search and seizure in the customs bonded warehouse was beyond police authority and could not sustain prosecution of the applicants.

Preclusion of parallel criminal prosecution where Customs has exercised remedial/confiscation powers - quashing of F.I.R. - Whether, in the presence of Customs proceedings including confiscation and departmental action, there remained material to prosecute the applicants under the Gujarat Prohibition Act. - HELD THAT: - The Court took into account the record of proceedings under the Customs Act showing that Customs officials had investigated the alleged infirmities, taken departmental steps and passed confiscation orders. On perusal of those proceedings the Court concluded that Customs was vigilant and had appropriately dealt with deficiencies in import and record-keeping. Given the exclusive control of Customs over the bonded warehouse and the remedial measures already taken by Customs, the Court found no iota of material to justify criminal prosecution of the applicants under the Gujarat Prohibition Act arising from the impugned FIR. [Paras 8, 9]

In view of Customs having exercised its statutory powers and the absence of material for criminal prosecution, the FIR and consequent proceedings against the present applicants are quashed and set aside.

Final Conclusion: The applications are allowed; the FIR C.R. No. II-5449 of 2012 and consequent proceedings are quashed and set aside qua the present applicants on the grounds that the police action in the customs bonded warehouse exceeded their authority and Customs had already exercised its remedial/confiscation powers, leaving no material to sustain criminal prosecution.

Debt and default under the Insolvency and Bankruptcy Code - operational creditor's entitlement to retention money conditional on completion of contract - suspension of work by government as excusing delay and negativing default - requirement of correct impleading where liability arises from a joint venture -

Debt and default under the Insolvency and Bankruptcy Code - operational creditor's entitlement to retention money conditional on completion of contract - suspension of work by government as excusing delay and negativing default - Whether the operational creditor had established a debt and default such that the Section 9 application had to be admitted. - HELD THAT: - The Adjudicating Authority found that the contractual entitlement to the retention amount (25% or 20% as the case may be) arose only upon completion of erection, commissioning and trial run. The operational creditor had not completed that part of the contract; moreover the project work was suspended by the Government of Maharashtra-a suspension for which the corporate debtor was not at fault. In those circumstances the amount was not yet due and payable and therefore there was no debt within the meaning of section 3(12) of the IBC and no default. The Tribunal concurred with these findings and concluded that the Section 9 petition could not be admitted when both debt and default were not established. [Paras 14, 15, 16, 17, 18]

Application under Section 9 could not be admitted because the claimed retention money was not due (completion condition unfulfilled) and there was no established default.

Requirement of correct impleading where liability arises from a joint venture - Whether the petition was maintainable against the impleaded corporate debtor when the purchase order was issued by a joint venture which was not impleaded. - HELD THAT: - The record showed the purchase order relied upon by the appellant had been issued by the joint venture Prasad-Shreehari. The Adjudicating Authority and the Tribunal noted that the joint venture, which had issued the purchase order, was not made a party or co-applicant in the Section 9 application. Given the disputed factual questions regarding payment and the fact that the contractual order emanated from the joint venture, the petition against the corporate debtor alone was not maintainable and could not sustain the relief sought. [Paras 10, 11, 12]

Petition was not maintainable against the impleaded corporate debtor alone because the purchase order was issued by a joint venture which was not impleaded.

- Whether the Section 9 application was filed bona fide to initiate CIRP or was a device to realise disputed dues. - HELD THAT: - The Tribunal observed that the appellant's object appeared to be recovery of the claimed amount rather than initiation of corporate insolvency resolution process. In light of the disputed factual matrix on entitlement and the circumstances of non-completion and government suspension, the petition appeared to be filed for realisation of disputed dues, which militated against admission under Section 9. [Paras 9]

The application was characterised as an attempt to realise disputed dues rather than a bona fide petition for CIRP and therefore did not merit admission.

Final Conclusion: The appeal is dismissed; the Adjudicating Authority's rejection of the Section 9 application is upheld on the grounds that the claimed retention was not yet due (no debt and no default), the relevant purchase order was issued by a joint venture not impleaded, and the petition appeared to be filed for recovery of disputed amounts rather than to genuinely initiate CIRP.

Voluntary Compliance Encouragement Scheme (VCES) 2013 - clerical error in declaration - entitlement to scheme benefit despite clerical mistake - adjustment of gross tax payable by tax already paid - service tax law - Article 265 of the Constitution

Voluntary Compliance Encouragement Scheme (VCES) 2013 - clerical error in declaration - adjustment of gross tax payable by tax already paid - entitlement to scheme benefit despite clerical mistake - Article 265 of the Constitution - Whether the appellant was rightly denied benefit of VCES 2013 on account of a clerical error in Form VCES-1 declaring gross tax without adjusting taxes already paid. - HELD THAT: - The Tribunal found on the record that the appellant's declaration in Form VCES-1 showed the gross tax payable without reducing the tax already paid through earlier challans, resulting from a clerical error. The appellant had in fact deposited the amount declared under the scheme and, in aggregate, had paid amounts exceeding the instalment required under VCES. The denial of VCES benefit by the revenue was founded solely on the clerical misstatement in the declaration and not on any substantive shortfall in actual tax paid. Requiring the appellant to deposit additional tax despite such payment would be contrary to the scheme's operation and impermissible under the service tax law and Article 265 of the Constitution. For these reasons the Tribunal set aside the impugned order and held that the appellant was entitled to the benefit of VCES 2013, with consequential relief in accordance with law. [Paras 3, 6]

Impugned order set aside; appellant entitled to benefit of VCES 2013 and consequential reliefs.

Final Conclusion: The appeal is allowed: the denial of VCES-2013 benefit on account of a clerical error in the declared amount is reversed, and the appellant is entitled to the scheme's benefits with consequential relief in accordance with law.

Cenvat credit on input services - Eligibility of credit for container cleaning and washing - Eligibility of credit for pest control services - Eligibility of credit for GTA/cargo handling services where tax has been paid but procedural non-compliance exists - Credit disallowance for invoices/documents not in the name of the recipient - Inadmissibility of credit based on self-prepared debit notes/back-calculation for bank charges - Ineligibility of credit for input services used after clearance of final products - Eligibility of credit for port/logistics and porter & coolie charges relating to input materials

Eligibility of credit for container cleaning and washing - Cenvat credit on input services - Cenvat credit for Service Tax paid on container cleaning and washing of unloaded containers is allowable as input service. - HELD THAT: - The Tribunal noted that the charges for container cleaning and washing related to receipt of imported consignments and formed part of the landed cost; such logistic charges were mandatory before returning containers to shipping lines and were in relation to the business/manufacturing activity. On that basis the learned Commissioner (Appeals) allowed the credit and the Tribunal set aside the impugned order on this issue. [Paras 2, 3, 9]

Credit allowed; impugned order set aside.

Eligibility of credit for pest control services - Cenvat credit on input services - Cenvat credit for Service Tax paid on pest control services is allowable as directly or indirectly in relation to manufacturing and business activity. - HELD THAT: - The Tribunal recorded that pest control services were availed to protect raw materials, finished goods and workers' health and were held by the Commissioner (Appeals) to be in relation to the manufacturing/business activity. The finding in the Orders-in-Appeal allowing such credit was accepted and the impugned order set aside on this point. [Paras 3, 9]

Credit allowed; impugned order set aside.

Eligibility of credit for GTA/cargo handling services where tax has been paid but procedural non-compliance exists - Cenvat credit on input services - Cenvat credit in respect of GTA/Cargo Handling Service shall not be denied where there is no dispute about payment of Service Tax and no loss of revenue, notwithstanding procedural infractions by the recipient. - HELD THAT: - Although the adjudicating authority disallowed credit on the ground that the assessee (as recipient of service) had not paid Service Tax directly to the exchequer in the prescribed manner, the Tribunal held that where Service Tax has in fact been paid and there is no revenue loss, the benefit of Cenvat credit should not be denied to the appellant for procedural infractions. Consequently the impugned order was set aside on this issue. [Paras 4, 9]

Credit allowed; impugned order set aside.

Credit disallowance for invoices/documents not in the name of the recipient - The order disallowing credit on documents not in the name of the appellant is upheld as the appellant did not contest this issue. - HELD THAT: - The Tribunal recorded that the learned Advocate for the appellant did not contest the finding relating to credit availed on documents not in the name of the appellant and therefore refrained from detailed examination and upheld the impugned order on this point. [Paras 5, 9]

Impugned order upheld on this issue.

Inadmissibility of credit based on self-prepared debit notes/back-calculation for bank charges - Cenvat credit claimed on the basis of self-prepared documents (back-calculated Service Tax on bank charges) is not allowable. - HELD THAT: - The Tribunal accepted the Revenue's position that the appellants availed credit by calculating Service Tax on bank charges through back-calculation and on self-prepared debit notes, and held that credit on that account cannot be allowed. The impugned order denying such credit was therefore upheld. [Paras 6, 9]

Credit disallowed; impugned order upheld.

Ineligibility of credit for input services used after clearance of final products - The disallowance of Cenvat credit for input services used after clearance of final products is upheld as the appellant did not contest this issue. - HELD THAT: - The Tribunal noted the appellant's concession on this point and accordingly upheld the impugned order with respect to input services alleged to have been used after the clearance of final products. [Paras 7, 9]

Impugned order upheld on this issue.

Eligibility of credit for port/logistics and porter & coolie charges relating to input materials - Cenvat credit on input services - Cenvat credit for Service Tax paid on port/logistics services and porter & coolie charges incurred in relation to transportation of input materials is allowable. - HELD THAT: - On the appellant's submission that porter & coolie charges and port/logistics services were incurred for transportation of input materials, the Tribunal accepted that such charges qualify as input services and held the appellant eligible for Cenvat credit; the impugned order was set aside on this point. [Paras 8, 9]

Credit allowed; impugned order set aside.

Final Conclusion: The appeal is partially allowed: credits relating to container cleaning and washing, pest control, GTA/cargo handling (despite procedural infractions), and port/logistics and porter & coolie charges are restored; denials upheld in respect of credit on documents not in the appellant's name, bank charges based on self-prepared back-calculation, and input services used after clearance of final products.

Moratorium under the Insolvency and Bankruptcy Code - prohibition on institution or continuation of suits or proceedings - effect of NCLT moratorium on pending proceedings before other fora - appointment of Interim Resolution Professional - adjournment sine die pending outcome of corporate insolvency proceedings

Moratorium under the Insolvency and Bankruptcy Code - prohibition on institution or continuation of suits or proceedings - effect of NCLT moratorium on pending proceedings before other fora - adjournment sine die pending outcome of corporate insolvency proceedings - Whether the pending appeals before the Tribunal could proceed after the NCLT admitted the petition and ordered a moratorium. - HELD THAT: - The Tribunal noted that the NCLT order dated 03.06.2019 admitted the petition under the Insolvency and Bankruptcy Code and expressly prohibited the institution of fresh suits or the continuation of pending suits or proceedings against the corporate debtor, including execution of any order by any court, Tribunal or other authority. Given that the NCLT had placed the corporate debtor under a moratorium and appointed an Interim Resolution Professional, the Tribunal held that the appeals before it could not be proceeded with until the NCLT renders its final decision in the insolvency proceedings. The Bench therefore adjourned the matter sine die, while expressly permitting the appellants to inform the Tribunal of any developments before the NCLT so that the Tribunal may decide the further course of action thereafter. [Paras 2, 3]

Appeals adjourned sine die as the NCLT moratorium precludes continuation of proceedings before the Tribunal; appellants may apprise the Tribunal of developments before the NCLT.

Final Conclusion: Proceedings before the Tribunal were stayed by way of sine die adjournment because the NCLT had admitted the corporate insolvency petition and imposed a moratorium; the appellants are at liberty to notify the Tribunal of subsequent NCLT developments.

Availability of input tax credit - provisional nature of input tax credit under Section 19(16) of the TNVAT Act, 2006 - revocation of input tax credit where tax was paid to the selling dealer - remand for fresh enquiry and verification in cases of mismatch - direction to devise and implement a centralized procedure to deal with mismatches - Writ jurisdiction under Article 226 of the Constitution

Availability of input tax credit - provisional nature of input tax credit under Section 19(16) of the TNVAT Act, 2006 - revocation of input tax credit where tax was paid to the selling dealer - Validity of revisional/cancellation orders invoking Section 19(16) to revise input tax credit where it is admitted that tax was paid to the selling dealer. - HELD THAT: - The Court held that sub section (16) of Section 19 declares input tax credit to be provisional and permits revocation where the claim is incorrect, incomplete or otherwise not in order. That provision does not authorise revocation merely on the basis that the selling dealer has not paid tax to the revenue. In the present cases the petitioner had admittedly paid tax to the selling dealer and had claimed input tax credit which was accepted at the time of self assessment; the pre revision notices and impugned orders themselves recorded that tax had been paid to the selling dealer. On these admitted facts, invoking Section 19(16) to revise/cancel the input tax credit was incorrect and contrary to the statutory scheme. The proper course, where a selling dealer has not discharged tax liability, is for the department to proceed against the selling dealer by the remedies available to it, and not to annul the buyer's entitlement to credit on the admitted payment. The Court thus found the revision orders to be legally unsustainable and liable to be set aside. [Paras 9, 12, 14]

Impugned revision/cancellation orders under Section 19(16) set aside insofar as they revise input tax credit on the admitted facts that tax was paid to the selling dealer.

Remand for fresh enquiry and verification in cases of mismatch - direction to devise and implement a centralized procedure to deal with mismatches - Procedure to be followed thereafter and appropriate disposal: whether matter should be remitted for fresh consideration and in what manner. - HELD THAT: - Relying on its earlier decision in M/s. JKM Graphics Solutions Private Limited, the Court directed that the matters be remitted to the assessing authority for fresh exercise. The Assessing Officer is to undertake a thorough enquiry, in consultation with the assessing officers of the other end dealers, and the Commissioner is to empower officers to obtain information from other circles. The Court noted the need for a centralized mechanism and for the Principal/Commissioner to consider procedures adopted by other States and, if necessary, recommend statutory amendments; until implementation, a fair and reasonable procedure must be followed that affords the dealer an opportunity to establish entitlement to the input tax credit. As the circular/mechanism framed pursuant to the earlier directions had not been notified, the Court did not prescribe a timeline but directed that fresh orders be passed in accordance with law once the procedure is implemented. [Paras 13, 14, 15, 16]

Matters remitted to the 1st respondent for fresh consideration in accordance with law and the procedures/directions indicated; fresh orders to be passed when the prescribed circular/mechanism is implemented.

Final Conclusion: Writ petitions allowed by way of remand: the revisional/cancellation orders setting aside input tax credit where tax was admitted to have been paid to the selling dealer are set aside, and the matters are remitted to the assessing authority for fresh enquiry and disposal in accordance with the Court's directions regarding a fair, consultative and centralized procedure; no costs.

Settlement under Samadhan Scheme - requirement of existence of arrears for entitlement - ineligibility where tax already paid prior to application - entertainability of application where dispute is not in arrears - pendency of appeal as qualifying criterion

Requirement of existence of arrears for entitlement - ineligibility where tax already paid prior to application - entertainability of application where dispute is not in arrears - Assessee who had already paid the entire tax dues before applying under the Samadhan Scheme was not entitled to its benefits. - HELD THAT: - The Samadhan Scheme contemplates settlement of arrears of tax, penalty or interest that are in dispute. The Deputy Commissioner examined the application against the Scheme's eligibility criteria and Form I (item 7(c)) and found that the petitioner had paid the entire dues so that there were no arrears as on 28.2.2002. In those circumstances the application was not entertainable because the Scheme requires the existence of arrears in dispute; an application made after full payment of the disputed dues cannot avail the concession of reduction of tax liability under the Scheme. The Deputy Commissioner's rejection of the application was therefore held to be justified.

Application under the Samadhan Scheme rejected as not entertainable because no arrears subsisted; writ petitions dismissed.

Final Conclusion: The High Court dismissed the writ petitions, upholding the Deputy Commissioner's decision that an assessee who had paid all disputed tax before applying under the Samadhan Scheme was ineligible for the Scheme's benefits.

Grant of bail under Section 439 Cr.P.C. - embargo under Section 37 of the NDPS Act - commercial quantity - statement under Section 67 of the NDPS Act - retraction of statement - conscious possession and ownership of premises

Grant of bail under Section 439 Cr.P.C. - embargo under Section 37 of the NDPS Act - Bail application of the applicant is to be allowed or declined. - HELD THAT: - On consideration of the prosecution case, the materials on record and the stage of trial, the court found that recoveries of Ketamine in commercial quantity (attempted export of 151.980 kg and recovery of about 200 kg in dissolved form) and additional recoveries from the applicant's premises, together with framed charges, preclude grant of bail. The court observed that some smaller recoveries (25.5 gms, 24.5 gms, 215 gms) may not individually attract the bar of Section 37, but the totality of recoveries of Ketamine in commercial quantity, coupled with other evidence, leads to application of the embargo against bail in the present case. Taking these factors into account and without expressing any view on the ultimate merits, the court declined the bail prayer. [Paras 28, 29, 30]

Bail declined.

Statement under Section 67 of the NDPS Act - retraction of statement - Whether the statement recorded under Section 67 (and its subsequent retraction) can be taken into account in the bail proceedings. - HELD THAT: - Noting that the admissibility of statements under Section 67 had been referred to a larger bench of the Supreme Court, the High Court followed the precedent in CRL.A. No.1897/2019 (Sujit Tiwari) and, for the limited purpose of the bail application, took the applicant's Section 67 statement into consideration despite his later retraction. The court treated the statement as self-inculpatory and, in the factual matrix of the case, accepted it as corroborative of the prosecution case for the purpose of deciding bail. [Paras 27, 28]

Section 67 statement taken into account notwithstanding subsequent retraction.

Conscious possession and ownership of premises - commercial quantity - Whether there is prima facie material linking the applicant to possession/ownership of the Mundka godown and to the seized commercial quantity of Ketamine. - HELD THAT: - The court relied on testimony of the landlord (PW-32) of the Mundka godown, who identified the petitioner as the person to whom the basement was let and testified to seizures (cash and white powder) from the area where the petitioner used to sit. The court found that documentary and electronic material (including emails) and the landlord's testimony prima facie connect the petitioner to the Mundka premises and to the commercial-quantity recoveries, undermining the applicant's contention that another namesake ('Chhotu') exclusively occupied the godown. These findings contributed to the conclusion that the embargo against bail was attracted. [Paras 28, 29]

Prima facie link found between applicant and the Mundka godown and the commercial-quantity recovery.

Final Conclusion: On the totality of the material - including the Section 67 statement taken into account for the limited purpose of bail, landlord testimony connecting the petitioner to the Mundka godown, electronic/documentary material and the recoveries of Ketamine in commercial quantity - the High Court declined the bail application.