TaxTMI Updates e-Newsletter
Apr 09,2020

Licensing services for the right to use minerals including its exploration and evaluation - Classification under SAC 997337 - Reverse Charge Mechanism - Supply in the course or furtherance of business - Statutory levy/royalty as consideration for licensing services - Statutory contributions to DMF, NMET and GMOPFT treated as consideration

Licensing services for the right to use minerals including its exploration and evaluation - Classification under SAC 997337 - Reverse Charge Mechanism - Statutory levy/royalty as consideration for licensing services - Classification and GST liability of royalty paid for extraction of iron ore and the applicable rate - HELD THAT: - The Authority held that royalty paid under Section 9 of the Mines and Minerals (Development & Regulation) Act, 1957 is a statutory charge in consideration for assignment of rights to use/extract mineral resources and therefore constitutes a supply of services classifiable under SAC 997337 as "Licensing services for the right to use minerals including its exploration and evaluation". The CBIC sectoral FAQ and IBMinote were relied upon to show that assignment of rights to use natural resources attracts GST and that the licensee is liable to pay tax under reverse charge. The rates applicable were determined by reference to Notification No.11/2017 and its subsequent amendment (Notification No.27/2018): until 31.12.2018 the service attracted the same rate as on like goods involving transfer of title (i.e. 5% for iron ore) and from 01.01.2019 the amended entry prescribes tax at 18% (9% CGST + 9% SGST). The Authority therefore ruled that royalty is taxable under reverse charge at 5% till 31.12.2018 and at 18% thereafter. [Paras 7, 9, 10]

Royalty for mining lease is classifiable under SAC 997337 and subject to GST on reverse charge basis at 5% till 31.12.2018 and at 18% from 01.01.2019.

Statutory contributions to DMF, NMET and GMOPFT treated as consideration - Supply in the course or furtherance of business - Licensing services for the right to use minerals including its exploration and evaluation - Classification under SAC 997337 - Whether contributions to DMF, NMET and GMOPFT are supplies subject to GST and the applicable rate - HELD THAT: - The Authority found that the contributions mandated by Sections 9B and 9C of the MMDR Act (payments to DMF, NMET and GMOPFT) are made in the course of and for furtherance of the applicant's mining business, are statutorily mandatory (not voluntary donations), and are linked to the business right to extract minerals. The activities of those trusts were held to fall within the scope of services covered by SAC 997337 (exploration and evaluation activities) and, being activities undertaken by bodies constituted under the MMDR Act to manage local funds, are within the definition of business under Section 2(17). Consequently, such contributions are a consideration for services classifiable under SAC 997337 and attract GST under reverse charge. The applicable rates follow the same timeline: 5% till 31.12.2018 and 18% from 01.01.2019. [Paras 8, 10]

Contributions to DMF, NMET and GMOPFT are classifiable under SAC 997337, are taxable supplies in the course of business and subject to GST on reverse charge at 5% till 31.12.2018 and at 18% from 01.01.2019.

Final Conclusion: The Authority ruled that both the royalty payable for extraction of iron ore and the statutory contributions to DMF, NMET and GMOPFT constitute taxable services classifiable under SAC 997337 and are liable to GST under the Reverse Charge Mechanism - at 5% till 31.12.2018 and at 18% from 01.01.2019.

Supply of goods - exemption from GST on supply of water - composite supply and principal supply - taxability of services supplied by Resident Welfare Association (RWA) to its members - artificial bifurcation of contracts to avoid GST applicability

Supply of goods - exemption from GST on supply of water - taxability of services supplied by Resident Welfare Association (RWA) to its members - artificial bifurcation of contracts to avoid GST applicability - Whether the applicant is required to pay GST on water charges collected from customers under Contract-II - HELD THAT: - The Authority accepted that water qualifies as goods under Section 2(52) and that Notification No.02/2017 grants exemption from GST on supply of ordinary water. However, the Authority examined the commercial reality and found that the applicant provides maintenance services to the Resident Welfare Association (RWA) under Contract-I and proposes a separate Contract-II for supply of water to individual residents. The factual matrix shows common storage and distribution of water for multiple uses by the society and invoicing based on area (per sq. feet) rather than per tanker. The Authority observed that maintenance services commonly include supply of water and that the separate agreement for water appears to be an artificial bifurcation of contracts to avoid GST applicability or to keep maintenance charges below the exemption threshold. The Authority also relied on the exemption framework applicable to RWAs (exemption up to specified monthly charges per member and the turnover threshold for registration as explained in Circular No.109/28/2019) to conclude that the alleged separate supply of water is in substance linked to the taxable maintenance services. On these findings of linkage and commercial substance, the supply of water under Contract-II cannot be treated as an independent exempt supply but is directly linked with Contract-I and thus attracts GST applicable to Contract-I.

The applicant is required to pay GST on the water charges collected under Contract-II because Contract-I and Contract-II are directly linked and the water supply is in substance part of the taxable services provided to the RWA.

Final Conclusion: Advance ruling: Contract-I (maintenance services) and Contract-II (supply of water) are directly linked; the supply of water under the separate agreement is in substance part of the services to the society and GST is payable as applicable on Contract-I.

Reverse charge mechanism - services supplied by a director to the company - Services by an employee to the employer in the course of or in relation to his employment - consideration - Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017

Services supplied by a director to the company - Services by an employee to the employer in the course of or in relation to his employment - reverse charge mechanism - consideration - Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017 - Whether the consideration (salary/commission/other payments) paid to directors of the applicant company is excluded from GST as services by an employee to the employer under Schedule III or is liable to GST under reverse charge mechanism. - HELD THAT: - The Authority found that the payments made to the directors are consideration for services supplied by the directors to the company and that the company is the recipient while the directors are the suppliers (see findings). The Schedule III exclusion for services by an employee to the employer was examined but rejected on the facts because the Authority treated the directors as suppliers of services to the company for the purpose of the CGST law. The Authority relied on the express categorisation in Notification No. 13/2017 - which specifically identifies services supplied by a director of a company to that company as a category on which tax is payable under reverse charge - and on the statutory definition of consideration. Consequently, the Authority held that such payments fall within entry No. 6 of Notification No. 13/2017 and attract GST payable by the recipient under the reverse charge mechanism. [Paras 5]

Consideration paid to the directors by the applicant company is liable to GST under reverse charge mechanism as covered by entry No. 6 of Notification No. 13/2017.

Reverse charge mechanism - services supplied by a director to the company - Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017 - Whether the position would change if a director is a part time director in another company. - HELD THAT: - The Authority addressed the applicant's alternate query and applied the same legal reasoning and statutory notification. It observed that the Notification gives a distinct identity to services provided by a director and does not exempt the situation where a director also holds part time directorships elsewhere. Accordingly, the liability under reverse charge remains unaffected by the director's part time status in another company. [Paras 5, 6]

Situation remains the same; GST is attracted under reverse charge mechanism even if the director is a part time director in another company.

Final Conclusion: The Authority ruled that payments made to directors for services rendered to the company are supplies falling within entry No. 6 of Notification No. 13/2017 and attract GST payable by the company under the reverse charge mechanism; the conclusion is the same even where the director holds part time directorships elsewhere.

Service of notice under section 148 - presumption of due service by postal authorities / presumption of bonafides in favour of the State - admissibility and consideration of fresh / additional evidence by the Commissioner of Income Tax (Appeals)

Service of notice under section 148 - presumption of due service by postal authorities / presumption of bonafides in favour of the State - Whether notices issued under section 148 were duly served on the appellant - HELD THAT: - The Commissioner (Appeals) examined the appellant's own admission that a subsequent notice under section 274 (penalty show-cause) dated 04.05.2017 was received at the same address on which the Assessing Officer had earlier sent notices. Relying on the fact that none of the earlier notices were returned as unserved, the Commissioner held that, absent proof to the contrary, the postal authorities must be presumed to have effected service and the presumption of bonafide in favour of the State applies. The appellant's contention that the address was incomplete or that delivery may have been to another person with a similar name was negatived by the admitted receipt of notices at that address and the absence of returned mail. [Paras 10, 11, 12, 13, 14]

The claim of non-service on the ground of incorrect or incomplete address was rejected and the notices under section 148 were treated as duly served.

Admissibility and consideration of fresh / additional evidence by the Commissioner of Income Tax (Appeals) - Whether the Commissioner (Appeals) accepted and relied upon fresh/additional evidence produced by the appellant - HELD THAT: - The Assessing Officer furnished a report dated 26.03.2018 addressing the appellant's fresh evidence and recommended rejection. The Commissioner recorded that the fresh evidence was neither maintainable nor acceptable in law and proceeded to dismiss the grounds based on that evidence. The Tribunal considered these findings of fact and law in its order. [Paras 8]

The fresh/additional evidence was rejected by the Commissioner (Appeals) as not maintainable or acceptable, and the related grounds were dismissed.

Final Conclusion: The High Court found no substantial question of law, held the issues to be factual and disposed of by the authorities below, and dismissed the appeal.

Allowability of contributions to State/energy/conservation or public funds as business expenditure under Section 37(1) - deductibility of employees' contribution to provident fund and ESI governed by the operation of Section 43B as opposed to Section 36(1)(va) read with Section 2(24)(x) - binding effect of a prior Division Bench judgment of this Court on like facts

Allowability of contributions to State/energy/conservation or public funds as business expenditure under Section 37(1) - binding effect of a prior Division Bench judgment of this Court on like facts - Deletion by the ITAT of additions/disallowances made in respect of contributions to various State/public funds claimed as business expenditure under Section 37(1) was upheld. - HELD THAT: - The Court noted that the questions concerning disallowance of contributions (including to the State Renewal Fund, Energy Conservation Fund and Rajasthan Bhawan) were governed by an earlier Division Bench decision of this Court delivered on 2.8.2017 in D.B. Income Tax Appeal No.145/2015, which upheld the allowability of such expenditure. In view of that binding precedent on similar facts and legal principle, the judgment of the ITAT deleting the additions was held to be reasonable and not requiring interference. The Court therefore sustained the ITAT's approach in deleting the disallowances claimed by the revenue under Section 37(1).

Appeal dismissed insofar as additions/disallowances relating to contributions to the State/public funds claimed under Section 37(1) are concerned; ITAT's deletion upheld following the Division Bench precedent.

Deductibility of employees' contribution to provident fund and ESI governed by the operation of Section 43B as opposed to Section 36(1)(va) read with Section 2(24)(x) - The ITAT's deletion of the addition relating to delayed deposit of employees' contribution to PF & ESI was upheld in view of this Court's earlier decision in Commissioner of Income Tax vs. State Bank of Bikaner and Jaipur, which binds the parties. - HELD THAT: - The Court observed that the questions on the timing and the statutory provision governing employees' contributions were covered by this Court's earlier decision reported at (2014) 363 ITR 70 (Raj.) decided on 6.1.2014, which is binding and favourable to the assessee. The revenue informed that a Special Leave Petition against that judgment is pending before the Supreme Court; the High Court recorded that although the issues were answered against the revenue by the binding precedent, the position remains subject to any final order of the Supreme Court on the SLP. No interference with the ITAT's decision was made in the meantime.

ITAT's deletion of the disallowance for delayed deposit of employees' PF/ESI contributions affirmed following the binding High Court precedent, subject to the outcome of the pending Special Leave Petition before the Supreme Court.

Final Conclusion: The revenue appeal is disposed of: the ITAT's deletions of the disallowances for contributions to the State/public funds and for delayed deposit of employees' PF/ESI contributions are upheld in light of binding Division Bench/High Court precedents, with the caveat that the issues relating to Section 43B are subject to any final determination by the Supreme Court on the pending Special Leave Petition.

Survey valuation of stock - addition as unexplained investment - onus on assessee to substantiate valuation or sale outside books - addition based on assumption and surmise - estimation of undisclosed profit by applying gross profit rate - disallowance of business expenses for personal use - reasonableness of percentage disallowance in absence of records

Survey valuation of stock - addition as unexplained investment - onus on assessee to substantiate valuation or sale outside books - Validity of addition of the excess stock of Rs. 18,27,346/- found during survey and added to the assessee's income. - HELD THAT: - The Tribunal upheld the finding that physical stock ascertained during the survey exceeded stock as per books by Rs. 18,27,346/-. The assessee, who did not maintain stock registers and had signed the inventory, failed to offer a satisfactory explanation or produce supporting bills to show that the survey valuation was at selling price or otherwise incorrect. The Assessing Officer's computation treating the excess as unexplained investment was considered justified. The appellate authority had examined and rejected the assessee's contentions with reasons, and the Tribunal found no merit in the challenge to the addition. [Paras 3, 4, 5, 6]

Addition of Rs. 18,27,346/- on account of excess stock found during survey is confirmed.

Estimation of undisclosed profit by applying gross profit rate - addition based on assumption and surmise - onus on assessee to substantiate valuation or sale outside books - Validity of addition of Rs. 2,01,008/- as estimated undisclosed profit by applying an 11% gross profit rate on the excess stock. - HELD THAT: - The Tribunal held that once the excess stock was added as unexplained investment, it formed part of the books for assessment purposes. There was no evidence that the excess stock had been sold outside the books to generate undisclosed profit. The Assessing Officer's imposition of profit by applying an assumed gross profit rate was held to be based on conjecture. In absence of any material to show actual undisclosed sales or profits, the addition founded on such assumption could not be sustained and was therefore deleted. [Paras 7, 8, 9]

Addition of Rs. 2,01,008/- as estimated undisclosed profit is deleted.

Disallowance of business expenses for personal use - reasonableness of percentage disallowance in absence of records - Sustainability of 10% disallowance from telephone expenses on account of personal use. - HELD THAT: - The Assessing Officer disallowed 10% of claimed telephone expenses as attributable to personal use. The assessee did not maintain call registers or other records to rebut personal usage. The Tribunal considered a 10% disallowance reasonable and fair in the circumstances of a proprietary business where some personal use could not be ruled out, and found no justification to interfere with the appellate authority's confirmation of the disallowance. [Paras 10]

Disallowance of 10% of telephone expenses is upheld.

Final Conclusion: The appeal is partly allowed: the addition of excess stock is confirmed, the consequential addition for presumed undisclosed profit is deleted, and the 10% disallowance of telephone expenses is sustained.

Transfer pricing comparability - functional comparability - arm's length price computation - inclusion/exclusion of comparable in transfer pricing study - rectification proceedings under Section 154

Transfer pricing comparability - functional comparability - inclusion/exclusion of comparable in transfer pricing study - arm's length price computation - M/s. Gateway Distriparks Ltd. cannot be included as a comparable for computing the arm's length price. - HELD THAT: - The Tribunal examined the DRP's direction to include M/s. Gateway Distriparks Ltd. (GDL) as a comparable despite the assessee's consistent contention that GDL is functionally different and asset intensive. The DRP's stated rationale for inclusion was consistency with selection of other freight-agent comparables (such as Arshiya and Om Logistics). The Tribunal noted that in the assessee's own DRP order for AY 2013-14 the DRP had expressly excluded GDL on account of a materially different FAR profile and high asset intensity (including significant revenue-generating fixed assets and operations as a container freight station), which rendered it functionally dissimilar to the assessee. Having regard to the assessee's submissions, the record on GDL's asset base and segmental profile, and the DRP's own reasoning in the subsequent year, the Tribunal found that GDL is functionally different and asset intensive and therefore not a valid comparable for computing the ALP. The Tribunal accordingly directed that GDL should not be included as a comparable when computing the arm's length margin and allowed the appeal on that basis. [Paras 3, 9]

GDL excluded as a comparable for ALP computation; appeal allowed.

Final Conclusion: Delay in filing the appeal was condoned and, on merits, the Tribunal held that M/s. Gateway Distriparks Ltd. is functionally dissimilar and asset intensive and therefore must not be included as a comparable for computing the arm's length price; the assessee's appeal is allowed.

Disallowance under section 14A read with Rule 8D - application and retrospective/non applicability of Rule 8D for AY 2006 07 - indexation of cost of acquisition under Explanation (iii) to section 48 - deemed period of holding under Explanation 1(b) to section 2(42A) and deeming of cost under section 49(1) - computation of book profit under section 115JB and scope of Explanation 1(f)

Disallowance under section 14A read with Rule 8D - application and retrospective/non applicability of Rule 8D for AY 2006 07 - Deletion of the disallowance of expenditure made by the Assessing Officer under section 14A (aggregating the amount reworked under Rule 8D) was upheld. - HELD THAT: - The Tribunal accepted the CIT(A)'s conclusion that the Assessing Officer was not justified in reworking and enhancing the earlier considered disallowance. It agreed with the CIT(A) that Rule 8D, which prescribes the method of computing disallowance, was held by the Bombay High Court to be applicable from AY 2008 09 and therefore not applicable to AY 2006 07. The Tribunal also recorded that the original assessment and earlier appellate order had considered the source of investments and attributability; further, the assessee possessed sufficient interest free funds (share capital and reserves exceeding the investments), relying on the ratio in Reliance Utilities and the coordinate ITAT decision, such that disallowance of interest expenditure was not warranted. No new material was produced to rebut these findings; accordingly the CIT(A)'s deletion of the disallowance was sustained while the limited administrative expense disallowance earlier confirmed by the predecessor was left intact. [Paras 10, 11]

Revenue's ground challenging deletion of the section 14A disallowance is dismissed; the CIT(A) order deleting the disallowance is upheld.

Indexation of cost of acquisition under Explanation (iii) to section 48 - deemed period of holding under Explanation 1(b) to section 2(42A) and deeming of cost under section 49(1) - Assessee entitled to compute indexed cost of acquisition with reference to the period the asset was treated as held by the previous owner on amalgamation; long term capital loss recomputation in favour of assessee was upheld. - HELD THAT: - The Tribunal agreed with the CIT(A)'s reasoning that, where assets become the assessee's property by modes covered under section 49(1) (including amalgamation under section 47(vi)), the cost of acquisition is to be treated as that of the previous owner and the period of holding for indexation purposes must include the period for which the previous owner held the asset. The Tribunal relied on the conjoint reading of sections 47, 48 and 49 and Explanation 1(b) to section 2(42A) and on the Bombay High Court/ITAT precedents to hold that the expression "first year in which the asset was held by the assessee" in Explanation (iii) to section 48 must be understood by applying the deeming provision; excluding the previous owner's holding period would defeat the legislative scheme. Accordingly, the Assessing Officer's recomputation disallowing indexation was held unjustified and the CIT(A)'s direction to consider the period of holding from the date the amalgamating companies acquired the investments was sustained. [Paras 15, 16]

Revenue's ground challenging the allowance of indexation (and the resultant long term capital loss claimed by the assessee) is dismissed; the CIT(A) direction to allow indexation with reference to the previous owner's holding is upheld.

Computation of book profit under section 115JB and scope of Explanation 1(f) - disallowance under section 14A - Addition based on notional disallowance under section 14A could not be added back in computing book profit under section 115JB; the CIT(A)'s deletion of that addition was affirmed. - HELD THAT: - The Tribunal endorsed the CIT(A)'s conclusion that book profit for section 115JB must follow the audited profit and loss account and only those adjustments specifically enumerated in Explanation 1 (clauses (a) to (i)) to section 115JB may be made. A notional disallowance worked out under section 14A/Rule 8D is not an item specifically referred to in Explanation 1(f) and therefore cannot be imported into the book profit computation. The Tribunal followed coordinate bench precedents (including Goetze and earlier Ahmedabad decisions) and the Supreme Court guidance that only items expressly mentioned in the Explanation can be adjusted; hence the notional section 14A disallowance could not be added back for computing book profit. [Paras 19, 20]

Revenue's ground seeking to include the section 14A notional disallowance in book profit under section 115JB is dismissed; the CIT(A) order deleting that addition is upheld.

Final Conclusion: For AY 2006 07 the Tribunal dismissed the Revenue's appeal in all respects: (i) the Assessing Officer's enhanced section 14A disallowance (and its recomputation under Rule 8D) was not sustainable and was deleted; (ii) the assessee was entitled to indexation of cost of acquisition by reference to the period the previous owner held the assets (amalgamation transfer), and the reassessment recomputation was set aside; and (iii) a notional section 14A disallowance could not be added back in computing book profit under section 115JB. The assessee's cross objection became infructuous and is dismissed.

Acceptance of cash loan in contravention of section 269SS - penalty under section 271D - reasonable cause defence - genuineness of loan and non-commercial nature

Acceptance of cash loan in contravention of section 269SS - penalty under section 271D - reasonable cause defence - genuineness of loan and non-commercial nature - Whether penalty under section 271D can be sustained for cash loans received from the assessee's brother-in-law when the assessee shows reasonable cause and the transaction is bona fide and non-commercial. - HELD THAT: - The Tribunal found as undisputed facts that the assessee received cash from his brother-in-law for payment of advance towards purchase of immovable property and that the transaction was genuine and would have been rescinded if the balance was not paid. The authorities did not dispute genuineness. Relying on precedents cited by the assessee, including ITO vs. Trilokchand and other decisions, and on the Gauhati High Court's formulation that where a genuine, reflected loan is shown and immediate need of funds exists a reasonable cause may be established, the Tribunal held that acceptance of such cash did not constitute a commercial transaction attracting the prohibition in section 269SS so as to warrant levy of penalty under section 271D. Applying that legal principle to the material on record, the Tribunal concluded there was reasonable cause for accepting the cash loans and nothing suggested the payments were sham or unaccounted money. Accordingly the penalty was not sustainable and was directed to be deleted. [Paras 11, 12, 13]

Penalty under section 271D set aside and the AO directed to delete the penalty; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for AY 2008-09, holding that the cash loans from the brother-in-law were genuine, non-commercial and disclosed reasonable cause for non-compliance with section 269SS; the penalty under section 271D (Rs. 6,00,000) was deleted.

Exemption under Article 15(1) of India-Austria DTAA for employment income - relief under section 90 read with Article 15(1) of the DTAA - superiority of treaty over domestic law - Tax Residency Certificate requirement and relaxation in case of impossibility of performance - taxability under section 5(2) for services rendered outside India

Exemption under Article 15(1) of India-Austria DTAA for employment income - definition of resident under Article 4(1) - Claim of exemption for salary and related allowances under Article 15(1) of the India-Austria DTAA was allowable. - HELD THAT: - The Tribunal found that the assessee qualified as a tax resident of Austria for the relevant previous year and that the remuneration was derived from employment exercised in Austria pursuant to a foreign assignment. Article 15(1) charges employment remuneration to tax only in the state of residence unless the employment is exercised in the other contracting state; both conditions (residency in Austria and employment exercised in Austria) were satisfied on the material on record. The Tribunal relied on the Article 4(1) definition of resident and earlier decisions recognising that salary for services rendered outside India is not taxable in India. Applying these legal principles, the Tribunal held the assessee's claim of exemption under Article 15(1) to be appropriate and therefore directed deletion of the tax imposed by the AO in respect of the exempted employment income. [Paras 12, 13, 14, 15, 16]

Exemption under Article 15(1) granted in respect of employment income earned for services rendered in Austria; tax imposed by AO in respect of that income directed to be deleted.

Tax Residency Certificate requirement and relaxation in case of impossibility of performance - superiority of treaty over domestic law - Non-production of a Tax Residency Certificate (TRC) did not preclude grant of treaty relief where procuring the TRC was shown to be impossible and sufficient circumstantial evidence was furnished. - HELD THAT: - The Tribunal observed that section 90(4)'s TRC requirement cannot operate to defeat the supremacy of the treaty where genuine practical impossibility prevents production of the certificate. Noting the difficulty in obtaining foreign certificates and relying on precedents treating section 90(4) as beneficial and not as a limit on treaty supremacy, the Tribunal held that revenue erred in denying treaty benefits solely for want of a TRC. Where the taxpayer provides sufficient circumstantial evidence and demonstrates inability to obtain the TRC, the requirement may be relaxed and treaty relief afforded. [Paras 11]

Non-production of TRC was not fatal; TRC requirement relaxed on facts and treaty relief accorded.

Taxability under section 5(2) for services rendered outside India - Absence of documentary proof of foreign bank receipts or mode of payment did not defeat the claim that salary and foreign allowance related to services rendered outside India and were exempt under the treaty and section 5(2). - HELD THAT: - The Tribunal held that the AO's objections about lack of bank account evidence and non-production of documents showing receipt abroad were not determinative. The factual position established that the remuneration related to employment exercised abroad and treaty principles and the Act do not bar receipt of such amounts in India. Therefore, failure to produce overseas bank statements or proof of receipt abroad did not justify denial of the exemption where the substantive conditions for treaty relief were satisfied. [Paras 17]

Lack of evidence of foreign remittances did not negate claim of exemption; tax imposed in respect of such remuneration to be deleted.

Final Conclusion: The assessee's appeal is allowed for AY 2014-15: the Tribunal granted exemption under Article 15(1) of the India-Austria DTAA for employment income earned for services rendered in Austria, relaxed the TRC requirement on the facts, and directed deletion of the tax imposed by the Assessing Officer in respect of the exempted salary and allowances (with consequential relief).

Exemption under section 54B - Additions in search proceedings based on incriminating material - Admission of additional ground in appeal affecting taxability

Exemption under section 54B - Additions in search proceedings based on incriminating material - Validity of disallowance of part of the claim of exemption under section 54B where payment towards purchase of new agricultural land was made before the date of transfer and the addition was not founded on any incriminating material seized during search. - HELD THAT: - The assessing officer disallowed Rs. 7,00,000 of the claim under section 54B upon noting that a payment of that amount towards the new agricultural land was made before the date of transfer of the original asset and on the view that section 54B does not permit investment prior to transfer. The material on record, however, demonstrates that the disallowance was made on the basis of the assessee's own submissions and documents produced during assessment proceedings and was not founded on any incriminating material discovered during the search under section 132. Relying on the principle in the jurisdictional High Court decision cited by the assessee, additions in search-related proceedings which are not based on incriminating material found in the search cannot be sustained. Having found that the impugned addition was not based on any incriminating material from the search, the Tribunal held the addition to be bad in law and quashed it; accordingly, there was no need to decide the merits of the section 54B contention on the factual question of timing of payment. [Paras 8]

The disallowance of Rs. 7,00,000 under section 54B is quashed as it was not based on any incriminating material seized during the search; appeal allowed to that extent.

Admission of additional ground in appeal affecting taxability - Admissibility of the additional ground challenging the disallowance raised before the Tribunal for the first time. - HELD THAT: - The Tribunal admitted the additional ground relying on the principle that where a plea affects the taxability of the assessee, it may be permitted to be raised for the first time before the second appellate authority. The additional ground was therefore taken up for adjudication and formed part of the Tribunal's consideration, leading to the conclusion recorded above. [Paras 4]

The additional ground was admitted and considered; it contributed to the Tribunal's allowance of the appeal to the extent indicated.

Final Conclusion: The appeal is allowed: the assessing officer's disallowance of Rs. 7,00,000 from the section 54B claim is quashed because the addition was not based on any incriminating material found during the search; the Tribunal admitted and considered the additional ground raising that contention and found in the assessee's favour.

Revenue expenditure vs. capitalisation of selling expenses - Application of Accounting Standard AS-7 to contract accounting - Allocation of selling costs to contract costs - Matching principle - Tax neutrality of premature revenue claim

Revenue expenditure vs. capitalisation of selling expenses - Application of Accounting Standard AS-7 to contract accounting - Allocation of selling costs to contract costs - Matching principle - Tax neutrality of premature revenue claim - Whether selling and promotion expenses incurred by the assessee in respect of an ongoing real estate development project are allowable as revenue expenditure in the year incurred or must be capitalised as part of contract costs in progress. - HELD THAT: - The Tribunal held that the determinative question is whether the selling expenses are allocable to the specific development contract and therefore required to be included in contract costs, or whether they fall to be excluded and allowed as revenue expenditure. The Tribunal noted that Accounting Standard-7 expressly excludes selling and certain period costs from contract costs and permits inclusion only of costs attributable to a contract or incurred in securing a contract where identifiable and probable. Applying AS-7, the Tribunal found the assessee's treatment - excluding selling costs from contract costs and claiming them as revenue expenditure - to be consistent with the accounting standard. The Tribunal also accepted the assessee's submission that revenue recognition under the percentage completion method was not met for the year in question and that substantial revenue was recognized in a later year once AS-7 parameters were satisfied. Further, the Tribunal relied on the principle of tax neutrality (including judicial precedent relied upon by the assessee) to observe that allowing the expenditure in the earlier year does not improperly benefit the assessee because the loss would be set off when profits arise. The Tribunal found the matching/conceptual objection of the revenue insufficient to displace the accounting treatment mandated by AS-7 and earlier decisions of coordinate Benches and High Court authority, and accordingly allowed the claim of the assessee. [Paras 11, 12, 13, 14, 15]

Selling and promotion expenses in the facts of this case are allowable as revenue expenditure and need not be capitalised as part of contract costs in progress; the assessee's ground is allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal set aside the disallowance of selling expenses and held them to be revenue in nature in view of AS-7, tax neutrality, and relevant precedents, for assessment year 2012-13.

Bogus purchases - reopening of assessment under section 147/148 of the Act - quantification of addition by reference to differential gross profit rate - acceptance of sales and reconciliation of purchases, sales and stock

Bogus purchases - quantification of addition by reference to differential gross profit rate - acceptance of sales and reconciliation of purchases, sales and stock - Whether additions made on account of alleged bogus purchases should be sustained, and if not, the correct manner of quantifying any addition. - HELD THAT: - The Tribunal followed the line of decisions of the Bombay High Court and coordinate benches that where purchases are alleged to be bogus but the assessee's sales are accepted by the Revenue and the assessee furnishes quantitative details of purchases, corresponding sales and stock and supporting documents, the addition should not be made by treating the entire purchase amount as income. Instead, any addition is to be quantified by reference to the differential gross profit rate between the purchases in question and genuine purchases. Applying that principle to the facts, the Tribunal observed that the gross profit declared by the assessee in respect of the alleged bogus purchases exceeded the gross profit declared on the normal purchases. Therefore there was no room to make an addition by applying a higher profit estimation; the logic for restricting addition to the differential GP did not support any addition in favour of Revenue. The Tribunal accordingly allowed the appeals of the assessee and directed deletion of the additions in all years on merits. [Paras 13, 15, 16]

Addition deleted and appeals of the assessee allowed; revenue appeals dismissed.

Final Conclusion: Applying the established principle that where sales are accepted and quantitative reconciliations of purchases, sales and stock are on record any addition for alleged bogus purchases is to be quantified by reference to differential gross profit rates, the Tribunal found that the gross profit on the alleged purchases was not lower than normal purchases and therefore deleted the additions for A.Y.2008-09, 2010-11 and 2011-12, dismissing the revenue appeals and allowing the assessee's appeals.

Deeming fiction in section 45(3) vis-a -vis deeming fiction in section 50C - full value of consideration for transfer to a firm by way of capital contribution - effect of deemed value on block of assets and depreciation - disallowance under section 14A read with Rule 8D limited to exempt income

Deeming fiction in section 45(3) vis-a -vis deeming fiction in section 50C - full value of consideration for transfer to a firm by way of capital contribution - Whether the deeming provision of section 50C can be invoked to determine full value of consideration where a partner transfers a capital asset to a firm as capital contribution and section 45(3) provides a deeming mechanism. - HELD THAT: - The Tribunal applied the principle that one statutory deeming fiction cannot be extended or displaced by importing another deeming fiction. Section 45(3) specifically deals with transfers by a partner to a firm and prescribes that, for the purpose of section 48, the amount recorded in the books of the firm shall be deemed to be the full value of consideration. The Tribunal followed its earlier decision in the assessee's own case for A.Y. 2012-13 and the Supreme Court ratio in Moon Mills Ltd. to hold that the deeming provision in section 50C (stamp valuation) cannot be invoked to override the specific deeming mechanism provided by section 45(3). In consequence, the value recorded in the firm's books was to be taken as the full value of consideration and the addition made by the Assessing Officer under section 50C was deleted. [Paras 11]

Addition made by the A.O. invoking section 50C in respect of transfer by way of capital contribution is deleted and the amount recorded in the firm's books is to be treated as full value of consideration.

Effect of deemed value on block of assets and depreciation - full value of consideration for transfer to a firm by way of capital contribution - Whether the Assessing Officer could reduce the block of assets and restrict depreciation by applying the deemed value under section 50C when the transfer falls under section 45(3). - HELD THAT: - The Tribunal held that, having decided that section 45(3)'s deeming provision governs the computation of capital gain on transfer to a firm by way of capital contribution, the consequential adjustment to the block of assets and depreciation based on a stamp valuation under section 50C does not arise. The Commissioner (Appeals) had allowed depreciation as claimed by the assessee because the reduction in the block based on the firm's books remained valid; the Tribunal found no infirmity in that conclusion and sustained the CIT(A)'s order. [Paras 15]

Depreciation claimed on the block of assets is sustained as determined by the assessee, and the restriction based on section 50C valuation is rejected.

Disallowance under section 14A read with Rule 8D limited to exempt income - Whether the disallowance computed under section 14A read with Rule 8D could be restricted to the amount of exempt income actually earned by the assessee. - HELD THAT: - The Tribunal followed the line of judicial decisions relied upon by the CIT(A) (including High Court and Special Bench precedents and the Tribunal's own earlier decision in the assessee's case for A.Y. 2012-13) holding that disallowance under section 14A should be limited to the extent of exempt income earned. The Revenue's reliance on the CBDT circular was not held to justify expanding the disallowance beyond the exempt income actually earned. Respectfully following the precedent, the Tribunal upheld the CIT(A)'s restriction of the section 14A disallowance to the exempt income amount. [Paras 19]

Disallowance under section 14A read with Rule 8D is restricted to the extent of exempt income and the CIT(A)'s order is upheld.

Final Conclusion: All grounds raised by the Revenue for A.Y. 2010-11 and A.Y. 2014-15 were dismissed: additions under section 50C were deleted where transfers fell within section 45(3), depreciation adjustments based on section 50C valuation were rejected, and the section 14A disallowance was limited to exempt income as held by the CIT(A).

Application of Section 50C deeming fiction - Availment of exemption under Section 54F(1)(b) - Computation of capital gains versus computation of exemption - Requirement of reasoned enhancement by appellate authority

Application of Section 50C deeming fiction - Availment of exemption under Section 54F(1)(b) - Computation of capital gains versus computation of exemption - Whether the deeming fiction in Section 50C can be applied for computing the exemption under Section 54F(1)(b). - HELD THAT: - The Tribunal held that the deeming fiction created by Section 50C for valuation of full value of consideration is confined to computation of capital gains (section 48) and cannot be extended to determine eligibility for exemption under Section 54F(1)(b). Section 54F is an exemption provision and is a self-contained code for computing the exemption where the amount of exemption is determined by reference to actual net consideration and the cost of the new asset. Applying the fictitious consideration under Section 50C to displace the actual consideration for the purpose of computing exemption under Section 54F is impermissible. The Tribunal accepted the assessee's computation of exemption under Section 54F based on the actual sale consideration received and rejected the approach of the Assessing Officer and the CIT(A) who had applied Section 50C for the exemption calculation.

Deeming fiction in Section 50C does not apply for computing exemption under Section 54F(1)(b); exemption to be computed on actual consideration as claimed by the assessee.

Requirement of reasoned enhancement by appellate authority - Whether the CIT(A) was justified in enhancing the long term capital gain without giving reasons and by ignoring the effect of Section 54F. - HELD THAT: - The Tribunal found that the CIT(A) enhanced the long term capital gain without furnishing reasons why the assessee could not adopt the actual sale consideration for computing the Section 54F exemption. The CIT(A) treated the assessed capital gain as subject to enhancement by applying Section 50C to the exemption computation but failed to justify this departure from the exemption provision's statutory scheme. Having regard to the identical view taken earlier by the Tribunal in the assessee's wife's case on the same issue, the Tribunal concluded that both the Assessing Officer and the CIT(A) failed to justify the addition and enhancement made in respect of long term capital gain.

Enhancement by the CIT(A) is unjustified for lack of reasoned application of law and for ignoring the applicability of Section 54F; the addition is set aside.

Final Conclusion: Appeal allowed; the enhancement of long term capital gain by the CIT(A) set aside and exemption under Section 54F(1)(b) to be given effect to in accordance with the assessee's computation based on actual sale consideration.

Bogus purchases - disallowance of profit element - estimation of income component from tainted transactions - re-opening of assessment under section 147 - notice under section 148 - burden to substantiate genuineness of purchases - reliance on investigation/list of hawala dealers

Bogus purchases - disallowance of profit element - estimation of income component from tainted transactions - burden to substantiate genuineness of purchases - Validity of disallowing 12.5% of disputed purchases as the income/profit element on account of alleged bogus purchases - HELD THAT: - The Assessing Officer reopened assessment on information that the suppliers were hawala dealers and, on being unable to verify delivery or produce parties, concluded that the assessee had inflated purchases through fictitious invoices. The Assessing Officer estimated the taxable profit element at 12.5% of the aggregate disputed purchases and made the addition. The Commissioner (Appeals) affirmed the estimation as rational in the context of wholesale trading in electronic items. Before the Tribunal the assessee did not appear or produce any material to substantiate actual deliveries or otherwise rebut the departmental information and corroborative facts (absence of transport documents, non-delivery of section 133(6) notices). The Tribunal recognised that taxation applies only to the real income component and not to gross receipts, and that where transactions cannot be verified the authorities are entitled to estimate the income element. Having regard to the nature of the business, the material placed on record and the failure of the assessee to substantiate purchases, the Tribunal held the Assessing Officer's estimate of 12.5% as a reasonable determination of the income/profit embedded in the tainted purchases and found no ground to interfere with the addition. [Paras 6, 7, 8]

Addition of 12.5% of the disputed purchases upheld; appeal dismissed.

Final Conclusion: The Tribunal dismissed the appeals for AY 2010-11 and AY 2011-12, upholding the disallowance of 12.5% of the aggregate disputed purchases as a reasonable estimate of the profit/income component where the assessee failed to substantiate the genuineness or delivery of purchases and relied on parties identified in the departmental investigation.

Addition based on statement of a third party - reliability of seized documents as evidence - requirement of opportunity to cross examine witness whose statement is used against third party - nexus and contemporaneity of entries to the transaction in issue - onus on revenue to bring positive corroborative material - protection against assessment solely on suspicion and surmise - deletion of addition for lack of corroboration

Addition based on statement of a third party - reliability of seized documents as evidence - requirement of opportunity to cross examine witness whose statement is used against third party - nexus and contemporaneity of entries to the transaction in issue - onus on revenue to bring positive corroborative material - Whether the addition of undisclosed long term capital gain in assessee's hands, made on the basis of seized loose papers and statements of a third party, is sustainable. - HELD THAT: - The Tribunal found that the seized loose papers (Exhibit A 1) bearing entries under the heading 'RPS' were not contemporaneous with the sale deeds dated 24.08.2006 but recorded between December 2007 and September 2009, creating a substantial temporal gap which undermines any prima facie nexus with the sale. The statement of the purchaser's director recorded during search initially attributed the entries to the purchase of the land, but when examined during assessment proceedings he denied any cash payment and stated the seized entries related to a third person. Where a statement made by a person during search is to be used against a third party, the third party must be afforded an opportunity to cross examine the declarant; here the AO did examine the declarant during assessment and obtained a denial of cash payments. The Tribunal emphasised that a mere statement by a third party, particularly one susceptible to being self serving, cannot alone sustain an addition in the absence of corroborative material showing contemporaneous payments or any positive evidence that the assessees received cash beyond the registered sale consideration. Further, the Tribunal accepted the assessees' evidence of receipt of the registered cheque consideration and noted corroboration from a subsequent sale of adjoining land and stamp duty valuation which supported the sale consideration declared in the registered deeds. The Department also made no corresponding substantive addition in the hands of the declarant. On these combined facts-lack of contemporaneity, retraction/denial on examination, absence of corroborative documentary evidence and failure of the revenue to produce positive material-the addition was held to be based on suspicion and not sustainable.

Addition deleted for lack of reliable and corroborative evidence; assessment based solely on seized papers and third party statement set aside.

Final Conclusion: Appeals allowed; additions of undisclosed long term capital gain sustained by lower authorities were deleted for want of corroborative evidence, absence of contemporaneous nexus of seized entries with the sale, and because the third party statement alone could not sustain assessment without opportunity for proper confrontation and positive material by the revenue.

Penalty under section 271(1)(c) - concealment of particulars of income - furnishing inaccurate particulars of income - Explanation 1 to section 271(1)(c) - Section 271AAA penalty on search - onus of proof in penalty proceedings - mens rea not required after Dharmendra Textile Processors

Penalty under section 271(1)(c) - concealment of particulars of income - furnishing inaccurate particulars of income - Explanation 1 to section 271(1)(c) - onus of proof in penalty proceedings - Validity of imposition and confirmation of penalty under section 271(1)(c) for the impugned additions/disallowances in A.Y. 2010-11 (bogus purchases, incorrect claim under section 80IB, cash salary payment, and undisclosed income). - HELD THAT: - The Tribunal held that the CIT(A) had considered the assessee's submissions, the assessment and penalty orders and relevant judicial precedents in detail and rightly sustained penalty under section 271(1)(c). The order explains the distinction between concealment and furnishing inaccurate particulars, the operation of Explanation 1 (which raises a presumption where explanations are not offered or not substantiated), and the allocation of burden in penalty proceedings. The CIT(A)'s conclusion that the assessee failed to provide acceptable explanations on the disputed additions/disallowances and that the amounts constituted concealed or unexplained income was not rebutted by evidence before the authorities. On this basis the Tribunal found no reason to interfere with the sustaining of penalty for A.Y. 2010-11. [Paras 6, 8]

Sustained the penalty under section 271(1)(c) for the impugned additions/disallowances in A.Y. 2010-11; assessee's grounds dismissed.

Penalty under section 271(1)(c) - mens rea not required after Dharmendra Textile Processors - Whether imposition of penalty at the maximum rate (300% of tax sought to be evaded) was justified. - HELD THAT: - The CIT(A) observed that section 271(1)(c) permits a penalty from 100% to 300% of the tax sought to be evaded and that imposition at the higher end is a discretionary power of the assessing authority. Given that the case arose from a search and the assessee was found to have concealed income or furnished incorrect particulars notwithstanding disclosures, the assessing officer's imposition of penalty at 300% was held to be justified by the authorities below and the Tribunal. The Tribunal accepted the CIT(A)'s reasoning and declined to interfere. [Paras 5, 6]

Imposition of penalty at 300% upheld.

Section 271AAA penalty on search - Penalty under section 271(1)(c) - Whether penalty should have been imposed under section 271AAA (search-specific provision) instead of section 271(1)(c) for the amounts arising from search disclosures. - HELD THAT: - The Tribunal reproduced section 271AAA and noted that its benefit applies only where the three conditions in sub section (2) are met: the assessee admits the undisclosed income in the search statement, substantiates the manner of derivation, and pays tax with interest prior to filing the return. The CIT(A) found these conditions were not satisfied-the assessee did not specify or substantiate the manner of derivation nor pay tax and interest as required-therefore section 271AAA did not apply and penalty under section 271(1)(c) was appropriately imposed. The Tribunal agreed with this conclusion. [Paras 5, 6]

Section 271AAA not applicable; penalty under section 271(1)(c) properly sustained.

Onus of proof in penalty proceedings - Requirement for further verification by the Assessing Officer regarding the unoffered sum of Rs. 5,69,00,000 (as noted in the assessment) and direction to take remedial measures if not taxed. - HELD THAT: - The CIT(A) noted an ambiguity in the assessment record about whether Rs. 5,69,00,000 (referenced in the assessment as not offered in returns) had been brought to tax in the hands of the company or related parties. The CIT(A) directed the AO to verify the position and submit a compliance report within 30 days, and, if not taxed, to take remedial measures and not be precluded by limitation where applicable. This is a direction for factual verification and remedial action rather than a substantive adjudication on penalty liability. [Paras 5]

Matter remitted to the Assessing Officer for verification and compliance report; remedial measures to be taken if the amount remains untaxed.

Penalty under section 271(1)(c) - Applicability of the same conclusions on penalty to A.Ys. 2008-09 and 2009-10 given identical facts. - HELD THAT: - The Tribunal noted that the additions/disallowances and the factual matrix for A.Ys. 2008-09 and 2009-10 were similar to A.Y. 2010-11 and that the CIT(A) had already upheld penalties for those years. On that basis, and because the assessee did not challenge those findings with evidence before the Tribunal, the Tribunal sustained the CIT(A)'s confirmation of penalty for A.Ys. 2008-09 and 2009-10. [Paras 7, 8]

Penalties for A.Ys. 2008-09 and 2009-10 sustained; appeals dismissed.

Final Conclusion: The Tribunal dismissed the assessee's appeals for A.Ys. 2008-09, 2009-10 and 2010-11, upholding the CIT(A)'s confirmation of penalties under section 271(1)(c) (including imposition at 300%), held that section 271AAA did not apply on the facts, and remitted a factual verification regarding the Rs. 5,69,00,000 to the Assessing Officer for compliance.

Foreign marking as admissible evidence - burden of proof to establish smuggling/foreign origin - confiscation for prohibited import - redemption fine and penalty under Section 112 of Customs Act, 1962

Foreign marking as admissible evidence - burden of proof to establish smuggling/foreign origin - confiscation for prohibited import - Whether foreign marking alone establishes that the seized gold was of foreign origin and liable to absolute confiscation for prohibited import. - HELD THAT: - The Tribunal accepted the principle, drawn from precedents, that mere markings on goods do not constitute conclusive proof of foreign origin and amount to hearsay unless supported by independent evidence showing that the markings were made by a particular foreign maker in the ordinary course of business. Revenue failed to produce evidence obtained during investigation to establish that the impugned gold was imported into India in contravention of the prohibition relied upon. In the absence of such evidentiary foundation, the requirement for absolute confiscation was not met and the Commissioner (Appeals) was correct in not ordering absolute confiscation. [Paras 5, 6]

Revenue's appeal for absolute confiscation on the basis of foreign marking is dismissed.

Redemption fine and penalty under Section 112 of Customs Act, 1962 - Whether the redemption fine and penalty imposed on the assessee should be modified. - HELD THAT: - Although the assessee could not produce documentary evidence to explain lawful possession of the seized gold, the Tribunal exercised its discretion to moderate the financial consequences. Having regard to the factual matrix and the absence of proof of prohibited import, the Tribunal reduced the redemption fine and imposed a penalty on the assessee under Section 112 of the Customs Act, 1962, modifying the impugned Order-In-Appeal accordingly. [Paras 6, 7]

Assessee's appeal is allowed in part by reducing the redemption fine and imposing a penalty; the impugned order is modified accordingly.

Final Conclusion: Revenue's appeal seeking absolute confiscation on the basis of foreign marking is dismissed for lack of evidentiary proof of prohibited import; the assessee's appeal is allowed in part by modification of the impugned order reducing the redemption fine and imposing a penalty under Section 112 of the Customs Act, 1962; miscellaneous application disposed of.

Operational debt and default - Admission of application under section 9 of the Insolvency and Bankruptcy Code, 2016 - No pre-existing dispute and limitation - Moratorium and duties of Adjudicating Authority - Appointment of Interim Resolution Professional and public announcement - Stay on striking off during corporate insolvency resolution process

Operational debt and default - Operational debt existed and the corporate debtor committed default in payment of the operational debt claimed by the applicant. - HELD THAT: - The Tribunal examined the documents filed by the operational creditor and held that the invoices and ancillary records supported the existence of an operational debt. The Authority was satisfied on the material on record that the corporate debtor had failed to pay the claimed operational dues, constituting a default. The findings record that the documents "clearly establish the 'debt'" and default is proved by the non-payment despite demand. [Paras 11, 13]

Operational debt established and default held to have occurred.

No pre-existing dispute and limitation - There was no pre-existing dispute raised by the corporate debtor and the petition was filed within limitation. - HELD THAT: - The Tribunal noted that the corporate debtor did not raise any dispute either prior to or after issuance of the notice under section 8 of the Code. The record shows absence of any suit, arbitration or other proceeding in relation to the claimed debt before receipt of the demand notice. The Authority also found the petition to be within the period of limitation relied upon by the applicant, and that the claim was not barred by any law for the time being in force. [Paras 9, 12, 15]

No pre-existing dispute and petition within limitation; defences based on dispute and limitation are not available to the corporate debtor.

Admission of application under section 9 of the Insolvency and Bankruptcy Code, 2016 - The application under section 9 was complete and met statutory requirements, and therefore was admitted to initiate the corporate insolvency resolution process. - HELD THAT: - On scrutiny the Authority found the application to be complete in all respects and, applying the test reiterated in Mobilox Innovative (P.) Ltd. v. Kirusa Software (P.) Ltd., concluded that the applicant satisfied the statutory conditions: existence of operational debt, documentary proof of its being due and payable, and absence of any pre-existing dispute. Consequently the Tribunal exercised its discretion to admit the petition under section 9(5)(i) and to initiate CIRP. [Paras 10, 15, 17, 22]

Section 9 petition admitted and corporate insolvency resolution process initiated.

Moratorium and duties of Adjudicating Authority - Appointment of Interim Resolution Professional and public announcement - Moratorium was declared and the Interim Resolution Professional was directed to make the public announcement and call for claims as mandated. - HELD THAT: - Upon admission, the Tribunal directed that a moratorium operate from the date of receipt of authenticated copy of the order until completion of CIRP or further orders, restricting institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property. The Authority directed the appointed Interim Resolution Professional to make the public announcement immediately after appointment and to call for submission of claims as required under the Code, thereby giving effect to the statutory duties accompanying initiation of CIRP. [Paras 16, 18, 19, 20, 21]

Moratorium imposed; IRP directed to make public announcement and call for claims.

Stay on striking off during corporate insolvency resolution process - Registrar of Companies was to be informed and proceedings for striking off the corporate debtor's name were to be withheld during the CIRP. - HELD THAT: - The Tribunal directed communication of the order to the Registrar of Companies, noting that initiation of CIRP renders any proceedings for striking off the company detrimental to the process of liquidation or sale of assets. The Registry was specifically instructed to inform the ROC that no striking off action arising from alleged non-compliances be initiated while CIRP is in progress. [Paras 23, 24]

ROC to be informed and striking off proceedings to be withheld during CIRP.

Final Conclusion: The section 9 petition filed by the operational creditor was admitted: the Tribunal found existence of operational debt and default, no pre-existing dispute and that the petition was within limitation; it appointed an Interim Resolution Professional, directed immediate public announcement and calling for claims, declared a moratorium as provided under the Code, and directed communication to the Registrar of Companies to withhold striking off proceedings during the CIRP.

Corporate Insolvency Resolution Process - admission of application under section 7 - moratorium under section 14 - effect of moratorium on SARFAESI proceedings and other recovery actions - appointment of Interim Resolution Professional and convening of Committee of Creditors - crystallisation of debt by recovery certificate

Admission of application under section 7 - crystallisation of debt by recovery certificate - The petition filed by the Financial Creditor under section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted and CIRP initiated against the corporate debtor. - HELD THAT: - The Tribunal found that the Financial Creditor had placed on record documents including account statements, AUCA statements, CIBIL report and provisional/audited balance sheets, and that the Debt Recovery Tribunal had issued a recovery certificate in favour of the Financial Creditor after the account had been NPA. The corporate debtor, through its counsel, did not oppose the petition and candidly admitted the averments. In view of the crystallisation of the claim by the DRT recovery certificate and the admission by the corporate debtor's counsel, the Tribunal held that the Financial Creditor had proved the default and admitted the section 7 application, thereby initiating the Corporate Insolvency Resolution Process. [Paras 14, 15]

Admission under section 7 and initiation of CIRP against the corporate debtor.

Moratorium under section 14 - effect of moratorium on SARFAESI proceedings and other recovery actions - Moratorium under section 14 was declared from the date of admission until completion of the CIRP, with the statutory prohibitions specified. - HELD THAT: - Upon admission of the section 7 petition, the Tribunal declared the moratorium prescribed by section 14 of the Code. The order specifies the prohibitions during moratorium: institution or continuation of suits or proceedings against the corporate debtor (including execution of judgments), transfer or disposal of assets by the corporate debtor, actions to foreclose or enforce security interests (including proceedings under the SARFAESI Act), and recovery of property by owners or lessors in possession. The order further states that supply of essential goods or services shall not be terminated during the moratorium and records that the moratorium continues until approval of a resolution plan or an order for liquidation, as applicable.

Moratorium under section 14 declared with the statutory prohibitions and saving for essential supplies and statutorily notified transactions.

Appointment of Interim Resolution Professional and convening of Committee of Creditors - Corporate Insolvency Resolution Process - An Interim Resolution Professional was appointed and directed to cause public announcement, call for claims and convene the Committee of Creditors to identify a prospective resolution applicant within the prescribed timeline. - HELD THAT: - The Tribunal appointed the proposed insolvency professional as Interim Resolution Professional and directed him to make the public announcement of the initiation of CIRP and invite submission of claims. The IRP was directed to ascertain particulars of creditors, convene a meeting of the Committee of Creditors and identify prospective resolution applicants, with the Committee to pass resolutions and the IRP to complete these steps within the Code timelines specified in the order (identification of prospective resolution applicant within 105 days from the insolvency commencement date). The Registry was directed to communicate the order to the parties and IRP.

Interim Resolution Professional appointed and authorised to carry out CIRP steps including public announcement, claims solicitation and convening the CoC within the prescribed timeframe.

Communication of order and progress listing - The Registry was directed to communicate the order to the parties and the matter was listed for filing of the progress report. - HELD THAT: - The Tribunal directed compliance steps: Registrar to communicate the order to the Financial Creditor, the Corporate Debtor and the Interim Resolution Professional by speed post and email, and listed the matter for a progress report on the specified date.

Directions issued for communication of the order to concerned parties and listing for progress report.

Final Conclusion: The Tribunal admitted the section 7 petition filed by the Financial Creditor and initiated the Corporate Insolvency Resolution Process against the corporate debtor, declared the moratorium under section 14 with specified prohibitions, appointed an Interim Resolution Professional to carry out CIRP steps (including public announcement, claims solicitation and convening the Committee of Creditors), directed communication of the order and listed the matter for a progress report.

Transfer of proceedings for consistent adjudication - show cause notice for service tax on discounts and incentives - forum allocation between Deputy Commissioner and Principal Commissioner - consistency in orders in parallel adjudications

Transfer of proceedings for consistent adjudication - forum allocation between Deputy Commissioner and Principal Commissioner - consistency in orders in parallel adjudications - Proceedings pursuant to SCN No.02/2019-ST, dated 7th October, 2019, were to be continued before the Principal Commissioner, CGST, Chandigarh, rather than adjudicated by the Deputy Commissioner. - HELD THAT: - The Court accepted the Petitioner's contention that the subject matter of the SCN against the Petitioner (charging of service tax on discounts and incentives received from the car manufacturer) was the same as that in a parallel case pending adjudication before the Principal Commissioner. The Deputy Commissioner had rejected the Petitioner's request for transfer solely on the basis that the other pending case concerned a different taxpayer and relied on an administrative circular. The Court held that where identical subject matter is involved in two SCNs, it is in the interest of uniformity and administrative convenience that the matters be adjudicated by the same adjudicating authority so that consistent orders are passed. On that short ground the Court directed transfer of further proceedings to the Principal Commissioner, and provided for the Petitioner's authorised representative to appear before the Principal Commissioner on a date to be communicated with at least seven days' notice. [Paras 7, 8, 9, 10, 12]

Further proceedings on the impugned SCN dated 7th October, 2019 shall be continued before the Principal Commissioner, Central Goods and Service Tax, Chandigarh, and the authorised representative of the Petitioner shall be informed of the hearing date at least seven days in advance.

Final Conclusion: Petition disposed by directing transfer of the proceedings arising from the SCN to the Principal Commissioner, CGST, Chandigarh, to enable consistent adjudication with the parallel matter; no quashing of the SCN was ordered.

Penalty under section 78 - penalty under section 77 - reasonable cause - contumacious conduct - enhancement of penalty by corrigendum - functus officio - works contract services and mobilization advance

Penalty under section 78 - penalty under section 77 - reasonable cause - contumacious conduct - works contract services and mobilization advance - Whether penalty under section 78 (and section 77) is exigible where the assessee had filed returns, maintained books, received mobilization advances through banking channels, deposited tax and interest before issuance of SCN, and claimed exemption under WCS leading to alleged inadvertent non-payment. - HELD THAT: - The Tribunal found on the admitted facts that the assessee was registered, regularly filing ST-3 returns and maintaining proper books of account; the receipts contested were routed through banking channels and recorded in the books. The assessee, on being pointed out, deposited the adjudicated tax and interest prior to issuance of the SCN. Given the highly litigated nature of Works Contract Services and the assessee's disclosure of turnover with a claimed exemption, the Tribunal concluded that the omission to pay tax on mobilization advances was inadvertent and not contumacious. On these findings the element of deliberate defiance of law necessary to sustain penalty under section 78 was absent. Applying this reasoning, the Tribunal set aside the penalties under section 78 and section 77.

Penalty under section 78 and section 77 set aside for lack of contumacious conduct and on account of reasonable cause.

Enhancement of penalty by corrigendum - functus officio - Whether the corrigendum enhancing penalty after passing of the Order-in-Original was valid and within the adjudicating authority's jurisdiction. - HELD THAT: - The Tribunal held that after passing the Order-in-Original the adjudicating authority had become functus officio and therefore the subsequent corrigendum purporting to enhance the penalty was issued beyond jurisdiction. Consequently, the corrigendum was declared non est in law and the enhancement of penalty set aside.

Corrigendum enhancing the penalty was beyond jurisdiction and is a nullity.

Final Conclusion: The appeal by the assessee is allowed and the penalties under section 78 and section 77 are set aside; the revenue's appeal for enhancement is dismissed and the corrigendum enhancing the penalty is held to be without jurisdiction.

Refund of Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 - proportionate refund formula based on export turnover to total turnover - nexus between input/input services and exported services - requirement of issuance of notice under Rule 14 of Cenvat Credit Rules, 2004 for denial of Cenvat credit

Refund of Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 - proportionate refund formula based on export turnover to total turnover - nexus between input/input services and exported services - requirement of issuance of notice under Rule 14 of Cenvat Credit Rules, 2004 for denial of Cenvat credit - Whether refund of Cenvat credit under Rule 5 can be denied by alleging lack of nexus between input services and exported services without initiating proceedings under Rule 14 - HELD THAT: - The Tribunal applied the formula in Rule 5 read with Notification No.5/2006 to compute refund on a proportionate basis and observed that the statutory scheme permits refund calculated by the ratio of export turnover to total turnover multiplied by total Cenvat credit utilized. The Court held that denial of Cenvat credit is a separate process which, if contemplated, must be effected by issuance of notice under Rule 14; having allowed the Cenvat credit (or not having denied it), the department cannot reject the refund claim by invoking absence of nexus between particular input services and exported services. There is no requirement of establishing a one-to-one correlation between individual input services and exported services for the purpose of refund under Rule 5, and rejection of the refund on that ground was therefore unsustainable. [Paras 3, 7, 8]

The impugned rejection of refund for lack of nexus is set aside; refund must be determined in accordance with the Rule 5 formula and denial of credit, if any, can only be through notice under Rule 14.

Final Conclusion: Appeal allowed; the order denying part of the refund on nexus grounds is set aside and the refund is to be granted as per the Rule 5 proportionate formula, subject to the department's right to proceed under Rule 14 if it seeks to deny Cenvat credit.

Taxability of laying of optical fibre cables - Applicability of CBEC clarification on laying of cables alongside roads - Parity between laying electrical cables and laying optical fibre cables - Estoppel arising from departmental circular - Setting aside demand confirmed under proviso to sub section (1) of Section 73 of the Finance Act, 1994

Taxability of laying of optical fibre cables - Applicability of CBEC clarification on laying of cables alongside roads - Parity between laying electrical cables and laying optical fibre cables - Laying of optical fibre cables alongside or under roads is not a taxable service and the CBEC circular dated 24.05.2010 applies to the activity. - HELD THAT: - The Department sought to classify the appellant's work of laying and jointing optical fibre cables as "Erection, Commissioning & Installation" service and levied service tax, interest and penalties. The Board's circular dated 24.05.2010 expressly held that laying of cables under or alongside roads is not a taxable service. The Revenue's sole contention that the circular applies only to electrical cables and not to optical fibre cables was considered. Reliance was placed on the decision of the Tribunal, Mumbai in H.M. Satyanarayan Engineers & Contractors, which examined the matter and held that the activity of laying optical fibre cable is no different from laying electrical cable and that the Board circular therefore applies equally. Having regard to that precedent and the Board clarification, the Tribunal found the issue no longer res integra and concluded that service tax could not be charged on the appellant's activity. Consequently the impugned demand, interest and penalties premised on classification as an Erection, Commissioning & Installation service were held unsustainable and set aside.

Impugned order confirming demand, interest and penalties set aside; appeal allowed.

Final Conclusion: The Tribunal held that laying of optical fibre cables alongside or under roads is not taxable in view of the CBEC circular dated 24.05.2010 and precedent of the Tribunal, Mumbai; the demand, interest and penalties confirmed by the Commissioner were set aside and the appeal allowed.

Liability under reverse charge mechanism - service tax on goods transport agency services - service tax on overseas commission/agent services - CENVAT credit entitlement - penalty under Section 77 & 78 - discretion under Section 80 - extended period of limitation

Liability under reverse charge mechanism - service tax on goods transport agency services - service tax on overseas commission/agent services - Appellant's liability to pay service tax (under reverse charge) on GTA services and on services of a foreign commission agent for the period in dispute. - HELD THAT: - The Tribunal found the statutory position to be clear that the appellant, as service recipient, was liable to discharge service tax on both the transport services and the services of the overseas agent under the reverse charge mechanism. Having considered the contentions that the appellant acted under a bona fide belief and that CENVAT credit would have been available had tax been discharged earlier, the Tribunal nevertheless upheld the demand on merits and directed payment of service tax along with interest for the period covered by the show-cause notice.

Demand of service tax on GTA services and on services of the foreign commission agent sustained; appellant liable to pay service tax with interest.

Penalty under Section 77 & 78 - discretion under Section 80 - CENVAT credit entitlement - Validity of penalties imposed under Sections 77 and 78 and entitlement to CENVAT credit of service tax paid. - HELD THAT: - Although the Tribunal upheld the substantive tax liability, it found that the appellant acted under a bona fide belief that service tax, if paid, would be available as CENVAT credit. In exercise of the discretionary power under Section 80, the Tribunal set aside the penalties imposed under Sections 77 and 78. The Tribunal also permitted the appellant to take CENVAT credit of the service tax paid.

Penalties under Sections 77 and 78 set aside under Section 80; appellant permitted to avail CENVAT credit of the service tax paid.

Final Conclusion: Appeal disposed: substantive service tax demand (for 01.01.2005 to 30.09.2008) upheld with interest; penalties under Sections 77 and 78 quashed in exercise of Section 80 and appellant allowed to take CENVAT credit of the service tax paid.

Deemed sale - supply of tangible goods service - manpower recruitment or supply service - reverse charge mechanism - employer-employee relationship - cenvat credit - interest on reversal of cenvat credit

Deemed sale - supply of tangible goods service - effective control and possession - Demand of service tax under the category of 'Supply of Tangible Goods Service' on hire of dredgers and other equipment from overseas entities - HELD THAT: - The Tribunal held that the question is covered by its earlier decision in International Seaport Dredging Ltd. The agreements in the present case were compared with those in International Seaport Dredging and, having regard to clauses concerning availability, control, maintenance and use, the Tribunal found that effective control and possession of the vessels/equipment were with the appellant during the charter period. On this basis the transaction falls within the concept of deemed sale and is therefore outside the levy of service tax as supply of tangible goods service. Reliance on the contractual allocation of insurance and indemnity did not alter the finding of effective control. [Paras 7]

Demand of service tax under 'Supply of Tangible Goods Service' set aside and appeal allowed on this issue.

Manpower recruitment or supply service - reverse charge mechanism - employer-employee relationship - Demand under reverse charge for 'Manpower Recruitment or Supply Agency Service' in respect of personnel seconded by overseas entity - HELD THAT: - The Tribunal accepted that the appellants treated the seconded personnel as their own employees: Form-16s in the appellants' name were issued, salaries were paid by the appellants and TDS was deducted and remitted. Applying the reasoning in TPSC India Pvt. Ltd., remuneration routed via the overseas principal employer for credit to employees' accounts does not automatically constitute receipt of manpower supply service. Here the existence of employer-employee relationship led the Tribunal to conclude that the transaction does not attract service tax under the reverse charge mechanism for manpower supply. [Paras 10]

Demand under reverse charge for manpower supply set aside and appeal allowed on this issue.

Cenvat credit - inputs - disallowance of credit - Validity of disallowance of cenvat credit claimed on fuel (and related penalty) - HELD THAT: - The appellant failed to establish that the goods used were other than motor spirit or high speed diesel oil or otherwise eligible as 'inputs' under the Cenvat Credit Rules. The adjudicating authority's finding that the credit in respect of these fuels was not admissible was upheld. The Tribunal therefore did not interfere with the disallowance of the cenvat credit and the penalty imposed in relation thereto. [Paras 14]

Disallowance of cenvat credit on fuels and penalty sustained; appeal dismissed on this aspect.

Interest on reversal of cenvat credit - voluntary reversal - Liability to pay interest on voluntary reversal of cenvat credit after export of goods - HELD THAT: - The Tribunal noted that once inputs are issued for use there is ordinarily no requirement to reverse cenvat credit, but in the present case the appellants voluntarily reversed credit when goods were exported. Given that the reversal was voluntary and in view of the applicable rule change timeline relied upon by the appellant, the Tribunal held that interest on such voluntary reversal is not payable and set aside the demand for interest. [Paras 18]

Demand of interest on reversal of cenvat credit set aside and appeal allowed on this issue.

Final Conclusion: The appeal is allowed in part: demands for service tax under 'Supply of Tangible Goods Service' and for 'Manpower Recruitment or Supply Agency Service' (reverse charge) are set aside; demand for interest on voluntary reversal of cenvat credit is set aside. The disallowance of cenvat credit in respect of fuels and the penalty related thereto are upheld; the small cenvat credit amount not contested by the appellant remains payable.

Refund of unutilised CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004 - inclusion of sales to 100% EOUs in export turnover for refund computation - carry forward of CENVAT credit as input tax credit under Section 142 of the CGST Act, 2017 - competence of adjudicating authorities to decide recovery/show-cause under CCR 2004 and the CGST Act, 2017

Refund of unutilised CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004 - inclusion of sales to 100% EOUs in export turnover for refund computation - Validity of the Commissioner (Appeals) decision to exclude sales to 100% EOUs while computing refund under Rule 5 CCR 2004 and to allow Revenue's appeal reducing the sanctioned refund. - HELD THAT: - The Appellate Tribunal found that the Commissioner (Appeals) correctly applied the law as it stood during the relevant period and held that sales to 100% EOUs were not to be included while computing refund under Rule 5 of the CENVAT Credit Rules, 2004. The Tribunal observed that the first appellate authority followed the applicable statutory scheme and there was no inconsistency in its conclusion. As the reduction of the sanctioned refund resulted from that lawful interpretation, the appellate order was sustained.

The impugned order disallowing inclusion of sales to 100% EOUs in the Rule 5 refund computation is upheld and the Revenue's appeal as allowed by the Commissioner (Appeals) is sustained.

Carry forward of CENVAT credit as input tax credit under Section 142 of the CGST Act, 2017 - competence of adjudicating authorities to decide recovery/show-cause under CCR 2004 and the CGST Act, 2017 - Whether the appellant could restore debited CENVAT credit or claim cash for the excess refund after the transition to the CGST regime, and whether authorities are competent to adjudicate recovery/show-cause having regard to both CCR 2004 and CGST Act, 2017. - HELD THAT: - The Tribunal noted that w.e.f. 01.07.2017 the CENVAT Credit regime was replaced by the CGST Act, 2017 and that Section 142 provides for carrying forward any balance of CENVAT credit as input tax credit under CGST. Given this transition, the appellant could not simply take back CENVAT credit in its old form nor claim cash in lieu where the statutory scheme after transition does not permit such restoration. The Bench also recorded that a show-cause notice proposing recovery was issued but not adjudicated, and that both the Assistant Commissioner and the Commissioner (Appeals) are competent to decide matters arising under the earlier CENVAT regime as well as issues under the CGST Act in the context of such recovery. No prejudice had yet occurred because the recovery notice remained pending adjudication.

The appellant is not entitled to restore the debited CENVAT credit in lieu of the reduced refund as CENVAT was subsumed by CGST and balances are to be carried forward under Section 142; adjudication of any recovery is for the competent authorities and the pending show-cause remains to be decided.

Final Conclusion: The appeal is rejected and the impugned order of the Commissioner (Appeals), which excluded sales to 100% EOUs from the Rule 5 refund computation and reduced the sanctioned refund, is affirmed; the transition to the CGST regime precludes simple restoration of CENVAT balances and any recovery ramifications are to be adjudicated by the competent authorities.

Place of removal - eligibility for cenvat credit of service tax on Goods Transport Agency services - transaction value including freight forming part of excise duty computation - remand for verification of documents

Place of removal - transaction value including freight forming part of excise duty computation - eligibility for cenvat credit of service tax on Goods Transport Agency services - remand for verification of documents - Impugned confirmation of demand and interest set aside and matter remitted to adjudicating authority to determine place of removal and entitlement to cenvat credit of service tax on GTA services subject to verification of documents. - HELD THAT: - Appellants contend that freight to deliver finished, customer-specific oil seals to buyers' premises was included in the transaction price on which central excise duty was discharged and no separate freight was collected; accordingly, the buyers' premises is the place of removal and credit of service tax on GTA services up to buyers' premises would be admissible (relying on Roofit Industries Ltd.). The adjudicating authority had disallowed credit treating the factory gate as place of removal. The Tribunal found that the question requires examination of the documents produced by the appellant (sample invoices/purchase orders) to ascertain whether freight was included in the transaction value and whether excise duty was discharged on that combined value. In view of the documentary material and the legal contention, the appropriate course is to remit the matter to the adjudicating authority for fresh consideration, with an opportunity to the appellant to furnish documents; if it is established that freight formed part of the transaction value while discharging excise duty, the decision in Roofit Industries Ltd. would apply and the cenvat credit of service tax on GTA services incurred up to the buyer's premises would be allowable.

Impugned order set aside; appeals remanded to the adjudicating authority for fresh consideration after giving the appellant an opportunity to produce documents to determine place of removal and consequent eligibility for cenvat credit.

Final Conclusion: The appeals are allowed to the extent that the impugned order is set aside and the matter is remitted to the adjudicating authority for fresh consideration of place of removal and entitlement to cenvat credit of service tax on GTA services, after affording the appellant an opportunity to produce relevant documents.

Denial of Cenvat credit for delayed duty payment - Rule 8(3A) of Central Excise Rules, 2002 - demand under section 11A - penalty under section 11AC and Rule 25 of Central Excise Rules, 2002

Rule 8(3A) of Central Excise Rules, 2002 - denial of Cenvat credit for delayed duty payment - demand under section 11A - Whether Rule 8(3A) applied so as to deny utilization of Cenvat credit where duty shortfalls were detected on audit but declared duty had been paid by the assessee by the due date - HELD THAT: - The Tribunal held that Rule 8(3A) is directed to cases where the assessee has defaulted in payment of duty beyond thirty days from the due date. It does not apply merely because, on audit or scrutiny of returns, additional amounts are found to be payable over and above what was declared and paid by the assessee. Treating every demand raised under section 11A as attractable by Rule 8(3A) would permit denial of Cenvat credit for all clearances following any alleged short payment and produce commercially unworkable and inconsistent results as adjudications evolve. Consequently, the appellant's short-payment case, where declared duty had been paid and additional liability was discovered on audit, is a demand under section 11A and not covered by Rule 8(3A). The Tribunal also noted that Rule 8(3A) had been held ultra vires by the High Court of Gujarat in Indsur Global Ltd, a decision followed by other High Courts, reinforcing the view that the sub rule should not be applied to the facts of this case. [Paras 7, 8]

Demand raised by denying Cenvat credit under Rule 8(3A) is set aside as inapplicable to the appellant's case.

Penalty under section 11AC and Rule 25 of Central Excise Rules, 2002 - Rule 8(3A) of Central Excise Rules, 2002 - Whether penalties imposed under section 11AC and Rule 25 could be sustained to the extent founded on denial of Cenvat credit under Rule 8(3A) - HELD THAT: - Because the impugned demand founded on denial of Cenvat credit under Rule 8(3A) was held unsustainable, any penalty imposed consequentially on that ground could not stand. The Tribunal therefore found that penalties and consequences imposed insofar as they flow from application of Rule 8(3A) must be set aside. [Paras 8, 9]

Penalties under section 11AC and Rule 25 insofar as they rest on the Rule 8(3A) denial of Cenvat credit are set aside.

Final Conclusion: The appeal is allowed; the impugned order is set aside insofar as it imposes a demand under Rule 8(3A) of the Central Excise Rules, 2002 and insofar as it levies penalties under section 11AC and Rule 25 that arise from application of Rule 8(3A).

CENVAT credit reversal - common input credit - consumption coefficient - exempted goods exported under bond - application of Rule 6(3) and Rule 6(6) of the Cenvat Credit Rules

Common input credit - consumption coefficient - CENVAT credit reversal - Whether the appellant was liable to reverse CENVAT credit on the ground of not maintaining separate accounts for dutiable and exempted products because inputs were common. - HELD THAT: - The Tribunal found that the appellant, a pharmaceutical manufacturer, did not take CENVAT credit on invoices at the time of receipt but availed credit only on the proportionate quantity of inputs actually consumed in production of dutiable goods or exempted goods exported, calculated by reference to the industry-specific consumption coefficient for each batch. Given the ability to trace input receipt, storage, issue and batch-wise consumption through inventory and analytical records, the Tribunal held there was no colourable availment of common input credit and therefore no obligation to effect reversal under the rule framed for common inputs. The factual finding that credit was availed only on inputs consumed for dutiable production or for exempted goods exported was treated as determinative of the question of reversal. [Paras 6, 9]

No reversal of CENVAT credit was required because the appellant did not avail credit on common inputs and credited only the proportionate inputs actually consumed for dutiable goods or exempted exported goods.

Exempted goods exported under bond - application of Rule 6(3) and Rule 6(6) of the Cenvat Credit Rules - CENVAT credit reversal - Whether goods cleared for export under bond are covered by the exception and therefore exempt the assessee from reversal under the rule dealing with exempted or non-payable-clearances. - HELD THAT: - Relying on the reasoning of the Bombay High Court in Repro India Ltd and on earlier decisions of this Bench in the assessee's favour, the Tribunal interpreted the relevant provisions to hold that removals under bond for export fall within the scope of the exemption provision (Rule 6(6)) and are not subject to the reversal obligation under Rule 6(3). The Tribunal noted that the wider expression employed in the later rule was intended to cover excisable goods removed under bond (including dutiable goods exported under bond) and thereby avoid the need to reverse credit when goods are exported under the prescribed bond/formalities. [Paras 7, 8, 9]

Removals for export under bond are covered by the exception and do not attract reversal of CENVAT credit under the provision dealing with reversal.

Final Conclusion: The impugned order confirming demand for reversal of CENVAT credit, interest and penalty is set aside; the appeal is allowed and the appellant is not required to reverse the credit claimed on the basis indicated above.

Admissibility of discounts in assessable value - proof of passing discounts to downstream buyers - reliance on Chartered Accountant certificate vis-a -vis supporting documentary evidence - discounts appearing on invoices and by credit notes as evidence of passing on - deduction computed by equalisation formula for octroi/entry taxes - binding effect of earlier Tribunal decision on identical issue

Admissibility of discounts in assessable value - discounts appearing on invoices and by credit notes as evidence of passing on - deduction computed by equalisation formula for octroi/entry taxes - binding effect of earlier Tribunal decision on identical issue - Discounts claimed by the respondents were admissible in determining assessable value where supported by invoices, credit notes or an equalisation computation, and the Tribunal's earlier decision on the identical issue is binding. - HELD THAT: - The Commissioner (Appeals) found three distinct forms of discounts: (i) discounts shown on invoices, which on their face demonstrate downstream passing and render the deduction admissible; (ii) discounts by way of credit notes, which the Tribunal and the Apex Court have treated as rendering the discounted price net of credit note as the assessable value; and (iii) equalised octroi/entry tax adjustments, for which there is no bar to allowing a deduction computed on an equalisation formula. This bench observed that the impugned allowances were consistent with those findings and noted that an earlier decision of this bench on the identical issue for the same respondents remains unoverturned and therefore is binding. On these bases the appeals challenging the allowance of such deductions were rejected. [Paras 8, 9, 10]

The deductions for discounts shown on invoices, passed by credit notes, and equalised octroi/entry tax adjustments were held to be admissible and the appeal in respect of these issues was rejected.

Reliance on Chartered Accountant certificate vis-a -vis supporting documentary evidence - proof of passing discounts to downstream buyers - The Revenue's challenge that the CA certificate without supporting documentary evidence was insufficient was not upheld in these proceedings. - HELD THAT: - The Revenue contended that the burden lay on the assessee to prove that discounts were passed to buyers and that the CA certificate was unsupported by documentary proof. The Commissioner (Appeals) accepted documentary indicia in the record (invoices and credit notes) and treated the CA certificate together with such evidence as sufficient. Having regard to those documentary indicia and the binding precedent of this bench on identical facts, the Tribunal did not accept the Revenue's contention and upheld the appellate finding allowing the discounts. [Paras 5, 8, 9]

The objection to reliance on the CA certificate in the absence of additional documentary proof was rejected in the facts of this case and the appellate allowance was sustained.

Administrative correction of filing error - Miscellaneous application filed by the Revenue seeking to withdraw an application was dismissed as infructuous because no withdrawal application had in fact been filed. - HELD THAT: - The Revenue filed a miscellaneous application stating that an application for withdrawal of the appeal had been inadvertently filed; on inspection of the records and confirmation by the departmental representative, the bench found that no application for withdrawal had been filed and the miscellaneous application was thus an inadvertent filing. The bench therefore dismissed the miscellaneous application as infructuous. [Paras 2]

The miscellaneous application was dismissed as infructuous.

Final Conclusion: The miscellaneous application filed by the Revenue was dismissed as infructuous; on the merits the Tribunal upheld the Commissioner (Appeals) in allowing discounts evidenced by invoices, credit notes and equalisation for octroi/entry taxes, applied the binding earlier decision of this bench on the identical issue, and rejected the appeals filed by the Revenue.

Manufacture - CENVAT credit entitlement under Rule 3 of the CENVAT Credit Rules, 2004 - price variation clause and recalculation of duty - cum-duty price - penalty not imposable where question of liability was genuinely in dispute

Manufacture - The activity undertaken by the appellant amounts to manufacture. - HELD THAT: - The adjudicating authority had held that the appellant's operations constitute manufacture within the meaning of the statute, and the Tribunal proceeded on that finding. The appellant did not contest that conclusion before the Tribunal and sought consequential reliefs arising from that determination. The Tribunal accepted the settled finding that the activity is manufacture and proceeded to give effect to the legal consequences flowing from that determination. [Paras 6]

The Tribunal treated the activity as manufacture for the purposes of duty liability and ancillary reliefs.

CENVAT credit entitlement under Rule 3 of the CENVAT Credit Rules, 2004 - Appellant is entitled to take CENVAT credit on inputs and input services used in manufacture of the excisable goods. - HELD THAT: - Having accepted that the activity amounts to manufacture, the Tribunal applied Rule 3 of the CENVAT Credit Rules, 2004 and held that the appellant is entitled to CENVAT credit on inputs and input services used in the manufacture of the goods. The adjudicating authority had not allowed this benefit and the Tribunal directed that the credit entitlement be given effect to and taken into account in quantifying duty liability. [Paras 6]

Entitlement to CENVAT credit is recognised and the matter is remitted for allowance and computation of duty after giving such credit.

Price variation clause and recalculation of duty - cum-duty price - Duty demand must be recalculated in accordance with the price variation clause and the actual amount received, and the adjudicating authority must apply the cum-duty price benefit already recognised. - HELD THAT: - The appellant produced the tender and purchase agreements showing a price escalation/variation clause under which the contract price (and thus the taxable value) varies with fluctuations in raw material prices. The Tribunal observed that where the contract provides for revision of price upwards or downwards, duty must be computed on the price actually received in accordance with that clause. The Tribunal therefore set aside the impugned demand and remitted the matter to the adjudicating authority to recompute the demand after allowing CENVAT credit and applying the price variation mechanism; the appellant is also entitled to the cum-duty price treatment already given by the adjudicating authority. [Paras 6, 7]

Matter remitted for fresh calculation of duty in accordance with the price variation clause, after allowing CENVAT credit and applying cum-duty price benefit; interest to be determined accordingly.

Penalty not imposable where question of liability was genuinely in dispute - No penalty is imposable on the appellant. - HELD THAT: - The Tribunal noted that the question whether the appellant's activity amounted to manufacture was a disputed legal issue and had been adjudicated in the appellant's favour by a prior Tribunal order. In these circumstances, the Tribunal held that penalty was not warranted against the appellant. [Paras 8]

Penalty is not imposable and is set aside.

Final Conclusion: The impugned order confirming duty is set aside. The Tribunal held the activity to be manufacture, recognised the appellant's entitlement to CENVAT credit, and remitted the matter to the adjudicating authority to recompute the demand in accordance with the price variation clause (and applying the cum-duty price benefit), with interest to be determined on recomputation; penalty is not imposable. The appeal is disposed of on these terms.

Finality of an unchallenged order - prohibition on reopening a dropped penalty in remand proceedings - penalty under Rule 209A of the erstwhile Central Excise Rules, 1944 - remand proceedings affecting third parties

Finality of an unchallenged order - prohibition on reopening a dropped penalty in remand proceedings - penalty under Rule 209A of the erstwhile Central Excise Rules, 1944 - Whether penalties could be imposed on the appellants in remand proceedings after the adjudicating authority had earlier dropped the penalties and that order was not challenged. - HELD THAT: - The Tribunal recorded that the adjudicating authority had, by its order dated 29.10.2004, dropped the penalty proposed against the appellants. That order of dropping penalty was never subjected to challenge in subsequent proceedings and therefore attained finality. In the subsequent remand proceedings directed in relation to the main party, the adjudicating authority could not validly impose penalties on the appellants afresh because doing so would amount to reopening an unchallenged and final order. Applying the principle that an unappealed adjudicatory order attains finality and cannot be reopened against third parties in remand proceedings, the Tribunal found the later imposition of penalties on the appellants to be without merit and set aside the impugned order. [Paras 5, 6]

Imposition of penalties on the appellants in the remand proceedings set aside; appeals allowed.

Final Conclusion: The appeals are allowed: the impugned order imposing penalties on the appellants in remand proceedings is set aside, the earlier order dropping penalty having attained finality; consequential relief, if any, to follow.

Intra-State sale - inter-State transmission - composite transaction - taxability under U.P. Trade Tax Act - concurrent findings of fact

Intra-State sale - inter-State transmission - composite transaction - taxability under U.P. Trade Tax Act - Whether procurement of seeds from farmers by the assessee (through contractors), followed by transmission to the Kota plant for testing and certification, constitutes an intra-State sale taxable in Uttar Pradesh or a composite transaction completing only after processing in Kota. - HELD THAT: - The Court examined the contracts between the assessee and contractors, noting clauses allocating responsibility for procurement, delivery specifications, payment terms and price computation, and specifically clause providing 90% advance payment to growers on receipt at the processing plant with balance payable after certification at Kota. On the facts, the Tribunal had found - and the Court agreed - that the procurement transaction culminated in Uttar Pradesh when the assessee (through its contractors) purchased the seeds from the farmers and disbursed 90% of the price, such procurement thereby constituting an intra State sale. The subsequent transmission of the procured seeds to the Kota plant for testing and certification was treated as a separate, second transaction amounting to inter State transfer, which lay outside the ambit of U.P. Trade Tax. The Court accepted the concurrent factual findings of the assessing authority, first appellate authority and the Tribunal and found no reason to interfere. [Paras 15, 16, 17]

Procurement of seeds from farmers in Uttar Pradesh is an intra State sale taxable under the U.P. Trade Tax Act; the later transmission to Kota for processing is a separate inter State transaction and not taxable under the Act.

Final Conclusion: The revision is dismissed; the Tribunal's conclusion that the purchase of seeds from farmers in Uttar Pradesh was taxable under the U.P. Trade Tax Act while the subsequent transmission to Kota was an inter State transaction is upheld.

Use of video conferencing in judicial proceedings - Lawfulness of measures to reduce physical presence in courts during pandemic - Article 142 powers to issue directions for complete justice - Consent required for recording evidence by video conferencing - High Courts' authority to determine modalities for video hearings - Obligation to provide video conferencing facilities to litigants lacking access - Presiding officer's power to restrict courtroom entry and adjourn - Helpline for complaints concerning quality or audibility of video feed - Recognition of ICT-enabled infrastructure and e-Courts Project

Lawfulness of measures to reduce physical presence in courts during pandemic - Article 142 powers to issue directions for complete justice - Measures to reduce physical presence in courts during the COVID-19 pandemic are lawful and may be directed by the Supreme Court under Article 142. - HELD THAT: - The Court recorded that social distancing and scaling down conventional court operations are necessary to prevent transmission of COVID-19 while preserving access to justice. In exercise of the power under Article 142 to do complete justice, the Court declared that measures adopted by this Court and High Courts to reduce physical presence and to secure court functioning in accordance with public health guidance shall be deemed lawful. The directions are issued as an exercise of the Court's constitutional jurisdiction to ensure continued dispensation of justice consistent with public health needs.

Declared lawful the measures taken to reduce physical presence in courts and issued directions under Article 142 to that effect.

Use of video conferencing in judicial proceedings - High Courts' authority to determine modalities for video hearings - Recognition of ICT-enabled infrastructure and e-Courts Project - The Supreme Court and all High Courts are authorized to use video conferencing technologies for court functioning, and each High Court may determine suitable modalities for temporary transition. - HELD THAT: - The Court observed that modern technology, including ICT infrastructure established under the e-Courts Project, facilitates virtual hearings without compromising adjudicatory principles. It authorised the Supreme Court and High Courts to adopt measures required for robust functioning through video conferencing and empowered each High Court, responsive to local judicial peculiarities and evolving public health conditions, to decide appropriate modalities for temporary use of video hearings.

Authorized the use of video conferencing by the Supreme Court and High Courts and vested High Courts with authority to frame suitable modalities.

Consent required for recording evidence by video conferencing - Evidence shall not be recorded by video conferencing without the mutual consent of both parties; until High Court rules are framed, video conferencing is mainly for hearing arguments. - HELD THAT: - Recognising precedents that permit electronic evidence and video conferencing, the Court limited the temporary use of video conferencing primarily to hearing arguments at trial and appellate stages. It expressly provided that recording of evidence by video conferencing shall not occur without mutual consent of the parties; where evidence must be recorded in court, physical distancing obligations must be observed. This preserves evidentiary safeguards while permitting remote advocacy.

Restricted recording of evidence by video conferencing to instances with mutual consent and confined video hearings predominantly to arguments until rules are framed.

Obligation to provide video conferencing facilities to litigants lacking access - Courts must make video conferencing facilities available to litigants who lack means or access, and may appoint amicus curiae where appropriate. - HELD THAT: - To ensure access to justice, the Court directed that facilities for video conferencing be notified and made available to litigants without means or access. It permitted courts, in appropriate cases, to appoint an amicus-curiae and to make available video facilities to such an advocate, thereby addressing the digital divide so that remote proceedings do not deny litigants an effective opportunity to be heard.

Mandated provision of video conferencing facilities for litigants lacking access and allowed appointment of amicus-curiae to assist where necessary.

Helpline for complaints concerning quality or audibility of video feed - Courts must maintain a helpline for complaints about feed quality or audibility which must be raised during or immediately after the proceeding; complaints raised later will not be entertained. - HELD THAT: - To ensure fairness and address technical shortcomings promptly, the Court required concerned courts to maintain a helpline so that any complaint regarding the quality or audibility of the video feed can be communicated during the proceeding or immediately after its conclusion. The Court specified that grievances not raised within that timeframe will not be entertained thereafter, thus setting a procedural limitation for post hoc challenges based on technical defects.

Directed courts to maintain a helpline and limited entitlement to complain about feed quality to the time of or immediately after the proceeding.

Presiding officer's power to restrict courtroom entry and adjourn - Presiding officers may restrict entry into courtrooms and control the points from which advocates address arguments; they shall not bar a party from entry unless the party is infectious, but may limit numbers and adjourn where necessary. - HELD THAT: - Balancing access to courts with public health, the Court vested presiding officers with discretion to restrict persons entering courtrooms or restrict locations from which arguments are addressed. While a presiding officer must not prevent a party's entry except where the party is suffering from an infectious illness, the officer may limit numbers when many litigants are involved and may adjourn proceedings if adequate restrictions cannot be imposed, thereby enabling pragmatic management of courtroom safety.

Empowered presiding officers to restrict access and adjourn proceedings in the interest of public health, subject to safeguards for parties' access.

Mode of video conferencing for District Courts - District Courts are to adopt the mode of video conferencing prescribed by the concerned High Court. - HELD THAT: - To ensure uniformity and coordination within each state, the Court directed that District Courts implement the mode of video conferencing as prescribed by the respective High Courts, thereby delegating practical implementation to High Courts while maintaining an overarching authorization for virtual court functioning.

Directed District Courts to follow the video conferencing mode prescribed by their High Courts.

Final Conclusion: In exercise of its constitutional power under Article 142, the Supreme Court authorised the temporary and lawful use of video conferencing across the judiciary during the COVID-19 pandemic, prescribed safeguards including party consent for recording evidence, required provision of access to those lacking facilities, directed operational measures (helpline, High Court-determined modalities, District Courts to follow High Courts, and presiding officers' discretion), and ordered that these directions operate until further orders.

Moratorium on term loans - Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA) - RBI COVID-19 Regulatory Package - IRAC Guidelines - Status quo as on 01.03.2020 - Automatic asset classification

RBI COVID-19 Regulatory Package - Moratorium on term loans - Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA) - Status quo as on 01.03.2020 - Whether the RBI regulatory package of 27.03.2020 precluded the respondent bank from classifying the petitioner's account as an NPA during the moratorium period and whether the account classification as on 01.03.2020 should be restored. - HELD THAT: - The Court examined the RBI announcements of 27.03.2020 (the Statement on Developmental and Regulatory Policies and the COVID-19 Regulatory Package) which permitted a three-month moratorium on term loan instalments falling due between 01.03.2020 and 31.05.2020 and provided that relief granted under the package would not be treated as a concession that would trigger asset classification downgrade. Paragraphs 5-7 of the Package indicate that asset classification for accounts granted relief is to be determined with reference to the revised due dates and that such measures shall not, by themselves, result in downgrade or adverse reporting. The Court observed that the regulatory intent is to maintain the classification status as it existed on 01.03.2020 for the moratorium period. Applying this to the facts, the Court concluded prima facie that the bank's classification of the petitioner's account as an NPA on 31.03.2020 was not permissible while the moratorium provisions operated to preserve the status quo of classification as on 01.03.2020.

The account classification as it stood on 01.03.2020 is restored and the respondent cannot classify the petitioner's account as an NPA during the moratorium period in reliance on the impugned action.

IRAC Guidelines - Automatic asset classification - Whether the petitioner should be directed to make the outstanding payment and the terms of such direction. - HELD THAT: - While restoring the status quo in classification, the Court recorded the petitioner's undertaking to make arrangements to pay the instalment that fell due on 01.01.2020 together with interest accrued thereon. The Court took this statement on record and directed payment by a specified date, clarifying that the payment is made without prejudice to the parties' respective rights and contentions. The Court's direction thus balances the interim protective effect of the moratorium on classification with an express obligation on the petitioner to liquidate the overdue instalment by the deadline.

Petitioner to pay the instalment due on 01.01.2020 with interest accrued thereon on or before 25.04.2020; payment to be without prejudice to the parties' rights and contentions.

Final Conclusion: Prima facie the RBI COVID-19 Regulatory Package of 27.03.2020 operates to preserve the asset classification status as on 01.03.2020 and the respondent was restrained from treating the petitioner's account as an NPA; the account classification as on 01.03.2020 is restored. The petitioner was directed to pay the overdue instalment with accrued interest by 25.04.2020, without prejudice to the parties' rights, and the matter was listed before the roster bench on 04.05.2020.