TaxTMI Updates e-Newsletter
May 12,2015

Monetary limits for filing appeals - statutory effect of CBDT instructions under Section 268A - National Litigation Policy - purposive construction of statutes - maintainability of departmental appeals - retrospective application of remedial/statutory instructions

Monetary limits for filing appeals - statutory effect of CBDT instructions under Section 268A - maintainability of departmental appeals - retrospective application of remedial/statutory instructions - Applicability of Instruction No.3 of 2011 (monetary limit of Rs.10 lakhs for filing appeals to the High Court) to appeals filed before 9th February, 2011 (pending appeals) and its effect on maintainability of the present appeal for AY 1993-94. - HELD THAT: - The Court held that instructions issued by the CBDT fixing monetary limits for filing appeals are not mere administrative guidelines but have been given statutory force by Section 268A, which was inserted with retrospective effect from 1 April 1999. Reading Section 268A and Instruction No.3 of 2011 harmoniously, the Court adopted a purposive construction in light of the National Litigation Policy: the statutory regime contemplates that the Tribunal or Court shall have regard to such instructions and the circumstances in which appeals were filed or not filed. Although para 11 of Instruction No.3 speaks of applicability to appeals filed on or after 9 February 2011, sub-section (4) of Section 268A permits the Court, at the hearing stage, to consider whether the exceptions in the instructions apply. Applying this purposive approach to avoid discrimination and to give effect to the policy of reducing frivolous government litigation, the Court concluded that Instruction No.3 of 2011 must be applied to pending appeals unless the department can show that one of the carved-out exceptions exists (for example, cascading effect in other years, constitutional questions, invalidity of Board instruments, or accepted revenue audit objections). The CBDT's limited compliance with the National Litigation Policy (raising monetary limits without reviewing pending cases) was held to be insufficient to defeat the instruction's aim. On the facts, the Court found that none of the exceptions applied to the present appeal and that the tax effect was below the monetary limit prescribed by Instruction No.3 of 2011. Consequently the appeal was liable to be dismissed on the ground of monetary limit without touching its merits. The Court also noted that Section 268A preserves the department's ability to proceed in other assessment years or against other assessees where limits are exceeded.

Instruction No.3 of 2011 applies to pending appeals at the hearing stage unless an exception in the instruction is shown to exist; since no exception applies here and the tax effect is below the prescribed limit, the appeal (AY 1993-94) is dismissed on the ground of monetary limit.

Final Conclusion: The departmental appeal relating to Assessment Year 1993-94 is dismissed on the ground that the tax effect is below the monetary limit prescribed by Instruction No.3 of 2011; the dismissal is without expressing any opinion on merits and the Revenue remains free to proceed in other assessment years or cases where the prescribed monetary limit is exceeded.

Addition under section 68 - Burden of proof as to identity and creditworthiness of creditors - Source of source enquiry - Appellate jurisdiction to interfere only when order is wrong - Reliance on precedents distinguishing on facts

Addition under section 68 - Burden of proof as to identity and creditworthiness of creditors - Source of source enquiry - Whether the Tribunal was justified in deleting the addition made under section 68 without examining the findings of the Assessing Officer and the Commissioner (Appeals) on identity, creditworthiness and genuineness of transactions - HELD THAT: - The Tribunal set aside the orders of the Assessing Officer and the CIT(A) solely on the basis of documentary material filed by the assessee without disclosing any reasons why the concurrent findings on credibility recorded by the lower authorities were erroneous. It is settled law that the assessee bears the burden of proving identity of creditors, their creditworthiness and genuineness of transactions; enquiries into the source of the alleged lenders (source of source) are relevant. The Tribunal's approach of deleting the addition without testing the AO/CIT(A) findings and without addressing those determinative factors was therefore unsustainable. The appellate forum may interfere only when a conclusion is demonstrably wrong; here the Tribunal did not apply its mind to the crucial ingredients required to discharge the assessee's burden.

Tribunal's deletion of the addition is set aside; the view of the Tribunal is held unsustainable and the appeal is allowed in favour of the revenue.

Reliance on precedents distinguishing on facts - Appellate jurisdiction to interfere only when order is wrong - Whether the Tribunal was justified in applying the decision in Dataware Private Limited to delete the addition - HELD THAT: - The Tribunal invoked the Dataware Private Limited decision and coordinate bench precedents to delete the addition. The High Court observed that those decisions are fact-sensitive and, on the material before it, the facts of the present case are distinguishable. Consequently the High Court did not accept the Tribunal's reliance without examination of the lower authorities' findings and recorded that the question need not be further answered because the Tribunal's application of the precedent was inappropriate on the facts.

The Tribunal's application of the Dataware precedent is not accepted as justifying deletion on the present facts.

Final Conclusion: Application for condonation of delay allowed. The appeal is admitted and allowed; the Tribunal's order deleting the addition under section 68 is set aside and the matter is decided in favour of the revenue.

Deduction for bad debts and irrecoverable advances under the Income Tax Act - Proof of writing off and irrecoverability as sufficient for deduction - Reliance on T.R.F. Ltd. precedent for allowance of written off debts

Deduction for bad debts and irrecoverable advances under the Income Tax Act - Proof of writing off and irrecoverability as sufficient for deduction - Reliance on T.R.F. Ltd. precedent for allowance of written off debts - Whether the Tribunal was justified in deleting the addition of Rs. 1,58,529 made by the AO by treating the written off advances as irrecoverable and allowable as a deduction under section 36(1)(vii) of the Act. - HELD THAT: - The Tribunal deleted the addition of Rs. 1,58,529 on the ground that the assessee had written off the advances in its accounts and had established that the debts had become irrecoverable. The High Court held that the Tribunal correctly applied the law as laid down by the Hon'ble Supreme Court in T.R.F. Ltd., which requires the assessee to show that the debt was written off and had in fact become irrecoverable. The AO's contrary view - that the advances were not arising out of sale and hence not bad debts - was not a sufficient reason to sustain the disallowance once writing off and irrecoverability were established. Accordingly, the Tribunal did not commit any error in deleting the addition. [Paras 4, 5]

Tribunal's deletion of the addition of Rs. 1,58,529 upheld; no error in treating the written off advances as irrecoverable and allowable.

Final Conclusion: Appeal dismissed; no substantial question of law arises as the Tribunal correctly followed the Supreme Court's decision in T.R.F. Ltd. in allowing the deduction for the written off irrecoverable advances.

Penalty under section 271(1)(c) - Explanation 5A clause (a) and clause (b) - applicability - voluntary disclosure during search under section 132(4) - effect of prior return filed without disclosure

Explanation 5A clause (a) and clause (b) - applicability - effect of prior return filed without disclosure - Clause (a) of Explanation 5A applies where a return was filed before the due date but the income was not declared therein; clause (b) does not apply to such cases. - HELD THAT: - The Tribunal erred in treating clause (b) of Explanation 5A as applicable to the assessee who had furnished a return for the relevant previous year but had omitted to declare the disclosed sum. Clause (b) applies where the return has not been filed by the due date; clause (a) specifically covers the situation where the return has been furnished but the income has not been declared. Since the assessee had earlier filed a return for AY 2008-09 without disclosing the sum now offered, the case falls squarely within clause (a) and not clause (b). The Tribunal's reliance on clause (b) therefore cannot sustain interference with the penalty proceedings under section 271(1)(c).

Tribunal's reliance on Explanation 5A clause (b) is misplaced; clause (a) governs a return filed but not declaring income.

Penalty under section 271(1)(c) - voluntary disclosure during search under section 132(4) - A disclosure made during search, though described as 'voluntary' (i.e., not extorted), does not immunize the assessee from penalty under section 271(1)(c) where the income was omitted from the return for the assessment year. - HELD THAT: - The Tribunal's emphasis on the word 'voluntary' overlooked the context of a search under section 132 and the legal consequence that the assessee had earlier filed a return for AY 2008-09 without the disclosed income. The term 'voluntary' in the statement recorded during search denotes that the statement was not given under physical compulsion, but it does not convert the post-search disclosure into a circumstance barring penalty when the statutory conditions for invoking section 271(1)(c) (i.e., concealment or failure to disclose income in the return) are satisfied. The Tribunal's reliance on precedents in different factual matrices (for example, decisions where there was no search) was inapt. For these reasons the Tribunal's interference with the appellate authority's confirmation of penalty was unsustainable.

Tribunal's allowance of the appeal on the ground of 'voluntary' disclosure during search is unsustainable; appellate order confirming penalty is to be restored.

Final Conclusion: The Tribunal's order allowing the assessee's appeal is set aside and the appellate authority's order confirming penalty under section 271(1)(c) is restored, the Court holding that clause (a) of Explanation 5A applies where a return was filed but income was not declared and that a disclosure during search described as 'voluntary' does not negate liability to penalty in such circumstances.

Capital expenditure vs revenue expenditure - enduring benefit test - once-for-all payment test - business-purpose test under section 37 of the Income-tax Act, 1961 - gestation-period not converting revenue expenditure into capital

Capital expenditure vs revenue expenditure - enduring benefit test - business-purpose test under section 37 of the Income-tax Act, 1961 - gestation-period not converting revenue expenditure into capital - Whether the expenditures incurred by the assessee for development and cultivation of leased land are capital in nature or deductible as revenue expenditure. - HELD THAT: - The Court upheld the Tribunal's factual and legal conclusion that the land was fallow and not barren and that the expenditure (including tractor hiring charges, jeep vehicle expenditure, staff welfare, HSD, preparation and renewal of seeds and electricity charges) was incurred in the ordinary course of the assessee's agricultural business and for furtherance of its business objects. Applying established tests from Supreme Court precedents, the Court emphasised that the enduring benefit test and the once-for-all notion are not conclusive; the decisive inquiry is the purpose and commercial character of the outlay viewed in the context of the business. The Tribunal relied on government notings, the assessee's memorandum of association and subsequent year accounts to show the activities were part of normal farming operations and that any gestation period before receipts accrued did not convert routine operational expenses into capital expenditure. The Court found no illegality or perversity in the Tribunal's application of the legal principles and its conclusion that mere expectation of benefit in succeeding years is insufficient to characterise such outgoings as capital. [Paras 14, 15, 16, 17]

The Tribunal's finding that the impugned expenditures are revenue in nature is affirmed and the claims are allowable as business expenses under section 37; the Revenue's contention that they are capital expenditures is rejected.

Final Conclusion: Substantial question of law answered against the Revenue; appeals dismissed and the Income-tax Appellate Tribunal's order allowing the expenditures as revenue expenditure is affirmed.

Rejection of book results under section 145(3) - Estimation of income - Reliance on assessee's past profit history for estimation - Requirement of material/evidence to justify ad hoc additions - Standard of appellate review under section 260A - whether a substantial question of law arises

Rejection of book results under section 145(3) - Estimation of income - Reliance on assessee's past profit history for estimation - Requirement of material/evidence to justify ad hoc additions - Standard of appellate review under section 260A - whether a substantial question of law arises - Validity of the Assessing Officer's ad hoc disallowances leading to determination of net profit at 13.7% and whether the Tribunal's reduction to an ad hoc addition of Rs. 5 lakhs (yielding ~5.78%) raises a substantial question of law. - HELD THAT: - The court accepted that the Assessing Officer rightly invoked the provisions of section 145(3) but held that invocation alone does not dispense with the need to bring material to justify the estimation adopted. The Assessing Officer made percentage disallowances (10-20%) across various expense heads and fixed the net profit at 13.7% without adducing comparable cases or concrete evidence to support that rate. By contrast, the assessee's past history and earlier Tribunal determinations applying a 5% rate in several prior years constituted a relevant benchmark. The appellate authorities examined the material, found the Assessing Officer's basis for a much higher rate unsupported, and reduced the addition to an ad hoc amount. Such conclusions were findings of fact based on appreciation of evidence; absent a finding that the Tribunal's conclusion was perverse, irrational, or based on no evidence, no substantial question of law under section 260A arises. The court relied on established authorities that estimation of income and rejection of book results under section 145(3) ordinarily involve factual evaluation and that the presence of some material basis for a finding is the test for admitting a legal appeal. [Paras 9, 11, 18, 19]

The Tribunal's factual conclusion upholding a reduced ad hoc addition and deleting the balance disallowance does not give rise to any substantial question of law; the Assessing Officer's ad hoc percentage disallowances were unsupported by material and unsustainable.

Final Conclusion: The appeal is dismissed in limine; no substantial question of law arises from the Tribunal's factual findings and the deletion/reduction of the additions for AY 2009-10.

Consumption of electricity as basis for estimating production - corroborative evidence requirement for assessment methodologies - rejection of books of account and alternative estimation of profits - application of gross profit rate on total turnover to determine income from manufacturing - notional taxation - inference of intention to avoid tax from power consumption

Consumption of electricity as basis for estimating production - corroborative evidence requirement for assessment methodologies - inference of intention to avoid tax from power consumption - Addition made by the Assessing Officer on account of suppressed production based on electricity consumption was not sustainable. - HELD THAT: - The court held that although power consumption may be a relevant factor for estimating production, reliance on the sample electricity meter reading in this case was impermissible because the sample was very small (one hour), related to a period subsequent to the assessment year, and was not corroborative. Power consumption is not necessarily confined to production activities and is subject to large variance; therefore, absent supporting material, the sample reading could not conclusively establish suppressed production. The Tribunal and CIT(A) correctly found the meter-reading evidence irrelevant and inconclusive and rejected the Assessing Officer's method which led to taxation of notional income. [Paras 5, 6, 8]

Addition based solely on the impugned electricity consumption sample was not sustainable and was rightly rejected.

Rejection of books of account and alternative estimation of profits - application of gross profit rate on total turnover to determine income from manufacturing - notional taxation - Whether the Commissioner of Income-tax (Appeals) and the Tribunal were justified in applying a gross profit rate of 23% on total turnover to determine the assessee's income after rejecting books. - HELD THAT: - The CIT(A) found the books unreliable to the extent that they could not be relied upon and, after considering comparable production results, turnover and specific facts of the assessee's case, applied a gross profit rate of 23% on the declared turnover to compute income from manufacturing. The Tribunal affirmed that approach. The High Court found no perversity or illegality in these concurrent findings given the inadequacy and inconclusive nature of the electricity-sample evidence and the accepted need to adopt an alternative, reasonable yardstick when books are rejected. [Paras 6, 7, 8]

Application of 23% gross profit on turnover by CIT(A) and its affirmation by the Tribunal was justified and cannot be faulted.

Application of gross profit rate on total turnover to determine income from manufacturing - Whether the Tribunal's application or approval of different gross profit rates in similar cases rendered its order perverse. - HELD THAT: - The Revenue contended that the Tribunal applied different gross profit rates across similar cases without specific reasons. The High Court observed that the Revenue did not demonstrate that the concurrent findings of the CIT(A) and Tribunal were erroneous or perverse. In the present facts the Tribunal applied established reasoning to uphold the CIT(A)'s adoption of the 23% rate; no perversity was shown. [Paras 7, 8, 9]

Allegation of perversity in applying different gross profit rates was not established; the contention fails.

Final Conclusion: The appeal by the Revenue is dismissed. The addition based on the limited electricity-sample reading was rightly rejected and the concurrent determination by the CIT(A) and Tribunal to apply a 23% gross profit on turnover to compute the assessee's income is sustained; no substantial question of law arises.

Unilateral adjustment/set-off of refund against tax demand without notice - lawful garnishee attachment/recovery during pendency of appeal and stay application - obligation to restore wrongfully set-off refund pending adjudication - estoppel by prior judicial order

Unilateral adjustment/set-off of refund against tax demand without notice - obligation to restore wrongfully set-off refund pending adjudication - Whether the Income-tax Department could adjust or set off the assessee's refund against the tax demand without giving notice to the assessee and consequences if such set-off occurred - HELD THAT: - The court applied the principle in the Division Bench decision in CIT v. J. K. Industries Ltd. and held that the Department cannot unilaterally adjust an amount due to the assessee by way of refund against a tax demand without giving notice to the assessee, noting that there is no appeal from set-off orders. If the sum of Rs. 42,96,720 was in fact set off without notice, the Department acted contrary to that precedent and must immediately remit that amount to the petitioners' bank account. The court permitted the Revenue to pursue recovery by appropriate proceedings thereafter, observing that restoration of the wrongfully appropriated refund is required notwithstanding the Department's right to take recovery steps in due course.

If the refund was set off without notice, the Department must remit the said amount to the petitioners' bank account within four weeks of communication of the order; the Revenue may thereafter seek recovery by proper proceedings.

Lawful garnishee attachment/recovery during pendency of appeal and stay application - estoppel by prior judicial order - Whether the garnishee attachment and realization of the Department's demand during the pendency of the appeal and stay application was arbitrary and liable to be set aside - HELD THAT: - The court considered the circumstances of prompt recovery and the period for which the appeal (about one year and a quarter) and stay application (about four months) had been pending. Distinguishing earlier High Court decisions where recovery followed an adverse decision without opportunity for appeal and stay (cited judgments such as Sony India (P.) Ltd. v. Addl. CIT and Director of Income-tax (Exemption) v. ITAT ), the court found that the present action was not taken with suddenness and was not arbitrary. The court further noted that an earlier order by Indira Banerjee J. disposing of a writ on similar facts directed expeditious disposal of the appeal and stay application and, since the petitioners did not challenge that order, they are estopped from taking a contrary stand now. Accordingly, the garnishee attachment was not set aside on grounds of arbitrariness.

The garnishee attachment and realization by the Department during the pendency of the appeal and stay application is not vitiated as arbitrary in the facts of this case; the petitioners are estopped from contending otherwise by the prior order.

Final Conclusion: The writ petition is disposed of: if the refund of Rs. 42,96,720 was set off without notice it must be restored to the petitioners' bank account within four weeks, the Commissioner (Appeals) is directed to dispose of the appeal and stay application within six weeks, and the Revenue remains free to pursue recovery by appropriate proceedings.

Slump sale - capital gains - computation on slump sale - transfer of assets and liabilities as a going concern - reopening of assessment under section 148 - concurrent findings of appellate authorities - maintainability of cross-objections in appeals under section 260A

Slump sale - capital gains - computation on slump sale - transfer of assets and liabilities as a going concern - concurrent findings of appellate authorities - Whether the consideration received by the assessee for transfer of part of its business to M/s. Praxair Carbondioxide Pvt. Ltd. constituted a slump sale of a going concern and accordingly required computation of capital gains as a slump sale rather than under the provisions applied by the Assessing Officer - HELD THAT: - Both the first appellate authority and the Tribunal re appreciated the materials and concluded that the transaction amounted to a slump sale despite the assessee's retention of certain assets. The appellate forums relied on earlier orders in respect of the assessee's sister concern and on precedents of higher courts, including the decisions in CIT v. Mugneeram Bangur and Co. and Syndicate Bank Ltd. v. Addl. CIT , to hold that the sale, in substance, was of a going concern for a slump price and should be treated accordingly for computation of capital gains. The High Court found no infirmity in the concurrent conclusion of the two appellate authorities that the transfer qualified as a slump sale and that computation of capital gains on that basis was proper.

The transaction was a slump sale and capital gains are to be computed on that basis; the appeals by the Revenue are dismissed on this point.

Maintainability of cross-objections in appeals under section 260A - Whether the cross-objections filed by the assessee are maintainable under the appellate provisions invoked - HELD THAT: - Relying on the Court's earlier ruling in Smt. Jyoti Kumari v. Asst. CIT , the court reiterated that a cross objection is not maintainable under section 260A in the absence of express statutory provision permitting it, and that no right of cross objection can be read into the relevant procedural provisions. Applying that principle, the court held that the assessee's cross objections must be dismissed as not maintainable.

The cross objections are not maintainable and are dismissed.

Final Conclusion: Both appeals filed by the Revenue are dismissed and the substantial question of law is answered in favour of the assessee (treatment as slump sale); the assessee's cross objections are dismissed as not maintainable; all pending applications are dismissed.

Income from house property - business income - ownership and leasing - as part of business or as landowner - letting out as part of trading operation - election between heads of income

Income from house property - business income - ownership and leasing - as part of business or as landowner - Whether the rental income from unsold flats of the assessee is to be treated as business income or as income from house property - HELD THAT: - The Tribunal treated the rental income as business income on concession. This Court examined the authorities relied upon by the Revenue, including S. G. Mercantile and Karanpura Development, and noted that those decisions recognise the dividing line: where letting is an integral part of trading it is business income, but where the company enjoys the property by letting it out as owner the appropriate head is income from property. Applying the facts of the present case, the assessee is enjoying the property by giving its use to another on rent rather than as part of trading operations; the memorandum of association authorises both sale and letting but does not mandate that letting is part of a trading operation to the exclusion of enjoyment as owner. The earlier decision of this Court in the assessee's own case holding that income from the unsold flats should be treated as income from house property governs the controversy. Consequently the Tribunal's concession to treat the receipts as business income cannot stand.

Rental income from the unsold flats is income from house property and not business income; the Tribunal's concession to the contrary is set aside and the appeal is allowed in favour of the assessee.

Final Conclusion: The appeal is allowed: the rental income from the unsold flats is to be treated as income from house property (not business income), and the Tribunal's contrary concession is set aside. Matters concerning inconsistent treatment before other authorities (for example wealth-tax proceedings) may be raised and decided in those forums but do not alter the income-tax conclusion in this appeal.

Deduction under section 10B for 100% export oriented undertakings - nexus between manufacturing activity and profits "derived from" export - treatment of receipts from import/export of spare parts vis-a -vis section 10B - inclusion of profit on sale of scrap in eligible export profits

Treatment of receipts from import/export of spare parts vis-a -vis section 10B - deduction under section 10B for 100% export oriented undertakings - Income from export of imported spare parts which are exported without undergoing manufacturing activity is not eligible for deduction under section 10B. - HELD THAT: - Section 10B grants a deduction to a 100% EOU only for profits and gains derived from the export of articles or things which have been manufactured or produced by the undertaking. Where spare parts are imported and subsequently exported in the same condition without any manufacturing or production activity by the assessee, those receipts lack the requisite direct nexus with the manufacturing activity of the undertaking. The authorities below correctly excluded the turnover attributable to such spare parts from the computation of profits eligible for section 10B; only receipts/profits that are the product of the assessee's manufacture or production qualify. Consequently, the value of such spare parts must be excluded and any profit arising therefrom is taxable outside the section 10B deduction, with the Assessing Officer to effect the necessary exclusion/adjustment. [Paras 8]

Answered for the Revenue: deduction under section 10B not available for export of imported spare parts exported without manufacturing; exclude value of spare parts and tax profit on their sale.

Nexus between manufacturing activity and profits "derived from" export - inclusion of profit on sale of scrap in eligible export profits - Profit on sale of scrap arising in the course of manufacturing for export is eligible for deduction under section 10B. - HELD THAT: - Applying the ordinary meaning of 'derived from' and the requirement of a direct nexus to the industrial undertaking, the Court held that scrap which arises as an incident of the assessee's manufacturing or production process bears a sufficient nexus to the export business. Although scrap itself is not exported, the profits and gains realized from sale of such scrap flow from the manufacturing activity carried out by the 100% EOU and therefore fall within the scope of profits 'derived from' the export of articles or things for the purposes of section 10B. Reliance on the principle articulated by the apex court confirms that incidental receipts closely connected to the manufacturing process may be included in eligible profits. [Paras 11]

Answered for the assessee: profit on sale of scrap arising from the manufacturing process is eligible for deduction under section 10B.

Final Conclusion: Appeals disposed: (i) receipts from imported spare parts exported without manufacture are not eligible for section 10B and must be excluded (decision for Revenue); (ii) profit on sale of scrap arising from the manufacturing process is eligible for deduction under section 10B (decision for assessee).

Binding precedent of a Special Bench on coordinate and smaller Benches of the Tribunal - remand for redecision where the same issue is covered by Special Bench decision - quasi-judicial discipline prohibiting implicit overruling of a Special Bench by smaller Benches - availability of remedy where a smaller Bench departs from a Special Bench decision

Binding precedent of a Special Bench on coordinate and smaller Benches of the Tribunal - remand for redecision where the same issue is covered by Special Bench decision - Lawfulness of the Tribunal's order remanding the matter for redecision despite existence of a Special Bench decision on the same issue which was under challenge before the High Court. - HELD THAT: - The Tribunal, noting the pendency of the Revenue's appeal before this Court against a Special Bench decision, directed the Assessing Officer to redecide the issue after disposal of that appeal (paragraph 3). The High Court held that until the Special Bench decision is set aside by this Court it binds coordinate and smaller Benches of the Tribunal and that a smaller Bench cannot, by remanding for redecision on the ground of pendency before this Court, effectively overlook or implicitly overrule the Special Bench decision; doing so is impermissible under quasi-judicial discipline (paragraph 4). Accordingly, the High Court set aside the impugned remand order and restored the matter to the Tribunal to decide the issue in accordance with law, leaving it open to the Tribunal to follow the Special Bench decision or not, with the availability of appropriate remedies if the Special Bench decision is not followed (paragraphs 4-5). [Paras 3, 4, 5]

Impugned order of remand set aside; matter restored to the Tribunal to decide afresh in accordance with law.

Final Conclusion: Appeal allowed on the point of remand; the Tribunal's remand order is set aside and the matter is restored to the Tribunal to decide the issue anew in accordance with law within two months from communication of this order; no costs.

Transfer pricing adjustment on AMP expenses - comparability and functional (FAR) analysis including AMP functions - bright line test inadmissible as a universal mandatory rule - segmentation (debundling) of bundled transactions and set off - selection of the most appropriate method under Chapter X and reliance on comparables - remand for fresh factual determination in light of binding High Court precedent - allowability of legal and professional expenses

Transfer pricing adjustment on AMP expenses - comparability and functional (FAR) analysis including AMP functions - bright line test inadmissible as a universal mandatory rule - selection of the most appropriate method under Chapter X and reliance on comparables - segmentation (debundling) of bundled transactions and set off - Whether the transfer pricing adjustment made by the TPO/DRP in respect of AMP (advertisement, marketing and promotion) expenses can stand as framed or requires fresh consideration in the light of the Jurisdictional High Court decision. - HELD THAT: - The Tribunal held that the matter cannot be finally decided on the existing record because both the assessee and the tax authorities had proceeded on the footing of the Special Bench decision in L.G. Electronics, a majority view which the Jurisdictional High Court has recently disapproved. The High Court emphasised that AMP and brand building are distinct concepts, that functional (FAR) analysis is the first step, and that comparability must be assessed with reference to economic characteristics and AMP functions; the High Court rejected a universal, mandatory 'bright line test' and held that segmentation of bundled transactions is permissible only after reasons and appropriate set offs are considered. Given that the facts and the FAR/comparability analysis were not conducted in the light of the High Court's directions, the Tribunal restored the transfer pricing issues (Ground Nos.2 to 2.27) to the file of the AO/TPO for de novo consideration applying the principles and tests laid down by the High Court, including reassessment of comparables, method selection and any segmentation with due allowance for set off and adequate opportunity to the assessee. [Paras 17]

Grounds relating to the AMP transfer pricing adjustment are restored to the AO/TPO for fresh consideration in the light of the Jurisdictional High Court's judgment.

Allowability of legal and professional expenses - remand for fresh factual determination in light of supporting vouchers - Whether the disallowance of certain items classified as legal and professional expenses should be sustained or reconsidered. - HELD THAT: - The Tribunal examined the DRP's breakdown of items disallowed as not being legal and professional charges and observed that the claimed items (gym maintenance, club rents, conveyance, stall space, ex gratia, provisions etc.) appeared to be business related and that primary vouchers were available in the assessment proceedings. As the factual records and primary documents require detailed examination, the Tribunal restored the matter to the AO/TPO to consider the allowability of these expenses afresh in accordance with law, after affording the assessee a reasonable opportunity of being heard. [Paras 18, 20]

The disallowance of the specified legal and professional expenses is restored to the AO/TPO for re examination and decision on merits after verification of vouchers and hearing.

Final Conclusion: The appeal is allowed for statistical purposes: transfer pricing issues relating to AMP expenses and the disallowance of specified legal and professional expenses are remitted to the AO/TPO for fresh adjudication in accordance with the Jurisdictional High Court's directions and after affording the assessee a reasonable opportunity of being heard.

Allowability of interest on application money for tax-free bonds - deduction under section 32AB - remand for readjudication / verification - allowability of expenses on issue of debentures - treatment of foreign exchange fluctuation loss and investment allowance - disallowance under Sec. 43B (mineral rights tax and royalty verification) - allowability of guest-house food expenses - restriction of family planning expenditure to 50% - application of earlier Tribunal decisions in the assessee's own case

Allowability of interest on application money for tax-free bonds - application of precedent in assessee's own case - Taxability of interest received on application money for subscription to tax-free bonds. - HELD THAT: - The Tribunal followed a coordinate bench decision in the assessee's own case and the Delhi High Court authority holding that interest earned for the brief period between application and allotment of tax free bonds is not taxable; no contrary facts or law were shown by Revenue. Respectfully following that precedent, the disallowance was reversed and the ground allowed in favour of the assessee. [Paras 5]

Disallowance of interest on application money for tax free bonds is set aside; ground allowed for the assessee.

Deduction under section 32AB - readjudication / remand for determination of inclusion of certain receipts - Allowability of deduction under section 32AB in respect of (a) deposit with IDBI and (b) treatment of dividend, interest and certain other receipts for computing eligible business profit. - HELD THAT: - The Tribunal accepted the CIT(A)'s allowance of deduction for the IDBI deposit on the factual finding that the assessee had substantial cash profit and mere deposit from an overdrawn cash credit account did not preclude the deduction. However, the CIT(A) had not given reasons for treating income of earlier years, town income and rental from employees as business income, nor had he addressed authorities relied upon by the assessee regarding dividend and interest receipts. In the interest of justice those aspects were restored to the CIT(A) for readjudication in light of the decisions cited by the assessee and after bringing relevant facts on record. Revenue's challenge to the IDBI deduction was dismissed. [Paras 6, 10, 11]

Deduction in respect of the IDBI deposit upheld; issues as to inclusion/exclusion of dividend, interest and certain other receipts remanded to CIT(A) for fresh adjudication; the Revenue's ground against the IDBI deduction dismissed.

Allowability of expenses on issue of debentures - application of assessee's own earlier Tribunal decision - Deductibility of expenses incurred on issue of convertible debentures. - HELD THAT: - The Tribunal followed its own earlier decision in the assessee's case for a different assessment year where identical facts led to allowance of debenture issue expenses. On that basis the AO was directed to allow the expenditure. [Paras 13]

Expenses on issue of convertible debentures allowed.

Disallowance under section 35E (prospecting & survey) - consideration of prior allowance under section 35E - Deductibility of Bhanwad prospecting and survey expenses. - HELD THAT: - Following the Tribunal's earlier finding in the assessee's own case that the issue became otiose where deduction under section 35E had been allowed, the ground was dismissed (i.e., no interference with the allowance under section 35E). [Paras 15]

Ground dismissed as covered by prior allowance under section 35E.

Treatment of foreign exchange fluctuation loss and investment allowance - remand for verification and direction to allow as per earlier year decisions - Characterisation of foreign exchange fluctuation loss (revenue v. capital) and entitlement to investment allowance. - HELD THAT: - The Tribunal, following its earlier orders in the assessee's own cases, directed that depreciation/allowance be allowed where exchange loss is treated as capital expenditure and investment allowance be considered in line with the prior decisions. The matter was restored to the Assessing Officer for decision in accordance with those directions. [Paras 16]

Issue restored to the AO for decision in accordance with earlier Tribunal findings; treated as allowed for statistical purposes with directions.

Provision for interest on electricity duty - remand for decision - Deductibility of provision for interest on electricity duty. - HELD THAT: - Identical issues for earlier assessment years had been referred back to the AO; on identical facts the Tribunal restored the issue to the AO to decide in accordance with earlier directions of the Tribunal. [Paras 17]

Issue remanded to the AO for decision as per earlier Tribunal directions.

Foreign travel expenses - verification of nexus to existing business - Allowability of foreign travel expenses partially disallowed by AO. - HELD THAT: - A portion of the foreign travel disallowance related to a new business (not pressed) and was upheld; the remainder claimed to be for existing business was restored to the AO to verify the assessee's contentions and allow it if incurred for existing business. [Paras 20, 21]

Partly allowed; amounts related to existing business remanded to AO for verification and possible allowance.

Restriction of family planning expenditure to 50% - Extent of disallowance of family planning expenses incurred for workers not regular employees. - HELD THAT: - Relying on earlier authority, the Tribunal concluded that disallowance should be restricted to 50% since benefits also accrued to outsiders; the AO was directed to restrict disallowance accordingly. [Paras 22]

Disallowance restricted to 50% of the expenditure; ground partly allowed in favour of the assessee.

Allowability of expenses for fish and prawn culture - Deductibility of expenses on fish and prawn culture. - HELD THAT: - Following the Tribunal's own earlier decisions where facts were identical, the AO was directed to allow the expenditure. [Paras 23]

Expenditure allowed following the assessee's earlier year Tribunal precedent.

Expenses on annual general meeting - remand to AO in light of earlier years' directions - Deductibility of expenses incurred for annual general meeting. - HELD THAT: - As earlier assessment years' proceedings in the assessee's own case had been remanded to the AO for decision, the Tribunal restored this issue to the AO to decide in accordance with those earlier directions. [Paras 24]

Issue remanded to the AO for decision in light of earlier year directions; treated as allowed for statistical purposes.

Disallowance under Sec. 43B (mineral rights tax) - royalty on limestone - verification under Sec. 43B - Deductibility of mineral rights tax and royalty on limestone under Sec. 43B. - HELD THAT: - Following the Tribunal's earlier reasoning, mineral rights tax (MRT) was held against the assessee where facts were identical and the prior Tribunal had confirmed disallowance. By contrast royalty on limestone was restored to the AO for verification of payment under Sec. 43B and allowance if payments were established. [Paras 27, 28, 29]

Mineral rights tax disallowance upheld; royalty on limestone remanded to AO for verification and allowance if payments are proved.

Allowability of guest house food expenses - application of earlier Tribunal and Supreme Court authorities - Deductibility of guest house maintenance expenses, limited to food expenses. - HELD THAT: - Following the assessee's own earlier Tribunal decision, food expenses at the guest house were allowed. Other guest house expenses (salaries, repairs, society charges) were held to be covered against the assessee by Supreme Court authority and were not allowed (and mostly not pressed). [Paras 33]

Food expenses at the guest house allowed; other guest house disallowances upheld or not pressed.

Application of earlier Tribunal decisions in the assessee's own case - Multiple Revenue grounds (subsidised lunch coupons, payments to Tata Services Ltd., incentive bonus to workers) raised in Revenue appeals. - HELD THAT: - The Tribunal found these issues were squarely covered in favour of the assessee by earlier Tribunal decisions in the assessee's own case for prior assessment years and, in the absence of distinguishing facts or contrary law, declined to interfere with the CIT(A)'s reliefs. Accordingly, Revenue's grounds were dismissed. [Paras 36, 37, 38, 39]

Revenue's grounds on these matters dismissed; relief granted to the assessee following earlier year Tribunal decisions.

Final Conclusion: The cross appeals are partly allowed in the particulars stated: interest on application money for tax free bonds, various expenditure heads and specific allowances are restored to the assessee or allowed following precedents; certain issues (notably parts of the section 32AB controversy, foreign travel, AGM expenses, royalty verification and exchange loss treatment) are remanded to the appropriate authority for fresh adjudication in accordance with the Tribunal's directions; several revenue grounds were dismissed as they are covered by the assessee's own earlier Tribunal decisions.

Interest income assessed as business income - debt service reserve account and lien on fixed deposits - depreciation on license/right to collect toll as an intangible asset - ownership of national highways vests in the Union under special statutes - amortisation of BOT project expenditure versus capital allowance - preliminary/pre operative expenses amortisation under section 35D - consequential interest under section 234B

Interest income assessed as business income - debt service reserve account and lien on fixed deposits - Interest earned on fixed deposits held pursuant to project financing arrangements is taxable as business income. - HELD THAT: - The Tribunal upheld the CIT(A)'s direction to treat the interest of Rs. 1,34,59,582 as business income. The assessee had deposited business receipts in fixed deposits pursuant to the Common Loan Agreement (including a requirement to maintain a Debt Service Reserve Account) and the bank held the FDRs subject to lien. The income was generated from deposits made out of business receipts and was therefore linked to the assessee's business activity; earlier appellate and Tribunal decisions in the assessee's own case were followed in support of treating such interest as business income rather than income from other sources. [Paras 5, 6, 7]

Revenue's ground challenging the CIT(A)'s direction was dismissed; interest to be assessed as business income.

Depreciation on license/right to collect toll as an intangible asset - ownership of national highways vests in the Union under special statutes - amortisation of BOT project expenditure versus capital allowance - Expenditure incurred to develop a BOT toll project gives rise to a capital asset in the form of the right/license to collect toll which is an intangible asset eligible for depreciation under section 32(1)(ii); the assessee is not the owner of the road under the National Highway statutes but is entitled to depreciation on the intangible right. - HELD THAT: - The Tribunal examined the concession agreement (notably clause 38.4) and the Bombay High Court decision in North Karnataka Expressway Ltd. v. CIT holding that ownership of national highways vests in the Union. While that decision rejects a claim of ownership of the road, it does not preclude depreciation where the assessee holds an intangible right arising from investments made by it. The CBDT circular recognising that BOT investments confer an enduring right to collect toll was noted. Section 32(1)(ii) permits depreciation on licences or similar commercial rights owned by the assessee and used in business. On these bases, and following coordinate Tribunal precedents, the Tribunal held that the right to collect toll is an intangible asset depreciable under section 32(1)(ii); the claim to treat the investment as revenue expenditure and amortise it was rejected as the investments are capital in nature. [Paras 29, 31]

Revenue's ground on disallowance of depreciation was dismissed on the alternative basis that depreciation is allowable on the intangible licence/right to collect toll; treating the investment as plant & machinery was rejected.

Preliminary/pre operative expenses amortisation under section 35D - Expenses incurred in connection with increase in authorised share capital for extension of the undertaking are eligible for amortisation under section 35D. - HELD THAT: - The assessee had raised capital (ROCCPPS and debentures) for expansion and incurred stamp duty and ROC registration fees relating to the increase in authorised share capital. The Tribunal relied on coordinate authority and statutory interpretation of section 35D(2)(d) (residuary clause) to hold that such expenses, being incurred in connection with extension of the undertaking and not otherwise allowable under the Act, are eligible for amortisation. The factual link between raising additional capital and extension of the undertaking was accepted. [Paras 39]

Assessee's ground allowed; the expenditure is deductible by amortisation under section 35D.

Consequential interest under section 234B - Any levy of interest under section 234B arising from adjustments consequential to the Tribunal's findings is to be recalculated and appropriate relief given. - HELD THAT: - The liability to interest under section 234B was treated as consequential to other findings; the Tribunal directed the Assessing Officer to give consequential relief, if any, consistent with the adjustments directed in the order. [Paras 40]

Assessee to be given consequential relief on interest under section 234B, if applicable.

Final Conclusion: The Revenue appeal is dismissed. The assessee's appeal is allowed in part: interest on fixed deposits is to be assessed as business income; depreciation is allowable on the right/license to collect toll as an intangible asset under section 32(1)(ii) (the claim treating the project as plant & machinery is rejected); preliminary expenses for increase in authorised share capital are amortisable under section 35D; and consequential relief on interest under section 234B shall be given as appropriate.

Maintainability of review/rectification after dismissal of appeal - doctrine of merger - appellate jurisdiction - loss of jurisdiction to entertain review - effect of non speaking or summary dismissal by the Supreme Court

Maintainability of review/rectification after dismissal of appeal - doctrine of merger - loss of jurisdiction to entertain review - Whether the Tribunal had jurisdiction to entertain the application for rectification/review of its Final Order dated 01.11.2013 after the Supreme Court dismissed appeals against that order. - HELD THAT: - The Tribunal held that once the Supreme Court entertained the appeals (having granted leave or otherwise subjected the impugned order to its appellate jurisdiction) and thereafter dismissed the appeals by its order dated 03.07.2014, the Final Order of this Tribunal stood absorbed by the Supreme Court's order under the doctrine of merger. Reliance was placed on the principles explained in Kunhayammed (summarised in the judgment) that where the Supreme Court has exercised appellate jurisdiction the order appealed against is merged in the appellate order and, consequently, the forum which rendered the original order is deprived of jurisdiction to entertain a review of that order. The Tribunal further noted the distinction between a mere summary refusal of leave and an exercise of appellate jurisdiction, and accepted that the Supreme Court's dismissal in the circumstances amounted to an appellate determination attracting merger. Applying these principles, the Tribunal concluded that its jurisdiction to adjudicate the present rectification/review application was eclipsed and the application was not maintainable. [Paras 6, 7]

Application for rectification/review rejected as not maintainable because the Final Order was merged in the Supreme Court's order and the Tribunal consequently lacked jurisdiction to entertain the review.

Final Conclusion: The application for rectification/review of the Tribunal's Final Order dated 01.11.2013 is rejected as not maintainable since the Final Order was merged in the Supreme Court's dismissal of the appeals, depriving the Tribunal of jurisdiction to entertain the review.

Retrospective effect of subordinate legislation - curative amendment - anti-dumping duty - classification under notification entries - prospective application of fiscal notifications

Retrospective effect of subordinate legislation - curative amendment - anti-dumping duty - classification under notification entries - Effect of amending Notification No.38/2008-Cus dated 24.3.2008 - whether the amendment to Sr. No.19 of Notification No.11/2008-Cus dated 23.1.2008 operates retrospectively (curative) so as to attract the rate at Sr. No.19 on imports made on 24.1.2008 or whether it operates prospectively from 24.3.2008. - HELD THAT: - The Tribunal recorded divergent opinions. One view held that the amending notification was curative in nature and intended to plug a gap in the original notification so that where the producer also exported the goods the levy prescribed at Sr. No.19 would apply from the date the definitive anti dumping duty was first imposed (23.1.2008). That member construed the amendment as advancing the object of extending the scope of levy to avoid escapement of duty and therefore to be read as effective from the original notification date. The other view held that the text of the amending notification contains no express or necessarily implied language conferring retrospective effect. Given the original notification already contained a broader entry at Sr. No.23 covering "any other combination of producer exporter", imports made prior to the amending notification would, in the absence of an express retrospective provision, be classified under Sr. No.23. It was further noted as a settled principle that fiscal or substantive liability creating subordinate legislation is prima facie prospective unless retrospective operation is clearly indicated by the instrument itself; a mere amendment does not automatically operate retrospectively as a curative measure unless that intention appears from the amending notification. The technical member relied on these principles and on authority to the like effect to conclude that the amendment operated prospectively from 24.3.2008. [Paras 7, 11, 14, 15, 16]

There is a difference of opinion on whether the amendment is retrospective or prospective; the matter is referred to the Hon'ble President of the Tribunal for appropriate orders.

Final Conclusion: The Tribunal recorded conflicting conclusions: one member treated Notification No.38/2008 Cus dated 24.3.2008 as a curative amendment effective from 23.1.2008, while the other held the amendment to be prospective from 24.3.2008; the difference of opinion has been referred to the President for adjudication.

Penalty under Section 114(iii) of the Customs Act - Duty of person in charge of a conveyance to ensure shipping bill duly passed before permitting loading (under Section 40) - Loading of export goods under supervision of proper officer of customs (under Section 34) - Liability of exporter once goods enter notified port area - Knowledge/requisite mens rea for imposition of penalty

Penalty under Section 114(iii) of the Customs Act - Duty of person in charge of a conveyance to ensure shipping bill duly passed before permitting loading (under Section 40) - Loading of export goods under supervision of proper officer of customs (under Section 34) - Liability of exporter once goods enter notified port area - Whether penalty imposed on the exporter under Section 114(iii) for loading of export goods prior to passing of the Let Export Order is sustainable. - HELD THAT: - The Tribunal found no allegation or evidence that the exporter was aware that the goods had been loaded on the vessel before the Let Export Order was passed. The show cause notice itself records that the person in charge of the conveyance permitted loading without confirming completion of customs formalities or collecting the shipping bill. Section 40 places the responsibility on the person in charge of the conveyance to ensure a duly passed shipping bill has been handed over before permitting loading, and Section 34 requires loading to be under the supervision of the proper officer. Once the container entered the port area, the exporter no longer had control over loading; the obligation to prevent premature loading lay on the shipping agent and the supervising customs officer. The shipping agent was duly penalized by the Commissioner, and in absence of any mens rea or knowledge on the part of the exporter, there is no warrant to impose penalty on the exporter. The Tribunal relied on the governing principle as applied in the cited Bombay High Court decision to set aside the penalty insofar as it was imposed on the exporter. [Paras 5]

Penalty imposed on the exporter under Section 114(iii) is set aside.

Final Conclusion: The appeal is allowed; the penalty of Rs. 6,00,000 imposed on the exporter is set aside with consequential relief, the liability resting with the shipping agent and not the exporter.

Decree within the meaning of Section 2 of the Code of Civil Procedure - execution of decree and power of executing Court under Section 47 of the Code of Civil Procedure - non-payment of dividend as a continuous offence - limitation not a bar to enforcement of continuous wrongs/continuous offence - application for review under Order XLVII CPC - limited scope

Decree within the meaning of Section 2 of the Code of Civil Procedure - execution of decree and power of executing Court under Section 47 of the Code of Civil Procedure - limitation not a bar to enforcement of continuous wrongs/continuous offence - non-payment of dividend as a continuous offence - Validity of the execution proceedings filed to enforce the Division Bench order dated 21st May, 1981 and whether limitation bars recovery of unpaid dividends - HELD THAT: - The Division Bench's adjudication that dividends due to Hungerford from 1963 were unreasonably withheld and amounted to mismanagement/oppression was held to be a formal adjudication determinative of rights and therefore a decree within the meaning of Section 2(2) CPC. The executing Court is empowered under Section 47 CPC to determine questions arising out of execution and to interpret the decree for payment of money where necessary. The non-payment of dividend was treated as a continuing wrong/continuous offence so long as payment remained unpaid; consequentially the plea of limitation (including reliance on Article 136/137/113 as argued) does not apply to bar enforcement of the decree. On the material, the Court found culpable conduct by TML (including fabrication of a purported resolution) showing intention to deprive Hungerford of its dividend, supporting the conclusion that limitation is not a bar and that execution was maintainable and properly ordered. The appeal against the execution order therefore had no merit and was dismissed. [Paras 42, 43, 44, 45, 46]

The Division Bench order dated 21st May, 1981 is a decree; execution of that order was competent under Section 47 CPC; non-payment of dividend is a continuous offence and limitation does not bar enforcement; the appeal is dismissed.

Application for review under Order XLVII CPC - limited scope - Maintainability of the application for review of the Division Bench order dated 22nd August, 2008 under Order XLVII CPC - HELD THAT: - The review application was examined against the limited grounds permitted by Order XLVII CPC (discovery of new evidence, mistake apparent on face of record, or any other sufficient reason). The Court found that the grounds advanced in the review application failed to satisfy the essential ingredients of Order XLVII and that review was not an appropriate remedy for the contentions raised. The trial Judge's and Division Bench's reasoning in this regard was affirmed. [Paras 49, 50, 51]

The review application is not maintainable and is dismissed.

Final Conclusion: The appeal by Turner Morrison & Co. Ltd. is dismissed; the Division Bench order of 21st May, 1981 is a decree enforceable in execution (non-payment of dividend being a continuing wrong not barred by limitation); the execution proceedings were properly maintainable; the review application under Order XLVII CPC is dismissed for failure to meet the statutory grounds.

Sanction of Scheme of Arrangement - sanction under Sections 391 and 394 of the Companies Act, 1956 - demerger in accordance with Section 2(19AA) of the Income Tax Act, 1961 - undertaking to comply with FEMA/RBI requirements - Official Liquidator's report - appointed date of arrangement - dissolution without undergoing winding up - filing certified copy with the Registrar of Companies

Sanction of Scheme of Arrangement - sanction under Sections 391 and 394 of the Companies Act, 1956 - Official Liquidator's report - Sanction of the Amended Scheme of Arrangement between the transferor, transferee and resulting companies. - HELD THAT: - The court considered the Scheme providing for amalgamation, demerger and reduction of share capital and examined statutory prerequisites and consents. The Official Liquidator reported no complaints and no conduct prejudicial to members, creditors or public interest. There being no surviving objections and with approvals by shareholders and unsecured creditors, the court found no impediment to sanctioning the Amended Scheme and granted sanction under Sections 391 and 394 of the Companies Act, 1956. The court required compliance with statutory requirements and refused to treat the order as exemption from stamp duty. [Paras 21]

Amended Scheme sanctioned; petition allowed; statutory compliance to be observed and order not to be construed as stamp duty exemption.

Demerger in accordance with Section 2(19AA) of the Income Tax Act, 1961 - undertaking to comply with FEMA/RBI requirements - Regional Director's observations regarding compliance with Section 2(19AA) and FEMA/RBI requirements were addressed by undertakings given by the petitioners. - HELD THAT: - The Regional Director sought an undertaking that the demerger comply with conditions of Section 2(19AA) of the Income Tax Act, 1961 and that RBI/FEMA compliances be observed because of significant NRI shareholding. The petitioners undertook to comply with Section 2(19AA) requirements to avail tax benefits and to follow FEMA/RBI requirements for allotment to NRIs (stating RBI permission not required as per circular in amalgamation cases). On these undertakings the court treated the Regional Director's observations as not subsisting. [Paras 19]

Observations of the Regional Director accepted as addressed by petitioners' undertakings; no remaining objection on these grounds.

Appointed date of arrangement - dissolution without undergoing winding up - filing certified copy with the Registrar of Companies - Consequences and operational directions upon the Scheme becoming effective from the appointed date. - HELD THAT: - The court recorded the appointed date as 1st April, 2014 and declared that upon the Scheme becoming effective: (i) the transferor company shall stand dissolved without undergoing winding up, and (ii) the demerged undertaking of the transferee shall stand merged with the resulting company. The court directed compliance with statutory requirements and ordered that a certified copy of the order be filed with the Registrar of Companies within 30 days, while clarifying the order is not a stamp duty exemption. [Paras 21, 22]

Appointed date fixed; transferor dissolved without winding up; demerged undertaking merged with resulting company; certified copy to be filed with RoC within 30 days.

Final Conclusion: The High Court sanctioned the Amended Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956, after noting the Official Liquidator's report and petitioners' undertakings addressing the Regional Director's observations; the Scheme shall take effect from the appointed date (1st April, 2014) with the specified consequences and statutory compliances, and a certified copy of the order is to be filed with the Registrar of Companies within 30 days.

Reduction of share capital - confirmation of capital reduction by court - approval of special resolution for reduction of capital - dispensing with calling of creditors under Section 101(2) of the Companies Act, 1956 - report of Regional Director raising no objection - registration of minutes and alteration by Registrar of Companies

Reduction of share capital - approval of special resolution for reduction of capital - confirmation of capital reduction by court - Approval of the petitioner company's reduction of paid-up equity share capital from Rs. 6,00,00,000 to Rs. 60,00,000 and confirmation of the minutes recording the altered capital. - HELD THAT: - The Board of Directors unanimously approved the proposed reduction and a special resolution was passed at the Extra Ordinary General Meeting dated 8th December, 2014. The petitioner produced the company's memorandum and articles, minutes of the board and general meeting, and a certificate from a Chartered Accountant certifying absence of secured or unsecured creditors. The company has not commenced business and there is no creditor or stakeholder whose rights would be prejudiced by the proposed reduction. The Regional Director filed a report raising no objection to the proposed reduction. In these circumstances the Court found it appropriate to allow and confirm the resolution for reduction of paid-up share capital and to approve the Form of Minutes proposed for registration under the Companies Act. [Paras 8, 9, 10, 13, 14]

The petition is allowed; the resolution passed on 8th December, 2014 for reduction of share capital is approved and the Form of Minutes annexed as Annexure 'G' is approved.

Dispensing with calling of creditors under Section 101(2) of the Companies Act, 1956 - report of Regional Director raising no objection - Whether the statutory procedure of calling creditors under Section 101(2) need be followed in the present petition. - HELD THAT: - The Court noted that the petitioner company has not commenced business, has no creditors or other stakeholders, and filed a Chartered Accountant's certificate certifying absence of secured or unsecured creditors. In view of these factual averments and the absence of any interested creditors, the Court dispensed with the requirement to follow the procedure under Section 101(2). The Regional Director's report, filed in response to notice, raised no objection to the proposed reduction, which further supported dispensing with the creditor-calling procedure and permitting confirmation of the reduction. [Paras 11, 12, 13]

The requirement to follow the procedure under Section 101(2) is dispensed with and the Regional Director's report raising no objection is noted.

Registration of minutes and alteration by Registrar of Companies - Directions regarding registration and publication following the Court's approval of the reduction. - HELD THAT: - The Court directed that a certified copy of the order be delivered to the Registrar of Companies within thirty days, and upon receipt the Registrar shall register the order and the approved minutes and effect the necessary alteration in the company's records. The Court further directed publication of notice of registration and the resolution in specified newspapers within 14 days of registration. [Paras 15, 16]

Registrar of Companies to register the certified order and minutes and effect the alteration; notice of registration and the resolution to be published in the specified newspapers.

Final Conclusion: The Court allowed the petition, approved and confirmed the special resolution reducing the company's paid-up share capital and the Form of Minutes, dispensed with the creditor-calling procedure under Section 101(2) on the facts, noted the Regional Director's report raising no objection, and directed registration of the order and publication of notice by the Registrar of Companies.

Renting of Immovable Property - Lease vs Sale of Immovable Property - Service Tax Liability on Lease Receipts - Pre-deposit and Stay of Recovery

Renting of Immovable Property - Lease vs Sale of Immovable Property - Service Tax Liability on Lease Receipts - Whether amounts received pursuant to 30-year arrangements constituted sale or were leviable as 'renting of immovable property' for service tax purposes - HELD THAT: - The appellants had taken land on a 30-year lease from the Municipal Corporation and constructed commercial buildings thereon. They contended that transfers for 30 years were sales and not taxable as renting. The Tribunal found that the appellants did not own the land and therefore could not effect a sale of the property; the documents relied upon by the appellants were in substance leases and were subject to conditions restricting use, demonstrating retention of proprietary control. The statutory definition of Renting of Immovable Property embraces leasing and similar arrangements for use in the course or furtherance of business, and the Tribunal followed the earlier CESTAT view in New Okhla Industrial Development Authority that leasing receipts fall within the scope of that definition. The Tribunal rejected the contention that the 30-year transfers were sales and held them to be covered by the renting/lease definition, making such receipts exigible to service tax.

The receipts under the 30-year arrangements are taxable as 'renting of immovable property'.

Pre-deposit and Stay of Recovery - Relief by way of interim pre-deposit and stay of recovery during pendency of the appeal - HELD THAT: - Having regard to the contentions concerning advances and the cum-tax benefit, and without finally adjudicating those contentions, the Tribunal directed a conditional interim measure. The appellants were ordered to make a specified pre-deposit within a stipulated period and to report compliance by a fixed date. Subject to such compliance, the Tribunal stayed recovery of the remaining adjudicated liabilities during the pendency of the appeal. The order recorded that failure to comply would result in dismissal of the appeal for default of pre-deposit.

Conditional pre-deposit directed and recovery stayed upon compliance; failure to pre-deposit will lead to dismissal of the appeal.

Final Conclusion: The Tribunal held that the 30-year transfers were leases falling within the definition of Renting of Immovable Property and therefore exigible to service tax, and granted a conditional interim order requiring a pre-deposit and staying recovery subject to compliance.

Reverse charge mechanism - consulting engineer's service - service tax liability prior to 18/04/2006 - invocation of Service Tax Rules 2(1)(d)(iv) - taxability of non resident with no office or permanent establishment in India - applicability of the Finance Act, 1994 to entities situated abroad

Reverse charge mechanism - service tax liability prior to 18/04/2006 - invocation of Service Tax Rules 2(1)(d)(iv) - Liability of John Deere Equipment Pvt. Ltd. to discharge service tax under reverse charge for consulting engineer's services for the period 01/04/2003 to 31/03/2004. - HELD THAT: - The Tribunal held that the demand confirmed on John Deere Equipment Pvt. Ltd. under the reverse charge route for the period 01/04/2003 to 31/03/2004 is unsustainable. Relying on the law as laid down by the High Court of Bombay in Indian National Ship Owner's Association vs. Union of India and upheld by the apex Court, the Tribunal accepted that the reverse charge liability in the service tax scheme could only be attracted with effect from 18/04/2006. The adjudicating authority's invocation of Rule 2(1)(d)(iv) of the Service Tax Rules to fasten reverse charge liability for the earlier period was therefore contrary to the settled position and set aside. [Paras 7]

Demand on John Deere Equipment Pvt. Ltd. under reverse charge for 01/04/2003 to 31/03/2004 set aside.

Consulting engineer's service - taxability of non resident with no office or permanent establishment in India - applicability of the Finance Act, 1994 to entities situated abroad - Liability of Deere & Company, Illinois (a company situated in USA with no office or permanent establishment in India) to service tax for services rendered to JDE for the period 01/04/2003 to 31/03/2004. - HELD THAT: - The Tribunal found on the facts that Deere & Company is an entity situated in Illinois, USA, and has no office or permanent establishment in India. On that factual basis the Tribunal concluded that the provisions of the Finance Act, 1994 do not apply to an entity situated abroad having no office or permanent establishment in India; consequently, the order confirming service tax demand against that foreign entity could not be sustained and was set aside. [Paras 8]

Demand on Deere & Company (USA) set aside for lack of applicability of the Finance Act, 1994 to an entity situated abroad with no office/PE in India.

Final Conclusion: Both appeals are allowed: the reverse charge demand on John Deere Equipment Pvt. Ltd. for 01/04/2003 to 31/03/2004 is set aside (reverse charge applicable only from 18/04/2006 as per settled law), and the demand on the foreign collaborator Deere & Company (USA) is set aside as the Finance Act, 1994 does not apply to an entity situated abroad with no office or permanent establishment in India.

Refund of service tax - limitation and time barred refund claims under section 11B of the Central Excise Act, 1944 - payment under protest - unjust enrichment - evidence of notification to buyers and accountant's certification as discharge of unjust enrichment - entitlement to refund where payment made under protest and no unjust enrichment

Limitation and time barred refund claims under section 11B of the Central Excise Act, 1944 - payment under protest - Whether the refund claims were barred by limitation under section 11B or were within time because the service tax was paid under protest. - HELD THAT: - The Tribunal examined correspondence dated 7.6.2006 in which the appellant sought clarification from the CBEC and informed the Assistant Commissioner that service tax was being deposited under pressure of the department. Noting that there was no prescribed form to record a protest under the Finance Act, 1994, the Tribunal held that the letters and contemporaneous conduct constituted payment 'under protest'. Payments made under protest are not governed by the limitation bar in section 11B. Having found the deposits were made under protest, the Tribunal concluded the refund claims filed thereafter were not time-barred.

Refund claims are within time; the limitation under section 11B does not apply to payments made under protest.

Unjust enrichment - evidence of notification to buyers and accountant's certification as discharge of unjust enrichment - Whether the appellant discharged the onus to show absence of unjust enrichment so as to be entitled to refund. - HELD THAT: - The Tribunal considered letters sent by the appellant to prospective buyers stating that the agreed price did not include service tax, that the appellant was paying service tax from its pocket pending resolution of the dispute, and that any ultimate liability would be recovered from buyers along with the agreed price. The Tribunal also took into account a Chartered Accountant's certificate and the reflection of the recoverable service tax in the appellant's balance sheet. On this material, the Tribunal found that the appellant had discharged the burden of proving there was no unjust enrichment and that the amount was not retained to the buyers' detriment. Accordingly, entitlement to refund on the ground of unjust enrichment was established.

Appellant has discharged the burden on unjust enrichment; refund entitlement is established on this ground.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the appellant is entitled to refund of service tax claimed, with consequential relief as applicable.

Liability under Section 11(D) of the Central Excise Act, 1944 - duty payable by manufacturer or producer - recovery of excess duty collected at depots

Liability under Section 11(D) of the Central Excise Act, 1944 - duty payable by manufacturer or producer - recovery of excess duty collected at depots - Whether the appellants (depots of IOCL) are liable to pay the excess duty claimed by Revenue under Section 11(D) of the Central Excise Act, 1944. - HELD THAT: - The show cause notice and its Annexures relate to excess amounts of central excise duty allegedly collected by the bulk petroleum depots (BPDs) of IOCL and not deposited to Government account (see para 6 of the notice and the list of depots at Annexure). The Tribunal relied on the Larger Bench decision in Hindustan Petroleum Corporation Ltd. (Tri-LB) and the Madhya Pradesh High Court's affirmation of the appellant's own case that excise duty is payable by the manufacturer or producer. Since the appellants before the Tribunal are depots and not manufacturers or producers, the legal obligation to pay duty under Section 11(D) does not attach to them. The contention that IOCL (as a corporate entity) is liable because duty was demanded from IOCL was rejected on the material of the show cause notice and annexures which demonstrate that the demand was directed at the depots named therein. [Paras 6, 8, 9]

Appellants are not liable to pay the excess duty under Section 11(D) of the Central Excise Act, 1944; the impugned orders confirming demand are set aside.

Final Conclusion: Appeal allowed; impugned adjudication under Section 11(D) set aside and appellants (the depots) held not liable to pay the claimed excess central excise duty.

Alteration in number of operating packing machines under the Panmasala Packing Machine (Capacity Determination and Collection of Duty) Rules, 2008 - first proviso to Rule 8 of the Panmasala Packing Machine Rules (commencement of manufacture of goods of a new retail sale price on an existing machine) - declarations in Form I under Rule 6 of the Panmasala Packing Machine Rules - treatment of a single packing machine as multiple machines for duty liability

First proviso to Rule 8 of the Panmasala Packing Machine Rules (commencement of manufacture of goods of a new retail sale price on an existing machine) - declarations in Form I under Rule 6 of the Panmasala Packing Machine Rules - treatment of a single packing machine as multiple machines for duty liability - Whether the first proviso to Rule 8 is attracted where a packing machine, as declared in Form I for the month, is used to manufacture retail pouches of two different RSPs during that month - HELD THAT: - The Tribunal held, on a prima-facie basis, that the first proviso to Rule 8 applies only where a manufacturer "commences manufacturing of goods of a new retail sale price during the month on an existing machine" - i.e., an RSP that had not been declared for that machine in the Form I for that month. Where the Form I declaration for the month already specifies that the machine will be used to manufacture pouches of more than one RSP, the RSP so declared cannot be treated as "new" for the purpose of the proviso. The Tribunal explained by reference to the text of Rule 8 and the proviso that if the intent had been to treat every instance of manufacturing multiple declared RSPs on a single machine as separate machines for duty purposes, the proviso would have been drafted differently. Applying this interpretive approach, and having found that for each of the four months the Form I declared the machine would be used for both the Rs. 2 and Rs. 3 RSPs and that manufacturing actually occurred accordingly, the Department's contention that the machine must be treated as two machines under the first proviso is not prima facie correct. [Paras 5, 6, 7]

Prima facie view that the first proviso to Rule 8 is not attracted where the Form I for the month already declared the machine would be used for the two RSPs; consequently, the Department's stand is not prima facie correct.

Final Conclusion: The appellant has a strong prima-facie case; pre-deposit of the duty demand, interest and penalty is waived for hearing of the appeal and recovery thereof is stayed. Stay application allowed.

Extended period - suppression and mis-statement - valuation and assessable value - benefit of judicial precedent - liability to pay differential duty from date of adverse Supreme Court decision - penalty for mis-declaration

Extended period - suppression and mis-statement - benefit of judicial precedent - Sustainability of demand invoking extended period on ground of suppression or mis-statement where assessee followed Tribunal precedent and departmental audits accepted the valuation - HELD THAT: - The Tribunal found that the appellant had, during the material period, applied a reduced assessable value for clearances to specific customers who had invalidated advance licences and that departmental audits during the period had accepted those clearances without adverse report. The appellant had acted in conformity with the Tribunal's earlier ratio in IFGL Refractories Ltd., which treated such price depression as not amounting to additional consideration. In these circumstances there is nothing on record to show suppression or wilful mis-statement with intent to evade duty. Therefore invocation of the extended period and confirmation of demand on the ground of suppression/mis-statement is unsustainable. [Paras 6]

Extended period invocation and demand based on suppression or mis-statement set aside.

Liability to pay differential duty from date of adverse Supreme Court decision - benefit of judicial precedent - valuation and assessable value - Whether the appellant must discharge duty liability for the period after the Supreme Court reversed the Tribunal's precedent - HELD THAT: - Although the appellant legitimately relied on the Tribunal's precedent during the earlier period, the Supreme Court reversed that precedent by its decision dated 09.08.2005. The Tribunal held that, having availed the benefit of the earlier ratio, the appellant ought to have on its own paid the differential duty from the date of the adverse Supreme Court decision to December 2005. Accordingly, the appellant is held liable to pay the Central Excise duty and interest for the period from 09.08.2005 to December 2005. [Paras 6]

Appellant liable to pay differential duty and interest for the period 09.08.2005 to December 2005.

Penalty for mis-declaration - benefit of judicial precedent - Validity of penalty imposed for alleged mis-declaration where issue was unsettled and depended on Supreme Court interpretation - HELD THAT: - The question involved interpretation of law which was open until decided by the Supreme Court. Given that the appellant had acted in reliance on the Tribunal's precedent and there is no record of suppression or wilful mis-statement, the Tribunal concluded that imposition of penalty by the adjudicating authority was unwarranted. [Paras 6]

Penalty imposed by the adjudicating authority is set aside.

Final Conclusion: Appeal allowed in part: demand based on extended period and findings of suppression/mis-statement set aside; appellant ordered to pay differential duty with interest for the period 09.08.2005 to December 2005; penalty is quashed.

Seizure and confiscation of goods - redemption fine - penalty for clearing goods in the guise of another - evidentiary value of transporter's statement and Form 21 - reliance on laboratory test report

Seizure and confiscation of goods - evidentiary value of transporter's statement and Form 21 - reliance on laboratory test report - Whether the seized consignments of mentha oil/DMO were rightly liable to be seized and confiscated. - HELD THAT: - The Tribunal accepted the appellants' case that the transporter's statement unequivocally recorded loading at Sambhal for delivery to the appellant's factory and that Form 21 issued under the UP sales tax provisions supported purchase from farmers. The Revenue did not controvert the transporter's statement or produce statements of the farmers. The departmental case rested primarily on the laboratory report from Shriram Institute indicating only 26% mentha oil content and characterising the consignment as DMO. The Tribunal held that the Revenue's reliance solely on the test report, without verifying or controverting the transporter's statement and documentary evidence, was insufficient to justify seizure and confiscation; the presence of impurities and lower mentha-oil percentage did not permit automatic classification as liable to confiscation where supporting documentary and oral evidence in favour of the appellants remained unchallenged. [Paras 6]

Seizure and confiscation of the goods set aside; goods were not liable to be confiscated.

Redemption fine - seizure and confiscation of goods - Whether the redemption fine imposed in respect of the mentha oil and the truck was imposable. - HELD THAT: - Having concluded that the goods were not liable to be confiscated because the foundational evidentiary basis for seizure was inadequate, the Tribunal found that the consequent imposition of redemption fines could not be sustained. As confiscation was set aside, the incidental redemption fines imposed by the authority were also held to be not imposable. [Paras 6]

Redemption fines set aside.

Penalty for clearing goods in the guise of another - evidentiary value of transporter's statement and Form 21 - Whether the penalty imposed on Shri Surendra Kumar Gupta was imposable. - HELD THAT: - The penalty was founded on the premise that mentha oil was being cleared in the guise of DMO. The Tribunal concluded that because the seizure and classification underpinning the penalty were not upheld - given uncontroverted transporter's statement and Form 21 and the Revenue's exclusive reliance on the test report - the penalty could not be sustained. In consequence the penalty imposed on the named individual was held to be not imposable. [Paras 6]

Penalty imposed on Shri Surendra Kumar Gupta set aside.

Final Conclusion: The impugned order is set aside: the confiscation of goods, the redemption fines and the penalty on the named person are quashed; appeals allowed with consequential relief, if any.

Undervaluation - mutuality of interest - influence over price - burden of proof on Revenue - transaction value and representative price - freight/transport not dutiable - adequacy of show cause notice and particulars - admissibility of CAS4 report - Rule 10 of the Valuation Rules (interconnected undertakings)

Mutuality of interest - influence over price - burden of proof on Revenue - Allegation of undervaluation based on partners being directors in the buyer company was not proved. - HELD THAT: - It is an established fact that partners of the appellant were directors of the buyer company, but mere common directorship does not establish mutuality of interest or influence over the appellant's price. The Tribunal held that the essential ingredient of influence over price, necessary to demonstrate prejudice to revenue, was absent and that the burden to prove such mutuality lay on Revenue. The show cause notice did not substantiate how the relationship affected pricing, and Revenue led no evidence to establish control or fund flow between the parties; accordingly, the allegation of mutuality remained unproven. [Paras 5]

Allegation of mutuality/mutual interest causing undervaluation rejected for want of proof.

Freight/transport not dutiable - undervaluation - Use of appellant's own transport did not by itself establish undervaluation by excluding freight. - HELD THAT: - The appellant supplied goods to the buyer using its own transport. The Tribunal observed that transport cost is not dutiable and mere use of own trucks cannot be the basis for an allegation of undervaluation unless the show cause notice specifically alleges and explains how transport arrangements resulted in undervaluation. In absence of such pleading and proof, the contention that freight exclusion caused undervaluation could not be sustained. [Paras 2]

No undervaluation established merely because supplies were made by appellant's own transport.

Admissibility of CAS4 report - adequacy of show cause notice and particulars - CAS4 report could not be relied upon where the show cause notice failed to set out particulars of how CAS4 established undervaluation. - HELD THAT: - The Tribunal noted that the CAS4 report was not properly incorporated into the show cause notice-there was no clear allegation as to the manner in which the appellant undervalued goods so as to put the appellant to a proper defence. Absent appropriate particulars in the notice, expectation that the appellant should rebut CAS4 was unreasonable. Consequently, reliance on CAS4 without pleading and proof of the specific mode of undervaluation was impermissible. [Paras 6]

CAS4 findings could not sustain the demand in absence of adequate particulars in the show cause notice.

Transaction value and representative price - undervaluation - Transaction value shown by the appellant, supported by comparable supplier prices, defeated the allegation of undervaluation. - HELD THAT: - The appellant produced tabular material showing that its prices were higher than those charged by other suppliers during the period in question, and asserted that competitor transaction values were verifiable and representative. The adjudicating authority made no inquiry or adverse finding to show that those comparable transaction values were non representative or unreliable; in absence of any contradiction or negative finding, the Tribunal found it difficult to accept Revenue's allegation of undervaluation. [Paras 6]

Appellant's claimed transaction value, corroborated by competitor prices, accepted and allegation of undervaluation negatived.

Rule 10 of the Valuation Rules (interconnected undertakings) - undervaluation - Invocation of Rule 10 against the appellant for interconnected undertakings was not justified on the facts. - HELD THAT: - The Tribunal observed that application of Rule 10 would require material demonstrating that interconnection caused prejudice to revenue by leading to undervaluation. No such material was brought on record by Revenue to show that the alleged interconnection between appellant and buyer produced undervaluation. Consequently, invoking Rule 10 in the absence of supporting evidence was not warranted. [Paras 7]

Rule 10 could not be invoked as interconnected undertaking to justify valuation adjustment was not proved.

Final Conclusion: All four appeals allowed: Revenue failed to prove undervaluation or requisite interconnection and did not supply adequate particulars (including in relation to CAS4), while the appellant's transaction values supported by comparable supplier prices were not shown to be non representative.

Interpretation of "new retail sale price" in the first proviso to Rule 8 of the PMPM Rules, 2008 - Deemed manufacture per operating packing machine under Rule 5 of the PMPM Rules, 2008 - Harmonious construction of Rule 5 and the first proviso to Rule 8 - Prohibition on double counting of deemed production for levy of excise duty - Stay of recovery and waiver of pre-deposit pending appeal

Interpretation of "new retail sale price" in the first proviso to Rule 8 of the PMPM Rules, 2008 - Deemed manufacture per operating packing machine under Rule 5 of the PMPM Rules, 2008 - Harmonious construction of Rule 5 and the first proviso to Rule 8 - Whether a change in retail sale price within the same RSP slab amounts to commencement of manufacture of goods of a "new RSP" under the first proviso to Rule 8, thereby deeming an addition to the number of operating packing machines for the month. - HELD THAT: - Rule 8 applies when during a month a manufacturer commences manufacture of pouches of a "new RSP" on an existing machine. Rule 5 fixes deemed production per operating packing machine per month by reference to RSP slabs. Treating different RSPs that fall within the same RSP slab as distinct "new RSPs" would permit invocation of the first proviso to Rule 8 multiple times for the same machine in the same month and thereby result in charging duty on the same machine's production more than once. Such an interpretation would conflict with the scheme of levy under section 3A read with the PMPM Rules, since excise duty must be chargeable only on the quantity manufactured (actual or deemed). The provisions of Rule 5 and the first proviso to Rule 8 must therefore be read harmoniously: the "new RSP" in the first proviso denotes an RSP falling in a different RSP slab as specified in Rule 5, and not merely a different numerical RSP within the same slab. [Paras 6, 7, 8]

Prima facie view taken that "new RSP" means an RSP from a different slab and not a different RSP within the same slab; the impugned order treating RSPs within the same slab as different RSPs is not correct; consequently, pre-deposit and recovery of the duty, interest and penalty are stayed for the purpose of hearing the appeal.

Final Conclusion: On a prima facie construction, the first proviso to Rule 8 must be read with Rule 5 so that a "new RSP" means an RSP falling in a different RSP slab; the impugned demand treating RSPs within the same slab as separate for deeming additional machines was found incorrect and the requirement of pre-deposit and recovery of duty, interest and penalty was stayed pending disposal of the appeal.

Deemed levy of 10% on common input used for manufacture of excisable and non-excisable goods - burden of proof for allocation of inputs - verification of deposit and appropriation - waiver of penalty for practical difficulties of statutory interpretation

Deemed levy of 10% on common input used for manufacture of excisable and non-excisable goods - burden of proof for allocation of inputs - Levy of 10% on sale value is warranted where a common input is used in manufacture of both excisable and non-excisable goods and no evidence of allocation is produced. - HELD THAT: - The Tribunal accepted that where a common input is used in manufacture of excisable and non-excisable goods and the assessee/producer does not lead evidence demonstrating a verifiable allocation of the input between excisable and non-excisable production, the statutory scheme contemplates a deemed levy of 10% of the sale value. The appellant's submission that nothing is excisable and therefore even 10% should not be payable was rejected because no allocation evidence was placed on record to displace the deemed levy. In the absence of verifiable allocation, the 10% levy as applied in the batch decision relied upon by the parties governs the outcome.

Appeal disposed by directing deposit of 10% of the sale value as ordered in the cited batch decision.

Verification of deposit and appropriation - Claimed prior payment of the 10% deposit and its appropriation is to be verified by the authority. - HELD THAT: - Counsel for the appellant asserted that the 10% amount has already been paid and appropriation has been made. The Tribunal did not adjudicate the veracity of that factual claim on the record but directed the learned authority to verify the appellant's version and take necessary action if the claim is established.

Matter remitted to the authority for verification of the appellant's claim of prior payment and appropriation and for appropriate action thereafter.

Waiver of penalty for practical difficulties of statutory interpretation - No penalty shall be imposed on the appellant in view of the practical difficulties regarding interpretation of the statute. - HELD THAT: - While upholding the deposit direction, the Tribunal recognised the practical difficulties of interpreting the statutory provision as brought to its notice by the appellant. Exercising judicial restraint and in the interest of consistency with the batch decision, the Tribunal directed that no penal consequence be levied on the appellant for the matters adjudicated in this appeal.

Penalty waived; no penalty to be imposed on the appellant in respect of the directed deposit.

Final Conclusion: The appeal is disposed by directing deposit of 10% of the sale value in accordance with the referenced batch order; the authority is directed to verify any prior payment and appropriation claimed by the appellant; and no penalty shall be imposed in view of practical difficulties of interpretation.

CENVAT credit on capital goods - composite works contract / works contract service - liability to pay service tax by contractor and its effect on purchaser's credit - penalty under Rule 26(2) of the Central Excise Rules, 2002 - waiver of pre-deposit and stay of recovery pending appeal

CENVAT credit on capital goods - composite works contract / works contract service - liability to pay service tax by contractor and its effect on purchaser's credit - Prima facie entitlement of the purchaser (M/s Tata Steel Ltd.) to CENVAT credit on capital goods sold/supplied by the contractor and subsequently installed and used in the purchaser's manufacture despite the contractor treating the job as a composite works contract - HELD THAT: - The Tribunal recorded that the capital goods sold/supplied by M/s L & T Ltd. were received, installed and used by the purchaser in the manufacture of finished goods at its factory, and there was no dispute on those factual aspects or on the satisfaction of the definition of capital goods under the CENVAT Credit Rules. The Tribunal found it unclear how the contractor's characterization of the entire project as a composite works contract and its payment of service tax would prima facie disentitle the purchaser from availing credit on duty-paid capital goods which are in its possession and used in manufacture. On that basis the Tribunal concluded that the purchaser had made out a prima facie case for entitlement to the CENVAT credit and for waiver of pre-deposit.

Prima facie case in favour of purchaser to avail CENVAT credit on the capital goods; pre-deposit waived and recovery stayed during pendency of appeal.

Penalty under Rule 26(2) of the Central Excise Rules, 2002 - waiver of pre-deposit and stay of recovery pending appeal - Whether pre-deposit of penalty imposed on the supplier (M/s L & T Ltd. and the individual) should be waived and recovery stayed pending appeal - HELD THAT: - The Tribunal considered the Revenue's contention that the supplier knowingly issued invoices for sale/supply of materials in the context of a composite works contract and therefore was liable to penalty under Rule 26(2). However, the Tribunal observed that on the material before it it was not clear how the CENVAT credit could be held inadmissible or how the supplier's characterization would conclusively attract penalty. In view of this uncertainty and the prima facie findings on the credit issue it exercised its discretion to waive the pre-deposit of the penalty and stay recovery during the pendency of the appeals. The Tribunal did not undertake a final adjudication on the merits of the penalty liability.

Pre-deposit of the penalty adjudged against the supplier and individual is waived and recovery stayed pending appeal; penalty liability remains to be adjudicated on merits in the appeal proceedings.

Final Conclusion: Stay petitions allowed: pre-deposit of the adjudged CENVAT dues and the corresponding penalties are waived and recovery is stayed during the pendency of the appeals; merits of admissibility of credit and of the penalty remain for adjudication in the appeals.

Pre-deposit requirement - tribunal's competence to decide merits where first appellate authority dismissed appeal for non-deposit - remand to first Appellate Authority to decide appeals on merits without insisting pre-deposit - quashing of tribunal order for deciding merits despite pre-deposit dismissal

Pre-deposit requirement - tribunal's competence to decide merits where first appellate authority dismissed appeal for non-deposit - quashing of tribunal order for deciding merits despite pre-deposit dismissal - remand to first Appellate Authority to decide appeals on merits without insisting pre-deposit - Whether the Tribunal erred in deciding the appeals on merits when the first Appellate Authority had dismissed the appeals for failure to deposit the pre-deposit. - HELD THAT: - The Court confined the appeals to the preliminary question of law regarding the pre-deposit. Applying the established line of decisions of this Court (including the Division Bench decision in State of Gujarat v. City Tiles Limited), the Court held that it was impermissible for the Tribunal to enter into the merits of the appeals where the appeals before it were directed against orders of the first Appellate Authority dismissing the appeals solely on account of non-deposit of the required pre-deposit. For that reason the Tribunal's decision on the merits was set aside. Rather than remanding back to the Tribunal, the Court directed that the matters be remitted to the first Appellate Authority to consider and decide the appeals on merits and in accordance with law without insisting on pre-deposit. The Court declined the State's request to remit directly to the adjudicating authority, observing that merits-based examination (including any contention that the assessing officer relied solely on an Excise Department notice) must be undertaken by the first Appellate Authority when it decides the appeals on merit. [Paras 2, 6, 7, 9]

Impugned Tribunal order is quashed to the extent it decided the merits despite dismissal by the first Appellate Authority for non-deposit; matters are remanded to the first Appellate Authority to decide the appeals on merits and in accordance with law without insisting on pre-deposit.

Final Conclusion: Both appeals are allowed to the limited extent that the Tribunal's merits decision is quashed; matters are remanded to the first Appellate Authority to decide the appeals on merits and in accordance with law without insisting on pre-deposit, to be disposed of expeditiously.

Revised return - obliteration of original return by filing a revised return - understatement of tax liability - penalty under S.72(2) of the KVAT Act - voluntary disclosure and payment of tax with interest - acceptance of revised return by the department

Revised return - obliteration of original return by filing a revised return - understatement of tax liability - penalty under S.72(2) of the KVAT Act - voluntary disclosure and payment of tax with interest - acceptance of revised return by the department - Whether penalty under S.72(2) of the KVAT Act could be imposed where the dealer filed a revised return under S.35(4), paid the admitted tax with interest and the revised return was accepted by the department - HELD THAT: - The Court held that the definition of 'return' under S.2(28) includes a 'revised return' and, applying the principle that a valid revised return effaces the original return, once a revised return is filed and accepted by the department the original return stands obliterated. Consequently only the revised return is to be considered for the prescribed tax period. S.42(7) requires payment of tax with the revised return, which was complied with. S.72(2) penalises a dealer who furnishes a return that understates liability by more than five per cent of actual tax; because the revised return (the sole return for consideration) disclosed the correct liability and the tax along with interest was paid, there was no understatement in that return and S.72(2) did not apply. The Court further noted precedent of this Court to similar effect and rejected the contention that penalty is automatically imposed once an earlier return showed a nil liability; intention to evade or mala fides must be shown for imposition when a voluntary, accepted revised return with tax and interest exists.

Penalty under S.72(2) was not warranted and could not be imposed where the taxpayer filed and the department accepted a voluntary revised return disclosing the correct liability and paid the tax with interest.

Final Conclusion: Revision allowed; orders of the Tribunal and lower authorities imposing the penalty set aside; no order as to costs.

Time limit for completion of assessment - assessment under Section 41(7) as not an independent mode of assessment - application of limitation under Section 42(1) to assessments under Section 41(3), (4) and (5), including when Section 41(7) is invoked - distinct assessment regime where notice under Section 41(6) is issued and applicability of extended limitation under Section 42(2) - overriding/non-obstante language does not create a separate limitation regime

Assessment under Section 41(7) as not an independent mode of assessment - application of limitation under Section 42(1) to assessments under Section 41(3), (4) and (5), including when Section 41(7) is invoked - Whether an assessment made under Section 41(7) is outside the time limit prescribed by Section 42(1) of the Act. - HELD THAT: - The Court held that Section 41(7) does not constitute an independent mode of assessment disconnected from the other sub sections of Section 41; rather it is a procedural device enabling assessment to the best of the Commissioner's judgment where accounts or methods of accounting are not maintained or where assessment cannot be properly made on the basis of books. Where a dealer is registered and assessment proceeds under Section 41(3) (or leads to assessment under 41(4) or 41(5) if returns are absent or notices not complied with), the limitation in Section 42(1) (three years from the end of the year in which the last return is filed) governs completion of assessment even if Section 41(7) is invoked. The Court rejected the contention that the non obstante language of Section 41(7) creates a separate unlimited assessment power immune to the time limits of Section 42(1), observing that the non obstante clause merely gives overriding effect to the procedure where books are deficient but does not displace the statutory scheme of limitation which recognises only the distinct regimes identified in Section 42. [Paras 10, 11, 12]

Section 41(7) is not an independent mode of assessment exempting the assessment from the time limit in Section 42(1); assessments covered by Section 41(3)/(4)/(5) remain subject to Section 42(1) even when 41(7) is invoked.

Distinct assessment regime where notice under Section 41(6) is issued and applicability of extended limitation under Section 42(2) - time limit for completion of assessment - Whether the extended limitation periods in Section 42(2) (four or eight years) apply in cases where returns were not filed or where no return was filed within the prescribed time, absent issuance of a notice under Section 41(6). - HELD THAT: - The Court explained that the extended limitation periods in Section 42(2) apply only where there has been issuance of a notice under Section 41(6) (which concerns assessment where a dealer has failed to apply for registration). Section 41(6) addresses a separate contingency (unregistered dealers or failure to apply for registration) and is the precondition for invoking the extended limitation. Consequently, where no notice under Section 41(6) has been issued, the extended periods under Section 42(2) are inapplicable and the three year period under Section 42(1) governs assessments in cases of registered dealers even where returns were not filed and assessment proceeds under Section 41(5). [Paras 8, 10]

Extended limitation under Section 42(2) is contingent on issuance of a notice under Section 41(6); absent such notice, the three year limitation under Section 42(1) applies even when returns are not filed.

Final Conclusion: The Tribunal correctly held that the assessments in the matters before it were barred by Section 42(1); the appeals, reference and special civil application are disposed of accordingly in favour of the assessee and against the Revenue, with no order as to costs.

Principles of natural justice - reliance on departmental website report as basis for assessment - pre decisional disclosure of material relied upon - opportunity of personal hearing before final disposal - setting aside administrative order for want of fair opportunity to defend

Principles of natural justice - pre decisional disclosure of material relied upon - Impugned assessment order founded on a departmental website report was vitiated for non furnishing of the material relied upon, thereby violating principles of natural justice. - HELD THAT: - The Court observed that the assessment proceedings placed primary reliance on website entries relating to M/s. S.K.S. Industries and that the petitioner had sought those website entries under the RTI Act. Non furnishing of the information prejudiced the petitioner's ability to present an effective defence. In view of that prejudice, the impugned order could not stand and warranted interference on the sole ground of denial of necessary material which was relied upon in passing the assessment. [Paras 5]

Impugned order dated 03.03.2015 set aside for violation of principles of natural justice; petitioner entitled to the material relied upon.

Reliance on departmental website report as basis for assessment - opportunity of personal hearing before final disposal - setting aside administrative order for want of fair opportunity to defend - Matter remitted for fresh consideration after furnishing the website report and affording the petitioner an opportunity of personal hearing. - HELD THAT: - The Court directed the second respondent to furnish a copy of the website report relating to M/s. S.K.S. Industries within two weeks. Thereafter the petitioner was to file a response within two weeks and the first respondent was to provide an opportunity of personal hearing and dispose of the matter in accordance with law expeditiously. The order therefore remands the matter for fresh adjudication limited to the process of disclosure, representation and hearing. [Paras 6]

Proceedings remanded for fresh consideration after furnishing the website report to the petitioner and after affording personal hearing; disposal to follow in accordance with law.

Final Conclusion: Writ petition allowed; impugned order set aside. Respondents directed to furnish the website report relied upon, permit the petitioner to respond and grant a personal hearing, and thereafter decide the matter afresh in accordance with law.

Liability of net wealth of closely-held companies to wealth tax - exclusion of buildings used by the assessee as office for the purposes of its business - exclusion of buildings used as hospital mainly for the welfare of employees - limited meaning of 'office' as administrative wing in clause (vi) - construction of exclusionary clause in wealth tax statute

Construction of exclusionary clause in wealth tax statute - limited meaning of 'office' as administrative wing in clause (vi) - Meaning and scope of clause (vi) of sub-section (3) of Section 40 - whether the words 'office for the purposes of its business' exclude all buildings used by a closely held company for conducting its business or only a limited category. - HELD THAT: - The Court agreed with the High Court's analysis that clause (vi) cannot be read to exclude every building used by a closely held company merely because it is used 'for the purposes of its business'. The drafting of clause (vi), which separately lists specific categories such as factory, hotel and cinema theatre, demonstrates that the legislature intended to exclude only the particular types of buildings enumerated, and that 'office for the purposes of its business' must be read narrowly. The phrase is to be understood in a limited sense - principally as covering the administrative wing of a closely held company - and not as a catch-all exemption for all productive assets used in a company's business. Internal aids and the specific inclusion of non-administrative business premises (for example, hotels and cinemas) support this restricted construction. The exclusion of a 'hospital' in clause (vi) is likewise confined to those hospitals maintained mainly for the welfare of a company's employees (i.e., as an employee welfare facility), rather than hospitals run as business undertakings serving outsiders. [Paras 17, 18]

Clause (vi) is to be construed narrowly; 'office for the purposes of its business' denotes the administrative wing and the enumerated exclusions apply only to the specified kinds of buildings used in the limited senses described.

Exclusion of buildings used as hospital mainly for the welfare of employees - liability of net wealth of closely-held companies to wealth tax - Application of clause (vi) to the appellant's hospital building - whether the hospital run by the appellant (serving outsiders as a business) falls within the excluded category. - HELD THAT: - Applying the above construction to the facts, the Court accepted the High Court's finding that the appellant's hospital is run as a business to serve the public and cannot, by any stretch, be treated as an 'office' or as a hospital maintained mainly for the welfare of the company's employees. The exclusion in clause (vi) for a hospital applies only where the facility is held for employee welfare by an industrial unit. Because the appellant's hospital operates as a business undertaking serving outsiders, it does not qualify for the exclusion and therefore falls within the assets to be included in computing the net wealth of a closely held company under Section 40. [Paras 17, 18]

The appellant's hospital building is not excluded under clause (vi) and is includible in the net wealth subject to wealth tax under Section 40.

Final Conclusion: The appeals are dismissed; the hospital building of the appellant, being used as a business serving outsiders and not as an employee welfare hospital or an administrative 'office', is not excluded by clause (vi) and is includible in the net wealth of the closely held company for the specified assessment years.

Adjudication under Section 31 of the Indian Stamp Act, 1899 - invocation of Section 47A and requirement of reasonable opportunity and inquiry - use of circle rates for determination of market value - formation of belief of wilful undervaluation and fraudulent intention to evade duty - applicable date for market valuation for levy of stamp duty - order of a statutory authority cannot be sustained or supplemented by fresh reasons in affidavit

Adjudication under Section 31 of the Indian Stamp Act, 1899 - Whether Section 31 applies only to unexecuted documents or to both executed and unexecuted instruments. - HELD THAT: - The court examined the text and application of Section 31 and rejected the respondents' contention that Section 31 was inapplicable once the sale deed stood executed. A plain reading shows Section 31 applies to documents irrespective of whether they are executed. The respondents' contrary stance in the counter-affidavit was held to be unsustainable and cannot supplant the reasoning recorded in the impugned order. [Paras 9]

Section 31 applies to both executed and unexecuted documents; the respondents' contention to the contrary is rejected.

Invocation of Section 47A and requirement of reasonable opportunity and inquiry - use of circle rates for determination of market value - formation of belief of wilful undervaluation and fraudulent intention to evade duty - order of a statutory authority cannot be sustained or supplemented by fresh reasons in affidavit - Whether the impugned order passed under Section 47A is legally tenable where no notice, opportunity of hearing or inquiry was accorded and the Collector relied solely on prevailing circle rates without forming the requisite subjective belief. - HELD THAT: - The court held that Section 47A itself mandates formation of a reason to believe that the instrument undervalues consideration before referral to the Collector, and requires grant of reasonable opportunity and, if necessary, an inquiry. The impugned order relied simply on prevailing circle rates without giving the petitioner notice or conducting the mandated inquiry, and therefore the statutory guarantees were not honoured. The court reiterated the principle that the validity of an administrative order is to be judged by the reasons contained in that order and cannot be bolstered by fresh reasons in affidavits. [Paras 9, 10]

Impugned order under Section 47A is legally untenable for failure to accord notice, opportunity and inquiry; it is set aside and a de novo hearing is required.

Applicable date for market valuation for levy of stamp duty - formation of belief of wilful undervaluation and fraudulent intention to evade duty - use of circle rates for determination of market value - The proper date for determining market value and related questions of limitation and effect of delay (including delay attributable to DDA) were not finally decided and require fresh consideration. - HELD THAT: - The court noted conflicting authorities and observed there is no rigid formula for fixing the valuation date; whether market value is to be taken on the date of agreement, decree or execution of the sale deed depends on factual findings, including whether any delay was intentional to obtain a favourable stamp assessment. Given that respondent no.3 did not consider these aspects or hear the petitioner, the court declined to decide these questions on merits and directed that respondent no.3 address them afresh, applying Section 47A and the 2007 Rules and taking into account the possibility that delay in conversion by DDA may be material. [Paras 10, 11, 12]

Questions as to the applicable date for valuation, limitation and the impact of DDA's delay are remitted to respondent no.3 for fresh adjudication after hearing the petitioner.

Final Conclusion: The impugned order dated 11.02.2013 is set aside. Respondent no.3 is directed to afford the petitioner a de novo hearing and, in accordance with Section 47A and the Delhi Stamp (Prevention of Undervaluation of Instrument) Rules, 2007, to conduct any necessary inquiry, determine the question of valuation/date/limitation and recompute stamp duty if required; the exercise shall be completed as expeditiously as possible and in any event within twelve weeks. The writ petition is disposed of with parties to bear their own costs.