TaxTMI Updates e-Newsletter
May 25,2012

Royalty - reimbursement - fees for technical services - cost allocation agreement - right to exploit - Income - Permanent Establishment

Cost allocation agreement - reimbursement - royalty - Income - Characterisation of payments made by 'A' India under the Cost Allocation Agreement - whether they are merely reimbursements of R&D expenses or constitute income of the applicant and, if so, of what character. - HELD THAT: - The Authority examined the terms of the Cost Allocation Agreement and the payment mechanism under Exhibit 1. The payment arises only when a member uses a process or product developed by another member and depends on such use; there is no unconditional, undifferentiated pooling of R&D costs that confers joint title irrespective of use. The arrangement therefore does not amount to a simple reimbursement or a true joint-cost sharing entitling all parties to ownership irrespective of use. Payments described as contributions towards costs are in substance consideration for the use of a process/formula or information concerning industrial, commercial or scientific experience. Such payments fall within the definition of "royalty" under Explanation 2 to section 9(1)(vi) of the Act. The applicant, being the administrator through which payments pass, is not entitled to treat such receipts as mere reimbursements. [Paras 6, 7, 10, 12, 13]

Payments are not reimbursements but are royalty income within the meaning of the Act.

Royalty - right to exploit - Income - Whether the payments characterised as royalty are taxable in India under the India-Germany Double Taxation Avoidance Convention. - HELD THAT: - Paragraph 3 of Article 12 of the DTAC defines royalty in a manner substantially similar to the Act for use of a secret formula/process or use of industrial/commercial/scientific information. Given the characterisation of the payments as consideration for such use, they qualify as "royalty" under the DTAC and are therefore taxable in India under Article 12.2 of the Treaty. [Paras 11, 14]

The payments are royalty and are taxable in India under the India-Germany DTAC.

Permanent Establishment - Whether a Permanent Establishment in India arises in connection with the applicant's R&D activities such that part of the amount would be attributable to it. - HELD THAT: - The Authority found it unnecessary to decide the question of whether the applicant has a Permanent Establishment in India for the purposes of these transactions. While questions 3 and 4 were answered in light of the characterisation of the receipts as royalty, the existence of a Permanent Establishment and any attribution of income thereto were left open and not finally adjudicated. [Paras 2, 15]

Question of Permanent Establishment is not finally decided and remains open for determination.

Royalty - Fees for technical services - Income - Whether the payments could alternatively be taxed as fees for technical services or as other heads of income, and the tax deduction at source to be applied. - HELD THAT: - The Authority held that having characterised the receipts as royalty under the Act and the DTAC, it was unnecessary to rule on whether they constituted fees for technical services. Consequentially, the payments that are income in the hands of the ultimate recipient are to be treated as royalty. Deduction of tax at source on payments under the Cost Allocation Agreement should be made at the prescribed rates under the Act. [Paras 13, 15, 16, 17]

No ruling on fees for technical services; payments treated as royalty and TDS must be made at the prescribed rates under the Act.

Final Conclusion: Payments made under the Cost Allocation Agreement in respect of use of processes, formulas or scientific/technical information are not mere reimbursements but constitute royalty in terms of the Income-tax Act and paragraph 3 of Article 12 of the India-Germany DTAC, and are taxable in India as royalty; the question whether the applicant has a Permanent Establishment in India is left open; TDS is to be made at rates prescribed by the Act.

Penalty under Section 271(1)(c) for furnishing inaccurate particulars of income - Disallowance under Section 40(a)(ia) for non-deduction of tax at source - Concealment as deliberate suppression versus mere omission or bonafide error - Bonafide lapse and absence of deliberate attempt to conceal income - Incorrect claim in law does not amount to furnishing inaccurate particulars

Penalty under Section 271(1)(c) for furnishing inaccurate particulars of income - Disallowance under Section 40(a)(ia) for non-deduction of tax at source - Concealment as deliberate suppression versus mere omission or bonafide error - Whether penalty under Section 271(1)(c) is leviable where expenditure is disallowed under Section 40(a)(ia) for non-deduction of TDS - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that non-deduction of tax at source resulting in disallowance under Section 40(a)(ia) was technical in nature and did not amount to furnishing of inaccurate particulars of income or concealment. The assessing officer had not disputed the genuineness of payments nor shown deliberate suppression; the record before the AO did not establish that the assessee furnished inaccurate particulars. Reliance on judicial precedents (including the principle in Reliance Petro that an incorrect claim in law by itself does not attract penalty under Section 271(1)(c), and other Tribunal decisions treating non-deduction as a bonafide lapse) supported deletion of penalty. The Revenue produced no material to controvert the factual and legal conclusions reached by the CIT(A). In these circumstances, levy of penalty was not sustainable.

Deletion of penalty imposed under Section 271(1)(c) confirmed; penalty not leviable for the disallowance under Section 40(a)(ia) in the facts of this case.

Final Conclusion: The appeal is dismissed; the order of the CIT(A) deleting the penalty for AY 2006-07 is confirmed.

Transfer pricing adjustment - Most Appropriate Method (MAM) - Transactional Net Margin Method (TNMM) - Cost Plus Method (CPM) - Dispute Resolution Panel (DRP) - requirement of a speaking order - Section 144C directions and procedure - Deduction under section 10B - reduction of telecommunication/internet charges from export turnover - Dismissal for want of prosecution

Transfer pricing adjustment - Most Appropriate Method (MAM) - Transactional Net Margin Method (TNMM) - Cost Plus Method (CPM) - Dispute Resolution Panel (DRP) - requirement of a speaking order - Section 144C directions and procedure - Validity of upward transfer-pricing adjustment and selection of MAM (TNMM v. CPM) as adjudicated by the DRP - HELD THAT: - The Tribunal found that the DRP had recorded the DRP's conclusion upholding the TPO's adoption of CPM over TNMM and the resultant upward adjustment, but had not placed on record the assessee's written objections nor given cogent, germane reasons dealing specifically with each objection. As the DRP's directions under the statutory scheme require consideration of the assessee's objections and the issuance of reasoned directions to guide the Assessing Officer, the Tribunal held that the DRP's non-speaking treatment of the assessee's objections rendered its order insufficient. Following precedent, the Tribunal set aside the orders of the lower authorities and restored the matter to the DRP for fresh adjudication, directing the DRP to pass a detailed speaking order disposing of each objection after allowing a reasonable opportunity of hearing, and further directing that upon receipt of such directions the Assessing Officer shall pass the assessment in conformity with section 144C(13). [Paras 7, 9]

Orders set aside and issue restored to DRP for fresh, speaking adjudication; present assessment set aside; appeal allowed for statistical purposes in respect of these grounds.

Deduction under section 10B - reduction of telecommunication/internet charges from export turnover - Dispute Resolution Panel (DRP) - requirement of a speaking order - Section 144C directions and procedure - Validity of excluding internet/telecommunication charges from export turnover for computing deduction under section 10B as confirmed by the DRP - HELD THAT: - Although the DRP affirmed the Assessing Officer's exclusion of internet charges from export turnover for the purpose of computing deduction under section 10B, the Tribunal observed that the DRP did not reproduce or consider the assessee's submitted objections or record specific reasons addressing them. Because the statutory procedure contemplates that DRP consider and issue reasoned directions on the objections lodged under section 144C, the Tribunal remitted the matter to the DRP to examine the objections, state them on record and give cogent reasons in a speaking order after affording the assessee an opportunity of hearing. Thereafter the Assessing Officer is to pass the assessment in conformity with the DRP's directions under section 144C(13). [Paras 7, 9]

Issue remitted to DRP for fresh, reasoned adjudication; assessment set aside and appeal allowed for statistical purposes as to these grounds.

Dismissal for want of prosecution - Grounds alleging incorrect reckoning of advance tax and consequential interest (Grounds 12 & 13) - HELD THAT: - The Tribunal recorded that no arguments were presented by the assessee's authorized representative in respect of these grounds at the hearing. For that reason, the Tribunal dismissed these specific grounds for want of prosecution without further adjudication on the merits. [Paras 12]

Grounds 12 and 13 dismissed for want of prosecution.

Final Conclusion: The Tribunal set aside the orders of the lower authorities and remitted the transfer-pricing adjustment dispute and the question of exclusion of internet/telecommunication charges from export turnover to the DRP for fresh, speaking adjudication after affording the assessee a reasonable opportunity of hearing; the Assessing Officer is to pass a consequential order under section 144C(13). Grounds relating to advance tax and interest (12 & 13) are dismissed for want of prosecution; the appeal is partly allowed for statistical purposes.

Allowability of consultancy fees - onus of proof for expenses - remand for verification of documentary evidence - allowability of depreciation - evidence of use of asset for business - concept of block of assets - deduction of interest on borrowed capital under section 36(1)(iii) - capitalisation versus current deduction of interest - application of Core Health Care principle on borrowed capital

Allowability of consultancy fees - onus of proof for expenses - remand for verification of documentary evidence - Claim for sales consultancy charges paid to three HUFs was not accepted on the record before the Tribunal and the matter was restored to the Assessing Officer for fresh adjudication after examination of particulars. - HELD THAT: - The Tribunal noted that payment to the three HUFs was not disputed but the Revenue's grievance was absence of particulars about the nature of services rendered and how those services were used in the assessee's business. The Tribunal held that the details are necessary for decision and directed the AO to examine the particulars to be furnished by the assessee, after giving reasonable opportunity of hearing. The assessee was directed to furnish particulars of the services rendered and their utility to the business in support of the claim. The Tribunal therefore did not decide the allowability on merits but remanded the issue for verification and fresh decision in accordance with law. [Paras 6]

Issue remanded to the Assessing Officer for fresh decision after examination of details to be filed by the assessee; assessee's ground allowed for statistical purposes.

Allowability of depreciation - evidence of use of asset for business - concept of block of assets - CIT(A)'s restriction of the disallowance and allowance of depreciation on the properties was upheld by the Tribunal. - HELD THAT: - The Tribunal recorded that the CIT(A) had found, on documents produced in appeal, that assets existed and were put to use in the year for business purposes and therefore qualified for depreciation. The CIT(A) had addressed the AO's objections (absence of utility evidence and contention that property was merely land with AC roofing) by noting production of electricity and water bills (though in previous owner's name but payments reflected in assessee's bank account), municipal tax payments and movement of stock evidencing use. The Tribunal saw no reason to interfere and affirmed the CIT(A)'s direction to allow depreciation while disallowing depreciation attributable to land and applying block-of-assets principles and pro rata treatment where appropriate. [Paras 11]

Order of the CIT(A) restricting the disallowance and allowing depreciation (subject to disallowance of land component and block-of-assets principles) is upheld.

Deduction of interest on borrowed capital under section 36(1)(iii) - capitalisation versus current deduction of interest - application of Core Health Care principle on borrowed capital - CIT(A)'s adjustment of interest claim - allowing interest except to the extent held to relate to pre-capitalisation period and hence to be disallowed - was upheld by the Tribunal. - HELD THAT: - The Tribunal noted the AO disallowed interest on two counts: (i) that certain loans were from specified persons and interest was excessive; and (ii) that borrowed funds were used to acquire assets not put to use so interest should be capitalised. The CIT(A) accepted that the assets were put to use and thus interest is allowable, but sustained disallowance in respect of amounts used in a pre-capitalisation period. Applying the Supreme Court's principle in Core Health Care (that section 36(1)(iii) looks to use of borrowed capital for business in the year rather than to the use of the resultant asset), the Tribunal found no infirmity in the CIT(A)'s approach and upheld the order. [Paras 16, 17]

Order of the CIT(A) sustaining limited disallowance for pre-capitalisation interest and allowing the balance is upheld; revenue's ground dismissed.

Final Conclusion: The assessee's appeal is allowed for statistical purposes by remand on the consultancy-fees claim; the CIT(A)'s allowance of depreciation is upheld; and the CIT(A)'s treatment of interest on borrowed capital (limited disallowance for pre-capitalisation amounts, balance allowed in accordance with Core Health Care) is upheld, with the revenue's appeal dismissed.

Manufacture or production resulting in transformation into a new and distinct article - substantial processing constituting manufacture - distinction between manufacture and mere processing - eligibility for deduction under Section 80-I of the Income-tax Act, 1961

Manufacture or production resulting in transformation into a new and distinct article - substantial processing constituting manufacture - eligibility for deduction under Section 80-I of the Income-tax Act, 1961 - Whether the activities undertaken by the assessee in converting purchased Flats (pallas) into pullovers amount to 'manufacture' or 'production' so as to attract deduction under Section 80-I - HELD THAT: - The Court accepted the findings of the CIT(A) and the Tribunal that the Flats purchased by the assessee underwent numerous operations (including milling, tailoring, cutting, pressing, linking, sewing and packing) and that the assessee's processing cost per pullover was substantial. Applying the statutory definition of 'manufacture' (change resulting in a new and distinct article having a different name, character and use), and relying on Supreme Court authorities holding that manufacture requires transformation into a new and distinct article, the Court concluded that the stepwise and substantial operations effected by the assessee produced a marketable commodity (pullover) distinct in character and quality from the Flats. The Court also noted and followed precedents (including Arihant Tiles & Marbles) which treated multi-stage conversion and polishing/processing as manufacture where a new and distinct commodity emerges. On these grounds the appellate authorities' conclusion that pullovers qualify as manufactured articles for Section 80-I purposes was approved. [Paras 5, 7, 10]

Activities converting Flats into pullovers constitute 'manufacture' or 'production' and income from sale of pullovers is entitled to deduction under Section 80-I.

Distinction between manufacture and mere processing - eligibility for deduction under Section 80-I of the Income-tax Act, 1961 - Whether the processes applied to blankets and mufflers by the assessee amount to manufacture so as to attract deduction under Section 80-I - HELD THAT: - The CIT(A) and the Tribunal found, and the Court agreed, that the processes applied to blankets and mufflers were insignificant and did not result in emergence of a new and distinct marketable product. The extent and cost of processing were materially lower and did not effect the transformation required by the statutory test of 'manufacture'. Consequently, the appellate authorities correctly held that profits from sale of blankets and mufflers did not qualify for deduction under Section 80-I. [Paras 5, 10]

Processes applied to blankets and mufflers do not amount to 'manufacture' and profits from them are not eligible for deduction under Section 80-I.

Final Conclusion: The revenue's appeals are dismissed. The High Court upholds the Tribunal's and CIT(A)'s conclusions that conversion of Flats into pullovers amounts to manufacture or production attracting deduction under Section 80-I, whereas processes relating to blankets and mufflers do not, and answers the questions of law against the revenue.

Disallowance of expenditure for failure to deduct tax at source under Section 40A(ia) - disallowance of expenditure for payments in cash exceeding the prescribed limit under Section 40A(3) - remand for fresh consideration with opportunity of hearing - findings of fact not giving rise to substantial question of law

Disallowance of expenditure for failure to deduct tax at source under Section 40A(ia) - findings of fact not giving rise to substantial question of law - Whether the disallowance of Rs.33,97,674/- under Section 40A(ia) was sustainable. - HELD THAT: - The High Court approved the Tribunal's factual finding that the assessee had defaulted in deduction of tax at source and that payments in question were therefore not allowable as expenditure under Section 40A(ia). The court observed that there is ample evidence on the record to support the Tribunal's conclusion and that these conclusions are findings of fact. Consequently, no substantial question of law arose for determination and interference with the Tribunal's conclusion was unwarranted. [Paras 7]

The Tribunal's upholding of the disallowance under Section 40A(ia) is approved and the appeal on this question is dismissed.

Disallowance of expenditure for payments in cash exceeding the prescribed limit under Section 40A(3) - remand for fresh consideration with opportunity of hearing - Whether the additions made under Section 40A(3) required fresh consideration by the Assessing Officer. - HELD THAT: - The Tribunal had remanded the matter to the Assessing Officer to examine the assessee's claim in accordance with directions issued in an earlier Tribunal order and to afford the assessee a reasonable opportunity of hearing. The High Court recorded and endorsed that course, directing that the assessee be at liberty to adduce evidence and that full opportunity of hearing be afforded. The court therefore refrained from finally adjudicating the Section 40A(3) contention and left the matter for fresh consideration by the Assessing Officer. [Paras 8]

The matter under Section 40A(3) is remanded to the Assessing Officer for fresh examination and hearing.

Final Conclusion: Both appeals are dismissed; the Tribunal's order upholding the Section 40A(ia) disallowance is affirmed, and the issue under Section 40A(3) is remanded to the Assessing Officer for fresh consideration with liberty to the assessee to produce evidence and be heard; the connected appeal by the director is disposed of on the same terms.

Penalty under section 271(1)(c) of the Income-tax Act - revised return filed after issuance of notice/questionnaire - AO's recorded satisfaction - mens rea not essential for levy of penalty under the Act - bona fide inadvertence defence

Penalty under section 271(1)(c) of the Income-tax Act - revised return filed after issuance of notice/questionnaire - AO's recorded satisfaction - mens rea not essential for levy of penalty under the Act - bona fide inadvertence defence - Validity of levy of penalty where the assessee filed a revised return after receipt of questionnaire/notice and the AO recorded satisfaction that income was concealed - HELD THAT: - The Tribunal examined whether the penalty could be sustained where the revised return was filed after the issuance of a questionnaire and the AO recorded satisfaction in the assessment order that the revision followed the notice. While recognizing the legal position that mens rea is not an essential ingredient for imposing penalty under the Act, the Tribunal nevertheless evaluated the factual matrix and the assessee's explanation. The assessee, a retired employee who regularly filed returns, explained that interest from amounts deposited on receipt of retirement benefits in a new account was omitted from the original return due to lapse of memory. Although precedents hold that inadvertence must be supported by attendant evidence and revision after enquiries may indicate compulsion, the Tribunal found on the facts that omission by a retired person under these circumstances could be bona fide. Having weighed the recorded satisfaction and statutory tests against the surrounding facts, the Tribunal accepted the assessee's bona fide explanation and held that penalty was not warranted. [Paras 1, 3]

Levy of penalty cancelled and the appeal allowed.

Final Conclusion: The Tribunal accepted the assessee's bona fide explanation for omission of interest income despite revision after questionnaire and, applying the statutory tests, cancelled the penalty levied under section 271(1)(c).

Capitalization of computer software - license period and enduring benefit - treatment of computer software in block of assets and depreciation - reversal of provision and prohibition of double taxation - verification of earlier-year offer to tax before making addition

Capitalization of computer software - license period and enduring benefit - treatment of computer software in block of assets and depreciation - Whether the expenditure on purchase of application software is capital or revenue in nature, having regard to the period of licence, statutory treatment of computer software in the block of assets and availability of depreciation. - HELD THAT: - The Tribunal observed that an identical issue in the preceding year was restored to the Assessing Officer for fresh adjudication with directions to ascertain the duration of the licence for each software and then apply the principles laid down by the jurisdictional High Court and the ITAT Special Bench in Amway India Enterprises. Although the CIT(A) had treated the software as capital in view of the amendment making computer software part of the block eligible for 60% depreciation, the Tribunal, following its earlier order in the immediately preceding assessment year, directed that the Assessing Officer must verify the length of the period for which the software was acquired and then decide, applying the precedents cited, whether the expenditure gives an enduring benefit or should be treated as revenue. The matter is thus remitted for fresh factual and legal determination by the AO in accordance with those directions. [Paras 8, 9]

Remanded to the file of the Assessing Officer for fresh adjudication after verification of the licence period of each software and application of the cited authorities; AO to decide afresh whether the expenditure is capital or revenue and, if capital, allow depreciation as applicable.

Reversal of provision and prohibition of double taxation - verification of earlier-year offer to tax before making addition - Whether the amount shown as reversal of sales incentive in the year under consideration was already offered to tax in the earlier year and, if so, whether the addition in the current year is impermissible. - HELD THAT: - The Tribunal examined the assessee's computation for the earlier year which showed that a provision for sales bonus had been added back and the actual sales bonus paid deducted, resulting in an excess provision that was offered to tax in the earlier year. Concluding that the same amount could not be taxed twice, the Tribunal set aside the CIT(A)'s order and remitted the matter to the Assessing Officer with a direction to verify, after affording the assessee a reasonable opportunity of being heard, whether the amount in question was indeed offered for taxation in the earlier year; if so, no addition should be made in the year under consideration. [Paras 16]

Remanded to the Assessing Officer for verification; if the amount was already offered for taxation in the earlier year, the addition in the year under consideration shall not be made.

Final Conclusion: The Tribunal allowed the appeal for statistical purposes and remitted both disputed issues to the Assessing Officer for fresh verification and adjudication in accordance with the directions given: the software-cost issue to be re-examined with reference to licence periods and applicable precedents, and the reversal-of-provision issue to be verified to avoid double taxation.

Reopening of assessment - Validity of reopening notice under Section 147 - Escaped income - Failure to disclose fully and truly all material facts - Assessment beyond four years from the end of relevant assessment year

Reopening of assessment - Failure to disclose fully and truly all material facts - Assessment beyond four years from the end of relevant assessment year - Whether the reopening notice dated 23.3.2011 under Section 147 was validly issued on the ground that income had escaped assessment due to failure to disclose material facts, so as to permit reassessment for AY 2004-05 beyond four years. - HELD THAT: - The Assessing Officer recorded reasons alleging two particulars: (i) customs duty paid by the assessee on behalf of customers claimed as an expense, and (ii) long standing sales commission liability which, being over three years old, should be treated as ceased liability. The record shows that during the original assessment the assessee had disclosed both matters and furnished specific explanations and supporting ledgers/accounts in response to AO's queries while the assessment was pending. The AO framed the original assessment after scrutiny without making any additions on these grounds. Given that these issues were within the knowledge of the AO at the time of original assessment and had been expressly answered by the assessee, there was no failure to disclose fully and truly all material facts. Consequently, the statutory prerequisite for invoking Section 147 (reopening beyond the four year period) was not satisfied, and reopening the assessment for AY 2004 05 on the stated grounds was impermissible. [Paras 5, 9, 10, 11, 12]

The reopening notice dated 23.3.2011 is quashed and the reassessment proceedings are not maintainable.

Final Conclusion: The petition is allowed; the reassessment notice dated 23.3.2011 for AY 2004-05 is quashed because the Assessing Officer had knowledge of and had considered the contested matters in the original assessment and the statutory condition for reopening beyond four years was not met.

Apportionment of indirect costs under section 80HHC(3)(b) - attribution of costs to export of trading goods - exclusion of direct costs from allocation - Allocation by ratio of export turnover to total turnover - remand for factual determination to Assessing Officer

Apportionment of indirect costs under section 80HHC(3)(b) - attribution of costs to export of trading goods - exclusion of direct costs from allocation - Allocation by ratio of export turnover to total turnover - Method for determining the indirect costs to be reduced from export turnover of trading goods under section 80HHC(3)(b). - HELD THAT: - The Tribunal, by majority, held that only those costs which are attributable to the export of trading goods qualify as indirect costs to be reduced under clause (b). Attribution must precede any statutory scaling. Once indirect costs attributable to export are identified, any allocation required by the Explanation is to be effected by applying the statutory ratio of export turnover in respect of trading goods to total turnover. Direct costs are excluded from allocation and must be determined by reference to normal commercial accounting principles (for example AS 2 and the assessee's consistent valuation of inventory); costs that are properly classified as direct (including cost of sales up to the stage revenue is recognised) are not to be apportioned. Indirect costs not having a nexus with export of trading goods are to be left out at the threshold. The majority accepted precedent in Surendra Engineering (Special Bench) and the reasoning in Hero Exports (SC) and distinguished Parry Agro on its facts. The opposing view (minority) that no prior segregation is permissible and that all non-direct costs must be allocated by the turnover ratio was rejected by the majority. [Paras 4, 5, 8, 9]

Indirect costs attributable to export of trading goods must first be identified and then, where applicable, scaled down by the statutory ratio of export turnover to total turnover; direct costs are excluded from allocation.

Remand for factual determination to Assessing Officer - Whether the matter should be remitted to the Assessing Officer for factual determination of which expenses are direct and which are indirect and attributable to export of trading goods. - HELD THAT: - The Tribunal recorded that the earlier order was an open remand and that factual determination remained necessary. On the agreed principles (identification of direct costs and attribution of indirect costs to export), the matter was restored to the Assessing Officer for fresh factual determination and recomputation in accordance with law, allowing the assessee a reasonable opportunity to present its case. The majority endorsed restoration to the file of the AO for application of the legal tests laid down. [Paras 4, 5]

Matter remitted to the Assessing Officer for fresh factual determination and recomputation consistent with the Tribunal's legal conclusions.

Final Conclusion: For AY 2002-03 and AY 2003-04 the Tribunal (majority) held that only indirect costs attributable to the export of trading goods are to be reduced from export turnover under s.80HHC(3)(b), such costs being first identified and then, if allocation is required, scaled by the statutory ratio of export turnover to total turnover; direct costs are excluded. The matter is restored to the Assessing Officer for factual determination and recomputation in accordance with these principles; the Revenue's appeals are treated as allowed for statistical purposes.

Treatment of surplus on sale/redemption of shares/units as capital gains - classification of investments as capital assets versus stock-in-trade - application of Rule 8D of the Income Tax Rules for disallowance under section 14A - calculation of average of total assets for Rule 8D without reduction of current liabilities and provisions - limitation of disallowance for exempt dividend income to a reasonable percentage

Treatment of surplus on sale/redemption of shares/units as capital gains - classification of investments as capital assets versus stock-in-trade - Net surplus arising on sale/redemption of shares/units is to be treated as capital gains and not as business income. - HELD THAT: - On the facts, the assessee had recorded the shares/units under the head 'investment' in its books and the original intention was to hold them as investments (earn dividend and occasional sale). The CIT(A) followed earlier appellate orders in the assessee's own case and the Tribunal's view that volume, frequency and period of holding do not convert an asset from investment to stock-in-trade when the initial intention and book classification indicate investment. The Tribunal found no infirmity in CIT(A)'s conclusion and upheld the direction to treat the net surplus on sale/redemption of such shares/units as taxable under the head 'capital gains'. [Paras 4]

Revenue's appeal on this point dismissed; net surplus to be assessed as capital gains.

Application of Rule 8D of the Income Tax Rules for disallowance under section 14A - calculation of average of total assets for Rule 8D without reduction of current liabilities and provisions - limitation of disallowance for exempt dividend income to a reasonable percentage - Rule 8D was applied by the Assessing Officer but the average of total assets for computing disallowance must be calculated without reducing current liabilities and provisions; the disallowance in respect of exempt dividend income is to be restricted to 1% of such income. - HELD THAT: - CIT(A) held that adoption of Rule 8D by the AO was correct in view of authoritative Tribunal decisions, but that the AO's computation erred in using 'net assets' (i.e., reducing current liabilities and provisions). The CIT(A) directed recalculation of the opening and closing value of total assets without such reductions and consequential recalculation of disallowance under Rule 8D(2)(ii). The Tribunal, having regard to higher judicial guidance on the prospective applicability of Rule 8D and consistent views of the Bench, directed that the disallowance under section 14A in respect of dividend income be restricted to 1% of the exempted dividend income and directed the AO to give effect accordingly. [Paras 6, 7]

Grounds partly allowed: AO directed to recompute average total assets without reducing current liabilities/provisions and to restrict section 14A disallowance in respect of dividend income to 1% of that income.

Final Conclusion: The Tribunal dismissed the revenue's challenge on classification of the surplus as business income and upheld its treatment as capital gains; on the section 14A/Rule 8D point the matter was partly allowed-AO to recalculate average total assets without netting current liabilities/provisions and to limit the disallowance relating to exempt dividend income to 1%.

Existence solely for educational purposes - substantially financed by the Government - exemption under section 10(23C)(iiiab) - weight of prior departmental/quasi judicial finding

Existence solely for educational purposes - exemption under section 10(23C)(iiiab) - Assessee University exists solely for educational purposes and not for carrying on activities for profit for the assessment years in issue. - HELD THAT: - The Tribunal examined the statutory objects of the University as enacted by the Sikkim Legislature, its constituent units imparting medical, technical and allied education, and the control structure of the Governing Council which includes the Governor and State Government officers. The Tribunal accepted that the University was created to provide high order medical and technological education and related research and that its activities, including hospital services and fee generation for sustaining and expanding education, did not convert its character into a profit making institution. The Tribunal noted that revenue generation for development and survival of an educational institution does not negate its charitable character and observed that operating surpluses during the years under appeal were modest relative to gross receipts and that heavy deficits and capital expenditure in formative years supported the educational purpose. Applying these findings, the Tribunal concluded that the University exists solely for education and hence satisfies the condition of being an educational institution for the purposes of exemption under section 10(23C)(iiiab). [Paras 8, 11]

University exists solely for educational purposes and thereby meets the requirement of being an educational institution for exemption under section 10(23C)(iiiab).

Substantially financed by the Government - exemption under section 10(23C)(iiiab) - weight of prior departmental/quasi judicial finding - Assessee University was wholly or substantially financed by the Government within the meaning of section 10(23C)(iiiab) for the assessment years in issue. - HELD THAT: - The Tribunal held that the phrase 'wholly and substantially financed by the Government' must be understood by taking into account government contributions up to date rather than by a year wise comparison of grant with annual receipts. Applying the principle in CIT v. Charat Ram Foundation, the Tribunal took into account cumulative governmental funding including land grants, an advance contribution, and annual grants, supported by a valuation report and records showing the Government's contributions aggregating approximately the amounts stated in the record. The Tribunal also found statutory provisions conferring Government audit and reporting powers over University accounts indicative of governmental control. Further, the Tribunal relied on the CCIT, Jalpaiguri's prior order which treated the institution as covered under clause (iiiab), noting that the department should not adopt inconsistent positions. On these bases the Tribunal concluded that the Government's cumulative contributions, including land and cash grants and the statutory control mechanisms, amounted to substantial financing under section 10(23C)(iiiab). [Paras 8, 9, 10, 11]

Assessee is wholly or substantially financed by the Government and thus fulfils the financing criterion of section 10(23C)(iiiab), warranting exemption of its income for the years under appeal.

Final Conclusion: All appeals are allowed: the Tribunal held that the University exists solely for educational purposes and was wholly or substantially financed by the Government, and consequently the income of the assessee for AYs 2004-05 to 2007-08 is exempt under section 10(23C)(iiiab).

Assessment under search-based proceedings - Material found during search as sole basis for assessment - Tax deduction at source and implication for disclosure - Assessment of firm income vis-a -vis partner - Completed contract method of accounting

Material found during search as sole basis for assessment - Assessment under search-based proceedings - Validity of additions founded on material allegedly seized during search and whether assessment under Sections 158-BC/158-BD can go beyond material found in search - HELD THAT: - The Court reaffirmed that assessments under search-based provisions can be sustained only on the material actually found during the search, because regular assessments would already have been made and the special proceedings are additional and limited to seized material. On scrutiny of the seized record from the premises of the person searched, the material did not conclusively establish undisclosed receipts claimed by the Assessing Officer. The Tribunal's conclusion that initiation of proceedings was justified was not challenged by the assessee, but the additions made by the Assessing Officer - including the amounts attributed to fixed deposits and contract receipts - were not supported by the seized documents. Consequently the Tribunal correctly restricted the assessment to what the seized material legally warranted and set aside the impugned additions.

Additions and assessment could not be sustained beyond the material found in search; the Tribunal's approach confining assessment to seized material is upheld and the additions are disallowed.

Tax deduction at source and implication for disclosure - Whether amounts on which tax was deducted at source can be treated as undisclosed income in search-based assessment - HELD THAT: - The Court applied the settled principle that where payments have been made with tax deducted at source, the department is put on notice of the payment and such receipts cannot be treated as 'undisclosed' merely because they were not declared in the assessee's return. Reliance was placed on earlier decisions to the same effect. The seized material did not show fixed deposit receipts or other conclusive evidence of undisclosed receipts, and in view of tax deducted at source the Tribunal rightly held that those receipts could not be treated as undisclosed income of the assessee.

Amounts in respect of which tax was deducted at source cannot be treated as undisclosed income on the basis of the seized material; the Tribunal's finding in favour of the assessee is upheld.

Assessment of firm income vis-a -vis partner - Whether receipts advanced to or received by the firm M/s. Rukmini Combines could be assessed directly as income of the partner - HELD THAT: - The Tribunal found, on the material, that amounts received in advance were the receipts of the firm and not of the individual partner. The High Court agreed that the seized material and the factual matrix did not justify treating the firm's receipts as the partner's personal undisclosed income, particularly where the firm had its own account of advances and transactions. The Court therefore sustained the Tribunal's conclusion that those amounts could not be directly assessed in the hands of the partner.

Receipts of the firm cannot be assessed as the undisclosed income of the partner on the record before the authorities; the Tribunal's finding is upheld.

Completed contract method of accounting - Assessment under search-based proceedings - Whether the completed contract method should be adopted so that entire receipts during the block period cannot be brought to tax when work was not completed during that period - HELD THAT: - While the substantial questions raised the accounting treatment and whether receipts during the block period could be taxed in full, the Court accepted the Tribunal's approach that the nature of the contracts and the accounting method adopted warranted treating income in accordance with completion of contract principles. Given the factual finding that works were not completed during the block period and that returns had been filed on a cash basis for relevant years (as noted), the Tribunal's application of the completed contract method and refusal to bring the entire receipts to tax during the block period was sustained.

The Tribunal's adoption of the completed contract method in the facts of the case is upheld and the entire receipts during the block period cannot be taxed as completed income.

Final Conclusion: All substantial questions of law were answered against the revenue; the High Court upheld the Tribunal's findings that the Assessing Officer's additions were not supported by the seized material, that payments subject to tax deduction at source could not be treated as undisclosed income, that firm receipts could not be assessed in the hands of the partner on the record, and that the completed contract method was correctly applied; the revenue's appeal is dismissed.

Presumptive taxation under Section 44AF - requirement to explain individual bank deposits when assessed under presumptive scheme - additions under sections 69 and 69C - nexus between bank deposits and business receipts

Presumptive taxation under Section 44AF - requirement to explain individual bank deposits when assessed under presumptive scheme - nexus between bank deposits and business receipts - additions under sections 69 and 69C - Whether additions made by the Assessing Officer and sustained by the CIT(A) treating bank deposits as unexplained income under sections 69/69C were sustainable when the assessee was assessed on a presumptive basis under section 44AF and the deposits co-related with declared turnover. - HELD THAT: - The Tribunal found that the assessee carried on retail business of building materials and had returned income under the deeming provisions of section 44AF for the three assessment years, the turnover in each year being below the statutory threshold. The Assessing Officer denied applicability of section 44AF and made additions by treating bank deposits as unexplained; neither the AO nor the CIT(A) produced material disproving a nexus between the deposits and business receipts. The Tribunal held that where income is assessed on a presumptive basis under section 44AF (applicable when turnover is below the prescribed ceiling), the assessee is not obliged to explain each individual bank deposit unless it is shown that particular deposits have no nexus with the declared gross receipts. Applying this principle and noting that deposits and withdrawals broadly correlated with the turnover and that the assessee had declared income under section 44AF, the Tribunal concluded there was no basis for additions under sections 69 or 69C. The Tribunal also relied on the ratio in Surinder Pal Anand (Punjab & Haryana High Court) to the effect that individual cash deposits need not be explained when the presumptive scheme applies and the deposits are linked to gross receipts. [Paras 6, 7]

Additions of bank deposits under sections 69 and 69C deleted and assessment upheld on the basis of income declared under section 44AF; appeals allowed.

Final Conclusion: The appeals are allowed: additions of bank deposits treated as unexplained income under sections 69/69C were deleted because the assessee was assessable under the presumptive scheme of section 44AF and the deposits were found to have nexus with declared business receipts.

Chargeability under section 41(1) of the Income-tax Act - treatment of value added tax refund receivable - mercantile system of accounting - consistency of accounting - taxation of DEPB credit in the year of issue or year of sale

Chargeability under section 41(1) of the Income-tax Act - treatment of value added tax refund receivable - mercantile system of accounting - consistency of accounting - Whether the value added tax receivable shown in the assessee's accounts for the year ended 31 March 2007 was chargeable to tax under section 41(1) in assessment year 2007-08 - HELD THAT: - The Tribunal accepted the assessee's case that the alleged VAT refund was a disputed claim contingent on adjudication by the Commercial Tax authority under the applicable West Bengal VAT rules and therefore not an automatic accrued benefit in the relevant previous year. The assessee followed the mercantile system and consistently accounted for VAT receipts in the year of actual receipt; earlier VAT receivable was shown in the balance sheet and the assessee offered VAT when actually received in other years. In these circumstances, and having regard to the legal test in section 41(1) which charges to income amounts representing subsequent receipt of previously allowed deductions or remission of liabilities, the Tribunal found that no benefit had accrued to the assessee in the year under appeal because the claim had not been adjudicated in the assessee's favour. Consequently the addition under section 41(1) was rightly deleted by the Commissioner (Appeals).

Addition under section 41(1) in respect of the VAT refund receivable deleted; Revenue's ground dismissed.

Taxation of DEPB credit in the year of issue or year of sale - treatment of DEPB credit receivable - consistency of accounting - Whether the DEPB credit shown as receivable as on 31 March 2007 was exigible to tax in assessment year 2007-08 - HELD THAT: - On the facts the assessee's profit and loss account and schedules showed DEPB benefit receivable but did not disclose sale or realisation of that credit in the year ended 31 March 2007; some DEPB realisations were offered to tax in other years. Relying on the principle that DEPB credit is taxable in the year of issue or in the year of sale/realisation, and following the relevant High Court decision cited in the record, the Tribunal held that to the extent the DEPB credit had not been sold or realised in the year under appeal, it was not taxable in that year. The Commissioner (Appeals)'s direction to reduce the disallowance in respect of the unsold DEPB credit was therefore correct.

DEPB credit not taxed in assessment year 2007-08 to the extent it remained unsold; Revenue's ground dismissed.

Final Conclusion: Both grounds of the Departmentary appeal were dismissed: the addition under section 41(1) in respect of VAT refund receivable was deleted, and the DEPB credit not sold in the year under appeal was held not chargeable to tax in assessment year 2007-08; the Commissioner (Appeals) order affirmed.

Refund of duty paid on import - unjust enrichment - Cenvat Credit admissibility under Rule 3 of the Cenvat Credit Rules, 2004 - requirement of proof of non-utilisation of credit - requirement of proof that duty was not passed on to customers

Cenvat Credit admissibility under Rule 3 of the Cenvat Credit Rules, 2004 - requirement of proof of non-utilisation of credit - Whether appellants were obliged to produce a certificate that they had not taken Cenvat credit of the coal cess paid at import. - HELD THAT: - The tribunal accepted the uncontested legal position that coal cess is not a duty eligible for credit under Rule 3 of the Cenvat Credit Rules, 2004. Given the statutory prohibition on taking credit of the coal cess, the insistence by the authorities that the appellants produce a certificate stating that they had not availed Cenvat credit was not warranted. The respondents' concession that credit of coal cess cannot be taken reinforced this conclusion.

No obligation to produce a certificate of non-utilisation of Cenvat credit in respect of coal cess which is not creditable under Rule 3; the requirement was not called for.

Refund of duty paid on import - unjust enrichment - requirement of proof that duty was not passed on to customers - Whether the appellants established that the coal cess paid was not passed on to their customers, so as to entitle them to refund. - HELD THAT: - The appellants produced a Chartered Accountant's certificate stating that the value of cess had been absorbed as an expense and formed part of the cost of coal purchases. That certificate indicated that the cess was included in the cost structure and thus formed part of the price of cement, undermining the appellants' claim that the cess was not passed on to customers. Further, the appellants did not produce balance sheet entries showing the cess amount as an outstanding receivable from the department. In these circumstances the authorities' finding of unjust enrichment was supported and the denial of refund on that ground required no interference.

Refund rightly denied for want of proof that the cess was not passed on to customers; denial on unjust enrichment upheld.

Final Conclusion: The appeals are dismissed; the requirement to produce a non-credit certificate was unnecessary because coal cess is not creditable under Rule 3, but the appellants failed to rebut the finding of unjust enrichment and therefore were not entitled to the refund.

Condonation of delay - waiver of pre-deposit - re-export of seized goods - redemption fine - penalty - hazardous goods - prohibition on home consumption - reduction of fine and penalty to enable re-export

Condonation of delay - Application for condonation of delay in filing the appeal is allowed as a special case. - HELD THAT: - The Tribunal considered the reasons set out in the miscellaneous application and the accompanying affidavit and, on that basis, exercised its discretion to condone the delay in filing the present appeal. Having found the explanation satisfactory in the circumstances of the case, the miscellaneous application for condonation (MA (COD)) was allowed. [Paras 2]

MA (COD) allowed and delay condoned.

Waiver of pre-deposit - re-export of seized goods - Requirement of pre-deposit waived and appeal admitted for final hearing because the sole controversy related to the quantum of fine and penalty and the appellants intended to re-export the goods. - HELD THAT: - The learned counsel for the appellants stated that the appellants propose to re-export the impugned goods and that the only challenge before the Tribunal was to the quantum of the redemption fine and penalty. Given the limited compass of the issue and the intention to re-export, the Tribunal waived the requirement of pre-deposit and took the appeal up for hearing and disposal forthwith. [Paras 3]

Pre-deposit requirement waived and appeal heard on merits.

Hazardous goods - prohibition on home consumption - redemption fine - penalty - reduction of fine and penalty to enable re-export - Further reduction of the redemption fine and penalty imposed to permit re-export of the hazardous goods. - HELD THAT: - The Tribunal noted that the goods had been held to be hazardous and therefore were not permitted for home consumption, and that the appellants were willing to re-export the goods at their own cost. The lower appellate authority had earlier reduced the fine and penalty from the original sums, citing the appellants' demurrage and other expenses. Having regard to the hazardous nature of the goods and the appellants' intention to re-export, and in order to enable re-export, the Tribunal exercised its power to reduce the redemption fine and the penalty further. [Paras 4, 6, 7]

Redemption fine reduced and penalty reduced to facilitate re-export; appeal partly allowed.

Final Conclusion: Delay in filing the appeal was condoned and pre-deposit waived; on the merits the Tribunal partly allowed the appeal by further reducing the redemption fine and the penalty so as to enable the appellants to re-export the hazardous goods.

Validity of administrative circular vis-a -vis Foreign Trade Policy - Interpretation of "inputs" and "own use" under Target Plus Scheme - Duty credit utilisation for import of inputs under the Target Plus Scheme - Broad nexus requirement under the Handbook of Procedures - Ultra vires

Interpretation of "inputs" and "own use" under Target Plus Scheme - Duty credit utilisation for import of inputs under the Target Plus Scheme - Whether paragraph 3.7.6 of the Foreign Trade Policy requires that imported "inputs" must be physically incorporated in, or be inputs for, the specific exported product for which Target Plus benefit is claimed. - HELD THAT: - The Court examined the language of paragraph 3.7.6 and the exemption notification and observed that paragraph 3.7.6 entitles an eligible exporter to utilise duty credit for the import of "any inputs" so long as (i) they are freely importable and (ii) they are imported for the importer's own use. The provision does not stipulate that imported inputs must be inputs in the manufacture of the very export product in relation to which the benefit is sought. The Handbook of Procedures' 'broad nexus' requirement likewise does not impose a condition of physical incorporation into the exported product. Where the policy expressly required physical incorporation in other schemes (for example, advance licences), it did so; the absence of such a clause in paragraph 3.7.6 demonstrates that the circular's imposition of a physical-incorporation requirement departs from the policy's plain meaning. Accordingly, the additional condition introduced by the impugned circular cannot be read into paragraph 3.7.6. [Paras 9, 10]

Paragraph 3.7.6 does not require that imported inputs be physically incorporated in, or be inputs of, the specific exported product for which TPS benefit is claimed; the circular's contrary requirement is inconsistent with the policy.

Validity of administrative circular vis-a -vis Foreign Trade Policy - Ultra vires - Whether the Central Board of Excise and Customs circular dated 8 May 2007, by imposing that imported inputs must be used in the product exported for which TPS benefit is sought, is intra vires the Foreign Trade Policy and the Customs notification. - HELD THAT: - The Court held that the Foreign Trade Policy is framed under the Foreign Trade (Development and Regulation) Act and cannot be substantively amended by an administrative circular. The impugned circular introduces a substantive condition - namely, that imports under TPS must be inputs for the specific exported product - which is at variance with paragraph 3.7.6 and the exemption notification. The circular does not merely interpret or fill an interstitial gap but adds a substantive requirement absent from the policy and the notification. Where the legislature or executive has expressly included a physical-incorporation requirement in other contexts, its omission in paragraph 3.7.6 is significant. Therefore, the circular is ultra vires the policy and the notification. [Paras 10]

The circular dated 8 May 2007 is ultra vires paragraph 3.7.6 of the Foreign Trade Policy and Customs Notification 32/05 and is therefore invalid.

Broad nexus requirement under the Handbook of Procedures - Disposition of consequential assessment and further proceedings after quashing the circular. - HELD THAT: - The Court noted that the petitioner had been permitted during pendency to import against the entitlement certificate subject to an undertaking in respect of differential duty. Having quashed the circular, the Court directed that the assessment which had been made consequent to the circular be reopened and carried out afresh in accordance with law. The order therefore requires fresh assessment consistent with the Court's construction of the policy and notification. [Paras 12]

Assessment set aside; matter remitted for fresh assessment and compliance with law in light of the quashing of the circular.

Final Conclusion: The writ petition is allowed: the Central Board of Excise and Customs circular dated 8 May 2007 is quashed as being ultra vires paragraph 3.7.6 of the Foreign Trade Policy and Customs Notification 32/05; the assessment made pursuant to that circular shall be reopened and carried out afresh in accordance with law; no order as to costs.

Admissibility of Cenvat credit for payment of Service Tax on GTA services - finality of Tribunal decision and effect of High Court ruling on precedent - restoration of appeal dismissed for procedural defect - dispensing with pre-deposit and consequential relief

Admissibility of Cenvat credit for payment of Service Tax on GTA services - finality of Tribunal decision and effect of High Court ruling on precedent - penalty and demand founded on non-admissibility - Whether the demand and penalty for denial of use of Cenvat credit for payment of Service Tax on GTA services could be sustained in view of higher court decisions upholding the Tribunal's view. - HELD THAT: - Proceedings challenged the use of Cenvat credit to discharge Service Tax liability on GTA services; the adjudicating authority had accepted the Tribunal's view in Nahar Industrial Enterprises but the Commissioner reopened the matter on the ground that the Tribunal decision had not attained finality. The Tribunal noted that the Revenue's appeal to the Punjab & Haryana High Court was rejected (reported decision), and that the Himachal Pradesh High Court decision in Auro Spinning Mills supports the same position. Since the issue is no longer res integra and the relevant High Court decisions uphold the Tribunal's view, the demand and penalty founded on denial of Cenvat credit cannot be sustained. The Tribunal therefore set aside the Commissioner's order and restored the Joint Commissioner's order allowing the appeal. [Paras 2, 4]

Impugned order of the Commissioner set aside; order of the Joint Commissioner restored and the appeal allowed with consequential relief.

Restoration of appeal dismissed for procedural defect - dispensing with pre-deposit and consequential relief - Whether the appeal dismissed for non-removal of registry defect should be restored and whether the condition of pre-deposit could be dispensed with. - HELD THAT: - The appellants removed the registry defect after which the Tribunal recalled the dismissal order and restored the appeal to its original number. On consideration of the substantive merits and in view of the precedential position favourable to the appellant, the Tribunal dispensed with the condition of pre-deposit of service tax and penalty and proceeded to decide the appeal on merits, ultimately disposing of the ROA application, stay petition and the appeal in terms favourable to the appellant. [Paras 1, 2, 5]

Order dismissing the appeal for defect recalled; appeal restored; pre-deposit dispensed and related applications disposed of.

Final Conclusion: The Tribunal recalled the dismissal for procedural defect and restored the appeal; on the merits, having regard to binding High Court decisions upholding the Tribunal's view, the Commissioner's order upholding demand and penalty was set aside, the Joint Commissioner's favourable order restored, pre-deposit dispensed and the appeal allowed with consequential relief.

Business Auxiliary services - exemption by notification with retrospective effect - retrospective withdrawal of past demands - remand for de novo consideration

Business Auxiliary services - exemption by notification with retrospective effect - retrospective withdrawal of past demands - Whether demands raised by treating the appellant's goods transport agency services as falling under Business Auxiliary services require fresh adjudication in view of Notification No.1/2009 ST and Board's Circular No.334/13/2009 TRU dated 6.7.2009 - HELD THAT: - The Tribunal noted that the appellant's services had been classified as Business Auxiliary services and that subsequent Notification No.1/2009 ST and the Board's Circular No.334/13/2009 TRU retrospectively exempted such services provided to a GTA and extended relief by directing dropping of past demands. The appellant conceded that these materials were not placed before the lower authority and there are no findings dealing with them. Given the absence of any adjudication on the effect of the notification and circular by the original authority, the Tribunal found it appropriate to set aside the impugned orders and remit the matters for fresh, de novo consideration so that the original adjudicating authority may apply the exemption and the Board's clarification and take into account any further developments on the subject. [Paras 5]

Impugned orders set aside and matters remanded to the original adjudicating authority for de novo consideration in light of Notification No.1/2009 ST and Board's Circular No.334/13/2009 TRU dated 6.7.2009; stay petitions and appeals disposed accordingly.

Final Conclusion: The Tribunal set aside the impugned orders and remanded the matters to the original adjudicating authority for fresh adjudication taking into account Notification No.1/2009 ST and Board's Circular No.334/13/2009 TRU dated 6.7.2009; stay petitions and appeals disposed of in that manner.

Voluntary payment under Section 73(3) of the Finance Act, 1994 - ST-3 return with late fee and interest - penalties under Sections 76, 77 and 78 of the Finance Act, 1994 - treatment as cum-tax amount - benefit of Notification No.6/2005

Voluntary payment under Section 73(3) of the Finance Act, 1994 - ST-3 return with late fee and interest - penalties under Sections 76, 77 and 78 of the Finance Act, 1994 - Whether payment of service tax with interest and filing of ST-3 returns with late fee, relying on Section 73(3), precludes imposition of penalties under Sections 76, 77 and 78. - HELD THAT: - The Tribunal held that the assessee's conduct-paying the service tax liability with interest as soon as omission was pointed out and filing ST-3 returns with late fee-fell within the scope of Section 73(3) of the Finance Act, 1994, which permits payment on the basis of the assessee's own ascertainment and bars issuance of a notice in respect of the amount so paid. The Tribunal followed earlier decisions in Hazarilal Jangid Vs. CCE Nagpur and Saraswati Engineering Vs CCE Nagpur , where it was held that similar voluntary compliance with payment and return filing disentitles imposition of penalties under Sections 76, 77 and 78. Applying that principle, the Tribunal found the penalties could not be sustained and set them aside. [Paras 4, 5, 7]

Penalties imposed under Sections 76, 77 and 78 are set aside.

Treatment as cum-tax amount - Service Tax not separately collected - benefit of Notification No.6/2005 - Whether the amounts received by the assessee are to be treated as cum-tax amounts and whether relief follows where service tax was not collected separately. - HELD THAT: - The Tribunal accepted the assessee's submission that service tax was not collected separately and that the receipts were evidenced by proper documents. On that basis the assessee's request to treat the consideration as a cum-tax amount was allowed and the assessee was held entitled to consequential relief. The Tribunal also noted that the lower authority had extended the benefit of Notification No.6/2005 in assessing the demand, and granted relief accordingly. [Paras 6]

Request to treat the amounts as cum-tax received is allowed and consequential relief granted.

Final Conclusion: The appeals result in setting aside the penalties under Sections 76, 77 and 78 of the Finance Act, 1994 as the assessee voluntarily paid the service tax with interest and filed ST-3 returns with late fee under Section 73(3); additionally the assessee's claim to treat receipts as cum-tax amounts is allowed and consequential relief is granted; the Revenue's appeal is rejected while the assessee's appeal is allowed to the extent indicated.

Inclusion of free supplied items in taxable value - abatement in construction services - penalty under Section 80 of the Finance Act - payment of tax and interest before issuance of show cause notice - reliance on Board circular in mitigation of penalty - doubtful question of law and bona fide belief

Inclusion of free supplied items in taxable value - abatement in construction services - penalty under Section 80 of the Finance Act - payment of tax and interest before issuance of show cause notice - Validity of non-imposition of penalty under Section 80 where service tax demand was confirmed but tax and interest were paid promptly in the context of a disputed question whether value of construction services includes free supplied items for abatement purposes. - HELD THAT: - The respondents provided construction services and the departmental point was whether the value of those services must include items freely supplied by customers for computing abatement. The Commissioner confirmed the service tax demand but, having noted that the respondents paid the tax and interest immediately upon being pointed out by the department and in view of the Board's circular, did not impose penalty under Section 80. The respondents accepted the confirmed tax and contended that the legal question was not free from doubt, with pending proceedings in the Tribunal and various High Courts and interim orders having existed during the relevant period. The Tribunal recorded that no suppression or mala fide conduct was attributable to the respondents and that the existence of bona fide doubt, prompt payment and the Board circular furnished adequate basis for the Commissioner (Appeals) to decline imposition of penalty. Applying these considerations, the Tribunal found no infirmity in the order of the Commissioner (Appeals) declining to levy penalty. [Paras 2, 3]

Revenue's appeal against non-imposition of penalty is rejected; imposition of penalty under Section 80 is not sustained in the circumstances.

Final Conclusion: The Tribunal upheld the Commissioner (Appeals) in refusing to impose penalty under Section 80 where tax and interest were paid promptly against a bona fide, unsettled legal question about abatement; the revenue's appeal is dismissed.

Imposition of penalty - waiver of penalty under Section 80 - requirement of mens rea and suppression for penalty under Section 78 - burden to establish suppression - claim of exemption under a notification - bonafide belief - service tax exemption for food items

Imposition of penalty - waiver of penalty under Section 80 - bonafide belief - Validity of the penalties imposed upon the respondents and the application of Section 80 to waive those penalties. - HELD THAT: - The Appellate Tribunal upheld the Commissioner (Appeals) finding that penalties imposed in the original order were not maintainable in the facts of this case. The appellate authority recorded that the respondents had repeatedly sought clarification from the department about availability of the exemption Notification No. 12/2003 and, receiving no response, had acted under a bona fide belief in claiming the exemption. The quarterly returns filed by the respondents disclosed amounts as billed for exempted services and no queries were raised at the time of submission. These facts led the appellate authority to conclude that the conditions justifying imposition of penalty were absent and that equity and principles of justice warranted invoking Section 80 to waive the penalties. The Tribunal found no infirmity in this exercise of discretion and endorsed the waiver of penalty. [Paras 2, 3, 5]

Penalties set aside by Commissioner (Appeals) and waived under Section 80 are upheld.

Requirement of mens rea and suppression for penalty under Section 78 - burden to establish suppression - Whether penalty under Section 78 could be imposed for alleged suppression in the absence of evidence of suppression or a proposal in the show cause notice. - HELD THAT: - The appellate authority found that imposition of penalty under Section 78 requires proof of suppression, deliberate concealment or dishonest conduct. The record-comprising ST-3 returns, the correspondence seeking exemption, and reminders-did not disclose suppression or intent to conceal material facts. Further, there was no proposal in the show cause notice to impose penalty under Section 78, rendering the original order beyond its scope by imposing such a penalty. The Tribunal agreed with these conclusions, noting settled authority that penalty under Section 78 is not to be ordinarily imposed unless there is conscious or dishonest conduct, which was absent here. [Paras 2, 5]

Penalty under Section 78 was not sustainable and was properly waived.

Service tax exemption for food items - claim of exemption under a notification - Whether the respondents are entitled to the substantive benefit that food items are exempt from service tax. - HELD THAT: - The Tribunal noted that many decisions hold food items sold by an assessee to be exempt from service tax. However, since the respondents did not challenge the demand by way of appeal, the Tribunal declined to extend such substantive relief in their favour in the present proceedings. The Tribunal nevertheless accepted that the existence of those decisions could be considered in assessing whether penalties should be imposed, without finally deciding the respondents' substantive liability for service tax on food items. [Paras 4]

No adjudication granting substantive exemption was made; prior decisions on exemption may inform the penalty analysis but do not confer relief absent appeal.

Final Conclusion: The Revenue's appeal is rejected. The appellate findings that penalties were not sustainable in the circumstances and were rightly waived under Section 80 are affirmed; no substantive determination was made granting the exemption for food items, which was not pleaded by the respondents on appeal.

Taxable value of tour operator's service (including supplementary services) - abatement under Notification No.39/97-ST and Notification No.1/2006-ST - in relation to a tour - reimbursement versus expenditure incurred on behalf of client - extended period of limitation under the proviso to Section 73(1) - CENVAT credit nexus and admissibility of input service credit - reasonable cause / bona fide belief and benefit of Section 80 (penalty relief) - cum tax valuation (explanation to Section 67)

Taxable value of tour operator's service (including supplementary services) - abatement under Notification No.39/97-ST and Notification No.1/2006-ST - in relation to a tour - reimbursement versus expenditure incurred on behalf of client - Includability of train fare, TTD darshan ticket charges, RFC entry fee, hill transportation charges and cruise/water fleet charges in the gross taxable value of package tour operator's service and entitlement to abatement - HELD THAT: - The Tribunal held that 'tour' and the taxable service 'provided by a tour operator in relation to a tour' encompass pre planned local/supplementary services (sight seeing, temple darshan, boat cruises, entry to film city, hill transport etc.) by application of ejusdem generis to the phrase 'other similar services'. Collections for such supplementary services are part of the gross taxable value under Section 67 and cannot be characterised as mere reimbursements, since they fail the test of expenditure incurred on behalf of the client as explained by the Tribunal. Accordingly, abatement under Notification No.39/97 ST (60%) and Notification No.1/2006 ST (60% initially, increased to 75% from 23.8.2007) is to be applied on the gross taxable value inclusive of those charges for the respective periods subject to the Notifications' conditions. The Tribunal rejected reliance on decisions treating similar collections as reimbursements where the nature of the receipts did not meet the reimbursement test and observed that contemporaneous Board circulars and Tribunal precedent support inclusion of supplementary services within tour operator's service. [Paras 12, 13, 16, 17, 25]

Train fare, TTD darshan ticket charges, RFC entry fee, hill transportation charges and cruise/water fleet charges are includible in the gross taxable value of package tour operator's service; abatement of 60% (under Notification No.39/97 ST and Notification No.1/2006 ST up to 22.8.2007) and 75% from 23.8.2007 (as amended) is available on that gross value.

Reimbursement versus expenditure incurred on behalf of client - taxable value of tour operator's service (including supplementary services) - Whether amounts collected for supplementary services are reimbursements excluded from taxable value - HELD THAT: - Applying the Tribunal's test, the Court found that amounts collected for TTD darshan, RFC visits, boat cruises etc. were for supplementary services organised as part of the package and not mere reimbursements incurred on behalf of clients. Collections therefore form part of the gross receipts for the service and are includible in taxable value. Decisions holding otherwise were found inapplicable where the reimbursement test was not satisfied. [Paras 12, 13]

Such collections are not reimbursements and must be included in the taxable value of the tour operator's service.

Extended period of limitation under the proviso to Section 73(1) - Invocability of the extended period of limitation in respect of demands for 2003 04 to 2006 07 - HELD THAT: - The Tribunal examined the facts and authorities relied upon and concluded that the department was aware of the relevant facts through earlier proceedings and audits, and that the appellant - a government undertaking - held a bona fide belief based on conflicting interpretations and frequent amendments to the definition of 'tour operator' and related Notifications. In these circumstances the ingredients for invoking the proviso to Section 73(1) (wilful suppression to evade tax) were not established and the extended period of limitation could not be invoked for the relevant demands. [Paras 21, 24, 25]

The extended period of limitation under the proviso to Section 73(1) is not invocable; demands beyond the normal period are set aside where so found.

CENVAT credit nexus and admissibility of input service credit - Admissibility of CENVAT credit of architect and technical services claimed by the assessee - HELD THAT: - Although the Commissioner additionally referred to invoice defects under Rule 9, the Tribunal noted that the show cause notice challenged the credit on the ground of lack of nexus with the output service. The appellant failed to establish that the architect and technical services fell within the definition of 'input service' or had the requisite nexus to the tour operator's output service. Accordingly, the denial of CENVAT credit was sustained. [Paras 18, 25]

Denial of CENVAT credit of Rs. 8,11,058/ affirmed for lack of nexus between the claimed input services and the tour operator's service.

Reasonable cause / bona fide belief and benefit of Section 80 (penalty relief) - Liability to penalties under Sections 76, 77 and 78 and entitlement to relief under Section 80 - HELD THAT: - The Tribunal held that the appellant's bona fide belief, founded on conflicting interpretations, amendments to the definition of 'tour operator' and changing Notifications, constituted 'reasonable cause' and a bona fide belief entitling them to the benefit of Section 80. Consequently, penalties under Sections 76, 77 and 78 were set aside where imposed for the disputed periods, and no penalty under Section 78 could be sustained where the extended period was wrongly invoked. [Paras 22, 23, 25]

Penalties imposed under Sections 76, 77 and 78 are set aside; the appellant is entitled to relief under Section 80.

Cum tax valuation (explanation to Section 67) - Claim that departmental valuation should be treated as cum tax value - HELD THAT: - The Tribunal observed that the Commissioner did not consider the appellant's plea on cum tax valuation. It noted that the explanation to Section 67 (in force till 30.4.2006) and sub section (2) of Section 67 (from 1.5.2006) ought to be given effect to and directed the adjudicating authority to consider the plea while requantifying the demand. [Paras 19, 25]

Appellant's plea regarding cum tax valuation to be considered by the adjudicating authority during requantification of the demand.

Remand for requantification and appropriation of excess payment - Approach on inter connected adjustments and remand of April 2007 demand - HELD THAT: - The Tribunal held that the question whether an alleged excess payment in 2006 07 could be appropriated against the April 2007 demand depends on requantification of tax for 2006 07. Consequently, the standalone appeal challenging the April 2007 demand (ST/954/2011) was remanded to the Commissioner for fresh decision on whether any excess payment exists and for appropriation as appropriate; the Commissioner is to deal with the matter and afford opportunity to the appellant. Other appeals were directed to be requantified by the Commissioner for the normal period with directions to consider cum tax plea and mandap keeper adjustment where relevant. [Paras 24, 25]

Appeal ST/954/2011 remanded to the Commissioner for determination whether excess payment in 2006 07 exists and for appropriation; other demands to be requantified by the Commissioner with opportunity to the appellant.

Final Conclusion: The Tribunal affirmed that train fare, TTD darshan charges, RFC entry fees, hill transport and cruise/water fleet charges form part of the gross taxable value of package tour operator's service and directed abatement (60% up to 22.8.2007; 75% thereafter from 23.8.2007 as applicable) to be applied on that gross value. The extended period of limitation was held not invocable; CENVAT credit denial for lack of nexus was upheld; penalties were set aside as the appellant had reasonable cause and bona fide belief entitling them to Section 80 relief; requantification (including cum tax consideration) was ordered and the April 2007 demand remanded for determination/appropriation as directed.

Reversal of cenvat credit on audit observation - Acceptance of duty liability - Refund claim after voluntary reversal of credit - Section 11A(2)(b) of the Central Excise Act - No requirement of show cause notice where duty is voluntarily paid following departmental determination

Reversal of cenvat credit on audit observation - Acceptance of duty liability - Refund claim after voluntary reversal of credit - Section 11A(2)(b) of the Central Excise Act - Entitlement to refund where the assessee reversed cenvat credit after audit objection and subsequently claimed refund on ground that no notice was issued by Revenue. - HELD THAT: - The appellant availed cenvat credit on the basis of photocopies of invoices. On audit pointing out the defect, the appellant reversed the cenvat credit and recorded in RG 23A Part II that the credit was being reversed because it was disallowed; there was no protest to the reversal. The credit had been originally availed on a bill of entry in the appellant's name. Having voluntarily reversed and recorded the reversal without protest, the appellant is treated as having accepted the duty liability and discharged it in response to the audit objection. Under the statutory scheme reflected in Section 11A(2)(b) of the Central Excise Act, where a person chargeable to duty pays the amount of duty on the basis of duty arrived at by the Central Excise officer before service of a notice and informs the officer of such payment in writing, no notice is required to be served. Given that the appellant accepted and reversed the credit (thereby discharging the liability) and did not reverse it under protest, the subsequent refund claim cannot succeed. The Commissioner (Appeals) correctly applied the statutory provision to refuse the refund claim and there is no merit in the appeal. [Paras 2, 4, 5]

Appeal dismissed; refund claim rejected as appellant had accepted and reversed the cenvat credit and is not entitled to refund under the circumstances described, having discharged the duty liability in terms of Section 11A(2)(b).

Final Conclusion: The Tribunal affirms that where an assessee voluntarily reverses cenvat credit in response to audit objections without protest and thereby accepts duty liability, a subsequent refund claim is not maintainable; appeal rejected.

Availability of Cenvat credit on capital goods where final product not exclusively exempt - Interpretation of Rule 6(4) of Cenvat Credit Rules - Concurrent application of conditional concessional duty benefit and unconditional exemption notifications - Distinguishing precedent in Spenta International Ltd.

Availability of Cenvat credit on capital goods where final product not exclusively exempt - Interpretation of Rule 6(4) of Cenvat Credit Rules - Concurrent application of conditional concessional duty benefit and unconditional exemption notifications - Distinguishing precedent in Spenta International Ltd. - Whether Cenvat credit on capital goods is deniable under Rule 6(4) when the final product is not exclusively exempt though, during the period of receipt of capital goods, clearances were made under an unconditional exemption notification - HELD THAT: - The Tribunal held that Rule 6(4) operates to deny credit only where the capital goods are exclusively used in the manufacture of an exempt final product. The appellants were entitled to use Notification No. 29/04 (concessional duty subject to modvat credit) and Notification No. 30/04 (unconditional exemption) simultaneously; the fact that during the specific months when capital goods were received there were no clearances under Notification No. 29/04 does not convert the final product into one that is exclusively exempt. Prior and subsequent clearances under Notification No. 29/04 demonstrate that the product was not exclusively exempted. Reliance on the Larger Bench decision in Spenta International Ltd. was rejected as factually distinguishable. Earlier Tribunal and High Court decisions dealing with identical facts were noted in support of allowing credit. [Paras 4, 5, 7]

Rule 6(4) is inapplicable as the capital goods were not exclusively used in manufacture of an exempt product; impugned orders denying Cenvat credit are set aside and the appeals are allowed with consequential relief.

Final Conclusion: Appeals allowed; the orders denying Cenvat credit in respect of the capital goods are set aside and consequential relief granted, the denial under Rule 6(4) being inapplicable where the final product is not exclusively exempt.

Proof of shortage - physical weighment - eye estimation - clandestine removal - burden of proof - penalty under Section 11AC

Proof of shortage - physical weighment - eye estimation - Shortage of stock could not be sustained because stock-taking was by eye estimation and no physical weighment was conducted. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) finding that the panchnama and annexures did not record how physical stock taking was conducted and contained no weightment records. In the absence of proper physical weighment, the verification amounted to eye estimation which may give rise to suspicion of excess stock but cannot establish a shortage. Reliance was placed on earlier Tribunal decisions to the effect that findings of excess or shortage based solely on eye estimation are not sustainable. Consequently, the duty demand founded on the alleged shortfall could not be upheld. [Paras 5, 7]

The alleged shortage was not proved and the confirmation of duty on that basis could not be sustained.

Clandestine removal - burden of proof - penalty under Section 11AC - Clandestine removal and the penalty imposed under Section 11AC could not be sustained in the absence of positive evidence of removal and proof beyond conjecture. - HELD THAT: - The Tribunal agreed with the Commissioner (Appeals) that clandestine removal is a positive act and the burden to prove such removal lies on the Revenue. Apart from the contested shortages (which were not satisfactorily established), there was no independent evidence showing manufacture and clearances without payment of duty. The authorised representative's statement did not accept clandestine removal. Thus, imposition of penalty and confirmation of duty on the basis of conjecture and assumptions was held to be unjustified. [Paras 6, 7]

The confirmation of clandestine removal and the penalty imposed under Section 11AC were set aside for lack of proof.

Final Conclusion: The appeal is rejected; the order of the Commissioner (Appeals) setting aside the duty demand and penalty is upheld because the alleged shortage was unproven due to eye estimation of stock and there was no evidence of clandestine removal to justify confirmation of duty or penalty.

Clandestine clearance - proof of manufacture of excess goods - corroboration of entries in katcha parchis and registers - confirmation of demand based on unexplained entries and presumptions - penalty liability founded on uncorroborated documentary entries

Clandestine clearance - corroboration of entries in katcha parchis and registers - confirmation of demand based on unexplained entries and presumptions - Sustainability of demand and penalties confirmed against M/s. Pymen Cable(India) on the basis of katcha parchis and other seized entries. - HELD THAT: - The appellate tribunal upheld the Commissioner (Appeals)'s finding that there was no cogent and positive evidence linking the katcha parchis recovered from Shri Sandeep Garg's residential premises to goods manufactured by M/s. Pymen Cable(India). Neither Shri Vinod Garg nor Shri Sandeep Garg gave any inculpatory admission connecting those entries to clandestine manufacture or clearance by M/s. Pymen Cable(India), and the assessee was not confronted with the parchis. There was also no evidence establishing manufacture of excess goods, identification of buyers, or identification of transporters-facts necessary to prove clandestine clearance. The authority therefore correctly held that a demand cannot be sustained on the basis of unexplained and uncorroborated entries in katcha parchis and registers or on mere presumptions.

Demand and penalties confirmed by the original adjudicating authority quashed; revenue's appeals rejected.

Final Conclusion: The Tribunal concurs with the Commissioner (Appeals) that the demand and penalties confirmed on the basis of uncorroborated katcha parchis and registers are unsustainable for want of positive evidence linking those entries to manufacture or clandestine clearance by M/s. Pymen Cable(India); the Revenue's appeals are dismissed.

Eligibility for cenvat credit - Definition of "input" under Rule 2(k)(i) of the Cenvat Credit Rules, 2004 - Accessories of the final product cleared along with the final product - Statutory obligation under Rule 138 of the Central Motor Vehicle Rules, 1989 - Disallowance, recovery and penalty under the Cenvat Credit Rules and Central Excise Act

Eligibility for cenvat credit - Definition of "input" under Rule 2(k)(i) of the Cenvat Credit Rules, 2004 - Accessories of the final product cleared along with the final product - Statutory obligation under Rule 138 of the Central Motor Vehicle Rules, 1989 - Tool kits and first aid kits sold along with two wheelers are inputs eligible for cenvat credit. - HELD THAT: - Rule 3 of the Cenvat Credit Rules, 2004 permits a manufacturer to take cenvat credit on excise duty paid on any input received in the factory for manufacture of final products. Rule 2(k)(i) defines "input" to include "accessories of the final products cleared along with the final product." The tool kit and first aid kit were undisputedly sold with the two wheelers and their cost included in the sale. Rule 138 of the Central Motor Vehicle Rules, 1989 mandates that a driver carry the prescribed tool kit and first aid kit, making these items necessary accessories for the vehicle. Because carrying those accessories is a statutory requirement, the tool kit and first aid kit supplied with the vehicle are accessories used in relation to the manufacture/clearance of the final product and therefore fall within the definition of input under Rule 2(k)(i). The Tribunal's earlier decisions on analogous facts support this conclusion. On this basis, the adjudicating authority's disallowance of cenvat credit in respect of these kits was not sustainable.

Cenvat credit in respect of tool kits and first aid kits sold with two wheelers is allowable; the disallowance, demand, interest and penalty are set aside.

Final Conclusion: The appeal is allowed: the Tribunal holds that tool kits and first aid kits supplied with two wheelers qualify as inputs under Rule 2(k)(i) of the Cenvat Credit Rules, 2004, and therefore the impugned order disallowing cenvat credit and imposing recovery, interest and penalty is set aside.

Clandestine removal of excisable goods - burden on the Revenue to prove clandestine manufacture and removal - evidentiary value of photocopies of documents - requirement of corroborative evidence from consignees/transporters - distinction between facsimile copy and xerox copy under Section 36B(1)(b)

Evidentiary value of photocopies of documents - distinction between facsimile copy and xerox copy under Section 36B(1)(b) - burden on the Revenue to prove clandestine manufacture and removal - Whether photocopies of sale invoices produced by an informer suffice to sustain a demand and penalty for clandestine removal in absence of corroborative evidence. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) finding that mere photocopies of sale invoices supplied by an informer cannot, without more, prove clandestine removal. Reference was made to the distinction drawn by earlier Tribunal authority between a facsimile copy permissible under the statutory provision and a xerox/photocopy which is susceptible to manipulation; accordingly the photocopies in the record did not establish that they were exact, authentic reproductions of original invoices. The adjudicating authority also relied on a report of the Government Examiner of Questioned Documents which addressed signatures and certain columns but did not certify authenticity of the copies as complete and unmanipulated originals. The Court emphasised the settled principle that the initial burden rests on the Revenue to prove clandestine manufacture and removal by adducing cogent and tangible evidence, and that when the assessee denies removal the Revenue must seek corroboration - for example by confronting or examining the alleged consignees or transporters - before confirming demand. In the present matter there was no evidence of statements from consignees or transporters and no independent proof of manufacture and actual clearance; therefore the confirmation of duty and penalties based solely on informer-supplied photocopies was unsustainable. [Paras 3, 4, 5]

The demand and penalties based solely on photocopies of sale invoices supplied by an informer were unsustainable in absence of corroborative evidence; appeals of the Revenue rejected.

Requirement of corroborative evidence from consignees/transporters - burden on the Revenue to prove clandestine manufacture and removal - Whether failure to examine alleged consignees and absence of statements from transporters/further evidence vitiated the confirmation of duty and penalty. - HELD THAT: - The Tribunal agreed with the Commissioner (Appeals) that when an assessee denies clandestine removal, it is imperative for the Revenue to obtain corroborative material establishing receipt of goods by consignees or movement by transporters. The record showed no approach to or statements from the buyers named in the invoices, no transporter statements, and no independent proof of manufacture or actual clearance. The lack of such positive and tangible evidence meant the departmental case amounted to assumption and could not support the confirmed demand and penalties. [Paras 4, 5]

Absence of corroborative examination of consignees/transporters and lack of independent evidence defeated the departmental case; the confirmation was set aside.

Final Conclusion: The Tribunal found no infirmity in the Commissioner (Appeals) order setting aside demand and penalties which were based solely on informer supplied photocopies of invoices without corroborative evidence; Revenue's appeals are rejected.

Credit of service tax - services used in relation to the business of manufacturing the final product - remand for fresh decision to original authority

Credit of service tax - services used in relation to the business of manufacturing the final product - remand for fresh decision to original authority - Whether the appellants are entitled to take credit of service tax paid on various services for payment of duty on goods manufactured, and the appropriate course of action by the Tribunal. - HELD THAT: - The Tribunal did not decide the entitlement on merits. Following its earlier batch decision in which it applied the ratio of the Hon'ble Bombay High Court in Ultratech Cement extending credit of tax paid on all services used in relation to the business of manufacturing the final product, the Tribunal set aside the impugned order and remanded the matter to the original authority for fresh decision applying that ratio. The remand was ordered because the authorities below had not had the benefit of that decision when they rendered their orders. No determination on the substantive question of eligibility was made by the Tribunal in this appeal; the matter was left to the original authority to adjudicate afresh in the light of the cited ratio.

Impugned order set aside and matter remanded to the jurisdictional original authority for fresh decision applying the ratio referred to by the Tribunal.

Final Conclusion: The Tribunal allowed the appeal by setting aside the impugned order and remanding the matter to the original authority for fresh decision in accordance with the ratio applied by the Tribunal (as stated), and the stay petition filed by the appellant was disposed of.