TaxTMI Updates e-Newsletter
May 14,2016

Corporation established by or under an Act - statutory corporation - exemption from deduction of tax at source - notification under section 194-A(3)(iii)(f) - section 194-A(1) - tax deduction at source on interest - distinction between "established by" and "established under" an Act - municipal/industrial township status under Article 243-Q

Corporation established by or under an Act - notification under section 194-A(3)(iii)(f) - exemption from deduction of tax at source - distinction between "established by" and "established under" an Act - section 194-A(1) - tax deduction at source on interest - NOIDA is a corporation established by the Uttar Pradesh Industrial Area Development Act, 1976 and is entitled to exemption from deduction of tax at source under the notification dated 22 October 1970 issued under section 194-A(3)(iii)(f) of the Income-tax Act, 1961. - HELD THAT: - The Industrial Area Development Act provides for constitution of an Authority by notification and declares such Authority to be a body corporate; section 3(1) contemplates constitution (with the name of the Authority), section 6 defines its objects and functions, sections 20-23 deal with funds, budget, accounts and audit, section 11 empowers levy of taxes, section 41 provides State Government control and section 58 provides for dissolution. These statutory provisions show that the Authority owes its existence and powers to the statute and is therefore a statutory corporation. The court applied the distinction explained in Dalco Engineering Pvt. Ltd., distinguishing bodies which are merely incorporated under the Companies Act from those which are brought into existence by statute, and held that the Industrial Act brings the Authority into existence (i.e., it is established by the Act) notwithstanding that the State Government specifies the particular area by notification. The court also noted that NOIDA has been accorded industrial township/municipality status under Article 243-Q, reinforcing that it owes its existence to statute. Given these considerations, the fine semantic distinction between "by" and "under" the Act does not deny NOIDA the character of a corporation established by the State Act for the purpose of the exemption under the notification dated 22 October 1970; accordingly the Bank was not required to deduct tax at source on interest paid to NOIDA under section 194-A(1).

NOIDA is a corporation established by the Uttar Pradesh Industrial Area Development Act, 1976 and is entitled to the exemption under the notification dated 22 October 1970 issued under section 194-A(3)(iii)(f).

Final Conclusion: The departmental appeal is dismissed; the findings of the Commissioner (Appeals) and the Income Tax Appellate Tribunal holding NOIDA to be a statutory corporation and entitled to exemption from deduction of tax at source under the said notification are upheld.

Release of seized assets under first proviso to Section 132B(1)(i) - mandatory release on expiry of 120 days under second proviso to Section 132B(1)(i) - explanation of nature and source of acquisition to Assessing Officer - recovery of existing tax liability out of seized assets - failure to decide within statutory period disentitles revenue to retain assets

Release of seized assets under first proviso to Section 132B(1)(i) - mandatory release on expiry of 120 days under second proviso to Section 132B(1)(i) - failure to decide within statutory period disentitles revenue to retain assets - Seized assets must be released where application for release under the first proviso to Section 132B(1)(i) was filed within thirty days and the Revenue failed to dispose of it within the 120-day period mandated by the second proviso. - HELD THAT: - Petitioners filed an application within thirty days from the end of the month of seizure explaining the nature and source of the assets. The Revenue did not decide the application within 120 days from the date on which the last authorization for search was executed. Reliance upon the Division Bench decision in Mitaben R. Shah, which held that where no dispute is raised by the Revenue within the permissible 120-day period the authorities have no power to retain the seized assets, is found to be persuasive and applicable. In these circumstances the statutory mandate in the second proviso operates to disentitle the Revenue from retaining the assets, notwithstanding subsequent communications or internal proposals; accordingly the writ is allowed and the seized assets are to be released. [Paras 6, 8, 9]

Writ petition allowed; respondents directed to immediately release the seized assets of the petitioners.

Final Conclusion: The High Court allowed the petition and directed immediate release of the seized assets because the application for release under the first proviso to Section 132B(1)(i) was filed in time and the Revenue failed to decide it within the 120-day period prescribed by the second proviso.

Constructive receipt - power to reopen assessment under Section 147/148 - reason to believe - escapement of income - reopening assessment cannot be quashed at threshold where reason to believe exists - conversion charges treated as revenue expenditure by the lessee/firm - capital accretion taxable on transfer and not as rental income - change of opinion is not a valid reason to reopen - first proviso to Section 147 (four year bar where failure to disclose fully and truly)

Power to reopen assessment under Section 147/148 - reason to believe - escapement of income - reopening assessment cannot be quashed at threshold where reason to believe exists - Validity of notices issued under Section 148 read with Section 147 for reopening assessments of the petitioners for the specified Assessment Years - HELD THAT: - The Court held that after the 1989 amendment to Section 147 the solitary condition for reopening is that the Assessing Officer has 'reason to believe' that income chargeable to tax has escaped assessment; the twin-test earlier required is dispensed with for the main provision. The phrase 'reason to believe' requires cause or justification and is an inbuilt safeguard against arbitrary action, but need not amount to a final adjudication of facts. Here, during scrutiny of the partnership firm's returns under Section 143(3) the Assessing Officer perused documents including the lease and found that conversion charges paid by the firm on account of change of land use had been allowed as revenue expenditure by the firm and these facts gave rise to a tentative belief that taxable income in the hands of the individual partners might have escaped assessment. Those tentative, debatable and triable contentions - whether the payments constitute constructive receipt of rent in the hands of the owners or merely accretion of capital value taxable on transfer - required fact finding under the assessment procedure and could not be summarily rejected at the threshold by quashing the reopening notices/orders. The Court refrained from expressing any conclusive view on the rival contentions to avoid prejudice and observed that remedies under the Act are available to the petitioners. [Paras 22, 27, 28, 29, 31]

Not inclined to quash the notices/orders; reopening under Section 147/148 sustained for adjudication through the assessment process.

Final Conclusion: Writ petitions dismissed; impugned notices under Section 148 read with Section 147 and the orders rejecting objections are not quashed, leaving the parties to pursue their rights and defenses before the income tax authorities under the statutory assessment procedure.

Arm's length price - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price (CUP) method - commercial expediency - OECD guidelines - allocation of shared services costs - ad-hoc disallowance - penalty proceedings under section 271(1)(c)

Arm's length price - Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price (CUP) method - commercial expediency - OECD guidelines - Deletion of TP adjustment made by TPO/DRP disallowing royalty payments as having ALP nil - HELD THAT: - The Tribunal accepted the assessee's submissions and authorities (noting the principle in the OECD guidelines and the Delhi High Court decision in CIT v. EKL Appliances) that, absent exceptional circumstances, the tax authority should examine the transaction as actually undertaken and not substitute or recharacterise legitimate business transactions. The Bench held that the TPO/DRP erred in adjudicating commercial expediency to disallow the royalty; once TNMM was applied to the assessee's overall transactions it encompassed the royalty transaction and the CUP could not be invoked in the absence of comparable data. Reliance was placed on precedents indicating CUP cannot be applied where relevant comparable information is not available and that royalty payments closely linked to production and sales cannot be isolated for standalone disallowance. Consequently the impugned TP addition relating to royalty was held unsustainable and deleted. [Paras 16, 17, 18, 19, 20]

Addition disallowing royalty deleted; grounds 4.1 and 4.2 allowed.

Allocation of shared services costs - transfer pricing verification - Restoration of the management fee issue to the TPO for verification of allocation and inclusion of correct cost centres - HELD THAT: - The Tribunal found factual issues in the allocation of hours/costs and potential mixing of distinct transaction sets in the TPO's computation. Given these factual discrepancies, the Tribunal did not decide the ALP on merits but remitted the matter to the TPO for fresh examination of whether the Head Office correctly allocated service hours/costs and whether erroneous cost centres were included, directing the TPO to afford the assessee an opportunity to be heard. [Paras 21]

Management fee issue remanded to the TPO for verification and fresh adjudication.

Ad-hoc disallowance - Deletion of the ad-hoc 5% disallowance of miscellaneous expenses - HELD THAT: - The DRP had directed deletion of the miscellaneous expenses disallowance since no discrepancy or specific personal/non-business expenditure was identified. The Tribunal directed the TPO to give effect to the DRP's direction and pass consequential order deleting the ad-hoc disallowance. [Paras 22]

Ad-hoc disallowance of miscellaneous expenses deleted; TPO to give effect to DRP's direction.

Penalty proceedings under section 271(1)(c) - Dismissal of the ground challenging initiation of penalty proceedings as premature - HELD THAT: - The Tribunal held that the challenge to initiation of penalty proceedings under section 271(1)(c) was premature and accordingly dismissed that ground without adjudicating the merits of any penalty liability. [Paras 23]

Ground challenging initiation of penalty proceedings dismissed as premature.

Final Conclusion: The appeal is partly allowed: the TP addition disallowing royalty is deleted; the management fee issue is remanded to the TPO for fresh verification; the ad-hoc miscellaneous expenses disallowance is deleted; the challenge to initiation of penalty proceedings is dismissed as premature.

Capitalization of interest vs. revenue deduction - claim of depreciation on asset demolished shortly after purchase - disallowance under Section 40(a)(ia) for failure to deduct tax at source - obligation to deduct tax at time of payment or credit - treatment of sundry creditors not subsisting on the relevant accounting date

Capitalization of interest vs. revenue deduction - use of capital asset for business - Whether interest paid on loan for acquisition of land and building could be claimed as business expenditure for AY 2009-10 or had to be capitalized - HELD THAT: - The Tribunal examined whether the acquired building was put to use for business so as to permit deduction of interest. The assessee asserted business use from date of purchase, but no material was produced to show statutory approvals, registration or other indicia of use; the building was in fact demolished and reconstruction commenced during the year. The Tribunal held that when the purchased building was demolished and reconstruction was in progress, it could not be regarded as put to use for business and, therefore, interest during the period had to be capitalized rather than allowed as revenue deduction. [Paras 6, 7]

Claim for interest of Rs. 23,82,173/- disallowed; order of CIT(A) confirmed.

Claim of depreciation on asset demolished shortly after purchase - Whether depreciation could be claimed in respect of the building purchased on 24.09.2007 which was demolished in the year under consideration - HELD THAT: - Having found that the building purchased was not put to use and was demolished shortly after purchase, the Tribunal held that claiming depreciation on that asset was not justified. Depreciation is not allowable where the asset was not used for the business and was demolished soon after acquisition. [Paras 9]

Depreciation claim on the demolished building rejected.

Disallowance under Section 40(a)(ia) for failure to deduct tax at source - obligation to deduct tax at time of payment or credit - Whether payments for hiring machinery/equipment, soil testing, centring work and similar services for AY 2010-11 were taxable payments requiring TDS and therefore liable to disallowance under Section 40(a)(ia) for non-deduction - HELD THAT: - The Tribunal analysed the nature of payments and applicable withholding provisions. Hiring charges for generator and JCB were held to attract Section 194-I; soil testing and related technical services were held to attract TDS as fees for technical services; centring work was held to be subcontract and attract Section 194C. The Tribunal followed High Court precedents holding that Section 40(a)(ia) applies where tax deductible payments arise at any time during the year and that tax must be deducted at time of payment or credit. The assessee's alternative contention that amounts already paid are not subject to disallowance was rejected because the statutory obligation to deduct arises on payment or credit, and the assessee had paid the amounts without deducting tax. [Paras 15, 16, 17]

Disallowance under Section 40(a)(ia) confirmed in respect of the payments for which TDS was not deducted; alternative contention that already-paid amounts are outside Section 40(a)(ia) rejected.

Treatment of sundry creditors not subsisting on the relevant accounting date - Whether sundry creditors shown as outstanding on 31.03.2010 but found to be not subsisting should be added to income in AY 2010-11 - HELD THAT: - The Assessing Officer verified the claimed sundry creditors by issuing summons and obtaining confirmations from creditors; several creditors confirmed no outstanding as on 31.03.2010 and documentary evidence showed amounts written off earlier. The Tribunal held that where liability did not subsist as on the relevant date, it could not be treated as a genuine outstanding and therefore had to be brought to tax in the year in which it ceases to subsist (AY 2010-11). The fact that the assessee later offered amounts in subsequent years did not permit shifting taxable income away from AY 2010-11. [Paras 21]

Addition of Rs. 17,95,370/- towards sundry creditors confirmed for AY 2010-11.

Final Conclusion: Both appeals dismissed; the Tribunal confirmed the orders of the lower authorities: interest disallowance and rejection of depreciation for AY 2009-10, and disallowance under Section 40(a)(ia) and addition of sundry creditors for AY 2010-11.

Reopening of assessment - reason to believe - change of opinion - fully and truly disclose all material facts - Section 147 read with Section 148 - rectification under section 154

Reopening of assessment - reason to believe - change of opinion - fully and truly disclose all material facts - Section 147 read with Section 148 - rectification under section 154 - Validity of reopening the assessment for the assessment year 2005-2006 under section 147 read with section 148 - HELD THAT: - The Tribunal upheld the finding of the CIT(A) that the reassessment initiated for AY 2005-2006 was invalid. Applying the established jurisprudence, the Tribunal held that an assessing officer may reopen an assessment under section 147 only where there is 'reason to believe'-based on new or tangible material-that income has escaped assessment and not merely because of a change of opinion. The record showed that the material on which the AO relied was already available at the time of the original assessment and that the assessee had disclosed the primary facts fully and truly. There was no allegation or evidence of failure by the assessee to disclose material facts; hence the prerequisites for reopening after the four-year period were not satisfied. The Tribunal further observed that where an assessment error can be remedied under the limited power of rectification under section 154, the AO should not invoke the wider reassessment power under section 147. In these circumstances, reopening amounted to an impermissible review of the original assessment rather than reassessment based on new material, and was therefore bad in law. [Paras 5, 7, 8]

Reopening of assessment under section 147 read with section 148 for AY 2005-2006 is invalid; appeal dismissed.

Final Conclusion: The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s order holding the reassessment proceedings for AY 2005-2006 to be void for lack of fresh/tangible material and for amounting to a mere change of opinion; the reopening was bad in law.

Exemption under section 11 - incidental business to charitable objects - property held under trust versus business carried on by the trust - applicability of section 11(4A) - proviso to section 2(15) deeming activity to be business - disallowance of depreciation where cost already allowed as application of income

Property held under trust versus business carried on by the trust - applicability of section 11(4A) - incidental business to charitable objects - proviso to section 2(15) deeming activity to be business - exemption under section 11 - Whether receipts from running community hall, kalyana mandapam and funeral ceremony hall qualify for exemption under section 11 as income of property held under trust or as business income liable to tax, and whether section 11(4A) / proviso to section 2(15) apply. - HELD THAT: - The Tribunal examined the objects of the society and held that the running of community hall, kalyana mandapam and funeral ceremony hall were activities commenced by the society after its formation and were not property held under trust. The distinction between a business held under trust (eligible under section 11(4)) and a business carried on by or for the trust (governed by section 11(4A)) was applied: merely applying profits to charitable purposes does not convert a business carried on by the society into a business held under trust. The Tribunal found no nexus showing that these activities were so inextricably connected with the charitable objects as to be incidental to attainment of those objects; the application of income is not the determinative test. Consequently section 11 exemption was not available and section 11(4A) applied, so the receipts were taxable as business income. The Tribunal also accepted that the proviso to section 2(15) and related jurisprudence support treating such activities as business where they are not held under trust and are not incidental to the charitable objects. [Paras 10, 11, 12, 13, 14]

Receipts from the running of community hall, kalyana mandapam and funeral ceremony hall are business income carried on by the society (not property held under trust), section 11 exemption is not available, and section 11(4A) applies; the proviso to section 2(15) supports taxation of such activities.

Disallowance of depreciation where cost already allowed as application of income - exemption under section 11 - Whether the assessee is entitled to claim depreciation on opening written down value of assets whose cost had earlier been treated as application of income under section 11. - HELD THAT: - The Tribunal followed precedent that where the cost of an asset was earlier allowed as application of income under section 11 (effectively reducing the asset cost to nil), depreciation cannot be allowed again on that cost as it would amount to double deduction. Section 11 (Chapter III) operates to override the computation provision for depreciation in section 32 (Chapter IV) in such circumstances. The Tribunal therefore held that depreciation on such opening balance is not permissible. [Paras 15]

Depreciation on assets whose cost was earlier treated as application of income under section 11 is not allowable; the claim for depreciation is disallowed.

Final Conclusion: The Tribunal dismissed the appeals: the receipts from the halls are business income taxable (no exemption under section 11), section 11(4A) applies and proviso to section 2(15) is attracted where relevant; claim for depreciation on assets whose cost was earlier applied as income under section 11 is disallowed.

Penalty under Section 271(1)(c) - Show cause notice under Section 274 - Recording of satisfaction by the Assessing Officer - Specificity of grounds and principles of natural justice in penalty notices - Voluntary disclosure during search and its effect on penalty proceedings - Application of precedents on defective satisfaction and defective notice

Recording of satisfaction by the Assessing Officer - Penalty under Section 271(1)(c) - Voluntary disclosure during search and its effect on penalty proceedings - Validity of penalty where the assessment order does not record satisfaction that the assessee concealed particulars of income or furnished inaccurate particulars of income - HELD THAT: - The Tribunal held that initiation and imposition of penalty under Section 271(1)(c) require that the Assessing Officer's prima facie satisfaction that the assessee concealed particulars or furnished inaccurate particulars must be discernible from the assessment order. Where the AO accepted the assessee's offer to tax additional income in the assessment order without specific findings or indications of concealment or inaccuracy, such satisfaction is not discernible. Following the Tribunal's earlier decision in Satyananda Achariya Biswas and the principles discussed from higher courts, a voluntary offer to tax made in the course of assessment, accepted without adverse findings, cannot be used as the basis for initiating penalty proceedings absent discernible satisfaction. On these facts the Tribunal concluded that levy of penalty could not be sustained and cancelled the penalties imposed for the assessment years in question. [Paras 16, 17]

Penalty imposed under Section 271(1)(c) cancelled because the assessment order does not disclose AO's satisfaction of concealment or furnishing inaccurate particulars.

Show cause notice under Section 274 - Specificity of grounds and principles of natural justice in penalty notices - Penalty under Section 271(1)(c) - Validity of penalty where the show cause notice under Section 274 is a printed form that does not specify whether penalty is proposed for concealment of particulars or for furnishing inaccurate particulars - HELD THAT: - The Tribunal applied the principles laid down by the Karnataka High Court in Manjunatha Cotton and the Tribunal's precedent in Satyananda Achariya Biswas that a notice under Section 274 must specifically state the ground or limb of Section 271(1)(c) on which penalty is proposed so that the assessee can meet the case. A generic printed notice that fails to strike out or specify the irrelevant limb offends natural justice and is defective. As the show cause notices in the present matter did not specify whether penalty was for concealment or for furnishing inaccurate particulars, the Tribunal held the notices defective and the consequent penalty orders invalid. [Paras 16, 17]

Penalties are invalidated because the Section 274 notices did not specifically state the limb of Section 271(1)(c) relied upon; principles of natural justice were breached.

Final Conclusion: Following earlier Tribunal decisions and applicable judicial principles, the penalties under Section 271(1)(c) for A.Y.2002-03 to 2007-08 are cancelled because the assessment orders do not disclose AO's satisfaction of concealment or inaccurate particulars and the Section 274 show cause notices are defective for want of specificity; the revenue appeals against reduction of penalty quantum are dismissed as academic.

Assessment of same income in the hands of principal and agent - representative assessee and simultaneous/parallel assessment - functus officio upon assessment of one of principal or agent - recovery from principal notwithstanding assessment of agent (operation of Section 165)

Assessment of same income in the hands of principal and agent - representative assessee and simultaneous/parallel assessment - functus officio upon assessment of one of principal or agent - recovery from principal notwithstanding assessment of agent (operation of Section 165) - Whether the assessment of the arbitral award amount could be sustained in the hands of Air India as representative assessee when the same income was also assessed in the hands of the non-resident principal, Carbijet Inc. - HELD THAT: - The Tribunal applied the principle in Claggett Brachi that the tax authority may assess either the non-resident principal or the agent but, once an assessment is validly made on one, an assessment on the other for the same income generally cannot thereafter be sustained because the assessing officer becomes functus officio on that income. The Tribunal examined the chronology and found that the assessment in the name of Air India, as representative assessee, was completed on 27th March 2003 while the assessment directly on Carbijet Inc. was completed on 28th March 2003. Given that the assessment on Air India preceded that on Carbijet Inc., the later assessment on the principal does not invalidate the earlier assessment on the agent. The Tribunal further held that the CIT(A) erred in treating the two assessments as impermissibly simultaneous and in concluding that the assessment on the representative assessee must be deleted. Finally, the Tribunal explained that even where assessment is in the agent's name, the revenue retains the statutory right to recover tax from the principal (as recognised by the court in Claggett Brachi and reflected in the operation of Section 165), so assessment in the agent's name does not prejudice recovery rights against the principal nor leave revenue's interest jeopardised. [Paras 9, 10]

The assessment of the disputed amount in the hands of Air India as representative assessee is legally sustainable and the CIT(A)'s deletion of that assessment is reversed.

Final Conclusion: The appeal is allowed: the assessment of the arbitral award amount in the hands of Air India as representative assessee for A.Y. 2000-01 is upheld; this does not preclude direct recovery of tax from Carbijet Inc. where permissible.

Deemed dividend under Section 2(22)(e) - distinction between loans and advances and current accommodation / running account - characterisation of inter-corporate transactions as current accommodation adjustment entries - quantification of deemed dividend

Deemed dividend under Section 2(22)(e) - distinction between loans and advances and current accommodation / running account - characterisation of inter-corporate transactions as current accommodation adjustment entries - Whether amounts advanced by M/s Ornet Intermediates Ltd. to M/s OBA Speciality Chemicals and M/s Ornet Corporation are taxable as deemed dividend under Section 2(22)(e) or are current accommodation adjustment entries outside its scope - HELD THAT: - The Tribunal upheld the view that the impugned transactions constituted mutual, open, current or running account accommodation entries rather than loans or advances. The finding relied on transactional features recorded in the ledgers - numerous debit and credit entries showing movement of funds both ways on need basis - and the absence of interest charging, which together indicate current accommodation adjustment rather than advances from accumulated profits. The Tribunal observed that a party need not be in the business of money-lending to enter into current account transactions; frequent reciprocal movements without interest are characteristic of such accounts. The Tribunal further treated the decision of the jurisdictional High Court in CIT vs. Schutz Dishman Bio-tech Pvt Ltd. (as reproduced in the appellate order) and other appellate precedents as supporting the proposition that where inter-company/fund movements are in the nature of current accommodation or inter-corporate deposits, Section 2(22)(e) is not attracted. Applying these principles to the facts, the Tribunal held that the Assessing Officer had not demonstrated that the payments were loans or advances within the meaning of Section 2(22)(e), and consequently the additions under that provision were not sustainable.

Additions made as deemed dividend under Section 2(22)(e) were deleted and the assessee appeals allowed.

Quantification of deemed dividend - deemed dividend under Section 2(22)(e) - Whether the Revenue's cross-appeals on quantification of deemed dividend survive when the foundational applicability of Section 2(22)(e) is negatived - HELD THAT: - The Tribunal held that quantification of deemed dividend is contingent on the applicability of Section 2(22)(e). Having concluded that the impugned transactions do not attract Section 2(22)(e), any exercise of quantification under that provision becomes academic. Therefore, the Revenue's appeals seeking enhancement/quantification could not succeed in the absence of a finding that Section 2(22)(e) applied.

Revenue appeals dismissed.

Final Conclusion: For the assessment years in dispute, the Tribunal concluded that the payments between the company and the partnership concerns were in the nature of current accommodation adjustment entries and not loans or advances; accordingly, additions under Section 2(22)(e) were deleted and all assessee appeals allowed, while the Revenue's cross-appeals on quantification were dismissed.

Additional depreciation under section 32(1)(iia) - date of installation as relevant date for depreciation - acquisition as ownership versus installation for use - liberal construction of incentive provisions

Additional depreciation under section 32(1)(iia) - date of installation as relevant date for depreciation - acquisition as ownership versus installation for use - liberal construction of incentive provisions - Entitlement to additional depreciation where plant and machinery were acquired before 31.03.2005 but installation completed after 31.03.2005. - HELD THAT: - The Tribunal found no dispute on facts that the assessee acquired the machinery before 31.03.2005 but completed installation thereafter. Interpreting the object of section 32(1)(iia) and subsequent amendments, the Tribunal held that the statutory incentive is intended to encourage investment in plant and machinery and must be construed liberally. The Tribunal treated "acquired" in light of ownership and identified the date of installation (when the asset is ready for use) as the material date for claiming additional depreciation. Reliance was placed on the Calcutta High Court's observation in Surama Tubes Pvt. Ltd. that for machinery the year of installation is the relevant year and on the principle that fiscal incentives should not be defeated by technical construction (as reflected in Bajaj Tempo Ltd.). Applying these principles, the Tribunal concluded that denial of additional depreciation because acquisition and installation fell in different years would frustrate the legislative purpose and put the assessee in an anomalous position despite genuine investment and use of the assets. [Paras 15, 16, 21]

Claim of additional depreciation allowed and the addition of Rs. 2,18,50,976/- deleted.

Final Conclusion: The appeal is allowed: additional depreciation under section 32(1)(iia) is admissible where installation is completed after acquisition, the date of installation being the material date for entitlement, and the assessing officer is directed to allow the claim for A.Y. 2006-07.

Reimbursement of actual expenditure - tax deduction at source (TDS) on reimbursements - classification of payment between section 194C and section 194J - revision under section 263 - change of opinion versus debatable view - coordinate bench precedents and Board Circular No. 715 on TDS and reimbursements

Reimbursement of actual expenditure - tax deduction at source (TDS) on reimbursements - classification of payment between section 194C and other provisions - Board Circular No. 715 - Whether reimbursement of bank guarantee commission paid by the assessee to Nimbus Communication Ltd. attracted TDS under the Act - HELD THAT: - The Tribunal found on the material and the agreement that the bank guarantee commission paid by NCL to banks and subsequently reimbursed (80%) by the assessee was a reimbursement of actual expenditure and not payment for carrying out any work or for broadcasting/telecasting services. The assessee had not engaged NCL as contractor for work and the payment was reflected as financial expenditure in the assessee's accounts. Reliance was placed on CBDT Circular No. 715 which treats reimbursements as not forming part of the gross amount for TDS under provisions such as section 194C and section 194J. The Tribunal further noted a Coordinate Bench decision in the assessee's own case holding the matter to be debatable and concluding that bank guarantee commission did not constitute interest liable to TDS under section 194A. Applying these principles, the Tribunal concluded that tax was not required to be deducted on the reimbursement in absence of an agent/principal or work-contract relationship. [Paras 7, 8]

Reimbursement of bank guarantee commission did not attract TDS; AO's view was a possible view and revision under section 263 in this respect was not warranted.

Classification of payment between section 194C and section 194J - debatable issue and limits of revision under section 263 - application of S.K. Tekriwal (Calcutta High Court) on shortfall of TDS - Whether payment of uplinking services to Noida Software Technology Park Ltd. required deduction of TDS under section 194J instead of section 194C - HELD THAT: - On review of the agreement and nature of services, the Tribunal observed that the payments related to uplinking of two channels and did not involve technical services falling within section 194J, but were contractually of the character covered by section 194C. The Tribunal treated the classification as a debatable question of law and fact; it referred to the Calcutta High Court decision in S.K. Tekriwal that differences of opinion as to the nature of payment may make an assessee liable under section 201 but do not justify invoking section 40(a)(ia) disallowance in cases of bona fide disputed tax deduction positions. Given that the Assessing Officer had taken a possible view in the assessment, the Tribunal held that invoking revision under section 263 was inappropriate. [Paras 9]

Payments to Noida Software Technology Park Ltd. were properly treated under section 194C; classification was debatable and revision under section 263 could not be sustained.

Final Conclusion: Both issues were held to be debatable and within the range of possible views taken by the Assessing Officer; the revision order under section 263 was quashed and the appeal of the assessee was allowed.

Genuineness, identity and creditworthiness of shareholders under the test in section 68 - burden on the assessee to substantiate share application money after restoration by the Tribunal - power of the Assessing Officer to verify creditors and summon third parties under section 131 - adverse inference for non-appearance and non-production of certified evidence

Genuineness, identity and creditworthiness of shareholders under the test in section 68 - burden on the assessee to substantiate share application money after restoration by the Tribunal - Whether, on remand by the ITAT, the Assessing Officer was entitled to examine and reject the assessee's explanation for share application money under section 68 for AY 2003-04 and whether the assessee discharged the onus cast upon it. - HELD THAT: - The Tribunal had restored the matter to the Assessing Officer to decide the genuineness of share applicants and directed the assessee to produce relevant documents. Once the issue was so remanded, the onus lay on the assessee to establish identity, genuineness of the transactions and creditworthiness of the contributors. The Assessing Officer issued summons under section 131 to the two purported contributors and gave multiple opportunities to the assessee to produce and have examined the records. The assessee belatedly furnished uncertified photocopies and the concerned persons did not attend for examination as required by the summons. The statutory test under section 68 requires the Assessing Officer to be satisfied about identity, genuineness and financial capacity; where the assessee's explanation is unsupported by credible, certified evidence and the third parties fail to present themselves for verification, the AO is entitled to disbelieve the explanation and treat the sums as unexplained cash credit. The Tribunal accepted the AO's approach that the assessee failed to discharge its burden and that the AO's inquiries under section 131 were lawfully exercised in the verification process. [Paras 10]

The Assessing Officer was justified in rejecting the assessee's explanation and invoking section 68; the assessee failed to discharge the burden cast upon it after the ITAT's remand.

Adverse inference for non-appearance and non-production of certified evidence - power of the Assessing Officer to verify creditors and summon third parties under section 131 - Whether the two alleged share applicants - M/s. Ramsay International Ltd. and M/s. Saroj Kumar Jhunjhunwala (HUF) - were shown to be genuine and creditworthy for the purpose of the claimed share application money. - HELD THAT: - On the material placed before the Tribunal and the Assessing Officer's enquiries: identity of Saroj Kumar Jhunjhunwala was established by documents, but the bank statements, computation and balance-sheet material did not support his financial capacity and the genuineness of the transaction; further, personal attendance for examination was not provided and documents were uncertified. In respect of M/s. Ramsay International Ltd., the address given was found to be residential and non-traceable as a business address, and no reliable, certified documents or personal attendance were produced to establish identity, creditworthiness or genuineness. Given these facts and the failure of the third parties to cooperate with summons under section 131, the Tribunal upheld the AO's adverse findings as to creditworthiness and genuineness in respect of both contributors (identity accepted only for Saroj Kumar Jhunjhunwala but without proof of creditworthiness or genuineness). [Paras 10]

Identity accepted only in part (Saroj Kumar Jhunjhunwala); creditworthiness and genuineness not proved for either contributor; additions under section 68 sustained.

Final Conclusion: The assessee's appeal is dismissed: the Tribunal upheld the Assessing Officer's verification under section 131 and confirmed the addition of the share application money as unexplained cash credit under section 68 for AY 2003-04, holding that the assessee failed to discharge the onus placed upon it after the ITAT's remand.

Diversion of interest-bearing funds for non-business purposes - proportionate disallowance of interest/finance charges - presumption that interest-free advances are out of interest-free funds where such funds are sufficient - reliance on fund-flow statement to determine source of advances - reconciliation of creditors' balances - cessation of liability under section 41 - remand for verification of opening balance differences

Diversion of interest-bearing funds for non-business purposes - proportionate disallowance of interest/finance charges - presumption that interest-free advances are out of interest-free funds where such funds are sufficient - reliance on fund-flow statement to determine source of advances - Deletion of proportionate disallowance of finance charges of Rs. 88,68,694/- - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the AO's disallowance of finance charges. The assessee proved that interest-free advances received from sister concerns during the year exceeded interest-free advances given; the fund-flow statement supported the contention that advances to sister concerns were met from interest-free surplus funds rather than interest-bearing borrowings. Applying the principle in CIT Vs. Reliance Utilities and Power Ltd. (as relied upon by the CIT(A)), a presumption arises that interest-free advances are out of available interest-free funds where those funds are sufficient to meet the advances. In view of the facts and the uncontested tax-filing status of the related entities, no direct nexus was established by the AO between borrowed funds and the interest-free advances; accordingly no proportionate disallowance of finance charges was warranted. [Paras 12, 13, 14]

Order of CIT(A) deleting the disallowance is upheld and the grounds of the revenue in this respect are dismissed.

Reconciliation of creditors' balances - cessation of liability under section 41 - remand for verification of opening balance differences - Addition of Rs. 1,11,80,098/- on account of differences in creditors' balances partly deleted, partly sustained and partly remanded - HELD THAT: - The Tribunal examined the AO's additions and the submissions before the CIT(A), including a remand report. The CIT(A) deleted Rs. 69,89,667/- pertaining to Advance Metal Corporation on the basis that the assessee had declared that amount before the Settlement Commission and paid tax and interest; the Tribunal upheld that deletion in absence of contrary material. The CIT(A) allowed various other categories of differences after documentary explanation, leaving a miscellaneous disallowance of Rs. 1,25,326/-. However, the Tribunal found the CIT(A)'s deletion of Rs. 19,15,371/- on account of opening balance differences inconsistent with the assessee's own reconciliation figures (which showed a larger opening balance discrepancy) and therefore restored the matter to the file of the AO for examination of the opening balance difference of Rs. 19,15,371/-. Other deletions by the CIT(A) (as itemised) were sustained in absence of contrary material. [Paras 25, 31, 32, 33]

CIT(A)'s deletion of the Advance Metal Corporation amount and most creditor differences is upheld; the miscellaneous disallowance of Rs. 1,25,326/- is sustained; the issue of opening balance difference of Rs. 19,15,371/- is restored to the AO for examination.

Final Conclusion: The revenue appeal is partly allowed for statistical purposes: the disallowance of finance charges is deleted and upheld for the assessee; most additions on account of creditor-balance differences are deleted except for a confirmed miscellaneous disallowance, while the specific opening balance difference of Rs. 19,15,371/- is remanded to the AO for further examination. The cross-objection filed by the assessee is dismissed as unadmitted for delay.

Allowability of deduction under section 10A - test for eligibility - profits must be derived by the undertaking executing the work (execution by eligible unit vs. date of contract) - treatment of losses of a non section 10A unit when computing deduction under section 10A - deduction to be given prior to setting off such losses - condonation of delay in Government appeals - requirement of cogent explanation and strict scrutiny

Allowability of deduction under section 10A - test for eligibility - profits must be derived by the undertaking executing the work - Deduction under section 10A was allowable in respect of revenue earned from work actually executed by the new eligible unit (Unit 1) even though the underlying contracts or customers related to the old unit and were entered into prior to formation of the new unit. - HELD THAT: - The Tribunal applied the statutory language of section 10A and held that the relevant test is the immediate source of profit - whether the profit is derived by the undertaking from export of software by the eligible unit. Contracts are received by the assessee (not by a particular internal unit) and what matters for section 10A is which unit executed the work. The Tribunal's earlier orders in the assessee's own case for assessment years 2003-04 and 2004-05 (which were upheld by the Jurisdictional High Court) were followed. In light of those coordinate-bench and High Court rulings, and subsequent treatment in later assessment years and orders, the claim for deduction in respect of turnover executed by the new unit was allowed. [Paras 6, 7]

Claim of deduction under section 10A in respect of turnover executed by Unit 1 is allowed; grounds 1 and 2 of the assessee's appeal are allowed.

Treatment of losses of a non section 10A unit when computing deduction under section 10A - allowance of deduction under section 10A prior to set off of business losses - Deduction under section 10A must be allowed in respect of the eligible unit before setting off losses of another (non section 10A) unit; the loss of the Nagpur unit could not be set off against the income of the section 10A unit for the purpose of computing deduction. - HELD THAT: - Following decisions of the Bombay and Karnataka High Courts and consistent Tribunal precedents, the Tribunal held that section 10A operates at the stage of computing profits and gains of the undertaking and must be given effect to prior to the application of carry forward and set off provisions (such as section 72). Consequently, income of the section 10A undertaking is to be excluded at source before arriving at gross total income, and the loss of a non section 10A unit cannot be set off against such profits for the purpose of denuding the section 10A benefit. Applying these principles to the facts, the assessee was held entitled to the deduction without adjusting the Nagpur unit loss. [Paras 12]

Ground no. 3 of the assessee's appeal is allowed and the deduction under section 10A is to be given before setting off the Nagpur unit loss.

Condonation of delay in Government appeals - requirement of cogent explanation and strict scrutiny - maintainability of Revenue appeal where no relief was granted to assessee by first appellate authority - The Revenue's cross-appeal was dismissed as time barred for failure to furnish a plausible explanation for an inordinate delay of 696 days; further, the appeal was found not maintainable insofar as the Commissioner (Appeals) had not granted relief to the assessee on the subjects raised. - HELD THAT: - The Tribunal applied the principle that Government departments must give cogent, acceptable reasons for delays in filing appeals; mere bureaucratic explanations or change of opinion are insufficient. Having examined the reasons, the Tribunal found the 696 day delay unexplained and declined to condone it, relying on the strict approach endorsed by the Supreme Court. Additionally, since the grounds raised by the Revenue did not properly arise from the assessment order or the matters decided by the first appellate authority, the Tribunal held the Revenue's appeal to be not maintainable. [Paras 16, 18, 20]

Revenue's appeal is dismissed as time barred and not maintainable.

Final Conclusion: The assessee's appeal is allowed: deduction under section 10A is permitted for turnover executed by the new eligible unit notwithstanding prior dates of contracts, and such deduction is to be allowed before setting off losses of the Nagpur unit. The Revenue's appeal is dismissed as barred by limitation and not maintainable.

Drawback entitlement on inputs exported for third country manufacture - export without sale - recovery under Rule 16A of the Drawback Rules - merchant exporters purchasing from local market entitled to full rate of duty drawback - zero rate of duty on exported goods as the object of drawback

Drawback entitlement on inputs exported for third country manufacture - export without sale - recovery under Rule 16A of the Drawback Rules - zero rate of duty on exported goods as the object of drawback - Appellant entitled to drawback on fabrics exported to job workers in Bangladesh where finished garments were sold to a third country buyer and sale proceeds (including value attributable to fabrics) were received by the appellant. - HELD THAT: - The Drawback Rules permit export of goods without a contemporaneous sale invoice or LC and recognize situations where exported goods may be processed abroad and the finished product sold to a third country. Rule 16A, relating to recovery where sale proceeds are not realized, is not attracted on the facts: the appellant received foreign exchange from the third country purchaser for the garments, which necessarily includes the proportionate price of fabrics used. The adjudicating authority did not show that the appellant claimed drawback in excess of the price of the fabrics exported. The object of drawback as an incentive is to secure zero duty incidence on exports; under the factual matrix the garments (the products realizing foreign exchange) were manufactured through job workers and sale proceeds were realized by the exporter, hence the drawback claim on the fabrics cannot be denied on the ground that no sale was effected to the job worker. [Paras 5]

Drawback claim on fabrics exported to job workers and incorporated into garments sold to a third country is allowable; Rule 16A not attracted.

Merchant exporters purchasing from local market entitled to full rate of duty drawback - non registration of supporting manufacturers - Non registration of supporting manufacturers with Central Excise does not defeat the appellant's drawback claim where manufacturers have not availed Cenvat credit and CBEC clarification accepts purchases from the local market for full drawback. - HELD THAT: - Certificates produced by the appellant showed that the supporting manufacturers were not registered with Central Excise; lack of registration may arise where units are exempted and does not establish non existence. CBEC Circular No.16/2009 Customs clarifies that merchant exporters purchasing goods from the local market are entitled to the full rate of drawback provided they declare the seller's details and that no rebate has been taken. There is no point in the facts challenging Cenvat credit having been taken by those manufacturers. Accordingly, non registration alone cannot be a ground to deny drawback where the statutory/administrative clarification permits merchant exporters to claim drawback on market purchases. [Paras 6]

Drawback cannot be denied merely because supporting manufacturers are not registered; CBEC circular permits merchant exporters to claim full drawback on purchases from local market.

Final Conclusion: Appeal allowed; Order in Original dated 08.04.2010 set aside and appellant's drawback claim accepted with consequential relief, the denial having been unsustainable on the facts and in view of the Board's clarification permitting merchant exporters to claim drawback on market purchases.

Amendment of EXIM Policy by statutory notification - treatment of DTA to SEZ supplies as exports - entitlement to DEPB in lieu of drawback - statutory notification effective from date of issuance - administrative circular cannot amend statutory notification

Entitlement to DEPB in lieu of drawback - treatment of DTA to SEZ supplies as exports - statutory notification effective from date of issuance - Appellant entitled to DEPB benefit in lieu of drawback for supplies from DTA to SEZ made after 05.06.2002 notwithstanding that procedural circular was issued later - HELD THAT: - Notification No. 7/2002-2007 dated 05.06.2002 was issued by the Central Government in exercise of powers under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 and thereby amended the EXIM Policy to treat supplies from DTA to SEZ as exports and to make such supplies eligible for DEPB in lieu of drawback. As a statutory notification effectuating an amendment to the EXIM Policy, the amendment took effect from the date of its issuance. The subsequent Circular No. 25/2003 dated 01.04.2003 was administrative and prescribed the procedural mechanism for claiming DEPB; it could not alter or postpone the legal effect of the statutory notification. While authorities may prescribe procedural conditions for claiming the benefit, they do not have power by administrative circular to deny entitlement from the date the statutory notification became effective. Consequently exports made after 05.06.2002 and before issuance of the circular are covered by the statutory amendment and the appellant's claim falls to be considered on that basis.

Appeal allowed; orders of the High Court and respondents set aside and appellant held entitled to DEPB benefit in lieu of drawback for the relevant supplies; the appellant's application to be processed within two months and benefit accorded subject to fulfillment of prescribed conditions.

Final Conclusion: The statutory notification dated 05.06.2002 amended the EXIM Policy with immediate effect to permit DEPB in lieu of drawback for DTA to SEZ supplies; the subsequent administrative circular prescribing procedure could not postpone or deny that entitlement, and the appellant's claim is to be processed accordingly.

Preventive detention - pre execution access to detention order and grounds - communication of grounds of detention - subjective satisfaction of the detaining authority - effect of surrender/seizure of passport on preventive detention - consideration of representation under Article 22(5) - delay in disposal of representation - execution delay and detenu's conduct - limitations on High Court's power to fix detention duration - COFEPOSA - detention for smuggling

Pre execution access to detention order and grounds - communication of grounds of detention - Whether a person is entitled to obtain copy of the detention order and grounds of detention before execution of an order under the COFEPOSA Act - HELD THAT: - The Court applied binding Supreme Court precedent to hold that there is no entitlement to be supplied with the grounds of detention or a copy of the detention order at the pre execution stage. While the Court noted that a trial court may, in judicial review of a pre execution challenge, direct production of the order to determine maintainability, there is no constitutional or statutory right to insist on pre execution supply of the order of detention and its grounds. Earlier decisions of this Court and the Supreme Court were followed to that effect.

No right to pre execution supply of the detention order or grounds; challenge on that basis fails.

Subjective satisfaction of the detaining authority - COFEPOSA - detention for smuggling - Legality of the subjective satisfaction recorded by the detaining authority in ordering detention under Sections 3(1)(i) and 3(1)(iii) of the COFEPOSA Act - HELD THAT: - The Court examined the grounds of detention and materials considered by the detaining authority, including prior incidents of similar smuggling, intelligence of involvement with an organised racket, multiple trips to Dubai, statements under Section 108 of the Customs Act and the overall factual matrix. The detaining authority had considered bail conditions, passport surrender and prior conduct and nonetheless reached a reasonable conclusion that continued detention was necessary to prevent future prejudicial activity. The Court declined to substitute its view for that of the detaining authority where relevant materials were considered and a reasonable subjective satisfaction recorded. Authorities establishing that single or organised acts may justify preventive detention were applied.

Subjective satisfaction is not vitiated; detention order valid on merits.

Effect of surrender/seizure of passport on preventive detention - subjective satisfaction of the detaining authority - Whether seizure or surrender of passports of the detenues vitiates the detaining authority's satisfaction that detention is necessary - HELD THAT: - The Court distinguished seizure/surrender of passports from a conclusive bar on prejudicial activity. It noted that passports prevent travel abroad but do not restrict movements within the country or the ability to engage in transporting, concealing or keeping smuggled goods. The detaining authority properly took note of bail conditions and passport status yet concluded that the detenues, by reason of past conduct and alleged links with a smuggling network, remained likely to engage in prejudicial activity. Authorities relied upon by petitioners were considered but on facts the Court found seizure/surrender insufficient to vitiate satisfaction.

Seizure or surrender of passports does not, by itself, vitiate the detention order.

Consideration of representation under Article 22(5) - delay in disposal of representation - Whether the representations made by the detenues were considered properly and without unexplained delay in terms of Article 22(5) - HELD THAT: - The Court reviewed the timeline and file records: receipt of files, Advisory Board opinion, confirmation and disposal dates. Applying the test of constitutional mandate requiring expeditious and real consideration (but not an absolute time limit), and having regard to precedents permitting consideration after receipt of Advisory Board report, the Court found that the Central Government and detaining authority gave real and proper consideration to the representations. The delay was explained by reference to processing, forwarding, Advisory Board opinion and other legitimate steps, and did not amount to supine indifference or unexplained delay rendering detention illegal.

Representations were considered properly; no unexplainable delay vitiating continued detention.

Execution delay and detenu's conduct - preventive detention - Whether delay in passing or executing the detention order (including period between alleged prejudicial act and execution) renders the detention unlawful - HELD THAT: - The Court noted the chronology: proposal date, Screening Committee, issuance of detention order, interim litigation by detenues leading to stay, Supreme Court stay of the High Court judgment and eventual execution. The Court held that delay in execution was attributable to the detenues' own litigation and interim protection; a detenu cannot take advantage of delay resulting from his own actions. The passage of time consequent to such interim orders does not, by itself, render detention unnecessary where the detaining authority's satisfaction remains supportable.

Delay in execution, in the facts of this case, does not invalidate the detention.

Limitations on High Court's power to fix detention duration - COFEPOSA - detention for smuggling - Whether the High Court may fix or limit the duration of detention under the COFEPOSA Act when entertaining a writ challenging validity or continued detention - HELD THAT: - The Court explained the statutory scheme of COFEPOSA (reference to Advisory Board, confirmation, and maximum periods) and held that the High Court does not have jurisdiction to truncate or fix the detention period while deciding the validity of detention under Article 226. The Court may declare an order illegal or order release where detention is unlawful, but it cannot substitute the statutory scheme by prescribing detention duration.

High Court cannot limit or fix duration of detention under the COFEPOSA Act in exercise of writ jurisdiction; relief limited to declaring detention illegal or ordering release where warranted.

Final Conclusion: Applying settled precedent and the statutory scheme of COFEPOSA, the Court found no legal infirmity in the detention orders or in the manner representations were considered; the petitioners' contentions failed and the writ petitions were dismissed.

Confiscation of imported goods - valuation enhancement based on chartered engineer's report - classification of goods - admission/consent to findings at adjudication stage - appellate entertaining of fresh grounds - redemption fine - penalty under Section 112(a) of the Customs Act, 1962 - principle of reducing redemption fine to wipe out profit while considering detention, demurrage and legal costs

Valuation enhancement based on chartered engineer's report - classification of goods - admission/consent to findings at adjudication stage - appellate entertaining of fresh grounds - Whether grounds relating to enhancement of assessable value and licensing/classification of the imported second hand machines could be entertained at the appellate stage. - HELD THAT: - The Tribunal noted that the importer had declared the goods under CTH 84433930 (ordinary photocopying machines) in the bills of entry and that multifunctional machines, which have copying facility, are classifiable under CTH 84433100. More importantly, the Tribunal recorded that valuation and licensing/classification issues were not agitated before the Adjudicating Authority and that the Adjudicating Authority's order (paras 10-13) indicates acceptance of the enhanced assessable value and DGFT restriction. Given the appellant's failure to raise these matters below and the effective consent to the findings at adjudication, the Tribunal declined to entertain these fresh grounds on appeal. [Paras 5]

Grounds on valuation and licensing/classification not entertained on appeal since they were not raised before the Adjudicating Authority and the Adjudicating Authority's findings were effectively accepted by the appellant.

Redemption fine - penalty under Section 112(a) of the Customs Act, 1962 - principle of reducing redemption fine to wipe out profit while considering detention, demurrage and legal costs - Whether the quantum of redemption fine and penalty imposed by the Adjudicating Authority was excessive and required reduction. - HELD THAT: - The Tribunal examined the quantum imposed by the Adjudicating Authority (redemption fine of nearly 30% of the enhanced value and penalty of 10%) and considered earlier judicial treatment in appeals involving the same importer where similar impositions had been reduced to 10% (redemption fine) and 5% (penalty). The Tribunal observed the relevant reasoning that redemption fine aims to eliminate profit from import of restricted goods and that costs incurred by the importer (detention, demurrage, legal expenses) are relevant in assessing the net effect of the fine. Applying these principles and the precedents relied upon, the Tribunal concluded that the fines imposed were excessive and ought to be reduced. [Paras 6, 7]

Redemption fine and penalty reduced to 10% and 5% respectively of the value assessed by the department; appeal allowed to that extent with consequential relief.

Final Conclusion: Appeal dismissed insofar as fresh grounds on valuation and classification/licensing were sought to be raised at the appellate stage; appeal allowed to the limited extent of reducing the redemption fine and penalty to 10% and 5% respectively of the value assessed by the department, with consequential reliefs granted.

Burden of proof in cases of seized goods - Section 123 of the Customs Act - burden on person in possession to prove lawful import - Illicit import / smuggling - Absolute confiscation of smuggled goods - Redemption under section 125 of the Customs Act - Penalty in rem and penalty in personam - Circumstantial evidence and presumption against the possessor

Section 123 of the Customs Act - burden on person in possession to prove lawful import - Circumstantial evidence and presumption against the possessor - Illicit import / smuggling - Seized gold was smuggled goods and the burden to prove lawful import lay on the appellant who failed to discharge it - HELD THAT: - The Tribunal held that the seized gold bore foreign markings and there was no credible evidence of lawful import. The Department established a prima facie case by direct and cogent circumstantial evidence - recovery from the appellant, his use of another person's air ticket, contemporaneous statements under section 108, and unrebutted links to other members of the smuggling racket. Given that Section 123 places on the person from whose possession goods are seized the burden of proving they are not smuggled, and that many material facts lay peculiarly within the appellant's knowledge, his failure to produce cogent evidence (including the claimed duty-paid receipt and the alleged exchange with a stranger) justified drawing the adverse inference and treating the goods as smuggled. The Tribunal applied settled principles that circumstantial evidence may discharge the Department's initial onus where lawful import is not shown and the conduct of the possessor supports the inference of smuggling. [Paras 11, 15, 16]

Seized gold held to be smuggled goods; appellant failed to discharge the burden of proof of lawful import.

Absolute confiscation of smuggled goods - Redemption under section 125 of the Customs Act - Penalty in rem and penalty in personam - Redemption option granted by Commissioner (Appeals) was illegal and the confiscation and penalty imposed by the adjudicating authority are to be upheld - HELD THAT: - Having concluded that the goods were smuggled and that the appellant did not prove lawful import, the Tribunal held that absolute confiscation was inevitable and redemption under section 125 was impermissible. The Tribunal explained that confiscation is a penalty in rem enforceable against the goods once smuggling is established; there is no immunity from such penalty where smuggling is proved. The Commissioner (Appeals) erred in permitting redemption on payment of a fine and in basing the fine on market value at a later date. Consequently, the appellate authority's order granting redemption was set aside and the original order of confiscation and the person-specific penalty were confirmed. [Paras 11, 12, 17, 18]

Order of Commissioner (Appeals) allowing redemption set aside; absolute confiscation and penalty imposed by adjudicating authority confirmed and appeal dismissed.

Final Conclusion: The Tribunal dismissed the appeal: the seized gold was held to be smuggled goods for which the appellant failed to prove lawful import; the grant of redemption by the Commissioner (Appeals) was set aside; absolute confiscation and the penalty imposed by the adjudicating authority are confirmed.

Import of drug requiring import licence (Form 10) - fraud and collusion vitiating transaction - confiscation in rem - penalty in personam - lifting the corporate veil - redemption and re-export not conferring immunity

Import of drug requiring import licence (Form 10) - Impugned consignment of Tranexamic Acid is a "drug" within the Drugs and Cosmetics Act and import thereof required a licence in Form 10. - HELD THAT: - The Adjudicating Authority relied on the Assistant Drug Controller's test report and laboratory examination, which established that the imported material was Tranexamic Acid falling within the definition of "drug". The Tribunal accepted that Rule 23 and Rule 24A of the Drugs and Cosmetics Rules require an import licence and registration; the appellant's reliance on Rule 45 was found misplaced because that rule concerns duties of a Government analyst, not exemption from licence. The appellant's contention that the goods were not drugs or that no licence was required for an overseas exporter was rejected on the basis of testing and statutory requirements. [Paras 10, 12, 18]

The consignment was held to be a drug and its import required a Form 10 licence; the appellants' contention to the contrary was rejected.

Fraud and collusion vitiating transaction - lifting the corporate veil - penalty in personam - The appellants were the real importers and, by collusion and fraudulent devices, sought to evade statutory control; therefore they are liable in personam to penal consequences. - HELD THAT: - The Tribunal recorded findings that payment was made through the appellant's bank accounts, invoices named the appellant as buyer, and documentary devices (declarations, attempted amendment of MAWB/HAWB, and proxy filing by M/s. DHL) were engineered to evade scrutiny. Statements and banking evidence led to the conclusion that one appellant was the mastermind and another the proprietor; the benami allegation did not exculpate the claimed proprietor. On these facts, the Tribunal concluded that fraud and collusion were established and that lifting the corporate veil was warranted to attribute responsibility and impose penalties in personam. [Paras 15, 16, 17, 19, 24]

Fraud and collusion by the appellants were established; they were held to be the real importers and liable to in personam penalties.

Confiscation in rem - redemption and re-export not conferring immunity - Absolute confiscation of the impugned goods was warranted; permitting redemption and re-export did not grant immunity to the appellants and does not preclude confiscation in rem where fraud is proved. - HELD THAT: - The Tribunal applied the principle that confiscation in rem requires prima facie proof of offending goods being smuggled, and that where fraud and collusion are established the goods become no man's property. The earlier acts of amending bills and attempted re-designation of the importer were held to be part of the fraudulent scheme; therefore, absolute confiscation was ordered. Although Customs had permitted re-export on payment of redemption fine, the Tribunal found that such redemption did not absolve the appellants of penal consequences and directed the Board and the DG of Revenue Intelligence to take appropriate steps in view of the detriment to Revenue. [Paras 26, 27, 28]

Absolute confiscation of the impugned goods ordered; re-export/redemption does not confer immunity from penal consequences where fraud is established.

Lifting the corporate veil - Registrar/authorities were directed to investigate nexus of M/s. DHL Logistics Pvt. Ltd. and past imports to ascertain whether it acted as a proxy and whether past imports were covered by licences; a copy of the order was to be sent to the Chairman, CBE&C and DG, Revenue Intelligence. - HELD THAT: - Given the finding that M/s. DHL acted as a console/proxy and that ownership claims changed during investigation, the Tribunal considered it necessary in the public interest that the Director General of Revenue Intelligence and the Chairman, CBE&C examine whether DHL engaged in trading of the drug and whether prior imports were legitimately licensed. This is an administrative investigative direction arising from the factual findings of collusion and dubious ownership claims. [Paras 24, 28]

A copy of the order was directed to be sent to the Chairman, CBE&C and the DG, Revenue Intelligence for appropriate inquiry into M/s. DHL and past imports.

Final Conclusion: Appeals dismissed; Tribunal found the consignment to be a drug requiring Form 10 licence, held the appellants guilty of fraud and collusion as real importers, ordered absolute confiscation of the goods, and directed the Chairman, CBE&C and DG, Revenue Intelligence to investigate the role and past imports of the console/proxy party.

Summary order. Civil appeal dismissed; delay condoned.

Summary order. The special leave petition is dismissed; pending application disposed of.

"suit or other legal proceeding" in Section 446(1) - criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 - purpose of Section 446 - safeguarding assets in winding up - ejusdem generis - special statute prevailing over general statute

"suit or other legal proceeding" in Section 446(1) - criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 - purpose of Section 446 - safeguarding assets in winding up - ejusdem generis - Whether the expression 'suit or other proceedings' in Section 446(1) of the Companies Act, 1956 includes criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 - HELD THAT: - The Court held that Section 446(1) is directed to proceedings which can appropriately be dealt with by the Company Court in winding up, the dominant purpose being to safeguard the company's assets and to ensure equitable and expeditious distribution to creditors. Proceedings that bear directly on realization of assets or are capable of being disposed of by the winding-up court fall within the expression 'suit or other legal proceeding'. By contrast, Section 138 NI Act creates a penal, personal liability to protect commercial credibility and does not contemplate a remedy directed to the company's assets. Reliance was placed on the reasoning in S.V. Kondaskar (AIR 1972 SC 878) and other High Court decisions to conclude that 'other legal proceeding' must be read ejusdem generis with 'suit' and limited to matters within the competence of the winding-up court. The Court further noted that later special enactments may override general provisions, but on the statutory scheme and precedents the proper construction is that criminal complaints under Section 138 NI Act are not proceedings within Section 446(1). Having considered the conflicting coordinate-bench decisions, the Court affirmed the narrower construction and answered the reference accordingly. [Paras 12, 17, 24, 31, 36]

The expression 'suit or other proceedings' in Section 446(1) of the Companies Act, 1956 does not include criminal complaints under Section 138 of the Negotiable Instruments Act, 1881.

Final Conclusion: The Reference is answered in favour of the petitioner: Section 446(1) does not extend to prosecutions under Section 138 NI Act; the matter is remitted to the learned Single Judge to proceed with Writ Petition No.1280 of 2010.

Scheme of Arrangement - Demerger - Sanction of scheme under Sections 391-394, Companies Act, 1956 - Regulatory compliance (FEMA and RBI) - Accounting treatment in demerger - Transfer of liabilities in demerger - Filing, authentication and stamp adjudication - Dispensation of drawn up order

Scheme of Arrangement - Demerger - Sanction of scheme under Sections 391-394, Companies Act, 1956 - Accounting treatment in demerger - Regulatory compliance (FEMA and RBI) - Sanction of the Scheme of Arrangement for demerger of the Industrial Undertaking of Crystal Ceramic Industries Pvt. Ltd. into Excellent Glass and Ceramic Pvt. Ltd. - HELD THAT: - The Court considered the petition, the report of the Regional Director raising observations on accounting treatment, FEMA/RBI compliance, schedule of properties and Income Tax Department comments, and the petitioner companies' replies. The petitioners explained that the accounting issue raised was based on a misconception (Accounting Standard applicability in amalgamation rather than demerger), undertook to comply with FEMA/RBI requirements if applicable, produced the schedule of properties (to be lodged after sanction) and noted that any tax liability attributable to the demerged undertaking would transfer to the resulting company as provided in the Scheme. On the basis of the record, the Court found it appropriate to grant sanction to the Scheme of Arrangement. [Paras 14]

The Scheme of Arrangement is sanctioned.

Transfer of liabilities in demerger - Income tax scrutiny and liability - Effect of the Scheme on tax liabilities and treatment of Income Tax Department observations. - HELD THAT: - The Regional Director noted that the Demerged Company was under scrutiny for Assessment Year 2014-15 and that final tax liability would follow completion of assessment. The Scheme expressly provides that any liability of the Demerged Company attributable to the demerged undertaking shall stand transferred to the Resulting Company. The Resulting Company is accordingly liable to satisfy any demand relating to the demerged undertaking, subject to pursuing appropriate appellate remedies. [Paras 13]

Liabilities attributable to the demerged undertaking shall transfer to the resulting company, which must satisfy any tax demands subject to available appellate remedies.

Filing, authentication and stamp adjudication - Dispensation of drawn up order - Directions for post-sanction formalities including lodging for stamp adjudication, filing with Registrar of Companies and authentication. - HELD THAT: - The Court directed the petitioner companies to lodge a copy of the order and the Scheme, duly authenticated by the High Court Registrar, with the Superintendent of Stamps for adjudication within the time specified. The petitioners were also directed to file a copy of the order and the Scheme with the Registrar of Companies electronically (with the requisite form) and in physical form as required. The Court dispensed with the filing and issuance of a separately drawn up order and permitted authorities to act on the authenticated copy issued by the Registrar, who was directed to issue such authenticated copy expeditiously. [Paras 16, 17, 18]

Petitioners to lodge authenticated order and Scheme for stamp adjudication within 60 days, file with Registrar of Companies electronically and physically, and authorities may act on the authenticated copy; drawn up order dispensed with.

Costs - Allocation of costs in respect of the petitions. - HELD THAT: - After sanctioning the Scheme, the Court assessed and fixed the costs of the petitions to be paid to the Assistant Solicitor General representing the Regional Director. [Paras 15]

Costs of the petitions fixed at Rs. 7,500 each payable to the Assistant Solicitor General of India.

Final Conclusion: The High Court sanctioned the Scheme of Arrangement for demerger, directed compliance with post-sanction formalities including stamp adjudication and filing with the Registrar of Companies, confirmed transfer of liabilities attributable to the demerged undertaking to the resulting company, fixed costs, and dispensed with filing a separately drawn up order.

Preventive detention under COFEPOSA - Hawala transactions - prejudicial activities to augmentation of foreign exchange resources - satisfaction of the detaining authority - knowledge and mens rea in detention cases - defence of signing blank cheques - challenge based on applicability of Foreign Exchange Management Act

Preventive detention under COFEPOSA - Hawala transactions - prejudicial activities to augmentation of foreign exchange resources - satisfaction of the detaining authority - Validity of the detention order under COFEPOSA based on the detenue's involvement in Hawala transactions and prejudice to the country's foreign exchange resources. - HELD THAT: - The detaining authority's order (reproducing paragraphs 41-43 of the detention order) records that the detenue's bank account received and disbursed large sums routed through unauthorised channels as part of a Hawala racket, and that disbursements from the detenue's account amounted to Rs. 40.52 crores. Having examined the detention order and the High Court's detailed consideration, the Court found the detaining authority's satisfaction-concluding that the detenue engaged in activities prejudicial to augmentation and conservation of foreign exchange and was likely to continue such activity-warranted detention under COFEPOSA. The Court did not find any demonstrable error in the satisfaction reached by the detaining authority or in the High Court's upholding of that satisfaction.

Detention order under COFEPOSA upheld; satisfaction of the detaining authority sustained and valid.

Knowledge and mens rea in detention cases - defence of signing blank cheques - challenge based on applicability of Foreign Exchange Management Act - Sufficiency of the detenue's defences-lack of knowledge, having signed blank cheques, and contention that transaction did not constitute an offence under Section 3 of the Foreign Exchange Management Act. - HELD THAT: - The appellant conceded that the bank account in the detenue's name was opened, money was deposited into it, and cheques were issued from it. The pleaded defences that the detenue did not know about disbursements and had been made to sign blank cheques were considered but found insufficient to negate the material findings recorded in the detention order. The Court further rejected the submission that the transactions could not constitute an offence under the Foreign Exchange regime as a ground to invalidate the preventive detention. Given the factual findings and the detaining authority's recorded reasons, these defences did not vitiate the order of detention.

Defences of lack of knowledge, signing blank cheques and contention on applicability of the FEMA provision do not invalidate the detention; they are insufficient to overturn the detention order.

Final Conclusion: The appeal is dismissed; the High Court's judgment upholding the preventive detention order is affirmed and the detention order is maintained.

Maintainability of writ petition - cause of action - forum conveniens - centralised registration and situs of adjudicating authority - deemed sale and double levy (VAT vis-a -vis service tax) - stay of demand subject to bank guarantee

Maintainability of writ petition - cause of action - forum conveniens - centralised registration and situs of adjudicating authority - deemed sale and double levy (VAT vis-a -vis service tax) - Writ petition under Article 226 is maintainable in the Delhi High Court despite centralised service-tax registration at Mumbai. - HELD THAT: - The Court found that a part of the cause of action arises within the territorial jurisdiction of the Delhi High Court because (i) many Master Lease Agreements were executed in Delhi and stamp duty was paid to the Government of NCT of Delhi, and (ii) the antecedent Show Cause Notices covered transactions relating to vehicle leases in Delhi as well as elsewhere. Applying the principles in the cited Supreme Court decisions and the Five-Judge Bench decision in Sterling Agro Industries Ltd., the Court held that even a minuscule part of the cause of action arising within the forum suffices to make the petition maintainable, subject to the High Court's discretionary application of the doctrine of forum conveniens. Although the availability of efficacious alternative remedies (appeal to CESTAT, Bombay Bench and invoke remedies before the Bombay High Court) was noted, the Court concluded that those facts did not oblige it to decline jurisdiction because the relief sought (a nationwide declaration that the transactions are not subject to service tax as they are "deemed sales") would have extraterritorial effect and the SCNs themselves covered Delhi transactions; consequently the Court exercised its discretion to entertain the petition. [Paras 4, 5, 7, 8, 9]

The petition is maintainable in the Delhi High Court and the Court will proceed to consider the petition on merits.

Stay of demand subject to bank guarantee - deemed sale and double levy (VAT vis-a -vis service tax) - Interim stay of enforcement of the impugned service-tax demand granted subject to furnishing a bank guarantee. - HELD THAT: - Having noted the petitioner's plea that the transactions sought to be taxed as service are already treated as "deemed sales" and VAT is being paid under the DVAT Act, the Court directed a respite in enforcement. The stay is confined to enforcement of the demand for duty, interest and penalty during the pendency of the petition, and is made conditional upon the petitioner furnishing a bank guarantee equal to 10% of the impugned service-tax demand (excluding penalty and interest) to the satisfaction of the Commissioner within two weeks. The direction is interlocutory and limited to enforcement measures pending adjudication on merits. [Paras 12]

Enforcement of the demand is stayed during the pendency of the petition on the petitioner furnishing a bank guarantee as directed.

Final Conclusion: The Delhi High Court held the writ petition maintainable because part of the cause of action arose in Delhi and the relief sought has nationwide effect; the Court granted an interim stay of enforcement of the impugned service-tax demand subject to the petitioner furnishing a bank guarantee of 10% of the demand (excluding penalty and interest).

Condonation of delay - sufficient cause - law of limitation - exercise of judicial discretion - vicarious responsibility for counsel's omission - liberal approach for short delay and strict approach for inordinate delay

Condonation of delay - sufficient cause - law of limitation - vicarious responsibility for counsel's omission - Whether the appellant has shown sufficient cause to condone 638 days' delay in filing the appeal. - HELD THAT: - The Court applied the established principles that the law of limitation is founded on public policy and that Section 5 permits condonation of delay where "sufficient cause" is shown, the concept being elastic and to be addressed by judicial discretion on the facts of each case. Authorities were noted for the proposition that a liberal approach is permissible for short delays while a stricter standard applies to inordinate delays. Applying these principles, the Court examined the appellant's explanation that the delay resulted from the earlier counsel's omission and the appellant's subsequent reliance on the counsel's (alleged) oral communication that the department's appeal had been dismissed. The Court found the explanation implausible and unsubstantiated: there was no affidavit from the counsel or other corroborative material; the appellant had not sought the certified copy of the Tribunal's order promptly despite it being critical to its records; and the narrative was held to be an inadequate and inarticulate attempt to excuse an inordinate delay of 638 days. On these facts the Court concluded that the appellant had not acted with the requisite diligence and had failed to establish circumstances beyond its control that made the delay inevitable. Consequently, the plea for condonation of delay was rejected and the appeal held to be time-barred. [Paras 4, 9, 10, 11]

Application for condonation of delay dismissed; appeal dismissed as barred by time.

Final Conclusion: The High Court dismissed the application for condonation of delay, finding no sufficient cause for the 638-day delay and consequently dismissed the appeal as time-barred.

Principles of natural justice - right to be represented at hearing - use of third-party report and duty to disclose with opportunity to rebut - judicial review in writ jurisdiction confined to procedural fairness - remand for fresh adjudication subject to conditional pre-deposit

Principles of natural justice - right to be represented at hearing - use of third-party report and duty to disclose with opportunity to rebut - Whether the impugned adjudicatory order was vitiated by breach of principles of natural justice in (a) not affording the petitioner an opportunity to be represented by its consultant at the final hearing and (b) relying on a report relating to another party without supplying a copy or affording a chance to deal with it. - HELD THAT: - The Court limited its review to the sanctity of the process rather than merits. It noted that oral advocacy at a hearing can be materially different from reliance solely on written submissions and that the absence of the petitioners' consultant may have handicapped their ability to present their case. The Court further observed that the impugned order partly rested on a report obtained in respect of a different party (Pratap Synthetics Limited) which was referred to in the adjudication without any indication that the petitioners had been furnished with a copy or given an opportunity to address its contents. Reliance on material not disclosed to the affected party, without affording a chance to meet it, offends basic standards of fair procedure. Having regard to these procedural deficiencies, the Court found the adjudicatory process unsatisfactory despite the commissioner having otherwise addressed classification tests.

The adjudicatory order is set aside insofar as it is tainted by the procedural defects identified, and the matter requires fresh consideration after affording the petitioners an opportunity to be represented and to deal with the report relied upon.

Judicial review in writ jurisdiction confined to procedural fairness - remand for fresh adjudication subject to conditional pre-deposit - What remedial course should be adopted in view of the procedural infirmities and whether the Court should exercise writ jurisdiction despite the availability of an appellate remedy requiring a substantial statutory pre-deposit. - HELD THAT: - The Court acknowledged the department's contention about the availability of an appeal under the statutory scheme but accepted the petitioners' submission that the required pre-deposit for preferring the appeal would be prohibitively high and could render the appellate remedy illusory. Exercising limited superintendence in this extraordinary jurisdiction to correct procedural unfairness, the Court directed that the impugned order be set aside and the matter remitted to the concerned commissioner for fresh consideration. As a condition for entertaining the revisitation, the petitioner company was required to make a pre-deposit of Rs. 5 lakh; if the commissioner, after fresh hearing, maintains the original substantive conclusion the deposit shall stand forfeited, whereas if the commissioner accepts the petitioners' claim the deposit shall be refunded without interest. The remand is to be effected within four weeks of receipt of a copy of the Court's order and after affording the petitioners an opportunity to be represented at hearing.

The petition is allowed to the limited extent of setting aside the impugned order and remitting the matter for fresh adjudication on the stated conditional pre-deposit and procedural safeguards.

Final Conclusion: The writ petition is allowed in part: the impugned order dated December 22, 2015 is set aside for breach of fair procedure and the matter is remitted to the concerned commissioner for fresh decision after affording the petitioners an opportunity to be represented and to deal with the report relied upon; this is ordered subject to a conditional pre-deposit as directed by the Court.

Manufacture - assembly and re-assembly of components - packing with brand name does not create a new product - limitation bar - proviso to Section 11-A(1) of the Central Excise Act, 1944 - binding precedent of the Apex Court on assembly not amounting to manufacture

Manufacture - assembly and re-assembly of components - packing with brand name does not create a new product - binding precedent of the Apex Court on assembly not amounting to manufacture - Whether assembly of different parts of decorative lamp shades and chandeliers by M/s Kapoor Lamp Shade Company (Factory Shop) amounts to manufacture attracting Central Excise duty. - HELD THAT: - The Tribunal found as a fact that the Factory Shop procured components (including from its associated Manufacturing Unit), fitted and re-assembled them, and then packed the items with its logo and code. Applying the binding Apex Court authority that assembling of manufactured parts does not amount to manufacture, the Tribunal concluded that no new product was created and therefore the activity did not attract excise duty. The High Court accepted the Tribunal's conclusion, noting that the question is no longer res integra and that the Tribunal rightly held that procuring manufactured items and packing them under the assessee's brand did not amount to manufacture.

Assembly and re-assembly of the components by the Factory Shop does not amount to manufacture; no excise liability arises on that ground.

Limitation bar - proviso to Section 11-A(1) of the Central Excise Act, 1944 - Whether the duty demand raised by the Revenue was barred by limitation and whether the proviso to Section 11-A(1) could be invoked by the Revenue. - HELD THAT: - The Tribunal held that the demand was otherwise barred by limitation. It further held that the Revenue could not take shelter under the proviso to Section 11-A(1) because it was fully aware of the existence and activities of the assessee's unit. The High Court accepted these findings, adopting the Tribunal's reasoning that limitation barred recovery and the proviso was inapplicable on the facts.

The demand is barred by limitation and the proviso to Section 11-A(1) is not available to the Revenue in the circumstances of this case.

Final Conclusion: The appeal is dismissed: the Tribunal correctly held that assembly and packing did not constitute manufacture attracting excise duty, and that the demand was barred by limitation with the proviso to Section 11-A(1) inapplicable on the facts.

Recovery of central excise duty under section 11(2) of the Central Excise Act - Requirement of prior adjudication before invoking recovery - Prohibition on coercive or summary recovery without pre-ascertainment of liability - Interim order in arbitration not a licence for immediate recovery

Recovery of central excise duty under section 11(2) of the Central Excise Act - Requirement of prior adjudication before invoking recovery - Prohibition on coercive or summary recovery without pre-ascertainment of liability - Interim order in arbitration not a licence for immediate recovery - Validity of the notice directing the petitioners to pay disputed central excise duty under section 11(2) without prior adjudication - HELD THAT: - The Court held that the Revenue cannot issue a notice seeking to recover sums from the petitioners by way of coercive or summary measures where the obligation to pay and the quantum of duty have not been pre-ascertained by appropriate proceedings. If the Revenue possesses material to proceed against both the petitioners and the supplier, it must initiate appropriate adjudicatory proceedings to determine what is due to the Government; only thereafter can subsection (2) of section 11 be invoked. Reliance on an interim order in arbitration between the private parties does not justify issuance of a recovery notice directed at the petitioners without such prior determination. In the absence of prior ascertainment, the notice amounted to an impermissible mode of recovery and could not be sustained. [Paras 8, 9, 10]

Impugned notice quashed and set aside; writ petition allowed.

Final Conclusion: The notice requiring the petitioners to pay the alleged duty and interest under section 11(2) was quashed for lack of prior adjudication and pre-ascertainment of liability; the Revenue remains free to initiate appropriate proceedings to determine and recover any sums due in accordance with law.

Remand for fresh consideration - retrospective amendment - CENVAT credit reversal - functus officio - assessment of compliance with statutory conditions

Remand for fresh consideration - functus officio - Legitimacy of the Tribunal's order setting aside earlier orders and remanding the matter to the Commissioner for decision. - HELD THAT: - The Tribunal observed that after the impugned orders were passed amendments (Finance Act No.10, 2010) affecting reversal of CENVAT credit were introduced and that the assessee had submitted a letter dated 4th November, 2010, requesting adjustment/regularisation under the amended scheme. The Tribunal could not ascertain from the record whether the assessee had satisfied the conditions for benefit under the retrospective provision and therefore directed the Commissioner to examine the application and determine entitlement. The High Court, after perusing the Tribunal's order and the communication from the Commissioner, held that the Tribunal was not in error in remanding the matter since it was necessary to verify compliance with the statutory conditions and the factual claims made in the assessee's application rather than treating the Commissioner as functus officio. The Court found no perversity or error of law in the Tribunal requiring the departmental officer to consider the assessee's submission afresh. [Paras 5, 6, 7, 8, 12]

Tribunal's remand upheld and appeal dismissed; no substantial question of law to entertain against the remand.

CENVAT credit reversal - retrospective amendment - assessment of compliance with statutory conditions - Whether the assessee had complied with conditions to avail benefit of retrospective amendment and whether the Commissioner should verify and grant adjustment. - HELD THAT: - The Tribunal recorded that the assessee filed a letter dated 4th November, 2010, claiming reversal/adjustment under the retrospective amendment and enclosing records including CENVAT registers and a Chartered Accountant's certificate. The material on record did not make it clear if the statutory conditions for regularisation under the Finance Act, 2010 were satisfied. Consequently the Tribunal set aside the earlier orders and remanded the matter to the Commissioner to examine the application's sufficiency, verify the claimed reversals and related documents, and decide entitlement in accordance with law. The High Court agreed that the factual and statutory verification remains open and that the Commissioner can still scrutinise and act on the application. [Paras 6, 8, 9, 11, 12]

Issue remanded to the Commissioner for verification of compliance with the retrospective amendment and adjudication of the assessee's application.

Final Conclusion: The Tribunal's order remanding the matters to the Commissioner for determination of the assessee's claim under the retrospective amendment was upheld; the appeal is dismissed and the question of the assessee's entitlement is remanded to the Commissioner for verification and decision.

Penalty cannot be imposed on mere assumption or presumption - diversion of finished goods - absence of material linking the respondent to the alleged diversion - factual controversy not raising a question of law

Penalty cannot be imposed on mere assumption or presumption - absence of material linking the respondent to the alleged diversion - Whether penalty could be imposed on the respondent for alleged diversion of finished goods in the absence of material establishing his involvement. - HELD THAT: - The Tribunal found on record that the goods were received by the principal noticee and that there was no material implicating the present respondent in the alleged diversion of finished goods. Applying the settled legal principle that a penalty cannot be imposed solely on assumptions or presumptions and without any supporting basis, the Tribunal concluded that imposition of penalty on the respondent was not justified. The High Court agreed with this factual appraisal and the legal proposition applied by the Tribunal, holding that the matter was essentially factual and did not give rise to any question of law.

Appeal dismissed; penalty cannot be sustained in the absence of material linking the respondent to the alleged diversion.

Final Conclusion: The High Court upheld the Tribunal's factual finding that there was no material to show the respondent's involvement in diversion of finished goods and endorsed the legal principle that penalty cannot be imposed on mere assumption or presumption; the appeal is dismissed.

Summary order. Appeals dismissed as devoid of merit; delay condoned.

Summary order. Appeals dismissed on the ground that the tax amount involved is negligible.

Classification of goods under sales tax schedules - construction of taxing statute - common parlance test - specific schedule entry prevailing over residuary entry - powders from which non-alcoholic beverages are prepared

Powders from which non-alcoholic beverages are prepared - classification of goods under sales tax schedules - specific schedule entry prevailing over residuary entry - common parlance test - construction of taxing statute - The said products of the respondent-dealers are classifiable under Schedule Entry C-107 (11)(g) and not under Residuary Schedule Entry E-1 for the relevant period 15.01.2011 to 31.03.2013. - HELD THAT: - The Court held that Schedule Entry C-107 (11)(g) is clear and unambiguous and covers "powders, tablets, cubes, crystals and other solids or liquids from which non-alcoholic beverages and soups are prepared." The products in question are powders which, when mixed with potable liquids such as water or milk, yield potable drinks; therefore they fall within the ordinary meaning of "beverages" (a drink other than water). A product being perceived as a "health drink" or having nutritive value does not exclude it from the term "beverages". The residuary Entry E-1 can be invoked only when a liberal construction of the specific entry cannot cover the goods; given the clear wording and legislative history, the specific entry overrides the general residuary entry. The Tribunal's reasoning and conclusion that the powders are covered by C-107 (11)(g) for the relevant period were affirmed. [Paras 12, 14, 16]

The Tribunal's classification of the products under Schedule Entry C-107 (11)(g) for the relevant period is upheld.

Final Conclusion: The appeals are dismissed; the Tribunal was right to classify the products under Schedule Entry C-107 (11)(g) for 15.01.2011 to 31.03.2013 and no costs are awarded.

Principles of natural justice - lack of application of mind in administrative orders - quashing of detention orders for failure to state grounds - non-speaking and cyclostyled orders - detention of goods under the Gujarat Value Added Tax Act

Principles of natural justice - quashing of detention orders for failure to state grounds - non-speaking and cyclostyled orders - lack of application of mind in administrative orders - Validity of the detention order dated 22.03.2016 passed under section 70A of the Gujarat Value Added Tax Act - HELD THAT: - The detention order was quashed on two independent grounds. First, the order violated the principles of natural justice because the statutory notice was issued to the driver at 02:45 p.m. calling for production by 03:40 p.m., and the detention order was passed at 04:00 p.m., thereby affording no reasonable opportunity of hearing to the petitioners. Second, the order manifestly lacked application of mind and was non-speaking: it was a cyclostyled form containing several blanks, failed to specify the nature of non-compliance or the documents not produced, incorrectly recorded that action was taken under section 67(6) (where no such search action had been taken), and contained no particulars showing why detention was justified. For these reasons the order could not be sustained and stood vitiated. [Paras 9, 11]

Impugned detention order dated 22.03.2016 quashed and set aside; goods, invoice and lorry receipt to be released forthwith.

Detention of goods under the Gujarat Value Added Tax Act - Applicability of section 70A of the Gujarat Value Added Tax Act to goods in transit - HELD THAT: - The court declined to decide the larger question whether section 70A applies to goods in transit where requisite documents are produced. Having quashed the impugned order on procedural and non-speaking order grounds, the court expressly left open the controversy on applicability of section 70A to the facts of this case and permitted the petitioners to agitate that issue in an appropriate proceeding. [Paras 10]

Applicability of section 70A to goods in transit left open for consideration in an appropriate case.

Final Conclusion: The petition is allowed; the detention order dated 22.03.2016 is quashed for breach of natural justice and lack of application of mind, the detained goods and accompanying documents are to be released forthwith, and the question of the statutory applicability of section 70A to goods in transit is left open for future adjudication.

Inclusion of rented residential property in net wealth - exemption under section 5(vi) of the Wealth Tax Act - choice of residential property for exemption where assessee owns multiple properties - charging provision of net wealth

Inclusion of rented residential property in net wealth - charging provision of net wealth - Delhi residential premises taken on lease by the assessee is not includible in the assessee's net wealth. - HELD THAT: - The Tribunal upheld the CWT(A)'s finding that the Delhi house at 26, Golf Link was occupied by the assessee as a tenant under a lease and rent paid was admitted and claimed as expenditure in income-tax returns. On the material on record there was no basis to treat the tenanted premises as an asset "belonging to" the assessee for wealth-tax purposes. The Revenue did not place any statutory provision or binding precedent to show that a leased residential premises so occupied by a tenant can be assessed as the tenant's wealth. Having examined the Assessing Officer's and appellate findings, the Tribunal concluded that the Delhi property fell outside the purview of taxable assets and that the CWT(A) rightly held it to be not includible in the assessee's net wealth. [Paras 5, 6]

Appeal dismissed on this ground; Delhi rented house not taxable in assessee's net wealth.

Exemption under section 5(vi) of the Wealth Tax Act - choice of residential property for exemption where assessee owns multiple properties - Assessee entitled to claim exemption under section 5(vi) in respect of Baroda property once the Delhi leased premises is held not to be an owned asset. - HELD THAT: - Given the CWT(A)'s correct conclusion that the Delhi premises was not an owned asset of the assessee, the Tribunal agreed that the assessee could elect which of his owned properties to treat as his residence for the purpose of claiming exemption. The CWT(A) accepted the assessee's choice to treat the Baroda property as his residence and directed deletion of the addition of wealth in respect of that property. The Revenue offered no distinguishing facts for the two assessment years and no persuasive legal argument to displace the appellate finding. [Paras 5, 7]

Addition in respect of Baroda property deleted and exemption under section 5(vi) (and directed grant of section 5(c) benefit for the other year) upheld.

Final Conclusion: Both Revenue appeals for assessment years 2004-05 and 2005-06 are dismissed; the Tribunal affirms that the leased Delhi residence is not includible in the assessee's net wealth and upholds the appellate authority's grant of exemption for the Baroda property.

Definition of 'motor vehicle' in Section 2(28) of the Motor Vehicles Act, 1988 - liability for registration and payment of taxes under the Motor Vehicles Act - classification under Central Excise Tariff not determinative for Motor Vehicles Act adjudication

Definition of 'motor vehicle' in Section 2(28) of the Motor Vehicles Act, 1988 - liability for registration and payment of taxes under the Motor Vehicles Act - Excavators owned by the appellant fall within the meaning of 'motor vehicles' as defined in Section 2(28) of the Motor Vehicles Act, 1988, and are liable for registration and payment of taxes under the Act. - HELD THAT: - The Court examined the definition of 'motor vehicle' in Section 2(28) of the Act and the factual description of the excavators on the record. It held that the three-judge decision in Goodyear India Ltd. arose in the distinct context of Central Excise Tariff classification and tax rates for tyres, and therefore has no application to the statutory meaning of 'motor vehicle' under the Motor Vehicles Act. The Court placed reliance on and respectfully agreed with the reasoning and conclusions reached in the two-judge Bench decisions in Natwar Parikh & Co. Ltd. and Chairman, Rajasthan State Road Transport Corporation, which construed Section 2(28) and held vehicles of similar description to be 'motor vehicles'. Applying that construction to the excavators in this case, the Court concluded they fall within the Section 2(28) definition and so attract the obligations of registration and payment of taxes under the Act. [Paras 3, 4]

The excavators are 'motor vehicles' within Section 2(28) of the Motor Vehicles Act, 1988, and are liable to be registered and to pay taxes under the Act; the appeal is dismissed and the High Court's decision is upheld.

Final Conclusion: The reference question is answered in favour of the Respondent: the excavators are motor vehicles within the statutory definition and thereby subject to registration and taxation under the Motor Vehicles Act; the appeal is dismissed.

Performance guarantee - recovery of sums due - sum due - appropriation of security/other sums - bank guarantee encashment pending arbitration - finality of interlocutory order - prima facie case, balance of convenience and irreparable injury

Performance guarantee - bank guarantee encashment pending arbitration - recovery of sums due - sum due - Whether the respondents were entitled to encash a performance bank guarantee furnished for one contract in order to recover a claimed (disputed) sum arising from another contract while arbitration on that claim was pending. - HELD THAT: - The Court held that Clause 62 of the General Conditions of Contract, which permits deduction from "any moneys then due or which at any time thereafter may become due to the Contractor", is materially identical to the clause considered in Union of India v. Raman Iron Foundry. Following that precedent, a claim for damages (liability in damages) which is disputed and unadjudicated in arbitration is not a "sum due" in praesenti and cannot be appropriated by invoking the contractual recovery clause. Where the bank guarantee was a performance guarantee furnished for execution of the Anand Vihar contract and that contract had been completed to the satisfaction of the Railway (completion certificate issued), the respondents had no right to encash that guarantee to meet a disputed claim arising out of a different contract which remained pending adjudication. The Court therefore concluded that the facts here-pending arbitration on the claimed damages, claim relating to a different contract, and the guarantee being a performance guarantee already discharged by completion certification-precluded encashment of the bank guarantee under Clause 62. [Paras 41, 42, 43]

Respondents were not entitled to encash the performance bank guarantee in question to meet disputed dues arising out of another contract pending arbitration.

Finality of interlocutory order - prima facie case, balance of convenience and irreparable injury - Whether the District Judge erred in refusing to continue the injunction against encashment when an earlier order in favour of the appellant (restraining encashment until constitution of arbitral tribunal) had attained finality, and whether the appellant had established entitlement to interim relief. - HELD THAT: - The Court observed that the District Judge had earlier granted an injunction on 04.01.2012 restraining encashment, and because no appeal was filed against that order it had attained finality and was binding on the parties. The subsequent refusal to continue the protection was therefore erroneous. Applying the law in Union of India (DGS&D), the Court found that the appellant had established a prima facie case, balance of convenience and risk of irreparable loss sufficient to grant interlocutory relief restraining encashment of the specific bank guarantee until adjudication in arbitration. [Paras 44, 45, 46]

The District Judge erred in rejecting the later injunction application; the appellant had made out a prima facie case and entitlement to continue the injunction restraining encashment of the bank guarantee.

Final Conclusion: The appeal is allowed. The impugned decision is set aside and the injunction granted in Arbitration Suit No. 411/2011 is continued: the respondents are restrained from encashing Bank Guarantee No. 12/2006 dated 04.08.2006 furnished by the appellant in connection with the Anand Vihar works, until the dispute is adjudicated in arbitration. No costs.