TaxTMI Updates e-Newsletter
Apr 11,2018

Summary order. Notice issued to the Attorney General returnable on 22nd January, 2018; respondents' counsel accepted notice; no ad interim relief granted.

Fees for Technical Services - Royalty - Permanent Establishment - Fixed Place Permanent Establishment - Service Permanent Establishment (duration test) - Special computation of income for exploration activities under section 44BB

Fees for Technical Services - Whether the consideration received from ONGC is in the nature of Fees for Technical Services under section 9(1)(vii) of the Income-tax Act, 1961. - HELD THAT: - Both the Applicant and the Revenue (having regard to the nature of activities and the Supreme Court decision in Oil & Natural Gas Corporation Ltd.) agreed and this Authority held that the seismic survey, data acquisition and processing activities carried out by the Applicant are not Fees for Technical Services. The activities consist of vessel-mounted survey operations and equipment-intensive data processing rather than the provision of technical skills or managerial/consultancy services by personnel constituting FTS within the meaning of section 9(1)(vii). The Authority therefore adopted the joint view and declined to tax the receipts as FTS.

Consideration received from ONGC is not taxable as Fees for Technical Services.

Royalty - Whether the consideration received from ONGC is in the nature of Royalty under section 9(1)(vi) of the Act or Article 12 of the India-UAE DTAA. - HELD THAT: - The Revenue accepted and the Authority agreed that ONGC did not obtain any right to use the Applicant's vessels or equipment nor was consideration paid for transfer of any survey or exploration rights. The receipts were for services rendered in connection with seismic surveys and data processing and not payments for use of, or rights in, equipment or information that would constitute Royalty. Consequently, the consideration cannot be characterised as Royalty under domestic law or the DTAA.

Consideration received from ONGC is not taxable as Royalty under the Act or the India-UAE DTAA.

Permanent Establishment - Fixed Place Permanent Establishment - Service Permanent Establishment (duration test) - Whether the Applicant has a Permanent Establishment in India under Article 5 of the India-UAE DTAA in respect of its contract with ONGC. - HELD THAT: - The Authority examined Article 5(1) and Article 5(2)(i) of the India-UAE DTAA and relevant precedents. Article 5(2)(i) (the service-PE duration clause) applies to services furnished through employees or other personnel and requires aggregation beyond the specified period; it is directed at personnel-oriented service projects. The Applicant's seismic activity, however, was performed primarily through vessels and the equipment mounted thereon operating in a definite geographical area in connection with exploration. The India-UAE DTAA contains no specific subparagraph qualifying exploration-related installations by a duration test; by contrast other DTAAs expressly prescribe such duration thresholds for installations used in exploration. Because the Applicant's vessels satisfied the tests of permanence appropriate to the business (sufficient duration for the nature of activity), a fixed place existed at the disposal of the enterprise and business was carried on from that place, the Authority concluded that the vessels constituted a fixed place PE under Article 5(1). It was therefore immaterial that operations for the reported season lasted 113 days; permanence is assessed in light of business reality and need not be literal permanence.

The Applicant has a Permanent Establishment in India in the form of its vessels engaged in seismic surveys and related activities.

Special computation of income for exploration activities under section 44BB - Whether, if taxable in India, the Applicant's income in respect of the ONGC contract should be computed under section 44BB of the Income-tax Act, 1961. - HELD THAT: - Having held that the Applicant's activities are in connection with exploration of mineral oils and that a PE exists in India, the Authority applied the special rule in section 44BB which governs computation of profits and gains for businesses connected with exploration and exploitation of mineral oils. The Authority noted consistency with its earlier Ruling in the Applicant's own case and directed that income attributable to the PE be computed in accordance with section 44BB.

Income derived by the Applicant from the ONGC contract is to be computed pursuant to section 44BB.

Final Conclusion: The Authority ruled that the receipts from ONGC are neither Fees for Technical Services nor Royalty; the Applicant has a fixed place Permanent Establishment in India by reason of its vessels used for seismic surveys and, accordingly, income from the ONGC contract is taxable in India as business income and shall be computed under section 44BB of the Income-tax Act, 1961.

Liability of directors under Section 179(1) of the Income Tax Act - requirement to demonstrate inability to recover tax dues from the delinquent company before proceeding against directors - content of show cause notice to directors - steps taken to recover and failure thereof - principles of natural justice in proceedings under Section 179(1)

Liability of directors under Section 179(1) of the Income Tax Act - requirement to demonstrate inability to recover tax dues from the delinquent company before proceeding against directors - Validity of orders issued against the petitioners as directors under Section 179(1) in respect of the company's tax dues for Assessment Year 2008-09. - HELD THAT: - The court accepted the proposition, as stated in Madhavi Kerkar (supra), that jurisdiction to proceed against directors under Section 179(1) arises only after the Revenue has been unable to recover the tax dues from the delinquent private limited company. In consequence, a show cause notice to directors must briefly indicate the steps taken to recover the dues from the company and the failure of those steps. The impugned orders dated 28th September, 2017 were issued without demonstrating that recovery from the company was attempted and had failed; accordingly those orders could not stand.

Impugned orders under Section 179(1) dated 28th September, 2017 quashed and set aside.

Content of show cause notice to directors - steps taken to recover and failure thereof - principles of natural justice in proceedings under Section 179(1) - Permissible course for the Revenue after quashing the impugned orders and the scope of further action. - HELD THAT: - While quashing the existing orders, the court left the Revenue free to issue an appropriate show cause notice in accordance with the legal requirements articulated in Madhavi Kerkar (supra). Any fresh proceedings must comply with the requirement to specify steps taken to recover dues from the company and the failure to do so, and must be conducted following the principles of natural justice. The court also clarified that the prior attachment of the company's bank accounts will continue pending such proceedings.

Revenue permitted to issue fresh show cause notice and pass orders after complying with Madhavi Kerkar and principles of natural justice; attachment of company bank accounts to continue.

Final Conclusion: The writ petitions were allowed: the impugned orders under Section 179(1) in respect of Assessment Year 2008-09 were quashed for want of jurisdictional prerequisite (failure to show inability to recover from the company and omission to state recovery steps); the Revenue may issue fresh show cause notices and decide afresh in accordance with Madhavi Kerkar and after observing natural justice, while the existing bank account attachment of the company remains in force.

Reopening of assessment under Section 147 of the Income Tax Act - reason to believe - reopening without jurisdiction - finding of fact by a coordinate Bench - acceptance of earlier factual finding by Revenue - consequences of concluded factual finding on reassessment

Reopening of assessment under Section 147 of the Income Tax Act - reason to believe - finding of fact by a coordinate Bench - acceptance of earlier factual finding by Revenue - reopening without jurisdiction - Validity of the reopening notice dated 27th March, 2012 for Assessment Year 2008-09 - HELD THAT: - The Tribunal set aside the reassessment on the ground that its Coordinate Bench, in respect of Assessment Year 2009-10, had found that the project 'Sai Swar' was completed in Assessment Year 2010-11 (the terminal year). The Revenue did not challenge that factual finding in its further appeal and did not dispute the Coordinate Bench's conclusion that completion occurred in Assessment Year 2010-11. Because the Assessing Officer's reasons for reopening AY 2008-09 proceeded on the premise that the terminal year was AY 2008-09, the accepted finding by the Coordinate Bench removed the foundation for the 'reason to believe' recorded for reopening. In these circumstances the reopening was held to be without jurisdiction and the reassessment proceedings could not be sustained.

Reopening notice dated 27th March, 2012 set aside; reassessment for Assessment Year 2008-09 held invalid.

Consequences of concluded factual finding on reassessment - scope of appellate consideration where reopening set aside - Whether additions and disallowances made in the reassessment could be considered once reopening was held invalid - HELD THAT: - The Court held that consequential issues (deletion of addition on account of profit from 'Sai Sharan' project and disallowance of loss under 'Sai Sharan') do not arise for consideration when the foundational reopening notice is invalid. Since the reopening was held bad, the demand raised in reassessment proceedings cannot be sustained and those subsidiary questions were not entertained, following established precedent that consequential issues fall away if reopening is struck down.

Issues relating to additions and disallowances in the reassessment were not considered as they depend on a valid reopening; they therefore do not give rise to substantial questions of law.

Final Conclusion: The appeal under Section 260A is dismissed: the reopening for Assessment Year 2008-09 was set aside as without jurisdiction in view of an unchallenged Coordinate Bench finding that the project was completed in Assessment Year 2010-11; consequential additions and disallowances in the reassessment were not entertained.

Non-speaking order - stay of recovery of tax demand - high-pitched assessment - garnishee notice under Section 226(3) of the Income Tax Act, 1961 - deposit condition for stay (20%/50%) - order without reasons is a nullity - statutory appellate authority's duty to adjudicate stay application

Non-speaking order - order without reasons is a nullity - deposit condition for stay (20%/50%) - Validity of the second respondent's order dated 14.02.2018 confirming deposit of 50% of the demand as a condition for stay - HELD THAT: - The Court found that the second respondent passed a cryptic, non speaking order confirming the demand without assigning reasons and without examining whether the assessment was unreasonably high pitched or whether genuine hardship would be caused if 50% of the demand were required to be deposited. The coordinate Bench's analysis of CBDT Circular No.1914 (as applied in FLIPKART India Pvt. Ltd.) establishes that the factors of an unreasonably high pitched assessment and genuine hardship must be considered; an order directing deposit without reasons is void. Given that the petitioner had deposited 20% in line with the official memorandum, the lack of reasoned consideration by the second respondent rendered the order infirm and vitiated by want of reasons. [Paras 4, 5]

The second respondent's order dated 14.02.2018 is a non speaking order and is null and void; it cannot be sustained and is quashed, and the matter is remitted for fresh consideration.

Statutory appellate authority's duty to adjudicate stay application - garnishee notice under Section 226(3) of the Income Tax Act, 1961 - stay of recovery of tax demand - Validity of the third respondent's refusal to adjudicate the stay application and the consequent garnishee notice dated 23.03.2018 - HELD THAT: - The Court held that the third respondent declined to entertain the stay application on the ground that the second respondent had already decided the matter, and therefore did not exercise the statutory appellate power to consider the stay application. Because the second respondent's order was non speaking and invalid, the basis for the third respondent's refusal went to the root of the matter. Consequently, the garnishee notice issued in furtherance of that decision, and the third respondent's order declining to consider the stay, cannot be upheld. The statutory appellate authority was obliged to adjudicate the stay application on its merits; failure to do so in the circumstances rendered the impugned communication and garnishee notice invalid. [Paras 5]

The third respondent's order declining to entertain the stay application and the garnishee notice dated 23.03.2018 are invalid and are quashed; the stay application must be adjudicated afresh.

Final Conclusion: Writ petition allowed; Annexures L, W and Y quashed. The matter is remitted to the second respondent to consider the petitioner's stay application afresh, after hearing the petitioner and passing a reasoned speaking order as expeditiously as possible; the petitioner is directed to appear before the second respondent on 10.04.2018.

Advance tax - Intimation under Section 210(5) / Form 28A - Notice of demand - Recovery proceedings under Section 226(3) of the Income Tax Act, 1961 - Attachment of bank account for recovery - Stay of recovery pending consideration - Opportunity of personal hearing

Intimation under Section 210(5) / Form 28A - Advance tax - Notice of demand - Consideration of the petitioner's Form 28A filed as intimation under Section 210(5) in response to the notice of demand dated 09.02.2018 - HELD THAT: - The Court recorded that the petitioner remitted further advance tax and ultimately filed Form 28A, although the Form was not filed at the time of an earlier remittance. The petitioner was partly to blame for not filing Form 28A contemporaneously, but since Form 28A has now been submitted and acknowledged, the Assessing Officer is directed to consider the Form 28A on merits and in accordance with law. The Assessing Officer must afford an opportunity of personal hearing to the petitioner's authorised representative before passing appropriate orders. [Paras 6, 7]

Directed the first respondent to consider the Form 28A and decide on merits after affording personal hearing to the authorised representative.

Recovery proceedings under Section 226(3) of the Income Tax Act, 1961 - Attachment of bank account for recovery - Stay of recovery pending consideration - Whether the notice under Section 226(3) proposing attachment of the petitioner's bank account should be given effect to pending consideration of Form 28A - HELD THAT: - The Court held that in view of the pendency of the petitioner's intimation by way of Form 28A and the Assessing Officer's obligation to consider it on merits, the recovery notice dated 26.03.2018 proposing attachment of the bank account should not be acted upon until a decision is taken on the Form 28A. The Court recognised the Assessing Officer's entitlement to proceed where no Form 28A is filed at the time of remittance, but suspended implementation of the impugned notice pending the mandated consideration. [Paras 6, 7]

The impugned notice dated 26.03.2018 shall not be given effect to until the Assessing Officer considers and decides the Form 28A.

Final Conclusion: Writ petition disposed of by directing the Assessing Officer to consider the petitioner's Form 28A on merits after hearing the authorised representative; meanwhile the notice dated 26.03.2018 under Section 226(3) shall remain suspended.

Allowability of broken period interest as deduction - binding precedent - precedential effect of Supreme Court decision in C.I.T. v. Citi Bank N.A. - no substantial question of law

Allowability of broken period interest as deduction - binding precedent - precedential effect of Supreme Court decision in C.I.T. v. Citi Bank N.A. - Broken period interest is allowable as a deduction for the assessment year 2009-10 in view of binding precedent. - HELD THAT: - The Court considered whether the ITAT was correct in holding that broken period interest is an allowable deduction despite earlier contrary decisions. It noted that for earlier assessment years the Division Bench of this Court in C.I.T. v. HDFC Bank Ltd. applied the decision in American Express International Banking Corpn. v. C.I.T. and that the view taken in American Express was subsequently approved by the Supreme Court in C.I.T. v. Citi Bank N.A. Given the Supreme Court's approval of the ratio relied upon, the present appeal lacked merit and did not present any substantial question of law warranting interference.

Appeal dismissed; no substantial question of law arises.

Final Conclusion: The appeal challenging the allowance of broken period interest for AY 2009-10 is dismissed as the contested view is supported by binding precedent, including the Supreme Court's approval of the ratio relied upon, and therefore no substantial question of law survives.

Disallowance under Section 14A and Rule 8D(2)(ii) - reopening of assessment under Section 147 as change of opinion - failure to disclose fully and truly all material facts - attribution of interest expense to exempt income - acceptance of figures in assessment proceedings - nexus between expenditure and exempt income

Reopening of assessment under Section 147 as change of opinion - failure to disclose fully and truly all material facts - acceptance of figures in assessment proceedings - Validity of reopening assessments for AYs 2008-09 and 2009-10 on the ground that the assessee did not disclose the method of computing disallowance under Section 14A/Rule 8D. - HELD THAT: - The Tribunal found that the AO was aware of the assessee's exempt income and of the expenditure relevant to Section 14A at the time of framing assessments u/s 143(3); the AO had computed and recorded the disallowance (notably Rs. 17,16,318 for AY 2008-09) and had invited and accepted explanations and corrected computations from the assessee. In these circumstances the material facts were before the AO and the method of computation is prescribed by Rule 8D; later recording of a reason merely because the assessee did not state the calculation method is a change of opinion and does not amount to discovery of fresh tangible material permitting reopening. Reliance on appellate precedents showing that disclosure of exempt income and related expenses in accounts and returns negates failure to disclose was held to support the conclusion that reopening was invalid. [Paras 10, 11]

Reopening of the assessments for AY 2008-09 and 2009-10 held invalid; additions made by AO on that basis quashed.

Disallowance under Section 14A and Rule 8D(2)(ii) - attribution of interest expense to exempt income - nexus between expenditure and exempt income - On the merits, whether addition under Rule 8D(2)(ii) could be sustained given the assessee's funds position and investments in tax-free bonds for AYs 2008-09 and 2009-10. - HELD THAT: - On the facts accepted by the authorities, the assessee's own funds (average current account balances) substantially exceeded the investment in tax-free instruments (investments constituted only about 11.19% for 2008-09 and 18.82% for 2009-10). Applying the principle that where own or interest-free funds far exceed the investment, the presumption is that investment was made from interest-free funds and there is no basis to attribute interest cost to earn exempt income, the Tribunal agreed with the CIT(A)'s reliance on earlier precedents (including HDFC Bank Ltd. and the assessee's own earlier decisions) and found no infirmity in deleting the addition under Rule 8D(2)(ii). The revenue did not place material to displace the factual finding regarding funds and investments. [Paras 12, 13]

The addition under Rule 8D(2)(ii) cannot be sustained and is deleted for both assessment years.

Final Conclusion: Appeals by the assessee for AYs 2008-09 and 2009-10 allowed; appeals by the revenue dismissed. The reopening of assessments was held invalid and the additions under Section 14A/Rule 8D(2)(ii) were deleted on the merits.

Long term capital gains exempt u/s 10(38) - genuineness of share transactions - accommodation entries and bogus entries - dematerialisation and contract notes as proof of ownership - reliance on third party statement without cross examination violates principles of natural justice - addition based on suspicion and surmise not sustainable

Long term capital gains exempt u/s 10(38) - genuineness of share transactions - dematerialisation and contract notes as proof of ownership - addition based on suspicion and surmise not sustainable - Addition treating claimed long term capital gain as undisclosed income was not sustainable and was deleted. - HELD THAT: - The Tribunal examined the material produced by the assessee - share application, bank payment by cheque to the company, allotment letter, share certificate, dematerialisation entries and contract notes showing sale through the stock exchange - and held that these records established acquisition, holding and disposal of the shares. The Bench relied on a Coordinate Bench decision dealing with identical facts and concluded that mere short time intervals or apprehensions of modus operandi do not render transactions bogus when contemporaneous documentary evidence of payment, allotment, demat credit and exchange trades is on record. In the absence of any independent material showing that unaccounted money was introduced or that amounts in excess of the documented consideration were routed back to the assessee, the addition based on suspicion and the statement relied upon by the Assessing Officer could not withstand scrutiny. Consequently the addition was deleted. [Paras 4]

Addition treating long term capital gains as undisclosed income deleted; claim of exemption accepted.

Reliance on third party statement without cross examination violates principles of natural justice - addition based on suspicion and surmise not sustainable - Assessment based primarily on the statement of a third party without granting opportunity to cross examine was held to be invalid and not a proper basis for addition. - HELD THAT: - The Tribunal noted that the Assessing Officer relied on the statement of Shri Deepak Patwari recorded by the Investigation Wing but did not afford the assessee an opportunity to cross examine that witness. Applying settled precedent, the Bench observed that making a witness statement the sole or decisive basis for an adverse order without permitting cross examination constitutes a violation of principles of natural justice and renders the addition unsustainable. The AO also failed to produce independent evidence to controvert the contemporaneous documentary proof furnished by the assessee. For these reasons the addition founded on such untested statement was rejected. [Paras 4]

Addition based on untested third party statement set aside; failure to grant opportunity for cross examination contributed to deletion of the addition.

Final Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year 2013-14, holding the claimed long term capital gains as genuine and deleting the addition made by the Assessing Officer which was founded on suspicion and an untested third party statement.

Reassessment-formation of belief that income escaped assessment - cessation of liability-application of section 41(1) - natural justice-non-disposal of objections and admission of additional grounds - consequential interest-interest under sections 234B and 234C

Reassessment-formation of belief that income escaped assessment - Reassessment framed under section 147 validly initiated on the material available to the AO - HELD THAT: - The Tribunal examined whether the AO had material to form a belief that income chargeable to tax had escaped assessment and whether reassessment was therefore sustainable. The AO observed a credit balance in the assessee's books in the name of M/s Mahindra & Mahindra and contemporaneously discovered in the creditor's books that the corresponding debit had been written off as on 31.3.2011 during scrutiny of the creditor's records. As the original return had been processed under section 143(1) and no regular assessment under section 143(3) existed, the AO's formation of belief was founded on fresh material surfacing from the creditor's books. The Tribunal found no merit in the contention that no material existed and upheld the AO's exercise of jurisdiction to reopen the assessment. [Paras 8]

The reassessment under section 147 was held sustainable; the assessee's challenge to the validity of reopening is rejected.

Cessation of liability-application of section 41(1) - Whether the unilateral write off in the creditor's books resulted in cessation of liability and taxable income in the hands of the assessee was not finally determined and was remanded for enquiry - HELD THAT: - The AO treated the unilateral write off in the books of M/s Mahindra & Mahindra as resulting in cessation of the assessee's liability and assessed the amount as income under section 41(1). The Tribunal noted undisputed evidence that the creditor wrote off the corresponding debit in its books and that there was documentary correspondence showing a dispute between the parties. However, there was no evidence that the assessee had knowledge of or was party to any settlement effecting the write off. The Tribunal held that in the absence of complete information and without making necessary enquiries from the creditor and the assessee regarding any settlement leading to the write off, the conclusion of cessation could not be sustained on the record before the authorities. Consequently the matter was set aside and restored to the AO with directions to make further enquiries; if it is established that the assessee was party to or aware of the settlement, cessation (and taxation) would follow, otherwise the amount cannot be taxed merely on unilateral write off by the creditor. [Paras 9, 11, 12]

Remitted to the AO for further enquiry and verification as to whether the assessee was party to or aware of the creditor's write off; no final taxation on cessation of liability was upheld on the existing record.

Natural justice-non-disposal of objections and admission of additional grounds - Applications to admit additional grounds were rejected for lack of prior raising and because they required factual verification - HELD THAT: - The Tribunal considered applications to admit additional grounds alleging non disposal of objections to reopening and failure to reduce brought forward losses. It found the assessee had not raised specific written objections before the AO, that the proposed grounds were not raised earlier before the CIT(A) or the Tribunal, and that adjudication would require fresh fact finding and verification which could not be conducted at this stage. Accordingly, the Tribunal refused to admit the additional grounds. [Paras 4, 5, 6]

Admission of the additional grounds was refused.

Consequential interest-interest under sections 234B and 234C - Chargeability of interest under sections 234B and 234C was left as consequential and not independently adjudicated - HELD THAT: - The Tribunal observed that issues as to interest were consequential upon the principal tax liability. Since the principal issue concerning cessation and taxation of the disputed amount was remitted for further enquiry, the Tribunal declined to independently adjudicate the question of interest at this stage. [Paras 13]

Interest issues to follow the outcome of the remitted enquiry and were not separately decided.

Final Conclusion: The appeal is allowed for statistical purposes; the validity of reassessment under section 147 is upheld, the question whether the creditor's unilateral write off caused cessation of liability in the assessee's hands is remitted to the AO for further enquiry, admission of additional grounds is refused, and interest issues are left consequential upon the remand outcome.

Disallowance of interest on borrowed funds when interest free advances are made - presumption that advances are made out of interest free funds where interest bearing funds are not shown to be diverted - adhoc disallowance of business expenses for want of bills and vouchers

Disallowance of interest on borrowed funds when interest free advances are made - presumption that advances are made out of interest free funds where interest bearing funds are not shown to be diverted - Proportionate disallowance of interest in respect of interest free advances made to Ms. Monisha Mittal - HELD THAT: - The Tribunal found on the material on record that Rs. 30 lakhs had originally been advanced to Ms. Monisha Mittal in May 2009 for a fixed tenure with interest for that period, and that subsequently recovery was delayed and the parties agreed that interest would be charged only for the original fixed tenure. The revenue failed to establish that the advances were made out of borrowed funds or that interest bearing funds were diverted to non business purposes; the assessee's balance sheet showed sufficient partner capital and the authorities below did not rebut the assessee's claim that the advances were out of interest free funds. In these circumstances the Tribunal applied the principle that where interest free funds are available and no nexus is shown between borrowings and the advances, a presumption arises that the advances were made out of interest free funds (relying on the principle in the order of the Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Limited and the Supreme Court decision in Hero Cycle (P.) Ltd. ). Consequently the proportionate interest disallowance could not be sustained and was deleted. [Paras 8, 9]

Proportionate interest disallowance deleted; addition on account of disallowance of interest set aside.

Adhoc disallowance of business expenses for want of bills and vouchers - Sustainability of addition made on estimate basis for unsupported business expenses - HELD THAT: - The Assessing Officer made an estimate based disallowance of certain business expenses for lack of bills and vouchers and initially disallowed 10% of the debited expenses; the Commissioner (Appeals) restricted the addition to a lesser sum. The Tribunal noted that the AO had not recorded specific findings quantifying which particular expenses were unsupported and that the disallowance was made on an ad hoc basis. In absence of specific adverse findings or proof that particular amounts were inadmissible, the adhoc addition could not be sustained. Accordingly the reduced addition was deleted. [Paras 8, 9]

Adhoc disallowance of expenses deleted; related addition set aside.

Final Conclusion: Both additions-proportionate interest disallowance and the adhoc disallowance of expenses-were deleted and the assessee's appeal is allowed.

Limitation under section 201(3) - Retrospective effect of Finance (No.2) Act, 2014 - Tax Deducted at Source verification notice - Assessee in default under section 201(1) - Order passed beyond period of limitation is without jurisdiction

Retrospective effect of Finance (No.2) Act, 2014 - Limitation under section 201(3) - Applicability of the amended limitation provisions introduced by Finance (No.2) Act, 2014 to proceedings for AY 2008-09 and AY 2010-11. - HELD THAT: - The Tribunal examined whether the amended timelines in section 201(3) as notified by Finance (No.2) Act, 2014 could be applied to validate the TDS proceedings in issue. Relying on the jurisdictional High Court's decision in the assessee's own case, the Tribunal held that the amendment does not have retrospective effect and is effective only from 01.10.2014. Consequently the extended limitation period as amended could not be invoked to sustain actions in respect of the assessment years before the amendment's effective date. The Tribunal therefore found that the AO and CIT(A)'s reliance on the amended provision to sustain the orders was incorrect. [Paras 13, 14]

Finance (No.2) Act, 2014 is not retrospectively applicable to these proceedings and its amended limitation provisions cannot be invoked for AY 2008-09 and AY 2010-11.

Tax Deducted at Source verification notice - Order passed beyond period of limitation is without jurisdiction - Assessee in default under section 201(1) - Whether the orders passed under section 201(1) for AY 2008-09 and AY 2010-11 are time-barred and hence without jurisdiction. - HELD THAT: - The Tribunal noted the dates of filing of the TDS returns and the date on which the AO issued the TDS verification letter and ultimately passed orders under section 201(1). The verification letter dated 23.01.2015 and the orders passed on 30.03.2015 and 05.03.2015 were examined against the limitation periods prescribed by the unamended section 201(3). Since the amended limitation periods could not be applied, the Tribunal found that the orders were required to be passed within the earlier statutory limitation and therefore were belated. The notice dated 23.01.2015 was characterized as a call for details and not a valid show-cause under the provision which could revive limitation. As a result the orders were held to be beyond the statutory limitation and thus without jurisdiction. [Paras 7, 11, 15, 16]

The assessment orders under section 201(1) for AY 2008-09 and AY 2010-11 are time-barred and without jurisdiction and are quashed.

Final Conclusion: The Tribunal allowed the appeals, holding that the amendment by Finance (No.2) Act, 2014 is not retrospectively applicable and that the orders passed under section 201(1) for AY 2008-09 and AY 2010-11 were barred by limitation and therefore quashed without adjudicating the merits.

Royalty under section 9(1)(vi) - liability to withhold tax under section 195 - retrospective amendment to domestic law - applicability of Double Taxation Avoidance Agreement (DTAA) - assessee in default under section 201(1) read with section 201(1A)

Retrospective amendment to domestic law - liability to withhold tax under section 195 - Whether the Finance Act, 2012 amendment (Explanation 4 to section 9(1)(vi)) can be applied retrospectively to fasten withholding obligations on payments made prior to the amendment. - HELD THAT: - The Tribunal held that the law cannot compel performance of an obligation which was impossible to perform at the relevant time. Although Explanation 4 to section 9(1)(vi) was inserted with retrospective effect, a subsequent amendment cannot create a past liability to deduct tax under section 195 where, on the date of payment, no withholding obligation existed. Reliance on analogous decisions of coordinate Benches (including DCIT Vs. iGate Computer Systems Ltd. and New Bombay Park Hotel Pvt. Ltd. ) supports the maxim lex non cogit ad impossibilia; consequently the appellant could not be fastened with TDS liability for payments made in earlier years merely because of a later retrospective statutory clarification. The Tribunal confirmed the CIT(A) order on this ground albeit on different reasoning and held that no liability can be fastened on the assessee to deduct tax retrospectively. [Paras 21, 22, 23]

Retrospective amendment cannot be used to impose a past withholding obligation; no TDS liability could be fastened on the assessee for payments made prior to the amendment.

Royalty under section 9(1)(vi) - applicability of Double Taxation Avoidance Agreement (DTAA) - Whether the payments for purchase/licence of software constitute 'royalty' under the relevant DTAAs and whether the DTAA definition is affected by the domestic amendment. - HELD THAT: - The Tribunal found that the Assessing Officer had not placed before it the end-user licence agreements and therefore the factual mandate to decide whether the transaction transferred a copyright or merely a copyrighted article could not be conclusively reached on the record. More importantly, on the legal question the Tribunal followed the reasoning in DIT Vs. New Skies Satellite BV and related authorities: an amendment in domestic law cannot be unilaterally read into an existing international treaty. Where the DTAA defines 'royalty' and that definition has not been amended by the Contracting States, the domestic amendment does not alter the treaty meaning or the source-state/treaty taxing rights. Applying those principles, the Tribunal held that the payments for purchase of software do not fall within the definition of 'royalty' under the relevant DTAAs (India-USA, India-Singapore and others) as those treaty definitions were not amended, and therefore the beneficial treaty provisions apply. [Paras 26, 27, 28, 29, 30]

Payments for purchase/licence of software were not taxable as 'royalty' under the applicable DTAAs; the domestic amendment cannot be extended to change treaty meanings, and therefore the assessee was not liable to withhold tax under the treaty provisions.

Assessee in default under section 201(1) read with section 201(1A) - liability to withhold tax under section 195 - Whether the demand under section 201(1) and interest under section 201(1A) can be sustained against the assessee for non-deduction of tax on the software payments. - HELD THAT: - Given the Tribunal's conclusions that (a) the retrospective domestic amendment could not be invoked to create a past withholding obligation and (b) the payments did not constitute 'royalty' under the unamended DTAAs relied upon, the foundational basis for treating the assessee as 'in default' for failing to deduct TDS falls away. The Tribunal further noted absence of agreements on record to establish transfer of copyright rights and relied upon treaty principles to deny the taxability. Consequently the demand and interest framed under sections 201(1) and 201(1A) were cancelled. [Paras 30, 31]

The demand under section 201(1) and interest under section 201(1A) is cancelled; the assessee is not in default for non-deduction of tax on the impugned software payments.

Final Conclusion: The appeal is partly allowed: the Tribunal held that (i) retrospective amendment in Finance Act, 2012 cannot be used to impose past withholding obligations that did not exist at the time of payment, (ii) the payments for purchase/licence of software do not amount to 'royalty' under the applicable DTAAs whose definitions were unamended, and (iii) accordingly the demand and interest under sections 201(1) and 201(1A) are cancelled.

Penalty under Section 271(1)(c) - Notice under Section 274 - specificity of charge in show cause notice - concealment of particulars of income - furnishing inaccurate particulars of income - principles of natural justice

Penalty under Section 271(1)(c) - Notice under Section 274 - specificity of charge in show cause notice - concealment of particulars of income - furnishing inaccurate particulars of income - principles of natural justice - Whether the penalty levied under Section 271(1)(c) could be sustained where the show cause notice issued under Section 274 did not specify or strike out the limb under clause (c) for which penalty was proposed. - HELD THAT: - The Tribunal found that the show cause notice under Section 274 was in a printed proforma and the Assessing Officer had not struck out the irrelevant portion so as to indicate whether the penalty was proposed for concealment of particulars of income or for furnishing inaccurate particulars of income. Applying the reasoning in Manjunatha Cotton and Ginning Factory and subsequent rulings followed by coordinate benches and High Courts, the Tribunal held that notice under Section 274 must specifically state the ground under Section 271(1)(c) so that the assessee knows the precise case to be met; a generic printed form without striking out the irrelevant clauses does not satisfy the statutory requirement and offends principles of natural justice. The Tribunal further noted that initiating proceedings on one limb and imposing penalty on another is unsustainable; where the show cause notice is defective in this manner the penalty cannot be upheld. On these determinative grounds the Tribunal upheld the order of the Commissioner (Appeals) deleting the penalty. [Paras 6, 7]

Penalty imposed under Section 271(1)(c) quashed because the Section 274 notice failed to specify the limb of clause (c); Revenue's appeal dismissed.

Final Conclusion: The Tribunal upheld the deletion of the penalty under Section 271(1)(c) because the Section 274 show cause notice was defective for not specifying whether the charge was for concealment of particulars of income or for furnishing inaccurate particulars of income; Revenue's appeal is dismissed.

Prior period items - overvaluation of closing stock and work-in-progress - crystallization of loss in the current year - deduction under section 37(1) of the Income-tax Act - requirement to file a revised return - Accounting estimate and change in accounting estimate

Prior period items - overvaluation of closing stock and work-in-progress - crystallization of loss in the current year - Accounting estimate and change in accounting estimate - requirement to file a revised return - Whether the addition made by the Assessing Officer disallowing amounts debited in the profit and loss account on account of overvaluation of closing stock and work-in-progress as prior period items was justified - HELD THAT: - The Tribunal accepted the assessee's case that the overvaluation of stock and WIP was discovered and quantified during the year under consideration on the basis of a report by an independent firm of Chartered Accountants and corresponding disclosures in the notes to accounts and board minutes. The Assessing Officer's contention that the amounts were prior period items and therefore not allowable was examined in the light of the facts that the diminution in value was crystallized only in the year under appeal and the adjustment was made to present a true and fair view of the financial statements. The Tribunal noted the appellant's reliance on Accounting Standard principles distinguishing a change in estimate from prior period error and observed that where the exact quantum could not be ascertained earlier, the correction upon crystallization in the current year is permissible. The Tribunal found guidance in the precedent relied upon by the assessee, including National Aluminium Co. Ltd. and Kedarnath Jute Mfg. Co. Ltd. , as interpreted in the appellate orders reproduced in the record, which upheld rectification in the year of discovery and treated such bona fide adjustments as allowable. The Tribunal further observed the neutral effect across years (reduction of current year profit and consequential increase in next year) and concluded that the loss on account of overvaluation of closing stock/WIP is deductible, applying the principles underlying deduction for business losses and change in estimate, and rejecting the AO's view that a revised return should have been filed when the quantum was not ascertainable earlier. [Paras 6]

The addition was not justified; the deletion by the Commissioner (Appeals) is upheld and the amounts debited for overvaluation of closing stock and WIP are allowable.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal upholds the Commissioner (Appeals) order deleting the addition relating to overvaluation of closing stock and work-in-progress and allows the deduction.

Deduction under section 80P(2)(a)(i) of the Act - income attributable to business - interest on deposits with banks as business income - precedential scope of Totgars Cooperative Sale Society Ltd.

Deduction under section 80P(2)(a)(i) of the Act - income attributable to business - interest on deposits with banks as business income - Whether interest income earned by the assessee from fixed deposits kept with co-operative banks is eligible for deduction under section 80P(2)(a)(i) of the Act for A.Y. 2013-14. - HELD THAT: - The Tribunal examined competing precedents and followed the reasoning of the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd., as applied by the Tribunal in Jaoli Taluk Sahakari Patpedhi Maryadit. The Karnataka High Court held that the phrase "attributable to" is wider than "derived from" and, where retained funds arising from the business of providing credit facilities are deposited in banks to earn interest (and are not liabilities due to members), the interest is attributable to the profits and gains of that business. The Tribunal noted that the Supreme Court decision in Totgars Cooperative Sale Society Ltd. was confined to its facts and did not lay down a contrary general rule; where interest arises from business funds deposited because they were not immediately required for lending, such interest is not from a separate business but is attributable to the business of providing credit. Applying that reasoning to the assessee - a credit co-operative society whose business is to take deposits and advance loans to members - the interest on fixed deposits placed with co-operative banks was held to be attributable to the business of providing credit and therefore deductible under section 80P(2)(a)(i).

Interest income from fixed deposits with co-operative banks is deductible under section 80P(2)(a)(i) of the Act for A.Y. 2013-14; the CIT(A)'s contrary conclusion is set aside and the Assessing Officer is directed to allow the deduction.

Final Conclusion: The appeal is allowed: interest earned on fixed deposits placed with co-operative banks by the credit co-operative society is held to be attributable to its business of providing credit and deductible under section 80P(2)(a)(i) for A.Y. 2013-14; alternative grounds were not adjudicated as academic.

Rectification of mistake apparent from record - classification of vessels - dutiability of vessels as goods or conveyances - harmonious construction of chapter 89 - open remand to adjudicating authority for re-determination - jurisdiction of notice-issuing officer under section 28 - confiscation under section 111 of the Customs Act, 1962 - re-computation of duty and related determinations (valuation, rate of exchange, additional duty notifications)

Rectification of mistake apparent from record - classification of vessels - dutiability of vessels as goods or conveyances - Whether the Tribunal's order required rectification by enlarging the limited remand so as to direct fresh determination of (a) whether the ships are conveyances or goods on each entry and (b) classification within chapter 89 if found to be goods. - HELD THAT: - The Tribunal concluded that the adjudication below and the appellate order proceeded to classification and duty computation without first satisfactorily resolving whether the ships, which can fall within both definitions of 'goods' and 'conveyances', ought to be treated as conveyances (thereby excluding certain dutiability consequences) or as goods on each re-entry. The appellate order had affirmed classification under a specific heading without adequately addressing the foundational question of dutiability and without harmoniously construing the sub-headings of chapter 89, including the proper role of 'navigability' in that exercise. Those lacunae constitute apparent mistakes in the record because they go to the root of liability and require factual and legal reassessment by the original authority with full adjudicatory findings. Consequently the Tribunal enlarged the restricted remand into an open remand directing the original authority to determine (inter alia) the conveyance/goods issue and, if the ships are goods on re-import, to re-determine classification under the appropriate entry in chapter 89. [Paras 22, 24, 25, 26, 27]

Rectification allowed by converting the limited remand into an open remand to the adjudicating authority for fresh determination of dutiability (conveyance versus goods) and classification under chapter 89.

Re-computation of duty and related determinations (valuation, rate of exchange, additional duty notifications) - Whether issues ancillary to liability-valuation, applicable rate of exchange and entitlement to concessional additional duty notification-are to be reconsidered on remand. - HELD THAT: - The Tribunal observed that, given the need to re-examine dutiability and classification, associated aspects such as valuation under the Customs Act, the applicable rate of exchange, and the applicability of notifications relating to additional duties are intertwined with the primary determination and were not sufficiently addressed in the adjudication. It would be inequitable for the Tribunal to re-adjudge these detailed matters without a comprehensive adjudication record; therefore these matters are to be considered afresh by the original authority as part of the open remand. [Paras 26, 27]

Original authority directed to re-compute duty and determine valuation, rate of exchange and entitlement to notifications while deciding dutiability and classification on remand.

Jurisdiction of notice-issuing officer under section 28 - open remand to adjudicating authority for re-determination - Whether the Tribunal should defer final adjudication until the higher courts decide the question of jurisdiction relating to the competence of the officer who issued the show-cause notices (the Mangali Impex line of authority). - HELD THAT: - Although the appellant had not raised the jurisdictional ground before the Tribunal in the original hearing, the Tribunal found equity and the potential for irreparable harm warranted addressing the contention. There exist conflicting and interlocutory decisions at different fora (including a stay of the Delhi High Court decision in Mangali Impex by the Supreme Court and contrary positions in other High Courts). In these circumstances, and because a final adverse adjudication on merits would prejudice the appellant if jurisdiction is later found lacking, the Tribunal concluded it is appropriate to remand the matter and direct the original authority to await the final outcome of the pending Supreme Court decision in Mangali Impex before completing adjudication. [Paras 28, 29, 31]

Matter remanded to the original authority with direction to await the Supreme Court's decision in Mangali Impex on the jurisdictional issue before proceeding to final adjudication.

Confiscation under section 111 of the Customs Act, 1962 - Whether the confiscation and fine imposed under section 111 should be sustained in view of the remand on dutiability and classification. - HELD THAT: - Because the Tribunal has ordered an open remand requiring the adjudicating authority to determine fundamental questions of dutiability and classification (which go to the root of whether duty was exigible at all), continuation of confiscation would be premature and may be unjust if the original authority ultimately finds no dutiability. The Tribunal therefore found the confiscation to be in jeopardy pending the fresh adjudication and directed that the confiscation imposed in the adjudication order be set aside. [Paras 32]

Confiscation set aside; the order-in-original's confiscation is appropriated to be vacated in view of the open remand.

Final Conclusion: The application for rectification is allowed in part: the Tribunal's earlier limited remand is enlarged into an open remand directing the original adjudicating authority to re-determine (a) whether the ships are conveyances or goods on each re-entry, (b) if goods, their correct classification within chapter 89, and (c) related matters of valuation, rate of exchange and applicability of additional duty notifications. The adjudicating authority is directed to await the final decision of the Hon'ble Supreme Court in Mangali Impex on the jurisdictional point before concluding adjudication; in consequence the confiscation ordered under section 111 is set aside and the Tribunal's earlier order is modified accordingly.

Mandatory requirement of proviso to Section 61(2)(ii) of FERA - opportunity to show requisite permission - cognizance by court - invalidity of proceedings for non-compliance with statutory mandate

Mandatory requirement of proviso to Section 61(2)(ii) of FERA - opportunity to show requisite permission - service of opportunity notice - cognizance by court - Whether the proviso to Section 61(2)(ii) of FERA required that the accused be given an opportunity (by notice or otherwise) to show that he had the requisite permission before a court could take cognizance, and whether failure to serve the opportunity notice vitiated the taking of cognizance and framing of charge. - HELD THAT: - The Court held that the proviso to Clause (ii) of sub section (2) of Section 61 imposes a mandatory statutory requirement that an accused be given an opportunity to show that he had the requisite permission before a court may take cognizance of offences under Sections 56 or 57 of FERA. The bench observed that compliance must be in the manner required by law and noted precedent to the same effect. Although the respondent relied on a statement recorded under Section 40 during investigation, the respondents had itself issued a specific document titled "OPPORTUNITY NOTICE" dated 24.05.2002 purporting to act under Section 61(2). That notice, however, was addressed to A 34, Connaught Place, whereas the petitioners' office was at E 34, Connaught Place; witnesses for the respondent confirmed the notice was affixed at A 34 and that the premises was locked and not the petitioners' office. Thus the prescribed opportunity was neither effectively served nor shown to have been afforded to the petitioners. The Court concluded that reliance on the investigatory statement in lieu of granting the statutorily required opportunity was misplaced, and the Magistrate was under a statutory duty to be satisfied that an opportunity had been given before taking cognizance. [Paras 12, 13, 14, 16, 17]

The proviso to Section 61(2)(ii) is mandatory; since the petitioners were not given the required opportunity (the opportunity notice was not correctly addressed or served), the Trial Court's taking of cognizance and framing of charge was vitiated and the impugned order is quashed.

Final Conclusion: The petition is allowed; the Order on Charge dated 11.07.2017 is quashed for non compliance with the mandatory proviso to Section 61(2)(ii) of FERA and there shall be no order as to costs.

Security Agency Services - definition of "person" - sovereign function - statutory function - statutory fee / user charges - CBEC Circular No. 89/7/2006-S.T. - service tax demand not sustainable

Security Agency Services - definition of "person" - sovereign function - Whether the police, as an agency of the State, providing security for consideration, falls within the definition of a "Security Agency" and is liable to service tax. - HELD THAT: - The Tribunal held that the Superintendent of Police and the police department are agencies/ instrumentalities of the State and, in light of established authorities and the statutory scheme, are not to be treated as a "person" engaged in business of rendering security services for the purpose of service tax. The Court accepted that the charges recovered by the police are cost-recovery for deployment of additional force to maintain public security and public order and that such deployment is a statutory/constitutional duty of the State and not a commercial activity undertaken with intent to earn profit. Consequently, the activity of deploying police personnel on request could not be characterised as a business falling within the definition of "Security Agency" and therefore cannot attract service tax. [Paras 10, 11, 13]

Police, being an agency of the State performing sovereign functions, is not covered by the definition of "Security Agency" and is not liable to service tax on charges recovered for deployment of police personnel.

Statutory function - statutory fee / user charges - CBEC Circular No. 89/7/2006-S.T. - service tax demand not sustainable - Whether the amounts recovered by the police for deployment of additional force are statutory fees exempt from service tax under the CBEC circular and relevant Police Act notifications. - HELD THAT: - Applying CBEC Circular No. 89/7/2006-S.T., the Tribunal examined three conditions for immunity: (a) the activity is a statutory/mandatory duty of a sovereign/public authority; (b) the fee is levied as per relevant law; and (c) amounts collected are deposited into the Government treasury. The Tribunal found that deployment of police is a statutory duty under the Police Act, that user charges are prescribed by State notifications under the Act, and that the amounts collected are credited to the Government treasury. Given satisfaction of these conditions, the fees collected are statutory in nature and not subject to service tax. The tribunal thus rejected the lower authority's view that the charges were non-statutory consideration liable to service tax. [Paras 9, 12, 13]

Amounts recovered by the police for deployment of additional force are statutory fees prescribed under the Police Act and, in view of the CBEC circular, are not leviable to service tax; the demand is unsustainable.

Final Conclusion: The appeal is allowed; the service tax demand, interest and penalty imposed on the police for charges recovered for providing security personnel are held unsustainable and the impugned orders are set aside.

Commercial Training or Coaching Services - sale of prospectus - assessable value of taxable services - penalty under the Finance Act, 1994 - time-bar / extended period of limitation

Commercial Training or Coaching Services - sale of prospectus - assessable value of taxable services - Sale of prospectus forms part of the assessable value of the appellant's Commercial Training or Coaching Services - HELD THAT: - The Tribunal held that the sale of prospectus is not part of the appellant's Commercial Training or Coaching Services. Applying the precedent of this Tribunal in Balaji Society, the prospectus is a document used for screening by way of an Admission Screening Examination and the mere filling or purchase of a prospectus does not confer any right to receive coaching from the institute. Consequently, the sale of the prospectus cannot be treated as part of the taxable service or included in the assessable value of such services. The Tribunal therefore set aside the demand that had been raised by including the prospectus sale in service value.

Demand based on inclusion of sale of prospectus in assessable value of Commercial Training or Coaching Services is set aside.

Penalty under the Finance Act, 1994 - time-bar / extended period of limitation - Validity of invocation of extended period and imposition of penalties - HELD THAT: - The Tribunal found that the revenue failed to produce evidence sufficient to justify invocation of the extended period for assessment or to substantiate the imposition of penalties under the Finance Act, 1994. In the absence of such evidence the statutory requirements for extending limitation and levying penalties were not satisfied. For these reasons the Tribunal concluded that the penalties and any demand based on extended period could not be sustained and were to be set aside.

Invocation of extended period and imposition of penalties set aside for lack of supporting evidence.

Final Conclusion: The appeals are allowed; the demand and penalties arising from inclusion of prospectus sales in the assessable value of Commercial Training or Coaching Services for the period 01.04.2006 to 31.12.2010 are set aside, with consequential reliefs as may be applicable.

Cenvat credit utilisation for payment of output service tax - Goods Transport Agency service liability - effect of legislative amendment on binding judicial decisions - quashing of cryptic tribunal order and remand for fresh consideration

Quashing of cryptic tribunal order and remand for fresh consideration - The Tribunal's cryptic order allowing Cenvat credit utilisation was quashed and set aside. - HELD THAT: - The High Court found the Tribunal's brief order to be cryptic and inadequately reasoned because it relied upon a Larger Bench decision which concerned an earlier period and did not demonstrate consideration of the specific facts and law applicable to the present period. For these reasons the Tribunal's impugned order was quashed and set aside and the matter was directed to be re-heard on merits by the Tribunal without being influenced by earlier conclusions.

Impugned Tribunal order set aside and appeal remitted for fresh hearing on merits.

Cenvat credit utilisation for payment of output service tax - Goods Transport Agency service liability - effect of legislative amendment on binding judicial decisions - The Tribunal is to re-hear whether Cenvat credit accumulated from manufacturing activities could be utilised to discharge service tax liability as recipient for GTA for the period April 2007 to March 2008, and whether the legislative amendment affects earlier judicial orders. - HELD THAT: - The High Court directed the Tribunal to decide the matter afresh on merits, expressly keeping open all contentions. The Tribunal must consider the legal question of Cenvat credit utilisation for payment of service tax in respect of Goods Transport Agency services for the specified period and must expressly examine and record its opinion on the effect of the legislative amendment to Rule 2(p) of the Cenvat Credit Rules, 2004 - in particular whether that amendment renders ineffective the basis of earlier judicial decisions relied upon. The Tribunal's re-hearing must be uninfluenced by previous conclusions and address the applicability of precedents and the amendment.

Issue remitted to the Tribunal for fresh adjudication on merits, including consideration of the amendment's effect.

Final Conclusion: The High Court quashed the Tribunal's cryptic order and remitted the appeal for fresh hearing on merits; the Tribunal is to decide whether Cenvat credit could be utilised to pay GTA service tax for April 2007 to March 2008 and to expressly determine the effect of the legislative amendment on earlier judicial decisions.

Clandestine removal - unaccounted manufacture - CENVAT credit admissibility upon duty paid on finished goods - requirement of corroborative evidence for retracted statements - separate legal entities and distinct liability despite common premises - double use of same documentary evidence against two entities already adjudicated - Section 36B compliance for electronic evidence admissibility

Clandestine removal - unaccounted manufacture - requirement of corroborative evidence for retracted statements - separate legal entities and distinct liability despite common premises - double use of same documentary evidence against two entities already adjudicated - Whether demand of duty, interest and equivalent penalty on M/s. Stovekraft Pvt. Ltd. for alleged clandestine removal and unaccounted manufacture should be sustained or set aside - HELD THAT: - The Tribunal majority accepted the Judicial Member's conclusion that the Department's case rested mainly on two seized pen drives and statements of key personnel, one of whom (the proprietor/MD) gave subsequent retraction. Where a statement is retracted, corroborative evidence is required; the Department did not collect independent corroboration. The impugned demand relied on railway receipts and pen-drive data that, on the material, related to M/s. Vardhaman Enterprises whose liability had already been admitted and finally settled. Identical documentary material cannot be used to sustain a demand twice over against two separate registered entities which remained distinct for the relevant period. Given the lack of additional corroboration and the fact that Vardhaman's case was concluded, there was insufficient evidence to fasten clandestine removal/unaccounted manufacture on SKPL; the Judicial Member's view was therefore accepted. [Paras 83]

Demand of duty, interest and equivalent penalty imposed on M/s. Stovekraft Pvt. Ltd. for clandestine removal/unaccounted manufacture is set aside.

CENVAT credit admissibility upon duty paid on finished goods - clandestine removal - Whether the demand of CENVAT credit of Rs. 85,22,040/- (allegedly availed on fake invoices without receipt of inputs) should be sustained or set aside - HELD THAT: - The Tribunal accepted the Judicial Member's finding that duty had been paid on the finished goods, and where duty on finished goods has been discharged, CENVAT credit on raw materials consumed in those goods is allowable. The Department had accepted duty payment without objection; its contrary plea that only invoices were raised without receipt of raw material was not supported by independent corroboration. Consequently, the claim for recovery of CENVAT credit on the basis that inputs were not received could not be sustained. [Paras 82, 83]

Demand of CENVAT credit of Rs. 85,22,040/- (with interest and penalty) is set aside and the credit is held allowable in light of duty paid on finished goods.

Penalty - separate legal entities and distinct liability despite common premises - Whether imposition of penalty on Shri Rajendra J. Gandhi should be sustained or set aside - HELD THAT: - Having accepted the Judicial Member's conclusion that the evidential basis was insufficient to sustain the substantive demands against SKPL, the consequential penalty imposed on the Managing Director was also unjustified. The majority order set aside the impugned order assessing duty and imposing penalties on SKPL and on Shri Rajendra J. Gandhi. [Paras 85, 86]

Penalty imposed upon Shri Rajendra J. Gandhi is set aside.

Remand for passing appropriate order - Return of the matter to the regular Bench for consequential action following the majority decision - HELD THAT: - After recording agreement with the Judicial Member on the core findings, the Tribunal President directed that the matter be returned to the regular Bench so that appropriate consequential orders may be passed in accordance with the majority decision. [Paras 84]

Matter remitted to the regular Bench to pass appropriate consequential orders.

Final Conclusion: The Tribunal (by majority) accepted the Judicial Member's conclusions: the demands for duty, interest and equivalent penalties against M/s. Stovekraft Pvt. Ltd. (and the penalty on the Managing Director) were set aside; the demand for recovery of the impugned CENVAT credit was also rejected and the matter was returned to the regular Bench for consequential orders. Both appeals were allowed.

Personal hearing - remand for fresh assessment - works contract - job work - input tax credit - TDS under section 13 of the Act - revised notice proposing reassessment - Circular No. 7 of 2014

Revised notice proposing reassessment - remand for fresh assessment - Validity of the assessment order for the assessment year 2009-10 in light of a subsequently issued revised notice proposing to redo the assessment. - HELD THAT: - The Court found that the assessment order dated June 30, 2017 for AY 2009-10 had become final only in form because the respondent had issued a fresh revised notice dated July 28, 2017 proposing to redo the assessment. Consequently the impugned order for AY 2009-10 was set aside and the petitioner was given liberty to submit objections to the revised notice within a fortnight, after which the assessing officer is to consider the objections and redo the assessment in accordance with law. [Paras 3]

Assessment order dated June 30, 2017 for 2009-10 set aside and remanded for fresh consideration pursuant to the revised notice, with liberty to the petitioner to submit objections.

Personal hearing - Circular No. 7 of 2014 - remand for fresh assessment - Whether the assessment orders for the years 2010-11 and 2011-12 are vitiated by the assessing officer's failure to fix a specific date for personal hearing in accordance with Circular No. 7 of 2014. - HELD THAT: - The Court held that the assessing officer dealt with the petitioner's objections in a sketchy manner and did not follow the procedure contemplated by Circular No. 7 of 2014, which directs that a particular date be fixed for personal hearing rather than combining a call for objections with a general hearing notice. The Court observed that had a specific date been fixed and the process of manufacture examined, the errors in assessment may not have arisen. Reliance was placed on the Court's earlier decision addressing compliance with Circular No. 7 of 2014. For these reasons the impugned assessment orders for 2010-11 and 2011-12 were set aside and remanded to the respondent to fix specific dates for personal hearing and reconsider the matters. [Paras 8, 9, 10, 11]

Assessment orders dated June 30, 2017 for 2010-11 and 2011-12 set aside and remanded for fresh consideration after fixing specific dates for personal hearing in accordance with Circular No. 7 of 2014.

Works contract - job work - input tax credit - TDS under section 13 of the Act - reversal of ITC - Status of substantive contentions raised in the assessments for 2010-11 and 2011-12 (classification of galvanizing as works contract or job work; eligibility/availment and reversal of input tax credit; applicability of TDS; reporting of scrap sales; treatment of transport charges). - HELD THAT: - The Court recorded that the petitioner had placed on record detailed explanations and legal submissions on several substantive issues including that galvanizing constituted job work rather than a works contract, challenges to denial/requirement of reversal of input tax credit, non-payment of TDS under section 13 on building construction, non-reporting of scrap sales and treatment of transport charges. However, because the assessing officer failed to afford proper personal hearing and to examine the manufacturing process as required, these substantive issues were not finally adjudicated on merits. The Court therefore remanded the matters for fresh adjudication of these substantive contentions by the assessing officer after complying with the requirement to fix specific hearing dates and after giving the petitioner an opportunity to be heard. [Paras 5, 6, 7, 8, 11]

Substantive issues for 2010-11 and 2011-12 are not finally decided and are remanded for fresh consideration and adjudication after proper personal hearing; assessments to be redone in accordance with law.

Final Conclusion: The assessment order for AY 2009-10 is set aside and the petitioner is permitted to file objections to the revised notice; the assessment orders for AYs 2010-11 and 2011-12 are set aside for failure to comply with the requirement of fixing specific dates for personal hearing (Circular No. 7 of 2014) and remanded to the assessing officer to afford specific personal hearings, examine the records and the manufacturing process, and redo the assessments in accordance with law.

Failure to assign reasons and denial of personal hearing - determination of invisible loss and application of uniform percentage - duty to furnish full details from official portal and to verify via enquiries of other end-dealers - prohibition on enforcement officer directing implementation of assessment proposal which usurps assessing officer's independent power - remand for fresh consideration in accordance with law

Determination of invisible loss and application of uniform percentage - precedent binding on method of computation - Adoption of a uniform two per cent. percentage for invisible loss without following court directions and precedent - HELD THAT: - The court found that the assessing officer adopted a uniform two per cent. invisible loss without applying the methodology prescribed by this Court in Interfit Techno Products Ltd. The respondent did not take note of the directions in that decision as to how invisible loss should be determined and merely stated that wastage will be given due credit. The matter was not adjudicated by applying the established principle, but treated cryptically in the assessment orders. [Paras 4, 7, 12]

Impugned assessments set aside and the question of invisible loss remanded for fresh consideration in accordance with the Court's earlier directions and law.

Duty to furnish full details from official portal and to verify via enquiries of other end-dealers - requirement of enquiry before reversal of input-tax credit - Use of mismatch information culled from the Department's official website without furnishing full details or conducting enquiry with other end-dealers - HELD THAT: - The court observed that discrepancies attracted from the official website cannot be the basis for adverse findings unless full details are furnished to the dealer and enquiries conducted, including summoning other end-dealers. Assessments proceeded without supplying the requisite particulars to the petitioner or conducting the necessary enquiries. [Paras 5, 7, 12]

Assessment orders set aside and the matter remanded with direction to furnish full details, conduct enquiries (including of other end-dealers) and then reconsider input-tax credit claims.

Failure to assign reasons and denial of personal hearing - principles of fair procedure in assessment proceedings - Assessment completed by rejecting petitioner's contentions without assigning reasons and without providing an opportunity of personal hearing - HELD THAT: - The court found that the respondent completed assessments while rejecting the petitioner's explanations on discrepancies and discounts without assigning reasons and appears to have not given an opportunity of personal hearing. Rejection without reason violates the requirement that an assessing officer must record reasons for not accepting objections and must afford hearing where appropriate. [Paras 6, 8, 9, 12]

Impugned orders set aside and remanded for fresh consideration after providing the petitioner full particulars, opportunity to file additional objections, and an opportunity of personal hearing with reasons recorded for any adverse conclusions.

Prohibition on enforcement officer directing implementation of assessment proposal which usurps assessing officer's independent power - separation of roles between enforcement reports and assessing officer's independent adjudication - Validity of enforcement communication directing implementation of VS-13 proposal and requiring assessing officer to send copy of order to enforcement - HELD THAT: - On perusal of the original files the court noted a communication from enforcement directing the assessing officer to implement the VS-13 proposal and to send a copy of the order to enforcement. The court held that such a positive directive by enforcement improperly takes away the assessing officer's independent power. At best, enforcement's report can be a cause for issuing a pre-revision notice; the assessing officer must independently consider objections. The presence of such a directive explained the cryptic implementation in the impugned orders. [Paras 10, 11, 12]

Communication from enforcement construed as impermissible; assessments set aside and remanded for independent exercise of power by the assessing officer uninfluenced by enforcement's directive.

Final Conclusion: Impugned assessment orders for 2012-13 to 2015-16 are set aside. Matters remanded to the assessing officer for fresh consideration: furnish full details relied upon, allow filing of additional objections, conduct necessary enquiries (including summoning other end-dealers), afford personal hearing, record reasons for conclusions, and redo the assessments in accordance with law; no costs.

Liability to pay sales tax - validity of Form H - remand for fresh adjudication by assessing authority - maintainability of civil suit despite pendency of statutory proceedings - interim deposit and merger with final decree - right to refund upon successful challenge before the tax authority

Liability to pay sales tax - validity of Form H - Whether the appellant was liable to pay the sales tax claimed and whether the trial Court's decree in favour of the respondent should be sustained. - HELD THAT: - The High Court affirmed the trial Court's conclusion that, on the material placed by the respondent (including the purchase order and terms and conditions), the tax liability rested upon the appellant in the absence of an accepted exemption. The documentary evidence placed by the respondent was not disputed and supported the finding that the 'Form H' issued by the appellant had been rejected by the tax authorities, leaving the respondent liable to pay sales tax; consequently the trial Court's judgment and decree were confirmed subject to the subsequent statutory adjudication by the Deputy Commercial Tax Officer. The Court rejected the appellant's contention on cause of action and found the suit properly founded on the contractual terms and the payment already made by the respondent. [Paras 7, 9]

Judgment and decree of the trial Court confirming the respondent's claim for recovery were upheld.

Maintainability of civil suit despite pendency of statutory proceedings - Whether the suit was maintainable notwithstanding the pendency of proceedings before the statutory tax authorities. - HELD THAT: - The Court held that the civil suit was maintainable because the relief sought arose under the contract between the parties and was not ousted by mere pendency of tax proceedings. The existence of parallel statutory proceedings did not bar the civil cause of action brought for recovery of the amount paid by the respondent pursuant to the tax demand. [Paras 7]

The suit is maintainable and the trial Court rightly entertained it.

Remand for fresh adjudication by assessing authority - Extent to which the question of acceptance of Form H must be reconsidered by the tax authority and the consequences thereof. - HELD THAT: - The Court recorded that earlier orders (including directions in W.P.No.14186 of 2001) required remittance of the matter to the Deputy Commercial Tax Officer, Karur (Rural), Karur for fresh consideration on the principle that the penultimate sale must be shown to be inextricably connected with export. Accordingly, the question of acceptance of Form H is left open for fresh adjudication by the assessing authority and any refund or adjustment will follow that decision. The Court expressly conditioned execution and the final consequences of the decree upon that statutory adjudication. [Paras 4, 5, 8]

The matter is remitted to the Deputy Commercial Tax Officer for fresh consideration; final consequences and any refund depend on that adjudication.

Interim deposit and merger with final decree - right to refund upon successful challenge before the tax authority - Proper treatment of amounts deposited pursuant to interim orders and conditions for execution or repayment pending the tax authority's decision. - HELD THAT: - The Court noted that the appellant had deposited the decree amount and that part of it was permitted to be withdrawn by the respondent. It held that interim deposits are to be governed by the subsequent adjudication: if the tax authority accepts the respondent's claim and grants exemption (accepts Form H), the respondent must repay amounts received under the interim order; if the tax authority upholds the tax demand against the respondent, the respondent may retain the deposited sums. The Court directed that no withdrawal of the deposited amount be permitted until the assessing authority concludes the adjudication and allowed execution only in accordance with the assessing authority's decision. [Paras 5, 6, 8]

Amounts deposited pursuant to interim orders remain subject to the outcome of the tax adjudication; repayment or retention to follow that outcome and execution is to proceed accordingly.

Final Conclusion: The High Court confirmed the trial Court's judgment and decree in favour of the respondent on the contractual claim for recovery, but remitted the tax-exemption issue (acceptance of Form H) to the Deputy Commercial Tax Officer for fresh consideration; execution and the fate of interim deposits are to be governed by that subsequent adjudication.

Exemption of unused urban land held for industrial purposes under Explanation 1 to section 2(ea) of the Wealth Tax Act, 1957 - Industrial purposes - Definition of industry to include services - Productive versus non-productive assets - Constructive utilisation where construction commences within two years - Wealth tax liability for vacant urban land

Exemption of unused urban land held for industrial purposes under Explanation 1 to section 2(ea) of the Wealth Tax Act, 1957 - Industrial purposes - Definition of industry to include services - Constructive utilisation where construction commences within two years - Productive versus non-productive assets - Whether the freehold urban land purchased by the assessee and vacant on the valuation date (31.03.2009) was excluded from definition of 'urban land' under Explanation 1 to section 2(ea) of the Wealth Tax Act, 1957, on the ground that it was held for industrial purposes and construction for business use had commenced within two years - HELD THAT: - The Tribunal held that 'industrial purposes' is not limited to manufacturing but embraces organised business activities including services. Reliance was placed on dictionary meanings and the inclusive definition of 'industry' in section 2(j) of the Industrial Disputes Act, 1947, and on the statutory practice of using the narrower phrase 'manufacture' where the legislature intends to confine benefits to manufacturers. The assessee's business of providing services to power projects therefore qualified as an industry. The land was acquired for exclusive business use (office and service centre) as per the purchase agreement, and construction commenced before the expiry of two years from acquisition (evidence of work orders, commencement and later completion documents produced). The Tribunal treated commencement of construction as constructive utilisation, converting the vacant plot into a business (productive) asset so that it does not fall within the taxable category of vacant urban land under section 2(ea). The Tribunal noted consistent precedent that once construction for commercial use starts the land ceases to be vacant for wealth-tax purposes and emphasized that assets used for service activities are productive and excluded from wealth tax in pari materia with manufacturing establishments. [Paras 6]

The land was held for industrial purposes (including services), construction had commenced within the two-year period and the land is not a taxable urban vacant asset; Ground No. 1 is allowed.

Failure to press grounds - Whether Ground No. 2 pressed before the Tribunal - HELD THAT: - The appellant did not press Ground No. 2 at the hearing. The Tribunal treated the statement of the appellant's representative in court as a waiver of that ground. [Paras 7]

Ground No. 2 is dismissed as not pressed.

Consequential interest charge - Whether the chargeability of interest under section 17B required separate adjudication - HELD THAT: - The Tribunal observed that the question of interest under section 17B is consequential to the tax determination and does not require primary adjudication in the present appeal. [Paras 8]

Chargeability of interest under section 17B is consequential and does not require specific adjudication in this appeal.

Final Conclusion: The appeal is partly allowed: the value of the freehold land acquired for and used in the assessee's service/business activities is excluded from 'urban land' for Wealth Tax Act purposes (Ground No.1 allowed); one ground was not pressed (Ground No.2 dismissed as not pressed); interest under section 17B is consequential and not separately adjudicated.

Rule making power of State under Section 15 and Section 23 C of the Mines and Minerals (Development and Regulation) Act, 1957 - prevention of illegal mining, transportation and storage of minerals - applicability of State minor mineral rules to imported minerals - public trust doctrine and duty to protect natural resources - central competence over import and customs regime

Rule making power of State under Section 15 and Section 23 C of the Mines and Minerals (Development and Regulation) Act, 1957 - applicability of State minor mineral rules to imported minerals - central competence over import and customs regime - Whether the Tamil Nadu Minor Mineral Concession Rules, 1959 and the Tamil Nadu Prevention of Illegal Mining, Transportation and Storage of Minerals and Mineral Dealers Rules, 2011 can be applied to prevent transportation, stocking and sale of sand imported from abroad when the importer possesses customs/import documents and clearance - HELD THAT: - The Court examined the scope and object of the parent Act and the Rules framed thereunder and held that the powers under Sections 15 and 23 C were vested in the State to regulate quarrying, and to prevent illegal mining, transportation and storage of minerals quarried within the State. The Mines and Minerals (Development and Regulation) Act, 1957 does not contemplate or deal with imports; the 1959 and 2011 Rules were framed to regulate minor minerals secured within Tamil Nadu and to curb illegal quarrying and inter State smuggling. The forms, appendices and definitions under Rule 38 C demonstrate that the scheme presupposes sand purchased from the Public Works Department or quarried within the State and authenticated sale/transport slips. Where imported sand is supported by Customs/plant quarantine/bill of entry/invoice/GST and other import documents, those materials are the proper proof of origin and clearance and the State rules cannot be used to deny transport or take punitive action. The Court therefore rejected the contention that the State may, under the existing 1959 and 2011 Rules, insist on registration, licence for stocking and sale, or transport permits/transit passes for sand lawfully imported and cleared under the Central import regime; in short, the restrictions in Rule 38 C and corresponding 2011 provisions are not applicable to imported sand in possession of appropriate import documentation. [Paras 23, 28, 32, 37]

The State Rules (Tamil Nadu Minor Mineral Concession Rules, 1959 and Tamil Nadu Prevention of Illegal Mining, Transportation and Storage of Minerals and Mineral Dealers Rules, 2011) cannot be applied to restrain transportation, stocking or sale of sand lawfully imported and cleared under the Central import/customs regime where the importer produces the prescribed import documents.

Prevention of illegal mining, transportation and storage of minerals - applicability of local regulatory scheme to protect environment - public trust doctrine and duty to protect natural resources - Relief and directions to balance public interest, environmental protection and facilitation of lawful imports - HELD THAT: - Recognising the environmental and public interest concerns underlying regulation of sand mining and transportation, and the Court's obligation to balance ecological protection with legitimate commercial activity, the Court issued detailed directions. Those directions (recorded by the Court) include measures to halt sand mining/quarrying within a specified timeframe, periodic closure of certain quarries, testing and record requirements for imported sand, facilitation by State authorities for movement of imported sand upon production of import documents, establishment of permanent check posts with monitoring, steps for state led import and identification of foreign sources, and administrative measures to investigate and penalise illegal mining. The Court also suo motu impleaded central Ministries to enable formulation of uniform guidelines on import quality and usage. The directions are framed to ensure that lawful importers are not unduly prevented from transporting cleared consignments while enabling the State to take future legislative or regulatory steps under Article 304 if it so chooses. [Paras 21, 41]

The writ petition is allowed subject to the directions issued by the Court: imported sand may be transported and sold on production of import related documents and the State shall implement the specified environmental, inspection and administrative measures set out in the order.

Final Conclusion: The writ petition was allowed. The Court held that the State Rules of 1959 and 2011, framed under Sections 15 and 23 C of the Mines and Minerals (Development and Regulation) Act, 1957, do not extend to lawfully imported sand supported by Customs/import clearance documents; accordingly the petitioner succeeds and the Court issued directions to facilitate transportation of imported sand upon production of import documentation and to strengthen measures to prevent illegal mining and protect the environment.

Territorial jurisdiction under Section 138 of the Negotiable Instruments Act - Amendment to Section 142(2) of the Negotiable Instruments Act determining forum where cheque is delivered for collection through an account - Place of presentation/delivery of cheque for collection as determinative of jurisdiction - Deemed delivery to branch where payee maintains account (Explanation to Section 142(2)) - Effect of crossed/uncrossed cheque on mode of presentation and jurisdiction - Forum convenience and transfer of criminal complaint under Section 407 CrPC

Amendment to Section 142(2) of the Negotiable Instruments Act determining forum where cheque is delivered for collection through an account - Place of presentation/delivery of cheque for collection as determinative of jurisdiction - Deemed delivery to branch where payee maintains account (Explanation to Section 142(2)) - Whether the Court at Bhagalpur has territorial jurisdiction to try the complaint under Section 138 of the Negotiable Instruments Act where the cheques were presented in the complainant's account at Bhagalpur after the amendment to Section 142(2). - HELD THAT: - The amendment by Act 26 of 2015 (effective 15.06.2015) to Section 142(2) confines inquiry and trial of an offence under Section 138 to a Court within whose local jurisdiction (a) the branch of the bank where the payee maintains the account is situated, if the cheque is delivered for collection through an account, or (b) the branch of the drawee bank where the drawer maintains the account is situated, if presented otherwise than through an account. The Explanation clarifies that delivery for collection at any branch is to be treated as delivery at the branch in which the payee maintains the account. Applying this statutory scheme, where cheques were presented in the complainant's account at Bhagalpur, the territorial locus of the offence for purposes of Section 138 is Bhagalpur and not the place of the drawer or other fora. The amendment consequently displaces the earlier expansive approach which permitted suit at several localities and supersedes the narrower pre amendment jurisprudence that relied on the situs of the drawer bank alone. The determinative fact is where the cheque was delivered/presented for collection through an account and, on the material before the Court, that was Bhagalpur. [Paras 10, 22, 23, 25]

Bhagalpur has territorial jurisdiction to try the complaint under Section 138 since the cheques were delivered/presented for collection in the complainant's account at Bhagalpur.

Effect of crossed/uncrossed cheque on mode of presentation and jurisdiction - Place of presentation/delivery of cheque for collection as determinative of jurisdiction - Whether the fact that the cheques were not crossed entitles the petitioner to contend that they should have been presented over the counter at the drawer bank (Katihar) and thus confer jurisdiction on Katihar courts. - HELD THAT: - Chapter XIV and Section 125 of the Negotiable Instruments Act govern crossing of cheques and the holder's option to present a cheque generally or specially crossed. Even where a cheque is uncrossed, if it is presented in the drawee bank in the payee's account for collection, the presentation is treated as presentation through an account for the purposes of Section 142(2). Consequently, presentation in the payee's account fixes jurisdiction at the Court within whose local limits that payee bank branch is situated. The mere absence of crossing does not convert the presentation into an over the counter presentation at the drawer bank when, on the facts, the cheques were presented through the complainant's account at Bhagalpur. [Paras 29, 31, 32]

Absence of crossing does not entitle the petitioner to shift jurisdiction to Katihar where the cheques were presented for collection in the complainant's account at Bhagalpur.

Forum convenience and transfer of criminal complaint under Section 407 CrPC - Territorial jurisdiction under Section 138 of the Negotiable Instruments Act - Whether forum convenience, in the form of co terminous proceedings at Katihar, warrants transfer of the Bhagalpur complaint to Katihar. - HELD THAT: - The petition under Section 407 CrPC requires consideration of forum convenience, but such convenience cannot override the statutory territorial jurisdiction prescribed by amended Section 142(2). The criminal police case pending at Katihar pertains to a different set of offences and does not alter the statutory locus where the cheque dishonour offence occurred. Given that jurisdiction is properly vested in Bhagalpur by the mode of presentation, interference on the ground of forum convenience would amount to upsetting the statutory scheme and causing forum non convenience; the court therefore declines to transfer the complaint. [Paras 33, 34, 35]

Forum convenience does not justify transfer; the petition for transfer is dismissed and the complaint remains within the jurisdiction of Bhagalpur.

Final Conclusion: The petition challenging denial of transfer is dismissed. The amended Section 142(2) NI Act vests jurisdiction in Bhagalpur because the cheques were delivered/presented for collection in the complainant's account at Bhagalpur; absence of crossing and asserted forum convenience do not warrant transfer to Katihar.

Quashing of criminal complaint - Abuse of process of court - Civil dispute predominant over criminality - Vicarious liability and arraignment of company - Inherent powers under Section 482 Cr.P.C. - Offence under Section 138 of the Negotiable Instruments Act and ancillary IPC offences

Civil dispute predominant over criminality - Abuse of process of court - Offence under Section 138 of the Negotiable Instruments Act and ancillary IPC offences - Whether the complaint discloses prima facie offences under the IPC or is essentially a civil dispute and an abuse of process warranting quashment - HELD THAT: - The court examined the material on record and found that the cheque book was handed over for a specific contractual purpose and the controversy arises out of disputed account transactions under a subcontract for road construction. On the materials and attendant circumstances the grievance was held to be essentially civil in nature and not to disclose the necessary ingredients of cheating or criminal breach of trust under the IPC. The court relied on the reasoning in Sunil Kumar vs. Escorts Yamaha Motors Ltd. to the effect that where cheques given for specific purposes are alleged to have been misused and the dispute is predominantly civil, criminal proceedings may amount to an abuse of process. Applying that principle here, the court concluded that initiation of criminal proceedings was liable to be set aside and constituted an abuse of the process of court. [Paras 5, 6, 8, 9]

Proceedings were quashed as the complaint prima facie disclosed a civil dispute and amounted to an abuse of process.

Vicarious liability and arraignment of company - Quashing of criminal complaint - Inherent powers under Section 482 Cr.P.C. - Whether the petitioners, as company representatives, could be prosecuted when the company (the alleged beneficiary) was not arraigned - HELD THAT: - The court noted that the complaint under Section 138 of the Negotiable Instruments Act had been filed by the company (M/s. BVSR Construction Company) and the alleged beneficiary of the disputed cheque was the company. Relying on the principle in Sharad Kumar Sanghi Vs. Sangita Rane , the court observed that where the act is done on behalf of a company and the company has not been made a party, criminal proceedings against its representatives cannot be sustained unless there are specific allegations of personal culpability. In the absence of such specific allegations against the petitioners, the continuation of criminal proceedings against them was held to be unsustainable. [Paras 5, 7, 9]

Criminal proceedings against the petitioners were quashed because the company, as the principal beneficiary, was not arraigned and no personal culpability of the representatives was shown.

Final Conclusion: The High Court, exercising inherent powers under Section 482 Cr.P.C., quashed Criminal Complaint No. RCT/600561/2016 against the petitioners on the grounds that the dispute was essentially civil and amounted to an abuse of process, and that the company beneficiary was not arraigned making prosecution of its representatives unsustainable.