TaxTMI Updates e-Newsletter
Jun 01,2022

E-way bill validity - Rule 138(10) of the Central Goods and Services Tax Rules, 2017 - extension of validity of e-way bill - transporter's obligation to produce e-way bill - authority's duty to verify and permit movement - seizure and release of goods - quashing of proceedings

E-way bill validity - Rule 138(10) of the Central Goods and Services Tax Rules, 2017 - transporter's obligation to produce e-way bill - authority's duty to verify and permit movement - seizure and release of goods - quashing of proceedings - Whether continued detention of the vehicle and goods was justified where fresh e-way bills for outward transportation were produced and compliance with Rule 138(10) was shown. - HELD THAT: - The Court found that the consignor had validly obtained and produced fresh e-way bills for taking back the goods from Tripura to Guwahati. Rule 138(10) contemplates situations where an e-way bill may be amended or reissued for the same consignment and permits extension of validity in exceptional circumstances; bona fide reasons for such change must be justified. On the material placed before the Court the petitioner had complied with the statutory regime by obtaining fresh e-way bills and producing them to the inspecting authority before seeking permission to leave the State. Once a transporter produces a valid e-way bill, the statutory authorities are obliged to examine and, if found in order, permit the movement; any irregularity, if established, can be addressed under the statute but does not justify continued detention where compliance is shown. Applying these principles, the Court held there was no justification for further detention of the vehicle and goods and that the exercise of detention was impermissible under the circumstances.

Vehicle No. AS 01 NC 7115, the goods and the e-way bills produced shall be released forthwith and any proceedings initiated against the petitioner are quashed.

Final Conclusion: Writ petition allowed; detained vehicle, goods and the e-way bills ordered released forthwith and proceedings against the petitioner quashed.

Provisional attachment - formation of opinion based on tangible material - draconian nature of attachment powers - duty to pass a reasoned order on objections - Rule 159(5) - objection/appeal against provisional attachment - maintainability of writ under Article 226 where alternate remedy exists

Provisional attachment - formation of opinion based on tangible material - draconian nature of attachment powers - duty to pass a reasoned order on objections - Validity of the provisional attachment order passed under Section 83 of the TNGST Act - HELD THAT: - The Court applied the mandatory guidelines in Radhakrishnan and held that the power to provisionally attach property including bank accounts is draconian and must be exercised only after the Commissioner forms an opinion, supported by tangible material, that the assessee is likely to defeat any demand and that attachment is necessary to protect government revenue. The impugned order merely recited that the account was provisionally attached "to protect the interest of the Revenue" without indicating the tangible material or reasons on which the opinion was formed, and did not satisfy the requirement of a reasoned decision. The Court found that such non-application of mind and absence of stated tangible material rendered the attachment contrary to the principles in Radhakrishnan; accordingly the provisional attachment and consequential bank communications were set aside. The Court, however, clarified that Revenue remains free to invoke Section 83 afresh after recording reasons and tangible material justifying attachment. [Paras 31, 32, 35, 41, 42]

Provisional attachment dated 20.12.2021 and consequential bank communications set aside for failure to record reasons and tangible material as required by Radhakrishnan; Revenue may re-invoke Section 83 after recording appropriate reasons and materials.

Rule 159(5) - objection/appeal against provisional attachment - maintainability of writ under Article 226 where alternate remedy exists - Whether the writ petitions were maintainable despite availability of remedy under Rule 159(5) - HELD THAT: - The Court addressed the contention that the petitions were premature because the assessees had not exhausted the remedy under Rule 159(5). The petitioners produced an objection/application dated 23.12.2021 made within the seven day period under Rule 159(5), which, the Court found, had not been considered by the Commissioner. In those circumstances the petitioners cannot be said to have failed to exhaust the alternate remedy, and the writ petitions were entertainable. The Court rejected the respondents' maintainability objection. [Paras 22, 36, 37, 38, 40]

Writ petitions held maintainable because petitioners filed an objection under Rule 159(5) on 23.12.2021 which remained unconsidered; maintainability objection rejected.

Final Conclusion: The provisional attachment orders (and consequent bank communications) were set aside for non-compliance with the requirement to record tangible material and reasons as mandated by the Supreme Court in Radhakrishnan; the petitioners' challenge was maintainable because they had filed objections under Rule 159(5) which remained unconsidered. Revenue is free to re-impose attachment after recording reasons and tangible material and the assessment proceedings may be completed forthwith.

Benefit of input tax credit - commensurate reduction in prices - anti-profiteering under Section 171 of the CGST Act, 2017 - computation of profiteering - retrospective application of penal provision - verification of compliance by jurisdictional Commissioner

Benefit of input tax credit - commensurate reduction in prices - anti-profiteering under Section 171 of the CGST Act, 2017 - Additional ITC accrued to the supplier post-GST and was required to be passed on to eligible recipients by way of commensurate reduction in prices. - HELD THAT: - The Authority accepted the DGAP's finding that the ratio of ITC to turnover was 0.00% in the pre-GST period and 1.85% in the post-GST period, establishing an additional ITC benefit of 1.85% of turnover which ought to have been passed on to buyers in terms of Section 171(1). The respondent's contention that buyers who contracted post-GST were not entitled to the benefit was rejected: benefits arising from tax policy cannot be denied to recipients on that ground. The Authority therefore concluded that Section 171 was contravened insofar as additional ITC accruing between 01.07.2017 and 31.03.2019 was not passed on to identifiable recipients. [Paras 4, 5, 14]

The respondent had a duty to pass on the additional ITC benefit of 1.85% of turnover to eligible homebuyers under Section 171 of the CGST Act, 2017.

Computation of profiteering - benefit of input tax credit - The profiteered amount for the period 01.07.2017 to 31.03.2019 was determined and accepted as Rs. 4,31,473. - HELD THAT: - On the basis of the DGAP's tables and computation (recalibrated base price reflecting 1.85% increase in ITC), the Authority found that the excess realization amounted to Rs. 4,31,473 for the project and that this figure was accepted by the respondent during personal hearing. The Authority directed that the profiteered amount be passed to the identified eight homebuyers along with interest at 18% from the date of profiteering until payment, in accordance with Rule 133(3)(b) of the CGST Rules, 2017. [Paras 4, 11, 14, 15]

Profiteering for 01.07.2017 to 31.03.2019 fixed at Rs. 4,31,473 and ordered to be returned to the eligible buyers with interest @18%.

Verification of compliance by jurisdictional Commissioner - The respondent's claim of having paid the determined amounts to the buyers is to be verified by the concerned CGST/SGST Commissioner and a compliance report submitted to the Authority and the DGAP. - HELD THAT: - Although the respondent furnished cheques, bank statements and confirmations indicating payment of the profiteered amounts and interest to all eight recipients (and the applicant confirmed receipt), the Authority directed statutory verification under Rule 136 to ensure compliance. The jurisdictional Commissioner is required to carry out verification and report within four months from receipt of the order. [Paras 16, 17]

Directed verification of the respondent's payment to recipients by the concerned jurisdictional Commissioner and submission of a compliance report within four months.

Retrospective application of penal provision - The penal provision inserted as Section 171(3A) by the Finance Act, 2019 (operative from 01.01.2020) is not applicable retrospectively to the profiteering determined for 01.07.2017 to 31.03.2019. - HELD THAT: - The Authority noted that Section 171(3A) became effective prospectively from 01.01.2020 and the profiteering found in this case related only to the period up to 31.03.2019 (profiteering after that date was not examined because the respondent opted for the 5% without ITC scheme effective 01.04.2019). Consequently, penal consequences under Section 171(3A) cannot be applied retrospectively to the determined period. [Paras 6, 18]

Penal provisions of Section 171(3A) are not attracted to the profiteering determined for 01.07.2017 to 31.03.2019.

Final Conclusion: The Authority accepted the DGAP's finding that an additional ITC benefit of 1.85% accrued to the respondent for the period 01.07.2017 to 31.03.2019, fixed the profiteered amount at Rs. 4,31,473 and ordered its return to the eight identified homebuyers with interest @18%; directed verification of compliance by the jurisdictional GST Commissioner within four months; and held that the penal provision under Section 171(3A) is not retrospectively applicable to the determined period.

Section 171(1) of the CGST Act, 2017 - requirement to pass on reduction in rate of tax or benefit of ITC by way of commensurate reduction in prices - Anti-profiteering under the GST regime - Computation of profiteering on a lump-sum basis where class/category-wise sales data are not maintained - Deposit of profiteered amount in Central and State Consumer Welfare Funds where recipients are not identifiable - Non-retroactivity of penalty under Section 171(3A) where penal provision came into force after the period of contravention

Section 171(1) of the CGST Act, 2017 - requirement to pass on reduction in rate of tax or benefit of ITC by way of commensurate reduction in prices - Anti-profiteering under the GST regime - Whether the reduction in GST rate on admission to exhibition of cinematograph films (tickets priced Rs.100 or less) w.e.f. 01.01.2019 was required to be passed on by the Respondent and whether he contravened Section 171(1) by failing to pass on the benefit. - HELD THAT: - The Authority examined the statutory requirement in Section 171(1) that any reduction in rate of tax must be passed on to recipients by way of a commensurate reduction in prices, meaning a reduction in the final monetary price payable by consumers. It was established on the material before the Authority that GST on specified film-admission services was reduced from 18% to 12% w.e.f. 01.01.2019. The factual record, including the Respondent's own admissions and the price-lists and tickets furnished, shows that the Respondent maintained the same cum-GST selling prices for the three ticket categories in pre- and post-rate-reduction periods and in effect increased base prices so that GST charged (as reflected in returns and price lists) remained at the previous level. The Respondent did not produce class-wise sales data and made no effective contest to the DGAP's findings. On these findings the Authority concluded that the Respondent contravened Section 171(1) by not passing on the benefit of the tax-rate reduction to recipients. [Paras 15, 18, 25, 26, 27]

The Respondent violated Section 171(1) of the CGST Act, 2017 by failing to pass on the benefit of the GST rate reduction to recipients.

Computation of profiteering on a lump-sum basis where class/category-wise sales data are not maintained - Quantum of profiteering for the period of investigation and the method of its computation. - HELD THAT: - Because the Respondent did not maintain class/category-wise outward taxable supply details, the DGAP computed profiteering on a lump-sum basis aggregating taxable turnover across the three ticket categories and applying the benefit of the 6% tax-rate reduction (18% to 12%) to that taxable turnover for each month from January 2019. The DGAP's month-wise computations, reproduced as Table-A, showed the difference between the commensurate post-rate-reduction cum-GST prices and the actual cum-GST prices charged by the Respondent. The Authority examined and accepted this methodology as appropriate given the absence of segregated sales data and reliance on the Respondent's own returns and price-lists. [Paras 11, 14, 16, 25, 26]

Profiteering was correctly computed on a lump-sum basis and quantified as per the DGAP's methodology.

Anti-profiteering under the GST regime - Amount determined as profiteered and the period in respect of which profiteering is fixed. - HELD THAT: - On the basis of the DGAP's month-wise computations for January 2019 to September 2019, the Authority accepts the quantified profiteered amount. The DGAP's report and supporting sales data show that the Respondent failed to reduce prices commensurate with the rate reduction and thereby collected an excess amount from recipients. The total profiteered amount for the period 01.01.2019 to 30.09.2019 was determined by the Authority as reported by the DGAP. [Paras 16, 17, 18, 28]

Profiteering determined at Rs. 1,31,754 for the period 01.01.2019 to 30.09.2019.

Deposit of profiteered amount in Central and State Consumer Welfare Funds where recipients are not identifiable - Remedial directions where recipients are not identifiable. - HELD THAT: - The Authority noted that recipients/customers could not be identified from the available records. In accordance with the remedial provisions under Section 171 read with Rule 133 of the CGST Rules, the Authority directed that where recipients are not identifiable, the profiteered amount along with interest (to be computed from the date of collection until deposit) is to be deposited in the Central Consumer Welfare Fund and the State Consumer Welfare Fund. The Authority ordered deposition of the determined profiteered amount in two equal parts into the Central CWF and Telangana State CWF within three months, failing which recovery procedures under the relevant GST law shall follow. The Commissioners of CGST/SGST, Telangana were directed to monitor compliance under the supervision of the DGAP. [Paras 18, 28, 29, 31]

The Respondent is directed to deposit Rs. 1,31,754 along with interest into the Central and Telangana State Consumer Welfare Funds in equal parts; compliance to be monitored by the Commissioners under DGAP supervision.

Non-retroactivity of penalty under Section 171(3A) where penal provision came into force after the period of contravention - Whether penalty under Section 171(3A) could be imposed for profiteering that occurred during 01.01.2019 to 30.09.2019. - HELD THAT: - Section 171(3A), prescribing a penalty equivalent to ten percent of the amount profiteered, came into force w.e.f. 01.01.2020. The Authority found that the period of contravention in this case was 01.01.2019 to 30.09.2019, prior to the effective date of Section 171(3A). Consequently, imposing the Section 171(3A) penalty retrospectively for violations occurring before its commencement would be impermissible. The Authority therefore declined to impose that penalty. [Paras 30]

Penalty under Section 171(3A) not imposed as it cannot be applied retrospectively to profiteering that occurred before 01.01.2020.

Final Conclusion: The Authority accepted the DGAP's findings that the Respondent failed to pass on the GST rate reduction benefit (18% to 12% w.e.f. 01.01.2019) to recipients, quantified profiteering at Rs. 1,31,754 for the period 01.01.2019 to 30.09.2019 (computed on a lump-sum basis due to lack of class-wise data), directed the Respondent to reduce ticket prices commensurately and to deposit the profiteered amount with interest into the Central and Telangana State Consumer Welfare Funds in equal parts, and declined to impose the later-introduced Section 171(3A) penalty retrospectively.

Characterisation of government grant as capital or revenue receipt - purpose test for classification of subsidy or grant - tax treatment of grant-in-aid - inclusion of government grants in the definition of income and effect of post-facto amendment - entitlement to exemption under Section 10(23C)(iiiab) - registration under Section 12AA and entitlement to exemptions under Sections 11 to 13

Characterisation of government grant as capital or revenue receipt - purpose test for classification of subsidy or grant - tax treatment of grant-in-aid - The grant-in-aid received from the Government of India was a capital receipt and not income taxable as revenue under the Act. - HELD THAT: - The Court applied the purpose test: the grant was a one-time assistance expressly earmarked for upgradation/strengthening of the institution, mandatorily to be kept in a separate bank account and utilized only for the specified heads of non-recurring and recurring expenditure. A substantial part of the grant was for non-recurring items (capital works and assets) and the remainder was for stipulated recurring purposes connected to the scheme; there was no indication that the grant constituted receipts from carrying on a business or a source of profit. Pre-amendment wording of the income definition did not specifically treat such government grants as income, and the later statutory amendment (effective 01.04.2016) incorporating certain government releases into the definition of income could not be given retrospective operation. Reliance on authorities applying the purpose test and distinguishing subsidies given for capital purposes from revenue assistance supported treating the grant as capital in nature. The Tribunal and lower authorities did not consider these aspects sufficiently; on the facts the grant could not be treated as income under Section 2(24)(iia). [Paras 11, 13, 15, 17]

The grant-in-aid is of capital nature and is not taxable as income of the assessee.

Entitlement to exemption under Section 10(23C)(iiiab) - registration under Section 12AA and entitlement to exemptions under Sections 11 to 13 - The questions whether the appellant was entitled to exemption under Section 10(23C)(iiiab) and whether provisions of Sections 11, 12 and 13 applied were rendered redundant by the determination that the grant was not income. - HELD THAT: - Having held that the grant-in-aid did not constitute income of the assessee, the contested conclusions of the authorities treating the grant as assessable income fall away. Consequently, consideration of entitlement to the cited exemptions and the temporal effect of registration under Section 12AA (as relied upon by the Revenue) became unnecessary for the disposal of the appeal. [Paras 18]

Questions (a) and (b) admitted at admission stage are rendered redundant by the finding that the grant was not income.

Final Conclusion: Appeal allowed; orders of the ITAT and CIT(A) and the assessment order are set aside on the ground that the grant-in-aid was a capital receipt and not assessable income. No order as to costs.

Revision under Section 263 of the Income Tax Act - Erroneous and prejudicial to the interests of Revenue - Explanation 2(a) to Section 263 - Requirement of inquiry and verification by the revisionary authority before exercise of revisionary power

Revision under Section 263 of the Income Tax Act - Erroneous and prejudicial to the interests of Revenue - Requirement of inquiry and verification by the revisionary authority before exercise of revisionary power - Whether the order passed by the Principal Commissioner under Section 263 could be sustained where he held the assessment by the Assessing Officer to be erroneous and prejudicial to the interests of the Revenue without identifying what inquiries or verifications the Assessing Officer failed to make - HELD THAT: - The Court reaffirmed that exercise of power under Section 263 requires satisfaction of the twin conditions that the AO's order is (i) erroneous, and (ii) prejudicial to the interests of the Revenue. The revisionary authority must, before invoking Section 263, point out and, where necessary, undertake such inquiries or verifications to establish that the AO's order is erroneous and prejudicial; mere flagging of issues, reproducing show-cause materials or relying on suspicion is insufficient. The Tribunal found that the Pr. CIT had merely extracted parts of the show-cause notice and the assessee's reply, failed to address the factual and evidentiary matrix and did not indicate which specific inquiries or verifications were omitted by the AO. Reliance on the principle in Malabar Industrial Co. Ltd. was noted that not every loss of revenue or difference of view amounts to an order prejudicial to Revenue unless the AO's view is unsustainable in law. Because the appellant (Revenue) could not specify what inquiries/verification were lacking so as to bring the case within Explanation 2(a) to Section 263, the Tribunal rightly set aside the revision order and the High Court found no error in that conclusion. [Paras 9, 10, 11, 12, 15]

Revenue's appeals dismissed; the order under Section 263 was set aside because the Pr. CIT did not point out or undertake the necessary inquiries/verification to establish that the AO's order was erroneous and prejudicial to Revenue.

Final Conclusion: The High Court upheld the Tribunal's order setting aside the revision under Section 263, dismissing the Revenue's appeals for failure to demonstrate that the Assessing Officer's order was shown to be both erroneous and prejudicial to the interests of Revenue by appropriate inquiries or verification.

Faceless assessment - assessment passed against a deceased person is null and void - violation of principles of natural justice - deemed continuation of proceedings against legal representative - remand for fresh consideration and opportunity of hearing to legal heirs

Assessment passed against a deceased person is null and void - faceless assessment - violation of principles of natural justice - Validity of the assessment order dated 21.09.2021 passed in the name of the deceased assessee without addressing or hearing the legal heirs and without complying with mandatory faceless procedure. - HELD THAT: - The Court found that the assessee had died before the culmination of the assessment proceedings and that the department was informed of the death with production of the death certificate and legal heir certificate. Despite noting the death, the assessing officer proceeded to pass the faceless assessment order against the deceased, recorded that the assessee's response was 'perused but not found satisfactory', and initiated consequential proceedings. The court held that a notice or assessment issued to a dead person is void and that passing an assessment against a deceased person without following the mandatory procedures under the faceless assessment scheme and without affording the legal heirs an opportunity of hearing amounted to proceedings without jurisdiction and in breach of natural justice. Consequently, those proceedings could not be sustained. [Paras 8, 9]

The assessment order dated 21.09.2021 and consequential proceedings are held invalid and unsustainable.

Deemed continuation of proceedings against legal representative - alternative statutory remedy - Whether the availability of an alternative statutory remedy by way of appeal barred the writ petition challenging the assessment passed against the deceased. - HELD THAT: - The Court applied settled principles that an alternative statutory remedy does not bar writ jurisdiction where there is a violation of fundamental rights, breach of natural justice, or where proceedings are wholly without jurisdiction. The Court observed that initiation and completion of assessment against a dead person-when death and legal heir particulars were on record-rendered the proceedings without jurisdiction. Thus, the learned Single Judge erred in dismissing the writ petition merely because an appeal had been filed; maintainability of the writ was upheld in these circumstances. [Paras 9]

Dismissal of the writ petition on the ground of availability of an alternative remedy was incorrect; writ jurisdiction was rightly invoked.

Remand for fresh consideration and opportunity of hearing to legal heirs - Relief to be granted and course of action following setting aside of the impugned assessment and consequential proceedings. - HELD THAT: - The Court set aside the judgment of the Single Judge and the assessment order and remitted the matter to the assessing officer for fresh adjudication. The assessing officer was directed to consider all materials furnished by the appellant, give a reasoned order on merits in accordance with law, and grant an opportunity of hearing to the legal heir(s) of the deceased assessee. The Court prescribed a time-bound direction that this exercise be completed within three weeks from receipt of the judgment copy. [Paras 10]

Matter remanded to the assessing officer for fresh, reasoned consideration and hearing of the legal heirs within three weeks.

Final Conclusion: The impugned assessment order dated 21.09.2021 and consequential proceedings for Assessment Year 2019-2020 are set aside as invalid for having been passed against a deceased person without affording the legal heirs a hearing; the matter is remitted to the assessing officer to decide afresh on merits after considering the materials and after granting an opportunity of hearing to the legal heir(s) within three weeks.

Presumptive taxation under section 44AD - unexplained investment under section 69 - explanation of bank deposits - consistency of explanations and evidentiary burden - appellate scrutiny of factual findings

Presumptive taxation under section 44AD - explanation of bank deposits - unexplained investment under section 69 - consistency of explanations and evidentiary burden - appellate scrutiny of factual findings - Whether the claim that the impugned bank deposits formed part of business receipts assessable under section 44AD precluded the Assessing Officer and appellate authorities from treating the deposits as unexplained investment under section 69 when the assessee failed to prove the nature of business and sources of the deposits and offered inconsistent explanations. - HELD THAT: - The court recorded that although section 44AD prescribes a presumptive basis for computing business income where applicable, the statutory scheme does not operate to bar inquiry into the nexus between specific bank deposits and claimed business receipts when the Assessing Officer questions those credits. The material shows the assessee gave divergent accounts of her business (initially claiming a profession, later real estate) and did not produce corroborative evidence to establish that the impugned deposits formed part of turnover. The assessing officer's finding that sources were not satisfactorily proved was affirmed by the first appellate authority and the Tribunal on the basis of inconsistent explanations and absence of documentary evidence to link the deposits to business receipts. Given these concurrent factual findings, the High Court held there was no substantial question of law warranting interference, and that the authorities were entitled to treat the deposits as unexplained investment under section 69 in the absence of proof of sources. [Paras 9, 10]

The concurrent factual findings that the assessee failed to establish the nature of business and the sources of the bank deposits were upheld; the Tribunal's dismissal of the appeal was maintained.

Final Conclusion: Appeal dismissed; concurrent factual findings that the assessee failed to prove the nature of her business and the sources of the impugned bank deposits were upheld and there is no substantial question of law to warrant interference.

Revisionary jurisdiction under Section 263 of the Income tax Act - Doctrine of merger (effect of appeal on revisional powers) - Order being "erroneous and prejudicial to the interests of revenue" - Requirement of inquiry/verification by the Assessing Officer - Non deduction of TDS on commission and disallowance under Section 40(a)(ia) read with Section 194H - Explanation 1(c) to Section 263

Revisionary jurisdiction under Section 263 of the Income tax Act - Doctrine of merger (effect of appeal on revisional powers) - Explanation 1(c) to Section 263 - Validity of initiation of proceedings under Section 263 while an appeal against the assessment order is pending before the Commissioner (Appeals). - HELD THAT: - The Tribunal applied the legislative history and settled authorities to hold that the Principal Commissioner/Commissioner may invoke Section 263 in respect of matters which have not been "considered and decided" in the appeal. The Explanation 1(c) to Section 263 embodies the Doctrine of Merger only insofar as issues that have been considered and decided by the appellate authority; it does not bar revisional action in respect of issues not agitated or decided on appeal. The coordinate bench decisions relied on by the assessee were considered and distinguished on the ground that they did not deal with the statutory language and legislative intent reflected in the Notes on Clauses and the Memorandum to the Finance Bill, 1988 nor with Apex Court decisions interpreting the scope of revisional powers. Applying these principles to the facts, the Tribunal held that pendency of an appeal before the CIT(A) did not oust the PCIT's jurisdiction under Section 263 to examine and revise parts of the assessment order that were not before or decided by the CIT(A). [Paras 10, 12]

The exercise of revisional jurisdiction by the Principal Commissioner under Section 263 in the present case was lawful and this ground of the assessee's appeal was dismissed.

Order being "erroneous and prejudicial to the interests of revenue" - Requirement of inquiry/verification by the Assessing Officer - Non deduction of TDS on commission and disallowance under Section 40(a)(ia) read with Section 194H - Whether the assessment order was erroneous and prejudicial to revenue for failing to compute and verify taxable income correctly and to examine non deduction of TDS on commission payments. - HELD THAT: - The Tribunal examined the Pr.CIT's findings that (a) a deduction/exemption under Section 80P(2)(a)(i) had been disallowed by the AO but the corresponding amount was not incorporated into the gross total income, and (b) the AO allowed large commission payments without adequate verification of TDS compliance though the audit records indicated no TDS was deducted. Citing the statutory scheme and authorities on the meaning of "erroneous and prejudicial", the Pr.CIT concluded that the AO had failed to make inquiries or verification which should have been made. The Tribunal agreed that these failures rendered the assessment order erroneous and prejudicial to revenue, endorsed the Pr.CIT's direction to reopen those aspects, and observed that the matter relating to commission payments was restored to the AO for fresh assessment with an opportunity of hearing and for production of supporting details. [Paras 13]

The assessment order was held to be erroneous and prejudicial to the interests of revenue; the revisional action setting aside parts of the assessment and remitting issues (computation error and verification of commission/TDS) to the AO for fresh consideration was upheld.

Final Conclusion: The assessee's appeal is dismissed: the Tribunal upheld the Pr.CIT's exercise of revisional jurisdiction under Section 263 in respect of issues not considered and decided in the pending appeal, and found the assessment order erroneous and prejudicial to revenue on the points identified, directing fresh adjudication by the Assessing Officer with opportunity to the assessee.

Rectification under section 154 - mistake apparent from record - interest under section 234D - date of grant of refund versus date of receipt of refund - scope of rectification

Rectification under section 154 - mistake apparent from record - interest under section 234D - date of grant of refund versus date of receipt of refund - Rectification order dated 14/03/2017 charging further interest under section 234D was beyond the scope of section 154 as the point was debatable and not a mistake apparent from record. - HELD THAT: - The Tribunal held that the Assessing Officer's rectification, which imposed additional interest on the ground of short levy, could be sustained under section 154 only if the error was an obvious and patent mistake. The assessee challenged charging interest from the date of grant of refund instead of the date of actual receipt, a question shown to be debatable by conflicting coordinate-Bench decisions on whether the relevant date is the 'date of grant' or the 'date of receipt' for computing interest. Relying on the principle in T.S. Balaram v. Volkart Brothers that a 'mistake apparent from record' must be patent and not susceptible to long-drawn argument on which two views may exist, the Tribunal concluded the matter was capable of divergent views and therefore fell outside the ambit of rectification under section 154. Consequently the rectification order was set aside. [Paras 11]

Rectification order dated 14/03/2017 set aside insofar as it charged further interest under section 234D; grounds 1.1 and 1.2 allowed.

Scope of rectification - academic rendering of related grounds - Grounds challenging the quantum and period of interest (grounds 2.1 to 2.5) were rendered academic by the setting aside of the rectification and therefore dismissed. - HELD THAT: - Because the Tribunal set aside the rectification order that had imposed the additional interest, all connected grounds contesting the period and computation of interest under section 234D (as raised in grounds 2.1-2.5) became academic. The Tribunal therefore did not adjudicate those substantive contentions on their merits. [Paras 12]

Grounds 2.1 to 2.5 dismissed as academic.

Claims not arising from rectification order - liberty to raise issues in assessment proceedings - Issues concerning short grant of credit for taxes and short grant of interest under section 244A (grounds 3 and 4) and the contention on merger of orders (ground 5) do not arise from the rectification order and are therefore dismissed as infructuous, with liberty to pursue them in the pending assessment proceedings. - HELD THAT: - The Tribunal observed that the present appeal was confined to the rectification under section 154 on the short levy of interest. Since grounds 3 and 4 relate to matters not emanating from that rectification order but from the original assessment order, they are not maintainable in the present proceedings. The assessee was accorded liberty to press those contentions in the separate proceedings pending against the assessment order. [Paras 13]

Grounds 3.1, 3.2, 4.1 to 4.3 and 5 dismissed as infructuous, with liberty to raise them in the assessment proceedings.

Final Conclusion: Appeal partly allowed: the rectification order dated 14/03/2017 insofar as it charged additional interest under section 234D is set aside; related challenges to period/quantum of interest are rendered academic and dismissed; claims not arising from the rectification are dismissed as infructuous but the assessee has liberty to pursue them in the pending assessment proceedings.

Allowability of business expenditure under section 37(1) - arm's length price in transfer pricing adjustments - exclusive jurisdiction of the Assessing Officer to determine business expenditure - commercial expediency as test for deductible business expenditure - functional characterisation and consistency in benchmarking for transfer pricing - distinction between royalty for licensed rights and project specific engineering services

Allowability of business expenditure under section 37(1) - arm's length price in transfer pricing adjustments - exclusive jurisdiction of the Assessing Officer to determine business expenditure - distinction between royalty for licensed rights and project specific engineering services - commercial expediency as test for deductible business expenditure - functional characterisation and consistency in benchmarking for transfer pricing - Whether the transfer pricing addition of Rs. 1,89,53,444/- in respect of intra group engineering and administrative support services was justified, or whether the expenditure was incurred for the purposes of business and therefore allowable. - HELD THAT: - The Tribunal held that the impugned group charges related to invoices raised by the Associated Enterprise for engineering and administrative support services actually availed by the assessee during the relevant year and were incurred for the purposes of the assessee's business. The invoices and accompanying details (including names of employees and man hours and the stated OTO/OTC nature of work) supported that significant engineering assistance was rendered at the tender (OTO) stage and during project execution (OTC), distinct from the rights and standard disclosures covered by the Licence Agreement. The Licence Agreement itself expressly treated certain technical assistance as payable in addition to royalty, demonstrating that project specific engineering services were separate from licensed rights. The Tribunal accepted the assessee's explanation that, as a relatively new EPC entrant, it commercially required specialised AE support to remain competitive, and that the payments were commercially expedient. The assessee's segmental benchmarking and consistency in characterisation as an EPC contractor in subsequent years further supported the arm's length nature of the charges. The Tribunal also observed that whether services were rendered or received is not a matter for the TPO to decide insofar as allowability under section 37(1) is concerned, and that sufficient material existed on record for the Tribunal to decide the issue rather than remit. On the material and in light of commercial expediency and functional analysis, the impugned transfer pricing adjustment was not called for and was to be deleted. [Paras 4, 6, 7, 8]

The addition of Rs. 1,89,53,444/- in respect of intra group engineering and administrative support services is deleted; the expenditure is held to have been incurred for the purposes of business and the transfer pricing adjustment is rejected.

Final Conclusion: The assessee's appeal is allowed for AY 2007-08; the Tribunal directs deletion of the transfer pricing addition of Rs. 1,89,53,444/- and modification of the assessment accordingly.

Use of customs valuation data for transfer pricing benchmarking - aggregation of positive and negative comparable margins / consideration of entire set of transactions - scope of rectification under section 154 is limited and does not permit re interpretation of law - second proviso to section 92C(2) ( 5% tolerance) and its temporal applicability - remand for de novo adjudication

Use of customs valuation data for transfer pricing benchmarking - Benchmarking of assessee's international purchase transactions by using customs valuation data. - HELD THAT: - The Tribunal upheld the CIT(A)'s direction to the TPO/AO to benchmark the assessee's purchase of fuel oil/HSD by reference to customs valuation data. The CIT(A) relied on precedent of the Chennai Bench (Coastal Energy Pvt. Ltd.) which treated customs authorities' valuations as made by scientifically formulated methods and internationally accepted protocols for arriving at fair import values. Having considered that reasoning, the Tribunal found no infirmity in the CIT(A)'s approach and rejected the Revenue's challenge to the use of customs data for benchmarking. [Paras 7]

Revenue's ground on disallowing use of customs valuation for benchmarking is rejected and the CIT(A)'s direction is sustained.

Aggregation of positive and negative comparable margins / consideration of entire set of transactions - scope of rectification under section 154 is limited and does not permit re interpretation of law - Whether the TPO could, by way of rectification under section 154, withdraw aggregation of transactions which produced negative differences when aggregation had earlier been allowed. - HELD THAT: - The Tribunal agreed with the CIT(A) that the TPO's attempt in the rectification order to disallow aggregation of negative values (which had been allowed in the original transfer pricing order) went beyond the limited scope of section 154. The question involved interpretation of law and was a debatable issue; therefore the rectification could not be used to revisit that interpretation. On that basis the Tribunal directed that the entire set of transactions be considered as was done in the original impugned order. [Paras 6, 8]

Revenue's ground challenging aggregation and the rectification is rejected; the CIT(A)'s direction to consider the entire set of transactions is sustained.

Second proviso to section 92C(2) ( 5% tolerance) and its temporal applicability - remand for de novo adjudication - Allowance of adjustment for credit period (and reliance on purported acceptance of such adjustment in AY 2013-14) in computing arm's length price for AY 2012-13. - HELD THAT: - The Tribunal observed that the CIT(A) granted benefit of credit period adjustment relying on the contention that the TPO had accepted a similar claim in AY 2013 14. The Revenue disputed that fact and contended no such acceptance or adjustment had been made in AY 2013 14 (variation being within 5% tolerance). The Tribunal found that the CIT(A) had not properly examined the competing contentions nor called for a remand report, and that the matter required fresh adjudication. Consequently, in the interests of justice the Tribunal restored the issue to the file of the AO/TPO for de novo consideration in accordance with law after giving the assessee an opportunity of being heard. [Paras 5, 9]

Ground on credit period adjustment is restored to the AO/TPO for fresh adjudication; allowed for statistical purpose.

Final Conclusion: The Revenue's appeal is partly allowed for statistical purposes: the Tribunal sustained the CIT(A)'s directions to benchmark by reference to customs valuation and to consider the entire set of transactions (thereby rejecting the rectification to disallow aggregation), but restored the credit period adjustment issue to the AO/TPO for de novo adjudication.

Transfer pricing comparability - Application of Safe Harbour Rules for comparability - Export-to-total-sales quantitative filter for comparables - On-site versus off-shore operations comparability - Deduction under section 35(2AB) - Revenue v. capital expenditure on product development and testing

Application of Safe Harbour Rules for comparability - Transfer pricing comparability - Whether the lower authorities could characterize selected comparables as KPO/software companies by relying on definitions in the Safe Harbour Rules. - HELD THAT: - The Tribunal found that the Safe Harbour Rules became applicable from 18.09.2013 and expressed serious doubt about applying their definitions retroactively for selecting comparables. The lower authorities erred in classifying certain comparables as KPOs solely by reference to the Safe Harbour Rules. Consequently, the matter of comparability of those selected entities is remitted to the Assessing Officer/TPO for fresh examination without reliance on the Safe Harbour Rules' definitions; the remand is directed for re examination of comparability on merits. [Paras 16]

Remanded to the Assessing Officer/TPO to re-examine comparability of the impugned comparables without relying on Safe Harbour Rules.

Export-to-total-sales quantitative filter for comparables - On-site versus off-shore operations comparability - Transfer pricing comparability - Whether exclusion of Onward Technologies Ltd. and Cades Digitech Pvt. Ltd. from the comparable set was justified. - HELD THAT: - The Tribunal held that the 75% export-to-total-sales quantitative filter is an appropriate filter and accordingly upheld exclusion of Onward Technologies Ltd. from the comparable set. As to Cades Digitech Pvt. Ltd., the finding that it was engaged in on site operations (and thus not comparable with the assessee's off shore business model) was uncontroverted; a company primarily engaged in on site operations is not comparable with an assessee operating off shore. On both counts the lower authorities' exclusions were sustained. [Paras 17]

Exclusion of Onward Technologies Ltd. and Cades Digitech Pvt. Ltd. from the comparable set upheld.

Deduction under section 35(2AB) - Whether weighted deduction under section 35(2AB) could be allowed in respect of R&D expenditure incurred outside India. - HELD THAT: - Following a Coordinate Bench decision in the assessee's earlier assessment year, the Tribunal held that expenditure incurred outside India on R&D facilities which are neither of the assessee nor approved by the prescribed authority cannot qualify for weighted deduction under section 35(2AB). The lower authorities' disallowance of the overseas R&D expenditure was therefore upheld in line with that precedent. [Paras 19]

Disallowance of the overseas in house R&D expenditure for purposes of section 35(2AB) upheld.

Revenue v. capital expenditure on product development and testing - Whether the product development/testing expenses are capital in nature or are revenue expenses. - HELD THAT: - Applying the Tribunal's earlier decision in the assessee's own case and relevant principles, the Tribunal found that the testing and validation expenses were incurred for upgrading existing products and did not result in creation of a new asset or a new product; therefore they are revenue in nature. The Tribunal directed that these expenses be allowed as revenue expenditure (with the Assessing Officer to allow accordingly). [Paras 20, 21]

Product development/testing expenses held to be revenue expenditure and allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal remanded the comparability examination of certain entities to the Assessing Officer/TPO without reliance on Safe Harbour Rules, upheld exclusion of Onward Technologies Ltd. and Cades Digitech Pvt. Ltd. from the comparable set, sustained the disallowance of overseas R&D expenditure under section 35(2AB), and held the product development/testing expenses to be revenue in nature and allowed.

Deductibility of government subsidy from actual cost / written down value (Explanation 10 to Section 43(1)) - Disallowance of expenditure attributable to exempt income (Section 14A read with Rule 8D(2)(ii) & (iii)) - Arm's Length Price of fee for corporate guarantee - Specified Domestic Transactions - benchmarking transfer of captive power by internal Comparable Uncontrolled Price (internal CUP)

Deductibility of government subsidy from actual cost / written down value (Explanation 10 to Section 43(1)) - Whether capital subsidy received by the assessee was required to be reduced from the actual cost/WDV of the block of assets under Explanation 10 to Section 43(1) - HELD THAT: - The Tribunal accepted and applied the earlier coordinate-bench decisions in the assessee's own case holding that where the scheme does not specify that the subsidy is to be used to meet the cost of specific fixed assets, the subsidy-though quantified with reference to a percentage of fixed capital cost-does not thereby become a payment directly or indirectly meeting the actual cost of the asset. Following the reasoning in the earlier ITAT orders and the Supreme Court authority referred therein, the AO's action of reducing the subsidy from actual cost / WDV was held to be unjustified in law and the disallowance/deemed excess depreciation was deleted. [Paras 10, 12]

Assessee entitled to not reduce the subsidy from actual cost/WDV; revenue's adjustment deleted.

Disallowance of expenditure attributable to exempt income (Section 14A read with Rule 8D(2)(ii) & (iii)) - Validity of disallowance under Section 14A read with Rule 8D(2)(ii) & (iii) as made by the AO/TPO - HELD THAT: - The Tribunal followed its coordinate-bench findings in the assessee's own case that, for computing the Rule 8D disallowance, the AO must consider only investments yielding exempt income (excluding strategic investments) when adopting average investment values, and that where overall non-interest-bearing funds are sufficient to cover the investments in question a presumption arises that own funds financed the investments. Applying those principles and the earlier decisions, the Tribunal declined Revenue's challenge to the CIT(A)'s deletions and directions and upheld disposal in favour of the assessee. [Paras 10, 12]

Disallowance under Section 14A/Rule 8D as invoked by revenue rejected; matter disposed in assessee's favour following coordinate-bench directions.

Arm's Length Price of fee for corporate guarantee - Whether the TPO/AO rightly determined ALP of guarantee fee at 2-3% or whether a 0.5% (or similar lower) rate is appropriate - HELD THAT: - Relying on the Tribunal's earlier decisions in the assessee's own case and other precedents, the Bench held that the higher rate adopted by the TPO/AO could not be sustained. Considering internal comparables and prior findings that 0.5% (and evidence of payments at similar or lower rates to banks) is an appropriate benchmark in facts identical to the assessee's case, the Tribunal directed recomputation of ALP at 0.5% and rejected Revenue's contentions. [Paras 10, 12]

ALP for corporate guarantee to be computed at 0.5%; revenue's upward adjustments deleted/modified accordingly.

Specified Domestic Transactions - benchmarking transfer of captive power by internal Comparable Uncontrolled Price (internal CUP) - Whether the TPO's benchmarking of transfer of captive-generated power (to non-eligible units) by reference to rates applicable to sales to distribution licensees was justified, or whether the internal CUP (rate at which non-eligible units purchased power from the State Board) is the appropriate benchmark - HELD THAT: - The Tribunal adopted the coordinate-bench reasoning distinguishing the Calcutta High Court decision relied upon by Revenue, noting that in West Bengal open access and sale to third parties is available and that statutory tariff controls complicate the notion of an 'open market' under Section 80IA(8). Applying the principle that where appropriate internal comparables exist the tariff rates at which the non-eligible units procured power are a proper benchmark, the Tribunal found the TPO's methodology and downward adjustment unjustified and directed deletion of the transfer-pricing adjustment. [Paras 10, 12]

Transfer-pricing adjustment for specified domestic transactions relating to transfer of power deleted; internal CUP adopted as appropriate benchmark.

Final Conclusion: Applying and adopting the coordinate-bench decisions rendered in the assessee's own case for preceding years, the Tribunal dismissed the revenue appeals for AYs 2014-15 and 2015-16, upheld the CIT(A)'s findings in favour of the assessee on subsidy treatment, Section 14A/Rule 8D issues, ALP of corporate guarantees (benchmarked at 0.5%), and specified domestic transactions for transfer of captive power; the assessee's cross-objections were not pressed and are dismissed.

Exemption under section 11 - business income incidental to the objects of the trust - maintenance of separate books of account - pharmacy as an integral part of hospital - section 11(4A) twin conditions

Pharmacy as an integral part of hospital - section 11(4A) twin conditions - maintenance of separate books of account - exemption under section 11 - Whether income from the pharmacy attached to the hospital is business income disentitling it to exemption under section 11 by reason of non-maintenance of separate books of account, or whether it is incidental/integral to the hospital and eligible for exemption. - HELD THAT: - The Tribunal applied the twin-condition test in section 11(4A) and recorded that there is no dispute the pharmacy is incidental to and an integral part of the hospital and medical college run by the trust. The only contested limb was maintenance of separate books. The assessee produced separate ledger accounts and a stock register for the pharmacy from which a trading account could be drawn. Relying on the decision of the Chennai Bench in M/s. Franciscan Sisters of St. Joseph Society and on a coordinate bench decision in Karnataka Chinmaya Trust, the Tribunal held that where a pharmacy is an integral and necessary component of a hospital, its receipts form part of the collections of the hospital and cannot be treated as an independent business merely because separate accounting entries are maintained for internal control. On the facts, the incidental sales to outside public are negligible for characterisation purposes and the maintenance of distinct ledger accounts (along with books maintained for the hospital) suffices to meet the purpose of section 11(4A). Consequently, the pharmacy receipts are eligible for exemption under section 11 and the addition made by the Assessing Officer is unsustainable. [Paras 10, 11, 13, 15, 16]

Income from the pharmacy attached to the hospital is incidental to and an integral part of the hospital activity; the ledger accounts maintained are sufficient for the purposes of section 11(4A) and the pharmacy income is eligible for exemption under section 11; the addition is deleted.

Final Conclusion: The Tribunal, following precedent, allows the appeal and holds that pharmacy receipts of a pharmacy integral to the hospital are eligible for exemption under section 11 as the activity is incidental to the trust's objects and the accounting maintained suffices for the requirement of section 11(4A).

Deduction under section 54F - entitlement to exemption determined by who funded the acquisition - cost of acquisition includes additions, alterations and interior expenditure incurred to make the house habitable - effect of joint registration where one party alone furnishes the purchase consideration

Deduction under section 54F - entitlement to exemption determined by who funded the acquisition - effect of joint registration where one party alone furnishes the purchase consideration - Assessee entitled to deduction under section 54F in respect of the amount actually invested by her notwithstanding that the purchase deed was in the joint names of the assessee and her husband. - HELD THAT: - The Tribunal examined the fact that although the plot was registered in the joint names of the assessee and her husband, the assessee in fact furnished the funds for acquisition, having reimbursed earlier advances by the husband. Reliance is placed on binding jurisdictional authority that deduction should not be denied merely because the name of husband appears in the purchase document where the entire purchase consideration has flowed from the assessee. The statutory incentive under section 54F is to encourage investment in residential property and therefore the exemption is to be given to the person who actually invested the money. The Tribunal held that the Assessing Officer and the Commissioner of Income Tax (Appeals) erred in treating the assessee as entitled only to 50% of the benefit on account of the joint registration when the evidential position shows the assessee funded the acquisition. [Paras 17, 18, 19]

Deduction under section 54F granted to the assessee in respect of the amount she actually invested in the new house property.

Cost of acquisition includes additions, alterations and interior expenditure incurred to make the house habitable - deduction under section 54F - Expenditure on interiors, renovation and furnishing incurred after registration of the plot is includible in the cost of acquisition for computing deduction under section 54F. - HELD THAT: - The assessee had claimed a total cost of acquisition which included amounts for interiors, renovation and other post-registration expenditures. While the assessee conceded an inability to substantiate a portion of the claimed expenses, the Tribunal noted that expenses on additions, alterations and improvements to render the new asset habitable are properly includible in the cost of acquisition for the purpose of section 54F. The Commissioner (Appeals) was set aside insofar as he excluded post-registration expenditure, as this view conflicted with the binding decision of the jurisdictional High Court. The Tribunal therefore directed that deduction under section 54F be computed on the reduced but substantiated cost of acquisition of Rs.1,55,32,895 as agreed by the assessee during remand. [Paras 20, 21, 22]

Cost of acquisition for section 54F to include the substantiated post-registration expenditures; deduction to be computed on Rs.1,55,32,895 and directed to Assessing Officer for computation.

Final Conclusion: The assessee's appeal is allowed: she is entitled to deduction under section 54F in respect of the amount she actually invested, including substantiated post-registration interior and improvement expenditure, and the deduction is to be computed on the cost of acquisition of Rs.1,55,32,895; the revenue's appeal is dismissed.

Reopening of assessment under section 147 - capital asset - municipality / notified area and population test under section 2(14)(iii)(a) - exemption under section 10(37) - treatment of compensation for built structures as capital gains - admission of additional evidence obtained by statutory reference (NRSC report) - treatment of agricultural income and burden of proof

Reopening of assessment under section 147 - Validity of reopening the assessment for AY 2007-08 - HELD THAT: - The Tribunal examined whether the Assessing Officer had prima facie material to form a belief that income chargeable to tax had escaped assessment. Applying the settled standard that sufficiency or correctness of material is not to be tested at the reasons stage, the Bench found that information from the Special Land Acquisition Officer about payment of compensation and the fact that the assessee had not shown capital gains in the return constituted prima facie material. Reliance on precedents recognising a limited judicial role at reopening stage was noted. The Tribunal therefore found no infirmity in the reopening. [Paras 79]

Reopening under section 147/148 was valid and the ground challenging reopening is dismissed.

Capital asset - municipality / notified area and population test under section 2(14)(iii)(a) - exemption under section 10(37) - Whether the acquired land is a 'capital asset' under section 2(14) and whether the assessee is entitled to exemption under section 10(37) - HELD THAT: - The Tribunal analysed (a) whether Hazira Notified Area is a municipality or deemed municipality for the population test under section 2(14)(iii)(a), and (b) whether the land was agricultural and used for agriculture for the two years preceding transfer (condition for section 10(37)). It held that an industrial area notified under section 16 of the Gujarat Industrial Development Act does not ipso facto become a municipality; the statutory 'deeming' in the Municipalities Act is a limited fiction for the purposes of that Act and does not convert an industrial township into a municipality for all purposes. On the facts and record (including awards and revenue records), the Tribunal found the land to be agricultural and used for agricultural purposes, and that the Hazira Notified Area did not satisfy the municipal/population characterisation required to treat the land as a capital asset. Having so held, the Tribunal also accepted that the conditions of section 10(37) were met (compulsory acquisition, agricultural use for the requisite period and other statutory requirements). The NRSC remote-sensing material was considered not to be conclusive on agriculture use because of disclaimers and lack of opportunity to the assessee. [Paras 72, 73, 74, 75, 77]

Land is not a 'capital asset' as Hazira Notified Area is not a municipality/deemed municipality for the purposes of section 2(14)(iii)(a); the land is agricultural and the assessee is entitled to exemption under section 10(37); appeal succeeds on this core issue.

Treatment of compensation for built structures as capital gains - Tax treatment of the component of compensation attributable to pucca structures / constructed property and quantum of allowable cost - HELD THAT: - The Assessing Officer had taxed a component of the compensation as 'income from other sources' while the CIT(A) treated it as capital gains and allowed a notional deduction of 50% as cost of acquisition for lack of supporting particulars. The Tribunal held that compensation for constructed property is to be treated as arising from a capital asset and assessable under the head 'capital gains' and not 'other sources'. Given absence of evidence on actual cost of acquisition or improvement, the Tribunal considered the estimate made by CIT(A) and increased the notional cost allowance to 60% of the disputed component as a fairer estimate in the facts of the case, directing reassessment accordingly. [Paras 80]

Component earlier treated as 'other sources' to be assessed as capital gains; AO directed to allow cost of acquisition at 60% of the disputed amount.

Treatment of agricultural income and burden of proof - Whether agricultural income of Rs.5,000 shown by the assessee could be treated as unexplained cash credit - HELD THAT: - The Tribunal accepted the assessee's evidence (revenue records, Form 7/12 and explanations) that the income arose from agricultural activities carried out on the land and that the assessee/family were not earlier required to file returns because of low or exempt agricultural income. Given the finding that the land was agricultural and used as such, the Tribunal held there was no basis to treat the declared agricultural receipt as unexplained credit under section 68. [Paras 81]

Addition of Rs.5,000 as unexplained cash credit is deleted and agricultural income is accepted.

Admission of additional evidence obtained by statutory reference (NRSC report) - Admissibility of additional evidence - NRSC satellite imagery/report - HELD THAT: - The Revenue applied to place on record the NRSC report produced earlier to the CIT(A) under section 250(4). The Tribunal considered Rule 29 limits but took a pragmatic view because the CIT(A) had relied on NRSC material in a number of related appeals and uniform adjudication was necessary. The application for admission of additional evidence was allowed and the NRSC documents were taken on record for appreciation, although the Tribunal observed limitations and disclaimers in the NRSC report affecting its conclusiveness. [Paras 62]

Application to admit NRSC additional evidence is allowed and the documents are taken on record for appreciation.

Final Conclusion: The appeal for AY 2007-08 is partly allowed. The Tribunal held the reopening valid, but ruled that the Hazira Notified Area is not a municipality for the purposes of section 2(14)(iii)(a), found the land to be agricultural and eligible for exemption under section 10(37), directed reclassification of the disputed built-structure compensation as capital gains with cost allowed at 60%, admitted the NRSC material for consideration, and deleted the addition treating declared agricultural income as unexplained cash credit.

Statement recorded under section 132(4) - incriminating material discovered during search - extrapolation of income based on seized material - scope of assessment under section 153A - retraction of confession and its evidentiary value - corroborative evidence requirement for additions after search - set-off of additional disclosed income against unexplained expenditure

Statement recorded under section 132(4) - extrapolation of income based on seized material - incriminating material discovered during search - Addition for alleged suppressed professional receipts for multiple assessment years cannot be sustained solely on the basis of the statement recorded under section 132(4) and extrapolation from documents seized for a short period. - HELD THAT: - The Tribunal found that the only specific seized material relating to suppression concerned a bill book and patient register for the short period 11-09-2016 to 07-11-2016 and that the assessee had retracted the recorded statement explaining the discrepancy as arising from contemporaneous billing practices and payments to outside doctors. The authorities below had applied an across-the-years extrapolation at a flat rate (25%) based on that short-period material and the recorded statement. The Tribunal held that, in assessments completed under section 153A, additions must be founded on incriminating material discovered in the search or other corroborative evidence and that a statement under section 132(4), especially one later retracted, cannot by itself justify extrapolated additions for earlier years where no corroborative material was found. Applying these principles and taking into account the assessee's additional disclosures (including PMGKY declaration), the Tribunal deleted the additions made for the assessment years in question and applied this finding mutatis mutandis to the other consolidated appeals. [Paras 11, 12, 17]

Additions for suppressed receipts confirmed by lower authorities on the basis of the seized short-period documents and the statement under section 132(4) are deleted for the relevant assessment years.

Set-off of additional disclosed income against unexplained expenditure - scope of assessment under section 153A - Where the assessee has disclosed additional income in response to notice under section 153A (including disclosure under PMGKY) and that disclosed income suffices to explain the expenditure/investment, the expenditure need not be separately added as unexplained. - HELD THAT: - The Tribunal accepted that the assessee had disclosed additional receipts in returns filed under section 153A and had also made a separate PMGKY declaration covering cash found at search. The Tribunal held that income and its utilisation cannot be taxed twice; where the disclosed additional income (accepted in assessment) is sufficient to account for the expenditure or investment in the same year, separate additions for that expenditure are not sustainable. Applying this principle the Tribunal allowed deletion of additions relating to purchase of an air conditioner, refrigerator and construction expenditure, and allowed set-off/adjustment as appropriate. [Paras 11, 14, 19, 20, 21]

Additions for the specific expenditures/investments which were explainable from the additional disclosed income (and related disclosures) are deleted and appropriate set-off is allowed.

Corroborative evidence requirement for additions after search - retraction of confession and its evidentiary value - A loose paper (order/estimate slip) seized during search, without the actual asset or evidence of payment, does not, by itself, justify treating the purported transaction as an unexplained investment. - HELD THAT: - The Tribunal considered a seized jewellery order/estimate slip which the AO and CIT(A) treated as proof of investment. The assessee contended the slip was only an order that did not materialise and no jewellery was found. The Tribunal observed there was no seized asset, no payment evidence and no details of payment terms on the paper; consequently the slip alone could not sustain an addition under section 69C. In absence of corroborative material showing actual acquisition or payment, the addition was deleted. [Paras 18]

Addition made on the basis of the loose jewellery slip is deleted.

Scope of assessment under section 153A - corroborative evidence requirement for additions after search - Credits in the original books or capital account that are not shown to be supported by incriminating material cannot be treated as unexplained additions in assessments completed under section 153A. - HELD THAT: - On the question of an unexplained capital credit (Rs.75,000) and other similar entries, the Tribunal examined the original and revised capital accounts and concluded that the credit was already reflected in the original account filed with the original return. As no incriminating material relating to that credit was found in search and the assessment under section 153A is confined to search-related undisclosed income, the addition could not be sustained. The Tribunal therefore deleted the addition pertaining to the capital credit. [Paras 15]

Addition on account of the capital credit is deleted for lack of incriminating material and because the credit appears in the original return's capital account.

Final Conclusion: The Tribunal allowed the assessee's appeals. It held that additions based solely on a statement recorded under section 132(4) and on extrapolation from short-period seized documents, without corroborative incriminating material for the earlier years, are unsustainable; specific additions founded on loose papers or unexplained credits were deleted; and expenditures/investments shown to be explainable from additional disclosed income (including PMGKY disclosure) were not subjected to separate additions.

Validity of reassessment notice issued under section 148 read with section 147 where return was belatedly filed under section 139(4) - time-limit for issuing notice under section 143(2) reckoned from end of the year in which return is furnished - treatment of unexplained investment and burden to prove source under the unexplained investment doctrine - admissibility of additional evidence before first appellate authority under Rule 46A - probative value of official land records (Form 7/12, Form 8A, hakka patra) and gram panchayat certificate as evidence of agricultural income

Validity of reassessment notice issued under section 148 read with section 147 where return was belatedly filed under section 139(4) - time-limit for issuing notice under section 143(2) reckoned from end of the year in which return is furnished - Assessment framed under section 147 read with section 144 was valid and the notice under section 148 was rightly issued. - HELD THAT: - The assessee had filed a belated return under section 139(4) on 31 March 2013. The period for issuing notice under section 143(2) is to be reckoned from the end of the year in which the return was furnished; accordingly the time-limit for issuing notice under section 143(2) expired on 30 September 2013. The Assessing Officer did not issue notice within that period and instead issued notice under section 148 on 13 February 2014. The Tribunal held that issuance of notice under section 148 r.w.s. 149 within the statutory period available for reassessment was in accordance with law and therefore the technical objection to the validity of reassessment was rejected. [Paras 6]

Objection to reassessment on the ground that notice under section 148 was improper is dismissed; reassessment is valid.

Treatment of unexplained investment and burden to prove source under the unexplained investment doctrine - admissibility of additional evidence before first appellate authority under Rule 46A - probative value of official land records (Form 7/12, Form 8A, hakka patra) and gram panchayat certificate as evidence of agricultural income - Addition under section 69 in respect of investment in agricultural land was deleted because the assessee's documentary evidence (land records and gram panchayat certificate) was sufficient and rejection by lower authorities without verification was unsustainable. - HELD THAT: - The Assessing Officer made additions treating investments as unexplained under section 69 because the assessee failed, in the AO's view, to prove the source of funds. Before the first appellate authority the assessee produced official land records (Form 7/12, Form 8A, hakka patra) and a gram panchayat certificate certifying annual agricultural income of family members, asserting that family savings financed the purchase. The AO's remand report and the CIT(A) rejected these documents as afterthoughts and as insufficient in the absence of sales bills, expense details, confirmations and mode of payment. The Tribunal observed that the land records and the gram panchayat certificate are documents issued by statutory/local authorities and cannot be discarded on ipse dixit without carrying out verification or producing contrary material. The Tribunal further noted that the CIT(A) had called for a remand report and thereby admitted some additional evidence, and it was impermissible to accept certain documents while rejecting others in piecemeal fashion without cogent reasons or enquiries. Given the failure of revenue to undertake necessary verification and to produce countervailing evidence, the Tribunal held the rejection of the documents unsustainable and directed deletion of the addition made under section 69. [Paras 14]

Addition under section 69 confirmed by lower authorities is set aside; AO directed to delete the addition.

Final Conclusion: Reassessment proceedings under section 148/147 are valid in view of the belated return and statutory time-limits; on merits the Tribunal allowed the appeal in part by setting aside the addition under section 69, holding that the official land records and gram panchayat certificate could not be rejected without verification and directing deletion of the addition.

Remand and post-decisional hearing - continuance of anti-dumping duty under the second proviso to section 9A(5) - imposition of anti-dumping duty under the first proviso to section 9A(5) - validity of notifications extending or imposing anti-dumping duty - effect of hiatus or gap in levy on continuation of duty - application of dumping-margin limitation in sunset review

Remand and post-decisional hearing - validity of notifications extending or imposing anti-dumping duty - Whether the Tribunal's remand for post-decisional hearing impliedly quashed the original notification dated 26.07.2010 and required the Central Government to re-issue a fresh notification after the designated authority's confirmation on remand. - HELD THAT: - The Tribunal remanded the matter for post-decisional hearing because the officer who conducted the public hearing was not the same officer who recorded the final findings. The Tribunal expressly left the earlier notification in place and provided that only if the designated authority made modifications to the final findings would the Government have to amend the original notification. The designated authority on remand confirmed its earlier findings and expressly held no change to the Government notification was warranted. Consequently, there was no necessity for a fresh notification and the original notification dated 26.07.2010 continued to operate until its stated expiry. [Paras 18, 19, 20]

Remand did not ipso facto quash the 26.07.2010 notification; since the designated authority confirmed earlier findings on remand, no fresh notification was required and the original notification remained in force.

Continuance of anti-dumping duty under the second proviso to section 9A(5) - effect of hiatus or gap in levy on continuation of duty - validity of notifications extending or imposing anti-dumping duty - Whether the Central Government's notification dated 06.08.2015 purporting to continue the anti-dumping duty for one year under the second proviso to section 9A(5) was valid when issued after the earlier notification had expired. - HELD THAT: - The second proviso to section 9A(5) is an enabling provision permitting the Government to continue duty pending the outcome of a review initiated before expiry of the five-year period, but the extension must be effected while the principal notification is still in force. Precedent (Kumho Petrochemicals and Forech India) establishes that an extension under the second proviso cannot be issued after the principal notification has lapsed; otherwise the extension would be retrospective and without legal authority. Applying that principle, the notification dated 06.08.2015 was held to be non-est as it sought to continue a levy after the principal period had expired, thereby creating an unlawful continuation. [Paras 21, 22, 23, 24, 25]

Notification dated 06.08.2015 is non-est in law and could not validly continue the anti-dumping duty beyond 25.07.2015 under the second proviso.

Imposition of anti-dumping duty under the first proviso to section 9A(5) - effect of hiatus or gap in levy on continuation of duty - validity of notifications extending or imposing anti-dumping duty - Whether the Central Government's notification dated 08.08.2016, issued pursuant to the designated authority's final findings dated 08.07.2016 (sunset review) and imposing anti-dumping duty for five years, was valid despite the interregnum between lapse of earlier duty and issuance of that notification. - HELD THAT: - The first proviso to section 9A(5) permits the Government, after review, to extend the period of duty for a further five years commencing from the date of order of extension; there is no requirement that such a notification be issued during the lifetime of the earlier notification. The Supreme Court in Kumho Petrochemicals held that extensions under the first proviso (post-review imposition of duty) are not constrained by the temporal limitation applicable to the second proviso; a vacuum may exist between the expiry of a prior levy and a fresh notification but that does not invalidate a later valid exercise of power under the first proviso. Applying these principles, the Tribunal's earlier decision upholding the 08.08.2016 notification was noted and the 08.08.2016 imposition of five-year duty was held valid. [Paras 26, 29, 31, 32, 35]

Notification dated 08.08.2016 imposing anti-dumping duty for five years pursuant to the sunset review was valid despite any interim hiatus; the first proviso to section 9A(5) permits such imposition after completion of review.

Application of dumping-margin limitation in sunset review - imposition of anti-dumping duty under the first proviso to section 9A(5) - Whether, in a sunset review resulting in continuation of duty, the anti-dumping duty imposed must be limited to the dumping margin determined under section 9A(1). - HELD THAT: - Sunset review is a likelihood determination where current levels of dumping during the investigation period may be minimal or non-existent due to the continuance of duty. Precedent of the Tribunal (Thai Acrylic Fibre; Borax Morarji) establishes that the constraint in section 9A(1) that duty shall not exceed the dumping margin has no practical application to continuation of duty under section 9A(5). When the Government extends duty after a sunset review on the basis of likelihood of recurrence of dumping and injury, it may extend the period without modifying the rate even if the immediate dumping margin is not demonstrably positive. [Paras 37, 38, 39]

The limitation in section 9A(1) regarding duty not exceeding the dumping margin does not constrain continuance of duty under section 9A(5) in a sunset review; the designated authority may recommend continuation without reducing the rate to the contemporaneous dumping margin.

Final Conclusion: The appeal is dismissed. The Tribunal held that the remand did not nullify the original notification where the designated authority confirmed its findings on remand; the Central Government's one year extension notification dated 06.08.2015 under the second proviso was non-est; the subsequent five year notification dated 08.08.2016 issued after completion of a sunset review under the first proviso was valid despite any interim hiatus; and the dumping margin cap in section 9A(1) does not constrain continuance of duty under a sunset review.

Validity of departmental document bearing an erroneous DIN - mandatory pre-show cause consultation under departmental master circular - binding effect of departmental circular on the department and its officers - consequences of non-compliance with mandatory departmental procedure-setting aside of show cause notice and right to re-initiate with consultation

Validity of departmental document bearing an erroneous DIN - Effect of an inadvertent extra digit in the DIN appearing on audit notes and whether that vitiates the documents or renders them void for want of DIN. - HELD THAT: - The Court examined the audit notes (Ext.P1 and Ext.P2) and found that the documents do contain a DIN, albeit with an additional digit added inadvertently. The presence of the DIN on the documents could not be disputed and the petitioner did not persist with the contention that absence of DIN rendered the documents without authority. The Court held that the inadvertent addition of an extra digit does not ipso facto invalidate the documents or make them null and void for want of DIN. [Paras 5]

The objection based on absence of DIN is rejected; the erroneous extra digit does not invalidate the audit notes.

Mandatory pre-show cause consultation under departmental master circular - binding effect of departmental circular on the department and its officers - consequences of non-compliance with mandatory departmental procedure-setting aside of show cause notice and right to re-initiate with consultation - Whether issuance of the show cause notice without prior pre-show cause consultation mandated by Master Circular No.1053/02/2017 dated 10.03.2017 (with effect from 21.12.2015) renders the show cause notice illegal and the appropriate relief. - HELD THAT: - The Court construed paragraph 5 of the Master Circular and observed that pre-show cause consultation by the adjudicating authority with the assessee in cases involving demands above the stated threshold was made mandatory by the Board and aimed at trade facilitation and voluntary compliance. The Court reiterated the settled principle that departmental circulars are binding on the department and its officers, even though they may not bind assessees or courts, and therefore the requirement in the circular must be followed by the department. Having regard to the respondents' admission that no such preshow consultation preceded the issuance of Ext.P7, the Court found the issuance of the show cause notice without following the mandatory consultation to be arbitrary and contrary to the circular. In consequence, the show cause notice was set aside, but the Court granted liberty to the department to commence proceedings afresh beginning with the preshow consultation. The Court further provided that if such fresh proceedings are initiated within 60 days from receipt of the judgment copy, limitation shall not be a bar to initiation of those proceedings. [Paras 6, 7, 8, 9]

Ext.P7 show cause notice is set aside for failure to follow the mandatory pre-show cause consultation; respondents may re-initiate proceedings commencing with the preshow consultation, and if done within 60 days limitation will not apply.

Final Conclusion: Writ petition allowed: audit notes are not vitiated by the inadvertent extra digit in the DIN, but the show cause notice issued without the mandatory pre-show cause consultation under the Master Circular is quashed; respondents are permitted to initiate fresh proceedings beginning with the prescribed preshow consultation, with limitation protected if action is taken within 60 days of receipt of this judgment.

Principles of natural justice - opportunity of hearing before adjudication - section 33A of the Central Excise Act, 1944 as applied to the Finance Act, 1994 - remand for fresh adjudication after notice

Principles of natural justice - opportunity of hearing before adjudication - Adjudication proceeded without awaiting or affording the noticee an opportunity to reply or to be heard, contrary to principles of natural justice. - HELD THAT: - The Tribunal found that the adjudicating authority proceeded to determine tax liability and impose interest and penalties despite the noticee not having filed a response to the show cause notice and without affording a hearing. The authority relied on service by speed post and recorded absence of a written request for personal hearing, yet proceeded to decide the matter under the statutory power invoked. The Tribunal held that such peremptory adjudication, foreclosing the noticee's opportunity to reply or be heard, was unjustified; the pace and finality of the impugned order were contrary to fair and judicious disposal and demonstrated an inappropriate haste inconsistent with the requirements of natural justice. The Tribunal rejected reliance on the cited precedents to validate the impugned approach on the facts before it, observing that the relied decisions arose from different statutory contexts or materially different facts and therefore did not sustain the adjudicating authority's course. [Paras 3, 5, 6]

Impugned adjudication without giving the noticee an opportunity to reply or be heard was contrary to principles of natural justice and cannot stand.

Section 33A of the Central Excise Act, 1944 as applied to the Finance Act, 1994 - remand for fresh adjudication after notice - Whether the matter should be set aside and remitted for fresh adjudication after affording the appellant notice and opportunity to participate in the adjudication process. - HELD THAT: - Given the defect in the impugned order arising from lack of opportunity to reply or be heard, the Tribunal exercised its remedial power to set aside the order and remand the matter to the original authority. The remand requires the original authority to place the appellant on notice of intent to complete the adjudication process and to proceed thereafter after affording a fair opportunity to respond and be heard. The Tribunal did not adjudicate the merits of the tax liability, interest or penalties on record but directed fresh adjudication consistent with principles of fair procedure and statutory mandate. [Paras 7]

Impugned order set aside and matter remanded to the original authority for fresh adjudication after serving notice and affording the appellant an opportunity to reply and be heard.

Final Conclusion: The impugned order was quashed for violation of principles of natural justice; the matter is remitted to the original authority for fresh adjudication after giving the appellant notice and an opportunity to participate in the adjudication process.

Business Support Services - Association of Persons - Joint venture - Principal-to-principal transaction - Revenue sharing arrangement - Consideration / quid pro quo for taxable service - CBEC Circulars on movie exhibition

Business Support Services - Revenue sharing arrangement - Consideration / quid pro quo for taxable service - Whether the exhibitor's activity of screening films under revenue-sharing licences constitutes a taxable 'Business Support Service'. - HELD THAT: - The Tribunal examined the licence agreements and noted that the exhibitor (the appellant) receives screening rights and pays a share of box-office receipts to distributors; the distributors do not pay the exhibitor any consideration for a service. A revenue sharing arrangement alone does not establish a service relationship unless there is a service provider-service recipient relationship with a quid pro quo. Prior Tribunal decisions dealing with substantially similar agreements held that exhibition by an exhibitor under a revenue share licence is an independent activity and not a support service rendered to the distributor. Applying those decisions and the tests for taxable service, the Court held that no Business Support Service is rendered by the appellant to the distributors/producers. [Paras 11, 15, 16, 17, 22]

The activity of screening films under the agreements in question does not attract service tax as Business Support Services.

Association of Persons - Joint venture - Principal-to-principal transaction - CBEC Circulars on movie exhibition - Whether the arrangements give rise to a distinct Association of Persons (joint venture) so as to render transactions taxable, and whether the CBEC circulars support the Department's case. - HELD THAT: - The Tribunal considered the tests for joint venture/Association of Persons and relied on the Supreme Court's decision in Faqir Chand Gulati and the Tribunal's decision in Mormugao Port Trust that where parties come together in a revenue sharing enterprise with common enterprise characteristics, contributions are for the venture and not services rendered to the venture; consequently no principal-client service relationship exists. The CBEC Circular dated 23.02.2009 was construed as supporting the position that mere exhibition is not a Business Support Service; the later Circular dated 13.12.2011 could not be relied upon to sustain demands for periods prior to its issue and in any event did not assist the Department on the facts. The Tribunal's earlier decision in Inox Leisure Ltd. was affirmed by the Supreme Court, which declined to interfere. [Paras 18, 20, 21, 22, 24]

The arrangements do not result in a taxable Association of Persons for the purpose of levying service tax under BSS, and the Department's reliance on the later circular and characterization as a new person does not sustain the demand.

Final Conclusion: The order confirming service tax demand dated 30.10.2018 is set aside; on the facts and in view of precedent and CBEC guidance the exhibition arrangements under revenue sharing licences do not attract service tax as Business Support Services for the tax periods in dispute, and the appeal is allowed.

Export of services - place of provision of service - Rule 6A of the Service Tax Rules, 1994 - Rule 5 of the CENVAT Credit Rules, 2004 - model wise treatment of onsite and offshore services - deduction of non export turnover from total turnover - interest on erroneous refund under Section 11AA

Export of services - Rule 6A of the Service Tax Rules, 1994 - model wise treatment of onsite and offshore services - Onsite services provided under Model I through overseas subsidiaries/branches are export of services and their value is includable in the appellant's export turnover under Rule 6A/Rule 5. - HELD THAT: - The Tribunal accepted the Commissioner (Appeal)'s conclusion that in Model I there is a valid contract between the appellant and the overseas client for the entire services (onsite and offshore), no contract or invoice exists between the subsidiary and the overseas client in Model I, and the appellant received payment in convertible foreign exchange. Applying the statutory definition of service and the requirements of Rule 6A, the Tribunal held that the appellant is the provider for the whole contract value and therefore satisfies all six conditions of Rule 6A. Consequently the onsite component rendered under Model I is treated as exported by the appellant and its value is includable in 'Export Turnover' for refund calculation under Rule 5 of the CCR, 2004. [Paras 23]

Model I onsite services are exports by the appellant and are includable in export turnover.

Export of services - place of provision of service - Rule 5 of the CENVAT Credit Rules, 2004 - deduction of non export turnover from total turnover - Onsite services under Model II are not exports and the value of such onsite services must be excluded from the appellant's export turnover and deducted from total turnover for refund computation. - HELD THAT: - For Model II the Tribunal agreed with the Commissioner (Appeal) that the primary contract is between the foreign subsidiary and the overseas client; the subsidiary provides the onsite component from a non taxable territory, raises invoices on and receives payment from the foreign client, and the appellant only provides offshore services to its subsidiary under a back to back arrangement. The factual matrix and sample agreements demonstrate the subsidiary is the main contractor and the appellant a subcontractor for offshore work. Therefore the onsite component under Model II is neither provided from India nor received by the appellant from the overseas client and cannot be treated as export; its value must be deducted from both export turnover and total turnover in calculating admissible refund under Rule 5. [Paras 25]

Model II onsite services are not exports and their value must be excluded from export turnover and deducted from total turnover for refund purposes.

Interest on erroneous refund under Section 11AA - The question of interest liability under Section 11AA on amounts recovered as erroneous refunds is remanded to the original authority for fresh consideration. - HELD THAT: - The Tribunal observed that the earlier erroneous refunds (for periods prior to the 2010 amendments) had been allowed and in some measure were placed back in the appellants' CENVAT credit accounts and could have been utilizable for domestic service tax liabilities. The Tribunal held that the original authority's demand of interest under Section 11AA did not record a view on whether the amounts, if not repaid, would have been available in CENVAT credit and used; accordingly the matter of imposition/quantification of interest requires reconsideration by the original authority. The Tribunal remanded this limited issue for fresh decision within three months. [Paras 4, 5]

Interest liability on the erroneous refunds is remitted to the original authority for reconsideration and fresh decision within three months.

Final Conclusion: Revenue appeals against the Commissioner (Appeal)'s modification of refund orders are dismissed; the Tribunal upholds that onsite services under Model I are exportable and includable in export turnover, and that onsite services under Model II are not exports and must be excluded/deducted in refund computations. The limited issue of interest under Section 11AA on earlier erroneous refunds is remanded to the original authority for fresh consideration.

Refund of excess service tax and cess - interest under Section 11BB of the Central Excise Act, 1944 - scope of remand / remand directions - reopening assessment beyond remand - failure to grant personal hearing - pre-show-cause consultation under CBEC master circular - no estoppel against statute - verifiability of tax payments by challans / PLA

Scope of remand / remand directions - reopening assessment beyond remand - Adjudicating authority exceeded the scope of the remand by reopening the entire assessment instead of confining itself to the limited issues remanded by the Commissioner (Appeals-I). - HELD THAT: - The Commissioner (Appeals-I) remanded only two aspects for fresh consideration: (i) the reason for non-sanction of refund of the cess amount and (ii) the question of interest on the refund already sanctioned. Despite this, the adjudicating authority issued a show-cause notice and passed a fresh Order-in-Original that reopened assessment and made findings of short payment of tax, thereby producing effectively two conflicting orders. There was no occasion to reassess matters beyond the limited remit of the remand, and the adjudicating authority has not furnished an acceptable justification for widening the scope. [Paras 10]

The adjudicating authority impermissibly went beyond the remand; the Order-in-Original dated 30.06.2020 cannot stand insofar as it reopens the entire assessment.

Pre-show-cause consultation under CBEC master circular - failure to grant personal hearing - Failure to issue pre-show-cause consultation and denial of personal hearing vitiated the impugned proceedings insofar as procedural infractions are concerned. - HELD THAT: - It is undisputed that no consultation notice was served prior to issuance of the show-cause notice, contrary to the master circular dated 10.03.2017, and that no personal hearing was accorded before passing the impugned assessment order. Both procedural requirements were not complied with and were not contested by the Revenue before the Court. These procedural infractions undermine the validity of the impugned order. [Paras 6, 9]

Proceedings suffered from procedural infirmities because consultation and hearing requirements were not observed.

Refund of excess service tax and cess - interest under Section 11BB of the Central Excise Act, 1944 - Petitioner was entitled to (a) sanction of the excess refund actually paid on account of service tax and cess, and (b) statutory interest under Section 11BB for the period specified. - HELD THAT: - The earlier Order-in-Original had sanctioned a refund of Rs.2,32,09,285 and left an amount (cess/tax) unrefunded. The Commissioner (Appeals-I) remanded only the correctness of the withheld cess and the interest claim. Given that the amounts and periods are not in dispute and the adjudicating authority failed to justify non-refund, the Court directed payment of the excess amount actually paid (after correcting a minor calculation error) together with interest. The Court held that statutory interest under Section 11BB is triggered once the statutory period lapses and that a prior communication by the petitioner purportedly renouncing interest does not bar the statutory right to interest. [Paras 11, 12, 14]

Respondent directed to (i) pay interest on the sanctioned refund from the date specified, (ii) remit the excess amount found to be paid, and (iii) pay interest on that excess amount from the same date, within two weeks.

No estoppel against statute - interest under Section 11BB of the Central Excise Act, 1944 - Petitioner's earlier communication disclaiming claim to interest did not estop it from claiming statutory interest under Section 11BB. - HELD THAT: - The Court held that a voluntary communication by the petitioner that it would not claim interest cannot operate to defeat a statutory right to interest. Once the statutory conditions for payment of interest are met, the Revenue is obliged to pay interest; there can be no estoppel against a statute. [Paras 12]

The communication renouncing interest did not preclude payment of statutory interest; interest must be paid as directed.

Verifiability of tax payments by challans / PLA - The Revenue's plea that the petitioner failed to produce the Personal Ledger Account (PLA) did not preclude refund because the petitioner produced challans which made the claimed payments verifiable. - HELD THAT: - The Court found the Revenue's contention untenable in view of the challans produced by the petitioner showing deposits of tax and cess. The amounts claimed were thus verifiable by reference to those challans and could not be rejected merely on the ground that a PLA copy was not filed. [Paras 13]

The absence of a PLA copy did not justify denying the refund where payment challans were available and verifiable.

Final Conclusion: Writ petition allowed. The Court held that the adjudicating authority exceeded the scope of remand and committed procedural lapses by not issuing the prescribed pre-show-cause consultation and by denying personal hearing; directed payment of interest on the earlier sanctioned refund and remittance of the excess amount actually paid (with interest) within two weeks, and otherwise disposed of the petition in the terms set out.

Refund of accumulated Cenvat credit under Rule 5 - Inability to utilize accumulated credit as condition for refund - Non-applicability of input-output norms / SION to restrict refund - Effect of clearance of waste/scrap on payment of duty on refund claim - Notification prescribing safeguards for refund claims

Refund of accumulated Cenvat credit under Rule 5 - Inability to utilize accumulated credit as condition for refund - Notification prescribing safeguards for refund claims - Claim for refund under Rule 5 of the Cenvat Credit Rules cannot be denied merely because the waste/scrap generated exceeded prescribed input-output norms. - HELD THAT: - The Tribunal examined Rule 5 and the Notification framed thereunder and held that the only conditions for allowance of refund are that accumulated credit exists in the books on account of inputs used in goods exported under bond/LUT and that the manufacturer is not in a position to utilize such credit. The adjudicating authority's denial based on excess waste beyond SION was held incorrect because Rule 5 does not contemplate reduction of refund on the basis of input-output norms. Where excess waste has been cleared into DTA on payment of duty, that duty payment addresses the credit attributable to such waste; excess generation of waste therefore cannot be a ground to withhold the refund of accumulated credit. The Tribunal relied on earlier decisions reaching the same conclusion and set aside the impugned denial of refund. [Paras 4]

Refund claim under Rule 5 allowed; denial on account of excess waste generation beyond SION quashed.

Non-applicability of input-output norms / SION to restrict refund - Effect of clearance of waste/scrap on payment of duty on refund claim - Fixation of the date from which benefit of refund was allowed - the Commissioner (Appeals) date of 24.04.2007 was sustained and Revenue's challenge to limit the date to notifications dated 06.07.2007 was rejected. - HELD THAT: - Revenue's appeals were confined to the contention that the benefit granted by Commissioner (Appeals) should have been given only from the date of the notifications (06.07.2007). The Tribunal found the Revenue's challenge unsustainable in view of its conclusion that the refund could not be withheld on account of excess waste and that the Commissioner (Appeals) rightly allowed benefit with effect from 24.04.2007 (the date of application to the Development Commissioner for fixation of norms). Consequently the Revenue's appeal on fixation of date was dismissed. [Paras 2, 5]

Commissioner (Appeals) order allowing benefit w.e.f. 24.04.2007 upheld; Revenue appeals dismissed.

Final Conclusion: The appeals by the assessee are allowed and the Commissioner (Appeals) order permitting refund under Rule 5 is sustained; Revenue appeals (challenging the date from which benefit was allowed) are dismissed.

Marketability as decisive test for dutiability - dutiability of manufactured goods - manufacture within meaning of Central Excise Act - burden of proof on the Department to establish marketability - captively consumed / intermediate goods - exemption under Notification No.67/95-C.E. - CENVAT Rule 6 obligations - inadmissibility of after the fact evidence to establish marketability at relevant time - limitation and extended period for suppression

Marketability as decisive test for dutiability - burden of proof on the Department to establish marketability - inadmissibility of after the fact evidence to establish marketability at relevant time - captively consumed / intermediate goods - Impugned goods (Long Residue and Refinery Gases) are not marketable and therefore not liable to excise duty for the periods covered by the show cause notices. - HELD THAT: - The Tribunal accepted the Commissioner's approach that excisability requires (i) goods specified in the Tariff, (ii) manufacture, and (iii) marketability. Classification and manufacture of the residues were undisputed; the determinative question was marketability. The Department had not pleaded or adduced evidence of marketability in any of the ten show cause notices, and the burden to establish marketability lies on the Department. Inquiries made by the Commissioner with jurisdictional Customs and Excise officers showed no known removals or imports of the residues, and, in the absence of evidence led by the Department, those enquiries supported the conclusion that the goods were not marketable. Material subsequently placed by the Department - predominantly internet printouts and later dated documents - did not establish that the products were known and capable of being bought and sold at the relevant times; such after the fact web material is inadmissible to prove marketability for earlier periods. Marketability is a question of fact to be determined at the relevant time and hypothetical usability or emergent technologies does not suffice. As the Department failed to discharge its onus to prove marketability, the gravamen of the demand (levy of excise on the residues) could not be sustained, and the appeal based on levy was dismissed without examining the subsidiary questions on exemption under Notification No.67/95 or CENVAT compliance. [Paras 14, 15, 18, 19, 20]

Revenue failed to prove marketability of Long Residue and Refinery Gases for the periods in issue; appeal dismissed and demands set aside.

Final Conclusion: The revenue appeal is dismissed: having failed to establish marketability of the two refinery residues for the periods covered by the ten show cause notices, the levy of excise duty could not be sustained and the Commissioner's order dropping the proceedings is affirmed.

Deemed sale - situs of sale - transfer of right to use goods - taxable event - territorial jurisdiction to levy sales tax

Deemed sale - situs of sale - transfer of right to use goods - taxable event - territorial jurisdiction to levy sales tax - Whether Haryana could levy VAT on lease rentals where the lease agreements were entered into at Chandigarh and the goods were leased for use in Haryana. - HELD THAT: - The Court applied the principle laid down by the Apex Court in 20th Century Finance Corporation Ltd. (and reiterated in Great Eastern Shipping Company Ltd.) that the taxable event of a transfer of the right to use goods occurs at the place where the contract effecting that transfer is entered into, and not merely where the goods are located or used. Delivery or location of goods within a State is only one element in the chain of events and cannot, by itself, constitute the situs of sale for levy of tax if the contract transferring the right to use was entered into elsewhere. The Tribunal's conclusion that Haryana was the situs of sale because the leased goods were used in the State was a misreading of the cited precedent. Since it was conceded that the agreements were executed at Chandigarh, the principles in the cited decisions operate in favour of the assessee and preclude Haryana from levying tax on the transactions challenged in this appeal.

The levy of VAT by Haryana on the lease rentals for the assessment year 2004-05 is not sustainable because the contracts were entered into at Chandigarh; the Tribunal's order upholding the levy is set aside.

Final Conclusion: The appeal is allowed; the Tribunal's order dated 29.08.2017 in STA No.180 of 2009-2010 for assessment year 2004-05 is set aside.

Right to fair trial and right to adduce defence evidence under Section 243(2) CrPC - handwriting expert examination to rebut misuse of cheque - presumption under Section 139/118 of the Negotiable Instruments Act - effect of Section 20 of the Negotiable Instruments Act on inchoate stamped instruments

Right to fair trial and right to adduce defence evidence under Section 243(2) CrPC - handwriting expert examination to rebut misuse of cheque - presumption under Section 139/118 of the Negotiable Instruments Act - effect of Section 20 of the Negotiable Instruments Act on inchoate stamped instruments - Whether the Trial Court and the revisional Court erred in refusing to send the disputed cheque for examination by a handwriting expert and in thereby denying the accused a fair opportunity to rebut the presumption arising from admission of signature. - HELD THAT: - The High Court held that when the accused raises a bona fide contention that the cheque was misused or that the body of the cheque was filled by someone other than the signatory, an opportunity must ordinarily be granted to adduce evidence in rebuttal, including expert examination of the document. Reliance was placed on Kalyani Baskar and T. Nagappa which recognise that Section 243(2) CrPC entitles an accused, after entering defence, to seek processes for obtaining evidence unless the application is vexatious, for delay or irrelevant. Although Section 20 of the Negotiable Instruments Act and the presumptions under Sections 118/139 may confer a prima facie right on the holder and render immaterial who filled the body of a cheque in many cases, those provisions do not eliminate the accused's right to attempt to rebut the statutory presumption by obtaining expert evidence showing that the writings (including age of ink/writer) are different. The Court found that the judgments cited for refusing the application (notably Sampelly Satyanarayana Rao and Bir Singh) reiterate that a signed cheque may be completed by another person but do not address exclusion of handwriting examination; T. Nagappa lays down the more elaborate rule protecting an accused's right to such examination. Denying permission to obtain expert opinion where the accused has raised a plausible defence would unfairly shut out the defence at the threshold. Applying these principles to the record, the Court concluded that the Trial Court and revisional Court had acted illegally in refusing the application and that the accused must be permitted to examine a handwriting expert as a defence witness. [Paras 12, 13, 14, 15]

The orders of the Trial Court dated 26.05.2017 and the revisional order dated 09.08.2017 are quashed; the petitioner-accused is permitted to examine a handwriting expert as a defence witness and the Trial Court is directed to complete the exercise and conclude the trial within the specified timeframes.

Final Conclusion: The petition is allowed: the impugned orders rejecting reference of the disputed cheque to a handwriting expert are quashed; the accused shall examine the handwriting expert within four weeks and the Trial Court shall conclude the trial within eight weeks thereafter.