TaxTMI Updates e-Newsletter
May 05,2017

Summary order. The Special Leave Petitions are dismissed; pending applications, if any, are disposed of.

Rejection of books of account under Section 145(3) of the Income Tax Act - estimation of income by best judgment assessment - maintenance of production/issuance/consumption registers as prerequisite for acceptance of books - use of statements recorded during search and survey as material for estimation - concurrent findings of fact and standard of perversity/arbitrariness - retraction of statements and factual appreciation by revenue authorities

Rejection of books of account under Section 145(3) of the Income Tax Act - maintenance of production/issuance/consumption registers as prerequisite for acceptance of books - concurrent findings of fact and standard of perversity/arbitrariness - Rejection of the assessee's books of account for Assessment Years 2006-07 and 2007-08 was sustained. - HELD THAT: - The authorities found that the assessee failed to produce quantitative particulars and registers showing production, issuance and consumption; no bills or vouchers were produced to substantiate claimed milk sales; and the director admitted absence of such records. The Tribunal distinguished a later assessment year where day-to-day registers and supporting documents were produced, holding that the facts in the later year differed materially. Given the concurrent factual findings that required registers were not maintained or produced, the High Court held that sustaining rejection of books under Section 145(3) was a possible view on facts and not perverse or arbitrary. Consequently the question did not raise a substantial question of law warranting interference.

The rejection of books of account under Section 145(3) for AYs 2006-07 and 2007-08 is upheld.

Estimation of income by best judgment assessment - use of statements recorded during search and survey as material for estimation - retraction of statements and factual appreciation by revenue authorities - concurrent findings of fact and standard of perversity/arbitrariness - Estimates of undisclosed income (gross profit additions) for Assessment Years 2006-07 and 2007-08 were upheld. - HELD THAT: - After rejecting books, the Assessing Officer estimated suppressed gross profit rates based on material on record and statements made during search and survey, concluding that milk shown as sale was partly used in manufacture of higher margin products. The CIT(A) corrected an arithmetic/clerical error for AY 2006-07 but otherwise sustained the estimate; the Tribunal rejected appeals, noting insufficiency of corroborative details and inadmissibility of retraction. The High Court held that a best judgment assessment must be grounded in available material and that an element of estimation is permissible where linked to evidence; because the estimates were based on contemporaneous material and voluntarily made statements (with retraction not accepted by authorities), the estimates were not shown to be perverse or wild and did not raise a substantial question of law.

The gross profit additions/estimates for AYs 2006-07 and 2007-08 are sustained.

Final Conclusion: Both appeals are dismissed; the Court affirmed the Tribunal's rejection of books of account under Section 145(3) and the consequent best-judgment estimations of undisclosed income for Assessment Years 2006-07 and 2007-08, finding the authorities' concurrent factual conclusions to be a possible view not vitiated by perversity.

Admissibility of voluntary declaration made during survey - Reliance on declaration under Section 133A of the Income tax Act - Requirement of corroborative material for statements/declarations during survey - Bonafides of retraction of a surrender made during survey - Evidentiary value of post survey written surrender and its retraction

Admissibility of voluntary declaration made during survey - Bonafides of retraction of a surrender made during survey - Requirement of corroborative material for statements/declarations during survey - Whether the ITAT erred in deleting the addition based on a voluntary surrender made after a survey and later retracted in writing two years thereafter for lack of corroborative material. - HELD THAT: - The Court held that the declaration dated 18.12.2008 was a voluntary written surrender made by the assessee after the survey and not a contemporaneous statement recorded during the survey. The retraction dated 16.12.2010 came much later and the circumstances of the retraction were unexplained; the assessee had also failed to include the surrendered sum in the return filed on 26.9.2009. Decisions relied upon by the assessee where retractions were made within a short period were distinguished on facts. The CBDT instruction and earlier authorities requiring corroboration of statements taken during survey were considered inapplicable to the facts where there was a voluntary post survey surrender and where the retraction was delayed and unsubstantiated. The ITAT's reliance on authorities distinguishable on their facts was therefore unsustainable and there was no reason to interfere with the additions upheld by the AO and CIT(A). [Paras 11, 12, 16, 17]

The ITAT's order deleting the addition was set aside and the Revenue's appeal allowed; the surrender made on 18.12.2008 was held admissible and the delayed retraction was not accepted as bona fide.

Final Conclusion: Appeal allowed. The Tribunal erred in deleting the addition based on the assessee's delayed written retraction; the voluntary surrender, made shortly after the survey and not satisfactorily retracted, justified the addition for AY 2009 10.

Service of notice by registered post deemed effected - presumption of service under Section 27 of the General Clauses Act, 1897 - service by post contemplated by Section 282 of the Income-tax Act, 1961 - knowledge of notice inferred from participation in subsequent proceedings - deemed service by appearance in proceedings (Section 292BB of the Income-tax Act)

Service of notice by registered post deemed effected - presumption of service under Section 27 of the General Clauses Act, 1897 - service by post contemplated by Section 282 of the Income-tax Act, 1961 - Sending a notice under Section 148 of the Income-tax Act by registered post to the assessee's proper address, which is not returned undelivered, constitutes sufficient service for the purposes of Section 148 and validates reassessment proceedings. - HELD THAT: - Section 282 of the Income-tax Act contemplates service of notice by post. Section 27 of the General Clauses Act creates a rebuttable presumption that where service is by registered post properly addressed, prepaid and posted, service is deemed effected at the time the letter would be delivered in the ordinary course unless the contrary is proved. The record shows the notice under Section 148 was sent by registered post to the assessee's proper address and was not returned undelivered. Absent any proof to the contrary from the assessee, the statutory presumption of service applies. Prior decisions referred to in the judgment support that the presumption arises unless disproved by the recipient. Applying these principles, the notice must be treated as duly served and the reassessment proceedings founded on that notice are not vitiated for want of service.

The notice under Section 148 sent by registered post to the correct address and not returned undelivered is to be treated as duly served and is sufficient for initiating reassessment proceedings.

Knowledge of notice inferred from participation in subsequent proceedings - deemed service by appearance in proceedings (Section 292BB of the Income-tax Act) - The assessee's subsequent conduct - filing a reply under Section 142(1) and requesting reasons - demonstrates actual knowledge of the Section 148 notice and reinforces that service cannot be successfully disputed. - HELD THAT: - After the Section 148 notice was sent, proceedings under Section 142 were taken and the assessee filed a reply to the Section 142(1) notice claiming non-receipt of the Section 148 notice but requesting reasons for it. That reply evidences that the assessee had knowledge of the reassessment notice. While Section 292BB (deemed service by appearance) was cited, it was not relied upon as it post-dates the events; nevertheless, the assessee's participation in proceedings and request for reasons effectively precludes a contention of non-service in the circumstances of this case.

The assessee's reply and participation in subsequent proceedings establish knowledge of the Section 148 notice and bar successful denial of service.

Final Conclusion: The appeal is allowed; the orders of the Commissioner (Appeals) and the Tribunal holding the reassessment void for want of service are set aside, and the reassessment proceedings founded on the Section 148 notice are held valid.

Application of section 13(1)(c) and section 13(3) - deeming contravention under section 13(2)(a) - restoration of assessing officer's order - precedential effect of earlier High Court decision

Application of section 13(1)(c) and section 13(3) - deeming contravention under section 13(2)(a) - restoration of assessing officer's order - Assessee contravened the provisions of section 13(1)(c) and section 13(3) resulting in deeming contravention under section 13(2)(a), warranting restoration of the Assessing Officer's order. - HELD THAT: - The Court entertained only the additional substantial question (question III) and, applying the reasoning in an earlier decision of this Court in respect of an identical set of facts for a different assessment year, held that the Assessing Officer had conclusively proved that a loan was given without interest to a person covered by section 13(3), amounting to contravention under the provisions described and justifying the AO's treatment. Relying on the precedential effect of the earlier High Court judgment, the Court set aside the Tribunal's order and restored the order of the Assessing Officer for the assessment year before it. [Paras 8, 9]

Appeal allowed in part; impugned Tribunal order set aside and the Assessing Officer's order restored for A.Y. 2003-04.

Final Conclusion: The High Court, following its earlier decision on identical facts, answered the additional substantial question in favour of the revenue, set aside the Tribunal's order dated 31.7.2007 and restored the order of the Assessing Officer for A.Y. 2003-04.

Exemption under section 11 - admission of Indian students exceeding permitted limits - issue preclusion / crystallisation by earlier adjudication - capitation fee and collection of donations in excess of prescribed fee - consequential order

Exemption under section 11 - admission of Indian students exceeding permitted limits - issue preclusion / crystallisation by earlier adjudication - consequential order - Whether the Assessing Officer and the CIT(A) were entitled to deny exemption under section 11 on the ground that the school admitted Indian students in excess of limits prescribed by the Ministry, notwithstanding an earlier adjudication in the assessee's favour. - HELD THAT: - The Tribunal observed that in an earlier assessment year the CIT(A) had held that, since the controlling Ministry had not objected to the student mix, the AO's objection to admitting Indian students was not justified; that finding was not appealed by the Revenue. The ITAT further noted that the only issue which proceeded before the Tribunal in the earlier year was the charge of capitation fee, which was remanded to the AO, and in the consequential proceedings the AO accepted that there was no prescribed fee. Given that one issue was finally decided by the earlier CIT(A) and the other was resolved in the assessee's favour on consequential examination, the Tribunal held that the AO in the present year was precluded from reopening the student-mix issue. The CIT(A) in the present year ought to have followed the predecessor's crystallised finding instead of relying on a later consequential order that did not disturb the earlier favourable finding. For these reasons the Tribunal set aside the orders of the AO and the CIT(A) on this ground and allowed the assessee's appeal. [Paras 7, 8]

Order of the AO and CIT(A) denying exemption under section 11 on the ground of admitting excess Indian students set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, holding that the objection to the student mix was precluded by an earlier crystallised finding in the assessee's favour and directing that the orders of the AO and CIT(A) on that issue be set aside.

Capital gains exemption under Section 54EC - interpretation of proviso allowing split investment across financial years within six months - first proviso limiting investment per financial year - prospective application of legislative amendment (Finance (No.2) Act, 2014) effective from 1.4.2015

Capital gains exemption under Section 54EC - interpretation of proviso allowing split investment across financial years within six months - prospective application of legislative amendment (Finance (No.2) Act, 2014) effective from 1.4.2015 - Whether the assessee could claim exemption under Section 54EC in respect of investments totalling Rs.1 crore made as two investments of Rs.50 lakhs each across two financial years within six months of transfer for the assessment year in question. - HELD THAT: - The Tribunal applied the ratio of the Hon'ble Madras High Court in CIT v. C. Jaichander, which construed Section 54EC(1) and its first proviso as restricting the time for investment to six months but not prohibiting the investment to be split across two financial years so long as the investments fell within the six month period. The Madras High Court further noted that the legislature removed the ambiguity by inserting a second proviso by the Finance (No.2) Act, 2014 effective from 1.4.2015 (applicable to AY 2015-16 onwards), and that amendment did not operate retrospectively to affect earlier assessment years. On that basis the Tribunal held that for the assessment year before it the second proviso was not applicable and the assessee's split investments of Rs.50 lakhs on 21.01.2011 and 06.07.2011 falling within the prescribed six month period could be aggregated for claiming exemption under Section 54EC. The Tribunal found no infirmity in the CIT(A)'s deletion of the addition and upheld the allowance of the full exemption. [Paras 6, 7]

The Tribunal dismissed the revenue appeal and upheld the CIT(A)'s order deleting the addition, allowing the full exemption claimed under Section 54EC.

Final Conclusion: The revenue's appeal is dismissed; the order of the CIT(A) allowing the full Section 54EC exemption for the investments made across two financial years within six months is upheld.

Set-off of brought forward business losses under section 72 of the Income-tax Act - characterisation of gain on transfer of depreciable asset and applicability of deemed short-term capital gain - allowability of statutory professional, ROC and audit expenses against income from other sources where no business activity is carried on

Set-off of brought forward business losses under section 72 of the Income-tax Act - characterisation of gain on transfer of depreciable asset and applicability of deemed short-term capital gain - Brought forward business losses are allowable to be set off against the profit arising on sale of office premises in assessment year 2010-11. - HELD THAT: - Section 72(1) requires that unabsorbed business losses be set off against the 'profits and gains of any business or profession carried on by the assessee' and does not mandate that the income in the year of set-off be assessed strictly under the head 'profits and gains of business or profession'. The Assessing Officer's reliance on the deeming provision treating gain on transfer of a depreciable asset as short-term capital gain (section 50) does not preclude commercial characterisation of that gain as profits of business for the purpose of set-off under section 72. The Tribunal followed the coordinate Bench decision in Digital Electronics Ltd. and noted that the Bombay High Court in CIT v. M/s. Hickson & Dadajee Pvt. Ltd. approved the view that brought forward business losses can be set off against gains arising from sale of building and plant & machinery even if such gains are deemed short-term capital gains. Applying that parity of reasoning, the brought forward losses from earlier assessment years were held eligible for set-off against the profit on sale of the office premises in the year under consideration. [Paras 6]

The CIT(A)'s allowance of set-off of brought forward business losses against the profit on sale of office premises is affirmed and the Revenue's appeal on this ground fails.

Allowability of statutory professional, ROC and audit expenses against income from other sources where no business activity is carried on - Expenses on professional fees, ROC, audit and tax audit incurred in respect of the assessee are allowable against the assessed income for the year despite absence of regular business activity. - HELD THAT: - The Assessing Officer disallowed the expenses on the basis that there was no business income in the year and that the assessee's receipts were assessable under the head 'income from other sources'. The Tribunal agreed with the CIT(A) that the impugned expenses were statutorily required to be incurred and thus deductible against the assessed income even in the absence of regular business operations. The CIT(A)'s conclusion that such mandatory statutory expenses are allowable was upheld. [Paras 8]

The CIT(A)'s allowance of the statutory professional, ROC and audit expenses is affirmed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for assessment year 2010-11, affirming the CIT(A)'s orders to allow (i) set-off of brought forward business losses against the profit on sale of office premises and (ii) deduction of the statutory professional, ROC and audit expenses.

Reopening of assessment and change of opinion - reassessment justification based on prior year balance sheet disclosure of residential properties - assessment of rental income and allowance of standard deduction - exemption under Section 54F and entitlement on reinvestment in residential property - remand for factual verification of ownership of residential property

Reopening of assessment and change of opinion - reassessment justification based on prior year balance sheet disclosure of residential properties - Validity of reopening assessment under Section 148 read with Section 147 in respect of AY 2008-09 - HELD THAT: - The Tribunal examined the material relied upon by the Assessing Officer, noting that the balance sheet for the year ending 31/3/2007 (relevant to the preceding year) showed two house properties (Bayana and Jaipur) whereas the balance sheet for year ending 31/3/2008 showed a single house property. The Assessing Officer treated the earlier disclosure as a basis to suspect that the assessee was not entitled to exemption under Section 54F and thereby justified reopening. The Tribunal found that reopening was founded on these disclosed facts and not merely a change of opinion, and sustained the reopening as justified. [Paras 6]

Reopening of assessment upheld; ground challenging reassessment dismissed.

Assessment of rental income and allowance of standard deduction - Correctness of addition made for under-declared rental income - HELD THAT: - The assessee declared rental income lower than the amount shown in the tenant's Form 16. The assessee alleged the difference arose from service tax liability, but failed to produce material substantiating that contention. The Tribunal agreed with the CIT(A) that rental income must be assessed on the amount actually received and that service tax could not be set off as a deduction from rental receipts. After allowing the standard deduction of 30% on the under-declared amount, the addition made by the Assessing Officer was confirmed. [Paras 8]

Addition for under-declared rent confirmed; ground against the addition dismissed.

Exemption under Section 54F and entitlement on reinvestment in residential property - remand for factual verification of ownership of residential property - Entitlement to exemption under Section 54F in respect of reinvestment and the correctness of disallowance - HELD THAT: - The assessee asserted that the entry of a Bayana property in an earlier balance sheet was an accountant's mistake and filed an affidavit denying ownership. The Tribunal found that ownership of the Bayana property was a determinative factual question affecting eligibility for Section 54F exemption. Rather than deciding the claim on the material before it, the Tribunal directed a remand to the Assessing Officer to investigate and ascertain the correct factual position regarding ownership and then decide the exemption claim in accordance with law. [Paras 11]

Issue remanded to the Assessing Officer for factual verification and fresh decision; grounds allowed for statistical purposes.

Final Conclusion: The appeal is partly allowed: reopening of assessment for AY 2008-09 and the addition for under-declared rent are upheld, while the claim for exemption under Section 54F is remanded to the Assessing Officer for factual verification of property ownership and fresh adjudication.

Accommodation entries / Bogus purchases treated as income under section 68 - Application of gross profit rate to estimate unsubstantiated purchases - Disallowance of expenditure attributable to exempt income under section 14A read with rule 8D - Proof of identity and genuineness of suppliers - invoices, transport documents and party confirmations - Where sales are not disputed, entire purchases cannot be disallowed; limited adjustment by applying GP rate

Accommodation entries / Bogus purchases treated as income under section 68 - Application of gross profit rate to estimate unsubstantiated purchases - Proof of identity and genuineness of suppliers - invoices, transport documents and party confirmations - Where sales are not disputed, entire purchases cannot be disallowed; limited adjustment by applying GP rate - Validity of addition of alleged bogus purchases and the concurrent application of a GP rate adjustment - HELD THAT: - The authorities below treated selected purchases from a named supplier as accommodation entries because the assessee did not produce transporter receipts, party confirmations or other corroborative evidence of genuineness. The First Appellate Authority upheld the AO's disallowance on those grounds. The Tribunal examined the record and noted that the alleged purchased goods were recorded in assessee's stock register and subsequently sold and that the AO had not disputed the sales. In that factual matrix the Tribunal held that disallowing the entire purchases was not justified; instead a limited adjustment by applying a gross profit rate to guard against revenue leakage was appropriate. Consequently the Tribunal set aside the addition of the full amount treated as bogus purchases but sustained the GP-based disallowance previously applied by the AO to cover possible leakage of revenue.

Addition of the entire alleged bogus purchases deleted; disallowance computed by applying GP rate of 2% on the said purchases sustained.

Disallowance of expenditure attributable to exempt income under section 14A read with rule 8D - When assessee's own funds exceed investments, notional interest disallowance under rule 8D(2)(ii) may not be warranted - Correctness of disallowance under section 14A read with rule 8D(2) - (i) interest disallowance under rule 8D(2)(ii) and (ii) fixed disallowance under rule 8D(2)(iii) - HELD THAT: - On facts the Tribunal found the assessee's own funds substantially exceeded the investments in shares and securities. Applying the ratio of the jurisdictional High Court decisions relied upon by the parties, the Tribunal held that where own funds are more than the investments out of such funds, the notional interest disallowance under rule 8D(2)(ii) is not called for and must be deleted. However, the Tribunal sustained the mechanical disallowance computed under rule 8D(2)(iii) (the percentage of average investments) and therefore allowed the appeal only partly on this issue.

Deletion of the interest disallowance under rule 8D(2)(ii); disallowance under rule 8D(2)(iii) on account of expenditure relatable to exempt income sustained.

Final Conclusion: The appeal is partly allowed: the Tribunal deleted the addition of entire alleged bogus purchases but sustained the GP-based adjustment; the notional interest disallowance under rule 8D(2)(ii) was deleted while the disallowance under rule 8D(2)(iii) was upheld; matter remitted to give effect to these directions.

Repairs and maintenance versus capital expenditure - treatment of unclaimed credit balances and slow moving accounts - advances for computer software: revenue expenditure v. capital expenditure - remand for verification of accounting adjustments

Repairs and maintenance versus capital expenditure - leased premises expenditure - Deletion of addition disallowing repairs and maintenance expenditure claimed as revenue expenditure - HELD THAT: - The Tribunal found that the assessee, a co-operative bank, had incurred expenditures on repair and renovation of premises taken on lease at various locations to make them suitable for business and that no new assets were created. It held that treating such expenditure as capital merely because works included demolition, plumbing, construction of small cabins and telephone networks was incorrect when the premises were rented. Applying basic accounting principles and the law, the Tribunal set aside the CIT(A)'s confirmation of the AO's disallowance and directed deletion of the addition. [Paras 6]

Addition of Rs. 14,15,836/- in respect of repairs and maintenance deleted; ground allowed.

Treatment of unclaimed credit balances and slow moving accounts - remand for verification of accounting adjustments - Addition of unclaimed credit balances (unpaid insurance claim, recoveries from surety, excess recovery) set aside for fresh verification - HELD THAT: - The Tribunal observed that the amounts in question appeared as advances in the assessee's balance sheet and were adjusted in subsequent years. Given that the AO had treated these slow moving account balances as income, the Tribunal found the matter required fresh verification of facts and directed the AO to examine whether the amounts were adjusted in subsequent years; if so, no addition should be made in the recomputation. Accordingly the issue was remanded to the AO for decision on facts and law. [Paras 9]

Matter remanded to the file of the AO for verification and decision; ground allowed for statistical purposes.

Advances for computer software: revenue expenditure v. capital expenditure - business expenditure for software - Deletion of addition disallowing advances written off for development of computer software held to be allowable as revenue expenditure - HELD THAT: - The Tribunal examined the nature of advances given for purchase/development of computer software to be used in the assessee's business. Relying on established precedent that software expenses, being periodical, having short life and no enduring benefit, constitute revenue expenditure for business use, the Tribunal disagreed with the CIT(A)'s view that such advances were capital. Applying that legal position to the facts, the Tribunal set aside the CIT(A)'s confirmation of the AO's disallowance and allowed the claim. [Paras 12, 13]

Addition of Rs. 23,14,000/- disallowing advances for software deleted; ground allowed.

Final Conclusion: The appeal is partly allowed: the disallowances in respect of repairs and maintenance and advances for computer software are deleted; the addition relating to unclaimed credit balances is remanded to the AO for verification and decision. The order is thereby set aside in part and remitted as directed.

Rejection of books of account under Section 145(3) - Requirement of specific defects in books before invoking rejection - Estimation of income by applying comparative gross profit rate - Best-judgement assessment and requirement of nexus with materials on record

Rejection of books of account under Section 145(3) - Requirement of specific defects in books before invoking rejection - Validity of the Assessing Officer's rejection of the assessee's books of account and invocation of Section 145(3) for the assessment year 2007-08 - HELD THAT: - The Tribunal upheld the invocation of Section 145(3) because the AO recorded that the assessee did not maintain quality-wise and quantity-wise details of the trading commodity (dhania), so that the gross profit declared could not be verified from the records. The lower authorities had required explanation and compared the assessee's gross profit rate with other dealers; the assessee failed to establish quality-based pricing or reconcile quantities between purchases and sales. Applying the principle that rejection of books requires specific defects to be identified, the Tribunal found that the AO had pointed out such shortcomings and that the books were therefore not reliable for proving income; accordingly rejection was sustained.

Rejection of books under Section 145(3) sustained.

Estimation of income by applying comparative gross profit rate - Best-judgement assessment and requirement of nexus with materials on record - Appropriateness of estimating gross profit rate from comparative cases and the quantum of resulting addition - HELD THAT: - The AO applied a comparative gross profit rate drawn from other traders and made an addition. The CIT(A) accepted the comparative approach but, considering the assessee's explanations, reduced the rate applied by the AO and upheld a portion of the addition. The Tribunal accepted that the use of comparative gross profit rates was a permissible method where books are rejected, but emphasised that assessments under best-judgement principles must be founded on material on record and governed by equity. Exercising its appellate discretion to achieve fairness, the Tribunal modified the outcome by substituting the lump-sum adjustment arrived at in the appellate proceedings, holding that a reduced, equitable addition was warranted instead of the higher estimated addition made by the AO or the partial upholding by the CIT(A).

Addition upheld in part but reduced by the Tribunal to a lump-sum addition of Rs. 2,00,000; appeal partly allowed.

Final Conclusion: The Tribunal sustained the rejection of the assessee's books under Section 145(3) for failure to maintain verifiable quality-wise and quantity-wise records, but, after applying equitable appellate discretion to the comparative gross profit estimation adopted below, reduced the trading addition to a lump-sum of Rs. 2,00,000 and partly allowed the appeal.

Rectification under section 154 - service of notice - principles of natural justice - jurisdiction to rectify an apparent error - finality of assessment upon higher court judgment - carry forward and set off of unabsorbed losses and depreciation

Rectification under section 154 - service of notice - principles of natural justice - Validity of the AO's rectification order under section 154 in the absence of valid service of the notice - HELD THAT: - The Tribunal found that neither the AO nor the First Appellate Authority pronounced a categorical finding that the notice under section 154 was duly served. Issuance or handing over the notice to dispatch alone is insufficient; a notice must be served on the assessee or returned by the postal authorities marked refused before service can be presumed. In the absence of valid service, the statutory requirement of giving the assessee a reasonable opportunity under sub section (3) of section 154 was not satisfied and the rectification proceedings were vitiated for failure to comply with the basic principles of natural justice. On this ground the FAA's order upholding the rectification was reversed.

Rectification order annulled for lack of valid service and breach of natural justice; FAA order reversed on this count.

Finality of assessment upon higher court judgment - carry forward and set off of unabsorbed losses and depreciation - jurisdiction to rectify an apparent error - Entitlement of the assessee to carry forward and set off brought forward unabsorbed losses/depreciation in AY. 2005-06 in view of the restoration of the original assessment for earlier years - HELD THAT: - The Tribunal noted that the assessment order for the earlier year (including AY. 2003-04) was restored by the Tribunal and upheld by the High Court, thereby rendering the AO's original acceptance of the carry forward valid and final. Consequently, the AO's subsequent contention in rectification that no depreciation was available in AY. 2003-04 was incorrect. Because the earlier assessment stood reinstated, the claim for carry forward and set off of unabsorbed loss/depreciation from prior years had to be allowed. The Tribunal therefore decided the merits in favour of the assessee and concluded that the AO had erred in withdrawing the carry forward in the rectification order.

Assessee entitled to carry forward and set off of the brought forward unabsorbed loss/depreciation; AO's withdrawal of such claim was erroneous.

Final Conclusion: The appeal is allowed. The FAA's order upholding the AO's rectification is reversed because the rectification notice was not shown to have been validly served and natural justice was not complied with; on merits the assessee is entitled to carry forward and set off the unabsorbed losses/depreciation as the earlier assessment stood restored and final.

Disallowance under Rule 8D(2)(iii) - application of Rule 8D(2)(ii) regarding interest disallowance - computation of book profit under section 115JB - rectification of return versus filing of revised return - treatment of strategic investments under Rule 8D(2)(iii)

Disallowance under Rule 8D(2)(iii) - average value of investments - treatment of strategic investments under Rule 8D(2)(iii) - actual receipt of exempt income not material - Validity of the disallowance computed at 0.5% of average investments under Rule 8D(2)(iii) which was recorded suo-moto in the return and sustained in assessment. - HELD THAT: - The Tribunal upheld the disallowance computed @0.5% of the average value of investments u/r 8D(2)(iii). It noted that the AO had merely adopted the suo-moto computation made in the return, that Rule 8D(2)(iii) expressly applies to the average value of investments whose income "does not or shall not form part of the total income," and therefore the actual receipt of dividend or other exempt income is not material. The Tribunal accepted the AO's and CIT(A)'s view that the assessee's investments increased substantially from the prior year and it was improbable that no administrative or manpower expenses were incurred in relation to such investments. Prior decisions relied upon by the assessee were held to be fact-sensitive and not directly applicable; accordingly, the Tribunal found no error in sustaining the disallowance under the formula prescribed by Rule 8D(2)(iii). [Paras 4, 5]

Assessee's ground challenging disallowance u/r 8D(2)(iii) dismissed.

Computation of book profit under section 115JB - consequential adjustment of book profit - Whether book profit under section 115JB requires adjustment consequent to the disallowance under Rule 8D. - HELD THAT: - The Tribunal held that since the disallowance under Rule 8D(2)(iii) was sustained, the corresponding adjustment in computation of book profit under section 115JB follows as a consequential matter. No separate interference was warranted on this consequential computation. [Paras 6]

Consequential adjustment in book profit u/s 115JB affirmed and ground dismissed.

Final Conclusion: The appeal is dismissed; the disallowance under Rule 8D(2)(iii) at 0.5% of average investments is sustained and the consequential adjustment to book profit under section 115JB is affirmed. The interest disallowance computed under Rule 8D(2)(ii) earlier deleted by the CIT(A) was not challenged and remains final.

Penalty under section 271(1)(c) - deeming provision of section 50C - concealment of income - furnishing inaccurate particulars of income - valuation adopted by stamp valuation authority - burden of proof on revenue to show actual receipt

Penalty under section 271(1)(c) - deeming provision of section 50C - burden of proof on revenue to show actual receipt - Sustainability of penalty levied under section 271(1)(c) where addition arose solely by operation of the deeming fiction in section 50C and revenue produced no evidence that assessee actually received higher consideration. - HELD THAT: - The Tribunal examined whether the addition made by the Assessing Officer by invoking the deeming provision of section 50C and the consequent confirmation of that addition by the first appellate authority could independently sustain a penalty under section 271(1)(c). The record shows that the assessee had disclosed the actual sale consideration in the return and produced the sale deed; the AO applied section 50C adopting the stamp valuation authority's value but did not allege or prove that the assessee actually received consideration over and above the declared sale price. The Tribunal relied on consistent precedents of coordinate Benches and the Hon'ble Calcutta High Court in similar circumstances - including CIT vs. Madan Theatres Ltd. and decisions of this Tribunal in Anita Beniwal , Renu Hingorani and Chimanlal Manilal Patel - which hold that an addition arising solely from the deeming fiction of section 50C, without any material to show actual receipt of undisclosed consideration, does not constitute concealment or furnishing of inaccurate particulars attracting penalty under section 271(1)(c). Applying that principle, and noting that Revenue produced no evidence to dislodge the assessee's disclosures or to show actual receipt of higher consideration, the Tribunal found no basis to sustain the penalty and directed its deletion. [Paras 6, 7]

Penalty levied under section 271(1)(c) deleted as addition arose solely from section 50C and Revenue failed to prove actual receipt of higher consideration.

Final Conclusion: Appeal allowed: penalty under section 271(1)(c) confirmed by the authorities set aside and the Assessing Officer directed to delete the penalty.

CENVAT credit - exempted service - territorial exclusion from levy - Rule 6(3) of CENVAT Credit Rules, 2004 - penalty under section 78 of Finance Act, 1994

CENVAT credit - territorial exclusion from levy - Rule 6(3) of CENVAT Credit Rules, 2004 - Whether the restriction in Rule 6(3) on utilization of CENVAT credit applies to output services rendered to a territory excluded from the Finance Act, 1994 (State of Jammu and Kashmir) so as to justify disallowance and recovery of credit. - HELD THAT: - The Tribunal examined the object of CENVAT Credit Rules, 2004 and Rule 6(3) which limits utilization of CENVAT credit where separate accounts are not maintained. It found as fact that the appellant provided broadcasting services throughout India including the excluded territory (Jammu and Kashmir), did not maintain separate accounts, and that the inputs/input services were used indiscriminately for rendering the output service across territories. The Court held that territorial non-levy in respect of services rendered in the excluded State does not automatically render those services an "exempted service" for the purpose of Rule 6(3) so as to trigger the restrictive debit/limit; nor was it shown that the inputs/input services used for taxable output could be delineated or divided to attribute part exclusively to the excluded territory. Given that the entire quantum of input services was required to provide the broadcasting service and no logical basis existed to apportion usage to the excluded territory, the rule's restrictive mechanism could not be applied to deny or limit the availment or utilization of CENVAT credit. On those determinative findings, the disallowance and recovery of credit were not sustainable. [Paras 7, 8, 9, 10]

Rule 6(3) could not be invoked to disallow or restrict the appellant's CENVAT credit in the factual matrix; the disallowance and recovery were set aside.

CENVAT credit - penalty under section 78 of Finance Act, 1994 - Whether invocation of recovery with interest and imposition of penalty under section 78 was justified once the disallowance of credit failed. - HELD THAT: - Having held that the disallowance of CENVAT credit under Rule 6(3) was not warranted on the facts, the Tribunal concluded there was no basis to sustain recovery of the credit or to impose penalty under section 78. The finding that the utilization of credit could not properly be restricted negated the foundation for recovery and attendant penal consequences. [Paras 10]

Recovery with interest and penalty under section 78 were set aside.

Final Conclusion: Appeal allowed; impugned order disallowing CENVAT credit, directing recovery with interest and imposing penalty set aside on the ground that Rule 6(3) could not be applied to restrict credit in the given factual circumstances.

Classification of services - mining service classification - site formation and clearance service classification - supply of tangible goods service - business auxiliary service - scope of show cause notice - limitation bar - burden of proof on revenue - finality of departmental appellate order

Finality of departmental appellate order - classification of services - Whether portions of the demand classified as 'mining service' should be set aside because identical demands were dropped by Commissioner (Appeals) and that decision has attained finality. - HELD THAT: - The Tribunal examined an order of Commissioner (Appeals), Nagpur which had dropped similar demands; Revenue had not appealed that appellate decision. On that factual and legal footing the Tribunal held that the portions of the impugned demand which were identically situated with those dropped by the appellate authority could not be sustained. The Tribunal therefore set aside the specified portions of the demand classified as 'mining service' as being indistinguishable and final in effect. [Paras 4]

Portions of the 'mining service' demand corresponding to matters already dropped by Commissioner (Appeals) are set aside.

Scope of show cause notice - mining service classification - Whether the demand in respect of a work order pertaining to M/s PBA Infrastructure Ltd (MIHAN SEZ) is sustainable when that work order was not included in the show cause notice. - HELD THAT: - The Tribunal found, on examination of the record, that the particular work order for the MIHAN SEZ road project was not covered by the show cause notice issued to the assessee. Since the adjudication proceeded without issuance of notice in relation to that work order, the demand in respect of it could not be sustained. [Paras 5]

Demand relating to the work order not covered by the show cause notice is held unsustainable and set aside.

Mining service classification - site formation and clearance service classification - limitation bar - Whether the adjudicating authority correctly confirmed demands for 'mining service' and 'site formation and clearance service', and whether a specific portion was time barred. - HELD THAT: - The Tribunal accepted the adjudicator's finding that the nature of the work (drilling, blasting and removal of overburden) as reflected in the work order and invoices warranted classification as 'mining service' for the relevant contracts; the assessee's contrary submissions were found not to constitute an acceptable counter. The Tribunal also examined the contention that a demand (stated amount) was barred by limitation and found no merit merely because the show cause notice dated 1 7 2010 covered 2008 09. Accordingly the Tribunal refused to interfere with the portions of demand sustained as 'mining service' and 'site formation and clearance service'. [Paras 6]

Demands confirmed as 'mining service' and 'site formation and clearance service' are sustained; the claim of bar by limitation is rejected.

Classification of services - supply of tangible goods service - business auxiliary service - burden of proof on revenue - specificity in show cause notice - Whether demands dropped by the adjudicating authority as 'supply of tangible goods service', 'transportation of goods', or as not constituting 'business auxiliary service' should be restored by Revenue. - HELD THAT: - Revenue argued that certain work orders involved procurement of machinery and relied on precedent to assert taxability under a broader head. The Tribunal found no evidence that the activities extended beyond procurement, and observed that Revenue failed to identify with specificity which description fit the activity as alleged in the show cause notice. The Tribunal further noted that Revenue did not establish that the activities were outside 'transportation of goods service' where so held. Given the absence of adequate evidence and lack of specific identification, the Tribunal declined to disturb the adjudicating authority's order dropping those demands. [Paras 7, 8]

Revenue's appeals against the dropping of demands classified as 'supply of tangible goods service', 'transportation of goods', or as not constituting 'business auxiliary service' are rejected.

Final Conclusion: The Tribunal partly allows the assessee's appeal by setting aside specified portions of the demands (including certain 'mining service' demands and a demand not covered by the show cause notice), sustains other confirmed demands for 'mining service' and 'site formation and clearance service', and rejects Revenue's appeals against the adjudicating authority's dropping of certain demands; the appeals are disposed of accordingly.

Cenvat credit - input services - house keeping services - landscaping services - courier services - inclusive definition of input services - cost of final products

Cenvat credit - input services - house keeping services - landscaping services - cost of final products - Assessee entitled to avail cenvat credit on house keeping and landscaping services availed in its factory premises. - HELD THAT: - The Court followed the ratio of the Division Bench decisions in Millipore India Pvt. Ltd. and Rane TRW Steering Systems Ltd., holding that the definition of input services is inclusive and broad. Services expended to maintain factory premises, including landscaping services and house keeping services, form part of activities relating to business and the costs of producing final goods; accordingly the service tax paid on such services falls within the ambit of input services and is eligible for Cenvat credit. The Tribunal's denial of credit in respect of these services was set aside and the questions of law answered in favour of the assessee. [Paras 7, 8]

Credit allowed for house keeping and landscaping services; Tribunal's refusal set aside.

Inclusive definition of input services - Cenvat credit - courier services - Precedent relied upon (Millipore and Rane TRW) applies and governs the matter; questions framed are answered in favour of the assessee. - HELD THAT: - The Court held that the view taken in Commissioner of Central Excise, Bangalore II v. Millipore India Pvt. Ltd. and followed in Rane TRW Steering Systems Ltd. is applicable to the present fact-scenario. Having regard to those authorities, the Court answered the framed questions of law in favour of the assessee and against the Revenue. The Tribunal's order was set aside accordingly. The Tribunal had already allowed credit qua courier servicesinput services governs the availability of Cenvat credit on such services too. [Paras 7, 8]

Framed questions answered for the assessee; Tribunal's impugned order set aside and appeals allowed.

Final Conclusion: The appeals are allowed; the Tribunal's impugned order is set aside and the assessee is held entitled to cenvat credit for house keeping and landscaping services (and the framed questions of law are answered in favour of the assessee and against the Revenue); no order as to costs.

Service tax treatment of composite works contract - service tax on composite works contracts prior to 1.6.2007 - classification as construction/finishing service versus works contract service - revival of submissions in appeal despite no cross appeal by beneficiary - abatement under relevant notifications and bar where cenvat credit is availed

Service tax on composite works contracts prior to 1.6.2007 - classification as construction/finishing service versus works contract service - Whether the contracts executed by the respondent were liable to service tax for the period prior to 1.6.2007 or were composite works contracts not subject to service tax - HELD THAT: - On the facts recorded by the Original Authority the contracts involved supply of materials and were composite in nature. Having regard to the law as laid down by the Hon'ble Supreme Court in Larsen & Toubro (as relied upon by the respondent), composite works contracts are not liable to service tax prior to 1.6.2007. The Tribunal accepted the respondent's contention that the contracts involved supply of materials and therefore for the period prior to 1.6.2007 there can be no service tax liability on those contracts. The question of classification as construction or finishing service was rendered immaterial for that pre 1.6.2007 period in view of the controlling legal principle.

Contracts involving supply of materials were composite works contracts and not taxable for the period prior to 1.6.2007; classification as construction/finishing service is therefore not relevant for that period.

Revival of submissions in appeal despite no cross appeal by beneficiary - Whether the respondent, having not filed an appeal against the Original Authority's order, could advance before the Tribunal a plea seeking re classification of its service - HELD THAT: - The Tribunal referred to the principle in J.K. Cotton Spg. & Weaving Mills that a party cannot be precluded in appeal from canvassing reversal of a finding in the impugned judgment even though the end result was in its favour. Applying that principle, the Tribunal held that the respondent could revive and press the submissions made before the Original Authority regarding classification of the taxable service. The Tribunal therefore entertained the respondent's plea for re classification despite the absence of a direct appeal by the respondent.

Respondent was permitted to revive and press its classification plea in the appeal notwithstanding that it had not appealed against the Original Authority's order.

Abatement under relevant notifications and bar where cenvat credit is availed - determination of liability for the period post 1.6.2007 - Whether the Revenue's challenge to allowance of abatement and related reliefs succeeds for the adjudicated period, and whether the Tribunal would determine tax liability and abatement entitlement post 1.6.2007 - HELD THAT: - The Revenue contested the Original Authority's allowance of abatements and contended that conditions for abatement were not fulfilled, including that cenvat credit availed would bar abatement. The Tribunal, having found no service tax liability for the pre 1.6.2007 period by reason of the contracts being composite works contracts, treated the question of abatement for that period as not material. As to the period after 1.6.2007, the respondent stated that it had discharged service tax under works contract service; however, the Tribunal expressly declined to record any finding on the exact quantum of service tax liability or on detailed entitlement/quantification of abatement for the post 1.6.2007 period because those matters were not before it for determination in the present proceedings.

Revenue's challenge to the allowance of abatement is rendered irrelevant for the pre 1.6.2007 period by the finding of no service tax liability; the Tribunal did not adjudicate or quantify service tax liability or abatement entitlement for the period after 1.6.2007.

Final Conclusion: The Revenue's appeal was dismissed. The Tribunal held that the contracts were composite works contracts and not liable to service tax for the period prior to 1.6.2007, permitted the respondent to revive classification submissions despite not appealing, and declined to determine or quantify any service tax liability or abatement entitlement for the period after 1.6.2007.

Refund of unutilized CENVAT credit - export of services - proviso to Section 11B(2) - exclusion of unjust enrichment for export refunds - unjust enrichment - scope of show cause notice - remand for fresh adjudication and quantification

Proviso to Section 11B(2) - exclusion of unjust enrichment for export refunds - unjust enrichment - export of services - Applicability of the doctrine of unjust enrichment to refund claims of unutilized CENVAT credit in respect of exported services. - HELD THAT: - The Tribunal held that the doctrine of unjust enrichment is not applicable to refund claims in the present case of export of services because the proviso to Section 11B(2) excludes unjust enrichment in respect of refunds relatable to exports. The Tribunal accepted the appellant's contention and authorities relied upon that export linked refund claims cannot be defeated on the ground of unjust enrichment, and therefore the Commissioner (A)'s invocation of unjust enrichment was legally unsustainable. [Paras 6]

Finding that unjust enrichment principle does not apply and the Commissioner (A)'s reliance on unjust enrichment is erroneous.

Scope of show cause notice - refund of unutilized CENVAT credit - Whether the Commissioner (Appeals) could entertain and decide a fresh contention (reimbursement clause in contract) not raised in the show cause notice or Orders in Original, thereby putting the appellant in a worse position on appeal. - HELD THAT: - The Tribunal found that the Commissioner (A) travelled beyond the scope of the show cause notices and Orders in Original by raising and acting upon the contractual averment that tax burden was reimbursed by the customer. The Tribunal emphasised the settled principle that an appellate order cannot introduce new adjudicatory grounds not included in the original notice such that the appellant is put in a worse position than under the Order in Original, and therefore the appellate finding was held to be beyond permissible scope. [Paras 6]

Impugned appellate observation introducing a fresh ground not in the show cause notice is unsustainable and unlawful.

Remand for fresh adjudication and quantification - refund of unutilized CENVAT credit - Remand to original adjudicating authority to decide and quantify the refund claim afresh in light of legal findings and documents produced or to be produced by the appellant. - HELD THAT: - Having set aside the Orders in Original and having found the appellate invocation of unjust enrichment and fresh grounds to be unsustainable, the Tribunal remitted the matters to the original authority for fresh adjudication and quantification of the refund claims. The original authority is directed to decide the claims afresh, taking into account the legal position on export refunds and the documents already produced or which the appellant may produce, and to complete the exercise within three months of receipt of the certified copy of the order. [Paras 6]

Matters remanded to the original authority to decide and quantify refund claims afresh within three months.

Final Conclusion: The Tribunal set aside the appellate order, held that unjust enrichment does not apply to the export related refund claims and that the Commissioner (A) exceeded the scope of the show cause notices; the matters are remitted to the original authority for fresh adjudication and quantification of the refund claims within three months.

Declaratory versus retrospective operation of a statutory Explanation - prospective application of an Explanation introducing substantive law - taxability of services in relation to promotion or marketing of lotteries - business auxiliary services

Declaratory versus retrospective operation of a statutory Explanation - prospective application of an Explanation introducing substantive law - service tax payable only from May 2008 - Explanation appended to sub clause (ii) of section 65(19) insofar as it makes services relating to promotion or marketing of lotteries taxable does not operate retrospectively and cannot be applied to the period 1.7.2003 to 31.3.2006. - HELD THAT: - Relying on the reasoning in Union of India v. Martin Lottery Agencies Ltd., the Tribunal accepted that an Explanation can introduce substantive law but such an Explanation does not have retrospective effect unless Parliament's intent to make it retrospective is clearly shown. The Explanation inserted with effect from 16.5.2008, though clarifying that services in relation to promotion or marketing of lotteries fall within sub clause (ii) of section 65(19), must be given prospective operation. Consequently, service tax liability founded on that Explanation cannot be sustained for periods prior to May 2008. The Tribunal observed that had the demand related to services provided after 16.5.2008 the outcome might differ, but for the present prior period demand the Explanation cannot be invoked to fasten liability.

Demand for the period 1.7.2003 to 31.3.2006 set aside; appeal allowed.

Final Conclusion: The Explanation to section 65(19) enacted with effect from 16.5.2008 does not operate retrospectively; service tax based on that Explanation is payable only from May 2008 onward, and the demand for the earlier period 1.7.2003 to 31.3.2006 is unsustainable.

Refund under Notification 41/2007-ST - requirement of supporting documents and co-relation - procedural irregularities not to defeat substantive benefit - remand for fresh consideration of evidence - eligibility for refund of service tax on technical testing services

Refund under Notification 41/2007-ST - requirement of supporting documents and co-relation - procedural irregularities not to defeat substantive benefit - Validity of rejection of refund claims on ground of lack of supporting evidence and absence of co-relation - HELD THAT: - The Tribunal found that the Adjudicating Authority and Commissioner (Appeals) had upheld rejections largely on summary grounds of alleged lack of co-relation and supporting evidence without a detailed examination of the documents produced by the appellant. Sample invoices and a detailed chart submitted by the appellant contained invoice numbers, shipping bill numbers, export contract references, description of goods, service-provider particulars and tax particulars which, on their face, contained the particulars envisaged by the notification. The Tribunal noted Ministry circulars and Board clarifications directing a methodical examination of refund claims and that minor procedural lapses should not defeat a substantive refund where export of goods is established. Since the lower authorities did not record specific findings identifying which statutory condition vital to the claim remained unfulfilled, the rejections were treated as summary and unsustainable.

Impugned rejections set aside; matter remanded to the Original Authority to examine in detail the supporting documents and co-relation chart and to decide eligibility for refund in accordance with the notification and Board guidance.

Eligibility for refund of service tax on technical testing services - remand for fresh consideration of evidence - Refund claim in respect of technical testing services rejected for non-submission of written agreements - HELD THAT: - The Tribunal examined sample documents showing that testing was carried out by the service provider at the request of the importer (SGS India Pvt. Ltd.) and found that eligibility for refund on such services depends on fulfillment of the conditions specified in the notification. The lower authority had not examined the supporting documents for these services to reach a specific finding. Consequently, the Tribunal held that the question of eligibility for refund on technical testing services must be determined after scrutiny of the documentary evidence against the notification's conditions.

Rejection of refund for technical testing services set aside; matter remanded to the Original Authority to verify the submitted documents and decide the claim in accordance with the notification.

Final Conclusion: The appeal is allowed by remand: the impugned order is set aside and the Original Authority is directed to re-examine all supporting documents, the co-relation chart and applicable Board circulars and to decide the appellant's refund claims under Notification 41/2007-ST on merits in accordance with the statutory conditions.

Manufacture within the meaning of Section 2 (f) of the Central Excise Act, 1944 - two fold test of manufacture and marketability - waste/scrap not amounting to manufacture - imposition of countervailing duty on imported cut tyre pieces - precedential effect of Modi Rubber Limited as impliedly approved in Union of India v. Ahmedabad Electricity Co. Ltd.

Manufacture within the meaning of Section 2 (f) of the Central Excise Act, 1944 - two fold test of manufacture and marketability - waste/scrap not amounting to manufacture - Whether cutting used or old tyres into two or more pieces amounts to 'manufacture' under Section 2(f) of the Central Excise Act, 1944 - HELD THAT: - Applying settled authorities, the court examined whether cutting produces a transformation into a new article with a distinctive name, character or use. The two fold test requires (i) manufacture (a transformation producing a new and different article) and (ii) marketability. The Court held that cut pieces of used tyres remain essentially the same as the original article; there is no transformation yielding a new product. The cutting facilitates transport and may render the articles marketable as scrap, but mere saleability does not convert waste into 'manufacture'. Thus the first limb of the two fold test is not satisfied and no excise 'manufacture' occurs when tyres are cut into two or three pieces. [Paras 24, 25, 26]

Cutting used or old tyres into two or more pieces is not 'manufacture' within Section 2(f) of the Central Excise Act, 1944.

Precedential effect of Modi Rubber Limited as impliedly approved in Union of India v. Ahmedabad Electricity Co. Ltd. - waste/scrap not amounting to manufacture - Whether the Division Bench decision in Modi Rubber Limited v. Union of India requires reconsideration - HELD THAT: - The Court considered the Supreme Court's decision in Union of India v. Ahmedabad Electricity Co. Ltd., which discussed and referred to Modi Rubber Limited, and concluded that the Supreme Court had impliedly approved Modi Rubber's reasoning that waste/scrap generated in the course of manufacture, which does not undergo transformation into a new article, is not exigible to excise. Consequently, Modi Rubber does not require reconsideration. [Paras 16, 17, 26]

Modi Rubber Limited v. Union of India does not require reconsideration and remains good law.

Imposition of countervailing duty on imported cut tyre pieces - manufacture within the meaning of Section 2 (f) of the Central Excise Act, 1944 - Whether the TRU clarification dated 2 January 2015 and the consequent imposition of 12% CVD on imported cut pieces of used tyres and tubes is sustainable - HELD THAT: - Having held that cutting into two or three pieces does not constitute 'manufacture', the Court examined the TRU clarification that such cut tyre pieces were not exempt from excise and hence liable to CVD on import. Because the essential legal prerequisite for levying CVD (parity with excise on like domestic manufacture) is absent when there is no 'manufacture', the clarification and imposition of CVD were held to be legally unsustainable. The clarification is set aside and the CVD imposition declared unlawful and ultra vires the Customs Tariff Act. [Paras 27, 28]

The TRU clarification and the imposition of 12% CVD on cut pieces of used tyres and tubes is unlawful and is set aside.

Final Conclusion: The writ petition is allowed: cutting used or old tyres into two or three pieces does not amount to 'manufacture' under Section 2(f) of the Central Excise Act, 1944; Modi Rubber Limited need not be reconsidered; the TRU clarification of 2 January 2015 and the imposition of 12% CVD on such imported cut tyre pieces are quashed. No costs.

Interim injunction against enforcement of bank guarantee - stay application pending adjudication before the Tribunal - remedy when appellate forum is unavailable - prevention of rendering interim remedy infructuous

Interim injunction against enforcement of bank guarantee - stay application pending adjudication before the Tribunal - remedy when appellate forum is unavailable - Respondents restrained from enforcing condition No.1 of paragraph-8 of the impugned order until the Tribunal hears and decides the stay application filed by the petitioners. - HELD THAT: - The petitioners had filed an appeal and a stay application before the Customs, Excise and Service Tax Appellate Tribunal; the Division Bench required to hear the matter was not available and the stay application remained undecided. The respondents sought to invoke the bank guarantee and enforce the bond covered by condition No.1 of paragraph-8 of the impugned order, which would render the pending stay application ineffective and leave the petitioners remediless through no fault of their own. In these circumstances, and in the interest of justice, the High Court directed that until the Tribunal hears and decides the stay application, the respondents shall not enforce condition No.1 of paragraph-8 of the impugned order, thereby preserving the subject matter of the appeal and preventing coercive execution pending adjudication by the appropriate appellate forum. [Paras 4, 5]

Petition disposed of by directing that respondents shall not enforce condition No.1 of paragraph-8 of the impugned order till the Tribunal decides the stay application.

Final Conclusion: The High Court disposed of the petition by granting interlocutory relief restraining enforcement of condition No.1 of paragraph-8 of the impugned order until the Tribunal adjudicates the stay application filed by the petitioners.

Refund of excess duty - no unjust enrichment - burden of proof on revenue to show incidence of duty was passed on - chartered accountant certificate as evidentiary support - Chewing Tobacco & Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010

Refund of excess duty - Chewing Tobacco & Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 - Entitlement to refund of excess duty paid in advance for April 2010 under the Compounded Levy Rules - HELD THAT: - The assessee paid duty in advance on 5th April 2010 for the month, and a notification dated 13.4.2010 reduced the rate per machine w.e.f. 13.4.2010. The Assistant Commissioner after verification by the Range Officer allowed the refund of excess duty paid for the proportionate period, but the Commissioner overturned that allowance on the ground that the test of no unjust enrichment was not satisfied. The Tribunal finds that on the record the assessee had claimed the excess payment as receivable from the Revenue and had filed a refund claim promptly on 4.5.2010. In view of the verified factual finding by the original authority and the supporting documents produced, the impugned rejection was set aside and the refund allowance reinstated.

Refund of the excess duty paid for April 2010 is allowed and the impugned order rejecting the refund is set aside.

No unjust enrichment - chartered accountant certificate as evidentiary support - burden of proof on revenue to show incidence of duty was passed on - Sufficiency of ledger entries and Chartered Accountant certificate to satisfy the no unjust enrichment test and the obligation on Revenue to prove pass on to customers - HELD THAT: - The Tribunal examined whether the assessee had discharged the no unjust enrichment test. The assessee produced ledger entries treating the excess payment as receivable from Revenue and a Chartered Accountant certificate corroborating that the duty was not passed on to customers. The Tribunal held that such evidence cannot be lightly disregarded and, in absence of any material produced by the Department to show that the incidence of the excess duty was recovered from buyers, the Department failed to meet its burden to prove pass on. Reliance was placed on earlier authorities to the effect that a CA certificate is acceptable evidence unless controverted by material showing the certificate to be false. Accordingly, the finding of the Commissioner that the no unjust enrichment test was not satisfied was not sustained.

Ledger entries and Chartered Accountant certificate suffice to establish that the excess duty was not passed on; Revenue failed to prove otherwise, so the no unjust enrichment objection does not preclude the refund.

Final Conclusion: The appeal is allowed: the impugned order rejecting the refund of excess duty for April 2010 is set aside and the refund granted by the original authority is restored, the Tribunal holding that the assessee's ledger entries and Chartered Accountant certificate satisfy the no unjust enrichment requirement and that the Revenue did not discharge the burden of proving pass on to customers.

Refund claims - CENVAT/MODVAT credit reversal - Suppression and mandatory penalty - De novo adjudication/remand for verification - Extended period and applicability of mandatory penalty

Refund claims - De novo adjudication/remand for verification - Refund claims previously partially rejected are to be reconsidered de novo by the original adjudicating authority. - HELD THAT: - The Tribunal found the earlier Tribunal order dismissing the Revenue's appeals against partial refund grants to be non-speaking and set it aside on remand from the High Court. The present Tribunal directs that the refund claims (including the sums of Rs.10,77,586/- and Rs.1,78,157/-) be taken up afresh for de novo consideration by the original authority. The assessee must be given full opportunity to produce documentary evidence (including private records and any additional submissions) to establish entitlement to the refund claims. The Tribunal records that the outcome of the de novo adjudication of refund claims will have a direct bearing on the correctness of the demand in the related show-cause proceedings and on the question of suppression. [Paras 9, 13, 14]

Refund claims remanded for de novo adjudication with opportunity to the assessee to submit additional evidence; outcome to be first determined.

CENVAT/MODVAT credit reversal - Suppression and mandatory penalty - Extended period and applicability of mandatory penalty - Demand for alleged irregularly availed modvat/CENVAT credit and imposition of penalty are remanded for fresh verification and adjudication. - HELD THAT: - The Tribunal observed that the core controversy is whether removals of inputs/capital goods were effected after proper reversal of credit and whether other impugned goods were released for manufacture or remained in the factory. Given the voluminous records and the Tribunal's inability to examine all documents, the matter is remitted to the original authority for fresh verification of the audits covering April 1995 to March 2000. The adjudicating authority is directed to take into account the de novo determination of refund claims, to address the Revenue's contentions (including suppression, applicability of extended period and the lawful imposition of mandatory penalty under the rules invoked), and to permit the assessee full opportunity to rebut allegations and produce corroborative material. The Tribunal therefore did not decide these issues on merits but required re-examination in light of documentary proof and the refund outcome. [Paras 13, 14]

Demand and penalty remanded to original authority for fresh verification and adjudication, to be considered after and in light of the de novo refund proceedings.

Final Conclusion: Appeals remanded: refund claims to be adjudicated de novo by the original authority with full opportunity to the assessee to produce evidence; the related demand for alleged irregular CENVAT/MODVAT credit and the question of suppression and mandatory penalty for the period April 1995 to March 2000 are to be re-examined by the original authority thereafter, taking the refund outcome into account.

Optional exemption - absolute exemption - section 5A(1A) declaration - Cenvat credit entitlement - Rule 6(3)(b) Cenvat Credit Rules - apportionment/10% rule - remand for quantification - extended period of limitation - invocation for willful suppression

Optional exemption - section 5A(1A) declaration - Cenvat credit entitlement - Whether the appellant was obliged to forgo duty payment under the notifications by reason of section 5A(1A) and thereby disentitled to Cenvat credit for the period July 2005 to June 2006 - HELD THAT: - The Tribunal examined the language of section 5A(1A) and the notifications granting exemption to certain processes on imported footwear. Section 5A(1A) precludes a manufacturer's option to pay duty only where an exemption has been granted absolutely. The notifications under consideration were conditional and not absolute; therefore the benefit was optional. Applying the Tribunal's earlier reasoning in Balkrishna Paper Mills Ltd., the members holding on this point concluded that the appellant could elect to pay duty and, having paid duty on the imported footwear, was entitled to claim Cenvat credit. The demand based on denial of credit for that period was accordingly held unsustainable and set aside. [Paras 12, 13, 14]

Benefit of the notifications is optional; appellant entitled to Cenvat credit for the period July 2005 to June 2006 and the demand of Rs. 1,96,83,096/- is set aside.

Rule 6(3)(b) Cenvat Credit Rules - apportionment/10% rule - remand for quantification - extended period of limitation - invocation for willful suppression - Whether the appellant is liable to pay 10% of the value of exempted goods (or otherwise reverse credit) for the periods November 2004 to June 2005 and May 2006 to June 2006, having manufactured both dutiable and exempted goods and used common inputs/input services without separate records - HELD THAT: - There is a difference of opinion between the Judicial and Technical members. The Judicial member found on the material produced (invoices showing no credit on packing material and reversal of proportionate credit on common input services) and relying on precedents that the appellant had not availed credit on inputs used for exempted goods and had reversed proportionate credit on common services; accordingly no liability under Rule 6(3)(b) arose and the demand was set aside. The Technical member, however, relied on the noticee's earlier statement and the absence of statutory/private records (input stock register, unpacked/imported footwear stock account and packed/relabeled finished footwear stock account) to conclude that exempted and dutiable activities were carried out from the same premises, that common inputs/services were used without proper records and that reversal of credit effected did not obviate liability; he therefore upheld the demand, held the extended period invocable for a part period, and remanded the matter for quantification of the Cenvat credit attributable to inputs and computation of cess, interest and penalties. Because of the divided opinion, the question remains unresolved and has been referred for adjudication by a third Member. [Paras 20, 21, 22, 23, 24]

Issue not finally decided by the Bench: there is a difference of opinion. The matter is referred to a third Member for resolution; quantification and any computation of duty/cess/penalty are remanded to the adjudicating authority for compliance as directed.

Final Conclusion: The Tribunal set aside the demand denying Cenvat credit in respect of imports for July 2005 to June 2006, holding the exemption optional and the appellant entitled to credit. Liability under Rule 6(3)(b) for other periods remains contested between the Members; the question has been referred to a third Member and quantification has been remanded to the adjudicating authority for determination.

CENVAT credit admissibility for inputs used in generation of steam by a job worker - definition of input under rule 2(k) of CENVAT Credit Rules, 2004 - use of inputs in relation to manufacture within the factory of production - functional utility test for eligibility of inputs - applicability of precedents on generation of electricity/steam under MODVAT/CENVAT

CENVAT credit admissibility for inputs used in generation of steam by a job worker - definition of input under rule 2(k) of CENVAT Credit Rules, 2004 - functional utility test for eligibility of inputs - CENVAT credit on furnace oil procured for the factory but used by a job worker to generate steam for the appellant is allowable as an eligible input under rule 2(k) of the CENVAT Credit Rules, 2004. - HELD THAT: - The Tribunal applied the settled principle that inputs used in generation of steam or electricity qualify for credit where they are used "in or in relation to the manufacture of final product" and have requisite functional utility, relying on authoritative precedents which held that utilisation under MODVAT and CENVAT is materially similar and that inputs used in generation of electricity/steam do not lose eligibility merely because generation occurs outside the factory. The Tribunal rejected the contention that the place of generation or the invocation of the job-work definition defeats credit, noting that where the input ultimately serves the manufacture within the appellant's factory (by providing steam), it meets the inclusive definition of input under rule 2(k). The impugned finding that generation at the job-worker's premises took the activity outside the "factory of production" was not sustained in view of the functional-utility test and the cited authorities permitting credit in comparable circumstances. [Paras 2, 4, 6]

Impugned order set aside and appeals allowed; CENVAT credit in respect of the furnace oil held admissible.

Final Conclusion: The Tribunal allowed the appeal, holding that furnace oil used by a job worker to generate steam for use in the appellant's manufacturing operations qualifies as an eligible input under rule 2(k) of the CENVAT Credit Rules, 2004, and set aside the demand.

Transaction value - actually paid or actually payable - Remission versus exemption - Capital subsidy by remission - Inclusion in assessable value as additional consideration - Deemed statutory payment under remission

Transaction value - actually paid or actually payable - Remission versus exemption - Capital subsidy by remission - Inclusion in assessable value as additional consideration - Whether sales tax amounts retained by the assessee under the Gujarat "Incentive Scheme 2001" (remission of tax) are includible in the transaction value/assessable value for levy of central excise duty. - HELD THAT: - The Tribunal found that under the Gujarat scheme the benefit was granted by way of remission of sales tax tied to capital investment and entitlement certificates, not by statutory exemption from levy. At the time of removal sales tax was leviable and payable and the remission operated subsequently by assessment and adjustment; thus the tax was 'actually payable' (and in effect statutorily treated as paid). In that factual and legal matrix Section 4's exclusion of amounts 'actually paid' or 'actually payable' from transaction value applies and the remission amount representing capital subsidy granted by remitting the sales tax does not constitute additional consideration flowing from the buyer to the seller. The scheme's operation by the sales tax and industries departments, the requirement of separate assessment/remission orders, and the statutory deeming (sub section (7A) of Section 11 Gujarat VAT Act) that remitted tax is deemed paid, led the Tribunal to conclude that the remitted sales tax cannot be included in the transaction value for central excise purposes. [Paras 5]

Sales tax remitted under the Gujarat "Incentive Scheme 2001" is not includible in the transaction value; the excise duty paid on such sales tax was refundable.

Remission versus exemption - actually paid or actually payable - Inclusion in assessable value as additional consideration - Whether the Supreme Court's decision in CCE v. Super Synotex (relied upon by Revenue) governs the present case. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals)'s distinction of Super Synotex: that case dealt with an exemption scheme where sales tax was neither paid nor payable and therefore could not be excluded from transaction value. By contrast, the Gujarat scheme involved remission of tax that was leviable and paid (or deemed paid) and not a statutory exemption; consequently the Super Synotex ratio is inapplicable. Revenue did not rebut the Commissioner (Appeals)'s distinguishing findings on review/appeal and therefore reliance on Super Synotex affords no support to the Revenue's case. [Paras 5]

Super Synotex is distinguishable and does not apply to the facts of this case; reliance on it by Revenue is misplaced.

Final Conclusion: The Tribunal upheld the Commissioner (Appeals) orders: Revenue's appeals were dismissed and the impugned orders allowing refund were affirmed.

Clandestine removal of goods - parallel invoices - entries in Shipra note book - entries in ISI register - cum duty price benefit - onus of positive evidence - penalty on directors - admission by the assessee

Admission by the assessee - parallel invoices - entries in Shipra note book - cum duty price benefit - Validity and consequences of admitted demands based on parallel invoices and entries in the Shipra note book - HELD THAT: - The appellants admitted demands of Rs. 3,68,685 and Rs. 26,327 which arose from entries in the Shipra note book and parallel invoices respectively. Because these amounts were not recovered from buyers, the Tribunal treated these clearances as cum duty price and directed that the appellant be given cum duty benefit while recalculating the actual duty payable. The admitted demands therefore stand confirmed subject to reduction to the extent of cum duty benefit and recalculation of duty. [Paras 10, 12, 16]

Demands founded on parallel invoices and Shipra note book admissions are confirmed but to be treated as cum duty price and duty recalculated giving cum-duty benefit.

Clandestine removal of goods - entries in ISI register - onus of positive evidence - Sustainability of demands founded solely on shortages and entries in the ISI register - HELD THAT: - The Tribunal found that demands of Rs. 67,660 and Rs. 1,14,571 (shortage of finished goods and raw material) and further demands of Rs. 3,62,062 and Rs. 6,25,578 based on ISI register entries could not be sustained in absence of positive evidence linking those entries to clandestine clearances. The ISI registers were held to be records for testing as per BIS norms and could not be equated to production/stock records when the department produced no affirmative evidence of clandestine removal; moreover, the appellants had cleared quantities exceeding ISI entries, undermining the contention that ISI entries represented total production. [Paras 10, 11]

Demands based solely on shortages and ISI register entries are set aside for want of positive evidence.

Penalty on directors - clandestine removal of goods - Liability and quantum of penalty on the directors and the main appellant - HELD THAT: - The Tribunal held that directors cannot be absolved of penalty without knowledge of clandestine clearances and therefore sustained penalties on the directors, but reduced the monetary quantum in view of the overall reduction in duty demand. The main appellant's penalty was reduced to 20% of the recalculated duty; the directors' penalties were reduced to fixed sums of Rs. 10,000 each. The Tribunal also took into account payment of Rs. 4 lakhs made by the appellant during investigation in moderating penalty, ordering payment within 30 days with a provision that failure to pay would render 100% of the duty payable as penalty. [Paras 13, 14, 15, 16]

Penalty on the main appellant confirmed at 20% of recalculated duty (with conditions on payment); penalties on both directors sustained but reduced to Rs. 10,000 each.

Final Conclusion: The appeals are partly allowed: admitted demands based on parallel invoices and Shipra note book are confirmed but to be treated as cum duty price with duty recalculated accordingly; demands founded solely on shortages and ISI register entries are set aside for want of positive evidence; penalty on the main appellant is reduced to 20% of the recalculated duty (subject to payment conditions) and penalties on both directors are sustained but reduced to specified nominal amounts.

Use of incriminating material from search despite illegality of search - clandestine removal - quantification of duty liability - evidence recovered from employee's residence - examination of documentary and testimonial evidence

Use of incriminating material from search despite illegality of search - Outcome of search may be used in adjudication even if manner of search was not fully in consonance with procedural law. - HELD THAT: - The Tribunal accepted the settled legal principle that incriminating material discovered during a search is admissible in departmental proceedings even where the search itself may have been illegally conducted. The Tribunal referred to the established precedent to the effect that the legality of the search does not automatically vitiate the evidentiary value of the material seized, and therefore directed that liability arising out of the floppy (seized material) be examined by the appellant and taken into account in quantification. [Paras 3]

Admissibility of incriminating material seized during search upheld for purposes of adjudication and directed that liability arising from the floppy be examined.

Clandestine removal - examination of documentary and testimonial evidence - Adjudicating authority examined evidence and reached conclusion of clandestine removal of goods by the appellant, which requires scrutiny against pleadings and evidence. - HELD THAT: - The Tribunal recorded that the adjudication order is a well-reasoned finding based on documentary evidence seized, depositions of personnel, and detailed investigations, which collectively indicate unaccounted purchases, unaccounted production and clandestine clearances of cotton yarn without Central Excise documents. The summary of allegations (reproduced at para 10 of the adjudication) delineates specific factual findings relied upon by the adjudicating authority and the Tribunal directed these aspects to be scrutinised together with the appellant's pleadings and evidence for further consideration. [Paras 2, 6]

The adjudicating authority's factual conclusion of clandestine removal is recognised as founded on evidence and is to be subject to scrutiny against the appellant's pleadings and evidence.

Quantification of duty liability - evidence recovered from employee's residence - Quantification of duty liability arising from the incriminating materials (including the floppy and documents recovered from an employee's residence) is to be examined and determined afresh. - HELD THAT: - The Tribunal observed that while the adjudication finding was rendered long ago, the process of reconciling evidentiary materials to compute the exact duty liability requires time and further verification. It directed the appellant to examine the liability emanating from the floppy and directed counsel to quantify liability in respect of incriminating materials recovered from an employee's residence. The Tribunal further directed the Revenue to examine thoroughly the quantification aspect against each incriminating material found during search and adjourned the matter for a further hearing to afford reasonable opportunity to both sides. [Paras 1, 4, 5, 7]

Quantification of duty liability remanded for detailed reconciliation and computation by the parties and examination by the Revenue; matter adjourned for further hearing.

Final Conclusion: The Tribunal upheld the admissibility of incriminating materials seized during search for adjudicatory purposes, recognised the adjudicating authority's findings of clandestine removal based on documentary and testimonial evidence, and remanded the matter for detailed quantification of duty liability (including liabilities arising from the floppy and materials seized from an employee's residence), directing Revenue and the appellant to reconcile evidence and compute the duty payable; matter adjourned for further hearing.

Entry Tax as part of turnover - statutory authorisation to collect tax and its effect on turnover - definition of "sale price" and "turnover of sale" under U.P. VAT Act - Explanation 5 to definition of sale price (tax charged or chargeable excluded) - distinction between permissive collection provisions in one statute and absence thereof in another

Entry Tax as part of turnover - statutory authorisation to collect tax and its effect on turnover - definition of "sale price" and "turnover of sale" under U.P. VAT Act - Explanation 5 to definition of sale price (tax charged or chargeable excluded) - Whether the amount paid by the dealer as Entry Tax for bringing goods into the local area forms part of the dealer's turnover of sales for the purposes of U.P. VAT - HELD THAT: - The Court accepted that where a statute expressly or impliedly authorises a dealer to collect a tax from the purchaser, that tax does not form part of turnover (relying on Anand Swarup Mahesh Kumar and Asian Paints decisions). However, the U.P. Tax on Entry of Goods into Local Areas Act, 2007 contains no provision permitting a dealer to collect Entry Tax from the purchaser. Consequently the rule excluding tax collected under statutory authority is inapplicable. The definition of "sale price" under the U.P. VAT Act includes any sum charged for anything done by the dealer at or before delivery, and Explanation 5 excludes only tax which is charged or chargeable (i.e., tax authorised to be collected). Since the Entry Tax paid by the dealer cannot lawfully be collected from the purchaser under the U.P. Act, it does not fall within Explanation 5 and must be included in the sale price and hence in the "turnover of sale". The authorities' and Tribunal's conclusion that the Entry Tax paid by the dealer is includible in turnover was therefore held to be in accordance with law. [Paras 6, 8, 9, 10]

Amount of Entry Tax paid by the dealer is to be included in the sale price and forms part of the turnover of sales for assessment year 2008-09

Final Conclusion: The revision is dismissed; the Entry Tax paid by the dealer is includible in the dealer's turnover for Assessment Year 2008-09 and subject to tax under the U.P. VAT Act.

Seizure of goods - security for protection of revenue under Section 48(7) of the U.P. VAT Act - prima facie factual finding by the Tribunal - transfer of documents of title during movement (Section 3(b) of the Central Sales Tax Act) - penalty proceedings against unregistered dealer

Seizure of goods - security for protection of revenue under Section 48(7) of the U.P. VAT Act - penalty proceedings against unregistered dealer - Validity of the seizure and the requirement to furnish security under Section 48(7) to protect revenue interest. - HELD THAT: - The Tribunal, as the highest fact-finding authority under the Act, did not accept the revisionist's explanation that the transaction attracted protection under Section 3(b) of the Central Sales Tax Act. Those prima facie findings have not been shown to be vitiated by any error of law or perversity. In that factual backdrop, the seizure of goods and the requirement to protect the interest of the revenue by insisting on security pursuant to Section 48(7) cannot be held unjustified. The object of the inquiry under Section 48(7) is to safeguard recovery in the event penalty proceedings establish tax liability where an unregistered dealer sold within the State with intent to evade tax.

Seizure upheld and requirement to furnish security under Section 48(7) sustained to protect revenue.

Transfer of documents of title during movement (Section 3(b) of the Central Sales Tax Act) - prima facie factual finding by the Tribunal - Whether the applicability of Section 3(b) can be conclusively determined in seizure proceedings and the treatment of the Tribunal's finding on that question. - HELD THAT: - Ordinarily, a conclusive determination of whether a transaction is a sale in the course of inter-State trade under Section 3(b) is not appropriate in seizure proceedings. The Court refrained from expressing a final opinion on the legal correctness of the revisionist's claim under Section 3(b) because doing so could adversely affect any penalty proceedings. However, the Tribunal's prima facie conclusion that the necessary ingredients to attract Section 3(b) were absent stands on the material before it and is not shown to be legally erroneous or perverse.

Applicability of Section 3(b) not finally decided in seizure proceedings; Tribunal's prima facie finding that Section 3(b) did not apply is upheld for purposes of Section 48(7).

Security for protection of revenue under Section 48(7) of the U.P. VAT Act - indemnity bond as alternative security - Proper form and quantum of security for release of seized goods. - HELD THAT: - While the Tribunal directed release of goods on deposit of security to the extent of 40% of value, the Court modified that direction to balance protection of the State's interest and the revisionist's contentions. The Court permitted release on furnishing cash security equal to the amount payable towards tax and by requiring indemnity bonds to cover the remaining amount; the indemnity bond is to be furnished by the revisionist and by M/s Ridhi Oil, Kanpur, so as to secure the State should penalty or tax be ultimately held payable.

Tribunal's release direction modified: goods to be released on deposit of cash equal to tax payable and on furnishing indemnity bonds (by the revisionist and M/s Ridhi Oil) for the balance; otherwise seizure order affirmed.

Final Conclusion: The Tribunal's factual conclusion that the revisionist's explanation did not attract protection under Section 3(b) is sustained; the seizure is affirmed and, subject to a modification, release of goods is permitted on deposit of cash equal to the tax payable and on furnishing indemnity bonds to cover the remaining amount, thereby protecting the revenue while allowing conditional release.

Service by alternative electronic modes (email and WhatsApp) and sufficiency of notice - evading service and constructive notice - prima facie infringement / colourable imitation - interim injunction pending trial - disclosure of agreements and receipts in relation to the film

Service by alternative electronic modes (email and WhatsApp) and sufficiency of notice - evading service and constructive notice - Alternative modes of service (email, WhatsApp and use of information obtained from CBFC and in-phone apps) sufficed to put the Defendants on notice where regular modes were evaded. - HELD THAT: - The Plaintiffs obtained addresses from the CBFC, effected communication by courier, email and WhatsApp, and annexed an affidavit showing acknowledgements and communications from Defendant No.1 and Defendant No.5. The Court held that the purpose of service is to give notice and a copy of the papers; where alternative modes demonstrably communicate the papers and are acknowledged, absence of formal registered post or bailiff service does not mean the Defendants had no notice. Defendants who avoid ordinary modes of service cannot take advantage of that evasion; modern electronic records and in-phone app information may establish service. Having regard to the attempts and the received communications, the Court found that adequate service/notice had been effected and that nothing further was required for the purposes of the present motion. [Paras 5, 6, 7, 8, 9]

Alternative electronic service and the methods used by the Plaintiffs constituted adequate service/notice; the Defendants were properly on notice.

Prima facie infringement / colourable imitation - interim injunction pending trial - A prima facie case of infringement was made out and the balance of convenience and risk of irreparable harm favoured grant of an ad interim injunction in the terms sought. - HELD THAT: - On the material placed, including admissions attributed to Vikhyat and particulars in the plaint, the Court found prima facie that the Kannada film is a colourable imitation of the Korean original. The Plaintiffs had assigned and licensed rights in the original work and had not assigned rights to the Defendants. Given the film's release and the possibility of telecast, the Court accepted that continued exhibition, distribution or telecast would cause irreparable injury and that the balance of convenience lay with the Plaintiffs. Consequently, the Court considered it appropriate to grant temporary and interim relief restraining further exhibition, distribution, telecast, exploitation and creation of derivative rights in the Kannada film pending final disposal. [Paras 10, 11, 12, 13]

Ad interim injunction granted restraining exhibition, distribution, telecast, exploitation and creation of derivative rights in the Kannada film as set out in the order.

Disclosure of agreements and receipts in relation to the film - Defendants were directed to disclose on oath agreements, arrangements and amounts received in relation to the Kannada film. - HELD THAT: - Alongside injunctive relief, the Court ordered discovery to enable assessment of parties' rights and any exploitation undertaken by the Defendants. The defendants were directed to disclose on oath any agreements or contacts with artists, writers, cast or third parties concerning negative, exploitation or satellite rights, and to account for amounts received relating to the film. This disclosure was ordered as an ancillary and necessary measure to further the Court's interim relief and to assist in eventual final adjudication. [Paras 13]

Defendants directed to make the specified disclosures on oath.

Final Conclusion: The High Court found that electronic modes of communication and information obtained from CBFC sufficed to put the Defendants on notice; held that a prima facie case of infringement existed and that the balance of convenience and irreparable injury justified ad interim injunctions restraining further exhibition, exploitation and creation of derivative rights in the Kannada film; directed specified disclosure by the Defendants and listed the motion for final hearing on 12th April 2017.