TaxTMI Updates e-Newsletter
May 06,2015

Genuineness of share transactions - sham and book-entry transactions - valuation of stock-in-trade - market price versus cost - reliance on broker confirmation memos and contract notes as proof of transactions - related-party interlinking and de facto control affecting genuineness - perversity of appellate findings

Genuineness of share transactions - sham and book-entry transactions - reliance on broker confirmation memos and contract notes as proof of transactions - related-party interlinking and de facto control affecting genuineness - Allowability of losses claimed by the assessee on sale/purchase and diminution in value of shares for assessment years 1997-98 to 1999-00 - HELD THAT: - The Court examined the material on which the Assessing Officer concluded that the share transactions were not genuine and constituted essentially book entries engineered through inter-linked entities. The AO's findings rested on cogent facts: consideration for purchases remained unpaid and was shown as credit to the purported seller; the main seller/broker (Sh. N.C. Jain) was not shown to be a person of means; transactions were largely off-market/off-the-floor and not settled through the stock exchange clearing mechanism; the companies whose shares were dealt with were promoted and controlled by a common promoter (Sh. R.R. Modi) who had introduced share-application money in other names; quotations certified by the Gauhati Stock Exchange related to reported off-floor transactions chiefly involving the assessee and related entities and therefore did not establish market value; and payments purportedly made much later (in 2005-06) did not dispel the need to investigate ultimate recipients or the true character of the dealings. The Tribunal and the CIT(A) failed to confront or appreciate these critical aspects and accepted the contract notes, confirmation memos and stock-exchange certificates without addressing the surrounding indicia of sham dealings. Where the primary transaction is shown to be a contrived book-entry arrangement among related entities, mere production of broker confirmations and bills is insufficient to establish genuineness. Applying this reasoning to the facts, the Court held that the Tribunal's acceptance of the transactions as genuine was perverse and that the AO's conclusion that the losses (except as separately identified) were not allowable was justified. [Paras 44, 46, 48, 49, 51]

Losses claimed in respect of the shares (other than those specifically identified relating to Mather & Platt India Ltd.) for AYs 1997-98, 1998-99 and 1999-00 are not allowable because the transactions were not genuine and were essentially book-entry/sham transactions; the Tribunal's contrary finding is perverse.

Valuation of stock-in-trade - market price versus cost - perversity of appellate findings - Allowability of losses claimed in respect of shares of Mather & Platt India Ltd. for the relevant assessment years - HELD THAT: - The Court distinguished the transactions in Mather & Platt India Ltd. from the rest, noting there was no allegation of relatedness between the assessee and that company and no material suggesting the transactions were sham. Consequently, the small losses claimed in relation to Mather & Platt India Ltd. for the several assessment years could not be rejected on the same basis as the other transactions and therefore are allowable. [Paras 50]

Losses relating to Mather & Platt India Ltd. (specified small amounts for AYs 1997-98, 1998-99 and 1999-00) are allowable.

Final Conclusion: The Tribunal's finding that the share transactions were genuine is perverse. The appeals are allowed: the losses claimed in respect of the impugned share transactions for AYs 1997-98, 1998-99 and 1999-00 (except the specified losses relating to Mather & Platt India Ltd.) are disallowed; the small losses for Mather & Platt India Ltd. are upheld. No order as to costs.

Solely for educational purposes - predominant object test - approval under Section 10(23C)(vi) of the Income Tax Act - entitlement of a registered society (juristic person) to seek exemption

Entitlement of a registered society (juristic person) to seek exemption - approval under Section 10(23C)(vi) of the Income Tax Act - Registered society running an educational institution is competent to apply for exemption under Section 10(23C)(vi) of the Income Tax Act. - HELD THAT: - The Court found as an undisputed fact that the petitioner society, a registered juristic person running the educational institution, had filed the application and had been granted registration under Section 12A. The contention of the Revenue that the application must be moved by the educational institution (as distinct from the registered society) was rejected because the society, for all practical purposes, is the assessee running the institution and has the legal capacity to move the exemption application. The impugned order did not reject the application on the ground now urged by the Revenue, and the Court held that the novel ground raised in the course of argument did not survive. Consequently the society's right to seek approval was affirmed.

The petitioner's competence to file the application under Section 10(23C)(vi) was upheld and the Revenue's maintainability objection was rejected.

Solely for educational purposes - predominant object test - approval under Section 10(23C)(vi) of the Income Tax Act - Object Nos. 3, 4 and 5 of the Memorandum are ancillary to educational purposes and do not negate the requirement of existing solely for educational purposes or indicate profit-making objects. - HELD THAT: - Applying the settled law that the test is whether the institution exists solely for educational purposes and not for profit (the predominant object test), the Court examined all 22 objects of the Memorandum and observed none were for profit-making. The specific Objects 3, 4 and 5, when read in context, were held to be ancillary to the main educational object and did not demonstrate any capacity to earn profit. On that basis the Court concluded that the Prescribed Authority's rejection on the ground that those objects did not fall within 'solely for educational purposes' was unjustified. However, rather than directing final grant of approval, the Court quashed the impugned order and remitted the matter to the Prescribed Authority for fresh decision in light of these observations.

Rejection of the application on the basis of Object Nos. 3, 4 and 5 was held to be unjustified; the impugned order was quashed and the matter remitted for fresh consideration.

Final Conclusion: The petition is allowed; the impugned order dated 29.3.2010 is quashed and the matter is remitted to the Prescribed Authority to decide afresh in light of the Court's observations, preferably within ninety days.

Change of opinion - power under Section 263 to revise an assessment - distinction between business income and capital gains on sale of land - transactional control when property is sold through developer/promoter agreements - Raja Rameshwara Rao principle: acquisition for development and resale as business

Change of opinion - power under Section 263 to revise an assessment - Validity of the Commissioner's order under Section 263 in setting aside the assessment on the ground that income from sale of undivided shares was business income instead of capital gains - HELD THAT: - The Tribunal's conclusion that the assessment accepted by the Assessing Officer reflected an earlier view that the receipts were long-term capital gains and that the sales began crystallising from assessment year 2008-09 was affirmed. The Tribunal did not rest solely on the fact that the assessee was a full-time student but took into account the origin of title (settlement), the promoter's and construction agreements which constrained the manner and timing of sales, and the fact that the Revenue had accepted the assessee's earlier stand. On these findings the High Court held that the Commissioner's order under Section 263 amounted to a mere change of opinion and therefore could not be sustained as a valid exercise of the revisionary power. [Paras 8, 9, 10]

The order under Section 263 setting aside the assessment is untenable being based on a change of opinion and is therefore unsustainable.

Distinction between business income and capital gains on sale of land - Raja Rameshwara Rao principle: acquisition for development and resale as business - transactional control when property is sold through developer/promoter agreements - Whether the receipts from sale of undivided shares in the property constituted business income or capital gains - HELD THAT: - The Court distinguished the present facts from Raja Rameshwara Rao where land was acquired with a view to develop and sell as a business venture. Here the assessee acquired the property by settlement and did not purchase it as part of a development-for-resale business; she entered into a promoter's agreement and construction agreement and, in consequence, sold undivided shares over a period. The agreements and the mode of sale meant the assessee lacked the unfettered control and business-like plan characteristic of acquisition-for-development cases. On this factual matrix the Tribunal rightly treated the receipts as capital gains, and the High Court found no infirmity warranting interference. [Paras 6, 9, 11]

The receipts are to be treated as capital gains and not as business income; the Raja Rameshwara Rao principle is not attracted on these facts.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal's order holding the receipts to be capital gains and holding the Commissioner's action under Section 263 to be a change of opinion is affirmed.

Disallowance of deduction under section 40(a)(ib) in respect of Security Transaction Tax - treatment of loss on error trades as business loss - application of section 14A and Rule 8D to expenses relating to exempt income - deductibility of transaction charges paid to stock exchanges as fees for technical services

Disallowance of deduction under section 40(a)(ib) in respect of Security Transaction Tax - Deletion by the Tribunal of the Assessing Officer's disallowance under section 40(a)(ib) of deduction of Security Transaction Tax claimed by the assessee. - HELD THAT: - The Court held that the assessee, a broker, had collected the Security Transaction Tax as a component of bills raised on its clients and had segregated and identified the tax component. The statutory obligation to collect and remit STT under the relevant provisions of the Finance Act and the STT enactment was known to the Assessing Officer, and the nature of the transaction and the relationship with clients was not in dispute. Given that the tax was collected on behalf of clients and remitted, section 40(a)(ib) did not apply to disallow the asserted deduction in these facts. The Tribunal therefore did not raise any substantial question of law in deleting the disallowance. [Paras 6, 7]

Tribunal's deletion of the disallowance was upheld and did not involve a substantial question of law.

Treatment of loss on error trades as business loss - Whether the loss claimed as arising from 'error trades' should be accepted as business loss and whether the Tribunal's remand and observations on the point raised a substantial question of law. - HELD THAT: - The Court noted that the Tribunal did not finally decide the matter but observed that the claim of 'error trade' had not been examined by the Assessing Officer or the CIT(A) and therefore remitted the issue to the Assessing Officer for fresh examination. The Tribunal indicated that if, upon verification, the loss is found to have arisen from error trades conducted by the assessee on behalf of clients, the loss would be treated as business loss subject to the law laid down in the cited Tribunal decision. As the matter was remitted for factual and fresh inquiry rather than concluded by the Tribunal, no substantial question of law was held to arise. [Paras 4, 7]

Issue remitted to the Assessing Officer for fresh examination; not a substantial question of law.

Application of section 14A and Rule 8D to expenses relating to exempt income - Direction by the Tribunal to disallow expenses attributable to earning exempt income relying on the decision in Godrej & Boyce Mfg. Co. Ltd. - HELD THAT: - The Court observed that the Tribunal followed the principles of section 14A and Rule 8D of the Income Tax Rules, 1962 in addressing disallowance of expenses relating to exempt income. The issue is squarely covered by the decision in Godrej & Boyce Mfg. Co. Ltd. and therefore did not constitute a substantial question of law warranting interference. [Paras 7]

Tribunal's approach following section 14A and Rule 8D and the Godrej & Boyce authority is acceptable; no substantial question of law.

Deductibility of transaction charges paid to stock exchanges as fees for technical services - Deletion by the Tribunal of disallowance in respect of transaction charges paid to stock exchanges without deduction of tax at source. - HELD THAT: - The Court held that the question is covered by this Court's decision in Commissioner of Income Tax vs. Kotak Securities Ltd., which treats the transaction charges paid to the Stock Exchange as being in the nature of fees for technical services for the purposes being considered. Consequently, the Tribunal's deletion of the disallowance was in line with the High Court precedent and did not present a substantial question of law for interference. [Paras 8]

Tribunal's deletion upheld as covered by Kotak Securities precedent; no substantial question of law.

Final Conclusion: All four questions raised by the revenue were held not to involve substantial questions of law; the Tribunal's order is sustained and the appeal is dismissed.

Revisional jurisdiction under Section 263 - assumption of jurisdiction - failure to record findings on objections - limited remand to assess merits - scope of remand and right to challenge jurisdiction and merits

Revisional jurisdiction under Section 263 - assumption of jurisdiction - failure to record findings on objections - limited remand to assess merits - Whether the ITAT could uphold the CIT's assumption of jurisdiction under Section 263 and order a limited remand when the CIT had not recorded findings on the assessee's objections to the initiation of revisional proceedings. - HELD THAT: - The Court found that the CIT's order did not address the assessee's objections to the Show Cause Notice insofar as the legality and correctness of the assumption of jurisdiction were concerned, and that the merits were merely remitted to the Assessing Officer. Because the CIT failed to record any findings on the objections directed at the initiation of proceedings (both the alleged erroneous view of the AO and prejudice to revenue), the ITAT's affirmation of the assumption of jurisdiction was unsustainable. The limited remand directed by the ITAT - confined to reconsideration of merits - was therefore rendered academic insofar as the foundational question of jurisdiction remained undecided. In consequence, it was necessary to permit the assessee to contest both the correctness and legality of the CIT's assumption of jurisdiction as well as the merits of the items subjected to revisional proceedings. [Paras 5, 6]

ITAT's upholding of the CIT's assumption of jurisdiction set aside to the extent that the assessee is permitted to challenge both the legality of the assumption of jurisdiction and the merits; the remand is modified accordingly.

Final Conclusion: The appeal is allowed in part: the impugned order is modified to permit the assessee to contest both the correctness and legality of the CIT's assumption of revisional jurisdiction and the merits of the expenditures; the ITAT's affirmation of jurisdiction and the limited remand are set aside to that extent.

Addition on excess scrap generation - validity of assessment where notice under Section 143(2) is time barred - disallowance of expenses as personal use of telephone - penalty under Section 271(1)(c) dependent on sustainment of assessment additions - disallowance of interest under Section 36(1)(iii) where interest free funds are available - disallowance under Section 40A(2)(b) for unreasonable payment to a connected party

Addition on excess scrap generation - relevance of findings in block assessment to regular assessment - Deletion of additions made by the Assessing Officer by estimating scrap generation at 15% for the Assessment Years 1999-2000, 2000-01 and 2001-02. - HELD THAT: - The Tribunal found, and the High Court agreed, that the block assessment findings (based on material found during search) cannot be the sole basis for making additions in a regular assessment. The Assessing Officer relied on a statement recorded under Section 132(4) but rejected independent documentary evidence produced by the assessee from the Central Excise Department without adequate basis. The books of account were maintained on the mercantile system, audited under Section 44AB, and not rejected by the AO; gross profit was not disputed. In the absence of independent material justifying estimation of scrap at 15% and given the Excise Department's verification, the Tribunal rightly deleted the trading addition. [Paras 5, 6]

Addition on account of excess scrap generation at 15% deleted for the stated assessment years; question decided for the assessee.

Validity of assessment where notice under Section 143(2) is time barred - Whether the assessment order under Section 143(3) is void ab initio because the notice under Section 143(2) was issued beyond the prescribed period of limitation. - HELD THAT: - The return was filed on 31/12/1999 while the notice under Section 143(2) was served on 25/08/2001, i.e., beyond twelve months from the end of the month in which the return was filed. Applying the Supreme Court decision cited (Assistant Commissioner of Income Tax v. Hotel Blue Moon), the High Court held that the notice under Section 143(2) was barred by limitation and consequently the assessment under Section 143(3) was void ab initio. [Paras 6]

Assessment order under Section 143(3) held void ab initio as notice under Section 143(2) was time barred; held for the assessee.

Disallowance of expenses as personal use of telephone - Deletion of the disallowance of telephone expenses alleged to be on account of personal use by the directors for Assessment Year 1999-2000. - HELD THAT: - The Assessing Officer disallowed telephone expenses which were partly sustained by the CIT(A). The Tribunal deleted the entire disallowance. The High Court noted the question of law but, considering the small amount involved and keeping questions of law open, dismissed the revenue appeal against the deletion. [Paras 6]

Tribunal's deletion of the telephone expense disallowance upheld; revenue appeal dismissed (question kept open but amount treated as small).

Penalty under Section 271(1)(c) dependent on sustainment of assessment additions - Validity of penalty under Section 271(1)(c) imposed for Assessment Year 2000-01. - HELD THAT: - Since the underlying addition on account of scrap generation was deleted by the Tribunal, the Tribunal held there was no basis for imposing penalty under Section 271(1)(c). The High Court found no error in this reasoning and dismissed the revenue appeal against cancellation of the penalty. [Paras 7]

Penalty under Section 271(1)(c) deleted; revenue appeal dismissed.

Disallowance of interest under Section 36(1)(iii) where interest free funds are available - Deletion of disallowance of interest expenses for Assessment Years 2002-03 and 2003-04. - HELD THAT: - The Tribunal found that the assessee had substantial interest free funds and advances outstanding, and that no disallowance had been made in the preceding year. On these facts the Tribunal deleted the disallowance under Section 36(1)(iii). The High Court agreed with the Tribunal's factual conclusions and reasoning and held the sole questions of law against the revenue. [Paras 8]

Disallowance of interest under Section 36(1)(iii) set aside; appeals dismissed in favour of the assessee.

Disallowance under Section 40A(2)(b) for unreasonable payment to a connected party - Extent of disallowance under Section 40A(2)(b) in respect of commission paid to a connected party for Assessment Year 2003-04. - HELD THAT: - The Assessing Officer disallowed the entire commission as unreasonable. The CIT(A) and the Tribunal, after examining commercial benefits and prior years' treatment, held that part of the commission (Rs. 1 per kg) was reasonable while the balance (Rs. 0.50 per kg) was excessive; two thirds of the addition was therefore deleted and one third sustained. The High Court agreed with the appellate authorities' assessment of commercial benefits and connectivity between parties and found no substantial question of law. [Paras 9]

Tribunal and CIT(A) decision sustained: two thirds of the addition deleted and one third upheld; revenue appeal dismissed.

Final Conclusion: All revenue appeals are dismissed: additions on scrap generation (AYs 1999-00, 2000-01, 2001-02) deleted; assessment under Section 143(3) held void for time barred notice under Section 143(2); telephone expense disallowance deletion sustained (appeal dismissed); penalty under Section 271(1)(c) deleted; disallowances of interest under Section 36(1)(iii) set aside; and the Tribunal's and CIT(A)'s treatment under Section 40A(2)(b) (two thirds deleted, one third sustained) is upheld.

Capital receipt versus revenue receipt - characterisation of lump-sum payments as revenue or capital expenditure - treatment of registration fees and stamp duty as expenditure on instrument - relocation of machinery and revenue allowance for modernization/rationalisation - allowability of staff club contributions under section 40A(9) and section 36(1)(v)/(va) of the Income Tax Act

Capital receipt versus revenue receipt - Admissibility of the question whether the notional sales tax exemption amount of Rs. 38,62,33,200/- is a capital receipt not liable to income tax - HELD THAT: - The Court noted that this substantial question of law had already been admitted between the same parties in Income Tax Appeal No.4157/2009 and, in consequence, admitted the present appeal on this point for determination. The Tribunal had previously characterised the sales tax exemption as a capital receipt; the revenue sought admission to challenge that characterisation. Having regard to the existence of the earlier admission and the fact that the issue raises a substantial question of law, the Court found no difficulty in admitting the appeal on this question for adjudication. [Paras 5, 25]

Appeal admitted on the question whether the notional sales tax exemption amount is a capital receipt not liable to income tax.

Allowability of staff club contributions under section 40A(9) and section 36(1)(v)/(va) of the Income Tax Act - Admissibility of the question whether the contribution of Rs. 40,25,388/- to clubs for staff and their families was properly allowed as a revenue deduction notwithstanding section 40A(9) - HELD THAT: - The Tribunal followed its earlier view and a Division Bench precedent of this Court in holding the contribution revenue in nature or allowable (as reimbursement/employee-related welfare) and thus allowed the deduction. The revenue challenged that conclusion invoking section 40A(9) and distinctions under section 36(1). While the Tribunal relied on prior factual parity, the High Court observed that the statutory provisions pointed out by the revenue raise a substantial question of law which would not be bound by the Tribunal's factual repetition. In view of the conflicting legal contentions and the fact that a similar question has been admitted in another High Court, the Court found it appropriate to admit the appeal on this point for determination. [Paras 21, 22, 23, 25]

Appeal admitted on the question whether the contribution to staff clubs was correctly allowed as a revenue deduction despite the bar in section 40A(9).

Characterisation of lump-sum payments as revenue or capital expenditure - treatment of registration fees and stamp duty as expenditure on instrument - relocation of machinery and revenue allowance for modernization/rationalisation - Other contested points - (i) characterisation of one-time payment to terminate BOOT agreement and acquire operating/maintenance rights for pipeline; (ii) allowability in year one of registration fees and stamp duty on lease transactions; (iii) capitalisation of expenditure incurred in relocating a reactor - were considered and not admitted - HELD THAT: - The Court examined the Tribunal's reasoning and found no perversity or error of law apparent on the face of the record in respect of these issues. On the lump-sum payment for pipeline rights the Tribunal applied the test in Madras Auto Service and concluded the payment conferred an enduring commercial advantage without conferring ownership of the asset, supporting revenue treatment; the High Court agreed that the Tribunal's view was not perverse. With regard to registration fees and stamp duty, the Court accepted the Tribunal's conclusion that these are duties on the instrument and could be allowed in the year of payment. On relocation of the reactor, the Tribunal found the expenditure merely facilitated optimum use of an existing asset and was revenue in nature; the Court found no error warranting admission. Consequently these points did not give rise to substantial questions of law for admission. [Paras 14, 15, 16, 17, 19]

Appeal dismissed insofar as it sought admission on the pipeline lump-sum payment, registration/stamp duty apportionment, and reactor relocation; no substantial question of law was found for those points.

Proportionality of admission having regard to tax effect - Whether to admit the appeal on a point with minimal tax effect (Rs. 2.66 lakhs) - HELD THAT: - The Court exercised discretion not to admit the appeal on this question, observing that the tax effect was negligible and that this consideration weighed against entertaining the point. [Paras 24]

Appeal not admitted on the point due to negligible tax effect.

Final Conclusion: The High Court admitted the revenue appeal on two substantial questions of law - (1) whether the notional sales tax exemption is a capital receipt not chargeable to tax, and (2) whether contributions to staff clubs amounting to Rs. 40,25,388/- were rightly allowed as a revenue deduction despite section 40A(9) - and directed the Tribunal record to be summoned; the remaining contentions were not admitted (dismissed) for lack of substantial question of law or on grounds of minimal tax effect.

Financial lease versus operating lease - true nature of transaction (substance over form) - chargeable interest under the Interest Tax Act - going behind documents to determine real character of transaction - applicability of CBDT circulars to hire purchase/lease receipts

Financial lease - chargeable interest under Section 2(7) of the Interest Tax Act - substance over form - CBDT Circulars - Transaction between the assessee and the lessee is, in substance, a financial lease and the finance component of the lease rentals is chargeable to tax as interest under Section 2(7) of the Interest Tax Act. - HELD THAT: - The Court examined the lease/hire purchase agreement as a whole and applied the principle of substance over form, following authoritative guidance that courts may go behind documentary form to determine the true nature of a transaction. Material contractual features were held to indicate a financial lease: the lessee selected the equipment, delivery was arranged to suit the lessee and risk thereafter lay with the lessee, the lessee insured and maintained the equipment and bore related expenses, and the aggregate instalments payable substantially exceeded the purchase price such that the excess constituted a finance/interest component. The Court relied on the tests articulated in Sundaram Finance and Asea Brown Boveri to identify financial lease characteristics - namely that for all practical purposes the borrower/lessee assumes the incidents of ownership and the primary purpose is financing the purchase. Having found the transaction to be, in substance, a finance transaction, the Court held that the finance element included in lease rentals falls within the definition of interest chargeable under Section 2(7) of the Interest Tax Act, and that the Tribunal erred in treating the receipts as mere operating lease rentals exempt from interest tax. The Court accordingly restored the Assessing Officer's addition in respect of the separated finance/interest component. [Paras 5, 6]

Tribunal's order is set aside; the transaction is held to be a financial lease and the finance component of the lease rentals is taxable as interest under Section 2(7) of the Interest Tax Act.

Final Conclusion: The appeal is allowed: the Income Tax Appellate Tribunal's order treating the agreements as lease/operating transactions is set aside; the Assessing Officer's levy of interest tax on the finance component is restored for Assessment Year 1996-97.

Jurisdictional time limit under Rule 11AA - renewal of approval under Section 80G - remand for fresh consideration on merits

Jurisdictional time limit under Rule 11AA - Validity of an order rejecting or granting approval under Rule 11AA when passed after the six month period. - HELD THAT: - Rule 11AA(6) prescribes that the Commissioner shall pass an order granting approval or rejecting the application within six months from the date of the application, excluding any time taken by the applicant in compliance with directions under sub rule (3). The Court held that if the application is not disposed of within that six month period the Commissioner lacks jurisdiction to pass either a grant or rejection thereafter. The Commissioner passed the impugned order on 06.10.2008 after the prescribed period; consequently that order was held to be an order without jurisdiction and therefore liable to be set aside. [Paras 7, 8, 9]

Order passed beyond the six month period under Rule 11AA is without jurisdiction and is set aside.

Renewal of approval under Section 80G - charitable purpose versus trade or business - remand for fresh consideration on merits - Whether the assessee's activity (running a hostel) qualifies as charitable purpose for renewal under Section 80G was not adjudicated on merits and is to be reconsidered afresh. - HELD THAT: - The Court did not decide the substantive question whether running a hostel amounts to trade, commerce or business and thus is outside the scope of Section 2(15) or whether the assessee is entitled to renewal under Section 80G. Having held the impugned order void for want of jurisdiction, the Court set aside the findings recorded by the Director and the Tribunal and granted the assessee liberty to make a fresh application. The authority is directed to consider any fresh application on merits and in accordance with law, uninfluenced by the earlier findings. [Paras 9]

Findings on entitlement to renewal under Section 80G are set aside; matter remitted for fresh consideration on merits if a fresh application is filed.

Final Conclusion: Appeal allowed; impugned orders set aside as the order under Rule 11AA was passed beyond the six month period and hence without jurisdiction; assessee granted liberty to file a fresh application which the authority shall decide on merits and in accordance with law.

Interpretation of Section 32(1) - ownership and 'used' requirement - 'Used' to include passive user and trial/commissioning - Installation and commissioning as sufficient nexus for depreciation - Challenge to factual finding - perversity test

Challenge to factual finding - perversity test - The Tribunal's finding that the machine was installed and used for trial before the end of the previous year is not perverse and therefore not liable to be interfered with. - HELD THAT: - The Tribunal recorded factual findings (machine received, foundation laid, electrical connections completed and machine handed over for trying out) and concluded that the machine was installed and used for trial before the close of the accounting year. The High Court applied the settled test for interference with findings of fact - interference is permissible only where material evidence was ignored or inadmissible evidence was relied upon. Neither situation was shown to exist. The Tribunal's conclusion was a plausible factual inference open on the record and therefore not perverse. [Paras 6, 13, 15]

Tribunal's factual finding upheld; no interference as the finding was not perverse.

Interpretation of Section 32(1) - ownership and 'used' requirement - 'Used' to include passive user and trial/commissioning - Installation and commissioning as sufficient nexus for depreciation - Where plant and machinery is installed, commissioned and handed over for trial before the end of the previous year, it satisfies the 'used' requirement under Section 32(1) and entitles the assessee to claim depreciation. - HELD THAT: - The court examined the statutory requirement under Section 32(1) (ownership and use) and prior authorities holding that 'used' embraces passive user and readiness for use. Trial runs and commissioning are part of making the asset fit for business use; actual commercial production thereafter is not a precondition for claiming depreciation. The Tribunal's finding that the machine was installed and used for trial thereby established sufficient use in the previous year to attract depreciation. Reliance on analogous high court decisions affirmed that assets kept ready or commissioned for use qualify for depreciation despite delay in commencement of regular production. [Paras 9, 10, 11, 12]

Machine having been installed and handed over for trial before year-end, the assessee is entitled to depreciation under Section 32(1).

Final Conclusion: The questions of law are answered against the revenue: the Tribunal's factual finding is not perverse and installation/commissioning with trial before the year-end satisfies the 'used' requirement under Section 32(1), entitling the assessee to depreciation; appeal dismissed.

Burden of proof on Revenue to establish smuggling of non notified goods - visual inspection/trade opinion insufficient to establish foreign origin - mere suspicion or markings on packages not conclusive proof of smuggling

Visual inspection/trade opinion insufficient to establish foreign origin - burden of proof on Revenue to establish smuggling of non notified goods - Whether the seized betel nuts were of foreign origin and smuggled into India - HELD THAT: - The adjudicating authority relied principally on visual opinion of Customs officers and on recollection of cooperative/NCCF personnel who, months after the relevant transactions, stated on visual examination that the impugned goods were not those sold by them. The Tribunal held that for goods not notified under Section 123, the onus lies squarely on Revenue to prove foreign origin and illegal entry, and that an opinion based solely on visual examination or trade recollection after months cannot discharge that burden. Markings on some bags and circumstantial suspicion were held inadequate; prior judicial pronouncements were applied to the effect that trade opinion and inscriptions on packaging do not constitute legally sufficient evidence of smuggling or foreign origin. As Revenue produced no positive evidence identifying foreign source or illegal importation, the allegation of smuggling could not be sustained.

Allegation that the goods were of foreign origin and smuggled is not established; finding of smuggling set aside.

Mere suspicion or markings on packages not conclusive proof of smuggling - burden of proof on Revenue to establish smuggling of non notified goods - Whether confiscation, redemption fine and penalties imposed survive when smuggling is not proved - HELD THAT: - The Tribunal held that confiscation, redemption fine and penalties are consequential on a sustainable finding of illegal importation. Once the primary allegation of smuggling was found unsustainable for want of positive evidence, the punitive and confiscatory measures could not survive. Therefore, in absence of proof of smuggling, the orders of confiscation, imposition of redemption fine and penalties lacked legal basis and had to be set aside.

Confiscation, redemption fine and penalties set aside as they are untenable without proof of smuggling.

Final Conclusion: All appeals allowed; adjudicating order of confiscation, redemption fine and penalties set aside for failure of Revenue to prove that the seized betel nuts were of foreign origin or smuggled.

Penalty under Section 114A of the Customs Act - liability of a non-importer/transferor of an Advance Licence

Penalty under Section 114A of the Customs Act - liability of a non-importer/transferor of an Advance Licence - Whether a penalty under Section 114A can be imposed on the appellant who is not the importer but only the transferor of the Advance Licence. - HELD THAT: - The Tribunal examined the admitted facts recorded in the impugned order and the appellant's contention that they were not the importer but only the transferor of the Advance Licence. Having considered the rival contentions and the material on record, the Tribunal was satisfied that Section 114A, which contemplates levy of penalty on the importer, does not permit imposition of penalty on a party who is not the importer. On that basis the Tribunal set aside the impugned Order-in-Original insofar as it imposed penalty on the appellant. [Paras 4]

Impugned order set aside so far as the appellant is concerned; appeal allowed; stay application disposed of.

Final Conclusion: The appeal is allowed: the penalty imposed under Section 114A was not sustainable against the appellant, who was not the importer, and the impugned order is set aside in respect of the appellant.

Stay of operation of appellate order - exemption under Notification No. 12/12-CE dated 01.03.2012 - classification under Customs Tariff Heading 84717020 - requirement of expert opinion in tariff classification disputes - payment of duty under protest

Stay of operation of appellate order - exemption under Notification No. 12/12-CE dated 01.03.2012 - classification under Customs Tariff Heading 84717020 - Application for stay of operation of the Commissioner (Appeals) order setting aside the adjudication rejecting exemption claim - HELD THAT: - The Revenue sought stay of the Commissioner (Appeals) order which had set aside the adjudicating authority's finding that the imported external hard disk drives were not eligible for the claimed exemption. The Tribunal, after considering the facts and following its earlier decision in CC (Acc & Import), Mumbai v. IBM India Pvt. Ltd., observed that the original adjudicating authority had not obtained expert opinion and had reached conclusions after inspection alone. The Tribunal noted the Commissioner (Appeals) had examined the nature of the goods, referred to the Board circular and earlier Tribunal decisions, and that the exemption at the six digit tariff level (CTH 8471 70) prima facie covered hard disk drives. In that factual and legal backdrop, the Tribunal found that the Department had not made out a case for grant of interim relief. The Bench also recorded that the respondent had paid duty under protest and had not filed a refund claim. Applying the precedent and the absence of a compelling case for interim interference, the stay application was rejected. [Paras 4]

The application for stay is rejected.

Final Conclusion: Following the Tribunal's prior reasoning in IBM India and on the material before it, the Revenue's plea for stay of the Commissioner (Appeals) order was refused; the adjudicatory merits remain subject to the appellate process and no interim relief is granted.

Scheme of Amalgamation - sanction under Sections 391 and 394 of the Companies Act, 1956 - dispensing with convening meetings of equity shareholders and creditors - consent of all shareholders and creditors - board approval of the scheme - absence of secured creditors

Dispensing with convening meetings of equity shareholders and unsecured creditors - consent of all shareholders and creditors - board approval of the scheme - Scheme of Amalgamation - Requirement of convening meetings of the equity shareholders and unsecured creditor of the transferor company to consider and approve the Scheme of Amalgamation dispensed with. - HELD THAT: - The Court recorded that the Board of Directors of the transferor company had unanimously approved the proposed Scheme of Amalgamation. The transferor company has seven equity shareholders and one unsecured creditor, each of whom furnished written consents/no objections to the Scheme; those consents were placed on record, examined and found in order. On that basis, and having noted there is no secured creditor of the transferor company as on 31st March, 2014, the Court exercised its power under the Companies Act to dispense with the requirement of convening the meetings of the equity shareholders and the unsecured creditor for the transferor company in relation to the proposed Scheme of Amalgamation. [Paras 11, 12]

Dispensed with convening meetings of the transferor company's equity shareholders and unsecured creditor; consents accepted and scheme proceeding on that basis.

Dispensing with convening meetings of equity shareholders - consent of all shareholders - absence of secured and unsecured creditors - Scheme of Amalgamation - Requirement of convening the meeting of the equity shareholders of the transferee company to consider and approve the Scheme of Amalgamation dispensed with. - HELD THAT: - The Board of Directors of the transferee company unanimously approved the proposed Scheme. The transferee company has 14 equity shareholders, all of whom have given written consents/no objections to the Scheme; those consents were placed on record, examined and found in order. The Court also noted that as on 31st March, 2014 the transferee company had no secured or unsecured creditors. In view of these facts, the Court dispensed with the convening of a meeting of the transferee company's equity shareholders under the Companies Act for approval of the Scheme. [Paras 11, 13]

Dispensed with convening meeting of the transferee company's equity shareholders; consents accepted and scheme proceeding on that basis.

Final Conclusion: The joint application under Sections 391 and 394 of the Companies Act, 1956 is allowed: meetings of the equity shareholders and (as applicable) creditors of the transferor and transferee companies are dispensed with insofar as recorded consents/no objections and board approvals were placed on record and found in order; the Scheme of Amalgamation may proceed accordingly.

Dispensing with convening of meetings for scheme of amalgamation - Approval of scheme of amalgamation by board resolutions and written shareholder/creditor consents - Share exchange ratio in amalgamation - Absence of pending proceedings under Sections 235 to 251 of the Companies Act, 1956

Dispensing with convening of meetings for scheme of amalgamation - Written consents of all equity shareholders - Requirement of convening the meeting of the equity shareholders and creditors of the transferor company dispensed with - HELD THAT: - The transferor company has nine equity shareholders and no secured or unsecured creditors as on 31st July, 2014. All equity shareholders have given their written consents/no objections to the proposed Scheme of Amalgamation which were placed on record and examined by the Court and found in order. In view of unanimous written consent of the sole class of stakeholders and absence of creditors, the Court dispensed with the requirement of convening a meeting of the equity shareholders and creditors of the transferor company to consider and approve the Scheme.

Requirement to convene meetings of the transferor company's equity shareholders and creditors is dispensed with.

Dispensing with convening of meetings for scheme of amalgamation - Written consents of all equity shareholders and secured creditor - Requirement of convening the meetings of the equity shareholders and the secured creditor of the transferee company dispensed with - HELD THAT: - The transferee company has eight equity shareholders and one secured creditor, and no unsecured creditors as on 31st July, 2014. All equity shareholders and the sole secured creditor provided written consents/no objections to the Scheme, which were placed on record and examined by the Court and found in order. Given unanimous written consents of the relevant classes and absence of unsecured creditors, the Court dispensed with the requirement of convening meetings of the transferee company's equity shareholders and secured creditor to consider and approve the Scheme.

Requirement to convene meetings of the transferee company's equity shareholders and secured creditor is dispensed with.

Approval of scheme of amalgamation by board resolutions - Share exchange ratio in amalgamation - Absence of pending proceedings under Sections 235 to 251 of the Companies Act, 1956 - Court recorded compliance with board approvals, disclosure of share exchange ratio and absence of adverse statutory proceedings - HELD THAT: - The Boards of Directors of both transferor and transferee companies unanimously approved the proposed Scheme of Amalgamation in meetings held on 15 July, 2014, and copies of the resolutions were placed on record. The Scheme, as filed, specifies the share exchange ratio (one equity share of Rs.10 in the transferee for every four equity shares of Rs.10 in the transferor). The applicants also represented that no proceedings under Sections 235 to 251 of the Companies Act, 1956 are pending against them. These facts were noted by the Court as part of the material supporting dispensation of meetings and sanctioning the procedural relief sought.

Board approvals, the stated share exchange ratio, and absence of pending proceedings under Sections 235-251 were recorded and accepted by the Court for the purposes of the application.

Final Conclusion: The joint application is allowed; the requirement to convene the meetings of the equity shareholders and creditors of the transferor and the meetings of the equity shareholders and secured creditor of the transferee is dispensed with, and the Court records the approvals and consents placed on record in support of the Scheme of Amalgamation.

Wilful suppression - mandatory imposition of penalty where statutory conditions are satisfied - penalty under Section 78 of the Finance Act, 1994 - penalty under Section 76 of the Finance Act, 1994 - proviso to Section 73(1) - extended period demand - interest for delayed payment under Section 75 of the Finance Act, 1994

Wilful suppression - penalty under Section 78 of the Finance Act, 1994 - mandatory imposition of penalty where statutory conditions are satisfied - Validity of Tribunal's setting aside of penalty under Section 78 where wilful suppression was held by the adjudicating authority - HELD THAT: - The Court accepted the Revenue's contention that the adjudicating authority had expressly found wilful suppression of taxable services and imposed penalty under Section 78. Relying on the binding principles distilled from the Larger Bench decisions of the Supreme Court (noting Dharamendra Textile Processors and Union of India v. Rajasthan Spinning & Weaving Mills), the Court held that where the statutory conditions for imposition of the penal provision are established, the imposition of penalty is not discretionary but mandatory. The Tribunal's conclusion that penalty under Section 78 could be set aside despite a finding of wilful suppression was held to be contrary to this settled legal position. Accordingly the Tribunal's view was held to be erroneous and the substantial question framed in favour of the Revenue answered against the assessee.

Tribunal's setting aside of penalty under Section 78 was incorrect; penalty is imposable where wilful suppression is proved.

Penalty under Section 76 of the Finance Act, 1994 - proviso to Section 73(1) - extended period demand - penalty under Section 78 of the Finance Act, 1994 - Whether imposition of penalty under Section 78 is precluded by imposition of penalty under Section 76 or by demand being sustained for extended period under proviso to Section 73(1) - HELD THAT: - The Court rejected the Tribunal's proposition that imposition of penalty under Section 76 obviates imposition of penalty under Section 78, and that an extended period demand under proviso to Section 73(1) forecloses the latter penalty. Having considered the statutory scheme and the precedents cited, the Court held that the presence of one penal consequence (Section 76) does not prevent imposition of another (Section 78) where the conditions for each are satisfied, and that sustaining demand for an extended period does not negate the applicability of penalty provisions. The Tribunal's contrary conclusion was therefore held to be legally untenable.

Imposition of penalty under Section 78 is not excluded by imposition of penalty under Section 76 or by the fact that demand was sustained for extended period; Tribunal's view reversed.

Final Conclusion: Substantial questions of law framed by this Court are answered in favour of the Revenue and against the assessee; the Tribunal's order setting aside penalty under Section 78 is disapproved and the appeal is allowed, subject to the assessee being entitled to raise such legal pleas as permissible in law; no order as to costs.

Penalty under Section 78 of the Finance Act - waiver of penalty under Section 80 - payment of service tax prior to issuance of show-cause notice - deliberate suppression and filing of false/ nil returns - service tax liability for construction of residential complex

Penalty under Section 78 of the Finance Act - waiver of penalty under Section 80 - payment of service tax prior to issuance of show-cause notice - deliberate suppression and filing of false/ nil returns - Validity of upholding and refusing waiver of the equivalent penalty under Section 78 of the Finance Act. - HELD THAT: - The appeal was confined to the question of waiver of the equivalent penalty under Section 78. The record establishes that the appellant collected service tax on construction of residential complexes but filed a nil ST-3 return for the half-year ending September, 2005 and failed to remit the tax. The appellant paid part of the tax after registration of the case and the balance before adjudication; there is no case of voluntary payment prior to detection. The Tribunal applied the legal position that payment of tax before issuance of show-cause notice does not automatically preclude penal liability under provisions comparable to Section 11AC of the Central Excise Act, and that principle extends to Section 78 of the Finance Act. Given the proven suppression of facts and filing of nil returns despite collection of tax, the appellant cannot claim genuine ignorance to invoke Section 80. On these grounds and by reliance on precedents treating deliberate suppression as sustaining penalty under Section 78, the Tribunal found no merit in waiving the penalty and upheld the impugned order. [Paras 6]

The penalty under Section 78 is not waived; the impugned order upholding the Section 78 penalty is confirmed and the appeal is rejected.

Final Conclusion: Appeal dismissed insofar as it challenges the imposition of the equivalent penalty under Section 78 of the Finance Act; the impugned order upholding that penalty is upheld.

Deposit insurance falls within general insurance business - contract of insurance and contract of indemnity (not mere guarantee) - service tax leviable on commercial/statutory corporations performing non sovereign functions - prospective effect of adverse administrative clarification - extended period of limitation not invokable where no suppression/misrepresentation - exemption under notification 22/2006 ST not extendable to separate corporate subsidiary - exercise of discretion under section 80 for waiver of penalty

Deposit insurance falls within general insurance business - referential incorporation of definition from GIBA into Finance Act - Whether the activity undertaken by DICGC is insurance business and falls within the ambit of general insurance business under section 65(49) read with section 65(105)(d) of the Finance Act, 1994 - HELD THAT: - Having examined the DICGC Act (preamble, definitions and provisions such as sections 15 and 16), the corporation's annual report and the principles governing referential incorporation of earlier enactments, the Tribunal concluded that deposit insurance exhibits the essential attributes of insurance (definition of risk, premium, insured interest and insurer's liability). The definition of general insurance in the Finance Act, 1994 is by reference to section 3(g) of the General Insurance Business (Nationalisation) Act and must be read into the Finance Act. Nothing in section 43 of the DICGC Act restricts the reach of the Finance Act's definition; consequently deposit insurance falls under miscellaneous/general insurance for service tax purposes and is chargeable accordingly. [Paras 5]

Deposit insurance activity of DICGC is an insurance business falling within the general insurance business category as defined in section 65(49) read with section 65(105)(d) of the Finance Act, 1994.

Service tax leviable on commercial/statutory corporations performing non sovereign functions - business - organised activity with consideration/profit motive - Whether DICGC's deposit insurance activity is a 'business' amenable to service tax - HELD THAT: - The Tribunal noted statutory powers of DICGC to acquire, hold or dispose property and to contract, its operation on commercial lines, assessment to income tax and accumulation of surplus, and observed that 'business' extends to organised activities undertaken for consideration even if under statute. On material facts and authorities, the activity was held to be a business carried on with commercial attributes and profit motive. [Paras 5]

DICGC's deposit insurance activity is a business and thus can attract service tax.

Contract of insurance and contract of indemnity (not mere guarantee) - statutory compulsion does not negate contractual character - Whether deposit insurance is a contract of insurance/indemnity or merely a guarantee - HELD THAT: - Applying established tests for insurance (contractual relationship, existence of uncertain event/risk, insurable interest, insurer's obligation to pay, and indemnity), the Tribunal found that deposit insurance satisfies these criteria: the uncertain event is winding up/liquidation, banks have insurable interest in their deposit liabilities, and DICGC indemnifies up to specified limits. Statutory compulsion does not preclude existence of a contract; thus deposit insurance is a contract of insurance/indemnity rather than only a guarantee. [Paras 5]

Deposit insurance is a contract of insurance (a contract of indemnity) and not merely a guarantee.

Prospective effect of adverse administrative clarification - extended period of limitation not invokable where no suppression/misrepresentation - Whether the department could invoke the extended period of limitation to demand service tax for periods prior to 20/09/2011 - HELD THAT: - The Board (CBEC) had earlier issued a clarification in favour of DICGC on 24/02/2009 and only after re examination issued a revised view on 20/09/2011. Given the prior favourable clarification and the fact that the apex administrative authority itself changed its view, the Tribunal held that invoking the extended period (on grounds of suppression/misrepresentation) was not sustainable. Relying on the principle that an adverse administrative clarification operates prospectively, the Tribunal set aside demands for periods prior to 20/09/2011. [Paras 5, 6]

Extended period of limitation cannot be invoked; service tax demand is sustainable only from 20/09/2011 onwards and demands for earlier periods are set aside.

Exemption under notification 22/2006 ST not extendable to separate corporate subsidiary - Whether DICGC is eligible for exemption under Notification No.22/2006 ST (which exempts services provided by the Reserve Bank of India) - HELD THAT: - The Tribunal observed that the notification exempts services provided by the Reserve Bank of India itself. DICGC is a legally and functionally distinct entity established under a different statute, assessed to income tax and operating separately; it is not the RBI nor invariably the RBI's agent in performing RBI's functions. Exemption clauses must be strictly construed when treated as exceptions; accordingly the Tribunal rejected the claim that the RBI exemption extends to DICGC. [Paras 5]

DICGC is not eligible for exemption under Notification No.22/2006 ST; exemption to RBI does not extend to the separate corporate subsidiary.

Exercise of discretion under section 80 for waiver of penalty - Whether penalties under the Finance Act are sustainable and whether penalty should be imposed - HELD THAT: - The Tribunal reiterated the settled principle that imposition of penalty is inappropriate in matters involving interpretation and classification. Considering the factual matrix (earlier favourable Board clarification, bona fide conduct of DICGC seeking clarification, public disclosure of accounts and LTU status) and the discretion conferred under section 80, the Tribunal exercised its discretion to set aside the penalties. [Paras 5, 6]

Penalties imposed on DICGC are set aside by exercising discretion under section 80 of the Finance Act, 1994.

Final Conclusion: Appeals partly allowed: deposit insurance performed by DICGC is taxable as general insurance business and constitutes a contract of insurance/indemnity; DICGC's activity is a business amenable to service tax. Service tax is payable with effect from 20/09/2011 (earlier period set aside in view of prior CBEC clarification). Exemption under Notification No.22/2006 ST does not apply to DICGC. Penalties imposed are set aside by invoking the discretion under section 80.

Change of name approved by Registrar of Companies - no prejudice to Revenue - export of services - realisation of foreign exchange not determinative of place of export - jurisdiction to entertain refund application where taxable event occurred - taxable event

Change of name approved by Registrar of Companies - no prejudice to Revenue - Miscellaneous application for recording change of name on account of fresh Certificate of Incorporation issued on 24.8.2012 was permissible and caused no prejudice to Revenue. - HELD THAT: - The Tribunal allowed the miscellaneous application, observing that the change of name as approved by the Registrar of Companies by the Fresh Certificate of Incorporation dated 24.8.2012 does not cause any prejudice to the Revenue. The application was therefore accepted and no objection by Revenue was recorded. [Paras 1]

Miscellaneous application allowed and change of name recorded; no objection by Revenue.

Export of services - realisation of foreign exchange not determinative of place of export - jurisdiction to entertain refund application where taxable event occurred - taxable event - Coimbatore unit had jurisdiction to claim refund for services exported from Coimbatore despite realisation of foreign exchange in Mumbai. - HELD THAT: - The Tribunal held that the adjudicating authority erred in treating the place of realisation of foreign exchange as determinative of the forum for refund. Once foreign exchange is realised in India it establishes export of service from India, but the fact that the receipt occurred in Mumbai does not alter the place where the taxable event occurred. The respondent provided the service in Coimbatore and the taxable event took place there; accordingly the Coimbatore authority has jurisdiction to entertain the refund application. The appellate authority's reasoning in paragraph 7 of its order, accepting Coimbatore jurisdiction and rejecting the notion that Mumbai and Coimbatore units are distinct for this purpose, was upheld. [Paras 3, 4]

Refund application is maintainable before the Coimbatore authority; stay application and Revenue's appeal dismissed.

Final Conclusion: Application for recording corporate name change allowed; on merits, Coimbatore is the proper forum to claim refund of exported services because realisation of foreign exchange in Mumbai does not displace the place where the taxable event occurred; Revenue's stay and appeal dismissed.

Recording of reasons - judicial and quasi-judicial orders - final fact finding authority - remand for fresh adjudication - application of precedent

Recording of reasons - final fact finding authority - application of precedent - remand for fresh adjudication - The Tribunal's order was set aside and the matter remanded because the Tribunal did not record reasons showing how the precedents relied upon applied to the facts of the case. - HELD THAT: - The Court held that recording of reasons is of paramount importance at the fact-finding stage to enable appellate review and to demonstrate how precedents are applied to the material facts. The Tribunal, being the final fact-finding authority in the hierarchical chain, has failed to discuss the relevant facts or explain the application of the cited Supreme Court and Tribunal decisions to those facts. The Tribunal's order merely asserted that the issues were covered by cited decisions and allowed the appeal without articulating the factual or legal reasoning. In the absence of such reasons, the Court declined to consider the substantial questions of law framed earlier and remanded the matter to the Tribunal for a detailed and reasoned order to enable proper adjudication. [Paras 6, 7, 8, 9]

Impugned order of the Tribunal is set aside and the matter is remitted to the Tribunal for passing a detailed and reasoned order; no order as to costs.

Final Conclusion: The appeal is allowed to the extent that the Tribunal's order is set aside and the matter is remanded to the Tribunal for fresh consideration by a detailed, reasoned order; no order as to costs.

Shortage of raw materials - shortage of finished goods - reliance on Daily Progress Report Register as evidence of clandestine removals - admissibility and effect of retracted statements - requirement of cross examination of Panchas and record writers - penalty on director for failure to prevent clandestine removals - confiscation and redemption fine - extended period of limitation in central excise investigations

Admissibility and effect of retracted statements - requirement of cross examination of Panchas and record writers - Admissibility of statements recorded during investigation and whether cross examination of Panchas or the employee who maintained the register was required. - HELD THAT: - The Tribunal accepted that the Authorised Signatory and the Director had at various times during investigation admitted the contents of the Panchnama and the Daily Progress Report Register and confirmed clandestine clearances. Subsequent retractions made in replies to the show cause notice were not supported by corroborative evidence and therefore could not be accepted. In these circumstances the Tribunal held there was no requirement to allow cross examination of the Panchas or the record writer before relying on those statements and documents, and agreed with the lower authorities that cross examination was not necessary. [Paras 7, 8, 12]

Statements recorded during investigation were admissible and retractions unsupported by evidence were rejected; no requirement to cross examine the Panchas or the register writer.

Reliance on Daily Progress Report Register as evidence of clandestine removals - Sustainability of demand of duty based on entries in the Daily Progress Report Register. - HELD THAT: - The Tribunal found that the Daily Progress Report Register was found in the assessee's office and that the Authorised Signatory and the Director admitted the authenticity of the register in their statements recorded during investigation. Because the admissions were not subsequently corroboratedly retracted, the Tribunal concurred with the adjudicating authority and Commissioner (Appeals) in upholding the demand founded on the Register. [Paras 7, 12]

Demand of duty based on the Daily Progress Report Register is upheld.

Shortage of finished goods - Validity of the demand of duty on the alleged shortage of finished goods detected on 14.11.1997. - HELD THAT: - Although the Commissioner (Appeals) relied on a subsequent stock verification to set aside the demand, the Tribunal noted that the Authorised Signatory and the Director had admitted clandestine clearances of finished goods in their investigative statements and did not disown the Panchnama. Retractions in replies to show cause notices lacked corroboration. On that basis the Tribunal held the demand on account of shortage of finished goods detected on 14.11.1997 was sustainable notwithstanding later stock verification. [Paras 7, 8, 11]

Demand of duty on shortage of finished goods is upheld.

Shortage of raw materials - Sustainability of the demand of duty on shortage of various raw materials found on 14.11.1997. - HELD THAT: - The Tribunal observed that no shortage of the principal raw material (PVC resin) was found and that the materials short were auxiliary inputs used to produce different varieties of PVC compounds. The Tribunal found no material on record showing those specific raw materials were clandestinely removed and noted there is no requirement for a one to one correlation between a particular input and a finished product under the CENVAT scheme. In view of the Director's statement and absence of evidence proving clandestine removal of those inputs, the Tribunal concluded that the demand on shortage of such raw materials was not justified. [Paras 9, 10, 15]

Demand of duty on shortage of raw materials is set aside.

Penalty on director for failure to prevent clandestine removals - Validity of penalty imposed on the Director of the assessee company. - HELD THAT: - The Tribunal found that the Director stated he was not aware of the maintenance of the Daily Progress Report Register and that the lower authorities' finding that the Director had knowledge of clandestine removals was without basis on the record. Considering the factual matrix, the Tribunal held imposition of penalty on the Director was not proper. [Paras 14, 15]

Penalty imposed on the Director is set aside; the Director's appeal is allowed.

Confiscation and redemption fine - Whether confiscation of plant and machinery and imposition of redemption fine were justified. - HELD THAT: - Having regard to the particular facts and circumstances and the Tribunal's findings on the admissions and the nature of the evidence, the Tribunal held that the case did not warrant confiscation of plant and machinery or imposition of a redemption fine. Accordingly, the redemption fine and confiscation were set aside. [Paras 14, 15]

Confiscation and redemption fine are set aside.

Extended period of limitation in central excise investigations - Whether the show cause notice was barred by limitation. - HELD THAT: - The appellant contended that the show cause notice was time barred. The Tribunal, after reviewing the investigation chronology and the admissions, observed that inquiry was conducted on various dates to corroborate clandestine removals and that the extended period of limitation would be invokable. The Tribunal did not accept the limitation plea and proceeded to decide substantive issues on merits. [Paras 13]

Limitation defence rejected; extended period of limitation was held invokable and the show cause notice was not barred.

Final Conclusion: The Tribunal modified the impugned order by setting aside the duty demand on shortage of raw materials, and by setting aside penalty on the Director and the redemption fine; it upheld demands of duty (and corresponding penalties subject to the option to pay 25% penalty) based on the Daily Progress Report Register and on shortage of finished goods, allowed the Director's appeal, and disposed of the parties' appeals accordingly.

Reliability of confessional and retracted statements - Right to cross-examination in quasi-judicial proceedings - Reliance on uncorroborated witness statements - Evidentiary value of RTO vehicle inspection report - Denial of MODVAT Credit for non-receipt of inputs - Imposition of penalty and appropriation of deposited amount

Reliability of confessional and retracted statements - Right to cross-examination in quasi-judicial proceedings - Reliance on uncorroborated witness statements - Statements of transporters and others relied upon by Revenue, which were retracted and were not subjected to cross-examination, cannot be the sole basis to deny MODVAT credit. - HELD THAT: - The Tribunal held that the department heavily relied upon statements of transporters and certain persons which were subsequently retracted. The authorities below did not allow cross-examination despite an earlier remand directing it; the right to cross-examine is a facet of natural justice in quasi-judicial proceedings and is often determinative of the truth of oral assertions. Where witnesses relied upon do not appear for cross-examination and their statements are retracted, such uncorroborated statements lose evidentiary value. The Commissioner (Appeals) view that retraction or refusal to attend cross-examination indicates mala fides was rejected: the appellate Tribunal observed that the Adjudicating authority should have followed the earlier remand direction to permit cross-examination and could not sustain a large demand and penalties on the basis of unreliably supported statements. [Paras 9, 10, 11, 13, 16]

Statements which were retracted and were not subjected to cross-examination cannot be relied upon to sustain a demand of MODVAT credit.

Evidentiary value of RTO vehicle inspection report - Denial of MODVAT Credit for non-receipt of inputs - The RTO report called by Revenue is insufficient, by itself, to displace documentary records and supplier statements and to justify denial of MODVAT credit. - HELD THAT: - The Tribunal found that the RTO report related only to inspection of a limited number of consignments and, in many instances, vehicle numbers in the report differed from those in the invoices. There was no clear linkage showing applicability of the RTO findings to all alleged consignments. By contrast, Central Excise invoices were defaced by jurisdictional officers, statutory records were maintained and audited, payments were made by cheque and suppliers stated that goods were delivered through brokers/transporters. In such circumstances the RTO report cannot be the sole or conclusive basis for concluding diversion of goods or wrongful availment of credit. [Paras 12, 13, 16]

RTO report alone does not justify denial of MODVAT credit where invoices, supplier statements and statutory records support receipt and payment for inputs.

Imposition of penalty and appropriation of deposited amount - Denial of MODVAT Credit for non-receipt of inputs - Denial of MODVAT credit, interest and imposition of penalties, and appropriation of deposited amounts cannot be sustained on the record before the authorities. - HELD THAT: - Applying the above conclusions, the Tribunal observed there was no evidence of diversion of goods, invoices were genuine, payments were by cheque and recorded in statutory books, and suppliers confirmed supply albeit through brokers. Given the unreliability of uncorroborated transporter statements and the limited applicability of the RTO report, the demand, interest, penalties and appropriation ordered by the Adjudicating authority and upheld by the Commissioner (Appeals) were unsustainable on merits. [Paras 6, 13, 16, 17]

The demand of MODVAT credit with interest, the penalties and appropriation of deposited amount are set aside.

Final Conclusion: The impugned order upholding the demand of MODVAT credit, interest, penalties and appropriation is set aside; the appeals are allowed and the MODVAT credit along with consequential relief is restored to the appellants.

Interest on differential duty determined after issuance of supplementary invoices - application of sub-section (2B) of Section 11A and levy of interest under Section 11AB for short payment of duty - interest under Rule 7(4) of CER, 2002 payable from the month succeeding determination - interest on differential duty upon finalisation of provisional assessment where differential amount had already been paid - waiver of penalty where there was no intention to evade and prior conflicting decisions existed

Interest on differential duty determined after issuance of supplementary invoices - application of sub-section (2B) of Section 11A and levy of interest under Section 11AB for short payment of duty - waiver of penalty where there was no intention to evade and prior conflicting decisions existed - Liability to pay interest on differential duty paid consequent to issuance of supplementary invoices in a normal assessment and whether penalty should be imposed. - HELD THAT: - Applying the ratio of the Hon'ble Supreme Court in CCE v. SKF India Ltd., the Tribunal held that where supplementary invoices are issued to recover upward revision of prices and differential duty is paid thereafter, the situation constitutes short payment of duty falling within sub-section (2B) of Section 11A and attracts interest under Section 11AB. Consequently the adjudication order charging interest was restored. However, having regard to conflicting judicial decisions prior to the Supreme Court clarification and the absence of any deliberate evasion, the Tribunal waived the penalty that had been imposed by the adjudicating authority. [Paras 7]

Revenue's appeal partly allowed: interest demand restored; penalty waived.

Interest under Rule 7(4) of CER, 2002 payable from the month succeeding determination - interest on differential duty upon finalisation of provisional assessment where differential amount had already been paid - Chargeability of interest on differential duty consequent to finalisation of provisional assessment when the assessee had already paid the differential duty before finalisation. - HELD THAT: - Following the Tribunal's earlier order in the respondents' own case and the decisions in the Ispat line of authorities (as affirmed by higher fora), the Tribunal found that where differential duty, if any, was not outstanding on the date of determination because the assessee had already paid the differential duty, interest is not chargeable under the applicable rule. On that basis the Tribunal upheld the Commissioner (Appeals) order setting aside the interest demand in respect of the provisional assessment. [Paras 8]

Revenue's appeal rejected; impugned order upholding absence of interest demand is maintained.

Final Conclusion: Revenue's appeal E/1060/05 is partly allowed - interest liability on supplementary-invoice differential duty restored but penalty waived; Revenue's appeal E/356/2006 is rejected and the impugned order upholding no interest demand on finalisation of provisional assessment is affirmed.

Penalty equal to duty liability - unconstitutional penal provision - payment of duty on actual production basis - compounded levy scheme - disclosure in RT-12 returns - malafide suppression

Penalty equal to duty liability - unconstitutional penal provision - disclosure in RT-12 returns - malafide suppression - Validity and quantum of penalty imposed under the proviso to Rule 96 ZO (3) for short payment of duty for the period December 1999 to March 2000. - HELD THAT: - The Tribunal's earlier reduction of the penalty to Rs. 50,000 stood for reconsideration. The Department's case that the short payment was deliberate and amounted to suppression and malafide was negatived by the fact that the assessee had disclosed payment on actual production basis in the RT-12 returns, such disclosure having led to discovery of the short payment during scrutiny. Further, the proviso to Rule 96 ZO (3) imposing a mandatory penalty equal to the duty liability was held to be constitutionally infirm by the Punjab & Haryana High Court in Bansal Alloys and Metals Pvt. Ltd. v. Union of India, and that decision was treated as determinative for the present penalty challenge. Applying those conclusions, the Tribunal's exercise in moderating the penalty was held to be justified and not infirm. [Paras 6]

Tribunal's order reducing the penalty to Rs. 50,000 is upheld; imposition of penalty equal to duty liability under the proviso to Rule 96 ZO (3) is not sustained in the facts of this case where disclosure occurred and the penal provision has been held unconstitutional.

Final Conclusion: The appeal concerning the penalty is dismissed: the Tribunal's reduction of the penalty to Rs. 50,000 is affirmed on the grounds that the short payment was disclosed in RT-12 returns and the mandatory penal proviso has been held constitutionally unsustainable.

Liability to pay excise duty on waste and scrap generated by a job worker - principal manufacturer versus job worker liability for duty on scrap - manufacturer of waste and scrap - liability to pay excise duty and manner of payment under Central Excise Rules - reversal of Cenvat credit for inputs used in generation of waste and scrap

Liability to pay excise duty on waste and scrap generated by a job worker - principal manufacturer versus job worker liability for duty on scrap - reversal of Cenvat credit for inputs used in generation of waste and scrap - liability to pay excise duty and manner of payment under Central Excise Rules - Appellant as principal manufacturer is not liable to pay excise duty on waste and scrap generated at the job worker's premises even where the value of waste and scrap forms part of the job charges. - HELD THAT: - The Tribunal applied established authorities holding that the person who actually produces or manufactures excisable goods is liable to discharge excise duty and that waste and scrap generated during job work are manufactured by the job worker. The Central Excise Rules govern the liability to pay duty and the manner of payment; the Cenvat Credit Rules do not create a liability to pay duty but only provide for reversal of credit where credit was wrongly taken. Prior Tribunal decisions, including Fag Engineering India Ltd. and Mahindra Hinoday Industries Ltd., were relied upon to conclude that the principal manufacturer cannot be fastened with duty liability for scrap produced by the job worker. At most, the principal manufacturer may be required to reverse Cenvat credit attributable to inputs used in generation of the waste and scrap, but where no reversal was sought, a demand for duty against the principal manufacturer is unsustainable. The Tribunal therefore set aside the demand, following the determinative legal principle that duty on waste and scrap must be demanded from the job worker who manufactures it, not from the principal manufacturer. [Paras 6, 7]

Impugned demand of duty from the principal manufacturer on scrap generated at the job worker's premises is set aside; appellant relieved of liability.

Final Conclusion: Appeal allowed; demand of duty on waste and scrap raised against the principal manufacturer quashed, with consequential relief as applicable.

Settlement with revenue by individual partner - joint and several liability of partners - power of remission by Commissioner - prescribed conditions under subordinate rules - strict construction of taxing statutes / no equity in tax law

Settlement with revenue by individual partner - power of remission by Commissioner - prescribed conditions under subordinate rules - Validity and effect of the alleged settlement between the State Government/Commissioner and the appellant for discharge of individual partner's liability in respect of the firm's sales tax dues. - HELD THAT: - The Court examined Section 18 (joint and several liability of partners) and Section 45 (power of remission vested in the Commissioner subject to circumstances and conditions as prescribed) of the Bombay Sales Tax Act, 1959 and the Rules made thereunder. The statutory scheme confines remission to exercise by the Commissioner in accordance with circumstances and conditions prescribed by the Rules, and the proviso requires State Government sanction where remission exceeds a specified amount. The Rules (including Rules 43A, 44 and 44A) do not contemplate or prescribe any procedure for discharging an individual partner's liability by entering into a separate settlement with the State Minister or the Commissioner. In the absence of any statutory or rule made provision authorising settlement with an individual partner to absolve him of the firm's dues, neither the Minister's alleged acceptance nor any extraneous settlement could legally relieve the appellant of his statutory liability. The Court emphasised that taxing statutes must be construed strictly and that equity cannot be read into such provisions to create powers not provided by law. [Paras 14, 15, 16, 19, 20]

The alleged settlement did not operate to discharge the appellant's liability; there is no provision in the Act or Rules permitting such a settlement, and the High Court rightly rejected the appellant's plea.

Joint and several liability of partners - strict construction of taxing statutes / no equity in tax law - Whether the appellant could be absolved from the firm's assessed tax liabilities on the basis of the asserted settlement when Section 18 renders partners jointly and severally liable. - HELD THAT: - Section 18 unequivocally makes partners jointly and severally liable for the firm's tax dues. Absent a statutory provision expressly permitting individual discharge of that joint liability, an administrative or political settlement cannot override the statutory joint and several obligation. The Court relied on established principle that taxing statutes admit no equitable interpolation and must be interpreted according to their plain language; consequently, a purported settlement cannot be invoked to escape statutorily imposed joint liability. [Paras 12, 15, 17, 19]

The appellant remains liable under the statute for the firm's tax dues; the High Court correctly held him liable.

Final Conclusion: The High Court's judgment upholding the tax liability was correct: the Act and the Rules do not permit a settlement with an individual partner to discharge the firm's joint and several liability, and the appeal is dismissed.

Entitlement to refund as per assessment orders - withholding refund pending reassessment - delay in concluding reassessment proceedings - refund subject to outcome of reassessment - remedy under Article 226 of the Constitution

Entitlement to refund as per assessment orders - withholding refund pending reassessment - Refusal to grant refunds already found payable in assessment orders solely because reassessment proceedings are pending is unlawful. - HELD THAT: - The Court noted as undisputed that assessment orders for the specified financial years declared the petitioner entitled to refunds. The State withheld payment on the basis that reassessment proceedings were initiated (on recommendation of pre-audit) and remain pending since 2004. The High Court held that denying the refunds merely because reassessment proceedings are pending for many years is arbitrary and illegal. The Court did not adjudicate the merits of the reassessment grounds but found no justification for the continued withholding of amounts which are payable under existing assessment orders. [Paras 6]

The refusal to refund solely on account of pending reassessment was set aside and the petitioner entitled to payment as per the assessment orders subject to the Court's further direction.

Delay in concluding reassessment proceedings - refund subject to outcome of reassessment - Delay by the authority in deciding reassessment proceedings disentitles the State from pleading delay to deny relief and requires interim refund subject to later adjustment. - HELD THAT: - The Court observed there was no explanation for the reassessment proceedings remaining undecided since 2004. Any delay in initiating or concluding reassessment is attributable to the authority and cannot be used as a ground to deny the refunds ordered in earlier assessments. Consequently, the Court directed immediate refund of the assessed amounts within a specified time, while making clear that such refund is subject to the ultimate outcome of the pending reassessment; the Court expressly refrained from expressing any view on the merits of the reassessment itself. [Paras 6, 7]

Appropriate authority directed to refund the amounts within one month, subject to final outcome of reassessment proceedings.

Final Conclusion: Writ petition allowed: the State directed to refund the amounts declared payable by the assessment orders for Financial Years 1999-00 and 2000-01 within one month, the refunds being subject to any final order that may be passed in the pending reassessment; no decision expressed on merits of reassessment and no order as to costs.

Binding nature of departmental circular - acceptance of belated revised returns with additional tax - application of Commissioner's circular to change of tax regime - non-consideration of relevant material vitiating assessment - remand for consideration in accordance with circular

Binding nature of departmental circular - application of Commissioner's circular to change of tax regime - Whether the Commissioner's Circular dated 07.07.2008 is binding on the Department and sustainable as a measure to address teething problems arising from the changeover to the KVAT regime. - HELD THAT: - The High Court accepted the Single Judge's conclusion that the Commissioner's Circular was issued to soften the rigours of the transition from the Karnataka Sales Tax Act to the KVAT Act and that such a circular is binding on departmental officers. The court noted that the Circular provided that where a revised return discloses additional tax, a belated return filed beyond six months should be accepted on payment and reassessment initiated through the jurisdictional JC-DVO. The court relied on the Single Judge's reasoning that the Circular is aimed at remedying imperfections in returns and does not prejudice the revenue where additional tax is offered; it therefore cannot be held illegal. The appellants did not dispute before this court that the Circular is binding or that it was intended to address change-of-regime difficulties. The court, therefore, endorsed the Single Judge's view that the Circular is sustainable and binding on the Department. [Paras 4, 8, 10]

The Commissioner's Circular dated 07.07.2008 is binding on the Department and is sustainable as a measure to address transition-related difficulties under the KVAT regime.

Acceptance of belated revised returns with additional tax - non-consideration of relevant material vitiating assessment - remand for consideration in accordance with circular - Whether the Assessing Officer's failure to consider the assessee's revised returns (filed 19.08.2006) and his rejection of returns for February and March 2006 (within six months) despite the Commissioner's Circular vitiated the assessment and required remand. - HELD THAT: - The court found that the Assessing Officer passed the fresh assessment order ignoring the Commissioner's Circular and did not even make cursory reference to it. The Single Judge's detailed observations (reproduced in the order) emphasised that the revised returns were filed to offer additional tax and that entertaining such belated revised returns pursuant to the Circular would not prejudice the revenue. The High Court observed that the Assessing Officer's rejection of the revised returns for February and March 2006, which fell within the six-month limitation, reflected non-application of mind and amounted to non-consideration of relevant material. Consequently, the Single Judge quashed the assessment order and consequential demand notice and remanded the matter to the Assessing Authority to consider the revised returns in accordance with the Commissioner's Circular, without expressing any opinion on the assessee's tax liability. The High Court found no reason to interfere with that conclusion. [Paras 3, 5, 6, 9, 10]

The assessment order was quashed and the matter remanded to the Assessing Authority to consider the assessee's revised returns in accordance with the Commissioner's Circular dated 07.07.2008; no opinion expressed on tax liability.

Final Conclusion: Appeals dismissed. The Single Judge's order quashing the assessment and remanding the matter for reconsideration of the revised returns in accordance with the Commissioner's Circular dated 07.07.2008 is upheld; no opinion is expressed on the assessee's tax liability and there shall be no order as to costs.

Constitutionality of amendment to the Second Schedule of the Tamil Nadu Value Added Tax Act - Article 14 - intelligible classification and manifest arbitrariness - Article 19(1)(g) - trade in liquor as a qualified right subject to Article 19(6) - power to amend Schedules under Section 86 vis-a -vis rule making power under Section 80 - point of levy and set off of tax suffered turnover - judicial review of fiscal policy - limits and standard of review

Article 14 - intelligible classification and manifest arbitrariness - constitutionality of amendment to the Second Schedule of the Tamil Nadu Value Added Tax Act - Validity of the impugned amendment to the Second Schedule under Article 14 - HELD THAT: - The Court upheld the amendment as not violative of Article 14. The legislative classification distinguishing TASMAC (second sale) and FL 2/FL 3 licensees (third sale) is founded on economic and policy considerations (different customer classes, value addition and higher selling prices) and thus meets the dual test of intelligible classification and rational connection to the legislative object. Judicial review of revenue policy is limited; interference is permissible only when the policy is palpably arbitrary or capricious. The amendment, introduced to remedy an anomaly and augment revenue for welfare schemes, is not manifestly arbitrary or substantively unreasonable. [Paras 21, 24, 25]

The amendment to the Second Schedule is constitutionally valid under Article 14.

Article 19(1)(g) - trade in liquor as a qualified right subject to Article 19(6) - point of levy and set off of tax suffered turnover - Whether the amendment infringes the petitioners' Article 19(1)(g) right to carry on business - HELD THAT: - The Court held that trading in liquor is a qualified right under Article 19(1)(g) and is subject to the restrictions of Article 19(6). The petitioners, being purchasers from TASMAC and engaged in third point sales with value additions, are not entitled to parity with TASMAC (an instrumentality/monopoly of the State). Having benefited from set off at the second sale, petitioners cannot insist on the same benefit at the third sale. The amendment does not prohibit the petitioners from carrying on business and therefore does not transgress Article 19(1)(g). [Paras 23, 25]

No violation of Article 19(1)(g); the petitioners' right to trade in liquor is not infringed by the amendment.

Power to amend Schedules under Section 86 vis-a -vis rule making power under Section 80 - judicial review of fiscal policy - limits and standard of review - Whether the amending of the Second Schedule by notification under Section 86 was permissible and whether rules under Section 80 were required first - HELD THAT: - The Court held that Section 86(1) authorises alteration, addition or cancellation of Schedules by notification and that exercise of that power is distinct from the rule making power under Section 80. Non exercise or absence of rules does not render the statutory power to amend Schedules inoperative. The State legitimately exercised the statutory power to amend the Schedule; there was no constitutional defect in doing so instead of framed rules. [Paras 12, 14]

Amendment of the Second Schedule under Section 86 is a valid exercise of statutory power and does not require prior framing of rules under Section 80.

Point of levy and set off of tax suffered turnover - constitutionality of amendment to the Second Schedule of the Tamil Nadu Value Added Tax Act - Whether the impugned provision results in double taxation, tax on tax, or repugnance between provisions - HELD THAT: - The Court found no impermissible tax on tax in view of Section 3(5) read with the amended Schedule; the regime operates at specified points of levy and the third point levy with value addition is not a prohibited duplication of tax. There was no repugnance between the provisions as they operate in their respective fields. [Paras 26]

No double taxation or repugnance is made out; the manner of levy under the amended Schedule is permissible.

Final Conclusion: Writ petitions challenging the constitutional validity of Amendment Act No.25 of 2012 to Entry 2 and Explanation 1 of the Second Schedule of the Tamil Nadu VAT Act are dismissed; the amendment is held valid and the petitions are accordingly dismissed with no order as to costs.

Principles of natural justice - show cause notice - reassessment under Section 9(3) of the Gujarat Entertainment Tax Act, 1977 - opportunity of being heard - compounding of offence

Reassessment under Section 9(3) of the Gujarat Entertainment Tax Act, 1977 - show cause notice - principles of natural justice - Impugned assessment/reassessment under Section 9(3) was passed without issuing the statutory show cause notice and without affording opportunity of hearing, and therefore cannot be sustained - HELD THAT: - The court found that no notice calling upon the petitioner to show cause as to why an order under Section 9(3) should not be passed was issued or served; the department had issued a different show cause notice relating to prosecution under Section 18. In these circumstances determination of entertainment tax under Section 9(3) was in breach of the provisions of the Act and the principles of natural justice. Consequently the orders under Section 9(3) passed by the Mamlatdar, and confirmed by the revisional/appeal authorities, were quashed and set aside insofar as they relate to assessment/reassessment under Section 9(3). The matter was remanded for de novo consideration in accordance with law and on merits after giving the petitioner an opportunity to be heard. [Paras 4, 5]

Orders under Section 9(3) quashed and set aside; matter remanded to the Mamlatdar for fresh decision after giving opportunity to the petitioner.

Show cause notice - opportunity of being heard - Order dated 30.3.2013 to be treated as a show cause notice and petitioner permitted to file reply within two weeks, after which Mamlatdar to pass appropriate order under Section 9 on merits - HELD THAT: - For procedural convenience and to ensure compliance with principles of natural justice the court directed that the impugned order dated 30.3.2013 shall be regarded as a show cause notice. The petitioner was allowed two weeks to file a written reply and submissions. Thereafter the Mamlatdar, Entertainment Tax, Surat is directed to pass an appropriate order in accordance with law and on merits under Section 9 after considering the petitioner's submissions and communicate the decision. [Paras 4, 5]

Order dated 30.3.2013 treated as show cause notice; petitioner to reply within two weeks; Mamlatdar to decide afresh under Section 9 after hearing.

Compounding of offence - Prosecution under Section 18 stands compounded as petitioner has deposited the compounding amount and the matter in respect of prosecution is concluded - HELD THAT: - The petitioner had deposited the amount required for compounding and sought to compound the offence to avoid prosecution. The court recorded that, insofar as prosecution is concerned, the matter ends and the petitioner is permitted to compound the offence upon the deposited amount being treated as full and final for that purpose. This direction was given without prejudice to the petitioner's right to dispute the tax liability on reassessment. [Paras 1, 5]

Prosecution permitted to be compounded; matter relating to prosecution concluded.

Final Conclusion: The petitions succeed in part: orders under Section 9(3) are quashed and set aside and the matter is remanded to the Mamlatdar for fresh adjudication under Section 9 after treating the order dated 30.3.2013 as a show cause notice and allowing the petitioner two weeks to reply; prosecution under Section 18 is permitted to be compounded and the matter in that regard stands concluded.