TaxTMI Updates e-Newsletter
May 26,2020

Exemption under section 10(23C) for educational institutions - Incidental activities and field training relevance to educational purpose - Aggregate annual receipts threshold for exemption - Characterisation of payments/advances to trustees

Exemption under section 10(23C) for educational institutions - Incidental activities and field training relevance to educational purpose - Aggregate annual receipts threshold for exemption - Whether the assessee trust is entitled to exemption under section 10(23C) as an educational institution given its conduct of camps and distribution of medicines, food and clothing and its aggregate receipts being below the prescribed limit. - HELD THAT: - The Tribunal found that the trust is duly registered with the Indian Nursing Council and the State Nursing Council and is authorised to impart theoretical instruction, practical training and field exposure for recognised nursing courses. Conduct of field camps is an integral component of practical training; treatment, counselling, distribution of medicines and provision of food and clothing during such camps are expenditures directly connected with and incidental to imparting the specified education. Having examined the nature of activities and noting that the aggregate annual receipts fall below the prescribed limit for the relevant clause of section 10(23C), and there being no material to show other non-educational activities, the Tribunal held that the trust was solely engaged in educational activities and satisfied the conditions for exemption under section 10(23C). [Paras 10, 11, 12, 13]

The assessee trust is eligible for deduction under section 10(23C) as an institution existing solely for educational purposes with aggregate receipts below the prescribed limit.

Characterisation of payments/advances to trustees - Whether the impugned interest-free advances to trustees amounted to loans disqualifying the trust from being solely for educational purposes. - HELD THAT: - The Tribunal reviewed the record and observed that the material before it showed only an indemnity bond and did not establish that any loans or interest free advances were in fact given to the trustees. On that basis the Tribunal rejected the finding of the lower authority that loans had been made, and held there was no material to show diversion of funds or activities other than education. [Paras 10]

The entries characterised by the lower authority as interest free advances are not established as loans; no disqualification on this ground is made out.

Final Conclusion: The appeal is allowed: the Tribunal held that the trust, being authorised and engaged in imparting recognised nursing education with field camps and related expenditures integral to training, and having aggregate receipts below the prescribed limit, qualifies for exemption under section 10(23C); alleged advances to trustees were not established as loans.

Arm's Length Price - Transfer Pricing adjustment - Royalty payments-allowability - Provision for gratuity-ascertained liability - Section 115JB-book profit adjustments - Section 14A and Rule 8D-disallowance - Mark-to-market loss on forward foreign exchange contracts-allowability - Section 43A-exchange fluctuation on loans for acquisition of fixed assets

Arm's Length Price - Transfer Pricing adjustment - Royalty payments-allowability - Deletion of transfer pricing adjustment of royalty of Rs. 2,20,00,000/- for the Taloja plant upheld - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the TPO/AO's adjustment reducing the royalty to nil for the Taloja plant. The Tribunal followed the coordinate Bench's decision in the taxpayer's own case for AY 2007-08 and accepted the taxpayer's evidence that patented technology and technical support were received from AGC Japan in consideration of the royalty paid and that the expenditure was incurred for the purpose of business. The Tribunal rejected the TPO's approach of disallowing the payment on the basis that the licensed technology had not generated economic value for that plant, noting that it is not the TPO's role to second-guess commercial decisions of the taxpayer or to place itself in the position of management when an international transaction is shown to have been entered into for business purposes. Consequently the CIT(A)'s deletion of the transfer pricing adjustment was held to be correct and sustainable. [Paras 18]

Adjustment of Rs. 2,20,00,000/- deleted; revenue's ground dismissed.

Provision for gratuity-ascertained liability - Section 115JB-book profit adjustments - Deletion of addition of Rs. 84,93,675/- (provision for gratuity) from book profit under section 115JB upheld - HELD THAT: - The Tribunal followed the coordinate Bench's reasoning in the taxpayer's own case for AY 2007-08 and relevant precedents holding that a provision for gratuity made on the basis of actuarial valuation is an ascertained liability and therefore not includible in the book profit under Explanation (1)(c) to section 115JB. In absence of contrary material, the Tribunal found no infirmity in the CIT(A)'s deletion of the addition made by the AO. [Paras 23]

Addition of Rs. 84,93,675/- deleted; revenue's ground dismissed.

Section 14A and Rule 8D-disallowance - Disallowance under section 14A read with Rule 8D restored to the Assessing Officer for fresh consideration - HELD THAT: - The Tribunal noted the taxpayer had suo motu made a partial disallowance and relied on authorities cited by the assessee. The Tribunal observed that the identical issue for a preceding year had been restored to the AO by the Tribunal and, in view of the submissions and decisions relied upon by the assessee, directed that the matter be remanded to the AO to decide afresh, allowing the ground for statistical purposes. [Paras 26]

Issue remanded to the AO for fresh adjudication.

Mark-to-market loss on forward foreign exchange contracts-allowability - Deletion of addition of Rs. 16,70,000/- (MTM loss on forward contracts) in favour of the taxpayer - HELD THAT: - The Tribunal held that the MTM loss on unmatured forward foreign exchange contracts is allowable where corresponding MTM gain has been taxed and where a binding obligation accrued on entering into the contracts. Relying on precedents (including Sutlej Cotton Mills and Woodward Governor principles as applied by coordinate Benches), the Tribunal observed that the obligation crystallizes on entering the forward contracts, consistent accounting was followed, and there was no reason to tax gain and disallow corresponding loss. Consequently the AO's disallowance following departmental instruction was held unsustainable and deleted. [Paras 32]

Addition of Rs. 16,70,000/- deleted; taxpayer's ground allowed.

Section 43A-exchange fluctuation on loans for acquisition of fixed assets - Deletion of addition of Rs. 39,08,11,373/- (reinstatement gain on foreign currency loan/ECB) upheld - HELD THAT: - The Tribunal accepted that the ECB was raised for acquisition of capital goods and that, by application of AS-11 (as amended) and section 43A, exchange differences on loans for acquisition of fixed assets (not yet paid) are to be treated as reducing the cost of the fixed asset and that notional, unrealized exchange gain credited to profit & loss account should be reduced from taxable income. Following coordinate Bench decisions (and the Supreme Court's Woodward Governor principles), the Tribunal held the addition unsustainable and directed deletion. [Paras 38]

Addition of Rs. 39,08,11,373/- deleted; taxpayer's ground allowed.

Provision for gratuity-ascertained liability - Section 115JB-book profit adjustments - Remand of the question whether the gratuity provision is taxable under normal provisions to the CIT(A) for fresh decision - HELD THAT: - The Tribunal observed that the CIT(A) had confirmed the disallowance under the normal provisions without examining whether the provision for gratuity was made on accrual (actuarial) basis and therefore constituted an ascertained liability. In light of the coordinate Bench's decision for AY 2007-08 and the need for the CIT(A) to examine accrual aspects after affording opportunity of hearing, the Tribunal remanded the issue for fresh adjudication by the CIT(A). [Paras 39]

Issue remanded to the CIT(A) for fresh decision after providing opportunity of hearing.

Final Conclusion: The revenue appeal is dismissed. The taxpayer's appeal is allowed in part: disallowances in respect of the TPO's royalty adjustment, MTM loss, and reinstatement gain on ECBs are deleted; the section 14A/Rule 8D issue is remanded to the AO for fresh adjudication; the question of gratuity under normal provisions is remanded to the CIT(A) for fresh decision. The taxpayer's appeal is otherwise disposed of for statistical purposes.

Satisfaction note is sine qua non - notice under Section 158BD - completion of block assessment proceedings under Section 158BC - recording of satisfaction - void ab initio - remand for fresh consideration

Satisfaction note is sine qua non - completion of block assessment proceedings under Section 158BC - notice under Section 158BD - void ab initio - Whether the Tribunal was justified in holding the assessment order under Section 148BD read with Section 158BC void ab initio on the ground that the assessing officer did not record satisfaction before completion of block assessment proceedings. - HELD THAT: - The Court examined the Supreme Court's ruling in CALCUTTA KNITWEARS which held that for the purpose of issuing a notice under Section 158BD a satisfaction note is sine qua non but may be prepared at any of three stages: (a) at or along with initiation of proceedings under Section 158BC against the searched person; (b) along with the assessment proceedings under Section 158BC; or (c) immediately after completion of assessment proceedings under Section 158BC. In the present case the assessing officer recorded satisfaction after completion of proceedings under Section 158BC. The Tribunal set aside the assessment as void ab initio solely because the satisfaction was not recorded before completion of the block assessment. That conclusion is contrary to the legal position laid down by the Supreme Court and therefore unsustainable. [Paras 5, 6]

The Tribunal's finding that the assessment was void ab initio for want of prior recording of satisfaction is erroneous and cannot be sustained.

Remand for fresh consideration - recording of satisfaction - Whether the matter should be returned to the Tribunal for adjudication on merits after correcting the legal error identified. - HELD THAT: - Having held that the Tribunal's sole ground for quashing the assessment was legally incorrect, the Court did not decide the merits of the assessment. Instead, the Court quashed the impugned Tribunal order and remitted the matter to the Tribunal for disposal on merits in accordance with law. The remand is limited to consideration of the appeal on merits expeditiously, applying the correct legal position regarding the timing of the satisfaction note. [Paras 7]

The impugned order of the Tribunal is quashed and the matter is remitted to the Tribunal to decide the appeal on merits in accordance with law.

Final Conclusion: The appeal is allowed; the Tribunal's order dated 04.03.2011 is quashed because its conclusion that the assessment was void ab initio for lack of prior recording of satisfaction is contrary to the law in CALCUTTA KNITWEARS, and the matter is remitted to the Tribunal to decide the appeal on merits expeditiously.

Stay of assessment order - exercise of discretion by Principal Commissioner of Income Tax - meaningful consideration of stay application - deposit condition for grant of stay - genuine hardship and unreasonably high pitched assessment - effect of circulars on stay requests

Stay of assessment order - meaningful consideration of stay application - exercise of discretion by Principal Commissioner of Income Tax - effect of circulars on stay requests - genuine hardship and unreasonably high pitched assessment - deposit condition for grant of stay - Principal Commissioner of Income Tax must reconsider the petitioner's representation for stay and dispose it of within a limited time-frame after affording meaningful consideration in light of applicable circulars and judicial guidelines. - HELD THAT: - The High Court declined to interfere with the assessment at this stage but directed that the PCIT should exercise the power to consider the petitioner's representation seeking review of the rejection of stay in a meaningful manner. The PCIT is to take into account the instructions and procedure in Circular No.1914 as amended and the manner of exercise of power referred to in the decisions cited to the Court - M/s. Shriram Finance and Flipkart India Private Limited - without the Court expressing any opinion on merits. The PCIT must also examine whether the assessment is "unreasonably high pitched" or whether the requirement of deposit would cause genuine hardship to the assessee, and ensure that any condition of deposit for granting stay is applied after such consideration. The court left all contentions open and limited its direction to procedural reconsideration and timely disposal of the representation. [Paras 5, 7, 8]

PCIT directed to hear the petitioner and dispose of the representation for review of the stay order within one week of the petitioner's appearance, applying circular instructions and relevant judicial guidelines while keeping all contentions open.

Final Conclusion: Writ petition disposed of by directing the Principal Commissioner of Income Tax to consider the petitioner's representation for stay in a meaningful manner, in accordance with the applicable circulars and judicial guidelines, and to dispose of the representation within one week of the petitioner's appearance; no expression of opinion on merits.

Disallowance under section 14A read with Rule 8D - unabated assessments - additions under section 153A permissible only on the basis of incriminating material unearthed on search - restriction of disallowance to 0.5% of investment in dividend-yielding scrips

Disallowance under section 14A read with Rule 8D - unabated assessments - additions under section 153A permissible only on the basis of incriminating material unearthed on search - Validity of disallowance under section 14A read with Rule 8D in respect of AYs. 2013-14 and 2014-15 which were unabated on the date of search - HELD THAT: - Both assessment years were not pending before the Assessing Officer on the date of search and therefore constituted unabated assessments under the statute. The tribunal applied the settled legal position that in unabated assessments framed under section 153A no addition or disallowance can be made unless it is founded on incriminating material unearthed during the search relating to the issue in question. The record and assessment order contain no recital or indication of any incriminating material showing that expenditure incurred for earning the exempt income was discovered during the search. In the absence of any such incriminating material, the disallowance computed by the AO under section 14A read with Rule 8D cannot be sustained and requires deletion. [Paras 5]

Disallowance under section 14A read with Rule 8D for AYs. 2013-14 and 2014-15 deleted; appeals allowed for these years.

Disallowance under section 14A read with Rule 8D - restriction of disallowance to 0.5% of investment in dividend-yielding scrips - Extent and computation of disallowance under section 14A read with Rule 8D for AY 2016-17 (an abated assessment year) - HELD THAT: - AY 2016-17 was an abated assessment year and therefore disallowance under section 14A read with Rule 8D is permissible. The AO made disallowance under Rule 8D(2)(i) and Rule 8D(2)(iii). The assessee contested the quantum under Rule 8D(2)(iii), urging that the 0.5% benchmark should be applied only to investments in dividend-yielding scrips. The tribunal followed its consistent view in line with precedent (REI Agro Ltd. v. DCIT) and held that the disallowance under Rule 8D(2)(iii) must be restricted to 0.5% of the investment in dividend-yielding scrips. The matter was directed to be recomputed by the AO accordingly. [Paras 6]

Disallowance sustained in principle for AY 2016-17 but directed to be restricted so that Rule 8D(2)(iii) is applied at 0.5% of investments in dividend-yielding scrips; appeal partly allowed.

Final Conclusion: Appeals allowed for AYs. 2013-14 and 2014-15 by deleting the section 14A/Rule 8D disallowance for those unabated years for want of incriminating material; appeal for AY 2016-17 partly allowed by directing recomputation and restricting the Rule 8D(2)(iii) disallowance to 0.5% of investment in dividend-yielding scrips.

Reopening of assessment under section 147/148 - Reasons to believe / formation of belief - Prima facie material and nexus between material and belief - Inquiry under section 133(6) as precursor to reassessment - Admissibility of evidence and onus of proof for deduction under section 54F - Ownership by probate and its effect on beneficial ownership claims

Reopening of assessment under section 147/148 - Reasons to believe / formation of belief - Prima facie material and nexus between material and belief - Inquiry under section 133(6) as precursor to reassessment - Validity of initiation of proceedings under sections 147/148 of the Act - HELD THAT: - The Tribunal upheld the reopening. The Assessing Officer received information from the DIT (I&CI) and the Sub Registrar (stamp duty adoption of sale consideration), conducted an inquiry under section 133(6) and found that the assessee had not furnished documentary evidence in support of the claim reducing capital gains (claim of deduction and indexed cost). Those facts, together with the apparent non registration of the sale agreements and the Sub Registrar's adopted value, constituted prima facie material giving the AO reason to believe that income had escaped assessment. The Tribunal applied settled principles that at the stage of recording reasons the AO need form only a tentative belief based on credible material having nexus with escapement; courts cannot normally examine the sufficiency of the reasons. The Tribunal therefore affirmed the CIT(A)'s conclusion that the AO had jurisdiction to reopen the assessment and that the approval under section 151 need not supplement reasons where a clear nexus exists. [Paras 2]

Grounds 1 and 2 dismissed; reopening under sections 147/148 upheld.

Admissibility of evidence and onus of proof for deduction under section 54F - Ownership by probate and its effect on beneficial ownership claims - Allowability of deduction claimed under section 54F in respect of construction of a new residential house - HELD THAT: - The Tribunal agreed with the AO and CIT(A) that the assessee failed to discharge the onus of proving that the sale proceeds were invested in construction of a new residential house qualifying for section 54F. The record showed that the house in question was held by the assessee's father by probate of a Will, indicating exclusive ownership by the father; the construction contract (MOU) was between the father and the architect/contractor, and the architect disavowed receipt of the payments alleged to be from the assessee. Additional affidavits filed belatedly before the Tribunal were identical, self serving and unsupported by contemporaneous documentary proof; photographs lacked dates. In these circumstances the Tribunal found no basis to overturn the factual finding of the AO and CIT(A) that the claimed investment was not established and that deduction under section 54F was rightly denied. [Paras 3, 4]

Ground No. 4 dismissed; deduction under section 54F not allowable on the facts.

Procedural abandonment of grounds not pressed - Ground not pressed before the Tribunal - HELD THAT: - The assessee did not press Ground No. 3 at the hearing. The Tribunal therefore dismissed that ground as not pressed. [Paras 3]

Ground No. 3 dismissed as not pressed.

Final Conclusion: The appeal is dismissed. The Tribunal upheld the validity of reopening the assessment for AY 2009 10 under sections 147/148 and sustained the disallowance of the claim under section 54F on facts, and dismissed the unpressed ground.

Benami transaction - notice under Section 24(1) of the Prohibition of Benami Property Transactions Act - effect of the 2016 Amendment on jurisdiction to initiate proceedings - known source exception to benami - prima facie case - interim stay of statutory notice

Notice under Section 24(1) of the Prohibition of Benami Property Transactions Act - effect of the 2016 Amendment on jurisdiction to initiate proceedings - benami transaction - known source exception to benami - prima facie case - interim stay of statutory notice - Maintainability and immediate fate of the Section 24(1) notice issued in March 2020 in respect of properties acquired before the 2016 Amendment and whether interim relief should be granted. - HELD THAT: - The petition challenges a notice under Section 24(1) issued after the 2016 Amendment in respect of apartments and plots conveyed in 2011-2014. The petitioner contends that the Amendment Act of 2016, which inserted Section 24 and altered the penal regime (including the amended provision on transactions entered into on or after commencement), does not have retrospective effect and therefore cannot sustain proceedings in respect of properties acquired prior to the amendment. The Court noted that the notice itself records a satisfaction that the properties are held by the petitioner and other family members as family members of the alleged beneficial owner, but the show-cause notice does not record any finding that the consideration for the properties was not from the known source of the alleged beneficial owner. The absence of any conclusion by the Income Tax authorities on whether the consideration was paid from known sources is material because the statutory definition excludes properties held in the name of spouse or children where consideration is from known sources. On the material before the Court a prima facie case has been made out against the maintainability of the notice dated 06.03.2020 and against the completeness of the inquiry recorded in the notice. Balancing convenience and the risk of irreparable harm to the petitioner, the Court found it appropriate to preserve the status quo by granting interim relief.

The Section 24(1) notice dated 06.03.2020 insofar as it relates to the petitioner is stayed until further orders; prima facie objections to the notice were recognised arising from the pre-2016 acquisition dates and the lack of any recorded conclusion on known source of consideration.

Final Conclusion: The writ petition was issued rule; the Court stayed the Section 24(1) notice dated 06.03.2020 against the petitioner pending further orders and listed the matter for hearing on 19.06.2020.

Validity and enforceability of executive guideline vis-a -vis statutory powers - Entitlement to excise exemption for goods procured from Domestic Tariff Area under Special Economic Zones Act and Rules - Interpretation of 'export' and 'import' under the SEZ Act for supplies from Domestic Tariff Area - Liability for excise duty rests on the manufacturer; no reverse charge on the buyer under Central Excise law - Jurisdiction and competence to issue show cause notice - 'proper officer' under Central Excise/Custums enactments

Validity and enforceability of executive guideline vis-a -vis statutory powers - Impugned Guideline dated 06.04.2015 is not sustainable or enforceable against the petitioner. - HELD THAT: - The Court held that the power to issue the 2015 Guideline under Section 5 cannot be conflated with the statutory powers to demarcate processing and non-processing areas (Section 6) or to prescribe terms and conditions of authorised operations (Section 15(8)). The 2015 Guideline, which sought to re-demarcate existing power plants from processing to non-processing areas and withdraw O&M benefits, could not alter rights conferred under the Act and Rules and thus did not effect a lawful change in the petitioner's entitlement. The 2012 Guidelines recognised the position under the Act and their temporary withdrawal by the 2015 Guideline did not change statutory entitlements; the 2016 Guidelines later reintroduced the relevant position. For these reasons the 2015 Guideline cannot be enforced against the petitioner. [Paras 49, 58, 59, 74, 75]

2015 Guideline is neither sustainable nor enforceable against the petitioner.

Entitlement to excise exemption for goods procured from Domestic Tariff Area under Special Economic Zones Act and Rules - Interpretation of 'export' and 'import' under the SEZ Act for supplies from Domestic Tariff Area - Procedure for procurements from the Domestic Tariff Area under Rule 30 - Developer/co-developer may procure goods from DTA for authorised operations under Section 26(1)(c) read with Rule 30; supply from DTA qualifies as 'export' for the supplier and is not an 'import' for the SEZ recipient so as to attract customs/excise demand on the recipient. - HELD THAT: - The Court analysed Section 26(1)(c) and the statutory definitions in Sections 2(m) and 2(o) of the SEZ Act and held that a supply by a DTA supplier to a Unit or Developer in an SEZ falls within the Act's concept of 'export' for the supplier. Rule 30 prescribes the procedure for such procurements (ARE-1, bills of export, assessments and endorsements) and creates the mechanism by which the supplier may clear goods either under bond or on claim of rebate, and the SEZ recipient may admit goods without duty. The Court further observed that receipt from DTA does not constitute 'import' for the SEZ recipient in a manner that would permit recovery of excise/customs duty from the recipient; instead the reliefs and procedural safeguards in Rule 30 and related provisions are applicable. [Paras 43, 59, 64, 65, 66]

Procurement of HSD from a DTA supplier for authorised operations in the SEZ falls within the statutory scheme and does not justify charging excise/customs duty on the petitioner as recipient.

Liability for excise duty rests on the manufacturer; no reverse charge on the buyer under Central Excise law - Jurisdiction and competence to issue show cause notice - 'proper officer' under Central Excise/Custums enactments - The Development Commissioner (2nd respondent) lacked jurisdiction to issue the impugned show cause notice demanding excise duty from the petitioner; liability to pay excise duty lies on the manufacturer/supplier and not on the buyer in absence of statutory reverse charge. - HELD THAT: - The Court noted that excise liability arises on manufacture and that there is no provision under the Central Excise Act for imposing excise on the recipient on a reverse charge basis. Rule 47(5) (as inserted) and the statutory scheme reserve demand, refund, adjudication and appeal in matters relating to authorised operations to the jurisdictional Customs and Central Excise authorities. Only the Central Excise officer having jurisdiction over the DTA supplier (manufacturer) is competent to raise a demand under the Central Excise Act. Consequently, a show cause notice issued by the Development Commissioner seeking recovery of excise duty from the petitioner was beyond the officer's competence and unsustainable. [Paras 61, 70, 71, 72, 73]

Show cause notice issued by the Development Commissioner seeking excise recovery from the petitioner is not maintainable for want of jurisdiction and because excise liability is on the manufacturer.

Final Conclusion: Writ petitions allowed. The 2015 Guideline is not enforceable against the petitioner and the show cause notice seeking recovery of excise duty from the petitioner for HSD procured during 01.04.2015 to 03.10.2015 is quashed; entitlement and procedural regime under Section 26 and Rule 30 remain the statutory route, and demands for excise are to be pursued by the competent Central Excise authorities against the supplier.

Service tax liability in multi-level marketing - consideration/commission as consideration received from the service receiver - Business Auxiliary Service - commission for marketing/promotion constitutes taxable service

Service tax liability in multi-level marketing - Business Auxiliary Service - commission for marketing/promotion constitutes taxable service - Commission/consideration received by distributors under a multi level marketing (MLM) or RCM Business Marketing Plan constitutes consideration for providing business auxiliary services and is liable to service tax. - HELD THAT: - The Tribunal examined the terms of the agreement under the RCM/MLM scheme and agreed with earlier rulings cited by the Revenue. The scheme involved distributors obtaining a kit/password, promoting the principal's products and earning commissions both on their own sales and on sales by downstream introducees. The Tribunal found that these receipts flowed from marketing and promotional activities performed for the principal and were not dividends or non service payments. Applying the legal characterisation used in the earlier decision, the receipts constitute consideration from the service receiver to the distributor for providing promotional/marketing support, falling within the definition of Business Auxiliary Service. The Tribunal found no reason to depart from the precedents relied upon and followed their analysis to uphold the tax liability.

Impugned order upholding demand for service tax, interest and penalty affirmed; appeal dismissed.

Final Conclusion: The Tribunal followed its prior decisions treating commissions under the RCM/multi level marketing scheme as consideration for Business Auxiliary Service, upheld the adjudicated demand and dismissed the appeal.

Intellectual Property Rights services - transfer of technology / technical know-how - taxable service - Inter-governmental agreement - Scientific and Technical Consultancy Services - Consulting Engineer Services

Intellectual Property Rights services - transfer of technology / technical know-how - taxable service - Inter-governmental agreement - Whether payments made by the assessee to Rolls Royce Turbomeca Limited, U.K. are taxable as services under the head Intellectual Property Rights - HELD THAT: - The Tribunal examined the agreement and the Board's Circular which explains that only IPRs recognised under the law for the time being in force in India are chargeable to service tax. The record did not show that the technical know-how, designs or copyrights transferred pursuant to the contract were patented or otherwise covered under Indian IPR law. The Tribunal further relied on earlier Tribunal reasoning (including the decision noted in the Mumbai Bench and the principle applied in Kopran Ltd.) that payments for transfer of technical know-how or licence for manufacture under inter-governmental or government-related contracts do not, per se, constitute taxable IPR services or consultancy services unless they fall within the statutory definition applicable in India. Applying these principles to the facts, the Tribunal concluded that the receipts from Rolls Royce Turbomeca Limited did not fall within the definition of Intellectual Property Rights services under the Finance Act, 1994, and therefore were not taxable as such. [Paras 4, 5]

Services received from Rolls Royce Turbomeca Limited, U.K. are not Intellectual Property Rights services as defined under the Finance Act, 1994; the appeal is allowed.

Final Conclusion: The demand of service tax on payments made to the overseas transferor as Intellectual Property Rights services is set aside; the appeal is allowed with consequential relief as per law.

Availability of Cenvat Credit on inputs and capital goods - definition of input and exclusion for goods used in construction or for laying of foundation or making of structures for support of capital goods - definition of capital goods including components, spares and accessories - User Test for determining whether an item is part of a capital good - integration test - whether a structure is so integral to a capital good that the capital good cannot function in its absence

Availability of Cenvat Credit on inputs and capital goods - definition of input and exclusion for goods used in construction or for laying of foundation or making of structures for support of capital goods - definition of capital goods including components, spares and accessories - User Test for determining whether an item is part of a capital good - integration test - whether a structure is so integral to a capital good that the capital good cannot function in its absence - MS Structure supplied with a boiler qualifies as part of the capital good (boiler) and Cenvat Credit is admissible on it - HELD THAT: - The Tribunal examined whether the MS Structure objected to by the Department is an input or a capital good for the purpose of claiming Cenvat Credit. The definition of input excludes goods used for construction or making of structures for support of capital goods; however, the definition of capital goods includes components, spares and accessories of goods falling under specified chapters. The Tribunal applied the User Test and the integration principle as articulated by the Apex Court and followed by High Courts and coordinate Benches: where a structure is so integral to a capital good that the capital good cannot function in its absence, that structure must be treated as part of the capital good. The appellant placed on record invoices showing that the MS Structure was supplied by the boiler manufacturer together with the boiler and was necessary for the boiler's use. The Tribunal found that the MS Structure was not fabricated by the appellant and was sold as an integral part/component of the boiler; mere nomenclature as "MS Structure" does not defeat the user/integration test. Earlier findings in respect of 26 invoices treating similar structures as parts of the biomass boiler were applied uniformly to the remaining invoices. In view of the consistent precedents and the factual materials (invoices) demonstrating that the structure was an integral component of the capital good, the denial of Cenvat Credit on the remaining invoices was unsustainable.

The denial of Cenvat Credit in respect of the contested MS Structure invoices was set aside and the appeal allowed.

Final Conclusion: The Tribunal held that the MS Structure purchased from the boiler manufacturer was an integral part of the boiler (a capital good) and therefore Cenvat Credit was admissible; the impugned recovery was set aside and the appeal allowed.

Exemption not general to a class of goods - conditional exemption - interpretation of notification - Section 8(2A) of the Central Sales Tax Act, 1956 - meaning of "generally exempt" - Explanation to Section 8(2A) - exemption subject to specified circumstances or conditions - jurisdiction of assessing authority under Section 9(2) of the Madhya Pradesh Commercial Tax Act, 1994 - power to review and revise assessment on change of opinion

Section 8(2A) of the Central Sales Tax Act, 1956 - meaning of "generally exempt" - Explanation to Section 8(2A) - exemption subject to specified circumstances or conditions - conditional exemption - interpretation of notification - Whether the notification exempting footwear made of PVC, rubber chappals and straps with sale price not exceeding Rs. 50 per pair is a general exemption attracting benefit under Section 8(2A) of the Central Sales Tax Act, 1956. - HELD THAT: - The Court examined the language of the notification which grants exemption only where the sale price does not exceed Rs. 50 per pair and applied the Explanation to Section 8(2A) which excludes from "generally exempt" those exemptions available only in specified circumstances or subject to conditions. Relying on precedents addressing the distinction between general exemptions and conditional/limited exemptions, the Court held that an exemption expressly contingent on price (or other specified conditions) cannot be treated as a general exemption for the purposes of Section 8(2A). The notification in question is therefore a conditional exemption limited to goods meeting the specified price condition and does not render the inter State turnover of such goods "generally exempt" under the Central Sales Tax Act.

The notification is not a general exemption; the assessee is not entitled to benefit under Section 8(2A) of the Central Sales Tax Act, 1956.

Jurisdiction of assessing authority under Section 9(2) of the Madhya Pradesh Commercial Tax Act, 1994 - power to review and revise assessment on change of opinion - interpretation of notification - Whether the Madhya Pradesh Commercial Tax Appellate Board was right in holding that the assessing authority had jurisdiction and power under Section 9(2) read with Section 19(1) to review/revise its own order of assessment on a change of opinion regarding the interpretation of the notification and to pass a reassessment order under the Central Sales Tax Act, 1956. - HELD THAT: - The Court noted the Board's conclusion that reassessment proceedings initiated under Section 9(2) were competent where the assessing authority revisited its view on the applicability of the notification. Having considered the record and the Board's reasoning, and in view of its conclusion that the notification did not confer a general exemption under Section 8(2A), the Court upheld the Board's view that the assessing authority possessed the jurisdiction and power to review and revise the earlier assessment on change of opinion and to pass reassessment orders in accordance with law.

The Appellate Board was right in holding that the assessing authority had jurisdiction and power to review and revise the assessment on a change of opinion and to pass reassessment under the Central Sales Tax Act.

Final Conclusion: Both questions referred were answered in the affirmative: the notification granting exemption subject to a price condition is not a general exemption under Section 8(2A) CST Act and the Appellate Board was justified in upholding the assessing authority's jurisdiction and power to review and reassess on change of opinion; the Tax Reference is disposed of.

Classification for taxation - discriminatory taxation between imported and indigenous goods - reasonable classification - restriction on trade and commerce under Part XIII - effect of international agreement on domestic statutory levy - state power to levy sales tax on imported goods - binding effect of Division Bench precedent

State power to levy sales tax on imported goods - discriminatory taxation between imported and indigenous goods - reasonable classification - restriction on trade and commerce under Part XIII - effect of international agreement on domestic statutory levy - binding effect of Division Bench precedent - Validity of the TNGST amendments imposing a higher rate of sales tax on specified imported goods and whether such levy is discriminatory or inconsistent with the Bhutan-India trade agreement or constitutional provisions on trade and commerce. - HELD THAT: - The Court held that the challenge to the impugned amendments was foreclosed by the Division Bench decision in Sony India Ltd. and others v. CTO which considered identical provisions and upheld the classification of imported goods as a separate class for taxation. The Division Bench found that Part XIII of the Constitution and restrictions on inter-State/intra-State trade did not render the higher levy on imported goods invalid, and that the classification rested on intelligible differentia and reasonable classification. The petitioner's reliance on international agreement and other Supreme Court decisions was examined and rejected as either inapposite to the facts (e.g., anti-dumping duty context) or not displacing the binding Division Bench precedent. Consequently the Court declined to take a view contrary to the earlier Division Bench ruling and found no ground to hold the amended provisions ultravires or inapplicable to the petitioner. [Paras 24, 26]

The challenge to the impugned amendments is negatived in view of the Division Bench precedent; the writ petition is dismissed.

Final Conclusion: The writ petition challenging the TNGST amendments imposing a higher tax on specified imported goods is dismissed as the issue has been conclusively negatived by the Division Bench decision; no costs.

Presumption under Section 139 of the Negotiable Instruments Act - rebuttable presumption - reverse onus clause - cheque issued as security - legally enforceable debt or liability - onus on the accused to rebut

Presumption under Section 139 of the Negotiable Instruments Act - cheque issued as security - rebuttable presumption - onus on the accused to rebut - Whether a cheque issued as security falls outside the scope of the presumption under Section 139 and whether the trial court was correct in acquitting the accused on that ground. - HELD THAT: - The High Court held that the trial Court erred in treating a cheque alleged to have been issued as security as excluding the presumption under Section 139. The Apex Court's decision in Rangappa establishes that once execution/issuance and signature of the cheque are admitted, there arises a rebuttable presumption that the cheque was issued for discharge of a debt or liability. This reverse onus requires the accused to lead evidence to rebut the presumption (for example, by proving full payment or other facts negativing a legally enforceable liability). Mere assertion that the cheque was given as security, without cogent evidence to rebut the presumptions under Sections 118 and 139, is insufficient. Applying these principles to the present facts, the accused admitted issuance and signature, and did not discharge the onus to show payment or otherwise rebut the presumption; hence the acquittal by the trial Court was unsustainable and was set aside. [Paras 6, 7, 8, 9]

The presumption under Section 139 applies even where a cheque is said to have been given as security; the accused failed to rebut the presumption and the trial Court's acquittal was set aside.

Legally enforceable debt or liability - compensation and sentence in default - Relief to be granted on allowing the appeal and consequences for non-payment. - HELD THAT: - Having found that a legally recoverable debt existed and that the accused failed to rebut the presumption of liability, the High Court directed restoration of the complaint to the extent of recovery. The Court ordered payment of the principal amount found due and awarded compensation to the complainant; it further directed that failure to deposit the awarded amounts within the stipulated period would invite imprisonment in default and permitted the trial Court to take steps for enforcement in case of non-compliance. [Paras 10, 11]

The appeal is allowed; the accused is directed to pay the declared amount and awarded compensation within three months, failing which he shall undergo imprisonment in default and the trial Court may proceed for enforcement.

Final Conclusion: The High Court allowed the appeal, set aside the trial Court's acquittal, held that the rebuttable presumption under Section 139 applies even where a cheque is said to have been given as security and, on the facts, the accused failed to rebut the presumption; the accused was directed to pay the amount due and awarded compensation within three months, failing which imprisonment in default was ordered.