TaxTMI Updates e-Newsletter
May 16,2018

Exemption for pure services to Government in relation to functions entrusted to a Municipality under Article 243W - pure services versus works contract / composite supply - classification of Northern Railway as part of the Central Government - scope of Article 243W and the Twelfth Schedule - public health, sanitation, conservancy and solid waste management - taxability of cleaning activity when not related to municipal functions

Pure services versus works contract / composite supply - cleaning contracts with Northern Railway are 'pure service' contracts and do not amount to works contract/composite supply involving transfer of goods - HELD THAT: - The Authority examined whether consumables (soaps, detergents, chemicals) and use of machines in the cleaning contracts convert the supply into a works contract or composite supply. The applicant's position, supported by the Delhi High Court decision in Writ Petition (C) No. 7843/2014, was that consumables were of minimal quantity, fully consumed in the process and not transferred to the Railways. The Authority relied on the FAQ clarification that 'pure services' are supplies without involving any supply of goods and concluded that the contracts, notwithstanding incidental use of consumables, are contracts for provision of services only. [Paras 33, 34, 35, 36, 37]

The cleaning contracts are 'pure service' contracts

Classification of Northern Railway as part of the Central Government - Northern Railway for the purposes of the notification is covered as 'Central Government' - HELD THAT: - Applying Section 3(8) of the General Clauses Act, 1897, the Authority noted that contracts were awarded in the name of the President of India and that officers exercising executive powers of the Union in the name of the President fall within 'Central Government'. On that basis Northern Railway was held to be within the class of recipients covered by the exemption notification. [Paras 38]

Northern Railway is covered as 'Central Government' under the notification

Scope of Article 243W and the Twelfth Schedule - public health, sanitation, conservancy and solid waste management - exemption for services in relation to municipal functions - cleaning services supplied to Railway premises are not services in relation to functions entrusted to a Municipality under Article 243W / Twelfth Schedule - HELD THAT: - The Authority analysed constitutional provisions and materials showing that Municipalities exercise functions in relation to urban areas as constituted under Articles 243P-243Q and the Twelfth Schedule. Railways are a Union subject (List I, Entry 22) and not a Municipality; the municipal functions under the Twelfth Schedule (including public health and sanitation) do not extend to Railway properties which remain the responsibility of the Central Government. Consequently, sanitation and cleaning of Railway stations, trains and colonies cannot be treated as functions entrusted to a Municipality. [Paras 26, 27, 28, 29, 43]

The cleaning services are not in relation to functions entrusted to a Municipality under Article 243W

Exemption for pure services to Government in relation to functions entrusted to a Municipality under Article 243W - taxability of cleaning activity when not related to municipal functions - the cleaning services supplied by the applicant to Northern Railway are not exempt under Sl. No. 3 of Notification No. 09/2017 (as amended) and are taxable - HELD THAT: - The notification grants nil rate only where (i) the supply is a pure service (no supply of goods) and (ii) it is in relation to a function entrusted to a Municipality under Article 243W. Although the contracts were held to be pure services and Northern Railway was held to be a Government recipient, the services were not in relation to municipal functions as Railways are not a Municipality and municipal functions do not extend to Railway properties. Therefore the conditions of the exemption are not satisfied and the services fall outside the nil-rated entry; the jurisdictional officers' view that the services are taxable under Chapter heading 9994 was upheld. [Paras 31, 37, 39, 43, 45]

The cleaning services are not exempt under Sl. No. 3 and are taxable

Final Conclusion: The Authority ruled that, although the contracts are 'pure services' and Northern Railway is a Government recipient, the cleaning and sanitation services to Railway premises are not in relation to functions entrusted to a Municipality under Article 243W; consequently the services do not fall under the exemption at Sl. No. 3 of the notification and are taxable. The ruling is binding on the applicant and the jurisdictional officers; the applicant is required to deposit GST as per this Ruling.

Interpretation of section 36(1)(viia)(a) of the Income tax Act read with Rule 6ABA - Computation of aggregate monthly average advances by taking outstanding at the end of each month - Scope of deduction for provision for bad and doubtful debts by rural branches - Allegation of impermissible double deduction and requirement of clear statutory provision for double deduction

Interpretation of section 36(1)(viia)(a) of the Income tax Act read with Rule 6ABA - Computation of aggregate monthly average advances by taking outstanding at the end of each month - Proper method of computing the aggregate monthly average advances for rural branches under Rule 6ABA for the purpose of deduction under section 36(1)(viia)(a). - HELD THAT: - The Tribunal construed Rule 6ABA to require that for each rural branch the amount of advances outstanding at the end of the last day of each month of the previous year be taken and those monthly outstanding amounts be aggregated to compute the aggregate monthly average advances. The Assessing Officer and CIT(A) had treated the aggregate as loans and advances made during the year only. The High Court found that the Tribunal's direction conforms to the language and prescription of Rule 6ABA and that the aggregate monthly average must be computed by reference to month end outstanding balances as envisaged by the Rule. The Court therefore upheld the Tribunal's interpretation and substituted the computation method directed by the Tribunal for that adopted by the AO and CIT(A).

Tribunal's computation method under Rule 6ABA - taking month end outstanding advances for each month and aggregating them - is correct and is upheld.

Scope of deduction for provision for bad and doubtful debts by rural branches - Allegation of impermissible double deduction and requirement of clear statutory provision for double deduction - Whether the Tribunal's interpretation results in an impermissible double deduction contrary to the principle that double deductions must be expressly provided for. - HELD THAT: - Revenue contended that the Tribunal's direction produced double deductions not contemplated by statute and relied on the principle that a double deduction must be clearly and expressly provided for. The Court observed that the Tribunal's direction merely implements the computation prescribed by Rule 6ABA to fix the limit of deduction under section 36(1)(viia). The method of computing the aggregate monthly average advances does not itself create an unstated double deduction; it defines the base on which the statutory percentage is applied. Applying the Rule as directed by the Tribunal therefore does not amount to giving a double deduction in absence of explicit statutory provision to that effect. Consequently, the Court found no substantial question of law requiring admission.

The contention of impermissible double deduction is not made out; the Tribunal's application of Rule 6ABA to determine the permissible limit of deduction is upheld.

Final Conclusion: The High Court dismissed the Revenue's application and appeal, upholding the Tribunal's interpretation and direction to compute the aggregate monthly average advances for rural branches by taking month end outstanding balances as prescribed by Rule 6ABA and rejecting the plea that such computation results in an impermissible double deduction.

Application of Section 69A to unexplained money in bank accounts - opening cash in hand and brought forward closing balance - finality of earlier assessment/BIT findings and its effect on subsequent years - tribunal's duty to examine merits despite prior finality where relevant

Application of Section 69A to unexplained money in bank accounts - opening cash in hand and brought forward closing balance - finality of earlier assessment/BIT findings and its effect on subsequent years - Deletion of additions under Section 69A by treating the opening cash in hand of the assessment year as the brought forward closing cash in hand of the preceding year which had attained finality - HELD THAT: - The Tribunal deleted additions made under Section 69A by accepting that the assessee had sufficient opening cash in hand for the relevant years, the amount being the carried-forward closing cash in hand of the preceding assessment year. The Court observed that where the closing cash in hand of a previous year has attained finality because the Revenue did not challenge the CIT(A)'s finding (for reasons such as monetary limits under departmental instructions), that final figure operates as the opening cash in hand for the subsequent year. Reopening the opening cash in the subsequent year on grounds that would effectively re-open the finalised closing balance of the earlier year is impermissible. While ordinarily the Revenue is not precluded from establishing on merits that an opening balance is incorrect, in the present case the Tribunal correctly refused to permit a collateral re-opening of a concluded finding and there was no infirmity in its approach. The Court therefore affirmed the Tribunal's deletion of the unexplained deposits insofar as they were covered by the brought forward finalised cash balance.

The Tribunal was justified in deleting the additions by relying on the brought forward closing cash in hand of the preceding year which had attained finality; the appeals by the Revenue are dismissed.

Final Conclusion: The appeals filed by the Revenue under Section 260A are dismissed; the Tribunal's deletion of additions under Section 69A based on the brought forward opening cash (being the finalised closing balance of the preceding year) is upheld.

Validity of reopening under section 147/148 - Requirement of signed reasons for formation of belief - Reopening based on factually incorrect material (municipal limits) - Asset within the meaning of section 2(14)

Validity of reopening under section 147/148 - Requirement of signed reasons for formation of belief - Validity of the notice under section 148 and reopening under section 147 where the reasons recorded were unsigned. - HELD THAT: - The reasons recorded by the Assessing Officer initiating reassessment proceedings were not signed. Reliance was placed on precedents of High Courts to the effect that a notice which initiates assessment or reassessment proceedings requires a signature and absence of signature renders the reasons/notice invalid. On this basis the Tribunal held that the notice under section 148 was bad in law and the reassessment could not be sustained. [Paras 6, 7, 11, 16]

Reopening under section 147/148 quashed because the reasons recorded initiating reassessment were unsigned and therefore invalid.

Reopening based on factually incorrect material (municipal limits) - Sufficiency and correctness of the material on which the Assessing Officer formed belief that income had escaped assessment-specifically the assertion that the land fell within municipal limits. - HELD THAT: - The Tribunal examined documentary material (Tehsildar certificate and related exhibits) showing that the impugned land was beyond the municipal corporation limits and that the AO's belief to the contrary was factually incorrect. The Tribunal observed that the factual basis recorded for reopening-namely that the land fell within municipal limits-was erroneous, and that such incorrect factual foundation vitiated the reasons for forming belief under section 147. [Paras 12, 13, 14, 16]

Reassessment quashed because the AO's reason to believe was founded on factually incorrect material regarding municipal limits.

Asset within the meaning of section 2(14) - Whether the impugned land was an asset within the meaning of section 2(14) so as to give rise to capital gains liable to be declared. - HELD THAT: - The Tribunal concluded that since the basis for reopening (the land being within municipal corporation limits) was factually incorrect, the land could not be treated as an asset within the meaning of section 2(14) for the purpose relied upon by the AO. Consequently, there was no obligation to declare capital gain on the basis alleged by the AO. The Tribunal further noted the AO's arbitrary adoption of a notional cost as on 1.1.1980 but did not proceed to decide merits after quashing the reassessment. [Paras 14, 15, 16, 17]

On the factual findings the land was not an asset as treated by the AO and the consequent charge of capital gain could not sustain the reassessment; therefore reassessment was quashed.

Final Conclusion: The assessee's appeal is allowed: the notice under section 148 and the reassessment proceedings under section 147 for A.Y. 2011-12 are quashed on grounds of unsigned reasons and factually incorrect foundation; therefore the reassessment order is set aside.

Comparable Uncontrolled Price (CUP) method preferred over profit-based methods - Selection of tested party - Benefit test for intra-group services - Rule of consistency - Statutory mandate to determine ALP by prescribed methods under section 92C

Comparable Uncontrolled Price (CUP) method preferred over profit-based methods - Selection of tested party - Deletion of transfer pricing adjustment of Rs. 90,32,40,004 made in respect of sale of finished goods (PCBs) to Associated Enterprise. - HELD THAT: - The Tribunal held that the internal CUP method was the most appropriate method because identical PCBs, in identical quantities, were sold by the assessee to the AE and by the AE to independent customers at the same prices and in the same territory, supported by back-to-back invoices and the distribution agreement. The bench rejected the TPO/DRP's characterization of the assessee as merely a contract manufacturer and accepted that under the distribution agreement the assessee acted as principal and the AE as distributor. The tested party selection in favour of the Indian assessee was held appropriate given the functional analysis and the need to benchmark the Indian entity's transactions. In view of binding precedent (assessee's own earlier ITAT order for AY 2011-12) and absence of material to distinguish the facts, the Tribunal deleted the ALP adjustment. [Paras 11, 16, 17, 18]

Adjustment of Rs. 90,32,40,004 deleted; CUP (internal) applied and Indian assessee treated as tested party.

Benefit test for intra-group services - Statutory mandate to determine ALP by prescribed methods under section 92C - Rule of consistency - Deletion of transfer pricing adjustment of Rs. 9,97,50,264 determined as NIL by TPO/DRP for purchase, order handling and sales services received under the Cost Contribution Agreement. - HELD THAT: - The Tribunal found that the TPO/DRP erred in treating the intra group services at NIL without applying any of the six methods prescribed under section 92C. The assessee had produced documentary evidence (job descriptions, emails, process flows, PWC certificate of cost allocation and other records) demonstrating receipt of services and commercial benefit. The Tribunal held that the exercise whether expenditure is allowable under section 37 is for the AO and the TPO's role is limited to ALP determination; further, prior years' acceptance of similar allocations required adherence to the rule of consistency in absence of material change. Applying these principles and relying on precedents, the Tribunal concluded the assessee satisfied the benefit test and that the TPO/AO/DRP's approach violated the statutory requirement to apply prescribed methods, and therefore directed deletion of the adjustment. [Paras 31, 32, 33, 34]

Adjustment of Rs. 9,97,50,264 deleted; payments for purchase, order handling and sales services accepted.

Final Conclusion: Both transfer pricing adjustments sustained by the TPO/DRP - Rs. 90,32,40,004 (sale of PCBs) and Rs. 9,97,50,264 (intra group services) - are deleted; appeal allowed for Assessment Year 2012-13.

Disallowance under section 40A(3) - business expediency - State under Article 12 - payments to State instrumentalities - exceptional circumstances under rule 6DD

Disallowance under section 40A(3) - payments to State instrumentalities - business expediency - Whether addition under section 40A(3) for cash payments to BSNL is sustainable where payments were made as per BSNL demand note, genuineness was not doubted and business expediency required cash payment. - HELD THAT: - The Tribunal examined the record including the Demand Note from BSNL evidencing that payments were required to be made in cash and noted that the Department did not dispute the genuineness of the payments. The Bench held that BSNL is an instrumentality of the State and falls within the definition of "State" under Article 12 of the Constitution, and, having regard to judicial precedents and the factual matrix, payments to such a State instrumentalitiy made in cash as per its demand and justified by business expediency need not attract disallowance under section 40A(3). The Tribunal further observed that even if the case did not fall within clauses of rule 6DD, invocation of section 40A(3) can be dispensed with where the payments are genuine, the payee is a State instrumentality and cash payment was made due to business expediency and requirement of the payee. [Paras 10, 11]

Addition under section 40A(3) deleted and the appeal allowed.

Final Conclusion: The Tribunal set aside the orders below and deleted the addition under section 40A(3), holding that cash payments made to BSNL (held to be a State under Article 12) as per its demand and on grounds of business expediency, with genuineness undisputed, do not warrant disallowance.

Penalty under Section 271(1)(c) for furnishing inaccurate particulars - furnishing inaccurate particulars of income - bonafide claim versus dishonest or inaccurate claim - classification of expenditure as intangible asset and allowable depreciation - application of Reliance Petro Products principle on penalty

Penalty under Section 271(1)(c) for furnishing inaccurate particulars - bonafide claim versus dishonest or inaccurate claim - classification of expenditure as intangible asset and allowable depreciation - Whether the penalty under Section 271(1)(c) could be sustained for assessee's claim of depreciation/intangible asset when the claim was not accepted by the Assessing Officer and supporting bills were not produced. - HELD THAT: - The Tribunal upheld the view of the Commissioner (Appeals) that preferring an incorrect claim of expenditure or depreciation does not ipso facto amount to furnishing inaccurate particulars of income warranting penalty under Section 271(1)(c). Although the Assessing Officer held that the expenditure created an intangible asset and was eligible for depreciation at a lower rate, the assessee had advanced a bona fide explanation and attempted to justify its claim; inability to produce certain bills (allegedly lost) and acceptance of disallowance during assessment to "buy peace" did not, by themselves, establish that inaccurate particulars were furnished. The Tribunal noted absence of adverse comments by statutory auditors and relied on the principle in Reliance Petro Products that mere incorrect claims are distinguishable from dishonest or deliberate concealment; earlier authorities distinguishing Dharmendra Textile Processors were considered. On these facts, the Commissioner (Appeals) rightly concluded that penalty could not be sustained, and there was no ground for interference.

Penalty under Section 271(1)(c) deleted; appeal of the Revenue dismissed.

Final Conclusion: The Tribunal affirms the order of the Commissioner (Appeals) deleting the penalty; the Department's appeal is dismissed.

Amalgamation and cessation of corporate entity - jurisdictional defect in proceedings framed against a dissolved/non-existent company - invalidity of proceedings under section 147/148 and assessment under section 143(3) against an amalgamated (dissolved) company

Amalgamation and cessation of corporate entity - jurisdictional defect in proceedings framed against a dissolved/non-existent company - invalidity of proceedings under section 147/148 and assessment under section 143(3) against an amalgamated (dissolved) company - Whether reopening proceedings under section 147/148 and consequential assessment under section 143(3) could be validly initiated and framed in the name of M/s Chandak Housing Pvt. Ltd. after it had amalgamated and ceased to exist with effect from 1/4/2012. - HELD THAT: - The Tribunal accepted the factual and legal position that M/s Chandak Housing Pvt. Ltd. was amalgamated with M/s Chandak Builders & Developers Pvt. Ltd. with effect from 1/4/2012 by the direction of the Hon'ble High Court. On that basis it applied settled law that amalgamation effects dissolution of the amalgamating company such that it ceases to have an independent corporate entity. An assessment or notice issued in the name of a company which has ceased to exist is not a mere procedural irregularity but a jurisdictional defect, for there can be no assessment against a non-existent (dissolved) person. In view of authoritative precedents and the facts on record, the Tribunal upheld the CIT(A)'s conclusion that proceedings initiated under section 147/148 and the consequential assessment under section 143(3) in the name of the dissolved/amalgamated company were void ab initio, and therefore unsustainable. [Paras 5, 7, 11]

Proceedings under section 147/148 and assessment under section 143(3) in the name of M/s Chandak Housing Pvt. Ltd. after its amalgamation w.e.f. 1/4/2012 are void ab initio; the reopening and assessment are without jurisdiction and therefore invalid.

Final Conclusion: The Revenue's appeal is dismissed and the order of the CIT(A) declaring the action taken under section 147/148/143(3) void ab initio in respect of the amalgamated (dissolved) company is sustained.

Characterisation of payments as "royalty" - tax deduction at source / assessee in default under section 195 / section 201 - beneficial owner under a tax treaty - transfer pricing - residual profit split method and TNMM comparability - rejection of books of account under accepted accounting standards - deduction under section 10A - exclusion of telecom/foreign communication costs from total turnover - reopening of assessment - formation of prima facie belief under section 147 - equalisation levy does not alter characterisation of underlying payments

Characterisation of payments as "royalty" - tax treaty (Article 12) - right to use / copyright in computer programme - Whether amounts paid by Google India Pvt. Ltd. to Google Ireland Ltd. for acquisition of AdWords distribution rights are in the nature of royalty. - HELD THAT: - After detailed examination of the AdWords Distribution Agreement, related services agreement and authoritative decisions on computer software and 'royalty', the Tribunal upheld the view that the AdWords program is a computer programme/copyrighted work and that the licence/right to use the programme, trade marks, know how and related confidential information was granted to the Indian distributor. The payments were accordingly held to fall within the inclusive Explanation to clause (vi) of section 9(1) and within Article 12 of the India Ireland DTAA as 'royalty' (including consideration for use/right to use copyrighted computer programme, trade marks and imparting of technical information). The Tribunal therefore confirmed the characterization of the payments as royalty and that tax consequences under the domestic law and DTAA follow from that characterization.

Payments to Google Ireland in the AdWords/distribution arrangements are royalty; the CIT(A) and AO findings in that regard are affirmed.

Tax deduction at source / assessee in default under section 195 / section 201 - vicarious liability of payer for TDS - Whether Google India was obliged to deduct tax at source on the royalty payments and whether it is an assessee in default for non deduction. - HELD THAT: - Having held the payments to be royalty, the Tribunal applied the statutory TDS regime. The obligation to deduct tax at source under section 195 arises on payments chargeable under the Act/DTAA; failure to deduct renders the payer an assessee in default under section 201. The Tribunal rejected the assessee's plea of bona fide belief and other similar defences on the facts, noting that the nature of the payments and the contractual arrangements were known and that the appellant had not discharged the onus of demonstrating a reasonable basis for non deduction. Accordingly, the default findings under section 201 and related consequences were confirmed. The Tribunal also clarified that the question of penalty requires separate adjudication but that bonafide belief does not absolve statutory non deduction in the non obstante framework.

Assessee was obliged to deduct TDS on the payments held to be royalty; failure to deduct resulted in being an assessee in default and the AO/CIT(A) orders upholding default are confirmed.

Beneficial owner under a tax treaty - look through / substance over form in treaty benefit claims - Whether Google Ireland Ltd. is the beneficial owner of the royalties for treaty relief, or whether benefit must be denied because ultimate beneficial interest lies elsewhere. - HELD THAT: - The Tribunal examined the material on record including the multi tier licence structure within the Google group, public material (including Parliamentary/ press reports) and the limited inter company agreements furnished. The AO had concluded that Google Ireland was not the beneficial owner and taxed at the domestic rate; the CIT(A) had accepted beneficial ownership for one year (2013 14) but other years were decided against GIL. The Tribunal held that the assessee bore the onus of proving beneficial ownership and that the record before the Tribunal lacked the complete set of inter company licence terms necessary to determine substance (agreements between Google Inc., Google Ireland Holdings, Google Netherlands Holdings and Google Ireland Ltd.). Because the material was incomplete and the factual matrix showed multiple layers and revenue flows, the Tribunal set aside the CIT(A)'s favourable finding and remanded the issue to the AO for fresh adjudication with a direction that the assessee must produce the missing agreements and cooperate; the AO was to re examine beneficial ownership on the complete record.

Finding of beneficial ownership set aside for independent reconsideration; issue remanded to AO for fresh enquiry and decision on merits after production/verification of inter company agreements and evidence.

Transfer pricing - residual profit split method and TNMM comparability - aggregation of inter related transactions - Appropriateness of the TPO's transfer pricing adjustments (including rejection of the assessee's TP study, selection of comparables, use of TNMM versus profit split, and aggregation of AdWords and ITeS functions). - HELD THAT: - The Tribunal found that neither the assessee's TP study nor the TPO's work had been carried out with adequate transactional FAR analysis based on the actual conduct of the parties. Given the inter relation between marketing/distribution and back office/ITES functions, the Tribunal emphasised that a proper functional analysis is a prerequisite and that PSM may be appropriate where multiple integrated functions and non routine intangibles are involved. However, because the TPO's approach and the comparability work were not established on sufficient evidence and the parties had not had an opportunity to resolve defects, the Tribunal remitted all transfer pricing issues (IT, ITES and AdWords/distribution) to the AO/TPO for de novo transfer pricing determination. The AO/TPO were directed to undertake fresh FAR based TP analysis, aggregate only those transactions with a genuine nexus, apply the most appropriate method in accordance with Rule 10B and OECD guidance, and afford the assessee full opportunity to produce evidence and comparables.

All transfer pricing adjustments set aside and remitted to AO/TPO for fresh determination after comprehensive FAR analysis and appropriate benchmarking; appeals on TP issues allowed in part for statistical purposes and remanded.

Rejection of books of account under accepted accounting standards - Validity of AO's rejection of the assessee's books of account and recasting of accounts. - HELD THAT: - On the facts for the assessment years considered, the Tribunal noted that the AO had not pointed to any specific defect in maintenance or reliability of books and that the recasting produced no material change in the profit figure. The Tribunal emphasised that rejection under section 145 requires clear demonstration of inaccurate or unreliable accounts. For the assessment year 2008 09 the Tribunal set aside the AO's rejection and directed acceptance of the books. In other years where the TP exercise was remitted, the Tribunal directed the AO to proceed without routine rejection unless defects are specifically established on evidence.

Rejection of books was improper on the record; AO directed to accept the books for the year specifically addressed and refrain from rejection absent clear evidence; related grounds remitted as appropriate.

Deduction under section 10A - exclusion of telecom/foreign communication costs from total turnover - statutory construction - component excluded from export turnover must be excluded from total turnover - Whether telecommunication/foreign communication expenses excluded from 'export turnover' for section 10A computation must also be excluded from 'total turnover'. - HELD THAT: - Following the reasoning of the Karnataka High Court and the Supreme Court's subsequent authority, the Tribunal held that amounts excluded from export turnover (for computing the export derived profit) must also be excluded from total turnover for the purpose of applying the section 10A formula; otherwise the statutory formula would produce absurd results. The Tribunal therefore directed computation of the deduction in accordance with that principle (and noted that equal treatment of export and total turnover exclusion was mandated by higher court precedent invoked in the appeals).

Telecom/communication expenses excluded from export turnover must also be excluded from total turnover for section 10A computation; direction to AO to give effect accordingly.

Reopening of assessment - formation of prima facie belief under section 147 - Validity of reassessment notices and timing (whether AO formed requisite prima facie belief and whether notices under section 143(2) were issued in time/sequence). - HELD THAT: - The Tribunal reviewed the order sheet chronology and the statutory scheme and held that the AO had formed a prima facie belief that income had escaped assessment on available material (including return of the payer and connected facts) and that the issuance of notices under section 143(2) within the prescribed period was supported by the record. The Tribunal rejected the contention that a notice under section 143(2) cannot issue prior to disposal of objections to the reasons recorded for reopening; the statutory scheme does not require the sequence urged by the assessee. On the facts the reopening was therefore held valid.

Reopening of assessment upheld as valid on the material; notices under section 143(2) were properly issued in the circumstances.

Equalisation levy does not alter characterisation of underlying payments - Whether the later introduction of an equalisation levy alters the tax characterisation of payments under the AdWords agreements. - HELD THAT: - The Tribunal observed that the equalisation levy (Finance Act, 2016) targets certain online advertisement consideration but does not change the legal character of payments under underlying agreements involving use of IPR, know how or copyright. The levy therefore does not convert the nature of payments (if otherwise royalty) into business profits or vice versa. The equalisation levy does not affect the present adjudication of the characterisation questions.

Equalisation levy does not change the legal characterisation of the impugned payments; it is not a ground to reclassify royalties as business income.

Remand for verification of beneficial ownership and inter company licence agreements - Whether the Tribunal should decide beneficial ownership on the existing record or remand for further verification. - HELD THAT: - Because complete inter company licence agreements (between Google Inc., Google Ireland Holdings, Google Netherlands Holdings BV and Google Ireland Ltd.) were not filed and the public material indicated multi tier revenue flows, the Tribunal considered it inappropriate to decide beneficial owner status on the incomplete record. Accordingly it remanded the matter to the AO for fresh adjudication, with directions to the assessee to produce the missing agreements and cooperate, and for the AO to examine documentary and accounting evidence (including flow of funds, allocation clauses and actual receipts) to determine beneficial ownership and treaty entitlement.

Issue remanded to AO for fresh adjudication and verification; assessee directed to produce relevant inter company agreements and cooperation required.

Final Conclusion: The Tribunal ultimately affirmed that the payments under the AdWords/distribution arrangements constituted "royalty", confirmed the payer's obligation to deduct tax at source and upheld default consequences for non deduction on the facts. At the same time the Tribunal set aside several contested findings and remitted core issues - notably beneficial ownership and all transfer pricing adjustments (including the appropriateness of TNMM v. profit split and comparable selection) - to the Assessing Officer/ TPO for fresh, FAR based enquiry and quantification, directing production and verification of inter company licence agreements and adherence to OECD/Rule 10B principles. The Tribunal also held that telecom/communication costs excluded from export turnover must be excluded from total turnover for section 10A computation and that routine rejection of books was not justified on the record.

Doctrine of unjust enrichment - provisional assessment - finalisation of provisional assessment - refund of excess duty - classification as parts of pulp making machinery under tariff heading 8439 - amendment restricting refunds by invoking unjust enrichment from 13.07.2006

Doctrine of unjust enrichment - provisional assessment - finalisation of provisional assessment - refund of excess duty - Whether the doctrine of unjust enrichment can be invoked to deny refund arising from finalisation of provisional assessments where the provisional assessment was ordered prior to 13.07.2006. - HELD THAT: - The Tribunal found that the provisional assessments in question were finalised after appeals and that the provisional assessments themselves had been ordered prior to 13.07.2006. Relying on the decision of the Hon'ble High Court of Gujarat in Hindalco Industries and the Larger Bench decision in Hindustan Zinc Limited, the Tribunal held that the doctrine of unjust enrichment does not apply to provisional assessments ordered before 13.07.2006 and therefore cannot be a ground to withhold refunds which arise upon finalisation of those assessments. The Revenue's reliance on contrary authority was considered and rejected as the Gujarat High Court and the Larger Bench have examined those precedents and declined to apply unjust enrichment to such pre-13.07.2006 provisional assessments. Applying that principle to the facts, the Tribunal concluded that the orders directing credit of the sanctioned refund to the Consumer Welfare Fund on account of unjust enrichment were unsustainable. [Paras 6]

Impugned orders are set aside and the appeal is allowed; the refund arising from finalisation of provisional assessments ordered prior to 13.07.2006 is payable to the importer with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, holding that the doctrine of unjust enrichment cannot be applied to deny refunds arising from provisional assessments ordered before 13.07.2006, set aside the orders diverting the sanctioned refund to the Consumer Welfare Fund and granted consequential relief to the appellant.

Classification under CETH 90304000 - classification under CETH 90308990 - apparatus specially designed for telecommunications - telecommunication network versus Local Area Network (LAN) - capability-of-use test as distinct from being specially designed

Apparatus specially designed for telecommunications - classification under CETH 90304000 - capability-of-use test as distinct from being specially designed - telecommunication network versus Local Area Network (LAN) - Whether the imported HST-3000 tester is 'specially designed' for telecommunications and therefore classifiable under CETH 90304000, or whether it is capable of use for both telecommunications and other applications (such as LAN) and hence falls under CETH 90308990. - HELD THAT: - The Tribunal examined the product literature for the HST-3000 and the features cited by the appellant. While the device has functions relevant to telecommunication testing, the leaflet and specifications show that it is essentially designed for Ethernet testing, installation and troubleshooting in LAN and other forms of Ethernet and for cable diagnostics. The authorities below found, and the Tribunal agrees, that the equipment thus has legitimate applications both in long distance telecommunications and in local computer networks (LAN). A product that is merely capable of being used in telecommunications but is also designed and commonly used for other networks cannot be held to be 'specially designed' for telecommunications. The Tribunal further observed that LANs are commonly understood as computer networks distinct from telecommunication networks. On this basis the impugned classification under CETH 90308990 was upheld. [Paras 6, 7, 8]

The finding of the Commissioner (Appeals) that the HST-3000 is not specially designed for telecommunications is affirmed and the appeal is dismissed.

Final Conclusion: The Tribunal upheld the impugned order; the HST-3000 tester is not specially designed for telecommunications and the classification under CETH 90308990 stands, appeal dismissed.

Revocation of customs broker licence - violation of CBLR Regulation 11(a), (b) and (d) - mis-declaration of imported goods - failure to verify KYC and consignor/consignee authenticity - BIS certification requirement for measuring tapes - forfeiture of security deposit and imposition of penalty

Revocation of customs broker licence - violation of CBLR Regulation 11(a), (b) and (d) - mis-declaration of imported goods - failure to verify KYC and consignor/consignee authenticity - BIS certification requirement for measuring tapes - Whether the adjudicating authority was justified in revoking the appellant's Customs House Agent licence for facilitating mis-declaration and failing to verify import documentation - HELD THAT: - The Tribunal found on the record that the Bill of Entry dated 20.01.2017 was filed declaring the goods as "Vinyl coated paper clip (Made of Iron)" whereas the consignment comprised Measuring Tape of the "Zebra" brand, items for which BIS permission is required. The appellant submitted import documents obtained from a third party, Smt. Rambha Gupta, who was not the importer, allowed clearance through her and did not verify KYC or advise the importer about applicable statutory requirements. These facts established violations of Regulation 11(a), (b) and (d) of the CBLR and demonstrated facilitation of mis-declaration. However, while the misconduct and regulatory breaches were found to be established, the Tribunal held that revocation of the CHA licence constituted disproportionately harsh punishment in the circumstances and therefore could not be sustained. [Paras 4, 5]

Findings of violations are upheld but the revocation of the Customs Broker licence is set aside as excessive.

Forfeiture of security deposit and imposition of penalty - Whether the forfeiture of security deposit and the monetary penalty imposed on the appellant were justified - HELD THAT: - Separately from the punitive measure of licence revocation, the Tribunal considered the financial sanctions imposed by the adjudicating authority. Having found that the appellant facilitated the mis-declaration and failed in verification duties, the Tribunal sustained the adjudicator's exercise in forfeiting the security deposit and levying a penalty. The Tribunal regarded these sanctions as appropriate and proportionate to the established breaches. [Paras 5]

Forfeiture of the security deposit and the penalty imposed are upheld.

Final Conclusion: The appeal is partially allowed: the revocation of the CHA licence is set aside as unduly harsh, while the forfeiture of the security deposit and the penalty are affirmed; the impugned order is accordingly modified.

Redemption fine - confiscation and redemption under the Customs Act, 1962 - mens rea - vicarious liability of vehicle owner for offences committed by driver

Redemption fine - mens rea - vicarious liability of vehicle owner for offences committed by driver - confiscation and redemption under the Customs Act, 1962 - Validity of the redemption fine imposed on the owner of the vehicle which was used to transport seized counterfeit currency. - HELD THAT: - The Tribunal examined whether the redemption fine levied on the appellant as owner of the Wagon R could be sustained in view of the criminal acquittal of the driver and the Tribunal's earlier order dropping penalty against the driver. The criminal Court recorded a clear finding that the driver had no knowledge of the contents of the carton and lacked mens rea for smuggling counterfeit currency, and this finding was relied upon by the Tribunal in dropping the penalty against the driver. Applying that conclusion to the present case, the Tribunal found no fault on the part of the appellant and held that imposing a redemption fine on the owner, in circumstances where the person actually in control of the vehicle was exonerated of knowledge or involvement, was not sustainable in law. Consequentially the impugned order imposing the redemption fine was set aside. [Paras 4]

The redemption fine imposed on the appellant is set aside and the appeal is allowed.

Final Conclusion: Allowance of the appeal: the impugned order imposing the redemption fine on the vehicle owner is quashed in view of the criminal acquittal and the Tribunal's earlier decision exonerating the driver for lack of knowledge of the seized counterfeit currency.

Summary order. Delay condoned; leave granted; matter tagged with Civil Appeal No.1482/2018.

Refund under Section 102 of the Finance Act, 2016 - retrospective exemption - refund barred by statutory limitation - limitation under Section 11B of the Central Excise Act, 1944 - no power to condone or override statutory time limits

Refund under Section 102 of the Finance Act, 2016 - refund barred by statutory limitation - limitation under Section 11B of the Central Excise Act, 1944 - no power to condone or override statutory time limits - Whether the refund claim filed by the appellant was barred by the statutory time limit and therefore liable to be rejected despite a legislatively granted retrospective exemption. - HELD THAT: - The Court found that Parliament, by enacting Section 102 of the Finance Act, 2016, restored the exemption retrospectively but expressly conditioned the availability of refund on filing the claim within six months from the date the Finance Act received the President's assent. The Finance Act received assent on 14/05/2016; consequently the statutory period for filing the refund claim expired on 13/11/2016. The appellant filed the refund application on 24/03/2017, after the prescribed period. The Tribunal held that departmental authorities and the Tribunal lack power to extend or ignore the statutory limitation; time limits for refund prescribed by statute must be strictly applied. The Court relied on the established principle that refund claims before revenue authorities are governed by the time limit provided in the statute and that extra ordinary jurisdiction of civil courts to extend limitation does not apply to refund claims before statutory authorities (reference to Porcelain Electrical Mfg. Co. vs. CCE, New Delhi ). Applying these principles, the claim, being filed beyond the statutory six month period and also falling foul of limitation under Section 11B of the Central Excise Act, 1944 as framed in the show cause, was time barred and rightly rejected by the authorities below. [Paras 8, 9]

Refund claim held time barred; impugned orders rejecting the refund affirmed and the appeal rejected.

Final Conclusion: The retrospective legislative exemption did not entitle the appellant to a refund filed after the statutory claim period; the authorities correctly rejected the delayed refund application and the appeal is dismissed.

Valuation of taxable services - Consideration in kind - Gross amount charged - Manner of determination of value under Rule 3 - Double taxation - Extended period of limitation - Applicability of Board circulars to valuation

Valuation of taxable services - Consideration in kind - Gross amount charged - Manner of determination of value under Rule 3 - Applicability of Board circulars to valuation - Double taxation - Whether service tax could be re demanded on villas constructed and handed over to land owners where the developer had included the value of land/development rights in the sale price to prospective customers and discharged service tax on that gross amount. - HELD THAT: - The Tribunal held that Section 67 and Rule 3 require valuation of construction services to be on the gross amount charged, and that where the developer has included the amount attributable to land/development rights in the sale price to prospective customers and has discharged service tax on that gross amount, the same amount cannot be taxed again when villas are constructed and handed over to land owners as consideration in kind. The adjudicating authority's approach of treating the builder-landowner and builder-buyer transactions as separable so as to re tax the value already included in the gross consideration was rejected. The Tribunal relied on the Board instructions emphasising that the gross amount charged by the builder is the taxable value and noted that those instructions remain in force. The Chartered Accountant certificate and returns recording payment on the gross amount of construction were accepted as evidence of discharge of tax, and a further demand on that same value would amount to double taxation. [Paras 7, 8, 10, 12, 15]

Demand quashed on merits: re demand of service tax on the villas handed to land owners is not sustainable where the value of land/development rights was included in the gross sale price to buyers and service tax was discharged thereon.

Extended period of limitation - Consideration in kind - Valuation of taxable services - Whether the extended period of limitation could be invoked for the differential service tax demand. - HELD THAT: - The Tribunal found that the valuation provisions (Section 67 and rules) admit of more than one interpretation in the factual matrix of joint development agreements where consideration is partly in kind. Given that the appellant had declared values in returns and paid service tax on the gross amount (including value attributable to land/development rights), there was no evidence of deliberate suppression or mala fide conduct to warrant invoking the extended period. Consequently, the demand was held to be time barred and unsustainable on limitation grounds. [Paras 14, 15]

Demand barred by limitation: extended period cannot be invoked in the circumstances of the case.

Final Conclusion: The Tribunal set aside the impugned order, holding that the demands were unsustainable both on merits (as they would result in double taxation where tax was already discharged on the gross amount) and on limitation; the appeals were allowed with consequential reliefs.

Rate of tax determined by date of rendition of services - taxable event is rendition of services - composition scheme for works contract - departmental instruction inconsistent with judicial pronouncement is invalid

Rate of tax determined by date of rendition of services - taxable event is rendition of services - composition scheme for works contract - Whether the respondents are liable to pay service tax at the enhanced rate applicable from 01.03.2008 on amounts received after that date where the services were rendered before 01.03.2008. - HELD THAT: - The Tribunal held that during the disputed period the taxable event for service tax was the rendition of services and therefore the rate applicable is the rate in force on the date when services were rendered and not the date of receipt of payment. The decision follows the reasoning in Vistar Construction Pvt. Ltd. (High Court of Delhi), which rejected departmental instructions that treated the date of receipt as determinative and held such instructions invalid where they conflict with higher judicial authority. Applying that principle, demands based on receipt after 01.03.2008 cannot sustain where the services were provided prior to that date; consequently the Commissioner (Appeals) correctly set aside the demand, interest and penalties.

Demand for differential service tax at the post-01.03.2008 rate, and consequential interest and penalties, set aside.

Final Conclusion: The departmental appeal is dismissed; the Tribunal affirms the Commissioner (Appeals) in holding that the rate of service tax is governed by the date of rendition of services and not by the date of payment, and accordingly the demand, interest and penalties based on receipt after 01.03.2008 are unsustainable.

Transfer of right to use goods - supply of tangible goods service - declared service under Section 66E(f) - deemed sale within the meaning of clause 29A of Article 366 of the Constitution - effective control and right of possession - mutual exclusivity of VAT and service tax

Transfer of right to use goods - supply of tangible goods service - declared service under Section 66E(f) - deemed sale within the meaning of clause 29A of Article 366 of the Constitution - effective control and right of possession - mutual exclusivity of VAT and service tax - Whether the appellant's supply, installation and operation of digital cinema equipment on a 'right to use' basis for the period July 2012 to March, 2015 constitutes a taxable 'supply of tangible goods' service or is a deemed sale not liable to service tax. - HELD THAT: - The Tribunal examined whether the transactions involved transfer of right of possession and effective control over the equipment such that they would amount to a deemed sale under clause 29A of Article 366. Applying settled tests on transfer of right to use goods, the Tribunal found that where possession and effective control pass to the user, the transaction is a transfer of right to use goods and falls within the concept of deemed sale rather than a service of supplying tangible goods. The Tribunal noted that the appellants had treated the receipts as user fees assessable to VAT and that levy of VAT and service tax in respect of the same transaction are mutually exclusive. Given that the supply involved transfer of right of possession and effective control, the activity did not fall within the definition of 'service' as amended in July 2012 (which excludes transfers deemed to be sale) and sub-clause (f) of Section 66E (declared services) was inapplicable because it covers transfers without transfer of right to use. Consequently the demands for service tax, interest and penalties were unsustainable and were set aside. [Paras 6, 8]

Impugned orders confirming service tax, interest and penalties set aside; appeals allowed.

Final Conclusion: The Tribunal held that the appellant's transactions during July 2012 to March, 2015 involved transfer of right to use with possession and effective control and therefore constituted deemed sales within Article 366(29A), not taxable 'supply of tangible goods' services; the demands and related penalties were set aside and the appeals allowed.

Cenvat credit - Transport of Goods by Road Services - Business Auxiliary Services - limitation - extended period - suo-motu availment of credit - burden of proof on revenue to establish nature of service

Cenvat credit - Transport of Goods by Road Services - Business Auxiliary Services - burden of proof on revenue to establish nature of service - Whether the appellants were entitled to avail Cenvat credit of Service Tax paid in respect of amounts shown as "other income", by treating those receipts as taxable under "Transport of Goods by Road Services" rather than under "Business Auxiliary Services". - HELD THAT: - The Tribunal found that the Service Tax was paid initially under the head "Business Auxiliary Services" but that the appellants subsequently demonstrated that the "other income" represented differential cartage and thus fell within "Transport of Goods by Road Services", which is a Cenvatable input service. The Revenue produced no evidence to substantiate that the receipts were for services rendered under the "Business Auxiliary Services" category, and mere payment under that head did not establish the true nature of the receipts. In the absence of contrary evidence, the appellants' characterisation of the receipts as transport-related was accepted and the Cenvat credit taken was held to be admissible. [Paras 5, 6]

The appellants are entitled to Cenvat credit of the Service Tax paid, since the receipts were held to arise from transportation activities and Revenue failed to prove they were for Business Auxiliary Services.

Limitation - extended period - Whether the demand raised by invoking the longer period of limitation was sustainable. - HELD THAT: - The Tribunal noted that the credit entry was made in the Cenvat account on 31/10/2007 and that the matter was discovered during audit. There was no evidence of mala fide suppression by the appellants; the credit was reflected in records and therefore not concealed. Consequently, invoking the extended period of limitation to raise the demand was held to be unsustainable. [Paras 7]

The demand raised by invoking the longer period of limitation is not sustainable and is set aside on limitation grounds.

Suo-motu availment of credit - Whether the Larger Bench decision in BDH Industries Ltd. precluded the appellants from suo-motu availing credit without prior sanction of authorities. - HELD THAT: - The Tribunal distinguished the cited Larger Bench decision on the facts: BDH related to refund and the requirement of sanction for suo-motu refund, whereas the present case concerns availment of credit of Service Tax paid on GTA services which are admitted to be Cenvatable input services. Therefore the ratio of BDH Industries Ltd. was found inapplicable to the factual and legal posture of this appeal. [Paras 8]

The Larger Bench decision is not applicable; the appellants were not precluded from availing the credit in the circumstances of this case.

Final Conclusion: The impugned order confirming demand and imposing penalties is set aside; the appeal is allowed with consequential reliefs - the Service Tax credit is held admissible, the extended-period demand is rejected as time-barred, and the BDH precedent is distinguished as inapplicable.

Condonation of delay - substantial justice over technicality - exercise of discretionary power to impose costs as condition for condonation - application of the ratio in Collector Land Acquisition, Anantnag v. Katiji

Condonation of delay - substantial justice over technicality - exercise of discretionary power to impose costs as condition for condonation - Application for condonation of delay in filing the appeal before the Tribunal - HELD THAT: - The Tribunal examined the appellant's explanation for a delay of approximately 35 days and found the reasons - business closure, lack of manpower, reference to NCLT and appointment of interim resolution professionals - to be unconvincing. Noting that the appellant had an identical issue pending in an earlier appeal before the Tribunal, the Bench applied the ratio in Collector Land Acquisition, Anantnag v. Katiji that courts should prefer substantial justice over pedantic insistence on delay, so that meritorious matters are not thrown out for non-deliberate delay. However, because the delay exceeded 30 days and the explanation was sketchy, the Tribunal exercised its discretion to conditionally grant condonation of delay by imposing a cost as a pre-condition for relief. The Tribunal directed payment of costs to the appropriate revenue office within a specified short period and required reporting of compliance, subject to which the appeal would be taken on record and listed for disposal on merits.

Condonation of delay allowed subject to the appellant paying costs of Rs.5,000 to the specified revenue office within two weeks and reporting compliance by the stated date; upon compliance the appeal shall be taken on record and listed for disposal.

Final Conclusion: The application for condonation of delay is allowed on payment of the directed costs within the prescribed time and upon reporting compliance; the appeal will thereafter be taken on record and listed for disposal on merits.

Condonation of delay - early hearing - classification and demand of services - composite order

Condonation of delay - Application for condonation of delay of 17 days in filing the appeal was allowed. - HELD THAT: - The Tribunal examined the explanation furnished in the application for condonation of delay and found the delay to be adequately explained. In consequence, the Tribunal exercised its discretion in favour of the appellant and condoned the delay, directing the registry to take the appeal on record for disposal in due course. [Paras 3]

Delay of 17 days in filing the appeal is condoned and the appeal is to be taken on record.

Early hearing - classification and demand of services - composite order - Application by Revenue for early hearing of the appeal was allowed and the appeal was directed to be listed early. - HELD THAT: - On perusal of the records and after hearing both parties, the Tribunal observed that the appeal concerns classification and demand of various service activities of the assessee and arises from a composite order confirming a substantial service tax liability. In view of the nature of the controversy and the substantial liability involved, the Tribunal allowed the Revenue's application for early hearing and directed the registry to list the appeal at the earlier date indicated. [Paras 5, 6]

Application for early hearing is allowed and the registry was directed to list the appeal for early hearing (list on 04.06.2018).

Final Conclusion: The Tribunal condoned the 17 day delay in filing the appeal and allowed the Revenue's application for early hearing-ordering the appeal, which involves classification and demand of services arising from a composite order confirming substantial liability, to be taken on record and listed for early hearing.

Refund of wrongly paid service tax where service provider discharged tax not leviable - apportionment of composite contract into taxable and non-taxable components (operation v. maintenance) - limitation under Section 11B of the Central Excise Act and its inapplicability to refunds paid under a mistake of law - doctrine of unjust enrichment - acceptance of Chartered Accountant's certificate as evidence of non-passing on of tax burden

Refund of wrongly paid service tax where service provider discharged tax not leviable - apportionment of composite contract into taxable and non-taxable components (operation v. maintenance) - Entitlement to refund of amounts paid to KPS as service tax in respect of the operation portion of the operation and maintenance contract - HELD THAT: - The Tribunal accepted the appellant's contention that the operation component of the contract is not liable to service tax, following its earlier precedents (Final Orders dated 23.05.2017 and 29.05.2017). On the facts, KPS had discharged service tax which, insofar as it related to the operation portion, was not leviable to the Government; since the appellant in fact bore that tax, it is entitled to claim refund. The adjudicating authority's contrary conclusion was reversed as inconsistent with the Tribunal's ratio that no service tax liability arises on operation charges of the fees paid under such contracts.

Refund claims in respect of the operation portion are maintainable and the appellant is entitled to seek refund.

Limitation under Section 11B of the Central Excise Act and its inapplicability to refunds paid under a mistake of law - Whether refund claims are barred by limitation under Section 11B of the Central Excise Act - HELD THAT: - Having held that the amounts claimed as refund were not due to the Government because the operation component was not taxable, the Tribunal held that Section 11B limitation does not apply to refund claims arising from payment under a mistake of law. The Tribunal followed the decision of the Bombay High Court in Parijath Constructions, which treated Section 11B as inapplicable to such refunds, and accordingly rejected the adjudicating authority's finding that limitation ran from the date KPS paid tax to the government.

Limitation under Section 11B does not bar the refund claims in these cases.

Doctrine of unjust enrichment - acceptance of Chartered Accountant's certificate as evidence of non-passing on of tax burden - Whether the doctrine of unjust enrichment precludes refund because the appellant may have passed on the tax in the power purchase price - HELD THAT: - The Tribunal examined the Chartered Accountant's certificate produced by the appellant which apportioned amounts between maintenance and operation and certified that the appellant had not passed on the operation-related service tax to its buyer. Relying on authority of the Delhi High Court (Hero Motorcorp) and on the certificate's particulars, the Tribunal found the certificate a satisfactory basis to conclude that the appellant bore the tax and did not pass it on; accordingly unjust enrichment was not established. The first appellate authority's acceptance of this evidence was sustained.

Unjust enrichment not made out; refund not barred on that ground.

Final Conclusion: The appeals filed by GMR Energy Vemagiri Power Generation Limited are allowed and the impugned orders rejecting the refund claims are set aside; the Revenue's appeal is dismissed.

Condonation of delay - Delay satisfactorily explained - Exercise of judicial discretion to condone delay - Early hearing on ground of substantial revenue - Registration and listing of appeal for disposal

Condonation of delay - Delay satisfactorily explained - Exercise of judicial discretion to condone delay - Condonation of delay of 23 days in filing the appeal before the Tribunal was allowed. - HELD THAT: - The Tribunal examined the explanation for the delay and found it to be marginal and satisfactorily explained. Applying its discretionary power, the Tribunal accepted the appellant's justification and held that the delay ought to be condoned so that the appeal could be taken on record and proceeded with on merits.

Application for condonation of delay is allowed and the Registry is directed to take the appeal on record.

Early hearing on ground of substantial revenue - Registration and listing of appeal for disposal - Application for early hearing of the appeal was allowed and the appeal was directed to be registered and listed along with matters fixed on 31.01.2018. - HELD THAT: - The Revenue's request for early hearing rested on the contention of substantial revenue involved. The appellant indicated that a similar issue was listed for disposal on 31.01.2018. With no objection from either party, the Tribunal permitted early hearing and directed the Registry to register and list the appeal with the other matters scheduled on that date.

Application for early hearing is allowed and the appeal is to be registered and listed for disposal in due course along with other appeals.

Final Conclusion: The Tribunal condoned the 23-day delay and allowed early hearing; the Registry was directed to take the appeal on record and list it for disposal with matters fixed on 31.01.2018.

Effect of a Tribunal's decision on subsequent revision proceedings - merger of orders - review adjudication - revisional power of the Commissioner - CENVAT credit: availment and utilization - appropriation of payment - dropping of penalty

Effect of a Tribunal's decision on subsequent revision proceedings - merger of orders - review adjudication - Whether the Revenue's revision against the Commissioner's review order could be sustained after the Tribunal in the assessee's appeal had set aside the same review adjudication order. - HELD THAT: - The Tribunal noted that the identical review adjudication order (No.75/2007 dated 24/07/2007) had earlier been challenged by the assessee and that in that appeal the Tribunal examined and set aside the impugned review order. Because the Tribunal in the assessee's appeal allowed the appeal and set aside the review adjudication order, the subsequent revision order impugned by the Revenue stood merged in the Tribunal's decision. In view of that prior adjudication and the merger of the revision order into the Tribunal's order setting aside the review order, the Revenue's challenge to the revision order lacked merit. [Paras 6]

Appeal dismissed as there is no merit, the revision order having been effectively merged in the Tribunal's earlier order setting aside the review adjudication.

Final Conclusion: The Revenue's appeal is dismissed because the impugned revision order related to a review adjudication that had already been examined and set aside by the Tribunal in the assessee's earlier appeal, resulting in the merger of the revision order into the Tribunal's decision.

Operations, Management and Development Agreement (OMDA) - franchise service - taxable service - revenue-sharing - service tax liability - precedent of the High Court

OMDA does not constitute a franchise under Section 65(47) - transaction not taxable under Section 65(105)(zze) - service tax liability - revenue-sharing - Whether the OMDA between AAI and private operators constitutes a franchise and whether the revenue-sharing arrangements attract service tax. - HELD THAT: - The Tribunal followed the decision of the Hon'ble Delhi High Court which held that the OMDA does not constitute a franchise and that the transaction between the parties does not constitute a taxable service under the relevant provisions of the Finance Act. Applying that precedent to the present appeals, the Tribunal observed that the impugned orders demanding service tax and imposing penalty were passed before the Amendment in the Act and are unsustainable in light of the High Court's ratio. Accordingly, the Tribunal set aside the impugned orders by adopting the High Court's conclusion that the revenue-sharing arrangement under OMDA is not a taxable service and any service tax liability as argued by the department does not arise. [Paras 7, 8]

Impugned orders set aside; appeals allowed.

Final Conclusion: The Tribunal allowed the appeals, holding that the OMDA does not constitute a franchise and the revenue-sharing arrangement is not a taxable service; the impugned orders demanding service tax and penalties were set aside in view of the High Court's decision.

Renting of Immovable Property - definition of renting under Section 65(19a) - service tax liability - extended period under Section 73 - retrospective amendment - condonation of delay - abatement of penalty under Section 80 - remand for requantification - local authority good faith

Condonation of delay - Appeal admitted after condonation of delay - HELD THAT: - The appeal initially stood declared defective and, although defects were removed only after some delay, the Tribunal condoned the delay and took the appeal on record. The Tribunal exercised its discretion to allow the condonation and admit the appeal so that the matter could be decided on merits. [Paras 2]

Delay condoned and appeal admitted.

Renting of Immovable Property - definition of renting under Section 65(19a) - service tax liability - extended period under Section 73 - retrospective amendment - local authority good faith - Liability limited to the normal period; extended period demand set aside - HELD THAT: - The Tribunal noted that the appellant did not seriously dispute that its activity fell within the definition of renting of immovable property under Section 65(19a). However, because chargeability was a matter of serious controversy with conflicting judicial decisions and a subsequent reversal and retrospective legislative amendment, the Tribunal held that the revenue could not fasten service tax liability on the appellant for the extended five-year period. The Tribunal also considered the appellant's character as a local authority and found absence of mala fide intent to evade tax, supporting limitation of liability to the normal period. Accordingly the demand was sustained only to the extent falling within the normal period of limitation and the extended period demand was disallowed. [Paras 7, 8, 9]

Demand upheld only for the period within the normal time limit; demand for the extended period (five years) set aside.

Abatement of penalty under Section 80 - remand for requantification - Penalty set aside and matter remanded for requantification - HELD THAT: - The Tribunal invoked the provisions of Section 80 to set aside the penalty imposed on the appellant. As the tax liability was confined to amounts within the normal period, the Tribunal remanded the matter to the adjudicating authority for requantification of tax liability and consequential computations consistent with the Tribunal's directions. [Paras 9]

Penalty set aside under Section 80 and matter remanded for requantification.

Final Conclusion: Appeal partially allowed: delay condoned; service tax demand sustained only for the period within the normal limitation and demand for the extended period disallowed; penalty set aside under Section 80; matter remanded to the adjudicating authority for requantification.

Taxable value of service - Inclusion of cost of materials supplied free by service recipient - Job-work/raw material supplied on job work basis - Sale versus contract for services - Interpretation of Section 67 of the Finance Act, 1994

Inclusion of cost of materials supplied free by service recipient - Taxable value of service - Sale versus contract for services - Interpretation of Section 67 of the Finance Act, 1994 - Whether the cost of raw materials supplied free of cost by the service recipient is includible in the taxable value of 'erection and commissioning or installation' services provided by the assessee. - HELD THAT: - The Tribunal found on the facts and on perusal of the contract that the assessee did not sell any fabricated material to the service recipient; the raw material was supplied by the recipient on a job-work basis and expressly described as 'supplied free of cost'. Consequently the element of sale of plant, machinery, equipment, parts or other material did not arise. Applying the definition of taxable value as reflected in Section 67 of the Finance Act, 1994 and considering the authorities relied upon by the Commissioner (Appeals), the cost of materials supplied by the service recipient could not be included in the gross amount charged for the service. The Tribunal accepted the reasoning of the Commissioner (Appeals) and, on the totality of facts and circumstances, found no reason to interfere with that conclusion. [Paras 4, 5, 6]

The cost of raw material supplied free by the service recipient is not includible in the taxable value of the erection and commissioning service; the impugned order setting aside the demand is confirmed.

Final Conclusion: The appeal filed by the Department is dismissed and the Commissioner (Appeals)'s order holding that the cost of materials supplied free of cost by the service recipient is not includible in the taxable value of the service is confirmed.

Defective show cause notice for lack of specific bifurcation of demand - remand for fresh adjudication to determine service tax liability - right to reasonable opportunity of personal hearing - claim of cum-tax value and its admissibility where suppression is alleged

Defective show cause notice for lack of specific bifurcation of demand - Show cause notice did not specify bifurcation of the total demand among the different services and therefore contained a material lacuna requiring correction. - HELD THAT: - The Tribunal examined the show cause notice and found that although it referred to various services rendered by the appellant, it merely aggregated the values and failed to indicate the specific amounts attributable to each category of service. This omission was held to be a substantive defect in the adjudicatory document. Having regard to the Tribunal's earlier decision in Shubham Electricals upheld by the Delhi High Court, the present lacuna must be rectified before a final determination of service tax liability can be made. Consequently the impugned order confirming the demand was set aside and the matter remitted for fresh consideration consistent with this finding. [Paras 8]

Impugned order set aside and matter remanded to adjudicating authority for correction of the show cause notice defect and fresh determination.

Remand for fresh adjudication to determine service tax liability - claim of cum-tax value and its admissibility where suppression is alleged - right to reasonable opportunity of personal hearing - The question of final quantification of service tax, interest and penalty, including the appellant's claim of cum-tax valuation and the allegation of suppression, was not finally adjudicated and is remanded for fresh consideration with opportunity to the appellant to place evidence and be heard. - HELD THAT: - In view of the defect in the show cause notice the Tribunal did not resolve the merits of the demand, the contention on penalty, or the appellant's entitlement to claim cum-tax valuation. The matter is remitted to the adjudicating authority to determine these issues afresh after rectifying the lacuna, giving the appellant a reasonable personal hearing and liberty to file fresh evidence as permitted by law. The Tribunal thus left the substantive allegations (including suppression and the resulting consequences for availment of cum-tax benefit) to be examined by the adjudicating authority in the reopened proceedings. [Paras 8]

Matter remitted to adjudicating authority for fresh adjudication on service tax, interest and penalty issues, with a reasonable opportunity of personal hearing and leave to file evidence.

Final Conclusion: The appeal is allowed by setting aside the impugned order and remanding the matter to the adjudicating authority for fresh determination after rectifying the defect in the show cause notice and affording the appellant a reasonable opportunity of personal hearing and to file evidence.

Clubbing of clearances for SSI exemption - lifting the corporate veil / removal of corporate veil - pervasive financial and management control - related persons and valuation under Section 4(3)(b)(iv) - Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - transaction value versus resale-based value

Clubbing of clearances for SSI exemption - lifting the corporate veil / removal of corporate veil - pervasive financial and management control - Whether the clearances of the five manufacturing units should be clubbed for denial of SSI exemption and whether the corporate veil should be lifted to treat them as a single unit. - HELD THAT: - The Tribunal affirmed the adjudicating authority's finding that, despite separate legal registrations, the manufacturing units functioned as a single economic entity under the pervasive financial and managerial control of one person. The investigation established common office and residential premises, shared employees and accounts, inter-unit fund transfers without interest, common decision-making on procurement and sales, manufacture of identical products in multiple units, and admissions by family members that control and oversight were exercised centrally. These facts showed that the separate legal forms were a facade and justified piercing the corporate veil. Given that the SSI exemption applies to the aggregate clearances of 'one or more factories' of a manufacturer, the Tribunal held that the units' de facto unity required clubbing of clearances and that the exemption benefit could be confined to the original unit only.

Clearances of the manufacturing units are to be clubbed; the corporate veil is pierced and SSI exemption allowed only to the principal unit.

Related persons and valuation under Section 4(3)(b)(iv) - Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - transaction value versus resale-based value - Whether the transaction values of supplies from the manufacturers to the related trading firms should be accepted or whether valuation must be adopted on the basis of the prices at which the trading firms sold to independent buyers under Rule 9. - HELD THAT: - The Tribunal concluded that the trading firms and manufacturing units were related in substance because control over sales, pricing and business decisions rested with the same person and the entities operated as a single economic unit. Consequently, the transaction values declared by the manufacturing units for transfers to the trading firms lacked sanctity. Applying the legal standard that where sellers and intermediaries are related and effectively constitute one unit, valuation must reflect the price at which the goods were ultimately sold to independent buyers, the Tribunal upheld the use of resale-based valuation under Rule 9 rather than the declared transaction values between the captive entities.

Transaction values between the manufacturing units and trading firms are not to be accepted; valuation is to be based on the resale prices of the trading firms to independent buyers under Rule 9.

Final Conclusion: The impugned adjudicating order was upheld; clearances of the manufacturing units were clubbed, the corporate veil was lifted to treat them as one unit for SSI exemption, and valuation based on the trading firms' resale prices was sustained. All appeals were dismissed.

CENVAT credit - requirement of receipt and utilization of inputs under CENVAT Credit Rules, 2004 - Adverse inference from discrepancies in transport documents and RTO reports - Burden on assessee to explain discrepancies and prove physical receipt when invoices are suspect - Self-assessment obligations of manufacturer - Penalty under Rule 26(2) of Central Excise Rules, 2002 - liability and judicial reduction in quantum

CENVAT credit - requirement of receipt and utilization of inputs under CENVAT Credit Rules, 2004 - Adverse inference from discrepancies in transport documents and RTO reports - Burden on assessee to explain discrepancies and prove physical receipt when invoices are suspect - Denial of CENVAT credit of Rs. 18,27,413/- availed against 58 invoices on the ground that inputs were not received in the factory but only input invoices were produced. - HELD THAT: - Revenue produced RTO reports and statements of vehicle owners/transporters showing that vehicle numbers and vehicle-capacity entries in the relevant invoices were inconsistent with physical movement of the claimed inputs (vehicles incapable of carrying the stated quantities or drivers stating they did not operate on the route). The dealers and the director of the appellant gave evasive or unretracted statements in respect of these discrepancies. Under Rule 3 of the CENVAT Credit Rules, 2004, entitlement requires not only duty-paid invoices but also actual receipt and use of inputs in the factory; mere invoice evidence is insufficient. Where documentary entries are shown to be discrepant and the Revenue discharges its burden by adducing objective evidence pointing to non-receipt, the onus shifts to the assessee to furnish positive explanation or corroborative evidence of receipt. The Tribunal found the assessee failed to satisfactorily explain the transport discrepancies or produce corroborative evidence, and a prudent adverse inference that the goods corresponding to those invoices were not received is warranted. [Paras 11, 12, 14]

Denial of CENVAT credit of Rs. 18,27,413/- confirmed with interest and penalty.

CENVAT credit - requirement of receipt and utilization of inputs under CENVAT Credit Rules, 2004 - Competence and probative value of statements of vehicle owners/representatives - Claim of CENVAT credit of Rs. 9,21,624/- availed against 27 invoices where vehicle-related statements were unreliable or not properly authorised. - HELD THAT: - For this set of invoices, although the Revenue relied on statements purporting to show non-use of vehicles, the Tribunal found that most of these statements were made by persons whose competence or authority to depose was in dispute and that the record lacked other corroborative evidence to substantiate non-receipt. In the absence of reliable oral evidence and other supporting material challenging receipt and utilization, the appellants' statutory records and production returns (which tallied with input consumption) could not be displaced. Consequently, the Tribunal concluded that the allegation of non-receipt could not be sustained for this group of invoices. [Paras 13, 14]

CENVAT credit of Rs. 9,21,624/- held admissible; confirmation of demand, interest and penalty in respect thereof set aside.

Penalty under Rule 26(2) of Central Excise Rules, 2002 - liability and judicial reduction in quantum - Self-assessment obligations of manufacturer - Imposition and quantum of personal penalties on director of the appellant and on persons associated with the dealer-suppliers for involvement in issuance of invoices without movement of inputs. - HELD THAT: - The Tribunal found that the individuals against whom personal penalties were imposed had actively participated or were involved in issuance of invoices where inputs were not actually moved; some of the period under inquiry fell after 01.03.2007, attracting liability under Rule 26(2). However, taking into account gravity and overall circumstances, the Tribunal exercised its discretion to reduce the quantum of the penalties imposed by the adjudicating authority. [Paras 14]

Liability for personal penalty sustained but quantum reduced: penalty on the director reduced to Rs. 2,00,000 and penalties on the two suppliers reduced to Rs. 50,000 each.

Final Conclusion: Part of the demand (Rs. 18,27,413/-) upheld as input invoices were shown to be discrepant and the assessee failed to rebut adverse inference; credit of Rs. 9,21,624/- allowed where evidence of non-receipt was not satisfactorily proved; personal penalties sustained but reduced in quantum; appeals disposed accordingly.

Cenvat credit - eligibility of inputs and capital goods for credit - process not amounting to manufacture - duty paid on cleared goods - reversal of credit - penalty for wrongful availment of credit - bonafide belief doctrine

Cenvat credit - process not amounting to manufacture - duty paid on cleared goods - reversal of credit - penalty for wrongful availment of credit - Whether Cenvat credit availed on certain goods can be disallowed and reversed, with consequent demand, interest and penalties, where the goods were subjected to processes which did not amount to manufacture but duty was paid on clearance of the goods - HELD THAT: - The Tribunal accepted that the goods in question were subjected to processes which apparently did not amount to 'manufacture'. Ordinarily, if there is no manufacture, neither a liability to pay duty nor the entitlement to Cenvat credit on inputs would arise. However, in the present case the assessee had discharged duty on clearance of the processed goods and had utilized Cenvat credit for that purpose. The Tribunal followed earlier reasoning in the assessee's own case and relied upon precedent to the effect that where duty is paid treating the activity as manufacture and credit has been availed and utilized, there is no justification for reversing the credit and imposing penalties merely because the process is later characterized as not amounting to manufacture. The Tribunal noted that such reversion would not advance Revenue's position since duty had already been discharged and no prejudice was caused. The appellant's reliance on decisions including CCE Bangalore Vs Vishal Precision Steel Tubes & Strips Pvt. Ltd. was noted in support of this proposition. For these reasons the demand, interest and penalties founded on reversal of the Cenvat credit were held unsustainable and the impugned order was set aside. [Paras 5, 6]

The demand, interest and penalties based on reversal of the Cenvat credit cannot be sustained; the impugned order is set aside and the appeal is allowed.

Final Conclusion: The appeal was allowed: the Tribunal set aside the order disallowing Cenvat credit and the consequent demand, interest and penalties, holding that where duty was paid on cleared goods and credit availed, reversal of credit and imposition of penalties was not warranted.

Availability of cenvat credit where duty liability on final product has been discharged - expanded meaning of "factory" under Section 2(e) of the Central Excise Act, 1944 - job work compliance and return within 180 days under Rule 4(5)(a)(i) of the Cenvat Credit Rules, 2004 - receipt of inputs in factory for purposes of Rule 3(1) of the Cenvat Credit Rules, 2004

Availability of cenvat credit where duty liability on final product has been discharged - job work compliance and return within 180 days under Rule 4(5)(a)(i) of the Cenvat Credit Rules, 2004 - expanded meaning of "factory" under Section 2(e) of the Central Excise Act, 1944 - receipt of inputs in factory for purposes of Rule 3(1) of the Cenvat Credit Rules, 2004 - entitlement to cenvat credit on inputs claimed by the appellant for the periods in question - HELD THAT: - The Tribunal found that inputs were procured from reputed suppliers with payment through banking channels and that the appellants discharged excise duty on the final products, a fact accepted by the Department. Inputs sent for job work were returned within the 180 days prescribed by Rule 4(5)(a)(i) of the Cenvat Credit Rules, 2004 and the records (dates, challans/invoices, vehicle numbers, quantities) were certified by the statutory auditor. Part of the manufacturing process (dehydration and subsequent distillation stages) was carried out by the job worker and in the appellants' "Specialized Tankers" equipped to perform incidental/ancillary processes. Relying on the expanded statutory meaning of "factory" under Section 2(e) of the Central Excise Act, 1944, the Tribunal held that processes undertaken in the Specialized Tankers and at the job worker's premises constitute part of the factory operations for credit purposes. Applying the principle that cenvat credit is permissible where duty liability on the final product has been discharged (as reflected in prior Tribunal reasoning), the Tribunal concluded that the appellants were entitled to the cenvat credit claimed and there was no justification to sustain the impugned denial. [Paras 5, 6, 7, 8]

The denial of cenvat credit was set aside and the appeals were allowed

Final Conclusion: The impugned order denying cenvat credit was set aside; the Tribunal allowed the appeals holding that inputs processed by a job worker and in Specialized Tankers formed part of factory operations, the job work returns complied with Rule 4(5)(a)(i), and duty on the final product having been discharged, the appellants were entitled to the claimed cenvat credit.

Reversal of CENVAT credit prior to issuance of show cause notice - applicability of Section 11A(2B) of the Central Excise Act, 1944 - Penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 - Confirmation of demand and levy of interest notwithstanding vacation of penalty

Reversal of CENVAT credit prior to issuance of show cause notice - applicability of Section 11A(2B) of the Central Excise Act, 1944 - Penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 - Whether imposition of penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 is sustainable where the assessee reversed the entire CENVAT credit with interest before issuance of the show cause notice. - HELD THAT: - The Tribunal found that the appellant had reversed the entire CENVAT credit attributable to manufacture of electrically operated vehicles and paid interest before any show cause notice was issued. Relying on the settled judicial position that a bona fide reversal of credit with payment of interest prior to issuance of notice attracts the protection under Section 11A(2B) of the Central Excise Act, 1944, the Tribunal concluded that the conditions for imposing penalty under Rule 15(1) were not satisfied. The decision cites and follows earlier High Court and Tribunal precedents addressing the same principle. Applying that legal principle to the facts, the Tribunal held the penalty unsustainable and set aside the penalty portion of the adjudicating authority's order. [Paras 5, 6]

Penalty imposed under Rule 15(1) set aside as the reversal of CENVAT credit with interest before issuance of show cause notice attracts Section 11A(2B) protection.

Confirmation of demand and levy of interest notwithstanding vacation of penalty - Whether the demand for duty and the levy of interest as confirmed by the adjudicating authority should be sustained where the penalty has been set aside. - HELD THAT: - The Tribunal examined the adjudicating authority's confirmation of the demands and levy of interest separately from the penalty question. While accepting the appellant's contention regarding penalty, the Tribunal found no basis in the record to interfere with the adjudicating authority's findings as to the demand and interest. Consequently, the Tribunal upheld the confirmation of the demands along with interest while limiting relief to deletion of the penalty. [Paras 6]

Confirmation of the demands and levy of interest is upheld; only the penalty is set aside.

Final Conclusion: Appeal allowed in part: the penalty imposed under Rule 15(1) of the CENVAT Credit Rules, 2004 is set aside as the appellant had reversed the CENVAT credit with interest prior to issuance of show cause notice (invoking Section 11A(2B) protection); the adjudicating authority's confirmation of demands and levy of interest is, however, upheld.

Interest on delayed reversal of cenvat credit - Voluntary reversal of cenvat credit - Penalty under Rule 15 of the Cenvat Credit Rules, 2004 - Reliance on High Court precedents for waiver of interest

Interest on delayed reversal of cenvat credit - Voluntary reversal of cenvat credit - Reliance on High Court precedents for waiver of interest - Interest liability in respect of cenvat credit reversed by the assessee for inputs used for purposes other than manufacture. - HELD THAT: - It was undisputed that the appellant themselves reversed the cenvat credit attributable to inputs used for purposes other than manufacture for the period January 2008 to April 2011. The Tribunal accepted the submission that the question of interest in such circumstances is covered by the decision of the Hon'ble High Court of Andhra Pradesh in Bharat Dynamics Limited and related High Court authority which hold that interest need not be charged where credit has been reversed by the assessee. The Tribunal found these precedents applicable and persuasive and therefore concluded that interest should not be levied on the voluntarily reversed credit.

Demand of interest set aside.

Penalty under Rule 15 of the Cenvat Credit Rules, 2004 - Voluntary reversal of cenvat credit - Validity of penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004 where cenvat credit was reversed by the assessee. - HELD THAT: - The penalty was imposed under Rule 15 of the Cenvat Credit Rules, 2004. On the facts, the appellant had itself reversed the cenvat credit availed on inputs used for purposes other than manufacture. The Tribunal held that on these facts Rule 15 could not be invoked to sustain the penalty because the reversal was voluntary and there was no basis for penalisation. Consequently, the penalty was held to be unwarranted and liable to be set aside.

Penalty imposed under Rule 15 set aside.

Final Conclusion: Impugned order set aside to the extent challenged; appeal allowed - demands of interest and penalty in respect of the cenvat credit reversed by the appellant for January 2008 to April 2011 are annulled.

Confiscation of goods - seizure of raw material and final product - penalty under Rule 25 of the Central Excise Rules, 2002 - penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 - evidence of clandestine removal / mens rea - weight-based stock verification - redemption fine

Confiscation of goods - evidence of clandestine removal / mens rea - weight-based stock verification - Validity of confiscation of MS billets and CI scrap on the basis of alleged excess stock not recorded in statutory inventory - HELD THAT: - Revenue relied on stock verification which recorded excess quantities of MS billets and CI scrap and contended that the unrecorded stock evidenced an intention to remove goods clandestinely. The stock-taking involved weighing a single billet and multiplying by number of billets rather than physical weighment of entire stock. The Director of the company admitted the excess but did not admit any intention to keep the goods unrecorded for clandestine removal. The appellate finding that the director's statement by itself proved surreptitious removal was an interpretation not borne out by that statement. On the settled legal position, raw material cannot be confiscated in the circumstances shown and, absent evidence of mens rea or clandestine removal, confiscation is unsustainable. Applying these principles, the Tribunal set aside the confiscation. [Paras 3, 4]

Confiscation of the alleged excess MS billets and CI scrap set aside for lack of evidence of clandestine removal and inadequate stock verification.

Penalty under Rule 25 of the Central Excise Rules, 2002 - penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 - Sustainability of penalties imposed under Rule 25 CEX Rules, 2002 and Rule 15(2) Cenvat Credit Rules, 2004 in view of the setting aside of confiscation - HELD THAT: - The adjudicating authority imposed penalties under the specified Rules alongside confiscation and a redemption fine. Having set aside confiscation on grounds that the requisite culpability and evidentiary basis were absent, the Tribunal found no justification to sustain the penalties which were consequential upon the confiscation finding. Accordingly, the penalties imposed by the authorities were also set aside. [Paras 5]

Penalties under Rule 25 and Rule 15(2) set aside as there is no basis to uphold them once confiscation is quashed.

Final Conclusion: Appeal allowed: confiscation of raw material and final product quashed and consequential penalties set aside; appellant granted consequential relief.

Cenvat credit - job work - actual receipt of goods - rectification of invoice - benefit of cenvat credit cannot be denied on technical grounds

Cenvat credit - job work - actual receipt of goods - benefit of cenvat credit cannot be denied on technical grounds - Assessee entitled to cenvat credit though invoices initially showed consignee as the job worker with the assessee named as 'c/o' and the goods were processed by job worker at the assessee's site. - HELD THAT: - The Tribunal found that the appellant manufactures and clears aluminium at its Korba site and transfers inputs to job workers working at the same site who return the goods after processing. The invoices identified the consignee as the job worker at the Balco site, and the consignee address corresponded to the appellant's project site. Given that the goods were actually received and utilized by the appellant (through job work at its site), denial of cenvat credit on the technicality of the invoice showing the job worker as consignee would be inappropriate. The Tribunal applied the settled principle that cenvat credit cannot be withheld merely on technical grounds where actual receipt/utilisation is established, and therefore allowed the credit. [Paras 4, 5]

Allowing of cenvat credit to the appellant on the invoices showing the job worker as consignee was upheld.

Rectification of invoice - cenvat credit - benefit of cenvat credit cannot be denied on technical grounds - Introduction of the appellant's name by hand on five invoices did not constitute manipulation warranting denial of credit and such rectification by the consignee could not be faulted. - HELD THAT: - The adjudicating authority had disallowed credit in respect of five invoices on the ground that the appellant's name was subsequently inserted by hand, treating this as manipulation. The Tribunal examined the invoices which showed the consignee as the job worker at the Balco site and noted that the appellant's name was written subsequently by the consignee. In the factual matrix where job work was carried out at the appellant's site and goods were received/used by the appellant, the Tribunal held that rectification of the invoice by the consignee did not vitiate the entitlement to credit. Consequently, the specific disallowance in respect of those invoices was set aside. [Paras 4, 5]

Disallowance in respect of the five invoices was set aside and credit allowed.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the cenvat credit claimed by the appellant is permitted, including in respect of the five invoices where the appellant's name was handwritten by the consignee.

Confiscation of goods - redemption fine - penalty under Rule 25 of Central Excise Rules - clandestine removal - entry in RG 1 register - confiscation of raw material - inference of recent production from goods being hot

Confiscation of goods - clandestine removal - entry in RG 1 register - inference of recent production from goods being hot - Confiscation and imposition of penalty in respect of finished copper rods not entered in RG 1. - HELD THAT: - The Tribunal found that apart from the absence of entries in the RG 1 register there was no evidence that the finished copper rods were intended for clandestine removal. A portion of the bundles were hotter than room temperature, which the Tribunal accepted as indicative of recent production and that entries were yet to be made during the course of the day. In the absence of any material showing an intention to remove the goods clandestinely, confiscation of the finished product and the penalties imposed could not be sustained. The appellate authority therefore set aside the orders of confiscation and penalty in respect of the finished goods. [Paras 4, 5, 6]

Confiscation and penalty relating to the finished copper rods not entered in RG 1 are set aside for want of evidence of clandestine removal.

Confiscation of raw material - entry in RG 1 register - Validity of confiscation of raw material (copper wire bars) found in excess of recorded balance for non entry in statutory records. - HELD THAT: - The Tribunal applied the settled legal position that raw material cannot be confiscated solely on the ground that it was not entered in the statutory records. Relying on the stated precedent, the appellate bench held that confiscation of the raw material was not justified on the basis of non entry alone and there was no independent material establishing clandestine removal or other culpability warranting confiscation or penalty. Consequently, the orders of confiscation and penalty in respect of the raw material were set aside. [Paras 4, 5, 6]

Confiscation and penalty relating to the raw material are set aside as not justified by the record or precedent.

Final Conclusion: The appeal is allowed; impugned orders of confiscation and imposition of penalty in respect of both the finished goods and the raw material are set aside, with consequential relief to the appellant.

Rate of interest on refund - interest under Section 11BB - statutory rate binding on adjudicatory bodies

Rate of interest on refund - statutory rate of interest - creature of statute - Refund claims are to be allowed interest at the statutory rate prescribed by notification under Section 11BB; the claim for a higher rate of 12% is not permissible. - HELD THAT: - The appellant claimed interest at 12% but did not point to any provision or notification prescribing that rate. The adjudicating authority had sanctioned interest at 6% being the rate prescribed by a Notification issued under Section 11BB, and the Commissioner (Appeals) upheld that approach observing that prior decisions relied upon by the appellant (including Mafatlal ) were inapplicable as they pertained to a period when no statutory provision for interest existed. The Tribunal recorded that, as a statutory body, it cannot grant interest at a rate higher than that prescribed by law and found no infirmity in the view that the statutory rate (6%) governs the sanction of interest on the refund. [Paras 1, 2, 3]

The claim for interest at 12% is rejected; interest on the refund is to be sanctioned at the statutory rate of 6% as prescribed under the Notification issued under Section 11BB.

Final Conclusion: Appeal dismissed; impugned order upholding sanction of interest at the statutory rate of 6% is affirmed.

Refund of Central Excise duty on petroleum products used by international organisations - exemption under Notification No. 108/95-C.E to international organisations for official use - refund mechanism where exemption cannot be effected at source due to supply through depots/pipeline - application of CBEC instructions restricting quantity of fuel for official vehicles - distinction between diplomatic missions and international organisations for refund restrictions - refund claim under Section 11B of the Central Excise Act requiring proof that incidence of duty was borne and not passed on

Exemption under Notification No. 108/95-C.E to international organisations for official use - refund of Central Excise duty on petroleum products used by international organisations - Respondent ICRISAT is entitled to exemption under Notification No. 108/95-C.E and to refund of Central Excise duty paid on fuel used for research work and allied official activities. - HELD THAT: - The First Appellate Authority found that ICRISAT is a notified international organisation under the United Nations (Privileges and Immunities) Act, 1947 and that the exemption under Notification No. 108/95-C.E applies to goods supplied for its official use. The appellate reasoning treated fuel consumed in agricultural and biotech research, operation of research implements, transport of research materials and maintenance of facilities as consumables/raw materials incidental to the respondent's mandated research activities rather than solely as motor fuel. Given the administrative difficulty in extending exemption at the point of clearance where supplies pass through depots/pipelines, the exemption must be given effect through the refund mechanism. The Tribunal noted that the respondent complied with the procedural conditions for claiming refund as set out by the Board, and therefore the concurrent factual findings in favour of refund were upheld.

ICRISAT entitled to refund of Central Excise duty on petroleum products used for research and allied official purposes for the period in question.

Application of CBEC instructions restricting quantity of fuel for official vehicles - distinction between diplomatic missions and international organisations for refund restrictions - Restriction of refund to 350 litres per month per official vehicle applies only to fuel consumed for official vehicles, and the CBEC circular imposing per-litre refund limits for diplomatic missions does not apply to international organisations like ICRISAT. - HELD THAT: - The First Appellate Authority relied on earlier CBEC instructions to limit quantity of petrol/HSD admissible for refund when consumed in official vehicles, and held that the 350 litres per month per vehicle cap applies to the respondent's official vehicles. The Tribunal accepted that the CBEC circular dated 20.04.1976 (as reflected in departmental practice) is applicable to the UN and its agencies and therefore the quantity restriction governs refunds for official vehicles. However, the CBEC circular dated 19.10.1979 that restricts the amount of refund per litre was found to be aimed at diplomatic missions and not to include international organisations notified under the United Nations (Privileges and Immunities) Act; consequently, per-litre amount restriction does not apply to ICRISAT. Thus refunds for research and other authorised non-vehicular uses are not subject to the 350-litre cap, which is confined to official vehicles.

Refunds allowed for non-vehicular research uses in full; refunds for official vehicles are limited to 350 litres per month per vehicle.

Refund mechanism where exemption cannot be effected at source due to supply through depots/pipeline - refund claim under Section 11B of the Central Excise Act requiring proof that incidence of duty was borne and not passed on - Board Circular F. No. 261/27/3/2006-CX8 dated 14.08.2008 applies and prescribes the refund procedure and documentary conditions which ICRISAT satisfied; consequently the refund claims are maintainable. - HELD THAT: - The Board Circular recognised administrative difficulties in extending Notification No. 108/95-C.E at original clearance where petroleum is supplied through depots/pipelines and directed that such cases be facilitated by a refund mechanism. The circular restates the requirements under Section 11B that a refund claim must be supported by documentary evidence showing the duty was borne and not passed on, and prescribes that ICRISAT should file claims with the Assistant/Deputy Commissioner having jurisdiction with certificates and endorsed invoices. The Tribunal noted that ICRISAT complied with these conditions in the refund claims for the relevant period, and therefore the lower authorities were correct in allowing the refunds; concurrent findings of fact were upheld.

Board Circular dated 14.08.2008 governs refund procedure; ICRISAT satisfied its conditions and refund claims are allowable.

Final Conclusion: The Revenue's appeals are dismissed. The Tribunal affirms that ICRISAT, as a notified international organisation, is entitled to refund of Central Excise duty on petroleum products procured and used for research and allied official activities for June, 2015 to October, 2015, subject to the 350 litres per month per official vehicle cap for refund on fuel used in official vehicles, and subject to compliance with the documentary conditions laid down in the Board Circular of 14.08.2008.

Refund of accumulated CENVAT credit on exports - treatment of third-party exports for computing export turnover - proof of realisation by Bank Realisation Certificate

Treatment of third-party exports for computing export turnover - refund of accumulated CENVAT credit on exports - Goods cleared for export through a third party from the assessee's factory are to be treated as exports and included in computing export turnover for entitlement to refund of accumulated CENVAT credit. - HELD THAT: - The first appellate authority held that Rule 2(c)'s expression 'value of export' does not exclude exports effected through third parties and there is no guideline preventing inclusion of third party exports turnover for computing total export turnover. The appellate authority relied on earlier Tribunal decisions which support treating such clearances from the factory as exports. The Tribunal in the present appeal agreed with that interpretation and found no reason to interfere with the appellate authority's conclusion that such clearances qualify as exports for purposes of refund entitlement. [Paras 5, 6]

Inclusion of third party exports cleared from the assessee's premises in export turnover upheld; refund entitlement in respect thereof sustained.

Proof of realisation by Bank Realisation Certificate - limited remand for verification of realisation - The question of realisation of proceeds in respect of third party exports requires verification and is remanded for limited purpose of submission and verification of Bank Realisation Certificate (BRC). - HELD THAT: - Although the appellate authority allowed inclusion of third party export value for computing export turnover, it qualified the finding by requiring the assessee to produce the requisite Bank Realisation Certificate as proof of receipt of foreign exchange for those exports. The Tribunal agreed that the matter should be sent back to the adjudicating authority for the limited purpose of verifying realisation through submission of the BRC, thereby preserving the entitlement to refund subject to such verification. [Paras 5, 7]

Matter remanded to adjudicating authority for limited verification of receipt of foreign exchange by production and verification of Bank Realisation Certificate.

Final Conclusion: The appeal is disposed by upholding the appellate authority's view that goods exported through a third party from the assessee's premises are to be included in export turnover for refund of accumulated CENVAT credit for April 2015 to June 2015, and remitting the case to the adjudicating authority for limited verification of foreign exchange realisation on production of Bank Realisation Certificate.

Application of Rule 6(2) of CENVAT Credit Rules - clearance under Chapter X procedure (Central Excise) - Rule 6(2) applies where dutiable and exempted finished goods are manufactured with same inputs - liability to pay amount equivalent to 6% of value of exempted clearances - precedent in assessee's own case

Application of Rule 6(2) of CENVAT Credit Rules - clearance under Chapter X procedure (Central Excise) - liability to pay amount equivalent to 6% of value of exempted clearances - Whether Rule 6(2) of the CENVAT Credit Rules entitles Revenue to demand an amount equivalent to 6% of the value of sulphuric acid cleared under Chapter X procedure where such clearances were made without payment of duty. - HELD THAT: - The Tribunal applied the ratio recorded in the Final Order dated 26.09.2016 in the assessee's own case for the period September 2011 to March 2013, holding that Rule 6(2) is attracted only when dutiable and exempted finished goods are manufactured using the same inputs. In the present facts, sulphuric acid was not an exempted finished good at the time of manufacture; it was cleared under Chapter X concessional procedure at the point of removal. Therefore the statutory condition for invoking Rule 6(2) was not satisfied. The decision in Atlas Automotive Components Pvt. Ltd. was distinguished on facts: there the assessee had earlier reversed credit and later resisted reversal, leading to a different conclusion. Given that this Bench had earlier considered identical factual and legal contentions in the assessee's favour, the impugned demand of 6% was held not sustainable. [Paras 6, 7]

Demand under Rule 6(2) for payment of 6% of value of sulphuric acid cleared under Chapter X is not sustainable; impugned order is affirmed and the appeal is rejected.

Final Conclusion: Following the Tribunal's earlier final order in the assessee's own case for the same period and materially identical facts, the appeal is dismissed and the Revenue's demand for an amount equivalent to 6% of the value of sulphuric acid cleared under Chapter X procedure is not sustained.

Refund of excess excise duty - Clearance of finished goods received by purchaser - Followed Tribunal precedent - Effect of a pending higher court appeal on binding precedent

Refund of excess excise duty - Clearance of finished goods received by purchaser - Followed Tribunal precedent - Impugned orders granting refund of excess excise duty were correctly upheld and do not warrant interference. - HELD THAT: - The appeals concern entitlement to refund of excess excise duty paid on clearance of finished goods which were received at the purchasers' end. The Tribunal noted that an identical controversy in respect of the same appellant was earlier decided in its favour by a Division Bench in appeal Nos. E/618 & 451/2008 and that this Bench had followed that view in Final Order No.A/31871-31873/2017. Although Revenue has preferred an appeal to the High Court which remains pending, the Tribunal found no reason to depart from the view already taken in favour of the appellant and therefore affirmed the impugned orders. The determinative reasoning is adherence to the earlier Tribunal decision on the identical issue and consequent confirmation of the refund entitlement as recorded in the impugned orders. [Paras 4, 5]

Appeals rejected; impugned orders upheld.

Final Conclusion: The Tribunal affirmed the orders granting refund of excess excise duty on clearance of finished goods received by purchasers, following its earlier Division Bench decision and rejecting Revenue's appeals notwithstanding a pending High Court challenge.

CENVAT credit - input services - canteen services ineligible post-amendment effective 01/04/2011 - freight to port as input service for exports - insurance of plant and machinery as input service; employee insurance excluded post-amendment - transportation for pick-up and drop of employees as input service - waste disposal as input service - remand for verification of documents

Canteen services ineligible post-amendment effective 01/04/2011 - input services - CENVAT credit in respect of canteen services - HELD THAT: - The Tribunal applied the Larger Bench decision in Wipro Ltd. and held that outdoor/canteen catering services are excluded from input service credit after the amendment effective 01/04/2011 (Notification No.3/2011). Accordingly, canteen services availed post 01/04/2011 are disallowed, whereas services prior to 01/04/2011 remain eligible in view of earlier judicial decisions relied upon by the appellant. [Paras 6]

CENVAT credit for canteen services disallowed for the period post 01/04/2011; allowed for the period prior to that date.

Freight to port as input service for exports - input services - CENVAT credit in respect of freight charges incurred for movement of goods to port/place of export - HELD THAT: - Relying on the authorities cited and the principle that, for exports, the port is the place of removal, the Tribunal held that freight charges paid for moving goods from factory to port/place of export fall within the definition of input service and are eligible for CENVAT credit. [Paras 6]

CENVAT credit on freight charges to port/place of export allowed.

Insurance of plant and machinery as input service; employee insurance excluded post-amendment - input services - CENVAT credit in respect of insurance policies - HELD THAT: - The Tribunal distinguished insurance of plant and machinery from employee insurance. It held that insurance premium for plant and machinery qualifies as input service and credit is allowable. However, insurance policies covering employees are excluded from input service after the amendment effective 01/04/2011 (as reflected in Rule 2(l) of CCR, 2004), and thus employee insurance is not eligible post-amendment. [Paras 6]

Credit allowed for plant and machinery insurance; employee insurance disallowed post 01/04/2011.

Transportation for pick-up and drop of employees as input service - input services - CENVAT credit in respect of transportation charges for pick-up and drop of employees engaged in production - HELD THAT: - Considering authorities cited by the appellant and that the charges related to transportation of employees engaged in production between residence and factory, the Tribunal held such transportation charges fall within the definition of input service and are allowable as CENVAT credit. [Paras 6]

CENVAT credit on transportation charges for employee pick-up and drop allowed.

Waste disposal as input service - input services - CENVAT credit in respect of waste disposal charges - HELD THAT: - Relying on decisions cited by the appellant, the Tribunal concluded that services for removal/clearance of manufacturing waste from the premises are related to the business/manufacturing activity and therefore fall within the definition of input service, making the credit allowable. [Paras 6]

CENVAT credit on waste disposal charges allowed.

Remand for verification of documents - Verification of entitlement and documentary support for CENVAT credit claims - HELD THAT: - Although the Tribunal ruled on the legal eligibility of various input services, it remanded the matter to the original authority for examination and verification of the appellant's documents in light of the legal conclusions and the decisions relied upon, to enable quantification and final determination of the appellant's CENVAT credit claim. [Paras 7]

Matter remanded to the original authority for verification of documents and decision in accordance with the Tribunal's legal findings.

Final Conclusion: The appeal is partly allowed: credit is disallowed for canteen services post 01/04/2011 but allowed for earlier period; credit is allowed for freight to port, plant and machinery insurance (employee insurance excluded post-amendment), transportation for employee pick-up/drop, and waste disposal; the case is remanded to the original authority for verification of documents and determination consistent with these findings.